United States District Court, S.D. New York
May 7, 2004.
FERRO UNION, INC., Plaintiff
M/V TAMAMONTA, her engines, tackle, boilers, etc. in rem; and against LYKES LINES LIMITED, LLC, TAMAHINE SHIPPING HONG KONG LTD., TAMAPATCHAREE SHIPPING LTD., TAMAHINE INVESTMENTS LTD. and V. SHIPS (U.K.) LTD. in personas, Defendants
The opinion of the court was delivered by: VICTOR MARRERO, District Judge
DECISION AND ORDER
Primarily at issue in these cross-motions for summary judgment is
whether a consignee of goods can recover damages against a carrier
responsible for damaging the goods, where the consignee's only measure of
damages is its insurance award. Because the Second Circuit has already
answered this question in the negative, the Court grants the defendants'
motion for summary judgment and dismisses the case.
In October 2000, plaintiff Ferro Union, Inc. ("Ferro Union"), a Houston company, purchased over 2,000 metric tons of
steel pipes from a manufacturer in China for a price of over $1 million.
Ferro Union designated delivery to its affiliate in Puerto Rico, MacSteel
Service Centers USA ("MacSteel"). Ferro Union alleges that the pipes
departed China with a clean bill of lading (indicating no damage) but
arrived in Puerto Rico with rust damage.
Ferro Union's insurance company, Tokio Marine & Fire Insurance
Company, Ltd. ("Tokio"), hired a surveyor, Terence Noodle ("Noodle"), to
estimate the damage. Noodle concluded that the pipes were rusted, likely
from contact with seawater. Noodle requested that MacSteel segregate the
good pipes from the damaged pipes, so that he could determine the full
extent of the rust damage. MacSteel's product manager, Michael Davis
("Davis"), agreed. At some point later, Davis changed his mind, and told
Noodle that it would be too expensive to segregate the pipes.
Before Noodle's final report, Davis sought from Tokio an insurance
award representing at least 35 percent depreciation in the value of the
pipes. Noodle told Tokio apparently based upon Noodle's mere
preliminary observations that Davis's figure was too high. Tokio
ultimately agreed to pay Ferro Union an award representing a 25 percent
depreciation in the value of the pipes, in exchange for being subrogated
to Ferro Union's rights in connection with the loss.*fn2 Noodle's
final report states that the devaluation should not have exceeded 20
MacSteel integrated this particular shipment of pipes, including the
damaged pipes, with its regular inventory of pipes from other suppliers.
MacSteel resells pipes as is; it does not process the pipes in any way.
MacSteel has no invoices or other records to show whether, or to what
extent, the damaged pipes were sold at a discount.
Ferro Union seeks damages in an amount representing its insurance
proceeds, or, in the alternative, 20 percent devaluation (Noodle's
estimate) plus the survey fees. Defendants Tamahina Investments, Ltd.,
the vessel owner, V. Ships, Ltd., the vessel operator, and Lykes Lines
Limited, LLC, the carrier, (collectively, "Defendants") respond that
Ferro Union has not established a measure of damages with reasonable
certainty. Both sides move for summary judgment.
II. SUMMARY JUDGMENT STANDARD
The Court may grant summary judgment only "if the pleadings,
depositions, answers to interrogatories, and admissions on file, together
with the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a judgment as a matter of law."
Fed.R.Civ.P. 56(c). The Court must first look to the substantive law
of the action to determine which facts are material; "[o]nly disputes
over facts that might affect the outcome of the suit under the governing
law will properly preclude the entry of summary judgment." Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Even if the
parties dispute material facts, summary judgment will be granted unless
the dispute is "genuine," i.e., "there is sufficient evidence
favoring the nonmoving party for a jury to return a verdict for that
party." Id. at 249.
Where the moving party would bear the burden of persuasion at trial,
that party must first make a prima facie case by "support[ing]
its motion with credible evidence . . . that would entitle it to a
directed verdict if not controverted at trial." Celotex Corp. v.
Catrett, 477 U.S. 317, 331 (1986). Where the non-moving party would
bear the burden of persuasion at trial, the moving party can make its
prima facie case by either "submit[ting] affirmative evidence
that negates an essential element of the nonmoving party's claim" or
"demonstrat[ing] to the Court that the nonmoving party's evidence is
insufficient to establish an essential element" of the claim.
After such a prima facie showing, the non-moving party must respond with "specific facts showing that there is a genuine
issue for trial." Fed.R.Civ.P. 56(e). To this end, [t]he non-moving
party may not rely on mere conclusory allegations nor speculation, but
instead must offer some hard evidence showing that its version of the
events is not wholly fanciful." D'Amico v. City of New York,
132 F.3d 145, 149 (2d Cir. 1998). In other words, "[w]hen the moving
party has carried its burden under Rule 56(c), its opponent must do more
than simply show that there is some metaphysical doubt as to the material
facts." Matsushita Elec. Indus. Co., Ltd, v. Zenith Radio
Corp., 475 U.S. 574, 586 (1986).
Throughout this inquiry, the Court must view the evidence in the light
most favorable to the non-moving party and must draw all inferences in
favor of that party. See Hanson v. McCaw Cellular Communications,
Inc., 77 F.3d 663, 667 (2d Cir. 1996).
The parties agree that this case is governed by the Carriage of Goods
by Sea Act, 46 U.S.C. § 1300 et seq. ("COGSA"). The general
measure of damages against a carrier under COGSA "is the difference
between the fair market value of the goods at their destination in the
condition in which they should have arrived and the fair market value in
the condition in which they actually did arrive."
Kanematsu-Gosho Ltd. v. M/T Messiniaki Aigli, 814 F.2d 115, 118 (2d Cir.
1987). "In no event shall the carrier be liable for more than the amount
of damage actually sustained." 46 U.S.C. § 1304(5).
Defendants contend that Ferro Union's asserted measure of damages
its insurance proceeds is insufficient proof of its
actual loss. Defendants rely principally upon Wierton Steel Co. v.
Isbrandtsen-Moller Co., 126 F.2d 593 (2d Cir. 1942).
In Wierton Steel, over 40 percent of a shipment of tin was
damaged on a voyage from Baltimore to Hong Kong. The consignee, the Texas
Company, accepted the damaged goods only after its insurance company
agreed to pay about $10,000 to cover the damage. The Texas Company then
reconditioned the plates (at a cost of about $1,000), fashioned them into
five-gallon oil cans, and sold them full of oil. Although "the
reconditioning left the plates dull and imperfect," the Texas Company did
not put forth any evidence to suggest that it ultimately sold the oil
cans at anything below market price. Just as here, the insurance company
was the real party in interest as it sought to recover the full amount of
insurance proceeds paid to its insured, the consignee.*fn3
The Wierton Steel panel concluded that the plaintiff could recover only the reconditioning costs because it otherwise
had proved no actual loss:
[T]he [plaintiff] proved nothing about the Texas
Company's sales except that it would have been
impracticable to keep separate accounts for the
damaged cans and the undamaged. That we should not
insist upon if it had appeared for example that
any discount whatever had been claimed and allowed
upon the whole parcel and what that discount was.
But, considering the fact that 43% of all the five
gallon cans sold at Hong Kong were made out of
reconditioned plate, certainly it was not
unreasonable to ask that the [plaintiff]
which has the burden of proof and certainly had
better access to the evidence should show
that the Texas Company had been obliged to make an
allowance of some kind.
Id. at 594. The Court also rejected the notion that the
insurance company payment represented compensable damages: "The fact that
the underwriter agreed to pay the full amount claimed by the Texas
Company is not material; for all we know, he may have thought it worth
while to keep the good-will of an important customer." Id. at
The last-quoted portion of Wierton Steel squarely holds that
an injured plaintiff's insurance proceeds, without more, cannot form the
basis of an award of cargo damages against a common carrier. This Court
is bound by that holding of Wierton Steel, and its facts are
materially identical to the facts of this case.
Ferro Union cites four cases in its attempt to limit the holding of
Wierton Steel, but the Court finds that those cases are
consistent with Wierton Steel and not applicable to the facts here. First, in Thyssen, Inc. v. S.S. Fortune Star,
777 F.2d 57 (2d Cir. 1985), most of a shipment of steel pipe was damaged
by rust in transit from Korea to Puerto Rico. Just as here (and in
Wierton Steel), the real party in interest was the consignee's
insurer, who had reimbursed the consignee for an estimate of the loss.
The consignee produced invoices reflecting that it passed along the
insurance company's loss estimate to its ultimate customers, who
purchased the goods at a discount. The defendants took issue with the
fact that the district court awarded the plaintiff its full demand, even
though the consignee was unable to produce invoices corresponding to 49
of the 409 bundles in the shipment. The Fortune Star panel
upheld the district court's full award because it concluded that it was
not clearly erroneous to rely upon evidence pertaining to a "substantial
portion" of the consignee's resales as an estimate of the total losses.
Id. at 62.
Fortune Star is distinguishable because, in this case, Ferro
Union has not produced any invoices which would reflect the
fact that it actually sold any steel pipes at a discount. As in
Fortune Star, the Court here would likely be willing to indulge
Ferro Union in some assumptions to compensate for incomplete or
representative evidence. The Court cannot, however, indulge in
speculation about the market value or resale price of the damaged goods, absent any meaningful
evidence in that regard.
Second, in Cook Indus., Inc. v. Barge UM-308, 622 F.2d 851
(5th Cir. July 1980), the plaintiff's shipment of soybeans was damaged in
transit from Oklahoma to Louisiana, resulting in the soybeans being
downgraded to "sample grade." Id. The plaintiff ultimately
blended the sample grade soybeans with much larger quantities of higher
grade soybeans, and sold them at the original market price for higher
grade soybeans. The Fifth Circuit panel, distinguishing Wierton
Steel, noted that the plaintiff had suffered compensable
damages (beyond the blending costs) because, "if the [plaintiff] had
wanted to blend bad beans with good, he could have purchased sample grade
beans directly" at a lower price. Id. at 855. In other words,
because there was a discernable (and cheaper) market for sample grade
soybeans, the plaintiff suffered the loss in paying a higher price for
what ended up being lower grade soybeans. See id. ("The award
of blending costs alone, if such were awarded, would not compensate the
shipper for the potential savings, i.e., the loss realized by
[plaintiff] in using its [higher grade] beans as sample grade.").
Cook is distinguishable because, here, Ferro Union has not
quoted a discernable market price for rusted steel pipes, much less
provided a reasonably ascertainable estimate of the portion of the shipment which was actually rusted.
Finally, MacSteel Int'l USA Corp., v. M/V Ibn Abdoun,
218 F. Supp.2d 480, 484 (S.D.N.Y. 2002) and Thyssen, Inc. v. S/S
Eurounity, No. 89 Civ. 8477, 1993 WL 158511, at *5-*6 (S.D.N.Y. May
13, 1993), are easily distinguishable from the facts here because, in
those cases, the consignee of the damaged goods was awarded damages
corresponding to a price at which it actually sold the damaged
goods to a customer or customers.
Each of these four cases support the proposition that, under the
ordinary damages formulation, the market price of the goods as damaged
may be measured by either the actual sale price of the damaged goods, or
by a discernable market price for those goods as damaged.*fn4 More
importantly, none of those cases calls into question the holding of
Wierton Steel that an insurance payout, without more, is not a
suitable substitute for the ordinary "market value" rule as a measure of
actual losses. Although the Wierton Steel panel did not explain
the reasons compelling its rule with much detail, such a rule is
eminently sensible. If an insurance payout could substitute for more
accurate measures of actual damages, insurance companies would have less incentive to devote resources towards
obtaining more accurate measures of the actual losses of their insureds,
especially in cases where there is an easily identifiable liable party.
Defendants would be forced to rebut the insurance payout measure by
producing evidence as to the actual loss evidence which is
typically more accessible to the injured plaintiff thereby
shifting the burden of proof on an essential element of plaintiff's case,
the measure of damages. Cf. Wierton Steel, 126 F.2d at 594
(noting that the plaintiff "has the burden of proof and certainly had
better access to the evidence").
Ferro Union seeks, in the alternative, damages based upon a 20 percent
devaluation of the steel pipes. As with any other measure of contract
damages, under COGSA, a Court can award damages for defective cargo only
where the injured plaintiff can establish those damages "with reasonable
certainty." Restatement (Second) of Contracts § 352 (1981); see
also M. Golodetz Export Corp. v. S/S Lake Anja, 751 F.2d 1103, 1112
(2d Cir. 1985) ("The damage rule in admiralty cases generally does not
differ from ordinary contract rules."). The Court concludes that Ferro
Union's alternative measure of damages is too conjectural to be
Noodle's report merely states that Tokio's devaluation allowance to
Ferrio Union "should not have exceeded 20%" i.e., it does not even purport to set forth a
definite figure of the actual loss. (Noodle Decl. Ex. 3, at 7) The report
gives no explanation at all as to how Noodle arrived at that figure, in
any event. The narrative of the report suggests that Noodle's estimate
was, at best, an earnest conjecture. Noodle's report focuses on the
nature of the damage (rust damage from contact with sea water),
rather than the extent of the damage, because Noodle assumed
that MacSteel would segregate the damaged pipes from the good pipes.
MacSteel ultimately rejected that option as too costly, and as a result,
there is nothing in Noodle's report (or anywhere else in the record) to
indicate whether the damage affected a large or small portion of the
cargo. For instance, Davis apparently thought that up to half the pipes
were affected and initially wanted at least 35 percent devaluation from
Tokio. That estimate is in sharp contrast to Noodle's estimate of up to a
20 percent devaluation. This variance bolsters the Court's conclusion
that the estimates which pertained to a shipment of over 50,000
pipes were raw guesswork. Such guesswork is exactly the type of
speculation which will not defeat a motion for summary judgment.
See Fed.R.Civ.P. 56(e) (requiring "specific facts");
see also D'Amico, 132 F.3d at 149 (holding that "hard
evidence," not "speculation," is required to counter a moving party's
prima facie case for summary judgment).
The Court recognizes that it might have been impractical to determine
the damages with mathematical precision, but the law does not require
such a showing. See, e.g., American Federal Group, Ltd. v.
Rothenberg, 136 F.3d 897, 907-08 (2d Cir. 1998). Even recognizing
the perhaps prohibitively expensive issue of segregating the steel pipes,
Ferro Union failed to even show "that any discount whatever had been
claimed and allowed upon the whole parcel and what that discount was."
Wierton Steel, 126 F.2d at 594. As far as the Court can
discern, Ferro Union may have sold all of the steel at the same prices as
it would have sold the steel in absence of the rust. Cf. id.
(stating that it is "not unreasonable" to ask a plaintiff, "which has the
burden of proof and certainly had better access to the evidence," to show
that it was "obliged to make an allowance of some kind" because of the
damaged goods). The Court emphasizes that apparently neither MacSteel,
nor Ferro Union, nor Tokio attempted to discern the damages with
any measure of precision; hence, no recovery is available.
For the reasons stated, it is hereby
ORDERED that the motion of plaintiff Ferro Union, Inc., for
summary judgment is denied; it is further ORDERED that the motion of defendants Tamahina Investments,
Ltd., V. Ships, Ltd., and Lykes Lines Limited, LLC, for summary judgment
is granted, and the Clerk of Court is directed to enter judgment on their
behalf and dismiss this case.
The Clerk of Court is directed to close this case.