Cedar Petrochemicals, Inc. v. Dongbu Hannong Chemical Co., Ltd.

Filing 182

OPINION: Based on the above-mentioned findings of facts and conclusions of law, the Court concludes that Plaintiff has not shown by a preponderance ofthe evidence that the Phenol at issue was injured prior to crossing the rail of the Bow Flora. Havin g failed to make this showing, Plaintiff cannot establish that Defendant breached the parties' agreement. Accordingly, judgment is granted in favor of Defendant. The Clerk of the Court is directed to terminate this action. (Signed by Judge Alison J. Nathan on 10/21/2013) (cd)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

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UsgCSDNY
DOCUMENT
ELECTRONICALLY FILED
DOC#:

G

~~TE BLED. C1 2 1 2013

CEDAR PETROCHEMICALS, INC.,
Plaintiff,
06 Civ. 03972 (AJN)
-v-

OPINION
DONGBU HANNONG CHEMICAL CO., LTD.,
Defendant.

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ALISON J. NATHAN, District Judge:
Plaintiff Cedar Petrochemicals, Inc. ("Cedar"), brought this breach of contract action
against Defendant Dongbu Hannong Chemical Co., Ltd. ("Dongbu"), alleging that Dongbu had
delivered non-conforming liquid phenol, in violation of the parties' written and oral contracts
and in contravention of its obligations under the Convention on Contracts for the International
Sale of Goods, Apr. 11, 1980, S, Treaty Doc. No. 98-9 (1983), 19 LL.M. 671 (1980), reprinted
at 15 U.S.C. App. (1998) ("CISG" or the "Convention"). A nonjury trial was held in this action
on September 30, October 1, and October 2,2013.
Pursuant to this Court's procedures for nonjury trials, the parties submitted the direct
testimony of their witnesses by affidavit and their documentary evidence with the joint pretrial
order. The Court received direct examination declarations from seven Plaintiff witnesses:
Martin East ("East"), J.N.A. van de Giesen ("van de Giesen"), Fernando Irisarri Gonzalez
("Irisarri"), Salim Harfouche ("Harfouche"), John Minton ("Minton"), Charlene Silva ("Silva"),
and Cho Yong ("Yong"). Of these declarant witnesses, Minton testified as an expert witness and
East testified as both a fact and expert witness. The Court also received deposition designations
for two Plaintiff witnesses: Gry Berg-Nilsen ("Berg-Nilsen") and Stig Egeland ("Egeland").
Finally, the Court received a direct examination declaration from the single Defense witness,

Haolin Chu ("Chu"). Of these witnesses, only East, Irisarri, Harfouche, and Minton were crossexamined live at trial. This opinion represents the Court's findings of fact and conclusions of
law for purposes of Rule 52 of the Federal Rules of Civil Procedure. See Fed. R. Civ. P. 52. The
findings of fact appear principally in the "Findings of Fact" section, but also appear in the
remaining sections of the opinion.
In short, the parties' dispute relates to a 2005 maritime shipment of the liquid
petrochemical phenol. The phenol at issue ("the Phenol") was transported from its on-shore
storage tank in Yuso, Korea, to Defendant's ship, the Green Pioneer, which carried it to Ulsan
Anchorage, Korea. Once there, the Phenol was transferred from the Green Pioneer to Plaintiff's
ship, the Bow Flora, which carried it to port at Rotterdam, The Netherlands. On arrival at
Rotterdam, it was determined that the Phenol was damaged. The parties agree that, in order to
demonstrate liability, Plaintiff must prove by a preponderance of the evidence that the Phenol
was injured before it passed the rail of the Bow Flora. Plaintiff conceded that, for it to make the
requisite showing under the facts of this case, the Court must be persuaded by its experts' theory
regarding "seeding," which they argue explains the delay between the alleged injury to the
Phenol and the manifestation of the damage to the Phenol, i.e., its discoloration. On this factual
point, the Court was unpersuaded. Accordingly, judgment will be entered in favor of Defendant.

I.

FINDINGS OF FACT
After a protracted discovery period, all discovery in this matter closed on April 30, 2013.

The parties' Joint Proposed Pretrial Order ("JPTO"), proposed findings of fact and conclusions
of law, and other pretrial materials were submitted on July 17, 2013. The Court also received
amended proposed findings of fact and conclusions of law and post-trial briefing on October 9,
2013. Based on the evidence presented at trial, the facts stipulated to in the JPTO and the
2

Court's assessment of the credibility and demeanor of the witnesses and the inferences
reasonably to be drawn there from, the Court makes the following findings of facts. Cites to the
JPTO signify stipulated facts.
A.

The Parties and Jurisdiction

Cedar is a corporation engaged in the business of buying and selling liquid petrochemical
products, including phenol, and is organized and exists under and by virtue of the laws of the
State of New York, with its principal place of business in New York, New York. JPTO ~~ 1,2.
Dongbu is a corporation engaged in the business of manufacturing and selling petrochemical
products, and is organized and exists under and by virtue of the laws of Korea, with its principal
place of business in Seoul, Korea. JPTO ~~ 3, 4. Based on the parties' diversity of citizenship,
and with a statutorily sufficient amount in controversy, the Court has jurisdiction over this matter
under 28 U.S.c. § 1332. See also Cedar Petrochemicals, Inc. v. Dongbu Hannong Chern. Co.,

Ltd., No. 06 Civ. 3972 (LTS), 2011 WL 4494602, at *1 (S.D.N.Y. Sept. 28, 2011).

B.

Phenol

The liquid petrochemical at issue in this dispute is the polymer phenol (hydroxybenzene,
C 6H sOH). Pure phenol is a white, crystalline solid at room temperature, which liquefies at
around 41 DC. JPTO

~

11. In its liquid or "molten" form -- which is the form in which it is

generally transported -- pure phenol is a clear, colorless liquid. Phenol is susceptible to
discoloration in both its liquid and solid states. Phenol discoloration is measured using the
Hazen units ("HU") on the Platinum-Cobalt Scale ("Pt/Co Scale"). Silva Decl.
~

~

12; Yong Decl.

10; Exhibits 2-3. Commercially, phenol discoloration is problematic because most of the

applications for phenol, e.g., compact discs, airplane windows, and car optics, require the phenol
to be colorless, or under 10 HU. PX 68 App'x 4.3; Minton Decl.
3

~

19.

The universe of causes of color change in phenol is not defined, but it is accepted that
among such causes are manufacturing defects, contamination, and exposure to heat. JPTO

~

12,

l3; Tr. 300; DX FF. Neither party contends that there was a manufacturing defect in this case.
Phenol discoloration through contamination can occur as a result of the presence of impurities in
the phenol; "discoloration is promoted by the action of water, light, air, and catalysts, e.g., traces
of iron and copper." JPTO

~~

12, l3; DX FF. Liquid phenol may also discolor as a result of

exposure to heat, though there is some disagreement in the petrochemical industry and the
scientific community as to the precise temperature at which heat exposure can or will result in
such discoloration. Additionally, "[ w]hen stored as a solid in the original drum or in nickel,
glass-lined, or tanks lined with baked phenolic resin, phenol remains colorless for a number of
weeks," JPTO
~

~

14; DX FF, but "may acquire a yellow, pink, or brown discoloration." JPTO

15; DX FF.
To avoid discoloration, experts in the field recommend that phenol be transported and

stored in its liquid form. The generally recommended temperature ranges vary from 50°C to
60°C, JPTO ~~ 16, 17, 18, and Minton testified that "[i]n the petrochemical industry, phenol is
stored and shipped as a bulk liquid at temperatures ranging from 50°C C to 60°C." Minton Decl.
~

20. Here, however, the parties' agreement (discussed below) called for the Phenol to be

shipped at a temperature between 50°C and 55°C. Tr. 57-58; DX TT. On cross examination,
Minton claimed that storage at any point within this range would not generally cause
discoloration and that storage anywhere within the 50°C to 55°C range was equally acceptable.
Tr. 300-301. This testimony contradicted his prior testimony at his deposition, where he stated
both that phenol could only be "heat [ed] to 60°C for a very short time without a problem,"
Minton Decl. 84:19-21, and that "in general, the lower the temperature in the 50°C to 55°C range
4

the better." Id. at 86:21-22. Overall, the testimony established that phenol discoloration is
neither a well understood or fully established topic. Minton acknowledged that phenol color
change is generally "a very poorly understood subject," Tr. 299:S-8, both "by [himself] and
others," 299: 10-13, and that this is true "even with a great deal of research," Tr. 299:S-8. And
East acknowledged that "the cause of color degradation in Phenol has been a contentious issue
for over 100 years." Tr. 60:13-17.

C.

The Contract

Unless otherwise noted, the parties have stipulated to the following facts with regard to
the contract. In May 200S, a representative from Kumho -- a phenol manufacturer that arranges
sales via export agents, including Dongbu -- and a representative from Cedar's local agent in
Korea, H.V. Co., Ltd., met at a restaurant in Seoul. JPTO

~~

6, 7, 8. At that meeting, Kumho

proposed that Dongbu and Cedar be principal parties to a proposed sale of2,000 metric tons
("mt") of phenol. JPTO ~ 9. Dongbu agreed that it would enter into a contract with Cedar by
which it would se112,000 mt +/- S% ofliquid phenol conforming to Kumho's Standard
Guaranteed Sales Specifications ("Specs") delivered FOB Ulsan Anchorage, in exchange for
$9S0/mt. Shortly thereafter, on May 17, 200S, Cedar faxed to Dongbu Contract No. T2S0-P1OSOSNYC (the "Written Contract") which called for the purchase and sale of"2,000 MTS +/- S%
Seller's Option." This contract was drafted by Cedar, and signed and stamped by Dongbu.
JPTO

~~

20,21.

Among other things, the Written Contract provided: (l) that the agreement would be
governed by "Incoterms 2000 as amended to date," ("Incoterms"); (2) that "[the] agreement
[would be] subject to [Plaintiff's] standard terms and conditions," which were attached and
incorporated by reference; (3) that "[i]n the event ofa conflict between the terms ofth[e]
5

agreement and [Plaintiff s] standard terms and conditions, the terms of th[ e] agreement [would]
control;" and (4) that the "[fJollowing set[] fOlih the entire agreement of the parties." PX 5. In
addition, the Written Contract called for the purchase of "Pure Phenol as per attached Kumho's
Guaranteed Sales Specs," to be delivered "FOB Ulsan Anchorage, Korea." JPTO

~

19; PX 5.

As defined in "Incoterms," FOB, or "Free on Board," "means that the seller delivers when the
goods pass the ship's rail at the named port of shipment," which in turn "means that the buyer
has to bear all costs and risks ofloss or damage to the goods from that point." Cedar
Petrochemicals, Inc., 2011 WL 4494602, at *3.
The standard terms and conditions referred to in the Written Contract refer to Kumho's
standard "specification of phenol," which call for color at max 5 HU. PX 2,3; Yong Decl.

~

10.

At some point, after May 17,2005, the patiies' contract was amended to substitute the phenol
specifications fI'om a third-patiy, Ertisa. Yong Decl.

~

16; PX 13. Ertisa's product specifications

for phenol call for color at max 10 HU, PX 12; Yong Decl ~ 16, and were incorporated into the
letter of credit that Plaintiff procured on May 19, 2005. Yong Decl.

~

17, 18; PX 18.

Accordingly, for the Phenol to be on specification at the time of delivery -- FOB Ulsan
Anchorage, Korea -- the phenol had to be at or under 10 HU.

D.

Transfer, Sampling, and Inspection

In addition to the terms discussed above, the Written Contract contained an inspection
term, which stated that inspection was to be "[b]y mutually acceptable/independent surveyor
whose findings as to quantity/quality as per shore tank figures at load port are final and binding
on both parties." JPTO

~

22. The parties appointed internationally recognized independent

inspection companies SGS Korea Co., Ltd. ("SGS") and Global Surveyors & Inspectors Ltd.
("GSI") to monitor the quality of the Phenol in Korea. Silva Decl. 27; JPTO
6

~

18. Although the

individual who took the various samples for SGS cannot specifically recall any of the sampling
he performed with regard to the Phenol at issue, it was his practice to use new, clean sampling
bottles when sampling petrochemical cargos. JPTO ~~ 43, 44.
In summary form, the transportation of the Phenol was as follows. On or about May 20,
2005, the Phenol was loaded from the manufacturer's shoretanks onto a ship chartered by
Defendant, the Green Pioneer, in the port ofYosu. From there, the Phenol was shipped to Ulsan,
where it was transferred to Plaintiffs vessel, the Bow Flora, which carried the Phenol to its final
destination, Rotterdam. JPTO

~

33. As agreed upon, at various key points during the course of

the Phenol's transport, samples were pulled and tested or retained. JPTO ~ 33.
In May 2005, prior to loading the phenol onto the Green Pioneer, GSI tested one sample
from Yosu shoretanks FB-991 and FB-1993. JPTO

~

34. GSI determined that this sample was

on-specification for all parameters, including color at less than 5 HU. JPTO

~

35. SGS

confirmed these findings. JPTO ~ 36. GSI retained a composite sample of the Phenol from both
of the Yosu shoretanks. This sample, GSI 005946, was stored in GSI's Ulsan storage facility, in
a solid state at room temperature, in a clear, glass bottle. JPTO ~ 37.
After the shoretank testing, the Phenol was loaded into five tanks aboard the Green
Pioneer at Yosu. JPTO'138. Once the Phenol was transferred, SGS pulled and tested a
composite sample from the five tanks on the Green Pioneer. JPTO

~

39. That sample was also

on-specification for all parameters, including color at 3 HU. In addition to this sample, SGS and
GSI each pulled, but did not contemporaneously test, additional composite samples, GSI
0002387 and SGr 859048, which were transferred to and retained aboard the Bow Flora during
the voyage to Rotterdam. The samples aboard the Bow Flora were stored in a solid state, at
ambient temperature, in clear, glass bottles located in the ship's storage locker. JPTO
7

'I~

40,41.

SGS also pulled and retained an additional sample, SGS 534093, at its storage facility in Ulsan.
JPTO ~ 42.
On May 21, 2005, the Green Pioneer sailed from Yosu for Ulsan, where it arrived on
May 24, 2005. JPTO

~~

45, 46. That same day, the Phenol was transferred from Defendant's

ship, the Green Pioneer, to Tank 13 Center ("Tank 13C") aboard Plaintiff's vessel, the Bow
Flora. Transfer commenced at 11 :05 AM, but was stopped from 11 :08 AM until 11 :28 AM "due
to frozen of cargo line of coaster [sic]." JPTO ~ 47; PX 29. Transfer resumed at 11 :28 AM, but
was stopped again at 11:37 AM, after one foot of Phenol had been loaded into Tank 13C, JPTO ~
48., in order permit surveyors to obtain samples of the portion of the Phenol that had been
transferred (hereinafter, "first-foot" samples). JPTO

~

48. SGS tested one of these first-foot

samples and determined that it was on specification for all parameters, including color at 4 HU.
JPTO ~ 49. SGS pulled an additional first-foot sample, SGS 534095, which it retained at its
storage facility in Ulsan under the conditions described above. The crew of the Bow Flora also
pulled a first-foot sample, which it retained aboard the Bow Flora. JPTO

~

52. After the first-

foot samples were pulled, the remainder of the Phenol was transferred to the Bow Flora. JPTO ~
53.
Once the Phenol was fully loaded onto the Bow Flora, SGS Korea pulled and tested a
post-load running sample, which it determined to be on-specification for all parameters,
including color at 4 BU. JPTO ~ 54. The term "running sample" refers to a sample that is taken
by lowering an empty sample bottle into the phenol and then pulling it back up through the tank;
these samples are "supposed to represent the entire product in th[e] tank." Tr. 67:12-14. The
term composite sample refers to a propOliionate sample of multiple tanks. SGS also pulled and
retained a sample, SGS 534096, which was stored in its facility in Ulsan under the conditions
8

described above. JPTO

~

57. Finally, SGS pulled an additional post-load sample, SGS 859049,

as did the Bow Flora crew. These two samples, as with all of the samples retained aboard the
Bow Flora, were stored as described above. JPTO ~ 59. In sum, the results of the samples that
were contemporaneously tested prior to and after transfer to the Bow Flora (the
"Contemporaneous Tests") are as follows:
Table 1: Results of the Contemporaneous Tests
Sample
Pulled
05/20105
05/20105
05/24/05
05124105

Description
Yosu, Korea Shoretanks (Composite)
Green Pioneer After Loading (Composite)
Bow Flora First Foot After Loading
Bow Flora Full Tank After Loading

HUon
Test Date
Less than 5
3
4
4

JPTO '138. Although not specifically stipulated to, the parties agree that there is nothing with
regard to the contemporaneous tests that in any way calls into doubt the accuracy of the
measurements at the time they were taken, Tr. 496:5-10; PX 67 at 2. The Court finds that these
numbers are true and accurate descriptions of the color of the Phenol at the time the
contemporaneous samples were pulled and tested.
On May 24, 2005, after loading was completed at Ulsan, the Bow Flora sailed for
Plaintiffs intended destination pOli, Rotterdam, where it arrived on July 19,2005. JPTO ~~ 60,
61. Upon arrival, SGS surveyed the quality and quantity of the subject Phenol, and determined
that the Phenol was off-specification for color at greater than 500 HU. JPTO

~

64. Minton

described this HU number as "shockingly high." Tr. 303:20-22. Irisarri, the Senior Vice
President of CESP A Quimica, a family of companies to which Ertisa now belongs, noted that the
Phenol was so far off-specification that it could not be salvaged through the ordinary process he
would employ, "blending," whereby on- and off-specification Phenol are mixed to lower the

9

overall HU. Irissari Decl. ~ 2,3,4; Tr. 423:16-23; 432:19-2S. Ultimately, the Phenol was sold
to a company in India at a heavy loss. Tr. 389:12-16; PX 67.
Meanwhile, on July 20, 200S, Plaintiff notified Defendant that the Phenol had arrived offspecification, indicated that it held Defendant responsible, and noted that SGS would undeliake
further testing in Rotterdam. JPTO ~ 6S. On July 21, 200S, Defendant acknowledged Plaintiff's
claim, but denied fault and declined to witness the additional testing in Rotterdam. JPTO ~ 66.
On July 29, 200S, SGS conducted tests in Rotterdam (the "Rotterdam Tests"), of the
various samples that had been retained aboard the Bow Flora (the "retained samples"). As can
be seen in the table, below, each of the samples tested above specification, though no paliiculate
matter was found in any of the samples. JPTO ~ 69. The results of these tests are summarized
in SGS Witnessing RepOli 63099. JPTO ~~ 67,68; PX SS. All future references to Samples 1
through 9, e.g., Sample 7, will refer to the samples as they were numbered for purposes of the
Rotterdam Tests.

Table 2: Results of the Rotterdam Tests (July 29, 2005)
Sample
No.
1
2

3
4

5
6
7

8
9

Sample
Pulled
OSI24/0S
OSI24/0S
OSI2010S
OSI24/0S
OSI21/0S

Sample ID
Crew
Crew
GSI002387
GSlO02396
SGS 859048

OSI24/05
07120105
07/28/0S
07/28/0S

SGS 8S9049
SGS 38704
SGS 37722
SGS 35363

Description
Bow Flora Full Tank After Loading (Ulsan)
Bow Flora First Foot During Loading (Ulsan)
Green Pioneer Composite After Loading (Yosu)
Bow Flora Composite After Loading (Ulsan)
Green Pioneer Composite from Rmming Samples
Before Discharge (Ulsan)
Bow Flora Running Sample After Loading (Ulsan)
Bow Flora Before Discharge (Rotterdam)
Shore Tank 116 After Discharge (Rotterdam)
Shore Tank 312 After Discharge (Rotterdam)

HUon
Test Date
3S-40
60-70
40-S0
60-70
70-80
100-1S0

>SOO
>SOO
>SOO

On August 4, 200S, Plaintiff and Defendant agreed to jointly test the samples that SGS
and GSl had retained in Ulsan. JPTO

~

73. Pursuant to that agreement, on August 8, 2005,

representatives from both parties attended the joint analysis at the SGS laboratory in Ulsan.
10

JPTO 'J'J72, 74, 75. Also in attendance was a representative from Minton, Treharne & Davies
Ltd. ("MTD"), a firm which had been hired by Ertisa's insurance broker, Marsh Ltd. ("Marsh")
to investigate the cause of the discoloration. At the joint analysis, the parties agreed: (1) that all
samplesltags were sound and intact before testing; (2) on the test methods to be employed in
analyzing the retained samples; (3) on the results; and (4) on SOS's issuance of an Analytical
Report, dated August 8, 2005, which the pmiies executed the same day. JPTO 'J76. The test
results for the four samples that were tested at the joint analysis (the "Ulsan Tests") were as
follows, and all future references to Samples A through D, e.g., Sample C, will refer to the
samples as designated for purposes of the Ulsan Tests.

Table 3: Results of the Ulsan Tests (August 8, 2005)
Sample
No.
A
B
C
D

Sample
Pulled
05/24/05
05/24/05
05121/05
05/20105

Sample ID
SOS 534096
SOS 534095
SOS 534093
OSI005946

Description
Bow Flora Full Tank After Loading (Ulsan)
Bow Flora First Foot During Loading (Ulsan)
Oreen Pioneer Composite After Loading (Yosu)
Bow Flora Composite After Loading (Ulsan)

HUon
Test Date
10
20-30
30-50
3-5

JPTO 'J 77. The test results show that although the middle two samples, Samples Band C, were
off specification, both the shoretank sample and the Bow Flora after full-tank loading samples,
Samples A and B, were still on specification when tested in August. In addition, SOS' s
Analytical Report for the Ulsan Tests noted that the visual inspection of Sample C "founded
small particles [sic]," though this was the only retained sample in which particulate matter was
reported. JPTO 'J78.
For reference, the Court has recreated, below, a somewhat simplified version of
Plaintiff's Exhibit 80, which was admitted into evidence and which summarizes the overall
sampling that took place. PX 80. The left hand column shows the test type and the date(s) on
11

which those tests took place. The top row or rows, in bold, show the location and date on which
the various samples were drawn.
Table 4: Overall Test Results
'l.***·k
";''i~*'';''"i':

Shoretank
Yosu
(5/20/05)

Green Pioneer
Composite Composite
After
Before
Loading
Discharge
(5120/05)
(5/21105)
N/A
3

Contem~.

<5

Test
5/20-5/24
Rotterdam
Test
7129/2005

N//\

40-50
Sample 3

Ulsan Test
8/812005

3-5
Sample D

N/A

E.

Bow Flora
First
After
Foots
Loading
(5/24/05)
(5/24/05)

Rotterdam
Before and
After
Discharge
(7/21105)

4

4

N/A

70-80
Sample 5

60-70
Sample 2

35-40
Sample 1
60-70
Sample 4
100-150
Sample 6

>500
Samples 7,
8,9

30-50
Sample C

20-30
Sample B

10
Sample A

N/A

The Investigation

On July 21,2005, shortly after the Phenol arrived off-specification in Rotterdam, Marsh
hired MTD to investigate the cause of that discoloration. PX 68. MTD is a United Kingdom firm
that "speciali[zes] in the forensic investigation of incidents and claims." Minton Decl.

~

4.

MTD appointed East as the person who would conduct the "day to day conduct" of Marsh's
case, but stated that he was to do so under Minton's supervision. PX 68 at App'x 3.1; DX W.
During the course of the investigation, MTD provided Marsh with at least three reports:
(1) an email report from East to Marsh's representative, Robert Sparrow ("Sparrow"), dated

August 17,2005; (2) a final "Report of Martin East," dated June 23, 2009; and (3) a final
"Report of John Minton," dated February 2, 2010.
In addition to these reports, East had also conducted an initial inquiry and, on July 27,
12

2005, sent an email to Sparrow, noting "that such a large colour change may not be due to any
contamination or transit related event[,] but be due to what is a common cause of phenol
degradation, which is an instability in the material, through its manufacture." DX O. East
cabined this statement, though, adding, "[t]ime and analysis will tell on this one, but there are
many cases of [manufacturing defects] in the past." DX O.
In the August 17,2005, .. Email Report," East detailed the basic underlying facts,
including the results of the Rotterdam Tests and the Ulsan Tests, and discussed potential
explanations for those results and conclusions that could be drawn from them. PX 66. In this
report, unlike in his initial email to Sparrow, East concluded that because the retained sample
from the shoretanks in Y osu (Sample D) remained on specification in the Ulsan Tests, "the cargo
originally loaded out of the shore tank was not inherently colour unstable." PX 66 ~ 5.1. He
noted, instead, that the fact that the retained samples from the Green Pioneer were "found to be
off specification for colour, compared to a sample drawn by SGS and tested on specification at
the time of transshipment ... suggest[ed] that something may have been introduced into the
cargo whilst it was on board [the Green Pioneer], which promoted colour instability." PX 66 ~
5.2. On this, he added, the particles in Sample C "may have some relevance." PX 66 ~ 5.2.
Although Minton was supposed to be supervising East in the creation of this report, and claimed
at trial to have been in constant contact with East during the relevant period, the testimony on
cross-examination established that Minton had been on vacation during that period. Tr. 287: 19299:8.
Between sending this .. Email Report" to Sparrow and issuing his final report in June
2009, East also prepared an internal report, in June 2006, in response to a request from Ertisa
regarding a suit Ertisa was bringing against SGS and Heuoung A Shipping, the owner of the
13

Green Pioneer. DX I; DX K; PX 67; Tr. 201-203. In this internal report, East for the first time
mentioned the concept of "seeding," stating that "[o]nce the colour change has started, a
'seeding' action will tend to depress the colour further." PX 67 at 2; Tr. 209. East went on to
state that the Phenol was "probably in apparent good order and condition" after loading to the
Green Pioneer, "some 'seeding' of the colour had started by this time which led to retained
samples being off colour some while later." PX 67 at 2-3. East also posited a number of
potential causes for the injury, stating that seeding was "most probably caused by overheating on
the Green Pioneer," but that "it may have been due additional overheating on the Bow Flora,"
and that the possibility of contamination could not be "entirely discounted." PX 673-4; Tr. 20709. This report was never supplied to Ertisa, and that suit was eventually dropped. Tr. 206-07.
In the June 23, 2009, final "Report of Martin East," East provided Marsh with a more indepth discussion of the background of the investigation, the nature of phenol and phenol
discoloration, and a summary of his conclusions. PX 68. In part, he noted that "[t]he cause of
the colour degradation of this cargo of phenol cannot be stated with certainty," but stated
conclusively that "[ w]hat is known, from the joint analysis in Korea, is that whatever external
cause it arose between the phenol leaving the shore tank and prior to transshipment to the Bow
Flora." PX 68 at 14. In reaching this conclusion, East again ruled out certain potential sources
of the injury -- including manufacturing defects, the presence of copper or water, and exposure to
light or air. He posited, however, that the damage could have occurred as a result of overheating
or the presence of particulates. With regard to overheating, he noted that this could have
occurred either in the shore lines, "when cargo was loaded to the [Green Pioneer]," or, if the
Green Pioneer had its heating coils on prior to loading the Phenol, it could have been scorched
when it was first loaded onto that boat in Yosu. PX 68 at 16. With regard to the presence of
14

particulates, East's report noted there was "some kind of matted material (such as a rag)," that
was found in Sample C, from the Ulsan Tests, and that it "[was] possible that these particles
promoted the discoloration process." PX 68 at 17.
Last, in the February 2, 2010, final "Report of John Minton," Minton altered the relevant
paragraphs about his own personal history, as well as the name on the report, but made no other
changes or alterations to East's final report. PX 69. Indeed, the only differences between the
"Report of Martin East," dated June 23,2009, and the "Report of John Minton," dated February
2, 2010, are the name and date on the report and the initial "Instructions" page of the report. All
other portions are identical. Compare PX 68, with PX 69. These reports, as well as additional
factual and credibility determinations, will be addressed in more depth below.

F.

Expert Experience

In relevant part, Plaintiffs experts' had the following academic and professional
experience with phenol. East is not a chemist and the full scope of his academic study of
chemistry was limited to a single "small" course that he "organized and attended" in the 1980s,
Tr. 42-43. Although he had worked in petrochemical shipping, he had not had any experience
with phenol prior to joining MTD in 1995, and at the time he was assigned to this investigation,
his only exposure to Phenol had been his work on a single case in June 2005. Minton has the
equivalent of an undergraduate degree in chemistry, that he obtained about "40 years ago," and
he only studied phenol insofar as it was or would have been included in his general organic
chemistry classes. Tr.290-91. While at MTD, he had personally dealt with two or three
previous claims involving phenol and although he assumed MTD dealt with many such claims,
when pressed, he could only hypothesize as to how many total claims involving phenol his firm
had dealt with, saying "I am sure we have had quite a few." Tr. 297.
15

G.

Evidence Regarding "Seeding"

Plaintiffs experts theorized that the delay between the alleged injury to the Phenol on the
Green Pioneer and the manifestation of the damage to the Phenol, its discoloration, could be
explained by what they referred to as "seeding." This "seeding" theory, can be summarized as
follows: once an "offending specie(s) or condition(s) 'seeded' the Phenol," such exposure
"caused a slowly unfurling chemical reaction in the Phenol that did not become manifest (by
developing a color change)" until after the Phenol was transferred from the Green Pioneer to the
Bow Flora. East Decl.

~

30. In his testimony, Minton expanded on this general description of

the experts' theory. He testified that the process of phenol discoloration, also known as
oxidative degradation, "proceeds via free radical chain reactions," which are initiated by
exposure to anyone of the various causes for phenol discoloration. Minton Decl.

~

22. He

testified that his overall process, which he terms "seeding," begins slowly, "as the first step
requires the greatest activation energy," but stated that an increase in one of the factors that cause
discoloration, e.g., an increase in heat, "can lead to an increase in the rate of degradation and
further subsequent discoloration." Minton Decl.

~~

23,24. This, he argued, explains why the

contemporaneous tests aboard the Bow Flora showed no color change, whereas later tests of the
samples from the Green Pioneer showed signification discoloration. This is particularly the case,
he testified, because the "first oxidation products are colorless and the reaction may, therefore,
proceed undetected for a time." Minton Decl.

II.

~~

22, 25.

CONCLUSIONS OF LAW
A.

Standard of Review

"In a bench trial such as this, it is the Court's job to weigh the evidence, assess
credibility, and rule on the facts as they are presented." Bahrami v. Ketabchi, No. 05 Civ. 3829
16

(RMB), 2009 WL 513790, at *9 (S.D.N.Y. Feb. 27,2009) (quoting Johnson-McClean Techs. v.
Millennium Info. Tech. Group, No. 02 Civ. 244 (HB), 2003 WL 192175, at *8 (S.D.N.Y. Jan. 27,

2003)) (internal quotation marks and alterations omitted); see also Mathie v. Fries, 121 F.3d 808,
811-12 (2d Cir. 1997). "The Court [is] 'in the best position to evaluate [each] witness's
demeanor and tone of voice as well as other mannerisms that bear heavily on one's belief in what
the witness says.'" Id. (quoting Donato v. Plainview-Old Bethpage Cent. Sch. Dist., 96 F.3d
623, 634 (2d Cir. 1996)); see also Anderson v. City of Bessemer City, 470 U.S. 564,575 (1985)
("[O]nly the trial judge can be aware of the variations in demeanor and tone of voice that bear so
heavily on the listener's understanding of and belief in what is said. "). If the "evidence is
equally divided ... 'the party with the burden of prooflosses. '" Bahrami, 2009 WL 513790, at
*9 (quoting

us. v. Gigante, 39 F.3d 42, 47 (2d Cir. 1994); Fulop v. Malev Hungarian Airlines,

244 F. Supp. 2d 217,223 (S.D.N.Y. 2003) ("The evidence on this issue is substantially divided
and, in the Court's assessment, does not tilt sufficiently to Plaintiffs case to satisfy the
preponderance standard. "). As the plaintiff in this matter, Cedar bears the burden of proof.
Milton Abeles Inc. v. Creekstone Farms Premium Beef, LLC, No. 06 Civ. 3893 (JFB)(AKT),

2010 U.S. Dist. LEXIS 34017, *14 (E.D.N.Y. Feb. 1,2010) ("[T]he burden of proof in an action
for breach of contract is on the plaintiff to prove the elements of its complaint by a
preponderance of the evidence.").

B.

Summary

All other issues aside, in order to prevail, Plaintiff must demonstrate, based on a
preponderance of the evidence, that the Phenol was injured prior to crossing the rail of the Bow
Flora. Plaintiff acknowledges that it cannot demonstrate the actual cause of the Phenol's
deterioration, PX 66-69, but argues that the results of the post-shipment tests in Rotterdam and
17

Ulsan establish that it is more likely than not that the injury to the Phenol occurred prior to it
passing the rail of the Bow Flora. In contrast, Defendant argues that the test results are, in whole
or in part, inconsistent, unreliable, and inconclusive, and that, as a result, Plaintiff cannot meet its
burden.
Two undisputed facts guide the Court's analysis of these arguments: first, that the results
of the contemporaneous tests -- which show the Phenol as on-specification prior to and after
transfer to the Bow Flora -- are an accurate depiction ofthe color ofthe Phenol at the time those
samples were pulled; and, second, that when the Phenol arrived in port at Rotterdam it was
wildly off-specification. Plaintiff has conceded that, in order to make the requisite showing and
account for these facts, the Court must be persuaded by its experts' theory with regard to
"seeding."l Tr. 497:8-10. In its most basic form, that theory is as follows: because Samples 3,
5, and C were off-specification at the post-shipment tests, it is more likely than not that prior to
transfer to the Bow Flora, an "offending specie(s) or condition(s) 'seeded' the Phenol," and that
this "caused a slowly unfurling chemical reaction in the Phenol that did not become manifest (by
developing a color change)" until some point after the product was transferred to, and
contemporaneously tested on, the Bow Flora. East Decl.

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30. For the reasons discussed below,

the Court was not persuaded by that theory.2

I After a brief discussion on this point, the following exchange took place between the COUIt and Mr. Lillis, counsel
for Plaintiff:
THE COURT: So, for you to prevail, I have to be persuaded of your expert's seeding theory.
MR. LILLIS: Yes.
Tr. 497:8-10.
2 It bears noting that, even had the Court been persuaded by Plaintiffs theory and concluded that it was more likely
than not that the injury occurred prior to the Phenol crossing the rail of the Bow Flora, Plaintiff would still have
been required to show that the damage to the Phenol was actually attributable to the injury suffered aboard the Green
Pioneer, rather than by any subsequent injurious or exacerbating event(s) aboard the Bow Flora, and that Defendant
was liable under the ClSG for defects, such as this, that were not manifest at the time risk ofloss passed. These
matters were the subject of the parties' post-trial briefing, however, having determined that Plaintiff was unable to
meet its initial factual burden, the Court does not reach the additional hurdles that Plaintiff would otherwise have
needed to overcome in order to prevail.
18

C.

The Court was Not Persuaded by Plaintifrs Experts' "Seeding" Theory

Having observed the trial in this matter and reviewed the totality of the evidence
presented and the parties pre- and post-trial submissions, the Court concludes that Plaintiffs
"seeding" theory was not persuasive for the following reasons:
First, on its most basic level, Plaintiffs "seeding" theory was not persuasive because it
could not account for the results ofthe post-shipment tests. If Plaintiffs theory were correct, the
results from the post-shipment tests would show a steady upward trend, with the Hazen units
increasing with the passage of time. Here, however, if the results of the tests were depicted
graphically, the result would show a series of peaks and valleys rather than the steady upward
slope that Plaintiff s theory would predict. Indeed, whether viewing the Rotterdam and the
Ulsan tests independently or in conjunction, no graphical representation of the post-shipment test
results yields the expected result.
Second, although they offered any number of hypothetical explanations, Plaintiff s
experts were unable to offer any single explanation that plausibly accounted for the basic fact
that the data did not comport with their "seeding" theory. The proposed explanations included,
among others, potential differences in how the samples were pulled, who pulled the samples,
how the samples were tested, who tested the samples, and how the samples were stored.
Ultimately, none of the theories offered actually explained the data in a way that would support
Plaintiffs theory, and the very abundance of explanations undermined the plausibility of any
single one.
Third, the Court was not persuaded that an injury to the Phenol could have remained
undetectable for any substantial period of time, let alone that such an injury could remain
undetectable for the three to four days that passed between the samples that were drawn aboard
19

the Green Pioneer and those that were drawn during and after transfer to the Bow Flora.
Plaintiffs experts were unpersuasive on this point, and this dormancy does not comport with the
scientific literature provided, which discusses color change as occurring instantaneously or
within minutes ofthe introduction of the injurious condition.
Fourth, Plaintiffs "seeding" theory contradicts Irissari's testimony with regard to the
practice of blending on- and off-specification phenol, as any blending would, under Plaintiff s
theory, inevitably lead to the sample once again worsening.
Fifth, East's testimony was not generally credible. The evidence, testimony, and East's
demeanor demonstrated the following:
1.

East was prone to reach hasty decisions, based on incomplete and imprecise
analysis of evidence, and to ignore data that did not support his eventual
conclusion;

11.

East's final conclusion was based on essentially the same evidence as his
conclusions in the August 17,2005, .. Email Report" and the June 28, 2006,
internal report, and yet at each stage he becomes more certain, despite not having
conducted follow up steps or investigation that his earlier repOlis had suggested
were necessary;

111.

East did not make his final report until four years after the event in question and
three years after the commencement of litigation in this matter;

IV.

East's academic qualifications to allow him to testify regarding Phenol
discoloration were lacking; and

v.

East lacked the necessary experiential qualifications.

Sixth, and finally, Minton's testimony was also not generally credible. The evidence,
20

testimony, and Minton's demeanor demonstrated the following:
1.

Minton, at best, overstated his involvement in the initial investigation in August
2005;

11.

Minton also, at best, overstated his involvement in the investigation as a whole, a
fact particularly and egregiously demonstrable with respect to the report, dated
February 2,2010, which bears his name, but which is nothing more than a
verbatim copy -- down to the factual and typographical errors -- of East's report,
dated June 23, 2009;

111.

Minton also, at best, misrepresented the nature of his supplemental report on the
discoloration of phenol during shipment and storage, dated June 3, 2010, PX 70,
and was less than forthright with regard to his involvement in its creation;

IV.

Minton lacked directly applicable or up-to-date academic experience, which was
particularly noteworthy in this case given that Phenol discoloration is, by
Minton's own admission, "a very poorly understood subject, even with a great
deal of research," Tr. 299:5-8;

v.

Minton was unable to identify specific portions of the articles he had compiled
that would support his overall theory that the injury to the Phenol could have
remained undetectable during and after transfer to the Bow Flora, Tr. 328-333,
and Plaintiffs have not directed the Court's attention to such passages in any of
their post-trial submissions. Although Minton testified that certain articles were
relevant because they discussed "reaction rates, temperatures, free radical
production, [and] the acceleration of free radical production," Tr. 328:24-329: 1,
he acknowledged, on cross-examination that specific passages in at least four of
21

the articles described the process of phenol discoloration as occurring in a manner
that directly contradicted his overall theory, see PX 70-C at 389; PX 70-D at 363;
PX 70-1 at 5539; PX 70-J at 728; and
VI.

Minton also lacked the necessary experiential qualifications, Tr. 297.

In sum, the experts' overall theory of "seeding," which Plaintiff correctly conceded was a
requisite showing for the Court to find liability, was inconsistent with the data, lacked
plausibility under the facts as compared to the provided scientific research, and was
unsupportable by the experts, who were themselves not credible on the relevant subject matter.

II.

CONCLUSION
Based on the above-mentioned findings of facts and conclusions of law, the Court

concludes that Plaintiff has not shown by a preponderance ofthe evidence that the Phenol at
issue was injured prior to crossing the rail of the Bow Flora. Having failed to make this
showing, Plaintiff cannot establish that Defendant breached the parties' agreement. Accordingly,
judgment is granted in favor of Defendant.

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The Clerk of the Court is directed to terminate this ction.
SO ORDERED:

Dated:

October~, 2013
New York, New York

22