Hess Corporation v. Dorado Tankers Pool, Inc.

Filing 27

MEMORANDUM AND ORDER. For the reasons in this Memorandum and Order, petitioner's petition to confirm the arbitration award is granted and respondent's motion to vacate the arbitration award is denied. The Clerk of Court is respectfully dire cted to enter judgment in favor of petitioner in the amount of $1,192,021.25, plus pre-judgment interest from July 23, 2014, at the annual rate of 3.25 percent, and post-judgment interest at the rate set by 28 U.S.C. § 1961. Denying 17 MOTION to Vacate Arbitration Award. (Signed by Judge Naomi Reice Buchwald on 3/4/2015) Copies Mailed By Chambers. (rjm)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------------X
In the matter of the Arbitration
Between
MEMORANDUM AND ORDER

HESS CORPORATION,
Petitioner,

14 Civ. 6412 (NRB)

- and DORADO TANKER POOL, INC.,
Respondent.
----------------------------------------X
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE
Petitioner Hess Corporation (“Hess”) petitions to confirm
an arbitration award of $1,192,021.25 in its favor and against
respondent Dorado Tanker Pool, Inc. (“Dorado”).

Dorado opposes

the petition and moves to vacate the award on the ground that it
reflects manifest disregard of the law of damages.

For the

reasons stated herein, we conclude that there was no manifest
disregard of the law, and we confirm the award.

I.
Dorado

does

not

BACKGROUND1

dispute

the

findings for present purposes.

arbitration

panel’s

factual

Accordingly, we rely on those

factual findings, supplemented only as necessary to illuminate
the parties’ current dispute.

A.

Underlying Facts
This case arises out of the contamination of a parcel of

jet fuel belonging to Hess at the port of St. Croix, U.S. Virgin
Islands.

On July 30, 2011, the M/T SWARNA MALA (the “Vessel”)

arrived at St. Croix, pursuant to a charter party between Hess
and Dorado, the Vessel’s time charter owner, to take on two
cargoes of clean petroleum products sold there by Hovensa LLC
(“Hovensa”) to Hess.

Award at 2.

The Vessel’s initial orders

were to carry the cargoes to Bayonne, New Jersey, but revised
orders providing for final discharge at other United States and
Canadian ports were contemplated.

1

Id.

One of the cargoes was

We refer to Hess’s Petition dated August 12, 2014, Doc. 7 (“Pet.”);
the Final Award of the arbitration panel, dated July 23, 2014, Ex. 1 to the
August 12, 2014 declaration of James D. Kleiner, Esq., Doc. 8 (“Award”);
Dorado’s memorandum of law dated September 12, 2014, Doc. 14 (“Dorado Mem.”);
Hess’s reply memorandum of law dated October 3, 2014, Doc. 20 (“Hess Reply
Mem.”); the declaration of James D. Kleiner, Esq., dated October 3, 2014,
Doc. 21 (“Kleiner Reply Decl.”), and exhibits thereto; and Dorado’s
memorandum of law dated October 15, 2014, Doc. 24 (“Dorado Reply Mem.”). We
also refer to the post-hearing briefs submitted in arbitration, which are
exhibits to the September 12, 2014 declaration of Michael E. Unger, Esq.,
Doc. 19 (“Unger Decl.”), specifically Hess’s main brief dated September 6,
2013, Unger Decl. Ex. 3 (“Hess Post-Hearing Br.”); Dorado’s main brief dated
September 6, 2013, Unger Decl. Ex. 2 (“Dorado Post-Hearing Br.”); and
Dorado’s reply brief dated October 21, 2013, Unger Decl. Ex. 4 (“Dorado PostHearing Reply Br.”).

2

jet fuel, and the other was No. 2 heating oil (or “No. 2 oil”),
a product of lower grade than jet fuel.

Id.

The quantity of

jet fuel sold by Hovensa to Hess was 112,289.69 barrels (“bbl”).2
Id. at 9.
The next day, after the cargoes were loaded on board the
Vessel,

independent

inspectors

discovered

discrepancies

suggesting that a portion of the No. 2 oil had been erroneously
transferred into the tank containing the jet fuel.
A

comparison

between

land

and

ship

tank

cargo

Award at 2.
measurements

revealed a gain of 3,812.62 bbl in the tanks designated for jet
fuel and a corresponding shortage of 3,007.80 bbl in the tanks
designated for No. 2 oil.

Id.

been contaminated in loading.
Hovensa

refused

a

Apparently, the jet fuel had

Id.

request

contaminated product back ashore.

to
Id.

take

the

apparently

Hess revised its voyage

orders and directed the Vessel to proceed to New York harbor,
where it arrived on Saturday, August 6, 2011.

Id. at 2-4.

The

arbitration panel summarized the events that transpired after
the Vessel arrived in New York as follows:
Following sampling at the anchorage, the Vessel
discharged the contaminated jet fuel parcel into two
barges which in turn delivered the product ashore into
Hess Newark Tank 309 and its First Reserve Tank 235.
From those tanks Hess subsequently moved the product
about to other of its tanks and through a myriad of
barge transfers, product blends and sales in an
2

A barrel of oil is equivalent to 42 gallons.

3

attempt to mitigate its damages. The damaged product
was ultimately disposed of some three months later.
Id. at 3.

B.

The Arbitration
Hess commenced two proceedings to recover for loss that it

claimed to have incurred as a result of the contamination of the
jet fuel parcel (hereafter called the “Contaminated Fuel”).

The

first, a civil action in this Court against the Vessel and its
owner,
against

was

stayed

Dorado.

pending
See

the

arbitration

Stipulation

and

of

Order,

Hess’s
Hess

claim

Corp.

v.

Shipping Corp. of India Ltd., No. 12 Civ. 6037 (NRB) (S.D.N.Y.
Jan. 16, 2013), Doc. 5.

The second was the arbitration between

Hess and Dorado that resulted in the award now under review.
The arbitration was conducted in New York before a panel of
three arbitrators (the “Panel”).

Award at 3.

Because Dorado

conceded liability for the contamination of the jet fuel at St.
Croix,

id.,

determine

the

the

principal

amount

of

issue

damages.

before

the

The

Panel

Panel

was

conducted

to
six

evidentiary hearings, in which it heard the testimony of three
witnesses and received voluminous documentary evidence.

Id.

In

a reasoned decision of thirteen pages, exclusive of an appendix,
the Panel awarded some but not all of Hess’s claimed damages and
also granted a Dorado counterclaim.

4

In its post-hearing briefing, Hess asked the Panel to find
that it incurred three categories of damages.

The arguments of

the parties as to each of these categories, and the conclusions
of the Panel, may be summarized as follows.

1.

Downgrade of the Contaminated Fuel

Hess’s principal damages claim was for the diminution in
value, or downgrading, of the Contaminated Fuel caused by the
contamination
calculate

this

itself.
loss

Hess

argued

according

to

that

the

the

Panel

should

“market

value

rule,”

defined as “the difference between the sound and damaged market
values of the jet product . . . . at the time of delivery.”
Award at 4-5; see, e.g., Hess Post-Hearing Br. at 2-3, 38-40.
Applying that rule, Hess argued that the Contaminated Fuel’s
sound market value (i.e., the value that it would have had if it
had not been contaminated) would have been that of “low sulfur
jet/kerosene”; that the damaged market value of the Contaminated
Fuel was that of No. 2 oil; and that the appropriate values for
each of these grades of fuel were the market prices published by
Platts for August 5, 2011 (the last business day before the
Vessel arrived at New York), viz., $3.1091 per gallon (“gal”)
for low sulfur jet/kerosene and $2.9361 per gallon for No. 2
oil.

Award at 3-4.

Based on the $0.173/gal price difference,

5

Hess argued that the downgrade of 112,289.69 bbl of Contaminated
Fuel cost it $815,896.87.

Id. at 9.

In response, Dorado argued that “Hess sustained no loss
from the contamination” whatsoever.
Dorado Post-Hearing Br. at 1.

Award at 5; see, e.g.,

Specifically, Dorado argued that

the evidence showed that when Hess purchased the Contaminated
Fuel, that fuel “met the specifications for CPL 54 grade jet,”
and that all of the Contaminated Fuel was ultimately either
“sold or otherwise utilized by Hess as CPL 54 grade jet” and
thus

“was

never

simply

downgraded

Hearing Br. at 3; see Award at 5.3

to

2

oil.”

Dorado

Post-

Dorado argued that instead of

calculating damages according to the market value rule urged by
Hess, the Panel should instead apply the “remediation rule,”
Dorado Post-Hearing Br. at 15, under which “any damages awarded
to

Hess

must

reconditioning

only
the

reflect
allegedly

the

costs

incurred

contaminated

fuel,”

by

Hess

id.

at

in
17.

Dorado further argued that “Hess has failed to provide such
costs.”
The

Id.
Panel

accepted

Hess’s

arguments,

finding

that

the

Contaminated Fuel had the “quality parameters of a low sulfur
jet/kerosene” in its sound condition and the value of No. 2 oil
in

its

distressed

condition.

Award

3

at

9;

see

id.

at

7.

CPL-54 is a lower grade product than low sulfur jet/kerosene, but is a
higher grade than No. 2 oil. Dorado Mem. at 7.

6

Emphasizing the availability of “a published market reference
for the goods” (i.e., the Platts prices), and rejecting Dorado’s
contention that special circumstances justified a departure from
the market value rule, the Panel concluded that “the appropriate
measure of damages in this case is the difference between the
fair

market

value

of

the

cargo

at

its

destination

in

the

condition in which it should have arrived and the fair market
value in the condition in which it actually did arrive.”
7-8.

Accordingly,

the

downgrade of the jet fuel.

2.

Panel

awarded

$815,896.87

Id. at
for

the

Id. at 9.

Alleged Downgrade of the Tank 235 Cargo

Hess’s second damages claim related to the discharge of a
portion of the Contaminated Fuel into a shore tank in Hess’s
Newark, New Jersey facility (“Tank 235”).
the

Vessel

arrived

in

New

York

As noted above, after

harbor,

Contaminated Fuel into two barges.

it

discharged

Award at 3.

the

One of the

barges, “Barge RTC-60,” delivered about half of the Contaminated
Fuel to Tank 235, where it was loaded on top of a pre-existing
cargo of roughly 68,900 bbl (the “Pre-Existing Cargo”).

Dorado

Mem. at 4; Hess Reply Mem. at 11, 13.
Hess argued that the Pre-Existing Cargo was grade CPL-54,
and that a portion of the blend that resulted from the Vessel’s
cargo

being

loaded

on

top

of

7

the

Pre-Existing

Cargo

was

unmarketable as CPL-54 and instead was reduced to the value of
No. 2 oil.

Hess Post-Hearing Br. at 28-29, 43.

Hess argued

that this downgrade caused a loss of $149,710.54.

Id. at 43.

Dorado responded that the Pre-Existing Cargo was already “offspec”

for

CPL-54

and

that,

after

the

Contaminated

Fuel

was

loaded on top, the entire contents of Tank 235 became “on-spec”
for CPL-54.

Dorado Post-Hearing Reply Br. at 10.

Accordingly,

Dorado denied that the Pre-Existing Cargo had been downgraded
and argued that no damages were warranted in respect of the PreExisting

Cargo.

Indeed,

Dorado

postulated

that

it

should

receive a “credit for fixing the pre-existing cargo in tank
235.”

Id. at 27 (emphasis omitted).
The

Panel

denied

Hess’s

claim

for

damages

to

the

Pre-

Existing Cargo, finding that it “was already ‘off spec’ and
became more marketable as a result of the Vessel’s cargo being
loaded on top.”

Award at 9.

However, the Panel did not accept

Dorado’s invitation to credit the value of the supposed upgrade
of the Pre-Existing Cargo against Dorado’s other liability.

3.

Ancillary Losses

Finally, Hess claimed what it described as “other ancillary
losses.”
comprised:

Hess Post-Hearing Br. at 3; see Award at 4.

These

(1) the costs of the two barge trips that moved the

Contaminated Fuel from the Vessel to shore and of two subsequent

8

barge trips; (2) tankage costs; (3) inspection costs; and (4)
spill taxes.
10.

Hess Post-Hearing Br. at 43-44; see Award at 4,

Dorado conceded that the cost of two of the barge movements

were “recoverable in mitigation,” but opposed the other two.
Dorado Post-Hearing Reply Br. at 28.
tankage

costs

but

conceded

its

Dorado also opposed the

liability

for

costs and for half of the claimed spill tax.

the

inspection

Id.

The Panel denied the tankage fees and awarded one-half of
both the inspection costs and the spill taxes.

Award at 10.

The Panel also awarded part of the barging costs, explaining:
Hess claims it is entitled to recover a total of
$168,342.82 in barging costs it would not have
incurred but for the mitigation efforts to remedy the
effects of the contamination.
Some barging occurred
some three months after this incident; another
movement would likely have taken place regardless of
the contamination; and a third movement involved
transport of a panel of cargo made more valuable by
the mitigation efforts. The Panel, accordingly, finds
that a portion of these costs are recoverable but
other portions are not. Total allowed: $48,101.02.
Id.

(underlining

parties’

in

post-hearing

original).
briefing

From
to

the

a

comparison

amount

awarded,

of
it

the
is

clear that the $48,101.02 awarded for barging costs corresponds
to the cost of the movement of Barge RTC-103, which transported
part of the Contaminated Fuel from the Vessel to Tank 309.

See

Hess Post-Hearing Br. at 43-44; Dorado Post-Hearing Reply Br. at
28.

In other words, the Panel declined to award the claimed

9

costs of the other three barge movements, including that of
Barge RTC-60 from the Vessel to Tank 235.

4. The Final Award
In total, the Panel awarded Hess $883,063.24 in “damages
attributable to contamination,” of which $815,896.87 was for the
downgrade

of

the

Vessel’s

cargo,

$48,101.02

was

for

barging

costs, and a total of $19,065.35 was for inspection costs and
spill tax.

Award at 9-11.

The Panel also awarded Hess interest

and partial allowances for its legal fees and costs and the
arbitrators’ fees, resulting in a total award of $1,192,021.25.
Id. at 11-12.4

C.

Post-Arbitration Proceedings
On August 12, 2014, Hess petitioned this Court to confirm

the Award pursuant to the Federal Arbitration Act, 9 U.S.C. § 1
et

seq.

(“FAA”),

and

the

Convention

on

the

Recognition

and

Enforcement of Foreign Arbitral Awards of June 10, 1958, 21
U.S.T.

2517

(1970)

(the

“New

York

Convention”

or

the

“Convention”) and its implementing legislation, 9 U.S.C. § 201
et seq.

The action was accepted by the undersigned as related

to Hess’s earlier-filed civil action against the Vessel and its

4

The Panel also awarded Dorado $62,211.12 on a counterclaim, which Hess
has satisfied and which is not relevant here.
Award at 11-12; Hess Reply
Mem. at 1; Kleiner Reply Decl. Ex. 1.

10

owner.

On September 15, 2014, Dorado interposed a motion to

vacate the Award pursuant to the same statutes.

The respective

positions of the parties were fully briefed on October 15, 2014.
Oral argument was held on February 2, 2015.

II.

DISCUSSION

Dorado’s sole challenge to the Award is that it reflects
manifest disregard of the law of damages.

A.

Jurisdiction
The

FAA

jurisdiction
confirm

or

does
on

the

not

by

federal

vacate

an

itself
courts

confer

to

arbitration

subject-matter

entertain
award.

actions

to

Scandinavian

Reinsurance Co. v. St. Paul Fire & Marine Ins. Co., 668 F.3d 60,
71 (2d Cir. 2012).

Thus, “[t]here must be an independent basis

of jurisdiction before a district court may entertain petitions
under

the

[FAA].”

Harry

Hoffman

Printing,

Inc.

v.

Graphic

Commc’ns, Int’l Union, Local 261, 912 F.2d 608, 611 (2d Cir.
1990).

Here, the Court has at least two independent bases of

jurisdiction.
First,

admiralty

jurisdiction

lies

under

28

U.S.C.

§ 1333(1) because the agreement to arbitrate was part of the
charter party -- a quintessentially maritime contract -- between
Hess and Dorado.

See Am. Bureau of Shipping v. Tencara Shipyard

11

S.P.A., 170 F.3d 349, 352 (2d Cir. 1999) (finding subject matter
jurisdiction

pursuant

to

§ 1333

over

petition

to

compel

arbitration under a maritime contract); C.T. Shipping, Ltd. v.
DMI

(U.S.A.)

(finding

Ltd.,

jurisdiction

774

F.

over

Supp.

146,

petitions

to

148

(S.D.N.Y.

confirm

and

1991)
vacate

arbitration award arising out of time charter party under § 1333
“[b]ecause of the maritime subject matter of the case”).
Second, Hess’s petition and Dorado’s motion come within the
scope of the New York Convention, whose implementing legislation
provides

for

federal

subject-matter

jurisdiction.

§ 203; Scandinavian Reinsurance, 668 F.3d at 71.

9

U.S.C.

By its own

terms, the New York Convention applies to “the recognition and
enforcement
domestic

of

awards

. . . .
in

the

enforcement are sought.”

arbitral
State

awards

where

not

their

considered

as

recognition

and

New York Convention, art. I(1).5

The

Second Circuit has construed the scope of “awards not considered
as domestic awards” broadly, explaining that such awards are
those “made within the legal framework of another country, e.g.,
pronounced in accordance with foreign law or involving parties
domiciled or having their principal place of business outside
the enforcing jurisdiction.”

Bergesen v. Joseph Muller Corp.,

5 The Convention also applies to “the recognition and enforcement of
arbitral awards made in the territory of a State other than the State where
the recognition and enforcement of such awards are sought.”
New York
Convention, art. I(1). Here, as the Award was made in New York, there is no
such territorial basis for applying the Convention.

12

710 F.2d 928, 932 (2d Cir. 1983).

The Second Circuit has also

approvingly

Circuit’s

quoted

the

Seventh

view

that

“any

commercial arbitral agreement, unless it is between two United
States citizens, involves property located in the United States,
and has no reasonable relationship with one or more foreign
states, falls under the Convention.”

Jain v. de Méré, 51 F.3d

686, 689 (7th Cir. 1995), quoted in Yusuf Ahmed Alghanim & Sons,
W.L.L. v. Toys “R” Us, Inc., 126 F.3d 15, 19 (2d Cir. 1997)
(“Alghanim”).6
Here,

although

the

underlying

incidents

took

place

in

United States ports, the arbitration took place in the United
States, the law applied in the arbitration was United States
law,

and

Hess

is

a

United

States

corporation,

Dorado

foreign corporation incorporated in the Marshall Islands.
¶¶ 8-9; see Dorado Mem. at 9.
that

one

of

the

parties

to

is

a

Pet.

Under Alghanim and Jain, the fact
the

arbitration

is

a

foreign

corporation suffices to bring the Award within the scope of the
New York Convention, and thus to provide an alternative basis of
subject-matter jurisdiction.

6

The Second Circuit continues to rely on Jain for this proposition.
See, e.g., Agility Pub. Warehousing Co. K.S.C. v. Supreme Foodservice GmbH,
495 F. App’x 149, 151 (2d Cir. 2012) (summary order).

13

B.

The “Manifest Disregard” Standard
Under both the FAA and the New York Convention, a court

must grant a proper petition to confirm an arbitration award
unless there are grounds to vacate, modify, or correct it.
U.S.C. §§ 9, 207.
under

the

FAA

is

9

One of the few grounds for vacating an award
that

disregard of the law.”

the

award

“was

rendered

in

manifest

Schwartz v. Merrill Lynch & Co., 665

F.3d 444, 451 (2d Cir. 2011) (internal quotation marks omitted).
Manifest disregard of the law is similarly a ground to decline
to enforce an arbitration award under the New York Convention
where, as here, the award was rendered in the United States.
Alghanim, 126 F.3d at 23.
The party challenging an arbitration award on the basis of
manifest
Group,

disregard

LLC

v.

of

the

law

bears

a

Benderson,

326

F.3d

75,

“heavy
81

burden.”

(2d

Cir.

GMS
2003).

Manifest disregard requires “more than a simple error in law or
a failure by the arbitrators to understand or apply it” and
likewise “more than an erroneous interpretation of the law.”
Duferco Int’l Steel Trading v. T. Klaveness Shipping A/S, 333
F.3d 383, 389 (2d Cir. 2003).

Indeed, manifest disregard will

be found “only in the most egregious instances of misapplication
of legal principles,” Wallace v. Buttar, 378 F.3d 182, 190 (2d
Cir. 2004), that is, where “a party clearly demonstrates ‘that
the panel intentionally defied the law,’” STMicroelectronics,

14

N.V. v. Credit Suisse Securities (USA) LLC, 648 F.3d 68, 78 (2d
Cir. 2011) (quoting Duferco, 333 F.3d at 393).
To demonstrate manifest disregard, the party resisting the
arbitration award must establish that “the governing law alleged
to

have

been

ignored

by

the

arbitrators

was

well

defined,

explicit, and clearly applicable,” and that “[t]he arbitrator[s]
. . . appreciate[d] the existence of a clearly governing legal
principle but decide[d] to ignore or pay no attention to it.”
Westerbeke Corp. v. Dihatsu Motor Co., 304 F.3d 200, 209 (2d
Cir.

2002)

omitted).
where

a

(internal

quotation

marks

and

other

brackets

Thus, “manifest disregard can be established only
[well

defined,

explicit,

and

clearly

applicable]

governing legal principle . . . [was] ignored . . . after it was
brought to the arbitrator’s attention in a way that assures that
the

arbitrator

Architectural

knew

Iron

its

Co.,

controlling

306

F.3d

nature.”

1214,

1216

Goldman

(2d

Cir.

v.

2002)

(internal quotation marks omitted).
The party resisting the award must also show “that the law
was

in

fact

outcome.”

improperly

applied,

leading

to

an

erroneous

Duferco, 333 F.3d at 390; see, e.g., T.Co Metals, LLC

v. Dempsey Pipe & Supply, Inc., 592 F.3d 329, 339 (2d Cir.
2010).

Accordingly, “[e]ven where explanation for an award is

deficient or non-existent, we will confirm it if a justifiable
ground for the decision can be inferred from the facts of the

15

case.”
contains

Duferco, 333 F.3d at 390.
more

than

one

plausible

And “where an arbitral award
reading,

manifest

disregard

cannot be found if at least one of the readings yields a legally
correct justification for the outcome.”

C.

Id.

Damages in Maritime Cargo Damage Cases
The

general

principles

applicable

to

the

calculation

of

damages in maritime cargo damage cases are the same as those
applicable in ordinary contract cases.

See, e.g., M. Golodetz

Export Corp. v. S/S Lake Anja, 751 F.2d 1103, 1112 (2d Cir.
1985).

“[I]n keeping with the common law, the primary object in

awarding damages . . . is to indemnify the plaintiff for the
loss sustained by reason of the carrier’s fault.”

Valerina

Fashions, Inc. v. Hellman Int’l Forwarders, Inc., 897 F. Supp.
138, 140 (S.D.N.Y. 1995).

Thus, damages are limited by the so-

called “duty to mitigate,” which represents “the principle that
‘damages which the plaintiff might have avoided with reasonable
effort . . . are . . . not caused by the defendant’s wrong . . .
and,

therefore,

are

not

to

be

charged

against

him.’”

M.

Golodetz, 751 F.2d at 1112 (quoting 2 Williston on Contracts
§ 1353, at 274 (1962)).
Under the ordinary rule of damages, known as the market
value rule, “the measure of damages is the difference between
the fair market value of the goods at their destination in the

16

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).

However, this market value rule is “at best but

a convenient means of getting at the loss suffered,” id. at 119
(quoting Ill. Cent. R.R. Co. v. Crail, 281 U.S. 57, 64 (1930)),
and

“not

a

hard

and

fast

rule,”

Texport

Oil

Co.

v.

M/V

Amolyntos, 11 F.3d 361, 365 (2d Cir. 1993), overruled on other
grounds as recognized by Farrell Lines Inc. v. Ceres Terminals
Inc., 161 F.3d 115, 117 (2d Cir. 1998).

Therefore, “[w]hen

circumstances suggest a more appropriate alternative, the fair
market

[value]

test

may

calculating damages.”

be

superseded

by

another

method

of

Texport Oil, 11 F.3d at 365.

One such alternative is the so-called “reconditioning cost”
or

“remediation

cost”

rule.

Under

this

rule,

where

“reconditioning of the damaged merchandise is feasible . . . .
at a modest cost so that the shipper realizes the market value
of the product, the courts sometimes limit damages to [the]
reconditioning costs.”
Supp.

1309,

1315

Santiago v. Sea-Land Serv., Inc., 366 F.

(D.P.R.

1973).

The

appropriateness

of

abandoning the market value rule for the cost of reconditioning
depends upon the facts, and available evidence, of each case.
Compare Weirton Steel Co. v. Isbrandtsen-Moller Co., 126 F.2d
593,

594-95

(2d

Cir.

1942)

17

(L.

Hand,

J.)

(applying

reconditioning

cost

rule),

and

Texport

Oil,

11

F.3d

at

365

(same), with Thyssen, Inc. v. S.S. Fortune Star, 777 F.2d 57,
61-62

(2d

Cir.

1985)

(Friendly,

J.)

(declining

to

apply

reconditioning cost rule), and Thyssen, Inc. v. S/S Eurounity,
21 F.3d 533, 540 (2d Cir. 1994) (same).
In addition to the value assigned to the direct damage to
the

cargo

itself,

the

shipper

may

recover

for

reasonable

incidental damages (such as the costs of surveys, inspections,
salvage

handling,

necessary

transportation

resulting from the cargo damage.

and

the

like)

See, e.g., Fortis Corp. Ins.,

S.A. v. M/V Cielo del Canada, 320 F. Supp. 2d 95, 108 & n.8
(S.D.N.Y. 2004); Marine Office of Am. Corp. v. Lilac Marine
Corp., 296 F. Supp. 2d 91, 107 (D.P.R. 2003); Hartford Fire Ins.
Co. v. Novocargo USA Inc., 257 F. Supp. 2d 665, 677 (S.D.N.Y.
2003); Plywood Panels, Inc. v. M/V Sun Valley, 804 F. Supp. 804,
813-14 (E.D. Va. 1992), aff’d sub nom. Plywood Panels, Inc. v.
Hyundai Merch. Marine Co., 4 F.3d 986 (4th Cir. 1993); Amstar
Corp. v. M/V Alexandros T., 472 F. Supp. 1289, 1295 (D. Md.
1979), aff’d, 664 F.2d 904 (4th Cir. 1981).

Such “necessary

expenses incidental to the loss sustained” are recoverable “[i]n
addition to the actual loss of market value involved” “if they
were

reasonably

incurred.”

considered

necessary

at

Santiago, 366 F. Supp. at 1317.

18

the

time

they

were

D.

Dorado’s Challenge to the Award
Dorado challenges the Award on the ground that the Panel

manifestly disregarded the law of damages by “award[ing] Hess
expenses incurred in mitigating the loss” to its cargo while
“completely
received

disregard[ing]
by

Hess

any

from

of

its

the

revenue

mitigation

and

benefits

efforts,”

thus

“compensating Hess far beyond the actual loss” and giving Hess a
“windfall.”

Dorado Mem. at 2.

Dorado argues that in doing so,

the Panel ignored Hess’s duty to mitigate and contravened the
“fundamental principle of compensating a plaintiff only for the
actual loss sustained.”

Id. at 11.

Dorado’s argument is narrowly circumscribed.
not challenge the Panel’s factual findings.

Dorado does

Id. at 2.

Also,

although in the arbitration Dorado vigorously argued that the
Panel should apply the remediation cost rule, Dorado now “does
not contest the Panel’s decision to apply the market value rule
of damages.”

Dorado Reply Mem. at 5.

Accordingly, Dorado must

accept that the starting point for calculation of damages is the
diminution in market value of the Contaminated Fuel, which the
Panel found to be $815,896.87.
Dorado argues that the Panel misapplied the market value
rule because “even when the [market value rule of damages] is
applied,

the

law

requires

consideration

efforts beyond the point of delivery.”

19

of

the

mitigation

Dorado Reply Mem. at 5.

In

other

words,

“the

law

requires

consideration

of

any

mitigation efforts undertaken by a plaintiff (or that should
have been taken) in response to a loss and the net proceeds
resulting from same (i.e., the revenue generated from same less
the expenses incurred in mitigating) or the net proceeds that
should

have

resulted

Dorado Mem. at 11.

if

the

plaintiff

fails

to

mitigate.”

Applied here, this would mean that the Panel

should have subtracted from Hess’s damages the net proceeds of
what the Panel described as Hess’s “attempt to mitigate its
damages” by “mov[ing] the product about to other of its tanks
and through a myriad of barge transfers, product blends and
sales,” Award at 3.
In this context of a challenge to an arbitration award,
this argument has at least two fatal flaws.

First, Dorado does

not argue that it presented this view of the operation of the
market value rule to the Panel, and our review of the posthearing briefs reveals that it did not.

Dorado instead argued

that “the fair market value test is an inappropriate method of
calculating damages,” Dorado Post-Hearing Br. at 15, and that
the

“Panel

should

calculate

any

‘remediation rule’ test,” id. at 17.

damages

based

upon

the

Dorado never argued in the

alternative that, if the market value rule were applied, its
result should be adjusted based on the costs and benefits of
Hess’s mitigation efforts.

Indeed, Dorado’s explanation of the

20

market value rule was nearly identical to Hess’s explanation.
Compare Dorado Post-Hearing Br. at 11, 15 (quoting KanematsuGosho Ltd., 814 F.2d at 118), with Hess Post-Hearing Br. at 40
(quoting

Kanematsu-Gosho

Ltd.,

814

F.2d

at

118).

As

the

supposed rule on which Dorado now relies was never “brought to
the arbitrator[s’] attention,” it cannot be a basis to refuse to
confirm the Award.
Second

and

Goldman, 306 F.3d at 1216.7
more

importantly,

Dorado’s

argument

mischaracterizes the relationship between the market value rule
and the duty to mitigate.

An implicit premise of the market

value rule is that the injured party’s duty to mitigate would
have been satisfied by selling the distressed goods upon receipt
for fair market value.

Thus, where the market value rule is

applicable, the shipper’s efforts, if any, to recondition the
distressed

goods

rather

than

reselling

them

immediately

irrelevant to the computation of direct damages.

are

As the Panel

correctly explained, “[b]ecause the market value rule considers
the diminished value of the cargo on the date of discharge,
later price fluctuations or changes in value beyond the date of

7
Dorado did argue that “even if the cargo is unable to be fully
restored and is sold or valued at a discount, that discount must be offset
from the market value when calculating damages.”
Dorado Post-Hearing Reply
Br. at 16. But this is simply a restatement of the market value rule, with
the (correct but irrelevant) nuance that under some circumstances, such as
when there is no published market price but there is a bona fide salvage
sale, the actual sale price of the distressed cargo may best demonstrate its
damaged market value.
It is not an argument that the result of the market
value rule should be further adjusted based upon the plaintiff’s later
mitigation efforts.

21

discharge are irrelevant to [the] damages calculation.”

Award

at 8 (quoting BP N. Am. Petroleum v. SOLAR ST, 250 F.3d 307, 314
(5th Cir. 2001)) (emphasis in Award).8
Dorado

also

argues

that

the

Panel’s

decision

was

inconsistent in that it awarded to Hess part of the cost of
reconditioning

the

Contaminated

Fuel,

and

thus

should

have

awarded at least part of the benefits that Hess derived from
this mitigation effort.
this

argument

is

Dorado Reply Mem. at 5.

that,

even

assuming

plausible

characterization

of

the

plausible

characterization

that

is

that

Award,
not

it

The flaw in
rests

there

is

on

a

inconsistent

a

more

and

is

legally sound.
Dorado stresses that the Panel, in describing Hess’s claim
for $168,342.82 in barging costs (only a portion of which were
awarded), stated that “Hess claims it is entitled to recover
. . .

barging

costs

it

would

not

have

incurred

but

for

the

mitigation efforts to remedy the effects of the contamination”
and that the Panel awarded part of those barging costs.
at 10 (emphasis added).

Award

The Panel also awarded a portion of

Hess’s claims for inspection costs and spill taxes.

Id.

But

incidental damages related to cargo damage are commonly awarded
in addition to direct damages.

See, e.g., Amstar, 472 F. Supp.

8 Dorado “does not contest the Panel’s decision to apply the market
value rule of damages.” Dorado Reply Mem. at 5. Accordingly, the question
is whether the Panel correctly understood the market value rule, not whether
the Panel should instead have followed the reconditioning cost rule.

22

at

1295

(“Having

proved

the

fact

of

damage,

plaintiff

is

undoubtedly entitled to recover additional expenses caused by
the

handling

and

testing

of

the

damaged

cargo.”).

The

inspection fees, spill taxes, and “extra barge costs” that the
Panel

awarded,

describing

them

collectively

as

“ancillary

losses,” Award at 4, may be characterized fairly as incidental
damages.
Dorado’s

attempt

to

characterize

the

ancillary

losses

awarded as mitigation costs might be more persuasive if the
Panel had awarded all of the barging costs that Hess sought.
But, as discussed above, the Panel only awarded the cost of a
single barge movement from ship to shore.

That single movement

of

of

Barge

RTC-103,

part

of

the

cost

discharging

the

Contaminated Fuel in New York, is less easily characterized as a
mitigation

expense

routinely

awarded

expressly

declined

than
in
to

as

similar
award

an

incidental
cases.

the

cost

loss

Moreover,
of

a

of

a

type

the

Panel

different

barge

“movement [that] involved transport of a parcel of cargo made
more valuable by the mitigation efforts,” i.e., the Barge RTC-60
movement from the Vessel to Tank 235.
contrary

to

Dorado’s

interpretation

of

Award at 10.
the

Award,

the

Thus,
Panel

appears to have denied, rather than granted, mitigation costs.
“We are obliged to give [an] arbitral judgment the most
liberal reading possible.”

Westerbeke, 304 F.3d at 212 n.8.

23

A

plausible -- indeed, a persuasive -- reading of the Award is
that the Panel declined to award mitigation costs, and instead
awarded market value damages plus incidental expenses.

Because

that interpretation of the Panel’s decision is both plausible
and legally sound, any ambiguity in the wording of the Panel’s
decision does not constitute a sufficient basis to refuse to
honor the Award.

See Duferco, 333 F.3d at 390.

In sum, Dorado has failed to show that the Award resulted
from the Panel’s manifest disregard of the law.

Accordingly,

the Award is confirmed.

E.

Pre-Judgment and Post-Judgment Interest
The Panel awarded interest to Hess from September 30, 2011,

to July 23, 2014 (the date of the Award), at “the prevailing
prime rate.”

Award at 11.

In this Court, Hess seeks pre-

judgment interest at the annual rate of 3.25 percent, running
from July 23, 2012, until the date of entry of judgment.

Dorado

does not address the issue of interest.
“[T]he
. . . should

allowance
be

circumstances.”

of

granted

prejudgment
in

the

interest
absence

in

of

admiralty
exceptional

Mitsui & Co. v. Am. Export Lines, Inc., 636

F.2d 807, 823 (2d Cir. 1981).

“[T]he rate of interest used in

awarding

rests

prejudgment

interest

24

firmly

within

the

sound

discretion of the trial court.”

Ingersoll Milling Mach. Co. v.

M/V Bodena, 829 F.2d 293, 311 (2d Cir. 1987).
We

think

that

Hess’s

request

for

prejudgment

interest

running from July 23, 2012, rather than July 23, 2014, must
reflect typographical error, for to grant Hess interest for the
intervening
interest.

period

would

give

Hess

the

windfall

of

double

Therefore, pre-judgment interest is awarded only from

July 23, 2014, to the date of judgment.

Because Dorado does not

object to the interest rate of 3.25 percent, and because that
rate is consistent with the interest rate awarded by the Panel,9
the rate of pre-judgment interest shall be 3.25 percent.
Hess

also

seeks

post-judgment

mandatory,

at

a

interest.

variable

interest

is

statute.

28 U.S.C. § 1961; Westinghouse Credit Corp. v. D’Urso,

371 F.3d 96, 100 (2d Cir. 2004).

rate

Post-judgment
set

by

federal

Accordingly, Hess is entitled

to post-judgment interest from the date of the entry of judgment
to the date of payment at the statutory rate.

F.

Attorney’s Fees
The

parties

agree

that,

under

the

charter

party,

the

prevailing party may recover attorney’s fees for this action.
If the parties are unable to resolve this issue, Hess may move

9

The prevailing prime rate is 3.25 percent.
See Market Data Center,
The Wall Street Journal, http://online.wsj.com/mdc/public/page/mdc_bonds.html
(last visited Mar. 2, 2015).

25

for

fees

within

fourteen

days

after

the

entry

of

judgment.

Dorado’s opposition shall be served within fourteen days after
service of the motion, and any reply shall be served within
seven days after service of the opposition.
shall

be

supported

by

contemporaneous

Hess’s submission

records

organized in a manner that facilitates evaluation.

and

shall

be

For example,

all hours spent on a specific task shall be aggregated.

Any

challenge advanced by Dorado shall be focused on a particular
task and shall include a position on the extent to which the
amount of fees sought for the task is excessive.

26

CONCLUSION

For the preceding reasons,
the

arbitration

award

lS

petitioner's petition to confirm

granted

and

respondent's

motion

to

vacate the arbitration award is denied.

The Clerk of Court is

respectfully directed to enter judgment

ln favor of petitioner

in the amount of $1,192,021.25,
July 23,

2014,

at

the

annual

plus pre-judgment interest from
rate

of

3.25

judgment interest at the rate set by 28 U.S.C.

Dated:

percent,
§

and post-

1961.

New York, New York
March 4, 2015

Lj~

NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE

27

Copies of the foregoing Memorandum and Order have been mailed on
this date to the following:
Attorney for Petitioner

James D. Kleiner, Esq.
Hill, Betts & Nash LLP
One World Financial Center
200 Liberty Street, 26th Floor
New York, NY 10281
Attorneys for Respondent

Michael Fernandez, Esq.
Michael E. Unger, Esq.
Gina M. Venezia, Esq.
Freehill, Hogan & Mahar LLP
80 Pine Street
New York, NY 10005

28