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
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