IN RE: EXONERATION FROM OR LIMITATION OF LIABILITY

Filing 69

OPINION. For the reasons stated within, the valuation and limitation on liability of $700 per ton of cargo memorialized in Paragraph 15 of the Contract of Affreightment between U.S. Steel and ACBL applies to Imperial Towing, Inc. and/or the M/V Carl L. Johnson. Imperial's liability to U.S. Steel is limited to a maximum of $700 per ton of steel coils lost multiplied by the number of tons of steel coils lost. An appropriate Order will follow. Signed by Judge Mark R. Hornak on 11/6/12. (bdb)

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

COMPLAINT OF IMPERIAL TOWING
INC., as Owner Pro Hac Vice and
Charterer of the Motor Vessel Carl L.
Johnson, FOR EXONERATION FROM OR
LIMITATION ON LIABILITY

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Civil Action No. 11-1371
Judge Mark R. Hornak

OPINION

Mark R. Hornak, United States District Judge

On April 27, 2011, certain barges broke free from the towboat MN Carl L. Johnson on
the Ohio River near Neville Island, Pennsylvania. Imperial Towing, Inc. ("Imperial") was the
owner pro hac vice and bare boat charterer of the towboat. In this action, Imperial seeks
exoneration from, or a limitation of liability to, various entities that might have suffered damages
or losses by this incident under 46 U.S.C. §§ 30501-12 and Rule F ofthe Supplemental Rules for
Admiralty for Maritime Claims. Compl., ECF No.1. In particular, one of the barges contained
steel coils belonging to U.S. Steel Corp. ("U.S. Steel"), the value of which was greatly
diminished when the coils sank to the bottom of the Ohio River.
Pending before the Court is Imperial's Motion for Partial Summary Judgment, ECF No.
56, in which Imperial seeks to limit its liability to U.S. Steel for the loss of steel coils to the
terms of a limitation on liability clause contained in a contract agreed to by U.S. Steel and a
private carrier, American Commercial Barge Line, LLC. ("ACBL,,).I The Court has considered

I The party to the contract, American Commercial Barge Line, LLC, appears to be the same as one of the counter­
claimants in the broader case, American Commercial Line, LLC. See Response to Imperial Towing's Motion for
Partial Summary Judgment, ECF No. 65, filed by "American Commercial Lines, LLC ("ACL")." The Court will

Imperial's Motion; its Memorandum of Law in Support of the Motion, ECF No. 57; Imperial's
Concise Statement of Material Facts, ECF No. 58; U.S. Steel's Response to the Motion, ECF No.
62; and Brief in Support of Response, ECF No. 64; U.S. Steel's Responsive Concise Statement
of Material Facts, ECF No. 63; Imperial's Response to U.S. Steel's Concise Statement of
Material Facts, ECF No. 66; Imperial's Reply Brief, ECF No. 67; ACBL's Response to the
Motion, ECF No. 65; all exhibits attached to those documents; and conducted a detailed hearing
in open court on the matter on October 17,2012. For the reasons that follow, Imperial's Motion
is granted.
I.

BACKGROUND

The central relevant facts are undisputed. Around December 14, 2005, ACBL entered
into a "Contract of Affreightment" with U.S. Steel wherein ACBL agreed to "transport all
tonnage shipped via barge" by U.S. Steel for certain set freight rates. App. Concise Stmt. Mat.
Facts, ECF No. 59, Ex. B,jiled under seal at ECF No. 61, Ex. B ~ 3. This contract was renewed
and amended in 2009 and again in 2011. See id. The contract gave ACBL considerable discretion
as to the movement of the cargo:
12. MOVEMENT OF CARGO: The barge will move only at the convenience of
Carrier [ACBL], and either singly or with one or more other craft. Carrier shall
have the right to shift or interchange the tow from one to another towing vessel as
frequently as it may find it convenient to do so, or to procure towage from any
other vessel not owned or operated by the carrier; to tie off the tow at any point
and for any purpose; and to deviate from its route, and visit any port whether or
not on said route, and in any order.

Id

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12. The Contract also contained a clause both valuing and limiting liability for cargo:
15. CARGO VALUATION: In consideration of the bargained for and agreed
rates set forth herein, it is expressly agreed that the cargo described herein is
hereby valued at not in excess of $700.00 per ton.
Carrier [ACBL] shall not be liable for and Shipper [U.S. Steel] hereby agrees to
release, indemnify, and hold harmless Carrier, its subcontractors, affiliates and the

refer to that entity as "ACBL," consistent with the contracts at issue here.

2

vessels employed by it or them, in the performance of the cargo movements
hereunder for any loss or damage to or expense in connection with any article
shipped in an amount exceeding the per ton valuation set forth above multiplied
by the actual weight in tons (2,000 lbs.) or fraction of tons. In no case shall
Carrier's liability exceed the actual value of the article shipped.
ld. ~ 15. It is primarily the terms of Paragraph 15 that are at issue between the parties here?
ACBL then entered into a "Distribution Agreement" with Campbell Transport Company
and/or its affiliate C & C Marine Maintenance Company (collectively, "CTC"), wherein CTC
agreed to provide ACBL with "exclusive barge distribution services" on the Allegheny,
Monongahela, and Upper Ohio Rivers. ECF No. 61, Ex. C.
In the final link in the chain, CTC entered into a "Fully Found Charter" agreement with
Imperial, wherein Imperial agreed "to place in the exclusive service of CTC on a fully found
basis the Towboat(s)." ECF No. 61, Ex. D

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1. The agreement provided: "The Charter shall be

fully found for the purposes of towing barges upon the instructions of CTC to various
destinations on the inland rivers of the United States." ld. One of the vessels chartered under
that agreement was the MN Carl L. Johnson. ld. Sch. I.
On April 27, 2011, the MN Carl L. Johnson was towing a number of barges on the Ohio
River, one of which was ACBL's barge ACL 01532. Barge 01532 was loaded with steel coils
that were owned solely by U.S. SteeL The barge was carrying approximately 1,566.49 tons of
steel coils which U.S. Steel values at amounts ranging from $991 to $1,212 per net ton. See
Complainant's Concise Stmt. Mat. Facts, ECF No. 58

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3; U.S. Steel's Responsive Concise Stmt.

Mat. Facts, ECF No. 63 ~ 3; Ex. A. at 1. 3 That day, the MN Carl L. Johnson was involved in an
incident near Neville Island where a number of barges, including ACL 01532, broke free from
2

The contract does not define the tenus "subcontractors" or "vessels employed." See id.

3 The parties have not stipulated to the exact weight of steel coils or their original value, and the Court does not find
these facts here. Rather, the Court finds it helpful to relay the approximations given by the parties as of this date to
illustrate the practical parameters of any limitation on liability.

3

the vessel's tow. That barge, along with the steel coils on it, sank in the Ohio River. The steel
coils were subsequently recovered from the river by or on behalf of ACBL, and sold by ACBL
for a salvage value of $640,348.26. ECF No. 63
Responsive Concise Stmt. Mat. Facts, ECF No. 66

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15-17; Imperial's Resp. U.S. Steel's

15-17.

Imperial filed a Complaint in this Court on October 27, 2011, seeking exoneration from
or limitation on its liability to U.S. Steel and various other entities who may have suffered
damages as a result of the April 27 incident under 46 U.S.C. §§ 30501-12 and Rule F of the
Supplemental Rules for Admiralty for Maritime Claims. ECF No.1 at 1. U.S. Steel filed a cross
claim against Imperial for $1,756,482.00 in damages. ECF No. 58 at ~ 2, ECF No. 63 at ~ 2; Ans.
& Defenses CompI. Imperial & Claim & Cross-cIs. U.S. Steel, ECF No. 37 at 6.

Imperial filed the instant Motion for Partial Summary Judgment in Regard to Damage
Claim of U.S. Steel, arguing that it is entitled to the benefit of the $700 per ton valuation and
limitation clause in Paragraph 15 of the Contract of Affreightment between U.S. Steel and
ACBL. ECF No. 56. Imperial seeks a determination that (1) its liability is "limited to a maximum
of $700 per ton of cargo" and (2) that U.S. Steel "is not entitled to also claim salvage proceeds."
Proposed Order, ECF No. 56, Ex. 1. U.S. Steel argues in response that the valuation and
limitation provisions of the Contract of Affreightment do not extend down to Imperial, and that
even if that clause were to apply, U.S. Steel would be entitled to recover salvage proceeds on top
of the $700 per ton limitation. ECF No. 62 at 1.

II.

DISCUSSION

A. LegalStandard
Summary jUdgment is proper "if the movant shows that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P.

4

56(a). "In considering a motion for summary judgment, a court must draw all reasonable
inferences from the underlying facts in the light most favorable to the non-moving party."
Emerson Radio Corp. v. Orion Sales, Inc., 253 F.3d 159, 162 (3d Cir. 2001). A fact is "material"

only if it "might affect the outcome of the suit under the governing law." Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). Because the contract here "is a maritime one, and the

dispute is not inherently local, federal law controls the contract interpretation." See Norfolk S.
Ry. Co. v. Kirby, 543 U.S. 14,22 (2004) (citing Kossick v. United Fruit Co., 365 U.S. 731,735

(1961». When interpreting the terms of a contract, a court may grant summary judgment if the
terms are not ambiguous, i.e., if they are "subject to only one reasonable interpretation."
Emerson, 253 F.3d at 163-64; see also Kirby, 543 U.S. at 21-22 (construing meaning of terms in

limitation on liability clause under summary judgment standard). Before a court determines
whether a contract is ambiguous, it "must consider the contract language, the meanings
suggested by counsel, and the extrinsic evidence offered in support of each interpretation."
Emerson, 253 F.3d at 164 (internal quotation omitted).

B. The Himalaya Clause
The central question presented is how far the protections of the Himalaya Clause
contained in Paragraph 15 of the Contract of Affreightment between U.S. Steel and ACBL
extend, and specifically, whether they extend to Imperial. A "Himalaya clause" is a contractual
provision extending maritime liability limitations to downstream parties expected to take part in
the contract's execution. Kirby, 543 U.S. at 20. 4 In Kirby, the Supreme Court held that "there is

4 Himalaya Clauses take their name from an English case involving a steamship named Himalaya. Kirby, 543 U.S.
at 20 n.2. In modern American usage, they are most frequently used in the shipping industry to extend the
limitations on liability already guaranteed to a carrier or vessel by statute, the Carriage of Goods by Sea Act, 46
U.S.C.A. § 30701 et seq. ("COGS A"), to a downstream subcontractor, agent, or independent contractor. See Kirby,
543 U.S. at 14. However, the Court finds no meaningful distinction, nor has either party urged the Court to find one,
between a Himalaya Clause that extends a limitation of liability provided by COGSA and one that extends a
limitation of liability provided by private contract. See Mazda Motors ofAm., Inc. v. MIV Cougar Ace, 565 F.3d 573

5

no special rule for Himalaya Clauses," and that they "must be construed like any other contracts:
by their terms and consistent with the intent of the parties." Id. In so doing, the Court rejected
some courts of appeals' adoption of a general principle of "narrow construction" for Himalaya
clauses, which would require "a special degree of linguistic specificity" and/or "privity of
contract" between the carrier and the party seeking protection under the clause. Id. at 31 (citing

Mikinberg v. Baltic s.s. Co., 988 F.2d 327,332 (2d Cir. 1993)).5
The parties here argue over the meaning of the Himalaya Clause set forth in this Contract
of Affreightment. In relevant part, Paragraph 15 states:
Carrier [ACBL] shall not be liable for and Shipper [U.S. Steel] hereby agrees to
release, indemnify, and hold harmless Carrier, its subcontractors, affiliates and
the vessels employed by it or them, in the performance of the cargo movements
hereunder for any loss or damage to or expense in connection with any article
shipped in an amount exceeding the per ton valuation set forth above ....
ECF No. 61 Ex. B ~ 15 (emphasis added). Thus, the focused question before the Court is whether
Imperial and the MN Carl L. Johnson can be considered (1) ACBL's "subcontractor" or (2) a
"vessel[] employed by it [ACBL] or them [ACBL's subcontractors]." Id. If Imperial is either, it
can invoke the protection of the Himalaya Clause. For ease of analysis, the Court will address
these two interpretations in reverse order.
1. "Vessel Employed"
As is further discussed below, U.S. Steel asserts that while CTC would be ACBL's
"subcontractor" under the contract, Imperial would not. U.S. Steel also asserts that neither ACBL
nor CTC "employed" the MN Carl L. Johnson and that only Imperial, as the entity who owned
and operated the boat, "employed" it. Therefore, U.S. Steel concludes that the MN Carl L.
(9th Cir. 2009) (construing Himalaya Clause that expanded benefit of a privately negotiated forum selection clause
and not of substantive liability provisions of COGSA).
5 At oral argument, counsel for all parties were uniform in the view that they were aware of no case interpreting the
specific language contained in Paragraph 15.

6

Johnson was not a "vessel employed by it [ACBL] or them [its subcontractor]" under the
Himalaya Clause. However, regardless of whether Imperial was a "subcontractor," U.S. Steel
offers no support for the assertion that ACBL and/or CTC did not "employ" the MN Carl L.
Johnson. See ECF No. 54 at 11. 6 The Court concludes that under at least two different principal
meanings of the word "employ," the MN Carl L. Johnson was "employed" by ACBL and/or
CTC.
Black's Law Dictionary (9th ed. 2009) defines "employ" as "1. To make use of. 2. To
hire. 3. To use as an agent or substitute in transacting business. 4. To commission and entrust
with the performance of certain acts or functions or with the management of one's affairs.,,7 The
Court finds applying the first definition of "employ" results in the most logical reading of the
contract here, which provides coverage for "Carrier, its subcontractors, affiliates and the vessels
employed by it or them. in the performance ofthe cargo movements hereunder." ECF No. 61 Ex.

B

'II 15 (emphasis added). The emphasized clause suggests a purposive meaning of the word

"employ"; i.e., that it covers a vessel that will be "used" to perform the cargo movements
described in the Contract of Affreightment.
Neither party has advanced case law that suggests a particular meaning of the phrase "employ a vessel." Although
the Second Circuit in both American Home Assurance Co. v. Hapag Lloyd Container Linie, GmbH, 446 F.3d 313
(2d Cir. 2006) and Toyomenka, Inc. v. s.s. Tosaharu Maru, 523 F.2d 518 (2d Cir.1975) construed narrowly the
phrase "employed by the Carrier," the use of the phrase in both differs markedly from its use here. See American
Home, 446 F.3d at 317 ("Owners and operators of vessels (other than the Carirer), Underlying carriers, stevedores,
terminal and group age operators, road and rail transport operators and any independent contractors employed by the
carrier"); Toyomenka, 523 F .2d at 521 ("all servants, agents and independent contractors ... used or employed by
the Carrier for the purpose of or in connection with the performance of any ofthe Carrier's obligations"; explicitly
rejecting "made use of' interpretation). The clauses in those cases refer to entities or people "employed by the
carrier," while the instant case involves "vessels employed." To "employ" a person more naturally means to "hire"
him, while to "employ" an object more naturally means to "make use of' it. Toyomenka is further distinguishable
because the court also rested its holding on another sentence in the operative clause that suggested a limited reading.
Id. Finally, the Court notes that the Toyomenka court's narrow interpretation also at least in part rested upon the
proposition that a Himalaya Clause "will be strictly construed against the parties whom it is claimed to benefit," id.,
the very proposition that was rejected in Kirby, 543 U.S. at 31. As such, the Court is doubtful as to the continuing
validity of the reasoning and holding of Toyomenka in the wake of Kirby, and does not find it to have persuasive
value here. See 2A-XVI Benedict on Admiralty § 169[d][3] (Matthew Bender & Co. 2012 ed.).
6

7 Definitions (3) and (4) appear to be inapplicable, because they seem to exclusively describe ways in which one
would employ a person, rather than an object.

7

Moreover, the fact that the Contract of Affreightment explicitly permitted an entity other
than ACBL to provide the vessel that would be used to carry the steel coils also militates
strongly in favor of this meaning of "employ." The contract obligated ACBL "to transport all
tonnage shipped via barge ... involving the origin and destination combinations hereunder." Ex.
B

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3. In so doing, ACBL had the right "to procure towage from any other vessel not owned or

operated by [ACBL]." Id.

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12 (emphasis added). See Kirby, 543 U.S. at 31 (giving considerable

weight to the "expansive meaning" of the word "any"). Also, the Himalaya Clause's use of the
plural "vessels employed by it or them" reinforces that the potential use of a multitude of vessels
from various sources was contemplated. Thus, it was plain when the contract was formed that
ACBL could at its election "employ," or use, a number of vessels in accomplishing the task with
which it was charged in the Contract of Affreightment, with no limitation on how far
downstream in the contractual chain this might occur. The Court concludes that this meaning of
"employ" is the reasonable interpretation of the involved text, and that ACBL "employed" the
MN Carl L. Johnson to fulfill its contractual obligations. s
However, even if definition (2) of the word "employ"

"hire" - more accurately

describes its meaning in Paragraph 15, the clause still covers the MN Carl L. Johnson. The
phrase "employed by it or them" must at least refer to ACBL and its first-tier subcontractors.
U.S. Steel does not argue that CTC was not a subcontractor within the meaning of the Himalaya
Clause. See ECF No. 64 at 10-11. Thus, Imperial would also be covered if CTC "hired" the MN
Carl L. Johnson via Imperial. Black's Law Dictionary (9th ed. 2009) defines "hire" as "2. To
procure the temporary use of property, usu. at a set price."
The agreement between CTC and Imperial was memorialized in the Fully Found Charter.
8 While Imperial itself could well be considered one of the parties who "employed" the MIV Carl L. Johnson by
making use of it under this broader definition, that in no way allows, let alone compels, the conclusion that Imperial
was the only entity who "made use of" the MIV Carl L. Johnson.

8

Pursuant to that agreement, Imperial agreed to "place in the exclusive service of CTC on a fully
Found basis the Towboat(s)," ECF No. 61 Ex. D ~ 1, which would be crewed and operated only
by Imperial, id. ~ 8, to tow barges provided by CTC. The contract explicitly lists the MN Carl L.
Johnston as one of the chartered Towboats. ld. Sch. I

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2. Specifically, "CTC covenant[ed] and

agree[d] to pay [Imperial], as consideration for hiring the Towboat(s), Charter Hire payments."
Ex. D

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15. This language demonstrates that CTC "hired" the MN Carl L. Johnson to tow its

barges, and thus that towboat was a "vessel employed" by a carrier or subcontractor under either
definition, i.e. (1) "made use of', or (2) "hired.,,9
Indeed, the only possible way to read the word "employ" in the way suggested by U.S.
Steel is to conclude that "employ a vessel" had the specific and exclusive contractual meaning
akin to 'to own, operate, and/or equip a vessel.' However, the Court is not aware of, nor has U.S.
Steel provided, any authority suggesting that "employ a vessel" in this context is a term of art in
the nautical community that carries that (and only that) particular meaning. Nor has U.S. Steel
pointed to any record evidence demonstrating that that meaning was the one contemplated by
U.S. Steel and ACBL in the formation of this contract. Nor is there any dictionary or case law
definition of "employ" that in any way suggests such a narrow reading. Thus, in the absence of
any record evidence that demonstrates why the Court should adopt this specific definition of the
word "employ," the Court declines to do so.
The result reached by the Court comports especially well with Himalaya Clause
jurisprudence that considers "the nature of the services performed compared to the carrier's
responsibility under the carriage contract." Mazda, 565 F.3d at 578 (citations omitted). In Mazda,
the Ninth Circuit interpreted a Himalaya Clause to benefit a vessel, reasoning that because the
It is true that if the meaning ofa word in a contract is ambiguous, Emerson, 253 F.3d at 163-64, its meaning should
not be detennined at the summary judgment stage. However, summary judgment is still proper here because under
either definition, the result is the same.

9

9

servIces performed by the vessel were the same as those that were the Carrier's chief
responsibility, the vessel must have been contemplated as a beneficiary. ld. at 578-79
("[D]efendant vessel's services were even more obviously necessary for the completion of the
carriage; the parties must have anticipated that the vessel's services would be necessary for
performing a contract for ocean carriage."). The Court in Kirby also considered the nature of
services performed by the Himalaya Clause beneficiary, a land carrier. The Court reasoned that
because the ultimate destination of the goods, Huntsville, Alabama, was located some 366 miles
from the Savannah, Georgia port of discharge, the parties "must have anticipated that a land
carrier's services would be necessary for the contract's performance." 543 U.S. at 32.
The same reasoning applies here. The services provided by Imperial and the MN Carl L.
Johnson (towing U.S. Steel's goods) were the very essence of ACBL's responsibilities under the
Contract of Affreightment. The Contract of Affreightment (1) obviously required the use of a
vessel to transport U.S. Steel's goods by river and (2) specifically permitted ACBL to use "any
vessel" owned and operated by another entity in the stream of carriage. This makes it apparent
that a vessel owner would be an intended Himalaya Clause beneficiary, just as in Mazda and a
jortiori from Kirby. To read the Himalaya Clause as suggesting that the parties contemplated that
a vessel (that was obviously necessary to move the steel coils) would be subject to a limitation
on liability only if it was owned and operated by ACBL or ACBL's first-tier subcontractor,
would require reading into the contract limiting terms that are nowhere to be found, in derogation
of Kirby. 10

10 This result is further bolstered by examination of the context in which Himalaya Clause disputes often arise. The
vast majority of Himalaya Clause cases examine whether the clause extends the $500 per package limitation of
COGSA to a land carrier or a stevedore. 46 U.S.C.A. § 30701 n. sec. 4(5); see, e.g., Kirby, 543 U.S. at 18 (land
carrier), American Home, 446 F.3d 313 (land carrier); Mikinberg, 988 F.2d at 332 (stevedore); Toyomenka, 523 F.2d
at 519 (stevedore). But cf Mazda, 565 F.3d at 578 (vessel; examining Himalaya Clause's extension not of
substantive COGSA limitation on liability, but offorum selection clause). The reason that such cases typically do
not involve the vessels themselves or their owners is that vessels are already automatically protected by the

10

2.

"Subcontractor"
Although the Court concludes that Imperial is entitled to the protections of the Himalaya

Clause as a "vessel employed" by ACBL andlor CTC, the Court also concludes that Imperial
would be covered as a "subcontractor." Here, U.S. Steel contracted with ACBL (under the
Contract of Affreightment), who contracted with CTC (under the Distribution Agreement), who
contracted with Imperial (under the Fully Found Charter). U.S. Steel argues that, because CTC
is positioned between ACBL and Imperial, Imperial can only be properly considered a secondtier, or sub-subcontractor, and that the term "its subcontractors" contained in Paragraph 15 only
covers first-tier subcontractors.
In Kirby, the Supreme Court extended the protections of a Himalaya Clause to a "subsubcontractor." 543 U.S. at 30. The language of the clause covered "any servant, agent, or other
person (included any independent contractor) whose services have been used in order to perform
the contract." Id As noted above, the Court explicitly rejected rules of strict construction and
contractual privity in Himalaya Clause interpretation. Id at 30-31. Although the Supreme Court
did not interpret any contractual definition of "subcontractor" in reaching its holding, and
although it did note the importance of the word "any" in its interpretation, id, the result reached
is also highly instructive, because it demonstrates the extension of a Himalaya Clause to an entity
in the identical contractual position as Imperial.
Moreover, U.S. Steel can point to no language in the Contract of Affreightment
suggesting its preferred limitation on the term "subcontractor." U.S. Steel relies primarily on
American Home Assurance Co. v. Hapag Lloyd Container Linie, GmbH, 446 F.3d 313 (2d Cir.
substantive provisions of COGS A (regardless of who contracts for them), obviating the need for a Himalaya Clause
to extend protection. This fact illustrates the appropriateness of construing the Himalaya Clause here to cover
vessels like the MN Carl L. Johnson, because it comports with the protections of vessels already embedded in
COGSA, which is intimately related to the cargo movements here.

11

2006), for the proposition that the tenn "subcontractor" in a Himalaya clause refers to a first-tier
subcontractor only. However, American Home is readily distinguishable because the contract in
that case included an internal definition of "subcontractor" that was the source of the Second
Circuit's narrowing interpretation.
In American Home, the Second Circuit held that a sub-subcontractor could receive the
benefit of the tenn "Subcontractor" in a Himalaya Clause, but only because the first-tier
subcontractor was the direct agent of the carrier under principles of agency law. However, the
agreement between the shipper and the carrier contained a provision defining "Sub-Contractor"
as "Owners and operators of vessels (other than the Carrier), Underlying carriers, stevedores,
tenninal and groupage operators, road and rail transport operators and any independent
contractors employed by the Carrier in the performance of the Carriage." Id. at 317 (emphasis
added). The court explained that the "employed by the Carrier" language was central to its
analysis in construing the clause narrowly. Id. at 318 ("[I]t is clear that BNSF was 'employed by'
Hapag Lloyd and thus entitled to limit its liability,,).11 Unlike the contract in American Home,
the Contract of Affreightment here contained no provision defining the tenn "subcontractor" and
limiting it only to entities "employed by the Carrier." Therefore, American Home provides no
basis to conclude that the word "subcontractor" standing alone in this contract carries the
meaning of "first-tier subcontractor."
As with the word "vessels," the use of the plural "its subcontractors" demonstrates that
the involvement of multiple subcontractors was contemplated by the parties. The Court
concludes that the possessive phrase "its subcontractors" used here is not, on its own, specific
enough to provide a limitation for first-tier subcontractors only. Nor is the Court persuaded by

II The Second Circuit cited the "employed by the Carrier" language in Toyomenka in support of this proposition. Id
(citing 423 F.3d at 521).

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U.S. Steel's argument that the word "subcontractor" is inherently limited to a "first-tier
subcontractor" under the definition in Black's Law Dictionary as "[o]ne who is awarded a
portion of an existing contract by a contractor, esp. a general contractor." ECF No. 17 at 10.
There is no principled reason why CTC was considered to have been awarded a portion
of the Contract of Affreightment by taking on the Ohio River Valley portion of ACBL's
responsibilities for shipping the steel coils on its barges, but Imperial was not awarded a portion
of that initial contract by taking on CTC's responsibilities for actually shipping the barges
containing the coils by means of its towboat(s). Both Imperial and CTC were performing duties
that constituted a part - the central part

of ACBL's Contract of Affreightment with U.S. Steel:

to carry U.S. Steel's coils from point A on the river to point B on the river. In the absence of
internal contract language limiting the meaning of "subcontractors" to "first-tier subcontractors,"
this Court is unwilling to impose that limitation externally, especially because to do so would
require adhering to the very rules of "linguistic specificity" and "privity of contract" eschewed
by Kirby. See 543 U.S. at 31. As noted above, the language of Paragraph 15 does not
demonstrate that the parties intended that the vessel actually carrying U.S. Steel's coils would
not be subject to the limitation on liability contained in

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15, whose shipping services are the

very essence of the contract. See id. at 32 ("It is clear to us that a railroad like Norfolk was an
intended beneficiary of the ICC bill's broadly written Himalaya Clause.").
Justice O'Connor, writing for a unanimous Court in Kirby, discussed the broader context
of limitations on liability covering multiple parties in the stream of commerce. First, the Kirby
Court noted the importance of federal maritime jurisdiction in allowing for "the protection of
maritime commerce" and praised the "efficient choice" of cargo owners to contract with a single
carrier, as opposed to negotiating separate contracts for each leg of the journey. Id. at 25-26

13

(emphasis in original). Later, the Court discussed the importance of a uniform application of
contractual limitations on liability, given that many maritime shipments involve the use of
multiple carriers. Further, the Kirby Court recognized that if downstream carriers had to ascertain
in advance the consequences of their precise level in the chain of commerce based on a highly­
nuanced reading of the verbiage of the Himalaya clause in order to determine whether they
would receive the protections of a stated valuation or limitation on liability, the task of such
information gathering would be very costly or impossible. Id. at 34-35.
The result here is in accord with those broader considerations in Kirby. Indeed, it also
appears that CTC was both the first-tier subcontractor of U.S. Steel and the primary Carrier for
Marathon Petroleum Company LP, also a party to this case. See Marathon Petrol. CO.'s Ans. &
Claim Damages, ECF No. 34 at 9. Again, Imperial agreed in the Fully Found Charter to provide
its towboats exclusively for the service of CTC. Thus, to determine whether its liability for
damages to any of the goods it carried would be limited, a prudent carrier in Imperial's position
might be required to investigate each chain of contractual relationships and negotiate different
rates for its towing services, depending on what entity's goods happened to be on the barges
Imperial was towing, and how proximate CTC's contractual relationship was to each of them.
While this Court is mindful that the touchstone of a Himalaya Clause analysis under Kirby is to
construe the clause in neither an unduly narrow nor unduly broad manner, but consistent with the
plain meaning of the words it contains, see 543 U.S. at 31, the Court notes that the result here is
consistent with Supreme Court's holding and reasoning in Kirby, and in particular the Court's
solicitousness for encouraging uniformity and efficiency in maritime commerce. For these
reasons, the Court concludes that Imperial is entitled to the benefits of the Himalaya Clause

14

contained in Paragraph 15 as the "subcontractor" of ACBL. 12
In summary, the Court concludes that U.S. Steel and ACBL contemplated that an entity
in the position ofImperial, as the owner and operator of the vessel that transported U.S. Steel's
goods, would be a beneficiary of the Himalaya Clause contained in ~ 15 of that agreement. This
is because Imperial owned (and the M/V Carl L. Johnson was) a "vessel employed" by ACBL
and/or CTC under any fair meaning of the word "employ," and because Imperial was a
"subcontractor" of ACBL. Therefore, Complainant Imperial's Motion for Partial Summary
Judgment is granted, and the provisions of Paragraph 15 of the Contract of Affreightment apply
to Imperial.

C. Salvage Proceeds
In addition to disputing whether the stated valuation and limitation of liability contained
in Paragraph 15 apply to Imperial at all, certain of the parties also contest the effect of the
salvage proceeds from the recovered steel coils on Imperial's damage exposure. Imperial seeks
partial summary judgment to limit its liability "to a maximum of $700 per ton of cargo, less any
salvage proceeds." ECF No. 57 at 11. U.S. Steel counters that the "measure of USS' damages
should [not] be reduced by the amount of salvage proceeds if the $700/ton limitation of liability
is held to apply," ECF No. 64 at 3.
U.S. Steel filed a claim for $1,756,482.00 for damages to its steel coils. ECF No. 58 at
2, ECF No. 63 at

~

~

2. Based on the documentation provided by the parties, they appear to agree

12 J. W. Bateson Co. v. u.s. ex rei. Bd. a/Trustees 0/ Nat '/ Automatic Sprinkler Indus. Pension Fund, 434 U.S. 586
(1978) is not to the contrary. There, the Court considered the reach of the term "subcontractor" in the context of the
payment bond protections of the Miller Act, 40 U.S.C. § 270a et seq,. and concluded based on that statute's
legislative history that it only extended to first-tier subcontractors, as a matter of statutory construction. Id at 591­
92,594. There is, of course, no legislative enactment, or history, which constrains the definition of the term
"subcontractor" as used in Paragraph 15. Further, as the dissent in Bateman recognized, outside of the Miller Act
context, the term "subcontractor" is often applied to those who have accepted contractual responsibilities more
distant from the prime contract than only the first tier. Id at 601-02 (Stevens, J., dissenting).

15

that U.S. Steel lost 1,566.49 tons of steel coils at actual values ranging from $991 and $1,212 per
net ton from the incident with the M/V Carl L. Johnson. See ECF No. 58 at ~ 3; ECF No. 63 at ~
3; ECF No. 61, Ex. A at 1. Thus, approximately 1,566.49 tons lost at $700/ton would cap
Imperial's liability to U.S. Steel at $1,096,543. 13 The parties agree that $640,348.26 was
recovered in salvage for the recovered steel coils by ACBL. ECF No. 63

~

17; ECF No. 66 ~ 17.

In maritime law, damages in a total loss situation are calculated at market value of the
goods less salvage. See The Anna Maria, 15 U.S. 327 (1817); DiMillo v. Sheepscot Pilots, Inc.,
870 F.2d 746, 752 (1 st Cir. 1989). U.S. Steel essentially makes two arguments regarding salvage.
First, it contends that even if the limitation on liability applies, the "market value" starting point
is not determined by the $700/ton valuation limitation in the contract, but rather by the actual
public market value of the goods. Thus, "there can be no reduction [from the $7001ton starting
point] based on the salvage proceeds." ECF No. 64 at 12. Second, U.S. Steel argues that because
it has not itself received the benefit of the approximately $640,000 in salvage proceeds, but
rather ACBL has, it would be improper to deduct that salvage amount from U.S. Steel's recovery
unless and until it actually receives the proceeds. Based on Imperial's briefing and counsel's
position at oral argument, it is the Court's understanding that Imperial agrees with U.S. Steel's
second point. See ECF No. 67 at 13; ECF No. 56, Ex. 1.
The Court agrees with U.S. Steel's second argument but not with its first. Again, in ~ 15
of the Contract of Affreightment, U.S. Steel and ACBL agreed:
15. CARGO VALUATION: In consideration of the bargained for and agreed
rates set forth herein, it is expressly agreed that the cargo described herein is
hereby valued at not in excess of$700.00 per ton.
Carrier [ACBL] shall not be liable for and Shipper [U.S. Steel] hereby agrees to
release, indemnifY, and hold harmless Carrier, its subcontractors, affiliates and the
vessels employed by it or them, in the performance of the cargo movements
13 As stated in Part I above, the Court is not here ruling on the actual weight of steel coils lost, nor on the exact
calculation of damages.

16

hereunder for any loss or damage to or expense in connection with any article
shipped in an amount exceeding the per ton valuation set forth above multiplied
by the actual weight in tons (2,000 lbs.) or fraction of tons. In no case shall
Carrier's liability exceed the actual value ofthe article shipped.
ECF No. 61 Ex. B

~

15 (emphasis added). The language of the clause demonstrates that $700

per ton is a "valuation" of the cargo between the parties, establishing their express understanding
that whatever the value of a ton of cargo outside the contract is, for the purposes of the contract,
it is no more than $700. Moreover, the language "in consideration for the bargained for and
agreed rates" highlights that the valuation was a material term in the parties' negotiation of the
contract.
U.S. Steel argues that the last sentence that states "[i]n no case shall Carrier's liability
exceed the actual value of the article shipped" establishes a "clear distinction" between "market
value" on the one hand, and the $700/ton valuation on the other, and thus delineates the former,
actual market value, as the proper starting point for the salvage rule. See ECF No. 64 at 12. The
Court finds no reason to read the last sentence in that manner. The plain meaning of that
language is that if the value of the steel is less than $700/ton, the actual value will be the cap
rather than the contractual $700/ton rate.
In essence, U.S. Steel believes that because salvage proceeds cannot be subtracted from
the $700/ton limitation, and because it is entitled to all salvage proceeds, it is entitled to $700 per
ton plus salvage, apparently without any limit. 14 See id. As Imperial's counsel noted in oral
argument, this reading would lead to the odd result that Imperial or ACBL would have been just
as well off had it left the coils at the bottom of the river, because any proceeds would have just
gone into the pockets of U.S. Steel on top of the contractual payout it would already be
receiving. This result would either encourage waste (by leaving the coils at the bottom of the
14 As long as the coils are not somehow worth more damaged than they were undamaged, which is the only way that
salvage proceeds could exceed actual market value.

17

river) or give a windfall to U.S. Steel (by awarding it $700 per ton plus salvage, with no apparent
upward limitation). The Court sees no reason based on the contract or case law to do either. It is
apparent from the language of the contract (and a logical and common sense consideration of its
consequences) that "not in excess of $700Iton" became by agreement the valuation of the steel
coils as between U.S. Steel and Imperial, and thus it must be the proper starting point for the
maximum damage valuation from which any salvage proceeds may be deducted.
Turning to U.S. Steel's second argument, the Court does note that, at present, the salvage
proceeds of about $640,000 are not in the hands of U.S. Steel, but apparently ACBL. The Court
understands both U.S. Steel and Imperial to agree that U.S. Steel's recovery against Imperial
may only be reduced by salvage proceeds U.S. Steel has actually received, and not by salvage
proceeds that are in the hands of another. Thus, at present and as between Imperial and U.S.
Steel, Imperial's potential damage liability remains at the full amount of $7001ton multiplied by
the number of tons that U.S. Steel lost. Funds in the hands of ACBL are irrelevant to the
determination of U.S. Steel's damages as against Imperial - the fact that steel coils have been
recovered by ACBL and converted to cash does not alter Imperial's liability to U.S. SteeL Either
way, the end result will be that U.S. Steel recovers an amount not more than $700 per ton of steel
lost, consistent with the terms of the Contract of Affreightment.
Therefore, Imperial's Motion for Partial Summary Judgment is granted to the extent that
the measure of its potential liability to U.S. Steel is limited to $700 per ton of cargo, in excess of
which U.S. Steel may not recover, whether by receipt of salvage proceeds or otherwise.
Imperial's liability to U.S. Steel would not be reduced by salvage proceeds that have been
recovered and retained by any entity other than U.S. Steel (in particular, including the
$640,348.26 presently retained by ACBL).

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III.

CONCLUSION

For the reasons stated above, the valuation and limitation on liability of $700 per ton of
cargo memorialized in Paragraph 15 of the Contract of Affreightment between U.S. Steel and
ACBL applies to Imperial Towing, Inc. and/or the MN Carl L. Johnson. Imperial's liability to
U.S. Steel is limited to a maximum of $700 per ton of steel coils lost multiplied by the number of
tons of steel coils lost. An appropriate order will follow.

United States District Judge

11!!

Dated: November ~,2012
cc:
All counsel of record

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