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METAL PROCESSING, INC. v. HUMM

July 2, 1999

METAL PROCESSING, INC., PLAINTIFF,
v.
TIMOTHY MAXWELL HUMM, AN UNDERWRITER AT LLOYD'S LONDON, ON BEHALF OF HIMSELF AND ALL OTHER LLOYD'S UNDERWRITERS SUBSCRIBING TO CARGO INSURANCE COVER NOTE MB 6340D00; MCALLISTER BROTHERS; MCALLISTER TOWING WEST PAGE 456 AND TRANSPORTATION CO., INC.; SCOTT PAPER CO.; TRANSPORTATION ADVISORY COUNCIL, INC.; NEW JERSEY STEEL CORPORATION; INTECH MARINE INC.; AND I.I.C. MARINE CONSULTANTS, INC., DEFENDANTS MCALLISTER TOWING & TRANSPORTATION CO., INC., THIRD-PARTY PLAINTIFF, V. RARITAN RIVER TERMINALS, INC., THIRD-PARTY DEFENDANT



The opinion of the court was delivered by: Bassler, District Judge.

  OPINION

This matter was tried without a jury before this Court on November 24, 1998.*fn1 For the reasons set forth below. the Court finds that the Defendant Scott Paper Company ("Scott"), is liable for $2,035,000. Furthermore, the Court finds that Scott is not liable for pre-judgment interest on this award.

I. Background

In the Fall of 1992 the tug McAllister Sisters left Port Keasby, New Jersey to begin the ocean tow of the barge Atlantic Trader to San Juan, Puerto Rico. En route to Puerto Rico, the barge capsized and the entire cargo of metal rebar — steel reinforcing rods valued at approximately $2.1 million dollars — was lost. The owner of the cargo, Metal Processing, Incorporated ("Metal Processing") brought this action against McAllister Towing & Transportation Company ("McAllister"), the owner of the tug and the barge; Scott, who had agreed to transport the cargo; New Jersey Steel, who had sold the rebar; Raritan River Terminals, whom New Jersey Steel had hired to load, lash and stow the rebar on the deck of the barge; and other defendants. The defendants in turn filed cross claims. The claim of Metal Processing was eventually settled. of the overall settlement of $2,690,000 McAllister and its underwriters paid $2,035,000. McAllister, acting for itself — and, since the settlement, its underwriters — pursues a claim for contractual indemnification against Scott.

On December 9, 1987, McAllister and Scott entered into an agreement entitled "Contract of Affreightment" (the "COA"). Under the COA, McAllister agreed to provide barges to move wood pulp from Scott's production facility in Nova Scotia to its manufacturing plant in Pennsylvania. Scott guaranteed a minimum monthly freight and could satisfy its guarantee by shipping other types of goods. In 1991, Scott could not meet the minimum freight requirement and arranged to meet its requirements by shipping the metal rebar of Metal Processing from New Jersey to Puerto Rico. The COA was still in effect at this time. With McAllister's consent, Scott entered into a separate contract with Metals Processing, using the Transportation Advisory Council as its broker. The COA between McAllister and Scott remained in place and governed the parties's relationship on the voyage from New Jersey to Puerto Rico.*fn2 Shipments of metal rebar commenced in September 1991. Both McAllister and Scott agree that the COA governs their rights and obligations but rely on different and conflicting provisions.*fn3 Scott argues essentially that the

  COA required McAllister to obtain certain insurance coverage, naming Scott as an additional assured with waiver of subrogation; McAllister failed to do so, and therefore McAllister's breach precludes recovery by McAllister and its underwriters. McAllister contends the responsibility for insuring the cargo was Scott's, and Scott was required to indemnify McAllister and its underwriters against any loss due to cargo damage or loss.

This opinion addresses McAllister's claim for contractual indemnity and, through McAllister, the underwriters' claim for subrogation against Scott. The findings of fact constitute the Court's final determination of contested factual issues and therefore supersede any prior recitation of facts contained in opinions previously entered on the docket for this matter, The Court makes these findings of fact pursuant to Rule 52 of the Federal Rules of Civil Procedure.

To the extent that any of the findings of fact might constitute conclusions of law, they are adopted as such. Conversely, to the extent that any conclusions of law constitute findings of fact, they are adopted as such.

II. Discussion

A. Objections to Exhibits and Trial Testimony

As a preliminary matter, the Court must determine whether to consider certain contested exhibits and testimony. Scott argues that the Court should not consider McAllister's Exhibits Numbers 11, 12, 13, 17, 18 and 19. Scott points out that McAllister did not produce those exhibits to Scott with those exhibits as required by the Pretrial Order. The requirements of the Pretrial Order are clear. McAllister does not dispute that it failed to comply with them. The Court will therefore not consider the disputed exhibits.

Scott has also made an objection to any testimony regarding the amount of the settlement paid to Metals Processing by McAllister and its underwriters. The Court does not understand the force of this objection, as Scott has already stipulated to the fact that McAllister and its underwriters paid $2,035,000 to Metals Processing as part of their settlement. Tr. Trans. at 18. Given this stipulation, the Court finds that the McAllister and its underwriters paid $2,035,000 to Metals Processing to compensate Metals Processing for cargo loss and damage.

  B. Should the Case Be Dismissed Because McAllister Is Not The Real
     Party In Interest?

After many settlement conferences with Magistrate Judge Cavanaugh, McAllister settled this matter with Metal Processing in the amount of $2,035,000. McAllister paid $200,811.23, representing its deductible under its Tower's Liability policy plus the amount due as a result of slow paying or bankrupt underwriters. McAllister's Protection and Indemnity ("P & I") underwriters, Steamship Mutual, contributed $1,017,500 and McAllister's Tower's Liability Underwriters contributed $816,688.77. McAllister's payments to Metals Processing were part of an overall settlement package of $2,690,000 which includes the above payments plus payment by Raritan River Terminals of $305,000 and payment of New Jersey Steel of $350,000. Raritan River Terminals also paid $200,000 to the French Hull Underwriters, who had insured the barge. The Settlement Agreement was signed on June 18, 1998.

Scott argues that Rule 17(a) of the Federal Rules of Civil Procedure*fn4 requires the Court to dismiss the Complaint because McAllister is not the real party in interest with respect to payments made by McAllister's insurers to Metal Processing for its lost cargo. Scott argues that McAllister's underwriters are the real parties in interest; since they are not joined in the action, the action should be dismissed. Scott's argument is without merit. The facts here do not require or justify dismissal of the Complaint. The purpose of Rule 17(a) is to allow defendants to raise all of their defenses and to protect defendants from multiple suits. Pace v. General Elec. Co., 55 F.R.D. 215, 217 (W.D.Pa. 1972). Scott is not at any risk of being sued again for McAllister's claim.

Up until the time that the Settlement Agreement was signed in June of 1998, McAllister was certainly the real party in interest. Scott argues that while preparing the Pretrial Order filed on August 21, 1998, it requested McAllister to provide the names and amounts paid by subrogated insurers, which McAllister failed to do. Scott further complains that McAllister did not amend the Pretrial Order to include the subrogated insurers as plaintiffs and has now waived its right to do so. But the case relied on by Scott, United States v. Aetna Casualty & Surety Co., 338 U.S. 366, 70 S.Ct. 207, 94 L.Ed. 171 (1949), does not support its position. In that case the Supreme Court, responding to the defendant's argument that it was necessary to join the insured in the action, held that both parties were necessary; that is, the pleading should reflect each party's real interest in the action and suggested that the burden for joining the non-suing party was on the defendant. The Court stated that the defendant — the United States — could "upon timely motion" compel the joinder of the non-suing party. Id. at 382, 70 S.Ct. 207. The Court also found where there was partial subrogation to an insurer, neither the insured nor the insurer-subrogee was an indispensable party. Id. at 382 n. 19, 70 S.Ct. 207.

Rather than require dismissal of the action where the insured sues without the subrogated insurer, courts have held that where there is partial subrogation the insured may file suit in its own name for the entire amount of the claim, without naming the insurer as a co-plaintiff. Virginia Elec. and Power Co. v. Westinghouse Elec. Co., 485 F.2d 78 (4th Cir. 1973), cert. denied, 415 U.S. 935, 94 S.Ct. 1450, 39 L.Ed.2d 493 (1974); Garcia v. Halt 624 F.2d 150 (10th Cir. 1980); Wright v. Albuquerque Auto Tr. Stop, 591 F.2d 585 (10th Cir. 1979); Baker v. Southern Pacific Transportation, 542 F.2d 1123 (9th Cir. 1976).

Subsequent to the trial, counsel for McAllister forwarded to the Court acknowledgments of the "Ratification of McAllister's Action" whereby McAllister's P & I Underwriters and Tower's Liability Underwriters ratified all actions taken by McAllister in this matter past and future, including the commencement of a crossclaim against Scott. The Ratification further authorized the continuation of this action, agreed that "McAllister may pursue any right that the P & I Club and Towers's Liability Underwriters have" against Scott and agreed to be bound by the result of this action and by all court orders action as if they were named parties.

Scott objects to this Ratification, arguing it has been sent to the Court too late, but Rule 17(a) expressly provides that no action shall be dismissed until reasonable time after objection has been given for ratification by the real party in interest, A plaintiff must have a reasonable opportunity to obtain ratification of the action from, or joinder or substitution of the real party in interest. See Sun Refining and Marketing Co. v. Goldstein Oil Co., 801 F.2d 343 (8th Cir. 1986). McAllister has obtained that ratification, and such ratification serves as a separate basis for not dismissing the complaint under Rule 17(a). The Court therefore concludes that Rule 17(a) does not require dismissal of the complaint.

  C. Does Scott's Obligation to Indemnify McAllister Constitute A Valid
     Indemnity?

Section 15 of the COA clearly provides that neither McAllister nor its underwriters shall have any responsibility for cargo loss and that Scott shall indemnify McAllister and its underwriters for such loss. Scott, relying on Bisso v. Inland Waterways Corp., 349 U.S. 85, 75 S.Ct. 629, 99 L.Ed. 911 (1955), argues that the indemnity clause is unenforceable because it is void against public policy. In Bisso the Supreme Court held that clauses in towage contracts that relieve a tower from its own negligence are void against public policy. The Bisso rule now has so many exceptions that its viability as a bright line rule must be questioned. However, it is unnecessary to try to determine whether the Third Circuit would feel constrained to follow the Bisso court's prohibitions or would, following the analysis under "benefit of insurance" agreements, permit allocation that best fits the contracting parties' needs;*fn5 a Bisso analysis is inappropriate as the contract between McAllister and Scott is a contract of affreightment, not a towage contract, to which Bisso does not apply.

Although Scott in its briefs refers to the COA as a towage contract, the parties themselves identified their agreement as a "Contract of Affreightment." When a tug and barge are owned by the same person and the contract is one to move cargo from one point to another, the contract is one of affreightment and not towage. See Parks, Alex L., THE LAW OF TUG, Tow AND PILOTAGE 43 (3d.Ed. 1994); Sacramento Navigation Co. v. Saltz, 1927 A.M.C. 397, 273 S.S. 326 (1927). Since McAllister owned the tug and the barge, and contracted to move Scott's cargo, the contract — the COA — is a contract of affreightment.

The cargo carried under the COA was one of private, not common, carriage since the carriage was an entire vessel load for a single shipper. See Parks, supra; Schoenbaum, 2 ADMIRALTY AND MARITIME LAW § 10-3 (2d Ed. 1994). Since the COA is a private contract of affreightment, the parties are free to allocate their respective rights and liabilities. See Schoenbaum, supra; Caribe Tugboat Corp. v. J.D. Barter Const. Co., Inc., 509 F. Supp. 312 (M.D.Fla. 1981); Kerr-McGee Corp. v. Law, 479 F.2d 61 (4th Cir. 1973).

Federal maritime law recognizes the right to contractual indemnity and that such indemnity extends to losses caused by the indemnitees' own negligence where, as with Section 15 of the COA, the intent is expressly provided for in the contract. See Angelina Casualty Co. v. Exxon Corp. USA., Inc., 876 F.2d 40, 42 (5th Cir. 1989)

If Scott had shown that the COA was contrary to public policy as a result of an unconscionable disparity in bargaining positions, a colorable argument based on the Bisso rationale might apply, but Scott has made no such showing. See Tenneco Oil, 324 F. Supp. at 838. Absent such a showing the Court will follow those cases that restrict the application of the Bisso doctrine to towage contracts. See Texas Co. t'. Lea River Lines, 206 F.2d 55 (3d Cir. 1953); Hercules, Inc. v. Stevens Shipping Co., 698 F.2d 726 (5th Cir. 1983); Kerr-McGee Corp. v. Law, 479 F.2d 61 (4th Cir. 1973); Fluor Western, Inc. v. G & H Offshore Towing Co., 447 F.2d 35 (5th Cir. 1971); Mississippi Valley Barge Line Co. v. Inland Waterways Shippers Ass'n Inc., 289 F.2d 374 (8th Cir.), cert. denied, 368 U.S. 876, 82 S.Ct. 123, 7 L.Ed.2d 77 (1961); Caribe Tugboat, 509 F. Supp. 312; Tenneco Oil Co. v. Tug Tony, 324 F. Supp. 834 (S.D.Tex. 1971); Allied Chemical Corp. v. Gulf Atlantic Towing Corp., 244 F. Supp. 2 (E.D.Va. 1964); Pure Oil Co. v. M/V Caribbean, 235 F. Supp. 299 (W.D.La. 1964), aff'd sub nom, Pure Oil Co. v. Boyne, 370 F.2d 121 (5th Cir. 1966).

The Court concludes therefore that Section 15 of the COA requiring Scott to indemnify and hold harmless McAllister and its underwriters for any claim for loss of cargo is valid and enforceable.

  D. Does the Contract of Affreightment Require McAllister to Name Scott
     As An Additional Assured on its Protection and Indemnity ...

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