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BP Exploration & Oil, Inc. v. Moran Mid-Atlantic Corp.

June 28, 2001


The opinion of the court was delivered by: Joseph H. Rodriguez, District Judge


I. Introduction

A more detailed discussion of the facts of this case can be found in this Court's Findings of Fact, issued even date. For the purposes of understanding these Conclusions of Law, this brief recitation of the facts will suffice.

On or about 6:00 A.M. on April 3, 1994, the GRACE MORAN, a tugboat owned and operated by defendants, Moran Mid-Atlantic Corp., and Moran Towing Company (collectively "Moran"), with its mate on watch asleep in the wheelhouse, crashed through a portion of the outer dock and walkway structure of a dock facility on the Delaware River in Paulsboro, New Jersey, owned and operated by BP Exploration & Oil, Inc. ("BP"). The tug then proceeded to crash into and through the inner walkway and associated piping and continued through this area until it ran aground on the shoreline. This is referred to herein as the Incident.

At the time of the Incident, Frank Auerswald, the mate, was on watch at the wheel of the GRACE MORAN. He had been at watch for more than twelve hours in the twenty-four period preceding the Incident, though not all of that time on watch had been spent at the wheel. He was still on watch at the time of the Incident because he had chosen to let the captain, Joseph Killian, remain sleeping. Neither Auerswald nor Killian knew the working hour requirements, under federal law, for time spent on watch. Moran had no official policy in place regarding the number of hours worked by the captain or the mate. Instead, Moran relied upon the captain to conform to federal law, but did not provide training on federal law to the captains. *fn1

In the Findings of Fact, this Court examined BP's damages as a result of the Incident. BP claimed to have incurred $154,931.99 in Emergency Response Costs, which included charges for, among other items, oil product loss, security, emergency contractors, and two surveys (a damage survey and a condition survey) by Hudson Engineers. BP was not entitled to a claimed expense of $5,774.88 for use of its equipment.

After the crisis had ended, portions of some of the pipes at the dock facility were determined to have been destroyed. Additionally, a portion of the Outshore Walkway, a portion of the Inshore Walkway, and Barge Cluster Six had been destroyed. BP claimed $228,750.00 for damages to the walkways, $4,367.00 for damages to the electrical components, $307,872.00 for damage to the pipelines, $9,500 for permit applications, $6,190.00 for permit fees, $14,127.00 for bid package preparation, and $800.00 for a material take-off estimate.

This Court determined that the Outshore Walkway had exhausted 12% of its useful life, the Inshore Walkway and Barge Cluster Six had exhausted 80% of their useful lives, that certain pipelines had been abandoned prior to the Incident, and that the remaining five pipelines had exhausted 44% of their useful lives.

While BP replaced the portion of the Outshore Walkway that was destroyed in the Incident, it did not replace the destroyed portion of the Inshore Walkway or Barge Cluster Six. Instead, a new portion of Outshore Walkway was added to the dock facility. The five pipelines that were not abandoned were replaced by BP, though in a different configuration.

Early on, the parties were all involved in the emergency response to the Incident and in the assessment of the damages. Soon, the parties developed some fundamental disagreements, and the assessments and negotiations dragged on until BP filed this suit in October 1997. While Moran eventually conceded liability for the Incident, the parties were unable to agree on damages. A bench trial on the issue of damages was conducted from February 24, 2001 to March 13, 2001. The following are the Court's Conclusions of Law in accordance with Federal Rule of Civil Procedure 52(a).

II. Jurisdiction

1. BP is an Ohio Corporation, with a principle place of business in Cleveland, Ohio.

2. Moran Mid-Atlantic Corporation was at the times relevant hereto a Delaware Corporation, with a principle place of business in Baltimore, Maryland.

3. Moran Towing of Pennsylvania was at the times relevant hereto a division of Moran Mid-Atlantic Corporation, with a principle place of business in Philadelphia, Pennsylvania.

4. This Court has jurisdiction over this civil admiralty claim pursuant to 28 U.S.C. § 1333. Venue is proper in this Court.

III. Conclusions of Law

A. Compensatory Damages

5. BP and Moran have argued extensively on the law of damages in admiralty cases. This Court notes that it would have helped the parties to prepare their trial presentations if they had moved this Court, prior to trial, for an interpretation of the conflicting case law on this topic. It would also have facilitated settlement discussions. This was not done.

6. The general rule for recovery of damages due to the negligence of others in admiralty cases is restitutio in integrum; the damaged party is entitled to be put in as good a position pecuniarily as he was in prior to the damage to his property occurring. The Baltimore, 75 U.S. (8 Wall.) 377, 385-86 (1869); Standard Oil Co. v. S. Pac. Co., 268 U.S. 146, 155 (1925).

7. If the plaintiff suffers a total loss, either actual or constructive, he or she may recover the value of the property lost just before the damage. If there is not a complete loss and repairs are feasible, the cost of repair is the measure of damages. But, if those costs exceed the value just before the damage, then the plaintiff is limited to the value just before the damage. See Standard Oil, 268 U.S. at 155-56; Gaines Towing and Transp., Inc. v. Atlantia Tanker Corp., 191 F.3d 633, 635-36 (5th Cir. 1999); Orange Beach Water, Sewer, and Fire Prot. Auth. v. M/V Alva, 680 F.2d 1374, 1383-84 (11th Cir. 1982); Bunge Corp. v. Am. Commercial Barge Line Co., 630 F.2d 1236, 1241 (7th Cir. 1980); Hewlett v. Barge Bertie, 418 F.2d 654, 657 (4th Cir. 1969); The Manhattan, 85 F.2d 427, 428 (3d Cir. 1936); Pillsbury Co. v. Midland Enters., 715 F. Supp. 738, 764 (E.D. La. 1989).

8. It does not matter that a plaintiff chooses to build a different facility instead of replacing a facility with identical property, a defendant is still liable for the damages incurred by the destruction of the original facility. See Bunge Corp., 630 F.2d at 1241-42.

9. The burden is on BP to prove the extent of its damages, including the actual value of any item damaged at the time just prior to damage. See Servicios-Expoarma, C.A. v. Indus. Mar. Carriers, Inc., 135 F.3d 984, 994 (5th Cir. 1998); Pizani v. M/V Cotton Blossom, 669 F.2d 1084, 1088 (5th Cir. 1982); Pinto v. M/S Fernwood, 507 F.2d 1327, 1331 (1st Cir. 1974); O'Brien Bros. v. The Helen B. Moran, 160 F.2d 502, 504-05 (2d Cir. 1947); In re Boat Demand, Inc., 174 F. Supp. 668, 673 (D. Mass. 1959).

10. If Moran asserts that value is less than the cost of repairs, Moran has the burden of establishing that fact. See Hewlett v. Barge Bertie, 418 F.2d 654, 657 (4th Cir. 1969). *fn2

11. Even though a defendant has the burden of demonstrating that a plaintiff could have mitigated its damages, this "does not affect the ordinary rule that an injured party has the burden of proving the damages he has actually suffered." See O'Brien Bros., 602 F.2d at 504.

12. In a recent article in the Oregon Law Review, the author described two conflicting fundamental principles of remedies. See James E. Beard, Comment, A Tale of Boats, Bridges, Barges, and Automobiles: Restoring the Injured Party's Rightful Position in Cases Involving Loss of Used Property, 76 Or. L. Rev. 1049 (1997).

The first fundamental rule of compensatory damages is to restore the injured party, as nearly as possible, to her rightful position. . . . The second fundamental principle of compensatory damages is that, while the injured party is entitled to be restored to her rightful position, the wrongdoer is usually entitled to have plaintiff made whole in the least expensive way. Id. at 1050-51; see also Michael A. Snyder, Maritime Collision Damage to Vessels and Fixed Structures, 72 Tul. L. Rev. 881 (1997).

Here, BP argues that the first principle, and BP's favored cases, militate against a reduction from any damage award for depreciation or betterment. Moran, of course, cites only cases that apply depreciation and betterment, arguing for the second principle.

13. In J.W. Paxson Co. v. Board of Chosen Freeholders, 201 F. 656 (3d Cir. 1912), the Third Circuit addressed the appropriate damages after a tug crashed into a draw bridge, knocking a piece of the bridge into the river. It was determined that a span of the bridge and a fender needed to be replaced. While the court allowed the amount of damages awarded to replace the fender to be reduced for depreciation, the plaintiff was allowed the full replacement cost for the span of the bridge.

The plaintiff was compelled, by the negligence of the defendant, to build a new structure, which, as a new structure, was possibly, though not certainly, more valuable than the old one. But the old structure sufficed for the purposes of the plaintiff, and the plaintiff was damaged by being compelled to procure a new structure in place of the old one, for the contract price of which it was obliged to pay. The sufferer by the negligence of the defendant cannot be compelled to perform the impossible task of recreating the old span, without buying a new one, or make a nice computation of the difference in value between the old one and the new. The plaintiff did not need a new span. The old one was sufficient, and the [plaintiff] was damaged by being compelled to incur the cost of the new one. Id. at 663; see also 17 C.J. Damages § 188 (1919) (citing Paxson for proposition that destruction of a structure that served a particular use results in the measure of damages being replacement cost without applying the "new for old" rule).

14. The Paxson court did not explain why, in this case, the "new for old" rule should not be applied. This rule avoids giving a windfall to a plaintiff by replacing old and depreciated equipment with new equipment. See Oregon ex rel. State Highway Comm'n v. Tug Go-Getter, 468 F.2d 1270, 1273 (9th Cir. 1972). In Tug Go-Getter, a tug had collided into a pier that was connected to a bridge. The court took no reduction from the plaintiff's damages for depreciation of the pier or its individual parts. The court found that the pier was an integral part of the bridge and that the repair or replacement of the pier added no substance to the overall value of the bridge. That is, the life expectancy of the bridge was not extended by the replacement of an old pier with a new one.

15. In addition to citing Paxson, the Tug Go-Getter court cited United States v. Ebinger in support of its determination. See Tug Go-Getter, 468 F.2d at 1274 (citing United States v. Ebinger, 386 F.2d 557 (2d Cir. 1967)). In Ebinger, a contractor working on a water tower at the top of a government building negligently caused the tower to burn, necessitating a new tower to replace it. The appellate court reasoned that the rule that a plaintiff can hold its loss to the value of property before damage by abandoning rather than replacing it does not apply when damaged property is an essential part of a larger whole. The water tower was an integral part of the building air conditioning system. A defendant does not get a credit because a new piece of property was acquired if that was the cheapest course available. The court noted, however, that this exception might not apply where the damaged part was scheduled for early replacement, long before the useful life of the whole unit. The water tower was probably good for another twenty to twenty-five years. Even though the whole unit had a "somewhat longer useful life," "any increment in value by avoiding the possible need to replace the water tower a quarter of a century hence would be small and speculative." Id. at 561. The contractor was allowed to reduce the damages by deducting the amount of maintenance costs that would be saved by the government.

16. There is further support for this position. As far back as 1869, the United States Supreme Court addressed the proper measure of damages in admiralty where two vessels collided and the nonculpable vessel sinks. See The Baltimore, 75 U.S. (8 Wall.) 377 (1869). In dicta, the Court explained the general rule of restitutio in integrum, which is the general rule followed by the courts in admiralty.

[T]he damages assessed against the respondent shall be sufficient to restore the injured vessel to the condition in which she was at the time the collision occurred; and in respect to the materials for the repairs the rule is that there shall not, as in insurance cases, be any deduction for the new materials furnished in the place of the old, because the claim of the injured party arises by reason of the wrongful act of the party by whom the damage was occasioned, and the measure of the indemnification is not limited by any contract, but is coextensive with the amount of the damage. Such repairs, in consequence of a collision, may enhance the value of the vessel and render her worth more than she was prior to the accident, and in that state of the case the rule in insurance cases is that one-third of the value of the new material is deducted, because the new material is more valuable than the old, but the rule is not so where the repairs are required in consequence of a culpable collision. Id. at 385-86 (footnotes omitted) (emphasis added); see also The Atlas, 93 U.S. 302 (1876) ("[T]he sufferer is entitled to complete indemnification for his loss, without any deduction ...

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