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In re Hlywiak

UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY


May 13, 2009

IN RE DAVID HLYWIAK, AS OWNER OF VESSEL M/V 50/50 FOR EXONERATION FROM OR LIMITATION OF LIABILITY.
J.J.C. BOATS, INC., PLAINTIFF,
v.
MARC HLYWIAK, DAVID HLYWIAK, AND JOHN DOES 1-10, DEFENDANTS.

The opinion of the court was delivered by: Irenas, Senior District Judge

OPINION

This is an admiralty action concerning a collision between two vessels - the Twilight and the 50/50, which occurred on July 1, 2005. Plaintiff J.J.C. Boats is the owner of the Twilight. The issues for trial are (1) liability for the collision and (2) the extent of damages sustained by Plaintiff. Presently before the Court is Defendants' Motion in Limine, seeking to preclude Plaintiff from offering evidence of any damages other than those attributable to the fair market value of the Twilight prior to the casualty.

For the reasons that follow, the Motion will be granted in part and denied in part. Plaintiff's potential damages will be limited to the fair market value of the Twilight prior to the casualty plus prejudgment interest, along with compensation for the refunded proceeds of the voyage the Twilight was performing at the time of the collision with the 50/50.

I.

Plaintiff proposes to introduce testimony about two types of damages. First, Plaintiff intends to prove that it is entitled to recover the fair market value of the Twilight, to the extent it exceeds $200,000, along with prejudgment interest.*fn1 Second, Plaintiff intends to demonstrate it is entitled to $29,132.33 in "additional damages."

Defendants contend that none of the "additional damages" sought by Plaintiff are recoverable pursuant to long-standing maritime law. According to Plaintiff, the $29,132.33 in additional damages*fn2 is comprised of:

(1) Annual Fees paid to the United States Coast Guard and the Borough of Wildwood Crest in 2005.

(2) Mortgage Interest paid to Boardwalk Bank on the Twilight for the period of July, 2005, through December, 2005.

(3) Advertising purchased by Plaintiff for the 2005 season, including Printing Costs and Distribution Costs.

(4) Annual Maintenance and Equipment Purchases to ready the Twilight for the 2005 season.

(5) Refund to Passengers on board the Twilight on the day of the collision with the 50/50 ($840).

(6) Seasonal Dock Rental for the months the Twilight was unable to use the dock following the collision.

As explained further below, the applicable law of damages varies based on whether the case is one involving a total loss or a partial loss. A constructive total loss case is one that involves a vessel "whose damage is repairable but the cost of repairs exceeds the pre-collision value." 2 Thomas J. Schoenbaum, Admiralty and Maritime Law 115 (4th ed. 2004).*fn3 A partial loss case is one in which "the pre-collision value of the vessel is greater than the reasonable cost of repairs[.]" In re Lebeouf Bros. Towing Co., Inc., 588 F.Supp. 130, 131 (E.D. La. 1984).

In this case, the estimated repairs on the Twilight would have been $197,272; the insurance coverage on the vessel was $200,000. In re Hlywiak, No. 06-2504, slip op. at 6-7 (D.N.J. Jun. 30, 2008) (Hlywiak I); In re Hlywiak, 573 F.Supp.2d 871, 873 (D.N.J. Aug. 27, 2008) (Hlywiak II). Although the insurance coverage in this case slightly exceeded the estimated cost of repairs, this Court recognized that vessel owners are permitted to claim a constructive total loss under such circumstances. Hlywiak I, slip op. at 7-8 (citing Calmar S.S. Corp. v. Scott, 209 F.2d 852, 854 (2d Cir. 1954)).

This aspect of the Court's decision was not altered on reconsideration. See Hlywiak II, 573 F.Supp.2d at 873 ("The final option, which J.J.C. Boats chose to pursue, was to declare the Twilight a constructive total loss for insurance purposes . . . .").

II.

A.

In the context of a maritime collision, potential recovery for loss of use turns on whether the loss is total or partial. Schoenbaum, supra, at 114. The Umbria was a total loss case in which the Supreme Court considered whether vessel owners could recover damages for the probable profits of a future voyage which the vessel had contracted to perform. 166 U.S. 404, 421 (1897).

The Court determined no such recovery was permitted, citing the general rule in total loss cases that "collision damages are limited to the value of the vessel, with interest thereon, and the net freight pending at the time of the collision." Id.; see also Schoenbaum, supra, at 115. In so holding, the Court expressed concern that if total loss cases permitted recovery of damages for profits of voyages not yet begun, the potential damages would be limitless. The Umbria, 166 U.S. at 422. By contrast, in partial loss cases, profits lost while a vessel is awaiting repairs are recoverable. Schoenbaum, supra, at 118; see The Umbria, 166 U.S. at 421.

Recovery in total loss cases can include, as "net freight pending," the profits of the voyage the vessel is in the midst of performing when a total loss occurs. Tucker Energy Servs., Ltd. v. Hydraquip Corp., No. H-05-1265, 2007 WL 2409571, at *3 (S.D. Tex. Aug. 20, 2007) (citing The Umbria, 166 U.S. at 422).*fn4

B.

In certain circumstances, recovery has been permitted in total loss cases for what can be described as "unavoidable" costs.*fn5 An example of such a case is Albany Ins. Co. v. Bengal Marine, Inc., which involved a barge that sank while it was being towed and was ultimately declared a constructive total loss. 857 F.2d 250, 251 (5th Cir. 1988). The district court awarded damages of $233,955.53 even though the fair market value of the barge was only $120,000. Id. at 253. Trial testimony indicated that certain expenses were necessarily incurred by cleaning the barge, because no shipyard or scrapyard would accept it, and the barge could not be left where it was without violating environmental and Coast Guard rules. Id. Testimony also indicated that temporary repairs were required otherwise the barge could not be moved. Id. The Fifth Circuit determined this testimony was plausible and did not require decreasing the damages award. Id. The Fifth Circuit also upheld damages for fleeting the barge, and for salaries and expenses incurred by Plaintiff, id.-all of which apparently related to the cleaning and temporary repairs of the barge.*fn6 See Tucker Energy Servs., 2007 WL 2409571, at *2 ("Albany [Ins. Co.] holds that necessary expenses resulting from a collision-like mandatory wreck removal-may be included in recovered damages. It supports the conclusion that immediate necessities are not, by definition, consequential.").

O'Brien Bros v. The Helen B. Moran, 160 F.2d 502 (2d Cir. 1947), is another example of when recovery was permitted for unavoidable costs accompanying a total loss. The district court failed to determine whether the case involved a constructive total loss, which required the Second Circuit to remand. See id. at 505, 507. If it was determined that the case involved a constructive total loss, the Second Circuit instructed the district court to allow damages for the value of the vessel and costs of raising the vessel "inasmuch as she had to be raised in order to ascertain the extent of the damage and to remove her as an obstacle to the use of the slip in which she was sunk as a result of the collision." Id. at 506.

The Third Circuit has also recognized that damages may be appropriate as compensation for the costs of raising a vessel that is later determined to be beyond repair. See Crain Bros., Inc. v. Duquesne Slag Prods. Co., 273 F.2d 948, 953-54 (3d Cir. 1959).

C.

"The generally established rule is that in a case of total loss the measure of damages does not include loss of use or other consequential damages." Albany Ins. Co., 857 F.2d at 253; Galapagos Corp. Turistica v. Panama Canal, 190 F.Supp.2d 900, 907 (E.D. La. 2002); Tucker Energy Servs., Ltd., 2007 WL 2409571, at *1; see also Schoenbaum, supra, at 115 n.2.*fn7 Plaintiff acknowledges this rule. (See Pl. Trial Br. at 3-4) In a related proposition, courts have stated that the measure of damages in a total loss case is the value of the ship, plus interest and net freight pending.*fn8 The Umbria, 166 U.S. at 421; see Schoenbaum, supra, at 115.

Citing the rule against consequential damages, the Fifth Circuit in Albany Insurance Co. reversed an award of damages for the rental of a replacement vessel, when the primary vessel was a constructive total loss. Albany Ins. Co., 857 F.2d at 253. Similarly, the First Circuit upheld a district court's denial of consequential damages for expenses incurred in procuring a substitute for a barge that was a constructive total loss. A&S Transp. Co., Inc. v. Tug Fajardo, 688 F.2d 1, 1-2 (1st Cir. 1982).

The most analogous case on the damages issue to the instant case is Galapagos Corp. Turistica v. Panama Canal, 190 F.Supp.2d 900 (E.D. La. 2002). In Galapagos, a vessel was docked when a fire broke out on board. Id. at 902. Firefighting units responded, but were unsuccessful, and the fire destroyed the ship. Id. The owners of the vessel sued the firefighters for negligence. Id. Defendants moved for partial summary judgment, arguing that loss of use and other consequential damages were not recoverable under maritime law. Id. at 902-03. The district court recognized the general rule that total loss cases do not permit recovery for loss of use or other consequential damages.*fn9

Id. at 907. Noting that in total loss cases "the market value of the vessel is the ceiling of recovery[,]" the district court determined that claims for "confirmed sales of tickets, publicity, merchandising, loss of image, expenses in Panama, repatriation, and liquidation of personnel" were not compensable.

Id. at 908. Thus, the vessel's possible damages were limited to the fair market value of the vessel at the time of the loss. Id.

III.

In the instant case, Plaintiff can recover the $840 refunded to passengers aboard the Twilight at the time of the collision with the 50/50; that sum is compensable as "net freight pending." See The Umbria, 166 U.S. at 421.

The remainder of the "additional damages" sought by Plaintiff - such as annual licenses, docking fees, maintenance, and publicity - are not recoverable in this action. Those fall under the general rule that consequential damages are not recoverable in total loss cases.

The cases cited by Plaintiff, discussed in part II., B., supra, are not to the contrary. Those cases involve unavoidable costs that flow directly from a collision - such as the need to raise the vessel to determine if it is a total loss, or to move the vessel from obstructing the waterways. Indeed, these unavoidable costs have been deemed compensable even though they are not part of "the value of the vessel, with interest thereon, [or] the net freight pending." See The Umbria, 166 U.S. at 421. At the same time, these types of expenditures are distinguishable from the business expenses for which Plaintiff seeks compensation in the instant case.

IV.

For the reasons stated above, Defendants' Motion will be granted in part and denied in part. Plaintiff's potential damages will be limited to the fair market value of the Twilight prior to the casualty plus prejudgment interest, along with $840 in refunded revenue to passengers aboard the Twilight at the time of the collision with the 50/50. The Court will issue an appropriate Order.

JOSEPH E. IRENAS, S.U.S.D.J.


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