Project Hope v. M/V IBN SINA

Decision Date05 December 2000
Docket NumberTHIRD-PARTY,CROSS-APPELLANT,CROSS-APPELLEE,DEFENDANTS-APPELLEES,PLAINTIFF-APPELLEE,Docket Nos. 00-7498,THIRD-PARTY-DEFENDANT-APPELLANT
Citation250 F.3d 67
Parties(2nd Cir. 2001) PROJECT HOPE,/, v. M/V IBN SINA, HER ENGINES, BOILERS, ETC., AND NEPTUNE ORIENT LINES, LTD., DEFENDANTS, UNITED ARAB AGENCIES, INC., AND UNITED ARAB SHIPPING COMPANY,, BLUE OCEAN LINES, DEFENDANT/PLAINTIFF, v. MILL TRANSPORTATION COMPANY,/(L), 00-7532(XAP) August Term 2000 Argued:
CourtU.S. Court of Appeals — Second Circuit

Patrick J. Corbett, Esq., Bigham, Englar, Jones &Houston, New York, NY, for Third-Party-Defendant-Appellant/Cross-Appellee Mill Transportation Company.

David Y. Loh, Esq., Nicoletti Hornig Campise & Sweeney, New York, NY, for Plaintiff-Appellee/Cross-Appellant Project Hope.

Robert A. Milana, Esq., London Fischer LLP, New York, NY, for Defendants-Appellees United Arab Agencies, Inc. and United Arab Shipping Company.

Before: Walker, Chief Judge, Cabranes and Straub, Circuit Judges.

John M. Walker, Jr., Chief Judge

Third-party-defendant-appellant/cross-appellee Mill Transportation Company ("Mill") appeals from a verdict, following a bench trial, of the United States District Court for the Southern District of New York (William H. Pauley III, Judge) finding Mill and defendant- appellee/third-party plaintiff Blue Ocean Lines ("Blue Ocean") jointly and severally liable to plaintiff-appellee/cross-appellant Project Hope for 95,474 vials of spoiled humulin, a type of insulin. See Project Hope v. M/V IBN SINA, 96 F. Supp. 2d 285, 298 (S.D.N.Y. 2000).

Project Hope initially contracted with Blue Ocean for transport of the humulin from Winchester, Virginia to Cairo, Egypt via the port of Norfolk, Virginia. Blue Ocean, in turn, subcontracted with Mill for the overland portion of the transport in Virginia and with United Arab for the oceangoing leg of the transport. When Mill transported the humulin at the wrong temperature, it spoiled.

On appeal, Mill challenges on two grounds that part of the district court's judgment making the damage award joint and several. First, Mill argues that in imposing joint and several liability the district court improperly resorted to federal admiralty law, which permits joint and several awards in the normal course in cases involving multiple tortfeasors. Second, Mill argues that, in any event, Project Hope failed to assert direct claims against Mill and cannot look to it for recovery.

Project Hope cross-appeals, contending that the district court erred (1) in relying on the replacement cost for the spoiled humulin to measure damages, (2) in calculating the actual damage award, and (3) in dismissing its claims against defendant-appellee United Arab Shipping Co. and its United States agent, defendant-appellee United Arab Shipping Agencies, Inc. (collectively, "United Arab").

We hold that the district court did not err in allowing joint and several recovery against Mill or in holding Mill liable to Project Hope despite Project Hope's failure to assert claims against Mill directly. With respect to Project Hope's cross-appeal, we hold both that the district court did not err in relying on the humulin's replacement cost to measure Project Hope's damages and that the district court properly dismissed Project Hope's claims against United Arab. However, because we find that the district court improperly calculated Project Hope's actual loss, we vacate the damage award and remand the case to the district court for recalculation.

The judgment of the district court is thus affirmed in part, vacated in part and remanded for recalculation of damages.

BACKGROUND

Familiarity with the detailed factual account in the district court's opinion is assumed. See Project Hope, 96 F. Supp. 2d at 287-91. We recite only those facts relevant to the disposition of this appeal. No challenge has been made to the district court's factual findings, which we take to be true.

On October 11, 1996, Eli Lilly and Company ("Eli Lilly") donated to Project Hope 95,474 vials of humulin--a chemically synthesized form of insulin manufactured exclusively by Eli Lilly and taken "by more than 4 million people with diabetes around the world every day," see http://www.lillydiabetes.com/products/humulin.cfm (last visited April 6, 2001). Humulin must be stored within five degrees of 42 F at all times; otherwise, it will spoil.

Project Hope is a private, non-profit organization that makes charitable donations of medicine and pharmacy supplies both in the United States and abroad. In early October 1996, Project Hope contracted with Blue Ocean--a non-vessel owning common carrier--for it to arrange the transport of the donated humulin from Project Hope's warehouse in Winchester, Virginia to Cairo, Egypt. Blue Ocean, in turn, contracted separately with United Arab for the ocean carriage and Mill for the overland motor carriage. The arrangements called for United Arab to provide a refrigerated container ("reefer") to be used throughout the transport from Winchester to Cairo; United Arab was also to transport the humulin on board its vessel from the Virginia International Terminal in Norfolk, Virginia ("the Norfolk Terminal") to Cairo. Mill's responsibilities included picking up the empty reefer from United Arab at Norfolk Terminal, transporting the reefer to Project Hope's Winchester warehouse, waiting there while Project Hope's staff loaded the humulin into the reefer, and transporting the humulin-filled reefer back to the Norfolk Terminal for loading aboard United Arab's vessel.

On October 13, 1996, Blue Ocean prepared and faxed to Mill a dock receipt that stated in relevant part: "Temperature must be 42 F plus or minus 5 F **** Do not freeze **** Vents must be closed." According to the facts stipulated by the parties and accepted by the district court, neither Blue Ocean nor Mill provided a copy of the dock receipt to United Arab. On October 15, 1996, a Blue Ocean employee negligently misinformed a member of United Arab's staff that the reefer's temperature should be set at 24 F--eight degrees below freezing--rather than the proper 42 F temperature. As a result, United Arab set the reefer's temperature at 24 F.

Later that same day a truck driver for Mill picked up United Arab's reefer at the Norfolk Terminal and, the next morning, transported it to Project Hope's Winchester warehouse. Project Hope's personnel loaded the humulin into the reefer, but neither Mill's driver nor anyone on Project Hope's staff verified that the reefer's temperature was set properly. After the humulin was loaded, Mill issued a straight bill of lading to Project Hope for the inland transportation between Winchester and Norfolk.

Mill's driver returned to the Norfolk Terminal with the humulin on October 17, 1996, whereupon terminal personnel inspected the reefer and then issued Mill's driver a receipt that documented the container's temperature at -2 C (between 26 F and 28 F). At some point during the weekend of October 20, 1996, as United Arab was preparing to load the reefer onto its vessel, an United Arab employee discovered the error. As a consequence, the reefer was not loaded onto United Arab's vessel, and United Arab informed Blue Ocean, which in turn informed Project Hope, of the situation. No one disputes that "placing the [humulin] in a sub-freezing environment" rendered it "unfit for use and thus a total loss." Project Hope, 96 F. Supp. 2d at 291.

On December 20, 1996, Project Hope's insurance underwriter, Kemper Insurance Co. ("Kemper"), paid Project Hope for the spoiled humulin and for other incidental damages. On or about January 17, 1997, Project Hope used the insurance proceeds to purchase a replacement shipment from Eli Lilly. However, due to a January 1, 1997 increase in the price of humulin from $3.60 to $4.00 per vial, Project Hope was only able to secure with the insurance proceeds a replacement shipment of 85,927 vials of humulin, as compared to the 95,474 donated vials that had spoiled.1

On May 27, 1997, Project Hope sued, inter alia, defendants Neptune Orient Lines, Ltd.,2 United Arab, and Blue Ocean, alleging that they had breached their duties and obligations as common carriers. Thereafter, defendant Blue Ocean filed a third-party complaint against Mill. Mill answered both Blue Ocean's complaint and Project Hope's original complaint.

On March 21, 2000, following a bench trial, the district court found Mill and Blue Ocean jointly and severally liable in the amount of $358,928.26, of which $343,708 was Project Hope's recovery for the humulin. See id. at 297-98. The district court also found that United Arab was not responsible for the incorrect temperature setting and therefore dismissed the claims against United Arab. See id. at 294.

Mill's appeal and Project Hope's cross-appeal followed.

DISCUSSION
I. Mill's Appeal

The thrust of Mill's appeal is directed toward avoiding liability, joint and several or otherwise, for the loss Project Hope suffered. It asserts two arguments in this effort. Despite its less-than-pellucid briefing on the issue, we understand Mill's first argument to be that the district court erroneously resorted to federal admiralty law principles in...

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