346 F.3d 530 (5th Cir. 2003), 02-30842, Otto Candies, L.L.C. v. Nippon Kaiji Kyokai Corp.

Docket Nº:02-30842
Citation:346 F.3d 530
Party Name:Otto Candies, L.L.C. v. Nippon Kaiji Kyokai Corp.
Case Date:September 17, 2003
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
FREE EXCERPT

Page 530

346 F.3d 530 (5th Cir. 2003)

OTTO CANDIES, L.L.C., Plaintiff-Appellee,

v.

NIPPON KAIJI KYOKAI CORPORATION, Defendant-Appellant.

No. 02-30842.

United States Court of Appeals, Fifth Circuit

September 17, 2003

Page 531

[Copyrighted Material Omitted]

Page 532

Alfred J. Rufty, III (argued), Rufus C. Harris, III, Harris & Rufty, New Orleans, LA, for Plaintiff-Appellee.

Ralph E. Smith (argued), New Orleans, LA, for Defendant-Appellant.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before JONES and BENAVIDES, Circuit Judges, and KAZEN, District Judge. [*]

EDITH H. JONES, Circuit Judge:

Appellant Nippon Kaiji Kyokai Corporation ("NKK") appeals from the judgment in a negligent misrepresentation case based on statements NKK made in a classification survey of the M/V SPEEDER that was a prerequisite to the vessel's sale. We hold that general maritime law cautiously recognizes the tort of negligent misrepresentation as applied to classification societies and that on the specific facts presented in this case, NKK owed a legal duty to Otto Candies. Finding no error in the district courtto oudgment, we affirm.

BACKGROUND

The SPEEDER is a high speed, aluminum hulled passenger vessel built by Austal Pty Ltd. Diamond Ferry Co., Ltd. ("Diamond") took delivery of the SPEEDER in April 1995. The SPEEDER was registered in Japan and was classified by NKK as a "coastal (Japanese Government) passenger vessel." Diamond operated the SPEEDER as a coastal passenger ferry from 1995 to 1998 in Japan. In 1998, Diamond took the SPEEDER out of service, and her NKK classification lapsed. On December 22, 1999, Otto Candies entered into a Memorandum of Agreement ("MOA") with Diamond to purchase the SPEEDER. As a condition of sale, a clause in the MOA required that NKK restore and make current the SPEEDER's coastal classification free from any outstanding recommendations.

On January 5, 2000, NKK issued a Class Maintenance Certificate to Diamond that indicated the SPEEDER was certified within class as a coastal passenger ferry with no outstanding deficiencies. This condition of the MOA being satisfied, Otto Candies paid for the SPEEDER and it was transported from Japan to Port Everglades, Florida aboard a heavy lift ship. From Port Everglades, the SPEEDER was towed to the Bender Shipyard in Mobile, Alabama. Once the SPEEDER arrived in Mobile, Otto Candies arranged for a survey by the American Bureau of Shipping ("ABS") so that the vessel's classification could be transferred from NKK to ABS.

The ABS surveyor, Demetri Stroubakis, discovered a number of significant deficiencies that required repair before ABS would classify the SPEEDER. In particular, Stroubakis noted damaged and wasted overhead spool piping sections that connect the cooling system machinery to the hull; a hull fracture in the port-aft main-engine exhaust connection to the hull; fractured hull brackets, wasted cooling piping, leaks in the port and starboard stabilizer fins; excessive movement in the starboard stabilizer shaft; leaks in the port-forward main-engine sea strainer that filters the water used to cool the engines; disconnected and missing bilge pumps;

Page 533

gas and water leaks in the exhaust system; a faulty circuit breaker for the starboard generator; severe damage to the port-aft main propulsion gear; exterior and interior leaks in the main reduction gear oil coolers; damage to the starboard-forward main engine; damage and deterioration in the ventilation system for the port-aft engine; corroded hose and pipe connections for the main and auxiliary engine fuel and lube oil systems that created a severe fire hazard; leaking water-jet pump shaft seals; a heavily corroded port and starboard water-jet pump-bladder accumulator-block valve; and that the engine oil was sooty, black, and contained particulate matter which suggested problems with the machinery. In response to Stroubakis's report, Otto Candies had the SPEEDER repaired at the Bender shipyard at a cost of $328,096.43. When repairs were completed, ABS issued an interim class certificate.

Otto Candies filed the instant suit against NKK to recover the costs of repairs needed for the SPEEDER to obtain a class certificate from ABS. Otto Candies's sole claim against NKK was based on the tort of negligent misrepresentation as stated in the ALI Restatement (Second) of Torts § 552. The district court held a two day bench trial, after which it found that NKK owed a duty to Otto Candies and that NKK was liable for negligent misrepresentation. The court awarded Otto Candies damages for the repair costs. NKK timely appealed.

STANDARD OF REVIEW

In admiralty cases we review the district court's legal conclusions de novo. Lake Charles Stevedores, Inc. v. PROFESSOR VLADIMIR POPOV MV, 199 F.3d 220, 223 (5th Cir. 1999). We review the district court's factual findings for clear error. Houston Exploration Co. v. Halliburton Energy Servs., Inc., 269 F.3d 528, 531 (5th Cir. 2001) (citing Fed.R.Civ.P. 52(a)). Findings of negligence are factual findings. Jackson v. OMI Corp., 245 F.3d 525, 528 (5th Cir. 2001). "Under a clear error standard, this court will reverse 'only if, on the entire evidence, we are left with the definite and firm conviction that a mistake has been made.' " Walker v. Cadle Co. (In re Walker), 51 F.3d 562, 565 (5th Cir. 1995) (quoting Allison v. Roberts (In re Allison), 960 F.2d 481, 483 (5th Cir. 1992)).

DISCUSSION

NKK is one of the world's largest maritime classification societies. Classification societies are "organized societies which undertake to arrange inspections and advise on the hull and machinery of a vessel from its initial stages in new building and thereafter. The societies produce a certificate concerning the vessel's seaworthiness in accordance to the trade within which it is intended to, or does, work." Damien L. O'Brien, The Potential Liability of Classification Societies to Marine Insurers Under United States Law, 7 U.S.F. Mar. L.J. 403, 403 (1995) (quoting Eric Sullivan, The Marine Encyclopedia Dictionary 78 (1980)). These certificates are widely relied upon by all sectors of the maritime industry as an indication that a vessel is reasonably fit for its intended use. Machale A. Miller, Liability of Classification Societies from the Perspective of...

To continue reading

FREE SIGN UP