Thyssen, Inc. v. S.S. Fortune Star

• Decision Date: 08 November 1985
• Docket Number: No. 85-7003,85-7003
• Citation: 777 F.2d 57
• Parties: , 54 USLW 2287 THYSSEN, INC., Plaintiff-Appellee, v. S.S. FORTUNE STAR, her engines, boiler, etc., Evolution Maritime Enterprises, Ltd., Defendants, and Taiwan International Lines, Ltd., Defendant-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

Page 57

777 F.2d 57

1986 A.M.C. 1318, 54 USLW 2287

THYSSEN, INC., Plaintiff-Appellee, v. S.S. FORTUNE STAR, her engines, boiler, etc., Evolution Maritime Enterprises, Ltd., Defendants and Taiwan International Lines, Ltd., Defendant-Appellant.

No. 85-7003.

United States Court of Appeals Second Circuit.

Argued Sept. 4, 1985.

Decided Nov. 8, 1985.

Vincent J. Barra, Dougherty, Ryan, Mahoney, Pellegrino, Giuffra & Zambito, New York City, for defendant-appellant.

Joan S. Kingsley, Harold M. Kingsley, New York City, for plaintiff-appellee.

Before FRIENDLY, PIERCE and PRATT, Circuit Judges.

FRIENDLY, Circuit Judge:

This suit in admiralty in the District Court for the Southern District of New York was brought by Thyssen, Inc., the consignee of a shipment of 409 bundles of galvanized steel pipe, most of which were damaged while in transit between Pusan, Korea, and San Juan, Puerto Rico, against the S.S. Fortune Star; her owner, Evolution Maritime Enterprises, Inc.; and her time charterer, Taiwan International Lines, Ltd. (TIL). The ship and her owner were not served with process and did not appear, and the suit proceeded against the time charterer. ¹ The steel pipe was shipped under clean bills of lading which were signed by agents of TIL in Pusan "for the master," an employee of the owner, and stamped "STOWED UNDER DECK." All the pipe was originally so stowed, but at some time before commencing the trans-Pacific crossing, pursuant to an order of some officer of the vessel, 290 bundles were placed on the deck where they were covered with canvas and plastic sheets. The Fortune Star encountered bad weather in crossing the Pacific, during which the coverings for the on-deck pipe, as well as the tarpaulins covering the wooden battens on the hatches above the under-deck pipe, were badly damaged and torn. On unloading at San Juan, substantial portions of the cargo, both that stowed on the deck and that stowed under the deck, were found to be damaged at least to some extent by oxidation which resulted from corrosion of the zinc coating after prolonged contact with sea water. The complaint alleged actual damages of $65,000; it also alleged that "[b]y reason of the intentional fraud and deviation of defendants plaintiff claims exemplary damages of $100,000."

TIL did not contest liability for compensatory damages either for the on-deck or the under-deck cargo but raised serious questions, hereafter discussed, about the adequacy of Thyssen's proof of the amount ² and challenged the claim for punitive damages. The judge found that what he characterized as a joint survey in San Juan had established that the cargo had depreciated an average of 23% in value; that plaintiff had contracted to sell the shipment to a customer for $214,743.70 and "was therefore required to remit to the customer $49,391.05"; and that plaintiff had spent $3,989.15 in surveyor's fees to establish the damage. 596 F.Supp. 865, 866 (S.D.N.Y.1984). Accordingly, he

                awarded compensatory damages of $53,380.20 with interest from the date of the delivery of the pipe.   Id. at 866-67.  Finding that the removal of part of the cargo from below the deck to deck stowage was an unreasonable deviation, see Jones v. The Flying Clipper, 116 F.Supp. 386 (S.D.N.Y.1953), and was "a wilful act in derogation of [TIL's] obligation to the shipper which had specifically contracted to minimize the risk of damage to its shipment," he regarded it as "inappropriate to award merely contract damages where the conduct of the vessel indeed worked a fraud upon the owner of the cargo," citing The Idefjord, 114 F.2d 262, 266 (2 Cir.), cert. denied, 311 U.S. 707, 61 S.Ct. 175, 85 L.Ed. 459 (1940), and awarded punitive damages of $25,000.  596 F.Supp. at 866-67.  TIL contends on appeal that plaintiff's evidence did not support the amount awarded as compensatory damages and that the award of punitive damages was erroneous as a matter of law
                

DISCUSSION

I. Compensatory Damages

The judge was mistaken in characterizing the survey as having been a joint survey in the sense that TIL could be legally bound by it, see Compagnie De Navigation Fraissinet & Cyprien Fabre, S.A. v. Mondial United Corp., 316 F.2d 163, 170-71 (5 Cir.1963); indeed, he had pointed out at the trial, some 20 months before the opinion was issued, that the survey "is not joint in the legal sense." Nevertheless, in light of all the evidence presented at trial, this misconception did not render clearly erroneous the judge's reliance on the results of the survey in determining the amount of compensatory damages.

After they had been notified of the damage to the cargo, Thyssen's cargo underwriters had arranged for a survey to be made at San Juan by a Captain Klotzek on November 5, 1979, 24 days after the arrival of the shipment. The survey was also attended by a Mr. Catanzaro, representing the steamship owner; a Mr. Casola, representing Thyssen Steel Caribbean, Inc., the party purchasing the pipe from Thyssen, Inc., and thus the ultimate consignee of the pipe; and a Mr. Pietri, another surveyor employed by Thyssen Steel Caribbean. No one represented TIL, which had no agent at San Juan, although it appears to have been timely notified of the claim for damage to the cargo and to have had the opportunity to participate in the survey, but simply chose to rely on the carrier to represent its interests. The survey report made by Captain Klotzek recites difficulties which the surveyors encountered. Only 340 of the 409 bundles could be identified, the others apparently having been sold. Some of the bundles had been exposed to the elements after unloading. Captain Klotzek found definite evidence of corrosion due to the entrance of sea water but refrained from taking samples both because of the exposure to precipitation and because samples had already been taken by Mr. Pietri in the course of a preliminary survey made for Thyssen Steel Caribbean on October 15, 1979.

The survey report states that "[i]t was agreed by all parties concerned to have final consignee's retain the shipments at a depreciation allowance representing the best possible means in minimizing the final extent of loss." The report explained that cleaning and regalvanization were not possible in Puerto Rico and that to have this done on the mainland would be prohibitively expensive. It stated also that a salvage disposition, without taking into consideration possible segregation charges, would not have exceeded a 50% return. The surveyor estimated that a damage allowance of 17% to 20% would be realistic, and that "[i]n further negotiations with Thyssen Steel Caribbean, in the presence of the Steamship surveyor it was also considered that time and labor was necessary to sort out unuseable [sic] materials and a final depreciation of 23% was arrived at." The report added that "[w]hile the Steamship surveyor pointed out that he was not authorized to agree on any extent of loss consideration, it was our understanding that he considered the result of the negotiation, namely 23% depreciation overall as fair and reasonable." This prediction proved to be accurate. Catanzaro's own survey report concluded that "the recommended allowance is fair and reasonable, taking into consideration the heavy oxidized pipes stowed on deck and the ones under deck with light damages." Although Catanzaro's report is not legally binding on TIL, it is entitled to evidentiary weight since his client also could have been held liable for the loss. Cf. Shephard S.S. Co. v. United States, 111 F.2d 110, 113 (2 Cir.1940) (lack of notice and absence of party at damage survey "are only important as they serve as guides to decision as to the weight to be given the evidence relating to the facts in issue"). ³

At trial, there was testimony by a Mr. Drobny, Thyssen, Inc.'s manager of insurance and claims, that the amount of the loss arrived at in the survey was refunded to Thyssen Steel Caribbean (which had already paid Thyssen, Inc. the full invoice price for the pipe), and copies of the refund checks were introduced into evidence. Although defendant's counsel stated at argument that Thyssen Steel Caribbean was an affiliate of the plaintiff and this was not denied by plaintiff's counsel, the record is that neither company owned stock in the other. The record also contains a deposition by Casola, an official of Thyssen Steel Caribbean, Inc. He stated that "once the allowance was reached, we passed that same allowance to the client that was received of the cargo," and that "[o]nce that material has arrived, everybody knows that Thyssen Steel has damaged pipe and therefore, they expect that allowance." Casola produced invoices showing that the allowance had been passed on to Thyssen Steel Caribbean's ultimate customers for most of the pipe, but was unable to produce such invoices with respect to 49 of the 409 bundles. He stated that these bundles, not having been sold upon arrival, "went into inventory." No evidence as to the ultimate sale price of these bundles was ever introduced.

TIL's objection to the award of compensatory damages rests primarily on Weirton Steel Co. v. Isbrandtsen-Moller Co., 126 F.2d 593 (2 Cir.1942); it reads Judge L. Hand's opinion as saying that a recovery for damage to cargo purchased for resale must be supported by evidence of the difference between what was realized on the resale to the ultimate consumer and what would have been realized if the damage had not occurred. If the transaction between Thyssen, Inc. and Thyssen Steel Caribbean was not at arm's length, the record here with respect to resale price, at least with respect to the 49 bundles for which there were no invoices or other showing that the discount was passed on to the ultimate consumer, might not be sufficient to support the award. However, TIL reads Judge Hand's opinion as saying more than it did. In Weirton the goods--tin plate destined to be converted in Hong Kong into five gallon oil cans to fuel the...