United States v. CITGO Asphalt Ref. Co. (In re Frescati Shipping Co., Ltd.)

• Citation: 886 F.3d 291
• Decision Date: 29 March 2018
• Docket Number: No. 16-3470, 16-3552, 16-3867 & 16-3868,16-3470, 16-3552, 16-3867 & 16-3868
• Parties: IN RE: Petition of FRESCATI SHIPPING COMPANY, LTD., as Owner of the M/T Athos I and Tsakos Shipping & Trading, S.A., as Manager of the Athos I for Exoneration from or Limitation of Liability (E.D. Pa. No. 2–05–cv–00305) United States of America v. CITGO Asphalt Refining Company; CITGO Petroleum Corporation; CITGO East Coast Corporation (E.D. Pa. No. 2–08–cv–02898) CITGO Asphalt Refining Company; CITGO Petroleum Corporation; CITGO East Coast Oil Corporation, Appellants in Nos. 16–3470; 16–3552 Frescati Shipping Company, Ltd.; Tsakos Shipping and Trading, S.A., Appellants in No. 16–3867 United States of America, Appellant in No. 16–3868
• Court: U.S. Court of Appeals — Third Circuit

886 F.3d 291

IN RE: Petition of FRESCATI SHIPPING COMPANY, LTD., as Owner of the M/T Athos I and Tsakos Shipping & Trading, S.A., as Manager of the Athos I for Exoneration from or Limitation of Liability (E.D. Pa. No. 2–05–cv–00305)

United States of America

v.CITGO Asphalt Refining Company; CITGO Petroleum Corporation; CITGO East Coast Corporation (E.D. Pa. No. 2–08–cv–02898)

CITGO Asphalt Refining Company; CITGO Petroleum Corporation; CITGO East Coast Oil Corporation, Appellants in Nos. 16–3470; 16–3552

Frescati Shipping Company, Ltd.; Tsakos Shipping and Trading, S.A., Appellants in No. 16–3867

United States of America, Appellant in No. 16–3868

No. 16-3470, 16-3552, 16-3867 & 16-3868

United States Court of Appeals, Third Circuit.

Argued November 8, 2017

Filed: March 29, 2018

Timothy J. Bergère [ARGUED], Alfred J. Kuffler, John J. Levy [ARGUED], Montgomery McCracken Walker & Rhoads, 123 South Broad Street, 24th Floor, Philadelphia, PA 19109.

Eugene J. O’Connor, Montgomery McCracken Walker & Rhoads, 437 Madison Avenue, 29^th Floor, New York, NY 20022.

Jack A. Greenbaum, 22782 Buendia, Mission Viejo, CA 92691, Counsel for Frescati Shipping Co. Ltd. and Tsakos Shipping and Trading S.A.

Matthew M. Collette, United States Department of Justice, Civil Division, Room 7212, 950 Pennsylvania Avenue, N.W., Washington, DC 20530.

Stephen G. Flynn, United States Department of Justice, Torts Branch, Civil Division, P.O. Box 14271, Washington, DC 20044.

Anne Murphy [ARGUED], United States Department of Justice, Appellate Section, Room 7644, 950 Pennsylvania Avenue, N.W., Washington, DC 20530, Counsel for United States of America.

Benjamin Beaton, Jacqueline G. Cooper, Carter G. Phillips [ARGUED], Richard E. Young, 1501 K Street, N.W., Washington, DC 20005, Counsel for Citgo Asphalt Refining Co. Citgo Petroleum Corp. Citgo East Coast Oil Corp.

George R. Zacharkow, Deasey Mahoney & Valentini, 1601 Market Street, Suite 3400, Philadelphia, PA 19103, Counsel for Intervenor Respondent, International Liquid Terminal Ass’n, American Fuels and Petrochemicals, Manufacturers Ass’n.

Before: SMITH, Chief Judge, HARDIMAN, Circuit Judge, and BRANN, District Judge^*

OPINION

SMITH, Chief Judge.

Table of Contents

I. Introduction ...295

II. Background ...295

a. Facts ...295

b. Procedural History ...298

III. Jurisdiction and Standard of Review ...300

IV. The Safe Berth Warranty ...300

a. The Draft of the Athos I ...301

b. Frescati’s Seamanship ...303

V. Wharfinger Negligence ...306

VI. Subrogation and Equitable Recoupment ...308

a. Subrogation and Subrogee-Specific Defenses ...309

b. Equitable Recoupment ...311

VII. Limitation of Liability under the Oil Pollution Act ...313

VIII. Prejudgment Interest Rate ...314

IX. Conclusion ...315

I. Introduction

After a 1,900–mile journey from Venezuela to Paulsboro, New Jersey, the M/T Athos I , a single-hulled oil tanker, had come within 900 feet of its intended berth when it struck an abandoned anchor on the bottom of the Delaware River. The anchor pierced the Athos I ’s hull, causing approximately 264,000 gallons of crude oil to spill into the river.

The cost of cleaning up the spill was $143 million. We are presented with the question of how to apportion responsibility for that cost between three parties. The first party comprises not only the shipowner, Frescati Shipping Company, Ltd., but also the ship’s manager, Tsakos Shipping & Trading, S.A. (collectively, "Frescati"). Frescati, through an intermediary, contracted to deliver crude oil to the second party, which is made up of several affiliated companies—CITGO Asphalt Refining Company, CITGO Petroleum Corporation, and CITGO East Coast Oil Corporation (collectively, "CARCO"). The oil shipment was to be delivered to CARCO at its marine terminal in Paulsboro. After the oil spill, Frescati paid for the cleanup effort, and was eventually reimbursed $88 million by the third party to this litigation, the United States, pursuant to the Oil Pollution Act (OPA) of 1990, 33 U.S.C. § 2701 et seq. Frescati and the United States now seek to recover their cleanup costs from CARCO.

II. Background

a. Facts¹

The M/T Athos I was a single-hulled tanker ship, measuring approximately 748 feet long and 105 feet wide.² As owner of the ship, Frescati chartered it to an intermediary which assigned it to a tanker pool.

CARCO sub-chartered the Athos I from the tanker pool to deliver a shipment of crude oil from Puerto Miranda, Venezuela, to CARCO’s berth in Paulsboro, New Jersey. CARCO was the shipping customer as well as the wharfinger who operated the berth.

The Athos I , carrying CARCO’s shipment, left Venezuela in mid-November 2004 under the command of the ship’s master, Captain Iosif Markoutsis. CARCO had instructed the Athos I to load to a draft³ of 37 feet or less in Venezuela, and provided a warranty that the ship would be able to safely reach the berth in Paulsboro as long as it arrived with a draft of 37 feet or less. When the Athos I left Venezuela, it had a draft of 36' 6?. Over the course of the Athos I ’s journey, the ship burned fuel and the crew consumed fresh water. As the ship grew lighter, it rode higher on the water. By the time it reached the entrance to the Delaware Bay, the Athos I was drawing 36' 4?. Because the fuel and fresh water were consumed from tanks located in the stern, or rear, of the ship, the Athos I was no longer sailing at an even keel; it was "trimmed by the bow," meaning that the bow, or front of the ship, was deeper in the water than the ship’s stern. To return the ship to an even keel, the Athos I took on approximately 510 metric tons of ballast to tanks in the rear of the ship. Although the parties dispute how much the Athos I was drawing as it approached CARCO’s berth, the District Court found that the added ballast brought the ship’s draft to 36' 7?.

The Athos I reached the entrance to the Delaware Bay without incident on November 26th. All vessels traveling north from the Delaware Bay to the Delaware River are required to use a Delaware River Pilot to navigate the waters. At the appropriate time, a local river pilot, Captain Howard Teal, Jr. boarded the ship and guided it up the Delaware River until it reached a section of the river near CARCO’s berth. At that point, a local docking pilot, Captain Joseph Bethel, replaced Captain Teal and began to navigate the ship to its berth at Paulsboro. Captains Teal and Bethel both engaged Captain Markoutsis in conversations about the Athos I , its passage from the Delaware Bay to the Paulsboro berth, water depth, underkeel clearance, and other local conditions. The substance and sufficiency of those conversations are disputed by the parties.

CARCO’s berth is on the New Jersey side of the Delaware River, directly across from Philadelphia International Airport. To reach the berth from the main river channel, ships must pass through an anchorage immediately adjacent to the berth. The anchorage, known as Federal Anchorage Number 9 or the Mantua Creek Anchorage, is a federally-designated section of the river in which ships may anchor; it is periodically surveyed for depth and dredged by the Army Corps of Engineers, as Corps resources allow. No government agency is responsible for preemptively searching for unknown obstructions to navigation in the anchorage, although the Coast Guard, the National Oceanic and Atmospheric Administration (NOAA), and the Corps of Engineers work together to remove or mark obstructions when they are discovered. Anyone who wishes to search for obstructions in the anchorage may do so, but anyone wishing to dredge in the anchorage requires a permit from the Corps of Engineers.

It was in this anchorage on November 26, 2004, at 9:02 p.m., that the allision occurred.⁴ The Athos I was only 900 feet—not much more than the ship’s length—from CARCO’s berth. The ship was "just about dead in the water" as Captain Bethel slowly positioned it to dock. Suddenly, the ship began to list and oil appeared in the river. At the time of the allision, the ship was in the middle of a 180° rotation, guided by tugboats, and moving astern and to port (backwards and to the ship’s left). The path taken by the Athos I through the anchorage passed, at its shallowest point, over a 38–foot shoal. Most of the anchorage was deeper, and the depth of the river at the site of the allision was at least 41.65 feet at the time.

Captain Bethel immediately called the Coast Guard to alert them to the spill, while Captain Markoutsis rushed to the engine room and transferred oil from the breached cargo tank into another tank. The crew of the Athos I was eventually able to stop the leak, but not before 264,321 gallons of crude oil had spilled into the Delaware River.

The cleanup effort began almost immediately. Although it was ultimately successful, it took months to complete and the efforts of thousands of workers at a cost of $143 million. The cause of the allision was not discovered until more than a month later, when an abandoned anchor was discovered on the riverbed. The search for the obstruction that caused the allision proved difficult. An experienced sonar operator using side-scan sonar conducted the first search shortly after the allision, but did not recognize the anchor.⁵ A second search by the same operator, conducted several weeks later, eventually discovered the anchor with the use of side-scan sonar in combination with divers and magnetometers. The anchor weighed approximately nine tons and was 6' 8? long, 7' 3? wide, and 4' 6? high. It has since been removed from the river.

The parties dispute the positioning of the anchor at the time of the allision. An anchor like the one that punctured the Athos I has two stable positions. It can sit at rest in the "flukes-up" or "flukes-down" position. A flukes-up anchor stands almost upright on its crown, with the flukes pointed upward at a 65° angle, while a flukes-down anchor has essentially tipped over, with both the crown and flukes of the anchor lying horizontally on the riverbed. In the...