Four Points Shipping & Trading v. Poloron Israel

• Decision Date: 22 March 1994
• Docket Number: No. 92 Civ. 2294 (VLB).,92 Civ. 2294 (VLB).
• Citation: 846 F. Supp. 1184
• Parties: FOUR POINTS SHIPPING AND TRADING, INC., Plaintiff, v. POLORON ISRAEL, L.P. and TMT Homes, Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

846 F. Supp. 1184

FOUR POINTS SHIPPING AND TRADING, INC., Plaintiff, v. POLORON ISRAEL, L.P. and TMT Homes, Inc., Defendants.

No. 92 Civ. 2294 (VLB).

United States District Court, S.D. New York.

March 22, 1994.

Gregory J. Ligelis and David J. Burke, Robinson & Cole, New York City, for plaintiff.

Richard C. Goldberg and Steven Orel, LeBoeuf, Lamb, Leiby & MacRae, New York City, for defendants.

MEMORANDUM ORDER

VINCENT L. BRODERICK, District Judge.

I

This litigation grows out of cancellation of an intended shipment of parts for prefabricated housing to be manufactured in the United States and shipped to Israel on a vessel to be chartered by plaintiff Four Points Shipping and Trading, Inc. ("Four Points"). The contract between Four Points and the intended shipper, defendant Poloron Israel, L.P. ("Poloron"), was entered into on May 6, 1991 (the "Poloron-Four Points contract").

The Poloron-Four Points contract states that it shall "be governed by the Maritime Law of the United States and the laws of the State of New York." Admiralty jurisdiction is available where the subject matter of the contract is ocean carriage, since such jurisdiction is "designed to protect maritime commerce." Exxon v. Central Gulf Lines, 500 U.S. 603, 611, 111 S.Ct. 2071, 2076, 114 L.Ed.2d 649 (1991); see Sirius Ins. Co. v. Collins, Slip Op. 1553, Dkt. No. 93-7761 (2d Cir. Feb. 4, 1994); Robert E. Derecktor, Inc. v. Norkin, 820 F.Supp. 791 (S.D.N.Y.1993). The principles applicable to the current dispute appear to be the same under both maritime and New York law.

II

The facts described below, except where a controversy is mentioned, are undisputed. Both sides contend that there are no genuine issues of material fact. Both have cross-moved for summary judgment under Fed. R.Civ.P. 56 as to liability.

Four Points seeks profits lost by virtue of the failure of the shipment to proceed as well as out-of-pocket expenses; defendants contain they have no liability. While Four Points' request for out-of-pocket costs may have merit, its claim for lost profits cannot be sustained for several reasons, discussed in greater detail below:

(a) The parties agreed on a rider to the Poloron-Four Points contract signed the same day as that contract, making the contract "effective" only when a contract between Poloron and Poloron Homes of Pennsylvania, Inc. (the "manufacturer") was "effective." This provision pointedly avoids making the Poloron-Four Points agreement operational when the manufacturing contract was signed. Because Poloron's agreement with the manufacturer was signed the same day, the use of the term "effective" makes sense only if effectiveness meant an initially contingent and never-achieved actual ability to produce the product to be shipped.¹

(b) The Poloron-Four Points contract specifically exculpates either party from claims for damages due to "delays of manufacturers" beyond the control of the breaching party.

(c) Knowing that the manufacturer's performance was essential to the transaction, Four Points was in as good a position as Poloron to insist on full and satisfactory financial information about the manufacturer before signing its contract with Poloron. Not having done so, Four Points cannot place the burden on Poloron of the consequences of the manufacturer's failure to perform to the detriment of all three entities. Four Points' interpretation of its agreement with Poloron calls for it to be construed as placing all of the risk on Poloron if the manufacturer should fail to produce the product to be shipped, even though Four Points had for its part incurred no fixed commitments at all. This implausible construction not set forth in the contract is not supported by any written or oral evidence that it was intended.²

(d) Because Four Points never signed a vessel purchase or charter agreement in connection with the projected Poloron shipment, any effort to determine whether or not Four Points lost any profits and if so in what amount would be speculative.

Defendants' motion for summary judgment is granted except as to liability for out-of-pocket expenses incurred by Four Points should it be established upon further submissions that Four Points was misled by Poloron concerning the extent of risks that the transaction might be aborted.³ Four Points' motion is denied, without prejudice to renewal as to a claim for out-of-pocket expenses as mentioned above.

III

Four Points owned no vessels and never chartered any, but claims it could have undertaken other transactions had it not pursued the one at issue here. Four Points did, however, incur expenses in investigating the transaction and canvassing possibilities for carriage of the freight.

The Four Points-Poloron contract provides:

In case any performance under the Contract shall be prevented or delayed by reason of ... delays of manufacturers plants ... or ... any other cause not within the control of the party whose performance is delayed or prevented and which by the exercise it is unable to prevent ... no liability for damage or delay shall arise against said party on account of failure delay due thereto.

The Poloron-Four Points contract was signed on the same day, May 6, 1991, as a separate agreement between Poloron and the manufacturer, calling for production of the prefabricated housing parts to be shipped to Israel. A rider to the Poloron-Four Points contract, also signed on May 6, 1991, provides that the Poloron-Four Points contract "shall not become effective unless and until the Agreement between Poloron Israel, L.P. and Poloron Homes of PA. Inc. sic dated May 6th, 1991 becomes effective."

Because of financial difficulties and possibly because of diminished interest in Israel in importing prefabricated housing, the manufacturer did not produce the parts which were to have been shipped. It is not disputed that the cancellation of the entire transaction was financially harmful to all participants. Plaintiff has produced no evidence that defendants could have avoided the problems encountered by the manufacturer, but argues that such problems were foreseeable by defendants when the contract was entered into.

IV

The rider to the Poloron-Four Points contract quoted above was signed on the same day as the agreement between Poloron and the manufacturer to which the rider refers. The parties' choice of the term "effective" rather than the more common and obvious one of "signed" should be given some significance.

Moreover, the ordinary meaning of "effective" connotes actual ability to achieve a result. Webster's Third New International Dictionary (1971) at 724 contains half of a full column of fine print setting forth meanings of "effective" and its synonyms, treated as "effectual, efficient, efficacious." None of the definitions refer to a formal signature of a document or other first stage initiatory action. The first definition begins by referring to "bring about, accomplish." Other typical definitions on the same page include "capable of having its normal effect: able to function normally ... marked by the quality of being influential or exerting positive influence: exerting authority: carrying weight ... capable of being used for a purpose ... ACTUAL ..." (capitalization in the original).

Where an event involving documentation is involved, the term "effective" is used to refer to the time of implementation, not signature. Usage No 6 ("taking effect"), while containing both VALID and OPERATIVE as synonyms, conveys its central meaning in the following examples:

the following resignations were accepted effective during the academic year under review ... the order was effective as of June 7 ...

The ordinary meaning of the word used by the parties is thus connected with implementation rather than initial authorization of an action.

Judicial interpretation of "effective" parallels dictionary definitions. When not used as indicating meaningfulness and practical impact, the word connotes actual implementation rather than merely written or oral authorization or initiation of an action. For example, the Second Circuit used the term as follows in Arango-Aradondo v. INS, 13 F.3d 610, 612 (2d Cir.1994):

We need not address an argument in light of a recent amendment to Rule 25(a) of the Federal Rules of Appellate procedure which became effective while this appeal was sub judice.

Similarly, in United States v. Harris, 13 F.3d 555, 558-59 (2d Cir.1994) the Court referred to having decided a precedential case "after the 1992 amendments to the relevant provision became effective." See, in the same vein, e.g., Manning v. Energy Conversion Devices, 13 F.3d 606, 608 (2d Cir.1994) (absent a release by a party under the circumstances of the case, releases by others "are not effective."); Bax v. CIR, 13 F.3d 54, 55 (2d Cir.1993) (a stipulation was "effective upon the entry of a court decision").

The parties' choice of the term "becomes effective" as contrasted with "signed" in the Poloron-Four Points rider has practical meaning only as referring to the time when manufacturing of the material to be shipped has been completed, is reasonably certain to be completed, or at the very least has begun. Otherwise the selection of "effective" rather than "signed" serves no purpose, an assumption courts are reluctant to make. Sea Robin Pipeline v. FERC, 795 F.2d 182, 184 n. 1 (D.C.Cir.1986) (R. Ginsburg, J.). A document's use of language, such as divergence from otherwise customary language ordinarily used, cannot properly be assumed to be without significance. See Ohio Power Co. v. FERC, 880 F.2d 1400, 1406 (D.C.Cir.), rehearing en banc denied 897 F.2d 540 (D.C.Cir.1989), rev'd on other grounds 498 U.S. 73, 111 S.Ct. 415, 112 L.Ed.2d 374 (1990). Such an assumption is particularly inappropriate concerning documents prepared by equally sophisticated parties negotiating at arm's length. See Lone Star Industries v. Nelstad Material Corp., 811 F.Supp. 147 (S.D.N.Y.1993).

Such an assumption...