Arnold M. Diamond, Inc. v. Gulf Coast Trailing Co.

• Decision Date: 16 June 1999
• Docket Number: No. 97-5634.,97-5634.
• Citation: 180 F.3d 518
• Parties: ARNOLD M. DIAMOND, INC., Appellant, v. GULF COAST TRAILING CO., a Partnership; Gulf Coast Trailing Company, Inc.; Dredge Ouachita, Her Engines, Boilers, Etc.; Dredge Mermentau, Her Engines, Boilers, Etc. Gulf Coast Trailing Co. Defendant/Third-Party Plaintiff, v. Twin City Shipyard; Collins Electrical, Inc.; The Rexroth Corporation, Inc. Third-Party Defendants.
• Court: U.S. Court of Appeals — Third Circuit

180 F.3d 518

ARNOLD M. DIAMOND, INC., Appellant, v. GULF COAST TRAILING CO., a Partnership; Gulf Coast Trailing Company, Inc.; Dredge Ouachita, Her Engines, Boilers, Etc.; Dredge Mermentau, Her Engines, Boilers, Etc.

Gulf Coast Trailing Co. Defendant/Third-Party Plaintiff, v. Twin City Shipyard; Collins Electrical, Inc.; The Rexroth Corporation, Inc. Third-Party Defendants.

No. 97-5634.

United States Court of Appeals, Third Circuit.

Argued January 13, 1999.

Filed June 16, 1999.

COPYRIGHT MATERIAL OMITTED

Douglas L. Patin (argued), Andrew Bramnick, Spriggs & Hollingsworth, Washington, DC, Counsel for Appellant.

Peter A. Junge (argued), Carol N. Lambos, Lambos & Junge, New York, New York, Counsel for Appellees Gulf Coast Trailing Co. and Gulf Coast Trailing Company, Inc.

Jeffrey S. Clark, Tomlin, Clark, Hopkin & Montemurro, Haddonfield, New Jersey, Counsel for Appellee Twin City Shipyard.

John W. Morris, McElroy, Deutsch & Mulvaney, Morristown, NJ, Counsel for Appellee Collins Electrical, Inc.

Before: NYGAARD, ALITO, and LEWIS, Circuit Judges

OPINION OF THE COURT

ALITO, Circuit Judge:

I.

Arnold M. Diamond, Inc. ("Diamond") appeals the District Court's grant of summary judgment in favor of Gulf Coast Trailing Co. ("Gulf Coast"), Twin City Shipyard, and Collins Electrical, Inc. ("Collins"). The District Court held, among other things, that the United States Navy did not assign to Diamond its right to sue Gulf Coast for damages arising from allisions¹ between Gulf Coast ships and a Navy-owned pier. We disagree and reverse the District Court's grant of summary judgment on this basis.

II.

Diamond, a privately-owned construction company, entered into a contract with the United States Navy to make improvements to Pier No. 2 ("the pier") at the Earle Naval Weapons Station in Colts Neck, New Jersey. The contract provided that Diamond would, among other things, install new rubber bumpers and construct new mooring platforms to extend the length of the pier. It also provided that the Navy would make at least monthly progress payments to Diamond and that all work covered by such payments would become the "sole property" of the Navy. See JA at 605-606. These payments, however, did not relieve Diamond from repairing work damaged prior to final completion and acceptance by the Navy. See JA at 601, 606.

Gulf Coast, pursuant to a contract with the United States Army Corps of Engineers, conducted dredging operations around the pier. On March 16, 1986, two dredging ships that were owned and operated by Gulf Coast allided with the pier, causing damage to the bumpers and the mooring platforms. One of the dredges, the Ouachita, was built by Twin City Shipyard, which had employed Collins as a subcontractor for the wiring of the ship's clutch system.

Following the allisions, the Navy required Diamond, under threat of terminating the contract for default, to repair the damage caused by the allisions, see JA at 608-10, even though the Navy acknowledged that Gulf Coast had caused the damage to the pier, see JA at 607-08, 614-15, and that Diamond was the appropriate claimant in tort against Gulf Coast. See JA at 611, 616. Indeed, the Navy communicated its position to Gulf Coast via correspondence, dated October 28, 1986. See JA at 611. Gulf Coast—presumably in anticipation of Diamond's potential lawsuit—commenced an action for indemnity or contribution against Twin City Shipyard and Collins.

Diamond subsequently sued Gulf Coast in the United States District Court for the District of New Jersey for damages it allegedly sustained as a result of the two allisions. The damages alleged included the costs paid by Diamond to repair its work in progress and the costs associated with the delay in the overall completion of the remaining portions of the project. See JA at 599. Gulf Coast's indemnity or contribution action was then consolidated with Diamond's lawsuit.

In a separate action, Diamond took an appeal to the Armed Services Board of Contract Appeals ("ASBCA") regarding the Navy's denial of its contract claim for additional compensation to cover its repair work. See JA at 614. Before the ASBCA made its decision, however, Diamond and the Navy reached a settlement agreement. That settlement agreement contained the following assignment clause:

The Navy has and still contends that Diamond is the appropriate claimant against Gulf Coast for all work performed by Diamond which was damaged by Gulf Coast's operations. To the extent Gulf Coast claims that the Navy is the party to whom it must make payment for damages caused to Diamond, the Navy assigns to Diamond any rights to payment against Gulf Coast the Navy had or has for any Diamond costs or damages resulting from the damage caused to Diamond's work in process sic by Gulf Coast's dredges.

JA at 616.

In the District Court action, Gulf Coast, Twin City Shipyard, and Collins filed motions for summary judgment, contending that the rule announced by the Supreme Court in Robins Dry Dock & Repair Co. v. Flint, 275 U.S. 303, 48 S.Ct. 134, 72 L.Ed. 290 (1927), precluded Diamond from recovering damages from Gulf Coast. The District Court held that the Robins Dry Dock rule applied to the facts of this case and granted summary judgment in favor of the defendants. In reaching its decision, the Court held that the assignment clause in the settlement agreement between Diamond and the Navy did not transfer to Diamond the Navy's right to sue Gulf Coast for damages caused by the allisions. See Arnold M. Diamond, Inc. v. Gulf Coast Trailing Co., 979 F.Supp. 301, 306 n. 9 (D.N.J.1997). The Court reached this conclusion for two reasons. First, the Court reasoned that because "the Navy had no right of recovery for Diamond's alleged contractual and economic loss, the Navy could not have assigned a right to Diamond that it did not have." Arnold M. Diamond, 979 F.Supp. at 306 n. 9. Second, the Court concluded that "Diamond could not circumvent the Robins Dry Dock doctrine" simply because "the Navy designated it as the appropriate claimant against Gulf Coast." Id. Diamond then took this appeal.

III.

On appeal, Diamond argues, among other things, that the District Court erred in granting summary judgment in favor of Gulf Coast on the assignment clause issue. We review an order granting summary judgment de novo, and we evaluate the evidence in the light most favorable to the nonmoving party. Antol v. Perry, 82 F.3d 1291, 1294-95 (3d Cir. 1996). When the meaning of contract language is at issue, we affirm a grant of summary judgment only if the contract language is unambiguous and the moving party is entitled to judgment as a matter of law. See, e.g., Newport Assocs. Dev. Co. v. Travelers Indem. Co., 162 F.3d 789, 791 (3d Cir.1998); Tamarind Resort Assocs. v. Government of Virgin Islands, 138 F.3d 107, 111 (3d Cir.1998). Whether a contract is ambiguous is a legal question subject to plenary review. Newport Assocs., 162 F.3d at 792; Sumitomo Mach. Corp. v. AlliedSignal, Inc., 81 F.3d 328, 332 (3d Cir.1996). To affirm a grant of summary judgment on an issue of contract interpretation, we must conclude that the contractual language is subject to only one reasonable interpretation. Tamarind Resort, 138 F.3d at 110-11; Sumitomo Mach., 81 F.3d at 332; Pennbarr Corp. v. Insurance Co. of N. Am., 976 F.2d 145, 149 (3d Cir.1992). The question on appeal, therefore, is whether Diamond has provided a reasonable alternative reading of the contract under which the defendants would not be entitled to judgment as a matter of law.

Diamond contends that "the Navy assigned to Diamond `any rights to payment against Gulf Coast the Navy had or has for any Diamond costs or damages resulting from the damage caused to Diamond's work in process sic by Gulf Coast's dredges.'" Appellant's Br. at 20 (quoting JA 616). Diamond argues that the "assignment entitled Diamond to assert the Navy's rights, as `owner' of the damaged property, to recover the repair costs and other damages." Id. Applying general principles of contract interpretation,² we hold that Diamond's interpretation is, at a minimum, a reasonable alternative to that accepted by the District Court and that therefore the Court erred in granting summary judgment for Gulf Coast.

Under general principles of contract law, "the purpose of interpretation is to become aware of the `intention of the parties.'" 3 Arthur L. Corbin, Corbin on Contracts, § 538, at 55 (1960). "An interpretation which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect." Restatement (Second) of Contracts § 203 (1981). When interpreting a contract, a court may consider extrinsic evidence of surrounding circumstances to ascertain the intended meaning of the parties. Corbin, supra, §§ 542, at 100-04, 579, at 414-25; Restatement (Second) of Contracts § 214 cmt. b.

In this case, the District Court rejected Diamond's interpretation of the assignment clause because the Court read this clause as an attempt by the parties to assign a "right of recovery for Diamond's alleged contractual and economic loss," which, as the District Court also noted, is not a right that the Navy possessed. In effect, the District Court's interpretation rendered the assignment clause a nullity. We hold, however, that the assignment clause may reasonably be interpreted as assigning to Diamond the Navy's right to payment against Gulf Coast. This right to payment includes damages caused by Gulf Coast's dredges to Diamond's work in progress. The Navy, as the owner of Diamond's work in progress,³ had the right to sue Gulf Coast for damages arising from the allisions between Gulf Coast's ships and the pier. Thus, this interpretation does not assign a right to recovery to Diamond that the Navy did not possess and, unlike the District Court's interpretation, does not render the clause "unreasonable" or "of no effect."...