Berhad v. Advanced Polymer Coatings, Inc.

• Decision Date: 27 April 2015
• Docket Number: Case No. 1:14 CV 1188.
• Citation: 101 F.Supp.3d 731
• Parties: MISC BERHAD, Plaintiff, v. ADVANCED POLYMER COATINGS, INC., Defendant.
• Court: U.S. District Court — Northern District of Ohio

101 F.Supp.3d 731

MISC BERHAD, Plaintiff,

v.ADVANCED POLYMER COATINGS, INC., Defendant.

Case No. 1:14 CV 1188.

United States District Court, N.D. Ohio, Eastern Division.

Signed April 27, 2015.

Henry E. Billingsley, II, Adrienne B. Kirshner, Chelsea Royce Mikula, Tucker Ellis, Cleveland, OH, for Plaintiff.

John M. Manos, Cleveland, OH, for Defendant.

Memorandum of Opinion and Order

PATRICIA A. GAUGHAN, District Judge.

INTRODUCTION

This matter is before the Court upon Defendant's Motion for Summary Judgment (Doc. 39). Also pending is Plaintiff MISC Berhad's Motion for Summary Judgment (Doc. 44). This dispute arises as a result of the application of a protective coating to ocean going tankers. For the reasons that follow, defendant's motion is GRANTED and plaintiff's motion is DENIED.

FACTS

Plaintiff MISC Berhad filed this action against defendant Advanced Polymer Coatings, Inc. (“APC”) alleging wrongdoing in connection with defendant's application of a protective coating to cargo vessels.

Plaintiff owns and operates chemical tankers. In late 2006 or early 2007,¹plaintiff entered into a shipbuilding contract with SLS Shipbuilding Co., Ltd. (“SLS”) for the construction of several chemical tankers. Regulations require that the tankers be coated in protective coating sufficient to protect the metal substrate from corrosive attacks caused by the chemicals transported in the vessels. Defendant manufactures a product known as MarineLine, which is an approved protective coating.

In 2009, SLS contracted with defendant to coat the cargo tanks for a number of vessels, including the Bunga Bakawali (“Bakawali”) and Bunga Balsam (“Balsam”). Pursuant to the contract, defendant agreed to apply two coats of MarineLine and bore responsibility for the heat curing of the coating. SLS, on the other hand, agreed to provide dehumidifiers and certain types of heating equipment. In addition, SLS agreed to grit blast the tanks to prepare them for coating and erect scaffolding to enable application. It is undisputed that plaintiff is not a party to this contract. Plaintiff notes, however, that defendant supplied coating products to plaintiff in the past. Therefore, plaintiff knew of defendant's business. Defendant marketed MarineLine to plaintiff as a superior product. As a result, plaintiff instructed SLS to use MarineLine in the construction of the tankers.

Defendant commenced application of the MarineLine to the Bakawali on December 21, 2009. Certain issues arose during the application process. Specifically, it appears that an inspector for defendant noted that SLS provided improper heating equipment. Other similar issues arose and the inspector provided corrective action reports, which were signed by SLS and defendant, for each issue. Defendant issued a completion certificate for the coating of the Bakawali on March 7, 2010, which provides as follows:

It is certified that tanks listed below have been coated and cured with MarineLine coating as per APC specification. All tanks are ready for service.

As of the date noted on this certificate all tanks listed below have had a final inspection attended by a MarineLine representative, Shipbuilding Representative, and Owner's Representative.

All tanks listed below have passed the final inspection, have been sealed and responsibility of tank condition transfers to the Owner upon presentation of this certificate.

On February 1, 2010, defendant issued an “Insurance Guarantee” to SLS applicable to the Bakawali. The Insurance Guarantee provide as follows:

2.01 Insurance Company will reimburse the Customer for the cost of replacement MarineLine Coating materials and their application, as may be necessary to repair Defective Areas in accordance with this Guarantee, providing that such repairs are actually carried out and that Advanced Polymer Coatings, Ltd.'s entire liability under this Guarantee shall be limited to the initial costs which are Replacement of MarineLine coating material, Inspection, Staging/Surface Preparation, Application, and Heat Curing.

2.03 For purposes of this Guarantee, deductible means that this guarantee only becomes effective if more than the deductible area per tank shows any break in the integrity of the coating material (including cracking) due to corrosive attack of the coating resulting in the steel substrate corroding to a severity greater than R–2.

The Insurance Guarantee is signed by defendant and is valid for a period of five years from the date of execution. The “Insurance Guarantees” are not backed by a third-party insurance company. Rather, the “insurance” is offered by defendant. The parties excluded from coverage certain tanks that were the focus of the corrective action reports.

Coating began on the Balsam on February 22, 2010 and ended on March 27, 2010. Defendant issued an Insurance Guarantee to SLS on April 2, 2010. The terms of the guarantee are identical to those contained in the guarantee applicable to the Bakawali.

At some point, plaintiff reported to defendant that other tankers were experiencing delamination

problems with MarineLine. On or about May 12, 2010, defendant, using test panels, conducted adhesion tests in order to address plaintiff's concerns. The test panels passed the adhesion tests, but further tests conducted on the “tank top of 6 port” on the Balsam revealed a failure rate of 40%. The following day, defendant issued a Certificate of Completion for the Balsam. Defendant also issued an Insurance Guarantee directly to plaintiff covering the Balsam. The terms and conditions of this guarantee appear identical to the guarantees previously issued to SLS. It is unclear whether SLS assigned its rights under the guarantee or whether defendant issued a new guarantee to plaintiff. Regardless, the effective date of the guarantee is May 13, 2010.

In June of 2010, the captain of the Bakawali reported coating delamination

in a number of the cargo tanks. Additional testing was performed on both the Bakawali and the Balsam. As a result, discussions occurred between SLS, plaintiff, and defendant regarding the delaminationissue. It appears that defendant offered to reapply and heat cure the MarineLine. Defendant indicated that SLS bore responsibility for reblasting the tanks and erecting the appropriate scaffolding. According to plaintiff, SLS would not participate in any remedial measures. Plaintiff notified SLS that it would not accept delivery of the Balsam, in part due to the delamination

issues with MarineLine. In a letter sent by plaintiff to SLS, plaintiff indicated as follows:

MISC discovered that three (3) out of the nine (9) tank coatings tested so far has [sic] shown signs of coating failure. We wish to impress it on you that it is your responsibility to ensure that tank coating is in order and in accordance with the Shipbuilding Contract prior to delivery. We note that SLS has not identified the root cause of the tank coating failure. It is your obligation to do the necessary test to ensure that right coating is applied prior to delivery of the Vessel.

Defendant informed plaintiff as follows:

As mentioned previously, APC will do all that it can to help persuade SLS to do as MISC has asked. However, please allow me to remind you that as has been stated in previous meetings and emails, APC is not responsible for SLS's final decision.

If MISC chooses to take delivery of this vessel prior to resolving this issue, APC has also informed all parties that we will not take “all responsibility” for the repairs. SLS carries the first 12 months warranty for any defects to the tank coating for this vessel. As we have stated previously, the issues that we are experiencing are due to failures with the equipment, which is the responsibility of the yard. APC has clearly stated that we will incur the costs for the material, application, and heat cure of any tanks determined to be in need of repair.

Ultimately, it appears from an SLS document that plaintiff accepted delivery of the Balsam without repairs to the cargo tanks. The parties continued to negotiate a resolution to the problem, but to no avail.

Plaintiff transported both the Bakawali and the Balsam to China to be recoated. A Chinese shipyard recoated the Bakawali between September and November of 2010. It appears that SLS assigned its rights under the Insurance Guarantee for the Bakawali to plaintiff on November 9, 2010. Plaintiff then demanded reimbursement from defendant in the amount of approximately $1.5 million. One year later, a Chinese shipyard recoated the Balsam. It appears that defendant provided MarineLine, inspection, and heat curing services at no charge. It does not appear that defendant actually applied the coating. According to defendant, it was not able to secure visas for its workers to enter China. In addition, defendant offered plaintiff a reduced price for MarineLine for the following years.

In June and December of 2010, the parties met to discuss a resolution of the dispute. At these meetings defendant informed plaintiff that it would “check with its insurance provider” regarding the issue. The Insurance Guarantees, however, were not underwritten by a third-party insurer. Defendant did not inform plaintiff of this fact. In February of 2011, defendant informed plaintiff that it would not accept responsibility for costs associated with the recoating of the Bakawali.

This lawsuit followed. The Second Amended Complaint contains five claims for relief. Count one is a claim for breach of express warranty based on the Insurance Guarantees and the Certificates of Completion. Count two alleges negligence. Counts three and four are claims for negligent misrepresentation. Count five is a claim for fraudulent misrepresentation based on statements made regarding the existence of insurance coverage.

The parties cross move for summary judgment and each opposes the other's motion.

STANDARD OF REVIEW

Rule 56(a) of the Federal Rules of Civil Procedure, as amended on December 1, 2010, provides in relevant part that:

A party may

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