Freeport Sulphur Co. v. S/S Hermosa

• Decision Date: 23 January 1976
• Docket Number: No. 74--1581,74--1581
• Citation: 526 F.2d 300,1977 AMC 508
• Parties: FREEPORT SULPHUR COMPANY, Plaintiff-Appellee, v. The S/S HERMOSA, her engines, tackle, apparel, furniture, etc., in rem, et al., Defendants, Pansuiza Compania de Navigacion S.A., in personam, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 300

526 F.2d 300

FREEPORT SULPHUR COMPANY, Plaintiff-Appellee, v. The S/S HERMOSA, her engines, tackle, apparel, furniture etc., in rem, et al., Defendants Pansuiza Compania de Navigacion S.A., in personam Defendant-Appellant.

No. 74--1581.

United States Court of Appeals Fifth Circuit.

Jan. 23, 1976.

Rehearing En Banc Granted

April 30, 1976.

Walter Carroll, Jr., New Orleans, La., for defendant-appellant.

James B. Kemp, Jr., Richmond Eustis, John W. Sims, New Orleans, La., for plaintiff-appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before WISDOM, SIMPSON and RONEY, Circuit Judges.

WISDOM, Circuit Judge:

During the early morning hours of March 21, 1971, the S. S. Hermosa, while attempting to moor at a dock owned by the Freeport Sulphur Company (Freeport), struck the upstream end of the dock, causing severe damage to the structure. The district court held the shipowner, Pansuiza Compania de Navigacion, S. A. (Pansuiza), liable. Freeport Sulphur Co. v. S/S Hermosa, E.D.La.1973, 368 F.Supp. 952. Pansuiza does not contest its liability per se; ¹ the dispute in this case relates to the district court's calculation of damages. ² First, of the $84,141.20 Freeport is alleged to have paid for the reconstruction of the dock, it claims about $16,000 as the cost of engineering work performed by its employees. Pansuiza argues that this is an inflated figure and that in-house services cannot properly be included as an element of damages.

Second, the district court found that the value of the dock was enhanced by its reconstruction, because the repairs extended the useful life of the dock. In deducting the cost of this improvement from Freeport's compensation for its repair expenses, the district court rejected the straight-line depreciation formula commonly used in calculating the costs attributable to the extension of useful life and instead relied on a formula based on the 'percentage of useful life extension'. Pansuiza contests the court's adoption of this 'novel', 'unsupported and unsupportable' theory and asserts, moreover, that the court improperly applied its own formula.

Third, Pansuiza objects to the compensation that was awarded to Freeport because, as a result of the collision, Freeport paid for the useful life extension much earlier than such an expenditure would otherwise have been necessary.

I

Pansuiza's objections to the inclusion of the labor and overhead costs of Freeport's engineering department in the damages award are twofold. First, it asserts that Freeport's use of its own salaried engineers and draftsmen did not involve any additional cost or expense. Second, it argues that the claim for engineering expenses was an inflated figure.

Freeport has arranged with an independent engineering concern to be furnished supplemental personnel when its own salaried engineering staff is overworked. Because Freeport found it unnecessary to tap this outside during the period of the engineering work on the dock, Pansuiza contends that, were it not for the dock work, Freeport's engineers would have been idle or engaged in essentially nonproductive work. Pansuiza argues, therefore, that the engineering work was performed without any additional expense or overhead. We reject this argument as being wholly based on speculation. It is at least as plausible that there were other Freeport projects that would have been worked on by Freeport's internal engineers, but were not of such an emergency nature that they required the immediate employment of the outside firm. ³

In support of its argument that Freeport's engineering expenses were excessive, Pansuiza cites a $10,000 estimate of engineering costs made by Freeport's engineering department after receiving bids for the reconstruction work. The $6000 by which this underestimated Freeport's actual engineering expenses is explainable, however, by the fact that the estimate was made before the actual reconstruction was completed and the costs calculated. ⁴ Pansuiza also draws our attention to the testimony of its expert witness that engineering expenses on similar projects average 10 to 15 percent of the total construction costs, but that the engineering expenses claimed by Freeport were about 22 percent of such costs. This discrepancy may be explained by the fact that Freeport's engineers provided alignment and grading usually provided by the contractor. If that portion of the engineering costs attributable to alignment and grading (roughly $3500) were deducted from the engineering costs, these costs would be brought down to the range that Pansuiza's expert witness indicated was the norm. The district court found that Freeport's 'hourly records were properly kept'; that its records were 'accurate and its charges reasonable'; and that had 'it resulted in a net saving, the benefit would have inured to the defendant'. The findings were not clearly erroneous.

The cost of repairs performed internally by the injured party, including overhead, are recoverable in a negligence action. See Baltimore & Ohio Railroad Co. v. Commercial Transport, Inc., 7 Cir. 1960, 273 F.2d 447, 448--49; Crain Brothers, Inc. v. Duquesne Slag Products Co., 3 Cir. 1959,273 F.2d 948, 953; Ford Motor Co. v. Bradley Transportation Co., 6 Cir. 1949, 174 F.2d 192, 198. The district court properly concluded that Freeport was entitled to recover its in-house engineering costs.

II

The purpose of compensatory damages in tort cases is to place the injured person as nearly as possibly in the condition he would have occupied if the wrong had not occurred. See Restatement of Torts § 903, comment a at 60 (Tent. Draft No. 19, 1973); C. McCormick, Damages 560 (1935). When there is a tortious injury to property and the market value of that property is unknown, the amount of damages must be determined by the cost of repairs to the property. See D. Dobbs, Law of Remedies 392 (1973); F. Harper & F. James, The Law of Torts 1311--12 (1956). These two principles are in apparent conflict when the repairs that are necessary to correct damage caused by negligence enhance the pretort value of the plaintiff's property. In such a case, the increase in value is deducted from the plaintiff's recovery for the cost of repairs. ⁵ A major issue in the present case is the method of computing the increase in the value of Freeport's dock that was caused by its reconstruction following the collision.

The only betterment to Freeport's dock that was proved is the extension of its remaining useful life. The district court found, as a matter of fact, that the precollision remaining useful life of the dock was 25 years, but that the repairs had extended its useful life to 35 years. This extension of 10 years in its remaining useful life is a benefit to Freeport that should be deducted from its award. ⁶

Pansuiza argues that the 'correct, long established, and fair' method of accounting for betterment is to compensate the plaintiff only for those repairs that replace the portion of its property that was undepreciated at the time of the tort. At the time of the collision, the old dock was 16 years old and had a remaining useful life of 25 years. It was thus 16/41 or 39 percent depreciated. Pansuiza contends, therefore, that 39 percent of Freeport's repair costs of $84,481.20 should be deducted from its recovery. In support of its argument that the straight-line depreciation method of calculating betterment is the 'long established' method applied by the courts in cases where the damaged or destroyed property had a definite life span that had partially elapsed at the time of the accident, Pansuiza cites numerous cases that have applied the formula. See, e.g., Louisville & Nashville Railroad Co. v. M/V Ciudad de Turbo, S.D.Ala.1971, 330 F.Supp. 769; Allied Chemical Corp. v. Edmundson Towing Co., E.D.La.1970, 320 F.Supp. 448; Patterson Terminals, Inc. v. S. S. Johannes Frans, E.D.Pa.1962, 209 F.Supp. 705; Jemison v. The Duplex, S.D.Ala.1958, 163 F.Supp. 947; General American Transport Corp. v. The Patricia Chotin, E.D.La.1954, 120 F.Supp. 246.

We stated in Canal Barge Co., Inc. v. Griffith, 5 Cir. 1973, 480 F.2d 11, 27, that depreciation is often 'a handy tool to reduce the recovery for repair costs to the level necessary to return the injured party to the economic position in which he was found'. The underlying issues, however, are whether the repairs extended the useful life of the property and, if so, what portion of the repair costs is attributable to the useful life extension. In Allied Chemical Corp. v. Edmundson Towing Co., prior depreciation was a 'handy tool' for measuring the nonrecoverable portion of repair costs. The defendant's tugboat had negligently collided with the piling cluster at the plaintiff's dock, causing the cluster's complete destruction. The cost of its replacement was $3500. When new, both the old and the replaced clusters had life expectancies of 20 years; the old cluster was 3 1/2 years old at the time of the collision. The court awarded the plaintiff damages in the amount of 16 1/2/20 of the replacement cost. Because the damaged piling cluster was completely replaced by a cluster that had a useful life identical with that of the destroyed cluster when it was new, the portion of the destroyed property that had depreciated before the collision accurately measured the extent to which the replacement of the property extended its useful life.

In many of the other cases in which the straight-line depreciation formula has been applied, the court either assumed or explicitly found that the repaired or replaced property had a useful life identical with the old property when it was purchased by the plaintiff. See, e.g., Rawls Brothers Contractors, Inc. v. United States, M.D.Fla.1966, 251 F.Supp. 47, 57; Patterson Terminals, Inc. v. S. S. Johannes Frans, 209 F.Supp. at 710; General American Transportation Corp. v. The Patricia Chotin, 120 F.Supp. at 249. In...