In re M/V Rickmers Genoa Litigation, No. 05 Civ. 4261 (LAP)(THK).

• Court: United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
• Writing for the Court: Loretta A. Preska
• Citation: 622 F.Supp.2d 56
• Parties: In re M/V RICKMERS GENOA LITIGATION. This Document Relates to: All Actions.
• Decision Date: 31 March 2009
• Docket Number: No. 05 Civ. 9472 (LAP)(THK).,No. 05 Civ. 8841 (LAP)(THK).,No. 05 Civ. 4261 (LAP)(THK).,No. 05 Civ. 6226 (LAP)(THK).

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622 F.Supp.2d 56 In re M/V RICKMERS GENOA LITIGATION.
This Document Relates to: All Actions. No. 05 Civ. 4261 (LAP)(THK). No. 05 Civ. 6226 (LAP)(THK). No. 05 Civ. 8841 (LAP)(THK). No. 05 Civ. 9472 (LAP)(THK). United States District Court, S.D. New York. March 31, 2009.

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James A. Saville, Jr., Thomas Earl Willoughby, James Aloysius Saville, Jr., Hill, Rivkins & Hayden, L.L.P., New York, NY, for Chem One, Ltd., A.H.A. International Co., Ltd., Commercial Metals Company, Graphite Elecrodes Sales Company, Inc., Hunter Douglas Metals, Inc., Ike Trading Co., Ltd., Itochu Building Products Co., Inc., National Oilwell L.P., Texas Wyoming Drilling, Inc., The Babcok & Wilcox Company, The Crispin Company, Toray

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Engineering Co., Ltd., Westco Systems, Inc., Bluelinx Corporation, Bstc Group Inc., Kurt Orban Partners LLC, Foster Wheeler North America Corp., General Electric Company, Suewon Poongryuk Machinery Co., Ltd., Wego Chemical & Mineral Corp., Wintersun Group (USA) Inc.

Eugene Joseph O'Connor, Andrew John Warner, Timothy Semenoro, Chalos, O'Connor & Duffy, LLP, Port Washington, NY, for M/V Rickmers Genoa Her Engines, Boilers, Etc., Rickmers Genoa Schiffahrtsges MBH & CIE. KG., CS Marine Co. Ltd., Rickmers-Linie GMBH & CIE. KG, Genoa Navigation Co. Ltd., Ja Sung Marine Co., Ltd., M/V "Sun Cross" Her Engines, Boilers, Tackle, Etc., In Rem, Pudong Trans USA Inc., Sesco Group Inc., United Shipping Services, Inc., CS Marine Co. TD, Sunwoo Merchant Marine Co., Ltd., ESM II, Inc., ESM II, LP in Personam, Genoa Navigation Co. Ltd.

Christopher Hayes Dillon, Burke & Parsons, New York, NY, for ESM (Tianjin) Co., Ltd. In Personam, ESM Group, Inc., ESM II LP In Personam, ESM (Tianjin) Co., Ltd., ESM II, Inc., ESM II, LP., A.H.A. International Co., Ltd., Commercial Metals Company, Graphite Elecrodes Sales Company, Inc., Hunter Douglas Metals, Inc., Ike Trading Co., Ltd., Itochu Building Products Co., Inc., National Oilwell L.P., Texas Wyoming Drilling, Inc., The Babcok & Wilcox Company, The Crispin Company, Toray Engineering Co., Ltd., Westco Systems, Inc., Bluelinx Corporation, Bstc Group INC., Kurt Orban Partners LLC, Chem One, LTD., Foster Wheeler North America Corp., General Electric Company, Suewon Poongryuk Machinery Co., Ltd., Wego Chemical & Mineral Corp., Wintersun Group (USA) Inc., ESM (Tianjin) Co., Ltd. In Personam, Shandong Industrial Inc., EMS Group, Inc., Pudong Trans USA, Inc.

Patrick Michael Decharles, II, Cichanowicz, Callan, Keane, Vengrow & Textor, New York, NY, for United Shipping Services, Inc., M/V "Sun Cross" Their Engines, Boilers, etc.

Timothy Semenoro, Chalos, O'Connor & Duffy, LLP, Port Washington, NY, for M/V Rickmers Genoa Her Engines, Boilers, etc., Rickmers Genoa Schiffahrtsges MBH & CIE. KG., CS Marine Co. Ltd., Rickmers-Linie GMBH & CIE. KG, Genoa Navigation Co. Ltd., United Shipping Services, Inc., Sesco Group, Inc., Pudong Trans USA, Inc., JA Sung Marine Co., Ltd., M/V Sun Cross Her Engines, Boilers, etc., ESM Group, Inc.

Michael Joseph Walsh, Burke & Parsons, New York, NY, for Genoa Navigation Co. Ltd., Rickmers Genoa Schiffahrtsges MBH & CIE. KG, Rickmers-Linie GMBH & CIE. KG.

Lawrence Caruso Glynn, Nicoletti Hornig & Sweeney, New York, NY, for Shandong Industrial Inc.

James Paul Krauzlis, Roman Badiak, Badiak & Will, LLP, Mineola, NY, for St. Paul Travelers As Subrogor of Foreign Tire Sales, Inc.

Jeffrey Lee Neandross, Graham, Miller, Neandross, Mullin & Roonan, L.L.C., New York, NY, for Atlantic Coast Yacht Sales, Inc.

OPINION

LORETTA A. PRESKA, District Judge.

This Opinion concerns the extent of a cargo buyer's liability in the context of maritime disaster litigation. The buyer here, ESM Group, Inc. ("ESM Group"), purchased 900 tons of a granulated magnesium-based desulphurization reagent, known by the trade name "Super-Sul Mg-89" ("SS-89"), from its wholly-owned subsidiary, ESM (Tianjin) Co., Ltd.

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("ESMT"). While en route on the high seas, the SS-89 allegedly caused or contributed to an explosion and fire aboard the M/V RICKMERS (the "RICKMERS"), the transporting vessel. The vessel owners (the "Rickmers Interests") and entities that owned or insured other cargo aboard the RICKMERS (the "Cargo Interests") have sued ESM Group, in its individual capacity and as an alter-ego of ESMT.¹ Specifically, the Cargo Interests and Rickmers Interests assert claims against ESM Group based in common law negligence, common law strict liability, the Carriage of Goods by Sea Act ("COGSA"), breach of contract, and alter-ego theories of liability.²

ESM Group now moves for summary judgment, seeking to dismiss all claims asserted against it. The Cargo Interests and the Rickmers Interests (the "Non-Moving Parties") oppose that motion.³ For the reasons set forth below, the motion is GRANTED in part and DENIED in part.

I. BACKGROUND

The following facts are derived from the affidavits, Rule 56.1 Statements, testimony, and exhibits.⁴ All facts are construed

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and all reasonable inferences are drawn in favor of the Non-Moving Parties. See infra Part II.B.

ESM Group is a New York limited liability corporation organized under the laws of Delaware. (ESM Group 56.1 Stmt. at ¶ 39; Rickmers 56.1 Stmt. at f 39; O'Connor Aff. at ¶ 6.) Prior to 2005, ESM Group was affiliated with a group of related companies consisting of ESM II Inc., ESM II L.P., and ESM Manufacturing, L.P. (ESM Group 56.1 Stmt. at ¶ 40; Rickmers 56.1 Stmt. at ¶ 40; Batz Dep. 32:3-13; Meyer-Grunow Dep. 58:17-60:14, 90:10-12.) The ESM companies have or have had plants in several locations around the United States and abroad. (O'Connor Aff. at ¶ 6.) They produce a family of magnesium desulphurization reagent products, including SS-89. (Id. ¶¶ 7-8.)

SS-89 is "[u]sed as a desulphurizing reagent in steelmaking ... [and] is designed to be injected into molten iron ore to remove sulphur and make the steel less brittle. Because it removes sulphur and consists of approximately 89% magnesium, it is regularly identified under the English language trade name `Super-Sul Mg-89.'" (ESM Group 56.1 Stmt, at ¶ 3.) Magnesium based products liberate hydrogen gas when in contact with water, especially sea or salt water. (O'Connor Aff. at ¶ 26, Lee Dep. 199:3-24; Schwede Dep. 174:4-175:16.) Hydrogen gas is flammable and susceptible to exploding. (Schwede Dep. 174:4-15; O'Connor Aff., Ex. 27.) According to a Material Safety Data Sheet ("MSDS") prepared by ESM Manufacturing L.P., SS-89 poses "unusual fire and explosion hazards" and should be kept dry and away from water and moisture. (O'Connor Aff. at ¶ 30, Ex. 27.)

In 1996, ESM Group created ESMT in Tianjin, China, allegedly in order to save production costs, obtain lower prices for materials previously imported by ESM Group, and avoid U.S. anti-dumping regulations concerning the manufacture of SS-89. (O'Connor Aff. at ¶¶ 7-11; Meyer-Grunow Dep. 49:13-51:15; ESM Group 56.1 Stmt. at f 42; Lee Dep. 13:13-14:8; Batz Dep. 34:21-36:6; Rotella Dep. 34:10-18.) ESMT is a wholly-owned subsidiary of ESM Group and a limited liability corporation organized and existing under the laws of the People's Republic of China. (ESM Group 56.1 Stmt. at ¶ 41-42; Rickmers 56.1 Stmt. at f 41-42.) ESM Group established the ESMT plant, trained ESMT personnel, transferred equipment from U.S. sites to the ESMT plant, and provided ESMT with the formula for SS-89.

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(O'Connor Aff. at ¶¶ 9-10, 13-18; Lee Dep. 14:12-15:24; Batz Dep 36:14-37:8, 138:16-139:10; Meyer Grunow Dep. 53:9-19.) ESM Group brought ESMT's engineers and plant manager to the United States for technical and corporate training. (O'Connor Aff. at ¶ 13; Batz Dep. 138:16-25; Meyer-Grunow Dep. 53:9-19.) ESM Group's CEO became President of ESMT. (O'Connor Aff. at ¶ 12; Batz Dep. 47:16-21.) ESMT's Board of Directors included, at times exclusively, ESM Group employees. (O'Connor Aff. at ¶ 12; Meyer-Grunow Dep. 88:7-89:20.) ESM Group directly paid ESMT's raw materials suppliers. (O'Connor Aff. at ¶ 19; Batz Dep. 96:8-97:19; Zhou Zhou Tr. at 33, 135-36.) ESM Group executives regularly visited the ESMT plant to monitor its operations, manufacturing, and shipping procedures. (O'Connor Aff. at ¶¶ 14-15, Exs. 10-12; Lee Dep. 28:16-23; Meyer-Grunow Dep. 55:15-56:13, 58:3-16; Rotella Dep. 70:17-23, 117:1-6.)

When ESM Group desired a shipment of SS-89 from ESMT, ESM Group would send ESMT a Purchased Material Service Specification outlining the chemical and physical make-up of the desired product. (See O'Connor Aff. at 17, Ex. 9.) Aside from these purchase orders, ESM Group and the related U.S. companies corresponded with ESMT managers about altering the chemical composition of SS-89 to ESM Group's requirements. (See, e.g., id., Exs. 8, 10.)

Sometime in or around 2000, ESM Group created and provided ESMT with a sample MSDS for the SS-89 product. (O'Connor Aff. at ¶ 32; Rotella Dep. at 64:9-65:3; Bell Dep. 36:20-37:6.) Although ESM Group alleges that it "did not get involved in providing recommendations to [EMST] regarding safety measures in the production, storage or transportation of products which [ESMT] produces" (Dillon Aff. at ¶¶ 7, 13), ESM Group, acting through its predecessor ESM II, directed ESMT to include its own MSDS for shipments of SS-89 and requested test data on the product from ESMT before shipments were to be made. (O'Connor Aff., Exs. 9, 12.) ESMT created its own MSDS for magnesium granules but apparently never created an MSDS for SS-89. (Zhou Zhou Tr. at 94-99, Exs. 93-94, 108; Bell Dep. 41-43, 50-56.) ESMT's plant manager acknowledged that ESMT would have distributed an MSDS for SS-89 upon ESM Group's instruction to do so. (Rickmers January 22, 2009 Supplemental Letter Brief at 2, ¶ 9; Zhou Zhou Tr. at 93.)

In 2005, all of ESMT's production of SS-89 was sold to ESM Group, and ESM Group would not allow ESMT to sell SS-89 to other buyers. (Rickmers January 22, 2009 Supplemental Letter Brief at 2, ¶¶ 3-4; Zhou Zhou...