J. Ray McDermott and Company v. Vessel Morning Star

• Decision Date: 15 September 1970
• Docket Number: No. 28496,28496
• Citation: 431 F.2d 714
• Parties: J. RAY McDERMOTT AND COMPANY, Inc., Plaintiff-Appellee, Cross Appellant, v. The VESSEL MORNING STAR et al., etc., the Fish Meal Company, Harvey W. Smith, Defendants-Appellants, Cross Appellees, and Texas Menhaden Company, Intervenor-Appellant, Cross Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

431 F.2d 714 (1970)

J. RAY McDERMOTT AND COMPANY, Inc., Plaintiff-Appellee, Cross Appellant, v. The VESSEL MORNING STAR et al., etc., the Fish Meal Company, Harvey W. Smith, Defendants-Appellants, Cross Appellees, and Texas Menhaden Company, Intervenor-Appellant, Cross Appellee.

No. 28496

United States Court of Appeals, Fifth Circuit.

September 15, 1970.

Frank J. Peragine, William S. Stone, New Orleans, La., Bryan J. McGinnis, Beaumont, Tex., for appellants.

Dave McNeill, Jr., Robert M. Julian, Houston, Tex., Neal D. Hobson, Kennedy J. Gilly, New Orleans, La., for appellee.

Before BELL, COLEMAN, and AINSWORTH, Circuit Judges.

COLEMAN, Circuit Judge:

This appeal presents a contractual Humpty Dumpty which no court could ever put together again. By failing in advance to protect themselves from the consequences of serious errors of judgment, the litigants have taken costly falls from a wall of their own making. They have repaired to the courts for succor, but there are situations which no court can cure. Adding to the pain of past misfortunes, we are compelled to reverse the judgment of the court below and to remand the litigation for a new trial.

I BACKGROUND

J. Ray McDermott and Company, Inc., hereinafter referred to as McDermott, builds ships at its shipyard in Morgan City, Louisiana.

The Texas Menhaden Company (located in Sabine Pass, Texas) and The Fish Meal Company (located in Morgan City) are two of many corporations owned by the Smith family, giants of the menhaden fishing world. Harvey W. Smith was President of both companies. The companies and their President will generally be referred to in the course of this opinion as the Smith interests.

In the United States menhaden are not considered to be edible fish. Their primary use is for fertilizer and chicken feed. In other countries, particularly in Europe, menhaden are manufactured into margarine. In the Gulf of Mexico, menhaden fishing is a seasonal activity, lasting from April to October. The menhaden are caught in shallow waters, generally at depths of from eight to twelve feet. The typical menhaden fishing boat is from 125 to 220 feet in length. It is not unusual for these boats to plow through soft mud, beneath shallow waters, to reach the menhaden schools. When a school is sighted the boat casts off two "purse boats," usually about 35 footers, which, operating under their own power and with a net between them, surround the school. By the use of hydraulically powered winches, the nets are drawn tight around the fish. The mother ship then comes alongside and pumps the catch from the purse into the cargo holds. The fish are there kept in a chilled condition and taken to nearby plants for processing. The captains and the crews are compensated according to the catch, and the competition among fleets from about fifteen menhaden plants along the Gulf Coast may aptly be described as terrific.

McDermott shipyard in Morgan City was located about a mile from the menhaden processing plant of The Fish Meal Company and for several years McDermott had repaired the menhaden fishing boats and proclaimed that it kept in its employ a full time naval architect. Prior to the fall of 1965, however, McDermott had never built a menhaden fishing boat.

Alfred Davies was the manager of the menhaden processing plants owned by The Fish Meal Company at Morgan City, Louisiana, and by Texas Menhaden Company at Sabine Pass, Texas. He knew that McDermott had never built a menhaden boat. V. J. LeBlanc was the general manager of the McDermott shipyard. In October, 1965, verbal negotiations between Davies and agents of McDermott culminated in a written contract for the construction of eight menhaden fishing vessels.

The proposal and acceptance on behalf of the parties read as follows:

"September 15, 1965 "Texas Menhaden Company P. O. Box 68 Sabine Pass, Texas Attention: Mr. Al Davies Subject: Construction of Eight (2) 165' × 35' × 14' Menhaden Fishing Vessels. (Emphasis by the Court). McDermott Shipyard Proposal No Q-1136.

Gentlemen:

"We propose to furnish labor, material, and plant facilities to construct, outfit, and deliver each of eight (8) subject vessels for the sum of Three Hundred Twenty-One Thousand Seven Hundred Sixty-Nine Dollars and No/Cents ($321,769.00), which is a total of Two Million Five Hundred Seventy-Four Thousand One Hundred Fifty-Two Dollars and No/Cents ($2,574,152.00) for all eight (8) vessels, in accordance with applicable specifications and subject to the following conditions.

"1. Applicable Specifications are those entitled `Specifications for the Construction of a 165' Menhaden Fishing Vessel for Texas Menhaden Company, Sabine Pass, Texas', dated September 13, 1965, prepared by McDermott Shipyard, Morgan City, Louisiana, and the accompanying contract plans as listed therein.

"2. In connection with Item 110, Page 4 of Specifications, it is understood that Shipyard will install refrigeration equipment, fish pump, and hardening winch on their foundations. The respective refrigeration, fish hold, and hydraulic winch piping systems are not included in this proposal but will be subject to the terms of Item 109, Page 3 of Specifications.

"3. In connection with Item III, Page 7 of Specifications, we have included in our proposal coordination and witnessing of tank testing. Costs of model and towing tank tests, as well as traveling and incidental expenses, are not included.

"4. We will deliver the subject vessels floating alongside our pier on or before June 1, 1966, provided this proposal is accepted within five (5) days of the date of this letter.

"5. Terms of payment are to be subject to a separate agreement but will be, in general, as follows:

a. The total sum will be financed by the Builder at an interest rate of six percent (6%) on the unpaid balance for a period of thirty-six (36) months.

b. Interest will start accruing on the following percentages of the unpaid balance according to the following schedule:

1) On twenty-five percent (25%) of total sum outstanding upon acceptance of proposal.

2) On fifty percent (50%) of total sum outstanding on February 15, 1966.

3) On one hundred percent (100%) of the total sum outstanding on each vessel upon completion of each vessel, as per applicable specifications.

c. Capital and interest payments will be made at equal intervals for a period of thirty-six (36) months from completion of each vessel, as per applicable specifications. Payment intervals are to be determined in above mentioned separate financial agreement.

"This quotation is valid for a period of ten (10) days from the date of this letter, after which time, we reserve the right to withdraw or amend the same. `The quoted prices do not include any Louisiana State or Parish Sales or Use Taxes. If any such taxes are due, they will be paid by you or reimbursed to us if it is necessary that we pay them'. J. Ray McDermott & Co., Inc. operates in the State of Louisiana under Louisiana State Contractors License No. 246.

"We thank you for the opportunity to submit this proposal and should you find it satisfactory, please sign and return the original.

"Very truly yours McDERMOTT SHIPYARD s/ V. J. LeBlanc V. J. LeBlanc Division Manager VJL:ml "ACCEPTED: TEXAS MENHADEN COMPANY BY: s/Harvey Smith DATE: 10/5/65".

It is at once apparent from the caption of McDermott's proposal that it agreed to build and the Smith interests expected to receive vessels suitable for menhaden fishing. It is equally apparent from paragraph 1 of the proposal that the applicable specifications were to be those prepared by McDermott.

Section 1, paragraph 101, of these specifications provided that McDermott should deliver to Texas Menhaden "an all welded, twin screw diesel powered vessel for pursing and trawling in the Gulf of Mexico". It was further specified that the design criteria for this vessel of which there were to be eight would provide for a free running speed, when light, of about 14¾ miles per hour, with a fish hold capacity of about 700 short tons of menhaden. It was additionally specified that ship draft, light, would be approximately 6 feet, 6 inches. Loaded draft would be 9 feet, 6 inches.

The contract was made in Louisiana. The ships were to be built in Louisiana and delivered in Louisiana.

The shipbuilder, with no prior experience in the field, did not build one vessel and test it with a regular menhaden crew under actual fishing conditions before building the other seven. The Smith interests did not insist on such a procedure. The Smiths wanted speedy delivery and McDermott was willing to comply. Like Admiral Farragut at Mobile, but without his famed success, both parties steamed full speed ahead with little regard for the torpedoes, until it was too late.

The first four of the projected eight vessels were delivered by McDermott in the middle of June, 1966. As per the contract, the Smiths outfitted the vessels with engines and fishing equipment. The weight of these various appurtenances, including the concrete lining in the holds, accounted for a nine inch increase in the draft of the vessels.

Two marine architects and the captains of the vessels after they had set out to fish testified that the boats were wholly unsatisfactory for the use intended and were, in fact, unseaworthy. There was testimony that with only 500 tons of fish in the holds the boats drew as much as 14½ feet of water, whereas the contract specified that draft would be 9 feet, 6 inches when loaded with 700 tons of fish. The excess draft allegedly impaired the ability of the mother ship to operate in the shallow waters where menhaden are ordinarily found. The captains further testified that the boats were "out of trim" and suffered from a "quick roll" which rendered the raising and lowering of the purse boats and the loading of the fish dangerous to the crews.

McDermott's naval architect had never designed a menhaden boat. The Smith interests had no naval architect....