United States v. Citgo Asphalt Ref. Co. (In re Frescati Shipping Co.)

• Decision Date: 16 May 2013
• Docket Number: No. 11-2576,No. 11-2577,11-2576,11-2577
• Parties: In re: PETITION OF FRESCATI SHIPPING COMPANY, LTD., AS OWNER OF THE M/T ATHOS I AND TSAKOS SHIPPING & TRADING, S.A., AS MANAGER OF THE ATHOS I FOR EXONERATION FROM OR LIMITATION OF LIABILITY UNITED STATES OF AMERICA, Appellant v. CITGO ASPHALT REFINING COMPANY; CITGO PETROLEUM CORPORATION; CITGO EAST COAST OIL CORPORATION
• Court: U.S. Court of Appeals — Third Circuit

IN RE: PETITION OF FRESCATI SHIPPING COMPANY, LTD. AS OWNER OF THE M/T ATHOS I AND TSAKOS SHIPPING & TRADING, S.A. AS MANAGER OF THE ATHOS I FOR EXONERATION FROM OR LIMITATION OF LIABILITY UNITED STATES OF AMERICA, Appellant v. CITGO ASPHALT REFINING COMPANY; CITGO PETROLEUM CORPORATION CITGO EAST COAST OIL CORPORATION

No. 11-2576

No. 11-2577

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Argued September 20, 2012

Opinion Filed: May 16, 2013

PRECEDENTIAL

Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. Civil Action Nos. 2-05-cv-00305 / 2-08-cv-02898)

Trial District Judge: Honorable John P. Fullam

District Judge: Honorable Joel H. Slomsky^*

Before: AMBRO, GREENAWAY, Jr.,

and O'MALLEY,^** Circuit Judges

Amelia Carolla, Esquire

Reisman, Carolla & Gran

Stacy A. Fols, Esquire

R. Monica Hennessy, Esquire

Melanie A. Leney, Esquire

John J. Levy, Esquire

Montgomery, McCracken, Walker & Rhoads

Leona John, Esquire

Alfred J. Kuffler, Esquire

John G. Papianou, Esquire

Tricia J. Sadd, Esquire

Timothy J. Bergere, Esquire

Jack A. Greenbaum, Esquire (Argued)

John D. Kimball, Esquire

Blank Rome

Eugene J. O'Connor, Esquire

George M. Chalos, Esquire

Chalos, O'Connor and Duffy

Counsel for Appellants

Frescati Shipping Company, Ltd.

Tsakos Shipping & Trading, S.A.

Tony West

Assistant Attorney General

Zane David Memeger

United States Attorney

Matthew M. Collette, Esquire

Anne Murphy, Esquire (Argued)

United States Department of Justice

Appellate Section, Civil Division

Stephen G. Flynn, Esquire

Sarah S. Keast, Esquire

Sharon Shutler, Esquire

United States Department of Justice

Counsel for Appellant

United States of America

Frank P. DeGiulio, Esquire

Charles P. Neely, Esquire

Kevin G. O'Donovan, Esquire

Richard Q. Whelan, Esquire (Argued)

Palmer, Biezup & Henderson

Michael B. McCauley, Esquire

Palmer, Biezup & Henderson

Robert B. Fisher, Jr., Esquire

Thomas D. Forbes, Esquire

Douglas L. Grundmeyer, Esquire

J. Dwight LeBlanc, Jr., Esquire

Jonathan C. McCall, Esquire

Ivan M. Rodriguez, Esquire

Derek A. Walker, Esquire

Charles P. Blanchard, Esquire

John L. Robert, III, Esquire

Daniel A. Tadros, Esquire

Chaffe McCall

Counsel For Appellees

Citgo Asphalt Refining Company

Citgo Petroleum Corporation

Citgo East Coast Oil Corporation

William J. Honan, Esquire

Chester D. Hooper, Esquire

Lissa D. Schaupp, Esquire

K. Blythe Daly, Esquire

F. Robert Denig, Esquire

Holland & Knight

Counsel for Amici Appellants

George R. Zacharkow, Esquire

Mattioni Limited

Counsel for Amici Appellees

OPINION OF THE COURT

AMBRO, Circuit Judge

Table of Contents

I. Factual and Procedural Background ........................................ .............. 9

A. The Tanker and Its Charters .......................... 9

B. The Accident .......................... 12

C. The Cost of the Accident .......................... 14

D. Control of the Waters .......................... 15

E. The District Court Proceedings .......................... 18

II. Jurisdiction and Standard of Review .......................... 20

III. Rule 52 ................................................................................... 21

IV. The Contractual Safe Berth Warranty .......................... 22

A. Was Frescati a Third-Party Beneficiary of the Safe Berth Warranty? .......................... 23

B. The Scope of the Safe Berth Warranty ........................................ .......................... 27

C. Was the Safe Berth Warranty Breached? ........................................ .......................... 33

D. The Named Port Exception .......................... 37

V. The Tort Claims .......................... 40

A. Negligence .......................... 41

i. The Scope of the Approach ......................... 42

ii. Was the Athos I Within the Approach to CARCO's Terminal When the Accident Occurred? .......................... 46

iii. Potential Breach of Duty to Maintain a Safe Approach .......................... 48

iv. Causation .......................... 50

B. Negligent Misrepresentation .......................... 52

VI. Effect of the Government's Settlement With CARCO ..................... 54

VII. Conclusion .......................... 56

Appendix A .......................... 58

As the oil tanker M/T Athos I neared Paulsboro, New Jersey, after a journey from Venezuela, an abandoned ship anchor lay hidden on the bottom of the Delaware River squarely within the Athos I's path and only 900 feet away from its berth. Although dozens of ships had docked since the anchor was deposited in the River, none had reported encountering it. The Athos I struck the anchor, which punctured the ship's hull and caused approximately 263,000 gallons of crude oil to spill into the River. The cleanup following the casualty was successful, but expensive.

This appeal is the result of three interested parties attempting to apportion the monetary liability. The first party (actually two entities consolidated as one for our purposes) includes the Athos I's owner, Frescati Shipping Company, Ltd., and its manager, Tsakos Shipping & Trading, S.A. (jointly and severally, "Frescati"). Although Frescati states that the spill caused it to pay out $180 million in cleanup costs and ship damages, it was reimbursed for nearly $88 million of that amount by the United States (the "Government")—the second interested party—pursuant to the Oil Pollution Act of 1990, 33 U.S.C. § 2701 et seq. In order to recoup the unreimbursed losses, Frescati made claims in contract and tort against the third interested party—a set of affiliates known as CITGO Asphalt Refining Company, CITGO Petroleum Corporation, and CITGO East Coast Oil Corporation (jointly and severally, "CARCO")—which requested the oil shipped on the Athos I and owned the marine terminal where it was to dock to unload its oil. Specifically, Frescati brought a contract claim for CARCO's alleged breach of the safe port/safe berth warranty (jointly and severally, "safe berth warranty") it made to an intermediary—Star Tankers, Inc.—responsible for chartering the Athos I to CARCO's port, and alleged negligence and negligentmisrepresentation against CARCO as the owner of the wharf the Athos I was nearing when it was holed. The Government, as a statutory subrogee that stepped into Frescati's position for the $88 million it reimbursed to Frescati under the Oil Pollution Act, has limited its claim for reimbursement from CARCO to Frescati's contractual claim pursuant to a limited settlement agreement.

Following a 41-day bench trial, the District Court for the Eastern District of Pennsylvania held that CARCO was not liable for the accident under any of these theories. The Court, however, made no separate findings of fact and conclusions of law as required by Federal Rule of Civil Procedure 52(a)(1). That calls for a remand to set out these mandated matters. However, for the sake of efficiency, we discuss—and, to the extent necessary, make holdings on—the legal issues appealed.

In regard to the contractual safe berth warranty, the Court determined that Frescati (and the Government as a subrogee) could not recover on their contractual claims. First, Frescati was not a party to the agreement that contained the warranty between CARCO and Star Tankers, and was not an intended beneficiary of that agreement. Furthermore, even if Frescati could claim the protection of the warranty, it was only a promise by CARCO to exercise due diligence and not an unconditional guarantee; moreover, sufficient diligence existed here. In any event, the warranty was excused because CARCO specified the port ahead of the Athos I's arrival, placing the burden on the Athos I's captain to accept it as safe or reject it under what is called the "named port exception."

For reasons elaborated below, we disagree with all three of these rulings. Instead, we hold that the Athos I—and by extension, its owner, Frescati—was an implied beneficiary of CARCO's safe berth warranty. We conclude as well that the safe berth warranty is an express assurance of safety, and that the named port exception to that warranty does not apply to hazards that are unknown to theparties and not reasonably foreseeable. We cannot be sure, however, that this warranty was actually breached, as the District Court made no finding as to the Athos I's actual draft nor the amount of clearance actually provided.

If on remand the District Court rules in favor of Frescati on its contractual warranty claim, its negligence claim becomes unnecessary. If this issue is reached, we do not agree with the District Court's conclusion that CARCO cannot be liable in negligence because the anchor lay outside the approach to CARCO's terminal—the area in which CARCO had a duty to exercise reasonable care in proving a safe approach. As such, the District Court would need to resolve the appropriate standard of care required, whether CARCO breached that standard, and if so, whether any such breach caused the accident. Conversely, we find no error with the Court's holding that CARCO's alleged misrepresentation as to the depth of its berth was geographically (and hence factually) irrelevant to the ultimate accident. In addition, we conclude that the Government has waived reliance on a partial settlement agreement with CARCO that, the Government contends, precludes CARCO from making certain equitable defenses to the Government's subrogation claims. In this context, we affirm in part, and vacate and remand in part for additional factfinding on the contractual (and possibly negligence) claims.

I. Factual and Procedural Background

A. The Tanker and Its Charters

At the heart of this dispute is the Athos I, a single-hulled oil tanker measuring 748 feet long and more than 105 feet wide. It was owned by Frescati at all relevant times. At the time of the accident, however, the Athos I had been chartered into a tanker pool assembled by Star Tankers, who is not a party to this consolidated action. In order to transport a load of heavy crude oilfrom Venezuela to its asphalt refinery in Paulsboro, New Jersey, CARCO...