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In re Petition of Frescati Shipping Co. Ltd.

United States Court of Appeals, Third Circuit

March 29, 2018

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 (E.D. Pa. No. 2-05-cv-00305) UNITED STATES OF AMERICA
v.
CITGO ASPHALT REFINING COMPANY; CITGO PETROLEUM CORPORATION; CITGO EAST COAST CORPORATION (E.D. Pa. No. 2-08-cv-02898) CITGO Asphalt Refining Company; CITGO Petroleum Corporation; CITGO East Coast Oil Corporation, Appellants in Nos. 16-3470; 16-3552 Frescati Shipping Company, Ltd.; Tsakos Shipping and Trading, S.A., Appellants in No. 16-3867 United States of America Appellant in No. 16-3868

          Argued November 8, 2017

          On Appeal from the United States District Court for the Eastern District of Pennsylvania District Court Nos. 2-05-cv-00305; 2-08-cv-02898 District Judge: The Honorable Joel H. Slomsky

          Timothy J. Bergère [ARGUED] Alfred J. Kuffler John J. Levy [ARGUED] Montgomery McCracken Walker & Rhoads, Jack A. Greenbaum Counsel for Frescati Shipping Co. Ltd. and Tsakos Shipping and Trading S.A.

          Matthew M. Collette United States Department of Justice, Stephen G. Flynn United States Department of Justice Anne Murphy [ARGUED] United States Department of Justice, Counsel for United States of America

          Benjamin Beaton Jacqueline G. Cooper Carter G. Phillips [ARGUED] Richard E. Young Counsel for Citgo Asphalt Refining Co. Citgo Petroleum Corp. Citgo East Coast Oil Corp.

          George R. Zacharkow Deasey Mahoney & Valentini Counsel for Intervenor Respondent International Liquid Terminal Ass'n American Fuels and Petrochemicals Manufacturers Ass'n

          Before: SMITH, Chief Judge, HARDIMAN, Circuit Judge, and BRANN, District Judge [*]

          OPINION

          SMITH, Chief Judge.

         I. Introduction .......................................................... 6

         II. Background ........................................................... 7

         a. Facts ................................................................... 7

         b. Procedural History ......................................... 13

         III. Jurisdiction and Standard of Review ............... 19

         IV. The Safe Berth Warranty .................................. 19

         a. The Draft of the Athos I ................................. 21

         b. Frescati's Seamanship ................................... 27

         V. Wharfinger Negligence ...................................... 36

         VI. Subrogation and Equitable Recoupment ......... 42

         a. Subrogation and Subrogee-Specific Defenses ........................................................... 45

         b. Equitable Recoupment .................................. 49

         VII. Limitation of Liability under the Oil Pollution Act ........................................................................ 55

         VIII. Prejudgment Interest Rate ................................ 58

         IX. Conclusion ........................................................... 61

         I. Introduction

         After a 1, 900-mile journey from Venezuela to Paulsboro, New Jersey, the M/T Athos I, a single-hulled oil tanker, had come within 900 feet of its intended berth when it struck an abandoned anchor on the bottom of the Delaware River. The anchor pierced the Athos I's hull, causing approximately 264, 000 gallons of crude oil to spill into the river.

         The cost of cleaning up the spill was $143 million. We are presented with the question of how to apportion responsibility for that cost between three parties. The first party comprises not only the shipowner, Frescati Shipping Company, Ltd., but also the ship's manager, Tsakos Shipping & Trading, S.A. (collectively, "Frescati"). Frescati, through an intermediary, contracted to deliver crude oil to the second party, which is made up of several affiliated companies-CITGO Asphalt Refining

         Company, CITGO Petroleum Corporation, and CITGO East Coast Oil Corporation (collectively, "CARCO"). The oil shipment was to be delivered to CARCO at its marine terminal in Paulsboro. After the oil spill, Frescati paid for the cleanup effort, and was eventually reimbursed $88 million by the third party to this litigation, the United States, pursuant to the Oil Pollution Act (OPA) of 1990, 33 U.S.C. § 2701 et seq. Frescati and the United States now seek to recover their cleanup costs from CARCO.

         II. Background

         a. Facts[1]

         The M/T Athos I was a single-hulled tanker ship, measuring approximately 748 feet long and 105 feet wide.[2] As owner of the ship, Frescati chartered it to an intermediary which assigned it to a tanker pool. CARCO sub-chartered the Athos I from the tanker pool to deliver a shipment of crude oil from Puerto Miranda, Venezuela, to CARCO's berth in Paulsboro, New Jersey. CARCO was the shipping customer as well as the wharfinger who operated the berth.

         The Athos I, carrying CARCO's shipment, left Venezuela in mid-November 2004 under the command of the ship's master, Captain Iosif Markoutsis. CARCO had instructed the Athos I to load to a draft[3] of 37 feet or less in Venezuela, and provided a warranty that the ship would be able to safely reach the berth in Paulsboro as long as it arrived with a draft of 37 feet or less. When the Athos I left Venezuela, it had a draft of 36′ 6″. Over the course of the Athos I 's journey, the ship burned fuel and the crew consumed fresh water. As the ship grew lighter, it rode higher on the water. By the time it reached the entrance to the Delaware Bay, the Athos I was drawing 36′ 4″. Because the fuel and fresh water were consumed from tanks located in the stern, or rear, of the ship, the Athos I was no longer sailing at an even keel; it was "trimmed by the bow, " meaning that the bow, or front of the ship, was deeper in the water than the ship's stern. To return the ship to an even keel, the Athos I took on approximately 510 metric tons of ballast to tanks in the rear of the ship. Although the parties dispute how much the Athos I was drawing as it approached CARCO's berth, the District Court found that the added ballast brought the ship's draft to 36′ 7″.

         The Athos I reached the entrance to the Delaware Bay without incident on November 26th. All vessels traveling north from the Delaware Bay to the Delaware River are required to use a Delaware River Pilot to navigate the waters. At the appropriate time, a local river pilot, Captain Howard Teal, Jr. boarded the ship and guided it up the Delaware River until it reached a section of the river near CARCO's berth. At that point, a local docking pilot, Captain Joseph Bethel, replaced Captain Teal and began to navigate the ship to its berth at Paulsboro. Captains Teal and Bethel both engaged Captain Markoutsis in conversations about the Athos I, its passage from the Delaware Bay to the Paulsboro berth, water depth, underkeel clearance, and other local conditions. The substance and sufficiency of those conversations are disputed by the parties.

         CARCO's berth is on the New Jersey side of the Delaware River, directly across from Philadelphia International Airport. To reach the berth from the main river channel, ships must pass through an anchorage immediately adjacent to the berth. The anchorage, known as Federal Anchorage Number 9 or the Mantua Creek Anchorage, is a federally-designated section of the river in which ships may anchor; it is periodically surveyed for depth and dredged by the Army Corps of Engineers, as Corps resources allow. No government agency is responsible for preemptively searching for unknown obstructions to navigation in the anchorage, although the Coast Guard, the National Oceanic and Atmospheric Administration (NOAA), and the Corps of Engineers work together to remove or mark obstructions when they are discovered. Anyone who wishes to search for obstructions in the anchorage may do so, but anyone wishing to dredge in the anchorage requires a permit from the Corps of Engineers.

         It was in this anchorage on November 26, 2004, at 9:02 p.m., that the allision occurred.[4] The Athos I was only 900 feet-not much more than the ship's length-from CARCO's berth. The ship was "just about dead in the water" as Captain Bethel slowly positioned it to dock. Suddenly, the ship began to list and oil appeared in the river. At the time of the allision, the ship was in the middle of a 180° rotation, guided by tugboats, and moving astern and to port (backwards and to the ship's left). The path taken by the Athos I through the anchorage passed, at its shallowest point, over a 38-foot shoal. Most of the anchorage was deeper, and the depth of the river at the site of the allision was at least 41.65 feet at the time.

         Captain Bethel immediately called the Coast Guard to alert them to the spill, while Captain Markoutsis rushed to the engine room and transferred oil from the breached cargo tank into another tank. The crew of the Athos I was eventually able to stop the leak, but not before 264, 321 gallons of crude oil had spilled into the Delaware River.

         The cleanup effort began almost immediately. Although it was ultimately successful, it took months to complete and the efforts of thousands of workers at a cost of $143 million. The cause of the allision was not discovered until more than a month later, when an abandoned anchor was discovered on the riverbed. The search for the obstruction that caused the allision proved difficult. An experienced sonar operator using side-scan sonar conducted the first search shortly after the allision, but did not recognize the anchor.[5] A second search by the same operator, conducted several weeks later, eventually discovered the anchor with the use of side-scan sonar in combination with divers and magnetometers. The anchor weighed approximately nine tons and was 6′ 8″ long, 7′ 3″ wide, and 4′ 6″ high. It has since been removed from the river.

         The parties dispute the positioning of the anchor at the time of the allision. An anchor like the one that punctured the Athos I has two stable positions. It can sit at rest in the "flukes-up" or "flukes-down" position. A flukes-up anchor stands almost upright on its crown, with the flukes pointed upward at a 65° angle, while a flukes-down anchor has essentially tipped over, with both the crown and flukes of the anchor lying horizontally on the riverbed. In the flukes-up position, the anchor sticks up approximately seven feet above the riverbed, but in the flukes-down position, it rises only about 3′ 5″ above the riverbed. The District Court found that the anchor was flukes-up at the time of the allision, but CARCO asserts that the anchor was flukes-down, pointing to side-scan sonar data gathered as part of a geophysical study of the Delaware River that showed the anchor was flukes-down in 2001, three years before the allision.[6] The anchor was also flukes-down when it was discovered after the allision. Between 2001 and the allision in 2004, 241 vessels went to CARCO's Paulsboro berth, and many others have anchored in the anchorage over the years. The District Court theorized that one of those anchored ships could have dragged its own anchor chain along the riverbed, catching on the abandoned anchor and shifting its position. The court ultimately concluded that although the actual cause of the anchor's movement would never be known, at some point between the geophysical study in 2001 and the allision in 2004, the anchor shifted from flukes-down to flukes-up. A flukes-down anchor would not have allided with the Athos I if the Athos I's draft was less than 37 feet; a flukes-up anchor would have.

         Now, more than thirteen years after the allision, the Athos I has been scrapped, the anchor removed from the river, and the oil spill cleaned up. What remains is this case for apportionment of cleanup costs.

         b. Procedural History

         This case, like the Athos I, has been on a long journey. Over the past thirteen years, the matter has been to trial before two different judges and heard on appeal before two separate panels of this Court. We briefly summarize that history.

         Litigation began shortly after the allision in January, 2005, when Frescati filed a "Petition for Exoneration from or Limitation of Liability." CARCO and others filed claims for damages associated with the spill. Frescati then filed a counterclaim against CARCO for its damages. The United States eventually reimbursed Frescati for some of its cleanup expenses pursuant to the OPA, and filed suit against CARCO as a partial subrogee to some of Frescati's claims. The claims of Frescati and the United States against CARCO were consolidated with CARCO's counterclaims and defenses, forming the litigation as it exists today.

         The case was first tried in a forty-one-day bench trial before the Honorable John P. Fullam. Judge Fullam found that CARCO was not liable for the casualty in contract, tort, or otherwise; Frescati and the United States appealed. On appeal, we affirmed in part, vacated in part, and remanded the case because the District Court had failed to make appropriate findings of fact and conclusions of law as required by Fed.R.Civ.P. 52(a)(1). In re Frescati, 718 F.3d 184, 189, 196-97 (3d Cir. 2013).

         We determined, among other things, that Frescati was a third-party beneficiary of CARCO's safe berth warranty, and that the allision occurred in the approach to CARCO's terminal, meaning that CARCO had an unspecified duty of care to Frescati in tort. We remanded for the District Court to determine whether Frescati met the conditions for the safe berth warranty to apply. We also asked the District Court, if necessary, to determine the appropriate duty of care CARCO owed Frescati and whether CARCO breached that duty. 718 F.3d at 214-15.

         Judge Fullam retired before the case was remanded. Upon its return to the District Court, the case was assigned to the Honorable Joel H. Slomsky as a successor judge pursuant to Fed.R.Civ.P. 63. Under the terms of that rule, Judge Slomsky certified his familiarity with the record and recalled more than twenty witnesses over the course of a thirty-one-day proceeding.

         The District Court held that CARCO was liable to Frescati, and the United States as Frescati's subrogee, for breach of contract. CARCO's contract included a provision known as a safe berth warranty, which, for purposes of this appeal, warrantied that CARCO's berth would be safe for the Athos I as long as the ship had a draft of 37 feet or less and Frescati did not cause the allision through bad navigation or negligent seamanship. The District Court concluded that CARCO breached the warranty because the Athos I had a draft of 36′ 7″ at the time of the allision, exercised good navigation and seamanship, and yet still hit an anchor within the geographic area covered by the warranty. On appeal, CARCO argues that the Athos I had a draft much deeper than the warrantied depth of 37 feet, and that Frescati demonstrated negligent seamanship by violating several federal maritime regulations relating to underkeel clearance and safe navigation.

         The District Court also found CARCO liable in tort to Frescati, [7] concluding that CARCO had a duty, as operator of the berth, to search for obstructions in the approach to its berth. Specifically, the District Court concluded that CARCO had a duty to use side-scan sonar to search for unknown obstructions to navigation in the approach to its berth, and to remove any such obstructions or warn invited ships-like the Athos I-of their presence. Because CARCO had not taken any action to search for obstructions, the District Court held CARCO liable in tort-for the same amount for which it was liable in contract. The District Court's contract and tort holdings independently support the judgment for Frescati.

         CARCO, in a motion for partial summary judgment before the District Court, asked that its liability, like Frescati's, be limited under the OPA. Because CARCO did not raise the defense until after the first trial and appeal, almost a decade into this litigation, the District Court held that the defense was waived, and in the alternative, that it failed on the merits.

         The District Court did, however, partially credit CARCO's equitable recoupment defense against the United States. CARCO argued that the conduct of three federal agencies-the Coast Guard, NOAA, and the Army Corps of Engineers-misled CARCO into believing that the United States was maintaining the anchorage free of obstructions. In addition, CARCO argued that equity requires the United States to bear the cost of the cleanup rather than CARCO. The District Court ultimately reduced the United States' recovery against CARCO by 50%, rather than acceding to CARCO's request to eliminate its liability entirely.

         Finally, the District Court held that Frescati was entitled to prejudgment interest at the federal postjudgment rate rather than the higher U.S. prime rate requested by Frescati.

         The District Court ultimately awarded Frescati $55, 497, 375.95[8] on the claims of breach of contract and negligence, plus prejudgment interest of $16, 010, 773.75, for a total judgment of $71, 508, 149.70. The United States, after the court's 50% reduction, was awarded $43, 994, 578.66 on its subrogated breach of contract claim, with prejudgment interest of $4, 620, 159.98, for a total judgment of $48, 614, 738.64.

         All three parties now appeal. We will affirm the District Court's judgment in favor of Frescati on the breach of contract claim and the prejudgment interest award, as well as the District Court's denial of CARCO's motion for partial summary judgment on its limitation of liability defense. We will vacate the District Court's judgment in favor of Frescati on the negligence claim. We will affirm in part the District Court's judgment in favor of the United States with respect to CARCO's liability on the subrogated breach of contract claim, but because CARCO's equitable recoupment defense fails, we will reverse and remand for further proceedings to recalculate damages and prejudgment interest.

         III. Jurisdiction and Standard of Review

         The District Court had admiralty jurisdiction pursuant to 28 U.S.C. § 1333(1). We have jurisdiction over this appeal under 28 U.S.C. § 1291.

         "On appeal from a bench trial, we review a district court's findings of facts for clear error and exercise plenary review over conclusions of law." Norfolk S. Ry. Co. v. Pittsburgh & W.Va. R.R., 870 F.3d 244, 253 (3d Cir. 2017). "A finding of fact is clearly erroneous when it is completely devoid of minimum evidentiary support displaying some hue of credibility or bears no rational relationship to the supportive evidentiary data." VICI ...


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