hawaiioceanlaw.com: May 2013

The Court of Appeals published a decision in the Athos I oil spill. It is a consolidated case arising from a limitation action and an action to apportion liability for oil spill clean up costs, to the tune of $180 million.

The opinion is lengthy and I'm still digesting it. But, it can be found here and is a must read for practitioners involved in litigation over pollution cleanup cost recovery.

The introduction is reproduced below:

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 negligent misrepresentation 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 the parties 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.