Crowley Marine Services, Inc. v. Vigor Marine LLC

Citations: 17 F. Supp. 3d 1091; 2014 A.M.C. 744; 2014 U.S. Dist. LEXIS 63377; 2014 WL 1778959Docket: Case No. C12-2240 MJP

Court: District Court, W.D. Washington; January 26, 2014; Federal District Court

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The Court addressed cross motions for partial summary judgment from Defendant Vigor Marine Services, Inc. and Plaintiff Crowley Marine LLC regarding the scope of the remedy following the destruction of the tug INVADER. The parties have agreed on liability, with Vigor acknowledging its material breach of the vessel repair contract and warranty of workmanlike performance. The Court partially granted and denied both motions. 

Background reveals that Crowley, as the owner and operator of INVADER, sought repair bids in January 2012, eventually selecting Vigor, which did not reference the specific 'Terms and Conditions' in its bid. The tug was damaged when a drydock operated by Vigor's subsidiary collapsed, nearly completing the contracted repairs at the time. 

Vigor's motion for partial summary judgment requested a ruling that INVADER was a constructive total loss (CTL), limiting Crowley’s damages under maritime law, and sought to prevent Crowley from filing a declaratory judgment regarding liabilities to third parties. Conversely, Crowley's motion contended that Vigor's CTL defense was inapplicable, argued for recovery of contract damages, and sought attorney’s fees from Vigor. 

The analysis confirmed that admiralty jurisdiction applies to the repair contract and that federal law governs its interpretation, with established common law principles relevant in maritime contracts.

The Ninth Circuit relies on the Restatement (Second) of Contracts, identifying the essential elements of contract formation as offer, acceptance, and consideration. The dispute between Crowley and Vigor centers on whether the terms of the offer are defined by the request for bids or the submitted bid itself. Crowley argues that auction rules apply, where bids represent known terms as advertised, while a request for bids is generally not considered an offer but an invitation for offers, as outlined in Restatement § 28. A maritime case, Garza v. Marine Transport Lines, Inc., suggests that a contract for repairs includes the invitation to bid and the awarded bid, but does not clarify the invitation's content or its incorporation into the contract. 

Black’s Law Dictionary defines an auction as a public sale to the highest bidder, which does not align with a request for bids, particularly for services. The general rule indicates that the bid is the offer, not the request, supporting the notion that Vigor’s bid constitutes the offer. Crowley could have formalized the contract but accepted Vigor’s bid instead. Crowley’s reliance on cases with clear written contracts is misplaced, as no such contract exists here, and the communications indicate a lack of agreement on incorporating indemnity clauses. Consequently, the indemnity clauses are deemed non-binding, leading to the application of the American rule for attorneys’ fees, where each party bears its own costs, resulting in the denial of Crowley’s motion to enforce the indemnity clauses.

Regarding liability for repairs, the ship repairer may face contractual liability for breached obligations or implied warranties, as well as tort liability for negligence. Both parties acknowledge a contractual agreement despite the absence of a formal document. They dispute the recoverability under general contract law versus the tort rule of constructive total loss (CTL), typically applied in collision cases but also relevant in instances of damage due to tug inattention, distinguishing towage cases from other maritime contracts.

In Hall-Scott Motor Car Co. v. Universal Ins. Co., the Ninth Circuit established that private parties generally have the right to contract freely, except in cases involving common carriers and towage contracts. The CTL (Constructive Total Loss) rule has been applied in repair cases only when contracts explicitly limit recovery to specified damages, excluding consequential damages. Vigor's reliance on Cashman Equip. Corp. v. Rozel Operating Co. is misplaced since that case involved a contract requiring payment until a vessel was declared a constructive total loss. Vigor did not cite any cases applying the CTL rule to non-towing contracts that didn't expressly exclude consequential damages.

Crowley’s argument draws on E. River S.S. Corp. v. Transamerica Delaval, where the Supreme Court evaluated whether tort claims could arise from defective products in admiralty law, emphasizing that warranty law is preferable for such disputes. The Court indicated that traditional contract principles apply when a contract exists, especially in cases of purely economic loss due to a faulty product. 

In M/V American Queen v. San Diego Marine Constr. Corp., the Ninth Circuit affirmed that parties in repair contracts can stipulate liability assumptions, and exculpatory clauses are enforceable unless evidence of overreaching exists. This reinforces that maritime contracts are governed by contract law rather than tort law, allowing for the inclusion of consequential damages in ship repair contracts. 

The Ninth Circuit concluded that the CTL rule does not limit liability in the ship repair contract involved in this case, affirming that contract law is the correct measure for damages. Consequently, Vigor's motion for summary judgment is denied, while Crowley's is granted.

The viability of a declaratory judgment claim is established under the Declaratory Judgment Act, which permits a court to affirm a plaintiff's rights without immediate enforcement and allows further relief as necessary. A district court must evaluate (1) the existence of an actual case or controversy and (2) whether to exercise discretion in granting declaratory relief. For contract disputes among private parties, the traditional ripeness standard applies, requiring a substantial controversy with immediate and real adverse interests. The court should also consider factors from Brillhart v. Excess Ins. Co., which include avoiding unnecessary state law determinations, discouraging forum shopping, and preventing duplicative litigation. Additional factors from the 9th Circuit emphasize the usefulness of the judgment in clarifying legal relationships, relieving uncertainty, and the potential for entanglement between federal and state courts. In this case, the parties agree that there are no pending third-party claims, indicating a lack of sufficient controversy for a declaratory judgment. As such, Vigor’s motion to dismiss is granted, and Crowley’s motion is denied. 

Regarding offsets and contract damages, the right to offset allows mutual debts to be settled against each other but requires mutuality, meaning debts must be between the same parties in the same capacity. While offsets typically apply in bankruptcy, the court finds contract remedies sufficient in this instance, making further discussion on offsets unnecessary. According to general contract law principles outlined in the Restatement (Second) of Contracts, Crowley is entitled to recover losses from the breach based on the value lost from the other party’s failure, any incidental or consequential losses, minus any costs avoided by not performing.

Vigor's claim for reimbursement of storage and security costs incurred for the INVADER is limited by contract law to costs that Crowley could have avoided. Since Vigor caused the INVADER to sink, it cannot recover costs for a reasonable storage duration. If Crowley delayed unreasonably in retrieving the tug, Vigor might have recoverable damages. Crowley contends that since ESI covered these costs, Vigor has no right to seek recovery. Vigor argues it can claim damages incurred by ESI based on their corporate relationship, asserting that ESI is Vigor's "alter ego." However, the alter ego doctrine requires that ESI must lack independent interests and solely serve Vigor’s purposes. Evidence, including emails, suggests that Vigor and ESI maintain separate finances. Vigor's own statements indicate an intent to assign losses to ESI, reinforcing their separate identities. Crowley correctly points out that the contract is with Vigor, not ESI, and Vigor has confirmed it is the sole proper defendant. Consequently, Vigor's request for an offset is denied. The Court partially grants and denies Crowley’s and Vigor’s motions for summary judgment, ruling that: 1) remedies are governed by contract law; 2) Crowley's indemnity clauses are excluded; 3) damages are not limited by the constructive total loss rule; 4) no offset will be provided; 5) each party will bear its own costs; and 6) Crowley’s Declaratory Judgment action is dismissed as unripe. The clerk is instructed to distribute copies of the order to all counsel.