Dann Marine Towing LC v. General Ship Repair Corp.

Citations: 31 F. Supp. 3d 743; 2014 A.M.C. 2372; 2014 U.S. Dist. LEXIS 94019; 2014 WL 3421513Docket: Civil No. WDQ-12-1610

Court: District Court, D. Maryland; July 10, 2014; Federal District Court

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Dann Marine Towing LLC filed a lawsuit against General Ship Repair Corp. (GSR) in admiralty, alleging negligence and other claims stemming from a fire on the tugboat Ivory Coast. The court is considering cross-motions for partial summary judgment from both parties. Dann Marine owns several tugs and had previously contracted GSR for repairs over the last 10 to 15 years, including work on the Ivory Coast prior to the incident. 

GSR emailed an invoice to Dann Marine on October 4, 2011, detailing repair work, including a specific task to renew part of the hull, and included a commitment to provide fire watch during hot work. The invoice noted that GSR's work would be subject to standard terms and conditions, though these were not attached to the invoice. GSR's terms, used consistently over the years, included liability disclaimers and a cap on damages of $300,000. Dann Marine did not sign the invoice or the conditions but had not typically signed contracts for GSR’s work.

On October 5, 2011, the Ivory Coast was taken to GSR for repairs. A fire occurred on October 10, 2011, while GSR workers were performing hot work on the vessel, resulting in extensive damage. Dann Marine initiated the lawsuit on May 30, 2012, asserting claims for breach of contract, breach of implied warranty of workmanlike performance, negligence, gross negligence, and breach of bailment. In its defense, GSR claimed that its contract terms barred any recovery of damages or limited its liability to $300,000. The court has ruled to grant Dann Marine's motion for partial summary judgment while denying GSR's motion.

On January 13 and 30, 2014, both parties filed cross-motions for partial summary judgment regarding the enforceability of an exculpatory clause in GSR’s terms, which purportedly limits GSR’s liability to $300,000. GSR sought to enforce the clause against Dann Marine, while Dann Marine argued it was unenforceable. GSR opposed Dann Marine’s motion on February 18, 2014, and Dann Marine replied on March 7, 2014.

The court's standard for granting summary judgment requires showing no genuine dispute of material fact and entitlement to judgment as a matter of law. The judge's role is to determine the presence of genuine issues for trial rather than to weigh evidence. Cross-motions for summary judgment must be considered separately, with facts viewed favorably for the non-movant.

Under maritime law, contracts for ship repairs are considered maritime contracts, and federal common law applies, supplemented by state law only when it does not conflict with federal law. A red letter clause in a maritime contract is enforceable if it is freely expressed, entered into by parties with equal bargaining power, and does not absolve liability entirely. Additionally, such clauses must be clear and unequivocal, reflecting the parties’ intentions.

In this case, the red letter clause asserts that if any provision exempting GSR from liability is deemed invalid, GSR’s liability is capped at $300,000 for claims related to a single vessel.

Dann Marine's Motion for Summary Judgment revolves around the enforceability of a "red letter clause" in the contract with GSR, which limits GSR’s liability to $300,000. GSR asserts that such clauses are standard practice in the ship repair industry and that previous agreements with Dann Marine were governed by similar terms. Although Dann Marine acknowledges being bound by the terms, it argues that the red letter clause is unenforceable due to lack of clarity and unequivocality. 

GSR contends that the contract, taken as a whole, clearly demonstrates that Dann Marine intended to limit liability specifically to third-party claims, as the clause explicitly states it applies to actions "by third parties." Since the current suit is between GSR and Dann Marine, it falls outside the clause's intended scope. Furthermore, GSR highlights a printer’s error that may have created ambiguity in the clause's wording.

The text notes that even if ambiguities exist, they would prevent the clause from effectively limiting GSR's liability. The court emphasized that it cannot alter the contract to align with what GSR might prefer; instead, it must enforce the contract as it is written. The court also stated that any ambiguities in the contract should be interpreted against the drafter, which in this case is GSR. Previous case law is referenced to support these principles, underscoring the importance of clear language in contractual agreements and the limitations on liability clauses when ambiguities are present.

GSR's assertion that limiting liability for third-party actions is unreasonable is contradicted by its claim that a 'printer error' prevented the inclusion of the word 'and' in the red letter clause, which would have included claims from Dann Marine and third parties. This indicates GSR's intent to limit liability even in cases involving third-party suits. Consequently, the red letter clause, which limits liability to $300,000, does not apply to the current suit, leading to the granting of Dann Marine's motion for partial summary judgment. 

GSR's motion for summary judgment, which seeks to enforce the red letter clause and cap its liability at $300,000, is denied as the clause does not unambiguously limit liability to Dann Marine, only to third parties. Summary judgment motions are assessed individually, with the facts viewed favorably for the non-movant. The cause of a fire and GSR's fire safety measures remain disputed and are not pertinent to the motions. The document references two red letter clauses: one disclaiming all liability and the other limiting liability to $300,000. GSR fails to substantiate the enforceability of the disclaimer clause and focuses on the $300,000 limit.

Additionally, it is noted that different standards may apply to various maritime contracts, and while exculpatory clauses are generally enforceable, the specific context of the contracts involved plays a significant role in their applicability. There is no argument presented regarding unequal bargaining power between the parties.

In One Beacon Ins. Co. v. Crowley Marine Servs., Inc., the court upheld established practices in the ship repair industry, where terms and conditions in invoices sent post-repair are enforced if there is a longstanding business relationship under identical terms. This precedent included a finding that a red letter clause in a contract was valid due to industry practices and prior dealings. The case highlighted that despite potential ambiguities in contract language, it must be clear in its intent to waive rights, especially regarding negligence claims. The court compared a specific red letter clause to one in Alcoa, noting that the latter unambiguously limited liability regardless of the dispute's nature, while the clause in question was not as clear. Additionally, it emphasized that both parties in such contracts should possess commercial sophistication, which supports the enforceability of the terms. GSR’s claim of a mutual mistake regarding the wording of the clause was rejected due to a lack of evidence showing that the parties intended to limit liability differently than stated in their contracts.

GSR's unilateral mistake in drafting a contract clause does not justify a reformation of the language used. Reformation is permitted only in cases of mutual mistake, fraud, or duress, as established in ATS Int'l Servs. Inc. v. Kousa Int’l, LLC. To seek reformation, a party must demonstrate that both parties had a mutual understanding that was inaccurately captured in writing due to mutual mistake or a combination of unilateral mistake and fraud. The contract language indicating GSR's willingness to accept greater liabilities under certain conditions does not preclude the interpretation that GSR's liability is limited to situations involving third-party claims. Furthermore, the contract requires the customer to indemnify GSR for amounts exceeding $300,000, which suggests that the customer may not have to assume liability for third-party claims resulting from GSR's misconduct, supporting a reasonable interpretation of the contract's provisions.