JAB Energy Solutions II, L.L.C. v. Servicio Marina Superior, L.L.C. , 640 F. App'x 373 ( 2016 )


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  •      Case: 15-30504      Document: 00513398470         Page: 1    Date Filed: 02/26/2016
    IN THE UNITED STATES COURT OF APPEALS
    FOR THE FIFTH CIRCUIT
    United States Court of Appeals
    No. 15-30504
    Fifth Circuit
    FILED
    February 26, 2016
    Lyle W. Cayce
    JAB ENERGY SOLUTIONS II, L.L.C.,                                                 Clerk
    Plaintiff – Appellee
    v.
    SERVICIO MARINA SUPERIOR, L.L.C.; CASHMAN EQUIPMENT
    CORPORATION,
    Defendants – Appellants
    Appeals from the United States District Court
    for the Eastern District of Louisiana
    USDC No. 2:13-CV-556
    Before PRADO, OWEN, and HAYNES, Circuit Judges.
    PER CURIAM:*
    Cashman Equipment Corp. (“Cashman”) and its subsidiary Servicio
    Marina Superior, LLC (“SMS”) appeal the district court’s judgment awarding
    damages to JAB Energy Solutions II, LLC (“JAB”) for breach of contract.
    Cashman and SMS argue that the district court erred when it: (1) found that
    Cashman and SMS breached the contract’s warranty of seaworthiness and the
    warranty to perform transportation services with “due dispatch”; (2) concluded
    * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
    be published and is not precedent except under the limited circumstances set forth in 5TH
    CIR. R. 47.5.4.
    Case: 15-30504    Document: 00513398470      Page: 2   Date Filed: 02/26/2016
    No. 15-30504
    that neither the contract’s terms nor a subsequent agreement between JAB
    and Cashman barred JAB’s claim; and (3) determined that Cashman was the
    alter ego of SMS. For the reasons that follow, we AFFIRM the district court’s
    judgment in all respects as to SMS, AFFIRM the dismissal of Cashman’s
    counterclaim for failure to brief the issue properly, and REVERSE the
    judgment of liability as to Cashman, which was predicated on an erroneous
    alter ego finding; we RENDER judgment in favor of Cashman on JAB’s claims
    against it.
    I. Background
    After being awarded a job to transport and install an oil drilling platform
    in Malaysia, JAB contacted an employee of SMS and Cashman for the
    estimated cost to tow the drilling platform by ocean tug and barge from
    Louisiana to Malaysia. On March 1, 2012, the employee sent an email to JAB
    providing details of a potential voyage. It designated a vessel owned by SMS,
    the Atlas, as the tug to perform the job. The email made predictions regarding
    the voyage’s length, the vessel’s speed and fuel consumption, and noted that
    only two fuel stops would be required. This email was expressly incorporated
    into the Contract of Affreightment (the “Contract”), which was signed by JAB
    and SMS on June 1, 2012. While another email and a voyage plan submitted
    by SMS to JAB further outlined the details of the voyage, they were not
    expressly incorporated into the Contract.       The cost of the project in the
    Contract was $5,048,000.
    On June 16, 2012, the Atlas—which had received work on its engines a
    few months prior—left Louisiana to perform the Contract, tugging the JMC-
    3330 barge, owned by Cashman, with the drilling platform attached. During
    the journey, the Atlas experienced significant difficulties.        The Atlas’s
    starboard main engine reported constant issues that required numerous
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    repairs, the chief engineer was fired, and at one point, the tug’s tow bridle
    broke and had to be fixed.
    On the afternoon of July 12, JAB emailed representatives at SMS and
    Cashman to suggest that they find a replacement tug as soon as possible, a
    suggestion that SMS and Cashman rejected. Two days later, JAB then notified
    SMS and Cashman that it had located a tug to replace the Atlas on its own in
    order to complete the voyage to Malaysia. On July 23, JAB replaced the Atlas
    and also executed the Barge Bareboat Charter (the “Bareboat Charter”) with
    Cashman, which arranged for JAB’s continued use of the JMC-3330 barge to
    transport the drilling platform to Malaysia.
    JAB filed suit against SMS and Cashman on March 26, 2013, claiming
    breach of contract and seeking all costs associated with the replacement of the
    Atlas. Cashman asserted a counterclaim seeking the amount still due under
    the Bareboat Charter for the continued use of the barge. After a bench trial,
    the district court ruled for JAB and dismissed Cashman’s counterclaim. The
    district court, describing a long list of problems with the Atlas, noted that the
    Atlas made unexpected stops to refuel and undergo repairs, vastly exceeded
    fuel consumption estimates, and had failed to even approach the speed
    described in the emails and the voyage plan provided to JAB. 1 As a result, the
    district court determined that it was reasonable for JAB to find a replacement
    tug, and that JAB had no choice but to sign the Bareboat Charter for continued
    use of the JMC-3330 barge because the drilling platform was already secured
    to the JMC-3330’s deck.          It also concluded that neither the terms of the
    Contract nor the Bareboat Charter barred JAB’s contractual claim.                       The
    district court found that SMS breached the terms in the Contract requiring
    1  The district court found that it took the Atlas twenty-one days to reach Panama, at
    which point it had consumed 68,894 gallons of fuel. The voyage plan projected that this leg
    of the trip would take around eight days and consume 32,000 gallons of fuel.
    3
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    SMS to tender the Atlas “in a seaworthy condition, fully equipped and fully
    capable to performing the intended services,” and also breached its express
    obligation to “perform the transportation services with due dispatch.” The
    district court also determined that Cashman was the alter ego of SMS, and was
    thus also liable despite not being a signatory to the Contract. It entered
    judgment against Cashman and SMS for $4,864,214.89, plus $439,576.02 in
    attorneys’ fees. Cashman and SMS timely appealed.
    II. Jurisdiction and Standard of Review
    The district court had jurisdiction over this admiralty action under 28
    U.S.C. § 1333. As with any bench trial, we review findings of fact for clear
    error and issues of law de novo. Mid-South Towing Co. v. Exmar Lux (In re
    Mid-South Towing), 
    418 F.3d 526
    , 531 (5th Cir. 2005). The interpretation of
    contracts is a question of law reviewed de novo.          Dell Comput. Corp. v.
    Rodriguez, 
    390 F.3d 377
    , 384 (5th Cir. 2004). “A basic principle of contract
    interpretation in admiralty law is to interpret, to the extent possible, all the
    terms in a contract without rendering any of them meaningless or
    superfluous.” Chembulk Trading LLC v. Chemex Ltd., 
    393 F.3d 550
    , 555 (5th
    Cir. 2004).
    “[A] district court’s findings on unseaworthiness are findings of fact and
    therefore are reviewed for clear error.” Boudreaux v. United States, 
    280 F.3d 461
    , 468 (5th Cir. 2002). We review alter ego determinations for clear error.
    Zahra Spiritual Tr. v. United States, 
    910 F.2d 240
    , 242 (5th Cir. 1990). A
    finding of fact is clearly erroneous when, after viewing the evidence in its
    entirety, we are left with a definite and firm conviction that a mistake has been
    made. See Bertucci Contracting Corp. v. M/V ANTWERPEN, 
    465 F.3d 254
    ,
    258–59 (5th Cir. 2006).
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    III. Discussion
    A. SMS’s breach of the Contract’s express warranties
    Cashman and SMS argue that the district court clearly erred when it
    found that the Atlas was unseaworthy. To be seaworthy, a vessel must be
    “reasonably suited for the purpose or use for which [it was] intended.” In re
    Signal Int’l, LLC, 
    579 F.3d 478
    , 498 (5th Cir. 2009) (citation omitted). This
    requires that “a ship, whether the hull, the decks, the machinery, the tools
    furnished, the stowage, or the cargo containers . . . be reasonably fit for the
    purpose for which they are to be used[.]” 
    Id. (citation omitted).
          Article 3(A) of the Contract expressly warranted that the Atlas would be
    seaworthy when tendered:
    Warranties. Carrier [SMS] shall tender the Vessels to
    Shipper [JAB] in a seaworthy condition, fully equipped
    and fully capable to performing the intended services
    as advised in advance by [JAB] to [SMS] with all
    documentation, licensing and permits required for
    routine operation of the Vessels.
    In finding that SMS failed to tender a seaworthy vessel, the district court
    credited the testimony of an SMS employee who revealed that the Atlas had
    previously experienced fuel-consumption problems and that it emitted thick
    black smoke as it was sailing away from Louisiana.          It also referenced the
    daily email reports provided by the Atlas during the voyage that indicated
    recurring engine problems, excessive fuel consumption, and issues with the
    Atlas’s engineer.    Accordingly, we are not left with a definite and firm
    conviction that the district court made a mistake and therefore conclude that
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    it did not clearly err in finding that the Atlas was tendered in an unseaworthy
    condition. See 
    Boudreaux, 280 F.3d at 468
    .
    In the alternative, SMS claims that the district court erroneously
    ignored Article 4B 2 of the Contract, which, according to SMS, was a waiver of
    the express warranty of seaworthiness at tender. However, we have held that
    to adequately waive the warranty of seaworthiness, a contract must do so
    “clear[ly] and unequivocal[ly].” Thomas Jordan, Inc. v. Mayronne Drilling
    Mud, Chem. & Eng’g Serv., 
    214 F.2d 410
    , 412 (5th Cir. 1954). In Thomas
    Jordan, we held that an inspection provision stating that a customer “has had
    the barge inspected and found same to be in first-class condition” was not
    sufficiently clear and unequivocal to constitute a waiver. 
    Id. We specifically
    noted that the customer only inspected the exterior of the vessel and that the
    inspection provision was on the vessel owner’s pre-printed form. 
    Id. Similarly, SMS’s
    inspection provision was part of SMS’s pre-printed form and JAB only
    inspected the exterior of the Atlas. The inspection provision here failed to
    unequivocally waive any warranty of seaworthiness. See 
    id. Accordingly, the
    district court correctly determined that Article 4(B) did not bar JAB’s
    unseaworthiness claim. 3
    SMS further maintains that the district court erred in determining that
    SMS breached the warranty to conduct the voyage with “due dispatch.” Article
    3A on warranties states: “Carrier [SMS] shall perform transportation services
    2 Article 4(B) of the Contract states: “Inspection. Shipper [JAB] shall be responsible
    for inspecting the Vessels, including their fittings, gear and equipment, prior to acceptance
    at tender to determine their suitability and fitness for the intended services, with Shipper to
    note any deficiencies in writing to Carrier prior to the commencement of loading cargoes.
    Upon Shipper’s acceptance of the Vessels or commencement of loading, whichever shall first
    occur, Shipper shall be deemed to have acknowledged and agreed that the Vessels, including
    their fittings, gear and equipment, are in all respects suitable and fit for the intended
    services.”
    3Nor did the district court err in holding that the Contract’s indemnity provisions
    presented no obstacle to JAB’s contractual claims.
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    with ‘due dispatch,’ but makes no warranty as to speed or arrival/departure
    times.” SMS’s obligation to perform with “due dispatch” is informed by the
    email sent to JAB—expressly incorporated into the Contract—that outlined
    the Atlas’s planned fuel consumption, speed, and the number of fuel stops for
    the voyage. While the Contract made no firm guarantees as to speed or arrival
    times, these initial estimates provide an outline as to the obligations of SMS.
    The district court found that, due to SMS’s negligence, the Atlas failed to even
    come close to reaching any of these estimated figures.                  The Atlas vastly
    exceeded the estimated fuel consumption, made multiple unexpected stops for
    repair and refueling, and fell woefully short of the estimated speed as outlined
    in the email. 4 The district court did not err in finding that SMS breached the
    “due dispatch” warranty. 5
    B. Neither the terms of the Contract nor the terms of the Bareboat Charter
    barred JAB’s claim
    SMS also claims that the district court improperly failed to apply Article
    8, 6 the provision of the Contract that bars JAB from recovering consequential
    damages. General or direct damages are “damages that are recoverable . . . for
    injuries that are the natural result of the breach” or “[l]osses that an ordinary
    4The email incorporated into the Contract estimated that the Atlas would average a
    speed of seven knots, consume around 4,000 gallons of fuel per day, and make two stops to
    refuel. The district court found that the Atlas averaged around three or four knots, more
    than doubled the estimated fuel consumption, and made two additional unplanned stops in
    Manzanillo and San Diego for repairs.
    5As we hold that the district court did not err in concluding that SMS violated the
    warranty of “due dispatch” based upon terms expressly incorporated into the Contract, we
    need not address whether the district court properly assessed other extrinsic evidence to
    determine whether SMS breached its “due dispatch” obligation.
    6 Article 8 states: “Neither Carrier [SMS], Shipper [JAB] nor any Vessel shall be
    responsible for any special or consequential damages whatsoever and howsoever caused,
    including the unseaworthiness of either of the Vessels or the sole or concurrent negligence of
    either Carrier or Shipper, including without limitation, extra expense, loss of earnings, loss
    of profits, loss of use and business interruption, whether resulting from negligence,
    unseaworthiness, breach of this Contract or otherwise, even if the possibility of such damages
    may have been foreseeable.”
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    person would expect to follow the breach.” 11 JOSEPH M. PERILLO, CORBIN ON
    CONTRACTS § 56.6, at 102, 103 (2005). By contrast, consequential or special
    damages are losses “suffered as a ‘consequence’ of the breach of duty, but not
    as a direct and immediate and foreseeable consequence.” 
    Id. at 105.
    SMS’s
    argument fails because the damages awarded are not consequential damages.
    The damages awarded represent the costs of hiring a tug to replace the
    unseaworthy and inadequate Atlas. 7 They stem from the direct, immediate
    and foreseeable consequence of the Atlas being unable to perform the voyage.
    The district court did not err in deeming the ban on consequential damages
    inapplicable. 8
    Also unpersuasive is SMS’s argument that the Bareboat Charter—the
    agreement between Cashman and JAB for the continued use of the JMC-3330
    barge—constituted a release of JAB’s claims or, in the alternative, a novation
    of the original Contract. Upon examination of the terms of the Bareboat
    Charter, we conclude that it does not indicate any intent by JAB to release any
    contractual claims or to novate the prior Contract. The district court correctly
    concluded that the Bareboat Charter presented no bar to JAB’s claims.
    C. Cashman was not the alter ego of SMS
    Cashman and SMS further argue that the district court erred when it
    found that Cashman was the “alter ego” of SMS. Under the alter ego doctrine,
    a court may bind a corporation to an agreement entered into by its subsidiary
    7Given the lack of availability of other substitute tugs in the area to replace the Atlas,
    these damages also cannot be characterized as an “extra expense,” an item barred under the
    consequential damages provision of the Contract in Article 8.
    8  SMS also attempts to argue that under the language of Article 8, the Contract
    defined consequential damages to include any claims based on the unseaworthiness of the
    vessels, thus barring JAB’s claim. However, interpreting Article 8 to bar all claims based on
    the unseaworthiness of the Atlas would then ignore a basic principle of admiralty contract
    interpretation by rendering meaningless the express warranty of seaworthiness in Article
    3(A). See Chembulk Trading 
    LLC, 393 F.3d at 555
    . We reject SMS’s argument.
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    when their conduct demonstrates a virtual abandonment of separateness. See
    Bridas S.A.P.I.C. v. Gov’t of Turkmenistan (Bridas I), 
    345 F.3d 347
    , 358–59
    (5th Cir. 2003). However, we have stated that “‘fraud’ may be required to
    pierce the corporate veil in contract cases, because the party seeking to utilize
    the doctrine has had the opportunity, during negotiations with a subsidiary, to
    obtain assurances . . . from its parent.”                Bridas S.A.P.I.C. v. Gov’t of
    Turkmenistan (Bridas II), 
    447 F.3d 411
    , 417 (5th Cir. 2006); see also United
    States v. Jon-T Chems., Inc., 
    768 F.2d 686
    , 692 (5th Cir. 1985) (“[I]n contract
    cases, fraud is an essential element of an alter ego finding.”). Here, JAB never
    alleged that SMS or Cashman committed fraud. Further, JAB could have
    negotiated with Cashman to agree to the same warranties assented to by SMS,
    but failed to do so in the Contract.             Accordingly, the determination that
    Cashman was the alter ego of SMS was clearly erroneous. See Zahra Spiritual
    
    Tr., 910 F.2d at 242
    . As such, Cashman should not have been held liable for
    SMS’s breaches. 9
    IV. Conclusion
    For the reasons set forth above, we AFFIRM the decision of the district
    court as to SMS and the dismissal of Cashman’s counterclaim, REVERSE the
    judgment against Cashman, and RENDER judgment in its favor on JAB’s
    claims against it.
    9 Cashman’s counterclaim was mentioned in its brief on appeal, but it failed to brief
    the issue of the effect of a ruling against SMS on the merits but in Cashman’s favor on alter
    ego. Its sole argument regarding the counterclaim was as follows: “A plain reading of the
    contract and settled law negates all of these findings [holding SMS liable]. This Court should
    set aside the District Court’s finding of breach. [sic ,] The natural consequence of which would
    be to revive Cashman’s counterclaim.” This argument fails because we affirm SMS’s liability.
    We conclude that any separate arguments about Cashman’s counterclaim fail for want of
    adequate briefing. See In re Repine, 
    536 F.3d 512
    , 518 n.5 (5th Cir. 2008).
    9