Chevron Pipeline Co v. Chance ( 1997 )

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 95-30740
CHEVRON PIPE LINE COMPANY;
CHEVRON U.S.A., INC.,
Plaintiffs-Appellees/
Cross-Appellants,
versus
JOHN E. CHANCE AND ASSOCIATES, INC.;
LLOYDS UNDERWRITERS OF LONDON,
Defendants-Appellants/
Cross-Appellees.
Appeal from the United States District Court
For the Eastern District of Louisiana
(90-CV-3770)
February 10, 1997
Before POLITZ, Chief Judge, WIENER and BARKSDALE, Circuit Judges.
POLITZ, Chief Judge:*
A pipeline rupture and oil spill resulted in this litigation between Chevron
*
Pursuant to Local Rule 47.5, the court has determined that this opinion should not be
published and is not precedent except under the limited circumstances set forth in Local Rule
47.5.4.
Pipe Line Company (CPL) and Chevron U.S.A., Inc. against John E. Chance &
Associates, Inc. and certain underwriters at Lloyd’s London, and London
Companies. The appeal and cross-appeal relate solely to damages. For the reasons
assigned we affirm in part and vacate and remand in part.
Background
On the night of September 18, 1989, a pipeline owned by CPL was ruptured
during a dredging operation, causing 300 barrels of crude oil to spill in the Bayou
Casotte ship channel near Pascagoula, Mississippi. Chance & Associates had
marked the location of the pipeline incorrectly. Escaping oil reached the beach of
nearby Horn Island, a national refuge area.
The 20-inch common carrier crude oil pipeline extends 105 miles from
Empire, Louisiana to a Chevron refinery in Pascagoula, traversing the Bayou
Casotte ship channel near Pascagoula. The bayou needed dredging and the U.S.
Army Corps of Engineers hired C.F. Bean Dredging to perform that service. It was
necessary that the location of the pipeline be marked carefully. Chance was hired
to survey and mark the pipeline, doing so in the presence of an assigned CPL
employee. After a bench trial before a magistrate judge by consent under 28 U.S.C.
§ 636(c), the court found that because of the error in the marking, Chance and CPL
were each liable, in contract and tort, for 50% of the loss. Negligence of the CPL
2
employee was imputed to Chevron.
The pipeline supplements the refinery’s oil supply, the great bulk of which
is delivered by tanker through the Bayou Casotte ship channel.
A day or so following the break in the pipeline CPL contractors made
temporary repairs. Permanent repairs were completed by October 4, as was the
cleanup operation.
Because of the interruption in the pipeline flow and the closure of the ship
channel for repairs Chevron claimed a loss for reduced production in the amount
of $6,370,000 and $4441 for lost oil. The court awarded the $4441 claim for lost
oil and $349,191 for the claimed loss of production. CPL sought and recovered
$663,975 in pipeline repair costs and $1,119,811 in oil spill cleanup expenses. The
court also awarded unspecified prejudgment interest. Chance appeals; CPL and
Chevron cross-appeal various elements of the award.
Analysis
This action arises under admiralty jurisdiction and federal law governs the
damages issues.1 We review factual findings for clear error and legal conclusions
de novo.2 As is the norm in actions in tort and for contractual breach, the plaintiffs
1
Pizani v. M/V Cotton Blossom, 669 F.2d 1084 (5th Cir. 1982).
2
Nerco Oil & Gas, Inc. v. Otto Candies, Inc., 74 F.3d 667 (5th Cir. 1996).
3
bear the burden of proving the specifics of each item of claimed damages.
1. Salaried employees.
Chance first contends that the district court erred in awarding compensation
for the time of salaried CPL and Chevron employees who participated in the repair
and cleanup. Chance maintains that where, as here, an injured party hires outside
contractors to conduct repair work, the injured party cannot be compensated for its
own overhead. Chevron and CPL respond that the loss of the employees’
productivity is compensable because they had other work to do.
Acknowledging Chance’s argument, the trial court made general findings
that the Chevron cleanup efforts were commendable, that CPL and Chevron made
downward adjustments to their claim for cleanup and repair expenses, and that the
expenses were reasonable.
In Freeport Sulphur Co. v. S/S Hermosa,3 we held that the time of salaried
employees engaged in repairs can be a legitimate element of a damages award in
an admiralty case. The obvious purpose of compensatory damages is to place the
injured party, as nearly as possible, in the position it would have been if the wrong
had not occurred. When an injured party uses its own labor to perform repairs, its
overhead is recoverable because a contractor hired to perform the repairs typically
3
526 F.2d 300 (5th Cir. 1976).
4
would have charged for overhead.4 Freeport Sulphur, however, relied in part on
evidence that the salaried employees would have been doing other productive work
if they had not been required to do the repair work. Where the duties of a salaried
employee include the work for which the employer seeks recovery, and there is no
evidence presented that the employee was unable to perform the other duties, the
time of the employee is not compensable.5 Furthermore, where repairs are made
by a third party, the salaries of management or administrative employees of the
injured party should not be considered a cost of repairs.6
Chevron and CPL contracted with more than 15 companies to clean up the
oil spill and repair the pipeline. A Chevron employee testified that $53,000 in time
of salaried Chevron employees was claimed, including the time of supervisors;
administrative, accounting and environmental staff; accountants; operators;
operating assistants; and process engineers who participated in the cleanup. A CPL
employee testified that its claim for repair expenses included the time of CPL
engineers, as well as seven or eight salaried employees who were on site to
4
United States v. Peavy Barge Line, 748 F.2d 395 (5th Cir. 1984) (citing Freeport
Sulphur).
5
Creole Shipping Ltd. v. Diamandis Pateras, Ltd., 410 F.Supp. 313 (S.D.Ala. 1976),
aff’d, 554 F.2d 1348 (5th Cir. 1977).
6
Pelican Marine Carriers, Inc. v. City of Tampa, 791 F.Supp. 845 (M.D.Fla. 1992)
(citing Freeport Sulphur), aff’d, 4 F.3d 999 (11th Cir. 1993).
5
supervise the repairs even though the contractors also had supervisors there.
Neither Chevron nor CPL offered evidence reflecting whether: (1) the job
responsibilities of salaried employees included participation in repairs and accident
cleanup, (2) any work performed was necessary and nonduplicative of the work of
the contractors, and (3) the repair and cleanup responsibilities deterred their
performance of other productive work.
We must conclude that as a matter of law compensation for the time of
salaried administrative and supervisory staff cannot be granted. Contractors
performed the repair work; recovery for the overhead expenses of the injured
parties would be duplicative. Further, the claim for time of other salaried
employees herein must be disallowed for lack of evidence that their efforts were
not duplicative of the contractors’ work and that actual employee productivity was
lost.
On remand the $53,000 allowed for the time of salaried employees of
Chevron must be deducted from the damages award. There being no quantification
of the amount awarded for CPL salaried employees in the record, briefs, or oral
argument, on remand this amount must be determined and deducted from the
award.
6
2. Down time of dredge and vessel.
Chance also appeals recovery for the down time of two vessels, the dredge
owned by Bean and the AMERICAN EXPLORER, which was used to perform
permanent repairs to the pipeline.
CPL made two payments to Bean -- $26,667 for use of its dredge in the
temporary repairs, and $79,600 for down time caused by the interruption of the
ongoing dredging project. The CPL engineer-in-charge of cost control for the
repairs testified that a high-powered suction dredge was necessary for removal of
the pipeline cover to patch the pipeline and stop the oil leak. The Bean dredge was
on site and the engineer believed that bringing in a dredge from another site would
not be cost-effective. He therefore agreed to pay Bean for down time of its dredge.
Chance disputes these facts and contends that this payment was gratuitous
because the Chevron companies had no contract with Bean and no obligation to
compensate Bean for its inability to earn money during the interruption in the
dredging project.
An injured party is precluded from recovering for damages caused by its
unreasonable conduct after the accident.7 The tortfeasor, however, has the burden
7
Tennessee Valley Sand & Gravel Co. v. M/V Delta, 598 F.2d 930 (5th Cir. 1979),
modified in part, 604 F.2d 13 (5th Cir. 1979).
7
of proving that the injured party failed to minimize damages by demonstrating that
its post-accident conduct was unreasonable and aggravated the losses.8 In
determining whether the conduct of the injured party was reasonable, we must
consider whether the decisions were made in times of crisis, ever mindful that we
should allow the injured party appropriate latitude in its determination of how best
to deal with an emergency situation.9
Although the trial court did not make specific findings of fact on this issue,
it found that the repair costs as a whole were reasonable and that Chevron’s
decisions relative to containing the oil spill were made in an emergency setting and
with a view toward preventing environmental damages to the Horn Island national
refuge. The magistrate judge extensively questioned the expert tendered by Chance
about his basis for disputing the $79,600 payment. On the record before us, and in
view of the atmosphere of crisis in which the decisions were made, we are not
persuaded that the award for this payment was in error.
Chance also disputes the award of $116,161 to CPL for seven to eight days
of standby time of the AMERICAN EAGLE, a large vessel needed for permanent
repair of the pipeline. The trial court found that the AMERICAN EAGLE was used
8
Marathon Pipe Line Co. v. M/V Sea Level II, 806 F.2d 585 (5th Cir. 1986).
9
Tennessee Valley Sand & Gravel.
8
as a standby vessel in case the temporary patch failed, and that CPL’s payment for
that standby time was reasonable. Chance contends that CPL failed to mitigate its
damages by unreasonably releasing the PIPELINE SURVEYOR, a smaller, less
expensive vessel used in the temporary repairs, and by placing the AMERICAN
EAGLE on standby.
We find no clear error in the trial court’s conclusion that Chance failed to
prove the unreasonableness of this payment. The CPL engineer-in-charge of cost
control on the repair testified that: (1) the AMERICAN EAGLE was docked in
Pascagoula at the time of the temporary repairs, (2) because the ship originated in
Louisiana, additional mobilization charges would have been incurred had CPL not
retained the ship, (3) the decision to retain the ship was made after investigating the
availability of other vessels, (4) the AMERICAN EAGLE had the crane and deck
size necessary to perform the permanent repairs, and (5) preparation work was
necessary before the permanent repairs could be done. Again, we are mindful that
the decision to retain the AMERICAN EAGLE was made during an emergency
situation resulting from the oil spill.
3. Allegedly unsubstantiated expenses.
Chance contends that $55,888 of the award for repair expenses and $93,044
of the award for cleanup expenses are wholly unsubstantiated. Chevron responds
9
that “nearly all” of the disputed items are fully supported by the evidence, relying
on sweeping testimony that CPL and Chevron used detailed accounting procedures
to verify each charge by outside contractors. Finding that the claims for repair and
cleanup expenses were reasonable, the trial court awarded the total amount
requested making no factual findings about these disputed sums.
Without evidence specific to each charge for which recovery is sought,
essentially advisory testimony that a reliable accounting system was used to verify
charges will not suffice to prove compensatory damages. Of the disputed charges
awarded to CPL for repairs, $17,364.64 for “marine equipment usage” is
unsubstantiated. This amount must be deducted from the award. We do find, albeit
sometimes sketchy, testimonial or documentary evidence in support of the other
disputed repair charges. Accordingly, we cannot say that the award of
compensation for those expenses is clearly erroneous.
Of the disputed charges awarded to Chevron for cleanup we must exclude
$11,638 for materials or equipment unrelated to cleanup. Chevron’s expert
testified that certain expenses for equipment not normally used in cleanups should
have been deducted. Chance’s expert quantified these expenses. Chevron did not
prove that the materials were used in the cleanup.
The Chevron expert also testified that its claim included nonconsumable
10
purchases with continued value, which he recommended be excluded or given to
Chance. The Chance expert quantified these expenses at $32,507. In keeping with
the goal of placing the injured party as nearly as possible in the position that would
have been occupied had the wrong not occurred, we must deny recovery of repair
costs beyond what is necessary to restore property to its pre-accident condition. 10
Because Chevron failed to show that these nonconsumable items lack continuing
value, $32,507 must be deducted from the award.11
4. Economic loss.
Claims for economic loss in admiralty cases must be proved with reasonable
certainty.12 The trial court based its award of $349,191 for economic loss on the
testimony of an oil refinery economics expert tendered by Chance that the pipeline
rupture caused a delay in producing 240,000 barrels of oil but did not cause a
permanent loss of production. The compensation awarded was for loss of use of
those funds during the period of delay. The court rejected Chevron’s contention
that the Pascagoula refinery always operated at maximum capacity and was
10
Pizani; Freeport Sulphur.
11
We find no clear error in the award of $23,000 for rental of a skimmer for the cleanup
which did not have to be used because the oil did not move back into shallow waters, or in
the award of $25,647 for equipment and materials lost or damaged in the cleanup.
12
Dow Chemical Co. v. M/V Roberta Tabor, 815 F.2d 1037 (5th Cir. 1987).
11
incapable of compensating for production interruptions. Relying on documentary
evidence and an assessment that Chance’s expert testimony was more credible than
Chevron’s, the court found that the refinery had the capacity to make up for
decreases in production and that it did so after the pipeline rupture by operating at
its highest levels ever in October and November of 1989.
Chance challenges the award for economic loss on the grounds that Chevron
failed to prove that it sustained any financial losses due to the pipeline rupture. On
cross-appeal, Chevron contends that the trial court erred in finding that production
was made up after the accident. Chevron seeks compensation for lost sales of the
product it contends that it was unable to manufacture during the pipeline shutdown.
We find an adequate basis in the record for the trial court’s conclusion that
Chevron had the ability to compensate for the decrease in production and did so.
In addition to our review of the documentary evidence, we give the deference
which reason dictates that we must to the trial judge’s assessment of the credibility
of witnesses.
We are persuaded, however, that the court erred in awarding any damages
for economic losses for production delays. To prove economic loss from a
production decrease, an injured party must show that it was unable to substitute for
lost production or that the substitution resulted in a net loss. The record contains
12
no such acceptable evidence.
Chevron stipulated that it lost no contract sales as a result of the pipeline
rupture but contended that it lost sales on the spot market. The proof of loss of
sales was confined to the testimony of two employees that all of the Pascagoula
refinery products that would otherwise have been made during the period of
decreased production would have been sold on the spot market.
Chevron failed to prove inability to substitute product to cover spot market
opportunities during the period in which production at the Pascagoula refinery was
reduced. A management witness testifying on behalf of Chevron, in a Fed.R.Civ.P.
30(b)(6) corporate deposition entered into the record, acknowledged that Chevron
refineries often experience upsets causing decreased production. He testified that
Chevron compensates for these upsets in a variety of ways, including exchange
agreements with other oil companies in which they supply Chevron with finished
product and are paid back with Chevron’s product after the reduced production has
been made up. He also testified that Chevron sometimes finds it profitable to buy
and resell finished product on the spot market. The trial court made a factual
finding rejecting the contention that Chevron’s refineries were incapable of making
up for reduced production. Chevron made no showing that it could not cover spot
market opportunities by increasing production at another of its refineries during the
13
Pascagoula upset. Finding a complete failure of proof that Chevron was unable to
substitute product during the relevant period, we must conclude that the economic
losses alleged are speculative and have not been proved with the requisite certainty.
Therefore, on remand the $349,191 awarded must be deducted from the final
computation.
5. Prejudgment interest.
Chance contends that the award of prejudgment interest was inappropriate
for four reasons: (1) the plaintiffs waited a full year to bring this action, (2) they
caused substantial litigation delays, (3) the damages award was substantially less
than the claim, and (4) the factual issues in the case were extremely complex.
As a general rule, prejudgment interest should be awarded in maritime tort
cases to compensate for the loss of use of funds from the time the claim accrues
until judgment is entered.13 That presumption has been strengthened by City of
Milwaukee v. Cement Division, National Gypsum Co., in which the Supreme Court
recently limited a trial court’s discretion to deny prejudgment interest. 14
Whether peculiar circumstances exist that would allow the trial court to
13
Reeled Tubing, Inc. v. M/V CHAD G, 794 F.2d 1026 (5th Cir. 1986).
14
115 S.Ct. 2091 (1995) (genuine dispute over liability in a mutual fault setting cannot
justify denial of prejudgment interest).
14
consider denying prejudgment interest is a fact issue reviewed for clear error. 15
Even if an appellant can demonstrate that a finding of no peculiar circumstances
is clearly erroneous, there remains the formidable hurdle of showing an abuse of
the discretion created by the peculiar circumstances.16
In the case at bar, the trial court explicitly considered Chance’s arguments
and rejected them, finding that CPL and Chevron had no control over some of the
factors leading to trial delays and that the equities favored the award of interest.
Our review of the record persuades that the award of prejudgment interest was well
within the court’s discretion. The court, however, did not specify the interest rate.
We conclude that the interest to be paid is the rate set forth for postjudgment
interest in 28 U.S.C. § 1961.17In accordance with the foregoing analysis, we AFFIRM in part, VACATE
the portion of the trial court judgment setting damages, and REMAND for a
recasting of the damages award consistent herewith.
15
Corpus Christi Oil & Gas Co. v. Zapata Gulf Marine Corp., 71 F.3d 198 (5th Cir.
1995).
16
Id.; Noritake Co. v. M/V Hellenic Champion, 627 F.2d 724 (5th Cir. Unit A 1980).
17
See Reeled Tubing (the rate provided for postjudgment interest in 28 U.S.C. § 1961 is
one appropriate measure of prejudgment interest).
15