Red Hook Container Terminal v. South Pacific Shipping Co. Ltd

19-0287 (L)
Red Hook Container Terminal v. South Pacific Shipping Co. Ltd
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
AMENDED SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION
TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS
GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S
LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH
THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
ELECTRONIC DATABASE (WITH THE NOTATION ASUMMARY ORDER@). A PARTY
CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT
REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit,
held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the
City of New York, on the 14th day of December, two thousand twenty-one.
PRESENT:
ROBERT D. SACK,
RICHARD J. SULLIVAN,
STEVEN J. MENASHI,
Circuit Judges.
_____________________________________
Red Hook Container Terminal, LLC,
Plaintiff-Counter-Defendant-
Appellant-Cross-Appellee,
v. 19-0287 (L)
19-3185 (XAP)
South Pacific Shipping Co. Ltd.,
Ecuadorian Line, Inc.,
Defendants-Counter-
Claimants-Appellees-
Cross-Appellants.
_____________________________________
For Appellant-Cross-Appellee: JOHN R. KEOUGH, (Laura Lynn
Gongaware, on the brief), Clyde & Co
US LLP, New York, NY.
For Appellees-Cross-Appellants: ROBERT ANTHONY SUAREZ, Ropers,
Majeski, Kohn & Bentley, New
York, NY. *
Appeal from the United States District Court for the Southern District of
New York (Alison J. Nathan, Judge).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the district court’s judgment is AFFIRMED
in part and REVERSED and REMANDED in part.
Plaintiff and Crossclaim-Defendant Red Hook Container Terminal, LLC
(“Red Hook”) contracted to provide stevedoring and other marine terminal
services for Defendants and Crossclaim-Plaintiffs South Pacific Shipping Co. and
Ecuadorian Line, Inc. (collectively “South Pacific”). The parties had a falling out,
ended their business relationship, and sued each other. Following a bench trial,
the district court (Nathan, J.) entered a judgment rejecting Red Hook’s claims for
breach of contract and storage fees pursuant to the New York Terminal Conference
*Afteroral argument, Mr. Suarez filed a notice of appearance indicating that he had replaced
Daniel F. Paige as counsel of record.
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Tariff, and awarding damages on South Pacific’s conversion claim. Red Hook
now appeals from that judgment, and South Pacific cross appeals arguing that the
district court’s damages award on its conversion claim was insufficient. We
assume the parties’ familiarity with the underlying facts, procedural history, and
issues on appeal.
I. Standard of Review
“A district court’s findings of fact following a bench trial will be set aside on
appeal only if those findings are clearly erroneous.” LoPresti v. Terwilliger, 126
F.3d 34, 39 (2d Cir. 1997). But the court’s conclusions of law, including questions
of contract interpretation and the measure of damages, are subject to de novo
review. Id.; JA Apparel Corp. v. Abboud, 568 F.3d 390, 397 (2d Cir. 2009) (contract
interpretation); Oscar Gruss & Son, Inc. v. Hollander, 337 F.3d 186, 196 (2d Cir. 2003)
(damages).
II. Discussion
A. Contract Termination Fee
Addendum H of the parties’ five-year contract divides the contract by year
and establishes a specific fee that a party must pay if it “exercises the option not to
renew” the contract “[n]inety days prior to [the] expiration” of any given contract
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year. App’x at 417. Red Hook argues that Addendum H requires South Pacific
to pay the contract’s Year 4 fee of $80,000 for terminating the parties’ contract in
that year, or alternatively, pay the Year 5 fee of $40,000 for failing to renew the
contract for that year. Though we agree with the district court that the contract’s
non-renewal provision does not entitle Red Hook to an $80,000 fee, we conclude
that South Pacific is liable for the $40,000 non-renewal fee set forth in Addendum
H.
Under federal law, maritime contracts like this one “must be construed like
any other contracts” – that is, “by their terms and consistent with the intent of the
parties.” Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14, 31 (2004). Here, the contract does
not require South Pacific to pay a fee of $80,000. It instead lists a different fee for
each year, with a particular year’s fee applying when a party “exercises the option
not to renew” the contract for that year. Opting not to renew the contract ninety
days before the contract’s fifth year would thus trigger the $40,000 Year 5 penalty.
Red Hook’s contention that Addendum H requires South Pacific to pay the
$80,000 Year 4 fee rests principally on the fact that Addendum H includes a fee for
Year 1. According to Red Hook, it would make no sense for the parties to include
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a non-renewal fee for Year 1, since a party could not be penalized for failing to
renew the contract before it existed.
But while “an interpretation that gives a reasonable and effective meaning
to all terms of a contract is preferable to one that leaves a portion of the writing
useless or inexplicable,” Hartford Fire Ins. Co. v. Orient Overseas Containers Lines
(UK) Ltd., 230 F.3d 549, 558 (2d Cir. 2000), “we are not free to alter the plain terms
of an agreement.” Shaw Grp. Inc. v. Triplefine Int’l Corp., 322 F.3d 115, 124 (2d Cir.
2003). And though Addendum H’s listing of a non-renewal fee for Year 1 is, at
first glance, curious, we cannot say based on the record developed at trial that the
parties’ inclusion of a Year 1 non-renewal fee was inescapably nonsensical or
useless. As the district court observed, “the parties’ Agreement was a
continuation of a contractual relationship between South Pacific . . . and Red
Hook’s predecessor.” Sp. App’x at 22. Indeed, Addendum H states that Red
Hook’s predecessor would pay a penalty if Red Hook opted not to renew the
contract, which likewise suggests that “the Year 1 penalty in Addendum H could
refer to the decision not to renew the pre-existing agreement” between South
Pacific and Red Hook’s predecessor. Id. Accordingly, the inclusion of a fee for
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Year 1 is not wholly inconsistent with the plain meaning of the language contained
in Addendum H, and the plain terms of the contract control.
That said, we do agree with Red Hook that South Pacific’s decision to opt
out of the contract for its fifth year rendered it liable for the Year 5 penalty of
$40,000. 2 South Pacific indefinitely ceased all commercial dealings with Red
Hook in the contract’s fourth year, when South Pacific discontinued service to Red
Hook's terminal, re-routed its ships from New York to Antwerp, sought to retrieve
its equipment from Red Hook's terminal, and, in response to Red Hook's inquiries,
informed Red Hook that their relationship was “done.” Id. at 10. South Pacific
unmistakably opted not to renew the contract, “[n]inety days prior to [the]
expiration” of Year Four, which makes South Pacific liable to Red Hook for
$40,000.
2 In reaching this conclusion, we are quick to note that the parties have presented something of
a moving target on this issue. South Pacific revised its position about the meaning of Addendum
H, initially arguing that it was entitled to an early termination fee and then ultimately reversing
course to contend that Addendum H does not provide for early termination. And from the time
Red Hook billed South Pacific until its post-trial briefing, Red Hook claimed that South Pacific
owed it $80,000 for terminating the contract in Year 4 – as opposed to $40,000 for declining to
renew the contract for Year 5. Only on appeal has Red Hook clearly argued, in the alternative,
that it was entitled to $40,000 based on the contract’s non-renewal provision. We nevertheless
“retain broad discretion” to decide even unpreserved issues, Westinghouse Credit Corp. v. D’Urso,
371 F.3d 96, 103 (2d Cir. 2004), and reach them here in part because South Pacific has itself failed
to argue that Red Hook forfeited its new argument, see Norton v. Sam’s Club, 145 F.3d 114, 117 (2d
Cir. 1998).
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B. Conversion of Property
Red Hook next challenges the district court’s finding that it converted South
Pacific’s equipment by refusing to return it. Under New York law, conversion is
defined as the “unauthorized assumption and exercise of the right of ownership
over goods belonging to another to the exclusion of the owner’s rights.” New York
v. Seventh Regiment Fund, 98 N.Y.2d 249, 259 (2002) (internal quotation marks
omitted). To prevail on a conversion claim, a plaintiff must prove that (1) a
defendant has “acted without authorization,” (2) the defendant “exercised
dominion or a right of ownership over property belonging to another,” (3) “the
rightful owner [made] a demand for the property,” and (4) “the demand for the
return [was] refused.” Soroof Trading Dev. Co. v. GE Fuel Cell Sys., LLC, 842 F.
Supp. 2d 502, 514 (S.D.N.Y. 2012) (internal quotation marks omitted); see also
Colavito v. N.Y. Organ Donor Network, Inc., 8 N.Y.3d 43, 50 (2006). On appeal, Red
Hook mainly contends that its imposition of a terminal hold on South Pacific’s
property was not “unauthorized” because it was entitled to confiscate South
Pacific’s equipment until South Pacific paid stevedoring and storage fees that had
accrued before the parties’ contract was terminated. But the contract nowhere
permitted the parties to seize each other’s property in the event of a breach.
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Indeed, Red Hook does not argue otherwise. Instead, Red Hook relies on the
New York Terminal Conference Tariff – which it contends went into effect once
the parties’ agreement ended – to justify the seizure of South Pacific’s property
until all outstanding fees were paid.
The Tariff is a public schedule setting rates for participating terminal
operators that, under federal law, can be “enforceable . . . as an implied contract.”
46 U.S.C. § 40501(f). But the Tariff’s terms are not enforceable when the “marine
terminal operator has an actual contract with a party covering the services
rendered by the marine terminal operator to that party.” 46 C.F.R. § 525.2(a)(3).
Here, there is no dispute that the parties had a contract that operated until at least
November 22, 2013. Accordingly, the Tariff cannot justify Red Hook’s imposition
of a terminal hold on South Pacific’s property as security for bills that accrued
prior to that date. Red Hook’s seizure of South Pacific’s equipment was therefore
unauthorized. And since the record is clear that Red Hook exercised dominion
over the property, that South Pacific made a demand for its return, and that Red
Hook refused, the district court properly concluded that Red Hook converted
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South Pacific’s property. See Soroof Trading Dev. Co., 842 F. Supp. 2d at 514;
Colavito, 8 N.Y.3d at 50. 3
C. Storage Fees
Red Hook further argues that the district court erred by denying its claim
for storage fees under the Tariff. But as explained above, the Tariff did not cover
storage services provided before the parties’ contract was terminated. Nor do we
see any basis for concluding that Red Hook is entitled to fees for holding South
Pacific’s equipment after the contract’s termination. It would be strange indeed
to conclude that South Pacific owed such fees when Red Hook confiscated the
equipment and refused to return it, notwithstanding South Pacific’s express – and
repeated – demands for the property. Clearly, any damages incurred by Red
Hook in this regard were purely self-inflicted. Cf. U.S. Bank Nat. Ass’n v. Ables &
Hall Builders, 696 F. Supp. 2d 428, 440–41 (S.D.N.Y. 2010) (“In a breach of contract
action, a plaintiff ordinarily has a duty to mitigate the damages that he incurs. If
the plaintiff fails to mitigate his damages, the defendant cannot be charged with
them.”).
3 To the extent that the Tariff went into effect after South Pacific terminated the agreement, Red
Hook would still be liable to South Pacific for conversion because it exceeded its authority under
the Tariff by demanding fees to which it was not entitled.
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D. South Pacific’s Cross-Appeal on Damages
Finally, South Pacific cross appeals on damages, contending that the district
court’s award of the full value of the converted equipment was insufficient and
should also have included the amount of money that South Pacific paid to lease
the equipment from the time the equipment was converted until December 2016.
We disagree.
For starters, “[t]he usual measure of damages for conversion is the value of
the property at the time and place of conversion, plus interest.” Fantis Foods, Inc.
v. Standard Importing Co., 49 N.Y.2d 317, 326 (1980). Lost profits “are generally
disallowed.” Id. If Red Hook had not converted the equipment when it did,
South Pacific could have retrieved it and returned it to the lessor, thereby avoiding
further lease payments, or retained it and continued using it at other ports to
generate revenue and cover the costs of leasing. As the district court put it, South
Pacific’s “harm could be understood either as the loss of possession or as the lease
fees, but not both at once.” Sp. App’x at 51. So compensating the company “for
both the loss of possession and the resulting lease payments would constitute
double recovery.” Id. By awarding South Pacific damages in the amount the
equipment was worth, the court opted for the “usual measure of damages for
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conversion,” Fantis Foods, 49 N.Y.2d at 326, which also happened to be a few
thousand dollars more than what South Pacific paid to rent the equipment during
the relevant time. 4 That was enough to make South Pacific whole – or more than
whole – for Red Hook’s unlawful conversion.
III. Conclusion
We have considered the parties’ remaining arguments, and we find them to
be meritless. Accordingly, we REVERSE and REMAND on the issue of Red
Hook’s entitlement to a fee in light of South Pacific’s non-renewal of the parties’
contract, but otherwise AFFIRM the district court’s judgment.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk of Court
4 Red Hook does not argue that the proper award should have been the value of the lease, even
though the leasehold is the property interest in which Red Hook interfered. We therefore do not
pass on that issue. See Norton, 145 F.3d at 117.
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