Opinion
Civil Action No. 00-2653, Section "C" (4).
November 6, 2001.
ORDER REASONS
Before the Court are briefs submitted by the parties to resolve the sole outstanding issue in the above-captioned case — the value of a barge chartered by Plaintiff that sank while in the fleet of Defendant Turn Services, Inc. ("Turn Services") After reviewing the arguments of counsel, the record, and the applicable law, IT IS ORDERED that a judgment for $34,740.57 plus prejudgment interest be entered for Plaintiff.
BACKGROUND
Sometime on the evening of September 4, 1999 or morning of September 5, 1999, the HM-120, a standard hopper barge owned by Kinder Morgan Bulk Terminals, Inc. ("Kinder Morgan"), and chartered to Plaintiff sank while in Turn Services' fleet. See Rec. Doc. 34, Mem. in Supp. of Summ. J. at 1. Plaintiff asserts, and Defendants do not dispute, that the barge was a constructive total loss. See Rec. Doc. 33, Mem. in Supp. of Summ. J. at 2; Rec. Doc. 34. The parties stipulated to all damage and liability issues except for one — the value of the barge. See Rec. Doc. 29. The parties also stipulated that Defendants would compensate Plaintiff for 75 percent of the value of the barge. See id. On August 9, 2001, the Court ordered the parties to submit cross-motions for summary judgment with supporting affidavits and relevant deposition excerpts. See Rec. Doc. 30. The Court notes that although the order referred to cross-motions for summary judgment, the parties requested that the Court conduct a trial on the briefs to determine the barge's value. Therefore, the Court will treat the parties' submissions in this fashion.
ANALYSIS
It is long established that the measure of damages for the total loss of a vessel is its market value it at the time of destruction, the vessel has a market value. See Standard Oil Co. v. S. Pac. Co., 268 U.S. 146, 155 (1925). This market value is established by "recent and comparable sales." See Sawyer v. Poor, 180 F.2d 962, 963 (5th Cir. 1950); see also Greer v. United States, 505 F.2d 90, 93 (5th Cir. 1974) (market value measured at the point "immediately preceding" the loss). Where no market value has been established, i.e., where sales are insufficient to establish a market, a court may also consider evidence such as replacement cost, depreciation, expert opinion, the amount of insurance, see E.I. DuPont de Nemours Co., Inc. v. Robin Hood Shifting Fleeting Serv., Inc., 899 F.2d 377, 379 (5th Cir. 1990), the cost of reproduction less depreciation, the vessel's condition, and the uses to which it can be put see Sawyer, 180 F.2d at 963.
The first issue is whether a market value can be established for the HM 120 based on comparable sales. The Court finds that the parties have not presented sufficient evidence of contemporaneous and/or similar sales to establish a market.
First, Plaintiff attempts to show that a market was established based on two sets of allegedly comparable sales. One was a sale in the summer of 2000 of more than 100 barges built in the early 1970's. See Rec. Doc. 33, Ex. G at 12. Marine surveyor, appraiser and broker Peter Merrill testified that he surveyed about half the barges, that they were in "generally very poor condition," "were leaking," and sold for $27,500 each. Id. at 12-13. These barges, however, were dissimilar to the HM-120. They were several years older than that barge and were in "very poor condition."
The second sale Merrill relied upon was of 25 open hopper barges, built in 1979 and sold in November 1999 for $95,000 each. See id. at 13. Merrill surveyed "most, if not all, of those barges" and found them to be in "generally good condition." id. The barges, however, were built by a different company (Nashville) than the HM-120's manufacturer. See id. Merrill rated Nashville as inferior to Jeffcoat for the former's "less desirable" construction. id. at 14.
Given the widely divergent values of the barges in this sale and their variation from Merrill's own estimate for the HM-120 ($65,000), this sale also is not sufficiently "comparable" to establish a market.
Defendants, meanwhile, use the following sales by marine broker Steve Parsons in an attempt to establish a market: (1) five 1976 Jeffcoat barges for $17,500 each in July 2001 and still in use at the time in the grain trade; (2) two 1978 barges made by another company for $16,250 each in July 2001 and still in use at the time; (3) a 1975 barge, also made by another manufacturer, for $12,500 in May 2001 and still in use at the time; (4) a 1975 barge for $11,250 in June 2000, when it was going out of service, see id. at 15-17; and (5) a sister barge of the HM-120 for $9,500 in January 2001 for scrap, see id., Ex. E at 14. The May and July 2001 sales, occurring well over a year after the HM-120 sank, were not sufficiently contemporaneous to be included in a relevant market. See Bisso v. Inland Waterways Corp., 139 F. Supp. 387, 388 (E.D. La. 1956) (no market established where no comparable sales occurred in the year of the sinking). The other three sales far more closely resemble isolated transactions than a collective market.
Parsons acknowledged on cross-examination, however, that he currently has six 1975 barges advertised for $80,000 each. See id. at 39-40.
As no market value has been established, the Court may consider evidence, in addition to sales of other barges, such as replacement cost, depreciation, expert opinion, the amount of insurance, see DuPont, 899 F.2d at 379, as well as the cost of reproduction less depreciation, the vessel's condition, and the uses to which it can be put, see Sawyer, 180 F.2d at 963.
Credibility of expert witnesses
The Court begins its holistic analysis by assaying the reliability of the experts providing the evidence.
Plaintiffs' experts:
(1) Schiehl. A marine surveyor for 23 years and owner of a marine surveying company, Schiehl was certified by the National Association of Marine Surveyors in 1983. See Rec. Doc. 33, Ex. H at 7-9. He has been accepted as an expert surveyor in state and federal court, but has not testified as an expert on barge values, though he has valued them elsewhere. See id. at 9-12. He also has valued 50-60 barges per year for the past five years. See id. at 12. Merrill describes Schiehi as a "knowledgeable surveyor in the business for a long time and someone on whom we relied for information in the past." Id., Ex. G at 15.
Defendants challenge Plaintiffs tender of Schiehl as an expert witness. But Defendants base their objections on Schiehl's qualification to testify as to comparable sales. See Rec. Doc. 34 at 15. As Schiehl does not testify as to comparable sales and the Court has determined that it is proper to admit evidence other than that involving comparable sales, Defendants objections are overruled.
Significantly, Schiehl was retained to survey the barges in the chartering in 1998. See id., Ex. H at 13. Although Schiehl did not provide a value for the barge in 1998, nothing in the record indicates that Schiehl's judgment would have been different than now in assessing value.
Defendants criticize Schiehl for not using the "comparable sales method" in his valuation and for ascertaining the barge's market value by using an "unknown method." Rec. Doc. 34 at 15. Schiehl's method, however (replacement cost minus depreciation plus residual value), is an acceptable alternative to the comparable sales method. See Bisso, 139 F. Supp. at 391.
(2) Merrill. Certified as a marine surveyor by the National Association of Marine Surveyors, Merrill is President of Merrill Marine Services, Inc., and has been involved in one way or another with all of his company's 10,000 — plus valuations of marine equipment, three-fourths of which have been barges. See Rec. Doc. 33, Ex. G at 4-6.
Defendants challenge the admissibility of Merrill's testimony and report for untimeliness. Defendants, however, do not articulate any particular prejudice from the untimeliness, nor do they indicate how they could have more effectively "rebutted" it with more time. Furthermore, Defendants did not request additional time to rebut. Moreover, all three experts were deposed within a week of one another.
Merrill has testified as an expert in federal and state court. See id. at 7; E.I. DuPont de Nemours Co., Inc. v. Robin Hood Shifting Fleeting Serv., Inc., 899 F.2d 377, 381 (5th Cir. 1990). The Fifth Circuit noted in DuPont that of the expert opinions in the case, the district court found Merrill's the most credible.
It is true that Merrill did not look at the HM-120, see Rec. Doc. 33, Ex. G at 44. And, although he reviewed a survey by and talked with surveyor James Johnson, whom Merrill employs, Merrill did not see repair records for the HM-120 until after he completed a valuation report on the barge. See id. at 8-10. Nevertheless, Merrill did not see anything extraordinary in the maintenance records. He testified that the records reflected "about what we would anticipate for a barge of that age and that type of service." Id. at 18.
Defendants' expert:
(1) Parsons. A marine equipment broker for 25 years, see id. Ex. S at 4, Parsons has been qualified twice as an expert witness on valuation, both instances involving tugboats. See id. at 6-7. Parsons is neither licensed as an appraiser, nor certified as a marine surveyor. See id. at 9-10. He guesstimates that 40-50 percent of the "couple of hundred" broker deals he has made have involved barges. Id. at 10.
Parsons reviewed Schiehl's survey and the repair records, see id. at 12-13, but he did not see the barge, see id. at 17. Nor did he review surveys by Johnson or Fred Budwine. See id. at 47. Undermining Parsons' reliability is that he did not appear to be acutely aware of his own business. He did not seem to know about a current advertisement on his website for 1975 barges at $80,000 each, see id. at 39-40, and was unaware of the above-mentioned 100-plus-barge sale, see id. at 41.
But perhaps the most significant weakness in Parsons' testimony concerns his assessment of the barge's condition. Parsons concluded that the vessel was a "leaker" based on his "gut feeling" that if no hole or damage were visible, he "would think that it would be leaking at the seams." Id. at 31.
A post-sinking survey performed for Turn Services, see Rec. Doc. 33, Ex. K, found no visible deficiencies, which Parsons found "curious," id. at 30.
This speculation and his insistence that the vessel was leaking when it sank is undermined by the following strong evidence that it was in fact not leaking at the time of the sinking:
(1) James Pentney deposition. Pentney, an operations coordinator for Electro-Coal Transfer Corporation, see id., Ex. I, at 4, whose fleet contained the HM-120 prior to its final transfer to Turn Services' fleet, see id. at 15, testified that about a month prior to the sinking, after a heavy rain, Electro-Coal lightened the HM-120's load at the time to keep it from sinking, see id. at 36, 40. Pentney did not know if it was leaking at the time. See id. at 42. The barge later returned to a terminal for two weeks and, as it was not leaking at the time, did not require pumping. See id. at 49, 53. Pentney did, however, worry about rain that had accumulated on the barge. See id. at 54-55. Nevertheless, the barge departed the terminal August 26, 1999, in safe condition, see id. at 57, i.e., it had ample freeboard. See id. at 74-75.
Pentney further testified that if water is in the wing tanks, the barge is a "leaker," id. at 67, and when barges arrive in the Electro-Coal fleet, they are checked to ensure they are not leakers, id. at 78-79. It had rained ten inches in June 1999 and four in July, see id. at 79, but the only problem of which Pentney was aware was water in the cargo hold, see id. at 80. In addition, Electro-Coal employees did not indicate the barge was leaking. See id. at 85.
Other contemporaneous evidence that the barge was not leaking in the weeks before it sank is found in the depositions of Turn Services President Frank Morton, Sr., see id., Ex. L, at 18, 35-36, 39-40, 48-49, 78-79, and Turn Services Fleet Mate Frank Morton, Jr., see id., Ex. M, at 10-11, 22, 27, 39, 59-60.
(2) James Johnson report. Johnson, an independent marine surveyor, performed a damage survey for Merrill Marine Services, Inc., at the behest of Plaintiff after the barge was salvaged and dry docked. See id. at Ex. J at 1. Johnson noted that the various wing tanks were imploded. See id. at 2. As Plaintiff points out, however, this implosion indicates the tanks' watertight condition, see id., Mem. in Supp. of Mot. for Summ. J. at 6, and hence the absence of a leak. Johnson inspected the barge to try to determine the cause of the sinking. See id., Ex. J at 4. "All fractures, holes and tears" found appeared to directly result from the sinking and salvage. Id. "There was no evidence of pre-existing damages which could have caused the vessel to sink . . . As far as could be determined the incident did not occur as a result of a barge related problem." Id.
(3) Fred Budwine report. Marine surveyor Budwine, of Budwine Associates, Inc., performed a survey for Defendant Turn Services. See id., Ex. K. Budwine also noted collapsed wing tanks, see id. at 9, and eroded weld seams, see id. at 8. Budwine further reported finding "no visible signs of hull deficiencies other than damages from the sinking" on October 6, 1999. Id. at 9. He concluded that the exact cause of the sinking was "undetermined." Id. at 10.
Thus, for the reasons stated above, the Court finds Plaintiffs experts the more reliable.
The HM-120's residual life
The Court next will determine the condition of the HM-120 and, in particular, its "residual life" had it not sunk, based on the following evidence:
(1) Schiehl deposition. In determining the barge's useful life, Schiehl noted the barge was 23 years old and determined that the remaining useful life was five years, see id. Ex. H at 22-23, based on his "general examination of the barge," id. at 23. In determining the useful life, he considered Jeffboat's construction techniques extend the lives of their barges over those of others'. See id. at 29-30. Schiehl concedes, however, that he did not inspect the vessel in dry dock and thus did not obtain a full picture of the barge. See id. at 30-31. Schiehl also did not consider the lifespan of the barge's sister ships.
The Court disagrees with Schiehl that the residual useful lives of the barge's sisters are not relevant, given the similarity of those vessels to the HM-120.
(2) Merrill deposition. Deferring to Schiehl's opinion on the barge's useful life because Schiehl was the last to examine it, Merrill testified that a useful life of 28 years is not unusual for a Jeffboat. See id. Ex. G at 21.
(3) Parsons deposition. The vessel had a remaining useful life of "maybe" two years, according to Parsons, id. Ex. S at 27. Parsons further testified that the barge was "just getting old and tired and it's a leaker," id. at 14, based on repair records, particularly of the boundary angles, id. at 13-14. At another point in the deposition, Parsons testified that he assumed the barge had a limited residual life, again because of the repairs needed, see id. at 20, though he did not know the precise extent of the residual life, see id. at 26.
As noted supra, Parsons believes the HM-120 was leaking when it sank but also testified that even if the barge was not leaking when it sank, he still considered it a leaker based on its repair history and would stick to his opinion on value. See id. at 33-36.
(4) Condition of sister barges. Plaintiff chartered seven barges, one of which was the HM 120. See id. Ex. A. Six of the barges, including the 120, were built sequentially in 1976 by Jeffboat. See id. Ex. E at 6. Kinder Morgan has owned all the barges, see id. Ex. A. James Blender, traffic manager, had had supervision over them beginning in 1983 (including under another owner), see Ex. F at 6-8, and testified at an August 17, 2001, deposition that all the barges "were basically in the same condition, maintenance-wise." Id. at 12-13.
The condition and disposition of the sister barges as of August 17, 2001, are as follows: the HM-123 was sold for scrap in January 2001 for $9,500 because Kinder Morgan decided repairs had become too costly. See id. at 14-15. It is unknown what those costs actually were. The HM-119 and HM-124 were taken out of service and used as spar barges by Kinder Morgan, see id. at 15-16, in part because the maintenance was becoming too costly, see id. at 23. Again, it is unknown from the record what those costs actually were. The HM-121 was still in service, its repairs totaling $12,648.07 in 1999 and $135 from January 2001 through July 2001. See id., Ex. B at 41-42. The HM-122 also was still in service with total repairs of $5,211 in 1999 and $2,137.50 from January 2001 through July 2001. See id. The HM-125 was two years older, built in a different yard, and sold in May 2001 for $8,000. See id., Ex. E at 17-18.
(5) The HM-120's repair costs. From January 1, 1999 through the date of the sinking, the HM 120 accumulated $3,240 in repair costs, see id. Ex. B at 12, or roughly $14 per day. The Barge Charter Agreement provided that the owner could terminate the charter on any barge if the repairs exceeded an average of $15 per day in a six-month period. See id., Ex. A at 2. Nevertheless, the HM-121 accumulated over $12,500 in costs in 1999 and the HM-122 over $5,000, and Kinder Morgan did not withdraw the vessels. Furthermore, both vessels were still in service as of July 2001.
Thus, given the specific evidence of the condition of the sister barges and the HM-120's repair record in comparison to the available repair records of her sisters and the testimony of the experts, the Court concludes that the HM-120 had a useful life at the time of its sinking of 3.5 years.
The HM-120's value
Finally, the Court will assess the various methods proposed for determining the HM-120's value.
(1) Merrill's "[s]trictly comparable sales method." Merrill, the most experienced of the experts, estimated the HM-120's market value at $65,000 in September 1999. Although the sales Merrill used in calculating the HM-120's market value are not really comparable, he accounts for the divergence in sales prices by arriving at an estimate in between those prices. His estimate was the highest, but then again, comparable sales were all he considered.
Finally, however, Merrill failed to consider the sales of sister vessels, and consideration should have been given to the various vessels' repair/maintenance records.
(2) Schiehl's "[r]esidual value and remaining useful life method." Schiehl, the only one of the three experts who actually saw the barge, arrived at a value of $59,107. See id. Ex. H at 21. Schiehl, however, should have considered the condition of the sister vessels because they were made in the same year by the same company. of the original six, at least two were in regular service two years after the sinking, two were spar barges, and one was scrapped a little more than a year after the sinking, bringing in $9,500.
Schiehl's methodology, however, is sound. In his December 1998 survey, Schiehl noted no "worthy" deficiencies, see id. Ex. H at 15, the barge's "satisfactory" condition, and its structural soundness, id. With this assessment in mind, Schiehl took the estimated construction cost of hopper barges in 1998, about $285,000, see id. at 24, subtracted the residual value ($10,000), straight-line depreciated this amount over the total useful life (determined by the general condition of the barge and the sister vessels' experience, here, 28 years), and added the resulting value of the remaining life ($49,107, representing five years of residual useful life) to the residual value ($10,000) for a total of $59,107, see Rec. Doc. 34, Ex. 2 at 3.
(3) Parsons' comparable sales method. Relying heavily on repair records and the assumption that the vessel was falling apart, Parsons estimated the value at $20,000. See Rec. Doc. 34, Ex. S at 11. Parsons further testified that as "scrap," the boat would be worth about $10,000, and as "spar," it would be worth less than $20,000. id. at 20.
These estimates are far lower than the previous two. Given that Parsons' expertise is not as weighty as Merrill's, his insistence that the vessel was a "leaker" despite solid evidence to the contrary and his not having seen the vessel, there is reason to view Parsons' valuation with hesistancy.
(4) Insurance. In Fall 1998, the barge was insured for $60,000, an amount agreed to by the owner and charterer. See Rec. Doc. 33, Mem. in Supp. of Mot. for Summ. J. at 4. There is no indication that this deal was anything but arm's-length. The charterer was not interested in "overinsuring" because that would raise the premium, and the proceeds would not go to the charter, but to the owner. Michael Jackson, Plaintiffs Director of Administrative Services, testified that it was the practice of the company to insure chartered barges for market value. See id. Ex. B at 13-14. In addition, the $60,000 figure was selected after the Schiehl survey, which approved all the barges as being satisfactory for their intended purpose. Nevertheless, the insurance value was frozen in time in 1998 and was not adjusted with passing time or changing conditions of the vessel.
CONCLUSION
Thus, given the soundness of Schiehl's methodology and the fact that he was the only expert of the three here to have see the barge, the Court finds that his calculus is generally the best determination of the value here. Given the HM-120's repair record and the condition and lifespans of the barge's sister vessels, however, the Court finds that the residual useful life of the barge falls evenly between the estimates of each side's experts Accordingly, as noted, the Court concludes that the HM-120 had a useful life of 3.5 years.
Thus, using Schiehl's valuation method, but decreasing the useful life figure from five to 3.5 years, the Court finds that the value of the HM-120 at the time of its sinking was $46,320.76. As the parties have agreed that Defendants will compensate Plaintiff for 75 percent of the value of the boat,
IT IS ORDERED that:
a judgment in favor of Plaintiff for $34,740.57 be entered along with prejudgment interest.