Opinion
Civil Action No. 01-1933 Section M
July 31, 2002
Rufus C. Harris, III, Alfred Jackson Rufty, III, Gary A. Robinson, Harris Rufty, LLC, New Orleans, LA, for Plaintiff.
Ralph E. Smith, Attorney at Law, New Orleans, LA, for Defendant.
ORDER AND REASONS
This matter came for trial without a jury on March 18-19, 2002. After consideration of the evidence presented at the trial, the post-trial memoranda and the applicable law pursuant to Federal Rule of Civil Procedure 52(a), the Court makes the following findings of fact and conclusions of law.
FINDINGS OF FACT
Plaintiff, Otto Candies, L.L.C, is a Louisiana limited liability corporation with its principal place of business in Des Allemands, Louisiana. Defendant, Nippon Kaiji Kyokai (NKK) is a Japanese Classification Society with its principal place of business in Tokyo, Japan. Plaintiff's claim arises out of a classification survey conducted by NKK on M/V SPEEDER, a vessel purchased by plaintiff through a ship broker from Diamond Ferry, Co., Ltd., a Japanese company.
Diamond Ferry Co, Ltd. is not a party to this litigation.
Diamond Ferry operated the vessel as a coastal passenger ferry in Japan from 1995 until 1998, when Diamond Ferry took M/V SPEEDER out of service and placed her on the market for sale. Although NKK issued a certificate of class for the newly constructed M/V SPEEDER in 1995, during the time M/V SPEEDER was laid up, she did not undergo any periodic NKK inspections or surveys and her NKK class certification lapsed.
Plaintiff learned of the vessel from a ship broker, James Aikenhead. Mr. Otto Candies, Jr., chairman and CEO of Otto Candies, L.L.C., traveled to Japan in November, 1999 and conducted a short sea trial and personal inspection of the vessel. Mr. Candies testified that he traveled to Japan specifically to visit the vessel in dry dock. He testified that when he arrived, the vessel was in the water, the engines were running, and it was almost dark. He stated that they made a short sea trial and was aboard the vessel for approximately thirty minutes.
Correspondence between Mr. Aikenhead and Mr. Candies indicated that NKK was aware of the pending sale and was consulted regularly regarding classification issues, operation of the vessel in the Gulf of Mexico, and transfer of class from NKK to ABS. (See plaintiff's exhibits 19, 20, 22, 23, 26).
Otto Candies subsequently entered into a Memorandum of Agreement with Diamond Ferry to purchase M/V SPEEDER. The Agreement was signed on December 22, 1999 and included the condition that M/V SPEEDER's NKK Coastal Class be restored and current, and free from outstanding recommendations. The Memorandum of Agreement also gave Otto Candies the option of having M/V SPEEDER surveyed by the American Bureau of Shipping (ABS). Otto Candies, Jr. testified that he specifically asked for the NKK certification so that he could be assured that the vessel was in proper working condition.
A classification survey of safety equipment, hull and machinery for class re-entry was conducted by NKK and on January 5, 2000, NKK issued a Class Maintenance Certificate which noted that M/V SPEEDER was certified to be in class, as a coastal passenger ferry with no outstanding recommendations. Plaintiff paid the agreed upon price and the vessel was subsequently transported from Japan to Port Everglades, Florida aboard a heavy-lift ship. The vessel was then towed to Bender Shipyard in Mobile, Alabama my M/V CHRIS CANDIES. Upon arrival in Mobile, Otto Candies arranged to transfer the class from NKK to American Bureau of Shipping (ABS). An ABS surveyor inspected the vessel and prepared a report outlining the various deficiencies of a class nature that required repair before ABS would issue class certification.
Mr. Ian Smith, and expert in classification surveys, testified on behalf of the defendant. He testified that the purpose of a classification survey is to ensure that the vessel complies with the requirements of the classification society and that classification society surveyors are experts in assessing the condition of basic hull and machinery of ships. He further testified that when an item of the hull or machinery relates to class, it should be inspected by the surveyor and any deficiencies noted. Mr. Smith agreed that the items identified by the ABS surveyor as being of a class nature were indeed matters relating to class and that if such deficiencies existed during a class survey, those deficiencies should have been noted by the surveyor and dealt with. He further testified that a transfer of class from one society to another should be fairly routine, like rubber stamping. He also testified that corrosion and wasting are deficiencies that take more than two or three months to develop.
The repairs that were identified as relating to class were made at Bender Shipyard at a cost to Otto Candies of $342,961.43.
CONCLUSIONS OF LAW
Although it is well established that a classification society is not the insurer of the seaworthiness of a vessel, few courts have had the occasion to address the efficacy of a third-party injury claim against a classification society based on a theory of negligent misrepresentation. In general, courts have relied upon Section 552 of the Restatement (Second) of Torts in recognizing a third party's claim for negligent misrepresentation. Section 552 requires the plaintiff to prove that:
1) the defendant, in the course of its profession, supplied false information for the plaintiff's guidance in a business transaction;
2) the defendant failed to exercise reasonable care in gathering the information;
3) the plaintiff relied upon the false information in a transaction that the defendant intended the information to influence; and
4) the plaintiff suffered pecuniary loss.
Coastal (Bermuda) Ltd. v. E.W. Sabolt Co., 826 F.2d 424, 428-429 (5th Cir. 1987).
In Cargill, Inc. v. Bureau Veritas, the court recognized the cargo owners right to claim negligent misrepresentation, but granted summary judgment in favor of the classification society on the basis that plaintiff failed to establish "actual and reasonable reliance" upon the certificate issued by the classification society. Cargill, Inc. v. Bureau Veritas, 902 F. Supp. 49, 52-53 (S.D.N.Y. 1995). In Coastal (Bermuda) Ltd. v. E.W. Sabolt Co. 826 F.2d 424, 428-429 (5th Cir. 1987), the Fifth Circuit held that a purchaser of fuel oil had a negligent misrepresentation claim against an independent surveyor who analyzed the fuel for the benefit of the owner, but was ultimately unable to prove negligence. In Somarelf v. American Bureau of Shipping, 720 F. Supp. 441 (E.D.La. 1989), the Court allowed a negligent misrepresentation claim by a third party agent for the vessel owner against a classification society.
Defendant first contends that it owed no duty to Otto Candies because it had no contract with Otto Candies. However, privity of contract is not necessary to prove a negligent misrepresentation claim. Sundance Cruises Corp. v. American Bureau of Shipping, 7 F.3d 1077 (2d Cir. 1993). Further, any claim by defendant that it did not provide the information for plaintiff's guidance or owe any duty to plaintiff is without merit. NKK states in Chapter 1 of its Conditions of Service for Classification of Ships and Registration of Installations that:
1. Classification of ships is to be regarded as the development and worldwide implementation of published Rules and Regulations of the Society which will provide for:
(1) the structural strength of and the watertight integrity of all essential parts of the hull and its appendages,
(2) the safety and reliability of the propulsion and steering systems, and those other features and auxiliary systems which have been built into the ship in order to establish and maintain basic conditions on board thereby enabling the ship to operate in its intended service.
It is axiomatic that the purpose of the classification society is to provide assurance that the vessel is fit to operate in its intended service. This duty extends not only to the shipowner but also to third parties who rely upon this information. "Indeed, the very purpose of classification societies is to facilitate shipowners' dealings with third parties and to protect third parties who deal with and/or come in contact with their ships." See Liability of Classification Societies, 22 Tul. Mar. L.J. 75, 105-106 (1987).
The foregoing notwithstanding, the correspondence between plaintiff and the ship broker confirms that NKK was aware of the pending sale, transfer of class from NKK to ABS, and operation of the vessel in the Gulf of Mexico sufficient to establish that NKK provided the information for plaintiff's guidance.
Defendant next contends that plaintiff cannot prove its claim of negligent misrepresentation because there is no evidence of reliance by Otto Candies on any representations by NKK or on class certificates issued by NKK. Defendant contends that without evidence of a communication of specific information to Candies by NKK, and evidence that Candies relied upon that information in purchasing the vessel, plaintiff has not proven its claim. Defendant further maintains that Otto Candies agreed to purchase the vessel prior to the issuance of the certificate of classification and thus, there is no evidence of reliance. Defendant points out that the agreement to purchase was signed on December 22, 1999 and the NKK survey was conducted on December 26, 1999.
The testimony of Otto Candies, Jr. indicates that restoration of class certification was a condition of the sale. Mr. Candies stated: "We needed to have that assurance that we had a clean certificate without any recommendations for our operations. NKK was the original society that furnished the first certificates. We thought they were the appropriate society to do it again." Trial transcript, p. 17-18. The certificate of classification was issued and the plaintiff proceeded with accepting delivery of the vessel. This is sufficient evidence that plaintiff relied upon NKK to survey the vessel in accordance with the standards of the society and identify any deficiencies that were of a class nature.
Defendant finally contends that evidence that M/V SPEEDER did not meet the ABS requirements is not evidence that M/V SPEEDER did not meet the NKK requirements. This assertion is without merit. The evidence has established that the deficiencies identified by the ABS surveyor, were as defendant's expert, Mr. Smith, agreed, "of a class nature" and that if such deficiencies existed during a class survey, those deficiencies should have been noted by the surveyor. Mr. Smith agreed that the deficiencies were of a nature that would take more than two months to develop and would have existed at the time of the NKK survey.
The Court finds that plaintiff has established by a preponderance of the evidence each element of a negligent misrepresentation claim. Defendant, Nippon Kyokai Corporation breached its duty to survey and classify M/V SPEEDER in accordance with its own rules and standards and plaintiff relied to its detriment on the classification survey. NKK owes a duty of due care in detection of defects on the ships it surveys. This duty extends to third parties, such as Otto Candies, LLC, who actually and reasonably rely upon the certification.
Plaintiff's proof of damages with respect to the cost to repair the items that related to class was basically uncontested by the defendant. The Court finds that plaintiff has established repair costs in the amount of $328,096.43. The Court finds that the expenses associated with the port engineer have not been proven to a reasonable certainty and are too far attenuated from the overall claim in this case to be recoverable.
With respect to plaintiff's loss of use claim, an injured party may recover damages for lost income only to the extent that those damages can be proven with reasonable certainty. Bolivar County Gravel Co. v. Thomas Marine Co., 585 F.2d 1306, 1308 n. 2 (5th Cir. 1978). Here, plaintiff has not met that burden. Accordingly, the Court enters judgment in favor of plaintiff, Otto Candies, LLC, and against defendant, Nippon Kaija Kyokai Corporation, in the amount of $328,096.43.