Case Name: FREEPORT SULPHUR COMPANY, Plaintiff-Appellee, v. The S/S HERMOSA, her engines, tackle, apparel, furniture, etc., in rem, et al., Defendants, Pansuiza Compania de Navigacion S. A., in personam, Defendant-Appellant
Court: United States Court of Appeals for the Fifth Circuit
Jurisdiction: United States
Decision Date: 1976-01-23
Citations: 526 F.2d 300
Docket Number: No. 74-1581
Parties: FREEPORT SULPHUR COMPANY, Plaintiff-Appellee, v. The S/S HERMOSA, her engines, tackle, apparel, furniture, etc., in rem, et al., Defendants, Pansuiza Compania de Navigacion S. A., in personam, Defendant-Appellant.
Judges: Before WISDOM, SIMPSON and RONEY, Circuit Judges.
Reporter: Federal Reporter 2d Series
Volume: 526
Pages: 300–313

Head Matter:
FREEPORT SULPHUR COMPANY, Plaintiff-Appellee, v. The S/S HERMOSA, her engines, tackle, apparel, furniture, etc., in rem, et al., Defendants, Pansuiza Compania de Navigacion S. A., in personam, Defendant-Appellant.
No. 74-1581.
United States Court of Appeals, Fifth Circuit.
Jan. 23,1976.
Rehearing En Banc Granted April 30,1976.
Walter Carroll, Jr., New Orleans, La., for defendant-appellant.
James B. Kemp, Jr., Richmond Eustis, John W. Sims, New Orleans, La., for plaintiff-appellee.
Before WISDOM, SIMPSON and RONEY, Circuit Judges.

Opinion:
WISDOM, Circuit Judge:
During the early morning hours of March 21, 1971, the S. S. Hermosa, while attempting to moor at a dock owned by the Freeport Sulphur Company (Freeport), struck the upstream end of the dock, causing severe damage to the structure. The district court held the shipowner, Pansuiza Compañía de Navigacion, S. A. (Pansuiza), liable. Freeport Sulphur Co. v. S/S Hermosa, E.D.La.1973, 368 F.Supp. 952. Pansuiza does not contest its liability per se; the dispute in this case relates to the district court's calculation of damages.
First, of the $84,141.20 Freeport is alleged to have paid for the reconstruction of the dock, it claims about $16,000 as the cost of engineering work performed by its employees. Pansuiza argues that this is an inflated figure and that in-house services cannot properly be included as an element of damages.
Second, the district court found that the value of the dock was enhanced by its reconstruction, because the repairs extended the useful life of the dock. In deducting the cost of this improvement from Freeport's compensation for its repair expenses, the district court rejected the straight-line depreciation formula commonly used in calculating the costs attributable to the extension of useful life and instead relied on a formula based on the "percentage of useful life extension". Pansuiza contests the court's adoption of this "novel", "unsupported, and unsupportable" theory and asserts, moreover, that the court improperly applied its own formula.
Third, Pansuiza objects to the compensation that was awarded to Freeport because, as a result of the collision, Free-port paid for the useful life extension much earlier than such an expenditure would otherwise have been necessary.
I
Pansuiza's objections to the inclusion of the labor and overhead costs of Free-port's engineering department in the damages award are twofold. First, it asserts that Freeport's use of its own salaried engineers and draftsmen did not involve any additional cost or expense. Second, it argues that the claim for engineering expenses was an inflated figure.
Freeport has arranged with an independent engineering concern to be furnished supplemental personnel when its own salaried engineering staff is overworked. Because Freeport found it unnecessary to tap this outside during the period of the engineering work on the dock, Pansuiza contends that, were it not for tlie dock work, Freeport's engineers would have been idle or engaged in essentially nonproductive work. Pansuiza argues, therefore, that the engineering work was performed without any additional expense or overhead. We reject this argument as being wholly based on speculation. It is at least as plausible that there were other Freeport projects that would have been worked on by Freeport's internal engineers, but were not of such an emergency nature that they required the immediate employment of the outside firm.
In support of its argument that Freeport's engineering expenses were excessive, Pansuiza cites a $10,000 estimate of engineering costs made by Free-port's engineering department after receiving bids for the reconstruction work. The $6000 by which this underestimated Freeport's actual engineering expenses is explainable, however, by the fact that the estimate was made before the actual reconstruction was completed and the costs calculated. Pansuiza also draws our attention to the testimony of its expert witness that engineering expenses on similar projects average 10 to 15 percent of the total construction costs, but that the engineering expenses claimed by Freeport were about 22 percent of such costs. This discrepancy may be explained by the fact that Freeport's engineers provided alignment and grading usually provided by the contractor. If that portion of the engineering costs attributable to alignment and grading (roughly $3500) were deducted from the engineering costs, these costs would be brought down to the range that Pansuiza's expert witness indicated was the norm. The district court found that Freeport's "hourly records were properly kept"; that its records were "accurate and its charges reasonable"; and that had "it resulted in a net saving, the benefit would have inured to the defendant". The findings were not clearly erroneous.
The cost of repairs performed internally by the injured party, including overhead, are recoverable in a negligence action. See Baltimore & Ohio Railroad Co. v. Commercial Transport, Inc., 7 Cir. 1960, 273 F.2d 447, 448-49; Crain Brothers, Inc. v. Duquesne Slag Products Co., 3 Cir. 1959, 273 F.2d 948, 953; Ford Motor Co. v. Bradley Transportation Co., 6 Cir. 1949, 174 F.2d 192, 198. The district court properly concluded that Freeport was entitled to recover its in-house engineering costs.
II
The purpose of compensatory damages in tort cases is to place the injured person as nearly as possibly in the condition he would have occupied if the wrong had not occurred. See Restatement of Torts § 903, comment a at 60 (Tent. Draft No. 19, 1973); C. McCormick, Damages 560 (1935). When there is a tortious injury to property and the market value of that property is unknown, the amount of damages must be determined by the cost of repairs to the property. See D. Dobbs, Law of Remedies 392 (1973); F. Harper & F. James, The Law of Torts 1311-12 (1956). These two principles are in apparent conflict when the repairs that are necessary to correct damage caused by negligence enhance the pretort value of the plaintiff's property. In such a case, the increase in value is deducted from the plaintiff's recovery for the cost of repairs. A major issue in the present case is the method of computing the increase in the value of Freeport's dock that was caused by its reconstruction following the collision. .
The only betterment to Free-port's dock that was proved is the extension of its remaining useful life. The district court found, as a matter of fact, that the precollision remaining useful life of the dock was 25 years, but that the repairs had extended its useful life to 35 years. This extension of 10 years in its remaining useful life is a benefit to Freeport that should be deducted from its award.
Pansuiza argues that the "correct, long established, and fair" method of accounting for betterment is to compensate the plaintiff only for those repairs that replace the portion of its property that was undepreciated at the time of the tort. At the time of the collision, the old dock was 16 years old and had a remaining useful life of 25 years. It was thus 16/4i or 39 percent depreciated. Pansuiza contends, therefore, that 39 percent of Freeport's repair costs of $84,481.20 should be deducted from its recovery. In support of its argument that the • straight-line depreciation method of calculating betterment is the "long established" method applied by the courts in cases where the damaged or destroyed property had a definite life span that had partially elapsed at the time of- the accident, Pansuiza cites numerous cases that have applied the formula. See, e.g., Louisville & Nashville Railroad Co. v. M/V Ciudad de Turbo, S.D.Ala.1971, 330 F.Supp. 769; Allied Chemical Corp. v. Edmundson Towing Co., E.D.La.1970, 320 F.Supp. 448; Patterson Terminals, Inc. v. S. S. Johannes Frans, E.D.Pa. 1962, 209 F.Supp. 705; Jemison v. The Duplex, S.D.Ala.1958, 163 F.Supp. 947; General American Transport Corp. v. The Patricia Chotin, E.D.La.1954, 120 F.Supp. 246.
We stated in Canal Barge Co., Inc. v. Griffith, 5 Cir. 1973, 480 F.2d 11, 27, that depreciation is often "a handy tool to reduce the recovery for repair costs to the level necessary to return the injured party to the economic position in which he was found". The underlying issues, however, are whether the repairs extended the useful life of the property and, if so, what portion of the repair costs is attributable to the useful life extension. In Allied Chemical Corp. v. Edmundson Towing Co., prior depreciation was a "handy tool" for measuring the nonrecoverable portion of repair costs. The defendant's tugboat had negligently collided with the piling cluster at the plaintiff's dock, causing the cluster's complete destruction. The cost of its replacement was $3500. When new, both the old and the replaced clusters had life expectancies of 20 years; the old cluster was 3V2 years old at the time of the collision. The court awarded the plaintiff damages in the amount of 16V2/20 of the replacement cost. Because the damaged piling cluster was completely replaced by a cluster that had a useful life identical with that of the destroyed cluster when it was new, the portion of the destroyed property that had depreciated before the collision accurately measured the extent to which the replacement of the property extended its useful life.
In many of the other cases in which the straight-line depreciation formula has been applied, the court either assumed or explicitly found that the repaired or replaced property had a useful life identical with the old property when it was purchased by the plaintiff. See, e. g., Rawls Brothers Contractors, Inc. v. United States, M.D.Fla.1966, 251 F.Supp. 47, 57; Patterson Terminals, Inc. v. S. S. Johannes Frans, 209 F.Supp. at 710; General American Transportation Corp. v. The Patricia Chotin, 120 F.Supp. at 249. In many cases, however, courts have improperly reduced the plaintiff's recovery by the percentage of depreciation without giving any indication of the expected useful life of the repaired property. See, e.g., Louisville & Nashville Railroad Co. v. M/V Ciudad de Turbo; Oakdene Compress & Warehouse Co. v. S/S Cities Service Norfolk, E.D.S.C.1965, 242 F.Supp. 148; Jemison v. The Duplex.
Courts are increasingly recognizing that the "handy tool" of straight-line depreciation should not be used for all occasions. In Oregon v. Tug Go-Getter, 9 Cir. 1972, 468 F.2d 1270, for example, the defendant's barge collided with and caused severe damage to the south pier of the plaintiff's bridge. Although the pier was twelve years old and, according to the district court, had a precollision useful life expectancy of eighteen years, the Court of Appeals awarded the plaintiff the full cost of repairs. The court reasoned that the repairs did not add to the life expectancy of the pier because it was an integral part of the bridge, and, regardless of its condition, would have to be replaced when the bridge required replacement. Other circuits have also recognized that, in certain circumstances, application of the depreciation formula would be inappropriate. See, e. g., Canal Barge Co., Inc. v. Griffith, 480 F.2d at 27 (useful life of property not extended by repairs); United States v. Ebinger, 2 Cir. 1967, 386 F.2d 557, 561 (realizable value of property not enhanced by repairs).
Thus, where the expected useful life of the property after repairs is the same as it was at the time of its acquisition by the plaintiff, the straight-line depreciation formula should be applied. But where the repairs do not ex tend the useful life of the property as it existed just before the collision, there should be no deduction for depreciation. In the remaining cases, of which the instant case is an example, the repairs extend the useful life of the property, but to a different degree from the expected useful life of the property at the time of its acquisition by the plaintiff.
The district judge's solution to these cases — in which we concur — requires the calculation of the percentage of the repair expenses representing the cost of the useful life extension. This he termed the "percentage of useful life extension". 368 F.Supp. at 955. This percentage is the portion of the total useful life of the repaired property that the useful life extension constitutes. The allocable cost of the useful life extension may then be derived by multiplying this percentage by the total repair expenses. If this allocable cost is then deducted from the total cost of repairs, the resulting damages award will precisely compensate the plaintiff for the cost of restoring his property to its precollision condition.
In the present case the precollision useful life of the dock was 25 years. As a result of the repairs this expected useful life was increased by 10 years. The percentage of useful life extension is thus 10/a5, or 28.6 percent. The district court erred in applying the fraction 10/25, or 40 percent, to the cost of repairs. 368 F.Supp. at 955. This fraction represents the useful life extension as a percentage of the precollision remaining useful life of the property. As indicated above, however, the proper ratio is that which the useful life extension bears to the remaining useful life of the property after repairs. Because the total cost of the repairs, $84,141.20, was the cost of obtaining a dock with a useful life of 35 years, the numerator of 10 years should be applied to the denominator of the total number of years of useful life purchased by the $84,141.20 to derive that portion of the total repair costs that is the cost of the 10 year useful life extension.
The cost of repairs that is allocable to the useful life extension is thus 28.6 percent of $84,141.20, or $24,064.38. Deducting this from the total repair costs leaves $60,076.82 as the repair costs recoverable by Freeport.
III.
The district court held:
To the extent that depreciation is allowed against the amount of damages, the owner must expend funds for replacement and repair of the dock long before it would have been required to do so in the normal course of business. To reimburse it for capital before it would normally be required to divert funds from operation, it should be allowed interest on the amounts so expended for the remainder of the useful life of the original dock.
368 F.Supp. at 955. The district court reasoned that, were it not for the collision, Freeport would not have had to spend the amount allocable to the useful life extension until 1996, the date at which the useful life of the old dock would have expired. The court therefore awarded Freeport, in addition to other recoveries, the difference between the amount of repairs allocable to the useful life extension and the present worth of that sum of money paid 25 years hence.
To the extent that the district court attempts a new measure of damages as a principle of law, reversal is required because the general principle that has been rather universally applied in other jurisdictions, as well as in this Circuit, denies the plaintiff recovery for expenditures that enhance the value of his property. The Baltimore, 75 U.S. (8 Wall.) 377, 19 L.Ed. 463 (1869); Canal Barge Co. v. Griffith, 5 Cir. 1973, 480 F.2d 11; Tug June S. v. Bordagain Shipping Co., 5 Cir. 1969, 418 F.2d 306; T. H. Browning Steamship Co. v. F. H. Peavey & Co., 8 Cir. 1956, 235 F.2d 5, 8. See generally, D. Dobbs, Law of Remedies 312-318 (1973) and authorities cited therein.
As a factual matter, the district court based its decision on a finding that the dockowner has suffered damage by being required to expend funds for capital improvements before the time that such funds would have been expended in the normal course of business, but for the accident. Findings of fact will not be overturned unless found to be clearly erroneous. F.R.Civ.P. 52(a). Where findings are not supported by substantial evidence they are taken to be clearly erroneous. Western Cottonoil Co. v. Hodges, 5 Cir. 1954, 218 F.2d 158, reh. den. and modified per curiam, 5 Cir. 1955, 218 F.2d 163.
In this case, however, we have been unable to find in the record any evidence as to what damage, if any, may have accrued because of the repair costs attributable to the enhancement of the dock's useful life. There is nothing in the record to show: whether the dock might be rebuilt long before it crumbles into the water at the end of its estimated useful life; the extent to which a reasonable return may be obtained on the cost of the enhanced value as on other capital expenditures; the possible savings in the cost of extended useful life construction now as opposed to the possible future cost; the extent to which sinking fund commitments may be reduced by the extended life of the dock and the possible reduction of maintenance costs on the new structure, both of which would tend to lessen the diversion of funds from the operation; the effect on possible loss to the dockowner of the many other considerations that might be relevant to whether the dockowner will suffer any real damage from the early expenditure of funds. It may well be that full evaluation of the damage question would demonstrate no actual damage or that some of the considerations would be so speculative as to be incapable of the reasonable ascertainment required to sustain a damage award. Cf. Johnson v. Penrod Drilling Co., 5 Cir. en banc 1975, 510 F.2d 234. In any event, the dockowner offered no proof on this item of damage and there is no support in the record for the conclusion that loss occurred as a result of premature extension costs. In view of the absence of factual support, a court should apply the general rule that a plaintiff is denied consideration for expenditure of repair costs beyond that necessary to restore its property to the condition it was in before the accident.
The extended useful life of the dock may well increase the dock's present value in the amount of the attributable repair cost, so that to follow the district judge's analysis would permit a plaintiff to turn a ready profit from the accident by selling the damaged property immediately after reconstruction and payment of the award. See General Outdoor Advertising Co. v. LaSalle Realty Corp., Ind.App.1966, 218 N.E.2d 141; compare Restatement of Torts § 929, Comment b (1939) (suggesting a distinction in damage computation depending on whether damaged property is put to a personal or commercial use).
The award concerning the present yalue computation of the extended useful life component of the cost of repairs should be eliminated.
Judge Wisdom's special concurrence in Part III, although reaching the same result as the majority of the Court, follows a line of reasoning which would seem to be foreclosed by Johnson v. Penrod Drilling Co., 5 Cir. 1975, 510 F.2d 234 (en bane). First, the Court in Penrod expressly provided that
[t]he calculated gross future earnings must be reduced to present value by the use of an appropriate interest rate prevailing at the time and place of trial.
Id. at 237. The validity of discounting to present value of future damages at current interest rates would not appear to be left open by Penrod. Second, in Penrod we held that inflation is too speculative to be taken into account in the computation of lost future earnings. It would seem, therefore, that inflation is also too speculative to take into account in reasoning to a conclusion concerning damages, i. e., that the interest that would have been earned on the money prematurely invested in enhanced dock value is wholly offset by the degree to which inflation would increase the cost of the useful life extension by 1996.
Affirmed in part, reversed in part, and remanded for further proceedings consistent with this opinion.
. The ship and its owner are subject to the presumption of fault against a moving vessel that strikes a stationary object, such as a dock. The Oregon, 1895, 158 U.S. 186, 197, 15 S.Ct. 804, 809, 39 L.Ed. 943, 949; Skidmore v. Grueninger, 5 Cir. 1975, 506 F.2d 716, 721; Canal Barge Co., Inc. v. Griffith, 5 Cir. 1973, 480 F.2d 11, 17. The record supports the finding that "the dock was suitably built" and that Pansuiza offered "no explanation for the impact. . . Liability for the resultant damage is therefore clear." 368 F.Supp. at 953.
. Because the cause of action arises under the maritime law, the damages issues are decided under federal rather than state law. See Robinson v. Pocahontas, Inc., 1 Cir. 1973, 477 F.2d 1048, 1052-53; Petition of United States Steel Corp., 6 Cir. 1970, 436 F.2d 1256, 1278, cert. denied, 1971, 402 U.S. 987, 91 S.Ct. 1649, 29 L.Ed.2d 153; Canova v. Travelers Insurance Co., 5 Cir. 1969, 406 F.2d 410, 412, cert. denied, 1969, 396 U.S. 832, 90 S.Ct. 88, 24 L.Ed.2d 84.
. A Freeport senior project engineer testified that if the Freeport engineers had not been working on the dock, "they would have been doing other work in the department".
. The Freeport engineer who made the estimate contended that this was the reason for its inaccuracy.
. See Restatement of Torts § 928 (Tent. Draft No. 19, 1973); D. Dobbs, Law of Remedies 392 (1973). In The Baltimore, 1869, 75 U.S. (8 Wall.) 377, 385-86, 19 L.Ed. 463, 465, dicta-indicate that, in negligence cases, there should; not be any deduction' for new materials fur-' nished in place of the old. This dicta has not. generally been followed, as the cases cited throughout Part II of this opinion indicate. Two other cases that denied deductions for new replacements and contain equally broad dicta are distinguishable from the present case. In Paxson Co. v. Board of Chosen Freeholders of Cumberland County, 3 Cir. 1912, 201 F. 656, 663, the replacement structure was made of materials inferior to that of the old structure, and it was uncertain whether the new structure was more valuable than the old. And in United States v. Ebinger, 2 Cir. 1967, 386 F.2d 557, 561, the damaged property was an integral part of a larger unit, whose realizable value was probably not enhanced by the replacement.
. When other types of betterment have been proven, their value has been offset against the plaintiff's award. See, e. g., United States v. Ebinger, 386 F.2d 561 (credit for maintenance expenses saved-by new structure); Patterson Terminals, Inc. v. S. S. Johannes Frans, E.D.Pa. 1962, 209 F.Supp. 705, 711 (credit for enlargement of caisson).
. This is subject to the exception discussed in Part III.
Part III was written by Judge Roney and concurred in by Judge Simpson, author of the original panel decision incorporated in the en banc opinion in Johnson v. Penrod Drilling Co., 5 Cir. 1975,510 F.2d 234.
. As indicated in Part II of this opinion, the district court deducted 40 percent ($33,656.48). from Freeport's repair expenses for the useful life extension of the dock. After determining that the present value of $1 paid 25 years hence is $.18, the court added 82 percent of $33,656.48, or $27,598.31, back to Freeport's award. The net effect was a deduction of 18 percent of $33,656.48, or $6,058.17, for the improvement of the dock. In accordance with our holding in Part II, this amount must be recomputed to accurately state the result of the district court's holding. Given a 7 percent rate of interest, the present value of $1 paid 25 years hence is $.18. S. Selby, Standard Mathematics Tables 646 (1970). We concluded in Part II that repair costs allocable to the useful life extension were $24,064.38. The present value of that sum paid 25 years hence is thus 18 percent of $24,064.38, or $4,331.58.