Court Opinion

ID: 2966333
Source: CourtListenerOpinion
Date Created: 2015-09-22 00:24:21.265195+00
Date Added: 2024-06-11T15:27:03.375450
License: Public Domain

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

VOLPE M. BOYKIN, Administrator of
the Estate of Denzil J. Pereira,
Plaintiff,

v.

CHINA STEEL CORPORATION; UNITED
STATES STEEL MINING COMPANY,
INCORPORATED,
Defendants-Appellants,
                                                               No. 94-1267
BERGESEN D.Y. A/S,
Defendant-Appellee,

and

WESCOL SHIPPING, INCORPORATED, t/a
Lavino Shipping Agencies,
Incorporated,
Defendant.

Appeal from the United States District Court
for the Eastern District of Virginia, at Norfolk.
Henry C. Morgan, Jr., Robert G. Doumar, District Judges;
Tomme E. Miller, Magistrate Judge.
(CA-92-391-N)

Argued: November 4, 1994

Decided: January 17, 1996

Before WIDENER and HALL, Circuit Judges, and CHAPMAN,
Senior Circuit Judge.

_________________________________________________________________
Affirmed by published opinion. Judge Widener wrote the opinion, in
which Judge Hall and Senior Judge Chapman joined.

_________________________________________________________________

COUNSEL

ARGUED: Timothy B. Dyk, JONES, DAY, REAVIS & POGUE,
Washington, D.C., for Appellants. D. Arthur Kelsey, HUNTON &
WILLIAMS, Norfolk, Virginia, for Appellee. ON BRIEF: Gregory
G. Katsas, JONES, DAY, REAVIS & POGUE, Washington, D.C.;
Edward C. Schmidt, Richard P. Bress, Pittsburgh, Pennsylvania; Mor-
ton H. Clark, Carter T. Gunn, VANDEVENTER, BLACK, MERE-
DITH & MARTIN, Norfolk, Virginia; William R. Hawkins, J. F.
Wilson, U.S. STEEL GROUP, Pittsburgh, Pennsylvania, for Appel-
lants. John E. Holoway, HUNTON & WILLIAMS, Norfolk, Virginia,
for Appellee.

_________________________________________________________________

OPINION

WIDENER, Circuit Judge:

Appellants China Steel Corporation and U.S. Steel Mining Com-
pany (defendants) appeal from a judgment against them in a maritime
action brought under the Death on the High Seas Act, 46 U.S.C. App.
§§ 761-768, on behalf of Denzil Pereira, the captain, and four crew
members, killed on October 27, 1990 by an explosion on board the
M/V Berge Charlotte. Although this appeal initially raised numerous
issues, an interim settlement of the dispute between the defendants
and Pereira's estate leaves open only the issue of a $540,000 indem-
nity award granted to Bergesen D.Y. A/S, the owner of the ship and
a defendant in the underlying action, for payments it made to the sur-
vivors of the five decedents under a pretrial settlement agreement. We
affirm the judgment of the district court requiring defendants to
indemnify Bergesen for amounts paid under the settlement agreement.

The facts of this case are no longer in dispute and appear in two
published opinions of the district court in 835 F. Supp. 274 (E.D. Va.
1993) and 842 F. Supp. 874 (E.D. Va. 1994). The M/V Berge

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Charlotte, owned by Bergesen and chartered by China Steel, was car-
rying a load of coal, supplied by U.S. Steel and purchased by China
Steel, from Norfolk to Taiwan. See Boykin v. Bergesen D.Y. A/S, 835
F. Supp. 274, 276, 281 (E.D. Va. 1993). U.S. Steel represented that
the coal was category A, see Boykin, 835 F. Supp. at 279, which is
the most common type of coal and is not considered such a dangerous
cargo because it emits its methane gas more quickly, resulting in the
emission of the gas before loading in the hold and reducing the likeli-
hood of explosion. See Boykin, 835 F. Supp. at 279. In fact, U.S. Steel
knew or had reason to know that the coal on board the ship was cate-
gory B coal. See Boykin, 835 F. Supp. at 280. Category B coal emits
its methane gas more slowly, retaining more methane for release in
the hold, and the resulting methane accumulation is highly volatile
unless subject to frequent or continuous ventilation. See, e.g., Boykin,
835 F. Supp. at 281. Because of bad weather, see Boykin, 835 F.
Supp. at 281-82, and because category A coal does not require such
ventilation, see Boykin, 835 F. Supp. at 281, the ship did not so venti-
late the load. See Boykin, 835 F. Supp. at 281. This resulted in a
methane explosion which killed Pereira and the four crewmen. See
Boykin, 835 F. Supp. at 276.

Boykin, as administrator of the estate of Pereira, sued Bergesen,
U.S. Steel, China Steel, and another in a Virginia state court, and the
case was removed to the federal district court. Bergesen and the
defendants cross-claimed for indemnity and contribution, and Ber-
gesen further sought recovery from the defendants for damage to the
ship. Boykin, 835 F. Supp. at 275. Bergesen then settled with Boykin
and with the other decedents, leaving only Boykin's claims against
China Steel and U. S. Steel and the cross-claims between Bergesen
and those defendants. The district court awarded judgment to Boykin1
_________________________________________________________________
1 The district court entered judgment against China Steel and U.S. Steel
in favor of Boykin for approximately $774,000. See Boykin, 835 F. Supp.
at 287. This award was not reduced to reflect Bergesen's settlement with
Boykin. Although the defendants moved the district court to credit the
judgment by amounts paid by Bergesen under the settlement, it denied
the motion and adopted a proportionate-share rule that has since been
announced by the Supreme Court in McDermott. See Boykin, 842 F.
Supp. at 882-83.

Thus, because the district court also awarded indemnity to Bergesen
for amounts paid by Bergesen under the settlement, China Steel and U.S.
Steel were required to pay in toto more than the total damages found for
each individual decedent.

                    3
and to Bergesen, finding that "the Steel defendants were one hundred
percent at fault and . . . Bergesen was zero percent at fault." Boykin
v. Bergesen D.Y. A/S, 842 F. Supp. 874, 879, 883 (E.D. Va. 1994).
The district court also ordered China Steel and U.S. Steel to indem-
nify Bergesen for $540,000, the amount paid by Bergesen to the dece-
dents under the settlement. Boykin, 835 F. Supp. at 287. It is this
indemnity award which the defendants challenge on appeal and which
is the only issue remaining in the case. The district court based its
decision requiring that Bergesen be paid indemnity by China Steel
and U. S. Steel on two alternate bases, first, on the basis of contrac-
tual indemnity under the charter party, and second, under the admi-
ralty law of indemnity in this circuit as set out in Vaughn v. Farrell
Lines, Inc., 937 F.2d 953 (4th Cir. 1991).

It set out that "Bergesen's claim for indemnity against [U. S. Steel]
is based on tort principles, [referring to indemnity implied in law]
while its claim against China Steel is based on the charter party" and
that U. S. Steel "agreed to take over China Steel's defense and hold
China Steel harmless for any damages." Boykin , 835 F. Supp. 287
n.19. It had previously stated that "Bergesen's claim for indemnity
rests on the terms of a charter party, and the question of whether,
under that agreement, China Steel provided sufficient notice to Ber-
gesen of the hazardous characteristics of the cargo." Boykin, 835 F.
Supp. at 278 n.4. The court then provided, "In addition, with regard
to indemnity under the charter party, the Court has previously found
that China Steel breached the terms of the charter party by failing to
provide adequate notice of the hazardous nature of the cargo." Boykin,
835 F. Supp. at 287 (footnote omitted).

With respect to indemnity under Vaughn, the court stated that "The
indemnitor-indemnitee relationship is established because the Court
has found that the Steel Defendants were guilty of active or primary
wrongdoing, and that Bergesen has not been proven negligent. The
Court has further found that the Steel Defendants' negligence proxi-
mately caused the harm for which Bergesen paid in settlement, and
FINDS that Bergesen's payments were reasonable. Further, Bergesen
tendered its defense to U. S. Steel. (Berg Ex. 72)." Boykin, 835 F.
Supp. at 287 (citations omitted).

We will first consider indemnification under the charter party.
Rider clause 42 of the charter party provides that that agreement

                    4
"shall be governed by English Law." An affidavit of an English attor-
ney explained that under English law a charterer, China Steel here,
impliedly warrants that his cargo is fit for ordinary carriage and does
not present any hazardous characteristics which are of a wholly differ-
ent kind from what ought reasonably to be anticipated. As stated
above, the district court found as a fact that China Steel failed to pro-
vide adequate notice of the hazardous nature of the cargo. The affida-
vit mentioned further provides that for breach of such a warranty, the
charterer is liable by way of an indemnity for damages to the ship
owner for all property damages, personal injury, debt settlements, and
loss of hire. Therefore, the liability of China Steel in indemnity is
based on the indemnity provided in the written charter party and does
not independently depend for its existence on the indemnity in admi-
ralty law provided in Vaughn.

China Steel and U. S. Steel argue that McDermott, Inc. v. AmClyde
& River Don Castings, Ltd., 62 U.S.L.W. 4241 (U.S. Apr. 20, 1994),
has done away with all notions of indemnity in favor of a settling
defendant against a non-settling defendant in admiralty. The short
answer to that contention is that any changes McDermott may have
made to the law of indemnity in admiralty we do not think affect an
indemnity obligation such as that which was imposed upon China
Steel by virtue of a written agreement. That reason alone would serve
to sustain the judgment of the district court in favor of Bergesen.

In connection with indemnity under the charter party, no question
as to the district court's treatment of that aspect of the case was raised
on appeal until the reply brief of China Steel and U. S. Steel. Ber-
gesen claims, probably properly, that contentions made by the steel
defendants in the reply brief with respect to English law have been
waived. We do not base our decision on waiver, however, for we are
of opinion that the district court correctly treated China Steel's liabil-
ity under the charter party as the breach of warranty which it was, and
we are further of opinion that the district court's findings of fact upon
which that decision was based are not clearly erroneous. Indeed, there
is not even a claim that the factfinding just referred to is clearly erro-
neous.

The last thing we consider is the liability of the steel defendants
under Vaughn. With respect to that question, it is quite important that

                     5
Vaughn's requirements be considered and, as well, the factual setting
of the instant case. Vaughn was a case in which an injured seaman
had sued the vessel owner and Foster Wheeler, the manufacturer of
a boiler, on account of cancer caused by the use of asbestos in the
boiler. The district court found that the use of asbestos in the boiler
by Foster Wheeler had made the vessel unseaworthy and that the ship
owner was guilty of no wrongdoing. The plaintiff's personal represen-
tative had settled with the shipowner prior to trial but had not settled
with Foster Wheeler. The district court found that Foster Wheeler was
an active wrongdoer in supplying a defective boiler to the shipowner,
that the defective boiler made the ship unseaworthy, and that the ship
owner had not been guilty of any negligence which contributed to the
loss. We found that indemnity was called for, stating that it ". . . typi-
cally arises when the indemnitee has been found absolutely liable for
the wrongful act of another as in an `admiralty context where a ship-
owner held liable on an unseaworthiness claim is awarded indemnity
against a third party whose negligence caused the unsafe condition
resulting in injury to a seaman.'" Vaughn, 937 F.2d at 957.

The case at hand is on facts which are indistinguishable from those
in Vaughn. The negligence of the steel defendants caused the accumu-
lation of methane gas in the hold of the ship involved, the explosion
of which caused the death of the captain and four members of the
crew. It is idle to argue that the Berge Charlotte was in a seaworthy
condition when her hold was laden with the methane exuding coal
unventilated due to the sole fault of the steel defendants. To say that
the ship had to defend, instead of settle, in such an action at the risk
of forfeiting any indemnity claim against the wrongdoers, is to require
the ship to take a position as unrealistic as it is unreasonable, we
think.

The establishment of indemnity under Vaughn has four require-
ments: first, an indemnitor-indemnitee relationship must exist; sec-
ond, the indemnitee must demonstrate that it was under some compul-
sion to satisfy the original claim of the plaintiff; third, the indemnitee
must prove that its settlement with the plaintiff in the underlying
action was reasonable; and fourth, the indemnitee must show that the
unlawful act of the indemnitor proximately caused the injury to the
original plaintiff. An additional requirement is that the proposed
indemnitor be notified of the underlying claim and tendered the

                     6
defense of the claim. The steel defendants do not contest that each of
the requirements of Vaughn has been satisfied. And not of the least
consequence is the fact that the district court found as a fact that
"[f]urther, Bergesen tendered its defense to U. S. Steel (Berg Ex. 72)."
Boykin, 835 F. Supp. at 287.2 So unless McDermott has overruled
Vaughn by implication, the district court's order should also be
affirmed on the alternate ground that indemnity was required under
Vaughn.

The facts of McDermott are to the effect that a crane purchased by
McDermott from AmClyde (apparently the manufacturer) caused
considerable damage to the crane itself and to deck of the oil and gas
rig in the Gulf of Mexico on which the crane was working. The casu-
alty was occasioned by the failure of a hook supplied by River Don
Castings or by a sling supplied by one of three other defendants.
McDermott settled with the sling defendants for any of their liability
for both crane and rig damages. McDermott agreed to indemnify the
sling defendants against any contribution action. Upon a trial, the jury
found that the total damages to the rig3 amounted to $2.1 million and
allocated responsibility, 32% to Amclyde, 38% to River Don, and
30% to McDermott and the sling defendants. The question before the
court was the allocation of damages on those facts.

The Court adopted option 3 from the comment on the caveat to
Restatement (Second) of Torts § 886A (1977) which is "(3) The
money paid extinguishes any claim that the injured party has against
the released tort-feasor and also diminishes the claim that the injured
party has against the other tortfeasors by the amount of the equitable
share of the obligation of the released tortfeasor." 62 U.S.L.W. at
4243.

The Court proceeded to state that under this approach no suits for
contribution from the settling defendants are permitted, nor are they
necessary, because the non-settling defendants pay no more than their
share of the judgment. The steel defendants now argue that indemnity
_________________________________________________________________
2 The exhibit showing the tender of the defense is not even included in
the record on appeal.

3 Crane damage was not included in the jury verdict.

                    7
is equated to contribution and take the position that indemnity, as
under Vaughn, has been abolished by McDermott.

We do not agree, for several reasons. First, Bergesen and the steel
defendants are not joint tort-feasors. Even in the face of a claim that
they might have been, Bergesen has been found not a tort-feasor as
a matter of fact and not guilty of any fault, which holding has not
been questioned.4 In the case of Westinghouse Credit Corp. v. M/V
NEW ORLEANS, 39 F.3d 353 (5th Cir. 1994), the proportionate share
rule of McDermott was held not to apply in favor of non-settling
defendants unless they were joint tort-feasors with the settling defen-
dants. Under that reasoning, the proportionate share rule would have
no application here.

While at first blush it may seem inequitable for the steel defendants
not to have received any credit against the judgment against them for
the amount of the settlement paid by Bergesen, and also being
required to indemnify Bergesen, that does not state the whole case.
The liability to which the undoubted negligence of the steel defen-
dants exposed Bergesen was not merely that of a joint tort-feasor, it
was the liability without fault attaching to an unseaworthy ship. In a
very similar case to the one at hand, it has been held in admiralty that
when the negligence of two tort-feasors occasioned the liability with-
out fault of payments of maintenance and cure, the employer was
entitled to recovery of the entire maintenance and cure payments from
the tort-feasors, although the employee was partially at fault and had
settled with the employer as well as with the tort-feasors. In the case
of Bergtram v. Freeport McMoran, Inc., 35 F.3d 1008 (5th Cir.
1994), an employee of Energy was injured while on the job on a drill-
ing rig in the Gulf of Mexico. The employee settled with all con-
cerned, and upon a trial, fault was allocated 60% to the employee,
20% to a contractor on the job, and 20% to the platform owner. The
court held that Energy, the employer, was not a joint tort-feasor with
the contractor and the platform owner and that its liability for mainte-
nance and cure was regardless of whether or not it was negligent.
Because the negligence of Houma and Freeport, the tort-feasors, had
_________________________________________________________________
4 Bergesen is also not a joint tortfeasor because its liability for an
unseaworthy vessel is liability without fault, a different legal duty than
that which applies to the steel defendants.

                    8
partially caused the injury to the employee which had occasioned the
payment of maintenance and cure, the employer, who was free from
fault, was entitled to be reimbursed completely 50% by each of the
equally at fault tort-feasors, although their liability was found to be
only 20% each. The court held that the proportional fault rule of
McDermott did not prevent this reimbursement in a fact situation little
different from the one present here.

Of equal consequence in our reasoning is a discussion by the
Supreme Court in McDermott of the various values to be considered
in the allocation of loss in situations in which one defendant has set-
tled and another or others has not. Not least among them is the risk
involved and the practical situation in which each of the defendants
finds itself. In the case at hand in a defense of the claim by the dece-
dents' estates, Bergesen would have had to show that the vessel was
seaworthy when its hold was laden with methane exuding coal which
was not being properly ventilated. That condition, from any point of
view disclosed by this record, made Bergesen's chances of success
about as near zero as any case we have seen. In that situation, Ber-
gesen was able to settle on account of the five deaths caused by the
explosion. Had it not attempted to settle, its judgment would certainly
have been questioned. Prior to settlement, however, Bergesen offered
the defense of the case to the steel defendants whose negligence had
caused the dangerous situation. When the steel defendants refused the
defense of the case, they assumed the risk of the defense. And a part
of that risk was reimbursing by way of indemnity Bergesen for its
payment for the deaths caused by a vessel which was undoubtedly
unseaworthy. We do not think that the argument of the steel defen-
dants, that Bergesen took a poor risk in settling the case, is valid. The
poor risk was taken by the steel defendants when they were tendered
the defense and declined it.

We are thus of opinion that the district court should be affirmed on
either alternate ground upon which it found indemnity in favor of
Bergesen.

                     9
The judgment of the district court is

AFFIRMED.5
_________________________________________________________________
5 The steel defendants, in their opening brief, p.30, have foregone any
claim for a reduction in the plaintiff's judgment on account of the settle-
ment by Bergesen. Cf. McDermott, 62 U.S.L.W. at 4243. That position
necessarily forfeits any claim under what the Court has called the "one
satisfaction rule" and has been mentioned in McDermott at p.4246,
where the Court stated in that case it would not apply the rule even if that
resulted in an over-compensation of McDermott. This circuit, in a stud-
ied opinion, adopted the rule from a tentative draft of the Restatement
(Second) of Torts § 885(3), in McKethon v. Burris, et al., 545 F.2d 1388
(4th Cir. 1976). The rule appears in the Restatement (Second) (1977) as
§ 885(3) with little change. The fact that the steel defendants here elected
not to claim on account of that theory should not be taken as any indica-
tion that we think the theory is no longer extant in this circuit or might
not have been applied in this case. We express no opinion on either such
question.

The motion of U.S. Steel to strike Bergesen's reply brief is denied.

                    10