Court Opinion

ID: 6932653
Source: CourtListenerOpinion
Date Created: 2022-07-24 00:12:14.237382+00
Date Added: 2024-06-11T16:07:16.607348
License: Public Domain

MISHLER, District Judge,
concurring in part and dissenting in part:
I agree with the majority’s ruling on the tort claim of International Ore & Fertilizer Corp. (“Interore”) based on SGS Control Service’s (“SGS”) misrepresentation for issuing the inaccurate certification of the cleanliness and suitability of the Adelina’s holds. I agree that the court may consider Interore’s breach of contract claim even though Inte-rore failed to file a cross-appeal from the district court’s dismissal of the contract claim. I also agree with the affirmance of the Rule 11 sanctions. I disagree with the majority’s holding that damages of $713,-666.27 (reduced by 50% on a finding of Inte-rore’s contributory negligence) is the measure of damages on the breach of contract claim.
DISCUSSION
FACT FINDINGS BY THE DISTRICT COURT
In denying recovery under Interore’s breach of contract theory of liability, Judge Tenney found that the disproportion of the charge for the inspection, i.e., $150, and the damages sought,1 and the informality in entering into the contract as the basis for arriving at that determination. Judge Tenney found that in addition to the
disparity between the contract price and the damages ... the parties reached their agreement over the phone, and the plaintiff simply confirmed it with a one-page telex. The telex merely requests defendant to perform the various services and to issue a series of documents. It is devoid of any mention of liability. The low control price and informal dealings between the parties indicates that they did not attempt *1288to allocate all of the risks. Therefore, the court is justified in allocating them fairly. Accordingly, it finds that plaintiff should not recover compensatory damages on the contract.
International Ore & Fertilizer Corp. v. SGS Control Servs., 743 F.Supp. 250, 257-58 (S.D.N.Y.1990) (“Interore I”) (Drawing its analysis from Restatement (Second) of Contracts § 351 cmt. f (1979)).
The Restatement (Second) of Contracts § 351(3) (1981) notes the wide discretion that the trial court has in a breach of contract claim in limiting damages for foreseeable loss “if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation.”
Comment f states:
It is not always in the interest of justice to require the party in breach to pay damages for all of the foreseeable loss that he has caused. There are unusual instances in which it appears from the circumstances either that the parties assumed that one of them would not bear the risk of a particular loss or that, although there was no such assumption, it would be unjust to put the risk on that party. One such circumstance is an extreme disproportion between the loss and the price charged by the party whose liability for that loss is in question. The fact that the price is relatively small suggests that it was not intended to cover the risk of such liability. Another such circumstance is an informality of dealing, including the absence of a detailed written contract, which indicates that there was no careful attempt to allocate all of the risks. The fact that the parties did not attempt to delineate with precision all of the risks justifies a court in attempting to allocate them fairly.
Restatement (Second) of Contracts § 351 cmt. f (1981) (emphasis added).
Judge Tenney made the factual finding that the damages were disproportionate to the contract price.2 Interore I, 743 F.Supp. at 257. The court made this finding because the great disparity between the contract price and the damages indicated that the parties did not intend to allocate the risks.3 Additionally, the court relied on the informality of the contract to reach its conclusion. SGS and Interore made an oral agreement that was confirmed by a one-page telex. Interore I, 743 F.Supp. at 252, 257. The agreement failed to specify the manner of inspection or mention liability. Id. at 257. Judge Tenney concluded that the parties did not have a “meeting of the minds” regarding the scope of the inspection and the parties did not anticipate the risk of loss. Id. at 256-58. These fact findings are binding on this court unless they are clearly erroneous. Fed.R.Civ.P. 52(a).

INTERPRETING SUNDANCE

Sundance Cruises Corp. v. American Bureau of Shipping, 7 F.3d 1077 (2d Cir.1993), cert. denied, — U.S.—, 114 S.Ct. 1399, 128 L.Ed.2d 72 (1994) does not support the majority’s analysis. The court in Sundance denied compensatory damages to Sundance, the ship owner. The court agreed with Judge Knapp’s finding that “Sundance had failed to show any damage flowing from issuance of the classification certificate.” Id. at 1084. In other words, Sundance failed to prove causation. The court stated two additional grounds for denying compensatory damages to Sundance:
First, the great disparity between the fee charged ($85,000) by ABS for its services and the damages sought by Sundance ($264,000,000) is strong evidence that such a result was not intended by the parties. We can only conclude that the small fees charged could not have been intended to cover the risk of such liability; the ship classification industry could not continue to *1289exist under such terms. See, e.g., Vitol Trading S.A, Inc., v. SGS Control Servs., Inc., 874 F.2d 76, 81-82 (2d Cir.1989) (quoting Restatement (Second) of Contracts § 351 cmt. f: “fact that price [charged] is relatively small suggests that it was not intended to cover the risk of such liability”).
Second, and probably most significantly, the shipowner, not ABS, is ultimately responsible for and in control of the activities aboard ship_ This ongoing responsibility for the vessel is supplemented by the maritime-law requirement that the shipowner has a nondelegable duty to furnish a seaworthy vessel. Great American Ins. Co. v. Bureau Veritas, 338 F.Supp. 999 (S.D.N.Y.1972), aff'd, 478 F.2d 235 (2d Cir.1973).

Id.

The reference in Sundance to the damages sought and the fee charged as “strong evidence that such a result was not intended by the parties,” and that the shipowner “is ultimately responsible for and in control of the activities aboard ship” indicates that the lack of causation is not the sole basis for denying damages. The Sundance court also cited § 351 of the Restatement which allows a court to limit damages for foreseeable loss “if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation.” Restatement (Second) of Contracts § 351(3) (1981). The very fact that the Sundance court discussed § 351 reveals that the court extended its reasoning to eases in which causation is proven. In fact, § 351 is only applicable if the court first finds that there were damages caused by the breach. Only then would a court decide whether to limit disproportionate damages. Thus, the Sundance decision supports the reasoning of Interore I that a court, in the interests of justice, may limit damages to avoid disproportionate compensation, if causation is proven.
The additional grounds upon which the Sundance court relied are analogous to those in Interore I and therefore dictate the same result. First, Judge Tenney discussed the great disparity between the contract price and the damages. Interore sought damages of $2,400,000 on a contract price of $150, a ratio of 16,000 to one.4 Interore I, 743 F.Supp. at 257. The actual damages in this ease were $713,666.27 compared to a contract price of $150, a ratio of 4,758 to one.
Second, the principle articulated in Sun-dance that the shipowner is ultimately responsible for the activities on a ship is also applicable to Interore, the charterer of the Adelina. Sundance, 7 F.3d at 1084; Great American Ins. Co., 338 F.Supp. at 1015. As the charterer, Interore was more likely than SGS to anticipate the risk of liability. Inte-rore knew or had reason to know that the New Zealand authorities would reject the shipment if there had been minimal contamination of the fertilizer. Interore I, 743 F.Supp. at 260. Interore was in the better position to avert the risk because it was in the fertilizer business and had shipped fertilizer to New Zealand in the past. Id. Even though SGS was responsible for assuring that the hold was clean, Interore could have minimized the risk of loss by advising SGS of New Zealand’s strict requirements. Id.
I would direct dismissal of the complaint.

. Judge Tenney used the demand of $2,400,000 in the complaint.

. This finding is not listed with the other factual findings because it was ultimately disposed of when Judge Tenney dismissed the contract claim.

. In Sundance Cruises Corp. v. American Bureau of Shipping, 799 F.Supp. 363, 376 (S.D.N.Y.1992), the district court made the same factual finding that the parties did not assume the risk of loss in making a contract in which a great disparity between the contract price and the damages resulted. The Sundance district court cited Interore I for making the same factual finding. Id. The Second Circuit adhered to the Sundance district court's factual finding. Sundance, 7 F.3d at 1084.

. Although Judge Tenney based this ratio on the pleadings, he acknowledged that the actual damages may be much lower.