Court Opinion

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Opinions of the United
1999 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

6-16-1999

Arnold M Diamond Inc v. Gulf Coast Trailing
Precedential or Non-Precedential:

Docket 97-5634

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Recommended Citation
"Arnold M Diamond Inc v. Gulf Coast Trailing" (1999). 1999 Decisions. Paper 155.
http://digitalcommons.law.villanova.edu/thirdcircuit_1999/155

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Filed June 16, 1999

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 97-5634

ARNOLD M. DIAMOND, INC.,
Appellant

v.

GULF COAST TRAILING CO., a Partnership; GULF COAST
TRAILING COMPANY, INC.; DREDGE OUACHITA,
Her Engines, Boilers, Etc.; DREDGE MERMENTAU, Her
Engines, Boilers, Etc.

GULF COAST TRAILING CO.
Defendant/Third-Party Plaintiff

v.

TWIN CITY SHIPYARD; COLLINS ELECTRICAL, INC.;
THE REXROTH CORPORATION, INC.
Third-Party Defendants

ON APPEAL FROM THE
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

(D.C. Nos. 87-cv-04914 & 88-cv-01219)
(District Judge: Honorable Garrett E. Brown, Jr.)

Argued: January 13, 1999

Before: NYGAARD, ALITO, and LEWIS, Circuit Judges

(Opinion Filed: June 16, 1999)
       DOUGLAS L. PATIN (ARGUED)
       ANDREW BRAMNICK
       SPRIGGS & HOLLINGSWORTH
       1350 I Street, N.W., Ninth Floor
       Washington, D.C. 20005

       Counsel for Appellant

       PETER A. JUNGE (ARGUED)
       CAROL N. LAMBOS
       LAMBOS & JUNGE
       29 Broadway, Ninth Floor
       New York, New York 10006-3101

       Counsel for Appellees
       Gulf Coast Trailing Co. and
       Gulf Coast Trailing Company, Inc.

       JEFFREY S. CLARK
       TOMLIN, CLARK, HOPKIN &
        MONTEMURRO
       20 East Redman Avenue
       Haddonfield, New Jersey 08033

       Counsel for Appellee
       Twin City Shipyard

       JOHN W. MORRIS
       McELROY, DEUTSCH & MULVANEY
       1300 Mount Kemble Avenue
       Morristown, NJ 07962

       Counsel for Appellee
       Collins Electrical, Inc.

OPINION OF THE COURT

ALITO, Circuit Judge:

I.

Arnold M. Diamond, Inc. ("Diamond") appeals the District
Court's grant of summary judgment in favor of Gulf Coast
Trailing Co. ("Gulf Coast"), Twin City Shipyard, and Collins

                                  2
Electrical, Inc. ("Collins"). The District Court held, among
other things, that the United States Navy did not assign to
Diamond its right to sue Gulf Coast for damages arising
from allisions1 between Gulf Coast ships and a Navy-owned
pier. We disagree and reverse the District Court's grant of
summary judgment on this basis.

II.

Diamond, a privately-owned construction company,
entered into a contract with the United States Navy to make
improvements to Pier No. 2 ("the pier") at the Earle Naval
Weapons Station in Colts Neck, New Jersey. The contract
provided that Diamond would, among other things, install
new rubber bumpers and construct new mooring platforms
to extend the length of the pier. It also provided that the
Navy would make at least monthly progress payments to
Diamond and that all work covered by such payments
would become the "sole property" of the Navy. See JA at
605-606. These payments, however, did not relieve
Diamond from repairing work damaged prior to final
completion and acceptance by the Navy. See JA at 601,
606.

Gulf Coast, pursuant to a contract with the United States
Army Corps of Engineers, conducted dredging operations
around the pier. On March 16, 1986, two dredging ships
that were owned and operated by Gulf Coast allided with
the pier, causing damage to the bumpers and the mooring
platforms. One of the dredges, the Ouachita, was built by
Twin City Shipyard, which had employed Collins as a
subcontractor for the wiring of the ship's clutch system.

Following the allisions, the Navy required Diamond,
under threat of terminating the contract for default, to
repair the damage caused by the allisions, see JA at 608-
10, even though the Navy acknowledged that Gulf Coast
had caused the damage to the pier, see JA at 607-08, 614-
15, and that Diamond was the appropriate claimant in tort
_________________________________________________________________

1. This Court has defined an allision as a collision "between a ship and
a stationary object." See AT&T v. M/V Cape Fear, 967 F.2d 864, 873 (3d
Cir. 1992).

                               3
against Gulf Coast. See JA at 611, 616. Indeed, the Navy
communicated its position to Gulf Coast via
correspondence, dated October 28, 1986. See JA at 611.
Gulf Coast -- presumably in anticipation of Diamond's
potential lawsuit -- commenced an action for indemnity or
contribution against Twin City Shipyard and Collins.

Diamond subsequently sued Gulf Coast in the United
States District Court for the District of New Jersey for
damages it allegedly sustained as a result of the two
allisions. The damages alleged included the costs paid by
Diamond to repair its work in progress and the costs
associated with the delay in the overall completion of the
remaining portions of the project. See JA at 599. Gulf
Coast's indemnity or contribution action was then
consolidated with Diamond's lawsuit.

In a separate action, Diamond took an appeal to the
Armed Services Board of Contract Appeals ("ASBCA")
regarding the Navy's denial of its contract claim for
additional compensation to cover its repair work. See JA at
614. Before the ASBCA made its decision, however,
Diamond and the Navy reached a settlement agreement.
That settlement agreement contained the following
assignment clause:

       The Navy has and still contends that Diamond is the
       appropriate claimant against [Gulf Coast] for all work
       performed by Diamond which was damaged by [Gulf
       Coast's] operations. To the extent [Gulf Coast] claims
       that the Navy is the party to whom it must make
       payment for damages caused to Diamond, the Navy
       assigns to Diamond any rights to payment against
       [Gulf Coast] the Navy had or has for any Diamond
       costs or damages resulting from the damage caused to
       Diamond's work in process [sic] by [Gulf Coast's]
       dredges.

JA at 616.

In the District Court action, Gulf Coast, Twin City
Shipyard, and Collins filed motions for summary judgment,
contending that the rule announced by the Supreme Court
in Robins Dry Dock & Repair Co. v. Flint, 275 U.S. 303
(1927), precluded Diamond from recovering damages from

                                4
Gulf Coast. The District Court held that the Robins Dry
Dock rule applied to the facts of this case and granted
summary judgment in favor of the defendants. In reaching
its decision, the Court held that the assignment clause in
the settlement agreement between Diamond and the Navy
did not transfer to Diamond the Navy's right to sue Gulf
Coast for damages caused by the allisions. See Arnold M.
Diamond, Inc. v. Gulf Coast Trailing Co., 979 F. Supp. 301,
306 n.9 (D.N.J. 1997). The Court reached this conclusion
for two reasons. First, the Court reasoned that because "the
Navy ha[d] no right of recovery for Diamond's alleged
contractual and economic loss, the Navy could not have
assigned a right to Diamond that it d[id] not have." Arnold
M. Diamond, 979 F. Supp. at 306 n.9. Second, the Court
concluded that "Diamond [could] not circumvent the Robins
Dry Dock doctrine" simply because "the Navy designated it
as the appropriate claimant against Gulf Coast[.]" Id.
Diamond then took this appeal.

III.

On appeal, Diamond argues, among other things, that
the District Court erred in granting summary judgment in
favor of Gulf Coast on the assignment clause issue. We
review an order granting summary judgment de novo, and
we evaluate the evidence in the light most favorable to the
nonmoving party. Antol v. Perry, 82 F.3d 1291, 1294-95 (3d
Cir. 1996). When the meaning of contract language is at
issue, we affirm a grant of summary judgment only if the
contract language is unambiguous and the moving party is
entitled to judgment as a matter of law. See, e.g., Newport
Assocs. Dev. Co. v. Travelers Indem. Co., 162 F.3d 789, 791
(3d Cir. 1998); Tamarind Resort Assocs. v. Government of
Virgin Islands, 138 F.3d 107, 111 (3d Cir. 1998). Whether
a contract is ambiguous is a legal question subject to
plenary review. Newport Assocs., 162 F.3d at 792;
Sumitomo Mach. Corp. v. AlliedSignal, Inc., 81 F.3d 328,
332 (3d Cir. 1996). To affirm a grant of summary judgment
on an issue of contract interpretation, we must conclude
that the contractual language is subject to only one
reasonable interpretation. Tamarind Resort, 138 F.3d at
110-11; Sumitomo Mach., 81 F.3d at 332; Pennbarr Corp. v.

                               5
Insurance Co. of N. Am., 976 F.2d 145, 149 (3d Cir. 1992).
The question on appeal, therefore, is whether Diamond has
provided a reasonable alternative reading of the contract
under which the defendants would not be entitled to
judgment as a matter of law.

Diamond contends that "the Navy assigned to Diamond
`any rights to payment against [Gulf Coast] the Navy had or
has for any Diamond costs or damages resulting from the
damage caused to Diamond's work in process [sic] by [Gulf
Coast's] dredges.' " Appellant's Br. at 20 (quoting JA 616).
Diamond argues that the "assignment entitled Diamond to
assert the Navy's rights, as `owner' of the damaged
property, to recover the repair costs and other damages."
Id. Applying general principles of contract interpretation,2
we hold that Diamond's interpretation is, at a minimum, a
reasonable alternative to that accepted by the District
Court and that therefore the Court erred in granting
summary judgment for Gulf Coast.
_________________________________________________________________

2. Neither the District Court nor the parties addressed the issue of the
body of law to apply in interpreting the assignment clause of the
settlement agreement. That agreement itself does not contain a choice-of-
law provision, and the record does not include a complete version of the
construction contract between the Navy and Diamond, and thus we are
unable to determine with certainty whether that contract possesses a
choice-of-law clause.

The Supreme Court has held that "[i]t is customary, where Congress
has not adopted a different standard, to apply to the construction of
government contracts the principles of general contract law." Priebe &
Sons, Inc. v. United States, 332 U.S. 407, 411 (1947) (citing United
States
v. Standard Rice Co., 323 U.S. 106, 111 (1944)). See also Boyle v. United
Techs. Corp., 487 U.S. 500, 504-05 (1988) ("We have held that
obligations to and rights of the United States under its contracts are
governed exclusively by federal law."); United States v. Allegheny County,
Pa., 322 U.S. 174, 183 (1944) ("The validity and construction of
contracts through which the United States is exercising its constitutional
functions, their consequences on the rights and obligations of the
parties, the titles or liens which they create or permit, all present
questions of federal law not controlled by the law of any state.").
Because
the parties in this appeal have not argued that Congress has adopted a
different standard for contracts between the Navy and independent
contractors, we will apply "principles of general contract law."

                                6
Under general principles of contract law, "the purpose of
interpretation is to become aware of the `intention of the
parties.' " 3 Arthur L. Corbin, Corbin on Contracts, S 538, at
55 (1960). "[A]n interpretation which gives a reasonable,
lawful, and effective meaning to all the terms is preferred to
an interpretation which leaves a part unreasonable,
unlawful, or of no effect." Restatement (Second) of Contracts
S 203 (1981). When interpreting a contract, a court may
consider extrinsic evidence of surrounding circumstances to
ascertain the intended meaning of the parties. Corbin,
supra, SS 542, at 100-04, 579, at 414-25; Restatement
(Second) of Contracts S 214 cmt. b.

In this case, the District Court rejected Diamond's
interpretation of the assignment clause because the Court
read this clause as an attempt by the parties to assign a
"right of recovery for Diamond's alleged contractual and
economic loss," which, as the District Court also noted, is
not a right that the Navy possessed. In effect, the District
Court's interpretation rendered the assignment clause a
nullity. We hold, however, that the assignment clause may
reasonably be interpreted as assigning to Diamond the
Navy's right to payment against Gulf Coast. This right to
payment includes damages caused by Gulf Coast's dredges
to Diamond's work in progress. The Navy, as the owner of
Diamond's work in progress,3 had the right to sue Gulf
Coast for damages arising from the allisions between Gulf
Coast's ships and the pier. Thus, this interpretation does
not assign a right to recovery to Diamond that the Navy did
not possess and, unlike the District Court's interpretation,
does not render the clause "unreasonable" or"of no effect."
Furthermore, in light of the language in the assignment
clause indicating that the Navy believed that Diamond was
the appropriate claimant against Gulf Coast,4 as well as
extrinsic evidence to that effect,5 this interpretation takes
account of the "intention of the parties."
_________________________________________________________________

3. Neither Diamond nor the appellees dispute that the Navy owned the
damaged improvements to the pier. See Appellant's Br. at 11-12; Gulf
Coast's Br. at 30; Twin City Shipyard's Br. at 7; Collins's Br. at 7.
4. "The Navy has and still contends that Diamond is the appropriate
claimant against [Gulf Coast] for all work performed by Diamond which
was damaged by [Gulf Coast's] operations." JA 616.
5. See JA 611 (correspondence from the Navy to counsel for Gulf Coast,
dated October 28, 1986) ("Diamond is the appropriate claimant against

                               7
Gulf Coast argues that the assignment clause "has no
relevance to this dispute." Gulf Coast's Br. at 17. As noted,
the assignment clause provides in pertinent part:"To the
extent [Gulf Coast] claims that the Navy is the party to
whom it must make payment for damages caused to
Diamond, the Navy assigns to Diamond any rights to
payment against [Gulf Coast] . . . ." JA 616. Relying on this
language, Gulf Coast argues that the assignment clause
was ineffective because Gulf Coast "is not claiming that the
Navy is the party to whom it must make payment for
damages allegedly suffered by [Diamond.]" Gulf Coast's Br.
at 17. See also Twin City Shipyard's Br. at 14-15. We are
not persuaded that the grant of summary judgment for the
defendants can be sustained on this ground.

The settlement agreement states that both the Navy and
Diamond were aware of Diamond's lawsuit against Gulf
Coast, see JA at 614-15, and, as already noted, that the
Navy believed that Diamond was the appropriate claimant
against Gulf Coast. See JA at 616. When the contract is
interpreted in its entirety, together with the attendant
circumstances of the parties, the language at issue may
reasonably be interpreted to mean that the Navy assigned
to Diamond its right to recovery for damages to the extent
that Gulf Coast claimed that the Navy, as opposed to
Diamond, was the appropriate claimant. Although Gulf
Coast contends that it never claimed that the Navy was the
party to whom it must make payment for damages arising
from the allisions, its contention is belied by its argument
that Robins Dry Dock precludes Diamond from recovering
damages against it in tort. In making this argument, Gulf
Coast maintained that the Navy was the owner of
Diamond's work in progress. See id. at 30-31; see also Twin
City Shipyard's Br. at 7; Collins's Br. at 11. It is undisputed
that the Navy, as the owner of the damaged pier, had a
right to sue in tort for injury to its property and thus was
_________________________________________________________________

Gulf Coast for all work performed by Diamond which was damaged by
Gulf Coast's operations."); JA 607 (correspondence from the Navy to
Diamond, dated May 15, 1986) ("The issue of the damage to your work
and the subsequent delay is a matter between you and Gulf Coast
Trailing Company.").

                               8
an appropriate claimant against Gulf Coast. See Getty Ref.
& Mktg. Co. v. MT Fadi B, 766 F.2d 829, 833 (3d Cir. 1985)
(observing that the Robins Dry Dock doctrine would not bar
a plaintiff from recovering for "negligence that results in
physical harm to his person or land or chattels" because
"the physical injury forms the basis of a tort independent of
any contractual interests and recovery is subject to the
usual rules governing liability and negligence"). Thus, Gulf
Coast cannot now maintain that it never claimed that the
Navy is the party to whom it must make payment for the
damage its dredges inflicted upon Diamond's work in
progress.

We now turn to the District Court's second reason for
rejecting Diamond's argument that the Navy assigned to
Diamond its right to sue Gulf Coast for the damaged pier,
viz., the Navy's designation of Diamond as the appropriate
claimant against Gulf Coast does not permit Diamond to
circumvent the Robins Dry Dock doctrine. This Court has
summarized the rule announced by the Supreme Court in
Robins Dry Dock as follows: "[W]here the negligence does
not result in physical harm, thereby providing no basis for
an independent tort, and the plaintiff suffers only pecuniary
loss, he may not recover for the loss of the financial
benefits of a contract or prospective trade." Getty Ref., 766
F.2d at 833. In Robins Dry Dock, time charterers of a
steamship sued for lost profits when the dock, which was
performing maintenance on the ship, damaged the ship's
propeller and caused the ship to be out of service for an
additional two weeks. 275 U.S. at 307. Under the terms of
the charter, the ship was to dock every six months, during
which time the charterers' payments were suspended until
the ship's servicing was completed. Id. The Court held that
the charterers had no proprietary interest in the ship and
that the charterers' loss was due solely to the lost benefit
of the contract with the owners of the ship. Id . at 308-09.
To the extent the charterers had any legally protected
interest in the ship against unintended injuries, the Court
held that "it must be worked out through their contract
relations with the owners." Id. at 308.

In this case, the Navy and Diamond may have reached an
agreement to assign the Navy's rights as owner of the pier

                                9
to Diamond for the purpose of recovering damages for the
physical injury caused by Gulf Coast's dredges. If they did,
Diamond did not -- as the District Court suggested--
attempt to "circumvent the Robins Dry Dock doctrine" by
enforcing the assignment clause. Rather, in accordance
with Robins Dry Dock, Diamond sought to protect its right
of recovery through its contractual relations with the owner
of the pier. We thus hold that summary judgment should
not have been granted in favor of the defendants on the
assignment clause issue.6 Since Diamond did not move for
summary judgment, we do not reach the question whether
Diamond would have been entitled to summary judgment.

As a final point, we note that the rights of an assignee
can rise no higher than those of the assignor. See Corbin,
supra, S 861, at 421-23; 3 Williston on Contracts, S 404, at
5 (3d ed. Jaeger ed. 1960). As applied to the instant appeal,
this means that Diamond is foreclosed from recovering
damages for economic losses related to the delay in the
overall completion of the project. Instead, Diamond may
recover only those damages to which the Navy was entitled,
i.e., repair costs.

IV.

For the foregoing reasons, we reverse the District Court's
grant of summary judgment in favor of the defendants and
remand this case for further proceedings consistent with
this opinion.
_________________________________________________________________

6. We reject Diamond's alternative argument that Robins Dry Dock was
not applicable because Diamond allegedly possessed a proprietary
interest in the pier. Furthermore, we do not reach Diamond's equitable
subrogation argument, which relies on Amoco Transport Co. v. S/S
Mason Lykes, 768 F.2d 659, 668-69 (5th Cir. 1985). Diamond did not
raise this argument below, nor did the District Court address it in its
opinion. Although Diamond claims that it made this argument in its
brief opposing Gulf Coast's motion for summary judgment, see
Appellant's Br. at 2, our review of that brief convinces us that this
argument was not fairly raised. Accordingly, we hold that Diamond has
waived its equitable subrogation argument on appeal. See United States
v. Anthony Dell'Aquilla, Enters. & Subsidiaries, 150 F.3d 329, 334-35 (3d
Cir. 1998).

                               10
A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

                               11