DESSERT SERVICE

219 F. Supp.2d 504 (2002) | Cited 0 times | S.D. New York | August 14, 2002

MEMORANDUM AND ORDER

Plaintiff Dessert Services, Inc. ("Dessert Services")brings this action against defendant MediterraneanShipping Company, S.A. ("MSC"), claiming damages for ashipment of frozen desserts that thawed duringcarriage. As MSC has previously stipulated toliability, Dessert Services has moved for summaryjudgment against MSC on the issue of damages, arguingboth that (1) damages should be measured by the soundmarket value of the goods at their intended time andplace of arrival; and (2) the applicable pre-judgmentinterest rate is the New York statutory rate of ninepercent. In its cross-motion,1 MSC argues thatdamages should be measured by the replacement value andthat the prejudgment interest rate should be the averageannual T-bill rate. MSC also alleges that plaintifffailed to mitigate its damages and thus, that there is agenuine issue ofmaterial fact that prevents a grant of summary judgmenton this issue. For the reasons set forth below, we findthe proper measure of damages to be the replacementvalue and that the pre-judgment interest rate should bemeasured by the average annual T-bill rate. We furtherfind that there is a genuine issue of material fact indispute as to whether plaintiff mitigated its damages.Accordingly, plaintiffs motion is denied and defendant'scross-motion is granted.

BACKGROUND

Plaintiff is the exclusive United States distributorof "Bindi" Italian frozen desserts. TelephonicDeposition of Michelangelo Pinto held on December 3,2001, ("Pinto Dep.") at 10. These desserts are importedfrom Italy and are distributed by plaintiff in theUnited States to high-end restaurants, hotels, cateringservices, and entertainment centers. Id. at 8. DessertService's headquarters is located in Totowa, NewJersey. Id. at 19. Plaintiff also has a branch office inGardena, California, where the damaged shipment at issuewas received. Deposition of Emelia O'Brien held on June29, 2001, ("O'Brien Dep.") at 7. The Gardena branchoffice has a refrigerated warehouse facility where thefrozen desserts imported from "Bindi" are stored beforethey are sold in the retail market. Pinto Dep. at22-24. By placing periodic orders to Bindi in Italy, theGardena facility maintains a substantial inventory offrozen desserts. Id. at 14. When a shipment of newlyimported frozen desserts arrives, the desserts areplaced in frozen storage for 30 to 60 days before theyare sold to customers. O'Brien Dep. at 13-14.

On July 20, 2000, plaintiffs Gardena branch officereceived a shipment of frozen desserts that had beenshipped from Milano, Italy under defendant's bill oflading. Pinto Dep. at 27. Upon arrival of the shipment,Dessert Services determined that the frozen dessertsinside the shipping container had thawed during carriageand decided to reject the shipment. Id. at 34. Thesegoods were temporarily stored and reviewed by salvageexperts, and then all the desserts were destroyed withthe exception of a cookie item that did not requirerefrigeration. O'Brien Dep. at 20, 25.

One day later, or July 21, 2000, Gardena's branchmanager, Michelangelo Pinto ("Pinto"), ordered a numberof items of replacement frozen desserts from plaintiffsTotowa facility. Pinto Dep. at 48. Plaintiffs Totowafacility was able to immediately fill the entire order.Id. at 49. It took approximately five to seven days fromthe date of order for the replacement frozen desserts tobe transported by truck from plaintiffs Totowa facilityto plaintiffs Gardena facility. Id. at 46. Over the nexttwo to four weeks, plaintiffs Gardena office placedadditional replacement orders with its Totowa office,all of which were able to be completely filled andreceived five to seven days later. Id. at 52-54.Plaintiff was able to fill all of its customers' ordersfor "Bindi" frozen desserts due to the size of theexisting inventory in plaintiffs Gardena facility andthe replacement of frozen desserts provided by itsTotowa facility. Id. at 32.

Defendant admits liability for plaintiffs loss but theparties disagree about the appropriate measure ofdamages. Plaintiff claims a loss of $97,211.00,representing the fair market value as calculated fromplaintiffs Price List at the time of delivery. Defendantclaims that Dessert Services' losses should be limitedto $30,926.29, the product cost of the "Bindi"desserts. Defendant also argues that the salvage valueof $6,056.19 for the frozen desserts should be deductedfrom the $30,926.29. The costs not in dispute are thestorage cost ($915.00), the destruction cost of thedesserts ($1,150.00), the survey fees ($1,227.50), andthe cross-countrytrucking fees incurred by shipping the frozen dessertsfrom the Totowa, N.J. office to the Gardena, CA office.2Defendant also concedes liability for the freight costof $5,370.00 and the customs duties of $1,033.33. Thus,in sum, plaintiff claims a total loss of $100,503.503while defendant claims the loss should be limited to$40,622.124 less the salvage value.

DISCUSSION

A. Summary Judgment Standard

A reviewing court may enter summary judgment wherethere are no genuine issues as to any material fact andthe moving party is entitled to judgment as a matter oflaw. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett,477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265(1986). The evidence presented must be viewed in thelight most favorable to the non-moving party such thatall ambiguities and inferences drawn from the underlyingfacts must be resolved in favor of the non-movingparty. Celotex, 477 U.S. at 324, 106 S.Ct. 2548; Bay v.Times Mirror Magazine, Inc., 936 F.2d 112, 116 (2d Cir.1991). The moving party bears the burden of showing thatno genuine factual dispute exists. Celotex 477 U.S. at325, 106 S.Ct. 2548. Once the moving party satisfiesthis burden, the burden shifts to the non-moving party,who must go beyond its pleadings and designate specificfacts by use of affidavits, depositions, admissions, oranswers to interrogatories showing that there is agenuine issue for trial. Celotex, 477 U.S. at 324, 106S.Ct. 2548.

B. Standard for Measuring "Actual Loss"

The traditional measure of "actual loss" is thedifference between the fair market value of the goods atthe port of destination in their condition as shipped,and their value as damaged. Chicago, M. & St. PaulRy. Co. v. McCaull-Dinsomre Co., 253 U.S. 97, 100, 40S.Ct. 504, 64 LEd. 801 (1920). The theory behind thisgeneral rule is that typically, to award onlyreplacement costs would "deprive a [plaintiff] ofexpected profit which he is on the verge of earning anddo[es] not compensate him for what he would have had ifthe contract had been performed." Polaroid Corp. v.Schuster's Express. Inc., 484 F.2d 349, 351 (1st Cir.1973).

There is, however, an exception to this general rulewhereby the replacement cost is deemed to be theappropriate measure of damages. Illinois Cent. R.R. Co.v. Crail, 281 U.S. 57, 64, 50 S.Ct. 180, 74 L.Ed. 699(1930). "The test of market value is at best but aconvenient means of getting at the loss suffered. It maybe discarded and other more accurate means restored toif, for special reasons, it is not exact or otherwisenot applicable." Crail, 281 U.S. at 64-65, 50 S.Ct.180. In cases such as this, "[t]he burden of proof is onthe carrier [] to show that "special reasons' exist suchthat application of the marketvalue rule will not result in a just measure of actualdamages." Philips Consumer Elecs. Co. v. Arrow CarrierCorp., 785 F. Supp. 436, 441 (S.D.N.Y. 1992); see alsoEastman Kodak Co. v. Westway Motor Freight, Inc.,949 F.2d 317, 319 (10th Cir. 1991) (same). Courts havefound that "special reasons" rendering the market valuerule inapplicable exist when the shipper can replace theshipment at cost and suffers no loss of profit.Philips, 785 F. Supp. at 441. The rationale is that theshipper has received the profit and thus should not beaccorded more than full compensation for the loss itsustained. Id.5

We find that MSC has met its burden of showing thatspecial reasons exist that render the market ruleinapplicable. Id. Defendant has shown that plaintiffreplaced the shipment by substituting frozen dessertsfrom the Totowa office and using its large existinginventory in the Gardena office. The Gardena office didnot lose any sales and was able to fill all of itscustomers' orders for the frozen desserts. Further, asPinto explained at his deposition, Dessert Services wasable to restock its warehouses by ordering additionaldesserts in its next order from Bindi, and lost nosubsequent sales. Plaintiff is not entitled to damagesbased on the market value because to award market valuedamages would result in a recovery greater than theactual loss suffered. Id. Rather, the appropriatemeasure is the replacement cost, which will placeplaintiff in the same position as if the goods had notbeen damaged. Crail, 281 U.S. at 64, 50 S.Ct. 180.Accordingly, plaintiffs motion for summary judgment onthe issue of damages is denied and defendant'scross-motion is granted.

C. Mitigation of Damages

Although the parties agree that the issue of howdamages should be measured is ripe for summaryjudgment,6 defendant argues that the question ofmitigation raises a triable question of material fact.Dessert Services takes the position that the dessertswere not salvageable. Since plaintiff did not retain asalvage expert, it bases this position on Pinto'sinspection of the desserts and determination that simplyre-freezing the thawed desserts containing ingredientssuch as dairy products and sugar would not have restoredthe flavor, texture or wholesomeness to the desserts.See Pinto Dep. at 34, 59-60. Dessert Services alsoclaims that it did not attempt to sell the frozendesserts in the secondary market because the brand name"Bindi" appeared on all of the packaging, and plaintiffwanted to avoid tarnishing the "Bindi" brand'sreputation with an appearance in the secondary market.See id. at 41.

Defendant's position is that the frozen desserts couldhave been salvaged and sold on the secondary market. Twomarine surveyors, Captain Arun Jolly of Techno MarineServices on behalf of MSC and Vladek Marcinkowski onbehalf of Dessert Services' cargo insurers, bothinspected the shipment of frozen desserts and believedthat the thawed desserts were wholesome and had asalvage value. See Declaration of Kirk M.H. Lyons datedMarch 8, 2002, ("Lyons Decl.") Exs. O and P. MSC alsoretained an experienced cargosalvor, Thomas Adams ("Adams"), President of Nadell& Co., who reviewed this matter and concluded thatthere was likely a secondary market for the frozendesserts with a salvage value of about 20% based on thewholesale value of the goods. Declaration of ThomasAdams dated March 7, 2002, at ¶ 3. Adams also madethe recommendation that plaintiffs concern withprotecting the "Bindi" brand name could be addressed by asalvor's agreement that the damaged goods would be soldwithout the "Bindi" packaging. Id. ¶ 4.

While the cargo owner has a duty to mitigate damages,the burden to show failure to mitigate rests on thecarrier. Ingersoll Milling Mach. Co. v. M/V Bodena,829 F.2d 293, 308 n. 9 (2d Cir. 1987); C. Itoh &Co. (Am.), Inc., v. Hellenic Lines, Ltd., 470 F. Supp. 594,599 & n. 19 (S.D.N.Y. 1979) (collecting cases).Viewing the facts in a light most favorable todefendant, the non-moving party, we find that genuineissues of material fact exist as to whether there wasany salvage value for the desserts. See Celotex, 477U.S. at 324, 106 S.Ct. 2548. Dessert Services reliesonly on the opinion of Gardena's branch manager Pinto inarguing that the desserts had no salvage value. Inopposition, MSC draws on the conclusions of multiplesalvage experts that there existed a salvage value. MSChas put forth sufficient evidence that the frozendesserts as damaged had some salvage value to defeatDessert Services's motion. Therefore, plaintiffs motionfor summary judgment on this point is denied.

D. Prejudgment Interest

It is a well-established rule that "`[a]llowance ofprejudgment interest in admiralty [actions] . . . shouldbe granted in the absence of exceptionalcircumstances.'" Mentor Ins. Co. (U.K.) Ltd. v.Brannkasse, 996 F.2d 506, 520 (2d Cir. 1993) (quotingMitsui & Co. v. Am. Exp. Lines, Inc., 636 F.2d 807,823 (2d Cir. 1981)) (alterations in original). The rateof pre-judgment interest is within the broad discretionof the district court. Transatlantic Marine ClaimsAgency Inc. v. M/V "OOCL INSPIRATION", 137 F.3d 94, 104(2d Cir. 1998); Mentor, 996 F.2d at 520. In determiningthe applicable rate of interest, this Circuit has heldthat "`[a] plaintiff is entitled to the income which themonetary damages would have earned, and that should bemeasured by interest on short-term, risk-freeobligations.'" Transatlantic, 137 F.3d at 104 (quotingIngersoll, 829 F.2d at 311).

Plaintiff claims that the pre-judgment interest rateshould be measured by the New York nine percentstatutory rate. N.Y. C.P.L.R. §§ 5001, 5004. Wefind, however, that the pre-judgment interest rateproposed by defendant, based on the average annual T-billrate, would be more appropriate. The T-bill rate moreclosely parallels the income the damages would haveearned in a short-term, risk-free investment. SeeTransatlantic, 137 F.3d at 104. Further, as I have notedin the past, while "some courts have adopted stateinterest rates in federal question cases, it seems to usmore appropriate to use a constant federal rate ratherthan for the outcome to vary depending on where thefederal court happens to sit." Merchant v. Lymon, 1995WL 217508, at *7 (S.D.N.Y. Apr. 11, 1995). Accordingly,the pre-judgment interest rate applicable to this actionis the average annual T-bill rate.

CONCLUSION

For the foregoing reasons, plaintiffs motion forsummary judgment is denied and defendant's cross-motionis granted.

IT IS SO ORDERED.

1. While MSC titled it memorandum in connection withthis motion as a "Memorandum of Law in Opposition toPlaintiff's Motion for Summary Judgment," we believeMSC's intent was to cross-move, given its expressposition that "there are no genuine issues of materialfact [with respect to the question of the applicabledamages standard] and the issue is ripe for summarydetermination by the Court." Def.'s Opp. Mem. at2.

2. Although liability for this expense is not indispute, Dessert Services has not documented the exactamount of this expense.

3. Fair market value $97,211.00

Storage cost $915.00

Disposal $1,150.00

Survey fees $1,227.50

Total $100,503.50

4. Product cost $30,926.29 *

Storage cost $915.00

Disposal $1,150.00

Survey fees $1,227.50

Freight $5,370.00

Customs duties $1,033.33

Total $40,622.12

* The cost of the entire shipment was $32,750.55. Onetype of item in the container (dry cookies) was notdamaged. The product cost figure was obtained bysubtracting the price of the dry cookies from the costof the entire shipment.

5. Defendant misreads the relevant law in relying oncases where the goods are stolen, as opposed todestroyed. In cases where goods are stolen, theexception is not applicable and the fair market value isawarded because the stolen goods "compete with themanufacturer and therefore, no true replacement ispossiable." Philips, 785 F. Supp. at 441 (quotingPolaroid, 484 F.2d at 351). In the instant case, becausethe frozen desserts were not stolen but ratherdestroyed, market competition did not occur.

6. See note 1, supra.

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