International Ore & Fertilizer Corp. v. Sgs Control Services, Inc.

38 F.3d 1279 (2nd Cir. 1994)


Interore (P) contracted to sell phosphate fertilizers to East Coast Fertilizer Company Ltd. on a cost and freight basis for $4,118,287. P chartered the M/V ADELINA to transport the fertilizer from Sweden to Tampa, Florida, and from Tampa to Napier, New Zealand. The agreement with East Coast required P to have an independent hold inspector certify the condition of the holds prior to loading the fertilizer. P contracted with D, as it had several hundred times previously. P paid D $150 for the inspection of the ADELINA's three holds loaded at Tampa. The ADELINA's previous cargo was coal, but the penultimate cargo had been barley. The crew cleaned and painted the holds following the discharge of the coal, but they failed to remove a substantial amount of barley grains trapped in the pockets behind the stringers. D's Swedish affiliate took 45 minutes to inspect during which the inspector descended into the holds and inspected the stringers and the hatch covers from below. The inspector also inquired of the crew as to the vessel's prior cargoes. The inspector certified holds one and four as clean, dry, and suitable for loading. D's subcontractor, Captain Peter Luard, who had four years of experience in hold inspections, performed the Tampa inspection of holds two, three, and five in the early morning hours of July 2, 1985.Between 1:45 a.m. and 2:15 a.m., he spent approximately ten minutes in each hold. He climbed down the aft ladders and walked the floors, inspecting the stringers and overhead deck beams. Luard did not attempt to look behind the stringers. Following his visual inspection, he was informed of the previous cargoes by the crew but did not return to the holds. The ADELINA loaded holds two, three and five with fertilizer and sailed for New Zealand. Upon arrival in New Zealand, it discovered that the fertilizer was contaminated with barley. Discharge was barred unless East Coast notified all buyers of the contamination and took steps to prevent it from being used in barley-growing areas. East Coast refused to do so or to accept the shipment, and the fertilizer remained aboard the ADELINA. Buyers could not be found, and P shipped the fertilizer to Antwerp, Belgium, where it was sold off in small lots. During this process, P incurred damages in costs and lost value of $959,375.44. P brought the present action against D alleging breach of contract, breach of warranty, negligence, and negligent misrepresentation. The district court held that under New York law P could not recover on its contract claim because 'the low contract price and informal dealings between the parties indicates that they did not attempt to allocate all the risks. The district court rejected P's negligence claim because D 'did not have a duty to perform any particular kind of inspection, except as required under the contract,' and, therefore, 'there can be no independent tort liability for failing to take certain steps as part of that inspection.' The district court held that D was liable for negligent misrepresentation for issuing the inaccurate certification of the cleanliness and suitability of the holds, but apportioned half of the liability to P for its failure to inform D that 'the slightest amount of foreign matter could contaminate the cargo' in the eyes of the vigilant New Zealand authorities. The district court then determine that the liability phase of the trial did address the causation issues. D moved for a new trial pursuant to Fed. R. Civ. P. 59 and for amended or supplemental findings of fact pursuant to Fed. R. Civ. P. 52. P opposed both motions and requested sanctions pursuant to Fed. R. Civ. P. 11. The district court granted P's motion based on 'the groundless and repetitive nature of defense counsel's motion.' P got a judgment for $713,666.27 on the negligent misrepresentation. D and its counsel then brought the present appeal.