SALLY SHUSHAN, United States Magistrate Judge.
The parties consented to proceed before the assigned Magistrate Judge. Rec. doc. 30. There are three pending motions: (1) the motion of the defendants, Empty Barge Lines, Inc. ("EBL"), Higman Barge Lines, Inc. ("HBL") and Higman Marine Services, Inc. ("Higman Marine"), for partial summary judgment (Rec. doc. 57); (2) the motion of HBL and Higman Marine for partial summary judgment (Rec. doc. 58); and (3) the motion of EBL, HBL and Higman Marine to exclude testimony of Timothy Legendre, CPA (Rec. doc. 64). These motions were briefed. This order and reasons is dispositive of the two motions for partial summary judgment. The pretrial conference is set for May 30, 2013 and trial is set for June 19, 2013. Rec. doc. 74.
The plaintiff, Orgeron Brothers Towing, LLC ("Orgeron"), filed an amended complaint which replaced and superseded its original complaint. Rec. doc. 9. The statement of facts found in paragraphs 5-10 and 12-19 of the amended complaint are undisputed.
In the first motion, the defendants seek summary judgment: (1) as to the alleged breach of contract for the alleged failure of defendants to use their "best efforts" to renew the Charter Agreement; (2) for claims for damages after November 29, 2010; and (3) for the claim for unjust enrichment. In the second motion, HBL and Higman Marine contend that there is no privity of contract between themselves and Orgeron.
The defendants contend that, because the contracts are silent as to what constitutes the parties' best efforts, the provision is unenforceable as a matter of law.
On July 3, 2007, George Thomas executed on behalf of Maryland Marine, Inc. (hereafter "HBL" unless otherwise noted)
Orgeron agreed to hire the Vessel commencing on July 1, 2007 for a period of 8 years.
Rec. doc. 9 (Exhibit A at 1).
The parties agreed that HBL retained no possession or control over the Vessel during the period of the Purchase Agreement, "except as provided under the terms of that certain Fully Found Charter Agreement between Orgeron Brothers
Orgeron acknowledged that it had the right to inspect the vessel before acceptance and agreed to rely solely on the inspection with respect to the condition of the Vessel. Id. Orgeron agreed to pay HBL $425.00 per day. The Purchase Agreement is governed by the general maritime law. Id. at 8. While HBL had the right to assign to it, Orgeron could not assign it without HBL's permission. Id.
The Charter Agreement was executed on behalf of Orgeron as owner and HBL as charterer. Thus, the positions (owner and charterer) of the parties in the Charter Agreement are the reverse of their positions in the Purchase Agreement. Orgeron agreed to furnish the Vessel to HBL at a rate of $3,000.00 per day. The Charter Agreement "shall remain in effect for a period of two (2) years." Rec. doc. 9 (Exhibit B at 1).
Id. (emphasis added).
There are three addenda to the Charter Agreement. In the first, the parties agreed to extend the contract for 1 year to July 31, 2010 and, effective July 1, 2008, increase the daily rate from $3,000.00 to $3,100.00. Rec. doc. 9 (Exhibit C). The second addendum concerned HBL's sale of its interest in the Purchase Agreement to EBL. Rec. doc. 9 (Exhibit D). HBL and Orgeron agreed that the net charter hire payable from HBL to Orgeron would be $2,675.00 ($3,100.00 minus $425.00) per day. The third addendum, effective August 1, 2008, increased the net charter rate to $2,825.00. Rec. doc. 9 (Exhibit E).
On March 31, 2010, HBL notified Orgeron that the Charter Agreement was terminated effective April 30, 2010. Rec. doc. 9 (Exhibit F).
Fitch Marine Transport, LLC v. American Commercial Lines, LLC, 2010 WL 5057516 (E.D.La.) (Lemmon, J.), states:
2010 WL 5057516 at *2.
Orgeron alleges that HBL breached the contract by failing to use its best efforts to renew the Charter Agreement until June 30, 2015. Orgeron claims breach of contract and damages. HBL contends that because the contracts are silent as to what constitutes the parties' best efforts, the best efforts provision is unenforceable as a matter of law. See Kevin M. Ehringer Enterprises, Inc. v. McData Services Corp., 646 F.3d 321 (5th Cir.2011)(applying Texas law in a diversity case).
Orgeron responds that while Ehringer states the rule for Texas, it does not state the rule under the federal common law or the majority rule for the states. It argues that Ashokan Water Servs., Inc. v. New Start, LLC, 11 Misc.3d 686, 807 N.Y.S.2d 550 (Civil Court, City of N.Y.2006), provides the rule which should be applied in this case: "[a] best efforts requirement must be reconciled with other clauses in the contract to the extent possible, not used as a basis for negating them." Id. at 692, 807 N.Y.S.2d 550. Orgeron contends that courts will supply or imply the necessary guidelines if they can be gleaned from the contract or the circumstances of the parties.
The parties have not cited a federal common law case concerning a best efforts provision.
In Ehringer, the Fifth Circuit stated:
646 F.3d at 326 (citations, quotation marks and brackets omitted).
Orgeron concedes that the Charter Agreement does not provide explicit guidelines or objective criteria to measure best efforts. If Ehringer provides the applicable rule of interpretation, Orgeron has no claim for breach of contract for HBL's failure to use its best efforts to renew the Charter Agreement. In Ehringer, the
"[T]o the extent that it is not inconsistent with admiralty principles, state contract law may be applicable to maritime contracts." Fitch, 2010 WL 5057516 at *2 (citing In re Tasch, Inc., 46 Fed.Appx. 731 (5th Cir.2002)). The Court is persuaded that the Fifth Circuit would apply Ehringer to the interpretation of the "best efforts" clause in the Charter Agreement. Accordingly, Orgeron has no claim against HBL for breach of the Charter Agreement for failure to use its best efforts to renew the Charter Agreement. The defendants' motion for summary judgment is granted as to count two of Orgeron's complaint.
Assuming arguendo that the Ashokan rule is applicable, what are the guidelines or objective criteria to be employed to determine whether HBL was using its "best efforts" to renew the Charter Agreement? Orgeron contends that: (1) HBL was required to offer and Orgeron was required to accept renewal based on the prevailing rates for similar sized and powered inland tugs; (2) the Vessel is a fairly common type; and (3) the day rates for such a vessel are readily ascertainable. Orgeron's criteria would have required renewal of the Charter Agreement at the then prevailing rate for similar vessels.
Orgeron argues that if the parties were not required to renew the Charter Agreement on such terms, the purchase option provisions in the Purchase Agreement are rendered meaningless. The Purchase Agreement contained purchase option dates at two year intervals. Orgeron was required to give HBL written notice 90 days prior to any option date of its intent to purchase the vessel. Rec. doc. 9 (Exhibit A at 1). The Purchase Agreement permitted either party to cancel the Purchase Agreement by written notice provided 90 days prior to any purchase option date. Orgeron urges that the purpose of this provision was to provide it with 90 days to line up alternative financing to purchase the vessel in the event HBL decided to cancel the Purchase Agreement.
Orgeron's argument is deficient in three respects. First, best efforts clauses are generally not enforced where the parties only agree to negotiate. In Pinnacle Books, Inc. v. Harlequin Enterprises Limited, 519 F.Supp. 118 (S.D.N.Y.), the Court stated:
519 F.Supp. at 121-22 (emphasis added and citations and footnotes omitted).
Second, the entirety of the purchase option provisions were not rendered meaningless if the parties were not required to renew the Charter Agreement based on Orgeron's criteria. The first purchase option date was unaffected by the failure to renew. Orgeron possessed the right to purchase the Vessel on July 1, 2009 for $725,650.00. It chose not to exercise this option.
Third, Orgeron's argument is inconsistent with another provision of the Purchase Agreement:
Rec. doc. 9 (Exhibit A at 1). This provision provides two additional conditions under which the Purchase Agreement can be canceled: (1) the vessel is no longer available to HBL under the Charter Agreement; or (2) the Charter Agreement is not renewed. Without the clause pertaining to the unavailability of the vessel, the provision reads as follows:
Not only did the Purchase Agreement plainly contemplate the possibility that the Charter Agreement might not be renewed, it provided that a decision not to renew could be made for any reason whatsoever. This provision is inconsistent with Orgeron's contention that the parties were required to renew the Charter Agreement at the prevailing rate for the vessel.
Even if the Ashokan rule applies, the best efforts requirements in the Charter Agreement cannot be interpreted with the objective criteria sought by Orgeron and be reconciled with the other provision in the Purchase Agreement.
The undisputed facts are:
The defendants contend that by voluntarily relinquishing possession upon presentation
In Fitch Marine, the plaintiffs entered into four pairs of Purchase Agreements and Charter Agreements for four vessels with American Commercial Lines ("ACL").
On the plaintiffs' motion for summary judgment, the District Judge found that the termination of the contracts for the Philpott, the Dobard and the Touchette was not procedurally proper. After the trial, the District Judge found that: (1) the McKinney ran aground on October 12, 2008; (2) the grounding triggered ACL's right to immediately terminate the McKinney contracts; and (3) ACL's termination of the McKinney contracts was proper.
The District Judge found that the plaintiffs waived their rights to bring lost profits claims for the improper termination of the contracts for the other three vessels. The decision identifies five reasons for this finding:
2010 WL 5057516, at *4. The decision concludes:
Id.
The defendants argue that the key issue in Fitch Marine was not the plaintiffs' delay in bringing a suit, but their failure to assert a claim before surrendering the vessels. Orgeron responds that: (1) it immediately protested the termination of the Charter Agreement and dispossession of the Vessel; (2) it did not waive its right to bring a claim for damages; and (3) Fitch Marine is distinguishable because there was a delay of nine months between the receipt of a termination letter and the filing of the suit.
Fitch Marine is not controlling. Unlike the plaintiffs in Fitch Marine, Orgeron did not wait an extended time before taking any action. Within a few days of surrendering possession of the Vessel, its counsel protested Maryland's termination of the Charter Agreement and the Purchase Agreement.
In light of the determination that Orgeron has no claim for breach of contract based on the failure to renew the Charter Agreement, the issue is whether it has a claim for post-November 29, 2010 damages.
The defendants contend that unjust enrichment claims are precluded by the existence of valid contracts. It cites Harley Marine Servs. v. Manitowoc Marine Group, LLC, 759 F.Supp.2d 1059, 1063 (E.D.Wisc.2010). Orgeron responds:
Rec. doc. 70 at 4. Between the filing of its opposition on March 7, 2013 and the filing of its supplemental opposition on March 14, Orgeron reconsidered this position. It contends that federal courts sitting in admiralty are entitled to a more liberal use of equitable doctrines. Rec. doc. 81 at 4-5. It does not cite any admiralty case where a party was permitted to pursue claims under maritime contracts and a claim for unjust enrichment relating to the subject matter of the contracts. The defendants' motion for partial summary judgment on Orgeron's claim for unjust enrichment is granted.
Maryland (HBL) was the owner of the Vessel when Orgeron entered into the Purchase Agreement. The second addendum to the Charter Agreement reflects that HBL sold all of its right, title and interest in the Purchase Agreement to EBL. Rec. doc. 9 (Exhibit D). This addendum was signed by Orgeron. The addendum does not provide that Orgeron released HBL from any of its obligations under the Purchase Agreement.
On January 9, 2009, Maryland changed its name to HBL. Rec. doc. 58 (Memorandum at 2). The two letters of termination were sent by HBL and not EBL.
HBL contends that Orgeron's breach of contract claims arise from the actions by EBL. HBL seeks summary judgment in its favor based on no privity of contract with Orgeron. Because Orgeron did not release HBL (formerly Maryland) when it signed the second addendum, HBL's request
Higman Marine Services, Inc. ("Higman Marine") also moves for summary judgment on the ground that it has no contract with Orgeron. Orgeron admits that it has no evidence to support an alter ego theory for Higman Marine. It contends that Higman Marine's request is premature because it has not had the opportunity to depose John McMahan, the president of Higman Marine, as a Rule 30(b)(6) representative. It reports that this deposition was set for March 25, 2013. Rec. doc. 68 at 5. It adds that if the deposition does not produce evidence to support an alter ego theory for Higman Marine, it will consider dismissing Higman Marine. More than two weeks have elapsed since the Rule 30(b)(6) deposition. Orgeron has not submitted any evidence to support its alter ego theory. The motion for summary judgment is granted as to Higman Marine.
IT IS ORDERED that: