In The Matter Of Southern Scrap Material Co.

713 F.Supp.2d 568

In the Matter of SOUTHERN SCRAP MATERIAL CO., L.L.C., as Owner of the Southern Scrap Drydock in a Cause of Exoneration from or Limitation of Liability.

Civil Action Nos. 06-1860, 08-5026.

United States District Court E.D. Louisiana.

May 14, 2010.

COPYRIGHT MATERIAL OMITTED

Robert Hugh Murphy, Peter Brooks Sloss, Murphy, Rogers, Sloss & Gambel, Mark Thomas Mahfouz, Gieger, Laborde & Laperouse, LLC, New Orleans, LA, for Southern Scrap Material Co., L.L.C.

Michelle T. Delemarre and Bruce A. Ross, Department of Justice, Washington, DC, for United States.

ORDER AND REASONS

MARTIN L.C. FELDMAN, District Judge.

Before the Court are three motions by the United States: (1) motion for summary judgment on liability; (2) motion to dismiss or alternatively to sever and stay Southern Scrap's counterclaims; and (3) motion for summary judgment and motion in limine regarding actual wreck removal costs. For the reasons that follow, the motion for summary judgment on liability is GRANTED; the motion to dismiss or alternatively sever and Stay Southern Scrap's counterclaims is DENIED in part and GRANTED in part; and the motion for summary judgment and motion in limine is GRANTED in part and DENIED in part.

Background

This case arises from the well-known breakaway and sinking of Southern Scrap's drydock in the Industrial Canal during Hurricane Katrina, and its subsequent removal by the United States Army Corps of Engineers.

The Drydock

Southern Scrap owns a metal recycling facility in New Orleans, which is located at the junction of the Inner Harbor Navigational Channel (IHNC or Industrial Canal) and the Mississippi River-Gulf Outlet (MRGO).¹ In July of 2005, Southern Scrap purchased a modular drydock section, intending to recycle it for scrap metal. Once it was towed from Mississippi to New Orleans, the drydock, which was 220 feet long by 157 feet wide by 24 feet deep and displaced 3,868 tons, was secured at the Vessel Recycling Facility with multiple soft mooring lines forward and aft secured to concrete deadmen embedded in the bank, as well as four heavy anchor chains secured to concrete piers built into the bank. The anchor chains and mooring lines were secured initially to mooring bitts on the drydock, but as the mooring bitts were removed as part of the scrapping process, the lines were secured to and around steal beams within the drydock's structural framework.

Hurricane Preparations

Sometime after August 16, 2005, during the course of cutting the drydock into pieces for recycling, Southern Scrap had disconnected the mooring lines and turned the drydock around. On Friday, August 26, 2005, with Hurricane Katrina in the Gulf of Mexico, Southern Scrap personnel began preparations for the storm. Grant Judy (Southern Scrap's supervisor of demolition) was instructed to reattach the four anchor chains to prepare the drydock for 6 to 10 feet of tides. Judy passed each of the four anchor chains through a hole cut into the drydock's watertight bulkhead, looped each chain around a structural beam within the drydock's framing, brought each chain back out through another hole cut into the drydock's bulkhead, and then shackled each chain to itself using a 100-ton shackle.² On Saturday, August 27, the National Hurricane Center classified Hurricane Katrina as a Category 3 hurricane, which would strengthen over the next 24 hours and directly strike New Orleans. That same day, the Orleans Parish Levee District notified Southern Scrap that it was preparing to close the S1 floodgate late that day, which would block road access into and out of Southern Scrap's facility. Southern Scrap had many tasks to complete in a limited amount of time, with limited personnel (all of whom had to evacuate) in advance of the storm. Southern Scrap employees had evacuated the facility by 6:00 p.m.

Hurricane Katrina

On Monday, August 29, 2005, Hurricane Katrina made landfall in southeast Louisiana as a Category 3 hurricane with sustained winds of 127 miles per hour. Katrina produced a storm surge up to 17 feet on Southern Scrap's property at the junction of the Industrial Canal and MRGO; ³ at some point during the storm, the partially scrapped drydock broke free from its moorings,⁴ crossed the Industrial Canal and partially sank against the northwest fender of the Florida Avenue Bridge.⁵ Along with many other obstructions in the waterways,⁶ the government considered the sunken drydock, which was allegedly struck by two different commercial tows,⁷ a hazard to navigation and determined that it had to be removed immediately, on an emergency basis.⁸

Drydock Removal

On September 3, 2005, the Corps hired Boh Bros. to clear all obstructions from Southwest Pass and the Industrial Canal, including the Southern Scrap drydock, for a fixed price not to exceed $500,000. Several days later, the Corps contacted Southern Scrap's president, Joel Dupre, and asked him to remove the drydock (which, at the time, still had a barge on top of it). Dupre told the Corps that Southern Scrap could not do so because it did not have access to its drydock given the complete lockdown of New Orleans.

In mid-September 2005 the U.S. Army Corps of Engineers undertook to remove the drydock: Boh Bros. Construction Co. and its subcontractor, Bisso Marine, began salvaging the drydock. Two and a half months later, removal was completed on December 2, 2005.⁹ Boh Bros. invoiced, and the Corps paid, more than $12 million for the removal of the obstructions from Southwest Pass and the Industrial Canal; the Corps contends that $9.3 million of that total is attributed to the removal of the Southern Scrap drydock. The Corps sent a demand letter to Southern Scrap, seeking reimbursement for wreck removal costs pursuant to 33 U.S.C. § 409. Southern Scrap refused to pay, and this litigation ensued.

Procedural History

On April 11, 2006, Southern Scrap filed a limitation proceeding, seeking to limit its liability, pursuant to the Limitation of Liability Act, 46 U.S.C. § 30305, to the post-casualty value of the drydock.¹⁰ In accordance with the Limitation of Liability Act, the Court entered an order enjoining the commencement or prosecution of all claims against Southern Scrap based on the drydock breakaway, and set a deadline for filing claims in the limitation proceeding. The United States, and four others, filed claims.

In December 2006, the United States requested that the Court lift its injunction so that it could pursue a separate Wreck Act claim against Southern Scrap. In April 2007 the Court granted the United States' request. In re Southern Scrap Material Co., L.L.C., No. 06-1860, 2007 WL 1234995 (E.D.La. Apr. 26, 2007). Southern Scrap appealed. On August 25, 2008 the Fifth Circuit affirmed the Court's ruling, expressly holding that the United States' Wreck Act claim was not subject to the Limitation Act. In re Southern Scrap Material Co., LLC, 541 F.3d 584, 595 (5th Cir.2008). The Fifth Circuit further held that the Wreck Act afforded the government the right to recover its actual costs of removing the sunken drydock, without alleging that Southern Scrap negligently caused its sinking. Id. at 592. Southern Scrap appealed the ruling to the Supreme Court, which denied certiorari on March 30, 2009. Southern Scrap Material Co., LLC v. U.S., --- U.S. ----, 129 S.Ct. 1669, 173 L.Ed.2d 1036 (2009).

Two years after Katrina, on August 29, 2007 Southern Scrap asserted a counterclaim against the United States, alleging that the United States, through the Corps, had negligently designed, constructed, inspected, repaired and maintained the MRGO, resulting in an increase of Hurricane Katrina's storm surge. Southern Scrap asserts that the storm surge inundated its facilities and caused the drydock to break away. In its answer, the United States raises several defenses challenging the existence of this Court's subject matter jurisdiction over Southern Scrap's counterclaim.

On November 28, 2008 the United States filed its Wreck Act complaint against Southern Scrap, asserting that it is entitled to seek recovery for the costs of removing Southern Scrap's drydock from the Industrial Canal. On December 23 the case was transferred to this Court, and it was consolidated with Southern Scrap's limitation proceeding, at the request of the parties.

On February 23, 2009 Southern Scrap answered the United States' complaint, and filed a counterclaim. In its answer, Southern Scrap raised 12 defenses, including that the drydock breakaway was caused by an Act of God and that the breakaway was solely due to the negligence of the United States in its design, engineering, construction, repair, and maintenance of the MRGO. Southern Scrap also challenges the reasonableness of the wreck removal costs, and asserts that the United States should have accomplished removal of the drydock pursuant to the Stafford Act, 42 U.S.C. § 1521. Southern Scrap admits that the drydock was in navigable waters, but denies that the wreck created a hazard or obstruction. Southern Scrap pled the right to limit its liability and alleged that it did not negligently cause or allow the drydock to break away.

MRGO Litigation

Meanwhile, as this litigation was proceeding in this Court, the case captioned In Re Katrina Canal Breaches Consolidated Litigation (Robinson), Civil Action No. 05-4182, was proceeding before Judge Duval. In that case, the plaintiffs sought monetary awards based on damages sustained during Hurricane Katrina, allegedly as a result of the existence of the MRGO.¹¹ On November 18, 2009, following a 19-day bench trial, Judge Duval ruled in favor of most of the plaintiffs. Robinson, 647 F.Supp.2d 644 (E.D.La.2009). The court found that the Corps' negligent failure to properly maintain and operate the MRGO was a substantial cause for the breaching of the Reach 2 Levee and the subsequent flooding of the St. Bernard Polder.¹² The court specifically held that the Corps waived sovereign immunity with respect to the maintenance...