Dessert Service v. MSC Jamie Rafaela

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DMC/SandT/04/04
Dessert Service, Inc. v. M/V MSC Jamie/Rafaela
United States District Court for the Southern District of New York; Naomi Reice Buchwald; 219 F. Supp. 2d. 504; August 8, 2002
CARRIAGE BY SEA: MEASURE OF LOSS: MARKET VALUE: REPLACEMENT VALUE: SPECIAL CIRCUMSTANCES: PRE-JUDGMENT INTEREST: APPROPRIATE RATE
Summary
The United States District Court for the Southern District of New York held that the proper measure of damages for a shipment of imported frozen desserts which thawed during carriage was the replacement value, since the importer maintained a substantial inventory of frozen desserts and was able to fill all of its customers’ orders without loss of sales. The court also held that the pre-judgment interest rate should be measured by the average annual Treasury bill rate.

DMC Category Rating: Confirmed

Case Note Submitted by Michael P. Smith, an attorney with the firm of Healy & Baillie, LLP, in New York. Healy & Baillie are the International Contributors to the website for the United States

Facts
The plaintiff, Dessert Service Inc, the exclusive United States distributor of "Bindi" Italian frozen desserts, brought this action claiming damages for a shipment of frozen desserts that thawed during carriage. Plaintiff moved for summary judgment on the issue of damages, contending that (1) damages should be measured by the market value (US$97,211.00) of the goods at their intended time and place of arrival; and that (2) the applicable pre-judgment interest rate was the New York Statutory rate of 9%. The defendant shipping company, the carrier of the frozen desserts, contested the motion, arguing that (1) damages should be measured by the replacement value (US$30,926.29), and (2) the applicable pre-judgment interest rate was the average annual Treasury bill rate.

Judgment
The court noted that the general rule of "actual loss" is the difference between the fair market value of the goods at the port of destination in their condition as shipped, and their value as damaged. This general rule is referred to as the Market Value Rule. However, an exception to the Market Value Rule exists when the shipper can replace the shipment at cost and suffers no loss of profit. In such a case, the replacement cost is the appropriate measure of damages. Without such an exception, the shipper would receive more than full compensation for the loss it sustained.

The plaintiff maintained a substantial inventory of frozen desserts and was able to fill all of its customers’ orders for "Bindi" frozen desserts. Consequently, it did not lose any sales. The court concluded that this constituted a "special reason" that rendered the Market Value Rule inapplicable. The court reasoned that application of the Market Value Rule would result in a recovery greater than the actual loss suffered by the plaintiff. Therefore the court concluded that the appropriate measure of damages was the replacement cost of the goods damaged.

The court also noted that the allowance of pre-judgment interest in admiralty actions should be granted in the absence of exceptional circumstances. The court’s previous decisions established that the plaintiff is entitled to the income which the monetary damages would have earned, and that should be measured by interest on short-term, risk-free obligations. The court concluded that the average annual Treasury-bill rate best reflected this principle.

Comment
The court’s decision follows the well-established principle of contract damages of placing the plaintiff in the same position the plaintiff would have been in if the contract had been performed.

These Case Notes have been prepared with care, but neither the Editor nor the International and other Contributors can guarantee that they are free from error, nor that they contain every pertinent point. Reliance should not therefore be placed upon them without independent verification. The Editor and the International and other Contributors disclaim all liability for any loss of whatsoever nature and howsoever arising as a result of others acting or refraining from acting in reliance on the contents of this website and the information to which it gives access. The Editor claims copyright in the content of the website.