throbber
Case 1:06-cv-03972-AJN-JCF Document 182 Filed 10/21/13 Page 1 of 22
`UsgCSDNY
`DOCUMENT
`ELECTRONICALLY FILED
`G
`DOC#:
`~~TE BLED. C 1 2 1 2013
`
`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`----------------------------------------------------------------------)(
`
`CEDAR PETROCHEMICALS, INC.,
`Plaintiff,
`
`-v-
`
`DONGBU HANNONG CHEMICAL CO., LTD.,
`Defendant.
`
`----------------------------------------------------------------------)(
`ALISON J. NATHAN, District Judge:
`
`06 Civ. 03972 (AJN)
`
`OPINION
`
`Plaintiff Cedar Petrochemicals, Inc. ("Cedar"), brought this breach of contract action
`
`against Defendant Dongbu Hannong Chemical Co., Ltd. ("Dongbu"), alleging that Dongbu had
`
`delivered non-conforming liquid phenol, in violation of the parties' written and oral contracts
`
`and in contravention of its obligations under the Convention on Contracts for the International
`
`Sale of Goods, Apr. 11, 1980, S, Treaty Doc. No. 98-9 (1983), 19 LL.M. 671 (1980), reprinted
`
`at 15 U.S.C. App. (1998) ("CISG" or the "Convention"). A nonjury trial was held in this action
`
`on September 30, October 1, and October 2,2013.
`
`Pursuant to this Court's procedures for nonjury trials, the parties submitted the direct
`
`testimony of their witnesses by affidavit and their documentary evidence with the joint pretrial
`
`order. The Court received direct examination declarations from seven Plaintiff witnesses:
`
`Martin East ("East"), J.N.A. van de Giesen ("van de Giesen"), Fernando Irisarri Gonzalez
`
`("Irisarri"), Salim Harfouche ("Harfouche"), John Minton ("Minton"), Charlene Silva ("Silva"),
`
`and Cho Y ong ("Y ong"). Of these declarant witnesses, Minton testified as an expert witness and
`
`East testified as both a fact and expert witness. The Court also received deposition designations
`
`for two Plaintiff witnesses: Gry Berg-Nilsen ("Berg-Nilsen") and Stig Egeland ("Egeland").
`
`Finally, the Court received a direct examination declaration from the single Defense witness,
`
`

`
`Case 1:06-cv-03972-AJN-JCF Document 182 Filed 10/21/13 Page 2 of 22
`
`Haolin Chu ("Chu"). Of these witnesses, only East, Irisarri, Harfouche, and Minton were cross(cid:173)
`
`examined live at trial. This opinion represents the Court's findings of fact and conclusions of
`
`law for purposes of Rule 52 of the Federal Rules of Civil Procedure. See Fed. R. Civ. P. 52. The
`
`findings of fact appear principally in the "Findings of Fact" section, but also appear in the
`
`remaining sections of the opinion.
`
`In short, the parties' dispute relates to a 2005 maritime shipment of the liquid
`
`petrochemical phenol. The phenol at issue ("the Phenol") was transported from its on-shore
`
`storage tank in Yuso, Korea, to Defendant's ship, the Green Pioneer, which carried it to Ulsan
`
`Anchorage, Korea. Once there, the Phenol was transferred from the Green Pioneer to Plaintiff's
`
`ship, the Bow Flora, which carried it to port at Rotterdam, The Netherlands. On arrival at
`
`Rotterdam, it was determined that the Phenol was damaged. The parties agree that, in order to
`
`demonstrate liability, Plaintiff must prove by a preponderance of the evidence that the Phenol
`
`was injured before it passed the rail of the Bow Flora. Plaintiff conceded that, for it to make the
`
`requisite showing under the facts of this case, the Court must be persuaded by its experts' theory
`
`regarding "seeding," which they argue explains the delay between the alleged injury to the
`
`Phenol and the manifestation of the damage to the Phenol, i.e., its discoloration. On this factual
`
`point, the Court was unpersuaded. Accordingly, judgment will be entered in favor of Defendant.
`
`I.
`
`FINDINGS OF FACT
`
`After a protracted discovery period, all discovery in this matter closed on April 30, 2013.
`
`The parties' Joint Proposed Pretrial Order ("JPTO"), proposed findings of fact and conclusions
`
`of law, and other pretrial materials were submitted on July 17, 2013. The Court also received
`
`amended proposed findings of fact and conclusions of law and post-trial briefing on October 9,
`
`2013. Based on the evidence presented at trial, the facts stipulated to in the JPTO and the
`
`2
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`

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`Case 1:06-cv-03972-AJN-JCF Document 182 Filed 10/21/13 Page 3 of 22
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`Court's assessment of the credibility and demeanor of the witnesses and the inferences
`
`reasonably to be drawn there from, the Court makes the following findings of facts. Cites to the
`
`JPTO signify stipulated facts.
`
`A.
`
`The Parties and Jurisdiction
`
`Cedar is a corporation engaged in the business of buying and selling liquid petrochemical
`
`products, including phenol, and is organized and exists under and by virtue of the laws of the
`
`State of New York, with its principal place of business in New York, New York. JPTO ~~ 1,2.
`
`Dongbu is a corporation engaged in the business of manufacturing and selling petrochemical
`
`products, and is organized and exists under and by virtue of the laws of Korea, with its principal
`
`place of business in Seoul, Korea. JPTO ~~ 3, 4. Based on the parties' diversity of citizenship,
`
`and with a statutorily sufficient amount in controversy, the Court has jurisdiction over this matter
`
`under 28 U.S.c. § 1332. See also Cedar Petrochemicals, Inc. v. Dongbu Hannong Chern. Co.,
`
`Ltd., No. 06 Civ. 3972 (LTS), 2011 WL 4494602, at *1 (S.D.N.Y. Sept. 28, 2011).
`
`B.
`
`Phenol
`
`The liquid petrochemical at issue in this dispute is the polymer phenol (hydroxybenzene,
`
`C6HsOH). Pure phenol is a white, crystalline solid at room temperature, which liquefies at
`
`around 41 DC. JPTO ~ 11. In its liquid or "molten" form -- which is the form in which it is
`
`generally transported -- pure phenol is a clear, colorless liquid. Phenol is susceptible to
`
`discoloration in both its liquid and solid states. Phenol discoloration is measured using the
`
`Hazen units ("HU") on the Platinum-Cobalt Scale ("Pt/Co Scale"). Silva Decl. ~ 12; Y ong Decl.
`
`~ 10; Exhibits 2-3. Commercially, phenol discoloration is problematic because most of the
`
`applications for phenol, e.g., compact discs, airplane windows, and car optics, require the phenol
`
`to be colorless, or under 10 HU. PX 68 App'x 4.3; Minton Decl. ~ 19.
`
`3
`
`

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`Case 1:06-cv-03972-AJN-JCF Document 182 Filed 10/21/13 Page 4 of 22
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`The universe of causes of color change in phenol is not defined, but it is accepted that
`
`among such causes are manufacturing defects, contamination, and exposure to heat. JPTO ~ 12,
`
`l3; Tr. 300; DX FF. Neither party contends that there was a manufacturing defect in this case.
`
`Phenol discoloration through contamination can occur as a result of the presence of impurities in
`
`the phenol; "discoloration is promoted by the action of water, light, air, and catalysts, e.g., traces
`
`of iron and copper." JPTO ~~ 12, l3; DX FF. Liquid phenol may also discolor as a result of
`
`exposure to heat, though there is some disagreement in the petrochemical industry and the
`
`scientific community as to the precise temperature at which heat exposure can or will result in
`
`such discoloration. Additionally, "[ w]hen stored as a solid in the original drum or in nickel,
`
`glass-lined, or tanks lined with baked phenolic resin, phenol remains colorless for a number of
`
`weeks," JPTO ~ 14; DX FF, but "may acquire a yellow, pink, or brown discoloration." JPTO
`
`~ 15; DX FF.
`
`To avoid discoloration, experts in the field recommend that phenol be transported and
`
`stored in its liquid form. The generally recommended temperature ranges vary from 50°C to
`
`60°C, JPTO ~~ 16, 17, 18, and Minton testified that "[i]n the petrochemical industry, phenol is
`
`stored and shipped as a bulk liquid at temperatures ranging from 50°C C to 60°C." Minton Decl.
`
`~ 20. Here, however, the parties' agreement (discussed below) called for the Phenol to be
`
`shipped at a temperature between 50°C and 55°C. Tr. 57-58; DX TT. On cross examination,
`
`Minton claimed that storage at any point within this range would not generally cause
`
`discoloration and that storage anywhere within the 50°C to 55°C range was equally acceptable.
`
`Tr. 300-301. This testimony contradicted his prior testimony at his deposition, where he stated
`
`both that phenol could only be "heat [ ed] to 60°C for a very short time without a problem,"
`
`Minton Decl. 84:19-21, and that "in general, the lower the temperature in the 50°C to 55°C range
`
`4
`
`

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`Case 1:06-cv-03972-AJN-JCF Document 182 Filed 10/21/13 Page 5 of 22
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`the better." Id. at 86:21-22. Overall, the testimony established that phenol discoloration is
`
`neither a well understood or fully established topic. Minton acknowledged that phenol color
`
`change is generally "a very poorly understood subject," Tr. 299:S-8, both "by [himself] and
`
`others," 299: 10-13, and that this is true "even with a great deal of research," Tr. 299:S-8. And
`
`East acknowledged that "the cause of color degradation in Phenol has been a contentious issue
`
`for over 100 years." Tr. 60:13-17.
`
`C.
`
`The Contract
`
`Unless otherwise noted, the parties have stipulated to the following facts with regard to
`
`the contract. In May 200S, a representative from Kumho -- a phenol manufacturer that arranges
`
`sales via export agents, including Dongbu -- and a representative from Cedar's local agent in
`
`Korea, H.V. Co., Ltd., met at a restaurant in Seoul. JPTO ~~ 6, 7, 8. At that meeting, Kumho
`
`proposed that Dongbu and Cedar be principal parties to a proposed sale of2,000 metric tons
`
`("mt") of phenol. JPTO ~ 9. Dongbu agreed that it would enter into a contract with Cedar by
`
`which it would se112,000 mt +/- S% ofliquid phenol conforming to Kumho's Standard
`
`Guaranteed Sales Specifications ("Specs") delivered FOB Ulsan Anchorage, in exchange for
`
`$9S0/mt. Shortly thereafter, on May 17, 200S, Cedar faxed to Dongbu Contract No. T2S0-P1-
`
`OSOSNYC (the "Written Contract") which called for the purchase and sale of"2,000 MTS +/- S%
`
`Seller's Option." This contract was drafted by Cedar, and signed and stamped by Dongbu.
`
`JPTO ~~ 20,21.
`
`Among other things, the Written Contract provided: (l) that the agreement would be
`
`governed by "Incoterms 2000 as amended to date," ("Incoterms"); (2) that "[the] agreement
`
`[would be] subject to [Plaintiff's] standard terms and conditions," which were attached and
`
`incorporated by reference; (3) that "[i]n the event ofa conflict between the terms ofth[e]
`
`5
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`

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`Case 1:06-cv-03972-AJN-JCF Document 182 Filed 10/21/13 Page 6 of 22
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`agreement and [Plaintiff s] standard terms and conditions, the terms of th[ e] agreement [would]
`
`control;" and (4) that the "[fJollowing set[] fOlih the entire agreement of the parties." PX 5. In
`
`addition, the Written Contract called for the purchase of "Pure Phenol as per attached Kumho's
`
`Guaranteed Sales Specs," to be delivered "FOB Ulsan Anchorage, Korea." JPTO ~ 19; PX 5.
`
`As defined in "Incoterms," FOB, or "Free on Board," "means that the seller delivers when the
`
`goods pass the ship's rail at the named port of shipment," which in turn "means that the buyer
`
`has to bear all costs and risks ofloss or damage to the goods from that point." Cedar
`
`Petrochemicals, Inc., 2011 WL 4494602, at *3.
`
`The standard terms and conditions referred to in the Written Contract refer to Kumho's
`
`standard "specification of phenol," which call for color at max 5 HU. PX 2,3; Yong Decl. ~ 10.
`
`At some point, after May 17,2005, the patiies' contract was amended to substitute the phenol
`
`specifications fI'om a third-patiy, Ertisa. Yong Decl. ~ 16; PX 13. Ertisa's product specifications
`
`for phenol call for color at max 10 HU, PX 12; Yong Decl ~ 16, and were incorporated into the
`
`letter of credit that Plaintiff procured on May 19, 2005. Y ong Decl. ~ 17, 18; PX 18.
`
`Accordingly, for the Phenol to be on specification at the time of delivery -- FOB Ulsan
`
`Anchorage, Korea -- the phenol had to be at or under 10 HU.
`
`D.
`
`Transfer, Sampling, and Inspection
`
`In addition to the terms discussed above, the Written Contract contained an inspection
`
`term, which stated that inspection was to be "[b]y mutually acceptable/independent surveyor
`
`whose findings as to quantity/quality as per shore tank figures at load port are final and binding
`
`on both parties." JPTO ~ 22. The parties appointed internationally recognized independent
`
`inspection companies SGS Korea Co., Ltd. ("SGS") and Global Surveyors & Inspectors Ltd.
`
`("GSI") to monitor the quality of the Phenol in Korea. Silva Decl. 27; JPTO ~ 18. Although the
`
`6
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`

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`Case 1:06-cv-03972-AJN-JCF Document 182 Filed 10/21/13 Page 7 of 22
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`individual who took the various samples for SGS cannot specifically recall any of the sampling
`
`he performed with regard to the Phenol at issue, it was his practice to use new, clean sampling
`
`bottles when sampling petrochemical cargos. JPTO ~~ 43, 44.
`
`In summary form, the transportation of the Phenol was as follows. On or about May 20,
`
`2005, the Phenol was loaded from the manufacturer's shoretanks onto a ship chartered by
`
`Defendant, the Green Pioneer, in the port ofYosu. From there, the Phenol was shipped to Ulsan,
`
`where it was transferred to Plaintiffs vessel, the Bow Flora, which carried the Phenol to its final
`
`destination, Rotterdam. JPTO ~ 33. As agreed upon, at various key points during the course of
`
`the Phenol's transport, samples were pulled and tested or retained. JPTO ~ 33.
`
`In May 2005, prior to loading the phenol onto the Green Pioneer, GSI tested one sample
`
`from Yosu shoretanks FB-991 and FB-1993. JPTO ~ 34. GSI determined that this sample was
`
`on-specification for all parameters, including color at less than 5 HU. JPTO ~ 35. SGS
`
`confirmed these findings. JPTO ~ 36. GSI retained a composite sample of the Phenol from both
`
`of the Y osu shoretanks. This sample, GSI 005946, was stored in GSI's Ulsan storage facility, in
`
`a solid state at room temperature, in a clear, glass bottle. JPTO ~ 37.
`
`After the shoretank testing, the Phenol was loaded into five tanks aboard the Green
`
`Pioneer at Yosu. JPTO'138. Once the Phenol was transferred, SGS pulled and tested a
`
`composite sample from the five tanks on the Green Pioneer. JPTO ~ 39. That sample was also
`
`on-specification for all parameters, including color at 3 HU. In addition to this sample, SGS and
`
`GSI each pulled, but did not contemporaneously test, additional composite samples, GSI
`
`0002387 and SGr 859048, which were transferred to and retained aboard the Bow Flora during
`
`the voyage to Rotterdam. The samples aboard the Bow Flora were stored in a solid state, at
`
`ambient temperature, in clear, glass bottles located in the ship's storage locker. JPTO 'I~ 40,41.
`
`7
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`

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`Case 1:06-cv-03972-AJN-JCF Document 182 Filed 10/21/13 Page 8 of 22
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`SGS also pulled and retained an additional sample, SGS 534093, at its storage facility in Ulsan.
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`JPTO ~ 42.
`
`On May 21, 2005, the Green Pioneer sailed from Y osu for Ulsan, where it arrived on
`
`May 24, 2005. JPTO ~~ 45, 46. That same day, the Phenol was transferred from Defendant's
`
`ship, the Green Pioneer, to Tank 13 Center ("Tank 13C") aboard Plaintiff's vessel, the Bow
`
`Flora. Transfer commenced at 11 :05 AM, but was stopped from 11 :08 AM until 11 :28 AM "due
`
`to frozen of cargo line of coaster [sic]." JPTO ~ 47; PX 29. Transfer resumed at 11 :28 AM, but
`
`was stopped again at 11:37 AM, after one foot of Phenol had been loaded into Tank 13C, JPTO ~
`
`48., in order permit surveyors to obtain samples of the portion of the Phenol that had been
`
`transferred (hereinafter, "first-foot" samples). JPTO ~ 48. SGS tested one of these first-foot
`
`samples and determined that it was on specification for all parameters, including color at 4 HU.
`
`JPTO ~ 49. SGS pulled an additional first-foot sample, SGS 534095, which it retained at its
`
`storage facility in Ulsan under the conditions described above. The crew of the Bow Flora also
`
`pulled a first-foot sample, which it retained aboard the Bow Flora. JPTO ~ 52. After the first(cid:173)
`
`foot samples were pulled, the remainder of the Phenol was transferred to the Bow Flora. JPTO ~
`
`53.
`
`Once the Phenol was fully loaded onto the Bow Flora, SGS Korea pulled and tested a
`
`post-load running sample, which it determined to be on-specification for all parameters,
`
`including color at 4 BU. JPTO ~ 54. The term "running sample" refers to a sample that is taken
`
`by lowering an empty sample bottle into the phenol and then pulling it back up through the tank;
`
`these samples are "supposed to represent the entire product in th[e] tank." Tr. 67:12-14. The
`
`term composite sample refers to a propOliionate sample of multiple tanks. SGS also pulled and
`
`retained a sample, SGS 534096, which was stored in its facility in Ulsan under the conditions
`
`8
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`

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`Case 1:06-cv-03972-AJN-JCF Document 182 Filed 10/21/13 Page 9 of 22
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`described above. JPTO ~ 57. Finally, SGS pulled an additional post-load sample, SGS 859049,
`
`as did the Bow Flora crew. These two samples, as with all of the samples retained aboard the
`
`Bow Flora, were stored as described above. JPTO ~ 59. In sum, the results of the samples that
`
`were contemporaneously tested prior to and after transfer to the Bow Flora (the
`
`"Contemporaneous Tests") are as follows:
`
`Table 1: Results of the Contemporaneous Tests
`
`Sample
`Description
`Pulled
`05/20105
`Yosu, Korea Shoretanks (Composite)
`05/20105 Green Pioneer After Loading (Composite)
`05/24/05
`Bow Flora First Foot After Loading
`05124105
`Bow Flora Full Tank After Loading
`
`HUon
`Test Date
`Less than 5
`3
`4
`4
`
`JPTO '138. Although not specifically stipulated to, the parties agree that there is nothing with
`
`regard to the contemporaneous tests that in any way calls into doubt the accuracy of the
`
`measurements at the time they were taken, Tr. 496:5-10; PX 67 at 2. The Court finds that these
`
`numbers are true and accurate descriptions of the color of the Phenol at the time the
`
`contemporaneous samples were pulled and tested.
`
`On May 24, 2005, after loading was completed at Ulsan, the Bow Flora sailed for
`
`Plaintiffs intended destination pOli, Rotterdam, where it arrived on July 19,2005. JPTO ~~ 60,
`
`61. Upon arrival, SGS surveyed the quality and quantity of the subject Phenol, and determined
`
`that the Phenol was off-specification for color at greater than 500 HU. JPTO ~ 64. Minton
`
`described this HU number as "shockingly high." Tr. 303:20-22. Irisarri, the Senior Vice
`
`President of CESP A Quimica, a family of companies to which Ertisa now belongs, noted that the
`
`Phenol was so far off-specification that it could not be salvaged through the ordinary process he
`
`would employ, "blending," whereby on- and off-specification Phenol are mixed to lower the
`
`9
`
`

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`Case 1:06-cv-03972-AJN-JCF Document 182 Filed 10/21/13 Page 10 of 22
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`overall HU. Irissari Decl. ~ 2,3,4; Tr. 423:16-23; 432:19-2S. Ultimately, the Phenol was sold
`
`to a company in India at a heavy loss. Tr. 389:12-16; PX 67.
`
`Meanwhile, on July 20, 200S, Plaintiff notified Defendant that the Phenol had arrived off-
`
`specification, indicated that it held Defendant responsible, and noted that SGS would undeliake
`
`further testing in Rotterdam. JPTO ~ 6S. On July 21, 200S, Defendant acknowledged Plaintiff's
`
`claim, but denied fault and declined to witness the additional testing in Rotterdam. JPTO ~ 66.
`
`On July 29, 200S, SGS conducted tests in Rotterdam (the "Rotterdam Tests"), of the
`
`various samples that had been retained aboard the Bow Flora (the "retained samples"). As can
`
`be seen in the table, below, each of the samples tested above specification, though no paliiculate
`
`matter was found in any of the samples. JPTO ~ 69. The results of these tests are summarized
`
`in SGS Witnessing RepOli 63099. JPTO ~~ 67,68; PX SS. All future references to Samples 1
`
`through 9, e.g., Sample 7, will refer to the samples as they were numbered for purposes of the
`
`Rotterdam Tests.
`
`Table 2: Results of the Rotterdam Tests (July 29, 2005)
`
`Sample Sample
`No.
`Sample ID
`Pulled
`Description
`OSI24/0S
`1
`Crew
`Bow Flora Full Tank After Loading (Ulsan)
`OSI24/0S
`Bow Flora First Foot During Loading (Ulsan)
`Crew
`2
`OSI2010S GSI002387
`3
`Green Pioneer Composite After Loading (Yosu)
`OSI24/0S GSlO02396
`Bow Flora Composite After Loading (Ulsan)
`4
`OSI21/0S
`5
`SGS 859048 Green Pioneer Composite from Rmming Samples
`Before Discharge (Ulsan)
`OSI24/05 SGS 8S9049 Bow Flora Running Sample After Loading (Ulsan)
`07120105
`SGS 38704
`Bow Flora Before Discharge (Rotterdam)
`07/28/0S
`SGS 37722
`Shore Tank 116 After Discharge (Rotterdam)
`07/28/0S
`SGS 35363
`Shore Tank 312 After Discharge (Rotterdam)
`
`6
`7
`8
`9
`
`HUon
`Test Date
`3S-40
`60-70
`40-S0
`60-70
`70-80
`
`100-1S0
`>SOO
`>SOO
`>SOO
`
`On August 4, 200S, Plaintiff and Defendant agreed to jointly test the samples that SGS
`
`and GSl had retained in Ulsan. JPTO ~ 73. Pursuant to that agreement, on August 8, 2005,
`
`representatives from both parties attended the joint analysis at the SGS laboratory in Ulsan.
`10
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`

`
`Case 1:06-cv-03972-AJN-JCF Document 182 Filed 10/21/13 Page 11 of 22
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`JPTO 'J'J72, 74, 75. Also in attendance was a representative from Minton, Treharne & Davies
`
`Ltd. ("MTD"), a firm which had been hired by Ertisa's insurance broker, Marsh Ltd. ("Marsh")
`
`to investigate the cause of the discoloration. At the joint analysis, the parties agreed: (1) that all
`
`samplesltags were sound and intact before testing; (2) on the test methods to be employed in
`
`analyzing the retained samples; (3) on the results; and (4) on SOS's issuance of an Analytical
`
`Report, dated August 8, 2005, which the pmiies executed the same day. JPTO 'J76. The test
`
`results for the four samples that were tested at the joint analysis (the "Ulsan Tests") were as
`
`follows, and all future references to Samples A through D, e.g., Sample C, will refer to the
`
`samples as designated for purposes of the Ulsan Tests.
`
`Table 3: Results of the Ulsan Tests (August 8, 2005)
`
`Sample Sample
`No.
`Pulled
`Description
`Sample ID
`05/24/05 SOS 534096
`Bow Flora Full Tank After Loading (Ulsan)
`A
`05/24/05 SOS 534095
`Bow Flora First Foot During Loading (Ulsan)
`B
`05121/05 SOS 534093 Oreen Pioneer Composite After Loading (Yosu)
`C
`05/20105 OSI005946
`Bow Flora Composite After Loading (Ulsan)
`D
`
`HUon
`Test Date
`10
`20-30
`30-50
`3-5
`
`JPTO 'J 77. The test results show that although the middle two samples, Samples Band C, were
`
`off specification, both the shoretank sample and the Bow Flora after full-tank loading samples,
`
`Samples A and B, were still on specification when tested in August. In addition, SOS' s
`
`Analytical Report for the Ulsan Tests noted that the visual inspection of Sample C "founded
`
`small particles [sic]," though this was the only retained sample in which particulate matter was
`
`reported. JPTO 'J78.
`
`For reference, the Court has recreated, below, a somewhat simplified version of
`
`Plaintiff's Exhibit 80, which was admitted into evidence and which summarizes the overall
`
`sampling that took place. PX 80. The left hand column shows the test type and the date(s) on
`
`11
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`

`
`Case 1:06-cv-03972-AJN-JCF Document 182 Filed 10/21/13 Page 12 of 22
`
`which those tests took place. The top row or rows, in bold, show the location and date on which
`
`the various samples were drawn.
`
`Shore-
`tank
`Yosu
`(5/20/05)
`
`<5
`
`N//\
`
`'l.***·k
`
`";''i~*'';''"i':
`
`Contem~.
`Test
`5/20-5/24
`Rotterdam
`Test
`7129/2005
`
`Table 4: Overall Test Results
`
`Green Pioneer
`Composite Composite
`After
`Before
`Loading
`Discharge
`(5120/05)
`(5/21105)
`N/A
`3
`
`Bow Flora
`First
`After
`Foots
`Loading
`(5/24/05)
`(5/24/05)
`
`4
`
`4
`
`40-50
`Sample 3
`
`70-80
`Sample 5
`
`60-70
`Sample 2
`
`Rotterdam
`Before and
`After
`Discharge
`(7/21105)
`N/A
`
`>500
`Samples 7,
`8,9
`
`N/A
`
`35-40
`Sample 1
`60-70
`Sample 4
`100-150
`Sample 6
`10
`Sample A
`
`Ulsan Test
`8/812005
`
`3-5
`Sample D
`
`N/A
`
`30-50
`Sample C
`
`20-30
`Sample B
`
`E.
`
`The Investigation
`
`On July 21,2005, shortly after the Phenol arrived off-specification in Rotterdam, Marsh
`
`hired MTD to investigate the cause of that discoloration. PX 68. MTD is a United Kingdom firm
`
`that "speciali[zes] in the forensic investigation of incidents and claims." Minton Decl. ~ 4.
`
`MTD appointed East as the person who would conduct the "day to day conduct" of Marsh's
`
`case, but stated that he was to do so under Minton's supervision. PX 68 at App'x 3.1; DX W.
`
`During the course of the investigation, MTD provided Marsh with at least three reports:
`
`(1) an email report from East to Marsh's representative, Robert Sparrow ("Sparrow"), dated
`
`August 17,2005; (2) a final "Report of Martin East," dated June 23, 2009; and (3) a final
`
`"Report of John Minton," dated February 2, 2010.
`
`In addition to these reports, East had also conducted an initial inquiry and, on July 27,
`
`12
`
`

`
`Case 1:06-cv-03972-AJN-JCF Document 182 Filed 10/21/13 Page 13 of 22
`
`2005, sent an email to Sparrow, noting "that such a large colour change may not be due to any
`
`contamination or transit related event[,] but be due to what is a common cause of phenol
`
`degradation, which is an instability in the material, through its manufacture." DX O. East
`
`cabined this statement, though, adding, "[t]ime and analysis will tell on this one, but there are
`
`many cases of [manufacturing defects] in the past." DX O.
`
`In the August 17,2005, .. Email Report," East detailed the basic underlying facts,
`
`including the results of the Rotterdam Tests and the Ulsan Tests, and discussed potential
`
`explanations for those results and conclusions that could be drawn from them. PX 66. In this
`
`report, unlike in his initial email to Sparrow, East concluded that because the retained sample
`
`from the shoretanks in Y osu (Sample D) remained on specification in the Ulsan Tests, "the cargo
`
`originally loaded out of the shore tank was not inherently colour unstable." PX 66 ~ 5.1. He
`
`noted, instead, that the fact that the retained samples from the Green Pioneer were "found to be
`
`off specification for colour, compared to a sample drawn by SGS and tested on specification at
`
`the time of transshipment ... suggest[ed] that something may have been introduced into the
`
`cargo whilst it was on board [the Green Pioneer], which promoted colour instability." PX 66 ~
`
`5.2. On this, he added, the particles in Sample C "may have some relevance." PX 66 ~ 5.2.
`
`Although Minton was supposed to be supervising East in the creation of this report, and claimed
`
`at trial to have been in constant contact with East during the relevant period, the testimony on
`
`cross-examination established that Minton had been on vacation during that period. Tr. 287: 19-
`
`299:8.
`
`Between sending this .. Email Report" to Sparrow and issuing his final report in June
`
`2009, East also prepared an internal report, in June 2006, in response to a request from Ertisa
`
`regarding a suit Ertisa was bringing against SGS and Heuoung A Shipping, the owner of the
`
`13
`
`

`
`Case 1:06-cv-03972-AJN-JCF Document 182 Filed 10/21/13 Page 14 of 22
`
`Green Pioneer. DX I; DX K; PX 67; Tr. 201-203. In this internal report, East for the first time
`
`mentioned the concept of "seeding," stating that "[o]nce the colour change has started, a
`
`'seeding' action will tend to depress the colour further." PX 67 at 2; Tr. 209. East went on to
`
`state that the Phenol was "probably in apparent good order and condition" after loading to the
`
`Green Pioneer, "some 'seeding' of the colour had started by this time which led to retained
`
`samples being off colour some while later." PX 67 at 2-3. East also posited a number of
`
`potential causes for the injury, stating that seeding was "most probably caused by overheating on
`
`the Green Pioneer," but that "it may have been due additional overheating on the Bow Flora,"
`
`and that the possibility of contamination could not be "entirely discounted." PX 673-4; Tr. 207-
`
`09. This report was never supplied to Ertisa, and that suit was eventually dropped. Tr. 206-07.
`
`In the June 23, 2009, final "Report of Martin East," East provided Marsh with a more in(cid:173)
`
`depth discussion of the background of the investigation, the nature of phenol and phenol
`
`discoloration, and a summary of his conclusions. PX 68. In part, he noted that "[t]he cause of
`
`the colour degradation of this cargo of phenol cannot be stated with certainty," but stated
`
`conclusively that "[ w]hat is known, from the joint analysis in Korea, is that whatever external
`
`cause it arose between the phenol leaving the shore tank and prior to transshipment to the Bow
`
`Flora." PX 68 at 14. In reaching this conclusion, East again ruled out certain potential sources
`
`of the injury -- including manufacturing defects, the presence of copper or water, and exposure to
`
`light or air. He posited, however, that the damage could have occurred as a result of overheating
`
`or the presence of particulates. With regard to overheating, he noted that this could have
`
`occurred either in the shore lines, "when cargo was loaded to the [Green Pioneer]," or, if the
`
`Green Pioneer had its heating coils on prior to loading the Phenol, it could have been scorched
`
`when it was first loaded onto that boat in Y osu. PX 68 at 16. With regard to the presence of
`
`14
`
`

`
`Case 1:06-cv-03972-AJN-JCF Document 182 Filed 10/21/13 Page 15 of 22
`
`particulates, East's report noted there was "some kind of matted material (such as a rag)," that
`
`was found in Sample C, from the Ulsan Tests, and that it "[was] possible that these particles
`
`promoted the discoloration process." PX 68 at 17.
`
`Last, in the February 2, 2010, final "Report of John Minton," Minton altered the relevant
`
`paragraphs about his own personal history, as well as the name on the report, but made no other
`
`changes or alterations to East's final report. PX 69. Indeed, the only differences between the
`
`"Report of Martin East," dated June 23,2009, and the "Report of John Minton," dated February
`
`2, 2010, are the name and date on the report and the initial "Instructions" page of the report. All
`
`other portions are identical. Compare PX 68, with PX 69. These reports, as well as additional
`
`factual and credibility determinations, will be addressed in more depth below.
`
`F.
`
`Expert Experience
`
`In relevant part, Plaintiffs experts' had the following academic and professional
`
`experience with phenol. East is not a chemist and the full scope of his academic study of
`
`chemistry was limited to a single "small" course that he "organized and attended" in the 1980s,
`
`Tr. 42-43. Although he had worked in petrochemical shipping, he had not had any experience
`
`with phenol prior to joining MTD in 1995, and at the time he was assigned to this investigation,
`
`his only exposure to Phenol had been his work on a single case in June 2005. Minton has the
`
`equivalent of an undergraduate degree in chemistry, that he obtained about "40 years ago," and
`
`he only studied phenol insofar as it was or would have been included in his general organic
`
`chemistry classes. Tr.290-91. While at MTD, he had personally dealt with two or three
`
`previous claims involving phenol and although he assumed MTD dealt with many such claims,
`
`when pressed, he could only hypothesize as to how many total claims involving phenol his firm
`
`had dealt with, saying "I am sure we have had quite a few." Tr. 297.
`
`15
`
`

`
`Case 1:06-cv-03972-AJN-JCF Document 182 Filed 10/21/13 Page 16 of 22
`
`G.
`
`Evidence Regarding "Seeding"
`
`Plaintiffs experts theorized that the delay between the alleged injury to the Phenol on the
`
`Green Pioneer and the manifestation of the damage to the Phenol, its discoloration, could be
`
`explained by what they referred to as "seeding." This "seeding" theory, can be summarized as
`
`follows: once an "offending specie(s) or condition(s) 'seeded' the Phenol," such exposure
`
`"caused a slowly unfurling chemical reaction in the Phenol that did not become manifest (by
`
`developing a color change)" until after the Phenol was transferred from the Green Pioneer to the
`
`Bow Flora. East Decl. ~ 30. In his testimony, Minton expanded on this general description of
`
`the experts' theory. He testified that the process of phenol discoloration, also known as
`
`oxidative degradation, "proceeds via free radical chain reactions," which are initiated by
`
`exposure to anyone of the various causes for phenol discoloration. Minton Decl. ~ 22. He
`
`testified that his overall process, which he terms "seeding," begins slowly, "as the first step
`
`requires the greatest activation energy," but stated that an increase in one of the factors that cause
`
`discoloration, e.g.,

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