REVISED - JULY 1, 1998
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
MARGATE SHIPPING COMPANY,
M/V JA ORGERON, her engines, tackle,
apparel, etc., in rem,
UNITED STATES OF AMERICA,
CONTINENTAL UNDERWRITERS, LTD.
MONTCO OFFSHORE, INC., Owner and
operator of the M/V JA ORGERON for
exoneration from or limitation of
MARGATE SHIPPING CO., ET AL.,
MARGATE SHIPPING CO.,
UNITED STATES OF AMERICA,
Appeal from the United States District Court
Eastern District of Louisiana
June 29, 1998
Before GARWOOD, JOLLY, and HIGGINBOTHAM, Circuit
E. GRADY JOLLY, Circuit Judge:
This appeal arises from the grant of what
appears to be the largest maritime salvage award in recorded history. During
a severe tropical storm off the Florida coast, the M/V Cherry Valley, an
oil tanker belonging to Margate Shipping Co., rescued a barge containing
a valuable external fuel tank for NASA's space shuttle. The district court
awarded Margate approximately $6.4 million in salvage. The United States
appeals only as to the amount of the award. Based on the district court's
mistaken valuation of the fuel tank, we reduce the award to $4.125 million
`Twas a dark and very stormy night, November
14-15, 1994, and the situation looked bleak for the barge Poseidon. Caught
in the clutches of Tropical Storm Gordon, Poseidon and her escort, the
J.A. Orgeron, were without power and adrift. Driven on the gales of the
tempest, the flotilla was swiftly approaching the Bethel Shoal; if they
ran aground, the ships were sure to founder and belost. Acutely aware of
the danger, Orgeron's captain radioed for help. Alas, the Coast Guard was
not in a position to mount a rescue. In despair, the captain made plans
to release Poseidon and her valuable cargo, an external fuel tank for the
space shuttle. Although this action would result in the certain loss of
Poseidon and the tank, the captain hoped thereby to save Orgeron and her
The voyage had begun some five days earlier.
On November 10, Orgeron left New Orleans harbor with Poseidon in tow. Orgeron
was an ocean-going tug being operated by Montco Offshore, Inc., under contract
for NASA. Under that contract, Orgeron's principal task was to transport
space shuttle fuel tanks from Martin Marietta's assembly plant in Michoud,
Louisiana, around the Florida peninsula to Kennedy Space Center on Cape
Canaveral. For this work, Orgeron used Poseidon, a NASA-owned ocean-going
barge that had been specially fitted with a covered hangar large enough
to contain a fuel tank. On this trip, Poseidon was loaded with the freshly
manufactured tank designated ET-70 and an associated transport.
Shortly after leaving New Orleans, Orgeron's
"jockey arm," a bar connecting its two rudders, broke, resulting in the
complete disabling of the starboard rudder for the duration of the voyage.
Rather than put in for repairs, however, Orgeron pressed on, relying on
the still functional port rudder to see her through.
On November 13, as Orgeron and Poseidon rounded
the southern tip of Florida, they began to encounter increasingly severe
winds and heavy seas generated by Tropical Storm Gordon.3
Concerned by the rapidly worsening weather, Orgeron's captain radioed Montco,
asking for permission to seek refuge from the storm in Miami. Permission
was denied, as reflected by the following notation in Orgeron's Weather
Log: "Recommendation to put into Miami--NASA requested to continue on."
At approximately 2:00 a.m. on November 15,
Orgeron lost the effective use of both her engines.6
At the time, the flotilla was between ten and eighteen miles off Florida's
Atlantic coast, somewhere between Fort Pierce and Cape Canaveral. Without
Orgeron's engines, the tug and barge were left adrift, and began to be
blown west towards shore.9 Orgeron immediately
notified theCoast Guard of her predicament, and requested assistance. Because
of the storm's ferocity, however, the Coast Guard was unable to help.
Without hope of rescue, Orgeron's captain
considered his options. He surmised that the flotilla was being blown toward
shore chiefly because of the sail effect of Poseidon's tall hangar. He
concluded that Orgeron and her crew might be able to stave off grounding
in the storm by releasing Poseidon and delivering the barge to her fate.
Preparations were made, but before this contingency became necessary, the
captain received word that help was on the way after all.
Orgeron's distress call had been picked up
by the M/V Cherry Valley. Cherry Valley was a 688-foot oil tanker owned
by Margate with a crew of 25 and a value of $7.5 million. On November 15,
the ship was fully laden with nine million gallons of heavy fuel oil and
had a draft of about 35 feet. She was pursuing a course in deep water somewhat
south of Orgeron's position when she picked up the distress call. Although
under no obligation to assist, Cherry Valley's master, the suitably named
Captain Strong,12 immediatelyaltered course to
rendezvous with the tug. In so doing, he took his relatively unmaneuverable
craft into perilous shoal waters in direct violation of standing orders.
Cherry Valley arrived on the scene shortly
after 4:00 a.m., whereupon Captain Strong decided to try to pass a line
to Orgeron and tow the flotilla to safety. To do this, however, he would
need to maneuver clumsy Cherry Valley directly alongside Orgeron in the
churning seas. Time was short, as the vessels were rapidly approaching
the Bethel Shoal; the Shoal had depths of six to seven fathoms in places,
far too shallow for Cherry Valley, which required at least ten fathoms
for safe operation in heavy seas. The flotilla had almost reached this
depth when Cherry Valley arrived.
Captain Strong's plan was to pass close enough
to Orgeron to send over a messenger line on a line-throwing rocket. This
line could then be used to transfer larger mooring lines capable of sustaining
the tow. Captain Strong ordered several crewmen onto deck to conduct the
line-passing operation. Throughout the salvage operation, Cherry Valley's
deck would be awash with green seas and extremely dangerous, even for experienced
On Cherry Valley's first pass, the messenger
line fell short, and Captain Strong was forced to bring the ship about
for another attempt. This time, he passed even closer to Orgeron, and the
messenger line was successfully transferred. It parted, however, before
the deck crew was able to transfer a mooring line, and Captain Strong was
compelled to bring Cherry Valley about once more.
Time was becoming increasingly critical. The
vessels were now less than one mile from the Shoal, and the water was becoming
quite shallow. If Cherry Valley ran aground in the storm, she would likely
break up and cause a massive oil spill. In full awareness and express consideration
of this danger, Captain Strong informed Orgeron that he would only make
one more attempt.
Fortunately, the third effort was successful.
Cherry Valley's deck crew managed to pass two hawsers18
to Orgeron, which were quickly made fast. During the transfer, however,
Cherry Valley passed over the tow line running between Orgeron and Poseidon.
Captain Strong held his breath waiting to know if the line would foul Cherry
Valley's rudder or propeller. It did not. If it had, Cherry Valley likely
would have found herself in the same predicament as Orgeron and Poseidon.
At 6:20 a.m., Cherry Valley finally was able
to take the flotilla in tow. By this time, her propeller was churning mud
and the fathometer indicated that there were less than ten feet between
her keel and the bottom.
With Orgeron and Poseidon in tow, Cherry Valley
steamed slowly southeast, back into deep water. The tow put great strain
on the hawsers and chocks, however, which required constant attention in
the form of "slushing."21 In addition to the inherent
dangers of being on deck in the storm, slushing put Cherry Valley's deck
crew in constant danger of being struck by a parting line; a hawser that
parts under great strain can snap like a giant rubber band, causing severe
injury to all nearby.
At 11:00 a.m., the tug South Bend arrived
on the scene from Fort Pierce and attempted to assist. Because of the extreme
sea and weather conditions, however, South Bend was unable to pass a line
to Orgeron, or to put a crewman aboard Poseidon to operate her anchor.
Unable to help and now fearful for his tug's own survival, South Bend's
master decided to retreat. His fears were justified. While returning to
port, South Bend was overcome by the seas and began to sink. She issued
a mayday call, but no one could assist. She was just able to pass within
the Fort Pierce harbor jetty, where her captain intentionally grounded
her to avoid a total loss. It was the district court's undisputed finding
that the actions of South Bend would have had no effect on the outcome
for Orgeron and Poseidon in the absence of Cherry Valley, both because
she would have arrived too late and because she would have been unable
to render effective assistance in the storm.
At this point, the tempest began to overcome
even Cherry Valley. Because of the strain on the hawsers, she was not able
to steam directly into the wind. As the storm worsened, she was pushed
westward, back into the shallows. Out of options, Captain Strong decided
to anchor and ride out the rest of the storm. Although this operation exposed
the deck crew to additional risks, it was accomplished without incident
at 5:00 p.m.
While anchored, one of the mooring lines parted.
Cherry Valley's deck crew was able to replace and supplement it, and the
flotilla remained intact.
The vessels remained at anchor throughout
the night of November 15 and the following day, with Cherry Valley's deck
crew constantly tending the lines. During that day, NASA was able to contract
with the tug Dorothy Moran to relieve Orgeron and bring Poseidon into port.
On the evening of November 16, Dorothy Moran arrived on the scene. Like
South Bend, however, she was unable to pass a line to Orgeron or Poseidon,
or to put a crewman aboard the barge. After several unsuccessful attempts,
Dorothy Moran returned to Fort Pierce to await daybreak and better weather.
By midmorning of November 17, the storm had
finally passed and Dorothy Moran and another tug were able to relieve Cherry
Valley. Orgeron was towed to Fort Pierce, while Dorothy Moran completed
Orgeron's contract and towed Poseidon to Port Canaveral. ET-70 was delivered
intact and completely unharmed, and was later used in a successful space
ET-70 itself had been manufactured under a
long-term contract between NASA and Martin Marietta. The contract provided
for the production of sixty fuel tanks for a total price of $3.4 billion,
with the last tank to be delivered on September 29, 2000. Every tank was
needed for NASA's planned series of missions. Under NASA's plan, however,
a minimum of four tanks were slotted to be complete and available ("in
circulation") at all times relevant to this case.
As part of NASA's standard procurement procedure,
each tank produced under the contract was accompanied by a "Material Inspection
and Receiving Report," otherwise known as a "DD-250." Among other things,
the DD-250 contained an estimated production cost of the particular tank
being delivered. In the case of ET-70, the DD-250 cost was $53,834,000.
The next tank in the production cycle, ET-71, had a DD-250 cost of $51,387,000.
The difference in price is basically attributable to the fact that, as
the contract progressed, various overhead items declined in cost. There
is nodispute that, had ET-70 been lost, ET-71 would likely have taken its
place on the designated mission.
On December 21, 1992, acting on NASA's specific
request, Martin Marietta gave the government an "option" on up to four
additional tanks to be produced during the course of the contract for a
total additional cost of $19,014,479 per tank. The option provided for
a thirty-six month minimum lead time for the order of an additional tank,
and although NASA provided no consideration for the option, Martin Marietta
declared that its terms constituted a "firm price" offer. The government
never accepted this offer, however, and it was eventually withdrawn, again
at NASA's specific request, approximately six months before the events
in this case.
On December 12, 1994, Margate filed an action
for salvage against the J.A. Orgeron in the Federal District Court for
the Eastern District of Louisiana. Montco answered, and then filed its
own claim for limitation of liability. The United States, fearing an eventual
salvage action against itself, filed a claim in the limitation action seeking
indemnification from Montco. Margate then filed a cross-claim for salvage
against the United States. Eventually, everything was settled except for
Margate's cross-claim against the United States, which went to trial in
July 1996 before District Judge Stanwood Duval.
On July 9, after a brief bench trial, Judge
Duval read his findings of fact and conclusions of law into the record.
In a reasoned oral ruling, he found that, based on the entirety of the
evidence, Margate was entitled to a salvage award equal to 12.5% of the
value of the salved property, Poseidon and ET-70.
In reaching this figure, Judge Duval relied
on the six traditional salvage factors first announced24
in The Blackwall, 77 U.S. 1, 14 (1869). He determined that the facts
of the case pointed to the highest possible award under each of the factors,
and chose what he considered to be a high percentage of a high salved value
to reflect this circumstance. Judge Duval also considered the application
of a seventh factor, the "salvors' skill and effort in preventing or minimizing
damage to the environment," as announced in Trico Marine Operators,
Inc. v. Dow Chemical Co., 809 F. Supp. 440, 443 (E.D. La. 1992), but
ultimately concluded that it was not applicable to the case. He did consider
the risk of environmental liability incurred by Cherry Valley under the
rubric of the traditional factors, however.
With regard to ET-70, Judge Duval determined
that it was specialized property without a market value, and therefore
most appropriately appraised at its "replacement cost." This value, hefound,
was the production cost of ET-71, $51,387,000, because ET-71 was the likely
"replacement" of ET-70. In making this finding, Judge Duval explicitly
rejected the government's argument for a $19 million replacement cost based
on the withdrawn 1992 option, calling it "much too speculative." He also
rejected Margate's argument for a $92 million "cost-accounting" valuation.
Combining this $51 million value for ET-70
with the $2 million stipulated value of Poseidon, Judge Duval declared
a total award of $6,406,440 based on the 12.5% figure. He noted in the
alternative that, even if the value of ET-70 were only $19 million as the
United States claimed, the award would be the same as he would adjust the
percentage accordingly. On July 12, final judgment was entered for Margate
in the amount of $6,406,440. The United States appeals the amount of this
Because of the fact-specific nature of the
calculation of a salvage award, "the amount allowed is to be decided by
the district court in its sound discretion." Allseas Maritime, S.A.
v. M/V Mimosa, 812 F.2d 243, 246 (5th Cir. 1987). "[A]n award will
be altered only if it was based upon incorrect principles of law or misapprehension
of the facts or it is either so excessive or so inadequate as to indicate
an abuse of discretion." Id. This standard of appellate review is
a time-honored and integral part of American maritime law, and has changed
little since its infancy. See, e.g., Hobart v. Drogan, 35
U.S. (10 Pet.) 108, 119 (1836) (Story, J.) ("[T]his court is not in the
habit of revising such decrees as to the amount of salvage, unless upon
some clear and palpable mistake or gross over-allowance of the court below.");
Oelwerke Teutonia v. Erlanger & Galniger, 248 U.S. 521, 524
(1919) (Holmes, J.) ("Unless there has been some violation of principle
or clear mistake, appeals to this Court concerning the amount of the allowance
are not encouraged."); 3A Martin J. Norris, Benedict on Admiralty
§ 311 (7th ed. 1997) ("An appellate court is, generally speaking,
loath to change a salvage award."). We keep this well-hewn principle firmly
in mind as we embark upon the somewhat more intensive investigations necessitated
by the instant case.
An award of salvage is generally appropriate
when property is successfully and voluntarily rescued from marine peril.
The Sabine, 101 U.S. 384 (1880). As Justice Marshall noted long
ago, this rule is peculiar to maritime law, and utterly at variance with
terrene common law. Mason v. The Blaireau, 6 U.S. 240, 266 (1804)
(Marshall, J.) (although it is true that, when property on land exposed
to grave peril is saved by a volunteer, no remuneration is given, "[l]et
precisely the same service, at precisely the same hazard, [b]e rendered
at sea, and a very ample reward will be bestowed in the courts of justice").
Because of the peculiar dangers of sea travel, public policy has long been
held to favor alegally enforced reward in this limited setting, to promote
commerce and encourage the preservation of valuable resources for the good
of society. See B.V. Bureau Wijsmuller v. United States,
702 F.2d 333, 337 (2d Cir. 1983) ("The law of salvage originated to preserve
property and promote commerce.") (citing Seven Coal Barges, 21 F.
Cas. 1096, 1097 (C.C.D. Ind. 1870) (No. 12,677) ("The very object of the
law of salvage is to promote commerce and trade, and the general interests
of the country, by preventing the destruction of property.")).
1. The labor expended by the salvors in rendering
the salvage service.
In this case, there can obviously be no dispute
that the basic elements supporting a salvage award are present, and the
United States has expressly conceded that Margate is entitled to some award.
As noted, the question for this court is simply how high that award should
The district court traditionally determines
the amount of a salvage award according to the six Blackwall factors.27
Allseas, 812 F.2d at 246 & n.2. They are (in order of original
2. The promptitude, skill, and energy displayed
in rendering the service and saving the property.
5. The value of the property saved.
3. The value of the property employed by the
salvors in rendering the service, and the danger to which such property
4. The risk incurred by the salvors in securing
the property from the impending peril.
6. The degree of danger from which the property
The Blackwall, 77 U.S. 1, 14 (1869)
(Clifford, J.). Although old, "[t]hese guidelines have weathered the storms
of the past century." St. Paul Marine Transport Corp. v. Cerro Sales
Corp., 505 F.2d 1115, 1120 (9th Cir. 1974).
In this case, the district court made the
following findings under the factors, listed here in order of the court's
assessment of their importance to the calculation of an award:
3. (Blackwall 4.) The salvors incurred
extremely high risk in securing Poseidon and ET-70, both as to loss of
their ship and lives and as to the creation of substantial environmental
liability in the event of an oil spill.
1. (Blackwall 6.) Poseidon and ET-70
were in imminent danger of complete loss.
2. (Blackwall 5.) The combined value
of Poseidon and ET-70 was $53,387,000.
4. (Blackwall 2.) The salvors displayed
extremely high promptitude, skill, and energy in rescuing Poseidon and
ET-70 by virtue of their daring and successful seamanship under very difficult
5. (Blackwall 3.) The value of Cherry
Valley was $7.5 million.
6. (Blackwall 1.) The salvors expended
two and one-third days of labor in rendering the salvage service.
As noted, the district court determined that
each factor indicated the highest possible award, and it chose 12.5% of
the salved value as an appropriate figure.
The United States makes three basic challenges
to the district court's analysis. First, it argues that the court erred
in its general application of the Blackwall factors, by giving too
much weight to the value of the salved property, by counting the potential
for environmental liability as risk to the salvors, and by using a percentage
of the salved value to fix ultimately the award. Second, even assuming
that the district court made a correct legal interpretation of the factors,
the United States argues that the district court clearly erred in its valuation
of ET-70. Finally, even assuming that the district court made a correct
legal interpretation of the Blackwall factors and properly valued
ET-70, the United States argues that the court nonetheless abused its discretion
in picking such a high percentage and generally making such a large award
in this case. We address each argument in turn.
To address properly the United States's first
contention, it is necessary to excavate the somewhat obscure foundations
of theBlackwall rule. As many commentators have noted, the sense
and contours of the factors are less than plainly engraved upon their face.30
In this case, however, the United States squarely asks us to decide whether
the particular interpretation and application adopted by the district court
comports with the factors' essential meaning. In order for us to answer
this question, we must first ascertain what purpose the factors serve.
Maritime salvage is as old and hoary a doctrine
as may be found in the Anglo-American law. Since time immemorial, the mariner
who acted voluntarily to save property from peril on the high seas has
been entitled to a reward. This simple rule has been an integral part of
maritime commerce in the western world since the western world was civilized.33
Simple in principle, in the many centuries
of its existence, the law of salvage has become encrusted with a multitude
of court-created doctrinal complexities; the Blackwall factors are
merely the most prominent example of this phenomenon. As modern scholarship
has taught us, these legal barnacles are the natural and desirable results
of the common law process. Court by courtand case by case, the law of salvage
has been steadily honed to ever greater levels of efficiency over the years,
with the resultant rules serving as a convenient shorthand for the complex
calculations of compiled experience. In examining the underlying logic
of the Blackwall factors, we do not take lightly their role in summarizing
this most succinct and practical of legal processes. Still, in the light
of the United States's challenge in the instant case, we think that this
is an appropriate time for the underlying rationale of Justice Clifford's
venerable factors to be formally recognized.
Fortunately, the principles underlying the
Blackwall factors have not escaped the attention of our most prominent
modern scholars. See William M. Landes & Richard A. Posner,
Salvors, Finders, Good Samaritans, and Other Rescuers: An Economic Study
of Law and Altruism, 7 J. Leg. Stud. 83 (1978). Beginning with our
first principle that the law of salvage seeks to preserve society's resources,
they explain that "the purpose of [court-granted] salvage awards is to
encourage rescues in settings of high transaction costs by simulating the
conditions and outcomes of a competitive market." Id. at 100. In
an ideal world, every meeting of salvor and salvee would result in a freely
negotiated contractfor salvage services priced at a competitive level.36
Id. at 89. In the real world, however, most meetings of salvor and
salvee cannot be resolved in this fashion.
To accommodate this reality, the law of salvage
aims to create a post-hoc solution that will induce the parties to save
the ship without first agreeing on terms. Id. at 100. As Justice
Clifford himself noted, "[c]ompensation as salvage is . . . viewed by the
admiralty courts . . . as a reward given for perilous services, voluntarily
rendered, and as an inducement to seamen and others to embark in such
undertakings to save life and property." The Blackwall, 77 U.S.
at 14 (emphasis added).
In order properly to induce the salvor (and
salvee) to act, however, the law must provide for a proper and reasonable
salvage award, one that gives neither the salvor too little incentive to
do the salvage properly, nor the salvee too little reason to care if his
property is saved. Landes & Posner, 7 J. Leg. Stud. at 102. By definition,
this "efficient" fee is the one that would have been reached by the parties
through voluntary negotiation in an open and competitive market, and its
value will depend on a number of factual considerations. Id. By
far the most important of theseconsiderations, however, will be the cost39
to potential salvors of performing the service and the benefit to the salvee
of it being performed; obviously, no voluntary salvor would be willing
to perform a salvage for less than it would cost him to do it, just as
no salvee would agree to pay more for a salvage than the loss he could
thereby avoid. Id. In a voluntary agreement between salvor and salvee,
therefore, as in any agreement between arm's-length parties in any context,
the twin considerations of cost and benefit will form the poles of negotiation
between which any fair bargain must be struck. Should the gap between cost
and benefit prove illusory, as when the costs of the service outweigh the
benefits to be derived, then no agreement will be possible, and the parties
must go their separate ways.
With this background in mind, it becomes immediately
apparent that the Blackwall factors represent an explicit guide
for the court to use in measuring these two most significant considerations
for voluntary negotiation in the salvage context. Id. at 101-04;
see also Allseas, 812 F.2d at 246 ("the factors guide the
trial court in fulfilling the public policy behind salvage awards"). Labor
expended by the salvors (1.), their promptitude and skill (2.), value of
the salving property (3.), risk to the salvors (4.),and risk to the salved
property (6.)42 are all direct or indirect measures
of the actual cost to the salvor of performing the salvage in question,
which should in turn be at least indicative of the costs that would have
prevailed. Correspondingly, value of the salved property (5.) and risk
to the salved property (6.) are measures of the benefit that the salvage
has conferred on the salvee. By giving the court a framework in which to
analyze cost and benefit in the salvage context, the Blackwall factors
plainly intend to guide it in a rational process of determining and weighing
the costs and benefits of the particular transaction so that the award
chosen will give the proper inducement to the saving of life and property.
With this rationale in mind, we turn to the
specifics of the United States's initial argument. There are three parts,
all revolving around a core contention that the district court erred in
its general assessment and application of the Blackwall factors.
Essentially, the United States argues that the court erred: (a) bygiving
too much weight to the value of the salved property; (b) by counting the
potential for environmental liability as risk to the salvors; and (c) by
using a percentage of the salved value ultimately to fix the award. We
address each point in turn.
The United States first complains that the
district court gave too much weight to the fifth factor--value of the salved
property--by ranking it second in its assessment of the considerations
bearing upon an award. In the light of our just-concluded explication of
the function of that factor, this contention is readily seen to be wholly
lacking in merit.
As the principal measure of the benefit of
the salvage to the salvee, the fifth is clearly one of the most important
of the Blackwall factors, and must be accorded substantial deference
in the calculation of any award. As our above discussion begins to clarify,
salvage awards are not based on the altruistic principle of good samaritanism--that
virtue is its own inducement and its own reward. To paraphrase and distill
its many distinguished commentators, the very object of the law of salvage
is to provide an economic inducement to seamen and others to save property
for the good of society by bestowing a fitting reward for their services
in the courts of justice. It is profit, not principle, that is the driving
force behind the law of salvage, and the question for the court is simply
what amount of profit is fittingin the case before it. The general economic
reality is simply that, the greater the value of the threatened property,
the greater the potential loss, and, consequently, the more the salvee
would be willing to pay to save that property from destruction. To approximate
properly the incentive that the salvee himself would offer, it follows
that the law of salvage must generally grant its highest awards where the
property has highest value (assuming the other factors remain constant).45
See Landes & Posner, 7 J. Leg. Stud. at 103-04.48
In setting the price for the salvage service,
therefore, the court must consider--and consider primarily--the benefit
that the service conferred on the recipient. In a case like the one beforeus,
where the benefits of the salvage are numerically so far in excess of the
costs--that is, the value of the property so high and the risk of loss
so great--this primary consideration becomes dispositive. We are therefore
confident that the district court did not overly emphasize the fifth factor
in its analysis in this case, and are skeptical that an overemphasis would
have been possible. See also Platoro Ltd. v. The Unidentified
Remains of a Vessel, Her Cargo, Tackle, and Furniture, in Cause of Salvage,
Civil and Maritime, 965 F.2d 893, 904 n.16 (5th Cir. 1983); Norris
§ 237; Gilmore & Black at 560 (all ranking the factors as the
district court did here, with the sixth and fifth factors being the first
and second most important, respectively).
The United States next argues that the district
court erred by counting the risk of environmental liability as risk to
the salvors under the fourth factor, when it should more properly have
counted against them in some way. There is no merit to this contention
As just discussed, the fourth factor is intended
to provide a direct measure of some of the salvor's actual salvage costs.
In this context, there is no principled reason to distinguish between the
costs imposed by the risk of injury or death, and those costs imposed by
the risk of negligence liability or strict environmental damage liability.
All are actual costs to the salvor, and he wouldpresumably be unwilling
to perform the salvage service without their recompense. For this reason,
the risk of environmental liability was properly counted under the rubric
of the fourth factor.51
This analysis is not altered by the fact that
the district court did briefly consider the extra-Blackwall environmental
protection factor announced in Trico. That case announced
an additional factor, general protection of the environment by the salvors,
see 809 F. Supp. at 443, which has never been endorsed by this court.
In this case, the district court concluded that the salvors did not achieve
any significant protection of the environment, and therefore it did not
apply the factor. That decision did not preclude the court from properly
considering allof the legal risks that Margate incurred, environmental
or otherwise, under the rubric of the traditional factors.
Finally, and most significantly, the United
States also complains that the district court erred by using a percentage
of the salved value in its ultimate calculation of the salvage award. There
is no merit to this contention either.
We note at the outset that this court itself
applied a percentage-based calculation in modifying an award in our most
recent salvage case. See Allseas, 812 F.2d at 247. Furthermore,
and as we just stated above, our analysis of the economic foundations of
the Blackwall rule indicates that the value of the salved property
is one of the most important of the factors. The most natural way to effectuate
its salient character is simply to make the award a function of that value.
See Landes & Posner, 7 J. Leg. Stud. at 103-04 (concluding that
this is what courts have correctly done); accord Gilmore & Black
at 563. Indeed, since the era of the Rhodian law itself,54
courts have applied percentages of salved value in calculating awards.
Although Justice Clifford's opinion in The Blackwall itself heralded
an end to the earlier practice of using a fixed percentage or "moiety"
across all situations, see Gilmore & Black at 563; Jones
v. Sea Tow ServicesFreeport NY Inc., 30 F.3d 360, 364 (2d Cir. 1994);
The Kia Ora, 252 F. 507, 511 (4th Cir. 1918), we see no reason why
the district court may not use the other five factors to set a customized
percentage to be applied to the salved value for purposes of calculating
an award in the case before it. See Compagnie Commerciale de
Transport à Vapeur Francaise v. Charente Steamship Co., 60 F.
921 (5th Cir. 1893) (acknowledging the incorrectness of the fixed percentage
method, yet upholding a customized percentage award). Based on our interpretation
of the purpose of the Blackwall factors, we can indeed think of
no more appropriate way to effectuate their goals.
Consistent with our earlier analysis of the
factors, we therefore expressly state (to the extent that the issue may
have been in doubt) that an approved method for calculating salvage awards
is to use the first, second, third, fourth, and sixth factors to arrive
at a percentage to be applied to the fifth factor, salved value, for purposes
of establishing the award. In setting the percentage, some care should
of course be taken to stay within the bounds of historical practice, see
Section C, supra, and to account for all of the relevant circumstances
of the specific salvage at issue. The predominant consideration, however,
should always be to arrive at an award that reasonably reflects the price
upon which the parties would have agreed. To the extent that the district
court merely applied this formula and adopted acalculation based upon a
percentage of salved value, it committed no abuse of discretion in this
Although none of the United States's own
arguments with regard to interpretation of the factors bears any fruit,
we feel compelled to raise one additional concern that has been fairly
implicated, even if not squarely addressed.
For what the district court did in this case
goes just a bit beyond the approach that we have outlined and approved.
The court first held that the Blackwall factors indicated an award
of 12.5% of the salved value in this case. So far, so good.57
After determining that the salved value was $53 million, however, the court
also noted that, even if the value were actually lower, as the United States
argued, the dollar amount of the award would remain the same, as the court
would adjust the percentage accordingly.
Based on our above interpretation of the Blackwall
factors, we cannot approve this alternate holding. To do so would completely
vitiate the effect of the fifth factor, and it is clear that such a holding
would exceed the district court's discretion. Under our longstanding precedent,
the district court is bound to apply all of the factors. Allseas,
812 F.2d at 246; Platoro, 695 F.2d at 903. Furthermore, as the often
critical measure of the arm's-length salvage price that the Blackwall
rule attempts to ascertain, it is clear that value of the salved property
is one of the most important of the factors, and the one that truly cannot
be ignored. To the extent that the district court attempted to evade the
fifth factor by tying the percentage to a fixed dollar amount, we reverse
that portion of its ruling. For the remainder of this opinion, we may therefore
restrict our discussion to the district court's primary holding that an
award of 12.5% of the salved value was appropriate, and that this figure
was approximately $6.4 million.
To determine whether that holding may be allowed
to stand, we must consider the United States's two remaining major complaints,
i.e., that the value assigned to ET-70 was a clear error, and that the
overall award was excessive both as to percentage and total dollar value.
We address each in turn.
The United States's second major contention
is that the district court clearly erred in its valuation of ET-70. In
this complaint, we must agree.
At the outset, we note that "[i]n reviewing
a district court's valuation . . . in a bench trial, we must accept all
factual findings unless clearly erroneous." E.I. DuPont de Nemours &
Co. v. Robin Hood Shifting & Fleeting Service, Inc., 899 F.2d 377,
379(5th Cir. 1990). Nonetheless, where valuation is concerned, the district
court's methodology must be based upon principles that reflect sound reasoning.
See, e.g., Compagnie Commerciale, 60 F. at 923-25. In this
case, it was not.
Generally, the value of property for salvage
purposes is its market value as salved. See Norris § 263; Gilmore
& Black at 561 n.89a; Nolan v. A.H. Basse Rederiaktieselskab,
267 F.2d 584, 588 (3d Cir. 1959). In the case of a unique good like a space
shuttle fuel tank, however, this measure is clearly inapposite; as there
is no market of any kind for space shuttle fuel tanks, there can be no
In this situation, and bearing in mind that
ET-70 remained in perfect condition despite the trials of the storm, the
parties now agree that the most appropriate measure of value is "replacement
cost." This conclusion accords with this circuit's decisions in other areas
of maritime law. See, e.g., E.I. DuPont de Nemours & Co.,
899 F.2d at 380 (in maritime tort context, "[w]hen no market value exists
for a vessel, `other evidence such as replacement cost . . . can also be
considered'") (quoting King Fisher Marine Service, Inc. v. NP Sunbonnet,
724 F.2d 1181, 1185 (5th Cir. 1984)); cf. The F.I. Robinson,
2 F. Supp. 644, 645 (E.D.N.Y. 1933) (market value preeminent, but reproduction
cost may be considered in its absence). The question becomes how replacement
cost is to be determined.
The United States argues that the district
court erred by using the DD-250 cost of ET-71 to measure the replacement
cost of ET-70. It contends that the court should have based its valuation
on what it would actually have cost NASA to purchase a replacement tank,
and that this figure was conclusively established to be $19 million by
the 1992 option.
Based on our earlier discussion of the purposes
of salvage law, we are convinced that the United States is quite correct,
at least in part. The purpose of establishing the value of the salved property
is to ascertain what benefit the salvage service conferred on the salvee;
what we wish to know, in the end, is what the salvee was saved from so
that we may establish what he reasonably would have paid for the benefit
of the saving. Where the benefit to the salvee must be measured by the
replacement cost of the salved property, that figure should reflect the
contemporary price to the salvee of actual replacement. In this case, that
price would simply be the amount that NASA would actually have had to pay
Martin Marietta for them to make a new ET-70.
The district court made no effort to ascertain
this figure, despite ample evidence in the record. Instead, it engaged
in a semantic analysis of the literal meaning of the word "replacement,"
an analysis that failed to capture the economic reality of determining
actual replacement costs. If a party has several ofsomething, and one is
destroyed, his substitution of a second thing from his inventory simply
does not constitute a "replacement" of the destroyed item for valuation
purposes, since the party owned the "replacement" all along. In this case,
NASA would not have replaced ET-70 by using ET-71 on its designated mission;
in the end, NASA would still have had one less tank in its inventory than
it had before the storm. The question the district court should have asked
is what it would have cost NASA to get Martin Marietta to build another
tank. This, in the end, was the replacement expense that NASA was saved
from by Captain Strong's decisive action.
On this point, the evidence was absolutely
undisputed that NASA could have purchased an additional tank for approximately
$19 million60 in out of pocket expense at the
time of the salvage. Martin Marietta had made a binding offer to produce
up to four additional tanks for this price, and although the offer had
been recently withdrawn, there was no evidence to suggest that it no longer
accurately reflected what Martin Marietta would charge. True, the district
court held that the "option" was too "speculative" to be relied on. This
finding, however, was completely at odds with the record. In the light
of all the evidence, we are convinced that it was in clear error.
We find this to be the case principally because
the "option" was not really an option at all, but simply a firm offer.
It represented Martin Marietta's unilateral offer to produce up to four
additional tanks for a price certain, and was not in any respect an option
contract supported by separate consideration. As such, the fact that it
had been technically withdrawn, at NASA's request, six months before the
salvage is of no moment. The only thing that might have cast doubt on the
accuracy of the option's price would have been evidence of changed circumstances
in the intervening time period. As there was no evidence of such changed
circumstances, the district court was bound to accept the implications
of the option.63
Unfortunately for the United States, this
holding does not quite end our inquiry. For although the "option" price
was conclusive as to NASA's probable out of pocket expense in obtaining
a replacement for ET-70, it did not address all of the probable replacement
Any calculation of replacement cost must be
based on a replacement that is comparable to the lost item in all material
respects. E.I. DuPont de Nemours & Co., 899 F.2d at 382. In
order truly to replace ET-70, Martin Marietta would have had to provide
NASA with a new tank that incorporated all of the material features of
the old one, both physical and temporal. Although payment of the option
price would have been sufficient to obtain a new tank with all the requisite
physical characteristics, that tank would have been somewhat faulty as
a temporal matter in that it would only have become available for use three
years after ET-70's designated mission. In a very real sense, ET-70's value
to NASA was enhanced by the fact that it was a completed tank, available
for immediate use.66 Although the record is clear
that no mission need necessarily have been postponed by a delay in ET-70's
replacement, it is also clear that for three years' time NASA would have
had three usable tanks in circulation instead of its desiredminimum of
four. Because ET-70's existence avoided this three-year shortfall, any
acceptable replacement plan would have had to address it as well. Because
the tank available under the option could not have done so,69
it would have been partially defective.
Where the available replacement is less than
comparable in some material way, the court must take the defect into account
in calculating the overall replacement cost. E.I. DuPont de Nemours
& Co., 899 F.2d at 382 (where replacement cost of large unique
barge was partially based on multiple smaller replacement barges, district
court should have taken the increased costs associated with multiple trips
into account). To complete ET-70's valuation in this case, we must therefore
calculate an appropriate addition to address NASA's probable costs in curing
the temporal defect. To do so, the question this court must ask is exactly
how much the avoidance of a three-year, one-tank shortfall in NASA's tank
circulation plan would have been worth.
Convenient to our decision today, the evidence
on that point was undisputed and conclusive, as it came directly from NASA
itself. In setting a minimum circulation of four tanks, NASA determined
that it was worthwhile to have four tanks in circulation at all times instead
of three. The reasons for this judgment nodoubt included a desire to allow
for additional defects, a commitment to avoid all foreseeable delays, and
a host of other factors irrelevant to the instant analysis. The important
point is simply that to fulfill its goals NASA itself decided to immobilize
approximately $50 million72 in additional capital
every year to ensure that there were four tanks in circulation instead
of three. In more colloquial terms, by keeping four tanks in circulation
at all times instead of three, NASA was making a conscious choice to take
$50 million from its budget and put it on a shelf instead of spending it
on other things.
Although the government is sometimes wont
to think otherwise,75 money is now well known
to have a time value. See Atlantic Mutual Ins. Co. v. Commissioner
of Internal Revenue, 118 S.Ct. 1413, 1415 (1998). The three-year treasury
bill rate on November 15, 1994, was 7.41%, and we are confident that the
cost to the United States of immobilizing $50 million over the three years
in question was approximately (1.07413 - 1) x $50 million =
$12 million. Whatever risks and costs NASA would have incurred by having
three tanks in circulation instead of four, NASA itself determined that
these risks were worth about $12 million to avoid. By rescuing ET-70,Captain
Strong saved NASA from this $12 million in additional risks and costs as
well, and it must be counted towards a proper valuation of the tank.
Combining this additional $12 million with
the $19,014,479 figure from the option, we arrive at a total replacement
cost for ET-70 of approximately $31 million. We therefore hold that the
district court was clearly in error in valuing ET-70 at $51,387,000, and
that the correct value was $31 million. Adding the $2 million stipulated
value of Poseidon, this leaves a total value for the salved property of
$33 million.78 Applying the district court's
12.5% salvage percentage, see Compagnie Commerciale, 60 F.
at 924 (applying the district court's choice of customized salvage percentage
to a corrected salved value in computing the ultimate modified award),
we are left with a new salvage award of $4.125 million.
With this new figure in hand, we may address
the United States's final complaint. Essentially, the United States argues
that, even assuming a correct and error-free assessment of the Blackwall
factors, any award in excess of either $2.5 million or10% of the salved
value constitutes an abuse of discretion in this case. The United States
made this argument originally with respect to the district court's $6.4
million/12.5% award. As it is equally applicable to our amended $4.125
million/12.5% figure, we must briefly address it before we can bring this
case to a close. For the reasons that follow, we hold that a $4.125 million/12.5%
award is not so excessive as to constitute an abuse of discretion in the
context of this case.
Consistent with our earlier analysis of the
economic principles underlying the law of salvage, the only hard numerical
limitation that this court has ever placed on salvage awards is the full
value of the salved property. Allseas, 812 F.2d at 246-47 (reducing
an award of 150% of the value of the salved property to 67.5% thereof).
As we have already said, no reasonable salvee would ever contract for the
salvage of property at a price greater than its value.
For awards, like the current one, that are
far below the absolute limit of Allseas, we have repeatedly emphasized
that the determination of the particular amount (or percentage) is a factual
inquiry best left to the sound discretion of the district court. See
Allseas, 812 F.2d at 246; Platoro, 695 F.2d at 903; Compania
Galeana, S.A. v. M/V Caribbean Mara, 565 F.2d 358, 360 (5th Cir. 1978).
Where, as here, the district court has applied the Blackwall factors
in an appropriate way with a correctunderstanding of their underlying purpose,
the only useful review that this court can conduct of the ultimate award
is a general comparison to similar decisions. Indeed, even this limited
type of review has been criticized by some courts, see, e.g., B.V.
Bureau Wijsmuller, 702 F.2d at 339, and we will conduct it in only
the most deferential and general way.81
After some fairly extensive research, we have
compiled a list of the nine largest federal salvage awards in comparable
high-value, high-order cases since the advent of the Blackwall rule.
All amounts have been adjusted to 1994 dollars on the basis of the relevant
U.S. Consumer Price Index deflator. See John J. McCusker, How
Much Is That in Real Money? A Historical Price Index for Use as a Deflator
of Money Values in the Economy of the United States (American Antiquarian
of Salving Property
of Salved Property
to Salved Property
as % of Salved
merchant vessel scuttled and abandoned by crew; U.S. Navy boarding party
repaired scuttling damage and navigated her into port. The Omaha,
71 F. Supp. 314 (D. P.R. 1947).
and Imminen t
liner aground on New Jersey beach; professional salvors pulled her free.
The St. Paul, 82 F. 104 (S.D.N.Y. 1897).
but not Imminen t
aground on remote coral reef; professional salvors travelled 360 miles
and pulled her free. The Kia Ora, 252 F. 507 (4th Cir. 1918).
but not Imminen t
aground on rocky ledge; professional salvors removed fuel, laid out beaching
gear, and refloated and towed her some distance. B.V. Bureau Wijsmuller
v. United States, 702 F.2d 333 (2d Cir. 1983).
tanker twice torpedoed and abandoned; U.S. Navy picked up crew and replaced
on board. Crew navigated ship to port. Usatorre v. Compania Argentina
Navegacion Mihanovich, Ltda., 64 F. Supp. 370 (S.D.N.Y. 1945), reversed
on other grounds, 172 F.2d 434 (2d Cir. 1949).
but not Imminen t
aground at remote location in high winds; nonprofessional salvors pulled
her free. Vessel then fouled her own propeller while retrieving mooring
line; salvors helped to clear. Walter Kuhr, Sr. v. Sea-Alaska Products,
Inc., 1986 A.M.C. 2299 (W.D. Wash. 1985).
but not Imminen t
afire and abandoned; nonprofessional salvors boarded and kept her from
sinking, then made unsuccessful attempt to tow. St. Paul Marine Trans.
Corp. v. Cerro Sales Corp., 505 F.2d 1115 (9th Cir. 1974).
and Imminen t
liner holed by collision and beached; professional salvors (and others)
towed, beached, patched, refloated, and navigated her into port. Merritt
& Chapman Derrick & Wrecking Co. v. United States, 63 Ct. Cl.
but not Imminen t
aground on Virginia beach; professional salvors pulled her free. The
Sandringham, 10 F. 556 (E.D. Va. 1882).
but not Imminen t
For this case, a comparable listing is:
of Salving Property
of Salved Property
to Salved Property
as % of Salved
vessels adrift and in imminent danger of grounding in severe storm. Nonprofessional
salvors ventured into perilous shoal waters and towed vessels to safety.
and Imminen t
In the context of these past awards, it is
difficult to say that the reduced $4.125 million/12.5% award here is wrong,
much less an abuse of discretion. The range of percentages appears to run
from about 4% to 25%,84 and the percentage here
is smack in the middle of that range. Furthermore, as the district court
noted, it is rare that a salvage action would involve such high ratings
on each of the factors as was the case here. The only case in the list
that is fairly comparable in this respect is The Omaha, and there
the salvors did not incur great risk to themselves. Furthermore, that case
resulted in a higher award in percentage terms. Although the dollar
amount of the award in this case would still appear to be the highest ever,
even after our modification,in the light of all its factors, it simply
does not look out of place in the context of high-value, high-order salvage
cases. For this reason, it is not so excessive as to constitute an abuse
In conclusion, we AFFIRM the district court's
interpretation of the Blackwall factors and choice of salvage percentage.
In particular, we AFFIRM and sanction the district court's decision to
use the first, second, third, fourth, and sixth factors to calculate a
percentage to be applied to the fifth factor, salved value, for purposes
of fixing an award, because this practice is inherently consistent with
the underlying purpose of salvage awards and the Blackwall factors
(i.e., to simulate the price that the parties would have agreed to in a
competitive negotiated setting). We also AFFIRM the district court's assessment
of environmental liability as a risk properly considered under the rubric
of the fourth factor. Finally, we also AFFIRM the district court's specific
choice of percentage in this case, because it is consistent with the historical
pattern in cases of similar nature, and therefore is not so excessive as
to constitute an abuse of discretion. We REVERSE the judgment of the district
court as to the value of the salved property, however, and must therefore
MODIFY its ultimate salvage award. For the stated reasons, weREDUCE Margate's
salvage award from $6,406,440 to 4,125,000 and direct that judgment be
entered in that amount.
AFFIRMED in part, REVERSED in
part, award REDUCED, and RENDERED.
3 The winds ranged
from thirty-four to sixty knots, and the seas from fifteen to twenty feet.
6 The port engine's
gear box failed, rendering it completely inoperable. The starboard engine,
which Orgeron had apparently not been using since the problem with the
rudder arose, caught fire when it was started and quickly became completely
disabled as well.
9 Orgeron did, of course,
have an anchor, which she deployed. This anchor was apparently not even
remotely sufficient to hold the flotilla's position in the severe winds
and heavy seas generated by the storm, however, and it was simply dragged
across the seabed as the whims of the tempest dictated. There was an additional
anchor on Poseidon that might have helped, but, unfortunately, it could
only be deployed from Poseidon itself, and no one was on the barge at the
time the engines failed, nor could anyone be transferred in the storm.
12 Captain Prentice
Strong III was a graduate of the Maine Maritime Academy, and had been going
to sea for over ten years at the time of the events in this case. It is
a substantial testament to his ability that he reached the pinnacle of
his profession, master of a large ocean-going tanker, at the remarkably
youthful age of 32. Given this record, we are not surprised that Captain
Strong displayed exemplary seamanship throughout this incident.
15 Not terribly surprising,
given that the vessels were in the midst of a tropical storm, a weather
phenomenon only one step short of a hurricane.
18 Strong mooring or
21 Basically, lubrication.
24 And, interestingly,
last announced as well. The Blackwall contains the most recent bit
of guidance that the Supreme Court has deigned to give on the subject of
the calculation of salvage awards.
27 At least in theory.
Some commentators have said that the district court traditionally "pull[s]
an arbitrary figure out of the air." Grant Gilmore & Charles L. Black,
Jr., The Law of Admiralty 563 (Foundation 2d ed. 1975).
30 See, e.g.,
Gilmore & Black at 559 (noting that the traditional "recitation of
Justice Clifford's six `ingredients' [really just] serves the useful purpose
of indicating that the variables are so many and so incapable of exact
measurement that it will probably be fruitless for either party to take
an appeal merely on the ground that the award was incorrectly computed").
As we shall see, we ultimately take a somewhat more sanguine view of the
rationality of the factors as a legal rule.
33 The earliest incarnation
of the doctrine can be found in the celebrated maritime code of the island
of Rhodes, from about 900 B.C. The Rhodian law is thought to have provided
that "if a ship be surprised at sea with whirlwinds, or be shipwrecked,
any person saving anything of the wreck, shall have one-fifth of what he
saves." Norris § 5. Similarly, "[i]f the ropes break, and the boat
goes adrift . . . [a]nd if any person finds the boat, and preserves it
safe, he shall restore everything as he found it, and receive one-fifth
part as a reward." Id.
The Rhodian law was adopted en masse by the
Romans, who first enunciated the tradition that the law of the sea belonged
to the ius gentium, and was thus outside of the legislative jurisdiction
of any one people. Dig. 14.2.9 (Volusius Mæcianus, Ex Lege Rodia)
(citing adoptions by Augustus and Antoninus).
If a vessel departing with her lading from Bordeaux,
or any other place, happens in the course of her voyage, to be rendered
unfit to proceed therein . . . [and] if the master can readily repair the
vessel, he may do it . . . and if he has promised the people who helped
him to save the ship the third, or the half part of the goods for the danger
they ran, the judicatures of the country should consider the pains and
trouble they have been at, and reward them accordingly, without any regard
to the promises made them.
Even after the Romans and Rhodians had become
a faint memory on the italic peninsula, their doctrine of salvage remained.
The Marine Ordinances of Trani, promulgated in 1063 A.D., provided that
the finder of goods cast upon the sea was entitled to retain half of them
if the owner came forward within thirty days, and to the entirety if he
did not. Ordinances and Custom of the Sea, Published by the Consuls
of the City of Trani art. XIX (1063), reprinted with English translation
in 4 Black Book of the Admiralty 522, 536-37 (Twiss ed. 1876).
Inspired by Trani and other like-minded port
towns of the Mediterranean, the French dukedom of Guienne adopted a similar
law some two centuries later:
Roll d'Oleron art. IV, reprinted
in English translation with commentary in 30 F. Cas. 1171, 1172. When
Richard I inherited Guienne from his mother, Duchess Eleanor, he introduced
the doctrine of salvage (and the rest of the Laws of Oleron, as they came
to be known) into the English law. 30 F. Cas. at 1171.
36 Provided, of course,
that it makes sense for a salvage to happen at all. As explained in greater
detail below, if the costs of performing a salvage are too high or the
benefits to be derived too low, the parties might well agree to call it
a day and let the sea claim its prize.
39 Including risk-based
42 Because the salvor
gets nothing for an unsuccessful rescue, see The Sabine,
101 U.S. at 384, one of his legitimate costs is that risk. To even things
out, the salvor will want to receive a premium in the instances where he
is successful. See Landes & Posner, 7 J. Leg. Stud. at 101.
Although not of particular relevance to this case, this circumstance is
reflected in Justice Clifford's well known statement that salvage is not
to be calculated "merely as pay, on the principle of a quantum meruit,
or as a remuneration pro opere et labore." The Blackwall, 77 U.S.
45 Indeed, the only
one of the factors that can arguably be said to carry greater weight in
this analysis is, as the district court correctly concluded, the sixth--risk
to the salved property--for it is the other component of benefit conferred
(i.e., the greater or lesser the threat of loss, the greater or lesser
the benefit, and, consequently, the greater or lesser the price for the
salvage service). Where, as here, the risk is essentially conceded to have
been a 100 percent chance of total loss, the value of the salved property
obviously takes on added significance in measuring benefit.
48 To those who would
generally emphasize the cost factors over benefit, we can only respond
that no seller truly operates on the principle of selling at cost; a seller
is induced to provide his goods or services by the opportunity for profit.
The strong influence of benefit (as determined by the value of the property
and the risk of loss) will often allow the salvor to extract a significant
amount of profit in a voluntary transaction, and the law of salvage must
reflect this circumstance, because it serves the very purpose of the law
of salvage to provide the correct amount of incentive for the saving of
property in every instance.
51 To the extent
the United States is actually arguing that maritime law be altered to reduce
the incentive for overeager salvors to wreck environmental havoc in pursuit
of their prize, we note that there is no need for such a change in the
law. As the United States itself admits, applicable law already made Margate
strictly and completely liable for any oil spill that might have resulted
from the salvage operation. See, e.g., 33 U.S.C. § 2702(a)
("Notwithstanding any other provision or rule of law . . ., each responsible
party for a vessel or a facility from which oil is discharged . . . into
or upon the navigable waters or adjoining shorelines . . . is liable for
the removal costs and damages . . . that result from such incident.");
see also 33 U.S.C. § 2718(c). As such, the environment was
and is adequately protected, and there is no need to conscript admiralty
law for that purpose. Putting this concern to one side, Margate was entitled
to the benefit of all the calculated risks it ran in the determination
of its award. This is not to say, of course, that any amount of environmental
risk could justify an award for more than the value of the salved property.
The maximum limitations and general principles of salvage apply regardless.
54 See note 11.
57 At least as to
general approach. With regard to the specific percentage and overall amount,
see Section C, infra.
60 This lower price
was the natural result of increased economies of scale and fixed overhead
items that had already been paid for. It represented Martin Marietta's
marginal cost of producing an additional tank, which was substantially
lowered by the existence of NASA's ongoing contract for the original sixty
tanks. Because NASA had already committed to that contract at the time
of the salvage, the United States is well justified in claiming its benefits
in this context, and we reject Margate's argument that this would somehow
63 We note in passing
that this holding is somewhat contrary to the Third Circuit's decision
in Nolan, which held that the district court was allowed to rely
on the "invoice" cost of a unique good for salvage purposes in the face
of conflicting evidence of replacement cost. 267 F.2d at 588-89. We would
suggest that the instant case is distinguishable in that it involves absolutely
uncontradicted evidence of replacement cost. We also note, however, that
much of the reasoning behind Nolan does not seem to be consistent
with sound economic principles.
66 An assessment
that is, we note, substantially supported by NASA's haste to have ET-70
delivered, as evidenced by its abject unwillingness to allow Orgeron to
put into Miami to seek refuge from the storm.
69 We note that neither
party seems to have introduced any evidence that there was a way to obtain
a replacement tank any faster than under the terms of the option.
72 I.e., the approximate
amount that NASA actually paid for each additional tank during the relevant
75 See, e.g.,
Gore, Inc. v. Glickman, 137 F.3d 863, 869 (5th Cir. 1998).
78 In making this
admittedly rough-and-ready valuation, we rely on the fact that the value
of the salved property need not be determined with great precision in order
to calculate an appropriate award, even under the customized percentage
method. See Compagnie Commerciale, 60 F. at 924.
81 Before embarking
upon it, we do note, as have many others, that there are essentially two
ranges for percentage-based salvage awards, one somewhat lower one for
property of high value (as compared to the costs of the salvor), and one
somewhat higher one for property of comparatively low value. See, e.g.,
Compagnie Commerciale, 60 F. at 924. Although not particularly relevant
to this case, we note that this anomaly is not inconsistent with an economic
theory of salvage. Where the salved value is particularly low compared
to the costs of the salvor, the percentage of value awarded must be higher
in order to assure that the salvor at least recovers his costs. For this
reason, these low salved value cases correctly produce anomalously high
percentage awards. See, e.g., Allseas, 812 F.2d at 246-47
(awarding 67.5% in the case of a relatively run-down and low-value salved
vessel). For purposes of this case, we may obviously constrain our analysis
to cases involving comparatively high salved values (and low percentage
84 Which is consistent
with the judgment of most modern commentators, see, e.g., Gilmore
& Black at 563 (finding an upper limit of about 20% in high-value cases),
and the practice of courts since the time of the Rhodian law itself, see
note 11, supra.