Nearly $12M awarded for breach of lease contract

By Thomas Franz
BridgeTower Media Newswires
DETROIT—A Muskegon County Circuit Court jury awarded nearly $12 million in a breach of contract case involving the lease of a freight hauling barge.

In Lake Service Shipping Co. v. Grand River Navigation Company Inc., the jury found that Grand River Navigation (GRN) failed to uphold its end of a lease agreement with Lake Service.

“It’s like a car lease. You’re obligated to maintain it and if you return it in bad shape, you can expect to get a bill,” said plaintiff’s attorney Christopher S. Berry of Smith, Haughey, Rice, & Roegge in Muskegon. “This lease was similar in that it obligated them to maintain all of the ship’s equipment.”

Lake Service leased a freight hauling barge named the McKee Sons to GRN through a charter party agreement (CPA).

GRN intended to use the McKee Sons for its freight hauling business around the Great Lakes.

The CPA required annual rent payments and for GRN to repair and maintain the ship. Berry reported that as GRN’s demand for freight hauling decreased, it elected to put the ship in “lay-up” status.

That meant the ship would not be inspected by the U.S. Coast Guard or the American Bureau of Shipping (ABS). Berry said the ship remained in lay-up status for two years without having any maintenance performed on it.

After those two years, GRN returned the ship to Lake Service and attempted to terminate the remaining four years of the contract, which was agreed to run until 2018.

GRN argued that a clause in the contract allowed them to terminate the deal. That clause said that if the cost of repairs exceeded the present total value of the barge, the contract could be terminated.

“After the two years went by and the vessel deteriorated, they had the vessel surveyed and the surveyor said it would cost more to fix than what it’s currently worth,” Berry said.

“Part of the decrease in cost was that it lost some certifications over the course of the two years.”

Berry said the vessel was due in April 2012 for a five-year survey, but GRN got a one-year extension so they could use it for the 2012 season.

“What they knew in order for it to pass the 2013 season is that there would be some pretty significant steel repairs necessary and they never did them because they never submitted it to the ABS for that special survey,” Berry said. “They put those values at about $9 million to make all of the structural and mechanical repairs.”

During trial, Berry said it was key to get the jury to understand that GRN’s motives for its actions were budgetary decisions.

“This vessel was the least profitable of the 16 vessels that the defendant had in its fleet. This vessel was turning a profit of $600,000 annually and the next least profitable was $3 million, so it was way below what they were generating with their other vessels,” Berry said.

Berry said a key moment in the case was when GRN’s expert was discredited on cross-examination. Berry said the expert had been hired by GRN since 1997 to survey all of their boats by physically inspecting the vessels, but in this case, he only did a desktop survey.

“He then tried to explain to the jury that he was intimately familiar with the vessel even though his report had some disclaimer language in it,” Berry said.

“I think it was the discrediting of their expert that swung the jury in our favor. I think they were probably able to understand the basic concept that if you borrow something from someone, you need to return it in as close of a condition as it was when you got it. That wasn’t the case here.”

Prior to trial, Berry reported that his side demanded $3.4 million while GRN’s highest offer was $700,000. The jury wound up awarding Lake Service $11,825,625, which represented the cost of the steel repairs as reported by defense witnesses, plus four years of the unpaid contract.

“On the one hand the defense tried to drive up the cost of the repairs to rely on that provision that the cost of the repairs exceeded the vessel, but then once that argument was rejected by the jury, they couldn’t then take the position of it not costing that much to repair,” Berry said. “In trying to make their case, they actually gave the jury the ability to find in our favor and award the substantial damages.”

Defense attorneys Robert Burger and Laura Watson Schultz did not respond to requests for comment on this case.


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