State of Louisiana v. Taira Lynn Marine, Ltd., 2018 La.App. LEXIS 689, 2018 WL 1735057, 17-582 (La. App. 5th Cir. 04/11/18)
The sole issue presented in this matter related to the proper method of calculating depreciation for purposes of awarding compensatory damages in a case involving an allision of a towboat and barges with a fender of the Sunshine Bridge.
The parties stipulated to the facts, liability and cost of repairs before trial. On April 11, 2008, the M/V RICKY J. LEBOUEF, owned by Taira Lynn Marine (Taira Lynn) and operated by D&S Marine Services (D&S), allided with the Sunshine Bridge Pier No. 4 fender system causing extensive damage and requiring an expenditure of $1,569,544.75 for repairs. Both Taira Lynn and D&S stipulated to liability for the allision, but reserved their right to litigate all aspects of damage claims.
After a trial on the merits, the trial court rendered judgment decreeing that the DOTD was entitled to a recovery of $720,696.58 plus judicial interest. The trial court issued written reasons for judgment in which it detailed the reasoning for the reduced award. Specifically, the court made a determination that a 50% depreciation rate was appropriate and that defendants were entitled to a bid bond credit in the amount of $64,075.80. Both defendants appealed that judgment, arguing that the trial court erred in its determination that depreciation should be “capped” at 50%.
Defendants/appellants, Taira Lynn and D&S, argued that the trial court erred as a matter of law by applying a portion of the Truman-Hobbs Bridge Act of 1940 (Truman-Hobbs)[33 C.F.R. § 277.8(g)(2)], which suggests a 50% depreciation on the expired service life of the structure in establishing depreciation. Instead, the defendants argued on appeal that a straight-line depreciation analysis using a ratio of the property’s actual life divided by the property’s expected useful life at acquisition is appropriate. Using that analysis, in this instance, the actual life is 45 years and the expected useful life at acquisition is 50 years. This should have, in their appeal, resulted in a depreciation of 90%.
Testimony at trial established that the Sunshine Bridge is a steel continuous truss bridge built in 1963. The top is the superstructure, or the actual truss. From the truss down is soft structure, incorporating wood timbers. There is a fender system to protect the bridge in the event of an extreme impact. Pier 4, part of the fender system, was damaged in this incident. Repair was an “in kind” repair, meaning that the same configuration and clearances as originally constructed were used.
DOTD presented evidence from Zolan Prucz, Ph.D, P.E. Dr. Prucz clarified the difference between the expected service life of a structure and the actual service life. He stated that values presented relating to expected service life refer to the expectation of a structure when new, i.e., the probable life. These values do not take into account the condition of the structure at any given time. They are based on statistics of service life of similar structures in the past. In short, the concept of expected useful life applies to a future projected useful life of a new structure. Actual service life, in comparison, relates more to structures that have been in existence and have a history of performance and/or a quantifiable nature of deterioration over the years. In evaluating and rendering a professional opinion on the useful life of a structure such as Pier 4, the actual useful life, as opposed to the expected useful life, is a more accurate and a better measure of the useful life of the structure for purposes of depreciation, in Dr. Prucz’s professional opinion.
Taira Lynn and D&S offered the testimony of Donald Barnes, P.E., who opined that the depreciation rate should be increased to 75% based on inadequate maintenance and condition of the pier. Mr. Barnes focused on the conditions of the fender of the Sunshine Bridge and found that timbers were deteriorating, indicating the ongoing maintenance program was inadequate. Ultimately, Mr. Barnes estimated that the timbers in Pier 4 were 15-years past their life expectancy.
Both experts also discussed the Truman-Hobbs Bridge Act.
In his testimony, Dr. Prucz explained that the act was passed in the 1940’s and covers policy rules and procedures for apportioning reconstruction costs when replacing highway and railroad bridges that are deemed to be a hazard to navigation. Dr. Prucz testified that Truman-Hobbs has application in the matter in so far as it provides uniformity in establishing the service life of a bridge. He explained that Truman-Hobbs relied on data produced and accepted by different agencies, and establishes valuable guidelines that provide uniformity. This is particularly important in the evaluation of state structures like the Sunshine Bridge because they can be compared to similar structures around the country. Dr. Prucz testified that, although the guidelines in Truman-Hobbs offer valuable guidance, these guidelines are not simply mathematically applied. Ultimately, Dr. Prucz recommended a 50% depreciation rate based on all valuation factors.
The appeals court pointed out that this matter involved only one fender being repaired, not the entire bridge. The concept that a pier of a bridge has an independent life expectancy of its own due to the hazards of river traffic was noted to have been rejected by the federal courts. The appellate court also found that the “new for old” rule had no application in this case. The “new for old” rule seeks to avoid giving the injured person the windfall of providing him with a new replacement for that which was old and depreciated and would in normal course have to be replaced in any event. Instead, they were of the opinion that Pier 4 was an integral part of the Sunshine Bridge. They explained that if Pier 4 were undamaged, it would not have to be replaced until the entire bridge was scheduled for replacement. Accordingly, they rejected the new for old argument to be without merit.
The 5th Circuit Court of Appeals for Louisiana also disagreed with defendants/appellants argument that the trial court should have applied the straight-line depreciation to this case. While straight-line depreciation is used in maritime law, it is not the exclusive method for calculating depreciation. Straight-line depreciation is generally used when the expected useful life of the property after repairs is the same as it was at the time of its acquisition. They noted federal courts had recognized that straight-line depreciation did not apply in all cases. “[W]here the repairs do not extend the useful life of the property as it existed just before the collision, there should be no deduction for depreciation.” Whether depreciation should be applied depends on whether the repairs extended the useful life of the property and, if so, what portion of the repair costs is attributable to the useful life extension. Further, and importantly, they noted that while the experts disagreed on both of those issues, neither testified that a straight-line depreciation method is appropriate here.
In looking at the application of the Truman-Hobbs Bridge Act, they went on to hold: “Clearly, this regulation was not intended to determine compensatory damages in a civil lawsuit and is not controlling […]. However, this regulation can be useful as guidance in the difficult task of calculating the expected life span and rate of depreciation of an integral part of a bridge, especially considering the extensive amount of data collected by Congress before its enactment.”
In affirming the lower court’s judgment, the appellate court noted that the main difference between the expert opinions was the condition of the bridge at the time of the accident and the level of its maintenance. It was clear from the Reasons for Judgment that the trial court credited Dr. Prucz’s testimony more than that of Mr. Barnes. The court pointed out that Mr. Barnes does not have the expertise of bridge repair and design held by Dr. Prucz. Further, the trial court noted Mr. Barnes did not inspect the site and “could not even verify the photographs used in his report.” It was on that basis that the trial court accepted Dr. Prucz’s opinion on the expected life of the bridge in setting the depreciation rate and accepted the 50% depreciation rate recommended by Dr. Prucz.
Finding that the trial court did not abuse its discretion in accepting Dr. Prucz’s testimony over that of Mr. Barnes, the appeals court affirmed the lower court’s decision.