
USCA1 Opinion

	




                                For the First Circuit                                ____________________       No. 96-1904                             LA ESPERANZA DE P.R., INC.,                                Plaintiff, Appellant,                                         v.                         PEREZ Y CIA. DE PUERTO RICO, INC.,                                Defendant, Appellee.       No. 96-1905                             LA ESPERANZA DE P.R., INC.,                                Plaintiff, Appellee,                                         v.                         PEREZ Y CIA. DE PUERTO RICO, INC.,                                Defendant, Appellant.                                ____________________                    APPEALS FROM THE UNITED STATES DISTRICT COURT                           FOR THE DISTRICT OF PUERTO RICO            [Hon. Gilberto Gierbolini-Ortiz, Senior U.S. District Judge]                                ____________________                                       Before                                Stahl, Circuit Judge,                           Aldrich, Senior Circuit Judge,                           and Cyr, Senior Circuit Judge.                                 ___________________            Harry A. Ezratty for La Esperanza de P.R., Inc.            Juan A. Lopez-Conway                               , with whom                                            Paul E. Calvesbert                                                              and                                                                   Calvesbert,       Alfaro               &                 Lopez-Conway, were on brief for Perez y Cia. de Puerto Rico,       Inc.                                ____________________                                   August 13, 1997                                ____________________                      STAHL, Circuit                                      Judge. This consolidated admiralty            case involves a dispute between a shipowner and a shipyard over            repairs to a vessel, S/V LA ESPERANZA, that were begun but            never completed. It comes to us on cross-appeals following a            bench trial in which the district court entered judgment,            first, in favor of Perez y Cia de Puerto Rico, Inc. ("the            shipyard" or "Perez") in the amount of $10,999 in its            collection action for unpaid work performed pursuant to            contract, and, second, in favor of La Esperanza de Puerto Rico,            Inc. ("the shipowner") in the amount of $220,000 in its            separately brought action for damages resulting from Perez's            negligence and breach of contract.  See Perez Y Cia. de P.R.,            Inc. v. S/V La Esperanza, 899 F. Supp. 861 (D.P.R. 1995).                       On appeal, Perez argues that the district court's            findings of fact and conclusions of law are erroneous. It            contends that the district court erred in finding that it was            negligent and in breach of its contractual obligations and            argues both that the shipowner's contributory negligence caused            the damages that are in issue here and that the ship was            worthless when it first arrived at the shipyard, thereby            obviating the district court's award of damages in favor of the            shipowner. For its part, the shipowner accepts the district                                            1.  We note that LA ESPERANZA was sold at public auction by the            U.S. Marshals Service in July 1996 pursuant to its status as            the in rem defendant in the Perez shipyard's cause of action.            The district court granted the shipyard's motion for            confirmation of sale and ordered the Marshals Service to issue                                         -2-                                          2            court's findings of fact, but seeks to ascribe error to the            district court's conclusions of law. Its argument on appeal is            that the court erred in enforcing a "red letter clause" in the            ship repair contract that limited the shipyard's liability by            precluding recovery for loss of use and loss of profits in the            event of a breach. The shipowner argues that the liability            limitation clause was vitiated on the facts found by the            district court because the shipyard's actions, on such facts,            constituted gross negligence, not ordinary negligence as the            district court concluded. Finally, both parties take issue            with the district court's measure of damages. The shipyard            argues that the district court erred by ordering it to pay too            much; the shipowner, on the contrary, argues that the district            court erred by not ordering the shipyard to pay more.                      As we do not believe that the district court's            determinations were clearly erroneous, we affirm.                          Background and Prior Proceedings                      We state the facts consistent with the district            court's findings.  See id. at 862-65.                      The S/V LA ESPERANZA ("the vessel" or "the ship") is            an eighty-eight foot, steel-hulled, diesel-powered, auxiliary                                            a bill of sale conveying title to LA ESPERANZA to one Jose L.            Novas Debien. Our use of the word "shipowner" in this opinion            refers exclusively to La Esperanza de Puerto Rico, Inc.                                          -3-                                          3            sail schooner built in 1896 in Antwerp, Belgium.   Her hull            consists of an older type of steel, akin to wrought iron, that            is no longer used in the construction of ships. The seams of            the ship's hull and frames are rivetted and welded.                      Julio R. Matos and Enrique Cardona (the principals of            La Esperanza de Puerto Rico, Inc.) bought LA ESPERANZA in 1990            for $40,000 with the apparent purpose of refitting her as a            passenger vessel for use as a tourist attraction and for            sightseeing harbor tours of San Juan, Puerto Rico. To this            end, the ship underwent extensive reconstruction and repairs at            Vaello Shipyard in Puerto Rico from 1990 to 1992. This work            was overseen and approved by the U.S. Coast Guard, which is            charged by law to inspect passenger vessels and to certify them            for operation. Among the many other things done while the ship            was at Vaello, the thickness of the ship's hull was tested in            accordance with applicable Coast Guard guidelines by drilling            holes at various points to determine those areas that were            "wasted" (i.e., excessively deteriorated or corroded) and in            need of either immediate or eventual replacement.                                                             This drill-                                            2.  The district court's opinion lists the ship's length as 122            feet. However, the Coast Guard certificate of inspection and            the relevant marine surveys of the vessel contained in the            record indicate a length of eighty-eight feet. While our            review fails to account for the discrepancy between these            figures, we note that it is of no consequence to the legal            result in this case.             3.  The Coast Guard considers deficiencies in the thickness of            hull plating to be a safety concern for steel-hulled vessels            because such deterioration, much like buckling, cracks, or                                         -4-                                          4            hole gauging indicated that various parts of the hull were in            fact wasted. On the basis of these findings, eight hull plates            were replaced in accordance with welding procedures developed                                            fractures, "may affect the strength or integrity of the hull to            an extent which would make it unseaworthy." See United States            Coast Guard, Navigation and Vessel Inspection Circular No. 7-            68;                 Enclosure                           (1)--Notes                                       on                                          Inspection                                                     and                                                          Repair                                                                 of                                                                     Steel            Hulls at 1 (1968) [hereinafter                                           NAVIC]. Coast Guard inspection            guidelines provide that the present thickness of hull plates is            to be compared to their original thickness as a means of            gauging their present condition. Id. at 3-4. "Wastage" refers            to the percentage of the original thickness that has            deteriorated. Thus, a plate with twenty-five percent wastage            has lost twenty-five percent of its original thickness.                                                                    Id. at            4.                       Under Coast Guard guidelines, "a local thickness            deterioration of up to about 25 percent may be accepted before            replacement is necessary," id. at 7, but this is not a hard-            and-fast rule. "[I]n the application of this percentage,            considerable judgment is called for depending upon the location            and extent of wasted material. Localized wastage of some            portions of plates . . . in excess of 25 percent may be            accepted in many cases, if the condition of the adjacent            material is sufficiently good to maintain an adequate margin of            strength." Id. Indeed, Coast Guard inspectors are afforded a            wide latitude of discretion in dealing with the various hull            deficiencies they may encounter upon inspection of a vessel.            They must "first evaluate if seaworthiness is compromised or            not" by these deficiencies, a decision that calls for            "considerable discretion because the line of demarcation            between what is seaworthy and what is not, is necessarily            approximate and subject to some range of interpretation." Id.            at 2. Among the factors that Coast Guard inspectors "must"            weigh in evaluating a particular vessel's hull is "[w]hether            the repair work contemplated is necessary to restore            seaworthiness or is a maintenance measure to insure prolonged            utilization of the vessel."  Id. "In the first case, repair            must be required. In the second case, the details of the            condition should be reconsidered at a future inspection and,            possibly, called to the attention of the owner so that he may            exercise his own good judgement."  Id.                                         -5-                                          5            by Vaello, which had the responsibility for designing the            procedures for Coast Guard approval.                      LA ESPERANZA's overhaul was completed during the            summer of 1992. The total cost of the refitting was financed            by loans totalling almost $2,175,000. The refurbished ship had            a replacement value of $4.8 million, a physical value of $3.5            million, and an estimated value of $2.8 million. For            accounting purposes, the vessel's book value was listed as            $1,704,000.                      The Coast Guard issued a certificate of inspection            for the vessel, which indicated the route that LA ESPERANZA was            permitted to run and conditions on the manner of her operation.            Specifically, the Coast Guard limited LA ESPERANZA,                                                               inter                                                                     alia,            to carrying no more than seventy-five passengers and restricted            her passage to "the protected waters of Bahia de San Juan . .            . within one mile of shore . . . . [and] to the waters            shoreward of buoys 5 and 6 of the Anegado Channel." The            certificate of inspection further provided that the ship, when            operating its sails, could only set her inner and outer jibs            while passengers were on board, but also indicated that up to                                            4.  Coast Guard guidelines require that hull replacements, and            in particular, the welding and rivetting procedures used in            marrying new steel plates to existing older plates, conform            with applicable standards and gain Coast Guard approval. See,            e.g., NAVIC at 24-35 (discussing proper welding and rivetting            procedures).                                          -6-                                          6            150 passengers were allowed on deck when the ship "operate[d]            as a moored attraction vessel."                      Under these conditions, the vessel thereafter began            its passenger service around San Juan Bay. On average, LA            ESPERANZA made two trips per day on weekdays and made three or            four daily runs on weekends. She was also available for rent            for private events.                      On March 4, 1994 the shipowner took LA ESPERANZA to            the Perez shipyard in San Juan for repairs to her rudder deemed            necessary by the Coast Guard. Seeing as the vessel would be            dry-docked for the rudder repair, the shipowner decided to            accelerate an overall hull inspection that was scheduled for            the following month. The Coast Guard inspected the hull and,            on March 10, indicated that all hull plates with wastage in            excess of fifty percent had to be replaced. The shipyard            subcontracted with another firm to perform ultrasonic gauging            of the hull in order to identify the candidate plates for            replacement. This audio gauging revealed that eighty percent            of the ship's hull was wasted twenty-five percent or more from            its original thickness. In view of the test results, the Coast            Guard required that eighty percent of the hull be replaced, but            agreed to allow the shipowner to do the replacement work in            stages. As an immediate matter, the shipowner was required to            replace the twelve hull plates that were wasted fifty percent            or more.                                         -7-                                          7                      On March 17, the shipowner and the shipyard signed a            contract for repairs, with the shipowner paying a deposit of            $40,000. The shipyard's quoted estimate of $71,947.20            included, among other things to be done, the replacement of            twelve hull plates. The contract encompassed an attached list            of conditions. Under section 3(a) of that list, "[t]he Yard            commits itself to use materials and execute work to standard            ship repair practice." Section 3(b) provided the shipyard the            right to "make good at its own workshops and expense any            defective work or material [that it] supplied," although the            shipowner retained an option to demand, in lieu of such            performance, "a sum equal to the cost of such repair."            Finally, section 5 provided that "[t]he yard shall in no case            be held responsible for the damages resulting from any loss of            use or profit of the vessel."                      The shipyard hired welders to do the hull replacement            work. Despite the fact that the welders did not know the type            of steel used in LA ESPERANZA's hull, or the fact that it was            an older type of steel no longer used in ship construction, on            March 18 they began cutting into the ship's hull with torches            in order to remove five of the twelve plates slated for            replacement. This work caused a fire with resulting damage to            the ship's electrical system. While the method used to remove            the hull plates did not require Coast Guard approval, the            method for their replacement did. After initial plans were                                         -8-                                          8            rejected by the Coast Guard, the shipyard's contract manager,            Miguel Nin, together with the yard's welding subcontractor,            drafted another set of welding procedures that they gave to the            shipowner to present to the Coast Guard for approval, but the            Coast Guard did not approve the newly submitted procedures. As            a consequence, all hull replacement work on the vessel stopped            pending development of new welding procedures.                       It rapidly became apparent, however, that the Perez            shipyard did not possess the ability to perform the hull            replacement work on LA ESPERANZA. Nevertheless, on April 6,            the shipyard welded five temporary doubler plates onto the hull            areas where plates had already been removed. This welding was            done too quickly and with excessive heat, causing the older            steel of the hull to crack and rivets to loosen.                      During this period, the shipowner and shipyard met to            discuss the welding procedure problem. The parties met one            last time on May 20, 1994 to discuss what arrangements would be            made for the vessel in light of the welding difficulties.            Although no solution to LA ESPERANZA's predicament was            forthcoming, the shipyard produced a bill for $73,999 for the            unfinished hull work and other repairs that it had already done            on the ship. Subtracting the $40,000 deposit that the            shipowner had previously paid, the shipyard demanded payment            for the remaining balance of $33,999.                                         -9-                                          9                      The shipowner refused to pay. On May 22, 1994,            anxious to get other ships into its only dry dock facility,            which LA ESPERANZA had now occupied for some two months, the            shipyard moved the ship from the dry dock and refloated it.            Perez then moved the vessel, operating under its own power, to            its tender dock area, an area akin to a floating junk yard.            The shipyard recommended two welding experts that the shipowner            could hire to develop a welding plan for Coast Guard approval.            The shipyard hired one of the two recommended experts, but the            expert failed to produce a plan.                       Meanwhile, the refloated vessel was taking on water            through the cracks in her hull caused by the faulty plate            removal and the welding of the temporary plates. The ship was            once again removed from the water, water was pumped out, and            soft patches using rubber and metal were used to plug leaks,            though these too soon began to develop cracks. Surveys            conducted at about this time, May and June 1994, revealed that            the vessel was tilting to one side because the ballast            initially removed in order to gain access to the hull plates            for the removal operation had never been replaced. Indeed,            when the shipyard refloated LA ESPERANZA, it had placed            concrete blocks on the upper deck in lieu of the ship's            ballast. During this period, the damaged upper deck itself            collected about an inch of water. The surveys revealed that            the cost of repairing the vessel to correct the problems with                                        -10-                                         10            the hull, to repair the damaged upper deck, and to replace            damaged wiring, electrical equipment, and carpeting would be            between $180,000 and $220,000, not including any possible            hidden damages that could not be readily detected while the            ship was still in the water.                      The shipyard subsequently filed a collection action            in federal district court, in personam against the shipowner            and                in                   rem against the vessel itself, for the money it alleged            it was owed for the repair work it had performed on LA            ESPERANZA. The shipowner filed a separate action against the            shipyard for the damages it alleged it suffered as a result of            the shipyard's negligence in performing the repair contract.            A consolidated trial before the district court sitting in            admiralty without a jury was held in September 1995. The court            awarded the shipyard $10,999 on its contract collection claim,            an amount corresponding to the work that the shipyard actually            did on the vessel, minus the amount billed for the defective            hull replacement work. The court similarly awarded the            shipowner $220,000 for the damages it sustained as a result of            the shipyard's negligence in performing the repair work, an            amount corresponding to the cost needed to repair the damages            to the vessel and to return LA ESPERANZA to the condition it            was in before it entered the Perez shipyard. The parties filed            motions for additional findings of fact and conclusions of law            that were denied by the court. These cross-appeals followed.                                        -11-                                         11                                 Standard of Review                       We review a district court's bench trial findings of            fact for clear error. See Fed. R. Civ. P. 52(a);                                                             McAllister v.            United States                        , 348 U.S. 19, 20 (1954);                                                   Puerto Rico Ports Auth.            v. M/V                    Manhattan                              Prince, 897 F.2d 1, 3 (1st Cir. 1990). We            deem a finding to be clearly erroneous "only when, after            reviewing the entire record, we are 'left with the definite and            firm conviction that a mistake has been committed.'"  Clement            v. United                       States, 980 F.2d 48, 53 (1st Cir. 1992) (quoting            Deguio v. United                              States, 920 F.2d 103, 105 (1st Cir. 1990)            (quoting United                             States v. United                                              States                                                     Gypsum                                                            Co., 333 U.S.            364, 395 (1948))).                      Likewise, "[w]e review questions of negligence"            decided in a bench trial "under the clearly erroneous            standard." Id. (citing                                    Goudy & Stevens, Inc.                                                         v.                                                             Cable Marine,            Inc., 924 F.2d 16, 19 (1st Cir. 1991)),  Deguio, 920 U.S. at            105, and Obolensky v. Saldana                                            Schmier, 409 F.2d 52, 54 (1st            Cir. 1969)). In using this standard, our practice accords with            the Supreme Court's characterization of negligence and            causation as issues of fact,                                         see                                            McAllister, 348 U.S. at 20-23,            and is consonant with the rule applied in virtually all our            sister circuits, which similarly treat a bench trial finding            that a party was negligent as a question of fact, or mixed            question of fact and law, and thus do not reverse such a            finding unless clearly erroneous.  See generally Charles Alan                                        -12-                                         12            Wright & Arthur Miller, 9A  Federal                                                 Practice                                                          and                                                              Procedure S            2590 at 620-28 (2d. ed. 1995) (discussing cases); Steven Alan            Childress & Martha S. Davis, 1 Federal                                                    Standards                                                              of                                                                 Review S            2.28 at 2-220 to 2-227 (2d. ed. 1992) (same).  But see Mamiye            Bros. v.                     Barber S.S. Lines, Inc.                                           , 360 F.2d 774, 776-78 (2d Cir.            1966) (per Friendly, J.) (distinguishing    McAllister as a            causation case and holding that clear error standard does not            apply to trial court's determination of negligence).                             Negligence, or No Negligence?                      On appeal, the shipyard contends that the district            court erred in finding that it was negligent and in breach of            contract. It argues that the shipowner is really to blame for            the damages to LA ESPERANZA and for the fact that the hull            repairs were never completed. It thus contends that the            shipowner was not entitled to the $220,000 awarded by the            district court. Even if it was negligent, the shipyard            insists, the ship was worthless, thus making the district            court's measure of damages erroneous.                      The shipowner counters that the district court's            error consists in not realizing that the facts it found            constituted gross negligence, not ordinary negligence. Because            the district court incorrectly decided the gross negligence            issue, the shipowner argues, it also incorrectly concluded that            the shipyard's liability did not extend to loss of the vessel's            use and loss of profit because of the red letter clause                                        -13-                                         13            contained in the repair contract. That clause, the shipowner            argues, precludes recovery for loss of the vessel's use and            loss of profits in instances involving ordinary negligence, but            not in circumstances involving gross negligence.                      We address the parties' various claims under federal            maritime law because "[a]dmiralty jurisdiction brings with it            a body of federal jurisprudence, largely uncodified, known as            maritime law." In re Ballard Shipping Co.                                                      v.                                                          Beach Shellfish                                                                        ,            32 F.3d 623, 625 (1st Cir. 1994) (citing                                                     East River S.S. Corp.            v. Transamerica                             Delaval, 476 U.S. 858, 864 (1986)); see  also            Yamaha                    Motor                          Corp.,                                 U.S.A. v.  Calhoun, 116 S. Ct. 619, 623            (1996). While a contract to construct a ship falls outside            federal admiralty jurisdiction because it is "a contract made            on land, to be performed on land,"                                              People's Ferry Co.                                                                v.                                                                    Beers,            61 U.S. (20 How.) 393, 402 (1858), contracts for repairs to a            vessel or for its substantial reconstruction come under the            scope of admiralty jurisdiction.  See Kossick v. United Fruit            Co., 365 U.S. 731, 735 (1961) (contrasting ship repair and            construction); New Bedford Dry Dock Co. v. Purdy, 258 U.S. 96            (1922); see also 28 U.S.C. S 1333 (granting exclusive federal            jurisdiction in "[a]ny civil case of admiralty");                                                             cf. Thomas J.            Schoenbaum, 1 Admiralty                                      and                                          Maritime                                                   Law at 111-12 (2d ed.            1994). In the absence of a relevant statute, the judicially-            developed norms of the general maritime law, "an amalgam of            traditional common-law rules, modifications of those rules, and                                        -14-                                         14            newly created rules," govern actions in admiralty. East River            S.S., 476 U.S. at 865.                      We thus must evaluate the merits of the parties'            claims against "substantive rules and precepts peculiar to the            law of the sea." Schoenbaum,                                         supra, at 156 (discussing cases).            Under this body of law, a shipowner may sue in either tort or            contract for negligent repairs to his vessel.       See  Todd            Shipyards Corp.                           v.                               Turbine Serv., Inc.                                                 , 674 F.2d 401, 412 (5th            Cir. 1982); Alcoa                               S.S.                                    Co. v. Charles                                                   Ferran                                                          &                                                            Co., 383 F.2d            46, 50 (5th Cir. 1967). A ship repairer potentially faces            three sources of liability for repairs he performs improperly            on a vessel. He may be liable in contract for a breach of his            expressly assumed obligations or for a breach of an implied            warranty of workmanlike performance that attaches to admiralty            contracts under the rule of    Ryan                                                   Stevedoring                                                               Co. v.   Pan            Atlantic S.S. Corp., 350 U.S. 124 (1956).  See Alcoa S.S. Co.            at 50; see also Employers Ins. of Wausau v. Suwanee River Spa            Lines,                    Inc., 866 F.2d 752, 763 n.17 (5th Cir. 1989). A ship            repairer may also be liable for the maritime tort of            negligence.  See Alcoa                                    S.S., 383 F.2d at 50.   See  generally            Schoenbaum,                        supra, at 183-84 (collecting cases). Importantly,            negligence causes of action in admiralty invoke the principles            of maritime negligence, not those of the common law. See                                                                      Pope            & Talbot, Inc.                          v.                              Hawn, 346 U.S. 406, 408-09 (1953). Moreover,            while the implied warranty of workmanlike performance                                        -15-                                         15            "parallel[s] a negligence standard rather than imposing [the]            strict liability" that attaches to implied warranties in land-            based contracts under the Uniform Commercial Code,        see            Employers Ins.                         , 866 F.2d at 763 n.17, "a shipowner may receive            indemnity from a marine contractor for breach of implied            warranty of workmanlike service, albeit that such performance            was done without negligence." SS Amazonia                                                     v.                                                         New Jersey Export            Marine Carpenters, Inc., 564 F.2d 5, 8 (2d Cir. 1977) (citing            Italia                    Societa v. Oregon                                      Stevedoring                                                   Co., 376 U.S. 315, 324            (1964) and  Ryan, 350 U.S. at 133). Finally, federally            developed maritime law applies both when a court construes the            terms of a repair contract and when it construes the standard            of performance due thereunder. See                                                Alcoa S.S.                                                         , 383 F.2d at 50            (citing                    Booth S.S. Co.                                  v.                                      Meier & Oelhof Co.                                                       , 262 F.2d 310 (2d            Cir. 1958) and Southport Transit Co. v. Avondale Marine Ways,            Inc., 234 F.2d 947 (5th Cir. 1956)).                      In this case, the shipyard argues that it was not            negligent or in breach of contract because the shipowner, not            it, was really at fault for the fact that the hull repairs were            never completed. The crux of the shipyard's theory is that the            Coast Guard did not disapprove the welding plans for the twelve            plates it was supposed to replace because of the method by            which the shipyard proposed to do the job, but rather because,            at the insistence of the shipowner, an insufficient number of            plates were to be removed. The shipyard argues that it cannot                                        -16-                                         16            be faulted for the fact that the Coast Guard found the scope of            the hull replacements inadequate or for the fact that the            shipowner failed to provide the Coast Guard with a            comprehensive plan detailing how and when a full eighty percent            of the hull with wastage of twenty-five percent or more would            be replaced -- as the Coast Guard was requiring. The            shipyard's theory, in short, is that it could not act to repair            the vessel until the Coast Guard approved the repairs, and the            Coast Guard would not approve the repairs until the shipyard            acted by submitting a comprehensive plan for replacing eighty            percent of the hull, not just the twelve plates scheduled for            removal and replacement under the contract.                      The record simply does not support this argument. In            the first place, contrary to the shipyard's contentions, the            record does not substantiate the view that the Coast Guard            disapproved the welding procedures notwithstanding the            shipyard's submission of proper welding procedures. Neither            does the record support the shipyard's alternative argument            that the Coast Guard "neither approved or disapproved" welding            procedures that it submitted because the Coast Guard was not            about to deliberate in the absence of a comprehensive plan for            additional repairs to LA ESPERANZA. In his deposition, Lt.            Comdr. Randal B. Sharpe, the Coast Guard officer in charge of            marine safety in San Juan during the relevant period of this            dispute, was asked to describe the purpose of the welding                                        -17-                                         17            procedures submitted to the Coast Guard.  He answered that            "the purpose of that document was to show us, the Coast Guard,            how the shipyard intended to weld the new plate to the old iron            hull." When asked whether that proposal met Coast Guard            requirements, Lt. Comdr. Sharpe responded, "Parts of the            proposal do, yes; parts of the proposal do not." The parts of            the proposal that were acceptable, he continued, were those            above the load water line, thereby indicating that those below            the water line (which presumably were of greater significance            to the vessel's seaworthiness) were not acceptable. Thus, even            if Lt. Comdr. Sharpe's deposition substantiates the            uncontroverted fact that no comprehensive plan was submitted            (which it does in parts not reproduced here), it also            substantiates other record evidence that the shipyard's method            of work, in any event, did not pass muster.                       Furthermore, Lt. Comdr. Sharpe's deposition supports            the view of other witnesses at trial that the shipyard bore the            responsibility of furnishing the Coast Guard with appropriate            welding procedures because it was a matter of "technical            nature," meaning that it was something that "would normally            have been submitted either by the shipyard or by the welding            contractor who was going to perform the work." Finally, his            deposition supports a finding that the shipyard's inability to                                            5.  We note that both parties took Lt. Comdr. Sharpe's            deposition knowing that he would be unavailable to testify at            trial.                                         -18-                                         18            devise appropriate welding procedures precluded the shipowner            from submitting a comprehensive repair plan for the ship's hull            with the Coast Guard, not the other way around. "Basically            what we were looking for," Sharpe explained in discussing the            requirements for approval of the repairs to LA ESPERANZA, "was            a proposal on how to repair all of the wasted steel. . . .            [T]hat repair proposal . . . was supposed to include                                                                what areas            of plate would be replaced; a time-line for replacement, and            how the plate would be replaced." (emphasis added). Because            neither the shipyard nor its welding contractor ever devised a            welding plan that was acceptable to the Coast Guard on the            issue of how the first set of hull plates would be replaced, it            is difficult to see how the shipowner, the shipyard, or anyone            else could have compiled a comprehensive plan detailing a            schedule for the more protracted process of taking out and            replacing yet other hull sections. It would thus appear that            the shipyard's successful development of a welding procedure            acceptable to the Coast Guard was a constructive condition            precedent to formulation of a comprehensive plan, and overall            Coast Guard approval, rather than vice versa. In any event, we            detect no clear error in the district court's implicit            allocation of blame on this issue.                      Accordingly, the shipyard's contention that it was            not liable for negligent performance of the contract cannot            withstand close scrutiny. Here, one witnesses a ship that came                                        -19-                                         19            in for repairs under her own power. Pursuant to a valid,            written contract, the shipyard began to make the repairs, but            somewhere, somehow, something went wrong. Although the            shipyard manager, Miguel Nin, knew that LA ESPERANZA's hull was            of an older type steel, and despite the fact that the            undisputed evidence revealed that the special quality of LA            ESPERANZA's steel should have been readily apparent to any            reasonably competent ship repair professional, the welders that            Perez hired to cut into LA ESPERANZA did not know what type of            steel they were dealing with when they cut into the ship's hull            with torches. The method of cutting they employed caused            damage to the ship and, to condense a long story, the            contracted-for repairs were never completed. Instead of            remedying the error and giving the vessel back to the            shipowner, the shipyard patched the holes it had already made            by welding on temporary plates, causing even more damage to the            hull. The shipyard then refloated the ship, which by now was            in worse condition than it was prior to arriving for repairs,            and placed the ship in its tender dock area. Finally, seeking            to extricate itself from a predicament of its own making, the            shipyard told the shipowner, essentially, that it (the            shipowner) had a problem on its hands, and maybe it should            consider hiring a special welding consultant.                      This attempt to evade responsibility and escape            liability is unavailing. Where the shipyard, like Perez here,                                        -20-                                         20            "held itself out as a competent shipyard skilled in" doing the            type of work requested by the shipowner, the latter "had a            right to rely on the expertise of [the shipyard] and had reason            to expect a stable seaworthy vessel upon completion of the            repairs, regardless of the condition of the boat[] prior to            repairs."  Empacadora                                   del                                        Norte,                                               S.A., v. Steiner                                                                 Shipyard,            Inc., 469 F. Supp. 954, 962 (S.D. Ala. 1979). The contract            between the parties does not evince any manifestation of an            intent to deviate from this principle. On the contrary, under            section 3(a) of the appended list of conditions, "[t]he Yard            commit[ted] itself to use materials and execute work to            standard ship repair practice." This contractual clause            manifests an intent to bind the shipyard expressly to the            otherwise implied warranty of workmanlike performance in marine            contracts. In any event, "[t]his warranty need not be express            to bind the ship repairer to use the degree of diligence,            attention and skill adequate to  complete                                                       the                                                           task."   Little            Beaver                    Enters. v. Humphreys                                         Rys.,                                               Inc., 719 F.2d 75, 78 (4th            Cir. 1983) (emphasis added) (citing    Coffman v.  Hawkins                                                                          &            Hawkins Drilling Co.                               , 594 F.2d 152 (5th Cir. 1979) and                                                                  Tebbs v.            Baker-Whiteley Towing Co.                                    , 407 F.2d 1055 (4th Cir. 1969)). The            shipyard's failure to complete the hull replacement repairs            thus constituted a breach of an express and implied contractual            obligation, particularly in view of the fact that evidence in            the record substantiates that similarly situated ship repairers                                        -21-                                         21            could have devised appropriate welding procedures and replaced            the hull plates in question. On this record, we cannot ascribe            any clear error to the district court's determination that the            shipyard was negligent in its manner of performing the            contracted-for repairs.                           Negligence or Gross Negligence?                      We turn next to the shipowner's argument that the            shipyard's actions amounted to gross negligence, not ordinary            negligence, and thereby vitiated the red letter clause in the            contract limiting the shipyard's liability by precluding            recovery for loss of the vessel's use and loss of profit.            Whatever else may be said here, we are not convinced that the            district court committed clear error when it determined that            the shipyard, though negligent, was not grossly negligent in            how it undertook to repair the vessel or in how it dealt with            it while in its custody.                      While exculpatory clauses -- commonly referred to as            red letter clauses -- were traditionally disfavored by courts            sitting in admiralty,  see, e.g., Bisso v.  Inland                                                                 Waterways            Corp., 349 U.S. 85 (1955) (refusing to enforce a clause            absolving a towing company from all liability for its negligent            acts), such clauses are today routinely enforceable. See                                                                      East            River                    S.S., 476 U.S. at 873 (indicating that a marine            contractor "can restrict its liability     within                                                                 limits by            disclaiming warranties or limiting remedies" (emphasis added)).                                        -22-                                         22            Accordingly, courts today will enforce red letter clauses that            are expressed clearly in contracts entered into freely by            parties of equal bargaining power, provided that the clause not            provide for a total absolution of liability.      See  Edward            Leasing Corp.                         v.                             Uhlig & Assocs., Inc.                                                , 785 F.2d 877, 888 (11th            Cir. 1986); Todd                              Shipyards, 674 F.2d at 410; Alcoa                                                                S.S., 383            F.2d at 46. The rationale for upholding such clauses, "so long            as no overreaching is found,"                                          Edward Leasing                                                       , 785 F.2d at 888,            "is predicated upon the consideration that businessmen can            bargain over which party is to bear the risk of damage and set            the price accordingly, thus achieving a more rational            distribution of the risk [and allocation of price] than the law            would otherwise allow." Jig The Third Corp.                                                        v.                                                            Puritan Marine            Ins.                  Underwriters                               Corp., 519 F.2d 171, 176 (5th Cir. 1975).            However, parties may not totally absolve themselves of all            liability and, more substantively, the prospective wrongdoer's            "'potential liability'" should be enough to "'deter            negligence.'"  Edward Leasing, 785 F.2d at 888 (quoting Alcoa            S.S., 383 F.2d at 55). A red letter clause, finally, may not            limit liability on a marine contract for gross negligence            because "'harm wilfully inflicted or caused by gross or wanton            negligence,'" operates to "invalidate an exemption from            liability." Todd Shipyards                                      , 674 F.2d at 411 (quoting 6A Corbin            On Contracts S 1472 (1964 ed.)).                                        -23-                                         23                      The shipowner submits that the shipyard knew that LA            ESPERANZA was made of older steel, but nevertheless hired            welding subcontractors who proceeded to cut into the vessel's            hull without knowing the nature of the steel they were working            on, causing damage to the ship. Moreover, after the shipyard            failed to provide welding plans acceptable to the Coast Guard            and after it became apparent that the shipyard did not have the            expertise to devise such plans (as the district court found),            the shipyard nonetheless proceeded to weld temporary plates            onto LA ESPERANZA's hull to cover the holes that had been            already made, thereby rendering even more damage to the ship by            causing the steel in the hull to crack and rivets to loosen.            The shipyard then refloated the vessel to get it out of dry            dock, repairs still uncompleted, and moored it with cracks that            allowed water to seep into the hull. The shipowner also argues            that the shipyard, among other things, improperly moored the            vessel without shock-absorbing fenders, improperly secured it            against vandals who made off with several radios and liquor            from the ship's liquor cabinet, and improperly protected the            ship's decks from damaging debris from a sandblasting operation            performed near LA ESPERANZA.                      As our previous discussion indicates, there was no            clear error on the district court's part in determining that            such actions breached the shipyard's duty of care to the            shipowner. A more difficult question to be resolved is the                                        -24-                                         24            finding necessary to the district court's determination that            the liability limitation clause in question was enforceable,            viz., that the shipyard's actions did not amount to gross            negligence. While the district court concluded that the Perez            shipyard "did not have the expertise to perform the hull            replacement work adequately," we cannot say that it was clearly            erroneous for the court to conclude that Perez did not act in            such a way as to wilfully inflict harm on LA ESPERANZA or to            cause her damage in wanton and gross disregard of the vessel or            the shipowner's interests in it. See                                                  Todd Shipyards                                                               , 674 F.2d            at 411.                      The shipyard's subcontracted welders admittedly did            not know the quality of the steel on which they were working            when they cut into LA ESPERANZA, and because of that failed to            adopt the proper heat mixture, causing damage to the ship.            But, the record substantiates that the circumstances of this            misstep more closely approximate a failure to exercise due            care, rather than some modicum of reckless abandon. Nor did            the shipyard completely ignore its contractual duties. All            indications in the record are that it strove in good faith to            devise acceptable welding procedures, even if it was            unsuccessful and ultimately unable to do so. Moreover, it is            not clear that it was unreasonable for the shipyard to believe            that it could repair the ship's hull. The shipyard manager,            Miguel Nin, had considerable training and experience in marine                                        -25-                                         25            repair, including advanced degrees in relevant fields of naval            architecture. Moreover, as indicated above, at least some            portions of the plans that the shipyard submitted met Coast            Guard requirements. In addition, while the shipyard damaged            the ship's hull somewhat when it welded on temporary plates, it            attempted to rectify the short-term damage to the vessel's            seaworthiness by applying soft patches to plug leaks and            coordinated efforts with the ship's captain to remove water            that succeeded in entering the vessel. This feature of the            record, too, militates against a finding of gross negligence.            Finally, while it became apparent that the shipyard eventually            abandoned any effort to make good on its contractual            undertaking to repair the vessel, we cannot agree that a            material breach of contract is tantamount in this case to gross            negligence.                      Because nothing in our full review convinces us that            a finding of gross negligence was necessitated on these facts,            we cannot ascribe clear error to the district court's            determination that the liability limitation clause in the            contract between the parties was enforceable on its terms.            Thus, no recovery was available to the shipowner for loss of            the vessel's use or loss of profits because the contract            unambiguously provides that "[t]he yard shall in no case be                                        -26-                                         26            held responsible for the damages resulting from any loss of use            or profit of the vessel."                                       Damages                      Having determined the liability issues as to the            parties, we turn finally to the question of remedies, where all            of the parties "unite in attacking the district court's basis            for assessing damages."  Todd Shipyards, 674 F.2d at 412. On            our full review of the record we find no merit in either            party's challenge to the damages awarded by the district court.                      We note that "[t]he trial court, as a fact-finder,            possesses considerable discretion in fixing damages, and its            decision will be upheld absent clear error."   Little                                                                    Beaver            Enters., 719 F.2d at 79 (citing   Thompson v.  National                                                                       R.R.            Passenger                       Corp., 621 F.2d 814, 823 (6th Cir. 1980)). As a            threshold requirement, however, the trial court "must expose                                            6.  We need not consider at any great length the shipowner's            argument that the district court erred in refusing rebuttal            testimony to that of the shipyard's manager, Miguel Nin. The            shipowner sought to have a former Perez employee, Carlos            Claudio, testify that he had informed Nin of the special            qualities of LA ESPERANZA's steel and had given Nin a welding            plan, which Nin rejected and ignored. The purpose of rebuttal            testimony is to meet and reply to any new evidence offered by            an opponent. See                              United States                                           v.                                              Tejada, 956 F.2d 1256, 1266-            67 (2d Cir. 1992). Determinations regarding what constitutes            proper rebuttal evidence are committed to the "sound            discretion" of the trial court.                                            See                                                Lubanski v.                                                            Coleco Indus.,            Inc., 929 F.2d 42, 47 (1st Cir. 1991). Here, we can discern no            apparent error because Nin, who testified that he was in fact            aware that the vessel's hull was made of a special older-type            steel, never testified that Claudio had not informed him of the            steel's quality nor did he testify that Claudio had not            presented him with a welding plan.                                         -27-                                         27            'the measure of damages and method of computation,' both to            inform the litigants of the basis for its findings and to            afford the appellate court 'a possibility of intelligent            review.'" Id. at 79-80 (quoting                                             Safer v.                                                      Perper, 569 F.2d 87,            100 (D.C. Cir. 1977)).                      We turn first to consider the $10,999 awarded the            shipyard. While the shipowner on appeal asks whether the            district court erred in granting the shipyard this relief, the            shipowner does not succeed in demonstrating that the court's            action in doing so was clearly erroneous. On the contrary, the            shipowner concedes that the district court differentiated            between negligent work performed and work properly done to the            vessel and awarded the shipyard $10,999 for satisfactorily            completed non-hull repair work. In fact, the district court's            opinion stated that it would disallow any recovery by the            shipyard for the hull replacement work that it either failed to            do or negligently performed and would allow recovery only for            the other work that it had adequately performed pursuant to the            contract. It thus deducted $23,000 from the shipyard's $33,999            invoice, an amount equal to what the shipyard was seeking for            hull replacement work, and determined that the shipyard was            entitled to recovery on its collection action in the amount of            $10,999. See                          Perez Y Cia. de P.R.                                             , 899 F. Supp. at 866. This            determination was not clearly erroneous and, therefore, the            shipowner's argument is unavailing.                                        -28-                                         28                      Similarly, we see no clear error in the court's            decision to award the shipowner $220,000. For its part, the            shipyard argues that the district court erred in accepting            valuations of the ship's worth from the shipowner's expert            witness, rather than its own expert witness, who testified that            LA ESPERANZA was only worth her "scrap value," i.e., was            basically worthless. The gist of the shipyard's contention            here is that its expert was more qualified to render an            appraisal value than the shipowner's expert, who was not an            appraiser per se, but rather a marine surveyor. The record            substantiates, however, that marine surveyors like the            shipowner's expert routinely inspect and value ships for            insurance coverage purposes, prospective sales, and so forth,            and are fully competent to offer their professional opinion as            to what a vessel is worth. This is a classic case of dueling            experts and it is not reversible error that the district court            was more persuaded by the range of valuations offered by the            shipowner's expert rather than the other way around.                      The shipowner, meanwhile, argues that the district            court should have awarded more than $220,000 because it was            entitled to loss of use and interest paid on loans taken out to            refit and repair LA ESPERANZA. The shipowner's expert opined            that the cost of repairs to the vessel would have been in the            range of $180,000 to $220,000 plus possible "hidden damages"            that were not easily ascertained while the ship was still in                                        -29-                                         29            the water. The district court did not commit reversible error            in accepting the range of figures offered to it by the            shipowner's expert, in selecting the upper-most figure in that            range, and then declining to exceed that figure based on            speculation about costs to repair damage that might or might            not exist. To the extent that the shipowner is heard to            complain that it should not bear the burden of interest, loans,            and loss of use, we believe that the red letter clause and the            district court's generous award as to actual damages precludes            a determination of clear error on appeal.                                     Conclusion                      Having carefully reviewed the record in this case, we            believe that the district court's determinations as to            liability and the proper measure of damages recoverable by the            respective parties in this dispute were not clearly erroneous.            We thus discern no cause to disturb the judgments rendered            below.                      Affirmed. No costs.                                        -30-                                         30
