Editor: Michael J. Ryan, Edward C. Radzik, David L. Mazaroli|
Date: May 4, 2001
CARRIAGE OF GOODS
COMMITTEE ON CARRIAGE OF GOODS BY SEA
CARGO NEWSLETTER NO. 38, SPRING 2001
Editor: Michael J. Ryan
Associate Editors: Edward C. Radzik
David L. Mazaroli
HARTER ACT STAYS WET. . . .
Cargo was shipped from Germany to Indiana pursuant
to a through Bill of lading. The goods arrived at the Port of Baltimore
and were then transported overland by road. The goods were damaged when
the trailer overturned while on the way to Indiana.
The cargo plaintiff initially sued the trucker
who argued that the suit was time-barred by the Bill of lading’s one year
time-bar. The cargo plaintiff contended that the suit was governed by limitations
in the trucker’s contracts of carriage and tariffs. The district court
found the time-bar in the through Bill of lading applied to all aspects
of the through bill and granted summary judgment in favor of the trucker.
The cargo plaintiff did not appeal.
It then filed a suit against the ocean carrier
who, in turn, brought a third party action against the trucker for contribution
and indemnity. The cargo plaintiff then moved for summary judgment against
the ocean carrier who filed a cross motion for summary judgment. The district
court, without opinion, granted summary judgment in favor of the cargo
plaintiff against the ocean carrier in the amount of the package limitation
($1,000.00 plus post-judgment interest) and in favor of the ocean carrier
against the trucker in the same amount. The cargo plaintiff appealed the
amount of the award and the trucker cross appealed, contesting liability.
The ocean carrier did not appeal, thus not contesting the finding of liability.
The circuit court considered the case to present
an issue of first impression regarding the applicability of federal maritime
statutes to inland transportation under a through Bill of lading.
The court noted it had decided a number of cases
interpreting similar Bills of Lading and their reference to the Harter
Act, but in none of those cases had the goods begun inland transportation.
The Bill of lading referenced COGSA and the Harter Act and the court noted
the distinction that COGSA applies from tackle to tackle and the Harter
Act to the period between discharge and “proper delivery.” The court went
on to note the Harter Act did not define “proper delivery;” however, it
referred to several cases where delivery under Harter was considered.
Generally, proper delivery includes unloading
the cargo onto a dock, segregating it by Bill of lading and count, putting
it in a place of rest so it is accessible to the consignee and affording
the consignee a reasonable opportunity to come and get it. These requirements
can be modified by “the custom, regulations [and] law of the port.”
The Bill of lading provided that to the extent
the Harter Act was compulsorily applicable, the carrier’s responsibility
would be subject to COGSA and, further, that the carrier would not be liable
for more than $500.00 per package or unit. Therefore, if the Harter Act
was compulsorily applicable to the inland transportation portion, the district
court correctly limited liability to $500.00 per package.
The Bill of lading also stated where COGSA was
found not to be applicable, and where the occurrence of damage could be
shown to occur during transportation “in the United States,” the responsibility
of the ocean carrier would be to “procure transportation subject to the
inland carrier’s contracts of carriage and tariffs and any law compulsorily
The cargo plaintiff argued that proper delivery
under the Harter Act occurred when the inland trucker acquired control
and began inland transportation. The ocean carrier argued that the through
Bill of lading provided for carriage to the ultimate destination, therefore,
under Harter, proper delivery had not yet occurred.
The court noted there was no precedent by any
circuit court interpreting the Harter Act and proper delivery with respect
to the inland portion of a through Bill of lading. However, it referred
to the decision of the district court in Jagenberg, Inc. v. Georgia Ports
Authority, 882 F. Supp. 1065 (S.D. Ga. 1995). The court quoted from Jagenberg,
which held that, because of the maritime nature of the Harter Act, inland
transportation under a through Bill occurs after Harter Act proper delivery.
The court noted that Jagenberg was adopted in the M/V Atlantic Conveyor,
1997 AMC 1478 (S.D.N.Y. 1997). Noting that the courts in Jagenberg and
Atlantic Conveyor were not aware of a single case extending Harter to all
stages of a through Bill of lading and that no contrary authority was cited
by the parties in the case sub judice, the court concluded that the Harter
Act was not compulsorily applicable at the time the goods were damaged.
The court stated it did not preclude contractually
limiting liability during the entire time when the carrier has custody
or control over the cargo. Its holding was limited to the situation where
parties contractually tie that limitation to the extent where the Harter
Act is compulsorily applicable.
In the district court, neither the cargo plaintiff
nor the ocean carrier had moved for summary judgment against the trucker.
Regardless of this, the district court granted judgment in favor of the
ocean carrier against the trucker. The circuit court found this to be error.
While the district court may grant summary judgment sua sponte, it must
provide adequate notice and an opportunity to respond. The circuit court
found the trucker to have a potentially valid defense that it was not on
notice to raise. The judgment was reversed and remanded.
Mannesman Demag Corporation v. M/V Concert Express,
No. 98-20877 (5th Cir. Sept. 8, 2000).
CARRIER CYCLES BACK ON LAND. . . .
A shipment of bicycles from Wisconsin to the Netherlands
suffered a theft in Belgium (see Cargo Newsletter No. 36). The district
court found COGSA to apply to the entire movement and awarded plaintiff
full value of the lost bicycles. If COGSA applied, the value of the bicycles
was less than the package limitation; however, if the CMR should apply,
there would be a significant limitation. The Magistrate Judge found limitation
under CMR did not apply and that the carrier had unreasonably “deviated”
from the bill of lading.
On appeal, the Second Circuit wrestled with several
issues. It found that, although an amended notice of appeal was untimely,
dismissal was not warranted because the initial Notice of Appeal provided
adequate notice of the interest of all defendants to appeal.
It then addressed the issue of subject matter
jurisdiction noting the district court somewhat side-stepped whether admiralty
jurisdiction applied, dealing with the matter on diversity. The circuit
court looked at admiralty jurisdiction because the district court’s opinion
and the plaintiff’s arguments were based, in part, on the application of
Federal Common Law principals developed in admiralty.
The bill of lading involved qualified as a “mixed
contract” in dealing with transportation by truck, rail and sea. Noting
that the loss occurred while the cargo was being transported on land in
Belgium, the circuit court found the loss did not arise from a breach of
severable maritime obligations.
It went on to consider whether the land segment
was “incidental” to transport by sea. Noting that the bill involved land
shipment from Wisconsin by Chicago by truck; Chicago to Montreal by rail;
and Antwerp to Spijkenisse, Netherlands by truck, the court took judicial
notice that the sum of these segments of overland transportation was at
least 850 miles. It therefore concluded that the bill of lading involved
land carriage that was more than incidental to sea carriage, placing the
dispute outside admiralty jurisdiction.
Looking to diversity jurisdiction, the court stated
the case was governed by applicable State choice-of-law rules. In looking
at the bill of lading, it noted the choice-of-law provisions in the contract
and found there were two applicable choice-of-law provisions. Clause 4
provided that each stage of the transport should be governed according
to the law applicable to such stage, while clause 23 provided that COGSA
or COGWA “except as otherwise provided herein” should govern before loading
and after discharge and while subject to bill of lading.
The district court applied COGSA to the entire
intermodal carriage; however, the Second Circuit concluded this was error.
COGSA did not apply to the loss ex proprio vigore, which was termed by
the court as a “quaint and famous Latin aphorism of the law.” Treating
COGSA or COGWA as another contractual term, the court applied contractual
construction to give a reasonable and effective meaning to all terms of
a contract if possible and held the most reasonable interpretation was
that the clauses provided for the application of COGSA, unless there was
a different law specifically directed at the particular stage of transport,
in which case the latter would govern.
As the loss was from a truck in Belgium and Belgium
had ratified the CMR, it found the CMR to apply and the carrier’s liability
should be assessed using the relevant portion of the CMR.
The court vacated the district court judgment
and remanded with instructions that the district court should determine
whether an exoneration provision in the bill of lading would be valid under
CMR. Clause 4 of the bill of lading provided that the carrier would only
be liable for a loss that could be attributable to its own act, not those
of “Participating Carriers.” If the clause is not valid under CMR, the
district court should then decide whether the limitation of liability under
CMR was applicable, evaluating plaintiff’s contention that even if CMR
applied, the carrier could not avail itself of the limitation because they
engaged in willful misconduct. Barring willful misconduct, recovery should
be limited to an amount in accordance with CMR’s limitation of liability
Hartford Fire Ins. Co. v. OOCL (Europe) Ltd.,
No. 99-9502 (2d Cir. Oct. 27, 2000).
CAN-MAKER ON FLAT-RACK CANS CARRIER. . .
An action was brought to recover damage to a can-making
machine, allegedly resulting from exposure to rain water during ocean transport
from Seattle, Washington, to Yokahama, Japan. The cargo plaintiff moved
for partial summary judgment.
The principle argument was that stowage of the
cargo on-deck under a clean Bill of lading constituted an unreasonable
deviation, depriving the ocean carrier of the package limitation. Assuming
that the can-making machine was damaged as a result of on-deck stowage,
the court found the package limitation did not apply.
The can-making machine was covered with polyethylene
sheet and packed in a large plywood box which, in turn, was covered with
thick tarred paper at the top and lined with polyethylene sheet. The wooden
crate was then placed on a flat-rack which was stowed on deck. At the time
of delivery to the consignee’s warehouse, the machine was discovered to
be in a heavily wetted and rusted condition.
The court found the cargo plaintiff had established
the first “prong” of its prima facia case with the carrier’s clean Bill
of lading and evidence that a former employee supervised the packaging
of the can-making machine and observed that it was in good order and condition
when delivered to the carrier. No rebuttal evidence was presented.
As to demonstrating that the machine was damaged
at the time it left the carrier’s custody, the court rejected a surveyor’s
report annexed to the affidavit of counsel as containing several hearsay
statements. Another declaration was found inadmissible as hearsay. As the
cargo plaintiff failed to offer admissible evidence demonstrating the cargo
was damaged when it left the carrier’s custody, it had failed to establish
the second prong of its prima facie case. On this basis, the court denied
summary judgment on the issue of liability.
The court then turned to the package limitation
and the argument that on-deck stowage constituted an unreasonable deviation,
depriving the carrier of the package limitation.
Noting that, absent an agreement or established
custom, a clean Bill of lading imports stowage below-deck and, above-deck
stowage (when below-deck stowage is required) will normally constitute
an unreasonable deviation. At the same time, a carrier may prove circumstances
such as space limitations, safety and loading difficulties, or the custom
and practice within the industry or between the parties where unauthorized
deck stowage may be held reasonable. However, the carrier has the burden
of establishing such where the parties did not agree to on-deck stowage.
The court stated that above-deck stowage of containerized
cargo aboard container ships, specifically designed to carry containers
on-deck, does not constitute an unreasonable deviation. While referring
to an initial factual dispute as to whether the vessel was, in fact, a
container ship, even if it was, the cargo involved was not placed in an
enclosed container and was therefore subject to the traditional risks associated
with on-deck stowage, particularly exposure to the elements.
The court found the carrier failed to show that
on-deck stowage of the cargo placed on a flat-rack was reasonable. It did
not present any concrete evidence as to the existence of custom or practice
of on-deck stowage of flat-racks in the Port of Seattle or practical exigencies
which would favor on-deck stowage.
The rationale behind the exception for containerized
cargo aboard container ships was inapposite, where the cargo was not placed
in an enclosed container and, therefore, subject to greater risk.
The court denied the motion on the issue of liability;
however, it held stowing the can-making machine in an open flat-rack above
deck under a clean Bill of lading deprived the carrier of the benefit of
the package limitation.
D.I. Engineering Corp. v. Nippon Express USA (Illinois),
Inc. v. Westwood Shipping Lines, 96 Civ. 6843 (Aug. 25, 2000) (McKenna,
ONE BILL; NO CARMACK; BYE BYE JURISDICTION. .
A container of Tommy Hilfiger clothing was hijacked
from a truck as it left the railroad’s facility in Croxton, New Jersey.
The consignee and subrogated underwriter brought suit against the trucking
company, the railroad, and a security service. Defendants moved to dismiss
for lack of subject matter jurisdiction.
The complaint was initially filed as within the
court’s federal question jurisdiction under the Carmack Amendment; however,
in the course of discovery, it was determined that the domestic rail portion
of the shipment (Los Angeles to New York) was not covered by a separate
Bill of lading. The Carmack Amendment applies to the domestic portions
of shipments from foreign countries so long as the domestic portion is
covered by a separate Bill of lading.
After the commencement of the action, plaintiffs
amended the complaint to assert direct claims against the third-party defendant
security service. As both the plaintiff and the security service were New
York corporations, the court noted the alternative of diversity for federal
jurisdiction was moot.
On the basis that Carmack Amendment did not apply,
plaintiffs conceded that the court lacked original subject matter jurisdiction;
however, requested the court to exercise supplemental jurisdiction pursuant
to 28 U.S.C. §1367.
The Second Circuit has instructed that remaining
state claims should be dismissed where all federal claims had been dismissed
prior to trial; however, the court could retain jurisdiction if the federal
claim was dismissed “late in the action, after there has been substantial
expenditure in time, effort and money in preparing the dependent claims.”
Plaintiffs argued that it would be wasteful for
the court to dismiss the case, noting that it had been filed over one and
one half years ago, that discovery had been conducted for one year, including
eight depositions taken and three appearances before the court.
The court did not accept this argument, stating
the case was not at a late stage in its proceeding. While the parties conducted
discovery for over a year, that discovery could prove useful in any future
state proceedings. The court noted summary judgment motions loomed on the
horizon and, while other courts in the district exercised supplemental
jurisdiction after dismissing all federal claims, at the very least, they
had reached the merits of those cases.
The court granted the motion to dismiss for lack
of subject matter jurisdiction.
Tommy Hilfiger USA, Inc. v. Commonwealth Trucking,
Inc., No. 98 Civ 5841 (September 7, 2000) (Keenan, J.)
THE QUALITY OF MERCY IS NOT STRAINED; IT’S TRASHED.
A shipment of starch components was delivered
to a vessel to be shipped from Kaohsiung to Portland, Maine. The shipper
contracted with the charterer (who became defunct). During loading, some
of the bagged cargo got wet because the hatches were open. The officer
on watch knew the bags could be damaged by rain and was on watch for bad
weather for that reason.
The cargo was surveyed and discussions were held
concerning the unloading of the suspect bags to allow proper testing and
evaluation. In spite of these discussions, the Master decided not to unload
the cargo and sailed. Subsequent to sailing, the cargo was also shifted
in anticipation of loading a shipment of chrome ore which was destined
for Montreal, Canada. While at sea, near the Panama Canal, the destination
of the vessel was changed from Portland, Maine, to Montreal, Canada to
offload the chrome ore. The altered route added a significant number of
miles and days to the trip and, because of the change in course, the ship
encountered a hurricane and had to alter course even farther.
After arrival at Portland, the bags of starch
were discharged and high levels of mold and clumps were noted in the cargo.
Because of high bacteria counts and unacceptable viscosity levels, the
product was sold overseas for animal use at a substantially reduced price.
The court found there was evidence, in addition
to the clean bill of lading, to substantiate delivery in good condition
when turned over to the carrier. As to delivery in Portland, there was
evidence that starch, once becoming wet, will become adulterated over time
because of microbiological growth. Defendants argued that there should
be no liability until it was shown that the starch in each bag was contaminated.
The court rejected this assertion, noting the prohibitive costs to test
each bag, even if this was possible. The court commented that the bags
could have been surveyed and bad separated from good at the load port in
Thailand and this was not done because the ship’s captain chose not to
Having found a prima facie case, the court found
the carrier took several unnecessary risks and could have easily prevented
the wetting incidents had proper precautions been taken.
As to mitigation, an argument was made that even
if some of the bags had biological contamination, those bags could have
been blended with good material and the average amount of contamination
would then have been acceptable. The court found that such an assertion
violates the Code of Federal Regulations and “borders on being unconscionable”
given the intended use of the material for human consumption. In a footnote,
the court stated: “During trial, I asked [the expert] whether he would
say that food with the typhoid virus could be blended and used for human
consumption, he answered that it could. It is obvious to me that this man
hardly has a deep compassion for the general public.”
The court went on to find that selling the starch
for feed was the best course of action.
A limitation of $500 per bag was asserted; however,
the court found the vessel unreasonably deviated to Montreal, Canada before
discharging the starch in Portland, Maine. Therefore, the limited liability
protection was not available. By changing course to Montreal instead of
calling at Portland first, the vessel added miles to the voyage.
Noting the circumstances of bacterial contamination,
the court found delay in time would cause increased bacterial growth and
more damage to the product. The court found defendants fully liable for
the damages caused.
National Starch and Chemical Company v. N/V MONCHEGORSK,
97 Civ. 1448 (S.D.N.Y. August 7, 2000) (Duffy, K.T.).
(Newsletter editor’s note: This matter is on appeal
to the Circuit Court of Appeals for the Second Circuit.)
WHAT DOES IS PROFIT A MAN . . . .
The plaintiff consignee contracted with an NVOCC
for transportation of shoes from Brazil to Columbus, Ohio. When the container
arrived at Columbus, it was empty. The consignee sued both the NVOCC and
the actual carrier, each of whom had issued bills of lading.
As a result of a pre-trial conference, plaintiff
served an Itemized Settlement Demand which included, among other damages,
a claim for “lost profits,” and a claim for “marketing, administration,
and processing costs.” The NVOCC filed a motion for partial summary judgment,
seeking a ruling that the plaintiff could not recover for these alleged
With respect to the lost profits claim, the NVOCC
argued that language in the bills of lading purporting to limit liability
to invoice value, plus freight and insurance if paid should bar recovery;
that it was not a carrier subject to COGSA; and that the shoes were “fungible
goods in bulk” and lost profits could not be recovered and that the claim
for lost profits was speculative and plaintiff had not mitigated damages.
As to the limitation of liability argument, the
court found that the NVOCC was indeed a carrier, having issued a contract
of carriage (the bill of lading), rejecting an argument that the defendant
was merely a freight forwarder.
Having concluded that the NVOCC was a “carrier,”
the court found the bill of lading provisions violated COGSA as lessening
a carrier’s liability. As the court found the defendant to be a “carrier,”
COGSA applied rather than state law.
The court went on to state that COGSA permits
the recovery of lost profits where there is sufficient evidence to support
“actual damages” which can include lost profits where the goods in question
are unable to be replaced. The court found plaintiff had presented testimony
sufficient to show that the shoes were not able to be replaced and that
the plaintiff had lost profits as a result of the failure to deliver the
The court summarily rejected the “presumably fungible”
argument noting that no authority had been submitted on this point and
no evidence had been shown that the shoes could have been replaced.
As to lost marketing and processing costs, the
court agreed that any damage award would be reduced by such costs, as were
avoided, as a result of the failure of the shoes to be delivered: plaintiff
would be entitled to recover administrative and overhead costs, that it
could prove to a reasonable certainty it would have offset, if the shoes
had arrived and/or, that it incurred as a result of the failure of delivery,
minus any costs it avoided as a result of such failure.
Shonac Corp. v. Maersk, Inc., No. C2-99-870 (S.D.
OHIO, March 30, 2001) (Sargus, Jr., J.).
HURRICANE TIDAL SURGE COMES ASHORE; CARGO CLAIM
GOES OUT WITH IT. . . .
Reels of papers stowed in containers had been
discharged at the Alabama State Docks and were held there pending on-carriage
for delivery. Hurricane Georges made landfall in the area and the reels
of paper were damaged by tidal surge flooding. The plaintiff subrogee underwriter
brought suit for the damaged reels in two actions which were consolidated.
The principle issue before the court was whether
the defense of “Act of God” was available to defendants. In a detailed
analysis, which included fact specific references to evidence, the court
found that hurricanes, such as Georges, are considered in law to be an
“Act of God.” At the same time, it found that defendants would not be relieved
from liability through “Act of God” until it was determined whether the
damage arose through want of proper foresight and prudence, and to relieve
themselves from responsibility, it was incumbent upon them to prove that
due diligence and proper skill were used to avoid the damage and that it
... Indeed, the federal courts “weathered” experience
with this defense has produced one crucial principle: if a defendant has
sufficient warning and reasonable means to take proper action to guard
against, prevent, or mitigate the dangers posed by the hurricane, but fails
to do so, then the defendant is responsible for the loss; however, if there
were insufficient warnings or insufficient means available to the defendant
to protect the cargo from the “Act of God,” then they are not responsible
for the loss.
Turning to the evidence, the court first looked
at the aspect of notice of warning or flooding. In a searching analysis
of the testimony, the court found the defendants did not have any actual
knowledge and/or notice of flooding from hurricanes ever occurring in the
area, in order to take the precautions which the plaintiff asserted they
The court then turned to whether the defendants
could have been made aware of a flooding danger. Plaintiffs argued that
a “Stormcheck” service should have alerted defendants. The court described
a faxed bulletin as somewhat cryptic, referring only to a storm surge over
coastal Alabama as anticipated. The court noted the particular pronouncement
was at odds with the National Hurricane Center’s own advisories in Miami.
In a footnote, the court stated that for plaintiffs to prevail on the strength
of this alleged “warning” they had to prove the defendant carrier should
have been a customer of the service and that inherent in the argument was
a corollary argument that an organization such as the carrier was not entitled
to rely on National Hurricane Center advisories, but instead must subscribe
to a private source, and if there is more than one, then the most reliable
one. The court found plaintiffs to have failed to meet that burden and
stated the defendants were not obligated to subscribe to a particular commercial
... Defendants cannot be held liable because what
was known and/or predicted of this hurricane simply did not warrant a decision
to move the containers from the State Docks. Given the timing and content
of the predictions and the logistical realities involved, the damage which
was sustained simply could not have been prevented by reasonable foresight
and care. The Defendants were not negligent in their protection of and/or
handling of the cargo by failing to move the cargo because they did not
have sufficient notice of the specific weather conditions which could be
expected in this particular area in Mobile.
In light of the evidence, the court found defendants
acted reasonably and with due diligence.
... instead of eyes locked on hindsight, this
Court must stand with eyes directed towards what the Defendants knew at
the time, to understand that the flooding which subsequently occurred and
the hurricane’s path was not sufficiently appreciable or foreseeable, to
call for extraordinary precautions entailing substantial expenses.
The court found plaintiffs not entitled to recover
because the damage was caused by an “Act of God,” and not due to any negligence
on the part of the defendants.
Skandia Ins. Co., Ltd. v. Star Shipping AS, d/b/a
Atlanticargo, No. 99-0284-CB-L (U.S.D.C., S.D. Ala. April 5, 2001.) (Butler,
SOMETIMES YOU GET WHAT YOU PAY FOR. . . .
A shipment of steel bars was booked to be transported
by rail from Texas to Pennsylvania. The steel bars allegedly failed to
arrive and the plaintiffs submitted a claim to the railroad. The railroad
declined the plaintiff’s claim and, close to two years after receiving
that written notice of rejection, the plaintiff filed suit with respect
to the alleged non-delivery.
Defendant moved for summary judgment on the basis
that the claim was time-barred and plaintiff cross moved to transfer venue
With respect to defendant’s motion, the court
found the shipment was subject to a one-year provision in the railroad
carrier’s circular which had been referred to in the freight invoice and
the rate charge was calculated based on the rate in the exempt circular.
The plaintiff was offered the option of shipping
its goods pursuant to the Carmack Amendment, which would have given plaintiff
two years after declination in which to file suit. Instead, the rate charged
and accepted by the plaintiff was a cheaper rate quotation which considered
a one-year limitation as opposed to the two-year filing period provided
by the Carmack Amendment.
Finding the plaintiff had failed to establish
a triable issue of fact, the court granted summary judgment in favor of
defendant on the basis that the matter was time-barred.
As to plaintiff’s motion to transfer, the court
denied the motion as moot; however, went on to note the motion would still
be denied, as a motion to transfer venue is not ordinarily granted at the
request of the party who chose the forum in the first place.
Ferrostaal, Inc. v. Union Pacific Railroad Co.,
99 Civ. 10497 (S.D.N.Y. July 5, 2000) (Schwartz, J.).
THE BILLETS TURN UP AND ONCE MORE UNTO
THE BREACH. . .
Having been dismissed from its New York action,
the plaintiff initiated a suit alleging conversion in the District Court
for the Eastern District of Texas. The steel billets which were not delivered
had been left unaccounted for in the railroad’s shipping yard in Fort Worth,
Texas. Eventually, the billets were sold by soliciting bids. One of the
railroad’s claims adjusters was responsible for selling the unidentified
billets. The plaintiff sued this individual for his actions, claiming they
The court noted that before the conversion lawsuit
was filed in Texas, the plaintiff had initiated a similar lawsuit against
the railroad in the Southern District of New York. The plaintiff then brought
an action against the employee individually, despite the fact that both
parties seemed to agree that he was a railroad employee and that he was
acting in the normal scope of his employment.
The court noted the outcome of the suit brought
in the Southern District of New York as being time-barred and turned to
the claim for conversion.
The court found the Carmack Amendment preempted
state law breaches of contract and tort claims. Quoting from a 5th Circuit
decision in Moffit v. Bekins Van Lines Co., 6 F. 3d 305 (5th Cir. 1993),
the court stated “such a holding could only lead to the morass that existed
before the Carmack Amendment. Therefore, we find the district court correctly
held that federal law, via the Carmack Amendment, preempts the Moffits’
state law claims. To hold otherwise would only defeat the purpose of the
statute, which was to create uniformity out of disparity.”
The court found the Carmack Amendment preempted
the plaintiff’s claim against the individual defendant. There had been
no showing that he was acting outside the scope of his employment. The
court held plaintiff should not be allowed to circumvent the Carmack Amendment
by naming an individual employee as its chosen defendant.
The court went on to consider the impact of the
decision of the District Court of the Southern District of New York.
The court found both causes of action related
to actions that were taken by the individual which were under the normal
scope of his employment. Plaintiff’s first lawsuit was for non-delivery
to steel billets under the Carmack Amendment. Plaintiff’s second lawsuit
for state-law conversion was preempted by the Carmack Amendment. Because
the District Court for the Southern District of New York had previously
held plaintiff’s cause of action under the Carmack Amendment was time-
barred, the court found it should no longer entertain the plaintiff’s claim.
Ferrostaal, Inc. v. Don Seale, 6:00 cv 212 (E.D.
Tex., Tyler Division March 12, 2001) (Stagger, J.).
“A DAMAGE TO CARGO CLAIM OF A SOMEWHAT UNUSUAL
NATURE”. . . .
A cargo of ethylene was being loaded aboard a
vessel and was contaminated by a previous cargo of butadinene. The owners
admitted their vessel was unfit to carry the cargo in question, having
failed in their duty to exercise due diligence to clean or purge the vessel’s
tanks and lines of the previous cargo. The court noted the breach must
have been particularly gross since, according to the owner’s own expert
cargo surveyor, the extent of the contamination observed during the initial
stage of loading was likely to have exceeded anything which the attending
independent surveyor then acting for the cargo interests had previously
experienced. Building on this, the owners argued that the grossness of
the contamination then observed supported their contention that the bulk
of the loss should be regarded as having been caused by the cargo interests’
own decision to continue loading. Thus, the owners argued that while the
vessel was unfit to take the cargo, the decision to continue to loading
should be characterized as reckless or foolhardy and they should not be
liable for their admitted breach for contamination of the balance of the
parcel thereafter loaded.
In a 43-page opinion, the court noted the master
of the vessel appeared to have played virtually no part in the loading
process. The court noted it did not have the benefit of oral evidence from
any of those who were or should have been most immediately involved, cargo
interests calling only one witness with owners calling no witnesses and
in particularly not calling the master.
Dealing with arguments presented on behalf of
owners, the court stated the ship owner could not abdicate responsibility
under the circumstances. The reality was that through a failure to observe
basic tanker practice there was present in the vessel’s tanks and lines
at the beginning of loading a large quantity of contaminant which derived
from a previous cargo. The master should have taken whatever steps were
necessary and acted. “If the only manner in which the vessel could be made
fit to receive further cargo was
by removal of the cargo already loaded, it was
the Master’s duty to ensure that all parties were made aware of that fact
so that it could be dealt with appropriately.”
The court concluded that it could not regard the
decision to continue as being the effective cause of the full cargo. The
decision was not sufficiently aberrant as to wholly supplant the unfitness
of the vessel as the effective cause of the contamination.
As to quantum, the claimants argued the measure
of their loss should be the difference from what they would have earned
had the cargo been sold and what they achieved on a distress sale. The
court stated the correct measure would be the difference between sound
arrived value and actual value, based on the footing that normally compensation
would reflect the cost of going into the market in order to buy a substitute
cargo which would in turn enable the injured party to achieve whatever
price might be obtainable under his forward contract , assuming that the
The initial contract (BP) was entered into before
any relevant contract to which the owners were party. The contract price
was calculated by references to prices in a publication commonly used in
the market. The average price spot quoted in this publication at the relevant
time was less than the initial contract price (some $136 less). The court
found compensation to be calculated on the relevant spot price less what
was achieved on the distress sale.
Vinmar International Ltd. v. Theresa Navigation
S.A., No. 1997 Folio 1721 (High Court of Justice, Queens Bench Division,
Commercial Court March 6, 2001) (Tomlinson).
STRICT PRODUCTS THEORY GOES UP IN SMOKE
An explosion on board a vessel in a containerized
shipment of Thioreau Dioxide (“TDO”) caused severe damage to other shipments
stowed in the same vicinity and to the vessel itself.
The subrogated insurers of a cargo of men’s coats
commenced an action against the vessel, its owner, time charterer and a
number of slot charterers and NVOCC’s involved with the shipment. In a
related action, the shipowner sued the shipper and freight forwarders of
the offending TDO cargo. Judge Miriam G. Cedarbaum consolidated these cases
for trial and thereafter issued findings of fact and conclusions of law.
The court ruled that at the time of the incident,
TDO was not officially recognized as a hazardous cargo and thus not listed
in the International Maritime Dangerous Goods (“IMDG”) Code. The available
industry literature at the time did not alert those handling the product
of the likelihood that decomposition of TDO would cause an exothermic reaction.
Faced with the Fire Statute defense under COGSA,
and the absence of proof of carrier negligence, the cargo claimants joined
forces with the shipowner and focused the prosecution of its claims against
the shipper and freight forwarder of the TDO under a theory of strict products
liability. The shipowners asserted that the shipper and freight forwarders
were guilty of failing to warn about the inherent dangers of TDO. In addition,
the cargo interests asserted that the shipper of the TDO owed an absolute
duty under general maritime law that the TDO was not hazardous.
The court rejected the plaintiffs’ strict product
liability theory on the grounds they failed to prove the existence of a
product defect or that such defect caused the damage. The court also found
that the plaintiffs could not recover because they were not “users or consumers
of the defective product.”
Judge Cedarbaum also dismissed plaintiffs’ theory
in respect of the shippers’ duty to warn about the inherent dangers of
TDO. The court found that none of the research available at the time of
shipment was indicated that an explosion was likely during the transport
The court also held that there was no absolute
warranty on the part of the shipper that its cargo is not hazardous. This
absolute warranty, to the extent it existed under common law, was cut down
and modified legislatively with the enactment of COGSA, Section 1304(6)
of which requires proof of “[an] act, fault or neglect of shipper” before
liability may be imposed. Judge Cedarbaum held that a shipper is “chargeable
only with the knowledge that it is actually or constructively within its
possession” and that plaintiffs failed to prove that the shipper (or its
freight forwarder “knew or should have known” that TDO could decompose
Insurance Co. of North America a/s/o Burlington
Coat Factory v. M/V TOKYO SENATOR, 2001 WL 23893 (S.D.N.Y. March 9, 2001)
CLAIMANT RUNS HAZARD OF HAZARD EXCLUSION
In an action factually related to the TOKYO SENATOR,
supra, one of the NVOCC’s sued its liability insurer to recover cleanup
costs and fines imposed and the costs of defending a lawsuit for damage
arising out of the carriage of two shipments of toxic chemicals, including
the TDO carried on the TOKYO SENATOR.
The defendant insurer refused to defend or indemnify
its insured on the grounds that the policy of insurance excluded toxic
pollutants from coverage and had a one-year statute of limitations. The
policy styled in “International Transit Liability Insurance Policy” covered
certain risks attendant on the insured’s business as an NVOCC. As is typical
of most insurance policies, the Policy at issue contained numerous exclusions
which operated to deny coverage for certain risks. The relevant exclusion,
entitled “Hazardous Materials / Pollution / Contamination” provided as
We will not cover any claims for environmental
damage, pollution, or contamination of any kind however caused, including
but not limited to: claims arising out of accidental, sudden or gradual,
foreseeable or unforeseeable, intentional or unintentional occurrences.
We will not cover any claims arising out of any
activity, transaction, incident or occurrence involving any explosives;
pressurized gases; nuclear parts, fuels, materials or devices; hazardous,
radioactive, toxic; . . . or flammable materials; any weapons or armaments;
or any means of biological or chemical warfare.
Further, we will not cover claims arising out
of the actual, alleged or threatened discharge, disposal, release or escape
of pollutants in any stage or storage, handling or transportation; . .
. whether accidental, sudden or gradual, foreseeable or unforeseeable,
intentional or unintentional.
Pollutants mean but are not limited to: any solid,
liquid, gaseous, thermal, radioactive, sonic, magnetic, electric or organic
irritant; contaminant; or anything which causes or contributes to damage,
injury, adulteration, or disease. This includes, but is not limited to
smoke, vapor, soot, fumes, acid, alkalis, chemicals and waste.
In addition, the Policy contained a clause which
precluded the assured from commencing a lawsuit against the insurer after
one (1) year from the date of the incident giving rise to the putative
duty to defend.
In mid-May of 1995,the insured first notified
the insurers of the insurers of the underlying losses when it, itself,
was served with summonses and complaints in connection with two separate
but related actions one filed in the Eastern District of New York, the
other pending in the Southern District of New York. The Insurers promptly
responded on June 1, 1995, stating that following a review of the complaints,
the insurers were not obligated to provide the insured coverage based upon
the hazardous materials / pollution exclusion. Almost five years later
in February of 2000, the insured brought a declaratory judgment action
against the insurers to declare that coverage existed. Insurers asserted
a counter-claim seeking a declaratory judgment that the policy did not
Judge Gerard E. Lynch, on motion and cross motion
for summary judgment, held that the Policy was not intended to provided
the insured with coverage given the broadly-worded hazardous materials
/ pollution exclusion.
The Policy excludes: “Any claims arising out of
any activity, transaction, incidence or occurrence involving@ materials
that are “hazardous” or “toxic.” Since the court found that there was no
duty to defend or indemnify on the part of the insurer, it stated that
it was unnecessary to rule on the statute of limitations question. The
court also considered the insurers’ application for attorneys’ fees and
costs under 28 U.S.C. §1927, but stated that such sanctions were not
warranted in this case.
Zen Continental Co., Inc. v. Intercargo Ins. Co.,
2001 U.S. Dist. LEXIS 2999 (S.D.N.Y., March 21, 2001).
CLOTHIER’S CARGO COVERAGE COLLAPSES DUE TO LACK
OF COOPERATION, AMONG OTHER THINGS
Plaintiffs were a manufacturer of military apparel,
and its affiliate who arranged for the purchase of yarn and its conversion
into finished material. They sued to recover for goods damaged when the
roof of a warehouse in which finished material was stored, collapsed. The
warehouseman declared bankruptcy and the warehouse was demolished a number
of months after its roof collapse. Plaintiffs claimed against the warehouseman’s
commercial property insurance policy as a third-party beneficiary. Plaintiffs
also claimed under two other insurance policies; one which only covered
the manufacturer for property loss at the warehouse and, the other—an open
marine cargo policy with a warehouse endorsement which named both plaintiffs
Defendant insurance companies moved for summary
judgment. The court granted summary judgment to all three defendants, albeit
on slightly different grounds. With respect to the warehouseman’s insurer,
the court held that the plaintiffs lacked standing and that they failed
to qualify as intended third-party beneficiaries under that policy because
the policy specifically excluded coverage for “stock and supplies of others.”
With respect to the policy which named only the
manufacturers as an insured, the court held that there was no coverage
because at the time of the roof collapse because the fabric in the warehouse
was owned by the manufacturer’s affiliate and not the manufacturer. The
court dismissed plaintiffs’ claim under its cargo policy since the policy’s
warehouse endorsement only provided coverage for “imported goods and merchandise
. . . while temporarily stored in warehouses approved by this Company in
writing.” The evidence submitted in support of the motion indicated that
the goods were not imported but rather had been manufactured in by the
Because the court found there was no coverage,
it stated that it was not necessary to determine whether timely notice
of claim had been given to the insurers. However, the court stated, as
dicta, that it would have dismissed plaintiffs’ case for their failure
to provide timely notice of the claim since it was undisputed that plaintiffs
only notified its own broker of their loss and the broker did not provide
notice of loss to insurers within a reasonable period of time. In addition,
the court indicated that it would have ruled in favor of the defendant
insurers on the issue of their failure to cooperate with the insurers in
proving their loss. The undisputed evidence showed that plaintiffs not
only failed to properly retrieve the goods from the warehouse after the
loss but they discarded the goods as trash, thus depriving the insurers
the opportunity to inspect the damage and assess the extent of the loss.
Isratex, Inc., et al. v. Strousberg Dyeing and
Finishing Co., No. 108138/95 (N.Y. Sup. Ct. Feb.13, 2001) (Abdus-Salaam,
COMPUTER CHIPS CAUGHT UP IN COMPLEX TREATY RELATIONS
In a recent decision that may have far reaching
implications, the Second Circuit decided that since the United States signed
the Warsaw Convention and South Korea only signed the Hague Protocol, that
these countries were not in treaty relations with respect to international
transportation of cargo by air.
The shipper delivered 17 parcels of computer chips
to the air carrier for shipment from Seoul to the consignee in San Jose,
California. The air carrier’s air waybill provided for shipment on a non-stop
flight from Seoul to San Francisco, but due to an excess of goods to be
shipped, the carrier instead transported the parcels on a flight to Los
Angeles. The parcels were then trucked to San Francisco. Two of the 17
parcels, weighing 35.3 kilograms and valued at $583,00.00, were missing
upon arrival at San Francisco. The subrogated cargo insurer claimed subject
matter jurisdiction under 28 U.S.C. § 1331. Although the United States
adhered only to the original Warsaw Convention and South Korea adhered
only to the Warsaw Convention as amended at the Hague, both parties agreed
that the Warsaw Convention governed the dispute.
The district court applied only those portions
of the Warsaw Convention to which the United States and South Korea both
had agreed in adhering to two different versions of the treaty, thus, in
essence, creating a truncated version of the Warsaw Convention. The district
court held that the Warsaw Convention’s liability limitations were applicable,
and the air carrier’s liability was limited to $706.00 by the truncated
treaty formed by the common portions of the two versions.
On June 8, 2000, the Second Circuit reversed the
district court’s decision, holding that the actions of the United States
and South Korea did not create treaty relations with regard to international
carriage of goods by air. The court determined that the United States and
South Korea were not in treaty relations with regard to the international
carriage of goods by air and, therefore, the dispute did not arise under
a treaty of the United States, thereby depriving the district court of
subject matter treaty jurisdiction.
The case was remanded to the district court to
determine whether there was another basis for subject matter jurisdiction.
The cargo insurer has moved in the district court to dismiss the air carrier’s
affirmative defense of limitation of liability under the air waybill and
tariff. A Petition for a Writ of Certiorari has been filed with the United
States Supreme Court.
Chubb & Son, Inc. v. Asiana Airlines, 214
F3d 301 (2nd Cir. 2000).
11TH CIRCUIT ENTERS “MURKY WATERS”
OF COGSA AND PACKS UP CLOTHING SHIPMENTS....
Containerized shipments of clothing were lost
overboard. One plaintiff shipped its products in a “big pack,” akin to
a pallet, slotted at the bottom so it could be picked up by a forklift
and partially enclosed in corrugated cardboard with a base and cover made
of plastic. Inside the big pack, were bundles of boys pants and the like
wrapped in paper and sorted by style.
A second shipment consisted of assembled suit
jackets which were hung from beams on nylon ropes and shipped in extra-tall
containers. The pressed suits were enclosed in plastic bags and each garment-on-hanger
container could hold between 4,500 and 5,500 hangers.
Both cargo plaintiffs appealed from the district
court’s decision holding the big pack to be the package for limitation
purposes and the container to be the package with respect to the shipment
of suit jackets on hangers.
The Eleventh Circuit noted the documentation,
particularly the cargo manifest and the bill of lading, indicated 39 big
packs and stated nothing about the smaller “dozens” or bundles inside each
big pack. The court found little difficulty in affirming the limitation
based upon the 39 big packs.
With respect to the garment-on-hanger container,
the court stated it initially approached any attempt to define a container
as a COGSA package with great reluctance: “While the “number of packages”
column is plainly our starting point in determining these issues, the analysis
does not end there. . . . ” “[W]hen a bill of lading refers to both containers
and other units susceptible of being COGSA packages, it is inherently ambiguous.”
While reviewing relevant case law, the court ultimately
noted the evidence presented that each garment-on-hanger container is a
recognized shipping unit was inconclusive. Precedent has clearly required
that the number of packages that are declared must be indicated in the
package column of the bill of lading and the shipper’s own documents as
the next most reliable source of information should give some clear indication
that more than one package is being shipped.
The court noted that the shipper had ten years
experience in the shipping business and would be hard pressed to argue
it did not understand the significance of correctly completing all the
declaration forms and bills to avoid a COGSA limitation.
With respect to both plaintiffs, the court in
a footnote noted that additional freight charges could have been paid to
opt out of the COGSA limitation: “Not paying the additional amount implies
a conscious decision to adhere to COGSA’s limited liability. In fact, both
Fishman and MacClenny chose not to opt out of COGSA’s limitation but instead
transferred the risk of loss greater than the COGSA limitation from themselves
to their insurer.”
The court also considered an argument that the
district court should have followed a decision in the same district court
on the basis of intra-court comity. The circuit court noted that, unlike
circuit court panels where one panel will not overrule another, district
courts are not held to the same standard. While the decision of fellow
judges are persuasive, they are not binding authority.
The circuit court affirmed the district court’s
applications of the package limitation.
Fishman & Tobin, Inc. v. Tropical Shipping
& Const. Co., Ltd., 240 F.3rd 956 (2001) (11th Cir. Jan. 31, 2001).
UNFRIENDLY PERSUASION. . . .
The United States sued for loss and damage to
shipments of foodstuffs to various ports in Africa. Clean bills of lading
were issued for each shipment after the cargo was stowed; however, survey
reports indicated several problems when discharged in Africa. Some parts
of the cargo were received in a damaged and unusual condition and some
parts of the cargo were not received at all. The total claimed was $203,317.87.
The district court entered judgment in favor of the United States for the
limited sum of $7,300.08, the amount of damage which defendants admitted
occurred prior to discharge.
The 5th Circuit Court of Appeals considered the
shifting burdens and accompanying presumptions of liability set up by COGSA.
The court noted the shipper had established a prima facie case of loss
or damage. Clean bills of lading had been issued and the reports of survey
at the ports of discharge indicated loss or damage upon discharge.
A shipper’s prima facie case creates a presumption
of liability and, at that point, the burden of proof shifts to the carrier
to prove it exercised due diligence to prevent the loss or damage or that
the loss or damage was the result of one of the “uncontrollable causes
of loss” enumerated in COGSA.
If the carrier successfully rebuts the shipper’s
prima facie case, the presumption of liability vanishes and the burden
returns to the shipper to show that carrier negligence was at least a concurrent
cause of the loss or damage. If the shipper establishes carrier negligence
as at least a concurrent cause, then the burden shifts once again to the
carrier, who must establish what portions of the loss were caused by other
factors. If the carrier is unable to prove the appropriate apportionment
of fault, it then becomes liable to the full extent of the shipper’s loss.
The circuit court reviewed the district court’s
application of this “burden shifting paradigm and other legal issues de
The court found little difficulty in determining
that the shipper had established a prima facie case. It then went on to
consider whether the carriers had rebutted the prima facie case by showing
that the facts and circumstances surrounding the loss fell within one of
the statutory exemptions of COGSA or demonstrated that the carrier exercised
. . . There is considerable controversy, and even
an intra-circuit conflict, as to whether the carrier’s rebuttal burden
with respect to most of those exceptions is one of production or persuasion.
The first sixteen of the seventeen statutory exceptions
to carrier liability set out at 46 U.S.C. § 1304(2) merely provide
that the carrier is not liable for losses or damages caused by one of the
listed causes. In this group are included losses attributable to such things
as an act of God, id. § 1304(2) (d), an act of war, id. § 1304(2)
(e), and the primary exception at issue in this case, a shipper’s own improper
packaging, id. § 1304(2) (n). The seventeenth exception, § 1304(2)
(q), is a catch-all exception, which states that the carrier is not liable
for losses or damages resulting from “any other cause arising without the
actual fault and privity of the carrier” or its agents. That subsection
goes on, however, to provide that, with respect to § 1304(2) (q),
“the burden of proof shall be on the person claiming benefit of this exception”
to show that the carrier’s fault or neglect did not contribute to the loss
or damage. Id. § 1304(2) (q). Thus, the exception codified at §
1304(2) (q) expressly requires that the carrier prove the applicability
of the exception, while the remaining statutory exceptions are silent on
The court noted some 5th Circuit Panels implicitly
place a heightened burden of proof under the “q” clause and permitted a
more lenient burden under the exceptions which precede it. Some panels
required a carrier under § 1304(2) (q) to bear not just the burden
of going forward with evidence, but also the burden of persuasion. They
also noted other courts have, in similar fashion, placed the mere burden
of production on a carrier when the catch-all provision (“q”) was not involved.
Under these authorities, once the shipper had proved his prima facie case,
the carrier, claiming an exception under §§ 1304(2) (a)–(p) would
bear merely a burden of production with respect to establishing the application
one of these exceptions. Where, however, the “q” clause was involved, the
carrier would bear the ultimate burden of persuasion as well.
The court then traced the history of decisions
on the issue and noted that the earliest 5th Circuit decision at least
implicitly reached a different conclusion. Referring to Waterman S. S.
Corp. v. United States Smelting, 155 F.2d 687 (1946), the court noted that
a carrier seeking to avoid liability on the theory of perils of the sea
or latent defects, bore both “the burden of going forward” to demonstrate
the applicability of the exception and “the risk of non-persuasion.”
The court noted that there did not appear at this
time any consensus among the circuits or even in the 5th Circuit, concerning
which COGSA party bears the burden of persuasion (and the risk of non-persuasion)
with respect to the enumerated exemptions set forth in §1304(2) (a)–(p),
once the shipper makes out a prima facie case.
The court then turned to the defenses raised by
the carriers, principally insufficiency of packaging. The court found it
was not compelled to decide whether the carriers’ rebuttable burden with
respect to this defense was one of production or persuasion as it found
the carriers failed to produce competent evidence to meet either standard
with respect to this defense. It found that there had to be more than the
offer of mere speculation as to the cause of loss or damaged cargo. The
carriers had relied solely upon survey reports prepared at discharge and
while the reports documented the quantity and compromised quality of lost
or damaged cargo with some precision, three of five survey reports failed
to provide even a speculative assessment with regard to the cause of the
missing and damaged cargo. Thus it found there was a failure to offer any
probative evidence whatsoever with respect to the insufficiency of packaging
defense as it relates to those three shipments. As to the other reports,
they included a list of five causes which might have contributed in some
way to the loss. The court found the reports to include speculation and
insufficient to satisfy the carrier’s burden on rebuttal, without regard
to whether that burden was one of production or persuasion. The court also
found the record established negligence was at least a concurrent cause
and the carriers bore the burden of establishing which portion was not
attributable to such negligence. No evidence was submitted on this point
and the plaintiff was therefore entitled to recover for the particular
The carriers had also raised the catch-all exception
with respect to damages to the shipments which were alleged to have occurred
through careless discharge, pilferage, either from the vessel or from the
docks and environs during discharge. As to stevedore negligence, the court
found the carriers bore, not only the burden of production but the burden
of persuasion under § 1304(2) (q).
The court found the carriers had failed to rebut
the prima facie case presented and, even if they had carried such burden,
it had been established that at least some of the loss and damage was attributable
to the carriers’ negligence. The carriers had failed to respond with evidence
as to what portion of the claimed loss or damage was attributable to another
The court vacated the judgment below and rendered
judgment in favor of The United States in the amount of damages claimed
plus pre-judgment interest.
The United States of America v. Ocean Bulk Ships,
Inc., No. 00-20117 (5th Cir. April 10, 2001).
Newsletter Editors’ comment: It is only appropriate
to give proper recognition to those who contributed to this newsletter
by forwarding cases for consideration. The participants to be commended
include David Mazaroli, Michael Marks Cohen, Bob Phillips, Susan Dorgan,
Patricia Mino, Laslo Kormendi and Felicia Sandringham.