Axess Int'l v. Intercargo Ins. Co.

• Decision Date: 14 July 1999
• Docket Number: No. 98-35133,98-35133
• Citation: 183 F.3d 935
• Parties: (9th Cir. 1999) AXESS INTERNATIONAL, LTD. Plaintiff-Appellee, v. INTERCARGO INSURANCE COMPANY, Defendant-Appellant
• Court: U.S. Court of Appeals — Ninth Circuit

Page 935

183 F.3d 935 (9th Cir. 1999)

AXESS INTERNATIONAL, LTD. Plaintiff-Appellee, v. INTERCARGO INSURANCE COMPANY, Defendant-Appellant.

No. 98-35133

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted July 14, 1999--Seattle, Washington

Filed July 29, 1999

Stephen L. Bucklin, Countryman & McDaniel, Los Angeles, California, for the defendant-appellant.

Robert J. Bocko, Keesal, Young & Logan, Seattle, Washington, for the plaintiff-appellee.

Appeal from the United States District Court for the Western District of Washington. Barbara J. Rothstein, Chief

Judge, Presiding. D.C. No. CV-97-01283-BJR/SW.

Before: Thomas M. Reavley,¹ Arthur L. Alarcon and M. Margaret McKeown, Circuit Judges.

ALARCON, Circuit Judge:

Intercargo Insurance Company ("Intercargo") appeals from the district court's grant of summary judgment in favor of Axess International, Ltd. ("Axess"). Intercargo issued a $50,000 surety bond to Max Bright Services, Ltd. ("Max Bright"), a non-vessel-operating common carrier which breached its contract with Axess to transport goods from Hong Kong to Long Beach, California. Intercargo contends that it is not liable on the bond because (1) Axess's release of its claims against Max Bright operates as a release of its claims against Intercargo, and (2) the Hong Kong default judgment obtained by Axess against Max Bright does not arise out of the transportation-related activities of Max Bright under S 1721(b) of the Shipping Act of 1984. Intercargo also contends that the district court erroneously determined that Axess's state law claims are not preempted by federal law and that Washington law applies to those claims.

We affirm the district court's grant of summary judgment because we conclude that the release signed by Max Bright did not release Intercargo from liability. We also decide, as a matter of first impression, that misdelivery of goods is a transportation-related activity under S 1721(b) of the Shipping Act of 1984. Because the district court declined to exercise jurisdiction over Axess's remaining state law claims, we reverse that portion of the district court's order which purported to resolve the question whether federal law preempted any state law remedies and which state's laws should be applied to Axess's state law claims.

I

On October 28, 1995, Axess, a Hong Kong company, delivered to Max Bright a shipment of 379 cartons of silk clothing ("the goods") to be transported from Hong Kong to Long Beach, California and delivered to Cloth to Clothing, Inc. ("CTCI"), the buyer. Max Bright issued the bill of lading and served as the non-vessel-operating common carrier ("NVOCC") in this transaction. An NVOCC is an intermediary between a shipper of goods and an operator of a vessel that carries the goods. As required by the Shipping Act of 1984, Max Bright purchased a $50,000 surety bond to cover any damages arising from its transportation-related activities. See 46 U.S.C. App. S 1721(a) & (b). ² Intercargo issued the surety bond.

The goods arrived in Long Beach in November of 1995. Max Bright's agent in Long Beach, Maverick Distribution Services, Inc., received the goods and stored them at a government warehouse. Due to problems with obtaining a proper letter of credit from CTCI, Axess directed Max Bright onMay 7 and June 28, 1996 to return the goods to Hong Kong. Instead, the goods were released to CTCI.

Axess filed suit against Max Bright in Hong Kong, seeking damages for misdelivery of the goods. On November 25, 1996 the Hong Kong Supreme Court issued a default judgment in favor of Axess in the amount of US$141,960 plus interest and costs. Because Max Bright had become a dormant company and was unable to satisfy the judgment, Axess entered into a release (what the parties termed a "deed") with Chan Wing Kwan ("CWK"), a shareholder and director of Max Bright. In exchange for payment of HK$200,000 (about US$27,000) by CWK, Axess agreed to "take no further action to enforce the said judgment against Max, CWK, or any other director or shareholder of Max." The release included a clause which stated: "This Deed shall not affect any rights Axess may have to claim or take any proceedings against any other parties for the matters arising out of Bill of Lading No. OK/ LAX-16788 save and except Maverick Distribution Services, Inc. against which Axess will not make any claim."

Axess subsequently submitted a written claim to Intercargo requesting payment on the bond. When Intercargo failed to pay, Axess filed this action on August 5, 1997, seeking $50,000 on its federal law bond claim, as well as damages for its state law claims for violation of the Washington Consumer Protection Act and insurance bad faith. Axess also prayed for attorney's fees under Washington law.

On October 16, 1997, Axess filed a motion for partial sum-mary judgment and for entry of final judgment on the bond claim. On November 3, 1997, Intercargo filed its opposition to Axess's motion and its own motion for summary judgment on all claims.

The district court granted Axess's motion for summary judgment on the bond claim, denied Intercargo's cross motion for summary judgment, and dismissed without prejudice Axess's remaining claims as state law claims over which it declined to exercise jurisdiction. The court entered judgment awarding $50,000 plus interest and costs to Axess on January 21, 1998. Intercargo filed a timely appeal. We have jurisdiction under 28 U.S.C. S 1291.

II

Intercargo contends that it is not liable to Axess on the surety bond because the release signed by Max Bright also released Intercargo. The district court held that Axess, by including language in the release reserving its right to proceed against "any other parties," effectively preserved its right to proceed against Intercargo. We review de novo the district court's grant of summary judgment. See Margolis v. Ryan, 140 F.3d 850, 852 (9th Cir. 1998).

The release signed by Axess and CWK, an agent of Max Bright, contains the following language: "This Deed shall not affect any rights Axess may have to claim or take any proceedings against any other parties for the matters arising out of Bill of Lading No. OK/LAX-16788." Intercargo argues that under Hardaway Co. v. Amwest Surety Ins. Co., 15 F.3d 172 (11th Cir. 1994), and the Restatement (Third) of Suretyship and Guaranty S 39 (1995), Axess failed properly to preserve its rights against Intercargo because it did not explicitly name Intercargo in the reservation of rights clause.

Intercargo's reading of Hardaway is incorrect. In Hardaway, the prime contractor brought an action against the surety of a defunct sub-contractor. 15 F.3d at 173. The contractor had signed a release of its claims against the subcontractor regarding default on the subcontract but had specifically reserved its rights against the surety in the release. The district court found that under Georgia law, the surety was released because it had not consented to the release of the subcontractor, the principal debtor. See id. at 172. The Eleventh Circuit Court of Appeals, finding "confusion " in prior Georgia case law, certified the following question to the Georgia Supreme Court:

Whether a creditor's agreement to release a principal debtor, which contains an express reservation of rights against the surety, is a release of the surety's liability to the creditor on the surety bond or a mere covenant by the creditor not to sue the principal debtor when the surety has not consented to the creditor's release of the principal debtor?

Id. at 173. In response, the Georgia court affirmed the rule of Schwitzerlet-Seigler Co. v. C & S Bank, 155 Ga. 740, 746, 118 S.E. 365, 367 (1923), which held: " `[T]he release of the principal debtor, without the consent of the surety, releases the surety, unless the right to go against the surety is reserved in the instrument of release, or it appears from the whole transaction that the surety should remain bound.' " Id. at 174. This rule reflects the Restatement of the Law Security S 122,³ the predecessor to Restatement (Third) of Suretyship and Guaranty S 39(b), and is consistent with case law from other jurisdictions. See, e.g., Security Nat'l Bank of Kansas City v. Continental Ins. Co., 586 F. Supp. 139, 146 (D. Kan. 1982) ("As a general rule, discharge of a principal debtor by a creditor discharges the surety, unless the surety has consented to remain liable or the creditor reserves rights against the surety."); Mulligan v. Hall, 229 Conn. 224, 227, 640 A.2d 108, 109-10 (1994) ("Even without an express reservation of rights, a general release discharges only those joint tortfeasors whom the contracting parties actually intended to be released."); Continental Bank & Trust Co. v. Akwa, 58 Wis.2d 376, 392, 206 N.W.2d 174, 183 (1973) ("It is generally held that where the creditor releases the principal, an express reservation will preserve his claim against the surety."). There is nothing in the holding in Hardaway or these other cases which requires an obligee to name specifically the secondary obligor in a reservation of rights clause in order to reserve its rights against the secondary obligor.

Nor does the Restatement (Third) of Suretyship and Guaranty support Intercargo's contentions. Section 39 (b) of the Restatement provides that a release of the principal also releases the surety "unless (i) the terms of the release effect a preservation of the secondary obligor's recourse (S 38); or (ii) the language or circumstances of the release otherwise show the obligee's intent to retain its claim against the secondary obligor." Restatement (Third) of Suretyship and Guaranty S 39(b). In analyzing this language, the district court correctly surmised that "nothing in this clause requires the obligee to mention the surety by name." Furthermore, comment d to this section of the Restatement makes clear that the intent of the obligee in granting the release controls whether a secondary obligor...