Kuehne & Nagel (AG & CO) v. Geosource, Inc.

Decision Date05 June 1989
Docket NumberNo. 88-2061,88-2061
Citation874 F.2d 283
PartiesKUEHNE & NAGEL (AG & CO), Plaintiff-Appellant Cross-Appellee, v. GEOSOURCE, INC., Defendant-Appellee Cross-Appellant. GEOSOURCE, INC., Plaintiff-Appellee Cross-Appellant, v. PANALPINA WELTTRANSPORT G.m.b.H., Defendant-Appellant Cross-Appellee.
CourtU.S. Court of Appeals — Fifth Circuit

James J. Sentner, Jr., Antoinette van Heughten, Houston, Tex., for plaintiff-appellant, cross-appellee.

G. Wesley Urquhart, Frank Mitchell, Houston, Tex., for defendant-appellee, cross-appellant.

Appeals from the United States District Court For the Southern District of Texas.

Before WISDOM, GARWOOD and DAVIS, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

This litigation arose out of the arrangements three freight forwarders--Kuehne & Nagel (AG & Co.) (Kuehne & Nagel), Panalpina Welttransport GmbH (Panalpina) and SGS Controll Co. mbH (SGS)--made with Geosource, Inc., and Ucamar Shipping & Transportation (Cayman) Ltd. (Ucamar) to ship cargo. For reasons that follow, we remand all of the claims for jury trial.

I. Background

The dispute in this case stems from an ill-fated deal between the three European freight forwarders and Ucamar to transport goods on through bills of lading from Europe to the Middle East. The bills of lading called for Ucamar to ship the forwarders' cargo by vessel from Northern Europe to Turkey, and then over land by truck to Iran. The problem began when the cargo was stranded in Turkey and the journey's second leg was interrupted. After considerable delay, the forwarders made alternate arrangements for delivery of the cargo. A flurry of suits and counter-suits followed.

Geosource, Inc., a Houston-based company, owns all shares of Geosource Co. (Cayman) Ltd., a Cayman Island corporation; Geosource (Cayman) owns half of Ucamar's shares. Ristram Seetransport Management GmbH (Ristram (Germany)) owns the other half of Ucamar's shares. Geosource (Cayman) and Ristram (Germany) formed Ucamar in July 1982.

Although Ucamar issued the through bills of lading, it arranged for other companies to handle various functions essential to the shipment of the cargo. Ristram (Germany) contracted to act as Ucamar's general managing agent in Europe and oversee the sea leg of the transport from Europe to Turkey. Ristrans (Turkey), which owned part of Ristram (Germany), contracted to provide Ucamar with documentation, licenses and stevedoring services, and facilities to receive the cargo in Turkey. It also agreed to supervise the overland leg of the route from Turkey to the Middle East. Geosource, Inc., contracted to manage Ucamar's operations in Turkey for a fee based on a percentage of Ucamar's gross annual revenues.

In November 1982, Geosource, Inc., sponsored a promotional meeting at a hotel in Hamburg, West Germany, to drum up business for Ucamar from European freight forwarders. After the presentation and some followup negotiations, the three freight forwarders involved in this litigation contracted to ship cargo from Europe to the Middle East on Ucamar's through bills of lading. The forwarders alleged that Geosource, Inc., which enjoyed a good reputation, promised to control the Ucamar venture and provide financial support. The forwarders also asserted that Geosource failed to inform them at the meeting that Ucamar had been experiencing serious operational and financial problems since September 1982.

The forwarders' cargo was loaded on vessels in late 1982. But when the vessels called at Turkish ports in March 1983, Ucamar was unable to unload some of the cargo; other portions sat in storage awaiting clearance through Turkish customs and transportation to the Middle East. Some of the forwarders' cargo remained aboard ship or in port at Iskenderun, Turkey, for several weeks; the remaining cargo was diverted to different ports.

Ucamar explained that its inability to unload the cargo, clear it through Turkish customs and transport it stemmed from a feud that erupted in early 1983 between Ucamar and its Turkish contacts, who controlled the facilities and equipment for on-carriage at two Turkish ports. Geosource presented evidence that by March 1983, Ristrans (Turkey) refused to cooperate with Ucamar. Geosource also presented testimony that a principal in Ristram (Germany) and Ristrans (Turkey) orchestrated threats and violence against Geosource management personnel in Turkey, prompting them to flee the country.

Geosource contended that Ucamar's inability to obtain the cooperation of Turkish officials was largely caused by the forwarders' failure to prepay freight as agreed. Geosource argued that the forwarders' failure to prepay freight was particularly damaging because it deprived Ucamar of critically needed working capital. Geosource also complained that the forwarders diverted funds due Ucamar to Ucamar's Turkish adversaries.

The forwarders counter that they simply acted to protect their cargoes, which were languishing in Turkish ports; when it became apparent that Ucamar did not have the necessary papers and clout to land the cargo, the forwarders were forced to find someone who did and pay them to land the cargo and transport it over land. The forwarders also point to evidence that Ucamar could not perform the overland leg of the shipment in any event because it did not have sufficient trucks to do so, contrary to Geosource's representations at the November promotional meeting in Hamburg.

In the first round of litigation, SGS and Panalpina sued Geosource and Ucamar in the Southern District of Texas in Civil Action No. H- 83-5569. This court affirmed the dismissal of that suit for lack of jurisdiction. Panalpina Welttransport GmbH v. Geosource, Inc., 764 F.2d 352 (5th Cir.1985). We held that the suit between alien plaintiffs and the alien defendant Ucamar lacked diversity.

In round two of the litigation, Kuehne & Nagel filed Civil Action No. H-83-5913 against Geosource in October 1983, alleging that Geosource breached the through bills of lading as Ucamar's alter ego and fraudulently induced Kuehne & Nagel to contract with Ucamar. Geosource counterclaimed on grounds that Kuehne & Nagel tortiously interfered with the Geosource-Ucamar management contract. Geosource sought to dismiss the Kuehne & Nagel action for lack of diversity. But the district court concluded that Kuehne & Nagel's amended petition alleged a maritime tort that satisfied the court's admiralty jurisdiction.

Geosource filed its own suit, Civil Action No. H-85-2082, against SGS and Panalpina for tortious interference with the Geosource-Ucamar management agreement. SGS and Panalpina asserted compulsory counterclaims against Geosource as Ucamar's alter ego for breach of the through bills of lading, and against Geosource for fraudulently inducing the forwarders to contract with Ucamar. After the district court consolidated the two suits for trial, the parties agreed to try Geosource's tortious interference claim against the forwarders to a jury. They also agreed that Texas law governed. The forwarders' claims against Geosource were simultaneously tried to the court sitting in admiralty. Geosource objected to this latter action, contending that admiralty jurisdiction was lacking and thus a jury trial was required on the forwarders' claims.

In December 1986, the jury found that Kuehne & Nagel and Panalpina had tortiously interfered with the Geosource-Ucamar management agreement, and returned a verdict in Geosource's favor for $500,000 in compensatory damages. The jury also awarded Geosource $6 million in punitive damages against Kuehne & Nagel, and $9 million in punitive damages against Panalpina. The jury exonerated SGS on Geosource's tortious interference claim.

On the claims against Geosource, the court concluded that Geosource fraudulently induced the forwarders to contract with Ucamar and awarded damages. It also found that Ucamar, acting as Geosource's alter ego, breached the contracts of affreightment. But the court attributed Ucamar's breach to the "violence and sabotage" of Ristrans (Turkey) and excused Ucamar's performance as commercially impracticable.

Based on the jury verdict, the district court entered judgment awarding Geosource $500,000 in compensatory damages against Kuehne & Nagel and Panalpina for tortious interference. After reducing the jury's punitive damage awards, the court entered judgment for punitive damages in favor of Geosource for $2 million against Kuehne & Nagel and $3 million against Panalpina. On the issues tried to the court, the district court entered judgment against Geosource and in favor of Kuehne & Nagel for $699,577.50 in compensatory damages and $1,399,155 in punitive damages. It awarded SGS $307,273.53 in actual damages and $614,547.06 in punitive damages. It also awarded Panalpina $298,276.52 actual damages and $596,533.04 in punitive damages.

Kuehne & Nagel and Panalpina appeal the money judgment against them. All three forwarders appeal the district court's dismissal of their breach of contract actions. Geosource appeals the money judgment rendered against it and the district court's order reducing the punitive damages.

II. Jurisdiction

This appeal raises a myriad of intertwined issues concerning the validity of the judgment entered in the consolidated actions. However, before we reach the merits of those issues, we first must address the district court's jurisdiction. In so doing, we agree with the forwarders that we must view each consolidated case separately to determine the jurisdictional premise upon which each stands. See McKenzie v. United States, 678 F.2d 571, 574 (5th Cir.1982); Wright & Miller, Federal Practice & Procedure Sec. 2382 at 254-55 (1971). 1

In McKenzie, the plaintiff appealed from adverse judgments in two actions that arose out of the same facts and were consolidated for trial. 678 F.2d at 572. One suit was filed in the United States district court under the Federal Tort Claims Act. The other...

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