Farr Man & Co., Inc. v. M/V Rozita

• Decision Date: 06 December 1989
• Docket Number: 89-1641,Nos. 89-1640,s. 89-1640
• Citation: 903 F.2d 871
• Parties: , 16 Fed.R.Serv.3d 422 FARR MAN & CO., INC., et al., Plaintiffs, Appellees, v. M/V ROZITA, etc., et al., Defendants, Appellees, Appeal of AMSTAR CORPORATION, Intervening Plaintiff. Appeal of FARR MAN & CO., INC., et al., Plaintiffs. AMSTAR CORPORATION, Intervening Plaintiff, Appellee, v. M/V ROZITA, etc., et al., Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 871

903 F.2d 871

1990 A.M.C. 2021, 16 Fed.R.Serv.3d 422

FARR MAN & CO., INC., et al., Plaintiffs, Appellees, v. M/V ROZITA, etc., et al., Defendants, Appellees, Appeal of AMSTAR CORPORATION, Intervening Plaintiff.

Appeal of FARR MAN & CO., INC., et al., Plaintiffs.

AMSTAR CORPORATION, Intervening Plaintiff, Appellee, v. M/V ROZITA, etc., et al., Defendants, Appellees.

Nos. 89-1640, 89-1641.

United States Court of Appeals First Circuit.

Heard Dec. 6, 1989.

Decided May 22, 1990.

Bertram E. Snyder, with whom Susan F. Drogin and Looney & Grossman, were on brief, for Amstar Corp.

Thomas J. Muzyka, with whom Robert E. Collins and Clinton & Muzyka, P.C., were on brief, for Farr Man & Co., Inc.

Richard B. Kydd, with whom Kneeland, Kydd & Handy, was on brief, for the M/V ROZITA.

Before TORRUELLA and SELYA, Circuit Judges, COFFIN, Senior Circuit Judge.

TORRUELLA, Circuit Judge.

Farr Man & Co., Inc., Farr Man International, Inc., Pine Street Trading Corporation, Sugar Chartering, Inc. (hereinafter collectively referred to as "Farr Man") and Woodhouse, Drake and Carey ("Woodhouse") filed the instant action for cargo damage against the M/V ROZITA, in rem, as well as in personam against its owners and managers, Pescadore Maritime, Inc. and Universal Globe, Inc. (hereinafter collectively referred to as "M/V ROZITA"), on December 27, 1985. The Amstar Corporation ("Amstar"), in its capacity as the cargo purchaser, was permitted to enter the action as an intervening plaintiff, and Lloyd's Underwriters ("Lloyd's") was later added as a party plaintiff pursuant to Farr Man/Woodhouse's motion. The litigation essentially revolved around the issue of the proper allocation of responsibility and liability for cargo damage.

The present appeal arises from the district court's actions in vacating its order granting summary judgment in Farr Man/Woodhouse's favor, dissolving the security posted by M/V ROZITA, granting M/V ROZITA's motion for summary judgment, granting Farr Man/Woodhouse's motion to amend its complaint to add Lloyd's Underwriters as a party, and ordering judgment for Lloyd's Underwriters against Amstar, together with costs and interest. Although the record is replete with detail, we will outline only those facts necessary to the decision of this case on appeal.

I. BACKGROUND

Farr Man contracted to supply a quantity of bulk raw sugar to Amstar. The contract, known in the industry as a charter party, was a standardized Amstar contract which provided for payment under "C.I.F." terms, meaning that the cost of the sugar, the insurance, and the freight charges were included in the lump sum to be paid by Amstar, the purchaser, although it was Farr Man's responsibility as the seller to make all necessary shipping arrangements.

In accordance with these arrangements, approximately 17,000 tons of bulk raw sugar were delivered to the M/V ROZITA on October 10, 1985 in Bombay, India. It is uncontested that, at that time, the sugar was in good order and condition. Pursuant to its contract with Amstar, Farr Man obtained a $25,000,000 cargo open cover insurance policy on the sugar from Lloyd's Underwriters. While the M/V ROZITA was en route to the United States, Farr Man sold half of its ownership interest in the cargo to Woodhouse, and an appropriate endorsement was made on the cargo insurance policy.

Approximately two weeks before the M/V ROZITA entered United States waters, Farr Man informed Amstar of the vessel's location. The district court found that, "[i]n response, Amstar notified Farr Man to send the MV [sic] Rozita to Boston. By industry custom, when the buyer 'assigns' a shipment to its ultimate destination, the seller also assigns the title to the buyer." The M/V ROZITA arrived in Boston, as per the agreement, on or about November 29, 1985. Before the cargo was off-loaded, Farr Man/Woodhouse delivered to Amstar the bills of lading, the customs quota eligibility form, and the insurance certificates. The insurance certificates were assigned by Farr Man/Woodhouse to Amstar, making Amstar the named insured under the policy, as well as the owner of the cargo.

The discharge operation was performed by Amstar in its capacity as the stevedore, and these operations were covered by a separate insurance policy. ¹ During the discharge of the sugar, the bulk raw sugar in one of the ship's holds suffered salt water contamination when a bulldozer driven by an Amstar employee pierced the starboard bulkhead. The district court found that the cargo contamination was caused solely by the negligence of the Amstar employee, who was acting within the scope of his employment. This finding has not been appealed.

With regard to title and risk of loss, the charter party provided:

11. (A) Title to and risk of loss in the sugar sold hereunder shall pass, except as provided in Subsection (B) below, at the time when all such sugar has been placed in the carrying vessel's hold.... (B) ... [I]n the case of "omnibus" contracts, title shall not pass before assignment of vessel to buyer.

It is undisputed that the charter party at issue is an omnibus contract. Thus, according to the terms of the contract, title to the raw sugar passed to Amstar when there was an assignment of the vessel to Amstar. Farr Man/Woodhouse admits that this occurred before the M/V ROZITA arrived in Boston, before the sugar was damaged during unloading, and before Farr Man/Woodhouse filed suit. Amstar contends that it never authorized Farr Man/Woodhouse to take any action on Amstar's behalf against the M/V ROZITA for cargo damage.

Pursuant to the terms of the charter party, pro forma payments totaling $7,541,982--representing 95% of the contract's total value--were made to Farr Man/Woodhouse by Amstar on or before December 9, 1985. Amstar subsequently paid the remainder of the purchase price to Farr Man/Woodhouse for the sugar it received, but withheld $67,319.56 for wharfage, noncompliance charges, survey fees, water, detention, and equipment repairs. Farr Man/Woodhouse stipulated that $38,084.18 was properly withheld under the terms of the contract, but contended that $29,235.38 was related to the difficulties in unloading as a result of the negligence of the Amstar employee, and should not, therefore, have been withheld.

On August 26, 1986, Amstar submitted a claim under the cargo insurance policy to Lloyd's Underwriters for $285,268.63, including the $67,319.56 which it had previously withheld from payment to Farr Man/Woodhouse. By March 30, 1988, Amstar had been paid a total of $215,495.23 by Lloyd's Underwriters. The difference between the amount claimed and the amount paid by Lloyd's Underwriters is equal to the $67,319.56 withheld from payment to Farr Man/Woodhouse, together with certain agency fees.

On October 30, 1987, Farr Man/Woodhouse served requests for admissions upon M/V ROZITA. These requests were never answered, and on the basis of these requests being deemed admitted under Rule 36 of the Federal Rules of Civil Procedure, Farr Man/Woodhouse moved for summary judgment against M/V ROZITA. That motion was granted on February 19, 1988. On February 25, 1988, M/V ROZITA moved to vacate the order granting summary judgment, but that motion was denied.

On March 29, 1988, a non-jury trial began with regard to the liability for the cargo damage between Amstar, the intervening plaintiff, and M/V ROZITA. Farr Man/Woodhouse was not present at these proceedings, and took no part therein, having previously been granted summary judgment against the vessel. On April 1, 1988, the district court declined to take further action "pending counsels' attempts to ascertain the precise position of the parties." After unsuccessful attempts at settlement, on August 12, 1988, Farr Man/Woodhouse filed a motion for entry of the February 19, 1988 judgment, and that motion was opposed both by Amstar and by M/V ROZITA.

Pursuant to a district court order, the parties filed a joint stipulation of facts on October 28, 1988, and Amstar filed a motion for summary judgment in its favor as to all parties. Then, on November 3, 1988, Farr Man/Woodhouse moved to amend its complaint to add Lloyd's Underwriters as a party plaintiff, and on November 4, 1988, M/V ROZITA moved to release or reduce the amounts of security.

Finally, on April 12, 1989, the district court found that the cargo damage was caused by the negligence of an Amstar employee. This finding has not been appealed. The district court held that Farr Man/Woodhouse, having been paid in full for the cargo, less deductions which it found to be unrelated to cargo damage, had no interest in the sugar cargo at the time of loss. Thus, the court vacated its initial grant of Farr Man/Woodhouse's motion for summary judgment against M/V ROZITA, dissolved the security posted by M/V ROZITA, granted Farr Man/Woodhouse's motion to add Lloyd's Underwriters as a party, and ordered judgment for Lloyd's Underwriters against Amstar, its insured, in the amount of $215,495.23 plus interest and costs. All other claims, counter-claims, cross claims and third party claims were dismissed. The judgment was entered on April 17, 1989.

There are essentially three issues on appeal. The first relates to the power of the district court to vacate its original grant of summary judgment in Farr Man/Woodhouse's favor and the effect of M/V ROZITA's failure to respond to requests for admissions. The second addresses the question of whether an insurer, such as Lloyd's Underwriters, can recover against its own insured, in this case, Amstar. The final issue concerns whether it was proper to allow the release of the security posted by M/V ROZITA. We will address each issue seriatim.

II. DISTRICT COURT'S POWER OF REVERSAL

Farr Man/Woodhouse first contends that, on October 30, 1987, Requests for Admissions were served upon M/V ROZITA. These requests essentially tracked allegations made in the complaint. Farr Man/Woodhouse alleges that M/V ROZITA failed to answer the...