Acwoo Intern. Steel Corp. v. Toko Kaiun Kaish, Ltd.

• Decision Date: 07 March 1988
• Docket Number: Nos. 86-1734,86-1735,s. 86-1734
• Citation: 840 F.2d 1284
• Parties: ACWOO INTERNATIONAL STEEL CORPORATION, Plaintiff-Appellee, v. TOKO KAIUN KAISH, LTD. (86-1735), and Nicholson Terminal & Dock Company, (86-1734), Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1284

840 F.2d 1284

1988 A.M.C. 2922

ACWOO INTERNATIONAL STEEL CORPORATION, Plaintiff-Appellee, v. TOKO KAIUN KAISH, LTD. (86-1735), and Nicholson Terminal & Dock Company, (86-1734), Defendants-Appellants.

Nos. 86-1734, 86-1735.

United States Court of Appeals, Sixth Circuit.

Argued Dec. 7, 1987.

Decided March 7, 1988.

Marlin F. Scholl, Scholl & Stieg, Detroit, Mich., Robert J. Giuffra, argued, Dougherty, Ryan, Mahoney, Pellegrino, Giuffra & Zambito, New York City, John D. Mabley, argued, Hill, Lewis, Adams, Goodrich & Tait, Detroit, Mich., Donna R. Milhouse, for defendants-appellants.

Martin B. Mulroy, argued, Hill, Rivkins, Carey, Loesberg, O'Brien & Mulroy, New York City, Philip G. Meyer, West Bloomfield, Mich., for plaintiff-appellee.

Before JONES and GUY, Circuit Judges, and BROWN, Senior Circuit Judge.

BAILEY BROWN, Senior Circuit Judge.

This is an appeal from a judgment entered by the District Court for the Eastern District of Michigan after a five-day bench trial finding defendants Toko Kaiun Kaish ("Toko") and Nicholson Terminal & Dock Company ("Nicholson") jointly and severally liable for rust damage to a steel shipment from Korea, the damage accruing to plaintiff Acwoo International Steel Corporation's ("Acwoo") cargo. The defendants primarily contend that the district court was in error in awarding the judgment against them because it made no finding as to whether the shipment was actually damaged while in the possession of Toko or Nicholson or both. Toko also contends that, in lieu of such a finding, the district court erroneously invoked a presumption of liability as to it. Defendants further contend that, in any event, the district court erred with respect to rulings on damages. ¹ Because we agree with the defendants on these issues, we remand the case to the district court for proceedings consistent with this opinion.

I.

This case deals with a claim for fresh water damage to a shipment of 307 cold rolled steel coils shipped from Pohang, Korea, to Detroit, Michigan, aboard Toko's chartered vessel, the M/V Hosei Maru, and stored in Nicholson's warehouse there. Acwoo was the importer of the cargo.

The steel coils were packed at a Korean steel mill in May of 1979. In packing the coils, the mill coated them with a water soluble oil, wrapped them in water-resistant paper, and then encased them in "wasters" which are metal envelopes completely covering the coils. These wasters were secured by steel bands.

In July of 1979, the steel coils were delivered to the M/V Hosei Maru while that vessel was at the port of Pohang. Toko issued thirty bills of lading under which the coils were carried. The bills of lading incorporated the terms of the Carriage of Goods by Sea Act ("COGSA"), 46 U.S.C. Sec. 1300, et seq. These bills of lading stated that the goods were shipped in "apparent good order and condition." The bills also contained rust clauses, however, which provided:

The term "apparent good order and condition" when used in this bill of lading with reference to iron, steel or metal products does not mean that the goods, when received, were free of visible rust or moisture. If the shipper so requests, a substitute bill of lading will be issued omitting the above definition and setting forth any notations as to rust or moisture which may appear on the Mate's or Tally Clerk's receipts.

There is no contention by Acwoo that a request for substitute bills was ever made.

Shortly thereafter, the vessel sailed from Pohang, and arrived in Detroit in early September. In Detroit, four surveyors viewed the cargo in the holds of the vessel immediately upon arrival. They were Russell Frank, representing Acwoo's cargo underwriters; Christopher Coury, representing Toko Line; Robert Harris, representing Nicholson Terminal; and Hugh Fowley, representing Acwoo.

Coury and Harris testified that the waster-wrapped steel coils appeared to be in "normal condition" for coils shipped from Asia. Fowley, on the other hand, observed rust and fresh-water wetting conditions on approximately fifty of the wasters. Fowley, however, did not mark the rust-damaged wasters for future reference. Neither did he "decan" the coils (remove them from the wasters) to determine if the coils, themselves, were rust damaged.

Because the steel was not needed immediately, Acwoo requested that Nicholson store the steel coils in one of its warehouses. Nicholson recommended that they be placed in one of its heated warehouses to prevent rusting. Acwoo, however, disregarded this recommendation, preferring, instead, to have the coils stored in a "transit" shed. Transit sheds have open doors and bays which would permit the entry of rain and snow during inclement weather. ²

In late March of 1980, Fowley returned to the warehouse to inspect the shipment. He noted more advanced rusting on many of the wasters. Additionally, he observed that several of the waster-wrapped coils were sitting in pools of water. It is uncontroverted that, during January of 1980, leaks developed in the roof of the warehouse in which the shipment was stored and in the warehouse's drainpipes. As a result, the waster-wrapped coils were frequently doused with water. Shortly thereafter Acwoo sold eighty-four of the coils at a profit.

In late May of 1980, Fowley again returned to the warehouse to inspect the shipment. For the first time, Fowley actually had some of the coils removed from their wasters and examined. In total, twenty-one of the 223 remaining coils were decanned. Of these twenty-one coils, twelve were placed on a "slitting" machine which uncoiled the steel so that the steel's face could be examined for rust. All twelve of these coils exhibited rusting.

In November of 1980, Acwoo began soliciting bids for the 223 remaining coils of steel. In December, Acwoo sold the steel for salvage.

In the meantime, Acwoo had filed suit against Toko and Nicholson seeking damages for the loss in value of its steel. Nicholson counterclaimed for its unpaid storage charges. A bench trial was conducted before the district court in December of 1985. At trial, Fowley testified that the initial water damage to Acwoo's steel coils could have occurred in Jacksonville, Florida, where the ship unloaded cargo during a heavy rain from the same holds as those containing the steel coils. Additionally, Fowley testified that he observed a condensation problem in one of the holds in which steel was contained during his initial inspection of the coils.

In a memorandum and order dated April 29, 1986, the district court found against both Toko and Nicholson, and entered a judgment in favor of Acwoo for $62,101.32 plus costs, interest, and attorney's fees against both defendants jointly and severally, and the court denied Nicholson's counterclaim for storage charges. On June 25, 1986, the district court entered an order amending the judgment, increasing the recovery for damage to the steel coils to $145,168.10 pursuant to Acwoo's motion. It is from this judgment that defendants now appeal.

II. Acwoo v. Toko

A.

In holding Toko liable for damage to Acwoo's steel coils, the district court concluded that Acwoo met its burden of proving a prima facie case of damage to the steel caused by carrier negligence. This prima facie case is, in reality, a species of res ipsa loquitur, and is comprised of two elements: (1) delivery of the goods to the carrier in good order and condition; and (2) discharge from the vessel in damaged condition. Caemint Food, Inc. v. Brasileiro, 647 F.2d 347, 352 (2d Cir.1981). Toko's principal contention on appeal is that Acwoo did not meet its burden of proving delivery to it in good condition.

The district court determined that Acwoo met its burden of proving that the steel coils were in good condition when they were delivered to the ship in Pohang by offering into evidence "clean" bills of lading for the coils. The court failed, however, to notice that the bills of lading had "rust clauses" in them specifically disavowing any representation that the coils were free from rust. This failure is understandable--in its proposed findings of fact and conclusions of law, Toko did not offer a defense based on the rust clauses.

After the district court reached its decision as to liability, however, Toko timely filed a motion to amend and supplement findings of fact and conclusions of law pursuant to Rule 52(b) of the Federal Rules of Civil Procedure. In this motion, it pointed out to the district court the existence of the rust clauses in the bills of lading and moved the court to find that the clauses prevented Acwoo from establishing by the bills of lading that the coils were delivered to the ship in a rust-free condition. The district court denied this motion without disclosing any reasons.

A review of the case law reveals that the district court's decision to deny Toko's motion was error. The district court was correct in noting that a clean bill of lading generally meets the requirement that the cargo-owner prove that the carrier received the goods in good condition. Caemint Food, 647 F.2d at 352. A bill of lading with a rust clause, however, is not "clean" and cannot be used to establish delivery of the steel to a carrier free of rust. Tokio Marine & Fire Ins. Co. v. Retla Steamship Co., 426 F.2d 1372, 1377-1378 (9th Cir.1970); Gradmann & Holler v. Continental Lines, 504 F.Supp. 785, 788 (D.P.R.1980); Dorsid Trading Co. v. S.S. Rose, 343 F.Supp. 617, 623 (S.D.Tx 1972).

Acwoo asserts, however, that, even if it failed to make out a case of carrier negligence by use of the res ipsa loquitur-type presumption by failing to show delivery of the coils to Toko in a rust-free condition, it should still prevail against Toko because it made out a traditional case of negligence by Toko in handling the coils. Specifically, Acwoo refers to the alleged negligence of Toko in unloading other cargo from the same holds as the ones in which the steel coils were stored during a rainstorm...