Coutinho & Ferrostaal Inc. v. M/V Fed. Rhine

• Decision Date: 29 July 2011
• Docket Number: Civil No. JFM-08-2222
• Court: U.S. District Court — District of Maryland
• Parties: COUTINHO & FERROSTAAL INC., Plaintiff, v. M/V FEDERAL RHINE, et al., Defendants.

COUTINHO & FERROSTAAL INC., Plaintiff,

v.M/V FEDERAL RHINE, et al., Defendants.

Civil No. JFM-08-2222

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

Date: July 29, 2011

MEMORANDUM

On August 26, 2008, Plaintiff Coutinho and Ferrostaal, Inc. ("Ferrostaal") filed a complaint against M/V Federal Rhine, Daewoo Logistics Corporation, Federal Atlantic Limited, Beacon Stevedoring Corporation, and the Rukert Terminals Corporation ("Rukert") pursuant to 28 U.S.C. § 1331, alleging negligent transporation, handling, and storage of the steel pipe cargo on board the vessel M/V Federal Rhine. Ferrostaal seeks $350,000.00 in compensatory damages. Now pending before this Court is Rukert's Second Motion for Declaratory Judgment, in which Rukert seeks to limit its liability, if any, to a maximum of $20,170.91¹ For the reasons that follow, I grant Rukert's motion.

I. Background

The complaint arises out of a 2007 transaction in which the defendants agreed to transport, stevedore, and store Ferrostaal's shipment of 41,121 pieces of steel pipes, travelling by way of the M/V Federal Rhine. (Compl. ¶¶ 6-8.) The goods were shipped from Shanghai, China, in August 2007, and arrived at the Port of Baltimore in September 2007. (Id. ¶¶ 6-7.) Uponarrival or shortly thereafter, Ferrostaal alleges that the pipes were damaged and depreciated in value. (Id.)

Rukert was responsible for storing the goods after they were stevedored. (Mot. Hr'g Tr. 15:22-24, July 27, 2010.) Although it denies responsibility for the shipment's damage, Rukert seeks to limit its potential liability in its Motion for Declaratory Judgment. (ECF No. 59.) Rukert claims that its liability, if any, is limited to "10 times the provided, per ton, monthly storage rate." (Def.'s Mot. Decl. J. ¶ 3.) According to Rukert, the monthly storage rate is $1.50 per metric ton, as indicated in Rukert's December 15, 2006 rate letter to Ferrostaal. (Id.; see also Def.'s Mot. Decl. J., Ex. D.) In opposition to Rukert's motion, Ferrostaal asserts that the limitation provision is invalid because it is ambiguous and incomplete. (Pl.'s Opp'n 2, 5.)

During a hearing on July 27, 2010, Ferrostaal and Rukert presented their arguments regarding the enforceability of the limitation provision. The parties discussed the formation of the contract that governs the present transaction, as well as the extent of the parties' prior dealings. (Mot. Hr'g Tr. 18:7-36:20.) This Court determined that additional discovery as to the parties' course of dealing was necessary. (Id. at 50:5-25.) Consequently, Rukert's motion was denied with an option for renewal after the conclusion of discovery. (ECF No. 78.) Rukert filed its Second Motion for Declaratory Judgment on December 30, 2010 (ECF No. 85) which is now before this Court.²

II. Standard of Review

The Federal Declaratory Judgment Act, 28 U.S.C. § 2201, authorizes a federal court to issue a declaratory judgment, providing, in part:

In a case of actual controversy within its jurisdiction . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.

28 U.S.C. § 2201(a). The Fourth Circuit has held that "a district court should normally entertain a declaratory judgment action when it finds that the declaratory relief sought: (1) 'will serve a useful purpose in clarifying and settling the legal relations in issue,' and (2) 'will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.'" Aetna Cas. & Sur. Co. v. Ind-Com Elec. Co., 139 F.3d 419, 422-23 (4th Cir. 1998) (quoting Aetna Cas. & Sur. Co. v. Quarles, 92 F. 2d 321, 325 (4th Cir. 1937)). That said, "statute and practice have established the rule that the judgment may be refused when it is not necessary or proper at the time under all the circumstances." Quarles, 92 F.2d at 325 (4th Cir. 1937) (internal quotation and citation omitted).

III. Analysis

Rukert moves this Court for declaratory judgment that its liability is limited to $20,170.91. As a terminal operator, Rukert is a warehouseman and is therefore generally permitted to limit its liability. Ferrex Int'l, Inc. v. M/V Rico Chone, 718 F. Supp. 451, 456 (D. Md. 1988). In the instant case, Rukert argues that its liability is limited by a clause in its warehouse receipt which, when viewed in conjunction with its rate letter, limits liability to "10 times the provided, per ton, monthly storage rate." (Def.'s Second Mot. Decl. J. ¶ 3.) Rukert claims that Ferrostaal had actual notice of the warehouse receipt provisions, which are mailed after each transaction. (Def.'s Reply Second Mot. Decl. J. 2-3.) Ferrostaal denies that it hadactual knowledge of the liability provision because it did not actually receive the entire warehouse receipt and because the provision was ambiguous.³ (Pl.'s Opp'n 8.)

A. Receipt of Limited Liability Provision

Under Maryland law,⁴ a warehouse receipt is defined as "a document of title issued by a person engaged in the business of storing goods for hire." Md. Code Ann., Com. Law § 1-201(45). In the event of loss or damage to stored goods, a warehouseman can limit its liability by a term in its warehouse receipt. Id. § 7-204(b); Phillips Bros. v. Locust Indus., Inc., 760 F.2d 523 (4th Cir. 1985) (upholding a provision in defendant's warehouse receipt that shortened the time in which the plaintiff could file a claim for conversion); Kane v. U-Haul Int'l, Inc., 218 Fed. Appx. 163, 166 (3d Cir. 2007) (finding that a limited-liability provision is enforceable if there is equal bargaining power between the parties and the clause is not unconscionable or adverse to public interest). Allowing parties to limit their liability "eliminate[s] to a great extent uncertaintyas to who bears the risk of loss in a warehouse storage situation, thus enabling the parties to bargain their contract terms based on this knowledge. " Butler Mfg. Co. v. Americold Corp., No. 92-2118-JWL, 1993 WL 406730, at *9 (D. Kan. Sept. 20, 1993); see also Wolf v. Ford, 644 A.2d 522 (Md. 1994) (citation omitted). Accordingly, in Maryland, limited liability clauses carry a presumption of validity. See Cornell v. Council of Unit Owners Hawaiian Vill. Condo., Inc., 983 F. Supp. 640, 643 (D. Md. 1997) (citing Adloo v. H.T. Brown Real Estate, Inc., 686 A.2d 298, 301 (Md. 1996)).

In the presently disputed transaction, Rukert provided Ferrostaal with a copy of its monthly storage rates in a rate letter dated December 15, 2006. (Def.'s Second Mot. Decl. J., Ex. 13.) Ferrostaal chose to do business with Rukert based on the rates contained in this letter. (Mot. Hr'g Tr. 34:22-35:7.) At the commencement of storage, a standard-form warehouse receipt was issued by Rukert containing a provision that reads as follows:

All Material received for storage are [sic] subject to the "Standard Contract Terms and Conditions for Merchandise Warehouseman" approved and promulgated by the American Warehousemen's Association, January 1998. Section 11—Liability limited to 10 times the provided, per ton, monthly storage rate.

(Def.'s Second Mot. Decl. J., Ex. 24 (emphasis added)). The present dispute is largely based on the significance and enforceability of the language emphasized above. If Ferrostaal had actual or constructive notice of the limitation clause, then Rukert's liability must be limited pursuant to the receipt's provision. See Ferrex Int' l, Inc. v. M/V Rico Chone, 718 F. Supp. 451 (D. Md. 1988). Based upon the record before the court and the arguments of the parties, I find that Ferrostaal had actual notice of the liability clause and therefore Rukert's liability, if any, is limited pursuant to the provision.⁵

Ferrostaal's opposition to Rukert's motion relies upon defenses that are typically successful only when raised by victims of unequal bargaining power. Ferrostaal claims, inter alia, that it is unlikely the complete warehouse receipt was ever sent (Pl.'s Opp'n 8), that the extent to which liability is limited is out of step with industry norms (Mot. Hr'g Tr. 23:15-18), and that the liability provision is ambiguous (Mot. Hr'g Tr. 32:11-17). By no means, however, is Ferrostaal a novice in the steel industry—it is a multinational corporation that has been dealing in steel for decades. (Def.'s Reply Mot. Decl. J. 9-10 (citing www.ferrostaal.com).) In contract, sophisticated parties like Ferrostaal are held to higher standards than members of the general public. See, e.g., Caterpillar Overseas, S.A. v. Marine Transp. Inc., 900 F.2d 714, 719 (4th Cir. 1990) (concluding that the terms of a bill of lading became a contract because the parties were sophisticated and had a prior course of dealing); Rotorex Co., Inc. v. Kingsbury Corp., 42 F. Supp. 2d 563, 577 (D. Md. 1999) (holding that because the plaintiff was a sophisticated party, it could not claim that the defendant's consequential damages limitation was unconscionable). From the outset, then, Ferrostaal's status as a sophisticated entity raises skepticism as to the strength of their argument against notice.

A complete warehouse receipt from Rukert Terminals Corporation consists of multiple pages, the exact amount of pages depending on the particular transaction. (Compare Def.'s Second Mot. Decl. J., Ex. 24, with Ex. 25.) In any transaction with Rukert, however, the limitation provision on which the present motion hinges does not appear on the first page of the receipt. (See id.) Ferrostaal argues that although they received the first page of some warehouse receipts, it is unlikely they ever received the entire warehouse receipt. (Pl.'s Opp'n, Ex. B.)Under Maryland law, however, delivery and receipt are presumed if the material is properly mailed and the sender can show that it mails the document in question as part of its ordinary business practices. Benner v. Nationwide Mut. Ins. Co., 93 F.3d 1228, 1234 (4th...