Indemnity Ins. Co. of N.A. v. Hanjin Shipping

• Decision Date: 31 October 2003
• Docket Number: No. 02-2822.,No. 02-2933.,02-2822.,02-2933.
• Parties: INDEMNITY INSURANCE COMPANY OF NORTH AMERICA, as Subrogee of Lowe's Companies, Inc., Plaintiff-Appellee, Cross-Appellant, v. HANJIN SHIPPING COMPANY, Defendant-Appellant, and O'Hare Services and Channel Distribution, Defendants, Cross-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

348 F.3d 628

INDEMNITY INSURANCE COMPANY OF NORTH AMERICA, as Subrogee of Lowe's Companies, Inc., Plaintiff-Appellee, Cross-Appellant, v. HANJIN SHIPPING COMPANY, Defendant-Appellant, and O'Hare Services and Channel Distribution, Defendants, Cross-Appellees.

No. 02-2822.

No. 02-2933.

United States Court of Appeals, Seventh Circuit.

Argued February 14, 2003.

Decided October 31, 2003.

COPYRIGHT MATERIAL OMITTED

Robert Ostojic (argued), Howard B. Randell, Leahy, Eisenberg & Fraenkel, Chicago, IL, for Plaintiff-Appellee/Cross-Appellant Indemnity Insurance Company of North America.

Michael A. Snyder (argued) and Timothy S. McGovern, Conklin, Murphy, Conklin & Snyder, Chicago, IL, for Defendant-Appellant Hanjin Shipping Company.

Stephen C. Veltman, Scott L. Howie (argued), Pretzel & Stouffer, Robert M. Chemers, Bruce M. Lichtcsien (argued), Cozen O'Connor, Chicago, IL, for Defendants/Cross-Appellees O'Hare Services and Channel Distribution.

Before FLAUM, Chief Judge, and DIANE P. WOOD and EVANS, Circuit Judges.

DIANE P. WOOD, Circuit Judge.

When a container of tools disappeared while it was in transit between China and the Indiana warehouse of the ultimate purchaser, L.G. Sourcing, Inc., the inevitable process of finger-pointing began. The cargo, as is common today, was shipped under an intermodal waybill and was packed in a container that could easily be transferred from one carrier to the next. All went well until the U.S. Customs Service decided to inspect the container in a facility near Chicago's O'Hare International Airport. While in the custody of private agents of the Customs Service, the container vanished. It was found some time later in a nearby city, empty. The purchaser received full payment for the loss from its insurer, Indemnity Insurance Company. Indemnity, standing in the shoes of its customer, in turn sued the shipping company, Hanjin, and the various parties involved in the diversion to the customs inspection facility, seeking indemnification.

After a bench trial, the district court ruled that Hanjin was responsible for the full amount of the loss. Indemnity Ins. Co. of North America v. Hanjin Shipping Co., 206 F.Supp.2d 927 (N.D.Ill.2002). Our review of the relevant language in the waybill, in the light of the law governing this type of transaction, convinces us that this was error. We therefore reverse the verdict against Hanjin. In addition, Indemnity has cross-appealed from the district court's judgment dismissing its claims against O'Hare Services and Channel Distribution, two of the companies involved in the customs inspection process. We also reverse that judgment, and remand for further proceedings.

I

L.G. Sourcing, a subsidiary of Lowe's Companies, Inc., wanted to purchase some Black & Decker power tools that were manufactured in a plant located in Shenzhen, China. (For convenience, we generally refer to both L.G. Sourcing and Lowe's itself as Lowe's, as there is no material distinction between them for present purposes.) As part of the deal, Lowe's contracted with Hanjin Shipping Company to transport a container holding the tools from China to Lowe's warehouse in North Vernon, Indiana. The waybill covered all legs of the journey and thus involved both sea and land transport—in short, it was an intermodal contract. It named "BDC International Limited, D/B Black & Decker International Corp.," as the shipper, and L.G. Sourcing, Inc., as the consignee. In a space on the waybill labeled "Notify Party", it gave the name of Fritz Companies, Inc., of Savannah, Georgia. In some of the fine print, the waybill said:

[d]elivery will be made to the Consignee named, or the authorized agents, on production of proof of identity at the place of delivery.... Should the Consignee require delivery elsewhere than at the place of delivery shown above, then written instruction must be given by the Consignee to the Carrier or his agent. Should delivery be required to be made to a party other than that named as Consignee authorization must be given in writing by the Shipper to the Carrier or his agent.

Finally, as we explain in greater detail below, the waybill provided that it was to be governed by the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading, concluded in Brussels on August 25, 1924 (commonly known as the Hague Rules), which is generally in force in the United States. See 51 Stat. 233 (1924).

Initially, the shipment proceeded uneventfully. After the container arrived by ship in Long Beach, California, it was transported by rail to Chicago, where it was scheduled to be picked up by a motor carrier and taken to the Indiana warehouse. Prior to its arrival in Chicago, however, the U.S. Customs Service notified Fritz, which was Lowe's agent and customs broker, that this particular container had been selected for an intensive customs examination. Fritz, which had a written power of attorney from Lowe's to perform all services necessary to effect the entry and clearance of Lowe's goods, accordingly notified Hanjin in writing that the goods were to be released to Land Container, a trucking company, for delivery to O'Hare Services. O'Hare Services was one of four companies operating a Centralized Examination Station for U.S. Customs in the Chicago area. O'Hare Services in turn subcontracted with a company called Channel Distribution for the performance of the tedious work of inspecting the contents of the container and storing it until it could resume its journey to the ultimate consignee.

In order to carry out the required inspection, Fritz began on August 2, 1999, by paying Hanjin the collect ocean freight due on the shipment. It then instructed Hanjin to deliver the container to Land Container, which on August 25, 1999, in accordance with Fritz's order, took the container to the Centralized Inspection Station (operated by Channel) used by O'Hare Services. On August 26, Customs Service officials examined the contents of the container and released it from custody. At that point, the shipment was intact and in good order. Channel then moved the container from the bonded customs area of its lot to the open yard. The district court found as a fact that "[a]fter Customs completed its inspection, it notified both Fritz and Hanjin that the container and its contents were released and ready to be picked up." This finding is troublesome, as all of the testimony at the trial indicated that Customs notified Fritz, but not Hanjin, and that Fritz may have communicated this message to Hanjin. Nevertheless, this discrepancy does not matter in the end, because the testimony from the witnesses called by Channel and O'Hare Services was that Channel would release the container only upon receipt of a delivery order from Fritz. No such order was forthcoming. One Fritz employee testified that they were waiting for a pick-up number from Hanjin, but she never explained why Hanjin would have had such a number.

For over a week, the container sat in Channel's unprotected yard, awaiting pickup from an authorized party. As of September 3, Channel's yard check report showed that it was still on the premises in apparent good condition. The news was not so good at the next yard check, which occurred on September 7. By then, the container was missing. On September 10, the Indiana State Police notified Hanjin that they had discovered the empty container in Calumet City, Indiana. Hanjin verified the fact that the container was no longer in Channel's lot. The goods were never recovered.

II

Lowe's submitted a claim for the lost shipment with its insurance company, Indemnity, which paid the claim and became subrogated to Lowe's rights to recover. In its capacity as subrogee, Indemnity filed this suit against Hanjin, O'Hare Services, and Channel. (At one point Fritz was also a defendant, but it was dismissed before trial and is no longer involved in the litigation.) Count I asserted a claim against Hanjin under the Carriage of Goods by Sea Act (COGSA), 46 U.S.C. app. § 1300 et seq. Count II was against Fritz, and thus no longer relevant. Count III raised a common law bailment claim against O'Hare Services, and Count IV raised a common law negligence theory against O'Hare Services. Counts V and VI, respectively, raised the same two theories against Channel. Finally, Counts VII and VIII asserted that Indemnity was entitled to recover from Hanjin and O'Hare Services (again, respectively) under the Carmack Amendment, 49 U.S.C. § 14706.

With the exception of the claim against Fritz, the remainder of Indemnity's case was heard in a bench trial. The district court's jurisdiction rested on 28 U.S.C. § 1337, because of the COGSA and Carmack Amendment allegations in the complaint. It exercised supplemental jurisdiction, see 28 U.S.C. § 1367, over the common law theories. The court rejected the argument that it also had admiralty jurisdiction over the case, under 28 U.S.C. § 1333, because it concluded that this was a mixed contract involving elements of both ocean and land carriage, and because the loss occurred during the inland carriage portion of the transaction. It also commented that the parties were not seeking to invoke its diversity jurisdiction under 28 U.S.C. § 1332 and that the record is devoid of the necessary evidence to determine whether diversity even exists.

On the merits, the district court first concluded that Hanjin could not be liable under the Carmack Amendment, because that law is inapplicable to a contract of carriage like this one, which originated outside the United States and was handled under a foreign through bill of lading. Capitol Converting Equip., Inc. v. LEP Transport, Inc., 965 F.2d 391, 394 (7th Cir.1992). The court also rejected the suggestion that there is a body of federal common law governing Indemnity's claim against Hanjin, and that this law supports a finding of liability. Next, it ruled that COGSA by its terms did not apply to this loss,...