Man Ferrostaal, Inc. v. Akili

• Decision Date: 06 December 2012
• Docket Number: Docket Nos. 11–0486–cv(L), 11–0567–CV(XAP).
• Citation: 704 F.3d 77
• Parties: MAN FERROSTAAL, INC., Plaintiff–Appellee–Cross–Appellant, v. M/V AKILI, her engines, boilers, tackle, etc., Defendant–Cross–Claimant–Appellant–Cross–Appellee, Akela Navigation Co., Ltd., Almi Marine Management SA, Defendants–Third–Party Plaintiffs–Cross–Claimants–Appellees, SM China Co., Ltd., Defendant–Third–Party Defendant–Cross–Defendant.
• Court: U.S. Court of Appeals — Second Circuit

704 F.3d 77

MAN FERROSTAAL, INC., Plaintiff–Appellee–Cross–Appellant,

v. M/V AKILI, her engines, boilers, tackle, etc., Defendant–Cross–Claimant–Appellant–Cross–Appellee,Akela Navigation Co., Ltd., Almi Marine Management SA, Defendants–Third–Party Plaintiffs–Cross–Claimants–Appellees,SM China Co., Ltd., Defendant–Third–Party Defendant–Cross–Defendant.

Docket Nos. 11–0486–cv(L), 11–0567–CV(XAP).

United States Court of Appeals, Second Circuit.

Argued: Jan. 9, 2012.

Decided: Dec. 6, 2012.

Vincent M. Deorchis, Deorchis & Partners, LLP, New York, NY, for Defendant–Cross–Claimant–Appellant–Cross–Appellee.

Steven P. Calkins, Kingsley Kingsley & Calkins, Hicksville, NY, for Plaintiff–Appellee–Cross–Appellant.

Before: WINTER, KATZMANN, and LYNCH, Circuit Judges.

WINTER, Circuit Judge:

The M/V Akili, its owner, Akela Navigation Co., and manager, Almi Marine Management, appeal from Judge Cote's decision, after a bench trial, holding the M/V Akili liable in rem for damage to cargo shipped aboard the vessel. Appellants claim that the district court erred in holding the vessel liable in rem. Man Ferrostaal (“Ferrostaal”) cross-appeals from the holding that Almi Marine Management (“Almi”) and Akela Navigation Co. (“Akela”) are not liable in personam under a bailment theory. We write at length to clarify both the issues and our analysis, which differs somewhat from that of the district court. However, we affirm.

BACKGROUND

Ferrostaal's business is accepting orders of steel from customers in the United States, procuring steel from international suppliers, and then arranging for the steel's transportation to the customer. The cargo at issue here was 9,960 “thin-walled” steel pipes, manufactured in China and sold to Ferrostaal pursuant to a purchase order dated March 23, 2006 (“PurchaseOrder”). Ferrostaal in turn sold the pipe to McJunkin Appalachian Oilfield of West Virginia and arranged for it to be shipped to New Orleans.

A series of charters and sub-charters of the Akili were executed before the cargo was loaded aboard. On June 19, 2006, Akela time-chartered the Akili to Seyang Shipping, Ltd., which in turn was permitted to sublet the vessel for all or any part of the time covered by the charter (the “Time Charter Party”). The Time Charter Party specified that all bills of lading issued under the charter would incorporate “the General Clause Paramount or U.S. or Canadian Clause Paramount whichever applicable as attached.” ¹ Thereafter, Seyang sub-chartered the vessel to S.M. China for the voyage from Shanghai to Houston and then to New Orleans. Prior to chartering the Akili from Seyang, S.M. China had executed a part-cargo charter (the “Voyage Charter Party”) with Ferrostaal for the carriage of the thin-walled pipes from Shanghai to New Orleans. The Voyage Charter Party did not identify the vessel on which the cargo was to be shipped, stating instead that the ship was “TBN”—“to be named” in landlubbers' lingo—by S.M. China.

The Voyage Charter Party placed responsibility for loss “caused by improper or negligent stowage, or discharge, or care of the goods” on the “Owners” of the vessel. It further specified that “[s]towage is to be under the Master's supervision and responsibility as Owners' agent.” The “Owner” was defined as S.M. China. It also contained a “free-in-and-out” provision that stated that the handling of cargo was to be “free of risk ... to the vessel.”

The Voyage Charter Party also contained a “Clause Paramount” that stated in part, “[n]otwithstanding any other provisions in this contract, any claims for loss or damage to cargo shall be governed by the Hague–Visby rules as if compulsorily applicable by law.” The Hague–Visby rules are an international convention that are in all pertinent respects literally identical to rules established by the Carriage of Goods by Sea Act, 46 U.S.C. § 30701 (“COGSA” or “the Act”). This is no coincidence because the convention requires signatory nations to pass legislation embodying these rules.

A bill of lading was issued by China Ports International Shipping Agency Ltd., as the agent of S.M. China, to Zhongqing, the shipper, and then was transferred to Ferrostaal through banking channels pursuant to the “cash against documents” term of the Purchase Order. The bill of lading contained a Clause Paramount that incorporated the Hague rules.²

The pipe was carried from China to New Orleans aboard the Akili. Upon arrival in New Orleans, it was discovered that the steel pipes had been placed at the bottom of a cargo hold and damaged when heavier pipes were placed on top. The pipes were repaired by Houston Tubulars, Inc., which was paid $286,078.32 by Ferrostaal.

On July 9, 2007, Ferrostaal filed the present action in rem against the Akili and in personam against Akela, Almi, and S.M. China. Akela and Almi filed a cross-claim against S.M. China.³ After a bench trial, Judge Cote held the Akili liable in rem⁴ and dismissed the claims for in personam liability against Akela and Almi. This appeal and cross-appeal followed.

DISCUSSION

We review the district court's findings of fact for clear error and its conclusions of law de novo. Mobil Shipping & Transp. Co. v. Wonsild Liquid Carriers Ltd., 190 F.3d 64, 67 (2d Cir.1999). Mixed questions of law and fact are reviewed de novo. White v. White Rose Food, 237 F.3d 174, 178 (2d Cir.2001).

A. The Appeal

Boiled down, the parties dispute whether: (i) an in rem proceeding rendering the Akili liable for damage to, or loss of, cargo is unavailable in this matter because a vessel is not a “carrier” within the meaning of COGSA and (ii) the free-in-and-out provision in the Voyage Charter Party purportedly absolving the Akili of in rem liability is enforceable. We hold that the first issue is essentially irrelevant because a vessel's in rem liability for damage to cargo exists under maritime common law, not COGSA, for a violation of a carrier's contractual or statutory—COGSA's—obligations. We resolve the second issue against enforcement of the free-in-and-out provision so far as it might be construed to prevent in rem liability of the vessel. In doing so, we do not decide whether COGSA applied as a matter of law to this voyage because, even if it did not, the Voyage Charter Party's Clause Paramount contractually incorporates the Hague–Visby rules prohibiting a carrier from contracting for a waiver of its obligations regarding damage to cargo. See46 U.S.C. § 30701 Note § 3(8).

1. The Vessel as a COGSA “Carrier”

COGSA sets out the obligations of “carriers” involved in the shipment of goods into the United States from international ports. It requires ocean carriers to “Properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried,” id. § 30701 Note § 3(2), and forbids carriers from contracting out of these obligations. Id. § 30701 Note § 3(8); see also Sogem–Afrimet, Inc. v. M/V Ikan Selayang, 951 F.Supp. 429, 442–43 (S.D.N.Y.1996), aff'd,122 F.3d 1057 (2d Cir.1997) (“COGSA does not permit the carrier to divest itself of the duty to insure the proper stowage of the cargo.”). COGSA defines a “carrier” to mean “the owner, manager, charterer, agent, or master of a vessel,” 46 U.S.C. § 30701, including “the owner or the charterer who enters into a contract of carriage with a shipper.” Id. at Note § 1(a).

Appellant argues that because a “vessel” is not a carrier under COGSA, the Akili cannot be liable in rem for damage to, or loss of, cargo. We disagree. COGSA assumes the existence of the in rem proceeding rather than creates it. Section 3, the crux of the Act, sets out duties applicable only to carriers but is entitled “Responsibilities and Liabilities of Carrier and Ship.” (emphasis added). The very title of Section 3 thus assumes that maritime law supplies in rem liability coextensive with carrier liability. ⁵

Well before enactment of COGSA and its predecessor, the Harter Act, maritime law held ships liable in rem for cargo damage due to improper stowage. The Water Witch, 66 U.S. 494, 500, 1 Black 494, 17 L.Ed. 155 (1862) (“The ship having received the cargo and carried it ... is estopped to deny her liability to deliver in like good order as received....”); Demsey & Assoc., Inc. v. S.S. Sea Star, 461 F.2d 1009, 1014 (2d Cir.1972) (“Every claim for cargo damage creates a maritime lien against the ship which may be enforced by a libel in rem.”), abrogated on other grounds by Seguros Illimani S.A. v. M/V Popi P, 929 F.2d 89 (2d Cir.1991); Pioneer Import Corp. v. Lafcomo, 49 F.Supp. 559, 561–62 (S.D.N.Y.1943), aff'd,138 F.2d 907 (2d Cir.1943) (“A lien arises against the ship for damage to cargo caused by improper stowage.”); see also Gilmore & Black, The Law of Admiralty § 3–45 at 165 (1957).

In rem liability is derived from a pre-COGSA maritime law doctrine to the effect that, once cargo is aboard a vessel, the vessel is deemed to have impliedly ratified the underlying contract of affreightment and is answerable for nonperformance.⁶Demsey, 461 F.2d at 1014–15;see also Krauss Bros. Lumber Co. v. Dimon S.S. Corp., 290 U.S. 117, 121, 54 S.Ct. 105, 78 L.Ed. 216 (1933). The Akili, by setting sail with the cargo on board, impliedly ratified the contract of affreightment between S.M. China and Ferrostaal. See Freeman, 59 U.S. at 190 (noting that where a shipowner allows a special owner to carry cargo of third persons, the law confers a lien for the performance of bills of lading or charter parties). ⁷

As between S.M. China and Ferrostaal, the contract of affreightment was the Voyage Charter Party rather than the bill of lading. ⁸ A carrier may not alter its contractual obligations to a shipper under a Voyage Charter Party by issuing a bill of lading with different terms, Asoma Corp. v. SK Shipping Co., 467 F.3d 817, 823–24 (2d Cir.2006), albeit when the bill of lading is negotiated to a good faith third party, which did not occur here, the bill governs the third party's rights. Id. at 824.

To sum up, even if a vessel...