Rationis Enter. v. Hyundai Mipo Dockyard

Decision Date17 October 2005
Docket NumberDocket No. 04-6028-CV(CON).,Docket No. 04-4267-CV.,Docket No. 04-5572-CV(L).
PartiesRATIONIS ENTERPRISES INC. OF PANAMA, Mediterranean Shipping Co., S.A. of Geneva, Counter-Defendant-Appellee, North of England Protecting and Indemnity Association, Consolidated-Plaintiff-Appellee, v. HYUNDAI MIPO DOCKYARD CO., Ltd., Third-Party-Defendant-Appellant, Hyundai Corporation, Consolidated-Plaintiff-Appellant.
CourtU.S. Court of Appeals — Second Circuit

Raymond J. Burke, Jr., Christopher H. Dillon, Burke & Parsons, NY, NY; Gregory S. Coleman, Christopher S. Johns, Weil, Gotshal & Manges LLP, Austin, Texas for Defendants-Appellants Hyundai Mipo Dockyard and Hyundai Corporation.

Machale A. Miller, Miller & Williamson LLC, New Orleans, Louisiana; Vincent M. DeOrchis, John A. Orzel, Pamela A. Palmer, DeOrchis & Partners, LLP, NY, NY; John Eric Olson, Raymond P. Hayden, Hill Rivkins & Hayden LLP, NY, NY; John T. Lillis, Thomas Murphy, Kennedy, Lillis, Schmidt & English, NY, NY; Roman Badiak, Badiak Will & Ruddy, NY, NY; Stephen H. Vengrow, Patrick Michael DeCharles, III, Cichanowicz, Callan, Keane, Vengrow & Textor, NY, NY; Edward C. Radzik, Robert J. Phillips, Jr., William R. Conner, III, Donovan Parry McDermott & Radzik, NY, NY; Richard W. Stone, II, Francis M. O'Regan, Waesche, Sheinbaum & O'Regan, NY, NY; Christopher Raleigh, Cozen & O'Connor, NY, NY; James M. Kenny, Kenny, Stearns & Zonghetti, NY, N.Y. for Counter-Defendants-Appellees Rationis Enterprises Inc. of Panama, Mediterranean Shipping Co., S.A. of Geneva.

Before: WINTER, SOTOMAYOR, and B.D. PARKER Circuit Judges.

B.D. PARKER, JR. Circuit Judge.

Hyundai Corporation and Hyundai Mipo Dockyard appeal a judgment, entered following a trial to the United States District Court for the Southern District of New York (Owen, J.) arising from the loss of the containership MSC Carla. They advance a number of contentions, but we do not reach most of them since we conclude that one — that Korean law applies and precludes liability — is dispositive.1

I. The Lengthening

The evidence at trial established that the containership MSC Carla (originally called the Nihon) was built in 1972 in Sweden. A Swedish firm, Brostrom Shipping Co. Ltd. ("Brostrom"), initially managed the ship, sailing it under the Swedish flag. Brostrom used the classification society Lloyd's Register ("Lloyd's") (an international risk management organization providing underwriters and merchants with information on the condition of vessels) to develop specifications to lengthen the vessel by adding a fifteen-meter midsection to provide an extra cargo hold. After receiving bids from several shipyards, Brostrom contracted with Hyundai Mipo Dockyard in Korea (collectively with Hyundai Corporation, "Hyundai") to do the work. Brostrom and Hyundai agreed English law would govern the work.

Hyundai manufactured the midsection to Lloyd's specifications prior to the Nihon's arrival in Korea in September 1984. Just as a midsection is welded into a bisected car to construct a limousine, the Nihon was elongated. Lloyd's inspectors observed the process. The welded joints attaching the inserted midsection were visually inspected, as well as subjected to extensive radiographic tests.

In May 1985, seven months after the ship resumed sailing, Lloyd's discovered a fatigue crack and conducted ultrasonic testing of the welds. The ship returned to Korea. Hyundai furnished Lloyd's with a report of certain defects in the welds and offered to repair them. Lloyd's determined the repairs were unnecessary, but marked the Nihon's record with a "condition of class" to ensure that the welds would continue to be monitored. After subsequent surveys finding no defect, Lloyd's reduced the condition of class. After 1985, Hyundai had no further involvement with the vessel.

II. MSC's Purchase

The ship was sold four times before being purchased in 1995 by a Panamanian company, Mediterranean Shipping Co., S.A. ("MSC"), and subsequently was renamed the MSC Carla. MSC purchased the Nihon in 1995 "as is." Prior to the purchase, a Lloyd's inspector imposed three conditions of class due to cracks in the starboard tank and corrosion in the starboard and port tanks. A Lloyd's work list called for new steel in several areas. In 1995, and then again in 1996, MSC requested postponements of the repairs and Lloyd's agreed. It is unclear whether the repairs were performed. Nevertheless, in 1997, during a twenty-five year inspection of the ship, the conditions of class were removed.

III. The Casualty Voyage

The MSC Carla departed France for the United States in November 1997. The containership was filled with cargo and there is conflicting evidence as to whether it was loaded properly. There were several storms in the North Atlantic, and it is also debated by the parties whether the MSC Carla might have been able to avoid them entirely. This sort of weather is usual for the season and containerships similar to the MSC Carla normally handle this weather without incident.

During the voyage, water began splashing over the deck, possibly seeping into the boat's front hatches. All three engines cut. One restarted. As the boat climbed a large wave, the captain testified that the ship "hogged," with the front and aft sections sagging below the middle. The captain heard a breaking noise carry through the length of the hull and he noticed the bow light abnormally low.

The ship broke along the weld lines. The crew was soon airlifted to safety. Six days later the buoyant, dry aft section was towed to Las Palmas, Canary Islands, where it was inspected and its cargo salvaged. The flooded front section sank.

IV. Procedural History

Rationis and MSC, the ship's owner and operator, respectively, filed a limitation of liability proceeding in the Southern District of New York. The almost one thousand receivers of lost cargo (collectively, the "cargo interests") brought third-party complaints against Hyundai based on the allegedly defective lengthening work. Rationis and MSC's liability insurer, North of England Protecting and Indemnity Association ("NOE"), settled with the cargo interests in 2000 for $16.95 million. (NOE also settled with various cargo interests separately.) NOE joined the action against Hyundai, to recover the amounts paid in the settlement.

In the pre-trial proceedings before the District Court, Hyundai argued, among other things, that the District Court lacked personal jurisdiction. Hyundai then commenced, in a Korean court, two declaratory judgments to establish non-liability. (The first action named and served three cargo interests and the second action named, but never served, most of the other nearly one thousand cargo interests). The District Court then issued an anti-suit injunction, requiring Hyundai to request a suspension of the Korean action. Hyundai requested the suspension, but appealed the injunction, arguing again that the District Court lacked personal jurisdiction.

We vacated and remanded the anti-suit injunction, directing the District Court to conduct an evidentiary hearing as to whether the Court had personal jurisdiction over Hyundai. Rationis v. AEP/Borden Indus., 261 F.3d 264 (2d Cir.2001). We also directed the District Court, should it issue an anti-suit injunction, to heed China Trade & Dev. Corp. v. M.V. Choong Yong, 837 F.2d 33 (2d Cir.1987) and its progeny since it had failed to conduct such an analysis before initially enjoining Hyundai.

On remand, the District Court conducted an evidentiary hearing on personal jurisdiction and concluded that it had jurisdiction. Hyundai subsequently moved for summary judgment, arguing, in part, that the plaintiffs could not prevail under the laws of either Korea, Sweden or Panama, the universe of jurisdictions whose laws potentially applied. The Court denied the motion, concluding that Hyundai had waived its choice of law defense by failing to select a particular foreign law until the summary judgment stage. The Court stressed that, although Hyundai had announced as early as their answer to the complaint that the "substantive law of a foreign country governs," they had delayed through four years of litigation, until after the completion of discovery, before precisely identifying the applicable foreign law. In Re Rationis Enters., Inc. of Panama, 2003 WL 203210, *1 (S.D.N.Y.2003). The District Court reasoned that this alternative pleading style failed to provide the opposing party with the notice required by Fed. R. of Civ. Proc. 44.1.2 The Court concluded that Hyundai's overly expansive formulation of foreign law prejudiced the plaintiffs. Finding waiver, the Court saw no need to conduct a choice of law analysis and proceeded to apply United States law.

The District Court held a bifurcated bench trial. There Hyundai continued to maintain that it did not waive the choice of law argument and United States law did not apply. The major factual disputes centered on whether the deck broke first as a result of the allegedly faulty welding, or whether the allegedly corroded bottom collapsed first, as a result of MSC's failure to maintain the ship. The parties also disagreed as to whether the lengthening contract was for the sale of goods or the provision of services, only the first of which implicates products liability doctrines. Hyundai, as a nominal party to the contract, contended that the District Court lacked personal jurisdiction and that NOE's claims were barred under a contribution of settling parties theories. Following trial, the District Court found Hyundai liable in negligence and strict liability. Hyundai appeals, raising a host of issues. We reach only one — the choice of foreign law — because we conclude it is dispositive. We reverse.

I. Standard of Review

The parties dispute the standard of review applicable to the District Court's choice of foreign...

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