Techem Chemical Co., Ltd. v. M/T CHOYO MARU

• Citation: 416 F. Supp. 960
• Decision Date: 25 June 1976
• Docket Number: Civ. No. T-74-1398.
• Parties: TECHEM CHEMICAL CO., LTD., et al., Plaintiffs, v. M/T CHOYO MARU, her engines, apparel, tackle and furniture, In Rem, Defendant. TAKEBAYASHI KISEN K.K., In Personam, Defendant and Third-Party Plaintiff, v. TEAM TANKERS A/S et al., Third-Party Defendants.
• Court: U.S. District Court — District of Maryland

416 F. Supp. 960

TECHEM CHEMICAL CO., LTD., et al., Plaintiffs, v. M/T CHOYO MARU, her engines, apparel, tackle and furniture, In Rem, Defendant.

TAKEBAYASHI KISEN K.K., In Personam, Defendant and Third-Party Plaintiff, v. TEAM TANKERS A/S et al., Third-Party Defendants.

Civ. No. T-74-1398.

United States District Court, D. Maryland.

June 25, 1976.

William R. Dorsey, III, Semmes, Bowen & Semmes, Baltimore, Md., for plaintiffs.

John T. Ward, Richard R. Jackson, Jr., Ober, Grimes & Shriver, Baltimore, Md., for defendants.

THOMSEN, Senior District Judge.

Relying upon recent Supreme Court cases holding that certain state attachment and garnishment procedures violate the due process clause of the Fourteenth Amendment,¹ defendants herein, a Japanese vessel and her Japanese owner, contend that the customary admiralty procedures in rem and in personam with process of maritime attachment have been used and abused by plaintiffs in a way which has deprived defendant shipowner, without due process of law, of property rights protected by the Fifth Amendment.

The case arises out of a shipment of caustic soda from France to the United States on the M/T Choyo Maru. Part of the cargo was discharged in Bayonne, N.J., and the balance in Baltimore, Md. An action in rem against the vessel and in personam against her owner, Takebayashi Kisen K.K., with process of maritime attachment, was filed in this Court on December 20, 1974, by Techem Chemical Co., Ltd. (the shipper of the cargo and a consignee of part thereof) and Stanalchem, Inc. (an agent of Techem in New York). The complaint alleged that the cargo had been contaminated while in transit and claimed $4,000,000 in damages. The vessel was seized in Baltimore on December 21; it was released on December 30 at the request of counsel for the respective parties after the owner had agreed to provide security acceptable to plaintiffs' attorneys.² Thereafter, the ship-owner filed an answer and two counterclaims: (1) for costs and expenses incurred by the owner because the excessive security demanded by plaintiffs subjected the owner to unnecessary expenses, and (2) for indemnity based upon an alleged breach of warranty arising from a survey of the vessel which plaintiffs had a surveyor make before the cargo was loaded.

In December 1975, an amended complaint was filed, adding three plaintiffs, Westvaco Corp. and Domtar Fine Papers, Ltd. (the other two consignees) and Transatlantic Marine Claims Agency, Inc. (TMCA), the New York agent of the numerous unnamed cargo insurers, and reducing the amount claimed to $360,000, plus interest and costs. Defendants promptly answered the amended complaint and reasserted the shipowner's counterclaims: the first, now asserted against TMCA as well as Techem and Stanalchem, based on the alleged excessive demand for security, and the second, now asserted against all plaintiffs, based on the alleged breach of warranty.³

The case is now before the court on—

(1) Defendant owner's motion for the release of the remaining security posted by it, or if that relief is denied, that plaintiffs be required to post countersecurity in the amount of $435,000.⁴ Defendants claim (a) that "the arrest and demand for security violated the constitutional right of defendant to due process of law", and (b) that the suit which resulted in the seizure of the vessel and the posting of the security for her release was instituted without authority from the original plaintiffs.

(2) Plaintiffs' motion for judgment on the pleadings with respect to defendant's counterclaims.

Depositions have been taken, documents have been offered in evidence, briefs have been filed and counsel have been heard on two occasions.

Facts⁵

On December 3, 1974, the M/T Choyo Maru loaded a cargo of caustic soda solution (approximately 50% caustic soda by weight) in Lavera, France, following a survey of the vessel caused to be made by one or more of the plaintiffs. The vessel was then owned by defendant Takebayashi Kisen K.K., time chartered to third-party defendant Team Tankers A/S, and voyage chartered to third-party defendant Fluidiks B.V.; the voyage charter, in turn, was assigned by Fluidiks B.V. to third-party defendant Gulfstream Navigation Co. The cargo, shipped by plaintiff Techem Chemical Co., was consigned in part to the Royal Bank of Canada and in part to order; the parties agree in treating the concerns listed below as the consignees for the purposes of the pending motions:

                Consignee                           Metric Tons
                                                 Liquid       Dry
                Domtar Fine Paper               3150.000    1557.580
                   (C.I.F. Bayonne)
                Techem Chemical Co.             2106.201    1034.144
                Westvaco Corp.                  4200.000    2062.200
                   (C.I.F. Baltimore)           ________    ________
                                                9456.201    4653.924
                

The Domtar and Techem lots were discharged at Bayonne on December 18 and 19, 1974, and the Choyo Maru proceeded to Baltimore. On December 19 a surveyor at Bayonne advised Quinn, Director of Marketing for Stanalchem in New York, that there was contamination of the cargo. Quinn sent Cheng, another employee of Stanalchem, to "verify the problem", and also obtained the services of another surveyor to check the cargo in Bayonne.

The surveyors' initial examination indicated contamination, thought to have been caused by vegetable oil (the Choyo Maru's last previous cargo) or iron. Quinn contacted Techem and advised them of the cargo contamination, and received instructions from Techem to work with TMCA, the agent for the underwriters of the cargo insurance, on any potential claims. Quinn and others at Stanalchem contacted Heijmans, President of TMCA, on December 20, and advised him of the contamination. Also on December 20, Heijmans received a copy of a Telex message from Hudig and Company, of Rotterdam, Techem's insurance broker, which indicated that Hudig had been advised of the cargo damage and had instructed the consignee at Bayonne to contact TMCA. During several telephone conversations, Quinn and Heijmans reviewed the available options, including the possibility of filing suit against the ship and its owner, and discussed the potential damage to the cargo. Quinn thought that there was a "hundred percent loss," a "total loss" because he "didn't see any value in the material". Heijmans considered the cargo to be a "constructive total loss", a marine insurance term meaning, according to Heijmans, "that the cargo is rendered worthless for its intended purpose and the consignee cannot recondition it or return it to its original state". Quinn told Heijmans that the caustic soda was valued at "$400 per metric ton". Plaintiffs now concede that the $400 per ton figure was for dry caustic soda, not caustic soda in a liquid solution, as was the cargo involved in this suit. Therefore, since the cargo consisted of 9,456 tons of caustic soda solution, a little less than 50% caustic soda by weight, the total value of the cargo was $400 × 4,653 tons, less than $2,000,000. However, on December 20, 1974, through some failure of communication, Heijmans, who had never dealt with caustic soda, multiplied the total cargo tonnage by the $400 per ton figure, and determined the value of the cargo to be $4,000,000. Heijmans did not verify this figure with Quinn; indeed, the only gross valuation figure mentioned during their conversation was $2,000,000.⁶ The weight of the evidence now before the court requires a finding that Heijmans' conclusion that the damage to the cargo was $4,000,000 was not justified.

During Heijmans conversations with Quinn, the possibility of instituting suit against the shipowner was discussed. Heijmans knew that Stanalchem was acting "in some capacity" for Techem, but he did not know what capacity, and he did not inquire. Quinn had received instructions from Techem to cooperate with TMCA, but Quinn had not received any instructions or permission to authorize TMCA to institute suit in Techem's name. Quinn testified that he did not authorize TMCA to institute suit in Techem's or Stanalchem's name, and that he did not have authority to do so. However, he did understand "that TMCA was going to take whatever steps were necessary to protect the interests of those who had interests in the cargo". Heijmans testified that Quinn instructed him not to contact Domtar and Westvaco because there was a possibility that those consignees were going to reject their portions of the cargo and attempt to stop their letters of credit. Heijmans also testified that during his conversations with Quinn he was not instructed to do anything, but that he was specifically authorized by Quinn to file suit in Stanalchem's name, and that these conversations "constituted authority for Heijmans to direct the institution of suit in the name of Techem". Heijmans also testified that on December 20 he discussed the possibility of filing suit with Van Reen of Hudig; that Van Reen did not instruct him to do anything, but left "the further handling of the decision whether or not to file suit to Heijmans' discretion".

On December 20, Heijmans contacted various "P and I protection and indemnity representatives to find out with which club group of insurers the vessel was entered regarding P and I coverage. This was necessary for us in order to secure our interests by means of a letter of security which P and I agents may obtain for us, preventing the arrest of the vessel". Heijmans was advised by LaMorte, Burns, a P & I representative, that their initial research revealed no such coverage for the Choyo Maru.

Early in the afternoon of December 20, Heijmans contacted experienced admiralty counsel (Williams) in New York City about the cargo damage. During several telephone conversations and at least one personal conference, Heijmans told Williams that he had been contacted by Stanalchem, agents for Techem, and had been informed that the entire cargo of caustic soda on board...