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INDEMNITY INS. CO. OF N. AM. v. HANJIN SHIPPING CO.

June 14, 2002

INDEMNITY INSURANCE COMPANY OF NORTH AMERICA, AS SUBROGEE OF LOWE'S COMPANIES, INC., PLAINTIFF, VS. HANJIN SHIPPING COMPANY; FRITZ COMPANIES, INC.; O'HARE SERVICES; AND CHANNEL DISTRIBUTION, DEFENDANTS.


The opinion of the court was delivered by: Charles R. Norgle, District Judge

  FINDINGS OF FACT AND CONCLUSIONS OF LAW

The court has conducted a bench trial in this matter. What follows constitutes the court's findings of fact and conclusions of law, in accordance with Federal Rule of Civil Procedure 52(a). To the extent that a finding of fact as stated may be considered a conclusion of law, it shall be considered as a conclusion of law. Similarly, to the extent that a conclusion of law as stated may be considered a finding of fact, it shall be considered as a finding of fact. See Allergy Asthma Tech., Ltd. v. I Can Breathe, Inc., 195 F. Supp.2d 1059, 1061 (N.D.Ill. 2002). For the following reasons, the court enters judgment in favor of Plaintiff against Defendant Hanjin Shipping Company in the amount of $236,032.71.

I. FINDINGS OF FACT

This case arose out of the loss of a cargo of power tools that were shipped from China to the United States. The court begins with a list of parties to the lawsuit and a brief description of their roles. Plaintiff is Indemnity Insurance Company of North America ("Indemnity"). Indemnity insured the shipment and paid the consignee of the shipment, Lowe's Company*fn1, $236,032.71 for the loss. Defendant Hanjin Shipping Company was the ocean carrier, and issued a through bill of lading to transport the shipment from Shenzhen, China to Lowe's facility in North Vernon, Indiana. Defendant Fritz Companies acted as the Customs Broker for the shipment. Defendants O'Hare Services and Channel Distribution contracted with the United States Customs Service to provide a "Centralized Examination Station*fn2," where the Customs Service performed an intensive examination of the cargo.

The events took place during the summer of 1999. Lowe's purchased the power tools from Black & Decker, and hired Hanjin to transport the tools from China to the United States. On July 13 & 14, 1999, Hanjin issued a waybill and a bill of lading*fn3 to transport one 40' shipping container containing the tools. Per the waybill and bill of lading, Hanjin agreed to carry the container from Shenzhen, China to North Vernon, Indiana.

The plan was for the container to be carried via ocean vessel to Long Beach, California, then railed to Chicago, and delivered by motor carriage to the destination in North Vernon, Indiana. On August 4, 1999, the U.S. Customs Service informed Fritz Companies that the container and its contents would be subject to an intensive Customs examination upon arrival in Chicago. A couple of days later, Fritz made advance arrangements with Hanjin and a local motor carrier to have the container delivered to O'Hare Services/Channel Distribution for the Customs examination.

The goods arrived in Chicago on August 10, 1999. Thereafter, the U.S. Customs Service issued a permit for the container to be transported to O'Hare Services for the examination. The container was taken to O'Hare Services, and the Customs examination took place on August 26, 1999. After Customs completed its examination, it notified both Fritz and Hanjin that the container and its contents were released and ready to be picked up. For several days thereafter, the container remained in a lot at O'Hare Services/Channel Distribution.

On September 3, 1999 a "Yard Check Report" at O'Hare Services/Channel Distribution showed that the container was in the lot at O'Hare Services. However, on September 10, 1999, it was discovered that the container was missing. The container was found a short time later, but the contents were gone.

Indemnity paid Lowe's for the loss and then filed this suit. Indemnity alleged the following eight counts: (I) a claim under the Carriage of Goods by Sea Act ("COGSA") against Hanjin; (II) a claim under the Carmack Amendment against Fritz; (III) a common law bailment claim against O'Hare Services; (IV) a common law negligence claim against O'Hare Services; (V) a common law bailment claim against Channel Distribution; (VI) a common law negligence claim against Channel Distribution; (VII) a Carmack Amendment/federal common law claim against Hanjin; and (VIII) a Carmack Amendment claim against O'Hare Services.

Prior to trial, Indemnity voluntarily dismissed its claim against Fritz. At the close of Indemnity's case, O'Hare Services and Channel Distribution made an oral motion for judgment as a matter of law. The court granted that motion from the bench for the reasons stated in open court. Thus, what remains are Indemnity's claims against Hanjin under COGSA, the Carmack Amendment, and federal common law.

Indemnity and Hanjin have each submitted proposed findings of fact and conclusions of law. Indemnity takes the position that COGSA does not apply because COGSA by its terms does not govern losses that occur during inland transportation. Indemnity asserts that Hanjin is liable under the Carmack Amendment and federal common law. Hanjin takes the position that COGSA applies to the inland transit of the cargo because of a "clause paramount" in the waybill and bill of lading. According to Hanjin, technical defenses under COGSA relieve it from liability.

II. CONCLUSIONS OF LAW

This case is simple on its facts, but presents legal questions that are quite complex. A preface is necessary on the state of the transportation industry and its governing laws. In recent years, the transportation industry has undergone a fundamental transformation due to the proliferation of shipping containers. Shipping containers are structural boxes that adapt easily to multiple modes of transportation, such as ocean vessel, rail, and motor carriage. Persons using containers enjoy the economy that comes from having cargo loaded into a container at its origin, and then remaining (hopefully) undisturbed in the container until arrival at destination. With the use of a container, there is no need to re-stow cargo from ship to train to truck. Instead, the cargo is loaded once into the container at its origin and then unloaded once from the container once at its destination, and the interim transportation is much more efficient than earlier transportation methods. The industry term for such transportation is "multi-modal" or "intermodal." See e.g. Tokio Marine and Fire Ins. Co., Ltd. v. Amato Motors, Inc., No. 90 C 4823, 1995 WL 493434 at *1 n. 3 (N.D.Ill. Aug. 15, 1995).

To a certain extent, the law has not kept pace with the industry. Prior to the advent of containers, international cargo was handled more or less piecemeal by the ocean carrier and inland carriers. It was not unusual for a shipper to enter into separate contracts with each of the carriers, and the law developed to reflect that type of segmented transit. For example, COGSA governs the rights and liabilities of the parties while the goods are aboard a ship. 46 U.S.C. § 1301(e). The Harter Act is another maritime statute that dovetails with COGSA and governs, inter alia, a certain portion of carriage after discharge from an ocean vessel. See generally Mannesman Demag Corp. v. M/V CONCERT EXPRESS, 225 F.3d 587, 591-95 (5th Cir. 2000). The Carmack Amendment governs surface transportation such as rail and motor carriage, as well as domestic water carriage. 49 U.S.C. § 13501 et seq.; Capitol Converting Equip., Inc. v. LEP Transport, Inc., 965 F.2d 391, 393-96 (7th Cir. 1992).

Increased use of containers has led to a corresponding increase in the use of "through bills of lading." A through bill of lading is a contract of carriage that governs the entire transport of cargo from its origin to destination. See Capitol Converting Equip., Inc., 965 F.2d at 393-96; King Ocean Central America v. Precision Cutting Servs., Inc., 717 So.2d 507, 509-10 (Fla. 1998). A problem arises when an ocean carrier issues a foreign through bill of lading for goods imported into the United States, because there is no federal statute that governs the liability of the ocean carrier. That gap in statutory coverage creates jurisdictional and choice of law issues for federal courts.

A. Jurisdiction:

Indemnity asserts that the court has jurisdiction under: (1) 28 U.S.C. § 1333, the court's admiralty and maritime jurisdiction; (2) 28 U.S.C. § 1337, which governs certain claims arising under federal statutes regulating interstate commerce; and (3) 28 U.S.C. § 1367, the court's supplemental jurisdiction. The parties do not attempt to invoke the court's diversity jurisdiction, and there is nothing in the record to demonstrate that the parties are of diverse citizenship.

1. Admiralty Jurisdiction:

As will be discussed in greater detail below, this is a contract case, with the contract being the through bill of lading. Federal admiralty jurisdiction encompasses contracts that "`have reference to maritime service or maritime transactions.'" Continental Cas. Co. v. Anderson Excavating & Wrecking, 189 F.3d 512, 517 (7th Cir. 1999) (quoting North Pacific S.S. Co. v. Hall Bros. Marine Ry. & Shipbuilding Co., 249 U.S. 119, 125 (1919)). This jurisdiction is limited to contracts that are "wholly maritime." Hartford Fire v. Orient Overseas Container ...


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