United States District Court,

D. Utah,

Central Division.

BULLOCKS EXPRESS TRANSPORTATION, INC. Plaintiff,

v.

XL SPECIALTY INSURANCE COMPANY fka INTERCARGO INSURANCE COMPANY, et al,

Defendants.

ORDER AND MEMORANDUM OPINION GRANTING BULLOCKS EXPRESS TRANSPORTATION, INC.’S

MOTION FOR PARTIAL SUMMARY JUDGMENT

CASSELL, District J.

This case is before the court on Bullocks Express Transportation, Inc.’s Motion for Partial Summary Judgment. The sole issue before the court is whether Bullocks Express effectively limited its liability to $5.00 per pound of a stolen shipment of palm pilots.

BACKGROUND

Bullocks Express is a motor carrier providing interstate transportation of cargo for hire. Skyway Freight Systems, now bankrupt, was a domestic and international air freight and surface freight forwarder. On May 26, 1998, Bullocks Express and Skyway Freight Systems entered into an agreement entitled LTL Contract Agreement (hereinafter “LTL Agreement”). LTL is a shipping term and is shorthand for “less than truckload.” The provisions of the LTL Agreement relevant to this motion provide:

NOW THEREFORE, the parties hereto hereby mutually agree as follows:

1. TRANSPORTATION SERVICES

Vendor [hereinafter Bullocks] agrees to provide Skyway with transportation services consisting of pickup, transfer, transport, break-bulk and delivery at such times and place as may from time to time be required by Skyway or any authorized agent of Skyway ….

2. PERFORMANCE OF SERVICES

In performing services under this Agreement, [Bullocks] will direct the operation of all equipment in all respects and will determine the method, means and manner of performance … In handling shipments provided by Skyway, [Bullocks] shall be bound by Skyway’s tariffs to the extent applicable relating to the delay, loss of, or damage to, shipments while in [Bullocks’] possession ….

4. ADDITIONAL SERVICES

Services not defined in this Agreement and attached schedules will be agreed upon by the parties prior to work being performed, in writing ….

5. VENDOR PERFORMANCE AND RESPONSIBILITIES

[Bullocks] and its employees must be fully knowledgeable about Skyway’s services and documentation. [Bullocks] and its employees must abide by requirements and policies as outlined in Skyway’s “Vendor Operating Policies”, Schedule A.

13. VENDOR’S GENERAL AND INDEMNITY TO SKYWAY

[Bullocks] covenants and agrees to fully defend, protect, indemnify and hold harmless Skyway, its employees, and its agents from and against each and every claim, demand, or cause of action and any liability cost, expense (including but not limited to attorney’s fees and expense incurred in defense of Skyway), damage, or loss in connection therewith, which may be made or asserted by [Bullocks], [Bullocks’] employees or agents, sub-Vendors, or any third party resulting from:

(a) Injury to or death of persons, loss or destruction of or damage or delay to property, including the conversion thereof caused by, or resulting in any manner, from any acts or omissions negligent or otherwise, of [Bullocks] or any of [Bullocks’] agents, servants, or employees, in performing or failing to perform, or otherwise arising out of or in connection with, any of the services or duties of [Bullocks] to be performed under this Agreement ….

(d) Theft, embezzlement or defalcation on the part of [Bullocks], or any of [Bullocks’] agents or employees ….

16. VENDOR’S LIABILITY FOR FREIGHT

[Bullocks’] liability for freight handled hereunder, while in possession of [Bullocks], shall be that of an insurer and the records of Skyway as to condition of freight when tendered to [Bullocks] by Skyway or when Skyway shall receive freight from [Bullocks] shall be conclusive as between the parties hereto. [Bullocks] shall be liable to Skyway for any and all delays or losses of or damage to property transported for Skyway or its customers under the Agreement, while such property is in the possession of [Bullocks], to the same extent that Skyway may be liable. If [Bullocks] is found to be guilty of severe negligence as defined in the Schedule A of this document or if losses occur due to theft by [Bullocks’] employees or their agents, [Bullocks] shall be liable for the full invoice value of the products.

The agreement is signed by Bruce Bullocks, President of Bullocks’ Express, and Jason Stefanides, Manager of Skyway Freight Systems.

The relevant portions of the Schedule A attached to the LTL Agreement provide:

10. Declaration of Value

[Bullocks’] liability for loss of or damage to all or any part of a shipment will be:

(a) Truck (TK) and Express Truck (XT) shipments–Released to a valuation not exceeding $5.00 per pound per package and to include all applicable freight charges ….

(c) The above valuations will apply other than the exception where a higher value is declared on the Skyway bill of lading at the time of receipt of the shipment. [Bullocks] must have prior approval from Skyway before accepting shipments having a declared value of $25,000.00 or more.

15. Security

(a) [Bullocks’] is required to take all precautions to insure the security of Skyway’s freight.

(b) Freight is to be staged in such a manner and location to keep it free from possible pilferage and theft.

(c) Freight and Vehicle must be secured in such a manner as to keep free from theft and damage whenever driver is not in attendance ….

16. Severe Negligence

Severe negligence is defined as lacking or exhibiting a general lack of due care or concern, or omission or neglect of reasonable care, precaution, or action, in relation to the safety well-being and delivery of Skyway’s entrusted freight, including failing to comply with Skyway policies on locking and securing vehicles and facilities. Severe negligence also includes but not limited to [sic] theft, robbery, pilferage of freight by the vendor, its agents or employees.

On October 4, 1999, Skyway entered into an agreement with 3COM Corporation for the transportation of 3COM products. The cargo consisted of about 4,300 palm pilots. In its agreement with Skyway, 3COM set forth the security measures it expected of Skyway and third parties hired by Skyway. These security measures required storing the cargo in trailers parked in secured yards. Suggested security precautions included the use of pin locks and paddle locks on trailer doors. The palm pilots were to be shipped from Salt Lake City, Utah to four different locations according to the four Skyway bills of lading governing the transportation.

In each of these four Skyway bills of lading, Skyway declared the value of the goods to be “$0.00.” In what is known as a “released value” provision, each of the bills of lading provide: “DECLARED VALUE. Unless a higher value is declare hereon, the agreed or declared value of the property is hereby stated by the shipper to be not exceeding $5.00 per pound per article ….” The bills of lading also provide:

Limit of Liability: Skyway Freight Systems’ liability shall be limited to the lowest of the following: (a) The declared value of the shipment as shown on the shipping document or Skyway bill of lading. (b) The actual value of the shipment at the destination named on the shipping document or Skyway bill of lading. (c) The amount of any loss or damage actually sustained.

The cargo was located at Skyway’s facility in Salt Lake City. Pursuant to an agreement with Bullocks, on November 26, 1999 a Bullocks’ short-haul driver picked up the cargo from Skyway’s consolidation center and took it to Bullocks’ yard. The bill of lading for the shipment was prepared by Skyway. According to the bill of lading the cargo weighed 15,813 pounds. The bill of lading further states:

[E]very service to be performed hereunder shall be subject to all the terms and conditions of the Uniform Bill of Lading set forth in the National Motor Freight Classification 100-X and successive issues. The shipper hereby certifies that he is familiar with all the terms and conditions of the said bill of lading, including those on the back thereof, and the said terms and conditions are hereby agreed to by the shipper and accepted for himself and his assigns.

Like the LTL Agreement, the bill of lading also contains a released value provision. It states: “Where the rate is dependent on value, shippers are required to state specifically in writing the agreed or declared value of the property as follows: The agreed or declared value of the property is specifically stated by the shipper to be not exceeding _______________ per _______________.” It is uncontested that although Skyway prepared the bill of lading, the declared value was left blank.

The bill of lading also provides:

[W]here a lower value than the actual value of the said property has been stated in writing by the shipper or has been agreed upon in writing as the release value of the property as determined by the classification or tariffs upon which the rate is based, such lower value plus freight charges if paid shall be the maximum recoverable amount for loss or damage, whether or not such loss or damage occurs from negligence.

Finally, the NMFC 100-X and successive issues, which the bill of lading states will govern the parties, provides:

The released or declared value of the property must be entered on the shipping order and bill of lading at time of shipment in the following form: “The agreed or declared value of the property is hereby specifically stated by the shipper to be not exceeding _______________ per pound.” If the shipper fails or declines to execute the above statement or designates a value exceeding $25.00 per pound, shipment will not be accepted, but if shipment is inadvertently accepted, it will be considered as being released to a value of $5.00 per pound and the shipment will move subject to such limitation of liability.

Bullocks and Skyway were both members of the National Motor Freight Classification (“NMFC”) 100-X, 100-Y, and successive issues. Bullocks maintained a copy of these tariffs which were available upon request.

Bullocks’ concedes that the cargo was stolen at some point during the one-hour span between the time Bullocks’ short-haul driver picked up the load and the time Bullocks’ long-haul driver arrived at the yard to begin the shipment to Carrolton, Texas. The issue before the court is whether the LTL Agreement applies to this transaction and, if so, whether the severe negligence clause in the LTL Agreement is preempted by the release value provision in the Bullocks bill of lading.

United States District Court,

N.D. Illinois, Eastern Division.

NIPPON EXPRESS U.S.A. (ILLINOIS), INC., Plaintiff,

v.

MITSUI SUMITOMO INSURANCE CO., LTD.; Hanjin Shipping Co., Ltd.; Norfolk

Southern Railway Co.; Omni Rail International, Inc.; and Jam Trucking, Inc.,

Defendants.

Aug. 10, 2004.

MEMORANDUM OPINION AND ORDER

KENNELLY, J.

In September 2002, Sony Computer Entertainment, Inc. contracted with Nippon Express U.S.A. (Illinois), Inc., a non-vessel-owning common carrier, to transport a quantity of Sony PlayStation games from Tokyo, Japan to Bolingbrook, Illinois. The PlayStation games were contained in 8,424 cartons which in turn were placed into nine forty-foot long containers for shipping. Nippon contracted with defendant Hanjin Shipping Co., a vessel-owning common carrier, to transport the goods to a container yard in Chicago, Illinois. Hanjin transported the containers by seagoing vessel to Tacoma, Washington, and from there, they were carried by the Burlington Northern Santa Fe Railroad to Chicago, where they were placed in a yard owned by defendant Norfolk and Southern Railway Company. One of the containers was later discovered to be missing from the yard, the gate to which allegedly was controlled by defendant Omni Rail Intermodal, Inc. The container was later found, but the PlayStation games it had contained were not recovered.

Sony had contracted with defendant Mitsui Sumitomo Insurance Co. to insure the goods during shipment. Mitsui paid Sony’s claim and demanded that Nippon pay $478,348, said to be the value of the lost PlayStation games. Nippon then commenced this action, seeking a declaration of non-liability or in the alternative indemnity or contribution, naming as defendants the other entities involved in the shipment as well as Mitsui. Hanjin and Nippon have both moved for partial summary judgment, arguing that their liability is limited to $500 based on the terms of the bills of lading that each issued. Both motions require consideration of the terms and effect of the Carriage of Goods at Sea Act (COGSA), 46 U.S.C.App. § 1301 et seq. For the reasons stated below, the Court denies both motions.

Discussion

Nippon’s bill of lading stated that “[e]xcept as otherwise provided herein, … this Bill of Lading shall have effect subject to the provisions of … [COGSA], which is incorporated herein and made a part hereof….” Nippon Summ. Judg. Mot., Ex. B, ¶ 3.1. It stated that Nippon would be liable for loss of or damage to the goods occurring between the time it received them and the time it delivered them at the place of delivery, namely Bolingbrook. Id., ¶ 7.1. The bill of lading also stated, however, that “[c]ompensation shall not … exceed U.S. $500.00 per container, package or unit unless with the consent of [Nippon], [Sony] has declared a higher value for the goods …,” id., ¶ 8.2(a), which Sony did not do. The bill of lading defined “container, package or unit” as follows: “[w]here a container, pallet or similar article of transport is used to consolidate goods, the number of packages or units enumerated in this Bill of Lading as packed in such article of transport shall be deemed the number of packages or units for the purpose of this package or unit. Except as aforesaid such article of transport shall be considered the package or unit.” Id., ¶ 8.2(b).

The first page of Nippon’s bill of lading contained spaces to fill in, among other things, the “No. of Pkgs. or Containers.” The bill of lading was completed in such a way that the information did not line up directly within the space provided, but the following information is contained at least partly in that particular space:

9 CONTAINERS

———————

8424 CARTONS

* * * * * * * * * * * * *

(40′ H/C x 9 CONTAINERS)

‘FREIGHT COLLECT AS ARRANGED’

SAY: NINE (9) CONTAINERS ONLY.

1.

Hanjin issued Nippon a waybill covering Hanjin’s portion of the shipment. The waybill stated that it was subject to the terms of Hanjin’s standard bill of lading, a copy of which could be obtained from Hanjin’s office. See Hanjin Summ. Judg. Mot., Ex. B, “Conditions of Carriage,” ¶ 1. The waybill went on to state that it was subject to the “Hague Rules” unless the country of shipment had enacted no such rules and there was “corresponding legislation” in the country of destination, in which case that legislation would apply. Id.

Hanjin’s bill of lading provided that “the applicable Hague / Visby / COGSA legislation shall govern throughout the time when the Goods are in the actual or constructive custody of the Carrier.” Hanjin Summ. Judg. Mot., Ex. C, ¶ 2. It stated that “[d]amage shall, in all events, be limited in accordance with the applicable Hague / Visby / COGSA legislation,” and that “[u]nless the nature and value of the Goods have been declared in writing by the Merchant before shipment and inserted in this bill of lading …, [w]here U.S. COGSA applies, the Carrier shall in no event be or become liable for any loss of damage to … the Goods in an amount exceeding U.S. dollars 500 per package….” Id., ¶ 16. The Hanjin bill of lading defined “package” as “the single largest unit of Goods (e.g., container, pallet, box, bale) delivered by Merchant to Carrier for carriage pursuant to the terms of this Bill of Lading.” Id., ¶ 1(g). The Hanjin waybill listed “8,424 CTNS” in the column identifying the “No. of Pkgs. or Containers,” though on a different section of the waybill it stated “NINE (9) CONTAINERS ONLY” in a section listing the “Total No. of Packages or Containers (in works).” Hanjin Summ. Judg. Mot., Ex. B.

COGSA, like both bills of lading in this case, imposes a $500 per-package limitation on the liability of a carrier. See id. § 1304(5). But under COGSA, if, as in this case, a bill of lading discloses on its face the number of units or packages inside the container, and those units or packages reasonably may be considered COGSA packages, then the packages inside the container are considered to be the packages for purposes of the $500 per-package limitation. See, e.g., Monica Textile Corp. v. S.S. Tana, 952 F.2d 636, 639 (2d Cir.1991); Hayes-Leger Assocs., Inc. v. M/V Oriental Knight, 765 F.2d 1076, 1080 (11th Cir.1985); Int’l Adjusters, Inc. v. Korean Wonis-Son, 682 F.Supp. 383, 386 (N.D.Ill.1988). This “clear rule” applies even if the carrier’s bill of lading purports to define the package as the container itself, unless the bill of lading contains “explicit and unequivocal” terms making it clear the parties agreed to that definition. Monica Textile, 952 F.2d at 642. But that exception to the rule “is more apparent than real.” Id. When a bill of lading refers to both containers and other units susceptible of being considered as packages, it is “inherently ambiguous,” and the ambiguity found in what Monica Textile characterizes as “unbargained-for boilerplate” is resolved against the carrier (that is, against considering the container as the COGSA package). Id. at 642, 643. In Monica Textile, the Second Circuit held that a definition of “package” that is effectively indistinguishable from the one found in Nippon’s bill of lading was insufficient to make the container the package for purposes of COGSA. Id. at 642-43. In short, if COGSA applied by its own terms in this case, the relevant number of packages for purposes of the $500 per-package limitation in Nippon’s bill of lading would be 8,424 packages, rather than one package as Nippon argues.

But COGSA does not apply by its own terms in this case. The statute governs the period between the loading of the goods onto the ocean vessel and the discharge of the goods from the vessel. 46 U.S.C.App. § 1301(e). In this case, the loss occurred after the goods were discharged from Hanjin’s ship. The Court must determine whether this renders the Monica Textile analysis inapplicable.

When a bill of lading contains an express statement that it is subject to COGSA, it is subject to COGSA’s terms “as if subject hereto by the express provisions” of COGSA. Id. § 1312. Mitsui argues that this means that the COGSA-supplied definition of “package,” as discussed above, applies in this case. The Eleventh Circuit has so held. In Groupe Chegaray / V. de Chalus v. P & O Containers, 251 F.3d 1359, 1364 (11th Cir.2001), the court held that when a bill of lading incorporates COGSA as “paramount throughout” the time the goods are in the shipper’s custody (as is the case here), COGSA’s definition of “package” applies. By contrast, Nippon and Hanjin argue that when COGSA is incorporated by reference into a contract, it is merely another contract term that is subject to modification or alteration by other contract terms. That, is appears, is the view of the Fourth and Second Circuits. See Commonwealth Petrochemicals, Inc. v. S/S Puerto Rico, 607 F.2d 322, 325-27 (4th Cir.1979); Pannell v. United States Lines Co., 263 F.2d 497, 498 (2d Cir.1959) (discussed in Commonwealth Petrochemicals ).

The Court does not find Commonwealth Petrochemicals persuasive. COGSA says that where parties agree that they will be governed by COGSA’s terms before loading or after discharge, their bill of lading is “subjected [to COGSA] as fully as if subject [t]hereto by the express provisions” of the statute. 46 U.S.C.App. § 1312. The plain meaning of this statutory provision is that COGSA applies the same way irrespective of whether it applies by its own terms or by private agreement. This construction of the statute “foster[s] predictability in this nettlesome area of the law.” See Monica Textile, 952 F.2d at 643. In the Court’s view, it would not make a great deal of sense to have COGSA apply one way when the goods are first turned over to the carrier before loading on the ship, a different way under the same bill of lading while the ship is at sea, and then back to the first way once the ship arrives at its destination and the goods are unloaded. The Court therefore agrees with the Eleventh Circuit that COGSA’s definition of “package” applies to Nippon’s bill of lading. Because the bill of lading specifically disclosed that the container contained a larger number of items that reasonably could be considered packages, the $500 per-package limitation stated on Nippon’s bill of lading applies to that larger number of packages, not to the container as a whole.

The Court reaches the same conclusion regarding Hanjin’s bill of lading. The attempt to define the package as the container was clearer in Hanjin’s bill of lading than it was on Nippon’s. But Hanjin did not actually issue a bill of lading in this case; rather it issued only a waybill that said it was subject to its standard bill of lading, which though available elsewhere was apparently not provided to Nippon and certainly not to Sony. The waybill provided, without limitation, that it was subject to COGSA, and like Nippon’s bill of lading it identified both the number of cartons (8,424) and the number of containers (9) under the heading “package.” It therefore had the type of ambiguity that, under Monica Textile, calls for application of the general rule that the container is not the COGSA package when the shipping document discloses on its face a larger number of packages. [FN1] The fact that Hanjin had set forth a different definition in a separate document that was not even provided in connection with the shipment is insufficient to give rise to an exception to the general rule; ” ‘[a]llowing the carrier … to insert an essentially unbargained-for definition of ‘package’ in the bill of lading would effectively eliminate the protection COGSA was meant to afford shippers.” ‘ Monica Textile, 952 F.2d at 643 (quoting St. Paul Fire & Marine Ins. Co. v. SeaLand Serv., Inc., 735 F.Supp. 129, 132 (S.D.N.Y.1990)). See also Int’l Adjusters, 682 F.Supp. at 386 (“international uniformity is best achieved by the approach … that generally a container supplied by the carrier is not a COGSA package if its contents and the number of packages or units is disclosed” ‘; quoting Mitsui & Co. v. American Expert Lines, Inc., 636 F.2d 807, 821 (2d Cir.1981) (Friendly, J.)).

FN1. As noted earlier, the waybill’s terms made it clear that COGSA applied to the shipment.

Conclusion

For the reasons stated above, the Court denies the motions of Nippon Express U.S.A. (Illinois) Inc. and Hanjin Shipping Co., Ltd. for partial summary judgment [docket # 34-1, 40-1]. Hanjin’s motion for protective order and to strike certain points from Nippon’s memorandum [docket # 48-1 & 2] is terminated as moot. The Court previously granted Hanjin’s motion to supplement its argument [docket # 39-1], so that motion is also terminated. The case is set for a status hearing on August 16, 2004 at 9:30 a.m. for the purpose of setting a trial date and discussing the possibility of settlement. Trial counsel are directed to appear.