Court of Appeal of Louisiana,First Circuit.

Sam COLLINS and Barbara Collins, Individually and as Representatives for Their Interdicted Son, Shane Collins; Richard Jackson; Nutmeg Insurance Company; and Twin City Fire Insurance Company

v.

STAR INSURANCE COMPANY; Fleming & Hall Administrators, Inc.; Breazeale, Sachse & Wilson, L.L.P.

No. 2005 CA 0014.

 

Sept. 1, 2006.

 

Before PARRO, MCDONALD, and HUGHES, JJ.

HUGHES, J.

This appeal challenges the dismissal, on the basis of peremption, of claims for legal malpractice arising out of tort suits for damages resulting from a vehicular collision. For the reasons that follow, we affirm.

 

 

FACTS AND PROCEDURAL HISTORY

 

The vehicular collision giving rise to the tort suits at issue occurred on January 4, 2000, when an eighteen-wheeler owned by Mike’s Trucking Company, Inc. (Mike’s Trucking)  and driven by Dwight Daigle rear-ended a truck owned by Dixie Electric Membership Cooperative (DEMCO) and occupied by two DEMCO employees, Shane Collins and Richard Jackson. Mr. Collins and Mr. Jackson suffered serious injuries as a result of the accident.

 

 

The sole shareholders of Mike’s Trucking were Michael and Dianne Chauffe.

 

At the time of the accident, Mike’s Trucking had liability insurance through Star Insurance Company (Star) with a $1 million policy limit, which also provided for the payment of judicial interest and court costs. DEMCO had UM coverage through Nutmeg Insurance Company (Nutmeg) and Twin City Fire Insurance Company (Twin City), with aggregate policy limits of $20 million.

 

Tort actions were filed by Mr. Collins (along with his parents, Sam and Barbara Collins) and Mr. Jackson against Dwight Daigle, Mike’s Trucking, and their insurer, Star, as well as against DEMCO’s UM carriers, Nutmeg and Twin City. During the course of that litigation, Mr. Daigle, Mike’s Trucking, and Star were provided legal representation by Breazeale, Sachse & Wilson, L.L.P.  (BSW).

 

A tentative settlement agreement was reached between the tort plaintiffs and the tort defendants for Star’s policy limits in the Fall of 2001, but was not finalized. On the scheduled trial date in that case, January 22, 2002, and following allegations of a conflict of interest between BSW and the tort defendants, BSW withdrew as legal counsel in the case, and the trial was continued in order for the defendants to secure alternative representation. Thereafter, on March 24, 2003, a jury trial was commenced on the Collins tort claim and a judgment was rendered for damages in the amount of $16,555,000.00. It was stipulated that Mr. Jackson’s damages were $1.2 million.

 

 

Liability was not disputed; only the terms of the settlement agreement were in contention.

 

Prior to the March 2003 jury trial, Shane Collins (along with his parents, Sam and Barbara Collins) and Richard Jackson signed a compromise agreement with DEMCO’s UM carriers for $10 million and for $1.2 million, respectively. In August of 2003, plaintiffs also released Dwight Daigle and Mike’s Trucking, in exchange for an assignment by those defendants to plaintiffs and the UM carriers of any claims Mr. Daigle and Mike’s Trucking had against third parties for malpractice and/or bad faith failure to settle the claims.

 

The instant suit was thereafter filed on October 29, 2003 by: Sam and Barbara Collins, individually, and as representatives of their interdicted son, Shane Collins; Richard Jackson; Nutmeg; and Twin City. Named as defendants were: BSW, Star, and Star’s administrator, Fleming & Hall Administrators, Inc. (Fleming).

 

In this suit, plaintiffs allege that BSW committed malpractice in its handling of the defense of the underlying tort action by continuing to represent the tortfeasors and Star despite a conflict of interest between these clients, failing to “aggressively” secure the release of the tortfeasors through settlement and instead “haggling” over settlement terms, and by failing to keep the tortfeasors fully informed of the extent of the tort victims’ injuries and “their willingness to settle for policy limits.” Plaintiffs further allege that Star and Fleming violated their obligations of good faith and fair dealing in failing to settle the claims promptly, thus exposing the insured tortfeasors to an excess judgment. Star and Fleming were also alleged to have been in bad faith in failing to keep the insured tortfeasors apprised of the progress of the tort suits, in failing to adequately protect the interests of the insured tortfeasor, in failing to properly adjust and settle the claims, and in favoring their own interests over that of the insured tortfeasors. The defendants were alleged to be liable for penalties and attorney’s fees under LSA-R.S. 22:658 and LSA-R.S. 22:1220, and for the amounts of the awards in the underlying tort actions, less the amounts previously paid by Star.

 

In its defense of the suit, BSW asserted exceptions of venue, peremption, prematurity, lack of procedural capacity, no right of action, no cause of action, and improper cumulation of actions. Star asserted cross-claims against Fleming and BSW for failure to timely forward information concerning the progress of the case, the extent of plaintiffs’ injuries, and details of settlement offers. Fleming asserted numerous exceptions and defenses to the action.

 

 

The suit was originally filed in Iberville Parish but was later transferred by agreement of the parties to East Baton Rouge Parish, and the exception as to venue was withdrawn. The exceptions as to prematurity, lack of procedural capacity, and improper joinder were also resolved and withdrawn.

 

Fleming’s exceptions of no cause of action as to plaintiffs’ claims under LSA-R.S. 22:658 and LSA-R.S. 22:1220 were sustained by the trial court and all claims arising out of those statutes were dismissed as to Fleming. Fleming’s exception of no right of action as to Star’s cross-claim that Star was a beneficiary of a stipulation pour autri in a contract between Fleming and Meadowbrook, Inc. was also sustained, dismissing that claim as to Fleming. Fleming’s remaining exceptions as to other causes of action asserted against it were denied. These rulings have not been raised as an issue in the appeals currently before this court.

 

Following a hearing on BSW’s exception of no cause of action, based on its claim of peremption, judgment was rendered by the trial court dismissing all of plaintiffs’ claims as to BSW. Plaintiffs appeal this judgment and assert the following assignments of error:

 

 

BSW’s claim of peremption as to Star’s cross-claim was also sustained by the trial court and Star’s cross-claim as to BSW was dismissed. Star has appealed that judgment to this court and our decision in that appeal is also rendered this date under Docket Number 2005 CA 0746.

 

I. The Trial Court erred by ruling that the insureds’ knowledge of a negative consequence (failure of the case to settle as planned) triggered the one year legal malpractice peremptive period even though the insureds were unaware of the negligent acts of their attorney that caused settlement negotiations to fail. Alternatively phrased, the Trial Court erred by ruling the claim had perempted when it did not find that plaintiffs’ predecessors-in-interest had acted unreasonably by not filing suit.

II. The Trial Court erred by refusing to compel production of [BSW]’s file from the underlying suit prior to conducting the evidentiary hearing on the peremption exception.

 

 

 

LAW & ANALYSIS

 

Peremption of Malpractice Claim

 

 

Plaintiffs/appellants contend that the applicable peremptive period did not begin to run until judgment was rendered in the underlying tort action on March 27, 2003, and therefore the assertion of its legal malpractice claim against BSW was timely filed in October 2003.

 

The time limitation for filing a legal malpractice action is set forth in LSA-R.S. 9:5605(A):

No action for damages against any attorney at law duly admitted to practice in this state, any partnership of such attorneys at law, or any professional corporation, company, organization, association, enterprise, or other commercial business or professional combination authorized by the laws of this state to engage in the practice of law, whether based upon tort, or breach of contract, or otherwise, arising out of an engagement to provide legal services shall be brought unless filed in a court of competent jurisdiction and proper venue within one year from the date of the alleged act, omission, or neglect, or within one year from the date that the alleged act, omission, or neglect is discovered or should have been discovered; however, even as to actions filed within one year from the date of such discovery, in all events such actions shall be filed at the latest within three years from the date of the alleged act, omission, or neglect.

 

 

Subsection B of this statute states that the one-year and three-year periods of limitation provided in Subsection A are both peremptive periods within the meaning of LSA-C.C. art. 3458. See also Robin v. Allstate Ins. Co., 2002-689 (La.App. 3 Cir. 2/5/03), 844 So.2d 41, writ denied, 2003-1818 (La.10/17/03), 855 So.2d 763; Dauterive Contractors, Inc. v. Landry and Watkins, 2001-1112 (La.App. 3 Cir. 3/13/02), 811 So.2d 1242; Broussard v. F.A. Richard & Assocs., Inc., 98-1167 (La.App. 3 Cir. 3/17/99), 732 So.2d 578, writ denied, 99-1048 (La.6/4/99), 744 So.2d 625. Subsection B of LSA-R.S. 9:5605 further states that in accordance with LSA-C.C. art. 3461, these peremptive periods cannot be renounced, interrupted, or suspended.

 

When a client’s legal malpractice claim is, on its face, time-barred by the accrual of the LSA-R.S. 9:5605 peremptive period, the burden of proof shifts to the client to show the claim has not perempted. See Waldrop v. Hurd, 39,855 (La.App. 2 Cir. 6/29/05), 907 So.2d 890; Seaux v. Doucet, 96-854 (La.App. 3 Cir. 12/11/96), 685 So.2d 537.

 

The one-year time limitation set forth in LSA-R.S. 9:5605 commences to run when a claimant knew or should have known of the existence of facts that would have enabled him to state a cause of action for legal malpractice.  Paternostro v. LaRocca, 2001-0333, p. 5 (La.App. 1 Cir. 3/28/02), 813 So.2d 630, 634. In determining when a claimant should have discovered a cause of action, the facts should be considered in light of a reasonable man standard. That is, a claimant who had knowledge of facts that would place a reasonable man on notice that malpractice may have been committed shall be held to have been subject to the commencement of peremption by virtue of such knowledge, even though he asserts a limited ability to comprehend and evaluate the facts. Id. The focus is on the appropriateness of the claimant’s actions or inactions. Carroll v. Wolfe, 98-1910, p. 6 (La.App. 1 Cir. 9/24/99), 754 So.2d 1038, 1041.

 

The peremptory period for malpractice can begin to run even when the client does not have actual knowledge of facts that would entitle him to bring a suit where there is constructive knowledge of same. Constructive knowledge is whatever notice is enough to excite attention and put an injured party on guard and call for inquiry. Such notice is tantamount to knowledge or notice of everything to which a reasonable inquiry may lead. Such information or knowledge as ought to reasonably put the alleged victim on inquiry is sufficient to start the running of the peremptive period. Atlas Iron and Metal Co. v. Ashy, 2005-458, p. 5 (La.App. 3 Cir. 1/4/06), 918 So.2d 1205, 1210, citing Campo v. Correa, 2001-2707, pp. 11-12 (La.6/21/02), 828 So.2d 502, 510-11.

 

The question in this case then becomes: when did the clients have knowledge sufficient to excite the attention of a reasonable man, putting that party on guard and calling for inquiry as to whether malpractice may have been committed?

 

In ruling that the malpractice action of the defendant tortfeasors was perempted prior to the filing of the instant suit, the trial judge found as follows:

I have determined … that the acts of which plaintiffs complain on the part of [BSW] occurred basically before, and no later than … January 22nd, 2001. And this suit was filed … in October of 2003….

What is at issue … is [sic] the other provisions of R.S. 9:5605, which state that a claim must be asserted within one year from the date of the alleged act, omission or neglect, or within one year from the date that the alleged act, omission or neglect is discovered or should have been discovered. And that is the difficult question in this case, when did the Chauffes, on behalf of Mike’s Trucking, and/or Mr. Daigle discover the alleged improper acts by [BSW], or when should they have discovered those acts?

 

 

 

… They obviously knew in November of 2001 that they faced an excess judgment and that settlement offers had been made which had not been communicated to them. They knew by January 7, 2002, that [plaintiffs’ attorney] was asserting that [BSW] had a conflict of interest in representing them and [Star]. By the morning of January 22, 2002, when the motion to enforce the settlement was denied, they knew that a possible settlement which would have dismissed them from the case was not consummated around Christmas of 2001. Also, by their own testimony, they were made aware on January 22, 2002, that [plaintiffs’ attorney] was asserting that the case had not settled because of the fault of [BSW]; and that [plaintiffs’ attorney] was looking for them to assign their rights against “third parties” as part of a new settlement offer. Mr. and Ms. Chauffe both admit that [BSW’s lead defense counsel] told them that the “third parties” referred to him and [BSW]….[The BSW attorneys] also testified that [BSW’s lead defense counsel]’s explanation went into much greater detail about the allegations.

 

 

 

… Mr. and Ms. Chauffe and Mr. Daigle … have no legal training or expertise and, to this day, do not know what is or is not malpractice. But as of January 22, 2002, they knew that they were in an excess judgment situation, that settlement offers had been made of which they were unaware, and that a settlement that would have gotten them out of this nightmare had been agreed upon but never consummated.

 

 

 

… [T]hey discovered or should have discovered the alleged acts, omission or neglect on that date, and the one year peremptive period under R.S. 9:5605 began to run on that date so that the suit filed in October of 2003 was untimely.

 

 

The factual findings of a trial court made in connection with a hearing on a claim of peremption are subject to the manifest error standard of review. If the findings are reasonable in light of the record reviewed in its entirety, an appellate court may not reverse even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently. Perez v. Trahant, 2000-2372, p. 7 (La.App. 1 Cir. 12/28/01), 806 So.2d 110, 116, writs denied, 2002-0847, 2002-0901 (La.8/30/02), 823 So.2d 953.

 

After a thorough review of the record presented on appeal of this matter, we are unable to say that the trial court’s factual findings on the issue of peremption are manifestly erroneous. The evidence presented during the hearing held in this matter presents a reasonable basis for the findings of the trial court.

 

The evidence in the record reflects that the Chauffes first gained knowledge of plaintiffs’ offer to settle on November 2, 2001 when, during their depositions, plaintiffs’ counsel asked the Chauffes if they were aware of the possibility of an excess judgment and of plaintiffs’ offer to settle for the policy limits. Upon being instructed by BSW to answer only to the extent of personal knowledge, Dianne Chauffe responded that she had received a letter from Star months earlier informing her that an excess judgment was a possibility and she understood that to mean that they would have to sell company assets to pay the judgment. Dianne Chauffe testified that, in a conversation with BSW attorneys following the depositions, they were informed that there had been a settlement offer but that there were problems with the offer.

 

BSW’s lead counsel testified he discussed with the Chauffes the nature of the offers. He stated that he also discussed with the Chauffes the potential for an excess judgment and what it would mean to Mike’s Trucking and them personally insofar as their assets were concerned. He also communicated to the Chauffes his opinion that the offer was an attempt by the plaintiffs’ attorney “to drive a wedge” between him and his clients but assured them that he would continue in his attempts to settle the matter. BSW’s lead counsel also testified that the settlement offer was problematic, primarily because of issues related to a workers’ compensation intervention and the fact that there were allegations regarding one of the tort plaintiff’s mental capacity. Since no interdiction had been accomplished at that time, BSW was negotiating for indemnification provisions to protect the settling parties in the event a settling plaintiff was later found to have been incompetent.

 

The testimony also shows that the Chauffes received information on January 7, 2002 concerning the status of the case, when BSW’s lead counsel spoke to Dianne Chauffe in a phone conversation, which he memorialized in a follow-up letter to the Chauffes. The letter, which was introduced into evidence, stated:

[P]laintiffs’ counsel is trying to suggest that there is a conflict of interest in my representation of Mr. Daigle, Mike’s Trucking and Star Insurance Company. I disagree with plaintiffs’ position; however, I feel that it is necessary to put you on notice of his allegation. Plaintiffs’ counsel has indicated a willingness to speak with you or your separate counsel if you have obtained separate counsel. If you have other counsel, please have him contact me so that I can bring him up-to-date on the issues involving [plaintiffs’ counsel] (Diane, I have spoken to Larry).

 

 

 

“Larry” was the Chauffes’ personal attorney.

 

BSW’s lead counsel further testified that the telephone conversation referenced in the letter addressed the issues in greater detail. In addition to what was included in the letter, he told Dianne Chauffe that the plaintiffs’ attorney was alleging that a breakdown in settlement negotiations was his fault. He offered to withdraw, but Dianne Chauffe stated to him that she was satisfied with his actions as her attorney. In her testimony, Dianne Chauffe was unable to recall the content of the phone conversation but testified that it caused her no concern as she had complete and total faith in BSW.

 

BSW’s final communication with the insured tortfeasors took place at the courthouse on January 22, 2002, the day scheduled for trial, when BSW’s lead counsel discussed with the insureds the firm’s need to withdraw from the case due to the conflict presented by the plaintiffs’ settlement proposal that day. When the parties arrived for trial on January 22, 2002, plaintiffs’ attorney presented a handwritten settlement proposal to BSW’s lead counsel. In that settlement proposal, Mike’s Trucking and Dwight Daigle were being asked to assign their rights to plaintiffs against “third parties” who allegedly had mishandled settlement negotiations. BSW’s lead counsel testified that he told his clients at the time the offer was received and was being reviewed that the reference to “third parties” meant himself and the BSW firm. He testified that during his talk with the insureds he informed them that the plaintiffs were alleging that BSW had mishandled the case and lost the opportunity to settle. During that conversation, BSW’s lead counsel testified that he related to them “in some detail” the settlement negotiations that had occurred leading up to December, 2001. He informed them that he could not ethically advise them as to the allegations that had been made but they should discuss it with new counsel. He assured them that he and his law firm had done everything they could to try to settle the case and had not, in his opinion, handled the case inappropriately as plaintiffs were alleging.

 

We take particular note of the fact that even though represented by BSW as to the tort suit, Mike’s Trucking, through the Chauffes, had available to them the advice of a personal attorney, and that attorney communicated with BSW on the status of the lawsuit until BSW withdrew from the case. Further, Mr. Daigle and Mike’s Trucking were provided with new counsel after BSW’s withdrawal, and this new counsel conferred with BSW in January 2002, as well as with his clients as to the foregoing legal proceedings by February, 2002. Moreover, the Chauffes knew that their personal attorney and their subsequent attorney in the tort litigation were aware of the allegations of conflict and mishandling and neither attorney recommended to the clients that they consider a malpractice claim.

 

Nevertheless, it is asserted that peremption did not begin to run on the malpractice claims of Mike’s Trucking and its employee, Mr. Daigle, until the March 2003 excess judgment was rendered. However, under LSA-R.S. 9:5605, whether damage has actually been sustained is not the criteria for evaluating a claim of peremption; rather, it is the date on which the injured client has or should have knowledge of the act of malpractice that begins the running of the one-year peremptive period.

 

In Reeder v. North, 97-0239 (La.10/21/97), 701 So.2d 1291, the supreme court specifically rejected prior jurisprudence holding that the peremptive period for malpractice does not begin to run until the facts ripen into a viable cause of action, noting that “[w]hile the terms of the legal malpractice statute of limitations statute may seem unfair in that a person’s claim may be extinguished before he realizes the full extent of his damages, the enactment of such a statute of limitations is exclusively a legislative prerogative.”  Id. at 1296. The supreme court determined that the legislature was “particularly clear” in wording LSA-R.S. 9:5605 “so as to leave no doubt as to its intent.” Id. at 1295.

 

This court in Kennedy v. Macaluso, 99-3016, pp. 5-6 (La.App. 1 Cir. 2/16/01), 791 So.2d 697, 700, writ denied, 2001-0691 (La.5/4/01), 791 So.2d 655, citing Reeder, specifically rejected the proposition that under LSA-R.S. 9:5605 “appreciable harm” flowing from the attorney’s negligent conduct is necessary to establish a cause of action upon which the client may sue, as previously held in Braud v. New England Ins. Co., 576 So.2d 466 (La.1991). Kennedy v. Macaluso distinguished Braud by pointing out that it was decided prior to the enactment of LSA-R.S. 9:5605. Kennedy v. Macaluso holds that the one-year peremptive period of LSA-R.S. 9:5605 begins to run on the date a plaintiff knows or should know of an attorney’s alleged wrongful conduct.  Kennedy v. Macaluso, 791 So.2d at 700-01.

 

Mike’s Trucking and Dwight Daigle knew or should have known of the facts on which any malpractice action against BSW would have been based, no later than January 22, 2002, when they discovered BSW was accused of wrongful handling of settlement negotiations. Consequently, we are unable to conclude that the trial court lacked a reasonable basis for finding that any malpractice action available to Mike’s Trucking and Dwight Daigle, arising out of BSW’s representation of them in the tort action at issue, was perempted prior to the filing of the October 2003 malpractice action. Furthermore, that finding was not manifestly erroneous.

 

 

The testimony of BSW’s lead counsel was uncontroverted that one cause for concern in completing the settlement from the defense standpoint was the fact that plaintiffs were asserting brain damage arising from the accident, yet no interdiction proceeding had been filed, and there was some question as to the plaintiffs’ capacity to contract a compromise. The record reflects that an interdiction proceeding was filed in the 21st Judicial District Court on November 27, 2001 as to Shane Collins, and that his parents were appointed as provisional curator and undercurator on December 27, 2001. However, evidence in the record reflects that plaintiffs’ counsel had made a written demand that settlement documents be signed and full payment be tendered by Friday, December 21, 2001, but verbally agreed to an extension until Wednesday, December 26, 2001. BSW attorneys testified that the settlement documents were prepared and submitted to plaintiffs’ counsel’s office on December 26, 2001, but that plaintiffs’ counsel would not return their phone calls on December 26, 2001 or thereafter. BSW attorneys further testified that on January 7, 2002, they appeared in the office of the trial judge on the tort action and solicited a telephone conference with plaintiffs’ counsel, during which plaintiffs’ counsel essentially refused to complete the settlement. The record further reflects that on January 17, 2002 the 21st Judicial District Court granted authority to Shane Collins’ curator to enter into a settlement with Nutmeg and Twin City for $10 million.

 

Discovery of Attorney’s File

 

Plaintiffs/appellants contend that the trial court erred in failing to order the production of BSW files, pursuant to a discovery request, prior to ruling on BSW’s exception of no cause of action raising the issue of peremption. While the motion to compel discovery was granted by the trial court on the day of the hearing of the claim of peremption, the documents were not produced until a later date. Plaintiffs/appellants contend the trial court should not have gone forward with the hearing on peremption without permitting them full discovery.

 

We agree with plaintiffs/appellants that an attorney’s records may be discoverable under LSA-C.C.P. art. 1424, and in accordance with this court’s rulings in Cousins v. State Farm Mutual Automobile Insurance Company, 258 So.2d 629, 635-36 (La.App. 1 Cir.1972), and the supreme court’s opinion in Hodges v. Southern Farm Bureau Casualty Insurance Company, 433 So.2d 125, 131-32 (La.1983). Further, BSW’s clients waived the attorney-client privilege with respect to the production of the requested documents.

 

 

Some “work product” cannot be discovered under LSA-C.C.P. art. 1424 unless denial of the discovery request will “unfairly prejudice” the party seeking the production. The “opinion work product” rule is distinct from and broader than the attorney-client privilege. Whereas the attorney-client privilege protects only confidential communications, the opinion work product doctrine may encompass any writing prepared in anticipation of litigation by the attorney. The purpose of the work product doctrine is not merely to assist the client in obtaining complete legal advice, but also to afford the attorney a “zone of privacy” within which he is free to evaluate and prepare his case without adversarial scrutiny. See Hodges v. Southern Farm Bureau Casualty Insurance Company, 433 So.2d at 131-32.

 

Plaintiffs/appellants contend in brief to this court that the BSW file and other documents sought in discovery “had pertinent information to the case [that] might well have illuminated what the insureds were told or not told about the case and may have impeached the [BSW] testimony at the hearing.” In response, BSW contends that the file has now been produced and plaintiffs/appellants have “failed to come forth with any evidence from the file which they claim would impeach” the BSW attorneys’ testimony. BSW claims that plaintiffs/appellants were not prejudiced by the failure of the trial court to compel the discovery prior to the hearing on peremption.

 

We note that plaintiffs did not file a motion for new trial subsequent to the trial court’s ruling, which dismissed BSW on the basis of peremption, in order to assert that new evidence bearing on the issue had been obtained upon production of the BSW file. Nor do plaintiffs/appellants cite to this court any way in which the outcome of the hearing on peremption would have been different if they had been in possession of the BSW file in advance of the hearing.

 

Upon careful consideration of this issue, we find that any error on the part of the trial court in failing to compel production of the BSW documents sought by plaintiffs/appellants prior to the hearing on peremption constituted harmless error.

 

 

CONCLUSION

 

For the reasons cited herein, we affirm the judgment of the trial court dismissing the plaintiffs/appellants’ claims for malpractice as to Breazeale, Sachse & Wilson, L.L.P. All costs of this appeal are assessed against plaintiffs/appellants, Sam and Barbara Collins, Richard Jackson, Nutmeg Insurance Company, and Twin City Fire Insurance Company.

 

AFFIRMED.

 

United States District Court,D. South Carolina,Charleston Division.

ATKINS MACHINERY, INC., Plaintiff,

v.

C.H. POWELL COMPANY, INC., and SSA Cooper, LLC, Defendants.

C.A. No.: 2:05-1633-23.

 

Sept. 5, 2006.

 

 

 

ORDER

PATRICK MICHAEL DUFFY, District Judge.

This matter is before the court upon Defendant SSA Cooper, LLC’s (“Cooper”) motion for partial summary judgment. For the reasons set forth herein, the court denies Defendant Cooper’s motion.

 

 

BACKGROUND

 

Plaintiff Atkins Machinery, Inc. (“Atkins”) is a corporation organized and existing under the laws of South Carolina with its principal place of business in Spartanburg, South Carolina. Atkins is in the business of purchasing, refurbishing, and reselling used textile machinery. Defendant C.H. Powell Company, Inc. (“Powell”) is a corporation organized and existing under the laws of the State of Delaware with its principal place of business in Westwood, Massachusetts. Powell is a licensed freight forwarder engaged in the business of arranging for the inland and ocean transport of cargo. Defendant Cooper is an entity organized and existing under the laws of Delaware with its principal place of business in Seattle, Washington, and a branch office in Charleston, South Carolina. Cooper is a wholly owned subsidiary of SSA Marine, Inc.; Cooper routinely contracts business by providing stevedoring services in the port of Charleston, South Carolina.

 

 

On August 1, 2006, this court filed an Order of Dismissal as to Defendant Powell.

 

On May 9, 2005 Plaintiff filed the present action in the Court of Common Pleas for Charleston County. Defendants removed the action to this court in June of 2005, asserting diversity jurisdiction, admiralty and maritime jurisdiction, and federal question jurisdiction. Specifically, this case involves the transport of a Schlafhorst SE-9 open end spinning frame (“textile machine”) from Plaintiff’s facility in Landis, North Carolina, to Indo-Thai Synthetics in Bangkok, Thailand.

 

In August of 2004, Plaintiff hired Powell to make arrangements for the transportation of the textile machine. Powell first arranged for International Bridge Transport to transport the machine from Plaintiff’s facility to the Wando Terminal at the Port of Charleston. Plaintiff asserts that the textile machine was received in good condition by International Bridge Transport at Plaintiff’s facility on August 9, 2004, and that it then was delivered to the Wando Terminal, Port of Charleston, in good condition. Second, Powell engaged D.M. Consol-Line to charter space aboard an American President Lines (“APL”) vessel, the M/V APL AMAZONITE. In turn, APL hired Defendant Cooper to perform stevedore services. Thus, when the textile machine was delivered to the Port of Charleston, in good condition, it was placed in the custody of Defendant Cooper.

 

According to Plaintiff, on August 13, 2004, while in the custody of Cooper and while attempting to load the container in preparation for transport aboard the APL AMAZONITE, employees of Cooper neglected to secure a container that contained various parts comprising approximately one-half of the textile machine. Because the container was not secured, the container tipped and fell on its side as the driver, who was attempting to move the container to the vessel, rounded a corner. Plaintiff asserts that Defendant Cooper then righted the container, without first inspecting the interior, thereby causing further and more extensive damage to the textile machine. The damaged container was not shipped to Thailand; however, Cooper loaded the remaining containers, included the container that contained the other half of the textile machine, and shipped them to Thailand pursuant to D.M. Consol-Line Bill of Lading no. 0040217116. Plaintiff asserts that the damage to the container tipped by Cooper rendered the other half of the textile machine unusable, and therefore, the textile machine was a constructive total loss. Based on the aforementioned facts, Plaintiff has asserted causes of action for breach of bailment and gross negligence or recklessness against Defendant Cooper.

 

 

Plaintiff’s complaint alleges causes of action against Powell for breach of bailment and breach of contract; however, as previously mentioned, this court filed an Order of Dismissal as to Defendant Powell on August 1, 2006.

 

On May 24, 2006, Defendant Cooper filed a motion for partial summary judgment on the grounds that its liability is limited to the $500.00 package limit contained in APL’s standard long-form bill of lading. Cooper states that although Atkins “utilized DM Consol-Line as its contract carrier for its shipment on August 13, 2004, the owner and operator of the vessel, APL, hired [Cooper] to load the vessel.” (Mot. at 1.) Plaintiff filed a memorandum in opposition to Defendant Cooper’s motion, arguing first that the D.M. Consol-Line bill of lading applies, not the APL bill of lading. Second, Plaintiff argues that even if the APL bill of lading applies, there is a genuine issue of material fact regarding the limitation amount. Defendant Cooper filed a reply to Plaintiff’s memorandum, reasserting its position and arguing that there is no genuine issue of material fact regarding the limitation amount.

 

 

STANDARD OF REVIEW

 

To grant a motion for summary judgment, the court must find that “there is no genuine issue as to any material fact.” Fed.R.Civ.P. 56(c). The judge is not to weigh the evidence but rather to determine if there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). All evidence should be viewed in the light most favorable to the non-moving party.  Perini Corp. v. Perini Constr., Inc., 915 F.2d 121, 123-24 (4th Cir.1990).  “[W]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, disposition by summary judgment is appropriate.”  Teamsters Joint Council No. 83 v. Centra, Inc., 947 F.2d 115, 119 (4th Cir.1991). “[T]he plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party’s case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The “obligation of the nonmoving party is ‘particularly strong when the nonmoving party bears the burden of proof.’ “ Hughes v. Bedsole, 48 F.3d 1376, 1381 (4th Cir.1995) (quoting Pachaly v. City of Lynchburg, 897 F .2d 723, 725 (4th Cir.1990)). Summary judgment is not “a disfavored procedural shortcut,” but an important mechanism for weeding out “claims and defenses [that] have no factual bases.” Celotex, 477 U.S. at 327.

 

 

ANALYSIS

 

In the matter sub judice, the damaged container was never loaded onto the APL AMAZONITE, and therefore, no bill of lading was ever issued with respect to this container. The issue before the court, therefore, concerns whether the liability limitations in either the D.M. Consol-Line bill of lading or the APL bill of lading extend to Defendant Cooper.

 

 

As previously mentioned in the “background” section of this Order, Defendant Cooper loaded the remaining undamaged containers onto the APL vessel, and these containers were shipped to Thailand under D.M. Consol-Line Bill of Lading no. 0040217116.

 

As an initial matter, section 2.2 of the D.M. Consol-Line bill of lading provides that, “the Carrier shall be responsible for the acts and omissions of any person of whose services he makes use for the performance of the contract evidence[d] by this Bill of Lading.” (Pl.’s Response, Ex. C.) Pursuant to section 11. 1, commonly referred to as a “Himalaya” clause, if an action is brought against anyone referred to in section 2.2 of the bill of lading, “such person shall be entitled to avail himself of the defences and limits of liability which the carrier is entitled to invoke….” (Pl.’s Response, Ex. C.) However, section 11.2 provides that “if it is proved that the loss or damage resulted from an act or omission of this person, done with intent to cause damage or recklessly and with knowledge that damage would probably result, such person shall not be entitled to benefit of limitation of liability provided in paragraph 3 of Clause 8.” (Pl.’s Response, Ex. C.) Paragraph 3 of clause 8 states that “[c]ompensation shall not, however, exceed 2 SDR (Special Drawing Rights) per kilo of gross weight of the goods lost or damaged….”  (Pl.’s Response, Ex. C.) According to Plaintiff, this is a common limitation based on the Hague-Visby Rules, which apply in many countries but have not been codified in the United States. (Pl.’s Response at 2.)

 

 

A “Himalaya” clause extends liability limitations to downstream parties. See Norfolk S. R.R. Co. v. Kirby, 543 U.S. 14, 14 (2004).

 

Plaintiff has calculated the value of the limitation of liability pursuant to section 3.8 of the D.M. Consol-Line bill of lading as $49,180.99 for the damaged container, which weighed 16,800 kilos. (Pl.’s Response at 3.)

 

On the other hand, the APL standard long-form bill of lading specifically defines “subcontractor” to include stevedores. (Def.’s Mot., Ex. 5.) Additionally, in its definition of “subcontracting,” the APL bill of lading states that every subcontractor “shall have the benefit of every right, defense, limitation and liberty of whatsoever nature herein contained or otherwise available to the carrier as if such provisions were expressly for its benefit;….” (Def.’s Mot., Ex. 5.) Most importantly, the APL bill of lading includes a paramount clause, which states that:

Prior to loading onto the Vessel …, the Carrier’s liability shall be governed under the Hague Rules, except that the limitation shall be U.S. $500.00 per package or per shipping unit …, and for this purpose, the Hague Rules shall be extended to the periods before loading and subsequent to discharge and to the entire portion of the Carrier’s responsibility.

 

(Def.’s Mot., Ex. 5.)

 

In its motion for summary judgment, Defendant Cooper argues that the APL bill of lading is imputable to Plaintiff Atkins pursuant to Caterpillar Overseas, S.A. v. Marine Transport Inc., 900 F.2d 714 (4th Cir.1990). Cooper also argues that it is an intended beneficiary of the limitation of liability provision in the APL long-form bill of lading pursuant to Norfolk S. R.R. Co. v. Kirby, 543 U.S. 14 (2004). Before evaluating the merits of Cooper’s position, the court outlines the two primary cases relied upon by Cooper.

 

 

I. Caterpillar Overseas, S.A. v. Marine Transport Inc.

 

In Caterpillar, the plaintiff had arranged Lusk Shipping Company (“Lusk”) to act as its agent and freight forwarder in handling the shipment of a tractor from Portsmouth, Virginia, to Zaire. 900 F.2d at 716. Lusk, in turn, agreed with Farrell Lines, Inc. (“Farrell”) to ship the tractor to Zaire on one of Farrell’s vessels. Id. However, when the particular vessel arrived at Portsmouth, it was withdrawn from service and put in dry dock. Id. at 717. Thus, Farrell agreed that the tractor should be transferred from the Portsmouth port to the Norfolk port, where another Farrell vessel was available to transport the tractor. Id. Under the parties’ agreement, Farrell bore the responsibility to arrange the transfer between the ports, and therefore, Farrell hired Marine Transport, an independent trucker, to transfer the tractor using a flatbed trailer. Id. Unfortunately, in making the transfer, the tractor slid off the trailer while rounding a curve and smashed into a guard rail, causing severe damage to the tractor. Id. Due to this incident, Caterpillar filed suit against: the operator of the terminal; Farrell (the carrier); and Marine Transport (the trucker employed by Farrell.) Id. Farrell argued that its liability was limited to $500.00 under the provisions of the Carriage of Goods by Sea Act (“COGSA”), 46 U.S.C.App. §  1304(5). Likewise, Marine Transport argued that under the “Himalaya” clause in the bill of lading, its liability was similarly restricted to $500.00 by COGSA. Id.

 

Ultimately, the court determined that Farrell was protected by COGSA.  Id. at 718. “In reaching this conclusion, [the court] recognized that no bill of lading had been issued ‘at the time of the accident, and in fact was never issued.” ’ Id. Nevertheless, the court found that:

the plaintiff through its freight forwarder, ‘had previously shipped goods by Farrell’ on many occasions, and that the parties intended the contract of carriage to be that provided in Farrell’s standard bill of lading, copies of which were in Lusk’s custody. As a matter of fact, Lusk had prepared a bill of lading on the Farrell form covering this transaction, intending to deliver it at the time the tractor was on board ship. In short, the district judge found that it was the intention of both parties that the contract of carriage herein would be that stated in Farrell’s form bill of lading. Under these circumstances, the district court judge found that the knowledge by Lusk of Farrell’s bill of lading and the intention of both parties that the transportation was to be controlled by the bill of lading was such that knowledge of acceptance of the terms of such bill of lading could fairly be imputed as the contract of carriage…. He accordingly concluded that “it did not seem unduly burdensome to impute the shipper’s knowledge of all of the terms in the … bill of lading, including … the applicable provisions of COGSA,” citing Cincinnati Milacron, Ltd. v. M/V American Legend, 784 F.2d [1161], 1166, [ (4th Cir.1986) ], adopted by the en banc court in 804 F.2d 837 as the opinion of the court on this point.

 

 

 

In Cincinnati Milacron, the court imputed knowledge of the terms of a long-form bill of lading even though the long-form bill of lading was not used.

 

Id. Thus, the court agreed with Farrell that its liability was limited to $500.00 under COGSA; in adopting the district court’s ruling, the Fourth Circuit stated, “the terms of the longform, though not delivered or formally executed, were known, and both parties understood and intended those terms to apply.” Id. at 720.

 

In contrast, with respect to Marine Transport, the district court determined that it was not protected by the “Himalaya” clause in the presumed bill of lading and that it was liable for the full loss, less the $500.00 contributed by Farrell. Id. at 718. The district court offered two reasons in support of its determination. First, the district court determined that the presumed bill of lading restricted the liability limitation to accidents occurring at the time the goods were “in the custody of the carrier.” Id. at 726. Because the court concluded that the goods were in the in the custody of Marine Transport at the time of the accident, the court determined that the “Himalaya” clause was, by its terms, not applicable. Id. Second, the district court determined that the term “independent contractor” does not clearly identify one in Marine Transport’s situation as a beneficiary of the “Himalaya” clause. Id. The Fourth Circuit again adopted the district court’s ruling and stated:

It cannot be argued that the trucker Marine was pursuing a maritime service in hauling the tractor a score of miles over a federal highway…. Marine had both the custody and responsibility for the safety of the tractor while it was transporting it over a section of federal-state highway chosen by it and being operated by a driver hired and controlled by it. This is a far different situation than that of the stevedore whose services are rendered in the terminal facilities while engaged in actually loading directly the cargo on the ship. Stevedoring is essentially a maritime trade. Transporting cargo down a group of public highways for a stretch of miles, on the contrary, is not a normal maritime operation. We think the district judge correctly decided that Marine was not entitled to the limitation of liability given by COGSA.

 

Id. at 726.

 

 

II. Norfolk S. R.R. Co. v. Kirby

 

In Kirby, an Australian manufacturer (Kirby) hired International Cargo Control (ICC) to arrange for delivery of machinery from Australia to Huntsville, Alabama. 543 U.S. 14. ICC issued a bill of lading to Kirby designating Savannah, Georgia, as the discharge port and Huntsville as the ultimate destination. Id . at 18. The bill of lading set ICC’s liability limitation lower than the cargo’s true value, using COGSA’s default liability rule of $500 per package. The bill of lading also contained a “Himalaya” clause that extended the liability limitations to “any servant, agent or other person (including any independent contractor) whose services have been used in order to perform the contract.” Id. at 29. When ICC hired a German shipping company to transport the containers, the German company issued its own bill of lading to ICC; this bill of lading also adopted COGSA’s default rule and included a “Himalaya” clause that extended the liability limitation to “all agents … (including inland) carriers … and all independent contractors.”  Id. at 21. The German contractor hired Norfolk Southern Railway (“Norfolk”) to transport the machinery from Savannah to Huntsville; however, while en route to Huntsville, the train derailed, causing an alleged $1.5 million in damages.  Id. Kirby and its insurer filed suit against Norfolk seeking recovery for the damages.

 

Ultimately, the issue before the United States Supreme Court was whether Norfolk could take shelter in the liability limitations of either the ICC bill of lading or the German company’s bill of lading. Id. at 22. In addressing this issue, the Supreme Court first determined that Norfolk could take shelter in the ICC bill of lading, stating:

Kirby and ICC contracted for the transportation of machinery from Australia to Huntsville, Alabama, and, as the crow flies, Huntsville is some 366 miles inland from the port of discharge. Thus, the parties must have anticipated that a land carrier’s services would be necessary for the contract’s performance. It is clear to us that a railroad like Norfolk was an intended beneficiary of the ICC bill’s broadly written Himalaya clause.

 

Id. at 32.

 

Next, the Supreme Court addressed whether Norfolk could take shelter in the German company’s bill of lading. To interpret the German company’s bill, the Supreme Court referenced a rule  about common carriage: “[w]hen an intermediary contracts with a carrier to transport goods, the cargo owner’s recovery against the carrier is limited by the liability limitation to which the intermediary and carrier agreed.” Id. at 33. The court stated: “[i]n holding that an intermediary binds a cargo owner to the liability limitations it negotiates with downstream carriers, we do not infringe on traditional agency principles. We merely ensure the reliability of downstream contracts for liability limitations.” Id. at 33. Thus, the court held that Norfolk was entitled to the protection of the liability limitations in both the ICC bill of lading and the German company’s bill of lading. Id. at 36.

 

 

As the Supreme Court explained in Kirby, because Norfolk’s liability would be lower if it was protected by the German company’s bill, the court needed to reach this second question to give Norfolk the full relief for which it petitioned. See 543 U.S. at 32.

 

The Supreme Court derived this rule from its decision in Great N. R.R. Co. v. O’Connor, 232 U.S. 508 (1914). In O’Connor, an owner hired a transfer company to arrange for the shipment of her goods. Without the owner’s express authority, however, the transfer company arranged for rail transport at a tariff rate that limited the railroad’s liability to less than the true value of the goods. The goods were lost en route, and therefore, the owner sued the railroad. The Supreme Court held that the railroad needed to be able to rely on the liability limitation in its tariff agreement with the transfer company because the railroad had the right to assume that the transfer company could agree upon the terms of the shipment, and the railroad could not be expected to know if the transfer company had any outstanding, conflicting obligation to another party. See Kirby, 543 U.S. at 33 (citing O’Connor, 232 U.S. at 514).

 

III. The Merits of Defendant Cooper’s Position

 

In its motion for summary judgment, Defendant Cooper argues that pursuant to the Fourth Circuit’s holding in Caterpillar, 900 F.2d 714, the APL long-form bill of lading is imputable to Atkins. Next, Defendant Cooper argues that pursuant to Kirby, 543 U.S. 14, it is entitled to the protection of the liability limitation included in the APL long-form bill of lading, which would limit its liability to $500.00 per package or per shipping unit because Atkins, as a matter of longstanding practice, never declared a higher value on its bills of lading.

 

In response to Cooper’s arguments, Plaintiff Atkins asserts that the only bill of lading imputable to Defendant Cooper is the D.M. Consol-Line bill of lading. Plaintiff states: “While Atkins does not contest the rules espoused by [Caterpillar or Kirby], it is clear from an examination of the facts that the application of Kirby and Caterpillar to this case does not require the application of the APL bill of lading, does not resolve issues of fact, and does not lead to the conclusion argued by SSA.” (Pl.’s Response at 4.) Based on the record currently before the court, the court is inclined to agree with Plaintiff.

 

First, the court finds Cooper’s argument that the APL bill of lading is imputable to Atkins pursuant to Caterpillar flawed because Cooper has not made the requisite showing that the parties intended “that the contract of carriage herein would be that stated in [APL]’s form bill of lading.” See 900 F.2d at 718. Stated simply, it is clear from a reading of Caterpillar that the parties’ intent is a highly relevant factor for the court to consider in determining whether to impute knowledge of the terms of a bill of lading.  Id. In Caterpillar, the court stated:

In short, the district judge found that it was the intention of both parties that the contract of carriage herein would be that stated in Farrell’s form bill of lading. Under these circumstances, the district court judge found that the knowledge by Lusk of Farrell’s bill of lading and the intention of both parties that the transportation was to be controlled by the bill of lading was such that knowledge of acceptance of the terms of such bill of lading could fairly be imputed as the contract of carriage….

 

Id. (emphasis added). In affirming the district court’s ruling, the Fourth Circuit stated, “the terms of the longform, though not delivered or formally executed, were known, and both parties understood and intended those terms to apply.” Id. at 720 (emphasis added).

 

Here, Defendant Cooper points out that Atkins had used APL as its carrier numerous times in the past, just as the plaintiff in Caterpillar had previously shipped goods through Farrell. However, Defendant Cooper admits that Atkins did not use APL as its carrier with respect to this transaction. (Def.’s Mot. at 6.) More importantly, Defendant Cooper does not offer any evidence to show that it was the parties’ intention that the transportation was to be controlled by the APL bill of lading and not another bill of lading, such as the D.M. Consol-Line bill of lading. In fact, Defendant Cooper does not even allege that the parties intended for the APL bill of lading to control.0 Thus, Defendant Cooper essentially asks this court to overlook both the district court and the Fourth Circuit’s reliance on the parties’ intent in Caterpillar. This court is unwilling to do so, and therefore, based on the current record, the court declines to impute the terms of APL’s bill of lading without evidence that the parties intended for the terms of APL’s long-form bill of lading to apply. See Caterpillar, 900 F.2d at 718-20.

 

 

Cooper makes no showing that any of the parties (either Atkins, Powell, or D.M. Consol-Line) had an understanding with APL, whereby the parties’ intent was for the APL bill of lading to control the transportation. In fact, the undamaged containers, which Cooper loaded onto the APL AMAZONITE, were shipped pursuant to D.M. Consol-Line bill of lading no. 0040217116.

 

0. For example, although Defendant Cooper attaches the affidavit of Dan Trice, a claims manager for Cooper, Trice states in his affidavit only that Cooper was hired by APL to load various cargo onto the APL AMAZONITE. Trice states that it sent APL an invoice in the amount of $39,977.01, and that Cooper received full payment. (Def.’s Mot., Ex. 2.) Missing from this affidavit (and from Defendant’s motion as a whole) is any indication as to whether the parties intended for the APL bill of lading to control the transportation.

 

Similarly, the court finds Defendant Cooper’s reliance on Kirby flawed because Cooper has failed to make the requisite showing that D.M. Consol-Line, as an intermediary, negotiated any liability limitations with APL. See Kirby, 543 U.S. at 34. In Kirby, the Supreme Court stated: “[i]n holding that an intermediary binds a cargo owner to the liability limitations it negotiates with downstream carriers, we do not infringe on traditional agency principles. We merely ensure the reliability of downstream contracts for liability limitations.” Id. at 33. Thus, the court held that “intermediaries, entrusted with goods, are ‘agents’ only in their ability to contract for liability limitations with carriers downstream.” Id. at 34.

 

Here, Defendant Cooper asserts:

Based on the holding of Kirby, Atkins Machinery is bound by the limitation of liability provisions of the APL bill of lading. This is so because SSA Cooper, LLC was hired by APL and APL would have been the downstream carrier employed by DM Consol-Line, for actual carriage of the subject container had it made it on board. This, combined with the imputed bill of lading rule of Caterpillar requires that SSA Cooper, LLC be granted partial summary judgment limiting its liability to $500.00.

 

(Def.’s Mot. at 8.) Conspicuously missing from Defendant’s motion, however, is any proof that D.M. Consol-Line, as an intermediary, actually contracted with APL for any particular liability limitation. Rather, Defendant asks this court to assume that D.M. Consol-Line contracted with APL for the liability limitation contained in APL’s standard long-form bill of lading (rather than for the liability limitation contained in D.M. Consol-Line’s bill of lading or any other possible liability limitation). The court declines to make such an assumption. Thus, while the court recognizes and appreciates the purpose of the Supreme Court’s holding in Kirby-to “ensure the reliability of downstream contracts for liability limitations”-the court finds Cooper’s reliance on Kirby in the present case flawed because Cooper has offered no evidence to prove either that D.M. Consol-Line and APL negotiated for a liability limitation or actually contracted for a liability limitation. Without this evidence, the court declines to provide shelter for Defendant Cooper in APL’s standard long-form limitation of liability.1 Accordingly, the court finds that based on the current record, the only bill of lading attributable to Defendant Cooper is the D.M. Consol-Line bill of lading.

 

 

1. As a practical matter, the court notes that should the parties discover and bring to the court’s attention any evidence of the parties’ intentions (consistent with Caterpillar) and/or negotiations between D.M. Consol-Line and APL (consistent with Kirby), the court may be inclined to reevaluate its determination.

 

CONCLUSION

 

Therefore, it is ORDERED, for the foregoing reasons, that Defendant Cooper’s motion for partial summary judgment is hereby DENIED.

 

AND IT IS SO ORDERED.