United States District Court,

S.D. New York.

DCI MANAGEMENT GROUP, INC. and Continental Insurance Co., Plaintiffs,

v.

M.V. MIDEN AGAN, her engines, tackle and appurtenances, in rem, Relineo

Navigation Ltd., M.V. Kirsten, her engines, tackle, and appurtenances, in rem,

Condra Schiffahrts GMBH & KG MS Kirsten; Cosco Container Lines Ltd., and

Seatrade International, Inc., Defendants.

May 14, 2004.

OPINION AND ORDER

COTE, J.

This Opinion determines that the bill of lading reflecting the shipment of 595 cartons on eight pallets is a shipment of eight packages for purposes of application of the $500 per package limitation of liability in the U.S. Carriage of Goods By Sea Act (“COGSA”), 46 U.S.C. § 1300 et seq. As a result of this ruling, potential damages in this action are limited to $4,000.00.

Background

The following facts are undisputed. In December 2000, plaintiff DCI Management Group, Inc. (“DCI”) arranged for the shipment of frozen blood plasma to a customer in Italy. The sale price of the shipment was $526,254.44. On or about December 20, 2000, DCI employees loaded the cargo into an ocean shipping container at DCI’s refrigerated warehouse in Queens Village, New York. The cargo consisted of 595 individual cartons on a total of eight pallets. Sea Trade International, Inc. (“Sea Trade”), which never saw the contents of the container, arranged for the transportation of the container from the port of New York to Italy on board the M/V MIDEN AGAN through Cosco Container Lines Co., Ltd. (“Cosco”). Each of the pallets was wrapped in plastic. DCI instructed Sea Trade to maintain a constant temperature for the frozen cargo of no warmer than -20 Celsius.

DCI prepared a bill of lading on Sea Trade’s form for a shipment from the port of New York with discharge in Italy. Under the bill of lading’s column for “NO. OF PKGS.,” DCI entered “1 (ONE).” In the column immediately to the right, entitled “DESCRIPTION OF PACKAGES AND GOODS,” DCI entered “20FT REEFER CONTAINER SAID TO CONTAIN 595 CARTONS ON 8 PALLETS:.” Beneath that entry, DCI entered “RECOVERED PLASMA SINGLE DONOR, FRESH FROZEN.”

In a March 28, 2001 facsimile regarding the failed shipment, Howard S. Cherry, the CFO for DCI, stated that “THAT THERE WERE 8 PALLETS AND EACH PALLET WAS WRAPPED WITH PLASTIC WRAP SO THE BOXES WOULD NOT MOVE IN TRANSIT.” In another communication dated May 14, 2001, which discussed the unsuccessful delivery, Mr. Cherry stated that “595 CARTONS WERE SHIPPED ON 8 PALLETS. EACH PALLET WAS WRAPPED IN PLASTIC SHEETING TO PREVENT THE CARTONS FROM SHIFTING WHILE IN TRANSIT.” In an affidavit submitted in this litigation, Mr. Cherry stated that the “purpose of listing the individual number of cartons on the bill of lading was to notify both our customer and the ocean

carrier as to the precise quantity of cargo loaded in the container.”

The bill of lading issued for the shipment provided DCI with the opportunity to avoid the $500 per package limitation set by the COGSA by declaring the full value of the cargo on the bill of lading and by paying an additional freight charge in connection therewith. [FN1] DCI did not declare the full value of the cargo to Sea Trade on the bill of lading, did not pay an ad valorem freight rate to secure full coverage for the value of the cargo in the event of a casualty, and therefore did not contract with Sea Trade for a greater limitation of liability than that provided by COGSA.

FN1. The bill of lading contains several clauses which are relevant to the resolution of the present matter:

5. Carrier’s Responsibility

a. Clause Paramount

i. If any portion of the carriage is to or from the United States of America, COGSA shall apply and shall govern before loading and after discharge and during the entire time the Goods are in the custody of Carrier.

….

b. General Provisions

….

ii. Package Customary Freight Unit of Shipping Unit Limitation

(1) Where COGSA applies to this bill of lading (whether by its own force or by agreement), Carrier shall not be liable for loss or damage in an amount exceeding $500 per package lawful money of the United States … unless the nature and value of the goods higher than this amount has been declared in writing by Merchant and before Carriers receipt of the Goods and inserted in this Bill of Lading and any extra freight has been paid as required.

….

iii. Ad Valorem. Declared Package or Shipping Unit. Carrier’s liability may be increased to a higher value by a declaration in writing of the value of the Goods by the shipper before delivery to Carrier of the Goods for shipment, such higher value being inserted on the front of the Bill of Lading in the space provided and if required by Carrier, extra freight paid. In such case if the actual value of the Goods shall exceed such declared value, the value shall nevertheless be deemed to be in the declared value and Carrier’s liability if any will not exceed the declared value and any partial loss or damage shall be adjusted pro rata on the basis of such declared value.

(Emphasis supplied.)

The bill of lading also contained DCI’s instructions that the temperature of the cargo should be “maintained at -20 deg.C or below at all times.” Upon discharge of the container from the M/V MIDEN AGAN in Italy, the Italian Ministry of Health refused to allow the blood plasma to enter the country because the container’s internal temperature records indicated that the temperatures had risen significantly above -20 degrees at several points during the transit of the cargo. Consequently, DCI submitted an insurance claim under its policy to Continental Insurance Co. (“Continental”), who compensated DCI in the amount of $330,000.

DCI and Continental commenced this action on January 17, 2003, against the ocean vessels in rem that carried the cargo from New York to Italy, as well as the vessel owners and bill of lading issuers under COGSA. The vessel owners never appeared and/or were not served, nor were the vessels arrested. Consequently, the action proceeded against defendant Cosco as issuer of the master ocean bill of lading and Sea Trade, the non-vessel operating common carrier and issuer of its own house bill of lading. On October 23, Cosco’s unopposed motion to dismiss the claims against it was granted, based on a mandatory jurisdiction clause in its bill of lading requiring any action against it to be brought before the Shanghai Maritime Court in China.

In November 2003, plaintiffs and Sea Trade filed cross-motions for partial summary judgment on the discrete issue of whether the bill of lading reflects carriage of 595 packages or eight packages for the purposes of application of the $500 per package limitation in COGSA. Plaintiffs argue that the 595 cartons of the blood plasma were the COGSA packages, and thus, they are entitled to damages of up to $297,500. Defendants argue that the eight pallets on which the 595 cartons were shipped were the COGSA packages, and thus damages are limited to $4,000. By letter of April 21, 2004, DCI and Sea Trade agreed to have these cross-motions for summary judgment on Sea Trade’s seventh affirmative defense of limitation of liability pursuant to COGSA, 46 U.S.C. § 1304(5), converted to a trial based on the record presented through these motions. [FN2]

FN2. The evidence received in this bench trial consists of an affirmation of plaintiffs’ counsel, an affidavit of Mr. Cherry, and seven exhibits documenting the transaction. Two of the four exhibits submitted by Sea Trade were related to shipments not at issue.

Discussion

Section 1304(5) of COGSA provides that a carrier [FN3] shall not be liable for loss of, or damage to, cargo in an amount greater than $500 per package unless a higher value is declared by the shipper and inserted into the bill of lading, or the parties agree to a higher limit. [FN4] 46 U.S.C. § 1304(5). Thus, if a shipper wishes “to protect its interest in the cargo beyond the package limitation amount, it ought to have contracted for that right.” Thyssen, Inc. v. S/S Eurounity, 21 F.3d 533, 541 (2d Cir.1994). See also Aluminios Pozuelo Ltd. v. S.S. Navigator, 407 F.2d 152, 155-56 (2d Cir.1968).

FN3. For the purposes of this dispute, Sea Trade is the “carrier” and DCI is the “shipper.”

FN4. The subsection provides in relevant part:

Amount of liability; valuation of cargo Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding $500 per package lawful money of the United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading. This declaration, if embodied in the bill of lading, shall be prima facie evidence, but shall not be conclusive on the carrier.

By agreement between the carrier, master, or agent of the carrier, and the shipper another maximum amount than that mentioned in this paragraph may be fixed: Provided, That such maximum shall not be less than the figure above named. In no event shall the carrier be liable for more than the amount of damage actually sustained.

Neither the carrier nor the ship shall be responsible in any event for loss or damage to or in connection with the transportation of the goods if the nature or value thereof has been knowingly and fraudulently misstated by the shipper in the bill of lading.

46 U.S.C. § 1304(5) (emphasis supplied).

The dual purposes of the COGSA damage limitation provision are to prevent carriers from using their superior bargaining power to reduce their liability to insignificant amounts; and to permit the parties to “ascertain at the time of contract when additional coverage was needed, place the risk of additional loss upon one or the other, and thus avoid the pains of litigation.” [FN5] Mitsui & Co. v. Am. Export Lines, Inc., 636 F.2d 807, 814-15 (2d Cir.1981)(citation omitted). Nevertheless, “[n]either the statute nor its legislative history provides any clue as to the meaning of ‘package’ in the Act.” Monica Textile Corp. v. S.S. Tana, 952 F.2d 636, 638 (2d Cir.1991). The 1968 Protocol To Amend the International Convention for the Unification of Certain Rules of Law Relating to BILLS OF LADING (the “Visby Amendments”) addresses the effect of containerization on package limitation clauses and sheds light on the meaning of “packages.” The Visby Amendments deem the smaller units in a shipment to be the “packages” when (a) they are packed in or on larger units, such as containers or pallets, and (b) they are enumerated in the bill of lading. [FN6] The Visby Amendments, however, are not law in the United States because while the United States signed the agreement, it has not acceded to, or ratified the Visby Amendments. [FN7] See 6 Benedict on Admiralty, Intro-24 (7th ed.2004); Yang Ming, 672 F.2d at 1063 (the Visby Amendments do “not replace COGSA”); Mitsui,636 F.2d at 821.

FN5. Despite these considerations, the bulk of modern litigation under Section 1304(5) consists of subrogation actions because cargo shippers, instead of paying increased freight by declaring the value of what is shipped, buy insurance from cargo insurers. Nichimen Co. v. M.V. Farland, 462 F.2d 319, 335 (2d Cir.1972) Therefore, “most cargo damage actions are really battles between insurers, and there is thus no need for shedding crocodile tears on behalf of the shipper or consignee.” Id. (citation omitted).

FN6. The Visby Amendments specifically state that “[w]here a container, pallet or similar ‘article of transport’ is used to consolidate goods, the number of packages or units enumerated in the bill of lading as packed in such articles of transport shall be deemed to be the number of packages or units.” Protocol To Amend the International Convention for the Unification of Certain Rules of Law Relating to BILLS OF LADING, reprinted in 6 Benedict on Admiralty, 1-25 to 1-30 (7th ed.2004). See Binladen BSB Landscaping v. M.V. “Nedlloyd Rotterdam”, 759 F.2d 1006, 1013 (2d Cir.1985); Mitsui, 636 F.2d at 821;Allied Int’l Am. Eagle Trading Corp. v. S.S. “Yang Ming”, 672 F.2d 1055, 1063 (2d Cir.1982).

FN7. There are at least four ways in which the United States can bind itself to international legal obligations: (1) a treaty, as provided under Article II, Section 2, Clause 2 of the U.S. Constitution; (2) a solo Executive Agreement; (3) an Executive Agreement pursuant to a treaty; and (4) a U.S. Congressional Executive Agreement. See James Thuo Gathii, Insulating Domestic Policy Through International Legal Minimalism: A Re- Characterization of the Foreign Affairs Trade Doctrine, 25 U. Pa. J. Int’l Econ. L. 1, 15 (Spring 2004). Each of these forms goes through a distinct process to become legally effective within the United States. Id. The Visby Amendments, however, do not appear to have been become law in the United States via any of these methods. 6 Benedict on Admiralty, Intro-24 (7th ed.2004); Yang Ming, 672 F.2d at 1063. Indeed, the text of the Visby Amendments does not include the United States among the states that have ratified or acceded to the agreement. Mitsui, 636 F.2d at 821.

The Second Circuit has defined a COGSA package as “a class of cargo, irrespective of size, shape or weight, to which some packaging preparation for transportation has been made which facilitates handling, but which does not necessarily conceal or completely enclose the goods.” Yang Ming, 672 F.2d 1055, 1057-58 (2d Cir.1982) (citation omitted). This definition is obviously “broad enough to include a wide range” of items. Nedlloyd Rotterdam, 759 F.2d at 1012. Finally, the Second Circuit has dictated that the question of what constitutes the COGSA package “is largely and in the first instance a matter of contract interpretation.” Allied Chemical Int’l Corp. v. Companhia de Navegacao Lloyd Brasileiro, 775 F.2d 476, 485 (2d Cir.1985).

Any search for the intent of the contracting parties must begin with the bill of lading. See id. In determining the number of COSGA packages in a bill of lading, courts “adopt the unit of packaging unambiguously identified in the bill of lading.” Seguros “Illimani” S.A. v. M/V Popi P., 929 F.2d 89, 94 (2d Cir.1991). For example, despite the fact that stacks of ingots were not COGSA packages since the ingots “were not sufficiently wrapped, bundled, or tied,” because the bill of lading represented that the contents of the containers consisted of “bundles” of ingots, the stacks were deemed to constitute packages. Mitsui, 636 F.2d at 822-23.

The number appearing under the heading “NO. OF PKGS.” is the starting point for determining the number of packages for purposes of the COGSA per-package limitation. Seguros, 929 F.2d at 94. In cases where that number is plainly contradicted by evidence of the parties’ intent, the court must look beyond that figure to “the next best indication of the parties’ intent, the numbers reflected on the bills of lading that do refer to something that qualifies as a ‘package.” ‘ Id. at 95. See also S.S. Tana, 952 F.2d at 641. In the event of ambiguity, it is proper to “look elsewhere in the bill of lading and to other evidence of the parties’ intentions.” Seguros, 929 F.2d at 94 (emphasis supplied). See also Groupe Chegaray/V. De Chalus v. P & O Containers, 251 F.3d 1359, 1367 n. 10 (11th Cir.2001)(Oakes, J., by designation); Standard Electrica, S.A. v. Hamburg Sudamerikanische Dampfschifffahrts-Gesellschaft, 375 F.2d 943, 946 (2d Cir.1967).

Because ocean bills are contracts of adhesion, ambiguities are generally resolved against the carrier. See Allied Chemical, 775 F.2d at 486. In resolving ambiguities in a bill of lading like the one at issue here, however, where the shipper supplied the number of packages and their description, the justification behind resolving ambiguities against the carrier does not hold. See Mitsui, 636 F.2d at 822-23.

While a container will rarely be treated as a package, even when it is listed in the column designated for identification of the number of packages, that same principle does not apply to pallets. See Monica Textile, 952 F.2d at 640. In at least three significant decisions, pallets have been found to be packages for purposes of COGSA’s damages limitation provision when their number was listed on the bill of lading as the number of packages even though a smaller unit containing goods was also described in the bill of lading. In Groupe Chegaray, the court observed that placing the cartons on pallets and wrapping the entire unit in plastic “facilitated the efficient transportation of the individual cardboard boxes, and reduced any safety or damage risks that may have been involved in handling them.” Groupe Chegary, 251 F.3d at 1369. In Yang Ming, the Second Circuit reviewed the decisions that had addressed whether large pieces of cargo should be deemed packages “because of wrappings, boards, or skids attached to them to facilitate transportation and/or to protect them during shipping.” Yang Ming, 672 F.2d at 1055. It concluded that “[g]enerally, regardless of size, where cargo is fully crated or boxed, reported cases have held that the items are packages within the meaning of COGSA.” Id. (citation omitted). Yang Ming followed the Visby Amendments by 13 years. Finally, the seminal case in this area held that pallets were the packages when their number was listed in the bill of lading as the number of packages. In Standard Electrica, the court noted that the shipper had been the one to “make up the cartons into a pallet,” and any other result “would place upon the carrier the burden of looking beyond the information in the bill of lading or beyond the outer packing to investigate the contents of each shipment.” Standard Electrica, 375 F.2d at 946-47.

The parties do not cite and the Court has not found any decision by the Second Circuit Court of Appeals that has addressed a bill of lading in which the numbers of the pallets and the smaller packing units both appear in the section describing the goods and neither appear in the column listing the number of packages. Nonetheless, the controversy at issue here can be analyzed as follows under the foregoing principles.

DCI did not declare a value for the total shipment on the bill of lading. As a consequence, it is undisputed that COGSA’s $500 per package limitation applies. The number of COGSA packages identified on the bill of lading is ambiguous. Although the bill of lading states that the number of packages was “1 (one),” this refers to the number of containers and does not indicate the number of packages for the purposes of COGSA’s damage limitation provision since other entries in the bill of lading can be read to describe the number of packages. The bill of lading’s “DESCRIPTION OF THE PACKAGES AND GOODS” includes both the number of pallets and the number of cartons shipped on the pallets. Evidence of the parties’ intent must resolve the ambiguity created by the bill of lading.

DCI chose to pack the cartons onto the pallets–wrapping each pallet in plastic for easier handling and transportation. DCI loaded the pallets into the container without any opportunity for Sea Trade to count the number of cartons. The bill of lading was prepared by DCI and describes the cartons as placed on eight pallets. In one facsimile describing the shipment, Mr. Cherry makes no mention of the number of cartons, but describes the cargo as eight pallets. In addition, instead of declaring the value of the cargo on the Sea Trade form bill of lading, DCI opted to obtain cargo insurance from Continental and accept Sea Trade’s lower freight rate based upon the COGSA $500.00 per package limitation. In these circumstances, it is appropriate to find that DCI intended that the pallets be considered packages for purposes of COGSA’s damage limitation clause. As the party that prepared the relevant portions of the bill of lading, and identified the number of packages as “one,” DCI cannot use the ambiguity it created to obtain the maximum recovery.

The plaintiffs rely principally on three cases to argue that the number of cartons should be considered the number of packages. None of these compels a different result. In Allied Chemical, the bags contained on the pallets rather than the pallets themselves were found to be the COGSA packages because the shipper “met its burden to declare the nature and value of the goods … and the record clearly shows that the freight rate was based on the value of the goods.” Allied Chemical, 775 F.2d at 485-86. The Eleventh Circuit’s decision in Vegas v. Compania Anonima Venezolana de Navegacion, 720 F.2d 629 (11th Cir.1983) (per curiam), is not controlling since it is in conflict with the line of Second Circuit cases which have allowed the number of pallets to be construed as the number of packages when the number of pallets is listed in the column designated for the number of packages. Moreover, Vegas placed greater emphasis on the Visby Amendments than appears warranted by the case law which governs in this Circuit. For a similar reason, the analysis in Bando Silk Co., Ltd. v. Hyundai Commander, No. 91 Civ. 3415(SWK), 1994 WL 114839 (S.D.N.Y.1994), is not persuasive. Relying on cases concerning containers, the district court rejected the pallets as packages even though the number of pallets was listed in the column designated for the number of packages. Id. at *1.

Plaintiffs also contend that because the bill of lading provided Sea Trade with notice of the number of cartons, the cartons are the COGSA packages. While this argument would be compelling if the Visby Amendments were the sole basis for a decision here, as explained above, it is not. Sea Trade’s notice of the number of cartons on the eight pallets is not dispositive in determining whether the cartons or the pallets were the COGSA package since the mere mention of the contents of a pallet is not “enough to alter the contractually agreed upon number of ‘packages’.” Yang Ming, 672 F.2d at 1061.

Conclusion

For purposes of COSGA’s damages limitation provision, DCI shipped eight packages. The potential damages payable by defendant Sea Trade International, Inc. are limited to $4,000.00.

SO ORDERED: