The opinion of the court was delivered by: SOFAER
Watermill Export, Inc. ("Watermill") has brought this action to recover for damage to potatoes shipped aboard defendants' vessels. Watermill has moved to strike defendants' sixth affirmative defense. That defense, based upon a clause in the governing bills of lading, would limit defendants' total potential liability to $ 500 for each of the large metal trailers in which the potatoes were shipped. The motion is granted.
I. Incorporation of COGSA
The first issue is the extent to which the Carriage of Goods by Sea Act ("COGSA"), 46 U.S.C. §§ 1300-15, governs the legal relationship between the parties. By its own terms, COGSA applies only to contracts of carriage relating to shipments between United States ports and foreign ports. Id. § 1312. It does not apply automatically to the contracts in this litigation, because the shipments were between ports of the East coast of the United States and San Juan, Puerto Rico. Section 13 of COGSA provides, however, that in connection with contracts for carriage of goods involving only ports of the United States and its possessions:
any bill of lading or similar document of title which is evidence of a contract for the carriage of goods by sea ... containing an express statement that it shall be subject to the provisions of this chapter, shall be subjected hereto as fully as if subject hereto by the express provisions of this chapter.
46 U.S.C. § 1312. The bills of lading that constituted the contracts in this action each provided that "this bill of lading shall have effect subject to the provisions of the Carriage of Goods by Sea Act of the United States of America, approved April 16, 1934."
Plaintiff contends that the language of both section 13 and the bills of lading establishes that the contracts at issue in this action are fully subject to the provisions of COGSA. Plaintiff seeks to have the Court apply section 3(8) of COGSA, 46 U.S.C. § 1303(8), which provides that any clause in a contract of carriage that purports to limit the liability of a carrier beyond a level otherwise prescribed in the statute is void. Defendants take the position that the incorporation of COGSA into a contract of carriage merely makes the statute a part of the overall contract, and that courts must construe such a contract so as to give consistent effect to all of its terms. Under their formulation, the specific limitation of liability contained in the bills of lading would prevail over the general provisions of COGSA.
Defendants cite a number of cases to support their position, but most are easily distinguishable. Pannell v. United States Lines Co., 263 F.2d 497 (2d Cir.), cert. denied, 359 U.S. 1013, 79 S. Ct. 1151, 3 L. Ed. 2d 1037 (1959), for example, differs from this case in two important ways. First, Pannell involved only a partial incorporation of COGSA: the bill of lading there provided that "the (defendant) carrier shall have the benefit of all and the same rights, immunities, exceptions and limitations contained in said Carriage of Goods by Sea Act." Id. at 498 (emphasis added). Second, while the shipments at issue in Pannell were between London and New York, so that COGSA would usually apply ex proprio vigore, the goods were transported on the ship's deck, making the statute inapplicable. 46 U.S.C. § 1301(c). Therefore, Pannell was not a case involving shipments to and from ports of the United States and its possessions and section 13 of COGSA, 46 U.S.C. § 1312, does not apply to make the transactions fully subject to the statute. Many of the other cases cited by defendants are distinguishable for one or both of these reasons. See, e.g., PPG Industries, Inc. v. Ashland Oil Co.-Thomas Petroleum Transit Division, 527 F.2d 502 (3d Cir. 1975) (partial incorporation); United States v. M/V Marilena P, 433 F.2d 164 (4th Cir. 1969) (both partial incorporation and not subject to section 13 of COGSA); J. Aron & Co. v. The Askvin, 267 F.2d 276 (2d Cir. 1959) (partial incorporation); Export Project Services Ltd. v. S. S. Steinfels, (1975) A.M.C. 765 (partial incorporation); Wirth, Ltd. v. SS Acadia Forest, 376 F. Supp. 785 (E.D.La.1974), rev'd on other grounds, 537 F.2d 1272 (5th Cir. 1976) (not subject to section 13 of COGSA); Empacadora Puertorriquena De Carnes, Inc. v. Alterman Transport Line, Inc., 303 F. Supp. 474 (D.P.R.1969) (partial incorporation).
These two distinctions largely explain the oft-quoted language in Pannell that "(w)here a statute is incorporated by reference its provisions are merely terms of the contract evidenced by the bill of lading." 263 F.2d at 498. When parties choose to incorporate only a portion of a statute into the contracts governing their transaction, then it is only those incorporated provisions that become part of the agreement. If ambiguities or inconsistencies are found, courts should follow the advice in Pannell "to construe the contract so as to give consistent effect, if possible, to all of its terms." Id.
The same reasoning applies, though not quite so convincingly, to situations in which COGSA is fully incorporated but section 13, for some reason, does not apply to make the contract of carriage fully subject to the statutory provisions. When that occurs, courts should apply general rules of contract interpretation, and the argument that terms of COGSA should be given no greater weight than other contractual provisions is tenable, if not entirely convincing.
In the present case, however, the parties fully incorporated the provisions of COGSA into their contract and the statute explicitly provides that its terms will fully govern their relationship. Under these circumstances, any contractual term that contradicts a provision of COGSA must, absent extraordinary circumstances, be considered null and void. A contrary conclusion would tend to pervert section 13, which must have been intended to permit parties whose contracts would otherwise fall outside the coverage of COGSA to bring their transactions fully within the purview of the statute.
At least two cases (including one in this District) have reached contrary conclusions on similar facts. In Norwich Pharmacal Co. v. S. S. Bayamon, 474 F. Supp. 240 (S.D.N.Y.1979), aff'd without opinion, 622 F.2d 575 (2d Cir. 1980), the bill of lading contained precisely the same clause incorporating COGSA as did the bills of lading involved in the present litigation. In addition, the contract involved shipments from San Juan, Puerto Rico to New York, so section 13 was applicable. Defendants there, as here, sought to enforce a limitation of liability clause that would be void under COGSA. The Norwich court noted that in such situations it has normally been held that COGSA provisions are determinative. But Judge Conner found the case "distinguishable in a number of significant respects from cases that have declared limitation provisions void." Id. at 242.
Unlike many of these other cases, Norwich did not involve a boilerplate provision in a bill of lading prepared solely by the carrier, without any negotiation and intended to limit liability in all instances, regardless of the actual value of the shipment. Rather, the limiting clause was typed plainly on the face of the bill of lading and provided for an agreed valuation of the particular goods, one that bore a reasonable relationship to the actual value of the cargo. Moreover, the valuation was not chosen by the carrier in order to limit its potential liability, but by the shipper in an apparent effort to obtain a more favorable freight rate. It was the shipper in Norwich who was attempting to reap the benefit of the small print in the bill of lading the clause incorporating COGSA. In short, Norwich did not present the classic situation of unequal bargaining power that COGSA was designed to remedy.
The factual setting of the present litigation is entirely different. The clause limiting defendants' liability to $ 500 per trailer is clearly boilerplate language. The clause is buried in defendants' long-form bill of lading, and defendants provide no warning of it in the short-form bill presented to plaintiff. The fact that plaintiff may have had constructive notice of this clause is irrelevant in light of COGSA's mandate that the shipper not be compelled to make a detailed study of each fine-print clause of the carrier's bill of lading. Caterpillar Overseas, S. A. v. The Expeditor, 318 F.2d 720, 722 (2d Cir.), cert. denied, 375 U.S. 942, 84 S. Ct. 347, 11 L. Ed. 2d 272 (1963).
Furthermore, the clause in question functions solely as a device to limit defendants' potential liability: it is not an "agreed to valuation," bargained for by the shipper in order to obtain a lower freight rate (the rate charged was per 100 pounds, not per container). Neither is the clause reasonably related to the actual value of plaintiff's cargo. The clause is simply an attempt by defendants "to insert all embracing exceptions to liability," Tessler Brothers (B.C.) ...