Appeal from a judgment of the District Court for the Southern District of New York, Gerard L. Goettel, Judge, limiting recovery of plaintiffs-appellants Universal Electric Merchandise Co. and KOA Fire and Marine Insurance Co., to $500 per container. The question presented is whether the district court's decision should be upheld in view of this court's subsequent decision in Mitsui & Co., Ltd. and Ataka & Co., Ltd. v. American Export Lines, Inc., 636 F.2d 807 (2d Cir. 1981). Reversed and remanded.
Before Oakes, Meskill, Circuit Judges, and Blumenfeld, District Judge.*fn*
This appeal from a judgment of the District Court for the Southern District of New York limiting damages to $500 per container again confronts us with the interpretation of the term "package" as used in section 4(5) of the Carriage of Goods by Sea Act (COGSA), 46 U.S.C. § 1304(5). This provides in pertinent part:
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, ... unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.
The Facts and Proceedings Below
The vessel M/V "Eurygenes" loaded cargo in Japan in August 1973 for carriage to New York and European ports. After sailing from New York, where she had loaded additional cargo, there was a fire on board the vessel which destroyed or damaged a substantial quantity of her cargo.
Two suits were filed in the United States District Court for the Eastern District of New York to recover cargo losses. Included were losses sustained in three shipments made by Universal Electric Merchandise Co. (Universal) consisting of cartons of stereo equipment packed in containers bound for European ports. Subsequently, the suits were transferred to the United States District Court for the Southern District of New York for consolidation with other litigation arising out of the same fire.
A settlement formula was agreed on and embodied in a consent decree. Agreement could not be reached with respect to the three shipments of stereo equipment as to whether the "package" limitation should apply to the containers or to the cartons within the containers. The issue was referred to Magistrate Raby by the district court.
The hearing before the Magistrate revealed that the ship was capable of carrying both containerized and break-bulk (noncontainerized) cargo. Universal chose to use containers because in the past it had lost considerable cargo due to pilferage. The containers were supplied by the carrier, but were loaded and sealed by Universal's freight forwarder, who delivered them to the ship.
The bills of lading specified both the number of containers (e.g., 8 containers) and the number of cartons (e.g., 1500 cartons). The bills of lading incorporated the terms of COGSA, 46 U.S.C. § 1300 et seq. by reference,*fn1 and specified that they would be construed according to the laws of the United States.*fn2
The Magistrate applied the "functional economics" test of Royal Typewriter Co. v. M/V Kulmerland, 483 F.2d 645 (2d Cir. 1973). He found that the cartons in which the stereo equipment was packed were functional and capable of being shipped without being containerized, giving rise to a rebuttable presumption that the parties intended that the cartons should constitute the COGSA "package." The Magistrate then proceeded to examine other relevant factors and concluded that there was a "subjective intent" that the containers, not the cartons, should constitute the COGSA "packages."*fn3
The district court rejected the Magistrate's finding of "subjective intent" concluding that the parties had not agreed on the definition of the term "package" for purposes of ascertaining liability.*fn4 The district court, however, applied the $500 limitation to the containers, basing its decision on the fact that the "shipper had the option to ship its goods either break-bulk or by container" and it chose to containerize. The district court effectively held that the shipper's choice of containers instead of break-bulk shipment indicated its acquiescence in the definition of the container as the COGSA "package."
Subsequent to the district court's decision, this court issued its opinion in Mitsui & Co. Ltd. v. American Export Lines, 636 F.2d 807 (2nd Cir.). The question on appeal is whether the district court's decision limiting recovery to $500 per container should be upheld in light of our opinion in Mitsui. Having determined that it ...