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National Resources Trading Inc. v. Trans Freight Lines Maher Terminals Inc.

decided: June 24, 1985.

NATIONAL RESOURCES TRADING, INC. AND ROYAL INSURANCE COMPANY OF AMERICA AS THE SUBROGATED UNDERWRITER, PLAINTIFFS-APPELLANTS
v.
TRANS FREIGHT LINES [MAHER TERMINALS, INC.] DEFENDANT-APPELLEE



Appeal from a judgment of the United States District Court for the Southern District of New York, Mary Johnson Lowe, Judge, dismissing, on remand, appellants' diversity suit seeking recovery for the loss of 3712 pounds of molybdenum oxide.

Feinberg, Chief Judge, Lumbard, and Newman, Circuit Judges.

Author: Lumbard

LUMBARD, Circuit Judge.

National Resources Trading, Inc., a New York corporation, and Royal Insurance Company of America, its underwriter and an Illinois corporation, appeal from a judgment of the Southern District which, on remand, again dismissed their claim against Maher Terminals, Inc., a New Jersey stevedore and terminal operator. We vacated the first judgment, which dismissed the complaint after a bench trial, and remanded for factual findings and conclusions of law as to whether Maher is liable, as a bailee, for the loss of 3712 pounds of molybdenum oxide in its possession. We retained jurisdiction. Nat'l Resources Trading, Inc. v. Trans Freight Lines, No. 84-7331 (2d Cir. Sept. 11, 1984) (order vacating judgment and remanding).

On remand, Judge Lowe held that Maher was merely a gratuitous bailee so that, in the absence of proof of gross negligence, Maher was not liable for loss of the molybdenum oxide. We reverse and remand for entry of judgment for the plaintiffs, against Maher Terminals, for $67,558.40, plus interest from October 16, 1979.

On October 4, 1979, pursuant to its contract with Trans Freight Lines, Inc. ("TFL") to perform stevedoring and terminal services, Maher, at its Port Elizabeth, New Jersey facility, received an ocean container holding, among other cargo, 12,060 pounds of molybdenum oxide to be loaded upon the TFL Democracy. The molybdenum oxide, an alloying additive used in the manufacture of stainless steel, was owned by Union Resources, Inc., insured by Royal Insurance, and declared under a Royal cargo policy issued to National Resources Trading.*fn1 It was packed into 603 metal pails, each containing approximately 20 pounds of the grayish powder.

During the loading of the molybdenum oxide, at about 9:00 a.m. on October 5, 1979, the container in which it was encased collapsed, dumping its contents onto the stringpiece. The container collapse was due to design defects and corrosion not attributable to Maher. After the accident, Maher salvaged the cargo, removed the damaged container, and was subsequently paid by TFL for its one hour and 45 minute clean-up operation. The 603 pails, many of which had been damaged in the accident, were stacked on pier pallets and then taken to a Maher shed.

The pails remained in the Maher shed until October 16, when Gardiner's Express, Inc., a trucker retained by Union Resources, picked up the damaged pails for delivery to M&R Refractory Metals, Inc., at Winslow, New Jersey. The damaged shipment was released subject to a joint warehouse inspection, and was taken to M&R for reconditioning and repacking. It has been stipulated by the parties that no molybdenum oxide was lost during the inland movement from Maher's shed to the M&R facilities.

Upon arrival at the M&R plant, and at Union Resources's instructions, the molybdenum oxide was removed from its damaged packing and transferred to 55-gallon drums. On October 23, surveyors for Royal Insurance and TFL conducted a joint warehouse inspection. Upon weighing, it was discovered that the shipment contained only 8348 pounds of molybdenum oxide. Maher has stipulated that it received 12,060 pounds of the sandlike material, in a gross shipment of 22,876 pounds, and that the market value of the molybdenum oxide is $18.50 per pound, less 30 cents in reconditioning expenses.*fn2

At the first trial, Judge Lowe determined that an unknown quantity of the molybdenum oxide spilled out of its packaging as a result of the accident on the stringpiece, but that this amount did not even approach the missing 3712 pounds. The court also concluded that Maher was not negligent in its salvage operation. Because the district court failed to address the plaintiffs' theory that Maher was liable, as a bailee, for the unexplained loss of material in its possession, we vacated the dismissal of plaintiffs' complaint and remanded. Since we now find that Maher was a bailee for hire and consequently liable, as a matter of law, absent an adequate explanation for loss of the molybdenum oxide, we direct judgment for the plaintiffs.

We note, preliminarily, that the complaint invokes only admiralty jurisdiction, unavailable with respect to National Resource's claim against Maher by virtue of this court's decision in Leather's Best, Inc. v. S.S. Mormaclynx, 451 F.2d 800, 808 (2d Cir. 1971), which held that a shipper's claim against a terminal operator for loss of cargo is not within the federal maritime jurisdiction, but is a state claim governed by state law. See also Colgate Palmolive Co. v. S/S Dart Canada, 724 F.2d 313, 315 (2d Cir. 1983), cert. denied, 466 U.S. 963, 104 S. Ct. 2181, 80 L. Ed. 2d 562 (1984). In that same case, however, the court noted that pleadings in admiralty have traditionally been read with liberalty, and went on to invoke pendent jurisdiction over the shipper's claim against the terminal operator, even in the absence of an allegation of such jurisdiction in the complaint. Leather's Best, Inc. v. S.S. Mormaclynx, 451 F.2d at 809-11. Giving due regard to consideration of judicial economy, we conclude that it was within the court's discretion to exercise its power to hear the claim against Maher under the doctrine of pendent jurisdiction. The claim is pendent to the admiralty claim against the carrier, which has been settled, and Aldinger v. Howard, 427 U.S. 1, 96 S. Ct. 2413, 49 L. Ed. 2d 276 (1976), has not foreclosed pendent party jurisdiction over the federal claim is exclusive. See Weinberger v. Kendrick, 698 F.2d 61, 76-77 (2d Cir. 1982), cert. denied, 464 U.S. 818, 104 S. Ct. 77, 78 L. Ed. 2d 89 (1983).

In deciding this pendent claim, the district court must apply New York law, Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938), and this rule applies to conflicts law as well. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941). Few courts have considered the question of what law governs in an action on a bailment agreement where the case involves multi-state contacts. See Restatement (Second) of Conflicts of Laws § 191, comment i (1971). Under the circumstances of this case, we believe that a New York court would apply New Jersey law, since Maher is a New Jersey stevedore and terminal operator and since New Jersey is the place where the molybdenum oxide was delivered and stored and where the unexplained loss occurred. See Nat'l Dairy Prods. Corp. v. Lawrence Am. Field Warehousing Corp., 22 A.D.2d 420, 429, 255 N.Y.S.2d 788, 798 (App. Div.), rev'd on other grounds, 16 N.Y.2d 344, 213 N.E.2d 873, 266 N.Y.S.2d 785 (1965).

In Colgate Palmolive Co. v. S/S Dart Canada, 724 F.2d 313, 317 (2d Cir. 1983), we concluded that, while the Supreme Court of New Jersey has never squarely addressed the issue, it is apparently New Jersey law that a warehouse that fails to come forward with an adequate explanation for its failure to return stored property is liable for conversion, even absent proof of negligence. N.J. Stat. Ann. § 12A:7-102(1) (h) (1962) defines a warehouseman as "a person engaged in the business of storing goods for hire." On this record, we conclude that Maher stored the molybdenum oxide as a warehouseman for TFL.

The container holding the molybdenum oxide was delivered to Maher the day before it was to be loaded aboard the TFL ship. After the accident, the pails of molybdenum oxide were stored in Maher's shed for over one week. Construing the relevant provisions of their contract, we conclude that Maher's responsibility for storage during such ...


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