UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
October 16, 1985
MOORE-McCORMACK LINES, INC., Plaintiff against INTERNATIONAL TERMINAL OPERATING COMPANY, INC., Defendant
The opinion of the court was delivered by: BRIEANT
MEMORANDUM AND ORDER
The Plaintiff, Moore-McCormack Lines, Inc. ("MORMAC"), filed a claim in indemnity against defendant, International Terminal Operating Company, Inc., ("I.T.O."). MORMAC, an ocean carrier, seeks to recover for amounts it paid to cargo claimants as reimbursement for the loss or non-delivery of various goods at the 23rd Street Terminal in Brooklyn, New York. By consent, pursuant to 28 U.S.C. § 636(c), and after representing to this Court that the case involved a factual dispute only, the parties, tried the case before Hon. Joel J. Tyler, United States Magistrate, on November 15-16, 1982. The parties agreed to take any appeal to this court in accordance with 28 U.S.C. § 636(c)(4).
In an opinion dated December 13, 1984 Magistrate Tyler dismissed MORMAC's complaint on the merits. He found that MORMAC had failed to satisfy its burdens of proof on its contract and negligence claims under New York law. The familiarity of the reader with the opinion of the Magistrate is assumed.
Although we reach that result by a different route, we find that Magistrate Tyler's ultimate conclusion holding I.T.O. not liable to MORMAC was correct. The learned Magistrate ruled that MORMAC's claims did not arise within our admiralty and maritime jurisdiction, and resolved the issue between the parties in accordance with New York law, based on his analysis of the evidence.
The contract at issue does relate entirely to a maritime subject, however, and this Court on review concludes that the claims arising under it should have been adjudicated within our admiralty and maritime jurisdiction, rather than as pendent claims arising under state law. Even with the benefit of federal law, we find that MORMAC has failed to satisfy its burden of proof with respect to its claims.
MORMAC asserted its claims against I.T.O. under a contract entered into on October 1, 1976. By that contract I.T.O. agreed to act as a stevedore and terminal operator at the 23rd Street terminal in Brooklyn. I.T.O. agreed to load and discharge cargoes for MORMAC's vessels, as well as other ocean vessels and lighters, and to receive and deliver those cargoes. MORMAC leases the terminal or pier from the City of New York and owns all the appurtenances. I.T.O. employees perform all the customary terminal operating and stevedoring functions. However, MORMAC furnishes the guards and maintains all security at the premises. Pursuant to the contract, I.T.O. employs all longshoremen, and does the tally. After discharge, I.T.O. sorts and stacks the shipments in a shed on the pier, awaiting delivery to the consignees' truckmen or lighterage. I.T.O. also places outbound cargo in this shed after it receives it from a shipper; then it prepares the cargo for shipping and loads it on board the appropriate vessel. That confusion, misdelivery, non-delivery and pilferage would result from this activity is hardly surprising.
In this action MORMAC alleges that I.T.O. is responsible for the loss of eight separate items of cargo, seven "incoming" shipments which it discharged, and one "outgoing" shipment it had the responsibility to load aboard a MORMAC vessel. MORMAC had previously compensated the shippers and/or consignees for these losses or shortages. At trial Magistrate Tyler found as a fact that the goods were lost after discharge in the case of the incoming items, and prior to loading in the case of the lost outbound goods. In making this determination he relied upon the "sort sheet," upon which I.T.O. accounted for the receipt of the cargo. This record showed that I.T.O. had unloaded and received each of the seven incoming shipments and had received the full complement of outbound items to be loaded.
Magistrate Tyler also determined that the contract was separable into two agreements; first, a stevedoring contract, and second, a terminal operating contract. Opinion at 19. He held that the former was a maritime contract, but that the latter was not. Having found that the cargo was lost during the course of performance under the non-maritime portion of the contract, the Magistrate declined to exercise admiralty and maritime subject matter jurisdiction. Instead, he regarded the claims as arising under New York law and within our pendent jurisdiction.
Subject Matter Jurisdiction
The traditional test of admiralty jurisdiction in contract cases derives from the decision of Justice Story on circuit in De Lovio v. Boit, 2 Cas. 418, 7 F. Cas. 418 (C.C.D. Mass. 1815). The Supreme Court has stated this test as follows:
"While the civil jurisdiction of the admiralty in matters of tort depends upon locality -- whether the act was committed upon navigable waters -- in matters of contract it depends upon the subject matter -- the nature and character of the contract . . . as to whether it have reference of the contract service or maritime transactions." North Pacific S.S. Co. v. Hall Bros. Co., 249 U.S. 119, 125, 39 S. Ct. 221, 222, 63 L.Ed 510 (1919).
Where contracts are mixed and involve distinct subjects, there is authority to the effect that they should be separated, so that the court may consider only the maritime aspect within its admiralty jurisdiction. Berwind-White Coal Mining Co. v. City of New York, 135 F.2d 443, 447 (2d Cir. 1943). In this instance, however, the entire contract is maritime and should have been considered within our admiralty and maritime jurisdiction.
It is undisputed that stevedoring is a maritime activity and that such contracts are maritime contracts. American Stevedores v. Porello, 330 U.S. 446, 456, 91 L. Ed. 1011, 67 S. Ct. 847 (1947). I.T.O. claimed, and Magistrate Tyler found, that the maritime commerce concluded once the stevedores had completed unloading the cargo. The terminal services and delivery that followed were considered non-maritime functions. Magistrate Tyler separated the contract because MORMAC's contract administrator testified that the stevedoring and terminal services provisions are "pretty much distinct and apart" with "two separate and distinct rates in the agreement, Exhibit 3, one for stevedoring and one for terminal operators." Opinion at 19. The Magistrate further found that the terminal services portion was essentially a storage contract, relying on a long line of cases which hold that storage contracts are not maritime, e.g., Colgate Palmolive Company v. S.S. Dart Canada, 724 F.2d 313 (2d Cir. 1983), cert. denied, 466 U.S. 963, 104 S. Ct. 2181, 80 L. Ed. 2d 562 (1984).
The nature and character of the I.T.O. - MORMAC contract is not for storage. I.T.O.'s duties include the following functions traditionally perform by or for an ocean carrier of goods: To supply clerical personnel to record delivery and receipt of cargo; to sort and stack cargo; to make repairs to cooperage, rebag goods, etc.; to receive and tier outbound cargo; to break down cargo according to lot designations; to load and unload trucks and harborcraft; and to perform cleaning and general housekeeping on the piers. (A455-459). The storage that does occur under the contract is incident to the performance of the numerous maritime services undertaken for the ocean carrier by I.T.O. On any pier, outbound goods are likely to arrive before the vessel commences to lift cargo, and inbound goods often await action by the consignees or notify-parties. Usually the latter must receive notice of arrival, obtain the bill of lading through banking channels, and arrange for trucking and customs clearance before the goods may be called for and removed from the pier.
When, as in this case, the element of storage is merely incident to a maritime contract, the entire contract is maritime. Pillsbury Flour Mills Company v. Interlake S.S. Company. 40 F.2d 439, 440 (2d Cir. 1930); Marubeni-lida (American), Inc. v. Nippon Yusen Kaisha, 207 F. Supp. 418, 419 (S.D.N.Y. 1962).
That the Magistrate found that the losses occurred during the storage of the cargo, i.e. after discharge and before delivery to the consignee, or prior to loading, for the outbound shipments, is essentially irrelevant. As a claim for breach of contract the jurisdictional inquiry begins and ends with the subject matter of the contract. The references to cases such as Leather's Best, Inc. v. S.S. Mormaclynx, 451 F.2d 800 (2d Cir. 1971); Colgate Palmolive Co. v. S.S. Dart Canada, 724 F.2d 313 (2d Cir. 1983), cert. denied, 466 U.S. 963, 104 S. Ct. 2181, 80 L. Ed. 2d 562 (1984); and Minemet Inc. v. M.V. Mormacdraco, 536 F. Supp. 769 (S.D.N.Y.), aff'd 714 F.2d 115 (2d Cir. 1982) are inapposite. None of these cases concerned a breach of contract claim between a carrier and its stevedore/terminal operator. All considered claim for negligence by a shipper or consignee had no contractual claim against the terminal operator under the bill of lading or contract of affreightment. Consequently, those courts were obliged to consider the claims under the relevant state law and within the federal court's pendent or diversity jurisdiction.
The recognition of the claim pleaded here as within our admiralty and maritime jurisdiction is consistent with our long-standing tradition and policy favoring the preservation of our constitutional admiralty and maritime jurisdiction, exemplified by the works of Justice Story.
It is also consistent with the principle that jurisdiction should be tailored to its purpose by "dealing with the major concerns of the shipping industry -- with all of them, and not just with a few of them selected on antiquarian criteria." G. Gilmore and C. Black, Admiralty, 29 (2d Ed. 1975). The loss of maritime cargo either in the course of loading and unloading or in the midst of preparing it for delivery at pier-side, is such a major concern of the shipping industry.
This Court concludes that the claims pleaded here shall be resolved as admiralty and maritime litigation, without regard to state law.
Implied Warranty of Workmanlike Service
MORMAC asserts that the parties enjoy the benefit of an implied warranty of workmanlike service in the contract, and that in any event, absent a disclaimer, such an implied warranty exists as a matter of law. The Memorandum of Agreement between the parties sued on here specifies that: "The contractor (I.T.O.) will perform as provided for specifically herein the duties functions and services customarily performed by a terminal operator and stevedore." (A-455). I.T.O. also specifically agreed therein to "[a]ccomplish the efficient receipt of cargo onto the pier and delivery from the pier . . . . " (A-456). Memorandum of Agreement, [P] 2(b). These provisions are said to give rise to an implied warranty. MORMAC's contract administrator testified that he intentionally excluded from the contract, language found in the prior 1968 contract between the parties, which had disclaimed any implied warranties. Based on this testimony, Magistrate Tyler correctly found that "MORMAC disclaimed none of the usual implied warranties that may be legally inherent under such contract . . . . [and] that I.T.O. understood such meaning." Opinion at 9.
The Magistrate refused, however, to imply a warranty of workmanlike service with regard to the terminal services portion of the contract. He determined that this warranty was applicable only in cases regulated by federal maritime law. Because he had found that he could consider only the state claims against I.T.O. He did not reach the issue of breach of warranty. AS this is a maritime contract within this court's admiralty and maritime jurisdiction, we consider this claim in full.
The Supreme Court first implied the warranty of workmanlike service to permit shipowners to secure indemnity from stevedores for payments made by the shipowners to longshoremen for injuries sustained in the course of cargo handling activities performed on a vessel. Ryan Stevedoring Co. v. Pan- American Steamship Co., 350 U.S. 124, 76 S. Ct. 232, 100 L. Ed. 133 (1956). Under this implied warranty a court may infer that a breach of warranty by the employer caused such injury to a longshoreman. Italia Societa per Azioni di Navigazione v. Oregon Stevedoring Co., 376 U.S. 315, 11 L. Ed. 2d 732, 84 S. Ct. 748 (1964). The same rule extends to loss or damage to cargo in the stevedore's possession. Stein Hall & Co., Inc. v. S.S. Concordia Viking, 494 F.2d 287 (2d Cir. 1974).
Our Court of Appeals extended the warranty to misdelivered cargo by a stevedore/terminal operator in David Crystal, Inc. v. Cunard Steamship Co., Ltd., 339 F.2d 295, 300, 302 (2d Cir. 1964). The misdelivery occurred in that case when the terminal operator tendered the goods to a third party on the basis of a forged claim ticket. The court applied the warranty when the shipping company failed to show any negligence on the part of the stevedore/terminal operator. The court reasoned that the stevedore/terminal operator "was in a far better position to prevent the misdelivery than Cunard [the shipping company] and liability should properly fall upon the party who is best situated to adopt protective measures." Id. at 299.
In Stein Hall, the warranty of workmanlike service was implied where the stevedore had simply been unable to account to the carrier for the loss of cargo, although there was no evidence of negligence. The court in Stein Hall stated that the stevedore/terminal operator, Pittston,
"was liable for the loss on either of two grounds. First under the stevedoring contract, Pittston gave an implied warranty of workmanlike service competently to perform the carrier's statutory and contractual obligations for the discharge of the cargo. [Citations omitted]. Second, once Pittston as the terminal operator took possession of the cargo, it became a bailee for the mutual benefit of the carrier and the consignees." Stein Hall, 494 F.2d at 290.
I.T.O. argues that this aspect of the warranty has been extended only to the actual stevedoring function of loading and discharging the vessel. Under its view, the warranty was satisfied in this case when Magistrate Tyler found that I.T.O. had placed all of the discharged cargo on the pier. MORMAC argues in response that the court in Stein Hall did not intend to limit the scope of the warranty simply to loading and discharging vessels, and the defendant, as terminal operator, should also be held liable under the implied warranty. We accept this argument as valid.
However, whether viewed on a contract theory of breach of an implied warranty, or whether resolved in terms of bailment, or negligence, the lesson of Stein Hall and David Crystal is that the party with complete control of the goods must explain the loss or damage to cargo. In the present case, I.T.O. was essentially an independent contractor supplying specified services to MORMAC at the 23rd Street Terminal. As such, it did not have the requisite control and responsibility for the cargo so that a breach of the warranty of workmanlike service could be inferred merely from mysterious disappearance. I.T.O. had the responsibility to move and prepare cargo for loading and unloading. Consequently, it could be held liable, without proof of its negligence, for any damage to the goods or for its failure to perform its duties properly while so engaged. In David Crystal, for example, the plaintiffs established that the terminal operator had in fact delivered the missing goods to a thief (who had presented the forged claim check).
I.T.O. did not undertake, however, by implication or by express contract, to act as the insurer for the cargo at the 23rd Street Terminal. MORMAC, as the lessee of the terminal, and the owner of the pier-side shed, provided the security arrangements and guards. Customarily at the end of the workday. I.T.O. was not present on the pier.
It follows in logic that what it is equally likely, because of an absence of direct evidence, that any particular lost goods were removed from the pier or shed by unauthorized persons acting after or during business hours because of a breach or failure of security on the part of MORMAC, as it is likely that those goods were misdelivered by I.T.O., plaintiff cannot prevail on the theory of breach of warranty. Where a specific reason for a loss appears i a given case, and that reason involves a breach of the implied warranty on the part of I.T.O., the result would be otherwise.
For want of evidence of a breach of the warranty, and because a mysterious disappearance standing alone does not prove such a breach, judgment must be for I.T.O. on this theory.
Magistrate Tyler determined that the agreement between the parties did not create a bailment because the agreement had not left I.T.O. with the requisite exclusive control of the goods. He consequently concluded that he could not find liability on I.T.O.'s part for breach of the terms of the bailment based only on the fact that I.T.O. had failed to deliver all of the goods it had received.
MORMAC has failed to demonstrate that this conclusion is clearly erroneous, and this Court agrees there was no bailment. As noted above in the discussion relating to the Implied Warranty of Workmanlike Service, MORMAC owned the terminal, provided the security forces and supervised many of I.T.O.'s activities. As Magistrate Tyler observed, I.T.O. personnel work at the 23rd Street Terminal between 9:00 A.M. and 5:00 P.M., although they occasionally work overtime into the evening hours. The terminal, however, remains open twenty-four and when the I.T.O. employees leave at the end of their day, MORMAC employees stay behind. They remain stationed at the pier "round the clock." I.T.O.'s responsibilities as a contractor for labor services do not satisfy the exclusive possession requirement for a bailment.
Some courts have found that bailments existed between shipping companies and the terminal operator, but those cases are distinguishable on their facts. In Stein Hall, for example, the court found such a bailor-bailee relationship. In that case the shipping company had no obligations or duties with respect to the terminal operations and the pier, leaving the terminal operator with the exclusive of the shipments consistent with a bailment. Other cases have held that the terminal operator, as an agent of the ocean carrier, is a bailee of cargo it had a duty to load or discharge in its relationship with a shipper or consignee. See, e.g., Leather's Best, Inc. v. S.S. Mormac-lynx, supra, 451 F.2d at 812. In this case, this court need not determine whether I.T.O., as a principal, or as an agent for the carrier, was a bailee with respect to the shippers or consignee of the goods in storage. We simply agree with Magistrate Tyler that, under this contract, no bailment existed between MORMAC and I.T.O. because, at least as between them, I.T.O. never had exclusive control.
Negligence or Breach of Contract
It is true that I.T.O. "agreed to assume full responsibility for misloading or failure to load cargo . . . or in cross-delivery of cargo." Opinion at 7. MORMAC has failed to establish or present, by direct proof of misloading or misdelivery, a prima facie case that I.T.O. breached this agreement or acted negligently. See David Crystal Inc. v. Cunard Steamship Co., supra, 339 F.2d 295. It has proved only that I.T.O. received or discharged the cargo and that the consignees or vessels did not receive it.
It is conceded that the cargo did not just walk away on its own. Some irregularity must have occurred. MORMAC's assertions, however, that only misdelivery or misloading by I.T.O. could explain the losses are unsubstantiated. It is just as likely that someone perpetrated a theft of the cargo during the nighttime when I.T.O. had no control of the pier and no obligations to the cargo. MORMAC has consequently failed to prove a prima facie case of negligence, malfeasance or breach of contract necessary to sustain its claim on the above theories.
The result reached in this case by the Magistrate is affirmed. The Clerk shall enter an appropriate final judgment or order of affirmance.