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January 10, 1986

M/V LA MOLINERA, her engines, boilers, etc., in rem; CARIBBEAN BULK CARRIERS, LTD., INTERNATIONAL CUSTOMS SERVICE, INC., and NIGERIAN STAR LINE, in personam, Defendants

The opinion of the court was delivered by: LUMBARD

Lumbard, Circuit Judge :*

Johnson Products, Inc. ("Johnson Products") and Johnson Products of Nigeria, Ltd. ("JPN") sue International Customs Service, Inc. ("ICS") and Nigerian Star Line ("NSL") for the expenses and damages incurred by Johnson Products in securing the release of a shipment to JPN of raw materials used in the making of the hair product "Afro-Sheen," which shipment was arranged by ICS and carried by NSL. The plaintiffs' claims against NSL, the carrier, come within the Court's admiralty jurisdiction. See 28 U.S.C. § 1333. The plaintiffs' claims against freight forwarder ICS, which allege fraud and negligence in acts performed on land, are not within the Court's admiralty jurisdiction. However, because Johnson Products is an Illinois corporation with its principal place of business in that state, ICS is a California corporation with California as its principal place of business, and NSL is a Nigerian corporation with its principal place of business in Nigeria, diversity jurisdiction exists under 28 U.S.C. § 1332. *fn1" The Court has exercised its discretion to hear all of plaintiffs' claims in a single forum. See 619 F. Supp. 764 (S.D.N.Y. 1985) (dismissing claim against ICS for lack of admiralty jurisdiction but allowing leave to amend complaint to assert diversity jurisdiction); see also Wright & Miller, Federal Practice and Procedure, § 1314, at 455 (1st ed. 1969).

 The court finds that ICS breached its fiduciary duty to Johnson Products as freight forwarder, and therefore is liable in the amount of the freight payment that Johnson Products made to NSL to secure release of the shipment in Nigeria. The court also finds, however, that the plaintiffs failed to mitigate their damages, and as a result, the recovery must be limited to reimbursement for what turned out to be a second ocean freight payment. If Johnson Products had monitored the status of the cargo after discovering that NSL had never received the initial freight payment, it would have avoided the additional expenses it seeks to charge to the defendants. The court finds that NSL is without blame or liability in this matter.

 Most of the relevant facts are undisputed. On December 15, 1983, Johnson Products' Traffic Manager, Loretta Dennys, telephoned Shelley Douglas of ICS to see whether ICS could arrange for a house-to-house shipment of 25 to 30 forty-foot containers from Johnson Products' Chicago plant to Lagos, Nigeria, to sail from the United States prior to the end of December. The shipment consisted of raw materials used in the making of Afro-Sheen, ordered by JPN, Johnson Products' Nigerian affiliate. The speed with which the goods were to be placed on a ship was important because Johnson Products' Letter of Credit was due to expire at the end of 1983. Johnson Products had acquired this Letter, along with the other requisite documentation, in the preceding months.

 Later that day, Douglas called Dennys to tell her that a ship was available and that ICS could arrange for carriage at the rate of $5,500 per container. ICS did not identify the vessel or the carrier, but told Dennys that the ship would be sailing to Nigeria before the end of the month. After Dennys received the go-ahead from her supervisor, Robert Johnson, she called Douglas back the same day to accept ICS's proposal. ICS was to provide the containers for shipment, which Dennys requested be delivered to Johnson Products' warehouse by the following Monday, December 19; in this way Johnson Products would be able to finish filling the containers before it closed for the holidays on December 23. Although Douglas assured Dennys that the containers would arrive by December 19, only six or seven of the 25 necessary containers had arrived by that date.

 On December 20, Dennys called ICS to find out when the rest of the containers would arrive. Douglas offered Dennys the alternative of loading the shipment into containers other than those necessary for the actual shipment, with subsequent transfer into the proper containers, at ICS's expense. Dennys's supervisor, Robert Johnson, rejected this alternative as contrary to his policy of in-house loadings for all of Johnson Products' shipments. Johnson agreed to wait several more days for the proper containers, which ICS said it would provide by December 23, 1983. The containers were finally packed and removed from Johnson Products' premises by the morning of Monday, December 26.

 Johnson Products re-opened after the holidays on January 2, 1984, and Dennys called ICS to confirm that the vessel had sailed. ICS assured her that everything was in order. Dennys did not inquire about, nor was she told, the identity of the vessel or the carrier. On January 5, Johnson Products received from ICS an invoice for the shipment and a bill of lading. The bill of lading was on the form of Container Overseas Agency, Inc. ("COSA"), and showed Johnson Products for the first time that ICS had used a non-vessel-operating common-carrier ("NVOCC"), i.e. COSA, as an intermediary between itself and the carrier. The bill of lading also stated that the freight had been pre-paid, and that the goods had been on board the vessel Nurenburg Express as of December 29, 1983. Based on the normal time schedule for the trip, the goods would be expected to arrive in Lagos by January 17, 1984. In the invoice sent along with the bill of lading, ICS charged Johnson Products $145,209.54 for ocean freight and for the other services it performed in connection with the shipment. Johnson Products approved payment of this invoice by check dated January 13, 1984. ICS deposited the check on January 19, 1984.

 David Sharpe, the head of ICS's Chicago office, testified that it was around this time that ICS first discovered that COSA had not sent the shipment on the Nurenburg Express, as promised, and that, contrary to Johnson Products' instructions, the bulk of the shipment had been transferred to different containers. A May 23, 1984, ICS interoffice memorandum sent by Shelley Douglas shows, however, that ICS knew in mid-December, 1983, that the goods were going to sail late and were not going to be loaded as Johnson Products had requested, and further that ICS and COSA had agreed to conceal this fact from Johnson Products. Douglas's entry for December 20, 1983 states.

 "We also realized we would not make the December 30th sailing but Meyers said they would still give us 12/30 on board and would get the containers to sail early January."

 Douglas's entries for the December 21-23 period continue:

 "Confirmed cross-loading situation with Dave Sharpe and Tom Thorpe -- of our office -- who agreed we would not say anything to Johnson Products about cross-loading and late sailing."

 Thus, contrary to Sharpe's testimony, ICS knew by mid-January at the latest that the goods had not sailed on the Nurenburg Express, and had not left the country before the end of December; and that the COSA bill of lading it had passed on to Johnson Products was false. Despite this knowledge, ICS never informed Johnson Products what had Products what had happened, and that the shipment would not arrive in Lagos until the second week of February, 1984.

 Also by mid-January, ICS had reason to believe that COSA was in financial trouble. First, the truckers who had performed the inland carriage of the goods requested payment from ICS. Although the truckers had been hired by COSA, they told ICS that they preferred direct payment because of uncertainty as to COSA's financial stability. ICS consulted with COSA and paid the truckers, later deducting the amount from its subsequent payment to COSA. Second, ICS learned that in early January COSA had received the resignations of its president and of one of its principal salesmen. Finally, COSA asked ICS for an additional $7500 fee for "war risk insurance" and "currency fluctuation," and when ICS balked at paying the extra charge, COSA threatened to hold up shipments for other ICS clients.

 Despite all these indications of COSA's financial difficulties, ICS still went ahead and passed on to COSA the freight money that Johnson Products had paid it, less ICS's fee. The evidence shows that, although ICS had deposited Johnson Products' check on January 19, 1984, and had made out its check to COSA on January 31, it did not in fact make payment to COSA until February 10, which was after the freight had arrived in Lagos. It is not clear whether ICS delayed because of diffidence, or consciously because of doubts about COSA's solvency, but in any event ICS did make the payment with reason to know that COSA was in financial trouble and without having ...

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