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ARMADA SUPPLY v. S/T AGIOS NIKOLAS

July 16, 1986

ARMADA SUPPLY, INCORPORATED. Plaintiff, against S/T AGIOS NIKOLAS, her engines, boilers, etc., LACE, LIMITED, BLACK BARNETT SHIPPING CORPORATION, BLACK BARONETT SHIPPING CORPORATION, BLACK COUNT SHIPPING CORPORATION, MAGELAN, INC., MAGELEN MARITIME, INC., SHIPPING AND TRADING INTERNATIONAL CORPORATION, and ANASTASIOS KARAVAIAS, Defendants


The opinion of the court was delivered by: CONNER

OPINION AND ORDER

CONNER, D. J.:

 This is an admiralty action brought by Armada Supply, Incorporated ("Armada"), the owner and consignee of a cargo of fuel oil shipped from Rio de Janiero to New York City aboard the S/T Agios Nikolas in late 1982. Armada sought compensatory and punitive damages from the charterers, operators, and agents of the vessel, alleging that these defendants were responsible for a shortage, contamination, and conversion of the cargo.

 This matter was tried before the Court sitting without a jury, and in an Opinion and Order dated July 25, 1985, I set out my findings of fact and conclusions of law. Armada Supply, Inc. v. S/T Agios Nikolas, 613 F. Supp. 1459 (S.D.N.Y. 1985). As I explained in that Opinion, this was no typical cargo case. Not only did defendants contaminate the cargo, but when faced with a warrant for the arrest of the vessel, they absconded with the cargo and held it for ransom. Moreover, while holding the cargo beyond the territorial reach of American authorities, defendants illegally converted some of the cargo to their own use by using it for bunkers.

 In my previous Opinion, I concluded that Armada was entitled to compensatory damages in the amount of $4,130,900, and further concluded that in view of defendants' reprehensible conduct, Armada should also recover punitive damages. However, at that time I was uncertain whether the Carriage of Goods by Sea Act ("COGSA"), 46 U.S.C. §§ 1300-1315 (1982), which governs the rights and liabilities of the parties in this case, would permit such an award. Accordingly, I gave the parties an opportunity to brief the question of punitive damages, and I have carefully considered their submissions. For the reasons set forth below, I conclude that under the circumstances presented here, COGSA does not prohibit an award of punitive damages. Accordingly, in addition to the compensatory damages previously awarded, the Court awards Armada punitive damages in the amount of $250,000 for which all defendants not previously dismissed will be jointly and severally liable. *fn1"

 Discussion

 In a recent opinion, Thyssen, Inc. v. S.S. Fortune Star, 777 F.2d 57 (2d Cir. 1985), the late Judge Friendly considered the extent to which courts have power to award punitive damages under general maritime law. He explained that the power to impose punitive damages in a maritime tort action was well established, but that authority to award punitive damages in a maritime breach of contract action was uncertain. Indeed, he noted that he could find no case in which an admiralty court had awarded punitive damages for a breach of contract. Id. at 62.

 Accordingly, with the thoroughness and scholarship that typified his opinions, Judge Friendly set out to demarcate the limits of a court's power to award punitive damages for breach of a maritime contract. He concluded that, as in breach of contract actions generally, punitive damages are available for breach of a maritime contract only where the breach constitutes an independent, willful tort in addition to being a breach of contract. Id. at 63-64. Judge Friendly went on to hold that a "mere deviation" from a contract of carriage does not amount to a tort for which punitive damages can be imposed. Id. at 65.

 In this case, Armada complains of much more than a mere deviation from the contract of carriage. As noted above, when Armada attempted to secure a warrant for the arrest of the Agios Nikolas, defendants absconded with plaintiff's cargo and held it for ransom beyond the territorial limits of the United States. In the course of doing so, defendants used the fuel oil for their own purposes by rigging an illicit pipeline between the cargo system and the bunker system and transferring the fuel oil into the vessel's bunker tanks. Thus, defendants did more than deviate from the prescribed voyage or stowage instructions; they intentionally and willfully converted plaintiff's property to their own use. Under Thyssen, this kind of tortious conduct is necessary and sufficient for the imposition of punitive damages under general maritime law.

 However, this case is governed by COGSA, not by general maritime principles, and defendants contend that section 4(5) of COGSA, 46 U.S.C. § 1304(5) (1982), prohibits the imposition of punitive damages under any circumstances. That section permits the carrier and the shipper to agree that the carrier's liability will be greater than the limits specified by the statute, but states that "[i]n no event shall the carrier be liable for more than the amount of damage actually sustained." *fn2" Defendants contend that this proviso precludes all awards of non-compensatory damages.

 At the outset, I note that the parties have cited and I have found only one case that addresses whether section 4(5) prohibits the imposition of punitive damages. *fn3" In that case, Cosmos U.S.A., Inc. v. United States Lines, 1983 A.M.C. 1172 (N.D. Cal. 1980), the United States District Court for the Northern District of California struck the plaintiff's demand for punitive damages in an action governed by COGSA. In articulating several grounds for its ruling, the court cited the language defendants rely on here that "[i]n no event shall the carrier be liable for more than the amount of damage actually sustained." The court stated that "courts have consistently interpreted this provision according to its apparent and literal meaning," and cited Judge Lasker's opinion in B.F. McKernin & Co. v. United States Lines, Inc., 416 F. Supp. 1068 (S.D.N.Y. 1976) That was the full extent of the analysis on this point.

 I find Cosmos unpersuasive. First, I cannot agree that courts have applied section 4(5) literally. Judge Lasker's opinion in B.F. McKernin certainly does not stand for the proposition that section 4(5) literally precludes punitive damages in a COGSA case. Indeed, after discussing section 4(5) in the context of compensatory damages, Judge Lasker went on to consider the plaintiff's claim for punitive damages. See 416 F. Supp. at 1071-73. Instead of stating that the terms of section 4(5) prohibit punitive damages, Judge Lasker merely held that the facts of the case did not warrant such an award. Id. at 1073.

 Moreover, courts in this circuit have repeatedly disregarded the literal terms of other portions of section 4(5) in awarding compensatory damages. For example, the first paragraph of section 4(5) provides in part that "[n]either 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." (emphasis added). But in Jones v. The Flying Clipper, 116 F. Supp. 386 (S.D.N.Y. 1953), Judge Weinfeld held that notwithstanding this provision, when a carrier unjustifiably deviates from the contract of carriage it is liable for all damages resulting from the deviation and cannot invoke the $500 liability limitation. In reaching this result, Judge Weinfeld looked beyond the literal terms of the statute to the firmly entrenched rules of maritime law and the legislative history of COGSA. In Encyclopaedia Britannica, Inc. v. SS Hong Kong Producer, 422 F.2d 7 (2d Cir. 1969), our court of appeals approved of this approach and of Judge Weinfeld's conclusion. Thus, I think the court in Cosmos was mistaken to begin and end its analysis with the literal words of that portion of section 4(5) at issue here in determining whether the statute precludes an award of punitive damages.

 Indeed, if one examines the legislative history of COGSA, there is no evidence that Congress intended to work a change in the law of punitive damages. COGSA was intended merely to implement the provisions of the International Convention for the Unification of Certain Rules Relating to Bills of Lading, commonly referred to as the Brussels Convention. Carriage of Goods by Sea, S. Rep. No. 742, 74th Cong., 1st Sess. 4 (1935): Uniform Ocean Bills of Lading -- Hague Rules, H.R. Rep. No. 2218, 74th Cong., 2d Sess. 4 (1936). Indeed, Congress adopted in COGSA nearly all of the provisions of the Convention word for word. Robert C. Herd & Co. v. Krawill Mach. Corp., 359 ...


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