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CHILEWICH PTNRS. v. M.V. ALLIGATOR FORTUNE

June 2, 1994

CHILEWICH PARTNERS, Plaintiff,
v.
M.V. ALLIGATOR FORTUNE, M.V. WESTWOOD MARIANNE, M.V. EIBE OLDENDORFF, M.V. HANJIN SEOUL, M.V. ARTHUR MAERSK, M.V. PRESIDENT JOHNSON, M.V. HENRY HUDSON BRIDGE, M.V. GEORGE WASHINGTON BRIDGE, M.V. MANHATTEN BRIDGE, M.V. CALIFORNIA HERMES, M.V. CALIFORNIA JUPITER, their respective engines, boilers, etc., MITSUI O.S.K. LINES, LTD., WESTWOOD SHIPPING LINES, INC., HANJIN SHIPPING CO., LTD., SEA-LAND SERVICE, INC., AMERICAN PRESIDENT LINES LTD., KAWASAKI KISEN KAISHA LTD., NIPPON YUSEN KAISHA (NYK LINE), ORANGE CONTAINER CARRIER CO., LTD., HYUNDAI MERCHANT MARINE CO. LTD., A/S D/S SVENDBORG & D/S AF 1912 A/S, ORION SHIPHOLDING S.A., COIBA SHIPPING S.A., HIGHNESS MARITIME S.A., FIRST INTERSTATE BANK OF CALIFORNIA, and SEAFARERS SHIPPING AGENCY INC., Defendants.


Tenney


The opinion of the court was delivered by: CHARLES H. TENNEY

TENNEY, District Judge,

 Plaintiff Chilewich Partners ("Chilewich"), a shipper of cattlehides, brings this action against six ocean carriers for the improper delivery of twelve shipments of wetsalted catttlehides. The carriers delivered the hides to two government bonded warehouses in South Korea belonging to Kyong Il Leather Co., Ltd. ("Kyong Il"), a leather tannery, in return for which Chilewich was to receive payment through letters of credit. Although the hides were delivered, payment was never received. At present, the hides are nowhere to be found. Presumably, Kyong Il wrongfully removed the hides from its warehouses. Chilewich argues, primarily, that the carriers improperly failed to obtain original bills of lading from Kyong Il before releasing the hides from container yards at the discharge port for delivery to Kyong Il's government bonded warehouses, and are therefore liable in conversion for the value of the hides.

 Chilewich brings claims under the Pomerene Bills of Lading Act, 49 U.S.C. § 89 et seq., and the Harter Act, 46 U.S.C. § 190 et seq., as well as maritime law contractual claims. Claims against the carriers Hanjin Shipping Co., Ltd. and Highness Maritime S.A. were dismissed by stipulation on June 22, 1992. The in rem actions against the defendant vessels were also dismissed by stipulation. Remaining defendants are the ocean carriers Mitsui O.S.K. Lines, Inc. ("Mitsui"), Westwood Shipping Lines, Inc. ("Westwood"), Sea-Land Service, Inc. ("Sea-Land"), American President Lines, Ltd. ("APL"), Kawasaki Kisen Kaisha, Ltd. ("K-Line") and Nippon Yusen Kaisha, Ltd. ("NYK Line") (collectively, the "carriers").

 On November 29 and 30, 1993, the court held a bench trial. For the reasons discussed below, the court finds for defendants and dismisses Chilewich's claims.

 BACKGROUND

 Chilewich is a New York general partnership whose business is selling and shipping cattlehides to various Korean leather tanneries. Since its founding in 1989, one of Chilewich's largest Korean customers has been Kyong Il. Kyong Il is a large, publicly traded tannery with factories in Inchon and Ansan, Korea. Kyong Il maintains a Korean government licensed bonded warehouse on the premises of each of these tanneries. Joint Pre-Trial Order, Agreed Findings of Fact ("JPTO, FF") 1-3.

 A. The Stale Bill of Lading/Mill Delivery Transactions

 In May, June and July, 1991, Chilewich shipped a total of 26,600 pieces of cattlehide to Kyong Il. The sales agreements between Chilewich and Kyong Il contained prices quoted on "CIF Inchon - Mill Delivery" terms and specified payment "by irrevocable Letter of Credit payable at sight in U.S. dollars against invoice and usual shipping documents.-STALE-." *fn1" Pl. Tr. Exh. 4A - 4N. Evidence established that this transaction is a common one in the Korean hide trade and is known as a "stale" bill of lading transaction. Testifying at trial as to the meaning of a stale bill of lading transaction, Mr. David Peters, a partner at Chilewich during the events in question, stated:

 
From [Chilewich's] point of view, [a stale bill of lading transaction] represents a transaction that would allow the cargo to be shipped to a government licensed warehouse in Korea. At which time, a letter of credit would be opened by the customer and then we would negotiate the letter of credit against various documents and the customer would get the goods.

 Trial Transcript ("Tr.") 12. See also, Deposition of J.H. Lee (Assistant Manager at Kyong Il) at 94-95; Deposition of Arthur Anker (Partner at Chilewich) at 15. Concerning "mill delivery" terms, Peters stated:

 
Mill delivery has become to mean where the cargo is placed in a designated warehouse or adjacent to the consignee or customer. However, it is our understanding that that location was licensed by the Korean government as a bonded warehouse.

 Tr. at 12; Anker Dep. at 15-16. On cross-examination, Peters further discussed the nature of "stale" bill of lading transactions:

 
Q: In terms of Chilewich's experience . . . wasn't it Chilewich's experience under stale bill of lading terms, mill delivery, Chilewich expected the shipment to go to the importer's self-use bonded warehouse and that some time after, it was in that self-use bonded warehouse, Chilewich expected a letter of credit to be opened up, all the while Chilewich holding original bills of lading?
 
A: That's correct
 
. . . .
 
A: . . . as far as the payment condition, it was normally accepted that a stale bill of lading would mean payment anywhere from 15 to 30 days or sometimes 40 days after arrival at the government licensed bonded warehouse . . . there was a desire not to put into a contract the exact due date of when the letter of credit would be due.
 
. . . .
 
Q: And the common expectation also was at the time those shipments are at the self-use bonded warehouse, you will be holding the original bills of lading for some period of time until Kyong Il opens a letter of credit and then the bills of lading, together with other documents, are presented by Chilewich to get payment from the letter of credit, correct?
 
A: Yes.

 Tr. at 60, 61, 94. *fn2"

 The cattlehides were shipped under sixteen negotiable bills of lading issued by seven different ocean carriers, six of whom are defendants in this action. *fn3" The bills of lading were consigned "TO THE ORDER OF SHIPPER" and Kyong Il was listed as "notify party." Pl. Tr. Exh. 1. The bills, with one exception, designated the place of delivery as "mill delivery." *fn4" This designation obligated the carriers to transport the hides to government bonded warehouses located at Kyong Il's factory premises in Inchon and Ansan, Korea. JPTO, FF 13.

 B. Arrival, Transport & Delivery of the Hides in Korea

 As stated above, the cattlehides in the instant action, as with past cattlehide shipments by Chilewich to Kyong Il, were shipped on stale bills of lading with mill delivery terms. The carriers were obligated to deliver the hides to Kyong Il's government bonded warehouses; meanwhile, Chilewich was to retain the original bills of lading until Kyong Il established a letter of credit with a commercial bank, against which Chilewich could present a draft along with the original bills of lading in order to receive payment. JPTO, FF 25.

 Shipment of cattlehides on stale bills of lading with mill delivery terms is a common practice in the Korean hide trade. JPTO, FF 26. The prevalence of this kind of transaction is likely facilitated by the control and oversight maintained by Korean customs officials over imported goods. Once arrived at a discharge port in Korea, imported goods are under the guidance and control of Korean customs officials, if not in their custody, until customs duties have been paid and the goods have been cleared through customs. See deposition of Mr. J.S. Kim, of the ...


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