D. Kyong Il's Insolvency
The parties stipulate that, beginning in 1990, the period of time between Kyong Il's receipt of cattlehides at its government bonded warehouses and the opening of letters of credit to Chilewich grew progressively longer. JPTO, FF 27. While David Peters, a Chilewich partner, testified that Chilewich contemplated a period of as much as 40 days between delivery of the cattlehides and payment by Kyong Il (Tr. at 61), in April, 1990, Kyong Il did not open a letter of credit until 80 days after hides were delivered. JPTO, FF 27. In February, 1991, at least 130 days passed between Kyong Il's receiving the hides and opening a letter of credit to Chilewich. Id.
As the time between delivery of the hides to Kyong Il and Kyong Il's opening of letters of credit grew longer, Chilewich became concerned. Their concern deepened in the fall months of 1991, as it became apparent that Kyong Il was having difficulty in opening letters of credit for the hides delivered during the summer. Their concern ripened into alarm when, in the early weeks of October, rumors of Kyong Il's insolvency circulated widely. Finally, on October 9, 1991, Chilewich asked the defendant carriers to remove the hides from Kyong Il's bonded warehouses and reconsign the hides to Kyungsong, Chilewich's Korean agent. Pl. Tr. Exh. 2. Chilewich repeated this request on October 23, 1991. Id.
However, when the carriers sought advice from Korean customs on the status of the hides, they learned that the hides were no longer in Kyong Il's warehouses and that Kyong Il had been charged with illegally using the hides before they were cleared through Korean customs. JPTO, FF 40-41. Although Chilewich has charged the carriers with failing to move the hides out of Kyong Il's warehouses upon request, the carriers produced a variety of evidence tending to establish their lack of control over the hides once delivered to Kyong Il's bonded warehouses. J. H. Lee, a manager at Kyong Il, testified that Kyong Il considered itself the owner of hides deposited in its bonded warehouses, and that Kyong Il would not have complied with attempts to remove the hides. J.H. Lee Dep. at 94. The testimony of David Peters and a number of the telexes and reports admitted as evidence indicate that, at approximately the time Chilewich attempted to reconsign the hides, factory laborers at the Kyong Il plants were on strike and were preventing the passage of traffic into and out of Kyong Il's factory premises. Tr. at 26; Pl. Tr. Exhs. 3T, 3U, 3V (Telexes from NYK Korean agent), 3AA (Westwood Telex), 25B (Mitsui Telex). Finally, as discussed above, the evidence plainly showed that imported goods in Korea are highly regulated and are under the control, if not the custody, of Korean customs officials. These officials retain the keys to and periodically inspect government bonded warehouses, they train warehouse managers to comply with customs regulations and they require bonded transportation licenses to allow movement of imported goods for which customs duties have not been paid.
Shortly after the events leading to this lawsuit, Kyong Il's president fled to avoid arrest and remains in hiding. Kyong Il sought protection from its creditors under the Korean bankruptcy laws, but its petition for reorganization was denied. The parties have stipulated that the hides were processed by Kyong Il without ever being cleared through Korean customs. JPTO, FF 39.
Consequently, Chilewich seeks $ 1,555,555.25, representing the value of the hides, plus pre-judgment interest and costs from the ocean carriers for what it terms "misdelivery, breach of bailment and/or conversion of cattlehide shipments carried by the defendants." Pl.'s Pre-Tr. Mem. at 1.
Briefly, the dispute in this case is whether the carriers properly delivered the hides to Kyong Il's bonded warehouses before receiving original, endorsed bills of lading. Chilewich claims that the carriers had an absolute duty to deliver the hides to the holder of an original bill of lading for them. Chilewich argues that the letters of guarantee offered by Kyong Il and Kyungsong were accepted by the carriers without Chilewich's knowledge and implies that the carriers delivered the hides without obtaining the original bills of lading in exchange for the guarantees. Chilewich also argues that the carriers were bailees and breached their bailment by failing to rescue the hides from Kyong Il's warehouses once requested to do so.
I. Delivery under the Pomerene Act
Notwithstanding Chilewich's claims, there is no "absolute" duty on the carriers to take up original bills of lading before delivery where this duty is imposed neither by the terms of the contract of carriage nor by the mutual understanding or agreement of the parties nor by the requirements of applicable federal law. In this case, the court concludes that such a duty did not exist and that the carriers properly delivered the hides to Kyong Il's bonded warehouses without taking up original bills.
The sales contracts between Chilewich and Kyong Il covering the shipments in suit called for a "stale" bill of lading transaction with "mill delivery" terms. In a stale bill of lading/mill delivery transaction, the hides were typically delivered to Kyong Il's "mill," or government bonded warehouse, before Kyong Il succeeded in opening letters of credit. In most cases, the hides arrived in Korea and were transported to Kyong Il's warehouses while Chilewich retained the original bills of lading. By directing the carriers to effect "mill delivery" while retaining possession of the original bills of lading, Chilewich ensured that the hides were delivered to Kyong Il's bonded warehouse before Kyong Il came into possession of an original bill of lading for the hides.
Chilewich held the carriers responsible for delivering the hides to Kyong Il's bonded warehouses. Tr. at 94-95. When some of the carriers hesitated to deliver the hides without presentation of the original bills of lading or a bank guarantee, Chilewich urged them to do so.
This is true even though Chilewich knew that Kyong Il did not possess original, endorsed bills of lading -- because the bills were still in Chilewich's possession. The court agrees with Chilewich's claim that, as holders of the original bills of lading, they were the rightful owners of the hides at the time of the events in this suit. However, this claim is not alone sufficient to establish the carriers' liability for misdelivery -- especially when, as here, the carriers delivered the hides to a party not in possession of the original bills at the insistence of the bill holder.
There is nothing in the Pomerene Act, 49 U.S.C. § 81 et seq. that disturbs the court's conclusion that the carriers were not obligated to take up original bills of lading before delivering the hides. 49 U.S.C. § 89, entitled "Delivery; when justified" states:
A carrier is justified . . . in delivering goods to one who is -- (a) A person lawfully entitled to the possession of the goods, or (b) The consignee named in a straight bill for the goods, or (c) A person in possession of an order bill for the goods, by the terms of which the goods are deliverable to his order; or which has been indorsed to him, or in blank by the consignee; or by the mediate or immediate indorsee of the consignee.
The Act clearly contemplates the situation in which a party, not in possession of an order bill for the goods, is yet "lawfully entitled to possession of the goods." While the precise meaning of this phrase is elusive, the court concludes that delivery of the goods to a party at the direction of the holder of an order bill, and with whom the holder of the bill has contracted for delivery prior to surrender of the bill, is delivery to a party "lawfully entitled to possession of the goods."
Other courts faced with similar facts under the Pomerene Act have reached similar conclusions. In Pere Marquette Railway Company v. J.F. French & Co., 254 U.S. 538, 65 L. Ed. 391, 41 S. Ct. 195 (1921), the Supreme Court ruled against the plaintiff shipper where the carriers had delivered goods under an order bill to a party who had wrongfully acquired possession of the bill, even though the carriers had not taken up the original bills as required by the carriage contract, where their failure to do so was not the cause of the loss. In response to the argument that the carriers were liable in conversion for delivering the goods without taking up the original bills, the Court stated:
There is nothing in the [Pomerene Act] which imposes upon the carrier a specific duty to the shipper to take up the bill of lading. Under § 8 [now § 88] the carrier is not obliged to make delivery except upon production and surrender of the bill of lading; but it is not prohibited from doing so.
254 U.S. at 546 (Brandeis, J.). The Court also noted that "such liability [for misdelivery] arises not from the statute but from the obligation which the carrier assumes under the bill of lading." Id. As discussed above, the majority of the bills at issue in this suit do not impose an independent obligation upon the carrier to take up original bills of lading before delivery and, in light of the nature and purpose of "stale" bills of lading transactions, there is no compelling reason to read any such obligation into the contracts of carriage.
Facts almost identical to the instant case were presented to the Supreme Court of Nebraska in Elgin Mills, Inc. v. Chicago and North Railway Co., 128 N.W.2d 384 (Sup. Ct. Neb. 1964). In that case, several carloads of "vetch seed" shipped under an order bill of lading were delivered to a prospective buyer without surrender of the original bill in violation of the contract of carriage. The agreement between the shipper and the prospective buyer called for delivery of the seed prior to payment, in order to allow the buyer to inspect the shipment. The prospective buyer, finding the seed deficient, neither paid for the seed nor redelivered it to the shipper, who brought suit against the carrier for breach.
The Nebraska court held that the carrier was justified in delivering the seed to the prospective buyer because the buyer was a party "lawfully entitled to possession" of the seed under 49 U.S.C. § 89(a). The court explained:
the agreement between [shipper] and [prospective buyer] did not contemplate payment before delivery . . . the delivery of the seed to [prospective buyer] was in accordance with the instructions of the owner in possession of the order bill of lading, and the failure of the railroad company to demand the order bill of lading before delivery was not the cause of the loss . . . [prospective buyer] was clearly entitled to the possession of the seed by agreement with the owner without paying for it, although the possession was for a limited purpose.