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NEW YORK MARINE & GEN. INS. CO. v. S/S "MING PROSP

February 22, 1996

NEW YORK MARINE & GENERAL INSURANCE CO., BRAHA INDUSTRIES, INC., Plaintiffs, against S/S "MING PROSPERITY," her engines, tackle boilers, etc., YANG MING MARINE TRANSPORT CORPORATION, YANG MING LINE, THE ATCHISON, TOPEKA and SANTA FE RAILWAY COMPANY, Defendants.


The opinion of the court was delivered by: KAPLAN

 LEWIS A. KAPLAN, District Judge

 This is an action to recover for the nondelivery of cargo that was shipped from overseas and destroyed during inland carriage in the United States. Plaintiffs' motion for summary judgment has elicited a complicated interchange among the parties, creating disputes over jurisdiction, the law governing this action, liability, and the amount of damages available to plaintiffs.

 Facts

 Braha Industries, Inc. ("Braha") is an importer of footwear and other merchandise from overseas markets, primarily from China. (Kolodny Dep. 5) In response to purchase orders from four American retail companies, Braha ordered 14,400 pairs of shoes from China Gate Company ("China Gate"), a manufacturer in Hong Kong. (Plansker Aff. P 4, Ex. J)

 The shipment of footwear was destroyed during inland carriage en route from Los Angeles as a result of a derailment and fire that occurred in Arizona on August 8, 1993. Braha was notified of the cargo destruction by letter dated August 13, 1993. (Plansker Aff. P7, Ex. B) New York Marine & General Insurance ("New York Marine"), as Braha's subrogee, and Braha filed this suit against defendants Yang Ming and ATSF in July 1995.

 Terms of the Bill of Lading

 Three provisions of the bill of lading are especially pertinent here. Clause 5 of the bill of lading states that, in certain circumstances, liability of the carrier shall be determined in accordance with the Carriage of Goods by Sea Act of the United States ("COGSA"), 46 U.S.C. 1300 et. seq. Clause 26(1) states that all claims for which the carrier may be liable shall be adjusted based on the "net invoice value of the goods" and that in no event should the Carrier be liable for loss of profit or consequential damages. Clause 22 states that freight shall be considered completely earned by the carrier "under all circumstances whatsoever Ship and/or cargo lost or not lost." The effect and enforceability of these clauses lie at the heart of the motion crossfire.

 Plaintiffs' Damage Claim

 Plaintiffs claim damages in the amount of $ 87,665.62, which, they say is comprised of $ 6,513.47 in shipping costs, $ 152.25 in bank fees, and $ 81,000 in cargo loss *fn1" (See Pl's Mem. 11; Plansker Aff. P 15) A commercial invoice prepared by China Gate for the 800 cartons of shoes in connection with the Yang Ming shipment lists the value of the footwear as $ 51,282. The $ 81,000 figure represents plaintiffs' estimation of the sound market value of the footwear, and it is based on the prices of the resale contracts for the shoes, which had been had been sold in advance of shipment. (See Plansker Aff. P 17 & Exs. D-H; Pl Mem. 11) Both defendants dispute plaintiffs' inclusion of the profits that would have been obtained from the resale contracts had the shoes been delivered, and Yang Ming disputes the inclusion of ocean freight charges and bank fees. The resolution of the damage disputes depends heavily on what law governs, a point which the parties dispute hotly.

 Discussion

 Disputes Between Plaintiffs and Yang Ming

 In opposing plaintiffs' motion for summary judgment, defendant Yang Ming contests the existence of admiralty jurisdiction and argues that plaintiffs inadequately established liability and damages.

 Admiralty Jurisdiction

 Admiralty jurisdiction traditionally exists in contract cases if the contract sued upon is "wholly maritime in nature." If the contract contains both maritime and non-maritime obligations, admiralty jurisdiction generally is absent. Atlantic Mutual Ins. v. Balfour Maclaine Int'l Ltd., 968 F.2d 196, 199 (2d Cir. 1992). There are two important exceptions, however. Admiralty jurisdiction exists, despite the presence of non-maritime obligations, if: (1) the claim under the maritime portion can be separately enforced without prejudice to the rest or (2) the non-maritime elements are merely incidental to an otherwise maritime contract. Sirius Ins. Co. Ltd. v. Collins, 16 F.3d 34, 36 (2d Cir. 1994); Atlantic Mutual, 968 F.2d at 199. The Court's central concern in appraising these matters is the fundamental interest giving rise to maritime jurisdiction, the protection of maritime commerce. Sirius 16 F.3d at 36; Atlantic Mutual, 968 F.2d at 199-200.

 In this case, the contract provided for land transportation of the shoes from the Port of Los Angeles to New York. It therefore involved a non-maritime obligation. Neither of the two exceptions in Atlantic Mutual applies. The first exception does not apply because the loss occurred 盪 the non-maritime leg of the journey, thus making severability of the non-maritime portion impossible for purposes of resolving this claim. The second exception does not apply because the land transportation may not be considered incidental given the large distance involved. See Berkshire Fashions, Inc. v. M.V. Hakusan II, 954 F.2d 874, 881 (3d Cir. 1992) (if the bill of lading was a contract for partial sea and partial land transport, it would not give rise to admiralty jurisdiction; the extensive cross-United States transport of goods would not be an incidental aspect of the contract, nor could the land and sea portions appropriately be severed); Rudy-Patrick Seed Co. v. Kokusai Kisen Kabushiki Kaisha, 1 F. Supp. 266, 267 (S.D.N.Y. 1932) (portion of transportation involving land carriage fell outside the scope of admiralty jurisdiction); *fn2" see also Graham v. Oregon R. & Nav. Co., 134 F. 454 (D.C.N.Y. 1904) (agreement between a railroad company and the owner of certain steamships to cooperate in operating a through line of transportation was not maritime in nature, and a court of admiralty is without jurisdiction over a suit for its breach).

 Leather's Best, Inc. v. S.S. Mormaclynx, 451 F.2d 800 (2d Cir. 1971), in which the Court of Appeals held that the existence of admiralty jurisdiction in contract actions cannot be determined simply on the basis of whether the alleged damage occurred on land, is not to the contrary. In Leather's Best, a shipping company successfully shipped a container of goods from Weinheim, Germany to Brooklyn, New York. Upon arrival in Brooklyn on a Saturday, the undamaged container was unloaded and placed in a large terminal owned and operated by the shipping company to await pick up on the following Monday morning. The goods were stolen in the interim. The Court held:

 
"While the loss of the container occurred after the act of carriage had been completed and the container had been discharged from the [ship], that does not mean that the contract of carriage, obviously a maritime contract, was at an end; the contract continues to govern the relationship between a shipper and carrier after discharge but before delivery. Such was our holding in David Crystal, Inc. v. Cunard S.S. Co., 339 F.2d 295, 297 (2d Cir. 1964), cert. denied, 380 U.S. 976, 85 S. Ct. 1339, 14 L. Ed. 2d 271 (1965). Consequently, the shipper's claims against [the carrier] is [sic] properly within federal admiralty jurisdiction." 451 F.2d at 807.

 The broad language in Leather's Best at first seems to favor the exercise of maritime jurisdiction, but on closer analysis the case is distinguishable. Although both Leather's Best and David Crystal Inc., upon which it relied, involved injury to the cargo after unloading and before the shipper's receipt of the goods, neither case involved a second carriage of the goods on land over any appreciable distance. Thus, any land obligation more easily could be deemed incidental to the marine transportation in those cases than in the instant action.

 Nor does Sirius, where the Second Circuit reiterated that maritime jurisdiction may exist where the dispute arises out of damage to cargo occurring on land, warrant a different result. The Second Circuit there held that a dispute concerning an insurance policy, which turned on a theft warranty relating to out of water storage, fell within maritime jurisdiction. But the basis for the Court's conclusion that the dispute was primarily maritime in nature was the fact that the policy covered a boat, which has "an inherently maritime character." 16 F.3d at 36. This conclusion was consistent with the Second Circuit's previous recognition of the "well-settled" principle that admiralty jurisdiction extends to suits involving maritime insurance policies. Atlantic Mutual, 968 F.2d at 199. Here, in contrast, there is nothing inherently maritime about a container of shoes. Moreover, given that the shoes had ended their connection with the flow of maritime commerce upon reaching Los Angeles, the connection to maritime commerce is too attenuated to find admiralty jurisdiction.

 The lack of maritime jurisdiction here is all the more clear to the extent that plaintiffs seek a remedy in tort, rather than in contract. *fn3" In numerous tort cases, the Second Circuit has held unequivocally that no maritime jurisdiction exists if the alleged damage occurred during any land portion of transportation. See, e.g., Roco Carriers Ltd. v. Nurnberg Express, 899 F.2d 1292, 1295 (2d Cir. 1990) (inasmuch as the tort claim against defendant arose while cargo was on land, plaintiffs' claim is not within the district court's admiralty jurisdiction).

 Diversity Jurisdiction

 While admiralty jurisdiction is lacking, plaintiffs seek leave to amend to premise jurisdiction on diversity of citizenship. Their reply brief asserts that: (1) defendant Yang Ming is a foreign corporation with a principal place of business in Taipei, Taiwan, Republic of China; (2) defendant ATSF is a foreign corporation with a principal place of business in Topeka, Kansas; and (3) both New York Marine and Braha Industries, the plaintiffs, are New York corporations with principal places of business in New York City. As these facts are uncontested by defendants, and the jurisdictional ...


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