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APL Co. PTE Ltd. v. Blue Water Shipping U.S.

January 8, 2010



Plaintiff-appellants APL Co. PTE Ltd. and American President Lines, Ltd. (collectively "APL") appeal from a final judgment entered in the United States District Court for the Southern District of New York (Eaton, M.J.), to the extent that it reduces the damages awarded against defendant-cross-claimant-appellee Blue Water Shipping U.S. Inc. ("Blue Water") for breach of contract because APL had failed to mitigate its damages. We now vacate the judgment in part and remand the case to the district court for further proceedings consistent with this opinion.

The opinion of the court was delivered by: Eric N. VITALIANO, District Judge

Argued: April 17, 2009

Before: SACK, LIVINGSTON, Circuit Judges, and VITALIANO , District Judge.*fn1


This case arises out of a maritime contract. At issue are expenses related to cargo shipped as agreed but left uncollected by its owner at the dock. More precisely, 29 refrigerated containers ("reefers") of imported garlic were landed and ultimately left to rot in APL's warehouse on a Los Angeles, California wharf. That Blue Water bore responsibility for the uncollected garlic is not controverted. All that is before us on this appeal is whether the district court properly found that APL had failed to reasonably mitigate the loss caused by Blue Water's breach and that the corresponding reduction in the amount of damages awarded was appropriate.

The salient facts are essentially undisputed. APL was retained to ship the 29 reefers of garlic to the port of Los Angeles, where the garlic was to be picked up by Blue Water and delivered to its ultimate purchaser, Akata Food Trading Company ("Akata"). APL unloaded successive shipments of the garlic onto its dock between March 31 and April 22, 2003. Upon delivery, APL notified Blue Water that the garlic was ready for Blue Water's transshipment to Akata. Meanwhile, in addition to a number of holds placed by other federal agencies, United States Customs and Border Protection ("Customs") levied anti-dumping tariffs on the cargo.

In the end, Blue Water never came to collect the garlic, which passed into the "constructive General Order" custody of Customs ("constructive G.O."), a constructive custody because the cargo physically remained in APL's terminal occupying 29 of its reefers. Critically, APL's bill of ladingstated the agreement of the parties that once the garlic passed to Customs' control, APL's contractual obligations ceased. As the district court found, Blue Water, not APL, was responsible for resolving all cargo holds, including the ones placed by Customs, and for paying the "demurrage" charges that were to accrue until the garlic was off-loaded from APL's*fn2 reefers.

APL and Blue Water employees communicated about physical collection of the cargo, including a plea by Blue Water on April 21st for a "few more days" while Blue Water and Akata attempted to resolve holds affecting the reefers that had arrived first. Then came a pivotal exchange of e-mails on May 7th in which APL informed Blue Water that approximately $75,000 in demurrage had accrued on 26 of the reefers. Surmising that the demurrage now likely exceeded the value of the garlic, APL asked Blue Water if there was "any reason that [Akata] will even pick it up if it not worth it to them"-an idea with which Blue Water stated in reply it "agree[d]". Nonetheless, Blue Water pressed for more time to resolve the dilemma with Akata. But, Blue Water's request was rebuffed by APL, which declared that the garlic had to be collected by May 9th or be sent to auction.

Though the ultimatum went unanswered, APL did not immediately seek to auction off the garlic. Appellant explains that it was then still unaware of all of the regulatory requirements relating to such an auction. Soon thereafter it came to believe--erroneously, it now concedes-- that Customs regulations mandated that the cargo remain at the terminal for six months and that Blue Water file a "letter of abandonment" as a prerequisite to disposal.

Indeed, appellant claims, it was not until May 19th, when one of its employees suggested the idea internally, that APL contacted Customs directly about the stalemate. It was that contact, APL professes, which led it to its erroneous conclusion that the garlic would have to remain in the reefers at the terminal for six months. Two days later, APL again spoke with the same Customs inspector and, again, APL came away with the same mistaken impression. Believing that it had nothing to lose, APL says, it then reached up the chain of command. After a flurry of phone calls between APL and a Customs supervisor, on June 5th, APL finally learned that there was no such six-month hold requirement and that a "quick sale" by auction, to be arranged through Customs, was the proper procedure to deal with cargo in constructive G.O. In the meantime, Blue Water was largely absent from the scene, although it did reappear to send a "letter of subrogation" to APL on May 22nd and, on May 27th, to advise APL to auction the garlic "ASAP".

Working toward an auction, APL was informed by Customs, on June 11th, of another requirement--that a FDA inspection of the garlic was neeeded before it could be sold. At the same time, Customs also directed APL to contact the bonded Crescent Warehouse Company ("Crescent") to handle the quick sale. APL faxed a request to Crescent asking it to complete any necessary paperwork that same day. Initially balking, Crescent did not finish its processing until June 23rd. Crescent's reluctant efforts on behalf of APL proved, however, to be of no moment. Although an APL survey done on May 23rd determined otherwise, a series of FDA inspections and testings, ultimately completed on July 11th, found the garlic unfit for sale. After further delay, some occasioned by acts or omissions of Crescent, the last of the garlic on APL's dock was destroyed, but not until August 25th, nearly five months after arriving at the port of Los Angeles.

Trying its contract claims to the bench, APL sought $474,072.18 in damages, including $402,700 in demurrage charges. The district court found Blue Water liable in contract but also concluded that APL had failed to reasonably mitigate its damages and entered judgment for APL ...

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