Rust belt opinion
Sandra Day O'Connor retired from the Supreme Court in 2006, but she still hears cases on occasion, recently penning an opinion in an admiralty case as a member of a three-person panel at the 6th Circuit Court of Appeals.
The case involved damage to a shipment of steel coils shipped from Szczecin, Poland, to Toledo, Ohio (Fortis Corporate Insurance v. Viken Ship Management, 6th Circuit, Nos. 08-4478/4479, March 10).
This was the second time a dispute involving this shipment reached the 6th Circuit. The first time was in 2006 (Fortis Corporate Inssurance v. Viken Ship Management, 450 F.3d 214), in a case the court now calls Fortis I to distinguish from this year's Fortis II opinion.
The central issue in Fortis II was whether a ship manager that provides the master, officers and crew, and performs other ship-management tasks for a vessel qualifies as a 'carrier' under the Carriage of Goods by Sea Act.
The 6th Circuit affirmed the district court's finding that the ship manager was not a COGSA carrier, and therefore COGSA's one-year statute of limitations did not bar the underlying suit. It also held the district court's finding that the ship manager acted negligently in failing to prevent the rust damage was not based on clearly erroneous factual findings.
A cargo of 176 steel coils belonging to Metallia LLC was carried aboard the 17,313-gross-ton bulk carrier Inviken. Seawater entered the cargo hold containing the steel coils and caused significant rust damage to 99 of the coils. Fortis, Metallia's insurer, paid the shipper $375,000 for the damage, then brought a lawsuit as Metallia's subrogee, alleging negligence and 'breach of bailment' ' breach of the delivery of property in trust ' against the owner of Inviken, Viken Lakers, along with the ship's manager, Viken Ship Management (VSM).
In the Fortis I dispute, an issue was whether Fortis had personal jurisdiction over the Norwegian companies Viken Lakers and VSM. The case was complicated by the fact that in 1998, the Canadian company FedNav International had chartered the Inviken. Viken Lakers had provided FedNav with assurances that the Inviken was fit to traverse the Great Lakes and call at the port of Toledo. In 2002, Metallia subchartered the Inviken from FedNav for the Toledo-bound voyage transporting the cargo of steel coils that gave rise to this dispute.
The district court had reasoned it was FedNav, not the Norwegian firms, that chose to use the Inviken to ship through Toledo port, and that providing a ship to a Canadian company did not establish the necessary contacts with Ohio to a U.S. court jurisdiction. But in Fortis I, the 6th Circuit reversed, finding the defendants outfitted and rigged their ships to sail the Great Lakes, confirmed in the charter agreement Inviken was 'suitable for Toledo,' and earned $558,000 for the time it spent in Ohio ports over five years. Thus, the court said, Viken Lakers and VSM had 'more than sufficient notice that they might be subject to jurisdiction here ' '
After the case was remanded to the district court, Viken Lakers and VSM moved for summary judgment on the basis the suit was filed beyond the one-year statute of limitations provided for in COGSA. Fortis did not dispute the suit was after more than a year, but argued COGSA did not apply because neither Viken Lakers nor VSM were 'carriers' under COGSA's terms.
The district court agreed only in part. It found Viken Lakers was a 'carrier' and the suit against it was barred by the one-year statute of limitations. But it found VSM was not a COGSA carrier and therefore could not invoke the one-year statute of limitations.
A 1959 Supreme Court decision, Robert C. Herd & Co. v. Krawill Mach. Corp., held COGSA 'imposes particularized duties and obligations upon, and grants stated immunities to the 'carrier.' '
The 6th Circuit explained COGSA was written 'to address the belief that carriers used their superior bargaining power against shippers when contracting for the carriage of goods, and could often dictate the terms of bills of lading to exempt themselves from any liability.' To counteract this inequality, COGSA sets baseline liabilities for carriers and allows parties to contract out of its terms, but only in the direction of increasing liability for carriers. Parties cannot contractually limit a carrier's liability.
COGSA defines 'carrier' as 'owner or the charterer who enters into a contract of carriage with a shipper.' But VSM argued the district court took an 'unduly formalistic approach to interpreting COGSA's provisions' and asked the 6th Circuit to endorse a 'functional approach in determining what entities qualify as COGSA carriers.'
Such an approach, argued VSM, fits 'the modern-day shipping world where ship managers and owners operate 'hand-in-glove,' with managers often carrying out the duties traditionally belonging to ship owners.'
But the 6th Circuit refused the functional approach, saying the U.S. Supreme Court had 'considered and rejected' an argument similar to VSM's in the Herd decision, where it found COGSA's plain terms applied only to carriers, and not agents.
The 6th Circuit was not persuaded by VSM's efforts to distinguish its case from Herd.
VSM claimed the Supreme Court held in Herd that COGSA didn't apply because the accident occurred prior to the inception of the tackle-to-tackle period covered by COGSA. But the 6th Circuit said the Supreme Court had made its decision on 'the broader basis that a carrier's agents simply are not covered by COGSA's terms even when they carry out the carrier's obligations.'
VSM also argued it was a COGSA carrier, and the stevedoring company in Herd was not. But the 6th Circuit said the Supreme Court in Herd rejected that agents of a carrier who perform the tasks of carriage are covered by COGSA and said, 'for us to conclude that those same agents performing the same tasks of carriage are in fact carriers would be a clear circumvention of Herd and render it meaningless.'
During the trial in district court, the opposing sides stipulated the amount of damage was $375,000 and that it was caused by seawater entering the cargo hold through a crack in the hull of the Inviken. But the two sides disagreed about when the crack occurred and what caused it. The trial court ruled that based on evidence that soundings found water rising for several days in the bilges for the hold where the steel coils were and not in other holds, that the crack had occurred at the outset of the voyage.
'The failure of the crew to properly and timely investigate the rising water levels was a breach of VSM's duty of reasonable care,' the district court found.
VSM tried to challenge the district court by saying its decision conflicted with comments in the ship's logbook, but the 6th Circuit said this amounted to an assertion that 'a district court is required to credit anything that appears in a ship's logbook absent overwhelming evidence to the contrary.'