Nat'l Shipping v. Omni Lines, Inc. ( 1997 )


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  •                      United States Court of Appeals,
    Eleventh Circuit.
    No. 95-6691.
    NATIONAL SHIPPING COMPANY OF SAUDI ARABIA, Plaintiff-Appellant,
    v.
    OMNI LINES, INC., Defendant-Third-Party Plaintiff-Appellee,
    Exchange Transportation International, Inc., Third-Party
    Defendant-Appellee.
    March 6, 1997.
    Appeal from the United States District Court for the Southern
    District of Alabama. (No. CV94-57-T-C), Daniel Holcombe Thomas,
    District Judge.
    Before ANDERSON, Circuit Judge, and KRAVITCH and HENDERSON, Senior
    Circuit Judges.
    KRAVITCH, Senior Circuit Judge:
    National Shipping Company of Saudi Arabia ("NSCSA") appeals
    the district court's judgment following a bench trial in favor of
    Omni Lines, Inc. ("Omni").           NSCSA, as a freight carrier, argued
    that where a shipper pays freight charges due under a bill of
    lading to a freight forwarder but the forwarder never pays the
    carrier, the shipper remains liable to the carrier for the unpaid
    freights.       The district court rejected NSCSA's contention.                On
    appeal, we review the district court's factual rulings for clear
    error and its legal conclusions de novo. Newell v. Prudential Ins.
    Co., 
    904 F.2d 644
    , 649 (11th Cir.1990).              We reverse.
    I.
    Acting    through    a    freight       forwarder,   Exchange   Transport
    International ("Exchange"), the parties arranged for the carriage
    of   newsprint    from     St.    John,   Canada    to   Jedda,   Saudi   Arabia.
    Specifically, NSCSA transported the newsprint pursuant to a bill of
    lading listing Omni as the shipper.   The freight charge on the bill
    totaled $67,794.62 and the bill was marked "Freight Prepaid."
    Despite marking the bill prepaid, NSCSA claims—and Omni does not
    dispute—that the bill was never paid.   Although Exchange issued an
    invoice to Omni for the freight charges, which Omni promptly paid,
    Exchange did not pay NSCSA and instead applied Omni's payment to
    its own outstanding debts. Exchange since has gone out of business
    and NSCSA's attempts to collect from Exchange have been fruitless.
    NSCSA therefore brought the instant action, alleging that Omni
    remains liable under the bill of lading for the unpaid freights.
    II.
    As an initial matter, we note that any result we reach in
    this case necessarily will be somewhat inequitable.   Neither party
    to the instant suit has done other than what it was expected to do;
    NSCSA transported the goods as arranged by Exchange, and Omni paid
    Exchange when billed.   Thus, we must decide whether Omni must be
    made to pay twice or whether NSCSA is not paid at all.
    Perhaps because of this Hobson's choice, courts have adopted
    varying approaches to cases where a carrier issues a "freight
    prepaid" bill of lading even though it has not yet been paid, the
    shipper pays the freight forwarder, and the forwarder fails to pay
    the carrier.   Some courts ask whether the use of the term "freight
    prepaid," in the specific circumstances of the case, was meant to
    act as an extension of credit by the carrier to the forwarder, in
    which case the carrier's only recourse is against the forwarder, or
    was an extension of credit to the shipper, in which case the
    shipper remains liable on the bill.1     Indeed, this court has noted
    that such evidence of local custom can create shipper liability.
    In Naviera Neptuno S.A. v. All International Freight Forwarders,
    Inc., 
    709 F.2d 663
    , 665 (11th Cir.1983), we reversed summary
    judgment for a shipper and remanded for the district court to
    determine whether local custom was to treat the "freight prepaid"
    notation as an extension of credit from the carrier to the shipper.
    If so, we held, the shipper could be held liable for freight
    charges, even though the shipper had paid a freight forwarder in
    full.
    NSCSA argues that Naviera governs this case, based on its
    claim that it introduced, at trial, unrefuted evidence of a local
    custom viewing "freight prepaid" as an extension of credit from the
    carrier to the shipper.   We disagree.    NSCSA's proof at trial did
    not indicate whether the use of the term "freight prepaid" on the
    bill of lading allocated—between NSCSA and Omni—the risk of loss
    due to the forwarder's failure to pay the carrier. Rather, NSCSA's
    revenue controller, Saniisha Williams, testified that marking a
    bill of lading "freight prepaid" is a way of indicating that the
    freight will be paid at the point where the cargo is loaded, not
    1
    See, e.g., Compania Sud Americana de Vapores v. Atlantic
    Caribbean Shipping Co., 
    587 F. Supp. 410
    , 413 (S.D.Fla.1984)
    (holding that unless carrier produces evidence that "freight
    prepaid" means an extension of credit to the shipper, usual rule
    is that it is an extension of credit to the forwarder);
    Koninklijke Nedlloyd BV v. Uniroyal, Inc., 
    433 F. Supp. 121
    , 128
    (S.D.N.Y.1977) (finding that carrier extended credit to
    forwarder); Farrell Lines, Inc. v. Titan Industrial Corp., 
    306 F. Supp. 1348
    , 1351 (S.D.N.Y.) (same), aff'd, 
    419 F.2d 835
    (2d
    Cir.1969), cert. denied, 
    397 U.S. 1042
    , 
    90 S. Ct. 1365
    , 
    25 L. Ed. 2d 653
    (1970).
    the point of delivery. 2        Consequently, although we recognize our
    prior precedent, we conclude that this case is not controlled by
    it.     We therefore consider the liability rules crafted by other
    courts to deal with the situation where a local custom is unproven.
    Some courts have "held that the equitable estoppel doctrine
    bar[s       carriers]   from   recovering   freight   charges   where   [the
    shippers] were justified in believing that [the carriers] had been
    paid for their services."          Olson Distributing Systems, Inc. v.
    Glasurit America, Inc., 
    850 F.2d 295
    , 296 (6th Cir.1988). 3             These
    courts reason that it would be inequitable to hold a shipper liable
    if it justifiably relied on the "freight prepaid" notation, in
    2
    Ms. Williams's twice referred to the phrase "freight
    prepaid" in her testimony:
    Freight prepaid—it was marked freight prepaid
    because it was to be paid on this side where the cargo
    originates, in the country of origin as opposed to
    collect where the consignee is responsible for paying
    the freight charges.
    We have two modes of payment. Either prepaid or
    collect. If a bill of lading is prepaid, the shipper
    is responsible for paying the charges on this side. If
    it's collect, the consignee pays the charge at the time
    of delivery.
    Freight prepaid means that the shipper of record
    is going to pay the charges either directly or through
    his agent, that the freight charges are going to be
    paid at the country of origin, or the area where the
    cargo is loaded.
    If a shipment goes freight collect, the consignee
    is responsible for paying the charges and the charges
    are paid at the time of the delivery of the goods.
    R-2 at 22-23.
    3
    See also Inman Freight Syst., Inc. v. Olin Corp., 
    807 F.2d 117
    , 121 (8th Cir.1986); Mediterranean Shipping Co. v. Elof
    Hansson, Inc., 
    693 F. Supp. 80
    , 84-85 (S.D.N.Y.1988).
    addition to other objective indications that the carrier viewed the
    freight forwarder as ultimately being liable for charges due under
    the bill of lading.
    By contrast, there are cases leaning towards a semi-strict
    liability for shippers.            These decisions indicate that unless the
    carrier intends to release the shipper from its duty to pay under
    the bill of lading, the shipper remains liable to the carrier,
    irrespective of the shipper's payment to a freight forwarder.                   We
    find       support   for    this     doctrine    in   dicta   from   this   court's
    predecessor:
    Of course it makes a lot of difference whether this is really
    a suit by the Carrier. If it is a suit by the Carrier, we can
    assume that by virtue of its filed tariffs expressly
    incorporating its bill of lading contract, conduct by the
    Carrier—no matter how inequitable—cannot excuse it from
    enforcing collection of freight, nor can harm innocently
    suffered by the Shipper—occasioned by the wrongdoing of
    another (the Agent)—excuse it from paying the Carrier even
    though this means payment twice. That would follow from the
    rigorous policy which, to prohibit not only discrimination but
    the possibility of it, gives to carrier tariffs the force of
    law.
    Compania Anonima Venezolana De Navegacion v. A.J. Perez Export Co.,
    
    303 F.2d 692
    , 695-96 (5th Cir.), cert. denied, 
    371 U.S. 942
    , 
    83 S. Ct. 321
    ,     
    9 L. Ed. 2d 276
         (1962)   (footnotes     omitted).4
    Subsequently, the Fifth Circuit adopted a rule which, although not
    as severe as its prior opinion foreshadowed, still views shipper
    liability as the default rule.               In Strachan Shipping Co. v. Dresser
    Indus., Inc., 
    701 F.2d 483
    (5th Cir.1983), the court held that
    bills of lading marked prepaid did not relieve a shipper of
    4
    See also Bartlett-Collins Co. v. Surinam Navigation Co.,
    
    381 F.2d 546
    , 549 (10th Cir.1967) (shipper liable on bill of
    lading "no matter how inequitable the conduct of the carriers").
    liability unless the shipper could demonstrate that the carrier
    released it.5
    Upon consideration, we believe that the Strachan approach—the
    shipper is liable unless released by the carrier—is the best rule.
    The district court relieved Omni of liability because it found that
    NSCSA, by using the words "freight prepaid," extended credit to
    Exchange, not to Omni. We hold that this conclusion was error
    because, although an extension of credit from the carrier to the
    shipper is one way to make the shipper liable, it is not the only
    way.       After all, the bill of lading is a contract between the
    carrier and the shipper and the carrier has a contractual right to
    expect payment pursuant to that bill.       Should the shipper wish to
    avoid liability for double payment, it must take precaution to deal
    with a reputable freight forwarder or contract with the carrier to
    secure its release.      In adopting the same standard we do today, the
    Fifth Circuit noted that there are legitimate policy reasons for
    adopting a rebuttable presumption in favor of shipper liability:
    [W]e think that our result comports with economic reality. A
    freight forwarder provides a service. He sells his expertise
    and experience in booking and preparing cargo for shipment.
    He depends upon the fees paid by both shipper and carrier. He
    has few assets, and he books amounts of cargo far exceeding
    his net worth. Carriers must expect payment will come from
    the shipper, although it may pass through the forwarder's
    hands. While the carrier may extend credit to the forwarder,
    there is no economically rational motive for the carrier to
    release the shipper. The more parties that are liable, the
    greater the assurance for the carrier that he will be paid.
    
    Strachan, 701 F.2d at 490
    .       We find this reasoning persuasive.
    We cannot, however, say as a matter of law that NSCSA has or
    5
    See also Sea-Land Serv., Inc. v. Amstar Corp., 
    690 F. Supp. 246
    , 250 (S.D.N.Y.1988) (following Strachan ).
    has not released Omni from its duty to pay.         The use of the words
    "freight prepaid" appears to point towards release, as does the
    fact that NSCSA focused its initial collection efforts at Exchange.
    Nevertheless, both of these indications were present in Strachan,
    and the Fifth Circuit found that the shipper had not been released.
    Weighing against release, NSCSA claims that local custom views
    "freight prepaid" as an extension of credit to the shipper.           We
    also note that the bill of lading itself does not favor finding
    release;   it states:
    Full freight to destination shall be considered completely
    earned upon receipt of the Goods at Point of Origin, whether
    the freight be stated or intended to be prepaid or to be
    collected at destination, and the Carrier shall be entitled to
    all freight and charges due hereunder, whether actually paid
    or not and to receive and retain them irrevocably under all
    circumstances whatsoever.
    Bill of Lading at 2, § 15.   Thus, we conclude that a factual issue
    remains for the trial court's resolution.       Upon remand, the court
    should consider the foregoing—as well as other evidence—in applying
    the standard we have enunciated above.6
    III.
    Accordingly, we REVERSE the judgment of the district court and
    REMAND for further proceedings consistent with this opinion.
    *    *   *      *   *   *
    6
    We also note that, should the district court find Omni
    liable, it must wrestle with the amount of its liability. It
    appears from the record that Exchange negotiated a $91.00/ton
    freight charge, but NSCSA billed Omni at a rate of $96.00/ton.