Liberty Woods International In v. Motor Vessel Ocean Quartz , 889 F.3d 127 ( 2018 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________________
No. 16-4195
________________
LIBERTY WOODS INTERNATIONAL, INC.,
Appellant
v.
THE MOTOR VESSEL OCEAN QUARTZ,
Her engines, tackle, appurtenances, etc., in rem;
DALIA SHIP HOLDINGS SA, in personam
________________
On Appeal from the United States District Court
for the District of New Jersey
(D. C. Civil Action No. 1-15-cv-08843)
District Judge: Honorable Noel L. Hillman
________________
Argued on July 11, 2017
Before: MCKEE, AMBRO and ROTH, Circuit Judges
(Opinion filed: May 4, 2018)
Craig S. English, Esq. (ARGUED)
Kennedy, Lillis, Schmidt & English
75 Maiden Lane
Suite 402
New York, NY 10038
Counsel for Appellant
Richard Q. Whelan, Esq. (ARGUED)
Palmer, Biezup & Henderson
190 North Independence Mall West
Suite 401
Philadelphia, PA 19106
Counsel for Appellees
________________
OPINION
________________
ROTH, Circuit Judge
Liberty Woods International (LWI) brought suit for
cargo damage sustained during a trip to Camden, New Jersey,
on the Ocean Quartz (Vessel). Liability for the damage is
governed by the carrier’s bill of lading, which contains a
forum selection clause requiring suit to be brought in South
Korea. LWI instead sought to bring an in rem suit against the
Vessel in the District of New Jersey, arguing that the foreign
forum selection clause violates the Carriage of Goods by Sea
Act (COGSA) because South Korea does not allow in rem
2
suits. The District Court dismissed the case, and for the
following reasons, we will affirm.
I.
LWI purchased plywood veneer sheets, which it
shipped to Camden, New Jersey, on the Vessel. Dalia Ship
Holding owns the Vessel; however, in a chain of chartering,
Dalia bareboat chartered1 the Vessel to Star Bulk, which in
turn time chartered it to Daiichi, which in turn time chartered
it to SK Shipping. SK Shipping issued a bill of lading which
specified that “[a]ny claim, dispute, suit or action concerning
goods carried under this Bill of Lading, whether based upon
breach of contract, tort, or otherwise shall be brought before
the Seoul District Court in Korea.” Both parties agree that
LWI’s cargo is covered by this bill of lading.
In February 2013, the Vessel arrived in Camden, and
LWI discovered that its cargo was damaged. Believing the
damage was caused by improper stowage, LWI threatened to
arrest the Vessel. In lieu of an arrest, the Japan Ship Owners’
Mutual Protection & Indemnity Association (JSO) issued to
LWI and its insurers a letter of undertaking (LOU) on behalf
of the Vessel, which could be used to satisfy any judgment
against the Vessel in rem up to and including $2.75 million.
On December 23, 2015, LWI filed suit in the District
of New Jersey against the Vessel in rem and Dalia in
personam. Dalia answered on behalf of the in rem defendant.
1
Bareboat chartering transfers complete control and operation
of the vessel from the owner to the bareboat charterer without
imposing liability for the acts of the charterer.
3
LWI later learned that it could not recover in personam
against Dalia because of the bareboat charter. While LWI
could have filed an in personam suit against S.K. Shipping in
South Korea, it chose not to. At argument, counsel admitted
that this was a strategic move on its part, because LWI felt
that its suit would not be successful in South Korea.
The Vessel moved to dismiss the New Jersey suit
based on the forum selection clause in the bill of lading. LWI
argued that enforcing the forum selection clause would
violate section 3(8) of COGSA. In relevant part, this section
states:
Any clause, covenant, or agreement in a
contract of carriage relieving the carrier or the
ship from liability for loss or damage to or in
connection with the goods, arising from
negligence, fault, or failure in the duties and
obligations provided in this section, or lessening
such liability otherwise than as provided in this
Act, shall be null and void and of no effect. A
benefit of insurance in favor of the carrier, or
similar clause, shall be deemed to be a clause
relieving the carrier from liability.2
LWI argued that this provision invalidates the foreign forum
selection clause because South Korea does not recognize in
rem suits. On November 9, 2016, the District Court granted
the motion to dismiss under Rule 12(b)(3). LWI appealed.
2
Note to 46 U.S.C. § 30701, Title I, Section 8 (emphasis
added).
4
II.3
A.
In granting the motion to dismiss, the District Court
erred in interpreting COGSA by confusing it with the Harter
Act, a precursor to COGSA. COGSA was modeled after the
Brussels Convention for the Unification of Certain Rules
Relating to Bills of Lading (Hague Rules).4 In 2006, COGSA
was relocated from 46 U.S.C. §§ 1300 et seq., to a note after
46 U.S.C. § 30701.5 During this same period, the Harter Act
was also moved from 46 U.S.C. §§ 190-196 to 46 U.S.C.
§§ 30701-30707. As a result, COGSA was amended, not
merely relocated. The relocated Harter Act provisions were
the “amended” COGSA provisions. Upon analyzing 46
U.S.C. §§ 30704 and 30705, the District Court held that
Congress modified COGSA’s language so that it no longer
3
The District Court exercised jurisdiction under 28 U.S.C. §§
1332(a)(2) and1333(1), and we have jurisdiction under 28
U.S.C. § 1291. We exercise plenary review over the District
Court’s construction of COGSA, see e.g., United States v.
Cooper, 396 F.3d 308, 310 (3d Cir. 2005) (citation omitted),
and review the District Court’s decision to dismiss a
complaint on the basis of forum non conveniens for abuse of
discretion, Windt v. Qwest Comms Int’l, Inc., 529 F.3d 183,
189 (3d Cir. 2008) (“This Court reviews a district court’s
dismissal of a complaint on forum non conveniens grounds
for abuse of discretion.” (citations omitted)).
4
Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515
U.S. 528, 536 (1995).
5
200 A.L.R. Fed. 249 (2005) (noting the original locations
for COGSA and the Harter Act).
5
prohibited limiting a ship’s liability.6 That, however, was a
misinterpretation of COGSA.
B.
Nevertheless, we will affirm the judgment because the
foreign forum selection clause here does not violate COGSA.
While foreign forum selection clauses were originally
disfavored under COGSA, the Supreme Court later adopted a
policy that better reflected the need to respect the competence
of foreign forums to resolve disputes. In the seminal case of
Indussa Corp. v. S.S. Ranborg, the Second Circuit held a
foreign forum selection clause to be invalid because it “put[]
‘a high hurdle’ in the way of enforcing liability, and thus
[was] an effective means for carriers to secure settlements
lower than if cargo [owners] could sue in a convenient
forum.”7 After Indussa, courts of appeal uniformly adopted
this reasoning to invalidate foreign forum selection clauses8
until the Supreme Court overruled Indussa in Vimar Seguros
y Reaseguros, S.A. v. M/V Sky Reefer.
6
Ohio App. 14 (“Therefore, it is evident from the plain language of
COGSA that ‘the carrier’ may not limit its liability through
provisions inserted into a bill of lading. 46 U.S.C.A.
§§ 30704, 30705. Congress did not make the same
requirement of ‘the ship.’”).
7
377 F.2d 200, 203 (2d Cir. 1967) (internal citation omitted).
8
Sky Reefer, 515 U.S. at 533 (collecting cases).
6
Sky Reefer held that a foreign arbitration9 clause would
not lessen carrier liability in violation of COGSA solely
because litigating abroad would be more costly.10 While
acknowledging that a choice of forum and choice of law
clause would be invalid as against public policy if they
operated as a “prospective waiver of a party’s right to pursue
statutory remedies,”11 the Court noted that “the historical
judicial resistance to foreign forum selection clauses has little
place in an era when . . . businesses . . . now operate in world
markets.”12 Moreover, the Court stated that it would be “out
of keeping with the objects of the [Hague Rules] for the
courts of this country to interpret COGSA to disparage the
authority or competence of international forums for dispute
resolution.”13 Accordingly, the Court held that while
COGSA prohibited lessening the “liability for loss or damage
. . . arising from negligence, fault, or failure in the duties and
obligations provided in this section,” 14 COGSA did not
address the “means and costs of enforcing that liability.”15
“The relevant question . . . is whether the substantive law to
9
While Sky Reefer involved a foreign arbitration clause, the
Supreme Court noted that “foreign arbitration clauses are but
a subset of foreign forum selection clauses in general[.]” Id.
at 534 (citation omitted).
10
Id.
11
Id. at 540 (internal quotation marks and citation omitted).
12
Id. at 537-38 (first omission in original) (internal quotation
marks and citation omitted).
13
Id. at 537.
14
Id. at 534 (omission in original).
15
Id.
7
be applied will reduce the carrier’s obligations to the cargo
owner below what COGSA guarantees.”16
LWI argues, however, that the forum selection clause
here violates COGSA because in rem suits are themselves a
substantive right guaranteed by the statute. In the alternative,
LWI seems to argue that mandating a South Korean forum
will effectively limit the Vessel’s liability. We consider each
argument in turn.
1.
LWI claims that COGSA designates in rem suits as
substantive rights, which are violated by the instant forum
selection clause. We disagree. As LWI concedes, when the
plain language of a statute is clear, the text should govern.17
An examination of the plain language of section 3(8) shows
that the clause clearly protects both carrier and ship liability;
any clause completely eliminating or lessening ship liability
runs afoul of COGSA.18 This does not mean, however, that
section 3(8) guarantees the right to an in rem suit. Rather,
COGSA protects ship liability, not any particular vehicle for
imposing it. The text does not mention in rem suits, nor
require any specific remedy for enforcing ship liability.
Indeed, such an interpretation would run counter to Sky
Reefer’s holding that COGSA does not protect procedural
16
Id. at 539 (citation omitted).
17
Cooper, 396 F.3d at 310 (citation omitted).
18
Note to 46 U.S.C. § 30701, Title I, Section 3(8)
(prohibiting “[a]ny clause, covenant, or agreement in a
contract of carriage relieving the carrier or the ship from
liability[.]”).
8
means for enforcing liability. Insofar as prohibiting in rem
suits makes enforcing ship liability more costly or less
convenient, Sky Reefer explicitly held that liability is not
improperly lessened by procedural costs.19
While LWI acknowledges that section 3(8) protects
against lessening of ship liability, it cites this language as
establishing a substantive right to in rem suits without
adequately explaining this analytic leap. LWI argues in its
brief that in rem suits are well established and important
features of maritime law in the United States. It maintains
that nothing in section 3 excludes in rem rights or limits in
rem rights against the ship to a procedural device for the
enforcement of an in personam defendant’s liability. This
argument turns the necessary discussion on its head; arguing
that absence of express limitations grants a substantive right,
especially in light of Sky Reefer’s limitations, is woefully
inadequate.
In addition to the textual reasons for concluding that
COGSA does not grant the substantive right to in rem suits,
there are strong policy considerations that caution against
such an interpretation. Requiring in rem suits would
essentially invalidate numerous foreign forum selection
clauses, as many countries do not acknowledge in rem suits.20
19
Sky Reefer, 515 U.S. at 534 (noting the difference “between
applicable liability principles and the forum in which they are
to be vindicated”).
20
See, e.g., Thyssenkrupp Materials NA, Inc. v. M/V KACEY,
236 F. Supp. 3d 835, 840 (S.D.N.Y. 2017) (acknowledging
that Greek law does not recognize in rem actions); Uniwire
Trading LLC v. M/V Wladyslaw Orkan, 622 F. Supp. 2d 15,
9
Indeed, the United States is one of the few countries that do
recognize in rem suits. Imposing this idiosyncratic
procedural requirement on other countries would be
needlessly parochial. For these reasons, we conclude that
COGSA section 3(8)’s substantive protections21 encompass
ship liability, not in rem suits specifically as the instrument to
seek that recovery.22
21 (S.D.N.Y. 2008) (acknowledging that Polish law does not
recognize in rem suits); Matter of Topgallant Lines, Inc., 154
B.R. 368, 380 (S.D. Ga. 1993), aff’d sub nom. McAllister
Towing v. Ambassador, 20 F.3d 1175 (11th Cir. 1994)
(acknowledging that German law does not recognize in rem
suits).
21
For this reason, and because LWI has not argued that any
other statute creates a substantive right to in rem suits, we
reject LWI’s argument that the forum selection clause
functions as a prospective waiver of a statutory remedy, as
prohibited by Sky Reefer.
22
We join the Ninth Circuit in so holding. The Ninth Circuit
upheld a forum selection clause specifying that Korean law
would govern in Fireman’s Fund Insurance Co. v. M.V. DSR
Atlantic, holding that an in rem proceeding was merely a
“means . . . of enforcing [COGSA] liability.” 131 F.3d 1336,
1339-40 (9th Cir. 1997), as amended (Mar. 10, 1998)
(internal quotation marks and citation omitted) (omission in
original). The Ninth Circuit found no COGSA violation
because the vessel presented uncontroverted evidence that
Korean law was at least as favorable to the plaintiff as
COGSA. Id. at 1340. The Ninth Circuit summarily
confirmed this holding in Kukje Hwajae Ins. Co., Ltd. v. M/V/
Hyundai Liberty, 408 F.3d 1250, 1255 (9th Cir. 2005).
10
2.
LWI argues that even if in rem suits are not a
substantive right, the forum selection clause here effectively
relieves or lessens ship liability by not recognizing in rem
actions, in violation of COGSA. Once again, we disagree.
While in rem suits might appear to be an obvious way
to impose ship liability, courts have recognized other avenues
for imposing liability in situations where in rem suits are
prohibited. Courts have recognized plaintiffs’ ability to
obtain LOUs in lieu of bringing an in rem suit when they are
precluded from doing so by arbitration clauses, which
functionally prohibit in rem suits.23 For example, in Thyssen
Inc. v. Calypso Shipping Corporation, S.A., the Second
Circuit held that an arbitration clause did not violate COGSA
because the plaintiff accepted an LOU as full security of its
claims and could have recovered against the ship pursuant to
the LOU. The Second Circuit reasoned that “[a] letter of
undertaking replaces the vessel as the res and moots the
question of the need for separate in rem claim.”24 This
Circuit similarly held that “[g]enerally, once a[n] LOU is
issued, the letter becomes a complete substitute for the res
and the maritime lien transfers from the vessel to the LOU.”25
23
Petroleos Mexicanos Refinacion v. M/T KING A, 554 F.3d
99, 108 (3d Cir. 2009) (“An in rem action is cognizable only
in federal court; therefore the vessel could not have been a
party to the in personam arbitration.” (citing Madruga v.
Superior Court, 346 U.S. 556, 560 (1954))).
24
Thyssen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d
102, 107 (2d Cir. 2002) (citations omitted).
25
Petroleos, 554 F.3d at 104 (citations omitted).
11
As the Vessel argues, LWI could have obtained an
LOU that would provide security for an in personam suit in
South Korea. Moreover, the Vessel produced an
unchallenged affidavit by Korean lawyer Byung-Suk Chung,
claiming that South Korean law allows a party to “obtain[]
security from vessel interests by arresting a vessel or
attaching other assets in a foreign jurisdiction . . . to act as
security for an in personam judgment to be obtained in the
Seoul District Court.”26 Because LWI would then be able to
collect from the Vessel using the LOU, the forum selection
clause would not lessen or relieve the ship’s liability in
violation of COGSA.
In response, LWI raises a narrow argument: LWI
concedes that obtaining an LOU is an accepted practice that is
functionally equivalent to arresting a ship in an in rem suit.27
Further, LWI does not argue that the forum selection clause
prevented LWI from arresting the Vessel and obtaining a
bond or an LOU. Instead, LWI argues that the forum
selection clause eliminated ship liability in this case, because
LWI received an LOU that secured only an in rem judgment
against the Vessel. LWI does not allege that it could not have
obtained an LOU unencumbered by this restriction. Indeed,
26
Ohio App. 119.
27
LWI’s counsel admitted that the LOU is limited to the
amount “you could get if you actually arrested the vessel. So
what you get in a letter of undertaking is exactly the same
thing that you get when you arrest the vessel . . ..” Audio
Recording of Oral Arguments held July 11, 2017 at 5:50-
6:15, http://www.ca3.uscourts.gov/oral-argument-recordings.
Additionally, the Federal Rules of Civil Procedure
Supplemental Rules allow for a similar procedure.
12
LWI’s inability to recover seems to be a consequence of its
own deliberate inaction: First, it refused to file an in
personam suit against S.K. Shipping in South Korea. Second,
it did not obtain an LOU that would be applicable to an in
personam suit. LWI’s own willful limitation of alternatives,
not the forum selection clause, has eliminated its ability to
recover. For this reason, we hold that the forum selection
clause did not effectively lessen or eliminate the Vessel’s
liability and that it is valid under COGSA.
Because LWI has not raised any other arguments as to
how the District Court abused its discretion in enforcing the
forum selection clause, we will affirm the District Court’s
dismissal of the suit.
IV.
In this case, we are asked to support an interpretation
of COGSA that would invalidate a host of foreign forum
selection clauses for the sake of a procedural device available
in few countries besides the United States. Where parties
have contracted to bring suit abroad, the U.S. must be
cognizant of its status as a member of a global community
and respect the competence of other jurisdictions to
adjudicate claims. In light of this and in light of the fact that
the forum selection clause did not lessen or eliminate ship
liability for cargo damage, we decline to impose LWI’s
restrictive interpretation of COGSA. COGSA does not
invalidate the forum selection clause simply because the
selected jurisdiction does not acknowledge in rem suits. For
this reason, we will affirm the District Court’s order,
dismissing the action.
13
AMBRO, Circuit Judge, concurring
For a maritime creditor an action in rem is a procedure
for obtaining pre-judgment security and post-judgment
enforcement. In the global shipping business the debtor’s
ship is typically the main asset on which a judgment-creditor
can rely to collect from a defendant located perhaps on the
other side of the world. A court can easier locate, bring
within its jurisdiction, and arrest the ship than a defendant’s
other foreign assets.
It is no surprise then that maritime law supplies in rem
liability against a ship, that is, permits an action naming the
ship as though it were the defendant. As is relevant here, in
the United States a ship can be liable in rem for cargo
damage, the idea being that the ship impliedly ratified the
shipping contract when the carrier loaded the cargo onboard.
See Man Ferrostaal, Inc. v. M/V Akili, 704 F.3d 77, 83 (2d
Cir. 2012); see also Pioneer Import Corp. v. Lafcomo, 49
F. Supp. 559, 561–62 (S.D.N.Y. 1943), aff’d, 138 F.2d 907
(2d Cir. 1943) (“A lien against the ship arises for damage to
cargo caused by improper storage.”).
The Carriage of Goods by Sea Act, or COGSA,
assumes the availability of an action against the ship. Indeed,
§ 3 of COGSA is titled, “Responsibilities and Liabilities of
Carrier and Ship.” (emphasis added). And under § 3(8), the
parties to a contract for shipping goods by sea cannot agree to
lessen or relieve the liability of the “carrier or the ship.”
However, an action in rem is only one way to impose liability
on a ship. Although South Korean law does not allow in rem
suits, Liberty Woods International concedes that equivalent
security for in personam suits is available. As it chose not to
pursue this avenue for relief, I agree with my colleagues that
any lessening of the ship’s liability is the fault of Liberty
Woods, not the selection of a foreign forum.
If, however, a forum-selection clause were to operate
such that a shipper could never enforce the selected forum’s
judgment against the value of the ship that carried the
shipper’s damaged goods, the clause would be unenforceable
per COGSA § 3(8). See Vimar Seguros y Reaseguros, S.A. v.
M/V Sky Reefer, 515 U.S. 528, 540 (1995) (“[W]ere we
persuaded that the choice-of-forum and choice-of-law clauses
operated in tandem as a prospective waiver of a party's right
1
to pursue statutory remedies, we would have little hesitation
in condemning the agreement as against public policy.”
(internal quotations and ellipsis omitted)). My concern is
that, in another case, the common shipping industry practice
of chartering and sub-chartering a ship risks placing it and its
owner beyond the reach of the designated forum’s in
personam jurisdiction. Here, because sub-charterer SK
Shipping Co. Ltd. operated the Ocean Quartz, the parties
agree that its owner, Dalia Ship Holding S.A., bears no
liability for damage to Liberty Woods’ cargo. This naturally
leads to a question: if Dalia Ship Holding bears no liability,
how could Liberty Woods attach Dalia Ship’s property—that
is, the Ocean Quartz—to enforce a judgment against someone
else (i.e., SK Shipping)?
As noted, the parties do not contest that Liberty Woods
could have enforced a judgment obtained in South Korea
against the Ocean Quartz’s value. So there is no reason to
question that proposition here. But I am not convinced it will
hold in every case. It is easy to imagine a shipowner
contending that a personal judgment against a sub-charterer
several steps removed should not be enforceable against the
owner’s vessel. The use of so-called “bareboat” or “demise”
charter agreements, in which a shipowner surrenders control
of the vessel to the charterer (and ultimately any sub-charterer
down the line) and disclaims carrier liability, heightens the
concern. An owner can credibly “seek to use the bareboat
charter as a shield against in personam liability.” Backhus v.
Transit Cas. Co., 532 So. 2d 447, 449 (La. Ct. App.
1988), aff'd, 549 So. 2d 283 (La. 1989). If the sub-charterer
has few assets or becomes insolvent, the shipper might be left
high and dry without compensation for damage to its cargo.
A suit in rem provides a means of cutting through a
web of sub-charter agreements to impose liability on the ship
directly and vindicate § 3(8)’s command (and thereby protect
shippers in the face of judgment-proof sub-charterers). Other
jurisdictions may provide other procedural vehicles to deliver
these protections (as apparently South Korea does). In my
view, COGSA requires that a shipper have some means to
assess liability for damaged goods against the value of the
ship. Because Liberty Woods has not explained why it would
be impossible to vindicate its rights in the designated forum, I
agree with my colleagues that we must affirm the dismissal of
its in rem action.
2