Opinion
96 Civ. 2166 (RPP)
November 1, 2002
Alfred J. Kuffler, Montgomery McCracken, Walker Rhoads, LLP, Philadelphia, PA; D'Amato Lynch, New York, NY, for Plaintiff.
Michael G. Davies, J. Cullen Howe, Hoguet Newman Regal, LLP, New York, New York, for Defendant Asoma Corporation.
OPINION AND ORDER
In this in rem suit for title to and possession of a Bill of Lading, Plaintiff Thypin Steel Company ("Thypin") moves for summary judgment. Defendant Asoma Corporation ("Asoma") opposes such motion and cross-moves for summary judgment, claiming, among other things, that Thypin's suit is champertous. For the reasons that follow, Thypin's motion for summary judgment is granted; Asoma's cross-motion for summary judgment is denied.
Background
In June 1995, Thypin entered into two contracts to purchase 15,000 metric tons of Ukranian steel conforming to certain specifications from Donbakraft, Ltd. ("Donbakraft"), a Minnesota trading company. (PX 2 and PX 3.) Donbakraft contracted with J.V. Fistag-Victoriya ("Fistag") a Ukranian partnership, to supply the steel ordered by Thypin. (PX 6 and PX 7.) Thypin paid over $2 million to Donbakraft, which in turn gave Fistag over $2 million as an advance payment for the steel. (PX 4 at 30-33; PX 5 at 362-363.) Donbakraft's contracts with Fistag (PX 6-7) required a Bill of Lading issued "to the name of the name of the Buyer or its order." (PX 6, PX 5 at 361-362.) Azovbroker, a forwarding agency of Fistag, acknowledged in Fistag that 3,017 metric tons of steel were being held in Berdyansk, Ukraine, for Donbakraft (PX 9), and in December 1995, Fistag acknowledged to Donbakraft that the 3,000 tons of steel was Donbakraft's, and suggested that Fistag sell it to another company and that Fistag and Donbakraft enter into a new agreement. (PX 8.) On December 22, 1995, Thypin asked Victor Epinov, President of Fistag, to send a freight forwarder's certificate of receipt for the steel to Thypin. (PX 10.)
"PX" refers to Plaintiff's numbered Exhibits attached to Plaintiff's Statement of Material Facts in Support of Their Motion for Summary Judgment.
Asoma objects to PX 9, PX 10 and PX 11 as hearsay, however, these documents were clearly kept in the regular course of business by Donbakraft and Thypin, and it was clearly their regular course of business to keep such documents.
On December 25, 26 and 27, Thypin (1) acknowledged receiving a copy of a warehouse receipt issued in the name of Donbakraft, Ltd., and (2) requested Fistag to have Mr. Spiridonov instruct Azovbroker to issue the forwarder's certificate of receipt in the name of Thypin Steel Company; and (3) pointed out that Mr. Epinov, as President of Donbakraft, Ltd., would give the instruction which had been requested of Fistag to have Azovbroker change the warehouse receipt from Donbakraft to Thypin. (Id.) By letter dated December 26, 1995, Victor Epinov of Fistag suggested to Thypin alternate ways of meeting its obligation to Thypin than shipping the steel, stated he had unsuccessfully tried to have port officers issue the receipt in name of Thypin and suggested that Mr. Spiridonov of Donbakraft "confirm that the materials belong to you." (PX 11.)
On January 25, 1996, a Bill of Lading was issued to Shipper: "Ukrainian Swiss J.V. `Fistag-Victoriya' Kramatorsk, Donetsk Region, Ukraine" confirming that the 3017 metric tons of the steel conforming to Thypin's specifications were loaded onto the M/V Geroi Panfilovsky at a port in Ilichevsk, Ukraine for shipment to the U.S. (PX 1; DX 1.) The Bill of Lading states: "Consignee: Metall und Rohstaff AG Bahnhofstrasse 10 6300 ZUG to the order of Donbakraft, Ltd." (PX 1; DX I.) The Bill of Lading was thereafter delivered to Metall und Rohstaff, AG ("MR"), a Swiss trading company, by Fistag, Fisher and Stebbler ("FFS"), a Swiss affiliate of Fistag-Victoriya.
"DX" refers to Defendant's numbered Exhibits attached to Defendant's Notice of Cross-Motion.
Mr. Farkas testified (DX 3 at 149) that he understood that the "to order" language naming Donbakraft on the Bill of Lading was used to get an export license approved. The Bill of Lading was issued well after Asoma had negotiated its purchase of the steel, so there was no reason not to use Asoma's name for the export license.
Meanwhile, beginning on October 19, 1995, MR learned that Fistag-Victoriya had 3,000 tons of steel and attempted to negotiate the purchase from FFS of about 3,000 tons of steel in Berdyansk. After unsuccessfully trying to sell the steel in Italy, Turkey and Israel, MR, after obtaining an agreement to purchase from Asoma on November 15, 1995 (DX 13), agreed to purchase the steel from FFS on November 20, 1995 (PX 15). MR then sold the steel to Asoma who arranged sales of the steel to two separate buyers on December 22, 1995. (PX 28.) On February 12, 1996, MR sent Asoma three copies of the "non-negotiable" Bills of Lading endorsed by MR (DX 19) and a copy of a purported fax ("Spiridonov fax") allegdly signed by Igor Spiridonov, managing director of Donbakraft (PX 17, DX 20). The copy of the Spiridonov fax, dated January 12, 1996 states:
This case has a long and complicated procedural history. The facts stated above are a brief summary of the facts underlying this case as set forth in earlier opinions and orders of this Court and the Second Circuit. See Thypin Steel Co. v. Asoma Corp., 215 F.3d 273 (2d Cir. 2000); Thypin Steel Co. v. Asoma Corp., 113 F.3d 1230 (2d Cir. 1997);Thypin Steel Co. v. Certain Bills of Lading, No. 96 Civ. 2166 (RPP), 1999 WL 108728 (S.D.N.Y. Mar. 3. 1999); Thypin Steel Co. v. Certain Bills of Lading, No. 96 Civ. 2166 (RPP), 1996 WL 223896 (S.D.N.Y. May 1, 1997). The procedural history stated below summarizes actions of the parties that bear on the current dispute.
12, January 1996 (in handwriting)
To whom it may concern re: 3000 mt plates MV "Geroi Panfilov" Dear Sirs,
Despite the fact that our name is mentioned under "consignee", we herewith confirm the total cargo shipped on the M/V "Geroi Panfilov" is exclusivly [sic] for the account of Metal und Rohstoff only and we do not have any access to the material.'
Best regards
Spiridonov I. (signature)
(PX 17, DX 20)
On March 25, 1996, while the steel was in transit, Thypin brought an in rem action in this Court under Supplemental Rules for Certain Admiralty and Maritime Claims ("Supplemental Rules"). Rule D, claiming ownership of the Bill of Lading covering a cargo of 3,017 metric tons of steel plate en route from Ukraine to Houston. On March 26, 1996, this Court issued an ex parte order authorizing a warrant for the arrest of the Bill of Lading. The Bill of Lading was arrested, and on March 28, April 4, and 11, 1996, the Court held a post-arrest evidentiary hearing pursuant to Rule E(4)(f) of the Supplemental Rules. At the post-arrest evidentiary hearing, Asoma produced a copy of the Spiridonov fax. At the hearing, Spiridonov testified that his signature on the Spiridonov fax was a forgery (PX 5 at 401).
When Donbakraft failed to deliver the steel for its agreement with Thypin, Thypin filed enforcement proceedings against Donbakraft. As a result of those proceedings, Thypin now owns any rights Donbakraft had to the Bill of Lading and about 3,000 tons of steel. (Plaintiff's Statement of Material Facts, ¶ 33.)
On April 3, 1996, Asoma filed its claim to the Bill of Lading, denying Thypin's claim. Asoma also filed a counterclaim, alleging the wrongful arrest of the Bill of Lading and requesting damages in the amount of $868,692.99 for the cost of cargo, plus interest, costs and attorney's fees.
In an opinion and order dated May 1, 1996, this Court found that admiralty jurisdiction existed, that the arrest of the Bill of Lading was supported by reasonable grounds, and that discovery should proceed before a final determination of Thypin's claim. Thypin Steel Co. v. Certain Bills of Lading, No. 96 Civ. 2166 (RPP), 1996 WL 223896 (S.D.N.Y. May 1, 1996). That decision was affirmed by the Second Circuit. Thypin Steel Co. v. Asoma Corp., 215 F.3d 273 (2d Cir. 2000).
After completion of discovery, Thypin moves for summary judgment against Asoma, arguing that Asoma is not a bona fide purchaser for value of a negotiable Bill of Lading.
Asoma opposes summary judgment and cross moves, arguing that the Bill of Lading is non-negotiable and that MR did not need any endorsement on the Bill of Lading to sell the Bill of Lading to Asoma since it lists MR as the consignee, that Asoma is a bona fide purchaser for value, and that Thypin cannot prevail since it has violated Section 489 of the Judiciary Law of New York against champerty.
Discussion
Summary Judgment Standard
Summary judgment is appropriate only in cases where there exists no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Rule 56(c) of the Federal Rules of Civil Procedure. "[T]he judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to summary judgment as a matter of law." Id.; See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of a genuine issue of material fact in the moving party's case. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
In deciding whether to grant summary judgment, all inferences as to material facts drawn from the evidence submitted to the trial court are viewed in the light most favorable to the party opposing the motion. SeeAlexandra v. Cortes, 140 F.3d 406, 414 (2d Cir. 1998). "Only when no reasonable trier of fact could find in favor of the non-moving party should summary judgment be granted." Cruden v. Bank of New York, 957 F.2d 961, 975 (2d Cir. 1992) (citing H.L. Hayden Co. of New York, Inc. v. Siemans Medical Sys., Inc., 879 F.2d 1005, 1011 (2d Cir. 1989).
Interpretation of The Bill of Lading
This is a dispute over the title to a Bill of Lading in which the consignee is designated "Metall und Rohstaff . . . to the order of Donbakraft, Ltd." A bill of lading is a document of title. U.C.C. § 1-201(15). Bills of lading are also contracts. See Allied Chemical International Corp. v. Companhia de Navegacao Lloyd Brasileiro, 775 F.2d 476, 482 (2d Cir. 1985) (bills of lading are contracts of adhesion). They are contracts between shippers and carriers concerning delivery of goods shipped from one port to another. See International Knitwear Co. v. M/V Zim Canada, 1991 WL 924203, *3 (S.D.N.Y. October 6, 1994) (internal citations omitted). As contracts, bills of lading are analyzed under principles of contract law, just like any other contract. See id.; See also Restatement (Second) of Contracts § 6 (comment e) (listing negotiable Bills of Lading as negotiable documents, a type of contract). The Uniform Commercial Code, particularly Articles 2 and 7, apply, respectively, to the rights and obligations of parties to contracts and Bills of Lading.
The ambiguity of a contract term is a question of law to be decided by a court. See Walk-in Medical Centers, Inc. v. Breuer Capital Corp., 818 F.2d 260, 263-264 (2d Cir. 1994). See also Brass v. American Film Technologies, Inc., 987 F.2d 142, 149 (2d Cir. 1993); Hunt v. Lifschultz Fast Freight, Inc., 889 F.2d 1274, 1277 (2d Cir. 1989) ("Language whose meaning is otherwise plain does not become ambiguous merely because the parties urge different interpretations in the litigation.").
Negotiability of the Bill of Lading
The first dispute between the parties is whether the Bill of Lading in suit is by its express terms negotiable or not. Asoma argues that the Bill of Lading is non-negotiable because it states: "Consignee: Metall und Rohstaff. . . ." Alternatively, Asoma argues that the Bill of Lading is ambiguous and therefore the parties' claims cannot be decided on summary judgment. Thypin, relies on Article 7 of the Uniform Commercial Code ("U.C.C."), to argue that the Bill of Lading is clearly and unambiguously negotiable because it states: "to order of Donbakraft, Ltd."
Asoma argues that the United Nations Convention on Contracts for the International Sale of Goods ("CISC") is applicable to all contracts for the sale of goods between parties whose places of business are in different states, which are parties to the Convention. Asoma cites no applicable provision of the Convention. Instead, Asoma states that general principles of private international law apply, but then stated those principles are generally in harmony with U.S. principles. (Def.'s Mem. in Opp. at 11-12.) Since the U.C.C. sets forth U.S. principles of law, the Court looks to the U.C.C.
Section 104 of Article 7 of the U.C.C., differentiating negotiable from non-negotiable bills of lading, has two parts: Part 1, subsection (a), in applicable part, states that a Bill of Lading is negotiable "if by its terms the goods are to be delivered to bearer or to the order of a named person;" N.Y.U.C.C. § 7-104(1)(a) (emphasis added). Part 2 states, "Any other document is non-negotiable." N.Y.U.C.C. § 7-104(2) (emphasis added). Based on the differentiating language contained in Section 104, since the consignee is "Metall und Rohstaff . . . to order of Donbakraft, LTD" the Bill of Lading is negotiable. Consistent with this interpretation of U.C.C., Section 104, the law of New York prior to the adoption of the U.C.C., as to negotiable, or so-called quasi negotiable, instruments was that, "any words importing an intention that the instrument shall be negotiable suffices." Manny v. Wilson, 122 N.Y.S. 16, 19 (1st Dep't 1910), aff'd., 203 N.Y. 535 (1911). More recently, in Bank of New York v. Amoco Oil Co., 35 F.3d 643 (2d Cir. 1994), the Second Circuit also concluded, in applying Article 7 of the U.C.C., that a document of title was negotiable if it contained words imparting an intention that the document of title was negotiable In that case, the Court addressed the negotiability of a holding certificate issued to DBL Trading by Amoco pursuant to an agreement to lease platinum to Amoco, and delivered to the Bank of New York by DBL Trading as collateral for loans granted to DBL Trading. The Court found that the holding certificate, which did not use the exact U.C.C. language in Part 1 but certified that Amoco was holding a specified quantity of platinum of a catalytic grade "for the account or order of DBL Trading" and stated that the "material is to be released on surrender of this certificate properly endorsed," was a negotiable instrument. The Court noted that "the provision seems primarily to require that negotiable documents of title indicate that the goods are to be surrendered `to bearer or to the order of a named person.'" Id. at 655.
Subsection (b) states a bill of lading is negotiable, "where recognized in overseas trade, if it runs to a named person or assigns."
Aside from the Bill of Lading's use of the "to order of" language required by U.C.C. § 7-104(1), Asoma's position that the Bill of Lading was non-negotiable is rebutted by the conduct of MR and Asoma during the transaction. First, MR endorsed the Bill of Lading that Asoma now claims was non-negotiable. Endorsement of the Bill of Lading is inconsistent with non-negotiability since the endorsement of a non-negotiable instrument neither makes it negotiable nor adds to the transferee's rights. U.C.C. § 7-501(5). Second, MR recognized the need for an endorsement from Donbakraft as shown by the testimony of Mr. Boenzli of MR at the Rule E evidentiary hearing. (PX 13 at 323.) Mr. Boenzli, however, did not discuss getting an endorsement, rather, in lieu thereof at FFS suggestion, MR sought and obtained a waiver statement by Donbakraft, albeit a forgery, in an effort to avoid the "to order of Donbakraft, Ltd." language. (PX 13 at 323-26.)
Based on Amoco and the consignee designation's including the language "to order of Donbakraft, Ltd.," The Bill of Lading was negotiable and Donbakraft remained the lawful owner of the Bill of Lading unless and until the Bill of Lading was duly negotiated pursuant to Section 7-501 of the U.C.C.
The Requirement of Due Negotiation of a Negotiable Instrument
Section 7-501 of the Uniform Commercial Code is entitled, "Form of Negotiation and Requirements of `Due Negotiation'" applicable to negotiable instruments. The relevant subsections are subsections (1) and (4).
Subsection (1) of Section 7-501 states:
(1) A negotiable document of title running to tile order of a named person is negotiated by his indorsement and delivery.
N.Y.U.C.C. § 7-501(1). See also Bank of New York v. Amoco Oil Co., supra.
Since the Bill of Lading was not endorsed by the named "to order of" party, Donbakraft, Ltd., as required by Subsection (1), MR did not possess a document of title to present in its transaction with Asoma. Asoma argues that the copy of the letter fax from Donbakraft should be treated as an endorsement. However, the letter fax is a copy and is not an original document, and, even if it were an original, the purported author of the letter, Mr. Spiridonov, testified at the hearing that the signature on the letter was not his and produced exemplars of his signature. The Court inspected and corroborated that the exemplars were different from the signature on the letter fax. (DX 5 at 483.) Later, in deposition, Mr. Spiridonov again denied the signature was his, pointing out that he did not sign his name as "Spiridonov I" as in the fax letter, but instead used the signature "Igor Spiridonov." (PX 19 at 118-119.) Discovery has been closed and defendant has offered nothing to contradict this testimony. Based on the evidence presented, there is no genuine issue of material fact that MR did not obtain an endorsement of Donbakraft, Ltd., the holder of the title to the negotiable Bill of Lading.
There is not evidence that Donbakraft delivered the Bill of Lading. Delivery is defined in the U.C.C. as the "voluntary transfer of possession." N.Y.U.C.C. § 1-201(19).
Subsection (4) of Section 7-501 states:
(4) A negotiable document of title is `duly negotiated' when it is negotiated in the manner stated in this section a holder who purchases it in good faith without notice of any defense against or claim to it on the part of any person and for value, unless it is established that the negotiation is not in the regular course of business . . . N.Y.U.C.C. § 7-501(4) (emphasis added).
Asoma's argues that it has complied with subsection (4) of U.C.C., § 7-501 because it duly negotiated the purchase of the Bill of Lading from MR in good faith and had no way of knowing the Spiridonov fax letter was a forgery and, thus, has good title to the Bill of Lading. See U.C.C. § 7-502(1)(a) ("a holder to whom a negotiable document has been duly negotiated acquires thereby . . . title to the document"). The evidence, however, does not support Asoma's argument. Subsection (4) of U.C.C. § 7-501 sets forth the requirements for a negotiable document of title to be "duly negotiated" to a holder who purchases the negotiable document in good faith. Here, again, the document must be "negotiated in the manner stated in this section." The Bill of Lading, running to the order of a named person, did not bear Donbakraft's endorsement as required in subsection (1) of U.C.C. § 7-501. See also Amoco, 35 F.3d at 656. Nor did it bear Donbakraft's forged endorsement. Instead, Asoma was presented with a copy of the fax letter. Without the endorsement, J.V. Fistag-Victoriya could not negotiate the Bill of Lading to FFS, and FFS could not negotiate it to MR.
Mr. Boenzli of MR testified that he recognized this impediment to MR's transfer to Asoma. (PX 13 at 319-321.) On January 11, 1996, he sought to get around this impediment by seeking the waiver from FFS. He received the copy of the forged waiver, even including the misspelled word, from FFS the following day. (PX 24; PX 17.) At the evidentiary hearing, Mr. Spiridonov's testimony that the letter was a forgery was unrebutted, and it remains unrebutted in thus motion. Based on this uncontradicted evidence, the Bill of Lading was not "negotiated in the manner stated in this section," and cannot be found to have been "duly negotiated" to Asoma pursuant to subsections (1) or (4), the only relevant subsections of U.S.C. § 7-501.
Secondly, assuming MR's endorsement and tendering of the copy of the faxed letter purporting to bear Mr. Spiridonov's signature could be deemed to equate to the "manner stated in this section," Asoma has not met the criteria in subdivision (4) of U.S.C. § 7-502 for a purchaser in good faith. The undisputed testimony submitted establishes that Mr. Farkas, Asoma's Senior Vice President who handled the Bill of Lading transfer, acknowledged that he had never seen a Bill of Lading "like the one at issue" and "would have to defer to a lawyer to tell him what it means." (PX 18 at 150, 152.) The waiver form was not an original document but a purported copy of a faxed letter from a corporation with a Minnesota office and telephone number, (PX 17), and it was not attached to the Bill of Lading. (PX 18 at 151.) Despite the language of the Bill of Lading, which was sufficient to give notice to Asoma of Donbakraft's possible claim to the Bill of Lading and despite the lack of an original document from Donbakraft, Ltd., disclaiming its interest in the cargo or Bill of Lading, Mr. Farkas did not seek an original document or even telephone to verify the document's authenticity.
A purported copy because the letterhead and body of the faxed letter could easily have been created separately.
The official comments to Section 7-501 of the U.C.C. adopt by definitional cross reference the definition of "notice contained in U.C.C., Section 1-201 which states in relevant part:
a person has `notice' of a fact when (a) he has actual notice of it; or (b) he has received notice or notification of it; or (c) from all the facts and circumstances known to him at the time in question he has reason to know that it exists.See N.Y.U.C.C. § 1-201(25); see also Amoco, 35 F.3d 643 at 656 (interpreting U.C.C. § 7-501(4) by referencing § 1-201(25)). On January 25, 1996, when, as is undisputed, Mr. Farkas, an experienced trader in international steel and the Vice President responsible for this transaction, reviewed the Bill of Lading, he had notice that Donbakraft, Ltd. had a claim to the Bill of Lading and could not meet the "without notice" requirement of due negotiation under U.C.C. § 7-501(4). Since they had been advised that the steel was at the port of Berdyansk and met certain specifications, Mr. Farkas of Asoma and Mr. Boenzli of MR, as experienced traders, must have realized the steel was manufactured originally for someone else and that since the Bill of Lading said, "to order of Donbakraft" that, in all likelihood, Donbakraft was that party. Also, Asoma was not without notice that the purported copy of the fax letter was not an original document.
Nor, is there evidence that Asoma meets the requirement in U.C.C. § 7-501(4) that the negotiation of a document of title be in the regular course of business. The official comment to this U.C.C. section discusses what constitutes the regular course of business.
1. In general this section is intended to clarify the language of the old acts and to restate the effect of the better decisions thereunder. An important new concept is added, however, in the requirement of "regular course of business or financing" to effect the "due negotiation" which will transfer greater rights than those held by the person negotiating. The foundation of the mercantile doctrine of good faith purchase for value has always been, as shown by the case situations, the furtherance and protection of the regular course of trade. The reason for allowing a person, in bad faith or in error, to convey away rights which are not his own has from the beginning been to make possible the speedy handling of that great run of commercial transactions which are patently usual and normal.
There are two aspects to the usual and normal course of mercantile dealings, namely, the person making the transfer and the nature of the transaction itself. The first question which arises is: Is the transferor a person with whom it is reasonable to deal as having lull powers? In regard to documents of title the only hold whose possession appears, commercially, to be in order is almost invariably a person in the trade. No commercial purpose is served by allowing a tramp or a professor to "duly negotiate" an order bill of lading for hides or cotton not his own, and since such a transfer is obviously not in the regular course of business, it is excluded from the scope of the protection of subsection (4).
The second question posed by the "regular course" qualification is: Is the transaction one which is normally proper to pass full rights without inquiry, even though the transferor himself may not have such rights to pass, and even though he may be acting in breach of duty? In raising this question the "regular course" criterion has the further advantage of limiting the effective wrongful disposition to transactions whose protection will really further trade. Obviously, the snapping up of goods for quick resale at a price suspiciously below the market deserves no protection as a matter of policy: it is also clearly outside the range of regular course.
Any notice from the face of the document sufficient to put a merchant on inquiry as to the "regular course" quality of the transaction will frustrate a "due negotiation". Thus irregularity of the document on its face or unexplained staleness of a bill of lading may appropriately be recognized as negating a negotiation in "regular" course.
U.C.C. § 7-501, Official Comment (emphasis added).
As stated above, the Bill of Lading was irregular on its face. Mr. Farkas, with all his experience in steel trading, had never seen a "to order" party designated in the manner shown on the Bill of Lading. (PX 18 at 150-152.) The face of the Bill of Lading was sufficient to take the negotiation of the Bill of Lading out of the regular course of business which would cause any reasonable juror to find that Asoma was not a good faith purchaser who had "duly negotiated" the Bill of Lading. U.C.C. § 7-501(4). MR, Asoma's Agent, Knew The Bill of Lading Had Not Been Duly Negotiated
There is no evidence, and there is no claim, that Asoma negotiated for the Bill of Lading in settlement or payment of a money obligation, the alternate ground in U.C.C. § 7-501(4).
MR's actions in this matter also show a lack of good faith and can be charged to Asoma because, on this transaction, MR acted as Asoma's agent. Addressing first the issue of whether MR duly negotiated the Bill of Lading, MR, too, was "on notice" of Donbakraft's claim due to the consignee designation's inclusion of the words, "to order of Donbakraft, Ltd." Mr. Boenzli of MR recognized that, in order to pass on the Bill of Lading to Asoma, MR had to do something (PX 13 at 319-321) about Donbakraft's interest in the Bill of Lading, and since FFS had said Donbakraft could issue a letter to the effect "that they [sic] have nothing to do with the material loaded on the Geroi Panfilovsky." Boenzli asked FFS to obtain a letter containing the exact language contained in the forged fax letter (PX 24) and promptly received the copy of the fax letter which even included the misspelt "exclusivly" (PX 17).
The general principles of law regarding principals and agents apply to and supplement the Uniform Commercial Code. See N.Y.U.C.C. § 1-103 ("unless displaced by the particular provisions of this chapter, the principles of law and equity, including . . . principal and agent . . . shall supplement its provisions.").
The undisputed evidence, as already discussed, also shows that MR did not duly negotiate the Bill of Lading with FFS in the regular course of business in accordance with the official comment to U.C.C. § 7-501. Indeed, the unrebutted evidence is that MR received the Bill of Lading in settlement of a pre-existing money obligation. At the time of the negotiation, MR was a joint venturer with FFS (PX 13 at 246-47; Ex OO) and was owed $1,000,000 by FFS (PX 13 at 247). By Asomas purchase, MR was able to reduce that debt by $230,000 leaving a balance of $700,000 (Id. 13 at 248). Although MR did not pay for the steel, in order to get delivery of the steel, MR had to pay port charges for FFS. (Id. at 221, 228.) Thus, MR's negotiation for the Bill of Lading with FFS was not in the regular course of business in accordance with the requirements of U.C.C. § 7-501(4).
Secondly, the unrebutted evidence also shows that MR acted as Asoma's agent when negotiating the Bill of Lading.
Three elements are required to establish an agency under New York law. "First, there must be a manifestation by the principal that the agent shall act for him. Second, the agent must accept the undertaking. Lastly, there must be an understanding between the parties that the principal is to be in control of the undertaking." Basic Books, Inc. v. Kinko's Graphics Corp., 758 F. Supp. 1522, 1546 (S.D.N.Y. 1991) (citingSEC v. American Bd. of Trade, Inc., 654 F. Supp. 361, 366 (S.D.N.Y. 1987), aff'd in part, appeal dismissed in part, 830 F.2d 431 (2d Cir. 1987)).
The essential elements of an agency relationship are direction and control by the principal over the agent. See id. (citing In re Shulman Transport Enterprises, 744 F.2d 293, 295 (2d Cir. 1984) (citing RESTATEMENT (SECOND) OF AGENCY § 1(1) comment b, § 14 (1958)); see also National Petrochemical Co. v. M/T Stolt Sheaf, 930 F.2d 240, 244 (2d Cir. 1991) (citing In re Shulman, 744 F.2d 293, 295 (2d Cir. 1984).
The evidence on record clearly demonstrates that MR did not purchase the steel. MR only agreed to acquire it at Asoma's direction. Asoma controlled MR's acquisition of the steel at issue and MR consented to Asoma's control. Mr. Boenzli of MR admitted that MR acquired the steel plate at issue at Asoma's "instructions," and that Asoma dictated the price. (Hrg. Tr., U. Boenzli, Ex. 13, at 302.) Second, Mr. Farkas of Asoma confirmed that MR's acquisition of the steel was at Asoma's "instructions." (Hrg. Tr., J. Farkas, Ex. 18, at 112.) Asoma also dictated the time of shipment. (PX at 32.) Finally, MR took no financial risk, its purchase price included reimbursement for the cost and freight it had to pay plus a selling commission. (Hrg. Tr., U. Boenzli, Ex. 13, at 243-244.) This evidence establishes that Asoma controlled MR during the transaction, and that MR was therefore acting as Asoma's agent during the transaction. The record presents no genuine issue of material fact on the question of MR being Asoma's agent.
Since MR acted as Asoma's agent, Asoma is charged with MR's knowledge. New York law is well settled on the issue of the imputation of knowledge from agents to their principals. Generally, the knowledge of an agent acquired within the scope of his employment is imputed to the principal. See In re Investors Funding Corp. of New York, 523 F. Supp. 533, 540 (S.D.N.Y. 1980) (citing Farm v. Newman, 14 N.Y.2d 183, 187, 250 N.Y.S.2d 272, 275, 199 N.E.2d 369, 371 (Ct.App. 1964) ("It is well-settled that the principal is bound by notice to or knowledge of his agent in all matters within the scope of his agency although in fact the information may never actually have been communicated to the principal")); In re Maxwell Newspapers, 164 B.R. 858, 866 (Bankr. S.D.N.Y. 1994) ("Under fundamental principles of New York agency law, the acts and knowledge of an agent acting within the scope of his agency are imputed to the agent's principal.") (citing Center v. Hampton Affiliates, Inc., 66 N.Y.2d 782, 784, 497 N.Y.S.2d 898, 899, 488 N.E.2d 828, 829 (1985)): National Petrochemical Co. v. M/T Stolt Sheaf, 930 F.2d 240, 244 (2d Cir. 1991) (citing Mallis v. Bankers Trust Co., 717 F.2d 683, 689 n. 9 (2d Cir. 1983) generally citing RESTATEMENT (SECOND) OF AGENCY § 272 (1958)). The same rule applies to information received by corporate agents. See In re Investors Funding Corp. of New York, 523 F. Supp. 533 at 540-541. Accordingly, since MR was Asoma's agent for the acquisition of the steel, Asoma is charged with the knowledge of MR when it was carrying out acts on behalf of Asoma (i.e., acquiring the steel and attempting to negotiate the Bill of Lading).
In view of the undisputed evidence of Asoma's actual knowledge, combined with its imputed knowledge from MR as its agent, no reasonable jury could find that Asoma was acting in "good faith" when it acquired the Bill of Lading. It is undisputed that MR did not purchase the steel and that, instead, the value of the steel was credited to FFS's outstanding debt to MR. Nor did MR require any evidence that FFS had paid for the steel. Since MR, and Asoma knew the steel had not been manufactured for it, but met the specifications of a third party, the "to order of Donbakraft" language in the Bill of Lading would give rise to only one conclusion: Donbakraft had ordered this steel. Moreover, if, as Asoma maintains, the steel was acquired by MR for Asoma in November 1995, there is no reason why Asoma's name could not have been used on the Bill of Lading. Instead, on January 25, 1998, "Donbakraft's name had to appear on the Bill of Lading so as to be consistent with earlier documents" as Asoma admits on page 15 in Defendants' Memorandum in Support of Its Cross-Motion. Thus, Asoma and MR had clear notice that Donbakraft had rights to that steel.
Asoma maintains that MR bad been told by FFS that Donbakraft's name was on the Bill of Lading by mistake and was only used to clear customs in the Ukraine and that it relied on this information from FFS. However, MR was on notice that the Bill of Lading was issued on January 25, 1998, almost two months after Asoma's agreement to purchase the steel and a month after Asoma had resold the steel to United States purchasers. Clearly Asoma's name or the names of those U.S. customers could have been used to obtain export clearance to the United States. In any event, this information from FFS is irrelevant to the purpose of determining negotiability of a document of title which is the issue of this motion. Furthermore, the argument is based on hearsay and therefore excluded. Rule 56(e) requires admissible facts based on personal knowledge to be offered by the party responding to the summary judgment motion.
Asoma's Champerty Claim
Asoma argues, in its opposition papers and in its cross motion, that Thypin has no standing to sue and its entire claim should be dismissed as champertous. Asoma relies on § 489 of New York Judiciary Law, which prohibits "tak[ing] assignment of . . . a bond, promissory note, bill of exchange, book debt, or other thing in action, or any claim or demand, with the intent and for the purpose of bringing an action or proceeding thereon . . ." N.Y. Jud. § 489. Asoma argues that Thypin acquired Donbakraft's assignment of the Bill of Lading for the sole purpose of maintaining its lawsuit against Asoma and Thypin's suit is in violation of the champerty statute. However, Asoma's argument fails. Thypin entered into an agreement to purchase steel of certain specifications from Donbakraft. Donbakraft in turn entered into a contract with Fistag to supply that steel to Donbakraft. Thypin acquired Donbakraft's rights to the Bill of Lading after Donbakraft defaulted on its obligation to supply the steel to Thypin. (Plaintiff's Statement of Material Facts, p. 10, ¶ 32.)
Asoma relies solely on Elliot Associates, L.P. v. Banco de la Nacion, 194 F.3d 363 (2d Cir. 1999). In Elliot Associates, L.P. v. Banco de la Nacion, however, the Court denied the champerty claim, holding that "Section 489 is not violated when, as here, the accused party's `primary goal' is found to be satisfaction of a valid debt and its intent is only to sue absent full performance," Elliot Associates, 194 F.3d at 381. Also, in Cavendish Traders, Ltd. v. Nice Skate Shoes, Ltd., 117 F. Supp.2d 394 (S.D.N.Y. 2000), the District Court denied a cross-motion for summary judgment where the plaintiff acquired the promissory note of another company and sued the defendant. There the Court explained that the main purpose of the champerty statute was to keep lawyers from purchasing claims and filing suit merely to obtain attorney's fees. Cavendish Traders, Ltd. v. Nice Skate Shoes, Ltd., 117 F. Supp.2d 394 at 401; see also Poloron Products Inc. v. Lybrand Ross Bros. Montgomery, 534 F.2d 1012, 1016 (2d Cir. 1976).
Asoma offers no evidence to suggest that Thypin's suit was anything other than an attempt to acquire some of the steel ordered by Donbakraft to comply with its contract with Thypin and to collect on the debt Donbakraft owes to Thypin. Moreover, there is not evidence to suggest that Thypin purchased the Bill of Lading and filed suit merely to collect attorney's fees. Thypin's acquisition of Donbakraft's rights to the Bill of Lading does not violate the New York champerty statute. Therefore, Asoma's motion for dismissal of Thypin's suit on grounds of champerty fails.
Damages
Thypin moves for damages in excess of the $700,000 bond posted by Asoma pursuant to the agreement of the parties. Thypin bases its figure of $1,052,596.52, plus interest, on the amount of money Asoma charged for the steel, after selling it in separate lots to two United States companies. Thypin claims that that amount is the market value of the steel that the Bill of Lading represents. Thypin also requests attorney's fees in the amount of $291,151.83. Damages are awarded in the amount of the bond posted to release the Bill of Lading of $700,000 plus interest, based on the United States Treasury Bill rate.
After the arrest of the Bill of Lading, the parties agreed that Asoma would post a bond to secure the Bill of Lading's release. The parties agreed among themselves, without any input from the Court, that the bond price should be based on Thypin's purchase price less transportation costs. They agreed agreed that the net price for the cargo was $700,000 after subtracting $141,000 in transportation costs from the $840,000 purchase price. In an order dated May 2, 1996, this Court accepted the parties' stipulated amount of the bond. In late May 1996, the vessel M/V Geroi Panfilovsky arrived in Houston and discharged the cargo of steel. Asoma subsequently delivered the cargo to non-party customers, Sunbelt Trading Company and Intel Southwest, for a total price of $1,052,969.Thypin Steel Co. and Donbakraft, Ltd. v. Certain Bills of Lading, 96 Civ. 2166 (RPP) (S.D.N.Y. 2001) (Opinion and Order dated August 31, 2001).
On June 4, 2001, Thypin moved for an increase in the amount of Asoma's release bond. In that motion, Thypin argued that the true market value of the steel was $1,052,969, the amount Asoma charged in its sale of the steel. Thypin claimed that if it had known the true market value, it would not have agreed to the $700,000 bond price that was based on Plaintiff's purchase price of the cargo, less transportation costs. Id. However, this Court denied that motion, finding that Thypin knew that Asoma had arranged for the sale of the cargo and had ample opportunity to ask Asoma about the sales price. Id.
Thypin's present request for damages in the amount that Asoma charged for the steel is really an assertion that the value of the Bill of Lading is more than the bond. This is the same argument Thypin made when it moved to increase the bond. The Court denies that request today for the same reason it denied Thypin's previous request to increase the bond. When Thypin agreed to the bond amount, it stipulated that that amount was the correct value of the Bill of Lading. "A stipulation for value cannot, therefore, lightly be set aside. Fraud, which is not here involved, is, of course, a reason for so doing, but a unilateral mistake, such as a statement of the libelant's claim at too small a figure, is not such a reason." J.K. Welding Co. v. Gotham Marine Corp., 47 F.2d 332, 335 (S.D.N.Y. 1931).
While Thypin correctly notes that this Court sitting in admiralty has equitable powers and "possesses jurisdiction to enter judgment in excess of the value of an arrested res," (Central Hudson Gas Electric Corp. v. Empresa Naviera Santa, S.A., 56 F.3d 359, 364 (2d Cir. 1995), Thypin has given no reason why doing so in this case would be in the interest of justice. Thypin offered the $700,000 figure, calculating its own costs without the Court's input. Thypin Steel Co. and Donbakraft, Ltd. v. Certain Bills of Lading, 96 Civ. 2166 (RPP) (S.D.N.Y. 2001). (Opinion and Order dated August 31, 2001). Therefore, Thypin's request for damages in excess of the bond posted is denied.
Attorney's Fees
Generally, in the American system of law, each litigant pays his own attorney's fees. Aleyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 245 (1975) (the general American rule is that parties cannot collect attorneys' fees and litigation costs, neither as damages nor as an award.) However, courts have discretion to grant attorney's fees when one party has proceeded in bad faith. See id. (bad faith as one exception to the American rule of each party paying its own legal fees): see also American National Fire Insurance Company v. Kenealy, 72 F.3d 264, 270 (2d Cir. 1995) ("The general rule . . . that the award of fees and expenses in admiralty actions is discretionary with the district judge upon a finding of bad faith.") (quoting Ingersoll Milling Machine Co. v. M/V Bodena, 829 F.2d 293, 309 (2d Cir. 1987); see also Puritan Ins. Co. v. Eagle S.S. Co. S.A., 779 F.2d 866 (2d Cir. 1985) (Second Circuit reversed an award of attorneys' fees where the district judge did not make a specific finding of bad faith).
"In order to make an award on attorneys' fees on grounds of bad faith, there must be clear evidence that the claims are entirely without color and made for reasons of harassment or delay or for other improper purposes." Puritan Ins. Co. v. Eagle S.S. Co., S.A., 779 F.2d 866, 873 (2d Cir. 1985) (quoting Browning Debenture Holders Committee v. DASA Corp. 560 F.2d 1078, 1088 (2d Cir. 1977) (emphasis in original)); see F.D. Rich Co. Inc. v. United States ex rel Industrial Lumber Co. Inc., 417 U.S. 116, 129 (1974).
In view of the facts and circumstances of the transaction whereby MR acquired the Bill of Lading from FFS on behalf of Asoma, the Court finds that there is adequate evidence of bad faith on the part of the defendant to award attorneys fees to plaintiff. Both Mr. Farkas and Mr. Boenzli were experienced international steel traders, well versed in bill of lading documents of title and their negotiation. They were also aware that the steel had been ordered to some party's specifications and that Donbakraft was the "to order of" party on the Bill of Lading. At no time did they communicate with Donbakraft directly.
Upon receipt of the faxed copy of the Donbakraft letter, instead of referring to that letter dated January 12, 1996, as a basis for obtaining an endorsement on the Bill of Lading from Donbakraft, both Mr. Farkas and Mr. Boenzli did nothing. They did not seek to receive confirmation by an original document authored by Donbakraft. In short, they "lay in the weeds" hoping that title to the Bill of Lading would not be challenged. These actions are inexcusable by traders experienced in international transactions and amount to bad faith. Accordingly, since no objection to the amount claimed has been received, plaintiff is awarded its attorney's fees and expenses of $291,157.83 as requested as well as attorney's fees for services that have accrued since December 31, 2001.
Interest
District courts have discretion to award interest as part of damages in a civil case. See Mitsui Co. v. American Export Lines 636 F.2d 807, 823 (2d Cir. 1981) ("Although the allowance of prejudgment interest in admiralty is said to be a matter committed to the trial court's discretion . . . it should be granted in the absence of exceptional circumstances.").
Interest is particularly appropriate in this case where the parties have stipulated that interest is part of the value of the bond. The bond stipulation states that the value of the Bill of Lading is $700,000 plus interest and costs. (Asoma's Notice of Cross-Motion, Exhibit 23, ¶ 2.) In admiralty cases, interest generally runs from the expected date of deliver of the cargo. New York Marine Gen. Ins. Co. v. Tradeline L.L.C., 266 F.3d 112, 131 (2d Cir. 2001). Asoma secured the release of the Bill of Lading on May 21, 1996. The steel arrived in Houston in late May 1996. (See 96 Civ. 2166 (RPP) (S.D.N.Y. 2001) (Opinion and Order, dated August 31, 2001.) Therefore, the interest will be calculated based on the average yield for one-year Treasury Bills for the calendar week preceding the date May 21, 1996 to the date of entry of the judgment.
Conclusion
For the reasons stated above, Asoma's motion for summary judgment is DENIED and Thypin's motion for summary judgment is GRANTED. Thypin is awarded judgment for $700,000, the amount of the bond posted, plus pre-judgment interest from May 1, 1996, to the date of entry of this decision, as well as attorneys fees and expenses in the amount of $291,157.83 and attorney's fees accrued after December 31, 2001.
IT IS SO ORDERED.