Opinion
05 CV 56 (NG).
May 9, 2006
REPORT AND RECOMMENDATION
On January 5, 2005, plaintiff Zim-American Israeli Shipping Co., Inc. ("Zim-American") filed this admiralty and maritime action against defendant Deans Overseas Shippers, Inc. ("Deans"), seeking recovery of unpaid ocean freight charges allegedly owed by defendant for a series of shipments made by plaintiff from September 28, 2001 through March 29, 2002, pursuant to various bills of lading setting forth the terms of plaintiff's agreement with defendant.
Following defendant's failure to file an Answer or otherwise respond to the Complaint, plaintiff filed a Notice of Motion, dated February 22, 2005, seeking entry of default judgment against defendant, pursuant to Rule 55(a) of the Federal Rules of Civil Procedure. By Order dated March 17, 2005, plaintiff's motion for default was granted and the case was thereafter referred to the undersigned to conduct an inquest and to report and recommend the amount and scope of damages, including interest and costs, if any, owed to plaintiff.
In support of its request for damages, plaintiff served and filed the affidavit of Tasos N. Christ, dated February 16, 2005 ("Christ Aff."), and two Affidavits of Albert J. Avallone, Esq., one attesting to the court's proper jurisdiction over the action ("Avallone Aff.1"), and the other requesting default judgment ("Avallone Aff. 2"), dated February 22, 2005. Plaintiff also filed an Affidavit of Service by mail of the request for default judgment, by Felipe Adams, dated February 22, 2005 ("Affidavit of Service").
FACTUAL BACKGROUND
Plaintiff Zim-American is a common carrier of goods, incorporated and existing under the laws of the State of New York, with offices located at 5801 Lake Wright Drive, Norfolk, Va. (Compl. ¶ 2). Defendant Deans is a New York corporation with a place of business located at 217-21 Merrick Boulevard, Laurelton, New York. (Id. ¶ 3, Sch. A, ¶ A). Plaintiff alleges that defendant Deans, a non-vessel-owning common carrier, was the shipper of goods carried on plaintiff's vessels. (Christ Aff. ¶ 2). See, e.g., Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 106 (2d Cir. 1997).Plaintiff claims that during the period from September 2001 to March 2002, plaintiff issued 51 bills of lading to Deans, each one for the transport of Dean's containers from New York to Kingston and Montego Bay, Jamaica. (Compl. ¶ 4; Id. Sch. A, ¶¶ 1-51; See also id. Exs. A-4X). Upon issuing each bill of lading, Zim-American transported the cargo to the ports of destination and delivered said cargo to the stipulated consignees or their agents, performing all duties required of it under the bills of lading. (Compl. ¶¶ 5-6). As the shipper, defendant Deans was responsible for remitting the ocean freight and related charges pursuant to Zim-American's published tariff. (Christ Aff. ¶ 2). Despite Zim-American's demand for payment, Deans has failed to remit payment in the amount of $42,095.00. (Compl. ¶ 7;see also Christ Aff. ¶ 2).
See Appendix (Itemized Bills of Lading). The appendix is compiled from plaintiff's Complaint and the exhibits attached to plaintiff's Complaint.
Despite a notation on each bill of lading that freight was "prepaid," plaintiff alleges that Deans did not pay the freight for each bill of lading prior to shipment. This is not an uncommon practice in the shipping industry. See Maersk, Inc. v. International Commodities Transp. Servs., LLC, No. 00 CV 7747, 2004 U.S. Dist. LEXIS 549, at *7 n. 2 (S.D.N.Y. Jan. 15, 2004). In addition, the freight listed on each bill of lading was adjusted several months later by a "manifest corrector," and plaintiff seeks payment based on this adjusted freight amount. (Compl. Sch. A, ¶¶ 1-51; see also id. Exs. A-4X). Except for the first bill of lading, all adjustments occurred on May 25, 2002. (See id. Exs. B-4X).
DISCUSSION
1. Service of ProcessIt is clear that "[a] court may not properly enter a default judgment unless it has jurisdiction over the person of the party against whom the judgment is sought, 'which also means that he must have been effectively served with process.'" Copelco Capital, Inc. v. General Consul of Bolivia, 940 F. Supp. 93, 94 (S.D.N.Y. 1996) (quoting 10 Charles Alan Wright, Arthur R. Miller, and Mary Kay Kane, Federal Practice Procedure § 2682 (2d ed. 1983)). Service of process in a federal action is governed by Rule 4 of the Federal Rules of Civil Procedure, which provides in relevant part:
Unless otherwise provided by federal law, service upon a domestic or foreign corporation . . . shall be effected: (1) in a judicial district of the United States in the manner prescribed for individuals by subdivision (e)(1), or by delivering a copy of the summons and of the complaint to an officer, a managing or general agent, or to any other agent authorized by appointment or by law to receive service of process and, if the agent is one authorized by statute to receive service and the statute so requires, by also mailing a copy to the defendant. . . . Fed.R.Civ.P. 4(h)(1). Although service may be properly effected in accordance with New York law, see Fed.R.Civ.P. 4(e)(1), Section 311 of the New York Civil Practice Law and Rules requires that service upon a corporation, such as the defendant here, must be made by delivery to "an officer, director, managing or general agent, . . . or to any other agent authorized by appointment or by law to receive service." N.Y.C.P.L.R. § 311(a)(1) (McKinney 2001).
In this case, plaintiff filed the Complaint on January 5, 2005. Here, service was effected pursuant to New York Civil Practice Law and Rules § 306(a), which requires that "[p]roof of service shall specify the papers served, the person who was served and the date, time, address . . . and set forth facts showing that service was made by an authorized person and in an authorized manner." Plaintiff has presented an affidavit of service indicating that the Complaint was served upon an agent of defendant "authorized to receive service." (Affidavit of Service by James Cagney, dated January 11, 2005). According to the Affidavit of Service, the Complaint was personally served on January 7, 2005 upon an individual identified as Pablo "Doe." (Id.) Although Pablo "Doe" refused to provide his last name, the process server represents that Pablo "Doe" was authorized to accept service. (Id.)
When defendant failed to file an answer to the Complaint, plaintiff filed a motion for default seeking damages in the amount of $42,095.00 plus interest calculated at 6% from the dates of each bill of lading. Defendant has not appeared in the action and has not contested service. Accordingly, in the absence of any evidence to the contrary, the Court concludes that service was proper and that the Court has jurisdiction to enter a default judgment against the defendant.
2. Standards for Default Judgment
Rule 55(a) of the Federal Rules of Civil Procedure provides: "[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend as provided by these rules and that fact is made to appear by affidavit or otherwise, the clerk shall enter the party's default." Fed.R.Civ.P. 55(a). As a threshold issue, Rule 55 sets forth a two-step process which first requires the entry of a default, through a notation on the record that the party has defaulted, and then entry of a default judgment, which is the final action in the case. See Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 95-96 (2d Cir. 1993). The Clerk of Court automatically enters the default pursuant to Rule 55(a) of the Federal Rules of Civil Procedure by notation of the party's default on the Clerk's record of the case. See id.
After a default has been entered against a party, if that party fails to appear or otherwise move to set aside the default pursuant to Rule 55(c), a default judgment may be entered. See Fed.R.Civ.P. 55(b). Although an application for entry of default should be made before a motion for entry of default judgment, courts will generally excuse a failure to obtain entry of default before the motion for default judgment is made. See, e.g., Meehan v. Snow, 652 F.2d 274, 276 (2d Cir. 1981);Empire Mortgage Ltd. P'ship v. Sullivan, No. 95 CV 2384, 1996 WL 599726, at *2 (E.D.N.Y. Oct. 15, 1996). Here, plaintiff submitted a request for both entry of default and default judgment on February 24, 2005.
In determining whether a default judgment should enter, courts have cautioned that a default judgment is an extreme remedy that should only be granted as a last resort. See Meehan v. Snow, 652 F.2d at 277. While the Second Circuit has recognized the "push on a trial court to dispose of cases that, in disregard of the rules, are not processed expeditiously [and] . . . delay and clog its calendar," it has held that the district court must balance that interest with its responsibility to "afford litigants a reasonable chance to be heard." Enron Oil Corp. v. Diakuhara, 10 F.3d at 95-96. Thus, in light of the "oft-stated preference for resolving disputes on the merits," defaults are "generally disfavored," and doubts should be resolved in favor of the defaulting party. Id. at 95-96. Accordingly, just because a party is in default, the plaintiff is not entitled to a default judgment as a matter of right. See Erwin DeMarino Trucking Co. v. Jackson, 838 F. Supp. 160, 162 (S.D.N.Y. 1993).
The court possesses significant discretion and may consider a number of factors in deciding whether or not to grant a default judgment, including whether the grounds for default are clearly established and what amount of money is potentially involved.See Hirsch v. Innovation Int'l, Inc., No. 91 CV 4130, 1992 WL 316143, at *1-2 (S.D.N.Y. Oct. 15, 1992) (citations omitted). The greater the amount at issue, the less justification there may be for entering the default judgment. See id. Additionally, a court may consider whether material issues of fact remain, whether the facts alleged in the complaint state a valid cause of action, whether plaintiff has been substantially prejudiced by the delay involved and how harsh an effect a default judgment might have on the defendant. See Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981); 10A Charles Alan Wright, Arthur R. Miller Mary Kay Kane, Federal Practice Procedure §§ 2685, 2688.
3. Federal Jurisdiction
Before a default judgment can be issued on behalf of a plaintiff, the court must have subject matter and personal jurisdiction over the defendants. "The presence of the court's jurisdiction should appear on the face of the complaint." Patray v. Northwest Publ'g, Inc., 931 F. Supp. 865, 869 (S.D. Ga. 1996); see also KVOS, Inc. v. Associated Press, 299 U.S. 269, 277 (1936); Murphy v. Colonial Fed. Sav. Loan Ass'n, 388 F.2d 609, 614 n. 6 (2d Cir. 1967); 13B Charles Alan Wright, Arthur R. Miller Mary Kay Kane, Federal Practice Procedure § 3566. Here, Zim-American brings a breach of contract claim as an admiralty claim under Rule 9(h) of the Federal Rules of Civil Procedure, and pursuant to the Ocean Shipping Reform Act of 1998, 46 U.S.C. app. § 1701, et seq. (Compl. ¶ 1). In general, "admiralty jurisdiction arises only when the subject-matter of the contract is 'purely' or 'wholly' maritime in nature." Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d at 109 (citations omitted). In determining whether a claim is within the admiralty jurisdiction of the federal courts, "the 'nature and subject matter' of the contract at issue [is] the crucial consideration." Id. at 109 (quoting Exxon Corp. v. Central Gulf Lines, Inc., 500 U.S. 603, 611 (1991). In Norfolk Southern Railway Co. v. Kirby, 543 U.S. 14, 27 (2004), the Supreme Court held "[c]onceptually, so long as a bill of lading requires substantial carriage of goods by sea, its purpose is to effectuate maritime commerce — and thus it is a maritime contract."
The Complaint also cites Clause 24 of the bill of lading as a basis for asserting federal jurisdiction. (Compl. ¶ 1). However, since the copies of the bills of lading presented to the Court omit the reverse side of the documents, it is impossible to determine what Clause 24 actually states.
The bills of lading in question require payment of ocean freight for transportation of goods by ship from New York to Kingston and Montego Bay, Jamaica. There is no land transport component that might alter the maritime nature of this contract. Thus, there is clearly admiralty jurisdiction since the agreement to transport goods by ship mirrors the meaning of "carriage of goods by sea." Norfolk S.R.R. Co. v. Kirby, 542 U.S. at 27.
In a breach of contract under maritime law, "federal maritime law governs." Maersk, Inc. v. International Commodities Transp. Servs., LLC, No. 00 CV 7747, 2004 U.S. Dist. LEXIS 549, at *6-7 (S.D.N.Y. Jan. 15, 2004) (citing Sundance Cruises Corp. v. American Bureau of Shipping, 7 F.3d 1077, 1081-82 (2d Cir. 1993)). The aim of damages in a breach of contract action under maritime law is to make the injured party whole. Id. at *7. Thus, the measure of damages is generally the amount required to put the injured party in the position it would have been in if there had been no breach. Id. "Since the defendants breached contracts into which they entered for the transportation of goods by sea, the plaintiff is entitled to be made economically whole."Id.
4. Default Damages
It is well-settled that the burden is on the plaintiff to establish its entitlement to recovery. See Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 161-62 (2d Cir. 1992), cert. denied, 506 U.S. 1080 (1993);United States v. Crichlow, No. 02 CV 6774, 2004 WL 1157406, at *4 (E.D.N.Y. Apr. 9, 2004). When a default judgment is entered, the defendant is deemed to have admitted all well-pleaded allegations in the complaint pertaining to liability. See Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d at 158; Montcalm Publ'g Corp. v. Ryan, 807 F. Supp. 975, 977 (S.D.N.Y. 1992) (citing, inter alia, Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981); 6 James Wm. Moore et al., Moore's Federal Practice ¶ 55.03[2] (2d ed. 1988)). However, the plaintiff must still prove damages in an evidentiary proceeding at which the defendant has the opportunity to contest the claimed damages. See Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d at 158. "'While a default judgment constitutes an admission of liability, the quantum of damages remains to be established by proof unless the amount is liquidated or susceptible of mathematical computation.'" Flaks v. Koegel, 504 F.2d 702, 707 (2d Cir. 1974); see also United States v. Crichlow, 2004 WL 1157406, at *4 (applying principle set forth in Flaks v. Koegel).
While "the court must ensure that there is a basis for the damages specified in a default judgment, it may, but need not, make the determination through a hearing." Fustok v. Conticommodity Servs., Inc., 122 F.R.D. 151, 156 (S.D.N.Y. 1988) (gathering cases), aff'd, 873 F.2d 38 (2d Cir. 1989). Here, where the plaintiffs have filed reasonably detailed affidavits and exhibits pertaining to the damages incurred and where the defendant has failed to make an appearance in the case, the court can make an informed recommendation regarding damages without an evidentiary hearing.
In this case, the plaintiff provided reasonably detailed affidavits and exhibits supporting the defendant's breach and failure to pay according to the bills of lading. Zim-American's Manager of Credit and Collections, Tasos N. Christ, has submitted an Affidavit confirming that the defendant was the shipper of goods carried on plaintiff's vessels and that the defendant is responsible for the damages set forth in the Complaint. (Christ Aff. ¶ 2). Plaintiff has also submitted copies of the bills of lading and corrections thereto as exhibits to the Complaint. (See Compl. Exs. A-4W). Based on the Christ Affidavit and supporting documents and given the defendant's failure to appear, the Court finds that there is a sufficient basis to enter a default judgment for plaintiff. Au Bon Pain Corp. v. Artect, Inc., 653 F.2d at 65.
a) Damages — Amounts Due
Plaintiff has submitted 51 bills of lading itemizing each of the shipments it made for Deans beginning on September 28, 2001 until March 29, 2002. (Compl. Exs. A-4W). In some instances, defendant appears to have made a partial payment of the amounts due. Taking those payments into account, the Court has determined that plaintiff is owed a total of $42,095.00. (See Appdx).
In a chart attached as an Appendix hereto, the Court has set forth for each bill of lading the date of issue, the bill of lading number, the freight rate before and after correction, the amount paid, and the amount due, along with the corresponding paragraph and exhibit to the Complaint.
b) Prejudgment Interest
"In admiralty actions, successful plaintiffs are to be awarded prejudgment interest, except under extraordinary circumstances."Maersk Inc. v. International Comm. Transp. Servs., LLC, 2004 U.S. Dist. LEXIS 549, at *9 (citing Independent Bulk Transp., Inc. v. Vessel "Morania Abaco", 676 F.2d 23, 25 (2d Cir. 1982)). Extraordinary circumstances have been found where the plaintiff engaged in delaying tactics or where the damages were caused by joint fault. Van Nievelt, Gourdriaan Co's Stoomvart Maatschappij, N.V. v. Cargo Tankship Mgmt. Corp., (hereinafter "Van Nievelt"), 421 F.2d 1183, 1885 n. 8 (2d Cir. 1970) (citations omitted); O'Donnell Transp. Co. v. City of New York, 215 F.2d 92, 95 (2d Cir. 1954). In the absence of such exceptional circumstances, it is an abuse of discretion to deny prejudgment interest which is intended in admiralty actions to make the plaintiff whole. See O'Donnell Transp. Co. v. City of New York, 215 F.2d at 95; Maersk Inc. v. International Commodities Transp. Servs., LLC, 2004 U.S. Dist. LEXIS 549, at *9 (citations omitted).
Here, the plaintiff instituted this action to recover the amounts owed two and a half years after the last bill of lading was issued. In O'Donnell Transportation Co. v. City of New York, the Second Circuit held that an unexplained two-year delay in instituting an action could be considered a tactical delay precluding an award of interest. 215 F.2d at 95 (holding that district court's refusal to award interest was within the district court's discretion where the owner continued to use the damaged vessel, failed to repair the damage caused by defendant, and delayed in instituting suit). In the instant case, however, there has been no such evidence of deliberate delay and it appears that the two-year delay was the result of continuing attempts to force defendant to remit payment without legal action. (See Compl. ¶¶ 7-8 (alleging that plaintiff has "duly demanded" the amount due, and "[d]efendant has failed and refused and continues to fail and to refuse to remit" payment)). Accordingly, in the absence of any other extraordinary circumstances, the Court respectfully recommends that prejudgment interest on the damages be awarded.
The court has broad discretion to determine the date from which the interest should be calculated, and the applicable rate of interest. See Van Nievelt, 421 F.2d at 1185; Maersk, Inc. v. International Commodities Transp. Servs., LLC, 2004 U.S. Dist. LEXIS 549, at *9-10. In instances where damages were incurred on multiple occasions over a period of time, "a court may compute prejudgment interest from a reasonable intermediate date." Id. at *9-10; see also Barwil ASCA v. M/V SAVA, 44 F. Supp. 2d 484, 489 (E.D.N.Y. 1999).
In this case, the defendant made substantially greater payments on the bills of lading issued on and after December 7, 2001 than on those issued before that date. The defendant has made nearly full payment on approximately 24 of the 35 bills of lading issued on or after December 7, 2001, and has made no payment whatsoever on 11 of the 16 bills of lading issued prior to this date. Consequently, for those bills of lading prior to December 7, 2001, defendant currently owes $20,607.50 of the original amount due of $29,210.00; by contrast, for bills of lading issued on or after December 7, 2001, defendant currently owes $21,487.50 of the much greater original amount due of $77,270.00.
See Appendix.
Therefore, if the Court were to choose an intermediate date from which to award prejudgment interest, much of the outstanding amount owed would not be subject to an interest award. The plaintiff should not be prejudiced by defendant's election to make payment on newer rather than older balances, where the purpose of prejudgment interest is to "make the plaintiff whole."O'Donnell Transp. Co. v. City of New York, 215 F.2d at 95. Accordingly, in this case, the Court respectfully recommends that interest be awarded on all outstanding balances.
If the Court were to adopt an intermediate date from which interest would be awarded, plaintiff would receive approximately $1,780.10 less in interest. For example, a reasonable intermediate date would be January 1, 2002, as this date is both an approximate midpoint in the time from September 28, 2001 to March 29, 2002 during which the bills of lading were issued, and a point at which well more than half (37 of 51) of the bills of lading had issued. If prejudgment interest were awarded only on those balances generated after January 1, 2002 (which total $6,350), plaintiff would receive merely $316.23 in interest, compared to the $2,096.33 in interest available on the total amount owed.
In determining the appropriate rate of interest, the Court calculates "the income which the monetary damages would have earned," measured by "interest on short-term, risk-free obligations." Independent Bulk Transp. v. Vessel "Morania Abaco", 676 F.2d at 27. Under 28 U.S.C. § 1961(a), interest on damage awards shall be calculated "at a rate equal to the weekly average . . . for the calendar week preceding the date of judgment" of a "1-year constant maturity Treasury yield," which is a short-term, risk-free obligation. See New York Marine General Ins. Co. v. Tradeline (L.L.C.), 266 F.3d 112, 130-31 (2d Cir. 2001). The current weekly average rate is 4.98%.
Accordingly, applying the current rate of interest of 4.98% to the total amount due of $42,095.00, the Court respectfully recommends the plaintiff be awarded $2,096.33 in prejudgment interest.
c) Costs and Disbursements
Plaintiff also seeks an award of $315.00 in costs and disbursements. (See Avallone Statement at 5; see also Avallone Aff. ¶ 7 (stating that "[t]he disbursements sought to be taxed have been made in this action or will necessarily be made or incurred herein")). Plaintiff represents that it expended $150.00 for the filing fee and $165.00 for service of process in this action. (Avallone Statement at 5).
Citations to "Avallone Statement" refer to the Statement in Support of Complaint by Albert Avallone, Esq., dated February 22, 2005.
It is well established in the Second Circuit that "the award of . . . expenses in admiralty actions is discretionary with the district judge upon a finding of bad faith." Ingersoll Milling Mach. Co. v. M/V Bodena, 829 F.2d 293, 309 (2d Cir. 1987); see also American Nat'l Fire Ins. Co. v. Kenealy, 72 F.3d 264, 270-71 (2d Cir. 1995) (stating that "our holding in Ingersoll suffices to establish a federal admiralty rule, which now must be followed instead of state law" permitting award of expenses under certain circumstances) (internal quotation omitted).
Here, plaintiff has not alleged that the defendant acted in bad faith in failing to remit payment for the amount owed. While plaintiff states that it has "duly demanded" the amount due and "[d]efendant has failed and refused and continues to fail and to refuse to remit" payment (Compl. ¶¶ 7-8), plaintiff alleges no further facts regarding the defendant's basis for refusing to remit payment. In the absence of any alleged facts to the contrary, the defendant may have refused payment out of a good faith belief that the amounts billed were incorrect. While the Court acknowledges that the defendant's refusal to remit payment has been long-standing and that the defendant failed to appear or to contest the amounts owed in this action, the Court finds the alleged facts in this action insufficient to find that the defendant acted in bad faith.
Accordingly, the Court respectfully recommends that plaintiff's request for costs be denied.
CONCLUSION
In summary, the Court respectfully recommends that plaintiff be awarded $42,095.00 in compensatory damages, plus $2,096.33 in prejudgment interest, for a total award of $44,191.33.
Any objections to this Report and Recommendation must be filed with the Clerk of the Court, with a copy to the undersigned, within ten (10) days of receipt of this Report. Failure to file objections within the specified time waives the right to appeal the District Court's order. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(e), 72; Small v. Sec'y of Health Human Servs., 892 F.2d 15, 16 (2d Cir. 1989).
The Clerk is directed to mail copies of this Report and Recommendation to the parties.
SO ORDERED.