Opinion
No. 01 C 7031.
March 25, 2004
ORDER
This dispute is about cargo damaged during shipment from Aurora, Illinois to Port Elizabeth, New Jersey, where it was to be loaded on a ship to Israel. The remaining defendants are four related companies referred to here as "Zim." Although Zim admits that it is liable for some damage, the parties dispute how much. The damage was around $82,000, but the parties agree that Zim owes much less than that because Zim's bill of lading ("BL") contains several clauses limiting liability. At issue is which one applies. Plaintiff argues that only Section 4(III) is applicable. This section contains a limitation of liability formula based on weight that (if applicable) would cap damages at $36,102,39. Defendants rely on Sections 4(II)(b) and 23, both of which (if applicable) would limit damages to $500 per package. Because the cargo consisted of 10 packages, this results in a maximum recovery of $5,000. The parties agree that this is an issue of contract interpretation. Indemnity Ins. Co. v. Hanjin Shipping Co., 348 F.3d 628, 633 (7th Cir. 2003) ("when all is said and done, this is a simple contract action"). To answer this question, the parties rely on "normal contract rules of interpretation" but they do not identify a particular state's law that should apply. The two possibilities, as we see it, are Illinois (the law of the forum) and New Jersey (where the BL would have issued). Because we find no substantive difference between these two state's laws, we will follow the parties' lead and rely on general principles of contract interpretation.
The BL is a form document designed to address a number of scenarios that differ based on where goods are shipped to or from. Because many permutations exist, the BL has a several choice of law and limitation of liability provisions. In certain contexts, compulsory laws apply. In particular, the Carriage of Goods by Sea Act, 46 U.S.C. § 1300 ("COGSA") applies by force of law to shipments to or from a U.S. port. Thus, COGSA would have applied by force of law to the shipment from New Jersey to Israel had it been undertaken. The potential applicability of COGSA is significant because it limits a carrier's liability to $500 per package. 46 U.S.C. § 1304(5). However, COGSA does not apply by force of law to inland shipments inside the U.S. At the same time, the parties may contractually extend COGSA as the law governing the inland portion. The first question then is whether the parties here did so. We find that the answer is yes. Section 4(II)(b) states: "For shipments to or from the U.S.A., this bill of lading shall be only subject to [COGSA,] which Act shall by this contract also apply before loading and after discharging as long as the goods remain in the Carrier's custody or control." (Emphasis added.) Plaintiff argues that this section does not apply because the goods were not in Zim's "custody or control." This argument fails because, as evidenced by the first sentence of Section 4(I), the carrier is only liable to the extent that it had custody, which can only be reasonably interpreted to mean legal, rather than physical, custody.
The possibility exists, however, that the parties limited this provision elsewhere in the BL. Hartford Fire Ins. Co. v. Orient Overseas Containers Lines, 230 F.3d 549, 557 (2d Cir. 2000)) (when adopted by contract, COGSA is "modifiable by other language in the bill of lading"). This brings us to plaintiff's argument. Plaintiff relies exclusively on general language contained at the end of Section 4(III), which states that the carrier's liability shall "in any event not exceed 666.67 SDR units per package or unit." As noted above, this formula calculates out to $36,102.3 here. Plaintiff is thus arguing that this provision negates Section 4(II). We disagree. First, nothing in this provision suggests that the parties intended to modify the COGSA-adopting provision of Section 4(II). Second, the provision relied upon by plaintiff comes at the end of Section 4(III) and thus applies to all three preceding sub-parts, which deal with, respectively, inland shipments in Europe, the U.S., and other countries. Therefore, contrary to plaintiff's claim, this is a general provision dealing with three scenarios, two of which have nothing to do with COGSA. Third, plaintiff ignores the fact that Section 4(II) is a ceiling or maximum and not an affirmative statement dictating what liability should be. Plaintiff argues that both Sections 4(II) and 23 should be disregarded because they are in conflict with Section 4(III). But, strictly speaking, there is no conflict as both sections can apply. After all, $5,000 is still less than $36,102.39. Redundancy in a contract, like redundancy in the design of aircraft, may be intentional and is thus not necessarily evidence of a flawed design.
Even if plaintiff could avoid Section 4(II), it must still contend with Section 23, which states that, if COGSA is not compulsorily applicable, then damages "shall in no event exceed $500." Plaintiff argues that this general provision should give way to the more specific provision of Section 4(III). We disagree. First, as noted already, these provisions are not really in conflict. Second, to the extent we must choose between the two, we would first enforce Section 23 because the drafters clearly placed greater importance on this section because it is prominently mentioned twice on the front page of the BL. We have reviewed the cases cited by plaintiff and find that they are either factually distinguishable or support the result here. See, e.g., Taisho Marine and Fire Ins. Co. v. Maersk Line, 796 F.Supp. 336 (N.D. Ill. 1992) (enforcing a similar $500 limitation). The only remaining question is when prejudgment interest should accrue on the $5,000 judgment. Plaintiff argues that it should accrue on the date the goods were delivered to the carrier while Zim argues that it should begin on the date that plaintiff paid off the claim. We agree with Zim's argument. See American Nat'l Fire Ins. v. Yellow Freight Systems, 325 F.3d 924, 937 (7th Cir. 2003) (district court did not err in awarding prejudgment interest from date the insurer paid claim). Because it is unclear when the claim was paid, the parties should attempt to work out a proposed final order and submit it to chambers. If they are unsuccessful, they should appear at a status hearing on May 13, 2004.