Opinion
C/A NO. 2:00-0379-18
April 24, 2001
ORDER
This action is before the court on defendant's motion to dismiss on the grounds that this court lacks subject matter jurisdiction and venue based on the forum selection clauses in bills of lading issued by Hyundai Merchant Marine Co. (Hyundai), Ltd., which is not a party to these proceedings.
I. FACTUAL BACKGROUND
This case involves a claim for damage to numerous lifts of ERW steel pipe transported from Ulsan, Korea, to various West Coast ports, including Vancouver, Seattle, Portland, Oakland, and Los Angeles. The M/V PERSEUS carried the cargo on board under bills of lading issued by Hyundai. After delivering the cargo, the Turquoise Maritime, Ltd. purchased the M/V PERSEUS. Turquoise Maritime, Ltd., renamed the boat the "M/V TURQUOISE." Plaintiff Tokio Marine Fire Insurance Co., Ltd., (Tokio Marine) insured the cargo, paid the damages claimed by its assured, and became subrogated to its assured's rights of recovery. Tokio Marine filed this action against the vessel in rem.
The bills of lading issued by Hyundai contained identical, boiler-plate forum selection clauses. The clauses read as follows:
GOVERNING LAW AND JURISDICTION. The claims arising from or in connection with or relating to this Bill of Lading shall be exclusively governed by the law of Korea except otherwise provided in this Bill of Lading. Any and all action concerning custody or carriage under this Bill of Lading whether based on breach of contract, tort or otherwise shall be brought before the Seoul Civil District Court in Korea.
(Hyundai Bill of Lading at ¶ 25)
II. PROCEDURAL HISTORY
Tokio Marine originally filed this in rem action against the M/V TURQUOISE in the United States District Court for the Central District of California, claiming damages in the amount of $371,786.26. Anticipating the arrival of the vessel within this district, Tokio Marine obtained an order from that court transferring the case to this court. In lieu of arresting the M/V TURQUOISE, Tokio Marine accepted a letter of undertaking from the vessel's protection and indemnity club. Turquoise Marine subsequently filed a claim to the vessel and an answer to the complaint.
The vessel now moves to dismiss this action based on the forum selection clause in each of the bills of lading Hyundai issued for the carriage of the subject cargo. The vessel's motion contends that this clause deprives this court of subject matter jurisdiction to adjudicate Tokio Marine's in rem claim against the M/V TURQUOISE, and also makes this an improper venue for this action.
Tokio Marine opposes the motion, arguing that the court in Korea will not provide an alternative forum for this claim because Korean law does not recognize or allow for an in rem action against a ship.
III. LAW/ANALYSIS
A. Validity of Foreign-Selection Clauses in Bills of Lading
The Carriage of Goods by Sea Act ("COGSA") governs bills of lading for cargo shipments carried by sea to or from ports in the United States.See 46 U.S.C. App. §§ 1300-1315 (West 2000). Section 1303(8) of COGSA provides that "[a]ny clause, covenant, or agreement in a contract of carriage relieving the carrier or ship from liability for loss or damage to or in connection with the goods, or lessening such liability otherwise than as provided in this chapter, shall be null and void and of no effect."
Prior to the Supreme Court's landmark decision in Vimar Seguros y Reaseguros, S.A. v. M/V SKY REEFER, the majority of courts held that § 1303(8) prevented the enforcement of foreign forum-selection clauses in bills of lading. See, e.g., Indussa Corp. v. S.S. RANBORG, 377 F.2d 200 (2d Cir. 1967) (en banc). In SKY REEFER, the Supreme Court rejected this view and held that a clause in a COGSA bill of lading, which called for arbitration of disputes in Japan did not necessarily violate the prohibitions of § 1303(8) of COGSA. See 515 U.S. 528, 541 (1995). Because the arbitrator might apply COGSA or its equivalent in deciding the dispute, the Court concluded that the arbitration clause might not relieve the carrier of liabiLity or lessen its liability below what COGSA permits. See id. at 540-41. Accordingly, the Court held that the arbitration clause should be enforced. See id. Lower courts have subsequently applied SKY REEFER's reasoning to forum-selection clauses requiring litigation in a non-U.S. court See e.g., Fireman's Fund Ins. Co. v. M/V DSR ATLANTIC, 131 F.3d 1336, 1337 (9th Cir. 1997).
The law has developed such that the general rule is that forum selection clauses are presumptively valid. See Allianz Ins. Co. of Canada v. Cho Yang Shipping Co., Ltd., 131 F. Supp.2d 787, 790 (E.D.Va. 2000). This presumption of validity, however, is rebuttable "and may be overcome, if enforcement of the forum selection clause is unreasonable and unjust; invalid due to fraud or overreaching; or in contravention of a strong public policy." See id. (citing Avant Petroleum, Inc. v. Banque Paribas, 652 F. Supp. 542, 545 (S.D.N.Y. 1986), aff'd, 853 F.2d 140 (2d Cir. 1988)). "Additional considerations include the relative bargaining power of the contracting parties, the presence of bad faith, provision of an adequate remedy for the aggrieved party, and the convenience and relatedness of the forum to the contract." Id. (citing Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1360-61 (2d Cir.), cert. denied, 510 U.S. 945 (1993)).
B. Enforceability of Foreign-Selection Clauses Against In Rem Claims
The issue to be decided on this motion is whether the forum-selection clause in the Hyundai bills of lading may be enforced to dismiss this in rem action against the M/V TURQUOISE. In this circuit, Judge Rebecca Beach Smith of the Eastern District of Virginia recently enforced a Korean forum selection clause in bills of lading issued by Cho Yang Shipping Co., Ltd. (Cho Yang), and dismissed the plaintiffs' in personam claim against Cho Yang, the ocean carrier. See Allianz Ins. Co. of Canada v. Cho Yang Shipping Co., 131 F. Supp.2d 787, 795 (E.D.Va. 2000). Judge Smith refused to enforce the same clause as to the plaintiffs in rem claim against the vessel, the M/V D.S.R. AMERICA. See id. Judge Smith reasoned that "[i]t would be unreasonable and unjust to enforce the forum selection clause as to D.S.R. AMERICA, the in rem defendant, because anin rem action is unavailable under the forum law (Korea), and thereby reduces Allianz's rights under COGSA." Id. at 794. Judge Smith distinguished the Ninth Circuit's contrary interpretation of Cho Yang's forum selection clause, noting that the Ninth Circuit "seem[ed] to have ignored [COGSA § 1303(8)] in its analysis." Id. (citing the DSR ATLANTIC, 131 F.3d at 1339-40).
C. Tokio Marine Has the Burden of Proving the Invalidity of the Foreign Forum-Selection Clause
Under the SKY REEFER test, COGSA does not automatically invalidate forum selection clauses. Instead the burden is on the party seeking to avoid enforcement of the clause to prove that the law of the foreign forum precludes statutory remedies, relieves the ocean carrier or the ship from liability, or lessens their liability below what COGSA permits. See Jewel Seafoods. Ltd. v. M/V PEACE RIVER, 39 F. Supp.2d 628, 632 (D.S.C. 1999). In this in rem action, Tokio Marine bears the burden of proving that the forum selection clause in the Hyundai bills of lading relieves the ship from liability or lessens its liability in violation of COGSA § 1303(8). See generally, id.
To meet this burden, Tokio Marine introduced into evidence the declaration of Beomsu Kim, an attorney admitted into practice in Korea and New York. (Declaration of Beomsu Kim at ¶ 1-2) From 1988 to 1997, Mr. Kim served as a judge in the courts of Korea, including the Seoul District Court. (Declaration of Beomsu Kim at ¶ 3)
According to Mr. Kim, "[u]nder Korean law, litigants cannot bring in rem actions against ships as a means of enforcing substantive rights, such as maritime liens." (Kim Declaration at ¶ 14) "Under Korean law, ships are not distinct juristic persons, and are not subject to liability in contract or tort, to arrest, or to service of process." (Kim Declaration at ¶ 15) "In Korea, there [are] no judicial means of bringing or litigating a claim against a ship. In Korea, a ship cannot be liable under COGSA or any other law." (Kim Declaration at ¶ 17)
The M/V TURQUOISE did not offer any testimony of its own to counter the testimony of Mr. Kim. At oral argument, counsel for the M/V TURQUOISE admitted that an in rem action against the ship is not available in Korea. Counsel for the M/V TURQUOISE, however, argued that Korea recognizes and enforces maritime liens for cargo damage, albeit through means other than in rem vessel claims.
This court finds that Tokio Marine has carried its burden to establish that Tokio Marine cannot maintain an action against the ship in Korea, because Korean law does not provide for an in rem action against the ship. If Tokio Marine were required to bring its in rem action against the ship in Seoul, where the law does not permit an action against a ship, the forum-selection clause urged by the M/V TURQUOISE would purport to relieve the ship from liability, thereby violating COGSA § 1303(8).
IV. CONCLUSION
Enforcement of the forum-selection clause in the Hyundai bills of lading will violate COGSA, because enforcement will effectively relieve the ship from liability. Accordingly, the M/V TURQUOISE's motion to dismiss is denied.
IT IS THEREFORE,
ORDERED, that the M/V TURQUOISE's motion to dismiss the in rem action against it by DENIED.