The U.S. District Court for the Southern District of New York, one of the most active and authoritative courts addressing maritime law issues, recently ruled on a consignee’s motion to dismiss claims of a non-vessel operating common carrier (NVOCC) that ensued from the NVOCC’s delivery of cargo to the consignee without collecting original bills of lading. This opinion is a good read to see how shipping intermediary practices can run aground from a variety of legal perspectives. It also demonstrates how well-pleaded complaints by knowledgeable maritime lawyers are essential to ocean shipping legal matters.
New York-based leather goods importer Exclusive Expressions (Exclusive), owned by David Saad and Joseph Saad, engaged NVOCC Dynamic Worldwide Logistics (Dynamic) to arrange ocean transit from China to New York of eight cargoes of leather goods. As NVOCCs do in their role as documented carriers of record, Dynamic issued eight bills of lading for the transport. But unlike what an NVOCC is supposed to do, Dynamic failed to collect the original bills of lading from Exclusive on delivery. Instead, Dynamic settled for some sort of verbal promise from an Exclusive employee that he/she would cough up the bills of lading later on. Apparently, that never happened, and somehow, Dynamic got slighted.
Exactly how, we don’t know. A clearly frustrated Judge Ramos expressed his discontent with the sparse detail in Dynamic’s complaint. We can only surmise that the Chinese shipper might have made a claim against, or refused to pay freight charges to, the NVOCC.
Anyway, Dynamic sued Exclusive and the Saads, asserting admiralty jurisdiction and claims for conversion and breach of contract. Presented with the “bare-bones allegations in the Complaint,” the court didn’t have enough to see whether admiralty jurisdiction applied. On their face, Dynamic’s claims appeared to have arisen only after the cargo made landfall, which nixes one of the admiralty jurisdiction’s elements, i.e., that events related to the loss took place on navigable waters. Thus, the court refused to exercise admiralty jurisdiction, but kept the case based on federal diversity jurisdiction given the parties’ locations in different states. That was conceptually significant, because instead of applying uniform federal maritime law to Dynamic’s claim, New York state law governed (although it’s not clear the result would have been any different in admiralty).
First, regarding conversion, the court addressed the threshold question of what property Dynamic owned or have a possessory right to that allegedly was converted. What did Exclusive and the Saad boys take? After all, it was their cargo that was delivered, and while a carrier of record can exert lien rights over cargo pending payment, such liens are possessory, and once the cargo is delivered, the liens are extinguished. As the court noted, “a defendant who came into possession lawfully will be liable for transferring the property only if the transfer was in some way wrongful.” Dynamic tried to argue that, as an NVOCC, it was acting both as the shipper’s agent and as a bailee of the cargo, and therefore stood in the shipper’s shoes. True, cases have held there’s a rebuttable presumption in maritime law that an NVOCC is the shipper’s agent when booking shipments, but that agency relationship doesn’t apply across the board, and it’s designed to empower service providers to rely on the NVOCC’s actions and contracts as being taken on the shipper’s behalf. The presumption isn’t designed to empower an NVOCC to enforce rights the shipper might have, but isn’t pursuing itself.
True also, courts have held that when an NVOCC delivers cargo without obtaining corresponding bills of lading, it assumes the status of a bailee, or an entity legally entrusted and responsible for property in its care, custody and control. But there again, those cases only address an NVOCC’s liability for misdelivered cargo, and not a basis for it to assume the property owner’s standing to sue somebody else. And even if such cases could be applied, one would expect the NVOCC to bring suit in the shipper’s name.
Lastly, Dynamic pointed to a case wherein a carrier, as bailee, “retained reclamation rights [to cargo] … under a common law claim for conversion.” But in that instance (in which, by the way, the plaintiff’s pleadings were adequate), the carrier held “letters of indemnity” in lieu of the bills of lading by which consignees had promised to produce the bills of lading, as well as indemnity guarantees against claims. The carrier also had been fraudulently induced to release the cargo, which wasn’t the case with Dynamic. The court dismissed the conversion claim accordingly.
Dynamic didn’t fare better with its contract claims. Just what contract was Exclusive and the Saads a party to and in breach of? Exclusive, while the named consignee within the bills of lading, hadn’t consented to be a party to them, a prerequisite to an entity being bound by any putative contract. And Exclusive’s promise to produce bills of lading to Dynamic later? Well, that alone hardly makes a contract with demonstrable consideration. There’s too much ambiguity and too little detail to enforce the Exclusive employee’s alleged statement against Exclusive and the Saads.
The defendants’ motion to dismiss was granted, with teachable moments to NVOCCs. Document transactions properly; don’t release cargo without original bills of lading or documentation providing alternative terms; and make sure court pleadings are adequately detailed with viable legal theories.
Ref: Dynamic Worldwide Logistics, Inc. v. Exclusive Expressions, LLC, et al., 2015 WL 72828 (SDNY 2015).
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