United States Court of Appeals Fifth Circuit F I L E D May 14, 2003 IN THE UNITED STATES COURT OF APPEALS Charles R. Fulbruge III FOR THE FIFTH CIRCUIT Clerk
No. 02-30856 Summary Calendar
INDUSTRIAL MARITIME CARRIERS (BAHAMAS), INC.,
Plaintiff-Appellee,
versus
SIEMENS WESTINGHOUSE POWER CORPORATION; ET AL.,
Defendants,
SIEMENS WESTINGHOUSE POWER CORPORATION,
Defendant-Appellant.
Appeal from the United States District Court for the Eastern District of Louisiana (USDC No. 01-CV-726-I) _______________________________________________________
Before REAVLEY, BARKSDALE and CLEMENT, Circuit Judges.
PER CURIAM:*
* Pursuant to 5TH CIR. R. 47.5, the Court has determined that this opinion should not be published and is not precedent except under the limited circumstances Siemens Westinghouse Power Corp. (“SWPC”) contracted with Industrial
Maritime Carriers (Bahamas), Inc. (“IMC”) for the carriage of two generators from
Masan, Korea to Houston, Texas on the vessel the M/V INDUSTRIAL BRIDGE. When
the goods were offloaded, IMC discovered that the hold in which the generators were
stored had flooded. SWPC contends the flood damage resulted in a total loss of the
generators, valued at approximately $3,100,000 each.
IMC sought a declaratory judgment that its liability for the loss of the generators
was limited to $500 per package under the Carriage of Goods by Sea Act, 46 U.S.C. §§
1300 et seq. (“COGSA”). See id. § 1304(5). SWPC filed a counterclaim alleging that
IMC breached the contract of carriage and was liable for the full value of the two
generators. The district court granted summary judgment in favor of IMC. SWPC
appealed. We affirm the district court for the following reasons:
1. We review a district court’s grant of summary judgment de novo. Blanks v.
Southwestern Bell Communications, Inc., 310 F.3d 398, 400 (5th Cir. 2002).
Summary judgment is appropriate if the record discloses that there is no genuine
issue as to any material fact and that the moving party is entitled to judgment as a
matter of law. FED. R. CIV. P. 56(c).
2. COGSA entitles a carrier to limit its liability for damage to or loss of packages in
their care to $500 so long as the carrier provided the shipper with a fair
set forth in 5TH CIR. R. 47.5.4.
2 opportunity to eliminate the package limit by declaring the package’s actual value
and paying additional ad valorem freight. See 46 U.S.C. § 1304(5); Brown &
Root, Inc. v. M/V Peisander, 648 F.2d 415, 420 (5th Cir. 1981). It is undisputed
that IMC gave SWPC an opportunity to declare excess value and pay ad valorem
freight, as both the bill of lading and IMC’s tariff on file with the Federal
Maritime Commission so provided. The sole issue presented by this appeal is
whether that opportunity was fair, as a carrier must offer a shipper a reasonable ad
valorem charge to satisfy fair opportunity doctrine. Gen. Elec. Co. v. M/V
Nedlloyd, 817 F.2d 1022, 1028 (2d Cir. 1987) (citing Hart v. Penn. R.R. Co., 112
U.S. 331, 341-42 (1884)). SWPC contends that, because the cost to IMC of
insuring a package is 0.2568% of the cargo’s actual value, IMC’s 6% ad valorem
freight is excessive and unreasonable and thus did not provide a fair opportunity to
eliminate the $500 limit.
3. We find this case indistinguishable from General Electric Co. v. M/V Nedlloyd.
In Nedlloyd, the court determined that “because [the carrier’s] ad valorem rate
exceeded what it cost [the shipper] to insure its cargo, it was not the ad valorem
rate but the economics of insuring the cargo that prevented [the shipper] from
declaring excess value.” Id. at 1025. Moreover, the shipper “had no intention of
declaring an excess value for its cargo,” because it had made a business judgment
long before the particular shipment not to explore the possibility of obtaining
3 greater protection at a higher rate. Id. at 1025, 1029. Accordingly, the Second
Circuit held that it was the shipper’s own cost-benefit analysis that prevented it
from declaring excess value. Id. at 1029.
4. SWPC’s attempts to distinguish Nedlloyd from the present case are unconvincing.
First, the record reveals that during the 1980's SWPC’s Risk Manager investigated
“whether it would be advantageous . . . to declare the higher value and pay the
higher freight to eliminate the package limit.” The Risk Manager determined that,
although it was desirable to declare the actual value of the cargo to procure safe
and prompt shipment, carriers throughout the industry charged ad valorem rates of
3% to 10% to eliminate the package limit. Because SWPC could purchase all-risk
cargo insurance for between 0.2% and 0.3% of the insured goods’ value, the Risk
Manager concluded that the “exorbitantly high rates charged by ocean carriers
made it absolutely impossible as a matter of practical economies” to declare the
actual value of the shipments and pay ad valorem freight. Second, the record is
devoid of evidence that SWPC inquired about declaring the excess value of the
two generators. Nor is there evidence that SWPC took any steps toward actually
declaring the value of its cargo, such as attempting to negotiate a lower ad valorem
rate. Accordingly, we conclude that SWPC’s policy not to declare excess value
was a result of its own cost-benefit analysis, which revealed that the costs of
declaring excess value outweighed the benefits. SWPC bears the burden of
4 proving that the rate was unreasonable, and the record lacks any evidence that
SWPC’s decision was causally related to the freight IMC would have charged to
eliminate the $500 per package limit. See Nedlloyd, 817 F.2d at 1029 (stating that
while the carrier bears the initial burden of proving fair opportunity, the shipper
must prove that a fair opportunity did not in fact exist). SWPC’s decision was
instead based on the fact that it could ship its products for less if it self-insured.
5. SWPC attempts to distinguish this case from Nedlloyd on the ground that its
policy was not to refrain from paying ad valorem rates; it was only to refrain from
paying such rates until carrier began charging reasonable rates (apparently
meaning rates that resulted in smaller profit margins). This argument assumes
that the reasonableness of an ad valorem rate is dependent upon the carrier’s profit
margin. However, the reasonableness of an ad valorem charge depends only upon
its relationship to the cargo’s value, and thus the risk assumed by the carrier. See
Nedlloyd, 817 F.2d at 1028 (citing Hart, 112 U.S. at 341-42 and Adams Express
Co. v. Croninger, 226 U.S. 491, 510 (1913)). There is no authority for the
proposition that the reasonableness of a rate of carriage is determined by the ratio
between the ad valorem freight and the insurance cost to the carrier; thus, SWPC’s
cost-benefit analysis, which determined ad valorem rates were unreasonable in
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United States Court of Appeals Fifth Circuit F I L E D May 14, 2003 IN THE UNITED STATES COURT OF APPEALS Charles R. Fulbruge III FOR THE FIFTH CIRCUIT Clerk
No. 02-30856 Summary Calendar
INDUSTRIAL MARITIME CARRIERS (BAHAMAS), INC.,
Plaintiff-Appellee,
versus
SIEMENS WESTINGHOUSE POWER CORPORATION; ET AL.,
Defendants,
SIEMENS WESTINGHOUSE POWER CORPORATION,
Defendant-Appellant.
Appeal from the United States District Court for the Eastern District of Louisiana (USDC No. 01-CV-726-I) _______________________________________________________
Before REAVLEY, BARKSDALE and CLEMENT, Circuit Judges.
PER CURIAM:*
* Pursuant to 5TH CIR. R. 47.5, the Court has determined that this opinion should not be published and is not precedent except under the limited circumstances Siemens Westinghouse Power Corp. (“SWPC”) contracted with Industrial
Maritime Carriers (Bahamas), Inc. (“IMC”) for the carriage of two generators from
Masan, Korea to Houston, Texas on the vessel the M/V INDUSTRIAL BRIDGE. When
the goods were offloaded, IMC discovered that the hold in which the generators were
stored had flooded. SWPC contends the flood damage resulted in a total loss of the
generators, valued at approximately $3,100,000 each.
IMC sought a declaratory judgment that its liability for the loss of the generators
was limited to $500 per package under the Carriage of Goods by Sea Act, 46 U.S.C. §§
1300 et seq. (“COGSA”). See id. § 1304(5). SWPC filed a counterclaim alleging that
IMC breached the contract of carriage and was liable for the full value of the two
generators. The district court granted summary judgment in favor of IMC. SWPC
appealed. We affirm the district court for the following reasons:
1. We review a district court’s grant of summary judgment de novo. Blanks v.
Southwestern Bell Communications, Inc., 310 F.3d 398, 400 (5th Cir. 2002).
Summary judgment is appropriate if the record discloses that there is no genuine
issue as to any material fact and that the moving party is entitled to judgment as a
matter of law. FED. R. CIV. P. 56(c).
2. COGSA entitles a carrier to limit its liability for damage to or loss of packages in
their care to $500 so long as the carrier provided the shipper with a fair
set forth in 5TH CIR. R. 47.5.4.
2 opportunity to eliminate the package limit by declaring the package’s actual value
and paying additional ad valorem freight. See 46 U.S.C. § 1304(5); Brown &
Root, Inc. v. M/V Peisander, 648 F.2d 415, 420 (5th Cir. 1981). It is undisputed
that IMC gave SWPC an opportunity to declare excess value and pay ad valorem
freight, as both the bill of lading and IMC’s tariff on file with the Federal
Maritime Commission so provided. The sole issue presented by this appeal is
whether that opportunity was fair, as a carrier must offer a shipper a reasonable ad
valorem charge to satisfy fair opportunity doctrine. Gen. Elec. Co. v. M/V
Nedlloyd, 817 F.2d 1022, 1028 (2d Cir. 1987) (citing Hart v. Penn. R.R. Co., 112
U.S. 331, 341-42 (1884)). SWPC contends that, because the cost to IMC of
insuring a package is 0.2568% of the cargo’s actual value, IMC’s 6% ad valorem
freight is excessive and unreasonable and thus did not provide a fair opportunity to
eliminate the $500 limit.
3. We find this case indistinguishable from General Electric Co. v. M/V Nedlloyd.
In Nedlloyd, the court determined that “because [the carrier’s] ad valorem rate
exceeded what it cost [the shipper] to insure its cargo, it was not the ad valorem
rate but the economics of insuring the cargo that prevented [the shipper] from
declaring excess value.” Id. at 1025. Moreover, the shipper “had no intention of
declaring an excess value for its cargo,” because it had made a business judgment
long before the particular shipment not to explore the possibility of obtaining
3 greater protection at a higher rate. Id. at 1025, 1029. Accordingly, the Second
Circuit held that it was the shipper’s own cost-benefit analysis that prevented it
from declaring excess value. Id. at 1029.
4. SWPC’s attempts to distinguish Nedlloyd from the present case are unconvincing.
First, the record reveals that during the 1980's SWPC’s Risk Manager investigated
“whether it would be advantageous . . . to declare the higher value and pay the
higher freight to eliminate the package limit.” The Risk Manager determined that,
although it was desirable to declare the actual value of the cargo to procure safe
and prompt shipment, carriers throughout the industry charged ad valorem rates of
3% to 10% to eliminate the package limit. Because SWPC could purchase all-risk
cargo insurance for between 0.2% and 0.3% of the insured goods’ value, the Risk
Manager concluded that the “exorbitantly high rates charged by ocean carriers
made it absolutely impossible as a matter of practical economies” to declare the
actual value of the shipments and pay ad valorem freight. Second, the record is
devoid of evidence that SWPC inquired about declaring the excess value of the
two generators. Nor is there evidence that SWPC took any steps toward actually
declaring the value of its cargo, such as attempting to negotiate a lower ad valorem
rate. Accordingly, we conclude that SWPC’s policy not to declare excess value
was a result of its own cost-benefit analysis, which revealed that the costs of
declaring excess value outweighed the benefits. SWPC bears the burden of
4 proving that the rate was unreasonable, and the record lacks any evidence that
SWPC’s decision was causally related to the freight IMC would have charged to
eliminate the $500 per package limit. See Nedlloyd, 817 F.2d at 1029 (stating that
while the carrier bears the initial burden of proving fair opportunity, the shipper
must prove that a fair opportunity did not in fact exist). SWPC’s decision was
instead based on the fact that it could ship its products for less if it self-insured.
5. SWPC attempts to distinguish this case from Nedlloyd on the ground that its
policy was not to refrain from paying ad valorem rates; it was only to refrain from
paying such rates until carrier began charging reasonable rates (apparently
meaning rates that resulted in smaller profit margins). This argument assumes
that the reasonableness of an ad valorem rate is dependent upon the carrier’s profit
margin. However, the reasonableness of an ad valorem charge depends only upon
its relationship to the cargo’s value, and thus the risk assumed by the carrier. See
Nedlloyd, 817 F.2d at 1028 (citing Hart, 112 U.S. at 341-42 and Adams Express
Co. v. Croninger, 226 U.S. 491, 510 (1913)). There is no authority for the
proposition that the reasonableness of a rate of carriage is determined by the ratio
between the ad valorem freight and the insurance cost to the carrier; thus, SWPC’s
cost-benefit analysis, which determined ad valorem rates were unreasonable in
relation to insurance costs, does not support SWPC’s claim that it determined all
carriers’ ad valorem rates were “unreasonable” as that term has been defined in the
5 fair opportunity doctrine by the Supreme Court.
6. Moreover, the Risk Manager’s affidavit states that SWPC’s decision not to declare
excess value was driven by the fact that it could obtain shipper’s insurance at a
markedly lower rate than ad valorem freight charges. This was exactly the
circumstance that faced the Nedlloyd court. See id. at 1025. Although SWPC
vehemently asserts that its cost-benefit analysis hinged on the excessiveness of
rates, the Second and Fourth Circuits have held that, absent evidence that the
shipper attempted to obtain a reasonable ad valorem charge, it cannot now
complain that the carrier’s ad valorem rate was excessive. Id. at 1029; Aetna Ins.
Co. v. M/V Lash Italia, 858 F.2d 190, 194 (4th Cir. 1988). SWPC contends that it
was not required to inquire as to the reasonableness of IMC’s ad valorem rate
because “an axiomatic principle of law is that no party is required to do a vain and
useless act,” and SWPC knew every carrier charged an unreasonable rate. We are
not convinced that efforts to obtain a lower rate would necessarily have been in
vain, as there is no evidence in the record that SWPC made any attempt to obtain
what it considered a reasonable ad valorem rate.
7. In any event, “it would be unjust and unreasonable, and would be repugnant to the
soundest principles of fair dealing and of the freedom of contracting, and thus in
conflict with public policy, if a shipper should be allowed to reap the benefit of the
contract if there is no loss, and to repudiate it in case of loss.” Hart, 112 U.S. at
6 341. SWPC, an experienced shipper, was aware of the economic consequences of
obtaining greater protection from the carrier at a higher rate or obtaining an
insurance policy to cover its exposure. See Lash Italia, 858 F.2d at 194. It chose
the later course. The fact that its choice will now result in larger insurance
premiums in the future may be unfortunate for the company, but it does not mean
it was not given a fair opportunity to make a different choice.
8. Lastly, SWPC argues that the district court erred by applying Travelers Indemnity
Co. v. Vessel Sam Houston, 26 F.3d 895 (9th Cir. 1994), to determine that
SWPC’s procurement of insurance is evidence of “a conscious decision not to opt
out of COGSA’s liability limitation.” Id. at 900. SWPC argues that, in light of the
several defenses available to carriers under COGSA, see 46 U.S.C. § 1304(2), a
prudent shipper will obtain all-risk insurance even if it declares the cargo’s excess
value and pays ad valorem freight. Assuming without deciding that SWPC is
correct, we conclude any error by the district court was harmless. SWPC’s own
evidence demonstrates that its cost-benefit analysis, and not the excessiveness of
IMC’s 6% ad valorem freight, prevented it from declaring the generators’ actual
value. Accordingly, SWPC cannot establish that it was denied a fair opportunity
to opt out of COGSA’s $500 per package liability limitation.
AFFIRMED.