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Burlington Northern R. Co. v. Hyundai Merchant Marine Co.

filed: August 18, 1995.

BURLINGTON NORTHERN RAILROAD COMPANY APPELLEE
v.
HYUNDAI MERCHANT MARINE CO., LTD. APPELLANT



On Appeal From the United States District Court For the District of New Jersey. (D.C. Civ. No. 93-cv-01478).

Before: Becker, Scirica, and Wood, Circuit Judges.*fn*

Author: Becker

Opinion OF THE COURT

BECKER, Circuit Judge.

This appeal concerns the timeliness of a maritime indemnity claim under the Carmack Amendment to the Interstate Commerce Act, 49 U.S.C. § 11707, though its ultimate Disposition turns on the application of an "unmixed questions of law" exception to the doctrine of issue preclusion. The case arises from a shipment of furnace equipment by Tongil Co., Ltd. from Milwaukee, Wisconsin to Pusan, South Korea that arrived in damaged condition. The goods were carried by rail from Milwaukee to Seattle by plaintiff Burlington Northern Railroad Company ("Burlington"), and thence by sea to Pusan by defendant Hyundai Merchant Marine Co. ("Hyundai"). The damage apparently occurred while the cargo was in the possession of Burlington, but Tongil sued Hyundai for the damage. The case settled and approximately one month following the settlement, Hyundai sought indemnity from Burlington, which refused to pay because notice of the claim was not given within nine months following the delivery of the shipment as required in a Burlington circular, adopted as part of the contract of carriage.

Burlington brought a declaratory judgment action in district court. The court granted summary judgment for Burlington, and Hyundai brought this appeal. Although the legal question implicated by the timeliness issue is an interesting and important one, this appeal turns not on that issue but on the doctrine of issue preclusion, for Hyundai's principal argument on appeal is that, in holding the notice of the claim untimely, the district court erred by failing to give issue preclusive effect to a decision by the District Court for the Western District of Washington in Atlantic Mutual v. OOCL, (W.D. Wash 1992). That case involved an indemnity claim brought against Burlington by a different ocean carrier for damage sustained to a shipment of Samsonite luggage from Taiwan to Denver via Seattle. The Atlantic Mutual court concluded that a time limit contained in a Burlington circular (adopted as part of the contract of carriage) did not foreclose the action in indemnity since such claims do not accrue and time limitations therefore cannot commence until liability is determined or a cognizable loss is incurred. If this general rule for indemnity claims were applied in the present action, Hyundai's claim would have been timely presented.

The district court in this case rejected Hyundai's argument and refused to apply the doctrine of issue preclusion to the issue resolved in Atlantic Mutual, relying on an exception for "unmixed questions of law," the scope of which is a question of first impression in this circuit. While the continued viability of this exception has been called into question by the Supreme Court's decision in United States v. Stauffer Chemical Co., 464 U.S. 165, 104 S. Ct. 575, 78 L. Ed. 2d 388 (1984), we conclude that such an exception for questions of law continues to apply, and that it is satisfied only so long as the issue involved is one of law and either (1) the two actions involve claims that are substantially unrelated or (2) a new determination of the legal issue is warranted in order to take account of an intervening change in the applicable legal context or otherwise to avoid inequitable administration of the laws. See RESTATEMENT (SECOND) OF JUDGMENTS § 28 (1982).

Because the Atlantic Mutual action and this case are not substantially unrelated and since a new determination of the legal issue involved is not warranted, we conclude that the district court erred by relying on this exception to the otherwise applicable doctrine of issue preclusion. Accordingly, we will reverse the order of the district court granting summary judgment to Burlington, and direct the district court on remand to grant issue preclusive effect to the decision of the district court in Atlantic Mutual.*fn1

I. FACTS AND PROCEDURAL HISTORY

A. The Tongil Action

Hyundai's indemnity claim originates in an action brought by Tongil in the District Court for the Central District of California for damages sustained to a cargo of furnace equipment shipped aboard M/V Hyundai Innovator in 1986 from Seattle, Washington to Pusan, South Korea. See Tongil Co. v. Vessel Hyundai Innovator, Case No. 88-04895 (C.D. Ca. 1988). The cargo had originally been shipped from Milwaukee to Seattle via Burlington railcar. On August 10, 1988, Tongil filed suit against Hyundai for the damages sustained to the shipment. On December 15, 1988, in response, Hyundai gave Burlington notice of its indemnity claim, but Burlington denied Hyundai's claim as not having been filed within the nine month time limitation prescribed in its circular and adopted as part of the contract of carriage. In particular, Burlington relied on Item 12 of its Rules Memorandum 2-C, which provides:

As a condition precedent to recovery, any claim for loss or damage to lading shall be filed with BN [Burlington Northern] within nine (9) months of the date of delivery of the shipment, or within nine (9) months of a reasonable time for delivery in the event of non-delivery. Claim shall be supported with a copy of the shipping order, invoice, inspection report, or other proof of loss, and, if possible, the paid freight bill.

App. at 107.

In the underlying action by Tongil against Hyundai, to which Burlington was not a party, the District Court for the Central District of California concluded, following a bench trial, that the cargo was in fact damaged while in the possession of Burlington; yet the court awarded Tongil $114,870.64 in damages, interests, and costs against Hyundai. Hyundai appealed the judgment to the Ninth Circuit Court of Appeals, which reversed. See Tongil Co. v. Vessel Hyundai Innovator, 968 F.2d 999 (9th Cir. 1992). Following the appeal, Hyundai settled the action with Tongil for $10,000 and then on January 26, 1993, requested indemnity of this amount together with legal expenses and costs totaling $104,079.49, which Burlington again denied.

B. The Atlantic Mutual Action

While Burlington was relying on Item 2-C of its Rules Memorandum to deny Hyundai's indemnity claim, it was defending another indemnity action in the District Court for the Western District of Washington brought by Orient Overseas Container Line ("OOCL"). See Atlantic Mutual v. OOCL, (W.D. Wash. 1992). Like Hyundai's claim, the viability of OOCL's claim in the Atlantic Mutual action turned on the question whether the general rule for indemnity accrual -- that an indemnity claim "does not accrue until the indemnitee's liability is determined by judgment or payment," id. at * 9-10, and, therefore, that a statute of limitations on an indemnity claim cannot begin to run until such time -- should apply despite Item 2-C of Burlington's Rules Memorandum, which provided that the time limitation should be measured from the date of delivery. Atlantic Mutual had filed suit against OOCL to recover payments that Atlantic Mutual had made as an insurer to Samsonite Pacific, Ltd. ("Samsonite") for damages to a shipment of luggage en route from Taiwan to Denver via Seattle. In response, OOCL had filed a third party claim against Burlington for indemnity for its liability to Atlantic Mutual.

Burlington's denial of OOCL's indemnity claim was based solely on its contention that the claim was time barred since OOCL had failed to bring suit within the time period specified in Burlington Rules Memorandum 2-C. This provision provided that "all suits against BN [Burlington Northern] shall be commenced no later than 1 year after the date of delivery." Id. at * 5. OOCL, which notified Burlington of its claim more than one year after delivery, contended that this contractual limitations period did not alter the general rule governing actions in indemnity. The Washington district court agreed with OOCL and concluded that its "cross-claim for indemnification is not barred by the limitations period in Burlington Northern's Rules Memorandum 2-C." Id. at * 12. In reaching this Conclusion, the court relied on the opinion of the Ninth Circuit in States S.S. Co. v. American Smelting & Refining Co., 339 F.2d 66, 70 (9th Cir. 1964), cert. denied 380 U.S. 964, 14 L. Ed. 2d 155, 85 S. Ct. 1109 (1965), which it read as concluding that an "indemnity claim . . . does not accrue until the indemnitee has made actual payment." Atlantic Mutual at * 12; see also id. ("An action for indemnification accrues at the time of the indemnitee's payment despite a shorter contractual time limitations period applying to claims between the parties.").

C. The Hyundai Action

Following the decision in Atlantic Mutual, Burlington, having already denied Hyundai's claim for indemnity in connection with the shipment of furnace equipment on several occasions, instituted this action on April 1, 1993, in the District Court for the District of New Jersey, seeking a declaratory judgment that Hyundai had no timely claim against Burlington. In response, Hyundai filed a counterclaim seeking the $104,079.49 from Burlington in indemnity, and moved to transfer both actions to either the Central District of California or the Western District of Washington pursuant to 28 U.S.C. ยง 1404(a), given that none of the facts in ...


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