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Liberty Woods International, Inc. v. The Motor Vessel Ocean Quartz

United States Court of Appeals, Third Circuit

May 4, 2018

LIBERTY WOODS INTERNATIONAL, INC., Appellant
v.
THE MOTOR VESSEL OCEAN QUARTZ, Her engines, tackle, appurtenances, etc., in rem; DALIA SHIP HOLDINGS SA, in personam

          Argued on July 11, 2017

          On Appeal from the United States District Court for the District of New Jersey (D. C. Civil Action No. 1-15-cv-08843) District Judge: Honorable Noel L. Hillman

          Craig S. English, Esq. (ARGUED) Kennedy, Lillis, Schmidt & English Counsel for Appellant.

          Richard Q. Whelan, Esq. (ARGUED) Palmer, Biezup & Henderson Counsel for Appellees.

          Before: MCKEE, AMBRO and ROTH, Circuit Judges

          OPINION

          ROTH, Circuit Judge

         Liberty Woods International (LWI) brought suit for cargo damage sustained during a trip to Camden, New Jersey, on the Ocean Quartz (Vessel). Liability for the damage is governed by the carrier's bill of lading, which contains a forum selection clause requiring suit to be brought in South Korea. LWI instead sought to bring an in rem suit against the Vessel in the District of New Jersey, arguing that the foreign forum selection clause violates the Carriage of Goods by Sea Act (COGSA) because South Korea does not allow in rem suits. The District Court dismissed the case, and for the following reasons, we will affirm.

         I.

         LWI purchased plywood veneer sheets, which it shipped to Camden, New Jersey, on the Vessel. Dalia Ship Holding owns the Vessel; however, in a chain of chartering, Dalia bareboat chartered[1] the Vessel to Star Bulk, which in turn time chartered it to Daiichi, which in turn time chartered it to SK Shipping. SK Shipping issued a bill of lading which specified that "[a]ny claim, dispute, suit or action concerning goods carried under this Bill of Lading, whether based upon breach of contract, tort, or otherwise shall be brought before the Seoul District Court in Korea." Both parties agree that LWI's cargo is covered by this bill of lading.

         In February 2013, the Vessel arrived in Camden, and LWI discovered that its cargo was damaged. Believing the damage was caused by improper stowage, LWI threatened to arrest the Vessel. In lieu of an arrest, the Japan Ship Owners' Mutual Protection & Indemnity Association (JSO) issued to LWI and its insurers a letter of undertaking (LOU) on behalf of the Vessel, which could be used to satisfy any judgment against the Vessel in rem up to and including $2.75 million.

         On December 23, 2015, LWI filed suit in the District of New Jersey against the Vessel in rem and Dalia in personam. Dalia answered on behalf of the in rem defendant.

         LWI later learned that it could not recover in personam against Dalia because of the bareboat charter. While LWI could have filed an in personam suit against S.K. Shipping in South Korea, it chose not to. At argument, counsel admitted that this was a strategic move on its part, because LWI felt that its suit would not be successful in South Korea.

         The Vessel moved to dismiss the New Jersey suit based on the forum selection clause in the bill of lading. LWI argued that enforcing the forum selection clause would violate section 3(8) of COGSA. In relevant part, this section states:

Any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to or in connection with the goods, arising from negligence, fault, or failure in the duties and obligations provided in this section, or lessening such liability otherwise than as provided in this Act, shall be null and void and of no effect. A benefit of insurance in favor of the carrier, or similar clause, shall be deemed to be a clause relieving the carrier from liability.[2]

         LWI argued that this provision invalidates the foreign forum selection clause because South Korea does not recognize in rem suits. On November 9, 2016, the District Court granted the motion to dismiss under Rule 12(b)(3). LWI appealed.

         II.[3]

         A.

         In granting the motion to dismiss, the District Court erred in interpreting COGSA by confusing it with the Harter Act, a precursor to COGSA. COGSA was modeled after the Brussels Convention for the Unification of Certain Rules Relating to Bills of Lading (Hague Rules).[4] In 2006, COGSA was relocated from 46 U.S.C. §§ 1300 et seq., to a note after 46 U.S.C. § 30701.[5] During this same period, the Harter Act was also moved from 46 U.S.C. §§ 190-196 to 46 U.S.C. §§ 30701-30707. As a result, COGSA was amended, not merely relocated. The relocated Harter Act provisions were the "amended" COGSA provisions. Upon analyzing 46 U.S.C. §§ 30704 and 30705, the District Court held that Congress modified COGSA's language so that it no longer prohibited limiting a ship's liability.[6] That, however, was a misinterpretation of COGSA.

         B.

         Nevertheless, we will affirm the judgment because the foreign forum selection clause here does not violate COGSA.

         While foreign forum selection clauses were originally disfavored under COGSA, the Supreme Court later adopted a policy that better reflected the need to respect the competence of foreign forums to resolve disputes. In the seminal case of Indussa Corp. v. S.S. Ranborg, the Second Circuit held a foreign forum selection clause to be invalid because it "put[] 'a high hurdle' in the way of enforcing liability, and thus [was] an effective means for carriers to secure settlements lower than if cargo [owners] could sue in a convenient forum."[7] After Indussa, courts of appeal uniformly adopted this ...


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