Limitation of Liability - US District Court 23 October 2007

UNITED STATES DISTRICT COURT ENFORCES “LIMITATION OF LIABILITY”

The United States District Court for the Southern District of New York in a case argued by our law firm held in a thorough and detailed twenty-eight (28) page decision that the freight forwarder and customs broker’s “limitation of liability” was binding. The Court also flatly rejected Plaintiffs’ argument that the freight forwarder was responsible for alleged damage to cargo during trucking because the trucker allegedly did not have a license and/or permit to move cargo intrastate in New York.

FACTUAL BACKGROUND

The Plaintiffs are two subrogated insurance carriers that paid $648,341.00 in damages to Halm Industries. Halm had displayed a prototype printing press, the EM5315 Envelope Master at an industry trade show in Germany. Halm hired the freight forwarder to arrange for the movement of the cargo back to its corporate headquarters in New York. The Court found that Halm had used the freight forwarder for twenty-five (25) prior transactions predating the shipment involved in this lawsuit. The freight forwarder utilized the standard “Terms and Conditions of Service” approved by the National Customs Brokers and Forwarders Association of America. These terms include a limitation of liability of $50.00 per shipment. In addition, the terms also provided that the Company assumes no liability as a carrier and is not to be held responsible for any loss, damage, expense or delay to the goods to be forwarded or imported but undertakes only to use reasonable care in the selection of carriers and others to whom it may entrust the goods for transportation subject to the limitation of liability. In addition, the terms further provided that the Company shall under no circumstances be liable for any loss, damage, expense or delay to the goods for any reason whatsoever when said goods are in the custody, possession or control of third parties selected by the Company.

The Court found that Halm Industries did not request additional coverage or pay any special compensation to increase the level of liability nor did it instruct the freight forwarder to do so. The freight forwarder arranged for Art Messenger to pick up the machine at John F. Kennedy International Airport and deliver it to Halm’s designated receiver in Huntington Station, New York. The arrangements were made by telephone. Art Messenger had a prior course of dealings with the freight forwarder wherein the trucker had set forth a $50.00 per shipment limitation of liability. At no time did the freight forwarder declare value with Art Messenger and likewise, the freight forwarder was never requested to do so by the consignee, Halm Industries.

Ultimately, when the cargo was delivered to Shadow, it was determined that the cargo was damaged. The testimony at receipt was “the “tip and tell” device filled with ink and attached to the side of the crate to record a substantial tilt or fall – – was blue which indicated the cargo had seemingly been roughly handled. Exceptions were placed at delivery “Crate damaged/Machine Hanging off Skid, Tip & Tell is *Blue*, Machine Damaged.” Underwriters ultimately determined that this was a total loss.

ANALYSIS

First, the Court addressed the legal standard of an arranging freight forwarder as established by this law firm. Prima U.S. Inc. v. Panalpina, Inc., 223 F.3d 126, 129 (2d Cir. 2000), for the proposition that a freight forwarder is in essence, a travel agent and “not liable to a shipper for anything that occurs to the goods to be shipped”. The Court also relied on another dominant precedent that we have established, United Kingdom v. Northstar Services, 1 F. Supp. 2d 521, 526 (D. Md. 1998).

The Court further analyzed and rejected Plaintiff’s argument that this case constituted gross negligence or reckless misconduct and enforced the limitation of liability. The Court relied upon a lead case, Calvin Klein Ltd. v. Trylon Trucking Corp., 892 F. 2d 191, 195 (2d Cir. 1989), which held that the limitation would be generally enforceable if – 1) the language of the limitation is clear, 2) the shipper is aware of the terms, and 3) the shipper can change the terms by indicating the true value of the goods being shipped.

The Court held that even as to a claim of gross negligence, the limitation would be enforced because Halm Industries failed to declare value or agree to pay additional compensation to the forwarder. The Court also relied upon two other critical prior precedents that our office has established, Capitol Converting Equipment, Inc. v. LEP Transportation, Inc., 965 F. 2d 391, 395 (7th Cir. 1992); and General Electric Co. v. Harper Robinson & Co., 818 F. Supp. 31, 35 (E.D.N.Y. 1993).

The Plaintiff argued that the limitation of liability was unenforceable because it violated public policy by “exonerating recklessness and illegality”. Plaintiff argued that the terms of the contract in this matter were illegal because allegedly, Art Messenger did not maintain a permit for intrastate trucking as required by the New York Department of Transportation. The Court held that Art Messenger was not an unregistered carrier; it was properly permitted to perform interstate trucking and operate in four states.

This decision is quite significant because it reinforces the limitation of liability in the context of twenty-five (25) prior transactions. Note, in General Electric v. Harper Robinson, there were 23,000 prior transactions, and in Capitol Converting Equip., Inc. v. LEP Transp., Inc., there were several hundreds of transactions.

The Court rejected Plaintiff’s theory that the trucker was not legally authorized to move the cargo and that the freight forwarder had a duty to search out licenses and permits of the trucker. The Court, in essence, viewed the permit/license questions as regulatory issues for the state rather than as matters to render the move “illegal”.

Ultimately, the Court did not absolve the freight forwarder for “negligence” selection as a matter of law, however; it is clear that the Plaintiff will have quite a difficult time in arguing that the licensing status was the cause of a “loss” with the prospect of a fifty dollar ($50.00) recovery.

LESSONS LEARNED

It is very important that companies use standard Terms and Conditions of Service to enforce the limitation of liability. Records of accounts and course of dealings must be maintained. Clearly, the more transactions that exist the better chance there is that a Court would find the limitation of liability enforceable.

Care should be exercised with regard to the utilization of third parties who are entrusted to handle shippers and/or consignee’s cargo. Fortunately in this matter, the Court found Plaintiff’s argument concerning Art Messenger’s permit and licensing status as to intrastate moves to seemingly be hypertechnical, if not irrelevant. However, third parties should be required to file with the broker/forwarder certificates of insurance and all required permits and licenses for contemplated moves.

CONCLUSION

This is a major “win” for the broker/forwarder community. We have further established the binding effect of the NCBFAA Terms and Conditions of Service. This firm which has represented logistics providers for many years has taken great pride in fostering the emergence of precedent setting cases in defense of customs brokers and freight forwarders that were relied upon by the judge in rendering this defense victory. (Capitol Converting Equipment, Inc. v. LEP Transportation, Inc., General Electric Co. v. Harper Robinson & Co., United Kingdom v. Northstar Services and Prima v. Panalpina).

Andrew R. Spector of our firm argued this case.

COPIES OF THE DECISION ARE AVAILABLE UPON REQUEST. PLEASE MAKE REQUEST THROUGH [email protected]

The case can also be found at :

**ABN AMRO VERZEKERINGEN BV and HARTFORD FIRE INSURANCE COMPANY V. GEOLOGISTICS AMERICAS, INC., 2003 WL 1698867 (S.D.N.Y.)**

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