Luckenbach Steamship Co. v. Coast Manufacturing & Supply Co. (185 F. Supp. 910, 1960)

BARTELS, District Judge.

Motion by cross-respondent to dismiss the cross-libel on the grounds that in admiralty the Court lacks jurisdiction in personam over cross-respondent, and that it lacks jurisdiction over the subject-matter of the original libel and of the cross-libel, and hence the cross-libel must be dismissed.

On December 3, 1956, a fire occurred at the Brooklyn pier of cross-libelant Luckenbach Steamship Company, Inc. (hereinafter referred to as “Luekenbach”) which was followed by an explosion destroying the pier and the goods stored thereon and causing serious loss of life, personal injuries and other property damage. As a result numerous suits have been commenced against Luckenbach to recover damages of approximately $50,000,000. Luckenbach claims that the explosion was caused by a shipment of safety fuses consigned to and insured by cross-respondent Coast Manufacturing & Supply Company (hereinafter referred to as “Coast”) which was upon the pier at the time the fire started, without full disclosure by Coast to Luckenbach of its explosive nature.

The original libel in this case is based upon loss of a shipment of “1950 cartons of Cordeau Detonant Fuse (Safety Fuse)” delivered to Luckenbach at its Brooklyn pier on November 28, 1956, for transportation to California where it was to be delivered to Coast, the consignee. A dock receipt was issued for the shipment incorporating the terms of the bill of lading required to be issued by Luckenbach ^ under that receipt. The bill of lading contains the usual clauses of carriage and specifically provides in paragraph 6 thereof that the goods covered by the bill of lading “while on the wharf or in warehouse awaiting shipment, transshipment or delivery shall be at owner’s risk of loss or damage by fire, flood, earthquake, or other casualties, * * * not happening through the fault or negligence of the carrier.”

On April 18, 1958, a libel (Docket No. Ad. 20672) was filed in this Court by Bigham, Englar, Jones & Houston (hereinafter referred to as “Bigham, Englar”) as proctors for Coast and other libelants to recover for loss of their respective shipments of cargo, aggregating approximately $4,000,000, and including the claim of Coast for the loss of the above shipment.

On March 6, 1959, Luckenbach filed a cross-libel to secure indemnity against Coast for $50,000,000, by making service on Bigham, Englar based upon clause 14 of the bill of lading and an obligation implied under general maritime law. The $50,000,000 demanded is comprised of: (i) $37,000,000 representing damages covered in numerous suits now pending in this Court against the crosslibelant for loss of life and personal injuries, (ii) $5,000,000 representing damages covered in numerous suits now pending in this Court against the cross-libel-ant for loss or damage to cargo and other property, and (iii) $6,000,000 representing damages covered in numerous suits now pending in the courts of the State of New York against the cross-libelant for loss or damage to cargo and other property as well as for personal injuries. An examination of the cross-libel reveals that the damages claimed are far above those permitted by clause 14 of the bill of lading.

The cross-libel herein was filed under a new docket number (Ad. 20750) rather than the docket number assigned to the original suit. This was required by the Clerk of this Court pursuant to standard practice. Coast makes a point of this difference upon the theory that the cross-libel is, in effect, not a cross-libel but a new suit, requiring personal service on Coast and thus one over which this Court has no jurisdiction. The Court believes this contention is without merit.

Coast is a Delaware corporation with its principal office and place of business in California and is apparently not subject to suit in New York. Luckenbach is also a Delaware corporation. On January 15, 1957 and December 15, 1957, Coast received payment for its loss from Fireman’s Fund Insurance Company (hereinafter referred to as “Fireman’s Fund”) under two loan receipts which empowered Fireman’s Fund to press its claim against Luckenbach in Coast’s name. Fireman’s Fund is also the underwriter for cross-libelant Luckenbach and acting in defense of Luckenbach in connection with many suits now pending against it. Bigham, Englar, after receiving service of the cross-libel, declined to represent Coast in defense thereof upon the ground, according to Coast, of a conflict of interest and upon the additional ground, according to Luckenbach, that insurance on the cargo would not include coverage of liability to third persons for damage caused by the cargo.

When Coast learned of the cross-libel it demanded that Fireman’s Fund drop the New York action, which it refused to do. Coast, appearing specially herein through other attorneys, now moves to set aside the service of the cross-libel or, if service is sustained, to dismiss that libel for lack of jurisdiction. In its brief it also claims that the Admiralty Court lacks jurisdiction of the original libel.

I

Propriety of Service

Coast appears specially by other attorneys and contests the propriety of service of the cross-libel upon the ground that service thereof on Bigham, Englar did not subject the respondent to the in personam jurisdiction of this Court. The basis for this assertion is that Bigham, Englar represents Fireman’s Fund which was the underwriter of both Coast and Luckenbach and that Fireman’s Fund was the real party in interest and that this conflicting interest was unknown to Coast at the time the libel was served. It is now well settled that under a loan receipt transaction the insured is the real party in interest and that under such circumstances Coast was the proper party to bring the suit. In fact, in Hartford Fire Insurance Company v. Commercial Union Assurance Co., Ltd., D.C.S.D.N.Y.1955, 131 F.Supp. 751, the underwriter was held to be an improper party to maintain an action under a loan receipt transaction. The Court finds it has jurisdiction over Coast as a libelant and, under Rule 16 of Admiralty Rules of this Court, service of the cross-libel was properly made on Big-ham, Englar as its proctors. If the libel has been filed without authority or jurisdiction been obtained by reason of fraud or failure to disclose an adverse interest as suggested by Coast, the remedy under the present facts is not a motion to set aside the service but a separate proceeding to invalidate the representation and to enjoin this proceeding in the interim. The first branch of Coast’s motion must accordingly be denied.

II

Jurisdiction Over Original Libel

The controversy involved the alleged liability of Luckenbach in contract for failure to deliver a shipment to Coast and, in turn, the alleged liability of Coast in contract for damages to the vessel’s entire cargo arising from failure to notify Luckenbach of the explosive nature of the shipment, joined with the alleged indemnity liability of Coast in tort for damages to person and property including property other than the cargo. Coast claims that the cross-libel of Luckenbach against Coast should be dismissed for lack of jurisdiction over the subject matter and that its exceptions to the cross-libel should be sustained. In its brief Coast also claims that its original libel against Luckenbach should be dismissed. This presents a troublesome question difficult of resolution. Whether or not this Court has jurisdiction over the subject matter of the original libel depends upon the nature of the contract. If the contract relates to the use of a ship or to commerce on navigable waters, it is a maritime contract and is clearly within the admiralty jurisdiction of this Court. A contract for ocean transportation of cargo such as set forth in the bill of lading herein, is a classical example of a maritime contract. It is well established that a maritime contract carries with it all of its incidents, even though non-maritime, and as such will be subjected to admiralty jurisdiction unless such non-maritime incidents are separable. Thus, if the contract is both maritime and non-maritime and is divisible so that the maritime obligations may be determined separately, consistent with the principles of the law of contracts, the admiralty court will assume jurisdiction pro tanto. This was the holding in Compagnie Francaise de Navigation a Vapeur v. Bonnasse, 2 Cir., 1927, 19 F.2d 777, where Judge Learned Hand enforced in admiralty a maritime obligation assumed by the obligor together with many non-maritime obligations under a general assumption agreement, stating (at page 779):

“ # * * The mere fact that the contract covers a subject-matter of both kinds is not therefore decisive; that would make the mere form control. The substantial question is whether the maritime obligations can be separately enforced without prejudice to the rest.”

In that case the doctrine of separability was invoked to enlarge, not to restrict, the jurisdiction of admiralty courts. More recent cases have also utilized this doctrine in extension of admiralty jurisdiction. On the other hand, there are cases which have invoked the doctrine of separability to restrict admiralty jurisdiction. One group of such cases involved the practice at the turn of the century of loading wheat at Great Lakes ports for shipment to Eastern ports and providing for storage aboard ship either prior or subsequent to transportation. The courts separated the transportation aspects from the storage aspects and refused to enforce the latter in admiralty. Another group of cases involved provisions in charter parties which were of a non-maritime nature wherein the court refused to enforce the non-maritime provisions in admiralty, holding that the same were separable from the maritime provisions. The crucial question is thus proposed. Is the carrier’s obligation with respect to the cargo on the pier awaiting shipment non-maritime and, if so, can it be separated from its maritime obligations ?

The cargo in this case was received under a dock receipt incorporating the terms of the Luckenbach bill of lading and particularly paragraph 6 thereof, which states that “while on the wharf or in warehouse awaiting shipment” the cargo was at the owner’s risk except for damages arising from “the fault or negligence of the carrier”. This clause is a separate obligation covering goods while at rest on the wharf or warehouse and is not intertwined with the strictly maritime obligations of the carrier. In other words, it can be separated without doing violence to the remainder of the contract. The cargo on the pier which had not yet been loaded was placed in the same category as if it had been in a warehouse awaiting shipment. The obligation of the carrier with respect thereto is similar to that of a warehouseman, and accordingly non-maritime in nature. The Court believes this non-maritime obligation can be enforced without prejudice to the rest of the contract. The case directly in point is Armstrong Cork Co. v. Farrell (The African Moon), D.C.Pa.1948, 81 F.Supp. 848. In that case a fire occurred in the warehouse on the pier while the goods were awaiting shipment. The libelant, suing for damage to the goods, sought to invoke admiralty jurisdiction on the basis that the goods were received by the vessel under a dock receipt requiring the issuance of a bill of lading and were thus covered by a maritime contract. The Court, relying upon Compagnie Francaise, supra, dismissed the libel, stating (at pages 848-849);

“ * * * It is equally obvious that the obligations arising before actual loading and while the goods were on the dock are separable from the strictly maritime obligations arising during the actual process of loading or after they had been received in the ships hold. For that reason I am constrained to hold that the obligation sought to be enforced is separable from the maritime features of the contract, and that the court is without jurisdiction to enforce them in admiralty.”

In the instant case, the goods had been on the pier for five days before the explosion. How many more days they would have waited on the pier in the absence of the conflagration is not known. Cargo in this posture, however, has been known to remain on piers for weeks and in the case of strikes and other unforeseeable events, for a much longer period.

Luckenbach asserts that Armstrong is inconsistent with the subsequent decision of the same court in North American Smelting Co. v. Moller S.S. Co., D.C.Pa. 1952, 103 F.Supp. 447, reversed 3 Cir., 1953, 204 F.2d 384. That case was an action in admiralty to recover damages for loss of part of a shipment originating in the Philippines and terminating in Philadelphia, Pennsylvania. The loss occurred after the cargo was unloaded on the pier but before it was removed by the consignee. In retaining admiralty jurisdiction, the District Court cited Armstrong without criticism but distinguished it upon the ground that the carrier had a fundamental obligation to deliver the goods to the consignee and had been guilty of negligence before that duty had been discharged. In reversing, the Court of Appeals held that upon discharge of the cargo the carrier was no longer in possession and that under the circumstances the carrier was not negligent in permitting the cargo to remain on the pier without a special guard. The question of admiralty jurisdiction was favorably disposed of in a footnote. Armstrong was not discussed and it cannot be inferred that it was discredited. If any conclusion is to be drawn, a more probable inference would be that the District Court’s distinction between the two cases was approved.

It should be noted that Armstrong has been cited without adverse comment by Gilmore and Black, The Law of Admiralty and 1 Benedict on Admiralty (Sixth Ed.) Moreover, the Court cannot agree with Luckenbach that the doctrine of Armstrong is disapproved by Isbrandtsen Company, Inc. v. United States, 2 Cir., 1956, 233 F.2d 184, certiorari denied 352 U.S. 842, 77 S.Ct. 67, 1 L.Ed.2d 59. The other cases it cites are quite distinguishable, with the exception of Rosenthal v. The Louisiana, which case involved a cargo insurance policy, normally a maritime contract, but the insurance was limited to the cargo on the pier awaiting shipment. It can only be said that the case was decided over 80 years ago and before Compagnie Francaise, supra, and Armstrong, supra.

Relying on substance rather than mere form, the Court is of the opinion that the subject matter of Coast’s original libel is not cognizable in admiralty and it, therefore, must be dismissed for lack of jurisdiction.

Ill

The Cross-Libel

Coast having submitted itself to the in personam jurisdiction of this Court in admiralty, the dismissal of the original libel does not require the dismissal of the cross-libel which arises from the same transaction, unless the subject matter of the latter is not cognizable in admiralty. Considering then the cross-libel on its merits, the Court finds that, in substance, it is based upon