E-Alert Case Updates

District Court Reduces Potential Award by $300,000 in Declaratory Judgment Action

Coutinho & Ferrostaal Inc. v. M/V Federal Rhine, et al.
No. JFM-08-2222 (U.S. District Court for the District of Maryland, July, 29 2011)
by Lindsey M. Brunk, Summer Associate
Semmes, Bowen & Semmes (www.semmes.com)

The Plaintiff filed a Complaint against the Defendant in August of 2008, alleging that it had negligently transported, handled, and stored steel pipe cargo. The Plaintiff alleged that its compensatory damages reached $350,000.00. However, the Defendant, relying on a clause on its warehouse receipt, requested that a declaratory judgment be entered that the Plaintiff’s damages could not exceed $20,170.91.

Under Maryland law, because the Defendant was a warehouseman, it is permitted to limit its liability by a term in its warehouse receipt. MD. CODE ANN., COM. LAW § 7-204(b). Here, the Defendant argued that it effectively limited its liability for any damages to the Plaintiff’s steel pipes by providing on its warehouse receipt that damages were limited to ten (10) times the provided monthly storage rate. The Plaintiff presented a series of arguments for the liability limitation’s unenforceability, all of which were rejected by the Court.

First, the Plaintiff argued that it never received the full warehouse receipt, so it could not be held to its terms. The Court considered two (2) factors: (1) the Plaintiff was a sophisticated business and was thus held to a higher standard than members of the general public, and (2) delivery and receipt is presumed if a material is properly mailed and the sender can show that it mails the document in question as a part of its ordinary business practices. Accordingly, the Court held that the Plaintiff indeed had notice of the limitation clause on the warehouse receipt.

Next, the Plaintiff argued that the parties had a written contract, and the warehouse receipt could not supplement that contract. However, the Fourth Circuit has explicitly held that a warehouse receipt can supplement an existing contract with limited liability terms. See Phillips Bros. v. Locust Indus., Inc., 760 F.2d 523, 525 (4th Cir. 1985). Accordingly, the Plaintiff’s argument in this regard failed.

Lastly, the Plaintiff claimed that the contract was ambiguous and could not be enforced. The Court noted that a contract is only ambiguous if a reasonably prudent person could interpret it in more than one way. The Plaintiff argued that because there was a $500.00 per package limitation in the Defendant’s tariff, that was different from the limitation on the warehouse receipt, the warehouse receipt limitation could not be enforced. Unfortunately for the Plaintiff, there was a federal regulation that provided that a specific contract between a marine terminal operator and another party supersedes a generic tariff. 46 C.F.R. § 525.2(a)(3). Furthermore, the Court held that the tariff limitation did not even apply to the Defendant’s storage liability, but instead, to another company’s stevedoring liability. Because the Plaintiff was a sophisticated party, it should have understood that the tariff limitation only applied to stevedoring. Hence, the warehouse receipt provision was unambiguous as a matter of law.

Because the Court held that the Plaintiff had notice of the complete warehouse receipt, which was a valid and unambiguous part of the contract, the Defendant’s Motion for a Declaratory Judgment was granted. Damages were limited to $20,170.91.