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UNION STEEL AMERICA CO. v. M/V SANKO SPRUCE

July 20, 1998

UNION STEEL AMERICA CO., A Division of Dongkuk International, Inc., Plaintiff,
v.
M/V SANKO SPRUCE, her engines, boilers, furniture, appurtenances, etc. in rem, YUKONG LINE LIMITED, SPRUCE MARITIME S.A., THE SANKO MARINE CO., LTD. and TRANS-OCEAN MARITIME SERVICES, Inc., Defendants.



The opinion of the court was delivered by: IRENAS

OPINION

 IRENAS, District Court:

 This matter comes before this Court on the motion of defendants Yukong Line Limited ("Yukong Line"), Spruce Maritime S.A. ("Spruce Maritime"), and The Sanko Marine Co., Ltd. ("Sanko Marine") for enforcement of a forum selection clause and dismissal of the complaint of Union Steel America ("Union Steel"). For the reasons that follow, this Court will enforce the forum selection clause but will dismiss plaintiff's action only as against Yukong Line.

 I. BACKGROUND

 On October 7, 1996, plaintiff Union Steel *fn1" delivered a cargo of 473 bundles of hot dipped steel fence pipe to the vessel M/V Sanko Spruce in Busan, Korea. Union Steel says that the cargo was then in good condition. According to Union Steel, when the cargo was discharged in Camden on November 27, 1996, it was rusted, bent, scratched and otherwise damaged.

 On November 26, 1997, Union Steel filed a two-count complaint. Count I alleges that defendants M/V Sanko Spruce, *fn2" Yukong Line Limited, Spruce Maritime S.A., and The Sanko Marine Co., Ltd. *fn3" ("defendants") are liable for negligence, breach of contract and the unseaworthiness of the vessel. Count II alleges that defendant Trans-Ocean Maritime Services, *fn4" Inc. is liable for negligence and breach of warranty.

 Now pending is defendants' motion for dismissal based on a forum selection clause in the pertinent bills of lading.

 II. DISCUSSION

 Carriage of the cargo in this case was pursuant to the terms and conditions of bills of lading issued by Yukong Line. At the center of the dispute on the motion for dismissal is clause thirty-two of the bills which provides as follows:

 
(Jurisdiction): Any dispute arising under this bill of lading shall be decided in the country where the Carrier has his principal place of business, and the law of such country shall apply except as provided elsewhere herein.
 
Without prejudice to the foregoing, the carrier has the option to elect to have any disputes arising under the bill of lading submitted to arbitration in New York, before and in accordance with the rules of the Society of Maritime Arbitrators and subject to U.S. law.

 Defendants assert that Union Steel must proceed in Korea where the carrier, Yukong Line, has its principal place of business. Allowing that this Court might find that Spruce Maritime was the carrier, defendants argue in the alternative that Union Steel must proceed in Japan where Spruce Maritime is based. In either event, defendants argue, this Court is an improper forum.

 A. Timeliness of Motion

 Union Steel asserts that defendants' motion is untimely. Defendants have not specified under what rule they are moving for dismissal.

 There is no consensus concerning the proper procedural mechanism (i.e., Federal Rules of Civil Procedure 12(b)(1), (3) or (6)) to be used in bringing a motion to dismiss a case on the basis of a forum selection clause. See New Moon Shipping Co. v. Man B & W Diesel AG, 121 F.3d 24, 28-29 (2d Cir. 1997); Argueta v. Banco Mexicano, S.A., 87 F.3d 320, 322 (9th Cir. 1996). If the motion is brought pursuant to 12(b)(3) or 12(b)(6), then defendants were required to raise the improper forum defense in their first responsive pleading. If the motion is brought under 12(b)(1) for lack of subject matter jurisdiction, then it may be brought at any time, as defendants never waive lack of subject matter jurisdiction as a defense.

 Defendants answered the complaint on February 9, 1998, raising improper forum as an affirmative defense, and amended their answer on February 20, 1998, again raising the improper forum defense. Regardless of how the motion is viewed as a procedural matter, then, defendants' motion is timely.

 B. Identity of the Carrier

 Effective resolution of this case requires this Court to determine who "the carrier" is for purposes of the forum selection clause. The answer to this question will determine which forum is appropriate.

 While the shipment at issue here is covered by the Carriage of Goods by Sea Act ("COGSA"), and there are specific rules for determining which entities are COGSA carriers, the instant question is one of contract interpretation. That is, since the bills of lading constitute a contract, the question of who the parties meant to identify by "the carrier" in the forum selection clause is one concerning their expressed contractual intent.

 The parties' expressed intent is that the "carrier" is Yukong Line. Spruce Maritime owns the M/V Sanko Spruce, but it was not a party to the contract of carriage. Nor was Spruce Maritime a party to the contract. Yukong Line, time charterer of the M/V Sanko Spruce, was a party to the contract. It accepted advance payment on its own behalf for carriage of Union Steel's goods, and signed the bills of lading "as carrier." There is no suggestion that Yukong Line was signing on behalf of the ship's owner (i.e., "for the Master"). Moreover, the forum selection clause gives the "carrier" the right to opt for arbitration in New York. It is an implausible reading of the contract to suggest that the parties to the contract - Union Steel and Yukong Line - intended to give some third-party the right to dictate where Union Steel and Yukong must litigate. Nor does it make sense to suggest that Union Steel and Yukong agreed that disputes were to be resolved in the forum where some third-party has its principal place of business.

 Union Steel points to the "definitions" clause of the bills which states that "carrier" means the "owner" or "demise charterer." Yukong Lines was neither the "owner" nor the "demise charterer." But the terms of the bills of lading must be read in context. The bills of lading are labeled as being Yukong Line's bills of lading. The bills indicate that freight was prepaid to Yukong Line, and Yukong Line signed as "carrier." Only excessive formalism could yield any conclusion other than that Yukong Lines was the entity to which the parties meant to refer by "carrier."

 Union Steel also points to clause thirty which provides that "the contract evidenced by this bill of lading is between the merchant and the owner of the vessel named herein (or substitute)." This clause further provides:

 
If, despite the foregoing, it is adjudged that any other is the carrier and/or bailee of the goods shipped hereunder, all limitations of and exonerations from, liability provided for by law or by this Bill of Lading shall be available to such other. It is further understood that as the Line, Company or Agent who has executed this Bill of Lading for and on behalf of the master is not a principal in the transaction, said Line, Company or Agents shall not be under any liability arising out of the contract of carriage, nor as carrier nor bailee of the goods.

 Clause thirty does not defeat the conclusion that Yukong Line is the carrier. First, the clause contemplates that a party other than the owner can be the carrier. Second, that portion of the clause stating that a "Line, Company or Agent who has executed" the bill "for or on behalf of the master" is not a principal and shall not be liable under the contract or as carrier, is irrelevant because Yukong signed the bills "as Carrier," not "for the Master."

 In conclusion, this Court finds that Yukong is "the carrier" for purposes of the forum selection clause. Yukong Line does not seek New York arbitration. If the forum selection clause is otherwise enforceable, then the proper forum for the dispute between Union Steel and Yukong Line is Korea. Union Steel appears to concur in this conclusion, for in arguing that its claims will be disadvantaged if it is forced to proceed in a foreign forum, Union Steel discusses Korean law exclusively. The discussion turns now to the enforceability vel non. of the forum selection clause.

 C. Presumptive Enforceability of the Forum Selection Clause

 "[Forum selection] clauses are prima facie valid and should be enforced unless enforcement is shown by the resisting party to be 'unreasonable' under the circumstances." The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 32 L. Ed. 2d 513, 92 S. Ct. 1907 (1972); see Foster v. Chesapeake Ins. Co., 933 F.2d 1207, 1219 (3d Cir.), cert. denied, 502 U.S. 908, 116 L. Ed. 2d 245, 112 S. Ct. 302 (1991). "Unreasonableness potentially exists where (1) the incorporation of the forum selection clause into the agreement was the product of fraud or overreaching; (2) the party seeking to escape enforcement will for all practical purposes be deprived of his day in court because of the grave inconvenience or unfairness of the selected forum; (3) the fundamental unfairness of the chosen law will deprive the plaintiff of a remedy; or (4) enforcement of the forum selection clause would contravene a strong public policy of the forum state." Haynsworth v. The Corporation, 121 F.3d 956, 963 (5th Cir. 1997) (internal quotes omitted) (citing Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595, 113 L. Ed. 2d 622, 111 S. Ct. 1522 (1991)), cert. denied, U.S. , 118 S. Ct. 1513 (1998).

 In addition, where, as here, the shipment at issue is covered by the Carriage of Goods at Sea Act ("COGSA"), *fn5" and the Harter Act, *fn6" a forum selection clause is "null and void and of no effect" if it relieves the carrier or ship from COGSA or Harter Act liability or lessens such liability. 46 U.S.C.App. § 190; id. § 1303(8).

 It is the burden of the party seeking to avoid enforcement of the foreign forum selection clause to show that the clause is "unreasonable" for one of these enumerated reasons. The Bremen, 407 U.S. at 10, 15; Mitsui & Co. (USA) v. Mira M/V, 111 F.3d 33, 35 (5th Cir. 1997) (per curiam); see Foster, 933 F.2d at 1219.

 Before considering Union Steel's argument that enforcement of the forum selection clause would be unreasonable, this Court addresses its claim that the clause is not entitled to the presumption of validity attaching generally to forum selection clauses.

 1. Adhesion Contract

 Union Steel argues that there is no presumption of validity because the forum selection clause at issue is part of an adhesion contract. This argument has been rejected by courts which have considered it. Fireman's Fund Ins. Co. v. M.V. DSR Atlantic, 131 F.3d 1336, 1338 (9th Cir. 1998); Mitsui, 111 F.3d at 36-37; see also Industria Fotografica Interamericana v. M.V. Jalisco, 903 F. Supp. 18, 20 (E.D. Wis. 1995); Kanematsu Corp. v. M/V Gretchen W, 897 F. Supp. 1314, 1316-17 (D. Or. 1995). Where the agreement is "an arms'-length deal, between sophisticated commercial entities," the lack of "actual negotiations over the [forum selection] clause does not affect its validity." Foster v. Chesapeake Ins. Co., 933 F.2d 1207, 1219 (3d Cir. 1991).

 2. Mandatory Language in the Forum Selection Clause

 Union Steel contends that no presumption of validity should apply here because the forum selection clause is "permissive" rather than "mandatory and exclusive."

 "The general rule in cases containing forum selection clauses is that when only jurisdiction is specified the clause will generally not be enforced without some further language indicating the parties' intent to make jurisdiction exclusive." John Boutari and Son, Wines and Spirits, S.A. v. Attiki Importers & Distributers Inc., 22 F.3d 51, 52 (2d Cir. 1994) (internal quotes and alteration omitted) (citing cases). Thus, "the choice of forum must be mandatory rather than permissive." Id. at 53; see Caldas & Sons, Inc. v. Willingham, 17 F.3d 123, 127 (5th Cir. 1994); John Boutari and Son, 22 F.3d at 53; Bison Pulp & Paper Ltd. v. M/V Pergamos, 1996 AMC 2022, 2033 (S.D.N.Y. 1995). To assess whether a forum selection clause is mandatory, the court looks to the wording of the agreement and applies ordinary principles of contract interpretation. John Boutari and Son, 22 F.3d at 53.

 The clause here reads:

 
Any dispute arising under this bill of lading shall be decided in the country where the Carrier has his principal place of business, and the law of such country shall apply except as provided elsewhere herein.
 
Without prejudice to the foregoing, the carrier has the option to elect to have any disputes arising under the bill of lading submitted to arbitration in New York, before and in accordance with the rules of the Society of Maritime Arbitrators and subject to U.S. law.

 This clause is mandatory and exclusive. It states that any dispute "shall be decided" in the forum specified. It is not a clause which by providing that a certain forum shall have jurisdiction leaves open the question whether such provision was intended to mean that no other forum shall be appropriate. The Bison Pulp court found identical language to be "mandatory" after performing a ...


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