1 United States Court of Appeals,

Fifth Circuit.

No. 93-3524.

ASSOCIATED METALS AND MINERALS CORPORATION, Plaintiffs-Appellees,

v.

ALEXANDER'S UNITY MV, her engines, boilers, etc., et al.

Defendants,

Banque Internationale A Luxembourg S.A., Claimant-Appellant.

Jan. 9, 1995.

Appeals from the Un ited States District Court for the Eastern

District of Louisiana.

Before KING, JOLLY and STEWART, Circuit Judges.

KING, Circuit Judge:

This case concerns damage to maritime cargo. In the lower

court, Associated Metals and Minerals Corporation argued, and the

district court agreed, that damage to its cargo transported by the

M/V Alexander's Unity resulted not only from the breach of the

contract of carriage by the vessel but also from the physical and

financial unseaworthiness of the vessel and the negligence of her

owners and/or operators. The district court's judgment recognized

that Associated Metals and Minerals had a preferred maritime tort

lien for the full amount of its claim, priming the liens of the

preferred ship mortgages held by Banque Internationale A Luxembourg

S.A. The district court also determined that the expenses incurred

by Associated Metals and Minerals i n discharging its cargo were

custodia legis. Banque Internationale A Luxembourg S.A., which was

also awarded a default judgment and custodia legis expenses in a2

separate proceeding, appeals the district court's finding s that:

(1) Associated Metals' cl aims are tort claims and therefore

entitled to preferred maritime lien status and (2) Associated

Met als' expenditures surrounding the removal of the cargo were

custodia legis expenses. We find that we have jurisdiction over

this matter and affirm the rulings of the district court.

I. BACKGROUND

In early May of 1992, the M/V Alexander's Unity, a bulk

carrier travelling under the Maltese flag, arrived in India at the

port of Visakhapatnam. After discharging its cargo, the ship was

moved to another berth for the loading of steel plates for

transport to the ports of Houston and Mobile pursuant to a May 15,

1992 charter agreement between Alexander's Unity Shipping Company,

Ltd. Valletta ("Alexander's Unity Shipping") and Associated Metals

and Minerals Corporation (" Associated Metals"). Over seven

thousand pieces of steel were loaded into three of the Alexander's

Unity 's hatches. While in Visakhapatnam, the ship also picked up

a cargo of high carbon ferro chrome for transport to New Orleans;

later, after sailing to the port of Paradip, the Alexander's Unity

received a cargo of chrome also bound for delivery in New Orleans.

While the ship was discharging and loading its various cargos

in India, the ship's master and the port engineer, a representative

of Alexander' s Shipping, discussed the upcoming voyage. The

Master, aware that the cargo of steel was "sensitive to sea water,"

expressed concern that the ship would encounter high winds and

rough seas traveling around the Cape of Good Hope during winter.3

His apprehension was magnified by the condition of the hatch

covers, which had been in disrepair for some time and which the

Master believed likely would allow water to seep through them. The

Master pointed out his concerns and requested permission to travel

through t he more tranquil Suez canal. Unwilling to pay the fees

associated with traveling through t h e Suez canal, Alexander's

Shipping's representative ordered the ship to proceed around

Africa. Additionally, instead of removing the hatch covers or

placing the ship in dry dock for repair, the hatch covers were

p atched with "asphalt tape." Thus loaded, the A lexander's Un ity

set sail for the United States in June of 1992.

In late June, during the journey to the United States, the

Master's concerns came to fruitio n, and the ship encountered

weather and seas so rough that the ship's log reflects that "waves

cover[ed] the deck" for several days. During the inclement

conditions, seawater evid ently penetrated the hatch covers and

cargo holds, necessitating t he operation of the bilge pumps for

several days in late June and early July. Except for some engine

repairs at the end of July, the rest of the voyage was relatively

uneventful, a nd the A lexander's Unity arrived in New Orleans on

July 30, 1992.

Upon its arrival in New Orleans, the A lexander's Unity

suffered the first of several arrests. The ship had outstanding

debts to numerous groups including the appellant in t his matter,

Banque Internationale A Luxembourg S.A. ("BIL"). Specifically, BIL

held two mortgages on the A lexander's Unity, and on the basis of4

these debts, BIL initiated an in rem action against the ship.

A ssociated Metals also initiated an i n rem action against the

Alexander's Unity as well as in personam actions against

Alexander's Unity Shipping and Alexco Shipmanagement (Hellas) Ltd.,

the vessel's operator.

On October 29, 1992, the United S tates Marshal sold the

Alexander's Uni ty and the proceeds of $4,615,000 (less the

Marshal's commission and certai n custodia legis expenses) were

placed in the court's registry. From these funds, outstanding

debts owed to the Master and crew of the ship and to domestically

based suppliers were paid; nevertheless, more than four million

dollars still remains in the registry of the court.

In April of 1993, Associated Metals sought a default judgment

against the Alexander's Unity, Alexander's Unity Shipping, and

Alexco Shipmanagement (Hellas) Ltd. Specifically, Associated

Metals sought $736,873 for seawat er rust damage to the steel

plates. Associated Metals also requested $181,340.97 for expenses

resulting from the forced discharge of the steel in New Orleans

instead of in Houston and in Mobile, the original destinations of

the cargo. Additionally, Associated Metals argued that it was

entitled to interest and that the full amount of its claim

constituted a preferred maritime tort lien. Finally, Associated

Metals asserted that its co sts from the forced discharge were

custodia legis expenses.

In late May, the district court granted a default judgment in

favor of Associated Metals in the amounts requested. Specifically,5

in a minute entry, the district court found that Alexander's Unity

was engaged in the common carriage of cargo, and that Associated

Metals' cargo aboard the ship was "damaged not only from the breach

of contract of carriage by the vessel but also from the physical

and financial unseaworthiness of the vessel and the negligence of

her owners and/or operators." The district court also determined

that "under admiralty law, Associate d rightfully has a claim in

tort for negligence and such a claim is a preferred maritime tort

lien against the vessel,

... [and] Associated's preferred maritime

tort lien against the vessel encompasses both the seawater rust

damage to the cargo and the forced discharge expenses." The

district court later modified the judgment to include an additional

$70,889.95 in forwarding expenses. This sum was not added to the

custodia legi s expenses, but was added to the preferred maritime

tort lien because the district court concluded that "the financial

unseaworthiness of the M/ V Alexander's Unity was the proximate

cause of these unanticipated forwarding expenses." Thus, on June

23, 1993, the district court entered its minute entry and modified

d efault judgment consisting of a preferred maritime tort lien in

the amount of $918,213.97 plus five percent interest from the date

of discharge; $110,451.02 of that sum was recognized as custodia

legis expenses. BIL appeals from this order.

II. STANDARD OF REVIEW

BIL does not challenge the grant of the default judgment, the

district court's findings of unseaworthiness and negligence, or the

determination that the Alexander' s Unity was a common carrier.6

Instead, BIL contests the application of the law to the findings

contained wit hin the judgment and the determination that the

discharge expenses were custodia legis. It is well settled that a

district court's findings of fact must be accepted unless clearly

erroneous

. Prudhomme v. Tenneco Oil Co., 955 F.2d 390, 392 (5th

Cir.), cert. denied,

--- U.S. ----, 113 S.Ct. 84, 121 L.Ed.2d 48

(1992). On the other hand, "we review d e novo the legal questions

decided by the district court." L andmark Land Co. v. Office of

Thrift Supervision, 990 F.2d 8 07, 809 (5th Cir.1993); a ccord

Prudhomme, 955 F.2d at 392. Finally, we examine determinations of

custodia legis expenses for abuse of discretion. O il Shipping

(Bunkering) B.V. v. Sonmez Denizcilik Ve Ticaret A.S., 10 F.3d 176,

181 n. 3 (3d Cir.1993); T aino Lines, Inc. v. M/V Constance Pan

Atlantic, 982 F.2d 20, 24 (1st Cir.1992); Kingstate Oil v. M/V

Green Star, 815 F.2d 918, 922-23 (3d Cir.1987).

III. ANALYSIS

A. Jurisdiction

Because there are still aspects of this case pending in the

district court, our jurisdiction to decide the issues presented in

this case must be addressed. Generally, appellate courts only have

jurisdicti on over final decisions of district courts. S ee 28

U.S.C. § 1291. There is, however, an exception allowing review of

certain interlocutory decisions. Section 1292(a)(3) of 28 U.S.C.

provides that "the courts of appeal s shall have jurisdiction of

appeals from

... [i]nterlocutory decrees of such district courts or

t he judges thereof determining the rights and liabilities of the7

parties to admiralty cases in which appeals from final decrees are

allowed." S ee Todd Shipyards Corp. v. Auto Transp., S.A., 763 F.2d

7 45, 751 (5th Cir.1985); G ulf Towing Co. v. Steam Tanker, Amoco

New York, 648 F.2d 242, 244 (5th Cir.1981) (per curiam). Although

in order for this exception to apply, it is not necessary for "all

of the right s and liabilities of all of the parties [to] be

determined," Gulf Towing Co., 648 F.2d at 244, to fall within the

ambit of § 1292(a)(3) "the order appealed from must c onclusively

determine the merits of a claim or defense." K ingstate Oil, 815

F.2d at 921; a ccord All Alaskan Seafoods, Inc. v. M/V Sea

Producer, 882 F.2d 425, 427 (9th Cir.1989); s ee also Todd

Shipyards Corp., 763 F.2d at 751 (finding § 1292(a)(3) applicable

when a district court's ruling determined all rights and

liabilities among the parties and calculated almost all recoverable

damages).

For an order to "conclusively determine the merits of a claim

or defense," it is not necessary for that claim to be extinguished.

Rather, in certain situations, a court' s order determining the

priority of claims for all practical purposes may be conclusive of

the rights of the parties to collect th e claim and thus be

determina tive for § 1292(a)(3) purposes. For example, the Third

Circuit in Kingstate Oil found that because t he "mortgagee's and

crew's preferred liens far exceed[ed] the proceeds from the sale of

the vessel," the district court's interlocutory deter mination of

the priority of claimants to the fund was appealable under §

1292(a)(3). 815 F.2d at 922. The court reasoned that the limited8

funds available to creditors required them to "pierce the ory and

look at reality. For although, in the abstract, appellants may

still assert their claims, their nether position on the creditor's

totem pole converts this assertion into a fruitless gesture." I d.

Consequently, the court conclu ded that the district court's

determination of priority conclusively determined those appellant's

claims and was reviewable under § 1292(a)(3). Id.

Similarly, the Ninth Circuit in All Alaskan Seafoods, found

that § 1292(a)(3) conferred appellate jurisdiction over a district

court's determination of the lien status of a claim. 882 F.2d at

427-28. The court found that because there was simply not enough

money to satisfy all of the claims, the district court's decision

to give the mortgage claim priority over "All Alaskan's lien claim

constitute[d] a final determination of All Alaskan's right to

recover anything for its cargo loss under any theory." Id.

The instant matter is similar to Kingstate Oil and All

Alaskan Seafoods. Here, the district court's ruling, for all

intents and purposes, will be dispositive of the claims in this

case. As noted above, there is slightly more than four million

dollars in the registry of the court. Associated Metals' judgment

is slightly under a million dollars, and BIL's mortgages amount to

nearly nine million dollars. Simply put, there is not enough money

in the court's re gistry for all of the claims to be paid. Thus,

the determination of whether the award to Associated Metals is

entitled to preferred mar itime tort lien status and is therefore

entitled to disbursement ahead of BIL in reali ty will determine1 Specifically, the section, entitled "Court Sales to Enforce

Preferred Mortgage Liens and Maritime Liens and Priority of

Claims," provides:

(a) When a vessel is sold by order of a district court

in a civil action in rem brought to enforce a preferred

mortgage lien or a maritime lien, any claim in the

vessel existing on the date of sale is terminated,

including a possessory common law lien ... and the

vessel is sold free of all those claims.

(b) Each of the claims terminated under subsection (a)

of this section attaches, in the same amount and in

accordance with their priorities to the proceeds of the

sale, except that—

(1) the preferred mortgage lien, including a

9 whether Associated Metals collects its judgment. Accordingly, we

find that we have jurisdiction over this matter pursuant to 28

U.S.C. § 1292(a)(3).

B. Type of Lien

The primary question raised in this appeal is whether the

district court erred in concluding that Assoc iated Metals' award

for cargo damage stems from a tort claim and is thus entitled to

preferred maritime lien status. We find that the district court

was correct in its determination.

This controversy is rooted in the Ship Mortgage Act, 46 U.S.C.

§§ 31301-43. The Act was enacted in 1920 to improve lienholders'

security and to encourage investment in the shipping industry. A ll

Ala skan Seafood, 882 F.2d at 428. S ee generally, 1 Thomas J.

Schoenbaum, A dmiralty and Maritime Law § 9-5 (2d ed. 1994). The

Act provides that the holder of a preferred ship mortgage has

priority over almost all other claims on the vessel except for

preferred maritime liens and costs and expenses in custodia legis. 1preferred mortgage lien on a foreign vessel whose

mortgage has been guaranteed ... has priority over all

claims against the vessel (except for expenses and fees

allowed by the court, costs imposed by the court and

preferred maritime liens)....

46 U.S.C. § 31326.

10 46 U.S.C. § 31326; A ll Alaskan Seafood, 882 F.2d at 428; O riente

Commercial, Inc. v. American Flag Vessel, M/V Floridian, 529 F.2d

221, 222 (4th Cir.1975). Moreover, the Act further describes that

a " "preferred maritime lien' means a maritime lien on a vessel

...

for damage arising out of maritime tort. " 46 U.S.C. § 31301(5)(B)

(emphasis added). Thus, we are faced with the question of whether

the cargo damage award to Associated Metals is entitled to a

preferred maritime lien, for this is a case where "[d ]etermining

priorities among maritime liens is important [because] upon

foreclosure and sale of [the] vessel there is not enough money to

satisfy all of the claims." Schoenbaum, supra, § 9-6.

1. Historical Background

Nearly a century ago, in The John G. Stevens, 170 U.S. 113, 18

S.Ct. 544, 42 L.Ed. 969 (1898), the Supreme Court announced that a

claim for damage to cargo could sound in tort, irrespective of

whether a contract governing the carriage of those goods existed.

The John G. Stevens Court primarily discussed whether a claim by a

to w against her tug for damages resulting from negligent towing

g ave rise to a tort claim, and the Court found that such a claim

existed. But the Court did not stop there. In fact, the Court

specifica lly noted that "even an action by a passenger, or by an

owner of goods, against a carrier, for neglect to carry and deliver11

in safety, is an action for the breach of a duty imposed by the

law, independently of contract or of consideration, and is

therefore founded in tort." Id. at 125, 18 S.Ct. at 549.

This sentiment was echoed in The Henry W. Breyer, 17 F.2d 423

(D.Md.1927). In that case, the court was required to characterize

the claim of an owner of cargo damaged during maritime transport.

The court found that:

[t]he intervening libels of the shippers sound in tort, on the

theory that they are entitled to recover damages for breach of

the carrier's common-law duty, notwithstanding that the

carrier's default was also a breach of the contract expressed

in the bill of lading.... I t is well established that

ordinarily the owner of goods damaged by the dereliction of a

common carrier has the option to bring in an action either in

contract or in tort.

The Henry W. Breyer, 17 F.2d at 429 (emphasis added); s ee also

Stevens v. The White City, 285 U.S. 195, 52 S.Ct. 347, 76 L.Ed. 699

(1932) (holding "that suit for an injury to the tow caused by the

negligence of her tug is a suit ex delicto and not ex contractu, "

regardless of the existence of a contract); C ortes v. Baltimore

Insular Line, 287 U.S. 367, 372, 53 S.Ct. 173, 174-75, 77 L.Ed. 368

(1932) (finding that in a maintenance and cure case "the remedy

upon the contract does not exclude an alternative remedy based upon

the tort.").

Thus, the statements in The John G. Stevens and The Henry W.

Breyer gave rise to the notion, generally accepted by commentators,

that, in certain situations, maritime damage to cargo gave rise to

potential claims either in contract or in tort. See, e.g., Grant

Gilmore & Charles L. Black, Jr., The Law of Admiralty 630 (2d ed.

1975) ("Cargo damage caused by improper loading, stowage, custody,12

etc.

... may be looked on as arising out of contract (under the

bill of lading or charter-party) or out of tort."); William

Tetley, Maritime Liens and Claims 309 (1985) ("In the U.S., claims

for cargo loss or damage on the carrying vessel may be pleaded in

two ways; as a breach of the contract of affreightment or as a

tort.").

Further, the idea that damage to car go may give rise to a

hybrid contract/tort claim has been embraced by the Second, Fourth,

and Ninth Circuits. S ee Texport Oil Co. v. M/V Amolyntos, 11 F.3d

361 (2d Cir.1993); A ll Alaskan Seafoods, Inc. v. M/V Sea Producer,

882 F.2d 425 (9th Cir.1989); O riente Commercial, Inc. v. The

American Flag Vessel, 529 F.2d 221 (4th Cir.1975). For example, in

Ori e nte Commercial, the Fourth Circuit confronted a situation

nearly identical to the case at bar. There, citing T he John G.

Stevens and The Henry W. Breyer, the court concluded that a claim

for damage to cargo "sound[ed] in tort." 529 F.2d at 223.

Similarly, the Ninth Circuit in All Alaskan Seafoods, Inc. v. M/V

Sea Producer, held that the breach of the duty of care with respect

to the owner of cargo "can give rise to tort liability irrespective

of contract obligations between the parties." 882 F.2d at 430.

Most rece ntly, the Second Circuit rejected the notion that cases

for damages to cargo are simple contract actions, noting that an

"action under COGSA is a maritime action in the nature of a mixed

tort, contract and bailment cause of action." M /V Amolyntos, 11

F.3d at 367.

D espite these precedents, BIL asserts that the Fourth a n d13

Ninth Circuits (and implicitly the Second Circuit) have misapplied

the law. In particular, BIL asserts that the Supreme Court's

decision in East River Stea mship Corp. v. Transamerica Delaval

Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986), and its

progeny in this circuit require us to find that when the only

damage in a cargo claim is to the cargo itself, there is no action

in tort; instead, the remedy lies solely in contract. Thus, based

on a mere contract claim, an award of cargo damages cannot

constitute a preferred maritime lien. BIL further asserts that

since this case is governed by COGSA, any tort claim Associated

Metals might raise regarding the damage to its cargo is preempted

by th at statute. Finally, BIL argues that construing Associated

Metals' claim as a tort claim would be an unwarranted extension of

the law and would contravene the purposes of the Ship Mortgage Act.

We reject all of BIL's contentions.

2. East River Steamship

BIL first looks to East River Steamship to support its

contention that a claim for m aritime cargo damages is cognizable

only in contract. In that case, the Supreme Court was confronted,

inter alia, with the question of whether, in a products liability

claim, "injury to a product itself is the kind of harm that should

be protected by products liability or left entirely to the law of

contracts." E ast River Steamship Corp., 476 U.S. at 859, 106 S.Ct.

at 2296. After examining the development of products liability law

in general and the purposes of tort law, the Court determined that

"[w]hen a product injures only itself the reasons for imposing a14

tort d uty are weak and those for leaving the party to its

contractual remedies are strong." Id. at 866, 106 S.Ct. at 2299-

300. The Court further reasoned that:

[d]amage to a product itself is most naturally understood as

a warranty claim. Such damage means simply that the product

has not met the customer's expectations, or, in other words,

that the customer has received insufficient product value....

[A] claim for a nonworking product can be brought as a

breach-of-warranty action. Or, if the customer prefers, it

can reject the product and sue for breach of contract.

Id. at 872, 106 S.Ct. at 2302-03 (internal quotations and citation

omitted). Thus, the Court concluded, "a manufacturer in a

c ommercial relationship has no duty under either a negligence or

strict products-liability theory to prevent a product from injuring

itself." I d. at 871, 106 S.Ct. at 2302; a ccord Shipco 2295, Inc.

v. Avondale Shipyards, Inc., 825 F.2d 925, 927 (5th Cir.1987),

cert. denied, 485 U.S. 1007, 108 S.Ct. 1472, 99 L.Ed.2d 701 (1988).

In Employers Insurance v. Suwannee River Spa Lines, Inc., 866

F.2d 752 (5th Cir.), cert. denied, 493 U.S. 820, 110 S.Ct. 77, 107

L.Ed.2d 43 (1989), we examined East River Steamship and concluded

that " East River's broad conc ern for preserving the integrity of

contract law in commercial settings applies equally to a case ...

where the professional services are an integral part of the

manufacture or construction of a product and where the only injury

alleged is to the product itself." I d. at 76 3. Accordingly, we

found that when injury to a product itself is allegedly caused by

negligent professional services ren dered in connection with the

manufacture or the construction o f that product, there is no

cognizable maritime tort cause of action. I d. at 766. BIL argues15

that the rationale underlying the decisions of East River

Steamship, Shipco 2295, and Suwannee River applies to claims such

as that made by Associated Metals. We reject this contention.

The decisions discuss ed above applied to claims where the

damage was to a product whose manufacture or design was the basis

of a contractual relationship. Thus, in E ast River Steamship, the

claim centered around defective turbines, and the Court held that

a "manufacturer in a commercial relationship has no duty under

either a negligence or strict products-liability theory to prevent

a product from injuring itself " and emphasized that a " damage to

a product itself is most naturally understood as warranty claim."

East River Steamship, 476 U.S. at 871-72, 106 S.Ct. at 2302

(emphasis added). Similarly, in Shipco 2295, we applied the rule

of East River Steamship and concluded that "economic loss for

damage to the product bargained for, the vessels in this case,

cannot be recovered in tort. " S hipco 2295, 825 F.2d at 929

(emphasis added). Suwannee River, also applying the rule of East

River Steamship, was limited to the situation in which a product

was damaged by deficient professional services "rendered in

connection with the manufacture or construction of a product. "

Suwannee River, 866 F.2d at 761 (emphasis added). Consequently we

noted t hat, " E ast River's broad concern for preserving the

integrity of contract law in commercial settings applies equally to

a case

... where the professional services are an integral part of

the manufacture or construction of a product and where the only

injury alleged is to the product itself. " S uwannee River, 866 F.2d2 We also reject BIL's invitation to reformulate the language

of East River Steamship and subsequent cases to apply generally,

not just to products, but to the object of any maritime contract.

We are aware of no cases (and BIL cites none) that make this leap

away from the traditional treatment of negligence in the carriage

of goods.

16 at 763 (emphasis added). The damage to Associated Metals' cargo

does not present such a case.

In deciding whether to apply the rule of East River Steamship,

the central question is "what is the product?" S hipco 2295, 825

F.2d at 928. In the instant case, unlike the situation in E ast

River Steamship, Shipco 2295, and S uwannee River, there is no

product; the contract plainly was unrelated to the design or

manufacture of a product. Instead, Associated Metals and

Alexander's Unity Shippin g contracted for the carriage of goods.

Contrary to the situation of damage to a product itself, which is

"most naturally understood as a warranty claim," E ast River

Steamship, 476 U.S. at 87 1-72, 106 S.Ct. at 2302, "it is well

est ablished that ordinarily the owner of goods damaged by the

dereliction of a common carrier has the op tion to bring in an

action either in contract or in tort." T he Henry W. Breyer, 17

F.2d at 4 29; a ccord All Alaskan Seafoods, 882 F.2d at 425;

Oriente Commercial, 529 F.2d at 225. 2 The rule of E ast River

Steamship and its progeny applies when the negligent design,

professional service, or other process integral to the manufacture

or construction of the product results in only injury to the

product itself. We will not extend this rule to eviscerate the

long standing tort cause of action for damage to cargo simply3 COGSA provides that "[e]very bill of lading or similar

document of title which is evidence of a contract of goods by sea

to or from ports of the United States, in foreign trade, shall

have the effect subject to the provisions of this chapter." 46

U.S.C.App. § 1300.

4 COGSA mandates that, subject to certain provisions, "under

every contract of carriage of goods by sea, the carrier in

relation to the loading, handling, towage, carriage, custody,

care, and discharge of such goods, shall be subject to the rights

and immunities set forth [in the Act]." 46 U.S.C.App. § 1302.

17 because a contract action may also exist.

3. COGSA

BIL also argues that COGSA governs the contract of shipping,

and that Congress preempted the possibility of tort actions for the

damages of cargo to which COGSA applies. We find this contention

without merit. It is true that COGSA is applicable to all

contracts of carriage of goods by sea, 46 U.S.C.App. § 1300, 3 a n d

that claims surrounding the contract of carriage are governed by

the rights and immunities of the Act. 46 U.S.C.App. § 1302. 4 It

does not follow from this, however, that in enacting COGSA Congress

meant to provide only contractual remedies for damage to cargo

carried by sea.

COGSA was enacted in 1936 as part of an international effort

to allocate the risks of loss or damage to cargo transported

internationally. Michael F. Sturley, T he History of COGSA and the

Hague Rules, 22 J.Mar.L. & Com. 1, 5 (1991); Gilmore & Black,

supra, at 139-45. Prior to the enactment of COGSA and its

in ternational analogue, the Hague Rules, a carrier was strictly

liable for damage to cargo unless it could show both that its

negligence had not contributed to the loss and that the loss was18

caused by either an act of God, the fault of the shipper, the

inherent vice of the goods, or the acts of public enemies. Wirth

Ltd. v. S/S Acadia Forest, 537 F.2d 1272, 1276 (5th Cir.1976)

(citing Gilmore & Black, supra, at 140); s ee also Sturley, supra,

at 4 (citing The Propeller Niagara v. Cordes, 62 U.S. (21 How.) 7,

23, 16 L.Ed. 41 (1858)).

In response to this system, carriers began to contract around

the common law rules under which they had such broad liability.

These liability-limiting provisions, while generally accepted in

England and other European countries, were not readily embraced in

the United States. Thus, American courts permitted carriers to

limit their liability in some instances, but did not allow carriers

to contract around their own negligence or their failure to provide

a seaworthy ship. W irth Ltd., 537 F.2d at 1276-77; Gilmore &

Black, supra, at 142; Sturley, supra, at 5-6.

The disparity between domestic and foreign law regarding the

permissible allocation of risks placed American ship owne rs at a

competitive disadvantage and left American shippers of goods to the

mercy of the foreign shippers and their contracts. To remedy this

situation, Congress passed the Harter Act, 46 U.S.C.App. §§ 190-96.

The Harter Act sought to balance the interests of ship owners, who

wished to contractually avoid liability for negligent damage to

cargo, and shippers, who wished to hold ship owners fully

responsible for negligent damage to cargo. W irth Ltd., 537 F.2d at

1277; Gilmore & Black, supra, at 143; Sturley, supra, at 10-14.

Thus, under the Harter Act, a carrier still could not avoid5 Specifically, the Harter Act provides:

It shall not be lawful for any vessel transporting

merchandise or property from or between the ports of

the United States of America and foreign ports, her

owner, master, agent, or manager, to insert in any bill

of lading or shipping document any covenant or

agreement whereby the obligations of the owner or

owners of said vessel to exercise due diligence [to]

properly equip, man, provision, and outfit said vessel,

and to make said vessel seaworthy and capable of

performing her intended voyage, or whereby the

obligations of the master, officers, agents, or

servants to carefully handle and stow her cargo and to

care for and properly deliver same, shall in any wise

be lessened weakened, or avoided.

46 U.S.C.App. § 191.

6 The Harter Act provides:

It shall not be lawful for the manager, agent, master

or owner of any vessel transporting merchandise or

property from or between ports of the United States and

foreign ports to insert in any bill of lading or

shipping document any clause or covenant, or agreement

whereby it, he, or they shall be relieved from

liability for loss or damage resulting from negligence,

fault, or failure in proper loading, stowage custody,

care, or proper delivery of any and all lawful

merchandise or property committed to its or their

charge.

46 U.S.C.App. § 190.

7 The Harter Act states:

If the owner of any vessel transporting merchandise or

property to or from any port in the United States of

America shall exercise due diligence to make the said

vessel in all respects seaworthy and properly manned,

19 liability for his failure to "exercise due diligence" in furnishing

a seaworthy vessel 5 or for his negligent care of cargo. 6 Yet, on

the other hand, a carrier who exercised the required due diligence

would not be responsible for damage caused by negligence in the

navigation or management of the ship. 7equipped, and supplied, neither the vessel, her owner

or owners, agent, or charters, shall become or be held

responsible for damage or loss resulting from faults or

errors of navigation ... or be held liable for losses

arising from dangers of the sea or other navigable

waters, acts of God, or public enemies, or the inherent

defect, quality, or vice of the thing carried, or from

insufficiency of package, or seizure under legal

process, or for loss resulting from any act or omission

of the shipper or owner of the goods, his agent or

representative....

46 U.S.C.App. § 192.

8 Section 1304(1) of COGSA states:

Neither the carrier nor the ship shall be liable for

20 Although the Harter Act protected the interest of dom estic

shippers, in most of the rest of the world, shippers remained

subject to the stringent exculpatory clauses inserted into bills of

lading. W irth Ltd., 537 F.2d at 1277; Gilmore & Black, s upra, at

143-44; Sturley, s upra, at 14. In response to commercial banking

and underwri ting interests and after years of international

wrangling, the Harter Act's compromise was ad a pted for

international use in the Hague Rules, which were promulgated at the

Brussels Convention of Au gust 25, 1924. W irth Ltd., 537 F.2d at

1278; Sturley, s upra

, at 18-32. Twelve years later, COGSA was

adopted by the United States as the nation's statutory codification

of the Hague Rules.

COGSA vests shipowners with certain defenses in cargo cases.

For example, like the Harter Act, COGSA ab solves carriers and

shipowners for liability for cargo damaged by an unse aworthy

vessel, if the owner or carrier exercised due diligence in making

the ship seaworthy, 46 U.S.C.App. § 1304(1), 8 and for losses causedloss or damage arising or resulting from

unseaworthiness unless caused by want of due diligence

on the part of the carrier to make the ship seaworthy,

and [all] parts of the ship in which goods are carried

fit and safe for their reception, carriage, and

preservation....

46 U.S.C.App. § 1304(1).

9 COGSA catalogs several "[u]ncontrollable causes of loss"

for which "neither the carrier nor the ship shall be responsible"

if they cause damage to the cargo. These items include: neglect

in navigation or management of the ship; fire (unless caused by

the actual fault of the carrier); act of God; act of war; act

of public enemies; arrest or seizure under legal process;

quarantine restrictions; act or omission of the shipper of goods

or his agents; strikes or lockouts (not including the carriers

own actions); riots or civil commotions; acts saving or

attempting to save property or life at sea; the inherent vice of

the goods; insufficient packing; latent defects; and other

causes arising without the actual fault of the carrier (but in

these cases the burden of proof is on the carrier to show that it

did not contribute to the loss). 46 U.S.C.App. § 1304(2).

21 by an act of God, fire, act of a public enemy, or other specified

causes. 46 U.S.C.App. 1304(2). 9 COGSA also grants shippers

freedom from cargo damage caused "without the act, fa ult, or

neglect of the shipper his agents, or his servants." 46 U.S.C.App.

§ 1304(3). Also, similar to the Harter Act, COGSA regulates

shippers' ability to further limit their liability by providing

that:

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 dut ies and obligations

provided in this section, or l essening such liability ...

shall be null and void and of no effect.

46 U.S.C.App. § 1303(8). This limiting clause is the codification

of the United States' common law rule preve nting contractual

clauses absolving ship-owners for their negligence; it in no way22

abrogates a negligence action for the damage to cargo.

As noted above, when COGSA was enacted, it was well

established th at in certain situations a claim for cargo damage

could sound in tort as well as in contract, and "we assume that

Congress is aware of existing law when it passes legislation."

Miles v. Apex Marine Corp., 498 U.S. 19, 32, 111 S.Ct. 317, 325,

112 L.Ed.2d 275 (1990). Congress could have eliminated the

negligence cause of action for damage to cargo through COGSA, but

it did not. C f. Miles 498 U.S . at 29-30, 111 S.Ct. at 323-25

(holding that the Jones Act did not eliminate the well-established

maritime cause of action for wrongful death). Thus, while COGSA

provi des certain parameters under which any claim for cargo must

operate, the Act does not abrogat e the long-standing rule of

admiralty allowing certain cargo claims to sound both in tort and

in contract.

In the more than half century that COGSA has existed, no

circuit has indicated that, through COGSA, Congress intended to

eliminate the tort cause of action for damage to cargo. Nor does

the legislative history of COGSA manifest such an intent. S ee

generally The Legislative History of the Carriage of Goods by Sea

Act and th e Travaux P Á eparatoires of the Hague Rules (Michael

Sturley ed. & Caroline Boyle trans., 1990) (assembling United

States' and international legislative histories). Thus, it is not

surprising that BIL brings neither circuit court precedent nor

statutory history to the attention of the court. In B arretto Peat,

Inc. v. Luis Ayala Colon Sucrs., Inc., 896 F.2d 656 (1st Cir.1990)23

and Reisman v. Medafrica Lines, U.S.A., 592 F.Supp. 50

(S.D.N.Y.1984), the courts, relying on Miller Export Corp. v.

Hellenic Lines, Ltd., 534 F.Supp. 707, 710-11 (S.D.N.Y.1982), held

that COGSA's one y ear statute of limitations barred claims of

negligence. These cases, however, did not hold that COGSA did not

allow negligence claims generally. This fact is underscored by the

Second Circuit's recent statements i n the M /V Amolyntos, noting

that "an action under COGSA is a maritime action in the nature of

a mixed tort, contract and bailment cause of action." 11 F.3d at

367.

In St. Paul Fire & Marine Insurance Co. v. Marine

Trans portation Services Sea-Barge Group, Inc., 727 F.Supp. 1438,

1439 (S.D.Fla.1989), the court did indicate that COGSA provided the

"exclusive remedy, barring all other theories of liability,

including theories of negligence." Nevertheless, this case merely

holds that COGSA's provisions cannot be circumvented by pleading a

claim in tort. Neither S t. Paul Fire and Marine nor any of the

other cases cited by BIL stands for the proposition that in proper

circumstances a claim subject to COGSA cannot be a tort claim and

therefore should not be afforded pref erred maritime lien status.

As one commentator noted:

since the law is clear that cargo claims can be pleaded so as

to sound in tort, it is difficult to see a ny logical reason

why such claims should be treated any differently from any

other tort claim. This is not to say that the Carriage of

Goods by Sea Act and the defenses it provides should be

ignored in lien cases. The carrier may, and in appropriate

cases undoubtedly will, plead defenses provided by COGSA and

its bill of lading. However, if cargo has pleaded and proved

a claim sounding in tort and the defenses do not prevail, the

claim should be given preferred maritime status.24

Norman B. Richards, Maritime Liens in Tort, General Avera ge, and

Salvage, 47 Tul.L.Rev. 569, 581-82 (1973) (footnote s omitted).

COGSA governs certain aspects of claims for damage to cargo and

provides carriers with certain defenses. It does not, however,

preclude claims in tort for negligent dam age to cargo. In the

instant case, there is no dispute that Associated Metals' cargo was

damaged not o nly by the breach of contract of carriage by the

vessel but also by the physical and financial unseawo rthiness of

the vessel and the negligence of her owners and/or operators.

COGSA does not convert this hybrid action into a mere contract

claim.

Simply, we do not denigrate the importance, application, or

defens es of COGSA's. We only hold that COGSA does not preclude

claims for cargo damages that sound in tort.

4. Ship Mortgage Act

BIL also contends that recognizing Associated Metals' claim as

a tort claim and thereby granting it preferred status would defeat

the purpose of the Ship Mortgage Act. We disagree. The Fourth

Circuit's treatment of this issue is insightful. In O riente

Commercial, t he district court acknowledged that because of the

broad dut ies of a vessel as common carrier, claims for damage to

cargo could almost always be brought in tort. O riente Commercial,

529 F.2d at 222. Nevertheless, the district court reasoned that

allowing these hybrid tort and contract claims to sound in tort

would contravene the purposes of the Ship Mortgage Act by giving

cargo claims priority over preferred mortgage liens and would make25

cargo claims superior to supply and repair liens "which are most in

need of priority." I d. The Fourth Circuit squarely rejected these

arguments, stating:

that the [Ship Mortga ge Act] draws no distinction between

cargo claims that sound in tort, the so-called hybrid liens,

and any other type of claim of damages arising out of tort.

While Congress might have been well advised to subordinate

cargo claims, it flatly granted priority to all claims arising

out of tort.... Whatever Congress meant, it stated that all

tort liens are prior to preferred mortgage liens.

Id. at 223; accord All Alaskan Seafoods, 882 F.2d at 429.

We agree with the reasoning of the Fourth Circuit. As noted

above, it has long been established that certain claims for damage

to cargo may sound in either tort or contract. Further, had it

wished, Congress could have prioritized tort liens resulting from

damaged cargo differently than other tort liens; it did not. The

Ship Mortgage Act plainly states that all tort liens are preferred

maritime liens, and we will not depart from Congress's plain words

by granting tort liens for damaged cargo a different status than

other tort liens.

C. Custodia Legis

Finally, BIL argues that the district court erred in its

finding that the costs associated with unloading the steel

constituted custodia legis expenses. We disagree and find that the

distric t court did not abuse its discretion in recognizing

Associated Metals' costs as custodia legis.

Generally, "services or property advanced to preserve and

maintain the vessel under seizure, furnished upon authority of the

court or of a n officer of the court ... should be allowed as26

custodia legis expenses." G eneral Elec. Credit & Leasing Corp. v.

Drill Ship Mission Exploratio n, 668 F.2d 811, 816 (5th Cir.1982)

(citing New York Dock Co. v . The Poznan, 274 U.S. 117, 121, 47

S.Ct. 482, 484, 71 L.Ed. 955 (1927)). Even if such expenditures

are made absent a court order, " " custodia legis ' expenses may be

ordered by the court

... if equity and good conscience so require."

Id. at 815; a ccord Morgan Guar. Trust v. Hellenic Lines Ltd., 593

F.Supp. 1004, 1010 (S.D.N.Y.1984).

In the instant case, the distric t court determined that

"Associated's discharge o f its cargo was beneficial to all

creditors and it was directly related to the substantial sale price

of the vessel." The Alexander's Unity contained several thousand

pieces of steel, several hundreds o f miles away from their

destination; it seems more than reasonable that the removal of the

steel was necessary to maintain the value of the vessel. S ee

Turner & Blanchard, Inc. v. The S.S. Emilia, 322 F.2d 249, 250 (2d

Cir.1963) (holding that " "service rendered to the ship, in the aid

of cargo, necessarily inured to their [lienors] benefit' " and were

properly considered custodia legis expenses (alteration in

ori ginal)); M organ Guar. Trust, 593 F.Supp. 1004, 1010

(S.D.N.Y.1984) (finding that cargo discharge costs necessary to

minimize the possibility of additional claims against the vessel

and to maximize the sales price of the vessel were custodia legis

expenses).

BIL attempts to argue that the award of custodia legis

expenses was improper because part of the benefit of the discharge27

inured to Associated Metals. We find this argument wanting.

Anything that maintained the value of the ship benefited all of the

lienholders of the ship, including Associated Metals. The fact

that Associated Metals made the expenditure and benefited from the

discharge doe s not prohibit the finding that the expense was

necessary to maintain the value of the ship. We are also

unpersuaded by BI L's contention that the discharge expenses were

not necessary to maintain the value of the ship because no attempt

was made to sell the ship with the cargo aboard it. The district

court is not required to attempt to sell the ship and fail or to

receive insufficient offers before concluding that an expenditure

will maintain the value of the vessel. Thus, we find no clear

error in the district court's determinati on that the expenses of

unloading the ship were necessary to maintain the Alexander's

Unity 's value. Consequently, we conclude that the district court

did not abuse its discretion in finding that the discharge expenses

were custodia legis.

IV. CONCLUSION

For the foregoing reasons, the decision of the district court

is AFFIRMED.