HENLEY DRILLING CO. v. McGEE

CYR, Circuit Judge.

The central question in this case — whether the $500 per-package limit on ocean carriage liability imposed by the Carriage of Goods by Sea Act (COGSA), 46 U.S.C.App. § 1304(5), is applicable to an oil drilling rig — requires the court to consider for the first time the COGSA-related "fair opportunity" doctrine.

I

BACKGROUND

Puerto Rico Electric Power Authority (PREPA) contracted with Henley Drilling Company (Henley) to conduct petroleum drilling operations in Puerto Rico. Marine Transportation Services-Sea Barge Group, Inc. (Sea Barge), an ocean carrier, agreed to transport Henley's drilling equipment from Houston to Puerto Rico, and return. PREPA obtained marine cargo insurance on the Henley drilling rig through William H. McGee & Co. (McGee) and CNA Casualty of Puerto Rico (CNA). Following an uneventful southbound voyage, Sea Barge retained a stevedoring contractor, Luis A. Ayala Colón Sucrs., Inc. (Ayacol), to stow the drilling rig aboard the barge for the return trip to Houston. When the barge arrived in Houston, however, Henley's huge drilling rig, valued at $629,000, was nowhere to be found.

Henley sued Sea Barge, Ayacol, McGee, CNA and PREPA in the United States District Court for the District of Puerto Rico. Under the terms of their settlement agreement, PREPA, McGee and CNA were subrogated to the rights of Henley, leaving Sea Barge and Ayacol as the only defendants. In March 1992, Sea Barge and Ayacol moved for partial summary judgment, contending that their liability, if any, could not exceed the $500 per-package/CFU limit imposed by COGSA.1 Contemporaneously, Ayacol and Sea Barge moved for summary judgment on the further ground that the stowing of the drilling rig aboard the barge for the return trip to Houston was improperly supervised by the marine surveyor retained by PREPA, thereby entitling Ayacol and Sea Barge to exoneration from liability.

A magistrate judge recommended partial summary judgment in favor of Sea Barge and Ayacol, based on a finding that the drilling rig constituted a "package" within the meaning of COGSA § 4(5), for which the maximum liability of the carrier is $500.2 The magistrate judge did not rule on the summary judgment claim for exoneration. McGee, CNA and PREPA objected to the magistrate-judge's report and recommendation, which the district judge subsequently adopted over their objection. McGee, CNA and PREPA unsuccessfully moved for reconsideration by the district judge. CNA and McGee [collectively: "McGee"] appealed. Ayacol and Sea Barge cross-appealed, challenging the district court order adopting the magistrate-judge's report and recommendation insofar as it failed to grant Ayacol and Sea Barge exoneration from all liability and included no attorney fee award against McGee.

II

DISCUSSION

A. The McGee Appeal (No. 93-1543)

1. Summary Judgment Standard

We review a grant of summary judgment de novo. Commercial Union Ins. Co. v. Walbrook Ins. Co., 7 F.3d 1047, 1050 (1st Cir.1993). Summary judgment is appropriate where the record, viewed in the light most favorable to the nonmoving party, reveals no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. Velez-Gomez v. SMA Life Assur. Co., 8 F.3d 873, 874-75 (1st Cir.1993).

2. The COGSA Liability Limitation

Section 1304(5) of COGSA, entitled "Rights and immunities of carrier and ship," provides in relevant part:

46 U.S.C.App. § 1304(5) (emphasis added).

The courts generally have required the carrier to afford the shipper a "fair opportunity" to avoid the COGSA "package/CFU" liability limitation through adequate advance notice. See, e.g., Carman Tool & Abrasives, Inc. v. Evergreen Lines, 871 F.2d 897, 899 n. 3 (9th Cir.1989). As this court has not adopted the COGSA "fair opportunity" doctrine, see Granite State Ins. Co. v. M/V Caraibe, 825 F.Supp. 1113, 1118-24 (D.P.R.1993) (noting absence of First Circuit precedent on "fair opportunity" doctrine), we first examine the case law in other jurisdictions.

All courts which have addressed the matter require the carrier to provide the shipper some notice of the COGSA "package/CFU" liability limitation, differing only as to the type of notice. See id. (examining circuit split as to level of notice required); see generally Michael F. Sturley, The Fair Opportunity Requirement Under COGSA Section 4(5): A Case Study in the Misinterpretation of the Carriage of Goods by Sea Act (Part I), 19 J.Mar.L. & Com. 1, 13-17 (1988) (hereinafter, "Sturley, Part I"); Michael F. Sturley, The Fair Opportunity Requirement (Part II), 19 J.Mar.L. & Com. 157 (1988) (hereinafter, "Sturley, Part II"). The Ninth Circuit is thought to have the more demanding notice requirement, see 2A Ellen Flynn & Gina A. Raduazzo, Benedict on Admiralty § 166, at pp. 16-28 to 16-29 (Michael F. Sturley, contrib. ed. 1993) (hereinafter, 2A Benedict) (describing "strict" Ninth Circuit standard, citing cases), mandating that the carrier provide the shipper legible written notice of the COGSA "package/CFU" liability limitation in the bill of lading, employing language substantially similar to COGSA § 4(5). See, e.g., Nemeth v. General S.S. Corp., 694 F.2d 609, 611 (9th Cir.1982). Other courts, including the Second, Fourth, Fifth and Eleventh Circuits, simply require that the bill of lading include a "clause paramount" incorporating COGSA by reference. See, e.g., Insurance Co. of N. Am. v. M/V Ocean Lynx, 901 F.2d 934, 939 (11th Cir.1990), cert. denied, 498 U.S. 1025, 111 S.Ct. 675, 112 L.Ed.2d 667 (1991); General Elec. Co. v. MV Nedlloyd, 817 F.2d 1022, 1029 (2d Cir.1987), cert. denied, 484 U.S. 1011, 108 S.Ct. 710, 98 L.Ed.2d 661 (1988); Cincinnati Milacron, Ltd. v. M/V American Legend, 804 F.2d 837, 837 (4th Cir.1986) (en banc) (per curiam), rev'g 784 F.2d 1161 (4th Cir.1986); Brown & Root, Inc. v. M/V Peisander, 648 F.2d 415, 424 (5th Cir.1981). The courts are in agreement that the carrier bears the burden of proving that it has afforded the shipper the requisite "fair opportunity" notice. See, e.g., General Elec., 817 F.2d at 1029; Tessler Bros. (B.C.) Ltd. v. Italpacific Line, 494 F.2d 438, 443 (9th Cir.1974).

Our review leads us to conclude that the bill of lading in this case afforded "fair opportunity" notice sufficient to satisfy whatever essential requirements are imposed by these other courts. Constructive notice was afforded by the "clause paramount"3 legibly printed on the reverse side of the bill of lading: "This bill of lading shall have effect subject to the provisions of the Carriage of Goods by Sea Act...." See Cincinnati Milacron, 804 F.2d at 837 ("clause paramount" provides constructive notice).4 A more particular notice was contained in the bill of lading "valuation clause":

See Carman Tool, 871 F.2d at 899 n. 4 (finding that bill of lading provision substantially similar to that sub judice recited terms of COGSA § 4(5) and thus afforded actual notice); cf. supra pp. 144-45 (quoting 46 U.S.C.App. § 1304(5)).5

McGee contends that Sea Barge did not demonstrate its entitlement to summary judgment on compliance with the "fair opportunity" requirement because there was competent evidence that Sea Barge failed to offer PREPA ad valorem rates based on the true value of the cargo. Specifically, McGee reiterates its claim below that Sea Barge failed to show that published tariffs were available for a drilling rig on this voyage.6 McGee relies primarily on the Fifth Circuit's language in Brown & Root:

648 F.2d at 424 (emphasis added, citations omitted); see also Wuerttembergische v. M/V Stuttgart Express, 711 F.2d 621, 622 (5th Cir.1983) (per curiam) (similar, applying Brown & Root). The controlling question before us therefore becomes: whether actual and constructive notice, without more, affords the shipper "fair opportunity," as a matter of law.

Careful examination of the authorities has disclosed no appellate case which requires a valid tariff — in addition to actual or constructive notice — as an element of the "fair opportunity" doctrine. The Fifth Circuit, whose cases constitute the principal authority relied on by McGee, has reserved judgment on this matter:

Couthino, Caro & Co. v. M/V Sava, 849 F.2d 166, 170 n. 6 (5th Cir.1988) (emphasis added). Other courts of appeals either directly hold that a tariff is not required if notice of the COGSA liability limitation has been given, see, e.g., Ocean Lynx, 901 F.2d at 939 ("Brown & Root thus adopted a system of constructive notice of an opportunity to declare excess valuation. Either a clause paramount in the bill of lading or a valid tariff filed with the Federal Maritime Commission ... is sufficient to afford the shipper an opportunity to declare excess value.") (citations omitted, emphasis added),7 or clearly imply such a rule, see, e.g., Aetna Ins. Co. v. M/V Lash Italia, 858 F.2d 190, 193 (4th Cir.1988) ("In this case [language reciting the COGSA liability limitation in the] bill of lading establishes prima facie evidence of fair opportunity by clearly outlining the limitation of liability and explaining the shipper's opportunity to avoid the limitation by declaring a higher value."); Carman Tool, 871 F.2d at 901 ("so long as the bill of lading, on its face, provides adequate notice of the liability limit and an opportunity to declare a higher value, the carrier has discharged its responsibility") (9th Cir.); cf. Komatsu, 674 F.2d at 811 (published tariff, without actual notice of the relevant provisions of COGSA, does not satisfy "fair opportunity" requirement).

We thus eschew McGee's implicit invitation to augment the "fair opportunity" doctrine. As the Ninth Circuit observed in a similar context:

Carman Tool, 871 F.2d at 900 (citations omitted); see also Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 29 F.3d 727, 728 (1st Cir.1994) ("COGSA was ... intended to reduce uncertainty concerning the responsibilities and liabilities of carriers, responsibilities and rights of shippers, and liabilities of insurers.") (citations omitted); see generally Sturley, Parts I, II (criticizing "fair opportunity" doctrine as economically inefficient and inconsistent with COGSA's roots in international and domestic law).8 The bill of lading indisputably provided both actual and constructive notice of the COGSA § 4(5) liability limitation.9 As there was no material fact in genuine dispute, the district court properly granted summary judgment for Sea Barge/Ayacol on the ground that the COGSA "package/CFU" liability limitation applies.

3. COGSA Package/Customary Freight Unit

COGSA § 4(5) limits liability to "$500 per package ... or in case of goods not shipped in packages, per customary freight unit." 46 U.S.C.App. § 1304(5). The district court concluded that the drill rig was shipped as a single "package." Strictly speaking, of course, it was not a "package." The parties agree that "the actual cargo that was lost overboard was a truck mounted Cabot 900 Drilling rig, which was self propelled and had eighteen (18) wheels ... [and which] was not boxed or crated in any way." McGee's Mot. Opposing Def.'s Mot. for Summ. J. at 5-6 (emphasis added); compare Sea Barge's Resp. to Pl.'s Statement of Uncont. Mat. Facts at 4 (expressly admitting these facts). Moreover, we have held that a printing press shipped "in open view, unboxed, [which] was not wrapped or crated ... was not a package as defined by COGSA." Hanover Ins. Co. v. Shulman Transp. Enters., Inc., 581 F.2d 268, 275 (1st Cir.1978); accord Tamini v. Salen Dry Cargo AB, 866 F.2d 741, 743 (5th Cir. 1989) (free-standing portable drilling rig, "for the most part" fully exposed and not enclosed in a container, was not a COGSA "package"); Petition of Isbrandtsen Co., 201 F.2d 281, 286 (2d Cir.1953) (uncrated locomotive not COGSA "package"); 2A Benedict, supra, § 167, at 16-35 ("cargo that is shipped without any packaging whatsoever is generally treated as `not shipped in packages'") (citations omitted, citing numerous cases). How, then, since the shipper chose to describe the shipment as a single package can it now claim it constituted multiple units?

Thus, the drilling rig constituted but one unit, whether labeled a "package" or, more correctly, one "customary freight unit" (CFU). Within the meaning of COGSA, the CFU "is generally the unit on which the freight charge is based for the shipment at issue." Binladen BSB Landscaping v. M.V. "Nedlloyd Rotterdam", 759 F.2d 1006, 1016 (2d Cir.), cert. denied, 474 U.S. 902, 106 S.Ct. 229, 88 L.Ed.2d 229 (1985); Granite State, 825 F.Supp. at 1126.10 To determine the unit upon which freight was charged we look "to the parties' intent, as expressed in the Bill of Lading, applicable tariff, and perhaps elsewhere."11 Croft & Scully Co. v. M/V Skulptor Vuchetich, 664 F.2d 1277, 1282 (5th Cir. 1982); see FMC Corp. v. S.S. Marjorie Lykes, 851 F.2d 78, 80 (2d Cir.1988) (in determining the CFU, "district court should examine the bill of lading, which expresses the contractual relationship in which the intent of the parties is the overarching standard") (citations omitted).

In support of its motion for summary judgment, Sea Barge argued that it charged a lump sum for transporting the drilling rig on the northbound voyage.12 Sea Barge relied on the bill of lading, PREPA's acceptance of the bid/purchase order (purchase order), and a facsimile from Sea Barge to PREPA quoting the charge for the northbound voyage ("quoted charge"). The purchase order and the quoted charge clearly establish that the freight charge was based on a lump sum:

Charges ocean transportation:

  Drill rig and accessories loose. $86,400.00 lumpsum
...

Port charges and handling fees:
  San Juan Arrimo                   $5.00 per 2000 lbs
  Houston Wharfage                  $1.50 per 2000 lbs
  Houston truck loading             $7.50 per 2000 lbs

The relevant portion of the bill of lading is substantially the same, though it does not use the term "lump sum."13 This evidence was sufficient to establish that Sea Barge was entitled to summary judgment on its claim that the northbound freight charge was based on a lump sum. See FMC Corp., 851 F.2d at 81 (bill of lading established that CFU was calculated on lump-sum basis).

McGee argues that listing wharfage and terminal usage charges by short ton (st) on the bill of lading established the short ton as the CFU. We think this argument cuts the other way. The portion of the bill of lading reproduced above, see supra note 13, sets out the charge per short ton only for wharfage and terminal usage, whereas the freight charge is stated in a lump sum. And this reading is buttressed by the quoted charge and the purchase order, which clearly evince the intent of the parties to calculate the freight charge on a lump-sum basis.

Sea Barge having carried the initial burden on its motion for summary judgment, the burden shifted to McGee to point to competent evidence indicating a trialworthy issue. See Local 48 v. United Bhd. of Carps. & Joiners, 920 F.2d 1047, 1050 (1st Cir.1990). In support of its claim that freight charges were based on the short ton, McGee proffered the Sea Barge invoice to PREPA relating to the northbound voyage, and a portion of the deposition testimony of William Lauderdale. The invoice is similar in all relevant respects to the portion of the bill of lading set out in the margin. See supra note 13. A flat $86,400 charge is made for "Ocean freight," while wharfage and terminal charges are listed on a short-ton basis. Although, as McGee points out, other portions of the invoice and bill of lading reflect that the drilling rig weighed 1,726,000 pounds, there is nothing to link weight with the freight charge, and McGee made no proffer supporting such a link.14

More importantly, the Lauderdale deposition tendered by McGee states that Lauderdale calculated the charges for the northbound voyage based on Sea Barge's expenses, including the costs of operating the vessel; agency, port, stevedoring and container costs; as well as a profit margin. Nowhere does Lauderdale intimate that the drilling-rig weight was a factor in calculating the freight charge or in the parties' discussions of the freight charge for the northbound voyage. Thus, we find no competent evidence that the freight charge was based on anything other than a lump sum, see S.S. Marjorie Lykes, 851 F.2d at 80-81 (finding that bill of lading and tariff established that parties intended to calculate freight on lumpsum basis), which means that the drilling rig itself was the CFU in this case. Binladen, 759 F.2d at 1016; see Union Carbide Corp. v. M/V Michele, 764 F.Supp. 783, 786 (S.D.N.Y. 1990) (CFU was transportable tank, since freight charge was computed on lump-sum basis).

B. The Cross Appeal (No. 93-1548)

The Ayacol and Sea Barge cross-appeal challenges (1) the district court finding that the loading of the drilling rig was not controlled by PREPA to such an extent that Ayacol was exonerated from liability, and (2) the order denying Ayacol/Sea Barge an attorney fee award against McGee.15 We deem these claims waived due to cross-appellants' failure to object to the magistrate-judge's report and recommendation within the ten-day period prescribed by 28 U.S.C. § 636(b)(1)(C). See Park Motor Mart, Inc. v. Ford Motor Co., 616 F.2d 603, 605 (1st Cir.1980)16 ("[A] party `may' file objections within ten days or he may not, as he chooses, but he `shall' do so if he wishes further [appellate] consideration.").17 See also Fed. R.Civ.P. 72(b) (same); D.P.R.Loc.R. 510.2(A) (failure to object to magistrate-judge's report within ten days waives absolute right to appeal district court order).18

Ayacol/Sea Barge urge that timely objection is required only when a party challenges a finding actually set out in the magistrate-judge's report and recommendation. Thus, they assert no exception to the report per se but challenge the "fail[ure] to make the additional findings requested [in the motion for summary judgment]." We reject their contention, which would allow an aggrieved party to assert on appeal an argument never surfaced in the district court; namely, in this case, that the magistrate-judge's report failed to respond to the portions of the motion dealing with exoneration of liability and attorney fees. See United States v. Nuñez, 19 F.3d 719, 722 n. 8 (1st Cir.1994) (arguments not seasonably addressed to trial court may not be surfaced for first time on appeal) (citing cases).19 Finally, the proposed bypass of the Article III judge would undermine the established role of the magistrate judge in the federal system:

Park Motor Mart, 616 F.2d at 605 (footnote omitted) (emphasis added); see also id. at 605 n. 1 ("Nor can it be thought that a party could skip the district court and, in effect, appeal directly to us. We have no jurisdiction to review the determinations of magistrates").20

We affirm the district court judgment for Sea Barge/Ayacol, dismiss the Sea Barge/Ayacol cross-appeal, and remand for further proceedings consistent with this opinion. All parties are to bear their own costs.