Summary of a Recent
Judicial Development in
Food Safety

Court Finds Rejection of Cargo Reasonable and
Awards COGSA Damages

Heather N. Sutton
National AgLaw Center Research Associate

Summary of Decision

In National Starch and Chemical Trading Co., Ltd. v. Inventana, No. 05-cv-91-P-S, 2006 WL 3519306 (D. Me. Dec. 6, 2006), the United States District Court for the District of Maine determined that under the Carriage of Goods by Sea Act (COGSA), 46 U.S.C. App. §§ 1300-1315, the plaintiff National Starch and Chemical Trading Company established a prima facie case of damage by a preponderance of the evidence. The court found that defendant Inventana failed to fulfill the burden of proof to show due diligence to prevent damage or loss to the starch, allowing recovery of damages under COGSA limits of $500 per package.

Background

Tapioca starch is a product used for both industrial and food purposes. National Starch, an international starch processor, presented 4,118 jumbo sacks of tapioca starch to Inventana at Siam Seaport in Thailand for shipment on the M/V Star Inventana to Portland, Maine. Id. at *1-2. The time of loading marked Inventana's initiation of responsibility for the product under the charter party terms of "full liner terms hook place of rest." Id. at *2.

A delay caused by the weather introduced periods of time where the loading personnel, stevedores, were allowed to seek shelter in the Inventana's hold. Id. The stevedores caused a plastic sack of human feces and glass bottles to be left in the ship's hold during the loading period. Id. at *3. Ultimately, the sacks were loaded into the ship's hold, and plywood buffered the sacks from container guides built into the boat. Id. at *2. Inventana, unaware of the potential contaminating sources present, issued a clean bill of lading to National Starch, indicating the good condition of the cargo at loading. Id.

On October 14, 2001, the M/V Star Inventana began its voyage, experienced "exceptionally bad weather" during the voyage, arrived in Portland, Maine on November 10, 2001, and unloaded the same day with Merrill Marine Terminal [MMT] acting as stevedores. Id. at *3. Contamination was discovered by MMT such that a Damage Report was issued before the Inventana left port in Maine, noting that two bags were "molded" and five additional bags were contaminated by glass shards. Id. When the fecal bag and glass were discovered, National Starch was notified and inquired whether the unloading of the cargo could be suspended, but did not request suspension. Id. Upon inspection of the starch shipment, MMT's Vice President, Walter Watson, stated that up to twenty-five jumbo sacks of starch were separated due to contamination; another employee of MMT, Armand Demers, observed up to twelve. Id. at *4. One bag, the sole bag discovered and segregated for stains from fecal contamination, was labeled "the moldy bag" and subsequently tested positive for E. coli. Id. No other bags were specifically segregated for testing despite proximity with the moldy bag, although thirty-nine bags that were randomly tested by the defendant were negative for E. coli. Id.

National Starch refused the entire shipment due to contamination based on precedent set by National Starch & Chem. Co. v. M/V Monchegorsk, No. 97 Civ.1448 KTD, 2000 WL 1132043 (S.D.N.Y. Aug. 9, 2000) and brought an admiralty action for damages under the Carriage of Goods by Sea Act (COGSA), 46 U.S.C. App. §§ 1300-1315. Permission was given by the plaintiffs for the defendants to inspect the shipment. Id. at *7. An insurance claim was filed with National Starch's insurer, Inchem Insurance Company (Inchem), the claim was paid, and Inchem was subrogated to the admiralty action. Id. at *1. Inchem then sold the starch for non-food purposes for $134,016 to mitigate damages. Id. at *7. This process was initiated in March 2002, but was not completed until January 2003 due to negotiations related to a Hold Harmless agreement. Id.

Pursuant to a bench trial, each party submitted proposals for findings of fact and conclusions of law; Inventana also filed a Motion to Strike Portions of Plaintiffs' Response to Defendants Proposed Findings of Fact and Defendants' Correction of Typographical Errors. Id. at 1. The court reviewed the post-trial submissions and requested then reviewed the entire record despite the parties' failure to provide the trial transcript. Id.

Inventana argued that to recover damages, damages must be shown by the Plaintiff through individual sack testing. Additionally, Inventana argued that the top tier of jumbo sacks were not contaminated and so should not have been rejected. Id. at 8. Finally, the Defendants argued that National Starch failed to mitigate damages. National Starch refuted these arguments, contending that the rejection was reasonable after "balancing the concerns with respect to the contamination and quality of the shipment against the possible disruption of the starch supply chain." Id. at 6.

Arguments

Under the preponderance of the evidence standard, the court looked whether the defendants were liable for fecal contamination and for failure to establish a "clean margin" during the starch unloading. Id. at *4. Additionally, the court looked at whether the defendant's loading policies contributed to the contamination through allowing glass containers in the hold and whether a proposal by National Starch representatives, "the Williams Plan," was an appropriate alternative to refusal of the entire shipment. Id. The Williams Plan allowed for acceptance of all bags but the moldy bag, any others showing stains, and those having observable glass contamination, with accepted bags specially vacuumed and the contents screened through mesh. Id. at *5-6. The Williams Plan was considered by the court along with Inventana's expert testimony that the Williams Plan implementation "would have provided adequate screening of the jumbo sacks for both fecal and glass contamination." Id. at *6. The rejection of the starch shipment by National Starch was based upon a balance of "concerns with respect to the contamination and quality of the shipment against the possible disruption of the starch supply chain" and upon previous similar experiences by the company with emphasis upon reputation. Id.

Analysis and Holdings

The court rejected Inventana's contentions and held that National Starch successfully established a case for damages through the clean lading bills and the fecal bag and glass contamination; thereby, the burden shifted to Inventana to show due diligence in loss prevention or that contamination was not within Inventana's control. Id. at *8. The court held Inventana failed to show due diligence and so was liable for damages. Id. It was more likely than not that shards of glass and human feces were contaminating additional bags than those segregated for contamination by Inventana. Id. at *4-5. Furthermore, because the defendant's policies allowed glass and the fecal bag in the hold and their unloading policies failed to segregate all affected bags allowing uncontaminated cargo to be saved, National Starch was reasonable in rejecting the entire shipment "in accordance with its regular practices and policies." Id. at *8-9. The court noted that sack-by-sack testing was not a reasonable requirement when presented with glass contamination, although appropriate for fecal-only contamination. Id. Therefore, National Starch received damages under COGSA's maximums of $500 per package and prejudgment interest at 5.77 percent. Id. at *9. The total judgment for damages was $1,425,315.69 plus interest and costs. Id.

The case was decided on Dec. 6, 2006.