In 2013 the produce company Sol Group hired APL to ship melons from Honduras and Guatemala to Los Angeles.
The fruit company alleged APL failed to live up to its contractual commitments.
Sol sued APL for breach of contract and fraud in the inducement of the contract. It sought monetary damages and a declaration that a liquidated damages clause in the contract was unenforceable or, if enforceable, not applicable to the alleged breach of contract.
APL moved to dismiss the “fraud in the inducement” claim and to dismiss partially the declaratory judgment claim.
The court said “Because Sol cannot allege it reasonably relied on APL’s purported misrepresentations and because Sol cannot allege procedural and substantive unconscionability, APL’s motion is granted.” (Sol Group Marketing Co. v. American President Lines, Ltd. and APL Co. Pte Ltd. S.D.N.Y. No. 14-Cv-9929. Jan. 15.)
Prior to 2013, Sol had no significant business with APL from Central America to Los Angeles and primarily used Maersk.
The parties commenced their negotiations in the autumn of 2013, and continued them in person and via email and telephone.
At one point, Sol requested APL carry 2,040 containers of melons for the 2013-2014 season, but APL said it could make available and ship only 1,020 containers, or about 50 containers per week for 20 weeks.
On Oct. 23, 2013, Eduardo Brasil, an APL manager, emailed Sol’s Yanko Hauradou to confirm that the carrier was offering Sol a rate of $4,000 per container, which would be reduced to a “VIP” rate of $3,600 per container if Sol met a minimum volume commitment (MVC) from Dec. 1, 2013 through May 1, 2014.
Hauradou requested sailing and arrival dates for each shipment, as well as the MVC that Sol would have to meet to receive the $3,600 rate.
Sol said the VIP rate was a “key inducement,” because APL’s $4,000 rate was otherwise more expensive than Maersk’s.
Brasil wrote back to Hauradou that the MVC was for 1,020 containers. Brasil’s email also included a schedule outlining the volume of containers that APL could take each week, starting with calendar week 49 of 2013 and running through calendar week 19 of 2014.
Sol and APL entered into an agreement. The service contract listed a $4,000-per-container rate, but APL said it would refund $400 per FEU if the MVC was met over the contract’s life. The MVC was later amended from 1,020 to 700 containers.
The court said the service contract and its appendices did not explicitly reflect the weekly schedule in the Oct. 23 email, guarantee equipment availability, space on individual sailings or on a weekly basis, and that failure to accept a timely offered shipment or failure to provide container equipment by APL would not be a breach unless APL failed to carry Sol’s MVC over the contract term.
A liquidated damages clause said APL would pay Sol $350 per FEU if booking refusal meant the MVC was not met.
Sol alleged it neither had the opportunity to negotiate the terms of the service contract nor liquidated damages amount.
Sol said APL provided the contract on a “take it or leave it” basis, and by the time the written agreement was provided, the melon season was about to commence and with no cargo space available from other carriers, it had no other choice but to use APL.
Sol said APL failed to comply with the weekly email schedule, and in 11 weeks APL delivered to Los Angeles only 163 of the 430 containers it alleged APL was obligated to carry and 21 were late.
Fruit left behind or delivered late deteriorated. Sol said some fruit was discarded, and it had to find alternate storage and shipping for some melons. Sol said it suffered significant damages, including the costs of using other ocean carriers and inland freight charges to transport fruit from the East Coast to meet the demand of West Coast customers. It also said it incurred costs for repacking and discarding fruit, and higher freight costs because APL did not provide the VIP discount.
A pretrial conference to resolve the dispute was “unfruitful.”
In its decision, the court granted APL’s motion to dismiss two of Sol’s claims, saying the fruit company failed to state a claim for fraud in the inducement, and that the only alleged misrepresentation concerned APL’s purported ability and capacity to meet the weekly schedule in the Oct. 23 email exchange.
The court said there were “obvious and easy steps” Sol might have taken to protect itself, such as insisting the service contract contain a weekly schedule, or asking to be put on notice that APL could reject timely offered containers, or requesting further information about APL’s capacity and equipment availability.
While Sol complained APL used high-pressure tactics, deceptive language, and unequal bargaining power, the court said New York courts have found no contract of adhesion or procedural unconscionability exists where the party is as sophisticated as Sol.
Sol has asked the court to reconsider its opinion. It said $350 in liquidated damages “does not bear a reasonable relationship” to its anticipated loss when each container had a market value of $20,000.
Shippers’ Law: A service contract gone rotten
