The ghost of bankrupt Bed, Bath & Beyond continues to haunt the container shipping industry, seeking payback for alleged wrongs suffered during the supply chain crisis.
Bed Bath & Beyond (BBBY) filed for bankruptcy protection on April 23. Its brand name was sold to Overstock in June. The liquidation of the BBBY estate is ongoing, with the bankruptcy administrator seeking to collect as much as it can via legal claims to help pay off creditors.
Court documents confirm that part of this collection plan specifically targets container shipping.
The first case was filed with the Federal Maritime Commission (FMC) against Hong Kong-based ocean carrier OOCL on April 27, seeking at least $31.7 million in compensation. The next was filed against Taiwanese ocean carrier Yang Ming on Tuesday, seeking at least $7.7 million.
The world’s largest liner operator, Switzerland-based Mediterranean Shipping Co. (MSC), recently confirmed in a BBBY bankruptcy court filing that it could be next in line.
According to MSC, Bed Bath & Beyond and its counsel “threatened litigation against MSC if their settlement demands are not acceded to by MSC.” BBBY maintains that “it is entitled to recover tens of millions of dollars of damages from MSC,” said the ocean carrier.
This would push BBBY’s total legal claims against ocean carriers above the $50 million mark — and there might be more to come, beyond the three disputes that are known. According to court documents, BBBY also had contracts with Cosco, Evergreen, HMM and Wan Hai.
Bankruptcy plan targets ‘price gouging’ claims
The amended bankruptcy plan specifically calls out container shipping cases and sets a formula for distribution of any future court winnings.
In a section entitled “Shipping and Price Gouging Claims,” the plan refers to money obtained by litigating ocean carriers’ alleged failure to comply with shipping regulations and laws, “including pricing practices.” (Despite numerous allegations of price gouging and collusion, the FMC found no evidence that pricing during the supply chain crisis was caused by collusion or illegal conduct; it said historically high freight rates were “the product of the market forces of supply and demand.” Rates have since fallen back to pre-COVID levels, confirming the role of market forces.)
BBBY will give 80% of any shipping and price-gouging judgments to first-lien and debtor-in-possession lenders, both administered by Sixth Street Specialty Lending, with 20% going to the debtor or the successor entity.
BBBY hired law firm Huth Reynolds on March 23 to handle claims against shipping lines — a month prior to its Chapter 11 filing.
Claims against Yang Ming filed with FMC
Claims against Yang Ming were first revealed in a New York federal court filing by the ocean carrier on April 20. BBBY’s allegations against Yang Ming, laid out in detail on Tuesday, mirror those it previously made against OOCL, albeit on a smaller scale.
BBBY is seeking compensation for Yang Ming’s alleged failure to meet the minimum quantity commitments (MQCs) under its service contract, forcing BBBY “to seek carriage from other sources at higher rates.” It claims damages of $6.6 million.
It further argued that Yang Ming’s levying of $294,841 in peak season surcharges (PSSs) “was unjust and unreasonable.”
“Yang Ming’s behavior suggests a conscious pattern of entering into service contracts with shippers at quoted prices with the intention of not actually meeting its service commitments … at the agreed-upon rates. Instead, Yang Ming either imposed additional charges beyond the contract rates, such as PSSs, or neglected to provide transportation … at all.”
BBBY also alleged that Yang Ming imposed $641,222 in “improper demurrage charges” and $99,569 in “improper detention charges.”
Yang Ming stated in April that the service contract “provided no basis for pursuing money damages for [MQC] shortfalls.”
According to BBBY, “Astonishingly, Yang Ming has taken the position that its own service contract is illusory, and that Yang Ming is not subject to any service commitment whatsoever.”
BBBY repeatedly demands payment from MSC
MSC said in a court filing on Aug. 31 that it received an initial demand letter from Huth Reynolds on April 28, five days after the Chapter 11 filing.
BBBY “accused MSC of certain violations of the Shipping Act … arising from MSC’s purported failure to fulfill its service commitments and its assessment of demurrage and detention charges — allegations that MSC disputes in their entirety.
“In subsequent communications, [BBBY] and its counsel have continued to pursue such allegations against MSC,” said the ocean carrier.
MSC has its own claims pending against Bed Bath & Beyond, totaling $2 million, plus additional amounts owed by “certain other [BBBY] parties” of over $1.8 million. It said it reserves the right to use any amounts due “to offset, reduce or eliminate any liability … on account of any ‘Shipping and Price Gouging Claims.’”
Long road ahead for claims against OOCL
The claim against OOCL, filed with the FMC on April 27, seeks $11.6 million for alleged failure to meet MQCs, $13.7 million for PSSs and $6.4 million for detention and demurrage charges.
OOCL countered with a stern rebuttal on May 23, alleging that the ex-retailer “repeatedly and without explanation failed to manage its own supply chain, exacerbating the bottlenecks faced by other shippers and the ability of [OOCL] to reposition its containers to Asia in order to serve customers’ unprecedented demand for service.”
It also argued that the FMC does not have jurisdiction to rule on alleged breaches of service contracts.
In June, BBBY filed a motion asking the FMC to render a partial judgment related to jurisdictional questions, prior to end of the discovery phase.
OOCL responded in July that if the FMC did so, it would be “unprecedented in [FMC] practice.” It warned that if the FMC granted BBBY’s motion, OOCL would be entitled to appeal, and “such a detour would delay progress on this dispute possibly a year or more.”
Even if the motion for partial judgment is denied, the current schedule calls for the discovery phase to extend until mid-January 2024.
Attorney fees will pile up over time in all of the disputes between BBBY and the various carriers, fueled by the collection attempt of the bankruptcy administrator on behalf of priority lenders. Unlike other shipper plaintiffs, the administrator should have no concerns about burning bridges across the ocean carrier community. Future relationships are not a factor, as BBBY is now in liquidation mode and no longer importing cargo.
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