Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Gibbs International Inc. v. ACE American Ins. Co.

United States District Court, D. South Carolina, Spartanburg Division

March 30, 2018

Gibbs International, Inc., Plaintiff and Counter Defendant,
v.
ACE American Insurance Company doing business as ACE USA, Defendant and Counter Plaintiff,
v.
Southern Recycling, LLC, Third Party Defendant.

          OPINION AND ORDER

          Bruce Howe Hendricks, United States District Judge.

         This matter is before the Court on Defendant and Counter Plaintiff ACE American Insurance Company's (“Defendant” or “ACE”) motion for summary judgment. (ECF No. 53.) For the reasons set forth in this Order, Defendant's motion for summary judgment is granted.

         BACKGROUND

         I. The Unsuccessful Copper Shipment and its Fallout

         This coverage action stems from an apparent fraud perpetrated by a nonparty to this litigation on Plaintiff and Counter Defendant Gibbs International, Inc. (“Plaintiff” or “Gibbs”) and Third Party Defendant Southern Recycling, LLC (“Southern Recycling”). In short, thirteen (13) shipping containers that Gibbs and Southern Recycling believed to contain scrap copper were transported from the Philippines to Texas, whereupon it was discovered that some of the containers were filled with concrete blocks and others were filled with black powder (“slag”).

         On October 30, 2012, Gibbs contracted with seller Regent Phoenix Imports & Exports, a Philippine company (“Regent Phoenix”), to purchase 500, 000 pounds, plus or minus 3%, of “No. 1 copper wire that shall consist of bare, uncoated, unalloyed copper wire” at a price of six thousand two hundred dollars ($6, 200.00) per metric ton. (Am. Answer, Ex. B, ECF No. 24-2 at 2.) The delivery term in the Regen Phoenix agreement stated: “FOB loaded in bulk into 20['] sea containers at port of Manila, Philippines. Shipments and delivery must be completed no later than November 30, 2012. The Parties will agree to dates, locations, and loading times for containers.” (Id.) Under “Additional Terms” the agreement reads, inter alia: “[Regent Phoenix] warrants that it has absolute right, title and interest in and to the copper and is selling the copper to [Gibbs] free and clear of any and all encumbrances.” (Id.) Moreover, the agreement indicated that Regent Phoenix was responsible for “all costs of loading, inland freight to Manila port, loading of containers on vessel, [and] providing all export documentation as required by Philippine customs.” (Id.) Gibbs, on the other hand, was “responsible for Ocean shipment.” (Id.) The agreement further stated, “If any portion of the copper covered by this contract is unshipped or undelivered within the specified time, then that portion is subject to cancellation by [Gibbs] and/or [Gibbs] has the right to hold [Regent Phoenix] responsible for substantiated damages.” (Id.)

         One week later, on November 6, 2012, Gibbs entered an agreement with buyer Southern Recycling to sell 500, 000 pounds of copper wire conforming to the same quality specifications itemized in the Regent Phoenix agreement. (See Am. Answer, Ex. C, ECF No. 24-3 at 2.) It is undisputed that the copper wire Gibbs intended to purchase from Regent Phoenix and the copper wire Gibbs intended to sell to Southern Recycling were the same. The Southern Recycling contract's delivery term stated:

F.O.B., loaded in bulk into [Southern Recycling's] 20' sea container[s] at Port of Manila, Philippines. Shipments and delivery to be completed no later than November 30, 2012. [Southern Recycling] and [Gibbs] will mutually agree upon dates, location, and loading times for containers. [Southern Recycling] will have a representative at each loading and will sign each trucker's bill of ladings [sic], along with [Gibbs'] representative.

(Id.) Under “Other Terms” the contract reads, inter alia:

Payment to be made via wire transfer to [Gibbs'] designated banking account the following business day upon [Southern Recycling's] inspection and acceptance of goods, and [Gibbs'] delivery as described above. Incremental payments will be made on each shipment.

(Id.) Additionally, the contract stipulated, “If any portion of the goods covered by this contract are unshipped or undelivered within the specified time, then that portion is subject to cancellation by [Southern Recycling] and/or [Southern Recycling] has the right to hold [Gibbs'] responsible for substantiated damages.” (Id.)

         Even a cursory examination of the Regent Phoenix agreement and the Southern Recycling contract reveals that they are very similar and in many instances use identical language. (See ECF Nos. 24-2 & 24-3.) However, one notable difference is that Regent Phoenix, as seller to Gibbs, warrants that it has an absolute right, title, and interest in and to the copper it is selling and that such sale is free and clear of any encumbrance. (ECF No. 24-2 at 2.) Whereas Gibbs, as seller to Southern Recycling, makes no such warranty or claim. (See ECF No. 24-3.)

         Pursuant to these agreements, Southern Recycling arranged for the placement of thirteen (13) shipping containers at the Port of Manila. The containers were collected by Regent Phoenix and transported to its inland warehouse in Sucat, Philippines where loading was to occur. Both Gibbs and Southern Recycling had representatives present at the warehouse to observe the loading. Southern Recycling had a corporate representative, Justin Morgan, and a professional inspector, Alex Stuart Intercorp Inspection Philippines, Inc. (“ASI”), present. Gibbs was represented by Paul Hemsath, COO of Spartan Mining and Development Corp.-a Gibbs joint venture involved in surface iron mining-who was located in Manila at the time.[1] The warehouse in Sucat could not accommodate all thirteen shipping containers at once, and loading was generally achieved by two containers per day over a period of several days. The basic process of moving the copper was supposed to proceed in the following fashion: (i) the shipping containers arrived at the Regent Phoenix warehouse where they were filled with copper; (ii) the shipping containers were transported by truck from Sucat to the Port of Manila; (iii) the containers were loaded onto a cargo ship at the Port; (iv) the containers were transported by ship from the Philippines to Long Beach California; and (v) the containers were transported overland in the United States by rail from California to Dallas, Texas. (See Biggerstaff Dep. 105:6-106:23, ECF No. 54-7 at 29; Ford Dep. 62:8-63:1, ECF No. 54-11 at 18.)

         While the corporate representatives observed, the inspector retained by Southern Recycling-ASI-inspected the quality of the copper, watched Regent Phoenix employees load the copper into the containers, documented the weight of the copper being loaded throughout the process, photographed the loading process at various stages, and witnessed seals being affixed to the loaded containers. (Dignos Dep. 15:22-30:16, 83:2-84:18, ECF No. 54-10 at 15-30, 83-84.) The inspector generated daily reports reflecting material specifications about the quality and quantity of the loaded copper. (Id.)

         The loading began on November 24, 2012 and concluded on December 1, 2012. (Ford Dep. 137:23-140:4, ECF No. 54-11 at 37.) Ten (10) of the containers stayed at the inland warehouse overnight after being loaded, and two of those ten containers stayed two nights. (Id. 82:10-12.) The first containers arrived at the Port on November 26, 2012, and the ship with the containers sailed from Manila on December 2, 2012. (Biggerstaff Dep. 130:6-12, ECF No. 54-7 at 35; Copper Shipment Charts, ECF No. 54-3.) Neither Gibbs nor Southern Recycling personnel were continually present during the period between the sealing of the containers and their departure from the warehouse, or during the transit from the warehouse to the Port. Outside the gates of the Port, the exterior, but not the contents, of the containers were inspected and photographed again. (Ford Dep. 54:13-23, ECF No. 54-11 at 16.)

         When a truck transporting a container entered the gates of the Port, various items of data were recorded. Upon the same truck departing the Port, an Equipment Interchange Receipt (“EIR”) was generated and provided to the driver. The EIR showed “the date and time of the receipt of the container, the truck that delivered, whether there was any damage observed to the container, and the driver's name and, also, the weight of whatever was lifted off the vehicle.” (Id. 57:1-9.) In this case, the weights recorded by the Port were consistent with the weights of the containers upon their arrival in Texas. (Id. 61:15-62:2.) However, for five of the thirteen containers there were “significant differences” (in the order of two metric tons per container) between the weights on the EIRs that Regent Phoenix submitted to Gibbs for payment and the weights recorded on the EIRs at the Port and upon arrival in Texas. (Id. 58:17-19, 63:7-64:25.) Accordingly, it is apparent that “Regent Phoenix or their associated transport companies, obtained the first print [EIRs], and that they manipulated these, in the process of them presenting photocopies . . . to Gibbs and [ASI].” (Id. 66:21-67:1.) The containers with the biggest weight differentials contained cement blocks upon arrival in Texas. (Id. 58:20-24.) The weight differences for containers that ultimately contained slag were not as significant. (Id. 59:5-9.)

         The distance from the Sucat warehouse to the Port, as a function of driving time, was approximately two hours depending on traffic. The following table contains loading and departure dates, along with other data, for each of the thirteen shipping containers:

Loading Order

Container

Date Loaded with Copper

Date Departed for the Port

Date Arrived at the Port

Trip Time from Sucat to Port

Contents Upon Arrival in Dallas, TX

1

TCKU3734138

11/24/12

11/26/12

11/26/12

2:35

slag

2

OOLU1247369

11/24/12

11/26/12

11/26/12

2:21

slag

3

OOLU1733709

11/26/12

11/27/12

11/27/12

2:54

slag

4

OOLU3012492

11/26/12

11/27/12

11/27/12

2:46

slag

5

OOLU1184677

11/27/12

11/27/12

11/27/12

5:24

blocks

6

OOLU1382306

11/27/12

11/28/12

11/28/12

6:30

blocks

7

OOLU1969269

11/28/12

11/29/12

11/29/12

3:01

slag

8

OOLU2934539

11/28/12

11/30/12

11/30/12

1:50

slag

9

OOLU1362721

11/29/12

11/30/12

11/30/12

2:10

slag

10

OOLU1262656

11/29/12

11/30/12

11/30/12

2:33

blocks

11

OOLU1156084

11/30/12

11/30/12

12/01/12

4:18

blocks

12

OOLU3788423

11/30/12

12/01/12

12/01/12

4:24

blocks

13

OOLU1130855

12/01/12

12/01/12

12/01/12

5:27

blocks

(See ECF No. 54-3.) The truck drivers explained protracted delivery times by telling ASI representatives that there was rush hour traffic during the transport of containers 5 and 6, that an armed escort accompanied container 12, and that there was heavy traffic during the transport of container 13. (Dignos Dep. 43:18-47:10, ECF No. 54-10 at 43-47.)

         Subsequent investigation revealed evidence of tampering, specifically: (a) “[t]he bolts attaching the lock fittings to the [container] door were tampered with to allow all the lock fittings to be removed from the door, to allow the door to be opened normally and closed again normally, and then the lock fittings reattached [without breaking the seals];” (b) “the large tags holding the numbers of the red [ASI] seals, had been bent to gain access to the bolt behind them, and that bending was apparent because the plastic takes on a different color, ” and (c) “the long loose end of the plastic strip had been rethreaded in very different ways through the handle and the locking mechanism, indicating that that had been unwound at some point and then put back differently.” (Ford Dep. 28:15, 32:16-33:2, ECF No. 54-11 at 9-10.) These indicia of tampering were observed by comparing photographs taken by ASI when the containers were sealed at the warehouse with photographs taken by ASI at the Port gate. (Id.)[2]

         Based on his evaluation of the available evidence, the investigator concluded that the copper contents of the containers loaded each day were “recycled” and substituted for concrete block or slag either at the warehouse in Sucat or en route to the Port-i.e., that the same fifty (50) tons, approximately, of copper was loaded into each set of containers in succession. (Id. 58:25-59:17, 158:21-160:4, 165:23-168:5.) This conclusion was based on: (1) confirmations from the ASI inspectors and Gibbs' representative, Mr. Hemsath, that they never observed more than the approximate contents of two shipping containers' worth of copper together during loading; and (2) examination of the daily photographs taken by ASI. (Id. 166:8-18.) Regarding the photographs, the inspector testified:

[T]he more the job went on, the more the stockpiles of copper, it looks like copper that had just been tipped out of the same kind of one-[ton] bags that they had been loaded into. It was freshly acquired copper scrap that had come off of de-insulating machines or other forms of production. Everything looked like the same material.

(Id. 166:22-167:3.) Ultimately, the investigator was not able to conclusively resolve this suspicion, which was based on an “overwhelming sense” arising from “scrutinizing the photographs” over approximately twenty (20) hours, because there were not enough photographs where details of the serial numbers on the bags of copper were visible for comparison. (Id. 59:10-17, 158:16-20, 167:4-24.) The investigator found no indication that ASI, Gibbs, or Southern Recycling were involved in any fraudulent or criminal activity, and concluded that Gibbs and Southern Recycling were innocent victims of a “well known metal cargo substitution fraud that has been perpetrated by Asian crime syndicates in Manila for some years.” (Id. 57:14-19, 151:2-24, 165:7-21.)

         Given the investigator's findings, Southern Recycling and its insurer, CNA Insurance Company, Limited (“CNA”), filed, on November 18, 2013, a lawsuit against Gibbs in this Court, captioned: S. Recycling, LLC, et al. v. Gibbs Int'l, Inc., No. 7:13-cv-3125-BHH (“Companion Case”). The complaint in the Companion Case alleged:

CNA's investigation into the matter concluded that the containers had been tampered with which allowed the doors to be opened without breaking the seals, that only the initial Copper placed in the first two (2) containers probably ever existed, that this same Copper was removed from the first two (2) containers and thereafter was placed into and removed from each of the remaining containers in a similar manner (in each circumstance being replaced by cement blocks or slag), that this was done prior to arrival of the containers at the Port of Manila, and that the removals occurred either while the containers were left overnight at Regent Phoenix's inland warehouse or at some point along the route to the Port of Manila.

(Compl. ¶ 19, Companion Case ECF No. 1 at 4.) Moreover, the complaint stated, “Based upon the small quantity of Copper that may have actually existed, CNA paid to Southern Recycling the amount of U.S. $366, 518.00 . . . .” (Id. ¶ 20.) Asserting a cause of action for breach of contract, Southern Recycling sought return of the payments it made to Gibbs in the amount of approximately $1.7 million. However, Gibbs was unable to recover the monies it paid to Regent Phoenix, approximately $1.3 million, and refused to refund the payments made by Southern Recycling. Gibbs made a claim to ACE for coverage pertaining to loss of the copper prior to the Companion Case being filed, but ACE denied Gibbs' claim and refused to defend or indemnify Gibbs in the Companion Case. Gibbs, therefore, brought this action against ACE seeking a declaratory judgment as to coverage under its policy with ACE and asserting a claim for breach of contract. (See Compl., ECF No. 1-1.)

         In the Companion Case, the Court granted partial summary judgment in Southern Recycling's favor on the discreet legal issue that, pursuant to the “F.O.B. Port” delivery term in the purchase agreement, Gibbs was obligated to deliver the copper wire in containers to the Port of Manila and, if Gibbs failed to satisfy this obligation, Gibbs bore the risk of loss. (March 31, 2016 Order, Companion Case ECF No. 65 at 4, 25.) Subsequently, the Court denied Gibbs' motion for leave to file an amended answer and motion for reconsideration. (January 11, 2017 Order, Companion Case ECF No. 74.) Thereafter, the parties fully resolved the Companion Case via mediation and the case was dismissed. (Companion Case ECF Nos. 81 & 82.)

         The upshot of this factual context, considered in toto, is that Gibbs clearly had a ripe breach of contract action against Regent Phoenix for the monies it paid and/or its loss of profit on the transaction with Southern Recycling-though Regent Phoenix was, not surprisingly, unresponsive to Gibbs' inquiries regarding the failed shipment.[3]Relatedly, Gibbs had exposure-now resolved through mediation in the Companion Case-to Southern Recycling for Gibbs' failure to supply the agreed upon consideration despite accepting and retaining the purchase price. At issue in the case sub judice is whether coverage exists for Gibbs' loss or its liability.

         II. The ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.