NANCY B. FIRESTONE, Senior Judge.
Pending before the court are the parties' cross-motions for summary judgment under Rule 56 of the Rules of the Court of Federal Claims ("RCFC") in this breach of contract case. At issue is whether the plaintiff, CFS International Capital Corporation ("CFS" or "plaintiff") is entitled to the proceeds of an insurance policy issued by defendant the United States, through the Export-Import Bank of the United States ("Ex-Im Bank" or "government" or "defendant"), to TopMeat Trading, LLC ("TopMeat"), an exporter who had assigned the proceeds of its insurance policy to CFS. CFS provided financing to TopMeat's export of frozen foods from the U.S. to Mexico, and as a condition of the financing agreement between CFS and TopMeat, TopMeat purchased an insurance policy from the Ex-Im Bank, Pl.'s App'x 112-22; Def.'s App'x 9-24 ("the Policy"). TopMeat then, with the Ex-Im Bank's permission, assigned the proceeds of that policy to CFS via an Enhanced Assignment. Pl.'s App'x 135-38; Def.'s App'x. 1-4 ("the Assignment").
The Policy allowed TopMeat to make a claim if the Mexican buyers defaulted on their payments. When the Mexican buyers allegedly failed to pay TopMeat, TopMeat made a claim under the Policy, which the Ex-Im Bank denied. CFS then filed a claim under the Assignment, which the Ex-Im Bank also denied. Thereafter, CFS filed this breach of contract case.
The government moved to dismiss CFS's complaint for failure to state a claim under RCFC 12(b)(6), arguing that CFS could not recover under the Assignment because CFS did not have an international bill of lading showing the delivery of the goods in Mexico. The court denied the government's motion to dismiss.
Though the Assignment does not contain an explicit provision dealing with exports to Canada and Mexico, the court found that because the Policy and the Assignment are so closely interrelated, the two contracts must be read together in a manner that avoids contradictions or inconsistencies between the two agreements.
After the court issued its ruling on the government's motion to dismiss, the parties engaged in discovery and filed cross-motions for summary judgment. Oral argument was held on April 11, 2016.
For the reasons that follow, the court finds that CFS is entitled to summary judgment. Accordingly, CFS's motion for summary judgment, ECF No. 34 ("Pl.'s MSJ"), is
The relevant facts, as recited below, are not in dispute unless expressly noted.
The Ex-Im Bank is an independent federal agency that was established "to facilitate exports of goods and services . . . and in so doing to contribute to the employment of United States workers." 12 U.S.C. § 635(a)(1). Among other programs, the Ex-Im Bank offers export credit insurance policies that provide coverage to U.S. exporters if a foreign buyer defaults on payment.
CFS is a California corporation that routinely finances small business exports to Mexico. Clumeck Decl., Pl.'s App'x 45. In 2011, CFS financed TopMeat's export of five shipments of frozen foods, by truck, from the U.S. to four buyers in Mexico.
As a condition of the financing, CFS required TopMeat to purchase an export credit insurance policy from the Ex-Im Bank and to assign the proceeds of the policy to CFS. Clumeck Dep. 13:12-14, Pl.'s App'x 8. TopMeat purchased such a policy in July of 2011.
In order to recover on the Policy in the event of a buyer's default, an insured is ordinarily required, among other things, to provide "bill of lading(s) or other shipping document(s) showing shipment of the products from the United States . . . to the buyer in the buyer's country. . . ." Policy § III.E. These documents "must be issued by an unaffiliated third party."
The parties agree based on the foregoing language that the Policy provides that when making a claim for an export to Canada or Mexico, the exporter need only submit its own documents showing that the goods were shipped to a point within the U.S. from where the goods would then be exported to Canada or Mexico at the buyer's direction.
The parties also agree that an assignee is able to recover under the Assignment even if the Policy would preclude the insured from recovering under the same facts. The Assignment states that the Ex-Im Bank agrees to pay the assignee 95% of the amount due under the policy "regardless of the Insured's performance under the Policy." Assignment § D.1.
To recover under the Assignment, the assignee must produce a "bill of lading (or other shipping documents) identifying the Insured and the Buyer and evidencing the export of the products shipped. . . ." Assignment § C.2.c. The Assignment does not contain the requirement of Policy § 3.E that these documents be issued by an unaffiliated third party. The Assignment also does not contain any express language regarding shipments to Mexico and Canada as appears in the Policy. The Assignment further provides that New York law governs the construction of its terms.
In May, June, and July of 2012, TopMeat entered into agreements with four Mexican buyers to export frozen foods to Mexico.
Between October of 2012 and January of 2013, TopMeat filed claims with the Ex-Im Bank under the Policy asserting that the four Mexican buyers defaulted on their payments.
The Ex-Im Bank investigated TopMeat's claims and, with respect to one claim, found that the putative buyer, Empacadora, had never ordered the goods. Def.'s Resp. to Int. 8, Def.'s App'x 46-47. As a result, the Ex-Im Bank denied all four claims. Policy Denial Letter, Pl.'s App'x 371-72. The Ex-Im Bank also denied CFS's claims under the Assignment, stating that CFS "was not able to provide a bill of lading evidencing the export of the products shipped."
In accordance with the court's rulings in denying the government's motion to dismiss, CFS has presented the testimony of Frederico Zuniga, a U.S. Licensed Customs Broker since 1986, who states in his uncontested expert report that, when goods are shipped to Mexico by truck, U.S. trucking companies typically deliver products to a freight forwarder on the U.S. side of the border rather than ship the goods across the border using an international bill of lading. Zuniga Report, Pl.'s App'x 167. Mr. Zuniga explained that it is the job of the freight forwarder to transport the goods the short distance across the border, where the goods are then transferred to a Mexican shipping company that delivers the goods to the buyer.
The government's experts confirmed that this method of bringing goods to the U.S. border and then using freight forwarders to carry the goods across to Mexico, known as "drop shipping," is typical for exports to Mexico. Amy Hatfield, a branch chief in the Department of Homeland Security, Customs and Border Protection, testified that "almost 100 percent" of goods trucked from the U.S. to Mexico are drop-shipped in this manner on the U.S. side of the border. Hatfield Dep. 24:13-25:15, Pl.'s App'x 185-86. The government's other expert, Paul Jarzombek, the Chief Operating Officer for LR International Inc. with over 25 years of international logistics experience, Jarzombek Report, Def.'s App'x 83, testified that approximately 80 percent of shipments to Mexico involved drop shipments, Jarzombek Dep. 27:1-17, Def.'s App'x 81.
The government and the plaintiffs also agreed as to the reasons for this practice. Ms. Hatfield explained that "U.S. drivers are not insured based on U.S. insurance policies to drive their vehicles into Mexico. . . . [I]f you want to drive your vehicle into Mexico, you have to have a separate insurance policy, and it's typically quite expensive, because of the risk concerns." Hatfield Dep. 23:6-17, Pl.'s App'x 185. Ms. Hatfield further testified that "the freight forwarders are working on behalf of Mexican brokers to make sure that the paperwork that's being filed for the importation into Mexico is accurate in order for the Mexican brokers to not face any penalties, . . . criminal charges, things like that."
Although the parties agreed that an international bill of lading would not ordinarily be produced for a truck shipment to Mexico, Mr. Jarzombek, on behalf of the government, testified that it would be "reasonable to expect an insured exporter to produce a bill of lading or other documents evidencing export" and asserts that "bills of lading or equivalent shipping documents are readily available." Jarzombek Report, Def.'s App'x 85. Mr. Jarzombek does note, however, that when attempting to obtain a bill of lading, "special care should be taken as most Mexic[an] Importers prefer to control the cross-border transport and therefore insist on" a drop-shipped import.
Under RCFC 56(a), "summary judgment is appropriate `when there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.'"
The central issue in this case is whether the shipping documents CFS provided to the Ex-Im Bank satisfied the requirement for other shipping documents "evidencing export" within the meaning of the Assignment or whether, as the government argues, CFS's claim must fail because CFS does not have shipping documents showing that TopMeat's goods crossed into Mexico. For the reasons stated below, the court agrees with CFS that the phrase "evidencing export" in the Assignment must be read together with and in accord with the Policy and therefore, with respect to goods shipped to Mexico, CFS met its burden by submitting the shipping documents identified in the Policy. As such, CFS is entitled to recover under the Assignment.
CFS asserts that because the Assignment and Policy are so closely related, the two contracts must be read together and in such a way that avoids inconsistent obligations. Accordingly, CFS argues that it has met the Assignment's requirement that the insured must support its claim by providing documents "evidencing export" because, as the government does not dispute, those documents would be sufficient to support a claim under the Policy. Specifically, CFS contends that because § III.E of the Policy states that, when exporting goods to Mexico, an exporter need not provide an international bill of lading or other document showing the receipt of goods in Mexico to the Ex-Im Bank, the assignee of the Policy cannot be required to provide an international bill of lading or similar international shipping document under those same circumstances. Instead, CFS argues, the same documentation needed to establish a claim under the Policy must apply to assignees under the Assignment.
The government counters that rather than looking to the Policy to define what type of documents are evidence of export, the court should look only to the dictionary definition of "evidence" and "export," and further argues that based on that definition, only a document reflecting the actual border crossing of goods into Mexico is sufficient to satisfy the Assignment. In addition, the government argues that even if the Policy informs the Assignment, Policy § III.E provides an exception to the Policy's requirement that the insured provide evidence of export that does not apply to the assignee's corresponding requirement, which the government contends has no exception.
The court agrees with CFS that the Policy and the Assignment must be read together and that the shipping document requirements set in the Policy must inform the court's reading of the Assignment.
The government argues that, even if the Policy and the Assignment are read together, Policy § III.E does not inform the meaning of the term "evidencing export" in the Assignment. The government states that while the Assignment requires evidence of export in all circumstances, Policy § III.E creates an exception that the insured provide evidence of export requirement when exporting goods to Canada and Mexico that does not apply to the Assignment.
The court disagrees with the government's interpretation. Section III.E of the Policy reads as follows:
Policy § III.E (emphasis altered). Under a straightforward reading of the contract, the language "Notwithstanding the foregoing requirement with respect to shipping documents" does not negate the Policy's requirement that the insured provide evidence of "an export sale." Instead, the "Notwithstanding" clause creates exceptions to the requirement that the exporter provide a "bill(s) of lading or other shipping document(s) showing shipment of the products from the United States (or its territories) to the buyer in the buyer's country." Policy § III.E. A natural reading of the section as a whole demonstrates that the Policy provides four acceptable methods of providing evidence of export, depending on where and to whom the goods are exported. In other words, the Policy in all cases requires evidence of export, but in enumerated circumstances, the shipping documents need not show a shipment from the U.S. directly to the buyer in the buyer's country. In the case of exports to Mexico, the evidence of export can consist of a document showing that the goods were delivered to the buyer's agent and "intended for ultimate delivery to Mexico. . . ." Policy § III.E.3. Therefore, the court agrees with CFS that when the Policy and the Assignment are read together, the "only reasonable interpretation for the phrase `evidencing the export' in the Assignment is that it includes any shipping document that evidences an export sale specified" in § III.E. of the Policy. Pl.'s Reply 8.
The court further agrees with CFS that, under New York law, the Assignment and the Policy must be read together and to avoid any inconsistency. It is "black letter law that the provisions of a contract or a related set of contracts should be read as a whole and every effort should be made to give them consistent meaning in their overall context."
It is for this reason that government's contention that the court should not look to the Policy in construing the words "evidencing export" in the Assignment, on the grounds that these words have a plain meaning is not persuasive. The government argues that when these words are defined using any dictionary, "evidencing export" plainly means that an assignee must have documents to show "the goods were being delivered to another country." Def.'s MSJ 11. The court finds this argument is overly simplistic. The critical question is what "shipping documents" can serve as evidence of export. In this case, the court cannot ignore the fact that Policy § III.E.3 does not require documentation of actual border crossing and instead allows the insured to make a claim based on delivery to a freight agent directed to take the goods across the border. In determining what evidence the assignee may use as "evidence of export," the court cannot ignore what shipping documents the insured receives as part of the shipping process and needs to present under the Policy. Adopting the government's reasoning would create an additional obligation on the assignee that is not required of the insured, the party in the best position to obtain the documents the Ex-Im Bank needs. The law of New York instructs the court to avoid inconsistent obligations where possible.
The government offers several reasons why its interpretation of the contract would lead to a better outcome, none of which are persuasive.
It makes little sense to suggest that the Assignment language is rendered meaningless by allowing CFS to rely on the same shipping documents that TopMeat received and was required to provide under the Policy. In order to recover, CFS must meet numerous requirements that do not apply to the insured. The assignee must provide financing to the insured, Assignment § C.1, notify the Ex-Im Bank of known financial difficulties on the part of the insured or discrepancies in the insured's documents,
Pl.'s Reply 13 (citing
The court also must reject the government's policy argument that it is necessary for the government to require additional documents from CFS (the assignee) than it needed from TopMeat (the insured) because the Ex-Im Bank "incurs greater risks under the Enhanced Assignment program than it does under its insurance programs because Ex-Im Bank must pay the Enhanced Assignee who complies with the Enhanced Assignment Agreement (EA) irrespective of the insured's performance under the Policy." Def.'s Reply 2. That is because while the Policy prohibits the insured from collecting on the Policy if it commits fraud,
Finally, the court rejects the government's argument that if the phrase "evidencing export" in the Assignment is construed to include documents demonstrating delivery to a port city to be transported over the border to Canada or Mexico, then the Ex-Im Bank will be required to accept those types of documents for exports anywhere in the world. This is wholly unsupported. What may constitute "evidence of export" in one situation is not necessarily "evidence of export" in every situation. The Policy establishes what documentation is necessary to evidence export. The court's opinion in this case turns on the language of the Policy specifically pertaining to exports to Mexico. The language of the Policy with respect to exports to countries other than Mexico will govern the documentation requirements for claims relating to exports to those countries.
CFS argues that to the extent there is any doubt as to how the Assignment language should be read, the court should accept CFS's reading and reject the government's reading because only CFS's reading is consistent with industry custom and practice. CFS relies on the testimony of Mr. Zuniga, which is largely in concert with all of the government's witnesses on the subject, to show that it is commonly understood that an exporter to Mexico drop-ships its goods with a Mexican transporter at the border because of the unique issues associated with shipping goods into and within Mexico. As such, CFS argues, it is not the industry custom or practice to obtain an international bill of lading for shipments into Mexico and thus it would be contrary to custom and practice for an exporter or export insurer to require one.
The government does not dispute any of the particulars of the plaintiff's evidence regarding industry custom and practice but instead argues that the court should not consider this type of evidence in interpreting the Assignment. First, the government argues that the term "evidencing export" is not a specialized term, and therefore the court need not look to trade custom and practice. Second, the government argues that while the plaintiff's expert has given testimony regarding the manner in which goods are typically exported to Mexico, he did not give any testimony regarding the meaning of the term "evidencing export," and thus his testimony does not inform the meaning of the term. Finally, the government argues that because it is possible to obtain international bills of lading for shipments to Mexico, the Ex-Im Bank could require them.
Although it is not necessary for the court to consider trade custom and usage in construing the meaning of the Assignment, the court agrees with CFS that to the extent trade custom and usage are relevant they support CFS's contention that shipping documents evidencing export do not ordinarily include international bills of lading. Thus, if the court were to adopt the government's interpretation of the Assignment language to require an international bill of lading or similar document for shipments to Mexico it would not be consistent with practice and thus contrary to New York law. Under New York law, "a `contract should not be interpreted to produce a result that is absurd, commercially unreasonable or contrary to the reasonable expectations of the parties.'"
For the reasons stated above, the court
Accordingly, CFS shall provide the court with a proposed judgment for entry by the Clerk of Court by
Further, the court finds that the government's objection to the plaintiff's expert testimony on the grounds that he did not expressly address the meaning of the words "evidencing export" is without merit. CFS's expert, along with the government's witnesses, provided the court with the context for construing the types of documents that can "evidenc[e] export" in cases where shipments are going to Canada or Mexico.