MSC Faces Default Judgement in FMC Complaint

Thirteen months after a Pennsylvania furniture company filed a complaint with the Federal Maritime Commission regarding denial of service from MSC and COSCO, the chief administrative law judge hearing the case for the FMC has lost patience with MSC. Last week, she filed a motion that the FMC has now published showing that MSC has two weeks to show cause why the judge should not issue a default decision and award financial remuneration to the furniture company.

At issue is what Judge Erin Wirth sees as a delaying tactic and lack of response from MSC. After the case was filed at the end of July 2021, it moved through a series of phases proceeding to discovery. The judge issued an order on December 8, 2021, compelling MSC to produce documents in the case for the discovery process. It has been followed up with orders, the last on July 29, giving MSC until August 29 to produce all the outstanding discovery.

MSC reports it has been seeking advice and assistance from the Federal Office of Justice in Switzerland and cites that as the reason for its requests for extensions in the FMC case. In her motion, Judge Wirth however says that the Geneva (Switzerland) Court of First Instance denied MSC’s request while MSC contends that the court’s ruling was in error. They cite a subsequent document from the Federal Office of Justice in Switzerland contending that it sides with MSC while the judge in the FMC case says the Swiss were only instructing MSC on how to refile without any discussions of the merits of MSC’s request.

“In multiple filings, MSC Mediterranean Shipping has indicated that it will not produce the discovery that it has been repeatedly ordered to produce,” writes Judge Wirth. Expressing her frustration, the judge cites FMC rules that give her the authority of “rendering a decision by default against the disobedient party.”

The case centers on the now familiar claims of shippers that carriers failed to provide service under their freight contract causing the shipper to incur greatly higher costs in the spot market. The furniture company, MCS Industries, was the first to file these types of claims since the beginning of the surge in shipping volumes during the pandemic. They initially also alleged collusion between MSC and COSCO citing both carriers in their complaint. MCS initially said it was seeking $600,000 in its suit, which alleged market manipulation and collusion among the major carriers.

COSCO settled the claims with MCS a little over a month after the complaint was filed. The terms of the settlement remain confidential and despite the FMC’s public position to encourage settlements, MSC has pushed forward with the case. It issued a denial saying the issues were all miscommunications and cited that MCS later withdrew the claims of collusion. MCS however has continued to pursue its claims of financial damages from MSC although no amount was specified in the later filings.

Judge Wirth gives the carrier just two weeks to respond to her order and show cause why she should not proceed to judgment due to their refusal to produce the information for discovery in the case. At the same time, the judge writes that the shipper, MCS Industries “should identify the dollar amount of reparations they are seeking.” 

The judge holds out the opportunity for MSC to provide the discovery documents or to settle before she proceeds with her rulings. Final responses to follow-up motions are due from MSC by October 6 and the complainant, MCS by October 14. Barring progress on the current standoff over discovery, the judge is expected to issue her final decision shortly after those responses.

In the year since MCS filed its complaint, other shippers have followed with similar accusations against a range of carriers. Maersk was recently served a $180 million complaint filed with the FMC, while carriers including CMA CGM, Evergreen, HMM, and Yang Ming have each been cited in other complaints. 

The reforms to the Ocean Shipping Act signed into law in June 2022 include new provisions for shippers to file complaints for “unreasonably refusing to deal or negotiate with respect to vessel space accommodation.” Today, the FMC released its draft rule and requested public comment on this key provision of the reforms. A new rule is due to be published this year which would make filing complaints against carriers easier and shift from the shipper to the carrier the burden of proof in responding to complaints. Anticipating that this could open the gates to more filings, the FMC has already established a new structure for its Bureau of Enforcement, Investigations, and Compliance structure.