N.Y. Federal Court Says Panalpina's Entry Filing Errors Not Broker Misrepresentation to Client
The Eastern New York U.S. District Court dismissed on Aug. 30 an importers’ claim that Panalpina fraudulently induced it to enter into a contract for customs brokerage and freight forwarding services. Michael Kearnis, formerly president of Pinnacle Interior Elements, said Panalpina’s misclassification of Pinnacle’s wood flooring, and subsequent failure to fix the problem, amounted to going back on Panalpina’s promises of a seamless supply chain. Magistrate Judge Ramon Reyes ruled that Panalpina’s errors were at most a breach of contract, and did not amount to fraudulent inducement to sign the contract in the first place, because the broker and forwarder intended to fulfill the contract when it was signed.
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In 2003, wood flooring company Pinnacle switched to using Panalpina as its broker. Several years later, CBP found that some wood flooring products imported by Pinnacle were misclassified on the entries filed by Panalpina. CBP had earlier issued a binding tariff ruling related to the product, which Pinnacle says it provided to Panalpina. CBP began rejecting the entries, but Panalpina’s electronic submission system didn’t recognize the detections. So many of the entries were refilled late, and others weren’t refilled at all. As a result, CBP imposed penalties on Pinnacle and placed the company on the sanctioned importers list in 2007-08, requiring the company to file live entries.
Kearnis sued, claiming Panalpina breached its fiduciary duty to Pinnacle, negligently misrepresented its ability to perform the work it was required to perform, negligently failed to perform its duties, and fraudulently induced Pinnacle to hire it as broker and forwarder. In July 2012, the District Court dismissed the claims related to breach of fiduciary duty, negligent misrepresentation, and negligence. A Limitations of Actions provision incorporated into the Power of Attorney set time limits on how long Pinnacle had to sue Panalpina after injury occurred. Those deadlines had long passed, the judge ruled. The “6-point font” used for the Limitations of Actions provisions was irrelevant, Judge Reyes said, because Kearnis signed the Power of Attorney and indicated he understood its contractual terms. But Judge Reyes didn’t dismiss the fraudulent misrepresentation claim, because such a finding would completely void the contract, including the Limitations of Actions provisions.
At trial, Kearnis testified that Panalpina made promises in the run up to its hiring as broker and forwarder that it didn’t keep. “Panalpina promised us that they could pick up our material, wherever it was located throughout the world, whether it be in China, anywhere in Southeast Asia, anywhere, solve all the problems in getting it from that point to our door, keep us in compliance with the exporting laws, the importing laws, freight forwarders, it would arrive on time without any problems, with no complications and that was inaccurate,” he said.
But Judge Reyes said the promises weren’t fraudulent misrepresentations, because Panalpina didn’t anticipate breaking them when it agreed to provide its brokerage and forwarding services to Pinnacle. Instead, Panalpina provided brokerage and forwarding services to Pinnacle throughout the companies’ relationship, as required by the contract, the judge said. “As a general matter, a fraud claim may not be used as a means of restating what is, in substance, a claim for breach of contract,” he said, citing an earlier case. And Panalpina was not lying when it said it could interface with CBP, because it operated several systems like the Automated Broker Interface (ABI), and the Automated Invoice Interface (AII) that gave it the capability to review rejected entries manually. The problem was just that Panalpina’s employees failed to check. With the last remaining claim against Panalpina now decided in favor of the broker and forwarder, Judge Reyes entered final judgment for Panalpina.
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