Reports of supply chain litigation from troubled retailer Bed Bath & Beyond (BBBY) before the Federal Maritime Commission (FMC) have hit the news, reflecting a trend of increasing supply chain litigation before the FMC since the June 2022 passage of the Ocean Shipping Reform Act (OSRA).
BBBY, which filed for Chapter 11 reorganization in a bankruptcy filing on April 23, 2023, has filed a complaint before the FMC seeking to recoup asserted losses from Overseas Orient Container Line and OOCL (Europe) Limited (collectively, OOCL). BBBY is seeking reparations in the amount of more than $31.6 million (plus interest and reasonable attorneys’ fees), seeks an FMC investigation of its charges, and alleges claims under the Shipping Act, including some of the recent amendments enacted under OSRA.
Freightwaves, the Maritime Executive, and the Wall Street Journal have reported on the action; and gCaptain reports that this continues a trend of more than 175 charge complaints submitted under OSRA’s newly amended procedures during the second half of 2022.
As alleged in the FMC complaint, filed April 27, 2023, the essence of BBBY’s allegations are that OOCL engaged in exploited price inflation during the COVID-19 pandemic through: (1) failing to meet service commitments under contracts that specified minimum quantity commitments during 2020 and 2021, and instead allocating that space to other shippers in order to maximize profit, leaving retailers like BBBY to the spot market; (2) imposing allegedly unreasonable demurrage and detention charges under circumstances where intervening factors outside of BBBY’s control interfered with prompt pick-up or return of containers, such as port congestion or other intervening factors; and (3) allegedly coercive premium pricing policies that induced BBBY to enter into premium rate agreements as a precondition to carrying a fraction of the previously contracted-for minimum quantity commitments.
BBBY’s specific claims allege (1) that OOCL’s failure to meet its minimum quantity service commitments and allegedly coercive premium pricing contracts constitute a failure to “establish, observe, and enforce just and reasonable practices relating to receiving, handling, storing, and delivering property” under 46 U.S.C. § 41102(c), and that this was also an unfair or unjustly discriminatory practice under 46 U.S.C. § 41104(a)(2); (2) that the assessment of demurrage and detention charges was likewise a failure to “establish, observe, and enforce just and reasonable practices relating to receiving, handling, storing, and delivering property” including under 46 C.F.R. § 545.5, the FMC’s interpretive rule on demurrage and detention under the Shipping Act published in May 2020 and in particular, the “incentive principle”; and (3) that all of the foregoing also constitute unreasonable refusals to deal or negotiate under 46 U.S.C. § 41104(a)(10).
BBBY is likely a motivated litigant considering its bankruptcy filing, which disclosed approximately $1.7 billion in funded debt obligations (of which approximately $800 million is purportedly secured) against hundreds of millions in estimated assets (a little over $700 million in a liquidation scenario). This leads to the conclusion that unsecured creditors, which need to cover the secured debt before they recover anything, may have limited assets to look to in order to recover on their claims. Asset recovery litigation, as described above, is accordingly likely to be a focus for those creditors.
If you have any questions regarding the matters covered in this article, please contact Hoyoon Nam (212) 574-1640, Bob Gayda (212) 574-1490, Brian Maloney (212) 574-1448, or your primary Seward & Kissel attorney.