Bankrupt Retailer Bed Bath & Beyond Wins Record $45M FMC Claim Against OOCL
A Federal Maritime Commission administrative law judge awarded a record $45.6 million in reparations to the administrator of the bankrupt retailer Bed Bath & Beyond in its claim against Orient Overseas Container Line (OOCL) stemming from denied service and higher shipping rates during the COVID-19 pandemic. The case has the potential to be a precedent-setting decision for the shippers' complaints against the business practices of carriers during the pandemic.
The bankruptcy administrator for the former retailer now known as DF-Butterfly filed a series of claims starting in 2023, citing the denial of service, failure to provide contracted space allocations, higher rates, and detention and demurrage charges (D&D), which it claimed represented “price gouging” followed by retaliation by the major carriers. Once a leading home furnishings retailer in North America, the company collapsed into bankruptcy, accusing the container shipping industry of precipitating its failure. The company said it had not been able to get merchandise or had to pay excessive rates, leading to its downfall.
The first of the claims was filed against OOCL in April 2023, citing at least $30 million in costs, and was later amended to a final claim of just over $165 million, including doubling of claims based on assertions of retaliation and a refusal to deal. Subsequent claims were filed against MSC Mediterranean Shipping Company, Evergreen Line, BAL Container Line, CMA CGM, and HMM, making similar assertions in each case.
The claims center on assertions of unreasonable practices for failing to meet space commitments under annual freight contracts, service not in accordance with the contracts, unreasonable practices related to D&D, and then assertions of retaliation and refusal to deal when the shipper began protesting the problems in 2021 and 2022. The shipper asserts it had to enter the spot market to make up for shortfalls under its service contract, paying significantly higher prices.
OOCL argues that the FMC has no authority and that this is a simple contract dispute that should have been treated as such. It also asserts that the administrator failed to provide factual details and that the claims did not have factual merit.
Chief Administrative Law Judge Erin Wirth, however, ruled last week that “the evidence shows that OOCL violated sections” of the FMC code as it relates to service commitments and filed rate doctrine. Further, the ruling finds evidence that OOCL refused to deal and retaliated against Bed Bath & Beyond. As one example, they cite an October 18, 2022, letter, which they conclude “was to view it as threatening and that it motivated not just a reduction in cargo carried for the 2021-22 timeframe, but also in negotiating a service contract for 2022-2023.” Further, Judge Wirth says the “violations were willfully and knowingly committed.”
The bankruptcy administrator had calculated its claim in part by the reduced number of containers carried multiplied by the calculated profit per container. It also sought the D&D charges it incurred. OOCL objected to Bed Bath & Beyond’s damages calculations, and the judge concluded, “Some of OOCL’s concerns are well-founded.”
The decision awards total reparations of $45,600,599.25, including the penalties for retaliation. The reparations are awarded for failure to meet the initial space and price commitments. No additional reparations, however, are awarded for service not in accordance with service contracts or refusal to deal. Further, the judge ruled there were no violations as it pertained to the claims of unreasonable practices for detention and demurrage.
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Under FMC rules, either party can file an exception to the decision within 22 days. Further, the initial decision could be reviewed by the FMC but would become final absent a review by the commission.
In addition to the host of other claims still pending filed by Bed Bath & Beyond, other major shippers and many smaller companies made similar claims about the services provided during the pandemic. Companies including Samsung Electronics and retailers QVC and Dollar General, as well as manufacturers, each also filed claims against carriers, making similar claims to Bed Bath & Beyond.
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