Defending a Cargo Claim: Groundwork Steps to Success

Although it imposes strict liability upon carriers and freight forwarders for loss and damage to property in interstate commerce, the Carmack Amendment (See 49 U.S.C. 14706) provides motor carriers and freight forwarders the benefit of having a national uniform policy regarding liability for property loss and damage. See New York, New Haven & Hartford Railroad Co. v. Nothnagle, 346 U.S. 128, 131, 73 S.Ct. 986, 97 L.Ed. 1500 (1953); Adams Express Co. v. Croninger, 33 S.Ct. 148, 151-152 (1913). Even with this national uniform policy in place, freight counsel and their respective clients face many issues in evaluating a claim for cargo loss and damage. This paper addresses three preliminary considerations that must be taken into account prior to litigating a properly pled Carmack Amendment cause of action. The initial focus is identifying what roles various entities play in the transportation of goods in interstate commerce and their liability under Carmack. The second section addresses venue issues and outlines removal procedures. Lastly, the third section sets forth the groundwork for preliminary motions if the underlying complaint seeks to expand the preemptive scope of Carmack.

STEP ONE: KNOW WHAT ROLE YOUR CLIENT HAD IN THE TRANSACTION

            Even though it seems simple, the first and most important step in defending a Carmack Amendment claim is to establish what role your client had in the overall transaction. With the ever increasing use of different names to identify a transportation entity, knowing what hat your client was wearing during the transaction is critical to defending the Carmack Amendment claim.

            In the regulated transportation of property, there are still three types of federally licensed entities: the motor carrier, the freight forwarder, and the property broker. Although this appears simple on its face, these entities often acquire numerous authorities and do little to differentiate their separate operations in terms of corporate structure.

            By statute, the term “carrier” means a motor carrier, water carrier, and freight forwarder. See U.S.C. 13102(3). A “motor carrier” means a person providing motor vehicle transportation for compensation. See U.S.C. 13102(12).

            A “freight forwarder” means a person holding itself out to the general public (other than as a pipeline, rail, motor, or water carrier) to provide transportation of property for compensation and in the ordinary course of its business:

(a) assembles and consolidates, provides for assembling and consolidating shipments and performs or provides for break bulk and distribution of the shipments;

(b) assumes responsibility for the transportation from the place of receipt to the place of destination; and

(c) uses for any part of the transportation a carrier subject to jurisdiction under this subtitle. The term does not include a person using transportation of an air carrier subject to Part (a) of subtitle VII. See 49 U.S.C. 13102(8).

            A freight forwarder acts like a carrier vis-a-vis its shipper and similarly, it acts as a shipper vis-a-vis the carrier it retains. Under the ordinary course of its business, a freight forwarder must proffer assembly, consolidation, break bulk and distribution services for any and all traffic tendered or transportation services provided. The four service elements are basic to the definition of a freight forwarder. They are neither optional nor alternative.

The service elements are required by the use of the conjunctive “and” in the statutory definition. Thus, in order to be a freight forwarder, a party must hold itself out to the public that it is prepared to provide the definitional services on all transactions. Moreover, if a party acting as an intermediary does not actually perform, but merely proffers such services, its activity is more akin to and may be deemed to be brokerage, for which a brokerage license is required. If the conduct evidences that the entity is merely arranging transportation rather than undertaking the transportation, such activity will not be considered freight forwarding. See Chemsource, Inc. v Hub Group, Inc., 106 F.3d 1358, 1361 (7th Cir. 1997); Fireman’s Fund Insurance v. USA Truck, Inc., 1992 Fed. Carr. Cases ¶83,698; See also Travelers Indemnity Company v. Alliance Shippers, Inc., 654 F. Supp. 840 (N.D.Cal. 1986).

By statute, the term “broker” means a person other than a motor carrier, or an employee or agent of a motor carrier, that as a principal or agent sells, offers for sale, negotiates for, or holds itself out by solicitation, advertisement or otherwise, as selling, providing, or arranging for transportation by motor carrier for compensation. See 49 U.S.C. 13102(2).

Motor carriers, or persons who are employees or bona fide agents of carriers are not brokers when they arrange or offer to arrange the transportation of shipments which they are authorized to transport and which they have accepted and legally bound themselves to transport. See 49 C.F.R. 371.2(a).

“Brokerage” or “brokerage service” is defined as the arranging of transportation or the physical movement of a motor vehicle or of property. It can be performed on behalf of a motor carrier, consignor or consignee. See 49 C.F.R. 371.2(c).

A broker is generally not liable to the shipper for cargo loss or damage. See See Golden Triad Carriers, Inc. v. Paco American Corporation, 1990 Fed. Carr. Cases, ¶83,515. Brokers can limit their liability by contract. Neither the regulatory framework set forth in the Carmack Amendment nor the common law restrict a broker’s ability to freely contract with shippers, freight forwarders and others. See Service Master Co., LP v. FTR Transport, Inc., 868 F. Supp. 90, 95 (E.D.Pa. 1994). A broker is free to establish by contract, the rates, services and terms and conditions of liability assumed. See General Electric Co. v. Harper Robinson & Co., 818 F. Supp. 31 (E.D.NY 1993). In terms of liability, a crucial issue for property brokers is whether they hold themselves out to the public generally as the actual transporter of the goods. See Florida Power & Light Co. v. Federal Energy Regulatory Commission, 660 F.2d 668 (5th Cir. 1981), cert. denied, 459 U.S. 1156 (1983). If there is no evidence that a property broker held itself out as the actual transporter of the goods, it should not be found liable for cargo loss and damage, absent negligence on its part. Often, property brokers maintain contingent cargo insurance to protect their own business as well as the shipping public but acquiring same does not increase the broker’s basic legal obligations in terms of liability for the goods transported.

In contrast, motor carriers and freight forwarders have primary liability to shippers or consignees for cargo loss and damage under the Carmack Amendment in the absence of a written contract. See 49 U.S.C. 14706(a)(1).

A carrier may waive the application of the Carmack Amendment through a written contact which expressly waives its applicability. See 49 U.S.C. 14101(b)(1). The remedy for a breach of the written contract is an action in state court or district court unless the parties otherwise agree. See 49 U.S.C. 14101(b)(2).

Under Carmack, a carrier may establish rates for transportation of property (other than household goods) under which the liability of the carrier for such property is limited to a value established by a written or electronic declaration of the shipper or by written agreement between the carrier and the shipper if that value would be reasonable under the circumstances surrounding the transportation. See 49 U.S.C. 14706(c)(1)(A).

The carrier’s right to limit its liability is subject to the requirement that it provide to the shipper, upon request, “... a written or electronic copy of the rate, classification, rules, and practices based upon which any rate applicable to a shipment, or agreed to between a shipper and the carrier is based.” See 49 U.S.C. 14706(c)(1)(B).

In the absence of a written contract or applicable tariff provisions limiting liability, the motor carrier and freight forwarder are subject to the Carmack Amendment. Undoubtedly, it is important to identify what services your client was performing in order to accurately defend them in a cargo loss and damage claim.

If you or your trucking company have questions about defending a cargo claim, the attorneys at the law firm of Bostwick & Price, P.C. are available to answer your questions and concerns. www.bostwickprice.com

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Carmack Amendment

Counsel seeking recovery on behalf of their clients for damage or loss incurred as a result of the interstate shipment of goods typically file complaints alleging various state law claims such as breach of contract, negligence and fraud. What Plaintiff's counsel does not know is that such state law claims are preempted by a federal law known as the Carmack Amendment. The Carmack Amendment is a uniform national liability system for interstate carriers which provides certainty to both carrier and shipper. It specifically allows a carrier to require that all claims for loss or damage by a shipper be made in writing within nine months from the date of the loss. It also allows a carrier to limit its liability if all prerequisites have been met.

The Carmack Amendment Preempts State Law Claims

The Carmack Amendment is presently codified at 49 U.S.C. Section 14706 et seq. The courts have uniformly held that the Carmack Amendment preempts all state and common law claims and provides the sole and exclusive remedy to shippers for loss or damage in interstate transit. Hughes Aircraft v. North American Van Lines, 970 F.2d 609, 613 (9th Cir. 1992). The preemptive effect of the Carmack Amendment also applies to claims of damage or loss relating to storage and other services rendered by interstate carriers. Margetson v. United Van Lines, Inc., 785 F.Supp. 917, 919 (D.M. 1991).

The preemptive scope of the Carmack Amendment was first noted by the United States Supreme Court in Adams Express Co. v. Croninger, 226 U.S. 491 (1913). Despite the then non-exclusive language in the Carmack Amendment, the Court ruled that all state and common law causes of action relating to services under the Carmack Amendment were preempted by the liability provisions within the Carmack Amendment. Id. at 505- 06.

The Court stated:

That the legislation supersedes all the regulations and policies of a particular state upon the same subject results from its general character . . . Almost every detail of the subject is covered so completely that there can be no rational doubt that Congress intended to take possession of the subject, and supersede all state regulation with reference to it. Id.

The result of Croninger has been uniformly followed throughout the Circuits. See Hughes v. United Van Lines, Inc., 829 F.2d 1407 (7th Cir. 1987) (causes of action for negligence, breach of insurance contract, breach of contract of carriage, conversion, intentional misrepresentation, negligent misrepresentation, and negligent infliction of emotional distress are all preempted by the Carmack Amendment); R.H. Fulton v. Chicago, Rock Island and Pacific Railroad Co., 481 F.2d 326 (8th Cir. 1973) (actions for failure to properly perform or negligence performance of an interstate contract for carriage is preempted by the Carmack Amendment); Schultz v. Auld, 848 F.2d 1497 (D. Idaho 1993) (causes of action for state consumer protection violations, negligence, breach of contract, intentional misrepresentation, fraud, and conversation are all preempted by the Carmack Amendment).

The Ninth Circuit has specifically stated that common law causes of action are preempted by the Carmack Amendment. Hughes Aircraft, 970 F.2d at 613. There, the contract called for the interstate transportation of household products and included a $.60 per pound limitation of liability. Hughes Aircraft, the shipper, argued that its state law claims for breach of contract and negligence were not preempted where the common carrier was operating on a contract basis. The Court, relying on its decision in Croninger stated that Hughes Aircraft's argument was "completely meritless" and ruled that the Carmack Amendment preempted all of Hughes Aircraft's state law causes of action. Id. at 613.

The purpose of the Carmack Amendment was to provide. . .a uniform system of carrier liability that would provide certainty to both carrier and shipper by enabling the carrier to asses its risk and predict its potential liability for damages. Pietro Culotta Grapes v. Southern Pacific Transportation, 917 F.Supp. 713, 716 (E. Dist. Cal. 1996).

In Pietro Culotta, the plaintiff attempted to assert fraud, misrepresentation and interference with economic advantage claims against a common carrier relating to services rendered under the Carmack Amendment. The court, in analyzing a motion for judgment on the pleadings, ruled that "plaintiff's state causes of action would be inconsistent with the uniformity goal of the Carmack Amendment. Id. at 716. Accordingly, the motion for judgment on the pleadings was granted. Id. at 717.

A Carrier May Require That Claims Be Made In Writing Within Nine Months

Given that the Carmack Amendment provides a shipper with the sole remedy for interstate moves, all conditions precedent to bring a civil action under the Carmack Amendment must be satisfied. In particular, a carrier may, by contract, require that a claim be made to it by a shipper within nine (9) months of the shipment and that a civil action be instituted within two (2) years after the denial of such a claim. 49 U.S.C. Section 14706(e). The nine (9) month limitation is a condition precedent to bringing a civil action. Consolidated Rail Corp. v. Primary Industries Corp., 868 F.Supp. 566, 577 (S. D. NY 1994). A cause of action will simply not accrue absent strict compliance with the claims limitation. Id.

The purpose of a claim period is to provide the carrier with knowledge that the shipper will be seeking reimbursement. Taisho Marine & Fire Insurance Co. v. Vessel Gladiolus, 762 F.2d 1364 (9th Cir. 1985). There, the court held that the carrier's actual knowledge of damage to the property did not negate the requirement that written notice be given within the nine (9) month period. The court granted the carrier's motion for summary judgment on the ground that the shipper did not comply with the requirement regarding timely notice. Id. at 1369. The main policy behind the nine (9) month claim period is to allow the carrier the chance to investigate the claim so as to protect its interest. Taisho, at 1368.

A Carrier Can Limit Its Liability

The Carmack Amendment also provides that a carrier may limit its liability "to a value established by written declaration of the shipper or by a written agreement." 49 U.S.C. §14706(f). In order to effectively limit its liability, the carrier must:

1. Maintain a tariff in compliance with the requirements of the Interstate Commerce Commission;
2. Give the shipper a reasonable opportunity to choose between two or more levels of liability;
3. Obtain the shipper's agreement as to his choice of carrier liability limit; and,
4. Issue a bill of lading prior to moving the shipment that reflects any such agreement.

Hughes Aircraft v. North American Van Lines, 970 F.2d 609, 611-612 (9th Cir

Although the filing of a tariff alone will not limit a carrier's liability, the above requirements are satisfied when a shipper is given a "reasonable opportunity" to accept or deny the carrier's proposed limitation. Hughes Aircraft, 970 F.2d at 612. A "reasonable opportunity" means that the shipper had both reasonable notice of the liability limitation and the opportunity to obtain information necessary to make a deliberate and informed choice. Id. In Schultz v. Auld, 848 F.Supp. 1497, 1505 (Idaho 1993), the court held that a signature on the contract evidencing an acknowledgment and receipt of the contract and its terms was sufficient evidence of a reasonable opportunity to select among liability limitations. Id. at 1505. In fact, one court has gone so far as to say that a signature on the bill of lading is not actually required in order to limit the shipper's liability, but the shipper's mere acceptance of the contract is sufficient. Johnson v. Bekins Van Lines Company, 808 F.Supp. 545, 548 (E.D. Tex. 1992).

Conclusion

Counsel representing interstate common carriers should immediately move to dismiss all state law claims at the outset of the litigation. This will typically result in the reduction of a shipper's available damages. Counsel should also analyze whether the shipper has complied with the nine month written claim requirement and whether the carrier has effectively limited its' liability. This may form the basis for an earlier motion for summary judgment or partial summary judgment providing the carrier with an expedient resolution to litigation.

Legal Representation

If you or your trucking company have questions about the Carmack Amendment and how it applies to your trucking company or current operations, the attorneys at the law firm of Bostwick & Price, P.C. are available to answer your questions and concerns. www.bostwickprice.com

By Max J. Starkie of Bostwick & Price, P.C.