9th Circuit Court of Appeals: Limiting Liability Under the Carmack Amendment

As we have discussed numerous times on this blog, the Carmack Amendment is a vast, ever-expanding set of rules and regulations that regulates liability for interstate cargo transportation.

While one of the overall goals of the Carmack Amendment is to ensure there is a single set of rules trucking companies need to know to assess their liability, the actual state of the law is not that simple. The Carmack Amendment is federal law, its source being one text from 49 U.S.C. § 1706 et seq., but this federal law is interpreted in different ways by 94 district level trial courts following decisions by 13 courts of appeal.

The Supreme Court has rendered a number of decisions regarding the Carmack Amendment, but it could not possibly rule on every rule and interpretation of all the courts of appeal. So what we end up with is a host of different rules that need to be understood before any legal action is advanced or defended.

Limiting Liability According to the 9th Circuit Court of Appeals

The 9th Circuit Court of Appeals hands down decisions based in federal law for most of the Western United States, Hawaii, Alaska, Guam, and the Northern Mariana Islands. And there is a specific set of rules emanating from the 9th Circuit when it comes to limiting liability under the Carmack Amendment.

The 9th Circuit Court of Appeals first handed down their rules on limiting liability under the Carmack Amendment in 1992, in a case known as Hughes v. North American Van Lines, 970 F. 2d 609 (9th Cir. 1992). A set of rules was needed because under the provisions of the Carmack Amendment a carrier is liable for the full cost of a shipment unless both parties agree in advance that liability will be reduced. In the framework laid out by the 9th Circuit, to limit liability, a carrier had to complete four steps:

  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.
  4. Issue a bill of lading prior to moving the shipment that included the terms of the modified agreement.

Each of these rules had their own nuances, but represented the basic steps that a carrier had to follow to limit liability under the Carmack Amendment.

This test, known as the Hughes test, remained law until 2011 when the 9th Circuit changed it somewhat. In the case of One Beacon Ins. Co. v. Haas Industries, Inc., 634 F. 3d 1092 (9th Cir. 2011), the court held that all of the steps recognized in the Hughes test remained valid, save one. The step they replaced was the first, and instead of maintaining a tariff in compliance with the ICC, a carrier must now, at the request of the shipper, provide the shipper with a list of the rates, classifications, rules, and practices that forms the base of the rate the carrier is charging the shipper.

Staying Up-to-Date with the Carmack Amendment

As you can see, the law concerning the Carmack Amendment not only changes, but is subject to the interpretations of all the courts through which your company operates. That is why your company can benefit from a law firm that is dedicated to understanding and keeping up-to-date on all the developments in truck law. That is what our practice is dedicated to at Anderson and Yamada, P.C. Contact us so we can serve you and your company.

Containers, Vaults or Pods and Household Goods Regulation in Oregon

The Oregon Department of Transportation (“ODOT”) has made a 180 degree reversal of its heretofore position to regulate Household Goods (“HHG”) transported in containers that are loaded by the customers.  Effective immediately, ODOT is not going to regulate the rates or rules of carriers transporting HHG in containers loaded by the customer.  This came as a complete surprise.

The email we received from ODOT stated its new position as follows:

RE:  Containers, Vaults or Pods and Household Goods Regulation in Oregon

ODOT has recently received revised direction from the Oregon Department of Justice (DOJ) which now concludes that the transportation of household goods loaded in containers by someone other than the motor carrier does not constitute household goods transportation and is no longer subject to ODOT Economic Regulation.

The revised DOJ advice effectively reverses current practice.  Up until this time Oregon held the position that these moves were under the umbrella of household goods regulation.  DOJ last reviewed this decision in 2004.  Significant change has occurred between 2004 and 2013 with regard to economic regulation of household goods carriage.  In particular, the 2009 Oregon Legislature (House Bill 2817) effectively eliminated the entry hurdle for new applicants for household goods carriage authority. In reaching the current decision DOJ considered the fact that HB 2817 effectively eliminated the economic value of HHG authority on a motor carrier balance sheet.

Oregon’s position has historically differed from the Federal Motor Carrier Safety Administration (FMCSA) interpretation whose definition excludes containers.  Specifically, the definition in Part 375.103 states, “household goods motor carrier (3) The term does not include any motor carrier providing transportation of household goods in containers or trailers that are entirely loaded and unloaded by an individual other than an employee or agent of the motor carrier.”   The differences, between the FMCSA and Oregon’s interpretations, were  confusing to the customers and to the Industry.  This change will streamline regulation by making it simpler, speedier and less expensive for motor carriers transporting containers in Oregon. Therefore, going forward it is the position of ODOT that the movement of pods with household goods does not constitute household goods transportation. This direction is consistent with the position of FMCSA and a number of other states that have also reviewed this question.

What does this mean to your company?   If your company does not provide for the loading and unloading of containers, you no longer require Oregon Household Goods Authority or Rate Regulation (tariffs).  Existing tariffs for the transportation of household goods loaded in containers will become moot.  Currently pending reviews of tariffs for the transportation of household goods loaded in containers will be suspended and not processed.

Cargo Loss and Damage Claims: Cases of Interest

Kevin and I recently attended the semi-annual meeting of a relatively small group of transportation attorneys who specialize in freight loss and damage claims.   At the meetings, specific, recently decided legal decisions are summarized by a designated presenter, which then is followed by a group discussion.  Below is a summary of the cases we discussed that should be of interest to you:

1. Fireman’s Fund v Reckart Logistics dealt with identity theft. In that case Alliant (the shipper) sued Reckart (the broker), S&G (the carrier whose identity was stolen), Mr. Bult’s (the real carrier) and Fore (the cross-docker).  Alliant hired Reckart to broker the shipment. Reckart posted the shipment on a load board and was contacted by “S&G” and, at the same time, “Sam” contacted Mr. Bult and hired it to transport the shipment. When Mr. Bult arrived at the origin the driver was told to take the shipment to Chicago rather than St. Louis. Mr. Bult delivered the shipment of Fore Transportation who cross-docked it and turned it over to another carrier.  The shipment was never seen again.

Fireman’s Fund insured Alliant, paid the claim and then sued Reckart, S&G and Mr. Bult for negligence, breach of bailment and Carmack liability.  Reckart Settled. S&G argued that it was the victim of identity theft. And Mr. Bult argued that it was not liable under Carmack because the theft constituted an “act of the public enemy” and, further, that it was entitled to contribution from Fore.at the origin the driver was told to take the shipment to Chicago rather than St. Louis. Mr. Bult delivered the shipment of Fore Transportation who cross-docked it and turned it over to another carrier.  The shipment was never seen again.

The court was sympathetic to S&G and dismissed the claim against S&G because of its identity theft. [Query:  Does this mean that a motor carrier has no obligation to protect its identity? I suspect that this defense will not always work and, accordingly, carriers need to take steps to protect their identity.]

The court held that Carmack applied and that theft did not constitute an “act of the public enemy.” Thus, since Mr. Bult failed to prove that it was free from negligence it was liable.  Further, Mr. Bult had no claim against Fore since Fore was not a carrier with respect to the shipment.

2.  When does “delivery” occur was the issue in Merchants Terminal Corp. v L&O Transport where a shipment of wild salmon was stolen.   L&O picked up a loaded container  and transported it to Merchants’ facility in Delaware where it was unloaded. The next day L&O picked up the empty container and used it to transport the shipment of salmon to Merchants’ facility in Maryland. L&O delivered the loaded container to Merchants’ Maryland facility before it was open. L&O’s driver placed an L&O kingpin lock on the container and left, intending to return when the facility was open. Upon returning it was discovered that the container had been stolen.

The court denied L&O’s Motion for Summary Judgment (essentially meaning that the case had to go to trial). L&O argued that it was not liable because it had delivered the container containing the shipment of salmon. The court disagreed, stating that by placing L&O’s own kingpin lock on the container L&O retained exclusive control over the shipment and, as such, delivery had not been made. The court also ruled that Merchants had the right to bring the claim even though it was not named on the bill of lading as either the shipper or owner of the salmon. Unfortunately for L&O, there was a question of fact whether the person who had signed the equipment lease with the driver had the authority to do so.

3.  The nine month claim filing requirement and the 2 years and one 1 day lawsuit filing requirement were dealt with in 5K Logistics, Inc. v Dailey Express, Inc.  The key holdings in that case were that (a) the nine month minimum claim filing requirement and the 2 years and 1 day lawsuit filing requirement are minimums that must be elected by a carrier to apply and the only way they can be elected is to incorporate them into your bill of lading and/or (preferably both) your rules tariff (aka pricing guide or whatever you chose to call it) and (b) the specific time limitations can be negotiated and agreed upon in a transportation contract.  If these minimum time periods are not made a part of the applicable bill of lading, rules tariff or pricing agreement, then the applicable limitation period under state law applies. In Oregon, that means that a six year statute of limitation would apply.

4.  The importance of clear and comprehensible language in a carrier’s documents, in this case the carrier’s Rules Tariff, was highlighted in Dan Zabel Trading Co. v Saia Motor Freight Line.  As discussed in prior articles, in order to limit its liability a carrier must meet the 4-part “Hughes test” that requires the carrier to (a) maintain a tariff in compliance with the requirement of the ICC [obviously, this requirement no long exists] (b) offer the shipper a reasonable opportunity to choose between two or more levels of liability, (c)  obtain the shipper’s agreement as to its choice of carrier liability limit and (d) issue a bill of lading prior to moving the shipment that reflects any such agreement.

The court found that Saia met the requirements except for the third, stating that Saia did not effectively communicate to Zabel that its liability was limited to $1 per pound. The court looked a Saia’s tariff item in this regard and found it “incomprehensible, internally inconsistent and incoherent.”  This emphasizes the importance for carriers to have multiple parties in their organization, their tariff advisors or their legal counsel, review these critically important documents before publishing them.

5.  The scope of federal preemption under 49 USC 14501 continues to expand. As you know, the Port of LA case found many provisions sought to be imposed against drayage carriers were federally preempted. On the heels of that case the U.S. District Court for the Southern District of California held that California’s state “meal and rest break” law related to carriers’ services and therefore was preempted by 49 USC 14501.  That statute preempts any state or local law that affects a carrier’s rates, routes or services.

Limitations of Liability Under Carmack

It is critical for a carrier to know how to limit its liability under the Carmack Amendment, 49 USC 14706. The Carmack Amendment imposes substantial liability on a carrier for freight loss and damage. A carrier is liable for the “actual loss or injury to the property” except where the loss or damage is caused by (1) the act of God, (2) the public enemy, (3) the public authority, (4) the act or default of the shipper or (5) the inherent vice or nature of the property. In addition, the carrier must establish that it was free from negligence.

A carrier’s liability under the Carmack Amendment bears no relationship to the freight charges it earns. Carriers frequently are liable for damages far exceeding their charges. It is not unusual for a carrier to be liable for well over $50,000 in damages where it earned less than $2000-$3000 in freight charges. However, a carrier can control this risk by limiting its liability.

In order for a carrier to limit its liability by using released rates under the Carmack Amendment, the courts apply a four-part test. The carrier must show that it:

  1. Maintained an approved tariff on file with the ICC;
  2. obtained the shippers’ (written) agreement of his choice of liability;
  3. gave the shipper a reasonable (fair) opportunity to choose between two or more levels of liability; and
  4. issued a receipt or bill of lading prior to moving the shipment.

Since the ICC no longer exists and tariffs are no longer filed, the first requirement is moot. However, the remaining three requirements must be met. The carrier must give the shipper a choice of at least two different rates and levels of liability, but the carrier is not required to offer a full value choice; the shipper must be allowed to choose, preferably in writing, which level of liability it wants; and the carrier must issue a bill of lading before transporting the shipment.

The best way for a single line carrier to meet these requirements is for the carrier’s bill of lading to provide on its face (in red or otherwise in bold print) the limits of the carrier’s liability and giving the shipper the opportunity to declare a value and obtain a higher limitation by paying an additional charge, subject to a maximum level of liability. This method requires the carrier to issue a bill of lading in each instance, which is problematic since shippers frequently prepare the bills of lading.

To avoid the shipper prepared bill of lading problem, the carrier should have a rules tariff which sets out its limitations and the options given to shippers. In addition, the rules tariff needs to state that all service provided by the carrier is subject to the rules regardless what the shipper-prepared bill of lading states. This should be posted on the carrier’s website. In addition, the carrier should prepare  and obtain a pricing agreement or a written understanding of the limitations signed by the shipper.

This is a very heavily litigated issue, and it is easy to understand why. In many cases the shipper claims hundreds of thousands of dollars in damages, but the carrier says its liability is limited to only several thousand of dollars. Shippers, and in many cases their subrogated insurers, are not going to go away without a fight, so carriers must do it right. The common argument made by shippers in attacking released rate limitations is that the shipper was unaware of the limitation because the carrier never mentioned it. Carriers need to avoid this defense by being open and up front with shippers when soliciting their freight.  Only by doing it right will carriers limit and know the risk they are assuming when they agree to transport a shipment.

Take Care of Business in 2011

Welcome to the New Year!  2011 promises to be challenging for the transportation industry with the implementation of CSA and proposed changes to the HOS regulations leading the way, compounded by an uncertain economy. However, with challenges come opportunities. The opportunities are dependent on taking care of the details of your business. Surely, you already have spent considerable time in learning the new CSA system and its requirements and are trying to digest the HOS proposal. You have to take care of these details because failure to do so can result in the government shutting down your business.

Unlike the “hard” details imposed by new laws and regulations, general business details are “soft” in that they are not government mandated. Nevertheless, ignoring general business details also can lead to the demise of your business by exposing it to liabilities that lead to a financial crisis. By general business details, we mean the practices and procedures that you follow in your day-to-day operations. As discussed previously, it is alarming to see how loosely many carriers, brokers and other transportation providers conduct business.

Every business operates on contracts, that is, the business agrees to provide a product or service to a customer in return for payment of (hopefully) an agreed upon amount. However, all too frequently the terms of these contracts are verbal and, even if written, do not cover critical issues. For example, a carrier may agree with a shipper to transport a shipment from point A to point B for X dollars. That is a contract, and it may suffice if everything goes as planned. However, what if things do not go as planned? What if the shipment is destroyed en route?  What if the carrier has $100,000 in cargo insurance but the shipper claims the shipment was worth $200,000? What if the carrier says in its rules tariff that its liability is limited to $100,000 but the shipper says that limitation of liability is invalid? The “what ifs” are numerous, but they are all details that a prudent business attempts to address in its contracts before the problem comes up.

Lawyers are trained to look for the “what ifs” and, because of that, are often labeled doomsayers. That is true, but the lawyers goal is identify where things might go wrong and to protect the client if that situation arises.

What are the terms and conditions under which you provide service?  The Interstate Commerce Act, U.S.C. Title 49, provides some default terms and conditions, but they may be unacceptable, and they do not cover everything.  However, you can cover everything with a comprehensive ongoing contract executed with your customer. Alternatively, you can set forth your terms and conditions of providing service in a “rules tariff” and then incorporate your rules tariff  by reference into your bill of lading or load confirmation. Alternatively, your bill of lading or load confirmation can spell out all of your terms and conditions on its face. Those are all possibilities for taking care of the details of conducting business. Unfortunately, these details frequently are ignored.

Recently we were involved in a situation where a shipper decided to take care of business details by preparing its own preprinted shipper’s bill of lading. Alas, the shipper “borrowed” a form it picked up somewhere and figured it would work for its operation. The shipper failed to read over the bill of lading in detail. If it had, it would have noticed that the bill of lading incorporated “the rates, classifications and rules that have been established by the carrier …” Because of this language, the shipper unwittingly incorporated the carrier’s rules tariff, which contained a proper limitation of liability. In this case, the carrier benefited since it had taken care of business by preparing a rules tariff, which set forth a valid limitation of liability. (A carrier cannot just declare a limitation of liability, but must meet four specific requirements in order for it to be valid, including offering the shipper a choice of rates with different levels of liability. We will discuss in our next newsletter.)

The goal of our newsletter is to respond to questions and issues that arise in your operations that are of interest to the  industry  in general so that you can better identify the details, the “what ifs,” that you need to deal to succeed.  Submit your questions and scenarios simply by replying.