Court of Appeals Addresses Carmack Amendment

An informative case concerning those interested in the Carmack Amendment was recently decided. The case, Exel, Inc. v. Southern Refrigerated Transport, Inc., No. 14-3953 (6th Cir. 2015), involved three different parties – a broker, shipper, and carrier.

This decision is one in a series that have been recently decided around the issue of carrier liability of interstate shipments. Although this fact pattern is more complicated than most, it still involves a common situation where shipped goods were lost and the involved parties argue over whether their ambiguous contracts somehow limit or establish a liability amount.

The case contains a number of lessons that anybody in the trucking industry can learn. One of the most important lessons is that no matter how clear terms seem to parties prior to shipping, it is best to have those terms on paper in a way that complies with Carmack Amendment.  Seemingly, this is a lesson that is taught in every Carmack Amendment case, not just this one.

Background and Important Facts

The broker in this case arranged for the shipment of pharmaceuticals allegedly valued at over $8 million with a well known carrier. Prior to shipping, the companies entered in a Master Transportation Services Agreement (MTSA). That agreement set out the terms of the shipping contract, and had an ambiguous term of RVNX $2.40. In addition to this term and the MTSA, the parties also executed bills of lading, but the bills of lading did not limit liability.

At some point during the transportation, the goods were stolen. After the goods were stolen, the companies disputed about how much the carrier should be liable. The carrier argued that the term RVNX $2.40 meant “replacement value not to exceed $2.40 per pound” or a little more than $50,000 in this case. But the shipper claimed a loss of more than $8 million with the stolen goods.

Court Explains Role of Carmack Amendment

This case was interesting because the shipper assigned all of its claims to their broker, and the suit proceeded with the broker standing in the place of the shipper against the carrier. In the suit the broker sued on various state claims, and in the alternative for the Carmack Amendment to apply. The carrier fired back in the suit arguing that only the Carmack Amendment applied, and that their liability was limited under the MTSA and the term of RVNX $2.40.

In their opinion, the court put all of the parties in their proper place under the plain meaning of the Carmack Amendment. The court rule that the state claims were preempted by the Carmack Amendment, and did away with those claims. But the court also ruled against the carrier stating that a simple mention of RVNX $2.40 in a MTSA did not effectively limit liability under the Carmack Amendment. As we have consistently stated on this blog, there are specific steps that must be taken to actually and legally reduce liability under the Carmack Amendment.  In essence the court said that “an agreement between a carrier and broker that does not establish the shipper’s assent cannot set the carrier’s liability.”

This case illustrates how valuable it is for your company to have an intelligent legal partner helping you with your shipping business. At Anderson and Yamada, P.C. we work with trucking companies every day to ensure that all of their legal needs are met. Contact us so we can begin our relationship with your company too.

Carmack Amendment Lessons: Limiting Your Company’s Liability

A seemingly constant theme that enters the legal world of the Carmack Amendment is limiting liability of lost or damaged cargo. Of course this is an important aspect of trucking law because of the nature of the business. Trucking companies transport millions of dollars of cargo everyday, and if that cargo is lost or damaged, it is the trucking company that is responsible for replacing it.

The Carmack Amendment, without being modified, requires a carrier to basically insure the loss or damage of a shipper’s cargo in most instances. To make a case against a carrier a shipper must simply show three things:

  1. that the shipper delivers the goods to be transported free of damages;
  2. that the goods were damaged in some way prior to delivery; and,
  3. the amount of damages that the goods suffered.

Because the threshold for proving a case under the Carmack Amendment is so low, companies understandably seek to limit their liability on the goods they deliver as part of their business.

Federal Judge Rules on Limiting Liability

It is in this environment that a federal judge recently clarified the rules on limiting liability under the Carmack Amendment. The basic rules for limiting liability under the Carmack Amendment include the carrier offering the shipper an agreement that adheres to the following steps:

  • obtain an agreement from the shipper on a choice of the carrier’s liability;
  • give the shipper a choice between two or more levels of liability; and,
  • issue a receipt or a bill of lading to the shipper to memorialize the agreement modifying liability.

The case at issue here involved a shipper who on its face fulfilled all of these requirements. But the shipper still challenged whether the carrier should be liable for the goods that were lost.

Facts of this Case

This case, Choi v. ABF Freight System, Inc., Civ. No. 14-7458 (U.S. Dis. Ct. New Jersey 2015),  involved a shipper who contracted with a national company to have their household goods transported from Texas to New Jersey. En route to New Jersey the truck carrying the goods was in an accident that caused a fire that destroyed all of the goods on the trailer, including the shipper’s goods. The shipper made claims under the Carmack Amendment of more than $60,000 because all of their goods were lost.

Prior to shipping the goods the shipper and carrier entered into an agreement that limited the carrier’s liability to $7,500. The agreement also allowed the shipper to choose between other levels of liability, but chose the maximum of $7,500. The argument the shipper made in this case was that the carrier only offered one level of liability for catastrophic loss, even though there were a number of liability options for other types of loss.

The district judge did not agree with this argument. The ruling in this case was that more than one option was enough, and the carrier did not need to offer different levels of liability for different types of loss. This is another lesson for trucking companies as they seek to limit liability under the Carmack Amendment.

As we have discussed many times on this blog, it is important to have a trusted legal partner when it comes to navigating the ins and outs of the Carmack Amendment. At Anderson and Yamada, P.C., we pride ourselves in providing legal options and solutions to trucking companies regarding all aspects of the trucking industry. Contact us today so we can become partners with you and your company.

The Carmack Amendment and Forum Selection Clauses

A Texas Federal District Court recently ruled on forum selection clauses and the Carmack Amendment in Ledet v. Across USA Moving, Inc., No. 4:14-mc-1846 (S.D. Texas June 11, 2015). The court’s decision is another in a growing trend towards ignoring state forum selection clauses in favor of applying the Carmack Amendment’s forum selection clause. While not unanimous across the country, the trend is for forum selection clauses to yield to federal forums under the Carmack Amendment.

The case at issue involves a family who contracted with a moving and storage company to have their household goods, family furniture, and belongings shipped from Texas to Maryland. The family sued the company because of the job they did, and they brought the case in U.S. District Court for the Southern District of Texas, Houston Division. But the original contract to move the goods included a forum selection clause that would require any dispute between the shipper and carrier to be brought in Dallas County, Texas in a Texas state court. The carrier asked the U.S. District Court to dismiss for improper venue. But the court denied the motion.

Forum Selection Clauses: What Are They?

Contracts are notoriously full of legal information that is hard to understand. Among the many clauses that can be found in convoluted and unnecessarily complicated contracts are forum selection clauses. These particular clauses are not always complicated, and sometimes serve to benefit both a plaintiff and defendant in a case. But more often than not, they are simply an afterthought and included because no one customized the contract, since it may have been easier to just use a pad-contract without any changes.

Forum selection clauses announce where a lawsuit will be brought in the event of a dispute. Typically these clauses are binding, but they can be overturned in certain circumstances. The doctrine of forum non conveniens rules on whether a selection clause will be upheld. This doctrine establishes that the overriding questions for whether a forum selection clause will be upheld asks whether:

  • it is convenient for both parties and the court; And
  • if the interests of justice indicate that the case should be moved.

In the world of enforcing contract clauses, this standard is not terribly burdensome. It leaves a lot of discretion with a court to choose to enforce it or not. In the present case the court chose not to.

Jurisdictions Trending Towards Ignoring Forum Selection Clauses

In issuing its decision to not apply this forum selection clause, this District Court relied on several other courts’ opinions and the text of the Carmack Amendment. The actual text of the Carmack Amendment is very clear and states that an action under the Amendment can be brought in federal court where the carrier operates or where the alleged losses occurred. 49 U.S.C. § 14706(d)(1)-(2). Many courts have taken this language to mean that the Carmack Amendment overrides forum selection clause. Those courts include:

This decision is significant for trucking companies because it puts them and their customers on notice for how their contracts are to be drafted. When it comes to trucking contracts, the Carmack Amendment, and other trucking industry laws, we at Anderson and Yamada, P.C. are here to help. Contact us so we can serve you in all your company’s legal needs.

Waiving Carmack Remedies: A Federal Court Rules

A Federal District Court in Minnesota recently clarified when and how the Carmack Amendment applies in the face of arbitration agreements. The case, Federated Mutual Insurance Company v. Con-Way Freight, Inc., began in Texas where the shipper agreed to ship its cargo via a well known shipping company to Minnesota. As you would expect with a cargo claim case, the cargo was damaged sometime during transit. The insurance company that insured the cargo paid a claim of over $30,000 to the cargo’s owner, and then sought to be reimbursed by the trucking company under negligence and breach of contract claims.

This scenario plays itself out in the the trucking industry everyday, but there was an interesting twist in this particular case. In this case, both the insurance company and carrier were signatory members of the Arbitration Forums. Being a member of the Arbitration Forums requires that signatories forego the litigation process and submit claims on insured property to the Arbitration Forums where it is decided by an arbitrator. Thinking arbitration was where it should go to be compensated for its insurance claim, the insurance company submitted the claim to Arbitration Forums and won its case against the carrier. But after winning, the carrier refused to pay the award to the insurance company.

The shipping company refused to pay the insurance company because it felt that the arbitrator lacked the authority to decide the case. According to the shipping company, the Carmack Amendment precluded the arbitrator from making a decision, and the case should have been brought in federal court.

The Carmack Amendment and Arbitration

Every trucking company should know that the Carmack Amendment is the exclusive remedy for interstate-shipping contracts and property damage claims. But that exclusivity can be waived in certain circumstances. As the federal judge discussed in this case, the rights and remedies applicable in interstate-shipping cases can be waived,

If the shipper and carrier, in writing, expressly waive any or all rights and remedies under this part for the transportation covered by the contract, the transportation provided under the contract shall not be subject to the waived rights and remedies and may not be subsequently challenged on the ground that it violates the waived rights and remedies.

49 U.S.C. § 14101(b)(1) (emphasis added). So while a company can waive the applicability of the Carmack Amendment, the waiver must be in writing and it must be expressly waived.

In this case, the court explained how this works. The shipping company and insurance companies were both signatories to an arbitration agreement that was very general in nature. Their arbitration agreement simply required the parties to forego litigation in self-insured property subrogation claims, but did not mention the Carmack Amendment at all. The court explained that such a general waiver was not enough to erase the applicability of the Carmack Amendment. Any agreement must expressly mention that it is waiving Carmack Amendment claims to properly waive the applicability of the Carmack Amendment. As a result, the arbitration award was withdrawn by the court, and the case now has to proceed under the Carmack Amendment in federal court.

This case provides a good reminder to trucking companies how important the bills of lading and shipping contracts are, especially when the contracts involved have arbitration clauses that may or may not apply in all cases. At Anderson and Yamada, P.C. we focus our practice on these and similar issues that affect trucking companies. We can provide the guidance needed in all of your company’s shipping contracts. Contact us so we can serve you.

Federal District Court Clarifies Applicability of the Carmack Amendment

The recent case of Muzi v. North American Van Lines, No. 8:14CV267 (D. Court, D. Nebraska 2015) clarified how the Carmack Amendment applies to interstate cargo claims. In that case, the plaintiff contracted with the defendant to have her personal belongings transported from Alabama to Nebraska. It was a typical transaction where both parties agreed in the bill of lading that the total value of the property to be shipped was $125,000. Where the deal went south (as it traveled north) was the plaintiff’s claim that her property was damaged by water and mold, and that the defendants were responsible for the damages.

Believing that the defendants were responsible, the plaintiff sued to be compensated for the damages under the Carmack Amendment. As we have discussed on this blog, the Carmack Amendment 49 U.S.C. § 14706 is where all claims for damaged interstate cargo begin and end. But in this case, the plaintiff went beyond a simple Carmack Amendment complaint. They claimed that in addition to being liable for the damages, the trucking company was also liable under a Nebraska tort claim of bad faith for refusing to settle a case in connection with a policy of insurance, Neb. Rev. State. § 44-359. The defendants flinched at the second claim, and asked the court to dismiss it because the Carmack Amendment preempted, or prevented, the ability to file an additional, state-law claim.

In discussing the case, the court went over the general rules of the Carmack Amendment. The decision retraced the fact that the Carmack Amendment regulates liability of trucking companies for damaged interstate cargo. The decision also stated quite plainly that the Carmack Amendment does preempt state law claims – related to the damage of goods shipped interstate. At the same time, the court noted, state-law claims separate and distinct from the loss or damage to goods are not preempted and may be made alongside Carmack Amendment claims.

The primary issue, then, was whether the bill of lading agreement between the two parties constituted an additional insurance policy. If yes, then the state-law claim was properly made because the Carmack Amendment would not preempt it. The separate, state-law claim was for bad faith in refusing to settle an insurance claim. The Carmack Amendment would not preempt that claim because it does not deal with the transportation of goods or damage to them, but simply one side acting in bad faith and refusing to settle a claim. Since it still was not clear if the plaintiff had a separate insurance claim with the defendant, the court decided to not dismiss the claim, and let the parties continue to litigate the case on both claims.

Illustrated in this case is the fact that the Carmack Amendment is the lifeblood of interstate commerce claims involving trucking companies. Understanding it and knowing how it applies to your business is key. At Anderson and Yamada, P.C., we focus our practice on trucking law, and we know the ins and outs of the Carmack Amendment. Contact us so we can help you and your business stay on the road.