$1 trillion question
On March 24 the U.S. Supreme Court is scheduled to hear a pair of related cases that will consider what law applies when cargo is lost or damaged on the inland leg of international intermodal shipments.
(Kawasaki Kisen Kaisha Ltd., et al. v. Regal-Beloit Corp. and Union Pacific Railroad v. Regal-Beloit Corp. et al., No. 08-1553 & 08-1554.)
The cases have attracted wide interest. Friend of the court briefs were submitted by the U.S. Solicitor General, the World Shipping Council (WSC), Association of American Railroads, and the International Group of Protection and Indemnity Clubs, a group of 13 mutual insurers, all in support of 'K' Line and Union Pacific.
The broad interest may reflect the fact that intermodal shipments 'now account for more than $1 trillion each year in U.S. trade,' according to Union Pacific.
While the court addressed intermodal shipments in a 2004 decision, Norfolk Southern Railway Co. v. James N. Kirby Pty. Ltd., U.S. circuit courts have remained divided on what law governs them.
The Fourth, Sixth, Seventh, and 11th circuits have all held the Carmack Amendment to the Interstate Commerce Act does not apply to the inland leg of a multimodal shipment under a through bill of lading. Instead, B/Ls typically include clauses that specify the Carriage of Goods By Sea Act shall apply to the inland and ocean components of transportation. So COGSA liability limitations extend to railroads and truckers hired by ocean carriers to provide the land transportation portion of the move.
But the Ninth Circuit, in opinions that gave rise to the Regal-Beloit cases that will be heard on March 24, and the Second Circuit have both held that Carmack does apply in such cases.
'As in Kirby, the issue here is whether the carriers may enforce the terms of the maritime contracts to which the shippers agreed,' UP explained in its brief. 'The shippers argue, and the Ninth Circuit held, that the Carmack ' makes the forum selection clause they agreed to unenforceable.'
WSC said COGSA governing intermodal moves means a 'single and predictable liability rule covers the entire transportation contracted for by the ocean carrier, regardless of whether damage to the goods occurs on the ocean leg, on the inland leg, or at an undetermined point in the journey.'
Noting that most shipments are arranged under service contracts, WSC also said there is a practical reason for having terms of maritime contracts extend to inland legs of intermodal movements.
'Terms ' and particularly liability terms ' are not renegotiated with each shipment. This is a high-volume business, with over 50,000 shipping containers entering or leaving the U.S. every day. If each shipment were the subject of individual negotiation, the international intermodal transportation system simply could not handle that volume,' it said.
WSC complained the Ninth Circuit decision 'undermines comprehensive changes that Congress made in the 1980s and 1990s to the statutes that regulate international ocean shipping and domestic rail transportation.
'Allowing the decision below to stand would upset bargained-for expectations and could cause substantial disruptions in the way that international ocean transportation services are offered, priced and insured,' it said.
In the case here, Regal-Beloit Corp. and other shippers contracted with Japan's 'K' Line to transport goods from China through the Port of Long Beach, Calif., to destinations in the Midwest. 'K' Line carried the cargo by ship to California and subcontracted with UP to take the goods inland, but the cargo was damaged when UP's train derailed in Oklahoma.
The shippers filed suit in Los Angeles Superior Court. UP sought to transfer the case to New York, and when that was denied, UP and 'K' Line moved to dismiss the action based on a Tokyo forum selection clauses in the 'K' Line bills of lading. The district court granted the motion, saying that while Carmack generally applies to the domestic rail leg of an intermodal shipment, 'K' Line and UP had successfully 'opted out' of Carmack coverage under the Interstate Commerce Act.
The court of appeals reversed and remanded. It agreed UP's contract with 'K' Line contained a very different forum selection clause requiring all cargo actions to be brought in Omaha, Neb. UP, although a U.S. railroad, asserted the benefit of the forum selection clauses in the 'K' Line B/Ls and argued the dispute about a U.S. train derailment that occurred on a journey originating in greater Los Angeles should be resolved in Tokyo.
WSC said, 'many, although not all, of the Ninth Circuit's errors flow from its holding that 'K' Line is a 'rail carrier,'' providing common carrier railroad transportation for compensation.
The P&I Clubs said if the Ninth Circuit decision is allowed to stand, the lower court opinion in this case would also severely harm the uniformity sought by the United States while negotiating the United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea. The Rotterdam Rules are designed to govern multimodal contracts of carriage, including the inland U.S. portion.
Timing out
Here's another example of how a Carmack Amendment or Carriage of Goods By Sea Act decision can determine the outcome of litigation.
Riduco, a Colombian plastic and metal products manufacturer, bought a plastic injection machine from Best Used Machinery Co. The machine was shipped in multiple containers, and when a Norfolk Southern train derailed in Tennessee, one container sustained damage. Some contents were salvaged, and transported to Riduco.
The plaintiffs alleged claims against Maersk and Norfolk Southern for breach of contract and of duties under Carmack. (Riduco S.A. v. A.P. Moller, No. 08-C-3008, N.D. Illinois, 12/7/2009 Eastern Division)
Maersk and Norfolk Southern filed motions for summary judgment, arguing Carmack did not apply because the shipment was an international intermodal shipment covered by a 'through' bill of lading.
The plaintiffs did not dispute that a through B/L governed the shipment, but argued Carmack nevertheless applies here.
The issue was significant because if Carmack applied, a one-year time bar precluded plaintiffs' claims. By contrast, Carmack has a two-year statute of limitations.
The judge noted the Seventh Circuit, has taken the position that Carmack didn't apply under such circumstances. Since Riduco did not file its claims against Norfolk Southern within one year after Dec. 4, 2006, the claim was barred and NS's motion for summary judgment was granted.
