We may finally have the answer. We may finally have the answer. At a minimum, we have a sound analysis from the U.S. Supreme Court of why Carmack doesn’t govern a surface carrier’s liability in an intermodal move undertaken per a through ocean bill of lading.
We thought we had the answer with the High Court’s 2004 decision in Norfolk Southern Railway Co. v. James N. Kirby, PTY Ltd., et al (“Kirby”), when the Big Nine essentially embraced containerism and the realities of modern day shipping. There, the law of the land was clarified to be what it really always was supposed to be: that the U.S. Carriage of Goods by Sea Act (“COGSA”) governs cargo liability in all aspects of predominantly ocean carriage transports, even if a loss occurs during a surface leg, when such hauls are governed by through ocean bills of lading that contain standard Himalaya Clauses. The Supreme Court went through an elaborate and pragmatic explanation of the virtues of uniformity in ocean shipping law; the advantages of a reliable and consistent legal landscape that doesn’t alter depending on the state a shipper’s stuff moves through; and how modern-day logistics programs empower shippers, intermediaries and carriers to protect their interests. The conclusion was that both industry and law are better off with law reflecting and complimenting contemporary industry practices.
Some of us thought the Kirby opinion was crystal clear in its delivery, enunciating jurisprudential rationale and considerations in ways that other courts could apply without difficulty. But that’s not the way it turned out. Kirby addressed a post-ocean carriage railroad cargo loss which didn’t involve interstate transit. Thus, the issue was whether COGSA took precedence over conflicting state law, a question easier to answer without upsetting precepts of Constitutional Law and federal preemption.
But in the years following Kirby, a series of similar cases across America demonstrated that the High Court’s pronouncements weren’t so easy to follow or interpret. Sure, COGSA preempts contrary state law in predominantly ocean transports subject to federal admiralty jurisdiction. But what happens when that salty leg is followed by interstate surface carriage, which would appear to be governed by a federal statute with equally forceful and public-policy driven goals of its own? The Carmack Amendment to the Interstate Commerce Act (“Carmack”) is designed to effect uniformity in interstate surface hauls. Just as COGSA contains terms specific to ocean transit, Carmack accommodates circumstances unique to motor and rail carriage. The bodies of case law, regs, evidentiary concepts, and industry application driving the two statutes have developed in ways unique to the side of the shore each operates on.
Those following cases, the first and most prominent of which was Sompo Japan Ins. Co. v. Norfolk Southern Ry. Co. (“Sompo Japan,” which actually was one of a pair of actions addressing the same circumstances), tackled the issue of whether COGSA trumped its brother federal statute, Carmack.
Many observers, this one included, believed that COGSA supremacy in predominantly ocean hauls was the Supreme Court’s clear intention in Kirby. That case primarily addressed admiralty jurisdiction, and was driven by public policy concerns. Its logic would apply equally (if not more so) to a COGSA-Carmack analysis as it did to one about COGSA and state law. The Kirby litigants even addressed Carmack in their briefs (uh, their written legal arguments). But various circuit Courts of Appeal didn’t see it that way, and limited Kirby to circumstances wherein ocean carriage was followed by a loss not implicating another federal statute’s dominion.
But with Kawasaki Kisen Kaisha Ltd., et al v. Regal Beloit Corp. (“Regal Beloit”), the High Court recently made its intentions clear, if for reasons only parallel to those stated in Kirby. The opinion reads more like a rebuttal to the Sompo Japan line of cases than an extension of Kirby, but the effect is the same: COGSA reigns supreme over Carmack in intermodal transports governed by a single through bill of lading.
Why? The court’s primary analysis is based on Carmack’s language itself. Practicality and industry reality points somewhat reminiscent of (though not nearly as compelling as) Kirby are peppered in the opinion. But the ink from Justice Kennedy’s pen in Regal Beloit is the cold blue of statutory analysis, in vivid contrast to the passionate red ink that depicted Justice O’Connor’s public policy concerns in Kirby. In Kirby, the Court asked, “What’s best for the transportation industry and the American public?” In Regal Beloit, the Court asked under what circumstances does Carmack even kick in?
Regal Beloit’s fact pattern is similar to Kirby’s and most other subsequent cases going every which way: overseas shipper engages ocean carrier for a through transport to an inland state; ocean leg goes fine; railroad loses or damages the load; dispute arises over whether state law or Carmack governs the ensuing claim. The biggest difference here was venue, as the through bills of lading ocean carrier Kawasaki Kisen Kaisha (“K Line”) issued contained a COGSA-blessed forum selection clause mandating that cargo suits be brought in Tokyo. K Line brought the cargo of electric motors safely from Shanghai to port in California, and properly transferred it to Union Pacific for onward carriage to Indianapolis. The UP train derailed in Oklahoma, and the shippers brought suit in California. After removing the action from state to federal court, K Line and the UP (both named as defendants) moved to dismiss based on the foreign jurisdiction clause. The Central District of California granted the motion, and the shippers appealed to the Ninth Circuit Court of Appeals.
The Ninth Circuit reversed, finding that Carmack governed the transport at the time of loss, such that K Line’s forum selection clause didn’t apply. (See May 2009 Legal Lookout article “Carmack governs ocean carrier’s liability: U.S. surface carriage liability law hits the high seas”). A dubious premise of this decision was that K Line had stepped into the shoes of a rail carrier when it essentially documented and ostensibly provided surface carriage transportation. Hmmm.
Recognizing a split in the circuits, much of it at odds with Kirby and essentially destroying the uniformity in international and interstate carriage law we so treasure, the Supreme Court granted cert. The decision reverses the Ninth Circuit and sends the dispute back down the hill.
In concluding that Carmack is not implicated in a through international move originating overseas in which a connecting railroad doesn’t issue its own bill of lading, the Justices observed that Carmack itself requires a “receiving” surface carrier to issue a bill of lading. The term “receiving” essentially means accepting tender from the shipper in interest. This fits with one of Carmack’s primary designs, i.e., to grant shippers the comfort of knowing one single rail or motor carrier is responsible for safe delivery of its stuff regardless of whether other carriers – called “delivering” or “connecting” carriers – do some or even all of the work. The Court considered earlier decisions holding that subsequent carriers aren’t even allowed to issue new bills of lading to the original shipper unless an entirely new shipment is contemplated. If the shipper, here one located overseas, doesn’t expect to receive, and really wouldn’t have any right to receive (based on the particulars of its relationship with the ocean carrier), a surface bill of lading, then Carmack never comes into play. COGSA governs from start to finish.
A supporting point is Carmack’s litigation venue provision, which holds that disputes over lost/damaged/delayed freight must be adjudicated “within a judicial district of the United States or in a State Court,” which would be the state of origin if freight isn’t delivered. In through ocean hauls, the freight doesn’t originate in a state, which would leave the shipper with no place to sue.
The controversy and differing perspectives on this issue are embodied in Regal Beloit’s three-Justice dissent, scribed by newcomer Justice Sotomayor. It’s compelling, well thought out (if lengthy, about half again as long as the majority opinion), and – misguided. Focusing on the manner in which 49 USC §11706(a)(3) defines Carmack’s applicability (i.e., to “another rail carrier over whose line or route the property is transported in the United States … under a through bill of lading”), the dissent concludes that “… Carmack thus announces an expansive intent to provide the liability regime for rail carriage of property within the United States.”
While the dissent agrees with the majority’s eye-rolling rejection of the Ninth Circuit’s conclusion that K Line was a rail carrier, it doesn’t agree with its treatment of “receiving carrier” as a Carmack-applicability threshold. Its thrust is in statutory autonomy, i.e., that Carmack’s apparent specificity to surface carriage should be respected. A good point, but it misses a couple critical considerations. The whole premise underlying Carmack, indeed the primary reason it was created, was to convenience shippers with rights against one originating carrier, so that it doesn’t have to chase connecting carriers all over the place to enforce their rights. Developing law and policy have empowered shippers and their transportation service providers to opt out of Carmack. One interpretation of the Kirby and the Regal Beloit decisions is that by booking with an ocean carrier which necessarily will engage surface carriers for ultimate delivery, and which issues through bill of lading, the parties are doing just that.
But perhaps the dissent’s biggest fault is that it ignores the realities of modern day shipping, such as its volumes, practices, and resulting constraints. The U.S. Supreme Court is primarily (though not exclusively) a court of public policy. A strict, statutory construction argument taking no consideration of how business most expediently gets done, and disregarding industry and, yes, legislative trends, doesn’t serve the public’s best interests. The majority considered the big picture; the dissent, for all its virtues, did not.
Did Senator Edward Carmack think all this through when he penned Carmack in 1906? Did Congress consider intermodal liability and venue issues, or anything approaching the Supreme Court’s analysis in Regal Beloit, in its amendments, re-writes and recodifications over the succeeding century? Certainly not. But that’s not to say contemporary law-makers and interpreters should view the world through a prism of early-twentieth century circumstances. The law should be as dynamic as industry and society. Regal Beloit and Kirby render the law more compatible with the international shipping industry, including the latter’s needs and expectations. Justice has been served in its broadest sense.
But where does this leave us? Is the story over and done with? Like most fields of law, transportation presents infinite potential factual circumstances whose different nuances often create radically different results as dictated by different-minded judges. Obviously, numerous jurists just don’t like the Supreme Court’s reasoning in Regal Beloit and Kirby. An oft-raised concern is that applying COGSA principles to surface mishaps doesn’t work, at least not in all contexts. For example, certain COGSA defenses (peril of the sea, error in navigation, etc.) don’t make sense when applied to a railroad. Regal Beloit was a venue case. Will lower federal courts find it applicable to a cargo loss case?
Absent comprehensive new legislation (which isn’t likely any time soon), the question of how final Regal Beloit’s pronouncement is will remain open. Notwithstanding the UP’s interests in this landmark decision, most surface carriers don’t like being subject to COGSA and itys unfamiliar ocean concepts. Congress also may not like the current state of affairs, especially when considering the impact of the comprehensive new ocean shipping liability regime the Rotterdam Rules would present (an issue the Supreme Court touches on in its recent decision).
At a minimum, the divergent reasoning in recent federal judicial decisions should be resolved by Regal Beloit’s new interpretative doctrine. Where the tides will take us over the long haul remains to be seen.
Ref: Kawasaki Kisen Kaisha Ltd., et al v. Regal Beloit Corp., et al, 130 S.Ct. 2433 (2010); Norfolk Southern Railway Co. v. James N. Kirby, PTY Ltd., et al, 543 U.S. 14, 125 S.Ct. 385 (2004); Sompo Japan Ins. Co. v. Norfolk Southern Ry. Co., 456 F.3d 54 (2nd Cir. 2006). For an in-depth analysis of Kirby, see Block “Carmack governs ocean carrier’s liability: U.S. surface carriage liability law hits the high seas, ” available at http://www.forwarderlaw.com/library/view.php?article_id=571; and Block, “Kirby’s wake? How the calm waters of ocean transportation intermediary and subcontractor liability suddenly became unpredictable,” available on forwarderlaw at http://www.forwarderlaw.com/library/view.php?article_id=519&highlight=kirby.
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