Hot Recent Cases in Motor Carrier Law - March 2008

by Steven W. Block  
 
Transportation brokers aren’t liable under Carmack, but that’s not enough to defeat an amended complaint on its face.
Electroplated Metal Solutions, Inc. v. American Services, Inc., et al, 2008 WL 345617 (N.D. Ill. 2008)

Shipper Electroplated Metal Solutions (EMS) engaged Two Brothers Trucking to arrange transport of industrial machinery from California to Illinois. Two Brothers, primarily a carrier but also a transportation broker, placed the freight with a couple carriers. EMS’ freight arrived damaged, and the shipper sued all concerned in the U.S. District Court for the Northern District of Illinois.

EMS’ complaint alleged Carmack liability, a theory that fails against brokers. Carmack only holds the feet of freight forwarders and carrier to the fire of cargo liability. Thus, Two Brothers successfully moved to dismiss the complaint.

Of course, the dismissal prompted EMS to move to amend its complaint to state proper causes of action, relief federal courts grant liberally. Two Brothers opposed that motion, again pointing to Carmack’s lack of any basis to hold brokers liable for cargo damage. Moreover, asserted Two Brothers, any state law claims EMS had against the broker are preempted by, well, Carmack.

The court rejected that argument. Just because Carmack doesn’t concern itself with broker liability, doesn’t mean there can’t ever be any. In fact, the absence of attention to brokers in Carmack means Congress wanted state law to govern their liability, which is exactly what courts across the land have been ruling for years. Whether or not Two Brothers did its job right is a question of fact not properly addressed on a motion to amend a complaint. Two Brothers is back in court.

Balancing the equities: a shipper and intermediary avoid double payment of freight charges.
Marx Transport, Inc. v. Air Express International Corp., et al, 2008 WL 509776 (Ill.App. 1 Dist. 2008)

Here’s a twist on the old carrier-seeks-payment-from-shipper-after-broker-collects-and-defaults scenario. Two middlemen – North American Expediting and Danzas – and trucker Marx Transport carrier had been in the practice of billing and collecting only from the former. When North American went belly up (rendering Marx’ default judgment against it useless), the carrier turned to Danzas and shipper Corning with opened palms. The whole mess went to an Illinois court that promptly threw out Marx’s claims.

The defendants first urged they had no agreement with Marx, as North American hired the trucker. Marx had issued what purported to be bills of lading. The trial court found the documents too ambiguous to be enforceable bills of lading, and dismissed Marx’ claim partially on that basis. Marx sent the matter up to the Illinois Court of Appeals.

The higher court disagreed. The bills of lading contained all the basics required by law. However, an effective bill of lading doesn’t necessarily show who has to pay. “Put simply, a shipper will be liable to a contract carrier if it agreed to pay the carrier.” Moreover, “[t]he parties to a shipping agreement are free to contract when and who will pay the freight charges.”

So what’s a court to do? Somewhere, an innocent player will get screwed, either by having to pay twice or not collecting charges for services provided. Recognizing that decisions have gone in different directions on this issue – often for the same reasons – this court looked at the parties’ history and interaction with each other. Affirming the trial court’s conclusion (and dismissing Marx’ claims), the court noted that Marx didn’t actually contract with either the shipper or Danzas; didn’t document who would paid freight charges; never submitted previous invoices (for similar shipments) to either remaining defendant; and apparently expected to be paid only by North American. 
 

But going the other way, a shipper and broker are jointly and severally liable for unpaid freight charges in a complex maze of contracts and bills of lading.
Oak Harbor Freight Lines, Inc. v. Sears Roebuck & Co., et al, 513 F.3d 949 (9th Cir. 2008) 

This Ninth Circuit decision apparently caps off years of litigation between Carrier Oak Harbor Freight Lines, broker National Logistics Corporation (“NLC”), and consignee Sears Roebuck (that received regular deliveries from its suppliers). The long-term, volume intensive arrangement was based on a contract between Oak Harbor and NLC, outbound bills of lading issued by Sears, and return shipment bills of lading issued by Oak Harbor. Sears tendered freight charge payments to NLC, which passed them along (minus its fees) to the carrier. When Sears fired NLC, the arrangement unraveled.

Oak Harbor wasn’t paid some 426 grand in freight charges, and sued NLC and Sears in the Western District of Washington. The trial court found NLC and Sears jointly and severally liable for the unpaid freight, and appeal to the Ninth Circuit followed.

The Court of Appeals, affirming the district court’s summary judgment order, found significant Sears’ concession that it drafted its bill of lading to conform with industry standards, part of which contemplates shippers being ultimately liable for unpaid freight charges. Moreover, Sears could have protected itself by including in its bill of lading a “nonrecourse clause.” NLC’s contract with Oak Harbor provided that NLC would be liable for unpaid freight charges, but didn’t say Sears wouldn’t be liable. A contract does not render the bills of lading unenforceable despite precedents that would so provide if there were irreconcilable differences between the two. Lastly, equitable estoppel didn’t save innocent consignee Sears from double liability. Again, it knew or should’ve known what it was doing, and had means to protect itself. 
 

A shipper’s Carmack claim is tossed out on summary judgment, or why cargo claimants need lawyers.
Fraser-Nash v. Atlas Van Lines, Inc., 2008 WL 346381 (S.D. Tex. 2008)

Household goods shipper Fraser-Nash engaged carrier Atlas Van Lines to haul her stuff from Texas to Tennessee. She claims Atlas damaged and lost her belongings en route, and sued in Texas state court for some 71 grand in damages.

Atlas removed the action to the U.S. District Court for the Southern District of Texas, and it appears Ms. Fraser-Nash, who represented herself in proceedings, somehow learned about the Carmack Amendment. The only problem was that she either had no evidence, or didn’t know how to show it to the court.

When Atlas moved for summary judgment, the court went through the elements of a Carmack claim, and the shipper failed each time. First, she couldn’t show her cargo was tendered in good order and condition. The Fifth Circuit has held that a bill of lading stating “apparent good order,” like Atlas’ did, is not sufficient proof of good condition when the shipper packs her own freight in packaged the carrier couldn’t inspect. In fact, some of this shipper’s freight had been stored in a bin four years before Atlas touched it. Fraser-Nash claimed most of her stuff was brand new, but provided no proof of that.

Second, Fraser-Nash also had no proof that some of her freight was lost, as she presented no evidence of inventory or otherwise to demonstrate just what was missing. In fact she hadn’t even opened all the delivered boxes to see what had been delivered.

Third, she had no proof of damages. Fraser-Nash didn’t name an expert or provide admissible evidence of any damaged items. You’ve gotta do better than that, and having a lawyer would be a great start. 
 

A carrier’s limitation of liability defense fails on summary judgment: why carriers should make sure they issue proper documentation before the shipment.
Mid-American Energy Co. v. Start Enterprises, Inc., 2008 WL 391239 (S.D. Iowa 2008)

Carrier Start had hauled shipper Mid-American Energy’s freight for some time. In this instance, Mid-American tendered to Start a cargo of expensive computer equipment for shipment from Nebraska to Iowa. Apparently, a Start employee dropped the computer, didn’t tell Mid-American’s rep about it, and had him sign a bill of lading attesting to no damage. He signed the form in spaces for both point of origin and destination, and didn’t read it before affixing his John Hancocks. No bill had been given to the shipper at time of tender.

When Mid-American discovered the damage, it sought damages from the carrier, and the two wound up in the Southern District of Iowa. Start wasted no time pointing to the limitation of liability clause in its bill of lading, the same one neatly signed in two places by Mid-American’s unwitting rep.

The court analyzed each of those hoops a carrier must jump through to limit its liability. A couple such obstacles tripped the carrier up, i.e., the ones that say you have to issue a bill of lading at the time of shipment, and reasonably offer the shipper an option to purchase full liability. Having failed to do the former, Start couldn’t realistically argue it had done the latter. Mid-American’s signatures don’t cut it under the circumstances, because they indisputably came after the fact. 

Underpayment claim tossed out based on res judicata.
H&H Brokerage, Inc. v. JR Simplot Co., Inc., 2008 WL 394998 (E.D. Ark. 2008)

This decision contains an interesting procedural analysis resulting in summary judgment dismissal of a transportation broker’s claims against a shipper based on the doctrine of res judicata. The relationship between a transportation broker and motor carrier – owned and operated by the same principals per a fairly typical transportation business structure – resulted in legal presumptions against the common interest.

Transportation broker H&H Brokerage and motor carrier H&H Transportation were sister companies. H&H Brokerage had a contract with shipper JR Simplot, for which H&H Transportation handled most shipments. When business slowed, JR Simplot entered into a new contract directly with H&H Transportation. Under the new agreement, JR Simplot agreed to pay freight charges pursuant to a rate sheet.

JR Simplot filed a lawsuit in the federal court for the District of Idaho in September 2005 against H&H Transportation seeking recovery for damaged freight. H&H Transportation counterclaimed for underpayment of certain charges under the second agreement. Apparently, the jury sided with H&H Transportation, and awarded it the underpaid freight charges.

Fast forward a couple of years, and H&H Brokerage sued JR Simplot in the Eastern District of Arkansas for allegedly unpaid freight charges. Going through a complex analysis of res judicata, collateral estoppel, and issue preclusion, the court ruled that H&H Brokerage’s claims were compulsory counterclaims that H&H Transportation failed to interpose as part of its counterclaim in the Idaho action, and therefore were barred in Arkansas. The two companies are in privity – very close privity at that – and conducted business essentially as one entity.

If this decision isn’t disturbed on appeal, it could create interesting issues for transportation companies who offer brokerage and carriage services under separate legal entities.