Hot Recent Cases in Motor Carrier Law - September 2009

by Steven W. Block

The Garden State applies substantial compliance test to requirement of written notice of claim.
Foam Fair Industries, Inc. v. J.K. Hackl Transportation Services, Inc., et al, 2009 WL 2778446 (D.N.J. 2009)

Shipper Foam Fair purchased some industrial equipment from California-based Advanced Materials, which hired a rigging outfit to facilitate transport of the equipment to New Jersey.  It hired motor carrier J.K. Hackl to make the haul.  The freight arrived damaged.

Foam Fair immediately commenced discussions with Hackl’s driver.  Hackl turned the claim over to its insurer, which also had discussions with the shipper.  The insurer asked Foam Fair to write up a description of the damaged property and an estimate for repairs.  It did so, but that was the only writing the shipper ever issued.  The nine-month period Carmack blesses for shippers to give written notice of claim expired, and Hackl moved to dismiss Foam Fair’s subsequent lawsuit (initiated when the carrier and insurer decided not to pay) on that basis.

Following the Ninth Circuit’s lead, and noting that Third Circuit precedents have never required strict compliance with written notice of claim provisions, the District of New Jersey ruled that the writing Foam Fair issued to the carrier’s insurer regarding the extent of its damages, when viewed contextually, satisfied its obligation to put the carrier on timely notice of claim.  True, that document didn’t expressly state that the shipper intended to hold Hackl liable for its loss, and didn’t state a specific demanded sum.  However, the history of circumstances and verbal discussions forced the court to conclude Hackl must have known what Foam Fair was after.  Equitable estoppel arguments, i.e., that the carrier and insurer improperly led the shipper on to expect a forthcoming settlement, were also persuasive.

Former motor carrier (now broker) isn’t liable for lost cargo it never had.
Air Express International USA, Inc. v. FFE Transportation Services, Inc., et al, 2009 WL 2407957 (C.D. Cal. 2009)

Here’s a nice, short precedent you can tuck away for future reference regarding trucking intermediary liability.  Basically, under state and federal (Carmack) law, an entity that never touched a load cannot be liable in indemnity for lost freight.

American Spirit, LLC used to operate as a motor carrier, but stopped.  Apparently, it continued to operate as an intermediary – probably a broker – and was included in a daisy chain of players engaged to haul a cargo of frozen shrimp from Illinois to California.  The seafood never arrived, prompting a lawsuit that involved three transportation companies, including American Spirit.

On summary judgment, no evidence suggested that American Spirit ever touched the stuff.  Carmack is designed to allow shippers to recover the value of lost/damaged cargo from the one carrier or forwarder it contracted with, and force the latter to seek indemnity from any connecting carrier(s) who actually were in possession of the freight when it was lost or damaged.  California state law provides equitable indemnity causes of action to the same effect (although query why any such state law wouldn’t be preempted).

However, to seek indemnity from a connecting carrier, a forwarder or carrier that bears primary liability to a shipper has to show the putative indemnitor actually had possession of the freight.  Here, there was no such showing against American Spirit, so all claims against it were dismissed.

However,

Merely engaging another carrier to make a haul doesn’t defeat Carmack’s applicability.
AIOI Insurance Co. v. Timely Integrated, Inc., 2009 WL 2474072 (SDNY 2009)

Shipper Yazaki North America engaged motor carrier – that’s right motor carrier – Timely Integrated to haul a load of automobile parts from Arizona to Illinois.  It actually entered into a “motor carrier” agreement with Timely, and received a bill of lading from Timely naming itself as the carrier of record.

Unbeknownst to Yazaki, Timely “brokered” the load to another carrier, Lucky 7, whose truck, notwithstanding its cute namesake, flipped over en route.  The cargo was damaged, Yazaki collected insurance proceeds, and the subrogated insurer sued Timely to recoup its payout.

Timely tried to evade liability, as well as Carmack’s very purpose, by arguing that, hey, we weren’t a motor carrier here.  We didn’t carry Yazaki’s stuff.  All we did was agree to provide “transportation services,” which we did.  That was true indeed as a matter of operational practice, but not as a matter of law.  The Southern District of New York saw right through it.

The court correctly found that both Timely and Lucky 7 are carriers.  Actually, “arranging for transportation by other entities” falls within Carmack’s definition of a motor carrier when an entity holds itself out and conducts itself as a trucker.  Any other conclusion would defeat the very purpose of Carmack.  Presumably, Timely could seek indemnity from Lucky 7 if the latter truly is at fault.

But back to frozen shrimp …

Carmack doesn’t apply, but a court reaches same result.
Fireman’s Fund Insurance Co. v. ATS Logistics Services, Inc., 2009 WL 2369912 (S.D. Tex 2009)

It’s a little off kilter at points, but this case informatively reaches the same results in a non-Carmack cargo claim as it would have had the usual statutory liability regime applied.

Shipper Expack hired transportation service provider ATS to arrange an interstate shipment of a cargo of frozen shrimp, which is Carmack exempt.  Through some mix up between motor carrier Famco, the consignee and a storage unit, the cargo’s quality was diminished.  Expack collected on a Fireman’s Fund insurance policy, and the insurer sued ATS in subrogation in the Southern District of Texas.  Both moved for summary judgment.

Fireman’s Fund threw the proverbial kitchen sink at ATS and lost on every turn.  No, a bailment was not created, as ATS never had the freight in its possession.  No, ATS isn’t a freight forwarder, as no evidence suggested it was.  No, ATS wasn’t negligent, as no evidence suggested Famco was an incapable or otherwise improper carrier, so ATS didn’t breach any duty to Expack.  And no, ATS didn’t breach any contract with Expack, as the bill of lading only mandates safe carriage to destination, which in fact happened (actually, here’s where the court may have gotten misdirected, as it concluded that the consignee issued the bill of lading, which wouldn’t be legally recognized).

ATS, on the other hand, succeeded in showing that it couldn’t be liable because, hey, it wasn’t a carrier.  End of story.

Here we go again: more state and common law . . .

A broker is potentially liable on state/common law counts for picking uninsured carrier.
Huntington Operating Corp. v. Sybonney Express, Inc., et al, 2009 WL 2423860 (S.D. Tex 2009)

Shipper Huntington engaged transportation broker Custom to arrange transit of a load of perfume from Florida to Texas.  Custom engaged motor carrier Sybonney Express, and apparently did everything it should have to ensure Sybonney was an appropriate carrier.  It checked FMCSA’s website and the carrier’s insurance broker to ensure all needed insurance coverage was in place. 

Huntington’s cargo of smell-um was stolen while on Sybonney’s watch.  When Huntington sought to recover the cargo’s value, it learned that Sybonney had failed to list the cargo with its insurer, thereby nixing coverage.  The shipper sued both Custom and Sybonney in the Southern District of Texas.

Custom moved to dismiss Huntington’s claims on summary judgment.  Carmack doesn’t govern broker liability, so the court reviewed the litany of state and common law theories the shipper had levied against custom.  Again, the court delivered an interesting state-law analysis of interstate trucking liability.  Here we go again:

Yes, Custom could potentially be liable to Huntington under Texas’s consumer protection statute, its argument that it wasn’t a sufficient causative factor in the shipper’s loss falling on deaf judicial ears.  Custom’s actions (or omissions) very well could be deemed a substantial factor in the loss, as it selected the carrier.

Yes, Custom could be liable in negligence to Huntington, as issues of fact remain as to whether it should have checked to determine that Sybonney had listed the cargo with its insurer.

Yes, Custom could be liable based on negligent misrepresentation theories.  It may not have intentionally deceive Huntington, but that’s not what negligent misrepresentation analyzes.

Yes, Custom could be held liable for breach of contract, again because fault isn’t at issue in that theory.

But no, Custom could not be held liable based on common law fraud, negligent entrustment or breach of fiduciary duty.  No evidence suggested the culpability needed for fraud; nothing suggested Sybonney’s driver caused the loss; and brokers are not fiduciaries of their shipper customers.

Carmack isn’t available to defeat COGSA when no truck or train is involved.
Meritz Fire & Marine Ins. Co. v. Hapag-Lloyd (America), Inc. et al, 2009 WL 2916799 (C.D. Cal. 2009)

If the Kirby case was a “maritime case about a train wreck,” this one’s a maritime case about Carmack not applying.  It’s not really a trucking case, but might be useful to those interested in avoiding COGSA.  It also shows how confused the scene has gotten since Sompo Japan muddied the waters Kirby was intended to clean up.

Here, shipper Koho International engaged non-vessel operating common carrier World Class Logistics to transport a load of cheese from Seattle to South Korea.  World Class booked the load with steamship line Hapag Lloyd, which issued sea waybills that provided for specified temperature maintenance.  They also contained forum selection clauses mandating that any cargo litigation take place in Germany, and extending COGSA to govern claims resulting from land-based services.

The cheese arrived in South Korea frozen, resulting in a loss to Koho of some 183 grand.  When Koho’s subrogated insurer sued in the Central District of California, the carrier moved to dismiss based on the forum selection clause.

Trying to keep the matter stateside, the plaintiff argued that Carmack won’t allow venue restrictions. And, per Sompo Japan, Carmack applies by a federal statute which cannot be supplanted by contract.  The parties hadn’t specifically opted out of Carmack, and COGSA only applies “tackle-to-tackle” while freight is on vessels.  Right?

Wrong, said the court.  Unlike the recent series of cases addressing Carmack versus COGSA applicability, this transport had absolutely no surface component.  Carmack cannot apply under any circumstances.  The plaintiff chose to sue under the Hapag-Lloyd bills of lading, so the forum selection clauses apply.  They’re going to Germany.