Carmack governs ocean carrier’s liability: U.S. surface carriage liability law hits the high seas

by Steve Block

The disarray continues in the aftermath of the U.S. Supreme Court’s 2004 decision in Kirby v. Norfolk Southern.  What was hailed as long-awaited judicial clarification about what most sectors of transportation law and industry already understood has proven to be more the subject of new distortion and confusion than law’s accommodation of industry’s evolution.  The situation may be getting worse, and not better.

Misapplication, some would say disregard, of Kirby is becoming a national phenomenon.  In the Sompo Japan decisions, the Second Circuit found that Carmack can govern liability for losses that occur during the surface leg of a multimodal haul implemented pursuant to through ocean bills of lading that extend the U.S. Carriage of Goods by Sea Act (COGSA) to succeeding carriers.  Under those decisions, railroads and truckers in America’s northern states could be deprived of COGSA’s protections and limitation of liability.

A recent Ninth Circuit decision goes at least one step further, holding that ocean carriers might be subject to Carmack.  That’s right – steamship lines are now (or at least could be) de facto surface carriers for liability purposes.  Most troubling about the Ninth Circuit’s decision is that it makes damn good sense in its deciphering of incongruous terms contained in two parallel liability regimes, and increases one’s wonderment about whether judicial decisions can ever sort the mess out.

Like most other cases in the past five years addressing these issues, our fact pattern is conveniently simple.  Ocean carrier K-Line issued several shippers through bills of lading covering carriage of freight from China to points in the U.S. Midwest.  Those bills of lading contained jurisdiction clauses mandating that cargo litigation take place in Tokyo.  Connecting surface carriage was to be effected by the Union Pacific Railroad.  A UP train derailed, damaging the cargo.  At issue in a lawsuit the shippers brought against both carriers in the U.S. District Court for Central California was whether the forum selection clauses were enforceable.

Under COGSA, they clearly would be under long-existing U.S. law.  The district court, and later the Ninth Circuit, went through analyses of whether the parties had effectively opted out of Carmack.  If they hadn’t, Carmack’s specific venue provisions (mandating litigation in a “judicial district” which means, in essence, somewhere stateside) would govern.  Following the same reasoning applied in the Sompo Japan decisions, the trial and appellate courts in this matter concluded that parties cannot contractually eliminate Carmack simply by extending COGSA.  They also distinguished Kirby on the grounds it was concerned only with application of state law, as opposed to a federal statute like Carmack whose terms were intended to be “parallel” to COGSA’s.

The Ninth Circuit didn’t agree with the Central District of California’s conclusion.  Actually, it didn’t agree with anyone at all, including any of the parties.  The lower court ruled that the parties had indeed opted out of Carmack properly, such that COGSA governed and the forum selection clause was valid.  It applied the provisions of 49 USC § 10709, which is designed for carriers that are not exempt from Surface Transportation Board regulation.  Over the plaintiffs’ objections, it concluded that the carriers were under no obligation (per that section) to offer their shippers “Carmack protections” of full liability unless alternate liability terms are offered, etc.  The Ninth Circuit rejected plaintiffs’ contention that 10709 does require Carmack protections, and refused to accept defendants’ position that the transportation agreement was subject to 10709 because, well, it said it was.

The Ninth Circuit instead looked to the nature of the transport, focusing on 49 USC § 10502(f)’s exemption from Board jurisdiction transportation by a rail carrier that is part of a continuous intermodal movement.  This statute would define K-Line as a “rail carrier” for purposes of that section (i.e., it contracted to undertake carriage by rail).  Thus, the shipping contract was subject to and defined by 10502 because it concerned an exempt transportation.  To fully adjudicate the matter, a factual determination must be made of whether the carriers had offered their shippers Carmack protections.  The Niners sent the matter back down the hill for further proceedings.

The Ninth Circuit’s analysis is certainly engaging if not entirely persuasive.  It makes sense.  Indeed, the Court of Appeals somewhat sheepishly remarks, citing Sompo, that “[t]he parties’ confusion is understandable given the ‘muddled state of the law.’”  The problem is that this decision is at complete odds with the policy considerations of Kirby and cases following it.  It further complicates issues and leaves parties less secure in their understanding of what their transportation relationships can lead to.  It also makes clarification of the issues by way of a future U.S. Supreme Court decision (potentially in Sompo Japan) more difficult. 

Ref: Regal-Beloit Corp. v. Kawasaki Kisen Kaisha Ltd., 557 F.3d 985 (9^th Cir. 2009).