The Intermodal Lead. Legal Developments in Freight Carriage, Logistics and Transportation Infrastructure. By Steve Block.

Transcription

1 The Intermodal Lead Legal Developments in Freight Carriage, Logistics and Transportation Infrastructure A Consignee isn t Liable for Damage to Carriers Equipment Caused by bad Packaging; or Ocean Transportation Intermediaries oft Ambiguous role Revisited By Steve Block Complicated enough title for you? Well, complexity seems to be the name of the game when it comes to defining the implications of activities an ocean transportation intermediary undertakes for its customers. The U.S. District Court for the Northern District of Illinois recently took a look at the aftermath of an international transportation daisy chain that left a train derailed, ocean shipping containers destroyed, and liability disputed. At issue: should a consignee bear ultimate responsibility for losses allegedly caused by improper cargo packaging? Take out your pad and pen for this one. Illinois-based Plano Molding (Plano) needed some steel injection molds. It sent specs to CMT International (CMT, apparently a broker), which sourced Chinese manufacturer Kunshan Yuanjin Plastic & Electronic Co. (Kunshan), and ordered the molds per Plano s directions. CMT also engaged non-vessel operating common carrier (NVOCC) World Commerce Services (World) to arrange transit. World, in turn, hired Chinese forwarder THI Group (THI) to arrange the bookings. THI contracted with steamship line Kawasaki Kisen Kaisha, Ltd. (K-Line) to make the ocean haul. World issued a bill of lading naming Kunshan as shipper and Plano as consignee. K-Line issued a bill naming THI as its shipper and World as consignee. Oh what a tangled web we weave! Kunshan loaded the steel molds into wooden crates. THI loaded the crates into a K-Line shipping container. The ocean carrier delivered the freight safely to Los Angeles, where it was transloaded to the Union Pacific Railroad for onward carriage to Illinois. The train derailed damaging equipment owned by K-Line and the UP. The two carriers sued Plano, alleging that the containers were improperly loaded, such that the molds broke through the crates. Their theory: Plano was a merchant in the bills of lading. The encompassing and standardized term merchant in shipping documentation is designed to name everyone and his brother connected with freight as a party liable for freight charges, and render them concurrently responsible with the shipper for the latter s contractual and regulatory responsibilities. These duties specifically include safe and proper cargo stowage. But Plano wasn t a party to any bill of lading, at least not by its own stated agreement and signature. It wasn t even named in the K-Line bill. The plaintiff carriers argued that Plano had a future interest in the cargo, and thus was a third-party beneficiary of the ocean carrier s contract. To reach that conclusion, the court would have to conclude that World was Plano s agent for which <continued on page 2> In This Issue A Consignee isn t Liable for Damage to Carriers Equipment Caused by bad Packaging; or Ocean Transportation Intermediaries oft Ambiguous role Revisited...1 Burdens of Proof in COGSA Claims: Ping Pong, Anyone?...2 Recent Developments in Motor Carrier Law...3 Save the Date 2nd Annual Washington Transportation Industry Reception...5 Transportation Industries Group Contacts...6 The Bi-Monthly Newsletter of Foster Pepper s Transportation Industries Group Volume 3, Issue 3 June, 2012 For comments or additional information on the articles in this issue, please contact Steve Block sblock@foster.com The contents of this communication are provided for informational purposes only and do not constitute legal advice.

2 A Consignee isn t Liable for Damage to Carriers Equipment Caused by bad Packaging; or Ocean Transportation Intermediaries oft Ambiguous role Revisited Plano was responsible as K-Line s named consignee. K-Line argued that conclusion was supported by the U.S. Supreme Court s 2004 decision in Norfolk S. Ry. Co. v. Kirby, celebrated for launching a muddled and subsequently clarified line of cases that apply admiralty jurisdiction and maritime cargo law to claims deriving from ocean bills of lading that involve land-based losses. If an NVOCC is a shipper s agent for purposes of limiting that shipper s rights against surface carriers (per Kirby), then why shouldn t it be a shipper s agent of a party in a bill of lading? This court wouldn t extend the Supreme Court s logic that far. Kirby itself proclaimed that ocean transportation intermediaries are certainly not automatically empowered to be the cargo owner s agent in every sense. That would be unsustainable. The Big Nine missed a chance to clear up a thorny issue in intermediary law by not drawing a line for us defining just where an NVOCC s agency power ends. But that s another article. Citing other federal precedents, the court ruled that [t]he applicability of an agency theory of liability must be considered on a case-by-case basis. Here, the court found that NVOCC World was an independent contractor not subject to requisite control by Plano to bring it within the agency realm. Even though Plano had worked with World extensively in the past, CMT actually hired and paid Burdens of Proof in COGSA Claims: Ping Pong, Anyone? <continued from page 1> World. And with respect to this loss, Plano apparently had nothing to do with the loading. But what about the World bill of lading? Plano was actually the named consignee in that contract. The plaintiff carriers argued that this bill of lading s Himalaya Clause extends the document s rights and obligations to World s agents and independent contractors (again, à la Kirby, which cloaked succeeding carriers with the NVOCC s contractual protections). This argument failed because, again, Plano didn t negotiate or seek benefits under World s bill of lading. As neither World nor THI was Plano s agent, neither could bind Plano to contract terms. This determination is a bit more dubious under Kirby, but fits within the court s logic. Dismissing a negligence claim based on Plano having no duty of care to the carriers, the court granted Plano s motion for summary judgment. Cases like this, to the extent they re consistent (they frequently aren t), answer specific questions we have about the nature and scope of intermediaries relationships with their shippers on an ad hoc basis. But the complex interrelationships between the numerous parties involved in ocean transportation leave no end to the uncertainty various scenarios leave us in when dispute arises. Ref: Kawasaki Kisen Kaisha, Ltd., et al. v. Plano Molding Co., 2011 WL (N.D. Ill. 2011) By Steve Block When two or more disputing parties square off in court, which side bears the burden of proof on pivotal issues frequently dictates who emerges victorious. In most U.S. civil matters, the plaintiff shoulders threshold responsibility of proving the elements of its case by a preponderance of the evidence; if it fails to get the ball over the net with respect to any element of its claim, the match can be called in its opponent s favor. But lawsuits over lost/damaged cargo are different. The law has long since realized that carriers of all modes usually have access to the most crucial information and evidence, frequently exclusively. It s just too much to ask shippers located in remote places to come forward with evidence of wrongdoing by truckers, water carriers, railroads and airlines in order to pursue a cargo claim. Plus, there s a general notion that if a shipper tendered freight to a carrier in good order and condition, didn t get the freight back, or got it back damaged, then the carrier probably did something wrong. But then how does a carrier get a fair shake at avoiding liability when it wasn t at fault, or is entitled to avail itself of certain defenses (such as those established by the U.S. Carriage of Goods by Sea Act (COGSA) for international shipments)? And who bears the burden of proof along the way? Maritime law has adopted a nearly unique burden shifting scheme in its approach to COGSA cargo claims. This scheme sets up a figurative table tennis match in which the last player serving frequently aces its way to victory. A great case in point is the recent match between steamship line OOCL and seafood importer Crystal Cove in the U.S. District Court for the Southern District of New York. To get started in a COGSA-governed cargo claim, a shipper need only demonstrate a prima facie case, which is proof of tender to the carrier of freight in good order and condition, and either non-delivery or delivery by the carrier in short or damaged condition. Crystal Cove s cargo of tilapia bound from China to Tennessee arrived spoiled, no question. Advantage Shipper. <continued on page 3> 2

3 Burdens of Proof in COGSA Claims: Ping Pong, Anyone? To respond to a shipper s prima facie case, the defendant ocean carrier on the other side of the net bears a burden of proof to show it exercised due diligence to avoid and prevent the harm. It seems that OOCL inspected its reefer unit in which Crystal Cove s fish was packed, and found it to be in good working order before its ship set sail. That s duly diligent enough. Ad Carrier. Now Crystal Cove was faced with a burden of showing that OOCL s negligence or other wrongdoing caused the loss. Apparently, OOCL knew about the reefer failure several days before reporting it to Crystal Cove, and didn t take available measures to transship the cargo to a working substitute reefer. That constitutes negligence, and liability. Ad Shipper. Having lost the liability battle, the carrier gets one more serve to try showing that its wrongdoing didn t solely cause the cargo loss. The standard measure of damages under COGSA is the difference between a cargo s fair market value (had it not been damaged) and actual value at destination in the shape it arrived in. There was an issue here because the freight ultimately was sold at salvage for about 50% of its expected destination value, and Crystal Cove refused delivery on the ground it was a total loss. Shippers and Recent Developments in Motor Carrier Law Subrogated Broker s Claim Against Motor Carrier is still Subject to Carmack Preemption. Propak Logistics, et al. v. Landstar Ranger, Inc., 2012 WL Fed. Carr. Cas. P 84, 720 (W.D. Ark. 2012) Shipper Pace Edwards engaged freight broker Propak Logistics to arrange transit of a cargo from Arkansas to Washington state. Propak booked the load with motor carrier Landstar Ranger. The cargo allegedly arrived water damaged. Landstar Ranger denied the claim, and Propak s cargo insurer paid Pace Edwards, thereby subrogating Propak (and itself) to Pace Edwards s rights against Landstar Ranger. Propak and the insurer sued the Landstar Ranger in Arkansas state court; the carrier removed the action to the U.S. District Court for the Western District of Arkansas based on Carmack preemption; and Propak moved to remand the suit back to state court. Propak argued that Carmack governs and applies only to shippers claims against carriers, and has expressly been held time and again to be inapplicable to brokers. True, ruled the court, but those numerous decisions are off point. In this instance, Propak s rights against the carrier derive from those of a shipper. In other words, Propak s and the insurer s rights, including its posture in the <continued from page 2> their consignees are entitled to refuse delivery when cargo arrives completely destroyed (or practically valueless ). Had Crystal Cove accepted delivery, then certain costs would have been avoided. But a consignee need only act reasonably when electing to refuse delivery, and confirmed inspections demonstrated that the cargo was indeed practically valueless (the successful salvage sale was a surprise, and it wasn t to a buyer who intended to resell the fish for human consumption). Shipper s game and match. OOCL tried to recover demurrage costs incurred while the parties were fighting about liability and damages. But you can t get demurrage if the consignee was within its rights in refusing delivery. In addition to the win, Crystal Cove was awarded its attorneys fees, the court finding that OOCL hadn t put up any colorable argument as to liability. It therefore had acted in bad faith, which empowers the court under maritime law s discretionary standard to award the prevailing party its litigation costs. A good day at the table for this shipper. Ref: Orient Overseas Container Line, Ltd. v. Crystal Cove Seafood Corp., 2012 WL (SDNY 2012) By Steve Block litigation, are identical to those of the entity that bestowed those rights upon them. Propak essentially is wearing shippers shoes with respect to its claims against Landstar Ranger. Motion denied, and the case stays in federal court with Carmack preempting all asserted state and common law causes of action. Driver who is not an Owner-Operator is Still an Independent Contractor Under State law Analysis. Williams v. Advanced Auto Transport, Inc., 2012 WL (Minn.App. 2012) Most disputes over a driver s status as an employee or independent contractor involve owner-operators whose status is complicated by tractor ownership, lease or occupational activity issues. Here s an interesting case out of Minnesota that analyzes a driver s status under general employment law concepts as defined by a North Star State employment law statute. Driver Williams worked for Advanced Auto Transport, a drive away company that transports commercial vehicles from their manufacturers to customers who ve purchased the vehicles. Advanced Auto terminated Williams when she allegedly disobeyed <continued on page 4> 3

4 Recent Developments in Motor Carrier Law (cont.) <continued from page 3> dispatch instructions and didn t comply with rest period requirements. Williams sought unemployment benefits, to which she would be entitled only if she were a company employee. Advanced Auto and the state argued that Williams was an independent contractor not entitled to those benefits. After a complex administrative law history, the matter went into litigation and wound its way up the hill to Minnesota s Court of Appeals. That court affirmed a lower court s determination that Williams was an independent contractor not entitled to state unemployment benefits. The court went through a typical analysis of the degree of control Advanced Auto had and exercised over Williams; its right to discharge her; how it paid her; whether it provided her materials and tools; and whether it controlled the work premises. It was a close call. The company exercised very little control over Williams, which supported an independent contractor determination. However, neither party provided the materials or tools (trucks were owned by the vehicle manufacturers, which also paid for her fuel, repairs, etc.); and neither party controlled the work premises (again, she was mostly at customer locations or on the road). Favoring an employee finding was the fact that Advanced Auto could (and did) terminate Williams without notice or consequence. Pretty much a tie! Thus, the court looked to additional factors as a tiebreaker. Most importantly, the court found, Williams was free to hold herself out to the public or work for other trucking companies under her arrangement with the company. Moreover, she could realize a profit or suffer a loss based on her own fortunes with the company, a circumstance at odds with an employment relationship. That sounds very much like an independent contractor, and Williams s claim for unemployment benefits was turned down. Damaged Cargo Claim Succeeds as Counterclaim and Third-Party Action Against Freight Charge Claim. Leonard s Express, Inc. v. Arrowstream, Inc. v. C.A. Logistics, Inc., 2012 WL (WDNY 2012) This daisy chain deal involved forwarder Arrowstream booking a cargo of frozen chicken breasts with carrier Leonard s Express which, in turn, interlined the load to carrier C.A. Logistics. C.A. Logistics ran the load from Texas to New York, where the consignee found the chicken to have thawed because the trailer doors hadn t been secured. The consignee refused the delivery. Arrowstream and its shipper refused to pay Leonard s Express s freight charges. When Leonard s Express sued in the Western District of New York, Arrowstream counterclaimed, and brought a third-party Carmack action against C.A. Logistics for $63, (the cargo s value net of salvage). C.A Logistics defaulted. On Arrowstream s motion, the court went through a damages analysis and awarded the cargo s lost value to Arrowstream against C.A. Logistics. Left unclear is whether Arrowstream can collect from C.A. Logistics. If it does (which is doubtful against a defaulting defendant), then Arrowstream (and ultimately, its shipper) would be whole, and presumably would have to pay the freight charges (assuming they re accurately calculated) to their carrier of record, Leonard s Express. If it cannot collect from the delivering carrier, then Leonard s Express, which bears primary liability for the loss, likely will have to take responsibility for its sub s neglect. Pre-Judgment Interest is Available Under Carmack, but State law Determines the rate. Eagle Transportation, LLC v. Scott, et al., 2012 WL (S.D. Miss. 2012) Courts have gone in different directions on this issue in post-trial proceedings, but the U.S. District Court for the Southern District of Mississippi recently addressed head on the question of whether pre-judgment interest is recoverable in Carmack claims. Here, broker Eagle Transportation, on behalf of its shipper, pursued a damaged cargo claim against a motor carrier engaged to haul a load from Mississippi to Michigan. Liability was established under Carmack, and Eagle asked for an award of prejudgment interest. The court found that [t]he Carmack Amendment does not forbid the award of prejudgment interest, and that Congress intended for carriers to be responsible for all losses related to a cargo loss. Citing Fifth Circuit precedents, the court ruled that the question of prejudgment interest is one of federal law. But because there is no generally applicable federal statute governing prejudgment interest the Court looks to state law for guidance. Mississippi law provides for an 8%/annum prejudgment rate, which is far higher than the current federal post-judgment rate based on the one-year treasury bill (which is way below 1%). When they agree to award prejudgment interest in Carmack claims (which is inconsistent), federal courts are known to apply that treasury bill rate. If this case is given precedential value, cargo claim awards could be significantly increased. Motor Carrier s Agent Might be on the hook for Damaged Freight. United Van Lines, LLC v. Lohr Printing, Inc., 2012 WL (D. N.J. 2012) Lohr Printing wanted to ship a commercial printer from Kentucky to New Jersey. Canon Business Solutions (CBS), the entity that had sold the printer to Lohr, advised Lohr that it had successfully <continued on page 5> 4

5 Recent Developments in Motor Carrier Law (cont.) <continued from page 4> used McCollister s Transportation for its shipping needs, and that McCollister s had specialized expertise in this type equipment. CBS got a quote from McCollister s which contained shipping specifics, but no mention of limited liability. Lohr accepted the bid and paid McCollister s. Little did Lohr know that McCollister s was acting as a booking agent for United Van Lines (UVL). A UVL truck appeared to fetch the printer, and UVL issued its own bill of lading containing a limitation of liability provision. Lohr contends the printer arrived damaged and was declared a constructive total loss. It filed a $261,000 claim. UVL and McCollister s brought a declaratory judgment action in the District of New Jersey seeking a determination that their liability was limited to relative peanuts. Lohr counterclaimed against both entities seeking reciprocal relief and an award of the printer s full value. In response to the counterclaim, McCollister s wanted out of the action altogether, asserting that it had acted as UVL s disclosed agent, and therefore couldn t be held liable. Ruling that Carmack governed Lohr s claims against UVL, the court dismissed Lohr s state and common law causes of action against the carrier on summary judgment. The court noted that McCollister s might actually qualify as a broker in this transaction, in which case state and common law (but not Carmack) would govern claims against it. However, the court refused to dismiss Lohr s counterclaim against McCollister s, finding that the shipper had stated a plausible claim for breach of contract which does not require total certainty. Instead, [per a U.S. Supreme Court-established standard, the inquiry] is a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. More discovery is needed for the court to undertake that inquiry, which very well might find the agent liable for failing to mention the limited liability provision. 2nd Annual Washington Transportation Industry Reception With a special presentation by Federal Maritime Commissioner Hon. Mario Cordero Save the Date! Thursday, September 20, 2012 September 20, :00 7:00 pm Hosted by Foster Pepper PLLC Downtown Seattle Location TBD For more information, events@foster.com Invitations will be sent in mid-august Commissioner Cordero will address the Federal Maritime Commission s current and contemplated activities related to federal regulation of seaports and other aspects of ocean transportation. Among the topics he will address is FMC s response to Canadian cargo conversion issues. Time will be allotted for questions. 5

6 The Intermodal Lead Foster Pepper PLLC Transportation Industries Group Steve Block Joe Brogan Beth Clark Rod Dembowski Steve DiJulio Sinjin Dinh Steve Gillespie Ed Harley Janelle Milodragovich Mark Munro T.J. Parkes Mike Schechter Lori Terry Gregory Russell Terry Adrian Urquhart Winder Upcoming Speaking Engagements Steve Block will present: Motor Carrier Model Update A ssociation of Transportation Law Professionals Annual Conference June 15, 2012 Chicago, IL H ow the U.S. Deals with Piracy C anadian Transport Lawyers Association Annual Conference September 27, 2012 Toronto, ONT, Canada R ecent Developments in U.S. Transportation Law F orwarder Law Reception FIATA Annual Congress October 11, 2012 Los Angeles, CA Beth Clark and Patrick Schneider will present: Key Environmental Challenges Associated with Siting/Permitting of Coal Export Facilities A ssociation of Transportation Law Professionals Annual Conference June 15, 2012 Chicago, IL Check out Foster Pepper s Washington Workplace Law blog for your resource in practical information for employers in Washington state. Providing practical information to employers in Washington state who face challenges from increasingly complex state and federal workplace requirements.