Chester Hooper is a Partner in our Boston office.
The June 21, 2010 U.S. Supreme Court opinion in Regal-Beloit will allow uniformity and predictability in the law governing multimodal carriage of goods by not applying the Carmack Amendment to the U.S. inland portion of through carriage from China to various locations in the United States. Ironically, the dissenting opinion would probably bring more uniformity than the majority opinion to multimodal carriage as a result of the manner in which it would have applied the Carmack Amendment to the U.S. portion of the through carriage. Kawasaki Kisen Kaisho Ltd. et al. v. Regal-Beloit Corp., et al. 561 U.S. ___ 2010 WL 2471056 (2010).
Background
Before the Regal-Beloit opinion, some multimodal carriage decisions in the U.S. Courts of Appeal for the Second and Ninth Circuits had deprived a railroad or trucking company of the terms of its contract unless the shipper of the cargo had been offered full Carmack liability, 49 U.S.C. § 11706, against the railroad or trucking company and had agreed to the terms of the railroads or trucking companies' contract.1 The railroads had demanded contractual indemnity from the ocean carriers if the ocean carriers had not given the shipper a full Carmack offer on behalf of the railroad or trucking company.
The difference in the liability schemes of Carmack and the Carriage of Goods by Sea Act (COGSA), reprinted in note following 46 U.S.C. §30701 (formerly 46 U.S.C. §1301 et seq.), is stark. Full Carmack liability is essentially a codification of the common law of common carriage, almost an insurer's liability. While COGSA limits a carrier's liability to $500 per package, or for goods not shipped in packages, per customary freight unit, Carmack allows a shipper and a carrier to agree on a declared value to limit liability. Importantly, if full Carmack liability is not offered by a Carmack carrier, a Carmack carrier is burdened with an unlimited, insurer-like liability.
Shippers of cargo generally enter a multimodal contract of carriage with a non-vessel operating carrier (NVOC) or a vessel operating carrier (VOC) or some other entity. One of those entities, usually the ocean carrier, contracts with the railroad or trucking company to perform the U.S. inland carriage.
It has been difficult or impossible for the entity that contracted with the cargo shipper to offer the shipper, on behalf of a U.S. railroad or trucking company, full Carmack liability and to provide the shipper with the alternative contractual terms agreed between the carrier and the railroad or trucking company.
Even the identity of the railroad or trucking company would not be known when the ocean carrier printed its bills of lading. It certainly would not be known by an NVOC.
The majority opinion in Regal-Beloit has removed the obligation to make a full Carmack Amendment offer to the shipper of cargo in multimodal carriage into the United States, and the dissenting opinion would have removed the duty for both import and export shipments.
The problem arose when courts in the Second and Ninth Circuits held that the Carmack Amendment applied to the United States inland portion of a multimodal shipment. They noted that the Carmack Amendment required the Carmack carrier to offer full Carmack liability; contractual terms less than full Carmack liability could only be offered as an alternative. The Carmack Amendment before recodification in 1978 applied to carriage from one state or territory of the United States to another state or territory or from a point in a state of the United States to an adjacent foreign country. Carmack did not specify whether it would or would not apply to a United States portion of a shipment between a non-adjacent foreign country and a place in the United States. The 1978 recodification, meant to be non-substantive, removed the word "adjacent" and may have helped persuade some courts to apply the Carmack Amendment to the U.S. inland leg of multimodal carriage to and from non-adjacent foreign countries.
The Court's majority opinion was authored by Justice Kennedy. Chief Justice Roberts and Justices Scalia, Thomas, Breyer and Alito joined the majority opinion. The dissent was authored by Justice Sotomayor and was joined by Justices Stevens and Ginsburg.
Majority Opinion
The majority opinion held that the Carmack Amendment did not apply to a shipment that originated overseas rather than in the United States. It reasoned that K-Line, the ocean carrier that received the shipment from the shipper in China, was the receiving carrier. The majority assumed that there could only be one receiving carrier in the multimodal shipment and concluded that if the receiving carrier were not a rail or road carrier in the United States, the Carmack Amendment would not apply to the United States portion of the carriage. The majority opinion, however, specifically did not decide whether Carmack would apply to an export shipment. The majority noted, "Today's decision need not address the instance where goods are received at a point in the United States for export ... ." Because the majority held that the Carmack Amendment did not apply to the shipment in question, it did not discuss what would be required by the railroad to give a full Carmack liability offer or to whom the offer should be given.
Even though the majority opinion specifically did not deal with export shipments, it did indicate that Carmack applied only to cargo carried from one state of the United States to another state of the United States and from a point in the United States to a point in an adjacent foreign country. Slip op. at 16. One would think that that limited application would prevent the Carmack Amendment from applying to the U.S. inland portion of an export multimodal shipment, but the majority did not decide that issue.
The Dissent
The dissenting opinion may be of considerable value when dealing with export shipments, because it indicated that the Carmack carrier, the railroad or trucking company, would only have to offer full Carmack liability to its contractual partner. Its contractual partner would usually be the issuer of the multimodal bill of lading, often the ocean carrier. Under the dissent's theory no fair opportunity for full Carmack value would need to be given directly to cargo interests if cargo interests did not contract directly with the railroad or trucking company.
The dissent would have applied the Carmack Amendment to the United States inland rail portion of the shipment in Regal-Beloit. The main difference between the majority opinion and the dissenting opinion on the application of Carmack question may be found in the identification of the receiving carrier. The majority reasoned that the receiving carrier was the first carrier to have received cargo from the shipper. K-Line was the first party to receive the cargo from the shipper and K-Line was not a railroad, nor did K-Line receive the cargo in the United States.
The dissent reasoned that the receiving carrier under Carmack would be the first carrier to receive cargo in the United States. According to the dissent's reasoning, Union Pacific was the receiving carrier, because Union Pacific was the first carrier to receive cargo in the United States. Based on that premise, the dissent would have applied the Carmack Amendment to the inland rail portion of the move. The dissent agreed with the majority that Carmack does not govern ocean carriers and thus would not apply to K-Line.
The dissent, however, indicated that Carmack would "not require the rail carrier to offer Carmack compliant terms to anyone but the party with whom the rail carrier contracts when it receives the goods. It does not place obligations on a relationship between any overseas carrier and any overseas shipper who operate under their own bill of lading." Dissenting slip op. at 19. Once the railroad offered the ocean carrier full Carmack terms, the railroad and the ocean carrier could agree to other terms and could agree to terms that lowered the railroad's liability below Carmack. "Having signed such a contract, a rail carrier 'shall have no duty in connection with services provided under such contract other than those duties specified by the terms of the contract.' [49 U.S.C.] § 10709(b)." Dissenting slip op. at 26. The rail carrier's duty would be limited to the duty set forth in its contract no matter who sued the railroad. Privity of contract is not required.
It is interesting, and perhaps ironic, to note that the use of 49 U.S.C. § 10709(b) would provide more uniformity to multimodal carriage than would the limited agency mechanism used in Norfolk Southern Ry. Co. v. Kirby Pty Ltd., 543 U.S. 14 (2004). In Kirby, the Supreme Court held that the party with whom the cargo interests contracted acted as a limited agent of the cargo interests for the purpose of agreeing to the amount of the downstream carriers' limitations of liability. In Kirby that limit of liability was extended to the railroad by means of the carriers' Himalaya Clauses. Kirby did not, however, decide whether the railroad was governed by the Carmack Amendment.
In Regal-Beloit, according to the dissent's rationale, a limited agency would not be necessary if the Carmack Amendment governed. Section 10709(b) of the Carmack Amendment would provide the mechanism to protect the railroad by giving the railroad all the defenses in its contract, not just limited liability, against anyone who might sue the railroad.
The preamble of future contracts between railroads or trucking companies and carriers will probably state that full Carmack liability was offered but that the parties agreed to the alternative terms set forth in the contract.
On June 28, 2010, the Supreme Court issued the following order in the Sompo case2 :
The petition for a writ of certiorari is granted. The judgment is vacated, and the case is remanded to the United States Court of Appeals for the Second Circuit for further consideration in light of Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp., 561 U.S. ___ (2010). Justice Sotomayor took no part in the consideration or decision of this petition.
In yet another similar case, Royal & Sun Alliance Insurance, PLC v. Ocean World Lines, Inc., No. 08-4324 (2d Cir. June 22, 2010) pending before the Second Circuit, the Second Circuit asked the parties to submit letter briefs on the effect of the Regal-Beloit decision. The Second Circuit must, of course, follow the Supreme Court, and should issue opinions in these two cases similar to the one in Regal-Beloit.
Footnotes
1. Sompo Japan Ins. Co. of America, et al. v. Norfolk Southern R.R. Co., et al., 540 F.Supp.2d 486, 2008 AMC 1217, 1231-34 (S.D.N.Y. 2008); Regal-Beloit Corp. v. Kawasaki Kisen Kaisha Ltd., 557 F.3d 985, 2009 AMC 305 (9th Cir. 2009).
2. Union Pacific Railroad Co. v. Sompo Japan Ins. Co., et al., 561 U.S. ___, No. 09-787 (June 28, 2010). See note 1.
* Holland & Knight attorneys Francesca Morris, Harmony I. Loube, Lissa D. Schaupp, William P. Byrne and Chester D. Hooper wrote briefs for the International Group of P & I Clubs and their member clubs as amici curiae in support of a petition for cert and on the merits, supporting K-Line and the Union Pacific Railroad.
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