United States: Shipping Between The United States And Canada: Does The Carmack Amendment Always Apply?

Suppose that you are a motor carrier that picked up cargo in Phoenix for carriage to Toronto. The cargo arrives damaged at the destination. The affected party commences an action. You might assume when your counsel prepares your defense that American law (i.e., the Carmack Amendment) will govern the dispute. Will this, however, necessarily be the case? What if the shipment originated in Toronto, arriving damaged in Phoenix? Would Canadian law necessarily govern?

In the United States, the Carmack Amendment governs exclusively the liability of a carrier for loss or damage to interstate shipments of cargo. 49 U.S.C. § 14706. Carmack's core elements include the following:

  1. Federal law preempts all state law claims arising from or related to an interstate shipment, see, e.g., Hall v. N. Am. Van Lines, 476 F.3d 683 (9th Cir. 2007);
  2. A liable carrier would assume liability for "actual loss or injury to the property" transported, 49 U.S.C. § 14706(a)(1);
  3. A carrier has the authority to designate claim and lawsuit-filing requirements in the bill of lading, 49 U.S.C. § 14706(e);
  4. A carrier has the authority to limit its liability by agreement with a shipper for an amount less than the value of the goods, in exchange for lower freight charges, 49 U.S.C. § 14706(c) (commercial freight) & (f) (household goods);
  5. Carmack establishes concurrent jurisdiction in both state and federal courts to preside over and adjudicate Carmack-related claims, but proper federal jurisdiction requires the loss or damage claim to exceed $10,000, see 28 U.S.C. § 1331, 1337(a) & 1445(b); and
  6. Carmack requires a carrier to issue a bill of lading or receipt for property that it receives, but failure to do so does not affect its liability. 49 U.S.C. § 14706(a)(1).

In cases filed in the United States, courts take different approaches when deciding which law governs. As discussed below, they will not always apply Carmack if the shipment originates in Canada.

Cases Filed in a U.S. Court: The Different Approaches

When dealing with shipments from the United States to Canada, the U.S. courts have no problem figuring out which law applies. Carmack is clear on this direction of shipments. Carmack expressly applies to shipments from the United States to adjacent foreign countries, such as Canada, transported on a through bill of lading. Specifically, 49 U.S.C. 14706(a)(1) provides:

The liability imposed . . . is for the actual loss or injury to the property caused by (A) the receiving carrier, (B) the delivering carrier, or (C) another carrier over whose line or route the property is transported . . . .  from a place in the United States to a place in an adjacent foreign country when transported under a through bill of lading . . . ." (emphasis added).

The courts have a tougher time figuring out which law applies when the shipments originate in Canada and will be transported to a destination in the United States under a through bill of lading. The U.S. courts take three different approaches to shipments from Canada to the United States:

  1. The majority rule is that the Carmack Amendment does not apply to shipments from Canada to the United States under a through bill of lading. Most likely, Canadian law would apply to the cross-border shipment. On the other hand, Carmack would apply to a shipment from Canada to United States if the damage or the loss occurred while the goods were being transported within the United States and a separate bill of lading was issued for the United States leg of the transportation.
  2. A second view is that although Carmack does not apply by its express language, a conflict of laws analysis must be used to determine what law applies (e.g., Canadian, federal common law or a particular state law).
  3. The minority view is that the Carmack Amendment applies to shipments originating in adjacent countries, such as Canada, to a United States destination.

Part of the reason for the differing views is that the Carmack Amendment is silent concerning its applicability to shipments from an adjacent foreign country to the United States. It expressly applies only "from a place in the United States to a place in an adjacent foreign country."

Another reason for the conflicting views is the courts' attempt to reconcile the Carmack Amendment, 49 U.S.C. § 14706, with the Interstate Commerce Act's "general jurisdiction" provision, 49 U.S.C. § 13501, and its earlier versions. This jurisdiction provision provides:

The Secretary [of Transportation] and the [Surface Transportation] Board have jurisdiction, as specified in this part, over transportation by motor carrier and the procurement of that transportation to the extent that passengers, property, or both, are transported by motor carrier—

(1) Between a place in- . . .

(E) the United States and a place in a foreign country to the extent the transportation is in the United States . . . .

(emphasis added).

Some courts perceive that Carmack's use of from the United States to an adjacent country and its silence on from the adjacent country to the United States conflicts with the general jurisdiction provision's use of between a place in the United States and a place in a foreign country.

U.S. Majority Approach

One of the earliest decisions to articulate the majority rule is Alwin v. Penn. R.R. Co., 15 A.2d 507 (Pa. Super. Ct. 1940). Alwin involved a shipment of cattle by rail from Ontario, Canada, to Middletown, Pennsylvania. After examining the legislative history of both the jurisdictional provision (then found at § 1 of the Interstate Commerce Act (ICA)) and the Carmack Amendment (then found at § 20(11)), the Alwin court held that Carmack insofar as it governed shipments involving adjacent foreign countries, applied only to movements to a foreign country and not to movements from a foreign country. The court noted: "There is not the slightest ambiguity in the use of the language employed [in Carmack] and it would grossly distort the meaning to add to the field shipments from an adjacent country to a point in the United States." 15 A.2d at 509. Further, the Alwin court recognized that the statutory scope of the jurisdictional provision (i.e., describing the field which Congress has taken over), was broader than Carmack's scope (i.e., addressing a carrier's liability for damages). Id. at 512.

As of 1940, the year that Alwin was decided, Congress had recently amended the jurisdictional provision, replacing "from . . . to" with "from or to . . . to or from." Id. at 510. The Alwin court reasoned that if Congress "had intended to expand the field of liability for damages to include imports as well as exports it would have said so in clear language." Id. After 1940, "from or to . . . to or from" was replaced with "between," how it reads today in § 13501. Despite Congress' many changes to the jurisdictional provision, the Carmack Amendment's "from . . . to" language has never changed, further supporting the majority view's position.

Although Congress has regulatory power over a shipment after it crosses into the United States, Alwin was also concerned that Carmack would have involved "extraterritorial legislation" if applied to import movements. Id. See also Strachman v. Palmer, 82 F. Supp. 161, 164 (D. Mass. 1949), aff'd, 177 F.3d 427 (1st Cir. 1949) ("It is at least doubtful whether Congress could constitutionally regulate the Canadian carrier's liability for an event . . . occurring in Canada in connection with a contract made in Canada by a Canadian corporation . . .").

An overwhelming majority of courts adopted Alwin's holding that the Carmack Amendment has no application to goods received for shipment at a point outside the United States. See, e.g., Whaling v. Atlas Van Lines, Inc., 919 F. Supp. 168, (E.D. Pa. 1996); Kenny's Auto Parts, Inc. v. Baker, 478 F. Supp. 461 (E.D. Pa. 1979); Skalaroff v. Penn. R. Co., 90 F. Supp. 961, (E.D. Pa. 1950); Leary v. Aero Mayflower Transit Co., 207 S.E. 2d 781 (N.C. Ct. App. 1974).

U.S. Federal Common Law Approach

In Ingram Micro, Inc. v. Air Route Cargo Express, Inc., 154 F. Supp. 2d 834 (S.D. N.Y. 2001), the court applied the majority rule with a twist: Although it found that Carmack does not apply to shipments originating in Canada, it found that federal common law applied based on a traditional conflict of laws analysis.

In Ingram Micro, Ingram hired Airroute to transport a shipment of software from a warehouse in Quebec, Canada, to Ingram's warehouse in Harrisburg, Pennsylvania. Airroute took possession of the shipment in good order in Quebec and then, on the same day, redirected it to its subcontractor, Paquin, in Quebec. Airroute hired Paquin to transport the shipment from Quebec to Pennsylvania. The shipment was stolen when Paquin had stored it in a trailer outside its warehouse. Although Canadian law enforcement authorities recovered some of the stolen software, a significant portion was never recovered, and Ingram sought damages of $434,894. Airroute sought to enforce its bill of lading's limitation of liability of the "lesser of $100.00 or $2.00 per pound." 154 F. Supp. 2d at 837.

The court first addressed the threshold question of which law would apply—Canadian or United States law. Ingram claimed that U.S. federal common law should govern, and Airroute claimed that Canadian law should apply. After a conflict of laws analysis, the scales tipped toward the U.S. federal common law. Under the court's analysis, it considered the place of contracting, the places of negotiation and performance, the location of the subject matter, and the domicile or place of business of the contracting parties. Id. at 840.

The court found that the true place of contracting was California where Ingram transmitted its acceptance of Airroute's terms. Id. Thus, the contract had already been formed in California when the bill of lading was issued in Canada. Id. at 841. Although the parties disputed the place of performance, the court found that the predominant place of performance was the United States because both parties understood that the delivery was to be made in Pennsylvania. Id. According to the court, the disappearance of the goods from Canada was irrelevant to the determination of the planned place of performance. Id. As a result, the greater portion of the performance was to be in the United States, including the significantly longer travel time and the delivery of the goods there. Id. The other factors, such as the place of negotiation, the location of the subject matter and the domicile or the place of business of the parties were a wash, favoring neither party's position. Id. The court viewed the place of contracting and the place of performance, which the court gave the heaviest weight, as supporting United States law over Canadian law as the governing law. Id. Based on the U.S. federal common law, the court found that Airroute's limitation of liability was enforceable. Id. at 844.

U.S. Minority Approach

The primary source of the minority view is the U.S. Supreme Court case Galveston, Harrisburg & San Antonio Ry. Co. v. Woodbury, 254 U.S. 357 (1920). There, the Supreme Court interpreted the "from...to" language contained in the ICC's jurisdictional provision as encompassing both exports and imports. Writing for the Court, Justice Brandeis found that "[a] carrier engaged in transportation by rail to an adjacent foreign country is, at least ordinarily, engaged in transportation also from that country to the United States." 254 U.S. at 359.

Based on Woodbury, some courts have reasoned that if the "from . . . to" language in the jurisdictional provision really meant "between," then the use of similar language, if not identical language, in the Carmack Amendment should be interpreted in the same manner. Most notably, Sompo Japanese Ins. Co. of America v. Union Pacific Railroad Co., 456 F.3d 54 (2nd Cir. 2006), followed Woodbury and rejected all of the Alwin line of cases. Although Sompo did not involve transportation from an adjacent country to the United States, the court held that the domestic leg of a shipment originating overseas was subject to the Carmack Amendment. 456 F.3d at 69. Specifically, the Sompo court reasoned that "while the Woodbury Court interpreted the 'from . . . to' language only in that section of the ICA defining the ICC's jurisdiction, one would think that the same interpretation would have applied to the identical language in Carmack." 456 F.3d at 66.

The most recent case adopting the minority view is Atlas Aerospace LLC v. Advanced Transportation, Inc., 2012 U.S. Dist. Lexis 157416 (D. Kan. Apr. 24, 2013) ("Atlas Aerospace"). There, the court rejected the line of cases beginning with Alwin and instead followed the Sompo case, even though the Supreme Court in Kawasaki effectively overruled Sompo's ultimate holding that Carmack applied to the domestic leg of an international shipment originating in a non-adjacent foreign country. Atlas Aerospace, 2012 U.S. Dist. Lexis 157416, at *7–8. Similar to Sompo, the Atlas Aerospace court adopted the reasoning of Woodbury that the "from . . . to" language in the ICC's jurisdictional provision meant transportation in either direction and thus encompassed both imports and exports. Id. at *8. The court added that "[t]here is no reason to believe that Congress intended that these two "from . . . to" provisions have different meanings." Id. at *9. The Atlas Aerospace court followed Sompo "in concluding that the scope of the agency's jurisdiction [now found at 49 U.S.C. § 13501], and therefore also the scope of the liability provision, under the Carmack Amendment includes shipments between the United States and Canada in either direction." Id. at *10.

The CAN$2.00 per pound limitation liability established by Canada's Uniform Bill of Lading may favor U.S. carriers importing goods from Canada into the United States. In other words, there may be no beneficial reason for U.S. counsel to argue the minority view—that Carmack applies when a shipment originates in Canada—because the U.S. carrier may benefit from a lower limitation of liability by virtue of Canadian law.

Of course, if U.S. law applies, but the shipper and carrier by contract waive any or all rights and remedies under the Carmack Amendment under 49 U.S. § 14101, then there is a possibility that the parties will agree to a choice of law and venue specific to a certain state or another country. In Kawasaki, the Court acknowledged that a forum-selection clause is "'an indispensable element in international trade, commerce, and contracting' because it allows parties to 'agre[e] in advance on a forum acceptable' to them." 561 U.S. at 109 (citing The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 13–14 (1972)). Such a provision is generally enforceable "unless it imposes a venue 'so gravely difficult and inconvenient that [the plaintiff] will for all practical purposes be deprived of his day in court.'" 561 U.S. at 110 (citing The Bremen, 407 U.S. at 18).

Conclusion

As indicated above, in the United States, the Carmack Amendment governs which law applies for shipments between the United States and Canada, although U.S. courts do not agree completely on its interpretation. As such, it can be said that U.S. carriers only have the freedom to contract which law applies if they waive the application of Carmack under 49 U.S.C.§14101(b),  which calls for special consideration beyond the scope of this article.

The benefits of a negotiated carriage contract are obvious in terms of the certainty that comes with a carrier adopting and implementing a certain business model. Carriers and practitioners alike need to be aware in any event of which law will govern any dispute in both the interpretation of and the application of such a contract. Certainly, if there has been no contract completed by the parties specifying which legal system will apply in the event of a cross-border cargo claim, a practitioner must be aware of the potential for the invocation and any related cost or benefit of one legal regime over the other for a carrier defendant.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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