Reprinted from the Logistics Journal, September 2011
The practice of "holding freight hostage" or "holding goods hostage" occurs under either one of two related scenarios. The most likely scenario occurs when a carrier refuses to deliver a shipper's goods in the carrier's possession while en route to a delivery until such shipper pays the carrier for a past due transportation debt. The second scenario occurs when a third party logistics broker ("3PL") requests a carrier to hold goods hostage because the 3PL has not been paid by the shipper for past due amounts. Although the practice is somewhat common, depending on the facts, circumstances, jurisdiction and agreements executed between the applicable parties, holding freight hostage may be either a savvy business idea or an illegal act exposing a party to significant liability.
Historically, under common law if a shipper delivered goods covered by a bill of lading to a common carrier for transport, the carrier had a lien on such goods so long as (i) the freight charges were not paid by the shipper and (ii) the goods remained in the carrier's possession.1 In addition to common law rights, carriers have been protected by statutory law. For example, certain states have enacted various carrier lien statutes and all states have adopted Section 7-307 of the Uniform Commercial Code (the "UCC"). UCC Section 7-307 provides a carrier with a lien on goods and the proceeds thereof so long as the carrier maintains possession of the goods or proceeds.2 The UCC lien covers transportation charges and expenses and is effective against the consignor or any person entitled to the goods; provided, however that a carrier loses its lien on any goods that it voluntarily delivers or unjustifiably refuses to deliver.3
Despite the foregoing common law and statutory carrier protections, one is free to negotiate the terms and conditions of a contract to which it is a party and, accordingly, the common law or statutory right to a lien on goods may be precluded by contract. For example, either or both of the terms and conditions contained on a bill of lading or applicable broker-carrier agreement may include an express prohibition on or waiver of the right of a carrier to assert a lien on goods and such prohibition or waiver would likely be upheld by a court absent mitigating circumstances.
Thus, the question becomes, what if a carrier or a carrier acting in tandem with a 3PL decides to hold freight hostage (i) for a prior debt of the shipper and/or (ii) regardless of whether or not they are precluded by contract from taking such action.
It is well settled that there can be no valid and enforceable carrier's lien on presently transported goods for a prior debt. In other words, "[i]f a lien defense is available to the motor carrier, it can only be asserted against currently transported goods for current freight charges that remain unpaid."4 Each transaction effectuated between a shipper and carrier is viewed under the law as separate and distinct. Consequently, if a carrier asserts a lien on goods for a past due debt in the middle of its delivery route and refuses to deliver goods until such debt is paid in full, such act of dominion by the carrier over the goods may likely be considered an illegal act of conversion by the carrier.
Conversion is a tort for the wrongful possession of another's property. Withholding property under an honest or mistaken belief that such property is yours is not necessarily a valid defense to a claim of conversion. Stated differently, a party can be found liable for conversion regardless of whether or not such party has committed any conscious wrongdoing; rather, the intent required to prove conversion is the simple intent to exercise control over another's property.5 Any party found liable for conversion may have to pay significant damages to the aggrieved party.
Moreover, if the applicable terms and conditions contained on a bill of lading or applicable broker-carrier agreement include an express prohibition on or waiver of the right of or even a modification of a carrier's right to assert a lien on goods, the act of holding freight hostage will constitute a breach of contract. A breach of contract provides a legal basis upon which one party may justifiably sue another party and, further, gives the aggrieved party leverage to dictate settlement terms.
Accordingly, the issue for a 3PL or shipper is divided between what one can do beforehand to avoid having freight held hostage and what one can do after the carrier has made a hostage payment demand. From a pre-freight held hostage standpoint, knowing as much as possible about a carrier before conducting business with such carrier is essential. That is one reason why the TIA Watchdog program, which enables 3PLs to report carriers who hold freight hostage, and conversely, allows carriers to respond to a 3PL's allegations, is a useful tool in preselecting carriers and avoiding companies with a troublesome record. From a post-freight held hostage standpoint, one can negotiate a spot settlement with the carrier, call law enforcement, consult with an attorney or file a lawsuit. Ultimately, having carefully drafted agreements in place will accurately define the nature of the parties' relationships and provide certainty regarding whether a carrier may or may not lawfully assert a lien on goods.
1. In re Midway Airlines, Inc. v. Solow, 383 F.3d 663 (7th Cir. 2004); Cleveland, C., C. & St. L. Ry. Co. v. Anderson Tool Co., 103 N.E. 102 (Ind. 1913). Conversely, at common law a contract carrier has not been provided with a lien for unpaid freight charges. See e.g., Tucker v. Capital City Riggers, 437 N.E.2d 1048, 1053 (Ind. Ct. App. 1982).
2. U.C.C. § 7-307(a) (2011). UCC Section 7-307 is intended to provide carriers with a statutory lien similar to that given to warehouses under UCC Section 7-209.
3. Id. at § 7-307(b) and (c). See e.g., Fulton v. Allard's Moving & Storage, Inc., 139 N.H. 582 (N.H. 1995) (affirming a carrier's lien on goods covering charges for transportation and storage fees).
4. Car Transp. v. Garden Spot Distributors, 3805 S.W.2d 632, 634 (Ark. 1991); See also, Progressive Timberlands, Inc. v. R & R Heavy Haulers, Inc., 622 N.W.2d 533 (Mich. Ct. App. 2000) (examining a line of cases standing for the proposition that there is no carrier's lien for past due charges and incorporating such holdings into Michigan law); Miller v. Economics Laboratory, Inc., 410 So.2d 642 (Fla. Dist. Ct. App. 1982) (holding that no carrier's lien existed under the state UCC statute for past due charges).
5. See e.g., Car Transp. v. Garden Spot Distributors, 3805 S.W.2d 632, 635 (Ark. 1991).
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