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Who is left paying the bill when dealing with Freight payment, claims, Detention, , and Accidents when contracting with Motor Carriers and Brokers Marc S. Blubaugh Benesch, Friedlander, Coplan & Aronoff LLP 41 South High Street, Suite 2600 Columbus, Ohio 43215 (614) 223-9382 [email protected]

Michael H. Kroul KTI, Inc. 10301 Wayzata Boulevard Minnetonka, Minnesota 55035 (612) 444-3181 [email protected] Introduction / Agenda

• Cargo Claims

• Freight Charge Liability / Detention / Demurrage

• Accident Liability / Storage /Loading-Unloading

• Contract Provisions / No Contract

• Questions? The Role Dictates the Regime!

Direct Carriers Indirect Carriers Arrangers Motor Carrier Surface Broker

Railroad Surface Freight Forwarder Broker (Intermodal Marketing Company)

Airline Indirect Air Carrier (IAC) Indirect Air Carrier (IAC)

Ocean Carrier Non-Vessel Operating Ocean Freight Forwarder CARMACK AMENDMENT 49 USC 14706

• Imposes quasi-strict liability upon motor carriers for interstate cargo claims – Delivery to Carrier in Good Condition – Delivery to in Damaged Condition / Lost – Damages • Few Defenses: – , Act of Public Authority, Act of Public Enemy, Inherent Vice, Act of Shipper – Carrier must also show lack of negligence

• Preempts state law remedies (breach of contract, negligence, conversion, fraud, unfair and deceptive trade practices, etc.) Capital Logistics, LLC v. Gray Transportation, Inc., 2017 WL 4803925 (S.D.N.Y. 2017)

• Amex Distributing Company (shipper) tendered a load of strawberries to Capital (broker) • Capital retains Gray Transportation (carrier) to move cargo from Texas to Illinois • Shipper prepared clean • Someone preset temperature / set reefer cycle on “start/stop” / sealed reefer • Cargo rejected at destination as “cooked.” • Capital presumably obtains assignment from Amex

6 Capital Logistics, LLC v. Gray Transportation, Inc., 2017 WL 4803925 (S.D.N.Y. 2017)

Issue: Is either party entitled to summary judgment? • Court’s Holding: Issues of fact regarding shipper’s ability to establish prima facie case – Shipper: “Clean” bill of lading sufficient – Court: “Clean” bill of lading insufficient when carrier alleges that driver was not allowed on the loading dock • Court’s Holding: Issues of fact regarding carrier’s ability to establish “Act of Shipper” defense – Carrier: Reefer was set to “start/stop” mode instead of “continuous” mode as required for strawberries – Court: Parties dispute who set temperature/cycle

7 Time Limitation to File a Notice of Claim – Carmack Amendment

• Carmack allows carrier to limit amount of time a shipper has to file claim, as long as time to file claim is not less than nine months. See 49 U.S.C. §14706(e)(1). Dan Barclay, Inc. v. Steward & Stevenson Services, Inc., 761 F. Supp. 194 (D. Mass. 1991) (Carrier may include in a bill of lading a requirement that any claim of cargo damage be brought within a set time period greater than, or equal to, nine months).

• Time period begins to run day after delivery of goods. Inland Steel Corp. v. Consolidated Rail Corp., 714 F. Supp. 389 (D.C. Ind. 1989).

• Minimum nine-month claim filing deadline is enforceable against anyone having a claim against carrier, including subrogating insurance carrier. State Farm Fire & Cas. v. United Van Lines, 825 F. Supp. 1399 (D.S.C. 1992). Kellog v. Wheaton Van Lines, 2017 WL 3881417 (D.N.M. 2017)

• Ms. Kellog retains Wheaton Van Lines to move her household goods from NY to CA • Van catches fire en route and goods destroyed • Ms. Kellog makes claim with State Farm and recovers $54,674 after deductible • Within 9 months of date of bill of lading, State Farm twice issues notice to Wheaton of “possible” subrogation claim with amount “to be determined” • Wheaton’s insurer requests supporting documents but State farm fails to reply for over a year and then sues

9 Kellog v. Wheaton Van Lines, 2017 WL 3881417 (D.N.M. 2017)

Issue: Were Shipper’s claims time-barred?

• Federal law permits carriers to establish claims period not less than 9 months • Wheaton’s bill of lading contains 9 month claim period • 49 C.F.R. 370.3 contains minimum claim filing requirements (including identification of a “specified or determinable amount of money”) – Courts split as to strict compliance or substantial compliance • Here: No compliance at all (not even a reasonable estimate)

10 Time Limitation for Filing Suit

• The Carmack Amendment does not set forth a limitation period for filing a suit. It allows shipper and carrier to set their own limitations for filing civil suit, so long as these limitations are “no less than two years.” 49 U.S.C. §14706(e)(1).

• Period begins to run on date carrier gives shipper written notice that carrier has disallowed all or any part of shipper’s claim specified in the notice of claim (no magic words necessary).

• Other Modes: United Perfume v. Evergreen Marine, 2017 WL 50155779 (S.D. N.Y. 2017) (Shipper Time-Barred against NVOCC) Cargo Liability -- Brokers

Brokers are generally NOT liable for freight loss, damage, or delay UNLESS: – Broker contractually assumes liability; – Broker holds itself out as a freight forwarder or motor carrier; or – Broker negligently selects motor carrier (but preemption under 49 U.S.C. 14501(c)(1) Ameriswiss Technology, LLC v. Midway Line of Illinois, Inc. 2012 U.S. Dist LEXIS 138880 (D.N.H. 2012) • All non-contractual claims are preempted by FAAAA (49 U.S.C. 14501(c)(1)) – “. . . it is worth bearing in mind that a plaintiff that loses its common-law claim against an entity such as a broker is not denied an avenue for recovery; such a plaintiff still has its Carmack Act claim against the carrier.”

• “Morrison, IL ˃ Holderness, NH $2,600 all inclusive” – Do the two words “all inclusive” communicate a promise by Robinson to warrant the safe delivery of Ameriswiss’s machines? – “They do not. Moreover, . . . Ameriswiss’ belief that the agreement included a warranty is irrelevant.” – No facts to support a promise to ensure (“all inclusive” is insufficient) Fundamental Principles Governing Freight Charge Liability (Shipper) Southern Pacific Transportation Co. v. Commercial Metals Co., 456 U.S. 336 (1982)  Commercial Metals (shipper) retained Southern Pacific Transportation (rail carrier) to transport several cars of steel cobble  Railroad delivered goods but only collected some freight charges  Accepted several checks from consignee (but bounced)  Railroad requested payment from shipper (declined) and then sued shipper  Among other things, the Court held: • “The , being the one with whom the contract of transportation is made, is originally liable for the carrier’s charges . . . [T]his rule has not changed over time.” Fundamental Principles Governing Freight Charge Liability (Shipper)

Exception to General Rule: Shipper’s Execution of Non-Recourse Provision (Section 7 of Bill of Lading) Fundamental Principles Governing Freight Charge Liability (Shipper)

Exception to General Rule: Shipper’s Execution of Non-Recourse Provision (Section 7 of Bill of Lading) Fundamental Principles Governing Freight Charge Liability (Shipper)

Exception to General Rule: Shipper’s Execution of Non-Recourse Provision (Section 7 of Bill of Lading)  If “collect” box is checked and “Section 7” is signed, then Section 7 is enforceable and motor carrier cannot recover against the shipper  If “collect” box is not checked but “Section 7” is signed, then motor carrier can still recover from shipper because Section 7 does not apply to “prepaid” freight charges  Nevertheless, if Section 7 is signed, motor carrier should demand payment in advance of delivery Fundamental Principles Governing Freight Charge Liability (Shipper)

Southern Pacific Transportation Co. v. Commercial Metals  Shipper did not execute Section 7  Shipper asserted that Bills of Lading were marked “collect” so that motor carrier had sufficient notice that freight charges were unpaid and that motor carrier would have no recourse against shipper  Court rejected the argument - The critical fact is whether or not Section 7 is executed - Shipper remains liable for “collect” shipments if shipper fails to execute Section 7 Fundamental Principles Governing Freight Charge Liability (Consignee)

Pittsburgh, Cincinnati, Chicago & St. Louis Ry. Co. v. Fink, 250 U.S. 577, 581 (1919)  Railroad delivered Indian relics to consignee  Consignee paid railroad the undercharged freight charges  Railroad subsequently sued consignee - Magistrate: carrier cannot recover - Trial Judge: carrier can recover - Appellate Court: carrier cannot recover - US Supreme Court: reversed—carrier can recover - Court held that split in authority should be resolved in favor of liability despite individual hardships: “The weight of authority seems to be that the consignee is prima facie liable for the payment of the freight charges when he accepts the goods from the carrier” Fundamental Principles Governing Freight Charge Liability (Consignee)

Southern Pacific Transp. Co. v. Campbell Soup Co., 455 F.2d 1219 (8th Cir. 1972) “Campbell asserts that, in reliance upon the representation that freight charges would be paid by the shipper, it reimbursed the shipper for the full amount of the freight charges. We hold that a consignee of goods who has paid the amount of the freight charges to the consignor may raise the defense of estoppel against a carrier's claim for freight charges. This rule will not erode the purpose underlying § 6(7) as long as the grounds for estoppel do not serve directly or indirectly as a cover for freight rate discrimination.” • Did consignee contract with or have relationship with carrier? • Was demand made at time of delivery? • Who was initially billed for charges? • Were some charges prepaid? • Did consignee recommend carriers? • What does paperwork say? Fundamental Principles Governing Freight Charge Liability (With Broker)

Typical Scenario  Shipper Sells Goods to Consignee  Shipper Hires and Pays Broker  Broker Hires Carrier  Shipper Pays Broker  Broker Fails to Pay Carrier  Consignee Pays Shipper  Carrier Pursues Shipper and Consignee Fundamental Principles Governing Freight Charge Liability (With Broker)

Split in Treatment Hawksphere Shipping Co., Ltd. v. Intamex, S.A., 300 F.3d 225 (4th cir. 2003)  Semi-Strict “Assumption of Risk” -- Fourth, Fifth, Tenth, Eleventh Circuits (Ninth?) - “Under the semi-strict ‘assumption of risk” view -- the view taken by the district court – a shipper remains liable to a carrier, regardless of the shipper’s payment to a cargo consolidator like ICTS, unless the carrier intentionally released the shipper from its duty to pay under the bill of lading.

Equitable Estoppel -- Second, Third, Sixth, Seventh, Eighth Circuits (Ninth?)

“Under an alternative, ‘equitable estoppel’ view, when a shipper pays freight to a consolidator and the consolidator subsequently fails to forward the payment on to the carrier, the shipper does not remain liable to the carrier, so long as the circumstances indicate that the carrier led the shipper to believe that payment to the cargo consolidator would discharge the debt.” Detention / Demurrage • Detention: – Charge by SSL against BCO / MC for failing to return equipment within allowed free days – Charge by MC against BCO for delaying a truck beyond free time • Demurrage: – Charge by SSL against BCO / MC for failing to move a container out of terminal within allowed free days – Charge by RR against BCO / Warehouse for failing to return railcars within allowed free days Norfolk Southern Ry. Co. v. Jefferson Iron & Metal Brokerage, Inc., 490 Fed. Appx. 297 (11th Cir. 2012) • NS claims $126,000 demurrage against Jefferson • Jefferson claims inadequate notice of demurrage and location • Trial and Appellate Court: Demurrage owed – NS Tariff imposes demurrage on empty private railcars on NS tracks – Tariff indicated that notice of presence of cars on tracks via telephone or electronic means (AccessNS, Steelroads, etc.) Detention / Demurrage • Uniform Intermodal Interchange Agreement (EP / MC) • Transportation Contracts • FMC – Formal Investigation on detention, demurrage imposed by SSL and MTO’s (Report Due 12/2/18) "In storage v. "In transit" • Length of time at a place (Hub, warehouse, etc.) – Fact dependent on Intention of parties • What does the Bill of Lading say? • Is there a Warehouse ? • Other shipment instructions or communication? • Driver frolic, or within the ordinary course of transit?

• Where did the transit begin or end? • Was delivery tendered? • Was it stored for a reasonable amount of time? • Was it moved from original loading point to a staging area? "In storage v. "In transit" • Why do we care? – Fact dependent on Intention of parties • What does the Bill of Lading say? • Is there a Warehouse Receipt? • Other shipment instructions or communication? • Driver frolic, or within the ordinary course of transit?

• Where did the transit begin or end? • Was delivery tendered? • Was it stored for a reasonable amount of time? • Was it moved from original loading point to a staging area? "In storage v. "In transit" • Why do we care? • 49 U.S.C. § 14706: Liability for carriers under a Bill of Lading, providing Transportation (subject to Carmack defenses) • In transit v in storage determination may change if carriage is governed by a Bill of Lading. • Interstate transport only. • Warehouseman’s liability: often limited through warehouse or other contract terms. • Common warehouseman’s receipt language: liability shall be limited to actual value of goods, subject to a maximum of USD $.50 per pound of goods stored, unless a declared higher value for the goods is made and higher storage rates paid.” "In storage v. "In transit" •If in interstate transit – Uniform liability regime – Preemption of state law claims via FAAAA preemption and/or Carmack preemption •If in storage – Subject to state law claims (bailment, breach of contract, etc.) – Cargo Insurance policy exclusions "In storage v. "In transit" • Who pays for storage? UCC •UCC 7-209 (1): A warehouse has a against the bailor on the goods covered by a warehouse receipt or storage agreement or on the proceeds thereof in its possession for charges for storage or transportation, including demurrage and terminal charges, insurance, labor, or other charges, present or future, in relation to the goods, and for expenses necessary for preservation of the goods or reasonably incurred in their sale pursuant to law. • UCC 7-210 (a): a warehouse's lien may be enforced by public or private sale of the goods, in bulk or in packages, at any time or place and on any terms that are commercially reasonable, after notifying all persons known to claim an interest in the goods. "In storage v. "In transit"

• Who pays for storage? Statues •Kansas: K.S.A. § 8-1103 “Any personal property within the vehicle need not be released to the owner thereof until the reasonable or agreed charges for such recovery, transportation or safekeeping have been paid, or satisfactory arrangements for payment have been made. . . . The person in possession of such vehicle and personal property shall be responsible only for the reasonable care of such property” •Cargo (property) is able to be held along with equipment •Nebraska: Neb. Rev. Stat. § 60-2410 “1) The owner or other person lawfully entitled to the possession of any vehicle towed or stored shall be charged with the reasonable cost of towing and storage fees. Any such towing or storage fee shall be a lien upon the vehicle under Chapter 52, article 6, and, except as provided in subsection (3) of this section, shall be prior to all other claims. – “The lien provided for in this section shall not apply to the contents of any vehicle.” – Contents separate from vehicle "In storage v. "In transit" • Who pays for storage? Contracts •Items to consider in drafting: – Defense, indemnity, hold harmless clauses – Food Safety concerns • Seals • Temperature • Chain of custody – Insurance coverages – Delay and damage clauses • Plant shutdown “chargebacks” • “…shall continue to be that of a carrier and not a warehouseman…” UNDERSTANDING LOADING / UNLOADING LIABILITY

LOADING LIABILITY Traditional Rule (Savage Rule): A shipper is not liable for personal injuries suffered by a third person who was injured in an accident with the shipper’s carrier arising out of improper loading / securing unless: (1) the shipper assumed those duties and (2) the defects in the performance of those duties are latent and concealed and cannot be discerned by ordinary observation by the agents of the carrier.

33 LOADING/UNLOADING Decker v. New England Public Warehouse 749 A.2d 762 (Me. 2000) • NEPW hired R.D. Roy (motor carrier) to transport paper pulp bales intrastate to S.D. Warren (consignee) • R.D. Roy assigned load to driver, Carroll Decker • Decker asked that pulp be loaded in “spaced configuration” • NEPW did so first time; second time was in a “contiguous configuration” • Both configurations looked the same from rear • Decker rolled the tractor-trailer on exit ramp • Decker sued NEPW for negligent loading

34 LOADING/UNLOADING COURT’S CONCLUSIONS • Adopts Savage rule • Carriers have final responsibility for loads hauled • Carriers have no duty to accept an unsafe load • Federal regulations impose responsibility for inspection and securing on carriers • Driver cannot impose liability on NEPW in this case because driver could have done more: • “Decker’s failure to carefully check his second load to confirm that it was exactly the same as the first load, not just that it looked the same, resulted in his failure to detect an otherwise patent defect. . . . An inadequate inspection does not force liability onto the shipper.”

35 LOADING/UNLOADING PRACTICAL CONSIDERATIONS • Assess the extent of your involvement in securement (shipper), unloading (consignee), or coordination (both). – Written Policy. – Training. – Driver Access and Observation. – Ratification Of Proper Loading / Securement (Form) – Dunnage. – Photograph of Load. – Exit “Stop” Sign

36 Shipper Liability Cases • Hoffman v. Crane (Ill. 2007) ($27 million against shipper on "joint venture" theory) • In re New Orleans Train Car Leakage Fire Litigation, 795 So.2d 364 (La. 2001) (shipper found 5% liable for failing to take steps to ensure that butadiene was being transported safely) • Puckrein v. ATI Transport, 2006 LEXIS 656 (NJ Sup. Ct. May 22, 2006) (shipper should have known that carrier had become incompetent to transport) • Dowe v. Birmingham Steel Corp., 2011 Ill. App. (1st) 091997 (2011) (rejected agency and negligent entrustment theories) Contract Provisions No substituted service or warehousing:

Will not assign, re-broker, subcontract, interline with any other motor carrier, or by substituted service with any railroad or other modes of transportation, or warehouse the shipments hereunder, or transfer the transportation of shipments hereunder to any other persons or entity conducting business under a different operating authority without prior written consent of Shipper. If CARRIER breaches this provision, among all other remedies (whether at equity or in law), SHIPPER shall have the right of paying the monies it owes CARRIER directly to the delivering carrier in lieu of payment to CARRIER. Upon SHIPPERS’s payment to delivering carrier, CARRIER shall not be released from any liability to SHIPPER under this Agreement or otherwise, including any claims under MAP-21 (49 U.S.C. § 13901 et seq.). CARRIER will be liable for consequential damages, costs, expenses, and reasonable attorney fees for violation of this Paragraph. Contract Provisions No Lien:

CARRIER shall not assert, take, cause, or permit any action to claim, or perfect a lien on any shipment hereunder or portion thereof, on its own behalf or by any other person, firm or corporation. Contract Provisions Carrier liable until delivered:

Unless otherwise agreed in writing, CARRIER shall become fully responsible/liable for the freight when it takes/receives possession thereof, and the trailer(s) is loaded, regardless of whether a bill of lading has been issued, and/or signed, and/or delivered to CARRIER, and which responsibility/liability continues until delivery to consignee at destination, and consignee signs bill of lading or delivery receipt. Contract Provisions

Freight Loss/Transit:

A. CARRIER shall be liable to SHIPPER for loss or damage to any goods transported under this Agreement. CARRIER hereby assumes the liability in the same manner as provided for motor common carriers in 49 U.S.C. § 14706. Any attempt on the part of CARRIER to limit its liability by provisions, including, but not limited to those contained in any tariff, rule, condition, bill of lading, freight receipt, stamp, or otherwise, shall be null and void and have no effect on the liability terms agreed upon by the parties in this Agreement. Contract Provisions Freight Loss/Transit:

B. In the event of partial loss or damage, CARRIER shall pay SHIPPER for such partial loss or damage, plus any costs incurred by SHIPPER in attempting to mitigate such loss or damage, including, but not limited to, costs of inspection, grading, re-working, re-packaging, and any additional storage and handling. All such mitigation costs shall be verified by or other supporting documentation showing the specific services and costs incurred, and such documents shall accompany any claim filed by SHIPPER. In the event of a total loss, CARRIER shall pay SHIPPER the price charged by SHIPPER to its customers for the goods that were damaged. SHIPPER shall also add to the amount claimed for loss or damage a third-party claim processing charge of not less than sixty-five dollars ($65) nor more than one hundred dollars ($100) per claim, which CARRIER agrees is a legitimate component of SHIPPER’S monetary loss. What if You Have No Contract?

Many Sources of Contract Terms • Written, Signed Bilateral Contracts • Bills of Lading • Carrier’s Tariff / Service Conditions / Circulars • E-mails and related communications • Course of Performance • Industry Custom • Federal (Carmack Amendment) and State Law (UCC) Marc S. Blubaugh Benesch, Friedlander, Coplan & Aronoff LLP 41 South High Street, Suite 2600 Columbus, Ohio 43215 (614) 223-9382 [email protected]

Michael H. Kroul KTI, Inc. 10301 Wayzata Boulevard Minnetonka, Minnesota 55035 (612) 444-3181 [email protected]