The Court of Appeals for the Second Circuit recently reversed and remanded a district court decision holding that the Carmack amendment does not apply to an international multimodal shipment originated overseas under an intermodal through waybill.(1) The appeal court retroactively applied the Supreme Court's reasoning in Kawasaki Kisen Kaisha Ltd v Regal-Beloit Corp,(2) which abrogated the binding precedent at the time.
The facts in this case are materially indistinguishable from the facts in Kawasaki. A cargo buyer purchased cargo from an affiliate in Japan under free on board terms. The affiliate hired Evergreen, a common carrier, to ship the cargo from Japan to North Carolina. Evergreen issued an intermodal through waybill(3) for the entire shipment.(4) The waybill provided for the following conditions:
The Carriage of Goods and Sea Act was the applicable liability regime;
Evergreen was permitted to subcontract the inland portion of the carriage;
A clause paramount extended the act beyond the tackles; and
A himalaya clause permitted Evergreen's subcontractors to invoke the Carriage of Goods and Sea Act liability limitations.
In order to transport the cargo over the inland part of the shipment, Evergreen subcontracted with Union Pacific, a rail carrier, under a standard contract.(5) During the rail transit, the train derailed and the cargo was damaged.
The plaintiff, an insurance company subrogor of the cargo buyer, filed suit for loss of cargo against Evergreen and Union Pacific. Evergreen filed a cross-claim against Union Pacific. Union Pacific admitted liability and assumed Evergreen's defence under the waybill. The only issue in the case was the amount of damages. Applying binding precedent at the time, the district court held that that the Carmack amendment applied to the carriage. Evergreen and Union Pacific appealed and the appeal court was asked to decide which federal statutory scheme governed the extent of the parties' liabilities: the Carmack amendment (which is akin to strict liability) or the Carriage of Goods and Sea Act (which provides for negligence-based liability with a $500-a-package damages cap).
The appeal court retroactively applied the Kawasaki decision and vacated the district court decision holding that the Carmack amendment does not apply to a shipment that originated outside the United States pursuant to an intermodal waybill issued by a common carrier.
As stated by the Supreme Court in Kawasaki, the Carmack amendment applies only where a receiving rail carrier, as opposed to a delivering or connecting rail carrier, is required to issue a Carmack-compliant contract for the carriage of goods. A receiving rail carrier is required to issue a Carmack-compliant contract when the cargo is received as a point of origin for rail transport in the United States.
In this case, the appeal court held that the Carmack amendment did not apply to either Evergreen or Union Pacific. Evergreen received the property at the shipment's point of origin in Japan, and Union Pacific accepted the goods from Evergreen only for further transport. Therefore, neither party was considered a 'receiving rail carrier' under the Carmack amendment.
To distinguish the Kawasaki holding, the plaintiff raised a series of arguments that were rejected by the appeal court. The plaintiff argued that the facts of the case were distinguishable from Kawasaki because Union Pacific agreed to ship the cargo by rail under the terms of a standing contract. The plaintiff asserted that the contract was a "separate bill of lading for the interstates rail carriage" and, therefore, the Carmack amendment should apply to the carriage. The appeal court rejected this argument, reasoning that the contract did not call for a "new journey". The waybill called for intermodal transportation between Japan and North Carolina and the Port of Los Angeles was only a midpoint.
Second, the plaintiff argued that the case differed from Kawasaki because Evergreen's waybill provided that "all claims arising hereunder must be brought and heard solely" in the federal or state courts of New York. The appeal court refused this argument on the basis that whatever the parties agreed as to venue and choice of law, Japan was the point of origin of the shipment. Under the venue provisions of the Carmack amendment, a claim against a receiving carrier may be brought only in the judicial district in which the point of origin is located.
Finally, the plaintiff contended that Kawasaki should not be applied retroactively. This argument was also rejected on the principle that a Supreme Court holding must be retroactively applied to all cases open on direct review. The case at bar was pending on direct appeal when the Supreme Court issued the Kawasaki decision.
This decision confirms the Supreme Court's holding in Kawasaki. The Carmack amendment does not apply to international multimodal shipment originated overseas under an intermodal through bill of lading. However, this case is also important because it directs US courts to apply Kawasaki retroactively to all cases pending on review at the time the Supreme Court issued that decision. Accordingly, any case in which a court has held that the Carmack amendment applies based on the abrogated binding precedent will likely be reversed.
This case may also provide support to the argument that a subcontract issued by a rail carrier is not considered to be a Carmack-compliant contract for the carriage of goods when the shipment originated in a foreign country pursuant to an intermodal bill of lading issued by a common carrier.
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(3) A waybill typically functions in the same way as a bill of lading, except that it is non-negotiable. The term 'intermodal' means that the waybill covers multiple modes of transport (ie, truck, rail, sea and air).
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