Plugging Leaks with a Release Instrument

In Watson v. Moger, No.20-5433 (W.D. Wash. Aug. 10, 2021), plaintiffs – owners of a boat they desired to ship over land from California to Oregon – filed suit under the Carmack Amendment, claiming defendants – owners of a transportation company – damaged their boat during transit.

Of interest here is a release instrument executed by one of the plaintiffs in favor of the defendants, entitled a “Wood Boat/Hull Release.” (“Release”). The Release, executed on his behalf by Mr. Watson’s wife, co-plaintiff Sarah Watson, provided

I, Eric Watson, understand that my boat is used and may have latent or obvious defects. These defects may cause damage to my boat a 1962 Chris Craft originally 45 foot with add on boat anchor and swim deck that makes it 50 ft.

I therefore hold Moger Yacht Transport and its assigns harmless from damages attributable to these latent or obvious defects. I relieve Moger Yacht Transport of any liability or responsibility for damages that may result from the transport of my boat from time of loading to time of unloading on April 4, 2019.

A carrier, under the Carmack Amendment, “may establish rates for the transportation of property . . . under which the liability of the carrier for such property is limited to a value established by written or electronic declaration of the shipper or by written agreement between the carrier and shipper if that value would be reasonable under the circumstances surrounding the transportation.” 49 U.S.C. § 14706(c)(1)(A).

Citing OneBeacon Ins. Co. v. Haas Indus., Inc., 634 F.3d 1092, 1099 (9th Cir. 2011), the Court ruled that the Defendants complied with the requirements to limit their liability to the Watsons under the Carmack Amendment. Defendants “have shown that they indicated to the Plaintiffs that they would not ship the boat absent execution of the release, and so gave the Plaintiffs ‘a reasonable opportunity to choose between two or more levels of liability.’ The Plaintiffs do not dispute that the release was executed . . ., obtaining their ‘agreement as to their choice of carrier liability limit.”

Responding to Plaintiffs argument that the release was limited to latent or obvious defects, and did not extent to ordinary or gross negligence, the Court, referring to the “any liability or responsibility for damages” language contained in the release, stated that “[t]he plain language of the release encompasses the asserted ‘negligence or gross negligence’ and damages here.”

Shippers should always carefully review contracts, bills of lading, and other instruments presented for their signature by transportation companies and brokers. This is especially important when considering a document designated as a release, waiver, or other potential limitation of liability. If in doubt, confer with competent counsel.

No Private Right of Action: A Fire That Only Congress Can Extinguish

In Nexus Alarm & Suppression, Inc. v. MG Logistics, Inc., Case No. 20-cv-6043 (N.D. Ill. May 27, 2021), Nexus – apparently the intended consignee and/or bailee of specialized fire extinguishers – filed suit against the carrier MG Logistics for damages that occurred to the extinguishers while in transit.

After rejecting the extinguishers, Nexus submitted a claim to MG Logistics and to Nexus’ insurer, Hartford. The claim was denied, and without providing Nexus advance notice, MG Logistics or Hartford sold the extinguishers for salvage, yielding $78,000.

Nexus filed a two count complaint against MG Logistics under the Carmack Amendment, and a regulation promulgated thereunder (49 C.F.R. § 370.11). The regulation sets forth a carrier’s responsibility to salvage goods that are rejected after suffering damage in transit.

Defendant MG Logistics moved the Court to dismiss Count II of the complaint which was based upon the regulation, arguing that the rule did not provide for a private cause of action.

Judge Seeger noted that only Congress can create a private cause of action to enforce statutory or regulatory provisions. “[R]aising up causes of action where a statute has not created them may be a proper function for common-law courts, but not for federal tribunals. . . . courts cannot create private rights of action based on their policy preferences. That’s the job of Congress.”

The Court explained that the same can be said for the Executive Branch, which “can’t create a private right of action.”

And while Congress did create a private right of action under the Carmack Amendment, that does not mean that regulations promulgated thereunder offer the same right to a plaintiff. “[T]he Supreme Court has rejected the idea that a right to sue under a statute means that Congress intended a right to sue under a regulation, too.” Thus the Court granted MG Logistics’ motion to dismiss Count II, leaving the Carmack Amendment claim intact.

While creative legal arguments that comport with FRCP 11 can some times, when accompanied by the “right” facts, yield a remedy for an otherwise out-of-luck plaintiff, they come with no guarantees. As a practical matter, it seemingly would have been prudent for MG Logistics and/or the insurer to contact the harmed party here (Nexus) in advance to confer about a salvage sale. Perhaps a greater recovery could have been realized. But the apparent lack of prior notice to Nexus isn’t enough to create a private right of action under the regulation. Only Congress has that power. Hopefully Nexus was more successful with its Carmack Amendment claim.

Shipper Claims Against Freight Broker Not Entitled to Carmack Amendment Preemption

 In Quality King Distributors, Inc. v. Celtic International, LLC (N.D. Ill. Dec. 10, 2020), the plaintiff shipper, Quality King, sued Celtic in state court for the alleged non-delivery of two shipments.  Unknown to Quality King at the time it contracted with Celtic, third party GSN Trucking, Inc. was hired by Celtic to haul the shipments.  Celtic removed the case to federal court, arguing that Quality King’s breach of contract claim was preempted by the Carmack Amendment, and, furthermore, that the complaint does not state a cause of action under the Carmack Amendment.

Citing a 2008 Seventh Circuit case that in turn quotes the 1987 decision in Hughes v. United Van Lines, Inc., 829 F.2d 1407, 1414 (7th Cir. 1987), Judge Gottschall explains that “[t]the preemptive sweep of the Carmack Amendment extends to state causes of action against carriers where good are damaged or lost in interstate commerce.” (internal quotations omitted). 

But not so fast.  The court also notes that Celtic was a freight broker – not a carrier – for the shipments at issue.  Thus the question becomes whether the Carmack Amendment preempts plaintiff’s breach of contract claims against a freight broker.  Citing U.S. Supreme Court and Seventh Circuit case law, the Court here instructs that under the Carmack Amendment a common carrier is liable for all losses which occurred while the goods were being transported by it, unless the carrier can demonstrate it is free from fault.  The Carmack Amendment also preempts all state law claims based upon the contract of carriage, in which the harm arises out of the loss of or damage to goods.

Thus it appears straightforward that breach of contract (state law) claims against a carrier for loss or damage to shipped freight are preempted by the Carmack Amendment, which also assigns liability.  But not where a shipper is pursuing a freight broker.  “Claims involving separate and independently actionable harm to the shipper distinct from such damage are not preempted.”  (Seventh Circuit citations omitted).  Thus the Court, like other courts in the district, held the Carmack Amendment does not preempt state law/common law claims against a party acting solely as a broker (i.e. “breach of a duty to place a shipment with a reliable and adequately insured carrier.”).  The case thus was remanded to the Circuit Court of Cook County.    

This case should remind freight brokers, and other non-carriers who could be called to account for lost or damaged freight, the Carmack Amendment will not necessarily entitle you to a day in federal court to resolve the matter.