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.