Carmack Rolls in His Grave

Copyright 2003, Traffic World, Inc.

If Sen. Edward W. Carmack, author of the Carmack Amendment in 1906, could see what Congress did to his landmark legislation in 1995, and how it is being interpreted and applied by the motor carrier and railroad industries to the disadvantage of the shipping community, he would roll over in his grave.

One of the fundamental objectives of the Carmack Amendment was to codify the common law principle that carriers in the United States are liable for the full actual loss of goods damaged by them in transit. The only exception was when a carrier established a lower rate in return for a limited liability established by a written agreement with the shipper. The shipper's option and informed consent to the lower rate and lower liability was the key to this common law provision.

The railroad industry made a mockery of this principle when in 1980 it lobbied Congress for exemptions from regulation. Congress required railroads, however, to offer a full value rate if they offered a lower "released" rate. The result was that railroads changed their full value rates to their new "released rates" subject to shortened time limits and numerous exculpatory conditions, and made their full value rates so prohibitively high that shippers were forced to ship at the released rates. Some of these penalties for electing full value rail service are 250 percent higher than the released rates. That certainly was not what Sen. Carmack had in mind!

Beginning in 1996, a new section was added to the Carmack Amendment, 49 U.S.C.? 14706 (c)(1)(B), whereby motor carriers must provide a copy of their unfiled "rate, classification, rules and practices," but only "on request of the shipper." This addition to the Carmack Amendment is being interpreted by many motor carriers, and by some courts, as permission to publish liability limitations in their unfiled motor carrier tariffs even when the shipper has no notice of the liability limitation and has not agreed to it in writing. As a result, many shippers are being surprised by a low limit of liability in the carrier's tariff when they file a claim. These court rulings ignore the fact that subsection (A) of the same statute continues to require carriers to obtain the written agreement of the shipper if it elects to offer a lower rate in return for lower liability.

How could Congress have enacted legislation that is so adverse to the public interest? The root cause was the improper lobbying activities of Ann Eppard, House Transportation and Infrastructure Committee Chairman Bud Shuster's chief of staff for 30 years, who retired and became a lobbyist. She is reported to have earned over $1 million in her first year from firms seeking legislation from Shuster. One of her clients was the Regular Common Carrier Conference that represented LTL carriers seeking the changes in Carmack that would permit them to limit their liability without actual notice to their customers, and to establish a uniform liability limit of $2.50 per pound on all freight. When shippers and carriers could not reach accord on the changes desired by the motor carriers, Shuster adopted the carrier's amendments, which were enacted in the controversial provisions in subsection (c)(1)(B) of ? 14706.

In connection with Eppard's lobbying efforts, Shuster later was reported as being investigated by the Justice Department for "influence peddling" through his former chief of staff, who had been indicted by a grand jury on a charge of bribery. The House Ethics Committee censured Shuster on Oct. 10, 2000, and he resigned from Congress on Jan. 4, 2001.

But why is the shipping public still saddled with this unconscionable provision that is so repugnant to our fundamental carrier liability law? A better question is what is the "shippers' lobby" doing about this situation that is costing shippers millions of dollars a year?

Now, a new controversy is surfacing regarding the Carmack Amendment. Rep. Tom Petri, R-Wis., has introduced H.R. 1070, the Securing Consumers' Assurance in Moving Act of 2003, that would repeal Carmack's preemption of state laws with respect to claims for loss, damage and delay to household goods, thus permitting the application of state consumer protection laws against household goods movers. At the same time, the U.S. Attorney's Office has indicted 16 moving firms and 74 people for conspiracy, wire fraud, extortion, mail fraud and making false bills of lading.

This proposed legislation would allow the states to enforce state consumer protection laws against fraudulent movers. If Sen. Carmack could read the horror stories from the thousands of victims of movers who file complaints with the Federal Motor Carrier Safety Administration, and formerly filed with the Interstate Commerce Commission, he would probably agree that the preemptive effect of his legislation needs to be modified to address the current business and regulatory environment.

Some carriers simply are acting as if there are no laws or regulations governing their operations. Deregulation has created an environment in which a few unscrupulous carriers are victimizing transportation consumers. The application of state consumer protection laws would discourage such practices. The only problem with this legislation is that it does not provide for assessment of punitive damages against carriers engaging in fraudulent practices.

The many excellent carriers that do not employ such claim-handling practices need not be concerned. If this law is enacted, carriers that systematically ignore claims, force claimants to sue them or otherwise violate the law will be induced to quickly change their policies to avoid prosecution and costly fines as well as possible imprisonment. Sen. Carmack would rest better if carriers' customers were permitted to utilize state law remedies to equalize their bargaining power when negotiating claims.

-- Augello is executive director of the Transportation Consumer Protection Council Inc., an adjunct professor at the University of Arizona and of counsel to Augello, Pezold & Hirschmann P.C., of Huntington, N.Y.

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