The U.S. Supreme Court has spoken. In a 5-year-old case to determine which early-1900s cargo liability regime covers carriers’ liability for damage to international cargo moving in the U.S., the high court was conclusive: It’s the Carriage of Goods by Sea Act.
The 6-3 decision rejected the argument by a group of shippers led by manufacturer Regal-Beloit that they could claim damages under the Carmack Amendment of the Interstate Commerce Act from ocean carrier “K” Line and Union Pacific Railroad. The damage occurred in an April 2005 UP derailment in Oklahoma, but the railroad was transporting the goods under “K” Line’s bill of lading.
The majority ruled Carmack applied only to goods a railroad received in the U.S.
“K” Line and UP argued they were liable under COGSA’s terms because “K” Line loaded the cargo in China. “It follows that Carmack does not apply if the property is received at an overseas location under a through bill that covers the transport into an inland location in the United States,” Associate Justice Anthony Kennedy wrote. “In such a case, there is no receiving rail carrier that ‘receives’ the property . . . and thus no carrier that must issue a Carmack-compliant bill of lading.”
Associate Justice Sonia Sotomayor dissented, chiding the majority that to “avoid this simple conclusion, the court contorts the statute . . . misreads the statutory history, and ascribes to Congress a series of policy choices that Congress manifestly did not make.”
What shippers could collect under the two statutes is significant. COGSA, which Congress passed in 1936, limited damages to a fixed amount per package. The 1906 Carmack Amendment said a railroad was liable for the full value of the goods. In 2004, the Supreme Court ruled COGSA superseded a shipper’s attempt to collect damages in state court, but the case of Norfolk Southern v. Kirby did not consider the application of Carmack.
Maritime attorney Chester D. Hooper said a railroad’s contract for moving intermodal freight is with the ocean carrier. Under the court’s dissenting opinion, the railroad would be obligated to offer Carmack terms, but they would almost automatically be negotiated to lower limits, so majority and minority opinion were “two paths to the same outhouse.”
“The cargo owner made its contract with “K” Line, and is entitled to recover what it’s agreed to recover in its contract with “K” Line,” he said. But the shipper is not privy to the terms to which the two carriers agreed.
The court’s decision, he said, will provide uniformity to the way liability cases are handled. Railroads and truckers moving goods on a through bill are covered under the ocean carrier’s liability terms. Shippers seeking damages would sue the ocean carrier. It’s the same objective the new Rotterdam Rules would achieve. Hooper was a member of the U.N. working group that drafted the new convention, which is intended to replace COGSA. The Senate may consider ratification this year.
But shippers and carriers may find unintended consequences if the Rotterdam Rules are ratified, according to attorney Dennis Cammarana, who represented shippers in the Regal-Beloit case. The Rotterdam Rules only apply to “maritime performing parties,” which do not include rail and motor carriers.
“The Supreme Court said that Carmack does not apply to these intermodal imports from nonadjacent foreign countries,” he said. “Therefore, I believe under Rotterdam, the domestic interstate carriers are totally deregulated. It’s a matter of private contract terms. Whatever we feel like, whatever is expedient, or whatever we think the market will bear, those are the terms that are going to apply to the liability and responsibility of inland carriers.”
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