Law – February 2004

U.S. Bankruptcy Judge in Seattle ruled that carriers have a superior claim to freight charge receivables to the claim of the intermediary’s secured lender, which had loaned the broker millions against its receivables. Worldpoint Logistics (Bankr. W.D. Wash. 2003)

A carrier in possession of a shipment at the time of loss is not assumed liable for the cargo when it was not named on the bill or otherwise contractually responsible, the U.S. Court of Appeals for the Tenth Circuit recently ruled. In this case, the name or logo on the truck did not establish liability for personal injury or property damage. Mercer Trans. Co. vs. Greentree Transp. Co., 341 F.3d 1190 (10th Cir. 2003)

A New York district court held that a broker who merely arranged for a shipment between Mexico and the United States was not liable for cargo loss because it was not the carrier, did not issue a through bill and was not a bailee. George Weintraub & Sons Inc. vs. E.T.A. Transp. Inc. 2003 LEXIS 14851 (S.D.NY 2003)

U.S. Court of Appeals for the Fourth Circuit agreed with the Fifth and Eleventh circuits in holding that a shipper “assumes the risk” that it may have to pay freight charges twice in situations where an intermediary fails to transmit its payment. There is no economically rational motive for a carrier to release a shipper from joint liability when it agrees to initially bill a middleman, the court ruled. Hawkspere Shipping Company vs. Intamex, 330 F.3d 225 (4th Cir. 2002)

A shipper that had paid a middleman was found liable for freight charges to the underlying carrier on the grounds of quasi-contract, a recent U.S. Court of Appeals for the Sixth Circuit ruling held. The same court in a previous case had applied equitable estoppel to preclude carrier recovery, but in this case the shipper could point to no action by the carrier to support a claim that the carrier had surrendered the right to recourse. Contship Container Lines Inc. vs. Howard Industries Inc. 309 F.3d 910 (6th Cir. 2002)

A shipper cannot rely solely on the bill of lading to prove the quantity and quality of goods shipped where the load is sealed at time of pickup, the U.S. Court of Appeals for the Eleventh Circuit has ruled. A.I.G. Uru. Compania de Seguros S.A. vs. AAA Cooper Transp. 334 F.3d 997 (11th Cir. 2003)

A Georgia district court ruled that a freight forwarder cannot seek full value for cargo loss where its own liability to its shipper/customer is limited by contract. Carriers, therefore, can demand the benefits of a released rate negotiated by the broker or forwarded when presented with a claim. AIT vs. U.S. Xpress (N.D.Ga. 2003) See also Medtronic Inc. vs. U.S. Xpress, 341 F.3d 798 (8th Cir. 2003)

South Carolina House of representatives last month approved legislation that would establish financial penalties for individuals and lawyers who pursue frivilous lawsuits, would cap non-economic damages at $2 million and would restrict the venue where a lawsuit can be filed.

READY FOR LOADS INTO MEXICO?

Q We have been awarded a nice contract to transport shipments from the United States to Mexico providing through trailer movement in conjunction with a Mexican carrier at the border. Can you provide me with a suitable interline agreement?

A I can certainly provide you with an interline agreement, but I am not at all certain that is what you want or need. “Interlining,” or providing “joint line” service, is a term of art that relates to a partnership between two or more carriers for the through movement of traffic from a point of origin to an ultimate destination. In interlining, the origin carrier accepts joint and several liability for the safe delivery of the shipment, may be sued for a loss in transit and in turn has the right of indemnity or recompense from its joint line partner if the loss occurred while the other carrier was in possession and control of the goods. Interlining is an established practice in the United States with respect to less-than-truckload carriers, but there are many practical problems involved when shipments moving to or from Mexico are involved.

In the truckload Rules Circular, which our firm recommends to clients, Item 220 provides:

MEXICAN SHIPMENTS
“Carrier does not accept liability for loss or damage to shipments under transport in the Republic of Mexico. Carrier participates in international shipments originating or destined to Mexico on a combination of rates basis notwithstanding any arrangements for through trailer movements. Shippers are advised that liability for cargo loss in the Republic of Mexico differs from U.S. law (49 U.S.C. 14706) and the special arrangements with the Mexican carrier participating in any transborder movement is not the carrier’s responsibility.”

As a starting point, language like this should be introduced into any contract involving shipments having a prior or subsequent movement to or from Mexico by a Mexican carrier. Although it is the intent of the North American Free Trade Agreement to make movements between the two countries seamless, we are not there yet. In the United States, carriers are generally liable for the full actual value of any shipment lost or damaged in transit under the Carmack Amendment, 49 U.S.C. 14706. If a shipment is lost or damaged in the Republic of Mexico, the carrier’s liability is a few pesos per pound, and few carriers accept responsibility for full value losses or have the insurance necessary to make good on an indemnity.

So in the absence of very careful arrangements, a U.S. carrier should not cavalierly “interline” shipments with a Mexican carrier, issue through bills or accept joint liability for loss or damage that is beyond its control. Unfortunately, several courts have held U.S. carriers liable for losses arising in Mexico where a through bill of lading was issued even though the U.S. carrier had intended to accept no liability for the shipment past the border. For this reason, a small carrier is best served using its own bill of lading and consigning the shipment to the shipper’s agent at the border.

Rather than “interline” shipments for through movement to Mexico, many carriers enter simple “Interchange of Equipment” agreements that allow the Mexican carrier to use the U.S. trucking company’s equipment in movements beyond the border. Such an agreement allows for the Mexican carrier chosen by the shipper to use your trailer, either with or without compensation, provided it is returned, ordinary wear and tear excepted. Importantly, an “Interchange of Equipment” agreement does not make the U.S. carrier liable for loss or damage to the shipment beyond the U.S. border. If the shipper retains the Mexican carrier for the movement from the border into Mexico, the Mexican carrier signs your delivery receipt at the border as evidence that your job has been completed.

With the implementation of NAFTA, Mexican carriers will extend their service into border states, and U.S. carriers will become increasingly involved in transborder traffic. But at least for now, the distinctions between “Trailer Interchange” and accepting “Joint Line” or “Interlining Partner” responsibility are important. Take great care not to accept liability inadvertently under U.S. law (the Carmack Amendment) for uninsured and unindemnified losses occurring in Mexico while being transported by another. Unless you are certain the Mexican partner is obligated and sufficiently insured to meet the full value liability standards set by U.S. law and otherwise to fully indemnify you, I would not advise you to enter an interline or “through bill” agreement.

– Henry Seaton is a transportation lawyer who represents carriers.


FMCSA UPHOLDS HAZMAT PENALTY
A civil penalty of $15,400 levied against Initial D.S.I. Transports for a spill of 17 to 25 gallons of concentrated sulfuric acid was not excessive, Federal Motor Carrier Safety Administration Chief Safety Officer John Hill ruled last month. The November 1999 spill occurred because the driver failed to properly cap the cargo tank. Based on a Uniform Fine Assessment worksheet, the field administrator calculated a recommended penalty of $12,880, which he raised to $15,400 due to the seriousness of the potential damage.

Initial D.S.I. sought relief on the grounds that the incident was isolated and not deliberate, that the carrier had taken preventive measures to prevent future such incidents and that the carrier took immediate action to notify appropriate authorities to allow for a prompt cleanup. Hill, however, upheld the penalty, noting that highly concentrated sulfuric acid is an extremely dangerous hazardous material. “An acid spill caused by employee negligence may result in damage just as severe as one done with malicious intent,” Hill said. (Docket No. 9317)