Balancing maritime and railway law

By Kevin Russell
on Mar 19, 2010 at 12:04 pm

On Wednesday, March 24, the Court will hear argument in “a maritime case about a train wreck.”  At least, that is how petitioners hope to persuade the Court to view the case.  In essence, the dispute in these consolidated cases boils down to whether liability for goods damaged in a train derailment is governed by a railroad statute or maritime shipping statue, when the goods were transported under a contract that involved transportation by both land and sea.  A central issue in resolving that question is what courts should do when Congress passes what it says is a technical, non-substantive amendment that, in fact, appears to change the statutory language in a material, substantive way.

Background

Companies wishing to ship goods from overseas often contract with companies that promise to deliver the goods by various modes of transport to the final destination (rather than forcing the customer to separately contract for the ocean-going and land transportation legs of the journey).  This sort of arrangement involves “multimodal” transportation under a “through bill of lading” (which is basically the contract covering the entire voyage).  In this case, petitioner K-Line provided a through bill of lading to deliver goods in cargo containers from Shanghai to various points in the U.S.  The containers traveled by ship to Los Angeles, where they were put on railcars operated by petitioner Union Pacific Railroad under a contract with K-Line.  The train derailed in Oklahoma, destroying the cargo.

The customers then sued both K-Line and Union Pacific in state court in Los Angeles.  After removing the cases to federal court, the defendants moved to dismiss the cases because the contract with K-Line had a forum selection clause that required all disputes arising out of the contract to be litigated in Tokyo.  The plaintiffs argued that the forum selection clause was unenforceable under the “Carmack Amendment” to the Interstate Commerce Act.  That provision, originally enacted in 1906 and later amended and recodified in 1978, provides that lawsuits arising from damage to goods during covered rail transportation can be brought where the railroad first received goods (and prohibits rail carriers from contracting out of that forum).  The defendants argued that the provision did not apply, and that another statute – the Carraige of Goods by Sea Act (COGSA) – governed liability, and allowed parties to agree on a forum for resolving disputes.

The district court agreed with the defendants, but the Ninth Circuit reversed.  Both defendants petitioned for certiorari separately and successfully.  The Court consolidated the cases for argument.

The Issues

1.  Petitioners argue that this controversy is governed by the COGSA because the shipment began with an ocean voyage.  Although, by its terms, the statute is limited to damage that occurs on the ship, the Act allows parties to agree to apply COGSA terms to the in-land portion of the shipment (through what is known as a “clause paramount” in the through bill of lading).  Furthermore, the bill of lading can also contain a “Himalaya clause” that extends the terms of the bill of lading (including the COGSA terms) to other companies that have subcontracted with the initial shipper (including in-land rail carriers like Union Pacific).  And the COGSA allows parties to include a forum selection clause in such contracts.

Respondents, however, argue that nothing in that COGSA provision purports to pre-empt other statutory limits on forum selection clauses (and petitioner seem not to disagree).  As noted above, the Carmack Amendment provides one such limitation, when it applies.  The real issue of dispute, therefore, is whether Carmack applies in this case.

The Carmack Amendment basically provides that when a rail carrier accepts cargo for shipment, it must issue a through bill of lading to the final destination and take responsibility for any damage to the goods that occurs along the route, even if the originating carrier contracts with some other railroad for part of the journey.  But until at least 1978, the statute was limited to transportation occurring wholly within the United States or originating the in United States “to a point in an adjacent foreign country.”  Under those terms, the provision would not apply in this case because the shipment originated in China (and because China is not adjacent to the U.S. in any event).

In 1978, Congress recodified Carmack through a bill that was described as technical and non-substantive.  A provision of the bill even provided that the recodification “may not be construed as making a substantive change in the laws replaced.”  That said, however, the bill seemingly broadened the coverage of the Carmack Amendment by requiring through bills of lading be issued by any rail carrier falling within the jurisdiction of the Surface Transportation Board, which has jurisdiction over not only shipments from the United States to adjacent countries (as covered by the prior version of Carmack) but also over shipments originating outside the United States (including from non-adjacent countries, like China).

K-Line and Union Pacific (represented respectively by Kathleen Sullivan of Quinn Emanuel and Maureen Mahoney of Latham & Watkins), argue in the Supreme Court that Congress’s insistence that the 1978 amendment not be construed to make any substantive change in the law must prevail.  Respondents (represented by David Frederick of Kellog Huber) argue that the plain language of the present statute controls.  (The United States, appearing as amicus, agrees with the petitioners).

2.  K-Line argues that Carmack also does not apply to it, because it is not a “rail carrier” within the jurisdiction of the Surface Transportation Board.  K-Line does not own or operate trains in the United States; it simply contracted with Union Pacific to provide rail service.  That, respondents say, is enough under the statutory definitions in the Interstate Commerce Act.  K-Line disagrees, arguing that such an expansive construction would create a jurisdictional conflict between the Surface Transportation Board (which oversees rail carriers) and the U.S. Federal Maritime Board (which otherwise has jurisdiction over a company that engages in ocean-going transportation).

3.  Finally, petitioners argue that even if the Carmack Amendment would otherwise apply on its own terms, they have been removed from its coverage under a more recent provision of the  Interstate Commerce Act.

Section 10709 of the Act allows railroads and their customers to essentially contract out of the statute’s requirements.  Petitioners argue that they did so in their through bill of lading.  Respondents (with support from the United States) argue however that this authority was revoked by an order of the Surface Transportation Board.  Another provision of the Act, Section 10502, gives the Board authority to exempt railroad carriers entirely from Part A of the statute, if it makes certain findings (which the Board has done).  The problem for petitioners, say respondents and the Government, is that Section 10709 – the provision that allows railroads to contract out of regulation on their own – is part of Part A.  As a result, the argument goes, the Board’s exemption order had the effect of eliminating the railroads’ authority to exempt themselves from Carmack.

One might wonder why that matters – after all, didn’t the Board’s own exemption order independently set aside Carmack (which is also found in Part A)?  No, the Government and respondents say.  That is because the Board’s exemption authority is limited by a proviso that says that the exemption order does not relieve carriers from an obligation to provide contractual terms to their customers consistent with the Carmack Amendment.

Petitioners in turn insist that that the Board’s exemption authority (which was intended to promote deregulation) should not be read to extend to eliminating a carrier’s power under Section 10709 to contract out of regulation.  And in any event, they argue, they did offer Carmack compliant terms (a point respondents contest).