The Intermodal Lead
Legal Developments in Freight Carriage, Logistics and Transportation Infrastructure
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He has worked extensively on a variety of commercial, transportation,
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ma ers. He has represented numerous local and national corporations
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Suit in a non-designated forum results in dismissal of case – and sanctions
By Steve Block
As we know quite well by now, those forum designation clauses New York City. The port of departure was New Orleans. Hurricane
ocean carriers stick in their standard bills of lading, service Katrina intervened, and the container was surveyed for damage. A
contracts and incorporated terms and conditions have been maritime surveyor found none, but prompt testing of the equipment
enforceable since the U.S. Supreme Court’s 1995 decision in Vimar was recommended. If the shipper did any such testing, it wasn’t
Seguros y Reaseguros, S.A. v. M/V Sky Reefer. As part of a trend reported to Maersk.
and process that ultimately led to ocean shipping deregulation, Sky
The shipper brought suit against Maersk in the Second Maritime
Reefer was founded on the notion that parties to contracts should
Court of Panama, claiming replacement value (not invoice costs,
be free to select their own terms, including where they will resolve
which probably is the correct measure of damages) of the freight,
dispute. Most typically, Sky Reefer’s effect is to give U.S. trial courts
plus a variety of consequential damages totaling some $10 million.
grounds to dismiss cargo lawsuits in favor of courts or arbitration <continued on page 2>
tribunals speciﬁed in shipping documentation.
However, the Southern District of New York recently issued a In This Issue
decision that shows shippers and their lawyers how forum selection
clauses can be far more than procedural inconveniences, and Suit in a non-designated forum results in dismissal
that courts sitting in admiralty have limited patience for abuse of case – and sanctions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
of process. Transportation Industries Group Contacts . . . . . . . . . . . . . . . . 2
Recent Cases in Motor Carrier Law . . . . . . . . . . . . . . . . . . . . . 3
Shipper Quality Print arranged through a pair of forwarders shipment A “customary freight unit” can be determined by ﬂat rate
of a container of printing machinery from Milwaukee to Guatemala a carrier charges for entire load, but the Rotterdam Rules
with ocean carrier Maersk. Maersk’s bill of lading contained a forum might change the outcome …. . . . . . . . . . . . . . . . . . . . . . . . . 6
selection clause mandating that litigation against it take place in
The Bi-Monthly Newsletter of Foster Pepper’s Transportation Industries Group Volume 1, Issue 1
For comments or additional information on the articles in this issue, please contact Steve Block | 206.447.7273 | email@example.com
The contents of this communication are provided for informational purposes only and do not constitute legal advice.
Suit in a non-designated forum results in dismissal of case – and sanctions
<continued from page 1>
To avoid an order of arrest of its vessel out of Panama, Maersk on abuse of process, breach of contract (by violating the forum
was forced to post a $10 million cash bond, as Quality Print selection clause), and contempt of court. Maersk should be able to
refused to accept a “letter of undertaking” customarily submitting recover all of its losses, including attorneys’ fees, if there’s anything
by steamship lines’ insuring entities. A second suit in Guatemala left of Quality Print to pay the judgment (which is uncertain, as
ensued, and the court there, on the shipper’s motion, appointed an defaulting defendants whose counsel withdraw midstream don’t
“intervenor” to occupy and oversee Maersk’s Guatemala City ofﬁce. make good judgment debtors).
This caused signiﬁcant disruption to the ofﬁce’s operations.
Forum shopping, and foreign carriers reserving a home-court
The shipper’s machinations then came to light. On further advantage by mandating that litigation against them take place in
proceedings, a frustrated Panama court subsequently knocked their own countries, were major concerns expressed in the Sky
down the claim to less than 800 grand, ﬁnding no evidence Reefer litigation. In practice, smaller shippers often don’t focus
supporting Quality Print’s original claim amount. Needless to say, on forum selection clauses at all, or don’t have the business clout
the whole mess cost Maersk a bundle. The carrier’s lawyers then to insist on more convenient litigation locales. Larger shippers
went to work. sometimes include jurisdiction in terms they negotiate with ocean
Maersk ﬁled suit in the Southern District of New York seeking carriers in their service contracts, but litigation in distant places isn’t
to enforce the forum selection clause and to recover an array of as onerous for them.
damages and sanctions based on the shipper’s disregard of the Reactions like the Southern District of New York’s against Quality
forum selection clause. Quality Print’s motion to dismiss the suit Printing aren’t typical. However, U.S. federal courts have never been
was denied, whereupon its counsel withdrew from representation, keen to tolerate violations of forum selection clauses, especially
and the shipper defaulted on all subsequent proceedings. when they involve the kind of abuse shown here. If your bill of lading
Concluding that Quality Print’s actions were a well-orchestrated contains a forum selection clause, don’t ignore it.
attempt to milk Maersk, the U.S. federal took off its gloves. It Ref: A.P. Moller-Maersk d/b/a/ Maersk Sea-Land v. Ocean Express Miami,
dismissed Quality Print’s damaged cargo claim against Maersk, et al., 648 F.Supp.2d 490 (SDNY 2009); Vimar Seguros y Reaseguros, S.A.
and found the shipper liable to Maersk for huge damages based v. M/V Sky Reefer, 515 U.S. 528 (1995)
Foster Pepper PLLC Transportation Industries Group
Steve Block Ed Harley
206.447.772 | firstname.lastname@example.org 206.447.4688 | email@example.com
Joe Brogan Mark Munro Recent and Upcoming
206.447.6407 | firstname.lastname@example.org 206.447.5335 | email@example.com Speaking Engagements
Beth Clark T.J. Parkes
206.447.8893 | firstname.lastname@example.org 206.447.8984 | email@example.com Steve Block will present:
• Legal Implications of Insurance Coverages
Rod Dembowski Mike Schechter Available to Transportation Intermediaries
206.447.2813 | firstname.lastname@example.org 206.447.4669 | email@example.com • TIA 32nd Annual Convention and Tradeshow
• April 8, 2010
Steve DiJulio Jeannie Simpson and:
206.447.8971 | firstname.lastname@example.org 206.447.7908 | email@example.com • Multimodal Lightning Round
• 2010 TLA Annual Conference and CTLA
Sinjin Dinh Russell Terry Mid-Year Meeting
206.447.8975 | firstname.lastname@example.org 206.447.7265 | email@example.com • April 30, 2010
Steve Gillespie Adrian Urquhart Winder
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The Intermodal Lead | Volume 1, Issue 1 2 Foster Pepper PLLC | www.foster.com | 800.995.5902
Recent Changes in Motor Carrier Law
By Steve Block
Substitute transportation costs are foreseeable, Another pleading issue: failure to plead that
and therefore recoverable, consequential damages transportation service provider is a broker renders
under Carmack. case subject to Carmack; and Carmack doesn’t
American Home Assurance co. v. RAP Trucking, Inc., provide attorneys’ fees to commercial shippers.
2010 WL 547479 (S.D. Fla. 2010) FNS, Inc. v. Bowerman Trucking, Inc., 2010 WL 532421
(S.D. Cal. 2010)
Multi Image Group (“MIG”) had a business deal to produce its
customer’s marketing convention by supplying and operating FNS, apparently a surface freight forwarder, entered into a contract
various audio and visual equipment. It hired freight broker Showtime with motor carrier Bowerman Trucking to haul a load of cell phones
Transportation to arrange carriage of the equipment from MIG’s owned by shipper LG Electronics. The cargo, worth some two million
facility in Florida to the convention site in Illinois. Showtime bucks, disappeared while a Bowerman truck allegedly was left
engaged carrier RAP Trucking to haul the load, submitting to it a unattended. FNS paid LG the cargo’s value, and then set its sites
Rate Agreement form that proclaimed that the “Shipment is Very on Bowerman in the Southern District of California.
Time Sensitive” and that “Any Tardiness could Result in a Fee to
FNS’s complaint alleged that Bowerman was a motor carrier, and
sought damages based on a variety of state and common law
The RAP truck carrying MIG’s freight was involved in an accident in claims and Carmack. FNS didn’t plead an alternative cause of action
the Prairie State. The Illinois state police cordoned off the area for against Bowerman alleging it was a broker. Bowerman moved to
several days, preventing RAP from sending another truck to fetch dismiss based on Carmack preemption of state and common law
and deliver the cargo. MIG had to procure and send replacement causes of action.
equipment with another trucker to meet its obligations to the
The court granted the motion. The complaint’s passing mention
customer. It collected some 163 grand from its insurer American
of broker liability was insufﬁcient to constitute an allegation that
Home to pay the costs, and American Home proceeded to sue RAP
Bowerman was subject to state and common law as a freight
broker. In the same motion, it dismissed FNS’s attorney fee claim,
RAP argued that the costs of replacement equipment were as the portion of Carmack authorizing fee awards is limited to
consequential damages unrecoverable under Carmack. MIG, its household shippers.
insurer, and ultimately the Southern District of Florida, disagreed.
Broker may not implead carrier as third-party
Granting the plaintiff’s motion for summary judgment, the court
defendant in claim against broker for nonpayment
observed that this actually wasn’t the ﬁrst convention equipment
of remitted freight charges.
job RAP had done for Showtime, and the Rate Agreement form L’Occitane, Inc. v. Tran Source Logistics, Inc., et al.,
made the load’s time sensitivity clear. The fact it didn’t spell out the 2010 WL 761201 (D. Md. 2010)
precise consequential damages that would ensue didn’t mean they
weren’t foreseeable. Clearly they were. This case shows some of the business complications that sprout
from the rather complex nuances of transportation intermediary
RAP also argued that Carmack’s “act of public authority” defense contracts. Shipper L’Occitane contracted with broker Trans Source
should shield it from liability. The Illinois police’s barricade prevented Logistics (“TSL”) to place its freight for interstate distribution. TSL
the carrier from retrieving the freight and delivering it timely. At engaged motor carrier AFC Worldwide Express to make some of
a minimum, RAP argued, questions of fact derive from the cops’ the hauls. TSL had a commission arrangement with AFC whereby
activities. That argument sounds like it might have legs, but the AFC would pay TSL 2.5% of the freight charges it collected for all
court dodged it on the ground RAP didn’t plead it in its answer. transportation (including loads from shippers other than L’Occitane).
AFC allegedly withheld some of those commissions. L’Occitane
<continued on page 4>
The Intermodal Lead | Volume 1, Issue 1 3 Foster Pepper PLLC | www.foster.com | 800.995.5902
Recent Changes in Motor Carrier Law <continued from page 3>
had paid TSL $160,000 in freight charges for moves AFC effected, 5K Logistics probably was a broker, although it may have been a
and TSL withheld those funds from AFC, apparently as an offset freight forwarder (the opinion doesn’t get into it). It entered into a
for the unpaid commissions. L’Occitane entered into some sort master service contract with shipper Dominion Resources to move
of agreement directly with AFC to pay the carrier freight charges certain construction equipment, including a heat exchanger. After
without going through TSL. receiving an order subject to the contract, 5K engaged carrier
Daily Express to haul the heat exchanger from Pennsylvania to
When AFC withheld L’Occitane’s freight and made noises about
Maryland. The trucker allegedly failed to “overstrap” the cargo,
coming after the shipper to collect freight charges unpaid by
and it fell offthe truck, damaging it to the tune of some 192 grand.
TSL, L’Occitane sued TSL in the District of Maryland. TSL
The parties went to the mat.
impleaded AFC by way of a third-party action alleging indemnity,
and counterclaimed against L’Occitane, claiming that the Granting Dominion’s motion for summary judgment and holding 5K
L’Occitane-AFC contract amounted to tortious interference fully liable, the court addressed the contract’s express warranties
with a business expectancy. that were subject to enforcement if they were within 5K’s “scope
of work,” a concept that wasn’t deﬁned. The opinion doesn’t get
L’Occitane moved to dismiss the counterclaim and third-party
into why 5K, assuming it was a broker, should be liable for this
action. Contrary to TSL’s allegations, AFC was not an indispensible
at all. The court seemed to look at the haul as something within
party to L’Occitane’s action. A third-party action must derive from
5K’s scope of work just because Dominion placed the order. This
the same subject matter as the primary action. A broker’s obligation
ignores decades of law governing broker liability. Where was 5K
to remit funds it received on AFC’s behalf may not be qualiﬁed by
negligent? Nothing in the factual scenario explains why 5K should
some separate dispute it has with a carrier. L’Occitane didn’t even
be vicariously liable for Daily Express’s or, perhaps, Dominion’s
know about the TSL-AFC commission contract.
negligence. Absent some sort of speciﬁc agreement so providing,
TSL tried to characterize a shipper-carrier agreement as a “special it shouldn’t have to pay here.
relationship” that gives rise to an intermediary’s indemnity claim
in this circumstance. That vague argument was unsubstantiated.
The UIIA: Interchange periods continue after delivery.
Yang Ming Marine Transport Corp. v. Intermodal Cartage Co, Inc., 2010
If anything, a broker is in a special position – holding freight charges
WL 596447 (W.D. Tenn. 2010)
earmarked for a service provider – that imposes obligations on it.
Similarly, nothing in the record suggested L’Occitane knew about Ocean carrier and intermodal equipment provider Yang Ming
TSL’s agreement with AFC, so it could not be liable on a tortious had a standard equipment interchange agreement with drayage
interference theory. This action is between a shipper and broker operator Intermodal Cartage Co. (“Intermodal”). That agreement
based on the latter’s non-remission of freight charges. It will was the standard Uniform Intermodal Interchange and Facilities
remain that way. Access Agreement (“UIIA”). Yang Ming provided empty containers
to facilitate transportation of shipper Mitsubishi’s cargoes of
Intermediary liability from a contract law perspective. electrodes from Japan to Memphis, and issued a through bill of
Dominion Resource Services, Inc. v. 5K Logistics, Inc.,
lading. The Burlington Northern Santa Fe Railroad transported the
2010 WL 917492 (E.D. Va. 2010)
container at issue from Long Beach to Memphis. Yang Ming issued
Here’s a case in which a federal court – the Eastern District of a Cargo Release authorizing Intermodal to transport the container
Virginia – missed an opportunity to analyze transportation broker to a warehouse facility, where it would be unloaded and returned
liability and broaden a rather thin body of law. For whatever reason, to the BN. The railroad issued an equipment interchange receipt to
it addressed the parties’ rights and obligations as if they were in a Intermodal as required by the UIIA.
garden variety contract instead. <continued on page 5>
The Intermodal Lead | Volume 1, Issue 1 4 Foster Pepper PLLC | www.foster.com | 800.995.5902
Recent Changes in Motor Carrier Law <continued from page 4>
Tragically, a warehouse worker was killed in an accident while that “arise out of or are related to” its “use” of the containers. This
unloading the container. Intermodal had nothing to do with the concept doesn’t require a causal connection with the accident.
accident, and wasn’t in possession of the container at the time of An insurer’s option to defend is within the
the accident. No visible defects or other damage were detected on insurer’s discretion.
the container, which wasn’t opened until after delivery. Intermodal’s Genaeya Corp. v. Harco National Ins. Co., 2010 WL 892095
nose couldn’t be cleaner. (Pa. Super. 2010)
The deceased worker’s estate sued several defendants, including Broker LAM/BAM engaged motor carrier Genaeya to haul a trailer
Yang Ming, but not Intermodal. Intermodal refused to defend and containing Colgate-Palmolive products to a facility operated by
hold Yang Ming harmless despite the UIIA’s provision that it must World Trade Logistics in New Jersey. The destination proved to be
do so. Yang Ming incurred some 93 grand in attorneys’ fees a partially fenced lot that was unattended. LAM/BAM instructed the
defending the wrongful death suit before being dismissed from it. Genaeya driver to park the trailer against a building’s wall overnight.
It then brought suit against Intermodal in the Western District of Of course, the trailer disappeared before sunrise.
Tennessee seeking indemnity.
Apparently, LAM/BAM refused to pay Genaeya freight charges for
Addressing an often confusing and difﬁcult issue, the court the haul, prompting the motor carrier to sue the broker. LAM/BAM
conﬁrmed the enforceability of the UIIA’s standard choice of law counterclaimed against Genaeya seeking recovery of the lost load’s
provision, which mandates that Maryland law govern disputes. The value. Genaeya, in turn, submitted a claim to its motor truck cargo
state where an accident occurs, here Tennessee, very arguably insurer, Harco National, requesting that it defend and indemnify it
has greater interest in a lawsuit’s outcome. However, numerous against LAM/BAM’s counterclaim. Harco denied coverage, and the
jurisdictions frequently are involved in intermodal transportation, carrier sued the insurer in a Pennsylvania state court. The trial court
and allowing parties to select one has its advantages. The court found Harco bears a duty to defend its insured, and Harco appealed.
rejected a public policy argument regarding indemniﬁcation for an
indemnitee’s own negligence, ﬁnding that Tennessee would allow The Pennsylvania Superior Court reversed. Harco’s policy only
the same result even if its law applied. reserves the right to defend an insured. Any uncertainty in this
clause didn’t translate into a mandate that Harco was obligated to
Intermodal’s substantive contention was that the accident didn’t defend Genaeya.
occur during an “Interchange Period.” It argued that it wasn’t
in possession of the container at times material, and that the Why would Harco elect not to do so? The policy only covered losses
“interchange” to the warehouse operator created a new Interchange while freight was in the carrier’s custody. That wasn’t the case here.
Period. Unfortunately for Intermodal, the UIIA mandates that an Genaeya had unhitched and released the trailer before it was stolen.
interchange is only effective to alter responsibility when it occurs The policy extended coverage to cargo in a “garage,” “terminal,”
between two parties to the agreement or with a motor carrier. or “depot,” but the court refused to peg an unfenced yard within
Neither circumstance applied here, so Intermodal is on the hook any of those terms. Under these circumstances, coverage is
for Yang Ming’s defense costs. Moreover, the UIIA’s indemniﬁcation dubious at best.
agreement is broad, holding Intermodal responsible for mishaps
The Intermodal Lead | Volume 1, Issue 1 5 Foster Pepper PLLC | www.foster.com | 800.995.5902
The Intermodal Lead
A “customary freight unit” can be determined by ﬂat rate a carrier charges for
entire load, but the Rotterdam Rules might change the outcome …
By Steve Block
The U.S. Carriage of Goods by Sea Act, 46 USC §30701, et seq. extended to include a carrier’s deviation from cargo stowage plans,
(“COGSA”), allows ocean carriers to limit their liability to a minimum such that carriers become fully liable for cargo they stow on deck
of $500/package. Unfortunately, the statute doesn’t deﬁne the term despite under-deck terms speciﬁed to the shipper. In this case,
“package.” Because it can make a huge difference as to ultimate Vigilant argued that deviation from the agreement regarding prior
liability, parties to cargo claims have made considerable efforts to loads should destroy the carrier’s limited liability. The court refused
increase or decrease the number of accountable “packages” in a to extend the doctrine to that new extent, given that deviation by
lost/damaged load. Carriers usually argue fewer, and shippers argue improper stowage is a narrow doctrine that hasn’t been expanded
more (at least one legendary case found a shipper arguing that each despite numerous opportunities for courts to do so.
shrimp should constitutes a package!).
The United States appears to be lined up to join its major trading
When it’s not otherwise obvious, courts have come to deﬁne the partners in a new cargo liability regime treaty that was negotiated
term “package” based on quantities forming the basis of calculated and drafted by the United Nations Committee on International
freight charges, or “customary freight units.” A federal court in Trade Law. Colloquially referred to as the “Rotterdam Rules” (see
New York recently addressed a dispute in which a series of related July-October 2009 Legal Lookout articles), the new treaty will
carriers quoted their shipper, Pasternak Baum & Co, a “ﬂat rate” for revamp limitation of liability. Package deﬁnition issues will remain,
a large load of peanut oil. Contrary to agreed shipper’s instructions, but a carrier’s minimum liability would go up (let’s face it – $500
the carriers allegedly transported a chemical that ruins peanut oil was a lot more in 1936 when COGSA was enacted than it is now).
in its preceding haul in the same vessel used for Pasternak Baum’s
Under the Rotterdam Rules, a carrier’s liability will be limited to 875
load. When the consignee learned this, it reject the delivery.
SDRs (“special drawing rights,” which are an artiﬁcial value set by
The shipper’s subrogated insurer, Vigilant, sued the carrier’s vessel the International Monetary Fund that currently is around $1,500)
to recover the peanut oil’s $231,963.34 value, and the carriers or 3 SDRs per kilogram of weight (about $2.20 pound), whichever
sought to limit their liability to $500 per COGSA and an incorporating is higher. The weight option would be signiﬁcant to break bulk
term in the bill of lading. At issue was the deﬁnition of “package.” shippers of cargo that might otherwise constitute a single package,
Vigilant, which had paid full value to Pasternak Baum & Co, urged as was the case in the Pasternak Baum case. Clearing up some
that each one of the designated 303.736 metric tons in the shipper’s confusing issues also apparent from this case, a “package” for
order constituted a “package,” and that the carriers calculated the limitation of liability purposes will be the smallest unit deﬁnitively
freight rate on that basis. But the parties had a course of dealing listed on a bill of lading, even if it is palletized with other packages.
whereby the carrier quoted ﬂat rates which weren’t adjusted Limited liability will not be available to a carrier if its owner (i.e., not
even when the freight tonnage tendered differed from what was just some deckhand) recklessly or knowingly caused the loss.
ordered. The bill of lading unambiguously quoted a ﬂat rate, and
The Rotterdam Rules have been adopted by the requisite umber
parol evidence as to how it was calculated wasn’t admissible. On
of countries, but some of them are awaiting ratiﬁcation by
that basis, the court concluded that the entire load consisted of one
parliamentary and legislative bodies. They could be passed into
COGSA package, and the carriers liability was limited to peanuts.
law next year. If Pasternak Baum’s shipment had moved a couple
On a separate but related note, this case addressed the concept years later, there might have been a different result in court.
of “deviation” as the basis for destroying a carrier’s otherwise
Ref: Vigilant Ins. Co. v. M/T “Clipper Legacy,” et al., 656 F.Supp.2d 352
effective limitation of liability. When a carrier alters its intended (SDNY 2009); Convention on Contracts for the International Carriage
routing – usually for its own economic reasons – and cargo loss of Goods Wholly or Partly by Sea, available at http://www.uncitral.
follows, courts have held them fully liable even if they might org/uncitral/en/commission/working_groups/3Transport.html
otherwise be able to limit their liability. The concept has been