Freight Claims in Plain
English (3d edition)
copyright (c) 1996
W.J.Augello table of contents || Title Page
|| Q&A in Plain English
There are many movements of goods which take on a semblance of being in interstate commerce, and thus subject to federal regulations of liability and claims rules, when in fact, they are exempt from such regulation. The exemption may be derived from either the commodity moved or the origin and destination of the movement. In certain instances, the exemption may spring from the type of carrier used.
“Exemptions” may be statutory or administrative; the statutory provisions applicable to each mode of transportation are set forth in 49 U.S.C. §§ 10505 and 10523—10528), see Appendices 10, 11, 12, 13, 14, 15 & 16.
One common motor carrier exemption stems from the agricultural and fisheries exemption provided in 49 U.S.C. § 10526 (a)(6), see Appendix 14. The commodities falling within this exemption have been listed by the I.C.C. in 49 CFR § 1047, see Appendix 72, and are exempted from economic regulation when transported by a motor carrier in interstate commerce. This list was adopted by Congress in its 1958 Amendment of former Section 203(b)(6) and, thus, was elevated from the status of an informal administrative ruling to that of a federal statute.
This exemption was designed to preserve for the farmers and fishermen the advantage of low cost motor transportation, although, at the same time, they are forced to forego the benefits of regulation. This exemption applies to all regulations except those regarding safety. Taiyo Americas, Inc. v. Honey Transport, Inc., 464 F.Supp. 1249 at 1252 (S.D. N.Y. 1979); Henslin v. Roaasti Trucking, Inc.., 815 F.Supp. 1347 (E.D. Cal. 1993).
Due to the perishable nature of such exempt commodities, it is usually desirable to prepare a special bill of lading contract providing for a scheduled delivery. In the absence of I.C.C. regulation or tariffs subjecting these movements to the terms of the Uniform Straight Bill of lading, the parties are free to enter into any agreement consistent with the common law. See Appendix 92 for a sample of a typical exempt commodity bill of lading.
Note, however that the Motor Carrier Act of 1980 gives the I.C.C. and the Secretary of Agriculture authority to require the use of written contracts for exempt agricultural commodities in interstate commerce, “where appropriate.” 49 U.S.C. § 10527 (c), Appendix 20, gives the I.C.C. the power to prescribe the minimum requirements and conditions of such contracts, but none have been prescribed thus far.
A formerly important mode of exempt transportation during the past decades consisted of “regulated” (non-exempt) commodities moved in interstate commerce as backhauls by bona fide agricultural cooperatives pursuant to 49 U.S.C. § 10526 (a)(5). See Appendix 14.
This is a conditional exemption, however, as there is a statutory limitation on the amount of regulated traffic the co-op may haul, ie., 25% of the total interstate transportation services provided by the cooperative in any fiscal year (in tonnage) and the co-op cannot haul more tonnage interstate in a year than the total tonnage hauled interstate for itself and members (including all interstate exempt traffic).
Furthermore, the co-op must be a bona fide agricultural cooperative organized and conducted pursuant to the Agricultural Marketing Act (12 U.S.C. § 1141, Appendix 46) which requires that the co-op be operated for the mutual benefit of its farmer members. See Appendix 72 for text of relevant I.C.C. regulations.
From a carrier liability standpoint, a cooperative transporting a regulated commodity on a backhaul (the backhaul must be “incidental and necessary” to its primary transportation operation) is a common carrier subject to the common law. However, the cooperative is not subject to the provisions of the Carmack Amendment (49 U.S.C. § 11707) or the I.C.C.'s claim regulations.
Therefore, shippers utilizing agricultural cooperative are cautioned to:
Each municipality in the United States has a commercial zone within which transportation may be conducted by a motor carrier free from economic regulation by the I.C.C., 49 U.S.C. § 10526 (b), see Appendix 14. I.C.C. regulations define the commercial zones for specific named cities or provide a formula based on population to determine the radius of the commercial zone, 49 CFR Part 1048, see Appendix 73.
The I.C.C.'s expansion of the commercial zones, to as much as 20 miles from the corporate limits of municipalities having a population of one million or more, has substantially increased the amount of traffic moving without the protection of Section 11707 or I.C.C. regulations designed to protect the shipping public. See Ex Parte No. MC-37 (Sub. No 26), Commercial Zones and Terminal Areas, 128 M.C.C. 422, aff'd, Short Haul Survival Comm. v. U.S., 527 F.2d 240 (9th Cir. 1978).
Shippers should scrutinize movements between points in the expanded commercial zones to protect against unrecoverable in-transit losses.
TIP: Check local cartage company bills of lading for stamps and printed notations attempting to limit liability to $50 per shipment or $0.50 per lb. See section 8.2 for a discussion of the lawfulness of such notations.
The Interstate Commerce Act also contains several other motor vehicle exemptions from I.C.C. regulation for the transportation of property which are briefly described as follows:
It may also be noted that some commodities are exempt from economic regulation, such as “recyclable materials”. For example, a motor carrier may charge reduced rates for the transportation of recyclable materials without filing those rates in its common carrier tariffs pursuant to 49 U.S.C. § 10733, see Appendix 25. West Coast Truck Lines, Inc. v. Arcata Community Recycling Center, Inc., 846 F.2d 1239 (9th Cir. 1988), cert. den., 488 U.S. 856, 109 S.Ct. 147 (1988)
As part of the Motor Carrier Act of 1980, Congress removed a former restriction on some exemptions by allowing exempt commodities to be hauled in the same vehicle as non-exempt commodities without losing the exemption. See 49 U.S.C. § 10528, Appendix 15; Henslin v. Roaasti Trucking, Inc., supra.
The most important exemption in terms of tonnage is for the private carriage of goods. The term “private carrier” is defined as “. . . when . . . the person is the owner, lessee, or bailee of the property being transported . . . and . . . the property is being transported for sale, lease, rent, or bailment, or to further a commercial enterprise.” (49 U.S.C. § 10102 (14), Appendix 2)
Section 10524 of the Act states that the Interstate Commerce Commission does not have jurisdiction over the transportation of property by motor vehicle when—
This section was enacted to make it clear that a person engaged in a business could not lawfully operate its trucks for other persons “unless such transportation is within the scope, and in furtherance, of a primary business enterprise (other than transportation) of such person.” A principal purpose was to put an end to the unlawful “buy-and-sell” operations. A typical “buy-and-sell” transaction is when a distributor delivering its products in one direction obtains backhauls through the device of “buying” goods for “resale” to a customer located the direction of its home base. For example, and Illinois manufacturer of steel parts delivers his product to a customer in New Jersey; while there, he “purchases” a load of stuffed toys and “sells” them to a department store in Illinois. This is illegal when the sale has already been made by the real parties to the transaction, and the person operating the trucks is merely substituted as “buyer” and “seller”.
For the purpose of liability and claim practices, only those private carriage operations involving ownership and control of the vehicles and goods therein by the same legal entity would be exempt from I.C.C. control and the provisions of 49 U.S.C. § 11707. Loss or damage suffered in the course of such transportation is for the account of the shipper controlling the private carriage.
It should be noted that transportation provided a member of a corporate family for other members of that corporate family may also be exempt from I.C.C. regulation under certain circumstances, see 49 U.S.C. § 10524 (b), Appendix 12. This section requires the parent corporation to notify the I.C.C. of intent to provide such transportation, together with a list of participating subsidiaries, and is limited to situations where there is a parent corporation which owns directly or indirectly a 100 percent interest in the subsidiaries. Thus, if title to the goods are in the parent corporation and ownership or control of the vehicle is in a separate corporation or subsidiary, not wholly owned by the parent corporation, it would not be bona fide private carriage.
Congress deregulated domestic freight forwarders (except household goods freight forwarders) in 1986, Pub. L. 99-521, Oct. 22, 1986, 100 Stat. 2994, thus “exempting” them from economic regulation by the I.C.C.
However, freight forwarders remain subject to the provisions of the Carmack Amendment, 49 U.S.C. § 11707 with respect to liability for loss or damage to goods. See Section 13.1.
The I.C.C. has historically treated rail and motor carriers differently in terms of exemption from economic regulation. In an attempt to allow railroads to become more competitive with motor carriers transporting agricultural commodities, in 1979, the I.C.C. exempted all rail movements of fresh fruits, vegetables and tree nuts. Ex Parte 346 (Sub-No. 1, Rail General Exemption Authority—Fresh Fruits and Vegetables, March 22, 1979. Later, the Commission added beans, peas, lentils, field seed beans, onion sets, and field dried ripe vegetable food seeds (364 I.C.C. 403 and 364 I.C.C. 945).
Section 10505 of the Act was added by the Staggers Act of 1980 and gives the I.C.C. broad powers to exempt rail transportation from economic regulation, when the Commission finds that regulation (1) is not necessary to carry out the transportation policy of the Act, and (2) the transaction or service is of limited scope or regulation is not needed to protect shippers from an abuse of market power.
Under this section, since 1980, the I.C.C. has exempted large segments of previously-regulated traffic, including boxcar traffic, TOFC/COFC traffic and many specific commodities.
In Tokio Marine and Fire Ins. Co., Ltd. v. Amato Motors, Inc.., 996 F.2d 874 (7th Cir. 1993), the Seventh Circuit Court of Appeals addressed the question of whether deregulation by the I.C.C. of TOFC/COFC service under the Staggers Rail Act exempts common carriers from liability under the Carmack Amendment.
The factual background was as follows: Matsushita Electric Corporation, the manufacturer of “Panasonic” products, utilized warehouse facilities at the Panasonic/AirTrans Warehouse in Tacoma, Washington. In June of 1989, Matsushita entered into an agreement with Hub City of Los Angeles, whereby Hub City would arrange the shipment of the goods from the warehouse in Tacoma to inland distribution centers.
In early December 1989, Hub City arranged the transportation of six containers of goods from the Panasonic/AirTrans warehouse in Tacoma, Washington to the Panasonic warehouse in Arlington Heights, Illinois. To accomplish this move, it first contracted with a trucking company (Wockner Trucking) to move the containers from the Panasonic/AirTrans warehouse to the Union Pacific railyard in Tacoma. Then, Hub City contracted for the rail portion of the trip with American President Intermodal Company (API), who has longstanding agreements with Union Pacific and with Chicago and Northwestern Transportation Company (C & NW). Finally, it contracted with Amato Motors, Inc. (Amato) to move the containers by truck from the C & NW railyard to the Panasonic warehouse in Arlington Heights.
The containers left Tacoma on December 12, 1989, moving on Union Pacific flatcars from Tacoma to Council Bluffs, Iowa, where the train was interchanged to the C & NW. On December 15, 1989, Hub City notified Amato via facsimile that the containers would be arriving in Chicago the following day. Amato realized it could accommodate only two of the six containers, so it subcontracted with Raven Transport, Inc. (Raven) to transport the remaining four. Amato also informed Raven of the container numbers and special pick-up numbers in order for Raven to obtain the release of the containers from the C & NW railyard.
The shipment arrived at C & NW's Global One railyard in Chicago on the morning of December 16, 1989. At approximately 5:30 a.m. on December 18, 1989, a driver identifying himself as Wilson in Raven Tractor No. 105 arrived at the C & NW railyard. After giving the secret numbers at the checkpoint, the driver was allowed to leave the railyard with one of the containers. About one-half hour later, at 6:00 a.m., four tractors and drivers from Raven arrived at the C & NW railhead to pick-up the containers. As noted, however, one of the containers had previously been released to what appeared to be a Raven employee. Upon further inquiry, it was determined that Raven did not employ a driver named Wilson and that Tractor No. 105 was missing from its yard. The goods contained in this container were never delivered to the Panasonic warehouse in Arlington Heights
The loss of the container caused damages to Matsushita in the amount of $490,311.41, which were paid by its insurers, Tokio Marine and Fire Insurance Company (Tokio Marine) and Chiyoda Fire and Marine Insurance Company (Chiyoda). Tokio Marine and Chiyoda, as subrogees for Matsushita, sued to recover the amounts they paid. Initially, they sued Amato, Raven and C & NW, but later amended their complaint to add API as a defendant. Plaintiffs alleged a Carmack Amendment violation against all four defendants. They also pleaded three common law claims against defendants — breach of contract by Amato and API, negligence by Amato, Raven and C & NW, and a breach of the duty of due care as bailee against C & NW —which were dismissed (see .
The court discussed the history and purpose of the Carmack Amendment and the Staggers Rail Act of 1980, and noted that the I.C.C. had exempted from regulation rail and truck transportation provided by rail carriers in connection with TOFC/COFC service in 1981, see 49 CFR § 1090.2, Appendix 78. The court observed:
However, Congress did not confer on the I.C.C. unlimited authority to deregulate, but rather stated certain specific limitations. One such limitation is found at 49 U.S.C. § 10505 (e) (the Matsui Amendment), which provides as follows: No exemption order issued pursuant to this section shall operate to relieve any rail carrier from an obligation to provide contractual terms for liability and claims which are consistent with the provisions of section 11707 of this title. Nothing in this subsection or section 11707 of this title shall prevent rail carriers from offering alternative terms nor give the Commission the authority to require any specific level of rates or services based upon the provisions of section 11707 of this title
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. . . The I.C.C. has interpreted this provision as requiring the continued applicability of the Carmack Amendment to deregulated TOFC/COFC carriers. In a clarification issued June 22, 1981, the I.C.C. stated that the exemption “does not and could not relieve rail carriers from the provisions of 49 U.S.C. 11707, concerning their liability for loss and damage.” Ex Parte No. 230 (Sub-No. 5), 46 Fed. Reg. 32,257 (1981). The clarification goes on to explain as follows: 49 U.S.C. 11707 imposes, on the carrier, liability for actual loss or injury to property shipped unless released rates under 49 U.S.C. 10730 are involved. Released rates under 49 U.S.C. 10730 are at the election of the shipper as an alternative to otherwise applicable full liability rates. From this it follows that our prior exemption could not enable carriers to disclaim their general loss and damage obligations. . . . We thus must emphasize that our exemption does not relieve the railroad from the provisions of 49 U.S.C. 11707, concerning their liability for loss and damage. Indeed, we note that in our notice of proposed rulemaking . . . we specifically pointed out that 49 U.S.C. 10505 (e) provides the standards for liability which the railroads must continue to apply to exempt services, and that it requires full value rates unless the shipper consents to limited liability rates. Id. (emphasis added
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. . . We find the I.C.C.'s interpretation is consistent with congressional intent. The word “contractual” in § 10505(e does not, in our opinion, signal an end to the era of Carmack Amendment liability and a turn to liability premised only on breach of contract. Even before the Staggers Rail Act and deregulation, shippers and carriers entered into contracts for released value rates. 49 U.S.C. §§ 11707, 10730. In § 10505(e), we deem it clear that Congress intended that carriers still have the obligation of offering full value rates to shippers. Nothing within § 10505(e) is intended to repeal § 11707(a)(1) requiring liability of all carriers over whose line or route the property is transported. However, consistent with the reasons for deregulation, Congress gave carriers increased latitude in offering “alternative terms” to shippers. Thus, since deregulation, rail carriers still must offer full value rates, but they may offer alternative terms as well.
The court also distinguished the cases of Co.-Operative Shippers, Inc. v. Atchison, Topeka & Santa Fe Ry. Co.., 840 F.2d 447 (7th Cir. 1988), and Yamazen U.S.A., Inc. v. Chicago & N.W. Transp. Co., 790 F.2d 621 (7th Cir. 1986), stating:
. . . Thus, contrary to defendants' argument, Co.-Operative Shippers and Yamazen do not stand for the proposition that TOFC/COFC carriers were removed from the Act's jurisdiction, but rather that the carriers had simply fulfilled the requirements for exemption from full value liability
In addition to the Seventh Circuit's decision in Tokio Marine, other courts have found that the Carmack Amendment continues to apply to exempted TOFC/COFC service. See American Trucking Ass'ns, Inc. v. I.C.C, 656 F.2d 1115, 1124 (5th Cir. 1981) (“the exemption does not and could not relieve rail carriers from the provisions of 49 U.S.C. § 11707“); Co.-operative Shippers, Inc. v. Atchison, Topeka & Santa Fe Ry. Co., 613 F.Supp. 788, 791 (N.D. Ill. 1985) (“[a]lthough freed from most regulation, rail carriers offering TOFC/COFC service are still subject to the liability provisions of § 11707”), rev'd on other grounds, 840 F.2d 447 (7th Cir. 1988).
In sum, it is important for claimants and carriers to start their analysis of claims with a determination of the legal classification of the movement before attempting to determine liability issues. A detailed explanation of liability of surface carrier modes follows. Air and water carrier liability and multimodal liability are covered in Sections 16, 17 and 18 respectively. The rules governing shipments to or from Canada are covered in Section 18.2.3.