Cargo Claims

A motor carrier's tariff limitation of liability was recently upheld in a cargo loss and damage suit. The plaintiff/claimant sought to avoid the limitation based on the admiralty doctrine of material deviation.  Under that doctrine, a plaintiff typically claims that the carrier failed to comply with a contractual promise to provide security services and that its failure to do so should result in the limitation of liability being voided.  In the case of Platinum Cargo Logistics, the court refused to adopt the material deviation doctrine, noting that it is an admiralty doctrine that had not been applied in these circumstances by the 9th Circuit.  Thus, the carrier was only liable for its limited liability of $245,000, as opposed to the full unlimited value of the shipments at issue, which exceeded $7,000,000.

As previously reported on this blog, the U.S. Supreme Court's ruling in Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp. involved a rail carrier.  However, the case also affects motor carriers since motor carriers are also subject to the Carmack Amendment.  Unfortunately, the case is not clear as to its affect on motor carriers.  As noted, the issue in the case was whether the Carmack Amendment or the Carriage of Goods by Sea Act ("COGSA") applies to cargo claims arising during the inland leg of an import ocean move.  The court ruled that COGSA applies.  This is generally thought to be favorable to motor carriers defending cargo loss and damage claims because COGSA includes a $500 per package limitation of liability and it is possible that the entire intermodal container will be considered a package for purposes of the limitation.  However, the decision raises questions with respect to whether Carmack applies to export moves that will move by steamship under a through bill of lading, or to import moves from Canada and Mexico.  

The United States Supreme Court is set to hear argument on March 24, 2010 in the companion cases of Union Pacific Railroad Company v. Regal-Beloit Corporation and Kawasaki Kisen Kaisha v. Regal-Beloit Corporation.  The issue before the Court is whether the Carmack Amendment to the Interstate Commerce Act (49 U.S.C. § 11706 for rail carriers and § 14706 for motor carriers) applies to the inland rail portion of an international, multimodal import shipment governed by a “through” bill of lading (i.e., a bill of lading that covers the shipment from origin to destination), where the bill designated the Carriage of Goods by Sea Act, 46 U.S.C. § 30701 et seq., as the law to govern the carriers’ responsibility for cargo loss and damage claims during the entire shipment.

COGSA governs the rights and liabilities of parties to an international maritime bill of lading; and allows parties to extend COGSA liability terms by contract for the entire carriage - including any inland leg of the journey.  The Carmack Amendment supplies the default liability regime for rail and motor carrier transportation within the United States.  The Interstate Commerce Act authorizes both common carriers and contract carriers to contract out of Carmack's default rules (49 U.S.C. § 10709).  The question presented to the Court, therefore, is how to reconcile the potentially conflicting statutory frameworks under the facts of the cases.
 

Cargo loss and damage claims against common or contract carriers for damages to interstate shipments have long been governed by the Carmack Amendment. Further, courts have routinely held the Carmack Amendment preempts state law claims for negligence, breach of contract and tort claims.  In other words, since federal law provides the exclusive remedy for cargo loss or damage on an interstate shipment, the claimant can not assert state law claims. 

Earlier this month, a Texas federal court followed this long line of authority and held the Carmack Amendment preempts state law claims – even when those state law claims are for the intentional tort of conversion.  See Tran Enterprises LLC d/b/a Nutrition Depot v. DHL Express (USA), Inc., 2010 LEXIS 2092, at *2 (S.D. Tex. January 12, 2010).  In this case, the plaintiff alleged DHL converted COD checks it collected at the time of delivery, failed to tender these checks to it, and was liable for conversion under state law.  The court held intentional tort claims under state law, like the plaintiff's conversion claim, are preempted and Carmack remains the shipper's exclusive remedy. 

Whether involved in class action defense, truck accident litigation, or cargo loss and damage claims, a recent order from a New York federal court will likely impact transportation litigation going forward.     

Six years ago, Judge Shira A. Scheindlin, of the Southern District of New York authored the Zubulake decision.  The Zubulake decision provided the basis for current law and rules regarding the discovery of electronically stored information (“ESI”).  Recently, Judge Scheindlin has issued another decision involving ESI that will likely be looked to by other courts when addressing similar issues: The Pension Committee of the University of Montreal Pension Plan, et al., v. Banc of America Securities, et al., 05-civ-9016, (S.D. N.Y. January 10, 2010)(as corrected on January 15, 2010)(collectively, the “Order”).

In her order entitled “Zubulake Revisited: Six Years Later,” Judge Scheindlin found that – although the case did not present any egregious examples of purposeful destruction of documents – the plaintiffs failed to timely institute written litigation holds and were careless and indifferent in their preservation and collection of documents after the duty of preservation arose.  Judge Scheindlin sanctioned the Plaintiffs, with an instruction to the jury allowing the jury to assume missing documents were bad for Plaintiffs, requiring Plaintiffs to pay certain attorney’s fees and costs to Defendant, and ordering Defendant to search backup tapes for additional information.

This case is interesting because most cases addressing discovery of ESI, particularly those awarding sanctions, involve egregious behavior.  The facts of this case, however, are much more pedestrian – a party that didn’t instruct all persons with electronic documents relating to a matter in litigation to preserve all those documents with a formal litigation hold letter; gathering relevant documents was largely left to operational employees without supervision; together with other factors that led the court to describe the party’s ignorance and indifference towards discovery (including the search for and preservation of electronic documents).

Courts have previously held that failure to instruct relevant employees to preserve documents constituted gross negligence.  Likewise, courts have previously held issuing a litigation hold memorandum and delegating the task of identifying relevant documents to operational level employees is not enough. 

However, this court clarifies that instructions to employees to provide the company’s counsel with relevant documents via phone, e-mail, a memorandum, and in a monthly litigation update are not sufficient to satisfy the duties of preservation and production – since the employees were not instructed to preserve all relevant documents and there was little supervision over the preservation and collection. 

The concepts forming the basis for the Order are not novel or new.  But because these concepts were used to justify an award of sanctions where there was no intent to destroy documents or other shocking behavior, and because the author of modern law on this subject spends 87 pages laying out the rules that justify these sanctions, it is increasingly likely other courts will follow suit.
 

The 7^th Circuit has implemented a pilot program (the “7^th Circuit Pilot Program”) designed to address the rising cost associated with the discovery of electronically stored information (“ESI”). In the initial stage of this pilot program a proposed Standing Order Relating to the Discovery of Electronically Stored Information has been created and will be used in select cases by certain judges within the district. 

The 7^th Circuit Pilot Program, like the recently amended Federal Rules of Civil Procedure, requires the parties to understand and discuss likely sources of discoverable ESI at the beginning of a case. At this time the parties are also required to discuss what ESI is to be preserved and anticipated issues relating to production of that information including the format of production and privilege issues. Unlike the Federal Rules, the pilot program requires litigants to consider and discuss whether discovery can be conducted in stages to minimize cost to the parties.

The pilot program’s initial report and proposed Standing Order Relating to the Discovery of Electronically Stored Information can be viewed at:

http://www.ilcd.uscourts.gov/Statement%20-%20Phase%20One.pdf

If your company is involved in trucking class action cases, truck accident litigation, cargo claims, or simply trying to collect your freight charges, it is important to understand the role of ESI, along with traditional paper documents, in litigation. The 7^th Circuit Pilot Program illustrates that courts, like litigants, are becoming more familiar with ESI and are addressing ESI issues both under the recently amended Federal Rules and via unique approaches like the 7^th Circuit Pilot Program. As businesses store more and more information electronically it is important to recognize that this information may be discoverable in litigation and have an organizational plan regarding storage of this information (who, where, when, how long), a procedure for disposing of outdated electronic information, and the ability to suspend disposal once litigation is reasonably anticipated. Although programs like the 7^th Circuit Pilot Program may ultimately help contain the rising costs associated with discovery of ESI, a company can reduce its litigation cost related to ESI significantly by taking steps in advance of litigation to understand and manage its stored data.