The U.S. Supreme Court recently held that
the Carmack Amendment will not govern the carriage of goods over domestic
soil if those goods are shipped from a foreign port and are controlled by a
through bill of lading.
A. Orlando *
In Kawasaki Kisen Kaisha, Ltd. v. Regal-Beloit
Corp., 2010 U.S. LEXIS 4982 (June 21, 2010), the Court reversed a
Ninth Circuit Court of Appeals holding that the limitations on venue in the
Carmack Amendment applied to the parties' forum-selection clause in their
through bills of lading. The Supreme Court held that because Carmack does
not apply to through bills of lading originating in foreign countries, the
parties' forum-selection clause is applicable in their underlying dispute.
This dispute began in China when Regal-Beloit Corp. and Victory
Fireworks, Inc. (collectively the "cargo owners") delivered cargo to
Kawasaki Kisen Kaisha, Ltd., and its agent K Line America, Inc.
(collectively "K-Line") for transport to inland destinations in the United
States. All parties agreed that the relevant contract terms governing
shipping were included in the four through bills of lading issued from
K-Line to the cargo owners. The fact that "through" bills of lading were
issued was the key consideration in the Court's conclusion.
As described by the Court, a through bill of lading "covers both the
ocean and inland portions of the transport in a single document."
Id. at *18–20, quoting
Norfolk S. Ry. Co. v. James N. Kirby, Pty Ltd.,
543 U.S. 14, 25–6 (2004). In the bills, K-Line was given authority to
subcontract any phase of the journey. The bills also provided that the
Carriage of Goods by Sea Act (COGSA) terms would apply to the entire
journey, any dispute would be governed by Japanese law, and venue for any
action stemming from the carriage would be in Japanese court in Tokyo.
The cargo was carried safely across the Pacific Ocean where it was met in
California by Union Pacific for rail carriage for the rest of the journey.
During its trip, the Union Pacific train derailed in Oklahoma, allegedly
destroying the cargo onboard. The cargo owners brought suit in California
state court, where the U.S. portion of the carriage began, and after removal
to federal district court, K-Line argued that the suit should be subject to
the Tokyo forum selection clause in the through bills of lading, and should
be dismissed from U.S. court.
The district court granted the dismissal, and the Ninth Circuit reversed,
stating that the Carmack Amendment applied to inland portions of
international shipments under a through bill of lading, trumping the
parties' forum selection clause. The Ninth Circuit joined the Second
Circuit's interpretation that Carmack applies to all inland portions of rail
carriage, while opposing the conclusions of the Fourth, Sixth, Seventh, and
Eleventh Circuits. The Supreme Court granted certiorari to clear up this
The Court first notes that COGSA does not limit a party's ability to
adopt forum selection clauses. COGSA governs the terms of bills of lading
issued by ocean carriers engaged in trade between the United States and
foreign ports. If COGSA were to apply to the through bills issued by K-Line,
then the forum selection clause would be valid.
The Court next discuses the Carmack Amendment's coverage of bills of
lading issued by domestic rail carriers. The Carmack Amendment imposes
liability for any damage to cargo on rail carriers that receive property for
transportation and then transport that property within the United States.
Liability for cargo damage is imposed on every rail carrier used during the
transportation, regardless of fault. Carmack also includes a limitation on
where parties may bring suit against a rail carrier. A suit brought under
Carmack may be brought in federal or state court and in all cases involving
an originating rail carrier, in the judicial district in which the point of
the cargo journey's origin is located. In this case, the cargo owners argued
that Carmack's venue restrictions preempted the forum selection clause in
K-Line's bills of lading, making suit in California District Court a viable
forum over Tokyo.
Whether COGSA or Carmack applies is the underlying issue in this case.
COGSA would impose no limitations on venue selection, and thus the terms of
the bills of lading would control, and suit must be brought in Tokyo. If
Carmack applied, however, its restrictions on venue would overrule the
bills' forum selection clause and suit in California, not Tokyo, would be
The Court held that because Carmack had no applicability in this case,
COGSA terms would control, and the Tokyo forum clause in the through bills
of lading would be enforced. A shipment of goods originating overseas,
operating under a through bill of lading, will not be subject to the Carmack
Amendment, and the terms of the bill of lading will control.
The Court reached this conclusion by breaking down important sections of
the Carmack Amendment sentence by sentence. It determined that Carmack only
requires a "receiving" rail carrier to issue a bill of lading. A receiving
rail carrier is defined as the initial carrier who receives the cargo at the
journey's point of origin. Determining the journey's point of origin is
critical to the analysis of whether or not a rail carrier will be classified
as "receiving" and whether it must issue a bill of lading. It follows that
if the domestic rail carrier is not receiving cargo at the journey's point
of origin, it cannot issue a Carmack bill of lading, and thus the journey is
governed by whatever bill of lading was in place before the rail carrier
obtained the cargo.
The Court cites precedent in three past cases to back up the assertion
that only the receiving rail carrier must issue a bill of lading.
See St. Louis,
I.M.&S.R. Co. v. Starbird, 243 U.S. 592 (1917);
Mexican Light & Power Co. v. Texas Mexican R. Co.,
331 U.S. 731 (1947); and Reider v. Thompson,
339 U.S. 113 (1950). Starbird provides that
if every rail carrier were allowed to issue a bill of lading, each journey
would include multiple bills, making Carmack's purpose of streamlining the
shipping process and imposing liability for all carriers moot.
In Mexican Light, two bills of lading were
issued at different junctures of the cargo's journey. The second bill
differed from the initial bill that was issued at the journey's point of
origin. The Court held that Carmack voided the second bill because it did
not represent the start of a new shipment. It upheld the conclusion that
only a receiving rail carrier must issue a Carmack compliant bill of lading.
The Reider case presented the fact that a
through bill of lading was not issued at the international point of origin,
so the Court held that the cargo's original journey terminated at the first
U.S. port, and the first rail carrier to receive the cargo would need to
issue a Carmack-approved bill of lading. Because a through bill of lading
was not originally issued, a new journey was to be initiated at the U.S.
border, and a bill of lading following Carmack rules was required.
The conclusion the Court reaches from these three cases illuminates the
understanding that Carmack only applies when a receiving rail carrier is
required to issue a bill of lading. It will not matter whether a rail
carrier issues a bill of lading for Carmack to apply, the only question is
whether a rail carrier was required to
issue a bill. To this end, the Court concisely states:
It follows that Carmack does not apply if the property is
received at an overseas location under a through bill that covers the
transport into an inland location in the United States. In such a case,
there is no receiving rail carrier that "receives" the property "for
[domestic rail] transportation," § 11706(a), and thus no carrier that must
issue a Carmack-compliant bill of lading. The initial carrier in that
instance receives the property at the shipment's point of origin for
overseas multimodal import transport, not for domestic rail transport.
Regal-Beloit at *25.
Carmack does not apply in the present case because, when Union Pacific
obtained the cargo in California, it was not a "receiving" rail carrier as
that term is to be understood under Carmack. The Court notes that:
A carrier does not become a receiving carrier simply by
accepting goods for further transport from another carrier in the middle of
an international shipment under a through bill.
Id. at *26. These carriers are simply
one connecting piece operating under the original through bill of lading.
The Court notes that issuing two bills of lading for the ocean and land
portions of the shipment would lead to a host of problems. First, this would
defeat the purpose of the "through" bill of lading. These through bills are
popular for their singular efficiency in contracting for both land and sea
voyage in one transaction. Second, if two bills of lading were required, one
set of rules (COGSA) would apply when the cargo is at sea, and another set (Carmack)
would apply when the journey turns land-based. This defeats the purpose of
singularity and efficiency set out in both COGSA's and Carmack's terms.
Third, international shipping would be greatly affected if two different
bills were required because rail carriers would be forced to search the
cargo and make sure that no damage has occurred on the sea voyage before the
rail carrier would be willing to take on liability for the land portion.
This would disrupt two entire industries and cause havoc at seaports.
Finally, requiring two bills would undermine sophisticated parties' ability
to contract in the most efficient way they see fit.
In passing, the Court notes that the United Nations Convention on
Contracts for the International Carriage of Goods Wholly or Partly by Sea,
a.k.a. the "Rotterdam Rules," have not yet been ratified by the U.S.
government. These rules would allow the inland portion of an international
shipment to be governed by different regulations than the ocean leg.
To conclude the Court's thought process: the cargo owners contracted with
K-Line using through bills of lading for the shipment of their goods from
China to midland America, K-Line was the receiving carrier of those goods in
China, not in the United States, and thus not subject to Carmack's
jurisdiction or requirement. Union Pacific obtained the cargo in the United
States, but it was not a "receiving carrier" as that term has now been
understood by this Court. Because there is no receiving carrier in the
United States, Carmack would not apply. The terms of the bills of lading
issued by K-Line would control; COGSA would apply; and because COGSA does
not limit venue options, the Tokyo forum-selection clause was valid.
The significant circuit split over these issues has now been resolved, a
benefit in itself to our justice system. However, American cargo importers
should beware—your cargo damage suits are now less likely to be resolved in
the United States. It is undoubtedly true that smaller claims will be nearly
impossible to prosecute in foreign tribunals. In this instance, clarity in
the law has created a hole that will swallow all smaller damage claims
occurring on American soil caused by inland carriers.
*Note: The author gratefully
acknowledges the assistance of his son/associate, Mike A. Orlando, Jr.
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