Sompo Japan Ins. v. Union Pacific

• Decision Date: 10 July 2006
• Docket Number: Docket No. 04-4066-CV.
• Citation: 456 F.3d 54
• Parties: SOMPO JAPAN INSURANCE COMPANY of AMERICA, Plaintiff-Appellant, v. UNION PACIFIC RAILROAD COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

456 F.3d 54

SOMPO JAPAN INSURANCE COMPANY of AMERICA, Plaintiff-Appellant, v. UNION PACIFIC RAILROAD COMPANY, Defendant-Appellee.

Docket No. 04-4066-CV.

United States Court of Appeals, Second Circuit.

Argued: July 14, 2005.

Decided: July 10, 2006.

[456 F.3d 55]

David T. Maloof, Maloof Browne & Eagan LLC, Rye, N.Y. (Thomas M. Eagan, on the brief), for Plaintiff-Appellant.

Barry N. Gutterman, Barry N. Gutterman & Associates, P.C., New York, N.Y. (Robert Briere, on the brief), for Defendant-Appellee.

Before: WESLEY and HALL, Circuit Judges, and TRAGER,¹ District Judge.

WESLEY, Circuit Judge:

A shipment of thirty-two tractors, en route from Tokyo, Japan to Swanee, Georgia, was severely damaged when the train carrying the cargo derailed in Texas. The cargo owner, Kubota Tractor Corporation ("Kubota"), collected the full value of the tractors — $479,500 — from its insurer, Sompo Japan Insurance Co. of America ("Sompo"). Subrogating Kubota's claim, Sompo then brought this suit against defendant-appellee Union Pacific Railroad Co. ("Union Pacific" or "the Railroad") in the Southern District of New York. The district court (Duffy, J.) granted partial summary judgment in favor of Union Pacific, giving effect to the contract for carriage, which incorporates by reference the Carriage of Goods by Sea Act ("COGSA"), Pub.L. 16 No. 74-521, 49 Stat. 1207 (1936) (codified at 46 U.S.C. app. §§ 1301-1315), and effectively limits Union Pacific's liability to $500 per tractor, or $16,000. See Sompo Japan Ins. of Am. v. Union Pac. R.R. Co., No. 03-1604, 2003 WL 22510361, at *4 (S.D.N.Y. Nov.5, 2003).²

On appeal, Sompo argues that the district court erred in finding that another statute, the Carmack Amendment to the Interstate Commerce Act of 1887 ("Carmack"), Act of June 29, 1906, ch. 3591, 34 Stat. 584 (1906) (current version at 49 U.S.C. § 11706), does not govern the Railroad's liability in this case. We agree and accordingly vacate the district court's order for partial summary judgment and remand this case for further proceedings.

Background

In July 2002, Kubota hired Mitsui OSK Line Ltd. ("MOL"), an ocean shipping company, to ship thirty-two tractors from Tokyo, Japan to Swanee, Georgia. As evidence of this agreement, MOL issued three identical bills of lading, contracts that "record[ ] that a carrier has received goods from the party that wishes to ship them, state[ ] the terms of carriage, and serve[ ] as evidence of the contract for carriage." Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14, 18, 125 S.Ct. 385, 160 L.Ed.2d 283 (2004). The bills of lading were "through" bills: they covered the entire journey from start to finish, including both the ocean and land legs. See id. at 25-26, 125 S.Ct. 385. Further, they were "intermodal" through bills, meaning that they contemplated multiple modes of transportation, including ocean and rail carriage. Pursuant to the bills of lading, MOL shipped the tractors by ocean transit from Tokyo to Los Angeles, California where the cargo was then transferred from MOL's ship to MOL's subcontractor, Union Pacific,³ for rail carriage to Georgia. Union Pacific issued electronic waybills⁴ covering the rail carriage to Georgia. While Union Pacific was transporting the cargo, the tractors were damaged in a train derailment in Texas.

In the district court, Union Pacific argued that, pursuant to the MOL bills of lading, its liability should be limited to $500 per package. In particular, Union Pacific relied upon two provisions in the bills, Clause 29 and Clause 4. Clause 29 is a "clause paramount," which identifies the law that will govern the rights and liabilities of all parties to the bill of lading. Stephen G. Wood, Multimodal Transportation: An American Perspective on Carrier Liability and Bill of Lading Issues, 46 Am. J. Comp. L. 403, 408 n. 37 (1998). The clause paramount in the MOL bills recognizes COGSA as the governing law for the ocean leg of the journey and further includes a "period of responsibility clause," see id. at 408 n. 36, a contractual provision extending COGSA's reach beyond "the period from the time when the goods are loaded on to the time when they are discharged from the ship." 46 U.S.C. app. § 1301(e). The period of responsibility clause in the MOL bills of lading provides that "[MOL] shall be entitled to the benefits of the defences [sic] and limitations in the U.S. COGSA, whether the loss or damage to the Goods occurs at sea or not." Sompo, 2003 WL 22510361, at *2 (quoting MOL bills of lading) (second alteration in Sompo; emphasis removed).

Clause 4 of the MOL bills of lading constitutes what is referred to as a "himalaya clause,"⁵ a contractual provision "extend[ing] to third parties the defenses, immunities, limitations or other protections a law or a bill of lading confers on a carrier." Wood, supra, at 408 n. 35. The himalaya clause in the MOL bills expressly authorizes MOL to subcontract the carriage of Kubota's tractors and grants all subcontractors "the benefit of all provisions herein benefiting the Carrier [MOL] as if such provisions were expressly for their benefit." Sompo, 2003 WL 22510361, at *2 (quoting MOL bills of lading) (emphasis removed). Combining the Clause 29 period of responsibility clause with the Clause 4 himalaya clause, Union Pacific argued that its liability as a subcontractor was limited to $500 per tractor.

The district court agreed with Union Pacific. It rejected Sompo's contention that two other federal statutes — Carmack and the Staggers Rail Act of 1980 ("Staggers"), Pub.L. No. 96-448, 94 Stat. 1895 (codified at 49 U.S.C. § 11706) — governed the liability of Union Pacific in this case. Sompo argues on appeal, as it argued below, that Carmack and Staggers together take precedence over the COGSA liability limitation that the MOL bills of lading extend to Union Pacific. Although the district court recognized that Carmack and Staggers apply in certain circumstances to impose full liability upon a rail carrier for any losses caused by the railroad, it nevertheless ruled that, because MOL employed through bills of lading containing period of responsibility and himalaya clauses, the Carmack/Staggers statutory regime was inapplicable to this case. Sompo, 2003 WL 22510361, at *4. We disagree. Carmack applies to the domestic rail portion of a continuous intermodal shipment originating in a foreign country, like the one at issue here. While the through bills attempt to extend COGSA's sweep inland, that contractual extension lacks the force of statute. And in our view, the intermodal through bills, written in the context of COGSA, falls short of the Staggers prerequisite for limiting a rail carrier's Carmack liability. Carmack controls; a remand is required.

Discussion

I. The Statutory Landscape

The issues presented in this case arise out of the confluence of two fairly complex federal statutory schemes that govern different aspects of international commerce.

A. COGSA

COGSA "was lifted almost bodily from the Hague Rules of 1921, as amended by the Brussels Convention of 1924." Robert C. Herd & Co. v. Krawill Mach. Corp., 359 U.S. 297, 301, 79 S.Ct. 766, 3 L.Ed.2d 820 (1959). The purpose of the Hague Rules was to establish "international uniformity in the law governing the carriage of goods by sea." Michael F. Sturley, Uniformity in the Law Governing the Carriage of Goods By Sea, 26 J. Mar. L. & Com. 553, 556 (1995) (hereinafter "Uniformity in the Law"). "COGSA is the culmination of a multilateral effort `to establish uniform ocean bills of lading to govern the rights and liabilities of carriers and shippers inter se in international trade....'" Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528, 537, 115 S.Ct. 2322, 132 L.Ed.2d 462 (1995) (quoting Robert C. Herd & Co., 359 U.S. at 301, 79 S.Ct. 766).

COGSA establishes a negligence-based liability regime.⁶ The statute also explicitly permits a carrier to limit its liability for loss or damage to the cargo it is carrying to $500 per "package." 46 U.S.C. app. § 1304(5).⁷ A carrier cannot avail itself of the COGSA $500-per-package liability limitation unless the shipper is given a "fair opportunity" to declare a higher liability value for its cargo. Gen. Elec. Co. v. MV Nedlloyd, 817 F.2d 1022, 1028 (2d Cir.1987). Thus, as long as the shipper is given a fair opportunity to declare a value higher than $500 per package — the higher value need not be the full value of the goods — the carrier's maximum liability is limited to whatever value the shipper declares. If the shipper declares no value, the carrier's liability is defaulted to $500 per package. But if the carrier fails to give the shipper a fair opportunity to declare a value, then the carrier is liable for the full value of the cargo.

By its terms, COGSA only applies to "the period from the time when the goods are loaded on to the time when they are discharged from the ship," 46 U.S.C. app. § 1301(e), the so-called "tackle-to-tackle" period. But the statute also contemplates that parties will enter into agreements extending COGSA's terms beyond the tackle-to-tackle period:

Nothing contained in [COGSA] shall prevent a carrier or a shipper from entering into any agreement, stipulation, condition, reservation, or exemption as to the responsibility and liability of the carrier or the ship for the loss or damage to or in connection with the custody and care and handling of goods prior to the loading on and subsequent to the discharge from the ship on which the goods are carried by sea.

46 U.S.C. app. § 1307. Thus, COGSA does not prevent a carrier in its bill of lading from choosing "to extend the [COGSA] default rule to the entire period in which the [cargo] would be under its responsibility, including the period of the inland transport." Kirby, 543 U.S. at 29, 125 S.Ct. 385.

B. The Carmack Amendment and the Staggers Rail Act of 1980

In 1887, Congress passed the Interstate Commerce Act ("ICA") and created the Interstate...