Aaacon Auto Transport, Inc. v. State Farm Mut. Auto. Ins. Co., No. 697

• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
• Writing for the Court: Before LUMBARD, OAKES and TIMBERS; OAKES
• Citation: 537 F.2d 648
• Parties: In the Matter of the Arbitration of Certain Differences Between AAACON AUTO TRANSPORT, INC., Appellee, and STATE FARM MUTUAL AUTOMOBILE INSURANCE CO., subrogee of Joseph Romagnoli, Appellant. ocket 75--7585.
• Docket Number: No. 697,D
• Decision Date: 09 June 1976

Page 648

537 F.2d 648 In the Matter of the Arbitration of Certain Differences
Between AAACON AUTO TRANSPORT, INC., Appellee,
and
STATE FARM MUTUAL AUTOMOBILE INSURANCE CO., subrogee of
Joseph Romagnoli, Appellant. No. 697, Docket 75--7585. United States Court of Appeals,
Second Circuit. Argued March 26, 1976.
Decided June 9, 1976.

Page 650

Walter Williamson, New York City (Ronald J. Berk, New York City, also on the brief), for appellant.

Ralph Zola, New York City, for appellee.

Before LUMBARD, OAKES and TIMBERS, Circuit Judges.

OAKES, Circuit Judge:

This appeal contests the validity under the Interstate Commerce Act, and under general equitable principles, of the arbitration clause in an interstate carrier's standard-form bill of lading utilized in connection with its nationwide business of transporting individually owned automobiles from point to point within the United States. The principal argument is that the arbitration clause is invalid because it compels private shippers to arbitrate their claims in New York, which may be entirely remote, inconvenient and expensive to them in connection with their claims. Since the amount of damages involved is usually in the vicinity of $1,000, ¹ resulting from harm to the automobile en route while being driven by one of the carrier's casual drivers, ² the cost of appearing in New York for

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arbitration frequently constitutes a bar, the argument runs, to pursuing even plainly valid claims. The specific order appealed from was granted by the United States District Court for the Eastern District of New York Mark A. Costantino, Judge. Pursuant to 9 U.S.C. § 4, ³ it directs that arbitration be compelled in the manner provided in the bill of lading, i.e., in New York. It also orders the respondent State Farm Mutual Automobile Insurance Co. (State Farm), as subrogee of Joseph Romagnoli, an automobile shipper, to stay proceedings in an action at law commenced against Aaacon in the State of California until arbitration has been completed. ⁴ Because we consider that the compulsory venue provision in connection with the arbitration is illegal and invalid, we reverse the judgment.

Aaacon Auto Transport, Inc. (Aaacon), is the interstate common motor carrier which is appellee. Its business is transporting individual, privately-owned vehicles throughout the continental United States. It advertises and has offices in all major United States cities, including Los Angeles, California, near where Mr. Romagnoli's vehicle was to be transported, where he now resides and where he sued Aaacon.

Mr. Romagnoli made arrangements in June of 1972 to have his 1971 Ford pick-up truck transported by Aaacon from Abbeville, South Carolina, to La Mirada, California, where he was being transferred by his employer. These arrangements were made through Aaacon's office in Atlanta, Georgia. The shipper's contract or 'freight billorder form' on which Aaacon relies states that it is 'subject to and incorporating all provisions of the carrier's bill of lading which is reproduced on reverse side hereof.' On the reverse side of the freight bill there is a 28-line uniformly printed closely-packed statement wherein, inter alia, the shipper or shipper's agent consents to personal jurisdiction in New York state and federal courts and to service of process for commencement of any action by certified mail, and in which he agrees to a provision that '(a)ny claim or controversy, whether founded an contract or tort, arising out of or relating to this agreement or performance or breach thereof shall be settled by arbitration in New York City.' ⁵

Mr. Romagnoli's pick-up truck never arrived in southern California but was damaged in the state of Washington where it had been driven by the Aaacon driver. Romagnoli sued Aaacon in an Orange County, California, court to recover $1,157.20 damages allegedly incurred. As subrogee of Mr. Romagnoli for the major part of his claim, State Farm had a major interest in the California action and is the principal party here. While Aaacon would like to have us accordingly view the facts of the case as one between two business equals, we have to examine them from the standpoint of the individual shipper who may or may not be covered by comprehensive insurance such as was furnished Mr.

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Romagnoli by State Farm. ⁶ As subrogee of Romagnoli, State Farm stands in his shoes, and the validity of the arbitration clause must be evaluated in the terms of its effect on the ability of the private shipper to pursue potentially valid claims under the contract. See, e.g., Travelers Indemnity Co. v. Evans Pipe Co., 432 F.2d 211, 212--13 (6th Cir. 1970); Lumbermens Mutual Casualty Co. v. Borden Co., 268 F.Supp. 303, 314 (S.D.N.Y.1967). This contractual term, it may also be noted, was one placed by Aaacon on a form agreement made with a private shipper who, according to his affidavit, was unaware of the existence of the arbitration clause and did not sign the bill of lading himself.

While State Farm raises the claim that the clause limiting venue to New York City is void as an unconscionable term in a contract of adhesion, the principal arguments we need consider relate to the Interstate Commerce Act and are as follows:

1. The restriction on venue constitutes a 'limitation of liability' and is therefore unlawful under Section 20(11) of the Interstate Commerce Act, 49 U.S.C. § 20(11). ⁷

2. The arbitration clause limiting venue to New York City is also void under 49 U.S.C. § 317(a) ⁸ because the ICC, in a decision

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not appealed from by Aaacon, has refused to approve the clause in Aaacon's tariff. ⁹

Section 20(11) of the Interstate Commerce Act, the so-called Carmack Amendment to the Hepburn Act of 1906, states that 'any limitation of liability or limitation of the amount of recovery . . . without respect to the manner or form in which it is sought to be made' is 'unlawful and void.' This provision has been made expressly applicable to common carriers by motor vehicle under the Act in 49 U.S.C. § 319. State Farm argues that Romagnoli's exposure under the form bill of lading to the requirement that he prosecute his claim in a particular venue, New York City, constitutes a 'limitation of liability,' and is therefore invalid. The district court rejected this argument, without reference to authority, on the basis that (1) the clause does not limit respondent's recovery of damages since the arbitrator may award the full amount claimed and (2) there is no need for the shipper, Romagnoli, to travel to New York because, as Aaacon made the concession below, he may submit his evidence to the arbitrator in writing. The statute, however, in its own terms expressly distinguishes the phrase 'limitation of liability' from 'limitation of the amount of recovery' and goes on to prohibit 'any limitation' regardless of 'manner or form.' The question to be decided is whether Aaacon's exposure to the possibility of having to defend against Romagnoli's claim on the merits in California is a 'liability' encompassed by the all-inclusive statutory prohibition against any 'limitation of liability.' We answer this in the affirmative. ¹⁰

Section 20(11) is a remedial statute, one of the major purposes of which was to provide shippers in interstate commerce with the right to litigate claims against carriers in forums convenient for the shippers. It codified the already existing common law right of the shipper to proceed against a carrier in any forum that had jurisdiction over the carrier and the subject matter. It also gave the shipper the new right to proceed against the initial carrier in a case where damage or loss occurred while the shipment was in the hands of a subsequent carrier. Congressman Richardson commented for the committee on the amendment when it was reported out as follows:

One of the great complaints of the railroads has been--and, I think, a reasonable, just and fair complaint--that when a man made a shipment, say, from Washington, for instance, to San Francisco, Cal., and his shipment was lost in some way, the citizen had to go thousands of miles, probably, to institute his suit. The result was that he had to settle his damages at what he could get. What have we done? We have made the initial carrier, the carrier that takes and receives the shipment, responsible for the loss of the article in the way of damages. We save the shipper from going to California or some distant place to institute his suit.

40 Cong.Rec. 9580 (1906). Congressman Richardson's statement was quoted and relied

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upon by the Supreme Court in Atlantic Coast Line Railroad Co. v. Riverside Mills, 219 U.S. 186, 200--01, 31 S.Ct. 164, 55 L.Ed. 167 (1911), which rejected a constitutional challenge claiming that the statute effected a denial of the liberty of contract under the Fifth Amendment. The Court said that a carrier did not have the right to contract to limit its liability to its own lines.

It was not long, however, before the Supreme Court held that the Carmack Amendment preempted state statutes prohibiting carriers from contracting to limit their liability in other ways. In Missouri, Kansas & Texas Railway Co. v. Harriman, 227 U.S. 657, 33 S.Ct. 397, 57 L.Ed. 690 (1913), the Court upheld a contractual stipulation that the carrier was not liable unless the claim was made within 90 days after loss. ¹¹ As the Court there said,

The liability imposed by the statute is the liability imposed by the common law upon a common carrier, and may be limited or qualified by special contract with the shipper, provided the limitation or qualification be just and reasonable, and does not exempt from loss or responsibility due to negligence.

Id. at 672, 33 S.Ct. at 401.

Reacting, Congress sought to close the 'special contract' loophole by enacting the first Cummins Amendment in 1915. The 1915 amendment, inter alia, inserted a provision declaring any limitation of liability to be unlawful and void (except...