Certain Underwriters At Interest At Lloyds of London Jointly & Severally Subscribing to Ins. Policy S110020 v. United Parcel Serv. of Am., Inc.

• Decision Date: 12 August 2014
• Docket Number: No. 13–4515.,13–4515.
• Citation: 762 F.3d 332
• Parties: CERTAIN UNDERWRITERS AT INTEREST AT LLOYDS OF LONDON Jointly and Severally Subscribing to Insurance Policy S110020 as Subrogees of First State Depository, LLC., Appellants v. UNITED PARCEL SERVICE OF AMERICA, INC.
• Court: U.S. Court of Appeals — Third Circuit

762 F.3d 332

CERTAIN UNDERWRITERS AT INTEREST AT LLOYDS OF LONDON Jointly and Severally Subscribing to Insurance Policy S110020 as Subrogees of First State Depository, LLC., Appellants

v.UNITED PARCEL SERVICE OF AMERICA, INC.

No. 13–4515.

United States Court of Appeals,Third Circuit.

Argued: July 8, 2014.

Filed: Aug. 12, 2014.

Robert J. Cosgrove, Esq., (Argued), Wade, Clark & Mulcahy, Clayton H. Thomas, Jr., Esq., Clayton H. Thomas & Associates, Philadelphia, PA, Counsel for Appellants.

Jerry R. DeSiderato, Esq., (Argued), Dilworth Paxson, Cherry Hill, NJ, Counsel for Appellee.

Before RENDELL, CHAGARES, and JORDAN, Circuit Judges.

OPINION

CHAGARES, Circuit Judge.

This case calls upon us to construe the preemptive scope of the Carmack Amendment, 49 U.S.C. § 14706, and to clarify the judicially-created “true conversion” exception. We hold that the Carmack Amendment preempts all state law claims for compensation for the loss of or damage to goods shipped by a ground carrier in interstate commerce. We also conclude that the “true conversion” exception is an exception to the liability limiting features of the Carmack Amendment, not an exception to its preemptive scope. We will therefore affirm the order of the District Court.

I.

This case is about missing packages. First State Depository, LLC (“First State”) provides custody, shipping, and accounting services for coins and special metals. When it ships coins or special metals, it often does so via a ground carrier such as the United Parcel Service of America, Inc. (“UPS”), as it did here. The plaintiffs, First State's third-party insurers (the “Underwriters”) invoke their subrogation rights and allege that twenty-seven of First State's shipments were lost or stolen by UPS or its employees during an eight-week period in early 2012. UPS never located any of the missing packages, which were allegedly worth a total of $150,000.00.

The Underwriters brought state law claims against UPS in the United States District Court for the Eastern District of Pennsylvania for breach of contract, negligence, negligent supervision of employees, and “true [ and] fraudulent conversion.” Appendix (“App.”) 307–404. In their conversion claim, they alleged that “UPS or its employees, agents, technicians, vendors, subcontractors, drivers and/or servants” deprived First State of its property and “[u]nlawfully took, carried away, concealed, stole or obtained [the shipments] by fraud or deception.” App. 308. The Underwriters premised subject matter jurisdiction solely on the complete diversity of the parties; they did not bring any claims based upon federal law.

The District Court dismissed the Underwriters' amended complaint for failure to state a claim upon which relief could be granted. It held that the Carmack Amendment preempted all of the Underwriters' state law claims. App. 11. It recognized that some courts have found “that the Carmack Amendment's liability limitations do not apply when the common carrier has committed a true conversion of goods,” but held that this exception did not permit an action based on state law, but rather abrogated the limitation of liability for causes of action brought under the Carmack Amendment itself. App. 11–12. Because the Underwriters only brought state law claims, the District Court held that the exception did not save their complaint. Finally, the District Court noted that the Underwriters failed to plead their true and fraudulent conversion claim with the particularity demanded by Federal Rule of Civil Procedure 9(b). App. 14–15. The Underwriters timely appealed.

II.

The District Court exercised diversity jurisdiction pursuant to 28 U.S.C. § 1332. We have jurisdiction pursuant to 28 U.S.C. § 1291.

Our review of the District Court's grant of a motion to dismiss is plenary. Fowler v. UPMC Shadyside, 578 F.3d 203, 206 (3d Cir.2009). To survive a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), a plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A complaint has facial plausibility when there is enough factual content “that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). A court must accept all factual allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Phillips v. Cnty. of Allegheny, 515 F.3d 224, 231 (3d Cir.2008). We disregard legal conclusions and recitals of the elements of a cause of action that are supported only by mere conclusory statements. Santiago v. Warminster Twp., 629 F.3d 121, 128 (3d Cir.2010).

III.

We address two issues in resolving this appeal: first, whether the Carmack Amendment preempts the Underwriters' state law claims; and second, whether the “true conversion” exception is an exception to the Carmack Amendment's preemptive scope, or to the Amendment's limitations on carrier liability.

A.

At common law, a ground carrier's liability for goods damaged in transit varied from jurisdiction to jurisdiction but was “virtually unlimited.” See Emerson Elec. Supply Co. v. Estes Express Lines Corp., 451 F.3d 179, 182 (3d Cir.2006). Carriers were subject to “such a diversity of legislative and judicial holding that it was practically impossible for a shipper ... to know [its potential liability] without considerable investigation and trouble.” Adams Express Co. v. Croninger, 226 U.S. 491, 505, 33 S.Ct. 148, 57 L.Ed. 314 (1913) (quotation marks omitted). Carriers could, however, generally limit their liability though released value agreements. See First Pa. Bank, N.A. v. E. Airlines, Inc., 731 F.2d 1113, 1116 (3d Cir.1984).

Congress first comprehensively addressed interstate carrier liability in the Carmack Amendment to the Hepburn Act of 1906. Pub.L. No. 59–337, 34 Stat. 584. The Amendment adopted much of the common law regime, including the ability of carriers to limit their liability by agreement in a shipment's bill of lading. See Adams Express, 226 U.S. at 508–12, 33 S.Ct. 148.¹ Originally applicable only to interstate rail shipments, the Carmack Amendment became applicable to motor carriers by the Motor Carrier Act of 1935. Pub.L. No. 74–255, 49 Stat. 543.

The Carmack Amendment's operation is relatively straightforward. The general rule is that an interstate carrier is strictly liable for damages up to “the actual loss or injury to the property caused by (A) the receiving carrier, (B) the delivering carrier, or (C) [certain intermediary carriers].” 49 U.S.C. § 14706(a)(1). A shipper and carrier can agree to limit the carrier's liability “to a value established by written or electronic declaration of the shipper or by written agreement between the carrier and shipper if that value would be reasonable under the circumstances” in order for the shipper to obtain a reduced rate. Id. § 14706(c)(1)(A).² Shippers may bring a federal private cause of action directly under the Carmack Amendment against a carrier for damages. Id. § 14706(d).

The Carmack Amendment struck a compromise between shippers and carriers. In exchange for making carriers strictly liable for damage to or loss of goods, carriers obtained a uniform, nationwide scheme of liability, with damages limited to actual loss—or less if the shipper and carrier could agree to a lower declared value of the shipment. See N.Y., New Haven, & Hartford R.R. v. Nothnagle, 346 U.S. 128, 131, 73 S.Ct. 986, 97 L.Ed. 1500 (1953); accord Wesley S. Chused, The Evolution of Motor Carrier Liability Under the Carmack Amendment into the 21st Century, 36 Transp. L.J. 177, 210 (2009). Making carriers strictly liable relieved a shipper of the burden of having to determine which carrier damaged or lost its goods (if the shipper's goods were carried by multiple carriers along a route). It also eliminated the shipper's potentially difficult task of proving negligence. See Sec'y of Agric. v. United States, 350 U.S. 162, 173, 76 S.Ct. 244, 100 L.Ed. 173 (1956) (Frankfurter, J., concurring). In return, carriers could more easily predict their potential liability without closely studying the tort law of each state through which a shipment might pass. Carriers' liability was limited to the actual value of the goods shipped—punitive damages were not available. See, e.g., Penn. R.R. v. Int'l Coal Mining Co., 230 U.S. 184, 200, 33 S.Ct. 893, 57 L.Ed. 1446 (1913) (noting that “the act provided for compensation, not punishment”).

For over one hundred years, the Supreme Court has consistently held that the Carmack Amendment has completely occupied the field of interstate shipping. “Almost every detail of the subject is covered so completely that there can be no rational doubt but that Congress intended to take possession of the subject, and supersede all state regulation with reference to it.” Adams Express, 226 U.S. at 505–06, 33 S.Ct. 148. The Court has consistently described the Amendment's preemptive force as exceedingly broad—broad enough to embrace “all losses resulting from any failure to discharge a carrier's duty as to any part of the agreed transportation.” Ga., Fla. & Ala. Ry. v. Blish Milling Co., 241 U.S. 190, 196, 36 S.Ct. 541, 60 L.Ed. 948 (1916). State laws are preempted regardless of whether they contradict or supplement Carmack relief. See Charleston & W. Carolina Ry. Co. v. Varnville Furniture Co., 237 U.S. 597, 604, 35 S.Ct. 715, 59 L.Ed. 1137 (1915) (holding that a South Carolina law that imposed a $50.00 fine upon carriers that failed to timely report damage was preempted by the Amendment).

The Courts of Appeals have also unanimously held that the Carmack Amendment “preempts all state or common law remedies available to a shipper against a carrier for loss or damage to interstate shipments.” N. Am. Van Lines, Inc. v. Pinkerton Sec. Sys., Inc., 89 F.3d 452, 456 (7th...