Daybreak Express Inc v. Lexington Ins. Co, 14-09-01032-CV

CourtCourt of Appeals of Texas
Docket NumberNO. 14-09-01032-CV,14-09-01032-CV
Decision Date11 January 2011


NO. 14-09-01032-CV

Court of Appeals of Texas

filed January 11, 2011

Reversed and Rendered and Majority and Dissenting Opinions filed January 11, 2011.

On Appeal from the 333rd District Court
Harris County, Texas
Trial Court Cause No. 2005-01530


In this subrogation action, Lexington Insurance Co. sued Daybreak Express, Inc. in connection with property damage that occurred during the interstate shipment of electronic equipment owned by Burr Computer Environments, Inc.

The trial court found that (1) Lexington proved all elements of a Carmack Amendment claim under 49 U.S.C. § 14706 (2006); (2) the claim was not time-barred under the applicable New Jersey statute of limitations; and (3) Lexington sustained

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damages of $85,800. The trial court signed a final judgment awarding damages and attorney's fees, and Daybreak appealed. We reverse and render a take-nothing judgment in favor of Daybreak because Lexington's Carmack Amendment claim is barred by limitations under Texas law.


Burr hired J. Supor & Sons Trucking & Rigging Co. to transport Burr's equipment from New Jersey to Texas. Supor issued a bill of lading for the shipment, which it referred to Daybreak, a New Jersey trucking company. Supor's personnel loaded the equipment onto Daybreak's truck, and Daybreak transported the equipment to Daybreak's New Jersey terminal. Daybreak transferred the bill of lading to its sister company, which then transferred it to T. Orr Trucking, Inc. Orr transported the equipment to Texas. The equipment arrived in Texas on August 15, 2002 in a damaged condition.

Burr presented a written claim for damages to Daybreak on September 11, 2002. Daybreak hired an independent adjuster from Cunningham Lindsey to investigate Burr's claim. The adjuster submitted a report to Daybreak reflecting that the adjuster and Burr had agreed to value Burr's claim at $166,655. Burr contended that this valuation was a settlement agreement. Daybreak contacted Burr on February 6, 2003 and informed Burr that Daybreak would pay only $5,420 for the claim.

Burr also filed a damage claim with Supor. Supor paid Burr $5,000 on November 13, 2003 to meet its insurance policy deductible. Supor's insurer, Lexington, paid Burr $87,500 to settle the claim on November 18, 2003.

Lexington filed a subrogation suit against Daybreak in Texas state court on January 6, 2005. In its original petition, Lexington asserted only a single state law breach of contract claim based on the alleged settlement agreement between Burr and Daybreak. The original petition recited that Daybreak delivered a shipment to Burr in Texas on August 15, 2002; that a bill of lading had been issued by Supor and consigned to

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Daybreak; and that "[u]pon arrival in Houston, it was discovered the equipment had been damaged in transit." Lexington alleged that "it issued a policy of cargo insurance to J. Supor and Sons Trucking and Rigging Co., which provided coverage to Burr for its cargo the subject of this lawsuit." Lexington further alleged, "When Daybreak breached its settlement agreement with Burr, Burr submitted the claim to Plaintiff, and Plaintiff subsequently reimbursed the loss suffered by Burr under its policy of insurance." Lexington asserted that it "became subrogated to the rights of Burr in both contract and equity." Lexington additionally asserted that "it is subrogated to the causes of action of Burr both in contract and tort, and may prosecute the claim of Burr against Daybreak."

Daybreak removed the case to federal court, arguing that Lexington's claim "is a civil action pending in the State Court against a common carrier to recover damages for alleged delay, loss, or injury to a shipment arising under the Interstate Commerce Act." See 49 U.S.C. § 14706. Lexington filed a motion to remand and contended that federal question jurisdiction under 28 U.S.C. §§ 1331 and 1441(b) did not encompass the single state law breach of contract action pleaded in its original petition. See 28 U.S.C. §§ 1331, 1441(b) (2006). In response, Daybreak conceded that "a federal claim does not appear on the face of the original petition, but argue[d] that federal jurisdiction is nevertheless proper under the complete preemption doctrine."See Lexington Ins. Co v. Daybreak Express, Inc., 391 F. Supp.2d 538, 540 (S.D. Tex. 2005).

United States District Judge Sim Lake concluded that "Lexington does not seek to impose liability on Daybreak for damages arising from the interstate transport of property."Id. at 541. "Instead, Lexington seeks to enforce an agreement it alleges Daybreak entered into in order to settle claims for damages to a shipment of electrical equipment." Id. "Resolution of this contract claim does not turn on the rights and responsibilities of Daybreak as a carrier in interstate commerce." Id. The federal district court also observed as follows: "Lexington seeks to recover in contract not for loss or damage to the electrical equipment, but rather for breach of Daybreak's alleged promise to settle those claims for the specified sum."Id at 541 n.8. Accordingly, the federal

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district court remanded this case on June 24, 2005.

On August 28, 2006, Lexington added claims for indemnity, contribution, and unjust enrichment arising from the payment it made to Burr on Supor's behalf. Lexington pleaded for the first time on May 4, 2007 that Daybreak is liable for damages under the Carmack Amendment.

Following a bench trial, the trial court concluded that the "New Jersey statute of limitations is applicable and therefore [Lexington's] claim is not time barred." The trial court found that the equipment was "delivered to the initial carrier in good condition" and was "damaged before delivery" to its final destination, which entitles Lexington to damages under its Carmack Amendment claim.1See Mo. Pac. R.R. Co. v. Elmore & Stahl, 377 U.S. 134, 137-38 (1964), affg Mo. Pac. R.R. Co. v. Elmore & Stahl, 368 S.W.2d 99 (Tex. 1963). The trial court awarded Lexington $85,800 in damages, representing the amount paid to Burr less the damaged equipment's salvage value, plus attorney's fees.


I. Applicable Limitations Period

Daybreak contends on appeal that Lexington's claim is barred by limitations. As subrogee, Lexington stepped into Burr's shoes and is subject to any limitations defense that would apply to Burr. See, e.g., Guillot v. Hix, 838 S.W.2d 230, 232-33 (Tex. 1992) ("Because a subrogation action is derivative, the defendant in such an action may ordinarily assert any defense he would have had in a suit by the subrogor.... Limitations is among the defenses which may be asserted."). Determining the applicable limitations period requires an examination of the federal statutory scheme governing

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interstate shipments by common carriers.

A carrier's liability for damage to an interstate shipment is a matter of federal law. Mo. Pac. R.R. Co., 377 U.S. at 137. The applicable statutory scheme is set forth in the Carmack Amendment:

A carrier providing transportation or service... shall issue a receipt or bill of lading for property it receives for transportation under this part. That carrier and any other carrier that delivers the property and is providing transportation or service... are liable to the person entitled to recover under the receipt or bill of lading. The liability imposed under this paragraph is for the actual loss or injury to the property caused by (A) the receiving carrier, (B) the delivering carrier, or (C) another carrier over whose line or route the property is transported....

49 U.S.C. § 14706(a). A state court has subject matter jurisdiction to adjudicate a claim under the Carmack Amendment. See id. § 14706(d)(3).

Parties frequently establish the time period for filing suit under the Carmack Amendment by agreement. See generally Shao v. Link Cargo (Taiwan) Ltd., 986 F.2d 700, 707-08 (4th Cir. 1993) ("The Carmack Amendment... contemplates that limitations periods are terms to be bargained over between shipper and carrier...."). Because the parties did not do so here, we must identify the source of the applicable limitations period.

Daybreak asserts that the Carmack Amendment itself establishes a two-year statute of limitations. See 49 U.S.C. § 14706(e). Alternatively, Daybreak argues that a "catch-all" four-year limitation period applies. See 28 U.S.C. § 1658(a) (2006). Daybreak contends that Lexington's suit is untimely under either statute of limitations because the Carmack Amendment claim Lexington first pleaded on May 4, 2007 (1) was not brought within two or four years of Daybreak's disallowance of the written claim for damages on February 6, 2003; and (2) does not relate back to Lexington's claim for breach of settlement agreement filed on January 6, 2005.

We reject Daybreak's contention that federal law provides the applicable limitations period in the absence of a contractual limitations period. Daybreak relies on

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subsection (e), which states that "[a] carrier may not provide by rule, contract, or otherwise... a period of less than 2 years for bringing a civil action against it under this section." 49 U.S.C. § 14706(e). But this section does not establish a...

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