Mexico v. Hli Rail & Rigging, LLC

Decision Date13 March 2014
Docket NumberNo. 11 Civ. 3238(ALC)(GWG).,11 Civ. 3238(ALC)(GWG).
Citation3 F.Supp.3d 171
PartiesCHARTIS SEGUROS MEXICO, S.A. de C.V., as subrogee of Prolec GE International, S. de R.L., de C.V., Plaintiff, v. HLI RAIL & RIGGING, LLC, Fresh Meadow Mechanical Corp., and Kansas City Southern Railway Company, Defendants. HLI Rail & Rigging, LLC, Fresh Meadow Mechanical Corp., Third–Party Plaintiffs, v. Fireman's Fund Insurance Company and City Underwriting Agency, Inc., Defendants.
CourtU.S. District Court — Southern District of New York


Lawrence Caruso Glynn, Caruso Glynn, LLC, New York, NY, for Plaintiff.

Kevin James Harrington, Harrington Ocko & Monk, LLP, White Plains, NY, Michael Walter Freudenberg, Harris Beach PLLC, Plattsburgh, NY, Fredric S. Newman, Eve Samara Moskowitz, Juan Alden Skirrow, Hoguet Newman Regal & Kenney, LLP, New York, NY, Merritt Maverick Clements, Winstead Sechrest & Minick, Dallas, TX, for Defendants.

Kevin James Harrington, Harrington Ocko & Monk, LLP, White Plains, NY, Michael Walter Freudenberg, Harris Beach PLLC, Plattsburgh, NY, for Third–Party Plaintiffs.

Howard Steven Kronberg, Stephen Carson Cunningham, Keidel, Weldon & Cunningham LLP, White Plains, NY, for Third–Party Defendants.


ANDREW L. CARTER, JR., District Judge:

A train derailment has set off a chain reaction of claims and cross-claims that question the applicability of the Carmack Amendment, 49 U.S.C. § 11706, the default scheme for rail carriers' liability for goods entrusted to their transport. As a general rule, under the Carmack Amendment, rail carriers are liable for the full value of the goods damaged after receipt by the carrier. However, rail carriers may limit their liability either by entering into a contract pursuant to 49 U.S.C. § 10709, which would not be covered by the Carmack Amendment, or, if the contract is governed by the Carmack Amendment, by first effectively limiting their liability according to the manner required by that statutory scheme.

The present motion was brought by Defendant Kansas City Southern Railway (KCSR), seeking partial summary judgment to limit its liability to $25,000 per car for damage to cargo resulting from the derailment of a KCSR-operated train. Co–Defendant HLI Rail & Rigging (HLI) brings a cross-motion for summary judgment, seeking dismissal of KCSR's affirmative defense that its liability should be limited to $25,000 per car.1 Plaintiff Chartis Seguros Mexico (Chartis) as subrogee of the cargo owner Prolec GE (“Prolec”) also brings a cross-motion for summary judgment that Prolec has set forth a prima facie claim for Carmack liability.2 For the reasons set forth below, KCSR's motion for partial summary judgment(Dkt. No. 92) is denied. HLI's cross-motion for partial summary judgment (Dkt. No. 123) is granted. Chartis's cross-motion for a finding of a prima facie Carmack liability (Dkt. No. 116) is denied.


On March 14, 2010, a train operated by Kansas City Southern Railway (KCSR) derailed near Benavides, Texas. The train was en route from Laredo, Texas to Port Arthur, Texas when it derailed and damage occurred to at least two railcars, each containing an electric transformer owned by Prolec GE International (“Prolec”). The transformers were allegedly damaged beyond repair or use. The transformers were allegedly valued at $3,213,210.00, but deducting for salvage value, the total amount of Prolec's claim was $2,356,066.22. (Chartis Rule 56.1 Stmt ¶ 19–20; Declaration of Alfonso Torres in Support of Chartis's Cross–Motion for Summary Judgment (Dkt. No. 117) (“Torres Decl.”) Ex. I and J).

On May 12, 2011, Prolec commenced a lawsuit against KCSR, HLI Rail & Rigging (HIT)—the company responsible for the transport—and Fresh Meadow Mechanical Corporation (Fresh Meadow), which operates HLI as a wholly-owned subsidiary. Prior to filing its complaint, Prolec had filed a claim with its subrogee/insurer, Chartis Seguros Mexico (Chartis). Having been reimbursed by Chartis, Prolec was dismissed as a plaintiff and Chartis was added as the proper plaintiff in the first Amended Complaint on July 6, 2011.3

Prior to the derailment, Prolec had entered a Memorandum of Understanding (“MOU”) with HLI for provision of transportation services, with HLI essentially acting as a logistics coordinator. (Torres Decl. Ex. A). The MOU contemplated a long-term relationship for transportation services. HLI arranged transport for Prolec factory in Apodaca, Nuevo Leon, Mexico to the U.S.-Mexico border. (Declaration of Michael Scott dated November 9, 2012 (“Scott Decl.”) (Dkt. No. 128) ¶¶ 6–7). HLI then subcontracted the transport between Laredo and Port Arthur, Texas to KCSR.

Which documents govern HLI's subcontract with KCSR is the subject of greater dispute. KCSR contends that the contract is formed by reading three documents in tandem: the Confidential Rail Transportation Price (“Price Quote”) 4, two bills of lading dated March 10, 2010 (collectively, the “BOLs”) 5, and the Rules Publication KCS 9012 (“Rules Publication”) 6. The theory behind KCSR's motion for summary judgment is that its liability is limited to $25,000 per car, a sum stated in the Price Quote, which was incorporated into the BOLs. Further, KCSR effectively limited its liability by providing the opportunity for full Carmack liability in the Rules Publication, which was referenced in the Price Quote. To the contrary, HLI argues that KCSR did not effectively limit its liability because it had no notice of the Rules Publication and, at a minimum, full Carmack protection did not apply or was not provided for this shipment.

1. Price Quote

The Price Quote applies to electrical transmission or distribution equipment and was effective from November 25, 2009 through December 31, 2010. The Price Quote lists the following “General Shipment Conditions”:

Mileage allowance payments will not apply;

Switching charges at both origin and destination will not be absorbed;

Price is not subject to Rule 24 of UFC;

Price is not subject to Rule 34 of UFC;

Subject to maximum liability of 25000.00 per car;

Price applies to United States funds;

Charges for Weighing are not included in the price;

Price is subject to cancellation on 20 day(s) notice;

Price is subject to 9012;

Price is subject to UFC tariff 6000;

Price is subject to fuel surcharge based on mileage;

The Mileage Basis being utilized is Fuel Surcharge Miles. [...]

The Price Quote also requires all shipping documents to make reference to the price authority KCS QB 36123 as well as “the seven digit STCC (where applicable), Origin, Destination and Equipment Identification Number on their face when tendered to the Origin Carrier.” (Formanek Decl. Ex. 3). The Price Quote provides a rate for “Laredo, TX to Beaumont, TX; Port Arthur, TX.” ( Id.) The rate for shipments with a minimum weight between 150,000 and 200,000 pounds is listed as $7.25 per hundred weight. ( Id.)

2. Rules Publication KCS 9012

KCSR contends that Rules Publication KCS 9012 (the “Rules Publication”) was incorporated into the Price Quote because of the phrase “Price is subject to 9012.” Revision 8 of the Rules Publication was in effect at the time of the derailment and sets forth KCS's conditions of carriage, namely the “rules and related provisions applicable to rail transportation of commodities moving in interstate and intrastate commerce via the Kansas City Southern Railway Company (KCS) and Gateway Eastern Railway Company (GWWE).”

1. Item 5: “KCS Website”

Item 5 explains the availability of the Rules Publication as follows:

This publication is available on the Internet for viewing or sending directly to your printer. The KCS Home Page address is http:// www. kcsouthern. com. From the Home Page choose the ‘Customers' link, click ‘Pricing and Rules Publications' then click the ‘Rules Publications 9012’ link. An annual $100.00 subscription fee will be assessed for those who wish to receive a hard copy.

If you are not equipped to obtain a copy of this publication from KCS' web site, a hard copy will be mailed to you, if you submit a formal written request to the following address ...

In accordance with the Surface Transportation Board's policy decision under Ex Parte 528, Disclosure, Publication and Notice of Change of Rates and OtherService Terms for Rail Common Carriage, the request must be made annually in writing.

Rules Publication, at Item 5.

2. Item 80: “Carrier Liability—Loss and Damage to Lading”

Item 80 includes the following [g]eneral” provision about default coverage and full value coverage under the Carmack Amendment:

A) On domestic moves that originate in the United States of America, shipper may, at their option, select freight loss and damage liability provisions set forth in 49 U.S.C.A., Section 11706 (Carmack) as explained in this item. If 49 U.S.C.A. Section (Carmack) is not selected, the liability provision of this item will govern.

Rules Publication, at Item 80 (General). The liability provisions provide for liability as at common law except as provided. One of the “Liability Restrictions,” among others, reads as follows:

(D) Unless amended by written agreement prior to shipment, rail carrier's liability for the contents of any rail car will be limited to the actual value of the cargo or $50,000.00, whichever is the lesser of the two amounts.

Rules Publication, at Item 80 (Liability Restrictions).

Under a section titled “Carmack Liability,” Item 80 also provides:

49 U.S.C. Section 11706 provides for full value liability and other liability terms for the rail carriers and the shipper. To make a shipment pursuant to the terms of 49 U.S.C. Section 11706, the shipper must comply with all of the following provisions:

1) Shipper must notify rail carrier no less and [sic] seventy-two (72) hours before the rail car is released for transportation that the shipper chooses Carmack Liability protection.

2) The shipper must have prepaid the Carmack Liability Rate obtained from KCS' Marketing Department.

3) The shipping...

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