Quasar Co. v. Atchison, Topeka and Santa Fe Ry. Co.

• Decision Date: 31 March 1986
• Docket Number: No. 83 C 4617.,83 C 4617.
• Citation: 632 F. Supp. 1106
• Parties: QUASAR COMPANY, A DIVISION OF MATSUSHITA ELECTRIC CORPORATION OF AMERICA, Plaintiff, v. The ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY and Devco Distribution Systems, Defendants.
• Court: U.S. District Court — Northern District of Illinois

632 F. Supp. 1106

QUASAR COMPANY, A DIVISION OF MATSUSHITA ELECTRIC CORPORATION OF AMERICA, Plaintiff, v. The ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY and Devco Distribution Systems, Defendants.

No. 83 C 4617.

United States District Court, N.D. Illinois, E.D.

March 31, 1986.

John Maniatis, Ray, Robinson, Hanninen & Carle, Chicago, Ill., for plaintiff.

John C. Palmer, Jr. and Ellen L. Falkof, Atchison, Topeka and Santa Fe Railway Corp., Chicago, Ill., for defendants.

MEMORANDUM AND ORDER

MORAN, District Judge.

It all started with what looked like a simple discovery request. Plaintiff Quasar Company (Quasar) wanted documents and answers to interrogatories which would relate to the degree of defendant Atchison, Topeka and Santa Fe Railway's (Santa Fe's) negligence in the theft of a shipment of Quasar's video cassette recorders from a Santa Fe yard. This court granted Quasar's motion to compel. Quasar Co. v. Atchison, Topeka and Santa Fe Railway Co., No. 83 C 4617 (N.D.Ill. July 30, 1985) Available on WESTLAW, DCTU database. Santa Fe rapidly returned asking us to reconsider, asserting that our "decision to consider a rail carrier's degree of negligence in a freight loss and damage case was the first such holding since the early 1900s." It argues that we relied on Illinois law in an area in which federal law long ago preempted state law.

Santa Fe is correct; we were wrong and we reverse our July 30 order. The question proves to be substantially more complex than either its appearance or the party's briefs initially led us to believe. We went astray in part because the problem is new: a question of what to do with old rail carrier laws and regulations when a service is suddenly deregulated. But the unusual arguments the parties made also helped us get off-track. In the hope that we may not be similarly misled in the future, we take some time and space for discussion of the law which should govern this suit.

I.

The facts which led to this lawsuit are set out in this court's first memorandum and order in this case, Quasar Co. v. Atchison, Topeka and Santa Fe Railway Co., No. 83 C 4617, slip op. (N.D.Ill. Feb. 17, 1984) Available on WESTLAW DCTU database The VCRs were in a cargo container en route from Japan to Chicago. An ocean carrier, Sea-Land Services, Inc., issued a through bill of lading in Japan and shipped the container to Los Angeles. There, defendant Devco Distribution Systems (Devco), which Quasar had hired, transferred the container to Sante Fe for rail carriage to Chicago. The container vanished from Santa Fe's Los Angeles yard the next day.

Santa Fe has admitted liability, so the only question in this case is the amount of damages Santa Fe must pay Quasar for the stolen shipment of VCRs. When Devco delivered the container, Santa Fe issued an interchange receipt which carried a computer overprint to the effect that rights, duties and liabilities "are governed by ATSF circular no. TOFC-1." Section 52 of that circular states that liability for loss or damage "shall be subject to released values as established by ATSF." Santa Fe asserts that the released value it has established is $1.50 per pound, and so its liability is limited to $36,504. Quasar states that the actual value of the shipment was $450,000. It argues, as one would expect, that the claimed liability limitation does not apply to it, and has offered several legal theories which it believes would support that result. This court discussed most of these in its February 17 memorandum, in which we found that Quasar had at least stated a claim and denied Santa Fe's motion to dismiss.

Quasar's motion to compel (which led to the July 30 order), however, was grounded on yet another theory. Quasar argued there that if it could show gross negligence in the security arrangements at Santa Fe's Los Angeles yard, the liability limitation would be void. Therefore, it maintained, the issue of gross negligence was relevant to the suit. It asked for discovery designed to ferret out gross negligence.

A.

Under interstate common carrier law for most of this century Quasar's position would have had no basis. The system of liability for common carriers, firms in the business of providing carrier service to the public, differs sharply from ordinary tort or contract liability. A private carrier, one who has specially agreed in a particular instance to transport goods or persons but who does not hold himself out to the public as a carrier, is subject to liability for failure to use ordinary care. But in the system of common carrier liability, at least until recently, a common carrier's negligence was not relevant because it was implicitly assumed. At common law a common carrier was liable for loss or damage to a shipper's goods as an insurer would be: liable for the full value of the goods unless the loss was caused by an act of God, the public authority, a public enemy, the shipper, or by an inherent vice in the goods. The shipper and the carrier could, however, contractually agree that the carrier's liability would be limited to a specific amount if the shipper received in consideration a lower rate for the carriage. These principles, in the main, were carried over into the Interstate Commerce Act. The basic rule was that the carrier was liable for the full value of goods lost or damaged. However, if authorized by the Interstate Commerce Commission (ICC), a carrier could offer "released value rates": the shipper "released" the goods at a certain value and in return the carrier gave the shipper a lower rate. The shipper thus became in effect a coinsurer of his goods. If lost or damaged, his recovery was limited to the released value. See generally Shippers National Freight Claim Council, Inc. v. I.C.C., 712 F.2d 740, 745-748 (2d Cir.1983), cert. denied, 467 U.S. 1251, 104 S.Ct. 3534, 82 L.Ed.2d 839 (1984); Howe v. Allied Van Lines, Inc., 622 F.2d 1147, 1156-1157 (3d Cir.), cert. denied 449 U.S. 992, 101 S.Ct. 528, 66 L.Ed.2d 289 (1980).

In the regime of released value rates, what governs the size of a recovery is not the degree of the carrier's negligence but rather the validity of the contract term for the released value. If a liability limitation is valid, recovery cannot exceed the released value no matter how negligent the carrier was. Southeastern Express Co. v. Pastime Amusement Co., 299 U.S. 28, 57 S.Ct. 73, 81 L.Ed. 20 (1936). Most courts have found, for example, that a liability limitation is unaffected by a breach of an essential term of the contract, Conoco, Inc. v. Andrews Van Lines, Inc., 526 F.Supp. 720 (W.D.Okla.1981), gross negligence, Tishman & Lipp, Inc. v. Delta Airlines, 275 F.Supp. 471, 480 (S.D.N.Y.1967), aff'd 413 F.2d 1401 (2d Cir.1969), or even willful conduct by the carrier's employees, Neal v. Republic Airlines, Inc., 605 F.Supp. 1145, 1149 n. 3 (N.D.Ill.1985). It matters not, apparently, whether the goods were stolen, either while in transport or while being stored, Western Transit Co. v. A.C. Leslie & Co., 242 U.S. 448, 37 S.Ct. 133, 61 L.Ed. 423 (1917), even if an employee of the carrier stole them, Tishman, 275 F.Supp. at 480, indeed not even if an employee of the carrier deliberately set fire to them, Rocky Ford Moving Vans, Inc. v. United States, 501 F.2d 1369, 1373 (8th Cir.1974) (dictum).

On the other hand, if there is no valid liability limitation, then the shipper recovers by simply proving delivery to the carrier in good condition and arrival in bad condition (or no arrival at all), unless the carrier can prove one of the traditional exceptions. Missouri Pacific Railroad Co. v. Elmore & Stahl, 377 U.S. 134, 137-138, 84 S.Ct. 1142, 1144, 12 L.Ed.2d 194 (1964). In neither case, then, does the carrier's conduct affect the outcome. Thus, if that system of liability applies here, defendants' gross negligence would indeed not be relevant and discovery on that subject would properly be denied.

B.

What was not clear to us, however, at the time of Quasar's motion was whether the transaction here comes under that system of liability. Because the VCRs were inside a container, the loss comes under a newly murky area of the law. The Interstate Commerce Commission exempted trailer on flatcar (TOFC or "piggyback") and container on flatcar (COFC) services from federal economic regulation in 1981. 46 Fed.Reg. 14348 (1981). The exemption came pursuant to authority granted by Congress, codified at 49 U.S.C. § 10505 as part of the Staggers Rail Act of 1980. Congress expressly encouraged an exemption for services which were "part of a continuous intermodal movement," a category which includes TOFC/COFC. 49 U.S.C. § 10505(f), 49 C.F.R. § 1090.1. See generally American Trucking Ass'ns v. I.C.C., 656 F.2d 1115 (5th Cir.1981). As one feature of deregulation, railroads no longer need publish nor file with the I.C.C. rates applicable to TOFC/COFC services. Id. at 1124; 46 Fed.Reg. at 14349. The question then becomes whether deregulation means that railroads, when transporting goods by TOFC/COFC, are required to comply with any portion of the Interstate Commerce Act.

Santa Fe's position on the subject is astoundingly simple. It maintains that thanks to deregulation it is no longer a common carrier when performing TOFC/COFC services. Exemption frees it from any and all terms of the Interstate Commerce Act and makes it a private carrier. It therefore incurs liability only insofar as it expressly contracts for it, it says, and so cannot be liable for more than the $1.50 per pound it has established for itself. Santa Fe thus did not raise the issue of federal preemption in its response to Quasar's motion to compel; indeed, it argued little except the pleadings. Since Quasar did not allege gross negligence as a basis for recovery in its complaint, defendants said, gross negligence was not relevant. Unfortunately, Quasar's brief was no more helpful, merely citing two Illinois cases from the 1890s, a California case dealing with intrastate...