Supreme Court Rules Out Carmack Coverage for Inland Portion of Through BOL
On June 21, 2010, the U.S. Supreme Court determined which set of two conflicting laws will apply to the inland U.S. rail portions of shipments of imported merchandise shipped under a single “through” bill of lading. Reversing the Ninth Circuit Court of Appeals, the high Court ruled in Kawasaki Kisen Kaisha v. Regal-Beloit Corp. that only the Carriage of Goods by Sea Act (COGSA), and not the Carmack Amendment to the Interstate Commerce Act of 1887, will apply to such shipments.
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Derailment Brought Lawsuit in U.S. Despite Contract Stipulating Tokyo Courts
Kawasaki (aka K-Line), the international carrier, gave some Midwest-based shippers (Regal-Beloit and others) a contract which called for the parties' COGSA contract terms to apply also to the inland, U.S. leg, a common practice to avoid the carrier liability provisions of the Carmack Amendment and thus reduce risk and expense. K-Line contracted with Union Pacific (UPRR) for the Los-Angeles-to-Midwest rail leg. After a train wreck caused merchandise damage, the shippers sued in U.S. District Court for damages, but K-Line and UPRR sought to enforce the contract's stipulation of Tokyo as the venue for all disputes.
Carmack Amendment Disallows Foreign Judicial Venues
Carmack's requirements would disallow a foreign venue. The District court granted the carriers’ motion to dismiss based on the Tokyo jurisdiction stipulated in the contract, but the Appeals Court overruled that decision, reasoning that the lower court failed to consider whether the parties had properly opted out of the Carmack Amendment’s requirements.
Ocean Carriers Argued Carmack not Germane to International Shipments
At the Supreme Court, Kawasaki, or K-Line, argued that it has been settled law for a century that the Carmack Amendment does not apply to the inland leg of an import through shipment…[and] doesn’t apply to foreign trade at all. However, while four circuit courts have held that the Carmack Amendment does not apply to a shipment from a foreign country unless the overland leg is covered by a separate bill of lading, two circuit courts have held that the Carmack Amendment's liability provisions can still apply to the domestic portions of such shipments, even under through bills of lading.
Court Recognized Importance of Resolving Legal Confusion
In taking the case, the court recognized that the two laws conflict since COGSA allows parties to extend the liability terms of ocean transit contracts to inland portions of routes, but the Carmack Amendment generally serves as the default liability regime for rail and motor carriers in the U.S. The court thus took the carriers’ point, acknowledged by the appeals court as well, that having more than one body of law cover the same contract causes confusion and inefficiency.
Carmack Requires Separate Bill of Lading
Noting that the Carmack Amendment requires that on domestic shipments only the rail carrier receiving property for transportation, or “the receiving carrier,” be the party to issue a bill of lading, the court reasoned that to apply Carmack to the domestic leg of import shipments made under through bills of lading, when the receiving carrier had not issued a bill of lading, would weaken Carmack’s protection for shippers and end up necessitating separate bills of lading for each leg involving a separate carrier, even on domestic shipments. This result would be contrary to the Carmack Amendment’s purpose of making the receiving and delivering carriers both liable under a single, initial bill, for damage caused by a carrier within a single course of shipment, the court found.
Only COGSA Applies to Import Shipments on Through Bills of Lading
In the disputed shipment, UPRR was not the receiving carrier, the court reasoned, rather, K-line was. That K-Line “chose to use rail transportation to complete one segment under its ‘essentially maritime’ contract…does not put it within Carmack’s reach” the court reasoned, holding that “[b]ecause the Carmack Amendment does not apply to a shipment originating overseas under a single through bill of lading, the parties’ agreement to litigate these cases in Tokyo is binding.”
(S.C. Docket 08-1553, decided June 21, 2010)