Perils of consolidation

Perils of consolidation    Two related cases in California federal court point up a potential pitfall if related shipments are consolidated.
   On or about Oct. 2, 2008, Personal Communications Devices (PCD) tendered seven separate shipments of mobile phones, worth $7.7 million, to Platinum Cargo Logistics.
   Prior to tendering the goods, PCD prepared an online bill of lading through Platinum's Web site, and signed an agreement setting forth Platinum's standard terms and conditions.
   PCD elected a declared value of $35,000 for each shipment (totaling $245,000 for all seven shipments) on the bill of lading. Platinum accepted the declared value of $35,000 in lieu of its standard limitation of liability of 50 cents per pound.
   Rather than declare the actual value of each shipment and pay a higher freight rate, PCD obtained insurance of $5 million per truckload from Fireman's Fund.
   PCD claimed Platinum agreed the shipments would not be consolidated without notification. But PCD said Platinum consolidated the seven shipments without providing notification.
   Because PCD's shipping insurance policy contained a $5 million-per-truckload limit, Platinum's consolidation of the shipment exposed PCD to about $2.6 million of uninsured exposure.
   PCD said Platinum subcontracted carriage of the shipment to Celestial Freight Solutions. Two drivers from Celestial picked up the shipment to transport it from Carson, Calif. to Louisville, Ky. On Oct. 3, the drivers reported the truck, trailer and shipments stolen from an unlocked truck yard in Santa Ana, Calif., where the drivers had, for reasons unknown, temporarily stored them. The next day, the Pasadena Police Department recovered the truck, and it was not until Nov. 4 that police in Florida found the trailer. The cargo was never recovered.
   In the first lawsuit (Personal Communications Devices v. Platinum Cargo Logistics. C.D.Cal. No. SACV 09-00516 DDP. Sept. 3), PCD contended the Celestial drivers were not properly trained, and failed to undertake the security precautions that Platinum guaranteed. PCD also contended that Platinum:
   ' Refused to provide PCD with a copy of its tariff.
   ' Failed to use care in selecting a motor carrier.
   ' Wrongfully held out personnel as experienced.
   ' Failed to 'abide by reasonable standards of conduct in all pre-shipment processes.'
   PCD's timely claims to its insurer, Fireman's Fund, were denied on the grounds that Platinum and its agents were responsible for the loss of the shipment.
   Fireman's Fund contends the loaded trailer was taken by a single driver from Platinum's facility to Santa Ana in violation of the insurance binder and policy.
   The court has not yet addressed the ultimate question about Fireman's Fund's seeking a declaratory judgment denying coverage.
   Meanwhile, PCD has sued Platinum, Celestial and the    two drivers as defendants, seeking nearly $7.7 million in damages.
   On Oct. 6, 2009, the court concluded the Carmack Amendment pre-empts PCD's state law claims against Platinum and Celestial, and dismissed all state law
claims.
   Platinum then moved for partial summary judgment, arguing the Carmack Amendment limits Platinum's liability to $245,000, the declared value of the seven stolen shipments.
   PCD sought to dismiss the case and resolve its dispute with Platinum as part of the related Fireman's Fund case.
   The Carmack Amendment to the Interstate Commerce Act of 1887 generally limits a carrier's liability under an interstate bill of lading to 'the actual loss or injury to the property caused by' the carrier. But the court said a carrier such as Platinum, under part of Carmack (49 U.S.C. ' 14706(c)(1)(A)), may establish rates 'under which the liability of the carrier ' is limited 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 surrounding the transportation.'
   The court agreed with Platinum that PCD's declaration of a $35,000 value per shipment, along with the written agreement between the two, limited liability to $245,000.
   To successfully limit its liability under the Carmack Amendment, the court said a carrier must:
   ' Give the shipper a reasonable opportunity to choose between levels of liability.
   ' Obtain an agreement as to the shipper's choice of carrier liability.
   ' Issue a bill of lading prior to shipment.
   In this case, PCD, through active discussions with Platinum, elected the $35,000 declared value on a bill of lading that PCD itself prepared, the court noted.
   The court also found 'not persuasive' PCD's contention that the $35,000 per shipment is not a reasonable value, and that the liability limitation under Carmack does not apply. PCD consciously elected not to seek liability for the actual value of the shipments so it could avoid additional shipping costs and had obtained insurance coverage sufficient to cover total loss, the court pointed out.
   In its Sept. 3 order, the court granted Platinum's partial motion for summary judgment, holding that under such circumstances, $35,000 liability was not unreasonable.
   The court also rejected PCD's argument that the $35,000 declared value was not a limitation of liability, saying PCD had itself, after discussions with Platinum, selected that figure. Furthermore, the court said the shipper's acquisition of cargo insurance demonstrates the shipper had notice of the carrier's limited liability.
   Other arguments from PCD were also unavailing. While there is a doctrine in admiralty law called 'material deviation,' which says a fundamental deviation from a shipping contract may make a liability limitation unenforceable, the court said the Ninth Circuit 'has never extended the admiralty concept of material deviation to Carmack Amendment cases ' To the contrary, the Ninth Circuit has applied Carmack Amendment limitations of liability even when a carrier fails to provide a special condition in the contract of carriage.'
   So the court held the Carmack Amendment limits on Platinum's liability to $245,000.
   On the same day, the court ruled on an attempt by PCD to bring a 'loss of insurance' counterclaim against Platinum and Celestial in a related case (Fireman's Fund Insurance v. Personal Communications Devices, C.D.Cal. No. CV 09-04916 DDP. Sept. 3.), where Fireman's Fund is seeking a declaration that PCD's insurance policy does not cover the loss of the shipment at issue in a related case.
   Judge Dean Pregerson held PCD was essentially making the same claim as in the other suit and dismissed it in the Fireman's Fund suit.