This liability case emerged from the
theft of a shipment of Sandoz pharmaceuticals in 2008.
Exel, Sandoz’s logistics provider,
hired motor carrier Southern Refrigerated Transport (SRT) to
transport the shipment, but the drugs were stolen in or near Dickson,
Tenn.
Exel and SRT had executed a “Master
Transportation Service Agreement” (MTSA).
The MTSA provided that SRT would be
liable to Exel for loss, damage or injury to commodities tendered to
it, with very few exceptions. The MTSA said the measurement of the
loss, damage or injury would be “shipper’s replacement value.”
The shipper, in this instance, was Sandoz.
After the theft, Sandoz assigned its
rights to its claim to Exel, and Exel filed a complaint against SRT
“for the benefit and use of Sandoz” in U.S. District Court for
the Southern District of Ohio.
SRT said the Carmack Amendment to
the Interstate Commerce Act governed its relationship with Exel and
that its liability was limited to the “release value” specified
on the bill of lading—$56,766.
The district court initially agreed
that two counts of Exel’s complaint were preempted by Carmack. But
after the MTSA was presented, the district court reconsidered its
opinion and found Exel “alleged a claim for breach of contract
based on the provisions of the MTSA.”
The court found Carmack does “not
expressly preempt state-law claims between a broker and a carrier”
and concluded in an Aug. 26, 2013 opinion that the MTSA was
enforceable.
It found the MTSA established that
SRT is liable to Exel for the loss of the drugs and granted a motion
for summary judgment in the amount of about $5.89 million, the value
specified by a Sandoz executive in a deposition, the district court
held, plus prejudgment interest and costs.
The decision was appealed. (Exel
Inc., f/u/b/o Sandoz, Inc. v. Southern Refrigerated Transport Inc.
6th Circuit. Nos. 14–3953, 14–3990, 15–3032. Nov. 5, 2015.)
The Court of Appeals found “Exel
lacks standing to enforce the MTSA because it suffered no injury and
that the Carmack Amendment provides the exclusive cause of action in
this case.”
Exel maintained its contract with
SRT was a brokerage agreement outside the scope of Carmack
preemption. Even if Carmack did apply, the law expressly permits
parties to enter into contracts other than bills of lading, and Exel
contended it had a right to bring a Carmack claim against SRT
pursuant to the MTSA.
The 6th Circuit disagreed, stating
“Nothing in the Carmack Amendment suggests that Congress also
intended to protect the broker-carrier relationship by granting
brokers a direct right to sue.”
However, Exel was the assignee
of Sandoz’s claims against SRT, and the appeals court said as an
assignee of those rights Exel had standing to bring a Carmack claim.
The court said the “default
posture” of Carmack is full liability on the carrier “for the
actual loss or injury to the property,” unless the carrier limits
its liability “to a value established by written or electronic
declaration of the shipper or by written agreement between the
carrier and shipper.” The carrier must provide “a written or
electronic copy of the rate, classification, rules, and practices
upon which any rate applicable to a shipment, or agreed to between
the shipper and the carrier, is based,” the court added.
SRT’s position was that the bills
of lading limited its liability to $56,766 under Carmack; Exel argued
the MTSA governed because it was a “written agreement” that could
be enforced on Sandoz’s behalf.
“Both positions have
problems,” the court said. Exel’s argument glosses over the fact
that the only written agreement in the record signed by it as
Sandoz’s representative, is in the bills of lading. The MTSA is not
a “written agreement” limiting liability under § 14706(c)(1)(A)
of Carmack, because it was not executed by the shipper, Sandoz, and
the carrier, SRT.
Absent a written agreement binding
Sandoz to the terms in the MTSA, Exel and SRT could not limit
liability for the lost shipment through the MTSA.
Whether Sandoz might be a
third-party beneficiary of the MTSA was irrelevant.
SRT’s liability is effectively
limited in the bills of lading, but the 6th Circuit said it and
others have held in order to limit its liability under the Carmack
Amendment, a carrier must provide the shipper with a fair opportunity
to choose between two or more levels of liability and SRT had not met
its burden on summary judgment of showing it had done that.
On the other hand, the bills of
lading at issue were drafted by Sandoz’s representative, Exel, a
sophisticated business entity that certified it was familiar with and
agreed to terms and conditions of the bill of lading and did not
declare a value in the declared value box.
“Whether SRT’s liability is
limited by the bills of lading is a question of fact,” the 6th
Circuit said. It reversed and remanded the case to the district
court.
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