U.S. Supreme Court Resolves Conflicts between COGSA and Carmack Amendment

OP ED: By Philip C. Brickman, Partner, Fowler Rodriguez Valdes-Fauli



In a 6-3 decision, the United States Supreme Court recently held that the Carmack Amendment does not apply to a shipment originating overseas under a single through bill of lading. See Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp., 2010 U.S. LEXIS 4982 (U.S. June 21, 2010).



The plaintiff cargo interests (collectively “cargo owners”) delivered goods to the carrier (“K-Line”) in China for transport overseas and ultimately to inland destinations in the Midwestern United States. K-Line issued a through bill of lading which included: (1) a forum selection clause designating Tokyo District Court in Japan as the forum court; (2) authority to the carrier to sub-contract on any term whatsoever for the completion of the journey; and (3) COGSA terms govern the entire journey.



K-Line had subcontracted with a rail carrier (“Union Pacific”) to ship the goods to its final inland destination. During transit, the train derailed and the goods were destroyed. The cargo owners filed suit for loss of cargo against both K-Line and Union Pacific (collectively “carrier defendants”) in California Federal District Court. The carrier defendants moved to dismiss the case on the grounds that the bills of lading contained a forum-selection clause that designated Tokyo as the forum to resolve disputes under Japanese law. The cargo owners argued that the Carmack Amendment provisions govern the inland rail portion of the international shipment. Therefore, the Tokyo forum selection clause would be inapplicable because the Carmack Amendment limits the rail carrier’s ability to choose the venue. The District Court granted the carrier defendants’ motion to dismiss, but the U.S. Ninth Circuit Court of Appeals reversed the District Court. The U.S. Supreme Court then granted certiorari to address whether the Carmack Amendment applies to the inland segment of an overseas import shipment under a through bill of lading.



The U.S. Supreme Court reversed the U.S. Ninth Circuit Court of Appeals’ decision and held that that the Carmack Amendment (“Carmack”) does not apply to a shipment originating overseas under a single through bill of lading. The Supreme Court explained that the Carmack provisions apply where the shipment originates with a rail carrier that receives property for domestic rail transportation (i.e. the “receiving rail carrier”) and must issue a Carmack-compliant bill of lading.



A Carmack-compliant bill of lading is one where (1) the rail carrier must provide transportation or service subject to the jurisdiction of the Surface Transportation Board (“STB”) and (2) the rail carrier receives the property for domestic rail transportation. Carmack does not apply if the carriage originated overseas under an international through bill of lading that governs the rail transportation to an inland location in the United States. In those circumstances, the point of origin is the overseas load port and the domestic rail carrier is not required to issue a Carmack-compliant bill of lading.



In Kawasaki, the Supreme Court also concluded that the Carmack amendment does not apply to Union Pacific. By accepting goods for further transport from another carrier in the middle of an international shipment, a rail carrier does not become a receiving rail carrier under Carmack and a through bill of lading. The rail carrier in Kawasaki was not considered the receiving carrier because the journey originated in China, not when the cargo was loaded onto the train in California.



The Supreme Court recognized that applying Carmack to the inland segment of an international carriage originating overseas under a through bill of lading would undermine Carmack’s purpose and create inconsistency between Carmack and U.S. COGSA (“COGSA”). Carmack is premised on the view that the shipment has a single bill of lading, so both the receiving and the delivering rail carriers are responsible for any damage during the journey. Applying two different bill of lading regimes to the same shipment would create two sets of both liability and venue rules because a Court would have to decide where damage occurred to determine which law applied. Doing so would result in making cargo disputes more difficult to resolve.



The uncertainty created by applying two sets of laws would serve to undermine COGSA and international multimodal transport in general. It would detract from the contracting parties’ ability to agree to terms of contracts for carriage by sea. The Supreme Court also held that Carmack’s venue provisions support that Carmack does not apply to shipment originated overseas because Carmack presumes that the receiving carrier obtains the property in a judicial district within the United States, which is the proper venue in such an action.



In Kawasaki, the parties sensibly agreed that Japanese law would apply to disputes arising under the bill of lading and that Tokyo District Court was the appropriate forum. COGSA does not limit the parties’ ability to adopt forum-selection clauses. Further, COGSA allows parties the option of extending certain COGSA terms by contract to cover the entire period in which the goods would be under a carrier’s responsibility, including the period of inland transport. Based upon these principles, the Supreme Court explained that the choice of law and forum are consistent with the Congressional intent to allow parties engaged in international maritime commerce to structure their contracts as they see fit.



This decision will harmonize the inconsistent views existing in the U.S. Courts of Appeals. It also serves to support international multimodal transportation by recognizing the rights of parties conducting maritime commerce. Under Kawasaki, a carrier who receives goods overseas and issues a single through bill of lading to include inland carriage governed by COGSA is not considered a “receiving rail carrier” under the Carmack amendment. Therefore, the ocean carrier is not required to issue a Carmack-compliant bill of lading because the Carmack provision does not apply. The same principle applies to a domestic rail carrier that receives goods from an overseas carrier at a U.S. port for inland destinations in an international shipment under a through bill of lading. In these situations a Court should enforce the agreed upon forum and choice of law provisions under the bill of lading.



Carmack would apply where the bill of lading for overseas transport ended at the port of delivery and a new carriage began at the delivery port bound for inland destinations. Under this scenario, the receiving rail carrier would be required to issue a Carmack-compliant bill of lading, holding all subsequent rail carriers liable for any damage during the journey.



Philip C. Brickman joined the New Orleans office of Fowler Rodriguez Valdes-Fauli in 2004. Mr. Brickman is a native of New Orleans, who graduated from Millsaps College with a BA in 1993. He obtained his law degree from Tulane University in 1998. He was admitted to the Louisiana State Bar in 1998, in addition to the U.S. District Court for the Eastern, Middle and Western Districts of Louisiana. Mr. Brickman is also admitted to practice before the U.S. District Court for the Southern District of Texas and the U.S. Fifth Circuit Court of Appeals. He is a member of the Maritime Law Association of the United States, American Bar Association, Southeastern Admiralty Law Institute, Louisiana State Bar Association and Federal Bar Association.



Since obtaining his law degree, Mr. Brickman has practiced all aspects of maritime and environmental law. During that time he has represented major international and domestic marine, liability and energy underwriters, vessel owners and energy companies. Mr. Brickman has also successfully represented clients in matters of immigration and customs laws before the U.S. Department of Customs and Border Protection. In addition to maritime and environmental law, he has extensive experience in general casualty defense litigation.



Please contact Philip Brickman at (504) 523-2600 or [email protected] for further information on these issues.