THE PHOENIX INSURANCE CO. LIMITED v. NORFOLK SOUTHERN RAILROAD CORP. et al
OPINION. Signed by Judge Dickinson R. Debevoise on 5/16/2014. (nr, )
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
The Phoenix Insurance Co., Limited as subrogator
underwriter of Enerco Enterprises Limited,
Civ. No. 11-00398 (KM)
Norfolk Southern Railroad Corp. and Kavanagh Logistics
Kevin J. Bruno
BLANK ROME LLP
301 Carnegie Center
Princeton, NJ 08540
Attorney for Plaintiff
Jeffrey D. Cohen
Christopher J. Merrick
KEENAN COHEN & HOWARD P.C.
One Pitcairn Place
165 Township Line Road, Suite 2400
Jenkintown, PA 19046
Attorneys for Defendant Norfolk Southern Railway Company
Alan C. Milstein
SHERMAN, SILVERSTEIN, KOHL, ROSE & PODOLSKY, P.A.
308 Harper Drive, Suite 200
Moorestown, NJ 08057
Attorneys for Defendant Kavanagh Logistics, Inc.
DEBEVOISE, Senior District Judge
This case arises out of a claim raised by an insurance company as the subrogated
underwriter of its insured. Plaintiff Phoenix Insurance Co. Limited (“Phoenix”) argues that its
insured, Enerco Enterprises Limited (“Enerco”), was not notified of its right to full insurance
liability pursuant to the Carmack Amendment, 49 USC 11706, thus entitling it to damages on
various grounds. Phoenix brings a cause of action against Defendant Norfolk Southern Railway
Company (“Norfolk Southern”) for breach of contract, negligence, and disregard of duties and
obligations under the Carmack Amendment for damage which occurred to Enerco’s electrical
transformer (the “Transformer”) while en route from New Jersey to Canada. Phoenix brings a
second cause of action against Defendant Kavanagh Logistics (“Kavanagh”) for breach of
contract, negligence, and breach of its obligation as an agent of Enerco, for its role in arranging
the shipment of the Transformer.
The Court is presented with Phoenix’s motion for partial summary judgment on
limitation of liability; Norfolk Southern’s motion for partial summary judgment on limited
liability and preemption of the state law claims against it for breach of contract and negligence;
and Kavanagh’s motion for summary judgment on all claims brought against it: breach of
contract, negligence, and breach of its obligation as an agent of Enerco. For the reasons set forth
below, Phoenix’s motion is denied, Norfolk Southern’s motion is granted in full, and Kavanagh’s
motion is granted in part to the extent that the subrogation action may proceed up to the
limitation of liability. There remain the Carmack Amendment claim against Phoenix subject to
the limitation of liability, and the state law claims against Kavanagh, also subject to the
limitation of liability.
A. Factual History
Plaintiff Phoenix brings this suit as the subrogated insurance underwriter of Enerco, an
Israeli business which sells large electrical transformers. Phoenix and Enerco maintained a
floating policy agreement which provides all-risk coverage by which Phoenix is notified prior to
each shipment, and by which Phoenix is notified on a monthly basis of shipments already
shipped. Phoenix covers loss or damage to the shipment based on the contractual obligation of
the delivery at issue. It is undisputed that Phoenix charged Enerco no more than $15,000 to
cover shipment of the Transformer at issue which was worth approximately $2,000.000, for its
shipment from the country of manufacture, Israel, to its destination in Canada, regardless of the
method of transportation used.
On or about June 5, 2007, Mr. Gideon Muscatel of Enerco contacted Mr. Larry Pharr of
Kavanagh, a transportation logistics company, for a price quote for the rail transportation of the
Transformer from Port Elizabeth, New Jersey to Ontario, Canada. Specifically, the request
covered delivery of the containers by rail from the port to Canada, and back. (Pl.’s Ex. G.)
When Mr. Muscatel arranged for the transportation of the Transformer, he was aware that
Phoenix covered Enerco for any risk of loss. This was not the first goods arrangement between
Enerco and Kavanagh. Indeed, the Transformer was the seventh or eighth manufactured by
Enerco for which Kavanagh arranged transport.
All communications with Kavanagh regarding the details of the transportation
arrangements of the Transporter were conducted between Mr. Pharr and Mr. Muscatel. Mr.
Pharr began working for Kavanagh in 2002 after working in the trucking industry since 1970.
Mr. Pharr had been employed by Kavanagh for five years before the transportation of the
transformer was arranged. At the time transportation for the transformer was arranged, Mr.
Pharr had dealt with Norfolk Southern for over five years.
It is undisputed that Kavanagh performed more services on behalf of Enerco than simply
ordering rail transportation. Kavanagh also coordinated the rail carrier to ensure that the rail car
was available at the port of arrival, arranged for the lashing of the transformer to the rail car, and
coordinated offload of the Transformer with its final purchaser and destination.
On or about June 18, 2007, Mr. Pharr requested a quote from Norfolk Southern to
perform the relevant rail carriage. On June 27, 2007, Norfolk Southern sent an email to Mr. Phar
offering a freight rate of $44,123, offer open until December 31, 2007. Norfolk Southern’s email
also stated: “Rate offered at maximum carrier’s liability of $25,000 per shipment. Greater
liability coverage is available, rates subject to change accordingly.” (emphasis added).
Kavanagh did not forward this email detailing Norfolk Southern’s price quote and availability of
greater liability coverage to Enerco.
Norfolk Southern subsequently sent Kavanagh a Rail Authority NSSQ 44504 Transmittal
(the “Rate Transmittal”) which reiterates the freight rate, and notes “limited railroad liability to a
maximum of $25,000 per car for loss or damage to commodity.” The Rate Transmittal
additionally provides that the pricing is “subject to the rules and provisions published in Norfolk
Southern Railway Conditions of Carriage – Series or successor publication.”1 Kavanagh did not
Rule 290 of the Conditions of Carriage sets forth carrier liability for loss and damage, and
provides in relevant part:
Unless modified in a transportation contract or a general or customer
specific rate quotation, NS will assume liability for loss and damage under
the terms of 49 USC 11706 and the terms of the Uniform Bill of Lading as
specified in Rule 150 herein. Where provisions maintained by other
railroad parties to the through route differ from those provided herein, the
level of liability assumed by the origin carrier will apply; provided,
however, that such level of liability shall not exceed the level of liability
assumed under the Carmack Amendment.
(Pl.’s Ex. M.)
forward the Rate Transmittal to Enerco, although the Conditions of Carriage referenced therein is
available to the public on the Internet. The record does not support a factual finding that Enerco
had notice of the existence of the Norfolk Southern’s Conditions of Carriage, although Kavanagh
On June 27, 2007, Kavanagh emailed Enerco its own quote of $66,960 which included
the cost of rail transportation, the cost of specialized railcars, the cost of the securement of the
Transformer to the railcar, and Kavanagh’s markup. Of import here, Kavanagh provided no
notice of the availability of a rate for full liability, an alternative freight rate, the statement
contained in Norfolk Southern’s June 27 email concerning the availability of greater liability
coverage, or the Rate Transmittal itself which internally referenced the Conditions of Carriage
which itself limitedly references levels of liability. Rather, Kavanagh informed Enerco that the
rail shipment and container shipment was subject to “$25,000 limited liability per car.”
Norfolk Southern has an internal value policy which estimates full Carmack liability
coverage at twenty-five percent of the total value of the item. Here, the Transformer was valued
at two-million dollars, and thus the rail-carrier would have provided full Carmack coverage for
$500,000. (Achimasi Dep., 123:19-124:5; 125:6-22.)2
According to Mr. Muscatel, based on his dealings, transportation logistics companies
always provide a $25,000 limited liability cap with regard to use of different rail companies, and
Phoenix disputes that it would have cost Enerco $500,000 to obtain full Carmack
coverage from Norfolk Southern. However, the rail-carrier’s 30(b)(6) witness, Ms. Achimasi,
testified that this was a matter of internal policy. Specifically, Phoenix argues that the charge for
full liability could be negotiated and changed. However this statement is not supported by the
factual record on which Phoenix relies. Ms. Achimasi expressly testified that she would be
speculating as to the possibility of full coverage for less than 25 percent without written
authorization from the rail-carrier’s law department to do so. Further, Ms. Achimasi expressed
doubt that a lower rate would be approved by the law department. (Singleton Aff. Ex. D,
Achimasi Dep., 129:2 – 132:3.)
“there is no other option” and the cap is “not something that you can even negotiate.” (Muscatel
Dep. 69:2 – 70:9; 72:4-6.) Indeed, Mr. Muscatel was under the impression that “[t]his is a policy
dictated by the rail company. It says its [sic] 25 limited liability, take it or leave it. So I have to
take it.” (Id.) Moreover, Mr. Muscatel testified:
[T]his issue of being able to bypass the limitation of liability only
came up later, much later, pursuant to this lawsuit and
investigation afterwards by The Phoenix that this question even
came up and the ability to actually do it came up. Before that, that
wasn’t an issue at all. It was not even an option.
(Id. at 74:1-8.) Importantly, Mr. Muscatel testified that it is “impossible” to know whether
Enerco would have actually purchased full Carmack coverage had it known of its availability.
(Muscatel Dep. at 103:10-106:10.)
Mr. Pharr testified that he did not provide information regarding the option of greater
liability to Enerco because he knew that Enerco was already insured with Phoenix. Further, Mr.
Muscatel instructed Mr. Pharr to obtain the lowest freight rates possible for the rail transportation
of the Transformer. Mr. Pharr had previously arranged for the transportation of Enerco’s freight
many times prior to this shipment, and Mr. Muscatel had always requested the lowest rate
available. Indeed, Mr. Pharr testified that he understood that the rail-carrier could offer Enerco
higher liability insurance at a greater rate (Pharr Dep. 38:9 – 39:5, 45:5-11), although the record
is not clear as to Mr. Pharr’s knowledge of the availability of full Carmack Coverage.
Specifically, his deposition testimony sets forth:
Q. But you don’t know on the railroad side if they could obtain
full coverage, do you?
Q. Do you know whether the customer could make a declared
value and fully, as you’ve used the word, insure with the railroad
that declared value?
A. My understanding is yes.
(Pharr Dep. 45:20 – 46:1.)
It is undisputed that no Kavanagh customer has ever chosen to purchase full Carmack
coverage. Indeed, Mr. Kavanagh testified that Enerco never did so during the entirety of Mr.
Kavanagh’s thirty years of experience in the business. Consistently, Ms. Achimasi had no
recollection of a Norfolk Southern customer accepting any Carmack liability rates. (Milstein
Cert., Ex. F.)
Relatedly, Norfolk Southern never advised Enerco directly of any alternative freight rate
or any rate based on full liability. Kavanagh never received any instructions from Norfolk
Southern about providing alternative or full freight rates to the shipper. Indeed, Norfolk Southern
did not have a policy of requiring logistics providers to give rates that reflect full liability.
The shipment of the Transformer was delayed and on October 17, 2007, Enerco advised
Mr. Pharr that the Transformer would be shipped from Israel in November and requested that
Kavanagh order a railcar for its arrival at Port Elizabeth. After some discussion about a change
in destination in Canada, Mr. Pharr ultimately confirmed that Norfolk Southern was prepared to
carry the Transformer for the same price and that “the same conditions as originally provided
Enerco shipped the Transformer on November 27, 2007. It arrived in Port Elizabeth and
was loaded on a Norfolk Southern railcar on or about December 14, 2007.
The Bill of Lading was prepared by Kavanagh and identifies Norfolk Southern as the
initiating rail-carrier until Buffalo, New York, and Canadian National for the remaining
transportation to rail destination. Therein, Enerco is listed as the shipper, and Kavanagh
Logistics and Mr. Pharr are listed as the notifying party. Based on this information, Norfolk
Southern issued a Waybill. Notably, neither the Bill of Lading nor the Waybill expressly state
the availability of full Carmack coverage. However, the Bill of Lading identifies the Rate
Transmittal as applying, which in turn identifies the rail-carrier’s Conditions of Carriage as
applying. As noted above, the Conditions of Carriage vaguely reference the availability of
different rates pursuant to full Carmack liability. See footnote 1, supra, and accompanying text.
The Transformer was ultimately damaged en route and returned to Israel where it was
repaired and reshipped to the receiver in Canada, at Phoenix’s expense. Enerco’s claim as a
result of the damage to the Transformer apparently totals $911,233, exclusive of interest and
costs, although the Court has not been directed to the facts in the summary judgment record to
support this figure. Phoenix paid Enerco $750,000 pursuant to a settlement. (Singleton Aff. Ex.
A, Muscatel Dep. at 146:11-20.)
Originally, according to Phoenix, “Phoenix paid Enerco in full for the loss.” (Compl. ¶
20, emphasis added.) Despite having alleged in the Complaint that Enerco was paid “in full” for
its loss, Phoenix now disputes that the settlement “did not fully cover all losses suffered by
Enerco.” (Phoenix counterstatement to Def. Kavanagh’s SUMF, ¶ 18.) In support of this
contention, Phoenix references the deposition testimony of Mr. Muscatel, which provides:
Q. With respect to the amount of dollars that were paid by
Phoenix, there was $750,000 paid from Phoenix to Enerco,
Q. But the total damages of Enerco were $850,000, is that right?
A. As I say, I don’t have the exact numbers. I’m saying
approximately or to that effect. Could be 850. Could be 900. I
don’t have the exact numbers.
Q. The transformer was not a total loss. It was repaired.
Q. That’s why the damages were not 1.9 million. Instead they
were a smaller –
Q. Was this transformer that was fixed, was that re-sent back to
Q. And is it in operation now?
Q. So the complaint provides in paragraph 20 – that’s Exhibit 9 –
the shipment – on page four. The shipment of Enerco’s
transformer was insured by Phoenix and Phoenix paid Enerco in
full for the loss. That’s not correct. Enerco was not paid in full for
the loss, correct?
A. Well, once we settled, we signed a document saying we don’t
have any other claims so that’s why –
Q. They were paid pursuant to a settlement but not for full
A. Well, yes, that’s correct. But we’re not claiming any other
thing from them.
(Muscatel Dep. at 146: 11 – 147:20, emphasis added.)3
Despite the previous mishap, Enerco selected Kavanagh to arrange for the transport of the
Transformer’s second shipment, and again selected Norfolk Southern to conduct it. Again,
Enerco maintained limited liability coverage for the second shipment. Since, Enerco has shipped
numerous additional transformers using Kavanagh’s services (and continues to do so), in
addition to using services of other entities. Importantly, certainly since the initiation of this suit,
Enerco has been fully aware of the availability of full Carmack coverage, but has never chosen to
purchase full coverage.
B. Procedural History
On January 21, 2011, Phoenix filed suit, as subrogated underwriter of Enerco, against
Norfolk Southern and Kavanagh (collectively “Defendants”). First, Phoenix raises breach of
contract and/or negligence claims against Defendants. Second, Phoenix brings a claim against
Norfolk Southern for violation of the Carmack Amendment, and against Kavanagh for breach of
its obligation as an agent due to the Carmack Amendment.
Phoenix additionally relies on Mr. Muscatel’s Deposition pages 320:3-32:13 in support of
its contention that Enerco was not paid in full for its loss when it settled with Phoenix. However,
those pages are not included in any of the moving briefs for summary judgment, and therefore
the Court relies on Mr. Muscatel’s deposition testimony as set forth above.
The Court is currently presented with three motions filed by the parties. Phoenix filed a
motion for partial summary judgment on limitation of liability. Phoenix seeks to limit
Defendants’ affirmative defense to limit liability to $25,000. Phoenix argues that because
federal law requires rail carriers to give shippers an alternative freight rate based on full liability,
and the undisputed facts prove that no such alternative rate was given to Enerco, the Court
should hold that the Defendants are not entitled to limit their liability and that Enerco is entitled
to full provable damages.
Norfolk Southern moves the court for partial summary judgment that the subrogated
claims be limited to a maximum of $25,000 because the rail-carrier advised Kavanagh that full
Carmack coverage was available. Norfolk submits that an intermediaries’ agreement with a
carrier binds the shipper to the limited liability terms in those agreements. Additionally, Norfolk
Southern argues that the state claims against it are preempted.
Kavanagh moves for summary judgment against Phoenix on all claims. Kavanagh
emphasizes that the record does not support that Enerco would have opted for full Carmack
coverage even if it were made available. Kavanagh argues that general subrogation principles
bar Phoenix’s claims against it where no causation or damages are evident. Kavanagh notes that
the existence of the limited liability permitted Enerco to seek business and full insurance from
Phoenix to begin with. Thus, Kavanagh argues that Phoenix is not even entitled to the $25,000
limited liability because it is barred from suing as subrogate.
The Court is presented with three primary inquiries: 1) the issue of the availability of
limited liability pursuant to the Carmack Amendment; 2) the issue of subrogation and
specifically the extent to which Phoenix may subrogate Enerco’s claims here; 3) the extent to
which the state law claims against the Defendants are preempted.
1. Standard of Review
Summary judgment is appropriate "if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P.
56(a). A dispute is "genuine" if "the evidence is such that a reasonable jury could return a verdict
for the non-moving party." See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A
fact is "material" only if it might affect the outcome of the suit under the applicable rule of law.
Id. Disputes over irrelevant or unnecessary facts will not preclude a grant of summary judgment.
[Rule 56] mandates the entry of summary judgment, after
adequate time for discovery and upon motion, against a party who
fails to make a showing sufficient to establish the existence of an
element essential to that party's case, and on which that party will
bear the burden of proof at trial. In such a situation, there can be
"no genuine issue as to any material fact," since a complete failure
of proof concerning an essential element of the nonmoving party's
case necessarily renders all other facts immaterial.
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
The Court will view any evidence in favor of the nonmoving party and extend any
reasonable favorable inferences to be drawn from that evidence to that party. Hunt v. Cromartie,
526 U.S. 541, 552 (1999). See also Scott v. Harris, 550 U.S. 372, 378 (2007) (The district court
must "view the facts and draw reasonable inferences in the light most favorable to the party
opposing the summary judgment motion.").
2. The Carmack Amendment
The Carmack Amendment of 1906 to the Interstate Commerce Act is codified at 49 USC
11706, and provides for the liability of interstate carriers for damage to the goods transported.
Under the Act, a rail carrier providing transportation or service subject to the jurisdiction of the
Surface Transportation Board must issue a receipt or bill of lading for property it receives for
transportation. 49 USC 11706(a). Along with any other rail carrier that delivers the property, the
rail carrier is liable to the “person entitled to recover under the receipt or bill of lading,” for the
“actual loss or injury to the property caused by” the receiving carrier, the delivering carrier, or
another carrier over whose line or route the property is transported. Id. 4 Thus, Carmack
imposes upon “receiving rail carrier[s]” and “delivering rail carrier[s]” strict liability for damage
caused during rail transportation under the bill of lading, regardless of which carrier caused the
The two often cited purposes of the Carmack Amendment are to (1) remove “the burden
of searching out a particular negligent carrier from among the often numerous carriers handling
an interstate shipment of goods[,]” Reider v. Thompson, 339 U.S. 113, 119 (1950); and (2) “to
protect shippers from carriers who would take advantage of their own superior knowledge and
leverage when dealing with unwary shippers,” Siren, Inc. v. Estes Express Lines, 249 F.3d 1268,
1271 (11th Cir. 2001). Carmack is designed to create a national scheme of carrier liability for
goods damaged or lost during interstate shipment under a valid bill of lading. See e.g., Usinor
Steel Corp. v. Norfolk Southern Corp., 308 F. Supp. 2d 510 (D.N.J. 2004).
Except as otherwise provided by 49 USC 1101 et seq., the jurisdiction of the Surface
Transportation Board is exclusive and includes remedies as set forth therein with respect to rates,
practices, and services. 49 USCS 10501(a), (b). The statutory scheme sets forth that the policy
of the U.S. Government in regulating the railroad industry includes: “allow[ance], to the
“A bill of lading records that a carrier has received goods from the party that wishes to
ship them, states the terms of carriage, and serves as evidence of the contract for carriage.”
Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14, 18-19 (2004).
maximum extent possible, competition and the demand for services to establish reasonable rates
for transportation by rail;” “promot[ion] [of] a safe and efficient rail transportation system by
allowing rail carriers to earn adequate revenues, as determined by the Board;” and
“[maintenance of] reasonable rates where there is an absence of effective competition and where
rail rates provide revenues which exceed the amount necessary to maintain the rail system and to
attract capital[.]” 49 USCS 10101(1), (3), (6).
Of import here, the Carmack Amendment expressly allows the rail carrier and shipper to
agree to a limitation of liability. Specifically, “the liability of the rail carrier for such property is
limited to a value established by written declaration of the shipper or by a written agreement
between the shipper and the carrier[.]” 49 USC 11706(c)(3)(a). Except as provided within
subsection (c), a “rail carrier may not limit or be exempt from liability imposed under subsection
(a) [49 USC 11706(a).]” 49 USC 11706(c)(1).
The Third Circuit Court of Appeals instructs that “a carrier must continue to offer two or
more rates with corresponding levels of liability in order to successfully limit its liability
pursuant to the Carmack Amendment.” Emerson Elec. Supply Co. v. Estes Express lines Corp.,
451 F.3d 179, 187 (2006), relying in part on Sassy Doll Creations, Inc. v. Watkins Motor Lines,
Inc., 331 F.3d 834, 841-42 (11th Cir. 2003) (“[A] carrier wishing to limit its liability is still
required to give the shipper a reasonable opportunity to choose between different levels of
Federal law requires that a carrier may limit its liability only if it takes the following four
(1) Provide the shipper, upon request, a copy of its rate schedule;
(2) give the shipper a reasonable opportunity to choose between
two or more levels of liability; (3) obtain the shipper’s agreement
as to his choice of carrier liability limit; and (4) issue a bill of
lading prior to moving the shipment that reflects any such
ABB Inc. v. CSX Transportation Inc., 721 F.3d 135, 139 (4th Cir. 2013); See also Carmana
Designs, Ltd. v. North American Van Lines, Inc., 943 F.2d 316, 319 (3d Cir. 1991).
Phoenix argues that Norfolk Southern is responsible for full Carmack liability because
Enerco was unaware of the availability of different rates and corresponding levels of liability.
However, here, Norfolk Southern clearly notified Kavanagh at the first instance of the
availability of greater liability coverage. Specifically, Norfolk Southern’s response to
Kavanagh’s price quote request provided: “Rate offered at maximum carrier’s liability of
$25,000 per shipment. Greater liability coverage is available, rates subject to change
accordingly.” Phoenix contests that Kavanagh’s involvement does not insulate the rail-carrier
from liability because “Norfolk Southern never provided Kavanagh with a full liability freight
rate and the undisputed evidence is that Kavanagh did not know what the full liability freight rate
was or that the shipper could obtain full liability from the railroad by paying a greater freight
rate. So even if Kavanagh’s knowledge theoretically could be imputed to the shipper, there was
no knowledge to impute.” (Pl.’s Opp. Br. to N.S.’s MSJ at 6.)
The record establishes that Mr. Pharr understood that greater liability rates were
available; however the record is not clear as to his understanding of the availability of full
Carmack liability. The Court notes that, despite Norfolk Southern’s initial express offering of
the availability of greater liability coverage at a different rate, the Bill of Lading (which was
prepared by Kavanagh) does not clearly set forth as much. Rather, the Bill of Lading identifies
the Rate Transmittal as applying, which in turn identifies the Norfolk Southern’s Conditions of
Carriage which only vaguely reference the availability of different rates pursuant to full Carmack
Phoenix argues that the Staggers Rail Act, 49 U.S.C. 10502(e), mandates that a rail
carrier must provide a full liability rate pursuant to the Carmack Amendment. Section 10502
applies to freight that has been exempted from regulation by the Surface Transportation Board.
However, Section 10502 does not apply to the transportation of electrical transformers. Indeed,
the Surface Transportation Board has specifically carved out transformers from the exemption
issued for electrical machinery. See 49 C.F.R. 1039.11 at 36.12. Thus, Section 10502 is not
applicable to this case.
The Court is guided by the Third Circuit Court of Appeals’ instruction whereby “a carrier
must continue to offer two or more rates with corresponding levels of liability in order to
successfully limit its liability pursuant to the Carmack Amendment.” Emerson v. Estes, 451 F.3d
at 187. See also ABB Inc. v. CSX, supra, 721 F.3d at 139; Carmana v. North American, supra,
943 F.2d at 319. Norfolk Southern offered as much, and the Court is disinclined to reach the
wording which Phoenix argues is mandatory, i.e., that the specific rate for full liability must be
provided. Indeed, the terms of the Carmack Amendment do not require that a rail-carrier offer a
full liability rate if it wishes to contractually limit its liability. Carmack allows for a limitation of
liability “to a value established by written declaration of the shipper” or “by a written agreement
between the shipper and the carrier[.]” 49 USC 11706(c)(3)(a). Based on the facts here, Norfolk
Southern provided a reasonable opportunity for the choice between different levels of liability.
Furthermore, Agreements reached between carriers and intermediaries are binding with
respect to limited liability terms within those agreements. Norfolk Southern Ry. V. James N.
Kirby, Pty Ltd., 543, U.S. 14 (2004), is directly on point and guides the relevant analysis.
When an intermediary contracts with a carrier to transport
goods, the cargo owner’s recovery against the carrier is limited by
the liability limitation to which the intermediary and carrier agreed.
The intermediary is certainly not automatically empowered to be
the cargo owner’s agent in every sense.
That would be
unsustainable. But when it comes to liability limitations for
negligence resulting in damage, an intermediary can negotiate
reliable and enforceable agreements with the carriers it engages.
We derive this rule from our decision about common
carriage in Great Northern R. Co. v. O’Connor, 232 U.S. 508, 58
L. Ed. 703, 34 S. Ct. 380 (1914). In Great Northern, an owner
hired a transfer company to arrange for the shipment of her goods.
Without the owner’s express authority, the transfer company
arranged for rail transport at a tariff rate that limited the railroad’s
liability to less than the true value of the goods. The goods were
lost en route, and the owner sued the railroad. The Court held that
the railroad must be able to rely on the liability limitation in its
tariff agreement with the transfer company. The railroad “had the
right to assume that the Transfer Company could agree upon the
terms of the shipment”; it could not be expected to know if the
transfer company had any outstanding, conflicting obligation to
another party. Id., at 514, 58 L. Ed. 2d 703, 34 S. Ct. 380. The
owner’s remedy, if necessary, was against the transfer company.
Id., at 515, 58 L. Ed. 2d 703, 34 S. Ct. 380.
We think reliance on agency law is misplaced here. It is
undeniable that the traditional indicia of agency, the fiduciary
relationship and effective control by the principal, did not exist
between Kirby and ICC. See Restatement (Second) of Agency § 1
(1957). But that is of no moment. The principle derived from
Great Northern does not require treating ICC as Kirby’s agent in
the classic sense. It only requires treating ICC as Kirby’s agent for
a single, limited purpose: When ICC contracts with subsequent
carriers for limitation on liability. In holding that an intermediary
binds a cargo owner to the liability limitations it negotiates with
downstream carriers, we do not infringe on traditional agency
principles. We merely ensure the reliability of downstream
contracts for liability limitations. In Great Northern, because the
intermediary had been “entrusted with goods to be shipped by
railway, and, nothing to the contrary appearing, the carrier had the
right to assume that [the intermediary] could agree upon the terms
of the shipment.” 232 U.S., at 514, 58 L. Ed. 2d 703, 34 S. Ct. 380.
Likewise, here we hold that intermediaries, entrusted with goods,
are “agents” only in their ability to contract for liability limitations
with carriers downstream.
Id. at 33-34.5
Kirby explains that “a limited agency rule tracks industry practices.” Id. at 34. While
Kirby applies its reasoning in the intercontinental ocean shipping context, it is equally applicable
to the general transportation logistics industry and specifically rail-carrier and broker
arrangements. Kirby inherently recognizes this in constructing the limited agency rule based on
previous Supreme Court precedent in Greater Northern wherein the rule applied in the context of
a contract between a rail-carrier and the intermediary transfer company which arranged for the
shipment. “The railroad ‘had the right to assume that the Transfer Company could agree upon
the terms of the shipment’; it could not be expected to know if the transfer company had any
outstanding, conflicting obligation to another party.” Id. at 33-34, supra.
The Court finds that Norfolk Southern met its obligation pursuant to the Carmack
Amendment by providing a reasonable opportunity for the choice between different levels of
liability. That the rail-carrier communicated the liability scheme with a logistics broker does not
expose it to the default of full Carmack liability. Here, Kavanagh was entrusted to arrange for
the transport of Enerco’s goods, and was therefore Enerco’s agent only in the ability to contract
for liability limitations with the rail-carrier. Therefore, Phoenix’s motion for partial summary
Additionally, the Supreme Court set forth three policy considerations to support its
holding. First, Kirby persuasively explains that if the court were to find otherwise, “carriers
would have to seek out more information before contracting, so as to assure themselves that their
contractual liability limitations provide true protection. That task of information gathering might
be very costly or even impossible, given that goods often change hands many times in the course
of intermodal transportation.” Id.at 34 -35. Second, Kirby reasoned that “if liability limitations
negotiated with cargo owners were reliable while limitations negotiated with intermediaries were
not, carriers would likely want to charge the latter higher rates.” Id. at 35. Relatedly, such a rule
may conflict with law which promotes nondiscrimination in common carriage. Id. Third, Kirby
noted the equitable result that the broker therein was the only party that definitely knew about
and was party to both bills of lading at issue should bear responsibility for any gap between the
liability limitations in those bills. Id.
judgment on limitation of liability is denied and Norfolk Southern’s motion for partial summary
judgment is granted as to the same. Phoenix’s claims are therefore limited to a maximum of
$25,000 pursuant to the terms of the shipping arrangement between Norfolk Southern and
Kavanagh, acting as Enerco’s intermediary.
Phoenix dedicates two paragraphs in its twenty-three page brief in support of the notion
that Kavanagh has no right to limit its liability. Without citation to any case law or statute,
Phoenix avers that because the contract is limited to Norfolk Southern and does not include
Kavanagh, Kavanagh is not entitled to the limitation. However, the motion does not address its
claims against Kavanagh for breach of contract, negligence, or breach of its obligation as an
agent due to the Carmack Amendment. Indeed, Phoenix’s legal arguments are directed to the
entitlement of Norfolk Southern to limit its liability pursuant to the Carmack Amendment.
Therefore, Phoenix’s motion to deny Kavanagh entitlement to limited liability is denied.
The Court is next presented with whether, and the degree to which, Phoenix may
subrogate the claims here. Kavanagh moves for summary judgment relief as to all claims against
it on the basis that they are barred due to general subrogation principles because Enerco has not
suffered a loss and has not been damaged. Relatedly, Kavanagh argues that under wellestablished unified federal common law regarding subrogation claims such as this one, where a
shipper obtains private insurance, a loss occurs during shipment, and the shipper’s insurance
company pays on that loss, there is no subrogation claim based upon a failure to make the
shipper aware of the option of purchasing full coverage from the carrier. Notably, Phoenix does
not offer any case law in its opposition to Kavanagh on the issue of subrogation, but simply
distinguishes the cases on which Kavanagh relies. Phoenix additionally avers that at a minimum,
Kavanagh’s motion should be denied due to remaining questions of material fact as to whether
Enerco consciously opted to forgo full Carmack coverage here, regardless of whether Kavanagh
negligently or deliberately failed to give Enerco a choice.
It does not escape the Court that no customer of Kavanagh or Norfolk Southern has ever
opted for full Carmack coverage; nor has Enerco ever opted for it, even after clearly being made
aware of its availability following the initiation of this suit. Indeed, in order to opt for it, Enerco
would have had to pay Norfolk Southern $500,000, whereas its floating, all-risk coverage with
Phoenix was available at no more than $15,000 for the shipment.
Moreover, Enerco’s corporate designee testified that it is “impossible” to know whether
Enerco would have actually purchased full Carmack coverage, and that “nobody” at Enerco
would know whether full Carmack coverage would have been purchased. His testimony set
Q. So you have no idea, you’re going to testify under oath, none
whatsoever, whether or not Enerco would pay $500,000 or even
$250,000 to have this additional liability coverage from Port
Elizabeth to Ontario?
[An objection is interposed.]
THE WITNESS: Correct.
(Muscatel Dep., 343:3-6.)
Phoenix raises three claims against Kavanagh: breach of contract, negligence, and breach
of its obligation as an agent due to the Carmack Amendment. As such, Phoenix bears the initial
burden of proof that it is more likely than not that Enerco would have purchased full Carmack
coverage. However, there is insufficient evidence to establish the existence of an element
essential to its case, thus rendering all other facts immaterial. See Celotex, 447 U.S. at 323,
supra. First, Enerco’s corporate designee testified that it was “impossible” to know whether it
would have been purchased, and that “nobody” would know the answer to the question. Second,
Enerco has never opted to purchase full Carmack coverage, nor has any customer of Kavanagh
or Norfolk Southern ever opted for it. Third, the basic business decision to opt for doublecoverage at a total cost of $515,000, which represents over 25% of the value of the item itself, is
not persuasive where Enerco already had a floating, all-risk policy with Phoenix which covered
this shipment at a substantially lower rate of $15,000. There is simply no factual support on the
record beyond pure speculation that Enerco would have opted for full Carmack coverage had
Kavanagh relayed its availability. Instead, Phoenix attempts to argue that Enerco may have
attempted to negotiate with Norfolk Southern for a lower rate for full coverage. However,
Norfolk Southern’s corporate designee testified that no such negotiation would have been
available. (See supra, note 2.)
“It is well-established that subrogation is derivative in nature, placing the subrogee ‘in the
precise position of the one to whose rights and disabilities he is subrogated.’” Church Mutual
Ins. Co. v. Palmer Construction Co., 153 Fed. Appx. 805, 808 (3rd Cir. 2005) (internal citation
omitted). It is undisputed that Enerco assigned its rights of action here to Phoenix. The
Carmack Amendment establishes rail carrier liability to the “person entitled to recover under the
receipt or bill of lading.” 49 USC 11706(a). “The rights of action under the bill of lading may be
properly assigned to another, who is then entitled to maintain the action against the rail carrier as
the real party in interest.” Hansa Meyer Transport GMBH & CO., KG v. Norfolk Southern
Railway Co., 2008 U.S. Dist. LEXIS 43915 (D.S.C. 2008) (relying on Harrah v. Minnesota Min.
and Mfg. Co., 908 F. Supp. 313, 318 (D.N.J. 1992)).
The New Jersey Supreme Court provides the basic framework of subrogation:
Subrogation is a device of equity to compel the ultimate discharge
of an obligation by the one who in good conscience ought to pay it.
It is a right of ancient origin, having been imported from the civil
law to serve the interests of essential justice between the parties. It
is most often brought into play when an insurer who has
indemnified an insured for damage or loss is subrogated to any
rights that the insured may have against a third party, who is also
liable for the damage or loss. In such a case it is only equitable
and just that the insurer should be reimbursed for his payment to
the insured, because otherwise either the insured would be unjustly
enriched by virtue of a recovery from both the insurer and the third
party, or in the absence of such double recovery by the insured the
third party would go free despite the fact that he has the legal
obligation in connection with the loss or damage.
Subrogation is highly favored in the law, although it is not an
absolute right but rather applied under equitable standards with due
regard to the legal and equitable rights of others:
The right of subrogation must be founded upon an
equity just and reasonable according to general
principles – an equity that will accomplish complete
justice between the parties to the controversy. The
one asserting the right cannot thereby profit from
his own wrong; he must, himself, be without fault. .
. . The process is analogous to the creation of a
constructive trust, the creditor being compelled to
hold his rights against the principal debtor, and his
securities, in trust for the subrogee.
Standard Accident Ins. Co v. Pellecchia et al., 15 N.J. 162, 171-72
(1954) (internal citation omitted).
Thus, Pelluchia instructs that an insurer should be reimbursed for payments to the insured
because equity would not prevail where a “third party would go free despite the fact that he has
the legal obligation in connection with the loss or damage.” Id. Simultaneously, the insurer
cannot “profit from his own wrong; he must, himself, be without fault.” Id.
Phoenix claims that Enerco apparently suffered $911,233 in damages, exclusive of
interests and costs. The record does not set forth details of this apparent loss. Phoenix then paid
Enerco $750,000 pursuant to a negotiated settlement. Curiously, however, although Enerco’s
initial loss was recouped in part by this settlement, Phoenix now apparently seeks to recover the
original $911,233 loss. (See Pl.’s Opp. Br. to Kavanagh MSJ at 6, “Plaintiff’s damages as a
result of Kavanagh’s acts or omissions therefore are the difference between $25,000 and
Plaintiff’s full provable losses.”).
Kavanagh argues that Phoenix is not even entitled to recover the $25,000 limitation of
liability because Enerco was already paid “in full” for its loss when it negotiated and settled its
claims with Phoenix. (Compl. ¶ 20.) Kavanagh highlights Phoenix’s intimation that Enerco was
underpaid pursuant to the $750,000 settlement. Indeed, this logic entails that because Phoenix
underpaid Enerco in the first place, Phoenix would now be able to stand in Enerco’s shoes to
recoup that underpayment. Kavanagh contends, “[i]f this were true, Phoenix will have profited
in the amount of $300,000 by breaching the Policy: it would get to retain the $150,000 that it
wrongfully failed to pay to Enerco, and receive a $150,000 windfall from the Defendants to boot.
This is nonsensical and contrary to the most basic principles of subrogation.” (Kavanagh Reply
Br. at 5.)
The Court is not persuaded that Enerco was wronged by Phoenix’s failure to compensate
it in full for its total damages. Enerco has brought no such claim here, and Mr. Muscatel
indicated that pursuant to their settlement, Enerco is not “claiming any other thing from
[Phoenix].” (Muscatel Dep., supra, at 146: 11 – 147:20.) As discussed at length above, Norfolk
Southern and Kavanagh, as a limited agent for the purpose of contracting on behalf of Enerco,
entered into a contract for rail shipment of goods. In filing its claims for breach of contract,
negligence, and breach of obligation as an agent, Phoenix has failed to meet its basic burden to
establish that it is more likely than not that Enerco would have opted for full coverage.
Phoenix’s rights, as subrogate of Enerco’s rights, are subject to the limitation of liability which
the parties agreed to. The record does not suggest that Phoenix committed a wrong or somehow
defrauded Enerco, and thus equity would not prevail should those responsible for damaging the
Transformer be given a free outright pass on liability.
Kavanagh argues that even this $25,000 cap is precluded based on federal common law
regarding subrogation claims. Specifically, Kavanagh raises that “where a shipper obtains
insurance to protect its shipment, a loss occurs during shipment, and the shipper’s insurer pays
on the loss, that insurer may not bring a subrogation claim against a party that allegedly failed to
make the shipper aware of the option of purchasing full coverage from the transporting carrier
transporting the shipment.” (Kavanagh MSJ Br. at 2.) In turn, Phoenix attempts to distinguish
the case law on which Kavanagh relies for this principle, however offers no case law to indicate
The First and Ninth Circuits of Appeal instruct that the purchase of third-party insurance
by a shipper counsels against invalidating the carrier’s limitation on liability:
[T]he fact that third-party insurance was available, and was
purchased by the shipper, counsels against invalidating the
limitation on liability. “[A shipper] cannot contend that it was not
given a ‘fair opportunity’ to opt for higher coverage [when the
shipper] did opt for higher coverage when it insured [its package]
through an independent entity.” [internal citations omitted]. This
is especially true when the plaintiff is not the shipper itself, but the
subrogated third-party insurer of the package. In such a case, “it is
always in the best interest of a shipper’s insurance company to
argue that the shipper was denied a fair opportunity to opt for
higher liability. . . . ‘As best we can tell, [the insurer] is now
bringing this lawsuit in an attempt to shift . . . the burden of loss it
was paid to insure.’” Travelers Indem., 26 F.3d at 900 (citing
Carman Tool & Abrasives, Inc. v. Evergreen Lines, 871 F.2d 897,
901 n. 10 (9th Cir. 1989)). “The [third-party] insurer merely stands
in the shoes of the shipper, however, and cannot argue as if the
shipper did not make the decision to insure separately.” Read-Rite
Corp. v. Burlington Air Express, Ltd., 186 F.3d 1190, 1199 n.4
Kemper Ins. Co. v. Federal Express Corp., 252 F.3d 509, 513-14 (1st Cir. 2001).
In Kemper, the First Circuit Court of Appeals examined a suit brought by an insurance
company as subrogee to invalidate the limitation of liability provided for in the relevant air
shipment documents. The appeals court explained that “[w]hen a shipper (or, as here, a subrogee
standing in place of a shipper) contests the validity of a contractual clause that limits an air
carrier’s liability, we apply federal common law.” Id. at 512 (citation omitted). The appeals
court found that the fact the shipper sought third-party insurance is an indication that the shipper
intended to limit its liability with the air carrier. The First Circuit Court of Appeals further
explained: “Lastly, we must point out that [the insurance company] is in no way harmed by this
type of limitation clause; in fact, it is the very existence of such a limitation that allows [the
insurance company] to market third-party package insurance.” Kemper, 252 F.3d at 514. See
also Travelers Indem. Co. v. Houston et al., 26 F.3d 895, 900 (9th Cir. 1994) (“Why would [the
shipper] increase its costs by insuring the same cargo twice?”).
The District Court of New Jersey has recognized this principle where the procurement of
insurance indicates a shipper’s awareness of its limitation of liability with a sea carrier. See
Ferrostaal, Inc. v. M/V Sea Phoenix et al., 2004 U.S. Dist. LEXIS 27483 (D.N.J. Dec. 14, 2004)
(J. Brotman); aff’d on other grounds, 447 F.3d 212 (3d Cir. 2006).
Specifically, Judge Brotman noted:
Plaintiff chose to insure the cargo, which indicates to the Court that
Plaintiff was aware that its recovery would be limited and may not
fully compensate any potential loss. See, e.g., Travelers Indem.
Co. v. Vessel Sam Houston, 26 F.3d 895 at 900 (9th Cir. 1994) (“a
shipper who chooses to insure its cargo through an independent
insurance company has made a conscious decision not to opt out of
COGSA’s liability limitation.”); Carman Tool & Abrasives, Inc. v.
Evergreen Lines, 871 F.2d 897, 901, n. 10 (9th Cir. 1989) (“Indeed,
there is every reason to believe that the shipper [,] by acquiring
insurance] made a knowing and deliberate choice in foregoing the
additional cost that would have been incurred in raising the
Ferrostaal, 2004 U.S. Dist. LEXIS at *19-20.
Phoenix argues that because the Third Circuit Court of Appeals in Ferrostaal rejected the
“fair opportunity doctrine,” the subrogation analysis is inapplicable here. However, as the Third
Circuit Court of Appeals explained at length therein, the fair opportunity doctrine relates to a
separate inquiry regarding the availability for a shipper to opt for increased coverage at a higher
rate. Specifically, the Carriage of Goods by Sea Act (“COGSA”), 46 U.S.C. 1300-1315, set
forth a scheme by which the shipper is bound by a limited liability unless the shipper has
acknowledged a higher value or agreed to a higher limit originally proposed by the shipper. The
fair opportunity doctrine, which was ultimately rejected by Third Circuit Court of Appeals,
relates to COGSA’s inquiry over rates. That inquiry is analogous to the scheme set forth by the
Carmack Amendment regarding the carrier’s offering of a reasonable opportunity for the choice
between different levels of liability, as detailed in Part Two of the Discussion section above. As
the Third Circuit Court of Appeals explained, “the discussion of ‘fair opportunity’ is best read as
explaining the rationale behind the Interstate Commerce Act’s requirement of a writing.” 447
F.3d at 223. The appeals court further noted that the text of COGSA is unlike that of the
Interstate Commerce Act insofar as the latter has an explicit notice provision while the former
does not, and therefore the COGSA should not be read as though it contains an implied notice
provision. 447 F.3d at 227.
Thus, the Third Circuit Court of Appeals held in Ferrostaal that the fair opportunity
doctrine is inconsistent with the COGSA, and recognized that while the COGSA does not
include an explicit or implied notice provision, the Interstate Commerce Act does. Despite
Phoenix’s averments, that analysis is apart from the indication that a shipper sought third-party
insurance coverage due to its awareness of its limitation of liability agreement with the carrier.
Indeed, Ferrostaal was not a subrogation case, and the Third Circuit Court of Appeals affirmed
the District Court’s result without commenting on Judge Brotman’s endorsement of Carman
Tool and its progeny. Moreover, in dismissing the applicability of the fair opportunity doctrine
with respect to COGSA, the Third Circuit Court of Appeals highlighted its prevention of a
windfall for subrogated insurers: “Insurance through third-party maritime insurers is usually
cheaper and more convenient than insurance by the carrier and prudent shippers will insure their
cargo regardless of the allocation of liability for negligent damage. The fair opportunity
doctrine, in seeking to vindicate the rights of shippers, confers a windfall on subrogated
insurers.” 447 F.3d at 228.
Based on the foregoing, the Court finds that Phoenix, as Enerco’s subrogee, is limited to
a $25,000 cap in seeking restitution for damage to the Transformer. To suggest otherwise would
be inequitable and allow those responsible for damage to be held unaccountable. Kavanagh’s
argument that even this cap should be denied is not persuasive, and indeed the cases on which
Kavanagh relies upheld the limitation of liability rather than invalidating it altogether.6 As
explained above, there is insufficient evidence to establish that Enerco would have opted for full
Carmack liability. Enerco’s corporate designee testified that it was “impossible” to know
whether it would have been purchased and that “nobody” would know the answer to the
See e.g., Carman Tool, 871 F.3d 897 (9th Cir. 1989) (limitation of liability clause upheld
in case brought by insurance company in the name of shipper which was already compensated by
insurer); Travelers Indemnity Company v. Vessel Sam Houston, 26 F.3d 895, 898 (9th Cir. 1994)
(limitation of liability provision upheld in insurer’s subrogation action); Read-Rite Corp v.
Burlington Air Express, Ltd., 186 F.3d 1190 (9th Cir. 1999) (limitation of liability provision
upheld in action brought by shipper and insurance company for damage arising from carriage of
goods by air); Kemper Ins. Companies v. Federal Exp. Corp., 252 F.3d 509 (1st Cir. 2001)
(limitation of liability found valid in subrogation action for damage arising from air shipment);
Ferrostaal, Inc. v. M/V Sea Phoenix, 2005 A.M.C. 581 (D.N.J. 2004) (limitation of liability
upheld in action brought by insured shipper for damage arising from sea shipment), aff’d 447
F.3d 212 (3d Cir. 2006)).
question. Moreover, Enerco had never opted to purchase full coverage, nor has any customer of
Kavanagh or Norfolk Southern ever opted for it. Further, the basic business decision to opt for
double-coverage at a total cost of $515,000, which represents over 25% of the value of the items
itself, is not persuasive where Phoenix’s all-risk policy covered this shipment for $15,000. Last,
Enerco’s procurement of third party insurance coverage further corroborates the record that
Enerco was aware of its limitation of liability with Norfolk Southern. The Court declines the
invitation to provide Phoenix a windfall where the very existence of the limitation of liability
allows for Phoenix to market third party insurance coverage in the first place.
Kavanagh’s motion for summary judgment is therefore granted in part. Phoenix may
subrogate the claims against Kavanagh only to the extent of the limitation of liability.
In addition to violations pursuant to the Carmack Amendment, Phoenix brings various
state claims against both Norfolk Southern and Kavanagh. Norfolk Southern moves the Court
for summary judgment on the contract and negligence claims against it and argues that these
state claims are preempted by Carmack. In opposition to the motion, Phoenix urges the Court
that the issue is premature because it is beyond the scope of review authorized by the Court.
However, the docket reflects a text order dated April 27, 2012 which instructs that “[t]he parties’
request to file motions for summary judgment as to the application of the Carmack amendment is
GRANTED.” The issue presented is whether the state law claims are preempted by Carmack,
and therefore preemption is necessarily within the scope of review authorized. The Court
considers it here for efficiency.
Courts recognize three ways that federal law may preempt or displace state law: (1)
express preemption, which requires an express statutory command, (2) field preemption, which
requires that a federal law “so thoroughly occupy a legislative field as to make reasonable the
interference that Congress left no room for the state to supplant it,” and (3) conflict preemption,
in which state law makes it impossible to comply with both state and federal law. Orlick v. J.D.
Carton & Son, Inc., 144 F. Supp. 2d 337, 344 (D.N.J. 2001) (citations omitted).
It is well settled that Carmack preempts all state law causes of action against rail-carriers.
“It is generally accepted that the principal purpose of the [Carmack] Amendment was to achieve
uniformity, and thus Congress enacted the amendment to ‘take possession of the subject of
interstate carriers liability . . . and supersede all state regulation with reference to liability for lost
or damaged property.’” Unisor Steel Corp. v. Norfolk Southern Corp., 308 F. Supp. 2d 510, 517
(D.N.J. 2004) (quoting Orlick, 144 F. Supp. 2d at 345). See also Rini v. United Van Lines, 104
f.3d 502, 504 (1st Cir. 1997); Gordon v. United Van Lines, Inc., 130 F. 3d 282, 287-88 (7th Cir.
1997) (Carmack exists to provide “a measure of predictability for interstate carriers in the
exposure to damages they face.”).
The Carmack Amendment was originally enacted to govern bills of lading in the rail
transportation industry. Accordingly, Section 11706 imposes strict liability upon rail carriers.
See 49 USC 11706, supra at 12. In its current form, the Carmack Amendment provides a
uniform national system of liability for interstate transport by rail and motor carriers. See id. and
49 USC 14706, respectively. Thus, the state law contract and negligence claims against Norfolk
Southern are clearly preempted and must be dismissed.
The Court reserves for another day judgment as to preemption of the claims against
Kavanagh. The parties have not moved for consideration on this issue, and there appears to be a
split in the courts regarding the extent to which Carmack preempts claims against brokers, at
least in their arrangements with motor carriers pursuant to Section 14706.7,8 See Ameriswiss
Technology, LLC v. Midway Line of Illinois, Inc. et al., 888 F. Supp. 2d 197 (D.N.H. 2012)
Section 14704 correspondingly imposes rights and remedies upon persons injured by
transportation by motor carrier and the procurement of that transportation, including brokers.
See 49 USC 14704; 49 USC 13501 et seq.
A broker is defined therein as “a person, other than a motor carrier or an employee or
agent of a motor carrier, that as a principal or agent sells, offers for sale, negotiates for, or holds
itself out by solicitation, advertisement, or otherwise as selling, providing, or arranging for,
transportation by motor carrier by compensation.” 49 USC 13102(2).
Further, Carmack defines covered transportation services broadly. The term
(A) a motor vehicle, vessel, warehouse, wharf, pier, dock, yard,
property, facility, instrumentality, or equipment of any kind
related to the movement of passengers or property, or both,
regardless of ownership or an agreement concerning use; and
(B) services related to that movement, including arranging for,
receipt, delivery, elevation, transfer in transit, refrigeration,
icing, ventilation, storage, handling, packing, unpacking, and
interchange of passengers and property.
49 USCS § 13102(23) (emphasis added).
Moreover, federal-state relations pursuant to the interstate transport of property by motor
carriers, water carriers, brokers, and freight forwarders is expressly preempted by the Interstate
Commerce Commission Termination Act (“ICCTA”) (federal authority over intrastate
a State . . . may not enact or enforce a law, regulation, or other
provision having the force and effect of law related to a price,
route, or service of any motor carrier . . . or any motor private
carrier, broker, or freight forwarder with respect to the
transportation of property.
49 USC 14501(c)(1)
“The ICCTA preemption provision ‘had been part of the Federal Aviation Administration
Authority Act (‘FAAAA’) passed by Congress in 1994.’” Ameriswiss Technology, LLC v.
Midway Line of Illinois, Inc., et al., 888 F. Supp. 2d 197, 204 n. 7 (D.N.H. 2012) (quoting
Mastercraft Interiors, Ltd. V. ABF Freight Sys., Inc., 284 F. Supp. 2d 284, 285 (D. Md. 2003)
and citing 49 USC 11501(h)(1)).
(subrogated negligence claim against broker for damage arising from truck shipment is impliedly
and expressly preempted by Carmack and the ICCTA respectively, however the contract claim
against broker is not preempted); Atlas Aerospace LLC v. Advanced Transportation Inc. et al.,
2013 U.S. Dist. LEXIS 58378 (D.Kan. April 24, 2013) (breach of contract claim against the
broker for damage arising from truck transport is outside of the scope of Carmack and escapes
preemption); but see Curb Technologies, LLC v. Somerset Logistics, LLC, 2013 U.S. Dist.
LEXIS 94554 (July 8, 2013) (denying removal jurisdiction for claims against the broker because
Carmack does not preempt them).
Thus, Section 14704 of Carmack at least impliedly preempts the field with respect to
broker liability in a negligence action involving motor carriers, and the ICCTA expressly
preempts the query as to brokers with respect to motor carrier arrangements. See supra note 7, 8.
Meanwhile, the portion of Carmack dealing directly with rail carriers, 49 USC 11706, defines
“rail carrier” fairly broadly to mean “a person providing common carrier railroad transportation
for compensation,” with certain exceptions which are not applicable here. 49 USCS 10102(5)
(emphasis added). Further, “person” is defined therein as “a trustee, receiver, assignee, or
personal representative of a person.” 49 USCS 10102(4). Last, “transportation” is also defined
broadly and includes:
(A) A locomotive, car, vehicle, vessel, warehouse, wharf, pier, dock, yard, property,
facility, instrumentality, or equipment of any kind related to the movement of
passengers or property, or both, by rail, regardless of ownership or an agreement
concerning use; and
(B) Services related to that movement, including receipt, delivery, elevation, transfer in
transit, refrigeration, icing, ventilation, storage, handling, and interchange of
passengers and property.
49 USCS 10102 (emphasis added).
In sum, the Carmack Amendment covers every detail of claims against rail-carriers and
therefore the state law claims against Norfolk Southern are preempted. However, the Court
leaves for another day the degree to which negligence and contract law claims against brokers
are preempted with respect to rail-carrier logistics.
For the foregoing reasons, Phoenix’s partial motion for summary judgment is denied.
Norfolk Southern’s partial motion for summary judgment on limited liability and preemption of
the state law breach of contract and negligence claims is granted in full. Kavanagh’s motion for
summary judgment on all claims against it is granted in part, to the extent that the subrogation
action may proceed up to the limitation of liability. There remain the Carmack Amendment
claim against Norfolk Southern subject to limited liability, and the state law claims against
Kavanagh for breach of contract, negligence, and breach of its obligation as an agent, also
subject to the limitation of liability.
/s/ Dickinson R. Debevoise
DICKINSON R. DEBEVOISE, U.S.S.D.J.
Date: May 16, 2014
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?