Exel, Inc. v. Southern Refrigerated Transport, Inc.

Filing 59

Order reconsidering and denying in part 6 Motion for Judgment on the Pleadings and denying without prejudice 29 and 30 Motions for Summary Judgment.. Signed by Judge James L Graham on 7/27/12. (ds)

IN THE UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION

Exel, Inc., f/u/b/o Sandoz Inc.

Case No.: 2:10-cv-994

Plaintiff

Judge Graham

v.

Magistrate Judge Abel

Southern Refrigerated Transport, Inc.
Defendant.

OPINION AND ORDER
This case is before the Court on its sua sponte reconsideration of the Opinion and Order
of December 15, 2011 (doc. 24). That order granted defendant Southern Refrigerated Transport,
Inc.’s (SRT) motion for judgment on the pleadings as to counts I, II, and IV and held that the
Carmack Amendment preempts the plaintiff’s contract and bailment claims. The Court
subsequently ordered supplemental briefing on whether the plaintiff’s claim for breach of
contract is preempted by federal law. (Doc. 49.) Also before the Court are the parties’ cross
motions for summary judgment, on which the Court heard oral argument on May 23, 2012.
I.

Background
Plaintiff Exel, Inc. (Exel) is a freight broker that arranges for “the transportation of

general commodities on behalf of it’s (sic) customers, who are shippers of commodities.”
(Complaint, Doc. 2 ¶ 6.) Defendant SRT is a “motor carrier, who provides transportation of

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cargo in interstate commerce.” (Doc. 2 ¶ 7.) Non-party Sandoz, Inc. (Sandoz) is a manufacturer
of pharmaceutical products. Sandoz was one of the customers for whom Exel arranged interstate
transportation services.
In late 2007, Exel and SRT entered into a “Master Transportation Services Agreement”
(“the master agreement”) whereby SRT agreed to act as a motor carrier for the transportation of
Exel’s customers’ cargo. The non-exclusive agreement was effective as of January 1, 2008.
(Master Agreement, Doc. 31-1, Attachment A.) The master agreement provided that Exel would
issue and SRT sign freight receipts for each shipment. Id. ¶ 4, “RECEIPTS AND BILLS OF
LADING”:
Customer [Exel] shall issue and Carrier shall sign freight receipts for each shipment in
the form acceptable to Customer and the Shipper. If a bill of lading is used as a freight
receipt, any terms, conditions or provisions thereof shall be subject and subordinate to the
terms of this Agreement and, in the event of a conflict, this Agreement shall govern.
Carrier’s or Carrier’s agent signature on the receipt or bill of lading shall be prima facie
evidence that the Commodities were received in good condition unless otherwise noted
on the face of such document.
The master agreement also purports to make SRT liable to Exel for any lost shipment, and to
establish the measurement of that liability. Id. ¶ 4, “LIABILITIES AND CLAIMS FOR
COMMODITIES”:
a)

b)

Carrier shall be liable to Customer for loss, damage or injury to the Commodities
tendered to Carrier for transportation hereunder while the Commodities are in its,
its agent or underlying carrier’s custody, possession or control except to the extent
(and only to the extent) such loss, damage or injury results from (i) acts of God,
the public enemy or public authority, (ii) inherent vice or nature of the
Commodities, or (iii) the negligent acts of Customer or Shipper.
The measurement of the loss, damage or injury to Commodities shall be the
Shipper’s replacement value applicable to the kind and quantity of Commodities
so lost, damaged or destroyed. Customer shall deduct from the invoice price the

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reasonable salvage value of any damaged or injured Commodities not released to
Carrier. Carrier acknowledges that some of the Commodities may be disposed of
in a manner that will prevent the damaged goods from being sold on the open
market.
In November, 2008, Exel requested that two SRT trucks be dispatched to transport a
shipment of Sandoz’s pharmaceutical products from Mechanicsburg, Pennsylvania to Memphis,
Tennessee. (Doc. 2 ¶ 11.) Sandoz’s products were placed on two SRT trucks. Plaintiff alleges
that one of these trucks was lost or stolen and the shipment was never recovered. (Doc. 2 ¶ 13.)
The alleged loss of that shipment forms the basis for this lawsuit.
Five individual bills of lading were issued for the shipment. (See Doc. 29-2, Attachments
A-1 – A-5.) Each bill of lading bears the heading “BILL-OF-LADING – SHORT FORM – Not
Negotiable.” Id. The bills of lading were prepared by “Exel’s system based upon the specific
shipment being moved.” (Plaintiff’s Answers to Interrogatories, Doc. 29-3 at 3.) The bill of
lading states that “every service performed here-under shall be subject to all terms and conditions
of the Uniform Domestic Straight Bill of Lading.” (Doc. 29-2, Attachment A-1.) The bill of
lading further states: “Shipper hereby certifies that he is familiar with terms and conditions of the
said bill of lading set forth in the classification or tariff which governs the transportation of this
shipment and the terms and conditions are hereby agreed to by shipper and accepted for himself
and his assigns.” Id. Under the description of articles, the bill of lading states: “Item 60000
Class 85, RVNX $2.40.” Id. According to an affidavit submitted by SRT’s employee Jerry E.
McEntire, Jr., “RVNX” means “Released Value Not To Exceed” and is used to designate a per
pound limit of liability of any claim against the carrier. (McEntire Aff., doc. 29-2 ¶10.) Exel

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disputes that the term “RVNX” was intended to or may be read to limit SRT’s liability. (See
Doc. 37 at 5.)
On November 5, 2010 Exel filed this action against SRT. The Complaint caption states
that the action was filed by “EXEL, INC. f/u/b/o Sandoz INC.” (Doc. 2 at 1.) Exel alleges that
Sandoz “has assigned all of its rights to Exel with regard to the recovery against SRT for the lost
Shipment.” (Doc. 2 ¶ 14.) The Complaint asserts in Count III that the plaintiff is entitled to
relief pursuant to the Carmack Amendment, 49 U.S.C. § 14706, et seq. for the lost shipment.
Counts I and II are state-law breach of contract and bailment claims. Count IV seeks a
declaratory judgment that the master agreement determines the value of the lost shipment.
In a December 15, 2011 Order (doc. 24), the Court granted defendant’s motion for partial
judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). Claims I, II, and
IV were dismissed on the grounds that plaintiff’s exclusive remedy is under the Carmack
Amendment. (Doc. 24 at 14, 17.) This order was based in part on the court’s belief that plaintiff
Exel sought solely to stand in the shoes of the shipper, Sandoz Inc., with rights no greater than
those which could be asserted by Sandoz. At the summary judgment stage, Exel asserted its
individual rights under the master agreement, which does contain language that may create
obligations independent of the shipper-carrier relationship and may fall outside the governance of
the Carmack Amendment. The Court concluded that the complaint does articulate a claim of
individual rights under the master agreement sufficient to support a state law claim for breach of
contract. Based on these findings, the Court engaged in a sua sponte reconsideration of its
December 15 Order and ordered supplemental briefs on the issue of whether plaintiff’s state law

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claims are preempted. This sua sponte reconsideration extends only to the dismissal of Count
IV, which asks the court to declare that SRT is liable under the liability clause of the master
agreement. (See Doc. 31-1, Attachment A ¶ 4.) Though Count IV requests declaratory
judgment, the Court finds that it states a claim for breach of the master agreement and construes
it accordingly.
II.

Legal Standard
The Court’s order granting defendant’s motion to dismiss pursuant to Federal Rule of

Civil Procedure 12(c) (doc. 24) is before the court for sua sponte reconsideration of that order.
See doc. 49. A motion for judgment on the pleadings pursuant to Rule 12(c) should not be
granted “unless it appears beyond doubt that the plaintiff can prove no set of facts in support of
his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46 (1957);
see also Grindstaff v. Green, 133 F.3d 416, 421 (6th Cir. 1998) (“The standard of review
applicable to motions for ‘judgment on the pleadings’ under Fed. R. Civ. Pro. 12(c) is the same
de novo standard applicable to motions to dismiss under Rule 12(b)(6).”). All well-pleaded
allegations must be taken as true and must be construed most favorably toward the non-movant.
Scheuer v. Rhodes, 416 U.S. 232, 236 (1974).
A motion for judgment on the pleadings is directed solely to the complaint and any
exhibits attached to it. Roth Steel Prods. v. Sharon Steel Corp., 705 F.2d 134, 155 (6th Cir.
1983). The merits of the claims set forth in the complaint are not at issue on a motion for
judgment on the pleadings. Consequently, a complaint will be dismissed pursuant to Fed. R. Civ.
P. 12(c) if there is no law to support the claims made, or if the facts alleged are insufficient to

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state a claim, or if on the face of the complaint there is an insurmountable bar to relief. See
Rauch v. Day & Night Mfg. Corp., 576 F.2d 697, 702 (6th Cir. 1978); Westlake v. Lucas, 537
F.2d 857, 858 (6th Cir. 1976). However, the court “need not accept as true legal conclusions or
unwarranted factual inferences.” Morgan v. Church’s Fried Chicken, 829 F.2d 10, 12 (6th Cir.
1987) (citations omitted).
When the complaint contains well-pleaded factual allegations, “a court should assume
their veracity and then determine whether they plausibly give rise to an entitlement to relief.”
Iqbal, 556 U.S. at 679. “A claim has facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Id. at 678. Though “[s]pecific facts are not necessary,” Erickson, 551 U.S.
at 93, and though Rule 8 “does not impose a probability requirement at the pleading stage,”
Twombly, 550 U.S. at 556, the factual allegations must be enough to raise the claimed right to
relief above the speculative level and to create a reasonable expectation that discovery will reveal
evidence to support the claim. Iqbal, 556 U.S. at 678-79; Twombly, 550 U.S. at 555-56. This
inquiry as to plausibility is “a context-specific task that requires the reviewing court to draw on
its judicial experience and common sense. . . . [W]here the well-pleaded facts do not permit the
court to infer more than the mere possibility of misconduct, the complaint has alleged – but it has
not ‘show[n]’– ‘that the pleader is entitled to relief.’” Iqbal, 556 U.S. at 679 (quoting Fed. R.
Civ. P. 8(a)(2)).
III.

Legal Analysis
A.

The Carmack Amendment

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“The Carmack Amendment was enacted in 1906 as an amendment to the Interstate
Commerce Act of 1887 and addresses the liability of common carriers for goods lost or damaged
during a shipment . . . .” Shao v. Link Cargo (Taiwan) Limited, 986 F.2d 700, 704 (4th Cir.
1993). The goal of the law “was to facilitate shippers’ recoveries against carriers for damage to
transported cargo.” Intransit, Inc. v. Excel North American Road Transport, Inc., 426 F.Supp.2d
1136, 1140 (D. Or. 2006).
The Carmack Amendment requires carriers to issue a receipt or bill of lading for cargo
and establishes carrier liability: “[A]ny . . . carrier that delivers the property and is providing
transportation or service subject to [the Carmack Amendment is] liable to the person entitled to
recover under the receipt or bill of lading. The liability imposed under this paragraph is for the
actual loss or injury to the property caused by [a carrier.]” 49 U.S.C. § 14706(a)(1).
Though the default liability established by the Carmack Amendment is for “actual
loss or injury,” shippers and carriers may limit liability in specific situations:
[A] carrier providing transportation or service . . . may . . . establish rates for the
transportation of property . . . under which the liability of the carrier for such
property 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.
49 U.S.C. § 14706(c)(1)(A).

B.

Federal Preemption

“In general, a federal law may preempt a state law in any of the following three scenarios.
First, a federal statute may expressly preempt the state law. Second, a federal law may impliedly
preempt a state law. Third, preemption results from an actual conflict between a federal and a

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state law.” Garcia v. Wyeth-Ayerst Labs., 385 F.3d 961, 965 (6th Cir. 2004) (citations omitted).
Because the Carmack Amendment does not expressly preempt state-law claims like those at issue
here, plaintiff’s contract claims can only be preempted if congress has implied their preemption
or if they conflict with federal law.
i.

Implied Preemption

“Implied preemption occurs ‘if a scheme of federal regulation is so pervasive as to make
reasonable the inference that Congress left no room for the states to supplement it . . . .” Gibson
v. Am. Bankers Ins. Co., 289 F.3d 943, 949 (6th Cir. 2002) (quoting Pub. Intervenor v. Mortier,
501 U.S. 597, 605 (1991)). The Carmack Amendment broadly regulates the liability of a carrier
under a bill of lading. See Adams Express Co. v. E.H. Croninger, 226 U.S. 491, 505-06 (1913).
Within a certain field, this regulation is sufficiently pervasive to imply preemption of state
regulation and state causes of action. See REI Transp., Inc. v. C.H. Robinson Worldwide, Inc.,
519 F.3d 693, 697 (7th Cir. 2008) (citing Adams Express, 226 U.S. at 505) (“The Carmack
Amendment generally preempts separate state-law causes of action that a shipper might pursue
against a carrier for lost or damaged goods.”). The question is whether Exel’s breach of contract
claim, arising under the master agreement, falls within the Carmack Amendment’s field of
implied preemption. The parties have directed the court to no controlling cases directly on point,
and none appear to exist. A small number of courts in other jurisdictions from which the court
may draw guidance have considered related issues.
A handfull of cases deal with indemnity and liability contracts between brokers and
carriers. In Intransit v. Excel North American Road Transport, Inc., the District of Oregon

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considered a breach of contract claim brought by a broker against a carrier. 426 F.Supp.2d 1136,
1138 (D. Or. 2006). The plaintiff, a shipping broker, had arranged for the defendant to deliver
merchandise to a Wal-Mart distribution center. Id. When the defendant arrived late with the
merchandise, “Wal-Mart rejected the shipment and took a setoff of $28,869.19 against [the
broker] for unrelated shipments.” Id. The broker brought suit against the carrier to recover,
inter alia, under the indemnity clause of the brokerage agreement. Id. The court held that
Congress had not intended to preempt indemnity claims brought by brokers against carriers
because the indemnity “action is sufficiently removed from a shipper or some other party who
has rights under the bill of lading to sue a carrier for damage to goods shipped.” Id. at 1141. The
court interpreted the Carmack Amendment to preempt claims between shippers and carriers, but
held that indemnity claims between brokers and carriers stemmed from a different type of
relationship that fell outside of Carmack’s preemptive field. See id.
The Court of Appeals of Georgia followed similar logic to affirm summary judgment
granted on a contract claim brought by a broker. In Edwards Bros. v. Overdrive Logistics, the
broker had brought a breach of contract claim against a carrier that had delivered a load of
chicken that was rejected because it was not adequately refrigerated. 581 S.E.2d 570, 571
(Ga.App. 2003). The shipper sold the chicken to other buyers at a loss. Id. The shipper
recovered some of its loss through voluntary payments by the carrier, the rest it withheld from
subsequent payments to the broker. Id. The broker filed a breach of contract suit against the
carrier. Id. The brokerage agreement, similar to the one at issue in this case, established that
“[the carrier] will be liable to [the broker] and/or shipper for any loss or damage.” Id. at 572.

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Like the court in Intransit, the Edwards court held that the contract claim was not preempted by
the Carmack Amendment: “[The broker] is not seeking damages under the bill of lading . . . .
Because the Carmack Amendment was enacted to protect the rights of shippers suing under a
receipt or bill of lading, not brokers, it does not preempt Overdrive’s breach of contract claim in
this case.” Id.
Other courts have reached the opposite conclusion, holding that breach of contract claims
between brokers and carriers are preempted by the Carmack amendment. See, e.g., Dominion
Resource Services, Inc. v. 5k Logistics, Inc., no. 3:09-cv-315, 2010 WL 679845, at *1 (E.D. Va.
Feb. 24, 2010) (holding that the only remedy available to the broker was one arising under the
Carmack Amendment).
This Court finds the logic of Intransit and Edwards Brothers more persuasive. Here, the
master agreement between Exel and SRT is a negotiated contract that establishes an ongoing
business relationship between sophisticated parties. As in Intransit and Edwards Brothers, the
contract does not focus on shipping under a bill of lading, but instead establishes the basics of a
brokerage relationship. As in those cases, this relationship falls outside of the shipper-carrier
relationship and outside of the preemptive field of the Carmack Amendment.
Defendant points to a number of cases that describe the field preempted by the Carmack
Amendment in sweeping terms but none of these cases directly address a breach of contract
claim brought by a broker against a carrier and they do not compel a different result. See Adams
Express, 226 U.S. at 499 (Carmack Amendment preempts directly conflicting state law regarding
carrier liability to shipper); Smith v. United Parcel Service, 296 F.3d 1244 (11th Cir. 2002)

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(shippers’ state claims against carrier preempted); Rini v. United Van Lines, 104 F.3d 502 (1st
Cir. 1997) (shipper’s state claim against carrier preempted); Shao v. Link Cargo, 986 F.2d at 705
(same); W.D. Lawson & Co. v. Penn Cent. Co., 456 F.2d 419 (6th Cir. 1972) (common-law
claims preempted in suit between shipper and carrier); Schneider Elec. USA, Inc. v. Landstar
Inway, Inc., No. 1:11-cv-801, 2012 WL 1068170 (S.D. Ohio Mar. 29, 2012) (contract claim
brought by shipper against carrier preempted); Great W. Cas. Co. v. Flandrich, 605 F.Supp.2d
955 (S.D. Ohio 2009) (breach of contract claim brought by shipper’s insurer against carrier
preempted); Cent. Transp Intern., Inc. v. Alcoa, Inc., No. 6-cv-11913-DT, 2006 WL 2844097
(E.D. Mich. Sept. 29, 2006) (state claims brought by shipper against carrier preempted).

ii.

Conflict Preemption

The plaintiff’s contract claim is not subject to implied preemption by the Carmack
Amendment, nor is it preempted under a conflict preemption analysis. “Conflict preemption
refers to circumstances ‘where compliance with both federal and state regulations is a physical
impossibility, or where state law stands as an obstacle to the accomplishment and execution of
the full purposes and objectives of Congress.’” Wimbush v. Wyeth, 619 F.3d 632, 643 (6th Cir.
2010) (quoting Rollins v. Wilson County Gov’t, 154 F.3d 626, 629 (6th Cir. 1998)). In this case,
a contract that establishes liability between a broker and carrier is not at odds with the goals of
the Carmack Amendment. The federal law seeks to “create a national scheme of carrier liability
for goods damaged or lost during interstate shipment under a valid bill of lading.” Shao v. Link
Cargo, 986 F.3d at 704. The Court in Intransit held that the indemnity contract at issue there did

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not conflict with this goal because the action was “sufficiently removed from a shipper or some
other party who has rights under the bill of lading” and so did not undercut the purposes of the
Carmack Amendment–to regulate the shipper-carrier relationship. 426 F.Supp.2d at 1141. The
court further found that the contract did not put the uniform system established by the
Amendment at risk: “[I]n this case, the alleged liability arises from a contract that will not be
interpreted differently from one jurisdiction to the next . . . .” Id. Similar logic may be applied in
this case. Carriers face no risk of patchwork regulation by being allowed to enter into brokerage
contracts that establish liability to shipping brokers. To the contrary, such arrangements may
simplify and clarify liability between the parties. Nor does this contract undercut the system of
liability that Congress has established under the Carmack Amendment.
iii.

Other Arguments

Defendant SRT argues that if plaintiff’s contract claim is not preempted, then double
recovery will be available against SRT. That is not a possible outcome of this case. Because the
shipper has assigned its claim for the lost cargo to the plaintiff, defendant need not be concerned
about a separate action by Sandoz, and Exel seeks recovery here either under the bill of lading or
the master agreement, not both. Plaintiff does not seek damages in an amount that could
represent double recovery. (Doc. 1 at 7.)
IV.

Conclusion
Based on the foregoing analysis, the Order of December 15, 2011 (doc. 24) is VACATED

with respect to Count IV. Defendant’s motion for partial judgment on the pleadings (doc. 6) is
DENIED with respect to Count IV. In light of this order, both plaintiff’s and defendant’s

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motions for summary judgment are denied without prejudice, and may be resubmitted should the
parties so choose.

IT IS SO ORDERED.
S/ James L Graham
James L. Graham
UNITED STATES DISTRICT JUDGE
Date: July 27, 2012

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