April 2008

From the editors of CCH's Transportation products, here are summaries of the important recent developments in the area for the past month.  Complete coverage of these issues, and many more, appear in our print and electronic products, including: Aviation Law Reporter, Commercial Aircraft Transactions, Issues in Aviation Law and Policy, Federal Carriers Reporter, Federal Motor Carrier Safety Administration Decisions, and Motor Carrier Liability.

If you have comments or suggestions concerning the information provided or the format used, please feel free to contact me directly at aaron.broaddus@wolterskluwer.com.

Hot Topic

U.S.-EU Open Skies Agreement Takes Flight
The long-awaited U.S.-EU Open Skies Air Transport Agreement entered into force on March 30, superseding bilateral aviation agreements with more than 20 European Union member countries and opening up every U.S. and EU city to any U.S. and EU air carrier. Among other things, the agreement is expected to spur lower-priced and more accessible air travel for customers on both sides of the Atlantic, while increasing competition and promoting greater access to U.S. and EU markets. Second-stage negotiations between the parties are set to begin in May. Aviation Law Reports, Report Letter No. 1377, April 10, 2008.

Trains Carrying Hazmat Must Use Safest, Most Secure Route
In an effort in ensure the safety and security of the most toxic and dangerous hazardous materials being transported in rail tank cars, the Pipeline and Hazardous Materials Safety Administration (PHMSA) has adopted an interim final rule requiring rail carriers to assess and designate the safest and most secure routes available for the transport of such materials. Under the interim rule, rail carriers must complete a comprehensive safety and security risk assessment of their primary routes and any practicable alternative routes, beginning June 1, 2008. The route analysis must take into consideration information provided by local communities and a minimum of 27 risk factors including, but not limited to, trip length, volume and type of hazardous material being transported, existing safety measures along the route, known threats, and population density. Routing decisions promulgated under the interim rule must be implemented by September 2009.

In addition to the routing assessment requirements, the interim rule reiterates the rail carriers' obligation to address in their security plans issues related to en route storage and delays in transit. Moreover, it adopts a new requirement mandating that rail carriers inspect placarded hazardous materials rails cars for signs of tampering or suspicious items, including improvised explosive devices. The rulemaking was developed by PHMSA in consultation with the Federal Railroad Administration and fully complies with the provisions of the Implementing Recommendations of the 9/11 Commission Act of 2007. The interim final rule takes effect June 16, 2008. However, voluntary compliance is authorized as of May 16, 2008 (DOT Press Release No. 52-08, April 16, 2008). Federal Carriers Reports, Report Letter No. 1532, April 28, 2008.

New Bumping Rule Doubles Compensation Limits
New regulations that double the limit on compensation airlines must pay passengers who are involuntarily “bumped” from their flights are set to take effect on May 19. Under the new denied boarding compensation (DBC) rule, fliers who are involuntarily denied boarding would receive up to $400 if they are rescheduled to reach their destination within two hours of their original arrival time, or four hours for international flights. Those not rerouted within that time-frame would receive up to $800 [see CCH Aviation Law Reports No. 1368, November 30, 2007]. The new rule also covers more flights, including those operated with aircraft seating 30 or more passengers. The existing rule covers flights with 60 or more passenger seats. However, an exception to the DBC rule for substitution of aircraft of lesser capacity has been expanded to accommodate the need for smaller aircraft to limit payload under certain circumstances. As a result, the exception will apply to situations where an aircraft is not substituted but passengers are bumped because the payload must be limited for safety reasons. The amount of the bumping payment is determined by the price of the ticket and the length of the delay, and is in addition to the value of the ticket, which the flyer may use for alternate transportation or have refunded if not used. Aviation Law Reports, Report Letter No. 1378, April 24, 2008.

EPA Proposes Aircraft Drinking Water System Requirements
Drinking water systems on an estimated 7,327 aircraft operated by 63 air carriers would be defined as “public water systems” and subjected to new regulations, under the terms of a proposed rulemaking issued by the U.S. Environmental Protection Agency (73 FR 19320, April 9, 2008). The proposed standards would govern aircraft water systems that regularly serve at least 25 individuals daily for at least 60 days a year. EPA considers water for human consumption to include water for drinking and food preparation, as well as water for brushing teeth and hand washing. Thus, if an aircraft has a sink in the lavatory, then water provided to that sink must be suitable for human consumption. According to EPA, the proposal would tailor existing drinking water requirements to the unique characteristics of aircraft. Aviation Law Reports, Report Letter No. 1378, April 24, 2008.

Aviation News

DOJ, American Airlines Settle Pilot Benefits Dispute
The Department of Justice on April 17 announced that it had reached an agreement with American Airlines to settle charges that the carrier had failed to provide pilots with adequate vacation and sick leave benefits while on military leave. If approved by the court, the settlement would resolve DOJ's lawsuit, which alleged violations of the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA). DOJ had alleged that American Airlines denied pilots on military leave the same level of benefits as it provided to other pilots on nonmilitary leave. The settlement agreement would require the carrier to pay 353 pilots approximately $346,000 for the loss of vacation and sick leave benefits. Currently employed pilots would receive sick leave credits worth an estimated $215,000. In addition, American would be required to modify its policies to ensure that all pilots serving in the military accrue the appropriate benefits. Aviation Law Reports, Report Letter No. 1378, April 24, 2008.

GARA Governs, Time-Bars Foreign Air Crash Claims
The U.S. Court of Appeals for the Ninth Circuit ruled that an action by representatives of individuals who were killed in the crash of a small U.S.-built aircraft in a foreign country was time-barred by the General Aviation Revitalization Act of 1994. GARA bars suits stemming from accidents that occur more than 18 years after the initial transfer of an aircraft, and it was undisputed that the accident involving the aircraft occurred more than 18 years after its initial delivery. The appellants argued that GARA did not apply because the occurrence of the accident in a foreign country implicated the “presumption against extraterritoriality,” under which it is generally assumed that laws passed by Congress apply only to regulate conduct occurring within the U.S. However, the court found that the presumption against extraterritoriality does not apply when the conduct regulated by the government occurs within the U.S. Blazevska v. Raytheon Aircraft Co. (9thCir) 32 Avi. 16,232.

FAA Preempted Passenger's Claims Against Carrier, Manufacturer
The Federal Aviation Act of 1958 preempted a state law action seeking damages from an air carrier and an aircraft manufacturer for personal injuries allegedly suffered by a passenger as a result of a nose gear collapse during her flight's pullback from an airport departure gate, according to a federal district court. The statute was enacted to provide the exclusive system of regulation of air safety and flight operations, and the standard of care applicable to aviation safety is derived solely from the Act, the court noted. However, the passenger had brought claims against the defendants for violations of state common law and had not otherwise set forth a federal standard of care alleged to have been breached. Although the passenger generally stated that the carrier had been careless and reckless, the court found that she had failed to set forth a regulation containing the specific federal standard of care alleged to have been violated. Similarly, the passenger had failed to set forth a regulation containing the specific federal standard of care alleged to have been violated by the manufacturer. Landis v. US Airways, Inc. (WDPa) 32 Avi. 16,164.

JAL Agrees to Guilty Plea, Fines for Cargo Price Fixing
The United States Department of Justice has announced that Japan Airlines International Co. Ltd. (JAL) has agreed to plead guilty and pay a $110 million criminal fine for its role in a conspiracy to fix rates for international cargo shipments. According to the charges filed on April 16 in the U.S. District Court for the District of Columbia, JAL engaged in a conspiracy in the U.S. and elsewhere to eliminate competition by fixing the rates for international shipments of cargo to and from the U.S. and elsewhere between 2000 and 2006. During the time period covered by the charges, JAL was the largest carrier of cargo between the U.S. and Japan and earned almost $2 billion from its cargo flights to and from the United States. Under the plea agreement, which is subject to court approval, JAL agreed to cooperate with the Department's ongoing investigation. Aviation Law Reports, Report Letter No. 1378, April 24, 2008.

Setoff Applied, but Did Not Reduce, Carrier's Limited Liability
In an action stemming from damage to an international freight shipment, a federal appeals court ruled that state setoff and contribution laws were not preempted by the Warsaw Convention as Amended by Montreal Protocol No. 4. The shipper's insurer, which had settled its claims against a freight forwarder and ground carrier involved in the damaged shipment, argued that the Convention's provision allowing setoffs against an air carrier's limited liability amount for any payments made by the carrier's servants or agents acted as a bar to setoffs against joint tortfeasors who were not such servants or agents. However, the purpose of the provision cited by the insurer was to preclude suits against agents that could effectively increase air carriers' liability, and, as such, the provision did not implicate joint tortfeasors, the court said. Furthermore, another provision of the Convention contained a savings clause that explicitly refused to preempt local contribution schemes. Thus, the court ruled that the Convention was compatible with a claim for contribution or setoff under the applicable state law. Sompo Japan Ins., Inc. v. Nippon Cargo Airlines Co. (7thCir) 32 Avi. 16,246.

Surface Transportation News

Proof of Negligence Not Required to Establish Carmack Liability
A shipper was not required to prove that a carrier was negligent in order to establish liability under the Carmack Amendment, a state court of appeals ruled. The shipper had ordered an electrical control panel for a construction project, which the carrier was hired to transport from Minnesota to Iowa. While in transit, the panel was damaged but the damage was not discovered until after the shipping packaging was removed from the panel. The shipper filed a damage claim with the carrier, which was denied. The shipper then filed suit against the carrier under the Carmack Amendment. A state district court found the carrier liable for the damages to the panel after the shipper had established its prima facie case. The carrier challenged the lower court's conclusion, arguing that it was not liable because the shipper failed to show that it had been negligent.

The carrier's argument was rejected. Under Carmack, the shipper only is required to prove that the goods were delivered to the carrier in good condition, arrived at their final destination damaged, and the actual amount of monetary damages sought. The burden then shifts to the carrier to refute the shipper's case by showing that the damages were caused by an act of God, the public enemy, the shipper, the public authority, or the inherent vice or nature of the goods. Based on the evidence presented, the carrier failed to rebut the shipper's case. Thus, the carrier was properly found to have been liable for the damages to the goods it had transported. M.B. Constr., Inc. v. Mid-States Express, Inc. (IowaCtApp) ¶84,536.

Proposal Aims to Improve Hazmat Rail Tank Car Safety
The Pipeline and Hazardous Materials Safety Administration (PHMSA) has issued a proposed rulemaking designed to significantly improve the safety of rail tank cars that carry the most dangerous hazardous materials, such as Poison Inhalation Hazard (PIH) commodities. Developed in close consultation with the Federal Railroad Administration, the proposal addresses issues arising from several serious train accidents involving hazmat releases. It is intended to satisfy a provision of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), which calls for the initiation of a rulemaking to develop and implement appropriate design standards for pressurized tank cars.

Under the proposal, rail tank car performance standards for head and shell impacts would be enhanced, requiring them to withstand side impacts at speeds of 25 mph and head-on collisions at 30 mph-more than double the speed for existing tank cars. Further, the proposed rule would incorporate operational restrictions including a set maximum speed limit of 50 mph for any train transporting PIH tank cars in compliance with the new performance standards, and a temporary speed restriction of 30 mph for certain PIH tank cars that do not meet the new standards. Finally, the proposal would mandate the accelerated removal of the oldest PIH tank cars currently in use. This requirement is aimed at addressing concerns that PIH tank cars manufactured before 1989 with non-normalized steel may not adequately resist the development of fractures that can lead to a catastrophic failure (DOT Press Release No. DOT 45-08, March 31, 2008). Federal Carriers Reports, Report Letter No. 1532, April 28, 2008.

Revisions to Commercial Driver's License Program Proposed
The Federal Motor Carrier Safety Administration (FMCSA) has issued a proposed rule that would amend the current knowledge and skills testing standards for commercial driver's licenses (CDLs) and establish new minimum standards for states to issue commercial learner's permits (CLPs). The proposed rulemaking was undertaken to satisfy certain statutory mandates contained in the Safe, Accountable, Flexible, Efficient, Transportation Equity Act: A Legacy for Users (SAFETEA-LU) and the Security and Accountability for Every Port Act of 2006 (SAFE Port Act), requiring the development of uniform minimum standards for the issuance of CLPs, improving the oversight of the CDL program, and mandating the implementation of recommendations by the Department of Transportation's Office of the Inspector General addressing the steps required to improve anti-fraud measures in the CDL program.

The proposed requirements include the incorporation by reference of an updated model test package for knowledge and skills standards; a ban on the use of foreign language interpreters in the administration of the knowledge and skills tests; the establishment of standards for the issuance of a CLP that are virtually identical to the standards set for CDL holders; and the adoption of a provision prohibiting motor carrier employers from using drivers who do not have a current CLP or CDL or who do not have a CDL with the proper class or endorsements, or who use a driver to operate a CMV in violation of a restriction on the driver's CDL. The proposal also designates that CLP applicants must be at least 18 years old before applying for a CLP and mandates that the applicant successfully complete the knowledge test prior to receiving the permit. In addition, all CDL applicants must obtain and hold a CLP for 30 days before applying for the CDL. The overall goal of the proposal is to enhance safety by ensuring that only qualified drivers are allowed to operate commercial motor vehicles (CMV) on the nation's highways (73 FR 19282, April 9, 2008). Federal Carriers Reports, Report Letter No. 1531, April 10, 2008.

FRA Train Accident Investigation Reports Available Online
The Federal Railroad Administration (FRA) has announced that its investigation reports of major train accidents and other incidents are available for public viewing online. According to the agency, the Factual Investigation Reports now posted on the FRA website contain detailed narratives describing the circumstances of the accident or incident and provide an analysis of the facts and FRA's conclusion as to why the event occurred. However, due to size constraints and other considerations, attachments and exhibits associated with the FRA investigation reports will not be posted online, and will continue to be available only through a Freedom of Information Act request. The accident/incident reports that railroads are required by federal law to routinely file with the FRA will continue to be available online.

FRA accident investigation reports for all of 2005 and 2006 and the first quarter of 2007 currently are available online. The reports for the remainder of 2007 will be posted in the coming months, and those for 2008, as well as all future reports, will be made available online as they are completed and finalized. A major train accident or incident investigation typically takes six to nine months to complete, and no portion of the report is made public until the investigation is finalized. An up-to-date listing of all active, open, and ongoing investigations also will be available.

FRA continuously monitors the occurrence of train accidents and incidents in real time. FRA field personnel are routinely dispatched to the scene of serious accidents in order to determine whether an investigation is warranted. During an investigation, a team of subject experts undertakes a methodical examination of the event, and assesses compliance with existing safety laws and regulations. If the National Transportation Safety Board (NTSB) decides to investigate the same event, by law it assumes primary responsibility for managing the investigative process, with FRA performing a concurrent supporting role. FRA does not usually release its own report about an accident until the NTSB has issued its findings. The accident investigation webpage can be accessed at http://www.fra.dot.gov/us/content/1696 (DOT Press Release No. FRA 04-08, April 1, 2008). Federal Carriers Reports, Report Letter No. 1531, April 10, 2008.

Insurers Can Recover Full Amount of Damages from Rail Carrier
The insurers of goods damaged while in transit by rail were entitled to seek recovery for the full value of the damaged cargo, according to a federal district court. The rail carrier had been hired by shippers to transport various goods from the Port of Long Beach in California to various locations within the state of Georgia. While in transit, the train derailed, resulting in significant damage to the goods. The cargo insurers filed suit against the carrier and sought partial summary judgment on the question of whether their recovery was limited by the various contracts between the railroad, shipping companies, and insureds. The rail carrier claimed that, under the contracts governing the shipments, it had limited its liability to the actual value of the shipment or $250,000, whichever was less. However, the rail carrier's claim that it had effectively limited it liability was dismissed because it had not offered full Carmack liability coverage to the any of the insureds as required under federal statute.

The carrier challenged this determination, arguing that it was not required to offer full Carmack liability coverage because the intermodal transportation agreements were 10709 contracts, which are not subject to Carmack liability. This argument was unavailing because the carrier had not indicated on any of the shipping documents that the agreements were 10709 contracts, as it had been shown to have done in the past. Based on the evidence, the court concluded that the carrier had not satisfied the statutory requirement for limiting its liability. Thus, the insurers were free to pursue damages in excess of any limits contained in any of the contracts. Sompo Japan Ins. Co. of Am. v. Norfolk S. Ry. Co. (SDNY) ¶84,541.

Non-Payment of Charges Excused by Valid Carmack Claim
A federal court of appeals affirmed a decision dismissing a motor carrier's claim for breach of contract arising from the non-payment of freight charges and awarding a freight broker damages under the Carmack Amendment. The carrier had been hired by the freight broker to transport a shipment of DVD players from St. Louis, Missouri, to southern Illinois. The goods in question had been moved from California to Missouri by rail. Prior to the motor carrier taking possession of the goods, but after the goods were tendered for delivery by the shipper, a number of DVD players went missing. The broker indemnified the shipper for its loss and sought to recover its damages by withholding payment to the carrier. As a result, the carrier filed a breach of contract claim against the broker for nonpayment of freight charges. The lower court ruled in favor of the broker, finding that the Carmack Amendment had preempted the carrier's breach of contract claim. The appellate court disagreed, reasoning that claims that do not affect a carrier's liability for lost or damaged goods-such as a suit by a carrier against a shipper or other individual entitled to recover for non-payment-are not preempted by Carmack.

Even though the carrier's breach of contract claim survived Carmack preemption, the validity of the claim was subject to the broker's ability to establish a prima facie Carmack case. According to the appellate court, if the broker established a prima facie case under Carmack, it would both defeat the carrier's breach-of-contract claim and entitle the broker to recover additional damages. The carrier argued that the broker had not satisfied the regulatory requirements for a Carmack claim because it was unable to prove that the goods had been tendered to the initial carrier in good condition. The broker refuted the carrier's claim by showing the steps taken by the shipper to package the goods for transport and establishing that no exceptions had been noted on the bill of lading. Based on the evidence presented, it was determined that the goods had been tendered in good condition. Thus, the broker had established a prima facie Carmack claim. Accordingly, the lower court's decision was affirmed, since the withholding of payment had not breached the contract and the broker had proven that, pursuant to its Carmack claim, it was entitled to recover an additional $4197.34 from the carrier. REI Transp., Inc. v. C.H. Robinson Worldwide, Inc. (7thCir) ¶84,542.

Discovery Process Clarified
The FMCSA granted a motion for clarification seeking a determination of when a party is entitled to commence discovery. A motor carrier had been issued a Notice of Claim charging it with various safety violations. The carrier replied to the Claim Notice, denying the charges and requesting a formal hearing. The Field Administrator objected to the hearing request and issued a notice of his intent to file a motion for final order. The carrier then served a notice of discovery, submitting interrogatories, requests for document production, and requests for admissions. In response, the FA filed a motion for clarification seeking guidance on when discovery may commence during an administrative proceeding.

Under the current rules of practice, discovery may not begin until a matter is pending before the Assistant Administrator or referred to the Office of Hearings. A matter is deemed to be before the Assistant Administrator if the Assistant Administrator has issued an order following the receipt of an objection to a hearing with basis, or a motion for final agency order has been filed by either party. Thus, the carrier's discovery requests were premature, since the Assistant Administrator had not issued any orders and neither party had filed a motion for final agency order. White Farms Trucking, Inc. (FMCSA) ¶51,234.