August 2011

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 Pamela Maloney, Managing Editor, at pamela.maloney@wolterskluwer.com.

Hot Topics

Enhanced Passenger Protections Are Now In Effect

New consumer protections for airline passengers established by the U.S. Department of Transportation in April went into effect on August 23, including requirements that air carriers refund baggage fees if bags are lost, increase compensation provided to passengers bumped from oversold flights, and provide passengers greater protections from lengthy tarmac delays. As previously reported [see CCH Aviation Law Reports No. 1451, May 12, 2011], the initiative builds upon passenger protections adopted by DOT in December 2009, which prohibited U.S. airlines operating domestic flights from permitting an aircraft to remain on the tarmac for more than three hours and mandated that U.S. airlines provide basic services such as access to lavatories and water in the event of extended tarmac delays.

Air carriers already are required to compensate passengers for reasonable expenses for loss, damage, or delay in the carriage of passenger baggage. As of Tuesday, carriers now must prominently disclose all optional fees on their Internet websites, including but not limited to fees for baggage, meals, canceling or changing reservations, and advanced or upgraded seating.

The new standards double the amount of money passengers may receive in the event that they are involuntarily bumped from an oversold flight. Previously, bumped passengers were entitled to cash compensation equal to the one-way value of their tickets, up to $400, if the airline was able to get them to their destination within a short period of time (i.e., within one to two hours of their originally scheduled arrival time for domestic flights and one to four hours for international flights). Similarly, if passengers were delayed for a lengthy period of time (more than two hours after their originally scheduled arrival time for domestic flights and more than four hours for international flights), they were entitled to double the one-way price of their tickets, up to $800. Now, bumped passengers subject to short delays will receive compensation equal to double the one-way price of their tickets, up to $650, while those subject to longer delays would receive payments of four times the one-way value of their tickets, up to $1,300. Inflation adjustments will be made to those compensation limits every two years.

Furthermore, the new standards expand the previous ban on lengthy tarmac delays to cover the international flights of foreign airlines at U.S. airports, and establish a hard, four-hour time limit on tarmac delays for all international flights at U.S. airports. The rule extends the three-hour tarmac delay limit for domestic flights to flights at small-hub and non-hub airports as well. All carriers subject to the tarmac rule will be required to report lengthy tarmac delays to DOT.

In all cases, exceptions to the time limits are allowed only for safety, security or air traffic control-related reasons. Carriers also must ensure that passengers stuck on the tarmac are provided adequate food and water after two hours, as well as working lavatories and any necessary medical treatment.

Yet more measures established under the April 2011 initiative are slated to take effect on January 24, 2012, including: (1) the requirement that all taxes and fees be included in advertised fares; (2) a ban on post-purchase price increases; (3) allowing passengers to hold a reservation without payment or to cancel it without penalty for 24 hours after the reservation is made, if the reservation is made one week or more prior to a flight’s departure date; (4) required disclosure of baggage fees at the time that a flight is booked; (5) the requirement that the same baggage allowances and fees apply throughout a passenger’s journey; (6) mandatory disclosure of baggage fee information on e-ticket confirmations; and (7) a requirement that carriers provide prompt notification of delays of over 30 minutes, as well as cancellations and diversions. Aviation Law Reports, Letter No. 1458, August 22, 2011.

No New Transport Rules for America’s Agricultural Community

The Federal Motor Carrier Safety Administration (FMCSA) announced that it does not intend to propose any new regulations that would affect the transport of agricultural products. The agency also released guidance designed to ensure that states clearly understand the common sense exemptions that allow farmers, their employees, and their families to accomplish their day-to-day work and transport their products to market. After hearing from concerned farmers earlier this year, FMCSA initiated a review to make sure states do not go overboard in enforcing regulations on agricultural operators, and to ensure consistent access to exemptions for farmers.

Specifically, farm groups expressed concerns that some states might not allow exemptions to Commercial Drivers License (CDL) requirements for certain farm operations using "crop-share" leasing. When FMCSA investigated, there appeared to be wide differences among states in how the "for-hire" and related agricultural exceptions were being applied. In order to ensure consistency, FMCSA asked state officials to cease all new entrant safety audits on farmers engaged in "crop-share" leasing and issued a public notice soliciting input that would provide insight on the complex use of farm equipment on public roads.
As a result of the review undertaken by the agency, FMCSA released a notice of regulatory guidance in mid-August that clarified three critical issues facing the agricultural community:

• Interstate versus intrastate commerce. Since the difference between the two has been determined by the U.S. Supreme Court and other Federal courts, FMCSA has limited flexibility to provide additional guidelines. The Agency has concluded that new regulatory guidance concerning the distinction between interstate and intrastate commerce is not necessary. Generally, the states and the industry have a common understanding on this point. To the extent that fact-specific questions arise, the agency will work with the states and the industry to provide a clarification for the specific scenario.
• Commercial Driver's License. Federal regulations allow states to make exceptions to Commercial Driver's License (CDL) regulations for certain farm vehicle drivers such as farm employees and family members, as long as their vehicles are not used by "for-hire" motor carriers. Some states have questioned whether this exemption applies to drivers who work for "crop share" or similar arrangements. FMCSA’s notice includes guidance to ensure consistent application of the exemption. After considering the public comments, the agency has determined that farmers who rent their land for a share of the crops and haul their own and a landlord’s crops to market should have access to the agricultural CDL exemptions given by the states.
• Implements of Husbandry. In a perfect world, farm vehicles would only operate on farms, while commercial trucks would operate on public roads. The reality is that farm equipment that is not designed or intended for everyday use on public roads is often used for short trips at limited speeds. This creates a gray area for classification. After considering the public comments, FMCSA has determined that most states have already adopted common sense enforcement practices that allow farmers to safely move equipment to and from their fields. In areas where farm implements are common, the enforcement community and the agricultural community have achieved a mutual understanding of which safety regulations should apply to farm equipment on their public roads.

Full text of the regulatory guidance appears at ¶25,071. Federal Carriers Reports, Letter No. 1612, August 30, 2011.

Aviation News

FAA Budget Extended Through September 16

Congressional leaders on August 4 announced that they had reached a bipartisan agreement on a temporary measure to reauthorize the funding authority of the Federal Aviation Administration through mid-September. “I am pleased to announce that we have been able to broker a bipartisan compromise between the House and the Senate to put 74,000 transportation and construction workers back to work,” Senate Majority Leader Harry Reid (D-Nev.) said in a brief statement, adding, “[t]his agreement does not resolve the important differences that still remain. But I believe we should keep Americans working while Congress settles its differences, and this agreement will do exactly that.”

The latest extension bill initially had been passed by the U.S. House of Representatives on July 20 but, unlike the previous 20 temporary measures that have kept FAA operational during the political stalemate over longer-term budget legislation for the agency, this time, House lawmakers inserted $16 million in cuts to rural airport service. Senate Democrats rejected the bill, demanded a clean extension without additional provisions and, by holding fast on their objections, allowed the funding authority provided in the previous extender to run out on July 22, idling 4,000 FAA employees and tens of thousands of construction workers employed on airport projects nationwide in the process.

Congress essentially adjourned for its traditional late-summer “recess” approximately one week later without taking further action, after which FAA Administrator Randy Babbitt, Transportation Secretary Ray LaHood, and President Obama turned up the heat, calling for immediate action to get the furloughed workers back on the job. Then, in a rarely-used procedural protocol, the Senate convened a pro forma session (consisting of two members) on Friday, August 5, and approved the brokered measure in a matter of minutes, after which President Obama signed it into law as the Airport and Airway Extension Act of 2011, Part IV [Pub. L. No. 112-27 (125 Stat. 270)] later that same afternoon. Aviation Law Reports, Letter No. 1457, August 11, 2011.

Air Cargo Screening Requirements Tweaked

The Transportation Security Administration is amending two provisions of its 2009 interim federal standards on air cargo screening, at the same time seeking public input on both the proposed range and methodology used to develop the fee collected for the processing of Security Threat Assessments. As previously reported [see CCH Aviation Law Reports No. 1413, October 1, 2009], the air cargo screening regulations fulfilled the statutory mandate that a system to screen 100 percent of cargo transported on passenger aircraft be established by August 2010, and implemented the Certified Cargo Screening Program (CCSP—a scheme under which TSA-certified shippers, indirect air carriers, and other entities can act as Certified Cargo Screening Facilities to screen cargo prior to transport on passenger aircraft.

Under the interim rule, each CCSF applicant had to successfully undergo an assessment of their facility by a TSA-approved validation firm or by the agency itself. In response to public comment received on the 2009 initiative, the amendments remove all validation firm and validator provisions, rendering TSA the sole arbiter of whether a certification is appropriate for an applicant’s facility. The interim rule also required that, if an aircraft operator or foreign air carrier screens cargo at an off-airport location, it had to do so as a CCSF. The rule amendments delete that requirement because aircraft operators already are screening cargo on airport property under a TSA-approved security program and, as such, do not need a separate certification in order to screen cargo at off-airport sites.

Finally, the latest initiative proposes a fee range for TSA’s processing of Security Threat Assessments and seeks comments on the proposed fee range and the methodology used to establish the fee. A final fee will be announced in a future notice to be published in the Federal Register. Aviation Law Reports, Letter No. 1458, August 22, 2011.

Ice-Detection Measures Mandated for Smaller Aircraft

Addressing a long-standing recommendation of the National Transportation Safety Board, the Federal Aviation Administration issued a final rule this week that requires scheduled air carriers to either install ice-detection equipment in their existing fleets or update their flight manuals in order to make sure that crews know when they should activate ice-protection systems on their aircraft. For aircraft equipped with an ice-detection system, the new standards mandate that the system alert the crew every time they need to activate ice protection. Systems can either automatically turn on the ice-protection function or can be manually activated by pilots.

For aircraft without ice-detection equipment, the crew must activate the protection system based upon cues listed in their airplane’s flight manual during climb and descent, and at the first sign of icing that occurs at cruising altitudes. The new requirements apply only to in-service aircraft weighing less than 60,000 pounds, FAA indicated, noting that: (1) larger commercial aircraft already have ice-detection equipment; and (2) studies show that smaller planes are more affected by undetected icing or late activation of an ice-protection system. The new rule takes effect on October 21, 2011. Aviation Law Reports, Letter No. 1458, August 22, 2011.

Limits Set on Former Inspectors’ Appearance Before FAA

A newly issued Federal Aviation Administration final rule will bar air carriers and other certificate-holders, under certain circumstances, from employing certain former FAA aviation safety inspectors as company representatives to FAA for a period of two years after they have left the agency. The rule adds several new sections to standing regulations that prohibit certificate-holders from employing or making a contractual arrangement with certain individuals who have worked for the FAA in the previous two years to act as an agent or a representative in any matter before the agency. The restrictions will apply if the former FAA employee had served directly as, or had been responsible for the oversight of, a Flight Standards Service aviation safety inspector and had direct responsibility to inspect or oversee the inspection of the operations of the certificate-holder.

The new rule, which also applies to persons who own or manage fractional-ownership program aircraft that are used to conduct certain commercial operations, responds to concerns raised  in 2008 by Congress and the DOT Inspector General about FAA’s oversight of Southwest Airlines. The DOT Inspector General had concluded that the FAA office overseeing the airline had developed an overly close relationship with the airline, and recommended that FAA create post-employment guidance that includes a “cooling-off” period in order to prohibit an air carrier from hiring an aviation safety inspector who previously had inspected that carrier. The new regulatory provisions take effect on October 21, 2011. Aviation Law Reports, Letter No. 1458, August 22, 2011.

Ninth Circuit Further Narrows ADA’s Preemptive Scope

The Airline Deregulation Act of 1978 does not preempt a common-law breach-of-contract claim based upon the implied covenant of good faith and fair dealing, the U.S. Court of Appeals for the Ninth Circuit ruled in an action against Northwest Airlines by a passenger whose frequent flyer “elite” status had been revoked without explanation by the carrier. According to Circuit Judge Robert Beezer, who wrote for the three-judge panel, Congress’ purpose in enacting the ADA’s preemption clause was to prevent state interference with the mandate of deregulation, and a claim for breach of the implied covenant of good faith does not interfere with that mandate. Additional support for the conclusion that Congress did not intend for the Act to preempt state common-law contract claims is evident from the statute’s savings clause, which preserves common-law remedies, the opinion added.

Moreover, the court observed that case precedent within the jurisdiction instructs that, taken together, ADA’s savings clause and the preemption clause demonstrate congressional intent to prohibit states from regulating the airlines while preserving state tort remedies already in existence at common law, provided that such remedies do not significantly impact federal deregulation. Similar logic applies to state contractual remedies already in existence at common law, such as the implied covenant of good faith and fair dealing, the panel held. Furthermore, the passenger’s claim did not relate to air carrier prices because the link between the claim and airline costs/fares was far too tenuous, the court added, asserting that allowing the claim to proceed did not have the effect of regulating the carrier’s pricing policies, commission structure, or reservations practices.

Similarly, the claim did not relate to airline “services” because it had nothing to do with schedules, origins, destinations, cargo, or mail, the panel advised, Accordingly, the trial court erred when it dismissed the passenger’s claim under the preemption clause, as doing so was a misapplication of the law, the panel determined, reversing and remanding the trial court’s decision. Ginsberg v. Nw., Inc. (9thCir) 34 Avi. 16,315.

FAA Rule Violation Unnecessary to Establish “Accident” Under Treaty

In an action against an air carrier by a passenger who allegedly had sustained personal injury when she struck her head on an overhead television monitor that was in the “down” position while attempting to take her seat on an international flight, a federal appellate panel ruled that the trial court erred in concluding that the carrier was entitled to summary judgment because the passenger had not provided any evidence that the carrier’s conduct had violated Federal Aviation Administration requirements. A plaintiff does not have to prove that an airline violated an FAA standard to establish that there was an “accident” under the Montreal Convention, the appellate panel instructed, adding that the Convention implies that, however “accident” is defined, it is the cause of the injury that must satisfy that definition rather than the occurrence of the injury alone.

Ergo, in the case at bar, the carrier only would be liable to the passenger if her injury was caused by an accident, i.e., the television’s monitor having been extended downward during boarding was: (1) an unexpected or unusual event or happening; (2) external to the passenger; and (3) the cause of her injuries. With regard to the first of those three factors, the trial court erred in holding that violation of an FAA requirement was a prerequisite to suit. Accordingly, the case was remanded so that the trial court could determine under the proper standard whether an “accident” had occurred under the Convention. Phifer v. Icelandair (9thCir) 34 Avi. 16,261.

Carrier CEO’s Personal Liability for Unpaid Excise Taxes Upheld

A federal trial court did not err in having found that the former chief executive officer of National Airlines was personally responsible for air transportation excises taxes owed by the carrier, which had declared bankruptcy with back taxes owing. The CEO was a “responsible person” under federal tax law for purposes of the collection, accounting, or payment of the excise taxes collected by the airline and, as such, his failure to have paid those taxes after the carrier’s bankruptcy was “willful” as defined by applicable case precedent, the appellate panel held. The CEO was the airline’s founder, president, and chairman of the board during the pre-bankruptcy petition tax periods at issue, the court reasoned, adding that he was one of the carrier’s largest individual stockholders, had the most individual authority, and was authorized to sign checks on each of the carrier’s company accounts.

Thus, he had an obligation to make sure that the pre-petition taxes were collected, paid over, and accounted for by the date on which the carrier had remitted its quarterly excise tax return to the Internal Revenue Service with a check for almost $1.9 million in payment that subsequently was refused/returned due to the bankruptcy having been filed before the payment was debited from the carrier’s accounts. The airline’s bankruptcy also did not change the CEO’s status as a responsible person with respect to post-petition excise taxes, the majority of which had been paid in the ordinary course of business, although some quarterly amounts remained due and owing.
In light of the evidence that he knew that the taxes were due, as well as the inapplicability of his asserted “reliance on counsel” defense, the CEO failed to establish reasonable cause for having failed to pay the outstanding pre- and post-petition taxes, the appellate panel opined. Moreover, while he might have had earnest intentions to pay back the taxes owed, willfulness does not require an intent to defraud or deprive the United States of taxes, the panel advised. Additionally, the CEO’s argument that the trial court had conflated the carrier’s tax liability with his own personal liability was frivolous in light of the court’s proper conclusion that he was a responsible person and that he willfully had failed to pay over the taxes.

Finally, contrary to the CEO’s argument that the Air Transportation Safety and System Stabilization Act authorized the carrier to use the withheld taxes as working capital, nothing in the plain language of the Act evinces an intent to allow airlines to use the excise taxes as working capital, the panel maintained. By the statute’s plain terms, its effect was to allow airlines to defer paying over the collected excise taxes until January 15, 2002, as authorized by the IRS. Because the subject taxes had been collected from passengers and were not intended to have become the carrier’s property, more than a mere statutory deferral of payment was required to evince an intent to allow the collected taxes to be used for operational purposes. Similarly, nothing in the Act demonstrates a congressional intent to render payment of the excise taxes as beyond the ordinary course of business, the panel said, concluding that summary judgment favoring the United States was properly granted by the trial court. Conway v. U.S. (5thCir) 34 Avi. 16,256.

Ash Cloud-Based Flight Cancellation Not Contract Breach

A foreign air carrier’s cancellation of the London-to-New York leg of an international passenger’s flight because volcanic activity in Iceland had caused the closure of the London airport was not a breach of the contract of transportation as alleged by the passenger, notwithstanding the fact that he had to purchase a higher-priced ticket for travel aboard another airline, a New York federal court determined. The ticket originally purchased by the passenger was subject to terms and conditions published by the carrier, one of which permitted it to cancel a flight because of any fact beyond its control, including meteorological conditions.

The volcanic ash that closed the London airport constituted a “meteorological condition” within the terms of the contract, according to the court, which found that the carrier’s liability under the contract in the event of a cancellation due to meteorological conditions was limited to a refund of the purchase price of the unused portion of the ticket (which the carrier had done in the instant case). As the carrier did not breach its contract with the passenger, there was no basis for imposing liability on the carrier for any damages sustained by the passenger, the court remarked, dismissing the passenger’s claim. Ansari v. Kuwait Airways Corp. (EDNY) 34 Avi. 16,234.

Surface Transportation News

DOT Awards Funding for Next Generation Train Purchases

The Department of Transportation (DOT) has awarded $336.2 million in rail funding to California, Illinois, Iowa, Michigan, and Missouri for the purchase of next-generation, American-made trains that will run on rail corridors in those states. Previously awarded rail dollars bring the amount received by these five states and Washington State to $782 million for the purchase of 33 quick-acceleration locomotives and 120 bi-level passenger cars. In an effort to maximize the benefits of the federal funding, California and Illinois negotiated cooperative agreements with the Federal Railroad Administration to begin a multi-state procurement of equipment for passenger rail corridors in California, Illinois, Indiana, Iowa, Michigan, Missouri, Oregon, and Washington State. Through the joint procurement process, states will leverage these federal investments, along with state matching dollars, ensuring that taxpayers receive the best possible deal while creating the necessary momentum to encourage manufacturers to build equipment in U.S. plants with American workers and suppliers.

“Building a nationwide rail network is critical to America’s long-term economic success. More people are choosing to take the train and this year Amtrak is projected to set an all-time record by topping 30 million annual riders,” said Federal Railroad Administrator Joseph C. Szabo.

Trains will be designed to travel more than 110 mph along intercity passenger corridors, and will meet standards developed by the state-led, Next Generation Equipment Committee. This will provide manufacturers with consistent specifications for all passenger trains in the United States, reducing costs for manufacturers and customers, while providing a boost to the railcar manufacturing industry. The state partners will now begin a joint procurement process, first issuing a request for information (RFI) and then a request for proposal (RFP) to allow for an open and competitive process. The RFI is expected to be issued in late summer 2011.

A strict “Buy America” requirement ensures that U.S. manufacturers and workers receive the maximum economic benefits from this federal investment. In 2009, Secretary LaHood secured a commitment from 30 foreign and domestic rail manufacturers to employ American workers and locate or expand their base of operations in the U.S. if they are selected for high-speed-rail contracts. In addition, in June, DOT announced a $562.9 million loan to Amtrak through FRA’s Railroad Rehabilitation and Improvement Financing (RRIF) program to finance the purchase of 70 high-performance, electric locomotives from Siemens Industry USA, creating 250 new manufacturing jobs in California, Ohio, and Georgia.

The Obama Administration has invested $10.1 billion to lay the groundwork for a high-speed and intercity passenger rail network in the United States, providing rail access to new communities and improving the reliability, speed, and frequency of existing lines. Of that, more than $6 billion has been obligated, with corridor projects under way in New England, Illinois, Washington State, and North Carolina, as well as stations under construction in California and North Carolina. Federal Carriers Reports, Letter No. 1611, August 12, 2011.

HOS Requirements Adopted for Passenger Train Employees

The Federal Railroad Administration (FRA) issued a final rulemaking limiting the number of consecutive hours passenger railroad employees can be on the job. The final rule establishes hours of service (HOS) requirements—including maximum on-duty periods, minimum off-duty periods, and other limitations—for train employees, such as locomotive engineers and conductors, who provide commuter and intercity rail passenger transportation. The amendments require railroads employing these types of employees to analyze and mitigate the risks for fatigue in the schedules worked, and submit to the FRA for its approval the relevant schedules and fatigue-mitigation plans. The rulemaking also makes corresponding modifications to FRA’s HOS recordkeeping regulations, requiring railroads to keep HOS records and report excess service to the FRA in a manner consistent with the new requirements.

Designed to reduce accidents related to fatigue, the final rule applies "fatigue science" to employee work schedules in order to determine maximum on-duty periods and minimum off-duty periods. Through the use of fatigue modeling tools and data on human alertness factors, the new rule will guide the scheduling of train crews to reduce the likelihood of a hazardous work schedule. This rule recognizes the difference between work during daylight hours and work during nighttime hours when fatigue is most likely to occur.  The new requirements take effect on October 15, 2011. Federal Carriers Reports, Letter No. 1612, August 30, 2011.

Amendments to Special Permit Rules Adopted

The Pipeline and Hazardous Materials Safety Administration (PHMSA) issued correcting amendments to its January 5, 2011 final rule dealing with the procedures for requesting special permits. Under the original rulemaking, an applicant seeking to acquire a special permit is required to provide specific information about its operations that will enable the agency to evaluate the applicant’s fitness and the safety impact of operations that will be authorized under the special permit. The current action was taken in response to appeals filed by a number of organizations and one individual.

The appeals were based on several aspects of the final rule, including the requirements that applicants provide: (1) a list of all known locations where a special permit will be used; (2) a DUNS number; (3) the name of the CEO or president of the company; and (4) the quantity of hazardous materials to be shipped. Upon review, PHMSA affirmed all but one of the challenged provisions, opting to revise the requirement that the name of the CEO or president of the company must be included in the application to provide that the application must identify the senior company official who has responsibility for hazardous materials regulatory compliance. In addition, the corrections reinstate language that had been inadvertently deleted in the original rulemaking and clarify that a table of contents is only required for paper submissions. The amendments, which took effect on July 26, 2011, can be found at ¶7225—7229. The regulation preamble appears at ¶22,447. Federal Carriers Reports, Letter No. 1611, August 12, 2011.

STB Revises User Fee Schedule

The Surface Transportation Board (STB) adopted a final rule revising its user fees to reflect changes in the agency's expenses and overhead costs. Under federal regulations, the STB is required to annually review and update its user fee schedule, taking into consideration salary increases and overhead costs affecting the agency. As a result of the most recent review, the agency is updating its fee schedule taking into consideration the government's 2011 freeze on wage and salary increases and changes to the Board’s overhead and publication costs. The revised fee schedule will take effect on September 2, 2011.

The fee changes are the result of the mechanical application of an update formula that was established through a notice and comment process. As such, the STB concluded that a notice and comment period was not required for this rulemaking. The regulation preamble can be found at ¶22,448. Federal Carriers Reports, Letter No. 1611, August 12, 2011.

Shipper Had Opportunity to Choose Liability Coverage

A motor carrier effectively limited its liability under the Carmack Amendment for damages to goods moved in interstate commerce in a shipment that originated in Canada, a federal district court in Texas ruled. The shipper had hired the carrier to transport used aircraft landing gear and related components from St. Stephen, New Brunswick, Canada, to Fort Worth, Texas. The goods were shipped under a bill of lading which stated that the shipment was subject to the terms and conditions of the carrier's tariff. Additionally, the bill of lading contained a space for the shipper to declare a value in excess of the liability limit set forth in the tariff. The shipper opted not to declare a value on the bill of lading. During transport, the goods were damaged. As a result, the shipper filed a claim against the carrier for $165,000 plus reasonable and necessary incidental damages. The carrier filed a motion for summary judgment, arguing that it had limited its liability to 10 cents (CAN) per pound for used items.

While the shipper acknowledged that its damage claim would have been limited under Canadian law, it asserted that the claim was subject to United States law and the Carmack Amendment. Consequently, the shipper argued that the carrier had not effectively limited its liability under Carmack because it, the shipper, had not agreed to the liability limitation or been given a opportunity to choose between two or more levels of liability. The carrier countered, asserting that it had satisfied the Carmack Amendment’s requirements for limiting its liability because it had: (1) maintained a valid tariff; (2) given the shipper a reasonable opportunity to choose between two or more levels of liability; (3) obtained the shipper’s written agreement as to the limitation of liability; and (4) issued a bill of lading prior to transport. The court agreed, concluding that the shipper had been afforded an opportunity to declare a value on the bill of lading, and its decision not to do so was evidence of its acceptance of the liability limitation. Thus, the court concluded that the carrier's liability was limited to $819.71 (CAN). Tronosjet Maintenance, Inc. v. Con-Way Freight, Inc. (SDTex) Federal Carriers Cases ¶84,695.

State Law Insurance Claim Preempted by Carmack

A shipper's state law action for bad faith denial of insurance claim was preempted by the Carmack Amendment, according to a federal district court in Wisconsin. The carrier had been hired to transport cargo from Wisconsin to Oklahoma. While in transit, the goods were damaged. The shipper filed a complaint against the carrier, alleging a Carmack Amendment claim along with a state law action for bad faith denial of insurance claim.

The carrier removed the action to federal court and filed a motion to dismiss the state claim, arguing that it was preempted by the Carmack Amendment. The shipper challenged the dismissal, arguing that the insurance claim had been independent from the damage to the goods and, therefore, was not preempted by Carmack.

The goal of the Carmack Amendment is to implement uniform federal guidelines for the determination of a carrier's liability when damage occurs during interstate shipments. In furtherance of this goal, state laws that impose liability on carriers based on the loss of or damage to shipped goods are preempted. Following this analysis, the court reasoned that the insurance claim was preempted by Carmack because the shipper would not have been in the position to complain about a bad faith denial of an insurance claim had the damage to its shipped goods not occurred. Accordingly, the carrier's motion to dismiss the state law claim was granted. Marshall W. Nelson & Assoc., Inc. v. YRC Inc. (EDWis) Federal Carriers Cases ¶84,696.