Transportation Update May 2011

May 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

TSA Creates New Rules for the Reporting of Security Issues

Regulations establishing procedures for the reporting of transportation security problems, deficiencies, or vulnerabilities by members of the public have been developed by the Department of Homeland Security's Transportation Security Administration (TSA). The rulemaking satisfies a requirement of the Implementing Recommendations of the 9/11 Commission Act of 2007, which calls for the creation of a process by which any person may submit a report regarding a transportation-related security issue and receive a receipt for the report.

While the 9/11 Act covers only public transit, railroad, or motor carrier vehicle transportation, TSA expanded the scope of the provision to include all modes of transportation. Under the final rule, a receipt will be issued for all reports made to TSA by U.S. Mail, electronic mail, or telephone call with valid contact information. The new rule designates the addresses and a telephone number to be used for individuals to obtain a receipt for their report.

Reports submitted by mail and through the Internet will receive written confirmation, while reports submitted by telephone will receive a call identifier number that is linked to a copy of the information as recorded by TSA, which will be maintained according to the agency’s record-retention schedules (currently, these records must be retained for two years). To receive a written copy of the report, individuals must contact TSA at the address identified in the rule within two years of their call and request a paper copy.

Additionally, the new standards reiterate the agency’s commitment to review and consider all information received and to take appropriate steps. One provision clarifies that reports made voluntarily under the new regulatory subpart will not satisfy any person/entity’s separate legal obligation to report information to TSA, or any other government agency under any other law.

The new standards, which go into effect on May 23, 2011, appear in the Aviation Law Reporter at ¶16,061 and 16,063, and in the Federal Carriers Reporter at ¶19,993 and 19,993b. The regulation preamble can be found in the Federal Carriers Reporter at ¶22,438. CCH Aviation Law Reports, Letter No. 1451, May 12, 2011; CCH Federal Carriers Reports, Letter No. 1605, May 13, 2011.

Airline Passenger Protections Expanded

New federal standards that will require air carriers to reimburse passengers for bag fees if their bags are lost, provide consumers involuntarily bumped from flights with greater compensation, expand the current ban on lengthy tarmac delays, and disclose hidden fees were finalized by the Department of Transportation late last month. The initiative builds upon passenger protections issued by the U.S. Department of Transportation 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, with exceptions for safety, security, and air traffic control related-reasons. The 2009 rule also required U.S. airlines to provide basic services such as access to lavatories and water in the event of extended tarmac delays.

Under the newly-issued rules, airlines will have to refund any fee for carrying a bag if the bag is lost, and must apply the same baggage allowances and fees for all segments of a trip, including segments with interline and code share partners. Airlines already are required to compensate passengers for reasonable expenses arising from loss, damage, or delay in the carriage of passenger baggage. In addition, carriers will have to prominently disclose all potential fees on their Internet websites—including but not limited to fees for baggage, meals, canceling or changing reservations, or advanced or upgraded seating.

Both airlines and ticket agents will be required to refer passengers to up-to-date baggage fee information both before and after purchase, and to include all government taxes and fees in every advertised price (previously, government taxes and fees did not have to be included in the up-front fare quotation). Meanwhile, DOT promised to issue supplemental regulations later this year that, among other things, would mandate that ancillary fees be displayed at all points of sale.

Furthermore, the new rules double the amount of money passengers may receive in the event they are involuntarily bumped from an oversold flight. At present, bumped passengers are entitled to cash compensation equal to the value of their tickets—up to $400—if the airline is 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 of their originally scheduled arrival time for international flights). Bumped passengers also are currently entitled to double the price of their tickets—up to $800—if they are delayed for a lengthy period of time (i.e., over two hours after their originally scheduled arrival time for domestic flights and over four hours after their originally scheduled arrival time for international flights).

Under the new regulations, bumped passengers subject to short delays will receive double the price of their tickets up to $650, while those subject to longer delays will receive payments of four times the value of their tickets, up to $1,300. Moreover, inflation adjustments will be made to those compensation limits every two years.

In addition, the new rules expand the existing ban on lengthy tarmac delays to cover foreign airlines’ operations at U.S. airports and establish a firm, four-hour time limit on tarmac delays for international flights of U.S. and foreign airlines, with exceptions allowed only for safety, security, or air traffic control-related reasons. Carriers 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, DOT revealed, noting that the extended tarmac delays experienced by passengers on international flights operated by foreign carriers at New York’s JFK Airport during the December 2010 blizzard was an important factor in the decision to extend the tarmac delay provisions to foreign air carriers and establish a four-hour tarmac delay limit for international flights.

Finally, other new provisions were implemented with the intention of making air travel simpler and easier in a number of other ways, including:

Requiring airlines to allow reservations to be held at the quoted fare without payment (or cancelled without penalty) for at least 24 hours after the reservation is made, if the reservation is made one week or more prior to a flight’s departure date;
Mandating that carriers promptly notify consumers of delays of over 30 minutes, as well as cancellations and diversions, with notice conveyed in carriers’ boarding areas, on their telephone reservation systems, and on their websites;
Banning post-purchase fare increases unless they are due to government-imposed taxes or fees, and only if the passenger is notified of and agrees to the potential increase at the time of sale; and
Requiring more airlines to report to DOT lengthy tarmac delays at U.S. airports—including data for international flights and charter flights.

The new standards take effect on August 23, 2011 (except for the price advertising provision, which becomes effective on October 24, 2011). CCH Aviation Law Reporter, Report Letter No. 1451, May 12, 2011.

Aviation News

World Trade Center Property Damages Settlement Upheld

The Air Transportation Safety and System Stabilization Act of 2001 (ATSSSA) does not preempt New York’s “first-come, first-served” settlement rule, a federal appeals court advised, ruling that the proposed settlement payments made by the so-called aviation defendants to property owners for claims arising from the September 11, 2001 terrorist-related aircraft crashes into the World Trade Center towers reduced each contributing defendant’s remaining liability pursuant to ATSSSA’s liability limits.

Contrary to the property owners’ assertion that the Act created a limited fund that preempted New York’s settlement rule, the appellate panel said that ATSSSA provides that the substantive law for decision in actions arising out of the September 11 attacks be derived from the law of the state in which the crash occurred unless that law is inconsistent with federal law. Far from creating a fund for the payment of claims, the statute caps tort liability stemming from the terrorist attacks at the limits of the aviation defendants’ liability insurance coverage, the panel articulated, adding that nothing in the statute’s text suggests that Congress intended to create a limited fund from which plaintiffs bringing a federal cause of action against the aviation defendants under ATSSSA would be entitled to an equitable share. Had Congress intended to create a limited fund and to constrain the manner in which settlements could be made, it would have done so in far more explicit terms, the panel remarked.

In addition, New York’s “first-come, first-served” rule neither is inconsistent with ATSSSA nor stands as an obstacle to the accomplishment of Congress’ objectives in enacting that law, the panel held. Because neither ATSSSA nor any other federal law controls the approval of settlements in actions commenced under the Act, New York’s state-law settlement rules applied, the panel found, ruling that the trial court properly applied New York’s rules to the settlement agreement at issue.

What’s more, the trial court did not abuse its discretion in concluding that the settlement agreement reached between the property owners and the aviation defendants had been entered into in good faith, the appeals court advised, asserting that the property owners had presented no evidence of the bad faith necessary to draw into question the settlement in the case. The settling parties’ mediator affirmed that there had been no indication during the mediation process that any of the parties had softened their position on a proper settlement for interests other than their own.

In addition, the $1.2 billion settlement amount proposed by the trial court judge represented a 72% discount from the settling plaintiffs’ total claimed damages of $4.4 billion, and was higher than the aviation defendants’ last-best settlement offer. Furthermore, contrary to the property owners’ argument that the settlement was improper because it was a lump sum applicable to all settling plaintiffs’ claims and was not based upon a claim-by-claim assessment of potential liability, the settling parties had agreed that the assessment of damages on an underlying claim-by-claim, defendant-by-defendant basis could not have been done in any reasonable amount of time and without substantial cost. Accordingly, the trial court’s approval of the settlement was appropriate, the appellate judges said.

Finally, the trial court did not err in crediting the settlement payments against the contributing aviation defendants’ respective liability limits, the appellate panel determined. ATSSSA states in relevant part that, “liability for all claims … shall not be in an amount greater than the limits of liability insurance coverage maintained by [an aviation defendant].” Reading the term in context, it was clear that “liability” referred to a financial or pecuniary obligation that could arise through the settlement of claims. This interpretation was in accord with the common understanding of liability insurance, and also cohered with other provisions of ATSSSA that use similar language to limit the liability of certain defendants for debris-removal claims, the panel reasoned. In re September 11 Property Damage Litig. (2dCir) 34 Avi. 16,006.

Ticket Kiosk Accessibility Challenge Federally Preempted

State-law claims against an air carrier arising from the carrier’s failure to make airport ticketing kiosks accessible to sight-impaired individuals were field preempted by the Air Carrier Access Act of 1986, as implemented by Department of Transportation regulations, according to a California federal court, which noted that DOT regulations specifically address the issue of automated airport kiosks, requiring that air carriers provide equivalent service to passengers if the kiosks cannot readily be used by passengers’ with disabilities for such functions as ticketing and obtaining boarding passes.

That protocol demonstrated that the regulations authorize and tolerate non-accessible kiosks so long as equivalent service is otherwise available, the court said, remarking that identical service is not required. Moreover, in a comment accompanying the regulations’ implementation, DOT clearly expressed an intent for its regulations to have preemptive effect by stating that, “interested parties should be on notice that there is a strong likelihood that state action on matters covered by this rule will be regarded as preempted.” That comment was persuasive, inasmuch as the plaintiff—a non-profit advocacy group for the blind—did not present a compelling reason to ignore the Department’s stated intent, the court found.

The advocacy group’s claims also were expressly preempted by the Airline Deregulation Act of 1978, the court added. By the group’s own admission, airport kiosks assist passengers in accessing information about flights, checking in for flights, printing tickets and boarding passes, selecting seats, upgrading seating arrangements, checking baggage, and performing other transactions relevant to air travel plans. Because kiosks plainly facilitate a number of different services that relate to air transportation, the kiosks provide “service” within the meaning of the ADA preemption provision as interpreted by relevant case precedent, the court said.

Finally, the court held that the savings clause in the Federal Aviation Act of 1958 and the presumption against federal preemption did not apply to the state-law claims. Noting that the savings clause provides that “a remedy under this part is in addition to any other remedies provided by law,” the court countered the assertion that the savings clause should be read as a limitation on preemption, instructing that subsequent case law on the issue instructs that a general remedies savings clause cannot be allowed to supersede a specific substantive preemption provision. Moreover, the presumption against preemption does not apply in a field that has long been reserved for federal regulation such as the area of discrimination in air transportation, the court concluded, granting the carrier’s motion to dismiss the claims. Nat’l Fed’n of the Blind v. United Airlines, Inc. (NDCal) 34 Avi. 16,051.

ADA Preempts Checked-Baggage Fee Action

State-law tort and breach-of-contract claims against an air carrier related to its retention of a passenger’s checked baggage fees despite having delayed transport of her baggage were preempted by the Airline Deregulation Act of 1978, a federal court in California concluded. Under applicable case precedent within the jurisdiction, courts need to examine whether the state laws underlying the claims frustrate the goals of economic deregulation by interfering with the forces of competition, the court advised, adding that the passenger’s claims in the case at bar did just that, as baggage fees are just one of the many fronts on which airlines are doing competitive battle.

The instant claims involved the carrier’s prices for its service, because the passenger had sought a refund of the fees collected by the carrier in relation to bags that it had failed to timely deliver. In that respect, her checked baggage was analogous to “cargo” in light of the reasoning and context of prior case law interpreting the meaning of “services” in the ADA preemption context, the court held.

Furthermore, contrary to the passenger’s argument that her breach-of-contract claims were not preempted because they stemmed from a “self-imposed undertaking” on the part of the carrier as delineated in prior case law carving out an exception to ADA’s preemptive scope, the carrier here had no contractual obligation to provide the passenger with a refund when her luggage was temporarily misplaced. Similarly, bullet points in the carrier’s terms of transportation indicating its commitment to on-time baggage delivery and prompt refunds did not require the carrier to refund the passenger’s fee. To the contrary, the terms of transportation stated that the carrier would make its best efforts to deliver a delayed bag within 24 hours, and they allowed for a recovery only in the event of provable, consequential damages. Therefore, the passenger’s claims did not fall within the exception for normal breach-of-contract claims, the court determined. Hickox-Huffman v. US Airways, Inc. (NDCal) 34 Avi. 16,057.

Plane Maker’s Duty to Warn Doesn’t Include Training to Proficiency

An airplane manufacturer’s common-law duty to warn of dangers associated with the use of its aircraft did not include a duty to provide transition training (i.e., teaching licensed pilots the intricacies of a particular model) to a pilot purchasing an aircraft, even though the aircraft’s purchase price included transition training, a Minnesota appeals court determined. Accordingly, the court ruled that the manufacturer was not liable under a product-liability theory for the deaths of a visual flight rules (VFR)-rated pilot and his passenger in the crash of the pilot’s newly purchased plane that allegedly had been caused by the pilot’s lack of familiarity with autopilot-assisted recovery from VFR conditions into instrument meteorological conditions (IMC) encountered shortly after takeoff.

The trial focused upon whether the manufacturer and a pilot training school with which it contracted to conduct the transition training had provided adequate instruction in autopilot-assisted recoveries. Even though the training school’s flight instructor testified that he gave the pilot a flight lesson that included a maneuver called “Recovery from VFR into IMC ([autopilot] assisted),” the rating lines for that maneuver and others had not been checked-off, thus supporting the contention that the pilot had not been given that lesson.

In addition, an expert for the manufacturer concluded that the pilot lacked the “tools” to appropriately assess aeronautical risks as well as training in the use of autopilot to recover from an inadvertent encounter with IMC-like weather. Both the manufacturer’s expert and the pilot’s regular flight instructor agreed that the pilot’s previous training would not have been sufficient for flying the new plane. Although the manufacturer’s duty to warn included the provision of adequate instructions for the safe use of its products, the adequacy of those warnings had to be evaluated in light of the knowledge and expertise of those who reasonably could be expected to use the products. Therefore, while transition training was offered as a means of satisfying the manufacturer’s duty to provide adequate safety instructions, its purpose was to assist a pilot in becoming proficient in the use of an unfamiliar aircraft.

There was no support in the law for the proposition that the manufacturer’s duty to warn included a duty to train pilots to handle the aircraft proficiently, the court advanced. In this case, even though the pilot may have needed additional training in order to safely pilot his new plane, it did not follow that the manufacturer had a duty to provide that training in order to meet its warning duty under a product-liability theory, the court said. The purpose of requiring warnings and instructions for safe use was to put the user on notice of the dangers associated with the product. In that regard, the manufacturer had provided a handbook with detailed, written instructions regarding how to activate/operate the autopilot function, and the decedents’ estates did not claim that this information was inadequate to have put the pilot on notice of the dangers associated with the aircraft, the court commented.

In addition, negligence claims against the manufacturer/training school were barred under the applicable state’s educational malpractice doctrine, the court held. The essence of the claim was that the manufacturer, which had included transition training as part of the purchase price of the subject aircraft, had failed to provide an effective education by having omitted instruction on how to use autopilot to recover from IMC. Although the manufacturer was not primarily in the business of education, it assumed educational responsibilities related to, but distinct from, its function as a manufacturer by offering transitional training to the purchasers of its aircraft. As such, the manufacturer entered into an educational relationship with the pilot to which the educational-malpractice bar applied. A determination of whether the transition training had been ineffective because the instructor had failed to provide a flight lesson on the use of autopilot to escape unexpected IMC would have involved an inquiry into the nuances of the educational process, which was exactly the type of determination that the educational-malpractice bar is meant to avoid. Glorvigen v. Cirrus Design Corp. (MinnCtApp) 34 Avi. 16,075.

Anticipated Preemption Defense Didn’t Confer Federal Jurisdiction

Without more, an air ambulance firm’s expectation of a federal defense—i.e., preemption under the Airline Deregulation Act of 1978—was insufficient to establish federal jurisdiction over state-law claims asserted by the firm against several insurance companies that allegedly had underpaid for rescue services, a federal appeals court clarified. The air ambulance firm filed suit against the allegedly underpaying insurance companies in federal court, claiming various state-law theories of recovery. Anticipating that the insurance companies would respond by asserting the defense that they had properly paid for services under the state’s air-ambulance regulation, the air ambulance firm also sought a declaratory judgment that the state rate-making scheme is preempted by the ADA. In that respect, however, the federal preemption argument was not necessary to the firm’s state-law claims; it merely was a potential response to a defense.

Contrary to the firm’s assertion that federal courts may entertain any action that implicates a significant federal issue, case precedent underpinning that assertion stands for the proposition that a state-law claim will present a justiciable federal question only if it satisfies the well-pleaded complaint rule and passes the “implicates significant federal issues” test, the appellate court advised. Therefore, because the preemption issue here did not satisfy the well-pleaded complaint rule, there was no basis for federal-question jurisdiction.

Furthermore, of itself, the firm’s claim for declaratory relief that the ADA preempts the state-issued fee schedule for air ambulances was not a basis for federal jurisdiction. Although prior case law establishes that federal courts indisputably have jurisdiction over suits to enjoin state officials who interfere with federal rights, the insurance companies here were not “state officials” but, rather, were private parties, the panel said. Therefore, given the absence of federal jurisdiction over any of the air ambulance firm’s claims, the trial court properly dismissed the actions for lack of subject-matter jurisdiction, the appellate panel concluded. California Shock Trauma Air Rescue v. State Comp. Ins. Fund (9thCir) 34 Avi. 15,985.

Surface Transportation News

FMCSA Unveils New Measures Aimed at Passenger Bus Safety

The Federal Motor Carrier Safety Administration (FMCSA) is taking steps to help ensure that passengers traveling by bus are as safe as possible. Under new measures being implemented, FMCSA will require more rigorous commercial driver’s license (CDL) testing standards, seek new rules to enhance passenger carrier and driver compliance with federal safety regulations, and empower consumers to review the safety records of bus companies before booking trips. Moreover, FMCSA will be teaming up with state law enforcement personnel to conduct unannounced motorcoach inspections at popular travel destinations throughout the spring and summer peak travel season.

Earlier this month, FMCSA issued a final rule amending the CDL rules and establishing standards for the issuance of commercial driver’s learner’s permits. Additionally, the Department of Transportation (DOT) has put forth several new policy proposals designed to raise the bar for passenger carrier safety, including a provision that would give the Department greater authority to pursue enforcement action against unsafe "reincarnated" passenger carriers by establishing a federal standard to help determine whether a new carrier is simply a reincarnation of an old, unsafe carrier.

Finally, the Department also plans to: (1) require new motorcoach companies to undergo a full safety audit before receiving USDOT operating authority; (2) revise current law to ensure a driver’s CDL can be suspended or revoked for drug- and alcohol-related offenses committed in non-commercial vehicles; and (3) increase the penalty from $2,000 a day to $25,000 for passenger carriers that attempt to operate without USDOT authority. CCH Federal Carriers Reports, Letter No. 1606, May 26, 2011.

FRA Updates Rules on Placement of Rail Safety Appliances

The Federal Railroad Administration (FRA) adopted amendments to its regulations governing the acceptable placement of safety appliances on rail equipment. The rulemaking was developed in response to a petition to amend the regulations that was filed by the Association of American Railroads. Under the final rule, a special approval process will be established to allow rail industry representatives to submit requests for the approval of existing industry standards related to the arrangement of safety appliances on newly constructed railroad cars, locomotives, tender, or similar vehicles in lieu of the specific provisions contained in the regulations. The special approvals are expected to lead to multiple benefits, including allowing for greater flexibility within the railroad industry and increasing rail safety by incorporating modern ergonomic design standards and technological advancements in construction. The revisions take effect on June 27, 2011. CCH Federal Carriers Reports, Letter No. 1605, May 13, 2011.

Commercial Driver's License Program Changes Adopted

The Federal Motor Carrier Safety Administration (FMCSA) adopted a final rule amending the current knowledge and skills testing standards for commercial driver's licenses (CDLs) and establishing new minimum standards for states to issue commercial learner's permits (CLPs). The 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), both of which require the development of uniform minimum standards for the issuance of CLPs, improved oversight of the CDL program, and 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 updated 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, CDL, or CDL with the proper class or endorsements, or from using a driver to operate a CMV in violation of a restriction on the driver's CDL. The rulemaking also designates that CLP applicants must be at least 18 years of age and must successfully complete the knowledge test before receiving a permit. In addition, all CDL applicants must obtain and hold a CLP for 30 days before applying for the CDL. The final rule is intended to enhance safety by ensuring that only qualified drivers are allowed to operate commercial motor vehicles (CMV) on the nation's highways.

The final rule takes effect on July 8, 2011. CCH Federal Carriers Reports, Letter No. 1606, May 26, 2011.

DOT Commits Funds for High-Speed Intercity Rail Projects

U.S. Transportation Secretary Ray LaHood has announced that the Department will award approximately $2 billion in funding to various high-speed rail projects throughout the United States. The funding represents an unprecedented investment to speed up trains in the Northeast Corridor, expand service in the Midwest, and provide new, state-of-the-art locomotives and rail cars as part of the Administration’s plan to transform travel in America. Twenty-four states, the District of Columbia, and Amtrak submitted nearly 100 applications, competing to be part of an historic investment that will create tens of thousands of jobs, improve mobility, and stimulate American manufacturing.

The Federal Railroad Administration (FRA) selected 15 states and Amtrak to receive $2.02 billion for 22 high-speed intercity passenger rail projects as part of a nationwide network that will connect 80 percent of Americans to high-speed rail in 25 years. The dedicated rail dollars will:

Make an investment of $795 million in the Northeast Corridor (NEC). The funds will be used to upgrade some of the most heavily-used sections of the corridor, which will allow speeds on critical segments to increase from 135 to 160 miles per hour, improve on-time performance, and add more seats for passengers.
Provide $404.1 million to expand high-speed rail service in the Midwest. Newly constructed segments of 110-mph track between Detroit and Chicago will save passengers 30 minutes in travel time and create nearly 1,000 new jobs in the construction phase. Upgrades to the Chicago-to-St. Louis corridor will shave time off the trip, enhance safety, and improve ridership.
Boost U.S. manufacturing through a $336.2 million investment in state-of-the-art locomotives and rail cars for California and the Midwest. "Next Generation" rail equipment will deliver safe, reliable, and high-tech American-built vehicles for passenger travel.
Continue laying the groundwork for the nation’s first 220-mph high-speed rail system in California through a $300 million investment, extending the current 110 mile segment an additional 20 miles to advance completion of the Central Valley project, the backbone of the Los Angeles-to-San Francisco corridor.

Nearly 100 percent of the $2.02 billion will go directly to construction of rail projects, bringing expanded and improved high-speed intercity passenger rail service to cities in all parts of the country. Thirty-two states across the U.S. and the District of Columbia currently are laying the foundation for high-speed rail corridors to link Americans with faster and more energy-efficient travel options.

The American Recovery and Reinvestment Act of 2009 (ARRA) and annual appropriations have, to date, provided $10.1 billion to put America on track towards providing rail access to new communities and improving the reliability, speed, and frequency of existing lines. Of that, approximately $5.8 billion dollars has already been obligated for rail projects. A strict "Buy America" requirement for high-speed rail projects ensures that U.S. manufactures and workers will 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. CCH Federal Carriers Reports, Letter No. 1606, May 26, 2011.

Carrier’s Liability Limited in Absence of Declared Value

The Ninth Circuit Court of Appeals affirmed a decision by a federal district court holding that a motor carrier’s liability for damages to a shipment of household goods was $5.00 per pound as provided for in the carrier’s tariff, and that a receiving carrier was entitled to recover its costs incurred in defending a civil action by the owner of the goods damaged by another carrier. Atlas Van Lines (Atlas), the delivering carrier, had been hired by Pickens Kane Moving & Storage (Pickens), the receiving carrier, to transport household goods from Illinois to Arizona. The goods were destroyed by fire while in the custody of Atlas. The shipper had declared a value of $1 million to Pickens who failed to inform the Atlas of that declared value. An insurance company, Pacific Indemnity Co. (Pacific), reimbursed the shipper for its losses and filed suit against both Atlas and Pickens. The carriers filed cross-claims against each other. The district court determined that: (1) Pickens was liable to the insurer for $1 million; (2) Atlas was liable to Pacific and Pickens for $52,500; and (3) Pickens was entitled to recover all of its costs from Atlas. Pickens appealed the apportionment of damages, while Atlas appealed the award of costs.

The district court determined that Atlas was liable for $52,500 or $5.00 per pound, because the bill of lading had not contained a declared value. Pickens challenged that determination, arguing that in the absence of a declared value, the carrier was liable for the replacement value of the goods, which it asserted was $1 million. The court rejected Pickens’ argument, ruling that in the absence of a declared value, the carrier’s liability is determined based on either the released rate set by the Surface Transportation Board or on the applicable tariff. Here, because Pickens failed to declare a value on the shipment, Atlas’ tariff set the maximum released rate at $5.00 per pound. As a result, Atlas was liable for damages in the amount of $52,500. Upon review, the appellate panel concluded that the lower court had correctly interpreted the Carmack Amendment when it calculated the carrier’s liability.

As to the claim for costs, the lower court ruled that Pickens was entitled to recover from Atlas—the carrier responsibility for the damages—all of its reasonably incurred costs related to the shipper’s action against the carrier. Under the Carmack Amendment, a receiving carrier may recover from the carrier responsible for the loss or damage the amount of its expenses reasonably incurred in defending a civil action by the owner of the goods. Atlas argued that Pickens should not have been awarded its costs because it was not a prevailing party. Further, Atlas claimed that if Pickens was entitled to any recovery of costs, the award should have been limited to 5.25 percent of those costs because that was the same percentage of the total damages attributed to Atlas. The appellate court rejected Atlas’ arguments, finding that the applicable Carmack provision does not require that the receiving carrier be the prevailing party in order to recover.

Additionally, because Atlas had not contested the reasonableness of the fees at the district court level, it had waived its ability to raise the issue on appeal. Nonetheless, the court opined that even if Atlas had not waived the argument, it would have failed because Pickens was not the carrier in whose custody the shipment had been destroyed and, therefore, it was not liable for the damages in this case. Accordingly, under Carmack, Pickens was entitled to recover its costs from Atlas. Pac. Indemn. Co. v. Atlas Van Lines, Inc. (9thCir) CCH Federal Carriers Cases ¶84,691.

Petition for Review of STB Order Dismissed

A petition for review of an order by the Surface Transportation Board (STB) denying a shipper’s request for a preliminary injunction against a rail carrier was dismissed by a federal court of appeals. The shipper had hired BNSF Railway Co. to transport a locomotive to a third-party. The third-party refused delivery and the shipper failed to make other arrangements. After some time, the carrier informed the shipper that the locomotive would be sold at auction if the shipper did not make an alternative arrangement for delivery. The shipper sought an injunction from the STB to stop the carrier from selling the locomotive. The STB denied the shipper’s injunction request, holding that the shipper had not shown that it would be irreparably harmed by the sale of the locomotive because the locomotive was easily replaceable.

The shipper appealed the Board’s decision, arguing that it was incorrect on the merits and procedurally deficient. The STB contended that the petition should have been dismissed because the shipper’s request for injunctive relief was now moot due to the sale of the locomotive. The appellate court agreed with the STB, finding that it lacked jurisdiction to review all but one of the shipper’s claims. With the one valid claim not being ripe for review because the shipper had not exhausted his available administrative remedies. Consequently, the petition for review was dismissed. Kessler v. STB (DCCir) CCH Federal Carriers Cases ¶84,690.