October 2006

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 free to contact me directly at aaron.broaddus@wolterskluwer.com.

Aviation News

TSA No-Fly List Survives Legal Challenge

An airline passenger's claims challenging the constitutionality, maintenance, and implementation of the Transportation Security Administration's No-Fly list were dismissed by a federal district court. According to the court, TSA security directives, which include the No-Fly list, constitute “final orders” under federal law because they provide a definitive statement of TSA's position and have a direct and immediate effect on persons listed on the No-Fly list. The passenger, whose name appeared on the list, argued that the court retained jurisdiction over her action because TSA's “Passenger Identification Verification” process was collateral to the agency's No-Fly list directive. However, the court found that the passenger had not challenged the Passenger Identification Verification process and did not raise allegations about the procedures for clearing herself as not on the No-Fly list. Instead, she had challenged the fact that she was on the No-Fly list. (Ibrahim v. Department of Homeland Sec., 31 Avi. 18,036)

Shipper Liable for Improper Loading; Damage Occurred During "Carriage by Air"

Federal Express Corporation's contract with a shipping agent for the transportation of a shipment of frozen food from the U.S. to Qatar did not relieve the carrier from liability for the destruction of the shipment due to improper loading, a federal district court ruled. FedEx claimed it had loaded the cargo in accordance with the shipping agent's instructions and that the cargo's destruction had resulted either from improper loading instructions or from improper packing of the shipment. The court found that FedEx's contract with the shipping agent conflicted with the provisions of the Warsaw Convention as amended by Montreal Protocol No. 4, which governed the action. Because it was undisputed that the improper loading had been performed on airport grounds by FedEx personnel, the loading was part of “carriage by air” within the meaning of the Convention, rendering the carrier liable for any damages that occurred during the loading process. (Sysco Food Servs. of Hampton Rds., Inc. v. Maersk Logistics, Inc., 31 Avi. 18,089)

Failure to Warn on DVT Risk Not an "Accident" Under Warsaw Convention

The failure of air carriers to warn passengers on international flights of the risk of developing deep vein thrombosis did not constitute an “accident” for purposes of establishing liability under the Warsaw Convention, a federal district court ruled. According to the court, the plaintiffs—who contracted DVT during or following their flights—failed to demonstrate that their injuries had been caused by an “accident” because a carrier's failure to warn was an act of omission that did not constitute an “event” for purposes of the Convention. (In re Deep Vein Thrombosis Litig., 31 Avi. 18,057)

DOT Retains Current Rule on Airline Price Advertising

Concluding that its current practice protects consumers and helps them compare airfares, the Department of Transportation has decided not to change its current rule and enforcement policy on airline price advertising. The decision follows a review of comments filed in response to a notice issued last December regarding possible changes, as well as DOT's conclusion that the current rule promotes fare competition and provides sellers of air transportation with freedom to innovate. Under the current rule, an advertised price for air transportation must list the entire amount a customer will have to pay for a ticket. DOT's longstanding enforcement policy allows carriers to list only government-imposed taxes, fees, and other charges separately from the listed fare, and only as long as the charges are collected on a per-passenger basis, are not based on a percentage of the ticket price, and are clearly disclosed in the advertisement. (AVI para. 12,701 et seq.)

Surface Transportation News

Carmack Applicable to Inland Leg of Intermodal Shipment

The Carmack Amendment governed a rail carrier's liability arising from goods damaged during the inland portion of an interstate transportation that originated outside of the United States, according to a federal court of appeals. The rail carrier had been hired by the ocean carrier to transport a shipment of tractors from a port in Los Angeles, California to its final destination in Swanee, Georgia under a through bill of lading. The tractors were damaged when the train carrying them derailed. The shipper's insurer filed suit against the rail carrier seeking to recover the full value of the tractors under the Carmack Amendment. A federal district court held that because the ocean carrier had issued through bills of lading containing period of responsibility and Himalaya clauses, the Carmack Amendment was not applicable. As such, it held that the carrier's liability was limited to $500 as provided for in the contract. But the appellate court reversed and remanded, citing Supreme Court precedent that the inland portion of a single continuous movement of goods from a foreign country to the U.S. is subject to the liability provisions of the Carmack Amendment. Sompo Japan Ins. Co. of America, v. Union Pacific R.R. Co. (2ndCir), CAR ¶84,454

Carrier's Limitation of Liability Provision Unenforceable

A motor carrier was not entitled to limit its liability for a shipment of goods that was damaged during interstate transportation, because it failed to provide the shipper with an opportunity to choose between two or more levels of liability, a federal district court ruled. The carrier admitted that neither its bill of lading nor its tariff explicitly offered a choice of liability levels. However, it claimed that it satisfied the requirements because it had procedures in place that would have provided different levels of liability coverage had the shipper inquired. Under applicable case law, the carrier bears the burden of offering the shipper different liability levels, not simply having procedures in place. As a result of its failure to inform the shipper of the availability of different liability levels, the carrier was deemed liable for the full amount of the damaged cargo. Shielding Int'l, Inc. v. Oak Harbor Freight Lines (DOre), CAR ¶84,455

Carmack Protections Not Waived by Contract Provision

A contract between a shipper and a carrier governing the transportation of goods from Nebraska to Iowa did not expressly waive application of the liability provisions of the Carmack Amendment, a federal district court held. The shipper and the carrier had entered into a contract for the transportation of storage equipment from Nebraska to Iowa. During the movement, the goods were damaged. The shipper filed state law claims alleging that the carrier had failed to comply with the transportation contract and was negligent. When the carrier moved to dismiss the claim, the shipper argued that Carmack was not applicable because the goods had moved pursuant to a transportation contract. That assertion was rejected because the transportation contract between the parties had not expressly waived application of Carmack liability. Midamerican Energy Co. v. Start Enterprises, Inc. (SDIowa), CAR ¶84,456

ICCTA Preemption Applicable to Action Brought By Carrier

A federal district court held that a carrier's non-contract-related state law claims against a freight forwarder were preempted by the Interstate Commerce Commission Termination Act (ICCTA). The carrier had entered into an agreement with AOL for deeply discounted rates. AOL hired the freight forwarder to act as its agent for the purpose of receiving, auditing, correcting, and paying freight bills. The freight forwarder began instructing other clients to use AOL's name on their bills of lading in order to receive the discounted rate. When the carrier realized what was going on, it filed suit against the freight forwarder alleging misrepresentation, breach of contract, unjust enrichment, quantum meruit, and fraud arising from the misuse of AOL's discount. The freight forwarder sought a partial motion to dismiss, arguing that the non-contract-related charges were preempted by federal transportation law. The carrier argued that preemption did not apply to an action filed by a carrier. A state claim is preempted under the ICCTA when: (1) the subject of the claim expressly refers to, or has more than a tenuous effect upon, a motor carrier's rates, routes, or services; and (2) the claim involves the enforcement of a state law, regulation, or policy which exceeds those conditions voluntarily agreed upon by the parties, regardless of the identity of the parties involved in the litigation. In this case, almost all of the claims were directly related to the carrier's rates and involved the enforcement of state law. Consequently, the carrier's misrepresentation, unjust enrichment, quantum meruit, and fraud claims were preempted by the ICCTA. However, the carrier's breach of contract claim survived. Yellow Transp., Inc. v. DM Transp. Mgmt. Servs., Inc. (EDPenn), CAR ¶84,457

Carmack Defense Not Grounds for Removal to Federal Court

The availability of a defense under the Carmack Amendment was not grounds for removal of an action to federal court, a federal district court determined. A shipper had filed suit against a carrier in state court alleging state law claims. The carrier removed the action to federal court claiming federal question jurisdiction existed because the state law claims were preempted by the Carmack Amendment. The shipper filed a motion to remand, arguing that the removal of the action to federal court would improperly convert its state common-law claims into federal claims. The court agreed with the shipper, holding that a Carmack defense was not a proper basis for the removal of an action to federal court. Intermed Ultrasound Servs., Inc. v. FedEx Freight (NDFla), CAR ¶84,458

State Law Claims Were Not Transformed into Carmack Claim

A shipper's state law claims against a motor carrier arising from the interstate transportation of goods were preempted by the Carmack Amendment, according to a federal district court. The carrier had been hired to transport the shipper's household goods from Ohio to North Carolina. Upon delivery of the goods, the carrier demanded payment in excess of the estimate provided to the shipper. Because the shipper refused to pay the excess charges, the carrier did not deliver the goods and placed them in storage. After the additional charges were paid, the goods were delivered and many items were found to be missing or damaged. The shipper filed suit against the carrier alleging state law claims for breach of contract and negligence. The carrier filed a motion to dismiss, based on the fact that the shipper's state law claims were preempted by the Carmack Amendment. The shipper asserted that its claims should not be dismissed even if the state law claims were preempted because its complaint satisfied the Carmack requirement even if it did not assert a Carmack claim. The court agreed with the carrier, finding that the state law claims were preempted, and rejected the shipper's assertion that its state claims were transformed into a Carmack claim. Carr v. Olympian Moving & Storage (NDOhio), CAR ¶84,459

Carrier's Drug Testing Procedures Satisfied Regulations

A motor carrier did not violate federal safety regulations when it failed to conduct a post-accident alcohol test on a driver involved in a traffic accident, the Federal Motor Carrier Safety Administration concluded. The carrier was charged with failing to conduct a timely post-accident drug test. The carrier admitted that its driver had not been tested in the required time period, but argued that it had not been aware of the need for the post-accident test because the driver failed to follow the procedures set forth by the carrier to ensure compliance. The Field Administrator asserted that in order for the carrier to have been in compliance with the regulations, it needed to show that it had provided its drivers with the instructions and tools necessary to promptly and adequately comply with the regulatory requirements. Based on this assessment, the carrier presented evidence establishing that it had provided its drivers with the necessary post-accident information, procedures, and instructions. Consequently, the carrier was deemed to have complied with the regulation; therefore no violation was found and the matter was dismissed. RCS Intermodal Transportation, Inc., FMCSA ¶51,152

Motor Carrier Operating Authority Enforcement Rules Adopted

An interim rule amending the regulations governing motor carrier operating authority requirements was adopted as final with minor changes by the Federal Motor Carrier Safety Administration (FMCSA). Under the interim regulations, states and state law enforcement personnel were required to assess appropriate state penalties and place out of service any interstate motor carrier that was operating without registering with the FMCSA. This included for-hire interstate motor carriers of passengers or freight who failed to register or were operating beyond the scope of their authority. Motor carriers placed out of service as a result of this rule were allowed a hearing to contest the out-of-service charge within ten days of the issuance of the out of service order. In an effort to avoid confusion, the final rule replaces the term ``registration'' with ``operating authority,'' and the definition of ``out of service'' is revised to include a reference to 49 CFR §392.9a. Additionally, two violations related to this rulemaking have been separated. The revised regulations took effect September 27, 2006.