DMC Category Rating: Developed

This case note was originally prepared by Michael P. Smith, an attorney with the firm of Healy & Baillie LLP in New York . With effect from 1 October 2006, Healy & Baillie combined their practice with the firm of Blank Rome LLP and Blank Rome is now the International Contributor to this website for the United States .

Background
Plaintiff, Sompo Japan Insurance Company, as subrogated underwriters of a cargo owner’s claim with respect to a shipment of thirty-two tractors from Tokyo, Japan to Swanee, Georgia, brought suit in the Southern District of New York against defendant, Union Pacific, the rail carrier for the land portion of the journey, for the full value of the tractors which were damaged when the train derailed. The bills of lading were "intermodal" "through" bills. Hence, they covered the entire journey, including ocean and rail carriage. The bills of lading included a "period of responsibility clause" extending COGSA’s package limitation to the carrier "whether the loss or damage to the Goods occurs at sea or not" and a "Himalaya clause" extending protections and limitations contained in the bill of lading to third party carriers.

The district court granted partial summary judgment in favor of the defendant, giving effect to the contract of carriage incorporating the COGSA limitation of US$500 per tractor, for a total amount of US$16,000. Plaintiff argued on appeal that the Carmack Amendment governed defendant’s liability and, accordingly, that defendant was liable "for the actual loss or injury" to the tractors (US$479,500). The Interstate Commerce Act ("ICA") applicable to railroads did not initially address liability for cargo damage. The Carmack Amendment to the ICA imposed a strict liability standard upon rail carriers. Regarding limitation of liability, the ICA permits a carrier to limit its liability only to a value established by written declaration of the shipper or by a written agreement between the shipper and the carrier.

Judgment
The Second Circuit Court of Appeals set aside the order of the district court. In an issue not considered previously in the Second Circuit, the Court ruled that the Carmack Amendment applied to the domestic rail portion of a continuous intermodal shipment of goods, shipped under a through bill of lading, originating in a foreign country for a destination in the United States. Noting there was a split among the circuits on this issue, the Court traced the legislative history of the Carmack Amendment and determined that it was the intent of Congress that the statute should apply to the domestic inland portion of a foreign shipment regardless of the shipment’s point of origin.

Recognizing that both the Carmack Amendment and COGSA applied to the domestic interstate leg of the shipment, the Court ruled that the Carmack Amendment superseded COGSA. The Court cited well-established Second Circuit precedent holding that since COGSA applied to the rail carriage as a matter of contract (period of responsibility and Himalaya clauses), it did not have the force of a statute. Therefore, the Court determined that COGSA must yield to the Carmack Amendment, which was a federal statute. Accordingly, the rail carrier’s liability was governed not by COGSA but by the Carmack Amendment.

Comment
If the decision is appealed, it may provide the Supreme Court with an opportunity to decide definitively the issue of whether the Carmack Amendment applies to a through bill of lading covering a shipment of goods originating in a foreign country.

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