Babcock & Wilcox Co v. Kansas City S

Opinions of the United
2009 Decisions States Court of Appeals
for the Third Circuit
2-18-2009
Babcock & Wilcox Co v. Kansas City S
Precedential or Non-Precedential: Precedential
Docket No. 08-1080
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 08-1080
THE BABCOCK & WILCOX COMPANY
v.
THE KANSAS CITY SOUTHERN RAILWAY COMPANY;
NORFOLK SOUTHERN RAILWAY COMPANY,
Appellants
________________
Appeal from the
United States District Court for the
District of New Jersey
(D.C. No. 06-cv-06015)
District Judge: Honorable Dickinson R. Debevoise
Argued: November 21, 2008
________________
Before: BARRY and CHAGARES, Circuit Judges, and
RESTANI,* Judge
(Opinion Filed: February 18, 2009)
Rodney B. Griffith
Charles L. Howard
Paul D. Keenan (Argued)
Chad D. Mountain
Keenan Cohen & Howard
*
Honorable Jane A. Restani, Chief Judge of the United
States Court of International Trade, sitting by designation.
165 Township Line Road
One Pitcairn Place, Suite 2400
Jenkintown, Pennsylvania 19046
Counsel for Appellants
Andrew R. Brown (Argued)
Hill Rivkins & Hayden
45 Broadway
Suite 1500
New York, NY 10006
James A. Saville, Jr.
Hill Rivkins & Hayden
175 North Broadway
South Amboy, NJ 08879
Counsel for Appellee
OPINION OF THE COURT
RESTANI, Judge
Plaintiff-appellee The Babcock & Wilcox Company
(“B&W”) commenced this action under the Carmack Amendment
to the Interstate Commerce Act (“ICA”), 49 U.S.C. § 11706,
against defendants-appellants Kansas City Southern Railway
Company (“KCSR”) and Norfolk Southern Railway Company
(“NSR”) (collectively “the Railroads”) to recover damages to its
boiler. The Railroads appeal from an order of the United States
District Court for the District of New Jersey denying their motion
to dismiss for lack of subject matter jurisdiction and granting
B&W’s cross-motion for summary judgment. We will vacate the
judgment of the District Court and remand the matter with
instructions to dismiss for lack of subject matter jurisdiction.
FACTUAL BACKGROUND AND PROCEDURAL
HISTORY
2
The following facts are undisputed. In October 2004,
B&W, a manufacturer of power generation equipment, and KCSR
entered into a rail transportation agreement.1 The agreement
provided for the transportation of “steel power boilers, parts or
attachments” from West Point, Mississippi to Newark, New Jersey.
(Contract 2–3, App. 38–39.) In November 2004, pursuant to the
agreement and a bill of lading, the Railroads transported a boiler
for B&W. The parties stipulated that the Railroads received the
boiler in good order and condition. (Joint Stipulation ¶ 2, App. 41.)
In December 2004, NSR became aware that the boiler was
damaged, having been allegedly sideswiped by another train at a
rail yard while in NSR’s care. NSR then notified B&W of the
damages.
In May 2006, after NSR denied B&W’s damage claim,
B&W commenced this action under the Carmack Amendment to
the ICA, 49 U.S.C. § 117062, against the Railroads to recover
1
Under the agreement, KCSR was to transport the freight
from West Point, Mississippi, and NSR was to intercept the freight
in Meridian, Mississippi and transport it to Newark, New Jersey.
NSR agreed to defend and indemnify KCSR. (Defs.’ Br. in Supp.
of Mot. to Dismiss the Compl. for Lack of Subject-Matter
Jurisdiction (“Defs.’ Mot. to Dismiss”) 1 n.1, Docket Entry No. 10-
3).
2
Section 11706 provides:
(a) A rail carrier providing transportation or service
subject to the jurisdiction of the [Surface
Transportation] Board under this part [i.e., 49 U.S.C.
§§ 10101–11908] shall issue a receipt or bill of
lading for property it receives for transportation
under this part. That rail carrier and any other
carrier that delivers the property and is providing
transportation or service subject to the jurisdiction of
the Board under this part are liable to the person
entitled to recover under the receipt or bill of lading.
The liability imposed under this subsection is for the
actual loss or injury to the property caused by--
3
$42,814.48 in damages. The parties later stipulated that the
Railroads’ maximum liability under the agreement was $25,000.
(Joint Stipulation ¶ 4, App. 41.) The Railroads moved to dismiss
the complaint for lack of subject matter jurisdiction. They argued
that the agreement was not a common carrier transportation
agreement under the ICA but a private contract entered into under
49 U.S.C. § 107093. (Defs.’ Mot. to Dismiss 3–5, Docket Entry
(1) the receiving rail carrier [or]
(2) the delivering rail carrier[.]
....
(c)(1) A rail carrier may not limit or be exempt from
liability imposed under subsection (a) of this section
except as provided in this subsection.
....
(3) A rail carrier providing transportation or service
subject to the jurisdiction of the Board under this
part may establish rates for transportation of property
under which–
(A) the liability of the rail carrier for such property
is limited to a value established by written
declaration of the shipper or by a written agreement
between the shipper and the carrier.
49 U.S.C. §§ 11706(a), (c)(1), (c)(3)(A) (2000).
3
Section 10709 provides:
(a) One or more rail carriers providing transportation
subject to the jurisdiction of the [Surface
Transportation] Board under this part [i.e., 49 U.S.C.
§§ 10101–11908] may enter into a contract with one
or more purchasers of rail services to provide
specified services under specified rates and
conditions.
....
(c)(1) A contract that is authorized by this section,
and transportation under such contract, shall not be
subject to this part, and may not be subsequently
challenged before the Board or in any court on the
4
No. 10-3.) The Railroads contended that the only basis for federal
jurisdiction would have been diversity jurisdiction under 28 U.S.C.
§ 1332, which was not satisfied because the damages sought did
not meet the $75,000 amount in controversy requirement for such
jurisdiction. (Id. at 4.) B&W responded that the agreement was
not a § 10709 contract because the agreement did not state that it
was made pursuant to § 10709. (Pl.’s Mem. in Opp’n to Defs.’
Mot to Dismiss & in Supp. of Cross Mot. for Summ. J. 7–10,
Docket Entry No. 13.) B&W also cross-moved for summary
judgment on its § 11706 claim.
The District Court denied the Railroads’ motion to dismiss.
The court concluded that it had jurisdiction because “there [was] no
evidence suggesting that the parties had any intention of invoking
§ 10709.” Babcock & Wilcox Co. v. Kansas City S. Ry. Co.,
Civ. No. 06-6015, 2007 WL 4440163, at *2 (D.N.J. Dec. 17,
2007). The court stated that “in order to invoke section 10709, a
contract must specifically incorporate the same” but that it found
no such incorporation in the agreement. Id. at *3. The court
rejected the Railroads’ argument that the agreement’s content
evinced the parties’ intent to invoke § 10709. Id. The court also
found no evidence of intent at the time of execution of the
agreement to invoke § 10709. Id. Exercising jurisdiction, the
District Court granted B&W’s cross-motion for summary judgment
and entered judgment in the amount of $25,000 in favor of B&W.
Id. at *4. The Railroads now appeal, challenging only the ruling on
jurisdiction.
grounds that such contract violates a provision of
this part.
(2) The exclusive remedy for any alleged breach of
a contract entered into under this section shall be an
action in an appropriate State court or United States
district court, unless the parties otherwise agree. This
section does not confer original jurisdiction on the
district courts of the United States based on section
1331 or 1337 of title 28, United States Code.
49 U.S.C. § 10709(a), (c) (2000).
5
JURISDICTION AND STANDARD OF REVIEW
This Court has jurisdiction to review a final judgment under
28 U.S.C. § 1291. We review the question of whether the District
Court had subject matter jurisdiction de novo. Emerald Investors
Trust v. Gaunt Parsippany Partners, 492 F.3d 192, 197 (3d Cir.
2007). If we conclude that the District Court lacked subject matter
jurisdiction, “we [will] direct it to dismiss the case even at this late
stage of the litigation.” Id.
DISCUSSION
The Railroads maintain that the District Court did not have
subject matter jurisdiction over this action because the agreement
was not a common carrier transportation agreement under the ICA
but, rather, a private contract entered into under 49 U.S.C. § 10709.
They claim that the District Court erred in concluding that a §
10709 contract must reference the statute and in determining that
the agreement’s terms do not evince intent to invoke § 10709.
I. Self-Description Requirement
Whether § 10709 contracts must be self-described is an open
question in this Court. Review of the legislative history of § 10709
and the history of the corresponding federal regulations, however,
indicate that the law currently imposes no such requirement.
A. Legislative and Regulatory History
In 1887, Congress enacted the ICA to regulate interstate
transportation and established the Interstate Commerce
Commission (“ICC”) to administer the Act. Emerson Elec. Supply
Co. v. Estes Express Lines Corp., 451 F.3d 179, 183 (3d Cir. 2006).
The ICA initially did not set forth provisions governing carrier
liability for loss of or damage to goods being transported. Id. In
1906, Congress enacted the Carmack Amendment, which required
carriers to issue a receipt or bill of lading for property received for
transportation and held carriers liable for any loss, damage, or
injury to the property resulting from the transportation thereof in
claims arising out of the receipt or bill of lading. Id. The purpose
of the Carmack Amendment was “‘to relieve shippers of the burden
6
of searching out a particular negligent carrier from among the often
numerous carriers handling an interstate shipment of goods.’”
Union Pac. R.R. Co. v. Greentree Transp. Trucking Co., 293 F.3d
120, 124 (3rd Cir. 2002) (quoting Reider v. Thompson, 339 U.S.
113, 119 (1950)). The provision of the Carmack Amendment
governing the liability of rail carriers, 49 U.S.C. § 11706, holds rail
carriers liable for “the actual loss or injury to property.” 49 U.S.C.
§ 11706(a). District courts “have original jurisdiction of an action
brought under [§ 11706] . . . if the matter in controversy for each
receipt or bill of lading exceeds $10,000.” 28 U.S.C. § 1337(a)
(2000). The amount in controversy here is $25,000.
In 1976 and 1980, the Railroad Revitalization and
Regulatory Reform Act and Staggers Rail Act (“Staggers”),
respectively, were enacted to deregulate the railroad industry to
enable it to compete efficiently in the transportation industry.
Staggers Rail Act of 1980, Pub. L. No. 96-448, 94 Stat. 1895;
Railroad Revitalization and Regulatory Reform Act of 1976, Pub.
L .No. 94-210, 90 Stat. 31. Under Staggers, 49 U.S.C. § 10713
(the predecessor to § 10709) enabled shippers and carriers to
sidestep federal regulation of transportation agreements by entering
into private contracts. Staggers Rail Act of 1980, § 208; H.R. Rep.
No. 96-1430, at 100 (1980) (Conf. Rep.), reprinted in 1980
U.S.C.C.A.N. 4110, 4132; see also 49 U.S.C. § 10713 (1994)
(repealed 1996) (current version at 49 U.S.C. § 10709 (2000)).
Such private contracts are not governed by the ICA, including §
11706, and the “exclusive remedy” for any actions arising out of
such a contract “shall be an action in an appropriate State court or
United States district court, unless the parties otherwise agree.” 49
U.S.C. § 10713(h)(i)(2) (current version at 49 U.S.C.
§ 10709(c)(2)). Section 10709 now clarifies that the section “does
not confer original jurisdiction on the district courts of the United
7
States based on [28 U.S.C. §§ 13314 or 13375].” 49 U.S.C. §
10709(c)(2).
Predecessor § 10713 required rail carriers to file with the
ICC any § 10713 private contract along with a summary of non-
confidential contract information. 49 U.S.C. § 10713(b). Section
10713 granted the ICC authority to determine the essential terms
to be made available to the public. Id. The filing requirements
were enacted to achieve a balance between protecting the
confidentiality of private contracts, making information available
to enable parties with standing to exercise their rights to challenge
the contracts, and enabling the ICC to exercise its remaining
regulatory function of approving or disapproving contracts. See
generally Burlington N. R.R. Co. v. Pub. Util. Comm’n of Tex., 812
F.2d 231, 235–236 (5th Cir. 1987); Water Transp. Ass’n v. I.C.C.,
722 F.2d 1025, 1030–32 (2d Cir. 1983).
To implement the filing requirements of § 10713, the ICC
promulgated regulations in 49 C.F.R. Part 1039 (1983) (repealed
1987) (current version at 49 C.F.R. Part 1313 (2008)). Railroad
Transportation Contracts, 47 Fed. Reg. 50,261, 50,262–64 (Nov.
5, 1982). The ICC defined “contract” as follows:
4
Section 1331 provides: “The district courts shall have
original jurisdiction of all civil actions arising under the
Constitution, laws, or treaties of the United States.” 28 U.S.C. §
1331 (2000).
5
Section 1337 provides:
The district courts shall have original jurisdiction of
any civil action or proceeding arising under any Act
of Congress regulating commerce . . . : Provided,
however, That the district courts shall have original
jurisdiction of an action brought under [49 U.S.C. §
11706] . . . only if the matter in controversy for each
receipt or bill of lading exceeds $10,000, exclusive
of interest and costs.
28 U.S.C. § 1337(a) (2000).
8
Section 1039.1 Definition of the term “contract.”
(a) A contract subject to this section is a written
agreement . . . entered into by one or more rail
carriers with one or more purchasers of rail services,
to provide specified services under specified rates,
charges and conditions.
(b) A contract filed under this section shall:
(1) specify that the contract is made pursuant to 49
U.S.C. 10713, and
(2) be signed by duly authorized parties.
Id. at 50,262; see also 49 C.F.R. § 1039.1 (current version at 49
C.F.R. § 1313.1(c)). The ICC adopted the subsection (b)(1) self-
description requirement in response to suggestions by its Office of
Special Counsel (“OSC”) “to specify which contracts [would] be
subject to [49 C.F.R. § 1039],” as “there [were] many different
types of contracts specifically referred to in the [ICA] which [were]
administered by the [ICC].” Railroad Transportation Contracts,
367 I.C.C. 9, 10 (1982). The OSC wanted to clarify that “the scope
of the term ‘contract’ would be limited to those contracts intended
to be filed under [49 C.F.R. § 1039].” Id. The ICC retained this
definition when it moved 49 C.F.R. § 1039.1 to 49 C.F.R. § 1313.1
in 1987. See Railroad Transportation Contracts, 51 Fed. Reg.
45,898, 45,899 (interim Dec. 23, 1986); see also 49 C.F.R. §
1313.1 (1987) (amended 1993 and 1997).
Thus, in light of the history behind the enactment of
predecessor § 10713 and promulgation of corresponding
regulations, the regulatory self-description requirement appears to
have been created to aid the ICC in administering the filing of
private contracts. Supporting this conclusion is the fact that the
self-description requirement was deleted from the regulations when
Congress eliminated the contract-filing requirement.
In 1992, the ICC eliminated from the regulations the
contract-filing requirement for agreements governing transportation
of non-agricultural commodities. Railroad Transportation
Contracts, 8 I.C.C.2d 730, 730–33 (1992). The ICC, however, still
required that carriers file contract summaries of non-confidential
information. Id. at 734. The full filing requirements remained for
contracts governing transportation of agricultural commodities, and
9
the regulations still required that such contracts be self-described.
See id. at 733, 739; see also 49 C.F.R. § 1313.1 (1993) (amended
1997).
In 1995, in deregulating the surface transportation
industries, Congress enacted the ICC Termination Act (“ICCTA”),
which revised the ICA and eliminated federal regulation of non-
agricultural contracts. ICC Termination Act of 1995, Pub. L. No
104-88, 109 Stat. 803; see also S. Rep. No. 104-176 (1995). In
recodifying § 10713 in new § 10709, Congress eliminated all filing
requirements for non-agricultural contracts and required only the
filing of contract summaries for agricultural contracts. Railroad
Contracts, 61 Fed. Reg. 13,147, 13,147–48 (proposed Mar. 26,
1996) (comparing 49 U.S.C. § 10713(b)(1) (Supp. 1 1994) with 49
U.S.C. § 10709(d)(1) (Supp. 2 1994)). The ICCTA also abolished
the ICC and created the Surface Transportation Board (“STB”) to
administer the ICA. ICC Termination Act of 1995, §§ 101, 201.
Thereafter, the STB revised the regulations to “reflect the
reduced regulatory oversight of rail transportation contracts
introduced by the [ICCTA].” Railroad Contracts, 1 S.T.B. 987,
987 (1996); see also Removal of Obsolete Regulations Concerning
Railroad Contracts, 61 Fed. Reg. 29,036, 29,036–37 (June 7,
1996). Under revised 49 C.F.R. Part 1313, the STB redefined
“contract” as “an agreement, including any amendment thereto,
entered into by one or more rail carriers and one or more
purchasers of rail services to provide specified transportation of
agricultural products . . . under specified rates and conditions.”
Railroad Contracts, 1 S.T.B. at 990; see also 49 C.F.R. § 1313.1(c)
(1997). This new definition does not contain a self-description
requirement. See 49 C.F.R. § 1313.1(c). The deletion of this
requirement after Congress no longer required carriers to file any
full private contracts, whether they governed transportation of
agricultural or non-agricultural commodities, further indicates that
the self-description requirement was created for the purpose of
contract-filing efficiency.
Also supporting the conclusion that self-description is not
required is a recent proposal by the STB to adopt a self-description
rule. In March 2007, the STB instituted a rulemaking proceeding
to adopt an interpretation of “contract” to more easily distinguish
10
between a “common carrier pricing arrangement” and a “rail
transportation contract.” Interpretation of the Term “Contract” in
49 U.S.C. 10709, STB Ex Parte 669, 2007 WL 934379, at *2–*4
(STB served Mar. 29, 2007). The rulemaking proceeding was
instituted in response to Kansas City Power & Light Co. v. Union
Pacific Railroad Co. (“KCPL”), STB Docket No. 42095, 2007 WL
934378 (STB served Mar. 29, 2007), which concerned an
agreement “that appears to have all of the characteristics of a rail
transportation contract” but which the carrier labeled as a “common
carrier rate.” Id. at *3. In KCPL, to determine if it had jurisdiction
over the proceeding, the STB had to decide whether the agreement
provided for a “common carrier rate” or a “contract rate.” KCPL,
2007 WL 934379, at *1. The STB exercised jurisdiction despite
the unclear nature of the agreement because it thought the parties
could have reasonably relied on prior agency precedent to conclude
that the agreement was subject to the STB’s jurisdiction. Id. at *3.
The STB, however, instituted a rulemaking proceeding to clarify
the distinction between a common carrier agreement and private
contract. Id. at *4. In the proceeding, the STB proposed to define
“contract” under § 10709 as
any bilateral agreement between a carrier and a
shipper for rail transportation in which the railroad
agrees to a specific rate for a specific period of time
in exchange for consideration from the shipper, such
as a commitment to tender a specific amount of
freight during a specific period or to make specific
investments in rail facilities.
Interpretation of the Term “Contract” in 49 U.S.C. 10709, 2007
WL 934379, at *4; see also Interpretation of the Term “Contract”
in 49 U.S.C. 10709, 72 Fed. Reg. 16,316, 16,318 (proposed Apr.
4, 2007). Objections of shippers and carriers led the STB to
discontinue the proceeding, however. Interpretation of the Term
“Contract” in 49 U.S.C. 10709, STB Ex Parte No. 676, 2008 WL
657934, at *2–*3 (STB served Mar. 12, 2008).
Nonetheless, still “concerned with the lack of any clear
demarcation between common carriage rates and contract pricing
arrangements and the resulting ambiguity regarding the [STB]’s
jurisdiction,” the STB instituted a subsequent rulemaking
11
proceeding “to consider imposing a requirement that each carrier
provide a full disclosure statement when it seeks to enter into a rail
transportation contract under section 10709.” Id. at *3; see also
Rail Transportation Contracts Under 49 U.S.C. 10709, 73 Fed.
Reg. 13,523, 13,523 (proposed Mar. 13, 2008). According to the
STB, such a disclosure statement “would explicitly advise the
shipper that the carrier intends the document to be a rail
transportation contract, and that any transportation under the
document would not be subject to regulation by the [STB].”
Interpretation of the Term “Contract” in 49 U.S.C. 10709, 2008
WL 657934, at *3; see also Rail Transportation Contracts Under
49 U.S.C. 10709, 73 Fed. Reg. at 13,523. In January 2009, after
reviewing public comments on the proposal, the STB proposed to
add the following provision to 49 C.F.R. Part 1301:
§1301.1 Contract Disclosure Statement.
(a) The Board will not find jurisdiction over a
dispute involving the rate or service under a rail
transportation agreement where that agreement
contains a disclosure statement that conforms with
paragraphs (b) and (c) of this section. Conversely,
where a rail transportation agreement fails to contain
such a disclosure statement, the Board will find
jurisdiction over a dispute involving the rate or
service provided under that agreement, absent clear
and convincing evidence both that the parties
intended to enter into a rail transportation contract
governed by 49 U.S.C. 10709 and that the shipper
was made aware that it could request service under
a common carrier tariff rate that would be subject to
STB jurisdiction.
(b) The disclosure statement should appear at the top
of the first page of the rail transportation agreement
in type size at least as large as the type size used for
the body of the agreement.
(c) The disclosure statement should read as follows:
Disclosure Statement – This agreement constitutes a
rail transportation contract under 49 U.S.C. 10709.
Contract arrangements are generally not subject to
challenge before the Surface Transportation Board
(“STB”), but can be enforced in a court of competent
12
jurisdiction. Under federal rules found at 49 CFR
1300, railroads are required, upon request, to quote
to shippers a rate for common carriage transportation
(i.e., a non-contract rate). Pursuant to 49 U.S.C.
10701, the STB has jurisdiction (subject to some
exceptions) over disputes arising out of common
carriage (non-contract) rates.
Rail Transportation Contracts Under 49 U.S.C. 10709, STB Ex
Parte No. 676, 2008 WL 5451432, at *7 (STB served Jan. 6, 2009);
see also Rail Transportation Contracts Under 49 U.S.C. 10709, 74
Fed. Reg. 416, 419 (proposed Jan. 6, 2009). The proposed rule, if
adopted, would apply prospectively. Rail Transportation
Contracts Under 49 U.S.C. 10709, 2008 WL 5451432, at *5; see
also Rail Transportation Contracts Under 49 U.S.C. 10709, 74 Fed.
Reg. at 418. The proposal to promulgate such a rule confirms that
there is currently no self-description requirement.
B. Recent Case Law
Despite the legislative history of § 10709, the District Court
placed considerable reliance on Schoenmann Produce Co. v.
Burlington Northern & Santa Fe Railway Co., 420 F. Supp. 2d 757(S.D. Tex. 2006), in concluding that § 10709 contracts must cite
the statute. The District Court interpreted Schoenmann as holding
that “in order to invoke section 10709, a contract must specifically
incorporate the same.” Babcock, 2007 WL 4440163, at *3.
Schoenmann analyzes the interplay of 49 U.S.C. §§ 10709,
11706, and 105026, an issue that is not before us and one that we
6
In addition to enacting predecessor § 10713 in Staggers,
Congress also granted the ICC authority to exempt “a person, class
of persons, or a transaction or service” from federal regulation.
Staggers Act of 1980, § 213; see also 49 U.S.C. § 10502 (2000)
(formerly 49 U.S.C. § 10505). Section 10502 states:
(a) In a matter related to a rail carrier providing
transportation subject to the jurisdiction of the [STB]
under this part, the [STB], to the maximum extent
13
need not address. The issue there was whether an action that was
consistent with this part, shall exempt a person, class
of persons, or a transaction or service whenever the
[STB] finds that the application in whole or in part
of a provision of this part--
(1) is not necessary to carry out the transportation
policy of section 10101 of this title; and
(2) either--
(A) the transaction or service is of limited scope; or
(B) the application in whole or in part of the
provision is not needed to protect shippers from the
abuse of market power.
....
(e) No exemption order issued pursuant to this
section shall operate to relieve any rail carrier from
an obligation to provide contractual terms for
liability and claims which are consistent with the
provisions of section 11706 of this title. Nothing in
this subsection or section 11706 of this title shall
prevent rail carriers from offering alternative terms
nor give the [STB] the authority to require any
specific level of rates or services based upon the
provisions of section 11706 of this title.
49 U.S.C. § 10502(a), (e).
Courts have interpreted § 10502(e) to mean that although
carriers of § 10502-exempt shipments are subject to full liability
under § 11706, the carriers may limit their liability without
violating § 11706 as long as they still offer shippers the option of
full § 11706 liability. See, e.g., Rexroth Hydraudyne B.V. v. Ocean
World Lines, 547 F.3d 351, 360 n.15 (2d Cir. 2006) (“[U]nder the
Staggers Act, certain ‘exempt’ rail carriers may limit their liability
under Carmack by negotiating ‘alternative terms,’ so long as the
shipper is presented with the option of selecting ‘full Carmack
coverage, which includes both the Carmack version of strict
liability and full coverage for loss.’”) (citing Sompo Japan Ins. Co.
of Am. v. Union Pac. R.R. Co., 456 F.3d 54, 59–60 (2d Cir. 2006));
Tokio Marine & Fire Ins. Co. v. Amato Motors, Inc., 996 F.2d 874,
878–79 (7th Cir. 1993). The shipment at issue here is not exempt
under § 10502.
14
initiated to recover damages to § 10502-exempt shipments that
were subjected to a limited liability provision should be brought
under § 11706 or § 10709. See 420 F. Supp. 2d at 758–59. The
plaintiff shipper, which initiated suit in state court, argued that the
action should be brought under § 10709. Id. at 759. The defendant
railroads, which removed the action to federal court, argued that
the action should have been brought under § 11706. Id. at 758–59.
The district court held that § 11706 governed. Id. at 762. The
court first determined that § 10709 did not apply to § 10502
shipments because § 10502 shipments were exempt from Subtitle
IV of Title 49 of the ICA, which included § 10709. Id. at 761. The
court also determined that § 10709 did not govern because none of
the shipping documents referenced § 10709. Id. The court
reasoned:
Contracts entered into under section 10709
specifically cite the statute. See, e.g., Glenn Hunter
& Assocs., Inc. v. Union Pacific R.R. Co., No.
04-3151, 135 Fed.Appx. 849, 854 (6th Cir. June 17,
2005) (unpublished opinion) (“This CONTRACT is
made pursuant to 49 U.S.C. § 10709”); Tamini
Trasformatori S.R.L. v. Union Pacific R.R., No.
02-129, 2003 WL 135722, at *7 (S.D.N.Y. Jan.17,
2003) (unpublished opinion) (holding that contract
was not a section 10709 contract, even though it
contained a statement that it was entered pursuant to
section 10709, because it failed to offer full Carmack
liability as an option); [Am. Rock Salt Co. v. Norfolk
S. Corp., 387 F. Supp. 2d 197, 201 (W.D.N.Y.
2005)] (holding that Carmack Amendment applied
even though the contract stated that it was “made
pursuant to 49 U.S.C. § 10709” because other
provisions in the contract provided for its
application); cf. PCI Transp., Inc. v. Fort Worth &
W. R.R. Co., 418 F.3d 535, 541 (5th Cir. 2005)
(citing STB decision that contracts were governed by
section 10709 when “[e]ach contract affirmatively
stated that it was made pursuant to § 10709,
identified the origins and destinations, and specified
the terms of the contract and the rates for the
commodities.”)
15
Id. The court also relied on the ICC decision and former regulation
implementing predecessor § 10713 that stated that agreements
made under § 10713 “‘must specifically state that it is subject to
this section.’” Id. (quoting Railroad Transportation Contracts,
367 I.C.C. at 10; 49 C.F.R. §1039.1(b)(2)). The court then held
that an action to recover damages to the § 10502-exempt shipments
was brought under § 11706, despite a limitation on liability. Id. at
762.
The District Court’s reliance on Schoenmann for the
proposition that § 10709 contracts must cite the provision is
problematic. First, Schoenmann merely noted that contracts in
other cases have referred to the statute, but the fact that other
parties incorporate the statute into their agreements does not mean
that such a requirement exists.7 Further, none of these referenced
cases hold that § 10709 contracts must cite the provision. Second,
Schoenmann found guidance in an obsolete ICC decision and
regulation. As we observed, § 10713 and the corresponding
regulations were repealed, and the STB deleted the self-description
requirement from the regulations, years before Schoenmann was
decided.
We conclude based on the relevant legislative and
regulatory history that the failure of the agreement at issue to cite
§ 10709 is not fatal to the Railroads’ claim that the agreement is a
§ 10709 contract. Thus, we turn to other indicia of intent.
II. Intent to Invoke § 10709
In New Jersey, courts will determine the intent of
contracting parties from the contractual language, if that is
possible. See Conway v. 287 Corporate Ctr. Assocs., 901 A.2d
341, 347 (N.J. 2006) (“The polestar of construction is the intention
of the parties to the contract as revealed by the language used,
taken as an entirety[.]”) (quoting Atl. N. Airlines, Inc. v.
7
B&W contends that NSR itself had also referenced §
10709 in its contracts at issue in other cases. The agreement here,
however, was “[i]ssued [b]y” KCSR. (Contract 1, App. 37.) Thus,
NSR’s contracting history is not relevant.
16
Schwimmer, 96 A.2d 652, 656 (N.J. 1953)).
The agreement at issue, labeled “CONFIDENTIAL RAIL
TRANSPORTATION CONTRACT,” provided for the
transportation of “STEEL POWER BOILERS, PARTS OR
ATTACHMENTS” from West Point, Mississippi to Newark, New
Jersey via route “KCS-MERID-NS” and was effective from
October 12, 2004 through September 30, 2005. (Contract 2–3,
App. 38–39.) The “General Shipment Conditions” were as
follows:
Price is subject to cancellation on 30 day(s) notice;
Price is subject to maximum liability of $25,000 per
VESSEL;
Price is not subject to Rule 29 of UFC;
Price is not subject to Rule 24 of UFC;
Price is subject to UFC tariff 0000006000;
Price is subject to KCS tariff 0000009011;
Price is subject to KCS tariff 0000000010;
Quote number must be specified on the bill of
lading;
Price is subject to fuel surcharge[.]
(Id. at 2, App. 38.) The agreement also provided for additional
shipment conditions:
Charges for Special Train Movement are not
included in the price[;]
Price applies in Flat cars[;]
Charges for Heavy Duty Flat Car Charge are not
included in the price;
Price is subject to RPS tariff 0000006740;
Price applies in equipment with mechanical
designation Code FM.
(Id. at 3, App. 39.) The “General Rate and Minimum Qualifiers”
were as follows:
Rate application is per hundred (of basic unit).
Rate applies on minimum weight of 179,000 pounds.
17
(Id. at 2, App. 38.)
The Railroads claim that, according to its terms, the
agreement encompassed all the attributes of a “contract” under the
plain language of § 10709, specifically that it was “(i) an
agreement to provide specified services, (ii) to which one or more
interstate rail carriers are parties and (iii) to which one or more
purchasers of rail services are parties, (iv) under specified rates and
(v) under specified conditions.” (Appellants’ Br. 13–14.) In
particular, the Railroads contend that the contract was “between
KCSR, an interstate railroad, and B&W, a purchaser of rail
services; . . . for the specific service of rail transportation of ‘Steel
Power Boilers, Parts or Attachments’ from West Point, MS to
Newark, NJ via the route of ‘KSC-MERID-NS;’ and . . . for a
specific confidential rate.” (Appellants’ Br. 5–6.) The Railroads
further assert that the specified conditions in the agreement deviate
from the statutory obligations that the ICA imposes on rail carriers
under 49 U.S.C. § 11101. They claim that such deviation also
evinces the parties’ intent to enter into a § 10709 contract. We
agree with the Railroads on each of these points.
Section 11101 sets forth the statutory obligations of rail
carriers concerning provision of services and publication of
common carrier rates and service terms. 49 U.S.C. § 11101 (2000).
Under § 11101, rail carriers must provide service and their rates
and service terms to the public upon request. Id. § 11101(a), (b).
The carriers may not increase their rates or change their service
terms unless they have provided 20 days written notice to those
who have requested the rates or terms or those who have made
shipping arrangements that would be affected by the increased rates
or changed terms. Id. § 11101(c). The carriers must provide
transportation or service in accordance with the rates and service
terms as published or made available under § 11101. Id. §
11101(e). Section 11101 directs the STB to implement the section
by establishing corresponding regulations to “provide for
immediate disclosure and dissemination of rates and service terms,
including classifications, rules, and practices, and their effective
dates.” Id. § 11101(f); see also 49 C.F.R. pt 1300 (2008). Except
for 49 C.F.R. § 1300.1, which defines the scope of the rules, the
regulations parallel the statutory requirements. See 49 C.F.R. pt.
1300. Title 49 C.F.R. § 1300.1 states that the regulations “do not
18
apply to any transportation or service provided by a rail carrier
under a contract authorized under 49 U.S.C. 10709 or former 49
U.S.C. 10713.” 49 C.F.R. § 1300.1(c).
Although § 11101 requires rail carriers to provide service
and rates for the service to the public upon request, the agreement
at issue here contains a single rate specific to B&W. B&W does
not dispute the Railroads’ contention that this rate is “neither
published nor available to the public.” (Appellants’ Br. 12.)
Although § 11101 permits rail carriers to change their service terms
upon 20 days notice, under the agreement, the service terms here
were effective from October 12, 2004 through September 30, 2005,
with “[p]rice . . . subject to cancellation on 30 day(s) notice.”
(Contract 2, App. 38.) Further, the agreement is self-labeled a
“confidential railroad transportation contract,” which applies to
only “steel power boilers, parts or attachments,” limits liability to
$25,000.00 per vessel, and applies to a minimum weight of
179,000 pounds. (Id.) These specific terms and conditions deviate
from the common carrier obligations imposed by the ICA and
evince intent to enter into a § 10709 contract. See Siemens Power
Transmission & Distribution, Inc. v. Union Pac. R.R. Co.,
No. H-03-0298, 2005 WL 2647977, at *1 (S.D. Tex. Oct. 17, 2005)
(finding § 10709 contract where certain provisions in bills of lading
“explicitly deviate[d] from the requirements of the Carmack
Amendment”); Tokio Marine & Fire Ins. Co. v. Mitsui O.S.K.
Lines, Ltd., No. CV 02-3617 ER, 2003 WL 23181013, at *1 (C.D.
Cal. June 27, 2003) (concluding that agreement was § 10709
contract because it was “Exempt Rail Transportation Agreement”
and “provide[d] rail transportation pursuant to specified rates and
conditions”); Union Pac. R.R. Co. – Pet. for Declaratory Order,
STB Finance 35021, 2007 WL 1437360, at *2 & n.6 (STB served
May 16, 2007) (noting that certain contract terms, such as “fixed
rates for a term of 3 years, minimum volume requirements, service
commitments, liquidated damages provisions, and force majeure
clauses,” were “indicia of a rail transportation contract”); cf.
E.I. Dupont de Nemours & Co. v. CSX Transp., Inc., STB 42099,
42100, 42101, 2007 WL 4466694, at *5 (STB served Dec. 20,
2007) (concluding that agreement labeled “confidential” not §
10709 contract because it was unclear whether terms were
consistent with obligations under § 11101 and which terms were
confidential, and because extrinsic evidence showed no intent to
19
contract for private rates); Aggregate Volume Rate on Coal, Acco,
Utah to Moapa, Nev., 364 I.C.C. 678, 687–88 (1981) (concluding
that agreement providing “(1) a specific price term; (2) a
particularized quantity and term . . . ; and (3) a specified duration”
would have been contract but for lack of meeting of the minds).
B&W does not show how the contract terms here conform with §
11101 or submit any evidence to negate a finding of intent to enter
into a private contract.8
B&W relies principally on Sompo Japan Insurance Co. v.
Norfolk Southern Railway Co., 540 F. Supp. 2d 486 (S.D.N.Y.
2008), in arguing that based on the totality of the indicia of intent
the agreement at issue is not a § 10709 contract. This reliance is
8
Although the parties do not raise any arguments as to the
District Court’s reasons for rejecting the Railroad’s reliance on the
agreement’s contents, we note that the District Court’s rationale
appears flawed. The District Court concluded that the Railroads
“did not raise any specific material distinctions – such as a change
in the liability requirements of regulations promulgated pursuant to
§ 11706 – which would indicate a preference for section 10709.”
Babcock, 2007 WL 4440163, at *3. The Court noted “the general
objective of § 11706 to impose full liability on carriers for the loss
of shipped goods, and to regulate the extent to which such liability
may be contracted away,” and that carriers may limit their liability
without violating § 11706 if they meet certain conditions. Id. The
Court, however, concluded that the Railroads did not assert that
any of these conditions existed. Id. In so doing, the Court cited
Emerson Electric Supply Co. v. Estes Express Lines Corp., 451
F.3d 179 (3d Cir. 2006), and Hoskins v. Bekins Van Lines, 343 F.3d
769, 778 (5th Cir. 2003), which hold that, in order for a liability
limitation to be valid, a carrier must offer shippers two or more
levels of liability with corresponding rates. These cases, however,
are inapposite because they address whether limits of liability are
valid in actions brought under the Carmack Amendment. Whether
the Railroads satisfied the requirements to limit liability is
irrelevant in determining intent to invoke § 10709. In fact, the
contract reflects and the parties stipulated to a $25,000 limit. There
was no reason for the Railroads to argue about conditions for
liability limitations that they asserted did not apply and on which
B&W was not relying.
20
misplaced.
As did Schoenmann, Sompo analyzed the interplay of 49
U.S.C. §§ 10709, 11706, and 10502. In Sompo, the plaintiff
insurance companies sued the defendant railroads to recover
damages to cargo made during the domestic (or rail) leg of an
overseas shipment from Asia to the State of Georgia. 540 F. Supp.
2d at 488. The issue was whether the defendant rail carriers may
limit their liability under the terms of the various agreements in
question. Id. The district court held that liability was not limited
by any of the agreements and that the plaintiffs may therefore
recover the full value of the cargo. Id. The court concluded that
because the shipments were exempt under § 10502, to limit liability
the defendants must first offer the shippers the option of § 11706
coverage. Id. at 493–94. Finding that no such initial offer was
made, the court then analyzed whether the agreements were §
10709 contracts such that liability could still be limited despite the
failure to offer the option of full liability. Id. at 497. The court
declined to so find because there was no “statement as to the
statutory authorization for the contracts on their face or . . .
evidence of such an understanding between the parties.” Id. at 497.
The Sompo court cited the District Court’s decision here,
Schoenmann, and the cases cited therein. Id. at 495. Such reliance
does not advance B&W’s case for the reasons we stated in
discussing Schoenmann earlier.9 Furthermore, we have set forth
the evidence otherwise indicating intent to enter into a § 10709
contract here.
We note the difficulties faced by the district courts in the
9
In denying the defendants’ motion for reconsideration,
however, the Sompo court clarified that it “did not go that far” as
to hold that § 10709 contracts must affirmatively cite the statute.
Sompo Japan Ins. Co. v. Norfolk S. Ry. Co. (“Sompo II”), 553 F.
Supp. 2d 348, 350 (S.D.N.Y. 2008). The court stated that it
“merely held that the absence of a reference to § 10709 was one
consideration” in determining the existence of a § 10709 contract
and that it “relied also on the absence of any indication that there
was a meeting of the minds that § 10709 applied.” Id. at 350–51.
21
absence of a simple statutory or regulatory test for identifying a §
10709 contract. The few courts that have faced the issue seem to
approach it differently. Some courts seem hesitant to disturb prior
law and presume the existence of a common carriage agreement in
the absence of compelling evidence indicating otherwise. See, e.g.,
Sompo, 540 F. Supp. 2d at 497–98 (“Absent (1) a statement as to
the statutory authorization for the contracts on their face or (2)
evidence of such an understanding between the parties, and
because (3) the previous regulations required this statement, (4) the
current regulations do not affirmatively exempt this statement, and
(5) the STB has noted confusion on this issue, there is no basis for
concluding that the ITAs are § 10709 contracts.”); Schoenmann,
420 F. Supp. 2d at 761 (finding no § 10709 contract because
agreement did not cite § 10709 and because regulation
implementing predecessor § 10713 required contracts to be self-
described); Gateway, Inc. v. Burlington N. & Santa Fe Ry. Co., No.
01 C 9482, 2002 WL 1822919, at *3 (N.D. Ill. Aug. 8, 2002)
(holding § 11706 governed because “there [was] no mention of any
facts that support an inference that the relationship between [the
shipper] and [the carrier] [was] governed by 49 U.S.C. § 10709”).
On the other hand, some courts presume the existence of a § 10709
contract. See, e.g., Siemens, 2005 WL 2647977, at *2 (“Most
shipping agreements, including bills of lading, are now embodied
in [§ 10709] private contracts.”); Consol. Rail Corp. v. Rail Servs.,
Inc., No. 5:99-CV-144, 2001 U.S. Dist. LEXIS 190, at *6 (W.D.
Mich. Jan. 4, 2001) (finding § 10709 contract because “[d]efendant
has not pointed to any contractual term that would indicate the
parties’ intent to have this private contractual shipping arrangement
be governed by federal law”); cf. Transit Homes of Am., Div. of
Morgan Drive Away, Inc. v. Homes of Legend, Inc., 173 F. Supp.
2d 1192, 1195 (N.D. Ala. 2001) (noting in discussion of analogous
provision of ICA governing shipments by motor carriers that only
very limited types of shipments by motor carriers were subject to
ICA obligations after “legislation [from] the mid-1990’s
substantially deregulated the trucking industry,” and “[t]herefore,
the great majority of transportation of property by motor carrier in
this country must, of necessity, occur pursuant to the terms of
private contracts of one form or another, be they receipts, bills of
lading, or otherwise, between individual carriers and shippers”).
We need not decide the proper default rule to apply in the
22
case of ambiguous provisions, however, because there is ample
evidence within the four corners of the agreement at issue here that
a § 10709 contract was intended. B&W largely relies on the mere
absence of an express reference to § 10709 in the contract, but the
substance of provision after provision indicates just such a contract
was intended.
CONCLUSION
The legislative history of § 10709, the history of the
corresponding federal regulations, and recent STB proceedings
indicate that a contract need not reference § 10709 in order to be
§ 10709 contract. The terms of the contract here, which deviate
in numerous respects from the common carrier obligations
imposed by the ICA, evince the intent of the parties to enter into
a § 10709 contract. Accordingly, we will vacate the judgment of
the District Court and remand the matter with instructions to
dismiss the action for lack of subject matter jurisdiction.
23