Certain Underwriters at Interest at Lloyds of London v. United Parcel Service of America

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 13-4515
_____________
CERTAIN UNDERWRITERS AT INTEREST AT LLOYDS
OF LONDON JOINTLY AND SEVERALLY
SUBSCRIBING TO INSURANCE POLICY
S110020 AS SUBROGEES OF FIRST STATE
DEPOSITORY, LLC.,
Appellants
v.
UNITED PARCEL SERVICE OF AMERICA, INC.
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(No. 2-13-cv-01087)
District Judge: Hon. Michael M. Baylson
____________
Argued: July 8, 2014
Before: RENDELL, CHAGARES, and JORDAN, Circuit
Judges.
(Filed: August 12, 2014 )
Robert J. Cosgrove, Esq. (ARGUED)
Wade, Clark & Mulcahy
1515 Market Street
Suite 2050
Philadelphia, PA 19102
Clayton H. Thomas, Jr., Esq.
Clayton H. Thomas & Associates
1515 John F. Kennedy Boulevard
Suite 1100
Philadelphia, PA 19102
Counsel for Appellants
Jerry R. DeSiderato, Esq. (ARGUED)
Dilworth Paxson
457 Haddonfield Road
Suite 700
Cherry Hill, NJ 08002
Counsel for Appellee
____________
OPINION
____________
CHAGARES, Circuit Judge.
This case calls upon us to construe the preemptive
scope of the Carmack Amendment, 49 U.S.C. § 14706, and to
clarify the judicially-created “true conversion” exception.
We hold that the Carmack Amendment preempts all state law
claims for compensation for the loss of or damage to goods
shipped by a ground carrier in interstate commerce. We also
conclude that the “true conversion” exception is an exception
to the liability limiting features of the Carmack Amendment,
not an exception to its preemptive scope. We will therefore
affirm the order of the District Court.
I.
This case is about missing packages. First State
Depository, LLC (“First State”) provides custody, shipping,
and accounting services for coins and special metals. When it
ships coins or special metals, it often does so via a ground
carrier such as the United Parcel Service of America, Inc.
(“UPS”), as it did here. The plaintiffs, First State’s third-
party insurers (the “Underwriters”) invoke their subrogation
rights and allege that twenty-seven of First State’s shipments
were lost or stolen by UPS or its employees during an eight-
week period in early 2012. UPS never located any of the
missing packages, which were allegedly worth a total of
$150,000.00.
2
The Underwriters brought state law claims against
UPS in the United States District Court for the Eastern
District of Pennsylvania for breach of contract, negligence,
negligent supervision of employees, and “true [and]
fraudulent conversion.” Appendix (“App.”) 307-404. In their
conversion claim, they alleged that “UPS or its employees,
agents, technicians, vendors, subcontractors, drivers and/or
servants” deprived First State of its property and
“[u]nlawfully took, carried away, concealed, stole or obtained
[the shipments] by fraud or deception.” App. 308. The
Underwriters premised subject matter jurisdiction solely on
the complete diversity of the parties; they did not bring any
claims based upon federal law.
The District Court dismissed the Underwriters’
amended complaint for failure to state a claim upon which
relief could be granted. It held that the Carmack Amendment
preempted all of the Underwriters’ state law claims. App. 11.
It recognized that some courts have found “that the Carmack
Amendment’s liability limitations do not apply when the
common carrier has committed a true conversion of goods,”
but held that this exception did not permit an action based on
state law, but rather abrogated the limitation of liability for
causes of action brought under the Carmack Amendment
itself. App. 11-12. Because the Underwriters only brought
state law claims, the District Court held that the exception did
not save their complaint. Finally, the District Court noted
that the Underwriters failed to plead their true and fraudulent
conversion claim with the particularity demanded by Federal
Rule of Civil Procedure 9(b). App. 14-15. The Underwriters
timely appealed.
II.
The District Court exercised diversity jurisdiction
pursuant to 28 U.S.C. § 1332. We have jurisdiction pursuant
to 28 U.S.C. § 1291.
Our review of the District Court’s grant of a motion to
dismiss is plenary. Fowler v. UPMC Shadyside, 578 F.3d
203, 206 (3d Cir. 2009). To survive a motion to dismiss
pursuant to Fed. R. Civ. P. 12(b)(6), a plaintiff must allege
“enough facts to state a claim to relief that is plausible on its
face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
3
A complaint has facial plausibility when there is enough
factual content “that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A
court must accept all factual allegations in the complaint as
true and draw all reasonable inferences in favor of the
plaintiff. Phillips v. Cnty. of Allegheny, 515 F.3d 224, 231
(3d Cir. 2008). We disregard legal conclusions and recitals of
the elements of a cause of action that are supported only by
mere conclusory statements. Santiago v. Warminster Twp.,
629 F.3d 121, 128 (3d Cir. 2010).
III.
We address two issues in resolving this appeal: first,
whether the Carmack Amendment preempts the
Underwriters’ state law claims; and second, whether the “true
conversion” exception is an exception to the Carmack
Amendment’s preemptive scope, or to the Amendment’s
limitations on carrier liability.
A.
At common law, a ground carrier’s liability for goods
damaged in transit varied from jurisdiction to jurisdiction but
was “virtually unlimited.” See Emerson Elec. Supply Co. v.
Estes Express Lines Corp., 451 F.3d 179, 182 (3d Cir. 2006).
Carriers were subject to “such a diversity of legislative and
judicial holding that it was practically impossible for a
shipper . . . to know [its potential liability] without
considerable investigation and trouble.” Adams Express Co.
v Croninger, 226 U.S. 491, 505 (1913) (quotation marks
omitted). Carriers could, however, generally limit their
liability though released value agreements. See First Pa.
Bank, N.A. v. E. Airlines, Inc., 731 F.2d 1113, 1116 (3d Cir.
1984).
Congress first comprehensively addressed interstate
carrier liability in the Carmack Amendment to the Hepburn
Act of 1906. Pub. L. No. 59-337, 34 Stat. 584. The
Amendment adopted much of the common law regime,
including the ability of carriers to limit their liability by
agreement in a shipment’s bill of lading. See Adams Express,
4
226 U.S. at 508-12.1 Originally applicable only to interstate
rail shipments, the Carmack Amendment became applicable
to motor carriers by the Motor Carrier Act of 1935. Pub. L.
No. 74-255, 49 Stat. 543.
The Carmack Amendment’s operation is relatively
straightforward. The general rule is that an interstate carrier
is strictly liable for damages up to “the actual loss or injury to
the property caused by (A) the receiving carrier, (B) the
delivering carrier, or (C) [certain intermediary carriers].” 49
U.S.C. § 14706(a)(1). A shipper and carrier can agree to limit
the carrier’s liability “to a value established by written or
electronic declaration of the shipper or by written agreement
between the carrier and shipper if that value would be
reasonable under the circumstances” in order for the shipper
to obtain a reduced rate. Id. § 14706(c)(1)(A).2 Shippers
may bring a federal private cause of action directly under the
Carmack Amendment against a carrier for damages. Id. §
14706(d).
The Carmack Amendment struck a compromise
between shippers and carriers. In exchange for making
carriers strictly liable for damage to or loss of goods, carriers
obtained a uniform, nationwide scheme of liability, with
damages limited to actual loss — or less if the shipper and
carrier could agree to a lower declared value of the shipment.
See N.Y., New Haven, & Hartford R.R. v. Nothnagle, 346
U.S. 128, 131 (1953); accord Wesley S. Chused, The
Evolution of Motor Carrier Liability Under the Carmack
Amendment into the 21st Century, 36 Transp. L.J. 177, 210
(2009). Making carriers strictly liable relieved a shipper of
the burden of having to determine which carrier damaged or
lost its goods (if the shipper’s goods were carried by multiple
carriers along a route). It also eliminated the shipper’s
1
Although not directly relevant to this appeal, an excellent
history of the regulation of liability for interstate ground
carriers can be found in Emerson Electric Supply, 451 F.3d at
182-87.
2
In order to limit its liability, the carrier must satisfy several
additional conditions. See Emerson Elec. Supply, 451 F.3d at
186 (listing the conditions). These conditions are not in
dispute in this appeal.
5
potentially difficult task of proving negligence. See Sec’y of
Agric. v. United States, 350 U.S. 162, 173 (1956)
(Frankfurter, J., concurring). In return, carriers could more
easily predict their potential liability without closely studying
the tort law of each state through which a shipment might
pass. Carriers’ liability was limited to the actual value of the
goods shipped — punitive damages were not available. See,
e.g., Penn. R.R. v. Int’l Coal Mining Co., 230 U.S. 184, 200
(1913) (noting that “the act provided for compensation, not
punishment”).
For over one hundred years, the Supreme Court has
consistently held that the Carmack Amendment has
completely occupied the field of interstate shipping. “Almost
every detail of the subject is covered so completely that there
can be no rational doubt but that Congress intended to take
possession of the subject, and supersede all state regulation
with reference to it.” Adams Express, 226 U.S. at 505-06.
The Court has consistently described the Amendment’s
preemptive force as exceedingly broad — broad enough to
embrace “all losses resulting from any failure to discharge a
carrier’s duty as to any part of the agreed transportation.”
Ga., Fla. & Ala. Ry. v. Blish Milling Co., 241 U.S. 190, 196
(1916). State laws are preempted regardless of whether they
contradict or supplement Carmack relief. See Charleston &
W. Carolina Ry. Co. v. Varnville Furniture Co., 237 U.S. 597,
604 (1915) (holding that a South Carolina law that imposed a
$50.00 fine upon carriers that failed to timely report damage
was preempted by the Amendment).
The Courts of Appeals have also unanimously held
that the Carmack Amendment “preempts all state or common
law remedies available to a shipper against a carrier for loss
or damage to interstate shipments.” N. Am. Van Lines, Inc.
v. Pinkerton Sec. Sys., Inc., 89 F.3d 452, 456 (7th Cir. 1996).
They have dismissed state and common law claims for breach
of contract, negligence, conversion and every other action for
loss of or injury to a shipment of goods.3 Courts of Appeals
3
See Tran Enters., LLC v. DHL Express (USA), Inc., 627
F.3d 1004, 1009 (5th Cir. 2010) (holding that claims for
breach of fiduciary duty, breach of contract, and conversion
were preempted by the Carmack Amendment); Hall v. N.
6
from the First, Second, Fourth, Fifth, Sixth, Seventh, Eighth,
Ninth, Tenth, and Eleventh Circuits have consistently held
that the Carmack Amendment is the “exclusive cause of
action for interstate-shipping contract [and tort] claims
alleging loss or damage to property.” Hall v. N. Am. Van
Lines, Inc., 476 F.3d 683, 688-90 (9th Cir. 2007); accord REI
Transport, Inc. v. C.H. Robinson Worldwide, Inc., 519 F.3d
693, 697-98 (7th Cir. 2008).4
Am. Van Lines, Inc., 476 F.3d 683, 688-90 (9th Cir. 2007)
(same regarding negligence, fraud, and conversion claims);
Smith v. United Parcel Serv., 296 F.3d 1244, 1249 (11th Cir.
2002) (same regarding fraud, negligence, wantonness or
willfulness, and outrage claims); Project Hope v. M/V IBN
SINA, 250 F.3d 67, 73 n.6 (2d Cir. 2001); Gordon v. United
Van Lines, Inc., 130 F.3d 282, 289-90 (7th Cir. 1997) (same
regarding breach of contract, willful and wanton misconduct,
Illinois Consumer Fraud Act, fraud in the inducement, and
fraud in the claims process claims); Rini v. United Van Lines,
Inc., 104 F.3d 502, 505-07 (1st Cir. 1997) (same regarding
negligence and misrepresentation claims); Shao v. Link
Cargo (Taiwan) Ltd., 986 F.2d 700, 705 (4th Cir. 1993) (same
regarding negligence and breach of contract claims);
Underwriters at Lloyds of London v. N. Am. Van Lines, 890
F.2d 1112, 1121 (10th Cir. 1989) (en banc) (same regarding a
negligence claim); Fulton v. Chi., Rock Island & P. R. Co.,
481 F.2d 326, 331-32 (8th Cir. 1973) (same regarding a
negligence claim); W. D. Lawson & Co. v. Penn Cent. Co.,
456 F.2d 419, 421 (6th Cir. 1972) (same regarding a breach
of contract claim).
4
Courts of Appeals have identified a peripheral set of state
and common law causes of action that are not preempted by
the Carmack Amendment. See, e.g., UPS Supply Chain
Solutions, Inc. v. Megatrux Transp., Inc., 750 F.3d 1282,
1288-95 (11th Cir. 2014) (holding that a claim for attorneys’
fees agreed to by contract was not preempted because it does
not “enlarge or limit the responsibilities of the carrier for loss
of property,” and “[e]nforcement of a self-imposed
undertaking poses no risk of patchwork regulation or different
demands in different jurisdictions”); White v. Mayflower
Transit, L.L.C., 543 F.3d 581, 585-86 (9th Cir. 2008)
(holding that claims based on conduct apart from the delay,
loss, or damage to shipped property would not be preempted);
7
UPS contends that because First State’s property was
lost or stolen while it was in transit, all of the common law
claims that the Underwriters assert are preempted. We agree.
We have already held in passing that state law breach of
contract and negligence claims against a carrier for loss of or
damage to goods are preempted. See Lewis v. Atlas Van
Lines, Inc., 542 F.3d 403, 407-08 (3d Cir. 2008). We
reaffirm that holding today. We also conclude that state law
conversion claims are likewise preempted, just as the
Supreme Court itself has instructed. See Am. Ry. Express
Co. v. Levee, 263 U.S. 19, 21 (1923). This is the only result
that is consistent with the Amendment’s goal of uniformity
and its “broad, preemptive terms.” Underwriters at Lloyds of
London v. N. Am. Van Lines, 890 F.2d 1112, 1116 (10th Cir.
1989) (en banc).
B.
Despite the broad preemptive scope of the Carmack
Amendment, the Underwriters argue that their claim for
common law conversion should be permitted to proceed on
account of the “true conversion” exception. We have held
that it would be unfair for a carrier to limit its liability when
the carrier’s actions involve “intentional destruction or
conduct in the nature of theft.” Am. Cyanamid Co. v. New
Penn Motor Express, Inc., 979 F.2d 310, 315-16 (3d Cir.
1992); accord Tran Enters., LLC v. DHL Express (USA),
Inc., 627 F.3d 1004, 1009-10 (5th Cir. 2010); Glickfeld v.
Howard Van Lines, Inc., 213 F.2d 723, 727 (9th Cir. 1954).
In applying this policy-based exception, courts have exhibited
some confusion as to what it is an exception to: the
preemptive scope of the Carmack Amendment, or the
Amendment’s liability limiting provisions. While some
courts have spoken of the exception as simply “vitiat[ing]
limits on liability,” see Deiro v. Am. Airlines, Inc., 816 F.2d
1360, 1366 (9th Cir. 1987), others have noted that an
Gordon, 130 F.3d at 289 (holding that claims based on harms
apart from the delay, loss, or damage to shipped property are
not preempted). The claims that the Underwriters bring do
not fall within this set. They seek only to recover for the loss
of their goods — claims that lie at the heart of Carmack
preemption.
8
allegation of true conversion5 may permit a state law
conversion action to proceed despite the Carmack
Amendment.6 We hold that the true conversion exception
does not detract from the Carmack Amendment’s preemptive
force and is an exception only to its liability limiting
provisions.
Viewing the exception as an exception to Carmack
preemption would be contrary to Supreme Court precedent,
which explicitly indicates that conversion actions are
preempted. In Levee, the plaintiff brought a common law
trover7 suit to recover the full value of an item he had shipped
from Texas but which never arrived at its destination in
Louisiana. 263 U.S. at 20. The shipper attempted to recover
the item’s full value despite having agreed to limit the
carrier’s liability in a bill of lading, as permitted under the
Carmack Amendment. Id. The Supreme Court reversed the
judgment that the plaintiff had obtained in his state court
trover action. Id. at 21. It held:
[T]he limitation of liability was valid, whatever
may be the law of the State in cases within its
5
In order for a conversion to be a “true conversion,” the
carrier must have “appropriated the property for its own use
or gain.” Glickfeld, 213 F.2d at 727. The exception does not
apply “where the conversion is by third parties or even by its
own employees.” Id.
6
A number of federal district courts and state courts have
indicated, without much analysis save a perfunctory reference
to Glickfeld, that true conversion is an exception to Carmack
preemption. See Schultz v. Auld, 848 F. Supp. 1497, 1506
(D. Idaho 1993) (citing Glickfeld for the notion that true
conversion is an exception to Carmack preemption); Mlinar v.
United Parcel Serv., Inc., 129 So. 3d 406, 411 (Fla. Dist. Ct.
App. 2013) review granted, No. SC14-54, 2014 WL 1800335
(Fla. Apr. 30, 2014) (noting the same, but declining to
recognize any exception at all); Dynamic Transit v. Trans
Pac. Ventures, 291 P.3d 114, 117 (Nev. 2012) (same as
Schultz); Schwartz v. Atlas Van Lines Inc., 976 P.2d 145,
151-52 (Wash. Ct. App. 1999) (same as Schultz).
7
Trover is another term for conversion. See Black’s Law
Dictionary 1739 (10th ed. 2014).
9
control. The effect of the stipulation could not
have been escaped by suing in trover and laying
the failure to deliver as a conversion if that had
been done. No more can it be escaped by a
state law or decision that a failure to deliver
shall establish a conversion unless explained.
The law of the United States cannot be evaded
by the forms of local practice. . . . The local
rule applied as to the burden of proof narrowed
the protection that the defendant had secured,
and therefore contravened the law.
Id. (citations omitted). The Supreme Court could not have
been clearer: the Carmack Amendment preempts state law
conversion actions.
The Levee decision also touches on the other reason
that this judicially-created exception cannot be an exception
to Carmack preemption: so holding would undermine
Congress’s goal of creating a single uniform, national scheme
of carrier liability. Otherwise, carriers would be subject to
standards of conversion liability (with varying elements,
burdens of proof, remedies, and defenses) that would differ
by state. This result is precisely what Congress sought to
avoid in enacting the Amendment. “[I]t is evident that
Congress intended to adopt a uniform rule and relieve
[shipping] contracts from the diverse regulation to which they
had been theretofore subject.” Adams Express, 226 U.S. at
506. Permitting state law conversion actions to proceed every
time it is alleged that a carrier loses or converts a shipper’s
goods would swallow the uniform liability scheme that
Congress created.
Holding that the true conversion exception vitiates the
liability limiting provisions of the Carmack Amendment
furthers the exception’s goals while maintaining the
Amendment’s uniform liability scheme. The exception still
deters a carrier from abusing the liability limiting features of
the Amendment (that is, inducing a shipper to limit the
carrier’s liability so that it can steal the shipper’s goods)
because it still provides a route to full recovery against a
duplicitous carrier. All claims that a carrier stole a shipper’s
goods would remain governed by one nationwide, federal
10
standard and would not “enlarge the responsibility of the
carrier for loss or at all affect the ground of recovery.”
Varnville Furniture, 237 U.S. at 603 (quotation marks
omitted). We think this is the only way that the true
conversion exception can exist while remaining faithful to the
Carmack Amendment’s goals and Supreme Court precedent.
The true conversion exception has no application to
this case. The Underwriters brought only state law claims,
which are preempted. They did not bring any claim under the
Carmack Amendment, nor do they seek remand to add a
Carmack claim. Even if UPS did convert their shipments for
its own use, their only remedy would have been to seek relief
under the Carmack Amendment and then attempt to vitiate
the Amendment’s limits on liability by claiming that UPS
engaged in true conversion. But the Underwriters, “[a]s
masters of the complaint . . . chose not to do so.” Caterpillar
Inc. v. Williams, 482 U.S. 386, 395 (1987).8
IV.
For the foregoing reasons, we will affirm the order of
the District Court dismissing the Underwriters’ complaint for
failure to state a claim.
8
Because the Underwriters’ claim for “true and fraudulent
conversion” is preempted, we need not decide whether the
plaintiffs needed to plead such claim with particularity in
accordance with Federal Rule of Civil Procedure 9(b).
11