Progressive Rail Inc. v. CSX Trans., Inc.

RECOMMENDED FOR PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 20a0375p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
┐
PROGRESSIVE RAIL INC.,
│
Plaintiff, │
│
SIEMENS ENERGY, INC., > No. 20-5378
Plaintiff-Appellant, │
│
│
v. │
│
CSX TRANSPORTATION, INC., │
Defendant-Appellee. │
┘
Appeal from the United States District Court
for the Eastern District of Kentucky at Frankfort.
No. 3:15-cv-00018—Gregory F. Van Tatenhove, District Judge.
Argued: November 19, 2020
Decided and Filed: December 2, 2020
Before: NORRIS, SUTTON, and KETHLEDGE, Circuit Judges.
_________________
COUNSEL
ARGUED: Iliaura Hands, NIELSEN & TREAS, LLC, Metairie, Louisiana, for Appellant.
Andrew J. Steif, ABEL BEAN LAW P.A., Jacksonville, Florida, for Appellee. ON BRIEF:
Iliaura Hands, NIELSEN & TREAS, LLC, Metairie, Louisiana, Machale A. Miller, MILLER
& WILLIAMSON, LLC, New Orleans, Louisiana, for Appellant. Andrew J. Steif, Kathleen
Wubker, ABEL BEAN LAW P.A., Jacksonville, Florida, Rod D. Payne, BOEHL STOPHER
& GRAVES LLP, Louisville, Kentucky, for Appellee.
No. 20-5378 Progressive Rail Inc. v. CSX Trans., Inc. Page 2
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OPINION
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SUTTON, Circuit Judge. It took a ship and a train to transport two electrical
transformers from Germany to Kentucky. The ocean leg was uneventful, and the transformers
reached Maryland unscathed. But one of the transformers suffered damage during the inland rail
leg to the Bluegrass State. The rail carrier, CSX, sought shelter under a provision of the original
transportation contract that insulated subcontractors from liability. Because the terms of the
contract apply to this dispute, we affirm the district court’s decision to grant summary judgment
to CSX.
I.
The controversy arises out of an international shipment of two electrical transformers
from Bremerhaven, Germany, to Ghent, Kentucky. Siemens AG, a German company, sells
electrical transformers and other industrial manufacturing equipment. It does business in the
United States through a wholly owned subsidiary, Siemens Energy. K+N International arranges
shipping contracts by putting sellers, like Siemens AG, in touch with carriers. It does business in
Germany through a subsidiary, K+N AG, and does business in the United States through another
subsidiary, K+N Inc.
In 2011, Siemens Energy, on behalf of Siemens AG, sold two transformers to Gallatin
Steel, located in Ghent. Siemens AG retained freight forwarder K+N AG to make the necessary
transportation arrangements. K+N AG retained Blue Anchor Line, which issued a bill of lading
for the trip that provided “the terms of the carriage.” Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14, 19
(2004). Through the bill of lading, Siemens Energy agreed not to sue downstream
subcontractors of Blue Anchor Line for any problems arising out of the transport from Germany
to Kentucky.
K+N AG subcontracted with K-Line to complete the ocean leg of the transportation. And
Siemens Energy contracted with another K+N entity, K+N Inc., to complete the land leg of the
trip from Baltimore to Ghent. K+N Inc. contacted Progressive Rail, a rail logistics coordinator,
No. 20-5378 Progressive Rail Inc. v. CSX Trans., Inc. Page 3
to identify a rail carrier. They settled on CSX, which agreed to complete the trip from Maryland
to Kentucky.
During the rail leg from Maryland to Kentucky, one of the transformers was damaged.
The problem allegedly cost Siemens Energy more than $1,500,000 to fix.
Progressive Rail filed a lawsuit in 2015 in federal district court in Kentucky against CSX,
seeking to limit its liability for these costs. That same year, Siemens Energy filed a lawsuit in
federal district court in Maryland against CSX, seeking recovery for the damage to the
transformer. The actions were consolidated in the Kentucky federal district court.
The district court granted summary judgment for CSX because the rail carrier qualified as
a subcontractor under the Blue Anchor bill and could invoke its liability-shielding provisions.
Siemens Energy appeals.
II.
At stake is whether CSX is liable to Siemens Energy for the damaged transformer. There
is a simple way to think about the dispute and a more complicated way. Either way, CSX is not
liable.
The simple way turns on the terms of the initial transportation contract. Under the
contract, the manufacturer agreed to ship the transformers from Germany to Kentucky. The
contract accounts for the reality that water and land separate Germany from Kentucky, arranging
a trip with segments by ship and by train. And it accounts for the reality that subcontracts would
be arranged for each stretch of the trip. Through it all, the contract says that “[t]he merchant
undertakes . . . that no claim or allegation shall be made against any Sub-Contractor whatsoever,
whether directly or indirectly, which imposes or attempts to impose upon any Sub-Contractor
any liability whatsoever in connection with the Goods or the Carriage of the Goods.” R.94-3 at
3. Because the contract defines Siemens Energy as a “merchant,” it cannot sue a
“Sub-Contractor,” defined to include “rail . . . transport operators” like CSX. R.94-3 at 3. Thus:
CSX is exempt from this lawsuit by Siemens Energy.
No. 20-5378 Progressive Rail Inc. v. CSX Trans., Inc. Page 4
That conclusion does not change if we account for some complications—the maritime
nature of this contract and the terms of art and statutes that go with it: bills of lading, through
bills, multimodal transportation, a Himalaya Clause, a Clause Paramount, the Carriage of Goods
by Sea Act, see 46 U.S.C. § 30701, the Carmack Amendment, see 49 U.S.C. § 11706(a), and so
forth.
The parties agree that the Blue Anchor bill of lading is a maritime contract. One
objective of the bill after all is to transport goods by sea. See Kirby, 543 U.S. at 27. Under the
federal common law for interpreting such contracts, as with most contracts, we respect the terms
used by the parties in the agreement and give that language a fair reading. Id. at 22–23, 31;
Royal Ins. Co. of Am. v. Orient Overseas Container Line Ltd., 525 F.3d 409, 421 (6th Cir. 2008).
A maritime contract may set the liability rules for an entire trip, including any land-leg
part of the trip, and it may exempt downstream subcontractors. Two things are required to
accomplish both ends. One is that the contract must amount to a “through bill of lading,” which
covers “both the ocean and inland portions of the transport in a single document.” Kawasaki
Kisen Kaisha Ltd. v. Regal-Beloit Corp., 561 U.S. 89, 94 (2010). The other is that the contract
must include a “Himalaya Clause,” one that extends liability protection to all subcontractors
along the way. 46 U.S.C. § 30701 (Notes § 7); Kirby, 543 U.S. at 29. A Himalaya Clause, on
the off chance you are wondering, takes its name from an English case about the steamship
Himalaya, not from the far-above-sea-level mountain range. See Dimond Rigging Co. v. BDP
Int’l, Inc., 914 F.3d 435, 439 n.5 (6th Cir. 2019).
With both provisions in place, the downstream subcontractor becomes insulated from
liability. See CNA Ins. Co. v. Hyundai Merch. Marine Co., 747 F.3d 339, 361 (6th Cir. 2014);
Fortis Corp. Ins., SA v. Viken Ship Mgmt. AS, 597 F.3d 784, 792 (6th Cir. 2010). Those are the
rules. How do they apply here?
Is the Blue Anchor bill of lading a through bill? Yes. In the contract’s top-right corner, it
refers to the “Multimodal Transport” covered by the bill, hence contemplating sea and land legs.
R.94-3. The contract defines multimodal transport to happen when “the Carrier has indicated a
place of receipt and/or a place of delivery on the front hereof in the relevant spaces.” R.94-3 at
No. 20-5378 Progressive Rail Inc. v. CSX Trans., Inc. Page 5
3. The carrier did just that. It indicated that Bremerhaven, Germany would be the port of
loading, Baltimore, Maryland the port of discharge, and Ghent, Kentucky the “Place of
Delivery.” R.94-3 at 1; R.96-9 at 1. By its terms, the contract gave the parties every reason to
“anticipate[] that a land carrier’s services would be necessary for the contract’s performance”—
that it contemplated a multimodal trip, that it indeed was a through bill of lading. Kirby,
543 U.S. at 32.
Does this through bill of lading exempt CSX from liability? Yes. The bill of lading
contains a Himalaya Clause. It first allows the carrier to “sub-contract” any part of the carriage,
including by “rail . . . transport operators” as well as by “any independent contractors, servants or
agents employed by the Carrier in performance of the Carriage and any direct or indirect
sub-contractors, servants or agents thereof, whether in direct contractual privity with the Carrier
or not.” R.94-3 at 3. It then provides every subcontractor with the “benefit of all provisions . . .
benefiting the Carrier,” including the covenant not to sue. R.94-3 at 3. It then provides that the
merchants—defined to include the shipper (Siemens AG) and the consignee (Siemens Energy)—
agree that “no claim or allegation shall be made against any Sub-Contractor whatsoever, whether
directly or indirectly, in connection with the Goods or the Carriage of the Goods.” R.94-3 at 3.
Siemens Energy, a merchant, thus cannot sue CSX, a subcontractor, under the covenant not to
sue.
As is their right, the upstream parties extended liability-limiting provisions to
downstream rail carriers like CSX, opting to take on the risks of transport (and perhaps
insurance) for themselves. See Fortis Corp. Ins., 597 F.3d at 792; CNA Ins. Co., 747 F.3d at
372. In the context of a Himalaya Clause like this one, it makes no difference that the
downstream carrier was not in privity of contract with either of the Siemens entities. Kirby,
543 U.S. at 34.
Trying to head off this conclusion, Siemens Energy maintains that the Blue Anchor bill
of lading is not a through bill. But if that is the case, why does the bill refer to “multimodal”
transportation and to “Ghent, Kentucky”? In reality, nothing in the text of the Blue Anchor bill
helps Siemens Energy’s case. It instead pivots to the claim that extrinsic evidence shows this
language was a “glaring administrative error.” Appellant Br. 26. But we do not use words
No. 20-5378 Progressive Rail Inc. v. CSX Trans., Inc. Page 6
discovered through extrinsic evidence to contradict the direct and most reliable evidence of the
meaning of a contract: the words within its four corners. CITGO Asphalt Refin. Co. v. Frescati
Shipping Co., 140 S. Ct. 1081, 1088 (2020); Royal SMIT Transformers BV v. Onego Shipping &
Chartering, BV, 898 F.3d 543, 551 (5th Cir. 2018). Otherwise, downstream carriers in through
bills of lading could not rely on the language of the upstream contracts. See Kirby, 543 U.S. at25–27.
For what it is worth, Siemens Energy never offers cognizable evidence of an error
anyway. The sole citation to the record used to support this argument involves the deposition of
a K+N Inc. employee. But the individual was not involved in negotiating or drafting the
contract, making his statement after-the-fact speculation that a mistake occurred. That does not
suffice. “Oops” is not a reason for overriding the terms of a contract. That’s especially so when
employees of Siemens AG and Siemens Energy reviewed the bill of lading and did not notice
any error until this accident occurred.
That CSX issued its own contract for the Maryland-to-Kentucky part of the trip does not
alter this conclusion. The original contract referred to the need for downstream subcontracts.
What was anticipated thus was needed. And giving the contract its special transportation label—
a second bill of lading—hardly makes a difference. It just situates the new bill of lading in the
context of the contract, an arrangement for transportation. More than one bill of lading is not
unusual. Sometimes they are even duplicative. See Regal-Beloit, 561 U.S. at 103–04.
That Siemens AG paid for the ocean leg and Siemens Energy paid for the land leg does
not change things either. Why? The method of payment does not alter the method of liability.
It was still a multimodal bill of lading and still a through bill of lading.
Siemens Energy says that these transportation arrangements usually work differently.
That’s a strange argument, for starters, given that it was a signatory to the original contract. But
even if that is correct, it makes no difference. Sure, Norfolk South Railway Co. v. Kirby,
543 U.S. 14 (2004) and Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp., 561 U.S. 89 (2010),
involved contracts in which the shipping intermediary retained the rail carrier. But that does not
mean all transportation agreements use this model. Otherwise, there would be few through bills
No. 20-5378 Progressive Rail Inc. v. CSX Trans., Inc. Page 7
of lading from the manufacturer to the buyer. Nor at any rate is it unusual for subsidiaries of a
parent corporation, in this case K+N AG and K+N Inc., to aid one another in carrying out a
contract for multimodal transport. Cooperation between separate and distinct, yet related,
subsidiaries is a mainstay of modern contractual arrangements. Tenn. Valley Auth. v. Exxon
Nuclear Co., 753 F.2d 493, 497 (6th Cir. 1985); see United States v. Bestfoods, 524 U.S. 51, 61
(1998); Schenley Distillers Corp. v. United States, 326 U.S. 432, 436–37 (1946).
Siemens Energy claims last of all that the covenant not to sue is unenforceable because a
federal statute, the Carriage of Goods by Sea Act, guarantees a certain level of recovery. But it
failed to raise the argument below and thus forfeited it here. See Scottsdale Ins. Co. v. Flowers,
513 F.3d 546, 552 (6th Cir. 2008). Several courts have rejected the argument anyway. See, e.g.,
Sompo Japan Ins. Co. of Am. v. Norfolk S. Ry. Co., 762 F.3d 165, 183 (2d Cir. 2014); Royal
SMIT Transformers, 898 F.3d at 549–50; Fed. Ins. Co. v. Union Pac. R. Co., 651 F.3d 1175,
1180 (9th Cir. 2011).
We affirm.