• U.S. Supreme Court Finds That COGSA Governs Liability of U.S. Inland Carriers Transporting Cargo under a “Through Bill Of Lading” Issued By an Ocean Carrier
  • July 21, 2010 | Authors: Brian T. Del Gatto; Beata Shapiro
  • Law Firm: Wilson Elser Moskowitz Edelman & Dicker LLP - Stamford Office
  • On June 21, 2010, the United States Supreme Court, three months following oral argument, issued its decision in the case of Kawasaki Kisen Kaisha Ltd et al. v. Regal Beloit Corp.  (“Regal Beloit”).  This is a seminal decision to the transportation industry, overruling a line of cases from the Second and Ninth Circuit Courts of Appeals that had imposed the Carmack Amendment’s higher liability regime upon motor and rail carriers for cargo damaged during the inland portion of shipments originating overseas, regardless of whether the shipment was being transported on a through bill of lading issued by the ocean carrier and was therefore arguably governed by the Carriage of Goods by Sea Act (COGSA).

    Under COGSA,1 carriers that face liability for cargo damage are subject to a limitation of liability of $500 per package, as opposed to the potentially unlimited liability under the Carmack Amendment. COGSA also allows the carrier to select foreign courts as a designated dispute venue (forum selection provisions), a one-year statute of limitations,3 and the ability to contract for shorter claim reporting requirements than the nine-month minimum claim reporting deadline allowed under the Carmack Amendment.

    The Regal Beloit case resulted from a shipment of goods originating in China, which was allegedly damaged during a train derailment in Oklahoma.  The shipment was transported under a through bill of lading issued by the ocean carrier, which included all segments of the shipment transportation from China to the final destination in the U.S.  The bill of lading specified that all segments of transportation would be governed by COGSA, and included a “Himalaya Clause,” a provision which in essence extends the application of the terms set out under the bill of lading, including specifications that the shipment would be governed by COGSA, to the ocean carrier’s subcontractors, such as stevedores and carriers hired for inland portions of the shipment.  The bill of lading also included a forum selection provision designating the Tokyo District Court of Japan as the designated forum for any dispute, which designation is permissible under COGSA.

    The ocean carrier and rail carrier had sought dismissal of the suit filed by the shipper and their insurance carrier in California pursuant to this forum selection provision.  The rail carrier argued that its liability was governed by COGSA by virtue of the Himalaya Clause as they were retained as a subcontractor by the ocean carrier.  Although the Federal District Court dismissed the case, the Ninth Circuit Court of Appeals reversed,4 holding that the rail carrier’s liability was governed by the Carmack Amendment because it involved inland transportation, and therefore the forum selection provision designating the Tokyo courts could not be enforced since the Carmack Amendment did not allow designation of a forum outside the United States.  The Supreme Court reversed the Ninth Circuit decision, finding in favor of the rail carrier by holding that COGSA, not the Carmack Amendment, governed the inland portion of the transportation, and enforcing the forum selection provision.

    The Supreme Court in Regal Beloit focused on an earlier, 2004 U.S. Supreme Court decision, Norfolk Southern R.Co. v. James N. Kirby, Pty Ltd. (“Kirby”),5 which had held, in a case involving virtually identical circumstances, that COGSA applied to cargo damage incurred during the inland rail portion of the shipment when transported under an ocean carrier’s through bill of lading.  In the years following Kirby, both the Ninth Circuit in the Regal Beloit case and the Second Circuit in the case of Sompo Japan Insurance Co. of America v. Union Pacific Railroad Co. (“Sompo”),6 had, despite the holding in Kirby, and in contrast to holdings from the Fourth, Sixth, Seventh and Eleventh Circuit Courts, held that the Carmack Amendment governed liability for damage incurred during the inland portion of shipments originating overseas under a through bill of lading.  Since most overseas shipments come through either the ports of the East Coast (which includes the Second Circuit) or West Coast (Ninth Circuit), the Circuit Court decisions in Sompo and Regal Beloit represented a significant increase in liability exposure for inland carriers.  It is not surprising that the dissent in the U.S. Supreme Court’s Regal Beloit opinion was written by fairly newly appointed Supreme Court Associate Justice Sonia Sotomayor, who had written the Second Circuit’s opinion in Sompo shortly before being appointed to the Supreme Court.

    The Regal Beloit decision has shifted the case law decidedly in favor of inland carriers, allowing a possible alternative avenue for limiting liability of motor and rail carriers where the shipment originates overseas, is transported under a through bill of lading, and includes a Himalaya Clause.  Gaps remain in the interplay of the greatly diverging federal regulations and international treaties that govern the liability of various transportation service providers.  Perhaps Congress will take up the task of filling in some of those gaps.  For now, Regal Beloit has settled one very major issue in favor of the transportation industry.

    1  46 U.S.C. §§ 30701 et seq.
    2 49 U.S.C. 10101 et seq.
    3 46a U.S.C. §1303(6).
    4 557 F.3d 985 (2009).
    5 543 U.S. 14.
    6 456 F.3d 54 (2d Cir. 2006), affirmed by 341 Fed. Appx. 707 (2nd Cir. 2009).