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Court curbs Carmack in Kawasaki Kisen Kaisha

In Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp. (No. 08-1553) the Court today held that the inland portion of a shipment of goods from overseas under a through bill of lading is governed by the Carriage of Goods by Sea Act (COGSA) rather than the Carmack Amendment to the Interstate Commerce Act.  You can read our argument preview and post-argument coverage on the case’s SCOTUSwiki page, linked above.

This case involves a common scenario – an American company bought goods from China and arranged with a single company to get the products shipped across the ocean to an American port, where the goods were then transferred to rail cars for shipment to their final destination.  The COGSA governs liability for damages to the goods while they are at sea, but the parties can also agree (as they did in this case) to have the statute also cover the entirety of the voyage.  The statute also allows parties to agree where any litigation regarding damage to the goods will take place (in this case, the parties agreed on Tokyo).

The goods made it across the ocean to Los Angeles, where they were put on rail cars for shipment.  The trains later derailed and damaged or destroyed the cargo.  This led to litigation, which the defendants insisted be heard in Tokyo.  The plaintiffs argued that the forum selection clause of their contracts were invalid under the Carmack Amendment, which, as relevant here, pertains to rail transportation within the United States and would trump the COGSA.

The Carmack Amendment was enacted to provide customers with protection when goods pass through the hands of several railroads on their way to a final destination.  It requires the first railroad in the chain (the “receiving carrier”) to issue a bill of lading (which is the contract for the transportation) under which the receiving carrier is liable for any damage that occurs anywhere during the trip, even if another railroad was transporting the goods at the time.  Importantly, it also places limits on forum selection clauses to avoid customers having to travel unreasonable distances to vindicate their rights under the statute.

After laying all this out, Justice Kennedy, writing for the Court, explained that the critical question was whether the Carmack Amendment applies when the rail transportation falls in the middle of a larger trip that began overseas.  In particular, the question is whether a rail carrier receiving cargo from a ship counts as a “receiving carrier” within the meaning of the Carmack Amendment.  Looking at the text, history, and purposes, the Court held that when cargo starts its journey overseas under a through bill of lading, the railroads that take up the goods at a U.S. port are not “receiving carriers” and therefore Carmack does not apply.  As a result, the Court held that this case had to be litigated in Tokyo.

Justice Sotomayor, joined by Justices Stevens and Ginsburg, wrote a lengthy dissent.