2014 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

8-12-2014

Certain Underwriters at Intere v. United Parcel

Service of Ameri

Precedential or Non-Precedential: Precedential

Docket No. 13-4515

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Recommended Citation

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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
2

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 thirdparty 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 eightweek period in early 2012. UPS never located any of the 

missing packages, which were allegedly worth a total of

$150,000.00. 
3

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). 
4

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, 
5

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.
6

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. 
7

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); 
8

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.
9

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 

trover7suit 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).
10

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 
11

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).