Source: https://supreme.justia.com/cases/federal/us/456/336/case.html
Timestamp: 2017-05-27 23:13:54
Document Index: 589129328

Matched Legal Cases: ['§ 3', '§ 3', '§ 405', '§ 3', '§ 16', '§ 11901']

Southern Pac. Transp. v. Commercial Metals (full text) :: 456 U.S. 336 (1982) :: Justia U.S. Supreme Court Center Log In
U.S. Supreme CourtSouthern Pac. Transp. v. Commercial Metals, 456 U.S. 336 (1982)Southern Pacific Transportation Co. v. Commercial Metals Co.No. 81-622Argued March 31, 1982Decided April 27, 1982456 U.S. 336CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
Petitioner Southern Pacific Transportation Company (SP) is a common carrier by rail. Respondent Commercial Metals Company (Metals), a Delaware corporation with principal Page 456 U. S. 338 place of business in Dallas, Tex., is in the business of buying and selling steel goods. Petitioner instituted this action against respondent in the United States District Court for the Northern District of Texas to recover freight charges for three cars of steel cobble shipped by rail in 1974 from Detroit, Mich., to Alhambra, Cal.
In each instance, respondent Metals, as consignor, failed to execute this nonrecourse clause. Metals, however, already had received payment for the goods prior to shipment. Tr. of Oral Arg. 5, 6, 24-25; Brief for Respondent 21. Page 456 U. S. 339
On December 17, 1976, more than 30 months after the shipments, SP notified Metals of Carco's failure to pay the freight charges. SP requested that Metals, as the consignor who had failed to execute the nonrecourse provision in the bills of lading, pay the $13,679.56 total charges in satisfaction of its primary liability for the three shipments. This was the first notice to Metals that the freight charges had not been collected Page 456 U. S. 340 from Carco. When payment was not forthcoming, SP instituted the present action against Metals in federal court.
App. 24. Accordingly, judgment was entered for Metals. Id. at 26. Page 456 U. S. 341
Id. at 239. Page 456 U. S. 342
Since 1919, the ICC has prescribed a uniform bill of lading for use on all interstate domestic shipments of freight by rail. See In re Bills of Lading, 52 I.C.C. 671 (1919), modified, 64 I.C.C. 357 (1921), further modified, 66 I.C.C. 63 (1922). [Footnote 8] The bill of lading is the basic transportation contract between the shipper-consignor and the carrier; its terms and conditions bind the shipper and all connecting carriers. Texas & Pacific R. Co. v. Leatherwood, 250 U. S. 478, 250 U. S. 481 (1919). Page 456 U. S. 343 "Each [term] has, in effect, the force of a statute, of which all affected must take notice." Ibid. Unless the hill provides to the contrary, the consignor remains primarily liable for the freight charges. When the ICC first promulgated the uniform bill of lading, it stated:
It is perhaps appropriate to note that a carrier has not only the right but also the duty to recover its proper charges for services performed. Id. at 265 U. S. 65-66, and n. 3. See Pittsburgh, Page 456 U. S. 344 C., C. & St. L. R. Co. v. Fink, 250 U. S. 577, 250 U. S. 581-583 (1919). This rule of strict adherence to statutory standards is in line with the historic purpose of the Interstate Commerce Act -- to achieve uniformity in freight transportation charges, and thereby to eliminate the discrimination and favoritism that had plagued the railroad industry in the late 19th century. Midstate Horticultural Co. v. Pennsylvania R. Co., 320 U. S. 356, 320 U. S. 361 (1943); New York, N.H. & H.R. Co. v.ICC, 200 U. S. 361,3 200 U. S. 91 (1906).
A. The ICC has comprehensively regulated the extension of credit to shippers by rail carriers. See 49 CFR pt. 1320 (1981). Yet neither the statute under which the regulations Page 456 U. S. 345 were promulgated, 49 U.S.C. § 3(2), nor the regulations themselves intimate that a carrier's violation of the credit rules automatically precludes it from collecting the lawful freight charge. Nor does either contain any words of affirmative defense to a freight charge action. Indeed, to the extent the ICC has spoken to this question, it has stated: "[A] violation of section 3(2) by [a carrier], in itself, would have had no effect on [a consignor's] responsibility for payment of undercharges." C-F Grain Co. v. Atchison, T. & S. F. R. Co., 351 I.C.C. at 712. Although § 3(2)
B. The legislative and administrative history of the credit regulations further indicates that this silence was not inadvertent -- the intent of the rules was to protect carriers, not to penalize them. Prior to 1918, the Federal Government did not regulate the extension of credit by rail carriers. Page 456 U. S. 346 Wartime regulation revealed, however, that a general requirement of payment before delivery would protect the working capital of carriers and avoid discrimination among credit recipients. Cf. Ex parte No. MC-1, 2 M.C.C. 365, 374 (1937). After the first World War, when Congress returned the railroads to private control, § 405 of the Transportation Act, 1920, 41 Stat. 479, added paragraph (2) to § 3 of the Interstate Commerce Act. See n 5, supra. The regulations adopted by the ICC in 1920 under the statute as so amended permitted railroads to extend limited credit to shippers on a nondiscriminatory basis. The regulations have remained largely unchanged to the present time. Until 1971, no court seriously suggested that a violation of the credit regulations precluded a carrier from collecting a freight charge from the party with primary liability. Instead, a defense of estoppel based on a violation of the credit regulations was held to be inconsistent with the purpose of the regulations themselves. Courts were concerned that a rule permitting selective estoppels would defeat the antidiscriminatory purpose of the Act and would weaken the capital structure of common carriers. See, e.g., Western Maryland R. Co. v. Cross, 96 W.Va. 666, 673, 123 S.E. 572, 575 (1924); Chicago Junction R. Co. v. Duluth Log Co., 161 Minn. 466, 469, 202 N.W. 24, 25 (1925); East Texas Motor Freight Lines v. Franklin County Distilling Co., 184 S.W.2d 505, 507 (Tex.Civ.App.1944).
Despite the absence of any textual or historical support for an affirmative defense in either the statute or the regulations, the Court of Appeals concluded that Metals could raise SP's failure to comply fully with the regulations as an absolute equitable defense to SP's freight charge action. The Court of Appeals relied primarily on what it regarded as "a closely analogous situation," 641 F.2d at 237, presented in Consolidated Freightways Corp. v. Admiral Corp., 442 F.2d 56 (CA7 1971). On examination, however, that Seventh Circuit case plainly is distinguishable from the present one. Page 456 U. S. 347 The defendant there was a consignee to whom goods had been delivered under bills of lading marked "prepaid." Relying upon the carrier's explicit representation of prepayment, the consignee paid the amount of the freight charges to the shipper-consignor. In fact, however, the carrier had extended credit to the consignor and had failed to collect the charges within the period allowed by the regulations. When the consignor went out of business, the carrier turned to the consignee for payment. The Court of Appeals, by a divided vote, held the carrier estopped.
Third, in Admiral, the grounds for equitable estoppel were created by the consignee's payment of freight charges in detrimental reliance on the carrier's misrepresentation. The carrier's violation of the credit regulations offered only "additional grounds for the intervention of the principles of equity." Id. at 60 (majority opinion). In this case, there is no suggestion that the consignor knew of, or changed its position detrimentally in reliance on, the carrier's credit violation. Fourth, and most significant, the defendant-consignee in the Seventh Circuit case had no means by which to protect itself from freight charge liability. In this case, of course, the defendant-consignor could have protected itself completely Page 456 U. S. 348 simply by signing the nonrecourse clause in the bills of lading.
"apparent, widespread Page 456 U. S. 349 noncompliance with the regulations indicates that the payment periods and other time limits prescribed are simply not realistic for many of the situations in which they apply."
Metals argues that a ruling for SP places SP "in the unrealistic position of being incapable of doing any wrong," and therefore creates "no incentive [for carriers] to improve inefficient and careless credit practices." Brief for Respondent 12. Metals further claims that the loss at issue here would not have occurred if SP only had complied with its obligations under the regulations. Id. at 24. The answer to this is that the ICC has ample authority to police the credit practices of carriers, and thereby to deter improper practices. This authority includes the power to issue a cease-and-desist order, see Shaw Warehouse Co. v. Southern R. Co., 308 I.C.C. 609, 633-634, 637 (1959), appeal dism'd sub nom. Southern R. Co. v. United States, 186 F.Supp. 29 (ND Ala.1960); the power to seek a federal court injunction requiring a carrier to comply with the regulations, see ICC v. All-American, Inc., 505 F.2d 1360 (CA7 1974); and the power to bring suit for the $5,000 civil forfeiture, provided by 49 U.S.C. § 16(8) and 49 U.S.C. § 11901(a) (1976 ed., Supp. Page 456 U. S. 350 III), for each knowing violation of an order of the Commission, see, e.g., United States v. Western Pacific R. Co., 385 F.2d 161 (CA10 1967), cert. denied sub nom. Denver & R. G. W. R. Co. v. United States, 391 U.S. 919 (1968); United States v. Pennsylvania R. Co., 308 F.Supp. 293 (ED Pa.1969).
Thus, the ICC may regulate the credit practices of carriers even without the judicially created remedy of forfeiture of freight charges. Furthermore, a reading of the cited cases reveals that the question whether a credit violation has occurred often will require the ICC or the courts to conduct a factual inquiry as to the carrier's intent to violate the regulations. The "credit violation defense" adopted by the Court of Appeals requires a carrier to forfeit freight charges without regard to the nature of its violation. [Footnote 11] This inflexible approach Page 456 U. S. 351 disenables courts from considering the carrier's intent, the degree of the shipper's fault, the effect of enforcement on the carrier's existing permissible credit practices, and other subjective factors in deciding whether or not to enforce a shipper's primary liability for freight charges.
As we have noted above, no similar double payment lability is in prospect here. Metals, not the carrier, selected the consignee. Furthermore, Metals has been paid for its goods, while the carrier has not been paid for its services. The carrier unsuccessfully has pursued its remedies against the consignee before turning to the shipper-consignor for payment. Nor had the statute of limitation run when SP finally sued Metals for payment. Page 456 U. S. 352