Opinion ID: 1433896
Heading Depth: 2
Heading Rank: 3

Heading: Contracting for Alternative Terms under Carmack

Text: As discussed, whereas COGSA would allow a reasonable alternative forum selection clause, Carmack strictly limits the venues in which a party may bring a claim. See 49 U.S.C. § 11706(d)(2)(A). In this case, Tokyo does not fit into any of the categories to qualify as an acceptable forum under Carmack. See Regal-Beloit, 462 F.Supp.2d at 1103. [14] Accordingly, the Tokyo forum selection clause's enforceability turns on whether the parties complied with the applicable requirements for opting out of Carmack. Congress created two different mechanisms  § 10502 and § 10709  by which some rail services may be exempted from certain requirements usually imposed by Carmack. These dual provisions require us to resolve whether the parties entered into a § 10502 or a § 10709 contract and, relatedly, what each provision requires for avoiding Carmack. We conclude that § 10502 is the only proviso the parties here could have followed to contract out of Carmack's venue restrictions. Because the district court instead analyzed the contracts under § 10709, we remand for an application of § 10502, the requirements of which we clarify below.
Once again, we preface our analysis by looking to the relevant statutory language. Section 10502(f) authorizes the Board to exempt from Carmack transportation that is provided by a rail carrier as part of a continuous intermodal movement. Here, rail carrier is subject to the same Definitions section we applied above to conclude that even an ocean carrier like K-line is a rail carrier when contracting to provide inland rail transportation. See 49 U.S.C. § 10102 (providing definitions for this part). [15] Thus, K-line is a rail carrier for purposes of determining whether it provides transportation that is exempt under the Board's § 10502 authority. It is undisputed that the Board has exempted the transportation at issue here. See 49 C.F.R. § 1090.2 ([R]ail TOFC/COFC service and highway TOFC/COFC service provided by a rail carrier either itself or jointly with a motor carrier as part of a continuous intermodal freight movement is exempt from the requirements of 49 U.S.C. subtitle IV....). [16] The Board's action relieves carriers providing such exempt transportation from certain regulatory burdens, such as rate regulation. See, e.g., 49 U.S.C. § 10701. Carmack's liability and venue rules are not so plainly waived, however. The statute mandates that [n]o exemption order issued pursuant to this section shall operate to relieve any rail carrier from an obligation to provide contractual terms for liability and claims which are consistent with the provisions of section 11706 of this title. 49 U.S.C. § 10502(e). Nonetheless, § 10502(e) also provides that carriers and shippers thus exempted are not unalterably bound by the liability and venue restrictions in Carmack's § 11706, because [n]othing in this subsection or section 11706 of this title shall prevent rail carriers from offering alternative terms.... Id. These two clauses of § 10502(e) are not inconsistent: carriers providing exempt transportation are obliged to provide terms consistent with Carmack's venue and liability protections to their shipper customers, but are ultimately free to contract for terms different from those in § 11706. Courts have concluded that the combined effect of § 10502 and § 11706 is to permit carriers providing exempt transportation to contract for terms that are different from Carmack's defaults so long as they first offer the shipper the option of full Carmack protections, presumably at a higher rate. See Sompo I, 456 F.3d at 60 (collecting authority). If the carrier fails to make this initial offer, however, then the shipper may sue the carrier under Carmack. Id. [17] On the other hand, avoiding Carmack's default rules under § 10709 is simpler: [o]ne or more rail carriers providing transportation subject to the jurisdiction of the Board ... may enter into a contract with one or more purchasers of rail services to provide specified services under specified rates and conditions. 49 U.S.C. § 10709(a) (emphasis added). Under such an agreement for nonexempt transportation, carriers have no duty in connection with services provided under such contract other than those duties specified by the terms of the contract. 49 U.S.C. § 10709(b). Moreover, [a] contract that is authorized by this section, and transportation under such contract, shall not be subject to this part, and may not be subsequently challenged before the Board or in any court on the grounds that such contract violates a provision of this part, 49 U.S.C. § 10709(c)(1) (emphasis added)  this part encompassing the Carmack Amendment. The terms of these two different provisions evidence a clear distinction between § 10502 contracts and § 10709 contracts. The distinction is based on whether the transportation at issue in the contract is exempt from Board regulation. Whereas § 10502 requires carriers providing exempt transportation to offer Carmack protections before they can successfully contract for alternative terms, § 10709 contains no such language  indeed, it explicitly contemplates that nonexempt carriers' contracts alone control. Defendants argued successfully before the district court that they entered into a § 10709 contract with Plaintiffs, and thus were not required to offer Carmack protections as a prerequisite for their extension of COGSA to the inland segment of the transport. Defendants point to the MITA, which was incorporated by the ERTA and explicitly states [t]his MITA and any agreements, price documents or contracts that reference this MITA have been made under 49 U.S.C. § 10709. Plaintiffs argue on appeal that Defendants could not have entered into even a legitimate § 10709 contract without first offering full Carmack protections. [18] We disagree with both parties' reasoning. Plaintiffs are incorrect that § 10709 requires offering Carmack protections. See Sompo II, 540 F.Supp.2d at 494 (collecting district court cases); but see id. at 495-98 (discussing cases that have varied wildly on this issue). In any event, Defendants are mistaken that simply asserting in a contract that it was made under § 10709 makes it so. The contract here had to be a § 10502 contract because it concerned exempt transportation, and must therefore be analyzed on remand under the requirements of that section.
The parties' confusion is understandable given the muddled state of the law. Sompo II, 540 F.Supp.2d at 498 & n. 8 (citing [s]everal courts [that] have noted that this issue has not been adequately addressed). Congress has not provided any guidance regarding how to read § 10502 and § 10709 in tandem, and very few courts have squarely confronted the question. [19] We cannot adopt either of the parties' arguments, however, as each would render one of the statutory provisions practically meaningless. Plaintiffs' argument that a carrier can form a § 10709 contract only if it first offers the shipper full Carmack protections essentially converts all § 10709 contracts into § 10502 contracts. Cf. Sompo II, 540 F.Supp.2d at 494 (Most courts have concluded that [the statutory] language indicates that § 10709 contracts are not subject to Carmack, and need not offer a full Carmack liability option before properly limiting carrier liability.). Defendants' argument, however, effectively nullifies § 10502 because it would allow any carrier  even those exempted under § 10502  to avoid § 10502's prerequisites simply by stating that its contract was pursuant to § 10709. [20] It would be nonsensical for ... § 10502 to permit a certain category of rail contracts to offer specific rates and terms but require an initial offer of full Carmack liability and ... § 10709 to permit the same category of rail contracts to offer specific rates and terms with no such requirement of an initial offer of full Carmack liability. Id. at 499 (emphasis in original); see also id. (Section 10709 simply cannot be used as a tool to extract contracts governing exempted rail carriers that operate one leg of a continuous intermodal movement from the regulatory demands of § 10502 and Carmack.). When the Board exempted the category of transportation at issue here, the providers of that transportation, including Defendants, gained the benefits of deregulated rates. The Board's exemption removed this transportation from the requirements of 49 U.S.C. subtitle IV, 49 C.F.R. § 1090.2, which includes the provision setting standards for rates, see 49 U.S.C. § 10701. But Subtitle IV also includes § 10709. Consequently, carriers providing exempt transportation gain the benefits of deregulation, but lose the opportunity to contract for preferable terms under § 10709 without first offering Carmack terms. In keeping with Congress' specification of two distinct methods for carriers to avoid the requirements imposed by Carmack, we therefore hold that a carrier providing nonexempt transportation may contract under § 10709 without offering Carmack protections, but a carrier providing exempt transportation must proceed under § 10502, which does require such an offer. See Sompo II, 540 F.Supp.2d at 499. Accordingly, Defendants here could not have entered into a § 10709 contract notwithstanding the MITA's clause declaring otherwise. Defendants accept that § 10502 covers exempt transportation, but argue that carriers providing exempt transportation could nevertheless still choose to contract under § 10709. Our interpretation of the relationship between § 10502 and § 10709 forecloses this argument. [21]
In sum, § 10502 provides the only acceptable method through which these parties might have agreed to the Tokyo forum selection clause. To comply with § 10502, K-line needed to offer Carmack's protections when contracting with Plaintiffs. K-line argues that it did so, pointing to a clause in the MITA that reads, [o]n domestic shipments that originate in the United States, Shippers may, at their option, select the liability provisions set forth in 49 U.S.C. § 11706. We are skeptical that reference to Carmack in connection with shipments originating in the United States, appearing in the MITA instead of in the bills of lading, could fulfill § 10502's requirement that Carmack protections be offered. Perhaps more compellingly, K-line points to Clause 5(1) of the bills of lading, which allows K-line to subcontract with rail carriers on any terms whatsoever. From this, it might be inferred that by making the choice to allow K-line to do all the subcontracting on any terms whatsoever, Plaintiffs implicitly considered and rejected Carmack terms. Plaintiffs counter that no evidence of an offer of these terms exists and that another part of the MITA seems to preclude Carmack from applying. [22] It is improper for us, on this record, to decide in the first instance whether the parties' negotiation and acceptance of their numerous, cross-referenced agreements included an offer of Carmack terms or an understanding that Carmack terms were available but were rejected. Section 10502(a) says only that the Carmack terms must be offered, not necessarily that they appear in the written agreement. Thus, on remand, the district court may develop the record with respect to the parties' understanding of whether Carmack terms were on the table when they executed the bills of lading.