Court Opinion

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Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

12-19-2005

S & H Hardware v. Yellow Transp Inc
Precedential or Non-Precedential: Precedential

Docket No. 04-4591

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                                       PRECEDENTIAL

 IN THE UNITED STATES COURT OF APPEALS
          FOR THE THIRD CIRCUIT
               ____________

                    No. 04-4591
                   ____________

       S & H HARDWARE & SUPPLY CO.,

                          Appellant

                           v.

       YELLOW TRANSPORTATION, INC.
               ____________

     Appeal from the United States District Court
       For the Eastern District of Pennsylvania
                 D.C. No.: 02-cv-9055
     District Judge: Honorable Timothy J. Savage
                     ____________

              Argued: October 25, 2005

Before: SLOVITER, FISHER, ROSENN, Circuit Judges

             (Filed: December 19, 2005 )
Francis Recchiuti (Argued)
Vangrossi & Recchuiti
319 Swede Street
Norristown, PA 19401

      Counsel for Appellant

Jonathan F. Ball(Argued)
Paul D. Keenan
Janssen Keenan & Ciardi, P.C.
2005 Market Street, Suite 2050
Philadelphia, PA 19103

      Counsel for Appellee

                       ____________

                OPINION OF THE COURT
                     ____________

ROSENN, Circuit Judge.

        This appeal raises the importance of a simple
requirement of notice under the Carmack Amendment to the
Interstate Commerce Act. It also illustrates how failure to
comply with a simple, statutory requirement can preclude
consideration of the merits of the underlying claim. The
precise issue on appeal is whether the appellant, S & H
Hardware & Supply Company (“S & H”), complied with the
Carmack notice requirement, allowing it to pursue a claim to
recover for losses incurred when appellee Yellow

                              2
Transportation (“Yellow”) improperly diverted shipments of
goods consigned to S & H. S & H suffered over a million
dollars in losses when one of its employees, Steven Schwartz,
in collaboration with one or more Yellow drivers, diverted
shipments to addresses not listed on the bills of lading or
shipping contract, and never before used by S & H as points
of delivery.

       The Carmack Amendment imposes liability on
common carriers for damages and losses to goods caused by
the carrier in interstate shipment. 49 U.S.C. § 14706(a)(1).
The implementing regulations of the Carmack Amendment
require, as a condition of recovery, that the consignee of the
goods give notice to the carrier of damages or losses within
the period of time specified by the bill of lading governing the
terms of shipment between the parties, not less than nine
months. See id. § 14706(e); 49 C.F.R. § 1005.2(a). The
United States District Court for the Eastern District of
Pennsylvania granted summary judgment to Yellow, holding
that S & H had not complied with the notice requirement. S
& H timely appealed. We affirm.

                               I.

       S & H is a hardware store located on Castor Avenue in
Philadelphia. It is owned by Harold Stern and operated by
him and his son, Herbert. At the time of the events described
below, S & H employed Schwartz and authorized him to
receive shipments directed to S & H at its store on Castor
Avenue or its nearby warehouse located on Knorr Street in
Philadelphia. S & H is a member of the Ace Hardware

                               3
buying consortium and Ace is its factor. As a result of this
arrangement, vendors billed Ace for goods shipped to S & H
as consignee, and S & H paid its invoices directly to Ace, and
not to the vendors. See In re Freeman, 294 F.2d 126, 129 (3d
Cir. 1961) (“The modern factor . . . is a financier who
generally lends monies and takes in return an assignment of
accounts receivable or some other security.”)
        Yellow is a trucking company whose shipments to S &
H were governed by the standard uniform straight bill of
lading, set forth in 49 C.F.R. § 1035 App. B, which provides
for a nine-month period to file a claim for lost or damaged
goods. In this case, the goods involved were model trains
manufactured by Lionel and transported by Yellow, consigned
to S & H at its principal business location on Castor Avenue.
In the ordinary course of business between S & H and
Yellow, Yellow drivers would bring shipments of goods
directly to the Castor Avenue location, where the freight
charges would be paid by check. The goods would be
unloaded at the rear of the Castor Avenue store, or the Yellow
driver would be instructed to take them to S & H’s Knorr
Street warehouse for unloading.
       The record demonstrates that sometime in early 2000,
Schwartz began to place orders for Lionel trains in the name
of S & H. However, those trains were never delivered to the
Castor Avenue store. Instead, Yellow’s driver called
Schwartz’s cellphone, a number not listed on the bill of
lading, shortly before delivery, and Schwartz instructed the
driver to divert the shipments to various unknown locations,
also not listed on any bill of lading. Schwartz then paid the
freight charges in cash.

                              4
        The Sterns were unaware of this scheme until
November of 2000, when S & H received invoices from Ace
for large amounts of Lionel model trains that were not in its
inventory. Schwartz, out for a claimed illness, initially
claimed that the bills were the result of a mistake that he
intended to correct. After learning of facts which led S & H
to be suspicious of Schwartz, S & H hired a private
investigator. The investigator learned that an unauthorized
shipment of Lionel trains was to be delivered by Yellow on
April 3, 2001. The investigator called the FBI to conduct a
sting operation. S & H also notified Clifford Shaw, a Yellow
investigator, who participated in the sting operation by
following the Yellow driver through the streets of
Philadelphia.
       The sting operation revealed that Thomas Janusz, a
Yellow truck driver, called Schwartz on the phone and
informed him of an impending delivery of Lionel trains.
Schwartz directed him to a storage facility on Oxford Avenue,
Philadelphia, and Janusz bypassed S & H’s Castor Avenue
and Knorr Street locations totally. When Yellow’s dispatcher
called Janusz to ascertain his location, he informed the driver
that he was under surveillance. When so informed, Schwartz
asked Janusz to help him reload the truck and deliver it to the
Knorr Street warehouse. There, he was greeted by FBI
agents. The shipment was refused by S & H and ultimately
returned to Lionel.
        In an interview with the FBI, Janusz admitted to
having accepted a $100 tip from Schwartz on April 3, as well
as $100–$150 tips on at least three other occasions. He also
stated that Schwartz had given him a power lawnmower in the

                              5
past. He denied any knowledge that Schwartz was engaged in
illegal activities, although deposition testimony from other
drivers showed that they received tips only on rare occasions,
and never in excess of $20. Nonetheless, Shaw cleared
Janusz of wrongdoing in Yellow’s internal investigation.
       S & H later ascertained that shipments of Lionel trains
valued at $1,646,703.38 had been improperly diverted by
Schwartz with the cooperation of one or more Yellow drivers.
Aside from the involvement of Yellow investigators in the
seizure of the final diverted shipment, no one from S & H
appears to have contacted Yellow regarding specific
shipments that were improperly diverted. According to an
internal Yellow memorandum, Ace Hardware contacted
Yellow in order to dispute at least three shipments. The
record, however, does not reveal what portion of the total
diverted shipments these three shipments represented, nor the
form of the communication between Ace and Yellow.
       Schwartz was subsequently prosecuted for violations
of federal law, and also sued by S & H in a separate civil
action. S & H brought this action against Yellow, claiming
Yellow’s liability for the missing shipments because they
were never delivered to the address on the bill of lading.
Yellow subsequently moved for summary judgment on
October 2, 2003, arguing that S & H had failed to satisfy the
notice requirement of the Carmack Amendment, and was
therefore precluded from recovering for the lost shipments.
                              II.
       S & H conceded that it had failed to comply with the
notice requirement. It argued that Yellow should be estopped

                              6
from asserting the notice requirement as a bar to liability
because it had actual notice of the diverted deliveries due to
its involvement in the investigation, and various
communications between S & H and Yellow and Ace and
Yellow. S & H also argues that estoppel should be applied
because Yellow intentionally obstructed the investigation and
was not prejudiced by the lack of formal notice.
        In entering summary judgment in favor of Yellow, the
District Court noted that filing a written claim was a strict
condition precedent to the filing of a lawsuit and that S & H
had not qualified for the estoppel exception because it had not
shown that Yellow made representations upon which S & H
relied in failing to file a written claim. The District Court
noted that to prevail, S & H had to establish more than
Yellow’s actual knowledge of a potential claim. Yellow’s
participation in the investigation combined with the email
from Ace about three diverted shipments, and the bill of
lading from the April 3, 2001, returned delivery with the note:
“Refused, did not order this!” were not sufficient to satisfy or
excuse S & H from the notice requirement. The District
Court determined that there was no issue of fact regarding S
& H’s failure to comply with the notice requirement.
       On appeal, S & H argued that the District Court erred
in granting summary judgment to Yellow because Yellow
should have been estopped from asserting the notice
requirement because it had actual knowledge of the facts
giving rise to the claim, including “substantial written
documentation concerning the claim,” and because Yellow
had participated in and frustrated the investigation. Yellow
argued, in turn, that S & H had failed to adduce sufficient

                               7
evidence to create a genuine issue of material fact regarding
whether it should be estopped from asserting the claim
requirement. Thus, it contends that the District Court had not
erred in dismissing S & H’s claim for failure to satisfy the
notice requirement.
                             III.
        This Court has appellate jurisdiction over this appeal
under 28 U.S.C. § 1291. We review the District Court’s
granting of summary judgment de novo, viewing the evidence
in the light most favorable to S & H, the non-moving party.
United States v. Diebold, Inc., 369 U.S. 654, 655 (1962);
MBIA Ins. Corp. v. Royal Indem. Co., 426 F.3d 204, 209 (3d
Cir. 2005).
                              A.
       The Carmack Amendment provides for liability of
common carriers for damage to or loss of goods during
shipment. See 49 U.S.C. § 14706(a)(1). Under the
implementing regulations of the Carmack Amendment, a
claimant must file notice of loss or damage with the carrier
within the time specified on the bill of lading, 49 C.F.R. §
1005.2(a), which may not be less than nine months, 49 U.S.C.
§ 14706(e)(1). In addition to being filed within the proper
amount of time, a proper notice must:
      ·      be communicated in writing or, where agreed to
             by the parties, electronically;
      ·      contain facts sufficient to identify the damaged
             or lost shipment;
      ·      assert liability for alleged loss, damage, injury,

                              8
              or delay; and
       ·      demand payment of a specified or determinable
              amount of money.
49 C.F.R. § 1005.2(b).

        Courts have construed the written claim requirement
liberally, however, and “the standard for determining
sufficiency is one of substantial performance.” Ins. Co. of N.
Am. v. G.I. Trucking Co., 1 F.3d 903, 906 (9th Cir. 1993);
Trepel v. Roadway Express, 194 F.3d 708, 712–713 (6th Cir.
1999).1 The crux of the notice is whether it apprises the
carrier of the basis for the claim and that reimbursement will
be sought. Ins. Co. of N. Am., 1 F.3d at 906. The purpose of
the written claim requirement is to insure that the carrier may
promptly investigate claims, and “not to permit the carrier to
escape liability.” Id. at 907; accord Thompson v. James G.
McCarrick Co., 205 F.2d 897, 901 (5th Cir. 1953) (claim
requirement satisfied when written documents “supplied
sufficient information upon which a prompt and complete
investigation [could] be based” (internal quotation omitted)).

       Oral or actual notice is not sufficient to satisfy the

   1
    In this case, the District Court noted that “[t]he filing of a
written claim within the prescribed period is a strict condition
precedent to the filing of a lawsuit.” S & H Hardware & Supply
Co. v. Yellow Transp., Inc., No. Civ. A-02-CV-9055, 2004 WL
1551730, at *2 (E.D. Pa. July 8, 2004). The District Court did
not mention the substantial compliance standard.

                                9
substantial compliance requirement; rather, some form of
written notice is required. Perini-North River Assoc. v. C. &
O. Ry., 562 F.2d 269, 272-273 (3d Cir. 1977) (citing St.
Louis, Iron Mountain & S. Ry. Co. v. Starbird, 243 U.S. 592,
605 (1917)). Courts have construed flexibly the writing
requirement. See, e.g., Am. Synthetic Rubber Corp. v. L. &
N. R.R., 422 F.2d 462, 468 (6th Cir. 1970) (the claimant
satisfied the requirement by showing the documents to
shipping officials rather than filing them); Thompson, 205
F.2d at 901 (the writing requirement had been satisfied when
the claimant sent the carrier a “statement of protest,” which
specified the damaged shipments, indicated that payment
would be disputed, and gave an estimate of damages).

        In this case, the only written communication submitted
by S & H to Yellow was the returned delivery slip of April 3,
2001, with the handwritten notation “Refused, did not order
this!” Furthermore, S & H returned this shipment to Lionel.
Even if it did suffer damages, this communication could only
be sufficient to satisfy the notice requirement for that
particular shipment because it did not identify any other
shipments. The regulations, however, specifically note that
“notations of shortage or damage, or both, on freight bills,
delivery receipts” are not sufficient notices of a claim. See 49
C.F.R. § 1005.2(c). Therefore, the delivery receipt does not
satisfy the notice requirement even for that shipment.

       In addition to the delivery receipt, there was some
communication by Ace Hardware with Yellow regarding
three contested shipments. Because the factoring relationship
between Ace and S & H is one of agency, we note, without

                              10
determining the merits of the argument, that a communication
from Ace on behalf of S & H could potentially be attributed to
S & H for purposes of evaluating whether it satisfied the
notice requirement. However, S & H did not make this
specific argument in the District Court, and it also failed to
produce any evidence of the form the communication between
Ace and Yellow took. S & H only produced indirect evidence
of the communication in the form of internal Yellow emails.
In addition, those emails appear to dispute only the freight
charges, and not the value of the shipped goods themselves. S
& H has the burden of proof on the issue of whether it
satisfied the notice requirement. Therefore, this
communication from Ace provides actual notice at best and is
not sufficient to satisfy the notice requirement. Perini-North,
562 F.2d at 272.

       We can discover no other written communications
between S & H and Yellow regarding the lost shipments. We
are constrained to conclude, therefore, that S & H did not
substantially comply with the Carmack notice requirement,
despite its huge loss.

                              B.

        S & H also argues that Yellow should be estopped
from asserting the notice requirement because it had actual
notice. Moreover, S & H argues that Yellow “participated in
and frustrated the investigation.” According to S & H,
Yellow obstructed the investigation because of its “supposed
inability to follow a large truck in Philadelphia” and because
its dispatcher improperly informed the driver that he was

                              11
under surveillance. S & H also argues that Yellow’s
investigators cleared Yellow employees of wrongdoing too
hastily, notwithstanding “an inference . . . that Yellow’s
agents were both active participants in Schwartz’s thefts and
were covering up that involvement to protect Yellow.”

        We have held that actual knowledge is not a sufficient
basis on which to base estoppel unless there is an inducement
not to file accompanied by reliance. Perini-North, 562 F.2d at
272–273; compare Heckler v. Cmty. Health Servs., 467 U.S.
51, 59 (1984) (noting that the hallmarks of estoppel are
reasonable reliance on a misrepresentation of fact that induces
the injured party to change his position for the worse). We
have limited the application of estoppel to excuse the notice
requirement to cases in which “the carrier’s conduct in some
way induced the claimant’s failure to file.” Perini-North, 562
F.2d at 272. For example, when the carrier’s representative
gave an oral waiver, which the carrier subsequently ratified by
conduct, the carrier could be estopped from asserting the
notice requirement as a bar to liability. Id. at 274.

        Two other circuits have employed estoppel in the same
fashion. The United States Court of Appeals for the Second
Circuit held that when the carrier provided an improper
address to the claimant, the carrier could not raise filing error
as a defense when that error consisted of sending the claim to
the wrong address. Lehigh Valley R.R. v. State of Russ., 21
F.2d 396 (2d Cir. 1927). The United States Court of Appeals
for the Fifth Circuit declined to apply estoppel to prevent a
carrier from asserting the requirement that a notice specify the
amount of the claim because the carrier had directly solicited

                               12
more specific statements of the amount of the claim.
 Salzstein v. Bekins Van Lines, 993 F.2d 1187, 1191–1192
(5th Cir. 1993) (holding nonetheless that the consignee had
provided the carrier with a determinable amount sufficient to
satisfy the notice requirement).

        S & H asks us to expand the estoppel exception to this
case based on the allegation that Yellow’s driver was
involved in the theft and its assertion that Yellow obstructed
the investigation. Viewing the evidence in the light most
favorable to S & H, however, we decline to create a new
grounds for invocation of the estoppel doctrine. Yellow did
not say or do anything to lead S & H to believe that it would
not need to meet the claim filing requirement. Yellow did not
tell S & H it was not necessary to file a claim and did not give
S & H faulty information as to the proper method of filing.
We cannot, therefore, apply the doctrine of estoppel in this
case to excuse S & H from the notice requirement. Perini-
North, 562 F.2d at 272–273.

        S & H also urges this Court to adopt what it states is
the rule of the United States Court of Appeals for the Seventh
Circuit, that the notice requirement is inapplicable to
contested claims. S & H appears to have read the Seventh
Circuit’s decisions too broadly. Although the Seventh Circuit
held that the requirements of 49 C.F.R. § 1005.2 did not
control the form of the notice required for contested claims, it
did not excuse the consignee from the duty to provide
sufficient notice. See Wisc. Packing Co. v. Ind. Refrig. Lines,
618 F.2d 441, 445 (7th Cir. 1980). Rather, the Court held that
a letter from the consignee to the carrier that stated that the

                              13
consignee had rejected a defective shipment, identified the
goods by reference, and set forth a formal statement of the
damage, was sufficient notice to satisfy the requirements of
the Carmack Amendment. Id. at 444–445.

        It is settled law that the notice requirement applies to
all claims against carriers for losses. See Perini-North, 562
F.2d at 270 (applying the notice requirement to claim against
carrier over damaged merchandise but finding estoppel
appropriate); accord Trepel, 194 F.3d at 711–713; Ins. Co. of
N. Am., 1 F.3d at 906; Salzstein, 993 F.2d at 1190 n.2;
Nedlloyd Lines v. Harris Transp., 922 F.2d 905, 907 (1st Cir.
1991); Pathway Bellows, Inc. v. Blanchette, 630 F.2d 900,
904 (2d Cir. 1980). As a matter of public policy, the notice
requirement is intended to provide carriers with an
opportunity to investigate claims, so it reaches its full
usefulness precisely when a carrier wishes to contest a claim.
Cf. Ins. Co. of N. Am., 1 F.3d at 906–907.

        In this case, with the exception of the April 3, 2001
delivery, without some notice of which shipments S & H
suspected were diverted, Yellow had no way of ascertaining
which deliveries S & H would contest. In every case in which
Schwartz diverted a delivery, he paid the freight charges and
signed off on the delivery. Thus, Yellow had no reason to
suspect anything was amiss. By the time S & H filed its suit,
it was December, 2002, more than a year and a half after the
last diverted shipment in April, 2001. At this point, it would
have been very difficult for Yellow to conduct an adequate
investigation to determine whether its drivers were engaged in
wrongdoing. S & H’s failure to provide Yellow with

                               14
adequate notice may also have contributed to the truncated
nature of its internal investigation, which did not find any
wrongdoing among its drivers, although the evidence
demonstrates that Janusz, at a minimum, had reason to suspect
that Schwartz was engaged in wrongdoing.

       Yellow’s alleged obstruction of the investigation does
not provide a proper basis upon which to base application of
estoppel in this case. S & H never provided Yellow with
sufficient information upon which to proceed with an
investigation. Compare Ins. Co. of N. Am., 1 F.3d at 907 n.2.
Therefore, it would not be equitable to apply the estoppel
exception here. See Perini-North, 562 F.2d at 270 (“Local
rules of estoppel may not be applied so as to thwart the
purposes of federal statutes. The converse is also true: the
doctrine should be used when it enhances the statutory
purpose.”). Accordingly, we are compelled to reject the
estoppel exception to prevent Yellow from invoking the
notice requirement.

                             III.

      For the foregoing reasons, the judgment of the District
Court will be affirmed. Each party to bear its own costs.

                             15