Court Opinion

ID: 220903
Source: CourtListenerOpinion
Date Created: 2011-07-14 00:01:53+00
Date Added: 2024-06-11T17:28:47.809376
License: Public Domain

FOR PUBLICATION
 UNITED STATES COURT OF APPEALS
      FOR THE NINTH CIRCUIT

FEDERAL INSURANCE COMPANY,                 No. 09-55028
               Plaintiff-Appellant,           D.C. No.
               v.                         2:08-cv-03212-
UNION PACIFIC RAILROAD COMPANY,              ODW-AJW
              Defendant-Appellee.
                                             OPINION

       Appeal from the United States District Court
          for the Central District of California
        Otis D. Wright, District Judge, Presiding

                  Argued and Submitted
          February 9, 2011—Pasadena, California

                    Filed July 13, 2011

 Before: Alex Kozinski, Chief Judge, Michael D. Hawkins
         and Raymond C. Fisher, Circuit Judges.

                 Opinion by Judge Fisher

                           9467
                FIC v. UNION PACIFIC RAILROAD              9469

                         COUNSEL

Dennis A. Cammarano, Cammarano & Sirna, LLP, Long
Beach, California, for the plaintiff-appellant.

Leslie G. McMurray, Law Offices of Leslie G. McMurray,
Valley Village, California, for the defendant-appellee.

                          OPINION

FISHER, Circuit Judge:

  This is another maritime case about a train wreck. Federal
Insurance Company (FIC) sues for damage to property
destroyed during the inland leg of international intermodal
carriage. FIC is the subrogee of the shipper, Text International
9470               FIC v. UNION PACIFIC RAILROAD
Pte. Ltd. (Text International), which contracted with an ocean
carrier, APL Co. Pte. Ltd. (APL), to ship goods from Singa-
pore to Alabama. APL subcontracted with Union Pacific Rail-
road Co. (UP) for rail carriage inland from San Pedro,
California. UP’s train derailed, destroying Text’s goods. FIC
had insured the goods and paid Text for the loss, subrogating
to Text’s legal rights against UP and APL.1 FIC sued UP and
lost on summary judgment. We review de novo the grant of
summary judgment and affirm.

   The district court ruled that a covenant not to sue in the
through bill of lading required FIC to sue the carrier, APL,
rather than UP, a subcontractor. On appeal, FIC argues that
the covenant not to sue is unenforceable. FIC briefed the
appeal solely on the theory that the Carmack Amendment, 49
U.S.C. § 11706 (1995), governed the shipment’s inland leg
and prohibited the covenant not to sue; its opening and reply
briefs relied heavily on our court’s opinion in Regal-Beloit
Corp. v. Kawasaki Kisen Kaisha Ltd., 557 F.3d 985 (9th Cir.
2009).

   The Supreme Court subsequently reversed our decision.
See Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp., 130 S.
Ct. 2433, 2444 (2010). FIC concedes that under Kawasaki the
Carmack Amendment does not apply to this case. Neverthe-
less, FIC maintains that the covenant not to sue is prohibited
by an alternative legal regime — the Harter Act, 46 U.S.C.
§ 30704 (2006).2 FIC neglected to make its Harter Act argu-
  1
     “The equitable doctrine of subrogation passes to the insurer only those
rights which the assured has and, if the rights of the assured have been
limited by lawful contract, the rights of the insurer are likewise limited.”
Atlas Assurance Co. v. Harper, Robinson Shipping Co., 508 F.2d 1381,
1389 (9th Cir. 1975).
   2
     Congress enacted the Harter Act, 27 Stat. 445 (1893) (codified for-
merly at 46 U.S.C. app. §§ 190-196 and presently at 46 U.S.C. §§ 30701-
30707), to “invalidate bill of lading clauses that relieved vessel owners
from liability for damage due to their negligent actions in transporting
                    FIC v. UNION PACIFIC RAILROAD                        9471
ment in its filings in the district court or its initial briefs on
appeal.3

   We consider arguments raised for the first time on appeal
only in “exceptional circumstances.” AlohaCare v. Haw.
Dep’t of Human Servs., 572 F.3d 740, 744-45 (9th Cir. 2009)
(quotation marks omitted). FIC suggests two exceptional cir-
cumstances exist here: (1) Kawasaki was a “change in law
rais[ing] a new issue while [the] appeal [was] pending,” id. at
744-45 (quoting Kimes v. Stone, 84 F.3d 1121, 1126 (9th Cir.
1996) (internal quotation marks omitted); (2) the issue is
“purely one of law,” id. (same). With respect to the first cir-
cumstance, there was no relevant change in the law. FIC
“could easily have made” its Harter Act argument before the
Supreme Court issued Kawasaki. Turnacliff, 546 F.3d at
1120. The Harter Act argument is, however, a purely legal
issue; that is, it “ ‘does not affect or rely upon the factual
record developed by the parties, and will not prejudice the
party against whom it is raised.’ ” Dream Palace v. Cnty. of

cargo.” N. River Ins. Co. v. Fed Sea/Fed Pac Line, 647 F.2d 985, 987 (9th
Cir. 1981). But, “[t]o the extent that the Harter Act governed international
trade leaving from or entering American ports, it was superseded in 1936
by the Carriage of Goods by Sea Act [(COGSA)], 46 U.S.C. [§ 30701
note].” Id. FIC argues that the Harter Act applies because the damage
occurred after the goods were discharged from the vessel and COGSA
does not apply by its own force at that point. See id. at 987 n.3 (citing Isth-
mian Steamship Co. v. Cal. Spray Chem. Corp., 300 F.2d 41, 46 (9th Cir.
1962) (COGSA notwithstanding, “[t]he Harter Act was preserved for . . .
the time prior to loading and after delivery.” (citation omitted)).
   3
     FIC also argues that the common law would prohibit the covenant not
to sue. The Harter Act largely codified the common law, see United States
v. Atlantic Mut. Ins. Co., 343 U.S. 236, 239-40 (1952), and FIC has not
identified a material difference between the two in this case, so we treat
the claims as one. FIC further argues that it can claim damages under UP’s
Master Intermodal Transportation Agreement, a bill of lading issued by
UP. FIC concedes remand would be required to develop the factual record
before analyzing this claim, so it is waived. See Turnacliff v. Westly, 546
F.3d 1113, 1120 (9th Cir. 2008).
9472                FIC v. UNION PACIFIC RAILROAD
Maricopa, 384 F.3d 990, 1005 (9th Cir. 2004) (quoting Janes
v. Wal-Mart Stores, Inc., 279 F.3d 883, 888 n.4 (9th Cir.
2002)). Whether the covenant not to sue is enforceable turns
on two issues we can resolve based on the undisputed facts:
First, what legal regime applies to the shipment’s inland leg
under the through bill of lading? See L.K. Comstock & Co. v.
United Eng’rs & Constructors Inc., 880 F.2d 219, 221 (9th
Cir. 1989) (explaining that interpretation of a contract without
reliance on extrinsic evidence is a question of law that we
review de novo). Second, does the applicable legal regime
prohibit the covenant not to sue? We agree with UP that the
Harter Act does not apply and the covenant not to sue is
enforceable.

                                      I.

   [1] The through bill of lading contained a paramount
clause specifying the applicable legal regime.4 The paramount
clause made the Carriage of Goods by Sea Act (COGSA), 46
U.S.C. § 30701 note, applicable “[f]rom loading of the Goods
onto the Vessel until discharge of the Goods from the Ves-
sel,” and the Hague Rules applicable “[p]rior to loading onto
the Vessel and after discharge from the Vessel.”5 Because the
   4
     A paramount clause, or clause paramount, is a commonly accepted
device that “identifies the law that will govern the rights and liabilities of
all parties to the bill of lading.” Sompo Japan Ins. Co. of Am. v. Union
Pac. R.R. Co., 456 F.3d 54, 56 (2d Cir. 2006), abrogated on other grounds
by Kawasaki, 130 S. Ct. 2433. We have routinely enforced paramount
clauses in similar situations. See Sea-Land Serv., Inc. v. Lozen Int’l., LLC.,
285 F.3d 808, 816-17 (9th Cir. 2002).
   5
     The Hague Rules are formally known as the International Convention
for the Unification of Certain Rules of Law Relating to Bills of Lading,
August 25, 1924, 51 Stat. 233, T.S. No. 931. The Hague Rules were pro-
mulgated at the Brussels Convention of August 25, 1924, which was con-
vened to standardize rules governing ocean carriers’ liability for
negligence. The United States codified the Hague Rules by enacting the
Carriage of Goods by Sea Act, 49 Stat. 1207 (1936) (46 U.S.C. §§ 1300-
15). See Sunkist Growers, Inc. v. Adelaide Shipping Lines, Ltd., 603 F.2d
1327, 1333 (9th Cir. 1979). In 2006, Congress reorganized Title 46 but did
not recodify COGSA, which currently appears as a note to 46 U.S.C.
§ 30701. See Pub. L. No. 109-304, 120 Stat. 1485 (2006).
                 FIC v. UNION PACIFIC RAILROAD               9473
damage here occurred after discharge from the vessel, the
Hague Rules plainly apply.

   [2] The Hague Rules are “virtually identical” to COGSA
for purposes of this case, so we apply our precedent interpret-
ing COGSA to the paramount clause’s reference to the Hague
Rules. In re Damodar Bulk Carriers, Ltd., 903 F.2d 675, 681
(9th Cir. 1990) (finding no error where the district court
applied COGSA to a contract referring to the Hague Rules).
Compare COGSA § 7, 46 U.S.C. § 30701 note, with Hague
Rules art. 7, 51 Stat. 233. As a general rule, the Harter Act,
rather than COGSA, applies to goods before delivery to and
after discharge from a vessel. See N. River Ins. Co. v. Fed
Sea/Fed Pac Line, 647 F.2d 985, 987 n.3 (9th Cir. 1981). The
Harter Act, however, can be displaced by a contract extending
COGSA to the transport of goods before delivery to and after
discharge from a vessel. See Starrag v. Maersk, Inc., 486 F.3d
607, 615 (9th Cir. 2007) (“[W]here the parties contractually
extend the COGSA to cover the damage, the Harter Act does
not apply.”); Sea-Land, 285 F.3d at 816-17 (“[B]ecause
COGSA is incorporated by contract into [the] bills of lading,
“ ‘it, rather than the Harter Act, controls.’ ” (quoting N. River,
647 F.2d at 987)). By the same reasoning, the paramount
clause here validly extended the Hague Rules to displace the
Harter Act. We enforce the paramount clause and analyze the
covenant not to sue under the Hague Rules and COGSA.

                               II

   [3] The through bill of lading’s covenant not to sue is
enforceable because FIC can still seek a full recovery from
the carrier, APL. The covenant states:

    4. SUB-CONTRACTING

    ...

    ii) The Merchant undertakes that no claim or allega-
    tion shall be made against any Person whomsoever
9474             FIC v. UNION PACIFIC RAILROAD
    by whom the Carriage is procured, performed or
    undertaken, whether directly or indirectly (including
    any independent contractors and any Sub-
    Contractors of the Carrier and their servants or
    agents), other than the Carrier which imposes or
    attempts to impose upon any such Person, or any
    Vessel owned by any such Person, any liability
    whatsoever in connection with the Goods or the Car-
    riage of the Goods, whether or not arising out of
    negligence on the part of such Person . . . . [E]very
    such person shall have the benefit of every right,
    defense, limitation and liberty of whatsoever nature
    herein contained or otherwise available to the Carrier
    as if such provisions were expressly for its benefit
    ....

The covenant not to sue forces the “Merchant” — here, Text
International — to bring all suits against the “Carrier” —
here, APL — even for damage caused by a “Sub-Contractor”
like UP. This arrangement is lawful under the Hague Rules,
which are again functionally identical to COGSA. Compare
COGSA § 3(8), 46 U.S.C. § 30701 note, with Hague Rules,
Art. 3(8), 51 Stat. 233.

   [4] COGSA prohibits contracts that lessen or relieve the
carrier of liability “arising from negligence, fault, or failure in
the duties and obligations provided in this section.” COGSA
§ 3(8), 46 U.S.C. § 30701 note. The Supreme Court has dis-
tinguished between impermissible contracts that reduce the
carrier’s obligations and enforceable contracts that affect only
the “mechanisms” of enforcing a shipper’s rights. See Vimar
Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528,
535 (1995). COGSA requires that

    [t]he liability that may not be lessened is “liability
    for loss or damage . . . arising from negligence, fault,
    or failure in the duties or obligations provided in this
    section.” The statute thus addresses the lessening of
                   FIC v. UNION PACIFIC RAILROAD                   9475
      the specific liability imposed by the Act, without
      addressing the separate question of the means and
      costs of enforcing that liability.

Id. at 534 (quoting COGSA § 3(8), 46 U.S.C. § 30701 note)
(omission in original). The requirement that all suits be
brought against APL is an enforcement mechanism rather
than a reduction of “ ‘the carrier’s obligations to the cargo
owner below what COGSA guarantees.’ ” Fireman’s Fund
Ins. Co. v. M/V DSR Atlantic, 131 F.3d 1336, 1339 (9th Cir.
1997) (quoting Sky Reefer, 515 U.S. at 538, and applying Sky
Reefer to a forum selection clause).

   [5] It makes no difference that the covenant not to sue
might make it more difficult as a practical matter for FIC to
recover damages. Sky Reefer expressly held that a contract
clause does not contravene COGSA merely because it
increases the “transaction cost of litigation.” See 515 U.S. at
536. FIC may have some unarticulated, practical preference
for suing UP rather than APL, but it disavowed that prefer-
ence when it agreed to the covenant not to sue.

   [6] We therefore hold that the Hague Rules and COGSA
permit a carrier to accept exclusive liability for the negligence
of its subcontractors.6 Cf. Norfolk S. Ry. Co. v. Kirby, 543
U.S. 14, 35 (2004) (validating under COGSA an ocean carri-
er’s efforts to limit the liability of sub-contractors in part
because the shipper “retain[ed] the option to sue . . . the carri-
er[ ] for any loss that exceeds the liability limitation”).
  6
    Several district courts have already reached this conclusion. See St.
Paul Travelers Ins. Co. v. M/V Madame Butterfly, 700 F. Supp. 2d 496,
503 (S.D.N.Y. 2010); see also Mattel, Inc. v. BNSF Ry. Co., 2011 WL
90164, at *4 (C.D. Cal. Jan. 3, 2011); Ltd. Brands, Inc. v. F.C. (Flying
Cargo) Int’l Transp. Ltd., 2006 WL 783459, at *8 (S.D. Ohio Mar. 27,
2006); Allianz CP Gen. Ins. Co. v. Blue Anchor Line, 2004 WL 1048228,
at *6 (S.D.N.Y. May 7, 2004).
9476            FIC v. UNION PACIFIC RAILROAD
                              ***

  [7] The district court did not err by enforcing the covenant
not to sue and granting summary judgment to UP; the require-
ment that FIC sue APL directly is valid under the Hague
Rules and COGSA.

  AFFIRMED.