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October 20, 1980


The opinion of the court was delivered by: Shadur, District Judge.


This is an action*fn1 brought by plaintiff Louis Padnos Iron & Metal Co. ("Padnos"), a scrap iron and steel processor and shipper, for alleged losses of scrap after it had been delivered to defendant Chesapeake and Ohio Railway Co. ("C&O") for transmittal to various consignees of Padnos. This opinion will deal with both Padnos' and C&O's requests for pre-trial rulings of law.*fn2


Padnos' plant at Holland, Michigan is served by the tracks of C&O. Padnos obtains open-top gondola cars from C&O, weighs them empty (the "tare" weight), loads them with scrap, weighs the loaded cars and prepares bills of lading consigning the cars to steel mills and other consumers of scrap ("consignees").

C&O issues the bills of lading, which are both the contract between the parties and a receipt for the cars C&O receives from Padnos. Each bill of lading sets forth the gross weight, actual tare and actual net weight of each car identified as being shipped. C&O then invoices Padnos for the applicable freight charges based on the weights appearing on the bills of lading. Multiple cars are frequently shipped under a single bill of lading in order to satisfy tariff requirements for the use of special freight rates lower than those that apply to single car shipments.

C&O transports the loaded cars either directly or through connecting lines to the consignees. With respect to the thirty-four consignees involved in this action, C&O is the delivering carrier in only three instances; in all other cases C&O delivers the cars to connecting railroads. However, C&O is the "origin" or receiving carrier of all cars of scrap involved here.

C&O or the delivering carrier makes delivery to a single location for each consignee, often outside the consignee's property. Cars are then moved by the consignee's own engines and not handled again by any railroad until they are returned empty to the delivery track, where the delivering carrier removes them.*fn3

Each consignee weighs each car it receives on railroad track scales, after which the scrap is unloaded onto stock piles and the car is weighed empty. Consignees pay for scrap received based on net weights determined on their own scales in the above manner, under the contractual term "consumers weights and grading to govern." Padnos sells its scrap through brokers or intermediaries based on settlements they receive from the consignees. Significantly, when there is a shortage (consignee net weights are less than Padnos' net weights), Padnos is paid based on the consignee destination net weights.*fn4

Contentions of the Parties

Padnos claims that unexplained shortages have occurred with respect to the 595 cars of scrap. Under 49 U.S.C. § 11707(a)(1) (the Carmack Amendment, formerly 49 U.S.C. § 20(11), herein "Section 20(11)"), Padnos argues that C&O must compensate Padnos for those losses. C&O contests the claim that shortages have occurred at all,*fn5 but in the event the Court finds to the contrary, it also contests its liability for such losses, since they occurred while the cars were in the possession of the consignee.*fn6


We turn to a discussion of the legal issues on which the parties have requested rulings. This discussion takes place against a background of two related factors that complicate the analysis and the resolution of the parties' contentions:

  1. If the problem were presented in a laboratory
     environment, no dispute could exist. Under the law
     of the conservation of matter, the use of
     net weights would produce the same
     results as the use of gross weights. It
     is the addition or subtraction of matter
     extraneous to the delivery to each consignee that
     creates the disparity in results under the two
     weighing methods.
  2. All the extraneous factors are determined only
     after the railroad cars are out of the possession
     of both Padnos and C&O, though Padnos is of course
     one step farther removed from that determination
     than C&O. In a practical sense the resolution of
     the issues between the parties may be thought of
     as an arbitrary one — that is, it is
     determined by an allocation of the burden of
     proof, made while recognizing that in real world
     terms the party on whom the burden is placed may
     not be able to discharge it.

In addition, this case is substantially impacted by the decision In re Net Weights for Determining Losses-Scrap Iron and Steel, Ex parte No. 263 (Sub-No. 2), 352 I.C.C. 402 (1976) (the "ICC Decision"), aff'd sub nom. Association of American Railroads v. ICC, 600 F.2d 989 (D.C.Cir. 1979) ("AAR v. ICC"). Padnos initiated the general rulemaking proceeding that culminated in the ICC Decision, and AAR (of which C&O is a member) was the active opponent of Padnos' position there. Under those circumstances, principles of collateral estoppel apply here (even though the ultimate issue in the ICC Decision was the rule to be applied in settlement of claims, while the ultimate issue here is the proper rule of law in litigation of claims). See Proctor & Gamble Co. v. Byers Transportation Co., Inc., 355 F. Supp. 547, 556-57 (W.D.Mo. 1973), employing a comparable analysis to apply res judicata.

Accordingly, this opinion will deal with the effect of the ICC Decision at relevant points in the discussion.

1. Applicability of Section 20(11)

Padnos' claim rests largely on Section 20(11) and the case law under it. Section 20(11) states in relevant part:

  Any . . . railroad . . . subject to the provisions of
  this chapter . . . receiving property for
  transportation . . . shall issue a receipt or bill of
  lading therefor, and shall be liable to the lawful
  holder thereof for

  any loss . . . to such property caused by it . . .
  and any such . . . railroad . . . shall be liable to
  the lawful holder of such receipt or bill of
  lading . . . for the full actual loss . . . caused
  by it or by any such . . . railroad . . . to which
  such property may be delivered. . . .*fn7

In actions by a shipper against its carrier, the shipper establishes a prima facie case under Section 20(11) by demonstrating the delivery of the materials to be shipped in good condition, their arrival in damaged (or diminished) condition, and the amount of damage incurred as a result. Missouri Pacific R.R. Co. v. Elmore and Stahl, 377 U.S. 134, 138, 84 S.Ct. 1142, 1144, 12 L.Ed.2d 194 (1964). Padnos asserts it has established all those elements — that the bill of lading shows the ...

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