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CO-OP. SHIPPERS v. SANTA FE RY.

July 3, 1985

CO-OPERATIVE SHIPPERS, INC., A DELAWARE NOT-FOR-PROFIT CORPORATION, PLAINTIFF,
v.
THE ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY, A DELAWARE CORPORATION, DEFENDANT.



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

MEMORANDUM OPINION AND ORDER

Plaintiff CO-OPerative Shippers, Inc. ("CO-OP) is an association of shippers which consolidates the freight of its members and tenders the combined loads to line-haul motor and rail carriers, thereby obtaining for its members the benefit of the carriers' reduced transportation rates for volume shipping. In March of 1983, CO-OP delivered a trailer to defendant The Atchison, Topeka and Santa Fe Railway Company ("Santa Fe") for trailer-on-flatcar ("TOFC") shipment from Chicago, Illinois, to Richmond, California. The train carrying the trailer derailed in Oklahoma, damaging the trailer's cargo, and CO-OP filed this action to recover the actual value of the damaged goods. Santa Fe has admitted liability for the loss, but it disagrees as to the rate at which it should reimburse CO-OP. Rather than the full actual cost of the damaged freight, Santa Fe maintains that its liability is limited to a "released rate" of $.35 per pound. Presently before the Court are the parties' cross-motions for summary judgment. For the reasons set forth below, CO-OP's motion is granted in part and denied in part, and Santa Fe's motion is denied.

I. BACKGROUND

A. Common Law Liability of Carriers

At common law, a carrier's liability for damage to goods transported by the carrier was virtually unlimited. Though not an absolute insurer, the carrier was liable to the shipper for the full extent of the damage unless it was caused by an act of God, a public enemy, the shipper, public authority or the inherent vice or nature of the goods themselves. E.g., Missouri Pacific Railroad Co. v. Elmore & Stahl, 377 U.S. 134, 137, 84 S.Ct. 1142, 1144, 12 L.Ed.2d 194 (1964).*fn1 Courts refused to enforce exculpatory agreements between carrier and shipper purporting to relieve the carrier from all liability for property damage caused by the negligence of the carrier or its servants; such contracts were deemed to violate public policy because they tended to induce carelessness on the carrier's part. Adams Express Co. v. Croninger, 226 U.S. 491, 509-10, 33 S.Ct. 148, 153-54, 57 L.Ed. 314 (1913).

However, common law did permit the carrier and shipper to agree to merely limit — rather than eliminate completely — the carrier's liability for property loss or damage, so long as the shipper granted the limitation in consideration for a lower transportation rate than would reasonably be charged for the carrier's unlimited liability. Id.; Hart v. Pennsylvania Railroad Co., 112 U.S. 331, 340, 5 S.Ct. 151, 155, 28 L.Ed. 717 (1884). Such agreements were justified on the grounds that the carrier was entitled to know its potential liability for property loss and to be compensated in proportion to the risk it assumed. Therefore, if a contractual limitation of liability was the result of a "fair, open, just and reasonable agreement" between carrier and shipper, entered into by the shipper "for the purpose of obtaining the lower of two or more rates of charges proportioned to the amount of risk," Croninger, 226 U.S. at 509-10, 33 S.Ct. at 153, and if the shipper was given "the option of higher recovery upon paying a higher rate," Boston & Maine Railroad v. Piper, 246 U.S. 439, 444, 38 S.Ct. 354, 355, 62 L.Ed. 820 (1918), the agreement was enforceable at common law.

B. Statutory Law Before Deregulation

Congress codified these common law principles in 1906 when it passed the Carmack Amendment to the Interstate Commerce Act ("the Act").*fn2 Although the Carmack Amendment provided that no contract, rule, receipt or regulation could exempt a carrier from full liability, the courts continued to uphold reasonable released-rate agreements. Croninger; see also Boston & Maine Railroad v. Hooker, 233 U.S. 97, 34 S.Ct. 526, 58 L.Ed. 868 (1914); Kansas City Southern Railway Co. v. Carl, 227 U.S. 639, 33 S.Ct. 391, 57 L.Ed. 683 (1913).

Carriers frequently evaded the Carmack Agreement's restrictions by publishing reduced rates based upon released values and setting full value rates at prohibitively high levels, effectively denying shippers any real choice. I.C.C. Report to Congress, 8. Congress responded in 1915 by passing the First Cummins Amendment to the Act, prohibiting all released-rate agreements except when the goods were concealed and their character was unknown to the carrier. However, within a year Congress determined that the First Cummins Amendment was too restrictive. In 1916 it passed the Second Cummins Amendment, returning to the common-law practice of allowing released rates but only when such rates were approved in advance by the I.C.C. and only with "value of the property."*fn3 This statutory scheme lasted until the passage of the Staggers Rail Act of 1980.

C. Deregulation Under the Staggers Act

In October 1980, Congress enacted the Staggers Rail Act of 1980 in order to improve the economic and competitive conditions of the national rail system "through financial assistance and freedom from unnecessary regulation." H.R.Cong.Rep. No. 1430, 96th Cong., 2d Sess. 80 (1980), reprinted in 1980 U.S.Code Cong. & Ad. News 3978, 4110-11. Among other changes, the Staggers Act amended 49 U.S.C. § 10730, making § 10730(a) inapplicable to rail carriers and adding a new subsection (c) specifically relating to rail carriers. Section 10730(c) allows rail carriers to offer released rates without first obtaining I.C.C. approval, and it omits the provision that the released rate must be "reasonable under the circumstances."*fn4

The Staggers Act also amended the I.C.C.'s authority to exempt carriers from regulation. Revised § 10505 directs the I.C.C. to grant an exemption when it finds that, with respect to a person, class of persons, or a transaction or service, regulation

  (1) is not necessary to carry out the transportation
  policy of section 10101a of this title;*fn5 and
  (2) either (A) the transaction or service is of
  limited scope, or (B) the application of a provision
  of this subtitle is not needed to protect shippers
  from the abuse of market power.

Moreover, ยง 10505(f) singled out "transportation that is provided by a rail carrier as part of a continuous intermodal movement" as a service particularly appropriate for deregulation. Acting pursuant to these directions from Congress, the I.C.C. exempted from regulation rail and truck transportation provided by rail carriers in ...


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