Legal Briefs: Who's to blame when things go wrong?

Feb. 2, 2006
Liability finger-pointing has been rampant in the transportation industry for years. Don't be surprised if someday an archaeologist finds an ancient tablet

Liability finger-pointing has been rampant in the transportation industry for years. Don't be surprised if someday an archaeologist finds an ancient tablet wherein a Phoenician boat operator disclaimed liability for a load of broken olive oil crocks, saying the ox cart driver who hauled them from the port to the vicinity of a half-completed pyramid was actually at fault.

Shippers expect everything to go right, with their goods delivered on time and intact. Usually that is what happens. But when things go wrong, the "who's to blame?" question often ends up being left to the courts to decide.

With the proliferation of logistics providers, an incident involving cargo damaged in transport may present a shipper with the problem of determining from whom to seek compensation. When the law meets the facts, the issues often become particularly confusing.

A shipper may ask a logistics provider to arrange for the transport of goods. Commonly the shipper does not inquire and is not informed as to what type of transportation entity it is dealing with. The applicable sections of the federal statute use terms such as "motor carrier," "rail carrier," "broker" and "freight forwarder." The statutes do not recognize "logistics providers," "3PLs," " transportation service providers" and " transport arrangers." Consequently, attempts to impose cargo liability can be confusing because the issue often turns on the legal status of the transportation arranger or carrier, not the words in its name. Often, a transportation company may function in various capacities, sometimes through corporately related entities.

A recent decision by a federal court in Pennsylvania will be of help to shippers in sorting through some of the confusion. In a dispute over which transportation service provider involved in a move was responsible for damaged goods — a motor carrier or a freight forwarder — the court said both could be liable.

It all started when the shipper, Accu-Spec, engaged Logistics Plus to provide transportation for an x-ray machine from California to Pennsylvania. Logistics Plus was described as offering "a full range of logistics services," including freight forwarding. Logistics Plus then entered into an agreement with a motor carrier, Central Transport International (Central), to actually transport the machine. Upon the machine's arrival at destination, damage was discovered.

Accu-Spec sued both Logistics Plus and Central. Central argued that Logistics Plus acted as a freight forwarder — a category of carrier under federal law — and therefore, according to Central, the shipper could only bring an action against the carrier it dealt with, Logistics Plus.

Further, Central maintained, Logistics Plus issued its own bill of lading to the shipper and this made only the freight forwarder liable to Accu-Spec for damages.

The court rejected Central's argument and said that under the federal law pertaining to loss and damage (Carmack Amendment), the shipper could go after either the forwarder or the underlying motor carrier or both. The court said that Logistics Plus performed the services of a freight forwarder, an entity recognized by statute as a carrier, and therefore could be held liable. But, the court also said that under the Carmack Amendment, any other carrier that delivers the property and provides transportation service for the movement in question is also liable to the shipper.

Being able to sue the freight forwarder makes sound policy, as the U.S. Supreme Court indicated in an opinion from half a century ago, and is relied upon by the Pennsylvania court. The shipper contracted with a freight forwarder (no matter how it describes itself) to get the goods moved from one place to another, and the shipper should not have to chase after carriers it never dealt with and perhaps never even heard of.

As the Pennsylvania federal court noted, the motor carrier is not off the hook even if the shipper sues only the freight forwarder. The freight forwarder can go after the underlying carriers if it can show that one or more of them caused the loss or damage. This can of course create a lot of passing-the-blame if more than one motor carrier was involved. A carefully crafted contract between the freight forwarder and the underlying motor carrier concerning liability can help prevent litigation.

As the x-ray machine case demonstrates, shippers need to know with what kind of legal entity they are dealing. If the x-ray machine shipper had gone through a broker, the broker may not have been liable. A title such as "logistics provider" has no basis in the law. Shippers need to know in what capacity the logistics company is operating.

James Calderwood is a partner with the law firm of Zuckert, Scoutt & Rasenberger L.L.P., in Washington, D.C., where he concentrates on transportation matters. He can be reached at [email protected]. This column is designed to provide information of general interest. It cannot substitute for in-depth legal analysis of particular problems. Readers are urged to seek counsel concerning individual situations.

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