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Exel, Inc. v. Southern Refrigerated Transport, Inc.

United States District Court, S.D. Ohio, Eastern Division

May 8, 2017

EXEL, INC. F/U/B/O SANDOZ, INC., Plaintiff,

          Jolson Magistrate Judge.

          OPINION & ORDER

          JAMES L. GRAHAM United States District Judge.

         A truck filled with millions of dollars' worth of pharmaceuticals was stolen. The trucking company-Southern Refrigerated Transport, Inc. (“SRT”)-is at fault. The shipper-Sandoz, Inc. (“Sandoz”)-claims that the pharmaceuticals were worth $8.6 million. A federal statute- the Carmack Amendment, 49 U.S.C. § 14706 et seq.-imposes strict liability on motor carriers for “actual loss or injury to property, ” but a narrow exception applies if the shipper agrees to a limitation of liability. SRT argues that Sandoz drafted shipping documents called bills of lading in which it selected a liability limit of $2.40 per pound of cargo, or $56, 766.36. The question before the Court is whether the bills of lading contain a valid limitation of liability.

         Sandoz isn't a party to the lawsuit, but it assigned its claim to the company it hired to broker the shipment, Exel, Inc. (“Exel”). Exel thus brings this claim against SRT as the assignee of Sandoz. And on this claim, Exel and SRT both move for summary judgment. Since the purported limitation of liability does not satisfy the requirements placed on carriers by the Carmack Amendment, the Court will GRANT Exel's Motion for Summary Judgment on that issue and will DENY SRT's Motion for Summary Judgment. But the Court cannot grant summary judgment on the issue of damages because it lacks sufficient evidence to decide what measure of damages applies.

         I. Background

         A. Factual Background

         The facts have been summarized many times throughout this case, most recently by the Sixth Circuit in its opinion vacating this Court's judgment and remanding the case for further proceedings. Exel, Inc. v. S. Refrigerated Transp., Inc., 807 F.3d 140 (6th Cir. 2015). Before reciting the facts of this case, it's important to define a few terms that will be used throughout this discussion. There are three relevant parties: Sandoz, the pharmaceutical company; Exel, which brokered the shipment of Sandoz's goods; and SRT, which transported the goods by truck. Three terms apply to these parties throughout the discussion.

         A “shipper” is “[s]omeone who ships goods to another.” Shipper, Black's Law Dictionary (10th ed. 2014). Here, Sandoz is the shipper.

         A “carrier” is “[a]n individual or organization (such as a shipowner, a railroad, or an airline) that contracts to transport passengers or goods for a fee.” Carrier, Black's Law Dictionary (10th ed. 2014). Here, SRT is the carrier.

         A “broker” is “[a]n agent who acts as an intermediary or negotiator, esp. between prospective buyers and sellers; a person employed to make bargains and contracts between other persons in matters of trade, commerce, or navigation.” Broker, Black's Law Dictionary (10th ed. 2014). More specifically to this context, “[t]he Interstate Transportation Act defines ‘broker' as ‘a person, other than a motor carrier or an employee or agent of a motor carrier, that as a principal or agent sells, offers for sale, negotiates for, or holds itself out by solicitation, advertisement, or otherwise as selling, providing, or arranging for, transportation by motor carrier for compensation.'” Exel, 807 F.3d at 149 n.7 (quoting 49 U.S.C. § 13102(2)). Here, Exel is the broker.

         The Sixth Circuit recited the facts as follows:

SRT is a motor carrier that provides transportation of cargo in interstate commerce. Exel, a freight broker, arranges for the transportation of its customer's commodities. In December, 2007, Exel and SRT executed a Master Transportation Services Agreement (MTSA). The MTSA is a standard agreement that Exel executes with any carrier it hires to transport its clients' goods. It establishes non-exclusivity, delineates various delivery terms, sets forth the billing arrangements and insurance requirements, and prescribes other terms that govern the parties' ongoing relationship. It does not contain shipment-specific terms.
Section 4 of the MTSA states that Exel will issue freight receipts for each shipment. Further, “[i]f a bill of lading[1] is issued as a freight receipt, any terms, conditions or provisions” in the bill of lading “shall be subject to and subordinate to the terms of” the MTSA, and “in the event of a conflict, ” the MTSA “shall govern.” The MTSA also provides that SRT “shall be liable” to Exel for any “loss” to commodities shipped pursuant to the agreement, and that the “measurement of the loss . . . shall be the Shipper's replacement value applicable to the kind and quantity of Commodities so lost . . . .”
Sandoz, who is not a party to this litigation, is one of Exel's customers. In November, 2008, Exel arranged for SRT to transport a shipment of Sandoz's pharmaceuticals from Exel's warehouse in Mechanicsburg, Pennsylvania, to Memphis, Tennessee. Before the shipment, Exel prepared five documents, designated as bills of lading, on Sandoz's behalf. Exel personnel loaded the pharmaceuticals onto SRT's container. Exel personnel signed the bills of lading and gave them to the SRT driver, who also signed them.
The bills of lading include the number of units to be transported, the weight of each shipment, and special instructions for delivery. In the section labeled “KIND OF PACKAGES, DESCRIPTION OF ARTICLES SPECIAL MARKS EXCEPTIONS” the freight is designated as “Drugs or Medicines Non Hazardous.” The freight is labeled “Item 60000 Class 85, RVNX $2.40.” Neither of the latter terms is defined in the bills of lading.
The bills of lading contain the following “certification” language:
Carrier, SFRI ... RECEIVED, subject to the classifications and Tariff, in effect on the date of issue of this bill of lading ... The Proper[sic] described below, in apparent good order, ... which said carrier ... agrees to carry ... that every service to be performed here-under shall be subject to all terms and conditions of the Uniform Domestic Straight Bill of Lading ... in the applicable motor carrier classification or tariff[2] if this is a motor carrier shipment. Shipper hereby certifies that he is familiar with all the said terms and conditions of the said bill of lading set forth in the classification or tariff which governs the transportation of this shipment and the terms and conditions are hereby agreed to by shipper and accepted by himself and his assigns.
(Emphases added). The bills of lading also have a “declared value” box:
NOTE-Where the rate is dependant [sic] on value, shippers are required to state specifically in writing the agree[sic] or declared value of property. The agreed or declared value on the property is hereby specifically stated by the shipper not to be not exceeding per.
No value is declared on the bills of lading.
“RVNX” is not defined in the bills of lading. According to SRT, RVNX is an abbreviation for “Released Value Not to Exceed”-it is a per pound limit of liability for any claim against the carrier related to the loss or damage of the cargo, calculated by multiplying the per-pound limit of liability by the weight in pounds of the cargo.
On November 7, 2008, the SRT truck carrying the Sandoz shipment was stolen and the goods were never recovered. On November 14, 2008, Sandoz made a claim for the lost goods with Exel.
The November lost shipment was not the first cargo loss involving Sandoz, Exel, and SRT. Three months prior, on August 24, 2008, a SRT truck carrying Sandoz's cargo was stolen near Memphis, Tennessee, and the goods were never recovered. Exel submitted a written notice of claim to SRT pursuant to the MTSA, seeking full value recovery of the August shipment based on replacement cost for the shipment, which SRT paid (although the amount at issue was much less). Also after the August 24 theft, SRT allegedly agreed to assign Sandoz-Exel shipments to SRT's Constant Security Program (CSP), which requires that a truck never be left unattended. Exel admits that neither Exel nor Sandoz paid SRT for any special handling under the CSP, but maintains that “SRT apparently chose to absorb the cost of the CSP in order to keep” Exel's business.
Thus, on December 9, 2008, Exel submitted on behalf of Sandoz a claim to SRT pursuant to the MTSA demanding the full replacement value of the November shipment, $8, 583, 631.10. This time SRT denied the claim, stating that its recovery was limited to $56, 766.36, based on the terms in the bills of lading, namely the “RVNX $2.40”, times the weight of the cargo. In a letter dated January 29, 2009, Martin Gargiule, Director of Finance in Business Planning and Analysis Group for Sandoz, reiterated its position that “Sandoz holds Exel fully liable for the Claim, and demands payment for the claim in the amount of $8, 585, 631.10, ” and that “Sandoz therefore rejects Exel's position that it is not liable for the loss, or that Sandoz must look to the carrier for recovery.”
On October 18, 2010, Sandoz assigned its rights and interests in the second lost cargo to Exel. On November 5, 2010, Exel, “for the use and benefit of” Sandoz, filed a complaint against SRT, alleging (1) breach of contract (Count I); (2) breach of bailment (Count II); (3) breach of the ICC Termination Act (previously the Carmack Amendment) (Count III); and (4) a request for a declaratory judgment to determine “whether the terms of the Agreement or the terms of the bills of lading govern the claim for damages in this matter” (Count IV). Exel sought $8, 583, 671.12 in damages.

Exel, 807 F.3d at 143-45 (footnotes omitted).

         B. Procedural History

         Exel presented four claims in its Complaint. Count I was for breach of contract. Count II was for breach of bailment. Count III was for breach of statutory duties under the Carmack Amendment. Count IV was for declaratory judgment.

         The Court granted judgment on the pleadings for SRT on Counts I and II, declined to exercise jurisdiction over Count IV, and found that Count III presented a viable claim. (Doc. 24). The parties then submitted cross-motions for summary judgment as to Count III. (Docs. 29 & 30). After oral argument, and after hearing about the MTSA for the first time, the Court sua sponte reconsidered its decision and determined that Count IV stated a claim for breach of contract brought by Exel on its own behalf under the MTSA. (Op. & Order at 3, Doc. 49). The Court ordered supplemental briefing on the issue. (Id.). The Court then denied the parties' cross-motions for summary judgment without prejudice. (Op. & Order at 12-13, Doc. 59). At this stage, Counts III and IV were still viable, and the parties filed renewed cross-motions for summary judgment.

         In August 2014, the Court granted summary judgment to Exel on Count IV, awarding it $5, 890, 338.82 in damages, which later increased to over $7 million with prejudgment interest. (Doc. 112). In doing so, the Court held that Exel's declaratory judgment claim was not preempted by the Carmack Amendment, which made it unnecessary to discuss Exel's claim under the Carmack Amendment (Count III).

         The Court granted summary judgment to Exel because the parties had signed the MTSA, which apportioned liability amongst the parties with SRT bearing the loss if the goods were in its possession at the time of the loss. The MTSA measured the loss as “the replacement value applicable to the kind and quantity of Commodities lost.” (MTSA at ¶ 9b, Doc. 97-6). Exel presented unrebutted testimony that the replacement value of the lost goods was $5, 890, 338.82, so the Court entered judgment for Exel in that amount plus prejudgment interest. (Op. and Order at 17).

         SRT appealed the Court's grant of summary judgment on Count IV, and Exel filed a conditional cross-appeal of the dismissal of Count III. The Sixth Circuit held that Exel lacked standing to bring a breach-of-contract claim under the MTSA “because it suffered no injury and . . . the Carmack Amendment provides the exclusive cause of action in this case.” Exel, 807 F.3d at 149. There was no evidence in the record to indicate that Exel was contractually liable to Sandoz for the lost pharmaceuticals; therefore, the lost pharmaceuticals were no loss to Exel, only Sandoz. Exel had no standing of its own, regardless of the MTSA, to sue SRT for the lost pharmaceuticals. Since Count IV was the basis for the damages award, the Sixth Circuit vacated that award. Exel can no longer maintain its own breach-of-contract claim under Count IV of its Complaint.

         In Exel's conditional cross-appeal, it first argued that even if the Carmack Amendment applied to its claim, the Carmack Amendment permits it to enter into a contract with a carrier and have that contract assign liability. The MTSA is that contract. The Sixth Circuit rejected this argument, holding that “only a ‘shipper and a carrier' can enter into an agreement waiving rights under the statute.” Id. at 149 (quoting 49 U.S.C. § 14101(b)(1)). “[T]he Carmack Amendment does not provide Exel, as a non-shipper broker, with a direct cause of action. Thus, Exel cannot sue under the Carmack Amendment for breach of the MTSA.” Id.

         But the Sixth Circuit did return one claim to the district court: Exel's assigned claim from Sandoz. The Sixth Circuit held that Sandoz had a claim “against SRT under the bills of lading, ” Sandoz assigned that claim to Exel, and “as assignee of those rights, Exel has standing to bring a Carmack claim.” Exel, 807 F.3d at 149. After some discussion, the Sixth Circuit narrowed the issue on remand to this: “whether SRT's liability is effectively limited in the bills of lading.” Id. at 151. That question turns on two issues: (1) the meaning and significance of the phrase “RVNX $2.40, ” in the bills of lading and (2) whether SRT “provided Sandoz (or Sandoz's agent) with the opportunity to choose between two or more levels of liability as required by Toledo Ticket.” Id. (referring to Toledo Ticket Co. v. Roadway Exp., Inc., 133 F.3d 439, 442 (6th Cir. 1998)). The Sixth Circuit concluded, saying “[i]n sum, whether SRT's liability is limited by the bills of lading is a question of fact, for resolution in the first instance by the district court.” Id. at 153.

         The Sixth Circuit also noted another issue not fully ripe for its review:

Exel also argues that, even if the bills of lading trump the terms of the MTSA, the limitation of liability in the former would be invalid due to SRT's breach of the CSP [Constant Security Program], which the driver violated by leaving the vehicle unattended immediately prior to the loss. . . . The district court did not address this issue and the record is not sufficiently developed at this point for us to consider it. We note only that Exel did not sue SRT for breach of ...

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