Amicus Curiae Brief — Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp.

Supreme Court brief2010

Ask Donna

What actually matters in this document.

Text

Supreme Court, U.S.

FILED

48 (9) DEC 23 2003

Nos. 08-1553 & 08-1554 |_ OFFICE OF THE CLERK

IN THE

Supreme Court of the Anited States

KAWASAKI KISEN KAISHA LTD., et al.,

Petitioners,

and

UNION PACIFIC RAILROAD COMPANY,

Petitioner,

Vv.

REGAL-BELOIT CORPORATION, et ai.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

BRIEF OF AMICUS CURIAE

THE WORLD SHIPPING COUNCIL

IN SUPPORT OF PETITIONERS

MARC J. FINK

JOHN W. BUTLER*

JOSHUA P. STEIN

SHER & BLACKWELL LLF

Suite 900

1850 M Street, NW

Washington, DC 20036

(202) 463-2510

December 23, 2009 *Counsel of Record

Counsel for Amicus Curiae The World Shipping Council

SSE BSG SS TE I TT EE ONDE LEGO,

WILSON-EPES PRINTINGCO.. INC. — (202) 789-0096 -— WasHiINGTON,D C 20002

JAH DA ONE ry

TABLE OF CONTENTS

TABLE OF AUTHORITIES ................cccccccsscsseees

INTEREST OF AMICUS CURIAE...................:.

ETT NE AE TCT a Ee

1. Ocean Service Contracts Under the

I I ins cccncnnciccongesenccinsccdess

a. Legal Background of Ocean Service

IIT iocihscnieinahinisctiesiuisinnsiibaaistclasiainttiedsananee

b. Ocean Service Contracts in Practice...

ESTEE OEE SORE OR TOT

a. Legal Background of Rail Contracts...

b. Role of Rail Contracts in International

Maritime Through Transportation.....

SUMMARY OF ARGUMENT ........................0008

Es a anna nn a

1. “K” Line Is Not a “Rail Carrier’ ...............

2. The Ninth Circuit Misread the Interplay

between 49 U.S.C. 10502 and 10709........

3. The Contracts in This Case Meet the

Requirement for Varying Liability Lim-

I eanadvensaneiie

IIIT ‘ccinnsticleccnvisdeibonadenatebesiminedadetaudeaceneiss

TABLE OF AUTHORITIES

CASES Page

Great Northern R. Co. v. O’Connor, 232

aie 4

Louisville & Nashville R. Co. v. Maxwell,

TTI LI AALS A SOR 23

New York, N. H. & H. R. Co: v. Nothnagle,

cn csnesecmmenamenie 22, 23, 24

Norfolk Southern Railway Co. v. James N.

Kirby, Pty Ltd., 543 U.S. 14 (2004)......... passim

Rexroth Hydraudyne B.V. vu. Ocean

World Lines, Inc., 547 F.3d 351 (2d Cir.

I scitahithinhanidtaheidaerapuiiainenseenitinttiinaseanieiia 15, 16, 17

Sompo Japan Ins. Co. v. Union Pacific, 456

i rE 21, 22

Vimar Seguros y Reaseguros, S.A. v. M/V

Sky Reefer, 515 U.S. 528 (1995) ............... 18

STATUTES

Se ID vncciiccccsnscserssesarsccssescsses 2

ee II, cccccccnsscsctsccesessesseseseses 5

I itirccivecccsescccoescensnccesecooson 17

Oe ie I inc ccssxsccnrencreccsasnssnnsecasses 17

GF Pre CIEE ccccesscccccvescvessescessorsceeess 17

Be ee NUE? sevice secccesscrsccsesccansnsesens 17

a enceeienenbenet 5-6, 17

in ieineeisnenctunspesnancunuseneanads 17

ii cnincchiseststapnacnatiniiomneceniens 14, 15

GP MILD os scescccnccccevescescessscessevacs 13

i soc cans cemimaonenssnendonies 13, 17

in cctaiieinnnscccacecesnecsssessseussnned passim

SD UB. TOUR) 20000 .ccccccscssccccesooscesss 16,17

io csccicestunsiciaeatpnbereians 19

is ciinicaniasaentendmanseunntnies 19

ee I iaiiiisincdiasscacsensestavicaseonsencephs passim

iii

TABLE OF AUTHORITIES—Continued

Page

eB iiicncccncccccscscscacecssssressssees 20

OF es BE I cccecccesccuncsocossoneseseseses 20

a passim

I ID os. cccnuscnnssanssmenssdsdsenaosesouues 14, 23

a scinnschiiserieiiaeniodaebideninaieneie 13, 17, 18

Interstate Commerce Commission Termi-

nation Act, P.L. 104-88, 109 Stat. 803

UI iacccsiuinetniainietpsniinsaaeciaiiimeniinnentnieddeiaiidesion 6,9

Ocean Shipping Reform Act of 1998, P.L.

105-238, 112 Stat. 1902 (1998)............ 7, 8,9, 10

Shipping Act of 1984, P.L. 98-237, 98 Stat.

eo 6, 7,9, 10, 17

Shipping Act of 1984, P.L. 98-237, § &(c),

98 Stat. 67, 69 (1984) (repealed 1998) ..... 7

Shipping Act of 1984, as amended, P.L.

109-304, 120 Stat. 1523 (2006)................. 5,13

Staggers Rail Act of 1980, P.L. No. 96-448,

ey SE ID cc sscncceicnssccscdessdcdncinecs passim

OTHER AUTHORITIES

Change of Policy; General Policy State-

ment, Ex Parte No. 358-F, 43 Fed. Reg.

58189 (1.C.C. Dec. 13, 1978)..................... 10

Expedited Relief for Service Inadequacies,

STB Ex Parte No. 628, 63 Fed. Reg.

I TE, BD icicicccsianecintinnasansedniaes 19

Federal Maritime Commission, The Im-

pact of the Ocean Shipping Reform Act

of 1998 (September 2001), the OSRA

Report, http://www.fmc.gov/images/pages/

ET i. cocsinisccsnicesiniatlbseonsicieiemmeniinticcse 8

H.R. CONF. REP. No. 96-1430 (1980),

reprinted in 1980 U.S.C.C.A.N. 4110....... 21

TABLE OF AUTHORITIES—Continued

James Riffin—Petition for Declaratory

Order, STB Finance Docket, No. 35245,

2009 STB Lexis 428 (Sept. 15, 2009) .......

Joint Application of CSX Corporation and

Sea-Land Corporation under 49 U.S.C.

§ 11321, 3 L.C.C. 2d 512 (Feb. 11, 1987)...

Notice of Proposed Rulemaking, Interpre-

tation of the Term “Contract” in 49

U.S.C. 10709, STB Ex Parte No. 669, 72

Fed. Reg. 16316 (April 4, 2007)................

Page

IN THE

Supreme Court of the Anited States

Nos. 08-1553 & 08-1554

KAWASAKI KISEN KAISHA LTD., e¢ al.,

Petitioners,

and

UNION PACIFIC RAILROAD COMPANY,

Petitioner,

Vv.

REGAL-BELOIT CORPORATION, et al.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

BRIEF OF AMICUS CURIAE

THE WORLD SHIPPING COUNCIL

IN SUPPORT OF PETITIONERS

INTEREST OF AMICUS CURIAE

The World Shipping Council (“WSC”) is a non-

profit trade association of 29 companies that operate

36 international shipping lines.. WSC’s members

' In accordance with the Court’s Rule 37.6, WSC and its

counsel certify that no counsel for a party authored this brief in

whole or in part. WSC also hereby discloses that petitioner

Kawasaki Kisen Kaisha Ltd. is a member of WSC. Because the

expense of preparing this brief was paid from WSC’s general

budget, petitioner Kawasaki Kisen Kaisha Ltd. contributed in

proportion to its share of the organization’s membership dues

(approximately 3.9%). Pursuant to Court Rule 37.3(a), ail par-

ties have consented to the filing of this brief.

include the full spectrum of vessel-operating common

carriers, offering containerized, roll-on/roll-off, and

car carrier services. WSC’s members together provide

over ninety percent of the containerized ocean

transportation that serves the United States import

and export trades.

A substantial percentage of the containerized

shipments handled by WSC’s members include the

type of “through” or “intermodal” arrangements that

are at issue in this case. These are shipments for

which the ocean carrier takes contractual responsi-

bility for the transportation from origin to destina-

tion, including an inland “leg” of the transportation

in addition to the ocean “leg,” and issues a single

“through” bill of lading to the shipper (the entity that

owns or controls the cargo) setting forth the terms of

that transportation from beginning to end. In order

to fulfill its contractual obligations to provide the

inland leg of the transportation for shippers desiring

through intermodal service, the ocean carrier will

have entered into a subcontract—with the shipper’s

knowledge and consent—with rail and/or motor

carriers for the inland portion of the cargo movement.

As in this case, the through bills of lading issued by

WSC’s members typically include clauses that specify

that the Carriage of Goods By Sea Act, 46 U.S.C.

30701 Note (“COGSA”), Pet. App. 48a-61a, shall

apply to the inland as well as the ocean components

of the transportation, and that the COGSA liability

limitations shall extend to railroads and truckers

hired by ocean carriers to provide the land transpor-

tation portion of the move. Thus, a single and pre-

dictable liability rule covers the entire transportation

contracted for by the ocean carrier, regardless of

whether damage to the goods occurs on the ocean leg,

on the inland leg, or at an undetermined point in the

journey (which is commonly the case).

The decision below undermines comprehensive

changes that Congress made in the 1980s and 1990s

to the statutes that regulate international ocean

shipping and domestic rail transportation. In our

statement, we summarize these statutory changes,

the primary thrust of which was to replace the old

tariff system of establishing shipping terms with a

new system based on negotiated contracts. We then

argue that the Ninth Circuit’s reading of the relevant

statutory sections violates both the plain language of

those sections and the deregulatory goals of Con-

gress. Allowing the decision below to stand would

upset bargained-for expectations and could cause

substantial disruptions in the way that international

ocean transportation services are offered, priced, and

insured.

STATEMENT

This Court in Norfolk Southern Railway Co. v.

James N. Kirby, Pty Ltd., 543 U.S. 14 (2004), correctly

noted that “(t]he international transportation industry

‘clearly has moved into a new era—the age of multi-

modalism, door-to-door transport based on efficient

use of all available modes of transportation by air,

water, and land.” Z/d. at 25 (internal citation

omitted). The Court also recognized that the changes

in the physical manner in which cargo is moved

have caused changes in the contractual relationships

among the parties to that transportation: “Contracts

reflect the new technology, hence the popularity of

‘through’ bills of lading, in which cargo owners can

contract for transportation across oceans and to

inland destinations in a single transaction.” Jd. at 25-

26."

In Kirby, the Court held that a shipper’s damage

claim against a railroad providing inland transporta-

tion in connection with an international cargo move-

ment was governed by two “through” (end-to-end)

bills of lading—one issued by a freight forwarder to

the shipper, and one issued to the freight forwarder

by the ocean carrier that actually provided the mari-

time transportation. Reaffirming its decision in

Great Northern R. Co. v. O'Connor, 232 U.S. 508

(1914), the Court held that an ocean carrier may bind

the shipper to a limitation of liability applicable to a

“downstream” inland carrier (there, as here, a rail-

road) under a through bill of lading issued by the

ocean carrier. In analyzing the effect of the liability

terms of the ocean carrier’s bill of lading, the Court

held “that intermediaries, entrusted with goods, are

‘agents’ only in their ability to contract for liability

limitations with carriers downstream.” Kirby, 543

U.S. at 34. Here, as in Kirby, the ocean carrier acts

* The facts of this case (and the hundreds of thousands of

factually similar intermodal transportation shipments) involve

shippers that for their convenience chose to engage an ocean

carner to handle the “through” move, including the inland

portion of the transportation, under the ocean carrier's single

bill of lading. The shipper knows in advance that the ocean

carrier docs not itself provide the rail service portion of the

transportation, but rather that the ocean carrier arranges for

the rail service on behalf of the shipper pursuant to long-term

contracts that the ocean carrier will have entered into with the

rail carrier. If a shipper wishes to arrange separately for the

inland transportation of its goods with a truck or rail carrier

and for ocean transportation with an ocean carrier, it is always

free to do so.

as an “intermediary” between the shipper and the

railroad.

Kirby dealt with the question of how the various

transportation arrangers and physical providers re-

late contractually to one another under a through bill

of lading, under which an ocean carrier takes

responsibility for arranging for all transportation

from inland origin to inland destination. Kirby held,

based on longstanding precedent relating to contract

formation for transportation services, that all

of those relationships were governed by COGSA

when COGSA was extended inland by contract.

The present case adds the question of whether the

Carmack Amendment, currently codified with respect

to rail carriers at 49 U.S.C. 11706, Pet. App. 69a-70a,

changes the rules under which parties may otherwise

lawfully and enforceably agree to limit all carriers’

liability as part of a contract for through interna-

tional ocean transportation.

Modern international through transportation con-

tracts have both a legal and a commercial aspect.

The legal aspect is not as limited as the “COGSA

versus Carmack” formulation enunciated by the

Ninth Circuit. Instead, the contracts at issue here

can only be properly understood in the context of

broader Congressional policies and enactments appli-

cable to both ocean transportation (including through

transportation) and rail transportation. Interna-

tional ocean transportation is regulated by the

Federal Maritime Commission (“FMC”) under the

Shipping Act of 1984, as amended, 46 U.S.C. 40101

et seq.’ Service contracts are regulated under 46

* The Shipping Act of 1984, as amended, was recodified and

enacted as positive law by P.L. 109-304, 120 Stat. 1523 (2006).

U.S.C. 40502. Rail transportation contracting is

covered under the Interstate Commerce Act, as

amended by the Staggers Rail Act of 1980 (“Staggers

Act”), P.L. 96-448, 94 Stat. 1895 (1980), Pet. App.

79a-84a, and the Interstate Commerce Commission

Termination Act, P.L. 104-88, 109 Stat. 803 (1995).

Although we largely leave the specifics of Title

49 of the United States Code (dealing with rail

contracting) to the parties, we attempt below to put

those provisions into the context of a regulatory and

commercial shift that occurred in a roughly con-

temporaneous manner across all modes of surface

transportation. Understanding the shift in the last

quarter of the twentieth century from a tariff-based

system of transportation to a contract-based system

is crucial to a proper understanding of the relevant

statutes and the transactions to which they apply.

1. Ocean Service Contracts Under the

Shipping Act of 1984.

a. Legal Background of Ocean Service

Contracts.

Before the enactment of the Shipping Act of 1984,

P.L. 98-237, 98 Stat. 67 (1984), the terms for interna-

tional ocean transportation were, for all practical

purposes, governed solely by publicly filed tariffs that

had the force of law under the filed rate doctrine.

The 1984 Act introduced the concept of the “service

contract,” which, as the name suggests, is an indivi-

dually negotiated contract between an ocean carrier

and its shipper customer. Those contracts, however,

maintained many of the attributes of tariffs, because

the 1984 Act required carriers to make public an

extensive list of “essential terms,” including geo-

graphic scope, commodities covered, and price. Any

similarly situated shipper had a period of time after

filing of the essential terms to demand a contract on

those same terms—the so-called “me-too” option. See

Shipping Act of 1984, P.L. 98-237, § 8(c), 98 Stat. 67,

69 (1984) (repealed 1998).

In addition to the fact that service contracts under

the 1984 Act had as many aspects of tariff-based

common carriage as they did of private contracting,

their flexibility was limited by the fact that groups of

ocean carriers setting common rates under the

“conference” authority of the Act could control the use

of service contracts by conference members. At their

inception, then, and for some fourteen years thereaf-

ter, service contracts under the Shipping Act of 1984,

while common, were far less flexible and freely nego-

tiated than typical commercial contracts in industries

that are not subject to pervasive economic regulation.

The Ocean Shipping Reform Act of 1998 (“OSRA”),

P.L. 105-238, 112 Stat. 1902 (1998), made wholesale

amendments to the Shipping Act of 1984. For

present purposes, the most significant changes were

to the service contracting provisions. OSRA elimi-

nated control over service contracting by conferences

(and essentially eliminated conferences), prohibited

ocean carrier agreements from interfering in the

service contract practices of their members, removed

many of the requirements that essential terms

(inciuding price) be filed, aliowed contract parties to

agree to keep their contracts confidential, removed

the “me-too” option, and removed contract disputes

from the FMC’s jurisdiction, sending those disputes

instead to the courts or, upon agreement of the

parties, to arbitration.‘

b. Ocean Service Contracts In Practice.

The practical results of the service contract

changes in OSRA were dramatic. Within three years

of enactment in 1998, the FMC found that OSRA had

resulted in over 80 percent of containerized ocean

cargo moving under contract. OSRA Report at 2.

Soon after the rules had changed, the Commission

found that “[iJn certain major trade lanes, some ship-

pers are now moving nearly 100 percent of their

cargo under service contracts.” Id. at 18. Today,

eleven years after OSRA, the trend has continued.

Although the confidentiality of contracts makes

precise statistics unavailable, WSC’s members’ expe-

rience is that service contracts govern virtually all

U.S. international liner shipping transportation in

the major trade lanes. Terms routinely addressed in

service contracts (some of which terms are also

reflected in the bills of lading that are typically

incorporated by reference in those contracts) include

price, minimum volume requirements, delivery times,

availability of equipment, and limitations on liability

for both ocean and inland transportation.

In addition to their ubiquity, the other features cf

international ocean service contracts relevant here

are that: (1) they routinely cover intermodal through

moves involving inland transportation legs in the

United States, (2) depending on the size and business

* For a summary of service contract regulation both before

and after OSRA, see Federal Maritime Commission, The Impact

of the Ocean Shipping Reform Act of 1998, at 16-17 (September

2001) (“*OSRA Report”). The OSRA Report is available elec-

tronically at http//www.fmc gov/images/page/OSRA_Study.pdf.

structure of the shipper, they may address tens or

hundreds of different commodities in multiple trade

lanes around the world, and (3) they are typically for

a minimum period of one year, sometimes longer.

In short, terms in service contracts are negotiated

with the purpose of establishing a long-term commer-

cial relationship between the ocean carrier and the

shipper covering all (or virtually all) of the business

between them. Once those terms are set, any individ-

ual shipment covered under that contract, along with

the accompanying documentation, is handled as a

routine matter of implementing the terms already

agreed. Terms—and particularly liability terms—are

not re-negotiated with each shipment. This is a high-

volume business, with over fifty thousand shipping

containers entering or leaving the U.S. every day. If

each shipment were the subject of individual negotia-

tion, the international intermodal transportation

system simply could not handle that volume.

2. Rail Contracts

a. Legal Background of Rail Contracts.

WSC anticipates that the parties will thoroughly

brief the treatment of rail contracts under the Inter-

state Commerce Act, as amended by the Staggers

Act, the ICC Termination Act, and other statutes.

WSC wishes only to note that the movement away

from a regulated common carrier model and toward a

contract-based commercial environment that occurred

gradually in the international ocean’ shipping

industry through the Shipping Act of 1984 and the

Ocean Shipping Reform Act of 1998 was matched by

an earlier and even more dramatic deregulatory shift

in the rail industry.

Before the enactment of the Staggers Act, the rail

industry, like the international ocean shipping indus-

try before the 1984 Act and OSRA, was a creature

of common carrier regulation driven by publicly

filed tariff rates. Although the Interstate Commerce

Commission (“ICC”) attempted in the late 1970s to

provide some commercial flexibility by allowing for

certain narrowly defined classes of contract carriage,”

Congress found that the failing rail industry required

much stronger medicine. In the Staggers Act, Con-

gress up-ended rail regulation, taking virtually all

rail contracts entirely out of coverage by of the

statute, and making them subject only to otherwise

applicable contract law.

The Surface Transportation Board (“STB”) in 2007

described the scope and effect of the contract provi-

sions of the Staggers Act this way:

Congress viewed the ICC’s changed policy as

insufficient, because it had “a number of restric-

tions and uncertainties and [had] resulted in the

limited use of contracts.” To ensure that ship-

pers and railroads would be free to enter into rail

transportation contracts “without concern about

whether the ICC would disapprove a contract,” in

the Staggers Rail Act of 1980 (Staggers Act),

Congress amended the statute to provide that

railroads “may enter into a contract with one or

more purchasers of rail services to provide speci-

fied services under specified rates and condi-

tions.” Former 49 U.S.C. 10713(a)(1995) (now

codified at 49 U.S.C. 10709(a)). When originally

enacted, the provision further stated that “a rail

® See Change of Policy; General Policy Statement, Ex Parte

No. 358-F, 43 Fed. Reg. 58189 (1.C.C. Dec. 13, 1978).

carrier may not enter into a contract with

purchasers of rail service except as provided in

this section.” Former 49 U.S.C. 10713(a)(1995).

Congress also expressly removed all matters and

disputes arising from rail transportation con-

tracts from the ICC’s (and now the Board’s)

jurisdiction. See former 49 U.S.C. 10713(i)(1995)

(now codified at 49 U.S.C. 10709%c)). If the par-

ties have a dispute regarding such a contract—

such as whether there has been adequate per-

formance or whether the contract is void because

it was signed under duress—such matters are

to be decided by the courts under applicable

state contract law. See former 49 U.S.C.

10713(i2)1995) (now codified at 49 U.S.C.

10709(c)(2)). Congress also explained that, if

someone believes that a contract is anticompeti-

tive, “the antitrust laws are the appropriate and

only remedy available.” Congress considered the

contract rate provision of the Staggers Act to be

“among the most important in the bill.”

Notice of Proposed Rulemaking, Interpretation of the

Term “Contract” in 49 U.S.C. 10709, STB Ex Parte

No. 669, 72 Fed. Reg. 16316 (April 4, 2007)(footnotes

omitted).

b. Role of Rail Contracts in International

Maritime Through Transportation.

As a factual and a conceptual matter, contracts

between ocean carriers and rail carriers are subcon-

tracts under the service contracts that are negotiated

between ocean carriers and their shipper customers.

Because ocean carriers do not themselves have the

capability to provide rail services, ocean carriers

must purchase rail service from railroads if the ocean

carriers are to be able to offer through transportation

to their customers.

Because service contracts between ocean carriers

and shippers most typically last for at least a year,

the ocean carriers must project their costs for that

year in advance in order to set their prices to their

customers (shippers) with whom they negotiate ser-

vice contracts. For intermodal through transpor-

tation, one of the primary costs for ocean carriers is

the inland transportation that they must purchase

from rail or motor carriers. Before an ocean carrier

can negotiate rates and terms with its customers, it

must negotiate with the railroads. Because of the

need for predictability of prices and the flexibility

to handle a broad range of shipment types under

a single contract, contracts between railroads and

ocean carriers are typically long-term arrangements

that apply common liability limits for all shipments

within their scope.

Because the rail contract represents the “small end

of the funnel” (i.e., tens of thousands of shippers

negotiate with fewer than fifty ocean carriers, who

negotiate with a maximum of seven Class I railroads)

in terms of contracting for international through

transportation, the contracts between ocean carriers

and rail carriers must be broad and flexible enough

to cover a wide variety of cargoes originating from

thousands of shippers. Even more so than in the

case of ocean service contracts, contracts between

ocean carriers and railroads of necessity must have

basic terms that apply to all cargo moved under those

contracts. Without the ability to deal with issues

such as limitations on liability in such a comprehen-

sive fashion, it would be impossible for ocean carriers

to arrange rail carriage in advance so as to allow

those ocean carriers to offer through transportation

in their service contracts with their shipper

customers.

SUMMARY OF ARGUMENT

First, the Ninth Circuit’s holding that “K” Line is a

rail carrier because “K” Line subcontracted for rail

services that it re-sold under a contract for interna-

tional through transportation is wrong. The statu-

tory language at 49 U.S.C. 10501(a)\(1) regarding

rail/water combinations relied upon by the Ninth

Circuit to convert “K” Line into a railroad defines

certain obligations of rail carriers when they employ

water transportation; it does not define who is a rail

carrier. In any event, the water transportation over

which the Board has jurisdiction does not include

international ocean transportation. See 49 U.S.C.

13521 (defining STB jurisdiction over water carriers).

Finally, treating an ocean carrier issuing a through

bill of lading as a rail carrier creates an irreconcilable

conflict between the FMC’s intermodal jurisdiction

under the Shipping Act of 1984, as amended, and the

“exclusive” jurisdiction of the STB over railroads. See

49 U.S.C. 1050 1(b).

Second, the Ninth Circuit’s holding that the

Carmack Amendment applied—even though the rail

transportation was provided under a contract that

would ordinarily be exempt from Carmack—was

premised on the incorrect assumption that transpor-

tation that has been exempted under 49 U.S.C. 10502

is outside of the Board’s jurisdiction, and is therefore

outside of the scope of 49 U.S.C. 10709 (which

removes contracts for rail transportation within the

Board’s jurisdiction from coverage by Carmack and

other statutory requirements). Both the statute and

the Board’s cases make clear that the issuance of an

exemption under 10502 does not divest the Board of

jurisdiction. The Ninth Circuit’s atextual reading

contradicts Congress’ plain intent to free rail con-

tracts from regulation by the Board.

Third, even if section 10502 precluded the applica-

tion of 10709 and instead required a carrier and a

shipper to reach a written agreement on alternative

terms under 49 U.S.C. 11706(c), the through ocean

bills of lading issued by “K” Line satisfy those

requirements. Contrary to the lower court’s unex-

plained assumption that a carrier wishing to contract

out of Carmack’s liability scheme must first offer “full

Carmack terms” through some particular (but unspe-

cified) method, the statute does not so require. Any

such requirement that arguably existed in the past

was based on statutory language that was removed

by the Staggers Act and on the related constraints of

a tariff-based system in which shipping terms were

largely a matter of adhesion. The Staggers Act fun-

damentally changed that system. To require “magic

language” in a negotiation between a shipper and an

ocean carrier in order to effectuate an agreement on

liability limits under 49 U.S.C. 11706(c) would be

inconsistent with the freedom of contract principles

embodied in Congressional deregulation of both the

international shipping and rail _ transportation

industries.

ARGUMENT

1. “K” Line Is Not a “Rail Carrier.”

Many, although not all, of the Ninth Circuit's

errors flow from its holding that “K” Line is a “rail

carrier” within the meaning of 49 U.S.C. 10102(5);

that is, “a person providing common carrier railroad

transportation for compensation.” See Pet. App. 12a-

13a. The Ninth Circuit reached that decision

through something of a “ransom note” amalgam of

several definitions and jurisdictional statements in

the statute. Without unduly repeating points that

the petitioners will address, the lower court’s conclu-

sion that an ocean carrier becomes a rail carrier

by offering a through bill of lading fails for three

independent reasons, all of which are suggested in

the Second Circuit’s recent decision in Rexroth

Hydraudyne B.V. v. Ocean World Lines, Inc., 547

F.3d 351, 356-58 (2d Cir. 2008).

First, the decision below never addressed the core

question of whether “K” Line was “providing common

carrier railroad transportation for hire,” 46 U.S.C.

10102(5), the definition of a “rail carrier.” The World

Shipping Council is not aware of any appellate

decision other than the decision under review that

holds that an ocean carrier that subcontracts with a

railroad in order to provide through transportation to

a shipper becomes a “rail carrier” by virtue of that

subcontract. That ocean carriers do not become rail

carriers through such transactions is supported by

consistent ICC and STB rulings on the subject. Just

this year, the STB reiterated that “{a]t a minimum,

under agency precedent, for an entity to qualify as a

rail carrier, it must (1) hold itself out as a common

carrier for hire, and (2) have the ability to carry for

hire.” James Riffin—Petitiuon for Declaratory Order,

STB Finance Docket No. 35245, slip op. at 5, 2009

STB Lexis 428, at *8 (Sept. 15, 2009) (footnote

collecting cases omitted).

In an earlier decision, the ICC directly addressed

the question of whether an international ocean

carrier was a rail carrier either by virtue of owner-

ship of rail cars or by virtue of the fact that the ocean

carrier subcontracted for rail services that it then

offered as part of a through international transporta-

tion service that included rail transportation. See

Joint Application of CSX Corporation and Sea-Land

Corporation under 49 U.S.C. § 11321, 3 I.C.C. 2d 512

(Feb. 11, 1987). After rejecting the argument that

the ownership of rail equipment was sufficient to

bestow rail carrier status, the Commission turned to

the central question of whether the ocean carrier held

sufficient control over the rail service to be deemed to

be “offering” that service within the meaning of the

statute. Under circumstances that involved greater

involvement in the rail carriage than the mere sub-

contracting in the present case, the Commission held

that “we agree with applicants that neither Sea-Land

[the ocean carrier] nor any of its subsidiaries controls

the rail service involved here. No evidence has been

presented to refute the assertion that all operational

aspects of the rail transportation service are

controlled by the participating railroads, including

scheduling and the right to route traffic and add

additional cars. Therefore, as applicants argue, Sea-

Land is not operating, performing, or offering rail

service.” Id. at 519; see also Rexroth, 547 F.3d at 363-

64 (collecting cases requiring “actual operation of

trains” for rail carrier classification).

The fact that “K” Line did not “offer” rail trans-

portation for hire—an issue the Ninth Circuit never

addressed—ends the inquiry into whether “K” Line is

a rail carrier; it is not. There are, however, two

other reasons the Ninth Circuit erred on this point.

First, its reliance on the provision at 49 U.S.C.

10502(a)(1)(B) dealing with “transportation by a rail

carrier that is .. . by railroad and water, when the

transportation is under common control, manage-

ment, or arrangement for a continuous carriage or

shipment,” is misplaced for a least two reasons. The

first is that, because that subsection is applicable

only to “rail carriers,” its application must follow

a determination that a particular entity is a rail

carrier; the subsection cannot be the basis of such a

determination. Equally fundamental, the Board’s

jurisdiction over water transportation only applies to

the movement of cargo by water between two states,

or to state-to-state transportation preceding or fol-

lowing transshipment for international transporta-

tion. See 49 U.S.C. 13521 (discussed in Rexroth, 547

F.3d at 357 n.5 and n.6). Here, the only water trans-

portation was between China and the United States,

with no ancillary transportation between any two

states. Thus, even if 10502(a)(1)(B) could be used to

bootstrap a domestic water carrier into rail carrier

status, the ruse would still fail here, where the water

transportation is international.

Third, the construction adopted by the Ninth

Circuit—that an international ocean carrier becomes

a rail carrier by subcontracting with a railroad for

inland carriage on the shipper’s behalf—would create

an irreconcilable conflict between the Interstate

Commerce Act and the Shipping Act of 1984. This

is so because the FMC under the Shipping Act

has jurisdiction over inland transportation provided

carrier in the foreign commerce of the United States.

See 46 U.S.C. 40102(12), 40102(24), 40301(a)(1),

40501(a)(1), 40502(c), and 41105(4) (all relating to

FMC jurisdiction over inland transportation associated

with through movements). 49 U.S.C. 10501(b), on

the other hand, provides that the “Jurisdiction of the

Board over [] transportation by rail carriers . . . is

exclusive.”

This conflict cannot be finessed. If “K” Line is a

rail carrier with respect to the inland portions of the

through transportation in this case, then the STB,

and only the STB, has jurisdiction, which would

nullify in every such case the otherwise applicable

jurisdiction of the FMC. It is not necessary to nullify

the FMC’s inland authority in order to give effect to

the STB’s jurisdictional statute, however. If the

Interstate Commerce Act is read as applying only to

entities that physically provide rail carriage, and the

water transportation jurisdiction of the STB is

limited to the plain terms of section 13521, then any

conflict is avoided, and no jurisdictional gap is

created. “[W]hen two statutes are capable of co-

existence .. . it is the duty of the courts, absent a

clearly expressed congressional intention to the

contrary, to regard each as effective.” Vimar Seguros

y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528,

533 (1995) (quoting Morton v. Mancari, 417 U.S. 535,

551 (1974)).

2. The Ninth Circuit Misread the Interplay

between 49 U.S.C. 10502 and 10709.

The Union Pacific will no doubt address the Ninth

Circuit’s error in interpreting the relationship be-

tween sections 10502 and 10709. Because the point

so directly affects the contracting practices of ocean

carriers, however, WSC addresses it briefly.

The Ninth Circuit’s holding that a rail contract for

transportation that has been exempted from regula-

tion under 49 U.S.C. 10502 may not be removed from

regulation under Section 10709 violates the plain

words of the statutory sections and contradicts the

agency’s interpretation. The lower court’s error

appears to flow from the incorrect assumption that

transportation that has been exempted from regula-

tion under authority of section 10502 is thereby

placed outside of the STB’s jurisdiction. See Pet.

App. 19a (indicating through emphasis that ‘rail

carriers providing transportation subject to the juris-

diction of the Board” under 10709 are by definition

providing “nonexempt transportation”). Once it made

the erroneous finding that exempt transportation

was outside of the jurisdiction of the Board, then the

Ninth Circuit was bound by the language of 10709 to

find that that section did not apply, because 10709

by its terms is only applicable to contracts for rail

transportation that is “subject to the jurisdiction of

the Board... .”

The problem with the Ninth Circuit’s reasoning is

that the statute is clear that the Board does retain

jurisdiction when it issues an exemption, because

subsection 10502(c) allows the Board to specify the

duration of an exemption, and, more telling, subsec-

tion 10502(d) authorizes the Board to revoke an

exemption. The Board could not revoke an exemption

if it did not retain jurisdiction, and the Board has so

held. See Expedited Relief for Service Inadequacies,

STB Ex Parte No. 628, 63 Fed. Reg. 71396, 71398

(Dec. 28, 1998), in which the Board stated in response

to an assertion that it lacked jurisdiction over

exempted transportation that: “AAR is clearly wrong

with respect to exempt traffic. We retain full juris-

diction to deal with exempted transportation, as we

can revoke the exemption at any time, in whole or in

part, under section 10502(d).”

Absent the Ninth Circuit’s mistaken understanding

of the effect of an exemption on the Board’s jurisdic-

tion, it would have been compelled by the plain

language of section 10709 to hold that the rail trans-

portation here, because it was conducted under a rail

contract between “K” Line and the Union Pacific, was

not subject to Carmack. That is so because section

10709(c)(1) provides that “[a] contract that is autho-

rized by this section, and transportation under such

contract, shall not be subject to this part, and may

not be subsequently challenged before the Board or in

any court on the grounds that such a contract

violates a provision of this part.” “This part” includes

49 U.S.C. 10101 through 11908, which encompasses

the Carmack Amendment as applicable to rail trans-

portation, codified at 49 U.S.C. 11706.

Because essentially all rail transportation sold to

international ocean carriers is provided under con-

tract, this simple statutory basis is sufficient both to

decide this case and to provide the guidance and

certainty necessary to allow the international trans-

portation system to order its contractual relation-

ships to provide predictable and efficient operations.

Because Kirby makes clear that the ocean carrier is

authorized to negotiate liability limitations with the

inland carrier with binding effect on the ocean

carrier’s shipper customer, the applicability of Carmack

is the only remaining potential impediment to

the parties’ being allowed to give effect to their

bargained-for contract. Once the existence of the rail

contract removes Carmack from the picture, the

operational, insurance, and legal problems that flow

from the lower court’s decision disappear. That

result also gives effect to the clearly expressed

Congressional intent that rail transportation con-

tracts be subject to contract law and nothing else.°®

®° The legislative history of the Staggers Act reinforces the

conclusion that the section 10502 exemption power was to be

3. The Contracts in This Case Meet the

Requirement for Varying Liability Limits

Under Carmack.

Although the argument immediately above makes

it unnecessary to reach the Ninth Circuit’s holding

that “the ‘combined effect’ of 10502 and 11706 is to

permit carriers providing exempt transportation to

contract for terms that are different from Carmack’s

defaults so long as they first offer the shipper the

option of full Carmack protections, presumably at a

higher rate,” Pet. App. 28a, we address the point both

in the interest of completeness and also because it

relates to the broader issue of contract freedom

discussed in our statement. The Ninth Circuit cited

only to the Second Circuit’s decision in Sompo Japan

Ins. Co. v. Union Pacific, 456 F.3d 54, 60 (2d Cir.

2006), for the proposition quoted immediately above.

Sompo, in turn, relies on decisions of other circuits,

which themselves lack any textual statutory under-

pinning and which are based on an outdated under-

standing of how the transportation industry operates

and is regulated.

complementary to, not mutually exclusive of, any broader

deregulatory decisions (such as those in section 10709) that

Congress made in the statute: “The policy underlying this

to identify broad areas of Commerce where reduced regulation is

clearly warranted, the Commission is more capable through the

administrative process of examining specific regulatory provi-

sions and practices not yet addressed by Congress to determine

where they can be deregulated consistent with the policies of

Congress.” H.R. CONF. REPT. NO. 96-1430 (1980), reprinted in

1980 U.S.C.C.A.N 4110, 4137. Thus, what is now section 10502

was not designed to limit the deregulatory exemptions granted

by Congress; it was designed to add to them

The Ninth Circuit’s opinion, as well as the decision

in Sompo and those of other federal courts imposing

the requirement of an explicit offer of “full Carmack

protection,” appear to stem from a misapplication of

the Court’s decision in New York, N. H. & H. R. Co. v.

Nothnagle, 346 U.S. 128 (1953), a case that was cited

as supporting authority in Kirby, 543 U.S. at 19.

In Nothnagle, the carrier argued that it effectively

limited its liability for lost baggage through its tariff

on file with the Interstate Commerce Commission.

The tariff stated that the carrier’s liability would be

limited to $25 for lost baggage unless the passenger

had in writing declared a higher valuation.

The Court noted that the Carmack Amendment, as

it existed at the time, allowed carriers to limit their

liability for property “concerning which the carrier

shall have been or shall hereafter be expressly autho-

rized or required by order of the Interstate Commerce

Commission to establish and maintain rates depen-

dent upon the value declared in writing by the ship-

per or agreed upon in writing as the released value of

the property.” Nothnagle at 134 (quoting 39 Stat.

442, 49 U.S.C. § (11)). The Court held that the form

of the carrier’s tariff complied with the requirements

of the statute, but that the carrier’s liability was not

effectively limited under the statute because “{t]here

was no ‘value declared in writing by the shipper

or agreed upon in writing.” Nothnagle at 135.

Specifically, the Court noted that “only by granting

its customers a fair opportunity to choose between

higher or lower liability by paying a correspondingly

greater or lesser charge can a carrier lawfully limit

recovery to an amount less than the actual loss

sustained.” Id. Because the carrier there did not

even issue a receipt for the baggage at issue, the

Court held that the plaintiff “had no reasonable

opportunity to discover” the carrier’s limitation of

liability. Jd.

Before the passage of the Staggers Act, rail carriers

were required to file their rate offerings in tariffs

filed with the ICC. Under the so-called “filed rate

doctrine,” only filed rates could be charged; any other

rate was not just unenforceable, it was unlawful. See

generally Louisville & Nashville R. Co. v. Maxwell,

237 U.S. 94, 97 (1915) (“Under the Interstate Com-

merce Act, the rate of the carrier duly filed is the only

lawful charge.”). Thus, before Staggers, a carrier

wishing to limit its liability under Carmack had to:

(1) obtain authority to publish “released value” rates

from the ICC; (2) actually publish those rates in its

tariff, associating different liability limits with differ-

ent freight rates; and (3) provide the shipper with a

reasonable opportunity to declare the cargo value.

In the Staggers Act, Congress fundamentally

changed the regulation of ground transportation,

allowing rail carriers to enter into confidential con-

tracts with shippers instead of setting rates through

filed tariffs. In addition to removing the requirement

that sliding-scale “released value” rates be published

in tariffs, section 211 of the Staggers Act also

removed the requirement that rail carriers obtain

prior Commission approval of reduced liability limits.

Thus, after Staggers, the only remaining requirement

for a carrier to limit its liability is that the carrier

provide its customer “an opportunity to declare the

full value” of the cargo. See Kirby, 543 U.S. at 19

(citing Nothnagle, 346 U.S. at 135). Under Carmack

as it exists today after Staggers, that limitation may

be effected “by written declaration of the shipper or

by a written agreement between the shipper and the

carrier... .” 49 U.S.C. 11706(c), Pet. App. 70a.

Shippers today have much greater opportunities to

negotiate liability limits than they did before the

Staggers Act. Because virtually all of the cargo of the

sort at issue here moves under service contracts

(between the shipper and the ocean carrier) and rail

contracts (between the ocean carrier and the rail

carrier), there is much more give-and-take between

the carrier and the shipper than in the past. Because

shippers today go through a contracting process

before handing their cargo over to the carrier for

transportation, as opposed to being bound by law toa

tariff that they might never have seen under the old

system, it would be difficult today to conceive of a

situation in which a shipper did not have a full

opportunity to declare a value in excess of the

carrier’s stated limitation.

In Kirby, the Court cited Nothnagle for the proposi-

tion that a carrier has the duty to give a shipper a

“fair opportunity to declare value,” and that the car-

rier satisfied that requirement through negotiation of

the terms of the bill of lading. Kirby, 543 U.S. at 19.

Just as in Kirby, “K” Line’s bills of lading here,’

through incorporation of COGSA, provided fair notice

and constituted a written agreement to value the

property at $500 unless the shippers indicated a

higher value on the bill of lading. The shippers did

not so declare. Thus, even if Carmack applied here,

which it does not, the limitations on the rail carrier’s

liability set forth in “K” Line’s bills of lading are

enforceable.

’ The applicable service contracts signed by the parties here

all incorporate the bills of lading and state that the bills control

over the service contracts. Joint App. 190.

CONCLUSION

The Ninth Circuit erred in holding that “K” Line

became a railroad by subcontracting with a railroad.

The lower court also failed to recognize that the rail

transportation here is exempt from the Carmack

Amendment under the plain terms of 49 U.S.C.

10709. Even if Carmack applied, however, the terms

of the through ocean bills of lading and service

contracts negotiated between the ocean carrier and

the shippers satisfied the “written agreement”

requirement for limiting liability under Carmack.

The decision below should be reversed and vacated,

and the liability of the ocean carrier and the railroad

should be limited to the COGSA limits to which the

shippers agreed.

Respectfully submitted,