5K v. Daily Express_4th Circuit 10-11 : Fourth Circuit Gives Direction on How a Broker Can Best Protect Its Interests in a Cargo Damage Claim
Brokers Take Notice — In 5K Logistics, Inc. v. Daily Express, Inc., No. 10-1907 (4th Cir. Oct. 21, 2011), the Fourth Circuit Court of Appeals denied a broker’s cargo damage claim and in turn gave direction on how a broker can protect its interests in such claims.
In a case that has important instructional value for all brokers, the Fourth Circuit Court of Appeals recently denied 5K Logistics’ (a broker) $192,000 damage claim against a carrier, Daily Express, Inc. (DXI) Neither the shipper nor the broker in this case had filed a claim or sued within the statutory time allotted under the Carmack Amendment (which allows 9 months to file the initial claim and 2 years to file suit once a claim is denied). See 49 U.S.C. § 14706(e)(1).
However, the shipper had sued the broker on their performance contract and received a judgment. When the broker attempted to sue the carrier for indemnity on the judgment, the court held that the broker had no contractual indemnity right, and, as a broker, it was not entitled to proceed under the Carmack Amendment even if the action had been timely since “Congress explicitly chose not to extend the apportionment remedy to ‘brokers’ under the second section, 49 U.S.C. § 14706(b).”
The court went on to say that a broker could protect against this situation by providing in its contract with shippers that any claims the shipper might have under the Carmack Amendment would be assigned to the broker, thus allowing the broker to proceed on the indemnity right as a contract action, which is not preempted by the Carmack Amendment. The court further pointed out that the broker could have negotiated for longer time periods in the bill of lading:
After all, the nine month/two year structure in 49 U.S.C. § 14706(e) is merely a statutory floor — greater time periods are clearly permissible, and this court has unambiguously informed parties that ‘limitation periods [under the Carmack Amendment] are terms to be bargained over.’ (internal citations omitted).
The gist of this decision provides the following instruction for all brokers:
1. If you contract with your shipper to be responsible for loss and damage claims, be sure to also provide for assignment of all such claims from shipper to broker.
2. In your contracts with carriers, you should extend the time for filing claims and filing suit on claims beyond the statutory minimum — unless you are strictly in control of that process.
3. Do not leave the management of cargo claims between you and your shippers in a vague “gray” area. While brokers are not responsible for cargo claims by statute, if your practice is such that a responsibility to the shipper could be inferred, you have probably taken on such a responsibility by implied contract, even if not expressly by contract.