U.S. Sixth Circuit Court of Appeals Allows Railroad to Invoke Liability Protections of Maritime Contract to Insulate Itself From Liability for Damage to Cargo

12/22/2020
Adam P. Sadowski By Adam P. Sadowski

The U.S. Sixth Circuit Court of Appeals has upheld a railroad’s ability to invoke the protections of a maritime through bill of lading to insulate itself from liability for damage to cargo that occurs during the land-based leg of a multimodal voyage.  See Progressive Rail Inc. v. CSX Transportation, Inc., 6th Cir. No. 20-5378, __ F.3d __ (6th Cir. Dec. 2, 2020).

In Progressive Rail, Siemens AG, a German company, through its U.S. subsidiary, sold two electrical transformers to a Kentucky business.  Siemens retained K+N International to arrange for the necessary oceangoing and land-based transportation to ship the transformers from Germany, through Maryland, and ultimately to the point of delivery in Kentucky.  K+N International retained Blue Anchor Line to accomplish the ocean leg of the voyage.  K+N also contacted Progressive Rail to arrange for rail transportation from the port of discharge in Maryland to the point of delivery in Kentucky.  Progressive Rail contracted CSX Transportation to provide the rail services for the land-based leg of the voyage.  While en route from Maryland to Kentucky by rail, one of the electrical transformers was damaged, resulting in a $1.5 million loss to Siemens.

Progressive Rail and Siemens separately sued CSX.  The case was consolidated in the U.S. District Court in Kentucky.  The district court entered summary judgment in favor of CSX Transportation, finding that the terms of the Blue Anchor Line bill of lading provided for limited liability to all subcontractors, including CSX.

On appeal, the appellate court identified two possible ways of resolving the issue of whether CSX was liable to Siemens and Progressive Rail for the damaged transformer.  The first, simplest method was for the appellate court to analyze the plain language of the bill of lading.  The bill of lading defined Siemens as a “merchant” and defined CSX as a “subcontractor.”  Because the terms of the bill of lading prohibited a merchant from pursuing any claim or allegation against a subcontractor, the appellate court found that the plain language of the contract would bar Siemens’ claim against CSX.

The second, more complex method was for the appellate court to interpret the bill of lading under various different laws.  The parties did not dispute that the bill of lading was a maritime contract, as one objective of the bill of lading was to transport goods by sea.  Under the general maritime law governing the interpretation of such contracts, the court would respect the terms of the agreement and give the language a fair reading.  The court noted that any maritime contract, including a bill of lading, could set the liability rules for an entire voyage, including any oceangoing and land-based legs of the voyage.  The court noted that the maritime law also permitted parties to the bill of lading to except downstream subcontractors from liability.

The appellate court set forth two requirements necessary to trigger these downstream liability protections.  First, the contract must amount to a “through bill of lading” that covers “both the ocean and inland portions of the transport in a single document.”  Second, the contract must include a Himalaya Clause, a provision that extends liability protection to all subcontractors along the way.  When both of these provisions are in place, a downstream subcontractor would be insulated from liability.  The court agreed that the Blue Anchor Line bill of lading at issue was a through bill of lading.  The contract plainly indicated that it would involve “Multimodal Transport,” and shipment from Germany to the inland United States would necessarily require transportation by sea and land.  The contract also agreed that the bill of lading contained a Himalaya Clause and defined the parties that would qualify as merchants and subcontractors.  This clause prevented Siemens, a merchant, from suing CSX, a subcontractor.

With respect to the Himalaya Clause, the appellate court found that parties are permitted to contract for provisions limiting liability of downstream entities, taking on the risks of transportation for themselves.  The court found that it makes no difference that the downstream carrier was not in privity of contract with the merchants.  The court also rejected any attempt to rely on extrinsic evidence to contradict the terms of the contract when, like here, the words within the four corners of the contract are the most reliable evidence of the intent of the parties.  To hold otherwise, the court determined that downstream carriers could not rely on the language of the upstream contracts.  In fact, it would likely result in a situation in which there would be few, if any, through bills of lading, with each carrier being then required to issue its own bill of lading for the carrier’s respective leg of a multimodal voyage.

CSX did, in fact, issue a document for the land-based leg of the voyage, providing for the rail service from Maryland to Kentucky.  The appellate court held that this did not change its analysis, allowing CSX to invoke liability protections of the upstream bill of lading.  The appellate court recognized that more than one bill of lading is not unusual and noted that sometimes multiple bills of lading can even be duplicative.

The Court also rejected arguments relating to the Carriage of Goods by Sea Act (COGSA), neither Siemens nor Progressive Rail having raised liability arguments under COGSA or the Clause Paramount in the district court below.  As such, the appellate court could not consider those arguments for the first time on appeal.

In the end, established rules governing the interpretation of maritime contracts rules carried the day.  Although damage to cargo occurred during a land-based leg of a multimodal voyage, the terms of a through bill of lading that began with oceangoing carriage was sufficient to insulate a rail carrier from liability for damage to cargo.

You can read the full opinion here: https://www.opn.ca6.uscourts.gov/opinions.pdf/20a0375p-06.pdf

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