R.E.I. Transport Inc v. C.H. Robinson ( 2008 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 07-2710
REI TRANSPORT, INC.,
Plaintiff-Appellant,
v.
C.H. ROBINSON WORLDWIDE, INC.,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Southern District of Illinois.
No. 05-00057—G. Patrick Murphy, Judge.
____________
ARGUED JANUARY 15, 2008—DECIDED MARCH 20, 2008
____________
Before EASTERBROOK, Chief Judge, and FLAUM and EVANS,
Circuit Judges.
FLAUM, Circuit Judge. C.H. Robinson Worldwide, Inc.
is a freight broker (or, in its estimation, a “travel agent
for freight”). REI Transport, Inc., is an Illinois trucking
company that provides drayage services—in this case,
the local delivery of cargo from a railroad terminal to the
cargo’s final destination. The retail electronics company
Circuit City hired C.H. Robinson to coordinate the ship-
ment of several hundred DVD players from a Circuit
City warehouse in California to another warehouse in
southern Illinois. In so doing, C.H. Robinson contracted
with REI Transport to carry the DVD players the final leg
2 No. 07-2710
of the trip—from a train depot near St. Louis to Marion,
Illinois. As it turned out, through no fault of REI
Transport’s, the shipment arrived short approximately
$85,000 worth of DVD players. C.H. Robinson indemnified
Circuit City for the lost DVD players, and Circuit City
assigned any right to recover to C.H. Robinson. Surmising
that REI Transport was responsible for the loss and pursu-
ant to its contract with REI Transport, C.H. Robinson with-
held amounts from what it owed REI Transport.
REI Transport then filed this suit in the Southern Dis-
trict of Illinois, alleging conversion, unjust enrichment,
and that C.H. Robinson breached the parties’ contract by
withholding payment. In its defense, C.H. Robinson
counterclaimed that, under the Carmack Amendment,
REI Transport owed more money for the damaged cargo.
The district court agreed with C.H. Robinson and dis-
missed REI Transport’s claims. This appeal followed and,
for the reasons set out below, we affirm.
I. Background
The interstate shipment of goods is a complicated
business. Moving a given quantity of goods from one
part of the country to another frequently involves several
unrelated carriers using different modes of transportation,
ranging from trucks, railroads, and freighters to the
occasional plane. Locating and contracting with multiple
carriers for a multistate shipment may be prohibitively
expensive for the average shipper. So third parties fill
the gap by negotiating lower rates with a number of
carriers around the country and selling their logistical
services to would-be shippers.
C.H. Robinson is one such company. In October 2003,
Circuit City hired C.H. Robinson to move several hun-
No. 07-2710 3
dred portable DVD players from its facility in Walnut,
California to another facility in Marion, Illinois. Three
different carriers would ultimately move the shipment
from Walnut to Marion. Patriot Logistics, Inc. first trucked
the cargo from Circuit City’s facilities in Walnut to a
railroad depot in Los Angeles. Union Pacific Railroad
then moved the cargo by train from Los Angeles to Dupo,
Illinois. And REI Transport completed the shipment by
trucking the cargo to Circuit City’s facilities in Marion. REI
Transport had contracted with C.H. Robinson in May 2002
to make at least three shipments for C.H. Robinson as
the need arose. This would be one of those shipments,
governed by the terms of their 2002 contract.
Things began innocently enough. Prior to sending the
cargo out from the Walnut facility, a Circuit City em-
ployee, John Abarca, verified the contents of the ship-
ment, which consisted of 4633 pieces of electronics, in-
cluding over 1100 DVD players. Abarca then locked the
container with a numbered, steel-cable security seal and
recorded the seal number on the bill of lading, which
consigned the goods to Circuit City’s warehouse in
Marion. Patriot picked up the shipment, signed the bill
of lading, and delivered the cargo to Union Pacific in
Los Angeles. When the train began to chug eastward,
the steel security seal was still intact, along with all of the
original cargo.
But problems soon arose. En route, a Union Pacific
employee noticed that the container’s seal was missing
(along with the seals for several other containers on the
train). A security guard for Union Pacific, Lucas Melendez,
filled out an inspection report for Circuit City’s container
in which he indicated both that the original seal was
gone and that there was an “unknown loss” of DVD
players. Melendez then resealed the container with a
4 No. 07-2710
numbered Union Pacific seal, and the train moved along
to Dupo, Illinois, where REI Transport picked it up. The
receipt obtained by REI Transport’s driver from Union
Pacific erroneously indicated that the container had Circuit
City’s original seal. But, after delivery in Marion, Circuit
City’s receipt from REI Transport had the Union Pacific
seal number instead—making it appear, on paper at least,
that the seal had changed while the container was in
REI Transport’s custody.
On November 1, 2003, Circuit City broke the Union
Pacific seal on the container and determined that 295
portable DVD players were missing from the shipment,
a value of $85,429.98. In January 2004, it sent a claim to
C.H. Robinson for the full amount of its loss. C.H. Robin-
son initially forwarded the claim on to REI Transport,
which denied that it was responsible for the loss and
refused to pay. C.H. Robinson eventually paid Circuit
City the full amount claimed, and in return Circuit City
assigned C.H. Robinson “all rights, title and interest in
and claim to any payment from any and all carriers in-
volved in the shipment of” the lost DVD players. The May
2002 carrier agreement with REI Transport provided that
“[c]ompensation paid to [REI Transport] under this
Contract may be withheld in whole or in part by
Robinson . . . to satisfy claims or shortages arising out
of this or other Contracts.” Pursuant to Circuit City’s
assignment and this provision of the carrier agreement,
C.H. Robinson withheld $81,232.64 from amounts it owed
to REI Transport to cover the claim.1
1
The difference between the amount C.H. Robinson paid to
Circuit City—$85,429.98—and the amount C.H. Robinson
withheld—$81,232.64—stems from a police investigation that
(continued...)
No. 07-2710 5
REI Transport filed this suit in the Southern District
of Illinois alleging breach of contract, conversion, and
unjust enrichment. The crux of REI Transport’s claims
was a provision of the May 2002 carrier agreement
with C.H. Robinson that provided REI Transport “hereby
assumes all liability for cargo loss and damage while
such commodities are in [its] custody or control.” Because
the damage had not occurred when the container was
in REI Transport’s “custody or control,” REI Transport
claimed that it was entitled to full payment. C.H. Robinson
counterclaimed under the Carmack Amendment, 49 U.S.C.
§ 14706, arguing that REI Transport was required to pay
for the lost DVD players even if it was not ultimately
responsible. After discovery, the district court denied
REI Transport’s motions for summary judgment. The
court reasoned that REI Transport’s claims for con-
version and unjust enrichment both failed under Illinois
law. The court also denied REI Transport’s breach of
contract claim, reasoning that it was preempted by the
Carmack Amendment. Finally, the court granted C.H.
Robinson’s motions for summary judgment and judg-
ment on the pleadings, and ordered REI Transport to pay
over $4197.34 to C.H. Robinson. This appeal followed.
1
(...continued)
recovered a number of DVD players soon after the robbery.
Circuit City initially thought these recovered DVD players
were from its shipment and gave C.H. Robinson a credit (which
was accordingly credited to REI Transport through a lower
withheld amount). But electronics thievery is apparently
rampant; these DVD players were from another shipment.
Accordingly, C.H. Robinson is seeking the full amount that
it initially paid to Circuit City offset by any amounts with-
held from REI Transport.
6 No. 07-2710
II. Discussion
REI Transport raises two issues on appeal. First, it
submits that the district court erred in holding that the
Carmack Amendment preempted its breach-of-contract
claim against C.H. Robinson. Second, REI Transport
argues that C.H. Robinson has not made out its prima
facie case. The following sections discuss each argument
in turn.
A. Effect of the Carmack Amendment on REI
Transport’s Claim
REI Transport challenges the district court’s conclu-
sion on summary judgment that the Carmack Amendment
preempts its breach-of-contract claim, a decision we
review de novo.2 The Carmack Amendment generally
preempts separate state-law causes of action that a
shipper might pursue against a carrier for lost or damaged
goods. Adams Express Co., 226 U.S. at 505; Hughes v. United
Van Lines, Inc., 829 F.2d 1407, 1414 (7th Cir. 1987). The
issue in this case is whether breach-of-contract claims by
a carrier against a “person entitled to recover” under
the Carmack Amendment fall within this preemptive
sweep. We hold that the Carmack Amendment does not
2
In its brief, REI Transport also argues that C.H. Robinson
made three separate shipment contracts with three separate
carriers and thus, in light of the Supreme Court’s decision in
Reider v. Thompson, 339 U.S. 113 (1950), the Carmack Amendment
does not apply. But REI Transport never pursued this tack
before the district court, a prerequisite if this Court is to hear
it, and this claim is therefore forfeited. El-Khader v. Monica, 366
F.3d 562, 567 (7th Cir. 2004).
No. 07-2710 7
preempt all claims by a carrier against a shipper or other
“person entitled to recover” for non-payment. Nonetheless,
REI Transport’s claim still fails because C.H. Robinson
was justified in withholding payment.
The Carmack Amendment cured a number of maladies
that had afflicted the market for the interstate shipment
of goods. Foremost among these problems were the
disparate schemes of carrier liability that existed among
the states, some of which allowed carriers to limit or
disclaim liability, others that permitted full recovery.
Adams Express Co. v. Croninger, 226 U.S. 491, 505 (1913).
Under this patchwork of regulation, a carrier could
be “held liable in one court when under the same state
of facts he would be exempt from liability in another”
making it “practically impossible for a shipper engaged
in a business that extended beyond the confines of his
own State . . . to know . . . what would be the carrier’s
actual responsibility as to goods delivered to it.” Id.
To solve this problem, the Carmack Amendment “created
a nationally uniform rule of carrier liability concerning
interstate shipments.” North Am. Van Lines v. Pinkerton
Sec. Sys., 89 F.3d 452, 454 (7th Cir. 1996). Since its enact-
ment, a carrier of an interstate shipment is “liable to the
person entitled to recover under the receipt or bill of
lading,” plain and simple. 49 U.S.C. § 14706(a)(1). The
“person entitled to recover” can bring suit against either
the delivering carrier or the originating carrier for the
“actual loss or injury to the property caused” by any
carrier in the course of the interstate shipment. 49 U.S.C.
§ 14706(a)(1); see also Tempel Steel Corp. v. Landstar Inway,
Corp., Inc., 211 F.3d 1029, 1030 (7th Cir. 2000) (“A shipper
may look to its chosen carrier, which then bears the
responsibility for seeking compensation from another
8 No. 07-2710
carrier actually responsible for the loss.”). A shipper can
thus be confident that the carrier will be liable for any
damage that occurs to its shipment. And a carrier can
accurately gauge, and thus insure against, any liability
it may face when it agrees to carry something.
Congress ensured the national uniformity of this
scheme of liability in two ways: by preempting state
causes of action against carriers for damaged or lost
goods; and by placing substantive limits on the rights
of carriers to contract away liability. Adams Express Co.,
226 U.S. at 505. The preemptive sweep of the Carmack
Amendment extends to state causes of action against
carriers “where goods are damaged or lost in interstate
commerce.” Hughes v. United Van Lines, Inc., 829 F.2d 1407,
1414 (7th Cir. 1987); see also Gordon v. United Van Lines, Inc.,
130 F.3d 282, 287 (7th Cir. 1997). The statute limits the
carrier’s liability to the “actual loss or injury to the prop-
erty” damaged en route, 49 U.S.C. § 14706(a)(1), and a
shipper cannot bypass these limits by filing a state suit for
the damaged goods unless the claim seeks to remedy a
“separate and independently actionable harm.” North
American Van Lines, Inc. v. Pinkerton Sec. Sys., Inc., 89 F.3d
452, 458 (7th Cir. 1996); Gordon, 130 F.3d at 287. Nor can
states enact laws that would give carriers a break by
limiting their liability below what the Carmack Amend-
ment imposes.
The Carmack Amendment also affects the substance of
contracts covering interstate shipments. Carriers cannot
contract away liability for damaged shipments in their
carrier agreements as they could before the Carmack
Amendment came into effect. Aside from one narrow
exception not at issue here, see 49 U.S.C. § 14706(C)(1)(A),
contractual terms purporting to limit a carrier’s liability
No. 07-2710 9
below the “actual loss or injury to the property” are dead
letters. See Adams Express Co. v. Croninger, 226 U.S. 491, 505
(1913) (stating that Carmack Amendment “embraces the
subject of the liability of the carrier under a bill of lading
which he must issue and limits his power to exempt
himself by rule, regulation or contract”); see also Tempel
Steel Corp., 211 F.3d at 1031.
The district court held that the Carmack Amendment
preempts REI Transport’s breach-of-contract claim against
C.H. Robinson. On appeal, REI Transport submits that
this holding is much too broad; preemption in this case
would bar a jilted carrier from pursuing any claim against
a shipper if the case involved damaged goods. We agree.
The Carmack Amendment only preempts “state and
common law remedies inconsistent with the federal Act.”
Hughes, 829 F.2d at 1414. These inconsistent remedies
consist of “state statutory or common law [claims] against
a carrier for damages to the shipper’s goods that have
been transferred in interstate commerce.” Gordon, 130
F.3d at 289. Congress regulated the field of interstate
carrier liability to provide a uniform cause of action against
carriers. But it did not preempt every claim related to
damaged or lost goods. For example, if a shipper with-
holds a greater amount than what it was owed for dam-
aged goods, a carrier could seek legal recourse for the
difference or, as with carrier liability, the shipper may be
liable for other “independently actionable harms that are
distinct from the loss of, or the damage to, the goods.”
Gordon, 130 F.3d at 289. Accordingly, claims that do not
affect a carrier’s liability for lost or damaged goods—such
as a suit by a carrier against a “person entitled to recover”
for non-payment—do not upend the uniformity effected by
the Carmack Amendment and are therefore not preempted.
10 No. 07-2710
But that doesn’t mean that REI Transport has a valid
breach-of-contract claim. Even though the Carmack
Amendment doesn’t prohibit the current lawsuit out-
right, the Act may still doom the carrier’s claim that the
shipper breached the contract. REI Transport’s basic
argument is that C.H. Robinson unjustifiably refused to
pay amounts owed. Non-payment is a material breach of a
contract unless the withholding party has a “valid excuse.”
Peet v. City of East Grand Forks, 101 Minn. 518, 521 (1907).
The issue here is whether C.H. Robinson’s exercise of self-
help was justified based on its right under the contract
to withhold payment “to satisfy claims or shortages
arising out of this or other Contracts,” which would
include claims arising under the Carmack Amendment. If
C.H. Robinson was justified, then REI Transport’s claim
must fail because, by legitimately withholding payment,
C.H. Robinson did not breach the carrier agreement. See,
e.g., RESTATEMENT (SECOND) OF CONTRACTS § 235, cmt. b
(1981) (“Non-performance is not a breach unless perfor-
mance is due.”); see generally Celia R. Taylor, Self-Help in
Contract Law: An Exploration and Proposal, 33 WAKE FOREST
L. REV. 839, 879 (1998).
In addition, REI Transport cannot claim any rights under
the provision in the carrier agreement purporting to limit
its liability to damage occurring while cargo was in its
“custody or control.” If a provision of a contract violates a
statute—and in this case the limitation of liability provision
cannot be squared with the Carmack Amendment—that
provision is void. See Roering v. Grinnell Mut. Reinsurance
Co., 444 N.W.2d 829, 833 (Minn. 1989). Thus, to resolve
whether REI Transport has a valid claim, it’s necessary to
examine whether C.H. Robinson made out its prima
facie case under the Carmack Amendment so as to justify
withholding payment.
No. 07-2710 11
B. C.H. Robinson’s Prima Facie Case Under the
Carmack Amendment
If C.H. Robinson makes out its prima facie case, it
both defeats REI Transport’s breach-of-contract claim
and entitles it to recover the additional $4197.34 it is owed
for what it paid Circuit City. The prima facie case under the
Carmack Amendment is straightforward: a plaintiff must
show “(1) delivery in good condition; (2) arrival in dam-
aged condition; and (3) the amount of damages.” Am. Nat’l
Fire Ins. Co. v. Yellow Freight Sys., 325 F.3d 924, 929 (7th Cir.
2003). If the plaintiff establishes the prima facie case, the
burden shifts to the defendant “to show both that it was
free from negligence and that the damage to the cargo was
due to one of the excepted causes relieving the carrier of
liability,” a showing REI Transport does not attempt to
make. Id. The district court held that C.H. Robinson had
made its case and granted its motion for summary judg-
ment. We review this decision de novo and, for the follow-
ing reasons, we affirm.
REI Transport doesn’t dispute that the goods arrived
in a compromised condition, conceding the second and
third element of C.H. Robinson’s prima facie case. But
it does dispute that C.H. Robinson proved that the ship-
ment was delivered to Patriot in good condition. This
argument is in considerable tension with REI Transport’s
concession that Union Pacific was in possession of the
cargo when the loss occurred. Regardless, C.H. Robinson
clearly established that the cargo was in good condition
when Circuit City loaded it in Walnut, California. In the
first place, the bill of lading for the entire shipment of
4633 items issued by Patriot to Circuit City did not con-
tain any exceptions. This provides “some evidence that
the shipment was received in good condition.” Am. Nat’l
Fire Ins. Co., 325 F.3d at 929. In addition, the “pick sheet”
12 No. 07-2710
itemizing the contents of the shipment clearly showed
the Stock Keeping Unit (“SKU”) numbers for the two
kinds of DVD players that were ultimately stolen and
listed their quantity as 428 cartons with 858 units of one
and 54 cartons with 270 units of the other kind of DVD
player. And the affidavits of two Circuit City employees
established the general procedures for loading and unload-
ing shipments at Circuit City facilities. Circuit City em-
ployee John Abarca stated in his (unrebutted) deposition
and affidavit that these procedures were followed
when loading the shipment in Walnut, California. This
testimony established that Patriot would have loaded all
of Circuit City’s cargo identified in the pick sheet and
listed in the bill of lading. Such circumstantial evidence
is sufficient for C.H. Robinson to establish its prima
facie case. See Pharma Bio, Inc. v. TNT Holland Motor Exp.,
Inc., 102 F.3d 914, 917 (7th Cir. 1996) (crediting affidavit
stating that company “followed certain procedures for
hundreds of shipments . . ., including the shipment in
question”).
Thus, the district court did not err in finding that C.H.
Robinson had made out its prima facie case under the
Carmack Amendment. As a result, C.H. Robinson had a
“valid excuse” for withholding payment to REI Transport
for the lost DVD players. As a “person entitled to recover”
under the Carmack Amendment, it was similarly entitled
to withhold payment from REI Transport to cover the
“actual loss or injury to the property.” This result obtains
notwithstanding the provision in the carrier agreement
purporting to limit REI Transport’s liability, a provision
invalidated by the Carmack Amendment. Accordingly,
C.H. Robinson did not breach its contract with REI Trans-
port when it refused to pay all that it owed. In addition,
because the amount that it withheld was less than the
No. 07-2710 13
“actual loss or injury to the property,” C.H. Robinson
is entitled to recover an additional $4197.34 for its suc-
cessful Carmack Amendment claim.
III. Conclusion
For the foregoing reasons, we AFFIRM the district court
on all counts.
USCA-02-C-0072—3-20-08