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Shippers National Freight Claim Council Inc. v. United States

June 13, 1983

SHIPPERS NATIONAL FREIGHT CLAIM COUNCIL, INC., NATIONAL SMALL SHIPMENTS TRAFFIC CONFERENCE, INC., DRUG AND TOILET PREPARATION TRAFFIC CONFERENCE, INC., PETITIONERS,
v.
INTERSTATE COMMERCE COMMISSION AND UNITED STATES OF AMERICA, RESPONDENTS; AMERICAN TRUCKING ASSOCIATIONS, INC., INTERVENING RESPONDENT



Petition to review orders of the Interstate Commerce Commission interpreting 49 U.S.C. § 10730 to permit motor common carriers to set rates limiting liability by establishment of deductible amounts. Petition denied. Judge Pratt dissents in a separate opinion.

Newman, Kearse, and Pratt, Circuit Judges. Pratt, Circuit Judge, dissenting.

Author: Kearse

KEARSE, Circuit Judge:

Petitioners Shippers National Freight Claim Council, Inc., National Small Shipments Traffic Conference, Inc., and Drug and Toilet Preparation Traffic Conference, Inc., which are national associations of shippers and receivers of goods who are concerned with the responsibilities of carriers of those goods, petition for judicial review of orders of the Interstate Commerce Commission ("ICC" or "Commission") dated May 13, August 5, and September 18, 1980, and March 17, 1982, interpreting the Interstate Commerce Act ("Act"), 49 U.S.C. § 10730 (Supp. III 1979 & Supp. IV 1980), to permit a motor carrier to limit its liability for loss of or damage to property it transports, by establishment of a rate setting a deductible amount.

We deny the petition.

I. BACKGROUND

A. Statutory Framework

The ability of most common carriers subject to the Act to limit their liability for loss of or damage to property transported by them is governed by 49 U.S.C. § 10730 (Supp. IV 1980).*fn1 Until mid-1980, § 10730 and its predecessor section provided that a carrier could, if the Commission so authorized, establish transportation rates under which its liability for the property transported would be limited to an amount, reasonable under the circumstances, agreed to in writing between the carrier and the shipper.*fn2 The arrangement releasing the carrier from a portion of its liability in exchange for a lower transportation rate is commonly referred to as a "released rate" or "released value rate." See New Procedures in Motor Carrier Restructuring Proceedings, 359 I.C.C. 399, 427-30 (1978) (" 1978 Motor Carrier Restructuring Proceedings "). Prior to July 1980, § 10730 read, in pertinent part, as follows:

§ 10730. Rates and liability based on value

The Interstate Commerce Commission may require or authorize a carrier providing transportation or service subject to its jurisdiction under subchapter I, II, or IV of chapter 105 of this title [ see note 1 supra ], to establish rates for transportation of property under which the liability of the carrier for that property is limited to a value established by written declaration of the shipper, or by a written agreement, when that value would be reasonable under the circumstances surrounding the transportation.

49 U.S.C. § 10730 (Supp. III 1979). This provision applied to all interstate common carriers of property, other than water carriers, and required that Commission approval be obtained before released rates could be established.

In 1980, § 10730 was amended by two statutes that provided relaxed regulatory requirements for the establishment of released rates by motor carriers of property other than household goods and rail carriers. First, in June 1980, Congress passed the Motor Carrier Act of 1980, Pub. L. No. 96-296, 94 Stat. 793 (July 1, 1980), which was designed to increase competition and to reduce regulation in the trucking industry. 126 Cong. Rec. S3592 (daily ed. Apr. 15, 1980) (remarks of Sen. Packwood, one of the bill's sponsors). Section 12 of the Motor Carrier Act, which became effective on July 1, 1980, divided § 10730 into two subsections. Subsection (a) consisted of the prior § 10730 but was made inapplicable to motor carriers of nonhousehold property. The new subsection (b) allowed a motor carrier of nonhousehold property to establish released rates without prior approval of the Commission, but provided that the Commission could require the carrier to have in effect full liability rates as well.

Second, in October 1980, Congress passed the Staggers Rail Act of 1980, Pub. L. No. 96-448, 94 Stat. 1895 (Oct. 14, 1980), which was designed to improve financial and operating conditions of the national rail system "through financial assistance and freedom from unnecessary regulation." H.R. Conf. Rep. No. 1430, 96th Cong., 2d Sess. 80 (1980), reprinted in 1980 U.S. Code Cong. & Ad. News 4110, 4111 ("Conference Report"). Sections 211(a) and (b) of the Staggers Act, which became effective on October 14, 1980, further amended 49 U.S.C. § 10730 by (1) making § 10730(a) inapplicable to rail carriers, and (2) adding a subsection (c) applicable to rail carriers, expressly mentioning that deductibles could be provided for in the released rates. Like § 10730(b) with respect to motor carriers of nonhousehold property, § 10730(c) allowed rail carriers to establish released rates without Commission approval; unlike § 10730(b), § 10730(c) did not specify that the released rate must be "reasonable under the circumstances" and did not give the Commission power to require that full liability rates also be maintained. Section 10730, as amended by the 1980 statutes,*fn3 reads, in pertinent part, as follows:

(a) The Interstate Commerce Commission may require or authorize a carrier (including a motor common carrier of household goods but excluding any other motor common carrier of property and excluding any rail carrier) providing transportation or service subject to its jurisdiction under subchapter I, II, or IV of chapter 105 of this title, to establish rates for transportation of property under which the liability of the carrier for that property is limited to a value established by written declaration of the shipper, or by a written agreement, when that value would be reasonable under the circumstances surrounding the transportation. . . .

(b)(1) Subject to the provisions of paragraph (2) of this subsection, a motor common carrier providing transportation or service subject to the jurisdiction of the Commission under subchapter II of chapter 105 of this title may, subject to the provisions of this chapter . . . establish rates for the transportation of property (other than household goods) under which the liability of the carrier for such property is limited to a value established by written declaration of the shipper or by written agreement between the carrier and shipper if that value would be reasonable under the circumstances surrounding the transportation.

(2) Before a carrier may establish a rate for any service under paragraph (1) of this subsection, the Commission may require such carrier to have in effect and keep in effect, during any period such rate is in effect under such paragraph, a rate for such service which does not limit the liability of the carrier.

(c) A rail carrier providing transportation or service subject to the jurisdiction of the Commission under subchapter I of chapter 105 of this title may establish rates for transportation of property under which the liability of the carrier for such property is limited to a value established by written declaration of the shipper or by a written agreement between the shipper and the carrier, and may provide in such written declaration or agreement for specified amounts to be deducted from any claim against the carrier for loss or damage to the property or for delay in the transportation of such property.

B. Events Leading to the Present Petition for Review

In February 1980, Interstate International, Inc. ("Interstate"), a freight forwarder engaged in assembling, consolidating, and transporting shipments of property, applied to the ICC for authority to establish released rates on shipments of used household goods. According to the application, the proposed rates were to represent a "fundamental change" in the manner of computing released rates because the basis for calculating the carrier's maximum liability would be volume, instead of the usual referent of weight. In addition, the new rates were to establish three levels of service, each of which would be accompanied by a different level of carrier liability. Plan A, which provided, inter alia, the fastest and most certain delivery times, was to limit the carrier's liability to $12,000 per unit (400 cubic feet); Plan B, which provided lesser services, was to limit the carrier's liability to $4,000, less a $25 deductible, per unit; and Plan C, which provided the least amount of service, was to limit the carrier's liability to $1,600, less a $50 deductible, per unit. A shipper was to be able to purchase coverage in excess of the amounts specified by the plan chosen.

Notice of Interstate's application was published in the Federal Register, 45 Fed. Reg. 17,682 (1980), but the summary of the application emphasized Interstate's proposal to base released rates on volume and did not mention that two of its three released-rate plans contained deductibles. It appears that the application was unopposed, and on May 13, 1980, the Commission's Released Rates Board approved the application, finding that "the concept of a deductible . . . is reasonable under the circumstances surrounding the transportation." Interstate International, Inc., Used Household Goods, No. FF-303, at 1 (I.C.C. May 13, 1980).

In June 1980, the petitioners, having learned the details of Interstate's application, petitioned for reconsideration by the ICC, on the principal grounds that under common law Interstate was liable for the full extent of loss or damage to property transported by it and that deductibles were not authorized by the Interstate Commerce Act. These petitions were denied on August 5, 1980, by three ICC Commissioners acting as an Appellate Division ("Division 1"), stating, in pertinent part, as follows:

The appropriateness of released rates on shipments of household goods has long been recognized by the Commission. Shippers are free to assess the relative merits of Interstate International's innovative method of rating vis-a-vis the competition in making their selection.

Petitioners attack the concept of a deductible as inappropriate mainly because it reduces a carrier's interest in the security of freight it transports. However, this is true of all released rates since their only purpose is to reduce a carrier's liability below the actual loss or damage sustained by a shipper. In return, of course, shippers receive the benefit of reduced rates. Consequently, we find that the sought authority to establish and maintain the involved rates has been justified.

Interstate International, Inc., Used Household Goods, No. FF-303 (I.C.C. Aug. 5, 1980) (" Division 1 Decision "). Petitioners' request for further administrative review of the Division 1 decision was denied on September 18, 1980, by the Commission, which found petitioners' arguments "unpersuasive." Interstate International, Inc., Used Household Goods, No. FF-303 (I.C.C. Sept. 18, 1980).

In December 1981, petitioners petitioned the ICC for a declaratory order that 49 U.S.C. § 10730, as amended through October 1980, did not permit deductibles by carriers other than railroads. They contended that the 1980 amendments, which expressly stated that rail carrier released rates could provide for deductibles, but were silent as to the use of deductibles by other types of carriers, demonstrated that deductibles could not be approved for nonrail carriers. The Commission rejected petitioners' contentions, stating, in part, as follows:

An express authorization contained in one section of a statute does not imply pervasive prohibitions in other sections. See American Trucking Association v. Atchison T. & S.F.R.R., 387 U.S. 397, 411, [18 L. Ed. 2d 847, 87 S. Ct. 1608] (1967). Nor can a prohibition against deductibles be read into the language of Subsections 10730(a) and (b). Subsection (a) gives the Commission broad discretion to require or authorize household goods rates under which the carrier's liability is limited to a value established by written declaration of a shipper, when that value would be reasonable under the circumstances surrounding the transportation. Broad discretion is also given the Commission to determine what is reasonable in each circumstance. Discussing the released value provision of 49 U.S.C. 20(11), the predecessor of Section 10730, a court has held that "the Commission has discretion . . . to authorize any form of released value provision, so long as it finds the rates that are based on that provision to be just and reasonable under the circumstances and conditions surrounding the transportation." National Motor Freight Traffic Ass'n, Inc. v. I.C.C., 192 U.S. App. D.C. 64, 590 F.2d 1180, 1185 (D.C. Cir. 1975). Moreover, there is no legitimate reason to distinguish, as petitioners attempt, between released rates and deductibles. Both have similar effects on carrier liability, although each limits it in a somewhat different fashion.

Accordingly, we conclude that Section 10730(a) does not limit the kind of value limitation the Commission may approve. We also note that this reasoning is consistent with the policy of the Household Goods Transportation Act of 1980, which declares that maximum flexibility on the part of the carriers in the pricing of their services best serves the shippers of household goods and allows a variety of quality and price options to meet market demands. (See Section 2(a)(3).) The same reasoning applies equally to Section 10730(b). No ban against deductibles is supported by the statutory language of that section.

We find :

The statutory language of 49 U.S.C. 10730 permits deductibles for released rates by written declaration of the shipper or by written agreement between shippers and motor common carriers of household goods, between shippers and other motor common carriers, and between shippers and rail carriers.

Petition for Declaratory Order on Deductibles in Household Goods Released Rates, No. 38752, at 4-5 (I.C.C. Mar. 17, 1982).

Petitioners seek judicial review in this Court of the Commission's March 17, 1982 declaratory order and its 1980 released rate orders, urging that the Commission's decisions be vacated and that § 10730 be interpreted to prohibit use of deductibles by nonrail carriers.*fn4 For the reasons below we deny the petition.

II. DISCUSSION

Petitioners contend that the Commission's decisions should be set aside on the ground that the Commission has arbitrarily and irrationally ignored pertinent canons of statutory construction and has thereby interpreted § 10730 in a manner inconsistent with the intentions of Congress. In particular, petitioners challenge the Commission's authority to allow nonrail carriers to use deductibles on the grounds that (1) since statutes in derogation of the carrier's liabilities at common law should be narrowly construed and since common law prohibited deductibles, the silence of §§ 10730(a) and (b) should not be construed as permitting deductibles; and (2) by explicitly allowing in § 10730(c) the use of deductibles by rail carriers, Congress revealed its intention to deny use of deductibles to other carriers. We reject both arguments.

A. The Common Law Argument

Petitioners' first argument invokes the principle that statutes in derogation of common-law duties should be construed as altering those obligations only to the extent expressly provided. They contend that since common law did not permit deductibles, the silence of §§ 10730(a) and (b) with respect to deductibles may not be construed as permitting deductibles. We find this argument unpersuasive because we are not convinced that common law did indeed prohibit a carrier and a shipper from agreeing on a rate that included a deductible.

At common law, absent a contrary agreement between carrier and shipper, a carrier's liability for loss of or damage to goods entrusted to the carrier was virtually unlimited; unless the loss was caused by an act of God, a public authority, a public enemy, or the shipper, or was caused by the inherent vice or nature of the goods themselves, the carrier was liable for the full extent of the loss. See, e.g., Missouri Pacific Railroad v. Elmore & Stahl, 377 U.S. 134, 137, 12 L. Ed. 2d 194, 84 S. Ct. 1142 (1964), and cases cited therein. Further, under common law, courts refused to enforce an agreement between carrier and shipper purporting to relieve the carrier from all liability for loss of property occasioned by the negligence of the carrier or its servants. See Adams Express Co. v. Croninger, 226 U.S. 491, 509, 57 L. Ed. 314, 33 S. Ct. 148 (1913). Such exculpatory contracts were held to violate public policy because they would tend to invite carelessness on the part of the carrier.

Nevertheless, common law did recognize as enforceable an agreement between carrier and shipper whereby the carrier's liability for loss of property, including loss occasioned by its own negligence or that of its servants, was not entirely eliminated but was merely limited, so long as the limitation was granted by the shipper in consideration for a lower rate of freight than would reasonably be charged for the carrier's unlimited liability. Hart v. Pennsylvania Railroad, 112 U.S. 331, 340, 28 L. Ed. 717, 5 S. Ct. 151 (1884); see also Boston & Maine Railroad v. Piper, 246 U.S. 439, 444, 62 L. Ed. 820, 38 S. Ct. 354 (1918); George N. Pierce Co. v. Wells, Fargo & Co., 236 U.S. 278, 284, 59 L. Ed. 576, 35 S. Ct. 351 (1915); Adams Express Co. v. Croninger, supra, 226 U.S. at 509-10. The rationale for enforcing contracts that limited the carrier's liability in such cases was that the carrier was entitled to know the extent of its potential liability for loss of the property and to be compensated in proportion to the risk assumed. Hence the contractual limitation on the carrier's liability was viewed not as the carrier's attempt to exonerate itself from losses negligently caused by it, but rather as the agreement of carrier and shipper in advance on the maximum compensation the shipper would recover should the property be lost or damaged, with the freight rate keyed to the size of the carrier's risk. As the Supreme Court explained in Hart v. Pennsylvania Railroad, supra :

The limitation as to value has no tendency to exempt from liability for negligence. It does not induce want of care. It exacts from the carrier the measure of care due to the value agreed on. The carrier is bound to respond in that value for negligence. The compensation for carriage is based on that value. The shipper is estopped from saying that the value is greater. The articles have no greater value, for the purposes of the contract of transportation, between the parties to that contract. The carrier must respond for negligence up to that value. It is just and reasonable that such a contract, fairly entered into, and where there is no deceit practised on the shipper, should be upheld. There is no violation of public policy.

112 U.S. at 340-41.

According to Hart, "the proper test to be applied to every limitation of the common-law liability of a carrier [is] its just and reasonable character." Id. at 342. Accordingly, so long as the limitation of liability was the result of a "fair, open, just and reasonable agreement" between carrier and shipper, entered into by the shipper "for the purpose of obtaining the lower of two or more rates of charges proportioned to the amount of risk," Adams Express Co. v. Croninger, supra, 226 U.S. at 509-10, and the shipper was given "the option of higher recovery upon paying a higher rate," Boston & Maine Railroad v. Piper, supra, 246 U.S. at 444, the agreement was enforceable at common law.

Petitioners argue that these permissive common-law principles do not govern the instant proceeding because a deductible is in essence an exoneration from, rather than a limitation of, liability. The practical accuracy of petitioners' characterization will depend, of course, on the size of the deductible in relation to the intrinsic worth of the property. If the deductible is $50 and the property is worth that amount or less, the effect of choosing the deductible would be to exonerate the carrier from any liability for loss. If the property is worth more than the deductible amount, however, there is no qualitative difference between use of the deductible and use of the more common released rate establishing the shipper's maximum recovery. As the Commission recognized, the "only purpose [of either] is to reduce a carrier's liability below the actual loss or damage sustained by a shipper." Division 1 Decision, supra. Using a deductible, the shipper agrees to forgo recovery of the first X dollars of its loss, whereas under the more common released-rate agreement the shipper agrees to forgo recovery of the last Y dollars of its loss. Either formulation would permit the carrier to limit its liability. We are aware of no authority holding that an agreement for a deductible is unenforceable at common law, and if the agreement were fair and reasonable, were entered into by the shipper in order to gain a lower transportation charge, and the shipper had the option of paying a higher charge to obtain greater coverage, we see no basis for inferring that such an agreement would be unenforceable at common law. Indeed, since "the proper test to be applied to every limitation of the common-law liability of a carrier [is] its just and reasonable character," Hart v. Pennsylvania Railroad, supra, 112 U.S. at 342 (emphasis added), even agreement on a deductible that exceeded the intrinsic worth of the property might have been enforced at common law if the shipper could thereby have obtained a low freight rate and had the option of paying a higher, reasonable, rate to avoid the deductible.*fn5

In sum, we disagree with petitioners' premise that an agreement for a released rate including a deductible would necessarily have been unenforceable at common law. Accordingly, we do not view the Commission's authorization of the use of the ...


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