Sompo Japan Ins. Co. of Am. v. Norfolk S. Ry. Co.

762 F.3d 165

SOMPO JAPAN INSURANCE COMPANY OF AMERICA, Plaintiff–Appellant,

v.NORFOLK SOUTHERN RAILWAY COMPANY, Norfolk Southern Corporation, The Kansas City Southern Railway Company, Defendants–Appellees.^*

Nipponkoa Insurance Company, Plaintiff–Appellee,

v.Norfolk Southern Railway Company, The Kansas City Southern Railway Company, Defendants–Appellants.

Docket Nos. 13–3416–cv, 13–3501–cv.

United States Court of Appeals, Second Circuit.

Argued: May 9, 2014.

Decided: Aug. 6, 2014.

David T. Maloof (Thomas M. Eagan, on the brief), Maloof Browne & Eagan LLC, Rye, N.Y., for Plaintiff–Appellant Sompo Japan Insurance Company of America in No. 13–1416, and for Plaintiff–Appellee Nipponkoa Insurance Company in No. 13–3501.

Paul D. Keenan, Keenan Cohen & Howard P.C., Jenkintown, PA, for Defendants–Appellants Norfolk Southern Railway Company and The Kansas City Southern Railway Company in No. 13–3501, and for

Defendants–Appellees Norfolk Southern Railway Company, Norfolk Southern Corporation, and The Kansas City Southern Railway Company in No. 13–3416.

Before: JACOBS, SACK, and LYNCH, Circuit Judges.

GERARD E. LYNCH, Circuit Judge:

In April 2006, a train derailed near Dallas, Texas, destroying much of the train's cargo—a variety of manufactured goods ranging from tractors to copy machines. The derailment precipitated these actions, which are on appeal before this Court for the second time. Before taking their fateful train ride, the manufactured goods had traveled across the Pacific Ocean from various parts of Asia. Their entire international journey was governed by through bills of lading—essentially, contracts—issued by ocean carriers to the cargo owners or their intermediaries. In the aftermath of the derailment, the plaintiffs Sompo Japan Insurance Company of America (“Sompo”) and Nipponkoa Insurance Company (“Nipponkoa”) (collectively, “plaintiffs”)—subrogees of the cargo owners/shippers—filed suit against Norfolk Southern Railway Company, Norfolk Southern Corporation (together, “Norfolk Southern”),¹ and the Kansas City Southern Railway Company (“KCSR”) (collectively, “defendants” or “the Railroads”) to recover for the damage sustained to the cargo by the derailment.

The litigation was originally pursued based on plaintiffs' federal causes of action under the framework of the Carmack Amendment, legislation that addresses carrier liability for goods lost or damaged during an interstate shipment. Following the Supreme Court's decision in Kawasaki Kisen Kaisha Ltd. v. Regal–Beloit Corp., 561 U.S. 89, 130 S.Ct. 2433, 177 L.Ed.2d 424 (2010) ( “ Regal–Beloit ”), which made clear that the Carmack Amendment does not apply to the shipments at issue, the ground shifted, and the cases were remanded to the United States District Court for the Southern District of New York (Denny Chin, Judge ) for further proceedings on plaintiffs' state law claims. In these appeals, heard in tandem, plaintiffs ask us to decide the meaning and enforceability of provisions found in the bills that purport to designate the ocean carrier as the sole entity responsible to the cargo owners for damage to the cargo. In addition, the appeal in Nipponkoa Insurance Co. v. Norfolk Southern Railway challenges Nipponkoa's ability to maintain its claim for contractual indemnification—a claim assigned to it by the upstream ocean carrier—against Norfolk Southern and KCSR. For the reasons described below, we affirm the judgments of the district court in full.

BACKGROUND

I. The Underlying Facts

In March and April 2006, a number of manufacturers arranged to have their products shipped from places in Asia to locations in the southern United States. Two of the manufacturers sought to ship automotive parts from Japan to Georgia, and hired Nippon Express U.S.A. (“Nippon Express”), a non-vessel owning common carrier (“NVOCC”),² to arrange for the transportation of the shipments.³ Nippon Express issued a through bill of lading to the manufacturers (“Nippon Express bill of lading”). A through bill of lading is essentially a contract that describes the terms that will govern both the ocean and land portions of the shipments' transport.⁴ Because Nippon Express does not itself provide transportation services, it hired Yang Ming—an ocean carrier—to provide the ocean transport and arrange the land leg of the shipments' journey. Accordingly, Yang Ming issued through bills of lading of its own to Nippon Express (“Yang Ming bill of lading”), detailing the terms under which the transportation would be undertaken. ⁵ A third manufacturer sought to ship tractors from Japan to Georgia, and contracted directly with Yang Ming to arrange for the entirety of the shipment's transportation.⁶ Yang Ming again issued a through bill of lading.

With respect to each of the shipments, Yang Ming subcontracted responsibility for a portion of the inland transport to defendant Norfolk Southern and Norfolk Southern enlisted the assistance of defendant KCSR. Norfolk Southern undertook to transport the shipments pursuant to an Intermodal Transport Agreement (“ITA”) that it had entered into with Yang Ming. The plaintiffs Sompo and Nipponkoa are the subrogees of the owners of the destroyed cargo.

The bills of lading contain a number of terms that, in the event of damage to or loss of the cargo, serve to limit the carriers' liability—for instance, provisions that cap the amount of damages to be paid per package of goods, and that limit the time for filing suit. The bills also contain Himalaya clauses ⁷—clauses that extend the benefit of the bills' liability-limiting provisions to downstream carriers that are engaged by an upstream carrier to assist in the carriage of goods.⁸ Most importantly, the Yang Ming bill of lading contains a provision that Sompo and Nipponkoa refer to as an “Exoneration Clause.” ⁹ The Exoneration Clause reads:

It is understood and agreed that, other than the Carrier, no Person, firm or corporation or other legal entity whatsoever (Including the Master, officers and crew of the vessel, agents, Underlying Carriers, Sub–Contractors and/or any other independent contractors whatsoever utilized in the Carriage) is, or shall be deemed to be, liable with respect to the Goods as Carrier, bailee or otherwise.

Sompo J.A. 241.

Consistent with the arrangements described above, the manufactured goods traveled from Asia to California by ocean vessel. In California, the shipments were loaded onto the trains of non-party Burlington Northern Santa Fe Railway Company, and transported to Texas, where they were transferred to the railcars of Norfolk Southern, which were operated by KCSR. The derailment took place just outside Dallas, Texas.

II. The Litigation: Round I

In the aftermath of the derailment, Sompo and Nipponkoa filed suit against the defendants. Both plaintiffs asserted claims under the Carmack Amendment, as well as claims for breach of contract, negligence, and bailment. In addition, in its amended complaint, Nipponkoa asserted a claim based on an assignment it received from Yang Ming of Yang Ming's rights against the defendants arising out of loss or damage to the Enplas Shipment. The defendants answered without asserting that the Yang Ming bill of lading's Exoneration Clause prevented them from being liable to the plaintiffs.

Although the complaints asserted state law causes of action against the defendants, the litigation centered on plaintiffs' claims under the Carmack Amendment. The Carmack Amendment amended the Interstate Commerce Act (“ICA”) in 1906. Act of June 29, 1906, ch. 3591, 34 Stat. 584 (1906) (current version at 49 U.S.C. § 11706). The ICA, itself enacted in 1887, created the Interstate Commerce Commission, which was responsible for regulating railroad rates.¹⁰ The Carmack Amendment “addresses the subject of carrier liability for goods lost or damaged during shipment, and most importantly provides shippers with the statutory right to recover for the actual loss or injury to their property caused by any of the carriers involved in the shipment.” Cleveland v. Beltman N. Am. Co., 30 F.3d 373, 377 (2d Cir.1994) (emphasis omitted). It establishes “a single uniform regime for recovery by shippers” from any receiving or delivering carriers involved in the shipment of the goods, and preempts the “shipper's state and common law claims against a carrier for loss or damage to goods during shipment.” Project Hope v. M/V IBN SINA, 250 F.3d 67, 73–74 n. 6 (2d Cir.2001); see also Adams Express Co. v. Croninger, 226 U.S. 491, 505–06, 33 S.Ct. 148, 57 L.Ed. 314 (1913). Prior to the initiation of these actions, this Circuit had held that the Carmack Amendment applied to the domestic rail leg of a continuous intermodal shipment originating in a foreign country and traveling under a through bill of lading like the shipments at issue here. See Sompo Japan Ins. Co. of Am. v. Union Pac. R. Co., 456 F.3d 54, 59 (2d Cir.2006) ( “ Sompo Japan ”). That holding has since been abrogated by the Supreme Court's decision in Regal–Beloit.

The Carmack Amendment is a favorite among shippers because it imposes something close to strict liability on covered carriers, see Sompo Japan, 456 F.3d at 59, abrogated on other grounds by Regal–Beloit, 561 U.S. at 100, 130 S.Ct. 2433, and it “imposes upon receiving rail carriers and delivering rail carriers liability for damage caused during the rail route under the bill of lading, regardless of which carrier caused the damage.” Regal–Beloit, 561 U.S. at 98, 130 S.Ct. 2433 (internal quotation marks and alterations omitted). “Once the shipper establishes a prima facie case of Carmack liability by showing delivery in good condition, arrival in damaged condition, and the amount of damages, the carrier is liable for the actual loss or injury to the property it transports,” unless the carrier can establish that it was free of negligence and that the loss or damage was caused by one of five excusable factors.¹¹Sompo Japan, 456 F.3d at 59 & n. 8 (internal...