Norfolk Southern Railway Co. v. Kirby, James, et al. (11/09/2004)

Questions presented: (1) Whether a foreign cargo owner who shipped goods to an inland destination in the United States using a shipping intermediary is bound by liability limitations in the intermediary's bill of lading, or those in the bill of lading that a subcontracting ocean carrier issued to the intermediary, when suing a railroad that subcontracted with the ocean carrier to deliver the goods to their destination? (2) Does federal or state substantive law govern the questions presented?

BY KAT DE MARIA, MEDILL NEWS SERVICE

In 1997, a Norfolk Southern Railway Company train derailed on its way to Huntsville, Ala. Included among its cargo were ten containers of machinery from James N. Kirby Pty Ltd., which the Australian manufacturer said were worth more than $1.5 million.

Norfolk Southern claimed it only owed Kirby $5,000 for the ten containers under the shipping contracts involved in transporting the machinery from Sydney, Australia to Huntsville. Kirby filed suit against Norfolk Southern in the U.S. District Court for the Northern District of Georgia for negligence and breach of contract.

Kirby had hired International Cargo Control Pty Ltd. (ICC), an Australian freight forwarder, to plan the details of the transport from Sydney to Huntsville. Kirby signed a shipping contract with ICC, under which the freight forwarder was only responsible for $500 per container if the cargo was damaged. A provision of the agreement extended the liability limitation to contractors ICC might use to transport the machinery.

ICC hired Hamburg Sud, a German ocean shipping company, to carry the machinery from Sydney to Savannah, Ga. The contract between the freight forwarder and the ocean carrier extended the $500 per package limitation to all sea and land carriers Hamburg Sud might call upon to complete the trip. An American subsidiary of Hamburg Sud hired Norfolk Southern to transport the cargo from Savannah to Huntsville.

The District Court ruled that Norfolk Southern did not owe Kirby more than $500 for each of the ten containers damaged. The court found the contract between ICC and Hamburg Sud applied to Kirby and its provisions clearly limited the liability of inland carriers such as Norfolk Southern.

On Aug. 8, 2002, a divided 11th Circuit Court of Appeals panel reversed, finding that Kirby did not hire Hamburg Sud nor agree to the terms of its contract with ICC. Norfolk Southern could only limit its liability to Kirby if the freight forwarder was acting as Kirby's agent when it agreed to the Hamburg Sud contract.

Historically, a freight forwarder like ICC can act as either its own shipper or as agent to the cargo owner when it signs a shipping contract with a carrier, depending on the circumstances of the transaction.

The 11th Circuit majority ruled that the structure, form and language of the contract between Kirby and ICC suggested that the freight forwarder was not acting as Kirby's agent when it signed the contract with Hamburg Sud. Since ICC acted alone in hiring the ocean carrier, the majority found the agreement between the two parties did not bind Kirby.

The majority further held that the contract between Kirby and ICC bound Kirby but did not allow Norfolk Southern to limit its liability to the cargo owner because the railroad company was not a beneficiary of that contracts provisions.

"If Kirby and ICC had intended for the protections of the ICC bill to extend to sub-sub-contractors, they could have said so," wrote Judge Ed Carnes.

Judge Eugene Siler, sitting from the 6th Circuit Court of Appeals, dissented. He argued both contracts protected Norfolk Southern.

Siler said that since the contract between Kirby and ICC discussed transportation from Sydney to Huntsville, an inland location, Kirby knew that the freight forwarder and its agents would have to hire an inland carrier like Norfolk Southern to complete the trip. Thus ICC acted as Kirby's agent in contracting with the railroad. For the same reason, the reference to "independent contractors" in the agreement between Kirby and ICC must include inland carriers, according to Siler.

On Oct. 7, 2002, the 11th Circuit denied Norfolk Southern's request for rehearing before its full panel of judges, and on Jan. 9, 2004, the U.S. Supreme Court granted review in the case.

Norfolk Southern argued that the 11th Circuit's ruling prevents sea, land and air carriers from enforcing contracts against cargo owners. The railroad explained that, under the 11th Circuit's rule, every party with an interest in goods shipped would have to enter into its own contract with the owner, disrupting international trade.

The American Association of Railroads agreed. "The 11th Circuit's decision will undo longstanding expectations of U.S. rail carriers and will require counterproductive alteration to a process that works efficiently and effectively to facilitate international commerce," wrote Daniel Saphire in the association's brief to the Supreme Court.

Michael Sturley, Kirby's attorney, contended that "nothing that the court below did will interfere with the ability of commercial parties to structure future transactions as they wish simply by entering into contracts that provide for the rights and obligations that they agree to accept." Sturley says adding the words "inland carrier" to shipping contracts would prevent the type of confusion found in this case.

On Sept. 24, 2004, as the 2004-05 term neared, the Court asked the parties to brief the following additional question: Does federal or state substantive law govern the questions presented? The Court also invited the Acting Solicitor General to file an amicus brief on the same question.

On Nov. 9, 2004, the Court unanimously reversed, with Justice Sandra Day O'Connor writing the opinion for the Court.

Attorneys:For Norfolk Southern Railway Co.:Mark EdmondeHaddadSidley, Austin, Brown & Wood555 West Fifth Street40th FloorLos Angeles,CA90013(213) 896-6000Carter G.PhillipsSidley Austin Brown & Wood LLP1501 K Street, NWWashington,DC20005(202) 736-8000

For James N. Kirby, Pty Ltd., dba Kirby Engineering, and Allianz Australia Limited:Michael F.Sturley727 East Dean Keeton StreetAustin,TX78705(512) 232-1350

Other:For Association of American Railroads:DanielSaphireAssociation of American Railroads50 F Street, N.W.Washington,DC20001(202) 639-2505

For Transportation Loss Prevention and Security Association:JamesAttridgeScopelitis Garvin Light Hanson1390 Market Street, #1204San Francisco,CA94102(415) 552-3088

For U.S.:THEODORE B. OLSONSolicitor General, Counsel of RecordPETER D. KEISLERAssistant Attorney GeneralTHOMAS G. HUNGARDeputy Solicitor GeneralAUSTIN C. SCHLICKAssistant to the Solicitor GeneralROBERT GREENSPANANNE MURPHY