The CarmaCk amendmenT’s PreemPTion of Conversion Claims: The CourTs GiveTh and The

CourTs TakeTh away

C. Fredric Marcinak*

I. INTRODUCTIONThe Carmack Amendment,

Congress’s first comprehensive approach to limiting interstate carrier liability, “became applicable to motor carriers by the Motor Carrier Act of 1935.”1 As transportation attorneys have now learned by heart, Carmack effectively acts as a trade-off between the shipper and carrier by allowing carriers to be held strictly liable for damages up to the “actual loss or injury to the property caused by (A) the receiving carrier, (B) the delivering carrier, or (C) [other intermediary carriers]” while limiting the carrier’s maximum liability to the “actual loss” of the goods, with, generally, no consequential damages being recoverable.2 Because “every detail of the subject [of carrier liability] is covered so completely that there can be no rational doubt but that Congress intended to take possession of the subject,”3 the Supreme Court has consistently held that the Amendment preempts state law claims “regardless of whether they contradict or supplement” the Amendment provisions.4

However, despite the broad preemptive scope of the Amendment,

in recent years the courts have wrestled with whether or not state law claims based on “true conversion” come within the preemptive scope of the Amendment.5 While most courts agree that it “would be unfair for a carrier to limit its liability when the carrier’s actions involve ‘intentional destruction or conduct in the nature of theft[,]’”6 many courts disagree as to whether the correct method of remedying this unfairness is to preclude preemption in cases of conversion, or to merely allow the shipper to avoid any limitation on the carrier’s liability while continuing to apply Carmack otherwise.7 Recent cases diverge.

II. RECENT CASES AND HOW THEY HAVE HANDLED

WHETHER OR NOT THE CARMACK AMENDMENT

PREEMPTS STATE LAW CONVERSION CLAIMS

In Certain Underwriters at Interest at Lloyd’s of London v. United Parcel Service of America, Incorporated, the Third Circuit Court of Appeals held that “the Carmack Amendment preempts all state law claims for compensation for the loss of or damage to goods shipped by a ground carrier in interstate commerce.”8 The court further held that “true conversion” was only “an exception to the liability limiting features of the Carmack Amendment, not an exception to its preemptive scope.” 9 In this case, the

plaintiff alleged that twenty-seven of its insured’s shipments had been lost or stolen by UPS or its employees, which allegedly were worth a total of $150,000.10 When the packages were never recovered, the plaintiff filed suit against UPS for breach of contract, negligence, negligent supervision of employees, and conversion.11 The court determined that all of the state law claims were preempted by the Carmack Amendment.12

The court recognized that “it would be unfair for a carrier to limit its liability when the carrier’s actions involve ‘intentional destruction or conduct in the nature of theft.’”13 Still, the court noted that “[p]ermitting state law conversion actions to proceed every time it is alleged that a carrier loses or converts a shipper’s goods would” undermine the intent of the Amendment—to provide a uniform liability scheme.14 After addressing policy considerations regarding the unfairness of limiting carrier liability in instances where the carrier’s actions were intentionally wrongful, the court determined that, instead of circumventing preemption, the “true conversion exception vitiates the liability limiting provisions of the Carmack Amendment[,]” thereby “further[ing] the exception’s goals while maintaining the amendment’s uniform liability scheme.”15

Other courts disagree. In Dynamic Transit Company v. Trans Pacific Ventrures, Incorporated, the Supreme Court of Nevada held that “the Carmack Amendment does not apply in cases of true conversion.”16

*Smith, Moore, Leatherwood, LLP (Greenville, South Carolina)

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In Dynamic Transit, the plaintiff contracted with Nex-Day Auto Transport, Inc., to facilitate delivery of his newly purchased luxury sports car.17 Nex-Day advertised the job on its website and, eventually, Dynamic Transit offered to transport the vehicle.18 Thereafter, Nex-Day arranged for pickup and generated a bill of lading. However, after Dynamic did not return a signed copy of the work order, Nex-Day faxed a cancellation of the contract and solicited other carriers.19 Still, Dynamic arrived to pick up the vehicle from the dealer, and even after being told that it had no authority to transport the car, it loaded the car onto the carrier and departed with the plaintiff’s car.20 After taking possession of the car, Dynamic informed Nex-Day that it would not deliver the vehicle to the purchaser until Nex-Day paid some $9,650 owed to Dynamic under unrelated past-due invoices.21 When Nex-Day did not pay, Dynamic placed the vehicle in a storage facility in Missouri and refused to deliver the car to the plaintiff.22

The plaintiff brought an action for state law claims including fraud and conversion against Dynamic.23 While claims such as these are ordinarily preempted by the Carmack Amendment, it was not until one and a half years after Dynamic filed its answer to plaintiff’s complaint that it asserted preemption.24 The plaintiff asserted that Dynamic had waived the Amendment’s protections by not raising it earlier, and that even if the protections had not been waived, the Amendment did not apply because this was a case of “true conversion.”25 The court held that the plaintiff’s complaint alleged that Dynamic “had wrongly asserted an act of dominion over his vehicle for its own gain, which was a denial of his rights to the property,” and that, therefore, “the district court properly concluded that the Carmack Amendment did not preempt [the plaintiff’s] claim for true conversion.”26

Additionally, just this year in Milnar v. United Parcel Service, Inc., the Florida Supreme Court parted ways with the reasoning in Certain Underwriters, and, in doing so, blew a hole in the principles of Carmack uniformity.27 On March 3, 2016, the Florida Supreme Court reversed two lower court decisions that had granted UPS’s motion to dismiss non-Carmack claims alleging conversion, Profiting by Criminal Activity, Unauthorized Publication of Name or Likeness, and a claim under Florida’s Deceptive and Unfair Trade Practices Act.28 The claims arose after UPS delivered an empty package that had contained two paintings shipped by an artist.29 At some point, UPS located the paintings and sold them to its lost goods vendor, who auctioned them off.30

UPS moved to dismiss all claims, arguing preemption under the Carmack Amendment.31 The trial court granted its motion and dismissed the case.32 The Fourth District Court of Appeals affirmed the trial court’s final order of dismissal but certified the conflict “[t]o the extent [its] opinion conflict[ed] with the Fifth District’s decision in Braid Sales.”33 Plaintiff filed a notice with the Supreme Court to invoke its discretionary jurisdiction to review the Fourth District’s decision.34 The Florida Supreme Court held that where there was “a state law or common law claim against an interstate carrier of goods,” the claim was “generally preempted by statute unless the claim alleges conduct or harm that is separate and distinct from the loss or damage to the goods transported.”35 Therefore, it reversed the lower decisions, determining that the plaintiff’s claims of a pattern of criminal activity by UPS were, in fact, separate and distinct from the cargo loss occurring during the shipping process.36 The Supreme Court concluded that the “allegations illustrate[d] a course of criminal conduct by UPS and

its cohorts that bear[ed], at best, only a tangential relationship to the interstate shipment process and, more specifically, a carrier’s contractual obligation to transport goods.”37 The court further stated that “[n]either the Carmack Amendment nor public policy support[ed] UPS’s attempt to evade liability arising not from loss of property, but from its intentional misconduct.”38

III. SO, WHICH COURT WAS RIGHT?

While each of these cases presents a different option for how a court could resolve the struggle between whether or not a case of conversion of goods is preempted by the Carmack Amendment, each case seems to rest on the same policy reasoning behind its proposed answer.39 In essence, it seems that the courts have found one common goal—circumventing the limited liability of carriers in the cases of intentional conversion—but have found various avenues to reach that goal.40

In Certain Underwriters, the Third Circuit discussed the policy reasoning for vitiating the liability limiting provision of the Carmack Amendment in cases involving true conversion.41 It focused on the fairness aspect of making the plaintiff whole where the carrier had intentionally committed wrongful acts.42 Similarly, in Dynamic, the Nevada Supreme Court, in validating why it believed that conversion cases avoided preemption, stated that “it would be against public policy to permit the carrier to limit its liability and thus profit from its own misconduct.”43 Furthermore, in Milnar, the Florida Supreme Court was concerned with how, under the traditional Carmack rationale, “common carrier[s] [could] break one law and shield [themselves] from liability under the protections afforded by another….”44 Therefore, while both Dynamic and Milnar are structured in terms of whether or not cases of conversion should be

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Endnotes 1 Certain Underwriters at Interest at Lloyd’s of London v. United Parcel Serv. of Am., Inc., 762 F.3d 332, 335 (3rd Cir. 2014) (citing Pub. L. No.

74-255, 49 Stat. 543). 2 49 U.S.C. § 14706 (2005). 3 Adams Express Co. v. Croninger, 226 U.S. 491, 505-506 (1913). 4 Charleston v. W. Carolina Ry. Co. v. Varnville Furniture Co., 237 U.S. 597, 604 (1915); See also Adams Express Co., at 505-506. 5 See Certain Underwriters, 762 F.3d 332; Dynamic Transit Co. v. Trans Pac. Ventures, Inc., 291 P.3d 114 (Nev. 2012); 6 Certain Underwriters, 762 F.3d at 337 (internal citations omitted). See also Milnar v. United Parcel Serv., Inc., No. SC14-54, slip op. at 14 (Fla.

Mar. 3, 2016); Dynamic Transit Co., 291 P.3d at 117. 7 See Certain Underwriters, 762 F.3d at 337. 8 Id. at 333. 9 Id. 10 Id. 11 Id. 12 Id. at 336. 13 Id. at 337. 14 Id. at 338.15 Id. 16 Dynamic Transit Co., 291 P.3d at 115. 17 Id. 18 Id. 19 Id. at 116. 20 Id.

preempted, the reasoning behind both holdings speaks in terms of foreclosing Carmack’s limitation of liability in conversion cases.45

While all three cases focus on this limitation of liability as the main policy rationale for each of their respective positions, Certain Underwriters is the only one of these three that remains loyal to the purpose behind the Carmack Amendment—to provide for a “uniform, national scheme of liability.”46 Without this uniform scheme, carriers would essentially have to be knowledgeable about the tort schemes in each state through which they carry goods in order to avoid unwittingly committing some obscure state-specific infringement.47 By allowing plaintiffs “a route to full recovery from a duplicitous carrier” and still enforcing the single “nationwide, federal standard[,]” the Third Circuit’s method essentially protects both the shipper and carrier by “remaining faithful to the Carmack Amendment’s goals and Supreme Court precedent.”48

It seems, then, that the Third Circuit’s method of abolishing the

limitation on liability in cases of true conversion while still providing carriers with the predictability and protection of a uniform scheme of liability is more on point with Congress’s intent in enacting the Amendment in the first place.49 The Third Circuit’s approach evenly balances the inherent equity of fully compensating a shipper where a carrier has intentionally taken and profited from the shipper’s goods with the uniform system of liability for goods moving in interstate commerce.

IV. WHAT THIS MEANS FOR THE INDUSTRY

GOING FORWARDWhile the issue of preemption

might seem academic, decisions like that of the Florida and Nevada Supreme Courts carry real-world consequences for motor carriers.50

Because the Carmack Amendment allows for motor carriers to be held nearly strictly liable for cargo losses, it restricts shippers’ recoveries to the “actual loss” of the freight involved.51

Typically, this means shippers can recover only the market value of lost

or damaged freight.52 In contrast, state law claims—like those brought by the plaintiffs in both the Nevada and Florida cases—often allow for the recovery of consequential damages like lost profits and even punitive damages and attorney’s fees.53 For example, in Dynamic Transit, the plaintiff was allowed to recover damages for loss-of-use of the car that the defendant had converted.54 With these additional avenues of recovery on the table, litigation, then, becomes much more costly for carriers and much more attractive for shippers and the plaintiff’s lawyers they hire.

In questionable cases, it seems that a shipper now need only allege a criminal conspiracy to avoid Carmack preemption—or in Nevada only a simple act of conversion—even if the facts ultimately will not support that conspiracy. For now, carriers can continue to seek to litigate cargo cases in federal court whenever possible and to consider filing preemptive declaratory judgment actions to have their rights under the Carmack Amendment addressed as early as possible.

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21 Id. 22 Id. 23 Id. 24 Id. 25 Id. 26 Id. at 117. 27 See Milnar, No. SC14-54 slip op.28 Id. at 3. 29 Id. at 2. 30 Id.31 Id. at 3.32 Id.33 Id.34 Id.35 Id. at 12. 36 See id. at 14. 37 Id.38 Id. at 16. 39 See Milnar, No. SC14-54 slip op. at 16; Dynamic Transit Co., 291 P.3d at 117; Certain Underwriters, 762 F.3d at 338. 40 See Milnar, No. SC14-54 slip op. at 16; Dynamic Transit Co., 291 P.3d at 117; Certain Underwriters, 762 F.3d at 338. 41 Certain Underwriters, 762 F.3d at 338. 42 Id. 43 Dynamic Transit, Co., 291 P.3d at 117 (internal citations omitted). 44 Milnar, No. SC14-54 slip op. at 16.45 See id; Dynamic Transit Co., 291 P.3d at 117. 46 Certain Underwriters, 762 F.3d at 338. 47 See generally id. 48 Id. 49 See id. 50 See Dynamic Transit, 291 P.3d at 118-19. 51 See generally Certain Underwriters, 762 F.3d at 335. 52 See generally id. 53 See e.g. Dynamic Transit, 291 P.3d at 118-19. 54 Id.

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