The Metamorphosis of 3PL s in Freight Loss and Damage, Freight Charge, and Personal Injury Litigation, and What We Can L

1. The Metamorphosis of 3PL�s in Freight Loss and Damage, Freight Charge, and Personal Injury Litigation, and What We Can Learn From It Cleveland Freight Association Presented by: Eric L. Zalud Benesch Friedlander Coplan & Aronoff LLP 200 Public Square | Suite 200 Cleveland, Ohio | 44114 (216) 363-4500

2. 2 Surface Freight ForwardersDefinition Arranges transport, but also (1)�plays a role in the assembly, consolidation, break bulk and distribution of the freight; (2)�assumes responsibility (and liability) for transportation from the place of receipt to the place of destination; and (3)�uses an interstate carrier for any part of the transport, 49 U.S.C. �13102(8). Need not perform each function, but must �proffer� them. Registration Requirements: 1. Must register with FHWA. Liability Regime: 2. Carmack liability; considered �carriers� under ICCTA.

3. 3 Agency Relationships: Differing Views: Agent of Shipper. Zenith Elec. Corp. v. Panalplina, Inc., 68 F.3d 197, 198. Depends upon facts of particular freight scenario. Constructors Tecnicos v. Seafood Serv., Inc., 945 P.2d 841, 846 (5th Cir. 1991). Independent contractor. Koninklijke Nedlloyd BV. v. Uniroyal, Inc., 433 F. Supp. 121, 128 (S.D.N.Y. 1977). Service is indication. Consolidated Freightways Corp. v. Admiral Corp., 442 F.2d 56, 63 (7th Cir. 1971) (noting service for others as one indication of independent contractor�s status). Limitation of Liability Issues: 1. Released value doctrine applies.

4. 4 Transportation Brokers Definition: Broker: A person, other than a motor carrier or an employee or agent of a motor carrier, that as a principal or agent sells, offers for sale, negotiates for, or holds itself out by solicitation, advertisement, or otherwise as selling, providing, or arranging for, transportation by motor carrier for compensation. 49 U.S.C. �13102(2). A broker does not have a role in the actual assembly or carriage of the goods. Transportation Revenue Management, Inc. v. First NH Investment Services Corp., 886 F. Supp. 884, 886 (D.D.C. 1995).

5. 5 Transportation Brokers Definition: An independent party serving as a middleman between motor carriers and the shipping public. Reiter v. Cooper, 507 U.S. 258; 113 S.Ct. 1213; 122 L.Ed.2d 604 (1993); arranges transport with a motor carrier for shipper for compensation, but does not act as a carrier which actually provides transport for compensation. Determination as to broker or forwarder status based upon what services entity offers rather than declared purpose. United States v. California, 297 U.S.C. 175, 181; 56 S.Ct. 421; 80 L.Ed. 567 (1936). Both domestic and international air freight forwarders may act simply as brokers in arranging transportation with a carrier as an agent for a disclosed principal (14.C.F.R. �297.5 (1992)); See St. Laurent v. Air Freight Transportation Corporation of N.J., 86 A.D.2d 511, 445 N.Y.S.2d 745 (1st Dept. 1982).

6. 6 Liability Regime: Non-Carmack, common law, contractual, See Servicemaster Co. v. FTR Transport, Inc., 868 F. Supp. 90, 95 (E.D. Pa. 1994) (contract between broker and shipper not subject to federal regulation). Released value doctrine does not apply. Custom Cartage, Inc. v. Motorola, Inc., Fed. Carr Cas. � 84,082) (N.D. Ill. 1999). Carrier/shipper may also seek recovery directly from broker�s surety. Of course, this recovery is limited to the amount of the broker�s surety bond on file�generally $10,000.00. See Milan Express Co. v. Western Surety Co., 792 F.Supp., 571 (M.D. Tenn. 1992). Registration Requirements: Must register with FHWA.

7. 7 Liability Imposed by Carmack Carmack subjects motor carrier transporting cargo in interstate commerce to strict liability for �actual loss or injury to property.� Missouri Pacific R.R. Co. v. Elmore & Stahl, 377 U.S. 134, 137 (1964). Strict liability imposed by Carmack is for actual loss or injury to the property, subject to right of motor carrier to limit liability as provided by statute. Section 14706(a)(1) provides, in part, that:

8. 8 Air Freight Forwarders/Liability Regime: Direct carriers perform custodial transportation Indirect carriers undertake to be legally responsible for safe delivery and provide logistical support, including procuring and assembling cargo for shipment, packaging, booking cargo and arranging for surface transportation. Indirect air carrier is treated as custodial carrier both under federal common law on domestic moves and under the Warsaw Convention in international carriage and is afforded the same defenses and opportunities for limitation of liability. Indirect carrier assume ultimate responsibility of a direct carrier although they ship by air in direct carriers planes.�

9. 9 Air Freight Forwarders/Liability Regime: Threshold in determining air freight forwarder�s liability is whether it functions as common air carrier or indirect carrier: Air freight forwarder liable for lost or damaged goods only for its own negligence, including negligence when choosing carrier; but forwarder who contracts to deliver goods to destination, as well as or instead of arranging for their transportation, becomes liable as common carrier for loss or damage to goods, whether the fault or other basis of liability for damages arise with that forwarder or with underlying carrier actually transporting goods.

10. 10 Air Freight Forwarders/Liability Regime: Carmack Applicability to Air Freight Forwarders: The Carmack Amendment applies to the extent freight is transported by motor carrier (1)�between a place and (a)�a place in another state. If air freight forwarders become involved in interstate land transport, outside the airport�s commercial zone, their liability may be governed by Carmack. Air freight forwarders are exempt from Carmack applicability where use of motor transportation is necessitated by circumstances, such as weather or mechanical failure beyond control of air freight forwarder. Overbooking or over-solicitation of air space does not create the type of emergency situation contemplated by this provision.

11. 11 Liability Limitations Air freight forwarders/ indirect carriers may limit liability under federal common law, on a released valuation basis. Under released value doctrine, in exchange for low carriage rate, shipper deems to have released carrier from liability beyond stated amount. Such a liability limitation is enforceable only if: (1)�resulted from fair, open, just, and reasonable agreement between carrier and shipper, entered into by shipper for purposes of obtaining lower of two or more shipping rates- proportioned to the amount of risk, and (2)�shipper was given option of additional recovery upon paying a greater rate.

12. 12 The Logistics Miasma Swirls Service and roles of third party logistics providers constantly evolving work in progress. Role of freight intermediary expands and contracts, based upon nature of multimodal transport involved Role only truly crystallizes in crucible of actual transport. Theories and allegations which seek to characterize freight intermediaries as shippers, as carriers, as NVOCC�s, warehousemen and even as manufacturers� suppliers.

13. 13 The Himalayas Reach Ohio - Kirby Lives! Norfolk Southern Ry. Co. v. Kirby, 543 U.S. 14 Himalaya clause in a maritime bill of lading extended liability limitations to downstream carriers Limited Brands, Inc. v. F.C. (Flying Cargo) Int�l Ltd., 2000 U.S. Dist. EXIS 17029 (S.D. Ohio 2006). Limited Brands sought recovery for freight lost in transit fromIsrael to Columbus, Ohio Mast Enterprises was Limited subsidiary that arranged for delivery of manufactured goods to Columbus Contracted with F.C. Flying Cargo for the shipment of 596 cartons Flying Cargo hired its affiliate, Danmar Lines, to arrange for carriage

14. 14 Danmar: Retained ZIM Container Lines for ocean transport Retained Cargo Connections to transport shipment overland from the U.S. port to freight port�s station. Cargo Connections then retained Palmer Industries to transport container to Columbus.

15. 15 Cargo Connections hauled container from the port terminal in New York to a freight station in New Jersey Palmer Industries was in charge of operating facility Container was stolen from Palmer Industries� facility Danmar:

16. 16 Bills of lading contained a subcontracting clause Carrier was entitled to subcontract portions of the carriage Himalaya clause made clear that all defenses and limitations of the carrier shall be available to all persons of whose services the carriers makes use Also contained covenant by the shipper not to sue entities in shipment sequence, other than carrier Danmar:

17. 17 Filed motion to dismiss on grounds of no personal jurisdiction over it Incorporated under laws of Israel No officers, employees or other business related activity in Ohio Limited presented affidavit stating Mast and Flying Cargo had a �long-term business relationship� Flying Cargo:

18. 18 Court also considers the inherently multi-national and multi-modal nature of COGSA. Defendant moved to dismiss on basis of covenant not to sue provision. Contracts arranged by intermediary-freight forwarder prevented cargo owner from suing land-carrier for more than freight forwarder negotiated. An intermediary freight forwarder binds a cargo owner to the liability limitations it negotiates with downstream carriers. Flying Cargo:

19. 19 Court found: Palmer Express and Cargo Connections could invoke maritime bill of ladings� Himalaya clause Kirby emphasized that shipper retained right to proceed against carrier Covenant not to sue contained in bills of lading does not relieve carrier from liability

20. 20 Liability of Freight Forwarder Liability of freight forwarder Flying Cargo was different story Kirby intent to protect downstream maritime and inland carriers

21. 21 Kirby remains law of the land. Shippers know that the limitations of which they are aware, can protect downstream carriers and intermediaries, of whom they are unaware. Intermediaries, carriers, and their counsel remember to scrutinize where in the shipping sequence their actions fall. Kirby does not apply to upstream carriers or intermediaries. Liability of Freight Forwarder

22. 22 Expansion of Services May Cause Liability Regime Transition As 3PL�s expand the �seamless� services they provide, hey may enter different liability realms. Example: Diamond Transportation Group, Inc. v. Emerald Logistics Solutions, Inc., 2006 WL 1789036 (E.D. Pa.). Diamond was interstate motor carrier based in Philadelphia. Emerald was surface freight forwarder headquartered in California.

23. 23 Expansion of Services May Cause Liability Regime Transition Between January and March 2005, Emerald hired Diamond to pick up and transport goods to its customers in Philadelphia. Diamond handled over 150 shipments for Emerald. Diamond�s standard �released value� limitation of liability was $100 per shipment, when the shipper did not declare specific value for shipment. Shipper did have option of declaring value for shipments, thus precluding limitation of liability (extra charge would then be required).

24. 24 Expansion of Services May Cause Liability Regime Transition Emerald had not declared value on any of its shipments with Diamond On February 25, 2006, Diamond shipment documents for Sony goods described as �EE�, for electrical equipment. Emerald declared value of �$0.00�. Shipment was to be delivered on February 25, 2006. Consignee facility had closed by time Diamond�s vehicle arrived. Diamond brought shipment to its facility for the weekend, where it was stolen.

25. 25 Expansion of Services May Cause Liability Regime Transition Diamond, in its motion for summary judgment, claimed that it was only liable for $400, because of appropriately limited liability in lading documents. Emerald argued that Carmack Amendment did not apply, since Diamond was not acting as motor carrier at time of theft, but as warehouseman, subject to common law liability.

26. 26 Expansion of Services May Cause Liability Regime Transition Court: Carmack Amendment of ICCTA did apply, since its definition of the �transportation� function was intentionally broad and expansive: Transportation. The term �transportation includes � (A)�.; and (B) services related to that movement, including arranging for, receipt, delivery, elevation, transfer and transit, refrigeration, icing, ventilation, storage, handling, packing, unpacking and interchange of passengers and property.�

27. 27 Expansion of Services May Cause Liability Regime Transition Court thus found that losses sustained during storage were incidental to transport of goods and therefore these losses were encompassed by Carmack Amendment. Dismissed Emerald�s counterclaim for warehousemen�s liability. Dismissed Emerald�s counterclaim for conversion and misrepresentation, finding that they did not arise from conduct that was �separate and distinct� from loss of stolen equipment.

28. 28 Expansion of Services May Cause Liability Regime Transition Case exemplifies combination of two factors that can converge to a possibly convert liability regime that may be applied to particular shipment: statutorily broad definition of �transportation�, combined with the expansive functions that many 3PLs perform in the marketplace today. Definition of �transportation�, including such things as packaging and storage, may convert traditional non-freight forwarder functions, which are performed by warehousemen, assemblers and asset light freight forwarders, into entities that are subject to ICC Termination Act and Carmack Amendment.

29. 29 Expansion of Services May Cause Liability Regime Transition Double-edged sword: Under Carmack claimant must merely demonstrate that it delivered freight to �transporter� in good order, that freight moved in interstate commerce, and arrived in damaged condition. Carmack litigation is more likely to enforce liability limitations, which, in this case, hurt the freight forwarder, who had paid its customer in full (But in many cases helps the intermediary).

30. 30 The Edge of the Envelope: Freight Forwarder as Manufacturer Supplier? Freight assembly warehouses, just in time inventory and RFID continue to grow and evolve Expansion is exemplified in recent case of Delgadillo v. Unitrons Consolidated, Inc., 191 Fed. Appx. 547; 2006 U.S. app. LEXIS 18331 (9th Cir. 2006). Delgadillo and wife filed product liability claim against freight forwarder Unitrons District court granted summary judgment to defendants

31. 31 Delgadillo sought to hold forwarders liable under provision of the Idaho Product Liability Act that holds: - Product seller, other than manufacturer, is also subject to liability of the manufacturer if - manufacturer is not subject to service of process under laws of the claimant�s domicile - Manufacturer was admitted to be unavailable under the Act - Forwarders would be liable under Idaho�s Act if they were determined to be �product sellers� under that Act. The Edge of the Envelope: Freight Forwarder as Manufacturer Supplier?

32. 32 Defendants contended that they were freight forwarders �Travel agents for cargo� Their role was simply to �arrange for the shipment� of subject machine to U.S. Insufficient to qualify them as �product sellers� under the Act. The Edge of the Envelope: Freight Forwarder as Manufacturer Supplier?

33. 33 Appellate Court: Lack of freight forwarding license could lead reasonable trier of fact to infer Appellees had sold product; Invoices demonstrating Appellees engaged in other transactions involving industrial equipment could lead reasonable trier of fact to infer Appellees have sold other products; Appellees� insurance policy could lead reasonable trier of fact to infer Appellees feared liability for distribution of products; and Appellee�s possession of negotiable bill of lading could lead reasonable trier of fact to infer Appellees had title to product.

34. 34 However evidence was insufficient to find forwarders were product sellers. No evidence that sale of product was principal purpose of transaction. Invoices and insurance policy only permitted reasonable fact finder to infer that forwarders may have been involved in sale or distribution of other goods, not that they had sold or distributed the relevant product. Appellate Court:

35. 35 Little evidence that forwarders benefited from sale of the product. No evidence that the forwarders advertised product, marketed product, financed purchasing of the product, or created consumer demand for product; and is no evidence Appellees had any knowledge or control over product. Evidence shows the forwarders acted as typical freight forwarders and arranged transportation. Appellate Court:

36. 36 Similar statutes in product liability acts of most states in light of manufacture of many consumer products overseas. If freight forwarder or warehousing company plays a role in actual final assembly of products. Could metamorphosize into a �manufacturer supplier� under a state�s product liability statute. Once again, fact that freight forwarder was unlicensed, though not determinative, did not help forwarder. Appellate Court:

37. ABN Amro Verzekeringen BV v. Geologistics Americas, Inc., 45 F .2d 85 (2nd Cir. 2007), plaintiff ABN was subrogated insurer of Halm International Company. Halm, the shipper, had ongoing business relationship with Geologistics as freight forwarder. On June 13, 2000, Geologistics issued �house airway bill� indicating that it would ship printing press for Halm from Holland to Huntington Station, New York. ABN Amro Verzekeringen BV v. Geologistics Americas, Inc., 45 F.2d 85 (2nd Cir. 2007)

38. Geologistics retained Art Messenger, a trucking company, to transport press from JFK to Huntington Station: had retained Art Messenger for literally thousands of prior shipments. They operated under contract that limited Art Messenger�s liability to $50 per shipment, unless Geologistics made specific written arrangements indicating otherwise (and paid higher rate). Art Messenger picked up press at JFK, failed to tie down crates and press was severely damaged. ABN Amro Verzekeringen BV v. Geologistics Americas, Inc., 45 F.2d 85 (2nd Cir. 2007)

39. One week later, Geologistics issued an invoice to Halm for the shipment. Back of invoice: In terms and conditions, there was liability limitation of $50 per shipment, unless additional amount paid by shipper. These exact terms and conditions appeared on the 25 prior Geologistics invoices to Halm, dating from 1997. Halm did not request additional coverage, nor pay extra compensation to increase the level of liability. ABN Amro Verzekeringen BV v. Geologistics Americas, Inc., 45 F.2d 85 (2nd Cir. 2007)

40. Geologistics, sought summary judgment based upon the liability limitation, and ABM sought to invalidate Art Messenger�s $50 llimitation: Court: Halm�s contract with Geologistics authorized Geologistics to engage carriers on Halm�s behalf and expressly authorized Geologistics to accept limitations of liability imposed by the retained carriers. ABN Amro Verzekeringen BV v. Geologistics Americas, Inc., 45 F.2d 85 (2nd Cir. 2007)

41. Pursuant to this authority, Geologistics had contracted with Art Messenger, which had a $50 per shipment liability limitation. Court read this provision as expansive authorization to Geologistics to accept written limitations of liability embodied in contracts of carriage it made on Halm�s behalf, rather than as narrowing limitation giving authorization only as to those limitations occurring on bills of lading, receipts, or tariffs. Lessons: Course of conduct a factor. ABN Amro Verzekeringen BV v. Geologistics Americas, Inc., 45 F.2d 85 (2nd Cir. 2007)

42. Understand your business� role (Know Thyself!). Make sure that your marketing staff in particular understand your role. Understand the role of your vendors and contractors. Understand that if you store goods in a manner that is more than incidental to the transportation, you may be a warehouseman. Lessons

43. Considerations for intermediaries: Understand limitations of liability. Take the time to read any incorporated tariffs or service guides prior to contracting. Practical Points

44. Ouch! Personal Injury Parameters Explained:Smith v. Spring Hill Integrated Logistics Management, Inc., 2005 WL 2469689 (N.D. Ohio 2005)