Appeals 3rd Cir. App. I, IOP 5.1, 5.3, and 5.7.

United States Court of Appeals,

Third Circuit.

Mrs. Ressler’s Food Products

v.

KZY Logistics LLC; John Does/ABC Corp. 1-10, KZY Logistics, LLC, Appellant

No. 16-2173

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Argued December 7, 2016

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(Filed: January 17, 2017)

On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civ. No. 2:15-cv-06294), Honorable Stewart Dalzell, District Judge

Attorneys and Law Firms

Marco A. Laracca (argued), Bio & Laracca, 331 Central Avenue, West Orange, NJ 07050, Attorneys for Appellant

Jeffrey P. Resnick (argued), Sherman, Silverstein, Kohl, Rose & Podolsky, 308 Harper Drive, Suite 200, Moorestown, NJ 08057, Attorneys for Appellee

BEFORE: FISHER, KRAUSE, and GREENBERG, Circuit Judges

 

 

OPINION*

 

GREENBERG, Circuit Judge.

 

1. INTRODUCTION

*1 KZY Logistics, LLC appeals from the District Court’s order of April 4, 2016, denying its motion to vacate a default judgment entered against it on the grounds that it did not file a timely answer to plaintiff-appellee Mrs. Ressler’s Food Products’ complaint filed on November 16, 2015. Mrs. Ressler’s’ summons and complaint were served on KZY on December 8, 2015, but KZY did not file an answer or otherwise move against the complaint until February 17, 2016, when it moved to vacate the default judgment, nearly a month after the Court entered the judgment on January 20, 2016. On this appeal, KZY contends that the Court abused its discretion in denying its motion to vacate the default judgment, as it maintains that the four factors that a court considers in reaching a decision on whether to vacate a default judgment supported its motion. Because we hold that the Court incorrectly applied the standard for consideration of one of these four factors and correctly found that two other factors supported vacation, we will reverse the order denying KZY’s motion to vacate the default judgment. We recognize that in considering whether to vacate the default judgment, the District Court also found that a fourth factor weighed against vacation of the judgment and we have no basis to reject this finding. This factor, however, does not outweigh the other three factors.

 

 

1. STATEMENT OF JURISDICTION AND STANDARD OF REVIEW

The District Court had jurisdiction pursuant to 28 U.S.C. § 1337, as Mrs. Ressler’s brought suit under the Carmack Amendment, 49 U.S.C. § 14706, and the amount in controversy exceeds $10,000. We have jurisdiction pursuant to 28 U.S.C. § 1291.

 

We review a district court’s refusal to vacate a default judgment pursuant to Federal Rules of Civil Procedure 55(c) and 60(b) for an abuse of discretion. See Emcasco Ins. Co. v. Sambrick, 834 F.2d 71, 73 (3d Cir. 1987). In doing so, we are “guided by the manner in which the trial court balanced [certain enumerated] factors,” which we discuss below. Id. (quoting Poulis v. State Farm Fire and Cas. Co., 747 F.2d 863, 868 (3d Cir. 1984)). We consistently have “emphasiz[ed] the extreme nature of a … default judgment,” Poulis, 747 F.2d at 867, and “repeatedly [have] stated our preference that cases be disposed of on the merits whenever practicable,” Hritz v. Woma Corp., 732 F.2d 1178, 1181 (3d Cir. 1984). Because entry of a default judgment is an “extreme sanction,” Scarborough v. Eubanks, 747 F.2d 871, 875 (3d Cir. 1984), the entry of such a judgment is generally disfavored. Gross v. Stereo Component Sys., Inc., 700 F.2d 120, 122 (3d Cir. 1983). “[I]n a close case doubts should be resolved in favor of setting aside the default and reaching a decision on the merits.” Gross, 200 F.2d at 122. Nevertheless, even though we have “adopted a policy disfavoring default judgments and encouraging decisions on the merits, … the decision to vacate a default judgment is left to the sound discretion of the trial court.” Harad v. Aetna Cas. and Sur. Co., 839 F.2d 979, 982 (3d Cir. 1988) (citing Tozer v. Charles A. Krause Milling Co., 189 F.2d 242, 245 (3d Cir. 1951)).

 

 

III. BACKGROUND

*2 Mrs. Ressler’s, a supplier of food products, arranged with BlueGrace Logistics to coordinate a shipment of a cargo of food, apparently deli products, from Philadelphia to California. App. at 21 ¶ 5. KZY claims that BlueGrace worked with Longitude Logistics, a freight broker, to arrange for the transportation of the cargo.1 Id. at 26-27 ¶¶ 2-4. According to KZY, Longitude Logistics contacted KZY to arrange for transportation of the cargo from KZY’s location in Fairfield, New Jersey, to California. Id. at 26-27 ¶¶ 2-3. KZY contends that it never had a contractual relationship or was in contact with either Mrs. Ressler’s or BlueGrace. Id. at 27 ¶ 4.

 

KZY asserts that Longitude Logistics shipped Mrs. Ressler’s’ cargo from Philadelphia to KZY’s facility in Fairfield, New Jersey, without making any indication on either the bill of lading or product receipt that the food was at the proper temperature when it had been delivered to Longitude Logistics. Id. at 28 ¶ 9. Furthermore, KZY contends that Longitude Logistics did not ascertain that Mrs. Ressler’s’ cargo was at the proper temperature before transferring the cargo to KZY for delivery in California. Id. When KZY’s driver delivered the cargo in California, the customer rejected it because its temperature was higher than was expected and thus the food product was unsafe. Id. at 27 ¶ 6. When KZY’s driver alerted KZY to that problem, KZY sent the trailer to a dealer in refrigeration units to inspect the trailer to see if there was a temperature failure and to run diagnostics on the temperature recorder. Id. at 27 ¶¶ 7-8. KZY contends that the diagnostic test showed that the temperature in its refrigerated trailer was proper throughout the delivery, and thus maintains that the cargo reached a heightened temperature at some point before KZY accepted the cargo for shipment to California. Id. at 27-28 ¶¶ 8-9.

 

When Mrs. Ressler’s was informed of the temperature problem it contacted KZY and KZY’s insurance carrier about the damaged goods. On August 22, 2015, months before Mrs. Ressler’s filed this suit, KZY’s insurance carrier informed KZY that it was not obligated to defend suits for cargo damage, though it could do so. At that time it advised KZY to forward any legal papers served on it to the carrier so that it could determine whether there was insurance coverage for the loss. Id. at 12. Subsequently Mrs. Ressler’s filed suit against KZY on November 16, 2015, though so far as we are aware it did not file a complaint against the other entities involved in the California shipment. The summons and complaint were served on KZY on December 8, 2015. Id. at 11. KZY then again contacted its insurance carrier about the matter with the expectation that the carrier would provide it with a defense to Mrs. Ressler’s’ suit even though the carrier earlier had told KZY that it might not do so. Id. at 29 ¶ 13. On December 22, 2015, a week before KZY needed to respond to the complaint, the insurance carrier informed KZY that it would not defend KZY in the lawsuit. Id. at 11-12, 29 ¶ 13. This refusal put KZY in a difficult position inasmuch as KZY could not file a pro se answer or otherwise move against the complaint because its status as a legal entity precluded it from doing so. Id. at 12, 29 ¶ 14. Furthermore, in view of the circumstance that the answer was due between Christmas and New Year’s Day, KZY contends that it had difficulty finding counsel to defend it in the action. Nevertheless, it did not seek an extension of time to file an answer from Mrs. Ressler’s.

 

*3 On January 6, 2016, after the answer was due, Mrs. Ressler’s filed a motion for entry of default. Id. at 23. The District Court clerk entered a default against KZY the same day. KZY was mailed a copy of the motion for entry of default on January 8, 2016, but failed to contact either the Court or Mrs. Ressler’s in response to the motion. On January 7, 2016, the Court ordered Mrs. Ressler’s to file a motion for entry of a default judgment, and, after Mrs. Ressler’s did so, the Court granted the motion on January 20, 2016. Id. at 1, 7. KZY then filed a motion on February 17, 2016, seeking an order from the Court vacating the default and default judgment pursuant to Federal Rules of Civil Procedure 55(c) and 60(b). Id. at 25. The Court denied that motion on April 4, 2016. Id. at 14. KZY then filed this timely appeal.

 

 

1. DISCUSSION

KZY makes two arguments for reversing the District Court’s denial of its motion to vacate the default judgment. First, it argues that the Court abused its discretion in denying its motion to vacate the default and default judgment because the four factors that a district court must weigh in determining whether to vacate a default judgment supported the motion. Appellant’s br. at 11-20. Second, it contends that the District Court’s entry of a default judgment contravened our oft-stated preference that cases be decided on the merits rather than through procedural sanctions. Id. at 21. Mrs. Ressler’s counters that the Court did not abuse its discretion in weighing these factors and properly took into account our preference for deciding cases on the merits when it made its determination to deny the motion to vacate the default judgment. Appellee’s br. at 8-17. Moreover, Mrs. Ressler’s contends that the “failure to maintain the proper temperature [of the cargo] was due to the negligence of [KZY’s] driver or the malfunction of [its] equipment.” Id. at 2.

 

Federal Rule of Civil Procedure 55 authorizes a district court clerk to enter a default and default judgment when the defendant does not contest an action but the party against whom a default judgment has been entered may move to vacate the judgment under Rule 60(c)(1) “within a reasonable time.” A district court may grant a motion to set aside the judgment for “good cause” pursuant to Rules 55(c) and 60(b). If the movant files its motion within one year of the entry of a default judgment, Rule 60(b)(1) permits the court to grant the motion if there had been “mistake, inadvertence, surprise, or excusable neglect” on the defendant’s part. In addition, Rule 60(b)(6) provides a catchall for vacating a judgment without time limit for “any other reason that justifies relief.”

 

As the parties and the District Court recognized, a court must consider four factors when it determines whether to vacate a default judgment: “(1) whether lifting the default would prejudice the plaintiff; (2) whether the defendant has a prima facie meritorious defense; (3) whether the defaulting defendant’s conduct is excusable or culpable; and (4) the effectiveness of alternative sanctions.” Emcasco, 834 F.2d at 73. We will discuss each of these factors in turn.

 

 

1. Prejudice to Mrs. Ressler’s

KZY has maintained that Mrs. Ressler’s would not have been prejudiced if the District Court had vacated the judgment, and the Court agreed. Appellant’s br. at 13; App. at 10. But Mrs. Ressler’s counters that it would have been prejudiced by the vacation because “[i]t is unknown if the evidence maintained by defendant … [is] still available.” Appellee’s br. at 14. It acknowledges, however, that, “[w]hile it is plaintiff’s position that the prejudice factor weighs in against setting aside default, the district court’s ultimate decision to give less weight to this factor is correct.” Id. Inasmuch as the Court found this factor favored KZY and we see no error in the Court’s analysis of this factor which Mrs. Ressler’s does not challenge, we accept the District Court’s conclusion on the prejudice factor without further discussion.

 

 

2. KZY’s Defense and its Merit

*4 KZY argues that the District Court abused its discretion in determining that KZY did not set forth a meritorious defense in its proposed answer in which it averred that it did not have a contractual relationship with Mrs. Ressler’s. It makes the same contention in its motion to set aside the default judgment. Moreover, it attached documentation indicating that the refrigeration system was at the appropriate temperature in its trailer throughout the transportation of the cargo to California. Appellant’s br. at 14-16. Mrs. Ressler’s responds that KZY made only a general denial of the allegations in the complaint in its motion to vacate without sufficiently specific allegations to entitle it to relief. Appellee’s br. at 10-11. Therefore, Mrs. Ressler’s contends that the Court did not abuse its discretion when it denied the motion to vacate the judgment. Id. at 12.

 

In considering the meritorious defense issue we note that the Carmack Amendment, implicated here, “governs the liability of common carriers on bills of lading,” i.e., transportation contracts between a shipper and a carrier. Paper Magic Grp. v. J.B. Hunt Transp., Inc., 318 F.3d 458, 461 (3d Cir. 2003); see Certain Underwriters at Interest at Lloyds of London v. United Parcel Serv. of Am., Inc., 762 F.3d 332, 335 (3d Cir. 2014). “To establish a prima facie case against a carrier under the Carmack Amendment, a shipper must prove (1) delivery of goods to the initial carrier in good condition, (2) damage of the goods before delivery to their final destination, and (3) the amount of the damages.” Paper Magic Grp., 318 F.3d at 461 (internal quotation marks and citation omitted). Once the plaintiff establishes a prima facie case, “the burden shifts to the carrier to prove that it was free from negligence and that the damage was caused solely by ‘(a) the act of God; (b) the public enemy; (c) the act of the shipper himself; (d) public authority; (e) or the inherent vice or nature of the goods.’ ” Beta Spawn, Inc. v. FFE Transp. Servs., Inc., 250 F.3d 218, 226 (3d Cir. 2001) (quoting Mo. Pac. R.R. Co. v. Elmore & Stahl, 377 U.S. 134, 137, 84 S.Ct. 1142, 1144 (1964)).

 

As the District Court noted, we have held that a defendant has established a meritorious defense when its “allegations, if established at trial, would constitute a complete defense.”2 United States v. $55,518.05 in U.S. Currency, 728 F.2d 192, 195 (3d Cir. 1984); see Hritz, 732 F.2d at 1181. But we have indicated that defendants seeking to vacate a default judgment must “allege[ ] specific facts beyond simple denials or conclusionary statements.” $55,518.05 in U.S. Currency, 728 F.2d at 195. Our standard is “more stringent” than that normally required for an answer to a complaint for it “requires that a defendant … set forth with some specificity the grounds for his defense.” Harad, 839 F.2d at 982. But we do not require that a defendant’s answer be in such detail that it meets “summary judgment standards.” Poulis, 747 F.2d at 869.

 

In our cases we have recognized that a default judgment may be vacated if the defaulting defendant has advanced meritorious defenses. In the following situations we have recognized allegations as setting forth meritorious defenses: (1) an insurer’s claim that its insurance policy on which a recovery was being sought did not provide coverage in the underlying action, Feliciano v. Reliant Tooling Co., Ltd., 691 F.2d 653, 657 (3d Cir. 1982); (2) a potential lack of involvement of a defendant in the distribution chain in a products liability suit, Hritz, 732 F.2d at 1181; and (3) a defendant-insurer’s reliance on the application of a one-year limitations provision for claims in its policy, even though the plaintiffs disputed that provision’s applicability, Poulis, 747 F.2d at 870.

 

*5 The District Court considered the defenses presented in both KZY’s answer and its motion to vacate the default judgment. In addressing the answer, the Court concluded that it “fails to make a prima facie showing of a meritorious defense” because it “merely denies the allegations set forth in the complaint and the separate defenses are just a generic list of thirteen defenses.” App. at 10. In assessing the allegations attached to the motion to vacate the default judgment, the Court stated that “[e]ven if KZY Logistics had included such averments [that it maintained the proper temperature throughout delivery] in its proposed answer, these assertions boil down to a bare denial of the allegations in the complaint and do not constitute a meritorious prima facie defense.” Id. at 11. Accordingly, it held that this factor “weigh[s] heavily against relieving KZY Logistics of the default judgment.” Id. at 13.

 

But KZY’s assertion that it maintained the proper temperature and that Mrs. Ressler’s delivered a “hot” product when transporting Mrs. Ressler’s’ cargo is more than a bare denial of the complaint’s allegations and is not merely a conclusory statement. KZY detailed this defense with sufficient specificity to assert a prima facie meritorious defense. If proven at trial, these facts arguably would establish a complete defense to Mrs. Ressler’s’ action. Further, KZY supplemented its allegations concerning the temperature of the refrigeration unit by providing temperature readings from the unit during the time in question. App. at 31-33. Therefore, the meritorious defense factor weighs in favor of KZY.3

 

 

3. KZY’s Culpability for the Delay

KZY argues that it did not display “willfulness” or “bad faith” justifying the denial of a motion to vacate a default judgment. Appellant’s br. at 16-19. KZY provides a number of reasons why it did not act with willfulness or in bad faith: it was unable to file a pro se answer; it expected that its insurer would defend it in the lawsuit and only found out about its refusal to do so seven days before the answer was due; and it had difficulty finding counsel because its answer was due between Christmas and New Year’s Day. Mrs. Ressler’s contends that KZY’s actions were “culpable and not excusable” so that the District Court properly found that this factor weighed against vacating the judgment. Appellee’s br. at 12.

 

In considering a defendant’s culpability, i.e., whether its conduct was excusable, courts apply the standard of “willfulness” or “bad faith.” Hritz, 732 F.2d at 1182. “Willfulness” or “bad faith” means “more than mere negligence” but can be satisfied with less than “ ‘knowing’ disregard.” Id. at 1182-83. These terms are not “talismanic incantations” and entry of a default judgment may be proper even when a district court fails to use them. Id. “Reckless disregard for repeated communications from plaintiffs and the court, combined with the failure to investigate the source of a serious injury, can satisfy the culpable conduct standard.” Id. at 1183. A default judgment “is improper,” however, “where the terms are invoked in support of arbitrary procedural adjudication.” Id.

 

The District Court held that although “there is no direct evidence of bad faith, KZY Logistics’ failure was culpable and not excusable in these circumstances.” App. at 12-13. The Court based its conclusion on KZY’s failure to ask Mrs. Ressler’s for an extension of time to file an answer to the complaint, KZY’s knowledge that its insurance carrier might not defend a suit brought by Mrs. Ressler’s as early as August 22, 2016, i.e., before the suit was filed, and its failure “to show good cause” for its lack of response over a span of months. Id. at 12. Though the question is close, we cannot say that the Court abused its discretion in making its determination against KZY on the culpability issue.

 

 

4. The Effectiveness of Alternate Sanctions

*6 KZY next asserts that the District Court should have imposed alternative sanctions against it consisting of attorneys’ fees and costs associated with Mrs. Ressler’s having sought a default judgment rather than refusing to vacate the default judgment. Appellant’s br. at 19-20. Mrs. Ressler’s contends that the Court did not abuse its discretion for declining to do so. Appellee’s br. at 15-17.

 

The District Court found that there was an effective alternate sanction in compelling KZY “to internalize the costs of its failure to timely answer or otherwise respond.” App. at 13. It held that this factor “weighs in favor of vacating the default judgment.” Id. Because the District Court found that this factor weighed in KZY’s favor, we need not analyze the District Court’s reasoning on this point beyond saying that we accept it.

 

 

5. Whether the District Court Abused its Discretion in Denying KZY’s Motion to Vacate the Default Judgment

Finally we hold that the District Court abused its discretion when it declined to vacate the default judgment, primarily because it misapplied our standard in determining whether KZY asserted a prima facie meritorious defense. Inasmuch as the Court concluded that the prejudice and alternative sanctions factors weighed in favor of vacating the judgment and we hold that KZY alleged a prima facie meritorious defense to the action, the only factor weighing against vacation was the culpability factor. As we have stated above, a default judgment is an extreme sanction. Because the Court concluded that there was no direct evidence that KZY acted in bad faith, the culpability factor alone does not outweigh the other three factors in considering the motion seeking vacation of the default judgment.

 

 

1. CONCLUSION

For the aforementioned reasons, we will reverse the District Court’s order of April 4, 2016, denying KZY’s motion to vacate the default judgment and remand the case to the District Court for further proceedings. On the remand the Court may consider imposing sanctions on KZY as an alternative to entering the default judgment. The parties will bear their own costs on this appeal.

 

All Citations

— Fed.Appx. —-, 2017 WL 167464

 

 

Footnotes

*

This disposition is not an opinion of the full court and pursuant to I.O.P. 5.7 does not constitute binding precedent.

1

This fact is disputed—Mrs. Ressler’s alleges that BlueGrace contracted directly with KZY. App. at 21 ¶ 6.

2

We have held that a defendant established a meritorious defense in letters to the court. See Feliciano v. Reliant Tooling Co., Ltd., 691 F.2d 653, 657 (3d Cir. 1982).

3

It should be understood that we are finding that KZY has a meritorious defense only for purposes of the motion to vacate. We do not know if, when the merits of the case are considered, its defense will be meritorious.

 

 

 

 

 

 

United States District Court,

N.D. Illinois, Eastern Division.

Starr Indemnity & Liability Company, a/s/o Cessna Aircraft Company, Plaintiff,

v.

YRC, Inc., Defendant.

Case No. 15-cv-6902

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Signed 01/17/2017

 

 

MEMORANDUM OPINION AND ORDER

Robert M. Dow, Jr., United States District Judge

*1 Plaintiff Starr Indemnity & Liability Company, as subrogee of Cessna Aircraft Company, brought suit against Defendant YRC, Inc. for cargo damage. Plaintiff alleges that as a result of Defendant’s damage to the cargo, Plaintiff was compelled to pay its insured, Cessna Aircraft Company, the sum of $1,916,413.26. Before the Court are Defendant YRC Inc.’s motion [22] to dismiss Counts II, III, and IV pursuant to Federal Rule of Civil Procedure 12(b)(6), and Plaintiff’s motion [27] to permit and schedule oral argument on Defendant’s motion to dismiss. For the reasons set forth below, the Court denies Defendant’s motion to dismiss [22] and denies Plaintiff’s motion for oral argument [27]. This case is set for further status hearing on February 2, 2017 at 9:00 a.m.

 

 

1. Background

Plaintiff Starr Indemnity is the insurance provider for Cessna Aircraft Company, a company that manufactures, sells, and leases business jets. [15 (Complaint) at ¶¶ 1–2.] Defendant YRC is an interstate motor carrier. [Id. at ¶ 4.] Plaintiff alleges that on or about August 13, 2014, Cessna tendered two jet engines (“the cargo”) to Defendant for transportation from Orlando, Florida to Bridgeport, West Virginia. [Id. at Count I ¶ 6.] Defendant issued a bill of lading to Cessna acknowledging receipt of the cargo for transport. [Id.] Plaintiff contends that on or about August 14, 2014, the cargo was extensively damaged during transportation by Defendant. [Id. at Count I ¶ 7.] Plaintiff further contends that as a result of the damage to the cargo, Plaintiff was compelled to pay its insured, Cessna, the sum of $1,916,413.26. [Id. at Count I ¶ 9.]

 

Plaintiff contends that Defendant operates pursuant to authority issued to it by the Federal Motor Carrier Safety Administration (“FMCSA”) and provides transportation service subject to jurisdiction under Subchapter I of Chapter 135 of the Interstate Commerce Commission Termination Act (“ICCTA”) pursuant to 49 U.S.C. §§ 13501 et seq. and is subject to the requirements of the Federal Motor Carrier Safety Regulations (“FMCSR”). [Id. at Count II ¶ 3.] Plaintiff’s amended complaint alleges liability under the Carmack Amendment to the Interstate Commerce Act, 49 U.S.C. § 14706, (Count I), as well as violations of the ICCTA, 49 U.S.C. § 14704(a)(2) and 14704(e), (Counts II, III, and IV).

 

In Count I, Plaintiff alleges that under the Carmack Amendment, Defendant is liable for $1,916,413.26 in cargo damage plus pre-judgment and post-judgment interest. Plaintiff asserts that there is in excess of $10,000 at issue per the bill of lading, exclusive of interest and costs. [Id. at ¶ 5.]

 

In Count II, Plaintiff alleges that Defendant permitted the trailer transporting the cargo “to be driven when it was so loaded, or so improperly distributed or so inadequately secured as to prevent its safe operation,” in violation of the safe loading requirements of 49 C.F.R. § 398.4(g)(1).1 [See id. at Count II ¶ 20.] According to Plaintiff, the trailer contained Cessna’s cargo and other commodities being shipped by unrelated entities. [Id. at Count II ¶ 9.] Plaintiff contends that Defendant was responsible for blocking and bracing the various commodities inside the trailer and for installing sealed dividers between Cessna’s cargo and the other commodities, which Plaintiff alleges was intended to help prevent shifting of cargo. [Id. at Count II ¶¶ 10–12.] Plaintiff alleges that on or about August 14, 2014, the cargo was damaged as a result of a crash involving a roll-over of the trailer in Ohio. [Id. at Count II ¶ 14.] Plaintiff contends that the driver, an employee of Defendant, gave a witness statement to the Ohio Police stating that he was “[d]riving from 77 N to 21 South doing 30 m.p.h. Load shifted & set rolled over (Double Trailers).” [Id. at Count II ¶¶ 15, 17.] According to Plaintiff, when the police asked the driver what caused him to go off the road, the driver stated that “[t]he load shifted.” [Id. at Count II ¶ 18.] Plaintiff contends that assuming, arguendo, that the driver responded truthfully in his witness statement, Defendant violated the safe loading requirements of 49 C.F.R. § 398.4(g)(1), and thus violated Subchapter I, Chapter 135 of ICCTA. Plaintiff asserts that Defendant is therefore liable for $1,916,413.26 in cargo damage plus pre-judgment and post-judgment interest and attorney’s fees, pursuant to 49 U.S.C. § 14704(a)(2) and (e).2 [See id. at Count II ¶¶ 20–21.]

 

*2 In Count III, Plaintiff alleges, upon information and belief, that the driver made false statements to the police in his witness statement. [Id. at Count III ¶ 19.] Plaintiff contends that the driver falsely stated that he was traveling at 30 m.p.h. when he was actually “traveling in excess of two times the posted speed limit of 30 m.p.h.” [Id. at Count III ¶ 20.] Plaintiff further contends that the vehicle left the road not because the load shifted, but “solely as a result of [the driver’s] flagrant violation of the posted speed limit.” [Id. at Count III ¶ 21.] Plaintiff asserts that under 49 C.F.R. § 390.113 of the FMCSR, motor carriers such as Defendant are directed to require that their drivers observe and comply with the duties set forth in the FMCSR, specifically with 49 C.F.R. § 392.6,4 which prohibits motor carriers from permitting operation of any commercial motor vehicle in excess of the speed limit. [Id. at Count III ¶ 21.] Plaintiff alleges that by failing to require the driver to adhere to the requirements of the FMSCR, including 49 C.F.R. §§ 390.11 and 392.6, Defendant violated Subchapter I, Chapter 135 of ICCTA and is therefore liable for $1,916,413.26 in cargo damage plus pre-judgment and post-judgment interest and attorney’s fees, pursuant to 49 U.S.C. § 14704(a)(2) and (e). [See id. at Count III ¶¶ 28, 32.]

 

Finally, in Count IV, Plaintiff alleges that the driver has a record of criminal convictions in Ohio for speeding and other moving violations. [Id. at Count IV ¶ 26.] Plaintiff contends that Defendant knew or should have known about the driver’s prior convictions for speeding and driving while under the influence of alcohol or drugs and that Defendant failed to give sufficient, if any, weight to these violations. [Id. at Count IV ¶ 26.] Plaintiff further alleges that Defendant’s failure to properly observe the driver’s past driving records and to prevent him from operating as a commercial driver constitutes a violation of the ICCTA and the FMCSR, citing 49 C.F.R. §§ 391.25,5 391.51,6 and 392.6. Plaintiff contends that Defendant is liable for $1,916,413.26 in cargo damage plus pre-judgment and post-judgment interest and attorney’s fees, pursuant to 49 U.S.C. § 14704(a)(2) and (e). [See id. at Count IV ¶¶ 27–28, 32.]

 

*3 Defendant has moved to dismiss Counts II, III, and IV pursuant to Federal Rule of Civil Procedure 12(b)(6).

 

 

1. Legal Standard

To survive a Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted, the complaint first must comply with Rule 8(a) by providing “a short and plain statement of the claim showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), such that the defendant is given “fair notice of what the * * * claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)) (alteration in original). Second, the factual allegations in the complaint must be sufficient to raise the possibility of relief above the “speculative level.” E.E.O.C. v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Twombly, 550 U.S. at 555). “A pleading that offers ‘labels and conclusions’ or a ‘formulaic recitation of the elements of a cause of action will not do.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). However, “[s]pecific facts are not necessary; the statement need only give the defendant fair notice of what the * * * claim is and the grounds upon which it rests.” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (citing Twombly, 550 U.S. at 555) (alteration in original). Dismissal for failure to state a claim under Rule 12(b)(6) is proper “when the allegations in a complaint, however true, could not raise a claim of entitlement to relief.” Twombly, 550 U.S. at 558. In reviewing a motion to dismiss pursuant to Rule 12(b)(6), the Court accepts as true all of Plaintiff’s well-pleaded factual allegations and draws all reasonable inferences in Plaintiff’s favor. Killingsworth v. HSBC Bank Nevada, N.A., 507 F.3d 614, 618 (7th Cir. 2007).

 

 

III. Analysis

Defendant argues that the Court should dismiss Counts II, II, and IV, which are based on violations of the ICCTA, §§ 14704(a)(2) and (e), because the Carmack Amendment provides the sole and exclusive remedy for damage to cargo transported in interstate commerce. As an initial matter, the Court will discuss the background of the Carmack Amendment and the ICCTA to set the stage for the analysis of this motion to dismiss.

 

The Interstate Commerce Act contains several provisions governing a motor carrier’s liability to a shipper for the loss of, or damage to, an interstate shipment of goods. N. Am. Van Lines, Inc. v. Pinkerton Sec. Sys., Inc., 89 F.3d 452, 453 (7th Cir. 1996). These provisions are commonly referred to collectively as the Carmack Amendment. The Carmack Amendment provides shippers with the statutory right to recover for actual losses or injuries to their property caused by carriers involved in the shipment.7 Gordon v. United Van Lines, Inc., 130 F.3d 282, 285–86 (7th Cir. 1997). The Carmack Amendment limits the carrier’s liability to the “actual loss or injury to the property” damaged en route.8 REI Transport, Inc. v. C.H. Robinson Worldwide, Inc. 519 F.3d 693, 697 (7th Cir. 2008) (citing 49 U.S.C. § 14706(a)(1)).

 

*4 Prior to the enactment of the Carmack Amendment, disparate schemes of carrier liability existed among the states, some of which allowed carriers to limit or disclaim liability, whereas others permitted full recovery. REI Transport, 519 F.3d at 697. Thus, a carrier could have been “held liable in one court when under the same state of facts he would be exempt from liability in another.” Adams Express Co. v. Croninger, 226 U.S. 491, 505 (1913). This patchwork of regulation made it “practically impossible for a shipper engaged in a business that extended beyond the confines of his own state * * * to know * * * what would be the carrier’s actual responsibility as to goods delivered to it for transportation from one state to another.” Id. To solve this problem, the Carmack Amendment “create[e] a national uniform rule of carrier liability concerning interstate shipments.” Pinkerton, 89 F.3d at 455.

 

The Interstate Commerce Commission Termination Act of 1995, Pub.L. 104–88, 109 Stat. 803, amended and recodified the provision of the Carmack Amendment governing motor carrier liability relevant to this case at 49 U.S.C. § 14706. The ICCTA transferred the motor carrier regulatory function of the Interstate Commerce Commission to the Department of Transportation and the Surface Transportation Board. Owner-Operator Indep. Drivers Ass’n, Inc. v. New Prime, Inc., 192 F.3d 778, 780 (8th Cir. 1999) (citing 49 U.S.C. § 13501). However, Congress did not transfer all of the responsibilities of the ICC to the DOT. ICCTA allows commercial disputes, which had been administratively adjudicated by the ICC, to be brought in federal court. Courtney v. Ivanov, 41 F.Supp.3d 453, 459 (W.D. Penn. 2014) (citing § 14704). Section 14704(a)(2), which Plaintiff relies on in this case, provides that “a carrier * * * is liable for damages sustained by a person as a result of an act or omission of that carrier * * * in violation of this part.” 49 U.S.C. § 14704(a)(2).9 At least some federal courts have held that § 14704(a)(2) authorizes private parties to sue for damages for carrier conduct “in violation of [regulations promulgated under] this part.” New Prime, 192 F.3d at 785; see also Fulfillment Servs. Inc. v. United Parcel Serv., Inc., 528 F.3d 614, 621 (9th Cir. 2008) (“[T]he plain language of § 14704(a)(2) counsels that there is a private right of action for violations within that part of the Termination Act[.]”);Owner-Operator Indep. Drivers Ass’n, Inc. v. Mayflower Transit, LLC, 161 F.Supp.2d 948, 955 (S.D. Ind. 2001), affirmed in part by 615 F.3d 790, 792 (7th Cir. 2010) (“Section 14704 expressly provides for damages * * * to ‘a person’ injured by a carrier’s act or omission.”); Tillman v. Bulkmatic Transp. Co., 2006 WL 1793562, at *1 (N.D. Ill. June 27, 2006); Owner-Operator Indep. Drivers Ass’n, Inc. v. Bulkmatic Transport Co., 2004 WL 1151555, at *2 (N.D. Ill. May 3, 2004). Defendant also invokes § 14704(e), which provides for an award of reasonable attorney’s fees.10

 

With this background in mind, the Court now turns to the merits of Defendant’s motion to dismiss. Defendant argues that the Court should dismiss Counts II, II, and IV of the amended complaint, which are based on violations of the ICCTA §§ 14704(a)(2) and (e), because the Carmack Amendment provides the sole and exclusive remedy for damage to cargo transported in interstate commerce. Defendant is correct that the Carmack Amendment has some preemptive force. The Carmack Amendment ensures the national uniformity of its scheme of liability by preempting “state and common law remedies inconsistent with [the Amendment].” REI Transport, 519 F.3d at 698 (citation and internal quotation marks omitted).

 

*5 However, although the Carmack Amendment’s preemptive scope is broad, it is not all-inclusive. Schartz v. National Van Lines, Inc., F.Supp.2d 690, 697 (N.D. Ill. 2005). To support its argument that the claims under § 14704 should be dismissed, Defendant relies on cases describing the Carmack Amendment as “the exclusive remedy” for damage to cargo transported in interstate commerce, but these cases merely state that the Carmack Amendment preempts state law and common law, not other federal statutes. See Pinkerton, 89 F.3d at 453 (noting that the Carmack Act preempts “all state and common law remedies covering this subject”); Hughes Aircraft Co. v. N. Am. Van Lines, Inc., 970 F.2d 609, 613 (9th Cir. 1992) (noting that the Carmack Amendment preempts state common law); Fulton v. Chicago, Rock Island & P. R. Co., 481 F.2d 326, 332 (8th Cir. 1973) (holding that the Carmack Amendment preempted plaintiff’s negligence claim); Certain Underwriters at Interest at Lloyds of London v. United Parcel Serv. of Am., Inc., 762 F.3d 332, 333 (3d Cir. 2014) (holding 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”). Defendant cites no case law supporting its argument that the Carmack Amendment preempts another federal statute, namely § 14704(a)(2).11

 

Plaintiff’s claims under § 14704 are not based on state law or common law and thus are not preempted by the Carmack Amendment. Therefore, without expressing an opinion on the merits of Plaintiff’s claims under § 14704(a)(2) and (e), the Court denies Defendant’s motion to dismiss Counts II, III, and IV of the amended complaint.12 Cf. Hall v. Aloha Int’l Moving Servs., Inc., 2002 WL 1835469, at *15 (D. Minn. Aug. 6, 2002) (granting summary judgement for plaintiff on Carmack Amendment claim for damaged goods, and granting summary judgment for defendants on § 14704 claim for violation of tariff and registration provisions, not because of Carmack preemption, but because damages sustained were not the result of the alleged failure to register or maintain applicable tariffs).

 

Finally, Plaintiff has filed a motion [27] to permit and schedule oral argument on this issue. However, the Court finds that the parties’ briefs have amply apprised the court of the relevant issues supporting and opposing Defendant’s pending motion to dismiss [22]. Oral argument is therefore unnecessary. Plaintiff’s motion for oral argument [27] is denied.

 

 

1. Conclusion

For the foregoing reasons, the Court denies Defendant’s motion to dismiss [22] and denies Plaintiff’s motion for oral argument [27]. This case is set for further status hearing on February 2, 2017 at 9:00 a.m.

 

All Citations

Slip Copy, 2017 WL 168179

 

 

Footnotes

1

49 C.F.R. § 398.4 – Driving of motor vehicles, states:

(g) Safe loading

(1) Distribution and securing of load. No motor vehicle shall be driven nor shall any motor carrier permit or require any motor vehicle to be driven if it is so loaded, or if the load thereon is so improperly distributed or so inadequately secured, as to prevent its safe operation.

Plaintiff incorrectly cites to 49 C.F.R. § 392.14(g) for this language in its amended complaint [18] but correctly cites 49 C.F.R. § 398.4(g)(1) in its response brief [25].

2

49 U.S.C. § 14704 – Rights and remedies of persons injured by carriers or brokers, states in relevant part:

(a)(2) Damages for Violations. A carrier or broker providing transportation or service subject to a jurisdiction under chapter 135 is liable for damages sustained by a person as a result of an act or omission of that carrier or broker in violation of this part.

* * *

(e) Attorney’s Fees. The district court shall award a reasonable attorney’s fee under this section. The district court shall tax and collect that fee as part of the costs of the action.

3

49 C.F.R. § 390.11 – Motor carrier to require observance of driver regulations, states in relevant part:

Whenever in part 325 of subchapter A or in this subchapter a duty is prescribed for a driver or a prohibition is imposed upon the driver, it shall be the duty of the motor carrier to require observance of such duty or prohibition.

4

49 C.F.R. § 392.6 – Schedules to conform with speed limits, states:

No motor carrier shall schedule nor permit nor require the operation of any commercial motor vehicle between points in such period of time as would necessitate the commercial motor vehicle being operated at speeds greater than those prescribed by the jurisdiction in or through which the commercial motor vehicle is being operated.

5

49 C.F.R. § 391.25 – Annual inquiry and review of driving record, states in relevant part:

(b) Except as provided in subpart G of this part, each motor carrier shall, at least once every 12 months, review the motor vehicle record of each driver it employs to determine whether that driver meets minimum requirements for safe driving or is disqualified to drive a commercial motor vehicle pursuant to § 391.15.

(1) The motor carrier must consider any evidence that the driver has violated any applicable Federal Motor Carrier Safety Regulations in this subchapter or Hazardous Materials Regulations (49 CFR chapter I, subchapter C).

(2) The motor carrier must consider the driver’s accident record and any evidence that the driver has violated laws governing the operation of motor vehicles, and must give great weight to violations, such as speeding, reckless driving, and operating while under the influence of alcohol or drugs, that indicate that the driver has exhibited a disregard for the safety of the public.

6

49 C.F.R. § 391.51 – General requirements for driver qualification files, states in relevant part:

(a) Each motor carrier shall maintain a driver qualification file for each driver it employs. A driver’s qualification file may be combined with his/her personnel file.

(b) The qualification file for a driver must include * * *

7

The Carmack Amendment states, in relevant part:

A carrier providing transportation or service subject to the jurisdiction under subchapter I or III of chapter 135 shall issue a receipt or bill of lading for property it receives for transportation under this part. That carrier and any other carrier that delivers the property and is providing transportation or service subject to jurisdiction under subchapter I or III of chapter 135 or chapter 105 are liable to the person entitled to recover under the receipt or bill of lading. The liability imposed under this paragraph is for the actual loss or injury to the property caused by (A) the receiving carrier, (B) the delivering carrier, or (C) another carrier over whose line or route the property is transported in the United States[.]

49 U.S.C. § 14706(a)(1).

8

The prima facie case under the Carmack Amendment is straightforward: a plaintiff must show “(1) delivery in good condition; (2) arriving in damaged condition; and (3) the amount of damages.” REI Transport, Inc. v. C.H. Robinson Worldwide, Inc. 519 F.3d 693, 699 (7th Cir. 2008) (citation and internal quotation marks omitted). If the plaintiff establishes the prima facie case, the burden shifts to the defendant “to show that it was free from negligence and that the damage to the cargo was due to one of the excepted causes relieving the carrier of liability.” Id. (citation and internal quotation marks omitted).

9

49 U.S.C. § 14704(a)(2) states:

(a)(2) Damages for violations. A carrier or broker providing transportation or service subject to a jurisdiction under chapter 135 is liable for damages sustained by a person as a result of an act or omission of that carrier or broker in violation of this part.

10

49 U.S.C. § 14704(e) states:

(e) Attorney’s fees. The district court shall award a reasonable attorney’s fee under this section. The district court shall tax and collect that fee as part of the costs of the action.

11

Defendant argues in its reply brief that it “does not claim the preemption doctrine * * * bars [Plaintiff’s] § 14704(a)(2) claims. Rather, [Defendant] contends that the preemptive sweep of the Carmack Amendment * * * provides further evidence in support of its position that Congress intended the Carmack Amendment exclusively govern claims for damages to cargo shipped in interstate transit. [26, at 6.] Semantics aside, Defendant’s exclusivity argument is in substance a preemption argument: essentially, Defendant claims that the Carmack Amendment preempts the entire field of interstate cargo transport, wiping out both state and federal law in the area.

12

Defendant does not challenge whether § 14704 provides a private right of action for the violations of the federal regulations that Plaintiff alleges in this case, so the Court does not address this issue.