United States District Court,

N.D. California.

CGU INTERNATIONAL INSURANCE, PLC, a foreign corporation, Plaintiff,

v.

KEYSTONE LINES CORP., Defendant.

May 5, 2004.

FINDINGS OF FACT AND LAW

CONTI, J.

I. INTRODUCTION

Plaintiff CGU International Insurance (“CGU”) brings this negligence action against Defendant Keystone Lines Corp. (“Keystone”). Following a full bench trial on the merits, the Court makes the following findings:

Plaintiff is a foreign corporation and the subrogated insurer of Asia United Enterprises, Ltd. (“AUE”). In July of 2000, AUE contracted to sell seven new bottle-labeling machines to Coca Cola Korea Bottling Company Ltd. of Seoul, Korea, for $1,326,202.85. The sale was on an F.O.B. basis from the Port of Oakland. To fulfill the order to Coca Cola Korea, AUE purchased seven new labeling machines from Trine Labeling Systems (“Trine”). AUE’s contract with Trine was F.O.B. from Turlock, California, the location of Trine’s manufacturing facilities. AUE selected NewTrans Worldwide (“NewTrans”)as the freight-forwarder to coordinate shipment of the labeling machines. As the anticipated shipment date approached in December of 2000, NewTrans was unable to find a carrier to transport the machines from Trine’s facility in Turlock to the Port of Oakland. On Trine’s recommendation, NewTrans contacted Alex Abbley, an agent for Keystone, to help locate a carrier to move the machines from Turlock to the Port of Oakland. Soon after, Abbley, on Keystone’s behalf, hired Europa Specialized Carriers, Inc. (“Europa”) to pick up the labeling machines from Trine in Turlock and move them to Oakland, where they would be loaded onto a vessel for carriage to Korea.

On January 2, 2001, while in route from Turlock to Oakland, one of Europa’s trucks struck a highway overpass, resulting in complete damage to two of the machines. Pursuant to AUE’s insurance policy with CGU, CGU paid AUE $397,860.83 to cover the two damaged machines. CGU subsequently initiated this action against Keystone, alleging that Keystone was negligent in selecting Europa to transport the machines. [FN1]

FN1. At the outset of trial, various third-party and cross-claims were at issue. Keystone asserted a third-party claim against Europa and its owner, Brian Ahmadzai, seeking indemnification for any liability Keystone may have to CGU. Keystone also sought an accounting against Europa, Ahmadzai, and Washington Mutual Bank, FA (“Washington Mutual”) for $99,000 that Ahmadzai received pursuant to its own cargo insurance. Ahmadzai and Keystone jointly held that policy, but Ahmadzai unilaterally deposited the entire $99,000 into a personal account with Washington Mutual. Washington Mutual filed a cross-claim against Europa and Ahmadzai seeking indemnification for any potential liability to Keystone. Ahmadzai also brought a third-party counterclaim against Keystone on the basis that Keystone improperly froze his bank account, resulting in a loss of business. During trial, Keystone, Europa, Ahmadzai and Washington Mutual reached an agreement by which the parties voluntarily dismissed all of their claims against one another.

II. DISCUSSION

A. Carrier versus Broker

The first issue for the Court to resolve is whether Keystone qualifies as a carrier or broker under the Carmack Amendment, 49 U.S .C. § 14706 et seq. The Carmack Amendment, a federal law governing liability for loss, damage, or injury to property transported in interstate commerce, preempts state regulation of carrier liability.Adams Express Co. v. Croninger, 226 U.S. 491, 505, 33 S.Ct. 148, 57 L.Ed. 314 (1913); Read-Rite Corp. v. Burlington Air Express, Ltd., 186 F.3d 1190, 1196 (9th Cir.1999). Carmack governs carriers but not brokers. 49 U.S.C. § 14706(a). Therefore, if Keystone qualifies as a carrier as defined by Carmack, then CGU’s state-law cause of action is preempted. See Adams Express, 226 U.S. at 505-06.

Section 13102 defines a broker as:

“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).

The Code of Federal Regulations adds:

“motor carriers, or persons who are employees or bona fide agents of carriers, are not brokers within the meaning of this section when they arrange or offer to arrange the transportation of shipments which they are authorized to transport and which they have accepted and legally bound themselves to transport.” 49 C.F.R. § 371.2(a).

By contrast, a carrier is “a person providing … transportation for compensation.” 49 U.S.C. § 13102(12). The difference between a carrier and a broker is often blurry. The crucial distinction is whether the party legally binds itself to transport, in which case it is considered a carrier. See 49 C.F.R. § 371.2(a). That is, if Keystone accepted responsibility for ensuring delivery of the goods, regardless of who actually transported them, then Keystone qualifies as a carrier. If however Keystone merely agreed to locate and hire a third party to transport the machines, then it was acting as a broker.

We find that Keystone was a broker in this transaction. Abbley worked as an agent for Keystone’s brokerage division. There was never an understanding that Keystone assumed responsibility for shipment of the labeling machines from Turlock to Oakland. NewTrans contacted Keystone (on Trine’s suggestion) because NewTrans was unable to locate a carrier and such was Abbley’s speciality. Abbley testified that he was to receive the standard seven percent brokerage commission (as a percentage of the freight charge) for his services. Also, Keystone never took physical possession of the machines. Further evidencing Keystone’s role as a broker is the trip contract it entered into with Europa in which Keystone designated itself as the broker and Europa as the carrier. For these reasons, Keystone was merely a conduit between AUE and Europa and therefore qualifies as a broker under Carmack. Therefore, Plaintiff’s negligence claim is viable.

B. Negligence

The sole issue in this case is whether Keystone was negligent in the selection of Europa as a carrier. To establish negligence, CGU must prove that (1) Keystone owed a duty to AUE, (2) Keystone breached such a duty, (3) a causal connection exists between said breach and AUE’s injury, and (4) AUE suffered actual damages. Ileto v. Glock, Inc., 349 F.3d 1191, 1203 (9th Cir.2003). CGU claims that Keystone, as the broker, had a duty to AUE as the owner of goods to hire a competent carrier. Keystone allegedly breached its duty by not adequately investigating Europa’s qualifications before selecting it as the carrier, resulting in AUE’s eventual loss when Europa’s truck crashed into the overpass.

There is no dispute as to CGU’s standing as AUE’s subrogated insurer to seek recompense for the loss which AUE sustained. While CGU and Keystone dispute the proper measure of damages, they agree that AUE did in fact suffer monetary damages as a result of Europa’s accident. Keystone does not contest the duty that it owed to AUE despite the absence of any contractual privity between them. Cf. Ochs v. PacifiCare of California, 115 Cal.App.4th 782, 9 Cal.Rptr.3d 734, 744 (2002) (recognizing duty between parties not in contractual privity with each other). Thus questions regarding duty and harm are not at issue, and the Court need only address breach and causation.

The applicable standard of care in this case is the ordinary and reasonable prudent person standard. See USAir Inc. v. United States Dept. of Navy, 14 F.3d 1410, 1412 (9th Cir.1994); Ramirez v. Plough, Inc., 6 Ca.4th 539, 546 (1993). Keystone’s actions must constitute a departure from the expected behavior of an ordinarily prudent person in the same circumstances to constitute a breach of its duty to AUE. Id. CGU claims that Keystone’s failure to investigate Europa’s safety record and the driving history of its employees constitutes the breach. Also, CGU argues that the appropriate standard of care required Keystone to check the route which Europa was to follow from Turlock to Oakland. According to CGU, Keystone was under a tight deadline to hire a carrier. Consequently, it hastily and carelessly selected Europa to transport the labeling machines, neglecting important steps in the process to verify Europa’s competence. Had Keystone bothered to investigate Europa more thoroughly, it would have determined that Europa was not competent to serve as the carrier and hired another company, thereby avoiding the accident and resulting damages.

After careful consideration of the evidence presented, the Court finds that Plaintiff’s contention is untenable. The admissible facts undoubtedly refute CGU’s allegation that Keystone failed to abide by a standard of care commensurate with an ordinarily prudent person. Alex Abbley testified that Keystone’s standard procedure for qualifying a potential carrier entailed verifying the carrier’s transportation licenses and insurance status. Before selecting Europa, Abbley indeed determined that Europa had valid state and federal carriers’ licenses. Additionally, Abbley ascertained that Europa possessed both cargo and liability insurance. A carrier’s status regarding licensing and insurance reflects on its safety history and driving record. Any blemishes regarding Europa’s accident history would have appeared on its insurance and licensing information. Therefore, Abbley’s having verified that Europa was duly licensed and possessed adequate insurance foreclosed any possible need to separately inquire about Europa’s drivers and accident history. Furthermore, within a month or two prior to hiring Europa for the Trine shipment, Abbley visited the Europa facility in order to get a feel for the company’s operations. In explaining that such visits to carrier’s headquarters were extremely rare, Abbley testified that the size, organization, and equipment at the Europa facility convinced him of its competence as a carrier. Notwithstanding his impressions of Europa following this visit, Abbley still proceeded through the standard verification process before hiring Europa for the Trine shipment. Accordingly, we find that Keystone did not breach any duty owed to AUE in selecting Europa to serve as the carrier.

III. $99,000

As part of its agreement to be the carrier, Europa named Keystone as an additional beneficiary of its $100,000 cargo insurance policy. Following the accident at issue, Europa received a check for $99,000 [FN2] from its own insurance company, a non-party to this litigation. That check was made payable to Europa, Keystone and AUE. Brain Ahmadzai, sole owner of Europa, attempted to forward the $99,000 to AUE, but AUE apparently refused to accept the money as it had already been fully reimbursed by CGU for its loss. At that point, Ahmadzai deposited the check into his own account at Washington Mutual Bank and proceeded to spend approximately $77,000 for personal use; only $22,000 remains. [FN3] Washington Mutual Bank currently possesses the $22,000, having frozen Ahmadzai’s account pending resolution of this litigation. Though all parties–CGU, Keystone, Europa and Washington Mutual Bank–agree that the $99,000 properly belongs to CGU, CGU has not yet initiated an action to recover these funds. The only claim active at this time involves Keystone’s alleged negligence. Therefore, the balance of Ahmadzai’s account with Washington Mutual Bank shall be deposited with the Court subject to future litigation.

FN2. The $99,000 represents the face value of the policy minus a $1,000 deductible.

FN3. Ahmadzai claims that he only spent approximately $68,000 and that the remaining $31,000 is held by various parties. The precise trail of money is irrelevant to this Order. Only the amount remaining with Washington Mutual is of concern.

IV. CONCLUSION

CGU has failed to establish that Keystone acted negligently in hiring Europa to transport the labeling machines. Accordingly, Plaintiff’s claim is HEREBY ADJUDICATED in favor of Defendant. Furthermore, it is HEREBY ORDERED that the full balance of Ahmadzai’s account with Washington Mutual Bank, approximately $22,000, BE INTERPLED pending future resolution of proper ownership of such funds.

IT IS SO ORDERED.