In Gaines Motor Lines, Inc. v. Klaussner Furniture Industries, Inc., decided October 30, 2013, the U.S. Court of Appeals for the Fourth Circuit addressed for the first time whether federal courts have jurisdiction over a motor carrier’s breach of contract claim against a shipper for unpaid freight charges. The court held that federal jurisdiction was absent, because such claims are governed by ordinary principles of contract law. Thus, if a shipper has not agreed to be liable for freight charges, there is generally no independent basis under federal law to hold the shipper liable for such charges.
The plaintiffs in Gaines Motor Lines were all federally licensed motor carriers. The defendant, Klaussner Furniture, contracted with Salem Logistics Traffic Services, a broker, to coordinate all shipping logistics for Klaussner Furniture. Klaussner Furniture paid the broker, who was expected to deduct its commission and then pay the motor carriers. The broker initially made payments to the motor carriers, but then went out of business and defaulted on its obligations. To recover payments for its shipping services, the motor carriers filed a lawsuit against Klaussner Furniture in federal court. Federal jurisdiction was asserted based on the Interstate Commerce Commission Termination Act (ICCTA).
The district court granted Klaussner Furniture’s motion for summary judgment and dismissed the lawsuit. The district court agreed with Klaussner Furniture that the terms of the bills of lading put the motor carriers on notice that they were to expect payment solely from the broker. Moreover, the motor carriers had no evidence to support their argument that the broker was an agent of Klaussner Furniture such that Klaussner Furniture should be held liable for the broker’s failure to make payments.
On appeal, Klaussner Furniture, for the first time, raised the argument that the district court lacked jurisdiction. The Fourth Circuit agreed. The court explained that, effective from January 1, 1996, the ICCTA substantially deregulated the trucking industry, including by voiding all filed tariffs (previously required by the Motor Carrier Act), with the exception of shipments for household goods or noncontiguous domestic trade. Although the ICCTA includes a provision authorizing motor carriers to negotiate rates privately with shippers instead of relying on tariffs, that provision alone does not create federal jurisdiction over contracts authorized by that provision. Reviewing the remainder of the ICCTA, the court further found that no other section of the ICCTA provides motor carriers with a federal claim when they sue a shipper for unpaid freight charges under a private contract. Accordingly, the Fourth Circuit instructed the district court to dismiss the lawsuit.
The Fourth Circuit’s decision makes it clear that claims against a shipper for freight charges do not by themselves present a question of federal law, but merely a question of contract law. It is therefore important that shipping contracts are clear regarding which party or parties are potentially liable for freight charges.