Babcock & Wilcox Co. v. Kansas City Southern Railway Co.Babcock & Wilcox Co. v. Kansas City Southern Railway Co.
OPINION OF THE COURT
Plaintiff-appellee The Babcock & Wilcox Company (“B & W”) commenced this action under the Carmack Amendment to the Interstate Commerce Act (“ICA”), 49 U.S.C. § 11706, against defendants-appellants Kansas City Southern Railway Company (“KCSR”) and Norfolk Southern Railway Company (“NSR”) (collectively “the Railroads”) to recover damages to its boiler. The Railroads appeal from an order of the United States District Court for the District of New Jersey denying their motion to dismiss for lack of subject matter jurisdiction and granting B & W’s cross-motion for summary judgment. We will vacate the judgment of the District Court and remand the matter with instructions to dismiss for lack of subject matter jurisdiction.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
The following facts are undisputed. In October 2004, B & W, a manufacturer of power generation equipment, and KCSR entered into a rail transportation agreement.
1
The agreement provided for the transportation of “steel power boilers, parts or attachments” from West Point, Mississippi to Newark, New Jersey. (Contract 2-3, App. 38-39.) In November 2004, pursuant to the agreement and a bill of lading, the Railroads transported a boiler for B & W. The parties stipulated that the Railroads received the boiler in good order and condition. (Joint Stipulation ¶2, App. 41.) In December 2004, NSR became aware that the boiler was damaged, having been allegedly sideswiped by another train at a rail yard while in NSR’s
In May 2006, after NSR denied B & W’s damage claim, B & W commenced this action under the Carmack Amendment to the ICA, 49 U.S.C. § 11706 2 , against the Railroads to recover $42,814.48 in damages. The parties later stipulated that the Railroads’ maximum liability under the agreement was $25,000. (Joint Stipulation ¶4, App. 41.) The Railroads moved to dismiss the complaint for lack of subject matter jurisdiction. They argued that the agreement was not a common carrier transportation agreement under the ICA but a private contract entered into under 49 U.S.C. § 10709 3 . (Defs.’ Mot. to Dismiss 3-5, Docket Entry No. 10-3.) The Railroads contended that the only basis for federal jurisdiction would have been diversity jurisdiction under 28 U.S.C. § 1332, which was not satisfied because the damages sought did not meet the $75,000 amount in controversy requirement for such jurisdiction. (Id. at 4.) B & W responded that the agreement was not a § 10709 contract because the agreement did not state that it was made pursuant to § 10709. (Pl.’s Mem. in Opp’n to Defs.’ Mot to Dismiss & in Supp. of Cross Mot. for Summ. J. 7-10, Docket Entry No. 13.) B & W also cross-moved for summary judgment on its § 11706 claim.
The District Court denied the Railroads’ motion to dismiss. The court concluded that it had jurisdiction because “there [was] no evidence suggesting that the parties had any intention of invoking § 10709.”
Babcock & Wilcox Co. v. Kansas City S. Ry. Co.,
Civ. No. 06-6015, 2007
JURISDICTION AND STANDARD OF REVIEW
This Court has jurisdiction to review a final judgment under 28 U.S.C. § 1291. We review the question of whether the District Court had subject matter jurisdiction
de novo. Emerald Investors Trust v. Gaunt Parsippany Partners,
DISCUSSION
The Railroads maintain that the District Court did not have subject matter jurisdiction over this action because the agreement was not a common carrier transportation agreement under the ICA but, rather, a private contract entered into under 49 U.S.C. § 10709. They claim that the District Court erred in concluding that a § 10709 contract must reference the statute and in determining that the agreement’s terms do not evince intent to invoke § 10709.
I. Self-Description Requirement
Whether § 10709 contracts must be self-described is an open question in this Court. Review of the legislative history of § 10709 and the history of the corresponding federal regulations, however, indicate that the law currently imposes no such requirement.
A. Legislative and Regulatory History
In 1887, Congress enacted the ICA to regulate interstate transportation and established the Interstate Commerce Commission (“ICC”) to administer the Act.
Emerson Elec. Supply Co. v. Estes Express Lines Corp.,
In 1976 and 1980, the Railroad Revitalization and Regulatory Reform Act and Staggers Rail Act (“Staggers”), respectively, were enacted to deregulate the railroad industry to enable it to compete efficiently in the transportation industry. Staggers Rail Act of 1980, Pub.L. No. 96-448, 94 Stat. 1895; Railroad Revitalization and Regulatory Reform Act of 1976, Pub.L. No. 94-210, 90 Stat. 31. Under Staggers, 49 U.S.C. § 10713 (the predecessor to § 10709) enabled shippers and carriers to sidestep federal regulation of transportation agreements by entering into private contracts. Staggers Rail Act of 1980, § 208; H.R.Rep. No. 96-1430, at 100 (1980) (Conf. Rep.), reprinted, in 1980 U.S.C.C.A.N. 4110, 4132; see also 49 U.S.C. § 10713 (1994) (repealed 1996) (current version at 49 U.S.C. § 10709 (2000)). Such private contracts are not governed by the ICA, including § 11706, and the “exclusive remedy” for any actions arising out of such a contract “shall be an action in an appropriate State court or United States district court, unless the parties otherwise agree.” 49 U.S.C. § 10713(h)(i)(2) (current version at 49 U.S.C. § 10709(c)(2)). Section 10709 now clarifies that the section “does not confer original jurisdiction on the district courts of the United States based on [28 U.S.C. §§ 1331 4 or 1337 5 ].” 49 U.S.C. § 10709(c)(2).
Predecessor § 10713 required rail carriers to file with the ICC any § 10713 private contract along with a summary of non-confidential contract information. 49 U.S.C. § 10713(b). Section 10713 granted the ICC authority to determine the essential terms to be made available to the public.
Id.
The filing requirements were enacted to achieve a balance between protecting the confidentiality of private contracts, making information available to enable parties with standing to exercise their rights to challenge the contracts, and enabling the ICC to exercise its remaining regulatory function of approving or disapproving contracts.
See generally Burlington N. R.R. Co. v. Pub. Util. Comm’n of Tex.,
To implement the filing requirements of § 10713, the ICC promulgated regulations in 49 C.F.R. Part 1039 (1983) (repealed 1987) (current version at 49 C.F.R. Part 1313 (2008)). Railroad Transportation Contracts, 47 Fed.Reg. 50,261, 50,262-64 (Nov. 5, 1982). The ICC defined “contract” as follows:
Section 1039.1 Definition of the term “contract.”
(a) A contract subject to this section is a written agreement ... entered into by one or more rail carriers with one or more purchasers of rail services, to provide specified services under specified rates, charges and conditions.
(b) A contract filed under this section shall:
(1) specify that the contract is made pursuant to 49 U.S.C. 10713, and
Thus, in light of the history behind the enactment of predecessor § 10713 and promulgation of corresponding regulations, the regulatory self-description requirement appears to have been created to aid the ICC in administering the filing of private contracts. Supporting this conclusion is the fact that the self-description requirement was deleted from the regulations when Congress eliminated the contract-filing requirement.
In 1992, the ICC eliminated from the regulations the contract-filing requirement for agreements governing transportation of non-agricultural commodities.
Railroad Transportation Contracts,
In 1995, in deregulating the surface transportation industries, Congress enacted the ICC Termination Act (“ICCTA”), which revised the ICA and eliminated federal regulation of nonagricultural contracts. ICC Termination Act of 1995, Pub.L. No 104-88, 109 Stat. 803; see also S.Rep. No. 104-176 (1995). In recodifying § 10713 in new § 10709, Congress eliminated all filing requirements for non-agricultural contracts and required only the filing of contract summaries for agricultural contracts. Railroad Contracts, 61 Fed. Reg. 13,147, 13,147-48 (proposed Mar. 26, 1996) (comparing 49 U.S.C. § 10713(b)(1) (Supp. 1 1994) with 49 U.S.C. § 10709(d)(1) (Supp. 2 1994)). The ICCTA also abolished the ICC and created the Surface Transportation Board (“STB”) to administer the ICA. ICC Termination Act of 1995, §§ 101,201.
Thereafter, the STB revised the regulations to “reflect the reduced regulatory oversight of rail transportation contracts introduced by the [ICCTA].”
Railroad Contracts,
Also supporting the conclusion that self-description is not required is a recent proposal by the STB to adopt a self-description rule. In March 2007, the STB instituted a rulemaking proceeding to adopt an interpretation of “contract” to more easily distinguish between a “common carrier pricing arrangement” and a “rail transportation contract.”
Interpretation of the Term “Contract” in 49 U.S.C. 10709,
STB Ex Parte 669,
any bilateral agreement between a carrier and a shipper for rail transportation in which the railroad agrees to a specific rate for a specific period of time in exchange for consideration from the shipper, such as a commitment to tender a specific amount of freight during a specific period or to make specific investments in rail facilities.
Interpretation of the Term “Contract” in 49 U.S.C. 10709,
Nonetheless, still “concerned with the lack of any clear demarcation between common carriage rates and contract pricing arrangements and the resulting ambiguity regarding the [STBj’s jurisdiction,” the STB instituted a subsequent rulemak-ing proceeding “to consider imposing a requirement that each carrier provide a full disclosure statement when it seeks to enter into a rail transportation contract under section 10709.”
Id.
at *3;
see also
Rail Transportation Contracts Under 49 U.S.C. 10709, 73 Fed.Reg. 13,523, 13,523 (proposed Mar. 13, 2008). According to the STB, such a disclosure statement “would explicitly advise the shipper that the carrier intends the document to be a rail transportation contract, and that any transportation under the document would not be subject to regulation by the [STB].”
Interpretation of the Term “Contract” in 49 U.S.C. 10709,
§ 1301.1 Contract Disclosure Statement.
(a) The Board will not find jurisdiction over a dispute involving the rate or service under a rail transportation agreement where that agreement contains a disclosure statement that conforms with paragraphs (b) and (c) of this section. Conversely, where a rail transportation agreement fails to contain such a disclosure statement, the Board will find jurisdiction over a dispute involving the rate or service provided under that agreement, absent clear and convincing evidence both that the parties intended to enter into a rail transportation contract governed by 49 U.S.C. 10709 and that the shipper was made aware that it could request service under a common carrier tariff rate that would be subject to STB jurisdiction.
(b) The disclosure statement should appear at the top of the first page of the rail transportation agreement in type size at least as large as the type size used for the body of the agreement.
(c) The disclosure statement should read as follows: Disclosure Statement— This agreement constitutes a rail transportation contract under 49 U.S.C. 10709. Contract arrangements are generally not subject to challenge before the Surface Transportation Board (“STB”), but can be enforced in a court of competent jurisdiction. Under federal rules found at 49 CFR 1300, railroads are required, upon request, to quote to shippers a rate for common carriage transportation (i.e., a non-contract rate). Pursuant to 49 U.S.C. 10701, the STB has jurisdiction (subject to some exceptions) over disputes arising out of common carriage (non-contract) rates.
Rail Transportation Contracts Under 49 U.S.C. 10709,
STB Ex Parte No. 676,
B. Recent Case Law
Despite the legislative history of § 10709, the District Court placed considerable reliance on
Schoenmann Produce Co. v. Burlington Northern & Santa Fe Railway Co.,
Schoenmann
analyzes the interplay of 49 U.S.C. §§ 10709, 11706, and 10502
6
, an
Contracts entered into under section 10709 specifically cite the statute. See, e.g., Glenn Hunter & Assocs., Inc. v. Union Pacific R.R. Co.,135 Fed.Appx. 849 , 854 (6th Cir.2005) (unpublished opinion) (“This CONTRACT is made pursuant to 49 U.S.C. § 10709”); Tamini Trasformatori S.R.L. v. Union Pacific R.R., No. 02-129,2003 WL 135722 , at *7 (S.D.N.Y. Jan. 17, 2003) (unpublished opinion) (holding that contract was not a section 10709 contract, even though it contained a statement that it was entered pursuant to section 10709, because it failed to offer full Carmack liability as an option); [Am. Rock Salt Co. v. Norfolk S. Corp.,387 F.Supp.2d 197 , 201 (W.D.N.Y.2005)] (holding that Carmack Amendment applied even though the contract stated that it was “made pursuant to 49 U.S.C. § 10709” because other provisions in the contract provided for its application); cf. PCI Transp., Inc. v. Fort Worth & W. R.R. Co.,418 F.3d 535 , 541 (5th Cir.2005) (citing STB decision that contracts were governed by section 10709 when “[e]ach contract affirmatively stated that it was made pursuant to § 10709, identified the origins and destinations, and specified the terms of the contract and the rates for the commodities.”)
Id.
The court also relied on the ICC decision and former regulation implementing predecessor § 10713 that stated that agreements made under § 10713 “ ‘must specifically state that it is subject to this
The District Court’s reliance on Schoen-mann for the proposition that § 10709 contracts must cite the provision is problematic. First, Schoenmann merely noted that contracts in other cases have referred to the statute, but the fact that other parties incorporate the statute into their agreements does not mean that such a requirement exists. 7 Further, none of these referenced cases hold that § 10709 contracts must cite the provision. Second, Schoenmann found guidance in an obsolete ICC decision and regulation. As we observed, § 10713 and the corresponding regulations were repealed, and the STB deleted the self-description requirement from the regulations, years before Schoen-mann was decided.
We conclude based on the relevant legislative and regulatory history that the failure of the agreement at issue to cite § 10709 is not fatal to the Railroads’ claim that the agreement is a § 10709 contract. Thus, we turn to other indicia of intent.
II. Intent to Invoke § 10709
In New Jersey, courts will determine the intent of contracting parties from the contractual language, if that is possible.
See Conway v. 287 Corporate Ctr. Assocs.,
The agreement at issue, labeled “CONFIDENTIAL RAIL TRANSPORTATION CONTRACT,” provided for the transportation of “STEEL POWER BOILERS, PARTS OR ATTACHMENTS” from West Point, Mississippi to Newark, New Jersey via route “KCS-MERID-NS” and was effective from October 12, 2004 through September 30, 2005. (Contract 2-3, App. 38-39.) The “General Shipment Conditions” were as follows:
Price is subject to cancellation on 30 day(s) notice;
Price is subject to maximum liability of $25,000 per VESSEL;
Price is not subject to Rule 29 of UFC;
Price is not subject to Rule 24 of UFC;
Price is subject to UFC tariff 0000006000;
Price is subject to KCS tariff 0000009011;
Price is subject to KCS tariff 0000000010;
Quote number must be specified on the bill of lading;
Price is subject to fuel surcharge!.]
{Id. at 2, App. 38.) The agreement also provided for additional shipment conditions:
Charges for Special Train Movement are not included in the price!;]
Price applies in Flat cars!;]
Charges for Heavy Duty Flat Car Charge are not included in the price;
Price is subject to RPS tariff 0000006740;
Price applies in equipment with mechanical designation Code FM.
Rate application is per hundred (of basic unit).
Rate applies on minimum weight of 179,-000 pounds.
(Id. at 2, App. 38.)
The Railroads claim that, according to its terms, the agreement encompassed all the attributes of a “contract” under the plain language of § 10709, specifically that it was “(i) an agreement to provide specified services, (ii) to which one or more interstate rail carriers are parties and (iii) to which one or more purchasers of rail services are parties, (iv) under specified rates and (v) under specified conditions.” (Appellants’ Br. 13-14.) In particular, the Railroads contend that the contract was “between KCSR, an interstate railroad, and B & W, a purchaser of rail services; ... for the specific service of rail transportation of ‘Steel Power Boilers, Parts or Attachments’ from West Point, MS to Newark, NJ via the route of ‘KSC-MER-ID-NS;’ and ... for a specific confidential rate.” (Appellants’ Br. 5-6.) The Railroads further assert that the specified conditions in the agreement deviate from the statutory obligations that the ICA imposes on rail carriers under 49 U.S.C. § 11101. They claim that such deviation also evinces the parties’ intent to enter into a § 10709 contract. We agree with the Railroads on each of these points.
Section 11101 sets forth the statutory obligations of rail carriers concerning provision of services and publication of common carrier rates and service terms. 49 U.S.C. § 11101 (2000). Under § 11101, rail carriers must provide service and their rates and service terms to the public upon request. Id. § 11101(a), (b). The carriers may not increase their rates or change their service terms unless they have provided 20 days written notice to those who have requested the rates or terms or those who have made shipping arrangements that would be affected by the increased rates or changed terms. Id. § 11101(c). The carriers must provide transportation or service in accordance with the rates and service terms as published or made available under § 11101. Id. § 11101(e). Section 11101 directs the STB to implement the section by establishing corresponding regulations to “provide for immediate disclosure and dissemination of rates and service terms, including classifications, rules, and practices, and their effective dates.” Id. § 11101(f); see also 49 C.F.R. pt 1300 (2008). Except for 49 C.F.R. § 1300.1, which defines the scope of the rules, the regulations parallel the statutory requirements. See 49 C.F.R. pt. 1300. Title 49 C.F.R. § 1300.1 states that the regulations “do not apply to any transportation or service provided by a rail carrier under a contract authorized under 49 U.S.C. 10709 or former 49 U.S.C. 10713.” 49 C.F.R. § 1300.1(c).
Although § 11101 requires rail carriers to provide service and rates for the service to the public upon request, the agreement at issue here contains a single rate specific to B & W. B & W does not dispute the Railroads’ contention that this rate is “neither published nor available to the public.” (Appellants’ Br. 12.) Although § 11101 permits rail carriers to change their service terms upon 20 days notice, under the agreement, the service terms here were effective from October 12, 2004 through September 30, 2005, with “[p]rice ... subject to cancellation on 30 day(s) notice.” (Contract 2, App. 38.) Further, the agreement is self-labeled a “confidential railroad transportation contract,” which applies to only “steel power boilers, parts or attachments,” limits liability to $25,000.00 per vessel, and applies to a minimum weight of 179,000 pounds.
(Id.)
These specific terms
B
&
W relies principally on
Sompo Japan Insurance Co. v. Norfolk Southern Railway Co.,
As did
Schoenmann, Sompo
analyzed the interplay of 49 U.S.C. §§ 10709, 11706, and 10502. In
Sompo,
the plaintiff
We note the difficulties faced by the district courts in the absence of a simple statutory or regulatory test for identifying a § 10709 contract. The few courts that have faced the issue seem to approach it differently. Some courts seem hesitant to disturb prior law and presume the existence of a common carriage agreement in the absence of compelling evidence indicating otherwise.
See, e.g., Sompo,
We need not decide the proper default rule to apply in the case of ambiguous provisions, however, because there is ample evidence within the four corners of the agreement at issue here that a § 10709 contract was intended. B & W largely relies on the mere absence of an express reference to § 10709 in the contract, but the substance of provision after provision indicates just such a contract was intended.
CONCLUSION
The legislative history of § 10709, the history of the corresponding federal regulations, and recent STB proceedings indicate that a contract need not reference § 10709 in order to be § 10709 contract. The terms of the contract here, which deviate in numerous respects from the common carrier obligations imposed by the ICA, evince the intent of the parties to enter into a § 10709 contract. Accordingly, we will vacate the judgment of the District Court and remand the matter with instructions to dismiss the action for lack of subject matter jurisdiction.
Notes
. Under the agreement, KCSR was to transport the freight from West Point, Mississippi, and NSR was to intercept the freight in Meridian, Mississippi and transport it to Newark, New Jersey. NSR agreed to defend and indemnify KCSR. (Defs.' Br. in Supp. of Mot. to Dismiss the Compl. for Lack of Subject-Matter Jurisdiction ("Defs.' Mot. to Dismiss”) 1 n. 1, Docket Entry No. 10-3).
. Section 11706 provides:
(a) A rail carrier providing transportation or service subject to the jurisdiction of the [Surface Transportation] Board under this part [i.e., 49 U.S.C. §§ 10101-11908] shall issue a receipt or bill of lading for property it receives for transportation under this part. That rail carrier and any other carrier that delivers the property and is providing transportation or service subject to the jurisdiction of the Board under this part are liable to the person entitled to recover under the receipt or bill of lading. The liability imposed under this subsection is for the actual loss or injury to the property caused by—
(1) the receiving rail carrier [or]
(2) the delivering rail carrier[.]
(c)(1) A rail carrier may not limit or be exempt from liability imposed under subsection (a) of this section except as provided in this subsection.
(3) A rail carrier providing transportation or service subject to the jurisdiction of the Board under this part may establish rates for transportation of property under which—
(A) the liability of the rail carrier for such property is limited to a value established by written declaration of the shipper or by a written agreement between the shipper and the carrier.
49 U.S.C. §§ 11706(a), (c)(1), (c)(3)(A) (2000).
. Section 10709 provides:
(a) One or more rail carriers providing transportation subject to the jurisdiction of the [Surface Transportation] Board under this part [i.e., 49 U.S.C. §§ 10101-11908] may enter into a contract with one or more purchasers of rail services to provide specified services under specified rates and conditions.
(c)(1) A contract that is authorized by this section, and transportation under such contract, shall not be subject to this part, and may not be subsequently challenged before the Board or in any court on the grounds that such contract violates a provision of this part.
(2) The exclusive remedy for any alleged breach of a contract entered into under this section shall be an action in an appropriate State court or United States district court, unless the parties otherwise agree. This section does not confer original jurisdiction on the district courts of the United States based on section 1331 or 1337 of title 28, United States Code.
49 U.S.C. § 10709(a), (c) (2000).
. Section 1331 provides: "The district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United Stales.” 28 U.S.C. § 1331 (2000).
. Section 1337 provides:
The district courts shall have original jurisdiction of any civil action or proceeding arising under any Act of Congress regulating commerce ...: Provided, however, That the district courts shall have original jurisdiction of an action brought under [49 U.S.C. § 11706] ... only if the matter in controversy for each receipt or bill of lading exceeds $10,000, exclusive of interest and costs.
28 U.S.C. § 1337(a) (2000).
. In addition to enacting predecessor § 10713 in Staggers, Congress also granted the ICC authority to exempt "a person, class of persons, or a transaction or service” from federal regulation. Staggers Act of 1980, § 213; see also 49 U.S.C. § 10502 (2000) (formerly 49 U.S.C. § 10505). Section 10502 states:
(a) In a matter related to a rail carrier providing transportation subject to the jurisdiction of the [STB] under this part, the [STB], to the maximum extent consistent with this part, shall exempt a person, class of persons, or a transaction or service whenever the [STB] finds that the application in whole or in part of a provision of this part—
(1) is not necessary to carry out the transportation policy of section 10101 of this title; and
(2) either—
(A) the transaction or service is of limited scope; or
(B) the application in whole or in part of the provision is not needed to protect shippers from the abuse of market power.
(e) No exemption order issued pursuant to this section shall operate to relieve any rail carrier from an obligation to provide contractual terms for liability and claims which are consistent with the provisions of section 11706 of this title. Nothing in this subsection or section 11706 of this title shall prevent rail carriers from offering alternative terms nor give the [STB] the authority to require any specific level of rates or services based upon the provisions of section 11706 of this title.
49 U.S.C. § 10502(a), (e).
Courts have interpreted § 10502(e) to mean that although carriers of § 10502-exempt shipments are subject to full liability under § 11706, the carriers may limit their liability without violating § 11706 as long as they still offer shippers the option of full § 11706 liability.
See, e.g., Rexroth Hydraudyne B.V. v. Ocean World Lines,
. B & W contends that NSR itself had also referenced § 10709 in its contracts at issue in other cases. The agreement here, however, was "[ijssued [b]y” KCSR. (Contract 1, App. 37.) Thus, NSR’s contracting history is not relevant.
. Although the parties do not raise any arguments as to the District Court’s reasons for rejecting the Railroad’s reliance on the agreement’s contents, we note that the District Court's rationale appears flawed. The District Court concluded that the Railroads “did not raise any specific material distinctions— such as a change in the liability requirements of regulations promulgated pursuant to § 11706 — which would indicate a preference for section 10709.”
Babcock,
. In denying the defendants’ motion for reconsideration, however, the
Sompo
court clarified that it “did not go that far” as to hold that § 10709 contracts must affirmatively cite the statute.
Sompo Japan Ins. Co. v. Norfolk S. Ry. Co. ("Sompo II"),