Our attorneys have recently spent a great deal of time defending produce shippers against claims for unpaid transportation charges. These cases all follow the same fact pattern. A third party, other than the shipper, agreed to pay the carrier for hauling produce from the shipper to the receiver. The third party, who agreed to pay the transportation charges, may be a truck broker, another trucking company, the receiver, or one of the produce dealers in the chain of distribution between the shipper and the receiver. The carrier hauls the load and invoices the third party, as agreed, and ends up not receiving payment. After exhausting all of its collection efforts against the third party that hired it, the carrier turns the claim over to a collection agency or law firm for collection.
The collection agency or law firm sends a letter on behalf of the carrier demanding payment from the shipper named on the bill of lading. The carrier's demand letter justifies its payment demand by stating that the bedrock rule of carriage cases is that the carrier gets paid by the consignor (shipper) who is originally liable for the freight charges. The carrier then cites a string of federal court decisions that allegedly hold that the shipper is liable for the freight charges as a matter of law. This liability is referred to as recourse liability.
A quick reading of the carrier's demand letter gives the recipient a sense of dread. It appears from the carrier's letter that the shipper is liable for transportation charges, even though it never agreed to pay those charges. As lawyers, however, we cannot simply take the carrier's statements of law at face value. We actually read the cited court decisions, analyze them, and determine whether the rules of law from those decisions apply to the shipments for which the carrier is seeking payment.
Reading the demand letter, and then the cited transportation cases, is like chasing Alice down the rabbit hole: you stumble into a bizarre and disorienting world. The cases rarely support the rule of law for which the carrier cites them. Generally, the carrier cites to snippets of the decisions that are not essential to the questions that are directly involved in deciding the case. These bits and pieces, however, when taken out of context, appear to support the carrier's position that the shipper is liable for its transportation charges.
The decisions the carrier relies on to support its argument for shipper liability stem from early 1900s United States Supreme Court cases. The Supreme Court's statements of law in those cases must be considered in context. Most of the cases deal with the "filed rate doctrine" of the Interstate Commerce Act, which dictated that a common carrier file its rates, or tariffs, with the Interstate Commerce Commission (ICC) to prevent unjust rate discrimination. The ICC's regulations stated that consignors and consignees are jointly and severally liable to carriers for unpaid shipping charges and required carriers to use the uniform straight bill of lading. The uniform straight bill of lading contained contract terms and conditions printed on the reverse side in section 7 which stated that shippers are liable to a carrier for unpaid shipping charges and the liability could be shifted to the consignee. The ICC also incorporated the federally established tariffs into the carrier's invoice for freight charges.
Given the law at the time of the Supreme Court cases, the rules of law coming out of these cases apply only to enforcing the "filed rate doctrine," the ICC rules of shipper (consignor) and receiver (consignee) liability, or the terms of the uniform straight bill of lading. As a result of deregulation of the transportation industry, the ICC was abolished in 1995, and the "filed rate doctrine" and required use of the uniform straight bill of lading were no longer applicable to most transportation shipments. Yet, despite these changes in the law and the transportation industry, carrier's attorneys and their collection agents continue to use bits and pieces of court decisions enforcing the "filed rate doctrine" and the uniform straight bill of lading, and subsequent decisions that rely on those cases, to hold shippers liable for unpaid freight charges.
After deregulation, shipper liability became a matter of contract law. The ghost of the ICC, however, still lingers. The ICC required the use of the uniform straight bill of lading. The shipper's original liability for freight charges arises under section 7 of the contract terms and conditions printed on the reverse side that states "consignor shall be liable for the freight and all other lawful charges." Section 7 also grants the shipper the right to be released from liability for payment of transportation charges and shift responsibility to the consignee by signing in the space provided for that purpose on the front of the bill of lading.
The bill of lading is a contract between a shipper and a carrier. If a uniform straight bill of lading, or other bill of lading, which contains section 7, or a similar provision that obligates the shipper to pay the carrier's transportation charges is used, its terms are binding on the shipper and carrier. After deregulation and the ICC was dissolved, a shipper is only liable for a carrier's transportation charges if it contracted to do so through terms of a bill of lading or other contract.
A shipper's liability to a carrier for its transportation charges only arises from a bill of lading if the following conditions are met:
1. The bill of lading is a uniform straight bill of lading, or other bill of lading, which contains section 7, or a similar provision that obligates the shipper to pay the carrier's transportation charges; and
2. The shipper does not sign the space provided on the face of the bill of lading for the purpose of releasing the shipper from liability for payment of the carrier's transportation charges shifting responsibility to the consignee, or otherwise releasing itself from liability to the carrier.
Absent both of these conditions being met, the shipper is not obligated to pay the carrier's transportation charges. If the shipper does not sign the space provided on the front of the bill of lading releasing it from liability, it is only liable if that liability arose under other terms of the bill of lading. Shipper liability cannot arise due to the failure of the shipper to release itself from a liability that was not contained in the terms of the bill of lading.
With knowledge of the context of the decisions the carrier cites in its letter, reading the letter is like looking through the looking glass-nothing is what it appears to be. The carrier does not allow a minor detail like the decisions it relies upon applying to laws no longer in effect, or the bill of lading not containing a section 7 provision, stop it from demanding payment from a shipper. It is an easy task to persuade an unsuspecting shipper, or even a judge, that it is entitled to payment from the shipper - repeat over-and-over: ...the law is the carrier gets paid! It has a century of court decisions to back up this little ditty.
We, on the other hand, in defending against the carrier have to ask the judge to step away from the looking glass, allowing us to explain why the various decisions the carrier relies upon for payment do not apply. Judges who are unwilling to delve deeply into the issue can be easily seduced by the bits and pieces of historical court decisions that indicate the shipper is liable for payment to the carrier.
We continue our effort, fighting the good fight on behalf of our clients, that the shipper is not liable for the carrier's unpaid freight charges, unless it specifically contracted to pay the carrier.
In our next article, we will tackle liability of the receiver (consignee) for the carrier's unpaid freight charges. Should you have any questions regarding a shipper's recourse liability, do not hesitate to contact our office