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US District Court in Maryland rules that formation of a “transportation contract” is controlled by state law, and may be verbal, and that the 180 day rule does not bar claim by the shipper against the carrier. Mastercraft Interiors, Ltd. v. ABF Freight Systems,350 F.Supp.2d 686,D.Md.,2004.Dec 23, 2004.
As you may recall prior to the passage of the ICC Termination Act at the end of 1995, transportation contracts had to be in writing, and required among other things, a formulation of terms that included addressing the distinct needs of the shippers. On passage of the ICC Termination Act that contract rule was replaced by a new statute 49 USC 14101. It is no surprise that a court on reading the language of the statute would decide that the question of whether an enforceable contract had been entered into and it’s terms were controlled by and subject to state law. While there is little case law on the subject, prospectively those in the transportation industry could be looking at numerous decisions from various states, each one enforcing somewhat different requirements. The ultimate issue in each state however will be whether the transportation contract regardless of written or verbal is sufficiently definite to be enforceable, and the answer will always be fact intensive.
The more controversial part of the Maryland ‘s courts decision is it’s refusal
to apply the 180 day rule contained in 49 USC 13710(a)(3)(b). (claims by
shippers against carriers) to these facts. It is this writer's opinion that the
decision on that issue was incorrect.
Here is the factual background of the Mastercraft v ABF case: ( References to
deposition pages have been deleted)
1 Mastercraft is a company that sells home and business furnishings and ABF is
an interstate motor carrier with a license from the Federal Motor Carrier Safety
Administration to transport general freight. For many years, Mastercraft
regularly purchased furniture from Brown Jordan, a furniture manufacturer in El
Monte, California. Mastercraft paid Brown Jordan for the shipping directly, but
ABF actually performed the shipping services. Brown Jordan's shipping charge was
based on a percentage of the purchase price of the furniture purchased by
Mastercraft. ABF prices its shipping differently and its pricing model is
largely based on a commodity classification table provided by the National Motor
Freight Classification in Washington, DC.
1. In the summer of 2001, Brown Jordan informed Mastercraft that it was going to
raise its shipping rates, which would become effective in the fall of 2001. The
price increase would raise the shipping rate from 6% of the purchase price of
the furniture to 10% of the purchase price. In response to this price increase,
Mastercraft explored other shipping options, including shipping directly through
ABF.The facts relating to interactions between Mastercraft's warehouse manager,
Michael Price, and Michael Doyle, the ABF salesman in the Company's Baltimore
office assigned to Mastercraft, are in dispute. In the summer of 2001, Price
apparently called ABF and was put in touch with Doyle. Price recalls that he and
Doyle met at Mastercraft on August 7, 2001. Price recalls asking Doyle whether
Mastercraft could save money by shipping directly with ABF instead of paying
Brown Jordan's new higher rates, which Mastercraft estimated would cost it about
$3,000 per truckload shipment. Doyle does not recall having any conversation
with Price about the specific price ABF would charge Mastercraft, nor about the
average charges Mastercraft was incurring or expected to incur based on Brown
Jordan's shipping price. Doyle does not recall Price or anyone at Mastercraft
asking about ABF's shipping prices in the summer or fall of 2001.Doyle does not
recall with specificity his interaction with Price in the summer of 2001.
However, Doyle acknowledges that he was trying to obtain more business from
Mastercraft during the summer and fall of 2001, and that he spoke with Price.
Doyle recalls that Price was interested in learning what Mastercraft's true
shipping costs were because he was unable to determine this based on Brown
Jordan's percentage of goods purchased shipping charge formula. On August 22,
2001, Price recalls meeting with Doyle at Mastercraft. Doyle does not
specifically remember this meeting, but claims that he never offered Mastercraft
any specific shipping price, in part, because he would be unable to determine a
price estimate based on the information he knew. Mastercraft claims that Doyle
told Price that if Mastercraft went directly with ABF, the shipping cost would
be less than if it continued to pay for shipping through Brown Jordan. Doyle
states that he never made any promises about what shipping would cost with ABF
and made no representation that, by shipping with ABF directly instead of
through Brown Jordan, Mastercraft would save money. Mastercraft claims that
Doyle and Price agreed that Mastercraft would start shipping directly with ABF
and Mastercraft informed Brown Jordan that it would no longer be making shipping
arrangements through Brown Jordan.
2 After Mastercraft began shipping directly through ABF, it checked the bills of lading to confirm that all of the furniture that was supposed to have been shipped had indeed arrived. However, Mastercraft apparently did not verify that the shipping rates on the bills of lading reflected the rate that Mastercraft believed should be charged by ABF. As a result of this practice, Mastercraft did not realize that it was not receiving the rate it believed ABF had promised until the fall of 2002 when it reviewed the Company's expenses and noticed unexpectedly high shipping costs. Mastercraft orally notified ABF in September or October 2002 that ABF's shipping charges related to Brown Jordan were too high and asked for a refund to bring the charges in line with the rate it believed ABF has promised Mastercraft.. Mastercraft did not provide ABF a written notice of its objections to ABF's freight charges. While ABF acted as a carrier for Mastercraft, it provided Mastercraft with bills of lading describing the point of origin, the consignor, the date(s) of pick-up, the freight transported, the applicable rate, and the amount due. ABF was also providing shipping services for Mastercraft other than those originating from Brown Jordan in California. In October 2002, Mastercraft stopped paying ABF for all of its services, regardless of the place of pick-up, and ABF claims that these unpaid shipping charges, including those originating from Brown Jordan, amount to $75,249.95. ABF also claims that it is entitled to certain penalties bringing the total amount owed by Mastercraft to $97,824.94.Mastercraft commenced this suit on May 30, 2003. On June 26, 2003, Defendant ABF filed a Motion to Dismiss all counts of the Complaint and, on September 17, 2003, this Court granted ABF's motion, based on the federal preemption provision in the ICCTA, for all Counts in Plaintiff's Complaint, except Count I, claiming breach of contract. On September 26, 2003, ABF filed a counterclaim seeking payment for unpaid freight invoices. ABF now moves for summary judgment on two main grounds: 1) that no oral contract can exist between the parties because any contract is required to be in writing pursuant to the Interstate Commerce Commission Termination Act, Pub.L. No. 104-88, 109 Stat. 803 (1995) (codified in scattered sections of 49 U.S.C.), specifically § 14101(b)(1) of title 49 in the U.S.C., and 2) that Mastercraft is precluded from bringing this suit because it did not inform ABF within 180 days of its disagreement with ABF's freight charges in compliance with the notice provisions required in 49 U.S.C. § 13710(a)(3)(B). ABF also moves for summary judgment on its counterclaim against Mastercraft in the amount of $97,824.94 in tariff fees and penalties for the shipments transported by ABF for Mastercraft.( The courts discussion of the standard of review has been omitted).
The court goes on to analyze the case as follows:
4 ABF argues that it is entitled to summary judgment on the sole remaining
Count of Mastercraft's Complaint, as there was no written contract between
Mastercraft and ABF as required under federal law pursuant to the ICCTA, 49
U.S.C. § 14101(b)(1). Mastercraft disagrees with ABF's interpretation of §
14101(b)(1) and contends that there was an oral contract between the parties,
which obligated ABF to charge freight rates below $3,000 per truckload. As this
Court has previously noted in this case, "there is a dearth of case law
interpreting the preemptive provision of the ICCTA." Mastercraft, 284 F.Supp.2d
at 286. In this case, this Court has previously held that the tort claims of
misrepresentation, negligent misrepresentation, and unjust enrichment, reflected
in Counts II, II, and IV of Mastercraft's Complaint, are preempted by the ICCTA.
The breach of contract claim, however, relates to enforcement of the "bargain of
the parties." Id. at 288. As discussed in *691 more detail below, the
interpretation of the "bargain of the parties" is guided by Maryland contract
law.ABF also argues that Mastercraft is precluded from bringing this suit
because it did not inform ABF within 180 days of its disagreement with ABF's
freight charges in compliance with the notice provisions required in 49 U.S.C. §
13710(a)(3)(B). In addition, ABF claims that it is entitled to summary judgment
on its counterclaim and that Mastercraft is required to pay ABF $97,824.94 in
tariff fees and penalties.A. Applicability of 49 U.S.C. § 14101(b)(1)
ABF argues that, as a matter of law, no contract was formed between ABF and
Mastercraft because the ICCTA requires contracts between carriers, like ABF, and
shippers, like Mastercraft, to be in writing. ABF claims that this writing
requirement is located in 49 U.S.C. § 14101(b)(1), which states: A carrier
providing transportation or service subject to jurisdiction under chapter 135
may enter into a contract with a shipper, other than for the movement of
household goods described in section 13102(10)(A), to provide specified services
under specified rates and conditions. If the shipper and carrier, in writing,
expressly waive any or all rights and remedies under this part for the
transportation covered by the contract, the transportation provided under the
contract shall not be subject to the waived rights and remedies and may not be
subsequently challenged on the ground that it violates the waived rights and
remedies. The parties may not waive the provisions governing registration,
insurance, or safety fitness. Mastercraft argues that this provision does not
require a written contract. Mastercraft contends that § 14101(b)(1) only
requires a writing when carriers and shippers agree to waive certain statutory
obligations. The parties have not provided, nor has the Court been able to
locate a case discussing this precise issue. However, in Transit Homes of
America, Division of Morgan Drive Away, Inc. v. Homes of Legend, Inc., 173
F.Supp.2d 1192 (N.D.Ala.2001) the court considered a carrier's motion for
reconsideration of the court's decision to dismiss the carrier's complaint
against a shipper for unpaid freight charges. The court dismissed the carrier's
claim for lack of jurisdiction. [FN1] In its motion for reconsideration, the
carrier asserted that the contract between the carrier and the shipper was
expressly authorized under § 14101(b)(1) and that Congress provided the court
with original jurisdiction under § 14101(b)(2). Section 14101(b)(2) states:
"Remedy for breach of contract.--The exclusive remedy for any alleged breach of
a contract entered into under this subsection shall be an action in an
appropriate State court or United States district court, unless the parties
otherwise agree."
FN1. Unlike the case sub judice, the court determined that there was no basis for diversity jurisdiction in Transit Homes of America, Div. of Morgan Drive Away, Inc. v. Homes of Legend, Inc., 173 F.Supp.2d 1185 (N.D.Ala.2001) (holding that the court lacks subject matter jurisdiction and dismissing the plaintiff's complaint); see also Transit Homes of America, Division of Morgan Drive Away, Inc. v. Homes of Legend, Inc., 173 F.Supp.2d 1192 (N.D.Ala.2001) (denying plaintiff's motion for reconsideration of the court's dismissal of plaintiff's complaint).
5 While the court agreed that § 14101 authorized the contract between the
carrier and the shipper, it stated that " ... this authorization alone evidences
little if any Congressional intent to federalize every breach-of-contract claim
involving a motor carrier subject to federal regulation." Transit Homes of
America, 173 F.Supp.2d at 1195. After conducting a full analysis of the relevant
sections of § 14101, the court concluded that "[c]learly, the statute can be
read reasonably to mean that a claim for breach of contract, as traditional a
common law remedy as can be, arises under state law and thus a federal court is
not 'appropriate' unless it possesses some independent and adequate ground of
original jurisdiction." Transit Homes of America, 173 F.Supp.2d at
1197. In addition, the court in Transit Homes of America noted that the
importance of § 14101(b)(1) is that it enables carriers and shippers to contract
around certain federal obligations and remedies that Congress established as a
set of default rules. See id. at 1196. Based on its analysis, the court denied
the carrier's motion for reconsideration and the carrier's claims were dismissed
for lack of jurisdiction.[1] The analysis and holding in Transit Homes of
America clearly support the principle that contracts between carriers and
shippers under § 14101(b)(1) are governed by state law. Therefore, § 14101(b)(1)
does not create a federal mandate that all contracts between carriers and
shippers be in writing, as any statute of frauds requirement would be governed
by the applicable state law. This result is further supported by the plain
language of the statute, which states that "[a] carrier providing transportation
... may enter into a contract with a shipper ... to provide specified services
under specified rates and conditions ...." If Congress had intended to require
that such a contract be in writing, it would have stated that "a carrier ... may
enter into a [written ] contract with a shipper." However, the word "written"
was not included in the provision authorizing a carrier's right to contract.
Section 14101(b)(1) does specify that a writing is necessary to evidence that a
carrier and shipper agreed to waive the federal obligations and remedies that
Congress established as default rules. This limited writing requirement only
applies, however, to the waiver of federal obligations and remedies and not to
the overall contract between the parties. Therefore, the Court finds that §
14101(b)(1) does not create a federal mandate that a contract between a
carrier and a shipper be in writing. Instead, any contract between the parties
in this matter is subject to requirements established by the applicable state
law
.B. The Formation and Enforceability of the Alleged Contract Under State Law[2]
[3] ABF contends in its Reply brief that Mastercraft has not presented evidence
sufficient to show that a contract was formed because there was no price
decided, and therefore, there could not have been a meeting of the minds between
the parties on this essential contract term. (Reply at 1.) Mastercraft claims
that the "less than $3,000 amount," which was tied to beating the price Brown
Jordan would charge it for shipping, is an extrinsic measure of price that is
sufficient to form an enforceable contract. Although neither party states what
state law applies to the possible formation of the contract in this case, based
on the principle of lex loci contractus, the Court will look to the law of the
place where the contract was made.( This is a well established rule of contract
interetation). See Rouse Co. v. Federal Ins. Co., 991 F.Supp. 460, 462
(D.Md.1998) (citing American Motorists Ins. Co. v. ARTRA Group, Inc., 338 Md.
560, 659 A.2d 1295 (1995)). "Under the lex loci principle, a contract is
"made" where the last act necessary for its formation is performed." Id. (citing
*693 Grain Dealers Mut. Ins. Co. v. Van Buskirk, 241 Md. 58, 215 A.2d 467
(1965)). In this case, Mastercraft argues that in August 2001 Doyle, who
worked in ABF's Baltimore office, and Price met at Mastercraft in Beltsville,
Maryland, and during the meeting an oral contract was made. Therefore, the Court
will apply Maryland contract law to determine whether an enforceable contract
was formed between the parties.6 [4] [5] Generally, a contract is not
automatically unenforceable because parties do not explicitly state a definitive
numeric price. The Maryland Court of Special Appeals has recognized that certain
extrinsic measures, such as "fair market value," "reasonable value" or "current
market value," of the services or the property involved, may provide enough
specificity for a court to determine the price and create an enforceable
obligation. See Hanna v. Bauguess, 49 Md.App. 87, 430 A.2d 104, 108 (1981).
However, the Court need not determine this issue at this time, on a motion for
summary judgment, when essentially all of the material facts surrounding the
formation of the alleged contract are in dispute. Most notably, Doyle denies
ever promising that ABF could ship the furniture from Brown Jordan to
Mastercraft for less than $3,000, while Price believes that an agreement was
reached to ship goods for under this amount. The factual disputes concerning
whether the parties intended to create a contract, and the possible terms of the
contract, especially the interpretation of the price term, are issues for the
trier of fact. See Edell & Associates, P.C. v. Law Offices of Peter G.
Angelos, 264 F.3d 424, 443 (4th Cir.2001).
C. 180 Day Notice Provision Under 49 U.S.C. § 13710(a)(3)(B)ABF claims that 49
U.S.C. § 13710(a)(3)(B) and certain Surface Transportation Board decisions
discussing this section, prohibit Mastercraft from bringing suit because it did
not complain in writing to ABF within 180 days that the rates on the bills of
lading were incorrect. Section 13710(a)(3)(B) states: If a shipper seeks to
contest the charges originally billed or additional charges subsequently billed,
the shipper may request that the [Surface Transportation] Board determine
whether the charges billed must be paid. A shipper must contest the original
bill or subsequent bill within 180 days of receipt of the bill in order to have
the right to contest such charges. Mastercraft contends, not only that ABF's
interpretation of this section is incorrect, but also that read in conjunction
with 49 U.S.C. § 14101(b)(2), it is not applicable to a breach of contract claim
brought in federal court. Mastercraft contends that § 13710(a)(3)(B) is only
applicable when a shipper decides to seek a determination by the Surface
Transportation Board. Indeed, it is clear from the use of phrases in this
provision, such as "if a shipper" and "may request" that a determination by the
Surface Transportation Board is not required prior to bringing suit in the
appropriate state or federal court.
[6] ABF essentially contends that the 180 day period to contest charges is a
prerequisite to the filing of any action in court. However, Mastercraft aptly
notes § 14101(b)(2), specifically entitled "[r]emedy for breach of contract,"
which states, as noted above, that "[t]he exclusive remedy for any alleged
breach of a contract entered into under this subsection shall be an action in an
appropriate State court or United States district court, unless the parties
otherwise agree." ABF argues that the 180 day time period outlined in a separate
section of the code, § 13710(a)(3)(B), should be imposed on any such court
action. While ABF has cited two declaratory orders from the Surface
Transportation Board, it has cited no case law authority in support of this
proposition. Quite simply, this 180 day regulatory requirement cannot be imposed
upon actions to enforce a contract under Maryland law. As discussed above,
in Transit Homes of America, Division of Morgan Drive Away, Inc. v. Homes of
Legend, Inc., 173 F.Supp.2d 1192 (N.D.Ala.2001) the court determined that a
breach of contract claim between a shipper and a carrier arose under state law.
See Transit Homes of America, 173 F.Supp.2d at 1197. The Court does not find
that § 13710(a)(3)(B) imposes the 180 day requirement that ABF suggests on this
breach of contract claim, governed by Maryland law.
D. ABF's Counterclaim for $97,824.94 in Tariff Fees and Penalties**7 [7]
Basically, ABF's counterclaim encompasses two claims for relief. First, that ABF
is entitled to payment for shipping services from Brown Jordan to Mastercraft.
Second, that ABF is entitled to payment for shipping services from other points
of origin, or from other consignors, to Mastercraft. Mastercraft stopped paying
for these shipping services, in addition to services for goods originating from
Brown Jordan, in approximately October 2002. As discussed above, for the first
part of ABF's counterclaim, there are genuine issues of material fact related to
whether the parties entered into a contract related to the shipments from Brown
Jordan and, if a contract was formed, what price the parties agreed upon for the
shipments from Brown Jordan to Mastercraft. Therefore, the fact-finder must
determine these issues related to the Brown Jordan shipments, which are not
appropriate for the Court to determine on summary judgment. The second part of
ABF's counterclaim relates to Mastercraft's non-payment for services provided
from other points of origin. Mastercraft, citing Ghingher v. Fanseen, 166 Md.
519, 172 A. 75, 78 (1934), argues that it is entitled to withhold payment
for all of ABF's services based on the common law principle of set-off. As this
Court applies Maryland contract law to determine the respective rights of the
parties in this litigation, the Court must examine the principle of set-off
under Maryland law. In the Ghingher case, the Court of Appeals of Maryland
recognized that the law of set-off "was not known to the common law" and that
the right only existed "by virtue of some statute." 172 A. at 78. However, the
Court further recognized the principle as being "within the general jurisdiction
of courts of equity." Id. In a later opinion the Court noted in Holloway v.
Chrysler Credit Corp., 251 Md. 65, 246 A.2d 265 (1968) that a "claim arising out
of an independent transaction (set-off) must be pleaded as a counterclaim, but
one arising out of the same transaction (recoupment) may not be." Id. at 266.
This language was subsequently quoted by the Court in Smith v. Johns Eastern
Co., 269 Md. 267, 305 A.2d 460, 463 (1972). Essentially, a review of Maryland
case law suggests that the first part of ABF's counterclaim is viewed as a
recoupment, while the second part must be pleaded as a counterclaim. Maryland
contract law is appropriately incorporated in the procedures followed in this
case with respect to the assertion of a counterclaim. Indeed, it has been noted
that at common law a set-off "referred to a claim by defendant that was
unrelated to plaintiff's claim," for which a defendant could assert an
affirmative claim of relief." 6 Charles Alan Wright & Arthur R. Miller, Federal
Practice & Procedures § 1401 (3d ed.2004). These principles have long since *695
been embodied in Rule 13 of the Federal Rules of Civil Procedure. [FN2] See id.
FN2. Rule 13(b) of the Federal Rules of Civil Procedure, entitled Permissive Counterclaims, states: "A pleading may state as a counterclaim any claim against an opposing party not arising out of the transaction or occurrence that is the subject matter of the opposing party's claim."
[8] On the factual record before this Court and in viewing the facts and
reasonable inferences in the light most favorable to Mastercraft in opposing
ABF's motion for summary judgment on its counterclaim, there is a factual
dispute with respect to the understanding between the parties in the aftermath
of the Brown Jordan shipments. In light of this factual dispute and the
application of Maryland law with respect to recoupment and set-off, ABF's
counterclaim is not ripe for summary judgment on the facts presently before this
Court. Accordingly, ABF's motion for summary judgment on its counterclaim shall
be denied and ABF shall proceed with the counterclaim in opposition to
Mastercraft's claim arising out of the Brown Jordan shipments.
CONCLUSION
8 For the reasons stated above, ABF's Motion for Summary
Judgment on Count I of the Plaintiff's Complaint is DENIED, and ABF's Motion for
Summary Judgment on its counterclaim is DENIED. A separate Order consistent with
this Memorandum Opinion will follow.
(Like many opinions this one is interesting for what is not discussed and that
is the fact that bills of lading were furnished by ABF to Mastercraft for the
shipments at issue. Under a US Supreme Court decision, Southern Pacific
Transportation Company v Commercial Metals Co 456 US 336 ( US Sup.Ct 1982) , if
there is no other transportation agreement, the bill of lading is the
“transportation contract” and unless section 7 the non recourse section of the
bill of lading is signed the shipper remains liable for payment of freight
charges. The Maryland court does not discuss this issue. The US Supreme Court
decision imposes on the parties the terms and conditions of those bills of
lading and incorporates them into the factual agreement between the parties.
Ordinarily the bill of lading incorporates by reference the tariffs of the
carrier. Also what is not discussed is how the court would decide the
applicability of the 180 day rule if the Commercial Metals case was
followed. The ABF v Masertcraft decision comes from US District court in
Maryland and is the law of that state only, however any other court may choose
to follow it.
The simple lesson of the Mastercraft v ABF case is “use written contracts’! Have
you heard that before! The members of the transportation bar all thank you for
not following our advice. It means job security!
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