Kawasaki v. Regal-Beloit: the Supreme Court resolves the long-standing circuit split regarding the law applicable to multimodal shipping contracts.

• Author: Jones, Abbott Marie
• Position: Conning the IADC Newsletters

This article originally appeared in the December 2010 Environmental, Energy. and Maritime Law Committee Newsletter.

As any first-year law student can tell you, federal law governs interstate commerce, such as the carriage of goods by rail. Similarly, federal maritime law governs international and interstate carriage of goods by sea. Which law governs, however, when goods are carried from a foreign port by sea and then inland by rail has long been a point of contention among the Courts of Appeals. The debate has been particularly contentious in situations where goods are carried pursuant to a single contract, which governs both the sea and rail carriage and also extends the application of maritime law to the entire journey. The main question is this: if the goods are damaged during the inland rail carriage, does federal rail-carrier law apply, or does the contractually-extended maritime law apply? That is the question that was presented to the United States Supreme Court in Kawasaki v. Regal-Beloit.

In the United States Supreme Court's recent decision in Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp., (1) the Court considered the provisions of through (2) bills of lading, which purportedly extended the provisions of the Carriage of Goods by Sea Act ("COGSA") to the inland portion of an international, multimodal journey. (3) In this maritime case about a train wreck, the petitioners asked the Court to resolve a split among the circuits and consider whether the terms of the through bills of lading, including the contractually extended provisions of COGSA, governed the inland rail carrier's liability, or whether the rail carrier was subject to the provisions of the Carmack Amendment. (4)

The Court held "that the amendment does not apply to a shipment originating overseas under a single through bill of lading.... [Instead], the terms of the bill govern the parties' rights." (5) The Court's decision provided long-awaited guidance for shippers and carriers who deal with international and multimodal shipments regularly.

While the decision addresses an important question of maritime law, its biggest impact will be on rail carriers within the United States that are now subject to the provisions of COGSA when the rail carriage is part of a larger, multimodal shipment pursuant to a through bill of lading.

1. International Multimodal Shipments: COGSA and the Carmack Amendment

   The Carmack Amendment to the Interstate Commerce Act of 1887 governs interstate rail carriers within the United States. (6) The Carmack Amendment outlines the basic requirements for liability for "rail carrier[s] providing transportation or service subject to the jurisdiction of the [Surface Transportation] Board under this part." (7) With respect to the "jurisdiction of the Board," the Carmack Amendment provides that "the Board has jurisdiction over transportation by rail carrier that is ... only by railroad; or ... by railroad and water, when the transportation is under common control, management, or arrangement for a continuous carriage or shipment." (8)

   COGSA governs the international carriage of goods by sea. (9) By its terms, COGSA only applies to shipments to or from, but not between, U.S. ports. (10) If it does not apply of its own force, COGSA allows parties "the option of extending [certain COGSA terms] by contract" to cover "the entire period in which [the goods] would be under [a carrier's] responsibility, including [a] period of ... inland transport." (11)

   Pursuant to the U.S. Supreme Court's decision in Norfolk Southern Railway v. Kirby, the provisions of COGSA may be applied by extension when incorporated into a through bill of lading if the sea carriage constitutes a substantial portion of the total shipment. (12) Because the bill of lading at issue in Kirby extended COGSA coverage to the entire period of carriage, the Court held that COGSA governed the inland segment of the journey. (13) The Kirby Court, however, did not consider the issue of the Carmack Amendment's applicability to the inland leg.

2. The Circuit Split: Carmack Amendment vs. Contractually Extended COGSA

   The interplay between COGSA and the Carmack Amendment has been a source of judicial discrepancy in cases where a single, multimodal bill of lading incorporates the terms of COGSA to govern both an international carriage by vessel and an inland carriage by rail. (14) Most circuits addressing the issue have held that the Carmack Amendment does not apply to the inland portion of shipments under a through bill of lading unless the inland carrier issues a separate, domestic bill of lading. (15)

   The principle that a separate, domestic bill of lading must be issued for the Carmack Amendment to apply to the inland portion of an international, multimodal carriage of goods has its roots in Reider v. Thompson. (16) In Reider, an inland carrier issued a separate, domestic bill of lading to govern the inland portion of a shipment from Buenos Aires to Boston. (17) The Supreme Court considered in that case whether the Carmack Amendment applied to the domestic bill of lading, despite the fact that the shipment originated outside the United States. (18) Ultimately, the Supreme Court determined that the shipment's origination in a foreign country was irrelevant, because the inland carriage was covered by a separate bill of lading clearly within the purview of the Carmack Amendment. (19) The Court, however, specifically noted that its holding did not address and should not be construed as affecting jurisprudence as to the application of the Carmack Amendment to inland carriers subject to a single, through bill of lading for international, multimodal shipments. (20)

   1. Circuits Requiring a Separate Bill of Lading to Apply the...