Creating an Enforceable Lien
by John M. Daley
Like warehousemen and auto repairmen, carriers are automatically entitled to a lien on the goods in their possession for payment of the amounts owed for their services. This is only fair, since it gives these parties an inexpensive means of ensuring receipt of payment for the services these parties provide.
In the absence of a contract-based "general" lien, however, a carrier’s lien is a possessory lien, which means that the lien expires as soon as the goods are released by the carrier. Moreover, the "common law" carrier lien does not carry with it the right to sell the goods held by the carrier, and both the "common law" and the automatic statutory liens conferred on carriers cover only the amounts owed relate to the goods in the carrier’s possession, not amounts owed for goods previously transported by the carrier.
Consequently, carriers who want the best possible lien to enable them to collect amounts owed need a contractual general lien which enables them to (1) recover past due amounts without first filing expensive and time consuming litigation and (2) create, to the extent possible, priority for their liens over liens which might be asserted by other lienholders.
In this article, I shall discuss the origin of the "common law" and maritime law versions of the carrier lien, describe statutory sources of carrier liens in the United States, including generally applicable U.S. statutes or international treaties which either create or recognize such lien rights, then conclude with a discussion of the means by which a carrier can obtain a contract-based general lien, which gives the carrier the best and most inexpensive means possible of ensuring its recovery of amounts owed.1
The Original "Carrier Lien": The "Common Law" and "Maritime Law" Right of Carriers to Withhold Delivery of Goods Except Upon Payment of Freight Charges
Under both "common law" and "maritime law,"2 a carrier has a right or "privilege" to withhold delivery of goods except upon payment of freight and other charges owed for goods in its possession.
The earliest version of a carrier lien on cargo was created under the maritime law adopted by the Romans, which in turn was based upon the Rhodian maritime law, which came into existence in about 800 B.C. See William Tetley, Q.C., Maritime Law as a Mixed Legal System, 23 Tul. Mar. L.J. 317 (1999). The carrier lien created under Roman law was apparently adopted in every other version of maritime law, including the Admiralty Law of England as it existed prior to the formation of the United States of America. The existing maritime law was essentially adopted as the law of the United States under Section 2 of Article III of the Constitution, which extended the judicial power of the United States to "all cases of admiralty and maritime jurisdiction." See Panama R. Co. v. Johnson, 264 U.S. 375, 386 (1924)(explaining that the framers of the Constitution intended by this section to incorporate then existing maritime law as the law of the United States, subject to the power of Congress to alter, qualify or supplement it).
In The Bird of Paradise, 72 U.S. 545, 554-555 (1866), the U.S. Supreme Court acknowledged the existence of the maritime lien for freight charges without even bothering to describe the source of the lien:
Ship-owners, unquestionably, as a general rule, have a lien upon the cargo for the freight, and consequently may retain the goods after the arrival of the ship at the port of destination until the payment is made, unless there is some stipulation in the charter-party or bill of lading inconsistent with such right of retention, and which displaces the lien.
3. Such a lien is regarded in the jurisprudence of the United States as a maritime lien, because it arises from the usages of commerce, independently of the agreement of the parties, and not from any statutory regulations. Legal effect of such a lien is, that the ship-owner, as carrier by water, may retain the goods until the freight is paid, or he may enforce the same by a proceeding in rem in the District Court. But it is not the same as the privileged claim of the civil law, nor is it an hypothecation of the cargo which will remain a charge upon the goods after the ship-owner has parted unconditionally with the possession. Although the lien is maritime and cognizable in the admiralty, yet it stands upon the same ground with the lien of the carrier on land, and arises from the right of the ship-owner to retain the possession of the goods until the freight is paid, and is lost by an unconditional delivery to the consignee.
In The Hyperion’s Cargo, 12 Fed. Cas. 1138 (No. 6987) (D. Mass. 1871), however, District Judge Lowell explained the basis for the existence and extent of a maritime lien on cargo as follows:
It is a maxim of the general law-merchant that the ship is bound to the merchandise, and the merchandise to the ship. Pard. Droit Com. arts. 709, 961; Valin, Comm. bk. 3, tit. 1, arts. 11, 24; Bouch. Ins. Droit Mar. §§ 926-934. This reciprocal privilege appears to extend to all claims which may arise on the one side or the other out of the contract of affreightment. . . .Thus article 308 of the French Code de Commerce declares that the captain is privileged before all creditors for the payment of his freight and the averages (avaries) that are due him. The word "avaries" I understand to include all damages which the master may lawfully demand in the premises. . . . Indeed, the learned author whom I have so often cited says that the master contracts rather with the merchandise than with the shipper; and he has his privilege for the freight even against the true owner of the goods, though they had been stolen (Pard. Droit Com. art. 961); and Valin says, that the contrary opinion is absurd (Valin, ubi supra). I quote this example to show that the privilege does not depend on any doctrine of agency, as well as to fortify my opinion that the merchandise is liable for whatever the shipper is liable for.
In Oregon Short Line & U. N. R. Co. v. Northern P. R. Co., 51 F. 465, 471 (Cir. Ct. Ore. 1862), aff’d 61 F. 158 (9th Cir. 1894), the federal court, like the Supreme Court in The Bird of Paradise case quoted above, also recognized the existence of a railroad carrier’s lien on cargo for freight charges without bothering to explain the source of this right:
There is no law or custom requiring a railway company receiving freight from a connecting line to advance or assume the payment of the charges due thereon for the transportation from its point of origin to the connecting line. If it does thus advance or assume the payment of such charges, it can retain a lien upon the property transported for their payment as well as for the transportation rendered by itself. A railway company, like any other common carrier, has a right to demand that its charges for transporting goods shall be paid in advance, and is under no obligation to receive the goods for transportation unless such charges are paid, if demanded. The general practice, it is true, is to collect the charges upon delivery of the goods transported to the consignee, and, where goods are received without the payment in advance being demanded, it becomes the duty of the railway company to complete the carriage. Its right to payment in advance is thus waived. It holds, however, a lien upon the goods for payment, and in case the goods are delivered previous to payment it can hold the consignee responsible.
Emphasis added. Thus, I believe it is safe to say (as Sorkin does in "Goods in Transit") that all carriers have a "common law" right, or in the case of ocean carriers, a "maritime law" right, to withhold freight in their possession in order to recover freight and other charges which relate to the goods in their possession, which right is commonly referred to as a "lien."
Under both common law and maritime law, however, the carrier’s lien on cargo is a possessory lien only, which means that the lien ceases to exist as soon as the carrier releases the goods. See Sarantex Shipping Co. v. Wilbur-Ellis Co., 391 F. Supp. 884, 888 (D. Ore. 1975).
Moreover, neither the maritime law nor the common law lien includes a right to sell the goods which have been withheld from delivery under the lien. As is explained below, however, at least in the United States, carriers have this right under the laws of the various States, and they can also obtain this right by contract.
Statutes and International Conventions Which Codify and Expand Upon or Recognize the Existence of Carrier Liens
There are several statutes and International Conventions which codify, expand or at least recognize the existence of automatic carrier liens. In all cases, however, the carrier lien which is codified or recognized remains a possessory lien only, and extends only to charges which relate to the goods which remain in the carrier’s possession.
In most cases arising under U.S. law, carriers can assert a lien under one or more versions of Section 7-307 of the Uniform Commercial Code, which is codified in the State of California as Section 7307 of the Uniform Commercial Code, and which provides as follows:
§ 7307. Lien of carrier
(a) A carrier3 has a lien on the goods covered by a bill of lading or on the proceeds thereof in its possession for charges after the date of the carrier’s receipt of the goods for storage or transportation, including demurrage and terminal charges, and for expenses necessary for preservation of the goods incident to their transportation or reasonably incurred in their sale pursuant to law. However, against a purchaser for value of a negotiable bill of lading, a carrier's lien is limited to charges stated in the bill or the applicable tariffs or, if no charges are stated, a reasonable charge.
(b) A lien for charges and expenses under subdivision (a) on goods that the carrier was required by law to receive for transportation is effective against the consignor or any person entitled to the goods unless the carrier had notice that the consignor lacked authority to subject the goods to those charges and expenses. Any other lien under subdivision (a) is effective against the consignor and any person that permitted the bailor to have control or possession of the goods unless the carrier had notice that the bailor lacked authority.
(c) A carrier loses its lien on any goods that it voluntarily delivers or unjustifiably refuses to deliver.
See Olsen v. Santa Barbara's Gracious Living, Inc., 103 Cal. App. 4th 1377 (Ct. App. 2002) (upholding lien for freight and storage charges on furniture which owner permitted to come into possession of a purchaser even though the sale did not go through and the purchaser did not have actual authority move or store the goods because the carrier had no notice of the absence of authority).
Unlike the common law and maritime law liens discussed above, moreover, the carrier lien recognized under Section 7-307 comes with a right to enforce the lien by selling the goods in a non-judicial sale under Section 7-308. This section, which is codified in California as Section 7308 of the California version of the Uniform Commercial Code, provides as follows:
(a) A carrier’s lien on goods may be enforced by public or private sale of the goods, in bulk or in packages, at any time or place and on any terms that are commercially reasonable, after notifying all persons known to claim an interest in the goods. The notification must include a statement of the amount due, the nature of the proposed sale, and the time and place of any public sale. The fact that a better price could have been obtained by a sale at a different time or in a method different from that selected by the carrier is not of itself sufficient to establish that the sale was not made in a commercially reasonable manner. The carrier sells goods in a commercially reasonable manner if the carrier sells the goods in the usual manner in any recognized market therefor, sells at the price current in that market at the time of the sale, or otherwise sells in conformity with commercially reasonable practices among dealers in the type of goods sold. A sale of more goods than apparently necessary to be offered to ensure satisfaction of the obligation is not commercially reasonable, except in cases covered by the preceding sentence.
(b) Before any sale pursuant to this section, any person claiming a right in the goods may pay the amount necessary to satisfy the lien and the reasonable expenses incurred in complying with this section. In that event, the goods may not be sold but must be retained by the carrier, subject to the terms of the bill of lading and this division.
(c) A carrier may buy at any public sale pursuant to this section.
(d) A purchaser in good faith of goods sold to enforce a carrier’s lien takes the goods free of any rights of persons against which the lien was valid, despite the carrier's noncompliance with this section.
(e) A carrier may satisfy its lien from the proceeds of any sale pursuant to this section but shall hold the balance, if any, for delivery on demand to any person to which the carrier would have been bound to deliver the goods.
(f) The rights provided by this section are in addition to all other rights allowed by law to a creditor against a debtor.
(g) A carrier’s lien may be enforced pursuant to either subdivision (a) or the procedure set forth in subdivision (b) of Section 7210.
(h) A carrier is liable for damages caused by failure to comply with the requirements for sale under this section and, in case of willful violation, is liable for conversion.
Several provisions of federal law also create or recognize the existence of a form of "carrier lien," even though the term "lien" is not necessarily used in the statute.
For example, the Interstate Commerce Act provides that a common carrier subject to the jurisdiction of the Act "shall give up possession at destination of property transported by it only when payment for the transportation services is made." 49 U.S.C. §13707(a) (1995).4 Under appropriate circumstances, this statute gives an interstate motor carrier the right to withhold delivery of freight even in the face of a demand for release of the goods by a lienholder with priority, since it creates an affirmative obligation on the part of the carrier to withhold delivery of goods for which the freight charges have not yet been paid. It can also be argued that this right is not subject to waiver, as is the common law or maritime lien discussed above.
Section 49 U.S.C. § 80109 of the Federal Bills of Lading Act ("The Pomerene Act"), which applies to bills of lading issued by common carriers for the interstate transportation of goods and for goods exported from the United States to a foreign country, explicitly provides as follows:
A common carrier issuing a negotiable bill of lading has a lien on the goods covered by the bill for–
(1) charges for storage, transportation, and delivery (including demurrage and terminal charges), and expenses necessary to preserve the goods or incidental to transporting the goods after the date of the bill; and
(2) other charges for which the bill expressly specifies a lien is claimed to the extent the charges are allowed by law and the agreement between the consignor and carrier.
Although Section 49 U.S.C. § 80110 does not itself create a lien, the section explicitly recognizes and endorses the existence of such a lien under any type of bill of lading:
(a) General Rules.--Except to the extent a common carrier establishes an excuse provided by law, the carrier must deliver goods covered by a bill of lading on demand of the consignee names in a nonnegotiable bill or the holder of a negotiable bill for the goods when the consignee or holder--
(1) offers in good faith to satisfy the lien of the carrier on the goods;
(2) has possession of the bill and, if a negotiable bill, offers to indorse and give the bill to the carrier; and
(3) agrees to sign, on delivery of the goods, a receipt for delivery if requested by the carrier.
A claim by a common carrier that the carrier has title to the goods or right to their possession is an excuse for nondelivery if the title or right is derived from the carrier’s lien.
The Warsaw Convention (Convention for the Unification of Certain Rules Relating to International Transportation by Air, 49 Stat. 3000), which applies to the international transportation of goods by air, implicitly provides international air carriers with a lien on the goods being carried by providing in Article 12(1) that the consignee has the right to dispose of the goods by withdrawing them at the airport of departure or otherwise "provided the carrier is not prejudiced by the exercise of this right" and in Article 13(1) that the consignee is entitled to delivery of the goods "on payment of the charges due and on complying with the conditions of transportation set out in the air waybill." 49 Stat. 3000, T.S. No. 876 (reprinted at 49 U.S.C. § 40105 note).5
As with the common law and maritime law versions of the carrier lien, however, all of these statutory liens are valid only so long as the goods remain in the carrier’s possession, and the liens cover only amounts owed for freight and other expenses incurred by the carrier with respect to the goods in its possession, not to amounts owed for prior shipments or for other, unrelated charges. See Sorkin, Goods in Transit, § 26.01.
Moreover, these lien rights are subject to waiver in a bill of lading or other contract. Sorkin, Goods in Transit, § 26.01. This presents a serious problem for carriers who sign an unaltered version of the Broker-Carrier contract which is recommended by the Transportation Intermediary Association (which represents property brokers), since the model contract includes a waiver of carrier lien rights, regardless of the terms set forth in the carriers’ bills of lading. See Transportation Intermediary Association Model Bill of Lading Model Broker-Carrier Contract published at http://www.tianet.org, ¶¶ 15.ii. and 6.
Furthermore, if a carrier withholds delivery in an attempt to recover amounts owed for prior shipments or other charges unrelated to the cargo in its possession, its conduct amounts to conversion of the goods. Id. Since conversion is a tort, the carrier’s wrongful retention of goods in an effort to collect amounts owed for prior shipments exposes it to a claim for punitive damages., and perhaps for consequential damages. See, e.g., Fed. Fire Prot. Corp. v. J.A. Jones/Tompkins Builders, Inc., 267 F. Supp. 2d 87, 92 (D.D.C. 2003) (punitive damages are available for conversion under the law of the District of Columbia); Pilliard v. Sotheby’s, Inc., 1997 U.S. Dist. LEXIS 9725 at p. 20 (S.D.N.Y. 1997) (punitive damages are available for conversion under New York law).
General Contractual Liens
In order to overcome the drawbacks of common law, maritime and statutory liens, many carriers seek to obtain a general lien, i.e., a lien which extends to amounts owed which do not relate to property which is presently in their possession, by contract.
In my experience, most ocean carriers, NVOCC’s and some freight forwarders, even when not acting as an NVOCC, include a general lien provision such as the following, either in their bill of lading or in their general terms and conditions of service, or both:
Carrier shall have a lien on the goods tendered to Carrier by Merchant, which lien which shall survive delivery, for all charges owed by Merchant to Carrier, including but not limited to freight, demurrage, detention, damages, loss, charges, expenses and any other sums (including costs, customs fees, attorney fees, and other fees for recovery the sums) chargeable to Carrier or Merchant in connection with such goods, regardless of whether the charges relate to goods which are presently in the possession of Carrier or Goods which are not presently in the possession of Carrier, including both prior and subsequent shipments. Carrier shall have the right to sell the goods by public auction or private sale without notice to the Merchant in order to enforce said lien. If on sale of the goods the proceeds are insufficient to cover the amount owed, Carrier shall be entitled to recover the balance from Merchant.
Although lien provisions like this are relatively common, the provisions will probably not be upheld unless they are also set forth in a document which has been signed by a person with authority to bind the goods to the lien.
The need for an executed agreement is explained by reference to two almost identical cases in which Expeditors International sought to enforce a general lien provision of the sort described above: (1) Expeditors Int'l, Inc. v. Colortran, Inc. (In re Colortran), 209 B.R. 508 (9th Cir. 1997) and (2) Expeditors Int'l v. Citicorp N. Am. (In re Colortran), 218 B.R. 507 (9th Cir. 1998).
In the first of these two cases, Expeditors argued that it had an enforceable lien against goods in its possession for charges owed on prior shipments based upon a "course of dealing" which was established through its submission to the shipper of a series of invoices in which it asserted its right to a general lien for all amounts owed, relying in large part upon the decision of the Seventh Circuit Court of appeals in Capitol Converting Equip., Inc. v. LEP Transport, Inc., 965 F.2d 391, 395 n.5 (7th Cir. 1992), wherein the Court upheld a limitation of liability based upon the same type of evidence.
In a lengthy decision, the Court of Appeals rejected Expeditors’ argument on this issue as follows:
The rules governing secured transactions embodied in Division 9 of the California Uniform Commercial Code (Cal. Com. Code, §§ 9101 - 9508) "Security interest" is defined as "an interest in personal property or fixtures which secures payment or performance of an obligation." Cal. Com. Code § 1201(37)(a) (West Supp. 1997). An agreement which creates or provides for a security interest is a "security agreement." Cal. Com. Code § 9105(1)(l) (West Supp. 1997). . . .
Cal. Com. Code § 9203 specifies the requisites for the attachment and enforceability of a security interest, in pertinent part, as follows:
[A] security interest is not enforceable against the debtor or third parties with respect to the collateral and does not attach unless all of the following are applicable: (a) The collateral is in the possession of the secured party pursuant to agreement, the collateral is investment property and the secured party has control pursuant to agreement, or the debtor has signed a security agreement which contains a description of the collateral . . . . (b) Value has been given. (c) The debtor has rights in the collateral.
Cal. Com. Code § 9203 (West Supp. 1997) (underscored language added in 1996).
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As a general rule, there must be sufficient evidence of the creation of a security interest in the goods possessed, typically by evidence of written or oral agreement. J. WHITE & R. SUMMERS, UNIFORM COMMERCIAL CODE § 22-3, at 965 (3rd ed. 1988). The parties’ intent to create a security interest is a necessary element, although not specifically stated so in the commercial code. In re Airwest Int’l, 70 B.R. 914, 919 (Bankr. D. Hawaii 1987).
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We do not see a need to apply Capitol’s expansive reading of § 1-205(3) to create an agreement by supplementation where there were no existing terms concerning a security interest in the transported goods. Capitol’s holding suggests that carrier liability is an inherent term of a transportation contract, else why would the parties’ course of dealing "fill a void" in the oral contract. A carrier’s lien is similarly inherent. However, a party’s inherent right to a common-law or statutory lien is independent from its bargained-for contractual rights. 13 AM. JUR. 2D, Carriers § 497, at 961 (2d ed. 1964). In addition, an inherent term providing for a carrier’s lien is not comparable to a provision for a security interest, governed by Article 9. See Lissner, 98 B.R. at 818 n.2 ("Carrier’s liens are specific liens which attach to goods involved in one transaction rather than general liens or security interests.").
Thus, notwithstanding the existence of a statutory lien, the contract for a general lien required proof of such an agreement at the outset, as in Boeing, or usage of trade evidence:
[A] carrier may establish its right to a general lien by virtue of an express contract or on proof of a general usage of trade to that effect, although the evidence of an alleged usage of trade must be so strong as to afford a presumption that it was commonly known and that the shipper must necessarily have had notice of and assented to it.
In this case, Expeditors and Everex had been doing business for about one and one-half years. They had never discussed the terms of the invoice nor negotiated for a security interest. Everex had never expressly acknowledged the invoice terms by accepting or objecting to them, nor did it take actions which acknowledged Expeditors' alleged general lien on the goods. Its only pertinent acts were its payment of the invoices and silence as to the added terms. Prior to the preference period Expeditors did not claim nor attempt to enforce a general lien against the property.
Expeditors presented no usage of trade evidence. The fact that Everex accepted and paid the invoices was evidence that the parties had a contract for shipment of goods. However, it was not conclusive evidence that Everex consented to the terms granting Expeditors a general lien. These facts did not amount to course of dealing as supplementary contractual terms.
Expeditors Int'l, Inc. v. Colortran, Inc. (In re Colortran), supra 209 B.R. at p. 508, 512-516.
The very next year, in the second of these two cases, the Ninth Circuit Court of Appeals held that a valid lien was created when Expeditors obtain a signed credit agreement from the shipper which included the same general lien provision.
In Expeditors Int'l v. Citicorp N. Am. (In re Colortran), 218 B.R. 507 (9th Cir. 1998), the Court of Appeals explained its reason for holding that the lien provision was enforceable when including in a signed agreement as follows:
The existence of the credit agreement distinguishes this case from In re CFLC, Inc., 209 B.R. 508 (9th Cir. BAP 1997), in which Expeditors asserted a lien based only on invoices. The BAP determined that the invoices did not provide "evidence of express agreement by [the debtor] to the general lien terms" and affirmed the bankruptcy court’s determination that Expeditors did not have a lien. CFLC, 209 B.R. at 515. Here, the credit agreement is evidence of an express agreement between Colortran and Expeditors in which Colortran granted a security interest to Expeditors.
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An agreement which creates or provides for a security interest is a "security agreement." Cal.Com.Code § 9105(1)(1) (West Supp. 1997). The term "security agreement" should be defined broadly. In re County of Orange, 179 B.R. 185, 193 (Bankr. C.D. Cal. 1995). "No magic words or precise forms are necessary to create or provide for a security interest so long as the minimum formal requirements of the [Commercial] Code are met." In re Amex-Protein Dev. Corp., 504 F.2d 1056, 1058-59 (9th Cir. 1974). ". . . There must be a binding security agreement in order to make the security interest enforceable." Komas v. Future Systems, Inc., 71 Cal. App. 3d 809, 139 Cal. Rptr. 669, 670 (Cal.Ct.App. 1977), as amended. The agreement must describe the property in which the debtor has conveyed a security interest to the creditor. In re Robert Bogetti & Sons, 162 B.R. 289, 295 (Bankr. E.D. Cal. 1993).
The agreement between Colortran and Expeditors says that Expeditors shall have a lien on Colortran’s property. The agreement was signed by Colortran’s representative making the agreement binding on Colortran and it describes the collateral as that property in Expeditors’ possession, custody or control. The agreement between Colortran and Expeditors is sufficient to satisfy the first element of the attachment analysis.
Expeditors Int'l v. Citicorp N. Am. (In re Colortran), 218 B.R. at p. 512-513.6
Thus, in order to obtain a valid and enforceable "general lien" which covers prior shipments, my recommendation is to include a general lien provision in a document which is signed by the client.
Moreover, as in the Expeditors case, the best document in which to include such a provision is a credit application obtained either at the commencement of the relationship or thereafter, to which the carrier’s terms and conditions, including the general lien provision, is attached, and which is required to be signed by an authorized representative of the customer. An example of such a credit application is attached to this article as Appendix A.
Effect of State Statutes Limiting Contractual Liens
Some States have statutes which have a potential effect on either the enforceability of a contractual carrier lien, the manner in which a contractual carrier lien my be enforced, or the priority which may be accorded to a contractual carrier lien. However, portions of these statutes may run afoul of the preemption provision of the Federal Aviation Administration Reauthorization Act set forth at 49 USC § 49501(c)(1).
For example, Section 3051.5 of the California Civil Code provides as follows:
(a) A carrier has a lien on freight in its possession for the total amount owed the carrier by the shipper for freightage, charges for services and advances due on freight previously delivered upon the promise of the shipper to pay freightage, charges and advances, as provided in this section.
(b) The lien provided by this section shall not arise:
(1) Unless the carrier has notified the shipper, in writing, that failure to pay billed charges may result in a lien on future shipments, including the cost of storage and appropriate security for the subsequent shipment held pursuant to this section.
(2) As to any freight which consists of perishable goods.
(c) Except as otherwise provided in this section, the notice and sale provisions of Section 3052 shall apply to the sale of property subject to a lien provided by this section.
(d) No sale of property subject to a lien provided by this section may take place for at least 35 days from the date that possession of the property is delivered to the carrier but the notice period set forth in Section 3052 may run concurrently with the 35-day period provided by this subdivision. In addition to the notices required by Section 3052, the lienholder, at least 10 days prior to any sale of the property, shall notify the shipper and the consignee of the property, and each secured party having a perfected security interest in the property, of the date, time and place of the intended sale. This notice shall include the names of both the shipper and the consignee and shall describe the property to be sold.
(e) Any perfected security interest in the property is prior to the lien provided by this section. No sale of the property may be concluded if the amount bid at the sale is not at least equal to the total amount of all outstanding obligations secured by a perfected security interest in the property. If the minimum bid required for the sale of property pursuant to this subdivision is not received, the lienholder shall promptly release the property to the legal owner upon payment of the current amount for freightage, charges for services and advances due for shipment of that property, not including amounts due on freight previously delivered.
The proceeds of the sale shall be applied as follows:
(1) First, to secured parties having a perfected security interest, in the amounts to which they are respectively entitled.
(2) Second, to the discharge of the lien provided by this section and the costs of storage, appropriate security, and of the sale.
(3) The remainder, if any, to the legal owner of the property.
In the event of any violation by the lienholder of any provision of this subdivision the lienholder shall be liable to any secured party for all damages sustained by the secured party as a result thereof plus all expenses reasonably and necessarily incurred in the enforcement of the secured party's rights, including reasonable attorney's fees and costs of suit.
In my opinion, the emphasized portions of this statute, and in particular the provisions of subsection (e), are pre-empted by 49 USC § 49501(c)(1), which pre-empts all State laws which relate to the price, route or services provided by motor carriers as follows:
(1) General rule. Except as provided in paragraphs (2) and (3), a State, political subdivision of a State, or political authority of 2 or more States may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier (other than a carrier affiliated with a direct air carrier covered by section 41713(b)(4) or any motor private carrier, broker, or freight forwarder with respect to the transportation of property.
Since the language of 49 USC § 49501(c)(1) is identical to language from the Airline Deregulation Act ("ADA"), cases which interpret this provision rely upon cases decided under the identical language of the ADA. See Barber Auto Sales, Inc. v. United Parcel Servs., 494 F. Supp. 2d 1290, 1293 (N.D. Ala. 2007). The Supreme Court has interpreted the ADA preemption provision broadly to preclude any State law or action which has "a connection with or reference to airline ‘rates, routes, or services’." Morales v. Trans World Airlines, Inc., 504 U.S. 374, 384 (1992).
Thus, in order to pass muster under 49 USC § 49501(c)(1), the State statute in issue must have no more than "an indirect, remote, or tenuous effect on a motor carriers’ prices, routes, and services." Californians for Safe & Competitive Dump Truck Transp. v. Mendonca, 152 F.3d 1184 (9th Cir. 1998) (general prevailing wage law upheld even though it has an indirect effect on a carrier’s rates, routes and services).
Since California Civil Code Section 3051.5 singles out carriers and has a direct affect on the rates, routes and services carriers can offer by preventing them from recovering on debts under the same set of rules which apply to other businesses, I believe that the highlighted portions of the statute are probably pre-empted.
Nevertheless, if you are drafting a contractual lien provision for your carrier client, you should take into account any State statutes which may have an effect on the enforceability of the lien, the manner in which the lien may be enforced, or the priority of the lien, to the extent possible.
Although carriers are always entitled to assert a lien for freight and related charges on goods in their possession, a contractual general lien is superior in every way to the common law, maritime law or statutory liens discussed above, since it gives carriers a truly inexpensive, largely self-help means of recovering amounts owed for prior shipments.
A contractual general lien also gives carriers grounds for asserting priority over other liens which might be asserted with regard to the assets of an insolvent debtor, as well as the right to retain amounts collected from a customer during the an automatic preference period should the debtor later file bankruptcy. See In Re: Dak Industries Incorporated, 195 B.R. 129 (Bkcy. Ct. C.D. Cal. 1995) (the existence of a contractual lien for prior debts was a complete defense to a claim that payments made to the carrier constituted preferences).
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