Limitations on the Right to "Double Payment"
by John M. Daley
Over the past thirty years, a line of cases has established that the owner and “shipper” of goods is liable for payment to a carrier even if the shipper has already paid an intermediary who failed to pay the carrier for the services performed, based in large part upon the terms and conditions of the bills of lading issued by the carrier. These cases are commonly known as “double payment” cases.
In the past few years, however, motor carriers and their collection companies have begun to pursue “double payment” from alleged “shippers” who are actually intermediaries for the actual owners and shippers of the goods, and who tendered the freight to the carriers through a downstream property broker or freight forwarder who they paid, but who then failed to pay the carrier. However, motor carriers and their collection companies are now asserting claims for “double payment” from intermediaries even when the carrier involved did not issue a bill of lading.
This article demonstrates that “double payment” claims against intermediaries other than the property brokers who hired the carrier are without any basis in the law, and that neither the owners of goods nor intermediaries who acted on their behalf, but did not contract directly with the carrier, can be held liable if the carrier involved did not issue a bill of lading which named them as the “shipper” or “consignor” of the goods.
The Majority View – “Shippers” Who Are Owners of the Goods are
Liable for “Double Payment”
The majority view is that a carrier is entitled to recover from the “shipper” of the goods. See, e.g., S. Pac. Transp. Co. v. Commercial Metals Co., 456 U.S. 336 (1982); Oak Harbor Freight Lines, Inc. v. Sears Roebuck & Co., 513 F.3d 949 (9th Cir. 2008); Central States Trucking Company v. J.R. Simplot Company, 965 F.2d 431 (7th Cir. 1992); Strachan Shipping Co. v. Dresser Indus., Inc., 701 F.2d 483 (5th Cir.1983); Bartlett-Collins Co. v. Surinam Navigation Co., 381 F.2d 546, 549 (10th Cir.1967).
However, several cases have held that a carrier is not entitled to recover “double payment” from “shippers” on grounds of “estoppel,” primarily in cases in which the bill of lading was marked “prepaid.” See, e.g., Olson Distributing Systems, Inc. v. Glasurit America, Inc., 850 F.2d 295 (6th Cir. 1988) and Farrell Lines, Inc. v. Titan Industrial Corp., 306 F.Supp. 1348 (S.D.N.Y.), aff'd, 419 F.2d 835 (2d Cir. 1969), cert. denied, 397 U.S. 1042, 90 S. Ct. 1365, 25 L. Ed.2d 653 (1970). Although these cases have not been overruled, they are in the minority, and the holdings of these cases have been severely criticized.
Many of the decisions which have considered the “double payment” issue also recognize that both parties involved are suffering a form of “unfairness” – the shipper because it is being required to pay twice if it is required to pay, and the carrier because it is being deprived of compensation for the carriage it performed if the shipper is not required to pay. In National Shipping Co. v. Omni Lines, 106 F.3d 1544-1545 (11th Cir. 2010), for example, the court explained the “balance of equities” a court must consider in “double payment” cases as follows:
As an initial matter, we note that any result we reach in this case necessarily will be somewhat inequitable. Neither party to the instant suit has done other than what it was expected to do; NSCSA transported the goods as arranged by Exchange, and Omni paid Exchange when billed. Thus, we must decide whether Omni must be made to pay twice or whether NSCSA is not paid at all.
However, these justifications for finding liability on the part of the shipper are completely absent when (1) the carrier fails to issue a bill of lading which identifies the shipper or fails to specify that the shipper is liable for payment of the freight charges owed or (2) the alleged “shipper” is an intermediary who is not named in a bill of lading and has no interest in the goods.
The Requirement That the Carrier Issue a Bill of Lading Which Identifies the “Shipper” and Specifies that the Shipper is Responsible for the Freight Charges Owed
The liability of the “shipper” or “consignor” to the carrier is ordinarily established by virtue of the contractual agreement embodied in the bill of lading issued by the carrier. In every reported “double payment case” of which I am aware, the carrier (and sometimes the shipper) issued a bill of lading which named the defendant as the shipper of the goods. See Oak Harbor Freight Lines, Inc. v. Sears Roebuck & Co., 513 F.3d 949 (9th Cir. 2008); Hawkspere Shipping Co. v. Intamex, S.A., 330 F.3d 225 (4th Cir. 2003); Central States Trucking Company v. J.R. Simplot Company, 965 F.2d 431 (7th Cir. 1992); Strachan Shipping Co. v. Dresser Indus., Inc., 701 F.2d 483 (5th Cir.1983); Bartlett-Collins Co. v. Surinam Navigation Co., 381 F.2d 546, 549 (10th Cir.1967);
If a property broker or freight forwarder is found to be the agent of the shipper, as it will be in most cases, the carrier can rely upon each and every term or condition of its bill of lading and tariff to assert a claim against the “shipper” named in its bill of lading, since the broker’s status as agent gave it the power to bind him to those terms. See, e.g., California Civil Code § 2330 (“an agent represents his principal for all purposes within the scope of his actual or ostensible authority, and all the rights and liabilities which would accrue to the agent from transactions within such limit, if they had been entered into on his own account, accrue to the principal”); California Civil Code § 2315 (“an agent has such authority as the principal, actually or ostensibly, confers upon him”); and California Civil Code § 2337 (“An instrument within the scope of his authority by which an agent intends to bind his principal, does bind him if such intent is plainly inferable from the instrument itself”).
As the United States Supreme Court explained in Louisville & N. R. Co. v. Central Iron & Coal Co., 265 U.S. 59 (1924), the bill of lading is the primary document upon which the Courts rely in ascertaining the duties of the parties identified therein:
To ascertain what contract was entered into we look primarily to the bills of lading, bearing in mind that the instrument serves both as a receipt and as a contract. Ordinarily, the person from whom the goods are received for shipment assumes the obligation to pay the freight charges; and his obligation is ordinarily a primary one. This is true even where the bill of lading contains, as here, a provision imposing liability upon the consignee. For the shipper is presumably the consignor; the transportation ordered by him is presumably on his own behalf; and a promise by him to pay therefor is inferred (that is, implied in fact), as a promise to pay for goods is implied, when one orders them from a dealer. But this inference may be rebutted, as in the case of other contracts. It may be shown, by the bill of lading or otherwise, that the shipper of the goods was not acting on his own behalf; that this fact was known by the carrier; that the parties intended not only that the consignee should assume an obligation to pay the freight charges, but that the shipper should not assume any liability whatsoever therefor; or that he should assume only a secondary liability.
Id. at 68 (emphasis added).
When a carrier does not even bother to issue a bill of lading which identifies the shipper and specifies that the person or entity identified is responsible for the freight charges owed, however, there is no basis in fact or in law for holding that any person other than the broker or forwarder who hired the carrier is responsible for the freight charges owed.
This does not necessarily mean that the shipper identified in the bill of lading must have signed the bill of lading. Indeed, in Contship Containerlines v. Howard Industries, 309 F.3d 910 (6th Cir. 2002), a maritime action, the undisputed facts established that (1) the shipper (Howard Industries) delivered its goods to Contship for carriage by sea, (2) Contship issued bills of lading which specified that Howard Industries was liable for the freight charges, and (3) Howard Industries did not sign the bills of lading.
In upholding the District Court’s grant of summary judgment in favor of the carrier, the United States Court of Appeals for the Sixth Circuit found that these facts established the existence of an “implied in law” or “quasi contract” to pay the freight charges owed to the carrier:
It is a simple hornbook rule that a contract implied in fact must embody all the elements of an express contract, including an actual agreement between the parties. Even when a ‘meeting of the minds’ does not occur, however, a contract implied in law, sometimes referred to as a ‘quasi-contract,’ may exist based on principles of equity and to prevent unjust enrichment.
Contship Containerlines v. Howard Industries, supra, 309 F.3d 910 at p. 912-913 (citations omitted).
Although the Contship decision could be used to support a claim for relief in a case where the shipper did not actually sign the bill of lading issued by the carrier, it clearly does not establish a rule that a carrier may recover from a “shipper” when it (1) failed to issue a bill of lading at all or (2) issued a bill of lading which did not identify the shipper and state that the shipper is liable for the freight charges owed.
The Absence of Any “Balance of Equities” in Favor of the Recovery from
an Intermediary Who Did Not Contract With the Carrier
As explained above, however, the “equities” of the situation generally favor motor carriers over shippers who are owners of goods. Of course, analogizing motor carriers to providers of construction services is not accurate in all cases, since the gross margin of profit on some goods is very small, and forcing a shipper to pay in this case could have the same result as it would on the carrier. When the alleged “shipper” of the goods is an intermediary with no ownership interest in the goods, however, the “balance of equities” really favors neither party, since requiring intermediaries to pay freight charges twice would have nearly the same effect as would depriving the carrier of payment for his services.
Moreover, if the carrier did not even issue a bill of lading which identifies and protects its right to recover from the “shipper” it is suing, it is difficult to justify awarding a judgment for double payment from an intermediary or a shipper/owner on “equitable” grounds.
The Carrier’s Waiver of Its Right to Recover from The Shipper or Intermediaries Involved
As the Court explained in Oak Harbor Freight Lines, Inc. v. Sears Roebuck & Co., 513 F.3d 949, 956 (9th Cir. 2008), carriers can waive the right to recover directly from shippers as a matter of contract:
The parties to a freight shipment generally are free to assign liability for the payment of freight charges through a contract separate from the bill of lading. Louisville & Nashville R.R. Co. v. Cent. Iron & Coal Co., 265 U.S. 59, 66-67, 44 S. Ct. 441, 68 L. Ed. 900 (1924). Such a contract may provide that ‘the shipper agrees absolutely to pay the charges, or . . . merely that he shall pay if the consignee does not pay . . . , or . . . that only the [consignee] shall be liable for the freight charges, or [that] both the shipper and the consignee may be made liable.’ Id. ‘It is only where the parties fail to agree or where discriminatory practices are present that the [bill of lading] default terms bind the parties.’ C.A.R. Transp., 213 F.3d at 479 (emphases added).
Some property brokers include a provision in their broker/carrier agreements which include a provision which prohibits the carrier from recovering from their shipper clients. The Transportation Intermediary Association’s Model Broker-Carrier contract includes a provision (paragraph 2.D.i.) which provides that “CARRIER shall not seek payment from Shipper if Shipper can prove payment to BROKER.”
Accordingly, when faced with a “double payment” claim, one must always inquire whether or not the motor carrier involved (1) signed a broker/carrier agreement which included this provision in a motor/carrier agreement with the carrier or (2) whether the broker included such a provision anywhere else in its literature or on its web site.
The Future of Double Payment Claims
The author of Goods in Transit has suggested that “one solution to the risk of a double payment problem would be to provide that all payments to intermediaries by shippers be considered trust funds with the further requirement that the intermediary be required to pay all freight and demurrage to the actual carrier before the intermediary can withdraw the portion of the charge which represents the intermediary’s compensation.” Sorkin, Goods in Transit §§ 22.02[b]. Thus far, this suggestion has not been adopted.
However, in 2004, the Owner Operator Independent Drivers Association (“OOIDA”) filed a petition with the Department of Transportation in which they suggested that the amount of the bond a property broker is required to post with the FMCSA be increased from the current $10,000 (see 49 CFR 387.307(a)) to $500,000. This petition was shelved. However, trucking interests continued to push for an increase in the amount of the property broker’s bond to $100,000. On July 29, 2012, Congress passed a Surface Transportation Bill (H.R. 4348) which increases the bond or security amount required for a property broker from $10,000 to $75,000. President Obama signed the bill on July 6, 2012. Once implemented, this change should result in a substantial reduction in “double payment” claims involving motor carriers.
 The “intermediaries” discussed in this article could be any party (a) who is not an owner of the goods and (b) whose only role in connection with the carriage in issue was to “book” the load (either directly or through another intermediary) with the property broker. This would include, but is not limited to, non-vessel operating common carriers and freight forwarders of all kinds.
 The District Court opinion says that the shipper also claimed that it never even saw the carrier’s bills of lading. In its opinion at Contship Containerlines, Inc. v. Howard Indus., 2001 U.S. Dist. LEXIS 25213 (S.D. Ohio, Sept. 20, 2001), the District Court expressed strong misgivings about this claim:
The Court also takes a dim view of Howard’s claim that it cannot be bound by the terms of bills of lading that it neither saw nor signed. While there is no evidence of record to contradict Howard's contention that it neither saw nor signed the bills of lading, the fact remains that it caused its own product to be shipped on Contship's vessels to Syria. The Court has a difficult time understanding how a business could cause such an international shipment without receiving or at least requesting bills of lading or other documentation before such quantities of product left the territorial United States. Nonetheless, given the posture of the case, the Court must assume that Howard did not receive such documentation prior to shipping.
 In a 2008 article, this author analogized the “double payment” issue involving motor carriers to the “balance of equities” the which is presented when laborers and materialmen contribute value to a work of improvement on real property, and who are traditionally recognized as deserving of special protection under the law, even if it means that the property owner must “pay twice” for the same services or goods (e.g., once to the general contractor and again to the laborer or materialmen involved). Double Payment by Shippers: The Case in Favor of the Carrier’s Right to Payment, presented at the April 2008 conference of the Transportation Logistics Council in San Diego, California (also published at www.johnmdaley.com).
The author has recently discovered that collection agencies are relying upon this analogy as justification for pursuing shippers and intermediaries even in the absence of any contractual basis for establishing liability on the part of these parties. There is no support for this proposition in the case law.
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