Norfolk Southern Railway Company v. James N. Kirby, Proprietary Limited – Oral Argument – October 06, 2004

Media for Norfolk Southern Railway Company v. James N. Kirby, Proprietary Limited

Audio Transcription for Opinion Announcement – November 09, 2004 in Norfolk Southern Railway Company v. James N. Kirby, Proprietary Limited

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William H. Rehnquist:

We’ll hear argument now in No. 02-1028, the Norfolk Southern Railway Company v. James N. Kirby.

Mr. Phillips.

Carter G. Phillips:

Thank you, Mr. Chief Justice, and may it please the Court:

My inclination is to start with the question that the Court asked for supplemental briefing on on Monday and analyze the question of which law applies, Federal or State law, and then examine the issue of why the judgment of the court of appeals should be reversed.

Sandra Day O’Connor:

Mr. Phillips, I’m glad you’re doing that.

This is a suit, a diversity suit, between an Australian entity and a Virginia company about a rail accident on land, and why do you think Federal law applies?

Carter G. Phillips:

Well, I think the primary reason under… with respect to the Hamburg Sud bill of lading is that that is incorporated into a tariff that’s filed with the Federal Maritime Commission under the Shipping Act of 1984, and it’s long been settled that the interpretation of tariff and obligations arising out of tariff filings are questions of Federal law.

So, therefore, in deciding what the bill of lading by the ocean carrier… what effect it has in terms of binding the actual owner of the property in operating through a freight forwarder, that would be a question of Federal law, Justice O’Connor.

Sandra Day O’Connor:

Was… was the question waived by the respondent below?

How… how did you all proceed on this assumption?

Carter G. Phillips:

Well, we… the parties clearly litigated this issue from… essentially from day one as a question of Federal law, and I think you could, in fact, simply accept that as the case comes to the Court without resolving the question of whether Federal or State law–

William H. Rehnquist:

Well, the difficulty with that was we would be deciding a highly hypothetical case without knowing that Federal law governed.

Carter G. Phillips:

–Well, it’s… it’s not as hypothetical as it might be in some contexts because it’s absolutely clear that there are going to be lots of instances in which ocean-based carriers are going to be issuing bills of lading and which… and which the responsibilities or duties that arise out of those bills of lading, as they apply against the actual owner in operating against the freight forwarder, are going to arise, and there’s not going to be any serious question in that context.

It’s purely a matter of Federal law.

Anthony M. Kennedy:

I… I want you… I think the whole bench wants you… to talk about State versus Federal, but as just one preliminary question… I don’t mean to… if it’s State law, do we know what the answer is?

We don’t seem to know the answer under Federal law.

Do we know the answer under–

Carter G. Phillips:

Well, I’m quite sure–

Anthony M. Kennedy:

–Alabama law applies.

Is it then clear that one side or the other prevails?

Carter G. Phillips:

–No, it’s not clear at all.

There’s no argument ever been made by the respondents.

Anthony M. Kennedy:

I was afraid that would be your answer.

Carter G. Phillips:

I apologize.

I do think it is quite clear that if you were looking at the ICC bill of lading and you only looked at State law or any other law that the… the ultimate conclusion is inescapable because the language of that contract says that these conditions, the limits on liability, apply whenever claims are made against any other person, including any independent contractors, whose services have been used in order to perform the contract.

That’s at joint appendix page 93.

That… that language is so absolutely crystal clear and it arises in the context of a through bill of lading, which made it absolutely clear to Kirby, as the owner of the goods, that this property was going to be shipped overland that there is no way to interpret that language under State, Federal, Australian, or anybody else’s law as not extending to this situation except because of the rather peculiar interpretation the Eleventh Circuit adopted based on this Court’s decision in Robert N. Herd.

And I think if you recognize that the Herd decision is not meant either to create a magic words exception or to otherwise impose extraordinary obligations on parties who enter into contracts, and that in fact what we’re looking for is what was the parties’ intent as measured by the language of the agreement, I would suggest to you that under Federal or State law, it is absolutely clear that the ICC bill of lading has to be interpreted to extend to–

Anthony M. Kennedy:

What about the question of Federal… Federal or State law?

Carter G. Phillips:

–Well, I… I think that on the Hamburg Sud bill, again the easy way to answer that is it’s incorporated into a tariff, and if it’s incorporated into a tariff, that means it’s a question of Federal law.

John Paul Stevens:

But it is not necessarily true that the law that applies to the second bill of lading also applies to the first.

Carter G. Phillips:

It wouldn’t necessarily be the same.

I think in… in this context it makes sense that they both ought to be resolved as a matter of Federal law.

But–

David H. Souter:

Well, is–

Carter G. Phillips:

–but it’s absolutely clear that the first bill of lading ought to be interpreted as a matter of Federal law.

David H. Souter:

–Is… is your argument that if you don’t interpret the second one under Federal law, you’re, in effect, going to undercut the significance or the… the efficacy of Federal law in interpreting the… the first, the… the Hamburg Sud?

Carter G. Phillips:

I don’t think it necessarily undermines the efficacy of the… of the Federal uniformity of the Hamburg Sud bill because if you enforce that one, then the second one in some respects becomes irrelevant.

David H. Souter:

Yes.

But I mean–

Carter G. Phillips:

But… but I do think it… it interferes with–

David H. Souter:

–is going to be different in another case.

Carter G. Phillips:

–It might be different in another case, and I do think it obviously interferes with the kind of uniformity you would ordinarily expect when you’re dealing with essentially maritime commerce.

Ruth Bader Ginsburg:

Mr. Phillips, I hope maybe you make… you’re going to make this point later, but it seems to me it’s very important which contract controls because the Government has made an argument, as you know, that the COGSA limit, the $500 per package, would not apply under the ICC contract, that the number there would be $450,000.

It’s… so I hope you will explain to us why… if you think that the Government is wrong, why they are wrong in saying if it’s the ICC contract with Kirby, then the appropriate limit is not COGSA but the $450,000.

Carter G. Phillips:

I want to be clear that obviously in our view the… there’s no question about the Hamburg Sud bill.

That one has a $500 COGSA limit.

It’s embodied in there.

There’s no dispute about that.

So, again, to the extent the Court decides this case on the basis of the Hamburg Sud bill, there’s no question that you have to worry about the meaning of the ICC bill.

With respect to the meaning of the ICC bill, I think the United States is correct that you can certainly read that contract as… as including a higher limit.

The problem, of course, is that was not the way the case was litigated in the district court and it was not the way the case was litigated in order to obtain interlocutory review in the court of appeals.

The parties specifically stipulated to the court of appeals that the way this case would be resolved most rapidly was by immediate review because the amount in controversy would be the $500 COGSA limit.

So I think there is a very strong argument, Justice Ginsburg, that that issue has been waived by the respondents prior to the time it got to this Court.

Stephen G. Breyer:

So what’s your view of that?

Because if you’re right on that ICC bill of lading and the limit is the same, we don’t have to reach the other question, which I think is much harder.

Carter G. Phillips:

There’s no question that that–

Stephen G. Breyer:

All right.

So what are we… what are we supposed to do?

What do I look up to find out whether you’re right about this and we don’t have to reach the other question?

Carter G. Phillips:

–Well, in the… in the appendix to the petition, you’ll find both the district court and the court of appeals orders granting interlocutory review, and they are very explicit in identifying the $500 COGSA limit as the justification by which the parties decided to take the case on an interlocutory basis.

Having obtained a benefit by making a representation to the court of appeals, I think there’s a… that the Court, this Court, ought to say they are estopped to… to argue another limit at this point.

Indeed, in our… in our petition, we argue explicitly for the $500 COGSA limit because we took that straight from the district court’s own treatment of this issue, and the respondents, in their opposition to the petition for certiorari, did not assert anything to the contrary.

So I would argue, under this Court’s prior decisions, that the issue is waived at the score as well.

So it seems to me the… the more sensible way… and… and I agree with you, the somewhat cleaner and easier way for this Court to resolve this case, is to recognize that the plain language of the ICC bill of lading unquestionably extends here, that the parties have litigated this case on the assumption that that’s a question of Federal law, and that the parties have litigated this case on the assumption that the COGSA limit of $500 per container applies to this particular case.

That said–

William H. Rehnquist:

But now, for instance, we… we do not accept stipulations on questions of law.

We accept stipulations on questions of fact.

You’re saying it was litigated on the assumption of… isn’t that pretty much like a stipulation?

Carter G. Phillips:

–Are you talking about on… on the question of whether Federal law–

William H. Rehnquist:

Yes.

Carter G. Phillips:

–or State applies?

I mean, I don’t know that it was a… I mean, it wasn’t a stipulation that Federal law applies.

It was a stipulation in order to obtain interlocutory review as to the $500 limitation… cargo limitation.

So that… that strikes me as a somewhat different issue for the Court to resolve.

And it’s not the issue that’s been posed for this Court to decide in any event.

It seems to me at a minimum if you simply accept the case as having come to you with the understanding of a $500 limit and reverse on the basis of either of the other two… on the basis on the two court of appeals errors, either one of them, and the case goes back to the lower courts, they can fight over the question of whether or not that issue has… has been properly preserved.

But I think the answer is clearly that it has not.

Now, that said, while I agree with Justice Breyer’s assessment that in some respects the ICC bill of lading is potentially a simpler way of resolving the case, I also believe, frankly, that the Hamburg Sud bill of lading is in some ways a more important basis on which the Court ought to decide this question.

The… the issue of what effect an ocean carrier’s bill of lading has on the conduct of the… of the owner of the property is an issue that, as a matter of common carriage law, this Court has resolved since before the Civil War.

And the clearest case in which to my… from my perspective is the Great Northern opinion where the… where this Court specifically said that the owner of the goods who operate through a freight forwarder is bound by the bill of lading issued by the railroad whether as a… an agent or as a freight forwarder.

William H. Rehnquist:

That was before Erie against Tompkins.

Carter G. Phillips:

Well, I understand that, and… and all I’m saying is what is the Federal rule.

And what this Court said as a matter of what is the Federal rule is that you don’t apply strictly agency principles when you’re dealing in the area of common carrier relationships and liabilities.

And again, remember, from my perspective, the easiest way for this Court to reach the… this question as a matter of Federal law is because this is embodied in a tariff, and the filed rate doctrine has long recognized that when you’re enforcing the rights and obligations arising out of a tariff, it’s a question of Federal law.

So the real issue, Mr. Chief Justice, is what is the rule of law that should be applied in this context.

This Court announced that rule of law in Great Northern.

It actually announced it before the Civil War in York.

It had announced it again in Acme Fast Freight.

And it has consistently held, as a matter of carrier relationships and as a matter of an efficient method of moving goods in interstate and international commerce, that you must hold the owner of the goods strictly to the… to the tariff arrangements in the bill of lading when… with or without the use of a freight forwarder.

David H. Souter:

Now, what is the significance, if any, of COGSA in… in your analysis in coming to that conclusion?

You’re talking about pre-COGSA cases.

Carter G. Phillips:

I don’t think COGSA directly affects that particular analysis other than by enforcing the bill of lading.

That is the only mechanism by which you get COGSA incorporated into the international scheme.

David H. Souter:

If you didn’t have the prior cases, what would the significance of COGSA be?

Carter G. Phillips:

Well, COGSA says that there are $500 limits on the bill of lading, but it doesn’t necessarily tell you the question of what’s the relationship between the owner or the freight forwarder and the… and the ocean carrier in this particular case.

David H. Souter:

What is… what is the efficacy of the COGSA limit if… if in fact the… the tariff is… the bill of lading is not enforced as a matter of Federal law?

Carter G. Phillips:

Then COGSA has no role at all, which is why it’s very important, if COGSA is to have a meaningful–

David H. Souter:

That’s… that’s what I was trying to get at.

I mean–

Carter G. Phillips:

–I was trying to get there too.

David H. Souter:

–Yes, okay.

Carter G. Phillips:

But I was getting there pretty slow.

I apologize.

Stephen G. Breyer:

What about–

Antonin Scalia:

If I understand it, you’d say COGSA doesn’t give you the substantive answer, but COGSA makes it a Federal question.

Carter G. Phillips:

COGSA, yes.

That’s one ground on which you can get there as a Federal question.

The Shipping Act I think also makes a… a Federal question, and–

Stephen G. Breyer:

–Why is it?

Carter G. Phillips:

–ultimately you’d say the maritime statute makes–

Stephen G. Breyer:

Why is it?

Now, this is maybe only me, but I don’t think it is.

What… the basic question, in my mind anyway, in respect to the Hamburg Sud bill of lading is one I would have thought would have been answered in the law clearly.

I said the Supreme Court cases aren’t clear because they don’t say what the theory behind them is.

I read all these amicus briefs.

They don’t really seem to me to come to the point.

You have a shipper of some goods.

He goes to an independent freight forwarder who then enters into a series of contracts.

I don’t care if they were ships or trains or whatever.

Stephen G. Breyer:

And something happens to the goods.

Maybe they weren’t shipped.

Maybe that independent freight forwarder went bankrupt.

Carter G. Phillips:

–Right.

Stephen G. Breyer:

And the… Mr. Shipper wants to sue one of these carriers.

Well, he didn’t sign the contract, and the person who signed it was an independent freight forwarder, not wholly his agent.

Okay.

Can he do it or not do it?

I have all about the law of France in one of these briefs, except they just don’t tell you the answer to that question.

They just don’t tell you whether in France, Sweden, or Finland or some other place, when the shipper wants to go and sue one of those carriers, he can recover.

There’s a… there’s a limit… liability limitation in the contract.

The contract is enforceable.

There could be 100 situations where it comes up.

What’s the answer?

I’m amazed that that’s never been answered in 200,000… 2,000 years of people shipping things.

All right.

So… so why is this so unclear?

Why can’t I get an answer?

And I just can’t find it.

Carter G. Phillips:

I think there are three theories that have been put forward in the past.

One I think is embedded in this Court’s decisions, and particularly Great Northern where the Court talks about because necessities, and in York where the Court recognizes that the carrier doesn’t know the difference between a freight forwarder and a shipper and it’s unreasonable to allow the shipper to get off the hook when the shipper chooses the freight forwarder and can structure a better–

Stephen G. Breyer:

I agree it’s very unreasonable.

But even I can’t say there’s a general rule of law against behaving unreasonably.

So, therefore, I look for a theory.

What’s the legal basis?

Carter G. Phillips:

–Well, the legal basis is that because the carrier is obliged to take the goods and cannot discriminate, that he has no choice but to accept the person, and that the courts are not going to impose an obligation on him to look behind who shows up with the goods in order to determine the rights or obligations of the… of the–

Anthony M. Kennedy:

Is that the first of your three… you said there are three… three theories.

Carter G. Phillips:

–Yes, that’s the first of my three theories.

Anthony M. Kennedy:

All right.

And the second?

Carter G. Phillips:

The… the second one is a bailment theory, and we… we spent a little bit of time on that in the reply brief.

But if you look at English common law, English common law uses a combination of bailment and sub-bailment to get to exactly the same result where the owner of the goods is bound.

And then the final theory is one that comes out of the Restatement of Agency, and it’s the limited power theory, that it’s not a true agent.

And I understand the reason why there is some reluctance to call this a true agency relationship because if you impose agency duties, you may expose the owner to significantly more expansive liability than he otherwise would have reasonably undertaken, which is why this Court, I think, has wisely… and I think most of the courts have wisely… said, no, it’s not a pure agency relationship.

It’s a common carrier, bailment, limited power type of a relationship which imposes you… which allows you to go downstream under your contracts.

You can sue us under the contract, but just as you can sue us pursuant to the contract, you’re also bound at the end of that process by the liability limitations that are embedded in that same agreement.

I think those are the three theories that lead you to the right conclusion in this case.

Ruth Bader Ginsburg:

One… one brief does take quite a clear position on this.

I don’t know if it’s right or wrong, but respondents tell us that there’s nowhere in the world except Venezuela where the cargo owner, Kirby here, would be bound by a bill of lading that the ocean carrier issues to the… a non-vessel-owning common carrier.

Carter G. Phillips:

As I… as I recall the way that amicus brief reads, it’s a little cagier than that because it says of the law that we have evaluated in this brief, nowhere else.

And I’m telling you that, one, in UK it’s… clearly the rule is to the opposite.

And I don’t believe there was anything in there about Japanese law.

I mean, what’s really missing in this case is none of our trading partners came in here and argued that this is a… that there’s a problem in the interpretation that we’ve put forward.

I would, frankly, dismiss out of hand the position of the law professors.

John Paul Stevens:

May I ask you a question that just troubles me as I read all the papers?

Has ICC ever been sued?

Carter G. Phillips:

Yes.

ICC was sued in Australia.

John Paul Stevens:

It was sued in Australia.

Carter G. Phillips:

Yes, Your Honor.

John Paul Stevens:

And for the maximum… what–

Carter G. Phillips:

It was settled, so I don’t know.

John Paul Stevens:

–Okay.

Carter G. Phillips:

I mean, they made the… the full claim.

If there are no further questions, I’d save the rest of my time for rebuttal.

William H. Rehnquist:

Very well, Mr. Phillips.

Mr. Hungar.

Thomas G. Hungar:

Mr. Chief Justice, and may it please the Court:

Unless corrected by this Court, the erroneous rules of law announced by the court of appeals will produce substantial inefficiencies and frustrate longstanding and important congressional policies in the ocean transportation arena.

With respect to the question of Federal or State law, Mr. Chief Justice, in response to your questions, it would not be hypothetical or… or an inappropriate acceptance of a stipulation on a question of law to decide this case on the basis of the parties’ implicit agreement that it is governed by Federal law because parties are always permitted to… to agree to choice of law, which is all we would be talking about here.

Thomas G. Hungar:

There’s no jurisdictional problem because jurisdiction is clearly present.

William H. Rehnquist:

Yes, but I think we would have some reservation about… excuse me… about deciding a case where one of the principal points in issue was simply assumed rather than decided.

Thomas G. Hungar:

Well, first of all, Your Honor, with respect to the Hamburg Sud bill of lading, as we’ve argued in our brief, that is unquestionably covered by Federal law because of the application of the Shipping Act and the tariff regime and the nondiscrimination principle that requires enforcement of the terms of the bill of lading, which is incorporated into the tariff.

And even with respect to the ICC bill of lading, where parties have agreed on choice of law, it’s appropriate for a court to accept that agreement, and it’s not hypothetical because it’s unquestionable that there will be many circumstances in which the very… in which the question presented here and the analysis of the court of appeals will be implicated in purely maritime context–

Anthony M. Kennedy:

Suppose there had been… been no agreement by the parties.

What would your position be as to the law that controls the construction of the ICC Kirby contract?

Thomas G. Hungar:

–Your Honor, that’s an open question, and we’ve argued in our supplemental brief that it would be appropriate, if the Court felt it necessary to address that question.

We don’t think it is necessary, but if the Court felt it necessary to address that question, we think it would be appropriate to conclude that in the specific context we have here in a multimodal bill of lading for transportation internationally by ship and also by land carrier, where the clause in issue, the Himalaya clause, is applicable, we submit, to both by its terms, to both maritime players and land carriers, read in accordance with its terms, where you’re interpreting a clause that has application clearly in the maritime as well as the inland context, it is appropriate to apply the established maritime rules of construction to that clause because this is a maritime bill of lading and uniformity in this area is extremely important.

And this Court has recognized that while the borders between the Federal maritime law and State law are very unclear and it’s a flexible analysis where… where uniformity is important, Federal maritime law will govern.

William H. Rehnquist:

What… what if the overseas… this maritime part of the shipping was 500 miles and the land part was 2,000 miles?

Thomas G. Hungar:

Well, we think it would be… we think it would be inappropriate to do a mileage analysis.

I mean, here the… here obviously I think the… the mileage–

William H. Rehnquist:

Well, I’m asking you to do a mileage analysis.

Thomas G. Hungar:

–Well, we would submit that it… it would be inappropriate to adopt a rule in which the… the applicability of Federal law depends on the relative mileage because that would create uncertainty and confusion, although here, if one were to apply such a rule, it would suggest application of Federal maritime law, given the distance, more than 10,000 miles versus 366 miles.

William H. Rehnquist:

You’re talking not my hypothetical, but about the facts of this case.

Thomas G. Hungar:

I’m sorry, Your Honor?

William H. Rehnquist:

I said, you’re not talking about the 500 miles ocean/2,000 miles land.

You’re talking about the facts of the case we’re arguing now.

Thomas G. Hungar:

Yes, Your Honor.

But in your hypothetical, again I think that if this Court were to agree with our submission that Federal law… Federal maritime law would govern if you have a through bill, an intermodal bill of lading involving maritime transportation in the international context, which would be subject to maritime law, we think it would be appropriate to apply maritime in construing the Himalaya clause.

But again, the Court need not reach that question.

We think if the Court does consider the application of Federal law and Federal interpretative principles to the ICC bill of lading, the answer is clear.

The… the plain text of the bill of lading, of the Himalaya clause–

John Paul Stevens:

Would you just clarify one thing for me?

Suppose in this case, instead of having a through bill of lading from the sea all through the… through the railroad, there had been a delivery at the port to the freight forwarder or somebody else on behalf of the shipper and then a new bill of lading was issued to the railroad.

Would the liability then be different for the railroad?

Thomas G. Hungar:

–Yes, it would because in that–

John Paul Stevens:

And then if… would the rate be different in that instance?

Thomas G. Hungar:

–Well, it would be if it… a through rate… by definition, if you have a through bill, you have a through rate.

It’s one rate offered by the ocean carrier that encompasses the whole–

John Paul Stevens:

I’m trying to find out whether the railroad would have a different liability under my hypothetical.

I’m wonder if it would have charged a different amount for the freight.

Thomas G. Hungar:

–The record doesn’t reveal that, but… but it would have been a different negotiation obviously, subject to different terms, and it seems likely that the rate would have been different.

Whether higher or lower is unclear but… because in that circumstance, the… depending on the terms of the… of the contract between the… the railroad and the shipper, it might have been subject to the Carmack Amendment which provides a different liability limitation regime–

John Paul Stevens:

Should we assume that the railroad probably gave a special bargain to the shipper in this case because it had a lesser exposure for liability?

Thomas G. Hungar:

–Yes, that seems appropriate to assume.

Hamburg Sud is a major ocean carrier and Norfolk Southern is a… a major rail carrier.

And it seems appropriate to assume that in their negotiations, they would address questions such as limitation of liability.

The… the record here is clear.

Both the district court and the court of appeals said that Hamburg… that… that Norfolk Southern carried under the terms of the Hamburg Sud bill of lading, and it is reasonable to assume they were relying on that, that–

John Paul Stevens:

But the record doesn’t actually tell us whether the rate was, in fact, different than it otherwise would have been.

Thomas G. Hungar:

–That’s correct.

Sandra Day O’Connor:

Mr. Hungar, the railroad industry has been deregulated.

As a result, I suppose the nondiscrimination policy doesn’t apply.

It may end at the water’s edge.

So how would there be any preemption?

Thomas G. Hungar:

Justice O’Connor, the railroad industry has been deregulated, but the shipping industry has not.

And the tariff requirement specifically requires an ocean carrier like Hamburg Sud to file its tariff and its bill of lading for through routes covering the entire through route that is the subject of the transportation being offered and provided.

So in that sense, it’s true that normally the nondiscrimination principle would not apply, but in… in the context of a through bill, which this is, issued by an ocean shipper, an ocean carrier, the nondiscrimination principle is applicable, and that’s under section 1707(a)(1) of the Shipping Act.

Sandra Day O’Connor:

Thank you.

Thomas G. Hungar:

The tariff… with respect to, Mr. Chief Justice, your question about Great Northern, Great Northern, although decided pre-Erie, is not a… it was not decided under diversity jurisdiction.

It was a case that came out of the Supreme Court of Minnesota.

So Swift v. Tyson would not have been applicable.

And more importantly, although the Court was perhaps not as clear as we would have liked in explaining the rationale for its holding, it’s clear that it was relying, at least in part, on Federal tariff regulations, essentially the same as those at issue here.

The Court said… and this is on page 515 of its opinion… so long as the tariff rate, based on value, remained operative, it was binding upon the shipper and carrier alike and was to be enforced by the courts in fixing the rights and liabilities of the parties.

And that’s exactly what the Court did in that case, and we submit that’s exactly what the Court should do in this case as well.

William H. Rehnquist:

And might not that have been a matter of contract law?

Thomas G. Hungar:

No, Your Honor, because it’s very… it’s very clear that… that tariff rates are enforceable… federally filed or federally published tariff rates are enforceable as a matter of Federal law, and liability limits are part of that, as this Court said in precedents that the… that are cited in the petitioner’s brief.

And the… that’s a Federal law question, not merely a question of State law, when there is a Federal tariff regime in place.

Stephen G. Breyer:

Is it clear that they’re applicable… the tariff as a matter of law… to a shipper that hires an independent freight forwarder to arrange for the shipment?

Thomas G. Hungar:

Well, that’s exactly the facts in Great Northern.

Stephen G. Breyer:

Okay.

Thomas G. Hungar:

In Great Northern, the shipper hired the Boyd Transfer Company to… to ship the goods, which in turn hired the railroad, and then the shipper tried to sue the railroad, and the Court said you can’t do that and… and clearly relied, at least in part, on the tariff regime, as well as the… the whole history of… of the Federal common carrier law.

Ruth Bader Ginsburg:

Does it make any difference that we have this division between freight forwarders who act as agent for the cargo owner and the so-called NVOCC that… that act as principal vis-a-vis the ocean carrier?

Thomas G. Hungar:

No, Your Honor.

The… again, in Great Northern, the Court was presented with that issue.

The… the plaintiff in that case argued that the transfer company was not its agent and therefore it wasn’t bound.

They argued that in their brief in this Court, and this Court essentially said it doesn’t matter.

Whether agent or forwarder, the railroad there, the… the carrier that actually carried the goods is entitled to rely on its bill of lading, its tariff as against in a suit brought by the… the shipper, the owner of the goods.

That’s… that’s precisely the fact situation at issue here.

The Court felt it unnecessary to resolve the dispute about whether the… the forwarder in that context was an agent forwarder or a full-fledged common carrier forwarder.

William H. Rehnquist:

Thank you, Mr. Hungar.

Mr. Frederick, we’ll hear from you.

David C. Frederick:

Thank you, Mr. Chief Justice, and may it please the Court:

I’d like to start at the beginning in this litigation because the district court ruled erroneously, on page 38a of the petition appendix, that the Hamburg Sud bill of lading controlled and allowed Norfolk Southern to limit its liability.

The Hamburg Sud bill of lading is the wrong bill of lading.

So when we took an interlocutory appeal… and the reason it’s the wrong bill of lading is because Kirby was not a party to that bill of lading.

And our theory all along has been we are not bound to the Hamburg Sud bill of lading.

We weren’t a party to it, and ICC was not our agent for purposes of entering into that bill.

We took an interlocutory appeal, saying the district court was wrong.

It applied the wrong bill of lading.

That bill of lading provides for the COGSA limit f $500.

It shouldn’t have applied that limit.

It is wrong as a matter of law.

Very importantly, when we filed a motion for interlocutory appeal, we did not state that Federal substantive law governs.

That is nowhere in the interlocutory appeal petition.

We cited five cases, three from the Second Circuit, two from the Ninth Circuit.

Four of those cases involved clearly the application of State substantive law.

They’re contract interpretation cases in which Federal courts–

Sandra Day O’Connor:

Can you point to the record anyplace where you took the position below that Federal law could not and did not apply?

David C. Frederick:

–No, Your Honor.

We… the parties never argued what substantive law applied.

Sandra Day O’Connor:

Well, why shouldn’t we just say you both assumed it was going to be decided under Federal law?

David C. Frederick:

This Court would be making precedent, Your Honor, on the basis of the wrong legal theory for what substantive law controls.

And this is a very important point.

The question–

Sandra Day O’Connor:

Well, now, the parties presumably could agree among themselves in the contract what law to apply.

David C. Frederick:

–True, Your Honor, but that isn’t–

Sandra Day O’Connor:

So is it a step to say they can implicitly agree the same thing?

David C. Frederick:

–Well, that… there’s no agreement here, and that’s our point.

Sandra Day O’Connor:

There’s no objection.

David C. Frederick:

We’re objecting now.

Sandra Day O’Connor:

Yes, but it’s a little late.

David C. Frederick:

It’s not late, Your Honor, because the… the question here… this is a diversity case.

And we brought a tort action, and under the normal rules that have been applied ever since the… the 1941 decision of this Court in Claxson is that you look to the State law to be applied.

Ruth Bader Ginsburg:

Mr. Frederick, there are diversity cases in which Federal maritime law has applied.

David C. Frederick:

That’s true.

Ruth Bader Ginsburg:

So it doesn’t follow like the night, the day, that because it’s brought under the heading of diversity, that therefore State law applies.

David C. Frederick:

That’s true, Justice Ginsburg, and that’s why it’s important that you understand what their theory is for applying Federal maritime law.

This Court’s decision in Victory Carriers said, you do not apply Federal maritime law until you establish that there is admiralty jurisdiction.

The Constitution, article III, section 2 says the judicial power extends to cases of admiralty jurisdiction.

So you look first to determine is there admiralty jurisdiction.

Now, there’s no claim here that the tort, the train derailment, is a maritime tort.

That would be an absurd argument.

Their only argument is that the multimodal through bill of lading, because it covers partly ocean carriage, has to be a maritime contract.

That theory is wrong, and it’s been rejected by virtually every court that we’ve been able to find, including cases that the Government cites in their brief on page 7.

What the courts have held is that with a mixed–

1 contract that has part maritime and part non-maritime obligations, the admiralty jurisdiction of the court is defeated.

And that is the uniform holding of all of the cases.

And… and Judge Friendly in the Leathers Best case in 1971 set this out very clearly, and what he said was when you have a mixed contract, you cannot apply admiralty jurisdiction under this Court’s precedent in the Eclipse case.

David H. Souter:

Where does that… I mean, and… and assuming from that, that it follows that this isn’t Federal jurisdiction and so on… Federal rule, where does that leave the… sort of the… the carrier in the middle?

Is the carrier in the middle in a position to know what the result will be on your analysis and therefore in a position to know whether he can rely upon a Federal rule or is taking his chances with respect to any State rule that may apply because of a railroad at the end of the… the trip?

David C. Frederick:

Justice Souter, our position is that this is simply a matter of contract interpretation.

And the reason why Federal courts have not looked at the State substantive versus Federal substantive law question is they simply looked at the words in the contract.

David H. Souter:

Well, it’s… it’s a matter of contract interpretation, but the… the significance for… for an understanding of the contract liability, which the shipper in the middle is undertaking, may be enormous.

And my question I guess is, if we follow your rule and… and we say that because the… this isn’t admiralty, therefore there’s no… there’s no Federal rule of decision, where does that leave the… the carrier in the middle?

David C. Frederick:

The carrier has uniformly been… the… the issue is a question of contract interpretation.

What do the words mean?

And the carrier in all these cases imposes a limitation of liability in the contract.

And the question is one of interpretation as to does that limitation apply.

We cited a number of cases, Justice Souter, where it’s clear that issue is decided as a matter of State substantive law, even when the shipment starts in Korea, lands–

David H. Souter:

But… but that’s… that’s not–

Antonin Scalia:

I’m not following.

David H. Souter:

–No.

Antonin Scalia:

I’m not sure it’s… it’s just a matter of contract interpretation.

The… the contract is clear that there’s a limitation of liability.

The question is whether that limitation of liability applies to someone who is not privy to the contract.

That’s… that’s not an issue of… of contract interpretation.

David C. Frederick:

–Well, respectfully, yes, it is, Justice Scalia, because you have to look at who was within the clause.

But the way the courts have treated this, under the mixed contract doctrine, which we set out in our supplemental brief, is to look at whether the maritime obligations are separable from the non-maritime obligations, and where they are separable, then you would apply the maritime law to that part of it, which is a maritime obligation, here the sea carriage, and you would apply non-maritime law to the inland carriage.

And here there’s no question that a train derailment would be non-maritime because it is… involves a locus on the land and not at sea.

Now, based on this Court’s decisions and the application of the mixed contract doctrine, you would be deciding a question of State substantive law, which you are clearly empowered to do.

The question is, as a matter of precedent, you should not assume that Federal maritime law applies here because to do that would make the multimodal industry subject to the Federal maritime law.

And that’s what the Government has just suggested, extending the Jenson line not just from the water’s edge, but inland.

And–

Sandra Day O’Connor:

But the Jenson line may make real sense in… in its application to intermodal bills of lading like this which occur all the time.

It seems so strange that a carrier like Hamburg Sud would have to spend a lot of time and money finding out if they’re contracting with an intermediary who has other contracts or what’s going on.

I mean, these are things that happen all the time, and I wonder if the Jenson line isn’t the correct line to look to.

David C. Frederick:

–Justice O’Connor, if Congress makes that decision, that’s certainly an appropriate thing for discussion for legislation.

Our submission is that this Court, as a matter of judge-made law where the parties have not litigated this until 10 days before the oral argument, should not be decided in this case to doctrinally extend the Jenson line to a place where it has never before existed.

Stephen G. Breyer:

Why not?

I mean, all over the world, people ship with these bills of lading.

The shipper simply gets a piece of paper.

It says it’s a bill of lading and it’s going to be sent to anyone of 5 billion destinations.

Four billion of the 5 billion will involve some little bit of inland travel.

Now, if suddenly the laws of 50 States were to apply to all those bill of ladings, wouldn’t it be an all-time mess?

David C. Frederick:

No.

Stephen G. Breyer:

Because?

David C. Frederick:

Because most of them have choice of law provisions that States respect and as did the ICC bill of lading which applied for the country’s law of shipment to govern.

That’s in the last clause of the ICC bill of lading.

So most–

Stephen G. Breyer:

Is there anything I can read that would help me decide if it really would be a mess or wouldn’t be a mess?

David C. Frederick:

–Well, yes.

I can point you to several court of appeals decisions, and in particular, I would point you to Judge Cabranes’ decision in the Hartford Insurance case, which we have cited.

I would cite you to Judge Diane Wood’s opinion for the Seventh Circuit just last year in the Insurance v. Hanjin Shipping case.

And importantly, I would point you to Judge Friendly’s seminal decision in Leathers Best, a decision decided in 1971.

Ruth Bader Ginsburg:

If you’re right, Mr. Frederick, that it’s State law that controls, then why should we decide anything beyond that choice of law question?

Because if State law controls, then Louisiana could do it one way, Mississippi could do it the other way.

Why should we be concerned what the substantive answer would be if State law controls?

David C. Frederick:

Well, the substantive answer, as I think Norfolk Southern has basically conceded on the agency point, there’s no question that if… if that is decided as a matter of contract interpretation, we win.

They’ve never disputed that the words do not create an agency.

Ruth Bader Ginsburg:

Whatever.

If there’s contract determination under State law, why should this Court be resolving the question, however clear it may be?

We submitted that the Court should dismiss as improperly granted, Justice Ginsburg.

Ruth Bader Ginsburg:

We’ve opposed certiorari.

We’ve put… used every line of every brief that we’ve been able to submit in this case.

This is an interlocutory appeal of a tort brought in diversity where there’s a contract interpretation issue raised as a defense.

Our position all along has been that this Court should not decide the case.

But if I could turn to the merits–

John Paul Stevens:

May I ask just one… one last question?

John Paul Stevens:

Would your position be the same if the defendant were a longshoreman rather than a railroad?

David C. Frederick:

With respect to which question?

John Paul Stevens:

Assume the accident occurred not in the shipment by rail carrier but unloading cargo at the… and the negligence was on the part of a stevedore.

David C. Frederick:

Our position with respect to the Hamburg Sud bill of lading stays the same, that the Hamburg Sud bill of lading does not control for the same agency reason that we set forth in our briefs.

With respect to the Himalaya clause issue, which I’m assuming you’re asking about–

John Paul Stevens:

Well, and also whether it’s a matter of State or Federal law too.

David C. Frederick:

–Well, I think Victory Carriers answered the question.

It would depend on how the accident happened.

If the… if the… and this is the confusion that is raised in the cases that we cited to the court of appeals.

In one of them, a Ninth Circuit case, the stevedore dropped the cargo in the hold of the vessel, and that’s the only maritime law case that we think would be governed by substantive maritime law.

All of the other cases involved the stevedore committing a tort on land–

John Paul Stevens:

Right.

David C. Frederick:

–and therefore would fall on the land side of the locus jurisdiction.

So those are the… the three cases that we cited in our petition to the… from the Second Circuit.

One of them, the Scheiss case, the Finlander, in footnote 2, makes it very clear there that it was dealing with State law, and that’s because the stevedore there committed the tort on land.

Sandra Day O’Connor:

Mr. Frederick, just as a practical matter, why isn’t the client satisfied with suing ICC for damages, which I understand has… has been done?

David C. Frederick:

Your Honor, the… there was a limitation of liability in the ICC bill of lading.

And Justice Breyer, it’s set forth in clause 8.3 that two special drawing rights per kilogram gross weight would be applied.

To translate that for you, that’s the Hague-Visby limits which dramatically increase the limits from the Hague rules which Australia has adopted in its Carriage of Goods by Sea Act.

So–

Sandra Day O’Connor:

Well, that doesn’t answer my question.

I… I understood that Kirby collected insurance and sued ICC.

David C. Frederick:

–The insurer here, Justice O’Connor, is the real party in interest because it subrogated interests.

It paid its insurance–

Sandra Day O’Connor:

And it wants now to collect money from Norfolk.

David C. Frederick:

–It wants to collect against the wrong… the… the wrongdoer here, which is Norfolk Southern.

And I want to point out that… that there’s been this comment by the government, which is strange, about efficiencies.

If you look at the maritime cases that are decided, a very high proportion of them are brought by insurance companies to bring claims against negligent wrongdoers.

That’s how you keep premiums down.

If a wrongdoer commits a tort–

Stephen G. Breyer:

But I mean, the… the argument, which I’m really interested in your addressing, is that overall, naturally any insurance company would like to get the money if it could.

But overall, a system that’s developed where the shippers buy first party insurance and get their money if they’re hurt and the carriers all know their tort liability is limited in contract liability is one that overall avoids lawyers, avoids lawsuits, avoids tremendous expense, and has led to lower rates and better service.

Okay.

David C. Frederick:

–But that’s not the system, Justice Breyer, and that’s important for you to understand.

That is not the system that we have because we have insurance companies bringing subrogated claims all the time against negligent wrongdoers, and they do that in order to get recoveries for losses that they have to pay out.

That’s–

Stephen G. Breyer:

All right.

This happens all the time.

If it happens all the time that the subrogated insurer goes and sues someone down the line with whom the shipper himself did not enter into a liability limiting contract, why, after reading these briefs, do I feel I can’t find a case in point–

David C. Frederick:

–Hartford Insurance.

Stephen G. Breyer:

–but for, arguably, this old case of the Supreme Court?

David C. Frederick:

Read Hartford Insurance.

Judge Cabranes lays this all out.

Stephen G. Breyer:

Hartford Insurance, okay.

David C. Frederick:

And he explains it very clearly why an insurance company would bring a subrogated claim, and that claim would be decided by State substantive law, notwithstanding–

Stephen G. Breyer:

All right.

So maybe that is what’s happened.

David C. Frederick:

–through bill of lading.

Stephen G. Breyer:

Now, let me ask you.

Is it necessarily going to be true that if we agree with you and shippers in general did want to have first party insurance and did want to contract for these lower rates, et cetera, you just couldn’t create the system because carriers down the line would look back and see that the independent freight forwarder was the party in interest at the first contract for transportation would have no idea whether, behind that independent freight forwarder, there stood another independent shipper or there did not, and thus would not know whether his liability was really limited or not, and therefore would have to charge a price that in fact reflected a liability regime where he might have to pay up?

David C. Frederick:

Justice Breyer, the answer to your question is reflected in the marketplace.

The insurance rates are going to be set on the basis of loss recoveries with the idea of deterring negligent conduct.

Stephen G. Breyer:

But I’m now taking your answer to my question is your–

David C. Frederick:

And–

Stephen G. Breyer:

–No, there is no way to do it–

David C. Frederick:

–I… I haven’t–

Stephen G. Breyer:

–if in fact… all right.

If there is a way to do it, I want to find out.

David C. Frederick:

–The UNCITRAL process has negotiated this very point, Justice Breyer.

As we point out in our brief in opposition to cert, it involves very delicate compromises among a whole range of maritime and non-maritime interested parties.

David C. Frederick:

We submit, as a matter of common law, for this Court to drop in and make a decision in this case would have only one small piece of the puzzle that is being negotiated internationally to deal with this kind of issue.

And our submission is the international parties and the 12 professors that Mr. Phillips said should be given no weight, as the amicus brief points, are virtually all the representatives of their countries at these UNCITRAL negotiations.

And they’re telling you that international uniformity would be served by affirming the Eleventh Circuit decision and… and reflecting what parties understand–

Stephen G. Breyer:

The problem with the professors was I thought not all, but most of the cases they cite, they’re citing for the proposition that the person, i.e., the independent freight forwarder, is indeed independent and not the agent of the shipper.

I… I got that.

But what I wonder, of course, is whether that fact translates in their law into the conclusion that therefore the carrier ultimately is… that he cannot assert a liability limitation.

That’s the ultimate question.

And there were one or two that did seem to say that, but most of them just didn’t seem to talk about that issue.

David C. Frederick:

–The two cases that I’m familiar with, Justice Breyer, are from Japan and Korea, and the Japan case actually deals with this bill of lading and comes to exactly the same conclusion that we urge upon the Court here.

What the scholars have said, though, is that because the shipper would not be bound by the non-vessel-operating carrier’s subsequent subcontract, that there would be no basis for applying a different limitation of liability other than the one the cargo owner entered into in that contract with the non-vessel-operating carrier.

And that’s clear from Professor Ramberg’s treatise on the law of freight forwarding, his amicus brief which sets this out clearly–

Stephen G. Breyer:

Britain does it differently though, I take it.

David C. Frederick:

–I beg your pardon?

Stephen G. Breyer:

Britain does it differently in–

David C. Frederick:

No.

Britain… well, Britain does it differently to this extent.

Britain applies a concept called bailment on terms, which again Norfolk has introduced as a totally new theory in their reply brief on the merits.

But they misapply the bailment on terms argument.

The bailment on terms concept applies when the bailee, the carrier, is having control of the goods and damages those goods, and there’s a suit brought against that carrier, and he says, I get to carry it on my terms.

There’s no concept in the law of bailment for a sub-bailee to say, well, I don’t like my terms.

I want to use a different carrier’s terms.

And that’s what Norfolk Southern is arguing here.

They don’t want to apply their terms of carriage because their terms of carriage provide a $250,000 per container limit, which would more than amply satisfy the damage caused to Kirby’s goods.

They want to rely on a different bailee’s terms.

And they cite no case and there is none that we’re aware of that applies the bailment on terms concept in that way.

Anthony M. Kennedy:

Are there cases where the owner of the goods sues the forwarder for making improvident contracts for… for shipping it with liability limits that are too low?

David C. Frederick:

Only when the forwarder was the agent of the owner.

The cases that I’m familiar with have been thrown out where the forwarder was in fact a carrier and therefore had–

Anthony M. Kennedy:

No, but I don’t–

David C. Frederick:

–no fiduciary duty.

Anthony M. Kennedy:

–I don’t know that… that answer would help you because then you… you would say that the… under… under your view that the cargo owner simply has… has no recourse whatever against whatever the forwarder does.

The forwarder–

David C. Frederick:

If you were to conclude, Justice Kennedy, in this case that ICC is the sort of quasi-agent, whatever their… however you want to characterize Norfolk’s theory here, that wouldn’t be applicable in Australia, which would apply its own precedents to say, no, it isn’t.

It’s a carrier.

And as a carrier, it owes no fiduciary duty and cannot bind Kirby because Kirby did not consent to be bound by the terms.

Stephen G. Breyer:

–Well, you’d have to say… I mean, you’d have to say that Northern case rests on the principle that the agent… he’s not an agent for most purposes, but he is an agent for the purpose of… of entering into a liability limitation.

And that’s not unheard of in the law.

It… it’s an agency type power that’s given to a person who isn’t an agent.

And the argument would be, well, that’s the precedent here.

David C. Frederick:

I would like to address the O’Connor case because I think that has been badly misunderstood and represented by the other side in this case.

We went back and looked at the trial record, and in the trial record, one of the instructions to the jury stipulated that the freight forwarder was the owner’s agent.

As a matter of fact, the forwarder was Mrs. O’Connor’s agent in that case, and the case proceeded all the way up on the assumption that as a matter of fact the forwarder was serving as the agent.

Now, our submission is simple.

You can’t read that and say that that announces some common law rule when the jury is being stipulated and both sides agree that Boyd is her agent.

David H. Souter:

Did this Court know that?

David C. Frederick:

We believe that the fair way to read Mrs. O’Connor’s brief in the case… and we cite it in our… our brief… is that yes, it did.

The… the Minnesota Supreme Court opinion in that case said the instructions were not objected to.

It is clear Mrs…. Boyd is O’Connor’s agent, and we think it is the case–

David H. Souter:

Yes, but that… I mean, that’s ambiguous on… on the point, isn’t it?

David C. Frederick:

–I don’t think so, Justice Souter.

David H. Souter:

I mean, it… it may be that it’s clear because it was clear as… as… on the basis of some legal principle.

It may be clear because… I’m not quite sure what this means, but because they said as a matter of fact, there’s an agency relationship.

But this… this Court doesn’t know that.

The… the Minnesota opinion is ambiguous on that.

David C. Frederick:

No.

Justice Souter, the jury charge is in the Supreme Court record.

David H. Souter:

Oh, it is.

Okay.

David C. Frederick:

That’s where we found it.

And… and even if you were to assume that there was something else different, the Interstate Commerce Act passed filed tariff requirements that under the act, as a statutory matter, the cargo owner was assumed to understand, and that’s how the railroad law developed.

David C. Frederick:

Now, the Government makes the leap that because O’Connor did that in the rail context, the same answer has to apply here in the Shipping Act context, but that is completely flawed.

They give you some of the statutory provisions in an appendix to their supplemental brief, but they leave out the most important one.

And that is the provision that says, if a vessel carrier enters into a service contract, it can be done confidentially and would not be subject to the normal tariff requirements.

William H. Rehnquist:

This is the Shipping Act you’re talking about?

David C. Frederick:

Yes.

I’m talking about the Shipping Act, and the provision is 1707(c)(1).

John Paul Stevens:

May I ask a question?

Stephen G. Breyer:

Why, if that’s right… let… just why… as a simple, empirical question, if… if this is so, you know, fairly clear, he’s not an agent, independent, you can’t enforce the liability thing, why aren’t the case books filled or the… the reports filled with cases where an insurer went… and it subrogated, went and sued somebody down the line and they asserted a liability limitation and people laughed and said it’s not… you can’t assert that, he never entered into a contract with you?

Why isn’t that true in all these eight foreign countries?

David C. Frederick:

The–

Stephen G. Breyer:

Why can’t we find those cases?

David C. Frederick:

–The proposition has been so clear that no one has had the audacity to argue it for a railroad.

[Laughter]

Stephen G. Breyer:

To find judgments.

No, I’m sorry.

We would find in insurance records, for example… insurance companies… they’re proud of the money they get back.

It would be easy to locate lots of instances where insurance companies did recover, subrogated, from carriers down the line who were unable to assert liability limitations.

David C. Frederick:

Justice Breyer, I don’t want to create work for your law clerks, but if you did a… a search for Himalaya clause, your law clerk will find 400 cases decided since the Robert C. Herd decision, most of which will have been brought by insurance companies.

And the reason is that the insurance companies are bringing this against non-maritime parties.

It’s long been understood that Himalaya clauses are intended to protect only maritime parties.

There is no reported court of appeals decision–

John Paul Stevens:

May I ask a question referring to the… the matter you quoted a moment ago?

After the shipment arrives in the… on shore and there is an outstanding maritime bill of lading that has the COGSA limits in it, is the railroad entitled to rely on that bill of lading in quoting a rate to the maritime shipper?

David C. Frederick:

–I’m glad you asked that question of me, Justice Stevens, because it… it may but that isn’t what happens.

Their own rail circular has no mention of ocean bills of lading.

Their own rail circular says we… you accept our terms and you do it on the basis of our rates.

And their rates for damage at–

John Paul Stevens:

But what you’re saying, if I understand it, they did not do so in this case.

David C. Frederick:

–And there’s no–

John Paul Stevens:

But would it be open to them, as a matter of law, to say, whenever we get a joint bill of lading like this, we’re going to give a different rate because we have a different liability exposure?

David C. Frederick:

–They certainly have contractual freedom to alter their relations in the future.

John Paul Stevens:

But… but in doing that, can they rely on the limits in the joint bill of lading?

David C. Frederick:

They don’t do that and they haven’t done that.

And we found no evidence of industry practice that, in fact, they do do that.

In fact, the best evidence of that, Justice–

John Paul Stevens:

But you’re asking us to hold that they may not do that.

David C. Frederick:

–No.

Our position is that they have to come forward with some indication that in fact that’s what they did, and they haven’t done that.

And there’s no reason to think that they did because they contracted with a different party.

Ruth Bader Ginsburg:

Mr. Frederick, you… you–

John Paul Stevens:

But if they did, would there be a different result in the case?

David C. Frederick:

I don’t think so, and the reason is that each of these carriers in their own subcontracts are having a contractual relation with the party with whom they deal.

And if that means that if that party wanted to break through the limit, they would be bound by the contract.

That wouldn’t necessarily mean that an upstream harmed party would be bound by it.

That’s the Herd case.

I mean, in Herd, it’s very important that you understand the very last paragraph of the Court’s opinion because the Court there relied on an Australian High Court opinion in which it said… and if I could just substitute the parties and read… Hamburg Sud was engaged by ICC and by nobody else.

ICC had no authority whatever to bind Kirby by contract with Hamburg Sud, and no principle of law compels the inference of any contract between Kirby and Hamburg Sud.

That’s the very last paragraph of this Court’s decision in Herd as understood through the lens of what our… our case is here.

So, Your Honor, I think that the… the point is contractual privity would determine the relationships between the parties with whom there’s a contract, and where there isn’t contractual privity, if they are not a third party beneficiary of the contract, they would be liable for full damages, as the stevedore was in the Herd case.

David H. Souter:

I… I thought you… clarify this for me.

I thought you were saying a moment ago they would have to be a third party beneficiary and they would have, in fact, to have relied upon the… the limitation upstream.

Is that correct?

David C. Frederick:

Well, I don’t think that… I don’t think reliance necessarily has to be… establishes a legal requirement.

All I’m saying is that there is no reliance in this case and there’s no reliance in the industry that I’m aware of–

David H. Souter:

But that’s… that’s… basically to your central argument, that’s neither here nor there.

David C. Frederick:

–That’s right.

The question is are they a third party beneficiary.

And Norfolk Southern clearly is not.

Ruth Bader Ginsburg:

–What… what does govern their liability in your view?

You referred to this circular a couple of times.

Ruth Bader Ginsburg:

That’s not a tariff.

Is… is your position they were negligent and whatever the damages you proved?

David C. Frederick:

Yes.

That’s the hold of the Herd case.

The stevedore was not allowed to claim the limits of the ocean carrier and was liable for the full tort.

Ruth Bader Ginsburg:

So what does the… what does the circular have to do with anything?

David C. Frederick:

That… could I answer this question, Justice… Mr. Chief Justice?

William H. Rehnquist:

Briefly.

David C. Frederick:

It would be going to a bailment on terms argument.

If you were to find that Norfolk Southern is entitled to rely on its own terms as a bailee, their rail circular would govern.

Our position is we get full damages under that too.

William H. Rehnquist:

Thank you, Mr. Frederick.

Mr. Phillips, you have 3 minutes remaining.

Carter G. Phillips:

Thank you, Mr. Chief Justice.

Let me start by trying to clarify the Herd holding.

Herd did not involve the Himalaya clause since there was no question about downstream liability or the limits on liability, and so what the Court said there is if your agreement extends to carriers, it doesn’t extend on to stevedores.

Our agreements extend well beyond carriers under these circumstances, and we’re asking to have them applied in this particular context.

Justice Stevens, with respect to your question about the rate flexibility that we had.

There is no question that the protections of the Hamburg Sud bill, which we… which we accepted for these purposes, carries with it rates that we… there are limitations on liability that Norfolk Southern was intimately familiar with, relied upon in setting the rate.

You could… you could have assumed that based on the Court’s analysis in Great Northern, but the reality is that, of course, entities that engage in these kinds of operations and the kind of common enterprises know what their rates are and they set the rates.

And if you had broken this rate… this transportation down, it would have required a different rate setting regime, and the… and the circumstances would have been fundamentally different.

The basic point here is that there is a reliance and interest that is implicated here.

Mr. Frederick, with all due respect, has described to you a world that is not the world in which ocean… ocean carriers and rail carriers and shippers ordinarily operate.

The world in which we operate is one in which we say either declare the value of the goods or live with the limitation on liability.

They never declared any value of the goods.

There’s no way for the freight forwarder to declare the value if the shipper doesn’t do that in the first instance.

And all of the limits of liability flow directly from that.

It’s not unfair.

It doesn’t unduly limit the remedies available for the owner of the goods.

He always has the opportunity to take advantage of the option of declaring the goods, making us the insurer under those circumstances, and we never do it.

Carter G. Phillips:

The fact that there are no such cases, Justice Breyer, strikes me as the clearest evidence that the rule of law, as we’ve described it in our briefs and as our amicus have described it, is the standard that has applied to the worldwide carriage.

One… two last points.

Justice Breyer, you asked me for a couple of theories about how to get to the right answer.

One other theory is the entrustment of the goods creates an implied consent to be bound.

That’s a… an argument that’s been made.

And then finally, Mr. Chief Justice, you asked about the diversity jurisdiction.

Acme Fast Freight is a post-Erie case, along with Great Northern is itself obviously a decision that comes out of the Minnesota Supreme Court.

And then finally, with respect to Great Northern, I would urge the Justices to read the brief.

It’s absolutely clear.

Thank you, Your Honor.

William H. Rehnquist:

Thank you, Mr. Phillips.

The case is submitted.