June 21, 2010

Supreme Court Decides Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp.

On June 21, the Supreme Court decided Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp., No. 08-1553, holding that the Carmack Amendment to the Interstate Commerce Act, which governs the terms of bills of lading issued by domestic rail carriers, does not apply to the domestic rail portion of an international shipment by sea and rail that is covered by a single bill of lading governed by the Carriage of Goods at Sea Act. The parties' agreement to litigate any disputes arising from the shipment contract in a Japanese court therefore was valid and binding.

Regal-Beloit Corp. contracted with Kawasaki Kisen Kaisha Ltd. and its American agent (collectively "K-Line") to transport Regal's goods from China to their final destination in the United States, by any mode of transportation that K-Line chose. K-Line issued a "through bill of lading" to Regal covering the entire shipment, including both its ocean and inland portions. The through bill provided that the entire shipment would be governed by the Carriage of Goods at Sea Act (COGSA), and, as COGSA permits, it provided that any disputes arising from the contract would be governed by Japanese law and resolved in a court in Japan. The ocean portion of the shipment was completed without incident, but the Union Pacific train that was carrying the goods in the U.S. derailed, and the goods were destroyed. Regal sued in state court in California, but K-Line and Union Pacific removed the action to federal court and then moved to dismiss based on the through bill of lading's forum-selection clause. The district court granted the motion, but the Ninth Circuit reversed, holding that the rail portion of the shipment was governed by the Carmack Amendment to the Interstate Commerce Act, 49 U.S.C. § 11706(a), which regulates bills of lading issued by domestic rail carriers and which limits the parties' choice of venue for resolution of their disputes to state or federal courts.

The Supreme Court reversed. Norfolk Southern Railway Co. v. James N. Kirby, Pty Ltd., 543 U.S. 14 (2004), held that the terms of a through bill of lading govern the entirety of a shipment made partly by sea and partly by rail, despite provisions of state law to the contrary, because applying state law would defeat COGSA's purpose of achieving uniformity of general maritime law. The Court concluded that the text, history, and purpose of the Carmack Amendment did not require a different result here. The Amendment requires a "receiving rail carrier" to issue a bill of lading that complies with the Amendment, but the context indicates that this requirement applies only if a carrier receives cargo directly from the owner at the beginning of the journey. The Amendment does not apply where, as here, the initial carrier received the cargo at the shipment's point of origin for overseas multimodal import transport, not just domestic rail transport, and issued a through bill of lading to cover the entire shipment. Applying Carmack to the rail portion of a multimodal shipment but COGSA to the ocean portion would undermine the purposes of both statutes.

Because the through bill of lading invoked COGSA, and that statute does not limit the parties' ability to adopt forum-selection clauses, the parties' agreement here requiring resolution of their dispute in a Japanese court should have been enforced.

Justice Kennedy delivered the opinion of the Court, in which Chief Justice Roberts and Justices Scalia, Thomas, Breyer, and Alito joined. Justice Sotomayor filed a dissenting opinion in which Justices Stevens and Ginsburg joined.

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