Who’s the consignee? Seventh Circuit reverses judgment against warehouseman for demurrage charges

The U.S. Court of Appeals in Chicago has reversed a summary judgment in favor of the Illinois Central Railroad ("the IC) for demurrage charges against a warehouseman which provided storage in transit services in Illinois Central Railroad Company v. South Tec Development Warehouse, No. 02-2957 (July 23, 2003). This dispute arose out of a rail transport arrangement between the IC and R.R. Donnelly & Sons Company ("Donnelly") wherein the IC charged Donnelly a through transportation rate for boxcar paper shipments which moved from Donnelly's paper suppliers through South Tec Development Warehouse, Inc.'s ("South Tec") warehouse in Kankakee for sorting and storage prior to a subsequent rail move via the IC to Donnelly's Matoon, IL facility. Donnelly had separate contracts with the IC and South Tec, but there was no express contract between the IC and South Tec.

From 1991-94, the parties' arrangement worked well. However, between 1994 and 1995, the volume of paper shipped to South Tec increased dramatically, South Tec was overwhelmed by the volume and the IC's rail cars backed up at South Tec's Kankakee facility to the point where unloading delays there impacted the IC's business from other origins. Pursuant to its tariffs, the IC billed South Tec $160,170 in demurrage charges, which resulted from South Tec's inability to timely unload the boxcars. South Tec refused to pay these charges, so the IC sued South Tec in federal court in Chicago. South Tec denied liability by asserting that it was not the consignee of the boxcars, that Donnelly was the consignee and therefore brought a Third Party Complaint against Donnelly.

Donnelly then successfully sought a stay of the lawsuit on primary jurisdiction grounds in order to refer certain questions about rail transport and the IC's billing to the Surface Transportation Board ("the STB"), the U.S. Department of Transportation division with exclusive jurisdiction over the domestic rail transport which was at issue. While the STB ultimately advised the trial court that the IC could lawfully assess demurrage charges for the Kankakee unloading delays, the STB declined to answer whether South Tec or Donnelly were responsible for the IC's demurrage charges. The STB added that South Tec's liability depended on whether it was acting as Donnelly's agent when it unloaded the IC boxcars and that an insufficient factual record had been developed for the STB to decide the agency issue.

After service of the STB decision, each of the parties moved for summary judgment. The district court noted the agency issue that the STB did not decide and then cited 49 U.S.C. §10743(a)(1), which requires a freight consignee who is an agent for a third party and who seeks to avoid freight charge liability to a delivering rail carrier to first provide the carrier with written notice of its status as an agent and certain other information before any delivery. If the agent fails to provide such notice, §10743(a)(1) renders the agent responsible for the freight charges. The district court then found that South Tec was liable for the IC's charges, even though it was Donnelly's agent because South Tec never advised the IC that it had been Donnelly's agent prior to the deliveries in issue as required by the statute.

The Seventh Circuit reversed, mainly on the ground that §10743(a)(10) applies only to consignees who are agents, not agents generally. The court of Appeals found that the district court (and the parties) had merely assumed that South Tec had been the consignee on the delayed shipments. As the trial court had relied on §10743(a)(1) and as there had been no finding that South Tec had been a consignee, the Seventh Circuit reversed with directions to the district court to first resolve whether South Tec had been a consignee on the involved loads before making further rulings. The Seventh Circuit further found that if South Tec had not been a consignee, then §10743 did not apply. While the STB had not decided who was the consignee either, the court added that the STB could not have lawfully answered this question because the district court had not referred this question for an answer in its primary jurisdiction referral to the STB.

The 7th Circuit also addressed the issue of whom the IC could bill for its freight charges and found that the IC could have billed South Tec if South Tec had been the consignee. The court then cited case law that held that in transit warehouses that were not consignees of shipments were not liable for freight charges on those shipments and that non-consignees were not responsible for freight charges unless they assumed such liability by contract. The 7th Circuit then cited other case law holding that mere bill of lading identification of a party as "consignee" does not in and of itself render that party as a party to the bill of lading contract. In this case, 90 percent of the relevant bills of lading named Donnelly, not South Tec, as the consignee on the relevant shipments. However, the court also found that being named as consignee on a bill of lading, along with other unstated factors, may be sufficient to render a party as a consignee, albeit not a contractual party on a particular movement.

On remand then, the Seventh Circuit directed the district court to identify who the consignee had been on the delayed shipments from which the demurrage charges arose. The court also held that the district court could consider whether, if South Tec had not been the consignee, whether South Tec had contractually agreed to accept liability for the demurrage charges. The Seventh Circuit concluded its opinion by finding that if the district court found that South Tec had been the consignee on the relevant shipments, the notice provisions of 49 U.S.C. §10743(a)(1) could still constitute a relevant consideration on remand.