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Fourth Circuit Holds Lack of Jurisdiction Over Breach of Contract Dispute, Pursuant to the Interstate Commerce Commission Termination Act (“ICCTA”).

Gaines Motor Lines, Inc., et al. v. Klaussner Furniture Industries, et al.
United States Court of Appeals for the Fourth Circuit, No. 12-2269 (4th Cir. October 30, 2013)

by Jhanelle Graham, Associate
Semmes, Bowen & Semmes (

In Gaines Motor Lines, Inc., et al. v. Klaussner Furniture Industries, et al., the United States Court of Appeals for the Fourth Circuit addressed a question of first impression: Whether, absent a federal tariff, federal courts have subject matter jurisdiction over a motor carrier’s breach of contract claim against a shipper for unpaid freight charges. Writing for the court, Judge Allyson Duncan found that the district court lacked jurisdiction to adjudicate the dispute, and that the Fourth Circuit court lacked jurisdiction over the appeal. Accordingly, the appellate court vacated the district court’s opinion and remanded with instructions to dismiss.

The appellants were federally-licensed motor carriers (“Motor Carriers”) that transported goods in interstate commerce. Klaussner Furniture Industries, Inc. (“Klaussner”), was a furniture company headquartered in Asheboro, North Carolina. The parties, with the exception of Appellant Graham Trucking Enterprises, Inc., were incorporated under North Carolina law. In August 2007, Klaussner contracted with a third-party broker, Salem Logistics Traffic Services, LLC (“Salem”), to coordinate all shipping logistics. Salem charged Klaussner a uniform rate that was generally higher than the Motor Carriers’ individual bids. In return, Salem promised to reduce costs and improve customer service by coordinating stops to multiple Klaussner customers for each scheduled shipment. Salem was expected to deduct its commission, and then pay the motor carriers. Doyle Vaughn, a Klaussner employee, personally notified the Motor Carriers that they would begin working directly with Salem. Shortly thereafter, Salem hired Vaughn, who continued to work from the same desk at Klaussner. Vaughn notified the Motor Carriers of his change in employment.

The Motor Carriers also received a series of documents, several of which bore both Klaussner’s and Salem’s logos, explaining Salem’s new role. Salem’s Vice President of Logistics, Ralph Raymond, sent a letter explaining that Salem would manage all “freight payment responsibilities.” The Motor Carriers were sent a Fuel Surcharge Addendum, a Mutual Non-Disclosure Agreement, and instructions from Salem on submitting quotes. Finally, Klaussner’s Vice President of Supply Chain, Chuck Miller, sent instructions to submit freight bills “designated as third party payment” to “Klaussner Furniture c/o Salem Logistics Inc.,” and listed Salem’s address. Each furniture delivery the Motor Carriers undertook required three (3) documents: a Confirmation of Contract Carrier Verbal Rate Agreement (“Agreement”); a Carrier Pickup and Delivery Schedule (“Schedule”); and a bill of lading.

The bills of lading executed by Klaussner and the Motor Carriers contained standardized provisions generally used in the trucking industry. Each bill of lading listed a motor carrier, a consignor, and a consignee, where the party shipping the goods was the consignor, and the party who received the goods was the consignee. Here, Klaussner was the consignor, and Klaussner’s customer was the consignee. The bills of lading contained the statement: “freight charges are prepaid unless marked otherwise.” Most of the relevant bills of lading were marked “Prepaid.” Additionally, the bills of lading contained an executed non-recourse provision that was repeated, but not executed, in small print at the bottom of the bills:



Klaussner Furniture Industries, Inc. BY: CAM SMITH.

After initially making payments to the Motor Carriers, Salem defaulted on its obligations and ultimately went out of business. The Motor Carriers filed this action in the Middle District of North Carolina under 49 U.S.C. § 13706(b) of the Interstate Commerce Commission Termination Act (ICCTA) against Klaussner on April 22, 2009, to recover the $562,326.30 in freight charges Salem had failed to pay. In the alternative, the Motor Carriers sought to recover based on theories of unjust enrichment and equitable estoppel. After discovery, the Motor Carriers and Klaussner filed cross-motions for summary judgment.

The district court granted Klaussner’s motion for summary judgment, finding that the non-recourse provision protected Klaussner from double payment as a matter of law. The district court agreed with Klaussner that under Illinois Steel Co. v. Baltimore & O.R. Co., 320 U.S. 508 (1944), a non-recourse provision continues to protect shippers from any liability beyond its contractual obligations even when a bill of lading is also designated “Prepaid.” The district court acknowledged that the designation of “Prepaid” instead of “3rd party” on the bills of lading introduced some doubt as to whether the Motor Carriers should have expected a third-party broker to pay shipping charges. However, the court found that, given Vaughn’s verbal explanation of Salem’s role and the multiple confirming documents, the Motor Carriers were on notice to expect payment from Salem. The district court held, however, that the Motor Carriers’ agency arguments failed to create a triable issue of fact; rather, the district court found that the only fact on the record to support the Motor Carriers’ actual agency argument was that Vaughn continued to work from the same desk at Klaussner after Salem hired him. Standing alone, this continuity failed to indicate Klaussner “retained the right to control [Salem].” Hylton v. Koontz, 532 S.E.2d 252, 257 (N.C. 2000) (internal citations omitted). Consequently, the district court held that the Motor Carriers’ apparent agency argument failed because the documents with the dual logos, upon which the Motor Carriers’ argument relied, were insufficient to suggest that Klaussner led the Motor Carriers to reasonably believe Salem was its agent. The Motor Carriers appealed to the Fourth Circuit court.

On appeal to the Fourth Circuit, the issue was whether, absent a federal tariff, Congress intended federal courts to adjudicate motor carriers’ claims for unpaid freight charges under the ICCTA. “Within constitutional bounds, Congress decides what cases the federal courts have jurisdiction to consider.” Bowles v. Russell, 551 U.S. 205, 212 (2007). The appellate court embarked on a brief history of the scope of federal regulation of the trucking industry, acknowledging that the issues before the court had their genesis in the deregulation of the trucking industry, which Congress effected by passing the ICCTA. The tariff requirement in the area of noncontiguous domestic trade would facilitate intermodal transport, but all other tariffs on file were automatically voided by the ICCTA. See 49 U.S.C. § 13710(a)(4).

The appellate court began by examining 49 U.S.C. § 14101(b), which authorizes federally licensed motor carriers to enter into private contracts with shippers. That statute provides that if a party to a contract authorized by § 14101(b)(1) wants to sue for breach of contract, the exclusive remedy for any alleged breach of a contract entered into under that subsection shall be an action in an appropriate State court or United States district court, unless the parties otherwise agreed. 49 U.S.C. § 14101(b)(2). In every case brought under 49 U.S.C. § 14706(a)(1), the appellate court noted that federal jurisdiction was established because the claimant was enforcing a federal statutory right. That provision does not, however, provide either the motor carrier or the shipper with a federal statutory right to enforce in a routine breach of contract claim. When operating under a private contract authorized by 49 U.S.C. § 14101(b)(2) instead of a federal tariff, therefore, a party must first establish an alternative basis for federal jurisdiction before the Fourth Circuit can adjudicate the dispute. In this case, the Fourth Circuit determined that Motor Carriers failed to meet this threshold requirement.

Finally, the appellate court stated that resolution of the dispute between the Motor Carriers and Klaussner depended upon the court’s interpretation of the parties’ contract. According to the court, the outcome of the case turned on the meaning of the “Prepaid” designation and non-recourse provision in their bills of lading. The court determined that no state law or regulation governing the Motor Carriers’ prices, routes, or services was implicated. Additionally, the court stated that no federal statute or regulation need be interpreted, because the Motor Carriers’ claim against Klaussner was a routine breach of contract case that was not preempted by § 14501(c)(1). Furthermore, the ICCTA “contained no hint” that Congress intended federal courts to adjudicate this category of contract disputes based on federal common law. For these reasons, the Fourth Circuit declined to adjudicate this case. After concluding that it did not have jurisdiction to adjudicate the appeal, the Fourth Circuit stated that it did could not express any opinion regarding the appeal’s merits. United States v. Myers, 593 F.3d 338, 340 n.1 (4th Cir. 2010) (citing Constantine, 411 F.3d at 480). Therefore, the appellate court vacated the district court’s opinion and remanded with instructions to dismiss.