Panelists:

Dan Hill Paul Kozacky

Stephanie Penninger Les Vaagan

Moderator:

Martha Payne

Transportation and Logistics Council 42nd Annual Conference

May 4, 2016

Duty of All Parties to Mitigate Branded Products Food Products Allocation of Responsibility Questions

Duty of All Parties to Mitigate

Mitigate with a Little Encourage “Mint”

Can Shipper Act Reasonably by Delaying Salvage of Shipment of Animal Fat Rejected by Consignee Because It Fell Below Its Contracted-For Standards But Was Still Merchantable?

◦ M. Golodetz Export Corp. v. S/S LAKE ANJA, 751 F.

2d 1103, 1112 (2d Cir. 1985) Shipper allowed the tallow to congeal in the

consignee’s tanks and sit for nearly 18 months while it sought to force the buyer’s acceptance

Carrier could not be liable for damages caused to the tallow from the time the Shipper learned of the damage until it finally sold it for salvage18 months later

Easy to fault the Shipper when it acts like an ostrich

VPP Group, LLC v. Total Quality Logistics, LLC, 2014 WL 1515510 (W.D. Wis. Apr. 18, 2014)

The Broker/Carrier Agreement required carrier to provide drivers who could make scheduled deliveries without violating HOS

The Rate Confirmation and the Driver/Carrier Information Sheet identified the shipper’s required delivery date

Court found time was of the essence according to VPP’s and TQL’s agreement and late delivery was a material breach and awarded difference in what VPP would have received from the consignee and salvage amount received

Intercontinental Trading Co., Inc. v. M/V ZENIT SUN, 684 F. Supp. 861 (E.D. Pa. 1988)

Evidence indicated that the temperature monitors

had not been properly calibrated prior to departure from port, so partially frozen fruit trumped false “no issues” temperature log

Intercontinental sold all of the plums at a

discounted price

Intercontinental proved that the plums did freeze in the vessel and thus in Compania’s possession

The immediacy of its mitigation efforts seems to have offset any issue about salvage price reasonableness

Frosty Land Foods Int'l, Inc. v. Refrigerated Transp. Co., 613 F.2d 1344, 1349 (5th Cir. 1980)

Beef arrived “strong smelling, dark and slimy”

due to excessive heat exposure during transportation

After inspecting 65 of 308 carcasses, the consignee rejected the shipment

Frosty Land made countless efforts to sell the beef in California, finally succeeding but only after a reduced price and excessive trimming of beef

“Since the evidence showed that the shipper sold the meat in Los Angeles for the best price it would bring, the shipper had done, therefore, all that could be fairly required of it to save the carrier from resulting loss”

Branded Products Getting “Jalapeño” Business

Did Consignee Act Reasonable in Rejecting Entire Shipment of Frozen Food Products Due to Improper Temperature Maintenance During Transport Without Mitigating Its Damages? Total Quality Logistics v. Macktoon, Inc., 2014 U.S.

Dist. LEXIS 20484 (S.D. Ohio Feb. 19, 2014)

Plaintiff established the prima facie Carmack case because the shipment was tendered in good condition and the product temperature was not maintained during transit

Macktoon could not show any action by the shipper that caused the damage or disprove its negligence when its driver did not replace a broken fan belt on the trailer’s refrigeration unit or contact anyone about it

Dumping cargo to protect against the risk that customers may obtain a branded product that is substandard or unfit is a legitimate reason to not mitigate damages

Food Products Let’s Give ‘Em Something to “Taco” ‘Bout

Improper refrigeration Inadequate cleaning of containers Failure to properly protect food during

transportation (e.g. broken seals)

“A broken cargo seal or any evidence of food cargo tampering would not necessarily create a per se presumption of adulteration. . . [I]f such situations should arise, they should carefully evaluate the facts and circumstances of each incident, on a case-by-case basis, to determine whether the safety of the food cargo may have been compromised.”

Bloomer Chocolate Company v. Noshira Sharon, Ltd., 776 F. Supp. 760, 778 (S.D.N.Y. 1991)

Sugar arrived torn and spilled due to punctures in the bags, and a portion had been contaminated by grain and other foreign matter on the vessel

Restrictive free trade zones also greatly diminished options for resale

The consignee had reasonably mitigated damages by reselling the sugar for six cents a pound

Atl. Mut. Ins. Co. v. CSX Lines, LLC, 432 F.3d 428 (2nd Cir. 2005)

One of three containers of phosphoric acid, a solution used to make caffeine-free Pepsi, was completely submerged in salt water during transit

Pepsi rejected this container after discovering

damage from external water pressure

Court found sufficient evidence to show concentrate damaged and retained no market value due to mere possibility that it had become contaminated and, thus, adulterated under federal law

Court did not address the issue of mitigation of

damages, which was left open on remand, and case then settled

Swift – Eckrich, Inc. v. Advantage Systems, Inc., 55 F. Supp. 2d 1280, 1289 (D. Kan. 1999)

B/L required refrigeration of 22 degrees during transportation

Temperature of the meat was 52 – 65 degrees upon arrival in Kansas

Swift’s “quality control department concluded that ‘[t]he risk to consumers is too high to release the product for distribution,’” and thus Swift did not sell any part of the shipment for human consumption

Court granted Swift’s motion for summary judgment, finding that it did not fail to mitigate its damages

Orient Overseas Container Line Ltd. v. Crystal Cove Seafood Corp., 2012 U.S. Dist. LEXIS 18447 (S.D.N.Y. Feb. 14, 2012)

Due to a malfunction during transport, the temperature failed to be maintained at -0.4 degrees Fahrenheit, causing some of the fish to spoil

Testing, storing, and attempting to sell the compromised fish would have been expensive

Odor emanating from the thawed fish could have adversely affected the pristine boxes of tilapia

Orient waited two days before notifying Crystal of the malfunction

Orient ignored Crystal’s request to transload the tilapia into a container with a functional refrigeration unit

The tilapia remained five days in a non-working container

Crystal rejected the delivery, after testing 5 out of the 3,400 cartons of frozen tilapia

The temperature had risen up to 30 degrees

Crystal established that Orient was negligent in handling the cargo after discovering the broken refrigeration unit that had caused the damage to the cargo

Even though about half of the tilapia was salvageable, on arrival the shipment was “practically valueless” for its intended purpose

Contessa Premium Foods, Inc. v. CST Lines, Inc., 2011 WL 3648388 (C.D. Cal. Aug. 18, 2011)

Shipper, Contessa Premium Foods, Inc. entered into a Motor Carrier Agreement with CST Lines, Inc. to transport 48 pallets of frozen food products from Contessa’s plant in California to an Indiana warehouse

CST agreed to provide temperature-controlled transportation for the shipment, and to maintain the food at minus 10 degrees Fahrenheit for the entire duration

CST subsequently engaged Far East Carrier to pick up, transport and deliver the shipment, pursuant to a broker/carrier agreement

Court determined that CST was a motor carrier, within the definition of Carmack

Court found that CST had exerted sufficient control over Far East such that it could be considered CST’s agent

Farmers Seafood Co. v. FFE Transp. Servs., Inc., 2014 U.S. Dist. LEXIS 24686 (W.D. La. Feb. 25, 2014)

Ipswich’s policies required a temperature control

recorder (TCR) to be attached to the crabmeat pallet for data downloading at destination and proof of temperature during transit

Shipment rejected by Ipswich due to missing TCR FFE had a food laboratory test samples of the

crabmeat, which found they were in good condition and with no evidence of contamination

Farmers refused to accept return of the shipment when FFE could not prove to Ipswich the shipment was kept between 33-38°F during transit

Farmers brought a claim against FFE

Impossible to verify crabmeat was stored at requisite temperature and was safe to consume with TCR

Selling the crabmeat without proof of temperature maintenance could expose Farmers and Ipswich to civil or criminal liability

Allocation of Responsibility When You’re In a Pickle

Oshkosh Storage Co. v. Kraze Trucking LLC, 2014 U.S. Dist. LEXIS 174601 (E.D. Wis. July 17, 2014)

At delivery, Kraze's driver parked his truck, broke the seal and opened the trailer doors, leading Oshkosh to reject the entire load for that basis alone

Kraze argued that the broken seal was not

sufficient evidence that the cheese was damaged because it had no bearing on whether the goods were tampered with or harmed in any way

Kraze was negligent in breaking the seal and Oshkosh suffered damages because of having to sell the cheese at a discounted price and, therefore, established its prima facie Carmack case

If the carrier breaks the seal, the seal’s purpose is

defeated because the consignee cannot verify that the food shipment has not been accessed or tampered with during delivery and is not contaminated

Food distributors have a duty to ensure that food is safe

for the public, and policies requiring the rejection of food shipments when the seal has been broken may be reasonable, so long as they are announced

Exel, Inc. v. Southern Refrigerated Transport, Inc., 807 F.3d 140 (6th Cir. 2015)

Excel as broker had no BOC against SRT because Excel did not suffer a loss ◦ Excel has no obligation to pay Sandoz any damages

for the lost cargo ◦ Thus, no standing to sue for BOC under MTSA

Excel as a broker could not assert a direct Carmack claim against SRT, BUT ◦ Excel as an assignee of Shipper’s rights could ◦ Factual dispute as to whether limitation of liability

applies and will be enforced

Dan Hill ◦ ABF Freight ◦ dhill@freight.abf.com ◦ 479-785-8742

Paul Kozacky ◦ Kozacky Weitzel McGrath, P.C. ◦ pkozacky@kwmlawyers.com ◦ 312-696-0901

Martha Payne ◦ Benesch, Friedlander, Coplan & Aronoff LLP ◦ mpayne@beneschlaw.com ◦ 541-764-2859

Stephanie Penninger ◦ Benesch, Friedlander, Coplan & Aronoff LLP ◦ spenninger@beneschlaw.com ◦ 317-685-6188

Les Vaagan ◦ Midwest Motor Express, Inc. ◦ les.vaagen@mail.mmeinc.com ◦ (701) 223-1880