Swords and Shields: Carmack Preemption, FAAAA Preemption & Waiver – Part II: FAAAA Preemption

Kevin Anderson Cargo Liability, Contracts, Regulations

FAAAA preemption is possibly the most powerful tool motor carriers (for-hire and private), brokers and freight forwarders (“service providers”)  have available to defend themselves with when facing a lawsuit or governmental investigation or complaint.  Every transportation service provider faced with defending against a lawsuit or government agency must ask “Is the claim being made against me (a service provider)  preempted by FAAAA?

What is FAAAA?  The Federal Aviation Administrative Authorization Act, now codified at 49 USC 14501, provides for federal authority over regulation of intrastate transportation operations by service providers. The key provision is set forth in 49 USC 14501(c)(1) which provides no state or political subdivision or agency–

. . . shall enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier  . . . or any motor private carrier, broker, or freight forwarder with respect to the transportation of property.

What is statutorily excluded?  FAAAA, of course, has its limits, and, generally stated, does not extend to (a) the safety regulatory authority over motor vehicles, (b) highway route controls and limitations based on routes, size and weight, hazardous nature of the commodity, (c) insurance requirements, (d) the transportation of HHG, or (e) non-consensual towing.

What applies if elected by a motor carrier?  An insidious provision, 49 USC 14501(c)(3), allows motor carriers to elect to continue to be regulated as to intrastate shipments in regard to (1) uniform cargo liability rules, (2) uniform bills of lading or receipts, (3) uniform cargo credit rules, (4) anti-trust immunity or joint line rates or routes, classification, mileage guides, and pooling, and (5) antitrust immunity for agent-van line operations.  Thus, unless a motor carrier elects to be governed by these state laws, they do not apply. By electing to be governed by these states laws, a motor carrier gives up the freedom it has to set its own terms and conditions for providing intrastate service.

Every carrier that holds an intrastate permit, identified as a Class 1A Permit in Oregon, needs to take a look at its Permit and see if it elected to be covered by any of these elective state laws. If any are checked “yes,” then the motor carrier should seriously consider requesting that its Permit be amended and reissued stating that it does not elect to be covered by any of those laws. Although pure intrastate shipments do not come up that often, they do. In a recent case the shipment of office furniture and fixtures moved in Oregon intrastate commerce. The motor carrier’s bill of lading stated that its liability was limited to $0.50 per pound. However, the plaintiff shipper claimed that since the shipment moved in Oregon intrastate commerce the motor carrier was subject to ORS 823.101-.107, which sets forth Oregon’s uniform liability rules. If the motor carrier elects to be governed by these laws, then its Oregon intrastate shipments are subject to the following:  ORS 823.101, which makes the carrier liable for “any loss, damage or injury to such property . . .” and, further, imposes the liability for the full actual loss, damage or injury, notwithstanding any limitation of liability however expressed, except where the motor carrier has filed an application for a limitation of liability that has been expressly approved by ODOT; and ORS 823.103, which sets minimum times of nine months for claims to be filed and two years for institution of lawsuits. In the case described above, we were able to avoid these Oregon’s statutes and apply the $0.50 per pound limitation of liability because the motor carrier had elected to not be governed by these Oregon laws.

No motor carrier operating in intrastate commerce should agree to be bound by these elective provisions in any state.  Under the current federal law, motor carriers can essentially set their own terms and conditions, either by entering into comprehensive transportation contracts with its customers or by having an in-house rules tariff or other published document setting forth its terms and conditions of service, that will apply to all of its operations, both interstate and intrastate. It seems obvious that every motor carrier should limit the number of laws it must comply with to the extent it can do that. This means that there is no reason to elect to be governed by both State and Federal laws when it can choose to be governed by just the Federal laws that in many instances can be avoided.

Simply stated, motor carriers and other service providers have the opportunity to set almost all of their own terms and conditions under which they provide service, and they should do that to the fullest extent possible. There is no reason to elect to be governed by laws that can be avoided, especially when they do not benefit the service provider.

Has the U.S. Supreme Court Clarified the Extent of FAAAA Preemption? Yes, the Supreme Court has issued a number of decisions that define the scope of federal preemption of state regulation under FAAAA. The Court has issued a number of motor carrier cases on the scope of FAAAA preemption, but there also are numerous decisions relating to deregulation of the airlines that apply to motor carriers (for-hire and private), brokers, freight forwarders and other transportation service providers. This is because the preemption wording contained FAAAA was copied from and is virtually identical to the preemption wording contained in the Airline Deregulation Act (“ADA”) first adopted in 1978.  (As a point of clarification and to avoid confusion, personal injury claims generally are not preempted.)

Thus, the two leading cases dealing with the scope of FAAAA preemption are two airline cases, referred to herein as Morales and Wolens. Morales held that the scope of preemption was intended to be broadly interpreted. Wolens subsequently held that preemption meant that only the precise contract of the parties may be enforced, as follows:

This distinction between what the State dictates and what the airline itself undertakes confines courts, in breach of contract actions, to the parties’ bargain, with no enlargement or enhancement based on state laws or policies external to the agreement.

Just last week the Supreme Court affirmed Wolens in the case entitled Northwest v Ginsberg (“Ginsberg“). In that case Ginsberg filed a lawsuit against Northwest Airlines alleging that Northwest had terminated Ginsberg’s membership and participation in Northwest’s frequent flier program and, in doing so, Northwest had breached its “implied duty of good faith and fair dealing,” which is a term virtually every state, as part of its common law, implies into every contract. The Supreme Court ruled against Ginsberg and in favor of Northwest, citing Wolens as its authority. First, however, the unanimous decision (9-0) written by Justice Alito, reaffirmed (1) that the scope of preemption, that is, a law relating to a carrier’s “price, route or service,” is interpreted broadly, (2) that common law rights are preempted as well as statutes and rules, and (3) that any state law based  term or provision implied or otherwise imposed on the parties to a contract is preempted, especially when the implied provision cannot be avoided. The court noted that under the law in Minnesota, like the law in Oregon, that implied term cannot be waived. As a result, the state seeks to impose a contract obligation not agreed to by the parties and is preempted.

As stated above, in any litigation or administrative enforcement action, a motor carrier (for-hire or private), freight forwarder, broker or other transportation service provider must determine if FAAAA preemption applies to some or all of the claims made. For example, if you are sued for breach of contract and the other party seeks to impose any implied duty of obligation, it may very well be preempted. Ginsberg directly holds that the implied duty of good faith and fair dealing is preempted, which provides a basis for concluding that other “implied terms” such as a fiduciary duty based on a special relationship, a term based on course of dealing, or a duty or obligation based on industry practice or standards are similarly preempted by FAAAA.

FAAAA preemption is proving to be a major shield available to transportation service providers when it has been charged with wrongdoing by anyone, including states, counties and other local governing bodies.