Understanding Interstate Transportation Contract Disputes

Kevin Anderson Bills of Lading, Contracts, Transportation

The trucking industry is one where federal law reigns supreme. And that makes sense because of the interstate nature of the industry. Shipments generally start from one state and are shipped to another, often traveling through one or more states en route. That is the main reason why federal law is the overarching influence when it comes to interstate disputes.

Of course, there are exceptions to this that prove the rule. One area is when a contract dispute arises that is not covered by federal law. When that happens, and when a dispute arises whose outcome depends entirely on the language of a contract, state law will usually apply. This is what happened in a 2013 case from the Fourth Circuit Court of Appeals.

Third-Party Broker Goes Bankrupt

Often times a shipper, carrier, and third party broker will be involved in an on-going relationship to ensure that goods get shipped from one place to another. This is the arrangement that the three companies in this case enjoyed in 2007. The shipper contracted with a motor carrier to ship furniture interstate, but opted to use a third party broker to coordinate the details so they could get better service. The shipper paid a premium to the broker, and in return the broker agreed to pay the carrier its fee, while collecting a commission on all of the goods shipped.

This common arrangement in the trucking industry worked well until the broker fell on hard times, and eventually declared bankruptcy. As it turned out, the carrier was left with a large account of unpaid bills for the goods it had shipped on behalf of the shipper through the coordination of the broker. As a result, the carrier went after the shipper to have its bills paid.

The shipper refused to pay the carrier, and for good reason. It had already paid a premium to the broker to have the shipments made and coordinated, and expected the broker would pay the carrier. Within the contract between the carrier and shipper, including the bill of lading, there were provision stating the shipment was prepaid, and that the cosigner would not face liability. Of course that was with the understanding that the broker would be paying its bills as the shipments came and went. But since that did not happen, the carrier wanted to get paid for the work that it did.

Carrier Sues Shipper

To resolve this dispute, the carrier made several federal claims, including 49 U.S. Code ยง 13706, against the shipper demanding payment. But the problem with federal claims in this situation is that the result of the case rested entirely on the interpretation of the contracts and bills of lading. Contracts, and what they mean, are generally a state law matter. Federal courts do not usually have jurisdiction to hear contract disputes. That is what the Fourth Circuit Court of Appeals determined in this case, and dismissed it because they did not have the jurisdiction to hear the case.

This brings up several important points for trucking companies. First, the language used in transportation contracts and bills of lading are of utmost importance. No matter how amicable parties may be when starting business, things can go badly fast and the best thing you can have on your side is a well written contract in your favor. Additionally, it is important that your legal team can back you up in state or federal court when your company is facing litigation.

At Anderson and Yamada, P.C., our team of transportation law attorneys can help your company with contracts, litigation, or any other trucking law need. Contact us so we can get to know you and help your company towards the future.