Court holds interstate carrier is not responsible for 3rd party’s shipping fraud – reaffirming importance of instructions on your bill of lading like “protect wine from freezing”

The Carmack Amendment (49 U.S.C. § 14706) governing interstate shipping and the Federal Bill of Lading Act (49 U.S.C. § 80101) are two federal statutes that have a great impact on the interstate shipment of wine, beer, and spirits.  Cases clarifying the language and interpretation of the statutes or giving guidance for proper procedures or statements for terms on bills of lading are of particular interest to breweries, wineries, and distilleries using interstate carriers to ship product to distributors or retailers out of state.  Many of the decisions that help the food and drinks business have evolved over time through trial and error and come about when some new circumstance arises that a no one anticipated.

For example, back in 1974 a Federal Court in Ohio, in Pilgrim Distribution Co. v. Terminal Transportation Co., ruled a carrier was not liable for freezing damage to a shipment of 400 cases of wine because the shipper (a wine wholesaler) didn’t tell the carrier that there were any special handling requirements (e.g. “Protect wines  from freezing”).

Recently, a Court found that in complying with a bill of lading’s terms for contacting the recipient by phone at the time of delivery, a carrier could avoid a claim brought by a shipper who had been defrauded by the purchaser if the carrier substantially complied with the terms of the bill of lading.  It makes getting those terms in the bills of lading extra-important.

In Lewis Brass and Copper Company v. ABF Freight System, Inc., a metals company brought a claim against a carrier after it found out it was defrauded in a scheme by a purchaser where materials were delivered before it learned that the payments hadn’t cleared.  The bill of lading had instructions for the carrier to “Call before delivery Scott”.  Scott was the first name given for one of the purchaser’s representatives.

The carrier delivered to the fake company, but not the destination listed in the bill of lading – the carrier had a conversation with “Scott” prior to delivery and was instructed by “Scott” (whom the carrier believe to be a representative of the purchaser) to a different location.  Shortly after delivery, the shipper learned that payments were halted because the credit cards used for payment were reported stolen.  The shipper sued the carrier claiming that if the carrier had called Scott, not simply answered Scott’s phone call and delivered to the actual destination in the bill of lading, not to the new address, the scheme would have been thwarted.  The Court found the conversation was material, not who called whom.

Under the Carmack Amendment’s laws governing interstate shipping, an “act of the shipper himself” is a defense to the generally strict-liability imposed against carriers for damage or loss to shipped goods.  When the shipper fails to properly inform the carrier about qualities or concerns that end up resulting in damage, the carrier may avoid liability – like shipping wine to a cold climate and not telling the carrier to protect the wine from freezing.

In Lewis, the Court found that the carrier shouldn’t be liable for the third-party fraud – that the shipper was in the best position to ferret out the fraud:

“Told in the most obvious way, this is no t a story of negligence on either [Shipper’s] or [Carrier’s] part; rather, it is the story of [Shipper’s] victimization by unknown fraudsters.  Nonetheless, in the context of this bilateral suit, one of the parties now before has to bear the risk of the fraudulent orders.  That party is the [Shipper].”

For those using third-party carriers for interstate shipments, familiarity with bills of lading and tailoring proper instructions to each particular circumstance can go a long way towards avoiding liability, especially now that complex shipping fraud is increasing and it appears courts are willing to find that shippers like breweries, wineries and distilleries are in the best position to protect against it.