Reproduced with the Permission of Miles L. Kavaller
I have been frequently asked by motor carrier clients how they can "place a lien" on a shipper's freight in order to collect freight charges. This often-asked question demonstrates a basic misunderstanding of the subject. The term "lien" is a claim or charge on property for payment of a debt. Thus, a carrier has a legal interest in the freight transported and may withhold its delivery until it receives payment of its freight charges.
The Uniform Bills of Lading Act, a federal statute (49 U.S.C. §§ 80101 et seq.) and particularly 49 U.S.C. § 80110 gives a common carrier a lien on the goods being transported to enforce collection of freight charges for that shipment. It states in relevant part that ". . . the carrier must deliver goods covered by a bill of lading on demand of the consignee named in a nonnegotiable bill or the holder of a negotiable bill for the goods when the consignee or holder--(1) offers in good faith to satisfy the lien of the carrier on the goods. . . ." The Uniform Commercial Code provision which applies to intrastate shipments is substantially similar. See for example California Commercial Code § 7403.
Under the Interstate Commerce Act and now the ICC Termination Act found at 49 U.S.C. § 13707(a) ". . . a carrier providing transportation or service subject to jurisdiction under this part shall give up possession at the destination of the property transported by it only when payment for the transportation or services is made." The statute does provide exceptions and permits the extension of credit under regulations issued by the Secretary of the Department of Transportation. The ICC's credit regulations contained at 49 C.F.R. Part 1320 remain in effect.
Thus, under federal law which governs interstate shipments, common carriers have a lien on freight transported for freight charges. However, if a carrier has extended credit to the party responsible for payment, it may not revoke credit without adequate notice and insist on payment of freight charges at destination or otherwise delay delivery until payment of freight charges is made. Such activity, in my view, is unlawful. As will be seen, a carrier will be required to pay damages to shippers who have been harmed by such an unlawful delay in delivery. This was the result of the court's ruling in a recent case I tried in Los Angeles Superior Court.
Consignors hired a Los Angeles based common carrier to transport LTL shipments of cotton fabric from mills located in North and South Carolina as well as other products in that general area. The Los Angeles-based carrier, carrier "A" hired a trans-continental carrier, carrier "B" to perform the line-haul service from North Carolina to Los Angeles. Upon delivery at carrier A's terminal, it would then provide break-bulk and distribution to the consignees. Carrier B, however, demanded that carrier A pay past due freight charges on an unrelated shipment, freight charges for the current shipment and the freight charges of a sister company which shared officers and directors. Carrier A refused asserting that carrier B had no legal right to demand payment. The squabble between carriers A and B ultimately led to a delay in delivery of at least 60 days. As might be expected, the consignees lost sales for which they had contracted. Thus, at the time carrier A tendered delivery, the product had significantly less value than the cargo would have had it been timely delivered.
Carrier A sued carrier B in Los Angeles Superior Court seeking to recover its lost profits from the loss of business as a result of carrier B's wrongful conduct. The consignees sued carrier A and carrier B asserting state law causes of action for negligence and breach of contract. The court ruled that carrier B unlawfully withheld delivery of these LTL shipments. Carrier B argued that its freight bill invoices notified carrier A that if freight charges were not paid in a timely fashion a lien could be asserted on future shipments in accordance with California Civil Code § 3051.5. The court rejected carrier B's contention. California Civil Code § 3051.5, even if it extends to interstate shipments, requires carrier notification that it will exercise a lien on future shipments if payment of past due freight charges has not been made. However, the statute does not prescribe the form or time of notice. This court concluded that carrier B's printed notice on its freight bills was inadequate and did not satisfy the requirements of California Civil Code § 3051.5. The court stated that carrier B should have notified carrier A in advance of the shipments to be delivered that it was going to assert a carrier's lien for past-due freight charges. Although the court did not refer to federal law, it is also quite clear that carrier B violated 49 U.S.C. § 80110 by failing to deliver freight to carrier A to whom it had previously and had continued to extend credit. Accordingly, even if carrier B had insisted upon collection of freight charges for the shipment transported, it would have been in violation of this statute since it had been extending credit and had not notified carrier A of the revocation of its credit sufficiently in advance of this shipment.
The court found carrier B liable for lost profits of about $56,000.00 which carrier A expected to sustain having lost the LTL consignees' business. Further, the court found that carrier B (not carrier A) was liable for the damages of $43,000.00 sustained by the LTL consignees equal to the value of their goods less salvage. However the court should have ruled that carrier A was liable to the LTL consignees based on the Carmack Amendment (49 U.S.C. § 11707) which subjects the carrier which issues the bill of lading to damages for the actual loss suffered. The Carmack Amendment also provides that carrier A have recovery against carrier B for indemnification, that is, the amount which carrier A is required to pay because of carrier B's conduct.
The lesson to be learned is quite plain: the exercise of a common carrier lien, that is the withholding of delivery of freight can often lead to disastrous consequences. If the common carrier seeking to exercise the lien is not strictly complying with the requirements of either federal or state law, it will be liable for damages to those whose shipments are delayed.
Reproduced with the Permission of Miles L. Kavaller
In the prior article, I have addressed carrier liens. Generally, a carrier may withhold delivery of freight in its possession in order to enforce payment of freight charges for that shipment. However, a carrier may not, again generally speaking, withhold delivery of freight in transit in order to collect freight charges for previously delivered shipments for which payment is past due. In California, there is an exception to this general rule in California Civil Code § 3051.5 which provides as follows:
"(a) A carrier has a lien on freight in its possession for the total amount owed the carrier by the shipper for freightage, charges for services and advances due on freight previously delivered upon the promise of the shipper to pay freightage, charges and advances, as provided in this section." (Emphasis added).
The statute requires the carrier to notify the shipper in writing that failure to pay billed charges may result in a lien on future shipments, including the cost of storage and appropriate security for the subsequent shipments held. This lien does not apply to perishable goods.
If the carrier has provided adequate prior notice, it may proceed to hold the shipper's cargo to enforce payment of past-due charges. The procedure is spelled out in the California Civil Code § 3051.5(d). The carrier may arrange for the sale of property subject to the lien but the sale cannot occur for at least thirty-five days after the date the carrier has obtained possession of the cargo. The carrier is required to notify the shipper and any party who may have a security interest in the cargo of the amount due. If payment is not received within ten days then the carrier may proceed to sell the cargo. As indicated, the sale may not take place in less than thirty-five days from the date the carrier obtained the cargo and further at least ten days before the sale of the carrier is required to notify the shipper and the consignee as well as each secured party having a perfected security interest in the property of the date, time and place of the intended sale.
A carrier foreclosing its lien must be careful to ensure that it has ascertained whether there is any party holding a perfected security interest in the cargo. Accordingly, I would certainly recommend that before a carrier forecloses its lien, it contact counsel who should then undertake a search for Uniform Commercial Code finance statements relating to both the consignor and consignee. This is significant because the statute prohibits the sale of cargo secured by a perfected security interest in an amount not equal to or greater than the security. If the amount offered at the lien sale is less than the interest of the secured party, the carrier is required to deliver possession to the secured party upon payment of the carrier's charges for that shipment only.
The statute goes on to subject the shipper to liability". . .to the consignee for any damage which results from the failure of the property to reach the consignee as scheduled due to the carrier's proper exercise of its lien rights. . . ." Thus, the consignee can sue the shipper for damages if the cargo is not delivered.
The provisions of California Civil Code § 3051.5 provide a carrier with a significant tool to enforce collection of not only current but also past-due freight charges. While, in my opinion, the statute does NOT apply to shipments moving in interstate commerce (those shipments are covered by the federal Bills of Lading Act which contains no comparable provisions) there has, as yet, been no court case addressing this issue.
Carriers seeking to rely on this statute should provide actual notice to shippers should provide actual notice to shippers BEFORE the provisions of this law are exercised. While these provisions should be included in a carrier's tariff, I do not believe that will be sufficient notice to comply with the statute's requirements. Carriers who do not strictly observe these requirements will be liable to shippers, receivers and secured parties for damages for the tort of conversion; the wrongful exercise of control over property of another. In addition to actual damages, punitive damages may also be assessed as well as the costs incurred to locate and retrieve the property.