Oak Harbor Freight Lines, Inc. v. SEARS ROEBUCK

Citations: 513 F.3d 949; 2008 U.S. App. LEXIS 1046; 2008 WL 161355Docket: 06-35460

Court: Court of Appeals for the Ninth Circuit; January 17, 2008; Federal Appellate Court

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Oak Harbor Freight Lines, Inc. filed a lawsuit against Sears Roebuck Co. and National Logistics Corporation (NLC) to recover approximately $500,000 for transportation services provided for Sears' freight. The district court determined that NLC and Sears were jointly and severally liable for the charges under Washington law, and awarded Oak Harbor both prejudgment and postjudgment interest, with the prejudgment interest rate set according to Washington law. Sears appealed the decision, which was affirmed by the Ninth Circuit.

The factual background includes that Oak Harbor is a licensed motor carrier under the Federal Motor Carrier Safety Act, providing freight transportation services. Sears, a New York corporation, engages in wholesale and retail sales of tools and appliances. NLC, an Illinois corporation, acts as a property broker, arranging transportation for Sears and providing both brokerage and non-brokerage services. Initially hired in 1989 for inbound shipment brokerage, NLC’s role was expanded in 1992 to include outbound shipments, facilitating the movement of freight from Sears' warehouses to various carriers. The district court's findings of fact were uncontested and relied upon in the appellate decision.

On January 8, 1992, Oak Harbor and National Logistics Corporation (NLC) entered into a National Logistics Corporation Carrier Contract, which established the terms of their business relationship. Under the contract, NLC, operating as the broker/shipper, would provide shipments to Oak Harbor, the carrier, which agreed to transport these shipments. The contract specified that rates for shipments would be established through verbal agreements, documented by Oak Harbor via invoice submissions. Payment terms required NLC to pay Oak Harbor within a set period, regardless of NLC's own payment status from the shipper.

The contract had an initial term of twelve months, automatically renewing for successive twelve-month periods unless terminated with a thirty-day written notice. Rates were renegotiated annually, but the contract itself remained unchanged aside from those rate discussions. 

For shipping documentation, Oak Harbor used uniform bills of lading for all freight, indicating Sears as the consignee and marked as 'collect' for return shipments. Conversely, Sears created its own outbound bills of lading, which noted that they were 'PREPAID' and directed the carrier to send freight bills to NLC. The outbound bills did not explicitly identify the shipper but included necessary details regarding the origin, destination, and carrier.

Billing procedures were structured as follows: Oak Harbor invoiced NLC after delivery, expecting payment within 30 days; NLC subsequently billed Sears weekly for cumulative freight charges; Sears paid NLC within five days of billing; and NLC paid Oak Harbor approximately 25 days after receiving Oak Harbor's invoice.

In mid-2004, Oak Harbor was informed that Sears would terminate its relationship with NLC as its freight broker by January 2005, with the actual termination occurring on November 12, 2004. By the end of November 2004, Oak Harbor was owed over $400,000 for freight shipments to Sears. On December 12, 2004, NLC advised Oak Harbor to pursue payment directly from Sears. Sears, however, denied liability, asserting that NLC was responsible for the charges. At that time, Sears had already paid NLC $227,202.50 for freight charges billed by Oak Harbor. In early 2005, Oak Harbor initiated a lawsuit against both NLC and Sears for the owed amounts in Washington state court, which Sears subsequently removed to federal court under relevant statutes. 

The district court ruled that both NLC and Sears were jointly and severally liable to Oak Harbor for $426,417.94 in freight charges, determining NLC's liability stemmed from the Carrier Contract. However, Sears' liability was based on the interpretation of bills of lading rather than the Carrier Contract. The court also ruled that equitable estoppel did not prevent Sears from being liable for the $227,202.50 already paid to NLC. Following the judgment, Oak Harbor requested prejudgment and post-judgment interest, which the court awarded: prejudgment interest at Washington state law rates and post-judgment interest at federal law rates. Sears appealed the ruling.

The standards of review include a de novo review of summary judgment grants, focusing on genuine issues of material fact and correct application of law, and an abuse of discretion standard for prejudgment interest awards, while the applicability of state or federal law regarding interest amounts is also reviewed de novo.

Sears is held liable for freight charges incurred by Oak Harbor for shipping Sears' freight, based on the terms of the bills of lading, which serve as the transportation contract binding the shipper and carrier. By default, the consignor (Sears) remains primarily liable for freight charges unless the bill of lading specifies otherwise. The standard bill of lading indicates that the owner or consignee must pay freight and lawful charges, with potential modifications available through specific clauses like "nonrecourse" or "prepaid." In this case, the bills of lading complied with industry standards and did not include a "nonrecourse" clause, confirming Sears' liability for outbound shipments. Additionally, as the consignee for return shipments, Sears is liable because the bills were marked "collect" instead of "prepaid." Despite agreeing with these principles, Sears argues it should not pay the charges for three reasons: 1) the Carrier Contract waives the default liability provisions of the bills of lading; 2) the Carrier Contract is the sole lawful contract, making the bills of lading simple receipts; and 3) Oak Harbor is equitably estopped from collecting the charges from Sears. Each argument will be addressed in the subsequent discussion.

Freight shipment parties can assign liability for freight charges through a separate contract from the bill of lading, which may establish various payment responsibilities among the shipper, consignee, and carrier. However, default terms of the bill of lading apply when there is no agreement or discriminatory practices. Sears argues that the Carrier Contract between Oak Harbor and NLC waived Oak Harbor's recourse against Sears under the default bill of lading provisions. While contracts between bill of lading parties can allocate payment liability, a contract with a broker, who is not a party to the bill of lading, cannot alter that liability. The bill of lading remains the primary transportation contract, stipulating that the owner or consignee must pay freight charges while the consignor is also liable. Sears fails to provide legal authority supporting the idea that a broker's contract can modify bill of lading liabilities. The cases cited by Sears involved contracts between carriers and direct parties to the bill of lading, not brokers. The Carrier Contract explicitly names only Oak Harbor and NLC, with no mention of Sears, and does not imply that Sears is exempt from liability. Allowing Sears to evade liability through a broker would undermine the freight charge payment obligations. Additionally, Sears claims the Carrier Contract was the sole lawful agreement for shipments, with bills of lading serving only as receipts, referencing a previously required written agreement for below-tariff rates. Oak Harbor acknowledges this intention but does not establish that the bills of lading had no legal effect beyond receipts.

The former regulation referenced by Sears did not mandate that a carriage agreement be comprehensive or exclusive; it required that such agreements be in writing, bilateral, specify obligations for both parties, and cover multiple shipments over a defined period. It did not negate standard liability provisions for bills of lading. Sears contends that the bills of lading cannot serve as contracts since the Carrier Contract specifies the price for shipments. However, a precedent from Toyo Kisen indicates that conflicts between a prior contract and bills of lading must favor the former in cases of "irreconcilable repugnancy." In Toyo Kisen, a conflict arose regarding payment timing, but no such conflict exists here. The bills of lading and the Carrier Contract work together without conflict: the former outlines payment liabilities and shipment details, while the latter specifies pricing. Therefore, both documents can coexist as valid, concurrent contracts governing Sears' freight. 

Additionally, Sears argues for equitable estoppel, claiming it has already paid a majority of the freight charges and should not be liable for double payment as an innocent party. This raises a novel issue regarding liability for freight payments when intermediaries fail to fulfill their obligations, with Sears citing the Sixth Circuit's decision in Olson Distributing Systems, Inc. v. Glasurit America, Inc. for support.

A motor carrier sought payment from a shipper for freight bills submitted to a freight forwarder. Although the shipper paid the freight forwarder, the forwarder absconded with the funds and did not pay the carrier. The Sixth Circuit held that the carrier bore the risk of loss, despite the bills of lading being marked 'prepaid' and the shipper not signing the 'nonrecourse' clause. The court identified four key factors leading to this conclusion: 

1. The carrier's freight bills specified that payment was to be made to the freight forwarder, indicating the carrier should not expect payment from the shipper.
2. The carrier delayed billing the freight forwarder by two to three months after delivery.
3. The carrier violated Interstate Commerce Commission credit regulations, which could have alerted them to the forwarder's misconduct.
4. Prompt notification to the shipper could have mitigated the carrier’s losses.

The court concluded that equitable estoppel necessitated that the carrier absorb the loss due to its conduct misleading the shipper regarding payment expectations. The opinion noted that other circuits (Fourth, Fifth, and Eleventh) had ruled differently in similar cases, determining that shippers should bear the risk when paying through brokers, emphasizing that shippers can mitigate risks by vetting freight forwarders or paying carriers directly. Sears' argument that Southern Pacific Transportation supports its position was deemed misplaced.

The Court in Southern Pacific Transportation denied an estoppel defense to a shipper/consignor due to two main reasons: (a) the shipper/consignor was compensated for the goods but the carrier had not been paid for services rendered, and (b) the shipper/consignor did not mark the bill of lading as 'nonrecourse,' thus remaining primarily liable for freight charges. The Court recognized that while some cases have applied equitable estoppel to prevent a carrier from recovering freight charges, such instances were limited to cases involving a carrier's misrepresentation that led to detrimental reliance by the consignee. In this case, Sears, as the shipper/consignor, failed to protect itself by not designating the bills of lading as 'nonrecourse' and had directed that bills be submitted through NLC, assuming liability. For return shipments, Sears was not deemed an 'innocent consignee' as the bills were marked 'collect,' indicating payment was due, and Sears took no action to limit its liability. Oak Harbor's immediate pursuit of payment further distinguished this case from others where credit was extended improperly. Consequently, equitable estoppel was not a barrier to Oak Harbor's recovery of freight charges.

Regarding prejudgment interest, the district court awarded it starting December 15, 2004, as per Washington law. Sears contested this on two grounds: lack of evidence for the payment due date and the application of the federal interest rate under 28 U.S.C. 1961, given the federal law basis for the judgment. The district court, however, determined a single 'due' date of December 14, 2004, for all 3,386 shipments, simplifying calculations despite the varied billing dates. Oak Harbor proposed this unified approach to accommodate the numerous invoices issued over several months, assuming all shipments were treated as having occurred on the same date for the motion's purposes, specifically November 11, 2004, just prior to Sears' termination of NLC.

The last shipment date for which freight invoices were submitted to NLC for payment was established, leading to the assumption that NLC received all 3,386 freight bills from Oak Harbor by November 14, 2004, with payment due by December 14, 2004. Sears contended that the district court improperly awarded prejudgment interest, arguing that the bills of lading lacked a specified payment date. However, the court's assumptions regarding the normal billing practices and the termination date of NLC were supported by undisputed evidence. NLC routinely billed Sears weekly, and payments were typically made about five days after receipt of a bill. Given that NLC’s services were terminated on November 12, 2004, it was concluded that Sears would have paid NLC prior to the December 14 deadline. Sears cited authority suggesting that district courts can utilize simplified methods to determine fair interest amounts, supporting the court's decision to adopt December 14, 2004, as the accrual date for prejudgment interest. Under Washington law, prejudgment interest is considered substantive to the plaintiff's claim, and while state law generally governs its awards, federal law may apply to calculations when the substantive claim arises from federal law. Sears argued for federal law application based on the district court's reliance on it; however, the case was brought under state law for "monies due," which the court affirmed as the basis for its judgment.

The district court's reliance on federal precedents does not alter the case's foundation in state law. It correctly applied Washington state law regarding the award of prejudgment interest, leading to an affirmation of its decision. Notably, NLC had initially appealed but later withdrew. The bill of lading, a critical transportation contract, binds the shipper and all carriers, serving also as a receipt and evidence of title. Sears initially claimed to have paid approximately $278,000 in freight bills but later acknowledged that about $50,000 of this amount consisted of NLC's service charges. The outbound bills explicitly adopted the rules of the Uniform Straight Bill of Lading, which were also recognized for return shipments. 

The Carrier Contract stipulates that NLC, as the shipper, must pay the carrier regardless of whether it has received payment from Sears. The district court concluded that NLC was responsible for payment, as Sears was not a party to the contract. Sears' contention of a "super-waiver" requirement was rejected; the Carrier Contract does not waive Oak Harbor's rights to collect freight charges. Despite paying only a portion of the freight charges, Sears received full benefits from the services provided by NLC and Oak Harbor, with nearly $200,000 in charges outstanding. Sears' reference to out-of-circuit authority was deemed irrelevant, as those cases involved different circumstances. The bills of lading were not marked "prepaid," which would have allowed Sears to claim detrimental reliance. Sears' only challenge on appeal pertains to the application of state law for prejudgment interest instead of federal law.