Gary Smallwood contracted with Allied Van Lines, Inc. and SIRVA, Inc. (collectively, AVL) to transport his household goods from southern California to the UAE and to store other items in California. AVL mistakenly shipped Smallwood's firearms and ammunition to the UAE, leading to his arrest and imprisonment for 11 days after UAE authorities discovered the weapons. Smallwood is now facing potential deportation and has sued AVL on various tort and contract claims.
The primary legal issue is whether AVL can enforce a foreign arbitration clause in their shipment contract to compel Smallwood to arbitrate his claims. The district court denied AVL's motion to compel arbitration, ruling that the Carmack Amendment (49 U.S.C. § 14706), which governs interstate shipment of goods, precludes enforcement of foreign arbitration clauses. AVL contended that the district court misinterpreted the Carmack Amendment and conflicted with federal arbitration law, which they argued mandates enforcement of the arbitration clause.
The Ninth Circuit affirmed the district court's decision, concluding that the Carmack Amendment, enacted after federal arbitration statutes, governs the case and correctly prevents the enforcement of the foreign arbitration clause. Smallwood's complaint is still in the pleading stage, and the court accepted the allegations as true for this determination.
The Acceptance of Quotation served as the final written agreement between the parties before Allied International allegedly shipped storage goods, including firearms, to the UAE. Upon the discovery of Smallwood's firearms by UAE officials, he was summoned to the port in Abu Dhabi, where he was arrested, interrogated, imprisoned, and convicted of gun smuggling, now facing deportation. Smallwood subsequently filed a lawsuit in California state court with six causes of action: negligence and negligent infliction of emotional distress, intentional infliction of emotional distress, defamation, breach of fiduciary duty, fraudulent deceit, and breach of contract, naming Allied Van Lines, SIRVA, Allied Pickfords, and Atlas as defendants.
The defendants removed the case to federal court, claiming the Carmack Amendment preempted Smallwood’s state-law claims. The district court partially agreed, dismissing certain claims but allowing Smallwood to amend his complaint under the Carmack framework. It ruled that the breach of contract claim was preempted only regarding the shipment agreement to the UAE, while claims for intentional infliction of emotional distress, defamation, and fraudulent deceit remained intact. Furthermore, the court deemed the arbitration clause in the bill of lading unenforceable concerning Smallwood's Carmack claims, which AVL is appealing.
The text also discusses jurisdiction, confirming that the district court had subject matter jurisdiction since at least one of Smallwood's claims was completely preempted by the Carmack Amendment. It highlights the "well-pleaded complaint rule" for establishing federal-question jurisdiction and the "artful pleading" doctrine, indicating that Smallwood's breach of contract claim, stemming from an interstate shipping contract, fell under the exclusive jurisdiction of the Carmack Amendment. The district court's jurisdiction is affirmed based on the preemption of Smallwood's claims. The review of the denial of the motion to compel arbitration and the interpretation of the Carmack Amendment will occur de novo.
AVL contends that the district court made an error regarding the applicability of the Carmack Amendment and the Federal Arbitration Act (FAA). First, AVL argues that the Carmack Amendment allows for foreign arbitration clauses, and second, that the FAA mandates enforcement of such clauses, even if they contradict the Carmack Amendment. Both arguments are rejected. The Carmack Amendment explicitly governs the shipment in question, which requires a bill of lading for property transport under its jurisdiction, irrespective of whether the carrier mistakenly failed to issue one. A bill of lading is necessary when a motor carrier provides transportation subject to the Surface Transportation Board's (STB) jurisdiction and receives property for that transportation. In this case, Smallwood acknowledged contracting with Allied International for an interstate shipment, and it is confirmed that Atlas received Smallwood’s property in California for delivery to the UAE. Therefore, Atlas was obligated to issue a Carmack-compliant bill of lading, and the shipment is indeed covered by the Carmack Amendment.
The Carmack Amendment, established in 1906 as part of the Interstate Commerce Act, aims to simplify the process for cargo owners by relieving them of the need to identify a negligent carrier among multiple handlers of an interstate shipment. One key protection it offers shippers is the right to sue in a convenient forum of their choice. The interpretation of the Carmack Amendment begins with the statute's language, which is clear and unambiguous, indicating that shippers should not be compelled to agree to foreign arbitration when contracting with carriers of household goods. The statute expressly prohibits such carriers, including AVL, from circumventing its requirements. Among these requirements is the shipper's right to sue in specified venues, allowing civil actions to be brought in certain U.S. district courts based on the carrier's operations or where the alleged loss or damage occurred. This ensures that shippers have a choice of forums for legal recourse.
The shipper is not obligated to select a forum at the time of contracting, as established by the Carmack Amendment's arbitration provision in Section 14708. This section requires motor carriers to offer arbitration only after a dispute arises, ensuring that shippers cannot be compelled to agree to arbitration beforehand. If arbitration is chosen, an oral presentation is only required if all parties consent, protecting the shipper from inconvenient forums. Consequently, shippers retain the right to either accept arbitration offers or pursue litigation in designated venues after a dispute occurs, without being forced to waive this right during contracting.
AVL’s foreign arbitration clause would compel arbitration in the UAE, conflicting with Carmack’s stipulations that shippers must have access to specified venues unless they agree to arbitration post-dispute. AVL's analogy to the Carriage of Goods by Sea Act (COGSA) is misplaced, as COGSA lacks the specific venue protections guaranteed by Carmack. Thus, Carmack prohibits foreign arbitration clauses that limit shippers' venue choices, confirming the district court's interpretation of § 14706.
AVL also claims that this interpretation contradicts federal arbitration law, specifically the Federal Arbitration Act (FAA) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. While federal law favors arbitration, this preference applies only in the absence of conflicting legal provisions. The mandates of the Arbitration Act can be overridden by contrary congressional directives, such as those found in the Carmack Amendment.
Congress may create exceptions to the Federal Arbitration Act (FAA) that can be identified through the text or legislative history of the statute or through conflicts with the statute's purposes. The Carmack Amendment explicitly prevents household carriers from requiring shippers to arbitrate claims as a condition of contracting, indicating a "contrary congressional command" that supersedes the FAA's enforcement of arbitration agreements. AVL contended that the FAA's more recent enactment impliedly repealed the Carmack Amendment; however, this argument was rejected because the relevant provisions of the Carmack Amendment were enacted after both the FAA and the Convention Act. Although the overall Carmack Amendment precedes the FAA, its specific provisions relevant to this case were enacted more recently, suggesting that Congress intended for Carmack to serve as a limited exception to the FAA. Consequently, the arbitration clause in question is unenforceable under 49 U.S.C. § 14706, as it infringes upon a shipper's right to choose their forum after a dispute arises, violating the Carmack Amendment's plain language. The decision is affirmed.
