Opinion
CIVIL ACTION NO. 1:19-cv-03341-JPB
07-07-2020
NORFOLK SOUTHERN RAILWAY COMPANY, Plaintiff, v. GEODIS LOGISTICS, LLC, Defendant/Third-Party Plaintiff, v. Ken's Foods, Inc., Third-Party Defendant.
Anne M. Landrum, John Lowell McKinley, Jr., Mozley, Finlayson & Loggins LLP, Atlanta, GA, Eric Palombo, Jeffrey D. Cohen, Pro Hac Vice, Matthew John Haskins, Keenan Cohen & Merrick P.C., Ardmore, PA, for Plaintiff. Lawrence Green, Pro Hac Vice, Burns & Levinson LLP, Boston, MA, Alex Benjamin Kaufman, Robert J. Kaufman, Fox Rothschild LLP, Atlanta, GA, for Third-Party Defendant. Philip Thompson, Jason Carl Pedigo, Ellis Painter Ratterree & Adams, LLP, Savannah, GA, for Defendant/Third-Party Plaintiff.
Anne M. Landrum, John Lowell McKinley, Jr., Mozley, Finlayson & Loggins LLP, Atlanta, GA, Eric Palombo, Jeffrey D. Cohen, Pro Hac Vice, Matthew John Haskins, Keenan Cohen & Merrick P.C., Ardmore, PA, for Plaintiff.
Lawrence Green, Pro Hac Vice, Burns & Levinson LLP, Boston, MA, Alex Benjamin Kaufman, Robert J. Kaufman, Fox Rothschild LLP, Atlanta, GA, for Third-Party Defendant.
Philip Thompson, Jason Carl Pedigo, Ellis Painter Ratterree & Adams, LLP, Savannah, GA, for Defendant/Third-Party Plaintiff.
ORDER
J.P. BOULEE, United States District Judge
This matter comes before the Court on Geodis Logistics, LLC's ("Defendant") Motion for Judgment on the Pleadings [Doc. 19]. This Court finds as follows:
BACKGROUND
On July 23, 2019, Norfolk Southern Railway Company ("Plaintiff"), an interstate rail carrier, sued Defendant, a warehouseman, for past due demurrage charges. [Doc. 1]. Plaintiff alleges that beginning in January 2018, it released rail cars into Defendant's possession. Id. at 2. Before releasing the cars, Plaintiff contends that it provided Defendant with actual written notice of its demurrage tariff, which is levied when rail cars are not returned on time. Id. at 2-3. Despite being on notice of the tariffs, Defendant allegedly failed to return possession of the rail cars within the allotted time. Id. at 3. In fact, Plaintiff contends that between January 2018 and August 2018, Defendant accrued demurrage charges in the amount of $281,489. Id. Defendant has refused to pay the demurrage charges, and as a result, Plaintiff brought this action. On October 1, 2019, Defendant moved for judgment on the pleadings. [Doc. 19].
ANALYSIS
"Judgment on the pleadings is appropriate where there are no material facts in dispute and the moving party is entitled to judgment as a matter of law." Perez v. Wells Fargo N.A., 774 F.3d 1329, 1335 (11th Cir. 2014) (citation and punctuation omitted). When a district court analyzes whether a party is entitled to judgment on the pleadings, it must "accept as true all material facts alleged in the non-moving party's pleading, and ... view those facts in the light most favorable to the non-moving party." Id.
In 2009, the Eleventh Circuit Court of Appeals addressed a demurrage dispute between a rail carrier and a warehouseman. Norfolk S. Ry. Co. v. Groves, 586 F.3d 1273, 1275 (11th Cir. 2009). Like the case here, in Groves, a rail carrier sued a warehouseman for unpaid demurrage. Id. at 1275-76. Typically, under the common law, only a consignee of freight was liable for demurrage accrued at the destination. In other words, only a warehouseman who was also a consignee was liable for demurrage. The warehouseman in Groves argued that it was not liable for the demurrage because even though it was identified as a consignee on the shipping contract, it did not consent to being named a consignee and was not aware that it was named a consignee. Id. at 1276. The Eleventh Circuit, therefore, was asked to determine whether the warehouseman could be liable when it did not consent to the designation of consignee.
Before Groves was appealed to the Eleventh Circuit, two other circuits—the Seventh Circuit Court of Appeals and the Third Circuit Court of Appeals—addressed warehouseman liability under similar facts and reached conflicting results. See Ill. Cent. R.R. Co. v. S. Tec. Dev. Warehouse, Inc., 337 F.3d 813 (7th Cir. 2003) ; CSX Transp. Co. v. Novolog Bucks Cty., 502 F.3d 247 (3d Cir. 2007). The Seventh Circuit determined that "being listed by third parties as a consignee on some bills of lading is not alone enough to make [a warehouseman] a legal consignee liable for demurrage charges." Groves, 586 F.3d at 1280. The Third Circuit, on the other hand, held that "an entity named on a bill of lading as the sole consignee, without any designations clearly indicating any other role, is presumptively liable for demurrage fees on the shipment to which that bill of lading refers." Id.
In deciding the issue, the Eleventh Circuit recognized that demurrage charges serve a twofold purpose: (1) "to secure compensation for the use of the car and of the track which it occupies;" and (2) "to promote car efficiency by providing a deterrent against undue detention." Id. at 1276. The Groves court held that liability for demurrage must be founded either on contract, statute or prevailing custom. Id. at 1278. In 2009, because no prevailing industry custom or statute held "non-parties to a shipping contract liable for demurrage," the Eleventh Circuit's analysis was limited to only contract law. Id. In analyzing how an entity becomes a consignee, and thus liable for demurrage, the Eleventh Circuit noted that "consignee status is more than a mere designation" and "a party's status as [a] consignee is a matter of contract and must be established as such." Id. at 1281. Like with all contracts, "in order for a contract to be binding and enforceable, there must be a meeting of the minds on all essential terms and obligations of the contract." Id. Because there was no meeting of the minds, the Eleventh Circuit determined that the warehouseman was not liable. Id. at 1282. Ultimately, the Eleventh Circuit held that to be liable for demurrage, "a party must assent to being named as a consignee on the bill of lading ... or at the least, be given notice that it is being named as a consignee in order that it might object or act accordingly." Id. Under 49 U.S.C. § 1321, the Surface Transportation Board ("STB") is vested with the authority to prescribe regulations in carrying out subtitle IV of Title 49 of the United States Code. Stated another way, the STB has jurisdiction over transportation by rail carriers. See 49 U.S.C. §§ 1321 and 10501(a)(1)(A). Because of the split in authority regarding demurrage liability, and after the Eleventh Circuit issued its decision in Groves, the STB issued 49 C.F.R. § 1333.3. The regulation, which is titled "Who is subject to demurrage," states that:
The rail carrier in Groves petitioned the Supreme Court of the United States for a Writ of Certiorari. Petition for a Writ of Certiorari, Norfolk S. Ry. Co. v. Groves, 562 U.S. 1194, 131 S.Ct. 993, 178 L.Ed.2d 854 (2011) (No. 09-1212), 2010 WL 1436440, at *1. The Supreme Court invited the Acting Solicitor General to express his views on whether the rail carrier's petition should be granted. Brief for the United States as Amicus Curiae, Groves, 562 U.S. 1194, 131 S.Ct. 993 (No. 09-1212), 2010 WL 5069532, at *1. The Acting Solicitor General, arguing on behalf of the United States, opposed the rail carrier's petition and explained that the STB has broad powers to regulate demurrage and other railroad related matters. Id. at 3. Because of this broad power, the United States argued that the Supreme Court "should allow the [STB] to apply its experience to resolve the issue of demurrage liability for warehouseman, as well as other related demurrage issues, through its rulemaking proceedings." Id. at 9-10. The United States further cautioned that even if certiorari was granted, the results of any rulemaking by the STB could potentially supersede the Supreme Court's decision. Id. at 19. Ultimately, the Supreme Court denied certiorari. 562 U.S. at 1194, 131 S.Ct. 993.
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[a]ny person receiving rail cars from a rail carrier for loading or unloading who detains the cars beyond the period of free time set forth in the governing demurrage tariff may be held liable for demurrage if the carrier has provided that person with actual notice of the demurrage tariff providing for such liability prior to the placement of the rail cars.
49 C.F.R. § 1333.3 (2014).
The issue before the Court is whether Groves ’s holding still controls after the STB promulgated § 1333.3. In arguing that it does, Defendant asserts that the STB was without authority to issue § 1333.3. More specifically, Defendant argues that Congress did not delegate authority to the STB to make rules and regulations with respect to whom may be liable for demurrage. In the alternative, Defendant argues that even if the STB had the authority to issue § 1333.3, this Court should afford it no deference because it is unreasonable and conflicts with the common law.
The first question this Court must answer is whether the STB had the authority to promulgate 49 C.F.R. § 1333.3. Federal agencies—like the STB—may promulgate rules to fill "ambiguities" or "gaps" in statutes. Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842-43, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Typically, administrative agencies have the authority to "fill gaps" when the statute is silent. Id. While an agency has no power to tailor legislation to bureaucratic policy goals by rewriting unambiguous statutory terms, agencies have the power to exercise their discretion in the "interstices created by statutory silence or ambiguity." Util. Air Regulatory Grp. v. E.P.A., 573 U.S. 302, 325–26, 134 S.Ct. 2427, 189 L.Ed.2d 372 (2014).
Plaintiff asserts that the STB had the authority to issue 49 C.F.R. § 1333.3 because 49 U.S.C. § 10746 is silent as to which entity is liable for demurrage. § 10746 states that:
[a] rail carrier providing transportation subject to the jurisdiction of the [STB] under this part shall compute demurrage charges, and establish rules related to those charges, in a way that fulfills the national needs related to--
(1) freight car use and distribution; and
(2) maintenance of an adequate supply of freight cars to be available for transportation of property.
While the above statute unambiguously states who shall compute the demurrage charges (the rail carrier), the statute is silent as to who is liable for the demurrage. Here, Congress has not directly spoken to the precise question at issue (i.e., who is liable for demurrage). Congress also did not explicitly state that the STB is authorized to regulate who is liable for demurrage. But "[s]ometimes the legislative delegation to an agency on a particular question is implicit rather than explicit," Chevron, 467 U.S. at 844, 104 S.Ct. 2778, and "it can still be apparent from the agency's generally conferred authority and other statutory circumstances that Congress would expect the agency to be able to speak with the force of law when it addresses ambiguity in the statute or fills a space in the enacted law." United States v. Mead Corp., 533 U.S. 218, 229–30, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001).
This Court finds that Congress left a gap in the statutory scheme because § 10746 is silent as to who is liable for demurrage. "From that gap springs executive discretion." Gonzalez v. Reno, 212 F.3d 1338, 1348 (11th Cir. 2000) (analyzing an immigration statute that clearly gave any alien the right to apply for asylum but was silent as to how he or she could apply for asylum). "As a matter of law, it is not for the courts, but for the executive agency charged with enforcing the statute [here, the STB], to choose how to fill such gaps." Id. at 1348-49. Ultimately, this Court finds that because the statute is silent as to who is liable for demurrage, the STB had the authority to "fill the gap" and issue a regulation regarding the issue. Accordingly, the first step of the Chevron analysis is satisfied.
Under Chevron, once it is determined that the administrative agency had the authority to act, it is given controlling weight unless the action was "arbitrary, capricious or manifestly contrary to the statute." 467 U.S. at 844, 104 S.Ct. 2778. The Supreme Court has "long recognized that considerable weight should be accorded to an executive department's construction of a statutory scheme it is entrusted to administer." Id. Generally, if the agency's choice represents a "reasonable accommodation of conflicting policies that were committed to the agency's care by the statute," a court should not disturb it. Id. at 845, 104 S.Ct. 2778. In other words, a court is required to defer to the agency's interpretation "so long as the construction is ‘a reasonable policy choice for the agency to make.’ " Nat'l Cable & Telcomms. Ass'n v. Brand X Internet Servs., 545 U.S. 967, 987, 125 S.Ct. 2688, 162 L.Ed.2d 820 (2005).
This Court finds that 49 C.F.R. § 1333.3 reflects a reasonable policy choice. As an initial matter, in promulgating the regulation, the STB engaged in a full rulemaking process complete with time devoted to comments by interested parties. In its Motion for Judgment on the Pleadings, Defendant argues that STB's policy choice was not reasonable because it conflicted with the common law and previous agency decisions. A conflict with common law or previous agency decisions, however, does not mean a regulation is unreasonable. In fact, the Supreme Court has made clear that agencies are not precluded from revising judicial constructions of ambiguous statutes and the agency is free to choose a different construction of the statute. Nat'l Cable, 545 U.S. at 983-84, 125 S.Ct. 2688.
As stated above, Defendant argues that the STB ignored its previous precedents, and therefore the regulation is unreasonable. Defendant's argument is without merit. Here, the STB fully recognized its previous precedents and determined "that it was necessary to revisit [the agency's] demurrage precedent to consider whether the agency's policies accounted for current statutory provisions and commercial practices." Demurrage Liability, 79 Fed. Reg. 21407-01, 21411 (Apr. 16, 2014) (codified at 49 C.F.R. § 1333.3 ). Notably, "[a]n initial agency interpretation is not instantly carved in stone. On the contrary, the agency, to engage in informed rulemaking, must consider varying interpretations [of ambiguities in statutes within an agency's jurisdiction to administer] and the wisdom of its policy on a continuing basis." Chevron, 467 U.S. at 863-64, 104 S.Ct. 2778. Other than conflicting with previous agency precedent, Defendant makes no other substantive arguments as to why the regulation is unreasonable. Ultimately, the STB did not ignore its previous precedents and instituted the rulemaking process in an effort "to update [its] policies regarding responsibility for demurrage liability and to promote uniformity in the area." Demurrage Liability, No. EP 707, 2014 WL 1399404, at *6 (Apr. 9, 2014). This policy choice was not unreasonable.
Contrary to Defendant's arguments, the STB also did not ignore the common law. Instead, the STB initiated the rulemaking process because of the circuit split created when the Eleventh Circuit decided Groves. The STB explained that the state of the common law and the tension between the circuits were reasons for the regulation. Demurrage Liability, 79 Fed. Reg. at 21408. At the time the regulation was implemented, the STB noted that a gap in the common law existed where a warehouseman could not be liable for demurrage, yet, the warehouseman was "in a position to facilitate or impede car supply." Demurrage Liability, No. EP 707, 2014 WL 1399404, at *2. The common law developed in such a way that for a warehouseman to be liable for demurrage, "there had to be some basis for liability beyond the mere fact of handling the goods shipped." Id. The STB identified this as a shortcoming in the common law, and by implementing § 1333.3, the STB reasoned that demurrage liability would be tied "to the conduct of the parties directly involved with handling the rail cars and would advance the goals of § 10746 by permitting the carrier to impose charges on the party best able to get the cars back to the carrier." Demurrage Liability, 79 Fed. Reg. at 21409. Given the national needs identified by Congress (i.e., freight car use and distribution and maintenance of an adequate supply of freight cars to be available for transportation of property), STB's decision to adopt a "conduct-based approach" instead of one based on the bill of lading makes sense to this Court and is reasonable. This Court finds that the regulation simplifies the demurrage process and provides uniformity.
Ultimately, this Court, which must give considerable weight to an agency's decision, finds that the STB provided a thorough and rational basis for issuing § 1333.3 and further finds that § 1333.3 is reasonable. § 1333.3 is a conduct-based rule which ties demurrage liability to the conduct of the parties directly involved with handling the rail cars and advances the goal of freight car use and distribution by permitting the carrier to impose charges on the party best able to get the cars back to the carrier.
CONCLUSION
For the reasons explained above, this Court finds that the STB was vested with authority to issue 49 C.F.R. § 1333.3 because Congress was silent as to which entity is liable for demurrage. This Court further finds that § 1333.3 is reasonable and therefore entitled to deference. Because the regulation is entitled to deference, Defendant's argument that Groves controls in this case is without merit, and thus Defendant's Motion for Judgment on the Pleadings [Doc. 19] is DENIED.
SO ORDERED this 7th day of July, 2020.