LPF II, LLC v. Cornerstone Systems, Inc.

REPLY TO RESPONSE TO MOTION

D. Kan.September 19, 2017

1 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS LPF II, LLC, ) ) Plaintiff ) Case No. 17-2417 ) v. ) ) CORNERSTONE SYSTEMS, INC., ) ) Defendant ) DEFENDANT'S REPLY TO PLAINTIFF'S RESPONSE IN OPPOSITION TO DEFENDANT'S MOTION TO DISMISS OR, IN THE ALTERNATIVE, TO COMPEL ARBITRATION OR, IN THE ALTERNATIVE, TO TRANSFER Defendant Cornerstone Systems, Inc. ("Cornerstone"), through undersigned counsel and pursuant to Local Rule 6.1(d)(2), respectfully submits this Reply to Plaintiff LPF II, LLC's ("LPF") Response in Opposition to Defendant's Motion to Dismiss or, in the Alternative, to Compel Arbitration or, in the Alternative, to Transfer. For the reasons outlined below, Cornerstone's underlying Motion should be granted: I. ARGUMENT A. The Carrier Agreement Applies to LPF and to the Services Provided by Rail Logistics to Cornerstone. Despite LPF’s assertion to the contrary, Cornerstone has clearly and specifically alleged that LPF is bound by the Broker-Motor Carrier Agreement ("Carrier Agreement") between Cornerstone and Rail Logistics-Cold Train (“Rail Logistics”): “On June 14, 2017, Plaintiff, stepping into the shoes of [Rail Logistics], sued Cornerstone for amounts allegedly due and owing to [Rail Logistics], which amounts reflect accounts arising exclusively from the Carrier Agreement.” (Mem. in Support of Def.’s Mot. to Dismiss at Case 2:17-cv-02417-DDC-JPO Document 17 Filed 09/19/17 Page 1 of 9 2 2.) Nonetheless, Cornerstone herein reaffirms that the Carrier Agreement governed all shipments/transactions between Cornerstone and Rail Logistics. See Second Affidavit of J. Ward in Support of Def.’s Mot. to Dismiss, filed contemporaneously herewith, at ¶ 5. B. LPF's Complaint is Time Barred by the Carrier Agreement's Statute of Limitations Provision, which Provision is Not Preempted by Federal Law. Because the Carmack Amendment does not apply to this case, federal law does not preempt the Carrier Agreement's 18-month limitations period, whereby LPF's complaint is time barred in its entirety. 1. The Carmack Amendment (49 U.S.C. § 14706) Does Not Apply to this Case. LPF’s primary argument in opposition to Cornerstone’s Motion to Dismiss is that “49 U.S.C. § 14706(e)(1) prevents the imposition of a less than 2 year statute of limitation on claims against a carrier. Here, the statute of limitations that Cornerstone seeks to impose is for 18 months, but 49 U.S.C. § 14706(e)(1) expressly prohibits an agreement like the Carrier Agreement from creating an 18 month limitation provision.” (See Pl.’s Resp. in Opp. to Def.’s Mot. to Dismiss at 4.) However, and importantly, 49 U.S.C. § 14706, commonly referred to as the Carmack Amendment, does not apply to this case. The Carmack Amendment imposes liability on carriers for loss or damage to cargo. It does not apply to the collection of freight charges. See 49 U.S.C. § 14706(a)(1) (“The liability imposed under this paragraph is for the actual loss or injury to the property caused…”) (emphasis added). It is clear from the Complaint that LPF’s suit against Cornerstone is not for loss or injury to cargo, but rather for collection of allegedly due and owing freight charges: “Despite providing said services to Cornerstone, [Rail Logistics was] not paid for said services.” (Compl. ¶ 12.) Accordingly, the Case 2:17-cv-02417-DDC-JPO Document 17 Filed 09/19/17 Page 2 of 9 3 Carmack Amendment does not apply to this case, whereby federal law does not prohibit the 18-month limitations period agreed to by the parties. (See Ex. 1 to Mem. in Support of Def.’s Mot. to Dismiss at § 5(E).) Because the Carmack Amendment does not apply, the contractual 18-month limitations period agreed to by the parties in the Carrier Agreement is valid and binding upon LPF. As acknowledged by LPF in its Response brief, “[i]t is well established that, in the absence of a controlling statute to the contrary, a provision in a contract may validly limit, between the parties, the time for bringing an action on such contract to a period less than that prescribed in the general statute of limitations, provided that the shorter period itself shall be a reasonable period.” Order of United Commercial Travelers of America v. Wolfe, 331 U.S. 586, 608 (1947) (internal citations omitted).1 In sum, LPF, in its suit to recover freight charges allegedly due and owing from Cornerstone to LPF, which charges all stem from the Carrier Agreement, is bound by the Carrier Agreement’s clear terms, “[a]rbitration or [l]itigation[] proceedings shall be started within eighteen (18) months from the date of delivery or scheduled date of delivery of the freight, whichever is later.” (See Ex. 1 to Mem. in Support of Def.’s Mot. to Dismiss at § 5(E).) C. The Arbitration Clause in the Carrier Agreement is Valid and Enforceable. The effective vindication exception to the Federal Arbitration Act does not apply to this case. Furthermore, the Carrier Agreement's arbitration clause is neither vague nor conflicting. Accordingly, the arbitration clause is valid and enforceable. 1 For this reason, it is immaterial whether the default 18-month limitations period found in 49 U.S.C. § 14705 (applicable to non-rail carriers) or the default 3-year limitations period found in 49 U.S.C. § 11705 (applicable to rail carriers) would apply to this case in absence of the Carrier Agreement. Case 2:17-cv-02417-DDC-JPO Document 17 Filed 09/19/17 Page 3 of 9 4 1. The Effective Vindication Exception Does Not Apply to this Case. The “effective vindication exception” to the Federal Arbitration Act (“FAA”) does not apply to this case. As noted by the Supreme Court in Italian Colors Restaurant: “[t]he exception finds its origin in the desire to prevent prospective waiver of a party's right to pursue statutory remedies. That would certainly cover a provision in an arbitration agreement forbidding the assertion of certain statutory rights. And it would perhaps cover filing and administrative fees attached to arbitration that are so high as to make access to the forum impracticable. But the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.” American Exp. Co. v. Italian Colors Restaurant, 133 S. Ct. 2304, 2310-11 (2013) (internal citations and quotation marks omitted) (emphasis present). Indeed, the Court in Italian Colors Restaurant explicitly “dismiss[ed] concerns that the arbitral forum [is] inadequate,” “so long as the prospective litigant effectively may vindicate its statutory cause of action in [said] arbitral forum.” See id. at 2310. LPF points to no authority that a reasonable limitations period in a contract between two sophisticated business entities for bringing statutory claims in arbitration constitutes a waiver of either party’s right to pursue its statutory remedies, and indeed, there is no such authority. The Carrier Agreement does not forbid LPF from asserting certain statutory rights, nor does it mandate filing and administrative fees attached to arbitration that are so high as to make the forum impracticable. On the contrary, the Carrier Agreement merely establishes an 18-month window in which the parties may vindicate their statutory causes of action in an arbitral forum. (See Ex. 1 to Mem. in Support of Def.’s Mot. to Dismiss at § 5(E).) Accordingly, the effective vindication exception does not apply to this case. Case 2:17-cv-02417-DDC-JPO Document 17 Filed 09/19/17 Page 4 of 9 5 2. The Arbitration Clause is Not Ambiguous. LPF argues that because the Carrier Agreement refers to the Carmack Amendment under its section covering “Loss & Damage Claims,” its separate section concerning “Disputes,” which latter section calls for arbitration at Cornerstone’s discretion, is ambiguous. This argument, which attempts to conflate the Carrier Agreement’s arbitration clause with its statute of limitations provision, misses the mark. Section C(ii) of the Carrier Agreement (“LOSS & DAMAGE CLAIMS”) provides that “CARRIER’s liability for any cargo damage, loss, or theft from any cause shall be determined under the Carmack Amendment, 49 U.S.C. § 14706.” Section E (“DISPUTES”) provides that “[i]n the event of a dispute arising out of this Agreement, including but not limited to Federal or State statutory claims, [Cornerstone] shall [have the] sole right to determine Arbitration or Litigation.” (Emphasis added.) Section E further provides that “Arbitration or Litigation[] proceedings shall be started within eighteen (18) months from the date of delivery or scheduled date of delivery of the freight, whichever is later.” As aforementioned, and as alluded to by Carrier Agreement as outlined above, the Carmack Amendment applies exclusively to claims for freight loss or damage. While the Carmack Amendment prohibits contractual limitations periods less than two years, it does not prohibit arbitration provisions. That the Carrier Agreement’s related but clearly separate limitations period provision would be invalid under the Carmack Amendment does not mean that the Carrier Agreement’s arbitration clause is ambiguous. It is entirely reasonable, and indeed necessary, that the Carrier Agreement would cover myriad items above and beyond freight loss or damage, which assertion is supported by the fact that separate Section E (“LOSS & DAMAGE CLAIMS”) is only Case 2:17-cv-02417-DDC-JPO Document 17 Filed 09/19/17 Page 5 of 9 6 one of several sections comprising the Carrier Agreement. It is thus a natural and reasonable interpretation of the Carrier Agreement that while all claims are subject to binding arbitration at Cornerstone’s discretion, only those claims not governed by the Carmack Amendment are further subject to the Carrier Agreement’s 18-month limitations period. See All West Pet Supply Co. v. Hill's Pet Products Div., Colgate-Palmolive Co., 840 F. Supp. 1433, 1439 (D. Kan. 1993) (internal citations omitted) ("To be ambiguous, the contract must contain provisions or language of doubtful or conflicting meaning, as gleaned from the natural and reasonable interpretation of its language."). Accordingly, the Carrier Agreement's arbitration clause is not vague and conflicting. D. Cornerstone's Motion to Transfer is Not Contrary to Kansas Public Policy. LPF’s arguments against transfer of this case are inapposite. Brenner v. Oppenheimer & Co., 273 Kan. 525 (2002) involved the sale of securities in light of the Kansas securities statutes and is clearly inapplicable to this case. See id. at 543 (internal citations and quotation marks omitted) ("It is well settled in this state that the purpose of the Kansas Securities Act…is to place the traffic of promoting and dealing in speculative securities under rigid governmental regulation and control to protect investors, thereby preventing, so far as possible, the sale of fraudulent and worthless speculative securities.”). Readily distinguishable, this case, at its essence, is nothing more than a suit on a contract to recover unpaid charges for services rendered. Accordingly, the general rule applies, whereby the Carrier Agreement’s choice of law provision is valid and binding upon LPF. See, e.g., id. at 539 ("Where the parties to a contract have entered an agreement that incorporates a choice of law provision, Kansas courts generally effectuate the law chosen by the parties to control the agreement.") Furthermore, and as outlined Case 2:17-cv-02417-DDC-JPO Document 17 Filed 09/19/17 Page 6 of 9 7 above in detail, the Carmack Amendment does not apply to this case. Accordingly, Cornerstone's Motion to Transfer is not contrary to Kansas public policy, and in case this Court determines that the case should neither be dismissed nor compelled to binding arbitration, transfer to the United States District Court for the Western District of Tennessee is appropriate. II. CONCLUSION For the foregoing reasons, Cornerstone respectfully requests that the Court grant its underlying Motion to Dismiss or, in the Alternative, to Compel Arbitration or, in the Alternative, to Transfer, and enter an order dismissing LPF's Complaint with prejudice in its entirety or, in the alternative, compelling LPF's claims to binding arbitration or, in the alternative, transferring this lawsuit to the United States District Court for the Western District of Tennessee. Upon the Court's dismissal of this lawsuit, Cornerstone further seeks an award of its reasonable attorney's fees pursuant to the Carrier Agreement's clear terms. Case 2:17-cv-02417-DDC-JPO Document 17 Filed 09/19/17 Page 7 of 9 8 Respectfully submitted, DYSART TAYLOR COTTER McMONIGLE & MONTEMORE, P.C. By /s/ Matthew W. Geary Patrick K. McMonigle KsFed#70115 Matthew W. Geary KsBar#20686 4420 Madison Avenue Kansas City, MO 64111 (816) 931-2700 (816) 931-7377 – FAX pmcmonigle@dysarttaylor.com mgeary@dysarttaylor.com Scott D. Carey TnBar#15406 Admitted Pro Hac Vice 211 Commerce Street, Suite 800 Nashville, Tennessee 37201 (615) 726-asdf (615) 744-asdf – FAX scarey@bakerdonelson.com Counsel for Defendant Case 2:17-cv-02417-DDC-JPO Document 17 Filed 09/19/17 Page 8 of 9 9 CERTIFICATE OF SERVICE The undersigned hereby certifies that on the 19th day of September, 2017, a copy of the foregoing was filed electronically. Notice of this filing will be sent by operation of the Court's electronic filing system to all parties indicated on the electronic filing receipt. Parties may access this filing through the Court's electronic filing system. Scott Goldstein Thomas Hiatt 1000 Walnut Street, Suite 1400 Kansas City, MO 64106 sgoldstein@spencerfane.com thiatt@spencerfane.com Counsel for Plaintiff /s/ Matthew W. Geary Attorney Case 2:17-cv-02417-DDC-JPO Document 17 Filed 09/19/17 Page 9 of 9