GKG Law Obtains Declaratory Ruling on Behalf of Freight Forwarder and Its Principal That

GKG Law Obtains Declaratory Ruling on Behalf of Freight Forwarder and its Principal That Carrier’s Tariff Provision Constitutes an Unreasonable Practice

On October 28, 2010, the Surface Transportation Board (the Board) issued a decision in favor of GKG Law’s clients, West Point Relocation, Inc. (West Point) and Eli Cohen (Cohen), holding that a carrier’s tariff provisions cannot hold an individual responsible for a corporation’s debts when there is no indication that the individual expressly agreed to assume that obligation.

Horizon Lines, LLC (Horizon) brought suit in federal court against not only West Point, but also Cohen, its principal, individually, for allegedly unpaid transportation costs. Horizon’s suit against Cohen was predicated upon language in its tariff purporting to hold principals of the billed party personally responsible for the billed party’s failure to pay charges due. Cohen brought a motion to refer the issue of the reasonableness of the tariff provision to the Board.

In declaring Horizon’s tariff provision unreasonable, the Board recognized that a corporation is a legally distinct entity from its officer and agents, and corporate actions, as a rule, do not personally bind individuals. Further it recognized that while the conditions of a tariff are binding on the parties operating under its terms, Horizon and West Point were the parties under the tariff, not Cohen.

In reaching its decision, the Board emphasized that while Cohen, acting on behalf of West Point, received bills of lading for the shipment and personally made arrangements for the shipments, there was no evidence that any of the documentation provided to Cohen actually contained the operative language relating to binding “principals.” Thus, there was no clear indication of Cohen’s intention to assume personal responsibility for the freight charges because Cohen did not individually sign for or otherwise indicate his personal guarantee for the shipping charges. “[T]he mere inclusion of tariff langue purporting to hold principal of a shipper personally liable does not constitute a personal guarantee . . . Taken to its logical conclusion, Horizon’s tariff interpretation could allow it to pursue individually the officers and shareholders of a multi-billion corporation to satisfy corporate shipping debts, even though those officers or shareholders have not agreed to assume those debts.”

The Board distinguished its holding from federal court cases where liability has been imposed upon principals because there, the courts simply applied the language of the tariff without making a reasonableness determination – a determination which rests solely within the authority of the Board.

In reaching its decision, the Board recognized that requiring a personal written guarantee from a corporate officer or shareholder may be an appropriate step for carriers seeking to hedge against the risk of a debtor’s failure to pay transportation costs. But a generic reference to the provisions of a carrier’s tariff which seeks to hold principals liable is an insufficient basis for establishing personal liability against corporate officers and directors.

Practical Considerations

The Board’s decision provides significant protection for shareholders, directors, and agents of a corporation that may be sued by steamship lines as a way of putting pressure on the corporate entity to pay. This decision is particularly noteworthy because it runs counter to numerous federal court cases, particularly in the Southern District of New York, which have upheld tariff rules seeking to impose strict liability against principals, agents and owners of shippers for monies owed by the shipper itself.

For NVOCCs and other carriers seeking to impose liability on "principals" and agents of shippers, the Board’s decision will impose an obstacle to collection. At a minimum, carriers can establish a basis for liability against principals and agents acting on behalf of shippers by having those parties execute guarantees on behalf of the carrier. Alternatively, they can provide the specific tariff language that includes principal and/or agent liability to the individual(s) that they would seek to recover from and hope that is sufficient.

The decision was issued in STB Finance Docket No. 35290, West Point Relocation, Inc. and Eli Cohen – Petition for Declaratory Order.