34:3 - Sullivan, Transportation Tort Liability Travels Up the Supply Chain

“In the last analysis, this is a case in which the law may simply have to catch up with an obligation that Robinson has voluntarily assumed, presumably in response to the market.” This pithy and portentous observation by United States District Judge J. Frederick Motz in the seminal case Schramm v. Foster, fairly states the present exposures facing parties (i.e. shippers, brokers, and third party logistics companies) as they establish a new and evolving economic presence in the supply chain. In short, how does a company that provides logistics services in self defined contract relationships properly apprehend tort liability that occurs downstream or upstream in the supply chain?

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34:3 - Hardman, Legal, Practical, and Economic Aspects of Third-Party Motor Carrier Service: An Overview

Introduction: Economic deregulation of the motor carrier industry in 1980 had many effects on the nature of the service performed, the number of carriers and equipment capacity flowing into the marketplace, and also in the growth and importance of third-party providers. Most new motor carriers were single-operator entities or those with limited fleets. Because new grants of Certificates of Public Convenience and Necessity or Permits allowed the carriage of general commodities, with limited exceptions, to points in the United States, carrier management in the new companies, as well as those who were attempting to expand their operations, frequently did not have the resources, such as time, money, or the ability to develop sales staffs to capture the type and volume of freight movements to produce profitable operations. Where trip leasing and interlining/interchange played a significant role in many carrier operations prior to deregulation, these alternative sources of business became less common as carriers could provide the service they either previously trip leased or interlined directly through themselves when authority became available.

Freight brokers fulfilled a role that many carriers needed and desired, i.e., to find freight from shippers throughout the United States and have it available when and where the carriers needed it. They substituted for carriers’ sales and marketing personnel. There were also advantages in dealing with brokers as opposed to trip leasing as it eliminated the need for equipment inspections, leases, and identifying the equipment required under trip leasing regulations and case law.

Shippers, rather than dealing with the multiple carriers now in the market-place, could outsource the costly functions of locating the carriers, investigating them, contracting with them, and otherwise dealing with them by merely working with a broker or minimal number of brokers. Similar advantages existed in terms of using freight forwarders. By assembling less-than-truckload [l-t-l] freight from multiple shippers, the shippers’ freight could be moved by the bulging truckload carrier population at lower costs than shipping on an l-t-l basis where fewer carriers competed and service was frequently higher priced because of union wages and work rules.

Other entities called logistics companies ultimately came into existence with the rise in intermodal services, “just-in-time” service, the demise of tariffs, and technology advances. Shippers were frequently short of individuals who were trained or able to adjust to the new environment or felt that outsourcing was a more reasonable and cost effective method to keep abreast of the change.In the current environment, these third-party intermediaries have established themselves as valuable contributors to the movements of freight and, while growth may not be as rapid as in the past twenty years, there is no reason to believe that they will not be a continuing force in transportation.

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34:2 - Benedict, Canada’s Railway Safety Regulatory Regime: Past, Present & Future

Introduction: When accidents happen on the railway catastrophe usually follows for individuals, the public, property, and the environment. The extreme weights involved in moving railway equipment give no quarter to anything unfortunate enough to get in its path—whether metal, rock, or flesh. In addition, trains regularly carry dangerous goods through populated urban areas; products whose potential to inflict death and destruction is immense and previously proven.

Canada is no stranger to railway accidents and Part II of this article explores a few of the more recent examples. Canada has a complex regulatory regime in place to ensure the safe operation of railways running within its borders, and the safety of those that could suffer damage as a result of railway mishaps—railway employees, the public, the environment.

Part III examines Canada’s existing and past railway safety regulatory regime, and the “deregulation” which began in the late 1980s, as well as the present trend toward creeping re-regulation that seems to be occurring in light of a recent spate of headline-grabbing derailments in Canada.

Part IV concludes the paper with the suggestion that government should take back the safety obligations that have been granted to industry (i.e. self-inspection and safety management systems) and recognize that deregulation of safety, wherein the railway is responsible for the management of its own safety, is not adequately protecting the interests of the Canadian public, the Canadian environment, or Canadian railway workers.

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34:2 - Waid - Piloting in Post-Kirby Waters

Introduction: Multimodal carriage of goods has become the state of the art in international trade. Contracts for carriage of goods now frequently involve a through bill of lading, whereby the same contract governs the entire shipment, even though multiple carriers and multiple modes of transportation are used. Unfortunately, the United States lacks a uniform statutory liability scheme covering multimodal carriage of goods. What the United States does have is a cluster of statutes that relate to land, air, and sea transportation individually. The interplay between these statutes has produced much confusion. The Supreme Court recently resolved some of this confusion by announcing that state law does not apply to through bills of lading that qualify as maritime contracts in Norfolk Southern Railway Company v. Kirby. Kirby still leaves much unresolved and a recent circuit split over the applicability of the Carmack Amendment, a land-based statute, does nothing to resolve the ambiguity surrounding multimodal carriage of goods.

In announcing its opinion in Sompo Japan Insurance Company of America v. Union Pacific Railroad Company, the Second Circuit departed from the established rule that the Carmack Amendment to the Interstate Commerce Act only applies to the domestic inland leg of an international multimodal shipment of goods when a separate bill of lading is issued. In coming to its conclusion, the Second Circuit rejected the holdings of the Pennsylvania Supreme Court, the Fourth, Sixth, Seventh and Eleventh Circuits, and narrowly interpreted the Supreme Court’s decision in Norfolk Southern Railway Company v. Kirby. The problem with Sompo is not its departure from well-established precedent. The problem with Sompo is that when the court looked to the contractual extension of Carriage of Goods by Sea Act’s terms and the Carmack statutory requirements, it saw two dramatically different schemes of liability whose terms could not be reconciled. By holding that the carrier’s through bills of lading did not meet the limitation of liability requirements of Carmack, Sompo creates enormous uncertainty in the world of international carriage of goods. As a result of this decision, inland carriers are now exposed to unlimited liability if they are operating under any of a number of standard through bills of lading. Ultimately this confusion is part of a larger problem: the lack of a multimodal statutory regime. The burden of developing such a scheme lies at the feet of the legislature. Until the legislature takes action, all parties involved in this billion-dollar industry need to know that the contracts they are operating under are eventually going to be enforced and may be subject to the Second Circuit’s holding that could allow for greater liability than the parties contemplated.

This article addresses the two statutes at issue in the current circuit split: COGSA and the Carmack Amendment. Because the split primarily concerns the applicability of the Carmack Amendment, the author pays particular attention to that statute’s legislative history and judicial interpretation. In addition, the author outlines the facts and opinion of Sompo. While the author agrees with the Second Circuit on the issue of whether Carmack applies, it is his contention that the Second Circuit went astray at several key points in its analysis. The author also argues that the Circuit’s holding unreasonably confuses an already complex issue. Only Congress can properly fix this state of affairs by developing a unified statute to govern the liability of multimodal carriage. But, until the issue is legislated, courts should be loath to make this bad situation worse. As such, in this article the author suggests a course of action for circuit courts that have not yet dealt with the issue and put forward steps that the Supreme Court should take to resolve this circuit split.

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34:1 - Schuitema, Road Pricing as a Solution to the Harms of Traffic Congestion

Introduction: In cities throughout the United States commuters are increasingly finding themselves stuck in traffic. The host of vehicles sitting motionless on the nation’s freeways each day impose massive costs upon society; including air pollution, lost time, wasted fuel, added noise, reduced civility, etc. What’s more, traffic congestion is an epidemic that is growing. In the nation’s largest urban areas the growth in the number of motorists has risen faster than the growth of roadway capacity and will continue to do so.

An effective and administrable measure for reducing traffic congestion and the resulting negative impacts is “congestion pricing.” Congestion pricing simply refers to any method of charging road users a fee for the congestion costs they impose upon society. Since road users are not currently forced to consider the external costs of commuting when deciding when and how much to drive, the nation’s roadways have become an overused resource. Congestion pricing seeks to aid drivers in making more efficient decisions by making them aware of the “true” costs of driving.

Even though domestic and international congestion pricing programs have proven successful, the chief obstacle to widespread implementation remains public and political acceptance. State and local governments must put time, money and effort into “selling” congestion pricing schemes if they are to have any hope of gaining the requisite support. This necessitates an extensive public debate of congestion pricing, addressing both its strengths and weaknesses as well as considering alternative measures.

Part I of this paper addresses America’s infatuation with – and reliance upon – the automobile. Part II analyzes the costs imposed upon society by traffic congestion; including (1) those costs felt directly by motorists, (2) costs incurred by the government, and (3) external costs hidden from commuters. Part III takes a look at the different forms congestion pricing can take, including the second-best option of parking policy reform. Part IV considers the most prominent examples of domestic and international congestion pricing and the success such programs have had. Part V examines the impediments to popular acceptance of congestion pricing schemes and suggests some ways to overcome initial opposition.

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34:1 - Normand, A Plaintiff's Guide to Surviving the GARA Defense: What Works and What Doesn't

Introduction: Since its peak in 1978, the general aviation industry in the United States has been on a steady decline. An industry that once sold 17,811 general aviation aircraft per year, only sold 899 by 1992. The result has been job losses totaling 100,000 and the deterioration of the United States’ position in international trade.

Although several factors contributed to the decline in the general aviation industry, in hearings before Congress, manufacturers and users of general aviation consistently identified excessive product liability costs as a major cause of the industry’s decline. Even though safety has improved over the past decades—the accident rate for general aviation dropping 30% from 1981 to 1994—manufacturers’ litigation costs have continued to increase. As a result, Congress enacted the General Aviation Revitalization Act of 1994 (GARA) in an effort to revitalize a once flourishing industry. GARA establishes “an 18 year statute of repose for a civil action against an aircraft manufacturer for damages arising out of an accident involving a general aviation aircraft.” Under GARA, a manufacturer is protected from liability if its aircraft is involved in an accident more than 18 years after the aircraft was delivered to its first purchaser. If a new component part is added to the aircraft or replaced by another part, the statue of repose starts over for that part “beginning on the date of completion of the replacement or addition.”

The stated purpose of the statute was “to limit excessive product liability costs, while at the same time affording fair treatment to persons injured in general aviation aircraft accidents.” One reason Congress determined a statute of repose would not be unfair to consumers is that most general aviation aircraft accidents are caused by pilot error rather than a manufacturing or design defect. Ninety-three percent are caused by pilot error, while only one percent are caused by manufacturing or design defects. Of those accidents that are caused by a manufacturing or design defect, nearly all of those defects are discovered early in the life of the aircraft. Thus, Congress determined it was “extremely unlikely that there [would] be a valid basis for a suit against the manufacturer of an aircraft that is more than 18 years old.” However, Congress noted that “even though a claimant is unlikely to be successful in a lawsuit against the manufacturer of an aircraft which is more than 18 years old,” these suits are frequently filed. And manufacturers have to spend money either litigating these suits or settling to avoid litigation. In addition, it would be unfair to hold manufacturers liable after their aircraft have a proven record of reliability: “A statute of repose is a legal recognition that, after an extended period of time, a product has demonstrated its safety and quality, and that it is not reasonable to hold a manufacturer legally responsible for an accident or injury occurring after that much time has elapsed.”

The enactment of GARA marked the first imposition of a federal statute of repose. Congress stressed that because of the uniqueness of the aviation industry, it was willing to take this unprecedented step; aviation is unlike any other industry in that it is the only one subjected to “‘cradle to grave’ Federal regulatory oversight.” Because of this oversight, limiting a manufacturer’s liability will not be to the detriment of safety. Even without the deterrent of infinite liability, manufacturers of general aviation still have to satisfy the rigid safety standards required by the Federal Aviation Administration (FAA).

Congress identified two other elements of fairness in GARA. First, GARA provides four exceptions from the statute of repose: for knowing misrepresentations by manufacturers, for passengers seeking treatment for medical emergencies, for persons injured while not aboard the aircraft when it crashed, and for manufacturers’ written warranties. Second, the statute is “rolling” with regard to newly installed parts, so that if the part causing the accident is less than 18 years old, the manufacturer of that part is not protected by GARA.

Despite all of these rationalizations for the appropriateness of a federal statute of repose, there will still be occasions when a legitimate claimant injured in a general aviation accident because of a design or manufacturing defect is, nevertheless, barred by GARA from bringing a cause of action against the manufacturer. A claimant seeking to bring an action that might be barred by GARA needs to be familiar with the language of the statute and how it has been applied by courts. For the claimant pursuing a products liability action against a general aviation manufacturer, “GARA erects a formidable first hurdle.” But if the claimant defeats the GARA defense, for example, by showing that one of its exceptions applies or by showing that some aspect of the statute is not satisfied, then the claimant will be left only to contend with her state’s usual products liability laws.

This Comment seeks to guide plaintiffs potentially seeking products liability actions against general aviation manufacturers by providing an analysis of the practical application of the statute. It looks at the issues that have arisen regarding the application of GARA since its enactment in 1994 and analyzes the various outcomes in the case law to provide some indication of which arguments have merit and which ones are certain losers. Since GARA does not apply to an accident unless the aircraft involved is a general aviation aircraft, this Comment starts, in section II, by helping the reader understand what “general aviation aircraft” means according the definition set forth in GARA. Then, in section III, it explains how courts have determined who is a “manufacturer” protected by GARA, since the statute itself does not provide a definition. Next, section IV explores the issue of how to know when a manufacturer is acting in its capacity as a manufacturer, and when it is not. In section V, the Comment discusses issues surrounding how to determine when the statute begins to run. Section VI seeks to provide some clarity to the difficult questions that arise regarding GARA’s rolling provision, including how courts have handled revised flight manuals and overhauled or redesigned parts. In section VII, the Comment then discusses the four exceptions to GARA’s statute of repose, focusing mainly on the exception that has generated the most litigation—the “knowing misrepresentation” exception. Section VIII looks at the jurisdictional issues that have arisen in applying GARA, including whether GARA confers subject matter jurisdiction on federal courts and whether GARA applies to accidents that occurred outside the United States. Finally, section IX outlines the various constitutional challenges that have been lodged against GARA and explains why they have all failed.

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34:1 - Hardaway, Of Cabbages and Cabotage: The Case for Opening up the U.S. Airlines Industry to International Competition

Introduction: The U.S. domestic airline market is one of the very few American industries which, since its inception, has remained tightly closed to any and all foreign competition. Although the reasons for this closed-door policy are mostly geopolitical, the role of economic protectionism as the prime determinant has not heretofore been comprehensively examined.

Often cited as a reason for excluding all foreign competition is the refusal of foreign countries to allow American carriers to compete with the domestic carriers of those foreign countries. The U.S. Policy of excluding all foreign competition from domestic air markets is a legacy of the protectionist policies of U.S. Government Depression era policies. Those policies in turn found their roots in the successful attempts by the large railroad cartels during the late 1800’s to enlist the aid of the U.S. Government to fix prices and exclude competition.

Fierce competition in the railroad industry in the late 1800’s prompted the most powerful railroads to form cartels in order to fix prices and exclude competition, thereby insuring high oligopoly profits. Particularly irksome to the most powerful railroads were the new industry entrants who offered lower prices to consumers, thereby taking business from the entrenched railroads. Even more alarming was the practice of some members of the railroad cartels to “cheat” by offering lower prices in order to win customers.

When the Sherman Antitrust Act threatened to made oligopoly and monopoly price fixing and collusion illegal, the railroad cartel finally concluded that the only way to insure discipline from within and to immunize themselves from criminal charges of price fixing, was to get the government to pass a law which not only condoned price-fixing by enshrining the practice into law, but which actually obligated the government to do the dirty work of fixing prices for them. The result was the Interstate Commerce Act (ICC Act), and the founding of the Interstate Commerce Commission (ICC), under which the government itself set prices on behalf of the railroad cartels. By making it illegal for competitors to offer lower prices to customers, the ICC Act effectively broke the backs of any competitor who tried to enter the industry by offering more efficient or economical service.

The ICC Act more than others epitomized Stigler’s first law of economics: “(E)very industry or occupation that has enough political power to utilize the state will seek to control entry.” The final victory of the railroad cartel was marked by the passage of the Hepburn Act of 1906 which further tightened the power of government to fix prices on behalf of the cartels. This prompted George Perkins to write to his boss, J.P.Morgan, “the Hepburn bill is going to work out for the ultimate and great good of the railroads. There is no question but that rebating (offering lower prices) has been dealt a death blow.” The New York press noted that the railroads themselves had written the law and “that explains why the railroad lobbies did not raise a note of protest against the Hepburn bill in the house.” The Hepburn act set the stage for similar law fixing not only prices, but routes and rights of entry in the motor carrier and airline industries.

The Civil Aeronautics Act of 1938 went further than any of the previous transportation regulatory laws by not only fixing prices, but also by establishing virtually absolute barriers to entry by competitors. Although new entrants could, in theory, receive permission to compete with established carriers by persuading the civil aeronautics board to issue a certificate of “public convenience and necessity,” in practice the Civil Aeronautics Board (CAB) succeeded in preventing a single competitor from entering the airline industry during its heavy-handed reign (1938-1975). Professor Paul Dempsey has observed that ‘this excessively rigid regulatory scheme established by the CAB…between 1938 and 1975, allowed the creation of an effective oligopoly composed the five largest trunk line carriers” - this despite the fact that the airline industry itself expanded by 23,800 percentage points during this same period.

Building on the success of the railroad cartel in enlisting the power of government to fix prices and exclude competition, the airline industry succeeded in establishing itself as a price-fixing cartel thriving on high fares and immunity from competition of any kind. In 1962, President John F. Kennedy demanded in his transportation message “greater reliance on the forces of competition and less reliance on the restraints of regulation.” It was clear that the price-fixing and competition-excluding laws harmed consumers and workers alike.

The final straw was the revelation by the 1975 Kennedy hearings in Congress that regulated air fares were 40% to 100% higher than they would be without government price-fixing on behalf of entrenched carriers, thereby costing consumers up to $3.5 billion in excess fares. The final to government sponsored price fixing and exclusion of competition was the Airline Deregulation Act of 1978 (ADA) which “placed maximum reliance on competitive market forces.” Everyone enjoyed the benefits of competition. Consumers enjoyed reduced fares, while workers received an expanded industry with many more jobs. Only three years after deregulation eleven newly formed airlines providing jet service had entered the U.S. Airline market.

By 2000, however, disturbing trends toward renewed concentration in the industry were evident. This trend was exacerbated in part by lax antitrust policies of the U.S. Government which permitted anti-competitive mergers and consolidations, and partly by political forces placed on the government to protect airlines, particularly large ones, from failure and the consequences of their inefficiency. Lax bankruptcy laws allowed failing, inefficient, and bloated carriers to continue operating, often with little prospect of ultimate success or economic viability, instead of allowing those firms to simply dissolve and allow the process of bankruptcy to redistribute its assets to more efficient and cost productive firms.

The most important cause of the reconsolidation of the airline industry has been the continued oligopolization of airport resources. Deregulation in the “air,” in the form of freedom to charge market fares and choose the most efficient routes and schedules, was never followed up with deregulation on the “ground” - that is with access to airport gates and slots. Long term leases with airport authorities assured entrenched trunk lines of access to scarce gates, while landing rights and “slots” awarded without cost to favored carriers during the regulatory years (1938-1975) provided ground right monopolies and a barrier to new entry.

Since I testified before Congress to urge that the government condemn airport gates and slots and open them up to fair and open bidding by all carriers, including new entrants, little has been done to open up access to airport resources. Without such access, new entrants are denied entry to the market no less than by the arbitrary exclusion policies of the CAB during its regulatory reign.

While opening up airport resources to competitors and new entrants would go far in achieving the ultimate goals of the ADA, true economic deregulation requires that such a policy be combined with opening up the domestic market to foreign competition. With a stroke of the pen, the trend toward reconsolidation and oligopolization of the domestic airline market could be reversed and the benefits of free trade and competition once again enjoyed by the traveling public.

This article attempts to show that the economic advantages of free trade in the airline industry is no less than other industries, but also that the reasons posited for the rejection of free trade do not stand up to comprehensive analysis. Proposed herein is the adoption of “cabotage,” defined by the Standard Dictionary of the English language as "air transport of passengers and goods within the same national territory." The definition adopted by International Civil Aviation Organization (ICAO) at the Chicago Convention is, "Each state shall have the right to refuse permission to the aircraft of other contracting states to take on its territory passengers, mail, and cargo destined for another point within its territory.” Current international agreements, often misleadingly described as “open skies” agreements,” provide only for reciprocal rights of U.S. and foreign governments to share international routes. Under such an agreement a carrier is permitted to carry passengers from country X to city A in country Y, and to carry some of those same passengers from city A to city B in country Y. These agreements do not permit a foreign carrier to pick up passengers in city A and carry them to city B.

Part II briefly reviews the regulatory history of the U.S. domestic airline industry. Part III reviews the causes of the current trend to reconsolidation of the domestic airline industry, including the contribution of antitrust and bankruptcy policies. Part IV describes the current state of cabotage and examines the political and geopolitical reasons most often posited for resisting its adoption, including the resistance of labor—paradoxically the resistance of both domestic as well as foreign labor. Finally, part V applies basic economic principles to show that that adoption of cabotage would lower fares, increase productivity as well as the GNP of countries participating in cabotage agreements, foster competition, and achieve the goals set forth in the ADA.

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33:3 - Sherry, Hours of Service Regulations in the U.S. Railroad Industry

A. The Nature of Railroad Transportation Work: Fatigue management in the transportation industry is a challenge because the industry operates on twenty-four hours a day, seven days a week (24/7). Operations in the maritime, rail, aviation, and the trucking industry are all 24/7. For the freight industry in particular, nighttime operations are preferred because there is less competition for the roads and rails by passenger vehicles. In contrast, operations in the passenger transportation sector are generally more predictably oriented towards the daytime and, in local travel, often involve split shifts.

The issue of fatigue in transportation workers has been on the National Transportation Safety Board’s (NTSB) “most wanted” list of recommended safety improvements since 1990. In 1999, the NTSB recommended that the Federal Railroad Administration (FRA) “establish scientifically based regulations that set limits on hours of service, provide predictable work and rest schedules, and consider circadian rhythms and human sleep and rest requirements.” The FRA, however, has proposed “no statutory changes to the existing hours of service requirements.”

Under current law, a railroad employee must have at least eight consecutive hours of off-duty time following the completion of a work period and during the twenty-four hours before the employee may go on duty. An employee who has been on duty for more than twelve consecutive hours may not return for duty until the employee has had at least ten consecutive hours of off-duty time. It is common practice in the rail industry to transport road crews by cab from a train or terminal to a motel. If the crew is at a remote location, it may take an hour or more for the crew to reach its rest location. Thus, a twelve-hour shift can become thirteen or even fourteen hours if the crew must wait for its relief to arrive before being transported to the terminal. Upon arrival at the terminal the employee must usually spend extra time to drive home. Because crews are called at least two hours before they are to report for duty, a crew member may actually have only five hours or less of uninterrupted time for sleep.

There are powerful incentives in place for both labor and management to maintain the current regulatory framework. Limiting hours of service would force the railroads to hire additional workers. Consequently, employees would suffer a reduction in their earning power. Railroad companies would not only need to hire additional workers, but also provide training, benefits, and possible salary guarantees. In addition, railroad employees in the operating crafts have a strong tradition of independence and often resist changing work practices, especially ones they feel that they have adjusted to by reason of experience, seniority, and training. In general, railroad management boards and rail labor have worked cooperatively on several initiatives to address fatigue - a consensus, however, has not been reached to identify an overall approach.