(The following article by Christopher Dinsmore was posted on the Virginian-Pilot website on November 10.)
WASHINGTON — The U.S. Supreme Court sided Tuesday with Norfolk Southern Railway Co. in a case that was being closely watched by the railroad industry.
The court ruled, in a decision written by Justice Sandra Day O’Connor, that the Norfolk-based railroad’s liability for damage caused by a 1997 derailment was limited by federal maritime law.
The case involves a shipment of machinery from Australia to a General Motors plant in Huntsville, Ala. A derailment by a Norfolk Southern train allegedly caused $1.5 million of damage to the machinery.
James N. Kirby Pty Ltd., the Australian manufacturer, sued Norfolk Southern to recover for the damage. Norfolk Southern, however, countered that its liability was limited to $5,000, or $500 for each of the 10 damaged shipping containers, under the 1936 Carriage of Goods by Sea Act.
That law limits the liability of ships and companies that contract with a shipper to $500 per shipment. The liability limit can be extended to companies hired to transport goods before and after they are moved by ship.
In this case, Kirby hired an Australian freight forwarder to manage the delivery of the machinery. The freight forwarder hired a German shipping line to carry the goods from Australia to the United States. The German carrier hired Norfolk Southern to deliver the machinery to the GM plant. At each step, contracts invoked the defenses and liability limits of the Carriage of Goods at Sea Act.
In 2000, a federal judge in Atlanta sided with Norfolk Southern, ruling the railroad’s liability was capped at $5,000. Two years later, a divided 11th U.S. Circuit Court of Appeals reversed the decision, finding that Kirby’s contract with the freight forwarded wasn’t clear enough to extend the maritime law liability protections all the way to Norfolk Southern.
Norfolk Southern appealed with the support of the Bush a dministration, which filed a brief on its behalf.
The railroad argued that the a ppeals c ourt ruling, if allowed to stand, would have disrupted international commerce by requiring every party involved in shipping goods to contract directly with the cargo’s owner.
“The 11th Circuit’s decision will undo long-standing expectations of U.S. rail carriers and will require counterproductive alteration to a process that works efficiently and effectively to facilitate international commerce,” said the Association of American Railroads in a brief supporting Norfolk Southern.
The argument must have been persuasive. O’Connor wrote that the Supreme Court’s ruling “tracks industry practices.”
Norfolk Southern declined to comment on the decision, deferring to its outside attorney, who could not be reached for comment.
Norfolk Southern’s stock rose 25 cents a share to $35.49 in trading Tuesday.