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Gaines Motor Lines, Inc. v. Klaussner Furniture Industries, Inc., No. 12-2269

Decided: October 30, 2013

The Fourth Circuit dismissed a complaint for lack of subject matter jurisdiction finding that, absent a federal tariff, federal courts have no subject matter jurisdiction over a motor carrier’s breach of contract claim against a shipper for unpaid freight charges.

Plaintiffs, a group of motor carriers (“Carriers”), had agreements through Salem Logistics Traffic Services, LLC (“Salem”) to transport furniture for Klaussner Furniture Industries (“Klaussner”) throughout the United States. Salem coordinated all shipping logistics for Klaussner. Klaussner provided a fee to Salem for its services and Salem, in turn, agreed to pay all Carriers directly. After initially making payment, Salem defaulted on its obligation to pay the Carriers and went out of business. The Carriers filed suit against Klaussner under the Interstate Commerce Commission Termination Act (“ICCTA”) to recover the unpaid freight charges. The District Court found that Klaussner was not liable for the unpaid freight charges. Salem appealed.

On appeal, Klaussner, the prevailing party at the district court, for the first time argued that the district court lacked subject matter jurisdiction over the dispute. The Carriers responded that federal courts had jurisdiction over their claim under the ICCTA. In the alternative, Carriers argued that, even if the ICCTA did not provide a federal cause of action, the federal courts should create a federal cause of action because the ICCTA preempted state law breach of contract claims. The Fourth Circuit disagreed with the Carriers on both counts and found that the federal courts lacked subject matter jurisdiction.

First, the court held that the ICCTA did not provide a federal cause of action. The court explained that historically, Congress regulated all motor carriers to file a tariff with the Interstate Commerce Commission that included their price. Any disputes over price were adjudicated through a federally created administrative body. In 1995, however, Congress deregulated the motor carrier industry by passing the ICCTA, which removed the tariff requirement for most shipping contracts, and instead allowed the free market to set the prices for shipping. Congress retained some regulation over motor carriers by requiring compliance with federal licensing, employment, safety, and accessibility requirements. The court found that merely allowing private negotiation of shipping rates under the ICCTA, replacing the tariff requirement, was not enough to create a federal private cause of action under the ICCTA. The court contrasted that provision with another provision in the ICCTA that explicitly provided federal jurisdiction for a claim seeking compensation for goods damaged in shipping.  Additionally, the court found the ICCTA’s regulation of billing and collection practices insufficient to create federal jurisdiction because the regulations does not impose any obligations concerning rates.

Second, the court held that the ICCTA did not preempt the Carrier’s state law breach of contract claim. The court explained that the ICCTA’s preemption clause was taken directly from the Airline Deregulation Act (“ADA”). The Supreme Court’s interpreted the ADA to recognize an exception to preemption for routine breach of contract claims against airlines. Given the Supreme Court’s interpretation of the same provision under the ADA, the Fourth Circuit held that the ICCTA did not preempt ordinary breach of contract claims. Furthermore, the court emphasized that the resolution of the claim required the interpretation of no federal statute or regulation. Therefore, the court concluded that it lacked subject matter jurisdiction and dismissed the suit.

Full Opinion

– Wesley B. Lambert