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Aug.24, 2015

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Q&A 52 THE JOURNAL OF COMMERCE AUGUST 24.2015 By Colin Barrett HAVE A CLAIM? FILE IT. Q: WE'VE BEEN DOING business with a particular motor carrier for several years. When claims arise, we have a standard practice: We deter- mine the amount of money involved and subtract it from freight charges we owe the carrier and notify it of the reason. A couple of our carriers have complained about this, but we haven't had any serious arguments. This particular carrier, however, recently brought on a new claims man- ager. The new person has told us what we're doing is illegal, based on some old rulings of the former Interstate Commerce Commission. We pointed out that the ICC has been defunct for 20 years, but he says those rulings have never been formally contradicted or repealed and are still the law. Can you clarify? If we're actually doing something illegal, we want to cor- rect ourselves, but I've been told this is entirely legal. Why should we have to file our claim and then wait for the car- rier to pay, basically exchanging checks with the carrier? A: WHAT YOU'RE DOING ISN'T ILLEGAL, but it's not very mannerly, either, and it can conceivably turn around to bite you pretty hard. I didn't realize that anyone now alive even remembered those old ICC rulings. The first, Administrative Ruling 65 issued in 1937, purported to prohibit set-off of unpaid claims against freight charges, saying ship- pers were obliged by law to pay all freight charges "in money," not by offset of any debt the carrier might owe them. Administrative Ruling 128, issued 41 years later, basically repeated the same thing. Why the second, repetitive rul- ing? Well, a few months earlier I'd published in this column a discus- sion that contradicted the original one, saying that set-off of unpaid claims against freight charges was entirely legal and proper. The ICC didn't agree, nor did most key carrier and, surprisingly, shipper interests. None of this disagreement, how- ever, altered the legal facts. I found a stack of case law supporting the idea that set-off was legal, all from courts with jurisdiction super- seding that of the ICC, including the Supreme Court. The commis- sion, of course, was free to argue t he point, but it was definitively outvoted. The key relevant cases are U.S. v. Munsey Trust Co., 332 U.S. 234 (1947); North Chicago Rolling Mill Co. v. Ore & Steel Co., 152 U.S. 576 (1894); C. & N. W. Ry. Co. v. Lindell, 281 U.S. 40 (1930); Burlington North- ern Inc. v. U.S., 462 F.2d 526 (Ct.Cl., 1972); plus some lower court rulings. The ICC never officially backed off, but as you say, it's long since defunct and so is the anti-rebating Elkins Act from which it derived whatever semblance of legal support it had for its rulings. Carriers and shippers, however, have changed their views, and nobody now supports those old, discredited ICC rulings. Legal though it may be to exer- cise set-off without even giving the carrier a chance to respond to your claim, however, it is arrogant and just plain rude. Basically what you're saying is, "We say you're liable, there's no discussion, we're not interested in anything you might have to say, and we don't trust you to pay up so we're going to take the money unilaterally." That's a mes- sage sure to ruffle some feathers, wouldn't you say? And it can get you into trouble. If the carrier sues you for the unpaid freight charges, the way it plays out in court is that the carrier demands its money and you raise the unpaid claim as your defense. If the court upholds your claim, all is well, because with the claim amount added in, you'll be deemed to have paid the carrier's charges in full. But there are two possible prob- lems. First, to have a valid claim, you must have filed one timely. Whether your notification to the carrier satisfies that requirement is an open question, and one that you might find a court wouldn't agree with. Second, the carrier might have a n adequate lega l defense to your (untested) claim, thereby refuting the validity of your set-off. If either is the case, you'll not only owe the withheld freight charges, but also any penalties the carrier may have established for late or non-payment, which can be substantial. I generally recommend set-off as a last-resort measure if a carrier fails to pay a claim that it admits is valid or that you're really sure of. To take this step reflexively on any and all claims isn't only discourteous but potentially risky as well. JOC Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at 5201 Whippoorwill Lane, Johns Island, S.C. 29455; phone 843-559-1277; e-mail Contact him to order the most recent 351-page compiled edition of past Q&A columns, published in 2010. I generally recommend set-off as a last-resort measure.

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