When Your Broker Fails to Pay
Oak Harbor Freight Lines Inc v. Sears Roebuck & Co.
National Logistics Corporation (NLC) provided brokerage and non-brokerage services to
Sears. As part of the brokerage services, NLC arranged for Oak Harbor Freight Lines to
move Sears’s freight. NLC and Oak Harbor signed a contract to govern their relationship.
As part of the non-brokerage services, NLC reviewed and audited Oak Harbor’s freight
invoices.
Sears generated bills of lading for outbound shipments and Oak Harbor generated bills of
lading got return shipments. The bills of lading were uniform straight bills of lading that
complied with industry standards.
The parties established a business practice pursuant to which Oak Harbor would send
freight invoices to NLC within three days after the delivery of the cargo. NLC audited the
freight and sent them to Sears. Sears paid NLC within five days after being billed and
NLC paid Oak Harbor approximately 25 days after receiving oak Harbor’s invoices.
Sears terminated it’s contract with NLC in mid November 2004. By the end of
November, more than $400,000 was owed to Oak Harbor for freight charges for Sears’s
merchandise. NLC recommended that Oak Harbor seek direct payment from Sears. Sears
denied liability and told Oak Harbor that NLC was liable for the freight. At that time,
Sears had already paid $227,202.50 to NLC for freight charges but NLC had not remitted
said sum to Oak Harbor.
Oak Harbor sued Sears and NLC for the unpaid freight charges. The District Court
entered summary judgment in favor of Oak Harbor and against Sears and NLC jointly for
the unpaid freight, and in favor of Sears and against NLC for any part of $227,202.50 that
Sears pays directly to Oak Harbor and which it had already paid to NLC. Sears appealed
and the judgment was affirmed.
The Ninth Circuit began its analysis noting that in the absence of a statement to the
contrary, when a bill of is intended to conform to industry standards, by default the
consignor remains primarily liable for freight charges. Further, under default terms, the
consignee is liable for freight charges unless the bill of lading is marked “prepaid.”
The Ninth Court rejected all three arguments advanced by Sears. First, the Ninth Circuit
held that because the contract between NLC and Oak Harbor did not mention Sears by
name or description, it did not supercede the bills of lading and thus, did not modify the
default provisions in the bills of lading which obligated the consignor and consignee to
pay freight.
Second, the Ninth Circuit held that the NLC/Oak Harbor contract and the bills of lading
operated concurrently to supply different aspects of the parties’ relationship. While the
bills of lading did not provide price terms, the contract did not address Sears’s liability
for the payment of freight. Accordingly, they were held to be concurrent contracts for the
carriage of Sears’s freight.
Lastly, the Ninth Circuit held that even though Sears paid freight to NLC which did not
pay it to Oak Harbor, Oak Harbor was not equitably stopped from suing Sears. If found
that Sears generated bills of lading and failed to mark them with a “non-recourse”
designation [that would have protected Sears from having liability for freight]. Further,
the Ninth Circuit noted that Sears had chosen NLC and directed Oak Harbor to send its
invoices to NLC. It also noted that Oak Harbor bills of lading for return freight were
marked “collect” which put Sears on notice that freight charges had not been paid. Lastly,
the Ninth Circuit found that Sears could have paid Oak Harbor directly but chose t pay
indirectly and by doing so assumed the risk that the amount it paid to the intermediary
would be not be forwarded to Oak Harbor.
The Ninth Circuit also affirmed the District Court’s award of prejudgment interest based
on Washington state law because the action was a state law claim for monies due even
tough federal law was relied on.
The opinion on whether the shipper or carrier bears the risk if a freight forwarder or
broker fails to remit a freight payment to the carrier was one of first impression in the
Ninth Circuit.