P.A.M. Transport Inc. v. Schell & Kampeter, Inc.

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IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
FAYETTEVILLE DIVISION
P.A.M. TRANSPORT, INC. 	PLAINTIFF
v. 	CIVIL NO. 5:23-05002
SCHELL & KAMPTER, INC. d/b/a/
DIAMOND PET FOODS 	DEFENDANT
SCHELL & KAMPTER, INC. d/b/a/
DIAMOND PET FOODS 	THIRD-PARTY PLAINTIFF
v.
PRIORITY LOGITISTCS 	THIRD-PARTY DEFENDANT
REPORT AND RECOMMENDATION OF MAGISTRATE JUDGE
Before the undersigned for consideration is a Motion for Summary Judgment filed by
P.A.M. Transport, Inc. (PAM) (ECF No. 87), and a Motion for Summary Judgment filed by Schell
& Kampter, Inc. d/b/a Diamond Pet Foods (Diamond) (ECF No. 90), both of which were referred
to the undersigned by U.S. District Judge Timothy L. Brooks for Report and Recommendation.
I. 	Background
An abbreviated procedural history is helpful. PAM, a federally licensed motor carrier, sued
Diamond, a manufacturer of pet food, seeking recovery of freight charges related to PAM’s
transportation of 398 shipments of pet food arranged via freight broker/3PL, Priority Logistics,
Inc. (Priority) from Dumas, Arkansas, to Mexico between May 2021 and June 2022. 	In its
Amended Complaint (ECF No. 14), PAM alleges two causes of action: Count I is titled “Failure
to Pay Motor Carrier Freight Charges” and alleges that each shipment was transported pursuant to
a bill of lading marked prepaid, identifying Diamond as the shipper and PAM as the motor carrier
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and obligating Diamond to pay PAM the costs of transporting these shipments. 	(Amended
Complaint, ¶¶ 14-16). PAM says transportation services were performed under the bills of lading,
that Diamond owes PAM for these transportation services and related costs, and that despite
demands, the freight charges remain unpaid. 	(Amended Complaint, ¶¶ 17-20). Count II
alternatively alleges breach of contract, alleging that the bills of lading issued for each shipment
are contracts between PAM and Diamond. (Amended Complaint, ¶¶ 22-23). PAM says the terms
were negotiated between PAM and Diamond’s freight broker, Priority; that PAM fulfilled the
terms and performed the transportation; that Priority failed to pay PAM for these services despite
Diamond having paid Priority; and thus, Diamond is independently liable to PAM for these
transportation services and related costs. 	(Amended Complaint, ¶¶ 24-33). 	PAM alternatively
contends that Diamond was unjustly enriched by PAM’s shipments (Amended Complaint, ¶¶ 35-
43), and that Diamond is liable to PAM under a theory of promissory estoppel. 	(Amended
Complaint, ¶¶ 45-48). PAM seeks $1,209,912.00 in damages plus interest at the rate of 1.75% per
month, costs, expenses, and attorneys’ fees incurred. 	United States District Judge P.K. Holmes,
III denied Diamond’s motion to dismiss PAM’s Amended Complaint. (ECF No. 24).
In its Amended Answer and Counterclaims (ECF No. 57), Diamond asserts it contracted
with Priority to arrange transportation of its pet foods and paid each one of Priority’s transportation
invoices, never receiving notice until July 2022 from PAM that its transportation invoices were
unpaid by Priority. Among the affirmative defenses asserted by Diamond are unclean hands,
waiver, estoppel, payment, release, assumption of risk and laches. 	(Amended Answer, ¶ 50).
Diamond alleged a counterclaim against PAM for fraud, alleging there was an “inequality of
condition and knowledge between PAM and Diamond” regarding whether Priority was paying
PAM. (Counterclaim, ¶ 20). According to Diamond, PAM owed a duty to Diamond to promptly
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disclose that Priority was not paying PAM for transportation of Diamond’s pet food. Id. Diamond
alleges that PAM willfully withheld and fraudulently concealed from Diamond the existence of
the past due balance, planning to “go after” Diamond only after the past due balance exceeded
$1.2 million dollars. (Counterclaim, ¶¶ 21-22). 	Diamond contends PAM knew or should have
known that Diamond would want to be made aware if Priority was not paying PAM especially if
PAM knew Priority was Diamond’s “freight broker” but withheld the information for its own
business interests and for fear that its business with Priority might be jeopardized or PAM’s
transportation services discontinued. 	(Counterclaim, ¶ 23-25). 	Diamond alleges it justifiably
relied on the non-disclosure but would have immediately ceased paying Priority for the shipments
had PAM notified Diamond that it was not receiving – and had not received – compensation for
months and was damaged as a result. (Counterclaim, ¶¶ 26-27). 	Diamond’s Counterclaim also
alleges a counterclaim for constructive fraud, alleging PAM had a legal duty to disclose to
Diamond the existence of the balance as soon as it started to accrue and “at a minimum” had an
equitable duty to disclose the balance instead of continuing to perform hundreds of shipments for
the “better part of a year.” (Counterclaim, ¶ 30). Diamond says that “[b]y withholding this critical
information, even if not malicious in nature, it undoubtedly had a tendency to deceive Diamond,
which was accomplished as Diamond has already paid millions for the same shipments that PAM
seeks to have Diamond pay for again.” (Counterclaim, ¶¶ 31-32). Judge Holmes denied PAM’s
motion to dismiss Diamond’s counterclaims. (ECF No. 80).
Diamond filed a Third-Party Complaint against Priority and Cash Flow Financial, LLC
d/b/a Greenback Capital. (ECF No. 26). Priority then filed Chapter 7 bankruptcy in Kansas (In
re Priority Logistics, Inc., Case No. 23-20424)0F
1 . 	Recognizing the automatic stay of all claims
1 The Priority Logistics bankruptcy matter remains ongoing.
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against Priority pursuant to 11 U.S.C. § 362, Judge Holmes denied Diamond’s motion to stay the
entire litigation; Diamond thereafter obtained approval of the Bankruptcy Court to conduct
discovery with Priority. (ECF Nos. 54, 69). Diamond subsequently dismissed its claims against
Cash Flow Financial. (ECF No. 79).
The undersigned now considers PAM and Diamond’s competing motions for summary
judgment.
II. 	Standard of Review
The legal standard for summary judgment is well established. Under Federal Rule of Civil
Procedure 56(a), “[t]he court shall grant summary judgment if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
The Court must review the facts in the light most favorable to the party opposing the motion and
give that party the benefit of any inferences that can be drawn from those facts. Canada v. Union
Elec. Co., 135 F.3d 1211, 1212-13 (8th Cir. 1997). The moving party bears the burden of proving
the absence of a genuine dispute of material fact and that it is entitled to judgment as a matter of
law. See Fed. R. Civ. P. 56(c); Murchison v. Rogers, 779 F.3d 882, 887 (8th Cir. 2015); Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986).
Where there are cross motions for summary judgment, the parties share the burden of
identifying the evidence that will facilitate this assessment. 	Sam’s Riverside, Inc. v. Intercon
Solutions, Inc., 790 F. Supp. 2nd 965, 975 (S.D. Iowa 2011) (citations omitted). “[T]he filing of
cross motions for summary judgment does not necessarily indicate that there is no dispute as to a
material fact or have the effect of submitting the cause to a plenary determination on the merits.”
Wermager v. Cormorant Twp. Bd., 716 F.2d 1211, 1214 (8th Cir.1983) (citations omitted). “Cross
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motions simply require [the Court] to determine whether either of the parties deserves judgment
as a matter of law on facts that are not disputed.” Sam’s Riverside, supra (cleaned up).
III. 	Jurisdiction
The district court exercises jurisdiction over this matter pursuant to 28 U.S.C. § 1332(a).
Under the doctrine of Erie R. Co. v. Tompkins, 304 U.S. 64 (1938), federal courts sitting in
diversity apply state substantive law and federal procedural law. Gasperini v. Center for
Humanities, Inc., 518 U.S. 415, 427 (1996).
IV. 	Undisputed Material Facts
As evidenced by their pleadings, the parties dispute – or at least quibble over – a substantial
portion of one another’s statements of undisputed facts. After carefully combing through the
record, the undersigned identifies the following material facts as undisputed, with the noted
caveats:
• 	PAM is a federally authorized motor carrier and transportation company that offers
transportation, logistics and related services. (ECF No. 89, ¶ 40, No. 96, ¶ 1). As noted
by Diamond, PAM is also a federally authorized broker, although not particularly
germane in this instance. The term “motor carrier” is generally viewed interchangeable
with “trucking company” in the transportation industry. (ECF No. 89, ¶ 31).
• 	Diamond is a pet food manufacturer that sells its products throughout North America.
(ECF No. 89, ¶ 2; No. 96, ¶ 1).
• 	At all times relevant to this litigation, Priority was a federally authorized freight broker
and third-party logistics provider (i.e., 3PL), and provided services to Diamond. (ECF
No. 96, ¶ 1; ECF No. 87-2). The undersigned notes Diamond vigorously disputes any
allegation that Priority was acting as a broker in its relationship with Diamond. See
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F.R.Civ.P. 30(b)(6) Deposition of Jeffrey Schwartz, p. 47:12-16 (“Priority Logistics
was a 3PL.”). 	Diamond also alleges that – according to the Federal Motor Carrier
Safety Administration and prior to revocation of authority – Priority was not only an
authorized broker but also an authorized motor carrier; however, no party here alleges
Priority was using its own assets to transport Diamond’s freight.
• 	In 2018, Diamond engaged Priority’s services during a telephone call between
Diamonds’ Jeffrey Schwartz and Priority’s David Burdick; the companies made an oral
agreement related to a rate for the shipping lane/shipping route of Dumas, Arkansas, to
Tepeji, Mexico, generally agreeing that Priority would arrange for shipment of
Diamond’s pet food from Dumas, Arkansas to Costco in Tepeji, Mexico. (ECF No. 89,
¶29; No. 96, ¶ 3) (ECF No. 87-2, Dep. Schwartz, p. 114:5-11). PAM alleges this
relationship of Priority to Diamond was one of freight broker (ECF No. 89, ¶ 12) while
Diamond disputes this characterization in favor of “3PL.”
• 	In 2019, PAM transported Diamond’s freight in a portion of the Dumas-Tepeji lane –
specifically, from Dumas, Arkansas, to Laredo, Texas. (ECF No. 89, ¶ 41). 	Priority
and PAM agreed upon a shipping rate for the Dumas-Laredo lane and a tariff governed
the relationship between Priority and PAM. (ECF No. 96, ¶¶ 4, 29). Diamond denies
that PAM’s tariff applied to Diamond and alleges Priority did not have authority to
bind Diamond to PAM’s tariff.
• 	It appears undisputed that PAM did not perform any cross-border transportation of
these shipments into Mexico but arranged for transportation (often using Grupo
Logistics) across the border and for delivery to Diamond’s customer and PAM included
these costs and any accessorial charges on its invoices to Priority. 	(ECF No. 89, ¶ 59).
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PAM 	paid 	for 	all 	the 	costs 	of 	the transportation, 	including 	the cross 	border
transportation into Mexico. (ECF No. 89, ¶ 126).
• 	Diamond regarded Priority as its “exclusive carrier” in the Dumas-Tepeji lane (ECF
No. 96, ¶ 8) but was aware that Priority was not actually transporting Diamond’s
freight. 	(ECF No. 87-2, Dep. Schwartz, p. 69:8-13). 	There is no written contract
between Diamond and Priority. (ECF No. 89, ¶ 26, No. 87-2, Dep. Schwartz, pp.
112:25, 113:1-7). 	Diamond did not place any restrictions on which motor carriers
Priority could select or any restrictions on the terms governing the shipments. (ECF
No. 89, ¶ 76).
• 	PAM 	apparently 	contracted 	with 	Priority 	(ECF 	No. 	90-1, 	F.R.Civ.P. 	30(b)(6)
Deposition of Cheri Boyd, p. 28:14-16); however, no written contract between PAM
and Priority has been supplied to the Court in connection with these motions.
• 	PAM’s tariff and rates for the Dumas-Tepeji lane are in the record (ECF Nos. 87-112,
87-13, 87-14; ECF No. 90-6). While Diamond argues PAM’s tariff does not apply to
any of the outstanding freight bills, Diamond acknowledges motor carriers are allowed
to maintain tariffs and that tariffs can be incorporated into shipping agreements. (ECF
No. 89, ¶ 61). Diamond does not deny PAM’s published rates for the Dumas-Tepeji
lane and does not deny paying Priority for PAM’s shipments using PAM’s rates.
• 	Diamond did not select, negotiate with, or contract with PAM, and had no knowledge
of the contractual relationship between Priority and PAM, other than presuming PAM
was the motor carrier Priority chose to fulfill its obligations to Diamond. (ECF No. 87-
2, Dep. Schwartz, pp. 112:16-20, 120:8-15)).
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• 	A bill of lading (along with an order confirmation) was issued by Diamond for each
outbound freight shipment that left Diamond’s facility. (ECF No. 87-2, p.69:24-25,
p.70:1-21; ECF No. 89, ¶ 47). All but 5 of the bills of lading for the outstanding
shipments (385 out of 391) identify Diamond as the shipper and identify Priority and
PAM as the carrier and each bill is marked prepaid (i.e., freight to be paid by shipper).
(ECF Nos. 87-1 (summary), 90-9, 90-10, 90-11, 90-12 (shipping documents)); (ECF
No. 87-2, Dep. Schwartz, p. 87:7-14; ECF No. 90-1, Dep. Boyd, p. 102:7-9); (ECF 89,
¶¶ 112, 123).
• 	From 	2019 	to 	mid-2022, 	PAM 	transported 	approximately 	1,100 	shipments 	of
Diamond’s freight. (ECF No. 89, ¶¶ 42, 121). During this time, PAM did not request
or receive instructions or directions from Diamond, and Diamond did not provide or
attempt to provide instructions or directions to PAM. (ECF No. 96, ¶ 6). 	Diamond
was paid by its customer for each of these loads. (ECF No. 89, ¶ 125).
• 	Other than incidental encounters between PAM drivers and Diamond employees at the
loading dock, Diamond did not communicate with PAM about the transportation of its
freight and PAM did not communicate with Diamond about freight invoices. Diamond
worked directly and exclusively with Priority, and Priority worked directly with PAM
without Diamond’s involvement. (ECF No. 96, ¶ 8).
• 	For each shipment or series of shipments, PAM would submit an invoice (along with
other documentation) to Priority upon the terms and conditions agreed to by PAM and
Priority. (ECF No. 96, ¶ 7).
• 	Diamond would receive invoices from Priority; Diamond never received invoices from
PAM. (ECF No. 96, ¶ 7). Diamond paid invoices on-time, and generally within two
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(2) weeks of its receipt of Priority’s invoices. (ECF No. 96, ¶ 9). Diamond paid Priority
or its factoring company, Greenback Capital, as directed by Priority. (ECF No. 87-2,
Dep. Schwartz, p. 163:1-6).
• 	In the fall of 2021, Priority’s payments to PAM slowed. (ECF No. 90-1, Dep. Boyd,
pp. 32:21-25, 33:1-25). 	There were delinquent payments in September, October,
November and December of 2021. (ECF No. 90-1, Dep. Boyd, p. 96:9-19). Invoices
dating as far back as July 2021 remain unpaid, although the parties do not agree on the
total amount still outstanding.
• 	PAM says its accounting department did not become concerned about Priority’s
payment delinquency until March 2022. (ECF No. 89, ¶ 99).
• 	Priority had a credit limit with PAM of $20,000 in 2019. PAM revoked Priority’s credit
on April 15, 2022, but PAM cannot now confirm the actual amount of Priority’s credit
limit on April 15, 2022 (or whether there had been any prior credit limit increases)
because the credit limits in PAM’s system have been overwritten. (ECF No. 96, ¶ 15;
see also Dep. Boyd, p. 47:6-24, 69:10-11).
• 	After PAM revoked Priority’s credit, PAM completed shipments that had already been
accepted by PAM. 	(ECF No. 89, ¶ 105). 	PAM performed its final shipment of
Diamond pet food in May 2022. (ECF No. 90-12, p. 1917).
• 	In internal email correspondence on or about May 13, 2022, PAM’s Vice President of
Accounting acknowledged Priority’s multi-month balance, that Diamond was unaware
of the balance and even speculated that Diamond would likely cease doing business
with Priority “once they hear about it.” (ECF No. 96, ¶ 14).
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• 	Diamond has confirmed it would have ceased doing business immediately with Priority
had it known Priority was not paying PAM. (ECF No. 96, ¶ 15; ECF No. 87-2, Dep.
Schwartz, pp. 142:13-15, 143:1-6).
• 	The last partial payment from Priority to PAM was in the Spring of 2022. (ECF No.
89, ¶103).
• 	PAM 	did 	not 	advise 	Diamond 	of 	Priority’s 	slowing 	payments, 	reported
processing/banking difficulties or lack of payments during the first quarter of 2022
(ECF No. 90-1, Dep. Boyd, pp. 50:6-13). 	PAM says it was not concerned about
Priority’s lack of payment until early March 2022. (ECF No. 90-1, Dep. Boyd, p. 54:6-
9).
• 	The first notification to Diamond occurred when PAM’s counsel notified Diamond of
Priority’s non-payment for these shipments by letter dated July 19, 2022. (ECF No. 96,
¶¶ 11-12). 	PAM says it notified Diamond “as soon as we felt that there was an issue.”
(ECF No. 90-1, Dep. Boyd, p. 129:10-11).
• 	Diamond terminated its relationship with Priority in July 2022. (ECF No. 87-2, p.
67:12-15).
• 	Priority filed bankruptcy in the United States Bankruptcy Court for the District of
Kansas 16 days after Diamond filed its Thirty Party Complaint against Priority. In re
Priority Logistics, Inc., Case No. 23-20424. 	The petition for bankruptcy was
accompanied 	by 	an 	Affidavit 	attesting 	that 	Priority 	owed 	PAM 	the 	sum 	of
$1,188,309.59.
• 	PAM and Diamond disagree about the outstanding freight charges; PAM’s motion for
summary judgment alleges the amount is $1,188,952; however, Diamond points out
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that PAM previously has claimed this amount is $1,209,912. 	Diamond appears to
disagree with application of payments made by Priority.
V. Law and Discussion
PAM argues that, even absent a contract between the parties, the bills of lading establish
Diamond’s liability to PAM as a matter of law, pointing out that for over a century, courts have
recognized that “[t]he bill of lading is the basic transportation contract between the shipper-
consignor and the carrier; its terms and conditions bind the shipper and all connecting carriers,”
quoting Southern Pacific Trans. Co. v. Commercial Metals Co., 456 U.S. 336, 342 (1982). Boiling
down Diamond’s arguments to their essence, Diamond denies that Priority had authority to act as
its agent (denying that Priority acted as Diamond’s freight broker) and denies the bills of lading
are contracts between Diamond and PAM. 	Diamond also urges this Court to apply equitable
principles and/or Arkansas’ doctrine of avoidable consequences to determine that because
Diamond paid Priority for the freight charges at issue and is an innocent victim of Priority’s fraud,
Diamond should not now be required to pay twice.
Under Arkansas and federal common law, “[a] bill of lading operates as both a receipt and
a contract.” 	Hotfoot Logistics, LLC v. Shipping Point Marketing, Inc., 447 S.W.3d 592, 597
(2014), citing Ark. W. Ry. Co. v. Robson, 171 Ark. 698, 285 S.W. 372 (1926); St. Louis, Iron
Mountain & S. Ry. Co. v. Citizens' Bank of Little Rock, 87 Ark. 26, 112 S.W. 154 (1908). The bill
of lading is the “basic transportation contract between the shipper-consignor and the [motor]
carrier; its terms and conditions bind the shipper and all connecting carriers.” S. Pac. Transp. Co.
v. Commercial Metals Co., 456 U.S. 336, 342 (1982) (citing Texas & Pac. R. Co. v. Leatherwood,
250 U.S. 478, 481 (1919)); see also Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp., 561 U.S.
89, 94 (2010) (“A bill of lading ‘records that a [motor] carrier has received goods from the party
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that wishes to ship them, states the terms of carriage, and serves as evidence of the contract for
carriage.’”); see also Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14, 18-19 (2004). 	Under the default
terms of a bill of lading, “the consignor remains primarily liable for the freight charges.” S. Pac.
Transp. Co., 456 U.S. at 343. The term “consignor” is defined by statute as “the person named in
a bill of lading as the person from whom ... goods have been received for shipment.” 49 U.S.C. §
80101(2). Historically, “[t]he bedrock rule of carriage cases is that, absent malfeasance, the carrier
gets paid.” Exel Transp. Servs., Inc. v. CSX Lines LLC, 280 F. Supp. 2d 617, 619 (S.D. Tex. 2003).
Writing for the Court of Appeals for the District of Columbia in 2010 in RLI Ins. Co. v. All
Star Transp., Inc., Judge Kavanaugh described the typical transportation relationship and aptly
described the problem that exists here:
The trucking industry consists of three main players: (i) shippers, who typically are
manufacturers sending goods to retailers or others; (ii) truckers, who transport the
goods; and (iii) brokers, who act as intermediaries between shippers and truckers.
When a shipper needs to send goods, it hires a broker. The broker arranges for
shipment by finding a trucker to transport the goods. The broker receives money
from the shipper and, after taking a cut for itself, pays the trucker. The problem at
the root of this case is that the broker sometimes fails to pay the trucker.
RLI Ins. Co. v. All Star Transp., Inc., 608 F.3d 848 (D.D.C. 2010).
Defining the parties’ relationship to one another is an important starting point. At all times
relevant, Diamond was the shipper/consignor, and PAM was the motor carrier/trucking company
who 	performed 	domestic 	transportation 	of 	Diamond’s 	freight 	and 	secured 	cross-border
transportation of Diamond’s freight to its customer, the consignee – Costco Hildago located in
Tepeji, Mexico. While Diamond disputes the characterization of Priority as a broker for or agent
of Diamond, attaching Affidavits of David Burdick (ECF No. 90-20) and Tim Nolen (ECF No.
90-19), the actual performance of Priority – engaging PAM to haul Diamond’s freight and billing
Diamond for the transportation plus Priority’s fees – is undisputed and compels the undersigned’s
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conclusion that Priority was a federally authorized freight broker performing as a freight broker.
See also (ECF Nos. 87-15, 87-16, 87-17 and 87-18) (undisputed communications between Priority
and Diamond related to brokering of other loads to other motor carriers which are not in dispute
in this litigation). The undisputed activities of Priority meet the definition of broker found in 49
U.S.C. § 13102(2), which explicitly states that a broker is a person who acts “as a principal or
agent” in arranging for transportation by motor carrier for compensation. Oak Harbor Freight
Lines v. Sears Roebuck & Co., 420 F.Supp.2d 1138, 1147 (W.D. Wash. 2006). 	The caselaw
describes that “[i]n the freight brokerage business, freight brokers match customer loads for
shipment with available trucks and drivers.” West Plains, LLC v. Retzlaff Grain Co. Inc., 2015 WL
11027252 (D. Neb. Oct. 28, 2015). It is without dispute that because bills of lading are contracts,
agency law as it relates to contracts applies. Restatement (Third) of Agency § 6.03. Priority orally
agreed 	with 	Diamond 	to 	arrange 	transportation 	for 	Diamond’s 	freight 	in 	exchange 	for
compensation. 	Aside from the self-serving Affidavits from the founders of the now-bankrupt
Priority – Burdick and Nolen – the undisputed material facts reflect that Priority arranged
transportation by acting as a freight broker and arranging for PAM to transport Diamond’s freight.
Diamond’s continued characterization that Priority was not acting as a freight broker but simply
as a “3PL” – a third-party logistics provider – is a distinction without a difference and Diamond
cites no law supporting its argument.
Identification of the shipment terms is necessary. 	It is undisputed that Diamond, as the
shipper, issued bills of lading for each of the shipments PAM transported and undisputed that PAM
did not issue any bills of lading. 	While PAM provided only a single exemplar bill of lading (ECF
No. 87-9), most of the bills of lading for the outstanding shipments can be found in Parts 1-4 of
Exhibit I to Diamond’s Motion for Summary Judgment where they are accompanied by PAM’s
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invoices and other shipping documents. (ECF No. 90-9). The bill of ladings describe the goods to
be shipped, the weight and the consignee’s address; the invoices from PAM charge Priority for the
shipment of these goods at a linehaul rate of $2,015.00; strap charge of $75; and Mexican carrier
charge of $950 in accordance with PAM’s rates for the Dumas-Tepeji lane. (See ECF Nos. 87-12,
87-13) (The 2021-2022 rates for the Dumas-Tepeji lane as well the PAM tariff are incorporated in
ECF No. 87-12, and the rates are updated in the Spot Quote at ECF No. 87-13)). Equity would
bar Diamond from arguing these rates are inapplicable considering Diamond’s payment of every
invoice.
For these reasons, the undersigned recommends a finding that the bills of lading,
accompanied by PAM’s invoices, establish basic transportation contracts between Diamond and
PAM. See S. Pac. Transp. Co. v. Commercial Metals Co., 456 U.S. at 342. 	That is not, however,
the end of the inquiry.
First, the parties disagree about the total unpaid freight charges. Thus, regardless of the
applicability of equitable principles discussed below, the undersigned could not recommend
judgment without, at minimum, an evidentiary hearing or a trial on damages.
Turning to those equitable considerations, where a consignor/shipper pays a freight broker
pursuant to a bill of lading, but the payments are not sent on to the motor carrier who transported
the freight (as happened here), one of two innocent parties will be the loser, and the courts have
differed as to who that should be. See National Shipping Co. of Saudi Arabia v. Omni Lines, Inc.,
106 F.3d 1544 (11th Cir.1997). 	Several appellate courts have confronted equitable estoppel
defenses in this “double payment” context and the majority view is that equitable estoppel does
not bar a carrier from collecting freight charges when the party responsible under the bill of lading
chooses to remit payment through a third party who then absconds with the funds. See Oak Harbor
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Freight Lines, Inc. v. Sears Roebuck & Co., 513 F.3d 949, 959 (9th Cir. 2008); Hawkspere
Shipping Co. v. Intamex, S.A., 330 F.3d 225, 237–38 (4th Cir. 2003); Nat'l Shipping Co. of Saudi
Arabia v. Omni Lines, Inc., 106 F.3d 1544, 1546–47 (11th Cir. 1997); Strachan Shipping Co. v.
Dresser Indus., Inc., 701 F.2d 483, 489–90 (5th Cir. 1983). As a matter of policy and recognizing
the “economic reality” of the shipping industry, these courts have imposed a form of “semi-strict
liability” under which, notwithstanding any freight payments made to a third party, the company
liable under the bill of lading is not discharged from its obligation to pay unless the carrier has
“actually released” it from its duty to do so. The gist of these cases is that when a company chooses
to pay freight charges via a third party, it “assumes the risk that the [third party] might not forward
the freight payment to the carrier.” Hawkspere, 330 F.3d at 238.
[W]e think that our result comports with economic reality. A freight forwarder
provides a service. He sells his expertise and experience in booking and preparing
cargo for shipment. He depends upon the fees paid by both shipper and carrier. He
has few assets, and he books amounts of cargo far exceeding his net worth. Carriers
must expect payment will come from the shipper, although it may pass through the
forwarder's hands. While the carrier may extend credit to the forwarder, there is no
economically rational motive for the carrier to release the shipper. The more parties
that are liable, the greater the assurance for the carrier that he will be paid.
Hawkspere, 330 F.3d at 238 (quoting Strachan, 701 F.2d at 490); National Shipping, 106 F.3d at
1547. “Should the shipper wish to avoid liability for double payment, it must take precaution to
deal with a reputable freight forwarder or contract with the carrier to secure its release.” National
Shipping, 106 F.3d at 1547. Shippers may also avoid liability for double payment “by simply
paying their carrier directly.” Hawkspere, 330 F.3d at 237; see also Oak Harbor Freight Lines,
Inc. v. Sears Roebuck & Co., 513 F.3d 9494, 959-960 (9th Cir. 2008) (Second Circuit agreeing
with approach of Hawksphere, Strachan and National Shipping). Relying on these cases, in 2018,
a Massachusetts’ district court held that when hiring a transportation intermediary, the shipper
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assumed the risk that the intermediary might not pay the carrier. See CSX Transportation, Inc. v.
Ken’s Foods, Inc., 310 F. Supp. 3rd 254, 263 (D. Mass. 2018).
A few courts, by contrast, have carved out a narrow space for equitable estoppel where a
carrier misleads the party to be charged into believing that the freight charges have been paid. See,
e.g., Olson Distributing Systems v. Glasurit Am., 850 F.2d 295, 297 (6th Cir. 1988); Consol.
Freightways Corp. of Del. v. Admiral Corp., 442 F.2d 56, 58 (7th Cir. 1971). These cases take the
more lenient view that equitable estoppel may bar a carrier's recovery in the limited circumstance
where “the carrier was held to have represented satisfaction of its freight charges upon which the
consignee reasonably relied....” Consol. Freightways, 442 F.2d at 59. 	In Olson Distributing
Systems, Inc. v. Glasurit America, Inc., 850 F.2d 295 (6th Cir. 1988), the appellate court described
that “the parties understood the [motor] carrier would bill and expect payment from the freight
forwarder” and the issue presented was “upon whom the loss should fall” where the freight
forwarder absconded without paying the motor carrier. Id. at 296. Principles of equitable estoppel
led the Sixth Circuit to conclude the motor carrier’s loss should be borne by the motor carrier
where its “actions had the effect of lulling the shipper into believing that it was expecting and
receiving payment from the freight forwarder.” Id. Although decided under a prior ICC regulatory
scheme, the Sixth Circuit relied upon the motor carrier’s failure to act – including waiting over
three months after delivery to notify the shipper of non-payment – which would have allowed the
shipper to identify that the freight forwarder was absconding with the money and thus, permit the
motor carrier to limit its losses. Olson, 850 F.2d at 295-297. “This unexplained failure. . . resulted
in escalation of the loss.” Id. at 297. Olson cites an Eighth Circuit case, Inman Freight Systems,
Inc. v. Olin Corp., 807 F.2d 117 (8th Cir. 1986), for the principle that a motor carrier may be
estopped from collecting freight charges where a consignee relies on a misrepresentation and is
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asked to pay double the applicable charges; however, there had not been a double payment in
Inman and the case upon which Inman relied – Southern Pac. Transp. Co. v. Campbell Soup Co.,
455 F.2d 1219 (8th Cir. 1972) – provides little, if any, guidance here.
Other than referencing Inman, neither party cites a controlling Eighth Circuit decision on
equitable estoppel in this context, and the undersigned has not located any additional authority
from this Circuit. PAM argues Diamond is not entitled to assert equitable estoppel because PAM
made no misrepresentations to Diamond. The undersigned does not find, however, that a
misrepresentation is required; the elements of equitable estoppel under Arkansas law requires only
that (1) the party to be estopped must know the facts; (2) he must intend that his conduct shall be
acted on or must so act that the party asserting estoppel has a right to believe the other party so
intended; (3) the party asserting estoppel must be ignorant of the facts; and (4) the party asserting
estoppel must rely on the other's conduct to his detriment. Nash v. Landmark Storage, LLC, 102
Ark. App. 182, 186 (2008), citing Sterne, Agee & Leach, Inc. v. Way, 101 Ark. App. 23, 27-28
(2007).
A party who by his acts, declarations, or admissions, or by his failure to act or speak
under circumstances where he should do so, either with design or willful disregard
of others, induces or misleads another to conduct or dealings which he would not
have entered upon, but for such misleading influence, will not be allowed, because
of estoppel, afterward to assert his right to the detriment of the person so misled.
Id. However, there is no estoppel in the absence of a change of position in reasonable reliance.
Bharodia v. Pledger, 340 Ark. 547 (2000). Whether there has been actual reliance and whether it
was reasonable are usually questions for the trier of fact. Kearney v. Shelter Ins. Co., 71 Ark. App.
302, 308 (2000).
PAM 	similarly 	rejects 	Diamond’s 	assertion 	of 	Arkansas’ 	doctrine 	of 	avoidable
consequences. This doctrine – one of mitigation – is not a principle of exclusion but rather, limits
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the amount of recoverable damages a party can recover resulting from consequences which could
have reasonably been avoided by reasonable care. See Southern Building Services, Inc. v. City of
Fort Smith, 2013 Ark. App. 306 (2013); Quality Truck Equipment Co. v. Layman, 51 Ark. App.
195 (1995); Beardsley v. Pennino, 19 Ark. App. 123 (1986). The doctrine applies in both tort and
contract cases. 	Southern Building Services, supra (citations omitted). 	According to Curtner v.
Bank of Jonesboro, 175 Ark. 539 (1927), “where a party is entitled to the benefit of a contract and
can save himself from loss arising from a breach thereof at a small expense or with reasonable
exertions, it is his duty to do so, and he can only recover such damages as he could not thereby
prevent.” Id.
The undersigned believes factual disputes preclude summary judgment on the applicability
of equitable estoppel under Olson or Arkansas law as well as application of the doctrine of
avoidable consequences. While the parties have provided very few internal communications from
PAM, it appears from the pleadings and documents submitted that shipments transported by PAM
during July 2021, September 2021, October 2021, November 2021 and December 2021 were billed
monthly but went (and remain) unpaid. It is not entirely clear, but according to its Rule 30(b)(6)
corporate deponent Cherie Boyd, PAM apparently was persuaded by communications from
Priority that these failures were the result of cascading problems: software system upgrades,
banking and payment problems, missing paperwork, a failure by Priority to bill Diamond, or some
combination thereof, and thus PAM did not alert Diamond. 	Ostensibly, PAM’s lack of
communication was because Priority submitted viable excuses, had paid in the past and was still
making the occasional payment. These 2021 invoices – along with additional unpaid invoices in
January and February 2022 – received no serious attention until March 2022. 	The delays are
couched on PAM’s continued reliance on Priority’s representations and because decisionmakers
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such as Ms. Boyd were out of the office. 	Once again, Diamond – who continued paying Priority’s
invoices – was never notified that the motor carrier appearing regularly at the loading dock and
accepting shipments from Diamond was going unpaid month after month. Priority’s actual credit
limit with PAM as of April 2022 is not entirely clear; if, as Diamond alleges, the only credible
evidence is that Priority’s the limit was $20,000, Priority may have violated its credit limit with
PAM in each successive month beginning in July 2021 without any consequence until April 2022.
While it cannot say with certainty, PAM alleges Priority’s credit limit in April 2022 may have
been as much as a million dollars. Nevertheless, Priority’s credit was not suspended by PAM until
Priority owed PAM more than a million dollars. 	Even revocation of Priority’s credit did not
prompt notification to Diamond – that notification did not occur for another three months. While
PAM did not have any communications with Diamond prior to July 2022, and thus did not make
misrepresentations, these circumstances seem, on balance, more akin to those in Olson requiring
a jury to determine whether PAM lulled Diamond into believing PAM was getting paid, all the
while believing Diamond would cease conducting business once it knew Priority was not paying
PAM. It will be for the jury to determine if PAM should be equitably estopped from recovering
under the bills of lading or its damages reduced in mitigation.
PAM and Diamond each seek judgment as a matter of law on Diamond’s counterclaims
for fraud and constructive fraud. Establishing actual fraud under Arkansas law requires (1) a false
representation of a material fact, (2) knowledge that the representation is false or that there is
insufficient evidence upon which to make the representation, (3) intent to induce action or inaction
in reliance upon the representation, (4) justifiable reliance on the representation, and (5) damage
suffered because of the reliance. Beatty v. Haggard, 87 Ark. App. 75 (2004). Representations are
construed to be fraudulent when made by one who either knows the assurances are false or else
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not knowing the verity asserts them to be true. Id. at 485. Similarly, constructive fraud is a “breach
of legal or equitable duty which, irrespective of the moral guilt of the fraud feasor, the law declared
fraudulent because of its tendency to deceive.” Johnson v. Cincinnati Ins. Co., 375 Ark. 164, 172
(2008) (citations omitted).
Diamond’s counterclaims for fraud plead only that Diamond has been damaged. (ECF No.
57, Counterclaims, ¶¶ 27, 32). PAM is entitled to summary judgment on Diamond’s fraud claims
because Diamond has produced no evidence that it has been damaged. In its pleadings, Diamond
argues the only damages are the payments Diamond made to Priority and the costs of the litigation.
First, under Arkansas law, “attorney’s fees are not recoverable under claims for fraud.” See FMC
Corp. v. Helton, 360 Ark. 465, 488 (2005). 	And second, there is no cognizable argument by
Diamond that it did not owe Priority for transportation costs under its arrangement, and even
Diamond does not dispute that it received the benefit of each shipment – Diamond’s freight (pet
food) was transported to its customer Costco who paid Diamond for the pet food. Absent evidence
of recoverable damages sustained as the result of PAM’s alleged fraud, Diamond may not proceed,
and PAM is entitled to summary judgment on, and dismissal of Diamond’s fraud claims under
Arkansas law.
VI. 	Conclusion
For reasons set forth herein, the undersigned recommends:
• 	The Motion for Summary Judgment filed by P.A.M. Transport, Inc. (ECF No. 87) be
GRANTED IN PART and DENIED IN PART, with (a) a finding that the bills of
lading, accompanied by PAM’s invoices, establish basic transportation contracts
between Diamond and PAM; however, liability under these contracts is subject to
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equitable defenses and the establishment of the amount of contractual damages and (b)
a finding that summary judgment should be entered in favor of PAM and against
Diamond on Diamond’s fraud claims and that Diamond’s fraud claims be dismissed
with prejudice.
• 	The Motion for Summary Judgment filed by Schell & Kampter, Inc. d/b/a Diamond
Pet Foods (ECF No. 90) should be DENIED.
The parties have fourteen days from receipt of the Report and Recommendation in
which to file written objections pursuant to 28 U.S.C. § 636(b)(1). The failure to file timely
objections may result in waiver of the right to appeal questions of fact. 	The parties are
reminded that objections must be both timely and specific to trigger de novo review by the
District Court.
RECOMMENDED this 4th day of February 2025.
________________________________
CHRISTY COMSTOCK
UNITED STATES MAGISTRATE JUDGE
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