Intermediaries – Protecting Your Interests
“Who Am I, and What Have I Done?”: The Shifting Role and
Status of Freight Intermediaries in Cargo Claim Litigation
Eric Larson Zalud
Benesch Friedlander Coplan & Aronoff LLP
200 Public Square, Suite 2300
Cleveland, OH 44114
Main: (216) 363-4500 Direct: (216) 363-4178
[email protected] www.beneschlaw.com
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April 22-24, 2013
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“Who Am I, and What Have I Done?”:
Importance of Determining Role of Each Party
A. Broker vs. Carrier
1.
Carmack Liability; Physically transports; Interstate Commerce
B. Broker vs. Freight Forwarder
1.
Carmack Liability; Arranges transport but can break bulk &
consolidate 49 U.S.C. § 13102(8)
C. 3PL, 4PL, warehousemen – Plaintiff’s Trial Tactics Revealed!
1.
‘The logistics manager functions as a broker, a freight forwarder
and a customs broker. Normally, logistics managers are not
responsible for safe delivery unless they have held themselves out
as a carrier by either promising safe delivery or issuing their own
airway bill (for air cargo). Pan American World Airways Inc. v. CF.
Air Freight Inc., 23 Av.Cas. (CCH) §17,189 (S.D.N.Y. 1990).
D. Subrogated Insurers: Steps into Shoes – assigned claims, but
need assignment
1
“Who Am I, and What Have I Done?”:
Importance of Determining Role of Each Party
E. How, and When, is Role Determined?
1. Depends upon facts of particular freight scenario. Constructors
Tecnicos v. Seafood Serv., Inc., 945 F.2d 841, 846 (5th Cir. 1991)
2. Other indicia:
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•
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Registration
Lading Documents
Contracts
Insurance/Loss Payee; Covered Parties
Website
Public Filings
What actually happened
2
Theories of Broker Liability/Remember:
Presumed – Not Liable
A.
Brokers – Not Liable for Freight Loss and Damage – except!:
1.
2.
Arrange for transport by motor carrier 49 U.S.C. §13102(2)
No physical contact with cargo or transport/consolidation capabilities
B. Exception One: Agreement to be liable via written contract
1.
Express Agreements
a.
2.
But limitations of liabilities (clearly stated; notice)
Indemnification Provisions
a.
b.
“acts of agents, subcontractors”
Anti-indemnification statutes (specifically/expressly applied to motor
carriers)
i.
ii.
iii.
Do they apply to brokers? (transitive policy argument: against public
interest to relieve entity of liability for own negligence)
Variations in every state (39 states – most recent – Idaho, Montana)
Applicable law under the contract or otherwise/Choice of law and
Forum
3
The Other Exception – That May Swallow the Rule:
Negligent Selection: Choose Carefully, and Document
1.
Failure to check insurance
a.
b.
2.
Split case law – Always check!
No more BMC-32 to help check
Failure to assure insurance coverage/appropriate for specific cargo
a.
b.
c.
Exclusions: Careful and read the fine print!
i.
Extraordinary value: Electronics; Wine & Spirits
ii.
Temperature damage, unless caused by mechanical break-down of
reefer
iii.
Rust/moisture damage
iv.
Theft/Mysterious Disappearance/unattended vehicle – Critical
v.
No actual MVA
Scheduled Vehicle Policy – Check particular vehicle
Amount of Insurance
i.
Value of Cargo/Underinsurance ($100,000/$250,000 dichotomy)
4
Sperl v. C.H. Robinson
Don’t Own The Potatoes!
•
•
•
•
•
•
•
2004: Jewel Food Stores began remodeling supermarket DC’s and
looking for alternative / temporary distributor
Jewel entered into contract with Robinson, whereby Robinson would
actually buy the produce, store it, and broker transportation to various
groceries (CH Robinson was federally licensed seller of produce and fruit)
CH Robinson enters into broker-carrier agreement with Dragonfly Express
Dragonfly enters into lease agreement with Henry, and owner-operator
(Henry can operate with Dragonfly’s authority)
March 2004: Henry contacts CH Robinson and requests load and
Robinson tenders load of potatoes that Robinson purchased in Idaho
Henry causes catastrophic accident
Plaintiffs sue everyone for wrongful death/injuries
5
Sperl v. C.H. Robinson
Don’t Own The Potatoes!
• Jury Finds: Robinson is liable for $23,775,000.00 for negligent
selection
• Theory: Despite contractual language, motor carrier is “agent” of
Robinson, the broker
• Court’s Rationale – Jury’s Verdict not Against Manifest Weight of
Evidence:
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–
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–
–
–
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Control Factors
Nature of Work /Relationship to General Business of Principal
Right to Discharge
Method of Payment
Provision of Necessary Equipment
Deduction of Taxes
Skill Level Required
6
Sperl v. C.H. Robinson
Don’t Own The Potatoes!
CONTROL
• Broker required carrier to have refrigerated trailer of
specified length
• Load Confirmation Sheet dictated special instructions
concerning load:
–
–
–
–
–
pick up load at particular time
make daily check calls
stay in constant communication with broker
notify broker if accident occurs
continuously monitor temperature and contact broker if no
temperature
7
Sperl v. C.H. Robinson
Don’t Own The Potatoes!
CONTROL
• Broker enforced special instructions with
system of fines that applied regardless of
Hours of Service
• System “created pressure” on driver to get to
destination when she could not get to
destination w/o violating Hours of Service
8
Sperl v. C.H. Robinson
OTHER FACTORS
• Broker controlled method of payment (driver
was dispatched by Broker rather than Motor
Carrier)
• Broker paid driver directly
• Broker provided potatoes for delivery (actually
owned the potatoes (but barely!) and
requested the service)
9
Practical Take-Aways
•
•
Segregate Your Warehousing, Carrier, and Brokerage Operations; Segregating
different service offerings in different entities forces an operator (and its sales force)
to think clearly about the services that it is offering and to document those services
accordingly; also helps profit and loss analysis
Review not only your contracts but your practices for indicia of “control” if you are
brokering loads
– Fines
– Monitoring of Driver
– Constant communication with Driver
But See Haywood v. C.H. Robinson, Ill. App. 2012 (CHR Not Liable – no direct
contact with driver, instructions on load confirmation similar to shipper to Carrier
instructions. No “control factors”
10
Avoiding Carrier Selection Liability:
Do’s & Don’ts
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•
•
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3PL/Shipper can get involved to some extent in day to day operations relating to shipments of
freight under its contracts (including some direct contact with driver).
If it gets too involved, to extent of frequent operational contact with driver, providing directions
and directives on daily or more regular basis, status could be converted for liability purposes.
Contracting can make a difference. Courts refer to monikers ascribed to contracting parties in
various contracts involved in 3PL/interline shipping scenario, in effort to assess liabilities
amongst those parties.
Important to memorialize contractual relationships to properly designate contracting parties.
Insurance coverage matters. Insurance coverage is often analyzed by courts in these situations,
not only for purposes of recompense, but in effort to determine stats of entities involved, and
liabilities as between those entities.
Acts of driver and clerical mistakes on bill of lading will generally not alter contractual status and
liabilities.
Even voluntary acceptance of responsibility, in some form, for freight claims and existence of
insurance that may provide some coverage, generally not enough for 3PL to be found to be a
carrier, for purposes of personal injury claims.
11
THE ERA OF THE SELECTION PROTOCOL
₋ Important for both brokers and shippers to have written process
to qualify motor carriers, and to adhere to written process at all
times. Take holistic approach choosing a carrier. If carrier has
any indicia of safety problems (i.e., problematic safety rating)
avoid carrier or, at very least, conduct additional due diligence.
₋ Any negative factors or detrimental ratings should be red flags.
₋ Carriers should be avoided unless broker or carrier conducts
additional due diligence to satisfy itself that the carrier is
adequately safe.
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The Era of the Selection Protocol
•
Basic Carrier Information—
– Obtaining “Company Snapshot,” which is available
through FMCSA Website.
– Whether the carrier:
• Previously operated under different company name
or MC number;
• Operates under any other name;
13
The Era of the Selection Protocol
– Currently is owned by or controlled by someone who has
had relationship with any other FMCSA licensed entity,
such as through percentage of stock ownership.
– Is otherwise affiliated with any other carrier.
• To ensure that carrier is not manipulating its business
practices to avoid unsatisfactory safety ratings.
14
The Era of the Selection Protocol
– Broker/Shipper should maintain internal database of not
only carriers with whom it does business, but also the
carrier’s principal owners, managers.
– During carrier qualification process, and during renewals,
broker or retaining carrier should check database to see if
due diligence also required on any owners, managers, or
affiliates.
15
The Era of the Selection Protocol
– Duty to exercise reasonable care in selecting motor
carriers does not end at the time of hiring.
– Continuing duty to inquire into ongoing competency and
safety of hired motor carriers.
– Renewal qualification should be implemented as
frequently as practicable (i.e., every six months).
16
The Era of the Selection Protocol
– For any carrier, no matter what the SMS rating:
• Seek references and contact those references.
• Research any reported accidents;
• Obtain FMCSA inspection reports;
• Investigate compliance with record keeping and hours of
service regulations; and
• Maintain current file on carrier, updating it on regular basis.
17
Other Theories of Broker Liability/Broker as
Carrier/Wearing Too Many Hats
₋
₋
₋
₋
₋
₋
Broker a “Carrier”
Holding self out as carrier
Authority
Website
Brochures (truck photos)
Terminology
18
Brokers as Carriers – Examples
from the Caselaw
• Travelers Ins. V. Panalpina, Inc., No. 08 C 5864, 2010 WL 3894105, at *5-6 (N.E.
Ill. Sept. 30, 2010) (finding that company was motor carrier when delivery order
established obligation to transport container and company fulfilled that
obligation by contracting with another company to make delivery)
• AIOI Ins. Co. v. Timely Integrated, Inc., No. 08 Civ. 1479 (TPG), 2009 WL
2474072, at *3 (S.D.N.Y. Aug. 12, 2009) (finding that defendant qualified as
“motor carrier” because it arranged for shipment of goods by contracting with
third party to provide actual physical transportation, court being persuaded by
fact that defendant held itself out to shipper as carrier of goods, that
agreement between defendant and shipper authorized defendant to transport
goods, and that defendant was legally bound to transport shipment).
19
Mach Mold Inc. v. Clover Assocs., 383 F.Supp.2d
1015 (N.D. Ill. 2005)/Brokers as “Carriers”
• “Motor carrier” and “Transportation” are broadly defined, a
broker or 3PL that intended to provide brokerage services, may be
considered a “carrier” by the courts.
• “[W]hether a company is a broker or a carrier/freight forwarder is
not determined by how it labels itself, but by how it holds itself
out to the world and its relationship to the shipper.” Custom
Cartage, Inc. v. Motorola, Inc., 1999 WL 965686 (N.D. Ill. Oct. 15,
1999).
20
Mach Mold Inc. v. Clover Assocs., 383 F.Supp.2d
1015 (N.D. Ill. 2005)/Brokers as “Carriers”
• Clover, agreed to transport machine for plaintiff, Mach Mold.
• Mach Mold informed Clover that it preferred to use “union
carrier” to transport machine.
• Clover contacted Kingman, a “union carrier,” to transport
machine and Mach Mold agreed to use Kingman as carrier.
• During transport, machine was damaged.
• Mach Mold filed suit under Carmack Amendment alleging
that both Clover and Kingman were acting as motor carriers.
• Clover argued that it was acting as broker.
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Mach Mold Inc. v. Clover Assocs., 383 F.Supp.2d
1015 (N.D. Ill. 2005)/Brokers as “Carriers”
• The court held that Clover was a motor carrier,
stating that:
Ownership of the vehicles used to transport the machine
does not determine whether Clover was providing
transportation or merely selling the transportation of
another carrier. The mere fact that Clover did not use its
own motor vehicles in transporting the machine does not
preclude it from being a motor carrier for the purposes of
the ICA. Id. at 1029.
22
But It Wasn’t Me! Broker Liability Where a Consignee Has Rejected an
Entire Truckload of Food Product. Contessa Premium Foods, Inc. v. CST
Lines, Inc., No. CV 10-7426, 2011 WL 3648388 (C.D. Cal. Aug. 18, 2011)
• Shipper, Contessa Premium Foods, Inc. entered into Motor Carrier
Agreement with CST Lines, Inc. to transport 48 pallets of frozen food
from Contessa’s plant in California to Indiana warehouse.
• CST agreed to provide temperature-controlled transportation for
shipment, and to maintain food at minus 10 degrees Fahrenheit.
• CST subsequently engaged Far East Carrier to pick up, transport and
deliver shipment, pursuant to broker/carrier agreement.
• The lawsuit arose after frozen food was delivered to Indiana at elevated
temperature, thereby causing damage to shipment.
• Parties each moved for summary judgment with respect to whether CST
could be held liable as motor carrier under Carmack Amendment.
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But It Wasn’t Me! Broker Liability Where a Consignee Has Rejected an Entire
Truckload of Food Product. Contessa Premium Foods, Inc. v. CST Lines, Inc.,
No. CV 10-7426, 2011 WL 3648388 (C.D. Cal. Aug. 18, 2011)
• The court determined that CST was motor carrier, within
definition of Carmack, based upon three key pieces of
evidence:
• 1: CST had identified itself as “Carrier” in motor carrier agreement
between CST and Contessa.
• The agreement also imposed liability on CST “for any and all or
damage to . . . . shipment.”
• Applying AIOI Ins. v. Timely Integrated, Inc., No. 08 Civ. 1479, 2009
WL 2474072, at *3 (S.D. N.Y. Aug. 12, 2009) and Land O’ Lakes, Inc. v.
Superior Serv. Transp. Of Wis., Inc., 500 F. Supp.2d 1150, 1154
(E.D.Wis. 2007) (recognizing that a party can accept responsibility
and become liable under the Carmack by signing a Motor Carrier
Agreement that identifies the party as a “motor carrier”.
24
But It Wasn’t Me! Broker Liability Where a Consignee Has Rejected an Entire
Truckload of Food Product. Contessa Premium Foods, Inc. v. CST Lines, Inc.,
No. CV 10-7426, 2011 WL 3648388 (C.D. Cal. Aug. 18, 2011)
• 2. Court found no evidence that CST Lines had acted like “broker” within
purview of Carmack statutory definition.
• No evidence that CST sold, offered, or held itself out to Contessa as
arranging for shipments by others to serve as carriers.
• Instead, CST held itself as “carrier” for shipment of goods, in both Motor
Carrier Agreement and bill of lading, which referenced CST lines as
“motor carrier.”
• CST directly invoiced Contessa for carrier services. See Delta Research
Corp. v. EMS, Inc., 2005 WL 2090890 at *6 (E.D. Mich. Aug. 29, 2005)
(finding direct invoice by broker to shipper for entire loading and
transportation process was circumstantial evidence of carrier status).
25
But It Wasn’t Me! Broker Liability Where a Consignee Has Rejected an Entire
Truckload of Food Product. Contessa Premium Foods, Inc. v. CST Lines, Inc.,
No. CV 10-7426, 2011 WL 3648388 (C.D. Cal. Aug. 18, 2011)
• 3: Court found that CST had exerted sufficient control over Far
East such that it could be considered CST’s agent.
• After booking shipment with Contessa, CST faxed a load
confirmation document with specific handwritten instructions
regarding manner and means by which load should be carried.
• Instructions directed Far East to transport load at a specific
temperature, make daily check calls to CST , and sign all papers
using CST’s name.
• After determining that CST was motor carrier under Carmack,
court granted summary judgment and damages in favor of
Contessa.
26
But It Wasn’t Me! Broker Liability Where a Consignee Has Rejected an Entire
Truckload of Food Product. Suntopia Global Organic Ingredients, Inc. v. C.H.
Robinson Worldwide, Inc., No. CV-10-311-LRS, 2011 WL 1532063
(E.D. Wash. Apr. 21, 2011).
• Suntopia Global Organic Ingredients, Inc. contracted with C.H. Robinson as
cargo broker to arrange to transport apple juice concentrate from Wilmington,
Delaware to Omak, Washington, in temperature controlled truck transport.
• CHR engaged J & L Trucking as motor carrier to provide the actual
transportation.
• Upon delivery, the consignee rejected shipment because seals had been broken
and concentrate appeared to have spoiled.
• The primary issue for the court was whether CHR, as broker, could be held
liable for J & L Trucking’s negligence.
• Suntopia alleged that CHR, in its capacity as broker, was vicariously liable for J &
L Trucking’s actions as its agent, particularly because CHR identified itself as the
“Carrier” for the shipment on its “Shipment Detail.” Suntopia voluntarily
dismissed its federal claim under the Carmack Amendment.
27
Stop Thief! Coverage under Broker’s
Liability Insurance Policy for Cargo Theft
by Imposter Carrier
•
Intransit, Inc. v. Travelers Property & Casualty Co. of Am., 2012 WL 5208170 (D. Or. Oct. 22,
2012).
– Broker brokered a load to an imposter carrier who then picked up and stole the load
– Broker filed claim with insurance provider; claim denied; broker sued for coverage
– Court concluded that the terms of the coverage grant, exclusions, and endorsement in the policy
were ambiguous and susceptible to more than one plausible interpretation, and, therefore, must be
construed against the insurer and in favor of insured
– Held, construing policy I favor of insured, the policy granted coverage to broker for property loss
resulting from an imposter carrier’s cargo theft, and the policy’s exclusions and endorsement did not
encompass imposter or fraudulent carriers
– The court emphasized that the insurer could have easily clarified the scope of the coverage grant,
exclusions, and endorsement by including express provisions relating to imposter and fraudulent
carriers (e.g., by defining “carrier” in the coverage grant to only include authorized, legitimate, or
licensed carriers; or by drafting the policy to specifically exclude coverage for cargo theft by fraud,
false pretense, or trickery by imposters).
•
FST Logistics, Inc. v. Markel Am. Ins. Co., No. 10CVH-11-16975 (Ohio Ct. Common Pleas Oct.
13, 2011) (where broker brokered load to imposter carrier that stole the cargo and insurer denied
broker’s claim for property loss, held, broker failed to satisfy the requirements for coverage under its
policy and, therefore, could not recover under the policy for property loss caused by imposter’s cargo
theft).
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MAP-21 Changes for Motor Carriers,
Forwarders, and Brokers
Changes that took effect October 1, 2012
• Entities that provide multiple services will be
issued one registration number for each authority
that they hold (motor carrier, broker, forwarder).
– Each time the entity engages in a service requiring
registration, it must provide in writing the authority
that it will be operating under.
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MAP-21 Changes for both
Freight Forwarders and Property Brokers
Changes that become effective October 1, 2013
• Freight forwarders and property brokers must provide a $75,000 surety
bond (an increase from the previous requirement of $10,000).
• Freight forwarders dealing with ground transportation, motor carriers,
and others are forbidden to broker or otherwise tender freight to a
motor carrier unless they have registered with the FMCSA as a property
broker and maintained the requisite $75,000 bond.
• FMCSA has authority to require freight forwarders and brokers to give
proof of financial security. The financial security is used to pay for claims
arising from a failure to pay freight charges if: 1) the broker consents to
payment; 2) the broker does not respond to a notice of claim and the
surety provider determines that the claim is valid; or 3) the claim is
reduced to judgment.
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MAP-21 Changes for both
Freight Forwarders and Property Brokers
Changes that took effect October 1, 2012
• Freight forwarders and property brokers will be
required to employ an officer who has at least three
years of relevant experience with the relevant rules,
regulations, and industry practices, or provide
FMSCA with satisfactory evidence of the individual’s
knowledge.
– It is unclear whether the requirement will apply to
currently licensed logistics providers prior to renewal of
their registration or, if so, how the requirement will be
enforced.
34
Here Come the Feds! The Preemption Gambit
Ameriswiss Technology, LLC v. Midway Line of Illinois, Inc.,
U.S. 888 F.Supp.2d 197 (D. N. H. 2012)
• Shipper’s non-contractual claims against its broker were
impliedly preempted by the Carmack Amendment and
expressly preempted by Interstate Commerce Commission
Termination Act (“ICCTA”).
• Title 49 U.S.C. § 14501(c)(1) originally enacted as provision of
Federal Aviation Administration Authorization Act of 1994.
• It provides that: a [s]tate . . . may not enact or enforce a law,
regulation, or other provision . . . related to price, route, or
service of . . . any motor private carrier, broker, or freight
forwarder with respect to the transportation of property.
35
Here Come the Feds! The Preemption Gambit
Ameriswiss Technology, LLC v. Midway Line of Illinois, Inc.,
U.S. 888 F.Supp.2d 197 (D. N. H. 2012)
• Ameriswiss, hired broker, C.H. Robinson, to arrange
transportation of its machinery by carrier, Midway.
• The machines were destroyed when Midway’s truck was
involved in an accident.
• Ameriswiss filed suit against both Robinson and Midway
alleging that Robinson was negligent for failing to select a
competent carrier and breached its contract by failing to safely
transport the machines. Robinson argued that Ameriswiss’s
claims were preempted by federal law.
• The court stated that, even if Robinson was a broker, any state
negligence claim against Robinson was impliedly preempted by
the Carmack Amendment.
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