THE TRANSPORTATION & LOGISTICS COUNCIL, INC. WORKSHOP ON BROKER EXPOSURE MARCH 17, 2014 TAMPA, FLORIDA Presenter: J. Scott McMahon/Shareholder Kubicki Draper, PA Transportation, Trucking and Logistics Practice 201 N. Franklin Street, Suite 2550 Tampa, Florida (813) 314-1129 (Direct Dial) JSM@kubickidraper.com
INTRODUCTION The case law in the Handout demonstrates the disturbing trend in personal injury, wrongful death and property damage litigation for the brokerage and 3PL industries. The plaintiff's bar has become extremely aggressive in pursuing broker exposure for bodily injuries and cargo claims caused by motor carrier negligence (i.e. catastrophic accidents) under a variety of theories. Particularly where the damages exceed the trucker s insurance policy limits. This is a brief summation of the key points from the Handout, to assist brokers, 3PL s and shippers in mitigating, potential exposure. Unfortunately there are no red light/green light formulas. Given we have up to 15 minutes, at most, this presentation will focus only on the key points. A discussion of CSA s impact on broker/3pl/shipper exposure is welcomed, but which by itself would easily consume a full day s discussion. Thus, we ll stick to the BASICS (no pun intended).
ERA OF BROKER INSULATION FROM CARRIER NEGLIGENCE IS OVER OVERVIEW: Cargo brokers simply arrange for the transportation of cargo, and have by statute (and pre-emption) avoided exposure. 49 U.S.C. Section 13102; 49 CFR Section 371.2. The trend in BI and cargo loss claims has been to expose brokers under theories accepted by the courts, regardless of the independent contractor status of (and relationship to) the motor carrier.
ERA OF BROKER/SHIPPER INSULATION FROM CARRIER NEGLIGENCE IS OVER TWO MOST POPULAR THEORIES AND HOW TO AVOID ENTANGLEMENT IN LIGITATION: 1. NEGLIGENT HIRING/RETENTION AND/OR ENTRUSTMENT OF THE MOTOR CARRIER: Broker duty in carrier selection includes, AT LEAST, the duty to: (1) Check the safety statistics and carrier evaluations with whom it contracts available on SafeStat (CSA) database; and (2) To maintain internal records of carriers with whom contract,
ERA OF BROKER/SHIPPER INSULATION FROM CARRIER NEGLIGENCE IS OVER to assure they are not manipulating their business practices to avoid marginal or unsatisfactory Safe Stat ratings Imposing a duty upon brokers to use reasonable care in selecting carriers furthers the federal interest in protecting the nation s highways A marginal or conditional safety rating creates a duty of further inquiry. Schramm, 341 F. Supp. At 552.
ERA OF BROKER/SHIPPER INSULATION FROM CARRIER NEGLIGENCE IS OVER 2. AGENCY RELATIONSHIP WITH THE CARRIER BASED UPON CONTROL OVER THE CARRIER S ACTIONS: The broker retained control over the specific manner and method of the work performed under the (broker carrier) agreement. Note: This becomes a bigger risk with constant contact between the broker and the driver regarding routes, stops and incentives for early deliveries. (Sperl and Heyl Logistics decisions)
AVOIDING NEGLIGENT HIRING AND RETENTION CLAIMS (See Case Hypothetical in Handout) TWO KEY GOALS OF PRESENTATION: 1. Avoid being named in a personal injury or cargo loss lawsuit in the first instance; 2. If sued, the ability to obtain an immediate dismissal or summary judgment ruling and avoid needless attorney s fees and costs.
AVOIDING NEGLIGENT HIRING AND RETENTION CLAIMS (See Case Hypothetical in Handout) TWO SCHOOLS OF THOUGHT ON HOW DEEP DO YOU DIG IN VETTING THE CARRIER? 1. PRO-ACTIVE, DILIGENT, GO THE EXTRA MILE APPROACH: -Review SafeStat (CSA) Scores; Ensure Carrier MC/DOT Registration; If only Conditional and/or Marginal score (or an Alert under CSA): Call carrier for explanation; Review driver history or request the same; Cross check Certificate of Insurance; Review Carrier history regarding how long in business. (See TIA approved Checklist) i.e. Be Proactive.
AVOIDING NEGLIGENT HIRING AND RETENTION CLAIMS (See Case Hypothetical in Handout) RISKS OF DIGGING TOO DEEP: 1. Unrealistic and impractical given need to operate quickly; 2. Must apply uniformly; and 3. Set standards that, if violated, could be negligence per se or justify the imposition of punitive damages not covered by insurance.(among many other risks)
TWO SCHOOLS OF THOUGHT ON HOW DEEP DO YOU DIG IN VETTING THE CARRIER? 2. RELIANCE ON DOT APPROVAL AND AUTHORITY: - Premised on the belief that Uncle Sam is The Gatekeeper holding far more resources than a broker to ensure the carrier is safe ; - Carrier has active operating authority, meets the minimal statutory insurance criteria, and has been cleared by the DOT to operate on the highways. What more is needed?
TWO SCHOOLS OF THOUGHT ON HOW DEEP DO YOU DIG IN VETTING THE CARRIER? RISKS OF CURSORY REVIEW AND APPROVAL : 1. See Case-law in Handout and Schramm, Jones and Heyl Logistics decisions; 2. Not impressive to a jury; 3. No summary judgment if additional fact checks would have disclosed bad information(prior suspension, negative trend in SafeStat scores/rankings and/or driver misconduct etc.)
CHECK LIST OF BEST PRACTICES TO AVOID NEGLIGENT HIRING CLAIMS At a minimum, ensure via FMCSA site active authority and insurance compliance. Note: Use of software program and employees trained in the same is a plus in vetting carriers. Always maintain active files on your stable of carriers, update the same, and have employees trained to spot negatives, lapses in insurance coverage. Verify active DOT, BOC-3 and MC numbers with the FMCSA.
CHECK LIST OF BEST PRACTICES TO AVOID NEGLIGENT HIRING CLAIMS Obtain the carriers Certificate of Insurance from the carrier s broker or agent directly. (Not the motor carrier!) Was the carrier s license ever revoked? If so, why? Avoid working with inexperienced or incompetent carriers with marginal ratings (i.e. prior accidents, losses, thefts). Develop internal minimal qualification standards in selecting competent carriers and uniformly apply. Sophisticated software electronic systems are available commercially which provide comprehensive information regarding motor carriers.
CHECK LIST OF BEST PRACTICES TO AVOID NEGLIGENT HIRING CLAIMS Maintain a systematic check of the motor carrier safety scores and maintain internal records of the persons and carriers with whom you are doing business to assure they not manipulating business practices to avoid unnecessary SafeStat ratings (See Schramm). A critical component of Schramm was that the broker should have known that the motor carrier was formed or recently formed as a result of safety performance problems, has a predecessor carrier. Avoid carriers who are known and consistent violators of the federal regulations, particularly violations that are safety related, such as hours of service violations, drug and alcohol violations, failing to maintain brakes or tires. (Note: CSA makes this requirement more dangerous for brokers given the information available for the BASICS in CSA) Have a quality control measure motor carriers who are part of your stable should be routinely checked. Consider minimal training of staff to review motor carriers and ensure qualified.
CHECK LIST OF BEST PRACTICES TO AVOID NEGLIGENT HIRING CLAIMS Run Credit Checks and/or DUNS Report. Trends in SafeStat scores or Ratings should be monitored, especially if the rating is Conditional (i.e. the carriers score jumps from 69 to 74).
CHECK LIST OF BEST PRACTICES TO AVOID NEGLIGENT HIRING CLAIMS --NOTE: DUAL AUTHORITY ISSUES (MOTOR CARRIER & BROKERAGE AUTHORITY AND SPECIAL CIRCUMSTANCES OF THE SAME): 1. Avoid any confusion with customer or carrier regarding who they re dealing with; 2. Separate names, accounts, employees, contracts, bank accounts; 3. Avoid Joint Venture status between the carrier and broker; 4. **Logos and marketing materials should be distinct.
CHECK LIST OF BEST PRACTICES TO AVOID NEGLIGENT HIRING CLAIMS CONTRACTING: 1. Do not sign shipper agreements assuring/ensuring motor carrier compliance with safety regulations, insurance requirements etc. **2. Ensure your broker/carrier contracts are congruent/consistent with your shipper/broker contracts. This is critical to the courts.
CHECK LIST OF BEST PRACTICES TO AVOID NEGLIGENT HIRING CLAIMS **3. Never execute agreements with the shipper where broker assumes the role of a carrier, nor ensure the performance of the motor carrier. **4. Never become the employer of the driver and always have contracts specifying the carrier as an independent contractor. **5. Carefully review your Rate confirmation Sheet, BOL and Freight Invoices. Where the broker or 3PL is denoted as the carrier, rectify immediately.
CHECK LIST OF BEST PRACTICES TO AVOID NEGLIGENT HIRING CLAIMS 1. SOLUTION: Political clarification from the FMCSA of broker s role as an intermediary immune from liability. 2. Always have a protocol for carrier selection applied consistently. 3. Follow through on facts showing carrier(s) to be questionable or substandard.
AVOIDING CONTROL OR AGENCY CLAIMS In addition to negligent hiring claims, brokers and 3PL s are routinely sued for exercising too much control over the motor carrier. Recent verdicts in the Sperl, Puckrein and Heyl Logistics cases resulted in verdicts (or settlements) against the broker for too much control over the operations of the motor carrier. A checklist of policies or procedures to implement, or things to avoid: DO NOT micro-manage routes that may cause driver to speed or drive while fatigued. Redesigning routes is acceptable when communications with the drivers indicate completion is creating stress and/or problematic. The risk increases if the entire route is provided by the broker (or shipper), or complete routing instructions are provided. Your broker/carrier contract thus may provide that the broker suggests a particular route, and this is merely a suggestion, not a mandate ; **DO NOT provide financial incentives or rewards for early deliveries. Likewise AVOID financial penalties for late deliveries. The courts see these as encouraging drivers to go over hours or speed to timely deliver.
AVOIDING CONTROL OR AGENCY CLAIMS In Sperl, it was critical to the court s determination that the broker imposed fines for the driver s failure to call in and constantly report on the load status, which is de facto control over the driver s day to day duties. Any fines based upon failure to continuously communicate with the broker should be eliminated. This will lead to acute problems and provide the foundation for a claim that will proceed to a jury. The more frequent communications and directions to the driver, the more likely vicarious liability will be found. This is a critical in determining if the broker has vicarious exposure. There is a huge difference between communicating the general status of a load (so the broker can communicate the same to its shipping customer), as opposed to demanding constant reports 24/7 from the driver. In this regard, always attempt to communicate with the motor carrier s offices instead of directly with the driver, except for confirmation call on pickup and delivery of the freight.
AVOIDING CONTROL OR AGENCY CLAIMS AVOID A DIRECT RELATIONSHIP WITH THE DRIVER: From court decisions it s clear that brokers must avoid payment or compensation directly into the driver s personal bank account. This has a significant negative impact on the court. Payment must be to the motor carrier s bank account, not the driver s account. The same holds true for advances or other form of compensation. See Sperl, 946 N.E.2d at 468. HOS ISSUES: Never micromanage, analyze or dictate the driver s hours of service. This is the responsibility of the motor carrier. Once the broker or shipper exercise control over logs and hours of service issues, it increases the risk of controlling the manner and method in which the driver/carrier performs its duties. Sperl, 946 N.E.2d at 470. ACCIDENT REPORTING: Its suggested that you report accidents or cargo damage incidents directly to the motor carrier. Likewise the driver first contacts his employer and not the broker regarding the same. At least not first.
AVOIDING CONTROL OR AGENCY CLAIMS OWNERSHIP OF CARGO, EQUIPMENT OR FACILITIES: The courts focus upon brokerage ownership of the cargo (in whatever form) even though the shipper or consignee is the true legal owner. While this may seem obvious, never assume ownership or control of the freight being hauled whether verbally, by written agreement or otherwise. This will lead to disaster. The Heyl Logistics and Sperl cases demonstrate the courts have issues where the shipper or broker s employees have no training or nominal training in choosing motor carriers. If feasible develop or outsource a program, even online training, that reinforces the factors discussed herein. NEVER allow the broker (or shipper) to be denoted as the motor carrier on the bill of lading, rate.
AVOIDING CONTROL OR AGENCY CLAIMS confirmation sheet, invoices or other trip records. The author of this presentation has represented brokers in numerous cases where motor carrier status of the broker resulted in the courts denying any chance to dismiss bodily injury or cargo loss claims against the broker. Note the load confirmation sheet or other post bill of lading documents can easily modify or negate the provisions of a good broker/carrier agreement. Particularly provisions in the agreement establishing an independent contractor relationship. Make sure employees know to avoid overstepping the boundaries of the independent contractor relationship, and not assume duties or responsibilities in these trip records. Never provide ultra-specific instructions on cargo securement, such as directing the driver to use load locks. This will be frowned upon by the Courts, and lead a jury to believe you re responsible for the carrier s actions.
BRIEF ADVICE ON CSA Arguments are already being raised by accident victims in claims for bodily injury and cargo losses and how CSA data (even in its current confused state) can be obtained and used. The Handout contains a section discussing the rudimentary basics of CSA, and how it plays into the issues addressed. There are court challenges attacking the relevance of CSA/Safety Ratings and SMS Values. The TIA Association has a web portal being developed exclusively to monitor and assist those of us whom are up against these issues. That said. 1. FMCSA s has employed thresholds for BASIC Alerts that are published. When evaluating SMS Values and statistics, an intermediary or shipper should ascertain if the carrier exceeds the "intervention threshold," and take proper action. Please note a broker or shipper might look at the same information available to FMCSA, and establish different carrier selection criteria. 2. Given the breadth of information available under CSA and its current status, CSA will very likely have a duty of further inquiry that will be more vast than under SafeStat.
GENERALIZATIONS: No Published Decisions 1. Ratings (ultimately) = Satisfactory, Conditional or Unsatisfactory. 2. Per Schramm, obligations under SafeStat/Safer on negligent hiring claims will be stronger (much more data available on carrier) and owners. 3. Duty to conduct further inquiry if Alert Signal under a BASIC? Per Schramm yes.
BRIEF ADVICE ON CSA This duty can depend upon the financial means and level of sophistication available to the broker, shipper or 3PL. (Puckrein) 4. It may include questions regarding a carrier s safety performance in the CSA categories created by the FMCSA with follow up questions on obtaining written explanations of motor carriers safety practices; review or inspection of CSA data to determine if scores are misleading, as well as an examination of the specifics of the carrier s accident history.
BRIEF ADVICE ON CSA Note: The finalization of the CRASH Rating is still uncertain. There remains the issue of an accountability determination in rating any accidents, an issue being addressed as we speak between the FMCSA and organizations like ATA.
DEFENSES/DISCOVERY AND IMMEDIATE PRACTICAL ADVICE Current FMCSA disclaimer is absolute. The data is only employed for safety purposes of vetting motor carriers. This should be a bar in any litigation; Therefore, vigorously contest use of any CSA data in discovery (via a protective order, motion to quash); NEVER allow depositions to address, discuss or be based on CSA data/comparisons (See FMCSA Disclaimer ). Take an interlocutory appeal to avoid embarrassment and harassment. Solicit Government Assistance in the above regarding discovery and the misuse of CSA data; and Use pending litigation as defense to use of CSA Data.
THANK YOU! J. SCOTT MCMAHON Kubicki Draper, PA Transportation, Trucking and Logistics Practice 201 N. Franklin Street, Suite 2550 Tampa, Florida (813) 314-1129 (Direct Dial) JSM@kubickidraper.com