Titan Transportation, Inc. v. O.K. Foods, Inc., 2013 WL 245253 (Ark. App. 2013)
Freight brokers, at least from outward appearances, have much in common with agents which undertake contractual tasks for their principals. One can analogize them to real estate brokers who usually operate as agents for property owners selling their homes. Instead of selling a house and assigning a deed, a motor carrier hauls freight and provides a bill of lading, while both middlemen make arrangements and take a commish.
But the analogy pretty much ends there. The activities between shippers, brokers and carriers involve circumstances and complexities not present in other principal/agent relationships. Business practices and arrangements, legal requirements, documentation, and governmental regulation of the trucking industry create dynamics which courts have struggled in vain for years to pigeonhole into more typical legal classifications. That’s how the Arkansas Court of Appeals took a wrong turn in analyzing a claim of broker liability for cargo damage.
Shipper O.K. Foods engaged Titan Transportation for what it believed were interstate motor carrier services of a load of frozen poultry. And why shouldn’t it have believed that? Titan’s advertising was replete with pictures of trucks and offerings of transportation services apparently without mentioning that it was a non-asset based freight broker. Titan never mentioned to O.K. that it had engaged trucker Southwind Transportation to actually make the haul. On delivery, the consignee refused the load because of improper temperature settings, and O.K. sued both Titan and Southwind in an Arkansas state court. Southwind defaulted and disappeared.
Affirming the trial court, the court of appeals found Titan liable as the agent of an undisclosed principal for Southwind’s actions. The court went through an elaborate analysis of Arkansas agency law and determined that a freight broker qualifies as the trucker’s agent. If it doesn’t disclose the principal’s identity, then it’s on the hook as if it were the shipper’s carrier, just as any agent might be liable for acting without disclosing its principal. That analysis is misplaced (broker liability isn’t established merely by failure to ID a trucker), but the court’s result is probably correct (we’d need some more specifics to be sure). Brokers certainly can be held liable if they lead their customers to believe they are carriers through advertising, documentation or relevant operations. Moreover, Southwind wasn’t even licensed to do business, meaning Titan was probably negligent by selecting an incompetent carrier, which is another basis for broker liability.
Casey v. Smith, et al., 2013 WL 150176 (Wis. App. 2013)
Like with most owner-operator lease arrangements, John Zeverino’s contract with motor carrier Taylor Truck Line, Inc. provided that Taylor would maintain insurance coverage that would apply when Zeverino’s truck was being used for the company’s “exclusive” purposes, and that Zeverino would keep his rig covered under a bobtail policy applicable for his personal use of it. The truck’s grill was damaged, and it needed a new oil filler tube. On his day off, and without Taylor’s knowledge (much less direction), he scheduled in appointment with a Caterpillar repair facility to have his truck fixed. He was involved in a multi-car accident in Wisconsin en route, and an injured motorist sued Zeverino, Taylor, their insurers and several others in Wisconsin state court.
The mess boiled down to a fight between Zeverino’s and Taylor’s insurers, Acceptance Casualty and Great West respectively, over which policy covered this loss. Courts addressing this issue frequently go to great lengths defining what constitutes trucking operations necessarily undertaken for the motor carrier’s benefit, ruling that “the truck is in the business of the lessee when the truck is being used to further the commercial interests of the lessee.” In this instance, the Wisconsin Court of Appeals agreed with a trial court that coverage Acceptance provided for the owner operator’s truck applied because the repairs weren’t essential to operations. The truck could’ve run just fine with a busted grill and bad oil tube.
True, Zeverino expressed concern that the grill might fall off and cause a highway hazard. Maintaining a safe vehicle was a requirement Taylor imposed on him under the lease. He also had logged in as on duty on his way to the repair. But the investigating state patrolman found the truck roadworthy at the time of the accident, and how a driver classifies himself in a book doesn’t control. Also significant was the fact that Taylor didn’t even know about the scheduled repairs.
Estes Express Lines v. United States, 2013 WL 163765 (Fed. Cl. 2013)
A division of the U.S. Marine Corps Community Services entered into a contract with freight broker Salem Logistics to arrange transit of freight from and to various points across the country. The contract required that Salem would pay the carriers it engaged, and not represent to any of them that it was Uncle Sam’s agent. It also mandated that any carrier Salem engaged was its, and not the government’s, agent. Salem hired carrier Estes Express to make some of the hauls.
Estes Express issued bills of lading in various manners depending on the circumstances, but in each instance a military entity was named as shipper and/or consignee. Salem was noted as the “bill to” party. Unidentified individuals signed the bills of lading as shippers, and the deliveries were made without exception. When Salem didn’t pay some 147 grand worth of freight charges, Estes Express sued the government in the U.S. Court of Federal Claims.
The court stated the issue as follows: “Defendant argues … that the court lacks jurisdiction over plaintiff’s complaint because the contract on which plaintiff predicates its case was not with the United States or an agency thereof.” That almost certainly mischaracterizes the circumstances, but the court agreed with the government, and dismissed the action. It ruled that no privity of contract existed between Estes Express and its shippers/consignees. It classified the carrier as Salem’s “subcontractor,” and ruled that the government-Salem contract “made clear that Salem, and not defendant, would be directly liable to the carriers for the transportation charges incurred.” The court also rejected 49 USC §13706 provisions holding consignees liable for unpaid freight charges on the ground that statute doesn’t apply when another contract exists between shipper and broker.
This analysis upends the bill of lading’s role and legal definition. Were it to become mainstream, the decision would dissuade carriers from hauling freight arranged through brokers for fear there might be some unknown contract term that could impact their capacity to collect freight charges. Bills of lading have long been defined as contracts between carrier and shipper of record, with shippers having options to protect themselves from double payment of freight charges so long as their carriers agree to such terms. While Salem was forbidden from representing itself to be the government’s agent, agency principles aren’t at issue here.
The court closes by asserting it “will not gild the lily,” presumably meaning it will not find a bill of lading to be a contract for jurisdictional purposes. In fact, it has done just that, by ruling that a shipper-broker contract has the power to supersede a shipper’s contract with a third party.
Mountain Movers Transportation & Logistics, LP v. Continental Trans Express, Inc., et al., 2012 WL 6738299 (W.D. La. 2012)
Here’s one you’ll need to diagram out to get the full picture. Shipper Independent Pipe engaged broker Mountain Movers Transportation & Logistics to arrange transit of a load of pipes from Dallas to Jacksonville. Mountain Movers hired out Continental Trans Express, which in turn booked the load with carrier Napoles Transport. Napoles’ truck had mechanical problems in Louisiana, and required towing services. A police dispatcher called Despino’s Wrecking Service of Louisiana, but Despino’s couldn’t handle the job, so it brought in Northside Towing to lend a hand.
Independent Pipe’s cargo sat in Despino’s and Northside’s warehouses for some period of time, losing value and incurring costs. The towers refused to release the truck and its cargo until they were paid for towage and storage. Mountain Movers paid its shipper 20 grand and sued all concerned in the U.S. District Court for the Western District of Louisiana alleging Carmack and Pelican State tort theories of liability. The carriers defaulted, and judgment against both under Carmack was entered. The towers counterclaimed.
Didn’t the towers provide intrastate towage services only? Mountain Movers alleged they, too, were subject to Carmack (along with its shipper-friendly threshold for a prima facie case). It argued that while 49 USC §13506(b) exempts emergency towing services, the exemption doesn’t apply if the tow was reasonably necessary to carry out the transportation policy section of §13101, which involves interstate transport. The court rejected that argument, finding that §13101 relates only to the setting of reasonable rates. The court also nixed Mountain Movers’ argument that §14501(c)(2)(c) addresses state and federal authority over towing services, allowing federal regulation over consensual towing such as that here. That statute pertains only to travel, and not to Carmack, which deals with towing differently.
Under Louisiana law, Despino’s and Napoles had a lien (called a “privilege” in that state) on both the towed vehicle and stored cargo for which they were entitled to payment. This is none of Carmack’s business.
Royal & Sun Alliance Insurance, PLC v. International Management Services, Co., Inc., 2013 WL 57847 (2nd Cir. 2013)
Shipper Ethicon hired UPS Supply Chain Solutions (UPS) to provide transportation and distribution services of its pharmaceutical products, apparently (although not explicitly in the opinion) to include services as a carrier of record. The Logistics Services Agreement (LSA) they entered into contained a limitation of liability provision of $250,000 per shipment for finished goods applicable to UPS and its subsidiaries. UPS contracted out transports to its wholly owned subsidiary Worldwide Dedicated Services, Inc. (WDS), and WDS hired drivers provided by International Management Services Company (IMSCO) to operate WDS’s trucks pursuant to a Staffing Services Agreement (SSA). The SSA had no limitation of liability provision for IMSCO, and in fact mandated that IMSCO maintain its own insurance coverage.
When a WDS truck, operated by an IMSCO driver, was involved in an accident during interstate transit that destroyed Ethicon’s cargo, the shipper’s insurer, Royal & Sun Alliance, paid it some 769 grand, and sued all concerned in subrogation in the U.S. District Court for the Southern District of New York to recover its payout. UPS paid up the $250k extent of its limited liability, leaving about $500k in dispute.
On cross motions for summary judgment, the court was confronted with the issue of whether WDS and IMSCO enjoyed the benefit of UPS’s limitation of liability. The court concluded that WDS clearly was encompassed by the LSA as a limited-liability entity. But what about IMSCO, which conceded it wasn’t a Carmack carrier?
The Second Circuit Court of Appeals agreed with the trial court that Carmack-blessed limitation of liability provisions don’t extend to a subcontractor which is neither a carrier nor incorporated into the mix by contract. Ruling that “Carmack … does not displace traditional contract principles except insofar as it specifically provides,” the Second Circuit concluded that Himalaya Clause-styled language in a shipping contract is necessary to extend that contract’s provisions to other entities, including drivers. Such extension is not automatic. Similarly, common law bailment law doesn’t extend the LSA’s provisions to IMSCO. In that world, contract law is even less impacted by statute, and there is no basis to extend a contractual bailee’s rights to unidentified entities.
Royal & Sun Alliance Insurance, PLC v. Service Transfer, Inc., 2012 WL 6028991 (SDNY 2012)
We’re still tweaking and ironing out kinks in intermodal liability law post-regal-Beloit, and here’s a good example of a court developing jurisprudence in the right direction. The U.S. District Court for the Southern District of New York recently held that door-to-door applicability of the U.S. Carriage of Goods by Sea Act (COGSA) in intermodal hauls governed by a through ocean bill of lading is a two-way street, i.e., that the principle applies equally for outbound international cargo.
Here, shipper BioLife Plasma Services engaged ocean carrier APL to transport a cargo of human plasma from Erlanger, Kentucky to Vienna, Austria. APL issued a through bill of lading containing a Himalaya Clause and Clause Paramount (extending COGSA and its $500/package limitation of liability to connecting surface carriers), and engaged motor carrier Service Transfer, Inc. (STI) to haul the cargo from the Bluegrass State to the Port of Norfolk for onward ocean transit. STI didn’t issue a bill of lading. The cargo was destroyed during a trucking accident before it ever reached APL. That’s where the whole bloody mess started.
The shipper’s insurer, again Royal & Sun Alliance (RSA), paid the cargo’s value to the shipper, and sued STI in subrogation. The parties moved for a determination of whether COGSA or Carmack governed. RSA thought Carmack should apply, perhaps because the trucker wouldn’t be able to limit its liability. Not surprisingly, STI took the reverse position. The court agreed with STI.
RSA urged that Regal-Beloit would mandate Carmack governance because STI was a “receiving carrier” to which the statute is applicable. That may be true in the physical sense, but not the legal. The carrier which issues a bill of lading is the originating, or “receiving,” carrier even if someone else first takes physical possession of the freight. Thus, Carmack couldn’t apply of its own terms. More importantly, COGSA application would be “consistent with the U.S. Supreme Court’s emphasis on efficiency in international maritime trade” as pronounced in Regal-Beloit. A single, predictable, cargo liability regime in primarily ocean transportation contracts – applicable start to finish – benefits all concerned. This case moves us in the right direction as to a definitive body of intermodal liability law.
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