Traffic Tech, Inc. v. Arts Transportation, Inc., et al., 2016 WL 1270496 (N.D. Ill. 2016)
This one gets it wrong, and if followed by other courts, might shake up aspects of cargo litigation as we know it.
Shipper Pepsi engaged freight broker Traffic Tech (Traffic) to arrange interstate transit of a load of apple slices. Traffic hired motor carrier Arts Transportation (Arts) to arrange the haul. Facts are disputed, but for some reason, Arts placed tires in the trailer with Pepsi’s food products, prompting the consignee to reject the load for contamination reasons. Facts again are disputed, Arts apparently destroyed the load despite its salvage value, prompting Pepsi to claim 136 grand in damages.
Traffic paid Pepsi the 136 grand, but didn’t obtain an assignment of the shippers’ rights against Arts. Instead, it sued Arts and its owner in the U.S. District Court for the Northern District of Illinois, alleging Carmack and state law indemnity liability. The parties filed cross motions for summary judgment.
The court rejected Arts’s Carmack preemption argument, finding that because a broker cannot be sued as a carrier under Carmack, and because it didn’t assert rights as Pepsi’s assignee, that Carmack never comes into play. This ignores the fact that Carmack operates not just in favor of shippers, but creates uniformity and legal advantages motor carriers are entitled to rely on as well. A broker’s rights to recoup a payment it made to its shipper customer – one it has no legal obligation to pay unless contractually undertaken – either in indemnity or an assignee, shouldn’t be larger than the rights its shipper had in the first place. By the court’s logic, brokers could impose on carriers different, perhaps larger, obligations than Carmack contemplates, simply by suing for common law indemnity based on a contract the putative indemnitee knew nothing about. Bad idea.
The court did dismiss Traffic’s Carmack claim based on the same logic. That’s a proper ruling given that Traffic had no assignment. It also threw out Traffic’s allegations against Arts’s owner, ruling there were insufficient grounds to pierce the corporate veil.
Sompo Japan Ins. Co. of America v. B&H Freight, Inc., et al., 2016 WL 1392339 (N.D. Ill. 2016)
Concurrently analyzing a related issue, the Northern District of Illinois (through different judges) didn’t let a putative freight broker off the cargo liability hook based on a subrogated insurer’s complaint allegations pleading alternate liability based on the service provider’s unknown status. Shipper Canon USA engaged one of two unknown sister entities, B&H Freight or B&H Systems (it wasn’t clear which), to arrange transit of a load of cameras which disappeared en route. Canon’s subrogated insurer, Sompo Japan, pleaded alternative theories of liability, one based on Carmack if B&H was a carrier or freight forwarder (Count I), the other based on common law if it were a broker (Count II). B&H moved to dismiss moved to dismiss the state law claims, asserting that Carmack preempts them. B&H theorized that Counts I and II allege the same injury, such that Carmack had been alleged to govern any claims Sompo Japan might have against B&H.
That doesn’t follow, ruled the court. Brokers aren’t liable under Carmack, but if an entity isn’t a broker, Carmack wouldn’t preclude a claim against it. While a claim against B&H as a carrier would be premised on different governing law than one against it as a broker, allegation of the alternate theory applicable to carrier liability doesn’t displace potential broker liability under state law.
Drake v. Old Dominion Freight Line, Inc., 2016 WL 1328941 (D. Kan 2016)
An Old Dominion Freight Line driver was operating in a “fatigued state” and struck Ashlee Drake in Kansas. Drake sued Old Dominion in the U.S. District Court for the District of Kansas, alleging violations of the Federal Motor Carrier Act (MCA), specifically 49 USC §14704(a)(2), which provides that “[a] carrier or broker providing transportation or service subject to jurisdiction under chapter 135 is liable for damages sustained by a person as a result of an act or omission of that carrier or broker in violation of this part.”
While that sounds pretty cut and dry as a basis for the carrier’s liability to Drake, MCA legislative history, as reviewed and applied by several federal courts (including the Eighth Circuit) demonstrates Congress didn’t intend this legislation to apply to personal injury claims. It had only commercial claims in mind. Moreover, Drake’s complaint didn’t allege any factual act or omission that could bring her claims within the MCA as a violation. The court threw out her MCA theories, just as it did her attorney fee claims based on a Kansas statute that requires a specific factual allegation of wrongdoing in violation of state trucking law.
Indemnity Ins. Co. of North America v. UPS Ground Freight, Inc., 2016 WL 1261266 (D. NJ 2016)
Shipper-carrier volume cargo arrangements typically are documented by master contracts stating general terms of the agreement, and then separate bills of lading for each load transported under the agreement. To accommodate potentially conflicting terms, the master contract often will specify which document controls over the other. When shippers draft the contract, they tend to provide it controls over bills of lading, and vice versa when carriers draft it.
The U.S. District Court for the District of New Jersey recently threw up its hands trying to figure out whether a GE Healthcare (GE) master contract prevailed over a UPS Ground Freight bill of lading when it came to a limitation of liability dispute. GE and motor carrier UPS Ground Freight had entered into a Less-than-Truckload Transportation Contract which provided for the carrier’s full cargo liability up to a max of $250,000. The contract also provided it would control over any conflicting terms contained in bills of lading.
GE’s warehouseman was authorized to ship cargo under a released value of $2.30/pound of cargo, which was a far cry from the seven figure value two cargoes of drugs GE shipped interstate from Memphis, or even the contract’s $250,000 cap. Something unexplained in the court’s opinion happened to the cargo, apparently causing a total loss.
Parties are free to issue multiple contract documents, specifying which governs in the event of conflict. Many courts have made quick work rejecting arguments that such terms are unenforceable. Here, however, the court focused on the fact the documents weren’t interlocking or simultaneously executed. By GE’s version of events, any number of bill of lading terms, including limitation, would be superfluous if the master contract negated them. The law seeks to avoid meaningless terms. Summary judgment was denied.
This is an interesting commentary, but it disregards the nature of transportation service arrangements. In that context, it defeats, or at least diminishes, parties’ freedom to contract. Not a good direction to go in.
Massachusetts Delivery Association v. Healey, 2016 WL 2732054 (1st Cir. 2016)
Massachusetts, in line with numerous other states, has taken steps toward classifying as “employees” drivers with whom motor carriers contract as owner operators. While states have met with large degrees of success in this effort, the Bay State didn’t fare so well when a trade association, the Massachusetts Delivery Association (MDA), challenged the state’s applicable statute as preempted by the Federal Aviation Administration Authorization Act (FAAAA).
MDA members operate programs whereby drivers “bid” for delivery jobs by “offering” their price for running them. The companies, treating these drivers as independent contractors for taxation, workers compensation, state employment law, and other purposes, don’t provide any other comp or benefits to the drivers, or otherwise control their activities.
“Prong 2” of the Massachusetts Independent Contractor Statute requires that a worker’s “service is performed outside the usual course of the business of the employer,” a provision the delivery companies don’t satisfy in the analysis of whether their drivers qualify as independent contractors. Affirming lower courts, the First Circuit Court of Appeals found the statute preempted by FAAAA, and that MDA members could treat their drivers as independent contractors.
FAAAA contains provisions prohibiting states and their municipalities from enforcing law that relates to the prices, routes, or services of motor carriers. In Schwann v. FedEx Ground Packaging System, the First Circuit held that statute was preempted for the same reasons, i.e., regulation of how a carrier engages and pays it drivers could impact the carrier’s prices, routes, or services. The state attempted to distinguish Schwann on the ground FedEx had an operating agreement with its drivers which gave them exclusive rights to certain accounts, but like FedEx’s drivers, those engaged by MDA’s members enjoy complete liberty to accept or decline assignments, and have to pay their own operational expenses. As those points are most significant, Schwann isn’t distinguishable.
Altom Transport, Inc. v. Westchester Fire Ins. Co., et al., 2016 WL 2956834 (7th Cir. 2016)
Owner operator Stampley thought motor carrier Altom Transport had underpaid his comp based on his lease and governing Truth in Leasing regs, and sued Altom. Altom asked its insurer, Westchester Fire Insurance Company, to provide a defense and coverage. Westchester refused both, prompting Altom to sue the insurer, and potentially affected third party Stampley, in an Illinois state court to establish coverage.
Pennsylvania-based Westchester removed the matter to the U.S. District Court for the Northern District of Illinois based on diversity jurisdiction. That court dismissed the Altom’s dec action based on clear policy exclusions, and Altom took its claim up the hill to the Seventh Circuit Court of Appeals.
First addressing subject matter jurisdiction, the court considered that both Altom and Stampley are Illinois residents. Because diversity jurisdiction isn’t available when any two parties on opposite sides of the “v” in a lawsuit are from the same state, subject matter jurisdiction was at issue. An interesting twist applicable to federal diversity jurisdiction allows federal courts to dismiss “dispensable, nondiverse parties to preserve subject-matter jurisdiction.” Altom’s naming Stampley as a defendant wasn’t improper, but it wasn’t necessary either. Thus diversity jurisdiction obtains.
Going through Westchester’s policy, the court agreed policy exclusions for contractual employment obligations nixed coverage. Altom argued that Stampley’s claims could stand alone based on the Truth in Leasing regs, but that’s not how he crafted his complaint. His allegations were based on contract in the context of his lease. Westchester’s policy doesn’t provide coverage.
Before proceeding, please note: If you are not a current client of Lane Powell PC, please do not include any information in this email that you or someone else considers to be confidential or secret in nature. Prior to the establishment of a lawyer-client relationship, unsolicited emails from non-clients containing confidential or secret information cannot be protected from disclosure.