Don’t go behind broker’s back

Prime Inc. must pay $100,110 because it failed to respond in a timely matter to a notice of claim concerning alleged false logs, Federal Motor Carrier Safety Administration Assistant Administrator John Hill ruled. The company, which is seeking reconsideration, said its overworked mail room staff had misdirected the notice of claim. For more information, visit this site and search Docket No. 20650.

Federal Trade Commission upheld a July 2004 initial decision by an administrative law judge that the Kentucky Households Goods Carriers Association, Inc. engaged in illegal horizontal price-fixing in violation of the FTC Act. The commission also upheld the initial ruling that the state action doctrine does not immunize the association’s collective rate-making from prosecution under federal antitrust laws. For more information, visit this site.

Action Carrier Inc. and its president, Michael L. Walsh, pled guilty in U.S. District Court in Sioux Falls, S.D. – the corporation to a felony charge of causing a truck driver to falsify logbook entries in order to conceal violations of Federal Motor Carrier Safety Administration hours-of-service regulations, and Walsh to a misdemeanor charge of obstruction of justice for refusing to allow an FMCSA inspector possession of a file during a compliance review inspection. Sentencing is scheduled for Sept. 6.

Q As a carrier, we frequently encounter covenants not to back-solicit in broker-prepared contracts. Are such agreements enforceable?

A Such covenants generally are enforceable and interpreted in accordance with their terms. Most brokers take the position they have a vested interest in customer development and do not want to see the carriers they retain merely use their services to find freight in lieu of developing a sales department. In the absence of such provisions, brokers fear that carriers will circumvent their services freely, attempting to procure freight from their customers on a direct basis with the incentive of saving the shipper the broker’s commission.

Flagrant back solicitation is not a practice that can be condoned ethically, yet it is important for a carrier to read and understand the scope and effect of a back-solicitation provision before agreeing to it. A proper back-solicitation agreement should be limited in duration, scope and amount and should not preclude a carrier from responding to a future unsolicited request for service if initiated by the broker’s customer.

Typically, well-written back-solicitation provisions are limited to prohibit a carrier from contacting the broker’s customer for six months or a year after the last shipment moved or the broker-carrier contract was terminated. Typically, the carrier is required to pay the broker a percentage of the revenue derived from violating the covenant over a fixed period of time. Important questions are “To what traffic does the covenant apply?” and “What is meant by the term ‘back solicitation’?”

A proper and tightly written back-solicitation provision limits the prohibited traffic to “shipments first tendered by broker to carrier.” Language of this type particularly is important when a broader covenant against back-soliciting a particular shipper would preclude a carrier from handling traffic for a large national account that is beyond the scope of the broker’s employment.

For example, a large truckload carrier may have a national account salesman calling on the same shipper who utilizes the broker out of one of its three dozen plants. That carrier must exercise special caution to ensure that its operations personnel do not sign a back-solicitation provision in a spot-market contract that will hamstring its national account sales effort for unrelated traffic and lanes.

Similarly, what constitutes “back solicitation” needs to be spelled out carefully. Clearly, the broker should be protected against indirect back solicitation. It is not ethical or right for a carrier to circumvent the meaning and intent of a back-solicitation covenant by indirectly back-soliciting a broker’s customer through an affiliate or strawman.

On the other hand, shippers that outsource their traffic function to 3PLs frequently change vendors or put their traffic out for bid on a direct shipper-to-carrier “RFP” (request for proposal) basis. A carrier should not encourage its broker’s customer to forsake the broker or intentionally interfere with the business relationship in the hope of securing direct business. (Tortious interference with another party’s contractual rights can give rise to a lawsuit even when there is no express covenant not to compete.)

If, on the other hand, a broker’s customer seeks a carrier out for direct service, the carrier should not be precluded from responding by overly broad language in a covenant. If you have signed a limited covenant not to back-solicit a broker’s customer and are contacted by the customer, I believe the best practice would be to notify the broker of the solicitation prior to responding in a manner that otherwise could be construed as a breach of the covenant.

Carrier owner convicted on 97 counts
A fourth defendant in a five-year bribery scheme to avoid paying fees for overweight trucking permits has been convicted in federal court in Little Rock, Ark. Joe Mack Pool, owner of Machinery Transport Inc. of Henderson, Texas, was convicted on all 97 counts of an indictment charging him with conspiracy, bribery and money laundering.