Brokers’ role must be fixed

U.S. Supreme Court declined to review a federal appeals court ruling that invalidated the state of New Jersey’s regulations requiring certain large commercial vehicles to use only national network highways unless the trip began or ended in New Jersey. The state has exhausted its appeals, giving a victory to the trucking industry.

Motor carriers can assess administrative fees and make profits on charge-backs to independent contractors, but they must disclose documents that demonstrate the validity of those charge-backs, Judge Henry Adams of the U.S. District Court for the Middle District of Florida ruled. The order addressed various motions for summary judgment in a class action lawsuit filed by the Owner-Operator Independent Drivers Association against Landstar System.

Equal Employment Opportunity Commission sued C.R. England, alleging that it revealed an employee’s private medical information and treated him unfairly because of his disability. The lawsuit, filed in the U.S. District Court in Salt Lake City, claims the carrier violated the Americans With Disabilities Act by divulging former driver and trainer Walter Watson’s disability to driver trainees in writing and by requiring Watson to disclose his condition to trainees.

Global Limo and its owner, James Maples, were convicted following a federal trial in McAllen, Texas, for failing to properly inspect and maintain buses as required by Federal Motor Carrier Safety Administration rules. The investigation followed a Sept. 23, 2005, bus fire/explosion that killed 23 passengers being evacuated in the path of Hurricane Rita.

Q The American Trucking Associations has now issued a model broker-carrier agreement. Is this an acceptable starting point for carrier negotiations?

A The ATA Broker-Carrier Agreement comes on the heels of the Transportation Intermediaries Association’s model contract that was issued in June. (See “TIA model contract not pretty,” CCJ, August 2006.) When the two associations could not agree on a model contract, I expected each organization to issue a version that protected its constituents’ respective interests.

Although I have great respect for the ATA and its counsel, in my view the model contract it issued is a muddled document that neither defines the role of the broker as a true intermediary, nor adequately protects motor carrier interests. Due to the scope of the issue, I will address broker/carrier relations in the context of this model contract in this column over several months.

Essentially any contract for motor carrier service involves the legal enforcement of two promises: (1) The carrier’s promise to make timely and intact delivery of goods in return for (2) the shipper and/or its agent’s promise to pay the freight. Historically, motor carrier liability for cargo loss or damage was established by statute, and the shipper and consignee’s liability for payment of freight charges was established by the bill of lading contract and case law.

Property brokers, like tour brokers, acted as nonexclusive agents, arranging for transportation for compensation; they accepted only clearly defined non-carrier responsibilities. Like real estate agents or stockbrokers that earn commissions from bringing together willing buyers and sellers of commodities, the property broker traditionally accepted no liability for performance of the services it arranged – and no responsibility for payment in the absence of receipt from its customer.

This concept of the property broker as an “agent/arranger” occasionally is referred to as the “conduit theory.” Under it, absent negligent entrustment, a broker is not responsible for cargo loss or damage. (See CGU International Insurance, PLC v. Keystone Lines Corp., 2004 U.S. Dist. Lexis 8123; Golden Triad Carriers v. Paco American Corp., 1990 Fed. Carr. Cases, 83,515; Chubb Group of Insurance Companies v. H.A. Transportation Systems, Inc., 243 F. Supp. 2d 1064 [C.D.Cal. 2002]). Similarly, as a conduit, the broker or middleman owes a fiduciary duty to transmit freight charges upon receipt. But the broker is not the primary obligor and does not accept unconditional payment liability in the absence of a guarantee or other specific undertaking.

As the role of the property broker has morphed into more elaborate 3PL agreements, intermediaries have – improvidently, I believe – accepted direct liability as a principal for carrier duties with respect to the safe delivery of cargo, as well as the shipper’s primary obligations for the payment of freight charges. The resulting “principal/provider” motif is fundamentally different from the traditional “agent/arranger” role of property brokers.

Is the broker an arranger of a bilateral agreement between the carrier and the shipper? Or is the deal a trilateral agreement in which the broker, as a principal, accepts responsibility by the safe delivery of freight vis-