Law

Treating brokers as carriers is risky business

Brokers should be considered just arrangers, not providers



Q  I think a big issue for brokers is getting shippers to draft a contract that make us arrangers of transportation and not carriers or service providers that hire subcontractors. I have seen your arguments, but often it is difficult to tow the line with shippers that seem unresponsive to change.


Henry Untitled 1A  I, too, am seeing this trend in shipper-drafted contracts. First, they want the broker to accept carrier duties, accepting all of the responsibilities for hours of service, safe operations of commercial motor vehicles and equipment maintenance – all of which by statute and regulations are the sole responsibility of the carrier you hire. These contracts do not recognize that your business is a creature of federal regulation.

Post-deregulation confusion will spawn litigation and chaos.

By law, you must retain an authorized carrier to provide service and cannot misrepresent your operations to be that of a carrier. Apparently, shippers untutored in the field of transportation law are so wedded to their procurement contracts for other goods and services that they cannot see the important distinction between intermediaries and service providers.

Failure to draw this distinction clearly can have severe adverse consequences for you, the broker. As a broker, you can call yourself a sophisticated third-party logistics (3PL) provider if you wish, but ultimately you are protected by your status as an intermediary or broker arranging for transportation to be provided by independent contractors you retain.

When you make yourself a “service provider” or a “prime contractor hiring subcontractors,” you unwittingly give plaintiff’s bar the argument that under state law you are just as responsible for the act or omission of the carrier you hire as the management of the company itself. Because trucking is a dangerous enterprise, there is an exception to the general principle that a prime contractor is not responsible for the acts or omissions of its subcontractor. I have provided the case law for this principle before (see Ill. Bulk Carrier, Inc. v. Jackson, 2009 Ind. App. LEXIS 900 [Ind. Ct. App. June 16, 2009]) and shown how the few reported vicarious liability judgments against brokers typically result from the broker assuming unnecessary duties in shipper/broker contracts.

No shipper or shipper representative has explained satisfactorily why its legitimate interest cannot be satisfied by contractual language that makes the broker solely responsible for carrier selection with a suitable indemnity to assuage fear that liability somehow might run up the supply chain. I am aware of no reported case in which it has.

As I have discussed in both the November and December columns, shipper and broker misapprehension over vicarious liability and the perceived need to use Compliance Safety Accountability (CSA) program methodology has the counterproductive effect of placing safety credentialing obligations on shippers and brokers, which is inconsistent with statutes and regulations. On this issue, brokers that accept carrier duties in contracts, accede to “service provider” language or call their retained carriers “subcontractors” are exacerbating their vicarious liability exposure with frightening potential consequences.

Shippers, brokers and carriers need reaffirmation that in the absence of active negligence by shippers and brokers, the authorized carrier solely is responsible to the traveling public for accidents. Otherwise, this type of post-deregulation confusion over the role of the broker only is going to spawn more chaos and more litigation.

Henry Seaton is a lawyer who represents motor carriers.

 

 

IN BRIEF

* ABF Freight System Inc. is appealing a federal judge’s decision to dismiss its legal challenge of concessions negotiated between three YRC Worldwide entities and the International Brotherhood of Teamsters. U.S. District Court Judge Susan Webber Wright in December ruled that ABF did not have standing to sue YRC Worldwide Inc. and the Teamsters in court since it is not a party to the National Master Freight Agreement.

* Hamad Siyam, 42, of North Bergen, N.J., was convicted in December of organizing a cargo theft ring that stole tractor-trailers of merchandise valued at nearly $1 million from trucking yards in New Jersey and Pennsylvania. Siyam had sought warehouse space through an acquaintance who was cooperating with the FBI and the New Jersey State Police’s Cargo Theft Unit. Last month, Siyam and two brothers were arrested and charged with an alleged conspiracy to sell baby formula stolen from retail stores in several southern states.

* Jorge Alberto Paez Mariscal, 43, was sentenced last month to 108 months in prison followed by five years of supervised release for narcotics trafficking after 69 packages containing 67 kilograms of cocaine were found in the tractor-trailer he was driving in New Mexico in February 2009.

* Derrick Fry, 41, a truck driver from Delaware City, Del., was sentenced last month to 37 months in prison for conspiracy to steal more than $1.6 million worth of recyclable lead batteries he was supposed to be transporting for smelting and selling them to scrap yards.



Court backs Swift on lease chargebacks

Swift Transportation is not required to disclose to owner-operators the precise amount of its chargebacks that represent markups or administrative fees as opposed to actual costs, a federal appeals court confirmed last month.

Swift changed its lease agreements in 2003 to disclose that chargebacks would include certain administrative costs and other fees such as “the cost of the fuel, taxes, other government fees and charges, delivery/freight costs and administrative expenses.” Afterward, Swift’s settlement statements listed those items but did not disclose what portion of that price is attributable to costs and what portion is profit, administrative fees or other charges.

The district court had accepted Swift’s revised chargeback provisions, but the Owner-Operator Independent Drivers Association appealed to the U.S. Court of Appeals for the Ninth Circuit. The appeals court upheld the lower court’s decision, citing a decision by the U.S. Court of Appeals for the Eleventh Circuit in litigation between OOIDA and Landstar System. That court reasoned that if carriers charged a flat fee, no further disclosure is necessary. If carriers charged a variable rate, the regulation requires a clear disclosure of how the price will be calculated.

The Ninth Circuit, however, declined to declare that all variable-rate chargebacks required disclosure of the amount of carriers’ profits and costs. Instead, a carrier could identify some formula that would allow the lessor to calculate his price without revealing how much of the markup contained profits versus other expenses, the court said. n