Should brokers be liable in the event of a truck crash?

Speaker 1:

What very well could be. The biggest trucking court case of the year is before the Supreme Court and for once a trucking company is not the target. Hey everybody, welcome back. I'm Jason Cannon and my co-host is Matt Cole. A patchwork of conflicting circuit court rulings has created uncertainty around how liable a freight broker is. In the event of a crash involving a driver that that same freight broker picked to haul its freight, the Supreme Court is now charged with settling the issue, a ruling which could come sooner rather than later. The

Speaker 2:

Heart of the matter is what responsibility the broker has for the negligence of the motor carrier, and if something should happen, is the broker responsible or at least partially responsible.

Speaker 3:

So what has happened over the last decade or so, maybe a little bit longer, is this question being asked of when a broker can be held liable for the negligence of a motor carrier. And it's been getting different answers across the federal courts. So the way our federal court system works is there's these lower courts, these are the district courts. Above them are the circuit courts, the appellate courts, and above the appellate courts is the US Supreme Court. And so over the last couple of years we've watched these cases where different brokers are involved with an accident that a motor carrier has, and they go after the broker and they say, broker, you should be responsible. And there's this law called F four A or F Quad A. It's a Federal Aviation Authorization Act. But this law actually has a part that talks specifically about brokers.

And generally speaking, the ACT talks about brokers are in charge of price and route and service, but they're not generally taking control or custody of the freight. And so the argument has been claims against the broker are preempted by this federal law. And so different federal courts have looked at this law the same language and come to different conclusions. And so there are some circuits like the ninth Circuit, which is California and Washington and Oregon and others that will say brokers can potentially be liable. Where you have cases in the seventh Circuit, which is Illinois, Indiana, Wisconsin, that say under the same set of facts, the broker can't be liable. And so what we've seen happen is these different federal appellate courts come to different conclusions on the same federal law. And so now finally the United States Supreme Court in this Montgomery case has accepted cirri, which is to accept that case to be heard. And we have all these briefs being filed and now we have a date for the oral argument. And ultimately we're going to have some clarity as to when brokers under what circumstances a broker could potentially be held liable for the negligence of a motor carrier.

Speaker 1:

Now that court case is Montgomery v. Caribe Transport, a tragic accident involving a motor carrier selected by a freight broker where Sean Montgomery alleges that the broker negligently chose an unsafe carrier leading to his injuries.

Speaker 3:

What I really want to emphasize is this is probably the most important case in the brokerage industry. The challenge that this brings up, it highlights the underlying issue with our supply chain, which is most motor carriers, the small motor carriers that are out there carry the minimum insurance required by federal law. And that minimum insurance for general freight is $750,000. And so if you have a catastrophic accident with a carrier who's got that limit of insurance, that's a couple of weeks in the hospital that doesn't cover everything. And so ultimately the plaintiff attorneys are looking for somebody they can pull in, whether that's a manufacturer or a leasing company or a broker or a baby, even a shipper if they can try. And so what we really got to focus on and what I think the F-M-C-S-A has done a great job doing right now is to focus on what you can control in terms of driver training and driver qualification.

We need drivers to be safe. We need vehicles to be safe and making brokers here, liability is not going to make them maintain their trucks and trailers better. I think the ultimate challenge we have to figure out is how do we make this industry safer and does that require changing the insurance limits? Does that require having more inspections of commercial vehicles? I don't know the answer to that, but going after the broker is really just saying, we need someone to hold the bucket. And these guys and gals that are intermediaries who never take control of the asset, never maintain it, never inspect it themselves, maybe they're the ones we should go after, I just don't think that's the right solution to the problem that we really need to address, which is we need safer trucks and trailers on the road.

Speaker 2:

The big issue in the case is carrier selection by the broker because if the broker never selected that driver for that load, that accident or that issue, whatever it is, probably never would've happened. It sounds simple, but it's not that black and white.

Speaker 3:

The problem we run into, and this is the bigger this is why this case is so interesting and why the different positions are so compelling is that you have a lot of motor carriers that have really no information in the F-M-C-S-A, they've never been inspected, they've never been, maybe they've registered and they have things on file, but no one knows for sure if that's a carrier that's been moving stuff a lot or not. And so you look at the broker and say, well, you should have known. And the reality is that how their job is to find a motor carrier to move the freight, and that's what they do. But they're relying on what the F-M-C-S-A tells them. They're relying on a whole bunch of different softwares like highway or gen logs or DAT or RMIS trying to say, is this motor carrier in the best position to move this freight?

And the reality is they're not experts in knowing if the truck is maintained properly or if the driver's been trained properly. The only really organization that is designed for that is the F-M-C-S-A. And ultimately when Congress passed the laws on what insurance a broker should have or what insurance and motor carrier should have, the insurance has never been required by brokers. Brokers are required to have surety bonds to cover the cargo, but they've never been guarantors of the performance of a motor carrier. And so that's where this kind of question becomes, okay, so the broker relied on whatever information the motor carrier had, something catastrophic happen. Why would you not want the broker to be liable? And this is what the argument by the US Chamber of Commerce, the Transportation Intermediaries Association and others have said, we have a federal system. We need uniformity in how we approach the market for brokers and for motor carriers.

And so if you want to have a patchwork like a bunch of different states running their own shows, that's one path. But this law, F four a explicitly was put in place to avoid the patchwork. That happens when each state takes their own approach to saying how hard should a broker work to qualify a motor carrier, whether they've done a good job or not a good job. That's why the case has now gotten to the Supreme Court because the federal government realizes the Supreme Court realizes we can't sustain this business model. If in some circuits you can be liable and some circuits you can't be liable,

Speaker 1:

As with any court case, it's anybody's best guess what the outcome might be. But there are some indicators that this ruling in particular is likely to go the broker's way.

Speaker 3:

This case was first heard at a Seventh Circuit Court of Appeals and the Seventh Circuit said, we have made this clear before these claims against the broker are preempted by federal law and you can't proceed. That has been the more conservative approach among the federal appellate courts is to say brokers are not liable in these cases. The more liberal leaning circuit courts, appellate courts have often found brokers can have some sort of liability. But what I love to do is I say, okay, who's arguing on behalf of the brokers and what are they saying? And so what we have in these amicus briefs, these friends of the court briefs are companies or institutions or whatever that are not part of the lawsuit, but have opinions on the lawsuit. So obviously the Transportation Intermediaries Association, kind of the TIAs, the broker version of the American Trucking Associations.

So obviously they're in favor of preemption, but you also have the US Chamber of Commerce, the Retail Federation, and a whole bunch of other really strong business groups, the US Chamber of Commerce, just for those who are listening or watching this or reading about this, it's an 80% success rate. So if they're on one side of an argument, they have an 80% chance of winning in that case in our current Supreme Court. So that is a pretty useful indicator, but even more so is the federal government coming out in favor of the brokers. So under the Biden administration, they generally believe that brokers should have some level of responsibility for some sort of negligent hiring case. But what we have seen with the Department of Transportation, the F-M-C-S-A and the Department of Justice who filed their own amicus brief in this case, they came out and said, we are the ones who regulate the brokers.

We do not need the brokers to help us regulate the motor carriers. We can do this. That's our job. That is what federal supremacy is. And so ultimately what I think happens in this case is broker liability is something that doesn't happen. I think they get preempted in many of these negligent hiring cases. Maybe they do a carve out for what might look like gross negligence or something really willful and wanting disregard, but ultimately I think it's going to go the way CH Robinson would want what the TIA would want, what the US government wants and what the US Chamber of Commerce wants.

Speaker 2:

So devil's advocate here, what if it's decided that brokers are liable? Would that spark an avalanche of truck crash lawsuits since brokers would be legally exposed as well as the motor carrier? Not if that crash has already been settled.

Speaker 3:

So what's probably happened is cases that are currently in front of judges, whether they're in state courts or they're in federal courts, those are likely paused or stayed like, Hey guys, we have a real interesting question here, but it's being heard by the Supreme Court, so let's wait and see what they say and then we'll go from there. For folks that have already settled or cases that have already been dismissed, that's final judgment. You're not going to get another bite at the apple that is decided with that case. Getting to final judgment. So the question I really look at is what happens if you wake up and brokers are now potentially liable for these things? What happens if the plaintiff ends up being successful of these various state governments are successful? And we now see almost a third of all freight moving through a third party logistics company.

It's like 340 billion a year goes through something like these intermediaries, and they're not required to carry any type of liability insurance the way that these cases work out. So presumably many brokers would have to buy insurance that they've never had before, and I think it would be for the large brokers, maybe they're going to be fine, but for smaller ones, it's going to add a big cost. And ultimately it doesn't change safety. I mean, this is the big challenge that people think if you hold the broker liable, you're going to make everyone safer. And the reality is, no, you're not. The brokers have no control over the safety of the motor carrier. They are looking at, the federal government says they're looking if their ELDs are giving track and trace, but they're not in that position. So I don't think you get a safer outcome when you hold brokers liable. You just kind of pass the ball onto someone else to hold that liability or that risk.

Speaker 1:

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