Transcript 50 Good Reasons Not to Waive Federal Transportation Law

CONTRACTS OF CARRIAGE
A Study of Controversial Provisions which Divide
Shippers, Brokers and Carriers
Delta Nu Alpha - June 26, 2008
Henry E. Seaton, Esq.
Seaton & Husk, LP
www.transportationlaw.net
-andScott W. McMickle, Esq.
Dennis, Corry, Porter & Smith, LLP
www.dcplaw.com
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Air & Expedited Motor Carrier Association
Apex Capital LP
Champagne Logistics
Greatwide Truckload Management
Kings Express
Landstar RMCS
USA Transportation Services, International
2
About DNA
Fraternity of transportation professionals
Open to all with interest in education
Interdisciplinary – shippers, carriers, third party
logisticians and students
 Traditional chapter format – Milwaukee, Chicago,
Rockford, Nashville, Bowling Green, Grand
Rapids, Louisville, Le High Valley
 Student chapters at Western IL University
 Scholarship program



www.deltanualpha.org
3
Syllabus of Future Webinars Contains Chronic
and Acute Industry Problems
Format is issue presentation followed by open
question and answer.
 Diverse opinions are encouraged.
 Goal is to assess issues, impart information and better
prepare listeners as knowledgeable professionals in
any industry which too frequently ignores day-to-day
problems of contracts, claims and operations in favor
of “supply chain management.”
 CCPAC accreditation of 3 courses for cargo claims
specialists.

4
Upcoming Webinar Topics
7/15/2008
8/19/2008
9/16/2008 
10/21/2008
11/18/2008
FMCSA Safety Regulations
The Scourge of Double Brokering
Cargo Claim Mitigation, Adjustment and Salvage Issues
INCOTERMS – The Language of the Global Economy
Supply Chain Security Issues – Alphabet Soup and
New Regulations
For more information and to register, go to www.deltanualpha.org
Approved for Certified Claims Professional
Accreditation Council (CCPAC) Credit (1.5 CEUs)
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SHIPPER AND BROKER CONTRACTS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
Waiver of statutes and regulations
Special and consequential damages
Indemnification clauses
“Additional insured” language
The right of setoff
Salvage / no duty to mitigate
Shipper load and count / concealed damage waivers
No penalties for nonpayment
Homer provision / arbitration
Integration clauses
No recourse provisions; and
No back solicitation agreements
Shipper contracts making a broker into a “carrier” or
“service provider”
6
What is a Waiver?
Answer:
Pursuant to 49 U.S.C. 14101(b):
“If the shipper and carrier, in writing, expressly
waive any or all rights and remedies … for
transportation covered by contract, the
[services] provided under the contract shall
not be subject to the waived rights and
remedies and may not be subsequently
challenged on the grounds that it violates the
waived rights and remedies.”
7
What are the consequences of waiving federal
“rights and remedies” and standard bill of lading
terms and conditions?
Answer:
It takes 10 to 20 pages of fine print to
address the issues you just excluded and
in the details the carrier often loses.
8
61 Good Reasons Not to Waive Federal
Transportation Law and Bill of Lading Terms
I.
II.
III.
Introduction
What is Waiver? 49 U.S.C. §14101(b)
What gets thrown out by a blanket waiver?
A. Carmack (49 U.S.C. §14706)
1. National uniformity and consistency of statute
2. Predictability v. state law variance
3. Uniform treatment of special and consequential
damage issue
4. Removal to federal court, 28 U.S.C. §1337
5. Venue flexibility for deciding and situs of loss, 49
U.S.C. §14705(a)
6. Forum non-conviens, right to transfer to convenient
venue, 28 U.S.C. §1391
7. Burden of proof for negligence transferred to shipper
8. Document presumption of good order and case law lost.
9
9.
Consignee duty to accept shipment unless practically worthless
and to mitigate damage loss
10. State law liability standard inconsistent with cargo insurance coverage
11. Joint line apportionment-49 USC 14706
12. Liability imposed on connecting line carriers, issuance of bill of lading not
required, 49 USC 14706(1)
13. Full actual value
14. Released evaluation
15. Preemption trumps state law causes of action
B. Written Claims Requirements
16. Regulations establish standards of what constitutes a claim-370.3(c)
17. Minimum claims requirements established-370.3(b)
18. Adjustment and response procedures-deadlines, free astray
certifications-370.5 and 370.7(c)
19. Administrative Ruling 65 and 128-payment of freight
charges/dispute resolution of claims vs. offset
C. Uniform bill of lading or standard bill of lading provisions waived
20. Bill of lading is contract of carriage/waiver results in shipping documents
becoming simple receipt for goods-VICS bill contains no terms and
conditions
21. Loss of release rate notice and inadvertence clause, opportunity to
declare higher rate
10
22. Loss of C.O.D. provision to require collection upon
delivery
23. Special instruction block for special service terms
24. Identity and definition of the party-who is the carrier in
possession and control
25. Identify payor of charges/is shipment prepaid or collect
or third party
26. Accurate description of commodity including hazmat
certificate
Back Side Terms and Conditions Omitted from Contract
27. Reasonable dispatch defined
28. Act of God exception
Common Law Exceptions
29. Act of public enemy
Trumped by Waiver
30. Authority of law
31. Inherent vice
11
32. Act or omission of shipper
33. 9 month rule for filing claims, statement in writing
required-49 U.S.C. 14706(e)(1)(a)
34. 2 years after denial to file suit limitation, stated in writing49 U.S.C. 14706(e)(1)
35. Carrier lien for freight charges confirmed-49 U.S.C.
80109, 49 U.S.C. 13707
36. Provision for warehouse statement of status upon
wrongful rejection
37. Salvage provisions/non-perishable
38. Salvage provisions/perishable
39. Deduction of transportation charges from salvage after
sale
40. No liability for items of extraordinary value
41. Hazmat protocol/shipper duty to identify
42. Payment of freight charges/liability of consignor and
consignee (UBOL Section 7)
12
43. Instrumentalities of Transportation-Define the Parties
 Consignor-49 USC 80101(2)
 Consignee-49 USC 80101(1)
 Broker-49 USC 13102(2), 49 CFR 371
 Motor Carrier-13102(14)
 Not defined – 3PL, Logistics company or
“transportation service provider”
44. Pitfalls to broker of waiving statutory definition
 Loses statutory definition as arranger, easily becomes
“provider” entering the liability loop and chain of
custody vs. the mischief of “Service Provider” status
45. Shipper pitfalls
 Loses standard as “member of shipping public” and
public utility analysis – prime contractor in supply
chain
13
46.
Broker recordkeeping and production of payment
records waived-49 CFR 371.3
47.
Misrepresentation provision separating broker from
carrier-49 CFR 371.7
48.
Anti-rebate prohibitions waived-49 CFR 371.9
49.
Broker responsible for discharging shipper’s
payment duties-371.10
50.
Prohibition against broker commingling of funds and
requirements of segregation waived-371.11
51.
Basis for “constructive trust” under statutes and
regulations waived
Miscellaneous statutes
52.
Off-Bill discounts, truth-in-billing-49 USC 13708
53.
Overcharge, undercharge and duplicate payment
regulations wiaved-49 CFR 378
14
54.
55.
56.
57.
58.
59.
60.
61.
Statutory time limits for identifying overcharges and
undercharges-180 day rule, 49 USC 13710
Broker’s bond registration and bond requirements
waived
Shipper load and count provisions which result
presumption on shortage and damage claim waived49 USC 80113
Possessory lien and duty to deliver-49 USC 8010949 USC 13707
Self-help provision, 49 USC 14704
Anti-lumping statute, 49 USC 14109
Payment liability, 49 USC 13706, 49 USC 13707,
Credit Regulation at 49 CFR 377
Statute of limitation for collecting freight charges
15
Waiver Under §14101 (b)
Objectionable Language
Acceptable Language
“The parties expressly waive all
rights, duties and obligations
permitted under § 14101 (b)"
“General principles of Federal
Transportation Law, Statutes and
Regulations shall apply to the extent
not expressly waived herein.”
Partial List of Affected Items
 Preemption
 Claims rules and salvage §370
 Overcharge and Undercharge §378
 Through routing and joint rates
Carmack
Bill of Lading Terms
Federal Court Jurisdiction
Credit Regulations §377
Broker Accounting and Segregation
180 Day Rule for auditing bills
ATA Broker
16
Special and Consequential Damages

Carmack – is “full actual value”



By contract shippers seek



No special or consequential damages
Shipper has duty to mitigate
Payment of penalties for late deliveries
Waiting crane fees, missed market fees
What can result



Crushed new cars because of bent bumpers
$30,000 charter plane bill to replace $500 delayed shipment
Imposition of penalties for delay beyond driver’s control which
exceed guarantees of expediters like FedEx, DHL or UPS
17
Special and Consequential Damages
Objectionable Language
Acceptable Language
“Carrier shall be liable for all loss resulting from
loss, damage, or delay to cargo including but
not limited to lost profits and sales, the cost
of cover, the cost of expedited replacement,
lost down time, additional handling and
shipping costs, and restocking fees.”
“Carrier shall be liable for cargo loss and damage
in accordance with federal law (49 U.S.C.
§14706) with respect to all shipments. Carrier
shall not be liable for special or consequential
damages. Carrier’s liability for cargo loss and
damage shall be limited to the shipper’s actual
cost of the articles, lost, damaged or destroyed
and shall not exceed $___per truckload or
$___per pound per article, whichever is less.”
What’s the Difference?
Do
you pay for plant shut downs, air freight replacements, waiting cranes, etc.?
Carmack Amendment limits liability – no state law remedy (emotional
distress, punitives)
The
Reasonable
dispatch only as per Bill of Lading
Don’t
admit “foreseeability”
Time
sensitive/JIT freight
ATA/NITL Section 7-No special or
consequential without notice 18
Risk Transfer Provisions in Contracts

Contractual risk transfer involves an attempt
to allocate potential legal liabilities which
would arise in connection with the
performance of a contract between the
parties to the contract. These liability risks
are often allocated in a manner that would
not have occurred under common law or in
the absence of contract.
19
Types of Contractual Provisions

Two types of contractual provisions are typically
used to effect non-insurance risk transfer from
shippers and brokers to carriers. The are:
(1) Hold harmless or indemnity provisions; and
(2) Additional insured and related insurance
provisions
20
What is a Hold Harmless and
Indemnity Provision?

An agreement whereby one party (the indemnitor), assumes
the other party’s (the indemnitee) legal liability to whatever
extent delineated in the provisions.

Typically if a hold harmless and indemnity provision is limited
to the extent the shipper or broker is held vicariously liable for
injury or damage that the carrier causes, the indemnity clause
is unobjectionable, yet many shippers and brokers seek
broader indemnification for losses “arising out of” the services
provided regardless of fault which extends the carrier
indemnity obligation to include:
 The negligent acts or omissions of third parties;
 The contributory negligence of the indemnitee, if not
indemnification for the sole negligence of the indemnitee (if
prevented by state anti-indemnity statute)
21
Importantly, indemnity provisions operate
independently from the carrier’s insurance
which may or may not cover the risk
assumed by the carrier in the contract
22
Indemnity
Objectionable Language
“It is the express intent of the
parties to this agreement that
carrier will indemnify the shipper
for all loss, damage and claim
of any kind arising out of
this contract except for shipper’s
sole gross negligence.”
Acceptable Language
“Except with respect to cargo damage
claims as set forth herein, each party
will indemnify and hold harmless the
other from all loss, liability or claims to
the extent same is caused by a
negligent or willful act or omission of
their respective employees, agents or
subcontractors in the performance of
this contract.”
What’s the Difference?
“Arising out of” language
is broader than coverage afforded by additional insured language
in new standard ISO endorsement
Comparative
Negligence
Can Carrier can pay for shipper negligence?
See anti-indemnity
ATA/NITL Section 10
statutes of CA, IN, KS, MD, NC, NE, SC, TN, TX, VA and WV
23
Two-Handed Pick Pocket
The “two handed pick pocket” is the name
given to the combination of overreaching
indemnification provisions coupled with
“additional insurance” requirements.
24
Indemnity Provisions and Insurance
Coverage

Where a motor carrier is obligated to
indemnify a shipper or broker by contract,
the motor carrier’s general liability policy will
respond to the obligation if and only if the
coverage for the claim is not otherwise
precluded by the terms of the policy.
25
A Caveat
A motor cannot assume that a broadly worded
indemnity will be automatically covered by its
commercial liability policy without a detailed
analysis of the exclusions.
 Even if the policy extends coverage to cover the
shipper’s risk of loss by contract, indemnification
beyond legal liability dilutes coverage and can
increase loss runs.

26
Motor Carriers Maintain:

BI & PD


Cargo




In an amount of $1 million which goes to pay injured third parties/
MCS-90 endorsement and BMC 91X gives shipper assurance of payment
for primary liability for carrier
Policy loopholes exist
Carmack is best that can be expected
“Loss payee” status is of no help in extending coverage
General Liability



Covers “non-auto” BI & PD (i.e. excludes coverage for truck wrecks)
Shipper is automatically insured under contractual liability language
New ISO form limits “automatic contractual coverage” to “to the extent
caused by”
27
Shippers demand and think
they are getting more:

They seek:
Coverage for their own act of negligence (i.e. no
contributory or comparative negligence). If motor
carrier is 1% negligent it is responsible.
 Protection from third party torts (i.e. if lumper runs
over their dockhand while loading the carrier’s truck
the want protection under “arising out of”
language.
 They want waiver of subrogation and protection
against suit by carrier’s driver or owner-operator
and their estates if carrier’s driver or agent is
injured by shipper.

28
Additional Insured Status
Additional insured status is a second
contractual risk transfer device intended to
achieve a similar end without relying on
the terms of the indemnity clause.
 It makes the shipper or broker an insured
in the carrier’s general liability policy and
in the carrier’s auto liability policy subject
to the terms and conditions of the policy
and the additional insured endorsement.

29
What are the primary motives of shippers
and brokers for requiring additional
insured status on liability policies?
Additional insured status may reinforce risk transfers that
would otherwise be invalidated by state anti-indemnity
statutes (e.g. Condor Express)
 It may give the indemnitee direct rights under the
carrier’s insurance, particularly with respect to defense
coverage
 It may prohibit the indemnitor’s insurer from subrogating
against the indemnitee when the loss is caused by the
indemnitee’s act or omission
 It may avoid having losses impact the shipper’s loss run
history, avoiding increased insurance premiums in the
future
 It may lessen the chance of the shipper having to sue
the carrier to be made whole following a claim
30

Additional Insured
Objectionable Language
“Shipper shall be included as an additional
insured, with respect to the insurance
policies required above. All insurance
required and provided by Carrier shall be
primary and any insurance maintained by
Shipper shall be excess and not
contributing with Carrier’s insurance.”
Problems
Most shippers think you are buying them
indemnity covering their own negligence;
most insurers don’t agree. Shippers can
outsmart themselves and lose their own
coverage.
Acceptable Language
“Carrier warrants that it maintains personal
injury and property damage insurance ($1Mil
per occurrence and cargo insurance as required
by the Fed. Motor Carrier Safety Admin. (Form
BMC-91X and BMC-34 on file). In addition
Carrier warrants that it maintains workman’s
compensation insurance as required by state
law and all risk cargo insurance in the amount
of not less than ___ per occurrence.
Note:
 If shipper insists on “additional insured” for
3rd party liability, you should exercise extreme
caution, providing policy and insurers written
endorsement warranting nothing about what
is covered
Watch cargo loopholes and Accord
exclusions
ATA/NITL Section 5
31
Avoid the Complexity of
Indemnity/Insurance Issues
 If
you are foolish enough to try to extend
your policy to cover a shipper’s negligence
(1) you may be covered but don’t bet on it;
(2) as a general rule, say no, and be
EXTREMELY careful with exceptions.
 Examples
of horror shows involving the two
handed pick pocket.
32

Carrier agreed to indemnify shipper
and to acquire insurance protecting
the shipper against injured driver suit
(Quaker v. Condor)



Shipper’s negligence injures driver
Indemnity found against public policy under
state law
Carrier required to pay because it did not
procure insurance for shipper
33

Indemnity under UIIA – no coverage
for brokered load





Chicago drayman checks out container and
chassis and gives load to another carrier
Subcontractor hit a bridge
Indemnitee (chassis owner) sues drayman’s
insurer for indemnity
Insurer denies coverage (brokerage excluded
from auto liability; auto coverage was excluded
from general liability)
$10 million verdict against drayman
34
 Indemnity
Trumps Carmack and
Bill of Lading Limitation
 Air
waybill limits liability to $100,000.
 Forwarder pays $692,000 claim and turns
to carrier under shipper/carrier contract
for “indemnity”
 No contract limitation found, no Carmack
or bill of lading limitation applied
 Carrier has to pay $692,000
35
Groping for Solutions


Limit indemnity to “to the extent caused by”
Work with your insurer to meet shipper’s needs
Be sure “waiver of subrogation” request is acceptable and
does not vitiate worker’s comp
 Examine use of broadly worded CG2026 or CG2010 which
should meet shipper’s needs for general liability coverage. It
can dilute carrier coverage, but no gaps in coverage if 2
handed pick pocket is otherwise limited.
 “Additional insured” status may give shipper assurances of
representation in vicarious liability BI-PD auto case but won’t
necessarily “extend” coverage to shipper for its acts of
negligence. (Carrier spills diesel/shipper’s employee lights a
match and throws it on the spill.)
 Know your insurance and offer the shipper only what you
have!

36
Time to Take a Break
37
Offset

What is it?



Why do shippers and brokers offset?



When shipper deducts a contested cargo claim from a carrier;
OR
When a broker pays a contested cargo claim and deducts from
carrier
Carriers and their insurer do not settle claims; OR
Because the carrier’s insurance contains loopholes which allow
denial of coverage and the carrier factors its bills
What is the result?



Cargo claims are not adjusted in accordance with 49 CFR 370
Insurers will not pay carrier
Carrier is deprived of needed revenue
38
Right of Offset
Objectionable Language
“Compensation paid to Carriers may be
withheld to satisfy claims or shortages,
or any debt owed by carrier to
shipper/broker at shipper/broker’s
sole discretion.”
Acceptable Language
“Shipper/broker shall pay freight
charges within 30 days
without offset”
OR
“Freight charges shall be paid in
accordance with the terms of carrier’s
Service Conditions.
See www.___.com”
Reasons to Reject Offset
ATA/NITL Section 3(a)-No Offset
Spiral of death to carrier
a) Insurer won’t pay
ATA Broker
b) Factoring terms are violated
c) Cash flow interrupted
No mitigation of loss – broker or carrier takes full unadjusted amount of loss
Rules circular deal with important collection issues
Brokers who have no cargo liability take advantage of carrier to keep shippers happy 39
Duty to Mitigate
Under common law, a the consignee must
accept goods unless “practically worthless”
 Consignee cannot reject 22 pallets
because 2 are damaged – the mitigation
test is one of reasonableness

40

By contract, shippers seek waiver of duty
to mitigate using “sole discretion”
language

They require return of rejected shipments
at the carrier’s expense and dump the
goods
41
Examples of Duty to
Mitigate Abuse

Dumping of good foodstuff without
inspection due to broken seals
 Pickles
 Orange
Juice
 Coca-Cola

Crushing new cars because of bumper
damage
42
Salvage/No Duty to Mitigate
Objectionable Language
“Neither shipper nor its customers shall
have a duty to mitigate damages. In the
event of damaged, branded or labeled
goods, shipper’s customer may
determine, within its sole discretion,
whether all or part of the shipment may
be salvaged and the value of such
salvage.”
Acceptable Language
Delete and incorporate Service
Conditions which contain salvage
rules – Bill of Lading also includes
the shipper and consignee common
law duty to mitigate unless agreed
to the contrary.
Reasons for Objection
Objectionable language makes “wrongful rejection” legal
Consignor has duty to accept shipment unless its “effectively worthless”
Don’t let one broken pallet cost you a truckload
“Distress sale” of rejected shipment will produce losses a consignee can avoid by using
undamaged product in stream of commerce
Issue on-hand notice and get an expert
ATA/NITL Section 7(d)-Shipper and
consignee have duty to mitigate
43
Shipper Load and Count



New HOS rules have proliferated use of spotted trailers
Carrier’s drivers are not there to count freight on or off
trucks
Bill of Lading Act contemplates “SL&C” and says carrier
is not liable for count or upset due to loading when:
Loaded by shipper, unloaded by consignee
 Phrase “Shipper Load and Count” or similar is on bill

Carrier should not be responsible absent negligence for
delivery of spotted trailer with seal intact
 Many shipper contracts make carrier responsible for
count and warehouse shortage resulting from short
counts

44
Shipper Load and
Count/Concealed Damages
Objectionable Language
“Carrier will provide spotted trailers for
shipper’s convenience in loading and
unloading. Notwithstanding the use of
spotted equipment carrier will accept
responsibility for the loading and counting
of each shipment.”
Note:
Carrier rules circular will address this issue
Accept pallet count not individual piece count
Acceptable Language
“Carrier shall not be responsible for
shortage on shipments loaded and
counted by consignor where the trailer is
received at destination with seals intact.
Failure to indicate “SL+C”, “Subject to
shipper load and count” or like notations
on shipping documents shall not be a
conclusive determination of carrier liability
when driver is not present during the
loading or unloading of shipment.”
ATA/NITL–SL&C is standard/consignee
has duty to accept broker seals
45
Freight Payment Terms


Carriers are general unsecured creditors
Bankruptcy is rampant










Goody’s
Dan River
Rust Belt
3PL won’t guarantee payments
Fuel cost of 80¢ per mile must be paid immediately
Shipper increasingly want 45 to 60 day credit terms/no
interest or penalty
Most small carriers must factor paying 1.5% to 3% per month
- cost on many exceeds profit margin
Carriers must get paid early and on time to avoid
“preferences”
Factors can and will pull the sting if a major shipper goes
down
Carriers are the last to get paid by failing shipper
46
No Penalties for Non-Payment
of Freight Charges
Objectionable Language
Acceptable Language
“Payment will be made within 60 days
“Freight charges are due within 30
days of receipt of invoice and
certified copy of the delivery receipt
(via fax, mail or EDI). Freight
charges not paid within 45 days are
subject to interest and collection
fees (see Carrier’s Rules Circular).”
receipt of carrier’s invoice including
the original delivery receipt to which
no exception is noted – Carrier waives
any lien it may have on shipments for
freight charges.”
Note
Carrier can ill afford to provide interest free loans
Collection remedies must be incorporated into contract or by reference in Rules Circular and
be referenced on each invoice (49 CFR 377)
ATA Broker
ATA/NITL Section 3(a)Interest but no penalties
47
Homer Provisions/Arbitration
Objectionable Language
Acceptable Language
“Carrier consents to exclusive
jurisdiction and venue in
shipper’s/broker’s hometown of Hilo,
HI. The laws of the State of HI will
apply. All disputes will be subject to
binding arbitration at shipper’s election
before the arbiter of its choice at its
home town.”
“General principles of federal
transportation law, jurisdiction and
venue state apply. Subject to the
approval of carrier’s cargo insurer,
cargo claims not paid within 120 days
may be subject to binding arbitration
initiated by either party before the
arbitration services of the Trans.
Lawyers Assoc.”
Note:
Federal law not state law should apply
Shippers choice of venue is often irrelevant to dispute, just a difficult place to sue
Arbitration or ADR (Alternative Dispute Resolution) is in both parties’ interest and expedited
arbitration or mediation is to be preferred.
ATA/NITL Section 22-General principles of
federal transportation law/ADR is voluntary
48
Integration Clauses
Objectionable Language
“This contract contains each and
every term of the agreement
between shipper/broker and carrier
and no provision of any carrier
published tariff or rule applies.
This contract may only be
modified by a signed written
amendment.”
Acceptable Language
“The terms and conditions of the
Standard Truckload Bill of Lading and
Carrier’s Rules Circular
(www.carriers.com) shall apply.
This contract otherwise includes
all of the terms and conditions of
the agreement between the parties
and may be modified only by a
signed written agreement.”
Note:
 Be sure the Bill of Lading and your Service Terms and Conditions are incorporated by
reference and are not excluded.
ATA/NITL – has integration/must
incorporate rules tariff and standard BOL
49
Carrier Recourse to Consignor

The majority rules is the broker is agent of shipper and carrier has
bill of lading recourse to shipper if (1) carrier is not paid and (2)
carrier has not surrendered recourse for signing Section 7 or
waiving recourse.

See Contship Container Lines, Inc. v. Howard Industries, Inc., 309
F.3d 910 (6th Cir. 2002); Hawkspere Shipping Company, Ltd. v.
Intamex, S.A., 330 F.3d 225 (4th Cir. 2003); National Shipping Co.
Of Saudi Arabia v. Omni Lines, 106 F.3d 1544 (11th Cir. 1997); Exel
Transp. Servs. v. CSX Lines L.L.C., 280 F. Supp. 2d 617 (D. Tex.
2003); Oak Harbor Freight Lines, Inc. v. Sears Roebuck & Co., 513
F.3d 949 (9th Cir. 2008)

75% of collection cases involve broker non-payment

Scourge of double brokerage to be covered in August

Major fault line between carrier and broker industry
50
Nonrecourse Provision (in Broker Contracts)
The Major Issue – Separating Carriers and Brokers
Objectionable Language
“Carrier authorizes Broker to invoice shipper
for freight charges as agent on behalf of
carrier. Payment of freight charges to broker
shall relieve shipper of any liability to the
Carrier for non-payment of charges…Broker
shall be agent for Carrier for collection of
freight charges.”
Acceptable Language
“As agent for its customer, broker shall
transmit freight charges to Carriers in
accordance with the federal regulations
applicable to property brokers (49 CFR 371).
Carrier will abstain from invoicing shipper for
payment until all methods of collection from
broker have been exhausted.”
The Differences
Objectionable provision cuts off Carrier’s recourse to shipper and consignee under Bill
of Lading in the event of non-payment
Acceptable provisions makes broker the agent of the shipper who hires it, preserves
recourse
Note:
More helpful language is incorporated by reference into the Carrier’s
Service Conditions
MAJOR UNRESOLVED ISSUE – AFFECTS CONSTRUCTIVE TRUST
TIA
ATA
51
Back Solicitation Provision
The Differences
 Objectionable language can bar you
from responding to an unsolicited offer to
bid on a shipper’s traffic
 Objectionable language can preclude
you from handling unrelated traffic lanes
for Corporate 500 shippers without paying
a commission
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Back Solicitation Provision
Objectionable Language
“Carrier recognizes broker as its
exclusive agent with respect to any
customer for whom it provides service
under this agreement. Broker agrees to
pay broker liquidated damages 20% of
the revenue it receives for shipments
handled for such shippers without
broker’s expressed authorization and for
a period for two years following
termination of this agreement.”
Acceptable Language
None
-OR“Carrier will not back solicit Broker with
respect to traffic first tendered to Carrier
by Broker for a period of one year
following termination of this agreement.
As liquidated damages, Carrier agrees
to pay Broker a 10% commission for
shipments handled in violation of this
covenant for a period of one year
following cancellation of this agreement.”
TIA
53
Broker Required to Accept
Contract as “Carrier”

Increasingly major shippers insist brokers
sign their shipper/carrier contracts with
little or no changes.

Often the only change is in the recitals
saying that the broker holds a license and
bond.
54

It is virtually impossible to redline a 30 page
carrier contract to sort out the role of the broker
as an “arranger” not a “provider”.

Result in “an open trap” for broker liability for
cargo loss, third party liability, not covered by
insurance and “negligent hiring” or
contractor/subcontractor employment issues

Shipper/3PLs will say, “Sign as is, everybody else
does” - Broker regulations make this
misrepresentation a regulatory violation
55
The Lessons of Schramm v. Foster
and Jones v. CH Robinson

Don’t assume carrier’s responsibility or safety
warranties

Courts do not understand role of 3PLs –
neither to government appointees. See
Jones v. C.H. Robinson Worldwide, Inc., 2008
U.S. Dist. LEXIS 45325 (W.D. Va. June 10,
2008)
56
Solution
Use a wraparound logistics agreement
identifying broker as “arranger” who will use
“licensed, authorized and insured carriers” contingent liability and contingent cargo
 Attach Shipper/Carrier Contract as Appendix A,
represent that broker will endeavor to retain a
carrier to meet needs set forth therein
 Modify Appendix A in wraparound as needed
 Require name of actual carrier on bill of lading
and be careful not to misrepresent status of
ARRANGER on bill of lading

57
Questions
58