Transcript Slide 1

Welcome to Delta Nu Alpha
Accident Liability Travels Up the Supply Chain
Interactive Webinar - February 21, 2008
With Dan Sullivan, Sullivan, Hincks & Conway
and Henry E. Seaton, Seaton & Husk, L.P.
CORPORATE SPONSORS!
Kings Express
Landstar RMCS
Apex Capital LP
USA Transportation Services, International
Champagne Logistics
Greatwide Truckload Management
About DNA
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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
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.
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Upcoming Webinar Topics
4/15/2008
5/13/ 2008
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6/17/2008
7/15/2008
8/19/2008
9/16/2008 
10/21/2008
11/18/2008
Contract Waivers – 50 Reasons to Keep Bill of Lading
Terms and Conditions, and Federal Rules
Multimodal Cargo Claim Issues – A Prescription
for Confusion
Contracts of Carriage – A Study of Controversial
Provisions Which Divide Shippers, Brokers and Carriers
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)
What is Vicarious Liability?
Indirect legal responsibility
(For example – the imputed liability of
principal for the torts of its agent)
Who are the Targets?
Shippers, Brokers, and Carriers
who “subcontract”
Freefoto.com
Who are Adversaries?
Plaintiff’s bar, looking for deep
pockets because carrier has
limited assets
What are Theories?
“Respondeat Superior” – principal/agency
law
 Joint venture
 Negligent hiring, negligent entrustment
 Statutory duty
 Assumption of duties
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IN EXAMINING ACCIDENT LIABILITY
A BASIC ANALYSIS OF APPLICABLE
LEGAL PRINCIPLES IS HELPFUL
WHAT BASIC LAW APPLIES TO
ACCIDENT LIABILITY?
TORT LAW APPLIES
NOT
CONTRACT LAW UPON WHICH
TRANSPORTATION AND SUPPLY
CHAIN MANAGEMENT IS BASED
UNDER TORT LAW A
DUTY
IS IMPOSED UPON AN ACTOR
(IN MOST CASES)
(IN SOME CASES THERE IS A DUTY NOT TO ACT)
GENERAL DUTY
AN ACTOR SHALL NOT
INTENTIONALLY OR NEGLIGENTLY
HARM ANOTHER
NEGLIGENCE =
“A FAILURE TO DO SOMETHING WHICH A
REASONABLY CAREFUL PERSON WOULD DO, OR
THE DOING OF SOMETHING WHICH A
REASONABLY CAREFUL PERSON WOULD NOT
DO, UNDER CIRCUMSTANCES SIMILAR TO
THOSE SHOWN BY THE EVIDENCE. THE LAW
DOES NOT SAY HOW A REASONABLE CAREFUL
PERSON WOULD ACT UNDER THESE
CIRCUMSTANCES, THAT IS FOR YOU (JURY) TO
DECIDE.”
(Jury Instructions)
TORT LIABILITY DOES NOT CARE
ABOUT CONTRACT LIMITS
TORT LIABILITY SEEKS THE BAD
ACTOR WHO SHOULD PAY FOR
HIS/HER ACTIONS
IN A SUPPLY CHAIN
WHO IS THE ACTOR?
PLAINTIFF LAWYERS WANT
PERSON WITH MONEY TO BE
THE ACTOR
HOW DOES A PLAINTIFF GET
PEOPLE OTHER THAN THE
DRIVER WHO RUNS OVER
CHILD AT SCHOOL CROSSWALK
TO BE HELD ACCOUNTABLE?
SERVANT: A PERSON WHO IS EMPLOYED
BY ANOTHER TO DO WORK UNDER THE
CONTROL AND DIRECTIONS OF THE
EMPLOYER”
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“EMPLOYEE: A PERSON WHO WORKS IN
THE SERVICE OF ANOTHER . . . [WHERE]
THE EMPLOYER HAS THE RIGHT TO
CONTROL THE DETAILS OF WORK
PERFORMANCE.”
(LAW DICTIONARY)
AGENT
“An Agent is a person who, by agreement with
another called a principal, represents the
principal in dealings with third persons or
transacts business, manages some affair or does
some service for the principal, with or without
compensation. The Agreement may be oral or
written, express or implied.”
(Jury Instructions)
“PARTNER: ONE WHO SHARES OR
TAKES PART WITH ANOTHER, ESP.
IN VENTURE WITH SHARED
BENEFITS AND SHARED RISKS.”
LEGAL CONCEPTS PREMISED ON AGENCY
EXTENDING TORT LIABILITY
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MASTER SERVANT
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PARTNERSHIPS
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JOINT VENTURES
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SUPPLY CHAINS WITH SUBAGENTS??????
WHAT IS CRITICAL ELEMENT TO FIND A PRINCIPAL
($$ MONEY BAGS $$) OF AN AGENT?
SHIPPER
BROKER/3PL
CARRIER
LEASING CO
DRIVER CO
DRIVER
ACCIDENT
“CONTROL”
CONTROL =
Direction and Management on
how it gets done/or/legal
responsibility for getting it done
NO CONTROL= Independent Actor (Contractor)
Sole Concern = Result
SUPPLY CHAIN CONCERNED WITH
MOVING GOOD BY CONTRACTS
THAT ESTABLISH
DUTY FOR EACH FUNCTION
SUPPLY CHAIN USES UNIQUE CONTRACT
“BAILMENT CONTRACT”
PLAINTIFF’S LAWYER SEES CHAIN OF
ACTORS BECAUSE BAILMENT TRACES
ACTORS RELATIONSHIP TO GOODS
THAT MOVE IN SUPPLY CHAIN
UNDER BAILMENT CONTRACT
HISTORICALLY NO MIXTURE OF
DUTIES IN SUPPLY CHAIN
CONTRACT USED =
BILL OF LADING
DUTY UPSTREAM =
TENDER OF GOODS
W/DESTINATION
DUTY OF CARRIER = SOLE PARTY CONTROLLING”
1. RECEIPT
2. TRANSPORTATION
3. DELIVERY
MODERN SUPPLY CHAIN,
ESPECIALLY W/COMPUTERS
1.
2.
3.
4.
J.I.T. – SHIPPER DIRECTS (CONTROLS?)
EXACT P/U – DELIVERY
NONCARRIER
A. Acts for Shipper (Agent)?
B. Acts for Carrier (Agent)?
C. Controls Freight (Principal)?
D. Controls Carrier (Principal)?
CONTROL = Actual facts or Substance as not
bound by Contract/or/Contract Duties Assumed
EXAMPLE = Bill of Lading showing 3PL/Broker as
Carrier to protect routing (California Chicken Hauler)
REPRESENTATIVE SUPPLY CHAIN INTERLOCKS
TRANSFERRING CONTROL FUNCTIONS
1.
2.
3.
4.
5.
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8.
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10.
Assumption of control by contract (Esp. B.O.L.)
Holding out to perform or control
Holding out to secure qualified performer
Representing as a Partnership or Joint Venture
Control of Dispatch vs. Passive Tracing
Directly using Driver as Agent or Actor
Placarding Service as Actor
Control of Securement
Offering and Directing HAZ MAT
Selection methodologies (Cheap Rate w/unfit Carrier)
AVOIDING EXPOSURE
1.
2.
3.
4.
5.
6.
Realize you cannot contract away Tort exposure
Realize you can contract Tort exposure
Reality is a holding out – Substance not Salesmanship
A. A Representation can be good for Sales
-We are Partners with our Carrier!
B. A Representation can impose a duty in Tort
Actions can provide Tort exposure
Fitness – Financial (insurance) and operational – is
critical
Contracting Protection helps but only after the fact
A. Indemnity
B. Insurance
WHY IS THIS SUBJECT
IMPORTANT?
1.
2.
3.
Risk is biggest variable cost in Supply
Chain
The amount of risk in Tort is not rational
Risk will expand in the Supply Chain until
there is enough case precedent to allow
stability
The Role of the Intermediary
Broker or Carrier?
What difference does it make?
Broker
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By definition, a “Broker” is an “arranger”
“other than a carrier”
– Broker does not have BI and PD insurance
and is not liable for third party claims or cargo
loss
– Like a real estate agent, stock broker or
insurance broker, not responsible for goods,
services or property it sells
Carrier
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A carrier has “no delegated safety obligations for
equipment it operates” and shouldn’t be liable
for operations of subcontractors but:
– Plaintiff’s bar does not understand and misrepresents
– Joint venture, respondeat superior, “state law
doctrines”
– California example
– Convenience “interlining”, concurrences are difficult to
explain when door-to-door subcontracting is involved
– Bills of lading with deep pocket carrier names
on it causes plaintiff’s bar to salivate
– Opens door on punitives – plaintiff’s bar can
use brokering carrier’s own safety procedure
against it
 Speed controls
 Equipment maintenance
 Driver qualification
 Log audit - Qualcom
Best Practices
Retain excess capacity through broker affiliates
 Get intermediary’s name off Bill of Lading as carrier
 Do not assume carrier duties in shipper/broker contracts
 Warrant retention of properly “licensed, authorized and
insured motor carriers with satisfactory or equivalent
safety rating
 Use contingent liability and contingent cargo insurance
to persuade shippers
 Eschew “arising out of” indemnification/accepting
indemnity for vicarious liability imputed on shipper
because of broker’s desire to retain a particular carrier
(e.g. Illinois dray case)
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How to Avoid Scourge
of “Double Brokerage”
Plague on transactional brokerage
 Arises when the “one you hire” without
approval hires “another” and
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– An accident occurs
– The actual service provider is not paid
– An uninsured cargo damage on theft occurs
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Importance of ensuring correct carrier is
named on Bill of Lading and that name on
door matches the name on the Bill of
Lading
A DIFFERENT POINT OF VIEW
ON BROKER LIABILITY IN LIGHT OF JONES V. D’SOUZA
Henry E. Seaton, Esq.
A string of C.H. Robinson cases starting in 2001 with a wrongful death lawsuit brought
in Illinois, and including Schramm v. Foster, , 2004 U.S. Dist. Lexis 16875 (D.Md.
August 23, 2004), and now Jones v. D'Souza, 2007 U.S. Dist. LEXIS 66993 (W.D. Va.
2007) have had a chilling effect on transportation brokerage. Applying state law,
courts have allowed juries to consider Robinson's liability for the negligent acts or
omissions of truck drivers hired by its carriers under "negligent hiring," "vicarious
liability," and "master-servant" or respondeat superior theories.
Ignored, in part I believe because of C.H. Robinson's method of operation, is the
statutory definition of a property broker, the preemptive scheme of federal regulation,
and any understanding of the traditional role of the shipper and broker as members of
the traveling and shipping public.
By Federal Statute and Regulations only a motor carrier has a non-delegable duty to
exercise dominion and control over the equipment and driver it employs, including
owner-operators it "retains" as independent contractors. See 49 C.F.R. §382 through
396, 376 et al.
No similar duty is imposed upon a shipper or broker. A broker is defined as a party
who "arranges for transportation for compensation" and is not "a motor carrier." A
clear distinction is brought between an instrumentality of transportation which has a
direct and non-delegable obligation for safety, and a property broker which does not.
Although "economic regulation" was stripped from the statutes from 1980 through
1995, interstate trucking remained a highly federally regulated public utility from a
safety point of view. The Federal Motor Carriers Safety Administration, as a
successor to the ICC, assumed without amendment, safety oversight over the
operation of commercial motor vehicles and those statutes and regulations including
enforcement thereof has been extended through to the states under the MCSAP
program.
The liability of a shipper or a broker or the negligent acts or omissions of a carrier
they hire, accordingly should be prescribed and defined in accordance with their
federal duties and obligations under the statutes and not by the inapplicable vagaries
of state law.
Applying state law analogies, the Courts in the C.H. Robinson cases missed the role of the
broker in the transportation context. The broker does its duty when it retains an
authorized carrier. See 49 C.F.R. 371. To be authorized, a carrier in turn must have
authority which is granted and maintained only to an entity determined fit by the Federal
Motor Carriers Safety Administration. To be fit, a carrier must (1) have insurance in
sufficient amounts to protect the traveling public and (2) to have not been judged
unsatisfactory by the Federal Motor Carrier Safety Administration. The Agency in turn
employs a sophisticated system for determining and placing out-of-service carriers which it
determines by roadside inspections and safety audits to be out of compliance.
As an entity arranging for transportation, a broker is not a service provider and the
doctrine of respondeat superior does not and should not apply. Having made reasonable
inquiry to determine that a carrier remains licensed, insured and authorized, a broker
should not be required to second guess the FMCSA's determination of fitness.
Correctly seen, a property broker acts like a real estate broker or stock broker, owing to the
principals a duty of due diligence but in the absence of its own negligence, is not
vicariously liable for the acts or omissions of either party or for the negligent performance
by the service provider of a contract service. A stockbroker who sells corporate stock is
not required to inspect the corporate governance of listed companies before making
recommendations. Similarly, a travel agent is not responsible to passengers for misplaced
luggage or flight interruption by the airlines whose tickets they sell.
If, in a regulated industry like trucking the Federal Government is going to
establish a comprehensive system for telling the public who is safe to operate,
then shippers and brokers alike should be allowed to rely upon the Government's
determination, and unless they assume broader duties, contribute to the accident
in some way other than making common use of the proffered service, they
should not be subject to liability under inapplicable state law theories.
By last count, there were well over 500,000 carriers determined by the FMCSA to
be safe to operate in interstate commerce. No standard other than the Federal
standard can or should be applicable when determining the suitability of a service
provider by the shipping public, or the broker, its agent.
The broker does its duty when it makes a diligent effort to ensure the actual
service provider is licensed and authorized by the FMCSA to provide services as a
for-hire carrier. Congress has preempted state law application for brokers as well
as carriers. See 49 U.S.C. '14501(b). The Courts need to understand this, even
as the trial lawyers try to obscure the issues and the broker's role.
Published in In Transit Magazine from
the Transportation Loss Prevention &
Security Association, 11/2007
Please see www.transportationlaw.net
to view/print a copy of this article
Son of Schramm
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Joe’s Trucking and Joe’s Brokerage becomes
“Joe’s”
Plaintiff’s misuse of SafeStat – what are its
limits?
The Hours of Service and circadian rhythm
Broker complicity in “requiring or permitting”
Misconceptions about “unrated carriers”
A different point of view (Handout)
So how far is far enough for
checking out a small carrier?
For the occasional transaction?
For the “dedicated” service provider?
Mock audits?
DISCUSSION/Q&A