Transportation

Seventh Circuit Reaffirms Protection for Freight Brokers under the FAAAA

John C. Lane

In Montgomery v. Caribe Transport II, LLC, the Seventh Circuit Court of Appeals recently ruled in favor of a freight broker and adhered to its decision in Ye v. GlobalTranz Enterprises, Inc. (July 18, 2023). The Ye decision shielded freight brokers from liability for negligent hiring of motor carriers. The Ye Court held that a freight broker cannot be held liable for negligent hiring of a motor carrier whose driver negligently caused a fatal highway accident. The Court explained that the broker was protected by preemptive language in the Federal Aviation Administration Authorization Act (“FAAAA”), 49 U.S.C. 14501(c)(1):

. . . a State . . . may not enact or enforce a law, regulation or other provision having the force and effect of a law related to price, route, or service of any motor carrier . . . broker, or freight forwarder with respect to the transportation of property. (Emphasis added).

The Court held that because plaintiff’s negligent hiring claim has a direct relationship to the broker’s services in hiring the motor carrier, the claim is expressly preempted by § 14501(c)(1). In Montgomery the Court of Appeals declined to overrule that decision, finding no compelling reason to revisit a case decided only one year earlier.

In the Montgomery case, the plaintiff was severely injured when his truck was hit by a tractor-trailer. He sued the broker on two theories: 1) that the broker was negligent in selecting the motor carrier; and 2) that the broker was vicariously liable because it so controlled the carrier that it became the broker’s agent. The Court of Appeals denied both claims. The first theory was barred by the controlling Ye decision based upon FAAAA preemption. And the Court ruled out vicarious liability because the broker did not control the operations of the motor carrier.

Specifically, the Court held that the broker’s control of communications with the shipper and recipient of the loads and arranging for all pickup and delivery times do “nothing to control how the job was done and therefore fail to demonstrate agency.” Nor did requiring the motor carrier to provide information about who was hauling the load, their hours of service, and the location of trucks, the imposition of a rate contingency upon successful, on-time completion, or the tracking of the motor carrier’s on-time deliveries. Finally, the Court noted that the broker did not provide any equipment to the trucker or its driver and did not pay for maintenance or related expenses.

Three months before the Seventh Circuit’s decision in Ye, the Eleventh Circuit ruled in similar fashion that the FAAAA express preemption barred a claim against a freight broker, in Aspen Am. Ins. Co. v. Landstar Ranger, Inc. (April 13, 2023). Landstar acted as a broker to secure a motor carrier to transport an expensive load of cargo to a purchaser across state lines. Landstar mistakenly turned the shipment over to a thief posing as a Landstar-approved carrier, who ran off with the shipment. The Court of Appeals affirmed the lower court’s ruling that the shipper’s subrogated insurer could not recover the losses from Landstar, because its claims fall within the FAAAA’s express preemption.

The Eighth Circuit even applied FAAAA preemption to a commercial dispute between a shipper and a motor carrier, in Data Manufacturing, Inc. v. UPS (2009). A number of district court decisions have ruled in favor of FAAAA preemption for freight brokers, including the District of New Jersey’s case of Alpine Fresh, Inc. v. Jala Trucking Corp. (2016). But the case law is still developing. Most Circuit Courts of Appeals have not ruled on FAAAA preemption.

Caveat: Beware of the Ninth Circuit and the “Safety Exception”

The 2020 decision of the Ninth Circuit in Miller v. C.H. Robinson Worldwide, Inc. poses a problem for brokers. The Ninth Circuit agreed that the broker would normally be protected by the FAAAA preemption from claims of negligent selection, but that the claim fell within the Act’s “safety exception” allowing for claims of alleged violation of state safety laws. The Supreme Court of the United States recently declined to hear an appeal of this decision.

The Seventh and Eleventh Circuits and several district courts in the country have rejected the “Safety Exception” ruling in Miller. The transportation industry would like the Supreme Court to weigh in, but that has not happened to date.

To brokers, we say always seek legal advice on issues involving such claims. The law in this area is complex and evolving. Cases are governed by their particular and often complicated sets of facts, and by federal and state law.

We will continue to provide updates on this important issue.

Successes in 2023

The Lane Law Letter

We look back at some of our successes in 2023.

Summary Judgment in Quadriplegic Accident

A severe accident on the Cross-Bronx Expressway involved a Jeep Grand Cherokee, a Honda Odyssey, and two tractor-trailers. An occupant of the Jeep was rendered a quadriplegic and brought suit in Bronx County against the operators of the other vehicles. The Court granted summary judgment for our trucking company client after seven years of litigation. This high-exposure case will proceed against the owners of the Honda and the other tractor-trailer.

Summary Judgment, Indemnity and Insurance Coverage

An accident on a state highway in New Jersey led to debilitating injuries to the driver of a small delivery truck when his vehicle impacted a truck operated by a company retained by our client, a broker. The injured man sued our broker client and the trucker involved in the accident. The trucker’s insurer denied additional-insured coverage for our client and commenced a declaratory judgment action to avoid that coverage. We represented the broker in both actions. In the personal injury action we obtained summary judgment dismissing the complaint and enforcing contractual indemnity against the trucker. That double victory led to a settlement of both actions. The insurer settled the personal injury claim in full and made reimbursement to our client for legal fees and expenses incurred in both cases.

Voluntary Dismissal in Alleged Roadway Distraction Claim

Plaintiff’s car was struck in the rear by co-defendant’s vehicle, from which plaintiff suffered spinal injuries requiring surgery. Co-defendant claimed he had been distracted by a truck that was weaving from lane to lane, and even coming close to tipping over. His identification of the truck, which he said bore the name of our client, a popular food service transporter, started out as very sketchy and became virtually worthless after depositions. Plaintiff was persuaded that the phantom truck, if it existed, was not owned by our client. Plaintiff voluntarily dismissed the claim against our client.

Settlement, Exoneration, and Insurance Coverage

A small outdoor recreation business was sued by a young man injured in a rope incident in a state park in New Jersey. The man suffered spinal fractures and had a lengthy hospital and treatment course. He sued our client in state court. Our client made timely notification to its general liability insurer, but the insurer reserved rights as to coverage and commenced a federal declaratory judgment action. We defended that suit, counterclaimed for coverage, and impleaded the client’s insurance broker. After nearly seven years of litigation, the insurers moved for summary judgment. We defeated those motions and a motion to amend the complaint. The insurers succumbed. Together they settled the personal injury case in the high six figures, and then paid the majority of our legal fees and expenses incurred over nearly seven years of federal court litigation.

Summary Judgment Under Graves Amendment and Independent Contractor Doctrine, Indemnification against Subcontractor

An accident at an intersection in Yonkers, New York resulted in shoulder and back injuries. Both injuries resulted in surgical intervention. The injured party brought suit against our client, a freight forwarder, and its subcontractor, who was operating a tractor-trailer involved in the subject accident. The trailer was owned by our client. We obtained summary judgment under both the Graves Amendment and an independent contractor defense. We also obtained summary judgment for contractual indemnity on our cross-claim against the subcontractor.

Voluntary Dismissal in Severe Injury Case

A New Jersey municipal employee was injured while unloading cargo from a trailer, allegedly caused by an ice condition on the product being unloaded. The injured employee sued several parties, including our client, a freight broker. After completion of discovery, and without the need for motion practice, we persuaded our client’s subcontractor to settle the case and obtain a release for our client, while also agreeing to reimburse our client for attorneys’ fees and expenses incurred defending the case.

Plaintiff’s Bad Faith Delay of Defendant’s Removal to Federal Court

Plaintiff sued in state court in New York after an accident on the Cross-Bronx Expressway. His injuries were not serious and treatment was scant. His attorney refused to negotiate a settlement, but he wanted to avoid a federal removal. When we obtained an order that plaintiff provide a written demand, the attorney delayed as long as he could and then provided a written demand of $74,000, just below the $75,000-plus minimum for jurisdiction. Later, counsel served discovery responses that surreptitiously increased the demand to $2,000,000, but that was beyond the one-year limitation for removal. We removed anyway, citing an exception in the statutory deadline provision. The federal court retained jurisdiction, finding that “plaintiff acted in bad faith in order to prevent or delay defendants from removing this action.” The case settled in two weeks for what it was worth – next to nothing.

Moral: Never give up!

The Lane Law Letter will continue to bring you updates on matters of pertinent law in New York and New Jersey.

Peter Bobchin to present at TIDA Webinar on Preventability Determinations

The Lane Law Letter

Peter Bobchin will be presenting at a webinar on Tuesday, November 1st, sponsored by the Trucking Industry Defense Association. The webinar, entitled “FMCSA, Preventability Determinations, and How to Navigate These Issues at Deposition,” will explore FMCSA requirements for reporting accidents, addressing protections afforded under 49 U.S.C. § 504(f), and whether preventability determinations fall under the protections.

The program will review how some state courts handle the admissibility of preventability determinations at trial, and how to address the issue in preparing a safety supervisor to testify at a deposition. The webinar will also discuss the FMCSA’s voluntary Crash Preventability Demonstration Program.

The Panel members also include TIDA attorneys Rene L. Bowen of Franklin & Prokopic, P.C., in Baltimore, and Joseph Panatera of Cassiday Schade LLP, in Chicago.

TIDA members can register for the webinar via the link at the bottom of TIDA’s home page, at http://www.tida.org.

Peter has been a member of TIDA for 17 years and his partner, John Lane, has been a member for most of TIDA’s existence. Together, they co-author and update TIDA’s state law summary for New York. The Association includes individuals from the trucking industry, trucking insurance and claims professionals, and attorneys who devote a substantial portion of their practice to the defense of trucking companies.

Arbitration Continues After New Prime

John C. Lane

The following was originally published in The Transportation Lawyer, February 2021, and is reprinted here with permission.

The 2019 decision of the Supreme Court of the United States in New Prime v Oliveira, shocked many in the transportation world, holding that the contracts of all truck drivers, including owner-operator independent contractors, are contracts of employment of transportation workers.  Under an exemption in Section 1 of the Federal Arbitration Act, the provisions of the FAA shall not apply to arbitration clauses in their contracts.  Thus, arbitration cannot be compelled against these workers under the FAA.

Transportation and arbitration lawyers have since worked to devise means to get to arbitration even in the face of New Prime.  Many have succeeded.  These are their stories (with apologies to the venerable television series, “Law and Order”).

To read the full article, click below:

arbitration-continues-after-new-primeDownload

Partner Peter Bobchin moderates TIDA Webinar

The Lane Law Letter

Peter Bobchin recently moderated a webinar sponsored by the Trucking Industry Defense Association’s Interactive Education Committee.  The webinar titled “Where We’ve Been and Where We’re Heading: Regulatory Updates in the New Administration” explored new regulations affecting the trucking industry by first taking a look back at changes made to trucking regulations at the end of 2020.  The focus then switched to what both trucking attorneys and industry professionals can expect to see under the Biden administration, and the new appointees to head the Department of Transportation and the Federal Motor Carrier Safety Administration. 

Panel members included TIDA attorneys Sarah E. Hansen of Burden, Hafner & Hansen in Buffalo, New York, and Stephen J. Cohen of Copeland, Stair, Kingma & Lovell, LLP in Atlanta, Georgia, doing a superb job of explaining some complex and intricate subjects of importance to the trucking industry.

The webinar covered recent regulatory developments on the issues of hours of service and electronic driver logs, emerging regulations impacting driver training and recruitment, and safety initiatives incorporating new and evolving technology.  Peter has been a member of TIDA for 17 years and his partner John Lane has been a member for most of TIDA’s existence.  Together, they co-author the New York law updates for TIDA.       

John Lane to Speak at TLA Chicago Regional Seminar

The Lane Law Letter

As with so many trainings, meetings, and conferences, the Transportation Lawyers’ Association 2021 Chicago Regional Seminar and Bootcamp, too, will be virtual this year. TLA President John Wilcox will open the Regional Seminar and Bootcamp from Kansas City, Missouri, via Zoom, at 1:00pm CST on January 20th. This online program will feature timely topics that are of interest to attorneys practicing all modes of transportation law. Topics have been chosen based on suggestions received from past attendees as well as recent developments in the law that affect the transportation industry and the practices of all transportation lawyers.

On that opening day, John Lane and Bill Pentecost, of Pittsburgh, will co-chair the Bootcamp segment, “Transportation Law in a Multi-Modal World,” which will address Maritime, Railroad, and Motor Carrier law. In addition, John will give a presentation on Intermodal Law and Commerce, emphasizing the inter-relationship of ocean, rail, and trucking commerce and the rights and liabilities of intermodal equipment leasing companies.

The Bootcamp is designed to introduce transportation law topics to lawyers who are beginning their transportation law careers, but is also attended by seasoned members of the TLA. Other Bootcamp presenters include Dustin Paul of Norfolk (Maritime law), John Fiorilla of New Jersey and Greg Summy of Virginia (Railroad law), and Steve Kennedy of Louisiana, Bridgette Blitch of Florida and Meghan Litecky of Kansas City, Missouri (Motor Carrier law).

The main portion of the Regional Seminar will be conducted on Thursday and Friday, January 21 and 22. The Seminar’s co-chairs are Tom Martin of New Jersey and Jason Orleans of Chicago. Non-members of the TLA are welcome to join us.

To learn more about the 2021 Bootcamp and Regional Seminar and to register, visit https://events.translaw.org/2021/chicago-regional/home/.

Thwarted by Supreme Court, New Prime Settles Truck Driver Class Action Wage Claims

John C. Lane

According to a Transport Topics report on July 29, 2020, New Prime, Inc., has settled two putative class-action lawsuits by its truck drivers for allegedly improper compensation payments and violations of the federal Fair Labor Standards Act, as well as state laws. Transport Topics reports that the settlement, awaiting court approval, will provide a total of $28,000,000 for a potential class of 40,000 drivers, most of whom are independent owner-operators.

On January 15, 2019, the Supreme Court of the United States ruled against New Prime, Inc., in its petition to refer to arbitration a class action lawsuit claiming that New Prime improperly paid truck drivers which it had classified as independent contractors, allegedly in violation of the federal Fair Labor Standards Act. The Court ruled that under the Federal Arbitration Act, an independent owner-operator’s contract is a “contract of employment” of a transportation worker, falling squarely into a class of FAA-exempt agreements. That sent the case back to the First Circuit, and ultimately to the District Court for Massachusetts. A second putative class action suit, Haworth v. New Prime, was filed in 2019, according to Transport Topics. The settlement reportedly resolves both lawsuits.

Photo by bongkarn thanyakij on Pexels.com

As reported, New Prime believes its business model, using independent owner-operators in its trucking operations, is “completely lawful and compliant with all regulations.” The settlement, though, was “the right thing to do,” New Prime’s general counsel advised Transport Topics.

The settlement brings to a close the saga of New Prime v. Oliveira, but the issues of arbitration of truck driver employment claims, and waiver of jury trials and class actions, will remain on the foreground for trucking companies and on the dockets of the courts.

The New Jersey Arbitration Act Applies “Automatically”

John C. Lane

A void was left when the Supreme Court of the United States held last year in New Prime v. Oliveira that the Federal Arbitration Act does not apply to a dispute involving a transportation worker’s contract, even if the worker is an independent contractor. The holding rested on an exemption found in Section 1 of the FAA for “contracts of employment” for transportation workers. But that is not the end of the story. The Court left open the use of state arbitration acts for parties and disputes exempted from the federal law. New Jersey stepped up to fill the void in a decision by the state’s Supreme Court in two companion cases, Arafa v. Health Express Corporation and Colon v. Strategic Delivery Solutions, LLC, decided July 14, 2020.

Both plaintiffs are delivery truck drivers whose industries arguably involve interstate commerce. Each signed a contract containing an arbitration clause to be governed “by the FAA.” They sued under wage and hour laws, among others, alleging they were not paid in accordance with those laws. Since the FAA does not apply under New Prime, the plaintiffs argued that there was no meeting of the minds to arbitrate, because the contracts failed to invoke the New Jersey Arbitration Act expressly, as an alternative. The New Jersey Supreme Court disagreed: “[T]he NJAA will apply unless preempted even without being explicitly referenced in an arbitration agreement; no express mention of the NJAA is required to establish a meeting of the minds that it will apply inasmuch as its application is automatic.”

Like the FAA, the New Jersey Arbitration Act provides that a written agreement to arbitrate a dispute shall be valid, irrevocable and enforceable. The two acts operate in the background. The FAA has wide preemptive application to contracts involving international or interstate commerce. But where the FAA does not apply, the New Jersey act steps up “automatically” to fill the void and compel arbitration.

We look forward to more states following New Jersey to apply their own arbitration acts to contracts, such as contracts of employment of transportation workers, to validate and enforce arbitration agreements.

Federal Court Approves Transportation ADR Council’s Fairness and Procedures

The Lane Law Letter

The Transportation Lawyers Association has established and maintains the Transportation ADR Council, which provides arbitration and mediation services for parties involved in transportation-related disputes. The arbitrators and mediators on the Council are all members of the TLA, must have ten years or more legal experience in the transportation field, and must have extensive training in alternate dispute resolution procedures, including arbitration and mediation.

The U.S. District Court in Nashville, Tennessee, recently ruled that the Transportation ADR Council, or TAC, provides fairness consistent with due process, has procedural rules that guard against bias, and requires each arbitrator to “faithfully hear and examine the matter in controversy and make a just award.” In Byars v. Dart Transit Co., plaintiff brought an employment claim against Dart Transit. On Dart’s motion to compel arbitration before the TAC as prescribed in the parties’ agreement, Judge Waverly Crenshaw, Jr., analyzed the structure and procedural safeguards provided by the TAC’s arbitration rules, and ruled in favor of arbitration.

Plaintiff raised concern because all of the TAC arbitrators are transportation lawyers representing businesses in the transportation industry. That is of course a very wide realm. The Arbitration Rules prohibit any person who has a financial or personal interest in the outcome from serving as an arbitrator, and also give the parties the opportunity to question the arbitrators’ impartiality. Quoting the Sixth Circuit, Judge Ryan held that even if all TAC arbitrators had backgrounds in transportation employer defense work, “a party cannot avoid arbitration simply by alleging that the arbitration panel will be biased.”

The court ruled the parties’ agreement to arbitrate in Minnesota is enforceable under the Minnesota Uniform Arbitration Act, even though the Federal Arbitration Act may be inapplicable under the Supreme Court’s 2019 decision in New Prime v. Oliveira. That case held that the FAA does not apply to disputes involving transportation workers’ contracts.

John Lane is a member of the TLA and currently serves as co-chair of the Transportation ADR Council, with Daniel Fulkerson, Esq., of Houston. Like most TAC arbitrators, John is also a commercial arbitrator for the American Arbitration Association.

What are Plaintiffs Doing to Skirt the Graves Amendment?

John C. Lane

The Graves Amendment, passed in 2005 and codified at 49 U.S.C. § 30106, bars an action for vicarious liability under state law against commercial lessors of motor vehicles involved in motor vehicle accidents, provided that the lessor is free from negligence or criminal wrongdoing. Courts across the country have used the Amendment to protect lessors of tractors, trailers, and intermodal chassis. New York courts have been leaders in protecting rights under the Graves Amendment, especially against New York’s infamous vicarious liability statute, Vehicle and Traffic Law § 388. So, what are the plaintiffs’ lawyers doing to avoid the Graves Amendment?

A double-truck head-on collision, and a downtown New York terrorist attack, illustrate the cleverness of the plaintiffs’ bar. The former is seen in the Illinois federal court case of Favorite v. Sakovsky (August 16, 2019). The terrorist attack is at the center of Grandelli v. City of New York, in Manhattan state court (September 24, 2019). In each horrible case the plaintiffs’ attorneys attempt to increase the pool of financially viable defendants, and to avoid the Graves Amendment.

In Favorite, widow Stephanie Favorite sued the Sakovski estate, BB Wolf, Inc., and Compass Truck Rental and Leasing, the company that leased the Sakovski truck to BB Wolf. She alleged that Compass negligently entrusted the truck to BB Wolf, and should have known that BB Wolf might employ an incompetent driver. Specious as the allegation was, the court denied Compass’s Graves Amendment motion to dismiss because there had been no discovery as yet. A full fact development might support Compass, but the bare complaint did state a cause of action for negligent entrustment.

In Grandelli, Sayfullo Saipov rented a pick-up truck from Home Depot and drove it into a crowd of pedestrians and bicyclists in lower Manhattan, killing eight people. The estate of one victim brought suit against the City and several agencies, and also against Home Depot, alleging that the truck’s lessor negligently entrusted the truck to Saipov, in spite of certain “red flags” from law enforcement publications to be on the lookout for customers who might use a truck to commit terrorist attacks. Home Depot made a Graves Amendment motion to dismiss before conducting any discovery. The court in New York County denied the motion without prejudice, on the incomplete record before it. The court held that the complaint sufficiently stated a case for negligent entrustment, which circumvents the Graves Amendment.

Only one appellate court has considered whether a negligent entrustment claim is barred by the Graves Amendment. In Carton v. GMAC (2010), the Eighth Circuit ruled that vicarious liability claims are barred, but a claim of negligent entrustment, not just negligent maintenance of a leased vehicle, can create an exception to the Graves Amendment. But in this case, the court held plaintiff’s allegations failed to rise to the level of negligent entrustment.

For now, equipment lessors will continue to face negligent entrustment claims, likely unprotected by the Graves Amendment. Lessors should be prepared to present proof of careful practices and procedures to thwart claims of negligent entrustment.