Arbitration Continues After New Prime

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”).

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Partner Peter Bobchin moderates TIDA Webinar

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

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

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”

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 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?

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.

CA Federal Court Restrains Enforcement of “ABC Test” for Motor Carriers

Edward J. Schwartz United States Courthouse

A federal district court in southern California issued a temporary restraining order on New Year’s Eve barring the enforcement of the state’s Assembly Bill 5, set to go into effect on New Year’s Day. AB 5 adopted the “ABC test” to determine if a particular worker is an independent contractor or an employee. The test hits particularly hard on the motor carrier industry, because many trucking companies use legitimate independent contractors – owner-operators – as part of their business model. The court’s decision was compelled largely because under the Federal Aviation Administration Authorization Act (“FAAAA”), states are not to enact or enforce their own laws related to a price, route, or service of any motor carrier regarding transportation of property. The TRO applies only to the motor carrier industry.

The ABC test presumes that a worker is an employee, not an independent contractor. The hiring party can rebut that presumption only if it can establish each of three factors:

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John Lane Named Co-Chair of the Transportation ADR Council

John has been named co-chair of the Transportation ADR Council, an arm of the Transportation Lawyer’s Association, a nationwide organization of attorneys in corporate, government, and private practice in the field of transportation law. Together with the ADR Council’s other newly-named co-chair, Dan Fulkerson, Esq., of Houston, John will manage the arbitration/mediation apparatus for resolution of legal disputes arising in the transportation industry.

Recognizing the value of alternate dispute resolution and the benefit it would avail to members of the transportation industry, John along with several other TLA members, sought to create a body of rigorously-trained arbitrators and mediators who are experts in transportation law, and a system of arbitration procedures that accommodate the parties. Under the leadership of Steve Uthoff, Esq. and Eric Benton, Esq., they formed the Transportation ADR Council.

In addition to his role with the ADR Council, John is a member of the American Arbitration Association, the New Jersey Association of Professional Mediators, the Garibaldi Inn of Court for Alternative Dispute Resolution, the Dispute Resolution Sections of the New Jersey and New York State Bar Associations, and has recently been accepted as an arbitrator for the Financial Industry Regulatory Agency, FINRA. John also serves as a mediator in the Superior Court of New Jersey.

Learn more about the TLA and the ADR Council at https://translaw.org.