Truck Law

A Transportation Law Blog from TransportationAttorneys.NET

Month: February, 2018

Forum Selection Clauses, Cargo Claims, and the Carmack Amendement

by G. Spencer Mynko, Esq.

Fight Back Against Oppressive Forum Selection Clauses

Forum Selection Clauses and The Carmack Amendment.

I often write about topics that confront current clients, but also involve important issues anyone involved in transportation should be aware of: shippers, brokers, freight forwarders and motor carriers.

Transportation Contracts notoriously include all sorts of legal mumbo-jumbo that is hard to understand (even for lawyers). Among the many convoluted clauses in a transportation contracts are forum selection clauses. Anyone who is a party to a Transportation Contract of any kind needs to be on the lookout for forum selection clauses.

Forum Selection Clauses: What Are They?

Forum selection clauses announce where a lawsuit will be brought in the event of a dispute. Cargo claims often result in lawsuits. Lawsuits often invoke venue and forum selection clauses in contracts. For example, when a broker or a shipper sues a motor carrier over a cargo claim, the broker or shipper will invoke a forum selection clause in the contract to justify filing the lawsuit in their backyard. The problem with this is the location for the lawsuit is convenient for anyone but the motor carrier and any witnesses to the claim. Indeed, the party who drafted the contract will almost always include a forum selection clause which which is favorable to them. Unfortunately, big brokers and shippers will rely on these clauses to extort money from small carriers: because the cost of defending a lawsuit in a faraway location is prohibitively expensive, smaller carriers will often settle lawsuits of dubious merit or resign themselves to default and possible financial ruin.

While sometimes Forum Selection Clauses are simply an afterthought and included because no one customized the contract, in my experience they are usually there for a reason.

Typically these clauses are binding, but they can be overturned in certain circumstances.

The Doctrine of Forum Non Conveniens

Forum Non Conveniens basically means “Inconvenient Forum” in plain English. For example, it is pretty inconvenient for everyone involved in a cargo claim when the carrier is based in Southern California, all of the witnesses are in Southern California, the cargo was damaged in Southern California, but the Broker is in Indiana and wants to sue the Carrier in Indiana. The doctrine of forum non conveniens rules on whether a selection clause will be upheld. In our example, the defendant motor carrier can ask the court to dismiss the lawsuit in Indiana and force the broker to refile it in Southern California. This doctrine establishes that the overriding questions for whether a forum selection clause will be upheld asks whether:
it is convenient for both parties and the court; And
if the interests of justice indicate that the case should be moved.
This seems simple enough, but the courts have a lot of discretion in deciding whether to invalidate a forum selection clause based on forum non conveniens.

The party opposing a forum-selection clause has a hard task before it. “Because forum selection clauses are presumptively valid, they should be honored ‘absent some compelling and countervailing reason.'” Murphy v. Schneider Nat’l, Inc., 362 F.3d 1133, 1140 (9th Cir. 2004) (quoting M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12, 92 S. Ct. 1907, 32 L. Ed. 2d 513 (1972)). “The Ninth Circuit has identified three ‘compelling’ reasons that would permit a court to disregard a forum selection clause . . . .” Premiere Radio Networks, Inc. v. Hillshire Brands Co., 2013 U.S. Dist. LEXIS 158535, 2013 WL 5944051, *2 (C.D. Cal. Nov. 4, 2013) (citing Murphy, 362 F.3d at 1140). These reasons are:
         (1) its incorporation into the contract was the result of fraud, undue influence,            or  overweening bargaining power; (2) the selected forum is so inconvenient                 that the complaining party will be practically deprived of its day in court; or              (3) enforcement of the clause would contravene a strong public  policy of the              forum in which the suit is brought.
When parties agree to a forum-selection clause, the analysis gets a little trickier and it is harder for the party challenging the forum to prevail. “… [a] court may consider arguments about public-interest factors only.” Global Quality Foods, Inc. v. Van Hoekelen Greenhouses, Inc., 2016 U.S. Dist. LEXIS 107121. “The Ninth Circuit provides five public interest guideposts by which to evaluate a forum non conveniens dismissal:
(1) local interest in the lawsuit; (2) the court’s familiarity with the governing law; (3) the burden on local courts and juries; (4) congestion in the court; and (5) the costs of resolving a dispute unrelated to a particular forum.

A recent case where the court invalidated a forum selection clause based on Forum Non Conveniens

A Texas Federal District Court recently ruled on forum selection clauses and the Carmack Amendment in Ledet v. Across USA Moving, Inc., No. 4:14-mc-1846 (S.D. Texas June 11, 2015). The court’s decision is another in a growing trend towards ignoring state forum selection clauses in favor of applying the Carmack Amendment’s forum selection clause. While not unanimous across the country, the trend is for forum selection clauses to yield to federal forums under the Carmack Amendment.

The case at issue involved a family who contracted with a moving and storage company to move their household goods, family furniture, and belongings from Texas to Maryland. The family sued the company because of the job they did, and they brought the case in U.S. District Court for the Southern District of Texas, Houston Division. But the original contract to move the goods included a forum selection clause that would require any dispute between the shipper and carrier to be brought in Dallas County, Texas in a Texas state court. The carrier asked the U.S. District Court to dismiss for improper venue, but the court denied the motion.

Recent trend toward ignoring Forum Selection Clauses

In issuing its decision to not apply this forum selection clause, this District Court relied on several other courts’ opinions and the text of the Carmack Amendment. The actual text of the Carmack Amendment is very clear and states that an action under the Amendment can be brought in federal court where the carrier operates or where the alleged losses occurred. 49 U.S.C. § 14706(d)(1)-(2). Many courts have taken this language to mean that the Carmack Amendment overrides forum selection clause. Those courts include:
The Second Circuit – Transport v. State Farm Mut. Auto. Ins., 537 F.2d 648 (2nd                       Cir. 1976).
The Tenth Circuit – Aluminum Products Distributors, Inc. v. Aaacon Auto                                  Transp., Inc., 549 F.2d 1381 (10th Cir. 1997).
Other, various district courts throughout the country.
This trend is significant for trucking companies and other companies involved in transportation because it puts them and their customers on notice as to how their contracts are to be drafted.


by G. Spencer Mynko, Esq.

With all the publicity and mountains of court decisions severely punishing trucking companies who misclassify drivers as independent contractors, it never ceases to amaze me that I regularly receive phone calls from disgruntled truck drivers. Many of these calls are from drivers who are not only misclassified, but driving for relatively large trucking companies who are misclassifying over 50 to 100 drivers as independent contractors. In other words, one misclassification disaster could result in millions of dollars of liability for large companies engaging in illegal conduct. Furthermore, many, if not most, of these phone calls come from drivers who work for companies that perform drayage services out of the ports. It’s my opinion that if you’re a trucking company hauling containers in and out of the ports and your misclassifying drivers, you are playing a dangerous version of Russian Roulette. After reading this article, I think you will agree that trucking companies who continue to misclassify drivers are facing greater and greater risks of severe punishment if they get caught. In other words, companies misclassifying drivers are playing Russian Roulette with an extra bullet in the wheel.

In light of widespread ongoing illegal activity at the ports (and elsewhere – port companies don’t have the monopoly on misclassification), there are some recent developments that trucking companies (especially those operating in the Long Beach-LA ports) need to be aware of. Furthermore, I want to take a moment and make some predictions about 2018 and discuss some pending cases that trucking companies need to concern themselves with.

Predictions for 2018.

Two CaseS in front of the US and California Supreme Courts

I have written extensively about arbitration clauses in class-action waiver’s. There is a pending case before the United States Supreme Court which is expected in the first half of 2018 involving mandatory arbitration clauses with class action waivers. This case involving class action waivers may have little impact on companies, including those using ICs, which have already drafted their independent contractor agreements in a manner that will be enforceable regardless of the way in which the Court rules. Those companies are using “opt out” clauses that afford contractors the opportunity to opt out of arbitration agreements with class action waivers, and do so without any penalty or repercussion on workers who have signed them. This is why it is critical for trucking companies who want to force disputes into arbitration and avoid defending against class-action lawsuits to work with a transportation attorney who can draft contracts with these clauses that will withstand a challenge.

We are likely to see class action lawyers doubling down on IC misclassification cases in the coming year, inasmuch as these types of lawsuits remain a lucrative cottage industry for those lawyers and multi-million-dollar settlements have become commonplace. Class action lawyers are more likely to target companies that do not have an enhanced level of compliance with IC laws or valid arbitration provisions with class action waivers in their IC agreements. I Repeat: arbitration agreements containing bilateral class action waivers are critical for trucking companies who wish to guard against the proliferation of class action lawsuits

Dynamex Operations West v. Superior Court, has been on appeal before the California Supreme Court (No. S222732) since January 2015. It is scheduled for oral argument on February 6, 2018. The issue in Dynamex is whether, in wage and hour cases in California, where the issue is whether the workers in question are independent contractors or employees, should the Supreme Court continue to follow its time-honored holding in S.G. Borello & Sons, Inc. v. Dep’t of Industrial Relations (which is roughly akin to a common law / economic realities test for determining IC status) or apply a far more rigorous standard that more closely resembles an ABC test. Depending on how the court rules, proving your drivers are independent contractors could actually get tougher in California. A departure from Borello could be extremely disruptive for companies with business models reliant upon independent contractors where such businesses have thoughtfully structured their IC relationships in a manner that was intended to comply with the law as set forth in Borello. Indeed, the Borello standard has been incorporated into the California Department of Industrial Relations website advising the public of the test for “independent contractor versus employee” for many years.

In 2018, the DOL and IRS continue with their push to target misclassification

The Department of Labor and the IRS have teamed up with other federal agencies and the labor departments of 11 states (including California) to share information that will help to track down employers that misclassify workers. The US Dept of Labor is moving aggressively on misclassification of employees.The misclassification of workers by employers directly impacts the calculation of workers’ compensation benefits. The US Department of Labor has moved aggressively to co-ordinate actives with the IRS to co-ordinate enforcement and education. Generally, employees classified as independent contrators are not entitled to workers’ compensation benefits. Trucking companies sometime commit fraud and designate employees as independent contractors to avoid paying taxes and workers’ compensation insurance. Business models that attempt to change, obscure or eliminate the employment relationship are not inherently illegal, unless they are used to evade compliance with state or federal labor laws: if a driver is misclassified as an independent contractor and subsequently denied rights and benefits to which he or she is entitled under the law, severe consequences can result (no surprise to anyone who is a reader of my articles) . In addition, misclassification can create economic pressure for law-abiding business owners.

Look for these actions:
The IRS will evaluate and classify referrals made by the DOL and conduct examinations at IRS discretion.
The IRS, at its discretion, will share employment tax referrals with state and municipal taxing agencies that are part of the agreements.
The IRS will provide annual reports to the DOL summarizing the results of the referrals.
The IRS will alert the DOL when employees file lawsuits following an examination based on a Labor Department referral.

In 2018, EDD and DIR Administrative reviews, proceedings, and audits are unlikely to diminish.

It is still highly likely that the Employment Development Department (EDD) and the California Department of Industrial Relations (DIR) will remain aggressive in seeking unemployment tax contributions from companies using ICs. It is also likely that the EDD and the DIR, will not become any less aggressive in pursuing companies that misclassify employees as independent contractors.

Recent cases of importance

Uber secured a victory not before a court, but before an arbitrator. Uber has used mandatory arbitration agreements in its independent contractor agreements for several years. In February 2017, a well-regarded former judge issued an arbitration decision finding that the preponderance of the evidence favored Uber’s position that, under the California wage laws, drivers who use the Uber app have more in common with independent contractors than employees. While this arbitration decision is not binding on other drivers, it is likely to have significant impact on decisions by other arbitrators in arbitrations brought by drivers. This is particularly significant for trucking companies because of the parallels between Uber drivers and truck drivers and how arguments that convinced the arbitrator that Uber drivers are ICs could be used by trucking companies in arbitrations (see above the importance of forcing lawsuits into arbitration).

THE CITY OF LOS ANGELES FILES IC MISCLASSIFICATION LAWSUITS AGAINST PORT TRUCKING COMPANIES. Three trucking and drayage companies owned by NFI Industries Inc. have been sued by the City of Los Angeles in three separate actions for alleged misclassification of truck drivers as independent contractors. The companies operate in and around the Ports of Los Angeles and Long Beach, California, as well as throughout the U.S. and Mexico. The lawsuits allege violations of federal truck leasing regulations and the California Unfair Competition Law. The complaint alleges that the misclassification of the drivers as independent contractors is a “scheme” to increase the companies’ profits by trying to avoid their obligations to provide benefits, pay relevant taxes, and absorb various operating costs. The City alleges that the companies regularly discharge drivers at any time with or without cause; retain absolute discretion to prohibit drivers from working for competitors; require the drivers to create a fictitious company name although they do not have distinct, independent businesses; control the drivers’ work assignments; set the piece rates paid to the drivers; and monitor the drivers’ work through a GPS system.The cases are: The People of the State of California v. CMI Transportation LLC; The People of the State of California v. K&R Transportation California LLC; and The People of the State of California v. Cal Cartage Transportation Express LLC (Super. Ct. Los Angeles County Jan. 8, 2018).

This is particularly astonishing in that local government is now targeting trucking companies misclassifying drivers. If it wasn’t bad enough that the Federal government, the State government, and private Plaintiff attorneys have been relentlessly targeting trucking companies, now the City of LA is getting in on the action.