Truck Law

A Transportation Law Blog from TransportationAttorneys.NET

Category: Freight Brokerage

Criminal Liability for Freight Brokers

by G. Spencer Mynko, Esq.

Broker Liability is a relatively new invention of politicians and plaintiff’s lawyers to gain access to another set of pockets to plunder (that may come across as being a bit harsh, but I couldn’t resist writing a sentence that included politicians, plaintiffs, plunder and pockets). However, I must be clear: FREIGHT BROKERS ARE INCREASINGLY BEING HELD RESPONSIBLE FOR CIVILAND CRIMINAL LIABILITY.
What are the basics of broker liability? A broker is an entity that does not transport the load but deals with the shipper and motor carrier in arranging the transportation. A broker is often the “middle man” between the shipper and motor carrier. Traditionally, brokers have avoided liability for any injuries caused by the driver transporting the load by demonstrating that the motor carrier was an independent contractor. Because the broker is not the employer of the driver, it cannot be held liable under a theory of agency or vicarious liability.
However,a broker can be liable under a negligent hiring theory if the broker did not screen the motor carrier and failed to investigate the carrier’s safety record. Prior to hiring a motor carrier to transport a load, a broker must at a minimum check the general safety statistics and evaluations of the carrier and review any internal records of the carrier’s safety performance. A failure to properly evaluate a carrier’s safety record will subject the broker to liability for negligent hiring.
However, holding broker’s liable in civil matters for motor carrier misdeeds is nothing new. But a recent matter we handled for a client opened our eyes to criminal liability for brokers. This particular case dealt with an overweight ticket, but it made me think about Brokers facing criminal charges for the conduct of shippers and/or carriers. 
This particular case came out of Long Beach. However, i’m confident similar crackdowns will be taking place in all of California’s major port cities. In this particular case, a truck was pulled over by Long Beach Police because it appeared grossly overweight (The back end of the trailer was riding way low).  The driver and the carrier were both cited for hauling an overweight and oversize load, and both were charged with misdemeanors. This did not involve a simple infraction, but actual criminal liability instead. But this is where things get interesting (Or troubling, depending on where you stand).
The City Attorney’s office who was prosecuting this case came across the broker’s name on the bill of lading. Based on that fact alone, the City Attorney decided to charge the broker criminally as well. Specifically, the broker was charged with the same violations the driver and carrier were charged with: violations of Vehicle Code section 35551, and Vehicle Code section 35784.5.  The critical language in the statute the prosecutor was relying on goes like this: “Any person convicted of transporting an extra legal load on a Highway, or causing or directing the operation or driving on a highway… shall be punished by a fine… or imprisonment…”  It was the city attorney’s position that the broker “caused” the extra legal load to be transported on a highway.
Personally, I felt the prosecutor was overreaching. It is my opinion that it is completely unrealistic to hold brokers responsible for either shippers or carriers who knowingly break the law by hauling overweight loads. After all, brokers coordinate the transport of thousands upon thousands of shipments, and they are in no reasonable position to monitor the conduct of the carriers and shippers they work with. Indeed, to do so could turn the industry on its ear by holding them responsible for criminal conduct that is practically out of their control. I can hear the protests of freight brokers brokering loads from Oakland to San Diego and all points in between, crying out in unison : “I had nothing to do with that! It’s not my fault!”
Well, I gave that pitch to the city attorney hoping to persuade him that it was completely unfair, unjust and unreasonable to charge my client with a crime that involved conduct beyond their control.
The city attorney was not moved. My pleadings fell upon deaf ears, and the young and ernest prosecutor informed me that the city is cracking down hard on overweight loads and they are more concerned with Public Safety than the realities of the transportation business.
Because of his staunch position, I offered to settle the case by simply reducing the charge from a misdemeanor to an infraction and allowing my client to pay a fine. “No deal”, said the protector of the vulnerable public. He went on to tell me your client has to plead guilty to a misdemeanor. I said, no way is my client pleading guilty to a crime they didn’t commit, and I’ll see you at the arraignment when I plead my client not guilty.
In this particular case, I actually went to court to plead my client not guilty, and apparently in the few days since I had spoken with the city attorney over the telephone, he changed his tune and allowed my client to simply get away with a fine and agreed to drop the criminal charges. In the end, The pursuit of money for the City of Long Beach was more important than the pursuit of justice.
However, he did tell me of a recent case where a broker was “actually convicted” of similar conduct. He also told me that case is being appealed. You can bet I am going to be on the lookout to see what the Court of Appeals does in that situation.
California law states: if a carrier is assessed an overweight fine, it may ask that “any other person who directs the loading, maintenance, or operation of the vehicle” be made a codefendant (Cal. Vehicle Code § 40001(f) (emphasis added)). Cal. Vehicle Code §  40001 (a) states it is “unlawful for the owner, or any other person, employing or otherwise directing the driver of any vehicle to cause the operation of the vehicle upon a highway in any manner contrary to law”.  Brokers Beware. This language will be used against you.

Could this concept of criminal liability be expanded to hold brokers liable for other criminal conduct of shippers and carriers? Considering how the State of California systematically targets all participants in the transportation industry for a wide variety of civil and criminal penalties, pocket plundering by politicians and plaintiff’s lawyers is bound to persist.

Whatever issue maybe confronting you and your trucking company, we hope you will contact us for guidance and to keep your business in business with the help of Transportation Attorneys.  We specialize in all facets of transportation law.

The Carmack Amendment – What You Need To Know About Cargo Claims

by G. Spencer Mynko, Esq.

The Carmack Amendment is a law applied to motor carriers by Congress in 1935.  It was adopted to achieve uniformity in rules governing interstate shipment.  The Carmack Amendment spells out rights, duties and liabilities of shippers and carriers when it comes to cargo loss. Rail and motor carriers are governed by the Carmack Amendment. The Carmack Amendment states that claimants have a minimum of 9 months from the date of delivery to file a freight claim and states that motor or rail carriers are liable for the full loss. It applies to shippers and carriers involved with interstate shipments of all commodities.
Plaintiff’s lawyers seeking recovery on behalf of their clients for cargo damage or loss incurred as a result of the interstate shipment of goods often file complaints alleging state law claims such as breach of contract, negligence and fraud. What Plaintiff’s counsel does not know is that such state law claims are preempted by a federal law known as the Carmack Amendment. The Carmack Amendment is a uniform national liability system for interstate carriers which provides certainty to both carrier and shipper. It specifically allows a carrier to require that all claims for loss or damage by a shipper be made in writing within nine months from the date of the loss. It also allows a carrier to limit its liability if all prerequisites have been met.
The Carmack Amendment Preempts State Law Claims
The Carmack Amendment is presently codified at 49 U.S.C. Section 14706 et seq. The courts have uniformly held that the Carmack Amendment preempts all state and common law claims and provides the sole and exclusive remedy to shippers for loss or damage in interstate transit. Hughes Aircraft v. North American Van Lines, 970 F.2d 609, 613 (9th Cir. 1992). The purpose of the Carmack Amendment is to provide

“. . .a uniform system of carrier liability that would provide certainty to both carrier and shipper by enabling the carrier to asses its risk and predict its potential liability for damages.”  The preemptive effect of the Carmack Amendment also applies to claims of damage or loss relating to storage and other services rendered by interstate carriers. Margetson v. United Van Lines, Inc., 785 F.Supp. 917, 919 (D.M. 1991). Causes of action for negligence, breach of insurance contract, breach of contract of carriage, conversion, intentional misrepresentation, negligent misrepresentation, and negligent infliction of emotional distress are all preempted by the Carmack Amendment.
How does Carmack work?
The Carmack Amendment holds the carrier liable for damages to the goods it transported, without proof of negligence, unless it can prove it was not negligent and/or one of the exceptions to liability applies.  Under the Carmack Amendment to hold a motor carrier liable for cargo damage, the shipper must prove that:

a)    The goods were in good condition when given to the shipper
b)    The goods were damaged when delivered (or weren’t delivered)
c)    The amount of damages
There are five exceptions outlined in the Carmack Amendment that a motor carrier can claim to deny liability for cargo damage:
1) an Act of God – weather, a tornado, flooding, acute driver illness
2) The public enemy
3) Act or Default of Shipper
4) Public Authority (the government)
5) The inherent vice or nature of the goods transported (my favorite)

The Carmack Amendment limits the motor carrier’s liability to the actual loss or injury to the property.  Courts have generally interpreted this to be the difference between the market value of the property in which it should have arrived at the destination, less the market value of the actual condition in which it arrives.Hence their is an implied duty of the customer to mitigate its damages: they cannot simply sit back idly and do nothing. They have to make the most of the damaged cargo. This is an important defense carriers need to be aware of.

A Carrier May Require That Claims Be Made In Writing Within Nine Months.
Given that the Carmack Amendment provides a shipper with the sole remedy for interstate moves, all conditions precedent to bring a civil action under the Carmack Amendment must be satisfied. In particular, a carrier may, by contract, require that a claim be made to it by a shipper within nine (9) months of the shipment and that a civil action be instituted within two (2) years after the denial of such a claim. 49 U.S.C. Section 14706(e). The nine (9) month limitation is a condition precedent to bringing a civil action. Consolidated Rail Corp. v. Primary Industries Corp., 868 F.Supp. 566, 577 (S. D. NY 1994). A cause of action will simply not accrue absent strict compliance with the claims limitation.
The purpose of a claim period is to provide the carrier with knowledge that the shipper will be seeking reimbursement. Taisho Marine & Fire Insurance Co. v. Vessel Gladiolus, 762 F.2d 1364 (9th Cir. 1985). There, the court held that the carrier’s actual knowledge of damage to the property did not negate the requirement that written notice be given within the nine (9) month period. The court granted the carrier’s motion for summary judgment on the ground that the shipper did not comply with the requirement that it file a written claim within 9 months. The main policy behind the nine (9) month claim period is to allow the carrier the chance to investigate the claim so as to protect its interest.
Carriers must incorporate these time frames (or their own more permissive standards) into the bill of lading or contract of carriage.  In a claim to carriers, the Carmack Amendment specifies that shippers must:
1)   Use written or electronic communication
2)   Include sufficient facts to identify the shipment or property involved
3)   Assert liability against the carrier for loss, damage or delay
4)   Demand a specified or determinable amount of money
Motor carriers can limit their liability under the Carmack Amendment.
Under the Carmack Amendment, a carrier can adopt a tariff that is applied to shipping rates based on the weight of goods, mileage required to transport, or the value of the goods.  Shippers may agree to a lower shipping rate if they agree to limit the carrier’s liability for the cargo. The Carmack Amendment provides that a carrier may limit its liability “to a value established by written declaration of the shipper or by a written agreement.” 49 U.S.C. §14706(f).

In order to effectively limit its liability, a carrier must:
  1. Maintain a tariff in compliance with the requirements of the Interstate Commerce Commission;
  2. Give the shipper a reasonable opportunity to choose between two or more levels of liability;
  3. Obtain the shipper’s agreement as to its choice of carrier liability limit; and,
  4. Issue a bill of lading prior to moving the shipment that reflects any such agreement.

Although the filing of a tariff alone will not limit a carrier’s liability, the above requirements are satisfied when a shipper is given a “reasonable opportunity” to accept or deny the carrier’s proposed limitation. Hughes Aircraft, 970 F.2d at 612. A “reasonable opportunity” means that the shipper had both reasonable notice of the liability limitation and the opportunity to obtain information necessary to make a deliberate and informed choice. In Schultz v. Auld, 848 F.Supp. 1497, 1505 (Idaho 1993), the court held that a signature on the contract evidencing an acknowledgment and receipt of the contract and its terms was sufficient evidence of a reasonable opportunity to select among liability limitations. In fact, one court has gone so far as to say that a signature on the bill of lading is not actually required in order to limit the shipper’s liability, but the shipper’s mere acceptance of the contract is sufficient. Johnson v. Bekins Van Lines Company, 808 F.Supp. 545, 548 (E.D. Tex. 1992).

How should motor carriers respond to a cargo claim?
Motor carriers essentially have three choices when faced with a claim that they caused damage to cargo.  They can either pay the full value of the cargo claim by the shipper, claim one of the five “outs” listed above , or pay under a proper limitation of liability.
If you want to take advantage of the protections carriers are afforded under the Carmack Amendment, or you find yourself being subjected to a cargo claim, Contact today so we can help protect you against future claims and minimize consequences in current claims.