Comments in Response to “Improvements to the Compliance, Safety, Accountability (CSA)

Motor Carrier Safety Measurement System (SMS)” Docket No. FMCSA 2012-0074

Submitted by the Alliance for Safe, Efficient and Competitive Truck

Transportation (ASECTT)

July 5, 2012

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TABLE OF CONTENTS

I. Who is ASECTT? II. Introduction III. Background and Summary of Argument IV. SMS Methodology is Systemically Flawed V. Response to Specific Requests for Information VI. Argument – Legal and Factual Analysis

A. Why the FMCSA is Solely Responsible for Certifying Carriers as Safe and Fit for Use by the Shipping Public B. Why the Administrative Procedures Act and the Information Quality Act Require Rulemaking for Approval of SMS Methodology C. Why the Reg Flex Act and the National Transportation Policy Require

Consideration of the Effects of SMS Methodology on Efficiency, Competition and Small Carriers

D. Why CSA/SMS Methodology is Not a Significant Improvement Over SafeStat E. Why SMS Methodology is an Inaccurate Reflection of Carrier Safety

Performance and Prejudices Small Carriers VII. Conclusion Appendix A - Wells Fargo, “CSA: Another Look With Similar Conclusions” (July 2012) Appendix B - Inam Iyoob, “BASIC Scores are Not Valid Predictors of Crash Frequency” Appendix C - James Gimpel, “Statistical Issues in the Safety Measurement and Inspection of

Motor Carriers” Exhibits 1-11

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I. Who is ASECTT? The Alliance for Safe, Efficient and Competitive Truck Transportation (ASECTT) is a 501(c)(4) not for profit association composed of over 500 brokers, motor carriers, shippers and other interested parties. As an ad hoc association, ASECTT is committed to the following principles: 1. That under the Federal Constitution and enabling statutes including 49 U.S.C. 31144, the FMCSA has the sole duty to credential operators of commercial motor vehicles in interstate commerce as fit for use by the shipping and brokering public. 2. That the Agency should affirm its ultimate safety fitness determination as the sole standard provided by federal statute for use by the shipping public, so that the confused shipper and broker community may rely upon the Agency’s safety fitness determination free from potential state law liability (under negligent selection and vicarious liability theories) for not using different safety fitness selection criteria. 3. That the percentile ranking of carriers under the Agency’s Safety Measurement System (SMS) is systemically flawed. 4. That carrier safety cannot be graded on a curve and that a carrier’s ability to operate in interstate commerce must ultimately be determined on the basis of objective criteria enforced with due process. 5. That in the absence of statutory authority and full vetting under the strictures of the Administrative Procedure Act (APA), use of SMS methodology should be confined to a program of progressive intervention for the Agency’s own internal use. It cannot be used to impose extra credentialing burdens on shippers and brokers or prejudice the public’s use of small carriers that the Agency has certified as safe under existing statutes.

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II. Introduction While ASECTT appreciates the Agency’s Request for Public Comment concerning proposed changes to SMS, it respectfully points out that the March 29 Notice is not a notice of a proposed rule. It does not comply with the APA nor contain any underlying analysis or feasibility study of the effect of the proposed changes. In some respects, the Notice to which these comments are directed is like a request for individual impressions about an attic being added to a house when there are no blueprints for the attic, no building permit for the house or the attic, and no evidence that the structure has been or can be approved for occupancy. While ASECTT will address, as best it can, the issues raised by the Agency, it offers these comments without in any way prejudicing or waiving its steadfastly maintained position that current SMS methodology has not been vetted or approved for use by the Agency as required under the APA, and that it is not fit or appropriate for use by shippers, freight forwarders, third party logistics companies, and brokers as a means of assessing unspecified “risks” hinted at by the Agency. Moreover, the fact that structural changes are still being made in SMS methodology, long after it was tested for three years in eight test states and 18 months after it was released to the public, only serves to demonstrate that the Agency’s program remains “a work in progress” which the Agency cannot defend under the rigors of rulemaking. Accordingly, after commenting on the specifics of the Agency’s request, for purposes of the record, ASECTT will elaborate on its concerns about systemic flaws in the SMS methodology. Those flaws preclude use of percentile rankings as part of an ultimate safety fitness determination by the Agency, or as part of any implicit shipper or broker credentialing obligation that might be inferred from the Agency’s repeated touting of the efficacy of this unvetted Agency initiative. Finally, in light of the FMCSA documents published on May 16 entitled “CSA Update: New Resources Available for Shippers, Brokers, and Insurers” (“Resources”), for which no notice or opportunity for comment was provided, ASECTT’s comments here should be considered as its formal effort to exhaust its administrative remedies relating to those publications as well.

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III. Background and Summary of Argument The 2010 version of SMS methodology under the program now known as “Compliance, Safety, Accountability” or CSA was publicly released on December 16, 2010. Judicial review of the publication decision was sought in a petition filed November 29, 2010 at the D.C. Circuit in No. 10-1402, National Ass’n of Small Trucking Companies et al. v. F.M.C.S.A. (“NASTC”). Petitioners alleged that release of SMS methodology and percentile rankings constituted a rule requiring rulemaking and the protection afforded the industry, and small carriers in particular, pursuant to the APA and related statutes. Based on affidavits submitted by 15 shippers, carriers and brokers, Petitioners alleged that public release of this data would adversely affect efficiency and competition as the shipping public would be misled into believing that SMS methodology was intended for their use in credentialing carriers, despite the fact that neither the methodology nor an analysis of the effect of its use upon the industry had been subjected to APA scrutiny. In response, the Agency claimed the methodology to be published was merely a replacement for SafeStat, and did not constitute a new rule requiring APA treatment. The Agency claimed that percentile rankings of carriers were intended for its own use in prioritizing carriers for compliance reviews under existing law and eventually for making safety fitness determinations after a rulemaking. The suit was settled on the basis of the following representations to which the Agency stipulated in a court approved agreement:

The data in the Safety Measurement System (SMS) is performance data used by the Agency and enforcement community. A symbol, based on that data, indicates that FMCSA may prioritize a motor carrier for further monitoring. The

symbol is not intended to imply any federal safety rating of the carrier pursuant to 49 USC 31144. Readers should not draw conclusions about a carrier's overall safety condition simply based on the data displayed in this system. Unless a motor carrier in the SMS has received an UNSATISFACTORY safety rating pursuant to 49 C.F.R. Part 385, or has otherwise been ordered to discontinue operations by the FMCSA, it is authorized to operate on the nation's roadways. Motor carrier safety ratings are available at safer.fmcsa.dot.gov and motor carrier licensing and insurance status are available at http://li-public.fmcsa.dot.gov.

Although a rulemaking was promised by the Agency for the Spring of 2011 in which SMS scores would be considered for use in safety fitness determinations, that rulemaking has not been forthcoming and SMS methodology remains unvetted and unapproved for the Agency’s own use. Even so, and notwithstanding the Agency’s affirmation of existing law in the settlement, the Agency’s Administrator and Chief Safety Officer have repeatedly met with shipper and broker groups over the past 18 months in order to tout SMS methodology as an accurate measure of carrier safety, and to advise shippers and brokers that the methodology should be used as a factor in making carrier selections so as to minimize unspecified “risks.” In response to written complaints by Petitioners, the Agency expressly confirmed in writing that it intended to continue recommending public use of SMS methodology in the carrier selection

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process – thereby placing an implicit fitness-assessment duty upon shippers and brokers, not countenanced by governing statutes and regulations.1 In a meeting sponsored by the Small Business Administration on February 14, 2012, the Administrator did reaffirm that the entire SMS methodology and procedure would be subject to rulemaking and the vetting process afforded by statute. But the present docket does not come close to fulfilling that promise. Instead, the Agency is asking for informal comments on certain changes in its methodology that already have been implemented. Even while the Agency is soliciting these comments, its recent “Resources” publication only exacerbates the vicarious liability and negligent selection exposures faced by shippers and brokers. See https://csa.fmcsa.dot.gov/resources.aspx?locationid=115. These publications provide a classic example of unvetted rules masquerading as “guidance” documents in order to evade APA requirements. These publications will force the public to second guess the Agency’s safety fitness determinations as to individual carriers, and will irrevocably damage carriers unfairly branded under SMS methodology. Without statutory warrant, these “guidance” documents have raised the unvetted SMS system to co-equal status with safety fitness determinations. In so doing, the Agency has transferred its statutory duty to determine safety fitness to the shipping public without statutory or regulatory authorization:

FMCSA believes that an examination of a motor carrier’s official safety rating in SAFER and their authority and insurance status on L&I, combined with their intervention prioritization status in CSA’s SMS, provide users with an informed, current, and comprehensive picture of a motor carrier’s safety and compliance standing with FMCSA. FMCSA encourages the public to use the FMCSA information available to help make sound business judgments. (See Shipper and Insurer Briefing Addendum, notes at end; emphasis supplied.)

The Agency’s attempt to make SMS data co-equal with “official” safety ratings suffers from a fatal flaw. Since the safety rating system is an APA-sanctioned regulation, CSA/SMS legally cannot be treated as co-equal unless it too is a regulation. But it cannot be a regulation until it goes through rulemaking. Therefore the co-equal treatment of SMS data in the Agency’s May 16 “guidance” documents amounts to an implicit confession of legal error under the APA. Moreover, this is a deeply prejudicial error. The systemic flaws in SMS methodology recounted herein are well known to the Agency and are unaddressed. Clearly, these are issues which must be addressed in the public forum of the long awaited rulemaking promised by the Agency. The notice to which this response is directed is not that rulemaking. There is no disclosure of the algorithms and methodology employed by the Agency, no cost benefit analysis, no showing of the utility of the changes proposed, and no semblance of the required analysis under the Regulatory Flexibility Act.

1 See correspondence reproduced in attached Exhibit 1.

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While petitioners applaud the Agency for finally seeking broad-range advice concerning certain limited aspects of SMS methodology, this input should have been sought as to all aspects of SMS at a much earlier stage in the proceedings. At this juncture, the fact that the Agency is creating an entirely new BASIC for hazmat, conceding that one of its seven BASICs has no provable correlation to safety, yet moving the violations which have no proven utility into the “vehicle maintenance” BASIC, suggests that SMS remains, at best, a work in progress which the Agency remains ill prepared to justify under the rigors of the APA. In short, serious questions are posed by the notice to which ASECTT would be remiss if it did not reply. Yet, those questions highlight systemic and structural issues which go to the heart of SMS methodology. There are principial and Constitutional issues involved with the Agency’s implicit effort to transfer its safety certification responsibilities to the shipping public under perils of state law liability which Congress intended to preempt. Until these basic and principial issues are addressed in rulemaking with full protections afforded under formal notice and comment, the questions posed by the notice here fall far short of correcting the historic miscarriage of administrative due process represented by CSA and SMS in their current form.

Executive Summary Petitioners submit that SMS methodology is not fit for its intended use. It is not comprehensive, measuring only 12% of the authorized carriers. It is based upon flawed and inadequate data. See Section IV. Publication of SMS data and the Agency’s touting of its efficacy violates the Administrative Procedure Act and amounts to abdication of the Agency’s sole duty to certify carriers as safe to operate. See Section VI(A) and Section VI(B). SMS methodology is contrary to the National Transportation Policy and prejudicial to efficiency, competition and small carriers. See Section VI(C). SMS methodology is not a significant improvement over SafeStat and suffers from the same criticism. See Section VI(D). SMS methodology and its percentile rankings are an inaccurate reflection of carrier safety and represent a statistically invalid method for measuring small carriers. See Appendix A and B, Iyoob and Gimpel Studies. Under the Reg Flex Act, before adopting and publishing SMS methodology for use by shippers and brokers, the Agency is required to examine other viable options. ASECTT submits that through use of a modest annual user fee, level one audits of all motor carriers by state and independent contractors could meet the goals of reasonably assuring highway safety without the negative consequences on efficiency, competition, small businesses and vicarious liability which are attendant to the unproven SMS methodology. That alternative is set forth in the Gobbell Affidavit attached as Exhibit 7. The benefits of this alternative proposal are as follows: (1) It is comprehensive, measuring all carriers; (2) it provides for annual audits based upon objective criteria and due process; (3) it is

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self-funding and imposes no additional unfunded budgetary obligations on the Agency; (4) it does not arbitrarily identify a set percentage of the industry as “high safety risks” based upon artificial peer groups and percentile rankings; and (5) it allows the Agency to do its duty without subjecting the industry to heightened negligent selection or other theories of vicarious liability under the vicissitudes of state law.

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IV. Why SMS Methodology is Systemically Flawed The systemic flaws in SMS methodology and its percentile rankings of carriers are well known yet unaddressed by the Agency. At the Agency’s request, comments on this methodology were submitted to its handpicked Motor Carrier Safety Advisory Committee last summer by numerous parties, including ASECTT.2 At the Small Business Administration Roundtable held on February 14, 2012, representatives from OOIDA and ASECTT identified substantial issues as well.3 These unaddressed issues beg careful, well reasoned answers the following questions: 1. LACK OF OBJECTIVE STANDARD. Why should the Agency abandon an objective audit, and the due process procedures afforded carriers under current statutes, to embrace a safety fitness determination that grades carriers on a curve using percentile rankings – thereby branding innocent carriers as increasingly “high safety risks” regardless of their objective performance? 2. DATA NOT COMPREHENSIVE. How can SMS methodology be touted as a “comprehensive safety analysis” when, just as in SafeStat, the vast majority of the carriers the Agency oversees have too few data points (infractions or inspections) to be ranked? 3. ARBITRARY ENFORCEMENT PERCENTILES. Do the intervention threshold percentiles have any value in establishing whether a carrier is ultimately safe or unsafe to operate on the nation’s roadways? 4. CRASH PREVENTABILITY IGNORED. Whether the Agency’s inability or unwillingness to address crash preventability so taints SMS methodology and its evaluation of carrier performance that, absent a carrier’s right to contest preventability, the direct or indirect use of unscrubbed crash data to measure carrier performance is statistically invalid. 5. LAW OF LARGE NUMBERS. Whether, as Professor Gimpel suggests, the data available for use in SMS methodology is insufficient to permit an adequate analysis of small carriers. 6. NO PROVEN PERCENTILE RANKINGS/SAFETY NEXUS. Should percentile rankings be used in whole or in part to decide a carrier’s fitness in light of the Wells Fargo study and Dr. Iyoob’s more comprehensive analysis of individual carrier crash ratios by percentile? 7. GEOGRAPHICAL ANOMALIES. How can SMS possibly be touted as a reliable nationwide indicator of comparative safety performance when SMS data is no better than the widely varying enforcement practices of 50 different States plus the District of Columbia? (E.g., 5 states account for 43% of the violations recorded in the “Unsafe Driving” BASIC.)

2 See Exhibit 2 attached hereto, “Comments to the Motor Carrier Safety Advisory Committee.” 3See Summary of ASECTT issues presented at that time attached as Exhibit 3.

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8. IRRELEVANT PAPERWORK VIOLATIONS. Does the Fatigued Driving BASIC actually reflect driver crash susceptibility when over 50% of the points result from paperwork violations (form and manner and last change of duty status) which are not incurred by peer grouped carriers that are not required to maintain paper logbooks? 9. NON OUT-OF-SERVICE VIOLATIONS. Does the Vehicle Maintenance BASIC accurately measure carrier crash susceptibility when over 50% of the accumulated points are assigned to non-out of service items such as trailer lights, brakes and tires? 10. PROPOSED INCLUSION OF FLAWED DATA. Can the dubious validity of the Vehicle Maintenance BASIC be improved by including unscrubbed points formerly incurred in the securement BASIC, which even the University of Michigan has concluded did not have any correlation to safety? 11. UNTESTED NEW BASIC. Is it proper to develop and include a new seventh BASIC for “Hazardous Materials” without thoroughgoing analysis and rulemaking? 12. PEER GROUP ANOMALY IN HAZMAT. Whether the proposed Hazmat BASIC unfairly brands general commodity and intermodal carriers as high safety risks due to minor paperwork infractions, without capturing the actual performance of carriers transporting more dangerous toxic, flammable, explosive and radioactive material. 13. LACK OF EVIDENCE TO SUPPORT MINOR BASICS. Whether the failure of the Agency through the Volpe Center or the University of Michigan to present a study showing any strong compliance safety component in Vehicle Maintenance, Driver Qualification, Drug and Alcohol or Securement/Hazmat, destroys the marginal utility of measuring these BASICs. 14. INSUFFICIENT DATA. Whether the Driver Qualification and Drug and Alcohol BASICs measure too few carriers to be statistically relevant. 15. ISOLATED OCCURRENCES’ EFFECT ON SCORES. Whether the most often cited violations in Driver Qualification (no medical card in possession, driving on suspended license for non-safety reasons, and drug and alcohol testing of missed random test of particular driver due to inadvertence) are violations with any proven correlation to safety. 16. SPECIAL PEER GROUP ISSUES. Whether intermodal drayage carriers’ scores can possibly be considered accurate in the Vehicle Maintenance BASIC due to profiling and the inability of the Agency to hold Intermodal Equipment Providers (IEPs) accountable for proper preventive maintenance. 17. PROFILING AND PEER GROUP CREEP. Whether SMS methodology affords carriers due process given the effect of profiling through the targeting of carriers under inspection and resulting peer group creep.

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18. DUE PROCESS ISSUES. Whether carriers are denied due process when state enforcement officials refuse to acknowledge court dismissal of reported violations by removing them from records underlying the BASIC scores. 19. CIRCUMVENTION OF RULEMAKING. Whether the Agency can ignore the current statutes and regulations requiring it to make a safety fitness determination under uniform and objective standards, and instead publish “Guidance” to shippers and brokers repudiating the effectiveness of the Agency’s own safety fitness determination. 20. PREEMPTIVE EFFECT OF SFDs UNDER SECTION 31144. Whether the Agency’s safety fitness determination was intended by Congress to have preemptive effect, and whether the Agency can waive its statutory duties by implicitly suggesting to shippers and brokers that they must make independent safety fitness determinations using SMS methodology under peril of suits under state law for vicarious liability and negligent selection. 21. ARBITRARY AND CAPRICIOUS CRITERIA. Whether the monitoring thresholds and peer groups established by the Agency behind closed doors are arbitrary and capricious. 22. STATISTICAL FLAWS. Whether the use of “inspection values” at roadside targets carriers for inspections, thereby destroying any comparison of carrier performance based upon a random statistical analysis. 23. WIDE MONTHLY FLUCTUATION OF SCORES. Whether wildly fluctuating scores due to peer group anomalies permit any meaningful use of percentile rankings by the Agency or shippers and brokers in making a safety fitness determination.4 24. EFFECT OF COMPLIANCE REVIEW. Whether a satisfactory safety rating based upon a compliance review should render any SMS score based upon prior violations irrelevant. 25. DATA QUALITY ACT ISSUE. Whether the Agency can release percentile rankings based on flawed and inaccurate data such as nonpreventable accidents which it knows are substantively inaccurate. 26. EFFECT ON SMALL CARRIERS. Whether the Agency should be touting SMS as a fait accompli when it has not analyzed the compliance cost or the effect on efficiency or competition.

4 ASECTT can show that a single safety event can result in a 40% increase in a BASIC for a 400 truck fleet, the adding or subtracting of a truck can result in a 20 point fluctuation in Unsafe Driving, and that small fleets with no SMS scores can go from unrated to 80% based upon a single inspection.

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V. Response to Specific Requests for Information

Prior to introducing the specific areas for comment, the Agency states its intention to continue the current process and to make other changes as needed in SMS methodology. ASECTT submits that allowing motor carriers to see the percentile changes resulting from any proposed methodological change is not sufficient in the absence of underlying data supporting the change and showing its effect on identified peer groups and segments of the industry. 1. Moving load securement violations from cargo related BASIC into Vehicle Maintenance BASIC Apparently, the Agency has identified the seventh current stand-alone BASIC, Cargo Securement, for elimination. Scores under that BASIC have not previously been published to the industry, and the UMTRI study suggests that the percentile rankings of carriers in this BASIC are an inaccurate predictor of crashes (i.e., carriers with high percentile scores for securement actually tend to have fewer crashes than carriers with lower scores). ASECTT certainly has no objection to the elimination of any BASIC which has no proven correlation to safety. Yet, the Agency’s proposed action begs the question: if the scoring and methodology in the securement BASIC has no value in predicting carrier safety, why move the data to a published BASIC where inclusion of the data will only distort any ultimate correlation between those percentile rankings and safety as viewed by the public?! Regarding the Vehicle Maintenance BASIC itself, the Agency has not released any convincing studies to date which show that this metric actually identifies high risk motor carriers. Moreover, the Agency’s assertion of only minor adverse effects resulting from including securement in the published Vehicle Maintenance BASIC is not borne out by the experience of ASECTT members. One ASECTT member who operates over 200 trucks in the Southeast offers the following comment:

… wouldn’t it be more fair to announce how a carrier is measured going forward and then to implement new measurements from that point on? [Instead] we immediately inherit the scores for the last 24 months, many violations involving drivers no longer with the company. The scores recategorize per the Agency’s desire, seemingly without rhyme or reason, regardless of the harm it can cause the small business operators like ourselves. There’s no quick remedy to prevent shippers from taking their business elsewhere based on what they may mistakenly interpret to be an unsafe motor carrier score.

Another ASECTT member which operates intermodal carriers on the Gulf Coast states:

The Agency’s proposal to roll cargo securement into the vehicle maintenance BASIC resulting in the development of a hazardous material BASIC as a replacement is preposterous. The vehicle maintenance and cargo security are two

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separate issues, each affecting the likelihood of a crash in different severity. Certainly an unsecure, improper load is more likely to result in a crash than an inoperative ID light or an empty windshield wiper fluid tank. I have seen no evidence the Agency has properly identified violations in either BASIC which cause crashes or properly assess the points to the violations. Perhaps the Agency’s efforts would be better utilized in examining the point allocation in SMS violations that often least affect the likelihood of a crash and reduce and/or remove them from the CSA program entirely.

A third ASECTT member based in the northeast states:

Our current maintenance BASIC is 82. Under proposed preview the same BASIC jumps to 84. This change will make it even more of a challenge to reduce this public BASIC as cargo securement issues before were withheld from the public … I am more than irritated with information the FMCSA has currently posted. One in particular is the statement that “Motor carriers can improve their SMS BASIC percentile ranks by demonstrating that they have improved their roadside performance through reduced crashes and/or roadside inspections without violations.” Considering 8 out of 14 of our crashes were non-preventable, we are being misrepresented in this percentile … We do not see a reduced number of violations per inspection in our world. We’ve heard many, many times from drivers that officers are not willing to process the paperwork for clean inspections … since this program kicked off, we’ve seen an increase in the number of minor violations that in all essence, have little if anything to do with reducing crashes.

A fourth member, who enjoys excellent scores (all under the 30th percentile), examined its scores and offers the following comments:

Recently FMCSA has released a preview of our revised CSA methodology scheme. So far I have not seen any supportive studies to validate the changes … factually, nothing in our cargo/hazmat data changed. However, by looking at the evaluation, it suggests we are now at a high risk of crashing and as a service provider, our customer should be more concerned about employing our services. It also suggests that the FMCSA should focus on us more heavily when passing through inspection stations. … more attention means more roadside inspections resulting in lost time and increased cost. …the violations that previously showed up in the cargo BASIC related to load securement now show up in the maintenance BASIC. I am struggling to understand how the two are connected when studies previously revealed that the violations should be separated from each other. What new studies suggest they shouldn’t be? If we exceed the threshold due to poor cargo security, why would FMCSA be interested in our maintenance program?

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Additionally, relative to each peer group, does this not expose specialty carriers to a likelihood of higher maintenance scores? It suggests to me mathematically that we, as a specialty carrier have increased our likelihood of a crash, simply by the way the numbers are combined and measured. Though we have seen many arguments for and against CSA, one thing is certain; unless one has an imminent knowledge of the system, the methodology and an actual historical perspective of the carrier, you can’t make any type of determination of their safety performance. Yet, shippers, plaintiff’s attorney and the shipping public are doing exactly that everyday. This is costing carriers and individual drivers income, and even jobs. 5

The comments above are only examples of the position of over 500 members of ASECTT. ASECTT submits that based upon the comments above, inclusion of cargo securement in the Vehicle Maintenance BASIC does not enhance an evaluation of a carrier’s vehicle maintenance or make it any more accurate. If anything, it distorts and reduces any correlation between compliance and crash predictability in this BASIC. Clearly, cargo securement is a potential safety hazard when coils of steel or heavy machinery falls off flatbed trailers but the securement BASIC and the violations transferred to vehicle maintenance do not match up with high risk safety securement issues. In fact, the members who complained about the inclusion of securement in vehicle maintenance and the public release of those scores each enjoyed low crash ratios and were not flatbed carriers. 2. Creation of Hazmat BASIC Describing the construction of the new HM BASIC, the Agency summarizes but does not provide evidence of efforts to identify and measure flagrant violations in the transportation of truly dangerous commodities (HM permitted loads, presumably flammables, explosives, etc.). There is an obvious problem for the Agency in identifying the members of the peer groups if SMS methodology is to be used in a stand alone BASIC. Intermodal carriers with hazmat trained drivers, in the ordinary course of business may occasionally transport items from nail polish to paint thinner which requires placarding. Moreover, the Agency proposes to employ arbitrary thresholds of two inspections involving HM commodities in 24 months and 5% to identify carriers as hazmat haulers. Using this criteria, the Agency states that it will reduce the number of measured carriers from 24,000 to 12,500. ASECTT questions whether it makes good sense based upon these numbers to try to create a hazmat BASIC to determine when increased monitoring of hazardous material carriers is required. The resulting census of hazmat carriers is arguably too few to permit a valid statistical analysis spread over ten peer groups (less than 2% of carriers measured). A 50% hazmat

5 This carrier’s crash score is 4.5% and under the proposed changes its Vehicle Maintenance score would increase by 16 points and its new seventh BASIC would increase by 22 points.

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threshold on any placarded shipment is a low threshold for membership in the hazmat club which can change on a month-to-month basis, particularly for small carriers. Measuring carriers and classifying them as hazmat carriers based upon only two inspections only exacerbates the effect of branding on small carriers. The problems of wild percentile swings and the law of large numbers discussed elsewhere in this presentation can be expected as well in the new hazmat BASIC. The indiscriminate inclusion of tankers and munitions haulers in the same group with small package expediters and LTL carriers makes a mockery of the term “peer group” and the homogeneity necessary for peer grouping to work. In a polling of ASECTT members, these conclusions seem to be borne out. One member states:

Factually, of the 70 total points reflected in our hazmat BASIC, 55 are related to the condition and placement of our placards and our paperwork. Less than 5% of our total booked business is attributed to hazmat shipments. Yet, we are deemed to be a less safe carrier, as a whole, than our peers and will draw attention from roadside inspectors…. One more placard deemed as “faded” will result in another 5 point violation and an increase of 21% in our CSA points.

Another member complains about creation of a retroactive Hazmat BASIC and the publication of scores. It states:

We are a small container drayage firm. We don’t haul much hazmat but have received some DOT violations. These violations have been going into the cargo related category which did not put us into an Alert status, and thus did not get as much attention as perhaps they should have. Now we are being measured against truckers handling hazardous materials, almost exclusively, over a large number of miles with regular customers and uniform cargos. It is much more difficult to manage the process when it is not something you deal with everyday, as happens with ocean container movements. Again, it seems the trucker bears the brunt of the [intermodal] industry’s regulation, and will likely be unfairly harmed for something that is not at all related to motor vehicle safety and crash rates.

A third commenting member stated the following:

I fear that the creation of a hazardous material BASIC to replace cargo securement will not result in accident prevention. This BASIC would only have merit if the violation[s] considered were those hazardous violations that could or would lead to an imminent hazard. However, I fully expect that upon creation of this BASIC, the motor carrier will see a sharp and dramatic increase in violations resulting from improper document preparation rather than identifying the real issues. In realistic terms, this BASIC has the potential to put a carrier out of business because documentation is not perfectly prepared rather than identifying violations that could lead to an accident.

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A fourth commenting member states:

Analysis of the new CSA Hazmat BASIC category, as previewed on the FMCSA’s website, reveals a fundamental flaw in the method of calculating a carrier’s score. We believe this flaw renders the scores within this category inaccurate, misleading, and unsuitable for use by the public as a means of determining a carrier’s ability to safely haul hazardous materials. The score is determined as a ratio of the number of points accumulated through hazmat violations reported on roadside inspections over the past two years, divided by the points assigned to “relevant” inspections conducted over the same two year period.6 By restricting the number of relevant inspections to those with placardable amounts of hazardous material, a significant percentage of inspections are not included in the score derivation. In our case, 75 of the 333 hazmat inspections performed on our trucks in the last two years, or 22.5%, are left off the list, and we are not credited the points assigned to those inspections. However, if any hazmat violation is discovered during one of these “non-relevant” inspections, those points are counted in the violation total. This flaw artificially inflates scores and subjects us to wild fluctuations, depending on how many “relevant” inspections were actually performed on a carrier from one month to the next. We continue to diligently strive to improve our performance rating across each of the BASIC categories within the CSA methodology. However, a close examination of the rating determination in the new Hazmat BASIC has revealed a flawed, potentially biased scoring system that prevents carriers from accurately representing their score in an honest, meaningful fashion. Our position is that the CSA Hazmat BASIC score should NOT be made public in its current state, and that more revisions to the process are needed and should be properly vetted before being made available to the general public.

Based upon the complaints about the Hazmat BASIC received from ASECTT members, it appears a Hazmat BASIC (perhaps unintentionally) singles out intermodal carriers for special treatment. As a group, draymen occasionally haul light hazardous commodities requiring placards. Selective enforcement at scale houses tends to profile intermodal carriers because of the use of older power equipment by independent contractors and vehicle maintenance issues due to the roadability rules. Moreover, as our fourth member points out above, the methodology does not properly credit the identified carrier with all clean hazmat inspections. As a result, if there is to be a seventh BASIC involving hazmat it is clearly not fit for publication. Ironically, the Agency is likely to lose focus on the safe transportation of truly hazardous shipments if it creates this new seventh BASIC.

6 The FMCSA, in Section 3.6.1 of its methodology, defines a “relevant” inspection as “…any vehicle inspection (Level 1, 2, 5, or 6), where placardable quantities of hazardous material are being transported.”

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3. Vehicle Maintenance BASIC and IEP Trailers The third area for comment involves the Agency’s proposal for allocating vehicle maintenance compliance points between carriers and IEPs in the Vehicle Maintenance BASIC. Intermodal carriers (or draymen) are unique. They typically do not own or maintain the trailer equipment pulled by their tractors. Draymen typically transport shipments to or from the railhead or port which have been loaded in containers (“boxes”) and placed on chassis which are in turn owned by third parties (the IEPs) and which are leased or “interchanged” with the carrier for the purpose of a single move. The question of the allocation of maintenance duties between the carrier and the owner of the chassis or box has long been an issue of controversy within the industry, and has resulted in “roadability rules” which extend the Agency’s jurisdiction to the IEP and establish a procedure for reporting and correcting defective equipment and allocating responsibility for repairs. Maintenance issues such as tires with low tread wear, brake adjustment, and lights on the chassis have traditionally been issues which carriers could not well control or monitor, given the pressure on the driver at time of pickup to accept the container on the preloaded chassis as tendered by the shipper. The purpose of the changes proposed by the Agency is to bring SMS methodology into compliance with the regulation and in doing so to make the carrier accountable for any defect which could have been observed at the time of interchange. In response to this proposal, ASECTT members had the following comments.

“The intermodal industry has worked very hard for quite some time to correctly reflect IEP responsibilities for maintaining equipment and presenting safe and ready equipment for drivers. In this process, an Attribution List was created and agreed upon by the FMCSA. Most of the violations that would not have been discovered without crawling under the unit were to be attributed to the IEP. In the latest version, though, several of these appear to have been reversed and are now assigned to the carrier. This is contrary to what the Agency had spelled out as guidance moving forward. As a result violations that were not included in our scores previously now appear. While there seems to be an attempt to get it right, it does not appear as though they have it right yet.”

As long as the dray community is profiled for inspection and the IEPs are not held fully accountable for proper preventive maintenance, the dray community will be prejudiced under SMS methodology in the Vehicle Maintenance BASIC. This is because poor preventive maintenance by IEPs is not readily discoverable under existing inspection standards. To score and make public maintenance data involving non out-of-service issues in the Vehicle Maintenance BASIC only exacerbates the possibility of litigation and the use of SMS data by the plaintiff’s bar to extort settlements from draymen and upstream shippers, brokers, and IEPs. The National Transportation Policy requires the FMCSA to encourage intermodalism; see 49 U.S.C. 13101(a)(2)(K). Inherent in the Agency’s decision to allocate non out-of-service

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maintenance violations to motor carriers and to publish the resulting scores is a deliberate branding of intermodal carriers as “high safety risks” when in fact there is no proven safety correlation. 4. Reconciliation of inspections In the Vehicle Maintenance and Fatigued Driving BASICs, carrier scoring is based upon the ratio of points accumulated to total inspection. The Agency rightly points out that when drivers accumulate points for Level 2 inspections or when vehicle maintenance points are assigned for Level 3 inspections, the methodology is compromised because points are accumulated when no inspection credit in that BASIC is given. ASECTT agrees that points should not be accumulated unless an inspection in that BASIC is recorded. ASECTT would point out that correction of this obvious error should be accompanied by correction of the similar but unaddressed error of failing to give credit for good inspections prior to a carrier’s first infraction, as set forth in the study by Professor Gimpel included as Appendix C. A small carrier which is unrated in SMS methodology, but has four good inspections, gets no credit for those inspections once its first violation is recorded in any BASIC. This means that a carrier with three good inspections followed by one bad inspection followed by three good inspections is first measured under SMS methodology as having a “one out of four” rather than a “one out of seven” violation record. ASECTT would suggest that failure to record and account for good inspections within the two year window which occurred before the carrier’s first infraction creates a seriously inaccurate picture of the carrier’s compliance. 5. Applying more stringent thresholds to passenger carriers The Agency has asked for comments concerning its proposals for lower intervention thresholds for certain passenger carriers and for addition and subtraction of certain classes of carriers from its percentile rankings. ASECTT has received no comments from members concerning the merits of these proposed changes. Notably, however, the Agency has released SMS percentile rankings to the bus riding public and has urged bus riders to use SMS methodology to make independent safety determinations of their ability to arrive safely at destination, even making available an iPhone “App” for that purpose. To lower the percentile rankings for further monitoring of the passenger bus industry is not of current concern to ASECTT. Yet any suggestion to the bus riding public that it cannot rely on the Agency’s ultimate safety fitness determination and that an authorized bus company is somehow damaged goods in the area of safety compliance is another issue. ASECTT would be remiss if it did not formally object to publication of any new enforcement thresholds or adoption of any new and lower enforcement thresholds until such time as the entire SMS methodology has been fully vetted under APA and approved for use by the public.

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6. Elimination of use of terms “inconclusive” and “insufficient data”; addition of new distinctions in crash data. In this segment of its notice, the Agency asks for comments concerning changes in terminology for publication of SMS scores where the carrier has not met the minimum threshold to be rated. In response, ASECTT submits that such changes are cosmetic and fail to address the real substance of the issue: “Whether unvetted SMS scores should be published at all.” ASECTT agrees with the Agency that the terms “inconclusive” and “insufficient data” as currently used on its website are inaccurate. In fact, statistically, 20 inspections or reportable events are necessary to avoid such conclusions! See Gimpel study, Appendix C, especially as to the effect of the law of large numbers. Finally, the Agency proposes to refine its display of crash data to include “fatality/injury” and “tow away”. Clearly, the problem with crash data is not solved by making the nature of the crash more visible for plaintiff’s bar, especially when accidents are included that clearly are not the fault of the carrier or its driver. The problem is that the whole SMS system is predicated on unscrubbed crash data and derivative conclusions drawn by the Agency based upon such faulty data. The true issue demanding attention from the Agency is how to refine its data so as to have a fit tool for the Agency’s use in making objective safety fitness determinations, not how to express its untested methodology in a more inflammatory way to a frightened public.

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VI. ARGUMENT - LEGAL AND FACTUAL ANALYSIS

A. Why the FMCSA is Solely Responsible for Certifying Carriers as Safe and Fit for Use by the Shipping Public

The FMCSA and only the FMCSA is authorized by federal statute to make safety fitness determinations. The legislative history of federal regulation over interstate commerce confirms that federal law trumps state law. Chief Justice Marshall, speaking for the Court in Gibbons v. Ogden, 22 U.S. 1 (1824), made clear that the Federal Government, not the States, was responsible for regulating interstate commerce and credentialing carriers for use. In the public interest and for the purpose of national uniformity, the FMCSA and its predecessor, the ICC, have been charged with the sole responsibility for determining carrier fitness. Under the doctrine of implied preemption, the federal regulations are intended to occupy the field and to trump any conflict with state law. Congress did not change the applicable federal statutes governing safe operation of commercial motor vehicles as part of deregulation. In fact, the safety statutes establishing the Agency’s sole credentialing obligation remained unchanged, and Title VI of the Federal Aviation Administration Authorization Act of 1994 (now codified at 49 U.S.C. 14501(c)) confirmed with express statutory preemption that freer competition with respect to routes, rates and services was not intended to limit the preemptive effect of field preemption or to permit expansion of state law causes of action. Section 31144 makes clear that the Agency, through the power vested in the Secretary, is solely responsible for credentialing carriers as safe to operate under objective criteria established by regulation. In the settlement agreement in NASTC, supra, the Agency affirmed its statutory authority under 49 U.S.C. § 31144 by stating,

“Unless a motor carrier in the SMS has received an UNSATISFACTORY safety rating pursuant to 49 CFR Part 385, or has otherwise been ordered to discontinue operations by the FMCSA, it is authorized to operate on the nation's roadways.”

That statute (see § 31144(b)) clearly requires the Agency:

“… to maintain by regulation a procedure for determining the safety fitness of [a carrier]” which procedure shall include “at a minimum” (1) specific initial and continuing requirements with which a [carrier] must comply to demonstrate safety fitness and (2) a methodology the [Agency] will use to determine whether [a carrier] is fit.” [Emphasis added.]

Eighteen months after public release of SMS percentile rankings in five BASICs, the Agency has yet to promulgate a new safety fitness “regulation” or amend its regulations in compliance with the APA. Moreover, Section 31144 makes clear that the Agency’s final safety fitness determination is intended to be the law of the land upon which “the public” including the shipping as well as the traveling public can rely. Specifically, that section grants the Secretary

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broad powers to determine whether a carrier is fit to operate safely commercial vehicles and “to make such final safety fitness determinations readily available to the public.” [Emphasis added.] In full exercise of the Commerce Clause, the statute provides that carriers operating commercial motor vehicles are “prohibited from operating any commercial motor vehicle that affects interstate commerce until [the Agency] determines that the owner or operator is fit.” The statute, combined with the Agency’s comprehensive Federal Motor Carrier Safety Regulations at 49 CFR Parts 350 et seq., establishes that the federal government has occupied the field of interstate motor carrier safety, and thus makes clear that the Agency’s safety fitness determination trumps all state law. Furthermore, a State receiving Motor Carrier Safety Assistance Program (MCSAP) funding must apply the safety fitness standards prescribed by the Secretary with respect to the intrastate operations of home state carriers if the state’s decision is to have any effect on the federal safety fitness determination. See Section 31144(c)(5). Clearly, the express language of the authorizing statute evidences Congressional intent that a single federal safety fitness determination for each carrier will preempt the field and, in the name of uniformity, will eliminate conflicting state safety fitness criteria. The Agency is required to make only its “final” safety fitness determination for each registrant publicly available, so as to afford the shipping public a single source to validate that a carrier is licensed, authorized and fit for use in interstate commerce. Yet on May 16, the Agency clearly abdicated its statutory duty as the sole determiner of carrier safety fitness by publishing its purported “Resource” documents aimed at shippers, brokers and insurers. Statements by the Agency in these documents which demonstrate its repudiation of the NASTC settlement, and its dilution of the validity and preemptive effect of its own safety fitness determinations, include the following:

Slide 10 Language: What are the limitations of SAFER and safety ratings? A Satisfactory safety rating does not mean carrier is currently in compliance and operating safely. [Emphasis added.] Slide 9 Notes: [A] rating, with the date of the review, appears in SAFER. A Satisfactory or Conditional rating does not mean, however, that the public should ignore all other reasonably available information about the motor carrier’s operations. CSA’s SMS data, addressed later in this presentation, are one of many possible resources that the public can use to assess a motor carrier’s safety performance record. [Emphasis added.] Slide 25 Notes: Questions that concern private litigation matters, such as claims for vicarious liability and negligent hiring, are outside the scope of FMCSA’s area of responsibility. CSA users are reminded, however, that although CSA is a new operational model, the data collected and analyzed in SMS are the same data as

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were publicly available online for 10 years through SafeStat. The SMS data are not a SFD, do not alter a carrier’s safety rating, and do not impact a carrier’s operating authority. [Emphasis added.] From the notes on the last page: FMCSA believes that an examination of a motor carrier’s official safety rating in SAFER and their authority and insurance status on L&I, combined with their intervention prioritization status in CSA’s SMS, provide users with an informed, current, and comprehensive picture of a motor carrier’s safety and compliance standing with FMCSA. FMCSA encourages the public to use the FMCSA information available to help make sound business judgments. [Emphasis added.]

Finally, to justify its whole unvetted SMS methodology, the Agency proclaims:

Internal, external, and independent (University of Michigan’s Transportation Research Institute) evaluations have all shown that, of the six BASICs based on regulatory compliance (the Crash Indicator BASIC is based on actual crashes), the Unsafe Driving BASIC and the Fatigued Driving (HOS) BASIC have the strongest relationships to future crash risk.7

The Agency’s statements above raise the specter of a Constitutional crisis. Do the Agency’s “Resource” documents trump the preemptive effect of federal statute and impose state law liability for negligent selection on shippers and brokers? For the first time in the 74 year history of federal regulation of interstate trucking, is the federal agency charged with making safety fitness determinations abdicating its statutory duty to the shipping public?8 When SMS methodology brands over half the Agency’s authorized carriers which it ranks as somehow unfit for shipper use, it is impossible to conclude that the Agency’s “Resource” documents will not affect the rights of shippers, brokers and carriers under existing law. Clearly, the Agency has used the Internet to publish and promulgate SMS methodology as a new de facto rule supposedly fit for use by shippers and brokers, and in the process has established new safety fitness standards for enforcement by a frightened shipping public – thereby eliminating, without any due process, carriers with Satisfactory safety ratings but high SMS scores. In sum, by prematurely publishing SMS percentile rankings and offering its May 16th guidance to shippers and brokers, the Agency has abdicated its sole statutory duty to make carrier safety fitness determinations upon which the shipping and traveling public may rely. It has increased the vicarious liability of shippers, freight forwarders, 3PLs and brokers by refusing to affirm the implicit preemptive effect of Section 31144 and the express preemption extended to brokers

7 The Agency fails to note that SMS methodology is unvetted in accordance with the APA, that its studies are based on corrupted crash statistics, and that its entire approach is subject to statistical challenge (see Section V.E. herein). 8 In the “Resource” documents, the Agency states, “Questions that concern private litigation matters, such as claims for vicarious liability and negligent hiring, are outside the scope of FMCSA’s area of responsibility.” (Slide 25.) This is an empty disclaimer when the Agency implies elsewhere in those same documents (as quoted in the text above) that SMS should be used co-equally with safety ratings in order to arrive at “sound business judgments.”

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under Section 14501(c)9 of Title 49. It has ignored the National Transportation Policy and the DOT’s obligation to promote competition, efficiency and intermodalism by wrongfully subjecting 50% of the carriers it ranks to loss of business and loss of jobs. Its actions are without statutory authority, warrant or approval under the Administrative Procedure Act and must be rescinded.

B. Why the Administrative Procedures Act and the Information Quality Act Require Rulemaking for Approval of SMS Methodology10

By publishing unvetted SMS methodology and proclaiming it fit for use by shippers and brokers in disregard of the Agency’s duty to certify carrier safety fitness, the Agency has violated the terms and flouted the fundamental purposes of the APA. Those purposes were eloquently stated long ago by Supreme Court Justice Robert Jackson, who as Attorney General in 1940-41 had spearheaded the process leading to enactment of the APA11:

The Administrative Procedure Act was framed … as a check upon administrators whose zeal might otherwise have carried them to excesses not contemplated in legislation creating their offices. It created safeguards even narrower than the constitutional ones, against arbitrary official encroachment on private rights.

-- Justice Jackson for a unanimous Court in United States v. Morton Salt Co., 338 U.S. 632, 644 (1950)

[I]t would be a disservice to our form of government and to the administrative process itself if the courts should fail, so far as the terms of the Act warrant, to give effect to its remedial purposes where the evils it was aimed at appear. *** [W]e [can] accord [no] weight to the argument that to apply the Act … will cause inconvenience and added expense to the [respondent agency]. Of course it will, as it will to nearly every agency to which it is applied. But the power of the purse belongs to Congress, and Congress has determined that the price for greater fairness is not too high.

-- Justice Jackson for the majority in Wong Yang Sung v. McGrath, 339 U.S. 33, 40-41, 46-47 (1950)

9 See R. Moseley, “Federal Preemption in Motor Carrier Selection Cases Against Brokers and Shippers” Transportation Law Journal, Vol. 39:2, reprinted by permission and attached as Exhibit 4. 10 This Section VI.B is adapted, condensed and updated from M. Andrews, “CSA and Motor Carriers: The ‘Intervention’ Really Needed is a Stiff Dose of Administrative Due Process,” 78 J. Transp. L. Logist. & Pol’y 129[2] (2011), which is used by permission and attached hereto as Exhibit 5. 11 Strauss, “Changing Times: The APA at Fifty,” 63 U. Chi. L. Rev. 1389 (1996), at 1393-94. The APA is now codified, of course, at 5 U.S.C. §§ 551 et seq.

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The above-quoted opinions in Morton Salt and Wong Yang Sung were among the first to construe the APA, and they reflected Justice Jackson’s first-hand understanding of the APA drafters’ intent.12 With eloquence rare in the annals of administrative law, these opinions rejected literal readings of the APA’s text in favor of a construction that would “give effect to [the] remedial purposes” of the statute. The Justice read the APA as a “check” on “excesses” born of an agency’s “zeal” to achieve its goals (however laudable)), and as “creat[ing] safeguards … against arbitrary official encroachment on private rights.” Jackson thus articulated a broad conception of the APA as a renewed charter of freedom for a bureaucratic age. Here, the FMCSA’s secretive development and piecemeal promulgation of CSA and SMS present a prime example of the continuing need for the APA’s “safeguards.” The Agency has justified CSA and SMS as necessary means of transforming the way in which it assigns safety ratings to commercial motor carriers.13 In contrast to the current “time consuming and cumbersome” procedures, under which the Agency and its state-government partners use on-site safety audits at carrier headquarters to produce safety ratings for “only” 17,000 carriers per year, FMCSA has sought to achieve a “streamline[d]” and “more program-based” rating process by devising and using SMS.14 From the outset, FMCSA has proceeded on the assumption that it “d[id] not need to conduct a formal rulemaking around [the] development” of SMS because it was only a tool for “targeting” of enforcement efforts.15 The Agency has considered rulemaking necessary only for “the second part” of CSA, in which “it is likely to propose simply establishing a carrier’s rating based on its percentile rankings in the SMS.”16 In reality, however, SMS has evolved into much more than a “targeting” tool, even without the promised overt rulemaking on safety ratings. As shown elsewhere in these Comments, the Agency has touted SMS as a new, de facto safety fitness standard for use by the shipping public. As shown later in this Section VI.B, SMS data has direct commercial and regulatory impacts on the motor carriers it purports to measure. Those impacts squarely implicate the issue of what constitutes a “rule” subject to APA notice-and-comment requirements. That issue, in turn, raises the fundamental question – identified by Justice Jackson 61 years ago – of whether the APA should be construed narrowly or by reference to its “remedial purposes.” And if the Agency seriously intends to base its new safety ratings strictly on SMS data, then an equally fundamental question will arise: whether this admittedly flawed data can be used for bet-the-carrier issues such as safety ratings, merely because the alternative of on-site inspections “will cause inconvenience and added expense” to FMCSA. If we could put that question to Justice Jackson, would his answer be in doubt? The remainder of this section of ASECTT’s Comments briefly reviews the case law on what constitutes a “rule,” and considers the Agency’s legal obligations regarding data integrity. Both discussions support the conclusion that administrative due process is the missing “basic” in the CSA/SMS initiative thus far.

12 Id. at 1398-1400. 13 See Sandberg, “CSA 2010 and What It Means for Commercial Motor Carriers,” 77 J. Transp. L. Logist. & Pol’y 257[4] (2010). 14 Sandberg, supra, at 258-59. 15 Id. at 258. 16 Id. at 264-65.

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1. SMS as a Rulemaking in Its Pragmatic Effect This, of course, is not the first time that an agency has attempted to avoid APA rulemaking by arguing that it is not making a rule subject to the requirements of that statute. As the D.C. Circuit observed in 2000, when deciding the landmark case of Appalachian Power Co. v. EPA:17

The phenomenon we see in this case is familiar. Congress passes a broadly worded statute. The agency follows with regulations containing broad language, open-ended phrases, ambiguous standards and the like. Then, as years pass, the agency issues circulars or guidance or memoranda, explaining, interpreting, defining and often expanding the commands in regulations. One guidance document may yield another and then another and so on. Law is made, without notice and comment, without public participation, and without publication in the Federal Register or the Code of Federal Regulations.

A more apt description of the process that has led to the present docket, and to the May 16 “Resource” package obviously intended as FMCSA “guidance” documents for shippers and brokers, is difficult to imagine. In concluding that an EPA guidance document was actually a rule requiring APA notice-and-comment procedures, the D.C. Circuit applied a pragmatic test that Justice Jackson readily would have recognized:18

If an agency acts as if a document issued at headquarters is controlling in the field, if it treats the document in the same manner as it treats a legislative rule, if it bases enforcement actions on the policies or interpretations formulated in the document, if it leads private parties … to believe that it will declare permits invalid unless they comply with the terms of the document, then the agency’s document is for all practical purposes “binding.”

The appeals court disregarded EPA “boilerplate” claiming that the guidance did not “represent final agency action,” was “subject to change” and did not “create any rights enforceable by any party.”19 Noting that “all laws are subject to change,” it read the guidance as final enough because it had gone through two prior drafts.20 Most importantly, the court looked to whether, in practice, “legal consequences will flow” from the respondent agency’s actions.21 Other decisions in the D.C. Circuit and its lower court have followed a similarly Jacksonesque analytic path. For example, they have required full APA rulemaking for parole guidelines functioning as “self imposed controls over the manner and circumstances in which the agency will exercise its plenary power,”22 for FDA action levels that were treated as binding in agency

17 208 F.3d 1015, 1020. 18 Id. at 1021 (emphasis supplied). 19 Id. at 1022-23. 20 Id. at 1022. 21 Id., quoting Bennett v. Spear, 520 U.S. 154, 178 (1997). 22 Pickus v. U.S. Board of Parole, 507 F.2d 1107, 1113 (D.C. Cir. 1974). Many of the decisions referenced in this portion of ASECTT’s Comments came to the attention of undersigned counsel through a helpful ABA luncheon

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documents,”23 for OSHA directives providing for jobsite inspections unless a workplace adopts a described program,24 and for another EPA “interim” guidance document that was “nonetheless being applied in a binding manner … even though the EPA continue[d] to receive comments about it.”25 Under these precedents, FMCSA cannot successfully deny that its adoption of SMS and release of SMS data established a rule. First and foremost, its formulation of “intervention” thresholds clearly was an action “from which legal consequences will flow” because the Agency will “base[ ] enforcement actions on the policies or interpretations formulated in” the SMS metrics.26 While the potential enforcement “interventions” range from warning letters to an “On-site Comprehensive Review,” and can lead to anything from a “Cooperative Safety Plan” to a “Notice of Claim” for a civil penalty or a shutdown of the carrier,27 surely the vagueness or uncertainty of the “legal consequences” flowing from above-threshold SMS scores does not excuse the APA violation. If anything, such vagueness compounds the violation and confirms the need for robust enforcement of APA rulemaking standards. The fact that the SMS metrics have been subject to constant revision and adjustment, up to and including the March 29 Notice at issue here, only serves to strengthen the case for applying the APA to the entire CSA/SMS process as it has unfolded since 2010. Moreover, it is well-known that the FMCSA field staff is treating SMS as binding, by requiring carriers to improve their SMS scores as a prerequisite for the Agency’s consideration of safety rating upgrades.28 In fact, it has become apparent that carriers selected for the type of CSA “intervention” known as a “Focused Audit” cannot obtain a “Satisfactory” safety rating regardless of the results of the audit; at best, the Agency’s SAFER data base will label the audit as a “Non-Ratable Review.”29 This evidence, combined with the current Administrator’s testimony to Congress that CSA/SMS would be used for “compelling” carrier compliance with safety regulations,30 leaves no doubt that de facto mandates have been incorporated into the so-called “targeting” tool known as SMS.31

presentation by Jane B. Luxton of the District of Columbia Bar entitled “When is Guidance a Rule in Disguise?: Leading Case Law” (March 18, 2011). 23 Community Nutrition Institute v. Young, 818 F.2d 943, 947 (D.C. Cir. 1987). 24 Chamber of Commerce v. U.S. Dept. of Labor, 174 F.3d 206, 210 (D.C. Cir. 1999). 25 National Mining Ass’n v. Jackson, 2011 U.S. Dist. LEXIS 3710 **17-19 (D.D.C. 2011). 26 Appalachian Power, 208 F.3d at 1021. 27 Sandburg, supra at 261-62. 28 Undersigned counsel have seen a letter dated December 21, 2010 from FMCSA’s Midwestern Service Center to a Missouri-based carrier denying its request for an immediate upgrade in its Part 385 safety rating. The letter stated that the carrier’s “CSA Driver Fatigue basic score [sic] must show steady decline” before an upgrade can be considered, and that “[t]ypically, we’d like to see the score at or below 72.” 29 Correspondence received by undersigned counsel on May 30, 2012, from Richard Gobbell, an active private-sector motor carrier safety consultant. 30 “Comprehensive Safety Analysis 2010: Understanding FMCSA’s New System of Motor Carrier Oversight” (Statement of Administrator Ferro to House Committee on Transportation and Infrastructure, Subcommittee on Highways and Transit, June 23, 2010) at 4. 31 At least one of FMCSA’s sister agencies has had no trouble recognizing SMS scores as a de facto rule with legal consequences. See presentation by Military Surface Deployment Command entitled “Domestic Transportation Service Providers (TSP) Performance” (March 2012) at slide 6 (“CSA scores” for motor carriers seeking to handle military freight “most not exceed DOT threshold levels”). Slides 1 and 6 of this presentation are reproduced in attached Exhibit 6.

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The FMCSA has argued that SMS sets forth only an “interpretive rule” for which APA notice-and-comment procedures are not required.32 This disguise will not work, for the simple reason that the Agency never has specified what SMS is supposedly interpreting. The D.C. Circuit recently held that an interpretive rule must “derive a proposition from an existing document whose meaning compels or logically justifies the proposition,” and that “[t]he substance of the derived proposition must flow fairly from the substance of the existing document.”33 From what “existing document” is SMS derived? Clearly not from the underlying statute,34 which requires that a safety rating program be established but does not “supply” its “substance.” And clearly not from the existing safety rating criteria in the Agency’s published regulations, because FMCSA has publicly repudiated those criteria as “misleading” and seeks to substitute a new truck safety credentialing regime.35 In any event, as shown elsewhere in these Comments, the oft-revised peer-grouping and weighting techniques embedded in the SMS do not “flow fairly from” anything in the existing safety rating rules, but are latter-day inventions of the Agency’s staff and contractors. Moreover, the Agency’s “interpretive rule” argument is belied by the very guidance documents it issued on May 16 for shippers, brokers and insurers. FMCSA cannot claim that SMS scores are merely “interpretive,” and then exhort shippers and brokers in the next breath to treat unvetted SMS data as co-equal with the APA-compliant safety rating system in making carrier selection decisions. See Section III, supra. 2. Bad Data, Arbitrarily and Secretly Manipulated Wisely, the FMCSA has not argued that the mere act of publishing data (such as SMS scores) is exempt from the APA regardless of the validity of the data and the consequences of publication. Early D.C. Circuit decisions granting near-complete APA immunity for data publications36 have been repudiated in favor of a test that would consider the validity of the data.37 In this case, the published SMS scores for individual carriers are not mere compilations of data. Instead, as noted elsewhere in these Comments, the data has been filtered through the prism of peer-grouping and severity-weighting techniques that frequently have been revised and never have been made available for full public scrutiny. The defects in the SMS filtering system have been graphically described by the American Trucking Associations in a letter which urged the CSA Program Manager to “modify [SMS] severity weights so that they more accurately reflect crash risk, control for risk disparities among generic violations, ensure industry segments are compared against their peers, and test the system to ensure that it accurately identifies carriers that are unsafe.” The letter went on to note

32 See p.1 of FMCSA’s Opposition to Petitioners’ Emergency Stay Motion filed with the D.C. Circuit on Dec. 9, 2010 in NASTC, supra. 33 Catholic Health Initiatives v. Sebelius, 617 F.3d 490, 494 (2010). 34 49 U.S.C. 31144. 35 See p. 6 of attachment to letter dated June 8, 2010 from FMCSA Administrator to the Minnesota Trucking Association, posted in Docket No. FMCSA-2004-18898 (the docket in which the FMCSA summarily announced it had created SMS and would publicly release SMS data beginning in December 2010). 36 See, e.g., Hearst Radio, Inc. v. F.C.C., 167 F.2d 225 (D.C. Cir. 1948). 37 See, e.g., Impro Products, Inc. v. Block, 722 F.2d 845, 849 (D.C. Cir. 1983).

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that “subjective viewpoints of enforcement officials” were introduced into the weighting of particular safety violations for purposes of formulating the BASICs, and that transcripts of the weighting deliberations by those officials were “lacking.”38 Moreover, the problems with the unfiltered data itself are legion, as discussed in Sections IV and VI.E of these Comments. Issues such as these raise troubling questions under the 2001 legislation popularly known as the Information Quality Act (“IQA”).39 Congress there directed the Office of Management and Budget (“OMB”) to develop guidelines for “maximizing the quality, objectivity, utility, and integrity of information (including statistical information) disseminated by” federal administrative agencies.40 OMB’s final guidelines implementing the “objectivity” prong of IQA created a strong presumption in favor of subjecting scientific and technical research to “formal, independent, external peer review” through a transparent process.41 More recent White House pronouncements on the regulatory process strike a similar note. While a January 18, 2011 presidential memorandum on “Regulatory Compliance” directs agencies “to make public information concerning their regulatory compliance and enforcement activities accessible, downloadable, and searchable online[,]” it does so for the purpose of “foster[ing] fair and consistent enforcement of important regulatory obligations.”42 And the creation of those regulatory obligations is separately addressed in an Executive Order issued the same date:

To the extent feasible and permitted by law, each agency shall … provide, for both proposed and final rules, timely online access to the rulemaking docket on regulations.gov, including relevant scientific and technical findings, in an open format that can be easily searched and downloaded. *** [E]ach agency shall ensure the objectivity of any scientific and technical information and processes used to support the agency’s regulatory actions.43

Unfortunately, the history of CSA and SMS shows how timely data access, openness and objectivity have gone missing in the regulatory free-fire zone that has characterized those programs thus far. 3. Conclusion as to APA Requirements If rulemaking procedures are required here as argued above, what kind of procedures would pass APA muster? Surely not the “Rulemaking Lite” approach followed here. The Agency’s announcement on March 27 is decked out with some of the superficial trappings of a rulemaking, but falls far short of the real thing. A docket has been opened; comments are requested; an “e-rulemaking” portal is being used. But this is window-dressing. The reality is that comments are not being requested on a proposed rule; instead, FMCSA has implemented a mélange of

38 Letter of November 29, 2010 from ATA’s Boyd Stephenson to FMCSA’s Gary Woodward, available in the docket for FMCSA-2004-18898, supra. 39 Pub.L. No. 106-554, Treasury and General Government Appropriations Act for Fiscal Year 2001, sec. 515. 40 Id. 41 Office of Management and Budget, Guidelines for Ensuring and Maximizing the Quality, Objectivity, Utility, and Integrity of Information Disseminated by Federal Agencies; Republication, 67 Fed.Reg. 8452, 8454 (Feb. 22, 2002). 42 Available at http://www.whitehouse.gov/the-press-office/2011/01/18/ (emphasis supplied). 43 Id. (emphasis supplied).

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piecemeal SMS “improvements” effective immediately. The reality is that the “improvements” embodied in the modified vehicle-maintenance BASIC, the new hazmat BASIC and the new IEP criteria – like all the other elements of SMS from its inception – are based on non-public input from sources described as “stakeholders” and “enforcement subject matter experts.” The reality is that there may (or may not) be further modification to the “improvements” after the comment deadline, and before the recalculated SMS data is summarily released to the public. And only after public release will there be a further comment period on any such additional “improvements” to the “improvements.” On multiple occasions in this process, therefore, the Agency will have repeated its now-familiar tactic of shooting first and asking questions later, by seeking public comment only after imposing far-reaching changes in how it evaluates motor carrier safety. This “Rulemaking Lite” approach does not satisfy fundamental APA requirements even for the proposed SMS “improvements.” Still less can it reach back and somehow cleanse CSA/SMS of the procedural illegitimacy that has besmirched it from the beginning. What then is required under APA? ASECTT submits that CSA and SMS cannot lawfully be used for anything other than truly internal enforcement “targeting” purposes, unless and until there is a comprehensive rulemaking which “provide[s] interested persons” with full “opportunity to influence final rules”44 in advance of their adoption and effectiveness. The scope of the rulemaking must allow comments on both the adoption of any new terminology for safety fitness determinations and any SMS metrics that will control or influence those determinations. Commenters must be permitted to address the entire array of changes made in those metrics before, during and after the ersatz comment period allowed in 2010 prior to initial release of SMS data, as well as before, during and after the ersatz comment period now in progress. The opportunity for comment must be extended to all members of the public, not just to “motor carriers” as suggested in the Agency’s May 25 notice extending the current comment period.45 Beyond that, FMCSA must “respond in a reasoned matter to the comments received, [must] explain how the agency resolved any significant problems raised by the comments, and [must] show how that resolution led the agency to the ultimate rule.”46 The Agency’s grab-bag of Internet postings throughout the history of CSA and SMS does not come close to addressing public comments, explaining how significant problems were resolved, or mapping an analytical pathway to the ultimate rule. “Internet notice is not an acceptable substitute” for APA procedural protections.47 While electronic rulemaking is not anathema to the APA,48 surely the same APA protections apply regardless of whether paper or electronic media are used by agencies and commenters. There is nothing to the contrary in the IQA or in the White House pronouncements quoted above, let alone in the timeless commentaries of Justice Jackson about administrative due process. And nothing in the Agency’s truck safety mission is, or should be, inconsistent with affording due process to the carriers it regulates. 44 Jones, “Electronic Rulemaking in the New Age of Openness,” 62 Admin. L. Rev. 1261, 1273 (2010) (“E-Rules”), quoting APA provisions at 5 U.S.C. § 553. 45 Note that the membership of ASECTT includes numerous motor carriers (supra, section I), so that there can be no question of its eligibility to submit these Comments even if such an eligibility limitation were valid. 46 Rodway v. Dep’t of Agriculture, 514 F.2d 809, 817 (D.C. Cir. 1975). 47 Utility Solid Waste Activities Group v. E.P.A., 236 F.3d 749, 754 (D.C. Cir. 2001). 48 E-Rules, supra n.34.

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C. Why the Reg Flex Act and the National Transportation Policy

Require Consideration of the Effects of SMS Methodology on Efficiency, Competition and Small Carriers

The Regulatory Flexibility Act of 1980 (Reg Flex Act), P.L. 96-354, as amended, applies to any rule subject to notice and comment rulemaking under Section 553(b) of the APA.49 The FMCSA is required to consider the impact of its regulatory proposals on small business entities and to analyze effective alternatives to minimize the impact of regulations and to otherwise make the analysis available for public comment. See 4 U.S.C. 601. Likewise, a federal statute directly applicable here (The National Transportation Policy) expressly requires the Agency to consider the effects of its regulations on competition, efficiency and small businesses. Thus, proper consideration must be given not only to the direct cost of compliance but the indirect economic impact of any new rule on regulated entities, both carriers and brokers. See 49 U.S.C. § 13101. ASECTT members can make a prima facie showing that SMS methodology and its publication will have a significant economic impact on a substantial number of small entities. In particular, the maximum annual revenue for classification as a small entity in long haul trucking according to the Small Business Administration is $25.5 million per year, 50 which equates to a fleet size of approximately 200 trucks. According to this definition, by the Agency’s own reckoning, over 97% of the carriers subject to regulation are classified as small businesses. The Agency has announced its intent to expand its coverage of small carriers under CSA/SMS and has profiled small, unranked carriers for increased inspections. Approximately 53,000 or over 57% of the carriers measured under SMS methodology exceed one or more of the arbitrary “BASIC” thresholds for further monitoring, and have been labeled as high safety risks to the shipping and brokering public under publicly released SMS data. If the Agency somehow managed to expand SMS coverage to the entire industry, over 300,000 carriers would be labeled as high risks based on current enforcement thresholds within the five published BASICs. The cost of perfecting court and administrative challenges to citations and infractions – the data points from which SMS scores are derived – is particularly burdensome on small carriers. They lack a network of attorneys and consultants and have a particularly difficult time scheduling drivers for court dates in distant forums to dispute violations with minor civil penalties but catastrophic implications on a small carrier’s percentile rankings. Every citation which feeds the SMS percentile system can have a significant effect upon a small carrier’s percentile ranking, and necessitate a significant legal cost to protect the carrier’s due process rights. Nowhere is the compliance cost of SMS methodology and its effect on small

49 5 U.S.C. 553(b). 50 13 CFR 121.

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carriers more significant than it is with respect to the over 60% of reportable crashes without carrier fault which the Agency has yet to address. Under existing law, the Agency’s benchmark for carrier investigation is all crashes, but in an audit a carrier is afforded the opportunity to prove that the accident was non-preventable. Such accidents are then removed before any ultimate safety fitness decision is rendered. See 49 C.F.R. 385. Yet, under SMS methodology as currently touted by the Agency, all accidents are included in percentile rankings. To use SMS methodology for purposes of a safety rating, the Agency will have to scrub crash data not just for auditable carriers. For every carrier it will have to call balls and strikes on every accident which feeds its methodology. As a result, some as yet undetermined umpiring process must be established. Every carrier involved in every reportable accident must be afforded an opportunity to prove preventability with due process before the assignment of points. This unresolved issue presents a conundrum for the Agency which is yet to be addressed. Accidents and the assignment of fault take years to resolve and involve enormous legal costs in civil actions. The issues involved in determining preventability and negligence are similar. Establishing administrative procedures to determine preventability of all accidents in a parallel system to a judicial process is unthinkable. Yet, in a regulatory game of comparative safety, the direct compliance cost of challenging two-thirds of the reportable accidents as unrelated to defects in a carrier’s safety management systems must be included and made part of any Reg Flex analysis of SMS methodology. Moreover, the National Transportation Policy requires the Department of Transportation to consider the effects of any regulation on efficiency, competition and privately owned businesses. Any APA-compliant analysis of SMS methodology in rulemaking must consider the anti-competitive effect of publication of SMS methodology as indirect costs militating against adoption. Unless the Agency retracts its current position that SMS percentile rankings indicate carriers posing “higher safety risks,” and affirmatively redacts the publication of percentile rankings (clarifying its sole duty to determine safety fitness), ASECTT is prepared to show that publication of SMS methodology threatens over 50,000 small carriers with loss of business, loss of financing and loss of jobs for drivers. The Morgan Stanley study shows 55% of the shippers have been frightened by the Agency’s rollout of SMS methodology and are reluctant to use carriers with high SMS scores. Even the Department of Defense is ill advisedly using SMS methodology to eliminate carriers from use.51 ASECTT can and will provide evidence of scores of major shippers and brokers who, at the Agency’s urging, feel compelled to use SMS methodology to disqualify small, well run carriers from handling freight. ASECTT can demonstrate instance after instance of carriers that have been recently audited and upon objective standards as required by statute were found to be satisfactory with no violations and no fines, yet have lost the ability to compete for freight

51 See “Military Surface Department and Distribution Command Carrier Advisory” July 13, 2011 attached as Exhibit 7. See also Exhibit 6.

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because of high SMS scores that have no demonstrable relationship to safety or crashes. ASECTT can and will show that SMS methodology discriminates against small carriers with enough inspections to be ranked but too few to afford statistical accuracy. (See Iyoob and Gimpel studies attached as Appendix B and C respectively.) ASECTT will demonstrate that peer group accountability does not account for peer group creep, profiling or geographical anomalies which prejudice small carriers. ASECTT will demonstrate the importance of the transactional brokerage market in arranging backhaul shipments to enhance efficiency, productivity and reduce the consumption of fuel. ASECTT is prepared to show how enforcement of SMS credentialing requirements on property brokers under fear of vicarious liability will chill that marketplace, resulting in small carrier bankruptcies, less competition, and higher freight rates. Finally, under the Reg Flex Act, the Agency is required to defend its proposed regulations as cost effective. The Agency is required to consider other viable alternatives. In charging its handpicked Motor Carrier Safety Advisory Committee with reviewing SMS methodology last July, the Agency asked that the committee “not reinvent the wheel,” , implying that only cosmetic changes were contemplated.52 In light of the systemic flaws in SMS methodology, its compliance cost and inability to comprehensively measure all carriers as required by Congress, ASECTT submits that real alternatives, not just cosmetic changes, must be considered in the rulemaking process. Recognizing Congress’ directive to the Agency to, for the first time, enroll private and exempt carriers in a comprehensive system to obtain agents and insurance, ASECTT submits that the Agency can expand its new carrier audit procedure to obtain an effective, objective evaluation of each carrier on an annual or biannual basis, targeting carriers for progressive intervention using objective standards. An outline of this alternative is as follows. (1) Require all carriers to annually update the MCS-150 confirming their insurance and agents and assess a $200 to $300 filing fee. Use the fee to fund state enforcement officials through the MCSAP program, and/or fund independent contractors, to prepare summary audits offering verification to the public that each registrant has safety procedures in effect to meet the requirements of compliance on the basis of objective criteria, without grading on the curve. (2) Use progressive intervention methods as envisioned by CSA to manage and privately reprove carriers found deficient under SMS methodology, as refined and improved with public input through rulemaking. With this proposal, the Agency could self-fund a compliance program which would assure an objective audit of all active carriers, internalizing an improved version of SMS scoring for its own use without needlessly disrupting the motor carrier industry or creating a constitutional crisis between federal and state law.53

52 See Transport Topics, “FMCSA Safety Scoring Needs More Science Behind It,” by Eric Miller, January 2, 2012. 53 Attached as Exhibit 8 are the comments to the docket by Richard Gobbell, former Tennessee State Director of FMCSA which details how such a self-funded program can meet the safety requirements of the Agency in a comprehensive, cost effective, objective and fair manner.

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D. Why CSA/SMS Methodology is Not a Significant Improvement Over SafeStat

On February 13, 2004, the Office of Inspector General of DOT issued a report entitled “Improvements Needed in the Motor Carrier Safety Status Measuring System.”54 This report, which identified critical flaws in the SafeStat system, was prepared at the request of Congressman Petri, Chair of the House Subcommittee with jurisdiction over the FMCSA, and resulted in Congress’ directive in SAFETEA-LU that a new comprehensive safety analysis program for certifying safety fitness be instituted. Eight years in development, the unvetted CSA/SMS methodology made public by the Agency, while attempting to remedy the flaws noted by the IG Study in SafeStat, is in reality no more comprehensive in its scope or better in accurately predicting high risk carriers. It contains the same systemic problems as SafeStat. 1. The IG Study “found material weaknesses in the SafeStat data reported by states and motor carriers and with the [FMCSA’s] processes for collecting and disclosing data problems.”55 ASECTT has pointed out similar material weaknesses and data flaws including geographical anomalies, under-reporting, profiling, peer group anomalies and inconsistent treatment by states of DataQ issues which has similarly not been addressed prior to release of SMS methodology. 2. The Inspector General concluded, “While SafeStat is sufficient for internal use, its continued public dissemination and external use require prompt corrective action. Improvements in the model are important but getting better data is essential.”56 In this regard, ASECTT submits that SMS methodology gets more data, but arguably less valid data, than SafeStat. SafeStat measured carriers in four areas – Crashes, Driver, Vehicle, and Safety Management. SMS methodology has added three additional areas of measurement but its efforts to get more comprehensive data have proven counterproductive. Driver Qualification, Drug and Alcohol and the soon to be replaced Securement BASIC each measure less than 5%of the Agency’s census and have no proven strong correlation to safety fitness performance. Moreover, the IG’s directive that “getting better data is essential” has not been carried out. SafeStat was predicated on out-of-service violations, yet SMS methodology is based largely on non-out of service violations with less of a proven safety nexus. Here are other specific examples of ongoing data quality problems:

54See Executive Summary of Report MH2004-034 attached as Exhibit 9. 55 See U.S. DOT Office of Inspector General Memorandum dated February 13, 2004 attached as Exhibit 10. 56 Exhibit 10, p. 3.

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(a) The problem of bad crash data has not been addressed – Over 60% of the reported crashes are not the carrier’s fault, yet are included in each carrier performance data. (b) Unsafe Driving – with the inclusion of speed warnings and the geographical anomaly (5 states write 46% of the violations), the data quality issue in this BASIC remains unaddressed. (c) Fatigued Driving – Under SMS methodology, over 50% of the accumulated points are form and manner or other paperwork violations which are not out of service issues or evidence of exceeding the hours of service or fatigue. (d) Vehicle Maintenance – Non out of service issues such as tires, brakes and trailer lights account for 50% of the points. (e) Driver Fitness – An ATA white paper issued in June 2012 concluded of this BASIC:

“Agency officials point to merits of identifying carriers with patterns of violations in the [category of Driver Fitness] even though these violations don’t bear a relationship to further crash risk.”57

3. While the FMCSA did not agree with the IG’s assertion as to the impact of data quality problems on SafeStat, the IG has continued to maintain that data quality issues should be addressed before data of this type is made public:

“The existing data quality problems should not prevent FMCSA from using SafeStat as an internal decision making tool. However, while the data used for SafeStat calculations are sufficient for internal purposes [i.e. determining who to

57 ATA White Paper, 6/20/2012.

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audit] if public dissemination of SafeStat results are continued, the data must meet higher standards for completeness, accuracy and timeliness.”58

The Agency has made SMS methodology publicly available and touted its efficacy even though shippers, brokers and carriers have shown how publication brands innocent carriers as unfit for use. In court pleadings and its settlement of NASTC, supra, the Agency initially appeared mindful of the IG’s position when it represented that SMS methodology would be used for its own internal purposes and was not a new or different safety credentialing standard intended for use by the shipping public. However, the Agency’s May 16th guidance to shippers and brokers stands in stark contradiction to the IG’s directive that higher standards for completeness, accuracy and timeliness are required. SMS methodology has not even been tested under the APA to meet the standard for the Agency’s own use. It certainly does not meet the “highest standard” set by the IG Study for public dissemination. ASECTT can demonstrate that since SMS methodology went public, 51.3% of the carriers branded as a high safety risk under SMS methodology have received satisfactory safety ratings under existing law and regulations. 4. Issues as to completeness of the data persist with CSA/SMS. The IG study found 645,551 active interstate carriers of record in 2003 and that the Agency had sufficient data to compute a value in 1 of 4 safety areas for 170,000 carriers. Thus under SafeStat the Agency could measure 26% of carriers in at least one of four safety evaluation areas. Eight years later, even after adding hundreds of new non-out of service violations as point accumulators, the Agency currently computes a value in one or more of the five reported BASICs on only 91,000 carriers (or 12% of its census). Arguably, SMS measures fewer carriers than SafeStat using less credible violations. Yet, the branding of carriers is more pronounced. The Inspector General concluded,

“Consequently, while SafeStat is sufficient for internal use, its continued public dissemination and external use require prompt corrective action.” (Executive Summary, p. 3.) “Because carrier safety data and the model’s ranking are publicly disclosed, a higher standard of quality must be met to ensure fairness to motor carriers who may lose business or be placed at competitive disadvantage by inaccurate SafeStat results. FMCSA will need to demonstrate timely improvements if it is to continue to publicly disclose carrier results across all SafeStat categories.” (Executive Summary, IV.)

58 See Memorandum, Exhibit 10, p. 3.

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The Agency has repeatedly refused to consider the consequences of unfairly publicly branding carriers under SMS methodology even though carriers’ percentile rankings are subject to wild fluctuations which have little or nothing to do with the carrier’s safety performance. Under SMS methodology, carriers do not control their destiny. One member of ASECTT which operates over 500 trucks states:

“Last month, the only change in our crash records resulted from a non-preventable accident when a car ran into the back of our truck which was stopped at a red light. Our scores in “Unsafe Driving” went up 25 points.”

ASECTT can document numerous other examples involving large as well as small carriers where a single misplaced medical card, one missed child support payment, or the addition or deletion of a single truck from its census has resulted in radical percentile increases or branding under published rankings. Clearly, the premature publication of unvetted CSA/SMS methodology together with the Agency’s publication of its May 16th guidance has exacerbated the problems of SafeStat and has not addressed the “competitive disadvantages,” “elemental fairness” and “loss of business issues” which in large part sank SafeStat in Congress’ mind. SafeStat identified 7,821 carriers for potential audit on the Agency’s A and B list. SMS brands approximately 53,000 carriers (or over half the carriers it can rank) as in need of “further monitoring” based on an unvetted methodology not certified under the APA as fit for even the Agency’s own use. Worst of all, the Agency has now ignored the IG expressed concerns about SafeStat and has doubled down on the fears of industry. By telling the shipper and broker community that SMS methodology has the same merit as its safety fitness determinations, the Agency has placed 53,000, over 6 times as many carriers at a “competitive disadvantage” threatening each with “loss of business.” The Agency “continues to publicly disclose carrier results across five SMS BASICs without demonstrating any improvement, Data Quality Act compliance or APA approval. It has ignored the warnings of the IG report and substituted a new standard to be enforced by shippers and brokers abandoning the objective safety fitness standard the Agency is required to issue and publish by statute.59 In conclusion, after 8 years of development, SMS methodology is not a material improvement over SafeStat. It still unfairly brands carriers and its premature publication does not answer the concerns noted by the Inspector General in directing that SafeStat be modified or replaced. It is time for the Agency to consider some objective new proposal which would meet Congress’ goal of a “Comprehensive Safety Analysis” and allow the Agency to make an objective safety fitness

59 See article by Paul Stewart, “A Commentary: The Perfect Storm: Schramm Decision, FMCSA, and an Impossible Duty for Brokers and Third Party Logistics Companies,” published in the Journal of Transportation Management, Vol. 22 No. 2 Fall/Winter 2011 attached as Exhibit 11 (reprinted with permission).

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determination of all carriers. ASECTT suggests that the alternative set forth in Section set forth in the Gobbell Affidavit attached as Exhibit 7, is an idea whose time has come.

E. Why SMS Methodology is an Inaccurate Reflection of Carrier Safety

Performance and Prejudices Small Carriers (Three Studies)

1. SMS methodology has no proven correlation to safety The efficacy of SMS methodology must stand or fall on the Agency’s ability to demonstrate a provable nexus between its intricate algorithms and imperfect measurement of roadside compliance and safety predictability. In advising shippers and brokers to use SMS methodology, the Agency concludes:

“Internal, external, and independent (University of Michigan’s Transportation Research Institute) evaluations have all shown that, of the six BASICs based on regulatory compliance (the Crash Indicator BASIC is based on actual crashes), the Unsafe Driving BASIC and the Fatigued Driving (HOS) BASIC have the strongest relationships to future crash risk.”

This conclusion has not been proven. The University of Michigan study which the Agency repeatedly cites (1) is based on now stale data; (2) only attempts to find a correlation to safety in two of the measured BASICs; and (3) is itself predicated on crash data which has a crash error ratio of over 60% due to the inclusion of non-preventable accidents in carrier statistics. Until the Agency can effectively scrub non-preventable accidents from its database, no statistical analysis will have any credibility. In a separate study by Wells Fargo, the 200 largest carriers for which there is actually sufficient data were measured. No perceptible correlation between safety and SMS percentiles was noted in Unsafe Driving or in Fatigued Driving, the two BASICs the Agency proclaims as most definitive. The Wells Fargo Study concluded, “Quite simply, we found very little relationship (i.e., not statistically significant) between Unsafe Driver or Fatigued Driver scores and actual Accidents per Power Unit.” Months after release of the Wells Fargo study, the Agency attempted to re-substantiate the University of Michigan study in a paper devoted largely to touting the benefits of progressive intervention entitled “Review of Wells Fargo Equity Research Report on Compliance, Safety, Accountability.” Its defense of that study is based upon two charts which average the crash ratios of all rated carriers at each percentile level. Although the Agency claims the result contains data on all measured carriers, in fact, it shows an average trend line which is no predictor of the crash susceptibility of individual carriers. Conclusions about individual carrier performance cannot be reached by percentile averaging of averages.

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2. Three recent studies challenge SMS methodology Whether under rulemaking, under the APA, or in a judicial proceeding under Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993), a proponent of any hypothesis relying upon statistical data must submit the studies and design plan for peer group review and criticism. In its interactive program to create rulemaking by consensus, the Agency has ignored the criticism of its own Motor Carrier Safety Advisory Committee with respect to the prejudicial branding of carriers by SMS methodology and has not properly submitted its data and conclusions for critical review and assessment. Attached as Appendices A, B and C are three statistical analyses which call into question the Agency’s basic premise that its complicated methodology accurately predicts carrier safety performance. Unlike the UMTRI, Volpe and Agency generated studies, these three documents focus on the effect of SMS methodology on individual carriers, not percentile averages and trend lines. Appendix A is a second Wells Fargo study released July 2, 2012 entitled “CSA – Another Look With Similar Conclusions” which reconfirms the findings of the earlier Wells Fargo study based upon a more extensive analysis of carriers measured under SMS methodology. The fact that the Wells Fargo studies could not verify the underlying assumptions of SMS methodology is fatal to any possible ratification of the program under the Administrative Procedure Act. Appendix B is a study performed for ASECTT by Inam Iyoob, PhD entitled “BASIC Scores are Not Valid Predictors of Crash Frequency” which shows the distribution of crashes per vehicle mile using the Agency’s database for individual carriers in the two acute BASICs of “Unsafe Driving” and “Fatigued Driving”. An examination of the study demonstrates that FMCSA’s data cannot be used to predict the crash performance of individual carriers, even though the FMCSA claims SMS scores are correlated to the average crash frequency of hundreds of carriers at each percentile integral. Consumers of freight transportation do not select “average” carriers, they select individual carriers and the Agency study offers no proof that SMS methodology is a predictor of individual carrier safety performance at any percentile level. According to Dr. Iyoob:

“I can’t see any useful purpose in averaging the crash data of hundreds of carriers in each of 100 different percentiles and then calculating a regression of the average values. *** The purpose of regression analysis is to explain variation. Averaging hundreds of carriers at each percentile eliminates most of the variation in the data. It is not statistically accurate to say the SMS methodology and BASIC percentile scores are an accurate predictor of carrier safety predicated upon the crash data the Agency uses to justify its conclusions. “Logically, unsafe driving and driver fatigue do impact crashes. However, the way the SMS BASICs Unsafe Driving and Fatigued Driving are captured, calculated and interpreted by FMCSA does not show any correlation to crashes.

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Hence usage of SMS data for carrier selection will unduly favor some and penalize others, and thus should be avoided.”

Appendix C is a paper entitled, “Statistical Issues in the Safety Measurement and Inspection of Motor Carriers” by James Gimpel, PhD, University of Maryland, which seriously challenges the efficacy and usefulness of SMS percentile rankings to predict carrier safety. Professor Gimpel’s study is the first serious treatment of the structure of SMS methodology, its collection methods, systemic statistical errors and variables ignored in previous analyses. Importantly, the Iyoob and Gimpel studies substantiate and reconfirm the Wells Fargo conclusions across the broad population of small carriers measured under SMS methodology. These studies poignantly demonstrate the absence of sufficient, adequate and reliable data for the vast majority of small business enterprises which make up the motor carrier industry. The resulting wide variations in individual crash ratios at each percentile ranking for the two reported acute BASICs is fatal to the use of SMS methodology as anything more than a heuristic tool for monitoring by the Agency. It does not result in a system which either the Agency or a deputized shipper and broker community can or should consider in making safety fitness determinations.

VII. Conclusion of Comments

For all the reasons stated above, ASECTT submits that SMS methodology, even with the proposed changes, still is not ready for scrutiny under the rulemaking process which should have been used at the outset. SMS contains systemic flaws which preclude the use of the methodology for any purpose other than the Agency’s own internal use, as part of a progressive intervention program leading to objective safety fitness determinations upon which the shipping public and brokers can rely. Ultimately, the Federal Government and only the Federal Government should be the arbiter of carrier safety fitness and in accordance with existing law, the Agency should make safety fitness decisions upon which the shipper and broker community can rely without fear of liabilities imposed by state law otherwise preempted by the Agency’s ultimate safety fitness decision. SMS methodology has not been shown to be an accurate reflection of carrier safety, nor does it come close to providing the truly comprehensive safety analysis required by Congress. The Agency should immediately withdraw any suggestion that the shipper or broker public cannot rely upon the Agency’s ultimate safety fitness determinations. In other words, the Agency should adhere to the spirit and intent of its settlement in NASTC. In accordance with the Reg Flex Act and the National Transportation Policy, the Agency should consider other viable alternatives which will allow it to make current and objective safety fitness determinations regarding all carriers without ruinous effects on efficiency, competition and small businesses. The public percentile ranking of carriers must be removed from public view with an affirmation of the preemptive effect of Section 31144 by the Agency. To undo the serious collateral damage done by the Agency to the marketplace in the name of “raising the safety bar” the Agency must look afresh at SMS methodology and consider more comprehensive, objective and self-funding proposals which will allow the Agency to perform its safety duties and ensure safe, effective and competitive truck transportation.

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Respectfully submitted, /s/ Tom Sanderson Tom Sanderson, President of ASECTT The Alliance for Safe, Efficient, and Competitive Truck Transportation tom.sanderson@transplace.com www.asectt.blogspot.com Henry E. Seaton, Esq. Counsel/ASECTT Seaton & Husk, LP 2240 Gallows Road Vienna, VA 22182 heseaton@aol.com Mark J. Andrews, Esq. Counsel/ASECTT Strasburger & Price, LLP 1700 K Street, NW, Suite 640 Washington, DC 20006-3817 mark.andrews@strasburger.com

William D. Bierman, Esq. Counsel/ASECTT Nowell Amoroso Klein Bierman, P.A. 155 Polifly Road Hackensack, NJ 07601 wbierman@nakblaw.com

Summer 2012

Curriculum Vitae of James G. Gimpel Department of Government and Politics

University of Maryland College Park, MD 20742 (301)-405-7929 (office)

jgimpel AT gvpt.umd.edu

Personal:

U.S. Citizen; Married, two children.

Current residence: Columbia, Maryland

Current Position:

University of Maryland - College Park.

Full Professor, August 2001-present. Editor, American Politics Research, 2003-2011 (eight years) Associate Professor with tenure, August 1997-August 2001. Assistant Professor, January 1992-August 1997.

Education:

University of Chicago. Ph.D. Political Science, 1990. University of Toronto. M.A. Political Science, 1985. Drake University. B.A. with honors. Political Science, 1984.

Books:

► Our Patchwork Nation: The Twelve Community Types that Make Up Our Nation (Penguin, 2010) with Dante Chinni.

► Cultivating Democracy: Civic Environments and Political Socialization in America (Brookings Institution Press, 2003) with J. Celeste Lay and Jason E. Schuknecht.

► Patchwork Nation: Sectionalism and Political Change in American Politics (University of Michigan Press, 2003) with Jason E. Schuknecht.

► Separate Destinations: Migration, Immigration and the Politics of Places (Ann Arbor, MI: University of Michigan Press, 1999).

► The Congressional Politics of Immigration Reform (Boston, MA: Allyn and Bacon, 1999) with James R. Edwards, Jr.

► National Elections and the Autonomy of American State Party Systems (Pittsburgh, PA: University of Pittsburgh Press).

► Fulfilling the Contract: The First 100 Days (Boston, MA: Allyn and Bacon, 1996). Published in hardcover under the title: Legislating the Revolution: The Contract with America in its First 100 Days.

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Articles in Peer Reviewed Journals: ► “The Tea Party Movement and the Geography of Collective Action.” with Wendy K. Cho and Daron R. Shaw.

Quarterly Journal of Political Science 7: 2: (2012) 105-133.

► “GIS and the Spatial Dimensions of American Politics.” with Wendy K. Cho. Annual Review of Political Science. 15: (2012) 443-460.

► “What if We Randomized the Governor’s Schedule? Evidence on Campaign Appearance Effects from a Texas Experiment. With Daron R. Shaw. Political Communication 29: 2: (2012) 137-159.

► “When War Hits Home: The Geography of Military Losses and Support for War in Time and Space.” with Scott L. Althaus and Brittany H. Bramlett. Journal of Conflict Resolution. 56: 3: (2012) 382-412.

► “Ecologies of Unease: Geographic Context and National Economic Evaluations.” with Andrew Reeves. Political Behavior. 34: 3: (2012): 392-420.

► “Do Robotic Calls from Credible Sources Influence Voter Turnout or Vote Choice?” with Daron R. Shaw, Donald P. Green and Alan Gerber. Forthcoming in Journal of Political Marketing. Fall 2012.

► “The Political Ecology of Opinion in Big-Donor Neighborhoods.” with Brittany H. Bramlett and Frances E. Lee. Political Behavior. 33: 4: (2011) 565-600.

► “Rough Terrain: Spatial Variation in Contributions of Time and Money to an Election Campaign.” with Wendy K. Cho. American Journal of Political Science. 54: 1: (2010) 74-89.

► “Media Supply, Audience Demand and the Geography of News Consumption in the United States.” with Scott L. Althaus and Anne M. Cizmar. Political Communication. 26: 3: (2009) 249-277.

► “Political Socialization and Reactions to Immigration-Related Diversity in Rural America.” with J. Celeste Lay. Rural Sociology. 73: 2: (2008) 180-204.

► “The Check is in the Mail: Interdistrict Funding Flows in Congressional Elections.” with Frances E. Lee and Shanna Pearson-Merkowitz. American Journal of Political Science 52: 2: (2008) 373-394

► “Distance-Decay in the Political Geography of Friends-and-Neighbors Voting.” with Kimberly Karnes, John McTague and Shanna Pearson-Merkowitz. Political Geography 27: 2 (2008) 231-252.

► “The Battleground vs. the Blackout States: Behavioral Implications of Modern Presidential Campaigns.” with Karen M. Kaufmann and Shanna Pearson-Merkowitz. Journal of Politics 69: 3 (2007) 786-797.

► “Prospecting for (Campaign) Gold.” with Wendy K. Cho. American Journal of Political Science 51: 2 (2007) 255-268.

► “Spatial Surges in Arab American Voter Registration.” with Wendy K. Cho and Tony Wu. Political Geography 26: 3 (2007) 330-351.

► “Election Year Stimuli and the Timing of Voter Registration.” with Joshua J. Dyck and Daron R. Shaw. Party Politics 13: 3 (2007) 347-370.

► “Clarifying the Role of Socioeconomic Status in Political Participation: Policy Threat and Arab American Mobilization.” with Wendy K. Cho and Tony Wu. Journal of Politics 68: 4 (2006) 977-991.

► “The Political Geography of Campaign Contributions in American Politics.” with Frances E. Lee and Joshua Kaminski. Journal of Politics 68: 3 (2006) 626-639.

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Articles in Peer Reviewed Journals (cont’d.):

► “Residential Concentration, Political Socialization and Voter Turnout.” with Wendy K. Cho and Joshua J. Dyck. Journal of Politics 68: 1 (2006) 156-167.

► “Location, Knowledge and Time Pressures in the Spatial Structure of Convenience Voting.” with Joshua J. Dyck and Daron R. Shaw. Electoral Studies 25: 1 (2006) 35-58.

► “Distance, Turnout and the Convenience of Voting.” with Joshua J. Dyck. Social Science Quarterly 86: 3 (2005) 531-548.

► “Registrants, Voters and Turnout Variability Across Neighborhoods.” with Joshua J. Dyck and Daron R. Shaw. Political Behavior 26:4 (2004) 343-375.

► “The Persistence of White Ethnicity in New England Politics,” with Wendy K. Cho. Political Geography 23: 8 (2004) 821-832.

► “Turnout and the Local Age Distribution: Examining Political Participation Across Space and Time.” with Irwin L. Morris and David R. Armstrong. Political Geography 23:1 (2004) 71-95

► “Political Participation and the Accessibility of the Ballot Box.” with Jason E. Schuknecht. Political Geography 22: 4 (2003) 471-488.

► “A Promise Fulfilled? Open Primaries and Representation.” with Karen M. Kaufmann and Adam Hoffman. Journal of Politics 65: 2 (2003) 457-476.

► “Reconsidering Regionalism in American State Politics.” with Jason E. Schuknecht. State Politics and Policy Quarterly 2: 4 (2002) 325-352.

► “Political and Demographic Foundations for Sectionalism in State Politics: the Connecticut Case.” with Jason E. Schuknecht. American Politics Research 30: 2 (2002) 193-213.

► “Interstate Migration and Electoral Politics,” with Jason E. Schuknecht. Journal of Politics 62:1 (2001) 207-231.

► “Prejudice, Economic Insecurity, and Immigration Policy,” with Peter F. Burns. Political Science Quarterly 115: 2 (2000) 201-225.

► “Contemplating Congruence in State Party Systems,” an author-meets-critic exchange focusing on my 1996 book on state elections. American Politics Quarterly 27: 1 (1999) 133-140.

► “Self-Interest, Symbolic Politics and Attitudes Toward Gun Control,” with Robin M. Wolpert. Political Behavior 20:3 (1998) 241-262.

► “Packing Heat at the Polls: Gun Ownership as a Politically Salient Trait in State and National Elections,” Social Science Quarterly 79:3 (1998) 634-648.

► “Information, Recall and Accountability: The Electorate's Response to the Clarence Thomas Nomination,” with Robin M. Wolpert. Legislative Studies Quarterly 22:4 (1997) 515-525.

► “Candidate Character vs. the Economy in the 1992 Election,” with Kathryn M. Doherty. Political Behavior 19:3 (1997) 213-222.

► “Forecasts and Preferences in the 1992 Presidential Election,” with Diane Hollern Harvey. Political Behavior 19:2 (1997) 157-175.

4

Articles in Peer Reviewed Journals (cont’d.):

► “Opinion-Holding and Public Attitudes Toward Controversial Supreme Court Nominees.” with Robin M. Wolpert. Political Research Quarterly 49: 1 (1996) 163-176.

► “Rationalizing Support and Opposition to Supreme Court Nominations: The Role of Credentials.” with Robin M. Wolpert. Polity 28: 1 (1995) 67-82.

► “Understanding Court Nominee Evaluation and Approval: Mass Opinion in the Bork and Thomas Cases.” With Lewis S. Ringel. Political Behavior 17: 1 (1995) 135-153.

► “District Conditions and Primary Divisiveness in Congressional Elections.” with Paul S. Herrnson. Political Research Quarterly 48: 1 (1995) 117-134.

► “Reform-Resistant and Reform-Adopting Machines: The Electoral Foundations of Urban Politics 1910-1930,” Political Research Quarterly 46: 2 (1993) 371-382.

Teaching Specialization:

◦ Courses: Statistics; Linear Models; Campaigns and Elections; American Voting Behavior; Immigrants and Immigration Policy; State Politics; U.S. Congress; Public Opinion; Introduction to American Government; Undergraduate Honors Thesis Supervision; Graduate Thesis Supervision.

Public Policy and Government Work Experience:

◦ Head Start XXI Resource Center, Hammond, Indiana. GIS and Statistical Consultant to this Head Start Program Serving 1,200 clients in Lake and Porter Counties. October 2003-March 2004.

◦ Naugatuck Valley Economic Development Commission. Adviser to this Connecticut economic development agency drafting an EDA report on the local economic impact of defense downsizing and industrial restructuring in the Northeast. January-May 1998.

◦ U.S. Department of Housing and Urban Development. Office of Policy Development and Research. Policy analyst working in the economics division under Assistant Secretary for Policy Development and Research, John Weicher. June 1991-January 1992.

◦ U.S. Senate. Office of Senator Daniel R. Coats. Legislative Assistant and Policy Analyst for Senator’s committee and legislative assignments on the Labor and Human Resources Committee. June 1989-June 1991.

Official Testimony:

◦ U.S. House of Representatives, Government Reform Subcommittee on Federalism and the Census, Testimony on Immigration-Induced Reapportionment, December 6, 2005.

◦ U.S. House of Representatives, Small Business Committee, Testimony on Population Mobility and the Rural Economy, May 20, 1997.

Talking Points/SMS Roundtable February 14, 2012 1. SMS methodology has not been vetted, and affects 600,000 small

businesses. 2. Systematically it publicly brands over half the carriers it measures as

exceeding the threshold or “warning symbol.” 3. Although the threshold, pursuant to court settlement means only that the

carrier may be prioritized for further monitoring, the Agency publicly tutors the shipping community in the use of SMS data to assess their unspecified “safety risk”.

4. To the nation’s largest shipping group it said: How to Use CSA to Select A Carrier As shippers you should use SMS BASIC information as a risk indicator of a

carrier as compared to other carriers in the safety event grouping. 5. Recently the Agency published the following statement, “Companies with

BASIC status or an unsatisfactory safety rating are considered to be a higher safety risk”.

6. As a result of these statements and the efforts of those seeking competitive

advantage, Morgan Stanley reports 55% of the shippers have become frightened to use carriers with a .

7. Even the Agency’s own hand-picked MCSAS has opined that the Agency

needs an affirmative action program to respond to the resulting misuse of the unvetted data to penalize carriers.

8. In response to inquiry from Velocity Magazine, an unnamed SMS

spokeswoman recently stated, “…the agency's mission ‘does not include providing business direction to private industry.’ She added that legal issues such as vicarious liability and negligent hiring "are outside of the agency's area of responsibility."

9. Based on the old canard that the Agency will not rest until there is not a

single highway fatality involving large trucks and that the system is only intended to identify “a few bad actors”. The public and plaintiff’s bar is told over half the carriers the agency can measure are considered “higher safety risks".

10. As a result of the Agency’s failure to affirm that it is the final authority on

carrier certification, its own sister agency, the DOD, now has felt compelled to use SMS to bar carriers. Thousands of carriers are losing opportunity to compete. NASTC has over 1,100 carriers with a .

Fall/Winter 2011

A Commentary: The PA Commentary: The PA Commentary: The PA Commentary: The PA Commentary: The Perfect Storm: Schramm Decisionerfect Storm: Schramm Decisionerfect Storm: Schramm Decisionerfect Storm: Schramm Decisionerfect Storm: Schramm Decision, FMC, FMC, FMC, FMC, FMCSA, andSA, andSA, andSA, andSA, andImpossible Duty for BrImpossible Duty for BrImpossible Duty for BrImpossible Duty for BrImpossible Duty for Brokers and Thirokers and Thirokers and Thirokers and Thirokers and Third Pd Pd Pd Pd Party Larty Larty Larty Larty Logistics Companiesogistics Companiesogistics Companiesogistics Companiesogistics CompaniesPPPPPaul Stewartaul Stewartaul Stewartaul Stewartaul Stewart

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Vol. 22 No. 2Fall/Winter 2011

ISSN # 1058-6199ISSN # 1058-6199ISSN # 1058-6199ISSN # 1058-6199ISSN # 1058-6199

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Journal of Transportation Management7

A COMMENTARY:THE PERFECT STORM: SCHRAMM DECISION, FMCSA, AND AN IMPOSIBLE DUTY

FOR BROKERS AND THIRD PARTY LOGISTICS COMPANIES *

Paul StewartAttorney at Law

ABSTRACT

Over the last thirty years, there never has been a more confused doctrine than the current “duty ofreasonable care” faced by transportation brokers, third-party logistics companies and shippers as theyselect carriers for transport. The confusion in what was once reasonable and well understood law hasbeen fueled by a perfect storm of judicial reasoning with misplaced reference to faulty empiricaldata, the complete failure of the Federal Motor Carrier Safety Administration (FMCSA) to properlyassess carrier safety worthiness, a feeding frenzy by the plaintiffs’ bar and apathy by many in theindustry. The purpose of this commentary is to examine how this uncertainty developed, to identifysome of the more glaring issues that must be addressed, and to give some possible guidance as tohow the industry, FMCSA and courts should proceed to clarify the duty of a broker in complyingwith “reasonable care” in selecting carriers.

INTRODUCTION

During thirty years as a transportation attorney,general counsel to three third-party logisticscompanies and former CEO of a logisticscompany, there never has been a more confuseddoctrine than the current “duty of reasonablecare” faced by transportation brokers, third-partylogistics companies and shippers as they selectcarriers for transport. The confusion in whatwas once reasonable and well understood lawhas been fueled by a perfect storm of judicialreasoning with misplaced reference to faultyempirical data, the complete failure of theFederal Motor Carrier Safety Administration(FMCSA) to properly assess carrier safetyworthiness, a feeding frenzy by the plaintiffs’ barand apathy by many in the industry in the face ofsome potentially serious challenges to the futureof competition in both the carrier and brokersectors of the industry.

The purpose of this commentary is to examinehow this uncertainty developed, to identify someof the more glaring issues that must beaddressed, and to give some possible guidanceas to how the industry, FMCSA and courtsshould proceed to clarify the duty of a broker incomplying with the “reasonable care” standardfor selecting carriers.

Since the inception of the property brokerconcept, brokers have for the most part beenheld to a very limited duty of reasonable careand diligent inquiry in the selection of carriersfor transport. As will be shown, the wisdom offifty years of state and federal courts construingthis duty to be limited is much more well-founded than the more recent and patentlyunsound extensions of this duty, requiringbrokers to be an ombudsman of safetydeterminations in lieu of the FMCSA.1 For all ofthe twentieth century a broker’s duty with slightexception was usually construed to mean that

1 SeeChubb Group of Insurance Companies v. H.A. Transportation Systems, Inc., 243 F. Supp. 2d 1064 (C.D. Cal.2002); CGU Int ’l Ins., PLC v. Keystone Lines Corp. , 2004 WL 1047982, *3 (N.D. Cal. May 5, 2004); Schramm v.Foster, 341 F. Supp. 2d 536 (D. Md. 2004); Jones v. C.H. Robinson Worldwide, Inc. 558 F. Supp. 2d 630.

Fall/Winter 20118

brokers had to confirm that carriers they hiredsatisfied the following requirements:

1. Authorized by what is now the FMCSA;2. Had regulatory mandated minimuminsurance coverage; and3. Were competent insofar as any knowledgethe broker had or with reasonable care couldascertain.2

Perhaps the Foster case3 in 1969 was the firstreal inroad into a broader duty by brokers. Itwas clearly a precedent for some of the veryvague, ambiguous and judicial activist reasoningand extremely poor direction by the Marylanddistrict court in the Schramm case. The Schrammcase, and its mandate that brokers/third partylogistics companies must look to a data base(FMCSA’s Safety Status Measurement System,“SafeStat”) that was full of error, and invalid asa predictor of carrier safety worthiness, pivotedoff of Foster. It required that brokers look to asource that could only create continuedconfusion for brokers and shippers, since boththe SafeStat system and its successor, SafetyManagement System (SMS), have been shownto provide misleading and incompleteinformation from which it is virtually impossibleto determine carrier safety worthiness, as will bemore thoroughly discussed herin.

If one is to properly address the current enigmafaced by brokers in their “new” duty ofreasonable care in selecting carriers, decision-makers must understand how the fallacy of thisnew duty was developed, with some hope that abetter understanding of this unfortunate rule oflaw will be completely corrected.

ANALYSIS

I. The Foster Case and How it Was Bad Lawand a Faulty Foundation for Schramm

The Foster case involved a shipper (Foster) whohad selected a carrier that was involved in anautomobile accident in which persons wereseriously injured, after the brakes on the carrier’struck failed. Plaintiffs, in addition to statutoryand regulatory infractions that are not pertinent,alleged that the broker was negligent forselecting “…an incompetent and carelesscontractor (carrier)”. The Ninth Circuit Court ofAppeals reasoned first that the evidence wasinsufficient to hold that Foster could haveknown of prior acts of negligence by the carrierof such number or magnitude to have found thecarrier to be incompetent or careless. They alsofound that Foster had no actual knowledge ofeither poor reputation or lack of authority on thepart of the carrier.4

Had the Court stopped there, as they shouldhave, the ambiguous reasoning and inexplicableduties for brokers pronounced in the Schramm(2004) case perhaps would never have beenvisited upon the truck brokerage industry. TheFoster (1969) court could have followed theconclusion reached in Mooney v. Stainless, Inc, a1964 case out of the Sixth Circuit Court ofAppeals.5

…we believe the better rule to be that inorder to render an employer liable underthe theory of negligent selection of anindependent contractor in cases such asthe one at bar, it is necessary to establishthat, at the time of hiring, the employerhad either actual or constructiveknowledge that the independentcontractor was incompetent.6

2 L.B. Foster Company v. Hurnblad , 418 F. 2d 727, 730 (9th Cir. 1969)3 Id.4 Foster, at 730, 731.5 338 F. 2d 127 (6th Cir. 1964)6 Id. at 131

Journal of Transportation Management 9

In addition, the mere fact that an independentcontractor might subsequently engage in anegligent act raises no presumption that theemployer was negligent in selecting theindependent contractor for the job.7

Instead, as in so many cases where it seems thatlegal reasoning is replaced with the purpose ofsustaining a sympathy verdict, the Foster courtfound that where direct evidence of negligence ismissing, a jury can infer negligence by a“…carrier’s or transportation broker’s lack ofexperience, poor financial condition, failure torespect certificate requirements, and willingnessto do business at cut rates.”8 From this premise,notwithstanding a total lack of affirmative proofof incompetence, or prior negligence, the Courtwent on to find that Foster “…failed to make areasonable inquiry as to [the carrier’s]competence.”9

If we are to understand the fallacy of the newduty of due care placed upon brokers by theSchramm court (and courts that have followed),we must first realize that Foster was the onlycase cited by Schramm as a premise for the“new” duty of reasonable care and standard for“reasonable inquiry”. Also, since the Fostercase was apparently the first court decision tosupplant direct evidence of prior knowledge ofcarrier negligence with inference of negligencebased upon the business acumen and financialsufficiency of the carrier, we must test that logicagainst our own fair analysis, before moving onto the failure of the Schramm court’s reasoningin establishing an impossible standard of care.

Return to Foster, and recall that the Foster courtfound no direct evidence of negligence by theshipper in selecting the carrier, but ruled instead

that negligence could be inferred by the shipperfailing to make reasonable inquiry into the“…carrier’s or transportation broker’s lack ofexperience, poor financial condition, failure torespect certificate requirements, and willingnessto do business at cut rates.”10 Assume arguendothat a broker finds a carrier for which he knowsof no prior negligence or incompetence. Thebroker then finds that the carrier has thefollowing characteristics:

1. The carrier is new and may have thebest drivers and equipment in thebusiness, but because the carrier isnew, there exists a “lack ofexperience”.

2. Has some weak financials, as all start-ups and many solid performancecarriers do, thus is currently in “poorfinancial condition”.

3. Has certificates of authority that maybe conditional because they are new,or may have lapsed because ofadministrative inefficiency.

4. Is willing to cut rates in order to gainbusiness, as will many very safecarriers who have a “willingness to dobusiness at cut rates”.

Assume further that the broker contracts withthis carrier to deliver a load, knowing of no prioracts of negligence and finding that the carrier isnot rated as “Unsatisfactory” by the FMCSA.After the carrier accepts the load, there is ahorrible accident caused by the driver fallingasleep. For the broker in our hypothetical, andthe entire broker industry, how can any of thestandards put forward by the Foster case help, orfairly be considered, in looking for theproximate cause of this accident, or finding that

7 Mooney, at 131, citing Matanuska Electric Association, Inc. v. Johnson, 386 P. 2d 698 (Alaska); Strickland v. State, 13Misc.2d 425, 177 N.Y.S.2d 983; Eger v. Helmar, 272 Mich. 513, 262 N.W. 298; Silveus v. Grossman, 307 Pa. 272, 161A. 362; 27 Am.Jur (Independent Contractors) 5098 Foster, supra at 7309 Id. at 731.10 Id.

Fall/Winter 201110

the selection of the carrier by the broker wasnegligent. The answer is that such standards areof highly subjective quality and couldn’tpossibly be helpful in the absence of direct proofof broker negligence. However, when courtsallow juries to infer negligence from such weaklogic, juries will too often create a path to asympathetic verdict. Such standards arecontradictions of sound judicial reasoning,which have in the past required direct evidencethat the broker had actual or constructiveknowledge that the carrier was incompetent,before attributing to the broker culpability fornegligent hiring.

The Foster court cited no authority for theirhighly subjective standard for reasonableinquiry. As in most bad law, they reasonedbackward to reach their result, by giving us achecklist of business acumen, rather than a solidinquiry standard. The suggested list of criteriafor an inference of negligence is immediatelyexposed as fallacious when made a part of thefollowing:

All carriers having poor financials andwilling to do business at cut rates arenegligentCarrier “A” has never had an accidentuntil now, has poor financials, lack ofexperience and is willing to do businessat cut rates.Therefore, Carrier “A” must benegligent.

One does not have to be an expert in argumentform to see how this syllogism stands out asinvalid. Further, other courts have consideredthis very argument and correctly found thatbusiness acumen and financial responsibilityhave no place in such analysis.

As to the first point, we reject the notionthat financial irresponsibility is eitherequivalent to or a category ofincompetence. Cassano v. Aschoff, 226N.J.Super. 110, 116, 543 A.2d 973,certif. denied, 113 N.J. 371, 550 A.2d476 (1988); see also Restatement(Second) of Torts § 411 comment g(1965) (“The rule stated in this Sectionmakes the employer responsible only forhis failure to exercise reasonable care toemploy a contractor who is competentand careful. It has no application wherethe contractor, although competent ... isfinancially irresponsible.”).11

Equating lack of insurance and financialresponsibility with incompetence mightalso wreak havoc in particularindustries, such as transportation,because persons or entities contractingfor transportation services would berequired to make continuing inquiry intothe financial qualifications of thecontractor.12

[emphasis added]

Foster was bad law. However, it was clearly thefaulty foundation for worse law by the Schrammcourt, thirty-four years later. Both Foster andSchramm are seemingly examples of how badlaw is often created by courts looking for socialjustice where a tragic accident has occurred, orreaching too far in creating a duty that has notheretofore existed. They both remind us ofJustice Holmes’ often mis-paraphrasedcomment, “Great cases like hard cases make badlaw. For great cases are called great, not byreason of their real importance in shaping thelaw of the future, but because of some accidentof immediate overwhelming interest whichappeals to the feelings and distorts thejudgment.”13

11 Mavrikidis v. Petullo, 153 N.J. 117, 707 A.2d 977 (N.J.,1998).12 Id. at 139, citing Robinson v. Jiffy Executive Limousine Co, 4 F 3d 237 at 242.13 Northern Securities Co. v. United States 193 U.S. 197, 400-401.

Journal of Transportation Management11

II. The Schramm Court Rules that BrokersMust Reference an Invalid Database(SafeStat).

The Schramm case, involved an accident in thestate of Maryland, caused when the carrier failedto stop at an intersection and plaintiffs’automobile collided with the carrier’s vehicle.Injuries to the plaintiffs were catastrophic andpermanent. The Maryland District Courtconsidered a motion for summary judgment andgranted all parts of the motion, except for thatpart relating to negligent hiring of the carrier bythe broker.With the seed of illogical “reasonableinquiry” planted by Foster, what followed wasthe sine qua non for the Schramm court to giveus the new and intractable duty for transportationbrokers:

This duty to use reasonable care in theselection of carriers includes, at least,the subsidiary duties (1) to check thesafety statistics and evaluations of thecarriers with whom it contractsavailable on the SafeStat databasemaintained by FMSCA, [italics mine]and (2) to maintain internal records ofthe persons with whom it contracts toassure that they are not manipulatingtheir business practices in order to avoidunsatisfactory SafeStat ratings.14

Perhaps the Schramm court was looking at leastin part for a more objective standard ofreasonable inquiry than what they saw in theFoster decision. Perhaps they saw the sameinadequacy in such a business acumen test asdemonstrated here. However, they unknowinglyresorted to requirements that could not produce amore reliable result when followed. In fairnessto the Schramm court, they apparently did notknow that their effort at a more objective

standard of reasonable care was doomed by thecompletely inadequate authority they chose forinquiry into carrier safety, i.e., “… the SafeStatdatabase maintained by FMSCA.”

In fact, these “subsidiary duties” were on the dayannounced counterproductive to any notion ofimproving the process of selecting safe carriers.Furthermore, the sanction of such a uselessprocess by a federal district court both greatlyconfused the former duty of reasonable care fortransportation brokers, and at the same timeallowed FMCSA to further avoid its duty to bethe one and only entity to administer, evaluateand determine carrier safety worthiness.Consider the first “subsidiary duty” announcedby the district court:

“(1) to check the safety statistics andevaluations of the carriers with whom itcontracts available on the SafeStatdatabase maintained by FMSCA.” 15

To scrutinize fairly the rationale by which theSchramm court pronounced this duty, one mustask: What would the broker in the Schrammcase have found had they looked carefully atSafeStat, prior to selecting the carrier involvedin the ensuing accident? The accident andconcomitant duties of the broker which were thesubject of the court’s analysis occurred on May2, 2002, and the court’s decision was announcedAugust 24, 2004. For the interim period betweenthe date of the accident and the court’s analysisrequiring brokers to look to the SafeStat system,the U.S. Department of Transportation, Office ofInspector General reported the following onFebruary 13, 2004:

1. Of 645,551 active interstate carrierson record, only 26 percent hadsufficient data represented to

14 Schramm at 551, citing Foster, supra.15 Schramm, supra

Fall/Winter 201112

compute a value for one or more ofthe four safety evaluation areas.

2. One-third of crash reports, including37,000 crashes involving interstatecarriers, were missing from theFMCSA’s database.

3. As of January, 2003, 42 percent ofthe reporting on active carrierscontained outdated data.

4. For the fiscal year 2002, the averagetime in which to upload crash dataon carriers took 158 days.

5. Thirteen percent of the 21,000crashes and over 70,000 of theinspection transactions occurring inour 6-month sample period containedcarrier identification errors, such asfailure to identify a carrier associatedwith the violation, or in a smallernumber of instances, identifying thewrong carrier.

6. In an estimated 11 percent of theinspection errors the wrong carrierwas held accountable for the SafeStatrelated violation.

7. Problems with the inaccurate data arecompounded because no effectivesystem is in place now to facilitatethe correction of errors in datareporting.

8. Missing crash reports may place alower risk carrier in a deficientcategory because data for a higherrisk carrier is not included in thecalculation.

9. The effectiveness of the SafeStatscoring and ranking calculations ishighly dependent on the quality ofthe crash data file, which in the pastwas missing a substantial number ofreportable crashes.

10. If public dissemination of SafeStatresults is to continue, the data must

meet a higher standard. The typesand magnitude of data problems wefound argue for immediate andeffective action.16

Perhaps the Schramm court was somehow rulingon insufficient or poorly presented evidence, ortook unfounded rationale without precedentfrom briefs by the parties, but for unknownreasons and no proven prior validity, the courtcreated a “subsidiary duty” sui generis, that was,by objective facts then available, contrary to anynotion of best practice. Moreover, this newlyannounced duty made it mandatory for brokersto look to a source (SafeStat) that had beenfound to be unreliable by the Inspector General’soffice six months before the Schramm decisionwas published. In fact, the Inspector General’sreport was clearly saying that the data wasincomplete, invalid as an indicator of accuratereporting on carriers and recommending that theSafeStat site be taken out of public view and usemonths before the Schramm court mandated itsuse.

Seemingly, the Schramm court was desperate foran empirical source to which brokers and othershippers could turn and get a clear indication ofthe safety worthiness of carriers. Theyapparently assumed far greater validity for theinformation to be found on SafeStat than existed.With all of the information that was available atthe time of their decision, they either knew orshould have known that SafeStat was anythingbut a failsafe source of carrier safety evaluation.Still, inexplicably, they created a standard thatwas immediately incapable of confirming“reasonable care” or “diligent inquiry”, since thesource to which the court directed brokers couldnot possibly provide completely validinformation, and thus, absolutely could not bereliable, by definition.

16 U.S. Department of Transportation, Office of Inspector General: Executive Summary Audit Report No. MH-2004-034, February 13, 2004; http://www.oig.dot.gov/sites/dot/files/pdfdocs/mh2004034.pdf

Journal of Transportation Management 13

(The reader is invited to test this conclusionagainst any of the ten findings mentioned abovein the Inspector General’s audit of 2004; e. g., if11 percent of the inspection errors wereattributed to the wrong carrier, how may wereliably make any determination as to the carrierwe are researching? If 74% of the registeredcarriers did not have sufficient data represented,how was the broker in Schramm to know withreliability whether the carrier they wereresearching was among them? If in 11 percentof the inspection errors the wrong carrier washeld accountable for the SafeStat violation, howwas the broker to know whether the carrier theywere researching was among these wrongfullycharged with a violation.)

All indications of the unreliable nature ofSafeStat continued to mount from the time of theSchramm decision. By 2007, the InspectorGeneral made the following findings andrecommendations:

We found that, although improvementshave been made, problems still existwith the reporting of crash data.Completeness of data is critical forSafeStat because scoring involves arelative safety ranking of one carrieragainst other carriers competing for thesame business.Missing crash reports may place a lowerrisk carrier in a deficient categorybecause data for a higher risk carrier isnot included in the calculation.Consequently, FMCSA should continueto limit public use until it can assesswhether significant crash reportingproblems remain.Before FMCSA allows public access toSafeStat scores, it must improve itsability to measure the completeness ofnon-fatal crash reporting.17

Shortly after the Inspector General reported thisinformation to Congress; on February 21, 2008,the FMCSA put the following disclaimer (inpart) on the SafeStat website:

“Caution Urged in the Use of SafeStat Data”

The message that followed this notice included adescription of how information was reported tothe FMCSA and problems with variation in thatdata reporting. The description was summarizedwith this statement:

“Accordingly, SafeStat’s ability toaccurately and objectively assess thesafety fitness of individual motor carriersmay be inconsistent and not conclusivewithout additional analysis.” [emphasisadded]

This announcement confirming the invalidity ofthe SafeStat information on carriers was thenfollowed by this boldfaced disclaimer:

WARNINGBecause of State data variations,FMCSA cautions those who seek to useSafeStat data analysis system in waysnot intended by FMCSA. Please beaware that use of SafeStat for purposesother than identifying and prioritizingcarriers for FMCSA and state safetyimprovement and enforcement programsmay produce unintended results and notbe suitable for certain uses.18

In the same year that the Schramm decision waspublished, the Inspector General’s Officeconcluded that SafeStat was no longer a validmeasurement device for carrier safetyworthiness: “FMCSA must act to revalidate theSafeStat model because changes have occurred

17 U.S. Department of Transportation, Office of Inspector General: Letter from Inspector General Scoval toCongressman Petri with attached Briefing, June 19, 2007; http://www.oig.dot.gov/sites/dot/files/pdfdocs/SAFESTAT.PDF18 FMCSA, Safety Measurement System, http://ai.fmcsa.dot.gov/SMS/

Fall/Winter 201114

since the 1998 study that supported the model’svalidity.”19

The Schramm court established a rule of law thatwas clearly wrong on the date it was announced.No clear and reliable safety determination wasavailable to the broker in Schramm had they “…check[ed] the safety statistics and evaluations ofthe carriers with whom it contracts available onthe SafeStat database maintained by FMSCA”,nor was one available to all the brokershenceforth that have been irresponsiblyburdened by this decision, which is inexplicableexcept for the motive of reaching a social justicedecision. The FMCSA reporting function thathad been a failure since its inception in 1999,was a failure prior to and on the date of theSchramm decision, and continues to be a failureto this day, even its present form known asComprehensive Safety Analysis 2010 (CSA2010), Safety Management System (SMS), aslater developed here.

In summary, the SafeStat measurement system ofcarrier safety was invalid and unreliable at thetime of the ruling in Schramm. However, due toa lack of a careful and cogent analysis, courtsand court decisions have continued to allowjuries to consider the incredulous notion thatbrokers should have looked to the SafeStatsystem for information on carriers as a part oftheir duty of reasonable care in selecting acarrier.20 Perhaps more important, the unusualmandate by a federal court, giving specificdirection to such an unreliable source, has beenaccepted as procedure that must be followed bymany who counsel transportation brokers on riskmanagement, and cottage industries have beencreated to look for and evaluate information thatis by any definition unreliable.

III. FMCSA Replaces Safer/SafeStat withComprehensive Safety Analysis 2010(CSA 2010) and the Safety ManagementSystem (SMS).

The problems with SafeStat and continuedpublic outcry, along with Congressionaloversight and pressure, resulted in the FMCSAannouncing the agency function that was toreplace SafeStat as a carrier safety measurementsystem. In their Five-Year Plan for 2006-2011,the agency provided the first description ofCSA-2010:

The intent of CSA 2010 is to establish anoperational model that will determinethe relative safety fitness risk attributableto every motor carrier and developstreamlined approaches to change thebehavior of poor motor carrieroperations and their drivers. The CSA2010 will ultimately provide FMCSA anew modern-operational model that willgreatly enhance the Agency’s efficiencyat gathering and properly evaluating agreater proportion of the regulatedpopulation.21

This intent was followed by the rollout of theCSA 2010 Operational Model, in December,2010, with the following stated purpose: “CSAre-engineers the former enforcement andcompliance process to provide a better view intohow well large commercial motor vehiclecarriers and drivers are complying with safetyrules, and to intervene earlier with those who arenot.”22

Since the inception of CSA 2010 and the SMSmeasurement categories for carrier safety, this

19 Executive Summary Audit Report, supra. p. iv. (2004).20 See, Jones v. C.H. Robinson Worldwide, Inc. 558 F. Supp. 2d 630.21 Federal Motor Carrier Safety Administration, FMCSA Strategic Plan 2006-2011, http://www.fmcsa.dot.gov/fmcsa-strategic-plan-102907.htm22 Federal Motor Carrier Safety Administration, CSA - Compliance, Safety, Accountability, website http://csa.fmcsa.dot.gov/about/csa_how.aspx

Journal of Transportation Management 15

new alternative has also been found to be invalidand unreliable for such a purpose. Thefoundation for the conclusion that thismeasurement system is also invalid andunreliable for the purpose of determining carriersafety with reasonable certainty includes thefollowing:

1. Anne Ferro, Administrator, FMCSA,stated before Congress that theFMCSA will replace SafeStat withthe Safety Management System(SMS), and that the Agency can rateonly between two and three percentof the carrier population annually.23

2. Because of skewed data anddisproportionate impact on carriers,the National Association of SmallTrucking Companies (NASTC), et al.filed suit against the FMCSA onNovember 29, 2010, seeking a stayon the implementation of SMS andits ostensible measurements ofcarrier safety (Behavior Analysis andSafety Improvement Categories“BASICs”).24

3. In a settlement agreement betweenNASTC, et.al., and FMCSA, onMarch 4, 2011, the FMCSA, agreedto publish a disclaimer on the SMSwebsite, admitting that,

Readers should not draw conclusionsabout a carrier’s overall safetycondition simply based on the datadisplayed in the system. [emphasisadded] Unless a motor carrier in theSMS has received an

UNSATISFACTORY, safety ratingpursuant to 49 CFR Part 385, or hasotherwise been ordered to discontinueoperations by FMCSA, it is authorizedto operate on the nation’s roadways.25

4. During the twelve months that SMShas been used by FMCSA to evaluatecarrier safety, there have beennumerous database changes, with thefollowing noted as deficiencies infairly rating all carriers within thetest states:

Only 11 percent of regulated carriershave any scores.Crash data includes both preventableand non-preventable accidents. Lessthan 4 percent of regulated carriershave crash data included.“Unsafe driving” scores are recordedonly in conjunction with roadsideinspections, and measure only 4.8percent of the regulated carriers.The “fatigued driving” BASICmeasures only 2.5 percent of theregulated carriers.“Vehicle maintenance” measuresonly 9 percent of the industry.“Driver fitness” measures only 2percentof the industry. Most pointsare accumulated for drivers nothaving medical cards in theirpossession – not for actualdisqualifying medical conditions.26

Such uncertainty and lack of validity to criticalmass measurement of all regulated carriers hasled to concern by financial institutions and thecapital markets invested in the transportation

23Committee On Transportation And Infrastructure Subcommittee On Highways And Transit U.S. House OfRepresentatives; Statement of Anne S. Ferro, Administrator, FMCSA;, June 23, 2010; http://www.fmcsa.dot.gov/about/news/speeches/Statement-of-Anne-S-Ferro062310.aspx24 National Association of Small Trucking Companies, et al. v. FMCSA (D.C. Cir. No. 10-1402)25 Id., Settlement Agreement, March 4, 2011. Document ID:129706426 U.S. Department of Transportation, Paul E Green and Daniel Blower, Evaluation of the CSA 2010 Operational Model

Test, University of Michigan Transportation Research Institute, FMCSA-RRA-11-019 (Washington, D.C.: Aug. 2011),p. 27.

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industry. One such company, Wells FargoSecurities, LLC, completed a thorough statisticalanalysis and reported their findings onNovember 4, 2011,

In fact, according to our analysis of the200 largest carriers in the CSA database,we find no meaningful statisticalrelationship between actual accidentfrequency and BASIC scores for UnsafeDriving, Fatigued Driving or DriverFitness… we feel BASIC scores shouldnot be used exclusively in assessingcarrier risk and that they may, in fact,provide misleading information.27

Unfortunately, since the installation of CSA2010 and its measurement devices for carriersafety contained within the SMS; brokers,shippers and carriers are left with anotherunreliable measurement system for carrier safety.While CSA 2010 and its measurement system,SMS, are the successors to SafeStat, no court hasyet been required to rule on whether brokershave the duty to look to the carrier safetyinformation within SMS. However, brokersoperate daily under the threat of vicariousliability should they fail to follow the mandate ofthe Schramm Court, and “…check the safetystatistics and evaluations of the carriers withwhom it contracts available on the SafeStatdatabase maintained by FMSCA.”28

Never has a court offered any more meaninglessand completely counterproductive direction.The paranoia and complete uncertaintysurrounding the “new” duty of reasonable carefor brokers in selecting carriers should neverhave come to be. It was originated by badanalysis, and over-reaching judicial direction toan invalid source of inquiry. The complete

impossibility of this new duty of care has beenexacerbated, rather than alleviated, by thebandwagon tendency for some who advisebrokers to parrot the Schramm decision, andadvise that brokers must “… check the safetystatistics and evaluations of the carriers withwhom it contracts available on the SafeStatdatabase maintained by FMSCA”. Rhetorically,and in fact, we must ask: To find what, exactly,which might be reliable?

It was bad advice when originated by theSchramm Court, for all the reasons outlinedherein, and it is bad advice today. In light of allthe information that has been generated and eventhe admissions of the FMCSA, for brokers tooriginate and perpetuate a business process thatrequires them “…to check the safety statisticsand evaluations of the carriers with whom [they]contract…” on either the former SafeStatsystem, or its successor, the SMS, amounts todrinking the proverbial Kool-Aid. A betterargument could perhaps be made that it isnegligence per se for brokers to make ajudgment about the safety worthiness of carriersfrom what has been demonstrated to beunreliable and certainly incomplete informationcurrently found on the SMS. They will never beable to substantiate diligent inquiry by referringto bits and pieces of unreliable data.

How can such an inquiry satisfy any meaningfulduty of due care, when the FMCSA directlycontradicts such advice on the SMS website withtheir very clear disclaimer, “Readers should notdraw conclusions about a carrier’s overallsafety condition simply based on the datadisplayed in the system.”29 Further, as if thedisclaimer is not enough, FMCSA adds in itsexplanation of what SMS is, and is not, “[t]heSMS results displayed on the SMS website arenot intended to imply any federal safety rating of

27 CSA: Good Intentions, Unclear Outcomes; Anthony Gallo, CFA, Senior Analyst; Wells Fargo Securities, LLC, EquityResearch Department, November 4, 201128 Schramm , supra29 FMCSA, Safety Management System, http://ai.fmcsa.dot.gov/SMS/Data/carrier.aspx?enc=KxcVSWgEcay9s9SnBUikeRZByr+pUdovFGgZJQ18wgs=

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the carrier pursuant to 49 USC 31144.”30

[emphasis added] That being so, we must askwas there ever any valid reason for brokers beingsent into this nightmare of “checking safetystatistics and evaluations of carriers”? Theanswer is clearly, no! It resulted from bad lawand lack of understanding of just howcompletely invalid the information was at thebottom of the rabbit hole chosen by theSchramm Court.

IV. How Must This Folly Be Corrected?

By different means and methods, a strongconsensus must be achieved by both courts andCongress that the FMCSA is the only entitycharged with determining the relative safety ofcommercial carriers. The nonsense must end.Laypersons must not be charged with looking atexperimental and, so far, invalid tools in a futileeffort to somehow document “diligent inquiry”from information that by definition is unreliableas an indicator of current and completeinformation on all carriers (and therefore, on thecarrier they are researching).

Congressional oversight of the FMCSA has beenlacking in requiring of FMCSA properaccountability for their primary responsibility, atleast since the introduction of the SafeStatsystem in 1999. No further Inspector Generalaudits and warnings should be required beforethe FMCSA is either to admit that theirresponsibility cannot be achieved by currentmeans, or completely sanction the rating of allcarriers for which they have not made adetermination of “UNSATISFACTORY”,consistent with their own construction of theirduty,

Unless a motor carrier in the SMS hasreceived an UNSATISFACTORY, safety

rating pursuant to 49 CFR Part 385, orhas otherwise been ordered todiscontinue operations by FMCSA, it isauthorized to operate on the nation’sroadways.31

There is in this advisory an immediate dilemmafor FMCSA if they, or the courts, suggest thatbrokers should not be limited in their duty ofdiligent inquiry to relying exclusively upon asearch for an “Unsatisfactory” rating, or not. Tosuggest that a broker, with limited resources,must look into the maze of unreliableinformation, or infer relative safety fromBASICs that may be distorted for all the reasonsdiscussed herein, is to say that the broker (andthe public) cannot rely upon FMCSA toauthorize only safe carriers. Courts should in thefuture be reluctant to hold a broker, with limitedunderstanding and reasons to believe that SMSdata may be unreliable, culpable for selecting acarrier that has been authorized by FMCSA,with their vast investment in measurementsystems with which to designate carriers as“authorized”.

Title 49, U.S.Code § 31144, requires theSecretary of Transportation (delegated toFMCSA per 49 CFR 385) to:

(1) determine whether an owner oroperator is fit to operate safelycommercial motor vehicles, utilizingamong other things the accident recordof an owner or operator operating ininterstate commerce and the accidentrecord and safety inspection record ofsuch owner or operator –

(2) periodically update such safetyfitness determinations;

(3) make such final safety fitnessdeterminations readily available tothe public;

30 SMS Information Center, What is the Motor Carrier Safety Management System (SMS)?, http://ai.fmcsa.dot.gov/SMS/InfoCenter/default.aspx#question1.31 SMS Website, supra

Fall/Winter 201118

There is no reasonable construction of thisstatutory language that would impose uponshippers, brokers and third-party logisticscompanies the duty of determining whether acarrier is safe. That is a statutory duty of theDepartment of Transportation, through theoffices of their administrative agency, theFMCSA. There is no statutory or regulatoryauthority for the FMCSA to delegate thisresponsibility to members of the public whomust choose a motor carrier from thoseregistered with the FMCSA. There is nostatutory or regulatory authority that allows aSafeStat or SMS measurement category (i.e.,“BASICs”) to be used as a “safety rating” in lieuof the procedure prescribed by 49 CFR 385,which by regulation mandates the statutory dutyof the FMCSA to “make such final safety fitnessdeterminations readily available to the public;”32

49 C.F.R. § 385.1 Purpose and Scope, provides:

(a) This part establishes FMCSA’sprocedures to determine the safety fitnessof motor carriers, to assign safety ratings,to direct motor carriers to take remedialaction when required, and to prohibitmotor carriers determined to be unfitfrom operating a CMV. [emphasis added]

If we are to understand the confusion that hasbeen created by the FMCSA and exacerbated bysome courts, we must understand the differencebetween this clear statutory duty and what hasresulted by years of FMCSA focus on safetymanagement controls, as a means of achievingthe ultimate objective and statutory duty toprovide “final safety fitness determinations”33,i.e., assign safety ratings.

These helpful distinctions are made at 49 C.F.R.§ 385.3 Definitions and acronyms:

Safety fitness determination means thefinal determination by FMCSA that amotor carrier meets the safety fitnessstandard under §385.5Safety rating or rating means a rating of“Satisfactory”, “Conditional” or“Unsatisfactory”, which the FMCSAassigns to a motor carrier using thefactors prescribed in § 385.7

FMCSA database measurement tools such as theformer SafeStat, or the current SMS, are notsafety fitness determinations or safety ratings.They are measurement tools that remain underdevelopment toward validity and reliability.They should be viewed as such in the future bycourts considering the admissibility of suchuncertain data. While they are underdevelopment, and until completely valid, theyshould not be viewed by the public in lieu of orin search of a statutorily required safety rating.[emphasis added]

The former SafeStat and current SMSmeasurement categories have been proven to benothing more than incomplete attempts to gathermetrics with which the FMCSA can make fitnessdeterminations and safety ratings. THEY ARENOT COMPLETED SAFETY RATINGS! Itfollows that when such tools are of questionablevalidity and reliability, they should be kept fromthe public view, rather than be mistakenlydesignated by courts as sources to which brokersmust look. To do so would avoid the many direconsequences brought about by misleading theshipping public, and the courts that havemisguidedly given these invalid toolsundeserved credence as part of common lawduties.

A. Suggested Congressional Action

The FMCSA has completely failed to fulfill thestatutory and regulatory duty of providing to thepublic accurate and timely safety ratings on all

32 49 U.S. Code § 31144 (3)33 Id.

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registered carriers. This failure is glaring andcomplete, since the inception of the FMCSA in1999. There has never been a time, since theinception of the FMCSA, that they have beenable to publish a “final safety fitnessdetermination” for all, or even a significantportion of the active interstate motor carriers.As of December 23, 2011, the FMCSA reports:

792,704 active interstate motorcarriers, with 118,327 (14.92%) ofthese having a safety rating of eitherSatisfactory, Conditional, orUnsatisfactory.338,380 For Hire interstate motorcarriers, with 61,067 (18%) of thesehaving a safety rating of eitherSatisfactory, Conditional, orUnsatisfactory454,324 Private interstate motorcarriers, with 57,260 (12.6%) ofthese having a safety rating of eitherSatisfactory, Conditional, orUnsatisfactory34

Since Administrator Anne Ferro states that theFMCSA can only rate two or three percent of themotor carriers annually35, it is unknown howmany of these are current, but by mathematicalcertainty, many are so old they are meaninglessas far as current safety worthiness. Whilespending $45 million on CSA 2010 since 2007,and requesting $78 million for 2012,36 theFMCSA has created new measurementcategories for “intervention” (of questionablevalidity and reliability), but has not created asystem that can give a definitive and final SafetyRating on all registered carriers. Their delegatedduty, under 49 U.S. Code § 31144, is to“determine whether an owner or operator is fit tooperate safely commercial motor vehicles…”,

and to, “make such final safety fitnessdeterminations readily available to the public”.[emphasis added]

The FMCSA claims, “The CSA 2010 willultimately provide FMCSA a new modern-operational model that will greatly enhance theAgency’s efficiency at gathering and properlyevaluating a greater proportion of the regulatedpopulation.” However, only 11 percent ofregistered carriers had any scores in the CSASafety Management System as of August 2011,37

and of those with scores at least one significantstudy found, “…no meaningful statisticalrelationship between actual accident frequencyand BASIC scores for Unsafe Driving, FatiguedDriving or Driver Fitness.”38

Congress should focus on clarifying for theFMCSA exactly what their duties and prioritiesshould be. At the current pace the FMCSA willhave spent over 120 million dollars on CSA2010 by the end of budget year 2012, and at bestthey have created a data recording system thathas questionable value for predicting carriersafety for less than twenty percent of the750,000 registered motor carriers. They stillhave no system that accomplishes the rating ofall carriers as either; Satisfactory, Conditional, orUnsatisfactory. However, because of someconfused judicial understanding of exactly whatthe SafeStat and SMS measurement systems canprovide, the FMCSA’s continued publication ofSMS BASICs measurements imply to the public,and to some courts, that such data is valid forevaluating a clear determination of carrier safety.It simply is not.

Congress must recognize FMCSA’s clear failureto provide final and timely Safety Ratings on all

34 FMCSA data base response to Freedom of Information Act inquiry, December 23, 2011.35 See. Note 2236 United States Government Accountability Office; Susan Fleming Director, Physical Infrastructure Issues; Report toCongress, February 25, 2011; GAO-11-416R37 Evaluation of the CSA 2010 Operational Model Test, supra38 Wells Fargo, supra.

Fall/Winter 201120

registered motor carriers, and that within thecontext of this failure they have caused courtsand the shipping public to be confused andburdened as to a reasonable and fair process fordetermining the safety worthiness of authorizedmotor carriers. As a first step in correcting thisfailure they should require FMCSA to removefrom public view the developmental data(BASICs) now being displayed within the SMS.By FMCSA’s own admission, its visibility anddecisions made there from may have unintendedconsequences. Removing this data from publicview will also relieve brokers and the shippingpublic from the mistaken judicial inference thatsuch data is a reliable source for a final SafetyRating. Finally, and most import, requiring theFMCSA to remove this incomplete“intervention” data disabuses the notion thatbrokers and other shippers should have a duty torefer to it as a part of their diligent inquiry andduty of reasonable care.

Once such data is removed from public view,FMCSA may continue to develop it to a point ofreliability and perhaps increased efficiency inperforming their duty to provide final safetydeterminations and safety ratings on allregistered carriers. In the interim, Congress, thetransportation industry, shipping public andcourts should not get confused by the FMCSA’sapparent effort to rationalize and obfuscate theirfailure to fulfill their statutory and regulatoryduty to provide to the public, “… final safetyfitness determinations”39 [emphasis added].They simply have not done so in their entireexistence.

B. Future Jurisprudence Must Provide aDuty of Reasonable Care for BrokersThat Corrects the Imputed Duty to Referto an Invalid Data Source

As has been demonstrated, the Schramm courtrequired brokers to refer to a system of carriersafety evaluation (SafeStat) that was full of error,invalid and unreliable on the day their decisionwas announced. The successor to SafeStat,SMS, is at best a work in progress and is alsoinvalid and unreliable as a definitive SafetyRating on motor carriers. It is clearly disclaimedas such by its originator, FMCSA.40 Futurelitigators, and courts who hear such cases, mustdevelop a remedial standard of due care forbrokers that eliminates the Hobson’s choice ofbeing required to refer to the SMS measurementsystem for a definitive Safety Rating. For thevast majority of registered carriers it simply isnot there. If it is there it is of questionablerelevance due to issues of timeliness, errors inreporting and ratios computed that areimbalanced with greater weight to largercarriers.

So much more is known (than at the time of theSchramm decision) about the likely unreliabilityof SMS data that courts should be more inclinedto exclude it as irrelevant, lacking in probativevalue, confusing and untrustworthy. The FederalRules of Evidence and the corollary state rules,have many provisions that should be consideredin motions in limine that fully develop thequestionable relevance, probative value,confusion factor and hearsay nature of many ofthe data categories within SMS.

Fed.R.Evid. 401 says, “Relevantevidence” means evidence having anytendency to make the existence of anyfact that is of consequence to thedetermination of the action moreprobable or less probable than it wouldbe without the evidence.

Fed.R.Evid. 403 provides that evenrelevant information may be excluded ifits probative value is outweighed by a

39 Title 49, U.S.Code § 31144 (3)40 FMCSA, Safety Measurement System, http://ai.fmcsa.dot.gov/SMS/

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danger that the evidence could beconfusing, misleading or a waste of thecourt’s time.

Fed.R.Evid. 803 (8) denies theadmission of government reports or datacompilations in civil actions if thesources of information or othercircumstances indicate lack oftrustworthiness.

Assume that a broker researches a carrier andfinds proper authority, regulatory insurance inplace and a safety rating other thanUnsatisfactory. The broker concludes that thecarrier is properly authorized by FMCSA, andthe broker has no current knowledge ofincompetence or unsafe operations by the carrier.The broker knows that the SMS data isincomplete and that it may contain BASICs datathat is incomplete and outdated, with ratios thatare skewed by large carrier presence, and that areputable statistical study concluded “…we findno meaningful statistical relationship betweenactual accident frequency and BASIC scores forUnsafe Driving, Fatigued Driving or DriverFitness”.41

Is admission of the SMS data, or broker’s failureto look at such data, fairly likely to make it moreor less probable that the broker was negligent?Given the established unreliability of the formerSafeStat information, and the current state ofconfusion regarding SMS measures, is there anycontext in which the SMS data should not beexcluded under Rule 403? Given the FMCSA’sacknowledgement that SMS data is not a safetyrating, but rather for internal interventionpurposes, along with their disclaimers andpublished acknowledgment that all carriers areauthorized to operate on the nation’s roadways,unless they have been given an Unsatisfactorysafety rating, is it more or less likely that

presentation of SMS data is both confusing anduntrustworthy under Rule 803 (8)?

It is suggested that more courts should rule asthe Middle District Court of Georgia did whenrequested to take judicial notice of safety ratingspublished on the former SafeStat, finding thatsuch data was not reliable evidence routinelycontemplated by the rules governing judicialnotice.42

CONCLUSION

V. Conclusion: Returning to a SensibleDuty of Care for Brokers

It has been argued herein that brokers and third-party logistics companies were for many yearsunder a reasonable standard of care in selectingcarriers, before the Schramm decisionerroneously required that they refer to a source(SafeStat) that was invalid and unreliable inorder to meet their duty of diligent inquiry andreasonable care. Furthermore, for all the reasonsstated herein, the successor to SafeStat,FMCSA’s Safety Management System, is asuntrustworthy, if not more so.

With the proven failure of the FMCSA toprovide final safety determinations and safetyratings for the vast majority of registered motorcarriers, there simply is no definitive source withwhich brokers can make a meaningfuldetermination of carrier safety. They are leftwith only a semblance of such a source. Theycan do as they have done for many years andrefer to the safety rating provided by theFMCSA, in those instances where it is available.If such a rating is not available, surely the brokercannot he negligent for failure to infer one fromwhat has been shown to be unreliableinformation.

41 Wells Fargo, supra42 See FCCI Ins. Group v. Rodgers Metal Craft, Inc., 2008 WL 4185997 (M.D. Ga. 2008)

Fall/Winter 201122

The FMCSA has clearly failed its statutory duty,which in turn means that the Department ofTransportation has failed to provide to the public“final safety determinations” and “safety ratings”as mandated by 49 U.S. Code § 31144.Congress has failed to properly recognize themagnitude of this failure and requireaccountability from FMCSA. Within thiscontext, the courts have failed by requiring ofbrokers and third-party logistics companies aresponsibility that could not be fulfilled, nomatter how long they might look as SMSBASICs data. It is time for the Congress,FMCSA and the courts to realize the nature andsignificance of this folly, and restore to brokersand third-party logistics companies, who areleast culpable, a standard of care that is realisticand takes into consideration the magnitude ofwhat has been wrought from the confusion onthis issue.

Congress must ask the FMCSA for answers tothe following: Can they provide to the publicfinal determinations of safety on all registeredcarriers? If not, how do they intend to complywith their statutory duty to do so? In askingthese question and listening to FMCSA’sresponse, Congress should not be distracted byFMCSA’s rhetoric about “intervention”…it isnot the same as providing safety ratings. Ifdevelopmental data such as BASICs is a worthyelement of ultimately getting to the ability toprovide safety ratings, then let it be recognizedas such and not as a rationalization for theirfailure to perform their primary duty. It followsthat brokers should not be assigned this dutywith the intractable information now admitted byFMCSA to be less than reliable for such apurpose.43

The courts who in the future consider the duty ofbrokers to use reasonable care in the selection ofcarriers should do so with recognition of the

errors of the past. Such judicial reformationmight start with a more careful analysis of thereal role of brokers in the facilitation ofproviding carriers for loads and loads forcarriers. It must also take into consideration thatsome of the prior decisions that have imposedimpossible standards upon brokers have perhapsbeen motivated by subjective reasoning. Courtswho reconsider the duty of brokers, in light ofthe mistakes of the Schramm decision, mightconsider the reasoning of Judge Smith of theGeorgia Court of Appeals,

…we are troubled by the result inthis case… We cannot, however,allow our sympathy for the plight ofthose injured by commercial trucksto lead us toward imposing strictliability on a party that does notpossess the requisite degree ofcontrol over another’s conduct.Resolution of this public policy issuelies with the legislative branch of ourgovernment, not with the judiciary.44

In the interim the courts can return to a moresensible notion that carrier safety is administeredby FMCSA, and FMCSA has a statutory duty toprovide a final safety determination and safetyrating. Brokers and other third parties cannotfairly be charged with this duty. It is reasonableto suggest that this was the recognition of allcourts who considered this issue for the fiftyyears preceding the Schramm decision.

* Readers should note that the formatting in thisarticle is reserved for Law Review style articles.Regular research oriented articles should beformatted in conformance with the Journal’sSubmission Guidelines.

43 See Note 2444 Clarendon Nat. Ins. Co. v. Johnson, 666 .E.2d 567, (Ga. App., 2008)

Journal of Transportation Management 23

*Paul Stewart, Of Counsel, Jackson Shields Yeiser & Holt, Memphis, TN, has practiced transportation law for more thanthirty years as General Counsel to three major logistics companies, and in private practice. He was also CEO of 4Elements, Inc., a logistics company, for three years.

AUTHOR BIOGRAPHY

Paul Stewart is Of Counsel, Jackson Shields Yeiser & Holt, Memphis, TN. He has practicedtransportation law for more than thirty years as General Counsel to three major logistics companies,and in private practice. He was also CEO of 4 Elements, Inc., a logistics company, for three years.E-mail: pws999@comcast.net