Defending & ManagingTrucking Litigation

11.29.2012

3rd National Forum

The Scope & Nuances of Recent Court Decisions

& Their Impact on the Course of Litigation

Extending Liability to Brokers

Introduction

Discussion of broad topic area

Source material & bibliography

History of the

Case Law

Structured commercial relationships result from:

• Contract of transportation/bailment

• Transportation= intangible service = space – time – distance

Bill of Lading

1

Regulation

2

Peripheral involvement

of intermediarie

s

3

Bills of lading separate & structure risk exposure

Two asset-based parties are involved in transportation

Asset-based shipper= consignor= consignee= beneficial owner

1

Asset-based carrier EXCEPT for

truckload owner operator fleets

2

Owner operators = independent contractors

• Legal concepts of independent contract breaking down

• Principal Agent case law

• Truth In Leasing imposed control on non-asset based carriers

• Regulatory duties expanded carrier tort exposure – placarding liability jumps contract privity pre-deregulation

Historically, torts arising out of transportation basically confined to

carrier

Third parties not acting as intermediaries

• Brokers, brokered or purchased transportation … did not provide it

• Freight bill auditors acted peripherally

• Consolidators (shippers’ agents – shippers’ association = exempt forwarders) aggregated or deconsolidated … did not assume responsibility

• Warehousemen released to/received from transportation bailment … did not provide it

Conclusion…

...Commercial business

of transportation legally

structured without

intermediaries under

regulation

Evolutionary Changes to the

Case Law

Are breaking down transportation functions &

spreading transportation responsibilities to non-asset service providers

Deregulation eliminated structure…

i.e. 49 USC §14101(b) &

49 USC § 14706(c)

Intermediary development roughly followed Australian deregulation experience

1

Brokers broadened service beyond brokerage

2

Intermodal Marketing Companies (IMC) broadened exempt freight forwarding

3

Logistics service providers broadened brokerage with IT offerings managing

freight

4

Exempt transportation & produce brokers expanded offerings … C. H.

Robinson

5

Intermediaries assumed some or all of transportation functions

• Carrier qualification• Dispatch• Tracing• Meeting transit time requirements• Rate negotiation• Claims management• Litigation defense

6

Economies of scale resulted in intermediary growth

Summary…

Some major intermediaries’ options blend into …non-asset based motor carrier or freight forwarder

options… but without operating authority

Intermediary operations are fluid & generate complex litigation

• FedEx brokered to Aero Terra, Inc., (A Broker)

Who brokered to Stallion Logistics, Inc., (A Broker)

Who Brokered to King’s (A Carrier)

Who Brokered to A Sister Infinity Logistics, Inc. (A

Broker)

Who brokered to & paid a number of carriers

• FedEx paid but Infinity not paid

• Kings & Infinity start suit against all intermediaries

& 186 shippers/consignees

King’s Express, Inc., et. al. v. FedEx Freight Corporation, 06 L 10929 (Cir. Ct. Cook Co., IL)

1

• Joseph T. Ryerson & Son, Inc. subcontracted all transportation management to 3PL Corp. (A 3PL/Broker) Who subcontracted shipment to Illinois Motor Service, Inc. (A

Carrier) Who subcontracted to Dorlan Crane (Ind. Contractor/Owner

Operator)

• All contracts assured operations as independent contractors

• Crane ran over Hoffman family

• Ryerson had $100,000,000 coverage

• 2.12.2012 – Jury Verdict For Hoffman family = $27.67 Million

• Coordinated operation between all parties was joint venture

Hoffman, et. al. v. Crane, et. al. 07 L 11406 (Cir. Ct. Cook Co. IL)2

Conclusion

• In Schramm v. Foster, 341 F. Supp. 2d, 536 (D. Md. 2004) Judge Motz’ Holding is prophetic

• Since 1995, broadened direct relief against parties up the supply chain has evolved

…(i)n the last analysis, this is a case in which the law may simply have to catch up with an obligation that Robinson has voluntarily assumed, presumably in response to the demands of the market…

“”

Contemporary &

Evolving Causes of Action

Elements of some

causes of action sounding

in tort successfully used

against parties

up supply chain

Torts arise based on

what parties did

…not what contracts say

… facts control, not privity

Duties on which torts rest also rest on…

1

statutes

…as well as classic tort duties

2

regulations

3

contracts

Cause of action can arise from principal-agent relationship

applying classic respondeat superior concepts to impose vicarious liability

• Negligent action • That is proximate cause • Of plaintiff’s injury • By independent contractor • Who has become an agent • By control or right to control of principal

Citation Example

Sperl v. C. H. Robinson, Inc. 408 Ill.App.3d 1051 (2011) cert. den.

2011 Ill. LEXIS 1450

Cause of action can arise from negligent hiring

• Negligence in failing to exercise• Reasonable care• Selecting fit carrier requiring• Affirmative due diligence, i.e., no

reincarnated carrier but safety evaluation required where public safety involved

Citation Example

Schramm v. Foster, 341 F. Supp. 2d 536 (2004)

Cause of action can arise from negligent entrustment

• A person charged to do something• Permits a third person• To use a thing or engage in an activity• In a manner so as to create an

unreasonable risk• When the person controls or has a right to

control the third person

Citation Examples

Cf. Harris v. Velichkov, 2012 U. S. Dist. LEXIS 63021 (Neb. 2012)

Jones v. C.H. Robinson Worldwide, Inc., 558 F. Supp 2d 630 ( W.D.

Va. 2008)

Statutory cause of action under 49 usc 14704(a) allowed

• A carrier or broker• Damages to a person• Caused by an act or omission of broker or

carrier• In violation of Part IV of the Interstate

Commerce Act• Minority rule allows cause of action for

personal injury

Citation Examples

Minority Rule: Marrier v. New Penn Motor Express, Inc. 140 F. Supp. 2d 326 (D. Vt.

2001)

Majority Rule: Lipscomb v. Zurich American Ins. Co., 2012 U.S. Dist.

LEXIS 72955

No Cause Of Action Under 49 USC 14707(a): Tierney v. Arrowhead

Concrete Works, Inc., 791 N.W.2d 540 (Mn. App. 2010)

Also, No Cause Of Action Under 49 USC 14707(a)

• A carrier or broker• Damages to a person• Caused by an act or omission of broker or

carrier• In violation of Part IV of the Interstate

Commerce Act• Minority rule allows cause of action for

personal injury

Other examples of torts that lie against non-carrier participants

1

Tortious interference with contract

2

Theft by deception

3

Conversion

4

Strict liability, i.e., shipper tender of hazardous materials

Cf. Senator Linie GMBH & Co. Kg v. Sunway Line, Inc. 291 F.3d 145 (2d Cir.

2002)

5

But note pre-emption of negligence on freight claims

Cf. Non Typical, Inc. v. Schneider Logistics Int., Inc. 2012 U.S. Dist. LEXIS

73452

Conclusion

Breakdown in historical structure of transportation

1

Realigns business relationships

2

Expands risk of tort liability extending up supply chain

Successful representation of supply chain participant requires careful weighing of:

New innovative transportation concepts that provide economies of scale & efficiencies of service

vs Risk exposure &

insurance requirements

Pay attention to legal audits

resulting from multi-party

relationships

SULLIVAN HINCKS & CONWAY

Daniel C. Sullivan120 West 22nd Street, Suite 100

Oak Brook, Illinois 60523

Phone: 630.573.5021

Fax: 630.573.5130

www.shlawfirm.com

counsel@shlawfirm.com

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