DNA-March Webinar Vicarious Liability Final

Upcoming Webinar Topics4/15/2008  Contract Waivers – 50 Reasons to Keep Bill of Lading Terms and Conditions, and Federal Rules 5/13/ 2008  Multimodal Cargo Claim Issues – A Prescript

Welcome to Delta Nu Alpha

Accident Liability Travels Up the Supply Chain

Interactive Webinar - February 21, 2008

With Dan Sullivan, Sullivan, Hincks & Conway

CORPORATE SPONSORS!

Kings Express Landstar RMCS Apex Capital LP USA Transportation Services, International

Champagne Logistics Greatwide Truckload Management

About DNA

 Fraternity of transportation professionals

 Open to all with interest in education

 Interdisciplinary – shippers, carriers, third party logisticians and students

 Traditional chapter format – Milwaukee, Chicago, Rockford, Nashville, Bowling Green, Grand

Rapids, Louisville, Le High Valley

 Student chapters at Western IL University

 Scholarship program

Syllabus of Future Webinars Contains Chronic and Acute Industry Problems

 Format is issue presentation followed by open question and answer.

 Diverse opinions are encouraged.

 Goal is to assess issues, impart information and better prepare listeners as knowledgeable

professionals in any industry which too

frequently ignores day-to-day problems of

contracts, claims and operations in favor of

“supply chain management.”

 CCPAC accreditation of 3 courses for cargo

claims specialists.

Upcoming Webinar Topics

4/15/2008  Contract Waivers – 50 Reasons to Keep Bill of Lading

Terms and Conditions, and Federal Rules

5/13/ 2008  Multimodal Cargo Claim Issues – A Prescription

for Confusion

6/17/2008 Contracts of Carriage – A Study of Controversial

Provisions Which Divide Shippers, Brokers and Carriers

9/16/2008  Cargo Claim Mitigation, Adjustment and Salvage Issues

11/18/2008 Supply Chain Security Issues – Alphabet Soup and

New Regulations For more information and to register, go to www.deltanualpha.org

Approved for Certified Claims Professional Accreditation Council (CCPAC) Credit (1.5 CEUs)

What is Vicarious Liability?

Indirect legal responsibility (For example – the imputed liability of

principal for the torts of its agent)

Who are the Targets?

Shippers, Brokers, and Carriers

who “subcontract”

Who are Adversaries?

Plaintiff’s bar, looking for deep

pockets because carrier has

limited assets

What are Theories?

 “ Respondeat Superior” – principal/agency law

IN EXAMINING ACCIDENT LIABILITY

A BASIC ANALYSIS OF APPLICABLE LEGAL PRINCIPLES IS HELPFUL

WHAT BASIC LAW APPLIES TO

ACCIDENT LIABILITY?

TORT LAW APPLIES

NOT

CONTRACT LAW UPON WHICH TRANSPORTATION AND SUPPLY CHAIN MANAGEMENT IS BASED

UNDER TORT LAW A

DUTY

IS IMPOSED UPON AN ACTOR

(IN MOST CASES) (IN SOME CASES THERE IS A DUTY NOT TO ACT)

GENERAL DUTY

AN ACTOR SHALL NOT INTENTIONALLY OR NEGLIGENTLY

HARM ANOTHER

NEGLIGENCE =

“A FAILURE TO DO SOMETHING WHICH A

REASONABLY CAREFUL PERSON WOULD DO,

OR THE DOING OF SOMETHING WHICH A

REASONABLY CAREFUL PERSON WOULD NOT

DO, UNDER CIRCUMSTANCES SIMILAR TO

THOSE SHOWN BY THE EVIDENCE THE LAW DOES NOT SAY HOW A REASONABLE CAREFUL PERSON WOULD ACT UNDER THESE

CIRCUMSTANCES, THAT IS FOR YOU (JURY) TO DECIDE.”

(Jury Instructions)

TORT LIABILITY DOES NOT CARE

ABOUT CONTRACT LIMITS

TORT LIABILITY SEEKS THE BAD ACTOR WHO SHOULD PAY FOR

HIS/HER ACTIONS

IN A SUPPLY CHAIN WHO IS THE ACTOR?

PLAINTIFF LAWYERS WANT PERSON WITH MONEY TO BE

THE ACTOR

HOW DOES A PLAINTIFF GET PEOPLE OTHER THAN THE

DRIVER WHO RUNS OVER

CHILD AT SCHOOL CROSSWALK

TO BE HELD ACCOUNTABLE?

“SERVANT : A PERSON WHO IS EMPLOYED

BY ANOTHER TO DO WORK UNDER THE

EMPLOYER”

“ EMPLOYEE : A PERSON WHO WORKS IN

THE SERVICE OF ANOTHER [WHERE] THE EMPLOYER HAS THE RIGHT TO

PERFORMANCE.”

“An Agent is a person who, by agreement with

another called a principal, represents the

principal in dealings with third persons or

transacts business, manages some affair or does some service for the principal, with or without

compensation The Agreement may be oral or written, express or implied.”

(Jury Instructions)

“PARTNER: ONE WHO SHARES OR TAKES PART WITH ANOTHER,

ESP IN VENTURE WITH SHARED

LEGAL CONCEPTS PREMISED ON AGENCY

EXTENDING TORT LIABILITY

WHAT IS CRITICAL ELEMENT TO FIND A PRINCIPAL

($$ MONEY BAGS $$) OF AN AGENT?

BROKER/3PL

CARRIER

LEASING CO DRIVER CO

SHIPPER

“CONTROL”

CONTROL = Direction and Management on

how it gets done/or/legal responsibility for getting it done

Sole Concern = Result

SUPPLY CHAIN CONCERNED WITH MOVING GOOD BY CONTRACTS

THAT ESTABLISH DUTY FOR EACH FUNCTION

SUPPLY CHAIN USES UNIQUE CONTRACT

“BAILMENT CONTRACT”

PLAINTIFF’S LAWYER SEES CHAIN OF ACTORS BECAUSE BAILMENT TRACES ACTORS RELATIONSHIP TO GOODS

THAT MOVE IN SUPPLY CHAIN UNDER BAILMENT CONTRACT

HISTORICALLY NO MIXTURE OF

DUTIES IN SUPPLY CHAIN

CONTRACT USED = BILL OF LADING

DUTY UPSTREAM = TENDER OF GOODS

MODERN SUPPLY CHAIN, ESPECIALLY W/COMPUTERS

1 J.I.T – SHIPPER DIRECTS (CONTROLS?)

EXACT P/U – DELIVERY

2 NONCARRIER

A Acts for Shipper (Agent)?

B Acts for Carrier (Agent)?

C Controls Freight (Principal)?

D Controls Carrier (Principal)?

3 CONTROL = Actual facts or Substance as not

bound by Contract/or/Contract Duties Assumed

4 EXAMPLE = Bill of Lading showing 3PL/Broker as

Carrier to protect routing (California Chicken Hauler)

REPRESENTATIVE SUPPLY CHAIN INTERLOCKS

TRANSFERRING CONTROL FUNCTIONS

1 Assumption of control by contract (Esp B.O.L.)

2 Holding out to perform or control

3 Holding out to secure qualified performer

4 Representing as a Partnership or Joint Venture

5 Control of Dispatch vs Passive Tracing

6 Directly using Driver as Agent or Actor

7 Placarding Service as Actor

8 Control of Securement

9 Offering and Directing HAZ MAT

10 Selection methodologies (Cheap Rate w/unfit Carrier)

AVOIDING EXPOSURE

1 Realize you cannot contract away Tort exposure

2 Realize you can contract Tort exposure

3 Reality is a holding out – Substance not Salesmanship

A A Representation can be good for Sales

-We are Partners with our Carrier!

B A Representation can impose a duty in Tort

4 Actions can provide Tort exposure

5 Fitness – Financial (insurance) and operational – is

critical

6 Contracting Protection helps but only after the fact

A Indemnity

WHY IS THIS SUBJECT

IMPORTANT?

Chain

there is enough case precedent to allow stability

The Role of the Intermediary

Broker or Carrier?

What difference does it make?

“other than a carrier”

– Broker does not have BI and PD insurance

and is not liable for third party claims or cargo loss

– Like a real estate agent, stock broker or

insurance broker, not responsible for goods, services or property it sells

 A carrier has “no delegated safety obligations for equipment it operates” and shouldn’t be liable

for operations of subcontractors but :

– Plaintiff’s bar does not understand and misrepresents – Joint venture, respondeat superior , “state law

doctrines”

– California example

– Convenience “interlining”, concurrences are difficult

to explain when door-to-door subcontracting is

involved

– Bills of lading with deep pocket carrier names

on it causes plaintiff’s bar to salivate

– Opens door on punitives – plaintiff’s bar can

use brokering carrier’s own safety procedure against it

Best Practices

 Retain excess capacity through broker affiliates

 Get intermediary’s name off Bill of Lading as carrier

 Do not assume carrier duties in shipper/broker contracts

 Warrant retention of properly “licensed, authorized and insured motor carriers with satisfactory or equivalent safety rating

 Use contingent liability and contingent cargo insurance

to persuade shippers

 Eschew “arising out of” indemnification/accepting

indemnity for vicarious liability imputed on shipper

because of broker’s desire to retain a particular carrier (e.g Illinois dray case)

How to Avoid Scourge

of “Double Brokerage”

approval hires “another” and

– An accident occurs

– The actual service provider is not paid

– An uninsured cargo damage on theft occurs

named on Bill of Lading and that name on door matches the name on the Bill of

Lading

A DIFFERENT POINT OF VIEW

ON BROKER LIABILITY IN LIGHT OF JONES V D’SOUZA

Henry E Seaton, Esq

A string of C.H Robinson cases starting in 2001 with a wrongful death lawsuit brought

in Illinois, and including Schramm v Foster, , 2004 U.S Dist Lexis 16875 (D.Md

August 23, 2004), and now Jones v D'Souza, 2007 U.S Dist LEXIS 66993 (W.D Va 2007) have had a chilling effect on transportation brokerage Applying state law,

courts have allowed juries to consider Robinson's liability for the negligent acts or

omissions of truck drivers hired by its carriers under "negligent hiring," "vicarious

liability," and "master-servant" or respondeat superior theories

Ignored, in part I believe because of C.H Robinson's method of operation, is the

statutory definition of a property broker, the preemptive scheme of federal regulation, and any understanding of the traditional role of the shipper and broker as members of the traveling and shipping public

By Federal Statute and Regulations only a motor carrier has a non-delegable duty to exercise dominion and control over the equipment and driver it employs, including

owner-operators it "retains" as independent contractors See 49 C.F.R §382 through

No similar duty is imposed upon a shipper or broker A broker is defined as a party who "arranges for transportation for compensation" and is not "a motor carrier." A clear distinction is brought between an instrumentality of transportation which has a direct and non-delegable obligation for safety, and a property broker which does not

Although "economic regulation" was stripped from the statutes from 1980 through

1995, interstate trucking remained a highly federally regulated public utility from a safety point of view The Federal Motor Carriers Safety Administration, as a

successor to the ICC, assumed without amendment, safety oversight over the

operation of commercial motor vehicles and those statutes and regulations including enforcement thereof has been extended through to the states under the MCSAP

Applying state law analogies, the Courts in the C.H Robinson cases missed the role of the broker in the transportation context The broker does its duty when it retains an

authorized carrier See 49 C.F.R 371 To be authorized, a carrier in turn must have

authority which is granted and maintained only to an entity determined fit by the Federal Motor Carriers Safety Administration To be fit, a carrier must (1) have insurance in

sufficient amounts to protect the traveling public and (2) to have not been judged

unsatisfactory by the Federal Motor Carrier Safety Administration The Agency in turn

employs a sophisticated system for determining and placing out-of-service carriers which it determines by roadside inspections and safety audits to be out of compliance.

As an entity arranging for transportation, a broker is not a service provider and the

inquiry to determine that a carrier remains licensed, insured and authorized, a broker

should not be required to second guess the FMCSA's determination of fitness.

Correctly seen, a property broker acts like a real estate broker or stock broker, owing to the principals a duty of due diligence but in the absence of its own negligence, is not

vicariously liable for the acts or omissions of either party or for the negligent performance

by the service provider of a contract service A stockbroker who sells corporate stock is not required to inspect the corporate governance of listed companies before making

If, in a regulated industry like trucking the Federal Government is going to

establish a comprehensive system for telling the public who is safe to operate, then shippers and brokers alike should be allowed to rely upon the Government's determination, and unless they assume broader duties, contribute to the accident

in some way other than making common use of the proffered service, they should not be subject to liability under inapplicable state law theories

By last count, there were well over 500,000 carriers determined by the FMCSA to

be safe to operate in interstate commerce No standard other than the Federal standard can or should be applicable when determining the suitability of a service provider by the shipping public, or the broker, its agent

The broker does its duty when it makes a diligent effort to ensure the actual

service provider is licensed and authorized by the FMCSA to provide services as a for-hire carrier Congress has preempted state law application for brokers as well

as carriers See 49 U.S.C '14501(b) The Courts need to understand this, even

as the trial lawyers try to obscure the issues and the broker's role

to view/print a copy of this article

the Transportation Loss Prevention &

Security Association, 11/2007

 The Hours of Service and circadian rhythm

 Broker complicity in “requiring or permitting”

 Misconceptions about “unrated carriers”

 A different point of view (Handout)

So how far is far enough for checking out a small carrier?

For the occasional transaction?

For the “dedicated” service provider?

Mock audits?

DISCUSSION/Q&A