Almost exactly 10 years ago, a pickup truck traveling on a rural Maryland state road collided with a tractor-trailer carrying soymilk between warehouses in Joplin, Mo., and Carteret, N.J. The accident left the pickup's two occupants with permanent injuries. Its driver, a minor, fell into what was described as a "semi-vegetative" state from which he would be unlikely to recover.
No one could have foreseen it at the time, but the May 5, 2002, accident, and the personal injury case that would take more than two years to decide, would change the calculus of freight transportation law in the United States.
The victims' families sued the driver, the carrier who assigned the load, and C.H. Robinson Worldwide Inc., a giant property broker and third-party logistics service company (3PL) hired by the shipper to arrange the transportation. The plaintiffs alleged that Eden Prairie, Minn.-based Robinson was liable for the driver's negligent behavior because it controlled the transportation of the freight on behalf of Robinson's customer and held itself out as a single point of contact for its customer's shipping needs. They further alleged that the driver served as Robinson's agent in performance of his duties.
The defendants knew it would be a difficult case. The torment of the victims, Tyler Schramm and Mitchell Thompson, and their families would almost assuredly elicit a jury's sympathy if the case went to trial.
The facts were also not on the defendants' side. The rig's driver, Brian Foster, had exceeded his federal hours-of-service limitations when he pulled off Interstate 68 in Maryland and onto the state route, court documents show. Upon reaching the stop sign at the end of the off-ramp, Foster failed to stop or yield the right-of-way to oncoming traffic, thus blocking all of the road's southbound lanes, according to court documents. The pickup, heading south on the road, then collided with the truck, according to court documents.
The trucker, Groff Brothers Trucking LLC, had not been issued a "satisfactory" safety rating from the federal government because it was a new carrier, according to attorneys that have followed the case. Groff had a rating of "74" under the federal government's "SafeStat" safety measurement system—then the yardstick for determining a carrier's fitness—just below the "75" or higher rating the government concluded made a carrier deficient to operate, they said. In addition, Groff was formed in the wake of a safety performance problem with its predecessor carrier, attorneys have said.
While legal experts could foresee a defense nightmare given the evidence surrounding the driver and carrier, few anticipated the extent to which Robinson would find itself embroiled. For the first time in memory, a broker was being held liable for damages in a personal injury case despite its assertions that the trucker and driver were not on its payroll and that no evidence existed that Robinson had control over the driver's actions and behavior.
For brokers and 3PLs, the world had suddenly changed. They feared an adverse court ruling would open the floodgates for a torrent of personal injury cases filed by plaintiffs' attorneys looking for deep-pocketed shippers and brokers to reimburse suffering families. No longer would the plaintiffs' bar be constrained to pursuing small-time truckers with minimal assets.
In August 2004, Federal District Court Judge J. Frederick Motz issued a ruling that effectively confirmed the industry's worst fears. While denying most of the plaintiffs' claims and absolving Robinson of much of the alleged liability, Motz ruled the company could have done a better job of vetting the reasons behind Groff's "marginal" safety rating. The contentious issue of "negligent hiring" was now on the table.
Motz noted that Robinson had a policy of purchasing liability coverage exceeding the $750,000 worth of coverage required by law of truck owner-operators. It did so, the judge concluded, "both to protect itself and its customers" from claims arising from catastrophic accidents where the damages could surpass the minimum coverage levels.
Motz sent a clear message to brokers and 3PLs: By marketing themselves as one-stop shops for transportation services, they had exposed themselves to unprecedented degrees of risk. Robinson, the judge said, had "actively interjected itself into the relationship between shipper and carrier, and it has chosen to do business in a context heavily tinged with the public interest. I find the common law imposes upon it a duty commensurate with its undertakings."
Robinson's insurer eventually settled with the families for a sum that was not disclosed but was believed to be $4 million. That was far from the end of it, however. Motz's ruling, and its language, effectively gave the plaintiffs' bar all the motivation it needed to open a new frontier in transport liability law. Corporate defense attorneys, accustomed to pursuing or defending their clients against claims arising from freight loss or damage, now were dealing with the highest stakes of all: human life.
To this day, shippers, brokers, 3PLs, and their attorneys worry that the fluid nature of the law surrounding broker liability gives plaintiffs' attorneys the latitude to go after shippers, brokers, and 3PLs for claims arising from incidents the companies have no control over. Their increased exposure, in turn, will inevitably lead insurers to hike liability premiums, reduce the availability of coverage, or both, thus driving up costs for the entire industry, legal experts warn.
As many feared would happen, plaintiffs' attorneys have tested the "broker liability" thesis since 2004 by naming brokers and 3PLs as defendants in a number of personal injury cases involving truck accidents. Several of them have involved Robinson, which as the largest broker in the land is a natural target for the plaintiffs' bar.
All this has left some in the fraternity with a bad case of stomach churn. "I've lost a lot of sleep" over the Maryland case, Clark Van Orman, senior manager, corporate freight claims and carrier contract compliance at Houston-based food-service giant Sysco Corp., said last month in Orlando at the annual meeting of the Transportation & Logistics Council, a group of lawyers, carriers, practitioners, and freight claims professionals. "I feel like a blind man trying to feel color with his fingertips."
Lawyers at the conference said the legal landscape in the wake of the case, known in transport law circles simply as "Schramm v Foster," remains muddled. One said brokers and their attorneys are still "in a state of chaos and confusion" over how to interpret the body of law on the books since Motz's 2004 ruling. "Brokers are the victims of this confusion," said another, Wesley S. Chused from the Boston firm of Looney & Grossman LLP.
The deepening bond between shippers, intermediaries, and truckers has only thickened the legal quagmire. According to SJ Consulting, a Pittsburgh-based consultancy, roughly 20 percent of the less-than-truckload industry's revenues are generated through brokers and 3PLs. That figure reflects the growing influence of intermediaries in the shipper-carrier relationship. The size of the U.S. 3PL market, based on gross revenue, was estimated at $127.4 billion at the end of 2010, according to Stoughton, Wis.-based consultancy Armstrong & Associates.
Shippers and brokers hoped they would get relief from a March 2011 policy directive by the Federal Motor Carrier Safety Administration (FMCSA), the sub-agency of the Department of Transportation tasked with truck safety. The agency said at the time that under its "CSA 2010" program for grading carrier and driver performance, unless a trucker in its database received an "unsatisfactory" rating or was ordered by FMCSA to discontinue operations, the carrier is "authorized to operate on the nation's roadways."
However, FMCSA has said that CSA should be only one tool for shippers and intermediaries to use in vetting a carrier. The agency has also made clear that it is not mandated to give business guidance to private industry and that legal issues surrounding liability and negligence are beyond its scope.
None of this sat well with conference attendees. One complained that FMCSA doesn't provide enough information in CSA for shippers and brokers to perform proper due diligence in evaluating a carrier's safety fitness. Attendees also voiced concern that, absent a simple "thumbs-up, thumbs-down" from the agency on which carriers are fit to operate and which are not, shippers and brokers face enormous liability risk even though their own research may have indicated the driver was fit and the carrier safe before they were hired.
"It would be like taking every parent that knows his child broke the law, having the courts say 'Well, you should have known better,' and throwing the parents in jail," said one attorney.
Over the years, various attorneys have suggested ways brokers can protect themselves. The first is to remember the general rule that a broker has a duty to use reasonable care in selecting the truckers it dispatches to carry a shipper's cargo. That means ensuring the trucker has valid operating authority, has adequate cargo and liability insurance, and is free of federal safety violations. It is also the broker's duty to check a carrier's safety statistics for any infractions.
According to legal experts, a broker-carrier contract should explicitly state that the broker is not the driver's employer and that the driver is paid by the carrier, not the broker. In addition, the broker should not supply equipment—such as trucks—to a carrier.
Brokers should also understand that if they provide a carrier with all or most of the carrier's business, courts and juries may assume the carrier serves as the broker's employee, according to legal experts.
It's all about perceptions of control, wrote Bradford T. Child, a partner in the Los Angeles firm of Millard, Holweger, Child & Marton, in a 2007 paper. "The more the broker controls the manner in which the trucker and driver perform their job, the more likely the broker may be found to have a master/servant relationship such that the broker will have liability for the negligence of the trucker and truck driver," he wrote.
The same holds true for a 3PL, whose duties may extend beyond the broker's job of just arranging transportation. Eric L. Zalud, a Cleveland-based lawyer, wrote in 2005 that although a 3PL can get involved to some degree in the daily operations that affect the movement of goods it is contracted to transport, too much involvement might not be wise.
A 3PL having "frequent operational contact" with a driver to provide daily or regular instructions could, in the eyes of a judge or jury, frame that 3PL as a "carrier" and expose it to unnecessary and costly liability, Zalud said at the time.
TEN YEARS AFTER
A decade after the Maryland accident and nearly eight years after Motz's ruling, the case still generates much emotion and controversy. Defense attorneys grouse that the judge grasped at straws to create a duty for Robinson beyond what was required of it. Many in the transport law community consider it to be a bad ruling from a lower court that, in the words of Henry E. Seaton, partner in the Vienna, Va.-based law firm of Seaton & Husk LP, has "scared an entire industry."
Nevertheless, the law is the law, and everyone who moves goods by truck for a living will be faced with the fallout for years to come. In what would become a portentous comment, Motz wrote in his decision that "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."
The "catching up" may have just begun.