Hello, and welcome to today's webinar, The Unsettled World of Broker Liability. I'm Lillian Coulson, and I'm pleased to introduce today's webinar. Please be aware of the IMUA Statement. It's my pleasure to introduce today's presenter. Michael Cummins is partner with Gibson, Robb & Linn, a San Francisco-based law firm that specializes in maritime and transportation issues. For more than 20 years, he has assisted inland and ocean marine insurers with subrogation, defense, and coverage matters, and has prosecuted and defended numerous cases involving brokers, carriers, and forwarders through trial and appeal. He regularly provides in-house seminars and training for clients, and has presented at numerous organizational functions, including the Pacific Admiralty Seminar, the Marine Insurance of Seattle Day of Education, and the AMUSF. Michael is a native of San Francisco, and he graduated from the University of California Hastings College of Law. He describes one of his best jobs as cracking crab at Fisherman's Wharf many years ago. His most memorable job experience, however, did not involve tourists or the law. Instead, it involved meeting Patty Hearst while installing an alarm at her house shortly after President Jimmy Carter commuted her prison term. Michael, the floor is all yours. Thank you for the introduction, and thank you all for attending. By the way, both of those jobs that were just announced were summer jobs, so my memories were a bit colored. With respect to the Patty Hearst encounter, to say it was odd is an understatement. As was just explained, she had just been released from prison. I was at her house installing an alarm with a senior worker at ADT. At the time, she had a extremely large German shepherd with her, and there was a bodyguard who later became her husband that was following her around. I'm a dog person, so I actually asked her whether it was okay to pet the dog and whether he was friendly. Her response was, if you attack me, he will bite you. Needless to say, I didn't pet the dog, and I had no further discussions with Ms. Hearst. All right, well, let's move on. Going to today's agenda. Before I actually jump into what we're going to cover today, and it's going to be a broad-brush approach, I generally like to include a joke or two that's relevant to the topic matter. So what I did prior to today is I searched out there on the internet for a joke involving brokers or truckers, but the caveat, it had to be relatively clean, non-political, and not surprisingly, it came up empty. I do have a joke, though, that I've found to be pretty funny, and it passed the all-important litmus test of my teenage son finding it to be humorous. He actually smiled, so hope you like it. Here we go. In the dark pitch night, the captain saw a light dead ahead on a collision course with his ship. The captain signaled, change your course 10 degrees west. The light signaled back, change your course 10 degrees east. Angry, the captain signaled back, I'm a Navy captain, change your course, sir. A few seconds later came the response, I'm a Seaman second class, change your course, sir. Furious, the captain signaled, I'm a battleship and I'm not changing my course. The response, I'm a lighthouse, it's your call. Anyway, hope you liked it. So going through today's agenda, what we're going to cover. Again, broad brush. We're going to go through the CARMAC amendment, and here we're going to cover some basics of the CARMAC. We're going to look at what shipments it applies to, who it applies to, its effect on claims against carriers and brokers. We're going to go through federal preemption of state law claims. Now, this was a topic that I presented at length at Pacific Admiralty Seminar on. I have shortened it significantly, but it is an important topic. And I deem this my schoolhouse rock segment of the presentation. There's going to be a lot of basic stuff in there, a lot of jeopardy knowledge, but it is definitely relevant. And we're going to jump into the ICCTA, which is the Interstate Commission Termination Act. This is where all of the actual litigation is really taking place now. We have dealt with a number of issues involving the ICCTA in the last couple years in our office. We've been on both sides of the fence, and it has a significant impact on claims against brokers. Then we're going to spend a fair amount of time going over the status issue. This is a key issue in the dispute that comes up. And again, the issue here is whether the entity is a broker, are they a carrier, or a forwarder. I'll then go through some takeaways, some ways to minimize risk, what you should be looking for when you're dealing with your insureds, and some suggestions. And then we'll conclude, take questions at that point, and as mentioned earlier, throughout this presentation, there's going to be a number of polls. We'll go through those, publish results, we'll discuss. The purpose of the polls is sort of to reinforce what we're covering today. Okay, so jumping into the Carmack Amendment. Here's a Jeopardy fact for you. It was enacted in 1906. If I was Alex Trebek on Jeopardy, I would tell you that as if I knew that all along. But I read it, and now I know it. It's now part of the ICCTA. The key with the Carmack Amendment, as many of you are no doubt most aware, is the fact that it's effectively a strict liability regime. It's rather easy to establish liability under the Carmack Amendment. The only thing that needs to be done is that you need to show that the carrier received the goods in good order condition, which is typically done via issuance of a clean bill of lading. And then they were delivered in a damaged state. And then once that occurs, the burden shifts to the carrier to provide or prove one of the four exceptions to liability under Carmack, which is rarely done. And those exceptions are an act of God. It could be fault of the shipper, public enemy, which I have never seen in my 20 years plus of practice, or inherent vice or nature of the goods. And sometimes that is established. What is relevant with respect to this is if Carmack does apply, it bars all state law claims. So you're left simply with that Carmack claim and claims of negligence, misrepresentation. It could be fraud and inducement. It could be violation of state law, such as an advertising law. Those are all barred on federal preemption grounds. Now, we're going to cover preemption a little more in detail, but that's the nuts and bolts of how Carmack applies. So the jurisdictional application deals with what shipments does it apply to. You see a map of the US, Canada, and Mexico. Carmack applies to shipments between states in the United States, so interstate shipments. Carmack also applies from shipments from the United States to one of the adjacent foreign countries, Canada or Mexico. The unsettled area of Carmack deals with whether it applies to shipments coming from Canada or Mexico into the US. The majority of courts that have addressed this issue hold that it does not apply if the shipment is transported under a through bill of lading, meaning the bill of lading that's issued from a place, for example, in Mexico all the way to destination in the United States. There are some courts, though, that have started to carve out some inroads into that rule. And one thing courts look at is if the loss or damage occurs in the US. There are a few courts that have held now. Again, this is not the Supreme Court. This is not any of appellate courts. But there's some federal district courts that have held if the loss or damage occurs in the US, Carmack does apply. Other courts, a little more narrow, and have said if there is a separate bill of lading issued for the transit in the US, then Carmack will apply. And that's a situation that I often see. In fact, I had a case that resolved latter part of last year. And that's exactly what was occurring. We had a client who we were claiming was a broker we were defending. And they were arranging for the transport of thousands of shipments coming from various processing facilities in Mexico to various destinations in the United States. And the way they set this up is that the shipments were coming to the border. So you had bills of lading that were issued from the factory to a place at the border. And then from there, they were transloaded across the border to a facility in the United States. And then from there, a US trucker would pick them up. And at that point, a separate bill of lading was issued for that transit. So in that instance, for the damage occurring in the United States, most courts would hold that the Carmack would apply. Now, we do have one outlier. I'll give you the site right here. It's this bottom case. It's this Atlas Aerospace versus Advanced Transportation. It's a district court case out of Kansas. Now, this case involved transit of a shipment of goods coming from Ontario, Canada, into the United States, specifically to Wichita, Kansas. The goods arrived damaged, but it could not be determined where the damage occurred. The court in that case looked at the language of the statute and said that there is really no difference between it applying from shipments going to Canada as opposed to coming from Canada. And the court then held that Carmack applied. I'm not going to say this is an outlier, because this court dealt with some more recent changes to the language of Carmack, which the prior courts had not dealt with. I think the reasoning is relatively sound. The Supreme Court has not ruled on it. So we'll see where it goes. Status application. Who does it apply to? Who does Carmack apply to? Well, we know it applies to carriers and forwarders. How about brokers? Majority courts hold Carmack does not apply to brokers. Now, the Supreme Court has not addressed or ruled on this issue. But consistently, courts across the nation make clear that since Carmack doesn't specifically refer to brokers, it doesn't apply to them. There are two outliers. There's two district courts out there, one from New Hampshire and another from Rhode Island. And both those courts found Carmack does apply to brokers. The sites for those cases are right here. You have the Ameriswiss, and then you have the York Day case. Ameriswiss effectively just followed the York v. Day case. The reasoning in York Day was nonexistent. The reasoning in Ameriswiss was nonexistent. I think both cases were wrongly decided. They've been criticized by numerous courts across the nation, and they haven't been followed. However, if there is a case that's in New Hampshire or Rhode Island, that's where it's venued, there's a chance that the court may follow them. So if Carmack doesn't apply against a broker, what does it leave? It leaves a breach of contract claim that can be pursued. One of the key points here, though, is unlike Carmack, which is relatively easy to establish, good order, bad order, proving breach of contract is a little more difficult. You need to look at the terms of the contract. And unless the broker, in this case, agreed to assume contractual liability for the loss, or unless there is some provision in the contract that the broker breached that led to the damage, it may prove difficult holding the broker liable. You can see at the very bottom, I've listed two things. There's been attempts to try to impute into the contract, as an implied term, this failure to select a carrier that was financially solvent or had sufficient cargo insurance. You can see the court in Easy Mailing Services, this is the Central District of California, rejected that claim. The court there said, absent an express recognition in the contract that these terms form part of it, we're not going to read it into the contract. You also still have a negligence claim and state law claims that can be pursued under Carmack against brokers. The key here, though, is if they're not preempted by the ICCTA, which we're going to cover in a moment. What we see generally here, and this almost always involves some allegation that there was negligence with respect to the selection or retention of the carrier. The broker didn't properly vet, do proper vetting. They didn't look at the carrier's safety record, a host of things. And we're seeing this is becoming more and more commonplace and prevalent with the online bulletin boards where they're selecting carriers. And the vetting process is less and, in many instances, non-existent. If, indeed, the negligence claim can be pursued, this definitely expands the exposure to the broker. Negligence claims are simply nothing more than, did the broker breach the applicable standard of care? Fact-intensive, typically not something that can be resolved by way of summary judgment, and oftentimes the subject of expert testimony, meaning you're not going to get a decision until the end of the day at trial if the case doesn't resolve. As I mentioned earlier in the overview, federal preemption, this is my schoolhouse rock segment of the presentation. This picture effectively depicts what occurs with preemption. You have the federal government effectively stepping down and squashing state laws and regulations, pure and simple. Michael, did you want to pull out those polls at this point? That would be a great idea. Let's back up and pull out one poll before we move on. Just the one? Yeah, let's do two of them, actually. Let's do the first one to summarize, and then we'll pull the second one. OK. So the four-situation one? There you go. Excellent. All right, well, thank you. OK, so what we have here is I have four situations, and we're effectively going to summarize what we just covered. Four situations to determine whether CARMAC applies to a particular shipment. And what I would like you to do is we have four of them, and the answers are yes, no, maybe. We can go through each one of those, and then we're going to publish them all at the same time. So the first one is, does CARMAC apply to a shipment from Austin, Texas to Houston, Texas? The next one is, does CARMAC apply from a shipment from Denver or from San Francisco to Denver? Then we have, does CARMAC apply to a shipment from Manhattan, New York to Montreal, Canada? And then the last one, does CARMAC apply from a shipment from Juarez, Mexico to El Paso, Texas? I'll give you a few moments to go through that, and then we'll close the poll, and then we'll sort of walk through the results, and we'll quickly discuss. Okay. I think we're good. Let's go through, publish the results. Broadcast all. And I think we're good to go. Okay, so let's start with the first one. Does CARMAC apply from the shipment from San Francisco to Houston, Texas? Does CARMAC apply from the shipment from Austin, Texas to Houston, Texas? Okay, the very first, we have 44% of the folks said yes. I'm going to play Alex Trebek again, and the answer is no, it does not. And the reason it does not is CARMAC applies to interstate shipments. That would be an intrastate shipment in the state of Texas. So the answer of, actually, correction, yeah, and then the second answer is no, 51% of you, that is the correct response. So CARMAC does not apply. How about the next one, the shipment from San Francisco to Denver? All of you, 100%, correct, yes, interstate. San Francisco to Denver. The shipment from Manhattan, New York to Montreal, Canada, 69% of you said yes, and I would be on board with you on that one. The no, 7.69%, there is, I will put this out there that the law is pretty clear on that, it does apply. However, there is one outlier I didn't discuss, I've seen it, that makes reference to if the damage occurred in that foreign jurisdiction possibly does not. I think that's wrong. I think the answer, with all courts consistently holding it, it does apply. This is from the US to Canada. And then we have the last one, which is the reverse on that, the Juarez, Mexico to El Paso, Texas. Yes, it does apply, is the 16.6%, it looks like it votes, said that was the case. The majority of the courts, as we covered before, generally say it does not. If it's a through bill of lading, if the damage happened in the US, it might, especially if there is a separate bill of lading. So if we look at the final response, the maybe, that pretty much encapsulates where the state of the law is with respect to that. It might. It just depends on the court. It depends on whether it's a through bill of lading. It depends on where the damage happened. And again, Supreme Court hasn't weighed in on this. And hopefully at some point they will. I don't envision that happening in the near term because there's no split in the circuits. The circuit courts haven't addressed this issue. So we're just dealing with them at the district court level. OK, we have one other poll that I would like to do while we're still on this one. And let's see if we can pull that up. And here we go, excellent. OK, the additional question is, does the CARMEC amendment apply to claims against brokers for loss or damage to an interstate shipment? And I'll give a few more moments. Looks like people are going through and answering the question. All right, we're going to close the poll now, and let's quickly walk through and broadcast those results. Okay, does CARMAC apply to a state to cleanse against brokers for interstate? First we have 25% that said yes. The majority of the courts hold it does not. If you were in Rhode Island or New Hampshire, if that was where the case was venued, possibly because those were the two decisions that we talked about previously, the Maris Swiss and the York Day. No is 62% of the responses. That definitely tracks the majority rule across the U.S. And then maybe we have 12.5% and again, that would be correct. If we were in New Hampshire or we were in Rhode Island. Again, Supreme Court hasn't ruled on this issue. Circuit courts have left alone as well, so it's unsettled. Okay, so back to the presentation. We were talking about preemption and going through preemption 101. The source of preemption is the Supremacy Clause. This is another one of my Jeopardy facts, Article 4, Clause 2, language is quoted there and it makes clear that state courts are bound by federal law, period. Despite that fact, I can tell you I've had a couple of instances where state law judges don't feel they're bound by federal law. It's always a challenge and an experience in trying to tactfully advise them that they are wrong. In terms of preemption, we have two types. We have express and we have implied. Express preemption is where you have a statute that makes clear that it preempts and controls over state law. Implied preemption is that instance where the law is so broad that it effectively encompasses an entire area of law. CARMAC is implied preemption. Again, CARMAC implies state law claims are barred. Can't pursue them. But as we mentioned previously, generally CARMAC doesn't apply to brokers. ICCTA is another type. This is express. Unlike CARMAC, though, the ICCTA makes clear that it applies to carriers and brokers. Here's the language that sets that forth. By the way, this is something that is heavily litigated, something that our office has been involved with a number of times in terms of whether this language does or does not apply to brokers, state law negligence claims. I'm not going to read all the language. The bolded section, though, is what courts focus on. Whether it relates to the price, route, or service of a broker. Moving on. United Airlines. By the way, for those who like to fly the friendly skies, more power to you. I do not. I've been stranded too many times. But I like the picture. Why is that in there? Because the Congress literally took the language from the ICCTA, the express preemption language, whole cloth from the Airline Deregulation Act, or the ADA. The Supreme Court has made clear that Congress intended the ICCTA to have the same preemptive effect as the ADA. So what has occurred is we have a number of ADA decisions out there, including a lot of Supreme Court decisions, and those are directly relevant with respect to the preemptive scope of the ICCTA. So what's the effect if the ICCTA applies? Negligence claims against brokers cannot be pursued. Not just negligence claims, but any other state law claims. Again, it could be false advertising. It could be misrepresentation. There are a host of them that I've dealt with. And again, I've been on both sides of the issue. What does it do? It leaves only a breach of contract claim. And as we mentioned earlier, breach of contract claims, they're more difficult to prove and establish unless the contract makes clear that the broker is somehow taking on liability or its breach caused the damage. ICCTA application, this is increasingly being pushed by brokers. And it's much more commonplace, because again, if it applies, there may really be no real remedy against the broker. And what's the result? It's right here. This is the classic. So here you have Rex in the back with his short little arms, and he's getting an F in class participation, because he can't raise his hands. Well, that's what cargo interests are feeling oftentimes with respect to claims against brokers that they're left with no real remedy. The counter to that is you go against the carrier. But if the carrier doesn't have sufficient cargo insurance or if there is a significant limitation, which is often the case, the remedy may be nonexistent. So what's the status law? I'm pulling this Rock'em Sock'em Robots from my long, long history. This is one of my favorite toys when I was a kid. I'm going to date myself. I loved, loved this game. Couldn't play it long, but it was classic. But that's exactly what's going on. There is an ongoing battle regarding ICCTA application. The Supreme Court has not ruled on this issue. That's why the status of the law unsettled. What we have is the majority of courts hold the ICCTA applies to bar state law claims against brokers. But not out here in California. California, we stand alone. Not only does California stand alone, but we're divided. There is a split within California between how the courts in the Southern California view this issue versus Northern California. In Southern California, we have these two cases that I've pulled up for you. The Works v. Landstar and the more recent Factory Mutual case. And in both instances, the courts held the ICCTA does not apply to bar negligence claims against brokers. The way the courts got there was they narrowly interpreted this related to prices, routes, or services language to find it doesn't apply to shield brokers. I'm not going to argue too much with that. You'll know why in a second. The Northern District Court in a case that was issued after the Factory Mutual decision, Sunday v. Coyote Freight, held just the opposite. The Northern District Court held, yeah, the ICCTA does apply to bar state law claims against brokers, including negligence claims. You see this nice, little, peaceful, serene photo of the fence and the pastures on either side. And why is that there? Well, full disclosure here. Our office was on both sides of the issue with respect to Factory Mutual. We represented cargo interests and the broker in Sundia. So in the one instance, we were obviously for and supporting the court's decision in Factory Mutual that the ICCTA does not apply to bar a state law claim or claims against the broker. And then when we were defending in the Sundia case, we were again fully behind the court's decision that it does apply to bar. Should we do that poll on 20? Did I pass a poll again? I'm falling asleep at the switch. Thank you. Yes, let's do a poll, please. Okay. Pulling up a poll. We have another one of these things. Okay. You can see the question. It's a cargo owner sues a broker for damage to an interstate shipment with respect to the selection of the carrier that damages the goods and asserts also fraud misrepresentation claims with respect to some erroneous and false statements the broker made to get the business. Shocker. Brokers do that? The question. Can these state law claims be pursued? You can take a second. If you're yes, no, maybe. And then when we're done, we'll broadcast and quickly walk through. I should have the Jeopardy music playing in the background that would be just classic but I'm not that technically proficient so that's my apologies. Okay it looks like we're good let's we're going to end the poll let's publish and broadcast and go through these. Okay so can these state law claims be pursued? 15% said yes, 30% said no, 55% said maybe. OK. So the status of the law on that, majority of the courts across the country say no. But again, we don't have any appellate courts that have really addressed that issue, nor the Supreme Court. If you're in California, toss a coin. If you're down in Southern California, the answer is probably yeah. You probably can, given the Landstar and Factory mutual decisions. While other district courts in Southern California, the Central District, are not bound to follow those two decisions, there is effectively a rule of comedy. They actually generally do. If you were up here in Northern California, San Francisco, and you were dealing with that issue, the answer would be most likely no, if they followed the judge's decision in the Coyote case. Again, a little unsettled, so there's always that risk. OK. So back to, does ICCTA apply to intrastate-only shipments? So for example, a shipment's only in California. Well, we know that CARMAC does not apply to intrastate shipments, so logically, it seems that the ICCTA shouldn't apply as well, since we're dealing with interstate transport. And that was my initial take when I was just thinking about this question, and I did a little research. And surprisingly, one court held that it does apply to intrastate shipments. When I first saw the holding of that case, I was knee-jerk response, so that court is flat-out wrong. That just makes no sense. Read it closer, and what the court did is it pointed to two reasons why it does. First, it looked at the title, and the title is Federal Authority over Intrastate, not inter, intrastate transportation. OK. And then the court noted there was only one explicit exception or exemption for intrastate shipments, and it applies to intrastate shipments of household goods. So according to court, based on the fact that Congress explicitly referenced that ICCTA applies to intrastate transportation, and then carved out a limited exception for household goods within intrastate shipments, it applies. No other courts addressed it, and I should note the Supreme Court, while not specifically dealing with this issue, the Supreme Court in Dan City versus Pelkey, there's depth in that decision that actually supports that result. The Dan City case dealt with where does application of the ICCTA end. And in addressing that issue, the loss involved a towing company taking a guy's car and bringing it back to its yard, damage ensued. But all of the actions took place within one state, did not ever go across state lines. Nonetheless, the court bound in dealing with one issue that the ICCTA applied. So based on Dan City and the LOCEO course reasoning, there's a good chance that other courts will follow suit. Again, I haven't found any, but it's out there. 3PLs and 4PLs, we're going to start seeing more of this, I envision, in the very near term. I've dealt with this particular issue recently. I dealt with it in the Coyote case. It's whether the ICCTA applies to 3PLs and 4PLs. 3PLs and 4PLs, as most of you are well aware, they do more than your traditional broker. They don't just simply act as a travel agent and arrange for a carrier to transport the goods. They provide value-added services. Some of these entities act as de facto transportation departments for their clients. And so they're taking on a lot more responsibility, and they're providing more benefits. There is no published decision. I'm going to underscore published, because again, the court in the Coyote case actually addressed this, and we'll cover that in a second. But there's no published decision regarding whether it does or does not apply. As I mentioned in the Coyote case, which was Sunday with the plaintiff, they argued the ICCTA did not apply to 3PLs. In that case, we brought a motion to dismiss to terminate all of their state law claims, leaving them only with a breach of contract. And in opposition, the argument they put out there was, well, that's fantastic. Even if the ICCTA does apply to bar state law claims against brokers, well, it doesn't apply to 3PLs. And in our case, our client did a heck of a lot more than just arranging for transport. And I got to say, at first blush, I was like, that's sort of a throwaway argument. But then I looked at it closer, and I was like, it had some legs. And one of the things they pointed to to support this language was the fact that the ICCTA only references carriers, forwarders, and brokers. Makes no reference or mention to 3PLs or 4PLs, who provide far more expansive and greater services than a broker. Now, they didn't cite to other statutes or regulations that show this expansive definition of 3PLs. There are some out there. I'm just going to cover one, which I think I've duplicated. But for example, here, you can see third party logistics provider is defined. Had they cited more, it might have bolstered their argument. But again, I got to say, the argument was not without merit. I think it's one we're going to see again. Fortunately, in our case, Judge Chabria, who is the northern district judge that rejected this argument and also found that the state law claims could not be pursued against a broker, he didn't buy it. What he did is he found that all of these alleged activities, they fell within this broad brush, providing or arranging for transportation by motor carrier, in other words. One of the things that we were pushing is that this was nothing more than a broker plus argument. So they took on additional responsibility. It doesn't change the fact that they're still a broker. They arranged for the transport. And the mere fact that they were a broker in one context, but then doing a little more does not take away from the fact that they all fell within this one broad approach of arranging for the transportation of the motor carrier, which they did. And Judge Chabria agreed. And I quoted the language here. And one of things that he said, there's no reason to think that Congress intended for a broker plus to fall outside of the preemptive scope of the ICCTA while a mere broker should fall within it. Obviously, I agree with that. But I've got to say, it's an unsettled area. And again, it's something that I fully expect we're going to see more because no other courts addressed it. And again, if it was accepted, this would have preserved numerous state law claims for misrepresentation, negligence, false advertising, unfair competition, which were relatively serious because the claim amount was pretty large in our case. OK, determining status. This is the big battle always. Broker or carrier? The difference between the two is significant as we've gone through. Moving on. So again, status is the key issue. I'm going to bring up a couple of definitions that you'll see. Broker is defined here. Broker means someone who's selling, providing, and arranging for transportation by a motor carrier for compensation. Effectively, acting as a travel agent. Forder, they're doing more. Forder is actually touching the goods. They're assembling. They're consolidating. And they're also assuming responsibility for the transportation. And then a carrier simply means the motor carrier or a freight forwarder. Some real key points to take in consideration is that the status is not based on how the company labels itself or the licenses it holds. Oftentimes, a company will fall back on the fact that, hey, we're licensed as a broker. Therefore, we're a broker. Well, that's not dispositive by any stretch. And whether the company physically handles or transports the goods. Well, the physically handles, if they merely touch the goods, they move it around, that's not a great fact. If they do some part of the transport, that's obviously not a great fact. But it would depend on what they're agreeing to do. The main focus, though, that the courts always look at is what services are being provided. And how is this company holding itself out to the public? And more importantly, what representations has this company made to the party claiming that they're a carrier as opposed to a broker? Now, when we get into that, we oftentimes find things that are surprising. A company that appears to be nothing more than a broker has made some representations. And those representations are bad. The critical distinction is whether that party agreed to accept responsibility for ensuring delivery of the goods. Again, this is a contract issue. For those of you who are Monty Python fans, the she's a witch, this classically depicts this. It shows it. The mere fact that we have this witch with the nose on her, that doesn't mean she's a witch. It's the same with the broker. The mere fact that the company's labeled itself a broker, that's not dispositive. I want to jump into one more poll real quick. I think we have on this one. Let's see. And we're going to pull that up. OK, here we go. So let's do one additional poll. We're running through this. So if you have a logistics company is licensed only as a broker, does not own any trucks, does not physically handle or transport the goods and hires a licensed motor carrier to transport the shipment, is the logistics company a broker under the CARMAC and the ICCTA with respect to an interstate shipment? Okay, so let's just take a few moments. Consider that. If you could vote that'd be great and then we'll publish and we'll quickly run through. Looks like we've got, I can see we're going to close it in another moment and then we'll move forward. Okay, all right, let's end the poll right now. We're getting a little short on time. Let's broadcast the results. We see that we have 66% of you have claimed that this entity will be a broker, 9.5% no, and 23.8% maybe. Based on those facts, you don't have enough there is the long and short of that. All good facts showing that they are a broker, they're only licensed, they're not handling or transporting, but if indeed they have contractually agreed to be responsible or liable, or they've made some representations that they are going to be responsible or liable, or they've made representations that they're a broker, they could be a broker. Again, fact-intensive and we don't have enough information there, so maybe is the most accurate answer. Okay, so moving forward. I have a case example that we're going to just quickly run through to highlight. This is a real-life case example that I handled. He used DRAGNET, the names have been changed not to protect innocent, but to protect a guilty in this case. Okay, so we have ZAP Electronics that contracted with Total Logistics to handle transportation from Los Angeles to Clarence, Texas. Total in turn contracted with Badway Freight, who hired Flash. Flash then picked up the shipment, issued a bill of lading. During transport, lo and behold, the guy fell asleep at the wheel, truck overturned, and there we go. Never seen that before. Common, common occurrence. All right, what do we find? So ZAP files a claim seeking 1.2 million dollars from Total. Total then claims against Badway and Flash. Now, there's no dispute here that Flash is liable as a Carmat carrier. No dispute. Problem is, they only had a hundred thousand in coverage and no other assets. That's a problem. Suit subsequently filed. ZAP claims all parties liable for the loss as a Carmat carrier. Strict liability. And then Total claimed it was only a broker, and all liability arrested with Badway. Badway also claimed it was a broker. So here's what discovery showed. Total did not issue any bill of lading. They were not identified in any documents as a carrier. They did not represent they acted as a carrier. Their website clearly only shows they're a broker. They didn't physically handle. They merely arranged for the transport with someone else. Travel agent. Not only licensed a broker. Great facts. Great facts to show they're only a broker carrier. I actually believe we had a poll on this one. I would like if we can pull it up. Let me just see something here. If not, sure we can. Hold on one second. Okay, we can do it. Let's pull that up. This one? Okay. That'll work. Okay. I'm assuming this is the one. Is that? Because we have two of them. We have this and this. Yep. It's that one. You got it. Okay. 29? I'll put 28 away. 28. Let's leave 28 up there. Yep. Okay. Perfect. Okay. So we have that. Anyone have any ideas? This is really a short answer. If you want to do it, otherwise we can just, I can quickly give you the response. But there was one thing that came out in discovery that I didn't learn until we got into it. And it, again it. All right. Keep going. Okay. I'll give you a couple more, couple more minutes. I'm loving the responses. Some people are spot-on. Excellent. Excellent. Another moment. All right. Let's, since we're getting short on time, let's end the poll. Let's publish. And we see there, one, there's a contract. Whatever they agreed to in the contract, broker-carrier agreement language, the contract. It was a contract. Without a doubt. There was a contract in place. But it wasn't a contract with Total and ZEPP. What we discovered is their parent companies had entered into a contract that imposed full liability on Total for any shipments handled. So there was contract liability that came out after the fact. No way for them to avoid. Bad, bad news. So there you go. Written contract. All right. So then as to bad way, let's look at them. They did not issue any bills of lading. Okay. They did, however, transport the goods from the port to their warehouse. They handled the goods too, by the way. They're licensed as both a broker and a motor carrier. They also advised Total that they had a million dollars of insurance and they would, which would cover any loss or damage of shipments they handled. So shipments recovered. Problem was that was an oral representation, not writing. So these are all good facts that they acted as possibly a carrier. So bad way to carrier possibly. Again, one came out that was bad. One bad fact. Let's pull up that next one. Next poll. It was right on that. Okay. As we, anyone have any ideas just take a moment in terms of what would be the fact, even if they were a carrier, it didn't matter. That's what we discovered in discovery. Okay. So I give you a moment. Again, we're going to run through this one pretty quickly because time is getting short and we got to move on. I see it. Yes. As you're thinking, as you've been there. Excellent. Okay. We're gonna, let's close this poll real quick. Would love to have given you more time. Sorry for being so short, but we got to roll forward. Okay. So let's broadcast. The key point there is, yes, they had no assets or insurance coverage. They had nothing. So yeah, even if they were a carrier, so what? No recovery. End result, on this case, Total ended up paying the lion's share of everything because they didn't take care to make sure that Badway had the proper insurance and that there were formalized contracts in place. So what we see is being a broker can significantly reduce liability. Whether a broker or not, it's blurry. It's fact-intensive. This issue is so difficult and almost impossible to resolve by way of summary judgment. While insured may think they're a broker, facts often show they're not. And that's not something that, you know, oftentimes we don't learn that until we're in the case for a while. And while one insured may think another, the contract to the carrier, the facts may show otherwise, which in turn is going to adversely affect the insured. So what are some takeaways? For a session, whether a broker or not, are ways to minimize risk. Let's go through a couple of these things. How licensed? You know, again, not dispositive, but you want to check. So go to the FMCSA. You can get that license information. Also check SAFER as well. That'll give you some information. Look at their website. Key, always look at the website. What are they representing to the public? I had one case where their client was claiming they're a broker, licensed as a broker, but there were some bad things on their website. How are they described in the industry publications? You can check that. Do they physically handle or transport the goods? Do they issue bills of lading or any transportation documents? Key point here, do they enter into written contracts? If they don't, they should. And do they have standard terms and conditions that govern? And if so, how is it communicated? Also, do they ever agree to accept full liability responsibility for goods? I always ask that because I had a case where I learned that a client that was clearly a broker, and at least that was my position, and often, often, you know, made that clear in numerous, you know, documents to its clients, its website, etc. They also, on a pretty routine basis, accepted full responsibility and liability for goods. They just did. It was case-by-case, so you got to know that. With respect to use of intermediaries, does the insured have written contracts in place for them? They got to have them. You got to have the contracts that imposes full liability on the carriers, makes clear that the insured is a broker, and provides them recourse if there is a breach. If they don't have such contracts, which they should, how do they confirm these agreements are in place? Rate confirmations, etc., and what's on those? And do they require certain coverage limits? And if so, how do they check or confirm? Key point is they got to check and confirm coverage is in place. If not, it could be worthless. Here, this is so typical, you know, you have the broker. This is my prototypical employee of a broker that's just trying to sell goods. You know, he's making a lot of representations. I had that happen, you know. Despite best intentions, there's no control over what insured employees tell clients, either orally in writing. I've come across numerous instances where, both sides of the fence, where you have these employees claiming, yeah, we're a carrier. It's out there in writing. Bad facts. So while maybe a broker, a misstep by an insurer or employee could result in a carrier forward finding, key, with more and more carriers having low insurance limits, brokers will continue to be a target and, depending on facts, could be liable for loss or damage to cargo. So I'm wrapping up my conclusion. For those of you who love Farside, one of my favorite all-time cartoonists, as you can see, you got the aliens at the top, the guy sprawled at the bottom, and I love the punchline, wonderful, just wonderful, so much for instilling them with a sense of awe. I'm hoping I'm not the guy at the bottom, and I hope you enjoyed the presentation. I believe we have some time for some questions, and if anyone has any, you know, please feel free, and we'll address them then. Again, thank you. Thank you, Michael, for an excellent presentation, and you're definitely not the little guy at the bottom of the stairs. Michael will now take questions. To ask a question, type it into the text box and click the balloon icon next to it, and we'll receive it immediately. We have our first question. How does the Food Safety Modernization Act affect broker exposure or liability? Okay, well, thanks. That's a topic unto itself, and as many of you, if you've experienced it right now, it's, you know, it's still getting played out in terms of how that is flowing down to brokers, but one of the things that it does do, and again, this is a very, you know, limited answer, but one of the things it does, it effectively causes brokers to stand in the shoes of shippers, and so now they're taking on some responsibility for ensuring the, you know, safe transport of foods, and this, in turn, provides for additional obligations imposed on a broker, thus exposing the civil liability, and so effectively you have these additional, you know, regulatory requirements that now, if dealt with by a court, I fully expect will be deemed to be contractual obligations. So one way for, you know, brokers to, you know, minimize this is, you know, you can sit, they can effectively simply opt out, and they can include it in their contract with the shipper, providing they have a written contract, which, as many of you may be well aware, doesn't happen all the time, and I've experienced numerous occasions, but in that contract, they can say that the shipper is the one wholly responsible for compliance. Another way to minimize that risk is to have written contracts in place with the carriers, making them fully liable for compliance, and that would include defense and indemnity language, if they breach that obligation. And then finally, it's real important, if there are specially handling requirements for foods, typically temperature requirements, that the brokers provide this information to the carriers and document that they did that. I had that happen in a case relatively recently, where there was some question as to whether that was indeed provided to the carriers, and they surely didn't document it, which is, it provides for the proverbial Achilles heel when you're dealing with a claim from the cargo owner, that the broker breached that obligation, and that breach led to damage of the cargo. Thank you. Okay, let's see. How do I actually pull this up? Do I show all questions in full? Let's see, open a question. Yes, that's the full question. Do brokers have liability if they purchase motor truck cargo coverage, but only act as a broker? And he has a follow-up comment. Some shippers require their brokers to purchase motor truck cargo coverage. Yeah, it's, you know, now we're getting into the all-important. It's not so much, you know, that is oftentimes the slippery slope, because, you know, what, and again, I have not seen that issue litigated yet. I haven't seen it come up, but I can see where the argument goes, which is the shipper goes to the broker and says, well, we want you to have motor truck cargo coverage covering that, and the broker says, sure, no problem, but I'm still only acting as a broker. Well, in the shipper's mind, it's going to be their position that they think the the broker is providing coverage to handle loss or damage to the shipment. You're still going to have the litigation over the broker-carrier issue. You could have a separate breach allegation. It could form part of the contract, so that could be an additional obligation. It's problematic. That's a problematic approach, and, you know, if they're doing that, you know, what they're doing is effectively they're exposing themselves to a client from the cargo owner, and, you know, one that could affect whether, you know, they're going to be liable, despite the fact that they're still a broker. We have another one. Brokers may carry both E&O and continued cargo. Yep, deal with that all the time. Has the number of claims increased for brokers under which coverage? Well, I can tell you I've seen recently, in the last couple years, I've seen more, I've seen more coverage claims involving brokers than I had in the past, and I've seen, and it depends on the, you know, the scope of the cover. More times than not, they're looking at an E&O issue with respect to, you know, some, you know, some breach or failure. Contingent cargo, you know, that typically arises, you know, it's come up, but not as often. Does verifying insurance require extensive verification? For example, a broker receives a record that it lists insurance coverage as all risk, but it turns out it's not all risk. Can the broker be on the hook for not verifying the insurance coverage? Again, coming back to the insurance coverage, there, unless the broker is contractually agreed to go out and ensure the cargo is carried by a carrier with specific insurance, there is no contractual obligation to do so, and unless the broker is in a jurisdiction where a state law claim for negligence is being pursued, you know, what they do with respect to verifying insurance or not is it should not give rise to a claim against a broker. It doesn't mean one's not going to be pressed, but, you know, it does not or should not result in imposing liability on the broker. The key for the verification of insurance and why the broker wants to do it, it's sort of just balance of spenders. The broker just wants to make sure they're covered, that the carrier has insurance, and so there's a party to go after, so the shipper will be made whole and won't come after the broker. That's the main thing to do, but in terms of that one issue, that is not a huge concern absent a contractual requirement, which, again, you need to see the contract, and as many of you are well aware and have probably experienced, you don't. You don't get it, and oftentimes it's oral. Let's see, what implications does a carrier versus broker finding have on death business? Okay, well this is, so you're talking about the personal injury, death BI claims, have not looked at the, nor did I study the issue with respect to, you know, personal injury claims and the ICCTA preemption. There's a lot of case law out there on that. It's broader. I know I've gone through it in the past, so in terms of, you know, whether they, you know, a broker carrier, what you're going to have in that one area with respect to brokers, what it really comes down to, and again, I haven't spent a lot of time dealing with that issue, but it really comes down to a negligence selection issue, and it's viewed a little differently than cargo loss damage claims. Courts are a little more lax in terms of how it's viewed, and liabilities are actually imposed more often in those cases as opposed to cargo loss. Okay. Okay, now we have a question. If a broker purchases contingent cargo coverage, how is the broker's financial interest in the cargo damage determined to trigger the coverage? Is it based on promises made in the broker-shipper agreement, or is it presumed as a potential loss of goodwill to the shipper? Let me noodle on that for a second, and the reason I'm somewhat noodling on that for a second is, good question, haven't dealt with it before, never been raised. I'm not even going to speculate an answer. I don't want to give you a false response or go out there and give you erroneous information. I tell you what, Paul, what I'm going to do on that one, I am going to copy that, and I'm going to look at that, and hey Paul, if you have my email address, it's on the on the slides, mcummins at gibsonrob.com. Hey, can you shoot me an email, and I'll look into that real quick, and I'll give you a response, because it's interesting, and I don't have one for you right now, but I appreciate the question. So again, just shoot me an email at mcummins at gibsonrob.com. I'll take a quick look at it, and I'll give you a response after a little legwork done. Alrighty, I think that's it. I again want to thank everyone for attending, and again, I hope you got something out of it and you enjoyed it. Thanks again. Thank you, Michael, for an insightful presentation and a very interactive one as well. Thank you also to our attendees for your participation and your interesting questions. All attendees will receive a survey from IMUA. Please take a moment to respond to the survey and provide feedback to IMUA. This ends today's webinar. Have a great rest of the day.

webinar

Michael Cummins

broker liability

legal implications

contractual agreements

responsibilities

Carack Amendment

Interstate Commerce Termination Act

case study

transportation industry