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Broker Exposure for Motor Carrier Neglience Expands by the Millions: The Heyl Logistics Verdict

July 31, 2014

If you are a freight broker, unless you have been stuck under a trailer bed checking brake pads for the past year, you already know your business recently became infinitely riskier.? This is true for brokers, shippers, and those involved in general logistics operations nationwide. This article explores the ramifications for the transportation industry of a wrongful death case where a jury awarded $1.67 million in punitive damages against a freight broker based upon allegations that it was responsible for the actions of a negligent driver of an independent motor carrier. See Linhart v. Heyl Logistics, LLC, CIV. 10-3100-PA (D. Or. 2012). To better understand the Heyl case, and to help your company avoid a similar level of potential exposure, it is important to first revisit the brokerage liability case of Sperl v. C.H. Robinson Worldwide, Inc., 946 N.E.2d 463 (Ill. App. Ct. 2011), which involved a $23.8 million verdict levied against CH Robinson and its contract motor carrier.

SPERL: "Control Over the Motor Carrier"

Sperl involved a truck-on-passenger vehicle collision resulting in multiple fatalities. The jury found that the freight broker, CH Robinson Worldwide, Inc., was liable because it exercised "too much control" over the motor carrier's actions by virtue of engaging in the following actions: (1) providing load instructions and dispatching services; (2) re-routing drivers; (3) requiring drivers to check in daily; (4) providing fuel advances and issuing bills of lading to the motor carrier; (5) imposing fines for late deliveries; and (6) representing itself as "a partner" with the motor carriers. The lesson of Sperl was that freight brokers who get too involved with the details of a driver's day-to-day operations may ultimately face liability for the driver's fault, even where the broker did not contribute in any fashion to the underlying accident or loss caused by the motor carrier and its driver. Sperl and other similar cases are now routinely employed by plaintiffs’ lawyers to add freight brokers, logistics operators, and even shippers as party defendants (with the motor carrier) in catastrophic bodily injury and cargo loss claims in an effort to add a deep pocket to the settlement or judgment fund. ?

HEYL: "Negligent Hiring of Unqualified Carriers"

In Heyl, the broker, Heyl, contracted with the motor carrier, Washington Transportation, for a California-to-Oregon delivery. The driver, a Mr. Clary, apparently fell asleep at the wheel, purportedly as a direct result of his use of an illegal substance that left him drowsy. His vehicle rear-ended a trailer parked legally on the curb-side of the highway. The decedent, Linhart, had been inspecting his brakes and was killed instantly when Clary’s vehicle struck him. The Estate sued the driver as well as Heyl and the shipper and lessor. Ultimately, the shipper and lessor were dismissed. Following a trial on liability and damages, the jury found that Heyl "negligently retained" the motor carrier, and awarded a $1.67 verdict including punitive damages, finding that Heyl had failed to ensure the carrier had liability coverage, had breached its broker-shipper agreement, and engaged in sloppy record keeping. Critical to this outcome in Heyl was a "shipper-broker" contract where Heyl assumed duties that very few brokers should ever agree to undertake.

First, Heyl agreed that it would "ensure the motor carrier would maintain insurance coverage under the Federal and State regulations and that the motor carrier would comply with all Federal and State Regulations." In other words, Heyl guaranteed the motor carrier's statutory and regulatory compliance. As it turned out, the motor carrier's liability insurance and operating authority had lapsed before the accident. Heyl, having agreed to ensure this, was contractually liable for this failure. Second, the evidence showed that Heyl maintained no filing system to confirm background checks of the motor carriers, nor did Heyl ever request a certificate of liability coverage from the particular motor carrier. Had it done so, Heyl would have presumably discovered the motor carrier's liability coverage had lapsed within 6 days of executing the broker-motor carrier contract. Finally, the motor carrier was found to have a "checkered history of noncompliance" with drug and alcohol regulations under the Federal Motor Carrier Safety Regulations (FMCSR). Heyl settled post-verdict for the policy limits in its broker liability policy, in order to avoid an expensive and uncertain appellate process.

Heyl was the first case where the Court permitted, and the jury awarded, punitive damages against a broker based on its alleged negligent retention of a motor carrier, and it was the latest seven-figure verdict rendered against an otherwise exemplary brokerage operation. The implications of Heyl to the brokerage, motor carrier and transportation industry as a whole cannot be understated. In the end, according to the Court in Heyl, the lack of clarity and muddied facts regarding the defendants' status as brokers, carriers, shippers and/or logistics operations led to this enormous verdict. Brokers that fail to learn from the past, particularly the recent history of decisions such as Heyl, may be doomed to repeat it.

Avoiding the Pitfall of Heyl

The fate of the broker-defendant in Heyl was sealed by a vague (yet routinely accepted) template contract that placed inordinate risks upon the broker. In the vast majority of cases, proper contract drafting can avoid the exposure that Heyl voluntarily assumed, presumably in order to placate a good customer and not make waves. However, the specific terms and respective responsibilities and liabilities set forth within that particular broker-shipper contract precluded Heyl from having any chance at obtaining a dismissal from the case. In cases involving tragic accidents, its fair to say sympathetic juries tend to have little regard for attorneys they perceive as skating on ice-thin distinctions between "brokers, shippers and motor carriers."

There are many steps that all brokers, including motor carriers with brokerage divisions, can take to lessen the risk of suffering the same fate, including the following:

1. Do not agree to "ensure carrier compliance" with State or Federal regulations. If your current standard agreement contains this language, change it. Agreeing to ensure motor carrier compliance with anything can equate with agreeing to be subject to liability for bodily injury and/or cargo loss claims caused solely by carrier fault. This risk can be eliminated, or at least substantially reduced, by employing different language, such as by simply agreeing to "require" motor carriers to have insurance coverage, which should accomplish the twin goals of satisfying your shippers or consignees, while also protecting you from the reach of a Heyl-type culpability.

2. Do not agree to "ensure carrier performance." As a practical matter, it is impossible for brokers to ensure carrier performance in any event. Yet when things go wrong, as in Heyl, an agreement to ensure carrier performance would likely be enforceable against the broker. Too, the broker’s losses for the same will usually fall outside of its contingent cargo or liability insurance coverage.

3. Avoid exercising "too much control" over carrier's drivers. For example, do not represent that you, as a broker, will control or manage the motor carrier's day-to-day duties, reward on-time deliveries, punish late deliveries, or attempt to maintain control over dispatch operations around the clock.?

4.? Do not express that you are "a partner with the motor carrier. "The term "partner," or "joint venture," and the like serve little business purpose, but they do afford a plaintiff's attorney a greater potential to hail your brokerage company into a catastrophic bodily injury or cargo loss case.

5.? Maintain electronic files demonstrating searches of the FMSC website to verify motor carrier coverage. Diary all dates when coverage lapses and follow up with the carrier. Heyl’s failure to do so, without doubt, made it look sloppy, not to mention even more culpable to the jury---to the tune of $1.67 million in punitive damages.?

6.? Remove the case to federal court if you can. As a procedural matter, it is usually advisable to be thinking of removing the case to federal court, and be aware that you generally only have 30 days from service of the suit to seek removal from state court to federal court. The advantage of federal court for a broker is clear, as state judges simply will not be as knowlegable about Federal Transportation Law.

The world will never know if Heyl could have escaped a jury trial and the resulting verdict, had its contracts simply contained better language. Would a jury have even been permitted to consider a negligent hiring claim based only upon the chosen carrier's "checkered driving history"? Given the implementation of CSA 2010, this is now an important legal issue for the motor carrier, shipper, logistics and brokerage industries. Do brokers have a duty to further explore a motor carrier's history under CSA once the FMCSA has already determined and published that a carrier is "operational and roadworthy"? We believe the answer should be a resounding "no." Brokers, shippers and logistics operations should have no duty to research or parse less than pristine driving histories and/or marginal CSA BASICS (Behavior Analysis and Safety Improvement Categories), despite the Heyl decision. This has become a critical issue for all of our brokerage and motor carrier clients in light of Heyl. Moving forward, it is now up to every broker and its counsel in this brave new world of potential liability to take steps to reduce the broker’s risk of getting snared in a trap set by its own contractual obligations.

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