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BROKERAGE VICTORY: “Negligent Retention” of Motor Carrier Claim Dismissed for Failure to State a Claim

November 19, 2015

In a recent decision from the Southern District of Florida, the federal District Court dismissed, at the pleading stage, a “negligent hiring and retention of claim” against a transportation broker arising from a cargo theft. Mega International Trade Group v A-Link et al, Case No. 14-24757 (U.S. Dist Ct. June 19, 2015). Although this is technically an unpublished decision and (for now) not appealable as an interlocutory decision, the Mega decision provides persuasive precedent and guidance by using the elevated federal pleading standards under Twombly and Ashcroft decisions to attack Schramm oriented negligent motor carrier selection claims. Those of us defending brokerage operations from the onslaught of negligent hiring claims will have added ammunition to attack the pleadings up front, as opposed to enduring years of costly discovery before prevailing at the summary judgment stage.

The facts in Mega arise from a stolen shipment of Sony camcorders in transit to the United Arab Emirates. The camcorders never made it out of the United States. The plaintiff/shipper sued no less than eight defendants involved in warehousing, brokering and transporting the cargo. For purposes of this article, the focus is on the brokerage component of this transaction. Mega International (“Mega”) retained A-Link Freight to “coordinate the international transportation”, with A-Link hiring Trade and Traffic (“T&T”) as the NVOCC to consummate the inland portion of the delivery. T&T then retained TTSI as a drayage carrier to deliver the containerized freight from the shipper’s Miami Port facility. Immediately after the carrier took possession, mysterious forces removed the freight from the container. Presumably, and as the Mega decision suggests, TTSI driver may have complicity played a role. Mega’s amended pleading (as the shipper/owner of the stolen freight) brought a common law negligent retention and hiring claim against T&T, alleging it negligently selected TTSI given T&T’s assumed suspicion and/or general knowledge of the following: (1) That it was known TTSI’s owner had theft problems while working for a prior motor carrier; (2) The TTSI driver selected was “untrustworthy and dishonest”; (3) That TTSI’s “safety ratings were below average, and its out of service rate twice the national average”; and (4) That TTSI only carried cargo loss insurance of $100,000.00, despite the freight’s value known to be in excess of $1 million.

Relying on the elevated notice pleading standards enunciated in Bell v. Twombly, 550 U.S. 544 (2007), the Mega court granted T&T’s motion to dismiss the negligent hiring claim, finding “mere conclusions, speculation and formulaic recitations could not state a plausible claim for relief.” The grounds for the court’s dismissal included:

“The Untrustworthy Driver and Carrier”

In dismissing the negligent selection claim, the Mega court first riveted on the common law elements of the same under Florida law, standards common to nearly every state. Foremost, requiring the plaintiff plead the transportation broker “knew or reasonably should have known of a specific incompetence/unfitness that proximately caused the theft.” With this in mind, the Mega court brushed aside generalized allegations the broker was aware of rumors and/or innuendo regarding prior bad acts, reputation or dishonesty involving the driver or carrier’s owner, even if those rumors focused on prior cargo thefts. The Mega court held the issue was whether “...by diligent inquiry the broker could have discovered a carrier’s specific unfitness precluding retention of that carrier.” Hence, allegations the broker knew of rumors, unsavory industry character, or even of an untrustworthy and dishonest propensity, are patently deficient to support a negligent hiring claim. Per Mega, these are the type of speculative pleading allegations that no longer preclude dismissal at the pleading stage.

Finally, and by way of example, to sustain a negligent retention claim, the Mega court surmised a plaintiff may theoretically allege the broker knew or could have known of an actual specific prior cargo theft related arrest or investigation, thus triggering the broker’s duty to follow up. In this case, however, no specific cargo theft related prior incidents or acts could be alleged. Simply knowing the carrier or driver retained is not up for “Citizen of the Year” is not enough to impute a duty to further investigate or dig deep.

Deficient Safety Ratings

Next, the plaintiff claimed T&T should have know the carrier had “a questionable or less than commendable safety compliance record, and should not have arranged to transport these high value cargo shipments given concerns about cargo theft and carrier safety ratings.” Interestingly, the Mega decision itself does not reference which particular “safety ratings, scores and/or records” were at issue. However, the author has learned (off the record, of course) the plaintiff adduced CSA data showing the carrier had a smattering of prior maintenance issues involving bad headlights, worn tire-treads, and several driver fitness citations. None of which, per Mega, had anything to do with cargo loss or theft issues. Focusing again on the suspect allegations in the complaint, the Mega court held the plaintiff failed to specifically allege the broker “...knew of should have reasonably known that the particular incompetency or unfitness” alleged caused the (cargo theft) loss.

Insufficient Cargo Insurance

As to the claim the broker retained an uninsured carrier, most of us know that the courts, in different contexts, have rejected this as the basis of a tort theory of recovery against brokers. The Mega court likewise batted away this claim, concluding “...there was no proof that T&T had knowledge of insufficient coverage, nor was there a causal nexus between insufficient insurance coverage and the cargo theft itself”.

No Proximate Causation

Finally, not to be over-looked is the Mega court’s “slam the door shut” ruling also finding no proximate causation, as a matter of law. The court surmised even if there was proven that a “dishonest, suspect and/or shady motor carrier and driver” were retained by the broker, as a matter of law this “bad reputation claim” affords a legally deficient nexus with the ultimate cargo theft at issue. In other words, T&T’s alleged failure to investigate a motor carrier or driver’s nefarious past was not a proximate cause of the underlying cargo theft.

For practitioners representing transportation brokers in common law negligent hiring or selection claims in a BI or cargo loss related incident, the Mega case affords precedent to defeat spurious “shot gun pleading” complaints that are bereft of facts linking alleged negligence to the cargo theft at issue. When proper, a Rule 12(b)(6) motion to dismiss questionable broker negligent hiring claims should force the plaintiff to re-pled with the requisite factual specificity, particularly on claims raising CSA Safety Fitness rankings, alerts, percentiles or scores with no logical relationship (i.e. no proximate causation) to the underlying loss.

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