The Fair Labor Standards Act’s Motor Carrier Exemption Applies Even to Drivers Who Might Run Interstate Hauls That Might Include Exempt Cargoes
Thompson, et al. v. K.R. Denth Trucking, Inc., 2011 WL 649680 (S.D. Ind. 2011)
K.R. Denth (KRD) is a motor carrier operating throughout much of the country that provides disposal services to its shipper customers. Its drivers are company employees. KRD hauls mostly non-recyclable materials, but does offer equipment and transportation services for recyclable materials. While it operates mostly intrastate within the various states of its operation, KRD does offer intrastate transportation to those customers who need it. Put this all together, and a KRD driver would only on a very rare occasion, if ever, be dispatched to haul a recyclable load in interstate transit.
The Fair Labor Standards Act (FLSA, a federal statute at 29 USC §201 et seq) requires employers to pay their employees overtime wages for work performed in excess of 40 hours per week. However, FLSA contains a series of exemptions pertaining to various industries and classes of workers, one of which is motor carriers. To enjoy this exemption, a motor carrier must demonstrate that (1) it is subject to the “power of the Secretary of Transportation”; (2) its employees are “engaged in activities directly affecting the operational safety of motor vehicles”; and (3) it is engaged in interstate commerce.
A series of current and former KRD drivers brought suit in the U.S. District Court for the Southern District of Indiana against KRD seeking certification and notification of a collective action to recover unpaid overtime wages. This proceeding is very similar to a FRCP 23 motion for certification of a class, the primary exception being that members of a collective action “opt in,” whereas class action members “opt out.” The court took the opportunity within the certification proceeding to determine whether a viable group could pursue a valid claim. It concluded there was no valid claim, and denied the certification.
The standard to determine whether the plaintiff drivers operated in interstate commerce, and whether the feds governed KRD’s activities by way of the Motor Carrier Act, is potential activity within the employment. Even though the drivers operated interstate only rarely, and some not at all, they always could be called upon to do so. Similarly, while precedents suggest that non-recyclable cargoes are not subject to the Motor Carrier Act, and few drivers ever hauled recyclables, they all could be called upon for either variety at any time. Thus, the court concluded, FLSA’s motor carrier exemption applies to the drivers, and the named plaintiffs could not represent a viable group of claimants.
If an Insurer Knows Its Policyholder Is a Motor Carrier, Then It Has Issued Motor Carrier Insurance – At Least in the Peach State
Sapp, et al. v. Canal Insurance Co., 2011 WL 680853 (Ga. 2011)
Here’s a Georgia Supreme Court case that shows at least one state’s heavy inclination, like that of the feds, to hold the feet of a motor carrier’s insurer to the fire of coverage when it comes to a policy’s restrictions.
Insurer Canal issued a garden variety, commercial automobile coverage policy to dump truck operator EDB Trucking. As a dump truck enterprise, EDB qualified as a motor carrier under Georgia’s Motor Carrier Act. However, EDB never applied for or obtained state-required motor carrier licensing, and Canal never filed with Georgia transportation authorities an endorsement confirming financial responsibility that is required of licensed motor carriers (analogous to FMCSA’s MCS-90). Canal’s policy contained an exclusion for coverage of accidents outside a 50-mile radius of EDB’s place of business.
An EDB truck collided with a car driven by Ms. Sapp, yes, more than 50 miles away from EDB’s yard. She brought a direct action suit against Canal in Georgia state court as would be allowed under state motor carrier regulation statutes. On Canal’s motion for summary judgment, the trial court dismissed her action based on the policy’s exclusion. The Court of Appeals affirmed, but Georgia’s High Court reversed.
Just because EDB failed to comply with Georgia statutes applicable to motor carriers, i.e., by failing to obtain a permit, didn’t mean it wasn’t one. Canal knew what activities EDB would be up to by the insurance application EDB’s broker filled out after the insured instructed it to obtain “all necessary coverage.” Canal didn’t issue a standard motor carrier policy, but it stepped into the shoes of a motor carrier insurer subject to state statutes that prohibit any coverage restrictions (such as the 50-mile radius). Consistent with FMCSA regs and the feds’ enforcement of them, of paramount importance in the Peach State is ensuring the public enjoys an essential “bond” available whenever a trucker is involved in an accident. Any other result would invite truckers and their insurers to disobey state insurance requirements to avoid exposure.
Who’s a Shipper for Carmack Purposes? First, Look at the Bill of Lading
OneBeacon Insurance Co. v. Haas Industries, Inc., 2011 WL 802048 (9th Cir. 2011)
In our May 2008 article, we reported on this matter when it was before the Northern District of California, addressing just who has standing in a Carmack claim to sue truckers for damaged freight. Here was a wonderful opportunity for a federal court to provide us guidelines on a frequently pivotal point. Professional Products, Inc. (PPI) had purchased a load of computer wafers from Omneon Video Graphics (Omneon). The purchase was FOB, but because Omneon had a shipping contract in place with motor carrier Haas Industries (Haas), it agreed with PPI to arrange interstate transit to New York. Omneon did so, using a standard PPI bill of lading per its general practice with the carrier. Of course, the freight arrived damaged.
Haas refused PPI’s claim, stating its shipper of record was Omneon. At PPI’s direction, Omneon repeated the claim filing, but apparently agreed with Haas that, per the bill of lading’s terms, Haas’s liability was limited to eighty eight bucks. Omneon accepted that sum from the carrier. PPI then collected the cargo’s full (105 grand) value from its insurer, OneBeacon, which sued Haas in subrogation.
Could PPI have pursued a Carmack claim from Haas? If not, its insurer couldn’t either. As we reported a couple years ago:
The court did an excellent job of expressing its conundrum. “On the one hand,” lamented Magistrate Judge Zimmerman, “judicial economy suggests the owner of the goods should be able to sue the carrier directly under the Carmack Amendment. The alternative would be for the owner to sue the consignor or shipper who would then have to sue the carrier.”
But on the other hand, “allowing someone not a party to the bill of lading to sue the carrier after it has reached an accord and satisfaction with the shipper would seem to discourage carriers from settling claims.”
Because the district court found that Haas had effectively limited its liability, it didn’t much answer that question. On appeal, however, the Ninth Circuit came a little closer. Haas’s bill of lading defines “shipper” as a “the party from whom the shipment is received, the party who has requested the shipment be transported by Haas Industries, and [sic] party having an interest in the shipment, and any party who acts as an agent for any of the above.” The court found PPI and its insurer fall within the last clause of that definition, and thus, could recover from PPI under Carmack. In other words, the shipping contract here answered the question. Unfortunately, that still doesn’t tell us much about what would happen if the bill of lading doesn’t define “shipper,” which is all too often the case. As the Ninth Circuit pointed out, courts go every which way in this issue.
The result doesn’t change the outcome, however. The appeals court agreed Haas had effectively limited its liability to peanuts. The various “shipper” entities never requested a copy of the carrier’s “tariff,” or rate schedule, defeating OneBeacon’s argument that it failed to maintain one. You gotta ask!
Carmack Preemption Doesn’t Extend To State Good Faith Settlement Statutes
Mason and Dixon Intermodal, Inc. v. Lapmaster International, LLC, et al. v. W.E.S.T. Forwarding Service, 2011 WL 135084 (9th Cir. 2011)
This interesting scenario prompted the Ninth Circuit Court of Appeals to find Carmack preemption inapplicable to a state statute that limits a motor carrier’s rights in a damaged freight claim. Freight broker ITG placed two cargoes consisting of oversized precision flat lapping and polishing machines with motor carrier Mason and Dixon Intermodal (MDII) for transport after international water carriage. Allegedly because of bad instructions from ITG, MDII didn’t use appropriate equipment, causing the two loads to be unexpectedly high. They both crashed into the same overpass causing some 820 grand in damage.
MDII brought suit against the cargo’s owner and insurer seeking declaratory relief regarding limitation of liability. The shipper impleaded ITG in a third-party action. MDII filed its own claims against ITG, and ITG settled out with the shipper.
Under California tort law, similar to that of many other states, a joint tortfeasor may settle out with the claimant and gain immunity from contribution by its fellow wrongdoer. ITG claimed MDII was barred from pursuing its claims against ITG on those grounds. Affirming the Northern District of California, the Ninth Circuit agreed.
National uniformity principles are not offended by a motor carrier losing its right to seek contribution from a third party. It can still defend based on the same defenses, and limit its ultimate liability. It can assess its risks, and rely on a consistent body of federal law to determine its exposures. True, as MDII argued, it was not a joint tortfeasor with ITG, even if it were responsible for the loss, as “torts” may not be asserted against a motor carrier. In other words, MDII couldn’t be held liable as a joint tortfeasor with anyone. However, both courts found that you don’t have to be accused of a “tort” to fall within the statute; liability under a statute does the trick. ITG’s settlement, based on its own limitation of liability, was in “good faith” (i.e., not designed as a collaborative effort with the shipper to stick it to MDII), so was effective to get ITG out of the case altogether.
A Danger of Daisy Chains: A Broker Claiming a Broker Isn’t a Broker
Unified Global Logistics, Inc. v. Nabers Solutions, LLC, 2011 WL 193413 (Cal.App. 4 Dist. 2011)
Okay, take out your pencil and drawing pad. You’ll need them to map this one out. Shipper LG Electronics engaged freight broker FNS (USA), Inc. to arrange transit of a cargo of LCD TVs from California to Virginia. FNS hired broker Uniform Global Logistics (UGL); UGL hired Nabers Solutions; and Nabers retained motor carrier CAC American Cargo to make the haul. The freight was stolen en route, apparently off a truck not covered by CAC’s liability insurance.
UGL paid off LG Electronics, and stuck out its opened palm in Nabers’s direction. Nabers denied liability, asserting that it was a broker liable only for its own negligence, of which none was suggested. UGL and Nabers went to the mat in California state court, where Nabers won dismissal on summary judgment. Next stop, the Golden State’s Court of Appeals.
UGL urged that Nabers was a motor carrier, or at least a question of fact – for jury determination only – remained as to whether it had led UGL to believe it was. The appeals court just didn’t buy it. Nabers had sent UGL documentation, including in previous transactions, that showed it held brokerage licensing only. UGL required its “subs,” so to speak, to demonstrate insurance coverage, and Nabers presented a continent cargo liability policy, a line designed for brokers only. Apparently, a Nabers sales rep may have suggested to UGL that Nabers could move the load “on its own trucks,” which would support a determination that Nabers had represented itself to be a trucker. But again, UGL knew Nabers’ circumstances weren’t those of a licensed motor carrier, and it never considered the issue until there was a cargo loss.
Nothing requires a broker to engage a motor carrier that has adequate insurance for a particular load (although to be FMCSA-licensed for interstate transit, a competent trucker must carry minimum levels of insurance or otherwise demonstrate financial responsibility). However, an agreement between a shipper and broker or, as here, between two intermediaries, by which a broker agrees to engage only truckers with adequate coverage, is enforceable. UGL argued Nabers breached that agreement by allowing the freight to move on an uninsured truck. But Nabers confirmed CAC held an adequate policy, and had no reason to suspect the carrier might put it on an uninsured truck.
Also, Carmack, which would exclusively govern Nabers’s liability if it were a trucker, requires a showing that the subject cargo was delivered to carrier in good order and condition. There was no evidence the cargo was delivered to Naber – period.
Thus, the Court of appeals affirmed the dismissal. The longer the daisy chain of intermediaries, the more players involved, and the transactions and contracts undertaken – the bigger chance of misunderstanding and dispute.