Defending & Managing Trucking Litigation

1. 3rd National Forum Defending & ManagingTrucking Litigation 11.29.2012

2. Extending Liability to Brokers The Scope & Nuances of Recent Court Decisions & Their Impact on the Course of Litigation

3. Introduction

4. Source material & bibliography Discussion of broad topic area

5. History of the Case Law

6. Structured commercial relationships result from: 1 2 3 Bill of Lading Regulation Peripheral involvement of intermediaries • Contract of transportation/bailment • Transportation = intangible service = space – time – distance

7. Bills of lading separate & structure risk exposure

8. Two asset-based parties are involved in transportation 1 2 Asset-based carrier EXCEPT for truckload owner operator fleets Asset-based shipper = consignor = consignee = beneficial owner

9. Owner operators = independent contractors • Legal concepts of independent contract breaking down • Principal Agent case law • Truth In Leasing imposed control on non-asset based carriers • Regulatory duties expanded carrier tort exposure – placarding liability jumps contract privitypre-deregulation

10. Historically, torts arising out of transportation basically confined to carrier

11. Third parties not acting as intermediaries • Brokers, brokered or purchased transportation … did not provide it • Freight bill auditors acted peripherally • Consolidators (shippers’ agents – shippers’ association = exempt forwarders) aggregated or deconsolidated … did not assume responsibility • Warehousemen released to/received from transportation bailment … did not provide it

12. Conclusion… ...Commercial business of transportation legally structured without intermediaries under regulation

13. Evolutionary Changes to the Case Law

14. Are breaking down transportation functions & spreading transportation responsibilities to non-asset service providers

15. Deregulation eliminated structure…i.e. 49 USC §14101(b) & 49 USC § 14706(c)

16. Intermediary development roughly followed Australian deregulation experience 1 Brokers broadened service beyond brokerage 2 Intermodal Marketing Companies (IMC) broadened exempt freight forwarding 3 Logistics service providers broadened brokerage with IT offerings managing freight

17. 4 Exempt transportation & produce brokers expanded offerings … C. H. Robinson 5 Intermediaries assumed some or all of transportation functions • Carrier qualification • Dispatch • Tracing • Meeting transit time requirements • Rate negotiation • Claims management • Litigation defense

18. 6 Economies of scale resulted in intermediary growth Summary… Some major intermediaries’ options blend into … non-asset based motor carrier or freight forwarder options … but without operating authority

19. Intermediary operations are fluid & generate complex litigation 1 King’s Express, Inc., et. al. v. FedEx Freight Corporation, 06 L 10929 (Cir. Ct. Cook Co., IL) • FedEx brokered to Aero Terra, Inc., (A Broker)  Who brokered to Stallion Logistics, Inc., (A Broker)  Who Brokered to King’s (A Carrier)  Who Brokered to A Sister Infinity Logistics, Inc. (A Broker)  Who brokered to & paid a number of carriers • FedEx paid but Infinity not paid • Kings & Infinity start suit against all intermediaries & 186 shippers/consignees

20. Hoffman, et. al. v. Crane, et. al. 07 L 11406 (Cir. Ct. Cook Co. IL) 2 • Joseph T. Ryerson & Son, Inc. subcontracted all transportation management to 3PL Corp. (A 3PL/Broker)  Who subcontracted shipment to Illinois Motor Service, Inc. (A Carrier)  Who subcontracted to Dorlan Crane (Ind. Contractor/Owner Operator) • All contracts assured operations as independent contractors • Crane ran over Hoffman family • Ryerson had $100,000,000 coverage • 2.12.2012 – Jury Verdict For Hoffman family = $27.67 Million • Coordinated operation between all parties was joint venture

21. Conclusion “ …(i)n the last analysis, 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… ” • Since 1995, broadened direct relief against parties up the supply chain has evolved • In Schramm v. Foster, 341 F. Supp. 2d, 536 (D. Md. 2004) Judge Motz’ Holding is prophetic

22. Contemporary & Evolving Causes of Action

23. Elements of some causes of action sounding in tort successfully used against parties up supply chain

24. Torts arise based on what parties did…not what contracts say… facts control, not privity

25. Duties on which torts rest also rest on… 3 1 2 statutes regulations contracts …as well as classic tort duties

26. Cause of action can arise from principal-agent relationshipapplying classic respondeat superior concepts to impose vicarious liability Negligent action That is proximate cause Of plaintiff’s injury By independent contractor Who has become an agent By control or right to control of principal

27. Citation Example Sperl v. C. H. Robinson, Inc. 408 Ill.App.3d 1051 (2011) cert. den. 2011 Ill. LEXIS 1450

28. Cause of action can arise from negligent hiring Negligence in failing to exercise Reasonable care Selecting fit carrier requiring Affirmative due diligence, i.e., no reincarnated carrier but safety evaluation required where public safety involved

29. Citation Example Schramm v. Foster, 341 F. Supp. 2d 536 (2004)

30. Cause of action can arise from negligent entrustment A person charged to do something Permits a third person To use a thing or engage in an activity In a manner so as to create an unreasonable risk When the person controls or has a right to control the third person

31. Citation Examples Cf. Harris v. Velichkov, 2012 U. S. Dist. LEXIS 63021 (Neb. 2012) Jones v. C.H. Robinson Worldwide, Inc., 558 F. Supp 2d 630 ( W.D. Va. 2008)

32. Statutory cause of action under 49 usc 14704(a) allowed A carrier or broker Damages to a person Caused by an act or omission of broker or carrier In violation of Part IV of the Interstate Commerce Act Minority rule allows cause of action for personal injury

33. Citation Examples Minority Rule: Marrier v. New Penn Motor Express, Inc. 140 F. Supp. 2d 326 (D. Vt. 2001) Majority Rule: Lipscomb v. Zurich American Ins. Co., 2012 U.S. Dist. LEXIS 72955 No Cause Of Action Under 49 USC 14707(a): Tierney v. Arrowhead Concrete Works, Inc., 791 N.W.2d 540 (Mn. App. 2010)

34. Also, No Cause Of Action Under 49 USC 14707(a) A carrier or broker Damages to a person Caused by an act or omission of broker or carrier In violation of Part IV of the Interstate Commerce Act Minority rule allows cause of action for personal injury

35. Other examples of torts that lie against non-carrier participants 1 Tortious interference with contract 2 Theft by deception 3 Conversion

36. 4 Strict liability, i.e., shipper tender of hazardous materials Cf. Senator Linie GMBH & Co. Kg v. Sunway Line, Inc. 291 F.3d 145 (2d Cir. 2002) 5 But note pre-emption of negligence on freight claims Cf. Non Typical, Inc. v. Schneider Logistics Int., Inc. 2012 U.S. Dist. LEXIS 73452

37. Conclusion

38. Breakdown in historical structure of transportation 1 Realigns business relationships 2 Expands risk of tort liability extending up supply chain

39. Successful representation of supply chain participant requires careful weighing of: New innovative transportation concepts that provide economies of scale & efficiencies of service vs Risk exposure & insurance requirements

40. Pay attention to legal audits resulting from multi-party relationships

41. SULLIVAN HINCKS &CONWAY Daniel C. Sullivan 120 West 22nd Street, Suite 100 Oak Brook, Illinois 60523 Phone: 630.573.5021 Fax: 630.573.5130 www.shlawfirm.com counsel@shlawfirm.com Small Firm. Big Experience.