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CONTRACTS:
LOOK AT THE BIG PICTURE
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Seventh Circuit Vacates Electronic Monitoring Device Rule Proposed by the Federal Motor Carrier Safety Administration
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Team Updates
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North Carolina Tort Reform
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Independent Contractors as Employees
South Carolina Dryage Companies Eligible for "Cash for Clunkers"
For many motor carriers, when a cargo claim is presented, the first document that is referenced is the motor carrier’s tariff. This is appropriate, and the tariff oftentimes contains the most applicable terms for how the claim is to be handled. However, it is equally important for the motor carrier to keep in mind the big picture for the entire shipment from which the claim arose and to review all the shipping documents relevant to that shipment. This Big Picture view was illustrated by the recent case of Mattel, Inc. v. BNSF Railway Co., 2011 U.S. Dist. Lexis 495 (C.D. Cal. Jan. 3, 2011). In this case, a cargo claim arose out of a shipment of toys from China to Fort Worth, Texas. Mattel claimed to be the shipper and beneficial owner of the goods. It contracted with an agent, CMA-CGM, S.A., to arrange for the shipment. CMA contracted with various shippers, including an ocean carrier and a railway. The shipment was moved by ocean from China to the United States. CMA issued a through bill of lading for the entire shipment, and it contracted with BNSF to move the shipment by rail from Long Beach, California to Fort Worth. The BNSF train carrying the shipment derailed in Texas, generating the cargo claim. Mattel brought suit against BNSF to recover for its cargo loss. The CMA bill of lading contained a clause extending application of the Carriage of Goods by Sea Act (“COGSA”) to the inland leg of the shipment. The bill of lading also contained a Himalaya clause containing standard terms, and a separate clause governing subcontract in indemnity. This latter clause provided that: CONTINUED ON PAGE 2 >>
CONTINUED FROM PAGE 1 >> 1. The Carrier shall be entitled to subcontract the Carriage on any terms whatsoever. 2. The Merchant undertakes that no claim or allegation shall be made against any Person whomsoever by whom the Carriage is performed or undertaken (including all Sub-Contractors of the Carrier), other than the Carrier, which imposes or attempts to impose upon any such Person, or any vessel owned by any such Person, any liability whatsoever in connection with the Goods or the Carriage of the Goods, whether or not arising out of negligence on the part of such Person and, if any such claim or allegation should nevertheless be made, to indemnify the Carrier against all consequences thereof. Without prejudice to the foregoing every such Person shall have the benefit of every right, defense, limitation and liability of whatsoever nature herein contained or otherwise available to the Carrier as if such provisions were expressly for its benefit; and in entering into this contract, the Carrier, to the extent of these provisions, does so not only on his own behalf but also as agent and trustee for such Persons. BSNF moved to dismiss the lawsuit on the basis of this clause, which provided that Mattel was prohibited from suing subcontractors of CMA, such as BSNF. The Court first concluded that BSNF was entitled to enforce the terms from the through bill of lading because it fell within the definition of the parties covered by the Himalaya clause in the bill of lading. Norfolk Southern Railway Co. v. Kirby, 543 U.S. 14, 30 (2004). Next, the
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Court concluded that the covenant not to sue BNSF that was contained in the through bill of lading was permissible under Section 1303(8) of COGSA. Therefore, the covenant not to sue was effective and binding on Mattel, and the suit against BNSF was dismissed. Under the principles announced in Kirby and by the later case of Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp., 130 S.Ct. 2433 (2010), and also the Second Circuit’s decision in Royal and Sun Alliance Insurance, PLC v. Ocean
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For an international, multi-modal, air, brokered, interlined, or like shipment, the motor carrier should also seek to learn what other documents have been issued relevant to the shipment.... these documents will oftentimes contain terms that are beneficial to the carrier.
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World Lines, Inc., 612 F.3d 138 (2nd Cir. 2010), the reasoning of Mattel v. BNSF would apply equally to a cargo claim that arises from transport by a motor carrier. In that situation, when the claim is first presented to the motor carrier, the common procedure would be for the motor carrier to examine its own tariff, any bill of lading that it may have issued, any shipping contract that it may have with the shipper, and other such documents. As noted, this is the appropriate first
step for the motor carrier to take. However, for an international, multi-modal, air, brokered, interlined, or like shipment, the motor carrier should also seek to learn what other documents have been issued relevant to the shipment. As in Mattel, these documents will oftentimes contain terms that are beneficial to the carrier. In Mattel, this took the form of a covenant not to sue. In other cases, such as with a shipment that begins as an international air shipment, the air waybill will oftentimes contain terms incorporating and enforcing limitations permitted by the Warsaw or Montreal Conventions, which terms oftentimes will be extended to apply to the motor carrier handling the ground segment of the shipment. These terms can significantly limit the period for filing claims and suits and can also significantly limit the liability of the motor carrier for any loss to the shipment. For example, under the Montreal Convention, governing air shipments, the claims period can be reduced to 14 days, and under COGSA, the limitation on liability can be reduced to $500 per package. As a result, the carrier can achieve a dramatic success, as in Mattel, where the suit was dismissed outright, or it can achieve a significant limitation on any amount it must pay to the shipper or consignee. We often advise motor carriers to develop tariffs, contracts, and bills of lading for use in their shipments. This is always important. However, what Mattel demonstrates is that it is equally important to know the contracts that apply to other portions of the shipment and, as best the motor carrier can, to determine those terms as well. Not only does this enable the motor carrier to benefit from terms contained in the upstream contract, it also has a bearing on the motor carrier’s ability to enforce its own contract terms. At the end of the day, motor carriers must always look at the big picture and and go beyond the documents concerning the motor carrier’s limited exposure to the freight.
SEVENTH CIRCUIT VACATES ELECTRONIC MONITORING DEVICE RULE
PROPOSED BY THE FEDERAL MOTOR CARRIER SAFETY ADMINISTRATION On August 26, 2011, the Chicago-based Seventh Circuit Court of Appeals vacated and remanded a rule proposed by the Federal Motor Carrier Safety Administration (“FMCSA”) regarding the use of electronic monitoring devices on commercial motor vehicles. The case was brought by the Owner-Operator Independent Drivers Association (“OOIDA”) and three individual truck drivers against the FMCSA. (OwnerOperator Indep. Drivers Ass’n Inc. v. FMCSA, 7th Cir., No. 10-2340, 8/26/11).
The basis for the petition by OOIDA was a final 2010 rule by the FMCSA that would have required the use of electronic on board recorders (“EOBRs”) on trucks operated by certain motor carriers. The 2010 rule followed an attempt by the FMCSA in 2003 to promulgate a similar rule. In the 2003
rulemaking, the Agency proposed the use of EOBRs instead of paper log books to monitor drivers’ record of duty status. An EOBR is defined as “an electronic device that is capable of recording a driver’s hours of service and duty status accurately and automatically.” See 49 C.F.R. § 395.2. The EOBR was to be synchronized with the truck’s engine so that it can be linked simultaneously with the driver’s telephone so that updates can be sent remotely. The EOBR must be capable of recording an extensive amount of information, including the truck’s registration number, the date, time, and location of the truck, the distance traveled, the hours in each duty status, the motor carrier’s name and Department of Transportation number, the weekly basis used by the motor carrier to calculate driving time, and the document numbers or name of the shipper and goods being transported. Following comment in 2003, the FMCSA declined to require EOBRs. The FMCSA circled back to the use of EOBRs in 2007 and proposed requiring EOBR use for motor carriers found that have an hours of service violation of greater than 10 percent for any two compliance reviews in a two-year period (“2x10 remedial directive”). After another comment period, in 2010 the FMCSA abandoned the “2x10 remedial directive” in favor of a stricter “1x10 remedial directive.” The remedial directive would also make the EOBRs mandatory for a period of two years, after which the motor could return to using logbooks. FMCSA entered the rule on April 5, 2010, with an effective date of June 4, 2010 and a compliance date of June 4, 2012. In promulgating the rule, the FMCSA submitted a Regulatory Impact Analysis that balanced the potential costs and benefits of an EOBR mandate. The FMCSA also submitted a Privacy Impact Assessment.
OOIDA filed its petition on three grounds: (1) that the regulation was arbitrary and capricious because it did not ensure that the devices were not going to be used to harass vehicle operators as required by 49 U.S.C. Section 31137(a); (2) that the FMCSA’s costbenefit analysis was arbitrary and capricious because it failed to demonstrate the benefits of requiring EOBRs; and (3) that mandating EOBRs violated the Fourth Amendment. The Seventh Circuit only reached the first issue raised by OOIDA and found that the final rule was “arbitrary and capricious” because the FMCSA failed to include provisions ensuring that motor carriers could not use EOBRs to harass drivers. The Court noted that the FMCSA “should have revealed how it drew the line between legitimate measures designed to assure productivity and forbidden measures that harass.” Specifically, the Court noted that the word “harass” appeared only once in the entire rulemaking. Because of the Agency’s failure, the Court’s only option was to vacate the final rule and remand it back to the FMCSA. The Court noted that the FMCSA should take into account what kinds of harassment already occur, how frequently that harassment occurs, and how an EOBR might prevent future harassment.
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YOUR TRANSPORTATION TEAM
STARTING LINE-UP Greensboro o C NC
ERIC ALBRIGHT
Greensboro Gre eens NC
Charleston Ch harle SC
JON MIKE BERKELHAMMER BOWERS
Greensboro Gree ensb o C NC
MANNING CONNOR
Greensboro Gre eens NC
RICK COUGHLIN
SMITH MOORE LEATHERWOOD’S TRANSPORTATION TEAM
Greenville Gre SC
TYNETRA EVANS
Greenville G Gr ee le C SC
STEVE FARRAR
Greenville Greenville S SC
Wilmington Wilm min on C NC
JAY HOLLAND
JASON MAERTENS
Greenville Greenville S SC
FREDRIC MARCINAK
SMITH MOORE LEATHERWOOD’S TRANSPORTATION SPORTA RTATIO TION N TEAM TEAM
TEAM TE EAM L LEADER E R
Gre een Greenville SC
Greenville Green nville SC
KEVIN McCARRELL
ROB MOSELEY
Grreen le Greenville C SC
JASON NUTZMAN
Atlanta At tlant G GA
BOB PERSONS
Greenville G Gr ee e SC
JACK RIORDAN
SMITH MOORE LEATHERWOOD’S TRANSPORTATION SPO ORTA RTATIO TION NT TEAM EAM
Greenville Greenv ville SC
Greenville Gre e SC
KURT ROZELSKY
JOSEPH ROHE Proudly introducing our new Greenville attorney!
Rale Raleigh R NC
Greensboro G Gree o NC
JULIE THEALL
MARC TUCKER
Charlestton Charleston S SC
NEIL THOMSON
SMITH MOORE LEATHERWOOD’S TRANSPORTATION TEAM
Georgia | North Carolina | South Carolina 4
The Road Ahead • • • • • • • •
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Rob Moseley will be attending the Chartis Transportation Advisory Board Meeting on Oct 3-4 in New York City. He will be speaking on developments in trucking coverages. Marc Tucker and Kurt Rozelsky will be attending the TIDA annual conference in Las Vegas October 12-14. Kurt will be presenting "Who's Your Dealer: Involving the Corporate Witness" on witness preparation. Rob Moseley will be attending the SC Trucking Association Board of Directors Meeting in Columbia on Oct 4-5. The purpose of the meeting is to plan the legislative and regulatory agenda for the current legislative session. October 13 marks the fall luncheon of the NC Transportation and Logistics League in Greensboro. Rob Moseley will be the luncheon speaker discussing real life litigation and results. Rob Moseley will be at the American Trucking Association Management Conference and Exhibition in Dallas on October 15-17. Rob will be presenting on pressing issues facing trucking companies in today's environment. Rob Moseley will be travelling to Denver to speak at the American Association of Managing General Agents on October 27. Rob Moseley will be presenting an independent contractor seminar in Charleston sponsored by the SCTA in November, date TBA, stay tuned. He will be happy to give anyone in attendance a tour of The Citadel whether they want it or not. Kurt Rozelsky, as Chair of the DRI Trucking Law Committee, will be leading the Trucking Law break-out and business meeting at the DRI Annual Meeting in Washington, DC October 26-29, 2011. Kurt is also presenting Matt Richtel, NY Times Pulitzer-Prize Winning Author on the topic of Distraction." Rob Moseley will be attending the Commercial Carrier Journal Symposium in AZ Nov. 7-9 and will be presenting on transparency issues in the new world of trucking.
Making Tracks • • •
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Michael Lee, Partner-in-Charge of the Wilmington office, was appointed to the Board of Directors for the NC Ports Authority. Marc Tucker presented at the NCTA Safety Council Down East Chapter on October 6th on the issue of Employee Hiring, and attended the NCTA Annual Conference in Myrtle Beach. Jack attended the 44th Annual Joint Meeting of the South Carolina Defense Trial Attorneys Association (SCDTAA) and the Claims Management Association of South Carolina in Asheville, NC the last weekend in July. Jack is serving his second term as Chairman of the Trucking Subcommittee of the SCDTAA and will host the Breakout Session for the Trucking Committee during the SCDTAA Annual Meeting the first weekend in November at Amelia Island, FL. Team Members Fredric Marcinak, Jason Nutzman, Jack Riordan, Kurt Rozelsky, and Rob Moseley participated in Smith Moore Leatherwood’s Trucking Law Update, Greenville, S.C., August 16. Marc Tucker and Rob Moseley attended the NCTA Annual Conference in Myrtle Beach July 14-17. Rob spoke on the Top Ten legal issues facing the trucking industry today. Steve Farrar and Kurt Rozelsky attended the FDCC Annual Meeting in Williamsburg, VA July 25-30. Steve was re-elected as the Director of the Federation of Defense and Corporate Counsel and Kurt was reappointed as Vice-Chair of the Trucking Law Committee. Rob Moseley attended the Second Annual Forum of the American College of Transportation on Attorneys in Chicago on August 26. Rob spoke on handling and neutralizing plaintiff's trucking industry experts. Rob was elected Secretary of the organization after spending a term as Treasurer. At that point in baseball history, Rob's Red Sox were 9 games up on the Rays. Ask Rob how that turned out. Kurt Rozelsky moderated panel discussions at the ATA Safety Management Council Annual Meeting in Albuquerque, NM Sept 20-22. Rob Moseley presented on insurance coverage issues at the CIC Truckers Meeting in Orlando, FL September 7-9, 2011. Rob Moseley taught transportation contracts at the SMC3 Contract Seminar in Nashville on September 13, 2011. Fredric Marcinak attended and heckled Moseley. The next contract seminar will be in Cincinnati on April 17, 2012. Rob Moseley presented on Cargo liability and defenses at the TIDA cargo claims training in Cleveland on Sept. 21. Kurt Rozelsky attended the Arkansas Trucking Conference in Springdale, AR September 12-14. We are relieved to have Steve Farrar back at full speed following his back surgery.
TRANSPORTATION TEAM:
CONGRATULATIONS
NEWEST 2011 DRAFT PICK
LAW LEAGUE COED CHAMPIONS!
JOSEPH ROHE Greenville, SC
Welcome to Joseph Rohe (pronounced “Row”), our newest member of the Transportation team. Joseph joined us in Greenville, following a clerkship with South Carolina Circuit Judge Robin Stillwell. Joseph is a 2010 magna cum laude graduate of the Charleston School of Law. He also earned an LL.B magna cum laude from the University of Durham School of Law, Durham, England and a Bachelor of Science from the Citadel in 2003. Joseph is a member of the South Carolina and Georgia bars. Please join us in welcoming Joseph!
Congrats to SML Greenville office - Law League Coed Champions second championship title in last 3 years!! Thanks to all of our players from this year's team and great job, Coach Marcinak!
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North Carolina Tort Reform While the headlines have been filled with stories regarding the Republicancontrolled House of Representatives July 25, 2011, vote to override Governor Beverly Perdue’s veto of a medical liability reform bill, North Carolina’s tort reform actually extends beyond the boundaries of medical malpractice lawsuits and the new legislation will directly impact all varieties of personal injury actions.
of such charges, provided that records or copies of shuch charges accompany such testimony. When a plaintiff testifies regarding amounts paid or required to be paid, a rebuttable presumption arises as to the reasonableness of the amount paid or required to be paid in full satisfaction of the charges. Now, however, House Bill 542 provides that if the provider of hospital, medical, dental, pharmaceutical, or funeral
In addition to Senate Bill 33, which is generally viewed as the medical malpractice tort reform legislation, North Carolina also passed House Bill 542 entitled An Act to Provide Tort Reform for North Carolina Citizens and Businesses. House Bill 542 was passed and signed into law on June 24, 2011. The provisions of the bill become effective October 1, 2011, and apply to ll causes of actions commenced on or after that date. For starters, House Bill 542 creates a new North Carolina Rule of Evidence, Rule 414. Rule 414 limites evidence of a plaintiff ’s past medical expenses to amounts actually paid to satisfy bills or which are necessary to satisfy unpaid bills, regardles of the source of payment. For example, a plaintiff can no longer show the jury the total amount of the medical and/or pharmacy bills that were incurred, if those bills were reduced to the approved charges pursuant to Meicare and Medicaid regulations or a private insurance contract. Following the premise of Rule 414, that only evidence of the actaul amount of bills paid will be admissible at trial, House Bill 542 amended North Carolina General Statute Section 8-58.1. Whenever an issue of hospital, medical, dental, pharmaceutical, or funeral charges arise in a civil proceeding, a plaintiff is typically qualified to testify as to the amount paid or required to be paid in full satisfaction
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service gives sworn testimony that the charge for the provider’s service was either satisfied by the payment of an amount less than charged, or could be satisfied by payment of an amount less than charged, the presumption as to the reasonableness of the charges is rebutted and a new rebuttable presumption is established that the lesser satisfaction amount is the reasonable amount of the charges for the testifying provider’s services.
In addition to creating a entirely new rule of evidence (Rule 414), House Bill 542 also amends North Carolina Rule of Evidence 702 regarding expert testimony. Rule 702 now tracts the language of its Federal counterpart, which is gnerally viewed as containing more stringent standards regarding the admissiblity of expert opinion testimony. One final aspect of House Bill 542 that bears mentioning is its revisions to North Carolina General Statute 6-21.1 entitled Allowance of Counsel Fees as Part of Costs in Certain Cases. N.C.G.S. 6-21.1 provides a basis for a plaintiff to seek the recovery of attorney’s fees under certain limited situations. As amended, N.C.G.S. 6-21.1 now provides that in any personal injury or property damage suit, or suit against an insurance company under a policy issued by the defendant insurrance company in which the insured or beneficiary is the plaintiff, upon findings by the court that: (1) there was an unwarranted refusal by the defendant to negotiate or pay the claim which constitutes the basis of such suit; (2) the amount of damages recovered is $20,000 or less; and (3) that the amount of damages recovered exceeded the highest offer made by the defendant no later than 90 days before the commencement of trial, the judge, in his/her discretion, may award a reasonable attorney’s fee to be inlcuded in the court costs. The attorney’s fees to be awarded pursuant to this statute are capped at $10,000. The effects of House Bill 542 will be fealt by plaintiffs and defendants alike. These changes in the law will impact how cases are litigated and how the respective parties analyze issues related to settlement and trial.
Tired of Dreading the Visit from the Government Regarding Your Independent Contractors? There May be Amnesty for You. The IRS announced a voluntary classification settlement program that would provide partial protection for businesses who agree to prospectively treat workers formerly treated as independent contractors as employees.
the business could not currently be under audit by the IRS or the Department of Labor or similar state agency. The benefit of the program would be that the employment taxes would be paid or past years would be greatly reduced.
To be eligible to participate in the program, a business must apply to participate and enter into a closing agreement with the IRS. Eligibility would include having treated the workers as contractors or non employees for the previous three years and having filed 1099’s for those workers. Additionally,
Of course, this would not have any effect on a trucking company’s liability for other issues that may be triggered by a reclassification of an independent contractor to that of an employee, such as workers’ compensation, employee benefits, statutory claims or other similar claims.
South Carolina Drayage Companies Eligible for “Cash for Clunkers” In a program announced on September 22, 2011, the South Carolina State Ports Authority announced that it would pay $5,000 for the destruction and replacement of each truck built in 1994 or earlier which is currently being used for port-related transportation. While the program will have the side benefit of increasing fuel efficiency, the main goal of the program is to improve environmental quality around the ports. The program is being funded by the Port in a grant issued by the EPA and administered by the South Carolina State Department of Health and Environmental Control.
Transportation News: Now Available Online Remember to visit smlperspectives.com, Smith Moore Leatherwood’s online legal magazine that presents matters of law as they relate to you. All articles contained within our quarterly transportation newsletters are posted online, and you are likely to find an article or two not contained within the newsletter as well. (Don’t worry, we’re still printing hardcopies). You can also subscribe to our Transportation RSS feed to receive up-to-the-minute news from our Transportation team between newsletters. We encourage you to leave your thoughts and comments on the articles. We love to hear from you.
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Transportation Industry Team We represent both large and small trucking companies as insureds on behalf of numerous national insurance companies and as self-insureds. In addition, the firm has served for many years as outside General Counsel for a nationally recognized commercial vehicle insurer and is experienced in all aspects of transportation law including issues involving federal and state statutes and regulations promulgated by the former Interstate Commerce Commission (ICC), the successor Surface Transportation Board, the Department of Transportation and the Public Service Commission. As part of the array of transportation services provided to firm clients, an after-hours emergency response team is standing by to service clients with urgent needs following a catastrophic accident.
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