SUMMER 2014
TRANSPORTATIONNEWSLETTER
Cover ing legal and other developments affecting those in the transpor tation industry INSIDE THIS ISSUE The Trac Lease: Another Option For Financing Your Fleet . . . . . South Carolina Passes S. 1099 Excluding Lease And Independent Contract Arrangements From Definition Of Employment For Unemployment Compensation . . . . .
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Team Updates . . . . . . . . . . . . . . . . . .
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Equal Employment Opportunity Commission Must Pay Logistics Provider’s Legal Fees For Bringing Frivolous Lawsuit . . . . . . . . .
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Why You Need To Go To Electronic Logs Now . . . . . . . . . . . . .
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TIA Takes The Lead On Federal Preemption For Negligent Selection Of Carrier Claims . . . . . .
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Proposed Rulemaking on Coercion of CMV Drivers . . . . . . . . .
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The Transportation Newsletter is available online!
To view the complete online version of the Transportation Newsletter, visit http://www.smithmoorelaw. com/TNLJune14
Megatrux = Megaproblem for carriers
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n balancing the rights of shippers and carriers, one of the tradeoffs the Carmack Amendment has always provided is the imposition of near-strict liability against motor and rail carriers for freight damage in exchange for the negotiation of limitations on that liability. See, e.g., Hill Construction Corp. v. American Airlines, Inc., 996 F.2d 1315, 1317 (1st Cir. 1993). Under this rule, the law has long allowed intermediary or delivering carriers to rely on limitations of liability negotiated and agreed to between the shipper and an upstream carrier. See, e.g., Mexican Light & Power v.Texas Mexican Ry. Co., 331 U.S. 731, 73335 (1917). More recently, courts have examined the application of limitations of liability where intermediaries such as brokers contract separately with shippers and carriers. While cases such as Norfolk S. Ry. Cov. v. Kirby, 543 U.S. 14 (2004), and Werner Enter., Inc. v. Westwind Mar. Int’l, Inc., 554 F.3d 1319 (11th Cir. 2009), hold that an intermediary carrier or broker can agree to a limitation of liability with a downstream carrier that binds the shipper, courts have only recently begun to examine whether a limitation of liability in a contract between a shipper and broker/intermediary will benefit a downstream carrier by limiting its liability. In UPS Supply Chain Solutions, Inc. v. Megatrux Trans., Inc., --- F.3d --- (11th Cir. May 8, 2014), the United States Court of Appeals for the Eleventh Circuit directly confronted this issue. In Megatrux, a shipment of new and refurbished disk drives owned by Seagate Technology, LLC (“Seagate”) was stolen while in transit. The freight had been brokered by UPS Supply continued on page 2 >>
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Chain Solutions, Inc. (“UPS”) to Megatrux Transportation, Inc. (“Megatrux”), who had, in turn and without authorization from UPS, further brokered the shipment to Stallion Carrier Corporation (“Stallion”). The freight was stolen while in Stallion’s custody. The Global Logistics Service Provider Agreement (“GLSPA”) between Seagate and UPS allowed UPS to subcontract obligations under the contract to third parties, and limited the liability of UPS and its subcontractors to $100,000, except where the loss was due to gross negligence. UPS, in turn, had a non-exclusive contract with Megatrux for Megatrux to provide ground transportation services to UPS and its customers. However, pursuant to the Master Transportation Services Agreement (“MTSA”) between UPS and Megatrux, Megatrux was not allowed to subcontract its work to others without the consent of UPS. The MTSA between UPS and Megatrux contains several other pertinent provisions.
THE TRAC LEASE: Another Option for Financing Your Fleet
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ost of you would probably not regard Congress as doing any favors for the trucking industry. However, they did so over 30 years ago by legislating the tax benefits available with TRAC leases for trucks, tractors and trailers. A terminal rental adjustment clause (or TRAC) lease is a unique lease which combines the advantages of leasing and preserving the option to purchase the “over the road” vehicle for a pre-determined residual at the end of the lease with the TRAC provision. Before this legislation was enacted, trucking companies would find the IRS frequently challenging the characterization of a vehicle lease with a TRAC provision as a lease for tax purposes.
The IRS issued rulings indicating these TRAC leases were, in reality, a conditional sales contract. This reclassification of the lease meant lost rent deductions for the company and, of course, more taxes to pay during the years of the “lease.” In 1984 Congress beefed up the earlier legislation by providing that a “qualified motor vehicle operating agreement” which includes a TRAC provision will not be treated as a conditional sale contract due to that provision being included. Although this law, specifically designed for the automobile and trucking industries, was written to provide tax benefits for them, its purpose was to create a financial incentive for a company leasing these vehicles to preserve and maintain them, since the company would bear the risk of any reduction in value due to improper maintenance. To read more about how a TRAC lease works, visit: http://www.smithmoorelaw. com/TNLLease.
To read more about the agreement and the cases, visit: http://www.smithmoorelaw. com/TNLMega.
SOUTH CAROLINA PASSES S. 1099 EXCLUDING LEASE AND INDEPENDENT CONTRACT ARRANGEMENTS FROM DEFINITION OF EMPLOYMENT FOR UNEMPLOYMENT COMPENSATION
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n May 29, 2014, South Carolina’s General Assembly passed S.1099 that, for purposes of unemployment benefits, excludes from the definition of employment “[a]n individual or entity who owns, or holds under a bona fide lease purchase or installment-purchase agreement, a tractor trailer, tractor, or other vehicle and who, under a valid
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independent contractor contract provides services as a driver of the tractor trailer, tractor, or other vehicle to a motor carrier. …” The Governor signed the bill on June 6th. Importantly, there is legislative history that this change has a “remedial” purpose which should result in retroactive application.
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To read more about the newly passed S. 1099, visit http://www.smithmoorelaw. com/TNLS1099.
SMITH MOORE LEATHERWOOD SUMMER 2014
TRANSPORTATION TEAM Erik Albright
Mike Bowers
Manning Connors
Greensboro, NC | 336.378.5368 erik.albright@smithmoorelaw.com
Charleston, SC | 843.300.6633 mike.bowers@smithmoorelaw.com
Greensboro, NC | 336.378.5236 manning.connors@smithmoorelaw.com
Julie Earp
STEVE FARRAR
Jay Holland
Greensboro, NC | 336.378.5256 julie.earp@smithmoorelaw.com
Greenville, SC | 864.751.7633 steve.farrar@smithmoorelaw.com
Wilmington, NC | 910.815.7165 jay.holland@smithmoorelaw.com
Kevin McCarrell
KristEn Nowacki
Greenville, SC | 864.751.7652 kevin.mccarrell@smithmoorelaw.com
Greenville, SC | 864.751.7753 kristen.nowacki@smithmoorelaw.com
Mary Ramsay
Jack Riordan
Greenville, SC | 864.751.7638 Charleston, SC | 843.300.6659 mary.ramsay@smithmoorelaw.com jack.riordan@smithmoorelaw.com
Rob Moseley
*TEAM LEADER* Greenville, SC | 864.751.7643 rob.moseley@smithmoorelaw.com
Rick Coughlin Greensboro, NC | 336.378.5471 rick.coughlin@smithmoorelaw.com
Fredric Marcinak
Greenville, SC | 864.751.7691 fredric.marcinak@smithmoorelaw.com
Bob Persons Atlanta, Ga | 404.962.1075 bob.persons@smithmoorelaw.com
Joseph Rohe
Kurt Rozelsky
Greenville, SC | 864.751.7668 joseph.rohe@smithmoorelaw.com
Greenville, SC | 864.751.7624 kurt.rozelsky@smithmoorelaw.com
Peter Rutledge
Marc Tucker
Heather White
Greenville, SC | 864.751.7610 peter.rutledge@smithmoorelaw.com
Raleigh, NC | 919.755.8713 marc.tucker@smithmoorelaw.com
Charlotte, NC | 704.384.2635 heather.white@smithmoorelaw.com
Smith Moore Leatherwood LLP | Attorneys at Law |
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The Road Ahead •
Rob Moseley will be headed to Park City, Utah, for the TCA Refrigerated Carriers Meeting to discuss employment and contractor issues on July 9-11th.
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Marc Tucker will be at the NCTA Annual Conference as a member of the Board of Directors on July 13-16th.
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Kurt Rozelsky will be speaking on the practical effects of CSA and limiting its use at trial at the FDCC Annual Meeting, July 28-August 1st at The Greenbrier, White Sulphur Springs, WV.
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Jack Riordan will attend the South Carolina Defense Trial Attorneys’ Association Summer Meeting in Asheville July 24-26th. Jack is a Board Member for the SCDTAA and Chairman of the SCDTAA Trucking Substantive Law Committee.
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Rob will be attending the annual meeting of the American College of Transportation Attorneys in Chicago on August 22nd.
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Kurt will be attending the Arkansas Trucking Seminar September 17-19th in Fayetteville, AR.
Baby Girl Nowacki has arrived!
Greenville attorney Joseph Rohe surveyed the Moroccan Transportation scene on a recent vacation to North Africa. No, we are not opening a North African office.
Proud parents, Kristen and Timothy Nowacki welcomed their little bundle of joy, Elliana Page Nowacki, into the world Wednesday, May 21, 2014. All are doing well.
Congratulations to Steve Farrar on being selected to the 2014 South Carolina Super Lawyers “Top Ten” List Each year South Carolina Super Lawyers announces its “Top Ten” – a list of lawyers who have received the highest point totals in its nomination, research and blue ribbon review process. This year the list includes our own Steve Farrar. The Transportation Team is proud to congratulate Steve on this honor, and Steve is humbled by the acknowledgement of his peers that he is among the Super Lawyers Top Ten. The following members of the Transportation Team were also honored as South Carolina Super Lawyers in 2014: • Mike Bowers (Business Litigation) • Rob Moseley (Transportation/Maritime) • Kurt Rozelsky (Transportation/Maritime) • Fredric Marcinak III (Transportation/Maritime)* * South Carolina’s Rising Stars of 2014 4
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The following members of the Transportation Team also earned recognition in the 2014 Chambers Guide: • Julie Theall Earp (Labor & Employment) • Steve Farrar (Litigation) • Rob Moseley (Litigation) Congratulations to all recognized!
Steve Farrar Greenville, SC
Making Tracks •
Rob spoke on a panel related to Broker Liability at the Transportation Intermediaries Association Meeting in Tucson, Arizona on April 9-12th.
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Rob presented another in the series of SMC3 Transportation Contract Law Workshop meetings in Peachtree City, GA, April 22-23rd. The next edition is Nov. 17-18th in Chicago. See http://www.smc3. com/smc3/academy/courses-contractlaw. htm to register.
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Fredric Marcinak and Rob attended the Transportation Lawyers Association meeting in St. Petersburg, FL, April 30May 3rd. Fredric has taken over for Rob as co-chair of the
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Several members of the Transportation Team helped put together a mock trial at the Truckload Carriers Association Safety Meeting in St. Louis, MO, May 18-20th. Along with Roberts Perryman, Rob argued the case in person. Kurt Rozelsky was a mock plaintiff’s attorney (he can send his kids to mock college with the mock verdicts he got). Fredric and Joseph played roles as safety experts.
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Rob gave a talk on CSA and other issues to the Savannah Chapter of the GMTA Safety Council on June 5th.
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Rob attended the Annual Conference and Meeting of the Board of Directors of the SCTA June 5-8th at Hilton Head,
Freight Claims Committee. Fredric also spoke on Freight Claims as part of the general session. Congratulations Fredric. •
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The SC Trucking Association presented a Trucking Law Seminar May 9th in Columbia, SC. Rob led a general discussion on hot issues facing trucking companies and brokerage issues. Peter Rutledge attended and provided substantive content and moral support for Rob – you know how he gets in front of crowds.
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Hilton Head was also the site of the Georgia Motor Truck Association Convention June 15-17th, where Rob led a discussion on the hot issues facing trucking management.
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Marc, Kurt, and Erik Albright were in Las Vegas, NV, June 19th and 20th for the DRI Trucking Law seminar. Kurt spoke on Rehabilitating Witnesses After Deposition Disasters. Kurt talked about rehab, hmmm.
Mike Bowers attended the Charleston Motor Carriers Association meeting in May.
Kurt Rozelsky caught on ESPN Tuesday, June 17th in Omaha. You’re at what conference, Kurt?
Be sure to join our LinkedIn CMV Towing Law Group We invite our readers to join our members-only “Commercial Motor Vehicle (CMV) Towing Law” LinkedIn Group. The CMV Towing Law Group is for transportation professionals and attorneys to discuss towing laws and issues, and to keep abreast of the latest developments. Smith Moore Leatherwood LLP | Attorneys at Law |
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EQUAL EMPLOYMENT OPPORTUNITY COMMISSION MUST PAY LOGISTICS PROVIDER’S LEGAL FEES FOR BRINGING FRIVOLOUS LAWSUIT
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he Fourth Circuit Court of Appeals recently affirmed a federal district court’s award of attorneys’ fees against the Equal Employment Opportunity Commission for bringing a frivolous lawsuit that the Court believed was clearly a loser from the start. E.E.O.C. v. Propak Logistics, Inc., 746 F.3d 145 (2014). As a result, the Commission must pay Propak $192,602 of its requested fees and costs incurred in defending the lawsuit that Propak ultimately won. The lawsuit alleged that Propak, a provider of commercial warehousing, transportation, packaging, and shipping services, engaged in “national origin” discrimination by hiring only Hispanics in certain management positions at facilities in North and South Carolina. But the district court noted in its order awarding fees that the EEOC had acted unreasonably, by initiating litigation against Propak after a more-than-fiveyear investigation and at a time when the allegedly noncompliant facilities had been closed and the class of individuals purportedly injured had not existed for five years. In January 2003, employee Michael Quintois filed a charge of discrimination with the EEOC against Propak. Quintois was a supervisor at Propak’s Shelby, North Carolina facility, and alleged that Propak terminated his employment based on his “American” national origin after he complained that the company hired only Hispanic workers for certain supervisory positions.The EEOC notified Propak of the discrimination charge arising under Title VII of the Civil Rights Act of 1964 (Title VII).
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The timeline of the EEOC’s action, or In September 2004, the EEOC designated rather its inaction, on the Charge is the matter as a “class case,” but Propak startling. In January 2003, Quintois filed did not receive notice of this procedural a charge of discrimination. In May 2003, decision until about four years later in Propak responded to the charge. In April September 2008. Between October 2004 2004, almost a year later, the EEOC and March 2005, the EEOC scheduled just interviewed its first witness, a Propak two witness interviews but did little else. manager responsible for hiring decisions at the Shelby, North Carolina facility. In To read more about the case, visit: http:// May 2004, the EEOC interviewed Quintois www.smithmoorelaw.com/TNLLawsuit concerning Propak’s response to his charge.
Why You Need to Go to Electronic Logs NOW
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he Federal Motor Carrier Safety Administration has issued its electronic log rulemaking. So there, the other shoe has dropped. Now, should you ride it out with paper logs to the end or move to electronic logs now? Because your hours of service BASIC under CSA is a relative score, you need to move to electronic logs as fast as you possibly can. Why is that? Because the large fleets have already gone to electronic logs, probably half of the truck population is now using electronic logs. That means that only half of the trucks are continuing to accumulate violations. (Okay, we admit it, you can still get violations with electronic logs, but it is
| Transportation Newsletter | Summer 2014
a lot harder.) So, because CSA is a relative system which compares you to other carriers, you are now being compared to a lot of trucks that don’t accumulate hours of service violations. In other words, generally speaking, only the paper log operators are continuing to accumulate violations. By the way, most of the violations written are for “form and manner” type violations, which electronic logs deal with quite nicely. So, if you want to make sure that you receive an alert in the hours of service BASIC, you should keep going with paper logs to the very end. At that point, your company would be the only company in the country receiving violations within the hours of service BASIC.
TIA TAKES THE LEAD ON FEDERAL PREEMPTION FOR NEGLIGENT SELECTION OF CARRIER CLAIMS
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ith the support of the TIA, Representative John Duncan, Republican of Tennessee, introduced house bill 4727. This bill has been referred to the Subcommittee on Highways and Transit. The bill itself would provide limitations on legal liability for a shipper or broker selecting a motor carrier so long as the motor carrier: (1) is duly authorized by the FMCSA as a motor carrier; (2) has the appropriate amount of financial responsibility/
insurance; and (3) does not have an unsatisfactory safety rating. Whether this bill can obtain any traction remains to be seen. However, this legislation would solve a huge problem that has been created by FMCSA abandoning the safety rating system in favor of its CSA framework. FMCSA is charged with qualifying and disqualifying carriers and has chosen to abdicate that duty, instead allowing CSA and the plaintiff’s bar to police the industry.
Proposed Rulemaking on Coercion of CMV Drivers
The primary provisions of the NPRM include prohibition of coercion, procedures for drivers to report incidents of coercion to the FMCSA, rules of practice the
Agency would be following in responding to allegations of coercion, and detailing the penalties that may be imposed. “Coercion” may include a threat to withhold or the actual withholding of current or future business, employment, or work opportunities (including termination, denial of subsequent loads, reduced payments, or
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....when a shipper, receiver or transportation intermediary directs a driver to complete a run within a certain time, it has assumed the role normally reserved to the driver’s employer.
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n May 13, 2014 the FMCSA took its latest step in implementing provisions of MAP-21 by publishing a Notice of Proposed Rulemaking (“NPRM”) to adopt regulations prohibiting motor carriers, shippers, receivers and transportation intermediaries (i.e., brokers, freight forwarders, etc.) from coercing drivers to violate certain provisions of the Federal Motor Carrier Safety Regulations—including hours-of-service, commercial driver’s license, and drug and alcohol testing requirements—and the Hazardous Materials Regulations. As set forth in the NPRM, § 32911 of MAP-21 represents a congressional decision to expand the reach of motor carrier safety regulations from the supply side (drivers and carriers) to the demand side (shippers, receivers, brokers, and freight forwarders) upon the recognition that the actions of these groups directly impact CMV safety. This development follows what the FMCSA has termed “years” of concern voiced by drivers that other parties in the logistics chain are frequently indifferent to the operational limits imposed upon them by the FMCSRs.
denied access to premium loads) from a driver refusing to operate in violation of the included regulations. As indicated, the NPRM is expanding regulations to demand side participants and does not apply to all FMCSRs—as Congress did not intend to apply all FMCSRs to shippers, receivers and transportation intermediaries not now subject to those requirements. As it presently stands, a motor carrier is
responsible for drivers’ hours of service compliance; however, when a shipper, receiver or transportation intermediary directs a driver to complete a run within a certain time, it has assumed the role normally reserved to the driver’s employer. As such, a shipper, receiver or transportation intermediary will not be excused from liability for coercion because it failed to inquire about a driver’s remaining time. In applying the NPRM, the Agency would adopt a “knew or should have known” standard although a driver alleging coercion bears a substantial burden of proof and will be responsible for providing much of the supporting evidence. Of note, an act of coercion does not absolve the driver of responsibility. To read more about the NPRM regulations, visit: http://www.smithmoorelaw.com/ TNLNPRM
Smith Moore Leatherwood LLP | Attorneys at Law |
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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.
GEORGIA | NORTH CAROLINA | SOUTH CAROLINA Smith Moore Leatherwood LLP | Attorneys at Law | www.smithmoorelaw.com
T: (864) 751-7600 F: (864) 751-7800 www.smithmoorelaw.com Attorneys at Law 2 West Washington Street, Suite 1100 Greenville, SC 29601
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