Common Carrier

On remand from the Ninth Circuit, the United States District Court for the Southern District of California issued its decision on August 27, 2012, holding Affinity Logistics Corporation (“Affinity”), a motor carrier, carried its burden of establishing it properly classified as independent contractors a certified class of former owner-operator delivery drivers (the “contractors”) under California law.  Ruiz v. Affinity Logistics Corp., No. 05CV2125, slip op. at 21 (S.D. Cal. Aug. 27, 2012). 

The Southern District previously reached this same conclusion under Georgia law, which applies a presumption of independent contractor status, to the facts adduced at a three-day bench trial.  On appeal, the Ninth Circuit concluded California, not Georgia, law should apply to the contractors’ relationship with Affinity and remanded the case.  California law applies a presumption of employment status that a putative employer may overcome if the weight of the evidence supports a finding of independent contractor status when the court applies a multi-factor, common law right of control test.   

When it revisited the issue under California law, the Southern District applied the right of control test with “with deference for the remedial purposes of California’s protective legislation.”  Id. at 6.  This notwithstanding, the court found evidence that the contractors could “hire others to complete the deliveries Affinity hired them to do is strong evidence suggesting that Affinity did not have the requisite level of control over the manner and means of [the contractors’] work.”  Id. at 7.  The court further found the majority of the “secondary factors” considered by California courts, including, e.g., investment in equipment and opportunity for profit or loss, among others, favored independent contractor status.  Id. at 20-21. 

While the court further found Affinity exercised “some control” over the contractors, the court deemed this evidence irrelevant to the ultimate question because “this control was either unrelated to the manner and means by which [the contractors] accomplished their work, or it was a result of other factors—such as federal regulatory requirements or [customer] preferences—rather than direct control by Affinity.”  Id. at 21.

The court therefore found in favor of Affinity.  Judgment has been entered against the plaintiff and class of contractors.  Plaintiff filed a Notice of Appeal on August 29, 2012.              

As mid-year insurance renewals are finalized, the transportation industry needs to be alerted to certain revisions to the “Notice of Cancellation” provision in the ACORD 25 Certificate of Insurance (“COI”).  The revised ACORD 25 removed long-standing language requiring prior written notice to the certificateholder (often 30 days) of any policy cancellation.  This change has prompted concerns on how certificateholders will be assured they will receive information on the status of cargo coverage.  Also effective March 21, 2011, the FMCSA stopped requiring regulated motor carriers (with the exception of household goods movers and freight forwarders) to file proof of cargo insurance.  Thus, in most common situations, members of the public are no longer able to obtain information regarding the status of a particular motor carrier’s cargo coverage via the FMCSA’s website.

Insurance regulators further recognized that insurance companies may not be able to satisfy the prior written notice requirement in those instances where an insured chooses to immediately cancel an insurance policy.  In this regard, modifying the ACORD 25 cancellation provision and removing the language requiring prior written notice of cancellation was intended to reduce the likelihood that a COI would run afoul of state insurance laws and regulations prohibiting misrepresentations of insurance coverage.

To ease concerns of shippers and others that request a COI, transportation providers may wish to explore various options such as endorsing the underlying policy to include a requirement that the certificateholder receive advance notice of cancellation or including a provision in the shipping agreement confirming that the insured will provide prior notice of cancellation.  Motor carriers confronted with this issue may need to explore these options in order to maintain valuable business relationships and ensure compliance with state insurance laws.  A thorough review of the relevant shipping agreements may also be necessary to ensure that such agreements are consistent with the language contained in the applicable COIs.

The Supreme Court provided good news to transportation companies facing class action litigation today by issuing an opinion in the Wal-Mart v. Dukes case that reverses the Ninth Circuit Court of Appeals' class certification decision.  In a 5 to 4 ruling, the Court held that plaintiffs failed to demonstrate commonality under Rule 23(a)(2), and unanimously held that the back pay claims could not be properly certified under Rule 23(b)(2).  The decision will make it more difficult for plaintiffs to succeed in certifying class actions going forward.

This decision is a victory for any transportation company faced with a class action lawsuit, as the Court's decision ostensibly makes it more difficult for a putative class action to be certified going forward.  This is especially so in employment law class actions in which the plaintiff cannot point to a specific employment practice of the motor carrier or other transportation entity that violates the law, but rather relies on anecdotal evidence to satisfy the rigid requirements of Rule 23.  How this decision will affect other transportation class action cases such as those involving the Truth-in-Leasing Regulations is unknown at this juncture, but without proof of a class wide policy that violates the law the Wal-Mart case makes clear that certification will be difficult to obtain.

In Wal-Mart v. Dukes, the plaintiffs — a group of 1.5 million current and former Wal-Mart employees — claimed that while Wal-Mart had no express corporate policy against the advancement of women, Wal-Mart's decision to give managers discretion to make pay and promotion decisions  itself was a discriminatory policy.  That policy resulted in male employees earning more money than their female counterparts and holding a disproportionate number of leadership positions that could be proven on a class wide basis according to the plaintiffs.  Wal-Mart maintained that the class members’ claims are not similar enough to justify certifying them as a class, as the sheer number of class members and stores, along with variations in positions the plaintiffs held and differences in managers at each location militated against litigating the case on a class wide basis.

The Court agreed.  Focusing on the commonality prong of Rule 23, the Court mentioned that while the purported policy could possibly form the basis of a disparate impact claim under Title VII of the Civil Rights Act of 1964, it does not follow that every potential class member has a common claim as is required to proceed with a class action case.  To prove commonality under Rule 23, the plaintiff must demonstrate that each class member “suffered the same injury” according to the Court, which the plaintiffs could not do because the employment decisions complained of were admittedly left to the discretion of each store manager.  "Respondents wish to sue for millions of employment decisions at once,” Justice Antonin Scalia said. “Without some glue holding together the alleged reasons for those decisions, it will be impossible to say that examination of all the class members’ claims will produce a common answer to the crucial discrimination question.” Prior to this ruling, the commonality requirement of Rule 23 was often glossed over in any class certification analysis.  This decision establishes a roadmap for approaching this issue going forward and indicates a renewed focus on commonality is warranted in any class certification inquiry. 

The Court also held that a claim for monetary relief could not be certified under Rule 23(b)(2) when, as here, the monetary relief sought is not incidental to the requested injunctive or declaratory relief.  Rule 23(b)(2) applies when the party opposing the class has acted or refused to act on grounds that apply generally to the class so that final injunctive or declaratory relief is appropriate for the entire class.  The Court's ruling clarifies that Rule 23(b)(2) certification is only appropriate when a single, indivisible remedy would provide relief to each class member, and that when individualized monetary damages are appropriate such claims “belong in Rule 23(b)(3)”, which is arguably a more difficult certification standard to meet.

Finally, the Supreme Court also rejected plaintiffs' theory that back pay could be determined with a "Trial by Formula" calculation, i.e. that a sample of class members could be selected, and statistical modeling could yield a result for the entire class wide recovery without further individual proceedings. Such a method of calculating damages would violate the Rules Enabling Act according to the Court, as a class cannot be certified on the premise that an employer "will not be entitled to litigate its statutory defenses to individual claims."
With the renewed focus on the commonality prong of Rule 23 and the favorable findings regarding Rule 23(b)(2), the class action landscape is certainly more favorable to employers than before.  And while employers should be pleased with the decision, it does not provide a silver bullet to defeat class certification.  The bar for plaintiffs’ counsel to meet to certify a case however, has certainly been raised. 

Virginia Gov. Bob McDonnell has signed into law multiple bills that cover truck issues. The new laws address overweight and oversize permits, weight limits and vehicle registration requirements.

The first of the new laws addresses overweight vehicle fees and calls for setting up a comprehensive, tiered schedule of fees for overweight vehicles. The expense of repairing damage to highways from overweight vehicles and the impact of such fee structure on the state’s “economic competitiveness” are among the factors that will be taken into consideration.

Another new law authorizes the Department of Motor Vehicles to deny, suspend or revoke vehicle registration as a result of a motor carrier’s failure to comply with federal or state safety requirements.

According to the bill's fiscal impact statement, the state will need $150,000 in the first year to implement the rule. Another $45,000 will be needed each year thereafter for maintenance costs.

The DMV has been awarded federal grant funds to cover the initial implementation costs and will seek federal grants for reimbursement of the annual maintenance costs.

The final new law puts the state in accordance with the FMCSA’s 2012 medical certification requirements. It also eliminates requirement for irregular-route common carriers to prove “public convenience and necessity” when applying for a license.

Additionally, the Department of Motor Vehicles will be required to notify localities about the issuance of overweight and oversize permits.

The new laws take effect July 1.

Several states have passed laws that limit or prohibit cell phone use while driving.  A chart compiled by the Governors Highway Safety Association outlining state cell phone and text messaging laws is available at
 http://www.ghsa.org/html/stateinfo/laws/cellphone_laws.html. 

Though many motor carriers are now familiar with state laws related to distracted driving, additional caution is warranted to the extent some municipalities may also impose restrictions that are even more stringent than state laws. For example, Mike Tauscher of Scopelitis, Garvin, Light, Hanson & Feary, P.C. - Detroit reports a Troy, Michigan, ordinance prohibits any type of "distracted driving."  The ordinance defines “distracted driving” to include driving while (1) texting (modeled after the state law), (2) talking on cell phones, and (3) other common distractive behaviors, including, but not limited to “eating, reading, writing, performing personal hygiene/grooming, physical interaction with pets, passengers, or unsecured cargo, any of which is done in a manner that prohibits the driver from maintaining direct physical control of the motor vehicle steering mechanism with at least one hand that is free of all other objects and used entirely to form a controlled grip on the steering mechanism." 

The United States Supreme Court is set to hear argument on March 24, 2010 in the companion cases of Union Pacific Railroad Company v. Regal-Beloit Corporation and Kawasaki Kisen Kaisha v. Regal-Beloit Corporation.  The issue before the Court is whether the Carmack Amendment to the Interstate Commerce Act (49 U.S.C. § 11706 for rail carriers and § 14706 for motor carriers) applies to the inland rail portion of an international, multimodal import shipment governed by a “through” bill of lading (i.e., a bill of lading that covers the shipment from origin to destination), where the bill designated the Carriage of Goods by Sea Act, 46 U.S.C. § 30701 et seq., as the law to govern the carriers’ responsibility for cargo loss and damage claims during the entire shipment.

COGSA governs the rights and liabilities of parties to an international maritime bill of lading; and allows parties to extend COGSA liability terms by contract for the entire carriage - including any inland leg of the journey.  The Carmack Amendment supplies the default liability regime for rail and motor carrier transportation within the United States.  The Interstate Commerce Act authorizes both common carriers and contract carriers to contract out of Carmack's default rules (49 U.S.C. § 10709).  The question presented to the Court, therefore, is how to reconcile the potentially conflicting statutory frameworks under the facts of the cases.
 

In the current economy, as more and more shippers and/or logistics companies with broker authority file bankruptcy, the firm has seen a marked increase in the number of preference claims filed against transportation service providers.  Preference claims seek to avoid payments made by the bankrupt entity in the 90 days prior to its bankruptcy filing. When the bankrupt company is a shipper, logistics company, or property broker, the resulting preference claims can affect common carriers, contract carriers, and transportation brokers.  Recently, in the Quebecor bankruptcy the trustee filed over 1,700 preference claims -- approximately 300 of which are against transportation service providers. Defenses to preference claims include that the payments received were made in the ordinary course of business and that additional unpaid services were provided to the debtor after the allegedly preferential payment(s). In addition, in some cases the freight broker regulations or a critical vendor order approving payments to certain transportation service providers may provide additional defenses. Quick analysis of historical data and the assertion of both traditional and transportation specific defenses can potentially limit exposure to preference claims.
 

Cargo loss and damage claims against common or contract carriers for damages to interstate shipments have long been governed by the Carmack Amendment. Further, courts have routinely held the Carmack Amendment preempts state law claims for negligence, breach of contract and tort claims.  In other words, since federal law provides the exclusive remedy for cargo loss or damage on an interstate shipment, the claimant can not assert state law claims. 

Earlier this month, a Texas federal court followed this long line of authority and held the Carmack Amendment preempts state law claims – even when those state law claims are for the intentional tort of conversion.  See Tran Enterprises LLC d/b/a Nutrition Depot v. DHL Express (USA), Inc., 2010 LEXIS 2092, at *2 (S.D. Tex. January 12, 2010).  In this case, the plaintiff alleged DHL converted COD checks it collected at the time of delivery, failed to tender these checks to it, and was liable for conversion under state law.  The court held intentional tort claims under state law, like the plaintiff's conversion claim, are preempted and Carmack remains the shipper's exclusive remedy.