Is broker liability about to change?

The highest court in the land has the opportunity to drastically change the way brokers choose a carrier. The Supreme Court later this year will decide whether state law allows lawsuits against brokers for negligently hiring shady motor carriers.

So how did we get here?

A truck collision brings broker liability to court

The case is Montgomery v. Caribe Transport II, also known as Montgomery v. C.H. Robinson. The legal battle started with a truck collision in 2017.

“This was a case where Robinson was asked by one of its customers to arrange for the transportation of some freight from Ohio down to Arkansas and also to Texas," Matt Reh, a trial attorney for Armstrong Teasdale who had represented C.H. Robinson in the lawsuit, told FleetOwner. "In the process of doing that, it contracted with an independent contractor motor carrier. The motor carrier went to Ohio to pick up the goods, loaded them onto their truck, and was driving to Arkansas and Texas.”

For that route, the independent carrier, Caribe Transport II, had its driver Yosniel Varela-Mojena haul plastic pots through southern Illinois in a 1995 Freightliner, where he got into an accident. Court documents state that Varela-Mojena veered off the road into a different tractor-trailer that had stopped on the side of the road—a 2015 Mack truck.

That stopped truck’s driver, Shawn Montgomery, stood just outside the truck. Varela-Mojena’s Freightliner struck the back of the stationary Mack, injuring Montgomery.

Montgomery and his legal team sued the parties involved in the crash for his injuries. They sued the driver who struck Montgomery’s truck, sued the carrier that employed him (Caribe Transport), and sued C.H. Robinson for using that carrier.

Suing the driver and the carrier for injuries sounds pretty straightforward. Suing C.H. Robinson, however, required an argument that Robinson had negligently hired Caribe and its driver, making the broker somewhat liable for the wrongs committed. Montgomery’s party argued that C.H. Robinson should have known that Caribe had a history of safety problems and was not fit for the job, including hours-of-service violations, a high percentage of out-of-service designations, and an overall “conditional” safety rating.

C.H. Robinson’s team asked the courts to dismiss some of the claims.

“What we did on behalf of C.H. Robinson was file a motion and essentially asked the court to dismiss the claim for negligent hiring," Reh said. "What we did at the time was we cited a federal law known as the FAAAA, which is an acronym for the Federal Aviation Administration Authorization Act.”

How the FAAAA frames broker liability

The FAAAA goes all the way back to trucking's deregulation. The law declared that some states’ transportation regulations are a burden to interstate commerce and “should be preempted.”

Even though the bill’s name is only about aviation, it also dealt with motor carriers. The rule effectively blocks states’ ability to influence the “price, route, or service” of transporting property—but makes a specific exemption for “the safety regulatory authority of a state with respect for motor vehicles.”

Whether a broker can be found responsible for negligent hiring, in this case, would fall on Illinois. This means that the FAAAA might prevent a State court from allowing Montgomery to seek damages from a broker like C.H. Robinson. It depends on whether the safety exemption's phrase "with respect for motor vehicles" includes brokers.

"What we were saying to the trial court was ‘this federal law precludes Mr. Montgomery from suing C.H. Robinson for negligent hiring, and we’re asking you, judge, and your court to essentially dismiss that claim because of that preemption,'" Reh said.

The judge at the trial court ruled in favor of C.H. Robinson. Montgomery’s party appealed to the Seventh Circuit Court of Appeals, which also ruled in favor of C.H. Robinson, and then Montgomery’s party appealed to the Supreme Court.

“C.H. Robinson was also interested in having the Supreme Court take the case … and so it supported that request to go to the Supreme Court," Reh said. "And the Supreme Court, which only takes usually about 75 to 80 cases a year, decided to take that case and to hear this issue about whether the FAAAA preempts that state common law cause of action that Mr. Montgomery filed.”

How the Montgomery case could change brokers' legal risk

So how could the Supreme Court impact freight brokers in this case? It seems that there are three main paths a Supreme Court ruling might take, according to Reh, with bold added here for emphasis:

• “One is that the Supreme Court could affirm the Seventh Circuit and the trail court," Reh said. "In other words, it could say ‘you made the right ruling, and you correctly ruled that FAAAA preempts claims for negligent hiring.'"
• "It could be that the Supreme Court goes even further than that, and says that the federal law preempts all of those kinds of claims, whether it’s negligent hiring or a claim for vicarious liability against brokers like C.H. Robinson."
• “It could say that none of it is preempted, and all of these claims could proceed as well.”

'No preemption' could drastically change for-hire trucking

That last potential ruling, that there is no preemption, could expose brokers to significant risk. It would have an impact on for-hire trucking, likely to the benefit of larger fleets and the detriment of smaller fleets.

“I’ll speculate a little bit here, but I think that if the court decides that there is no preemption, and these are the kinds of claims that injured parties can bring against property freight brokers, that you’ll see property freight brokers are likely to steer their work more towards larger motor carriers with larger fleets, and smaller carriers with smaller fleets may be left out to some degree," Reh said.

Economics of scale allow larger carriers to have better resources to communicate safety-relevant statistics and also to build a stronger safety track record, which may appeal to risk-averse brokers. With the freight recession and spiking diesel prices, smaller fleets are already hurting as it is. If the Supreme Court decides there is no preemption to protect brokers, it could contribute to more consolidation among for-hire carriers.

How and when will the Supreme Court rule?

The Court has already heard arguments from the parties in this case in March and will be issuing its decision later this year.

“Each of the justices seemed to take a different approach to the issue that was before them, and I’ll just give you a couple of examples," Reh said. "Justice Kavanaugh seemed to be focusing on the day-to-day impact of the current patchwork of liability as it related to claims against property brokers.”

“If tort liability extends to [brokers], how are they going to assess and evaluate the safety of drivers and a particular trucking company? How are they going to figure out [if] they have an alcohol drug issue? How are they going to figure out English proficiency?”
— Justice Brett Kavanaugh

“A different example would be Justice Thomas," Reh said. "Justice Thomas asked about the historic regulation of the trucking and the freight broker industry, asking questions about the ICC, which is an entity that existed as part of the federal government in connection with and before the Federal Motor Carrier Safety Administration.”

“With respect to the use or the role of brokers, how significantly has that increased?” ... “What role did the ICC play in regulation transportation intrastate before deregulation?”
— Justice Clarence Thomas

“So each of the justices took a different approach and looked at this through a different lens," Reh said. "It wasn’t entirely clear to a lot of us what the outcome of the case might be, at least based on the questions that were answered.”

Reh said that the written opinion will probably come out before the 4th of July holiday—perhaps sometime in April, May, or June.