News & Events
Unlawful Brokerage Activities Risk Unlimited Liability – Both Corporate and Personal
Section 14916 of 49 U.S.C. is one of the new statutory provisions passed as part of MAP-21 (the Moving Ahead for Progress in the 21st Century Act).[i] That section specifies that anyone who provides interstate freight brokerage services without registering as a broker[ii] or satisfying the new financial security requirements applicable to brokers[iii] is liable to an “injured party for all valid claims incurred without regard to amount.”[iv] This private cause of action is in addition to the $10,000 civil penalty for each violation.[v] The liability for civil penalties and private causes of action extend, jointly and severally, “to (1) any corporate entity or partnership involved; and (2) to the individual officers, directors, and principals of such entities.”[vi] A number of scenarios and questions come to mind without many corresponding answers at this point.
Assume a motor carrier, Carrier A, is not properly registered as a broker. Carrier A accepts a shipment to handle in its capacity as a carrier, but does not physically transport the shipment at any point, and impermissibly brokers the shipment to Carrier B (a practice historically known as “convenience interlining”). The bill of lading names Carrier A as the carrier. The bill of lading also has standard language incorporating the carrier’s tariff provisions. Carrier A’s Rules Tariff contains a cargo liability limitation of $100,000 unless a higher value is declared by the shipper and a higher freight rate is paid. The tariff also includes the standard 9-month cargo claim filing period and the 2-years-and-a-day time limit for filing suit on a cargo claim. The shipment has a value of $1,000,000, but it is not declared on the bill of lading. Despite having a “Satisfactory” safety rating and no CSA “alerts,” Carrier B has an accident that completely destroys the shipment and fatally injures a husband and wife team of young, very financially successful heart surgeons. Carrier B has no cargo liability insurance, only $750,000 in public liability insurance, and immediately files for bankruptcy.
Of course, Carrier A gets sued on the cargo claim and the wrongful death claims. Carrier A clearly violated § 14916(a), but are either or both claims “valid claims” against Carrier A under § 14916(c)(2)?
As those involved in cargo claims litigation are well aware, some courts have determined that an entity in Carrier A’s situation is liable under the Carmack Amendment[vii] notwithstanding that it technically brokered the load to another carrier. Defendants such as Carrier A have been held liable under § 14706 for cargo damage, even though they never took possession of the shipments, because they held themselves out as carriers providing transportation services. Moreover, Courts have stated that the question as to whether the defendant was a broker or carrier turned not on how it labeled itself, but rather, how it held itself out to the world.[viii]
In the past, one of the consolations to a defendant in Carrier A’s circumstances, however, has been that it may be protected by proper use of the limitation of liability provisions available under § 14706. But, if Carrier A failed to comply with the new broker registration and financial liability requirements of § 14916(c)(2), the question that likely will be the subject of litigation is whether the language holding the unregistered broker liable for “all valid claims incurred without regard to amount” eviscerates the applicability of § 14706, the Carmack Amendment. Will the contractual limitation of liability in the bill of lading be ignored, and will Carrier A instead be held liable for the full value of the shipment? What if the shipper fails to file a claim or suit within the contractually required period; will that be considered a “valid claim” under § 14916(c)(2)? Will any of the other “benefits” that carriers enjoy under the Carmack Amendment remain available, such as preemption of state law causes of action, prima facie case requirements on the shipper, and no liability for the claimant’s attorney fees (in most cases)?
Section 14916 is not, by its express terms, limited to claims associated with any particular type of damage, such as cargo damage. Therefore, with regard to the wrongful death claims (or claims for other personal injuries or non-cargo property damage) against Carrier A in this scenario, does § 14916 cover those types of claims as “valid claims”, thus increasing Carrier A’s exposure to the potential liability created by the Schramm v. Foster[ix] line of cases? Does § 14916(c)(2) allow a plaintiff to assert a negligence per se claim against a non-compliant broker, or does the plaintiff still have to meet the burden of showing that the broker was somehow negligent in its process of selecting the carrier? Does the plaintiff have to show that there was a causal relationship between the broker’s failure to meet its registration and financial requirements and the injury suffered, and therefore, the claim is a “valid claim” as set forth in the statute? Moreover, is Carrier A allowed to compare the fault of others in an attempt to reduce Carrier A’s liability, or instead, does the phrase “incurred without regard to amount” render the unlawful broker liable for the full value of the plaintiff’s claims without regard to any apportionment? The introductory language in 14916(c) reads as follows:
“Any person who knowingly authorizes, consents to, or permits, directly or indirectly either alone or in conjunction with any other person, a violation of subsection (a) [the registration and financial security requirements] is liable...”
What is the interplay between that language and the “jointly and severally” language in § 14916(d)?
A related issue in cases brought as private causes of action under § 14916 is the ability to file a case originally in federal court or to remove to federal court a case originally filed in state court. It seems clear that § 14916 creates a federal cause of action over which the federal courts have original jurisdiction under either 28 U.S.C. § 1331 [federal question] or 28 U.S.C. § 1337(a) [arising under any Act of Congress regulating commerce]. That would also make such a case removable under 28 U.S.C. § 1441(a). However, in the context of a cargo loss and damage case, is it still considered to be a Carmack Amendment claim under § 14706 making it subject to the requirement of 28 U.S.C. § 1337(a) that “the matter in controversy for each receipt or bill of lading exceeds $10,000, exclusive of interest and costs” for original federal court jurisdiction, or the corresponding prohibition against removal to federal court “unless the matter in controversy exceeds $10,000, exclusive of interest and costs” specified in 28 U.S.C. § 1445(b)? Does the “without regard to amount” language in § 14916(c)(2) have any effect on either the original or removal jurisdiction of the federal court even if the case is considered to be a Carmack Amendment case? If a cargo claim case filed pursuant to § 14916 is considered a separate and different cause of action without reliance on the Carmack Amendment, it seems the case should be subject to the original and removal jurisdiction of the federal court without regard to the amount in controversy. In that case, if Carmack Amendment preemption does not apply, does preemption under § 14501(b) or (c) apply[x] to preclude state law causes of action?
While Congress may have intended § 14916 as a simple and effective penalty provision to deter carriers and brokers, and their respective officers, directors, and principals, from acting without complying with the proper authority and financial security requirements now imposed as a result of MAP-21, and to impose significant consequences for non-compliance, it remains to be seen what unintended consequences Congress may also have created.
[i] Moving Ahead for Progress in the 21st Century Act, Pub. L. 112-141.
[ii] 49 U.S.C. § 13904.
[iii] 49 U.S.C. § 13906.
[iv] 49 U.S.C. § 14916(c)(2).
[v] 49 U.S.C. § 14916(c)(1).
[vi] 49 U.S.C. § 14916(d).
[vii] 49 U.S.C. §14706.
[viii] See, for example, Custom Cartage, Inc. v. Motorola, Inc., 1999 WL 965686 (N.D. Ill. 1999); recon. denied, 1999 WL 1080607.
[ix] Schramm v. Foster, 341 F.Supp2d 536 (D. MD – 2004).
[x] 49 U.S.C. § 14501.