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Transportation Industry Newsletter

Transportation Industry Newsletter

The Transportation Newsletter
(Summer 2017)

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SC Supreme Court: Tort Reform—It Doesn't Mean What You Think It Does

Attorneys in South Carolina have appellate guidance on an unresolved issue for the first time since the South Carolina Legislature enacted the last round of tort reform in 2005. Both plaintiff and defense lawyers argued their interpretation was correct when it came to apportionment of fault for a non-party or for a settling defendant. The position advanced by plaintiffs was that a settling defendant no longer in the case could not be placed on the verdict form for apportionment of the fault. Plaintiffs would point to the plain language of the statute, which stated that the sum of the fault of the "defendants" and any for the plaintiff must equal 100%. Conversely, defendants would take the position that because the statute allowed the defendant to argue the "empty chair" defense, and because pure joint and several liability was abolished and available only if a defendant was found to be greater than 50% at fault, that it was necessary for a jury to apportion fault to a non-party tortfeasors.

In the case of Smith v. Tiffany, Smith was injured when he was struck by Mizzell's vehicle as Mizzell was exiting a gas station on a rural highway. Mizzell argued that a commercial vehicle parked on the shoulder of the highway obscured his view as he exited the gas station and caused him to strike Smith's vehicle. A partial settlement between Smith and Mizzell was reached when Mizzell's carrier tendered limits in exchange for a covenant not to execute judgment. 

Thereafter, Smith filed a lawsuit against the trucking company and its driver ("Defendants").  Defendants answered and filed a third-party complaint against the at-fault driver (Mizzell) arguing that because Mizzell was responsible for a significant portion of Smith's injuries, Defendants were entitled to a jury determination of Mizzell's alleged fault even though he had already settled with Smith.

Mizzell filed a motion for summary judgment as to Defendants' third-party claims alleging he neither owed nor breached any duty to Defendants. He also contended that section 15-38-­50 of the Uniform Contribution Among Joint Tortfeasors Act ("the Act") discharged him from liability for contribution to any other tortfeasor because he was a settling tortfeasor. The trial court granted summary judgment and dismissed all third-party claims against Mizzell.

On direct appeal to the South Carolina Supreme Court, Defendants contended the trial court erred in failing to permit Mizzell to be named as a party and to be included on the verdict form so as to enable the jury to include Mizzell in the apportionment of fault for the accident. The Court disagreed and discussed the longstanding "plaintiff chooses" rule. It applied a strict reading of the Act, specifically as it related to the terms "defendants" and "potential tortfeasors," and the Court found no reason to believe the use of these terms by the legislature was not deliberate or that those terms meant anything other than what they said.   

While the Court acknowledged that achieving a more fair apportionment of damages among joint tortfeasors was one of the policy goals underlying the legislature's enactment of the Act, it was not the goal. The Court further stated that reading the Act as a whole evidenced the legislature's attempt to not only protect non-settling defendants, but "the legislature was attempting to strike a fair balance for all involved—plaintiffs and defendants—and to do so in a way that promotes and fosters settlements." In this regard, the Court noted that the non-settling Defendants were not left without a remedy under the Act, as Defendants were entitled to a set-off for the settlement of Mizzell by operation of law, and Defendants were afforded the opportunity to argue the empty chair defense, which was codified in the Act. The Court noted a defense verdict under the empty chair defense was a viable option as Plaintiff was still required to carry the burden of proof as to breach of duty and proximate cause.

The Court noted to have adopted the position advanced by Defendants and allowing Mizzell to be on the verdict form would create a host of concerns by requiring:

(1) a plaintiff to maintain a suit against someone with whom he has already settled; (2) a settling defendant to defend a lawsuit he has already settled; (3) this Court to ignore the legislature's express acknowledgement in section 15-38-15(D) that not all potential tortfeasors will necessarily be parties to the suit; and (4) would create a conflict with other provisions of the Act, including sections 15-38-15(E) and 15-30-50(1), which address a non-settling defendant's right to setoff.

In sum, South Carolina Courts are going to give great deference to a plaintiff's decision about who it decides to sue. A defendant is now restricted in its ability to third-party a settling joint tortfeasor into a lawsuit because the Act discharges the liability of that settling defendant. Most importantly, non-party tortfeasors cannot be allowed on a verdict form for purposes of apportionment of fault, although the Supreme Court has reaffirmed the empty chair defense.

Deregulation and Freight Charges

A recent case illustrates the continuing, years-long fallout from deregulation, as courts seek to reconcile the end of economic regulation of motor carriers with federal statutes that remain in force and that appear to govern carriers. This case is the unusual case that benefits carriers by, ironically, finding that federal preemption does not always apply.

The intersection of carriers' claims for freight charges, and federal law has spawned much litigation in recent years. Recent disputes have centered on whether the federal courts have federal question jurisdiction over freight charge collections cases. Although the decisions have not been entirely uniform, many courts have held that the courts lost federal question jurisdiction over freight charge collection actions with the abolition of the filed rate doctrine. See, e.g., Gaines Motor Lines, Inc. v. Klaussner Furniture Indus., Inc., 734 F.3d 296 (4th Cir. 2013). However, these decisions have raised additional questions. For example, if there is no federal cause of action to recover freight charges, freight charges are presumably recoverable under state common law breach of contract and related theories. If that's true, though, does the 18-month statute of limitations in 49 U.S.C. § 14705 apply to limit the filing period for a state law cause of action? If not, when does it ever apply outside of the interstate, household goods context? 

The Indiana Supreme Court worked its way through these issues in Kennedy Tank & MFG Co., Inc. v. Emmert Industrial Corp., 67 N.E.3d 1025 (Ind. 2017). In this case, Kennedy Tank hired Emmert, a specialized heavy haul carrier, to move a process tower vessel from Indianapolis, Indiana, to Clarksville, Tennessee. The vessel was about 280 feet long, 18 feet wide, and 16 feet tall, and it weighed about 360,000 pounds. The contract required Kennedy to pay $197,650 in freight charges plus additional unforeseen costs that arose. During the course of transportation, unforeseen costs arose in the amount of an additional $691,301.03. After the freight was delivered, Emmert tried to collect the additional costs from Kennedy, but ultimately, Kennedy refused to pay. When Emmert filed suit, Kennedy raised the 18-month statute of limitations in 49 U.S.C. § 14705 as a defense to the action. Emmert, in turn, responded that the federal statute of limitations did not preempt the 10-year statute of limitations in Indiana Code § 34-11-2-11. The trial court agreed with Emmert and found that the state statute of limitations controlled, but the Court of Appeals reversed. The Supreme Court then granted review of the case.

The Indiana Supreme Court engaged in an extended analysis of whether the federal statute of limitations preempts Indiana's 10-year state statute of limitations. While noting that there are three types of federal preemption (express preemption, field preemption, and conflict preemption), the Court found that only conflict preemption was at issue in the case. Examining conflict preemption, the Court first concluded that it was not physically impossible for Emmert to apply with both the federal and state statutes of limitation and that the application of the Indiana statute of limitations did not do major damage to Congress' purpose in enacting the federal statute of limitations. In deciding that the application of the state statute of limitations did not do major damage to Congress' purpose, the Court first held that Congress did not attempt to create a uniform national standard when it enacted 49 U.S.C. § 14705. The Court found that this was true because the statute was part of the Interstate Commerce Commission Termination Act ("ICCTA") which, as its name suggests, significantly reduced federal regulation of interstate commerce. Contrasting the statute of limitations found in 49 U.S.C. § 14705 with the statute of limitations provided in CERCLA, 42 U.S.C. § 9658, the Court found that Congress could clearly indicate an intent to create a national uniform standard statute of limitations that preempts state law (as it did in CERCLA) and that it had not done so in § 14705. The Court next held that state collections actions are unlikely candidates for federal regulation because there is no uniformity vital to national interests. The Court based this conclusion on the fact that ICCTA removed the federal cause of action for collection of freight charges and that breach of contract collection cases do not demand exclusive federal regulation merely because they involve interstate transportation. The Court noted that when it imposed deregulation Congress foresaw and acquiesced to the application of both federal and state law in the interstate transportation context, which indicated that Congress no longer desired to preempt the field of economic regulation of motor carriers.

Lastly, the Court distinguished cases from other jurisdictions that have applied the 18-month statute of limitations as either applying the statute without considering whether it preempts an otherwise applicable state statute or as holding that § 14705 preempts a state law statute but providing little or no analysis or support for that decision.

In sum, the Court concluded that Congress did not intend to preempt state law statutes of limitations applicable to actions for the collection of freight charges. Kennedy Tank, then, proves to be the rare case in which a holding that federal preemption does not apply in the interstate transportation context is of benefit to motor carriers. Most states will have statutes of limitation that are longer than the 18-month federal statute, allowing motor carriers more time to file suits to collect freight charges and reducing the ability of shippers to raise  the federal statute of limitations as a defense. Nonetheless, because the case was decided by the Indiana Supreme Court, it remains to be seen how widely its holding will be adopted.

The Department of Labor Throws Out Guidance Documents

In early June, the Department of Labor rescinded two Guidance documents from the previous Administration's Wage and Hour Division that had explained how the Division would interpret issues of joint employment and independent contractor status. The DOL did not change the law with this retraction, and the court systems in our country have the final say on any litigated claim. However, by rescinding the Guidance documents, the Department has indicated that it will back away from what many believed had become a very aggressive tendency by the Department to find employment relationships between workers and the entities connected to their labor.

The Joint Employer and Independent Contractor Debates
Issues about who, if anyone, is a worker's employer can arise in many contexts. Here are a few examples: 

  • when a temporary from a staffing agency complains that a shop manager has harassed her;
  • when questions arise about whether drivers employed by Company should be added together with freight brokers of commonly-owned Company B for the purpose of head-count under any number of laws (Title VII, FMLA, ACA, to name a few);
  • when an employee's obvious employer fails to pay wages and goes out of business, leaving a related entity that could pay; or
  • when a driver is set up as an independent contractor but fails to pay income taxes, and the IRS looks for a source of recovery.

Slowly and generally over recent decades, Congress, the federal agencies, and the court system have tried to spread the effect and protections of workplace laws where they perceive an attempt to structure working relationships to avoid those laws. However, in the past five to ten years, individuals and businesses have looked for more and more ways to be flexible. As a result, the spread of independent contractors, separated operating companies, temporary staffing agencies, and shared pools of workers have pushed the rules on what it means to work and be employed. In turn, lawmakers have been unable, or unwilling, to develop clear rules that provide certainty and predictability around who owes the duties of an employer, if anyone. As a legal matter, it is still far from clear when an independent contractor is really an employee, or when a business that benefits from another entity's laborers is legally an employer of those people.

The 2015 and 2016 Guidance Documents
In 2015, the DOL used its Wage and Hour Division to step into the arena with a basic statement of policy:  if the "economic reality" is that a worker gets most of his or her income and spends most of his or her time working for a particular business, then that business is likely to be considered the employer when an issue of independent contractor status arises under wage and hour laws. Rather than depending on a multi-factor test—counting up answers on questions such as who provides equipment and directs the work, when the worker has a profit opportunity, where the work is performed, and a host of other considerations—the DOL said its wage and hour enforcement staff would ask a more basic question: as a matter of economic reality, is this worker dependent on this business? If the answer is yes, then an employment relationship exists.

Again, in 2016, the DOL issued a separate policy statement that moved in the same direction. It stated that when one entity exercises even indirect control over the employment terms of the employees of another entity, it will have duties under the federal wage payment laws. This statement as to how the Department would approach joint employment had particular impact for temporary staffing relationships but also more broadly wherever related entities share almost any common management. 

Again, these Guidance documents did not change the law—the DOL does not have that power—but they indicated that when conducting audits, pursuing enforcement actions, referring problems to other federal agencies, or making policy arguments in court, the DOL would more often than not conclude employment exists.

The Limits of the DOL's Present Action
As a basic matter, the current Administration has used the first few months of 2017 to send a message that its agencies' policies will be different. In that regard, Guidance documents are easy to rescind. No actual regulatory action is required because the interpretative guidance never had the force of a regulation in the first place—it was one Administration's statement of how it would approach contentious legal issues. The Trump Administration has not declared what, if any, particular guidelines it will follow to evaluate would-be employment relationships. For now, creating distance from the prior Administration seems to be the goal. 

It is important to remember that the laws surrounding independent contractor and joint employer status are primarily determined by federal courts, not by the DOL. Those courts issue rulings as they handle specific facts in litigation over such matters as wage payment, liability for discrimination, and tax-related obligations. State courts occasionally face these same issues, sometimes in connection with claims that a business should have provided workers' compensation insurance for an individual who was treated as an independent contractor or as someone else's employee. No court, state or federal, is bound by any formal Guidance document of the DOL.  Judicial decisions across the country vary and even change over time. 

For example, the federal Court of Appeals overseeing Maryland, Virginia, West Virginia, and the Carolinas has traditionally been very conservative. Recently, however, it announced a joint employer test that said, in essence, if two entities are "not completely disassociated" on HR functions they will be treated legally as joint employers. While no one knows what "not completely disassociated" fully means in practice, it signals that federal trial courts in those states will ask not which entity has the primary duties to workers but whether two or even more entities share in those duties at all. This test is as broad as any across the country.

Still, the change of interpretation at the DOL is meaningful. The agency is signaling it will approach wage and hour audits differently by leaving more workers alone as independent contractors. It is saying that it will not as aggressively push litigation seeking to force a clearly secondary entity to take on the duty of complying with employment laws. It is advertising that it will push fewer cases before judges. 

Be Careful
Employers create risks when they read about a policy shift and assume it will control a particular outcome on any specific set of facts. Instead, seek legal advice before drawing conclusions about your own workplace because the details always matter. 

A New Trend: Recent Court Decision Shows Expansion of Preemption under FAAAA

In Mark Centuori v. United Parcel Services, a homeowner brought a negligence action against UPS for injuries sustained after he moved three packages that were incorrectly delivered to his home. 2017 WL 1194497, at *1 (W.D. Wash. March 30, 2017). More specifically, Mr. Centuori asserted that UPS (1) failed to follow its policies in correcting inconsistent addresses, (2) left the packages at Mr. Centuori's home without his consent, and (3) left the packages obstructing an entrance to Mr. Centuori's home. Id. At *6. Thereafter, UPS moved for summary judgment and argued that it cannot be held liable for Mr. Centuori's claims because his claims are preempted under the FAAAA. Id, at *3. In support of its argument that Mr. Centuori's claims were expressly preempted, UPS pointed out that the language of the FAAAA expressly preempted claims that related to UPS's services. Id.  at *4.

The Court conducted a thorough analysis of the history of state law preemption claims. This court determined that "these cases1 make clear that the infrequency with which the ADA and FAAAA preempt common law claims is not based on a separate line of analysis; rather, it is an effect of applying ADA and FAAAA preemption doctrine." Id, at *5.

Most significantly, the court concluded that the FAAAA preempted a theory of negligence raised by Mr. Centuori—failure to obtain consent. In making this determination, the court looked to whether imposing liability on UPS for failure to obtain consent would "drastically alter the manner in which UPS provide[d] package shipment services to and from various markets at various times." Id., at 7. The Court noted that Mr. Centuori was not clear in the "precise contours of this theory of negligence," but it would at least require UPS to obtain a recipient's consent every single time a package is rerouted to them. Id. The Court recognized this is exactly the "sort of patchwork regulatory framework that Congress intended to avoid by enacting the FAAAA's preemption provision." Id. Accordingly, the Court granted UPS' summary judgment motion on Mr. Centuori's theory that UPS was negligent for failing to obtain his consent before delivering the packages. Id.

This case demonstrates that the Courts are  willing to apply preemption in personal injury cases based on the facts of each claim. We believe we will continue to see more instances where courts are finding state-based tort claims are directly affecting "price, routes and services" offered by a motor carrier and thus subject to preemption.

1 The Court examined the requirement that for a claim to be preempted it must be "related to" the service, prices, or routes of a motor carrier. The Court specifically looked at the holdings of American Airlines, Inc. v. Wolens, 513 US 219 (1995) (Supreme Court held that the ADA did not preempt common law contract claims); Morales v. Trans World Airlines, Inc., 504 U.S. 374 (1992) (Court concluded that the ADA preempted a state ban on deceptive advertising but indicated that some state actions may have been too tenuous, remote, or peripheral a relationship to be preempted.); and Charas v. Trans World Airlines, Inc., 160 F.2d 1259 (9th Cir. 1998)

Court Allows Motor Carrier to Seek Implied Indemnification from Shipper

In a recent case out of the Middle District of North Carolina, the court held that a motor carrier could maintain a cause of action for indemnification against a shipper despite the fact that there was no express indemnification between the shipper and the motor carrier. The dispute arose from theft of cargo being transported by Western Express to Macy's. Western Express asserted it was entitled to indemnification because it justifiably relied upon the Shipper's (Coty) representation that the cargo value was only $93,145. In reality, the value of the cargo exceeded $585,000. Although there was no contractual right to indemnification between Western Express and Coty, the court held that Western Express could maintain an indemnification cause of action against Coty under an implied-in-law theory that is generally only available in cases involving joint tortfeasors.

By way of background, Western Express and Macy's entered into an agreement in which Western Express agreed to transport cargo owned by Macy's from Coty's facilities in North Carolina to Macy's facilities in Connecticut. The cargo was stolen in transit and was never recovered. Macy's filed suit against Western Express alleging a claim under the Carmack Amendment seeking recovery of the actual value of the cargo. According to Macy's, the value of the cargo exceeded $585,000. 

After Macy's filed suit, Western Express filed a third-party action against Coty asserting a claim for indemnification. Western Express alleged Coty represented that the value of the cargo was only $93,145 and that it justifiably relied upon Coty's representations as to value in determining whether to implement additional safety measure. Western Express also alleged it had no opportunity to inspect the cargo so as to determine its true value. Thus, Western Express asserted that if it was found liable to Macy's, then Coty's actions in failing to disclose the "high-value nature" of the cargo entitled it to indemnity.

Despite the absence of any contractual indemnification, Western Express asserted it was entitled to recover under an implied-in-law theory of indemnification. The implied-in-law theory of indemnification is based on equitable concepts where a passive tortfeasor pays the judgment owed by an active tortfeasor to the injured third party. Coty moved to dismiss arguing that implied-in-law indemnification only applied to tort claims and that Macy's Carmack claim against Western Express was a contract claim. The court rejected this argument stating that the mere fact that the underlying cause of action is governed by the Carmack Amendment does not necessarily make it one sounding in breach of contract. The court cited a number of cases from other federal courts hold Carmack cause of action is based on negligence. Thus, Western Express could proceed to trial on its indemnification claim.

In summary, in a somewhat groundbreaking case, Western Express blazes a trial that provides some protection to motor carriers who find themselves facing unexpectedly high value cargo claims as result of misrepresentations from the shipper. The case citation is Macy's Corp. Servs., Inc. v. W. Express, Inc., No. 1:16-CV-16, 2017 WL 1194358 (M.D.N.C. Mar. 30, 2017).  

Authored by Ron Lowell, Western Express, Inc. contributor.