Lobster Heist: Recent Court Ruling on Broker Cargo Liability – What You Need to Know

By: Nathaniel Saylor

Foreword by TIA President & CEO Robert Voltmann: TIA has been tracking the Seneca Logistics case and judge’s decision that found that Seneca Logistics was essentially acting as a motor carrier and therefore liable under the Carmack Amendment for a stolen load of lobsters. In order to continue to provide our Members will the details that matter to the 3PL industry, TIA engaged with Nathaniel Saylor, Partner at the Scopelitis, Garvin, Light, Hanson & Feary Law Firm to develop a comprehensive legal analysis of the case and the key takeaways and implications for 3PLs based on the judge’s decision.

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We have analyzed the court’s reasoning in the recent decision in the case of Richwell Group, Inc. v. Seneca Logistics Group, LLC (Seneca), which found property broker Seneca Logistics liable as a “carrier” under the Carmack Amendment (Carmack) for the loss of a shipment of lobsters.

Many media outlets have reported on the case – not just because the broker was found liable for damages of roughly $300,000 – but also because of the court’s holding that the broker was liable as a motor carrier under Carmack. The case involved two rulings from the U.S. District Court for the District of Massachusetts. The more troubling ruling finding – that Seneca Logistics was liable under Carmack – was handed down in August; the second ruling – issued on November 19 – was specific to damages.

In some regard, the case is not much of an outlier. Rather, there is a long line of established case law holding that whether an entity operated as a broker or a carrier with respect to cargo loss and damage depends on how the entity “held itself out” in the specific transaction. This has always been a problematic test that leads to a lack of certainty as to whether a broker will be found liable for cargo claims. By focusing on how the entity held itself out to the customer, the test essentially ignores some of the most important facts that the court should be considering, including what authority the entity holds, and whether the entity tendered the cargo in question to a third-party motor carrier.

Unfortunately, the court in Seneca took this flawed reasoning to the extreme, finding Seneca liable under Carmack – even though the court acknowledged that: Seneca Logistics and the claimant, Richwell Group, Inc. (d/b/a Maxfield Seafood), had entered into an agreement for “brokerage of freight”; Seneca Logistics did not hold motor carrier authority; and Seneca Logistics had arranged for a third party to perform the actual transportation.

THE FACTS

The origins of Seneca involved a load of lobsters tendered by Maxfield Seafood that were then stolen by the carrier that had been contracted. Seneca Logistics apparently posted the load looking for a carrier, as the court’s ruling indicates that a company referring to itself as “Rapid Logistics” contacted Seneca Logistics requesting the load.

Seneca Logistics apparently sent its carrier packet to a Gmail account associated with Rapid Logistics and, within six minutes of receiving the completed packet, Seneca Logistics sent “dispatch” instructions to Rapid Logistics. When the driver arrived to retrieve the load, the consignor (which was a third-party warehouse, not Maxfield Seafood) contacted Seneca Logistics to confirm the driver’s identity, and they confirmed that the driver at the location was the correct individual.

As the court noted in its ruling, the “[IRS Form] W-9, U.S. DOT Certificate, Certificate of Liability Insurance, and other documents” provided by Rapid Logistics were fake. The court did not, however, make a determination as to whether Rapid is an actual carrier whose information was stolen or just a fictional company.

COURT’S ANALYSIS OF SENECA’S ROLE

In its ruling, the court cited the federal statutory definition of “motor carrier” as one that “provides motor vehicle transportation for compensation.” The court went on to quote the (admittedly problematic and overbroad) definition of “transportation,” which includes (among other things) “services related to that movement, including arranging for, receipt, delivery… refrigeration, icing… handling, packing… and interchange of passengers and property.”

Importantly, however, the court did not quote the definition of “broker,” which is found in the same statute, and defines broker as “a person, other than a motor carrier… that… holds itself out, by solicitation, advertisement, or otherwise as selling, providing or arranging for, transportation by motor carrier for compensation.”

Again, the court acknowledged that Seneca Logistics and Maxfield Seafood entered into a brokerage agreement. Nevertheless, the court noted that Seneca Logistics “arranged the route and order of pickups and committed to the delivery minutes after the request was made, demonstrating that no separate entity was involved in the planning process.” The court further noted that Seneca Logistics told Maxfield Seafood “’We’ could do their pickups in one day.” Seneca Logistics also made requests related to how the truck would be loaded.

The court noted that “Maxfield had no knowledge of who would be transporting the load of lobsters, and Seneca’s representatives were the sole point of contact for the individuals who claimed to work for Rapid. Finally, [the consignor warehouse] contacted Seneca, rather than Maxfield, to confirm the release of the load . . . [Seneca] then held Seneca out as the carrier to [the consignor warehouse] by acknowledging the driver and releasing the load.”

None of this, however, is out of the ordinary for brokerage operations. Moreover, the court failed to explain why the fact that the warehouse decided to contact Seneca Logistics – and not the shipper – was indicative of Seneca Logistics holding itself out to the shipper as a carrier.

On these facts, the court reached the spurious conclusion that “no jury could reasonably find Seneca did not act as a carrier during this specific transaction.” The court’s later decision on damages is not of interest. The question of Seneca Logistics’ role had already been addressed, and the only question was the proper calculation of damages under Carmack.

TAKE-AWAYS

It is true that Seneca Logistics could have done more to avoid the claim by more fully vetting the carrier in question, and in this regard, it is important to remind brokers of the significance of having stringent policies and procedures in place to vet carriers and minimize the likelihood of fraud. TIA’s Carrier Selection Framework is a good place to start.

Unfortunately, the court’s analysis leaves little in the way of practical guidance for brokers. It just is not pragmatic to suggest that a broker should require its customer to work directly with the carrier to arrange transportation. Providing shippers with a single point-of-contact to arrange transportation is exactly the type of value-added service that shippers expect and demand. Furthermore, it is exactly the type of service that a broker, by definition, is allowed to provide pursuant to the statutory definition of “broker.”

Fortunately, the court’s failure to acknowledge the definition of “broker” (and the determination that no jury could possibly determine that Seneca acted as a broker) is the type of reasoning that opens the judgment up to the risk of appeal. Thus, it is possible the decision could be reversed on appeal. Still, no broker wants to have to undergo the cost of litigation and, in Seneca Logistics’ position, the cost of an appeal to a federal appellate court, merely to confirm that a broker is, in fact, a broker.

Again, the decision in Seneca is so one-sided, one gets the impression that no matter what Seneca Logistics would have done, the court would have reached the same conclusion. That being said, the case nevertheless is a good reminder of the sorts of things brokers should be doing in order to confirm their role as brokers and not carriers.

These include:

• Make sure any contracts the company enters acknowledge its role as a property broker;
• If operating without a signed customer agreement, adopt terms and conditions acknowledging the company’s role as a broker and get customer assent to those terms (whether electronically, via scroll wraps, signed credit applications referencing the T&Cs, referring to the T&Cs in load confirmation documents, etc.);
• Refer to the company as “Broker” in load confirmations and other documentation;
• Review the company’s website to ensure it clarifies the company’s role in “arranging” transportation via “third party” carriers (and do not refer to carriers as “partners’); and
• Adopt policies and procedures for carrier selection utilizing the TIA Carrier Selection Framework and Fraud Framework as a guide.

Again, given the reasoning in Seneca, the foregoing might not have been enough to convince the court of Seneca Logistics’ role, but in the eyes of another court, the foregoing might be enough to protect the broker’s status.

One final point regarding the court’s ruling is that brokers have had so much success arguing that state law causes of action against brokers are preempted by the Federal Aviation Administration Authorization Act (FAAAA) at 49 U.S.C. 14501, that claimants might feel they have no choice but to argue that a broker is a “carrier” under Carmack. The justification here is that since Carmack is a federal statute, a claim under Carmack is not preempted by the FAAAA. In other words, we might start seeing more of these claims as shippers realize their state law claims against brokers are subject to preemption.

* Nathaniel Saylor is a partner at Scopelitis, Garvin, Light, Hanson & Feary Law Firm. To contact Nathaniel call (435) 315-3947 or email [email protected].

** Seneca Logistics Is Not a TIA Member.

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The Transportation Intermediaries Association (TIA) is the professional organization of the $214 billion third-party logistics industry. TIA is the only organization exclusively representing transportation intermediaries of all disciplines, doing business in domestic and international commerce. TIA is the voice of the 3PL industry to shippers, carriers, government officials and international organizations. TIA is the United States member of the International Federation of Freight Forwarder Associations, FIATA.