5 Keys To Broker Protection From Carmack Amendment Claims

Under the Carmack Amendment, which primarily governs the liability of interstate freight carriers, motor carriers, but not brokers, are subject to strict liability. However, as the transportation industry continues to evolve and logistics companies continue to grow, the line differentiating between broker and motor carrier has become increasingly blurry, and the courts have taken note. As a result, it is essential for the broker to properly protect itself from unexpected liability in Carmack Amendment claims.

Under the ICC Termination Act of 1995, 49 U.S.C. § 13102 defines a “broker” as “a person, other than a motor carrier, or an employee or agent of a motor carrier, that as a principal or agent sells, offers for sale, negotiates for, or holds itself out by solicitation, advertisement, or otherwise as selling, providing or arranging for transportation by the motor carrier for compensation.”[1] On the other hand, a “motor carrier” is defined as “a person providing motor vehicle transportation for compensation.”[2] While it is evident that the difference between a broker and motor carrier under the law hinges on the gray area between whether a party provides transportation of a shipment, or whether it has sold, negotiated or held itself out as providing transportation of a shipment, the critical inquiry in the evaluation of a Carmack Amendment claim is in what capacity the entity acted during the particular transaction in question.

In determining whether a company functioned as a broker or motor carrier and, ultimately, whether that company is subject to strict liability under the Carmack Amendment for damage to a shipment, courts look to case-specific factors. Specifically, a court considers how an entity held itself out to the world in addition to the entity’s relationship to the shipper, analyzing the following:

• Whether the entity promised to personally perform the transport and therefore legally bound itself to transport
• The type of services the entity offers
• Whether the entity held itself out to the public as the actual transporter of goods
• Whether the entity’s only role was to secure a third party to ship the goods
• Whether the entity exerted some measure of control over the drivers, among other things

In recent trends, the courts have focused on the level of control a broker exercises over a third party transporting a shipment to call into question whether the broker should be deemed a motor carrier under the Carmack Amendment. In fact, the following can weigh in favor of the court finding a “broker” to have acted in a motor carrier capacity:

1. Advertising that your company provides actual transportation or that it can handle specific types of logistical transportation needs
2. Arranging for price and other specificities of a shipment without alluding to a third-party transporting company
3. Erroneously including the broker’s name as the carrier on bills of lading
4. Exercising control over drivers such as:
   1. Setting the route a driver should take
   2. Specifying equipment to be used and the number of drivers needed
   3. Imposing penalties for late delivery
   4. Conducting accident inspections and/or post-accident drug testing
   5. Providing precise day/time instructions

As the old proverb goes, an ounce of prevention is worth a pound of cure. This is especially the case if your company is acting as a broker and wants to avoid being brought into unexpected litigation should something occur to a shipment while being transported. The following five keys to broker protection from Carmack Amendment claims are crucial to keep in mind to best position any broker when inevitably faced with Carmack Amendment claims:

1. Cautious marketing: Advertising a one-stop shop may help the business grow but can also call into question whether you held yourself out as being responsible for shipment.
2. Hold yourself out clearly as a broker: This includes making the identity of any third-party motor carriers that will be taking the shipment and making your role as a broker clear in any and all contracts, communications or documentation for the transaction.
3. Avoid excessive carrier and/or driver control: Avoid excessive control over the drivers, including deciding which routes are taken, specifying the number of drivers needed, imposing penalties, etc. It is important to distinguish the motor carrier as the entity with control over its drivers. Avoiding post-accident drug testing, on-site accident inspections and drivers dedicated to a sole broker are good practices to ensure consistency with your role as a broker.
4. Maintain consistent records: If you are acting as a broker for a particular transaction or with a particular shipper, but the bill of lading lists you as the carrier before the shipment is picked up, be sure to correct that. This one document can be detrimental to your case.
5. Consult experienced commercial and transportation and logistics attorneys: A close review of your ongoing practices as well as a risk evaluation is a small preventive cost that could pay off exponentially for prospective claims.

Here at Mathis Law Group, we specialize in providing tailored legal services that address each company’s unique and specific concerns so that you can focus on what you do best – getting goods where they need to go. Our commitment to your success means we’ll be there when you need us most, offering expert advice, proactive risk management and experienced legal representation.

To schedule a consultation to discuss how we can best help you protect your business and keep you on the road to success and out of the courtroom, click here.

[1] 49 U.S.C. § 13102(2).

[2] 49 U.S.C. § 13102(14).