IMPACT OUR PRACTICES TODAY SCHRAMM V. FOSTER : THE DECISION THAT - - PDF document

THE JUBILEE PANEL! HALF-CENTURY GAME CHANGERS THAT ROCKED THE TRANSPO WORLD AND HOW THEY IMPACT OUR PRACTICES TODAY

SCHRAMM V. FOSTER: THE DECISION THAT USHERED IN THE ERA OF BROKER LIABILITY Tamara B. Goorevitz, Esquire Franklin & Prokopik, PC 2 North Charles Street, Ste. 600 Baltimore, MD 21201 tgoorevitz@fandpnet.com (410) 230-3625

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Introduction On May 5, 2002, Brian Foster, an employee of Groff Brothers, LLC, a motor carrier, attempted to drive a tractor trailer across a highway in western Maryland, crossing directly into the path of a pick-up truck being driven by 18 year old Tyler Schramm. The Schramm vehicle collided with the trailer of the Groff Brothers’ vehicle, causing serious injuries to Tyler Schramm. In 2004, the United States District Court for the District of Maryland issued an Opinion in the case of Schramm v. Foster, 341 F.Supp.2d 536, 542 (D. Md., 2004), denying freight broker C.H. Robinson Worldwide, Inc.’s Motion for Summary Judgment as to the issue of negligent hiring. The Court held that the issue of the C.H. Robinson’s potential liability for the negligent hiring of a motor carrier was one for the jury to decide. In doing so, the Court ushered in the era of broker liability, and liability in particular, for the negligent hiring of a motor carrier. The Schramm opinion sent shockwaves throughout the brokerage community. How could a broker be liable for the actions of a carrier that an independent contractor, and how could the question of whether a broker was liable for the negligent hiring of a carrier that was authorized to operate by the DOT be left to a jury’s determination? Transportation Intermediaries Association (TIA), an organization for third-party logistics professionals doing business throughout North America, began to hold seminars to discuss Schramm and eventually published a Carrier Selection Framework (which it continues to update) to help its member logistics providers navigate the post-Schramm world of carrier selection. Due to Schramm and the

• pinion of one judge in a federal court in Maryland, the broker and third-party logistics world

was drastically changed.

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The Rise of Broker Liability Since trucking deregulation, third party logistics companies emerged to fill the role once provided by large carriers, in particular, serving as freight brokers between shippers and smaller

• carriers. However, with claimants seeking larger awards, and with small and medium fleet
• wners finding the insurance market limited, claimants began to focus on brokers’ liability.

Claims of alleged negligence in hiring an unsafe motor carrier became increasingly common. However, it wasn’t until the Schramm opinion was issued that the era of broker liability truly began. Schramm and the Cases That Followed By now, in 2017, the facts of the Schramm case are well known: a minor plaintiff with devastating injuries; an unrated motor carrier with only one million dollars in insurance coverage; the involvement of the largest non-asset based broker in the United States, C.H. Robinson; and because it bears repeating, a minor plaintiff with devastating injuries.1 Back in an era when a Driver Safety Evaluation Area (SEA) rating still existed (note: Groff Brothers’ SEA rating was 70.63, down from 74.00 in September 2001, which the Court also found to be a significant fact), the Schramm opinion was unprecedented. In its motion for summary judgment, C.H. Robinson argued: Prior to forming its contract carrier relationship with Groff Brothers, it followed the same procedure it had followed for each

• f the 20,000 plus motor carriers with whom it had also contracted: C.H. Robinson obtained

Groff Brothers= tax identification number, secured proof that Groff Brothers maintained liability

1 The factual portion of the Schramm opinion includes: “Schramm suffered neurological damage from which he is

not expected to recover. He remains in a semi-vegetative state and suffers from various complications, including seizures, caused by injuries to his brain. As a result of these injuries, Schramm requires assistance with all basic life functions.” 341 F.Supp.2d 536

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insurance of at least $750,000 and verified that Groff Brothers was authorized by the Federal Motor Carrier Safety Administration (FMCSA) to operate as a motor carrier. C.H. Robinson also consulted the Department of Transportation=s (DOT) website to ensure that Groff Brothers did not have a Aconditional@ or Aunsatisfactory@ rating. C.H. Robinson also relied on Groff Brothers= history of transporting loads for CH - prior to the accident at issue, Groff Brothers transported approximately 191 freight loads on behalf of C.H. Robinson=s customers, without incident. In denying C.H. Robinson=s Motion for Summary Judgment as to Plaintiffs= negligent hiring claims, the Court noted that although C.H. Robinson could not be deemed a carrier under federal law, the Court believed that C.H. Robinson=s Aself-proclaimed@ status as a Athird party logistics company@ providing Aone point of contact@ service to its shipper client is Asufficient under Maryland law to require it to use reasonable care in selecting the trucks whom it maintains in its stable of carriers.@ The Court held that the duty to use reasonable care includes, at least, the duties: A(1) to check the safety statistics and evaluations of the carriers with whom it contracts available on the SafeStat database maintained by FMSCA, and (2) to maintain internal records of the persons with whom it contracts to assure that they are not manipulating their business practices in order to avoid unsatisfactory SafeStat ratings.@ The Court noted that such

• bligations would not be onerous and did not find that the imposition of such a duty would

contradict the regulations promulgated by the FMCSR. Rather, the Court stated that it believed imposing such a duty furthers the critical federal interest in protecting drivers and passengers on the nation=s highways. Schramm, 341 F.Supp.2d at 551-52. The Court also took note that CH Robinson recognized the importance of a carrier=s safety by requiring its contract carriers to have a satisfactory rating. The Court emphasized that

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despite the disclaimer on the SafeStat website, the fact that Groff Brothers= rating was marginal Aimplies a duty of further inquiry, and from the existing records, it can be inferred that Robinson should have been reasonably alerted to the fact that Groff Brothers= provenance was suspicious.@ The Court also noted that Groff Brothers Apredecessor,@ RG Transportation, Ahad experienced a safety performance problem which prompted the formation of Groff Brothers.@ (Plaintiffs had argued that violations of regulations by a predecessor company, RG Transportation were Ahighly probative@ as to the competency of Groff Brothers to provide safe transportation of the load involved in the occurrence). Id. at 552. Of course, the Schramm opinion wasn’t entirely against C.H. Robinson, indeed, Plaintiffs’ claims of respondeat superior, negligent entrustment and alleged violations of federal regulations were all dismissed by the Court. But all that mattered to the brokerage industry at the time the Schramm opinion was issued was that one count, negligent hiring, had survived, and for the first time, a jury would be deciding the broker’s fate. In the years immediately following the Schramm opinion, there were few cases setting precedent involving broker liability. Then, in 2008, the case of Jones v. C.H. Robinson Worldwide, Inc., 558 F.Supp.2d 630 (W.D. Va. 2008) followed by Sperl v. C.H. Robinson Worldwide, Inc., 946 N.E.2d 463 (Ill. App. Ct. 2011), in 2011 further put the “nail” in the proverbial broker liability “coffin.” These cases again expanded the scope and prevalence of broker liability. Although the Jones Court, like the Schramm Court, dismissed the counts of Respondeat Superior and Negligent Entrustment against C.H., once again, the count of Negligent Hiring

• survived. In a factual scenario that would become all too familiar in the years that followed, the

Court’s opinion in Jones highlighted the following facts:

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Jones notes that Robinson would typically arrange the dates and times for pickup and delivery, obtain the pickup and delivery addresses, communicate any specific limitations

• r directions as to the loading or unloading of cargo, communicate any time sensitivity

issues for the load, and provide directions for transport of the load to the carrier and its

• drivers. Such communications were included on the Carrier Load Confirmation form that

was sent from Robinson to the carrier for each load. These confirmation forms specifically state that they amend the Contract Carrier Agreement with that particular carrier with regard to the rates charged for each shipment as well as directions and any special warehouse notes. Jones, 558 F.Supp.2d at 637. The Court continued: Jones also notes that Robinson required all drivers to call in to Robinson (1) when dispatched to pick up a load; (2) when the driver arrived at the pick up address; (3) when the trailer was loaded and the freight checked by the driver; (4) during the actual transport of the load for status updates; and (5) when the driver arrived at the delivery

• address. Drivers also called in to report any problems or issues that arose during the

transport of the load, including equipment problems, traffic or delays, or needs for advances through Robinson’s T-Chek System. (The T-Chek System allows carriers and/or their drivers to obtain advances from Robinson for the cost of fuel or other

• necessities. Such advances are deducted from the total owed to the carrier by Robinson.)

Id. Oft relying on parts of the Schramm opinion to support its decision, when addressing the Negligent Hiring count, the Jones Court discussed C.H. Robinson’s “duty of inquiry” in selecting a “competent carrier,” and the causation of hiring an incompetent motor carrier. On the heels of Jones came Sperl. The result of the Sperl case was a $23.8 million verdict against the very same freight broker from the Schramm and Jones cases, C.H. Robinson. The key issue in Sperl was the significant “indicia of control” by the broker. C.H. Robinson had “extensive requirements” for the motor carrier, including requiring the driver to make daily “check calls” and to be in “constant communication” with C.H. Robinson regarding the load. C.H. also required the carrier to use a refrigerated trailer of a specific length and to continuously measure the temperature of the product throughout the transportation. C.H. Robinson imposed a system of fines to enforce these requirements. Further, C.H. paid the driver directly by

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depositing money directly into her bank account. Consequently, the jury found that the driver was an agent of C.H. Robinson, largely due to the significant control exercised by C.H. The Schramm case followed by Jones and Sperl effectively delivered the one-two-three knockout punch to the pre-broker liability era. The plaintiffs’ bar seized the newfound

• pportunity. In addition to the claim of negligent hiring, claims against brokers such as joint

venture, partnership and respondeat superior have since survived motions for summary judgment. Brokering in the Post-Schramm Era When one considers that thirteen years have passed since the Schramm opinion, the final paragraph of the Schramm Court’s opinion brings to question what lessons the brokerage industry has learned since 2004. The Court concluded its opinion by stating: In the last analysis, this is a case in which the law may simply have to catch up with an obligation that Robinson has voluntarily assumed, presumably in response to the demands of the market. Although strenuously contesting its liability in these proceedings, in conducting its everyday affairs Robinson apparently recognized the ambivalence of its position and purchased excess liability coverage, both to protect itself and to gain new customers. It has actively interjected itself into the relationship between a shipper and carrier, and it has chosen to do business in a context heavily tinged with the public interest. I find the common law imposes upon it a duty commensurate with its undertakings. Schramm, 341 F.Supp.2d at 553. To make matters worse, the trucking community now finds itself in an era where the term “nuclear verdict” is common place. Verdicts continue to exceed the federally mandated minimum insurance limits for interstate motor carriers and therefore, plaintiffs’ attorneys are immediately locating and suing the “deeper pockets” such as brokers, shippers and third party logistics providers. It is now rare for a broker not to be a defendant in a lawsuit involving a brokered load. At the same time, brokers and logistics providers, in the desire to provide

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excellent customer service to their shipper customers, continue to insert themselves into various aspects of the motor carrier’s operations, such as requiring check-in calls, providing directions, and more recently, monitoring freight via third party vendors. Even today, nearly fifteen years post-Schramm, with the introduction of the FAST Act and CSA BASICs added to the mix, brokers still have no clear answer as to what carrier selection protocol to follow that will shield them from liability in all fifty states. Further, freight monitoring and tracking services and technology are now prevalent. Shippers are increasingly demanding that tracking services be implemented on their freight and brokers are providing those services (through third party vendor services), thus potentially further entrenching themselves into the business of the carrier. Despite efforts by the brokerage community and TIA to persuade Congress to pass a national hiring standard for brokers, no such standard exists. Therefore, for now and the immediate future, the “question of fact” as to whether a broker has negligently hired a carrier remains.