Legal Briefs: Beer, brokers and bills of lading

The thirsty citizens of Duluth, Minn., may have been disappointed when a local brew house received damaged beer fermentation tanks, but probably few knew that the incident was creating new precedent in transportation liability law.

Can a "broker" actually be a "motor carrier"? Which entity are you dealing with? Does it really matter? If something goes wrong with a shipment you hired a broker to handle, can you go after the broker? The motor carrier? Both?

All of these questions and more were addressed in a recent decision by a Federal court in Minnesota, and the answers are surprising. Basically the court said a "broker" can be a "motor carrier" even if it has no trucks and could be held liable to the shipper under the Carmack Amendment. The distinction does matter when things go wrong and law suits are instituted.

As various forms of transportation service providers have emerged (brokers, 3PLs, logistics companies, shipper's agents, etc.), the situation has led to an entangling web of issues concerning who may be liable when the goods get lost or damaged. The Minnesota case is a perfect example.

A brew house in Duluth purchased two fermentation tanks from a New York brewery. It hired GST Corp. to arrange for the transportation of the tanks from New York to Minnesota. GST said it was a transportation broker and acted like a transportation broker by hiring Central Transport International (CTI), a motor carrier, to do the actual hauling. The tanks arrived damaged, and the brew house sued GST and CTI.

GST told the court it was a broker, not a carrier, and therefore under the Carmack Amendment, could not be liable. Carmack makes carriers (motor carriers, freight forwarders) liable for loss and damage, but not other entities such as brokers. The court rejected GST's argument and said GST may have called itself a broker, but it acted like a motor carrier and therefore can be held liable as a motor carrier, a unique interpretation of Carmack liability.

Under the court's decision, GST got hit with potential liability because its involvement in the shipment went beyond just finding a trucker. This should give pause to transportation intermediaries as to how far they can go in arranging for transportation services.

In holding GST liable under Carmack as a motor carrier, the court said GST had assured the shipper there would be full liability coverage, GST drafted a bill of lading, GST directed how and when the shipment would take place, GST told the consignor how to load the shipment and GST was solely responsible for selecting the actual hauler. The court concluded that due to this level of involvement, GST could be responsible as a motor carrier even though it had no trucks and was apparently not registered with the Federal Motor Carrier Safety Administration ( FMCSA) as a motor carrier. The court said GST had a duty to exercise due care in following the shipper's instructions, such as obtaining full liability, and it was a factual issue for the court to decide if it had violated that duty.

The court did not stop there; it also found that CTI, the motor carrier who actually hauled the items, could also be liable. CTI argued that it had limited its liability in its tariff and that its bill of lading incorporated the tariff. Of course motor carrier freight tariffs are no longer filed with or approved by any government agency. In any event, the court said that CTI could also be held liable because actual notice to a shipper of a carrier's limitations of liability are necessary in order for a motor carrier to limit its liability, and no such notice was ever given to the brew house. Accordingly, under the ruling of the Minnesota court, without actual knowledge communicated to the shipper of a carrier's liability limitation, the carrier was liable.

The case demonstrates a continuing problem many shippers encounter. The shipper deals with a transportation service provider to take care of its transportation needs, but may have no understanding of what that transportation service provider actually is and the extent that it may be liable if things go wrong.

This Minnesota decision provides some insight into the confused state within the transportation community concerning liability. In this case an attempt by a broker to say "as a broker I am not liable — only carriers are liable" was rejected. In addition, an attempt by a motor carrier to limit its liability by reference to language in a tariff was also rejected because the actual shipper had no notice of the limitation.

Wise shippers should get the specifics in writing with their transportation service providers concerning who will be liable and for how much. After all, the cheapest rate quote may not be the best deal if liability is severally limited.

James Calderwood is a partner with the law firm of Zuckert, Scoutt & Rasenberger L.L.P., in Washington, D.C., where he concentrates on transportation matters. He can be reached at [email protected]. This column is designed to provide information of general interest. It cannot substitute for in-depth legal analysis of particular problems. Readers are urged to seek counsel concerning individual situations.

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