The Revised Interstate Commerce Act: A Black Hole for Freight Brokers?


The Interstate Commerce Act, 49 U.S.C §101 et. seq. ("the Act"), was originally designed to regulate the railroad industry when it went into effect in 1887. In 1935, the Act was amended by the Motor Carrier Act to include the regulation of bus lines and the trucking industry. A Revised Interstate Commerce Act was passed in 1978, which was further amended in 1983 and 1994. The major changes between the 1978 act and the 1994 act were a simplification of language and some reorganization. Some of the language changes and simplification, may have inadvertently (or intentionally) created a problem of considerable proportion for freight brokers.

As transportation practitioners, we tend to resist any changes to the status quo unless they are expressly and emphatically thrust upon us in bold print by statutory amendments. The thought that other changes, not so boldly stated, may be of equal or greater consequences, is generally resisted with suspicion and doubt. While suspicion and doubt can be healthy, the following analysis is a relatively straight forward application of statutory terms clearly stated in the current Interstate Commerce Act. These terms have created changes that are meaningful in that they are critical additions to the pre-existing language of the Act; however other critical changes have occurred as a result of deletions. With the proliferation of brokers, intermediaries, and logistics companies inserting themselves into the process of freight transportation, it is only a question of time before the courts are presented with the task of analyzing some of the following issues.

Definition of "Broker"

When the Revised Interstate Commerce Act went into effect, brokers were undoubtedly relieved to learn that the statutory definition of "broker" in the revised Act remained exactly the same as it had been in the Act for several years. A broker was and is "a person other than a motor carrier ... that as a principal or agent sells ... or holds itself out ... as selling, providing, or arranging for, transportation by motor carrier". 49 U.S.C. §10102(1), recodified, 49 U.S.C. §13102(1).

Despite this long-standing and unambiguous definition of broker, under the now superseded provisions of the Interstate Commerce Act, shippers filing freight claim litigation frequently named brokers as defendants. The shippers attempted to treat and label the brokers as carriers, or even freight forwarders, in an attempt to impose liability under the Carmack Amendment. Travelers Indemnity Co. v. Alliance Shippers, Inc., 654 F.Supp. 840 (N.D.Cal. 1986); Chemsource, Inc. v. Hub Group, Inc., 106 F.3d 1358 (7th Cir. 1997). The court's determination of whether a broker was really a carrier hinged upon the Interstate Commerce Act's definition of common carrier, which required the court to ignore whatever authority the broker might hold, and instead to make "... reference to what it holds itself out to be." Ensco, Inc. v. Weicker Transfer, 689 F.2d 921 (10th Cir. 1982).

Definition of "Common Carrier"

The Revised Interstate Commerce Act completely does away with any definition of common carrier, thereby precluding any future allegations that a broker was "holding itself out" as a carrier. However for brokers, that's where the good news ends, because the language of the revised Interstate Commerce Act literally forces a broker to be either a shipper, the express agent of a shipper, or a carrier. And in this writer's opinion, the drafters of the legislation may have inadvertently stacked the deck against brokers by presuming them to be carriers.

To understand this analysis, let's first look at the definition of "motor carrier". Under the old Act, a motor carrier was either a motor common carrier (holding itself out to provide motor vehicle transportation), or a motor contract carrier (providing motor vehicle transportation to meet the distinct needs of a shipper). Formerly codified at 49 U.S.C. §10102(14). Under the new Act, a motor carrier is simply a "person" (just like a broker) "providing motor vehicle transportation for compensation". 49 U.S.C. §13102(15).

Definition of "Motor Vechicle Transportation"

Taking the next step, we must understand what is motor vehicle "transportation", and this is where things get interesting. Under the old Act, transportation was defined as providing services, "... including services relating to that movement, including receipt, delivery, elevation, transfer", etc. Formerly codified at 49 U.S.C. §10102(28)(B). Under the new Act, transportation is defined as providing services, "... including services relating to that movement, including arranging for, receipt, delivery, elevation, transfer", etc. 49 U.S.C. §13102(23)(B). (Emphasis supplied). Suddenly, without warning, motor vehicle transportation is specifically defined to include arranging for transportation, the precise function of the broker.

If "motor vehicle transportation" now expressly includes the act of "arranging for" the transportation, and a carrier is simply a person that provides "motor vehicle transportation", are not the functions of a broker now expressly included under the definition of a motor carrier?

Definition of "Contract Carriage"

The concept seems to be reinforced when the term "contract carriage" is examined. Brokers have traditionally used contract carriage as the primary, if not exclusive, means of arranging for transportation of freight by motor carrier. Under the old Act, contract carriage was defined as providing motor vehicle transportation of property under contractual agreements with one or more "persons" designed to meet the distinct needs of each such "person". Formerly codified at 49 U.S.C. §10102(16). Given that this same section also provided that "broker means a person, ...", a broker was unquestionably among those the statute qualified to enter into a contractual agreement with a motor carrier, so long as it satisfied certain "distinct needs". Formerly codified at 49 U.S.C. §10102(1).

Under the new Act, "contract carriage" means service provided under an agreement entered into under section 14101(b). 49 U.S.C. §13102(4)(B). Turning to section 14101(b), the Act provides "A carrier providing transportation or service subject to jurisdiction under Chapter 13S may enter into a contract with a shipper ... to provide specified services under specified rates and conditions. If the shipper and carrier, in writing, expressly waive any or all rights and remedies under this part for the transportation covered by the contract, the transportation provided ... shall not be subject to the waived rights and remedies ..." 49 U.S.C. §14101(b)(1).

Definition of "Person or Persons"

The term "person or persons" is now conspicuously absent from the statutory definition of contract carriage. In its place is the restrictive term "shipper" which comes with its own exclusive rights and remedies, including the exclusive right to declare the value of any shipment for limitation of liability purposes. 49 U.S.C. §14706(c)(1)(A). There is literally no statutory authorization provided by the Interstate Commerce Act for a broker to enter into a contract of carriage with a motor carrier.

The newly Revised Interstate Commerce Act, literally applied, appears to have destroyed the traditional triangular arrangement of shipper-broker-carrier. The plain language of the Act forces the broker to either step into the shoes of the shipper as an agent, or be subject to a more simplified and easily proven charge of being a motor carrier (and subject to freight claim liability).

Freight Claim Litigation

Analyzing freight claim litigation in cases where the movement of freight involves the services of a broker, under the current Act, may present a myriad of interesting issues to be sorted out by an unwary judiciary. The shipper may claim that its agreement with a broker was really an agreement with a carrier, pursuant to the definition provisions of the new Act. This would render the broker exposed to Carmack Amendment liability under 49 U.S.C. §17406. On the other hand, carriers may regard their contracts with brokers to really be contracts with shippers (the only contracts authorized by the new Act). This transforms the broker into, at best, an agent of the shipper, with direct responsibility for declarations of value, release rate limitations, and other responsibilities no broker has ever contemplated.

The relative simplification of the new Act, providing for only two optional roles in a contract (shipper or carrier), may have one beneficial result in that it will simplify the disposition of freight claims. To underscore this point, consider a decision by the United States Court of Appeals for the Ninth Circuit attempting to interpret the trilateral shipper-broker-carrier arrangement as applied to freight claims under the old Interstate Commerce Act. In Esprit de Corp. v. Victory Express, Inc ., 111 F.3d 138 (9th Cir. 1997), the Court of Appeals held that where a shipper in 1993 contracted with a broker, and the broker contracted with a common carrier, the shipper can recover against the carrier directly for common law negligence. The court reasoned that the Carmack Amendment was applicable only to the parties to the transportation contract (i.e. the broker and carrier), and thus was inapplicable to the shipper. Consequently there was no federal preemption for claims by the shipper against the carrier. The court did note however that the shipper had failed to make a timely argument that the broker was its agent; consequently the agency argument was never considered by the court.

If brokers must now fit into either the role of shipper or carrier, federal preemption should unquestionably return to control freight claim litigation; however the broker has clearly been forced into choosing a role that brokers have traditionally been able to avoid. More than ever, broker agreements with both shippers and carriers should now clearly state the role, functions, and liabilities of the broker. Assuming the broker does not want to be forced into the role of carrier, the broker must clearly state this in all of its agreements. If brokers do not have agreements with shippers, it may be prudent for the broker to send written confirmation of its role and responsibilities to every shipper.

Summary

The most expedient solution to the problems and issues created by the revisions to the Interstate Commerce Act are corrective legislative amendments which clarify and restore the role of the broker. However, until such corrective legislation is enacted, brokers that conduct business without clear and written confirmation of their role and responsibilities for freight movements, may soon find themselves falling into a black hole of the newly revised Interstate Commerce Act. Unfortunately, such brokers may not realize their exposure until they find themselves in the midst of litigation.