A court case involving Landstar, a mysterious driver named James and the theft of valuable cargo is being viewed as a significant victory for the brokerage industry.
The 11th U.S. Circuit Court of Appeals has affirmed a lower court ruling that Jacksonville, Florida-based Landstar was not negligent in the August 2020 theft of a truckload of expensive freight.
The players in the drama are Landstar Ranger, one of the brokerage company’s operating units; Tessco Technologies, a manufacturer of wireless communications technology that hired Landstar to move a truckload of its products from Colorado to Maryland; L&P Transportation, the carrier that Landstar booked to move the freight; somebody named “James” who snookered Landstar into thinking he was representing L&P but instead picked up the cargo and was never seen again; and Aspen American Insurance, which insured Tessco, paid it for its losses and then sued Landstar.
In an email blast, the trucking-focused law firm Scopelitis, Garvin, Light, Hanson & Feary called the ruling, handed down last week, “an important victory for freight brokers.”
Regardless of the legal win, the facts in the case as laid out by the appellate court are not complimentary to Landstar (NASDAQ: LSTR). “Landstar received a call from someone named ‘James’ claiming to represent L&P and attempting to collect the scheduled shipment,” the court says in its recap of what occurred. “Despite noticing discrepancies between the company information provided by ‘James’ and that listed for L&P in Landstar’s system, Landstar
dispatched Tessco’s shipment to James. Unsurprisingly, James was a fraud, and he stole Tessco’s cargo.”
At the root of the lower court’s decision and the appellate court affirmation is the role of the Federal Aviation Administration Authorization Act, known as F4A. That 1994 law bars state action that would impact a motor carrier’s “prices, routes and services.” But it also allows state legal action if the matter being disputed between two parties involves an issue of safety, a term that is far from defined in the legal history of F4A.
In an email to FreightWaves, Prasad Sharma of Scopelitis said F4A can preempt a negligence claim under state law if it can be shown that the claims are related to the the prices/routes/services combination, and that the claim doesn’t “fall within the exception to preemption for the safety regulatory authority of a state with respect to motor vehicles.” While F4A does govern brokerages, the term “motor vehicles” proved key in the appellate court’s decision.
Sharma conceded that federal courts have been “all over the board” on the issue of F4A preemption. Most notably, a case against C.H. Robinson (NASDAQ: CHRW) that the Supreme Court declined to review last year saw the 9th Circuit rule that an accident which left a driver paralyzed was the fault of the 3PL giant because it had hired the truck involved in the crash and that safety exemption meant that F4A didn’t protect Robinson.
The appellate court decision in Aspen vs. Landstar accepts some parts of the Aspen argument.
“We agree with Aspen that the negligence standard it seeks to enforce (against Landstar) is ‘genuinely responsive to safety concerns’ and thus within Florida’s ‘safety regulatory authority,’” the court writes, citing language from precedents. Landstar’s argument that the theft of the cargo does not involve safety because nobody was physically hurt was also rejected by the appellate court: “We see no basis to conclude, as Landstar seems to suggest, that tort actions for property damage under Florida law are categorically divorced from safety concerns.”
At issue, the court says, is whether Florida’s body of tort law applies to a broker who has taken actions that could be viewed as negligent and whether those actions could be viewed as “genuinely responsive to safety concerns,” the test under which F4A can be pushed aside in favor of state law. The appellate court agreed with the lower court that backed Aspen’s arguments that the safety exemption could be invoked in the case against Landstar.
But then in a legally complex argument, the court ruled that an exemption from F4A ultimately doesn’t work in the Aspen vs. Landstar case because Landstar is defined by the court as a broker and not a motor vehicle.
The first part of the decision — that Aspen’s citation of Florida safety and negligence law allows it an exemption under F4A — is not enough to actually take Landstar out from under the law’s protection. It needed a second ruling.
But that second ruling can’t be reached against Landstar because it is defined as a broker. And “in light of these definitions, a claim against a broker is necessarily one step removed from a ‘motor vehicle’ because the ‘definitions make clear that … a broker … and the services it provides have no direct connection to motor vehicles,” the court said in its decision, quoting from other legal precedents.
The court concedes that the language in F4A — that its safety exemption is “with respect to motor vehicles” — has never been “squarely interpreted” by any federal court. But in the Landstar case, the 11th Circuit determined that the phrase “motor vehicles” “limits the safety exception’s application to state laws that have a direct relationship to motor vehicles.” And since a broker is not a motor vehicle, the safety exemption can’t be claimed.
“A ‘broker,” by definition, may not provide motor vehicles transportation for compensation; only a ‘motor carrier’ may perform that task,” the court said. And since the safety exception applies to motor vehicles, and Landstar — according to the court — does not meet that definition, the safety exemption under F4A can’t be invoked, the court said.
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