By Brody D. Karn, Esq., Associate Counsel
In the complex and interconnected world of transportation and logistics, the role of freight brokers has become increasingly vital. However, a legal quagmire has emerged as federal courts of appeals grapple with the question of when freight brokers should face liability and when their liability should be preempted by the Federal Aviation Administration Authorization Act (FAAAA). This split in judicial interpretation has left the industry and legal experts searching for clarity and consistency.
Understanding the Freight Broker’s Role:
Freight brokers serve as intermediaries between shippers and carriers, facilitating the movement of goods from one point to another. They play a pivotal role in coordinating the logistics of transportation, negotiating rates, and ensuring the smooth flow of goods. Freight brokers are the entities involved in selecting the carrier-in-fact, i.e. the company driving the truck from origin to destination. However, disputes often arise when losses occur during the transportation process, leading to questions of fault allocation.
The Federal Aviation Administration Authorization Act:
The FAAAA, enacted in 1994, was designed to promote a deregulated and competitive environment in the transportation industry. It aimed to prevent states from imposing regulations that would interfere with the operations of motor carriers, brokers, and other entities involved in interstate commerce. Essentially, the FAAAA prevents a state, subject to certain exceptions, from enacting or enforcing any “law, regulation, or other provision having the force and effect of law related to price, route, or service of any motor carrier . . . broker, or freight forwarder with respect to the transportation of property.”
Under the U.S. Constitution Article VI, “federal preemption doctrine” makes the Constitution and federal laws enacted pursuant to it the supreme law of the land. In effect, the preemption doctrine precludes courts from giving effect to state laws that conflict with federal laws. Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1 (1824). This includes state common-law claims such as negligence and breach of contract.
The legal conundrum arises when incidents involving freight brokers fall under both state and federal jurisdiction. Some federal courts of appeals have taken divergent approaches in interpreting the FAAAA’s preemptive scope, leading to a split in opinions. First, the courts consider whether the express preemption provision of the FAAAA bars common-law negligence claims against a freight broker based on the broker’s selection of a motor carrier and, if it does, whether the Act’s safety exception allows those claims to proceed. 49 USC § 14501(c)(1)-(2).
The FAAAA’s Safety Exception:
The FAAAA’s “safety exception” states that FAAAA preemption “shall not restrict the safety regulatory authority of a State with respect to motor vehicles.” 49 U.S.C. §14501(c)(2)(A). In recent years, there has been significant litigation surrounding this exception, and whether the “safety regulatory authority of a State with respect to motor vehicles” includes state common-law claims, such as a claim against a freight broker for negligent selection of a motor carrier.
Differing Opinions on Recovery:
In April of 2023, the U.S. Court of Appeals for the 11th Circuit held that a plaintiff’s negligence claim against a freight broker was preempted by the FAAAA. There, the freight broker mistakenly dispatched the load to someone impersonating a legitimate carrier who then stole the cargo. Aspen Am. Ins. Co. v. Landstar Ranger, Inc., 11 Cir. No. 22-10740 (Apr. 13, 2023). The court reasoned that the FAAAA’s safety exception did not allow recovery because a state law claim for negligent selection and retention does not apply specifically to motor vehicles.
The 9th Circuit sees things a bit differently. In Miller v. C.H. Robinson Worldwide, Inc., the court held a freight broker liable for damages suffered by a plaintiff who was struck by a carrier. See 976 F.3d 1016 (9th Cir. 2020). The court found liability via the FAAAA’s safety exception. In Miller, the court held that state law negligent selection claims stem from motor vehicle accidents and “are with respect to motor vehicles.” Importantly, the freight broker filed a Petition for a Writ of Certiorari (essentially asking the U.S. Supreme Court to reconsider the 9th Circuit’s decision) and the broker’s Petition was denied. As of the drafting of this post, the Supreme Court’s denial of the broker’s Petition is the highest word on this issue.
Conclusion:
Subrogated underwriters are frequently vexed when there is no viable carrier target, and the freight broker points to FAAAA preemption. This often leaves a dead end to recovery, and insurers are left holding the bag. Although it remains unclear, the distinguishing factor between liability and preemption may be rooted in the complained-of-injury itself. In Aspen, the 11th Circuit found preemption in the cargo subrogation context, whereas in Miller, the 9th Circuit found liability in the personal injury context. Until the Supreme Court weighs in, subrogated underwriters are left with a patchwork of conflicting precedent in seeking recovery. For now, the split among the U.S. Circuit Courts of Appeals highlights the importance of filing recovery litigation in jurisdictions that are favorable to a subrogee.
