Medford, Oregon Jury Slams Broker for Negligent Hiring – $1.68 Million in Punitive Damages Awarded

John Anderson Contracts, Judgments, Transportation

On March 1, 2012 a Medford jury rendered a verdict in a wrongful death case against a broker for $10,000 in non-economic damages (aka pain and suffering) and $1,678,000 in punitive damages. Although the jury also found the driver liable for $40,000 in non-economic damages and $3,471,000 in punitive damages, the lessons to be learned from the case are for brokers and shippers.

Facts.

Nestle Waters North America, the shipper, had a Shipper-Broker Contract with Heyl Logistics.  (NOTE: All references to “Heyl” are to Heyl Logistics, not Heyl Trucking.)  Heyl had a Broker-Carrier Contract with Eric Rangeloff, dba Washington Transportation. Nestle tendered a shipment to Heyl, Heyl tendered it to Washington Trucking, and Washington Trucking tendered the shipment to Forrest Rangeloff, Eric Rangeloff’s twin brother. After picking up the load from Nestle in southern California and transporting it to the yard, Washington Trucking gave the shipment to Dan Clarey, its driver, to deliver to Portland.

While crossing the Siskiyou Summit, Clarey started to fall asleep at the wheel, clipped the mirror of another truck, jolted awake, and pulled hard to the right and hit the rear of a trailer being pulled by Kelly Linhart, another truck driver who had stopped on the shoulder, causing the trailer to hit Mr. Linhart, killing him instantly.

Clarey admitted, and tests confirmed, that he had methamphetamine in his system. Clarey subsequently pled guilty to criminally negligent homicide and driving under the influence and was sentenced to several years in prison.

It is important to point out that Ron Brown, dba I & J Transportation was named as a defendant because it previously leased equipment from  Forest Rangeloff, dba Range Transportation and provided service under I & J’s FMCSA authority and USDOT numbers. However, Ron Brown had terminated the equipment lease and sent a fax to Forest Rangeloff declaring the termination. In addition, Ron Brown reported Forrest Rangeloff’s theft of his FMCSA and USDOT registrations to both the Lake Havasu and Los Angeles police and to Internet TruckStop. Nevertheless, at the time of the collision, the equipment Clarey was driving was identified with I & J’s MC and USDOT numbers.

The Linhart Estate sued Nestle, Ron Brown, dba I & J Transportation, Eric Rangeloff, Heyl Truck Lines, Heyl Logistics and Clarey. At the time the case went to trial, the defendants remaining were Heyl Logistics and Clarey. Ron Brown, dba I & J Transportation settled before trial, but its name remained on the verdict form for purposes of allocating fault. Although we do not believe he settled, Clarey did not actively defend himself and we presume that his name was on the verdict form for purposes of allocating fault.

The Verdict.

The jury found Clarey 80% at fault, Heyl Logsistics 20% at fault, and Ron Brown (I & J) 0% at fault. No economic damages were awarded, but $50,000 in non-economic damages were awarded, meaning (under Oregon law) that Clarey was liable for $40,000 and Heyl was liable for $10,000).  In addition, the jury imposed $1,678,000 in punitive damages against Heyl and $3,471,000 in punitive damages against Clarey.

Why Heyl was at Fault

1)  Heyl’s Shipper-Broker Contract with Nestle required Heyl to obtain written consent from Nestle before using any carriers, but Heyl never obtained written consent from Nestle before using any carriers.

Comment:  This is an unusual requirement and one that we do not put in our Shipper-Broker Contracts or agree to have in the contract.  It makes sense to put in the contract the minimum qualifications carriers must possess, which both the shipper and broker agree to, but to require express consent from the shipper for each carrier before used is asking for trouble simply because it is a requirement brokers can easily ignore or overlook.

2)  In addition, the Shipper-Broker Contract provided that Heyl agreed to “be solely responsible to ensure that all carriers” hired by Heyl were in compliance with “all applicable federal, state and local laws, rules and regulations.”

Comment:  A broker should require in its Broker-Carrier Contract that the carrier comply with all applicable laws, rules and regulations, including but not limited to the FMCSR. Although a broker can require the carrier to comply in the contract, there is no way the broker can “ensure” that the carrier does, in fact, comply. If a broker agrees to “ensure” compliance by the carrier, it must maintain contingent auto liability insurance coverage.

3)  Heyl did not at any time obtain a certificate evidencing Washington Transportation’s insurance coverage. Further, it does not appear that Heyl’s Broker-Carrier Contract required the carrier to provide a certificate of insurance to Heyl. As should be expected, Washington Transportation did not have valid insurance on the date of the collision.  Moreover, it appears that Washington trucking did not hold valid authority at that time and, further, had a history of noncompliance with the FMCSR drug and alcohol regulations.

Comment:   A broker must have a program to routinely check on a carrier’s insurance filings and to obtain copies of certificates. This can take the form of simply checking the FMCSA website for insurance compliance immediately prior to using a carrier and printing out confirmation that the insurance is on file and valid. A better procedure would be to use a competent and experienced third party provider to confirm insurance, authority and compliance matters on a routine and regular basis. In addition, CSA scores must be routinely checked in regard to compliance and violations. Obviously, not all violations mean that a broker or shipper should stop using a carrier, but some may require that action or heightened monitoring.

4)      Heyl evidently did not require in its Broker-Carrier Contract that the equipment provided by Washington Trucking be identified as being operated under Washington Trucking’s own name and USDOT number.

Comment: The Broker-Carrier Contract must require the carrier to provide service with equipment licensed, identified and insured under the carrier’s own name and insurance policy.

Why Brown, dba I & J Transportation was Not at Fault.

5)      There once was “logo liability,” which made a carrier liable if its name and/or MC or USDOT number appeared on the equipment or, in some extreme cases, anywhere in the equipment, even though the equipment was not owned, leased or being used by the carrier.   Logo liability generally is no longer a basis for imposing liability, although it still pops up in cases now and then.

Comment:  Although Brown, dba I & J Transportation settled with the plaintiff prior to trial, its name still appeared on the verdict form.  That Brown, dba I & J Transportation was not a fault, in our opinion, turned on his aggressive proactive approach in faxing a notice of termination to Washington Trucking,  notifying law enforcement officials in two different cities (Lake Havasu and Los Angeles) that its authority had been stolen, and in providing notice to one of the internet load boards, Internet TruckStop.  Brown did not assume everything would be fine, and he did not ignore the problem, but rather he took immediate verifiable action to protect himself and his business.

In this regard, I also want to point out that the FMCSA leasing regulations provide some protection. 49 CFR 376.12(f) allows an equipment lease to provide that “upon termination of the lease agreement, as a condition precedent to payment, the lessor [contractor] shall remove all identification devises of the authorized carrier and … return them to the carrier.” Other provisions apply to painted on identification and other documents items the carrier wants returned.

This case should serve as an awakening because it hits close to home, having been rendered by a jury in Medford. Obviously the driver was the overwhelming cause of the accident, for which he served time. However, it is an example of how plaintiff’s will seek out the deep pockets, especially where the primary at-fault defendants, Washington Trucking and Clarey, the driver, are undoubtedly judgment proof. In this case, those deep pockets included Nestle, the shipper, Heyl Trucking (presumably the uninvolved affiliate of Heyl Logistics), Brown, dba I & J Transportation (essentially an uninvolved broker) and Heyl Logistics, the broker. Although Nestle, Brown dba I & J,  and Heyl Trucking were dismissed from the case, we do not know what, if anything, they had to do to obtain their dismissals.

Epilogue.

About 12 days following the jury’s return of the verdict, but before it was entered, plaintiff and Heyl Logistics settled under terms which were made confidential. Presumably this was the result of issues including, but not limited to, the amount of punitive damages (a very high and possibly impermissible “multiple” of the $50,000 non-economic award) and to avoid the State of Oregon’s claim to a substantial portion of the punitive damage award under Oregon law, which claim vests once the verdict is entered.  However, we do not know for sure and are left to wonder.

 

Linhart v Heyl Truck Lines, et al
U.S. District Court for Oregon, Case No. 1:10-cv-03100-PA