STS 2017 - THE MITIGATION OF LITIGATION

The Mitigation of Litigation
J. Allen Jones III C. Fredric Marcinak Alan Rucker

The Mitigation of Litigation
Presented by:
Alan Rucker
J. Allen Jones III
C. Fredric Marcinak

Catastrophic Accident:
Are You Prepared?
Alan Rucker

Catastrophic Accident Occurs
• Action Plan after Accident Occurs
• What to Expect after Lawsuit Filed

Goals of Emergency Response
• Phone Calls & Implementation of
Emergency Response Plan
• Retain Necessary Experts
• Preservation of Evidence &
Collection of (Good) Evidence
• Identification of Issues
• Post-Accident: Compliance with
Applicable Laws & Regulations
• Develop Defense of Case

Phone Calls & Emergency Response Plan
• Identify Exact Location of Incident
– Identify Employee Involved, Supervisor, Dispatcher, Project Manager, etc.
– Identify Vehicle and Load Involved
• Ensure Driver / Employee Does Not Speak to Anyone
– Have a Response Plan
– Training
• Contact Legal Counsel
– Establish “Privilege” to Hopefully Protect Information
– Strategic Evidentiary Decisions and Identification of Issues
• Independent Adjuster
– Follow Plan of Counsel
• Contact Insurance Company (if applicable)

Retain Necessary Experts
• Accident Reconstructionist

Preservation of Evidence and
• Parties Involved
– Injuries, Roles, Relationship
• Accident Scene
– Property Damage, Weather and Scene Conditions, Skid Marks, Debris Pattern, Visibility,
Points of Impact
• Data Preservation
– ECM, GPS, Monitoring Systems, Onboard Device
– Vehicle Speed, Brake Application, Cruise Control
• Vehicles / Equipment / Load
– Inspection, Inventory, Mechanical Analysis
– Tire Tread, Brake Systems, Lighting, Equipment Failure

Preservation of Evidence and
• Photos / Video / Audio
– Cell Phone Camera, Dash Cams, DOT Camera, Red Light Cameras, Media Coverage, Social Media
Posts, Area Business Cameras, 9-1-1 Calls, Call and Text Records
• Witnesses
– Bystanders, Passengers, Employees
– Interview and Obtain Statements
• Investigative Agencies and Reporting
– Identify Agencies / Authorities Involved
– First Responders
– Governmental Agencies
• Download or Simply View Data?
– Available from a Remote Location

Identification of Issues
• Decide Whether to Record Statements
– Will You Have to Produce in Litigation Later?
• Take Photos of Evidence or Scene?
– Creation of Bad Evidence
• Commercial Driver or Motor Carrier Out of Service
(Hours, Equipment, License)?
– Review of Logs, Permits, Trip Documents

• Compliance with Company Policies and Procedures?
– Failure to do so Will Come Out in Litigation
• Anticipation of Criminal or Regulatory Proceedings?
– How to Handle Law Enforcement and Investigation
• Does Employee Need Independent Counsel?
– Conflict of Interest

• Driver Hours, License Status, Equipment Violations
• Vehicle Weight, Licensing, Permitting, Equipment,
Load
• Employee Training and Certification
• How to Handle Media?
– Interviews and Statements

Post Accident:
Compliance with Applicable Laws & Regulations
• Post-Accident Drug Testing of Employee
• Reporting of Accident / Accident Register
• Preservation of Documents and/or Evidence
• Vehicle / Equipment Inspection
• In-House Litigation Hold
• Preservation of Evidence Requests to Third Parties

The Lawsuit is Filed
What to Expect?

Fact vs. Fiction
• Common Tactics Used by the Plaintiffs’ Bar in Litigation
– Play on Perceived Biases and Industry Fears
– Shift Focus from Accident Facts to Regulatory Matters
– Readily Available On-line Resources
(i.e., CSA-Compliance, Safety, Accountability program)

The Lawsuit: Playing on Perceived Biases and Industry Fears

The Lawsuit: Shifting Focus from Facts to Regulatory Matters
• Plaintiffs’ Bar Will Shift Focus from Facts to Perceived Biases and
Regulatory Matters
– Company History or Reputation
– Regulatory Matters and Compliance
– Natural Jury Bias and Industry Fears
– “Reptilian” Tactics

The Lawsuit: Your Employees Deposed
• Depositions and Testimony
– Driver, Corporate Representative(s), Safety Director, Apex
Depositions

The Lawsuit: Retain Proper Experts
• Accident Reconstructionist
• Toxicologist
• Federal Regulations or DOT Expert
• Safety or Risk Management Expert
• Industry or Compliance Expert
• Public Relations Expert
• Deposition / Interview Preparation Consultant
• Medical Experts
• Biomechanical Engineer
• Economic Experts

Big Picture: Have a Plan
• Preventative Measures
– Proper Hiring Process
– Accident Prevention Training
– Policies and Procedures
– Monitoring
• Emergency Response Plan
– Preparedness
• The Lawsuit

Contract and Employment Issues
J. Allen Jones III

Introduction
Source: http://starecat.com/truck-fail-hit-the-bridge-on-the-road-to-success-there-are-no-shortcuts/
 Independent Contractor/Owner-Operator
Classification - Recent Practical Examples
 Agreement terms are important to
profitability, sustainability, and mitigation
of potentially costly litigation.
 It is mission critical that your service
agreements and business operations are
consistent.
 FCRA and Employment

Atiapo v. Goree Logistics, Inc. (N.C. Ct. App. 2015)
 A broker, Owen Thomas, Inc., entered into a typical broker-carrier
agreement with Goree Logistics, a federally-licensed motor carrier.
 Atiapo, an independent contractor signed on with Goree Logistics, was
injured in an accident while hauling a load of rejected goods brokered
to Goree by Owen Thomas.
 At the time of the accident, Goree did not have workers'
compensation insurance.
 Atiapo filed a claim for workers’ compensation, which Goree denied,
since Atiapo was an independent contractor.

 The industrial commission added Owen Thomas, the broker, as a party,
and imposed liability on Owen Thomas as a “principal contractor” under
the North Carolina Workers’ Compensation Act (the “Act”).
 Owen Thomas appealed, arguing that the Industrial Commission lacked
jurisdiction because Owen Thomas was a freight broker, not a principal
contractor, and exempt from the Act under FAAAA.
 The court rejected Owen Thomas’s first argument, holding that the use of
the word broker was “a distinction without a difference.”
 Since Owen Thomas was a principal contractor under the Act, it
"employed" Goree as a subcontractor without workers' compensation
insurance, establishing liability under the Act.

 The court rejected the preemption argument for two reasons:
 First, the Act did not regulate prices, routes, or services, and state
regulations related to minimum insurance requirements were
excepted under FAAAA.
 Second, even though the insurance exception applied only to
motor carriers, and not brokers, the Court held that Owen Thomas
“went beyond its role as a broker” and “was, in effect, a motor
carrier, despite the fact that the company itself owned no
vehicles.”

Why is the Atiapo case important?
1. The language used by the Industrial Commission and Court of
Appeals misrepresents the transportation industry.
2. If you operate a brokerage business, diligently follow motor carrier
selection protocols to ensure compliance with obligations
contained in your broker-carrier agreements.
3. If Owen Thomas had made certain that Goree had workers’
compensation insurance, which was required under the broker-
carrier contract, in all likelihood, Owen Thomas would not have
been involved in the case.

Max Trucking, LLC v. Liberty Mut. Ins. Co., (6th Cir. 2015)
 Max Trucking transports dry goods and general freight utilizing a fleet of
independent contractor/owner-operator drivers located throughout the
United States.
 Max Trucking filed suit against Liberty Mutual seeking an order that it
did not owe workers compensation premiums to Liberty Mutual
because its drivers were independent contractors, not employees,
under the Michigan Worker’s Disability Compensation Act (the “Act”).

 Under the Act, Max Trucking purchased worker’s compensation
insurance coverage from Liberty Mutual through an “involuntary
market” beginning in 2006.
 The policy was renewed several times over a period of years.
 In 2011, Liberty Mutual audited Max Trucking and determined
that its Michigan-based drivers were employees, not
independent contractors, under the Act.
 As a result, Liberty Mutual increased the policy premium.

 A bit of history:
 Max Trucking converted to an owner-operator based
operation after a bad accident in 2006 that resulted in a high
worker’s compensation expense.
 However, many owner-operator drivers lost their trucks
during the economic downturn in 2008.
 So, Max Trucking developed a program in which Max Trucking
purchased trucks and offered them to drivers on a lease-to-
buy basis.

 The Good
– Max Trucking did some pretty good things operationally.
– If a driver sold his leased truck, Max Trucking paid any
equity to the driver.
– Max Trucking’s owner-operators were able to accept or
reject dispatched loads.
– Max Trucking’s lease-to-buy program demonstrated
portability and sound finance lease accounting.

 The Bad
– Max Trucking entered into the written contracts with the drivers participating
in the lease-to-buy program (meaning it was the Lessor), and it held title to
the trucks.
– This type of arrangement makes it difficult to parse the economic realities in
cases like these (i.e., the driver is economically dependent on the motor
carrier or could not obtain equipment elsewhere due to credit issues, etc.),
and makes it easier for the court to conclude the driver is an employee.
– The better practice is to have the equipment leased to the driver by an entity
other than the motor carrier.

 The Ugly
– The Court – courts need to be educated regarding the nuances of the
trucking industry.
– The Court’s opinion is another example of a court that either doesn’t
understand, or worse, ignores, the distinctions between trucking and
other industries when looking at the worker classification issues.
– The Court applied a 3-part test: To be considered an employee, a
person must show that he or she (1) does not maintain a separate
business; (2) does not hold himself or herself out to render services
to the public; and (3) is not an employer subject to the Act.

– The District Court concluded that none of the drivers maintained a
separate business; none of the drivers held themselves out to the
public as a trucking business; or qualified as an employer under the
Act.
– Specifically,
• The Court made a big deal about the fact that only one driver had
actually ever driven for another company;
• The Court noted the fact that the drivers used Max Trucking’s DOT
number exclusively; and
• The Court declined to look at any additional factors and, instead, rigidly
applied the Michigan 3-part test.

The Oregon Four (Oregon Ct. App., July 20, 2016)
 Practically sequentially issued decisions written by the same Judge.
 Highlight the important nuances between the use of independent contractors in, for
example, manufacturing or services, versus the trucking industry, where minor
misunderstandings can lead a judge (or panel of judges) to improperly conclude that
carriers direct and control all the means and methods used by owner-operators in the
performance of services to motor carriers.
 The decisions serve as excellent examples of judicial panels that really took time to consider
the economic realities of the independent contractor owner-operator business model
within the context of the trucking industry.
 Most importantly, the decisions underscore the significance of carefully crafting written
agreements with your owner-operator fleets to avoid ambiguities and unintended
consequences.

Delta Logistics v. Employment Department Tax Section
 Delta Logistics appealed an administrative ruling that services provided by its owner-
operators constituted employment.
 Under Oregon law, transportation services performed by any person that “leases their
equipment to a for-hire carrier and that personally operates, furnishes and maintains
the equipment and provides services thereto” are exempt from employment.
 The ALJ agreed that Delta was a for-hire carrier, it did not own its own trucks, the
trucks used were furnished by owner-operators who either personally operated those
trucks or hired drivers to operate them, and the owner-operators maintained the
trucks.
 But, the ALJ determined the exemption did not apply because Delta’s agreement with
its owner-operators did not constitute a lease under the statute because there was
“no transfer of legal possession and use of the vehicle in exchange for compensation.”

 The appellate court concluded that “an arrangement has the effect of transferring to
the for-hire carrier the right to legal possession and use of the vehicle, while requiring
the owner to retain physical possession, control, and use of the vehicle” meets the
requirements of a lease under the exemption statute.
 The ALJ also ruled that the owner-operator agreements were not leases because they
did not specifically “include a provision for remuneration for Delta’s use of the
vehicles.”
 The appellate court found that while the owner-operator agreements did not allocate
a portion of Delta’s payments to the owner-operators for the lease of their vehicles,
there was no requirement that the leases contain a specific allocation or that
consideration was required to be “separately stated.”

 Last, the agency argued on appeal that the ALJ’s order should be affirmed as to
owner-operators who hired drivers and did not personally drive their vehicles.
 The appellate court interpreted the statute to include the owner-operators’ drivers
under the definition of “services performed in operation of the motor vehicle,” and,
therefore, the exemption applied to hired drivers as well.

Market Transport, Ltd. V. Employment Department
 Market Transport was operating with independent contractors that either personally
operated their trucks or leased vehicles from third parties.
 The court noted this common industry practice, reversing the administrative ruling as to
assessments to Market Transport for independent contractors who operated their own
vehicles.
 With respect to drivers that leased their vehicles from third parties, the appellate court
vacated the administrative ruling and sent the issue back for further proceedings as to
whether those drivers “furnished” or “maintained” their vehicles under the statute and,
therefore, qualified for the exemption from employment.

 The ALJ also ruled that contractors operating their own vehicles were not
exempt from employment under Oregon law due to a lack of specific
consideration in the applicable agreements for the period in which the
vehicle was not in use.
 The court reasoned that even when the vehicle was idle, Market Transport
was still required to maintain and pay for operating licenses, taxes, and
insurance, and those obligations were, in fact, consideration.

May Trucking Company v. Employment Department
 The appellate court reversed, in part, tax assessments imposed with respect to
May’s owner-operator drivers who owned their trucks outright.
 May’s fleet included approximately 200 owner-operator drivers.
 70 drivers either leased or purchased their vehicles from May, and then
leased those vehicles back to May by agreement.
 The remaining 130 drivers owned their vehicles outright, and also leased
their vehicles back to May by agreement.
 The court ruled that the agreements with drivers leasing vehicles from May did
not provide the drivers with a “transferable interest” in the vehicles.

 Those agreements provided that the “purchase” was a “bailment only” until the
purchase price was paid in full.
 The drivers who owned their vehicles outright leased those vehicles back to May
pursuant to an Independent Contractor Agreement (ICA).
 The ALJ ruled that the ICA failed as a lease under the exemption statute for three
reasons:
 First, the lease lacked a definite duration - the ICA provided that it terminated when
either party gave 30 days written notice, or immediately upon the owner-operator’s
breach.
 The appellate court ruled the a lease was not required to state an end date, as
long as the circumstances under which the lease terminates can be determined.

 Second, the ALJ judge found that the ICA failed because it did not account for
May’s use of the vehicle for the truck’s idle time.
 The appellate court dismissed this argument based on the Market Transport case.
 Third, the ALJ concluded that May did not show that owner-operators
personally maintained their vehicles.
 The ALJ concluded that the ICs did not personally maintain their vehicles because
they frequently used May’s maintenance facilities and only “nominally” paid for
services there.
 The appellate court held that the ALJ erred because a contractor financially
responsible for the maintenance of equipment, and the freedom to select a third-
party to perform maintenance, satisfies the requirement for personally performing
the maintenance under the statute.

CEVA Freight, LLC v. Employment Department
 The appellate court reversed tax assessments and found that services performed by
owner-operator truck drivers (and drivers who worked for owner-operators) were
excluded from employment under Oregon law.
 The ALJ concluded the owner-operators were not independent contractors for three
reasons:
 First, the owner-operators did not meet the statutory definition of an independent
contractor because they did not obtain the licenses to perform services pursuant to
their agreements with CEVA.
 The appellate court reasoned that since the owner-operators were providing
services to CEVA and not the public in general, the owner-operators were only
required to obtain state drivers licenses (after all, they were operating under CEVA’s
USDOT authority).

 Second, the ALJ concluded that CEVA had the right to exercise direction and control over
the owner-operators’ means and manner of providing services under the agreements.
 The appellate court disagreed, holding that the owner-operators provided the
fundamental means of carrying out the services, even though CEVA provided certain
resources to its owner-operators that were similar to “means” described in Oregon
Administrative Rules.
 Third, the ALJ found that CEVA failed to show that the owner-operators were in an
independently established business under Oregon law.
 The appellate court reversed because, by agreement, the owner-operators bore
some risk of loss, made significant investments through the ownership or lease of
vehicles and payment of all operating expenses, and had the authority to hire or fire
helpers to provide or assist in providing services.

The Oregon Four – Practical Takeaways
 Notable commonalities are instructive for drafting agreements with
owner-operators:
 For example, the Employment Department and ALJ may not have challenged
May Trucking’s exemption had May drafted its agreements with careful
attention to Oregon law.
 Since Oregon law requires owner-operator drivers to have a transferable
interest in their vehicles, May could have chosen to only engage owner-
operators who owned their trucks outright, or purchased trucks from May
pursuant to an agreement that did not contain any “bailment” language.

 Delta Logistics and Market Transport could have been more precise regarding
the consideration given for the use of vehicles, specifically with respect to the
portion that represented compensation for use of the vehicle, including any
down or idle time.
 May could have described its owner-operators’ duties to personally maintain
vehicles in greater detail, including drawing a clear line between those duties
and the services (including costs) offered by May at its facilities.
 Agreements drafted with the regulatory landscape in the jurisdiction in which
owner-operator fleets are based can help ensure your agreements and
relationships will withstand regulatory scrutiny – before litigation commences.

 Cookie cutter or generic form agreements are dangerous.
 We recommend carefully drafted, customized agreements.
 Of course, they require time and resources, they require routine
auditing and updating, and they require training with operations and
managers, BUT
 The stakes are too high with the level of scrutiny regulatory
agencies and plaintiffs’ attorneys place on owner-operator
relationships.

Fox v. TransAm Leasing, Inc. (10th Cir.), October 18, 2016
 Addresses communications devices in trucks owner-operators lease to
motor carriers pursuant to the Leasing Regulations.
 TransAm operated under a “lease-back” program by recruiting
independent contractor drivers to lease vehicles directly from TransAm
with an option to purchase.
 The drivers would, in turn, lease the vehicles and driving services back to
TransAm, presumably pursuant to independent contractor service
agreements, as required by the Leasing Regulations

 TransAm’s standard service agreement required an owner-operator’s vehicle to
have a satellite communication unit that was compatible with TransAm’s
satellite communication system (not unusual).
 If the owner-operator did not have a compatible unit, the owner-operator
could “borrow” one from TransAm.
 The service agreement further provided for the owner-operator to pay
TransAm a satellite communication system usage fee in the amount of
$15/week, and allowed for a charge-back from compensation, regardless of
whether the owner-operator provided its own unit or borrowed one from
TransAm.

 TransAm’s satellite communication system allowed for direct communication
between the carrier and driver, temperature monitoring of refrigerated
trailers, route planning, and keeping records of hours of service and fuel taxes.
 TransAm provided the same communication system and access to its employee
drivers, but without a fee.
 The Court determined that TransAm’s charge-back of $15/week was a violation
of the Leasing Regulations, specifically 376.12(i), which prohibits a motor
carrier from requiring an owner-operator to purchase or rent any products,
equipment, or services from the authorized carrier as a condition of entering a
service agreement with the motor carrier.

 The Court reasoned that it was a violation because it required the owner-
operator to purchase a service (i.e., use the motor carrier’s satellite
communication system) as a condition of entering a service agreement.
 Instead, according to the Court, the motor carrier must provide the option to
obtain equipment or services, including satellite communication systems, from
outside sources.
 The Court reached its decision even though TransAm was only charging a
portion of the $25 cost per week from the satellite communication provider
AND, without any reference to the fact that in-cab electronic logging devices
have now been mandated by FMCSA with the operational deadline quickly
approaching.

 Moreover, the Court did not address any issues related to the cost of the in-cab
device, selection of a service provider, or other issues related to the
technological challenges of implementing an effective communication system.
 As a side note, TransAm did prevail, in part, because the Court ruled that the
plaintiffs failed to offer sufficient evidence of actual damages.
 The Court’s plain reading of the Leasing Regulations underscores:
 The importance of reviewing written service agreements to avoid a similar result;
 Courts continued emphasis on compliance with the Leasing Regulations; and
 The need to strategically consider your approach to compliance with the ELD mandate
to insure that each IC has an option regarding sourcing the required equipment to be
compatible with the motor carrier’s technology.

 Keep in mind that the volume and variety of technological platforms may make
your ELD roll-out more difficult, and could increase operational costs beyond
what they are today.
 Other than having the motor carrier absorb the cost of the ELD and the related
service fees, practical issues remain as to how to effectively choose a
compliant device, a service provider to support the service, integration, and
compatibility, all while trying to remain compliant with the Leasing
Regulations.

Hall, et al. v. B-H Transfer Company (Ga. Ct. App.) November 15, 2016
 Really an underwhelming decision that stands for the proposition that for
plaintiffs to recover damages in Leasing Regulations cases, each plaintiff
must show an actual loss due to reliance on incomplete or inaccurate
disclosure.
 The reason I want to highlight this case, though, is that it was originally
filed in 2003.
 B-H was granted summary judgment on a breach of contract claim in
2012, but the alleged violations of the Leasing Regulations disclosure
requirements took another four years to resolve. What a terrible waste of
resources!

 The service contract stated that B-H could make certain deductions from
payments otherwise due to an owner-operator.
 For example, B-H could deduct the actual costs incurred by B-H due to an
owner-operator’s failure to complete service as dispatched.
 B-H only ever deducted $25, even though it actually cost B-H $36 to complete
delivery.
 Since the service agreement failed to state how the charge-back would be
calculated, the Court held that it violated the Leasing Regulations (376.12(h)).
 But, since B-H never deducted more than $25 – less than the amount allowed
under the service agreement – plaintiffs suffered no actual damages.

 All of this could have been avoided:
 Align operational conduct with service contract provisions.
 B-H could have clearly explained that each service failure cost B-H $36 and,
at most, B-H would deduct a portion of the cost of that service failure – up to
a maximum of $25 – from compensation.
 A successful owner-operator program is not just about taking steps to ensure
proper worker classification – it also requires careful compliance with the
Leasing Regulations.
 As charge-backs occur, it just makes sense pay attention to the regulations,
make certain service agreements comply with the regulations, and confirm
that operational conduct reflects the terms of the service agreements.

Chambers v. RDI Logistics, Inc. (Mass. S.Ct.) (December 16, 2016)
 The Court reversed a trial court judgment in favor of RDI on the grounds that
Prongs A and C of the Massachusetts “ABC” Test were not preempted under
FAAAA, and to determine whether the plaintiffs had standing as individuals to
assert their misclassification claims.
 Once again, not an earth-shattering decision, but it does emphasize the
importance of treating owner-operators like any other vendor or customer with
which you do business.
 It also highlights the pitfalls associated with being too clever by half.

 RDI only did business with corporate entities – not individuals – and that policy
extended to RDI’s independent contractor drivers.
 The service agreements entered into between RDI and its owner-operators
contained a nonsolicitation provision (not unusual), but also an onerous
noncompete agreement with a three-year tail.
 RDI, through its managers, allegedly told drivers that they would be terminated
if they performed services for any company other than RDI.
 RDI also regulated how its drivers loaded furniture onto their trucks, required
drivers to follow prescribed routes, and mandated the use of GPS devices to
make certain drivers followed the prescribed routes.

How do you avoid an RDI situation?
 Audit, at least annually, the relationships between your businesses and owner-
operators, particularly the service agreements.
 Treat owner-operators like customers or vendors, they are not employees.
 If you have a noncompete provision in a service agreement with an owner-
operator, get rid of it immediately.
 Employers can restrict the ability of an employee to work for another
employer, but owner-operators are free to perform services for others while
performing services for you.

 If you control owner-operators’ performance of services, contractually or
operationally, like RDI did, revise your service agreements and audit your
operations to make certain your operational conduct mirrors the terms and
provisions of your service agreements.
 Employers dictate employees routines and hours worked. Employers direct
the means and methods by which tasks and assignments are performed by
employees. Employers control the way an employee’s tasks are performed.
 Independent contractors, however, determine when to work, they
determine their own routines, they determine the way accepted tasks and
assignments will be performed, and they are responsible only for the results
or final product.

 Avoid the temptation to act overconfidently or cutely based on a misguided
understanding or interpretation of the law.
 It appears RDI insisted its independent contractors be business entities because it
mistakenly believed that corporate entities were barred from asserting claims under the
Massachusetts Independent Contractor Law, which refers only to individuals.
 But, applicable case law cited by the court demonstrates that the statute’s reference to
individuals does not preclude individuals providing services through a corporate entity
from asserting a misclassification claim if the worker was “forced” to incorporate so
“employer” could misclassify the worker as an independent contractor.
 The court denied RDI’s summary judgment motion on the standing issue because “the
allegations raise the question whether the plaintiffs incorporated for their own benefit,
[as RDI suggested], or whether RDI required them to incorporate in order to misclassify
them as independent contractors.

FRCA and Consumer Reports for Employment Purposes
 When an employer uses a Credit Reporting Agency (“CRA”) to obtain reports on
potential or current employees, it must follow the guidelines set forth in the
Fair Credit Reporting Act (“FCRA”).
 The employer must certify to the CRA that:
 it has complied with all disclosure requirements,
 it will comply with state and federal equal employment opportunity laws, and
 it will comply with any requirements pertaining to taking adverse action in reliance on
the consumer report, if applicable.
 Courts have held that background checks, including criminal background
checks, are considered consumer reports if supplied by a CRA.

Disclosure Requirements
 For employment regulated by the Secretary of Transportation, a state
department of transportation agency, or transportation-related employment:
 if the employee (or prospective employee) applies by mail, telephone, computer, or
other similar means and their sole interaction with the employer has been through one
of these means, the employer must provide notice that a consumer report may be
obtained for employment purposes, and must give the employee a summary of his or
her consumer rights.
 Before the employer can obtain the consumer report, the employee (or
prospective employee) must provide his or her consent (orally, in writing, or
electronically)

 For employment not regulated by the Secretary of Transportation,
a state department of transportation agency, or transportation-
related employment where the applicant applies in person, the
employer must:
 furnish a “clear and conspicuous disclosure” in writing “to the
consumer at any time before the report is procured,” and
 this must be “in a document that consists solely of the disclosure, that
a consumer report may be obtained for employment purposes.”
 Additionally, the employee or prospective employee must provide
his or her consent in writing.

Reliance on Reports in Taking Adverse Actions
 If the only contact with the employer is through mail, telephone, computer,
etc., and the employer wishes to rely on the consumer report in taking an
adverse action, the employer must first provide three business days’ notice
that:
 an adverse action is being taken in reliance on the report;
 the CRA did not make the decision to take the adverse action and will be unable to justify
reasons to the employee; and
 the consumer may, if he/she provides proper identification, request a free copy of the
consumer report and dispute the CRA’s findings.
 Additionally, the employer must provide the individual with the name,
address, and phone number of the CRA.

Reliance on Reports in Taking Adverse Actions
 When a non-transportation-related employer, or a transportation employer
that received applications in person, relies on a consumer report in taking an
adverse action, before taking such action, it must provide the individual a copy
of the report and a description of his rights under the FCRA.

Ramifications of Noncompliance
 Violations of these conditions can lead to civil penalties.
 Employees have a private right of action against both the CRA and the
employer for either negligence or willfulness in failing to comply with the
FRCA.
 Additionally, classes have been certified for class actions in these sorts of
disputes.

Parting thought . . .
“If you are going to sin, sin against God, not the bureaucracy.
God will forgive you, but the bureaucracy won’t.”
- Hyman Rickover, Adm. USN

Regulatory Issues
C. Fredric Marcinak

Permit Issues
• Violations for Overweight/Oversize
– I have no permit
• Yes, this does happen
– Simply overweight
– Trying to cross a bridge
– Outside permit scope
• After sunset/before sunrise
• Off route
– Deviations allows?
• Operating in bad weather (fog, etc.)

Permit Issues
• Permit Violation
– Permit Invalidated
– Now overweight
• Overall fine and per axle fine imposed
• Average $22,500

Permit Issues
• Administrative Appeal
– North Carolina – 30 days to file appeal with Highway Patrol
• Judicial Appeal
– Virginia – immediate hearing and decision on ticket where State is
prosecutor
– North Carolina – file appeal from administrative decision where Carrier
is plaintiff (civil)

Permit Issues
• Tips
– Operational
• Don’t travel without a permit/outside of permit
• If you do, stop immediately and call dispatch
• Dispatch calls state for clarification
• Law enforcement knows typical violation spots
– State lines, bridges, local shortcuts
• Know jurisdictions
– Chicagoland = >300 local jurisdictions

Permit Issues
– Legal
• Respond quickly—deadlines are ticking
• Don’t admit violations
• Did police observe driver off route
• What statements to make to police
• Pro se vs. attorney representation
– Knowledge of system
– Contacts in agencies/courts
– Negotiating of citation amount
• General courtroom behavior

Safety Ratings: The Current System
• New Entrant Audit (within 12 months)
– Pass (unrated) or fail
(registration revoked)
• Focused Intervention
– Can maintain (incl. unrated) or drop
• Compliance Review
– Requires on-site examination
– Usually must result in a final safety rating (unsat, conditional, sat)

• The Traditional Criteria:
– On-site examination of records
• RODS, supporting documents, DQ files, Maintenance
• Roadside Data
– Violations, accidents, raw CSA data

• Proposed rating issued
– Based on performance across 6 factors
• 1-General (Parts 387 and 390)
• 2-Driver (382, 383, 391)
• 3-Operational (392, 395)
• 4-Vehicle (393, 396, inspection data)
• 5-HazMat (171, 177, 180, 397)
• 6-Accident: Recordable rate per million miles

• Points
– Violation of an acute regulation
• 1 point
– Pattern of noncompliance with critical regulations
• 10 % = pattern of noncompliance
• 1 point
• BUT for HOS = 2 points

• For each factor
– 0 points = satisfactory
– 1 point = conditional
– 2 points = unsatisfactory

Overall Rating
Factor ratings Overall
Safety ratingUnsatisfactory Conditional
0 2 or fewer Satisfactory
0 more than 2 Conditional
1 2 or fewer Conditional
1 more than 2 Unsatisfactory
2 or more 0 or more Unsatisfactory

– Satisfactory or improvement to conditional effective
immediately
– Otherwise, effective:
• 60 days for carriers
• 45 days for HAZMAT

• Response to Proposed Rating
– OPTION 1 - Petition for Administrative Review
• Appeal based on Agency’s errors
• Due within 90 days of proposed or final rating or denial of request for upgrade
• BUT if filed within 15 days of proposed unsat rating, will be decided before
rating becomes effective
– OPTION 2 – Request for Upgrade
• Based upon corrective action
– Document corrective action

– No time period unless proposed unsat rating
– Can allow continued operations for non-HM carriers for up to 60 days
– Submit data on:
– Safety management plan
– Improvement of data
– Errors
– Often submitted 2-3 times
– Option 3 – Informal Negotiations
• Direct negotiations with Division Administrator
• Used in combination with other options

• Agency Response
– Administrative Review
• Vacate proposed rating
• Deny appeal
– Request for Upgrade
• Grant request and upgrade
– From unsat to conditional
– Conditional to satisfactory
• Deny request
• Consent order

• Response to Final Ratings
– Petition for Administrative Review
– Request Upgrade

• Current Issues in Requesting Upgrades
– The role of CSA Scores
• Agency’s use of 24-month averages rather than data required for an
on-site CR
• Agency’s prioritizing of CSA scores over data provided by carrier
• CSA meant to prioritize carriers for intervention, not to factor into
safety rating calculations

– Consent Orders
• The preferred way of granting upgrades
• Common provisions:
– One year duration
– Expedited transition to ELDs
– Meeting certain thresholds for OOS percentage or violations
– No acute violations, no pattern of critical violations (10%)
– Report owners, changes of ownership
– Report power units, change of power unit ownership
– Failure results in reversion to proposed rating
– Completion results in a final rating

• Civil Penalties
– Imposed for acute & critical violations
– Imposed for repeat violations
– Can be significant (>$20,000)

• Civil Penalties
– Process
• Notice of Claim by FMCSA
• Options for response (within 30 days)
– Pay penalty in full
– Contest and request administrative adjudication
» Like litigation (discovery and then hearing and then appeal to the court
system)
– Request binding arbitration
» Admit violation but arbitrate amount of the penalties
– Negotiate and resolve penalties
» Often with a payment plan

Safety Ratings: The Proposed System
• Bye Bye: Sat, Conditional, Unsat (born 1982)
• Replaced by Fit or Unfit
• Rating Calculated by:
– Traditional investigation data
– Results of roadside violations
– NO on-site compliance review required

• Unfit:
– a motor carrier could fail two or more BASICs based on an absolute or
fixed measure of on-road safety performance data from inspections;
– a motor carrier could have enough violations of the revised set of
critical and acute regulations, identified through an investigation, to
cause the motor carrier to fail two or more BASICs; or
– a motor carrier could fail two or more BASICs based on a combination
of data from on-road safety data and investigation results.

• Contrast with SMS:
– The intervention thresholds in SMS (Alerts) are much lower than the proposed
SFD failure standards.
– SMS only needs 3 or 5 inspections to generate a score – SFD needs 11+
inspections with violations.
– SMS is based on percentiles – SFD is based on absolute or fixed performance
measures.
– SMS scores can be impacted by other carriers – SFD can only be impacted by a
carrier’s own inspections and investigations.
– The Crash Indicator and Controlled Substances/Alcohol Compliance BASICs would
be assessed only during investigations. The preventability of a crash would be
determined before any crash is used to propose an unfit determination.

• Pros:
– Elimination of conditional ratings
– Not compared against peer carriers as in SMS
• instead compared against absolute thresholds
– Accidents evaluated based on preventability
• Cons:
– Continued reliance on CSA scores

% Unfit by State (as of July, 2016)

548 Motor Carriers Failed 2 BASIC’s
365 “Unfailed” when 391.11 (b) (2) is

Alan Rucker
Kane Russell Coleman & Logan PC
1601 Elm Street
Suite 3700
Dallas, Texas 75201
214.777.4214
arucker@krcl.com
J. Allen Jones, III
Benesch Friedlander Coplan & Aronoff LLP
41 South High Street
Suite 2600
Columbus, OH 43215
614.223.9323
ajones@beneschlaw.com
C. Fredric Marcinak
Smith Moore Leatherwood LLP
2 West Washington Street
Suite 1100
Greenville, SC 29601
864.751.7691
fred.marcinak@smithmoorelaw.com

STS 2017 - THE MITIGATION OF LITIGATION

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