The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10. Presenting a live 90-minute webinar with interactive Q&A Drafting Motor Carrier Agreements: Anticipating and Addressing Cargo Claims, Carrier Indemnity Obligations and More Navigating MAP-21 Legislation, Carrier Safety Performance and Compliance Requirements, and Other Key Concerns for Motor Carriers Today’s faculty features: 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific THURSDAY, MAY 19, 2016 Jason Orleans, Partner, Chilton Yambert Porter, Chicago William D. Bierman, Principal, Price Meese Shulman & D’Arminio, Woodcliff Lake, N.J. Jason E. Engkjer, Lommen Abdo, Minneapolis
Transcript
The audio portion of the conference may be accessed via the telephone or by using your computer's
speakers. Please refer to the instructions emailed to registrants for additional information. If you
have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
Presenting a live 90-minute webinar with interactive Q&A
Drafting Motor Carrier Agreements:
Anticipating and Addressing Cargo Claims,
Carrier Indemnity Obligations and More Navigating MAP-21 Legislation, Carrier Safety Performance and Compliance
Requirements, and Other Key Concerns for Motor Carriers
Before you put pen to paper or keystroke to computer consider following which apply to all Contracts discussed today:
1. Contract goals for either party
2. Value of Contract in terms of dollar and customer relations
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Preparation – Preparation – Preparation
…Continued…
3. Discuss issues with company groups who will carry out Contract:
a) operations
b) financial
c) claims
d) sales:
Contract is not only legal document it is an operational - financial – claims liability blueprint.
8
Preparation – Preparation – Preparation
…Continued…
4. Use detailed checklist previously throughout to avoid missing important items;
5. Beware of copying another Contract as law and issues change and may not apply to your Agreement;
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6. Use detailed checklist previously throughout to avoid
missing important items;
10
Remember
A fairly negotiated Contract will address both Shipper and
Carrier concerns in advance providing for discussion and
compromise to foster an anticipated partnership for the
beneficial working relationship between the parties.
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7. Identify unique issues underlying transaction such as:
a) unique commodity
b) geographic scope
c) specific equipment
to name a few.
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8. Understand charges:
a) freight
b) accessorial
c) fuel surcharge
d) detention
e) payment terms
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9. Transportation Documents:
a) bill of lading
b) tariffs
c) rules
d) exclusive contract terms
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10. General Contract Language: Always try to be “the
Drafter” of the Contract:
a) simple straight forward
b) legalize only when necessary
c) avoid ambiguities
d) avoid internal inconsistencies
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11. 800 Pound Gorilla Contracts. Throw all reason and rules
out the window!
12. Many of these important and preliminary suggestions
will apply to all transportation Contracts referred to
throughout this discussion.
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II. FIRST IMPORTANT KEY PROVISION:
Will Contract be the entire Agreement between the parties? 49 U.S.C. §14101 (b)
Will Contract Waive all rights, duties and obligations under 49 U.S.C. §14101 (b)
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PROS v. CONS OF WAIVER
PROS OF WAIVER:
Parties can make any Agreement and Waive all federal
legislation except:
NOT WAIVE
Registration
Insurance
Safety Fitness
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PROS v. CONS OF WAIVER
CONS OF WAIVER:
Be careful what you wish for.
IMPORTANT REASON NOT TO WAIVE…
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REASONS NOT TO WAIVE NOT EXHAUSTIVE
1. No Carmack Liability § 14706
2. National Uniformity and Consistency of Statute
3. Predictability v. State Law
4. Special and Consequential Damage Interpretation
5. Removal to Federal Court 28 U.S.C. § 1337
6. Venue Flexibility 49 U.S.C. §14705(a)
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REASONS NOT TO WAIVE NOT EXHAUSTIVE
7. Forum of Non-Conveniens – Right to transfer to
convenient forum 28 U.S.C. § 1391
8. Burden of Proof for negligence transfer to shipper
9. Presumption of good order and case law
10. Consignee duty to accept shipment unless practically worthless and to mitigate damages
11. Preemption trumps state law causes of action
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REASONS NOT TO WAIVE NOT EXHAUSTIVE
12. Written claims requirements:
a) regulations on claims – 370.3 (c)
b) minimum claims requirements – 370.3 (b)
c) response to claims – 370.5 and 370.7 ( c )
d) claims v. offset
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REASONS NOT TO WAIVE NOT EXHAUSTIVE
13. Bill of lading and standard provisions waived
14. Loss of released rate, notice and inadvertence clause and opportunity to declare higher rate;
15. Back side terms and conditions of bill of lading omitted
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REASONS NOT TO WAIVE NOT EXHAUSTIVE
Reasonable Dispatch
Five Classic Defenses
Act of God
Act of Public Enemy
Authority of Law
Inherent Vice
Act or Omission of Shipper
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REASONS NOT TO WAIVE NOT EXHAUSTIVE
16. 9-month claim filing
17. 2-years to file suit – 49 U.S.C. 14706 (e)(1)
18. carrier liens for freight charges
19. conversion to warehouseman status upon wrongful rejection
20. salvage and on hand provision
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REASONS NOT TO WAIVE NOT EXHAUSTIVE
21. no extraordinary value
22. hazmat protocol
23. payment of freight charges/ liability of consignor and consignee
24. shipper load and count provisions and presumption on shortage and damage claim waived
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III. BALANCE OF CONTRACT PROVISIONS
Once Determine Waiver or Not Waiver
Balance of Contract still contains important terms.
Obviously with Waiver Drafter must consider all terms.
Outside Interstate Commerce Act to Complete Transaction.
A provision becomes KEY if not covered properly.
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SPECIAL ITEMS
WAIVER OF SUBROGATION
ADDITIONAL INSURED
INDEMNITY
VALUATION
COMMERCIAL CONTRACT v.
TRANSPORTATION AGREEMENT
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TERMS
TERMS TO ADDRESS
TERMINATION
SCOPE OF AGREEMENT
RATE CHARGES AND PAYMENT
FREIGHT DOCUMENTS
INSURANCE
REFUSED SHIPMENT AND WAREHOUSE LIABILITY
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TERMS
TERMS TO ADDRESS
CARGO LIABILITY
SEALED SHIPMENTS
SALVAGE
INDEMNIFICATION
HAZMAT
FORCE MAJEURE
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GENERAL BUT IMPORTANT PROVISIONS
GOVERNING LAW
VENUE
ARBITRATION
INCORPORATION BY REFERENCE
TARIFFS, CLASSIFICATIONS, RULES
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Conclusion…
A well drafted Contract can anticipate and plan for problems before they happen. On the other hand a poorly drafted Contract can create problems that may not have existed
before.
To copy a real estate mantra – location – location – location.
In Contracts it is Preparation – Preparation – Preparation.
Don’t do things because they are easy.
Prepare to represent your clients by knowing, using and
A common problem is failing to understand the importance of operating a proper Owner-
Operator program
A troubling number of “Owner-Operators” do not have properly drafted contracts with the carrier!
CLASSIC OWNER-OPERATOR RELATIONSHIP:
1. Owner-Operator provides the equipment;
2. Operates under the motor carrier’s authority; and
3. Under a written contract.
50
CONTRACTUAL OWNER-OPERATORS & TRUTH-IN-LEASING
• The most common problems with Owner-Operator programs is compliance (or non-compliance) with the Truth-in-Leasing (TIL) regulations, 49 CFR § 376.1, et al.
– Adopted and enforced by the Federal Motor Carrier Safety Administration (FMCSA)
• If you engage in interstate commerce and operate an owner-operator program, then you must comply with TIL regulations.
51
CONTRACTUAL OWNER-OPERATORS & TRUTH-IN-LEASING
• TIL governs the “lease” of equipment by an owner-operator to the authorized motor carrier. 49
CFR § 376.1(a)
– Also governs the “interchange” of equipment between motor carriers. 49 CFR § 376.1(b)
• Owner-Operator relationships must be governed by a written lease agreement, commonly referred to as a Contract Hauling Agreement (CHA). 49 CFR § 376.11(a)
• Owner-Operator is the “lessor” of the equipment, while the motor carrier leases the equipment as the “lessee”
• Owner-Operator runs under the motor carrier’s authority. 49 CFR § 376.11(c)
THE BASICS
52
CONTRACTUAL OWNER-OPERATORS & TRUTH-IN-LEASING
Generally, the written lease must:
1. Identify the parties and detail the use of the equipment;
2. Identify the equipment and the length of time (including start and end dates) that the lease covers; and
3. State that the carrier shall have “exclusive possession, control and use” of the equipment for the duration of the lease.
49 CFR § 376.12(a)-(c)
HOW DOES THE “CONTROL” REQUIREMENT EFFECT INDEPENDENT CONTRACTOR STATUS?
DOES IT RAISE QUESTIONS OF MISCLASSIFICATION?
53
CONTRACTUAL OWNER-OPERATORS & TRUTH-IN-LEASING
“Receipts” dictate the time and possession of the equipment by the motor carrier.
The Owner-Operator “checks-in” and “checks-out” with the carrier.
1. When checking in, the receipt identifies the equipment subject to the lease, with the date and time the lease was activated; and
2. When checking out, the receipt identifies the equipment, with the date and time possession of the equipment ends.
49 CFR § 376.11(b)
“CHECKING IN” AND “CHECKING OUT”
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CONTRACTUAL OWNER-OPERATORS & TRUTH-IN-LEASING
COMPENSATION The CHA must clearly state:
1. How compensation is paid; and
2. How deductions are administered
Compensation can be “expressed as percentage of gross revenue, a flat rate per mile, variable rate depending on the direction traveled or the type of commodity transported, or by any other method of compensation mutually upon by the parties.” 49 CFR § 376.12(d)
IF CONSIDERING ANOTHER “METHOD OF COMPENSATION,” CONSIDER HOW THAT
MAY AFFECT THE INDEPENDENT CONTRACTOR’S STATUS AS AN OWNER-OPERATOR.
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CONTRACTUAL OWNER-OPERATORS & TRUTH-IN-LEASING
Deductions and final settlements are an area where motor carriers tend to struggle.
Lease must clearly state who is responsible, the owner-operator or carrier, for all charges associated with the contract, including:
DEDUCTIONS
• Fuel and fuel taxes • Empty mileage • Permits • Tolls and ferries • Detention
• Base plates • Licenses • Insurance / Cargo
Damage • Administrative fees • ANY unused portion
of such items
49 CFR § 376.12(j), (h)
56
CONTRACTUAL OWNER-OPERATORS & TRUTH-IN-LEASING
Carrier is obligated to maintain insurance coverage for the protection of the public.
Carrier’s responsibility for insurance must be clearly specified in the lease.
Deductions for insurance, whether deductible for primary or chargebacks for insurance purchased through the motor carrier, must be clearly specified.
INSURANCE
49 CFR § 376.12(j)
DOES RESPONSIBILITY FOR INSURANCE SEEM COUNTERINTUITIVE TO THE INDEPENDENT CONTRACTOR RELATIONSHIP?
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CONTRACTUAL OWNER-OPERATORS & TRUTH-IN-LEASING
Money deposited by the lessor with either a third party or the lessee to guarantee performance, to repay advances, to cover repair expenses, to handle license and State permit costs, and for any other purposes mutually agreed upon must be deposited in an escrow fund.
• CARRIER MUST PROVIDE ACCOUNTINGS / INDIVIDUAL SETTLEMENT SHEETS REFLECTING DEDUCTIONS FROM THE FUND.
• OWNER-OPERATOR CAN DEMAND ACCOUNTINGS ANY TIME.
• CARRIER MUST ACCOUNT FOR AND PAY INTEREST ON THE FUND TO THE OWNER-OPERATOR.
• LEASE MUST CLEARLY SPECIFY THE CONDITIONS UNDER WHICH FUNDS ARE DEDUCTED AND RETURNED.
ESCROW FUND
49 CFR § 376.12(K)
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CONTRACTUAL OWNER-OPERATORS & TRUTH-IN-LEASING
• A motor carrier’s violation of the Truth-in-Leasing Regulations entitles the Owner-Operator to a “private right of action”
– 49 U.S.C. § 14702
• Allows the Owner-Operator to collect actual damages, as well as attorney’s fees and costs
TRUTH-IN-LEASING: PRIVATE RIGHT OF ACTION
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CONTRACTUAL OWNER-OPERATORS & EQUIPMENT LEASE
AGREEMENTS
Many owner-operators do not own equipment or have the financial ability to purchase equipment.
Result is an Equipment Lease arrangement between the owner-operator and equipment owner (carrier or affiliated equipment leasing company)
The Equipment Lease and CHA are separate contracts with differing sets of rights and obligations.
Can be interrelationship between an Equipment Lease and CHA.
EQUIPMENT LEASE AGREEMENTS
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CONTRACTUAL OWNER-OPERATORS & EQUIPMENT LEASE
AGREEMENTS
• Lease payments with a combined option to purchase the equipment at termination for the stated “termination value.”
• Title remains with the “Lessor.”
– Do not confuse a “Lessor” under an Equipment Lease with the “Lessor” under a CHA.
• May include warranty disclaimer, indemnity and events of default.
– Installment contract option.
– Arguably not a lease?
EQUIPMENT LEASE TERMS
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CONTRACTUAL OWNER-OPERATORS & EQUIPMENT LEASE
AGREEMENTS
• Establishment of an escrow fund.
– TIL compliance.
• Pledge a CHA with the identified motor carrier.
– Authorizes Motor Carrier deductions from final settlements under the CHA to fund the lease payments.
– Authorizes additional security payment (e.g. 20% of the termination value) in the event of termination.
– Can require consent of the equipment lessor for a substituted carrier with combined authorization for direct payments.
EQUIPMENT LEASE SECURITY
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THE DECLINE OF THE OWNER-OPERATOR?
1. Organization
– Is the client properly organized to facilitate lease arrangements and help limit liability?
2. Contractual
– Does the client have proper CHAs and Equipment Lease Agreements that comply with applicable laws and regulations, including Truth-In-Leasing regulations?
3. Relational
– Does the client have proper mechanisms in place to ensure that contractors are treated like contractors, and employees like employees?
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