Long Arm of the Broker Law

Q: We’re a broker, and recently hired Carrier A to handle a load moving from our customer to its customer. Contrary to provisions of our contract with Carrier A and language in the paperwork for this shipment, Carrier A subcontracted the load to Carrier B. Our customer paid us, we paid Carrier A, but Carrier B never got paid. Carrier B has hired a collection agency in Tennessee that has written us as follows:

“(A) leading ... case on shipper liability, Contship Container Lines, Inc. v. Howard Industries, Inc., 309 F.3d 910 [U.S.C.A.6, 2002] held that ... a shipper may be liable (to the carrier actually performing service) even though it has paid the broker already ... .

“The Tennessee Long Arm Statute, Tenn. Code Ann. Section 20-2-214, 20-2-225, clearly subjects (the consignee) to jurisdiction in Tennessee by the fact that ... (it) has requisite contacts within the state of Tennessee to be subject to jurisdiction within the state of Tennessee. The Supreme Court further supports jurisdiction within the state of Tennessee ... in a very recent case involving general jurisdiction. See Goodyear Luxembourg Tires v. Brown, 564 U.S. __, No. 10-76 Slip Op. (June 27, 2011) ... .

“This matter is being turned over to our attorney today to pursue with litigation.”

I assume their claim that they can sue my customer’s customer is just bluster. I’ve never heard of the Tennessee Long Arm Statute, and I can’t imagine they can sue in Tennessee if the shipment neither originated nor was delivered there, and none of the parties involved are based there.

P.S., We heard from the carrier we contracted with. He had a heart attack and his business just halted while he was in hospital (so he says). He says he will pay the carrier he brokered the shipment to, so perhaps this has happy ending.

A: Well, I’m glad about the happy ending. As for the collection agency’s note, that’s kind of what happens when lawyers give unknowledgeable laypeople boilerplate to insert in demand letters verbatim.

Given that nobody involved resides in Tennessee, the stuff about the Long Arm Statute is nonsense. Indeed, the slightly mis-cited Supreme Court case — it’s actually Goodyear Dunlop Tires Operations v. Brown — stands for the proposition that some party must actually reside in a state or the transaction must have been done in the state before that state’s courts have jurisdiction. Long-arm laws don’t extend their jurisdiction just by unrelated business.

But I presume you’re also asking whether your customer (or its) can be successfully sued anywhere, and there the collection agency and its lawyer are on slightly — though I don’t think decisively — firmer ground.

In the Contship case, the shipper, Howard Industries, arranged the transportation through an international freight forwarder (the maritime equivalent of a broker) but physically delivered the goods to the carrier. When it paid the forwarder and the forwarder didn’t pay the carrier, the carrier argued that its payment to the forwarder was “at its own risk” and didn’t satisfy the carrier’s freight bill.

The court agreed, saying Howard’s actions and Contship’s transportation of the goods amounted to a “contract in law” — a quasi-contract — between the two of them. Therefore, it said, Howard owed Contship notwithstanding that it had previously paid the forwarder.

An argument can be made that this is the same situation. Your customer turned the goods over to Carrier B at pickup, and Carrier B actually did the hauling. Therefore, a quasi-contract exists between your customer and Carrier B, by dint of which your customer owes Carrier B irrespective of your customer’s payment to you (and yours to Carrier A).

It is, however, a much lamer argument than in Contship, where the goods were delivered to the carrier. Truckers don’t ordinarily proclaim their identities at pickup, and presumably it had paperwork showing Carrier A (or you, the broker) as the hauler. Your customer can thus contend that it, unlike Howard, had no intent to give the load to Carrier B.

In addition, rulings in the maritime sector historically have been far more sympathetic to unpaid carriers than have those in cases involving motor carriage. There are plenty of countervailing decisions in which a shipper’s payment to a broker has been deemed to satisfy all of its obligations. All in all, I doubt the carrier would prevail if the case wound up in court (outside Tennessee).

But because it’s a moot point anyway, I think you and your customer are safe.

Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at 5201 Whippoorwill Lane, Johns Island, S.C. 29455; phone, 843-559-1277; e-mail, BarrettTrn@aol.com. Contact him to order the most recent 351-page compiled edition of past Q&A columns, published in 2010.

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