Q&A: The Wrong Road to Getting Paid

Q: We’re a motor carrier and have been having trouble with a shipper in recent months.

Our problem is that this shipper is chronically behind in paying our freight bills. It pays a little here, a little there, but always late and often short. Right now, it owes us more than $50,000, and the past-due amount keeps rising.

We don’t want to just quit doing business with this shipper and walk away. If we do that, we’ll probably never see another penny from it. So we keep accepting its shipments even as we keep pressing it for payment. But the whole situation is getting out of hand.

One of my people made a suggestion the other day that I’m considering. The shipper’s shipments are usually pretty high-end stuff, consumer electronics and that sort of thing. It’s hard to estimate the value, but I’m pretty sure each load we pick up is worth well into six figures — in other words, a lot more than the shipper owes us total.

What my guy suggested is that the next time we pick up a load from the shipper, we just hold onto it until it pays us what it owes. We don’t say we’ve lost the load or anything that would generate a claim; we just say we won’t deliver until it settles up with us. I like the idea a lot, but are there any possible legal implications? I don’t want to get in over my head, but these people are bordering on impossible.

 

A: Yeah, it’d be pretty satisfying, doing something like that, wouldn’t it? I mean, you must feel like you’d really be sticking it to them.

More likely, though, you’d be sticking it to yourself. I’m sorry to tell you, but your plan probably has disaster written all over it.

I say “probably” because there’s one exception. In California, a squirrelly provision of the state’s Civil Code (Section 3051.5) affords carriers a lien on freight tendered to them against not only charges due on that shipment — which is so in all states; that is, a carrier may refuse to deliver without being paid — but also past-due charges on other, unrelated shipments.

You don’t say where you or the shipper are based, but if California is involved, you may want to research this statute more thoroughly. There are some procedural hoops you’ll have to jump through, but your approach might have merit there.

Elsewhere, however, the carrier’s lien is limited to the shipment at hand. Under the Uniform Commercial Code, Section 7-307, you may, that is, demand payment of freight charges on that shipment before you deliver it. But that’s the extent of your right to hold the shipment; the U.C.C. considers the past shipments to be separate and unrelated transactions, and nonpayment of freight bills on those past shipments grants you no right to hold the current one.

And you can get into real, and serious, trouble if you bypass the law here. An acquaintance has opened a very interesting Web site he calls “Transportation Business Law & Compliance” (blog.transportbusinesslaw.com/category/new-rules-rulings), a recent edition of which details the trouble one carrier got into for pulling this stunt.

The details are unimportant, the only point being that the carrier there also thought it’d be a neat idea to refuse to deliver the shipper’s goods until the shipper had ponied up for past unpaid charges. Instead of paying, the shipper instead decided to sue the carrier not only for the value of the undelivered freight but also, under state law, punitive damages.

And, in a case — Dynamic Transit Co. v. Trans Pacific Ventures, 2012 WL 6712042 — that got all the way to the Nevada Supreme Court, the shipper won. The amount of punitive damages awarded was about five times the value of the freight the carrier had unlawfully held, and a full 30 times the amount of the unpaid past charges.

The court held that the carrier was guilty of something called “conversion,” which is legal shorthand for converting someone else’s goods to your own use. But this behavior, it went on to say, was “true conversion” — a polite way of saying theft — and thus wasn’t subject to federal restrictions disallowing punitive damages against carriers for freight loss and damage.

I fully understand your frustration with your deadbeat shipper. But outside of California, the remedy you’re proposing could be worse than the problem you now have. There are legal actions you can take to collect your money. Try them instead. 

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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