Brokers vs. Carriers

Q: I just came across a report of a court decision in a case entitled Infinity Air v. Echo Global Logistics decided by the U.S. District Court for Oregon on June 20, 2013, in which the judge ruled Echo was a broker and not a motor carrier and was therefore not subject to provisions of the Carmack Amendment to the Interstate Commerce Act.

The report I read (on an Internet site called transportbusinesslaw.com) was dismissive of the plaintiff’s contention that Echo was actually a “carrier” as the law defines it, and seemed to imply the plaintiff’s lawyers should be sanctioned for bringing the issue up. But it got me thinking, and I wonder whether the plaintiff might have a point.

In his ruling, the judge focused on the fact that Echo merely “arranged” for the transportation and didn’t actually provide it. But how does this differ from what many companies defined as “carriers” do?

Many carriers use owner-operators, who actually provide the transportation. All the company does is set it up. Well, doesn’t a broker work the same way? Brokers have written contracts with their carriers, just as a carrier does with an owner-operator. In fact, many “brokers” do business with the same owner-operators who on other occasions work for “carriers.” And a lot of “carriers” also on occasion work as “brokers.” So where’s the difference?

It seems to me a party shouldn’t be able to escape legal responsibility for its actions just because of what it calls itself. It suited Echo this time to call itself a broker, and the judge bought it. But how did it act any differently than a carrier that provides service through owner-operators?

 

A: You’ll have to bear with me as I sort through a few of the “fine quillets of the law,” as Shakespeare put it, governing the somewhat complex interactions of the world of commerce.

First, let’s distinguish the two underlying relationships you describe: a broker’s agreement with its carriers, and a carrier’s agreement with the owner-operators working for it. Both are contractual in nature, as you say, but the contracts are quite different.

The broker is contracting with the carrier for the latter to provide a transportation service: hauling goods from hither to yon. That’s the carrier’s line of work, and it will do that work on its own behalf — that is, as an independent contractor, beholden to none in its underlying work relationship. It and the broker deal at “arm’s length” equals as a matter of law in their contractual agreement.

By contrast, the agreement between the owner-operator and the carrier comes in two parts. Part 1 is the lease of the vehicle furnished by the owner-operator — sometimes a tractor-trailer, sometimes just the bobtail tractor. Part 2 is the employment of the owner-operator to drive the leased equipment. Most commonly, the agreements are co-terminus (meaning for the same time period), often for just one trip, though sometimes longer.

In addition, the owner-operator for that time will be recognized as the legal agent of the carrier. That is, the carrier, as principal, will be responsible and liable for the owner-operator’s acts in its work performance. If the owner-operator has a wreck or gets a traffic ticket, that’ll be reflected on the carrier’s safety record. If the cargo is lost or damaged en route, the carrier will pay the claim. And bills of lading will be issued in the carrier’s name, not the owner-operator’s.

So although the two — the carrier-contracted owner-operator and the broker-contracted carrier — do the same work, the legal rubric under which they do that work is quite different. And that’s what distinguishes them, and what led to the court’s ruling in the Infinity Air case you mention and the Web site’s commentary on that case.

Perhaps this wouldn’t be important in some other universe bound by differently established legal structures. In the abstract, I can see an argument that, because the owner-operator employed by a carrier and the carrier employed by a broker act identically, they should be treated identically for legal as well as practical purposes.

But that’s not the universe in which we live. Legally speaking, the carrier stands behind the performance of its contracted owner-operators; absent some separate contractual undertaking with its shippers, the broker doesn’t. And under our prevailing legal system, never shall the twain meet. 

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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