Q&A: A Harsh Lesson on Due Diligence

Q: We’ve been doing business for the past several months with an entity that represented itself to us as a “freight forwarder.”

This company has handled quite a few loads for us without a problem. It properly issued us bills of lading in its own name and used various underlying motor carriers to provide the actual transportation. We never troubled much to identify or check out these motor carriers, figuring that was the forwarder’s problem. To us, the only carrier that mattered was the forwarder, which was, of course, acting as shipper to the motor carriers.

Well, our good run with this forwarder came to a pretty abrupt end. One motor carrier handling one of our loads had a bad accident; there was an ensuing fire, and both the rig and our shipment were destroyed.

We naturally filed claim against the forwarder based on the bill of lading. It was at that point that a lawyer representing the company came back to us with the upsetting claim that it wasn't really a forwarder at all, but rather was acting as a broker!

The lawyer gave us all kinds of “proof” of this. He gave us a copy of the company's brochure, which represents it as a “3PL” and only uses the term “forwarder” in a secondary sense. He showed the company’s copy of the bill of lading, which has its name crossed out and the motor carrier’s name substituted (our own copy has no cross-out and doesn’t name the motor carrier).

The lawyer said the company is registered with the Federal Motor Carrier Safety Administration as a broker, and not a forwarder. And he pointed out that under the law, forwarders supply assembly-and-consolidation and break bulk-and-distribution services, and noted that the company’s brochure offers neither.

On this basis, the lawyer said our claim should be filed against the motor carrier. We don't know anything at all about this carrier, and initial research says it can’t pay the claim, which is well into six figures.

I might also mention that we have some e-mail correspondence from this company in which it clearly tells us it’s a forwarder. Is this any help? Is there anything we can do?

A: If you think the “forwarder” is (or may be) good for the claim, I’d suggest you sue it.

Strictly speaking, the company’s lawyer is right, at least about his third and fourth points. This is not legally a freight forwarder. The law defining forwarders — 49 U.S.C. 13102(8) — says as much, and there are court rulings (admittedly dating back quite a few years) that reinforce the definition.

Which is to say, you got euchred. The company lied to you about its status, and you foolishly bought its lie.

So, unwittingly, you were doing business all along with a broker and not a forwarder. That makes the bill of lading it issued you invalid, considering a bill of lading is a contract of carriage, and brokers aren’t authorized to perform for-hire carriage and thus can’t enter into contracts to do so; it’s against public policy.

Now, this includes the provision of the bill of lading by which the company assumed liability for in-transit loss or damage to your freight. That being the case, you have no contractual claim against them under the B/L.

However, it’s equally against public policy to allow parties to escape the consequences of their acts by perpetrating a fraud. You say you have e-mails documenting this company’s deceptive representation of itself as a forwarder, and that its brochure does mention the term “forwarder,” although only secondarily. Its edited copy of the B/L is meaningless because your copy doesn’t show the same. You have a strong case against it.

The drawback, of course, is the caveat I mentioned to start: If you win, will you be able to collect? It’s unlikely to have any cargo insurance (though it might have contingency insurance), so you may well be going after an empty pocket. Win or lose, that doesn’t bode well for you.

I sympathize, but only a little. You could have protected yourself by being less credulous and checking the “forwarder’s” credentials up front. For the future, I’d strongly suggest you do so in choosing your suppliers. I’m sure you don’t respond to those ubiquitous e-mails telling you you’re owed millions of dollars if only you’ll pay some “processing fees” in advance. Not checking the veracity of would-be suppliers’ claims falls in the same category.

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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