Q & A

Q & A

Copyright 2003, Traffic World, Inc.

Q:

We were presented a final notice invoice from an auditing company regarding a bankrupt motor carrier. The freight bill is dated more than six years ago and they state it was originally billed about 23 months ago. We do not have records back to six years ago. Can they still invoice a shipment this old?

A:

Sure they can. Unlike the things people are supposed not to do, it's not illegal, immoral or fattening.

Of course, it's not likely to be very productive either, unless the recipient is either remarkably na?ve (as few are) or both a pack rat (as few also are) and just as remarkably honest. Because the statute of limitations for enforcing motor carrier freight bill collections via lawsuit is 18 months from the date of delivery, per 49 U.S.C. ?14705(a) - it's immaterial when the bill was originally presented - and children born after that time expired are already in preschool.

To be sure, if you (a) did have records that old, and (b) could determine therefrom that the carrier's bill had in fact not been paid, the law would not preclude you from paying. I could even offer ethical arguments that it would be a Right Thing To Do. But that would be strictly a voluntary act on your part, and one that the auditor could neither expect nor demand. Quite frankly, it's hard for me to understand why the auditor thinks examination of bills this old is worth the resources it's expending on the effort.

Shipper Owes Freight Charges

Q:

In your Dec. 9, 2002, column I believe there's a mistake in the response.

(Editor's note: This column dealt with a broker whose shipper client had a pending claim of about $5,000 against a carrier that subsequently declared bankruptcy. The shipper was claiming against the broker and the broker wanted to know how to collect from the carrier. I advised that it could either claim against the carrier's BMC insurer - the insurance company that carried its Federal Motor Carrier Safety Administration-required coverage "for the protection of the public" - or set off under 11 U.S.C. ?553, with permission of the bankruptcy court, against freight charges it owed the carrier. This letter deals with the second part of my response.)

It is true that ?553 of the Bankruptcy Code specifically allows setoffs, but claims acquired after bankruptcy cannot be set off because of the limitations of ? 553(a)(2)(A).

G. Michael Lewis

Sam Bratton

Doerner, Saunders, Daniel & Anderson

Tulsa, Okla.

A:

You're right, I overlooked this.

Under ?553(a)(2), claims may not be set off against money owing to a bankrupt entity if "such claim was transferred, by an entity other than the debtor, to (the creditor seeking to exercise setoff) (A) after the commencement of the case; or (B)(i) after 90 days before the date of the filing of the (bankruptcy) petition; and (ii) while the debtor was insolvent."

Except in one possible set of circumstances, my advice would have involved transferring the claim from the actual shipper to the broker after the date of the bankruptcy ("the commencement of the case"). Indeed, one idea I presented was for the broker to voluntarily pay the shipper's claim in exchange for an assignment ("transfer") of the shipper's rights against the carrier, and then proceed with setoff. My suggestion was therefore wrong, because setoff in such a case clearly would have been prohibited.

But in the original column I made reference to the possibility that the broker who wrote me might have contractually assumed liability for in-transit loss and damage to its shippers. This isn't usual, but some brokers do accept such liability on a voluntary basis in order to attract shippers who are otherwise unwilling to use third parties against whom they have no direct right to claim.

In such a case the broker's contractual arrangements with shipper and carrier would have provided that the broker would be liable to the shipper and the carrier would be liable to the broker, either as sole primary claimant or co-claimant with the shipper. In such a case there'd have been no transfer of the claim at all, and setoff would not be barred.

It's also possible that the claim was transferred to the broker before the carrier's bankruptcy petition was filed. But given the timing reported by my original correspondent, that would almost certainly have been within 90 days of the bankruptcy filing, per ?553(a)(2)(B)(i), and Messrs. Lewis and Bratton point out that under ?553(c) debtors are presumed to be insolvent during that time period, triggering the requirement of ?553(a)(2)(B)(ii) and making setoff impermissible.

In ?101(32)(A), insolvency is defined as an excess of debt over the fair (usually market) value of the debtor's property, so this seems a reasonable presumption. It is, however, a rebuttable one; if the broker could prove that some dramatic last-minute development - perhaps a major court judgment against it - boosted the carrier's debt load and triggered the bankruptcy, it might still be able to set off.

Leaving aside these two specialized cases, however, Messrs. Lewis and Bratton are correct and I was wrong. I hate being wrong, especially right out in front of God and everybody, but it's at least some consolation to discover when I am and be able to correct it.

-- Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at P.O. Box 76, Morganton, Ga., 30560; phone, (706) 374-7201; fax, (706) 374-7202; e-mail, BarrettTrn@aol.com. Contact him to order the 536-page compiled edition of past Q&A columns, published in 2001, at $80 plus shipping.