RXO is involved in a North Carolina federal lawsuit that may be significant in the question of broker liability. (Photo: Jim Allen\FreightWaves)
A case involving giant 3PL RXO has the potential to add another decision to the body of law regarding broker liability.
RXO (NYSE: RXO) brokered a shipment of cellphones for phone reseller PCS Wireless. The shipment was booked a few months before RXO was spun off as a standalone 3PL by XPO, and RXO is identified in the initial lawsuit as “f/k/a” – formerly known as – XPO (NYSE: XPO).
The shipment totaled about 54,000 phones with a value of approximately $11.5 million. They were to move from Texas to South Florida. RXO hired carrier Wizard Equipment Corp. to move the load, but it was stolen near Tampa, Florida. PCS’ insurer paid out $5 million for the theft; the suit in the Western District of North Carolina is over the remaining $6.5 million that PCS says it should be paid to be made whole.
The latest filing in the case is a move by RXO to have the court sanction PCS Wireless because of RXO’s claim that the phone reseller has not acted in a timely manner to several requests in the discovery process.
Carrier or a broker?
But in that filing, RXO also spells out the bigger issue than whether PCS is going to be reimbursed for some of RXO’s losses. “A key dispute in the … matter centers on whether RXO acted as a carrier or a broker for the subject shipment,” the 3PL writes in the RXO request filed March 6.
The issue of liability for 3PLs when a carrier hired by it is involved in a fatal crash or one in which there are injuries has been mostly coming down on the side of brokers. Courts generally have found that brokers are not liable in such incidents, including a case involving Landstar(NASDAQ: LSTR) that was about theft, not injuries. Other large brokers that have prevailed in the federal courts over questions of broker liability following serious accidents include TQL and GlobalTranz.
But in the case of Miller vs. C.H. Robinson (NASDAQ: CHRW), the Ninth Circuit found in 2020 that the Federal Aviation Administration Authorization Act (FAAAA) did not preclude legal action against the broker. The so-called F4A is the statute generally cited by brokers when they defend against claims of liability.
The FAAAA, which dates back to 1994, contains a clause that protects against legal action that could affect a “price, route, or service.” In the brokerages’ victories, courts generally have held that finding a 3PL liable or negligent in such a case would be preempted by the FAAAA. Courts also have ruled in some of the cases that a broker cannot be considered a motor carrier.
Efforts to have the U.S. Supreme Court review the clash between the Miller case and conflicting cases in other circuits have been rejected several times by the high court. That happened even in the recent TQL case when the 3PL, though it had won in the lower courts, backed the losing plaintiff’s request for Supreme Court review, hoping to get clarity.
RXO declined comment in the case. An email sent to attorneys for PCS had not been responded to by publication time.
RXO’s request for sanctions against PCS carries a long list of allegations, with the terms “non-compliant” and “evasive” appearing several times. The dates on the communications the two companies had over the issue go back as far as late October.
What appears to have led to the recent filing of the sanctions request by RXO is PCS’ responses to a Feb. 4 order. RXO said the responses were “non-compliant, evasive and deficient.”
The role of the Carmack Amendment
The broader issue of broker liability, at least as far as PCS sees it, is whether RXO will fall under the terms of the Carmack Amendment, a federal law that dates back to 1906.
In its initial complaint, PCS raised that issue. As to whether RXO can be defined as a carrier that falls under the Carmack Amendment, PCS’ amended complaint in the case leaves little doubt where it believes RXO falls: “Defendant is a carrier subject to the Carmack Amendment.”
An online summary of the Carmack Amendment by the law firm Russell Mirkovich and Morrow defines the Carmack amendment as establishing “a uniform national system of liability in claims affecting either the carrier or shipper over state lines, and it also limits the liability of carriers. This law applies to the interstate shipping of all commodities by shippers and carriers, with exceptions for fishermen, farmers and some other categories.”
PCS says of RXO in its complaint: “Under the Carmack Amendment, Defendant is liable for the loss of the shipment, Plaintiffs are entitled to recover the damages suffered because of the loss of the shipment.”
In its response to that charge, RXO simply says “denied,” which is standard practice. But it is likely that the question will be at the heart of any litigation going forward, regardless of the RXO sanctions request.
Just in case…
But PCS’ complaint also appears to hedge its bets, discussing RXO’s liability if it were found to be acting as a broker, not a motor carrier, and therefore presumably not subject to the Carmack Amendment.
“If it did act as a broker with regard to the shipment, Defendant had a duty to act with due diligence and to properly and carefully select any third-party it hired to transport the shipment,” the complaint said. “If it did act as a broker with regard to the shipment, Defendant negligently breached this duty when it selected and hired Wizard Equipment Corp to transport the shipment from Texas to Florida.”
“PCS suffered damages because of Wizard Equipment Corp’s negligence,” the complaint states. “Defendant is vicariously liable for Wizard Equipment Corp’s negligence.”
In a separate part of the action, PCS said it is pursuing an alternative argument “because [RXO] disputes that it is subject to the Carmack Amendment.”
