TIA Board of Directors Decision on Appeal of TIA Ethics Case

The TIA Ethics Committee issued decision 18-16 on a complaint brought by MEMBER 1 (MEMBER 1) v. MEMBER 2 (MEMBER 2). In the decision, the TIA Ethics Committee dismissed the complaint and found that MEMBER 2 had not violated the TIA Code of Ethics. On July 13, MEMBER 1 appealed the decision of the Ethics Committee to the Board of Directors under procedures previously adopted by the TIA Board of Directors and contained in the TIA Policy and Procedures Handbook. The Board considered the appeal and issues the following final decision, in part, to clarify the role of the TIA Ethics Committee.

Procedure

Under the TIA Policies and Procedures Handbook, a member may appeal a decision of the Ethics Committee.

• Any opposition to or appeal of a final determination of the Ethics Committee must be filed with the TIA Board of Directors [through the President & CEO] within thirty (30) days of the Ethics Committee decision. (Ethics Committee, IV, 1, p. 38)
• The TIA Board of Directors will, within thirty (30) days of receipt of an appeal, evaluate the Ethics Committee decision and the appeal. The Board may, at its sole discretion, find that the appeal is well founded and grant the appeal, remanding the matter back to the Ethics Committee for further consideration, with or without [comment]. The Board may, at its sole discretion, find the appeal is without merit and let the decision stand. A simple majority of the Board of Directors, provided a quorum is present, is needed to reach a decision. No action by the Board, within the specified period, shall be considered a rejection of the appeal. (Ethics Committee, IV, 2, p. 38)

The meeting was conducted as if the Board were an appellate court with the Board receiving the same documents as the Ethics Committee as well as the appeals briefs filed by both parties. The Chairman of the Ethics Committee was present to answer any of the Board’s questions about process and deliberation used by the Committee. Since the Ethics Committee did not determine to terminate a membership (Bylaws Article II, Section 6 and Article III, Section 2), the parties involved in the ethics dispute were not present and no new evidence was considered. The Board’s role in an appeal is to determine if the Ethics Committee should re-examine its decision – not to decide the case on its own.

Authorities

The TIA Bylaws make adherence to the TIA Code of Ethics a requirement of membership (Article II, Sections 2, 6, and 7). The Bylaws place the authority to determine member adherence to the Code of Ethics in the Ethics Committee (Article II, Section 6 and Article IX, Sections 1 and 4). The TIA Policy and Procedures Handbook outlines the procedures of both the Ethics Committee and appeals as noted above. The Bylaws place in the Board the authority to appoint the members of the Ethics Committee (Article IX, Sections 1 and 4), to hear appeals of final determinations issued by the Ethics Committee (Article II,  Section 6 and the Rules of Procedure), and to conduct an expulsion hearing upon recommendation of the Ethics Committee (Article II,  Section 6).

The Ethics Committee is comprised of seven members appointed by the TIA Board of Directors. By practice, four members of the Committee are asset-based members and three are non-asset-based members.

The Board of Directors is comprised of 20 members elected by the membership in staggered terms, and four ex officio members.

Legal Considerations

Trade associations such as TIA are formed because members have common interests in promoting the industry, improving its professionalism and recommending best business practices. Membership may be conditioned on compliance with its ethics code and with other criteria that have been adopted by the association, provided they are reasonably related to the legitimate objectives of the association.

The law permits companies that are otherwise competitors to form such associations as long as they remain in compliance with applicable competition law. There have been a number of decided antitrust cases governing expulsions from membership and enforcement of codes of ethics such as that requested by MEMBER 1. While there are many different factual situations that can arise, some general principles may be distilled from these cases:

1. Codes of ethics must be designed and applied to promote best business practices and professionalism, not to limit competition or to restrict membership in a manner that targets certain companies or groups of companies.
2. A code of ethics must set reasonable, objective, transparent and non-discriminatory standards.
3. The code of ethics must be applied in a consistent, reasonable, objective, transparent and non-discriminatory manner.
4. The grounds for finding a violation of the code of ethics, or for expulsion should not have an anti-competitive purpose, or involve the association in enforcement of agreements that have such an effect.
5. Due process and appeal procedures should be provided.
6. The decision makers should have no economic interest in the outcome of the case.

In this case, as explained in more detail below, MEMBER 1 is asking TIA to sanction MEMBER 2 by revoking MEMBER 2’s membership for alleged violations of a non-solicitation provision in MEMBER 1’s co-broker agreement with MEMBER 2. MEMBER 2 disputes many of the factual allegations made by MEMBER 1, and makes reference to the antitrust law principles summarized above in its response.

The American Bar Association’s Section of Antitrust Law publishes an Antitrust and Associations Handbook (2009), which contains the following advice as guidance for such cases: “Associations should avoid disciplining members where application of subjective judgment is required, such as under codes of ethics . . . . If subjective judgments are necessary, the association should make every effort to apply the subjective judgments consistently and in a nondiscriminatory fashion.”

Role of the Ethics Committee

The TIA Ethics Committee operates within the legal considerations outlined above to establish industry best practices and call balls and strikes when members are accused of doing something inconsistent with those best practices outlined in the TIA Code of Ethics. Much of the Committee’s work is hearing appeals by motor carriers seeking to remove a TIA Watchdog® complaint posted by a member. The Ethics Committee seeks to educate members, not punish them.

The original idea behind the Committee, when the industry was in its nascent state, was that it would review complaints by motor carriers against TIA members as a way of both protecting the motor carrier and creating a market demand for using TIA members. As the industry grew, and members began offering other third-party logistics services, including to each other, the Committee reviewed complaints like the instant one between two members.

The Ethics Committee’s decisions have led to Association actions. The Ethics Committee noted for years that members needed to operate under a written contract, not just a confirmation sheet. The Committee noted that almost every case it handled could have been avoided with a complete, written agreement. The Association took note of these decisions and began drafting model agreements that are available as part of membership for all members to use.

The Ethics Committee has established best practices among members, finding for example that unless a member establishes a right to set off in a written contract, they do not have such authority. The Committee has instructed members on the need to protect their brand. TIA occasionally has published written decisions of the Committee (with the parties’ names redacted) for the guidance of the membership. However, the Committee is not a trial court that hears testimony or otherwise resolves commercial disputes that are more appropriately decided by a court after in depth fact-finding. Based on consideration of written submissions from the parties, the Committee decides cases by a majority vote. The Committee routinely suggests pragmatic ways that ethics complaints can be settled by compromise, and the parties often accept its recommendations without the need for an extensive written decision.

While the Bylaws empower the Ethics Committee to recommend expulsion of a member, this has occurred in only the rarest of circumstances. The Committee sees its role as one of helping members and motor carriers find an amicable way to settle disputes. The Committee has reserved member expulsion for situations involving non-payment or gross mismanagement of a company.

Instant Case

The instant case involves two members that have done business together for many years. The members utilized a co-broker agreement, which barred back solicitation during the term of the contract and for a period of 12 months after termination of the contract. While the members were working together, and under contract, MEMBER 1 became aware that one of MEMBER 2’s sales people had back solicited one of MEMBER 1’s customers. When MEMBER 1 objected, MEMBER 2 acted to stop serving that customer. There was another alleged incidence of back solicitation involving the same employee, and while MEMBER 2 disagreed with the allegation, they agreed not to serve that customer directly after MEMBER 1 objected. MEMBER 1 provided MEMBER 2 with a list of 21 customers that MEMBER 1 sought to protect from back solicitation.

At some point during the process, MEMBER 2 decided not to renew their agreement with MEMBER 1. The Committee noted in its decision that MEMBER 2 waited 13 months after the termination, or one month more than required. The Committee also noted that when MEMBER 1 asked MEMBER 2, during the period of the contract, to address incidences of back solicitation, MEMBER 2 did so. The Committee has no role to play, and therefore, did not opine on MEMBER 2’s decision not to renew the contract even though MEMBER 1 wanted to. The Committee is not capable of the detailed analysis necessary to determine the entire history of the business relationships between the members involved.

For its part, MEMBER 1 argues that any incidence of back solicitation is a violation of the TIA Code of Ethics and should result in expulsion from membership. The Committee has never taken this position. The Committee notes that MEMBER 2, when the back-solicitation situations were brought to their attention, acted to correct the actions of their employees; exactly as the Committee hopes any member would act.

The Committee, therefore, found no uncorrected violation of the TIA Code of Ethics and did not recommend that MEMBER 2 be expelled from TIA membership.

Action by the Board

MEMBER 1 strongly disagreed with the Ethics Committee decision and appealed the decision to the Board. MEMBER 1 argued that the Committee erred by not finding MEMBER 2 in violation of the Code of Ethics during the term of the contract, arguing that MEMBER 2 only stopped repeatedly back-soliciting when they were confronted. MEMBER 1 argues that the Committee also erred by not noting that the same person was involved in two incidents of back solicitation of two customers within a 10-month period. Finally, MEMBER 1 argues that the Committee erred by not recommending the expulsion of MEMBER 2 because of their violation of the Code of Ethics.

For its part, MEMBER 2 argues that the Committee made the correct decision since MEMBER 2 acted to correct each incidence of back solicitation when brought to their attention. MEMBER 2 points out the individual in question in the first alleged back solicitation alerted MEMBER 1 of the situation; when MEMBER 1 objected, contact with the shipper was canceled without ever carrying a load. MEMBER 2 argues they had done business with the other customer more than six years before MEMBER 1 brought any business to MEMBER 2; yet, when MEMBER 1 objected, MEMBER 2 stopped serving that customer directly. MEMBER 2 argues that the third incident involved the salesman’s brother, and MEMBER 1, in writing, did not object to MEMBER 2 doing business with this customer.

As noted above, the Board’s role is that of an appellate body. As such, the Board reviewed the same written record used by the Committee. The record included the original complaint filed by MEMBER 1, a series of emails between the parties, MEMBER 2’s response, and the parties’ appeal briefs.

The Board held a special meeting in closed session to consider the appeal. TIA Counsel reviewed the legal parameters under which the Association must operate, the procedures to be followed and the possible decisions that could be taken by the Board. The Chairman of the TIA Ethics Committee reviewed the debate of the Ethics Committee and how they reached the decision they did. Discussion then ensued among the TIA Board. During discussion, the Board expressed concern that the Committee’s decision did not adequately address the violation of the contract in place, and the appearance of a second violation after committing not to do so. The Board decided on the need to clarify to members the role of the Ethics Committee, and to comment on the need to follow proper procedures in ethics proceedings.

Decision

The TIA Board of Directors issues the following final decision:

1. APPEAL

The Board affirms the decision of the Ethics Committee that expulsion was not warranted. The Board notes, however, that there was a contract in place, and there is no disagreement between the parties that the contract was violated. TIA has long championed the use of written agreements between parties and that those agreements should be honored. When an agreement between members is knowingly violated, it is a violation of the Code of Ethics. In the instant case, it appears that MEMBER 2 may have violated the agreement a second time after committing not to. The Ethics Committee should have noted this in their decision. The Ethics Committee was, however, correct in noting that MEMBER 2 took corrective action when the violation was brought to its attention and, therefore, the violation did not rise to the level of expulsion.

The Board further notes that it appears that the MEMBER 2 employee in question may have chosen which hat he wore, whether logistics company subject to the non-solicitation or carrier, based on the circumstance. If true, this is not the standard to which TIA members should hold themselves, and MEMBER 2 management should take appropriate measures to ensure that the employees of MEMBER 2 have a firm understanding of the TIA Code of Ethics and implement appropriate controls to ensure compliance with these standards.

While the Board agrees with the Ethics Committee that revocation of MEMBER 2’s membership is not warranted in this instance, the Board urges MEMBER 2 to make sure that this does not happen again.

Finally, the Board notes that back solicitation in violation of contractual commitments is the scourge of the 3PL industry when perpetrated by carriers, and unacceptable when practiced by members. The Board urges all members to take appropriate measures to ensure that all of their employees under-
stand this.

1. EX PARTE COMMUNICATION

The Board noted that MEMBER 1 engaged in some ex parte communication with Board members, but that these communications ceased after a warning was issued to the parties. The Board takes this opportunity to instruct all members that ethics proceedings are serious matters to the parties involved, and as an industry trade association, TIA is subject to the legal rules outlined above. All communication involving an ethics proceeding must only be channeled through the office of TIA’s chief executive officer who is responsible for the proper distribution of that communication to the parties and the Ethics Committee. The Board further notes that members are prohibited from ex parte communication about a proceeding outside of this official channel.

1. ROLE OF THE ETHICS COMMITTEE

The Board also takes this opportunity to clarify the role of the Ethics Committee. The Committee is made up of TIA members who volunteer their time to help members by reviewing ethics complaints to establish best practices. The Committee functions to help carriers and shippers in disputes with TIA members. The Committee hears TIA Watchdog® appeals. The most difficult issues before the Committee involves cases between two members as in the instant case. The Committee is neither a court nor an arbitration system, and the Committee members are businessmen and women, not lawyers. Cases like this require comprehensive discovery to investigate when a client was introduced, how much business was done, when it was done, and when the alleged back solicitation occurred. This level of discovery is beyond the scope of the TIA Ethics Committee and is better handled in a court of law, or by arbitrators utilizing the rules of discovery. In addition, neither members of the Ethics Committee, nor Counsel are qualified to interpret the contract law of Iowa which applies to the non-solicitation clause in question here. The Committee and the Board have confined their analysis to the business practices in question and to their compliance with the Code of Ethics. Legal questions are for the courts to decide.

The Board praises the Committee for its work and for finding ways to help members improve their business practices rather than punishing them.

This final decision on appeal is issued this 16th day of August 2018 by the TIA Board of Directors.