The Curious Case of the Double-Brokered Load
James W. Kelly II | INTEGRITY EXPRESS LOGISTICS
Who pays the freight? That is the main question in an all too common scenario for brokers.
Your customer tenders a shipment to you. You properly vet a carrier: verifying, among other things, authority, safety rating and insurance. Only then do you book the load and issue a rate confirmation to the qualified carrier. All appears well in the world; the load arrives at its destination, you pay your hired carrier, and the transaction is complete. Then, suddenly and unexpectedly, you receive a call – or worse a demand letter – on behalf of the carrier that delivered the load in question demanding payment. But it is not the carrier you hired; it is another carrier that demands payment or is threatening to contact your customer or file a lawsuit, thereby damaging a longstanding relationship with your customer.
The immediate reaction is to contact the contracted carrier. However, the contracted carrier with whom you have an executed broker-carrier agreement and rate confirmation is now abruptly out of business. What do you do and what are your options? These are the questions that a broker often faces when dealing with a case of double-brokered load.
What in the BOL is Going On?
The critical document in these situations is the bill of lading. The BOL will identify the parties and define their respective responsibilities governing the shipment. Depending on the manner in which the BOL was filled out, the parties’ responsibilities could vary. Let’s look at two common scenarios.
First, your customer shipper was inserted and named as the shipper/consignor on the BOL. Next, a third-party provider is listed in place of the shipper/consignor on the BOL, but is acting on behalf of the shipper/consignor. Another key piece of information that needs to be gleaned from the BOL is whether the non-recourse box is included in the BOL, and whether it has been executed. These factors are going to be crucial in examining and determining the party responsible for the unpaid freight charges.
1. Your Customer Is Listed as Shipper
Under the general common law rule, a shipper/consignor remains liable for freight charges because it is in the best position to avoid double liability. See Oak Harbor Freight Lines, Inc. v. Sears Roebuck & Co., 513 F.3d 949, 954, 959 (9th Cir. 2007). In Oak Harbor, the court held that the shipper remained jointly and severally liable to the carrier even though it already paid the broker in full, who failed to forward payment to the carrier. The Oak Harbor court noted that an exception to the rule exists where the BOL has a non-recourse provision, or another agreement containing explicit terms, that seeks to transfer risk of payment from the shipper to the carrier. See id. at 954-55. An agreement between a carrier and broker that provides for collection by a carrier against a broker does not limit the carrier’s rights to collect from the shipper. See id. at 956.
Where “the non-recourse provision is signed by the consignor and no provision is made for the payment of freight, delivery of the shipment to the consignee relieves the consignor of liability.” C.A.R. Transp. Brokerage Co. v. Darden Rests., Inc., 213 F.3d 474, 479 (9th Cir. 2000) (finding that other waiver agreements with the drivers waived the carrier’s rights against the brokers for the freight charges). In that instance, acceptance of delivery by the consignee established the liability of the consignee. Mo. P. R. Co. v. Nat’l Milling Co., 409 F.2d 882, 884 (3rd Cir. 1969); Oak Harbor, 513 F.3d at 955; cf. EF Operating Corp. v. Am. Bldgs., 993 F.2d 1046, 1051-52 (3rd Cir. 1993) (explaining the policy reasons).
There are also cases that impose the risk of non-payment on the carrier under principles of equity even absent a signed non-recourse provision. For instance, despite no non-recourse provision being signed, the carrier bore the risk where the carrier’s own freight bills said that payment would be made to the forwarder (not the carrier), the carrier was not diligent in billing the forwarder or notifying the shipper, and violations of credit regulations prevented the carrier from discovering fraud by the forwarder. See Olson Distributing Systems, Inc. v. Glasurit America, Inc., 850 F.2d 295, 295-97 (6th Cir. 1988).
Still, there are cases where a broker is dealing with a BOL where a non-recourse provision has been signed and another BOL where the non-recourse provision is left unexecuted or blank. These cases present differing outcomes.
Depending on the manner in which the BOL was filled out, the parties’ responsibilities could vary.
For the BOL with the signed non-recourse provision, the risk of non-payment is likely shifted by law to the carrier, and the shipper is not liable. See id.; C.A.R. Transp. Brokerage Co. v. Darden Rests., Inc., 213 F.3d 474, 479 (9th Cir. 2000). But, if the consignee accepted payment without indication that the freight charges were pre-paid, and knowing that the shipper disclaimed liability through the non-recourse provision, then the consignee may still be liable to the carrier. Mo. P. R. Co. v. Nat’l Milling Co., 409 F.2d 882, 883-84 (3rd Cir. 1969); Oak Harbor, 513 F.3d at 955.
Conversely, absent any indication of lack of diligence on the part of the carrier – or other agreements in which the carrier explicitly takes on the risk of nonpayment – the shipper is likely responsible for the BOL and unpaid freight charges where it failed to execute the non-recourse box.
2. The Intermediary Is Listed as Acting On Behalf of Shipper
This area of the law is not always cut and dry and can be highly fact-specific. But practical considerations dictate how parties are listed (including properly identifying each party to a transaction). Even if you’re in a situation where the consignor is presumed liable, presumptions can change based on a few general concepts: agency law principles of identifying the party controlling contracting and performance, notice to the carrier, and primary versus secondary liability. Generally, agency law imposes liability on a shipper where a third-party provider is listed on the BOL as the shipper acting on the shipper’s behalf. And, pursuant to BOL contractual notice principles, the carrier would have notice that the shipper is the responsible party on the front end.
What is less clear is whether a third-party provider would have independent liability if it is not exercising control independent of the shipper. Agency law principles suggest that the third-party provider is not liable if it simply acts as an agent on another’s behalf with little independent control, but transportation common law’s imposition of secondary liability makes this analysis a little less finite. Further, if the facts suggest that the third-party provider is exercising independent control, or the course of dealings with the carrier gives the carrier notice that the third-party provider is taking on primary responsibility, then any presumptions of primary liability could change. But in that scenario, it may be difficult for the shipper to avoid secondary liability based on the notice to a carrier of the identity of the principal shipper.
The consignor is the person
named on the BOL as the person from whom the goods have been received for
shipment. See 49 U.S.C. § 80101(2). The uniform BOL published by the ICC
assumes the consignor is the “one with whom the contract of transportation is
Thunderbird Motor Freight Lines, Inc. v. Seaman Timber Co., 734 F.2d 630, 632 (11th Cir. 1984) (quoting In re Bills of Lading, 52 I.C.C. 671, 721 (1919), modified, 64 I.C.C. 357 (1921), modified, 66 I.C.C. 63 (1922)). The consignor is
presumptively liable for the cost of shipping, and there is a presumption that
the shipper is the consignor – but these presumptions may be rebutted “by facts
and documents which indicate another has the true beneficial interest in the
goods being shipped.” See Bestway Sys., Inc. v. Gulf Forge Co., 100 F.3d 31, 34 (5th Cir. 1996) (affirming Bestway Sys. v. Gulf Forge
Co., No. H-93-1636, 1995 US.
Dist. LEXIS 21331, at *5 (S.D. Tex. Oct. 12, 1995)); see Thunderbird, 734 F.2d at 632 (finding the consignee to be the
shipper, where the person from whom the carrier picked up the goods had “no
interest in the arrangements
Under agency law, where there is a disclosed principal on whose behalf an agent acts, an agent will not have personal liability for contracts entered into on the principal’s behalf “unless the agent and third party agree otherwise.” Rest. (3d) of Agency § 6.01(2); Cf. Midwest Direct Logistics, Inc. v. Twin Cities Tanning Waterloo, LLC, No. 15-CV-2013-LRR, 2016 U.S. Dist. LEXIS 97028, at *22 (N.D. Iowa July 26, 2016) (“Because bills of lading are contracts, agency law as it relates to contracts applies.”) (holding that a principle not disclosed on the BOL has the right to bring an action for breach of contract).
Exercise of Control and Notice
The Supreme Court has held that exceptions to shipper liability depend on factors that speak to notice and the exercise of control. See Louisville & N. R. Co. v. Cent. Iron & Coal Co., 265 U.S. 59, 67-68 (1924) (“It may be shown, by the bill of lading or otherwise, that the shipper of the goods was not acting on his own behalf; that this fact was known by the carrier; that the parties intended not only that the consignee should assume an obligation to pay the freight charges, but that the shipper should not assume any liability whatsoever therefor; or that he should assume only a secondary liability.”); see also EIMSKIP v. Mayflower Int’l, Ltd., 338 F. Supp. 2d 191, 197 (D. Mass. 2004) (quoting United States Marine Int’l, Inc. v. Seattle-First Nat’l Bank, 524 F.2d 245, 248 (9th Cir. 1975) in finding that the liability inquiry boils down to whether a party “exercise[s] dominion and control over the shipment”). Where a shipper was not identified in the BOL as consignor, was not indicated to be the owner or person on whose behalf shipment was being made, and no express agreement was made to pay freight charges or guarantee payment, no primary obligation to pay is assumed. Louisville & N.R. Co., 265 U.S. at 68. That language can be read to infer primary liability for a party on whose behalf shipment is made rather than the party whose hands last touch the shipment. However, the case and other cases relying on Louisville & N.R. have focused on when a shipper/consignor can escape liability – not when a distinction should be made between a shipper agent and a beneficial principal controlling the shipping.
The Third Circuit indicated that a party listed as a sole consignee on a BOL can escape liability for certain demurrage fees, if the carrier was given notice that the consignee was merely an agent to a beneficial party that should assume such liability. See CSX Transp. Co. v. Novolog Bucks County, 502 F.3d 247, 262 (3d Cir. 2007). While that case examined a specific statutory rule to that effect, one which was specific to rail fees, it may provide support for the principle that, where a carrier has notice that an actor’s capacity is as an agent for another, the agent should not be held liable.
Even if an agent is acting on behalf of a party who exercises control, the common law imposition of secondary liability can complicate the issue. For instance, in EIMSKIP, the court found Mayflower secondarily liable where it acted as an agent of the party who owned the cargo but was not named on the BOL so it could “maintain control of the cargo for the owners of the cargo . . . and not let the cargo be released until they had secure payment.” 524 F. Supp. 2d at 193-94, 197-98 (noting that the BOL should have identified Mayflower as an agent of the owner and that it is “bad business to list a non-owner as the shipper on a bill of lading”). The court would have found Mayflower primarily liable based on the BOL itself, but the course of dealings of the parties and the purchaser’s exercise of control in directing the carrier made Mayflower secondarily liable. Id. at 197-98. Although the discussion of the BOL suggests that had Mayflower listed itself as shipper on behalf of the owner of the goods, (a) Mayflower would not be primarily liable and (b) the owner of the goods would ordinarily be primarily liable, it is not clear whether secondary liability could still attach to Mayflower if it were listed as shipper on behalf of the owner.
If a third-party provider is merely identified as acting on behalf of a shipper on the BOL, and there is no indication that it was referenced in any agreement between or among the parties, traditional agency principles would treat the shipper as the shipper/consignor and the third-party provider as the agent of the shipper.
Thus, absent indications of lack of diligence on the part of the carrier – or other agreements in which the carrier explicitly takes on the risk of nonpayment – the shipper is likely responsible for the unpaid freight charges.
At the end of the day, the
practical considerations surrounding this discussion hinge on the broker’s
relationship with its customer. While a broker may have a legal right to avoid
double payment, the implications of a decision to shift the burden of paying
freight charges back onto the customer could impact the relationship with a
longstanding customer. However, when dealing with a dissatisfied carrier – or
worse, an aggressive collection agency –
it is always best to know the legal rights of the party and the controlling legal principles.
James W. Kelly II is General Counsel at Integrity Express Logistics. He can be reached at [email protected] or 937-535-7130.
Image credits: Pixelvario/Shutterstock.com and iStock.com/Andrii Yalenskyi