Smith Moore Leatherwood - Transportation Newsletter

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Attorneys at Law

Summer 2011

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Just Falling Asleep Behind the Wheel in North Carolina?

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Cargo Update: The Importance of a Good Contract

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Team Updates North Carolina’s Workers’ Comp Reform Dilemma of Doctors who Perform Truck Driver Physicals

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Foreign Trade Zones: Benefits for Manufacturers and Distributors

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“Intermediate Rule” for Removal in Multi-Defendant Cases Reaffirmed

Transportation Newsletter South Carolina Passes Punitive Damages Tort Reform

On June 14, 2011, Governor Haley signed into law House Bill 3375 providing substantial limitations on punitive damages in South Carolina. Traditionally, South Carolina has been one of the most liberal states with regard to punitives. South Carolina joined the rest of the southeast in enacting caps to punitive damages.

The first important change is that the Statute now requires that punitive cases be bifurcated. Up to this point, it had been left to judicial discretion whether to bifurcate these cases, thus allowing very damaging evidence to the jury during the liability phase of trial. Most judges chose not to bifurcate these cases. Having a mandatory bifurcation requirement will be helpful to defendants in civil cases as it will limit the scope of evidence reaching the jury in the first phase of the case.

The second important part of the change a cap on the amount of punitive damages allowable. The first level of caps is three times the amount of compensatory damages or $500,000, whichever is greater.

In the event that the tortuous conduct was motivated by unreasonable financial gain or involves the commission of a felony, the cap is raised to four times compensatory damages or $2 Million. Finally, the cap is blown when there is intent to harm, a conviction of a felony, or the involvement of a person under the influence of alcohol or drugs.

Of course, this is not nearly what the business community wanted, but it is a step in the right direction. It is likely that further efforts will be advanced during the next legislative session.

This goes into effect for accidents occurring after January 1, 2012.

Rob Moseley and Kurt Rozelsky worked closely with the SC Trucking Association in working with its coalition partners in this project.

Just Falling Asleep Behind the Wheel in North Carolina?

The North Carolina Court of Appeals recently ruled that inadvertent driver error caused by falling asleep behind the wheel, by itself, is insufficient to support an award of punitive damages. In the recent case George v. Greyhound Lines, Inc., No. COA10-512 (N.C. Ct. App. March 15, 2011), the plaintiffs were injured when the recreational vehicle in which they were travelling was struck from behind by a Greyhound bus. George, slip op. at 1-2. The plaintiffs sought both damages for personal injuries as well as punitive damages. Id. at 2. The trial court granted the defendants’ motion for partial summary judgment and dismissed the plaintiffs’ claims for punitive damages. Id. The evidence presented to the trial court tended to demonstrate that the bus was following the RV on I-95 in North Carolina.

Id. at 3. Immediately prior to the accident, none of the witnesses on the bus noticed anything unusual about the manner in which the bus was operated or with the driver. Without explanation, the bus closed on the RV and crashed into the rear of the RV without the driver applying the brakes or otherwise slowing down, and without any attempt to change lanes.

Id at 4. Several passengers on the bus anticipated the accident and yelled at the driver to no avail. See id. at 11-14.

The plaintiffs argued that the driver knew or should have known that he was overtired, sleepy or otherwise unfit to operate the bus and, notwithstanding, he continued to operate the bus. Id. at 10.

As a result, plaintiffs argued the driver failed to remain awake and fell asleep at the wheel causing the accident. Id. The plaintiffs further argued that Greyhound knew or should have known that the driver was similarly unfit to operate the bus citing violations of the Federal Motor Carrier Safety Administration Regulations regarding the prohibition of operating a motor vehicle if a driver’s ability to do so is impaired due to, among other things, fatigue. Id. In North Carolina, in order for punitive

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damages to be awarded, a plaintiff must prove by clear and convincing evidence an aggravating factor of fraud, malice, or willful or wanton c o n d u c t , including the willful or wanton operation of a motor vehicle. Id. at 7.

“Willful or wanton means conduct the conscious and intentional disregard of and indifference to the rights and safety of others, which the defendant knows or should know is reasonably likely to result in injury, damage, or other harm.”

Id at 9.

Dismissing the plaintiffs claim for punitive damages, the Court of Appeals noted that violation of a safety statute, in this case the FMSCRs, does not establish willful conduct

per se. Id. at 11. Evidence was presented from multiple witnesses that the driver was either not paying attention or asleep at the time of the accident; notwithstanding, the Court of Appeals held that “inadvertent driver error caused by falling asleep behind the wheel by itself does not support an award of punitive damages.” Id. at 15.

The Court specifically noted the absence

of any evidence presented by the plaintiffs that the driver acted “with a ‘deliberate purpose’ not to discharge any duty impose by [the FMCSRs] or acted with a ‘reckless indifference’ to the rights of others by talking on the telephone and failing to get sufficient rest before beginning his run on 30 June 2003.” Id. at 16. Moreover, the Court of Appeals concluded that plaintiffs offered an insufficient forecast of evidence that defendant “Greyhound ‘participated in or condoned’ [the driver’s] alleged willful or wanton conduct.” Id. at 17.

Accordingly, plaintiffs claim for punitive damages against Greyhound was similarly dismissed. Id. The Court of Appeals decision in George maintains the heightened burden of proof that a claimant must meet in order to sustain a claim for punitive damages.

While a violation of a safety statute, particularly the Federal Motor Carrier Safety Regulations, is a serious matter and something that all should strive to avoid, such a violation, in and of itself, will not subject a driver or employer to a claim of punitive damages. In response, to several recent accidents, the FMCSA is considering a new rulemkaing which would require the front seat passenger of the bus to engage in constant conversation with the bus driver.

Cargo Update:

The Importance of a Good Contract

In January 2011, Rob Moseley tried a cargo case in Arkansas that once again demonstrates the importance of a carrier having in place a good contract with the shipper or broker to control its exposure for cargo loss.

In Bay Machinery Services, Inc. v. Codan Forsikring A/S, a Danish manufacturer imported wind turbines into the United States. In late 2004, the manufacturer shipped a nacelle for a wind turbine from Denmark to Tiskalaw, Illinois. To effect the shipment, the manufacturer arranged for ocean carriage with a steamship company and inland carriage with a logistics company.

The logistics company contracted with a heavy-haul motor carrier, to move the freight from the Port of Beaumont, Texas to Illinois.

While being transported in Arkansas, the nacelle came unsecured from the trailer, fell to the side of the road, and sustained damage.

Codan, the manufacturer’s subrogated insurer, compensated the manufacturer for the loss then brought suit against the logistics company and motor carrier to recover its loss, which it claimed exceeded $1 million.

A primary issue in the case was the extent of the exposure of the motor carrier for the loss. As with any motor carrier, it had three opportunities to limit its exposure: its contract with the shipper and/or broker; the bill of lading; and its tariff. The motor carrier did not have a tariff, and it did not issue its own bill of lading. In addition, because the ocean carrier did not arrange for inland transport under a through bill of lading, it could not benefit from any limitations in the ocean bill of lading issued by the steamship line. That left only the contract with the logistics company.

Unfortunately, the broker-carrier contract did not contain an explicit statement limiting the motor carrier’s liability, such as standard language stating that “In no event shall Carrier’s liability for cargo loss exceed

$100,000.” That forced the motor carrier to argue that because the contract required it to carry insurance in the amount of $100,000 or the declared value of the machinery, the contract contemplated that the broker would notify the motor carrier if the cargo’s value exceeded $100,000 in order to allow the motor carrier to comply with the increased insurance requirement. The motor carrier further argued that in the industry, it is not unusual for a motor carrier like it to purchase increased cargo insurance for specific loads.

“The motor carrier also pointed out that $100,000 is the standard amount of cargo insurance in the industry unless the carrier is informed that the cargo exceeds this amount, triggering the need for additional insurance.”

The motor carrier also relied on the load confirmation sheet, assigning the nacelle to it for shipment, which indicated that “A minimum of $100,000 cargo insurance is required unless otherwise indicated.”

Because no notice was given to the motor carrier that the machinery had a value exceeding $100,000, the motor carrier argued that its liability was capped at that amount.

The problem for the motor carrier was that its contract with the broker also provided that the motor carrier agreed to be liable for “full actual loss.” The motor carrier argued, however, that this language is not inconsistent with a corresponding released rate or limitation on liability. For example, assume cargo is a total loss during transit.

If the cargo had an invoice value of $75,000 as sold, but the shipper is able to substitute another item to satisfy its obligation to its customer, then the shipper has not lost

the sale, but only the cost to produce the replacement item (which is $50,000).

Therefore, the motor carrier argued that, under the terms of the contract, the carrier cannot argue that costs of production are the proper value because the contract defines “full actual loss” as invoice value.

Thus, the motor carrier argued, “Full actual loss” is completely consistent with having a released rate of $100,000 per shipment.

Ultimately, the Court held that while the broker-carrier contract did not limit the motor carrier’s liability, the load confirmation provided by the broker to the motor carrier did. That document’s reference to a requirement for $100,000 of insurance coverage “unless otherwise indicated” was dispositive in the Court’s mind. As the Court held, “It is undisputed that the standard in the trucking business at the time was for cargo insurance coverage of $100,000, and [the motor carrier’s] uncontroverted testimony was that if the particular load is more valuable than the standard insurance coverage, it is routine and usually required for [it] to obtain supplemental cargo insurance.” Because the broker never informed the motor carrier that the cargo was more valuable than typical cargo, the motor carrier’s liability was limited to $100,000.

Although the motor carrier prevailed in its attempt to limit its liability to $100,000, it was only by virtue of the fortuitous language the broker inserted into the load confirmation. Had the motor carrier had in place a tariff limiting its liability, a bill of lading containing limiting language, or a contract with the shipper or broker capping its liability at $100,000, the motor carrier’s argument would have been much easier to assert. Thus, although a victory for the motor carrier , the case illustrates once again the importance of having the right documents in place ahead of time to help control the carrier’s exposure to cargo loss and defense cost.

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Happy 4th from your Transportation Team

ng duci ntro eston i y l d rl Prou ew Cha s! n r e u n r y o atto

Erik Albright

Jon Berkelhammer Greensboro, NC

Greensboro, NC

Manning Connor Greensboro, NC

Jay Holland

Wilmington, NC

Jack Riordan Greenville, SC

Jason Maertens Greenville, SC

Kurt Rozelsky Greenville, SC

Kevin McCarrell Greenville, SC

Marc Tucker Raleigh, NC

Rick Coughlin

Fredric Marcinak Greenville, SC

Greensboro, NC

Rob Moseley, Team Leader Greenville, SC

Mike Bowers Charleston, SC

Tynetra Evans

Steve Farrar

Jason Nutzman

Bob Persons

Greenville, SC

Greenville, SC

Greenville, SC

Atlanta, GA

Neil Thomson Charleston, SC

Listening. Innovating. Expanding.

Smith Moore Leatherwood LLP is proud to announce the opening of its new ofďŹ ce in Charleston, S.C.

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The Road Ahead •

Smith Moore Leatherwood’s Trucking Law Update, Greenville, S.C., August 16. Contact kathy.bagwell@smithmoorelaw.com for registration information.

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Marc Tucker and Rob Moseley will be attending the NCTA Annual Conference in Myrtle Beach July 14-17. Rob will be speaking on the Top Ten legal issues facing the trucking industry today. Don’t worry, he normally only gets through 3 or 4

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Steve Farrar and Kurt Rozelsky will attend the FDCC Annual Meeting in Williamsburg, VA July 25-30.

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Rob Moseley will attend the Second Annual Forum of the American College of Transportation Attorneys in Chicago on August 26

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Kurt Rozelsky will moderate discussions at the ATA Safety Management Council Annual Meeting in Albuquerque, NM Sept 20-22.

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Rob Moseley will be presenting at the CIC Truckers Meeting in Orlando, FL September 7-9, 2011.

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Rob Moseley will be teaching the SMC3 Contract Seminar in Nashville on September 13, 2011. Visit www.smc3.com/smc3/ knowledge-events-seminars.htm to register, and enter “Moseley” to receive a discounted rate of $145

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Rob Moseley will be presenting at the TIDA cargo claims training in Cleveland on Sept. 21.

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Attorneys at Law

Making Tracks •

Rob Moseley led independent contractor workshops in Greenville for the SCTA in April.

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Kurt Rozelsky presented “Use of On-line Focus Groups for Early Evaluation and Settlement” at Trucking Boot Camps in Chicago, Dallas, Atlanta, and Orlando in April and May.

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Rob attended the National Truck & Heavy Equipment Claims Council spring meeting in Dallas in April.

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Marc Tucker and Rob played golf with the NCTA in Greensboro to benefit the NCTA Foundation in May.

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Kurt presented on “Litigating in Judicial Hell-holes” and “Dissecting the Back Injury Claim” at a Trucking Boot Camp in Mechanicsburg, PA on June 17th.

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Marc attended the NCTA Safety Council Down East Chapter meetings in June.

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Rob led the Freight Claims Committee at the Transportation Lawyers Association meeting in Las Vegas in May.

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Marc Tucker served on the CSA Roundtable Discussion panel at the North Carolina Trucking Association’s Safety Management Council seminar in April, in Burlington, NC.

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Rob taught insurance coverage, CSA, and independent contractors at The Academy Commercial Education Series Advanced Transportation Seminar in Dubuque, IA.

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Fredric attended Conference of Freight Counsel in Chicago.

Your Transportation Team Customs Resource Andrea Carska-Sheppard practices in the area of export/import law, Canadian and U.S. customs compliance and arbitration. She recently spoke at the Global Law Week in New York City on the issues of international arbitration, and she attended the Exporter Forum - Global Access, which was held at the Siemens Facility at Charlotte, NC.

TLA Distinguished Service Award Rob Moseley was presented with the Transportation Lawyers Association’s Distinguished Service Award at the group’s annual meeting on Friday, May 13, 2011.

The award is given for outstanding contributions to the association and to the trucking industry as a whole. “I am humbled and honored to have received this award from the Transportation Lawyers Association,” said Moseley.

“I’ve been a part of the organization for over 10 years and was pleasantly surprised by the recognition!”

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North Carolina Workers’ Comp Reform On 13 June 2011 the North Carolina General Assembly ratified a bill entitled “An Act Protecting and Putting North Carolina Back to Work by Reforming the Workers’ Compensation Act.” Governor Beverly Perdue is expected to sign the bill. While the original bill was a business initiative, the ultimate ratified version is a compromise crafted by representatives from all participants in the workers’ compensation system, including business and industry, insurance, organized labor, and trial attorneys. The most significant provisions of the bill are summarized as follows:

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The bill amends the definition of “medical compensation” to include (a) attendant care services prescribed by a health care provider; and (b) vocational rehabilitation.

Prior to reaching maximum medical improvement (“MMI”), suitable employment now means any employment that is within the employee’s work restrictions, including rehabilitative or other noncompetitive employment approved by the authorized treating physician.

This new definition of suitable employment eliminates any consideration of the wage rate of the new position relative to the employee’s pre-injury wages.

No compensation shall be allowed if the employer proves that the employee knowingly and willfully made a false representation as to the employee’s physical condition.

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Upon written request by the employee, the employer may authorize and must pay for a second opinion examination by a physician.

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Refusal of the employee to accept medical treatment when ordered by the Commission shall bar the employee from further compensation until such refusal ceases, unless the Commission determines that the refusal was justified.

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The bill decreases the number of Commissioners from seven to six.

Visit smlperspectives.com to view an indepth article on this topic that expands on these and additional provisions.

Dilemma of Doctors who Perform Truck Driver Physicals is described as defamatory statements.

A prospective truck driver recently filed suit against a doctor and his clinic. According to the Complaint, the driver had applied for a job as a trucker. The prospective employer referred him to the clinic for his DOT physical. The lawsuit indicates that the physical never took place because certain discussions occurred between the prospective employer and the physician.

The lawsuit claims that the physician wrongly interfered with the driver’s opportunity for employment through what

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While this lawsuit appears to be a bit unusual, it is not unusual for motor carriers to have an informal relationship with a local doctor who performs DOT physicals for the motor carrier’s drivers. It is also not unusual for there to be discussions between the physician and the motor carrier concerning specific drivers and their physical qualifications to drive a vehicle.

For example, a prudent motor carrier might send a driver for a physical and inform the doctor that there is a particular issue that needs to be addressed in more detail.

For example, if a particular driver was recovering from surgery and had not yet returned to duty, the motor carrier might want specific information on the driver’s ability to function following the surgery.

Doctors are certainly in a no-win situation when certifying DOT drivers.

There have been lawsuits filed against doctors for improperly or negligently certifying drivers whose medical conditions allegedly

contributed to accidents. Additionally, there have been lawsuits against doctors by drivers who say that they were improperly refused certification.

One would wonder why any physician would want to perform these physicals. It certainly will become even less desirable with the requirements for physicians to be registered in order to perform a DOT physical.

Today, any physician can perform a DOT physical. The Federal Motor Carrier Safety Association has issued a notice of proposed rule making which would create a national registry of certified medical examiners and would amend 49 CFR 390 and 391. While these regulations are not yet final, the proposed rulemaking was issued in 2008.

This means that trucking companies will not only have to insure that each driver has a proper medical certificate, but the motor carrier will also be required to insure that the physician, whose name will certainly be legible, appears on the National Registry of Certified Medical Examiners. Stay tuned.

Foreign Trade Zones:

B e n e f i t s f o r Ma nu f a c t u r e r s an d D i s t r i b u t o r s The Foreign Trade Zone program was created to promote American competitiveness by encouraging companies to maintain and expand their operations in the United States. Upon activation, the U.S. Foreign Trade Zones (FTZs) are considered to be outside of U.S. Customs Territory for the purpose of customs and duty payment. The U.S. FTZ program was created by the ForeignTrade Zones Act1 in 1934. The special customs treatment available in the FTZ’s helps offset customs advantages available to overseas producers. Currently there are 250 communities in the United States which have FTZs. One misconception associated with FTZs. is that they are a new creature associated with globalized trade and are considered to be entity useful only for large multinational manufacturers.

1 19. U.S.C.81a-81u). The Foreign-Trade Zones Act is administered through two sets of regulations, the FTZ Regulations (15 CFR Part 400) and CBP Regulations (19 CFR Part 146).

Although, admittedly, most FTZ’s are created by large petroleum refining industries, the automotive, electronic, and pharmaceutical sectors, they can also be beneficial for distribution companies and businesses which require more extensive warehousing.

Different Types Of FTZs There are different types of FTZs – general purpose zones and subzones. The general zones are typically sponsored by port authorities and local governments and are an excellent resource for small and medium sized businesses which can enter in an agreement with the general FTZ for the purposes of warehousing, distribution, and some limited processing. In this case, the application is filed with the grantor of the general-purpose zone and does not require complex administrative approval, as is necessary for the creation of the subzones.

The subzones are sponsored by the general FTZ and are special purpose sites used

by one company for a limited purpose.

Although the subzones are typically are created for manufacturing purposes, there are special application guidelines available for Distribution Subzones. The application fee for a non-manufacturing subzone or manufacturing subzone with less than three products is $4,000.

Usually, but not exclusively, large companies are grantees of subzones. For example, in Kentucky at the general FTZ No.29 in Louisville, companies like, for example, Ford, GE, Lexmark, Toyota, and Hitachi have created their FTZ subzone.

However, the decision to create the subzone should be made based on the cost analysis. It is generally believed in the industry that estimated duty savings must be at least $100,000 per year for the subzone to be worth the company’s efforts.

“Intermediate Rule” for Removal in Multi-Defendant Cases Reaffirmed Barbour v. Int’l Union, United Auto., Aerospace and Agric. Implement Workers of Am., 2011 U.S. App. LEXIS 1695 (4th Cir. Jan. 27, 2011).

The Fourth Circuit recently addressed the issue of removal in multi-defendant cases when those defendants are served at different times. In Barbour, the defendants filed a joint notice of removal more than 30 days after one of the defendants was served with a copy of the complaint, but less than 30 days after another defendant was served and even before a third defendant was served.

Plaintiffs moved to remand the action to state court, arguing that the removal was untimely. The district court ruled that the notice of removal was timely filed, noting that the “case . . . [provides] an excellent opportunity for the Fourth Circuit to clarify” its position first articulated in McKinney v.

Board of Trustees of Maryland Community College, 955 F.2d 924 (4th Cir. 1992).

In McKinney, the Fourth Circuit adopted the rule requiring a notice of removal to be

filed within 30 days of service to the firstserved defendant, but allowing later-served defendants 30 days from the date they are served to join the notice of removal. This is commonly referred to as the “intermediate rule” because it lies between the Fifth Circuit’s “first-served defendant” rule and the “last-served defendant” rule followed by the Sixth, Eighth, Ninth, and Eleventh Circuits. Under the “first-served defendant” rule, the notice of removal must be filed within 30 days of service on the first-served defendant and all other defendants—even those not yet served—must join within that initial 30 day period. In contrast, the “last-served defendant” rule permits each defendant 30 days from service to file a notice of removal, so long as all other defendants join.

On appeal in Barbour, a divided panel

adopted the “last-served defendant” rule and affirmed the district court’s ruling that the joint notice of removal had been timely filed. The appeal was then reheard en banc, where the majority reaffirmed the “intermediate rule” of McKinney and concluded that the removal was not timely filed. The Fourth Circuit found that the “intermediate rule” was most consistent with the language of 28 U.S.C. § 1446(b) because it applies the statute’s “requirement to act within thirty days of service to all defendants, including the first- and last-served.” Thus, in the Fourth Circuit, “the first-served defendant must file a notice of removal within thirty days of service; later-served defendants have to join the notice within thirty days of service upon them.”

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Transportation Industry Team We represent both large and small trucking companies as insureds on behalf of numerous national insurance companies and as self-insureds. In addition, the firm has served for many years as outside General Counsel for a nationally recognized commercial vehicle insurer and is experienced in all aspects of transportation law including issues involving federal and state statutes and regulations promulgated by the former Interstate Commerce Commission (ICC), the successor Surface Transportation Board, the Department of Transportation and the Public Service Commission. As part of the array of transportation services provided to firm clients, an after-hours emergency response team is standing by to service clients with urgent needs following a catastrophic accident.

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