Page 1


Attorneys at Law

Transportation Newsletter I����� T��� I����

P.3 P.5 P.6 P.7 P.7 P.7

Kawasaki Kisen Kaisha v. RegalBeloit Marches On Team Updates North Carolina Heavy-Duty Truck Idling Restrictions South Carolina Will Soon Require Interstate DOT Numbers Got Food? On Your Trucks, That Is! FMCSA Proposes Banning Hand-held Cell Phones for Commercial Truck Drivers


1 �� 20


How the Fair Credit Reporting Act Will Affect How You Hire Your Next Driver In May 2010, the Federal Motor Carrier Safety Administration (“FMCSA”) began its pre-employment screen program service (“PSP Service”). The PSP Service compiles information regarding driving records of commercial drivers for use by motor carriers in making employment decisions. The PSP Service is operated by National Information Consortium Technologies, LLC (“NICT”). The PSP gives motor carriers a glimpse into a driver’s roadside inspection history, specifically: hours of service violations, overweight violations, and equipment violations. However, motor carriers should develop processes and procedures to ensure that obtaining and using this information to make hiring and training decisions that are consistent with the Fair Credit Reporting Act (“FCRA”). For motor carriers, FCRA should be nothing new, as many current databases and reports are subject to FCRA. For examples, most MVRs would be subject to FCRA. FCRA applies to “consumer reports”generated by a “consumer reporting agency.” The FCRA does not require employers to conduct background checks but simply but it does set authorization and disclosure requirements for obtaining the records. Under the FCRA, prior to obtaining a consumer report like the PSP, a motor carrier must first make a written disclosure to the driver that the motor carrier intends to obtain a consumer report, and must obtain a written authorization to do so. 15 USC § 1681b(b)(2)(A). The disclosure and authorization must be clear and conspicuous and must be on its own separate document (as opposed to being a part of the employment application). The form provided by PSP for this purpose should be sufficient. The motor carrier must also certify to the consumer reporting agency that the motor carrier will comply with the FCRA, although this is more of a burden on the agency than the motor carrier. The FMCSA accomplishes this requirement by using the “Monthly Account Holder FCRA Employer Certification” form included in the PSP application (available at Interestingly, the trucking industry obtained an exemption from the requirement that the disclosure and the authorization have to be written when a driver applies for a job. Rather, the disclosure and authorization could be by oral or electronic means. Specifically, the exemption applies to applications for positions “over which the Secretary of Transportation has the power to establish qualifications and maximum hours of service pursuant to the provisions of section 31502 of title 49, or a position subject to safety regulation by a State transportation agency,” and only where the driver CONTINUED ON PAGE 2>>

applies by some means other than in person.1 This exception would appear to cover reports under the PSP system, as almost all of such reports would be on driver applicants who are governed by the Secretary of Transportation. Presumably, this exemption was in recognition of the fact that truck drivers are often on the road and have limited access to mail or fax machines. Even more interesting is that the FMCSA unilaterally dispensed with the statutory exemption by contractually requiring that the motor carrier obtain a written authorization from the driver to obtain a PSP report.2 Therefore, even if a motor carrier previously relied on oral authorization to pull a driver’s MVR, in order to obtain a PSP report, motor carriers must obtain written consent. Furthermore, pursuant to the same contract, the written consents must be kept on file and are subject to audit by the FMCSA (or its designees) at any time. Generally (but see partial exemption below), prior to taking any adverse action against the driver (e.g., deciding not to hire the driver, or assigning the driver for remedial training in orientation) which is based in whole or in part on information obtained from the consumer report, a motor carrier must first provide a “preadverse action” notice to the driver.3 This pre-adverse action notice must provide a copy of the consumer report and provide a description of the driver’s rights under the FCRA in a form promulgated by the Federal Trade Commission (“FTC”). This notice allows time for the driver to challenge or correct any errors in the consumer report before final adverse action is taken. If after providing the pre-adverse action notice, the motor carrier does, in fact, take adverse action against the driver based on the consumer report, then the motor carrier must provide notice of the adverse action to the driver within three (3) business days of taking such action.4 This notice must contain the following: •

The name, address, and telephone number of the consumer reporting

1 15 USC § 1681b(2)(C). 2 See Terms and Conditions of Monthly Account Holder Agreement required to sign up for the PSP Service. 3 15 USC § 1681b(b)(3)(A). 4 15 USC § 1681m(a)


agency; •

A statement that the agency did not make any decision and cannot provide any reasons why the adverse action was taken;

Provide notice of the driver’s right to obtain a free copy of the consumer report;5 and

Provide notice of the driver’s right to dispute the accuracy or completeness of the information in the report.

Although the adverse action notice can be oral, written, or electronic, given the need to satisfy each of the conditions above, it is recommended that a written notice be used to document that all necessary information was conveyed. As with the written consent requirement, the trucking industry obtained a special exemption for taking adverse action.6 tice “Written no at th ts en docum ry sa es ec n l al was information .” ed ey conv

Motor carriers may dispense with the preadverse action requirement if the driver applies by means other than in person (i.e. mail, telephone, computer, or other similar means). Instead, the motor carrier can simply proceed with the adverse action and send the adverse action notice. If the driver requests a copy of the consumer report from the motor carrier, however, 5 In the employment context, this requirement is a bit redundant as the employer must generally provide a copy of the report to the applicant prior to taking adverse action. Of course, if the applicant wants to verify the authenticity of the report, the applicant is entitled to do so. More likely, this redundancy is inadvertent. Whether redundant or not, employers must still comply with the statute. In the motor carrier context, the pre-adverse action notice is generally not required, so there is no redundancy anyway. 6 15 USC § 1681b(b)(3)(B).

the motor carrier must comply with the request within three (3) business days, as well as provide a copy of the FTC’s notice of consumer’s rights form (which should be provided by the agency when the report is sent).7 Unlike the written consent requirement, FMCSA does not require motor carriers to contract out of the adverse action statutory exemption in order to participate in the PSP program. Therefore, if the driver does not apply in person, the pre-adverse action notice is not required when taking adverse action based on a PSP report. Instead, the motor carrier can simply take the adverse action (e.g., not hiring the applicant) and send the adverse action notice. If the driver does apply in person, the pre-adverse action notice is required (including a copy of the PSP report and a copy of the FTC notice of rights). Also, if adverse action is taken, the same notice attached as Exhibit A is required, along with an extra requirement that the driver be informed of their right to obtain a copy of the PSP report from the FMCSA as well. What about independent contractors? Independent contractors are included in the federal definition of “employee” under 49 CFR § 390.5. Because motor carriers, generally, are responsible for safety compliance of independent contractors, we recommend using PSP to screen contractor applicants but changing the authorization and notices to delete references to “employee,” so as to eliminate confusion. In conclusion, in obtaining access to the PSP database, a motor carrier must have authorization from the driver. We suggest using the authorization provided by PSP. If the motor carrier is using the PSP to take a negative action against the applicant, then the pre-adverse action must be given, but only if the driver applied in person. Finally, after the adverse action is taken, the motor carrier must provide an adverse action notice. PSP does not provide forms for the pre-adverse action notice nor the adverse action notice. Therefore, motor carriers should work with counsel to develop these along with policies and procedures for FCRA compliance. 7 15 USC § 1681b(b)(3)(B)(ii).

Kawasaki Kisen Kaisha v. Regal-Beloit Marches On In our recent update on developments in cargo litigation, we discussed the landmark case of Kawasaki Kisen Kaisha v. RegalBeloit in which the Supreme Court held that where a through bill of lading was issued to cover a multimodal shipment, the through bill and COGSA applied rather than the Carmack Amendment. We noted that Regal-Beloit left unanswered the question of whether its holding would apply to motor carriers, since the carrier at issue in the case was a rail carrier. We also noted that the application of COGSA rather than Carmack, while providing the benefit of the $500 per package limitation of liability, could also impose onerous requirements on cargo owners, such as the requirement in Regal-Beloit that litigation occur in Japan. As expected with any major Supreme Court decision, the lower courts have now begun to apply Regal-Beloit and to answer the questions it left open. In Royal & Sun Alliance Ins., PLC v. Ocean World Lines, Inc., 612 F.3d 138 (2d Cir. 2010), the Second Circuit Court of Appeals decided a case in which a printing press was shipped from Germany to the United States under a bill of lading issued by the steamship line, and sea waybill issued by the steamship company actually transporting the press, both providing shipment of the press from Germany to Indiana, via the port of Norfolk, Virginia. Both the bill of lading and the sea waybill contained C O G S A limitations on liability, Himalaya

Clauses, Clauses Paramount, and forum selection clauses. Therefore, they both constituted through bills of lading. The press, in a multimodal shipment, was transported from Germany to Norfolk by sea, from Norfolk to Chicago via rail, and from Chicago to Indiana by truck. The steamship line arranged for the rail and truck transport of the press. While en route from Chicago to Indiana, the truck wrecked, and the printing press sustained damage. The issue, of course, was the relevant law governing liability and, especially, limitations on damages. After reviewing Regal-Beloit’s holding, the Court held that its reasoning extended to motor carriers in addition to rail lines. First, in support of this holding, the Court observed that the statutory provisions of Carmack applicable to motor and rail carriers are virtually identical. Second, the Court noted that the policy arguments made by the Supreme Court in Regal-Beloit are equally applicable to motor carriers. In Regal-Beloit, the Supreme Court had held that applying Carmack in the face of a through bill of lading “would in effect outlaw through shipments under a single bill of lading,” that “[n]one of Carmack’s legislative versions have applied to the inland domestic rail segment of an import shipment from overseas under a through bill,” and that “[a]pplying two different bill of lading regimes to the same through shipment would undermine COGSA and international, container-based multimodal transport.” As noted by the Second Circuit, the validity of these points does not turn on whether the cargo was damaged on a truck or on a train. Finally, the Second Circuit rejected clever arguments by the shipper that because the motor carrier and the steamship lines were motor carriers or freight forwarders subject to the jurisdiction of the Surface Transportation Board under 49 U.S.C. § 13102, they were subject to Carmack. The shipper based this argument on the Supreme Court’s holding in Regal-Beloit that Carmack would apply to a STB-regulated motor carrier or freight forwarder that receives property for domestic transport. However, the Second

Circuit held that even if the motor carrier and steamship lines were STB-regulated or freight forwarders, they did not “receive” property for domestic transport so as to subject them to Carmack since they merely continued transport of the cargo pursuant to the through bills of lading. In a holding that will be of interest to freight forwarders, the Court went on to state: Moreover, although Carmack does provide that “[a] freight forwarder is both the receiving and delivering carrier,” 49 U.S.C. § 14706(a)(2), we take this statement to mean only that when a freight forwarder “receives” property for domestic motor or rail transportation within the meaning of § 14706(a)(1), the forwarder is treated as both the receiving and delivering carrier for Carmack purposes. Section 14706(a)(2) does not mean that a freight forwarder, if it plays any role in transport under an intermodal through bill of lading originating across the ocean, is required to issue a Carmack bill of lading. To hold otherwise would be to say that the plaintiff in Regal-Beloit would have won, if only it had called “K” Line a freight forwarder. We decline to create such an end run around Regal-Beloit. Royal & Sun, then, answers an important question left open in Regal-Beloit by establishing the rule laid down in RegalBeloit extends to motor carriers. It also indicates that Courts are giving RegalBeloit a broad reading by reading the case and the correspondings statutes so as to allow COGSA to apply in almost all circumstances when through bill of lading is issued. This trend continued in a later Second Circuit case, Mitsui Sumitomo Co. Ltd. v. Evergreen Marine Corp., 621 F.3d 215 (2d Cir. 2010), that answered the question of what result occurs where a separate bill of lading, purporting to apply Carmack is issued by the motor carrier where a through bill of lading has already been issued CONTINUED ON PAGE 6>>


Jay Holland

Wilmington, NC

Jason Maertens

Greenville, SC

Fredric Marcinak

Greenville, SC

Kevin McCarrell

Steve Farrar

Greenville, SC

Greenville, SC

Team Leader Rob Moseley

Greenville, SC

Tynetra Evans

Greenville, SC

Jason Nutzman

Greenville, SC

Rick Coughlin

Greensboro, NC

Bob Persons

Atlanta, GA

Manning Connor

Greensboro, NC

Jack Riordan

Jon Berkelhammer

Greenville, SC

Greensboro, NC

Kurt Rozelsky

Erik Albright

Greenville, SC

Greensboro, NC


t At



at ys




Marc Tucker

Raleigh, NC

Your Transportation Team Georgia | North Carolina | South Carolina A New Year’s resolution is something that goes in one year - and out the other. ~Author Unknown Wishing you and your families a safe, happy, and prosperous 2011, The Smith Moore Leatherwood Transportation Team 4

The Road Ahead •

Rob Moseley and Fredric Marcinak will attend Conference of Freight Counsel in Orlando, Florida Jan 9-10. Will Fredric take the Moseley bus to Florida?

Tynetra Evans, Marc Tucker and Rob will attend the TLA Regional Conference in Chicago on Jan 21 .

Rob will be attending the BB&T Capital Markets Event in Miami Feb 16-17.

Rob will be teaching the one day SMC3 Contract Seminar in Denver on March 8. Information is available at Typically SMC3 offers a discount to SML contacts once registration opens.

Rob will be one of several speakers at the TIDA Freight Claims Conference in Phoenix on March 25. Cactus League, here we come!

Steve Farrar and Kurt Rozelsky will attend the Winter Meeting of the Federation of Defense and Corporate Counsel where Kurt is speaking on pre-suit discovery and Steve is leading the Projects & Objectives Meeting before teaching a seminar called “Blackjack for Dummies.

Jack Riordan and Erik Albright will be attending the ABA Megaconference in New Orleans in February.

Making Tracks •

Kurt Rozelsky was named Chair of the Trucking Law Committee of DRI: The Voice of the Defense Bar at its recent Annual Meeting in San Diego. Kurt led the Trucking Law Breakout in the hottest conference room in history - he is still sweating.

Rob Moseley took over as co-chair of the Transportation Lawyer’s Association’s Freight Claims Committee.

Marc Tucker presented at the North Carolina Trucking Association Safety Council Down East Chapter on the CSA 2010 & Litigation.


Marc presented at the North Carolina Trucking Association Safety Council meeting in Burlington on PSP & Hiring Practices in November

Rob spoke on the “Top 10” legal issues facing the trucking industry at the American Trucking Association Management Conference and Exhibition in Phoenix in October.

Rob led a session on cargo claims developments at the SMC3’s Loss Prevention Conference in Atlanta in October. The subject was recent developments in cargo claims.

Rob taught insurance coverages and exposures at the Advanced Truckers session in Orlando, FL in October.

Kurt Rozelsky was recently elected to membership in the American Board of Trial Advocates (ABOTA) based upon his sixteen years of trial experience.

Rob attended the SCTA Board Meetings in October and December.

Kurt attended the TIDA Annual Meeting in Orlando, FL.

Rob completed 4 part webinar for ATA on cargo claims on October 28. Rob is perfectly suited for the webinar environment in which the attendees do not have to see him. These webinars are available by contacting the ATA Safety


<<CONTINUED FROM PAGE 3 by the steamship line or another carrier earlier in the transport chain. In RegalBeloit the Court had left this question unanswered, finding that the rail carrier was not a receiving carrier subject to Carmack but not analyzing the bills of lading or other paperwork issued other than the through bill. In Mitsui, the Second Circuit held that where the original, through bill of lading provided for one complete journey from origin to inland destination in the United States, the subsequent bill of lading was more of the nature of a subcontract between the ocean and land carrier, not a separate bill of lading that would trigger Carmack’s applicability. In this circumstance, the inland carrier, again, is not a receiving carrier for purposes of Carmack, because it does not receive property from a shipper or shipper’s agent but merely continues the transport of property already en route to an inland destination. Thus, the Court reiterated, the key is whether the journey from origin to inland destination was to be undertaken as one journey, rather than as two separate journeys separated at the point of entry to the United States.

The Mitsui court also held that even though the bills of lading contained a forum selection clause mandating suit in New York, there was nonetheless no judicial district available for a Carmack suit, since Japan was the point of origin of the cargo and point of origin is the determanitive factor for determining which judicial district is the proper venue for a Carmack action, regardless of any forum chosen by the parties. The questions left unanswered in RegalBeloit are now being addressed by the lower courts. In answering these questions, the courts are reading Regal-Beloit broadly and instituting a legal regime more friendly to COGSA applicability and to the carriers protected by COGSA.


North Carolina Heavy-Duty Truck Idling Restrictions

Effective July 10, 2010, North Carolina put in place new regulations restricting idling of heavy vehicles, 15A NCAC 25.1010. In a questionable legitimate procedural maneuver reminiscent of Animal House’s double secret probation, the regulation became law when the NC Legislature failed to disapprove it before it adjourned for the term. This was the case even though administrative objections were filed within the comment period. North Carolina now restricts a person who operates a heavy-duty vehicle (an on-road gasoline and/or diesel powered motor vehicle, excluding trailer(s), with a gross vehicle weight rating of 10,001 pounds or more) from idling for a period of time in excess of 5 consecutive minutes in any 60 minute period. The rule contains several exceptions dealing with safety, health and economic concerns. Trucks are allowed to idle if necessary for refrigerating, hoisting, loading, or otherwise performing the designed function of the vehicle. These exemptions do not apply when idling is for driver comfort only. The rule also includes exemptions for emergency vehicles responding to emergencies, farm, and military trucks. In addition, a truck with an occupied sleeper berth may also idle for the purposes of air conditioning or heating during federally mandated rest periods. Situations in which idling is necessary due to traffic conditions or required vehicle maintenance, inspection or repairs are also exempted under the new rule. The complete Heavy-Duty Vehicle Idling Restrictions, and exemptions, can be viewed at the following address: /rules/idle/1010.pdf. The Division of Air Quality has stated that its initial plans are to focus on education and outreach. Notwithstanding, the rule (including fines) will be eventually enforced on a complaint-driven basis.

It is estimated that the rule will reduce carbon monoxide emissions by up to 100,000 tons per year.

The Environmental Management Commission adopted the rule as part of North Carolina’s efforts to reduce air pollution in order to meet more stringent federal air quality standards. It is estimated that the rule will reduce nitrogen oxide emissions in North Carolina by as much as 1,300 tons per year, it will save vehicle operators up to 9 million gallons of fuel annually and reduce carbon monoxide emissions by up to 100,000 tons per year. The state recognizes that enforcement of the new rule may involve some cost or inconvenience for drivers; however, it is believed that those costs should be more than offset by fuel savings and improvement in air quality. Drivers are encouraged to rest at truck stops that provide electricity and other services or by installing auxiliary power units to provide their own electricity. Although APUs can be costly, the state estimates that the fuel and wear-and-tear savings from reduced idling may offset the cost of an APU within one or two years for most trucks. The North Carolina Division of Air Quality is offering rebates to some drivers who install APUs. Information about this program can be found at motor/Rebates/. The Rebate Program will remain in effect until March 31, 2011.

South Carolina Will Soon Require Intrastate DOT Numbers Effective October 1, 2011, South Carolina will become the 38th state to require an Intrastate DOT number for intrastate motor carriers. This means that companies doing business solely within the state will have to obtain a SCDOT number. Companies that operate in multiple states are already required to have USDOT numbers. As South Carolina Department of Public Safety Director Mark Keel explained, “[t] his is not a new law.” At the time South Carolina adopted the Federal Motor Carrier Safety regulations, USDOT did not have the technology to process intrastate numbers. Now, the technology is in place and the law will be enforced. State Transport Police will be able to track a carrier’s safety rating and increase their enforcement capabilities. More importantly, from a safety compliance standpoint, it means that every operator is in the system and the rules will apply to all operators whether it’s a for-hire trucking company, small business, or large corporation. As defined by law, a “motor carrier” is any commercial enterprise that

Got Food? On Your Trucks, That Is!

Pay attention if you transport food products. it appears that a food safety bill will finally be enacted into law. The Senate has passed a bill which is expected to be passed by the House and signed into law. Although the bill is largely targeted toward food production and processing practices, Congress gave the Food and Drug Administration authority to regulate food transportation. Section 111 of the bill requires the FDA to finalize rules on food transportation safety within one year of enactment. Food transportation safety has long been considered as a gap between cargo liability and existing food safety law.

uses such vehicles in its business operations and as a result it is subject to FMCS regulations. The requirement will apply to any company that operates a commercial motor vehicle that: 1. has a gross vehicle weight rating or gross combination weight rating, or gross vehicle weight or gross combination weight of 10,001 pounds or more; 2. is designed or used to transport more than 8 passengers, including the driver for compensation; 3. is designed or used to transport more than 15 passengers, including the driver, and is not used to transport passengers for compensation; or 4. is used in transporting hazardous materials as defined under federal law. There is no cost to the carrier to obtain a

number. However, failure to register, obtain and display the SCDOT number will subject the carrier to a $100 fine per occurrence. Although this registration process does not subject intrastate motor carriers to additional or different safety requirements, it will be a way for the authorities to more carefully track safety issues for intrastate carriers as the Safestat and now CSA systems track intrastate carriers. Intrastate operations that have been able to fly below the radar on safety matters may find this tracking much to their dislike. Accordingly, intrastate carriers should begin making arrangements for obtaining and marking their vehicles.

FMCSA Proposes Banning Hand-held Cell Phones for Commercial Truck Drivers You may recall in the Spring edition of our newsletter, we announced that the Secretary of Transportation issued a guidance prohibiting texting by commercial motor vehicle drivers. At that time, we expressed concern that the guidance was flawed in its issuance. It appeared that the guidance was an attempt to do an end-run around the Administrative Procedures Act. With this announcement, the Department is attempting to end any doubt as to the enforceability of the anti-texting guidance and broaden it to include all hand-held cell phone use.

multiple offenses. The regulation is also intended to dovetail with the violations of state law on hand-held cell phone use.

The proposed rule differs, however, from the prior guidance on texting in that motor carriers who allow hand-held cell phones while driving will face a penalty of up to $11,000. Obviously, the Federal Motor Carrier Safety Administration has decided that it must penalize motor carriers, not just drivers, to end this practice. Many trucking companies have policies in place banning their drivers from using hand-held cell phones. Many others have, but do not enforce, similar bans. Other companies The proposed rule would prohibit have chosen not to have a ban in place due commercial drivers from using a hand- to enforcement difficulties. held cell phone in any manner, including reaching for it, holding it, or dialing it This regulation is part of a coordinated plan while operating a commercial motor from the Department of Transportation vehicle. Like the ban on texting, violation to end distracted driving. To read the of the proposed regulation would carry entire proposed regulation, please see a fine of up to $2,750 per offense, and disqualification of the driver’s CDL for phone_NPRM_12-7-10.pdf .


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.

Georgia | North Carolina | South Carolina Smith Moore Leatherwood LLP | Attorneys at Law |

Smith Moore Leatherwood LLP Attorneys at Law The Leatherwood Plaza 300 East McBee Avenue, Suite 500 Greenville, SC 29601 T: (864) 242-6440 F: (864) 240-2474

Transportation Newsletter  

Smith Moore Leatherwood's quarterly transportation newsletter is targeted to trucking and logistic companies, trucking insurance companies,...