Supreme Court ruling may reshape freight brokers and small carriers landscape

Freight brokers and motor carriers could face a vastly different operating environment depending on how the Supreme Court rules in a case with potentially far-reaching implications.

The case, Montgomery v. Caribe Transport II et al., involves a tractor-trailer driver colliding with a parked Mack tractor-trailer on an Illinois highway in December 2017. One of the central issues is whether broker C.H. Robinson Worldwide should be held liable.

According to plaintiff Shawn Montgomery's complaint, the commercial vehicle struck a legally parked truck at full speed at the time of the accident. Montgomery was severely injured in the crash, resulting in the amputation of a leg. He also sued the driver, the carrier, C.H. Robinson, and its affiliates, with court documents indicating ongoing medical needs.

When freight accidents involve brokers, injured parties sometimes sue brokers under state tort law, alleging negligence in the broker's selection of carriers, claiming the broker knew or should have known about a carrier's inadequate safety practices, noted attorney Bryan Adkins in a Congressional Research Service report.

But the case could have legal implications for businesses nationwide: notably, it could clarify the scope of specific state tort liability. This involves a long-standing principle in U.S. law—federal preemption—which broker advocates say protects them from liability for carrier safety failures.

"The core question is whether 90s federal law was designed to protect brokers from state negligent hiring claims when they select carriers," Ryan Wilson, vice president of broker engagement at Matterhorn Insurance Group, said in an email. "Some courts say yes, others say no, which is why the Supreme Court stepped in."

The Federal Aviation Administration Authorization Act and its 1995 expansion were intended to create a national framework shielding brokers and carriers from patchwork state regulations targeting their services, brokers and affiliated advocates say. A safety exception in federal law adds complexity to the issue.

C.H. Robinson said in a press release about the case: "For nearly a century, federal law has comprehensively regulated interstate trucking, and Congress explicitly preempted states from using tort law to impose new obligations on freight brokers and shippers."

The outcome is critical for industry stakeholders because the Court could:

• Protect brokers from claims such as negligent hiring
• Find brokers vulnerable to state tort liability, with liability varying by location
• Adopt other solutions yet to be observed

"The most likely outcomes are a preemption-favorable ruling (the position supported by the U.S. government), or a narrow textual ruling resolving the circuit split without delving into every downstream issue," Husch Blackwell transportation attorneys said in an email.

If the Supreme Court rules for Montgomery, it could overturn multiple lower court decisions.

Potential far-reaching impact on brokerages and small carriers

Brokers, transportation companies with brokerage operations (such as ArcBest, J.B. Hunt Transport Services, and Saia), and manufacturers have warned the Supreme Court of the stakes.

A ruling for the plaintiff could cause supply chain inefficiencies, higher costs, and even destroy "hundreds of thousands of small trucking companies," these advocates say, according to court briefs.

These concerns partly stem from the possibility that brokers may change the types of carriers they select depending on the case outcome. This could mean small carriers are overlooked in favor of larger ones, "regardless of their individual safety records," one court brief said.

C.H. Robinson said in its brief that fewer carriers would lead to higher rates from remaining carriers, with costs passed on to manufacturers, retailers, and consumers.

"If brokers cannot rely on federal standards, the resulting patchwork of liability could have real downstream effects," said Harry Byrne, a partner at Duane Morris. He added that insurance premiums could rise, and some brokers could even be pushed out of the market.

"I think these are significant implications of a potential ruling, and why there should be a single uniform standard rather than state-by-state standards, where effectively the strictest state would set the standard for everyone," Byrne said.

During oral arguments on March 4, Justice Brett Kavanaugh expressed concerns about market ripple effects. His questions suggested he was trying to assess the current legal landscape and how potential changes would affect the daily operations of the logistics industry, said Matt Reh, a partner at Armstrong Teasdale. Reh primarily handles C.H. Robinson cases at the district and appellate court levels.

A ruling for the plaintiff could make property freight brokers more inclined to use mid-sized or large carriers, based on assessments of these entities' ability to handle regulatory requirements, Reh said. This could mean brokers must rethink how they manage relationships with carriers and which carriers they select.

"For me, the question is how far will the Supreme Court go? Will it say there's no preemption? Will it say preemption is limited to negligent hiring and retention claims, or will it say all claims arising from alleged negligence are preempted?" Reh said.

Additional changes could come regardless of the outcome

Congress is watching the case, and the result could prompt the losing side to seek legislative remedies.

But independent of the case, attorneys say brokers should also be aware that the more control they exert over carriers, the greater their potential legal risk. This is because in such situations, brokers shift from an intermediary role to "more like a de facto employer, which triggers liability beyond negligent selection," Husch Blackwell attorneys said.

Reh said this involves legal doctrines that exist in various states, referenced in different ways. "Some call it agency," he said. "Some call it vicarious liability. Some use the Latin term respondeat superior."

Reh said the doctrine can place liability on a party responsible for the actions or negligence of a controlled person. This could include giving instructions to drivers, contract terms requiring check-ins, or requiring carriers to place broker logos on trailers, attorneys said.

Currently, brokers already spend considerable time vetting carriers before assigning loads, Wilson noted. "Most will verify a carrier's FMCSA authority, insurance coverage, safety scores, inspection history, and operating status to ensure the company is legally authorized and compliant," he said. "Many brokers also use third-party vetting tools and internal policies to monitor carriers over time. Significant capital is invested in these tools."

But this is largely limited to public information, not operational data held by regulators or carriers themselves, such as driver records, internal safety practices, or day-to-day vehicle maintenance, Wilson said.

Contracts requiring further carrier disclosures or transformative laws could change these dynamics. But as of now, brokers already have significant expenses vetting carriers and lack access to the Federal Motor Carrier Safety Administration's Drug and Alcohol Clearinghouse, he said.

"That's one of the reasons the issue is complicated," Wilson said. "Brokers are asked to evaluate carriers without access to some of the deeper safety data visible to regulators or carriers themselves."