Last week, in Montgomery v. Caribe Transport II, LLC, the United States Supreme Court unanimously held that the Federal Aviation Authorization Administration Act (“FAAAA”) does not preempt state-law negligent hiring claims against freight brokers. The Court’s much-anticipated ruling resolved a split at the Circuit Court level, while delivering a blow to the freight transportation industry.
Key Issue before the Court
The FAAAA broadly preempts state laws that relate to the “price, route, or service” of motor carriers and brokers with respect to the transportation of property. The Act, however, contains an important exception: states retain authority to regulate safety “with respect to motor vehicles.” The issue before the Supreme Court was whether plaintiff’s claim that a freight broker negligently hired a motor carrier to transport goods fell within that exception to preemption. In a 9-0 decision, the Court held that it did. In practical terms, this ruling means that freight brokers can no longer rely on blanket federal preemption arguments to avoid state-law negligence claims arising from carrier selection decisions.
Court’s Ruling
In reaching its conclusion that negligent hiring claims against freight brokers fall within the FAAAA’s safety exception, and are thus saved from preemption, the Court gave the statutory language of the exception its “ordinary meaning.” Specifically, Justice Barrett, writing for the unanimous Court, reasoned that requiring a freight broker to exercise ordinary care in selecting a motor carrier “concerns” motor vehicles under the plain language of the exception.
The Court dismissed the contention that such a broad reading of the phrase “with respect to motor vehicles” would allow the safety exception to effectively swallow the preemption provision whole, noting that non-safety related state regulations related to pricing, routes and services would remain preempted.
While the Court acknowledged the oddity of a separate FAAAA subsection fully preempting state regulation of brokers for intrastate shipping without any safety exception, the Court rationalized that it would be odder to say that the negligent hiring of an unsafe motor carrier is not an exercise of “the safety regulatory authority of a State with respect to motor vehicles.” In this regard, Justice Barrett stated, “[b]etter to live with the mystery than to rewrite the statute.”
In a concurring opinion, Justice Kavanaugh noted that the case was a much closer call than the Court’s opinion may suggest, but that absent a change by Congress, federal law, as currently written, does not preempt tort liability against brokers for the negligent selection of truck companies.
In the Wake of Montgomery
The Court’s ruling in Montgomery will significantly alter the legal, operational, and economic landscapes for freight brokers, transportation intermediaries, insurers, and litigants nationwide.
Legal Impact:
- Increased lawsuits and protracted litigation. No longer shielded by FAAAA preemption, freight brokers will likely face a surge in lawsuits. Once sued, brokers will further face increasingly protracted litigation. While brokers will retain the ability to defend against state tort suits, brokers will no longer be able to dismiss state-level negligent hiring claims at the pleading stage on preemption grounds. Additionally, brokers will be subjected to increasingly expansive discovery as plaintiffs more heavily focus on carrier safety ratings, FMCSA safety data, SAFER reports, BASIC percentile scores, prior crashes, out-of-service violations, broker onboarding and vetting practices, and communications between brokers and carriers.
- Increased exposure. Brokers will likely face increased verdict exposure, especially in jurisdictions recognizing joint and several liability that allow a plaintiff to collect the entirety of a verdict from any single culpable defendant regardless of that defendant’s share of fault.
- Nonuniform standards of care. The Supreme Court did not define the contours of reasonable care in broker selection. Nor did it establish what level of FMCSA data, safety history, or operational concern creates a duty to reject a carrier. Those issues will now be litigated extensively in state and federal courts across the country, resulting in a patchwork of varying standards of care.
Operational Impact:
- Stricter carrier vetting. Robust and consistent carrier selection practices will assume greater importance, both as a potential litigation defense and as a condition of obtaining affordable insurance. Brokers will demand stronger safety profiles and exclude carriers with poor CSA scores, conditional safety ratings, or recent enforcement actions.
- Contractual shifts. Companies that rely on third-party logistics to move goods can expect revised contract language, forcing stricter indemnification clauses and higher minimum insurance requirements.
Economic Impact:
- Industry consolidation. As brokers face greater liability exposure, they may favor medium-to-large carriers with robust, auditable compliance infrastructures and established safety reputations. For owner-operators and smaller carriers that have historically relied on broker relationships to access loads, such a shift could significantly reduce their volume and market access. Similarly, unproven startup carriers will struggle to enter the market. For shippers, a smaller carrier pool may reduce supply chain flexibility, limit competitive pricing, and increase dependence on a smaller number of larger carriers.
- Spike in insurance costs. With greater liability exposure, freight brokers will face significantly increased insurance costs.
- Increased shipping rates. As acknowledged by Justice Kavanaugh in his concurring opinion, the Court’s ruling will likely invite more litigation against brokers that will allow “the costs of litigation and insurance, as well as the costs of brokers conducting more substantial inquiries into trucking companies, [to] cascade through the economy [to] be paid in part by American consumers in the form of higher prices.”
Practice Pointers Post-Montgomery
For brokers, robust and consistent carrier selection practices demanding strong safety profiles will be critical to the mitigation of liability for carrier hiring decisions. Today, brokers have access to unprecedented amounts of operational and safety information through FMCSA databases, CSA scores, inspection histories, crash indicators, insurance monitoring systems, and third-party risk platforms. In the wake of Montgomery, brokers are well advised to use it in a manner that excludes carriers with poor and/or potentially concerning ratings, scores, indicators and/or histories before awarding freight. Brokers further should consider undertaking pre-tender rechecks for key information (i.e., DOT safety rating, operating authority, insurance, safety alerts, etc.) as a carrier’s status can change before onboarding.
For practitioners, insurers and claims professionals, early investigation will become increasingly important in broker-involved catastrophic loss cases. Identifying what vetting procedures existed, what information was available to the broker upon hiring, and how carrier selection decisions were made may materially affect both exposure evaluation and litigation strategy. Likewise, preservation of carrier qualification records and broker/motor carrier communications will be critical.
As courts begin applying the Supreme Court’s decision in Montgomery, early evaluation and coordinated claims strategy will be key. For more than two decades, the principals of Lock Gordon have been called upon to defend motor carriers, shippers, brokers, and third-party logistic companies in catastrophic injury and wrongful death cases in the most challenging venues in the country. Please contact John Lock, Esquire, of Lock Gordon’s Transportation Law Practice Group at jlock@lockgordon.com with questions about this article or any other aspect of trucking or transportation law.