Keep Trucking, Broker Units Separate, Attorneys at ATA Conference Advise
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PHOENIX — Trucking companies with brokerage units should organize the two divisions separately, a panel of attorneys said at a recent meeting here.
The educational session was part of an American Trucking Associations conference for the group’s National Accounting & Finance Council in late June.
“The motor carrier’s assets are at risk if the brokerage and carrier names are the same,” said Andrew Light. “There are costs involved to incorporate the two separately, but they’re not too significant.”
In the current legal environment, plaintiffs and their lawyers seek to find as many defendants as possible for a given lawsuit, the lawyers said. Light said the easiest way for a trucking company to do brokerage is just to do it, without any separate legal organization.
The first level of insulation would be a “doing business as” — or d/b/a — arrangement where the freight brokerage has a similar but not identical name. Ultimately, though, Light recommended that the two operating companies should be incorporated separately, probably under a common holding company.
Brokerage activity is tricky from a business-legal analysis, said attorney Gregory Feary.
“From a legal standpoint, brokers want to be pure conduits, where everything passes through,” Feary said, meaning that brokers use shippers’ money to pay carriers — less the broker’s commission — and all legal liability attaches to either of those parties, but not the broker.
Although he said that the best legal advice for a broker is to use the pass-through, or conduit model, Feary conceded that a number of brokers actually seek out risk and responsibility for business reasons, namely as a selling point to shippers.
Feary also warned that carriers should avoid situations where contracts and supporting documents conflict with each other.
“Your primary agreement with a shipper can be in conflict with bills of lading and confirmation agreements,” Feary said.
Feary also warned that carriers should avoid situations where contracts and supporting documents conflict with each other.
“Your primary agreement with a shipper can be in conflict with bills of lading and confirmation agreements,” Feary said.
He added that carriers have to be careful not to give back in “backdoor transaction documents” what they were careful to claim in the primary agreements on service commitments, rate and payout terms, indemnification and restrictive covenants.
As for indemnification on liability, Feary said shippers generally want carriers to assume responsibility for as much transportation liability as possible, sometimes even asking the trucking company to pick up total liability. However, he also noted that a majority of states have anti-indemnification laws that prevent shippers from fobbing off liability onto other parties. He said carriers will have to consider both sides of that equation.
If a carrier does assume the shipper’s liability for an incident, it can result in direct payment by the carrier, as many trucking companies have high deductibles, Feary said.
