Source: Marc S. Blubaugh
The transportation and logistics industry has been widely anticipating a decision from the Supreme Court of the United States as to whether or not it will accept for review two very significant cases involving the scope of 49 U.S.C. § 14501(c)(1), known as the Federal Aviation Administration Authorization Act (“FAAAA“). However, notwithstanding the importance of the issues at stake in both these cases, the Court issued orders denying certiorari. Each case is briefly summarized below.
Freight Broker Liability
In Miller v. C.H. Robinson Worldwide, Inc., a shipper retained a freight broker to arrange for the interstate transportation of goods. The freight broker, in turn, retained a motor carrier to perform the actual transportation. The motor carrier’s driver lost control of the vehicle while driving in icy conditions in Nevada. A third party suffered various injuries and commenced a lawsuit in federal court against, among others, the freight broker. The injured party claimed that the freight broker breached a duty to select a competent motor carrier.
The freight broker moved for summary judgment on the basis that such a claim was preempted by the FAAAA. The federal district court granted summary judgment in favor of the freight broker and concluded that the FAAAA preempted the plaintiff’s claim because the claim had the effect of reshaping the level of service that a freight broker must provide in selecting a motor carrier to transport property. The federal district court also rejected an exception to preemption in the FAAAA for “the safety regulatory authority of a State with respect to motor vehicles.”
On appeal, the United States Court of Appeals for the Ninth Circuit reversed the federal district court. While the Ninth Circuit agreed with the lower court that the scope of the FAAAA was sufficiently broad to encompass the plaintiff’s claim, the Ninth Circuit also broadly construed the so-called “safety exception” to save the plaintiff’s claim from being preempted. The freight broker subsequently requested that the U.S. Supreme Court review the Ninth Circuit’s decision.
However, in an order released on June 27, 2022, the U.S. Supreme Court declined to review the Ninth Circuit’s decision. As a result of this extremely disappointing decision, the Ninth Circuit’s decision remains the governing law in the Ninth Circuit, which encompasses Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington in addition to various U.S. territories. Freight brokers doing business in the Ninth Circuit will have to evaluate the implications of the Miller decision for their respective operations. However, as no other federal appellate court has spoken definitively as to the scope of the so-called safety exception under the FAAAA and its effect upon freight broker liability, this issue will – and should – continue to be litigated in other courts across the country.
Independent Contractors
Three days later, on June 30, the U.S. Supreme Court delivered a second deeply disappointing loss to the transportation industry and supply chain interests throughout the country by declining to review the California Trucking Association’s challenge to Assembly Bill No. 5 (“AB5“).
By way of background, AB5 codified into statutory law a rigid “ABC” test used for determining whether a worker is an employee or an independent contractor. On December 24, 2019, in a federal case brought by the California Trucking Association and others (collectively, “CTA“), CTA moved for a temporary restraining order to prohibit the enforcement of AB5 against motor carriers operating in California. Among other things, CTA argued that AB5 was preempted by FAAAA. On December 31, 2019 (the day before AB5 was to become effective), Judge Roger T. Benitez issued a decision granting CTA’s request for an emergency order enjoining the State of California from enforcing AB5 as against motor carriers. The judge found that that the “B” prong of the ABC test embodied in AB5 “is likely preempted by the FAAAA” because AB5 “effectively mandates that motor carriers treat owner-operators as employees, rather than as the independent contractors that they are.” Judge Benitez later converted the temporary restraining order into a preliminary injunction. An appeal followed and, in April 2021, the Ninth Circuit unfortunately reversed the district court’s decision, finding that AB5 was not in fact preempted by the FAAAA. However, the appellate court did stay enforcement of its decision pending CTA’s request for the Supreme Court to review the appellate court’s decision.
After extensive briefing, and an outpouring of industry support emphasizing that this subject is of great public importance and that the Court needed to resolve a circuit split regarding the scope of FAAAA preemption, the Court nevertheless today declined to accept the case for review. Again in this case therefore, the decision of the Ninth Circuit stands. Upon the Ninth Circuit’s dissolution of the stay that it previously entered, the State of California may proceed to enforce AB5 against motor carriers in California. The Ninth Circuit’s order entering the stay last year stated that, if certiorari was denied, the Ninth Circuit would issue the mandate to the trial court “immediately.” Further, the Ninth Circuit requires the parties to advise the Ninth Circuit “immediately” upon the denial of certiorari.
The Supreme Court’s decision to deny review has profound consequences for the transportation industry and supply chains in general. At a time when transportation resources and supply chains are already stressed, motor carriers, transportation intermediaries, and commercial shippers must all now adapt to the new landscape in California. Moreover, the industry can expect that other like-minded states will proceed with “copycat” legislation, creating yet further supply chain disruption.
Most immediately, motor carriers must evaluate and adopt alternative operating models to mitigate risk if they intend to continue to do business in California. These alternatives include pivoting to an employee driver model, seeking to comply with the business-to-business exemption in AB5, deploying a freight brokerage model, utilizing a “two-check” system of compensation, or implementing a “taxi cab medallion” model. Motor carriers who quickly adapt and innovate may be able to make summer lemonade out of the lemons delivered last month by the U.S. Supreme Court.