The Transporation Lawyer, February 2015

The

TransporTaTion

LawyerFebruary 2015 • Volume 16, Number 4

A Comprehensive Journal of Developments in Transportation Law

TLA’s Website: www.translaw.org CTLA’s Website: www.ctla.ca

A Joint Publication of

TransporTaTion

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associaTion canadienne

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Representatives-At-LargeSteven M. CantyChilton, Yambert & Porter303 W. Madison St., Ste. 2300Chicago, IL 60606847-625-8200; Fax: [email protected]

Heather C. DevineGowling Lafleur Henderson LLPOne Main Street, WestHamilton, ON L8P 4Z5CANADA905-540-3289 Fax: [email protected]

Mickey R. Dragash Gordon Trucking, Inc. 151 Stewart Road, SW Westerville, WA 98047 253-891-4332 Fax: 253-891-6732 [email protected]

Pamela B. JohnstonTransplace509 Enterprise Drive; P.O. Box 425Lowell, AR 72745479-770-7256 Fax: [email protected]

G. Clark Monroe, IIDunbarMonroe, P.A.270 Trace Colony Park, Suite ARidgeland, MS 39157601-898-2073, ext. 207; Fax: [email protected]

Justin R. OlsenOlsen Skoubye & Nielson, LLC999 E. Murray-Holladay Rd., Ste. 200Salt Lake City, UT 84117801-365-1030; Fax: [email protected]

Jeffrey M. PincusLewis Johs Avallone Aviles, LLPOne CA Plaza, Ste. 225Islandia, NY [email protected]

Charles E. Riley IVSimon, Peragine, Smith & Redfearn, LLP 1100 Poydras Street, Suite 3000 New Orleans, LA 70163 504-569-2030; Fax:504-569-2999 [email protected]

CTLA Representative-At-LargeStéphane LamarreCANADA 416-203-9509 Fax: 416-203-9444 [email protected]

TLA EXECUTIVE OFFICEP.O. Box 15122Lenexa, KS 66285-5122913-895-4615; Fax: 913-895-4652Email: [email protected]: www.translaw.org

The TransporTaTion LawyerCopyright © 2015. TLA and CTLA. All rights reserved.

Publication Schedule coPy deadlineS

May 15, 2015 • August 12, 2015 • October 14, 2015PLEASE submit material by email in time to meet these

deadlines to TLA Editor, Frank C. Botta, or CTLA Director of Communications, Pierre-Oliver Ménard Dumas

(see addresses above). You can also call, fax, or email either editor with questions.

President/Président Roger S. WattsLindsay1000 – 564 Beatty StreetVancouver, BC V6B [email protected]

Vice President & Secretary/ Vice-président et secrétaireSanj SoodAird & BerlisBrookfield Place, 181 Bay Street, Suite 1800, Box 754Toronto, ON M5J [email protected]

Treasurer/TrésorierMyer RabinForté Law77 Vaughan Harvey Blvd.Moncton, NB E1C [email protected]

Director of Communications/ Directeur des communicationsPierre-Olivier Ménard DumasMcCarthy Tétrault1150, rue de Claire Fontaine, Bureau 700Québec City, Quebec G1R [email protected]

Directors/AdministrateursDouglas EvanchukMcLennan Ross600 West Chambers 12220 Stony Plain RoadEdmonton, Alberta T5N [email protected]

Dionysios RossiBorden Ladner Gervais LLP1200 Waterfront Centre, 200 Burrard St.P.O. Box 48600Vancouver, BC V7X [email protected]

Israel LudwigDuboff, Edwards, Haight & Schachter1900 – 155 Carlton St.Winnipeg, Manitoba R3C [email protected]

Douglas BestMiller ThomsonScotia Plaza 40 rue King Ouest, Bureau 5800Toronto, ON M5H [email protected]

Stéphane LamarreCain Lamarre Casgrain Wells630, Boul. René-Lévesque Ouest, Bureau 2780Montreal, QC H3B 1S6514 393-4580 [email protected]

Gordon HearnFernandes Hearn155 University Avenue, Suite 700Toronto, ON M5H 3B7 [email protected]

Geoffrey L SpencerMcInnes Cooper10 Fort William Place 5th FloorBaine Johnston CentreSt. John’s, NL A1C [email protected]

D. Kevin Burke Cox & PalmerPurdy’s Wharf, Tower I1100-1959 Upper Water StreetHalifax, NS B3J [email protected]

Jan StevensStevenson Hood Thornton Beaubier500 123 – 2nd Avenue SouthSaskatoon, Saskatchewan S7K [email protected]

D. Kevin Burke Cox & PalmerPurdy’s Wharf, Tower I1100-1959 Upper Water StreetHalifax, NS B3J [email protected]

Past President/Ancien présidentMarc D. IsaacsIsaacs and Co.11 King Street West, Suite 1200Toronto, ON M5H [email protected]

CTLA Website: www.ctla.ca

canadian tranSPort lawyerS aSSociation

2014-2015 officerS and directorS

tranSPortation lawyerS aSSociation

2014-2015 executive committee memberS

President Marc S. BlubaughBenesch, Friedlander, Coplan & Aronoff, LLP41 S. High St., Ste. 2600Columbus, OH 43215614-223-9300; Fax: [email protected]

President-ElectRichard A. WestleyWestley Law Offices, S.C.7633 Ganser Way, Ste. 100Madison, WI 53719608-829-2981; Fax [email protected]

First Vice PresidentSteven B. NovyChilton Yambert Porter LLP303 W. Madison St., Ste. 2300Chicago, IL 60606 847-625-8200; Fax: [email protected]

Second Vice PresidentFrank C. BottaEckert Seamans Cherin & Mellott, LLCU.S. Steel Tower600 Grant St., 44th Fl.Pittsburgh, PA 15219412-566-1940; Fax: [email protected]

Secretary/TreasurerHillary Arrow BoothBooth LLP1849 Sawtelle Blvd., Suite 500Los Angeles, CA 90025310-641-1800; Fax: [email protected]

Immediate Past PresidentDirk H. BeckwithFoster, Swift, Collins & Smith, PC32300 Northwestern Hwy., Ste. 230Farmington Hills, MI 48334248-539-9918; Fax [email protected]

Voting Past PresidentsFritz R. DammScopelitis, Garvin, Light, Hanson & Feary, PLC535 Griswold St., Ste. 1818Detroit, MI [email protected]

M. Gordon HearnFernandes Hearn LLP155 University Ave Ste 700Toronto, ON M5H [email protected]

Kathleen C. JeffriesScopelitis, Garvin, Light, Hanson & Feary, LLP 2 N. Lake Ave., Suite 460 Pasadena, CA 91101626-795-4700; Fax: [email protected]

Greg E. SummyNorfolk Southern Corp.Three Commercial Pl.Norfolk, VA 23510-2191757-533-4890; Fax: [email protected]

Eric L. ZaludBenesch, Friedlander, Coplan & Aronoff200 Public Square, Ste. 2300Cleveland, OH [email protected]

mailto:[email protected]



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AssociAtion Business

Messages from the Presidents TLA – Marc S. Blubaugh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 CTLA – Roger S. Watts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Editors’ Columns TLA – Steven B. Novy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 CTLA – Pierre-Olivier Ménard Dumas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 TLA Webinar: Save the Date – March 4, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 TLA Secretary/Treasurer’s Report – Hillary Arrow Booth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 2015 TLA Annual Conference and CTLA Midyear Meeting – David B. Hall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

tLA committee RepoRts

Nominating Committee Report – Dirk Beckwith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 TLA Membership Report – Fritz Damm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

tLA FeAtuRe ARticLes And cAse notes

FeAtuRe ARticLes

Fly with the Eagles: Defeat the Reptile – Joseph Baiocco and Jedidiah Bernstein . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

Parked Freight: The Legal Issues of Storage and Distribution Logistics – Steven W. Block . . . . . . . . . . . . . . . . . . . . . . . . . . .29

Fleet Maintenance and Its Impact on Litigation – Mike H. Bassett and Aaron J. Rolen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

Driving the Preventability Determination Out of Court: Practical Guidance on Excluding the Preventability Determination from Trial When the Commercial Driver’s Negligence Is Contested – Chris Cotter . . . . . . . . . . . . . . . . . . .39

inteRnAtionAL section Know the Ropes When Flagging Your Vessel: A Comparison of Three of the World’s Du Jour Vessel Registries – Heather C. Devine and Stephanie S. Penninger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

Transportation Lawyers: Anticorruption Statute Violations Can Stop Your Clients Cold – Kurt B. Gerstner . . . . . . . . . . . .50

cAse notes

Veiled Personal “Introductions” Are of No Import – Cameron Roberts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56

Two Courts . Two Analyses of Owner-Operator Agreements – Matthew P. Barrette and Edward M. Farmer . . . . . . . . . . . . . .59

ctLA FeAtuRe ARticLes And cAse notes

Loss Transfer in Ontario – Kim E. Stoll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62

Claims for Damages Against a Carrier in Quebec Transportation Law – Prescription and Forfeiture – Pierre-Olivier Ménard Dumas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65

Violence in the Workplace: What Transportation Companies Need to Know – Jacques Rousse and Marianne Bellefleur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68

memBeRship section

In Memoriam – Philip Gordon ‘Gordy’ Payne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72 TLA Membership Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73 TLA Committees Application Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74 CTLA Membership Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75 Calendar – The Year Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76

February 2015 • Volume 16, Number 4

ConTenTs

The Transportation Lawyer (ISSN 1533 6018) is published five times per year (Feb ., Apr ., July, Oct ., and Dec .) for $45 per year to its members . It is published by the Transportation Lawyers Association, 18000 W . 105th St ., Olathe, KS 66061-7543 . POSTMASTER: Send address change to The Transportation Lawyer, 18000 W . 105th St ., Olathe, KS 66061-7543, email: TLA-info@goAMP .com .

The TransporTaTion Lawyer

TLA

TransporTaTion Lawyers associaTion • canadian TransporT Lawyers associaTion

President’s Message

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“Be always at war with your vices, at peace with your neighbors, and let each new year find you a better man.”

– Benjamin Franklin

Although you are reading this column in February, the TLA’s publication process requires that I write

my President’s Message for The Transportation Lawyer in December . As December winds down, and the new year approaches, I—like so many of us—find myself not only reflecting on 2014 but also looking ahead to 2015 and beyond . As I have mentioned in prior columns, I am an optimist by nature and am very bullish (with good cause) about the future of TLA . Let me share a few of the many reasons why the future of TLA is so bright .

• The Current Officers. We are all very fortunate to have a remarkable slate of colleagues moving up the TLA officer “ladder .” President Elect Dick Westley is one of the first persons I ever met at a TLA event (the Chicago Regional Seminar) and is truly among the most devoted TLA members I know; he is a model of unselfish giving and a first-rate promoter of TLA . First Vice President Steve Novy, who serves as your current TTL Editor, labors quietly behind the scenes with the utmost humility while elevating TTL’s standards of excellence and engaging and inspiring new and old members alike . He is a true servant-leader . Second Vice President Frank Botta is always ready to lend a hand, has brainstormed wonderful ideas that we have implemented for TLA, and has taken industry education to heart by posting more current news items to the TLA website than any of his predecessors (myself included!) . Secretary/Treasurer Hillary Booth is a font of fresh ideas for TLA, generously volunteers at every opportunity, and manifestly strives to exceed expectations with respect to every task that she assumes . In short, TLA’s future is in exceptionally good hands .

• New Programs . As I write this, we are preparing for the inaugural Freight Claims Boot Camp in Chicago to be held on the day before the Chicago Regional Seminar . By the time you read this, I am confident that this new program will have been a smashing success . Indeed, by the time that this edition actually went to print, we confirmed that over 100 attorneys and claims professionals attended the Boot Camp, making the event a true triumph! Experimenting with new events like this

Marc S. Blubaugh

demonstrates that TLA and its many forward-thinking members are not willing to be satisfied with the status quo . Robert D. Moseley, Jr. originally conceived of the idea, and the current Co-Chairs of the Freight Claims Committee (Fredric Marcinak and Beata Shapiro) ran with it . Wesley S. Chused and Craig J. Helmreich kindly volunteered to develop and present the curriculum with Rob . Talk about teamwork!

• Webinars . The TLA Webinar Series continues to dazzle—drawing seasoned members, young lawyers, and even non-lawyers to learn from some of TLA’s most knowledgeable presenters . Our most recent webinar, presented by Steven W. Block and Hillary Booth, drew over 50 attendees . The convenience of receiving such quality information from subject matter experts in the comfort of your office or home while being able to submit questions and earn CLE has a proven appeal . Jeff Simmons and Michael Tauscher, along with their committee, have passionately driven the success of these webinars . These webinars are now a permanent part of the many TLA

educational offerings .

• TLA’s Resource Library . TLA continues to build its extraordinary, full-text searchable resource library every year . As most of you hopefully recognize, this on-line library contains not only every edition of TTL from 2002 through the present but also all conference papers and presentations from roughly 2007 through 2013 . Surprisingly, I find that this repository of rich information remains underappreciated by many in TLA . Truthfully, every research project you undertake should start with a quick visit to www .translaw .org, with a click under “Resources,” and a selection of “General Resource Library .” You can then enter search terms (words or phrases) to search well over a decade of deep, accurate, quality research . This resource library becomes increasingly valuable year after year as the amazing work product of our members is continually uploaded .

• Social Media . While I am no social media maven, I have been delighted to see TLA make strides on this front . By the time you are reading this President’s Message, the TLA “LinkedIn” site will have gone live . We are excited about the prospect of further engaging existing members who already have a natural facility with LinkedIn (or who may simply find the TLA Forums a bit clunky) as well as non-members who will now be able to get a meaningful

Association BusinessThe TransporTaTion Lawyer


TLAAnnouncement

Between the time that I authored my President’s Message and the time of TTL’s publication, TLA experienced a change in its Executive Director . As most of you probably saw in our bi-weekly “TLA Updates and Announcements” via email, TLA’s management company, Applied Measurement Professionals, implementated a business plan that required a staff reduction due to business changes . Unfortunately, this resulted in Janene Dawson, our Executive Director, losing her position . Janene has been serving as the TLA Executive Director since early 2014 . The TLA Executive Committee, committee chairs, and members have enjoyed working closely with Janene . Though her time with TLA was relatively short, she provided much valuable support, creativity, and enthusiasm over the past year . Indeed, she was a large part of the successes that we have had over the past year . Janene worked diligently to train her successor, Katherine Hughey, before her departure to ensure a clean transition . TLA wishes all of the best to Janene and looks forward to working with our new Executive Director, Katherine .

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glimpse into what TLA has to offer . I am delighted to see TLA take this leap forward .

• Mobile Application . As I have reported in prior President’s Messages, TLA is also experimenting with technology in other areas . Our mobile “app” for the upcoming TLA Annual Conference and CTLA Midyear Meeting will be rolled out shortly . It will hopefully serve as the foundation for similar efforts in the future . The “app” will not only contain a great deal of general conference information (an attendee list, the conference agenda, a map of the resort, etc .) but will also permit TLA to “push out” announcements and other information to attendees each day, will permit moderators and speakers to conduct polls, will permit attendees to post photos and commentary throughout the course of the conference, and will offer a variety of other bells and whistles that should enhance the experience of all attendees at the Annual Conference . Help make this experiment a success and be sure to download the “app” early this year when it becomes available .

• Financial Wherewithal . TLA remains in excellent financial shape—not only generally staying on budget but building prudent reserves as well as continued funding for our “Special Projects Fund,” which is being used and will continued to be used for the future benefit of the association—particularly when large capital projects arise (such as website development and the other technical enhancements that we have underway) . Naturally, we invite all members to brainstorm and let us know what special projects you think would benefit TLA members in the future . This is your opportunity to dream a bit for the benefit of the association . Your thoughtful brainstorming would be most welcome . Please share your ideas with the Executive Committee and help shape TLA .

• Past Presidents . TLA is fortunate to have a bevy of past presidents who continue to give of their time and talent in a host of ways . Apart from those who serve as Voting Past Presidents on the Executive Committee, all

of the Voting Past Presidents are acutely interested in preserving TLA’s culture while simultaneously ensuring that the association grows and evolves in a positive way . The more than 25 living past presidents continue to use their energy to your benefit . I have been a member of many organizations and can unequivocally say that past leaders of TLA remain very much engaged in the future of our association .

• Members . Of course, it should go without saying, but what makes TLA truly special is the unique friendship and camaraderie among TLA members . You, the members, are what keeps our association so vibrant . Our members generously volunteer their time to educate the rest of us through published articles and program materials, operate as a sounding board for those noodling over a thorny legal issue for a client, serve as referral sources, aid as local counsel, and simply create fond (and often hilarious) memories at TLA events and elsewhere . I have had the good fortune of spending time with TLA members in a host of non-TLA social settings: catching an OSU-Northwestern football game with Jim Hardman when he was in Columbus, popping in on David Popowski after disembarking from a carriage ride with my family in downtown Charleston that happened to end just outside his office, bumping into J.W. Taylor and his family while watching the “Finding Nemo” musical at the Animal Kingdom in Orlando during a Disney vacation last month, and the like . TLA is truly blessed to be a wonderful group of attorneys who are friends, colleagues, and generous volunteers . With members like ours, the TLA will inevitably continue to thrive .

So, as 2014 is winding down, and I can see 2015 peeking over the horizon, I am enthusiastic about what the future holds for TLA and its constituent members . In turn, I invite each of you to seize some of the many opportunities that the new year will present to help keep our association’s momentum moving forward for the indefinite future . Together, we will continue to grow our association and build upon TLA’s sundry successes .


CTLAAs you are well aware, the last couple of years have

been a tumultuous time for energy transportation in North America . Concerns over safety and environmental protection, punctuated by global economic events, have had great impacts on the further development of new and existing transport resources . Recently, a few of those events have been in the news in Canada .

As most of you already know, the Canadian Transportation Safety Board (TSB) released its report last year concerning the terrible derailment and explosion in Lac-Mégantic, Québec in July of 2013 . The report (which may be found at http://www .tsb .gc .ca/eng/rapports-reports/rai l/2013/r13d0054/r13d0054 -r-es .asp) contained a number of findings, including 18 different causative or contributing factors, as well as 16 further findings as to non-causative risk . Accordingly, the report found that the tragedy “was not caused by one single person, action or organization”, but that many factors played a role . The report also found that “addressing the safety issues will take a concerted effort from regulators, railways, shippers, tank car manufacturers, and refiners in Canada and the United States” in order to help prevent similar occurrences in the future . A number of recommendations also arose from the report, including enhanced protection standards for tank cars, additional physical defences to prevent runaway cars, improved emergency response assistance plans when shipping large volumes of liquid hydrocarbons, and a more hands-on role from Transport Canada regulators with regard to railway safety management systems . A number of actions were subsequently undertaken on both sides of the border, by both Transport Canada and the NTSB, strengthening regulations and recommendations in these areas . It follows that the effects and further actions stemming from this tragedy will be far-reaching, and will be felt for some time .

Of course, disasters such as Lac-Mégantic only heighten the focus on transportation alternatives, such as the use of pipelines . Needless to say, these options are not without their own dangers or risks, both physical and political . Of particular interest to both countries is the future of the long-debated Keystone XL pipeline project . Originally proposed in 2008 to carry oil sands from Alberta to U .S . refineries along the Gulf of Mexico coast, the project has fuelled a debate over jobs, energy security and the environment . Backers say it will create jobs and reduce U .S . reliance on

imported oil . Environmentalists say the pipeline would worsen climate change by encouraging development of oil sands, which are more carbon-intensive than other forms of oil . Currently, the Obama administration is continuing its review of the project, though a final recommendation after environmental reviews has been paused until resolution of a court challenge to the pipeline’s path in Nebraska . As you read this, however, the newly-elected (and Republican-led) U .S . Senate will be taking its own steps to force a vote

on the issue, which Senate leaders have said is among the top items on their 2015 agenda . And make no mistake; those of us in Canada will continue to watch those developments equally closely .

And as if all of these concerns were not enough to captivate the interest of the North American transportation lawyer, the current global oil market has been creating additional drama . As always, global oil concerns are closely tied to politics, and recent developments are no exception . Plunging oil prices have created tension between rival oil-producing countries, and their tangible effects going forward on North American energy production (in both

Canada and the U .S .) have only just begun . Lower oil prices have also had their effects on countries such as Russia, which as of December 2014 has additionally been the target of new and stricter Canadian economic sanctions specifically targeting Russian oil and gas sectors . On the heels of similar announcements from the U .S . and the European Union, Canada enacted the Regulations Amending the Special Economic Measures (Russia) Regulations (SOR/2014-316) . These amending regulations contain new sanctions and clarifications, including a prohibition against new contracts for the export, sale, supply or shipment of certain goods to Russia for use in deep-water, arctic or shale oil exploration and production, along with a prohibition against the provision of services related to these goods . The sanctions also prohibit the provision of financial, technical or other services related to any good whose export, sale, supply or shipment is prohibited . Similarly, they prohibit indirect conduct which may cause, assist or promote any prohibited conduct .

Needless to say, all of these issues create concerns and questions going forward for transport lawyers across North America . No better reason, then, to ensure that you attend the TLA/CTLA slate of events for 2015 . In addition to providing a great networking resource with colleagues from

President’s Message

Roger S . Watts

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all over the continent (and the opportunity to see some great regions of our respective countries), TLA and CTLA conferences are the place to get cutting-edge presentations and commentary from and by the professionals at the forefront of the industry .

By the time you read this message, the annual TLA Regional Seminar will have taken place in Chicago . In addition to the TLA and CTLA Annual Conferences, the Regional Seminar is a great place to keep in touch with your TLA/CTLA colleagues, get up to date in the world of transportation law (and a head start on those hard-to-get CPD hours), and break those winter blues with a little good cheer and fun . Being from the West Coast, I had not spent a great deal of time in Chicago before attending my first Regional Seminar in 2013, but I have been back every year since, and it never disappoints (even in January) . Many thanks to the TLA for hosting such a great annual event .

I would, of course, be remiss if I did not mention here the upcoming TLA Annual Conference in Scottsdale, Ariz . in May of this year, but I won’t steal the thunder of TLA President Marc Blubaugh in expanding on the

details . Suffice to say, however, that the event promises to be spectacular; I encourage our Canadian members to take advantage of what is always an excellent conference . Looking forward to it!

And don’t forget, this year will bring the 2015 CTLA Annual Conference to Kelowna, BC, on the friendly shores of Okanagan Lake . The conference will take place October 1-3, 2015, at the Delta Grand Okanagan Resort . As mentioned above, the conference will feature up-to-the-minute legal topics for discussion, as well as some world-class social and entertainment activities (including PGA-calibre golf at Predator Ridge GC, and dinner over the lake at Mission Hill Family Estate Winery, the 2013 Canadian Winery of the Year and winner of ‘Best Pinot Noir in the World’ at last year’s Decanter World Wine Awards) . And best of all, you can fly to Kelowna direct from Toronto, Vancouver, Calgary, Seattle and San Francisco . Please watch www .ctla .ca for further details .

In the meantime, take care out there . I hope you are enjoying a happy and prosperous 2015, and I look forward to seeing you in Scottsdale and Kelowna .

TLA Website: www.translaw.org

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TransporTaTion Lawyers associaTion • canadian TransporT Lawyers associaTion6

TLAEditor’s Column

Winter came early in 2014 to the boreal forests of Michigan . Another polar vortex caused by a storm

in the Bearing Sea . Deer season in the Upper Peninsula brought 3-5 feet of snow and zero temperatures for opening day on November 15, 2014 . While my son, Michael, and I answered “participating” to the call for another adventure, it turned out to be more of a social event . This is probably what it should be anyway, and in many ways always is . We spent more time in the company of relatives and friends rather than in the woods . Now four months later, we are still looking out the window at raw, cold temperatures, winds and ice . By February it is harder to enjoy the hibernal weather and brumal sports in the upper Midwest .

However, we are looking forward to being in the Sonora Desert at the award winning, Omni Scottsdale Resort & Spa at Montelucia on May 12-16, 2015 with President Marc Blubaugh at the TLA’s Annual Conference and the CTLA Midyear Meeting . There is not a better way to begin the warm season than in Scottsdale, Ariz . with a magnificent view of Camelback Mountain . President Blubaugh has vowed that it will be a conference to remember . David Hall, the Conference Chair, and his committee have masterfully arranged for another excellent educational program, which has become the hallmark of TLA’s conferences . It is not only time to save the date, but to book your hotel and flight reservations . We invite you to look at www .montelucia .com or “Google” the resort online for more details about this wonderful destination . You can review the details for the Annual Conference program including the calendar of events and registration forms in this issue or visit the TLA website .

Looking for another warm weather venue in 2016? What better place than the gulf coast of Florida at the Hilton Sandestin Golf and Resort and Spa, which will host the 2016 TLA Annual Conference and the CTLA Midyear Meeting . President Elect, Richard A. Westley, has chosen this exceptional property of 2,400 acres boasting of sugar white sand beaches, four championship golf courses, outstanding tennis facilities, and a world class spa . The educational portion of the conference will be orchestrated by his Program Chair, Louis Amato-Gauci, and a most outstanding program committee . President Elect Westley has pledged that his will be a great conference in another

fabulous venue . You will want to also add this one to your schedule .

With respect to the 2017 TLA Annual Conference and CTLA Midyear Meeting, we are pleased to advise that we signed a hotel contract, actually two, at La Fonda on the Plaza and the Inn and Spa at Loretto Hotels in Santa Fe, New Mexico . They are contiguous, quaint, and each has its own character . The selection came down to location, location, and location . The La Fonda on the Plaza features

the town square and Native American market at its door step . The Inn and Spa at Loretto Hotel is literally at the very end of the famous Old Santa Fe Trail . Its doorway provides a view of the Rocky Mountains . Both are steps away from 265 plus restaurants, more art galleries than can be visited, and a sundry of outdoor/indoor adventures and/or places to explore . The hotels have agreed to work together to accommodate TLA activities and all our guests . Most of our social events will be held at the La Fonda on the Plaza . The educational portion will be held at the Inn and Spa at Loretto . We are also pleased to

advise that Christopher M. Kelly and Steven M. Canty have agreed to serve as Co-Chairs . They have promised the conference will have something for everyone . For those who have not had the unique experience of visiting Santa Fe, it is a blend of Native American, Spanish, and Western cultures . It has been described as The Adobe Disneyland and The Enchanted Land . If you have any thoughts, suggestions or would like to volunteer for any of the social events or the educational programs, please contact Mr . Kelly or Mr . Canty .

In keeping with the TLA’s commitment to excellence in continuing legal education, we would like to thank Timothy S. Groustra and Steven M. Canty for another great Chicago Regional Seminar . It was one of TLA’s finest programs, reflecting the hard work and over a year’s worth of planning in putting together the program . They once again assembled an amazing array of speakers, panels, and social events which provided an opportunity for attendees to network and spend time with TLA friends, colleagues, new members, and guests . We also thank Fredric Marcinak and Beata Shapiro, Chairs of TLA Freight Claims Committee, for hosting and arranging a very, very successful, and well attended Freight Claims Boot Camp . It featured a stellar

Steven B. Novy

http://www.montelucia.com



Find the Career Center at www.translaw.org.

Looking for a job or to fill a position at your firm? The TLA Career Center is open and ready for your postings. The TLA Career Center is connected to a larger attorney network, so your posting will get maximum exposure in the legal community.

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faculty of Robert D. Mosley, Wesley S. Chused and Craig J. Helmreich.

Most importantly, in this column we would like to express our appreciation for the effort, work, and devotion of those members who took the time from their families and law practice during the holiday season to submit articles for the February issue . We thank you for your support and extend our gratitude for making the job of Editor a pleasure . It is this type of commitment that ensures that the TTL remains the highest quality journal in the industry .

Of further note, in this issue we are continuing to expand the TLA’s reach to our European constituents with the intent of growing our international membership . To that end, we have included two articles which will be of interest to our more global counsel . The first is from Kurt B. Gerstner, who discusses the subject of anti-corruption laws and a new level of complexity as clients navigate the legal and cultural differences in expanding their businesses

internationally . The next is from Stephanie S. Penninger and Heather Devine who delve into the international flagging requirements under which all vessels must sail, providing insight into the three most popular registries . We would also like to thank the other authors for their excellent legal articles and case notes in this edition . They include Steven W. Block, William V. Pentecost, Cameron Roberts, Mike H. Bassett, Joseph Baiocco, Jedidiah Bernstein and Edward Farmer. We expect our readers will enjoy and benefit from their expertise .

Lastly, we are always in need of articles for the TTL . We cannot do it without you . We encourage you to share your legal briefs, experiences and ideas with other members by submitting a paper for publication . It will provide an opportunity to raise your and/or your associates’ profile in the industry . Please email your articles or case notes to snovy@cyp-law .com . We welcome all contributions and inquiries concerning possible topics .


TransporTaTion Lawyers associaTion • canadian TransporT Lawyers associaTion8

CTLAEditor’s Column

Commuting: I invest so much time commuting . It’s not that I live far from my office (about 6 miles actually)

or that I don’t love my car, the problem is that the morning traffic is so dense that running would take the same time as driving . Factor in the cost of the car, the parking and the insurance and it all adds up to a serious investment . What if we could change that? Driverless cars would be a solution . Not only could I avoid driving and start my day 6 miles earlier, but also I would not need to pay parking fees or the moving violations associated with my driving prowess . Driverless cars are one of the very probable futures for the automobile industry . Several prominent car manufacturers are currently working on vehicles with some degree of assistance to the driver; such as the automatic parking mechanism, lane keeping, automatic braking or autonomous cruise control that automatically adjusts the vehicle’s speed to maintain a safe distance between it and the vehicles ahead . The question is no longer IF, but WHEN I will get my own personal driving droid . Several key legal questions arise from the rise of the machine . For now, the regulators are trying to regulate the testing and the implementation of such vehicles . Soon, they will need to address their potential uses .

In the U .S ., several states, including Nevada, California, Florida and Michigan, have successfully enacted laws addressing autonomous vehicles . Whether to simply state that they don’t prohibit such vehicles or to provide guidelines on testing them, these states have taken the approach of trying to update the regulation as fast as the technology . For that, they should be saluted . In the meantime, Transport Canada is looking at its proactive neighbour and wondering if driverless cars are safe enough for our icy roads .

Also leading the change is the National Highway Traffic Safety Administration (NHTSA), which has established an official classification system of the level of automation; from level 0 where the driver is in full control, to level 4 where no driver is required . While we are not yet at the point where no driver is required to operate a commercial vehicle, we should soon see the emergence of vehicle-to-vehicle (V2V) communication that could increase the safety of road users, each vehicle providing the other with traffic and safety information . V2V is the first step toward automated highways where all vehicles work together to achieve a safe and efficient traffic flow . The NHTSA published in August 2014 an advance notice of proposed rulemaking asking for

comments on future V2V regulations and is still, at the time of this column, collecting comments . California is also currently working on updating its regulations for the post-testing deployment of autonomous vehicles . The regulations should establish the requirements that manufacturers must meet to certify that their autonomous vehicle has been successfully tested, meets certain safety requirements, and is ready for the general public to operate on public roads . An initial public workshop on the deployment regulations

in March 2014 and a second public workshop will be conducted at the California DMV’s headquarters on January 27, 2015 . California could well be drafting the next regulatory standard for the country and beyond . Sooner than later, we will see the adoption of a complete body of regulation for the use of this technology .

This disruptive technology will have a defining impact on our lives once the vehicles are cleared for general use . A very interesting aspect of the driverless car would be the sudden increase in carriage capacity . The extra seating capacity and empty trunk of a level 4 driverless car could well revolutionize public transit and

last mile delivery . My car could return to my home after I get to the office, and take passengers along the way, or could go pick up my groceries or the parcel I was waiting for during business hours . Your car could attend various trusted locations, open the trunk and wait to be loaded with whatever freight needed to be delivered to your door . Your car could offer taxi service during the day instead of simply waiting for you in the parking lot . Another disruptive impact would be the severe reduction in moving violations . Approximately 41 million people receive speeding tickets in the U .S . every year, paying out more than $6 .2 billion per year, according to statistics from the U .S . Highway Patrol published at StatisticBrain .com . Initial reports show that driverless cars respect the speed zone, don’t text and drive and do full stops at intersections . The loss of revenue could result in a very difficult adaptation for some cities .

Will we be liable for the acts of our machines? Will we see new kinds of moving violations? Such as allowing a vehicle to drive without updated software or without a fully charged battery? Who will then be liable for the moving violation issued to the driverless car? The manufacturer or the owner of the vehicle? Will a new field of law, a mix between vicarious liability and product liability, rise with the machine or will the old laws about horse carriage and

Pierre-Olivier Ménard Dumas



TLA WebinarOUCH, THAT HURT!

SHIPPER/CARRIER LIABILITY TO DRIVERS AND THIRD PARTIES FOR IMPROPERLY LOADED FREIGHT

(At the Liability Interstices Where Casualty and Cargo Collide)March 4, 2015

1:00 p.m. – 2:00 p.m. EST

Moderator: Richard A. Westley – Westley Law Offices, S.C., Madison, Wis.Presenters: Eric L. Zalud – Benesch, Friedlander, Coplan & Aronoff, LLP, Cleveland, Ohio Stephen T. Dennis – Strasburger & Price, San Antonio, Texas

This webinar will discuss a phenomenon that involves the physical interface between motor carriers, freight intermediaries, shippers and consignees with respect to cargo loading and unloading. The presentation will address loading and securement obligations of motor carriers and their drivers under the pertinent Federal Motor Carrier Safety Regulations, contracts and case law from across the country, and the applicable liability parameters for all involved parties for claims arising out of injuries to motor carriers’ drivers and to third parties as well as to the cargo itself during the loading and unloading processes. The panel will also provide a sequential analytical process to assess liability in these situations, including potential affirmative defenses, trial and motion practice tips and techniques, and policy recommendations for prevention of these incidents. Don’t miss it!

Registration: To register, visit the TLA website at www.translaw.org.

Editor’s Note:Transportation Secretary Anthony Foxx announced, on February 2nd, 2015, President Obama’s $94 .7 billion Fiscal Year 2016 Budget for the U .S . Department of Transportation . Speaking at a town hall at Google headquarters in Mountain View, Calif ., Secretary Foxx highlighted the President’s budget proposal, which notably includes funding to advance research and autonomous vehicles, while announcing his report “Beyond Traffic,” a look at future trends and choices that will impact America’s transportation system over the next three decades . For more information, please consult the new DOT website: http://www .dot .gov/BeyondTraffic .

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the owner liability’s for the action of the horse be updated? In Quebec, we somewhat already have the laws to govern such situation . Under the Quebec Highway Safety Code, the owner of a vehicle may be convicted of every offence against this Code committed with the vehicle, unless he proves that, at the time of the offence, the vehicle was in the possession of a third person without his consent . In the same idea, section 1465 of the Quebec Civil Code states

that the custodian of a thing is bound to make reparation for injury resulting from the autonomous act of the thing, unless he proves that he is not at fault . This rationale could be applied to driverless cars, after all isn’t that the whole purpose of making it autonomous? The whole question will then be to determine the identity of the person in control of such autonomous machine .


TLA“Money is like muck—not good unless it be spread.”

– Francis Bacon

Now that the Holidays and New Year’s celebrations are behind us, and the winter doldrums are upon us, we can look forward to the Annual Conference in Scottsdale, Ariz ., where we will enjoy catching up with our colleagues and friends under the warm desert sky . The 2015 Annual Conference will inaugurate the use of a conference “app”, will include an expanded and enhanced Welcome Reception, and will eliminate the additional cost for the Thursday night social activity . These and other member benefits are the result of dues paid by the members and the prudent financial management employed by TLA’s Officers and Executive Committee members . I would be remiss if I did not also give credit to Fritz Damm, our Chair of the Membership Committee, as he and that committee work tirelessly to grow our membership and ensure that dues are paid .

TLA continues to enjoy financial stability and security . While “[y]ou never count your money when you’re sitting at the table,” it’s my responsibility to count TLA’s money, so here it goes: As of December 10, 2014, TLA’s operating checking account held $194,943 . The combined balance of the CD and money market accounts as of December 18, 2014 was $400,476 .41 . As you have seen from my prior reports, and those of President Marc Blubaugh, we are in a position to spread the money around and make it work for us . I look forward to reporting on new ideas and uses for our funds, as we are continuing to explore additional member benefits .

As we look for ways to use TLA’s funds to further our association and provide additional member benefits, we may consider some time honored advice regarding money .

As lawyers, we can all appreciate Benjamin Franklin’s advice that, “time is money .” I also agree with his statement that, “An investment in knowledge pays the best interest .” Through TLA, we invest in our knowledge at every conference, through webinars, by using the website forums, and through the TTL . Education is a primary undertaking of TLA and one that it does particularly well . Based on the responses to the surveys taken after each conference and webinar, the quality of the education is consistently high . In looking to the future, there is no doubt that TLA will continue to invest in knowledge . But TLA does more than

merely provide education; it provides a place for networking and for its members to join together in exploring cities across the country . As Ronald Reagan once said, “Money can’t buy happiness, but it will certainly get you a better class of memories .” I, for one, have a wealth of high class TLA memories spanning many years, the more recent ones starting with the spectacular Las Vegas Annual Conference culminating Sam Hallman’s presidency . The improvements planned for the 2015 Annual Conference will certainly add to our enjoyment and the conference should be long remembered .

In closing, I send congratulations to Patrick Foppe, the winner of the contest from my first Treasurer’s Report (Oct . 2014) . Patrick was the first to correctly identify the lyrics quoted from the song “Money” by Pink Floyd . As of my writing of this Report, no one has yet won the contest from the December Treasurer’s Report, where song lyrics are to be found somewhere within the Report, in quotes, as they can also be found in this current Report . The rules and the prize remain the same: the first TLA member to email me with the correct song and artist for the quoted lyrics wins a TLA shirt or hat of his or her choice, and bragging rights (hbooth@BoothLLP .com) . I’m waiting . . .

Secretary/Treasurer’s Report

Hillary Arrow Booth

TLAMission Statement

The Transportation Lawyers Association (TLA) is an independent, international bar association whose members assist providers and/or commercial users of logistics and transportation services, regardless of mode . TLA is dedicated to keeping its members ahead of the constant changes in all aspects of the specialized legal environment affecting the transportation community, regardless of the particular legal discipline involved . With commitment to excellence in continuing legal education, and a long tradition of collegiality and exchange of ideas, TLA is a resource for lawyers seeking to maximize both the quality of the legal services they provide and the quality of their professional lives .

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Association Business

Omni Scottsdale Resort & Spa at Montelucia Join us this year as we travel to the Omni Scottsdale

Resort & Spa at Montelucia . Inspired by the whitewashed villages and sun-drenched hills of Andalusia in Southern Spain, the Omni Scottsdale luxury resort was built in the lush Sonoran Desert to take advantage of more than 300 days of sunshine . Resting on the foot of Camelback Mountain, this hotel balances cutting-edge meeting venues with ample luxurious spa amenities and sparkling pools . We hope you will plan to join us at the beautiful venue .

Check-in time is 4:00 p .m . and check-out time is 12:00 p .m .

Hotel description from http://www .omnihotels .com/hotels/scottsdale-montelucia/property-details/history .

HOTEL RESERVATIONSSpecial room rates have been negotiated for the

Transportation Lawyers Association: $220 single/double/triple/quad occupancy, plus tax (currently 14 .17 percent) and $10 resort fee . One bedroom suites are available for $320 . Based on room availability, the group rate may also apply three days before and after the conference . TLA has negotiated complimentary Internet in the sleeping rooms and throughout the resort grounds .

The cut-off date for reservations is Wednesday, April 22, 2015. Be sure to make your reservations as soon as possible as rooms are likely to sell out prior to the cut-off date.

Hotel reservations should be made directly with the hotel via its online reservation system . To make your reservation, visit our website at www .translaw .org and click on the link located on the Annual Conference page under Upcoming Meetings .

We hope that you will join us in this beautiful location!

LOCATION AND TRANSPORTATION Omni Scottsdale Resort & Spa at Montelucia is located

at 4949 E . Lincoln Drive, Scottsdale, AZ 85253 .

Airports Sky Harbor Phoenix services most major airlines,

domestic and international . Driving time to or from the Omni Scottsdale Resort & Spa at Montelucia is approximately 20 minutes .

ShuttlesThe Montelucia does not provide shuttle service to area

airports .

Taxi Service Estimated taxi fare to the hotel is $25 – $35 one way .

Rental Cars Major rental car companies are located at the airport .

We would recommend that you consider renting a car to get around during your stay .

Parking Self-parking is included in the resort fee . Overnight

valet parking charges are currently charged at $27 per night . These charges will be automatically added to the individual’s room .

On-Site TransportationSedan Service

ExecuCar is the hotel’s preferred town car provider . Transportation to or from the airport can be arranged at $40 for a sedan or $60 for SUVs plus gratuity . Montelucia’s Concierge is happy to assist in arranging transportation through ExecuCar; they can be reached at 480-627-3076 .

Downtown Scottsdale TrolleyExplore Downtown Scottsdale with stops every 15

minutes .

Operating hours: Monday-Sunday 11:00 a .m . – 6:00 p .m .; Thursday 11:00 a .m . – 9:00 p .m .

CONTINUING LEGAL EDUCATION Accreditation has been requested for the 2015 TLA

Annual Conference and CTLA Midyear Meeting from every state with mandatory continuing legal education (CLE) requirements . Please be aware that each state has its own rules and regulations, including the definition of CLE . More information about CLE is available on the CLE page of the TLA website at www .translaw .org .

New in 2015, TLA will be applying for CLE’s for the “Big 3” Breakout Sessions: Freight Claims, Casualty Litigation and Commercial and Business Litigation .

2015tranSPortation lawyerS aSSociation

Annual Conference & CTLA Midyear MeetingMay 12-16, 2015

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Papers and ProceedingsIf you will not be able to attend the 2015 Annual

Conference, but would like to purchase a copy of the flash drive containing the papers and proceedings, complete the name badge information on the registration form, check the box for ordering the papers and proceedings and send it to the TLA Executive Office with payment .

ACTIVITIESGolf

TLA’s annual golf tournaments will be held at the Talking Stick Golf Club on two different courses . The fees of $135 on Tuesday and $135 on Wednesday include greens fees, golf cart, and a boxed lunch . Clubs may be rented at the players’ expense on-site .

The Talking Stick Golf Club is designed to offer two distinct courses with different playing characteristics .

On Tuesday, participants will enjoy the North Course, which contains broad, angular holes, and rewards thoughtful play through the rise of its many options according to one’s level of skill . Its low profile, slightly crowned greens and close-cropped approaches encourage running as well as aerial assaults .

On Wednesday, golfers will enjoy the South Course, which contains a more traditional layout with tree lined fairways, created water hazards, and smaller sloped greens . The course offers a more straightforward style of play, but presents its challenge and strategy in an open and clear-cut fashion .

Welcome ReceptionOn Wednesday, enjoy the evening by reuniting with

lifelong friends and meeting first time attendees and new members during an extended outdoor Welcome Reception on the Kasbah Patio . This year, the event will be extended and enhanced to allow you to stay on property and enjoy your evening at the reception without the need to plan for dinner . Heavy hors d’oeuvres and an open beer and wine bar will be available . Make sure to arrive in time to attend this exceptional kick-off event!

Spouse/Guest EventOn Thursday, spouses and guests will have the

opportunity to enjoy the Musical Instrument Museum Tour and Lunch .

The Musical Instrument Museum (MIM) celebrates music as both of these things—a sustaining human gift and wellspring of global culture . MIM invites people from every nation and walk of life to come and share in this common legacy, be amazed by the beauty and diversity of musical instruments from all across the globe, and be enriched by their sounds and the stories they have to tell . Museum guests will enjoy a close encounter with the instruments themselves, enhanced by state-of-the art audio and video

that bring to life the sounds and sights of these . MIM offers a shared experience of the history of musical instruments throughout the world . The space is bright and open, providing guests with a warm and comfortable environment . The approximately 300 – 350 displays are spaced to provide comfortable viewing and an uninterrupted wireless signal .

TennisTLA’s Annual Tennis Tournament will be held

Wednesday afternoon at the nearby courts . Tennis enthu-siasts will want to be sure to register for the tournament . Transportation will be provided to the adjacent hotel .

Private or group lessons are available by appointment and racquets can be rented at the player’s expense from the Tennis Center .

Thursday Evening – Old Tortilla Factory & Dine Around

On Thursday evening, TLA will board open air trolley cars for a short trip through Scottsdale to the Old Tortilla Factory . This renovated historic adobe home breaks all the rules of the typical Mexican fare . Fusions of flavors enhance the traditional favorites, and house specialties include handmade flour tortillas and blue corn crusted salmon . The restaurant boasts a 1,200 square foot flagstone patio surrounded by 100 year old pecan trees . The “Tequilaria” gazebo bar features over 40 brands of tequila and a complete selection of Mexican beers and liquors . This place is truly one of a kind in the heart of Scottsdale .

The event will feature hors d’oeuvres, alcoholic beverages, and a cigar bar . Guests can also experience a spectacular selection of fine tequilas through conversations with the Tequilla aficionado . Cigar rollers will be on-site to demonstrate the art of cigar rolling . Cigars will be available for purchase . Guests will then enjoy a further short trolley ride to the Dine Around with friends and colleagues in the area and return to the Montelucia at their leisure .

TLA Annual Banquet (black tie optional)Join us for our Annual Banquet on Friday evening . The

banquet is an anticipated time to celebrate the achievements of your colleagues as the Distinguished Service and Lifetime Achievement Awards are presented and launch us into the future as the next TLA President is inaugurated . The outdoor cocktail reception will be held from 6:30 – 7:15 p .m ., followed by the banquet .

Saturday Evening Event – Desert Foothills CookoutPlan to join us Saturday for a casual and relaxed evening

in the pristine Sonoran desert nestled in the foothills of the McDowell Mountains . Seemingly miles from civilization, TLA’s private cookout location offers panoramic views of the mountains and the magnificent Arizona sunset .

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Association BusinessEnjoy cocktails around the campfire or get involved in

a variety of exciting and entertaining activities . Experienced cowboy instructors will help you practice your roping skills on stationary steer heads . Then, you will have the opportunity to mount a lifelike steel horse with the real feel of the saddle and reins, spin the rope above your head, and rope a runaway mechanical steer . Or if you prefer to sit back, relax, and enjoy the sights that the open desert skies offer, you can spend the evening star gazing through a telescope with an astronomer assisting in identifying stars, constellations, and other heavenly bodies .

Dinner will be served Western style in the rustic Southwestern lodge pole barn where you’ll dig into Steak and BBQ Chicken with all the fixin’s . Enjoy the remainder of the evening playing the cowboy games, dancing, or just relaxing under the starlit Arizona sky in this ideal spot for your trip to the Old West .

Pool VolleyballTLA’s Annual Pool Volleyball Tournament will be held

at the hotel pool on Saturday afternoon from 2:00 – 4:00 p .m . Spectators please join us poolside for the fun . No registration is necessary .

Fun Walk/RunTLA’s Annual Fun Walk/Run will be held Saturday

morning 6:30 – 7:30 a .m . Please register for this event .

Local AttractionsVisit the Annual Conference page on the TLA website

for a list of local attractions .

WeatherIn the late spring and early summer, the average low in

Scottsdale is 68 degrees with an average high of 99 degrees .

AttireCasual dress is appropriate for the educational sessions

and most social events . Friday night’s banquet is black tie optional . Please pack a sweater or light jacket as meeting room temperatures tend to be cool .

QUESTIONSPlease direct any questions regarding the TLA

Annual Conference and CTLA Midyear Meeting to the TLA Executive Office at 913-895-4615 or via email to TLA-info@goAMP .com

Early Registration Deadline – March 23, 2015

Regular Registration – March 24 – April 22, 2015

On-Site Registration – After 5:00 p .m . (Central Daylight Time) on Wednesday, April 22, 2015 . Registrations processed on-site may cause a delay at the time you check in at the registration desk . If you need to register after April 22, please bring your registration form and payment directly to the conference .

Non-Members – By registering as a non-member, you will receive an application for membership and must meet the TLA membership qualifications in order to attend the Annual Conference . As a new member of the Transportation Lawyers Association, you may attend the Annual Business Meeting as a voting member . Please note that $225 of the Non-Member Registration Fee pays your TLA dues in full for 15 months: May 1, 2015, through July 31, 2016, the end of our fiscal year . You receive three “free” months of membership benefits, and we are confident that you will want to renew your membership for the fiscal year 2016-2017!

ALL REGISTRATIONS INCLUDE: Continental Breakfast, Welcome Reception, Thursday Reception, Friday Annual Banquet and Saturday Evening Event. In addition, member, non-member, and retired/student registrations include daily refreshment breaks and the TLA Annual Business Meeting box lunch (Thursday).

REGISTRATION CONFIRMATIONFor those registrations received through April 22, 2015,

TLA will send a confirmation by email . When you receive your confirmation, please check the spelling of your name, to ensure it is correct . If there is an error, please contact Susan Hime at the TLA Executive Office at 913-895-4615 x4784 . The information on your confirmation email will be the information used for your name badge and event tickets . If you do not receive a confirmation email within three weeks of registering, please contact our office to confirm receipt of your registration .

REGISTRATION CANCELLATION POLICYWritten notice of cancellations received before March

23, 2015 will be fully refunded . Cancellations received from March 24, 2015 through April 22, 2015 will be refunded less a $100 processing fee . No refunds will be issued for cancellations received after April 23, 2015 . Substitution of registrants is allowed .

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2015 TLA Annual Conference and CTLA Midyear MeetingCalendar of Events and Continuing Legal Education Program

May 12-16, 2015 • Omni Scottsdale Resort & Spa at Montelucia • Scottsdale, Arizona

Tuesday, May 12, 201512:30 p .m . – First Tee Time Golf Tournament

8:00 p .m . – 1:00 a .m . Hospitality Suite

Wednesday, May 13, 20158:00 a .m . – 11:30 a .m . TLA Executive Committee Meeting12:30 p .m . – Shotgun Start Time Golf Tournament3:00 p .m . – 5:00 p .m . Tennis Tournament

5:00 p .m . – 7:30 p .m . Registration6:30 p .m . – 9:00 p .m . Welcome Reception9:00 p .m . – 1:00 a .m . Hospitality Suite

Thursday, May 14, 20158:15 a .m . – 12:30 p .m . EDUCATIONAL PROGRAM I

8:15 a .m . – 8:30 a .m . Opening Remarks Marc S. Blubaugh, Benesch, Friedlander, Coplan & Aronoff, LLP, Columbus, Ohio, President, Transportation Lawyers Association Roger S. Watts, Lindsay LLP, Vancouver, British Columbia, Canada, President, Canadian Transport Lawyers’ Association

8:30 a .m . – 10:00 a .m . The Perils of Seamlessness: How New Technologies Are Impacting, and Will Impact, Vicarious Liability and Negligent Selection Transportation brokers play an ever more important role in the transport continuum, across all modes and across all borders. Historically, there has been a tension between the business minded aspiration to provide seamless, door-to-door, opaque service to the broker’s shipper customers while simultaneously striving to not interject the broker’s role too deeply into the nuts and bolts of transportation, i.e. to avoid “broker as carrier” vicarious liability and negligent selection. This panel will explore that historic tension as well as the impact and import of new technologies which enable brokers to track loads to the mile and to the minute, but could increase their commensurate liabilities.

Moderator: Jeffrey R. Simmons, Lewis, Brisbois, Bisgaard & Smith, LLP, Phoenix, Ariz. Speaker: Christina M. Nugent, Hanson Bridgett, LLP, Sacramento, Calif.

Justin R. Olsen, Olsen, Skoubye & Nielson, LLC, Salt Lake City, Utah Bennett Adelson, MacroPoint, LLC, Cleveland, Ohio

10:00 a .m . – 10:15 a .m . Refreshment Break

10:15 a .m . – 11:15 a .m . How Effective Implementation and Management of Internal Corporate Policies Can Eliminate Claims and Make Lawsuits Defensible Effective, cohesive internal company policies, when they are actually implemented and enforced, can be a panacea for preventing incipient claims, whether cargo, casualty, or employment related; and, if lawsuits actually arise, can render those lawsuits potently defensible on the merits and also vitiate punitive damage claims. What you include and how you articulate it can also be used against you, however. This panel will discuss policy implementation, enforcement and retention with regard to cargo loss and damage, casualty, risk and safety, and employment considerations, across all modes, and the tension between regulatory/legal compliance, sound policy, and creating evidence that can be used against you.

Moderator: Kathleen C. Jeffries, Scopelitis, Garvin, Light, Hanson & Feary, LLP, Pasadena, Calif. Speaker: Hillary Arrow Booth, Booth LLP, Los Angeles, Calif.

Brian Del Gatto, Wilson Elser Moskowitz Edelman & Dicker LLP, Stamford, Conn.

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11:15 a .m . – 12:30 p .m . Anatomy of a Catastrophic Casualty Case: Using Persuasive Advocacy to Protect Your Client’s Interests and Win a Defense Verdict Some of the highest dollar litigation in the transportation arena is catastrophic casualty litigation, often involving multiple injuries and/or deaths, gruesome interregnums of pain and suffering, and reptilian attacks on the company to seek stratospheric punitive damage awards. This panel, through active advocacy, will present tips on actually winning those cases in the courtroom, including insight into opening and closing arguments, trial objections, and cross examination techniques of fact and expert witnesses.

Moderator: Amanda S. Hilty, Bair Hilty, PC, Houston, Texas

Speaker: Mark A. Barber, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, Atlanta, Ga. Scott C. Bentivenga, Lewis, Brisbois, Bisgaard & Smith, LLP, Chicago, Ill.

12:30 p .m . – 1:30 p .m . TLA Business Meeting Luncheon (box lunch provided)

1:30 p .m . – 2:00 p .m . TLA Committee Chair Orientation

2:00 p .m . – 3:15 p .m . Freight Claims Breakout (CLE approval pending)

3:15 p .m . – 4:30 p .m . Casualty Litigation Breakout (CLE approval pending)

2:00 p .m . – 4:30 p .m . COMMITTEE MEETINGS

2:00 p .m . – 4:00 p .m . Corporate Counsel

3:15 p .m . – 4:15 p .m . Rail Transportation

3:15 p .m . – 4:30 p .m . Antitrust & Unfair Trade Practices

4:00 p .m . – 6:00 p .m . CTLA Officers and Directors Meeting

5:45 p .m . – 10:00 p .m . Thursday Evening Event – Tortilla Factory and Dine Around


Friday, May 15, 20157:30 a .m . – 8:30 a .m . Past President’s Breakfast

7:30 a .m . – 8:30 a .m . Casualty Committee Breakfast Roundtable

8:30 a .m . – 12:30 p .m . EDUCATIONAL PROGRAM II

8:30 a .m . – 9:15 a .m . “Stop Thief!”: Cargo Theft – The Criminal Interface Between the Bad Guys and the Transportation Industry Unfortunately, cargo theft is an over $30 billion dollar per year phenomenon that plagues all modes of the transportation industry. Legal rights and liabilities resulting from this rampant theft wave ripple through the transportation continuum. A corollary to cargo theft is impostor liability, by which chameleon carriers and other impostors interject themselves into the shipment schematic, with criminal intent. This panel will provide actual from-the-trenches insight into the cargo theft phenomenon and its prevention, including inside jobs and their detection, and will discuss the various ripple effects of cargo theft throughout the involved contractual relationships, including impact upon liability insurance, intermodal partners, brokers, and other intermediaries, shippers, and forwarders, and potential negligent selection actions.

Moderator: Pamela B. Johnston, Esq., VP of Legal & Risk, Transplace

Speaker: C. Fredric Marcinak, Smith, Moore, Leatherwood, Greenville, S.C. Eugene Zipperle, Ward, Hocker & Thornton, PLLC, Louisville, Ky. John Tabor, AllStates Supply Chain, LLC, Paramus, N.J.

9:30 a .m . – 10:30 a .m . “Show Me The Money!”: Credit and Collection Issues and Strategies in the Transportation Arena Probably the most critical component in the lifeblood of any logistics company is getting paid. In this tumultuous industry, with shutdowns, Chapter 11 and Chapter 7 bankruptcy proceedings, and deadbeats around every corner, practitioners deal with credit and collection issues on a daily basis. This panel will examine some of the issues related to credit and collection aspects in the transportation industry, including dealing with bankruptcy proceedings, supply chain insolvencies, lien rights and priorities, receiverships, factors, and intrusive collection agencies.

Moderator: Laura Kruse, Betts, Patterson & Mines, P.S, Seattle, Wash.

Speaker: Rick A. Steinberg, Nowell, Amoroso, Klein, Bierman, P.A., N.J. Eric L. Zalud, Benesch, Friedlander, Coplan & Aronoff, Cleveland, Ohio Daniel D. Doyle, Lashley & Baer, P.C., St. Louis, Mo.

15



10:45 a .m . – 11:45 a .m . Food For Thought: Safety and Security Issues in the Transportation of Goods Some of the most frequently litigated issues in cargo claims involve the transport and storage of refrigerated cargo and perishables across borders and through often byzantine regulatory regimes. This panel will discuss a smorgasbord of regulatory, cargo, and liability issues relating to food transport safety and security, including the Food Safety Modernization Act, the regulations being promulgated under that Act, and their impact.

Moderator: M. Gordon Hearn, Fernandes Hearn, LLP, Toronto, ON

Speaker: Stephanie S. Penninger, Benesch, Friedlander, Coplan & Aronoff, Indianapolis, Ind. Tyler N. Hayes, Associate General Counsel, CR England, Inc. Grand Haven, Utah Michael P. Smith, Assistant General Counsel, US Foods, Inc., Rosemont, Ill.

11:45 a .m . – 12:30 p .m . It’s a Multi-Modal World: Dissecting the Anatomy of a Cargo Claim Dispute in a Mock Mediation The majority of freight shipments in our interconnected world move by way of various modes of transit, potentially rendering the resolution of freight claims all the more complex with the intersection or overlap of legal regimes. By way of a mock mediation, the speakers will address important liability principles from one regime to another in their attempt to best represent the interests of the successive carriers they represent.

Moderator: Donald J. Vogel, Scopelitis, Garvin, Light, Hanson & Feary, P.C., Chicago, Ill.

Speaker: Matthew P. Barrett, Sullivan, Hincks & Conway, Oak Brook, Ill. Robert L. Reeb, Marwedel, Minichello & Reeb P.C., Chicago, Ill. R. Bruce Rider, General Solicitor, Norfolk Southern Corporation, Norfolk, Va.

12:30 p .m . – 2:00 p .m . Lunch on Your Own

2:00 p .m . – 3:15 p .m . Commercial & Business Litigation Breakout Session (CLE approval pending)

3:15 p .m . – 5:15 p .m . COMMITTEE MEETINGS

3:15 p .m . – 4:15 p .m . Labor & Human Resources

3:15 p .m . – 4:15 p .m Logistics & E-Commerce

3:15 p .m . – 4:15 p .m Alternative Dispute Resolution

3:15 p .m . – 4:15 p .m Bankruptcy & Creditors’ Rights

3:15 p .m . – 4:30 p .m . Motor Carrier Transportation

4:15 p .m . – 5:15 p .m . Federal Legislation, Agency Practice & Security (FLAPS)

4:15 p .m . – 5:15 p .m . Admirality and Maritime Transportation

6:30 p .m . – 7:15 p .m . Cocktail Reception

7:15 p .m . – 10:30 p .m . Annual Banquet (black tie optional)


Saturday, May 16, 20156:30 a .m . – 7:30 a .m . Fun Walk/Run

8:30 a .m . – 12:00 p .m . EDUCATIONAL PROGRAM III

8:30 a .m . – 9:45 a .m . “One If by Air, Two If By Sea … (Three If By Rail)”: Cargo Does Not Only Move by Truck! This panel will focus upon the various non-trucking modes of transportation that are integrated with surface transportation within millions of shipment schematics every day. The panel will discuss specific recent pertinent developments in each particular mode, and will also discourse on how those regulatory, international treaty, and case law developments impact all transportation practitioners’ daily practices in this interconnected world, including ramifications on multimodal surface/air/rail/water/freight movements.

Moderator: Heather C. Devine, Gowling, Lafleur, Henderson, LLP, Hamilton, ON

Speaker: Marc Isaacs, Isaacs & Co., Toronto, ON Steven W. Block, Foster Pepper PLLC, Seattle, Wash. Catherine Pawluch, Davis LLP, Toronto, ON John Fiorilla, Capehart Scatchard, Mt. Laurel, N.J. Richard Lande, Lande Langford, Burlington, ON

16




10:00 a .m . – 11:00 a .m . Workshops: a. Transportation 101

Moderator: George W. Wright, George W. Wright & Associates, LLC, Hackensack, N.J.

b. Litigation – ABCs of Commercial Collections – From Demand to Money in Hand

Moderator: Scott D. Carey, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, Nashville, Tenn.

c. Cross Border North America – Refresher on the Basics of Cross-Border Transactions – Players, Documents, and Application of Laws

Moderator: Daniel L. Fulkerson, Lorance & Thompson, PC, Houston, Texas

11:00 a .m . – 12:00 p .m . Lights, Camera, Action! Ethics Goes to Hollywood Judge Gary Miller will present a revealing look at various rules of professional conduct, professional responsibility, and courtroom decorum, courtesies, and ethics using classic Hollywood film and television clips to highlight proper and improper ethical conduct.

Moderator: Kristi Ann Lush, Zupkus & Agnell, P.C., Denver, Colo.

Speaker: Hon. Gary L. Miller, Marion Superior Court, Civil Division, State of Indiana, Indianapolis, Ind.

2:00 p .m . – 4:00 p .m . Pool Volleyball Tournament

6:00 p .m . – 10:00 p .m . Saturday Evening – Dessert Foothills Cookout (casual event)


17


For more information, please visit www.translaw.org or contact Stephen Uthoff at

562-437-4301 or [email protected].

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Resolve your transportation-related disputes quickly and affordably with

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Is the expense and frustration of litigation catching up with you?

18



To register online, please visit the TLA website at www.translaw.org and click the link on the Annual Conference page under Conferences and CLE.

STEP ONE Name Badge & Roster Information (List as you would like to appear on your name badge)

Registrant’s Name: ____________________________________________________________________________________________________________

Company/Firm: ______________________________________________________________________________________________________________

Address: _____________________________________________________________________________________________________________________

City: ______________________________________ State/Province:__________________________ Country: __________________________________

Zip/Postal Code:_________________________________________ Telephone Number: ____________________________________________________

Email Address: _______________________________________________________________________________________________________________

Special Needs/Allergies:

Vegetarian Vegan Gluten Free Diabetic Kosher Other: _____________________________________________

From what states will you be requesting CLE for this program? ________________________________________________________________________

STEP TWO Liability Waiver and Emergency ContactPlease read and sign. I agree and acknowledge that I am undertaking participation in TLA events and activities as my own free and intentional act and I am fully aware that possible physical injury might occur to me as a result of my participation in these events . I give this acknowledgement freely and knowingly and I am, as a result, able to participate in TLA events and I do hereby assume responsibility for my own well-being . I am aware that photographs will be taken during the conference and may be published in The Transportation Lawyer.

Signature:________________________________________________________________________ Date: _______________________________

Emergency Contact: ____________________________________________________________________________________________________ Name Relationship Phone

STEP THREE Conference Registration By March 23 On/After March 24 On-Site After April 22

Member $775 $825 $950

Non-Member* $1,000* $1,050* $1,125*

Retired Member/Student $500 $500 $500

Spouse/Guest and Children (13 and Older)**

Name:_________________________________________________ $395 $395 $395

Email:________________________________________________

Name:_________________________________________________ $395 $395 $395

Email:________________________________________________

Child (4-12)

Name:_________________________________________________ $125 $125 $125

Child (3 and Younger) FREE

Name:_________________________________________________

Please contact the TLA Executive Office at TLA-info@goAMP .com for single day/single event pricing .

I am a first time attendee .

I am Corporate Counsel .

First Time Attendees and Corporate Counsel are guaranteed the early rate regardless of when they register .

*$225 of the non-member registration fee will pay for your TLA membership from May 2015 to July 2016, if you meet the membership qualifications, entitling you to attend the Annual Business Meeting as a voting member upon review and approval of membership by the Membership Committee . A member application will be sent to you for completion .**Spouse/Guest/Child registrations include the Welcome Reception, daily continental breakfast, Thursday Reception, Friday and Saturday evening dinner events .

2015 Annual Conference & CTLA Midyear MeetingMay 12-16, 2015 • Omni Scottsdale Resort & Spa at Montelucia

Registration Form

19


STEP FOUR RSVP for Interactive Workshops

Please select which one of the interactive workshops you plan on attending Saturday morning . Transportation 101

Litigation Practice/Commercial Collections

Cross Border North America

STEP FIVE Special Events Registration

(Please print the name of the spouse/guest/child registering for the event on the line provided .)

Tuesday, May 12 – Talking Stick Golf Club – North Course

Golf Tournament – 12:30 p .m . Tee Time

Attendee – $135 Handicap _______

__________________________ – $135 Handicap ____ __________________________ – $135 Handicap ____

Wednesday, May 13 – Talking Stick Golf Club – South Course

Scramble Format Golf Tournament – 12:30 p .m . Shotgun Start

Attendee – $135 Handicap ____

__________________________ – $135 Handicap ____

__________________________ – $135 Handicap ____

Tennis Tournament – 3:00 p .m . – 5:00 p .m .

Attendee – $50

__________________________ – $50

__________________________ – $50

Thursday, May 14 Spouse/Guest Tour – Musical Instrument Museum Tour and Lunch9:00 a .m . – 1:00 p .m . (Please include name)

__________________________ – $50

__________________________ – $50

Saturday, May 16Fun Walk/Run – Beverage included

Attendee – $15

__________________________ – $15

__________________________ – $15

ALL PRICES ON THIS FORM ARE QUOTED IN U.S. DOLLARS

FLASH DRIVE PAPERS & PROCEEDINGS

I cannot attend the meeting, but wish to purchase a copy of the Papers & Proceedings on a flash drive – $100

STEP SIX Total Fees

Funds MUST be submitted on a U .S . bank in U .S . funds .

Total Registration Fee (from Step 3) $ _______________

Total Special Events (from Step 5) $ _______________

TOTAL PAYMENT ENCLOSED $ _________________

(Payment is due with the registration form .)

STEP SEVEN Payment Information

Check enclosed (please make checks payable to TLA in U .S .

Currency drawn on a U .S . bank .)

MasterCard VISA AMEX Discover

Card No .:________________________________ Exp . Date:______

Name as it appears on the card (please print):

________________________________________________________

Signature:________________________________________________

Cancellation Policy: A $100 cancellation fee will be assessed on registrations cancelled from March 23 through April 22, 2015 . After April 22, cancellations will not be accepted . Substitutions will be allowed .

STEP EIGHT Send Your RegistrationTo register, complete the registration form and return it, along with the appropriate registration fee to:

✉ Mail: TLA Executive Office P .O . Box 15122 Lenexa, KS 66285-5122

Fax: 913-895-4652, Attn: Susan Hime

Email: TLA-info@goAMP .com

Online RegistrationRegistration by credit card can be completed and submitted online via the TLA Website at www .translaw .org . A link to the registration form is located on the Annual Conference page .

20



Association Business


TLA07 MP260001

CCH Transportation Library Order Form

Special 15% Discount for TLA Members

YES! I want to take advantage of the special 15% discount available only to Transportation Lawyers Association members for subscriptions on the following Wolters Kluwer Law & Business products:

TLA Member PricePrices below reflect 15% TLA Member Discount

FEDERAL CARRIERS REPORTER Print............$1,627 (Reg. $1,914) (07957001)

MOTOR CARRIER LIABILITY Print............$233 (Reg. $273) (05176204)

CD-ROM ....$233 (Reg. $273) (14786001)

Internet..Call 1-888-224-7377 for printing (14788001)

FEDERAL MOTOR CARRIER SAFETY ADMINISTRATION DECISIONS

Print............$424 (Reg. $498) (08147001)

ISSUES IN AVIATION LAW AND POLICY Print……....$255 (Reg. $299) (06971001)

COMMERCIAL AIRCRAFT TRANSACTIONSPrint............$950 (Reg. $1,117) (06758001)

AVIATION LAW REPORTER Print............$2,259 (Reg. $2,657) (07994001)

CD-ROM....$2,259 (Reg. $2,657) (12572001)

Internet ..Call 1-888-224-7377 (12959001)

PRODUCTS LIABILITY REPORTER Print.............$1,178 (Reg. $1,385) (08136001)

CD-ROM....$1,178 (Reg. $1,385) (13448001)

Internet..Call 1-888-224-7377 (18527001)

Name

Title

Company Address

City/State/Zip

Phone ( ) Fax ( ) E-Mail

Bill my CCH Acct. or charge my credit card (check one): Visa MasterCard American Express

Discover

Credit Card/CCH Account No. Exp. Date / Name of Cardholder Signature

(Required to process credit card orders.)

TO ORDER Call: 1-800-344-3734 Mail to: CCH P.O.Box 5490 Chicago, IL 60680

Special 15% discounts apply only to current TLA members. Appropriate sales tax, shipping, handling and other applicable charges will be added for each shipment. Prices are valid only in the U.S. and are subject to change without notice. All product names, trademarks or registered trademarks are the property of their respective owners.

FEDERAL CARRIERS REPORTER

Print ...........$2,899 (Reg. $3,411) (07957001)

Internet..Call 1-800-422-4669 for pricing (56041001)

MOTOR CARRIER LIABILITY

Print ..............$256 (Reg. $301) (05176204)


COMMERCIAL AIRCRAFT TRANSACTIONS

Print ........... $1,693 (Reg. ($1,992) (06758001)

AVIATION LAW REPORTER

Print ........... $3,948 (Reg. $4,645) (07994001)


PRODUCTS LIABILITY REPORTER

Print ........... $2,225 (Reg. $2,618) (08136001)


TLA12 MP260001

Name

Title

Company Address

City/State/Zip

Phone ( ) Fax ( ) E-Mail

Bill my CCH Acct. or charge my credit card (check one): Visa MasterCard American Express

Discover

Credit Card/CCH Account No. Exp. Date /

Name of Cardholder Signature(Required to process credit card orders.)

TO ORDER Call:www.wolterskluwerlb.com

1-800-422-4669

Mail to: CCH P.O.Box 5490 Chicago, IL 60680

Special 15% discounts apply only to current TLA members. Appropriate sales tax, shipping, handling and other applicable charges will be added for each shipment. Prices are valid only in the U.S. and are subject to change without notice. All product names, trademarks or registered trademarks are the property of their respective owners.

20 21


In accord with Article V, Section 2A(1) of the Bylaws of the Transportation Lawyers Association, Immediate Past-President Dirk H. Beckwith (Foster Swift Collins & Smith PC, Farmington Hills, Mich .) chaired the Nominating Committee for the 2015 election of Officers and Representatives-at-Large to the Executive Committee . President Marc Blubaugh appointed the following members to serve along with Mr . Beckwith:

W. Robert AldersonAlderson, Alderson, Weiler, ConklinBurghart, & Crow, LLCTopeka , Kan .

Hillary Arrow Booth Booth LLPLos Angeles, Calif .

Heather C. DevineGowling, Lafleur Henderson LLPHamilton, ON Canada

Pamela B. JohnstonTransplaceLowell, Ark .

Pursuant to Article V, Section 2A of the Bylaws, President-Elect Richard A. Westley automatically succeeds to the office of President upon the completion of Marc Blubaugh’s term as President at the 2015 TLA Annual Conference . Mr . Blubaugh succeeds to the office of Immediate Past-President at the same time .

The Nominating Committee’s nominees for the other offices are as follows:

President ElectSteven B. NovyChilton Yambert Porter LLPChicago, Ill .

First Vice PresidentFrank C. BottaEckert Seamans Cherin & Mellott LLCPittsburgh, Pa .

TLANominating Committee Report

Dirk Beckwith, TLA Nominating Chair

Gordon D. McAuleyWilliams & Gumbiner LLPGreenbrae, Calif .

William D. TaylorHanson Bridgett LLPSacramento, Calif .

Richard A. WestleyWestley Law Offices, S .C .Madison, Wis .

Second Vice PresidentHillary Arrow Booth Booth LLPLos Angeles, Calif .

Secretary/Treasurer Jeffrey R. SimmonsLewis Brisbois Bisgaard & Smith LLPPhoenix, Ariz .

22

TLA Committee ReportsThe TransporTaTion Lawyer


Pursuant to Article V, Section 2E of TLA’s Bylaws, the Nominating Committee’s nominees for Representatives-at-Large to serve two-year terms on the Executive Committee are as follows:

Matthew P. BarretteSullivan Hincks & ConwayOak Brook, Ill .

Sandra K. HillerDart Transit CompanySaint Paul, Minn .

And its nominee to serve a one-year term as the Designated Representative, being a Canadian citizen and a member in good standing of both the Canadian Transport Lawyers Association and the Transportation Lawyers Association, is:

Marc D. IsaacsIsaacs & Co .Toronto, Canada

The four current Representatives-at-Large whose terms will continue until the 2016 Annual Conference are as follows:

Steve M. CantyChilton Yambert Porter & YoungChicago, Ill .

G. Clark Monroe, IIDunbarMonroe, P .A .Ridgeland, Miss .

The Nominating Committee was fortunate to have a number of well-qualified candidates who were ready, willing and able to serve the Association .

The chair of the committee wishes to thank all of the committee members for their very thoughtful deliberations and contributions to the work of the committee and to the future of TLA .

Noelle M. Natoli-DuffyFoley & MansfieldLos Angeles, Calif .

Gene F. Zipperle, Jr.Ward Hocker & Thornton PLLCLouisville, Ky .

Justin R. OlsenOlsen Skoubye & Nielson LLCSalt Lake City, UT

Jeffrey M. PincusLewis Johs Avallone Aviles LLPIslandia, N .Y .

23


TLAMembership Committee Report

Fritz Damm, TLA Membership Chair

RECRUITMENT AND MEMBERSHIP SERVICES 101!

Recruiting new members is a never ending process that needs extra efforts by not only the officers, the Executive Committee Members and committee chairs, but also you, our members . History and general knowledge indicate that the task of recruiting and maintenance of our membership is not only vital to our very existence but it is the glue that allows us to have a great organization with 100s of lawyers unified by assisting our mission in dozens of ways . Many of you have helped in the past . Now we need you and many more to continue the recruiting efforts in the future .

Our numbers range from a low of 491 in 1997 to “nearly 700” in the 90’s (per W. Robert Alderson) through the early 2000’s . We have had 1,000 plus since 2008 .*

As transportation lawyers, we come to the TLA table not only with many skills and general knowledge of transportation issues but also with a common bond to make our organization better for current members as well as for the future . It is basic and inevitable that the members vary in their length of membership and their interest in being involved in the organization . It is well known that there are always leaders, doers, followers, and those who really have no desire or time to devote to the betterment of TLA (or any organization) . Simply being a member is truly “ok” and we thank you for your dues support!

That being said, it is the goal of this memorandum to outline the Membership Committee Report and what we have learned about the basic “blocking” and “tackling” of recruitment and membership in order for you, our members, to have a better idea as to what the Damm Membership Committee does and how you will be able to help our superlative organization now and in the future in this regard . (See TTL, October 2007, Volume 9, Number 3) . This and many other reports indicate that our goals have been unchanged and are necessary for the duration .

Membership tasks for the TLA fiscal year that begin each August 1st are as follows:

1 . The first task is to invoice the annual dues ($225 – last raised from $150 in 2010) .

2 . The second task is for you to timely pay your dues!!! Pay or get on the dreaded Deadbeat List!!

3 . “DeadBeat” (DB) season lasts from mid-October to 45 days after the 3rd invoice is sent (Bylaw Article II, Section 9 .B) . a . Presidential DB follow-up in mid-October; b . Coordinate with President and Executive Director; and c . Follow up by telephone and/or email .

4 . Draft TTL articles/reports from Recruitment and Membership Services Committee as often as possible .

5 . Recruit new attendees/potential members from those attorneys in the Transportation Law Institute (TLI), at the Chicago Regional Seminar, and monitor Chicago registration:

a . Make sure eligible Chicago registrants receive the membership application; note, there is a $100 dues return to 7/31 of that year from the additional non-member registration fee;

b . Make sure no Chicago potential new members are DB’s; and c . Make sure to follow-up on the potential members from both TLI and the Chicago Regional Seminar .

*Millennium history – more information is available by email to Fritz Damm (fdamm@scopelitis .com), whose membership committee did an extensive memorandum for the Executive Committee in Past President McCauley’s term .

24


TLA Committee ReportsThe TransporTaTion Lawyer


6 . Coordinate recruitment generally with entire membership – attempt to get members involved; Offer applicant letter . Last year we sent out 50 invitation letters with TTL copies and applications . The letters are followed up by telephone contact .

7 . Monitor final approval of all new member applications to make sure the person is qualified to be a member pursuant to the TLA Bylaws (Article II) .

8 . Welcome all new members by telephone after Executive Director’s “Welcome Letter .”

9 . Coordinate the new members with New Members Committee .

10 . Assist Corporate Counsel Committee: a . Recruit qualified in-house counsel members; and b . Make sure new in-house counsel are aware of reasons to belong to this important committee .

11 . Coordinate membership efforts with all committees .

12 . Coordinate student membership .

13 . Report to Executive Committee at three meetings – Summer Retreat, Post TLI and at Pre-Annual Conference/Meeting .

14 . Report to membership at the Annual Conference .

15 . Recruit and coordinate members for Membership Committee .

16 . Attend to various and sundry questions and issues regarding membership, including Bylaw qualifications .

17 . Monitor “Offshore Membership Sub-Committee .”

18 . Monitor Annual Conference: a . To recruit new attendees as members; and b . Make sure only qualified lawyers are approved to register as the Annual Conference has specific eligibility

requirements .

19 . Attend to diversity of membership .

We are always in growth mode . That means we are always looking to our membership for help . Thanks to so many of you who have been helping by your individual recruiting . (See the Membership Committee Report in TTL 2014, Volume 16, Number 2) . We need you who have been so faithful and diligent in your recruiting efforts to continue “selling” our great organization and for you who have not recruited, please do so in 2015 as this is a never ending process!

Fritz Damm

TLA Membership Chair

25


In 2009, Don Keenan and David Ball authored a book entitled Reptile: The 2009 Manual of the Plaintiff’s Revolution, which arguably glamorized jury nullification and created a “new” trial strategy for plaintiffs’ lawyers across the country known as the “Reptile Theory .” It is based on a plaintiff ’s attorney generalizing the defendant’s conduct so that the jury members feel personally threatened by the alleged dangerous actions . The theory is that the “reptilian,” or fundamental part of jury members’ brains responds to the fear of danger and will find the defendant liable in an attempt to eliminate danger from the community and to protect him or herself . The strategy has been especially conducive for cases involving trucking accidents .1

The Reptile Theory In Practice

The Reptile strategy is now a “ubiquitous threat to defendants across the nation .”2 Plaintiffs’ firms are self-proclaimed “strong believers” of the Reptile Theory .3 Currently, the Reptile Theory’s official website claims that the strategy has resulted in more than $6 .1 billion in verdicts and settlements across the country .4 In 2014 alone, there have been almost 50 notable cases where the Reptile strategy was implemented .

Of those cases, John Phillips of The Law Office of John M . Phillips (Florida) received a $2,600,000 verdict for his client who was run over by beach patrol truck while sunbathing, Paul Barber of Barber & Borg, LLC (New Mexico) settled a deadly car accident involving a semi-truck for $2,500,000, and Akim Anastopoulo, Eric Poulin, and Roy Willey of Anastopoulo Law Firm LLC (South Carolina) received a record $50,000,000 verdict for a motor vehicle death case .5

It is crucial that defense attorneys recognize and respond to their opponent’s use of the Reptile approach early in the litigation process in order to disarm the strategy and execute their counter-attack .

Plaintiffs’ attorneys representing clients injured in motor vehicle accidents involving trucking companies have employed a strategy, from discovery to closing argument, of attacking the company itself as opposed to focusing on the accident . If the plaintiff could find one relevant and admissible thing that the company did improperly, then the plaintiff could try the “out of control” company and instill fear in the jurors . Plaintiffs’ attorneys also attempt to leverage the jurors’ fear of the sheer size of trucks as a means to scare their way to victory . The two avenues taken together have helped plaintiffs’ counsel motivate jurors to issue enormous awards to plaintiffs in trucking accident cases .

The science behind the Reptile Theory, namely that the “reptilian complex” in the brain focuses on personal safety and controls the rest of the brain, has been largely refuted .6

Nonetheless, the Reptile trial strategy (often coupled with strategies outlined in Rules of the Road by Rick Friedman and Patrick Malone) has been an effective method of impassioning jurors to give pro-plaintiff verdicts and should therefore, be recognized and addressed by defense counsel .

Attorneys using the Reptile approach generally develop and substantiate one primary theme through the use of a broad “safety rule” that the defendant allegedly violated and thereby caused plaintiff’s injury . Each safety rule generally contains six characteristics:

1 . The rule must prevent danger;2 . The rule must protect people in a

wide variety of situations, not just the plaintiff;

3 . The rule must be in clear English;4 . The rule must explicitly state what a

person must or must not do;5 . The rule must be practical and easy

for someone in the defendant’s posi-tion to have followed; and

6 . The rule must be one that the defendant will either agree with or seem stupid, careless, or dishonest .7 An example of a safety rule is: “A

truck driver is not allowed to needlessly endanger the public .”8 Such safety rules are more rigid and pro-plaintiff than the “reasonable person” standard that generally governs these cases . If plaintiff attorneys are allowed to impose their

Fly with the Eagles:defeat the rePtile

* Wilson Elser Moskowitz Edelman & Dicker LLP (White Plains, New York) .

Jedidiah Bernstein*Joseph Baiocco and

26


TLA Feature ArticlesThe TransporTaTion Lawyer

safety rule during trial in lieu of the reasonable person standard, it is more likely that the plaintiff will prevail .

Recognizing the Reptile Strategy throughout the Progression of a Case

In practice, the implementation of the Reptile Theory is simple and straight forward . Counsel for the plaintiff will expose a violation of a safety rule that the defendant will ultimately concede it was supposed to follow and, in turn, the jury will view this violation as a societal safety concern . The application of the Reptile approach does not begin at trial, but instead is usually introduced early and developed throughout the entire course of litigation .

DiscoveryAt the outset of litigation, plaintiffs’

attorneys set out to develop the Reptile Theory principles . Defense attorneys may recognize the Reptile approach at this stage because discovery requests are tailored to acquire as much information as possible pertaining to a corporate defendant’s safety polices, protocols and records . This is noticeable in the commercial transportation world as plaintiffs’ attorneys are requesting documents that are arguably irrelevant and/or have nothing to do with how an accident or incident occurred . Common requests might include:

• Company handbooks• Safety policies, procedures and

protocols• Document retention policies• Accident investigation policies• SafeStat and CSA records• DOT audit results• Other prior unrelated accidents

The purpose of acquiring this information is to establish broad safety rules the commercial transportation company was supposed to follow . After the initial information is secured in written discovery, the plaintiff’s counsel will attempt to obtain an admission

that the rule was violated from the driver or corporate defendant(s) during both the written and oral discovery stage . If counsel for the plaintiff can establish that a safety rule existed, and that the commercial transportation company violated the rule, then the attorney for the plaintiff has obtained the necessary facts to use in arguments that are expected to motivate jurors to protect the community .

Voir DireEven before a jury has been

selected and the opening statements begin, plaintiffs’ attorneys utilizing the Reptile Theory will aggressively target jurors that they believe will litigate from the jury box and be willing to protect society from an unsafe defendant . Instead of asking the typical questions asked to jurors during voir dire, plaintiffs’ attorneys will narrow their questions to further their reptilian goals . Examples of reptilian voir dire questions include:

• Do you believe that trucking companies and their drivers have a responsibility to protect other drivers on the road?

• Do you believe that a company with its own safety standards and policies has an obligation to the general public to follow those standards and policies?

• Do you believe that a trucking company with a history of accidents and safety violations is a danger to the general public?

• Are you a person who is willing to decide whether a trucking company and its driver acted in a safe and proper manner?

These sample questions illustrate the two goals plaintiffs’ attorneys seek to achieve during voir dire: 1) identify individuals who will protect the public from a dangerous defendant, and 2) prime the eventual jury for the reptilian theme the plaintiff will present throughout the trial .

Opening Statements, Witness Examinations

and Closing ArgumentsOnce a jury has been selected,

plaintiffs’ attorneys prime the jury during opening statements and exploit their reptilian responses throughout witness examinations and closing arguments . It is during these phases of the trial that plaintiffs establish the safety rule, expose the violation, and create a danger that the jury members feel compelled to protect against . Plaintiffs’ attorneys may very well spend little time discussing the actual facts of an accident, but instead focus on appealing to the jury’s sense of minimizing danger as a whole . For instance, during closing arguments, counsel for plaintiffs may focus on demonstrating how the defendants’ behavior can affect the community, state, and country, and follow up with statements that implore the jury to protect society .

The Eagles Fight BackOnce a defense attorney recognizes

that the plaintiff is using the Reptile Theory, there are multiple ways for which the defense can counteract the technique . Defense attorneys should implement an aggressive approach at first sight of the strategy, which can be recognized as early as the discovery phase of litigation .

Readily Object to Discovery Requests

While the discovery rules throughout the country and in the federal court systems are becoming more relaxed in favor of disclosure, counsel for defendants should set a tone early that pulling at the heart strings of the jury is unacceptable and will be challenged at trial . For instance, if there appears to be no reason for producing SafeStat or CSA information, do not turn it over . If certain portions of a handbook or safety manual are irrelevant to the

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specific issues contained in your case, seek to redact those portions .

Prepare Your Witnesses for “Reptilian” Style Deposition

Prepare your witnesses for the plaintiff’s questions at depositions and ultimately at trial .9 The best way for drivers and corporate representatives to respond to “reptilian” safety questions, which are typically vague and overbroad, is to be honest and say that the answer “depends on the circumstances .” It is paramount that defense counsel prepare witnesses to avoid agreeing to vague and overbroad hypotheticals .10

File a Motion in Limine Barring

Reptilian-Type ArgumentsThe first line of defense at the trial

stage in minimizing the Reptile Theory is to file motions in limine barring any mention, comment, reference, testimony or argument regarding the Golden Rule, personal safety, community safety, community fear, and community conscience . The argument should be made that the jurors should not be asked to step into the shoes of the plaintiff, decide the case as if they were faced with similar circumstances or to send a message to the defendant or society . It is arguable that these types of arguments are improper, the issues are irrelevant, and the probative value would be outweighed by prejudice to the defendant .

Prepare the Jury during Voir Dire

During voir dire, defense attorneys should take the opportunity to prime the jury for their trial themes . For example, if the plaintiff’s counsel primes the jury with the following question: “Do you believe that the top priority for a trucking company should be safety?” then the defense counsel should take the opportunity to re-prime the jury with its own defense themes such as, “Do you believe that the top priority for a trucking company is to move products for the benefit of the community from one location to the next in the most efficient and safe manner?” Doing so will enable the defense to rebut any attempt by the plaintiff to establish their reptilian themes .

TrialBecause reptilian safety rules are

clear-cut and widely applicable rules, the plaintiff utilizing the Reptile approach will commit to a simplistic view of the law and facts of the case in order to make the case conform to the espoused rule . The plaintiff ’s argument is vulnerable because truth is not on their side . Defense attorneys should shed light on the plaintiff’s simplifications, and appeal to the view that simple rules rarely exist, and complex rules with carve-outs and exceptions are the norm . Defense counsel can take this one step further by asserting that the plaintiff is attempting to cloud the judgment of jurors by tapping into their natural desire to simplify a complex situation .

Counsel may also expose the Reptile Theory to the jury and demonstrate what the plaintiff is intending on doing . These messages should be raised in the defense opening statement or voir dire to prevent the plaintiff’s view from poisoning the jurors’ minds .

The defense should also present opening statements and closing arguments that refocus the story at trial . The defense should aggressively explain alternative liability, the standards of care that apply in the case, and how the standard of care applies to the facts .11 Defense attorneys should remind jurors that their purpose is to consider all of the evidence and reach a fair, honest and just verdict based upon the jury instructions they are provided . This can be an effective way to refocus the jury and reframe the defense theories so that societal concerns do not enter into the jury’s decision and the case is decided on its specific facts .

ConclusionThe Reptile Theory is a technique

that plaintiffs’ attorneys are undoubtedly implementing with great success . Like any trial strategy, however, there are ways to defuse the intended results from the Reptile strategy plaintiffs’ attorneys seek to employ . It is imperative from the outset of any case where the plaintiff is utilizing the Reptile approach to proactively attack the strategy so that the jury can decide the specific issues at hand rather than the simplistic rules and broader societal questions plaintiffs’ attorneys seek to exploit .

Endnotes 1 . Richard P . Traulsen, A Trucking Case: So Much More Than the Average Auto Case 2012 Winter AAJ-Papers 40. 2 . Invalid, Yet Potentially Effective, Debunking and Redefining the Plaintiff Reptile Theory, Bill Kanasky, 56 No . 4 DRI For Def . 14 (2014) . 3 . See The Herrera Law Firm of San Antoni, TX, Case Themes and Closing Argument in Trucking Litigation, 2013 Annual AAJ-PAPERS 213 . 4 . http://www .reptilekeenanball .com/ (last visited November 5, 2014) . 5 . http://www .reptilekeenanball .com/reptile-results/#tab-id-1 (last visited November 5, 2014) . 6 . See Invalid, Yet Potentially Effective, Debunking and Redefining the Plaintiff Reptile Theory, Bill Kanasky, 56 No . 4 DRI For Def . 14 (2014); Taming the

Reptile, Ken Broda-Bahm, The Jury Expert, November 2013 . 7 . Keenan and David Ball, Reptile: The 2009 Manual of the Plaintiff’s Revolution, 52-53 . 8 . http://atcounseltable .wordpress .com/2013/05/20/beware-the-reptile-lawyer/ (last visited November 4, 2014) . 9 . See Invalid, Yet Potentially Effective, Debunking and Redefining the Plaintiff Reptile Theory, Bill Kanasky, 56 No . 4 DRI For Def . at 14 (2014) .10 . See Invalid, Yet Potentially Effective, Debunking and Redefining the Plaintiff Reptile Theory, Bill Kanasky, 56 No . 4 DRI For Def . at 14 (2014) .11 . See Invalid, Yet Potentially Effective, Debunking and Redefining the Plaintiff Reptile Theory, Bill Kanasky, 56 No . 4 DRI For Def . at 10 (2014) .

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TLA Feature Articles

Steven W. Block*

Cargo isn’t always in transit . During various parts of the process, it’s holed up in warehouses awaiting successive intermodal legs of transit, or laid away pending orders from owners as to where they want it sent . If transportation and logistics may be collectively defined as global inventory management, then warehousing and distribution constitute almost as large and significant a part of the process as does movement by land, sea or air . The evolution of transportation and logistics, with the establishment and implementation of deregulation, has trended toward integration of the components parts .

With increasing frequency, this is accomplished via a single company’s ownership of brokerage/forwarding/transportat ion/storage/customs/ancillary service divisions, or by way of integration through multi-service contracts that utilize a series of third-party providers . Such dynamics lead to efficiency, convenience and corporate profits, but like so many other aspects of transportation and logistics, they also produce confusion about law and legal implications, as well as the necessity of revised documentation practices . Federal and state laws governing the different transportation modes with respect to regulation and licensing, cargo liability, financial responsibility requirements, taxation and other subjects address similar concerns and are aimed at similar goals, but in many respects, that law is just different enough to mislead or confound industry players, and unfortunately, sometimes lawyers and judges . Problems frequently arise when

industry tries to combine the steps into a single transaction subject to a single contract and/or multi-application shipping documents .

Volumes have been written about the law of warehousing, and only a bit less to its application to distribution logistics contracts . This article addresses in summary fashion legal concepts which govern warehousing, with attention to factors which contrast with transportation law . It focuses on warehousing contracts as part of the logistics aspect of distribution relationships, and how provisions of law governing this sector mesh, or sometimes collide, with statutes and interpretative case law applicable to transportation . It begins with a general review of legal concepts governing warehousing, and expands to application of warehousing law to distribution logistics contracts, including the difficulties encountered when preferences for operational practices disregard the realities of applicable law .

Summary of UCC-7 Warehousing Law

Legal principles governing storage aren’t quite as old as those pertinent to transportation, but many concepts are similar and rooted in the same antiquity as aspects of maritime law . A primary difference between the laws of warehousing and interstate water and surface transportation is that the former, by and large, aren’t governed by a federal statute or international treaty with preemptive effect over state and common law, unless the

parties contract otherwise .1 Rather, the bailment relationship created by a warehousing contract is founded on commercial law principles that are codified within state statutes, largely through adoption of provisions of Article Seven of the Uniform Commercial Code (“UCC-7”) .2

This usually is with state-specific modifications . In reading the following, one should bear in mind that UCC-7 in and of itself isn’t the law of any jurisdiction . One must become familiar with the particulars of a given jurisdiction with regard to any point this section addresses . For that reason, the analysis in this paper is conceptual, and by way of background with respect to statutory provisions which might differ in a relevant jurisdiction .

UCC-7 is the longest and most detailed UCC section . It’s also among the most stable, having seen very little amendment since its promulgation .3 Moreover, individual state treatment of its terms has been comparatively uniform in statutory application and judicial interpretation . Per its title, it broadly covers “Documents of Title,” which include the related and often integrated subcategories of warehouse receipts and bills of lading pertinent to intrastate transportation . While UCC-7 terms usually are preempted by federal law during interstate and international transit,4 state commercial * Foster Pepper PLLC (Seattle, Washington) .

Parked Freight:the legal iSSueS of Storage and

diStribution logiSticS

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law governs most aspects of distribution logistics arrangements .

Warehouse Receipt At the heart of the bailment

relationship created by a logistics customer’s tender of property to a warehouseman for storage is the warehouse receipt .5 No UCC-7 provision actually mandates issuance of a warehouse receipt, although some state statutes require it (in some jurisdictions it’s actually a crime not to) . However, UCC-7-202 holds warehousemen liable for any resulting damages if they don’t issue warehouse receipts containing certain stated provisions, and UCC-7-209 requires issuance of a warehouse receipt for a warehouseman to enforce its rights against its customer and third-party members of the public . As implied by UCC-7-202, the warehouse receipt is a receipt; a document of title; a memorialization of storage terms, including storage fees; commercial negotiable paper, i .e ., the stored property’s “alter ego” for documentation purposes; and an opportunity for the parties to state specific terms not necessarily imposed by law . It must designate whether the warehouseman will release the stored property to the bearer, a named person, or to order, and is the warehouseman’s opportunity to limit its liability and to impose parameters on claims . Put simply to those more accustomed to the transportation industry, it’s the bill of lading’s analog .

Liability One significant difference

between statutes governing interstate/international carriage and UCC-7 regards liability for lost/damaged/destroyed property . Unlike the near strict liability regimes imposed by federal statutes on surface and water carriers,6 UCC-7-204 holds:

A warehouse liable for damages for loss of or injury to the goods caused by its failure to exercise care with regard to the goods

that a reasonably careful person would exercise under similar circumstances. However, unless otherwise agreed, the warehouse is not liable for damages that could not have been avoided by the exercise of that care.

The clause “under similar circumstances” has been interpreted to raise the bar slightly from that imposed by ordinary tort law, i .e ., by increasing the level of duty from that owed by “the reasonably prudent person” to that of “the reasonably prudent warehouseman .”7 However, it’s nothing like the “ping pong” shifting burdens of proof COGSA and Carmack create, one which a plaintiff shipper initially satisfies merely by showing good order and condition on tender; short, destroyed or damaged order and condition on delivery; and damages . UCC-7 still contemplates a tort-based analysis of liability .

However, UCC-7-204 contains mechanisms for warehousemen to limit their liability in ways substantially similar to those COGSA and Carmack allow: (b) Damages may be limited by a term in the warehouse receipt or storage agreement limiting the amount of liability in case of loss or damage beyond which the warehouse is not liable . Such a limitation is not effective with respect to the warehouse’s liability for conversion to its own use . The warehouse’s liability, on request of the bailor in a record at the time of signing such storage agreement or within a reasonable time after acknowledgement of the warehouse receipt, may be increased on part or all of the goods covered by the storage agreement or the warehouse receipt . In this event, increased rates may be charged based on an increased valuation of the goods . Just as other liability regimes require carriers to offer shippers an opportunity to opt for full liability in a warehouse receipt (or incorporated terms and conditions, master contract, etc .), so does this UCC-7 provision require that bailors be able to require full liability subject to typically higher storage rates .

Extension of Carrier Liability Regimes to Warehousemen

It’s long been the practice of ocean carriers, through standardized Himalaya and Paramount Clauses in their bills of lading, to extend the rights they enjoy under the U .S . Carriage of Goods by Sea Act (COGSA) to their subcontracting service providers .8 These include limitation of liability for lost/damaged freight . The theory is that subs of ocean carriers operate under the same contractual terms as do the carriers, as the latter have entered into global service agreements with their shipper customers .

In most circumstances, this extension of the ocean carrier liability regime applies to transit in storage, as opposed to the commercial distribution storage described below . Still, when ocean transportation is involved, one should always be on the lookout for arguments that COGSA, and not a state’s adopted version of UCC-7, applies .

Protection of Warehousemen UCC-7 contains two lengthy

provisions specifically directed at protecting warehousemen’s commercial interests, albeit within certain defined parameters .

The first, and one frequently of concern to warehouse contract parties, is the warehouseman’s lien under UCC-7-209 . The warehouse receipt defines the existence, nature and extent of a warehouseman’s lien .9 Per this provision, “charges for storage or transportation, including demurrage and terminal charges, insurance, labor, or other charges, present or future, in relation to the goods, and for expenses necessary for preservation of the goods or reasonably incurred in their sale pursuant to law .” However, the lien in this regard is “on the goods covered by a warehouse receipt or storage agreement or on the proceeds thereof in [the warehouseman’s] possession .” Thus, the lien is premised on issuance of a valid warehouse receipt,10 and is possessory

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TLA Feature Articlesonly, meaning it’s extinguished when the warehouseman releases the stored property .11

Per the statute, however, a warehouseman can’t simply enforce a lien on any item of property that happens to be in its possession whenever a payment dispute arises . For example, if a warehouseman releases to its owner or designated deliveree Unit 1 of goods without receiving payment, and later receives for storage Unit 2 of goods from the same customer, the warehouseman cannot refuse to release Unit 2 based on nonpayment of fees due for Unit 1 . However, warehousemen are free to insist that their customers contractually agree to a “general lien” or “cross lien” by which a lien arises on any property in the warehouseman’s possession at any time . Customers obligated to their own contract partners often resist general liens, and as is the case with most any other negotiated contract term, their success in doing so usually is directly proportionate to the volume of their business .

While “[a] warehouse receipt need not be in any particular form” (UCC-7-202(a)), one containing specified terms must be issued for a statutory warehouse lien to arise . As discussed below, many providers offering ranges of services issue “bills of lading” which they intend to provide multipurpose functions, including documentation of the warehousing aspect of the relationship . This practice often proves adequate in the event of dispute, but at a minimum, it can be confusing and require additional effort to explain to adverse attorneys or judges new to the concept . Moreover, provisions required in bills of lading, and terms and conditions included in them per industry practice, aren’t identical to, and can be at odds with, those for warehouse receipts . Descriptions of cargo, as well as its packaging and inventory designations, often change between storage and transportation; storage charges usually aren’t stated in

a bill of lading (although most state statutes require written documentation of them); and bills of lading may omit any reference to warehousing law . It might be a business convenience to service providers to use a single form and, with proper attention, a single form might adequately document both shipper/carrier and bailor/bailee storage relationships . However, the notion that a bill of lading “is good enough” generally should be discouraged .

Foreclosure on a warehouseman’s lien, followed by sale of property at auction, is the subject of UCC-7-210 . States impose various obligations on warehousemen regarding advertising and notice of sales they intend to undertake . In any event, all parties claiming an interest in the property must be notified, and given time to pay the warehouseman’s properly claimed charges to satisfy the lien . This provision allows a warehouseman to sell only an amount of seized property adequate to obtain funds sufficient to pay its owner’s debt, and the sale must be undertaken in a “commercially reasonable” fashion . Any balance between the net sales price and sums due to the warehouseman must be refunded to the property’s owner . A purchaser at such a warehouseman’s foreclosure sale takes title to the property free and clear of third-party claims .

The second UCC-7 provision aimed at qualified protection of warehousemen’s commercial interests, UCC-7-206, provides a right to terminate a storage at the warehouseman’s option . If a warehouseman reasonably believes stored goods in its possession may have been abandoned, or are subject to deterioration or harmful effects to the facility or other stored property, it may justifiably wish to end the storage as soon as commercially feasible . UCC-7-206 empowers a warehouseman in such circumstances to demand that its customer remove the stored property after payment of all outstanding charges subject to most terms and conditions applicable to

the warehouseman’s lien rights . If the warehouseman didn’t have notice of “a quality or condition of the goods” at the time of deposit which render them “a hazard to other property, the warehouse facilities, or other persons,” the warehouseman can actually sell such goods without notice .

Other Points Certain UCC-7 provisions

extend to rights of purchasers for value of warehouse receipts as against warehousemen and other claimants . For example, UCC-7-203, entitled “Liability for Nonreceipt of Misdescription,” goes a step farther than federal statutes pertinent to transportation by relieving warehousemen from liability for losses if they specifically disavow knowledge of whether goods documented by a warehouse receipt conform to the property description, or if the holder of a warehouse receipt after purchasing it has notice of the misdescription . Under UCC-7-205, buyers in due course of stored goods take them free and clear from warehousemen who themselves deal in the same commodity without regard to the latter’s rights under a warehouse receipt .

Per UCC-7-601, a warehouseman is liable to a property owner if it delivers freight to a person who doesn’t have a document of title (i .e ., a warehouse receipt) and doesn’t have rights to the property, and for conversion if it does so in bad faith . To guard against a finding of bad faith, a warehouseman must obtain security from the undocumented property claimant for twice the property’s value, and hold it for one year . UCC-7-603 contemplates an interpleader proceeding if two or more persons claim title to property .12

Contracts for Storage and Distribution Logistics

Again, the collective industry of transportation and logistics has evolved over the past 20 years . The on-scene presence of one-stop shop service providers has been promoted

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by intermodalization; deregulation; liberalization of regulatory restrictions on intermediaries of all modes of transportation (with the exception, perhaps, of aviation); and business trends toward company mergers and consolidations . Multi-level service offerings are easier to promote from the business perspective, and are attractive from the consumer perspective for similar economic and operational reasons .

Like so many other aspects of intermodal service contracting, storage and distribution documentation is similar to procedures used in the various transportation modes, but differs in ways apt to cause confusion and problems . This is particularly true when service providers assume that the corner-cutting convenience of multi-functioning documentation suffices, as is described above with regard to warehouse receipt issuance . Industry participants should be urged to bear in mind the critical differences between transportation and warehousing documentation, including law governing both, in their business operations .

Commercial Aspects of Storage and Distribution

Services Contracting Analysis of the plethora of

contractual commercial topics and their issues arising in distribution logistics is outside this paper’s scope . Typically, providers of distribution logistics services wish to document pricing; payment terms; ancillary services they will offer, along with applicable accessorial charges; exclusivity (including penalties for violation); assessments for services such as repair of defective packaging and costs associated with failed deliveries; volume and time commitments (including penalties for violation); credit terms; insurance; the independent contractor relationship between the parties; indemnification

for employment related claims; force majeure; limitation of liability; general lien provisions; arbitration and jurisdiction clauses; and the time length of the contract’s applicability .

These terms can and should be well documented in a contract that is incorporated by reference into individually issued warehouse receipts and bills of lading where drayage and other transportation services are included . However, care should be given to legal implications of these outside transportation and warehousing law . Some states require a good deal of specificity to exclusivity provisions, as they view them with disfavor as a restraint on free trade . Employment law, including classification of entities and their employees as independent contractors, varies from state to state . Credit requirements can also be the subject of state and federal guidelines .

With some significant exceptions mostly pertinent to security regulations, aspects of international ocean carriage, and customs clearance, the terms of distribution services agreements may be established by parties to them . Liability and lien issues, duties of care, and service obligations, among others, can be negotiated outside of what state and federal statutes provide as a default . In that environment, supply, demand, capacities and volume commitments can and should drive party obligations to each other at least as much as what statutes (many of which desperately need updating) contain . Negotiators of these agreements and their lawyers should always bear this in mind .

The economic models of ware-housing and transportation also differ in ways that can complicate parties’ understandings of applicable law, and therefore application of their legal rights . Warehouse operations that perform comprehensive distribution services, i .e ., the receipt, processing, storage, inventorying, palletization, packaging, and often drayage of goods, view themselves as full-service providers that

perform systematic, ongoing functions as part of the supply chain process . The storage component of these economics usually isn’t the most lucrative, and often is provided at or below cost based on a customer’s warehouse space needs . This is in contemplation of fees that will be charged for the numerous ancillary services incident to distribution logistics . Service contracts documenting these services frequently are complex, and set various rates according to volumes of stored goods, exclusivity, time commitments and services provided .

Take, for example, a storage and distribution arrangement whereby a service provider will provide drayage of a commodity, say, bags of flour, from port to its warehouse; inspect and repair damaged units, and undertake other quality control; palletize it; inventory it with digital identifiers; store it until issuance of delivery orders; package and process it for delivery by surface carriage; comply with state and federal regulatory requirements pertinent to foodstuffs; and either provide or broker onward transportation to the customer’s consignee .

In its proposed contract, a service provider might state a storage charge in terms of time units of property – individual bags of flour or pallets containing them – which are situated in their facilities, with a new charge accruing on periodic bases . For example, the provider might state a charge of $5 .00/month per pallet, with a new $5 .00 charge accruing the first of each month . By that methodology, a pallet would create the first $5 .00 charge whether it’s in the warehouse one or 30 days . For this reason, customers often vie for shorter chargeable time units, especially if their product moves quickly in and out of storage . Each ancillary service generates additional charges, such that the more attention a product requires, the more profitable it is to the logistics provider . This usually renders shorter accrual periods more enticing to service providers . Penalties

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TLA Feature Articlescan be imposed, or discounts awarded, based on volumes and other factors, such as whether pallets are stackable, and uncontemplated storage times .

Warehouse Liens and Receipts A logistics provider may believe

that a warehouseman’s liens arises comprehensively based on nonpayment for any service it provides regardless of how any service is documented . As demonstrated above, that’s not true, at least not as a matter of UCC-7 . For example, a distribution service provider whose warehouse receipts and other documentation don’t spell out how volumes impact pricing can be precluded from asserting a warehouseman’s lien (and thereby seizing freight to leverage payment) based on an assertion that unpaid freight charges are due . If the storage charge methodology isn’t spelled out concisely in a warehouse receipt or incorporated storage agreement (including the fact that unmet volumes will result in a penalty), then the customer’s refusal to pay retroactively higher rates will not give rise to a lien .

Some providers view themselves primarily as transportation companies, and include terms in their standardized contracts that frame liability, claims processes, rates and other provisions exclusively in terms of surface or water carrier liability regimes and industry practice pertinent to them . This can be confusing at best, and unenforceable at worst .

To the extent parties contractually agree to general liens, it’s at least questionable whether and how the statutory overlay applies . A general lien on cargo unrelated to a payment dispute is outside UCC-7’s contemplation . Like all UCC provisions, UCC-7 is a manifestation of common law principles aimed at promoting free trade within parameters defined to protect the interests of parties, especially innocent ones . A purchaser for value and holder of a validly negotiated warehouse receipt might find itself unable to

retrieve its property without paying storage or other charges the original bailor was responsible for .

Again, per UCC-7-202, a “warehouse receipt need not be in any form .” However, documentation containing terms a logistics service provider might wish to enforce should be issued for each item of property tendered to it . The documentation format shouldn’t suggest that its application is limited to one aspect of services offered, like a “bill of lading” might be interpreted . It’s typically most efficient to have general terms stated in a contract which is incorporated by reference in documents issued individually for each lot of tendered property . Effective warehouse receipts may be issued electronically .

Lien Subordination Logistics customers which have

contractual obligations to their own customers frequently wish to avoid the potential peril of a warehouseman’s general lien which could shut down their entire distribution chain based on a storage charge dispute with a warehouseman . Such customers also are often obligated to financial institutions not to encumber their transient cargo, which might be pledged as security for inventory financing . This presents a dilemma for logistics providers which hold their warehouseman’s lien security as sacred .

A solution logistics providers sometimes agree to, usually with reluctance and out of concern for preserving a business relationship, subordinate their lien rights to those of the secured lender . This approach leaves the warehouseman’s lien intact as against the rest of the world, subject to it reaching agreement with the lender in the event of dispute with their common customer . In doing so, the warehouseman inherently becomes aware of a third-party entity which might later claim an interest in stored property regardless of any failure of payment from the customer

to the warehouseman, i .e ., if the customer is alleged to have breached a financing loan . In that instance, the warehouseman may be faced with two entities claiming title to the property, and potential liability in the event it releases property to the one ultimately adjudged not entitled to it .

This is another example of a circumstance which might necessitate an interpleader action by the warehouseman against its customer and the financial institution for a court determination of the property’s rightful owner . To protect itself in such circumstances, warehousemen might require a term in the subordination agreement that customer and financial institution be jointly and severally liable for attorneys’ fees it incurs by any interpleader action .

Insurance Risk allocation is directly related

to determinations about insurance in logistics contracts . Just as with transportation relationships and contracts, a provider typically will want to charge higher service fees if the customer insists on full liability . However, the higher rates might be comparable to, or lower than, first-party insurance coverage the customer would thereby avoid . But then the customer might have to incur the expense, effort and time delay of demonstrating the warehouseman’s fault and liability in order to recover its loss . Conversely, the savings a logistics customer enjoys by agreeing to limited warehouseman liability might free up funds to purchase that first-party insurance coverage, allowing the customer the comfort of knowing it’s covered regardless of warehouseman fault . But then, some insurers might charge higher premiums for coverage of inventory the logistics of which are managed by an entity which is essentially subrogation proof .13 When the parties specifically intend to avoid being the subject of an insurer’s subrogation action, they should

33


consider having the non-subscribing entity named as an additional insured .

When insurance procurement is a condition contractually imposed on a party to a distribution logistics contract, the parties should include a mechanism by which the coverage is confirmed on an ongoing basis . This might be a requirement that the insurer notify the non-subscribing party of any pending cancellation .

Conclusion As the transportation and

logistics industry becomes more integrated, and its relationships more often memorialized by combined documentation, it becomes increasingly important for industry participants and their counsel to bear in mind the sometimes subtle distinctions between state warehousing law, and its state and federal counterparts

governing transportation . In an industry in which timing, convenience and efficiency are critical, players can tend to oversimplify, or go a bit too far in the direction of time-saving, cost-cutting measures in matters which are unlikely ever to be at issue . Multi-service, distribution logistics contracts are a prime example of an environment which should receive this careful attention .

Endnotes 1 . See discussion below regarding extension of carrier liability regimes to warehousemen . 2 . Enacted in 1952, the UCC is the largest of a series of uniform statements of law drafted by legal scholars under the auspices of the National

Conference of Commissioners on Uniform State Laws and the American Law Institute . In and of itself, the UCC isn’t law, but exists as a proposed codification of national law aimed an creating uniformity within the states . Individual states have adopted the UCC with their own modifications, and implemented it within their own statutory codes . Certain federal statutes, such as the Uniform Warehouse Receipts Act of 1906 and the Uniform Bills of Lading Act of 1909, were included as provisions of Article Seven .

3 . UCC-7 was revised in 2003 primarily to address contemporary practices regarding electronic storage documentation . 4 . While an analysis of UCC-7’s bill of lading terms are outside this paper’s scope, federal and state bill of lading statutory provisions are generally

similar in wording and application . 5 . Note that this is not the case for storage in transit, i .e ., when cargo is situated in storage facilities temporarily awaiting transloading or a change

in carriers . In those instances, bills of lading typically continue to govern the shipper/carrier relationship 6 . See Block, “A Comparison of the Fundamentals of the Carmack and COGSA Liability Regimes,” available at http://www .foster .com/pdf/Block-

Carmack-COGSA-Comparison .pdf . 7 . See, e .g ., Coats & Clark, Inc. v. Gay, 755 F .2d 1506, 1508 (11th Cir . 1985); Citizens Bank & Trust Co. v. SLT Warehouse Co., 368 F .Supp . 1042, 1045

(Dist . Ga . 1974); and Herring v. Springbrook Packing Co. Co-op., 208 Or . 191, 200, 299 P .2d 604, 608 (1956) . 8 . See Block, “Who’s an ocean carrier’s “agent” for purposes of extension of COGSA to land-based service providers?” available at http://www .forwarderlaw .

com/library/view .php?article_id=612 . 9 . Other documents, such as master service agreements and standard terms and conditions, may be incorporated into warehouse receipts by

reference .10 . “The issuance of a warehouse receipt, then, can be viewed as a condition precedent to the existence of a specific lien .” 3 White & Summers,

Uniform Commercial Code § 28-6 (4th ed .) (citing cases) .11 . See, e .g ., Matter of McDonald, 224 B .R . 862, 868 (Bkrtcy .S .D .Ga .,1998); Import Systems Intern., Inc. v. Houston Central Industries, 752 F .Supp . 745,

747 (S .D . Tex . 1990); and In re APC Const ., Inc ., 112 B .R . 89, 95 (Bkrtcy .D .Vt . 1990) .12 . Interpleader actions and authorized and explained by Federal Rule of Civil Procedure 22 and analogous state statutes, along with applicable

local rules .13 . Industry practice shows that this actually isn’t the norm . Insurers have proven to be less attentive to their subrogation rights than to risk

assessments and property values in fixing premiums . Still, especially with long-term and larger volume contracts, the absence of subrogation rights has been a consideration in insurance costs .

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http://www.foster.com/pdf/Block-Carmack-COGSA-Comparison.pdf.

http://www.foster.com/pdf/Block-Carmack-COGSA-Comparison.pdf.

http://www.forwarderlaw.com/library/view.php?article_id=612.

http://www.forwarderlaw.com/library/view.php?article_id=612.



TLA Feature ArticlesFleet Maintenance and Its Impact on Litigation

Mike H. Bassett and

It is no secret that plaintiff attorneys have the commercial trucking industry in their crosshairs . Due to “deep pockets,” a negative public image, and plaintiff attorney tactics capitalizing on those and others, trucking companies suffer from high litigation costs (translating into high insurance premiums) and frequently pay out on lopsided settlements . One particularly successful tactic used by plaintiff attorneys during litigation is attacking trucking companies on their fleet maintenance operations .

A legal assault on fleet maintenance capitalizes on the trucking industry’s negative public image and allows plaintiff attorneys to vilify a trucking company as irresponsible, careless and dangerous . Good defense counsel knows that proper fleet maintenance requires more than simply completing scheduled truck maintenance and fixing broken parts . Proper fleet maintenance requires thorough record keeping, consistently following company procedures as well as adequate employee training . Due to the broad nature of fleet maintenance, busy trucking companies often overlook small details or bypass standard procedures in order to focus on efficiency . While one or two small errors may not be fatal to a defense, plaintiff attorneys will transform consistently overlooked small details into a very

irresponsible, and dangerous looking, maintenance record .

Even worse, plaintiff attorneys often attempt to construe innocently overlooked details as intentional spoliation, exponentially increasing litigation costs . Defense attorneys must advise their trucking company clients of the importance of a properly managed fleet maintenance department, possible dangers associated with improper maintenance and recordkeeping, and how to properly prepare for—and prevent—fleet maintenance issues from arising after the inevitable accident occurs and litigation is instituted .

Using a real-life case as an example, this article explores (1) how fleet maintenance becomes involved in litigation; (2) spoliation as defined under Brookshire Brothers, Ltd. v. Aldridge; (3) a possible way spoliation allegations arise due to simple fleet maintenance mistakes; and (4) simple advice attorneys can give to fleet maintenance departments to better prepare for litigation .1 (Note: The names, locations, dates, and some facts of the below story have been altered to conceal the identities of the parties and protect attorney client privilege .)

The FactsIn early January 2004, our client’s

employee, Earl, was traveling to empty his truck after picking up multiple loads earlier that day . Due to the cold weather and increased workload, Earl brought two temporary employees to assist with loading and unloading . The accident occurred as Earl drove underneath an underpass and attempted to make either a left-turn or

a U-turn . Although the facts are not clear as to why Earl attempted the turn (some witness reported that he was avoiding a stopped vehicle), multiple eyewitnesses reported that Earl’s truck was traveling faster than they would have expected for someone stopping or attempting to turn . Regardless of Earl’s intent, the trucked tipped over, killing Earl and the temporary workers . A lawsuit quickly ensued .

The Plaintiffs alleged that our client was (1) negligent for failing to properly maintain the brakes and steering on the vehicle, (2) negligent for allowing Earl to drive, and (3) grossly negligent for knowing about the truck’s mechanical issues yet still allowing the unfit vehicle on the road . All of these were perfect charges for a plaintiff’s attorney to insinuate that our client was stereotypically careless and callous .

Fleet Maintenance Issues Arise

Our defense began taking on water when the vehicle condition reports (“VCRs”) showed that in the 60 days prior to the accident, drivers had written-up Earl’s truck more than 25 times for transmission problems and more than 35 times for steering problems . While these write-ups alone were not necessarily an issue, our client’s internal policies required a mechanic’s signature on all VCRs . Over half of these complaints * The Bassett Firm (Dallas, Texas) .

Aaron J. Rolen*

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had no signature—a clear violation of internal policies . In fact, over half of the complaints were never addressed in writing . This meant that we had no way of showing or proving that the maintenance department ever addressed these issues .

On top of that, company records revealed that various employees informed their superiors that the truck did not have a DOT inspection, but no one took corrective action . Even worse, the police report stated that the truck’s brakes were out of adjustment and may have caused or contributed to the accident . According to the Plaintiffs’ attorneys, our client only cared about “getting trucks on the road and making money,” not about the safety of the drivers and the public . And now he had evidence that arguably supported this claim .

At this point in the litigation, the Plaintiffs’ attorneys were only putting forth basic fleet maintenance attacks . Although the issues were troublesome, basic inspection and maintenance issues are easily countered by obtaining contrary evidence showing that (1) the truck was in good repair and (2) the condition of the vehicle probably did not cause the accident . However, in this case, the lack of written documentation addressing maintenance complaints—coupled with the lack of a DOT inspection—opened our client up to attacks of carelessness and disregard for basic Texas trucking law . More importantly, these issues set the groundwork that easily could have resulted in a spoliation jury charge .

Past Controversies Will Be Used Against Your Client

Before this case, our client had been involved in another lawsuit, “Doe v. ABC Trucking,” where faulty brakes on one of their vehicles caused a serious accident . The facts of that case were similar to this case, but even worse . Very aggressive, talented Plaintiffs’ lawyers handled Doe v. ABC

Trucking, and they handled it well . Their detailed investigation revealed very similar “inattention” by our client to VCRs, maintenance complaints and safety issues . The Plaintiffs’ attorneys in our case recognized the similarities between Doe v. ABC Trucking and our case and began working to connect them . They struck gold after they dug into our client’s employee files .

As luck would have it, months before this accident, our client had formally reprimanded Maintenance Manager, Albert, for “poor record keeping” of maintenance files . After the accident in our case, our client fired Albert for the same charge, poor record keeping; however, he continued to haunt the company . By searching Albert’s employee records, the Plaintiffs’ attorneys discovered that he had previously been the Maintenance Manager at the location that had housed and maintained the truck from Doe v. ABC Trucking, which was also found to have faulty/out of adjustment brakes and incomplete maintenance logs . These connections with Doe v. ABC Trucking provided the link the Plaintiffs needed to bring evidence from that case into this one, effectively giving the jury voluminous evidence of our client’s history of poor fleet maintenance practices and bringing the Plaintiffs’ case one step closer to a spoliation charge .

Maintenance Managers and Employees: The Snowball Effect

With the documented history of mismanagement, errors, and oversights in hand, the Plaintiffs’ attorneys began deposing our client’s employees . Wielding the documented mistakes and failures of the employees as an attack weapon, it did not take long for some of the employees to falter under questioning . In an attempt to defend themselves, some employees began laying blame on others . As expected, this blaming game resulted

in a snowball effect where the blamed employees reacted by throwing other employees under the bus or by falsely claiming they took certain steps or did certain things . The depositions of two other maintenance managers, Harry and Lloyd, were particularly damaging .

Pressed about mistakes and mismanagement, Harry and Lloyd both grew defensive and gave damning depositions . Harry, although likeable, came across as very inexperienced and appeared detached from the day-to-day operations of the maintenance section . Contrastingly, Lloyd was aloof and acted as if he knew all company policies and procedures by heart (perhaps Harry just relied on Lloyd for his information) . He was one of those people that knew every answer even when there was no answer . Lloyd even claimed that he knew of multiple company policies that, in reality, did not exist . Lloyd also claimed that he personally completed a “root-cause” report after the accident . Harry was not aware of a root-cause report, and every other employee seemed to have a different opinion about whether a report was created and whether company policy called for the creation of one . For the rest of litigation, the alleged existence of this root cause report would be a thorn in our defense, exponentially increasing litigation costs and opening our client to possible spoliation allegations .

Spoliation under Brookshire Brothers

Recently, the Texas Supreme Court clarified Texas spoliation law . In Brookshire Brothers, Ltd. v. Aldridge, a Brookshire Brothers customer slipped and fell on grease that had leaked from a rotisserie chicken container .2 The customer suffered injuries and brought a premises-liability suit against Brookshire Brothers . During discovery, the customer requested two and a half hours of security covering the time of the fall .3 However, Brookshire Brothers

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TLA Feature Articleshad only preserved about eight minutes of video, which showed the fall and the events immediately before and after the fall . The camera system automatically recorded over the time not specifically saved . The customer requested, and the lower court allowed, the introduction of evidence of spoliation, and the jury received a spoliation jury instruction .4 Brookshire Brothers appealed on the spoliation issue to the Tyler Court of Appeals, and eventually to the Texas Supreme Court .

The Texas Supreme Court reversed the trial court’s decision and held that the trial court abused its discretion by admitting the spoliation evidence and giving the jury an instruction on spoliation . It concluded that a party must intentionally spoliate evidence in order for the instruction to constitute an appropriate remedy .5 In Texas, the instruction is based on a presumption of wrongdoing .6 Therefore, a requirement of intent to conceal or destroy discoverable evidence is more appropriate . With this holding, the Court concluded that the employee had not shown the requisite intent by Brookshire Brothers to warrant the introduction of spoliation evidence or the related jury instruction .

Applying Brookshire Brothers to Our Case

Although our case eventually settled, there was a real chance that the Court would have allowed a spoliation jury instruction under the Brookshire Brothers opinion . After Lloyd claimed that he had created a root cause report, the Plaintiffs’ attorneys immediately demanded we produce it . When we could not produce it, they alleged that our client was hiding the report because it put liability on our client . If the Plaintiffs’ attorneys’ allegations had been true, it would have been a textbook example of spoliation—a trucking company intentionally hiding or destroying evidence relevant to the case . However, there was no root cause

report and we were unable to identify a company policy that called for the creation of such a report . The report simply did not exist .

Regardless, Lloyd’s insistence that he created a report hurt our client’s defense and potentially could have resulted in an expensive jury verdict . Lloyd’s claim made us appear to be hiding documents even though we were not . Regardless of the truth, a jury would have seen our client as a “big trucking company” who did not inspect vehicles as required by Texas law, presumably because the vehicles were unfit for the road as evidenced by our client’s consistent failure to address maintenance concerns . Granted, the claims could be countered with expert testimony and evidence of vehicle quality, but the dangerous stigma associated with big eighteen wheelers is strong and not easily overcome . If we had not settled, this case had the potential for a jury verdict catastrophe .

Best Practices for Defense Attorneys

While our case certainly could have been a disaster, the time, hassle and increased litigation costs could have been avoided if our client had implemented and consistently enforced a few basic practices to ensure its fleet maintenance department ran properly . To prevent a scenario similar to our example, and to stop plaintiff attorneys from exploiting hard working maintenance employees, defense attorneys should advise trucking company clients to implement the following measures:

1 . Implement record retention policies and follow them! Having a company policy, but not following that policy looks more irresponsible than not having one .

2 . Act on VCRs daily — no excep-tions . A designated employee should review and address all VCRs every day . Supervisors and maintenance employees should be signing off on

every action taken . This ensures that all vehicles are, in fact, in good repair and it will allow the client to prove that mechanical issues have been addressed . Even if a problem is not fixed immediately, having these procedures will ensure that supervi-sors are aware of the problem and that it can be addressed in a timely fashion .

3 . Every employee and person involved in accident investigation must know proper procedure — especially document production procedures . Employees should never have differ-ing opinions about what documents are created or who creates them . Implement a simple process and fol-low it .

4 . Consider implementing periodic audits of vehicle maintenance rec-ords/files to see what a plaintiff’s attorney would find if the truck were involved in an accident . Do not use this as a strict disciplining measure, but instead use this as a teach-ing tool to show employees what measures are important in litigation and what is expected procedurally . While a maintenance employee may only be concerned about fixing a vehicle, he should know that if the vehicle has not been “fixed” on paper, the repairs did not happen . This can be a fantastic teaching tool if implemented properly .

5 . Avoid using terms such as “always” and “never” in policy papers . Plaintiff attorneys will latch onto those words and use them as a sword during litigation .

6 . Maintain files on truck mainte-nance/repair and driver training . When an accident occurs, locate and segregate these records in anticipa-tion of litigation .

7 . The company should have policies specific to accidents that result in fatalities . When a fatality occurs, pull agreed upon key documents and segregate .

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Endnotes1 . Brookshire Brothers, Ltd. v. Aldridge, 438 S .W .3d 9 (Tex . 2014) . 2 . Id. at 15 . 3 . Id.4 . Id. at 16 . 5 . Id. at 14 .6 Id. at 18 .

ConclusionIn order to protect themselves,

trucking companies should develop policies that ensure proper fleet maintenance takes place and is documented . If a trucking company operates long enough, an accident and

lawsuit are almost inevitable . While it might not be fair, a plaintiff’s attorney (and the jury) will judge a company’s actions in hindsight . Every misstep and discrepancy will be magnified and scrutinized . Assist clients in formulating and implementing a fleet

maintenance policy . Lengthy litigation may increase billable hours, but it does not make clients (or their insurers) happy . Implementing sound policies will reduce litigation time, protect your client’s employees, and save your clients millions of dollars .

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TLA Feature Articles

Preventability determinations are a common practice for motor carriers . After an accident or other incident, the motor carrier makes a determination as to whether its driver could have prevented the accident . A company representative conducts an investigation into the accident, which often includes a review of police reports, witness statements and interviews with the commercial driver and possibly the driver of the other vehicle or vehicles involved in the accident . A decision is then made as to whether the accident was “preventable” or “non-preventable .”

The assessment is made for several reasons . For many motor carriers, the primary reason is to determine whether the accident is one that was within their driver’s control . This allows the carrier to evaluate and possibly change company policies and procedures with the goal of preventing similar accidents from occurring in the future . Other reasons may be to determine whether discipline should be imposed on the company driver or to address the techniques used by the driver with the goal of safer driving in the future . A preventability determination promotes driver accountability and helps to reduce the frequency of vehicle accidents . It may also be used as the basis for Safe Driver Award programs, safety incentives and other accident prevention programs .

A preventability determination is meant to be a positive, safety-oriented process . Yet, issues can arise for a motor carrier when a preventability determination is introduced during a trial in which an injured party is attempting to prove the commercial driver’s negligence . In most states, the plaintiff in the personal injury suit must prove the commercial driver was negligent . Negligence is typically defined as the failure to act as a reasonably careful person . This standard is different than the one employed by motor carriers when determining preventability . Often, the standard for preventability is much lower . A commercial driver may not have been negligent under the state law negligence standard, yet the driver’s conduct may still be deemed preventable under the preventability standard used by the motor carrier . In other words, even when there is no legal liability, an accident may have been preventable .

Where the negligence of the commercial driver is disputed, evidence of a preventability determination may potentially have a negative impact at trial, as the jury may construe a preventability determination as an admission of negligence . This article explores the standards used by motor carriers to define preventability, identifies two primary reasons for

the exclusion of the preventability determination at trial, and provides practical guidance on what motor carriers can do before an accident occurs to prepare for a situation in which a plaintiff seeks to introduce a preventability determination at trial .

Preventability StandardsIn defining “preventability,” motor

carriers rely on one or more, or a hybrid of, three sources: the National Safety Council (www .nsc .org), the American Trucking Associations (ATA) (www .truckline .com), and the Federal Motor Carrier Safety Reg-ulations (FMCSRs) (www .fmcsa .gov) . These three standards are similar but distinct . The National Safety Council defines preventability as follows:

A preventable collision is one in which the driver failed to do everything that reasonably could have been done to avoid the accident .

The ATA defines preventability by asking the following:

Was the vehicle driven in such a way to make due allowance for the conditions of the road, weather, and traffic and also *Attorney with Roetzel & Andress, LPA (Akron, Ohio) .

Driving the Preventability Determination Out of Court: Practical guidance on excluding the Preventability determination from trial when the

commercial driver’S negligence iS conteSted

Chris Cotter*

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to assure that the mistakes of other drivers did not involve the driver in a collision?

The FMCSA defines preventability as follows:

Preventable accident on the part of a motor carrier means an accident (1) that involved a commercial motor vehicle, and (2) that could have been averted but for an act, or failure to act, by the motor carrier or the driver .1

Despite the distinctions, the focus of all three of these standards is on the commercial driver’s conduct − setting the bar high for the driver . These standards emphasize accident avoidance and are not concerned with whether the driver acted reasonably or with ordinary care . Instead, the inquiry is whether the driver did everything within his or her control to avoid an accident .

The focus of the negligence standard employed in most state court civil lawsuits, on the other hand, is on whether the driver failed to perform in a manner that a reasonably prudent person would under the same or similar circumstances . For instance, in Missouri, negligence is defined as “the duty of ordinary or reasonable care .”2 In Ohio, negligence is defined as “the degree of care that is ordinarily exercised by a reasonable and prudent person under the same or similar circumstances to avoid injuring others .”3 Under Colorado negligence law, a defendant owes a plaintiff a duty of reasonable care .4

While the preventability standard and the negligence standard may appear to be similar, they are not . The National Safety Council clarifies that its preventability standard “is not solely based on or determined by legal liability .” The preventability standard has nothing to do with concepts of legal liability, violation of traffic laws or negligence . Although another party may have been the primary cause of the accident, the preventability standard evaluates whether, despite the negligence

of any other person, the accident could have been avoided by the driver .

Arguments for InadmissibilityThe preventability standard and

the negligence standard are different and yet the distinction may not be readily understood by an average juror . This combination is dangerous . It can confuse the jury as to the proper standard to apply to the commercial driver’s conduct, or could even lead the jury to believe the motor carrier admitted its driver was at fault . Further, the preventability determination is often made soon after an accident occurs, before all of the evidence is gathered . The jury may be aware of facts that the motor carrier did not have at its disposal when it made the preventability determination . The potential negative effects in this regard could also have the effect of discouraging motor carriers from making preventability determinations, when motor carriers should in fact be encouraged to engage in a practice designed to improve safety . The following arguments against admission of the preventability determination at trial seek to address these concerns .

Danger of Unfair PrejudiceRule 403 of the Federal Rules

of Evidence permits the exclusion of evidence, although relevant, “if its probative value is substantially outweighed by a danger of one or more of the following: unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence .”5 Most state courts have a rule similar, if not identical, to Rule 403 . Several of the dangers listed in Rule 403 are presented with admission of a motor carrier’s preventability determination .

A Federal Court in Illinois tackled this precise issue in Villalba v. Consol. Freightways Corp. of Delaware .6 There, the Court explained that the motor carrier’s accident review “was conducted pursuant to the company’s fleet safety

program for the sole purpose of increasing the driver’s understanding of how to prevent accidents .”7 Yet, the plaintiff “clearly wants the jury to infer from the results of the accident review that [the commercial driver] was negligent .”8 The Court explained the “problem with that inference is that the standard for determining preventability and the standard for determining negligence under Illinois law are not necessarily the same .”9 The two standards − negligence and preventability − “may confuse and mislead the jury and result in a mini-trial regarding the different standards and the significance of the preventability finding, diverting attention away from the real issue of negligence .”10 Likewise, there exists a danger that the proposed evidence could suggest a decision to the jury on an improper basis .11 The motor carrier’s finding of preventability “could lead the jury to decide the issue of negligence by improper reference to the preventability standard and [the motor carrier’s] finding of preventability .12

In Inman v. Sacramento Regional Transit Dist., a California appellate court excluded a preventability determination based on the dangers of undue prejudice, confusion of the issue, and misleading the jury .13 In Inman, a Sacramento Regional Transit District bus rear-ended the plaintiff’s vehicle on a rainy day with heavy traffic in the area . After an investigation, the Regional Transit District recommended the accident be graded “preventable .” The trial court excluded the preventability determination, noting that “[i]t doesn’t appear to me that the same standards have been applied as could apply in this situation” and “[t]he jury’s going to give undue emphasis to that, in my view, potentially which would have prejudicial effect .”14 Further, “[a]ll the circumstances which were considered in making the determination would have to be explored by independent witnesses . . . result[ing] in undue con-sumption of time and confus[ing] the jury and hav[ing] the prejudicial effect .”15 The appellate court affirmed

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TLA Feature Articlesthis ruling, explaining that “[g]iven the differing standards of care, the excluded evidence was only marginally relevant .”16 Further, the Court found that the jury may place undue emphasis on the preventable grading .17

In Tyson v. Old Dominion Freight Line, Inc., the mere fact that the motor carrier’s definition of preventable is different from the standard of liability was sufficient for the Georgia Court of Appeals to exclude the preventability determination at trial .18 The difference between the two standards, and the potential confusion and prejudice created by the difference, lies at the heart of exclusion under Rule 403 .

Subsequent Remedial MeasuresAnother basis for the exclusion

of the preventability determination at trial is Rule 407 of the Federal Rules of Evidence and its state court counterparts . Rule 407 excludes subsequent remedial measures, which are defined as measures taken “that would have made an earlier injury or harm less likely to occur .”19 Subsequent remedial measures have also been defined as measures that, if conducted previously, would have reduced the likelihood of an accident .20 Under Rule 407, evidence of subsequent measures is not admissible to prove negligence or culpable conduct .21

The Western District of Kentucky has employed a careful analysis of Rule 407 with respect to a motor carrier’s post-accident investigation, including its preventability determination .22 In Harper v. Griggs, the motor carrier conducted an investigation following the accident and issued what it calls a “preventable accident ruling .”23 The motor carrier sought to exclude all evidence related to its investigation .24 The District Court examined Rule 407 and related case law and concluded that all investigatory evidence “of a conclusory nature is inadmissible as evidence in this case .”25 Such evidence “includes the [motor carrier’s] thoughts, analyses, inferences, or deductions based on the factual circumstances of [the] accident,

and their recommendations, changes in policy, or employment decisions in light of the accident .”26 It included the motor carrier’s preventability determination .27

The highest court of Massachusetts has also excluded a preventability determination based on its conclusion that the determination was a subsequent remedial measure .28 The Martel case involves a pedestrian-bus collision . A transportation authority employee conducted an investigation after the accident and concluded that the accident could have been prevented had the bus driver looked into his right front mirror as he was making the turn .29 The trial court excluded evidence of this determination at trial, and the Supreme Judicial Court of Massachusetts affirmed . The Massachusetts Court provided the following sensible and articulate explanation:

Evidence of post-accident safety improvements is not admissible to prove negligence . The predominant reason for this exclusionary rule derives from public policy unrelated to the fact-finding process, that “a contrary rule would discourage owners from making repairs to dangerous property .” . . . [G]ood public policy [] requires the exclusion of the results of the defendant’s investigation into the causes of an accident involving its bus . . . . [T]he investigation is the prerequisite to any remedial safety measure . Without discovering the cause of the accident, the defendant can scarcely hope to prevent its recurrence . The investigation is inextricably bound up with the subsequent remedial measures to which it may lead, and questions of admissibility of evidence as to each should be analyzed in conjunction and answered consistently . If, as a result of the investigation, the defendant had discharged the bus driver, or required

him to undergo additional safety training, evidence of these steps would fall squarely within the rule excluding evidence of subsequent remedial measures . The investigation cannot sensibly be treated differently . To do so would discourage potential defendants from conducting such investigations, and so preclude safety improvements, and frustrate the salutary public policy underlying the rule .30

The preventability determination’s function as a forward-looking, safety improvement process lies at the heart of its exclusion at trial under Rule 407 . This also means that if the motor carrier does not make the preventability determination for this purpose, or its purpose is not clear, the likelihood that the determination will be excluded as a subsequent remedial measure at trial will be reduced . This leads to the final part of this article, setting up the arguments for excluding the preventability determination long before the motion is drafted .

Before the Motion Is DraftedThe ability to succeed in arguing

that a preventability determination is unduly prejudicial, or that a subsequent remedial measure will depend largely on specific facts related to the motor carrier’s preventability determination and process . For instance, if the preventability standard employed by the motor carrier is the same or substantially the same as a negligence standard, then courts are less likely to exclude the preventability determination . Likewise, if the motor carrier engages in a preventability determination primarily to place blame on the specific accident, detached from any recommendation or changes in future policy to promote safety, then courts are less likely to exclude the determination as subsequent remedial measure .

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A motor carrier should have a specific definition of preventability that it applies to its review of accidents . The definition could be one crafted by the National Safety Council, ATA or FMCSA, or could be created by the motor carrier staff . Either way, the motor carrier should adopt a written, defined standard for preventability .

If the preventability determination is to be excluded based on Rule 403, the definition of preventability should not be similar to a negligence standard of ordinary care . For instance, in Ward v. Jones Motor Group, Inc., the company safety director explained during a deposition that he would assess an accident as “preventable” if the driver was one percent negligent .31 If the safety director had deemed the subject accident preventable, a court may construe this as an admission of negligence . However, there may still be a basis for exclusion under Rule 403 . Should the jury be asked to compare fault with the injured party or other tortfeasors, then an admission of one percent negligence could mislead the jury as to the nature of the admission of negligence . Remember, a preventability definition that focuses on defensive driving and accident prevention is more likely to be excluded under Rule 403 than a preventability definition that uses a negligence standard .

Second, if the motor carrier uses the preventability determination to make recommendations and changes with respect to company policy on driver conduct, as many motor carriers do, that purpose should be abundantly clear from an outsider’s perspective . That “outsider” may be a judge, determining whether to apply the subsequent remedial measure rule to the motor carrier’s preventability determination . Documentation related to the preventability determination process should expressly state the purpose and use of the determination as a means of evaluating company policy and recommending changes . It should be clear that the focus of the preventability determination is part of

an overall safety-conscious effort by the carrier and not to assign fault .

Not only should motor carriers have a definition and documentation in place prior to an accident, the motor carrier’s representative should be prepared to accurately explain and articulate the company’s preventability determination during a deposition . It will be largely that person’s testimony, along with any documentation related to the preventability process, that will support the motion to exclude the determination . For instance, if the motor carrier has adopted the ATA’s definition of preventability, the motor carrier’s representative should be prepared to recite that definition during his or her deposition, should the topic arise . The representative should be prepared to explain how the preventability standard is different from the negligence standard that applies to the tort claim in the lawsuit .

The following are portions of an actual deposition transcript that provide a great illustration of a motor carrier representative who skillfully addressed questions related to the motor carrier’s preventability determination:

Q . Is it a policy of [Motor Carrier] to make its own determination as to whether an accident was preventable or not?

A . Yes .

Q . Do you know who established the guidelines for determining whether or not an accident -- specific respon-sibilities I’m talking at [Motor Carrier], for determining whether an accident was preventable or not?

A . The ATA . . . American Trucking Association, we follow those guidelines .

Q . All right . So [Motor Carrier] does not have any separate guidelines of its own that it follows in determining whether an accident is or was not preventable, right?

A . Not to my knowledge, no .

Q . When a driver’s been involved in a collision and it’s determined to be preventable, what does that mean?

A . The driver failed to do everything reasonably expected to avoid the accident .

Q . As part of its safety plan, does [Motor Carrier] convene an accident review board for determining whether an accident was preventable and to determine what countermeasures should be taken?

A . No .

Q . Why not?A . We review each accident on an

individual basis . Once the risk department has made the determination in the system that it is preventable or unknown, then safety would subsequently counsel the driver and identify any plans for improvement .

Q . And that’s kind of what I was asking . As part of its safety plan, -- when it’s determined that an accident is a preventable accident, will [Motor Carrier] meet and convene and try to determine what countermeasures should be taken to prevent future accidents under similar circumstances from occurring?

A . Right . And my answer stands the same . There isn’t an accident review board, if you will . Safety reviews, just as risk reviews, each accident and research associated with that or the investigation . Then safety also reviews with the driver any counseling or training that may be necessary to prevent that from happening in the future . And depending on that driver’s history or experience, the counseling or training may be different . So there is no set -- there’s guidelines would be a better way to answer that . . . .

Q . One of the reasons all of those accidents are investigated is because [Motor Carrier] wants to determine if additional -- if anything can be done in the future to prevent similar accidents from occurring in the future?

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TLA Feature ArticlesA . That would be one of the reasons we

determine preventability, yes .

Q . Right . Can you tell me this: When determining preventability, what areas does [Motor Carrier] look at to make the determination?

A . [Motor Carrier] review[s] a variety of factors . In general, police reports, witness statements, they may talk with the driver or the other driver of the vehicles . Those would be the key steps, I guess, or primary steps I can think of .

During this deposition, the motor carrier representative was able to articulate the company’s definition of preventability . He explained the factors assessed by the motor carrier in determining whether an accident was

preventable . He could also explain the motor carrier’s purpose in determining preventability . This testimony could form the basis for exclusion of the preventability determination under both Rule 403, as unduly prejudicial, and Rule 407 as a subsequent remedial measure .

ConclusionWhen a motor carrier makes a

preventability determination after an accident in an effort to reduce accidents and assess company policy, that determination can unfortunately have a negative impact when introduced in a lawsuit in which the commercial driver’s negligence is in dispute . The primary problem lies in the fact that a motor carrier’s definition of preventability

and the standard for negligence are often drastically different . Fortunately, there are arguments that support the exclusion of the preventability determination from trial and courts have excluded the determination for these reasons . Long before the motion to exclude is drafted, however, efforts must be made to define preventability and determine its purpose and use . A company representative then must be prepared to articulate that definition and purpose during the discovery phase of the lawsuit . These efforts will put the motor carrier in a position to hopefully avoid a jury verdict potentially based on an improper standard or misleading evidence .

Endnotes1 49 C .F .R . § 385 .32 Chavez v. Cedar Fair, LP, 2014 WL 5856696 at *3 (Mo . Nov . 12, 2014) .3 Gauci v. Ryan’s Family Steak Houses, Inc., 2004 WL 1595132 at ¶ 10 (6th App . Dist . 2004) (citing Mussivand v. David, 45 Ohio St .3d 314, 318-319

(1989)) . 4 Engeman Enterprises, LLC v. Tolin Mech. Sys. Co., 2013 COA 34, ¶ 24, 320 P .3d 364, 370 (Colo . App . 2013) . 5 Fed .Evid .R . 403 . 6 2000 WL 1154073 at *6 (N .D . Ill . Aug . 14, 2000) . 7 Id. 8 Id. 9 Id. 10 Id. 11 Id. 12 Id.13 2003 WL 1611214 (Cal . 3rd Dist . 2003) .14 Id. 15 Id. 16 Id. 17 Id.18 270 Ga . App . 897, 901, 608 S .E .2d 266, 270 (2004) .19 Fed .Evid .R . 407 .20 Jack B . Weinstein & Margaret A . Berger, Weinstein’s Evidence Manual § 7 .04[1] (2006) .21 Fed .Evid .R . 407 .22 Harper v. Griggs, 2006 WL 2604663 at *2 (W .D . Ky . Sept . 11, 2006) . 23 Id. at *1 . 24 Id. at *2 .25 Id. 26 Id. 27 Id.28 Martel v. Massachusetts Bay Transp. Auth., 403 Mass . 1, 525 N .E .2d 662 (1988) . 29 Id. 30 Id. at 664 (internal citations omitted) . 31 2002 WL 34098014 (Pa . Com . Pl . June 28, 2002) .

43


I. Introduction: Choosing a Flag – More Than a Matter of ConvenienceAdvising a client of the appropriate

flag state for his or her vessel is a challenging retainer, requiring consideration of almost every commercial issue from vessel ownership, labor and manning issues, and even the reputation of the flag state . The only certainty is that a vessel must sail under a flag: United Nations Convention on the Law of the Sea (UNCLOGS) Article 91 provides:

Ships have the nationality of the State whose flag they are entitled to fly . … [Moreover] ships shall sail under the flag of one State only and … shall be subject to its exclusive jurisdiction on the high seas .

When considering which flag state to choose, one encounters several different registration regimes: traditional, open, and a hybrid of the two . While traditional registries usually require the vessel’s owner or operator and a certain percentage of the crew to be citizens of the registration state, open registries typically impose more lenient registration requirements

by not requiring the vessel owners, operators, and crew to have the same nationality as the country where the ship is registered or the disclosure of ownership information .1

Today, “flag of convenience” refers to vessel registration in a country with an “open registry” for predominantly economic reasons, including: little to no local taxes on vessel income, acceptance of foreign owners and crew, increases in vessel market value, easy currency conversion, allowing vessel repairs abroad, lower operating costs due to lower wages (due to the ability of hiring non-union employees), and more lenient labor and safety standards, obtaining vessel tonnage more easily, and avoiding Coast Guard regulations .2

With the increased popularity in open registries for vessel registry, it is important to understand the advantages and disadvantages of the different available registries and the factors to consider when selecting a particular registry . Choosing where a vessel should be “flagged” is a complex process that requires consideration of a multitude of factors . This article considers some of the key factors in the context of the three of the most popular flag states: the Republic of Marshall Islands (RMI), Mongolia and Panama .

A. Taking the Right Tack – Flying the Marshall Islands FlagThe RMI Registry, governed by

the RMI Maritime Act of 1990 (“RMI Maritime Act”), is the third largest

vessel registry in the world, reaching 100 million gross tons in February 2014 .3 Headquartered in Reston, Va ., the International Registries, Inc . and its affiliates (“IRI”), is the world’s oldest and one of the most experienced privately administered Maritime and Corporate Registry provider; it operates 26 full-service offices in major shipping and financial centers around the world, and provides worldwide, around-the-clock duty officer system and real time support to vessels flying its flag .4

1. International TreatmentThe RMI maintains a permanent

representative and active delegation at the IMO .5 It is included on the White Lists of both the Paris and Tokyo Memorandums of Understanding (“MoUs”), and has also maintained Qualship 21 status with the U .S . Coast Guard for an unprecedented 10 consecutive years .6 Qualship 21 is an initiative that was implemented by the Coast Guard to identify high-quality ships, and provide incentives to encourage quality operations .7 Only approximately 10 percent of the foreign-flagged vessels that call in the U .S . qualify for this initiative and certification, which focuses predominantly on the vessel’s Port State Control (“PSC”) records and history8 ensuring the vessel

* Gowling Lafleur Henderson LLP (Hamilton, Ontario, Canada) and Benesch, Friedlander, Coplan & Aronoff LLP (Indianapolis, Indiana) . We gratefully acknowledge Summer Associates, Sarah Wouters and Brittany Shaw, for their contributions to the drafting of this article .

Stephanie S. Penninger*Heather C. Devine and

Know the Ropes When Flagging Your Vessel:a comPariSon of three of the world’S

Du Jour veSSel regiStrieS

44



TLA International Sectionis manned and operated in compliance with applicable international law .9

2. Qualifications for RegistryBusiness entity formation within

the RMI is straightforward and efficient, and there are tax incentives associated with vessel registration with the RMI Registry . The RMI does not restrict the nationality of seafarers serving on RMI flagged vessels, and offers competitive registration fees and tonnage taxes .10 Additionally, RMI’s legislation permits vessels to register with the RMI Registry although the vessel is still subject to a recorded mortgage in its present country of registry .11 The foreign mortgage lien accompanies the vessel into the RMI Registry .12

Seagoing vessels of any tonnage engaged in foreign trade and those under construction are eligible for registration in the RMI .13 At the time of registration, vessels should not be more than 20 years of age, however, vessels that are older than 20 years may be granted a waiver for registration depending on their condition and classification .14 An owner may check availability of vessel names and reserve that name for six months for an existing vessel and two years for a newly constructed vessel .15

Ownership of vessels registered with the RMI must be through an RMI corporation, limited liability company, limited or general partnership, and associations of individuals or a qualified FME .16 The RMI has mandatory classification and statutory survey and certification requirements . The country provides a list of approved societies for an owner’s convenience .17

3. Registration FeesRegistration fees as well as first year’s

RMI tonnage taxes and annual fees are payable upon registration .18 There are two fee option schedules available . Schedule A where the standard fees are payable for the registration in the RMI or Schedule B providing a sliding scale for various tonnage categories and a fleet discount structure .19 Discounts are

available for certain registrations, e.g., a fleet or newly constructed vessels .20

4. Mortgaging Vessels & Maritime LiensThe RMI Maritime Act incorporates

provisions for recordation of security-related instruments and documents of title .21 Recordation provides notice to creditors, purchasers, suppliers and other parties with interest, and furnishes an internationally enforceable structure for the protection of legal rights recorded .22 The RMI does not require a particular form of vessel mortgage . However, for a mortgage to be recorded with the Administrator, the mortgage must be duly executed and acknowledged as required by the RMI Maritime Regulations (MI-108) Section 3 .30, or with proof of due execution as required in RMI Maritime Regulation 1 .04 .2a .23

All documents recorded under the Maritime Act (MI-107) must be in the English language, except notices of foreign language ship mortgages or financing charters recorded under the bareboat registry provisions of the Maritime Act, Section 264, which only have to have their cover and execution pages translated into English .24 Preferred status gives priority to a lender’s mortgage lien over those with certain other claimants .25 An RMI ship mortgage must contain the: (1) vessel name; (2) hull number for a vessel under construction; (3) names and identifies of the parties to the mortgage; (3) interest in the vessel affected; and (4) amount(s) of the direct or contingent obligations that are or may become secured under its terms .26

A preferred mortgage may secure sale and lease transactions, contingent and future obligations, advances and repayments, and guarantees . Owners also have an option to “tack on” a previously recorded mortgage .27 Owners may submit the recorded foreign mortgage and a simple signed mortgage instrument that is recorded when a vessel is registered with the RMI .28 Marshall

Island laws will govern the mortgage instrument .29 In addition to the RMI legal system, international legal and financial professionals recognize the RMI mortgage recordation procedures and administrative controls .30

5. Manning & Safety RequirementsThere are no nationality restrictions

for vessel crewmembers .31 However, RMI officers are required to hold a CoC/Certificate of Endorsement (CoE) issued by the Administrator, and all persons serving aboard RMI flagged commercial vessels are required to hold an RMI Seafarer’s Identity and Record Book, which serves as a record of sea service and contains the Special Qualification Certificates (SQCs), specifying the rating in which the holder is qualified to serve and any special qualification(s) held by the seafarer .32

6. TaxationPursuant to RMI Business

Corporations Act Section 12, RMI business entities and foreign maritime entities (“FME” or “FMEs”) are exempt from annual filings and corporate tax, net income tax, withholding tax on entity revenues, asset tax, tax reporting requirement on entity revenues, stamp duty, exchange controls or other fees or taxes, provided that they do not engage in business within the RMI .33

7. Labor and Operating CostsOn September 25, 2007, the RMI

ratified the Maritime Labour Convention of 2006 (“MLC 2006”), which provides: the minimum requirements for seafarers to work on board ships, conditions of employment, including pay, rest hours, leaves of absence, training and manning of ships, accommodation, health protection and care and compliance and enforcement mechanisms and measures . The government also adheres to certain minimum standards of social security, under the Social Security (Minimum Standards) Convention of 1952 (“SSC 1952”), concerning: medical

45


care, sickness benefits, unemployment benefits, employment injury benefits and survivors’ benefits .34

B. Full Steam Ahead: Flying the Mongolian Flag

1. International TreatmentPort State Control authorities, under

the Memorandum of Understanding on Port State Control in the Asia-Pacific Region (Tokyo MOU), detained 26 .76 percent of all Mongolian-flagged ships in 2013; the second highest detention percentage .35 (Ships are detained when the condition of the ship or its crew does not correspond substantially with the applicable conventions .)36 Based on the number of inspections and detentions from 2011-2013, Mongolia sits at the 6th position on the Tokyo MOU, 2013 “black list .” A “black list” categorization is one of several factors considered when assigning a ship risk profile which can have the effect of increasing or decreasing the number of Port State Control inspections a particular vessel is subjected to .37

2. Qualifications for RegistryTo register a vessel under Mongolia’s

ship registry, a registrant submits a Bill of Sale, existing registry and statutory certificates, as well as a certificate of competency for all officers on board the vessel .38 There are no restrictions on the ownership of the vessel, meaning that the owner’s nationality, or registration as a corporate body or entity, are not taken into consideration for registration as long as the applicant is capable of owning a vessel under the law of its national country .39 Moreover, the Mongolia ship registry offers to complete the entire registration process online in as little as 24 hours .

3. Registration FeesWhen applying to register a

vessel, financial considerations hold considerable weight . Mongolia’s ship registry boasts as having “low initial registration and annual tonnage taxes” as well as no cost to the ship owner(s) for setting up an “owning company” .40

4. Mortgaging Vessels & Maritime LiensThe Regulations for Registration of

Ships in the Ship Registry of Mongolia allows for a Mongolian vessel to be used as security for “a loan or other valuable consideration .”41 However, a mortgagee or creditor is prevented from acting on its security interests by detaining a vessel’s Certificate of Registry .42

5. Manning & Safety RequirementsAll seafarers are required to

have a valid Mongolian certificate of endorsement (“COE”) to work on board a Mongolian vessel .43 Annex 2 to the Regulations for Registration of Ships in the Ship Registry of Mongolia provides that a duly licensed Master needs to be on board every registered Mongolian vessel .44 Moreover, vessels with a propeller thrust of 300KW or more need to have a licensed Chief Engineer on board .45 Pursuant to the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers 1978 (“STCW Code”) manning standards, every officer and crewman on a Mongolian vessel must have the requisite training and certification to perform their job duties .46

With respect to safety requirements, a registered Mongolian vessel must be manned by the appropriate number of officers and crewmen necessary for the vessel’s safe navigation and operation .47 In the case of a registered Mongolian passenger vessel, a certified survival craft crewman must be assigned to each survival craft (i .e . lifeboat) on board the vessel .48

6. TaxationThere is little taxation information

provided to potential registry applicants . However, the Mongolian Ship Registry does entice applicants by purporting to have low initial registration and annual tonnage taxes as well as no taxes on profits or capital gains .49

7. Labor and Operating CostsAt present, Mongolia has not

ratified the MLC 2006, although a draft bill was submitted to Parliament last year in support of Mongolia’s ratification of the MLC 2006 .50 Ratifying the MLC 2006 would mean that Mongolia has accepted the responsibility of ensuring the safety and wellbeing of seafarers, namely meeting requirements for minimum age, hours of work, wage payments and medical care .51 Nor has Mongolia ratified the SSC 1952 .

Remaining as a non-ratifying flag state means that Mongolian flagged ships calling at ports of ratifying states will be subject to Port State Control inspections, the purpose of which is to enforce the Labour Conventions’ minimum standards for work and living conditions upon vessels .52

C. Plain Sailing under the Panamanian FlagPanama’s registry is the world’s

largest vessel registry .53 Indeed, the Panama flag is flown by over 6,000 vessels currently trading in the world’s oceans, most of which are not owned by Panamanians .54 Panama is one of the oldest and most widely chosen jurisdictions for ship registration because of the ease of registration, low registration fees, low-tax offshore jurisdiction and regulatory protections .55 Panama’s Maritime Court is available 24 hours a day, 365 days a year .56 Currently, Panama, which trades in U .S . dollars, has over 1,000 inspectors in over 300 ports ensuring compliance, worldwide .57

1. International TreatmentPanama is a signatory of the four

“pillars” of international maritime law – the STCW Convention, SOLAS, MARPOL and the MLC 2006 . Panama was notably listed in the first edition of the IMO’s “White List,” released on December 6, 2000, defining the flag states assessed to be properly implementing the revised STCW 95 Convention .58

46



TLA International Section 2. Qualifications for Registry

Panamanian law provides that “[a]ny individual or corporate entity, irrespective of nationality or country of incorporation, may register a vessel under Panamanian flag .”59 Accordingly, corporations are not required to have a place of business or business agent in Panama and incorporations, and officers and directors are not required to be residents of Panama to register vessels in Panama .60 Further, vessel crewmembers need not be Panamanian nationals .61 There is no minimum tonnage requirement, and almost any category of ships can be registered, from passenger ships to dredges and floating docks .62 Although there are no age restrictions, vessels that are 20 years old require a special inspection .63

Panama provides a provisional patent for a six-month period .64 After the preliminary information about the vessel and vessel owner is provided by way of the registry application,65 the vessel owner must notarize and file a number of required documents with the Consulate at the time of registration .66

Another benefit of registering in Panama is the ability for dual registry . A foreign vessel bareboat chartered (where a vessel owner leases a ship, without its crew or provisions, to the charterer, which becomes responsible for the vessel’s operation), already registered in one state may be registered in Panama for the same period, up to two years (dual registration is renewable) .67 This allows a charterer, leasing a ship registered in a country without an open registry, to take advantage of the Panamanian registry benefits . A vessel owner can also maintain the vessel’s original registration, which is suspended during the dual registration and regains its effectiveness upon termination of the charter .68 A certificate of consent from the country where the vessel is originally registered is required and dual registry can only apply if the vessels home country allows it .69

3. Registration FeesThe cost to register a ship under

Panama’s registry is lower than many of the other registries .70 The initial registration fee is approximately $0 .25 per registered ton plus an additional $0 .10 per net ton in annual tonnage tax .71 Owners can receive fee and tonnage tax discounts when registering a fleet of vessels .72

4. Mortgaging Vessels & Maritime LiensPreliminary registration of a

title or mortgage is accepted by the United States, Far Eastern, European, and worldwide banks as providing satisfactory security .73 A vessel mortgage may be executed in Panama or any other country, but must be registered at the Public Registry of Panama .74 The mortgage will not become effective against third parties until it is registered .75 It may be written or executed in any language or form, but must include name, address of mortgagor and mortgagee, fixed or maximum mortgaged principal, schedules for payment of principal and interest, interest rate or manner for determining it, name of mortgaged vessel, patent number, tonnage and dimensions .76 Fleet mortgages require paperwork of each vessel .77 Additionally, special naval mortgage provisions are required for ships under construction .78

5. Manning & Safety RequirementsTo be registered with the Panama

Registry, all vessels must pass an annual inspection to ensure that they meet international safety regulations, carry up to date certificates and are properly manned and equipped for their intended trade .79 To prevent the enrollment of potentially hazardous ships, vessels built over 20 years ago are required to be inspected before a permanent patent can be issued . All vessels are subject to surveys by an approved classification society that will issue tonnage and other technical certificates .80

6. TaxationCorporations can be created in

Panama to register vessels providing protection for owner’s assets .81 Panama does not collect income tax on profits resulting from the business made from merchant shipping outside of Panama, and, so long as services are not provided while the vessel is on coastal trade or performing work in the navigable waters of Panama, shipping companies are not required to withhold income taxes from employees’ salaries .82

7. Labor and Operating CostsOn February 6, 2009, Panama

ratified the Maritime Labour Convention of 2006 . The government has also ratified the SSC 1952, accepting obligations under the Convention concerning the following branches of social security: old-age benefit, invalidity benefit and survivors’ benefits .83

II. When the Ship Comes In: Final Thoughts and ConclusionIt is clear that while the only

certainty for a commercial vessel is that it must be flagged, every other issue will be affected by the needs and requirements of one’s client . This paper canvasses the key considerations for each client, in order to provide insight into the differences and similarities amongst the three most popular flag states . For example, the convenience of quick registration under the flag of Mongolia can be balanced against the cost and labor requirements of the flags of Panama or the Marshall Islands . These in turn may be balanced against the ease of mortgage and lien registrations . In each case, the international reputation of the flag state, any port conveniences offered to a vessel flying certain flags, the labor requirements (or lack thereof), are balanced by the nationality of the purchaser (or not), and, perhaps, the age of the vessel .

47


Endnotes 1 . Alexander J . Marcopoulos Flags of Terror: An argument for Rethinking Maritime Security Policy Regarding Flags of Convenience, TuLane MariTiMe Law

JournaL, 32 Tul . Mar . L .J . 277, at * 280-281 (Winter 2007) . 2 . Comment: Vessel Registration in Selected Open Registries, TuLane MariTiMe Law JournaL, 6 Tul . Mar . L .J . 221 (Fall 1981) . 3 . About IRI, inTernaTionaL regisTries, inc . available at https://www .register-iri .com/index .cfm?action=about, last viewed Oct . 7, 2014 . 4 . Id .; The Republic of the Marshall Islands, Official Guide to Ship and Yacht Registries, gsr, available at http://www .guidetoshipregistries .com/

shipregistries-country/marshall-islands, last viewed Oct . 7, 2014 . 5 . As part of its commitment to supporting maritime safety security, environmental protection and social responsibility, the RMI is a signatory to

and enforces major maritime conventions, including: (1) the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (“STCW Convention”), which provides qualification standards for masters, officers and watch personnel on seagoing merchant ships; (2) the International Convention for the Safety of Life at Sea (“SOLAS”), which sets forth the minimum safety standards concerning vessel construction, equipment and operation; (3) the International Convention for the Prevention of Pollution From Ships (“MARPOL”), which details the minimum standards governing pollution of the seas, including those governing oil dumping and exhaust pollution; and (4) the Maritime Labour Convention (“MLC”), which provides: (a) the minimum requirements for seafarers to work on board ships; (b) conditions of employment, including pay, rest hours, leaves of absence, training and manning of ships; (c) accommodation; (d) health protection and care; and (e) compliance and enforcement mechanisms and measures .

6 . The Marshall Islands Registry: service and quality are within your reach, inTernaTionaL regisTries, inc., available at www .register-iri .com . 7 . Qualship 21 Initiative, Homeport, u.s. depT. of hoMeLand securiTy, available at https://homeport .uscg .mil/mycg/portal/ep/contentView .

do?channelId=-18371&contentId=21978&programId=21428&programPage=%2Fep%2Fprogram%2Feditorial .jsp&pageTypeId=13489&contentType=EDITORIAL, (last viewed Oct . 14, 2014) .

8 . Id . 9 . Port State Control, wikipedia, available at http://en .wikipedia .org/wiki/Port_State_Control .10 . Id .; Annual tonnage taxes are due in full by January 1 of a given year for all vessels registered with the RMI . See Marine Notice 1-005-1 for the

most current fee schedule, available at: www .reegister-iri .com .11 . Id .12 . Id .13 . Marshall and Vessel Registration and Mortgage Recording Procedures at § 2 .14 . Id .15 . Id .16 . Marshall Islands Vessel Registration and Mortgage Recording Procedures .17 . Id .18 . Id .19 . Id .20 . Marshall Islands Vessel Registration and Mortgage Recording Procedures; see Marine Notice 1-005-1, available at www .register-iri .com, for most

current fee schedule, including non-registration fees, e .g ., Radio and Seafarer’s documentation .21 . Id .22 . Id .23 . Id .24 . Id .25 . Id .26 . Id .; see also Maritime Act §§ 302(2), 305 .27 . Id .28 . Id .29 . Id .30 . Richard Coles and Edward Watt, Ship RegiStRation: Law and pRactice, 20 .18 at p . 238 .31 . Id.32 . Id .33 . Republic of the Marshall Islands, A New Dawn Beckons for International Finance, BuSineSS annuaL offShoRe guide 2011/12, available at

http://issuu .com/businessannual/docs/baog2011-12 .34 . Ratifications of MLC- Maritime Labour Convention, 2006, inTernaTionaL Labour organizaTion, available at http://www .ilo .org/dyn/

normlex/en/f?p=NORMLEXPUB:11300:0::NO::P11300_INSTRUMENT_ID:312331(last viewed Dec . 23, 2014) .35 . Tokyo MOU, 2013 Figure 4: Detentions Per Flag, p . 17 .36 . Tokyo MOU, 2013, Port State Control Under the Tokyo Mou, 2013 p . 13 .37 . Port State Control – Tokyo MOU New Inspection regime, wesT of engLand, available at http://www .westpandi .com/Publications/News/Port-

State-Control---Tokyo-MOU-New-Inspection-Regime/ (June 28, 2013) .38 . Mongolia Ship Registry, Features and Benefits, MongoLia ship regisTry, available at http://www .mngship .org .39 . Salient Features, MongoLia ship regisTry, available at http://www .mngssl .org/index .php .40 . Mongolia Ship Registry, Features and Benefits, MongoLia ship regisTry, available at http://www .mngship .org .41 . Regulations for Registration of Ships in the Ship Registry of Mongolia § 4 .1 .42 . Regulations for Registration of Ships in the Ship Registry of Mongolia § 3 .25 .43 . Shanghai Shipping Limited, Manning Requirements, online: Mongolia Ship Registry available at http://www .mngssl .org .44 . Annex 2 to the Regulations for Registration of Ships in the Ship Registry of Mongolia Section 1, available at http://www .mngssl .org/ .

documents/MgnManning_annex2 .pdf .

48



TLA International Section45 . Annex 2 to the Regulations for Registration of Ships in the Ship Registry of Mongolia Section 2, available at http://www .mngssl .org/documents/

MgnManning_annex2 .pdf .46 . Mongolia Ship Registry, Marine Circular 7-2003, MongoLia ship regisTry, available at www .mngssl .org/documents/MC072003 .pdf (Feb . 10,

2013) .47 . Annex 2 to the Regulations for Registration of Ships in the Ship Registry of Mongolia, available at http://www .mngssl .org/documents/

MgnManning_annex2 .pdf .48 . Annex 2 to the Regulations for Registration of Ships in the Ship Registry of Mongolia Section 4, available at http://www .mngssl .org/documents/

MgnManning_annex2 .pdf .49 . Shanghi Shipping Limited, Manning Requirements, MongoLia ship regisTry, available at http://mngssl .org .50 . “Mongolia to Join the Maritime Labour Convention,” inforMaTion MongoLia, available at http://www .informongolia .com/ct/ci/6940 (Oct . 28,

2013); E . Oyundari, “Draft bills submitted to Parliament,” available at UB Post News <http://ubpost .mongolnews .mn/?p=6477 (Oct . 29, 2013) .51 . Id.52 . Paul Newdick, “Maritime Labour Convention 2006: Current Issues,” cLyde & co., available at http://www .clydeco .com/insight/articles/maritime-

labour-convention-2006-current-issues (Sept . 3, 2013) .53 . Consulate Gen . of Pan ., The panaMa regisTry, n.y ., http://www .nyconsul .com/index .htm (last visited Sept . 14, 2014) (the “Panama Registry”) .54 . Top 25 Flag of Registry, available at http://www .marad .dot .gov/library_landing_page/data_and_statistics/Data_and_Statistics .htm (last visited

January 31, 2013); Lexology, A guide to ship registration in Panama (as of November 30, 2012); Marcopoulos, supra at *290 .55 . Lexology, A guide to ship registration in Panama; Vessel Registration, inTernaTionaL shipping bureau, available at http://www .isbship .com/

php/registrationDetails .php?rr_id=3&s_id=3 . 56 . Id .57 . Id .58 . The White List, consuLaTe generaL of panaMa- new york, available at http://www .nyconsul .com/the_white_list .htm (last viewed October 14,

2014) .59 . Id . 60 . Comment: Vessel Registration in Selected Open Registries, supra note 4 (citing B . Boczek, Flags of Convenience: An International Legal Study 111-

112 (1962) at 55 n . 106 (citing Panamanian Law No . 32 of Feb . 26 1927, as amended by Law No . 9 of July 3, 1946)) .61 . Coles, supra note 38 .62 . Id .63 . Id .64 . Id .65 . Id . (application may be obtained at: http://www .nyconsul .com/new_page_6 .htm) .66 . 1) title of ownership (two copies), comprised of the bill of sale or a builder’s certificate for a new vessel; 2) power of attorney in favor of the persons registering the vessel and acting on behalf of the vessel before the Panamanian authorities

(a practicing Panamanian lawyer must be appointed as legal representative of the vessel); 3) a deletion or cancellation certificate, issued by the authority of the former country of registration and demonstrating that the vessel is no

longer registered under the previous registry and that it is free from mortgages or encumbrances (not required for new vessels); 4) corporate resolution – if a corporation submits the registration application, its representative’s authority must be established; 5) acceptance of sale – the buyer must state his approval of the sale transaction; 6) international tonnage certificate or certificate of admeasurement certified by the surveying company (does not need to be notarized); and 7) acceptance of sale – the buyer must state his approval of the sale transaction .

67 . Consulate Gen . of Pan ., supra note 38 . 68 . Id .69 . Lexology, A guide to ship registration in Panama .70 . Id.71 . Consulate Gen . of Pan ., supra note 38 .72 . Id . 73 . Registration Procedures, consuLaTe generaL of panaMa in London, available at http://www .panamaconsul .co .uk/index .

php?page=procedures&hl=en_US; see also http://www .nyconsul .com/registration1 .htm (providing link to preliminary mortgage registration form) .

74 . Lexology, A guide to ship registration in Panama .75 . Id .76 . Id .77 . Id .78 . Id .79 . Id .80 . Id .81 . Ownership and Control of Ships, Maritime Transport Committee, organizaTion for econoMic co-operaTion and deveLopMenT, March 2003,

available at http://www .oecd .org/sti/transport/maritimetransport/17846120 .pdf .82 . Lexology, A guide to ship registration in Panama; Comment: Vessel Registration in Selected Open Registries, supra note 60 (citing B . Boczek,

at 58 N . 117 (citing Fiscal Code of Panama, art . 708(e)) .83 . Ratifications of MLC- Maritime Labour Convention, 2006, inTernaTionaL Labour organizaTion, available at ttp://www .ilo .org/dyn/normlex/

en/f?p=NORMLEXPUB:11300:0::NO::P11300_INSTRUMENT_ID:312331 (last viewed Dec . 23, 2014) .

49


By definition, transportation lawyers provide advice and representation to clients that are engaged in the movement of people and goods from one place to another . Given the fact that we now live in a global economy, our clients’ business transportation activities increasingly involve cross-border transactions . This gives rise to new levels of complexity . It is difficult enough to be familiar and compliant with domestic laws that regulate a company’s business activities in its home country . Now it must also learn to navigate legal and cultural differences that may have a profound effect on its ability to expand its business internationally .

One area of international law that should be of particular concern to our transportation clients is the subject of anticorruption laws . There are a number of important reasons for this concern . First, there is a heightened level of international government attention being given to corruption in international trade . Corrupt and illegal business activities that might have been overlooked in the past are now being scrutinized and are the subject of increased vigilance by government authorities . Moreover, there has been an increasing effort by governments to share information and assist each other with investigating corrupt international business activities, giving rise to much more effective detection and enforcement efforts .

Second, there has been an increasing international effort to enact laws that prohibit corrupt business

practices and give real teeth to government entities when enforcing these laws . There are now substantial criminal and civil penalties available, including imprisonment and very stiff fines that can and are being leveled at companies and their officers who violate these laws .

The magnitude of the exposure companies and their officers face when violating these laws is stunning . For example, on March 19, 2014, Marubeni Corporation, a Japanese trading company, entered a guilty plea and agreed to pay a fine of $88 million . The fine was paid for Marubeni’s participation with a Connecticut company in a scheme to pay bribes to high-ranking government officials in Indonesia to secure a profitable contract . Marubeni was prosecuted in the U .S . District Court for the District of Connecticut and charged with violation of the United States Foreign Corrupt Practices Act (FCPA) . A number of individual employees of Marubeni’s consortium partner were also indicted and pleaded guilty .

In its press release announcing the guilty plea, the U .S . Department of Justice stated:

Today’s guilty plea by Marubeni Corporation is an important reminder to the business community of the significant consequences of participating in schemes to bribe government officials, whether at home or abroad .

Companies that wish to do

business in the United States or with U .S . companies must adhere to U .S . law, and that means bribery is unacceptable, said Assistant Director in Charge Parlave . The FBI continues to work with our international law enforcement partners as demonstrated in this case to ensure that companies are held accountable for their criminal conduct .1

The Marubeni case is just one of many recent high-profile prosecutions involving corruption in international business transactions . As another example, in February 2014, the U .S . District Court for the Southern District of New York ordered each of two former executives of a large multinational corporation to pay the largest civil penalty ever for individuals in a corporate foreign bribery case: $524,000 . Securities and Exchange Commission v. Uriel Sharef et al., Civil Action No . 11-CIV-09073 (S .D .N .Y .) (SAS) (2014) . Their employer agreed to settle bribery charges by paying the staggering sum of $1 .6 billion .2

There have been numerous other FCPA civil and criminal prosecutions in 2014 and many of them involve United States companies across a wide variety of industries . See, e.g., * Lee International IP & Law Group (Seoul, Korea) .

Transportation Lawyers: anticorruPtion Statute violationS can StoP your clientS cold

Kurt B. Gerstner*

50



TLA International SectionTimms and Ramahi SEC Enforcement Action (Former employees of U .S .-based defense contractor, that gave gifts of expensive watches and took Saudi Arabian government officials on a “world tour” to help obtain contracts, charged with FCPA violations, and individually paid fines of $50,000 and $20,000 – November 17, 2014); Bio-Rad SEC Enforcement Action (U .S . company found to lack sufficient internal controls to prevent and detect bribes paid by local company agents to foreign officials in Thailand, Vietnam and Russia to obtain contracts generating $35 million in profits . Bio-Rad paid $55 million to resolve parallel SEC civil and U .S . Department of Justice criminal enforcement actions – November 3, 2014); Smith & Wesson Enforcement Action (U .S . firearms manufacturer required to disgorge profits of $107,852, plus pay prejudgment interest in the amount of $21,040 and fines of $1 .906 million after third-party agents bribed government officials in Pakistan in violation of FCPA – July 28, 2014); Hewlett-Packard Enforcement Action (HP paid more than $108 million to resolve parallel SEC civil and U .S . Department of Justice criminal actions after its agents bribed government officials in Russia, Poland and Mexico to obtain company business – April 9, 2014); Alcoa Enforcement Action (Alcoa paid $384 million to settle parallel SEC civil and U .S . Department of Justice criminal actions arising from bribes of government officials in Bahrain – January 9, 2014) .3

Virtually every country now has some form of anticorruption laws that are designed to stamp out bribery and other corrupt international business practices, including the United States’ Foreign Corrupt Practices Act (FCPA), the Korean Foreign Bribery Prevention Act and the U .K . Bribery Act, to name a few . As more companies engage in international transportation and commerce, sometimes directly and sometimes using local companies as foreign agents to represent them in certain markets, the potential for

entanglement with anticorruption laws increases . The prospect of criminal prosecutions, enormous fines and jail time for individuals, along with the accompanying damage to reputation and the staggering legal costs associated with defending a company’s interests in such matters, creates enormous legal exposure for any company caught up in an anti-corruption investigation . Widespread international law enforcement coop-eration and international business activities that expand the reach of personal jurisdiction will contribute to further increasing international anticorruption investigations and prosecutions . Therefore, it is imperative that companies engaged in commerce involving international transportation and their attorneys be aware of these domestic and foreign anticorruption laws, and ensure compliance with the laws .

The United States Foreign Corrupt Practices Act (FCPA)

The Foreign Corrupt Practices Act of 1977, 15 U .S .C . §§ 78dd-1, et seq ., makes it unlawful for certain persons and entities to pay or offer to pay foreign government officials to assist in obtaining, retaining, or directing business to any person or entity . In addition to its anti-bribery provisions, the FCPA also contains accounting requirements designed to prevent accounting practices that can be used to disguise corrupt payments .

The FCPA applies to U .S . citizens and entities, as well as foreign issuers of securities that are registered in the United States . It also applies to any foreign person or entity that takes any act within the United States in furtherance of making a corrupt payment outside the United States .

To prove a violation of the FCPA, the government must show that a payment, offer or promise to pay money or give anything of value has been made to a foreign government official or other person with knowledge that it will be made to a foreign official with

a corrupt intent to influence or induce that official to act or fail to act, in violation of his/her legal duty, in a way that secures an improper advantage for the person making the bribe to obtain, retain, or direct business to a particular person or entity .

Violating the FCPA can lead to criminal charges and, if convicted, to very stiff penalties . Individuals can face significant prison sentences and fines . Corporations and other business entities can be required to pay very heavy fines . Additionally, the SEC may impose its own significant civil fines . As noted above, oftentimes there are parallel criminal and civil actions that proceed . Moreover, there are prohibitions against certain corporations indemnifying their officers, directors, employees, and agents for criminal and civil fines that may be imposed on them individually for FCPA violations . Thus, these individuals could be saddled with the full financial responsibility for fines and legal defense costs flowing from a violation of the act .

The scope of who is considered a foreign official is broad . It can include any officer or employee of: (1) a foreign government, or any department, agency, or instrumentality of one; (2) an officer or employee or instrumentality of a public international organization; or (3) any person acting in an official capacity for or on behalf of any such government, department, agency, or instrumentality, or for or on behalf of any such public international organization . It may also include officers or employees of government-owned or government-controlled businesses or enterprises .

The FCPA does not specify the amount of the payment that must be given to an official to run afoul of the act . Offering anything of value, including cash and non-cash items, can suffice if offered as a bribe to obtain some advantage in business . Moreover, the mere offer of the bribe is sufficient to violate the FCPA, even if the bribe is not actually paid .

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The business to be obtained or retained need not be a government contract or other government business . A bribe paid to a government official to cause that official to use his or her influence with a private third party to contract with the bribing party could also violate the FCPA .

There are certain exceptions to the FCPA’s very broad interpretations . First, the FCPA does not prohibit making payments to foreign officials to cause those officials to perform routine governmental actions . For this exception to apply a payment must relate to the official performing a routine, nondiscretionary govern-mental function, such as issuing a routine license or scheduling an inspection . The function cannot involve any decision by the foreign official to award business, continue business, or direct business to the party making the payment or its designee .

The FCPA also does not prohibit payments that are lawful under the written laws and regulations of a particular country where the person acts as an official . Nor does the FCPA prohibit reasonable and bona fide expenditures such as travel “directly related to (A) the promotion, demonstration, or explanation of products or services; or (B) the execution or performance of a contract with a foreign government or agency thereof .” Paying reasonable travel expenses for a foreign official to attend a meeting to inspect a company’s products may fall within this exception . But lavish expenditures for luxury travel provided to foreign government officials probably would be considered a violation of the Act .

Anticorruption Laws Outside the United StatesAlthough the United States was

an early crusader against corruption in international business transactions, it is by no means the only country interested in stamping out corrupt international business practices .

The Organization for Economic Cooperation and Development (OECD) took up the problem of business corruption as one of its causes and devoted significant attention to it . The efforts culminated in the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Anti-Bribery Convention), which was enacted in 1997 and went into effect in 1999 . It has now been adopted by 40 countries, including the United States and Canada, the major European countries, Australia, Asian countries such as Korea and Japan and other countries around the world .

The OECD Anti-Bribery Convention establishes legally binding standards to make it a crime to bribe foreign public officials in international business transactions and includes a host of related measures that make this effective .

Following the OECD, many countries have now enacted their own brand of anticorruption laws, and it is incumbent on any company conducting transportation or other businesses abroad to determine if laws exist in the specific countries where they plan to conduct business operations and what they prohibit . Laws in these countries may differ from the FCPA and may have more expansive prohibitions .

KoreaFor example, in 1998, Korea

enacted the Foreign Bribery Prevention Act (FBPA) to implement the OECD Convention and help stop bribery of government officials . In addition to that act, Korea has also passed gift-giving laws that apply to private individuals . Although there have not been many FBPA or gift-giving enforcement litigation actions by the Korean government, given the increasing international focus on investigations and prosecutions for bribery of foreign officials and others in business, it is expected that the Korean government will take an aggressive approach to anti-corruption laws enforcement .

The Foreign Bribery Prevention Act (the FBPA)

Under Article 3 of the FBPA, anyone who promises, gives or offers a bribe to a foreign public official in relation to his or her official business to obtain an improper advantage in international business transactions is subject to up to five years of imprisonment or a fine up to KRW 20 million (about $19,600) . If the benefit exceeds KRW 10 million ($9,800), a court may impose a fine equal to double the amount of profit from the act of bribery . Moreover, a corporate entity will be vicariously liable for its employees’ bribery and will be subject to a fine up to KRW 1 billion ($985,000), or double the amount of benefit if the benefit exceeds KRW 500 million ($493,000), except when the corporate entity “has paid due attention or exercised proper supervision to prevent” the bribery as specified in Article 4 of the FBPA .

No Intent Requirements and Monetary ThresholdsWhile the FCPA requires the

person making or authorizing the payment to have a corrupt intent, the FBPA does not have an explicit intent requirement . Furthermore, there is no minimum monetary threshold for a bribery prosecution . However, similar to the FCPA, the FBPA carves out an exception permitting “small pecuniary or other advantage” made to a foreign public official to obtain routine governmental actions in Article 3, Paragraph 2, Subparagraph b .

Definition of Foreign Public Official

Under Article 2 of the FBPA, “foreign public official” is defined as: (1) any person appointed or elected to a legislative, administrative or judicial office of a foreign government; (2) any person working for a public international organization; (3) any person who exercises a public function for a foreign government and who also does one of the following: (a) conducts a

52



TLA International Sectionbusiness in the public interest delegated by the foreign government; (b) works for a public organization or agency carrying out business in the public interest; or (c) works at an enterprise over which the foreign government holds over 50 percent of the paid-in capital or exercises substantial control over its overall management, including major business decisions and the appointment or dismissal of its executives, except for a person who works at an enterprise that operates on a competitive basis equivalent to entities of ordinary private economy, without preferential subsidies or other privileges .

There had not been much discussion on the exact definition and scope of “foreign public official” for the purpose of the FBPA until the recent case of China Eastern Airlines, 2011 GoHap 277, 294, 757 (Incheon District Court, Feb . 14, 2012); 2012 No 865, 2685 (Seoul High Court, Feb . 1, 2013) . This case illustrates how transportation companies can get caught up in anticorruption investigations .

In 2011, Korean prosecutors brought FBPA charges against the CEOs of a logistics company and a travel agency for bribing the CEO of the Korean subsidiary of China Eastern Airlines . They were alleged to have paid the bribes in an attempt to obtain more favorable freight fees and a larger volume of passenger tickets to sell to the public . The prosecution sought to prove that the CEO of the company was a foreign public official because the Chinese government: (1) through a wholly owned subsidiary owned more than 50 percent of the company and (2) had appointment and dismissal power over the CEO of the company . Both the trial court and the appellate court ruled that the prosecution failed to meet its burden of proof . Prosecutors appealed to the Korean Supreme Court, which later dismissed the appeal, upholding the decision of the lower courts .

While the criminal prosecution ultimately failed, the defendants still had to endure the monetary and

emotional cost and exposure of three separate legal actions before they were vindicated on those charges .

Korean Gift-Giving LawsKorea has also enacted anti-

corruption laws governing “bribes” to people other than government officials . Gift-giving to private individuals is regulated by Articles 355, 356 and 357 of the Criminal Act of Korea (CA), and Articles 23 and 24 of the Monopoly Regulation and Fair Trade Act (MRFTA) . These regulations apply to instances where an individual or company, a “gift giver,” provides a gift or other compensation to an employee of another company to gain certain benefits, such as receiving a contract award or obtaining some other unfair advantage . When reviewing cases involving gift-giving to private individuals, Korean courts have generally found that a “gift” can mean any advantage that has present or potential pecuniary value, including meals or entertainment, depending on the overall circumstances .

CA — Occupational Breach of Trust and Unlawful

SolicitationUnder Article 355, Paragraph 2 and

Article 356 of the CA, employees who breach their duties to their employers and obtain improper benefits for themselves or for others, thereby causing losses to their employers, may be charged with occupational breach of trust and punished by imprisonment not exceeding ten (10) years or by a fine not exceeding KRW 30 million ($29,500) .

Moreover, if a gift giver provides gifts to employees of potential customers to solicit business, and the customers retain the services of the gift giver on terms and conditions that are less favorable than if the gifts were not provided (if the retention resulted in losses to the customers), then these employees may be found to have participated in unlawful solicitation

and may be punished by imprisonment not exceeding five years or by a fine not exceeding KRW 10 million ($9,800) under Article 357, Paragraph 1 of the CA . In addition, a gift giver may be punished by imprisonment not exceeding two years or by a fine not exceeding KRW 5 million ($4,900) under Article 357, Paragraph 2 of the CA .

Ultimately, the lawfulness of the solicitation of business through gift-giving is decided by the courts after considering the general circumstances of the case and the relevant facts surrounding the gift-giving, including the actions taken by the employees of the customers after having received the gifts, as well as various other factors such as good faith, among others .

MRFTA — Act of Unfairly Inducing Customers of

CompetitorsIf a gift giver unfairly induces

and attracts customers of competitors through gift-giving and if the gift-giving is likely to impede fair trade, then the act of giving that gift may be classified as an “unfair business practice,” proscribed by the MRFTA . In such a case, the gift giver may be punished by imprisonment not exceeding two years or by a fine not exceeding KRW 150 million ($148,000), under Article 23, Paragraph 1 of the MRFTA . Additionally, the Fair Trade Commission may assess its own fines .

The U.K.More recently, the Bribery Act

of 2010 (Bribery Act) was passed in the United Kingdom and became effective in 2011 .4 Although it bears many similarities to the FCPA and other anticorruption laws, it is actually broader in some respects than earlier laws .

Some differences exist between the FCPA and the Bribery Act . For instance, while the FCPA prohibits bribery of public officials, the Bribery

53


Act also prohibits private bribery that does not involve government officials . The FCPA prohibits giving a bribe or offering to give a bribe . The Bribery Act is broader . It also makes it illegal to receive a bribe . The Bribery Act makes a corporation strictly liable for failing to prevent bribery among its employees and “associated persons,” defined as anyone who performs services on behalf of the corporation, subject to the corporation proving that it had adequate procedures in place to prevent the bribery from occurring . Proof of a corrupt intent is not required under the Bribery Act . The penalties under the Bribery Act include even stiffer fines and prison sentences than those available under the FCPA .

The FCPA contains certain exemptions that the Bribery Act does not . For one, facilitation payments are not permitted under the Bribery Act, nor are payments of promotional expenses . However, there has been some suggestion that these types of payments alone will not be a catalyst for prosecution .

Avoiding Liability and Managing the Risk and

ExpenseBecause anticorruption laws

are primarily criminal statutes, government agencies and organizations are charged with enforcement of these laws . In the United States, it is the U .S . Department of Justice and the U .S . Securities and Exchange Commission that investigate and carry out enforcement activities . There is no private right of action under the FCPA . See, e.g., Lamb v. Phillip Morris, Inc., 915 F .2d 1024, 1028–29 (6th Cir . 1990); McLean v. Int’l Harvester Co., 817 F .2d 1214, 1219 (5th Cir . 1987) . But there is significant international cooperation among law enforcement agencies, and anticorruption investigations often transcend international borders . Thus, when an investigation of this type takes place, legal professionals and other professionals from a number

of countries must usually be retained and work together to help defend the company and individuals targeted in the investigation .

The professional costs of addressing company needs during an investigation of this type and mounting a defense can be astronomical . For example, Walmart disclosed that it spent $157 million during fiscal year 2013 alone for FCPA investigation and related matters .5 In its 2012 Annual Report, the cosmetics company Avon Products, Inc ., stated that it spent more than $281 million since 2010 on professional and related fees associated with an FCPA investigation and compliance reviews described in its Note 16 . Moreover, a February 14, 2014, Wall Street Journal article stated that Avon might need to pay $132 million to settle the bribery charges .6 These are only some of the many companies reported to have incurred many millions of dollars in legal and other professional expenses defending themselves in corruption investigations .7

Given the extremely high exposure, it is critical that companies engaged in international trade take seriously anticorruption laws and implement programs to prevent themselves from becoming ensnared in an investigation and potential prosecution . Although in most cases it is not a defense, United States and other prosecutors will consider the safeguards, training, and compliance programs that have been implemented by companies when deciding whether or not to prosecute anticorruption violations . They also consider the cooperation of the companies in the investigation process and whether the companies self-report when a potential violation has occurred .

Among other things, anticorruption programs should incorporate educational and training programs that target not only a company’s own personnel, but also trading partners, joint ventures, subsidiaries, representatives, and agents in foreign

countries who might act on behalf of or in concert with the company . Virtually anyone that represents or potentially benefits a particular company in some way can implicate and expose another company to liability through the first company’s or individual’s actions in bribing foreign officials . There may be cultural and historic precedents for bribery that must be overcome . Third parties with whom your company intends to do business should demonstrate knowledge and competency in avoiding violations of anticorruption laws . They also should be willing to certify that they have not violated such laws .

Consider removing financial incentives that might induce foreign agents to increase their compensation through bribery . Agents paid on a basis that does not increase based on the amount of sales revenue they generate may help to deter abusive attempts to increase revenue through bribery and other illegal means .

Know the laws of the United States and the laws of countries where your client’s company has transportation activities and other operations . Most countries have enacted anticorruption laws of some type and those laws can vary considerably . Something that one set of laws may consider legal could be illegal under the local laws of another country . Knowing the applicable laws will help your client’s company to avoid violating laws that the company did not know existed .

The FCPA contains accounting requirements . Accounting practices are extremely important to foster transparency and prevent illegal trans-actions from occurring . Indeed, in a number of prosecutions the absence of sound accounting practices contributed to the illegal activities and the penalties that the companies paid . Your client’s company should ensure that it complies with the required accounting practices to accurately reflect company assets and transactions, with a system of internal and external controls to reasonably

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TLA International Section

Endnotes 1 . Press Release, U .S . Dep’t of Justice, Marubeni Corporation Agrees to Plead Guilty to Foreign Bribery Charges and to Pay an $88 Million Fine (Mar . 19,

2014), http://www .justice .gov/opa/pr/2014/March/14-crm-290 .html (last visited May 2, 2014) . 2 . Litigation Release, U.S. Securities and Exchange Comm’n, SEC Charges Seven Former Executives with Bribing Leaders in Argentina. Dec . 13, 2011,

http://www .sec .gov/litigation/litreleases/2011/lr22190 .htm (last visited May 2, 2014) . 3 . http://www .sec .gov/spotlight/fcpa/fcpa-cases .shtml (last visited November 24, 2014) . 4 . Bribery Act of 2010, The National Archives, Ministry of Justice (U .K .), www .opsi .gov .uk/acts/acts2010/ukpga_20100023_en_1 (last visited May

2, 2014) . 5 . Walmart Corp ., Annual Report, http://stock .walmart .com/microsites/annual-report-2013/pdf/Walmart_2013_Fin .pdf . 6 . Serena Ng & JoAnn S . Lublin, Avon May Need to Pay $132 Million to Settle Bribery Probe, Wall St . J ., Feb . 14, 2014, http://online .wsj .com/

news/articles/SB10001424052702304888404579380600458283052 (last visited May 2, 2014) . 7 . See, e.g ., Rupert Murdoch, New Corp. Dodge Phone-Hacking Ruin, Business Week, Apr . 18, 2013, http://www .businessweek .com/articles/2013-04-18/

rupert-murdoch-news-corp-dot-dodge-phone-hacking-ruin#p3 (last visited May 2, 2014) .

assure that the records are accurate, authorized and legal .

Companies contemplating mergers and acquisitions need to be particularly attuned to being infected with liability for another company’s anticorruption laws violations . Successor liability may attach, even if the acquiring company obtains less than complete ownership . In addition to successor liability occurring as a result of acquisitions, liability also may arise from joint ventures, investments, mergers, licensing arrangements and other relationships .

As part of an acquiring company’s due diligence, documents and information related to transactions that could give rise to successor liability should be closely examined . This should include analyzing accounting records, which may signal inappropriate payments and expenses that could indicate bribery or other prohibited activities . Among other things, acquiring companies should examine closely significant government contract revenue, unexplained expenses, significant use of the same consultants on contracts, relationships between persons affiliated

with the company to be acquired and government officials, and whether contract provisions appear arms-length and standard in the industry, among other related items . A company should also ascertain the quality and extent of the compliance and anticorruption law training programs of a company that it wishes to acquire . Potential red flags might include lack of transparency in records and operations, refusal to certify compliance with anticorruption laws, and unexplained relationships with foreign governments or officials .

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http://stock


In United States v. Trek Leather, Inc., 767 F.3d 1288 (Fed. Cir. 2014), the Court of Appeals for the Federal Circuit determined that a corporate officer’s conduct violated 19 U .S .C . § 1592(a)(1) (“1592”) without piercing the corporate veil when the company acted as the “importer of record .”1

Harish Shadadpuri (“Shadadpuri”), Trek Leather Inc .’s (“Trek”) president, failed to include in the price actually paid or payable for 72 entries of men’s suits the cost of fabric assists provided to foreign manufacturers . Thus, the commercial invoices understated the value of the entered merchandise . Shadadpuri argued that, as Trek’s president and sole shareholder, he could not be held personally liable for this failure because he was not the importer of record . The Court stated that:

The only questions presented for decision are whether Mr . Shadadpuri is a “person” covered by section 1592(a)(1)(A) and whether his actions come within the “enter, introduce, or attempt to enter or introduce” language of that provision . On these issues, moreover, Mr . Shadadpuri frames his arguments in all-or-nothing terms: he treats all of the imports of suits identically . Aside from the threshold “person” issue, therefore, the question before us is simply whether he engaged in any conduct respecting any of the suit shipments that constitutes entering, introducing, or attempting to enter or introduce merchandise into United

States commerce under section 1592(a)(1)(A) . We conclude that he [Mr . Shadadpuri] did .2

With regard to the facts of the case, Trek was the importer of record for seventy-two entries of men’s suits between February 2, 2004, and October 8, 2004 . Shadadpuri was the president and sole shareholder of Trek . Shadadpuri was also the president and 40 percent shareholder of non-party Mercantile Electronics, LLC, the consignee of the subject goods .3

Shadadpuri, using his corporate entities, purchased fabric assists and provided them to manufacturers abroad . These manufacturers then incorporated the assists in the production of the imported men’s suits . In August of 2004, CBP Import Specialist Dianne Wickware (“CBP Wickware”) investigated Shadadpuri’s activities and found that his entry documentation consistently failed to include the cost of fabric assists in the price actually paid or payable for the merchandise, thereby lowering the amount of duty paid to CBP by the importer .4

This was not the first time that Shadadpuri failed to include assists in entry declarations . In 2002, CBP Wickware investigated Shadadpuri’s entries for another company he owned, Mercantile Wholesale, Inc . Shadadpuri was also the president and 40 percent shareholder of Mercantile Wholesale, Inc . During the 2002 investigation, CBP Wickware found that Mercantile Wholesale, Inc . “consistently failed to include the cost of the fabric assists and trim in the price actually paid or payable for the merchandise on its entry documentation .” CBP

Wickware explained the term “assist” to Shadadpuri and advised him that “assists are dutiable and that the value of the fabric assists must be included on the importation documentation .” After the 2002 investigation, CBP Wickware noted that Mercantile Wholesale, Inc . paid $46,156 .89 in unpaid duties after admitting they failed to add the value of the assists in the price actually paid or payable .5

In November 2004, CBP Wickware informed Shadadpuri that he did not declare the value of the fabric assists when importing the men’s suits . CBP Wickware told Shadadpuri that the assist “should have been included in the price actually paid or payable for this merchandise for the purposes of calculating duty .” CBP Wickware said, “You know you should have declared this,” to which Shadadpuri responded, “I know .” Neither Shadadpuri nor Trek paid the balance of the remaining duties owed to CBP in the amount of $45,245 .39 .6

In 2009, the United States and CBP Wickware (“US CBP”) filed suit in the Court of International Trade (“CIT”) .7 US CBP claimed that Shadadpuri and Trek were liable for damages in the amount of $2,392,307 .00 for fraudulently, knowingly, and intentionally understating the dutiable value of the imported merchandise by failing to add the value of the fabric assists to the value of the imported men’s

Veiled Personal “Introductions” Are of No Import

*Roberts & Kehagiaras, LLP (Long Beach, California) .

Cameron Roberts*

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TLA Case Notessuits . Alternatively, US CBP alleged the defendants were grossly negligent for their actions and sought imposition of a civil penalty in the amount of $534,420 .32 . As an additional alternative, US CBP alleged a negligence theory of liability and alleged penalties in the amount of $267,310 .16 . Plaintiff further requested a judgment for unpaid customs duties in the amount of $45,245 .39 . In May 31, 2011, Trek conceded liability for gross negligence but denied committing intentional fraud . Shadadpuri denied all counts of the Complaint .8 The CIT granted the United States’ motion for summary judgment .9

Shadadpuri appealed .10 After a number of procedural issues were resolved the U .S . Court of Appeals for the Federal Circuit (“CAFC”) reversed the CIT, stating:

While we may not fully understand the strategy choices the government made here, we hold it to them and reverse the judgment of the Court of International Trade to the extent it imposed penalties under § 1592(c)(2) upon Shadadpuri while acting in his capacity as a corporate officer of Trek, a corporate “importer of record .”11

Citing the dissent, the majority dropped a noteworthy invitation in footnote five to further examine Shadapuri’s conduct under section 1592(a)(1)(B) .12 The United States promptly filed, and the CAFC ultimately granted, a petition for rehearing en banc of issues relating to 1592(a) and 1592(c) .13 Thus, Shadapuri’s conduct under 1592(a) became the focus of

the decision that is the subject of this article .14

With regard to the conduct of Shadadpuri, the current text of 19 U .S .C . § 1592 reads: “ . . . [No] person . . . may enter, introduce or attempt to enter or introduce any merchandise . . . . by means of (i) any document or electronically transmitted data or information, written or oral statement, or act which is material and false; or (ii) any omission which is material . . . (emphasis added) .”

The CAFC began by saying it was “obvious” that Mr . Shadadpuri is a person and nothing in the way the law has changed over the years to allow any other conclusion .15 The court went on to frame the question to be decided as: “What is critical is the defendant’s conduct .” It then examined that conduct . The facts cited by the court included:

• Trek Leather imported 72 entries of mens suits;

• Shadadpuri had provided fabric to the manufacturer of those suits which qualifies as an assist [An assist is anything the importer provides to the manufacturer that is used in production that the manufacturer received at a reduced cost or at no cost .];

• Shadadpuri failed to include the value of the fabric assist at time of entry;

• Shadadpuri’s failure resulted in an undervaluation and underpayment of CBP Wickware duty;

• Shadadpuri directed and controlled the customs broker;

• Shadadpuri provided the undervalued commercial invoices to the customs broker;

• Shadadpuri’s prior dealings with CBP Wickware put him on actual notice that the value of the fabric assist had to be declared at time of entry and would be considered part of the dutiable value, and

• Shadadpuri produced revised invoices with the fabric assist after CBP Wickware started its investigation .16

In considering Shadadpuri’s conduct, the Court cited a Supreme Court case decided in 1913 - United States v. 25 Packages of Panama Hats, 231 U .S . 358 (1913) - which dealt with the question of “introducing” goods in the context of 1592 violation . In that case, the consignor shipped goods to the United States with invoices that “falsely and fraudulently” undervalued the merchandise . When the goods arrived in New York, the importer failed to file entry before the seizure occurred . However, the Supreme Court held the 1592 statute, as then worded, covered the acts of the consignors in providing the false invoices .17

In conclusion, regardless of Shadadpuri’s position at Trek18, his conduct, as either the agent or the principal, was sufficient to warrant a 1592(a) violation .19 An appeal may follow . At this point it is unclear how CBP Wickware and other federal agencies, such as the Federal Maritime Commission,20 will apply this case going forward but importers, exporters, customs brokers, ocean transportation intermediaries and others subject to federal regulation should anticipate penalties if they lack adequate internal controls to monitor and prevent acts by individuals that will eventually lead to regulatory violations .21

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Endnotes 1 . 19 C .F .R . §101 .1 2 . United States v. Trek Leather, Inc., 767 F .3d 1288, 1295-1296 (Fed . Cir . 2014) 3 . United States v. Trek Leather Inc., 781 F . Supp . 2d 1306, 1309 (Ct . Int’l Trade 2011) . 4 . United States v. Trek Leather Inc., 781 F . Supp . 2d 1306, 1309-1310 . (Ct . Int’l Trade 2011) . 5 . Id. 6 . Id. at 1310 . 7 . United States v. Trek Leather, Inc., 767 F.3d 1288, 1291 (Fed . Cir . 2014) (This case began in 2009, when the government filed a complaint in the

Court of International Trade, invoking that court’s jurisdiction under 28 U .S .C . § 1582 and alleging a violation of section 1592(a)(1) .) 8 . United States v. Trek Leather Inc ., 781 F . Supp . 2d 1306, 1309-1310 (Ct . Int’l Trade 2011 and United States v. Trek Leather, Inc., 767 F .3d 1288, 1295-

1296 (Fed . Cir . 2014) . 9 . United States v. Trek Leather Inc., 781 F . Supp . 2d 1306, 1312 (Ct . Int’l Trade 2011) .10 . United States v. Trek Leather, Inc., 470 Fed . Appx . 893 (Fed . Cir . 2012) .11 . United States v. Trek Leather, Inc., 724 F .3d 1330, 1340 (Fed . Cir . 2013)12 . Id. at 1340 - 1343 .13 . United States v. Trek Leather, Inc., 2014 U .S . App . LEXIS 4088, 2-3 (Fed . Cir . 2014) .14 . United States v. Trek Leather, Inc., 767 F .3d 1288 (Fed . Cir . 2014) .15 . Id. at 1297 . 16 . United States v. Trek Leather, Inc., 767 F .3d 1288, 1291- 1293, 1299 (Fed . Cir . 2014)17 . “In order to close these loopholes and to make the act more effective Congress, on August 5, 1909 (36 Stat . 11, 97), changed the law so as to

increase the number of persons whose fraud should be punished . It also enlarged the scope of conduct for which the goods should be forfeited . Instead of punishing only for the fraud of the owner, importer, consignee and other persons, as under the act of 1890, provision was made for forfeiture for fraud, of the consignor or seller . Instead of punishing only for entering or attempting to enter on a fraudulent invoice, it punished an attempt by such means to introduce any imported merchandise into the commerce of the United States . This latter phrase necessarily included more than an attempt to enter, otherwise the amendment was inoperative against the consignor against whom it was specially aimed, for he does not, as such, make the declaration, sign the documents, or take any steps in entering or attempting to enter the goods . When he makes the false invoice in a foreign country there is no extraterritorial operation of the statute whereby he can be criminally punished for his fraud . But when the consignor made the fraudulent undervaluation in the foreign country and on such false invoice the goods were shipped and arrived consigned to a merchant in New York, the merchandise was within the protection and subject to the penalties of the commercial regulations of this country even though the consignor was beyond the seas and outside the court’s jurisdiction .” United States v. Twenty-Five Packages of Panama Hats, 231 U .S . 358, 361 (U .S . 1913)

18 . We do not hold Mr . Shadadpuri liable because of his prominent officer or owner status in a corporation that committed a subparagraph (A) violation . We hold him liable because he personally committed a violation of subparagraph (A) . United States v. Trek Leather, Inc., 767 F .3d 1288, 1299 (Fed . Cir . 2014)

19 . “An agent who actually commits a tort is generally liable for the tort along with the principal, even though the agent was acting for the principal .” Restatement (Second) of Agency §343 (1958) .

20 . The Shipping Act has similar statutory references: General prohibitions (a) Obtaining transportation at less than applicable rates . A person may not knowingly and willfully, directly or indirectly, by means of false billing, false classification, false weighing, false report of weight, false measurement, or any other unjust or unfair device or means, obtain or attempt to obtain ocean transportation for property at less than the rates or charges that would otherwise apply . 46 U .S .C . § 41102

21 . Restatement of Agency § 261 a “principal who puts a[n] . . . agent in a position which enables the agent, while apparently acting within its authority, to commit a fraud upon third persons is subject to liability to such third persons for the fraud .” United States v. Pan Pac. Textile Group, Inc ., 29 C .I .T . 1013, 1023 (Ct . Int’l Trade 2005); Burlington Indus. v. Ellerth, 524 U .S . 742, 756 (U .S . 1998)(An employer may be liable for both negligent and intentional torts committed by an employee within the scope of his or her employment) .

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TLA Case Notes

Two recent decisions in Illinois, one on the State Appellate level and one in the United District Court for the Northern District, looked at the effect of owner-operator agreements on the relationship between the driver and his equipment, on the one hand, and the authorized motor carrier on the other hand . The upshot of these two recent decisions is that Courts, at least in Illinois, remain unsettled as to how to deal with the Truth in Leasing-compliant contracts in construing this relationship .

In Argonaut Midwest Ins. Co. v. Morales, 19 N .E .3d 32 (Ill . App . 1st Dist . 2014), the Appellate Court of Illinois relied in part on the Truth in Leasing regulations in holding that an owner-operator’s bobtail insurer did not have a duty to defend or indemnify an authorized motor carrier as an additional insured where the owner-operator was under dispatch with that motor carrier .

Gabriel Morales was an owner-operator who entered into an owner-operator contract with the motor carrier, Land Truck . Like most such agreements, the driver lease required the owner operator to carry his own bobtail insurance and name Land Truck as an additional insured . Morales obtained a $1 million

dollar insurance policy from Argonaut Midwest Insurance Company . The insurance policy contained an exclusion which excluded coverage where the owner-operator’s truck “was used in the business of anyone to whom the auto is rented .”

This case arose out of an accident on I-294 in Northeastern Illinois wherein Morales, while operating under Land Truck’s authority, struck a truck carrying three individuals who suffered personal injuries . At the time of the accident, the owner-operator had just picked up his truck from a parking spot he rented and was driving to make a pickup in Waukegan, Ill . after being dispatched by Land Truck . After the individuals filed suit against the owner-operator and Land Truck, Argonaut Midwest Ins . Co . sought declaratory judgment including a finding that it had no duty to defend or indemnify Land Truck or the owner-operator based on the rented auto exclusion .

Land Truck first argued that it never “rented” the owner-operator’s truck for use in its business . They asserted “rent” requires the right to exclusive possession and control . Land Truck pointed to a clause in its agreement with the owner-operator which stated, “The Contractor [owner-operator] shall control and direct, in all respects, the operation of the equipment used in the performance of this Contract .” Land Truck contended this language leaves control of the truck in the owner-operator, and therefore, it is not a rental agreement .

Relying in part on the Truth in Leasing regulations set forth in 49

C .F .R . Part 376, the Appellate Court affirmed the trial court’s conclusion that the bobtail insurer could rely on the “rent” exclusion to refuse to defend or indemnify the authorized motor carrier . The Court emphasized the language contained in 49 C .F .R . §376 .12(c)(1) of the Truth in Leasing Regulations which requires written leases between owner-operators and authorized carriers to “provide that the authorized carrier lessee shall have exclusive possession, control and use of the equipment for the duration of the lease … [and] provide that the authorized carrier lessee shall assume complete responsibility for the operation of the equipment for the duration of the lease .”

The Court found the language of the Truth in Leasing regulations requiring Land Truck to have exclusive possession and control to be contradictory to the owner-operator agreement . It further found that the federal regulations control the interpretation of the owner-operator agreement because the owner-operator contract was “[s]ubject to the specific requirements of the Interstate Commerce Commission and/or D .O .T .” The Court concluded that Section 376 .12(c)(1) and other provisions of the Truth in Leasing regulations trumped the conflicting terms of the contract between the owner-operator and Land Truck . As

Two Courts. two analySeS of owner-oPerator agreementS

* Sullivan Hincks & Conway (Oak Brook, Illinois) .

Edward M. Farmer*Matthew P. Barrette and

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such, since federal regulations required Land Truck to assume exclusive possession and control over the owner-operator’s truck, the bobtail insurance exclusion denying coverage where the owner-operator’s truck is “used in the business of anyone to whom the auto is rented” applied .

The Appellant argued that even if federal regulations were read into the owner-operator agreement, those terms created a “legal fiction” and do not reflect whether Land Truck in reality had exclusive control over the truck . The Court held Land Truck’s responsibility for the truck does not abate when it opts not to exercise its right to control the vehicle as set forth in Section 376 .12(c)(1) and held that the terms giving the motor carrier those rights make the owner-operator contract a rental agreement . Further, no extrinsic facts are necessary to show the owner-operator gave possession and control of the truck to Land Truck . The owner operator agreement was sufficient to prove the rental of the vehicle .

In summary, the Court in Morales, disregarded portions of the private contract between the parties and, instead, used the “exclusive possession and control” language in the Truth in Leasing Regulations as a sword to trump the parties’ contract . The reliance on the “exclusive possession and control” language by the Court in Morales could lead to further emphasis by the Courts in other areas such as driver classification . As such, this case will likely have implications for those trucking companies in Illinois that continue to utilize the owner-operator model .

Another recent decision, from a Federal District Court sitting in Illinois, relied explicitly on the terms of the owner-operators’ written lease with a motor carrier to uphold the continued efficacy of the owner-operator model . In Silic v. BBS Trucking, Inc. 2014 U .S . Dist . LEXIS 134860

(N .D . Ill . Sept . 24, 2014), the U .S . District Court for the Northern District of Illinois looked to the terms of the owner-operator agreement to find that the owner-operators were in fact independent contractors and that they could not be counted for purposes of establishing that the trucking company was subject to liability under the Age Discrimination in Employment Act (“ADEA”) and Title VII of the Civil Rights Act of 1964 (“Title VII”) .

In Silic, a plaintiff dispatcher filed suit alleging that she was subjected to sexual harassment and age discrimination while working in the office dispatching trucks . At the time of her employment, the trucking company employed between five and eight office employees and more than 20 independent owner-operators; each of whom had signed an independent contractor lease with the company . The motor carrier filed a motion for summary judgment arguing that the Plaintiff could not maintain an action under either the Title VII or ADEA because the motor carrier did not “employ” more than 15 or 20 employees which are the minimum number of employees required for application of the respective statutes . It argued that the driver/owner-operators were independent contractors and relied on long-standing case-law that clearly establishes that a plaintiff may not include independent contractors in order to meet the ADEA’s or Title VII’s minimum employee threshold . Rao v. Kenya Airways, Inc . 1995 U .S . Dist . LEXIS 8416 (S .D .N .Y . 1995) .

Relying expressly on the drivers’ Truth in Leasing-compliant leases, the court concluded that the drivers were in fact independent contractors . The Court noted that the lease on its face explicitly stated that the owner-operators were independent contractors and not employees . The Court also noted that the lease contained the owner-operators’ agreement that they would not be provided benefits from

the trucking company and that the compensation they received would not be subject to federal and state income tax and Social Security withholding . Additionally, the Court emphasized the language in the driver lease agreements that expressly stated that the details of how the owner-operators and their drivers performed their assignments stayed within the control of the owner-operators and their drivers, not with the motor carrier .

Other factors in the lease contributed to the Court’s decision, including the fact that the owner-operators agreed in the lease that they would pay the entire cost of operating and maintaining their own leased equipment throughout the duration of the lease, that the drivers’ services would be provided without supervision, that the owner-operators could refuse assignments, that they could choose when they work, and that they could choose their own routes in transporting the shipments from origin to destination .

The Plaintiff attempted to overcome the plain terms of the lease by claiming that BBS’s drivers were not allowed to take trucking assignments for other trucking companies . The Court discounted the Plaintiff ’s assertion by pointing to the plain language of the lease agreement which allowed drivers and owner-operators to take on trucking assignments for other motor carriers so long as any affiliation with BBS was removed from their trucks or completely covered . Plaintiff further alleged that drivers were terminated from employment if the driver refused to move three loads in a day . However, once again, the Court looked to the terms of the lease in rejecting the Plaintiff’s argument . It noted that even if the trucking company had required a three load per day minimum, such a requirement was immaterial because the lease agreement stated that drivers were not guaranteed a minimum number of

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TLA Case Notestrips, that drivers could refuse to take assignments, and they were free to choose when they worked .

The only factors the Court found to indicate the trucking company’s control over the owner-operators and their drivers was the required identification sign on the trucks and the background and drug checks . The Court found these to be minimal constraints on the contractors and did not demonstrate control over the owner-operators .

In express reliance on the owner-operator leases, the Court found that there was no issue of material fact contradicting that the owner-operators contracted to BBS were, in fact, independent contractors . Therefore, they could not be counted by the Plaintiff to establish that BBS had the minimum number of employees to be subject to ADEA or Title VII liability .

The Silic case is potentially important in the State of Illinois and throughout the country where many

practitioners have seen a steady erosion of the owner-operator model . Whereas in Morales, the State Court used the Federal Truth in Leasing regulations’ de jure requirement of “control” to trump seemingly contrary provisions in the contract, the Federal Court in Silic relied on the specific terms of the owner-operator lease agreements to uphold the owner-operators’ status as independent contractors . The battle, apparently, will continue .

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Accidents involving trucks may mean that a lawsuit will be commenced by an injured party against the owner and driver of the truck; however, it will also likely mean a request for reimbursement of Statutory Accident Benefits (“accident benefits”) payments made by the insurers of any smaller vehicle involved by the insurer of the truck or “heavy commercial vehicle”, as defined . The truck’s insurers will expect to receive such a “Notice of Loss Transfer” or “Request for Indemnification” and should be aware of the various factors involved .

The Ontario Loss Transfer Regime

The purpose of the Loss Transfer regime is to balance the costs and spread the risk between the insurers of different sizes of vehicles . It is effectively a loss re-allocation, since the risks assumed by insurers of smaller vehicles (e .g . motorcycles, snowmobiles, small cars) may be disproportionately large compared to the risks of insuring a heavy commercial vehicle; specifically, with respect to the potential for injury .

Embodied within the Regulations to the Insurance Act of Ontario R .S .O . 1990, c .I .8 . and s . 275, as amended, the regime (the “Loss Transfer Rules”) governs indemnity for the payment of accident benefits, i .e . no-fault medical and other payments made to injured victims of motor vehicle collisions including treatment expenses (physiotherapy, rehabilitation, prescription medications etc .), attendant care, income replacement and housekeeping expenses . Typically, each insurer will bear the cost of the no-fault accident benefits paid to its own insured, but, when a heavy commercial vehicle is involved in an accident with

a smaller vehicle, the insurer of the smaller vehicle (“first party insurer”) will make claim for the reimbursement of paid accident benefits under the Loss Transfer Rules from the insurer of the heavy commercial vehicle (“second party insurer”) .

There must, however, be at least partial liability on the part of the heavy commercial vehicle driver before its insurer must reimburse the first party insurer . If the truck is not liable, then no reimbursement is required . Reimbursement is made in accordance with the relative degrees of liability of the drivers (see “Fault Determination Rules”, below) .

Where a dispute occurs over liability or quantum of reimbursement under the Loss Transfer Rules, the Regulations to the Insurance Act stipulate that an arbitrator must be appointed to address the dispute . Typically, the insurers agree on a private arbitrator and enter into an arbitration agreement that allows the parties to agree on various issues including the extent of any award of costs or the available grounds of any appeal, which may include both errors of fact and law . If there is no arbitration agreement, then the Arbitrations Act S .O . 1991, as amended, will govern and any appeal will lie to the Ontario Superior Court of Justice and only on the issue of whether the arbitrator made an error in law as opposed to both fact and law . Also, any award of costs will be left in the discretion of the arbitrator .1

Application of the Loss Transfer Rules

To apply, an at fault vehicle must be considered a “heavy commercial vehicle”, which is defined as a “commercial vehicle” used to transport

materials, goods, tool and/or equipment and having a gross weight greater than 4,500 kilograms .2

The Ontario Superior Court of Justice considered the issue of what constitutes a “heavy commercial vehicle” in Republic Western Insurance v Economical Mutual Insurance3 . The issue was whether the 4,500 kilograms of weight referred to the actual weight of the vehicle itself or whether this includes its weight and its overall cargo capacity (“the full capacity weight”) .

In Republic Western Insurance v Economical Mutual Insurance, a 4-door Toyota insured by Economical Mutual Insurance (“Economical”) was rear-ended by a Ford E1-G truck rented from U-Haul that had a full capacity weight of 4,989 .5 kilograms . At the time of the accident, however, the truck’s weight was only 3,730 kilograms . If the definition of “heavy commercial vehicle” referred to full capacity weight, then the Loss Transfer Rules would not apply . The two insurers could not agree and the matter was arbitrated . The arbitrator held that “4,500 kilograms” in the Regulation referred to the full capacity weight of the vehicle and not to its actual weight at the time of collision and, therefore, ordered Republic Western Insurance (“Republic”), the insurer of the U-Haul truck, to reimburse Economical . Republic appealed .

Loss Transfer in Ontario

Kim E. Stoll*

* Fernandes Hearn LLP (Toronto, Ontario Canada) .

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CTLA Feature Articles and Case NotesEconomical argued that a

commercial truck may make several deliveries during the day and that application of the “actual weight” at the time of an accident would introduce uncertainty and unpredictability into the regime whereas use of the “full capacity weight” would ensure that there never would be an issue of whether the vehicle was a “heavy commercial vehicle” . In dismissing this argument, the Court allowed the appeal and confirmed that “gross vehicle weight” meant the “actual weight” of the heavy commercial vehicle at the time of the accident . The Court reasoned that since the “actual weight” of such a vehicle relates to the damage “actually” caused rather than to theoretical damage, using the truck’s actual weight in fact gives greater effect to the meaning and purpose of the Loss Transfer Rules, i .e . a re-allocation of risk in accordance with the varying “actual” potential for injury .4

The Fault Determination RulesIn Ontario, the apportionment of

fault between two vehicles under the Loss Transfer Rules is based upon the “Fault Determination Rules” . These rules describe typical accident scenarios, assigning pre-determined percentages of fault . If none of scenarios in the Fault Determination Rules apply to a particular accident then fault will be determined in accordance with the ordinary rules of law .

In State Farm Mutual Automobile Insurance Company v. Old Republic Insurance Company of Canada5, the Ontario Superior Court of Justice recently interpreted Rule 9 of the Fault Determination Rules with respect to a chain reaction collision involving several vehicles, including a heavy commercial vehicle . Rule 9 states that the rear-ending vehicle in a chain reaction collision is responsible for 100 percent of fault for the resulting collisions ahead, barring unusual circumstances . In this case, a Pepsi truck insured by Old Republic Insurance Company of Canada (“Old Republic”) struck a Dodge vehicle that,

in turn, struck a Nissan . In a separate but related collision, the Nissan then struck a fourth vehicle, a Lexus, insured by the applicant State Farm Mutual Automobile Insurance Company (“State Farm”) .

The driver of the Lexus was paid accident benefits from State Farm, which, in turn, sought indemnification from Old Republic pursuant to Loss Transfer . The arbitrator held that Old Republic was required to indemnify State Farm despite the fact that there was no direct collision between their respective insured vehicles . Old Republic appealed the arbitrator’s decision, arguing that to hold them liable to indemnify State Farm would be an absurd result and that underwriting of heavy commercial vehicles in Ontario would thereby be adversely affected . The Court dismissed the appeal, ruling that a rear-ending vehicle that causes a chain reaction is 100 percent liable for all of the collisions that, in turn, follow . The court’s affirmation of Rule 9 of the Fault Determination Rules accords with the ordinary rules of law concerning liability for rear-end motor vehicle accidents in general .

Time-Bar and LachesIn Zurich Insurance Company v. TD

General Insurance Company (“Zurich v. TD”), as recent 2014 case 6, the Ontario Superior Court of Justice ruled that the heavy commercial vehicle insurer must indemnify the first party insurer for a 1999 collision and accident benefits paid over a 10-year period . Approximately 11 years after the accident, TD General Insurance Company sent Zurich Insurance Company a Notice of Loss Transfer alleging that Zurich’s insured was 100 percent at fault . Zurich refused and the matter was arbitrated .

Earlier court decisions had held that a two-year limitation period applied to arbitrations under the Loss Transfer Rules and that such limitation began to run from the day after the first party insurer sent the Notice requesting indemnity to the second party insurer . Following these earlier decisions, the

arbitrator in Zurich v. TD held that the application to arbitrate was allowed, as it was brought within two years after the Notice of Loss Transfer was sent . Zurich appealed, alleging that the equitable doctrine of laches 7 should apply due to the prejudice caused by TD’s late Notice of Loss Transfer, given the amount of time that had passed since the accident .

Earlier in 2013, in Intact Insurance Co. of Canada v. Lombard General Insurance Co. of Canada 8, the Notice of Loss Transfer was not sent until about four and a half years after the loss and a defence of laches was raised . In that case, the arbitrator dismissed the Intact claim and, on appeal, the court found that the Loss Transfer claims were “devoid of equitable relief and inappropriate to grant the equitable laches defence which would dismiss the action . The judge ordered that Lombard pay Intact’s claim as per its statutory right of indemnification .

However, the Court in Zurich v. TD agreed that the application for arbitration of the Loss Transfer claim was properly brought within the two-year limitation period; however, given the 11-year delay, a prima facie case for the equitable doctrine of laches was made out . The Court reasoned and contrary to the Intact v. Lombard case above, at para 22, that “Ontario’s loss transfer regime possesses an equitable flavour because it is designed to address unfairness between participants in the province’s insurance industry . …Alternatively, I find that the fusion of law and equity, which has evolved in order to achieve fairness and justice, requires a finding that laches can apply in this case .”

In order to invoke the equitable doctrine of laches, the party seeking to use the defence must show actual prejudice . The Court in Zurich v. TD agreed with the arbitrator’s ruling that there was no actual prejudice caused to Zurich, as it had knowledge both of the accident and the personal injury claims of TD’s insured throughout the 11-year period . There was no suggestion that liability or damage documentation was

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no longer available . The Court ruled, however, that given the inordinate amount of time between the accident and the request for indemnity, there was acquiescence on the part of TD in not sending out the Notice to Zurich sooner . TD was therefore precluded from pursuing indemnity against Zurich at this late date . The Court allowed the appeal and set aside the arbitrator’s decision .

Rolling Limitation Period Updated

Most recently, on September 2, 2014, the issue of the two-year limitation period was again considered by the Ontario Superior Court of Justice in The Economical Mutual Insurance Company v. Zurich Insurance Company 9 . In this case, the loss occurred in 2005 and Economical sent a Notice of Loss Transfer and a Loss Transfer Request for Indemnification in January 2006 to Zurich, the insurer of the at-fault driver of a heavy commercial vehicle . There were several other requests over time in respect of ongoing payments including a final request for indemnification dated January 2012 after the entire underlying accident benefits claim was settled . Zurich did not pay the earlier requests and arbitration had been initiated in November of 2009 . The arbitrator found that first Request for Indemnification of 2005 was time barred but the other requests were not .

Zurich appealed and the court held that each Request for Indemnification invoked a separate limitation period, a “rolling 2-year limitation period” and confirmed that only one initiation of arbitration was necessary to protect all such requests even if there were further requests for indemnification later on .

To Whom Does Loss Transfer Apply?

Loss Transfer potentially applies to all insurers who are licensed to sell insurance in Ontario, regardless of where the policy was issued and regardless of where the accident

occurred, whenever accident benefits are paid to an Ontario policyholder .

In 2010, a case arose out of an accident that occurred in North Carolina, USA involving an Ontario resident who operated a motorcycle and who was insured by Primmum Insurance Company (“Primmum”) .10 Primmum paid accident benefits to its injured policyholder . The at-fault driver of the heavier vehicle was insured by Allstate Insurance Company (“Allstate”) under a policy that was issued in North Carolina . Primmum sought to be indemnified but Allstate refused to reimburse Primmum for its accident benefits payments .11

Primmum served Allstate with a Demand for Arbitration; however, Allstate refused to participate in the arbitration on the basis that the accident did not occur in Ontario and the policy in question was issued by Allstate, an American insurer . Allstate’s position was that it should not have to comply with the Loss Transfer provisions of Ontario Insurance Act . The Ontario Court of Appeal ruled against Allstate, confirming that Allstate was indeed considered to be an “Ontario insurer” for the purposes of the Insurance Act and that, therefore, it was required to arbitrate . Allstate sells insurance in Ontario and, therefore, Allstate is considered to be an “Ontario insurer” and is subject to the Insurance Act of Ontario, despite the fact that the policy in question was issued in North Carolina and the accident occurred there .

Challenges to the Quantum Paid by the First Party Insurer

The second party insurer has the right to dispute the amount of benefits paid by the first party insurer to its insured . According to the Regulation however, the onus of proof is on the second party insurer to prove that such payments were unreasonable, being a very high standard of proof . The test is not whether the second party insurer would have made the same payments to the insured, but whether the payments

made were “reasonable” under all the circumstances . Only in extremely rare circumstances will a second party insurer successfully challenge the amount of accident benefits paid . The quantum of benefits is not realistically subject to any serious challenge, as practically speaking, each insurer is motivated by its own business interests not to overpay its insured .

FinallyThe reach of the Loss Transfer

Rules is very broad indeed . Insurers of heavy commercial vehicles operating in Ontario need to be aware of the Loss Transfer regime, as they may become liable for reimbursement of the accident benefits paid out to the occupants of a smaller vehicle with whom their insured has had a collision, on the basis of relative percentage of liability . The law is that a Notice of Loss Transfer must be sent out within a reasonable time in order to avoid the equitable doctrines of laches and acquiescence and subject to the rolling limitation period of two years . Challenges to the quantum of accident benefits paid out are unlikely to succeed .

Whether or not the Loss Transfer regime will apply to a particular heavy vehicle will depend on the actual weight of the vehicle at the time of the accident, not the full capacity weight . In chain reaction collisions involving multiple automobiles, if the rear-ending vehicle is a heavy commercial vehicle that vehicle’s insurer may be subject to claims for reimbursement of accident benefits paid to the occupants of any of the vehicles ahead, on a 100 percent basis . Out of province insurers of heavy commercial vehicles need to be aware that if they do sell auto insurance in Ontario, they may receive a claim for reimbursement of accident benefits under Loss Transfer, no matter where the policy in question was underwritten and no matter where the accident took place .

LOSS TRANSFER IN ONTARIOcontinued on page 70

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CTLA Feature Articles and Case Notes

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The area of transportation law is one which presents notable issues with regard to time limitations for bringing actions . In the course of a transportation movement, a shipment may have been in the legal and physical possession of a multitude of parties, any one of whom may ultimately bear liability for damage or delay depending on the factual nexus of a particular case: the shipper, the freight forwarder, the carrier, the consignee . In addition, carriers often handle vast amounts of (often consolidated) freight, making it difficult and burdensome for them to assemble the documents necessary to defend a claim brought years after the event . For this reason, many jurisdictions have special rules pertaining to contracts of carriage . We will here discuss briefly the law in the Province of Quebec .

Under Québec civil law, the contract of carriage is defined as a contract by which the carrier undertakes to carry goods from one place to another for compensation .1 Such contracts are governed by specific provisions of the Civil Code of Québec (hereinafter, C .c .Q .) defining the rights and obligations of carriers . Among these provisions are specific formalities that must be complied with in order to bring an action in damages against a carrier .

Notice of Claim and Limitation Period

Article 2925 C .c .Q .2 provides that the limitation period in relation to contracts of carriage is three years .

Article 2050 C .c .Q .3 states that this period is calculated from the date of delivery of the goods or the date on which they should have been delivered . Crucially, however, Article 2050 C .c .Q . also requires that, in order for an action in damages against a carrier to be admissible, a written notice of claim must have been given to the carrier within 60 days of the delivery of the property, whether or not the loss is apparent or, if the property was not delivered, within nine months of the date on which it was sent .

No notice is required if an action is brought within these time limits . Subject to the limited exceptions set out below, if no such written notice is sent within the time limit provided, the right to bring a claim for damages is forfeited .

Article 2050 C .c .Q . applies both to physical damage to the items carried, and to damage caused by delivery delays .4 It also applies whether or not the damage to the property is apparent . As mentioned above this particularity of the law can be explained by the context of speed and volume of goods that are handled by carriers . In addition, any damage will not automatically result in a claim and the legislator intended to provide transport efficiency by implementing a system that allows the carrier to know when to start an investigation and allocate its resources accordingly .5 Note that the prior written notice is only required for claims regarding the goods covered by the contract of

carriage . Indeed, since the carrier does not assume an obligation of result in relation to goods which are not the subject of the contract of carriage, the notice with respect to a claim against such property is therefore not required .6 It should also be noted that the requirement for written notice only applies in relation to carriers – not freight forwarders .7 Whether the freight forwarder is acting as an agent of the shipper or as the carrier is, however, another question entirely .

If written notice is sent then care must be taken to ensure that the notice is sufficient to meet the requirements set out by the courts . The courts have stated on a number of occasions that the purpose of the requirement for written notification is to allow the carrier to be made aware of the claim forthwith, so that it may conduct the research necessary to ensure its defence .8 Although it is not necessary to provide the carrier with the exact declaration of value, the nature of the claim must be identified .9

As the Quebec Court of Appeal qualifies such delays as forfeiture, the inaction of the claimant during the period allowed to send a written notice of claim deprives him of this recourse .10 Even the impossibility to act could not excuse the failure to give

Pierre-Olivier Ménard Dumas*

Claims for Damages Against a Carrier inQuébec Transportation Law –PreScriPtion and forfeiture

* Transportation Law Department, McCarthy Tétrault LLP (Québec City, Province of Québec) .


notice within the prescribed period .11 In addition, in cases of successive transportation movements involving more than one carrier, liability action must be preceded by written notice against each carrier, even if they are pursued through a single action .12

If no written notice is sent, the claim is not necessarily lost . Despite the explicit requirement for a written notice of claim provided by Article 2050 C .c .Q ., note that the Quebec Superior Court13 has tempered somewhat the rigour of this requirement, holding that it can be satisfied by inference from the circumstances and the conduct of the parties . According to this decision, verbal notice could be deemed sufficient for the particular facts of a case under the following circumstances: if the carrier was officially informed of the charges to be brought against it to allow it to conduct the necessary research to ensure his defense, if the carrier declares itself satisfied of such verbal notice of claim, or if it has committed acts of recognition of liability . However, the verbal notice must be clear, as non-structured verbal exchanges or negotiations could be considered irrelevant .

Difference between Prescription and Forfeiture in Quebec Civil Law

In Quebec civil law, prescription and forfeiture of a claim are interrelated but separate concepts .14 Put briefly, prescription occurs when the time-limit set out in the Civil Code of Quebec has elapsed . It is for the parties to raise the defence of prescription where applicable, as the court will not do so of its own initiative . In cases where the time-limit for bringing an action has elapsed, the facts surrounding the action may still be invoked as a ground of defence in certain circumstances . In this manner, the rights still subsists, even if it can no longer be used to found a claim . Also, prescription is “open-ended” in the sense that the time-limit is not absolute and can be interrupted for various reasons (filing

of a claim, filing of a class action, acknowledgement of the right by the debtor or renunciation by the debtor of the time elapsed) . Furthermore, prescription can also be suspended if it is impossible for someone to act .15

In the case of forfeiture however, the time-limits involved are considered to be of public order . This means that the court must, of its own initiative, dismiss a claim that is time-barred due to forfeiture . Moreover, once the forfeiture time-limit has passed, the right itself is considered extinguished .16

It can no longer be used even as a defence against a claim arising out of the same set of circumstances . Also, the time-limit set out for forfeiture cannot be suspended or interrupted . Once the time delay has passed, the action is lost, irrespective of any other considerations, including whether the damage was evident or whether it was even possible for the plaintiff to take the necessary action . Due to the fact that the time-bar is absolute and that the limitation period begins the moment that the prospective defendant completes a certain action rather than the moment the plaintiff realises the damage, forfeiture can therefore be considered as operating in a manner somewhat analogous to a Statute of Repose .

The Civil Code provides, at Article 2878 C .c .Q .17 that forfeiture can never be presumed: its application must always result from express statutory language . The courts have however determined that Article 2050 C .c .Q is sufficiently explicit and the ends pursued sufficiently important to justify considering the 60-day time limit to be one of forfeiture .

Sample CaseÉquipement Industriel Robert Inc.

c. 9061-2110 Québec Inc. (Discover Transport), a Quebec Court of Appeals decision provides an example of this provision in action . The plaintiff sued for damages caused by late delivery of cargo and the defendant counterclaimed for unpaid invoices

related to the same transportation movement . Having first determined that the requirement for a written notice did indeed apply in all cases regarding claims in damages against a transporter, the Court considered whether a fax sent by the plaintiff within the time limit amounted to written notice of the claim . As the fax simply noted the delay and requested confirmation that the cargo would be delivered soon, the Court upheld the trial judge’s ruling that it did not amount to written notice of a claim .

The distinction between prescrip-tion and forfeiture came fully into play in this judgment when the judge rejected the plaintiff’s defense against the defendant’s counterclaim . This defence was based on Article 1590 (2) C .c .Q .,18 which allows a party to a contract to reduce its obligation to the other party accordingly, where that other party has failed to per-form its obligation in whole or in part . Essentially, the plaintiff claimed that as the defendant had delivered the product late, it was justified in withholding (part of the) payment . It further claimed that this ground of defence was still available to it even if it had not sent the notice required in Article 2050 C .c .Q ., as it claimed this was permitted under Article 2882 C .c .Q .,19 which allows a ground of defence to be invoked to defeat a claim “even if the time for using it by way of a direct action has expired, provided such ground could have constituted a valid defence to an action at the time when it could have served as the basis of a direct action” .

The Court, however, rejected the plaintiff’s contention, holding that the right was lost completely once the 60-day period has passed without the required notice being sent and could no longer serve even as a means of defence to an action:

[47] The time-limit set out in the second paragraph of Article 2050 constitutes, in my opinion, a veritable time-limit resulting in forfeiture . The

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CTLA Feature Articles and Case Notescreditor’s inaction during the period for protest extinguishes his right . (…)

[50] The forfeiture time-limit is one of public order . It extinguishes the right once the deadline has passed so that the holder of the right can no longer avail of the right, even as a defence .

It should be noted that the parties had not made pleadings on this point but it was rather the judge himself who raised the issue .

ConclusionThe written notice requirement

provided in Article 2050 C .c .Q . constitutes a significant early obstacle for the unwary claimant . Actors in the transportation industry must

be careful to evaluate their position early on and to take the necessary action . Although the courts have held that the notice requirement can be satisfied by means other than a written notice, considering the very nature of commercial exchanges and the many informal conversations of daily practice, it appears preferable to send a standardized and very clear written notice of claim as soon as possible and even if case of doubt .

Author’s NoteThe Author would like the acknowledge the assistance of Catherine Mathieu and Peter Murphy in the preparation of this article .

Endnotes 1 . S . 2030 C .c .Q . A contract of carriage is a contract by which one person, the carrier, undertakes principally to carry a person or property from

one place to another, in return for a price which another person, the passenger or the shipper or receiver of the property, undertakes to pay at the agreed time .

2 . S . 2925 C .c .Q . An action to enforce a personal right or movable real right is prescribed by three years, if the prescriptive period is not otherwise determined .

3 . S . 2050 c .c .Q . Prescription of any action in damages against a carrier runs from the delivery of the property or from the date on which it should have been delivered .

The action is not admissible unless a notice of the claim was first given to the carrier in writing within 60 days after the delivery of the property, whether or not the loss is apparent, or if the property is not delivered, within nine months after the date on which it was shipped . No notice is required if the action is brought within that time .

4 . Equipment industriel Robert inc. c. 9061-2110 Québec inc., 2004 CarswellQue 338 (Que . C .A .), leave to appeal refused 2004 2004 CarswellQue 2416, 2004 CarswellQUe 2417 (S .C .C .)

5 . 6357318 Canada inc. c . Transport Verville ltée, 2011 QCCS 5475, par . 12 . 6 . GCAN Insurance Company c. Jovan Transport, 2008 QCCS 5256, par . 17-19 . 7 . Canamex international Inc. c. Dexim inc., (C .S ., 2003-11-25), SOQUIJ AZ-5208313, B .E . 2004BE-66 8 . Bombardier produits récréatifs inc. c. Entreprises Express G .Y .C . inc ., 2006 QCCA 1520, 2006 CarswellQue 10101 (Que . C .A .); Cigna Assurance

compagnie du Canada c. Catlen Transport (C .S . 1998-10-01) 9 . Royal & Sunalliance du Canada, société d’assurance c . Luc Thibault Transport Inc . (March 19, 2003), Doc . 500-22-065908-017, [2003] J .Q . no

2482 (C .Q .) .10 . Nexans Canada inc. c. Benoit Méthé Transport inc., 2006 QCCA 613, 2006 CarswellQue 3753 (Que . Ca .) . See also Equipment industriel Robert

inc . c . 9061-2110 Québec inc ., 2004 CarswellQue 338 (Que . C .A .), leave to appeal refused 2004 2004 CarswellQue 2416, 2004 CarswellQUe 2417 (S .C .C .); Ferme avicole Héva inc. c. Coopérative fédérée de Québec, 2007 QCCA 1410, 2007 CarswellQue 9476 (Que . C .A .) .

11 . 6357318 Canada inc. c. Transport Verville ltée, 2011 QCCS 5475, par . 15 .12 . Nexans Canada inc. c. Benoit Méthé Transport inc., 2006 QCCA 613, 2006 CarswellQue 3753 (Que . Ca .); Cigna Assurance Compagnie du Canada c.

Catlen Transport, [1998] R .J .Q . 3176, 1998 Carswell 4673 (Que . S .C .) .13 . Cigna Assurance Compagnie du Canada c. Catlen Transport, [1998] R .J .Q . 3176, 1998 Carswell 4673 (Que . S .C .) .14 . Céline Gervais, La Prescription, Éditions Yvon Blais, 2009, p . 915 . S . 2904 C .c .Q . Prescription does not run against persons if it is impossible in fact for them to act by themselves or to be represented by others .16 . Julie McCann, Prescription extinctives et fins de non-recevoir, Wilson & Lafleur Ltée, 2011, p . 10417 . S . 2878 C .c .Q . The court may not, of its own motion, raise the plea of prescription . However, it shall, of its own motion, declare a remedy forfeit where so provided by law . Such forfeiture is never presumed; it results only

where expressly provided for in a text18 . S . 1590 C .c .Q . An obligation confers on the creditor the right to demand that the obligation be performed in full, properly and without delay .

Where the debtor fails to perform his obligation without justification on his part and he is in default, the creditor may, without prejudice to his right to the performance of the obligation in whole or in part by equivalence, (…) (2) obtain, in the case of a contractual obligation, the resolution or resiliation of the contract or the reduction of his own correlative obligation (…)

19 . S . 2882 C .c .Q . A ground of defence that may be raised to defeat an action may still be invoked, even if the time for using it by way of a direct action has expired, provided such ground could have constituted a valid defence to an action at the time when it could have served as the basis of a direct action .

Acceptance of such a ground does not revive a direct action that is prescribed .

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What constitutes workplace violence?

The popular belief is to the effect that workplace violence is limited to physical assaults, when, truly, it represents a much broader problem and an issue that remains prevalent across all of Canada . Earlier jurisprudence tended to consider violence as relating to physical violence only, which excluded any kind or interpersonal conflicts1 .

In fact, any situation in which an employee is being threatened, intimidated, bullied, embarrassed, or verbally insulted also constitutes workplace violence if there is a risk that the situation may cause illness, injury or harm to the employee .

Situations of violence represent issues that not only employers must take seriously, but that they must resolve in compliance with the law in order not to engage their liability or to commit offences and be forced to pay fines .

For employers who are federally regulated in relation to employment and Health and Safety law, the first difficulty in such situations is to determine whether or not the alleged situation really and objectively constitutes workplace violence according to section 20 .1 of the Canada Occupational Health and Safety Regulations (the “Regulations”),

as any situation is a specific case and as the definition can easily be altered by the subjective impression and version of the events given by either the victim or the aggressor:

20 .2 In this Part, “workplace violence” constitutes any action, conduct, threat or gesture of a person towards an employee in their workplace that can reasonably be expected to cause harm, injury or illness to that employee .

Which regulations apply to transportation companies?

Most Canadian jurisdictions have already included, in their own occupational health and safety or in their employment standard legislation, a general duty for the employer to provide a violence-free work environment . For instance, some provinces, such as Quebec and Ontario, have included in their specific legislation, sections on harassment at work, which can be a form of violence, as it will be explained hereinafter .

The general duty of employers to provide a violence-free work environment requires that employers take reasonable precautions to protect their employee’s security, health and safety while at work . To fulfill this duty, employers are required to take all the necessary measures to try to achieve an ideal situation . Such measures notably include creating an anti-violence policy that complies with the applicable regulations and

ensuring proper understanding of the law in order to apply it efficiently .

Nonetheless, the situation is different for federally regulated companies such as many transportation companies . Section II of the Canada Labour Code (the “Code”) contains definitions of what constitutes “federal work, undertaking or business” enterprises . It applies to companies carrying on international or interprovincial trucking, shipping, railways, and other means of transportation .

As such, federally regulated transportation companies are governed by the Canada Occupational Health and Safety Regulations regarding the general duty to prevent violence in the workplace .

When were workplace violence provisions incorporated into the Canada labour code and what benefits do they bring?

In 2008, considerable amendments were brought to the Regulations regarding workplace violence .

More precisely, an entire section on violence prevention at work was added to “Part XX” of the Regulations . That section specifically defines workplace violence in addition to introducing the employer’s different obligations in

Jacques Rousse and Marianne Bellefleur*

Violence in the Workplace: what tranSPortation comPanieS need to Know

* Labour & Employment Group at McCarthy Tétrault LLP (Montréal, Province of Québec) .

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CTLA Feature Articles and Case Notescase of allegations of violence by an employee . It also sets out the steps the employer should follow to comply with the law in such situations . The objective of the amendments was to create an efficient and accessible instrument for employers to improve their violence prevention policies and their emergency response to situations of violence in the workplace .

In June 2005, an analysis was conducted by the National Labour Operations Division . That analysis was later reviewed in 2007 . The results of the analysis indicated that the direct economic benefit anticipated from the amendments of the Regulations was to decrease the number of work accidents and lower the risks of injury and/or mortality . Furthermore, the analysis revealed that there were important indirect benefits for Canadian companies to avoid economic losses resulting from the absence of workers due to illnesses and work accidents .

Concretely, preventing workplace violence in compliance with the amendments was, for instance, meant to improve the atmosphere at work and the employee retention rate in addition to reducing the overtime caused by a shortage of employees .

What should employers do when facing such a situation and how do tribunals interpret the employer’s obligations in terms of investigation?

When faced with a situation of violence in the workplace, employers should follow the steps provided by section 20 .9 of the Regulations .

That section was recently analyzed in the Mulhern decision of the Canada Occupational Health and Safety Tribunal, reported at 2014 OHST 2 (“Mulhern”) .

Summary of the FactsMs . Mulhern, an employee of a

railroad operator (“the Employer”),

suffered from a work accident in 2001 . In 2006, the Canadian Human Rights Commission approved an accommodation agreement as a result of a complaint that she filed regarding her injury . Later, in 2008, Ms . Mulhern was given a stand-by position of Service Attendant; her work was also modulated to comply with the accommodation agreement .

From January 2009 to February 2011, Ms . Mulhern filed complaints about certain undesirable comments that she presumably received from some of her co-workers . Ms . Mulhern reported all five incidents to the management of the Employer, who, each time, resolved the situation efficiently .

However, in June 2012, an employee asked Ms . Mulhern why there were only two stand-by employees on that day when the week before, she noticed that there were three . Ms . Mulhern was very much affected by that comment and asked to return home the same day, which she was authorized to do . The day after, Ms . Mulhern informed her supervisor that she refused to go to work because she felt unsafe and harassed by her co-workers . She provided a handwritten report to her supervisor to that effect .

Ms . Mulhern’s supervisor imme-diately arranged a meeting with the Health and Safety Committee, but no resolution was reached and Ms . Mulhern maintained her work refusal, saying she had the right to do so pursu-ant to section 128 of the Code .

A Human Resources and Skills Development Canada Health and Safety Officer was then appointed to the case to examine the situation in relation to section 20 .9 (3) of the Regulations and he issued two directions . Even though the two directions were vividly contested by the Employer, they complied with them and appointed a “competent person” to conduct an investigation on Ms . Mulhern’s allegations of violence . Ms . Mulhern held that the designated person was not a “competent person”

and raised concerns regarding his experience in conducting such investigations .

Later, in September 2012, since Ms . Mulhern did not collaborate with the “competent person,” the Employer closed the complaint file and asked Ms . Mulhern to report to work on the same day . Ms . Mulhern refused to report to work by invoking, once again, her right to refuse to work . Since the first appointed “competent person” declined the mandate when the Employer contacted him for the second time, in response to Ms . Mulhern’s reaction to his nomination, the Employer appointed a new “competent person” to conduct the investigation .

In her final report, the second “competent person” concluded that there was no evidence that Ms . Mulhern had been subject to harassment or violence at work .

Context and Issue of the Appeals

The Mulhern decision concerns two appeals filed by the Employer against two directions issued by the Health and Safety Officer, further to Ms . Mulhern’s work refusal:

• The first appealed direction con-cluded that continued harassment on trains being serviced by the Employer is a danger to Ms . Mulhern;

• The second appealed direction concluded that the Employer had not appointed a “competent person” to investigate the matter of unresolved workplace violence;

However, the two appealed directions together raised two main issues:

• Firstly, was Ms . Mulhern exposed to danger as defined in the Regulations when she exercised her right to refuse work? If the answer was affirmative, was the first direction issued by the Health and Safety Officer pursuant to subsection 145(2), specific enough to meet the Regulations’ requirements?

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• Secondly, was the other direction ordering the Employer to cease to be in contravention of 125(1) and subsection 20 .9 (3) well founded?

Analysis Regarding the first issue raised,

Appeals Officer Hamel concluded that Ms . Mulhern was not subject to a danger that could reasonably and objectively be expected to cause her injury of illness, as required by the Code . Later in the decision, he explained that the notion of objectivity implies that a reasonable person, under the same circumstances as the employee alleging violence, would also have considered the situation as corresponding to violence in the workplace that could be expected to cause injury or illness, according to the definition provided at section 20 .2 of the Code . Appeals Officer Hamel finally rescinded the Health and Safety Officer’s first appealed direction, given the fact that his conclusion was based on Ms . Mulhern’s description of the events only, that he did not interview any of the alleged aggressors and that he made his finding without any medical evidence . Therefore, his conclusion according to which Ms . Mulhern was in danger while at work was incorrect .

As for the second issue raised, the Health and Safety Officer erroneously interchanged the notions of harassment and violence in the workplace in his analysis of the situation . In fact, the Health and Safety Officer never made a finding that Ms . Mulhern was truly victim of the alleged violence in the workplace . The definition of danger in section 122 of the Code has to be interpreted in such a way that it can reasonably be expected to cause injury or illness . Therefore, since the evidence did not establish that Ms . Mulhern was a victim of violence in the workplace, the Employer had no obligation to appoint a “competent person .” Consequently, Appeals Officer Hamel concluded that the Health and Safety Office’s second direction had no legal foundation .

What lessons should be retained from Mulhern?

First, Mulhern explained and summarized what obligations the Regulations impose on employers in order for them to prevent and react properly to allegations of violence in the workplace:

• Employers need to develop an accessible policy on the prevention of workplace violence and communicate it efficiently to their employees;

• Employers need to set up sufficient resources to determine which factors are more likely to create violence situations in the workplace and communicate those factors to their employees in a comprehensive manner;

• Employers should indicate to their employees that they are available to assist them if ever they are exposed to violence in their workplace;

• Employers should regularly verify the efficiency of the measures implemented to ensure a workplace exempt of violence;

• Employers should create an emergency notification procedure to adequately respond to a situation of violence;

• Employers should finally react promptly and apply their procedures without delay whenever they receive allegations of violence by an employee in order to avoid engaging their liability and later, be forced to pay fines .

Mulhern also allowed employers to know the extent of their proactive role in the determination of whether or not allegations of violence at work are founded .

Indeed, Mulhern explained that before designating a “competent person” pursuant to section 29(3) of the Code, the situation has to be categorized . That categorization requires that employers become acquainted with the definition of violence, as set out in section 20 .2 of the Regulations.

1. If employers have witnessed the sit-uation of violence or become aware of workplace violence: employers then need to try resolving the situ-ation without delay with internal measures, such as controls, training sessions, etc .

2. If employers have not witnessed the situation of violence and become aware of alleged workplace violence: employers need to determine if the allegations of violence made by the employee seem objectively founded and try resolving the situation with internal measures, without delay . The investigation can be done either in a summary or an exhaustive way by the company’s management team .

3. If there is a situation or violence in the workplace: employers shall appoint a “competent person” to make recommendations on the situ-ation of violence . It should be noted that the “competent person” should only intervene in situations where the employer had previously con-cluded that violence truly occurred in the workplace . For instance, such a designation could happen if the measures taken by the employer to resolve the situation were considered inadequate by the employee .

4. If the employer was mistaken in his assessment of the situation: a Health and Safety Officer can be called to inspect the workplace . That same officer would then be authorized to give directions to the employer to comply with the Regulations and appoint a “com-petent person” to carry out an investigation . Such a request would not be possible, had the employer taken effective procedures and con-trols to both investigate and resolve the allegations .That being said, it is only if

there is a situation of violence in the workplace, that an employer should designate a “competent person” to investigate the situation and make recommendations in the form of a

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CTLA Feature Articles and Case Notesreport; simple allegations of violence do not oblige an employer to appoint a “competent person .” Subsection 20 .9 of the Regulations therefore has a purely remedial function .

Appeals Officer Hamel also explained how violence in the workplace and harassment are two distinct issues that should be interpreted differently, which is a highly misunderstood distinction . The main difference between the two concepts is that harassment can be seen as a factor that contributes to violence in the workplace while violence implies that the comments made can be reasonably and objectively expected to cause harm, injury or illness to the employee . The definition of violence in the Regulations applies to situations where employees are in fear of being injured or harmed due to the actions or the conduct of another individual in their workplace .2

Does Mulhern clarify all questions about the notion of violence in the workplace?

To answer that question, it seems important to mention that, prior to Mulhern, the Canada Occupational Health and Safety Tribunal’s decision in Canadian Food Inspection Agency had been rendered on a similar subject . In that decision, the Appeals Officer had to determine whether to roll eyes or to verbally humiliate someone could require an employer to appoint a “competent person” pursuant to subsection 20 .9 (3) of the Regulations . The conclusion was that those gestures did not constitute violence in the workplace, according to subsection 20 .2 of the Regulations . That being said, both Canadian Food Inspection Agency and Mulhern come to a similar and coherent finding . But do those two decisions truly answer all questions about violence in the workplace? Unfortunately, being a very broad problem, it is likely that many questions will arise in the upcoming years .

To start with, the notion of “competent person” in subsection 20 .9 (3) would strongly benefit from being defined and circumscribed, as it is unclear if it is the Employers’ right only to determine who could be characterized as a “competent person” for the investigation of the situation of violence or if the employee alleging workplace violence should also have his or her say in the selection of the “competent person .”

Furthermore, even though Appeals Officer Hamel in Mulhern distinguished the notions of harassment and violence at work, it remains an ambiguous topic that could once more lead to judicial debates .

That being said, in the end, it is the identification and the communication of the factors that have the potential to escalate and lead to workplace violence that can best prevent it . Therefore, a well-written and communicated prevention of violence in the workplace policy is highly desirable, combined with an exhaustive harassment policy to prevent violence from degrading the work environment .

Endnotes1 . See for example: Gualtieri v. Treasury Board, Treasury Board (Foreign Affairs and International Trade), 1998 .2 . Canadian Food Inspection Agency v. Public Service Alliance Canada, 2014 OHSTC 1 .

LOSS TRANSFER IN ONTARIO, continued from page 63

Author’s NoteMany thanks to Chella Turnbull for her assistance .

Endnotes 1 . The decision as to whether to have an arbitration agreement is key . It may be that the parties cannot agree on how to handle costs, for example,

and may look to the Arbitrations Act instead, keeping in mind the limits involved with the grounds of appeal . 2 . Ontario Automobile Insurance Regulations RRO 1990 Reg 664 3 . 2012 ONSC 5952 4 . supra, at para 18 5 . 2014 ONSC 3887 6 . 2014 ONSC 3191 7 . The equitable doctrine of laches refers to unreasonable delay causing prejudice that can result in barring claims for relief . 8 . 2013 ONSC 5878 9 . 2014 ONSC 476310 . Primmum Insurance Company v. Allstate Insurance Company, 2010 ONCA 756 11 . There are various types of vehicles or “classes” which are eligible for reimbursement under the Loss Transfer Rules, including motorcycles .

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In MemoriamBy Donald J. Vogel*

phiLip GoRdon “GoRdy” pAyne 2014

________________________________________

TLA is sad to report the death of Gordy Payne, husband of long time member Martha Payne, on October 26, 2014 . Gordy was born on April 11, 1938 . He loved to accompany Martha to many TLA functions as well as other meetings in Canada, Mexico and throughout the U .S . Gordy was a hit, as usually the only husband on the spouses’ tours . The other spouses loved him, and he enjoyed the attention .

Gordy was a unique combination of primitive warrior and peaceful spirit who lit up a room, just by his presence . He was loving and caring to so many who miss him terribly and always will . He was a powerful force that brought joy, serenity and peace . A lifelong Oregonian, Gordy was many things: ambulance driver, ironworker, soldier, paramedic, salesman, commercial fisherman, member of surf-rescue, entrepreneur, story- teller and writer . Most of all, Gordy was a beloved husband, father, grandfather, great-grandfather, uncle, sponsor, friend, and mentor . His capacity for love was unlimited and surpassed only by the love he inspired in those who knew him . Gordy is survived by his daughter, whom he cherished, from his first marriage and her husband, Stephanie and Donald Anderson . In 1990, Gordy was blessed to meet Martha, who instantly became the love of his life . He brought love and devotion to their marriage and Martha brought him a huge family with grandchildren and eventually great-grandchildren who adored their Grandpa Gordy . The children Martha brought into Gordy’s life are Kathryn Schwartz (Kevin Horney), Michael Schwartz (Teresa Giacomini), Karen Rumble, Barbara Christiansen, and Stephen Schwartz (Sheila) . The grandchildren are Jason, Olivia, Sam, Annabelle, Matteo, Isabella, Tiffany, Brittany, Rose Anna, Cassidy, Jacob, Nick, Alex, Joey, Hannah, and Zach . The great-grandchildren that gave him joy are Ellis, Sutton, Kaia, Sophia, Nathan, Malakea, Harmony Grace, Zephera, Andrew, Clayton, Amelia, and Evelyn . Gordy also loved Martha’s stepsons, Raymond and Allen Houk; their wives, Cathleen and Heather; and children, Haley and Max .

Gordy was preceded in death by his parents, Philip and Myrtle Payne and brother, Gregory Payne . Greg left Gordy nephews, Gregory Clark, Alan, Danny, and Ryan Payne; nieces, Marcie Dawson, Shanna Gray, and Kathy Payne; and their children, all of whom he loved very much . His sister, Sharon Payne; and her son, David (Kari) Peterson also mourn him . Gordy was especially proud of David and would want him to know how much his company was appreciated when David and Kari returned to the Oregon Coast .

Gordy was a warrior, having served two tours in Vietnam as a ranger and medic . His experience left him with deep appreciation for peace and peacemakers . Upon returning to the Oregon Coast in 1999, Gordy discovered Peace Village, an organization dedicated to educating the next generation of peacemakers . He volunteered at Lincoln City Peace Village day camps and served as member of the board of directors of Peace Village . To honor Gordy, his passion for peace, and enthusiasm for young people, the Gordy Payne Memorial Fund has been established to help the Peace Village program continue and expand its peace education programs Those who wish to memorialize Gordy can go to www .peacevillageinc .org and select “Gordy Payne Memorial Fund” to honor his long and storied life .

Our sympathy goes out to Martha and the family .

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Please send to: Transportation Lawyers Association P .O . Box 15122 Lenexa, KS 66285-5122

913-895-4615 Fax: 913-895-4652

If you have any questions about membership or member services, please contact the TLA Executive Office at 913-895-4615 or the Chair of the Committee on Recruitment and Member Services, Fritz Damm, at 313-237-7400 .

TLA Committees Application FormPlease indicate your choices for committee assignments on the following committees:

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Membership SectionThe TransporTaTion Lawyer


Membership SectionMembership Application

Demande d’adhésion

Contact Information / Coordonnées Name of Applicant Nom du requérant Law Firm or Company Société ou Compagnie Address Adresse City, Prov. or State, Postal Code Ville, Prov. ou État, Code postale Home Phone No. de téléphone résidentielle Work Phone No. de téléphone d’affaires E-Mail Address Courriel

Membership Category / Categorie de membre Discounted new Member rates

Tarifs speciaux pour nouveaux membres

___ Private Sector Lawyer / Avocat qui pratique en cabinet ou contentieux C$125 / US$125

___ Non-resident Lawyer / Avocat non resident C$125 / US$125

___ Public Sector Lawyer / Avocat qui pratique au secteur publique C$125 / US$125

___ Young Lawyer (five years or less) / Jeune avocat (cinq ans ou moins)

___ Law Student or Articling Student / Étudiant de droit ou avocat stagiaire

C$125 / US$125

C$100 / US$100

Professional Status / Statut professionnel

In the year _______, I was admitted to practise as a Barrister and Solicitor or Attorney-at-Law by the Bar or Law Society of ___________________________, and I remain a member in good standing. I am engaged in and/or interested in transportation law, regulatory policy and procedure.

En l’an ______, j’ai été admis pour pratiquer comme avocat(e) par le Barreau de _____________, et je suis un membre en règle. Je suis impliqué et/ou m’intéresse au droit du transport ainsi qu’aux réglementations et procedures qui s’y rapportent.

Payment Details / Paiement

___ Visa ___ MC ___ AmEx

Cardholder Name ____________________

Card Number ________________________

___ Cheque / Chèque

Please make payable to / À l’ordre deCANADIAN TRANSPORT LAWYERS ASSOCIATION

Expiry Date ________________________

CSV Number (3 or 4 digits) _____________

Signed: ____________________________

Date: ____________________________

Please deliver completed renewal form and cheque to: Veuillez faire parvenir votre demande d'adhésion ainsi que votre chèque à:

CANADIAN TRANSPORT LAWYERS ASSOCIATION c/o Forté Law, 77 Vaughan Harvey Blvd., Moncton, NB E1C 0K2

Attention: Myer Rabin, Treasurer Tel: +1.506.857.3597 / Email: [email protected]

CTLA reserves the right to select its members. New membership applications must be approved by the Board of Directors of the CTLA. L’ACAT se réserve le droit de sélectionner ses members. L’adhésion d’un membre doit être ratifié par le Conseil d'administration de l’ACAT.

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save The DaTe!Please see the Upcoming Events and CLE section of the TLA website at www.translaw.org for the latest information on these events .

2015 march 4 Webinar: Ouch, That Hurt! Shipper/Carrier Liability to Drivers and Third Parties for Improperly Loaded Freight (At the Liability Interstices Where Casualty and Cargo Collide)

may 12-16 2015 TLA Annual Conference and CTLA Midyear Meeting Omni Scottsdale Resort & Spa at Montelucia; Scottsdale, Arizona

october 1-3 CTLA Annual Conference Delta Grand Okanagan Resort, Kelowna BC 30 Transporation Law Institute (TLI) Westin Columbus; Columbus, Ohio

2016 aPril 26-30 2016 TLA Annual Conference and CTLA Midyear Meeting Hilton Sandestin Beach Golf Resort & Spa; Destin, Florida

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Edward S . Brashears 1937-1938Perry R . Moore 1938-1939James W . Wrape 1939-1940Franklin J . Van Osdel 1940-1941August W . Heckman 1941-1942

War Years 1942-1944Carll V . Kretsinger 1944-1946Harris J . Klein 1946-1947Truman A . Stockton Jr . 1947-1948Glenn W . Stephens 1948-1949Harold G . Hernly 1949-1951Donald A . Morken 1951-1952Lee Reeder 1952-1953Marion F . Jones 1953-1954Regan Sayers 1954-1955S . Harrison Kahn 1955-1956Franklin R . Overmyer 1956-1957Louis Tarlowski 1957-1958Louis E . Smith 1958-1959Robert E . Powell 1959-1960Jack B . Josselson 1960-1961George S . Dixon 1961-1962Wentworth E . Griffin 1962-1963Howell Ellis 1963-1964Edwin C . Reminger 1964-1965Ewell H . Muse Jr . 1965-1966

Phineas Stevens 1966-1967Beverley S . Simms 1967-1968John L . Bruemmer 1968-1969John E . Jandera 1969-1970Leroy Hallman 1970-1971Walter H . Bieneman 1971-1972Alvin J . Meiklejohn 1972-1973

James W . Hagar 1973-1974William J . Lippman 1974-1975Thomas E . James 1975-1976Bertram S . Silver 1976-1977

John A . Vuono 1977-1978Charles Ephraim 1978-1979

James C . Hardman 1979-1980

Robert D . Schuler 1980-1981James M . Doherty 1981-1982John S . Fessenden 1982-1983

Harold D . Miller Jr . 1983-1984

Wilmer B . Hill 1984-1985

Frank W . Taylor Jr . 1985-1986A . Charles Tell 1986-1987

Richard H . Champlin 1987-1988

Michael J . Ogborn 1988-1989

Kim D . Mann 1989-1990

Richard P . Kissinger 1990-1991

David R . Parker 1991-1992

Mark J . Andrews 1992-1993

Edward J . Kiley 1993-1994Alex M . Lewandowski 1994-1995

William D . Taylor 1995-1996

David B . Schneider 1996-1997James F . Flint 1997-1998

Ann M . Pougiales 1998-1999

W . Robert Alderson 1999-2000

Kenneth R . Hoffman 2000-2001

Fritz R . Damm 2001-2002

Robert E . McFarland 2002-2003

Catherine A . Pawluch 2003-2004

Kathleen C . Jeffries 2004-2005

Brian J . Smith 2005-2006

Greg E . Summy 2006-2007

Donald J . Vogel 2007-2008

Eric L . Zalud 2008-2009

Gordon D . McAuley 2009-2010

Sam Hallman 2010-2011

Patrick K . McMonigle 2011-2012

M . Gordon Hearn 2012-2013

Dirk H . Beckwith 2013-2014

Francis E . Barrett Sr ., Honorary

Leonard R . Kofkin, Honorary

Deceased

CTLATLA Past PresidentsC . Douglas MacLeod 1978-1979Gilles J . Belanger 1979-1980Joseph W . Kanuka 1980-1981

Peter G . Green 1981-1982

Hugh G . Morris 1982-1983

Jacques Dufresne 1983-1984

Dean Saul 1984-1985Roderick W . Macdonald 1985-1986

François Rouette 1986-1987Thomas J . Duckworth 1987-1988

David W . Gruchy 1988-1989

Robert B . Warren 1989-1990

Jocelyn H . LeClerc 1990-1991

Robert T . Gabor 1991-1992

Michael J . O’Hara 1992-1993

Catherine A . Pawluch 1993-1994

David F . Blair 1994-1995

Mel F . Belich 1995-1996

R . Wayne Myles 1996-1997

Douglas C . McTavish 1997-1998

Jean G . Bertrand 1998-1999

Tobin S . Robbins 1999-2000

Steven G . Zatzman 2000-2001

Joanne C . Coldwell 2001-2002

Louise Baillargeon 2002-2003

Alex G . MacWilliam 2003-2004

Joan F . Myles 2004-2005

Rui M . Fernandes 2005-2006

Jean E . Clerk 2006-2007

Geoffrey L . Spencer 2007-2008

Louis Amato Gauci 2008-2009

Douglas I . Evanchuk 2009-2010

Daniel P . Ryall 2010-2011

Kim E . Stoll 2011-2012

Stéphane Lamarre 2012-2013

Marc D . Isaacs 2013-2014

Deceased

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The Transporation Lawyer, February 2015

Documents

Transcript of The Transporation Lawyer, February 2015