LAWSUIT
UPDATE

Mike Schermoly

The aggressive legal agenda OOIDA has adopted over recent years in pursuing motor carriers for violations of federal regulations has also led to a continuing evolution of challenges and issues brought before the courts by opposing legal teams.

The complexity of the legal maneuvering in OOIDA’s respective court cases is often compounded by conflicting rulings passed down by different trial and appellate courts on the same issue. Since most of these issues are being introduced to the courts for the first time, establishing a favorable, clear precedent by OOIDA is an important tool for use in future cases.

There are several common pivotal issues before different district judges for consideration. The use of similar arguments and strategies by opposing counsel in OOIDA’s various cases is no coincidence, of course. The same law firms represent several of the carriers being sued by OOIDA. These firms coordinate and exchange information and strategy through the American Trucking Association (ATA) and the Truckload Carriers Association (TCA). For the past few years, ATA has even presented at its annual Management Conference and Exhibition educational seminars for its members devoted to defending themselves against owner-operator lawsuits initiated by OOIDA.

The following are four of the more important challenges OOIDA’s legal team is facing in the courts.

Retroactivity: This issue is whether OOIDA can use the private right of action that went into effect on Jan. 1, 1996, to prosecute motor carriers’ truth-in-leasing violations for leases signed before Jan. 1, 1996.

Carriers have argued that owner-operators cannot use the private right of action against motor carriers’ actions both before and after Jan. 1, 1996, if the owner-operator signed their lease before Jan. 1, 1996. Their theory is that you can’t pass a law and then nail them for what they started to do before that law was passed.

OOIDA responds, however, that these cases do not present an impermissible retroactive application of the law. Carriers had the duty to obey the leasing regulations well before Jan. 1, 1996, and the only thing that changed on that date was the owner-operator’s ability to take them to court. OOIDA encountered conflicting rulings by different courts on this issue during 2003.

In its case against Arctic Express, OOIDA obtained a favorable ruling by District Court Judge Algenon L. Marbley. Judge Marbley determined that the Interstate Commerce Commission Termination Act (ICCTA) did not create a new obligation or duty for carriers. Nor did it attach a new disability with respect to actions taken prior to its publishing. Therefore, owner-operators with leases predating the ICCTA could pursue their claims. The Arctic case has now moved on to a final stage of calculating damages.

However, in OOIDA vs. New Prime Inc., both the U.S. District Court and the Court of Appeals for the Eighth Circuit ruled that owner-operators who signed leases prior to Jan. 1, 1996, could not prosecute their claims under the federal truth-in-leasing regulations in federal court without imposing impermissible retroactive effects. OOIDA is currently contemplating seeking review by the Supreme Court in the Prime case. A ruling on this issue in the Seventh Circuit in OOIDA’s case against Mayflower is still pending.

It is worth noting that the issue of retroactivity has nothing to do with the actual merits of the case and claims being brought against carriers. In the Prime case, for instance, neither the trial court nor appellate court found that Prime’s pre-1996 lease agreement and practices were lawful. Retroactivity simply affects which owner-operators, based on when their lease was signed, can take part in the action.

Arbitration: Several motor carriers with arbitration clauses in their lease agreements have filed motions to dismiss the cases and compel arbitration. The question before the courts is whether motor carriers can use the arbitration provision found in their lease agreements to force owner-operators to arbitrate their federal truth-in-leasing claims rather than litigate them in court.

Arbitration is disadvantageous to owner-operators since the cost of arbitration often exceeds the value of most of the claims. The claims of owner-operators also are not likely to be arbitrated on a classwide basis, one of the cornerstones of OOIDA’s court actions. Carriers include arbitration clauses to avoid class-action litigation and to discourage individual owner-operators from bringing claims against them. In an arbitration, the carrier is also at an unfair advantage since it already holds the escrow funds that are usually at the center of the dispute.

In OOIDA vs. Landstar, the courts denied Landstar’s motion to compel arbitration. Likewise, in Salt Lake City on Jan. 16, the court there rejected Utah-based motor carrier CR England’s bid to force owner-operators to arbitrate their claims individually. In the case against Swift and MS Carriers, the association is appealing a court decision to compel arbitration by drivers for MS Carriers. The arbitration issue is still pending in OOIDA’s case against Allied Systems Inc.

Allied recently went so far as to file a complaint against OOIDA with the National Labor Relations Board (NLRB), alleging OOIDA was interfering with a labor contract by attempting to act as an “unsanctioned” labor organization. The NLRB refused to take action on Allied’s complaint.

In a positive development concerning arbitration, the arbitration rules were changed in October 2003 by the American Arbitration Association (AAA) to permit classwide arbitrations. In view of this change, OOIDA is now exploring the possibility of initiating classwide arbitration in several cases.

Bankruptcy: Owner-operators also face problems getting escrow trust funds returned when carriers file bankruptcy, either out of circumstance or to avoid litigation. Bankruptcy issues have already affected five of OOIDA’s cases, namely those against Gilbert Express, Intrenet, Rocor, Arctic Express and Burlington. At stake are the owner-operator’s property interests in the form of escrow accounts and the damages being sought for violations of the truth-in-leasing regulations.

In each of these cases, OOIDA has adopted an aggressive tact in pursuing the return of escrow funds. In the case against Gilbert Express, which had filed for bankruptcy in June 2001, OOIDA’s determination eventually led the federal bankruptcy court to approve OOIDA’s million-dollar class-action settlement with the carrier. To date, hundreds of thousands of dollars have been paid to class members.

The important ruling by the bankruptcy court in the Intrenet case held that escrow accounts were a statutory trust separate from the bankruptcy estate. This ruling allows owner-operators the opportunity to get reimbursed amounts closer to true amount in their escrow accounts rather than having to wait in line with the carrier’s general creditors to recover only cents on the dollar.

In the Intrenet case, OOIDA went after the carrier’s bank that was the depository for those escrow funds collected. A negotiated settlement has been reached and is currently awaiting final approval from the bankruptcy court. Likewise, in the case against Rocor International, the bankruptcy estate is negotiating a settlement of escrow claims after OOIDA argued for their exclusion from the general bankruptcy accounts.

After OOIDA obtained summary judgment against Arctic Express on their liability, but four days before the scheduled trial to calculate damages, that carrier filed for Chapter 11. This prevented the district court from conducting the trial. OOIDA immediately petitioned the bankruptcy court to lift this stay to send the case back to district court to complete the final phase of the litigation. The court agreed, and this trial on damages is now scheduled for March 22, 2004. After the district court enters a final judgment awarding damages to the class, the judgment will be sent back to the bankruptcy court for enforcement.

The case against Burlington Motor Carriers marked the first time OOIDA has filed an independent lawsuit against individual officers of a bankrupt carrier in an attempt to recover owner-operators’ escrow funds. Burlington filed for voluntary reorganization under Chapter 11 of the U.S. Bankruptcy Code on July 9, 2001, only months after OOIDA filed a lawsuit in U.S. District Court in Indiana. OOIDA then pursued its original complaints in the bankruptcy court. However, in May 2002, the Daleville, IN, motor carrier converted the bankruptcy to a Chapter 7 proceeding and ceased operations, having used up all funds in its possession, including owner-operators’ escrows.

OOIDA proceeded to file a class action in the Hamilton Circuit Court (Hamilton County, IN) against five former Burlington Motor Carrier executives, including its president, Thomas Grojean.

The suit filed against the Burlington officers alleges the owner-operators’ escrow funds held by the company were used by the company’s management to cover the general obligations of the company, including their own compensation, instead of being preserved and returned after termination as required by the federal leasing regulations. In doing so, it is alleged that the officers of the company breached their fiduciary duties as trustees of those escrow funds as well as the fiduciary duties that arise where the corporation is insolvent or operating in the zone of insolvency.

The court denied the defendants’ motion to dismiss the case but has granted a motion to stay the proceedings pending completion of the bankruptcy.

Statute of Limitations: Different courts have also offered conflicting opinions on the statute of limitations issue: Can owner-operators sue carriers for leasing violations going back two years or four years? This decision affects what owner-operators can recover in a suit, what claims they can bring and how big the damages will be.

Motor carriers have argued that Congress meant to apply a two-year limit contained in a separate section of the statute. OOIDA argues that the two-year statute the carriers refer to has no relationship with the private right of action, and that the private right of action is not constrained by any special statute of limitations. In such circumstances, OOIDA argues, the court should use a general, catchall, four-year statute of limitations created by Congress for all federal causes of action.

In OOIDA’s case against Heartland Express and, most recently, Ledar, the court ruled that the default four-year limit is indeed the one that should be adhered to, while in another earlier case against Morgan Southern in Tennessee, the court there ruled two years. The statute of limitations issue is still pending in the CR England, Swift and Landstar cases.

The decision between two and four years can be an important one in determining claims, especially when it involves a major carrier such as a Landstar, where it can make the difference of thousands of owner-operators and millions of dollars. The statute of limitations can also affect the retroactivity issue and the eventual size of the class.

For an update on current OOIDA cases, visit our Web site at www.ooida.com. If you feel you might be part of a class in any current litigation or have information concerning any of the association’s court actions, contact the OOIDA Business Services department at 1-800-444-5791.