Lawsuit update

The end of 2001 and the beginning of 2002 has seen a flurry of significant activity in the courts for OOIDA and its member-plaintiffs.

December 11: Court finalizes payment of damages by Ledar to owner-operators

On Dec. 11, U.S. Magistrate Judge Sarah W. Hayes (for the Western District of Missouri) recommended the court direct Ledar Transport Inc. to pay damages to the owner-operators named in that class action lawsuit.

Back on June 21, 1996, OOIDA obtained a default judgment by U.S. District Court Judge Fernando Gaitan Jr. finding the carrier liable for failures to return escrow accounts and pay interest on escrow accounts. The case was granted class certification and OOIDA’s counsel was instructed to submit a calculation of the amounts owed to each claimant by the Kansas City carrier.

A second suit (referred to as Ledar II) involves a larger number of owner-operators and more extensive allegations against the carrier. This case is still pending before the court.

December 17: Court rejects Prime's motion - upholds owner-operators rights to sue

In the latest in a lengthy legal battle between the OOIDA and New Prime Inc., dba Prime, U.S. District Court Judge Dean Whipple rejected a Prime effort to have the lawsuit dismissed. Prime attorneys asked the court to dismiss the suit based on a recent U.S. Supreme Court ruling that certain individuals do not have a “private right of action” to enforce federal regulations. Judge Whipple did not agree noting that unlike the court case cited by Prime, congressional intent to create a freestanding private right of action to enforce leasing regulations was present in the statutes.

This motion was Prime’s second attack on the private right of action statutes passed by Congress in the ICC Termination Act. In 1999, the Eighth Circuit Court of Appeals rejected a similar motion by the Springfield, MO,-based truckload carrier.

OOIDA vs. Prime has been ongoing since 1997, when the first complaints were filed alleging Prime’s lease agreements violate the truth-in-leasing regulations. OOIDA also alleges violations in the areas of escrow funds, charge-back items and forced purchases of products, equipment and services from the motor carrier.

Several motions in this complex case remain before the court, the most important being OOIDA’s request for class certification.

December 18: U.S. Court of Appeals upholds class certification for OOIDA – denies Mayflower appeal

The U.S. Circuit Court of Appeals has denied a Mayflower Transit motion to appeal the class certification order granted to OOIDA in its two complaints against the carrier.

One of the suits claims violations of the federal truth-in-leasing regulations by the carrier’s failure to return fuel-tax credits on a current basis and to return fuel-tax credits and other funds held in escrow accounts to owner-operators within the required time period after their lease agreements had expired. The other suit alleges Mayflower unlawfully overcharged the owner-operators for insurance products purchased through Mayflower.

On Nov. 5, U.S. District Court Judge Sarah Evans Barker (for the Southern District of Indiana, Indianapolis Division) granted OOIDA’s requests for class certification in both suits.

Mayflower had sought to appeal this ruling based on arguments over the court’s definitions of the class and the extent of Mayflower’s liability where its agent van-operators were concerned. By denying the carrier’s motion, the court has now cleared the way for the case to continue.

January 7: OOIDA goes after Burlington in bankruptcy court

On July 9, 2001, Burlington Motor Carriers filed for voluntary reorganization under Chapter 11 of the U.S. Bankruptcy Code (see Land Line, A/S 2001), only months after OOIDA filed a complaint in U.S. District Court in Indiana, claiming violations of the federal truth-in-leasing regulations. Under the bankruptcy protection, the original complaint was dismissed.

On Dec. 6, Thomas F. Grojean Sr. chairman and CEO, and Terry A. Wallace, president and COO of Burlington announced that senior executives of the company intended to purchase certain assets and substantially all of Burlington’s business. Five days later, OOIDA and two members, Brian McGrath and Arthur Shaw filed an adversary proceeding in the U.S. Bankruptcy Court in Indiana. A separate motion to intervene “generally” in the bankruptcy proceeding was filed Dec. 19.

OOIDA’s lawsuit alleges that the Daleville, IN, motor carrier was deducting amounts from owner-operator compensation substantially in excess of the actual premiums for insurance coverage purchased through the company. The complaint also alleges Burlington did not properly supply insurance information when requested.

OOIDA and its members are seeking a court-ordered end to those non-disclosure and overcharge practices plus treble and punitive damages for conversion (including criminal conversion) and fraud. The suit filed in the bankruptcy court also demands a jury trial and certification of the class of owner-operators who had similar lease agreements with Burlington.

Although it had always planned to proceed with its complaint, OOIDA filed the adversary proceeding and the motion as soon as it became aware Grojean and his associates were going to try to buy up Burlington assets and business.

“We wanted to make the seriousness of our intentions very clear,” said Jim Johnston, OOIDA president. “OOIDA has no intention of walking away from these types of actions simply because a carrier hides behind bankruptcy laws.”

On Jan. 10, the bankruptcy court granted OOIDA’s motion to intervene generally in the bankruptcy proceedings of Burlington Motor Carriers. This means OOIDA becomes full participant in the proceedings and is to be supplied with all evidence and filed documentation.

January 7: OOIDA files class action against Heartland Express

In January, OOIDA announced it had filed a class action suit against another major U.S. motor carrier. The association, along with two owner-operator members, filed the class action against Heartland Express Inc. of Iowa City, IA, in the U.S. District Court for the Southern District of Iowa.

At issue are allegations that owner-operators leased to Heartland were forced to purchase insurance from the company, the company’s failure to provide insurance documents upon request and the excessive chargebacks to owner-operators for insurance premiums. The complaint also alleges excessive chargebacks to the owner-operators for fuel purchased through the carrier’s purchasing program with Comdata Inc. All of the allegations represent violations of the federal truth-in-leasing regulations.

OOIDA is requesting the suit against Heartland Express be certified as a class action to include other owner-operators who have experienced similar losses through their leases with this carrier.

January 11: Court rules in favor of OOIDA

in Intrenet suit – declares escrow accounts are statutory trusts separate from bankruptcy estates

The U.S. Bankruptcy Court granted summary judgment in favor of OOIDA on motions filed against Intrenet Inc., four subsidiary companies of Intrenet and the company’s bank, Huntington National Bank.

Intrenet Inc. ceased operation on Jan. 2, 2001, and more than 1,000 owner-operators leased to Roadrunner Distribution, Roadrunner Trucking, Advanced Distribution System and Eck Miller Transportation were terminated as of that date. None have had their escrow accounts returned by the companies. After a flood of member calls to OOIDA’s Business Services department and some investigative work done by its staff, OOIDA filed a class action suit in April on behalf of all owner-operators under lease to any of the four motor carriers. The suit requested the return of all escrow funds to individual owner-operators, prior to the payment of the amounts due to creditors. In its complaint, OOIDA argued that the escrow funds at issue are the property of the owner-operators, held in trust for them, and are not part of Intrenet’s bankruptcy estate.

Intrenet’s attorneys argued because their escrow funds were not segregated or handled by a third party, they weren’t really a “true” escrow per Ohio state law.

In his ruling, U.S. Bankruptcy Court Judge J. Vincent Aug Jr. (for the Southern District of Ohio) ruled escrow funds are subject to a statutory trust created by the federal regulations regardless of who holds the funds. He dismissed the carriers’ and Huntington’s argument that trust funds must be held by a third party, citing the federal regulation’s definition of escrow funds as “money deposited by the lessor with either a third party or the lessee...”

Judge Aug declared these statutory trusts could not be included in Intrenet’s bankruptcy estate. In response to the carrier’s attempts to characterize the escrow funds as merely accounting entries that afforded owner-operators only the protection of unsecured creditors, the court made clear that such a view “undermines a primary goal of the federal truth-in-leasing regulations.” Judge Aug stated that “the regulations were enacted for the protection of owner-operators from abusive practices of carriers, particularly with regard to escrow funds.”

Chief litigation counsel to OOIDA, Paul D. Cullen Sr. said, “It’s my opinion that this order will have a profoundly beneficial impact on the legal relationships between owner-operators and motor carriers. The court has agreed that owner-operators own the owner-operator funded escrow accounts held by motor carriers. Gone is the quick exit that bankruptcy filing once seemed to promise for motor carriers sued for escrow violations.”


Worth Noting

The ruling in the Prime case represents continued strengthening of the owner-operator’s private right of action - a cornerstone in OOIDA’s pursuit of unscrupulous carriers. The more we see the courts continue to uphold the owner-operator’s private right of action as an implicit provision of the federal leasing regs, the more likely we are to get past costly and time-consuming legal maneuverings and put the merits of cases on trial.

Another building block of OOIDA’s legal strategy, the importance of obtaining class certification, was supported in the Mayflower and Ledar rulings. Referring to the final report issued against Ledar, Jim Johnston pointed out, “This case has been an excellent example where class certification has been the most effective tool for giving large numbers of owner-operators the strength to collectively seek relief from a carrier’s illegal business practices.”

While the developments in the Burlington and Intrenet cases demonstrate OOIDA’s resolve not to be deterred from seeking justice by the bankruptcy of a carrier, it is the Intrenet ruling itself, that is most noteworthy.

In recognizing the statutory trust created by the escrow account and refusing to allow it to be included as part of the bankruptcy estate, this ruling sets the stage for the satisfaction of owner-operators’ escrow claims being given priority over the debt and other claims of other secured and unsecured creditors.

It also pierces the protection from these escrow claims that corporate officers hope to achieve by filing bankruptcy. As Paul Cullen Sr. explains, “As statutory trustees, these corporate officers have personal liability for any breach of their fiduciary duties. Judge Aug’s order is another step on the path of increasing the accountability of motor carriers.”

In his reaction to the court’s ruling in the Intrenet case, Jim Johnston said, “This decision is a big win for owner-operators across the country. Any motor carrier that thinks it can escape with escrows by declaring bankruptcy and closing up shop had better think again. This ruling has a great deal of potential application to OOIDA’s actions against other carriers.”