Can a motor carrier use escrow funds from its leased owner-operators’ money to pay company debts? The Owner-Operator Independent Drivers Association says no, it can’t, and a ruling this week from the U.S. Court of Appeals for the Sixth District clearly agrees.
In a March 3 ruling, the U.S. Court of Appeals for the Sixth Circuit has held that escrow funds belonging to owner-operator drivers under lease to Arctic Express Inc. prior to 2000 were improperly transferred to Comerica Bank to pay Arctic’s debts to that bank.
OOIDA President and CEO Jim Johnston called the ruling that driver escrow funds are subject to a statutory trust “very significant” and emphasized that the ruling “could be extremely beneficial to owner-operators in future cases.”
“This case has been pending for 14 years,” said Johnston, “and I am very gratified that our perseverance has paid off and that we are, at long last, getting closer to the finish line.”
OOIDA and owner-operators Carl Harp and Michael Wiese filed a suit against Arctic in April 1997 for violating the escrow provisions of the truth-in-leasing regulations. Arctic had held 9 cents a mile from the drivers’ pay in escrow for maintenance of trucks that the owner-operators leased from Arctic under a lease-back arrangement. OOIDA sued because Arctic refused to return the unused balance of escrows at the termination of the lease.
This suit was resolved in OOIDA’s favor in 2003 when the court held that Arctic had violated the leasing regulations and ordered the return of the escrows.
Unfortunately, Arctic declared bankruptcy and was unable to pay most of the $5.5 million settlement.
During the bankruptcy proceedings, OOIDA learned of Arctic’s financial arrangement with Comerica and that bank’s receipt of the maintenance escrow funds that it was using to pay down Arctic’s debts to it.
OOIDA then sued Comerica on the theory that escrow funds were subject to a statutory trust created under the leasing regulations and that Comerica, as the trustee, was responsible to the drivers for the escrow funds. OOIDA sought the return of all of the escrow funds from Comerica.
On March 3, the court agreed completely with OOIDA on all of the legal issues in the case: that escrow funds were subject to a statutory trust; that those funds were improperly received by Comerica to pay down Arctic’s debt to it; and that, unless barred by the statute of limitations, Comerica is required to return the escrow funds to the drivers.
In its ruling, the Sixth Circuit agreed with OOIDA that the statute of limitations clock did not start ticking until drivers knew, or “with reasonable diligence should have known,” that Comerica bank was acting improperly by using the drivers’ escrow funds to satisfy Arctic’s debts to it.
“The arrangements between Arctic and Comerica bank were very private and there is no reason to believe that any drivers knew or, with reasonable care, should have known about those private dealings,” said Joyce Mayers, lead counsel for OOIDA in this litigation.
Mayers noted that under these circumstances, “OOIDA’s challenge to Comerica, after it found out about its dealings with Arctic, was certainly timely and within the statute of limitations.”
Mayers is an attorney with The Cullen Law Firm in Washington, DC. Attorney Paul Cullen Sr. has been involved with the case since it was first filed in 1997.
Cullen said on Friday that the appeals court will now be remanding the case to the federal court in Columbus, OH, to resolve factual questions surrounding the statute of limitations issue.
“If those issues are successfully resolved – and we are confident they will be – there’s a variety of loose ends to be tied up with the bank,” said Cullen. “At that point, we would move into the distribution process.”
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