Any Motor Carrier Hauling Intermodal Container Traffic that Originates at a Port could be Affected

While Regal-Beloit involves damage during rail transportation, the decision will affect motor carriers that transport intermodal traffic moving in international commerce as well, since they too are subject to the Carmack Amendment. From the motor carrier’s perspective, COGSA’s rules governing the standard of liability, limitations of liability, forum selection and claim periods are generally more favorable than Carmack, and carriers might expect to benefit if COGSA is found to govern. A decision is anticipated between mid-May and late June of 2010.

Applicability to Export Shipments is not Guaranteed

Although the case has been the subject of much commentary, the Supreme Court’s decision in Regal-Beloit might not be a panacea. In a recent case out of the Northern District of Illinois, the court reminds us that Carmack arguably applies differently to import shipments and export shipments. The parties in Regal-Beloit made much of this issue in their briefing as well. The question under consideration before the Supreme Court is limited to import shipments, so questions regarding the applicability of Carmack or COGSA to export shipments moving under a through bill will likely remain.

Craig J. Helmreich

Nathaniel G. Saylor,

Indianapolis

Christopher C. McNatt,

Los Angeles

Cargo Liability Increases For Air Carriers

More than 90 countries have signed the Montreal Convention, which governs air carrier liability for international shipments between participating nations. The Montreal Convention replaces the Warsaw Convention for those nations.

Until recently, the Montreal Convention limited an air carrier’s liability for cargo loss and damage to 17 special drawing rights (SDR) per kilogram, or approximately $25.91 US/kilo ($11.77 US/lb). SDR is the monetary unit of the reserve assets of the International Monetary Fund. The limitation on liability, however, has been reviewed by the International Civil Aviation Organization and, effective January 1, 2010, has been increased to 19 SDRs/kilo or $28.96 US/kilo ($13.16 US/lb).

Many air waybills currently in use do not yet reflect this increase in carrier liability for cargo loss or damage. However, air carriers, indirect air carriers, freight forwarders and shippers should all be aware of this recent change and adjust their transportation documents to reflect the revisions to the Montreal Convention.

Craig J. Helmreich,

Indianapolis

New Rule Anticipated to Result in Savings for NVOCCs

The Federal Maritime Commission (FMC) voted in February to initiate a rulemaking that will relieve Non-Vessel-Operating Common Carriers (NVOCCs) from the costs and burdens of publishing and adhering to tariffs that contain the rates they charge to ship cargo. It is estimated that this new rule could save some NVOCCs as much as $200,000 per year in administrative costs. However, it is important to note that, although tariffs will no longer be required to contain rate information, NVOCCs must continue to publish – free of charge to the public – standard rules tariffs containing contractual terms and conditions governing shipments. Also noteworthy is the fact that, the exemption is not effective until published in the Federal Register, and thus NVOCCs must continue to publish and adhere to rate tariffs in the meantime.

Christopher C. McNatt,

Los Angeles

Jeffrey S. Jackson,

Indianapolis

International Carriers and Intermediaries Await Rotterdam Rules

The Carriage of Goods by Sea Act (COGSA) governs loss or damage claims for international ocean carriage to or from ports of the United States. COGSA has been in effect since 1936, pre-dating the development of intermodal containerized transportation. Other countries have adopted similar rules. To address these outdated conventions, the United National Commission on International Trade Law developed the Rotterdam Rules. The Rotterdam Rules are an international convention that must be ratified by at least 20 countries in order to take effect. As of this writing, delegations from 21 countries had “signed” the Rules as an informal acknowledgment of assent, but no country had actually filed a formal ratification with the United Nations, a process that requires formal approval via political processes in each country. If they are ratified by at least 20 countries and adopted in the United States, the R ules will have the force and effect of law and will replace COGSA.

The Rotterdam Rules have been criticized as unduly complex. While early press indicated they would apply to both land and ocean based “through” transportation, the final Rules do not apply to all legs of international intermodal transportation. The Rules do address many other important aspects of modern-day international shipping, including electronic commerce. Additionally, they increase the applicable limitation of liability and give shippers some relief from onerous forum selection clauses, but they also give the parties the right to enter into a “volume contract” which can provide for greater or lesser rights, obligations, and liabilities than those imposed by the Rules. Given the widespread practice of contracting, this volume contract provision has been seen as an exception with the potential to swallow the Rotterdam Rules.

At this time, the majority of commentators seem to believe the Rules will eventually achieve ratification, but whether they will be adopted by the United States remains in question. Given the wide-ranging effects of the Rotterdam Rules, both ocean transportation intermediaries and land-based transportation providers that transport intermodal shipments moving in international commerce have reason to follow their development.

Andrew K. Light

Nathaniel G. Saylor,

Indianapolis

Mileposts

Scopelitis Firm to Collaborate on Global Commerce Issues at International Transportation Symposium

This issue notes a number of developments affecting transportation providers that rely on intermodal movements and other aspects of the international delivery of goods. Most notable are the potential implications of the Regal-Beloit case heard recently by the U.S. Supreme Court disscussed on the cover and, in Briefly, the yet-to-be-ratifed “Rotterdam Rules”. This “International Edition” of The Transportation Brief focuses on these and other issues in international transportation law and represents our clients’ growing reliance on the Scopelitis firm for assistance on such issues.

The upcoming International Transportation Symposium, set for Thursday, April 22, at the Hyatt Regency Chicago, is yet another response to our clients’ needs in global commerce. In collaboration with the international business advisory organization Grant Thornton LLP and the international commercial law firm Ince & Co, our attorneys will present issues in maritime and air transportation, cargo liability, insurance and risk management, and a number of other transportation- related topics, all from a global business perspective.

Scopelitis firm observers may note the symposium as a milepost marking a more public presence in the global arena of transportation law. But to the firm’s attorneys whose practices already embrace international transportation issues, it is another opportunity to assist clients in penetrating international markets and strengthening partnerships beyond U.S. borders.

For example, Greg Feary and Jeff Toole routinely advise U.S. motor carriers regarding transportation insurance designs and alternative risk programs. Andy Light and Jay Robinson provide guidance in business restructuring. In the symposium, they will co-present a program on recommended entity structures for intermodal/international operations. Feary also will present on insurance and indemnity aspects of transportation contracts that come into play in intermodal movements.

Dan Barney routinely advises indirect air carriers on cargo security matters, while Chris McNatt and Nathaniel Saylor advise ocean transportation intermediaries with respect to licensing and regulatory compliance, and Craig Helmreich provides guidance on intermodal transport and cargo claims. With the exception of Chris McNatt, who will be in trial, they will all present at the symposium, each with a focus on the implications of their subject areas in international commerce.

The most striking difference between the counsel each of these attorneys provides on a daily basis and their participation in the symposium is the welcome opportunity to serve as resources in collaboration with some of the world’s preeminent practitioners in global accounting, tax and international commercial law. Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd, one of the six global accounting, tax and advisory organizations. Ince & Co. is an international commercial law firm with offices around the world and clients ranging from major international corporations to private individuals. Their websites may be found, respectively, at www. grantthornton.com and www.incelaw.com.

To register for the International Transportation Symposium, go to http://www.scopelitis.com/seminars/registration.cfm. For more information, contact Allison Smith, Scopelitis Director of Business Development.

Dispatches

Mike Tauscher reports the postponement of the Advanced Commercial Information (ACI) Highway eManifest requirement that carriers submit manifest information electronically to the Canada Border Services Agency (CBSA) for shipments entering Canada. CBSA has indicated that the system will be available for testing in June 2010, when it was scheduled to begin, but the project launch will not occur until September 2010.

Citizenship and Immigration Canada has the ability to deny foreign nationals admission into Canada, whether traveling for business or pleasure, if they have criminal convictions. Entry to Canada may be denied to persons who have committed any act that is considered to be an offense under Canadian laws, such as driving while under the influence of alcohol, even if the offense occurred many years ago. Mike Tauscher cautions carriers to determine whether drivers are qualified for Canadian entry in order to ensure freight is not delayed.

Tim Wiseman reports that there appear to be no plans by the FMCSA to further consider opening the border to Mexican carriers. Last year, the Obama Administration suspended the pilot program implemented by the FMCSA designed to allow greater access into the U.S. by certain Mexican carriers, and, in retaliation, Mexico introduced a number of tariffs on U.S. products being sold in Mexico.

Chris McNatt reports that the Ports of New York and New Jersey have released their clean truck program. Unlike the Port of Los Angeles program, the NY/NJ program does not contain the employee-only model which will be at issue in trial set to commence April 20 in federal court in Los Angeles.

The single-entity approach to carrier/3PL operations is of decreasing value

A “monolithic” structure in which companies maintain both motor carrier and property broker/freight forwarder authority in a single entity is now of decreasing value and applicability, especially as motor carriers move to a more diversified transportation operation with separate P&L justification for all aspects of their core operations. Historically, loads accepted as a motor carrier could be tendered to third-party carriers when circumstances such as capacity or pricing dictated with little regard to continuing liability arising from acts and omissions of the underlying carrier that actually performed the move. Developing theories of liability such as negligent selection/negligent entrustment and joint venture/agency, however, significantly raise the stakes of combining those service offerings in the traditional “monolithic” structure.

Operational and legal review may be warranted

In addition, insurance carriers have taken note and become more active in monitoring carriers that insist on conducting 3PL operations through the single entity/monolithic structure. In the face of such developments, a review and overhaul of carrier selection practices, procedures and guidelines utilized in 3PL operations can be one means of minimizing risks arising from 3PL activity. In light of these developments, however, and given the ever- increasing distinctions which exist on all levels between motor carrier and 3PL operations, now might also be a good time to consider segregating your distinct motor carrier and 3PL operations into separate entities to further protect each from the potential liabilities of the other.

Andrew K. Light

Gregory M. Feary

Jay D. Robinson, Jr.,

Indianapolis

Briefly…

The Estate Tax Rests In Peace (Temporarily)

Failed efforts in Congress to extend the federal estate tax at 2009 levels have resulted in a one-year repeal of the tax. Although there is currently no federal estate tax for individuals dying in 2010, Congress continues to debate this issue, leaving open the possibility that the tax could be imposed retroactively. While the repeal is in effect, the step-up of the cost basis for assets owned at death is limited which may result in significant capital gains taxes. The repeal is only in effect for 2010 and without further legislation, on January 1, 2011, the estate tax reappears at the 2001 levels with an exemption of $1 million and a whopping 55% estate tax rate.

Angela S. Cash,

Indianapolis

Will Your Company Outlive You?

Does your business enterprise have a contingency plan? For example, if the CEO is suddenly incapacitated – temporarily or permanently – can the enterprise survive, and if so will it prosper? While not a pleasant topic, such planning can ensure that the enterprise will be open for business the next day at the most basic level, and planning at advanced levels provides an arrangement for management and/ or ownership succession.

A simple power of attorney (POA) may solve some of the issues a company and co-owners may face if an owner is incapacitated. A POA, which is generally governed by state law, can be tailored to meet a company’s needs and personal obligations. A thoughtfully-drafted POA will give the appointed person the power and authority to act on the owner’s behalf in the event the owner cannot.

Important contingency planning considerations will include not only the more perfunctory tasks of day-to-day operations (to cover a temporary situation), but also executive-level relationships and responsibilities such as banking and credit, fixed asset management, insurance and risk management, finance, marketing, and officer/director positions (to cover extended or permanent situations). Considerations may also include sharing and/ or collaboration with respect to strategic objectives.

Contingency planning can ideally be combined with succession planning, to provide not only for an unexpected or untimely event, but also to set out the manner and means by which various management responsibilities are transitioned and ownership is acquired or distributed.

Gregory A. Ostendorf, Indianapolis

Donald W. Devitt,

Chicago

Timing Matters In Distressed Company Acquisitions

Current economic conditions have, among other things, given rise to a near-historic number of “distressed” motor carriers. The number is expected to rise in the first quarter of 2010 when plate renewal fees and insurance premiums become due. In many cases, a sale of the company represents the only viable exit strategy for its owners and creates opportunity for healthy acquirers from a strategic and pricing standpoint.

Although the purchase and sale of a distressed company is generally no different than a purchase and sale of any other company, an expedited due diligence and closing process is often required to preserve the company’s customer and driver relationships (and related goodwill) due to timing considerations. The purchaser will evaluate the company to determine if its traffic lanes, rates, customers, drivers and/or equipment represent an opportunity to profitably expand the purchaser’s current operations, while the seller will focus on means of realizing goodwill in the context of existing debt and credit obligations.

If performed correctly, the acquisition of a distressed motor carrier can be structured so as to provide a win-win opportunity for all parties.

W. Todd Metzger,

Indianapolis

Mileposts

Motor Carrier Transactions Call for Due Diligence in Industry-Specific Issues

This issue of The Transportation Brief features counsel typical of that provided and implemented by the Scopelitis firm’s corporate transactions group.

Although many attorneys offer capabilities in drafting, reviewing, and negotiating contracts, Scopelitis lawyers provide these services with the broad, deep experience in transportation- specific issues that is required by motor carriers looking to gain a competitive edge through their transactions. Because Scopelitis is a full service law firm devoted to the transportation industry, our attorneys counsel from targeted background and experiences. That distinction — along with the savings it creates when Scopelitis attorneys need not educate themselves on topics they already know and can spot issues that might not be so readily apparent to general practitioners — is what makes the Scopelitis firm a trusted resource when it comes to critical transactions involving the transportation industry.

The corporate transactions group works closely with all the firm’s attorneys, bringing broad experience to the table on transportation transactions. Beyond the breadth of knowledge expected from any transaction counsel, our industry-specific resources include a detailed working knowledge of regulatory, state tax, employment, independent contractor, cargo security, highway safety, insurance (including captive insurance arrangements and government authorized self-insurance programs), contracting (including shipper, broker, vendor and leasing contracts), and cargo loss and damage liability issues. The group’s experience also allows us to often quickly peel-away the issues, leading to practical solutions which are the difference between transactions the parties walk away from without results as opposed to those that close successfully.

The firm’s corporate practice group includes Norm Garvin, Andy Light, Greg Feary, Jay Robinson, Todd Metzger and Greg Ostendorf in Indianapolis; Bill Brejcha, Don Devitt and Don Vogel in Chicago; and Dan Barney and Kim Mann in Washington, D.C.

Mileposts

We are pleased to announce that Craig J. Helmreich has been named a shareholder in the firm. Craig will continue his commercial litigation practice in the Indianapolis office.

Tim Wiseman has been re-elected to the Scopelitis firm’s Management Committee and will continue to serve as managing partner with Indianapolis partners Greg Feary and Lynne Lidke.

On the Road

Mike Langford and Fritz Damm will attend the Defense Research Institutes’ Trucking Law Seminar, February 2-5, in Las Vegas.

Bob Henry will present Effective Compliance with Consumer Disclosure Requirements at the American Moving and Storage Association’s Annual Education Conference & Expo, February 21-24, in Phoenix.

Greg Feary will speak on Purchasing Insurance – The Impact of CSA 2010 and Dan Barney and Adam Smedstad will participate in a Trucking in the Round session on class actions at the Truckload Carrier Association’s Annual Convention, February 28 –March 3, in Las Vegas.

Dan Barney and Chris McNatt will attend the AirCargo 2010 Annual Convention, March 14-16, in Orlando.

Fritz Damm will participate in the American Trucking Associations Distribution & LTL Carriers annual meeting, February 28-March 3, in Tampa.

Jim Golden will speak about the Harvard Business School case study based on his work as negotiation counsel at the Harvard Business School, April 20-24, in Cambridge, Massachusetts.

Mike Tauscher will participate in the Law of the Land, Law of the Jungle panel on cargo law at the Transportation Loss Prevention & Security Association joint conference with the Transportation & Logistics Council, April 18-21, in San Diego. Kathleen Jeffries also will attend.

Chris McNatt will attend the National Customs Brokers & Forwarders Association of America’s Annual Conference, April 11-14, in San Antonio.

Don Vogel will present an update on Labor & Employment Law at the 2010 Transportation Lawyers Association’s Annual Conference and CTLA Mid-Year Meeting, April 27 – May 1, in Hilton Head. Kathleen Jefferies, Kim Mann, and Chris McNatt also will attend.

Dispatches

The Michigan legislature is considering partial relief for trucking companies subject to a 350% tax increase under Michigan’s Michigan Business Tax (MBT) when subcontracting to other carriers. According to Mike Tauscher, House Bill 4481 would reduce the tax burden by permitting a tax deduction of the subcontracted cost rather than inclusion in the trucking company’s gross receipts; the subcontracting carrier already is taxed on the income received.

Mike Tauscher reports that, effective immediately, Michigan has amended its overweight statute in two important respects: the bond required to release the vehicle is now limited to the amount of the anticipated fines and costs rather than double the amount, and portable scales used in roadside inspections must now be tested, sealed and certified as accurate.

Andy Light reports that, due to the fee structure not yet being finalized, a moratorium on enforcement of the UCR has been issued for the 2010 registration year, which moratorium remains in effect until further notice. The projection is that the fee structure will be finalized by April 2010 at the earliest. Any interstate motor carrier operating in 2009 is still required to have paid 2009 UCR fees.

The Transportation Brief® is intended as a report to our clients and friends on legal developments affecting the transportation industry. The published material does not constitute an exhaustive legal study and should not be regarded or relied upon as individual legal advice or opinion. Scopelitis, Garvin, Light, Hanson & Feary would be pleased to provide more specific information or individual advice on matters of interest to our readers.

© Scopelitis, Garvin, Light, Hanson & Feary, P.C. 2010. All rights reserved. The Transportation Brief® and all other marks and logos of Scopelitis, Garvin, Light, Hanson & Feary, P.C., are protected service marks and/or trademarks of the firm. The right to reproduce this publication in whole or in part is granted to the addressee only for non-commercial, educational use within the addressee’s organization.