Federal Law Preempts Stolen Cargo Claim Against Transportation Broker

April 14, 2023

Landstar Ranger, a transportation broker, sent a truck driver who called himself “James” to pick up cargo in Colorado for delivery to Maryland.

A dispatcher authorized the pickup even though the driver’s telephone number and email address didn’t match records that Landstar uses to confirm shipments are handled by legitimate motor carriers. The cargo, worth more than $500,000, was never seen again.

Aspen American Insurance Co. paid a claim filed by the company that owned the shipment, but it won’t recover that money from Landstar. On Thursday, a panel of the 11th Circuit Court of Appeals ruled that the Federal Aviation Administration Authorization Act preempts state-law negligence claims against transportation brokers for cargo losses.

The appellate panel said it is the first time the 11th Circuit or the US Supreme Court has ruled on the question raised in the case: whether an exception in the FAAA that allows states to regulate motor vehicle safety defeats the preemption for a lost cargo claim related to stolen goods.

“For Aspen’s claims to fall within the safety exception, (1) the negligence standard must constitute an exercise of Florida’s ‘safety regulatory authority,’ and (2) that authority must have been exercised ‘with respect to motor vehicles,'” the panel opinion says. “Although Aspen’s claims satisfy the first requirement, they do not satisfy the second.”

Cargo theft is a growing problem nationally. In January, CargoNet said it received 1,778 reports of “supply chain incidents,” which include thefts and fictitious pickups, up from 1,285 in 2021. The total loss value was $223.1 million in 2022, up from $57.9 million in the prior year.

An Aspen policyholder, Tessco Technologies, hired Landstar in August 2020 to arrange a shipment of goods from Frederick, Colorado to Hunt Valley, Maryland. Landstar uses an online system where motor carriers submit bids on jobs.

“James,” purportedly with L&P Transportation, bid on Tessco’s shipment. A dispatcher named “Eli” accepted the bid, but did not follow protocols and check to see if James’ email address and telephone number matched the contact information for L&P that the broker had its files.

After the delivery failed to show up in Maryland, Tessco filed an insurance claim. Aspen paid the claim and then filed a lawsuit against Landstar in the US District Court for the Middle District of Florida. (Landstar is headquartered within the district, in Jacksonville, Florida.)

Generally, the FAAA prevents state law claims against interstate motor carriers and brokers. The law contains an exception, however, for state regulations that are designed to ensure motor vehicle safety.

Landstar leaned heavily on that exception in its filings with the court, emphasizing the broker’s “reckless” actions that contributed to a felony, and asking rhetorically what would have happened if the thief had hurt or killed someone. Landstar’s lawyers called the arguments “histrionics” and “hyperbole” designed to distract from the fact that the insurer’s claims were preempted by federal law.

The US District Court sided with Landstar and dismissed Aspen’s claims. The insurer appealed.

The appellate panel agreed with Aspen that it’s claims do relate to safety, which would potentially trigger an exception to the federal law preemption, but they do not relate to motor vehicle safety as required by the FAAA.

“Aspen’s complaint says nothing at all about motor vehicles,” the opinion says. “It explains how carriers register with Landstar, Landstar’s protocol for verifying a carrier’s contact information prior to dispatch, and how Landstar allegedly neglected this protocol when dispatching Tessco’s shipment to ‘James.'”

The court affirmed the District Court’s decision to dismiss Aspen’s lawsuit.

“The ruling provides clarity going forward to the transportation and insurance community,” Aspen’s attorney, Robert Borak with Spector Rubin in Miami, said in an email. “It will be interesting to see the next steps and whether the Supreme Court takes this on.”

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