The Federal Motor Carrier Safety Administration (“FMCSA”) recently issued a decision in the matter of an application (Docket Number: FMCSA-2013-0513) for a categorical exemption from the minimum property broker and surface freight forwarder financial security requirements imposed by the Moving Ahead for Progress in the 21st Century Act (“MAP-21”) passed by congress and signed into law by the president in 2012 (P.L. 112-141), which was filed by the Association of Independent Property Brokers & Agents (“AIPBA”), a trade group founded and operated by the author since 2010.
In that decision, in which FMCSA denied AIPBA’s requested blanket exemption, the agency acknowledged that more than 9,000 intermediary businesses spontaneously shut down in December of 2013 when the new $75,000 minimum property broker bond requirement went into effect under amended 49 U.S.C. §13906(b) and was enforced by the agency after a two month grace period.
While some of these brokers gave up their brokerage businesses to join bigger brokerages as agents as part of a concerted effort by some larger brokerages to “consolidate” the freight brokerage industry,
(http://www.dcvelocity.com/articles/20110109thebigbetofbradjacobs/), others have continued to operate without any license or bond with impunity as third-party intermediaries arranging for motor carrier transportation, calling themselves “dispatchers” and “dispatch services” instead of brokers and holding themselves out to the public through social media.
“Property brokers” that operate in interstate commerce are required to be registered under 49 U.S.C. § 13904. Proper registration results in in the issuance of a “license” by FMCSA upon compliance with the financial security requirements prescribed by regulation (49 CFR 387).
“Property broker” is defined by Federal regulation in 49 CFR 371.2(a): “Broker means a person who, for compensation, arranges, or offers to arrange, the transportation of property by an authorized motor carrier.”
However, under said rule, there is an exception: “Motor carriers, or persons who are employees or bona fide agents of carriers, are not brokers within the meaning of this section when they arrange or offer to arrange the transportation of shipments which they are authorized to transport and which they have accepted and legally bound themselves to transport.” That is, an entity is not a broker if it is a “bona fide agent” of a carrier as defined under 49 CFR 371.2(b) as: “…persons who are part of the normal organization of a motor carrier and perform duties under the carrier’s directions pursuant to a preexisting agreement which provides for a continuing relationship, precluding the exercise of discretion on the part of the agent in allocating traffic between the carrier and others.”
Regardless of whether an intermediary works for a shipper or carrier and regardless of whether it touches the shipper’s money, an intermediary is a broker if it is paid by any party in the equation to arrange transportation as per 49 CFR 371.2(c): “Brokerage or brokerage service is the arranging of transportation or the physical movement of a motor vehicle or of property. It can be performed on behalf of a motor carrier, consignor, or consignee.” The term “dispatching” is covered within the official FMCSA definition of “motor carrier” at 49 CFR 390.5:
“Motor carrier means a for-hire motor carrier or a private motor carrier. The term includes a motor carrier’s agents, officers and representatives as well as employees responsible for hiring, supervising, training, assigning, or dispatching of drivers…” Most of these entities operating as dispatch services “dispatch” for more than one carrier under a power of attorney, which declares the dispatcher an agent of the carrier.
Therein lies the problem… Under the theory of “agency”*, it would appear an intermediary cannot be a nonexclusive agent of multiple competing carriers because this violates its “fiduciary duty of agent to principal;” that is, it would appear that an intermediary can’t lawfully help two competing carriers and call itself an agent of both of them as this problem of performing its fiduciary duty comes up when it chooses to load one of its carriers over the other. Contracted brokers don’t have this level of fiduciary responsibility.
In order to be a “bona fide agent,” then, the “agent” must be an exclusive agent for just one carrier. An intermediary calling itself a “dispatch service” when it services multiple carriers instead of a “broker” is like a legal professional saying he is not an “attorney” but a “lawyer” as he then attempts to practice law without being duly admitted to the bar. Shakespeare would say: “A rose by any other name would smell as sweet.
” This matter was settled by the Interstate Commerce Commission (ICC) years ago… In “Practices of Property Brokers” (49 M.C.C. 277, 295-303 (1949)) the ICC considered the distinction between agents of carriers and brokers and concluded that one who is in a position to allocate shipments between competing principals is a broker, who requires a license; an agent who devotes his service exclusively to a single carrier is part of that carrier’s organization and does not require a license.
Many third-party “dispatchers” charge motor carriers a 6% minimum fee but get the loads from brokers who are taking at least 12%. From a business standpoint, inserting a second middle man into the equation can therefore be said to adversely affect carriers’ bottom line. However, from a legal standpoint, these motor carriers need to recognize that “dispatchers” are not licensed under 49 U.S.C. § 13904 and are therefore not bonded by law for carriers’ protection; only licensed property brokers and freight forwarders are.
So, letting a “dispatcher” handle their money in place of a duly licensed broker clearly creates significant risk exposure for carriers. Legal practitioners should therefore warn their motor carrier clients of this pitfall and determine if the mere use of an unlicensed dispatcher by their motor carrier clients could in and of itself entail liability for aiding and abetting unlicensed operations under 49 CFR 390.13.
When it comes to “dispatch services,” the law is clear: it is not what an intermediary calls itself that defines whether it is a broker or not, it is what the intermediary does. Therefore, notwithstanding being a “bona fide agent” of one motor carrier, if an intermediary is an entity that receives compensation in exchange for arranging motor carrier transportation of regulated commodities across state lines, then it is an interstate property broker no matter what its chooses to call itself.
Unlawful brokers that call themselves “dispatchers” unfairly compete with duly-licensed brokers by circumventing the broker licensing and bond requirements. They can operate at less of a cost than law-abiding brokers who pay up to $10,000/year for a $75,000 surety bond or trust fund instrument.
Perhaps it is time for the relevant trade groups to crack down on these unlicensed players through the private cause of action provision established by MAP-21 to challenge the unlicensed dispatcher model in Federal court.
* According to Black’s Law Dictionary, “Agency” is “a relation, created either by express or implied contract or by law, whereby one party (called the principal or constituent) delegates the transaction of some lawful business or the authority to do certain acts for him or in relation to his rights or property, with more or less discretionary power, to another person (called the agent, attorney, proxy, or delegate) who undertakes to manage the affair and render him an account thereof.”
James P. Lamb is a non-attorney transportation practitioner duly admitted to practice before the U.S. Surface Transportation Board and Federal Maritime Commission. He is president of the Association of Independent Property Brokers & Agents (AIPBA) and chairman of the broader Small Business in Transportation Coalition (SBTC). He is based in Fort Lauderdale, Florida.
© 2015, James Lamb. All rights reserved.