Illinois Continues to Acknowledge and Expand Third Party Logistics Liability

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November 24, 2014
Sandra Cukierski and Lew Bricker
SmithAmundsen Transportation Alert
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You may recall that in 2012, we reported on the trial verdict reached in the case of Hoffman v. Crane, et al. (Court No. 2007 L 11406) in Cook County (Chicago), Illinois. Hoffman was one case in the line of third party logistics liability cases in Illinois where the jury found entities other than the motor carrier responsible for the accident. At trial, the jury awarded $27.67 million to a tragically injured woman, her daughter, and husband. That verdict was appealed and affirmed in an “unpublished” Rule 23 opinion which should not be cited as precedent under Illinois law in most cases. (We write “should” because it can be cited in certain limited circumstances and, in reality, the message of the decision cannot be undone.)

Basics of the Case

In Hoffman, a truck driver, Dorlan Crane (Crane), had transported steel coils from Chicago to Iowa and was returning to Illinois with an empty trailer. While traveling on Interstate 80, Crane rear-ended the vehicle driven by Nancy Hoffman, and in which her daughter, Karen Hoffman, was a passenger. Karen Hoffman suffered relatively minor injuries, but her mother, Nancy, lost the use of her lower extremities as the result of injuries sustained in the accident.

Hoffman filed suit against Crane, as well as the motor carrier, Illinois State, for which Crane was an independent contractor, the shipper of the coils, Ryerson, and the logistics provider that arranged for the transportation of the coils, 3pL. On the eve of trial, the plaintiffs amended the complaint. In their last answer, Crane and Illinois State admitted that Crane was acting as an agent of Illinois State, so that question was not submitted to the jury. The final complaint also alleged that motor carrier Illinois State, shipper Ryerson and logistics provider 3pL were engaged in a joint venture which only Illinois State admitted to be true.1 After evidence, the jury entered a verdict in favor of plaintiffs and against the driver, the motor carrier, the logistics provider and the shipper – awarding $24.55 million to Nancy Hoffman, $2,319,203.00 in loss of consortium damages to Mark Hoffman, and $802,949.15 to Karen Hoffman ($800,000.00 of which was for pain and suffering).2

The jury further found that Illinois State (the motor carrier), 3pL (the logistics provider) and Ryerson (the shipper) were engaged in a joint venture at the time of the accident and that Crane (the driver) was acting as an agent of the joint venture. In addition, the jury found that Crane was an agent of both 3pL and Ryerson and was acting within the scope of his authority as an agent of each at the time of the accident.

Background Facts Behind the Third Party Logistics Part of the Case

Ryerson is a producer of steel coils based in Chicago, Illinois. Ryerson entered into a brokerage agreement with 3pL under which 3pL agreed to provider Ryerson with motor carrier transportation services as an independent contractor. Services included electronic upload of orders, route optimization, assignment of carriers, daily transmission of data and bill of lading information, notification of carrier pickup and delivery, proof of delivery, carrier rate negotiation, carrier payment, and management of the network of carriers. Under the agreement, Ryerson retained the right to disallow a carrier based on performance issues.

3pL also entered into a contract with Illinois State whereby Illinois State would provide delivery services. Illinois State agreed to furnish equipment and personnel. The agreement also provided that Illinois State was to comply with the rules outlined in 3pL’s carrier manual.

The 3pL (motor) carrier manual set out specific requirements, including expectations pertaining to professionalism, carrier management, continuous improvement, safety, dispatch, rate, and billing processes. The manual required all drivers to maintain a well-kept appearance, and perform duties in a safe, courteous and professional manner. It provided consequences for disrupted service, missed loads, late deliveries, etc. The manual also included safety requirements and set forth various “rules of engagement”. All carriers were required to comply with the rules of engagement set forth in the carrier manual. The carrier manual also included a disciplinary system for the benefit of Ryerson.

Crane and Illinois State operated under an independent contractor agreement which provided that Crane would lease his tractor-trailer and driver services to Illinois State. The agreement indicated that Crane’s services under the agreement ended upon completion of the final delivery of the day.

The testimony at trial revealed that Ryerson reviewed the carrier manual before distribution to the carriers. Ryerson could also disallow a carrier from delivering its products and could direct that a preferred carrier be used for a specific routing. 3pL employees spent a “considerable amount of time” receiving training at Ryerson’s facility.

Much of the trial testimony indicated that neither Ryerson nor 3pL had the authority to control the manner in which Crane operated the vehicle or the route he took, and that they did not have the authority to hire or fire drivers. Crane, on the other hand, testified inconsistently, but at some point stated that Ryerson had the right to deny him loads, to stop a delivery during shipment, to require him to follow a specific route and to require him to get a haircut.

Ryerson filed a post-trial motion for judgment n.o.v. which was denied (unsurprisingly).

Appellate Court Decision

On appeal, Ryerson contended that the trial court erred in denying its motion for judgment n.o.v., in dismissing its counterclaim for contribution against Crane and Illinois State, and that the amount of damages awarded to Karen Hoffman for pain and suffering was excessive. Crane and Illinois State contended on appeal that because Illinois State was engaged in a joint venture with 3pL Corp. that its liability was extinguished when 3pL reached a high/low agreement with plaintiffs, thereby releasing it from liability.

Crane as an Agent for Ryerson

The appellate court first addressed whether Crane was acting as an agent for Ryerson at the time of the accident. As we saw in Sperl, et al. v. C. H. Robinson et al., the court held that the classification of a person as an agent rests upon the facts and circumstances of each case, and the “cardinal consideration” is the right to control the manner in which the work was performed. According to the Court, additional factors to consider are: “(1) the question of hiring; (2) the right to discharge; (3) the manner of direction of the servant; (4) the right to terminate the relationship; and (5) the character of supervision of the work done.” (citing Lawlor v. NA Corp. of Illinois, 2012 IL 112530).

In analyzing the extent of Ryerson’s control, the court pointed out certain facts: Ryerson provided the content for the carrier manual which set forth various requirements, reviewed and could have suggested changes to the manual before it was distributed; Ryerson and 3pL could direct a carrier not to use a particular driver if that driver failed to comply with the carrier manual; and Ryerson and 3pL could prohibit a driver from hauling Ryerson loads and Crane’s testimony (though inconsistent with his other testimony) that Ryerson had the right to deny a load, could stop a delivery during shipment, could dictate specific routes, and could require drivers to get a haircut. The court held that Ryerson’s control over Crane extended beyond merely directing him as to where to deliver a load.

Further, the court indicated that based on Crane’s testimony that 90% of his work came from hauling Ryerson loads, Ryerson effectively had the ability to terminate him if they were to deny him those loads. The carrier manual and the right to terminate seemed to be the two factors upon which the court was most focused.

According to the court, the facts at play in this case were more comparable to the facts in Sperl than to other Illinois cases denying an agency relationship. As such, the court concluded that the plaintiffs presented sufficient evidence to show that Crane was an agent of Ryerson, that Ryerson was not entitled to a judgment n.o.v., and that the jury’s verdict was not against the manifest weight of the evidence.

Because the jury determined that Crane was acting as Ryerson’s agent at the time of the accident, the court did not need to consider whether the motor carrier, logistics provider, and shipper were involved in a joint venture. Nonetheless, the plaintiffs’ bar has used the pleadings and strategies from Hoffman as the template for their joint venture allegations and discovery since that trial.

High/Low Agreement

Crane and Illinois State argued that because 3pL entered into a high/low agreement with plaintiffs, the liability of all parties to the joint venture was extinguished. The court disagreed finding there was no principal-agent relationship alleged between 3pL and Illinois State. Because Crane and Illinois State had already admitted in their answer to plaintiff’s complaint that Crane was acting as the agent of Illinois State at the time of the accident, plaintiffs were not required to present evidence on the issue. In turn, Illinois State would be liable under plaintiff’s agency theory regardless of the party’s liability under the joint venture theory. As is the norm, the jury did not indicate which of plaintiff’s theories it was awarding damages against Crane and Illinois State. Under Illinois law “when a jury returns a general verdict and more than one theory of recovery has been presented, the verdict will be upheld if there was sufficient evidence to sustain any of the theories . . .” (citing Lazenby v. Mark’s Construction, Inc., 236 Ill. 2d 83, 101 (2010). The court further reasoned that 3pL’s high/low agreement with plaintiffs had no effect on Illinois State’s liability because Illinois State’s vicarious liability arose from the negligent conduct of Crane, not 3pL. As such, the rule requiring that “any settlement between the agent and the plaintiff must also extinguish the principal’s vicarious liability” (American Nat’l Bank & Trust Co. v. Columbus-Cuneo-Cabrini Medical Center, 154 Ill. 2d 347, 354 (1992)) did not apply in this case as there was no principal-agent relationship alleged between 3pL and Illinois State.

Conclusion

There are portions of this verdict that are difficult to rationalize. Though we cannot “prove it” we believe that Ryerson’s perceived deep pockets played a role in the appellate court’s decision. That type of “result” has been seen in other cases. Courts are often reluctant to leave a truly damaged plaintiff without recovery when the potential exists. Further, this verdict and the appellate court’s affirming of the trial court’s decision and jury’s award follows the growing line of cases around the country that continue to expand alternative theories of liability in the commercial transportation industry and ultimately affect how motor carriers, shippers, brokers and logistics providers conduct business. We continue to see a rise in matters where shippers, brokers and logistics providers are being brought into catastrophic injury/large exposure cases in attempts to secure more insurance coverage and deeper pockets and garner higher verdicts particularly where the motor carrier has limited coverage and assets.

We continue to suggest that companies in the industry review their operational practices, their risk mitigation activities and insurance coverages. Considering the expanding theories and soaring verdicts, failure to do so can have devastating consequences.

1 This, of course, creates a question of fact allowing the issue to survive dispositive motion.

2 Soon after the verdict was announced, the court was informed that plaintiff and 3pL had entered into a high/low agreement which could vary between $825,000.00 and $1,000,000.00 depending on certain circumstances.