Transportation Executive Summary: Seventh Circuit Furthers Circuit Split on Preemption of Broker Negligent Hiring Claims
On July 18, 2023, the United States Court of Appeals for the Seventh Circuit issued a decision in Ye v. GlobalTranz Enters., Inc. where the Court examines whether the express preemption provision of the Federal Aviation Administration Authorization Act (FAAAA) bars a negligent hiring claim against a freight broker based on the broker’s selection of a motor carrier and, if it does, whether the safety exception applies to allow the claim to proceed. No. 22-1805, 2023 WL 4567097 (7th Cir. July 18, 2023). We have previously reported on the other two recent circuit decisions by the United States Courts of Appeals for the Ninth and the Eleventh Circuits. See Eleventh Circuit Holds Negligent Brokering Claim Preempted by Federal Law (05.30.2023) and U.S. Supreme Court Decides Not to Review Negligent Brokering Case (08.12.2022).
GlobalTranz Enterprises, Inc. is a freight broker that provides transportation logistics services for clients that seek to transport goods. A client hired GlobalTranz in 2017 to provide its services for the transportation of goods from Illinois to Texas, and GlobalTranz hired Global Sunrise, Inc. to provide the driver, vehicle, and shipping service for those goods. On November 7, 2017, the Global Sunrise driver transporting the goods collided with a motorcycle driven by the plaintiff’s husband, who sustained serious injuries and subsequently died two weeks later.
The plaintiff, Ying Ye, initially only brought suit against Global Sunrise with claims of negligent hiring and vicarious liability. Later, Ye amended her complaint to bring the same two claims against GlobalTranz. Ye alleged that GlobalTranz was negligent in its selection of Global Sunrise to transport the goods because GlobalTranz knew or should have known that Global Sunrise was an unsafe company based on its history of hours of service and unsafe driving violations. Further, Ye alleged that GlobalTranz exercised such control over Global Sunrise that it was vicariously liable for the negligence of Global Sunrise and its driver.
Global Sunrise failed to retain new counsel for more than two years after its counsel withdrew in May of 2019 and Ye moved for default judgment against Global Sunrise. The district court granted the motion by entering default judgment against Global Sunrise on both claims and awarding Ye $10 million in survival damages and wrongful death damages.
Ye and GlobalTranz continued litigating and in November of 2019, GlobalTranz moved to dismiss the claims. The district court construed that motion as a motion for judgment on the pleadings and granted the motion for the negligent hiring claim by finding that the claim is barred by the FAAAA under the express preemption provision and is not saved by the safety exception. At that time, the district court declined to dismiss the vicarious liability claim on the pleadings. After one year of discovery, however, the district court entered summary judgment against Ye on the merits of the vicarious liability claim. Ye only appealed the district court’s dismissal of the negligent hiring claim, which the Seventh Circuit ultimately affirmed and provided the analysis that follows using canons of statutory interpretation, the context of the FAAAA, and other statutes.
First, the Seventh Circuit examined whether Ye’s state law claim of negligent hiring falls within the FAAAA’s express preemption, which provides that a state “may not enact or enforce a law, regulation, or other provision. . .related to a price, route, or service of any motor carrier. . .or any motor private carrier, broker, or freight forwarder with respect to the transportation of property.” 49 U.S.C. § 14501(c)(1).
In its analysis, the Seventh Circuit used the United States Supreme Court’s guidance that the express preemption provision should be interpreted broadly; a state law only needs to have a connection or reference to broker services to be “related to” them and a state law may be preempted even if the effect of the law is merely indirect on broker services. Morales v. Trans World Airlines, Inc., 504 U.S. 374, 383-86 (2008). The Seventh Circuit utilized a two-part test whereby the party seeking to establish preemption, here GlobalTranz, needs to show (1) that a state “enacted or attempted to enforce a law” and (2) that the law relates to broker “rates, routes, or services either by expressly referring to them, or by having a significant economic effect on them.” Nationwide Freight Sys., Inc. v. Ill. Com. Comm’n., 784 F.3d 367, 372 (7th Cir. 2015). Ye’s negligence claim easily passes the first part of the test because Illinois’ common law tort claims, such as negligence, fit within a state enacting and enforcing laws. Likewise, Ye’s claim passes the second part of the test because it challenges the adequacy of care that GlobalTranz took in selecting Global Sunrise as part of its broker services. Further, the Seventh Circuit stated that enforcement of Ye’s claim would have a significant economic impact on broker services by subjecting brokers to costly damages payouts, which would change how brokers conduct their services. For example, brokers might incur new costs to evaluate motor carriers, which might also change the motor carriers that brokers select.
Second, the Seventh Circuit examined whether Ye’s negligence claim falls within one of the exceptions to the preemption; in particular, the Seventh Circuit examined the safety exception, which provided that the express preemption provision “shall not restrict the safety regulatory authority of a State with respect to motor vehicles.” 49 U.S.C. § 14501(c)(2)(A).
In its analysis, the Seventh Circuit declined to examine whether Ye’s claim falls within “the safety regulatory authority of a State” because it determined that the claim is not “with respect to motor vehicles.” The Seventh Circuit noted that there is no mention of brokers within the safety exception nor within Congress’ definition of motor vehicles. The text of the safety exception is specific in excepting to state laws for motor vehicle safety, cargo loads, and motor carriers, but there is no mention of brokers. Similarly, Congress defined motor vehicle to include only a “vehicle, machine, tractor, trailer, or semitrailer. . .used on a highway in transportation” with no mention of brokers. 49 U.S.C. § 13102(16). Further, the Seventh Circuit examined Title 49 of the United States Code as a whole to conclude that the Federal Motor Carrier Safety Administration required brokers to maintain records of their transactions, abide by certain advertising standards, and avoid conflicts of interest with shippers, but has no safety standard requirements of brokers. Thus, the Court concluded that if Congress intended to include brokers in the safety exception, they would have expressly done so and the connection between broker hiring standards and motor vehicles is otherwise too indirect.
This holding is consistent with an Eleventh Circuit decision earlier this year in Aspen Am. Ins. Co. v. Landstar Ranger, Inc., 65 F. 4th 1261 (11th Circ. 2023). Thus, this decision is important as it deepens the circuit split with the Ninth Circuit, which similarly held that negligent hiring claims against brokers are expressly preempted but alternatively held that the safety exception did apply under similar facts in Miller v. C.H. Robinson Worldwide, Inc., 976 F.3d 1016 (9th Circ. 2020). Given the circuit split, this case could be reviewed by the United States Supreme Court if the parties elect to present a petition for writ of certiorari within 90 days of the decision and the United States Supreme Court votes to hear the case. Readers will want to continue monitoring this page for further proceedings.
For more information
Contact John F. Fatino for more information about trucking and transportation matters at 515-288-6041. University of Iowa Law School, J.D. candidate, Shay A. Slifka, assisted in the preparation of these materials.