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TRANSPORTATION REVENUE MGMT. v. FIRST NH INV. SERV

May 22, 1995

TRANSPORTATION REVENUE MANAGEMENT, INC., Plaintiff,
v.
FIRST NH INVESTMENT SERVICES CORP., Defendant.



The opinion of the court was delivered by: PAUL L. FRIEDMAN

 Plaintiff, Transportation Revenue Management, Inc. ("TRM"), brought suit against defendant First NH Investment Services Corp. ("First NH") for failure to pay claims filed against a surety trust fund managed by First NH. Those claims were made by six motor carriers, and the parties have stipulated that TRM is the lawful assignee of the six Interstate Commerce Commission authorized motor carrier claimants on whose behalf it has brought suit. *fn1" The surety trust funds were posted by defendant's principal, Perth Enterprises, Inc., d/b/a Transport Source ("Transport Source"), in accordance with the requirements of 49 U.S.C. § 10927(b) and 49 C.F.R. § 1043, for the purpose of assuring the financial obligations of Transport Source.

 TRM alleged that Transport Source was acting as a property broker in interstate commerce pursuant to 49 U.S.C. § 10102(1) and 49 C.F.R. § 1045.2(a)(c) when it arranged for the six motor carriers to transport goods. It further alleged that the carriers filed claims against the surety trust fund managed by First NH after Transport Source filed for bankruptcy protection and failed to pay the carriers' invoices. Finally, it alleged that First NH's Trust Administrator improperly denied the claims on the ground that Transport Source was acting as a freight forwarder rather than as a property broker in its transactions with the six motor carriers, thereby rendering the carriers ineligible for funds from the surety trust fund. TRM contended that First NH breached its duty under the Trust Fund Agreement filed with the ICC, Form BMC-85, to exclusively administer and manage the Trust Fund. TRM sought payment in the amount of $ 4,400.97.

 TRM also alleged that First NH breached its duty of good faith and fair dealing because its Trust Administrator failed to comply with a Trust Administration Agreement and Power of Attorney Agreement which purport to outline the specific procedures for administering the Trust. It further alleged that First NH was negligent in permitting its Trust Administrator to continue to deny the carriers' claims without inquiry of Transport Source or any evidence that Transport Source acted as a freight forwarder rather than as a property broker in its transactions with the six carriers. TRM sought $ 13,200.00 in punitive damages from First NH for breach of the fiduciary obligation of a Trustee which subjected TRM to the costs of litigation.

 First NH asserted that it has not made payment because it was advised by Transport Source that the carriers' claims arose out of Transport Source's surface freight forwarder operation, and this operation is not covered by the Trust Fund Agreement First NH asserts that TRM did not demonstrate that the six carriers' claims arose from Transport Source's operations as a property broker, the only type of claims covered by the Trust Agreement. First NH denied that it breached its duty to properly administer and manage the Trust fund.

 The parties stipulated that First NH and Transport Source filed a surety Trust Fund Agreement on Form BMC-85 with the ICC, in which First NH agreed to "exclusively manage the corpus [of the Trust] and to make payments in good faith." In addition, the parties stipulated that defendant's principal, Transport Source, has brokerage authority pursuant to 49 U.S.C. § 10102(1) and 49 C.F.R. § 1045.2.

 This case was tried before the Court without a jury. The Court enters judgment for the defendant on all claims. The following constitute the Court's Findings of Fact and Conclusions of Law.

 I. FINDINGS OF FACT

 A. Arrangements Between And Among The Parties

 The evidence at trial demonstrated that plaintiff TRM is the assignee of six ICC authorized motor carriers who transported interstate shipments arranged by Transport Source for which they have not been paid. Transport Source operates both as a property broker and as a freight forwarder. Both property brokers and freight forwarders arrange for carriers such as TRM's six assignors to transport goods, but property brokers do not play a role in the actual assembly or carriage of the goods. *fn2"

 Transport Source deposited $ 10,000.00 into a surety trust fund managed by defendant First NH in order to meet its property broker security obligation. A BMC-85 Trust Fund Agreement between Transport Source and First NH was filed with the ICC; the Trust Fund Agreement designates Transport Source as Trustor and First NH as Trustee. Pi. Ex. 1. Under the Agreement, First NH is obligated to pay, up to a limit of $ 10,000.00, any sum that it in good faith determines that Transport Source has failed to pay, and would be held legally liable to pay, for its work as a property broker. Pl. Ex. 1 P 6.

 Transport Source as Trustor of the trust fund agreement also signed a Power of Attorney Agreement with American Traffic Exchange ("AMTEX"). Pl. Ex. 7. *fn3" The Power of Attorney Agreement authorizes AMTEX to act for Transport Source in all matters related to the Trust. It provides that the Trustee, First NH, through a Trust Administrator, will submit claims against the surety trust fund deposit to Transport Source; if a claim is not disputed within 72 hours, the Trust Administrator will authorize payment of the claim by the Trustee. Pl. Ex. 7 P 4. In the event of a dispute, the Trust Administrator is required to give notice of the dispute to the motor carrier claimant and await the resolution of the dispute by arbitration or litigation.

 AMTEX and the Trustee, First NH, entered into their own agreement to administer the trust funds deposited by any AMTEX property broker member into the Trust managed by First NH, and AMTEX and First NH agreed to hire a trust administrator. Pl. Ex. 8 at 2. At all times relevant to this action, David P. Carney was the Trust Administrator. First NH agreed to pay claims from trust funds only upon written instructions from Mr. Carney. Id. P 3. The agreement also provided that interest earned on the trust funds would be paid to AMTEX for the purpose of compensating the Trustee (First NH) and the Trust Administrator (Mr. Carney). Pl. Ex. 7, P 5; Pl. Ex. 8, P 1.

 B. Procedures for Processing Surety Trust Fund Claims

 At trial, Mr. Carney explained that as Trust Administrator he acts as the sole gatekeeper to the claims process; First NH does not have any involvement with the claims process unless and until Mr. Carney instructs First NH that a claim is undisputed and recommends that it be paid. Tr. 41. If a claimant has not tendered enough information to make its claim presumptively valid, Mr. Carney informs the claimant and requests it to provide additional information before he will submit the claim to the property broker to determine whether it is disputed. Tr. 64. He does not himself investigate the validity of the claim. Only when he determines that a claim is properly supported, and presumptively valid, does Mr. Carney then present the claim to the property broker for a response. Tr. 46. Once a claim is permitted to enter the claims process, if the property broker does not dispute the claim within 72 hours, then Mr. Carney informs First NH that payment should be made. If the property broker disputes the claim, Mr. Carney awaits a resolution of the dispute through arbitration or litigation; he does not himself adjudicate the claim. Tr. 68.

 Frank Agnos, a senior collector at plaintiff TRM, testified that the claims processing procedure followed by Mr. Carney is unlike the procedure he has experienced in filing numerous claims against other property broker surety trust fund deposits. He testified that he generally provides only freight bills and bills of lading and that, in his experience, such documentation is sufficient to initiate the claims process by presentation of the claim to the property broker for response. Tr. 132. He explained that if the validity of a claim or the rate charged is disputed by the property broker, the trustee generally commences an interpleader action or recommends that the two parties litigate the dispute. Tr. 132. In the interpleader cases in which Mr. Agnos has been involved, the courts relied on freight invoices and bills of lading to substantiate carriers' claims. Mr. Agnos was not involved in the claims at issue in this case. Tr. 143.

 C. The Specific Claims

 Transport Source filed a petition for bankruptcy on April 16, 1992. Its petition listed each of the six carriers who have assigned their claims to TRM as a creditor of Transport Source in amounts equal to or greater than those sought in this suit. Pl. Ex. 3. TRM filed claims on behalf of five of the six carriers against Transport Source's surety posted with First NH. Mr. Carney denied each of the five claims. Mr. Carney never submitted three of the claims (Landair, RJR and Reaves) to Transport Source for its response because Mr. Carney determined that he had not been provided sufficient information regarding "the compliance of the carrier [with applicable laws and regulations] and the existence of a property broker understanding." Carney Testimony, Tr. at 46. He did submit two claims (BPI and W-H) to Transport Source, which disputed the claims. Def. Ex. 2 and 4. The sixth claim (H&V) that is part of this litigation was never submitted to Mr. Carney for processing. *fn5"

 The Landair claim consisted of a Landair invoice, a bill of lading, and a shipping order listing Landair as carrier. Pl. Ex. 2, Attachment C. The Trust Administrator denied the claim because "neither of the Documents of Movement physically cite Transport Source as a party responsible for the payment of your client's freight charge." Pl. Ex. 4. The letter of denial suggested that written evidence could be presented in support of the claim. Id. No additional documentation was presented and the Landair claim was never submitted to Transport Source. Tr. 101.

 The Reaves claim consisted of a Reaves invoice to Transport Source, an inbound truck receipt, and a shipping order listing Reaves as carrier. Pl. Ex. 2, Attachment E. Mr. Carney requested a copy of Reaves' ICC operating authority and filed tariff or the written contract between the parties. Pl. Ex. 4. The documents were never provided and the claim was never presented to Transport Source. Tr. 100.

 The BPI claim consisted of a BPI freight invoice (which does not list Transport Source), three bills of lading listing Transport Source as the carrier, and a Transport Source rate confirmation document listing BPI as motor carrier and describing the delivery instructions. Pl. Ex. 2, Attachment A. Mr. Carney testified that he did not find this information sufficient to establish that BPI was dealing with Transport Source as a property broker. Tr. 104. He pointed out that the bills of lading listed Transport Source as "carrier," but he acknowledged, and Mr. Agnos confirmed, that some carriers in the industry improperly list the property broker as "carrier" on their bills of lading. Tr. 103, 138. Mr. Carney therefore requested a copy of BPI's ICC operating authority and filed tariff or the written contract between the parties. Pl. Ex. 4. He testified that he never received the requested information. Tr. 100.

 Mr. Carney nevertheless submitted the BPI claim to Transport Source because the rate confirmation and other documents did identify Transport Source as a party to the transaction. Tr. 117. He received a response from Transport Source disputing the claim. Def. Ex. 2. Transport Source provided Mr. Carney with a "Transportation Contract Between A Motor Carrier Freight Forwarder And A Motor Carrier Service Supplier" signed by BPI Transportation and Transport Source. Pl. Ex. 1. Finding this evidence sufficient to create a genuine dispute about the claim, Mr. Carney denied the claim. In doing so, he explained that "Perth Enterprises . . . is disputing the legitimacy of your clients' claim. . . The basis of this dispute is that B.P.I. Transportation accepted the assignment of this freight movement under Freight Forwarder/Motor Carrier Service supplier context - not under Property Broker/Motor Carrier regulation." Pl. Ex. ...


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