Supreme Court Strips Freight Brokers of Federal Preemption Defense

Types : Alerts

In a unanimous 9-0 decision issued today in Montgomery v. Caribe Transport II, LLC, the Supreme Court has fundamentally altered the liability landscape for the freight brokerage industry. The Court, reversing the Seventh Circuit, held that the Federal Aviation Administration Authorization Act (FAAAA) does not preempt state-law negligent-hiring claims against freight brokers.

The Court held that while the FAAAA generally preempts state laws related to the “price, route, or service” of a broker, the statute’s safety exception (49 U.S.C. § 14501(c)(2)(A)) preserves state authority to regulate safety “with respect to motor vehicles.”

The Court concluded that a negligent-hiring claim which alleges a broker failed to exercise ordinary care in selecting a carrier, directly concerns the motor vehicles used in transportation. Consequently, these claims fall squarely within the safety exception and are not barred by federal law.

What This Means for Claims Handlers and Brokers

The era of the preemption shield for brokers which gained traction following the Seventh Circuit’s 2023 decision in Ye v. GlobalTranz, is officially over.

Brokers are now subject to ordinary care standards nationwide, meaning they can be held liable for negligent selection of carriers. A broker’s vetting process (or lack thereof) is now fully discoverable, and personal injury attorneys will now be able to introduce FMCSA SAFER data and out-of-service rates in every catastrophic accident case.

Claims handlers should anticipate a surge in negligent-hiring filings. Brokers should immediately audit their carrier-selection procedures to ensure they have a documented, data-driven vetting process to survive summary judgment.

If you have any questions regarding this landmark decision, or best practices going forward, contact Jon Werner of Montgomery McCracken’s Maritime and Transportation Industry Group.