Broker - Central Analysis Bureau

Echo Glob. Logistics, Inc. v. Dep’t of Revenue

Court of Appeals of Washington, Division One

June 2, 2022, Oral Argument; August 1, 2022, Filed

No. 83548-3-I

Reporter

2022 Wash. App. LEXIS 1551 *; 2022 WL 3024727

Echo Global Logistics, Inc., Appellant, v. The Department of Revenue, Respondent.

Prior History: [*1] Appeal from Clark Superior Court. Docket No: 20-2-01631-8. Judge signing: Honorable David E Gregerson. Judgment or order under review. Date filed: 06/30/2021.

Core Terms

transportation, freight, brokers, public service, dictionary, regulation, propelled, subject to control, motor carrier, transportation business, contract carrier, common carrier, highways, includes, motor vehicle, carrier

Case Summary

Overview

HOLDINGS: [1]-The Board of Tax Appeals did not err by holding that the freight broker did not operate motor vehicles and therefore it was not a motor transportation business under Wash. Rev. Code § 82.16.010(6) because its work or labor was the coordination and management of the movement of goods, not the impact on a motor propelled vehicle; [2]-Based on the definition in Wash. Admin. Code § 458-20-179 freight brokers were not subject to control by the state and therefore the freight broker did not fall within the scope of the public utility tax under Wash. Rev. Code § 82.16.020(1)(f); [3]-Under Wash. Rev. Code § 82.16.010 because under the plain language of the statute there was not a clear statement from the legislature that freight brokers were “of a public service nature” and therefore the freight broker did not qualify for the public utility tax.

Outcome

Judgment affirmed.

LexisNexis® Headnotes

Administrative Law > Judicial Review > Standards of Review > De Novo Standard of Review

Tax Law > State & Local Taxes > Administration & Procedure > Judicial Review

Administrative Law > Judicial Review > Standards of Review > Deference to Agency Statutory Interpretation

HN1 Standards of Review, De Novo Standard of Review

The Court of Appeals of Washington reviews decisions by the Board of Tax Appeals under the Administrative Procedure Act (APA). (Wash. Rev. Code § 82.03.180). Under the APA, the court may grant relief from an agency order when the agency has erroneously interpreted or applied the law. (Wash. Rev. Code § 34.05.570(3)(d)). The court applies the APA directly to the record before the agency, sitting in the same position as the superior court. If the Board dismissed an administrative appeal on summary judgment, the court overlays the APA error of law standard of review with the summary judgment standard, and review an agency’s interpretation or application of the law de novo while viewing the facts in the light most favorable to the nonmoving party.

Criminal Law & Procedure > … > Standards of Review > De Novo Review > Conclusions of Law

Governments > Legislation > Interpretation

HN2 De Novo Review, Conclusions of Law

Statutory interpretation is a question of law reviewed de novo. The court’s objective is to ascertain and carry out the legislature’s intent.

Business & Corporate Compliance > … > Transportation Law > Rail Transportation > State & Local Regulation

Tax Law > State & Local Taxes > Public Utility Taxes > Exemptions

Transportation Law > Rail Transportation > Lands & Rights of Way

Tax Law > State & Local Taxes > Public Utility Taxes > Imposition of Tax

Tax Law > State & Local Taxes > Natural Resource Taxes > Imposition of Tax

HN3 Railroads & Rail Transportation, State & Local Regulation

Generally, Washington’s business and occupation (B&O) tax applies to the act or privilege of engaging in business activities, unless those activities are explicitly taxed elsewhere in the statutory scheme. Wash. Rev. Code §§ 84.04.220,.290(2)). Businesses that are subject to the public utility tax (PUT) are not subject to the B&O tax under Wash. Rev. Code § 82.04.310(1). Wash. Rev. Code § 82.16.020(1)(f) lists businesses subject to the PUT, including motor transportation, railroad, railroad car, and tugboat businesses.

Business & Corporate Compliance > … > Transportation Law > Carrier Duties & Liabilities > State & Local Regulation

Torts > … > Standards of Care > Special Care > Common Carriers

Torts > … > Motor Vehicles > Particular Actors, Circumstances, & Liabilities > Motor Carriers

HN4 Common Carrier Duties & Liabilities, State & Local Regulation

A common carrier is any person who undertakes to transport property for the general public by motor vehicle for compensation, and a contract carrier includes all motor vehicle operators not included under the terms common carrier and private carrier, in addition to any person who under special and individual contracts or agreements transports property by motor vehicle for compensation. Wash. Rev. Code § 81.80.010(1), (2). Brokers and forwarders are explicitly included as common carriers and contract carriers. § 81.80.010(3).

Governments > Legislation > Interpretation

HN5 Legislation, Interpretation

While interpreting a statute, a court endeavors to effectuate the legislature’s intent by applying the statute’s plain meaning, considering the relevant statutory text, its context, and the statutory scheme. In a plain meaning inquiry, the court may resort to an applicable dictionary definition to determine the plain and ordinary meaning of a word that is not otherwise defined by the statute. After investigating the plain meaning, if the statute remains susceptible to more than one reasonable meaning, the statute is ambiguous and it is appropriate to resort to aids to construction, including legislative history.

Governments > Legislation > Interpretation

HN6 Legislation, Interpretation

An appellate court employs traditional rules of grammar in discerning the plain language of the statute.

Transportation Law > Commercial Vehicles > Traffic Regulation

HN7 Commercial Vehicles, Traffic Regulation

To perform a work or labor or to exert power or influence both suggest a direct connection between the performance or exertion and the consequential result on the direct object: a motor propelled vehicle.

Tax Law > State & Local Taxes > Public Utility Taxes > Imposition of Tax

Transportation Law > Bridges & Roads > Toll Roads & Turnpikes

HN8 Public Utility Taxes, Imposition of Tax

Under Wash. Rev. Code § 82.16.020(1)(f), the public utility tax applies to all public service businesses other than the ones mentioned above. A public service business is defined as any business subject to control by the state, or having the powers of eminent domain and the duties incident thereto, or any business hereafter declared by the legislature to be of a public service nature. Wash. Rev. Code § 82.16.010(7)(a). It includes, among others, without limiting the scope hereof: Airplane transportation, boom, dock, ferry, pipe line, toll bridge, toll logging road, water transportation and wharf businesses.

Business & Corporate Compliance > … > Transportation Law > Rail Transportation > State & Local Regulation

Constitutional Law > State Constitutional Operation

Transportation Law > Rail Transportation > Lands & Rights of Way

Torts > … > Standards of Care > Special Care > Common Carriers

Business & Corporate Compliance > … > Transportation Law > Carrier Duties & Liabilities > State & Local Regulation

HN9 Railroads & Rail Transportation, State & Local Regulation

Wash. Const. art. XII, § 13 governs the regulation of common carriers, holding all railroad, canal and other transportation companies are declared to be common carriers and subject to legislative control.

Business & Corporate Compliance > … > Transportation Law > Carrier Duties & Liabilities > State & Local Regulation

HN10 Common Carrier Duties & Liabilities, State & Local Regulation

Wash. Admin. Code § 458-20-179(b)(i) defines subject to control by the state as control by the utilities and transportation commission or any other state agency required by law to exercise control of a business of a public service nature regarding rates charged or services rendered. A common or contract carrier is required to obtain a permit from the Washington State Utilities and Transportation Commission. Wash. Rev. Code § 81.80.070(1). In order to successfully obtain a permit, a carrier must establish safety fitness and proof of minimum financial responsibility as provided in this chapter. § 81.80.070(3).

Torts > … > Motor Vehicles > Particular Actors, Circumstances, & Liabilities > Motor Carriers

HN11 Particular Actors, Circumstances, & Liabilities, Motor Carriers

Common carrier and contract carrier includes freight brokers. Wash. Rev. Code § 81.80.010(3).

Tax Law > State & Local Taxes > Franchise Taxes > Limitations

HN12 Franchise Taxes, Limitations

Based on the definition in Wash. Admin. Code § 458-20-179 and under federal law, freight brokers are not subject to control by the state.

Governments > Local Governments > Employees & Officials

HN13 Local Governments, Employees & Officials

Under Wash. Rev. Code § 82.16.010, a public service business includes any business hereinafter declared by the legislature to be of a public service nature.

Business & Corporate Compliance > … > Transportation Law > Carrier Duties & Liabilities > State & Local Regulation

HN14 Common Carrier Duties & Liabilities, State & Local Regulation

Wash. Rev. Code § 81.80.020 states that the rapid increase of motor carrier freight traffic and the fact that under the existing law many motor trucks are not effectively regulated have increased the dangers and hazards on public highways and make it imperative that regulation to the fullest extent allowed should be employed. The statute focuses on the proper development and preservation of public highways and the stability of public transportation services for the public.

Business & Corporate Compliance > … > Transportation Law > Carrier Duties & Liabilities > State & Local Regulation

Governments > Legislation > Interpretation

HN15 Common Carrier Duties & Liabilities, State & Local Regulation

A business affected with a public interest and a business of a public nature are different. Courts presume the legislature intends a different meaning when it uses different terms. Wash. Rev. Code § 82.16.010(7)(a) defines a public service business as any business hereafter declared by the legislature to be of a public service nature, while Wash. Rev. Code § 81.80.020 declares that the business of operating as a motor carrier of freight for compensation along the highways of this state is declared to be a business affected with a public interest.

Governments > Legislation > Interpretation

HN16 Legislation, Interpretation

Courts presume that the legislature used these different terms to mean different things; nature implies a fundamental characteristic distinguishing one category from another, while affected is a more ancillary characteristic or inclination.

Business & Corporate Compliance > … > Transportation Law > Carrier Duties & Liabilities > State & Local Regulation

HN17 Common Carrier Duties & Liabilities, State & Local Regulation

Wash. Rev. Code § 81.80.020 discusses the importance of preserving public highways and the need for stabilized service and rate structure of motor carriers for the public. Under the plain language of the statute, there is not a clear statement from the legislature that freight brokers are of a public service nature.

Counsel: For Appellant: Renee Elizabeth Rothauge, Robert Lee MahonIII, Perkins Coie LLP, Seattle, WA.

For Respondent: Jessica E Fogel, Washington Attorney Generals Office, Olympia, WA; Charles E Zalesky, Attorney General of Washington, Olympia, WA.

Judges: Authored by Cecily Hazelrigg. Concurring: Bill Bowman, Stephen Dwyer.

Opinion by: Cecily Hazelrigg

Opinion

¶1 Hazelrigg, J. — Echo Global Logistics Inc. appeals a determination by the Board of Tax Appeals, arguing it is subject to a public utility tax rather than a business and occupation tax. Because Echo fails to demonstrate the Board erroneously interpreted or applied the law, we affirm.

FACTS

¶2 Echo Global Logistics Inc. is a freight broker; it contracts with motor carriers and customers to facilitate and coordinate the transportation of goods nationally. In November 2014, the Department of Revenue (Department) performed a desk examination of Echo’s business and occupation (B&O) tax returns and reclassified the freight broker under the “service and other” business classification for tax purposes. Echo appealed this [*2] determination to the Board of Tax Appeals (Board), arguing it was subject to the public utility tax (PUT), not a B&O tax, despite the fact that it had been paying B&O tax for approximately four years at that point. The Department moved for summary judgment, which was granted. Echo then appealed to the Clark County Superior Court, which affirmed the Board’s decision. Echo timely appealed.

ANALYSIS

I. Standard of Review

¶3 HN1 This court reviews decisions by the Board under the Administrative Procedure Act (APA).¹ Steven Klein, Inc. v. Dep’t of Revenue, 183 Wn.2d 889, 895, 357 P.3d 59 (2015) (citing RCW 82.03.180). “Under the APA, we may grant relief from an agency order when ‘[t]he agency has erroneously interpreted or applied the law.’” Id. (alteration in original) (quoting RCW 34.05.570(3)(d)). We apply the APA “‘directly to the record before the agency, sitting in the same position as the superior court.’” Dep’t of Revenue v. Bi-Mor, Inc., 171 Wn. App. 197, 201-02, 286 P.3d 417 (2012) (quoting Honesty in Env’t Analysis & Legis. (HEAL) v. Cent. Puget Sound Growth Mgmt. Hr’gs Bd., 96 Wn. App. 522, 526, 979 P.2d 864 (1999)). If the Board dismissed an administrative appeal on summary judgment, “we overlay the APA ‘error of law’ standard of review with the summary judgment standard and review an agency’s interpretation or application of the law de novo while viewing the facts in the light most favorable to the nonmoving party.” Id. at 202.

II. Definition of “Operates”

¶4 Echo first asserts it is a motor transportation business under RCW 82.16.010(6) because it [*3] “operate[s]” motor vehicles by “‘exert[ing] power or influence’ over a motor vehicle by contracting with a third party.” The Department responds Echo does not “operate” a motor vehicle because it merely “arrang[es] for transportation by a third party” rather than physically moving goods.

¶5 HN2 Statutory interpretation is a question of law reviewed de novo. Puget Sound Energy v. Dep’t of Revenue, 158 Wn. App. 616, 620, 248 P.3d 1043 (2010). The court’s “objective is to ascertain and carry out the legislature’s intent.” Id. HN3[] “Generally, Washington’s B&O tax applies to the act or privilege of engaging in business activities,” unless those activities are “explicitly taxed elsewhere in the statutory scheme.” First Student, Inc. v. Dep’t of Revenue, 194 Wn.2d 707, 711, 451 P.3d 1094 (2019) (citing RCW 82.04.220, .290(2)). Businesses that are subject to the PUT are not subject to the B&O tax under RCW 82.04.310(1). Id. RCW 82.16.020(1)(f) lists businesses subject to the PUT, including “[m]otor transportation, railroad, railroad car, and tugboat businesses.” “Motor transportation business” is defined in RCW 82.16.010(6) as

the business (except urban transportation business) of operating any motor propelled vehicle by which persons or property of others are conveyed for hire, and includes, but is not limited to, the operation of any motor propelled vehicle as an auto transportation company (except urban transportation business), [*4] common carrier, or contract carrier as defined by RCW 81.68.010 and 81.80.010.

RCW 81.80.010 in turn defines the terms “common carrier” and “contract carrier.” HN4 A “common carrier” is “any person who undertakes to transport property for the general public by motor vehicle for compensation,” and a “contract carrier” “includes all motor vehicle operators not included under the terms ‘common carrier’ and ‘private carrier,’” in addition to “any person who under special and individual contracts or agreements transports property by motor vehicle for compensation.” RCW 81.80.010(1), (2). “[B]rokers and forwarders” are explicitly included as “common carriers” and “contract carriers.” RCW 81.80.010(3).

¶6 HN5 While interpreting a statute, this court “‘endeavor[s] to effectuate the legislature’s intent by applying the statute’s plain meaning, considering the relevant statutory text, its context, and the statutory scheme.’” Olympic Tug & Barge, Inc. v. Dep’t of Revenue, 188 Wn. App. 949, 952, 355 P.3d 1199 (2015) (quoting Cashmere Valley Bank v. Dep’t of Revenue, 181 Wn.2d 622, 631, 334 P.3d 1100 (2014)). In a plain meaning inquiry, the court “may resort to an applicable dictionary definition to determine the plain and ordinary meaning of a word that is not otherwise defined by the statute.” First Student, Inc., 194 Wn.2d at 711. After investigating the plain meaning, if “the statute remains susceptible to more than one reasonable meaning, the statute is ambiguous and it is appropriate [*5] to resort to aids to construction, including legislative history.” Dep’t of Ecology v. Campbell & Gwinn, LLC, 146 Wn.2d 1, 12, 43 P.3d 4 (2002).

¶7 The word “operate” is not defined by the statute. Echo and the Department submitted differing dictionary definitions: Echo cites the 1976 version of Webster’s Third New International Dictionary, while the Department cites the 2002 version. Echo’s cited definition for “operate” is “to perform a work or labor : exert power or influence : produce an effect.” Webster’s Third New International Dictionary 1580 (1976). The Department’s cited definition is “to cause to function [usually] by direct personal effort : work [as in operate] a car.” Webster Third New International Dictionary 1581 (2002).

¶8 HN6 “We employ traditional rules of grammar in discerning the plain language of the statute.” Diaz v. N. Star Tr., LLC, 16 Wn. App. 2d 341, 353, 481 P.3d 557 (2021). As the Department notes, “operating” is a transitive verb within the statute, with “motor transportation business” as the subject and “motor propelled vehicle” as the direct object. Echo’s cited dictionary definition of “produce as effect” would alter the grammatical structure of the sentence by changing the direct object from “motor propelled vehicle” to “transportation” as the effect is the [*6] transportation of goods, rather than a motor propelled vehicle. Its other two definitions do not suffer from the same grammatical shortcoming but also do not encompass the broad reading of “operate” that Echo asks this court to find. HN7 “[T]o perform a work or labor” or to “exert power or influence” both suggest a direct connection between the performance or exertion and the consequential result on the direct object: a motor propelled vehicle. Echo’s “work or labor” or “power or influence” is the coordination and management of the movement of goods, not the impact on a motor propelled vehicle. Echo’s actions are too attenuated from the physical movement of a motor propelled vehicle to reasonably fall within even its own proposed grammatically appropriate dictionary definition of “operate.” Under the plain language of the statute, Echo is not a motor transportation business and the Board did not err in so holding.

III. Public Service Business

¶9 Echo alternatively argues it falls within the scope of the PUT as a “‘business subject to control by the state,’” or as one “‘declared by the legislature to be of a public service nature.’” (Quoting RCW 82.16.010(7)(a).)

¶10 HN8 Under RCW 82.16.020(1)(f), the PUT applies to “all public service [*7] businesses other than the ones mentioned above.” A “public service business” is defined as “any business subject to control by the state, or having the powers of eminent domain and the duties incident thereto, or any business hereafter declared by the legislature to be of a public service nature.” RCW 82.16.010(7)(a). “It includes, among others, without limiting the scope hereof: Airplane transportation, boom, dock, ferry, pipe line, toll bridge, toll logging road, water transportation and wharf businesses.” Id.

A. Subject to State Control

¶11 Echo largely relies on article XII, section 13 of the Washington Constitution to argue it is subject to control by the State. HN9 This section governs the regulation of common carriers, holding “[a]ll railroad, canal and other transportation companies are declared to be common carriers and subject to legislative control.” Wash. Const. art. XII, § 13. The Board found freight brokers “are not subject to any meaningful control by the State, which is defined … as the control over rates charged for services rendered.” Echo alleges this was error because the legislature could constitutionally exercise control over freight brokers. The Department contends that until the legislature exercises “actual ‘control’” over freight broker rates or services, brokers [*8] are not subject to control by the state. It avers that if this court held Echo is subject to state control based solely on some possible future exercise of the delegation authority of in the state constitution, there would be a “sea-change in the tax treatment of numerous businesses” because all businesses required to comply with state registration requirements would be deemed subject to state control.

¶12 In Continental Grain Co. v. State, our Supreme Court found a warehouse was subject to state control because it (1) “annually applied for and received a public-grain-warehouse license,” (2) filed “evidence of proper insurance, a financial statement and schedule[ ] of charges,” (3) “furnish[ed] a warehouse bond,” and (4) provided “warehouse receipts to its customers upon forms prescribed by the Department of Agriculture.” 66 Wn.2d 194, 197, 401 P.2d 870 (1965). In Shurgard Mini-Storage of Tumwater v. Department of Revenue, Division Two of this court analyzed whether a warehouse was subject to control, relying on “the rule of noscitur a sociis,² which teaches that the meaning of doubtful words may be determined by reference to their relationship with other associated words and phrases.” 40 Wn. App. 721, 727, 700 P.2d 1176 (1985). The court rooted its analysis in [*9] the last sentence of former RCW 82.16.010(11) (1982), which gave examples of businesses regulated by the state, including those which “required licensing by the State and the filing of rates.” Id. at 727-28.

¶13 HN10 Mirroring the language in the two cases set out above, WAC 458-20-179(b)(i) defines “subject to control by the state” as “control by the utilities and transportation commission or any other state agency required by law to exercise control of a business of a public service nature regarding rates charged or services rendered.” (Emphasis added.) As a common or contract carrier,³ Echo is required to obtain a permit from the Washington State Utilities and Transportation Commission. RCW 81.80.070(1). In order to successfully obtain a permit, a carrier must “establish safety fitness and proof of minimum financial responsibility as provided in this chapter.” RCW 81.80.070(3). Echo does not expand on what these requirements entail, and it concedes it is not subject to rate regulation by law or by the Commission. This is not sufficient under the definition set out in WAC 458-20-179.

¶14 The State’s potential power to regulate freight brokers is also limited by federal preemption. Under 49 U.S.C. § 14501(b)(1), “no State or political subdivision … shall enact or enforce any law, rule, regulation, standard, or other provision [*10] having the force and effect of law relating to intrastate rates, intrastate routes, or intrastate services of any freight forwarder or broker.” The next subsection of this statute provides that no state may “enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of … any motor private carrier, broker, or freight forwarder with respect to the transportation of property.” 49 U.S.C. § 14501(c)(1).

¶15 HN12 Based on the definition in WAC 458-20-179 and under federal law, freight brokers are not subject to control by the State.

B. Declared to Be of a Public Service Nature

¶16 Finally, Echo argues the legislature has declared that freight brokers are public service businesses. HN13 Under RCW 82.16.010(7)(a), a public service business includes “any business hereafter declared by the legislature to be of a public service nature.”

¶17 Echo relies on RCW 81.20.010 and 81.80.020 in support of this proposition. RCW 81.80.020 states, “The business of operating as a motor carrier of freight for compensation along the highways of this state is declared to be a business affected with a public interest.” RCW 81.20.010 defines “public service company” as “any person, firm, association, or corporation, whether public or private, operating a utility [*11] or public service enterprise subject in any respect to regulation by the utilities and transportation commission under the provisions of this title or Title 22 RCW.” The Department counters that RCW 81.80.020 applies only to businesses “operating as a motor carrier of freight,” which excludes freight brokers because they do not transport freight. The Department also correctly notes that neither statutory provision explicitly mentions freight brokers, but Echo contends that “motor carrier” includes common and contract carriers, which do explicitly include brokers. RCW 81.80.010(3).

¶18 HN14 RCW 81.80.020 states that “[t]he rapid increase of motor carrier freight traffic and the fact that under the existing law many motor trucks are not effectively regulated have increased the dangers and hazards on public highways and make it imperative that regulation to the fullest extent allowed … should be employed.” The statute focuses on the proper development and preservation of public highways and the stability of public transportation services for the public. This plain language contradicts Echo’s argument that the statute captures freight brokers because brokers do not directly transport goods on public highways, nor do they provide [*12] a transportation service to the public; brokers like Echo provide coordination and facilitation services between customers and carriers who do operate motor transportation vehicles.

¶19 HN15 Additionally, the Department correctly notes that “a business affected with a public interest” and a “business … of a public nature” are different. “We presume the legislature intends a different meaning when it uses different terms.” Foster v. Dep’t of Ecology, 184 Wn.2d 465, 473, 362 P.3d 959 (2015). RCW 82.16.010(7)(a) defines a “public service business” as “any business hereafter declared by the legislature to be of a public service nature,” while RCW 81.80.020 declares that “[t]he business of operating as a motor carrier of freight for compensation along the highways of this state is declared to be a business affected with a public interest.” (Emphasis added.) In Merriam-Webster Online Dictionary, the definition of “nature” includes “disposition, temperament,” “the inherent character or basic constitution … of a person or thing : essence” or “a kind or class usually distinguished by fundamental or essential characteristics.” https://www.merriam-webster.com/dictionary/nature (last visited June 10, 2022). Merriam-Webster defines “affected” as “inclined, disposed.” https://www.merriam-webster.com/dictionary/affected [*13] (last visited June 10, 2022). HN16 We presume that the legislature used these different terms to mean different things; “nature” implies a fundamental characteristic distinguishing one category from another, while “affected” is a more ancillary characteristic or inclination.

¶20 HN17 The full declaration of policy in RCW 81.80.020 highlights this distinction: the statute discusses the importance of preserving public highways and the need for “stabilized service and rate structure” of motor carriers for the public. This supports a reading of “affected with a public interest” as implicating a community-wide concern, rather than distinguishing a business category from others. Under the plain language of the statute, there is not a clear statement from the legislature that freight brokers are “of a public service nature,” and therefore Echo does not qualify for the PUT.

¶21 Affirmed.

Dwyer and Bowman, JJ., concur.

End of Document

¹Ch. 34.05 RCW.

²“‘[A] word is known by the company it keeps.’” McDonnell v. United States, 579 U.S. 550, 569, 136 S. Ct. 2355, 195 L. Ed. 2d 639 (2016) (quoting Jarecki v. G.D. Searle & Co., 367 U.S. 303, 307, 81 S. Ct. 1579, 6 L. Ed. 2d 859, 1961-2 C.B. 254 (1961)).

³HN11 “Common carrier” and “contract carrier” include freight brokers. RCW 81.80.010(3).

Coyote Logistics, LLC v. Advance Trucking Sols., Inc.

United States District Court for the Northern District of Illinois, Eastern Division

June 8, 2022, Decided; June 8, 2022, Filed

No. 21 C 4789

Reporter

2022 U.S. Dist. LEXIS 102270 *

COYOTE LOGISTICS, LLC, Plaintiff, v. ADVANCE TRUCKING SOLUTIONS, INC., a Canadian Corporation, and ONTARIO, INC. d/b/a PEACE TRANSPORTATION, INC., a Canadian Corporation, Defendants.

Core Terms

personal jurisdiction, transport, carrier, cargo, motion to dismiss, pharmaceuticals, forum state, declaration, contacts, Confirmation, allegations, load, destination, shipment

Counsel: [*1] For Coyote Logistics LLC, on its own behalf and as assignee and subrogee of Galderma Laboratories, LP, Plaintiff: Nicky M Priovolos, Orleans Canty Novy, Chicago, IL; Jason Orleans, Orleans Canty Novy, LLC, Chicago, IL.

For Advance Trucking Solutions Inc., a Canadian Corporation, Defendant: Geoffrey Alexander Belzer, Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, Chicago, IL.

For Ontario, Inc, a Canadian Corporation, doing business asPeace Transportation, Inc., Defendant: Matthew Paul Barrette, Ryan Arthur Mahoney, LEAD ATTORNEYS, Blitch Westley Barrette, S.C., Oak Brook, IL.

Judges: SHEILA FINNEGAN, United States Magistrate Judge.

Opinion by: SHEILA FINNEGAN

Opinion

MEMORANDUM OPINION AND ORDER

Plaintiff Coyote Logistics, LLC has filed suit against Defendants Advance Trucking Solutions, Inc. (“ATS”) and 2137458 Ontario Inc., d/b/a Peace Transportation, incorrectly named as Ontario, Inc. d/b/a Peace Transportation, Inc. (hereinafter “Peace”) seeking to recover damages associated with the loss of a shipment of pharmaceutical products. Plaintiff alleges that ATS is liable for the lost cargo either pursuant to the Carmack Amendment, 49 U.S.C. § 14706 (Count I), or based on a theory of breach of an indemnification agreement (Count II). Plaintiff also seeks [*2] to hold Peace liable for the loss pursuant to the Carmack Amendment (Count III). ATS answered Counts I and II but Peace has moved to dismiss Count III, arguing that the Court lacks personal jurisdiction over the company under Federal Rule of Civil Procedure 12(b)(2) and that Plaintiff cannot state a Carmack Amendment claim against it under Rule 12(b)(6). The parties have consented to the jurisdiction of the United States Magistrate Judge pursuant to 28 U.S.C. § 636(c). For the reasons stated here, the motion to dismiss for lack of personal jurisdiction is granted, and the motion to dismiss for failure to state a claim is denied as moot.

BACKGROUND¹

This lawsuit arises from a contract to ship pharmaceuticals from Canada to the United States. Plaintiff, a freight transportation broker with its principal place of business in Chicago, Illinois, arranged for ATS, a Canadian corporation with its principal place of business in Mississauga, Ontario, to transport a load of pharmaceuticals from Baie-D’Urfe, Quebec to Galderma Laboratories, LP (“Galderma”) in Fort Worth, Texas. (Doc. 1 ¶¶ 2, 3, 6). On or about February 28, 2019, Plaintiff tendered the load to ATS in good order and condition, along with a Bill of Lading showing the value of the cargo as $1,693,649.04 and confirming the shipment was to go from Quebec [*3] to Texas. (Id. ¶¶ 6, 7, 11; Doc. 1-3). Without authorization or consent from Plaintiff, ATS gave the load to Peace and it was subsequently stolen in transit. (Doc. 1 ¶¶ 8, 9). Plaintiff paid Galderma’s insurance carrier “Zurich” $100,000 in exchange for “the assignment of all of its rights, title, and interest in the shipment and claim for prosecution and collection of the cargo loss.” (Id. ¶ 12). On September 9, 2021, Plaintiff filed suit to recover the $100,000 loss from ATS and/or Peace.

DISCUSSION

I. Motion to Dismiss Under 12(b)(2)

Peace first argues that all of the allegations against it must be dismissed pursuant to Rule 12(b)(2) for lack of personal jurisdiction.

A. Standard of Review

A complaint need not set forth facts alleging personal jurisdiction, but “[o]nce [the] defendant moves to dismiss under Federal Rule of Civil Procedure 12(b)(2), the plaintiff has the burden of establishing personal jurisdiction.” Rogers v. City of Hobart, Ind., 996 F.3d 812, 818 (7th Cir. 2021). At this stage of the proceedings, all of Plaintiff’s factual allegations are deemed true. Tamburo v. Dworkin, 601 F.3d 693, 700 (7th Cir. 2010). However, “if the defendant provides an affidavit in support of lack of jurisdiction, ‘the plaintiff must go beyond the pleadings and submit affirmative evidence supporting the exercise of jurisdiction.'” Colucci v. Whole Foods Market Servs., Inc., No. 19 C 8379, 2021 U.S. Dist. LEXIS 64063, 2021 WL 1222804, at *2 (N.D. Ill. Apr. 1, 2021) (quoting Purdue Research Found. v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 783 (7th Cir. 2003)).

In evaluating the parties’ [*4] arguments, “this court will accept as true any facts in the defendants’ affidavits that do not conflict with anything in the record, either by way of [the plaintiff’s] complaint or other submissions.” Curry v. Revolution Labs., LLC, 949 F.3d 385, 392-93 (7th Cir. 2020). Factual conflicts between the record and the defendants’ affidavits will be resolved in the plaintiff’s favor. Id. Where, as here, no material facts are in dispute and an evidentiary hearing is unnecessary, the plaintiff “bears only the burden of making a prima facie case for personal jurisdiction.” Id. (quoting uBID, Inc. v. GoDaddy Group, Inc., 623 F.3d 421, 423 (7th Cir. 2010)). See also Purdue Research Found., 338 F.3d at 782.

B. Analysis

“In a federal question case such as this one, a federal court has personal jurisdiction over the defendant if either federal law or the law of the state in which the court sits authorizes service of process to that defendant.” Expeditee LLC v. Entities Listed on Exhibit 1, No. 21 C 6440, 2022 U.S. Dist. LEXIS 88506, 2022 WL 1556381, at *3 (N.D. Ill. May 17, 2022) (quoting Mobile Anesthesiologists Chi., LLC v. Anesthesia Assocs. of Houston Metroplex, P.A., 623 F.3d 440, 443 (7th Cir. 2010)). Plaintiff argues that this Court has personal jurisdiction over Peace pursuant to § 14706(d)(1) of the Carmack Amendment. (Doc. 20, at 4). Under that section, a “civil action . . . may be brought against a delivering carrier . . . in a judicial district . . . through which the defendant carrier operates.” 49 U.S.C. § 14706(d)(1). The cited provision, however, concerns venue and does not suffice to give this Court personal jurisdiction over Peace. Allied Van Lines, Inc. v. Beaman, No. 07 C 2407, 2008 U.S. Dist. LEXIS 60250, 2008 WL 4866052, at *1-2 (N.D. Ill. July 21, 2008) (the Carmack Amendment‘s “specific venue [*5] provisions are not a substitute for personal jurisdiction.”); Thompson Tractor Co. v. Daily Express Inc., No. 2:20-CV-02210, 2020 U.S. Dist. LEXIS 191664, 2020 WL 6121158, at *2 (C.D. Ill. Oct. 16, 2020) (“[T]he Carmack Amendment does not itself authorize service of process” and does not confer personal jurisdiction). See also 673753 Ontario Ltd. v. HDZ Logistics, LLC, No. 6:19-CV-506, 2020 U.S. Dist. LEXIS 255973, 2020 WL 10054403, at *3 (M.D. Fla. Apr. 15, 2020) (“[C]ourts that have considered the issue have concluded that § 14706(d) does not permit them to exercise personal jurisdiction over the defendant carrier.”) (collecting cases).

In the absence of a federal law providing for personal jurisdiction, the Court must look to Illinois’s long-arm statute. Expeditee, 2022 U.S. Dist. LEXIS 88506, 2022 WL 1556381, at *3. The Illinois long-arm statute “permits the exercise of personal jurisdiction if it would be allowed under either the United States Constitution or the Illinois Constitution.” Landa v. DPK Communities, LLC, No. 21 C 1529, 2022 U.S. Dist. LEXIS 4305, 2022 WL 93502, at *2 (N.D. Ill. Jan. 10, 2022) (citing 735 ILCS 5/2-209(c)). See also Curry, 949 F.3d at 393. Since “there is no operative difference between these two constitutional limits,” the Court considers whether exercise of personal jurisdiction over Peace would violate federal due process. Id. (quoting Mobile Anesthesiologists, 623 F.3d at 443). See also Curry, 949 F.3d at 393 (“[T]he Illinois long-arm statute permits the exercise of jurisdiction to the full extent permitted by the Fourteenth Amendment’s Due Process Clause.”).

The Due Process clause “authorizes personal jurisdiction over out-of-state defendants when the defendant has ‘certain minimum contacts with [the state] such that the maintenance of the suit does not offend traditional notions of fair [*6] play and substantial justice.'” Kipp v. Ski Enter. Corp. of Wis., Inc., 783 F.3d 695, 697 (7th Cir. 2015) (quoting Int’l Shoe Co. v. State of Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 90 L. Ed. 95 (1945)). “[I]t is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.” Beaulieu v. Ashford Univ., 529 F. Supp. 3d 834, 846 (N.D. Ill. 2021). “Personal jurisdiction does not exist where the defendant’s contacts with the forum state are merely “random, fortuitous, or attenuated.” Sun Chenyan v. Partnerships and Unincorporated Ass’ns Identified on Schedule “A”, No. 20 C 221, 2021 U.S. Dist. LEXIS 86934, 2021 WL 1812888, at *2 (N.D. Ill. May 6, 2021) (quoting Walden v. Fiore, 571 U.S. 277, 286, 134 S. Ct. 1115, 188 L. Ed. 2d 12 (2014)).

Personal jurisdiction may be general or specific. General personal jurisdiction exists only “when the [party’s] affiliations with the State in which suit is brought are so constant and pervasive as to render it essentially at home in the forum State.” Beaulieu, 529 F. Supp. 3d at 846 (quoting Daimler AG v. Bauman, 571 U.S. 117, 121, 134 S. Ct. 746, 187 L. Ed. 2d 624 (2014)). Specific personal jurisdiction exists when “the defendant’s contacts with the forum state [are] ‘directly related to the conduct pertaining to the claims asserted.'” Sun Chenyan, 2021 U.S. Dist. LEXIS 86934, 2021 WL 1812888, at *3 (quoting Brook v. McCormley, 873 F.3d 549, 552 (7th Cir. 2017)).

Plaintiff does not distinguish between general and specific personal jurisdiction in responding to Peace’s motion. The Court does its best to evaluate Plaintiff’s arguments within the context of each category.

1. General Personal Jurisdiction

“A court may assert general jurisdiction over foreign (sister-state or foreign-country) corporations [*7] to hear any and all claims against them when their affiliations with the State are so ‘continuous and systematic’ as to render them essentially at home in the forum State.” BNSF Ry. Co. v. Tyrrell, 137 S. Ct. 1549, 1558, 198 L. Ed. 2d 36 (2017) (quoting Daimler, 571 U.S. at 127). The “‘paradigm’ forums in which a corporate defendant is ‘at home’ . . . are the corporation’s place of incorporation and its principal place of business.” Al Haj v. Pfizer Inc., 338 F. Supp. 3d 741, 749 (N.D. Ill. 2018). General personal jurisdiction may also exist in an “exceptional case” where “a corporate defendant’s operations in another forum [are] ‘so substantial and of such a nature as to render the corporation at home in that State.'” BNSF Ry., 137 S. Ct. at 1558. This requires “more than the ‘substantial, continuous, and systematic course of business’ that was once thought to suffice.” Kipp, 783 F.3d at 698 (quoting Daimler, 134 S. Ct. at 760-61). Rather, a corporation must have continuous operations in the state that “justify suit . . . on causes of action arising from dealings entirely distinct from those activities.” Id. (emphasis in original).

Peace has submitted a signed declaration from its Safety Coordinator Deep Shikha stating that Peace is an Ontario corporation with its principal place of business in Brampton, Ontario. (Doc. 12-1, Shikha Decl., ¶¶ 6, 7). Plaintiff does not dispute the accuracy of this declaration so the [*8] question is whether Peace has continuous operations in Illinois that are sufficient to make this the exceptional case where Peace is “at home” in the State. McClellan v. CSX Transp., Inc., No. 18 C 4183, 2018 U.S. Dist. LEXIS 201639, 2018 WL 6192192, at *2 (N.D. Ill. Nov. 28, 2018). Peace does not have such operations. To begin, the Complaint itself provides only the barest allegations that Peace provides “transportation services in interstate commerce throughout the United States,” and that “[u]pon information and belief” ATS hired Peace to transport the pharmaceutical cargo to Fort Worth, Texas. (Doc. 1 ¶¶ 3, 8, 29). Nothing in the Complaint connects Peace to Illinois.

Moreover, the declaration from Shikha states that Peace does not have an office in Illinois, does not own any property in Illinois, and does not have any employees in Illinois. (Doc. 12-1, Shikha Decl., ¶ 20). Shikha further attests that in 2018 and 2019, only 1.26% of Peace’s transports throughout Canada and the United States originated in or were destined for locations in Illinois. (Id. ¶ 19). Plaintiff does not provide a contrary declaration or cite any authority suggesting that this minimal amount of contact with Illinois suffices to demonstrate that Peace is “at home” in the State. See, e.g., Moore v. Alaska Airlines, Inc., No. 19 C 2951, 2019 U.S. Dist. LEXIS 191622, 2019 WL 5895434, at *3 (N.D. Ill. Nov. 12, 2019) (defendant airline was not “at home” in [*9] Illinois where more than 97% of its revenue was generated outside of Illinois, more than 99% of its employees worked outside of Illinois, and more than 97% of its advertising occurred outside Illinois); BNSF, 137 S. Ct. at 1559 (the fact that the defendant had “over 2,000 miles of railroad track and more than 2,000 employees in Montana . . . does not suffice to permit the assertion of general jurisdiction.”). On the record presented, Plaintiff has failed to make a prima facie showing of general personal jurisdiction over Peace.

2. Specific Personal Jurisdiction

The Court next considers whether Peace is subject to specific personal jurisdiction in Illinois. There are three “essential requirements” for specific personal jurisdiction over an out-of-state defendant: “(1) the defendant must have purposefully availed himself of the privilege of conducting business in the forum state or purposefully directed his activities at the state; (2) the alleged injury must have arisen from the defendant’s forum-related activities; and (3) the exercise of jurisdiction must comport with traditional notions of fair play and substantial justice.” Switchboard Apparatus, Inc. v. Wolfram, No. 21 C 1665, 2022 U.S. Dist. LEXIS 90353, 2022 WL 1591732, at *4 (N.D. Ill. May 19, 2022) (quoting Felland v. Clifton, 682 F.3d 665, 673 (7th Cir. 2012)). “The inquiry must focus on ‘the relationship among the defendant, the [*10] forum, and the litigation.'” Brook, 873 F.3d at 552 (quoting Walden, 134 S. Ct. at 1122).

Plaintiff argues that specific personal jurisdiction is proper solely because Peace has transported shipments to and from Illinois in the past. Citing Shikha’s declaration, Plaintiff stresses that in 2018 and 2019 Peace transported approximately 17,479 loads “throughout Canada and the United States,” of which approximately 220 (or 1.26%) either originated in or were destined for Illinois. (Doc. 20, at 4) (citing Doc. 12-1, Shikha Decl., ¶ 19). In Plaintiff’s view, since Peace availed itself of the benefit of doing business in Illinois it reasonably should have anticipated being haled into court there. (Doc. 20, at 5). This Court disagrees.

It is well-settled that for specific jurisdiction, a defendant’s contacts in the forum state must “demonstrate a real relationship with the state with respect to the transaction at issue.” Northern Grain Marketing, LLC v. Greving, 743 F.3d 487, 493 (7th Cir. 2014). In other words, Peace’s “Illinois contacts must have caused or relate to [Plaintiff’s] injury.” Kosar v. Columbia Sussex Mgmt., LLC, No. 20 C 1736, 2021 U.S. Dist. LEXIS 221913, 2021 WL 5356753, at *6 (N.D. Ill. Nov. 16, 2021) (citing Ford Motor Co. v. Montana Eighth Jud. Dist. Ct., 141 S. Ct. 1017, 1026, 209 L. Ed. 2d 225 (2021)). As noted, the Complaint alleges that: Plaintiff tendered pharmaceuticals to ATS in Quebec for transportation to Texas; upon information and belief ATS then tendered the load to Peace for transportation from Quebec [*11] to Texas; the cargo was stolen in transit; and Plaintiff suffered monetary damages stemming from the lost cargo. (Doc. 1 ¶¶ 6, 8, 9, 12, 28-31; Doc. 1-3). There are no allegations that the load was bound for Illinois or that it was ever in the State. Cf. Schwarz v. Nat’l Van Lines, Inc., 317 F. Supp. 2d 829, 835 (N.D. Ill. 2004) (Arizona court had specific jurisdiction over defendant carrier that “agreed to transport Schwarz’s belongings out of the forum” and “entered the state to pick up Schwarz’s belongings.”). Moreover, Peace has presented unrefuted evidence that ATS hired Peace to transport the pharmaceuticals from Quebec to ATS’s yard in Mississauga, Ontario, and not to any destination in the United States. (Doc. 12-1, Shikha Decl., ¶¶ 8, 9; Doc. 12-1, Carrier Confirmation dated 2/28/2019, at 5).

It appears that Peace arranged for another Canadian carrier, DJSS Transport (“DJSS”), to perform the actual transportation of the pharmaceuticals from Quebec to Ontario. (Id., Shikha Decl., ¶¶ 11, 13). The Carrier Confirmation memorializing that arrangement makes no mention of Plaintiff, Illinois, or any other destination within the United States, and Shikha attests in his declaration that “[t]here was never any direction to, or agreement on the part of, Peace [*12] or DJSS to transport the cargo outside of Canada.” (Id. ¶¶ 13, 14; Doc. 12-1, Carrier Confirmation dated 2/28/2019, at 6). According to Shikha, someone claiming to be from DJSS picked up the cargo on February 28, 2019 and “apparently stole it.” (Doc. 12-1, Shikha Decl., ¶ 15).

The only arguable connection that exists between Peace, the lost pharmaceuticals and Illinois is Plaintiff, the Chicago-based company that arranged for ATS to transport the cargo from Canada to Texas. But “[a] plaintiff’s presence in the forum state is insufficient to satisfy the ‘defendant-focused minimum contacts inquiry.'” Kosar, 2021 U.S. Dist. LEXIS 221913, 2021 WL 5356753, at *6 (quoting Walden, 571 U.S. at 284). This is especially true here where Peace had no knowledge of Plaintiff’s involvement in the shipping transaction. Shikha attests in his declaration that Peace has never had a contract with Plaintiff, dealt exclusively with ATS regarding the pharmaceutical cargo at issue here, and was unaware that Plaintiff served as a broker for the shipment until after the cargo disappeared. (Doc. 1-2, Shikha Decl., ¶¶ 16, 17). Shikha’s assertion finds support in the Carrier Confirmation between ATS and Peace, which makes no mention of Plaintiff, Illinois, or any other destination within the [*13] United States. (Doc. 12-1, Carrier Confirmation dated 2/28/2019, at 5). The Court recognizes that Plaintiff and ATS entered into a Broker-Carrier Agreement stating that all legal actions between those two entities must be brought and maintained in Illinois, but Peace is not a signatory to that agreement and is not bound by its forum selection clause. (Doc. 1 ¶ 5; Doc. 1-2).

Given the undisputed evidence that Peace’s suit-related contacts with Illinois are non-existent, combined with the fact that Peace does not have an office, own property, or have any employees in Illinois, the Court finds that exercising jurisdiction over Peace would offend traditional notions of fair play and substantial justice. Peace would face a significant burden in defending this lawsuit in Illinois, and dismissing Peace will not leave Plaintiff without a remedy — ATS remains a named defendant “from which Plaintiff could potentially recover in full.” Alipourian-Frascogna v. Etihad Airways, No. 21 C 0001, 2022 U.S. Dist. LEXIS 50836, 2022 WL 847559, at *7 (N.D. Ill. Mar. 22, 2022). Plaintiff does not present any meaningful argument to the contrary and has not met its burden of establishing a prima facie showing of specific jurisdiction over Peace.

3. Summary

Peace’s motion to dismiss for lack of personal jurisdiction is granted. Peace is not [*14] “at home” in Illinois for purposes of general jurisdiction, and Plaintiff’s alleged injury did not arise out of Peace’s forum-related activities as required for specific jurisdiction.

II. Motion to Dismiss Under 12(b)(6)

Having concluded that this Court lacks personal jurisdiction over Peace, Peace’s motion to dismiss for failure to state a claim is denied as moot.

CONCLUSION

For the reasons set forth above, Defendant Peace Transportation’s Motion to Dismiss [12] is granted in part and denied as moot in part.

ENTER:

/s/ Sheila Finnegan

SHEILA FINNEGAN

United States Magistrate Judge

Dated: June 8, 2022

End of Document

¹The Court “construe[s] the complaint in the ‘light most favorable to the nonmoving party, accept[s] well-pleaded facts as true, and draw[s] all inferences in [the nonmoving party’s] favor.'” Zahn v. North Am. Power & Gas, LLC, 847 F.3d 875, 877 (7th Cir. 2017) (quoting Bell v. City of Chicago, 835 F.3d 736, 738 (7th Cir. 2016)).