Everyone working in the US transportation and logistics industry should be reading and understand the results from this important piece of information pertaining to “zero claims tolerance policies” and the new guidelines!
Here are the comments from the roundtable meeting on June 16th, 2016
DATE: June 16th, 2016
FROM: Marold Studesville, CEO – Transport Financial Services, FMCSA Filer Acct No. 26027
TO: Federal Docket Management System – Docket ID No. FMCSA-2016-0102
RE: Post-Event Comments – Broker & Freight Financial Responsibility Roundtable, 20 May 2016
Transport Financial Services (“TFS” herein) was one of only two federally authorized BMC-85 security instrument providers specifically invited by the FMCSA to participate in subject roundtable discussion, the other being Pacific Financial Association (“PFA” herein). Significantly, those particulars of PFA’s operations material to the stated purpose of subject roundtable discussion had been directed to the FMCSA’s attention repeatedly over the course of the past decade by competing BMC-84 security instrument agents and brokers (as distinct from the actual insurance “carriers” involved), which self-serving representations had included the verifiable fact that said “financial institution” within the meaning of 49 CFR 387.307 (c) currently maintains some 3,500 BMC-85 broker and freight forwarder security instrument filings, covering nearly 30% of that entire market. On the other hand, with less than 10% of PFA’s volume of such filings, the particulars of TFS’s operations material to the stated purpose of subject roundtable discussion had been directed to the FMCSA’s attention only recently by TFS itself, when on 4 November 2015 my BMC-85 provider became the first qualified business entity ever to actually file a formal “Request for Immediate Suspension” of an FMCSA licensed broker’s actual operating authority “Registration” pursuant to the express provisions of 49 USC 13906 (b) (5). Unfortunately, as of this date no regular informal procedure for the implementation of such a sanction for FUTURE “Requests” of that nature prior to a full course of further rulemaking, which procedural expedient TFS has suggested still might be effected along the lines of just such a pre-rulemaking sanction already manifest in the FMCSA’s 2014 “Order to Suspend Operating Authority Registration” of Espinal Trucking, MC-795000 (which had been issued without reference to any “CFR” based legal authority whatsoever), has eventuated.
By way of contrast, consider the imprecise multi-stage process entailed in a BMC-85 provider’s mere submission of a “Notice of Cancellation” for a particular broker’s security instrument filing pursuant to certain provisions of 49 USC 13906 (b) (4) still subject to those elements of the most recent iteration of the Form BMC-85 marked “Revised 03/11/2014”, as now preserved though just such a post MAP-21 effective “rulemaking” date. To quote from the 4th paragraph of TFS’s “Request for Immediate Suspension” discussed at the roundtable, in default of some informal accelerated procedure along the lines of that employed in 2014 in “The Matter of … Espinal Trucking”, MC-795000, for FUTURE “Requests” of that nature, financially stricken “… brokers not only (A) would be unlikely to comply within the thirty (30) day time-specific requirements of BMC-85 numbered paragraphs 7 and 8 … but also would be likely (B) to take advantage of the additional thirty (30) day notification period specified in numbered paragraph 9 thereof prior to cancellation of such a broker’s security instrument filing [whether or not leading to immediate suspension of such a broker’s operating authority registration accordingly in order to continue booking, dispatching, and billing shippers for movements they probably never even contemplated paying the motor carriers retained during the ensuing sixty (60) day “window” afforded through that full process.”
AREAS OF AGREEMENT
Uniquely, quite unlike the starkly negative reactions of those roundtable participants speaking on behalf of BMC-84 insurance brokerage interests, as well as those speaking on behalf of certain motor carrier and/or transportation intermediary trade associations also sharply critical of both (A) the nature of BMC-85 security instruments as offered, and (B) the administrative procedures employed by that industry generally, the entire roundtable panel appeared to approve of both the theory and practical applications of the “Immediate Suspension” of the actual operating authority registration (as distinct from merely the security instrument filings) of financially failing brokers, which my BMC-85 provider had introduced.
Furthermore, the conspicuous inability of those same roundtable participants speaking in favor of BMC-84 insurance brokerage interests to actually cite, or otherwise demonstrate convincingly any statistically significant pattern of failure regarding any aspect whatsoever of the BMC-85 industry’s ability to pay legitimate claims asserted against that particular class of security instruments over the course of the past five decades (even in comparison with the BMC-84 industry) can only be construed as establishing at least constructive agreement as to the demonstrable efficacy of such “Trust Fund” based arrangements for that entire period of time.
AREAS OF DISAGREEMENT IN GENERAL
To be sure, virtually all such roundtable participants conspicuously unable to assert any but purely anecdotal negative criticisms of the BMC-85 industry up until now generally consistently predicted (albeit without reference to any supporting actuarial data whatsoever) some anticipated EVENTUAL “readily available funds” total meltdown attributable to alleged fundamental shortcomings in that particular variety of transportation intermediary security instruments. Significantly, such roundtable participants persisted in those predictions despite the fact that the sole basis of the conviction and restitution order finalized against the owner of Oasis Capital, the only BMC-85 provider ever to be terminated pursuant to ICC, FHWA, or FMCSA regulatory enforcement action for collateral related reasons over the course of the past five decades turned out be predicated ENTIRELY on imputed fiduciary abuse involving a failure to effect timely REFUNDS (and not to any deficiencies pertaining to the initial collection and verification) of “the funds comprising the corpus of …
[each such particular]
trust fund” involved in that quite unique enforcement action (to cite BMC-85 numbered paragraph 5).
Essentially, in the interests of avoiding redundancy with respect to the responses of the BMC-85 industry participants generally to the starkly negative reactions of those roundtable participants speaking on behalf of insurance brokerage interests, as well as to those speaking on behalf of certain motor carrier and/or transportation intermediary trade associations also sharply critical of both (A) the nature of such security instruments as offered, and (B) the administrative procedures employed by the BMC-85 industry generally, particularly when considered within the context of the “Topics for Roundtable Discussion” enumerated under categories (1) through (6) at the conclusion of the FMCSA’s “Notice” for subject “Financial Responsibility Roundtable” posted on 27 April 2016, TFS hereby reiterates and incorporates the entirety of PFA’s post-event “Comments regarding FMCSA roundtable on May 20, 2016”, submitted previously over the signature of that BMC-85 provider’s CEO, John Gilding, as an organic element of these TFS “Post-Event Comments” as well through this reference.
AREAS OF DISAGREEMENT IN PARTICULAR
More particularly, TFS disagrees with those frequently repeated assertions recorded during the course of subject roundtable discussion to the effect that BMC-85 providers simply are not entitled to assume the financial security responsibilities established through such “Trust Fund Agreements” as actual “Trusts”, or to represent themselves as “Trustees” thereof, absent concurrent state licensing and regulation for that express purpose, To be sure, those frequently repeated assertions necessarily would entail the assumption that such arrangements could only be initiated lawfully through each “Trustor” having ALREADY secured $75,000 in cash or an immediately negotiable check prior even to approaching a BMC-85 provider, which then must be deposited with some OTHER state authorized and regulated “financial institution” in an insured account (or kept in the form of cash in a drawer) in order to qualify as “readily available funds” for payment “directly to a shipper or motor carrier any sum or sums which Trustee, in good faith, determines that the Trustor has failed to pay and would be held legally liable” (to cite numbered paragraph 6 thereof).
Well, In the first place, quite apart from the obvious consideration that a number of the participants responsible for such an assertion were themselves attorneys who (one must assume) had not bothered to become licensed as “trust companies” prior to opening their “Client Trust Accounts”, since such arrangements naturally would be subject to regulatory preemption for such purposes by state bar licensing agencies, such “officers of the court” consistently ignored the fact that essentially comparable BMC-85 “Trust Fund” arrangements naturally would be subject to regulatory preemption by the FMCSA has been clearly established by both (A) the unequivocal provisions conveyed through BMC-85 numbered paragraphs 1 through 11, and (B) the express itemization of the full range of state regulated “Financial Institutions” within the meaning of 49 CFR 387.307 (c) still qualified (“as of October 1st, 2014”) to apply to the FMCSA for authority to file, issue, and administer BMC-85 security instruments, as expressed in paragraphs (1) through (8) thereof. Significantly, the category “trust company” is only ONE of the more than a dozen varieties of state authorized and regulated “financial institutions” (including such business entities as collection agencies, check cashing parlors, and pawn brokers pursuant to the somewhat nonspecific language of paragraph (8) of that subsection) designated for such purposes.
As a matter of fact, paragraphs (1) through (5) of 49 CFR 387.307 (c) designate no less that that precise number (five) of those categories of “financial institutions” commonly referred to as “banks” (with the only reference to the actual term “trust company” having been included, as if in an afterthought, in paragraph (2) thereof). By way of an historical overview, the very first iteration of the Form BMC-85 had been developed by the ICC in response to the situation prior to the Motor Carrier Act of 1980, back when there were fewer than 50 licensed “property” brokers (and virtually no remaining “passenger” brokers) in the entire country. For that reason, consequent (A) to the consideration that at the time the only capacity in which such transportation intermediaries has been authorized to serve in economically regulated interstate transportation was as non-exclusive “agents” for more than one authorized motor carrier, and (B) to the consideration that in those days motor carriers tended to be utterly disinterested in non-exclusive “agents”, as distinct from exclusive, or “bona fide agents” within the current meaning of 49 CFR 371.2 (b), for obvious competitive reasons, it follows (C) that almost the only exception to such a tendency prior to 1980 would have been in the case of established business entities, such as large warehouse operators, able to command a significant volume of over-the-road traffic in their own names, and which characteristically could be expected already to have secured significant “bank” (or other commercial funding sources) lines of credit.
Given these circumstances. the residual effect of what must have been remarkably successful commercial advocacy at the time for an alternative to BMC-84 filings (which even now provide egregiously minimal protection to a broker or freight forwarder’s own assets consequent to the prevalence of corresponding Draconian un-filed “Indemnity” or “Indemnification” agreements) is still reflected in the current (“as of October 1st, 2014”) language of paragraphs (1) through (5) of 49 CFR 387.307 (c) referenced in the previous paragraph hereof. Accordingly, over the course of the past half century if a prospective broker wishing to draw on an established line of credit with their “bank” (or any other state licensed lender) also qualified to apply for a BMC-85 Filer Number as a “financial institution” within the current meaning of 49 CFR 387.307 (c), it was (and still would be now) pointless for such a federally registered “financial institution”, having (A) already loaned or advanced all or a portion of the statutory collateralization for a BMC-85 “Trust Fund” to an established client while acting as a “bank” (or any other state licensed lender), then (B) to actually cut a check for that requested amount, then (C) to take a picture of that check to show to any federal or state regulatory (or insurance brokerage industry) doubters, and only then (D) to “invest the funds” immediately tendered back to that same state regulated credit source (now acting as a federally authorized and regulated “Trustee”) in accordance with the “sole discretion” provisions of BMC-85 numbered paragraph 5. More recently of course, letters of credit and pledged receivables (given that the qualification “without resort … to collection” of pledged receivables established by 49 USC 13906 (b) (1) (C) is rendered redundant by the fact that the entire purpose of UCC Article 9 is the “liquidation” of pledged receivables PRIOR to “collection”) have played a constructive role as well since 1980.
In other words, overly literal interpretations of the language of BMC-85 numbered paragraph 4 to the contrary, the primary consideration entailed in proper implementation of such security instruments would still devolve upon such a “Trustee’s” ability to ensure sufficient liquidity necessary (A) to “pay, up to a limit of” of the statutory security requirement all legitimate claims in a timely fashion, as well as (B) to refund all unexpended collateral to which any “Trustors” involved would be entitled following effective cancellation of BMC-85 filings with no claims pending. As noted above in the “Areas of Agreement” section of these “Post-Event Comments”, when considered within the context of PFA’s own post-event “Comments” incorporated herein by reference in the “Areas of Disagreement in General” section hereof, the consideration that no actually verifiable pattern of BMC-85 providers failing to maintain sufficient liquidity necessary to pay virtually all legitimate claims on a timely basis exists has been demonstrated only recently by the fact that (following several years of state and federal regulatory and criminal investigations) the owner of Oasis Capital, once again the ONLY such BMC-85 “Trustee” to have been terminated for collateral related reasons over the course of the past five decades, was charged and convicted ONLY of violating that security instrument provider’s federally mandated fiduciary obligation to the “Trustors” involved. Hence the demonstrable continuing value of the Form BMC-85 “Trust Fund Agreement” to the shippers and motor carriers relying on such arrangements.
THE NATURE OF THE FORM BMC-85 “TRUST FUND AGREEMENT”
Quite apart from the obvious consideration that frequently recorded statements by those roundtable participants objecting to virtually every aspect of such a security instrument’s characteristics and usages when issued by BMC-85 providers OTHER than state licensed “trust companies” within the current meaning of 49 CFR 387.307 (c) (2), to the effect that such purportedly “nonconforming” BMC-85 providers should have no legal right whatsoever to use the terms “Trust Fund”, “Trust”, and/or “Trustee” in conjunction with marketing, executing, filing, and administering such security instruments, sounds more than just a little bit silly when referring to federally mandated, drafted, and captioned “Form BMC-85 TRUST FUND Agreements” (emphasis supplied) routinely accepted for filing by the FMCSA on that basis. Apparently, such unreasonably critical roundtable participants have failed to realize that they have been asking the FMCSA to turn the whole concept of “federal preemption” of state level regulatory arrangements affecting interstate commerce on its head.
To reiterate, as an element of long established federal regulations still unchanged since 49 CFR Parts 300 to 399 were “Revised as of October 1, 2014”, the category “trust company” is only ONE of more than a dozen categories of state authorized and regulated “financial institutions” within the current meaning of 49 CFR 387.307 (c) eligible to apply for and (absent any derogatory information to the contrary) receive FMCSA “Filer” Account Numbers allowing them to act as FEDERALLY authorized and registered “Trustees” named on FEDERAL Form BMC-85 Trust Fund Agreements. Hence the preemptive legal significance of the numbered paragraphs of that security instrument, which establish in exhaustive detail all the requisite elements of FEDERAL “Trust Fund” management authorization and procedures relevant only to FEDERAL statutory and regulatory imperatives when considered within the context of those aspects of interstate commerce material to the roundtable discussion at issue, to an extent which renders any corresponding state level “Trust Company” standards, practices, and usages in such regards not only redundant, but subject to the obvious consideration that any possible conflict between the two levels of regulatory authority must be resolved in favor of the former, pursuant to the Commerce Clause of the U.S. Constitution.
Significantly, BMC-85 numbered paragraphs 1 through 11, excluding numbered paragraph 12 which pertains only to state level jurisdiction and venue (albeit only “to the extent not inconsistent with the rules and regulations of the FMCSA”), have no counterpart in the Form BMC-84 security instrument, since at all times material to such regulatory arrangements the “readily available funds” mandated for the payment of legitimate claims administered by a BMC-85 provider are those merely held in trust for any broker or freight forwarder involved (until expended or refunded eventually with no claims pending), while at all times material to such regulatory arrangements the “readily available funds” mandated for payment of legitimate claims administered by a BMC-84 provider are those incorporated in such a licensed insurance carrier’s state mandated reserves (albeit subject to reimbursement by any broker or freight forwarder involved).
That’s why, while sharing with the Form BMC-84 essentially the same set of recitals invoking 49 USC 13906 (b), and by inference subsection (c) as well, thereby expressed in the initial unnumbered paragraphs of both security instruments, the fundamental distinction between the two categories of FMCSA mandated forms is apparent through even the most cursory analysis of BMC-85 numbered paragraphs 1 through 11, introduced though the purely contractual preamble that “the trustor and trustee, to accomplish the above [purposes set forth in the recitals] agree as follows:” More specifically:
BMC-85 numbered paragraphs 1 and 2 are essentially procedural in nature, and correspond closely to the text of and/or regulatory imperatives cited in the preceding recitals;
BMC-85 numbered paragraph 3 establishes both (A) the requirement that “said Trustee shall exclusively manage the security and trust fund” subject to such arrangements, and (B) expressly precludes commonality of “any interest, financial, proprietary, or otherwise, whatsoever” between Trustee and Trustor;
BMC-85 numbered paragraph 4 establishes the requirement that, as a matter of just such a judicially enforceable civil covenant between Trustor and Trustee established thereby, that “Trustee acknowledges the receipt of the sum of Seventy Five Thousand Dollars ($75,000) … to be held in trust under the terms and conditions set forth” therein, albeit (A) subject most recently to the express regulatory provisions established by 49 USC 13906 (b) (1) (C) to the effect that, if not accepted initially in cash, such a “sum” nevertheless must be tendered and maintained in the form of “… assets readily available to pay claims without resort to personal guarantees [as distinct from legitimate institutional guarantees such as bank letters of credit] or collection [as distinct from immediate liquidation upon assignment pursuant to UCC Article 9] of pledged accounts receivable”, as well as (B) subject for the past five decades to the express regulatory provisions of BMC-85 numbered paragraph 5;
BMC-85 numbered paragraph 5 establishes the requirement that, as a matter of just such a judicially enforceable civil covenant between Trustor and Trustee established thereby, “Trustee may, WITHIN ITS SOLE DISCRETION [emphasis supplied], invest the funds comprising the corpus of the trust fund consistent with its fiduciary obligation under applicable law”, such that the application of just such a “fiduciary obligation” requirement under FEDERAL (even if not concurrent state) regulation underlies the criminal restitution award in favor of the Trustors (and NOT any of the claimants) involved assessed post MAP-21 against the owner of BMC-85 provider Oasis Capital, as referenced in the “Areas of Disagreement in Particular” section hereof;
BMC-85 numbered paragraph 6 establishes the requirement that, even though each BMC-85 “Trustee shall pay, up to a limit of Seventy Five Thousand Dollars ($75,000) DIRECTLY to a shipper or motor carrier [and NOT to some court through an interpleader, a procedure all too characteristic of many BMC-84 initiated preemptive legal actions] any sum or sums which Trustee IN GOOD FAITH determines that the Trustor … would be HELD LEGALLY LIABLE [emphasis supplied], bearing in mind the obvious consideration that as employed in that context “directly”, “held legally liable”, and “in good faith” are well established terms of art intentionally restrictive of each BMC-85 Trustee’s options in such regards, absolutely NO such contractually determined limitations on a BMC-84 surety’s options in such regards are apparent in either the text of that security instrument itself, or any corresponding un-filed “Indemnity” or “Indemnification” agreements (constituting a BMC-84 provider’s almost always far less restrictive equivalent of BMC-85 numbered paragraphs 1 through 11) ever directed to the attention of TFS’s staff, consultants, or attorneys;
BMC-85 numbered paragraphs 7 through 9 which, as referenced in the second paragraph of the “Introduction” section hereof, have been characterized as establishing “the imprecise multi-stage process entailed in a BMC-85 provider’s mere submission of a “Notice of Cancellation” for a particular broker’s security instrument pursuant to certain provisions of 49 USC 13906 (b) (4)” such that, to quote from the 4th paragraph of TFS’s “Request for Immediate Suspension” discussed at the roundtable, in default of some informal accelerated procedure along the lines of that employed in 2014 “In the Matter of … Espinal Trucking”, MC-795000, for FUTURE “Requests” of that nature as well, financially stricken “… brokers not only (A) would be unlikely to comply within the thirty (30) day time-specific requirements of BMC-85 numbered paragraphs 7 and 8 … but also would be likely (B) to take advantage of the additional thirty (30) day notification period specified by numbered paragraph 9 thereof prior to effective suspension of subject broker’s registration thereby afforded in order to continue booking, dispatching, and billing shippers for movements they never even contemplated paying the motor carriers retained in that process for during the ensuing sixty (60) day “window” afforded through that full process”;
BMC-85 numbered paragraph 10 establishes the requirement that, with respect to “… sums due the Trustee as a result, directly or indirectly, of the administration of the trust fund under this agreement … in no event shall such sums be paid from the corpus of the trust fund” established thereby, a provision with absolutely no counterpart in the language of the Form BMC-84, as epitomized in the “Complaint in Interpleader” action filed by BMC-84 provider Great American Insurance Company AGAINST three (3) full caption heading pages of motor carrier (including collection agency and factoring company assignees) claimants, docketed as Case No. 2:14-CV-06952 in U.S. District Court for the Central District of California, during the course of which proceeding the entire “penalty of the bond” at issue certainly would have been consumed almost entirely by Great American’s attorney’s legal fees and court costs (had not TFS’s current transportation consultant directed the entire affair to the attention of veteran transportation attorney Hank Seaton whose law firm, Seaton & Husk, having previously been active in opposing such efforts prior to the $75,000 security requirement, personally contacted Great American’s counsel and reportedly secured an agreement to withdraw that complaint, in order to refile a modified version in another venue); And,
BMC-85 numbered paragraph 11 establishes the requirement that “Trustee shall maintain a record of all financial transactions concerning the Fund, which will be available to Trustor upon request and reasonable notice and to the FMCSA upon request”, thereby constituting a “requirement” neither expressed nor implied in the language of the Form BMC-84 itself (whether or not provided for in the language of any corresponding un-filed “Indemnity” or “Indemnification” agreement between surety and principal for equivalent purposes).
Accordingly, by way of an instructive analogy based upon the distinctions between the two categories of transportation intermediary security instruments established and analyzed throughout the five previous sections of these “Post-Event Comments” on subject roundtable discussion laid out in what was intended to be a useful expository sequence above, it’s obvious that the distinction between BMC-84 Surety Bonds and BMC-85 Trust Fund Agreements is comparable to the distinction between criminal or traffic court “Bail Bonds”, issued by state authorized and regulated “bonding companies” and therefore analogous to BMC-84 filings, on the one hand, and “Cash Bonds”, tendered directly to the administrative staff of the courts involved and therefore analogous to BMC-85 filings, on the other hand, To be sure, in the case of BMC-85 filings the FMCSA has followed the lead established by the ICC in effectively “contracting out” such constructive “Cash Bond” arrangements to state authorized and regulated “financial institutions” within the current meaning of 49 CFR 387.307 (c), albeit obviously subject to the underlying fundamental legal interpretation that, pursuant to both (A) certain standard implications of common law in a general sense, and (B) the imputed intent of Congress in a specific sense, it then follows (C) that the FMCSA always has and continues to retain effective complete control over every aspect the “funds comprising the corpus of the trust fund” underlying each BMC-85 filing (to a degree obviating further rulemaking in that respect), and (D) that as whole the BMC-85 industry (with the sole exception of Oasis Capital) has yet to fail to live up to their collective responsibilities with respect to the National Transportation Policy in such regards.
Whereupon, predicated on the verifiable circumstances cited in the “Areas of Agreement” section of these “Post-Event Comments”, specifically “… the conspicuous inability of those same roundtable participants speaking in favor of BMC-84 insurance brokerage interests to actually cite, or otherwise demonstrate convincingly any statistically significant pattern of failure regarding any aspect whatsoever of the BMC-85 industry’s ability to pay legitimate claims asserted against that particular class of security instruments over the course of the past five decades”, when considered within the context of PFA’s own previously submitted post-event “Comments regarding FMCSA roundtable on May 20th, 2016”, a presentation stressing heavily certain unethical (if not downright criminal) motives imputed to such adverse parties, TFS hereby recommends that the FMCSA forgo as unnecessary any extensive re-regulation and enhanced direct regulatory supervision of transportation intermediary security arrangements not currently causing any significant problems. Rather, TFS hereby recommends that the FMCSA follow up on my BMC-85 provider’s previously submitted recommendations regarding some immediate informal (and hardly staff time-intensive) regulatory implementation process for “Immediate Suspension” of the actual operating authority “Registration” of potentially disruptive financially stressed brokers (as identified through statements under oath submitted by such brokers’ security instrument providers) pursuant to 49 USC 13906 (b) (5).
In witness whereof I, Marold Studesville, the undersigned CEO of Transport Financial Services named and acting on the date stated in the caption heading above, hereby swear and affirm that all material representations offered in support of these “Post-Event Comments” and included recommendations are true and complete to the best of my knowledge and belief’