The recent Montgomery and Lipe decisions have placed heightened awareness on broker liability for many in the industry. In Montgomery v. Caribe Transport II, LLC, the US Supreme Court held that the FAAAA does not preempt claims that one company negligently hired another to transport goods, thereby eliminating one of a property broker’s key defenses to negligent selection claims. In the wake of that decision, a Dallas County Court jury handed down a $604 million verdict against a broker and carrier in Lipe v. Lupus Superior, LLC.

Along with evaluating the company’s current carrier selection practices, a strategic legal restructure can yield additional insulation defenses.

It is not uncommon for a company to perform both carrier and brokerage operations through separate divisions within the same legal entity. That practice, however, exposes the entire operation to the full brunt of a “nuclear” verdict. By creating and maintaining a separate brokerage entity, certain assets can be cabined from higher-risk carrier operation, requiring a plaintiff to break down the walls of an entirely separate entity in order to access those assets in a process commonly referred to as “piercing the corporate veil.”

From a legal perspective, establishing a separate entity is a simple matter of preparing the correct paperwork and filings. Maintaining the separateness of an entity is another matter. Every jurisdiction employs its own “veil-piercing” test but, generally speaking, a brokerage entity can maintain separateness from an affiliated carrier by adhering to a number of practices, including ensuring (i) operations-specific agreements are executed with customers and between entities; (ii) brokerage operations are conducted only in the brokerage entity; (iii) distinct leadership among the companies; and (iv) arm’s-length dealings among the companies.

Scopelitis’ Corporate Structuring & Strategy team can help you both establish a separate brokerage entity and give you the best shot at convincing a court to see it that way.