TRANSPORTATION NEWSLETTER

WINTER 2013

®Attorneys at Law

CONTINUED ON PAGE 2>>

P. 2 The Continued Extension of Regal-Beloit

Team UpdatesP. 4P. 6 Bright Lines are Hard

to Find: The ADA and “Disabled” Employees

FMCSA IMPLEMENT ENHANCEMENTS TO SAFETY MEASUREMENT SYSTEM

On December 3rd, FMCSA announced that changes to the CSA program applying to a motor carriers’ Safety Measurement System (SMS) scores.

A er a public comment period that began in March 2012 and input from 19,000 motor carriers and 2,900 law enforcement personnel, FMCSA has implemented 11 “enhancements” to a motor carriers’ monthly SMS scores.

n general, the SMS uses all a ailable inspec on and crash data to priori e carriers for inter en ons. SMS

uan es on road safety performance of carriers to iden fy the speci c safety problems the carrier e hibits and to monitor whether performance is improving or worsening. The most recent enhancements are

designed to improve FMCSA’s ability to iden fy and ta e ac on against motor carriers with safety and compliance concerns.

According to FMCSA, the enhancements to SMS, and the basis for the revisions, are as follows:

1. Strengthening the Vehicle Maintenance Behavior Analysis and Safety mprovement Category (BAS C) by incorpora ng cargo load securement

viola ons from the Cargo elated BAS C. The purpose of this enhancement is to address a perceived bias that carriers hauling open trailers are subject to greater scru ny with respect to the Cargo elated BAS C because their numbers of load securement viola ons per inspec on are evaluated against operators that e clusively operate closed van trailers, where load securement viola ons are o en not visible.

2. Changing the Cargo elated BAS C to the a ardous Materials ( M) Compliance BAS C to be er iden fy M related safety and compliance problems. Due to the fact that M increases the conse uences of a crash, this revision is intended to reduce the li elihood of such conse uences by preven ng M cargo release and increasing the ability of emergency responders to mi gate the rami ca ons of a M spill.

P. 6 New Tangible Personal Property Regulations

Inside This Issue

Members of the Transporta on Team liven up the alloween o ce party in Greenville!( ictured le to right: Fredric Marcine , oseph ohe, urt o els y, and ob

Moseley.)

On ovember 19, 2012, ob Moseley was appointed to AT esearch Advisory Commi ee and will serve a two year term star ng anuary 2013.

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3. Be er aligning the SMS with Intermodal Equipment Provider (IEP) regula ons. SMS does not currently include any roadside viola ons associated with an IEP trailer dis nct from the motor carrier; this enhancement is designed to a ribute some of these viola ons to the motor carrier. In cases where a driver conducts a pre trip inspec on and the viola on is of the type that should be iden ed during a pre trip inspec on, that viola on will now be a ributed to the motor carrier.

4. Aligning viola ons that are included in the SMS with Commercial Vehicle Safety Alliance (CVSA) inspec on levels by elimina ng vehicle viola ons derived from driver only inspec ons and driver viola ons from vehicle only inspec ons. This enhancement was suggested in an e ort to address concerns that vehicle viola ons that fall outside the scope of an inspec on could bias the Vehicle Maintenance BASIC results.

5. More accurately iden fying carriers that transport signi cant quan es of M. In general, the SMS methodology applies more stringent interven on thresholds

for M carriers. FMCSA is now a emp ng to iden fy carriers that haul M as a minimal part of their businesses so as to focus interven on resources on carriers involved in the majority of placardable M transport. Now, for a carrier to be subject to the M threshold due to M inspec on ac vity, the carrier must have : (1) at least two M placardable inspec on within the past 24 months, with one inspec on occurring within the past 12 months, and (2) at least 5 of total inspec ons that are

M placardable inspec ons.6. More accurately iden fying

carriers involved in transpor ng passengers due to the higher standard for passenger carrier as opposed to non passenger carriers.

7. Modifying the SMS display to: (1) change current terminology, “inconclusive” (i.e. carriers that do not have enough inspec ons, but too few viola ons to warrant being considered for an interven on) and “insu cient data” (i.e. carriers that do not have enough inspec ons to produce a measure su cient enough to even be assessed); and (2) separate crashes with injuries from crashes with fatali es.

8. emoving 1 to 5 mph speeding viola ons. This change will apply to the prior 24 months of data and data moving forward.

9. Lowering the severity weight for speeding viola ons that do not designate the mph range above the speed limit. The severity ra ng will now be 1 for all such viola ons.

10. Aligning the severity weight of paper and electronic logboo viola ons for consistency purposes.

11. Changing the name of the Fa gued Driving ( ours ofService ( OS)) BASIC to the OS Compliance BASIC due to the fact that viola ons within this BASIC do not necessarily indicated fa gued driving or driving in e cess of allowed hours.

FMCSA has stated that “[t]hese SMS enhancements re ect FMCSA’s commitment to listening to our sta eholders and researching and analy ing enhancements in the name of safety. By strengthening our cornerstone enforcement program, we are con nuing to raise the bar for truc and bus safety.”

FMCSA is encouraging motor carriers to be proac ve and chec their safety data at h p: ai.fmcsa.dot.gov sms to determine if, and how, the SMS changes may have impacted their SMS results.

The Continued Extension of Regal-BeloitThe landmar Supreme Court case of Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp., 130 S.Ct. 2433 (2010), con nues to be applied and e tended in the lower courts. One such e ample is the recent case of Norfolk Southern Railway Co. v. Sun Chemical Corp., 2012 Ga. App. Le is 1019 (Nov. 29, 2012). In Sun, Sun Chemical hired an ocean carrier, Compañia Sud Americana de Vapores (CSAV), to transport two containers of in manufactured by Sun from entuc y to Bra il. nder a through bill of lading, CSAV too responsibility for the en re

(intermodal) transporta on of the in from the place of receipt to the place of nal delivery, and retained the right to use the services of other Precarriers and or Oncarriers and any mode of transport to accomplish the same. The through bill also states that “custody and carriage of the Goods during the intermodal transporta on are subject to the tari s and terms of the relevant bills of lading and or contract of carriage andor other transport documents adopted by the Precarrier or Oncarrier. Sun also authori ed CSAV to subcontract on

any terms the whole or any part of the handling and [c]arriage of the Goods and any and all du es whatsoever underta en by [CSAV] in rela on to the Goods.

nder the authority granted it in the through bill of lading, CSAV subcontracted with iss Intermodal, Inc., a freight forwarding company, to arrange inland transporta on, which in turn hired Norfol Southern to transport Sun s in to Savannah. The intermodal transporta on agreement (ISA)

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between iss and Norfol Southern, which provided that it was for the sole bene t of [Norfol Southern] and iss, incorporated Norfol Southern s rules circular governing such transport, which o ered customers a choice between standard and Carmac liability

provisions. The rules circular stated in boldface capitals that unless language e pressly selec ng Carmac is included in the original shipping instruc ons, any tender of freight for transporta on . . . will be accepted under 'standard' liability coverage provided and not under 'Carmac ' coverage.

The ISA and the rules circular gave iss the op on to impose Carmac liability on Norfol Southern if iss complied with certain addi onal procedures and paid a higher rate. By contrast, the standard provision stated that Norfol Southern will not be liable for any loss, damage, or delay to any party other than the ail Services Buyer. There was no evidence that iss chose, paid for, or otherwise selected Carmac liability under the ISA or the rules circular.

In September 2001, Norfol Southern cars carrying Sun's in containers derailed while traveling through Washington County, Georgia, destroying the in . Sun

led a claim with Con nental Insurance Company, which paid Sun $60,593.44. Sun and Con nental then sued Norfol Southern for that amount plus interest and li ga on costs. The trial court granted Sun's mo on for summary judgment on the ground that Norfol Southern was strictly liable under Carmac . Norfol Southern appealed, arguing that it is not subject to Carmac liability and that Sun should be bound by its agents' rejec on of Carmac coverage.

In a detailed and well reasoned opinion, the Georgia Court of Appeals ruled in favor of Norfol Southern and reversed the trial court. A er discussing the Supreme Court’s decisions in Regal-Beloit and Norfolk Southern R. Co. v. James N. Kirby, Pty Ltd., 543 .S. 14 (2004), the Court of Appeals noted that Kirby, to a large e tent, governed.

owever, the court noted that Kirby did not address one ques on raised by the facts of the Sun case: whether the

Carmac Amendment's imposi on of strict liability on receiving and delivering rail carriers preempted Sun's e pressed intent to allow downstream carriers to ma e their own liability arrangements. To answer this ques on, the Court turned to Regal-Beloit.

In Regal-Beloit, the Court framed the ques on before it as whether [the] Carmac [Amendment] applies to the inland segment of an overseas import shipment under a through bill of lading. 130 SC at 2440. Sun argued that under the plain language of the Carmac Amendment, Norfol Southern was a receiving rail carrier to which Carmac liability must apply, regardless of any arrangements made by Sun's downstream carriers. In Regal-Beloit, however, the Court seemed to permit, in a case involving a through bill of lading for land and sea transit of goods, a domes c rail carrier not in privity with the owner of the goods to ma e alternate contractual arrangements with the owner's agent to avoid Carmac ’s applica on. owever, Regal-Beloit e plicitly declined to address the fact pa ern at issue in Sun that is, one in which goods are received at a point in the nited States for e port, 130 S.Ct. at 2444 (although one federal court has discussed this issue, Ins. Co. v. Expeditors Int'l of Washington, 2012 .S. Dist. LE IS 96974 (S.D.N. . uly 9, 2012)). Despite this, the Sun court held that Kirby's and Regal-Beloit's “objec ves of promo ng e cient mari me contrac ng . . . e ec vely . . . require[] us to uphold the bargainedfor terms of the through bill of lading before us, including its binding of Sun to its downstream agent iss's refusal of the Carmac liability o ered by Norfol Southern.”

With this in mind, the Sun Court easily found that the bill of lading was a mari me contract not subject to Carmac . Sun, the owner and shipper of the in at issue, hired CSAV, an ocean carrier, to transport that in by sea from Sun's entuc y facility to Bra il. Sun was then issued a through bill of lading by CSAV, which then made arrangements to transport the in from entuc y to the port of Savannah, where it would

begin the greater part of its journey to Bra il. Sun gave e plicit permission in the through bill of lading issued to it that CSAV could subcontract on any terms the whole or any part of the handling and carriage of the in ; that CSAV had the right to use the services of other subcontractors and any mode of transport to accomplish the same ; and that the terms set further down the stream of commerce could render the subcontractor's liability less than the liability of [CSAV] concerning the sea leg of the transport.

aving thus been granted the authority by Sun to reach its own terms with subcontractors, iss declined Norfol Southern's o er of a right to assert a Carmac claim against it, choosing a less e pensive liability regime instead. The court therefore concluded that Norfol Southern “cannot be subject to Carmac liability because the bill of lading issued by CSAV is a mari me contract’ to which Carmac liability should not apply and because Sun authori ed downstream carriers to reach their own terms as to liability, which iss did when it declined Norfol Southern's o er of Carmac liability.”

The Sun case therefore illustrates the con nued e pansion of Regal-Beloit, applying its holding to freight that is outbound from the nited States on a through bill of lading. Furthermore, it shows that courts are con nuing to give shippers and carriers greater freedom to contract for par cular terms and par cular levels of liability that may be di erent from those provided for in Carmac and other governing statutes. Contracts, therefore, are becoming more important than ever before. As we have wri en before, carriers should always have good contracts with bro ers and shippers, and they should always be aware of what terms are included in upstream contracts entered into by shippers, bro ers, and forwarders. Finally, carriers should emulate Norfol Southern and maintain tari s whose terms can be used to structure their rela onships with their partners in the transporta on supply chain.

The Road Ahead

Making Tracks ob Moseley a ended the SCTA Board of Directors etreat at Wild Dunes near Charleston on October 1 2nd. Moseley

ta es a chance every me he goes to Charleston that The Citadel will repossess his ring and diploma. ob Moseley went north of the border (not to NC), but to the 26th Annual Transporta on Innova on and Cost Savings

Conference in Toronto, Ontario, Canada on October 3rd. e prepared his remar s in French but then reali ed that was the wrong province. They had a hard enough me understanding his southern dialect.

October 7 8th mar ed the ATA Management Conference and E hibi on. ob shared the stage with Marc Blubaugh of Benesch's Columbus (Ohio, not GA) in presen ng the Top 10 Legal Issues Facing Truc ing.

Marc Tuc er and urt o els y a ended the TIDA Annual Mee ng in Dallas, Te as on October 10 12th. Andrea Cars a Sheppard presented at the Pilot Freight Services Interna onal Compliance Seminar in aleigh October

11th. She spo e on the ris related to e por ng and conduc ng business interna onally, including interna onal contracts, S and Canadian Customs, compliance the FCPA, the S Trade Sanc ons and e ports control and the compliance programs.

On October 15th, ob led a webinar on bro er liability issues for the ATA's Safety Management Council. ob Moseley taught a Transporta on Contracts Seminar, presented by SMC3, in Atlanta on October 16th. urt o els y and oseph ohe a ended the D I Annual Mee ng in New Orleans, LA on October 24 26th. urt presided

over his last mee ng as Chair of the Truc ing Law Commi ee and received an interes ng par ng gi that must be described in person.

The SCTA presented a one day seminar in Columbia on October 24th. This mee ng focused on legal issues facing truc ing. ac iordan served on a liability accident panel, and ob Moseley presented on publicly available informa on on

truc ing companies. Fredric Marcina a ended the TLA's Transporta on Law Ins tute in Nashville on November 9th. By the way, ob is 1 0 as ll in chaplain for The Citadel football team who beat Furman niversity on November 17th a er

a mo va ng devo onal from ob. ob a ended the SC Truc ing Associa on Board mee ng on December 5th in Columbia. Andrea Cars a Sheppard a ended the Council mee ng of the Interna onal Sec on of North Carolina Bar Associa on on

December 6th. urt and ob signed up to provide refreshments for the o ce birthday party in December. Of course, ob wasn't around,

leaving everything to urt. Some things never change.

On anuary 3rd, ob will be tes fying on behalf of the SC Truc ing Associa on regarding a proposed regula on promulgated by the SC Department of Employment and Wor force rela ng to independent contractors. Anyone have ques ons they want to as him while he is under oath

Best wishes to Sco Murray, long me friend and VP of Safety for the SC Truc ing Associa on. Sco ma es his re rement o cial in anuary. Please accept our than s for a job well done.

On anuary 10th, ob Moseley will a end the Legisla ve Commi ee Mee ng of the NC Truc ing Associa on in Greensboro to discuss the upcoming legisla ve agenda.

anuary 13 14th mar s the winter mee ng of the Conference of Freight Counsel in Dallas. ob and Fredric will be a ending, trial schedules allowing.

Marc Tuc er, oseph ohe and ob Moseley will be a ending the Chicago egional Mee ng of the Transporta on Lawyers Associa on in Chicago on anuary 25th.

urt o els y will be presen ng at the South Carolina Truc ing Law Conference in Columbia, SC on February 21, 2013. ob will teach Transporta on Contracts presented by the SMC3 in Atlanta on February 26th. To register, go to h p:

www.smc3.com smc3 academy courses contractlaw.htm. Type moseley in the discount bo for $75 o the registra on cost.

urt o els y will par cipate in a panel discussion on Tips for Defending the Truc Driver and Safety Director at the ABA Transporta on Megaconference in New Orleans, LA on March 6 8, 2013.

ob will be teaching an undisclosed and top secret subject on freight claims at the TIDA s ills mee ng in Atlanta on March 20th.

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In December 2011, the Internal evenue Service (“I S” ”Service”) and the Treasury Department released new Temporary regula ons over 200 pages commonly referred to as the “Tangible Personal Property” regula ons which primarily impact ta code Sec ons 263(a) and 162(a). ou might be as ing: how does this impact me The following are some ey highlights:

Generally spea ing, these rules address whether ta payers must capitali e their tangible property costs under ta code Sec on 263(a) or whether they can deduct them under Sec on 162(a). Therefore, if you own or lease long lived property (e.g., buildings, par ing lots, leasehold improvements) and you or others within your organi a on

rou nely ma e capitali a on versus e pense decisions with respect to this type of property and associated costs, then you are directly impacted by these rules.

egardless of your federal ta pro le (e.g., you annually generate federal ta able income or you have current or recurring federal ta losses), the new rules can have current and or long term ta implica ons impac ng the return on investment of your

ed assets. They contain provisions that li ely restrict your ability to deduct certain e penditures as “repairs” and mandatorily apply new “par al disposi on” concepts that can create unintended ta consequences with nega ve implica ons for the unwary.

ou will need to le at least one

accoun ng method change in order to comply with this new law and doing nothing is deemed an a rma ve ac on by the I S thus allowing the Service to dictate your new methodology. Such inac on will result in a higher ta burden today and an unintended ta burden upon the eventual sale of the underlying property.

The new law contains some op onal compliance methods which you may be able to ta e advantage of to generate near term posi ve cash

ow and ma imi e your return on investment. The Service considered the impact of the rela vely restric ve nature of the new rules as compared to the old rules and thus, provided ta payers with favorable alterna ves to consider when

If ever there were a reason to ma e sure you have quali ed uman

esources professionals wor ing on your personnel problems, managing the complicated overlap between wor er’s compensa on, the FMLA, DOT regula ons and the ADA is certainly one of them. The “Leave it to Beaver” days of the 1950s 60s are over. It is no longer a safe prac ce to require that sic or hurt employees stay out of wor un l they are “100 ” or able to return to “full du es.” Nor is it safe to assume that once an employee has been out for 12 full wee s, he may be automa cally discharged.

If there is one issue about which both poli cal par es agree, it is that employees belong on an employer’s payroll and not on the government’s payroll. In short, un l and unless a company can show undue hardship, it is e pected to “accommodate” an employee’s wor limita ons due to disability. And proving a hardship can be harder than you thin .

Truc ing companies using “bright line tests” such as “12 wee s and you are out” are in the news paying large se lements for allegedly not doing enough to eep disabled employees employed.

Chec your employee handboo . If you don’t have an employee handboo , pu ng one in place is the rst step to avoiding large dollar nes later. If you do have one, what does it say about how you will handle health limita ons In addi on to standard language about repor ng wor er’s compensa on claims as soon as they happen, a short statement about sic leave and, if you are 50 employees or larger, a longer sec on on the rights and responsibili es of an employee reques ng a 12 wee FMLA leave, what do you say about reasonable accommoda on of employees with disabili es Do you have an established way of managing these issues

The EEOC is alive and well. It is receiving more funding than it has at some mes in its past, and it is invigorated. If you

combine this fact with one or more disgruntled current or former employees with health issues or complaints, you have the poten al for a charge of disability discrimina on. And, once EEOC is in the door on a charge, there is li le to prevent it from audi ng your company more broadly.

Bo om line: Put a policy and prac ce in place to consider individual requests for the accommoda on of health restric ons. If a requested accommoda on would cons tute a true undue hardship to the business (e.g., the employee would not be able to perform essen al func ons of the job even with the adapta on or the adapta on would change the nature of the service provided), you may be able to sa sfy ADA requirements without returning the employee to wor . owever, without this type of assessment, you most assuredly will not do well with the EEOC or in the courts.

Bright Lines are Hard to Find: The ADA and “Disabled” Employees

NEW TANGIBLE PERSONAL PROPERTY REGULATIONS

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implemen ng their new capitali a on policies.

The temporary rules originally became e ec ve for your rst ta period beginning on or a er anuary 1, 2012. ecently, Ta No ce 201273 altered the e ec ve date to anuary 1, 2014. owever, the I S

has granted ta payers the op on of applying the new rules based on the original anuary 1, 2012 e ec ve date. Therefore, ta payers should ensure their capitali a on policies are compliant with these new rules and where applicable, ta e advantage of some of the favorable op ons and ta bene cial opportuni es available with a fully considered and op mally implemented plan of ac on.

Example: Ta payer owns a terminal building that it purchased ten years ago for $1M. Today, ta payer incurs $100,000 to replace the roof on the terminal building. Assume the original roof cost (li ely embedded in the $1M building cost) was $75,000 but due to deprecia on deduc ons ta en over me now has an adjusted basis of $50,000.

Old rules: Tradi onal capitali a on policy The ta payer would have followed their e is ng capitali a on policy and capitali ed the $100,000 new roof. As such, the cost of the new roof would be depreciated over 39yrs and the cost of the original roof ($75,000) would also con nue to be depreciated over the remaining depreciable life (29 years) of the original building. Old epairs methodology If the ta payer had led a “ epairs” accoun ng method change, Ta payer would li ely have deducted the new

roof cost of $100,000 as a qualifying repair e penditure and would have con nued to depreciate the cost of the original roof ($75,000) over the remaining life of the building.

New rules: Tradi onal capitali a on policy If no ac on is ta en, Ta payer has no choice and the new rules would require Ta payer to capitali e the new roof cost ($100,000) and would presume that the remaining adjusted basis in the original roof ($50,000) would be wri en o as a loss deduc on whether or not the adjusted basis was actually wri en o by Ta payer. Without the retroac ve General Asset Account elec on (discussed below), Ta payer’s tradi onal capitali a on policy would not recogni e the loss deduc on on the deemed disposal of the old roof resul ng in the building’s basis being eroded by $50,000 without the ta payer bene ng from the commensurate deprecia on deduc on write o . pon the eventual sale of the terminal building, Ta payer would recogni e more gain than e pected as the I S would calculate the building’s adjusted basis to have been reduced by the $50,000 and thus, ta payer would have to recogni e $50,000 more gain and a higher ta liability. New “General Asset Account” (“GAA”) elec on By ling the new, “ etroac ve GAA Elec on” method change, Ta payer has a choice on how to handle both the new roof cost and the adjusted basis of the old roof:

Choice 1 (Status uo) Ta payer can ignore the applica on of the new rules and simply capitali e the

new roof cost and con nue to depreciate the old roof cost as well without incurring the presump ve disposi on loss and erosion of basis in the building as described above under the “Tradi onal Capitali a on policy”.

Choice 2 ( epair Opportunity) If the new roof quali es as a repair e penditure under the new more restric ve rules, Ta payer can adopt the new epairs methodology via an accoun ng method change and treat such e penditures as a current e pense deduc on ($100,000) and con nue to depreciate the original roof costs.

If not a qualifying repair e penditure, Ta payer can elect to follow the new “Par al Disposi on” methodology via an accoun ng method change. The new roof cost ($100,000) would be capitali ed and Ta payer would account for the par al disposal of the old roof as a current deduc onloss by wri ng o the adjusted basis of the old roof ($50,000). The GAA and Par al Disposi on method changes would allow Ta payer to property account for the par al disposal of the old roof thus allowing Ta payer to recogni e the bene t of the $50,000 deduc on.

We at Smith Moore Leatherwood would be pleased to discuss the various federal ta rami ca ons of the new Tangible Personal Property rules and further dialogue with you regarding speci c ac on steps you should be considering with respect to these new rules.

Brian Lemonaleigh, NC

Contributor to this issue:

Smith Moore Leatherwood LLPA orneys at Law The Leatherwood Pla a300 East McBee Avenue, Suite 500Greenville, SC 29601

T: (864) 242 6440F: (864) 240 2474www.smithmoorelaw.com

We represent both large and small truc ing companies as insureds on behalf of numerous na onal insurance companies and as self insureds. In addi on, the rm has served for many years as outside General Counsel for a na onally recogni ed commercial vehicle insurer and is e perienced in all aspects of transporta on law including issues involving federal and state statutes and regula ons promulgated by the former Interstate Commerce Commission (ICC), the successor Surface Transporta on Board, the Department of Transporta on and the Public Service Commission. As part of the array of transporta on services provided to rm clients, an a er hours emergency response team is standing by to service clients with urgent needs following a catastrophic accident.

Georgia | North Carolina | South Carolina

Smith Moore Leatherwood LLP | Attorneys at Law | www.smithmoorelaw.com

Transportation Industry Team