TLC News

The U.S. Government Accountability Office (“GAO”) has issued a report on the safety threat of “reincarnated” motor carriers (primarily motor coach carriers). According to the report, unsafe companies avoid being shut down by the Federal Motor Carrier Safety Administration (“FMCSA”) by changing their names and registering as a new entrant. From the report:

The GAO’s analysis of FMCSA data for fiscal years 2007 and 2008 identified 20 motor coach companies that likely reincarnated from “out of service” carriers. This represents about 9 percent of the approximately 220 motor coach carriers that FMCSA placed out of service during these 2 fiscal years. The number of likely reincarnated motor carriers is understated, in part, because GAO’s analysis was based on exact matches and also could not identify owners who purposely provided FMCSA deceptive information on the application (e.g., ownership) to hide the reincarnation from the agency. Although the number of reincarnated motor coach carriers that GAO identified was small, these companies pose a safety threat to the motoring public. According to FMCSA officials, under registration and enforcement policies up to summer 2008, reincarnation was relatively simple to do and hard to detect. As a result, motor coach carriers known to be safety risks were continuing to operate.

For carrier types other than motor coach, such as commercial trucking, the GAO’s analysis identified 1,073 potentially reincarnated companies for the same 2 fiscal years. Of these, at least 500 were still active as of June 2009.

The impetus to research this problem came at least in part from the tragic accident August 8, 2008 in Sherman, Texas that killed 17 people and injured 15 others. According to the report:

State and federal investigators attributed the accident to the loss of tread on a recapped tire installed on the bus’s front right steering axle—the use of recapped tires on the steering wheels is a violation of federal regulations. The driver lost control of the bus, struck a curb, and crashed through the guardrail of a bridge. The bus fell about 8 feet, landed on its right side and slid about 24 feet.

It turned out that the carrier that operated the bus was the reincarnation of a motor coach company that had been deemed unsafe and ordered out of service by the FMCSA months prior to the accident The new company registered with FMCSA using the same physical and mailing addresses as the carrier ordered out of service. At the time of the crash, the carrier did not have proper operating authority from FMCSA, because it had not yet designated a process agent or provided proof of insurance to FMCSA.

While accidents involving motor coaches, as passenger carriers, are more likely to have deaths and injuries, there is also concern regarding unsafe trucks remaining on or returning to the highway. To help keep unsafe trucks off the road, the FMCSA initiated the voluntary Performance and Registration Information Systems Management (“PRISM”) grant program, a small program funded at $5 million per year. PRISM helps states establish information systems connections between state vehicle registration and FMCSA’s safety databases. These connections provide states with up-to-date information on carriers’ safety status when carriers try to register or renew registrations with the state. For states to deny, suspend, or revoke registrations to out-of-service carriers, states must pass legislation enabling them to do so.

Distracted Drivers

It should come as no surprise that texting on a phone while driving is significantly more dangerous than simply talking on a phone while driving. According to a Virginia Tech Transportation Institute (“VTTI”) study conducted for the Federal Motor Carrier Safety Administration (“FMCSA”), truckers who text from the driver’s seat are about 23 times more likely to have a crash, or at least a close encounter, than drivers who are watching the road.

The study used eye glance analyses to assess where drivers were looking while involved in a safety critical event and performing cell phone tasks. The VTTI study took place between 2005 and 2007. During that time, VTTI monitored 203 drivers operating 55 trucks. The study raked in data from about 3 million miles of real-world driving. The tasks that draw the driver’s eyes away from the forward roadway were those with the highest risk. Results of the study:

Another study, published in June by Car and Driver Magazine, indicated that texting while driving is more dangerous than driving while intoxicated.

Unfortunately, there have been several recent high visibility trucking and transit crashes that have been directly linked to texting from a cell phone. One response has been the introduction of a bill (S. 1536) by Senator Charles Schumer (D-NY) that would force states to pass texting-while-driving bans (with DOT-set minimum penalties) within two years of its passage, or risk losing 25 percent of their federal highway funding. The “Avoiding Life-Endangering and Reckless Texting by Drivers Act of 2009” or the “ALERT Drivers Act” would apply to anyone operating a personal car, truck, bus and most other mass transit systems, including light rail. The legislation would not apply to individuals using mobile devices while their vehicle is stopped, nor would it apply to passengers.

Currently, fourteen states and the District of Columbia ban all drivers from texting while operating motor vehicles. In addition, eleven other states have a modified ban on texting while driving, and five states and the District of Columbia restrict driver cell phone use to hands-free configurations. The Federal Railroad Administration, part of the DOT, issued an emergency order in October 2008 to restrict on-duty railroad operating employees from using cell phones and other electronic devices.

Piracy

According to the International Chamber of Commerce International Maritime Bureau’s Piracy Reporting Centre (“IMB”), piracy attacks around the world more than doubled to 240 from 114 during the first six months of the year compared with the same period in 2008.

As in the last quarterly report, the rise in overall numbers is due almost entirely to increased Somali pirate activity off the Gulf of Aden and east coast of Somalia, with 86 and 44 incidents reported respectively. The year’s second quarter saw 136 reports of piracy compared with 104 in the first three months of 2009, an increase of almost a third.

A total of 78 vessels were boarded worldwide, 75 vessels fired upon and 31 vessels hijacked with some 561 crew taken hostage, 19 injured, seven kidnapped, six killed and eight missing. The attackers were heavily armed with guns and knives in the majority of incidents and violence against crewmembers continues to increase.

However, the presence of navies in the Gulf of Aden from several countries have made it difficult for pirates to hijack vessels and has led them to seek new target areas, such as the southern Red Sea and the east coast of Oman, where Somali pirates are believed to be responsible for a spate of recent attacks.

The report said that attacks off the eastern coast of Somalia had decreased in recent months after peaking in March and April, with no attacks reported in June. But the Piracy Reporting Center attributed the decline to heavy weather associated with the monsoons that are expected to continue into August.

One incident of note was the recent hijacking of the 4,000 ton cargo ship “Arctic Sea” off the coast of Sweden. It was boarded by armed gunmen posing as law-enforcement officers. The ship was carrying a load of timber from Finland worth $1.84 million destined for North Africa, hardly a cargo worth ransoming.

After passing through the English Channel, the Arctic Sea disappeared for two weeks, only to be located near the Cape Verde Islands where it was intercepted by Russian navel vessels. Reports indicate that the hijackers had sought a $1.5 million ransom from the insurance company, but they were apprehended without a fight.

This incident has raised many questions, such as why anyone would seize an aging vessel carrying timber, and how the crime was beyond the means of ordinary pirates. One maritime security consultant asserted only “commandos” could pull off a hijacking in one of the world’s busiest shipping lanes, within cellphone range, in an operation that could have cost more than the value of the cargo and ship combined.

Beware of Those Scammers!

The two California men, Nicholas Lakes and Viacheslav Berkovich, involved in an Internet load-board fraud scheme that included hacking the Federal Motor Carrier Safety Administration’s website pled guilty to defrauding dozens of truckers and brokers of at least $2.4 million. See TransDigest 128 for previous coverage and more details. The pair operated under various business names, including Cargoland Brokerage Inc., Progressive Trucking, Vega Trucking and Barkfelt Transport. Lakes was also involved in the factoring company “Burbank Capital Corporation”.

The two defendants are scheduled to be sentenced by U.S. District Court Judge John F. Walter on June 29. At sentencing, Lakes faces a maximum statutory sentence of 70 years in federal prison, and he has agreed to forfeit his interest in $1.14 million in an investment account. Berkovich faces a maximum sentence of 45 years in prison.

In another, unrelated case, Freddie Ford and David Hernandez were sentenced February 25 by a federal court in Memphis for a scam involving selling bogus freight bills to a factoring company. Hernandez was the general manager for Airtrans, Inc., a trucking company owned by Freddie Ford located in Dyersburg, Tennessee. According to the indictment, the pair were accused of defrauding Allied Carriers Exchange, a Denver, Colorado, company that purchased accounts receivables and collected the amounts due on them. The men allegedly presented fake invoices to Allied. In order to accomplish the fraud, Ford established a shell company and used a Mississippi freight-brokerage company as vehicles for billing for non-existent freight shipments.

Gainey Transportation Services Scam

One of quickest ways to lose money is to throw it away. Everyone who pays freight bills should have some procedure in place to review the freight bills they are processing and to flag for additional scrutiny any invoices that are questionable. “Red flags” should include things such as invoices from unknown carriers; invoices for services performed to or from unknown locations; invoices that are for services performed more than some pre-determined time ago (never more than 180 days); invoices that do not have supporting documentation (if required); or invoices for additional amounts on a previously paid bill.

Any bills so flagged can then be reviewed and a determination made as to whether they should be paid, whether additional information is required, or whether they fall into the scam category like those following.

While we have reported on other types of scams recently, we have not had any news on the undercharge front in some time, roughly since Elmer E. Twilley, Sr. was sentenced for mail fraud and went to prison in 2006.[1] In what seems to be a coincidence, now that Mr. Twilley has served his time and was released on December 30, 2008, a new undercharge scam has come to our attention.[2]

Gainey Transportation Services, Inc. (“GTS”) of Grand Rapids Michigan, filed for Chapter 11 bankruptcy protection October 14, 2008 and continues to operate as a debtor in possession. In late May, a California based logistics provider received a number of “Assigned Freight Invoices” totaling about $4,000 from “GTS % RFR Logistics” based in Hendersonville, Tennessee.

The recipient picked up numerous red flags on these invoices: the “Assigned Freight Invoices” are for services performed more than 20 months ago; the invoices are seeking funds over and above the original invoice, which had already been paid; and there was no documentation or explanation to support the additional charges. In addition, the Assigned Freight Invoices are payable to “RFR Logistics” in Hendersonville, Tennessee. For those who have been around awhile, these are also red flags as they are names and locations that have been used by the Twilleys in the past. Any one of these factors should flag the invoices for further scrutiny, so here goes.

First off, we have not yet been able to verify that either Elmer Twilley Sr. or Jr. or any of their crew are involved with RFR Logistics. In fact, RFR Logistics is not registered as a corporation with the Tennessee Secretary of State, nor does an online search of RFR Logistics help. An online search shows four different addresses for RFR, but no information as to the principals of the business.

That being said, all the locations listed for RFR Logistics are in the same geographic area and are similar to locations the Twilleys have previously used. The RFR Logistics website (http://www.rfrlogistics.com/) is virtually the same as the old Twilley Rapid Freight Recovery website and the RFR site cross-links to old Twilley operations. Additionally, the M.O. is typical of past Twilley operations: there is no support provided for the balance due, simply a demand with “Payment Due Upon Receipt”.

The GTS documentation reviewed only provided a copy of the original invoice, dated 9/25/2007, and a balance due dated 5/26/2009. The original invoice was for $1,356.00 and the balance due was for an additional $183.06, without any explanation other than a “21” in the rate column.

Regardless of who is actually the author/beneficiary of these balance dues, there are numerous problems with the invoices themselves and it is possible those seeking to collect are operating in violation of the GTS bankruptcy.

· A carrier must bill for additional charges within 180 days of the original bill in order to collect.

According to the party billed, there was never the requisite bill for the additional charges within 180 days as required by 49 USC §13710(a)(3)(A). The date on this particular GTS balance due is 20 months after the original, clearly past the 18-month statute of limitations provided by 49 USC §14705. Additionally, upon review of an original bill it only states “Payment Due Upon Receipt”. Nowhere does it indicate any penalty for failure to pay timely and it is not clear that GTS has any tariff or rule that supports such an additional charge, if that is even the basis of the charge.

The other complications involve the bankruptcy filing of GTS, which was in October 2008. First, upon filing of bankruptcy, any statute of limitation is tolled for two years (11 USC §108(a)), but, that would only apply if the pre-requisite 180 day notice for additional charges had been made.

The second complication is a significant factor for RFR and that is how did they come by these freight bills and/or on what authority are they seeking to collect them? These freight bills are all pre-petition, and unless previously sold, are assets of the bankruptcy estate. If they are still assets of the bankruptcy estate, there must be authorization from the bankruptcy court for the debtor in possession to utilize the services of an outside provider to collect such assets and any proceeds collected belong to the bankruptcy estate (see references to H&W Motor Express in the history). A search of the GTS bankruptcy docket indicates that no such authorization was sought or granted by the court. In fact there is no reference to RFR, Twilley, Elmer, freight bill, audit, Hendersonville, or accounts receivable in the docket.

If the accounts receivable were sold prior to the bankruptcy filing, there still must be a paper trail and some legal basis for RFR to collect in the name of GTS and unless RFR bought the receivables itself, the proceeds are shared with the owner of the receivables (such as a bank or other creditor of GTS). (See references to Midland Transportation Company in the history).

If RFR is simply using data it has previously obtained to create balance dues for its own benefit, the scam arguably rises to the level of a criminal fraud.

In any event, under no circumstances should freight bills be paid to RFR Logistics without a thorough review being made first. In addition to verifying that the services were actually provided by the carrier listed, check the dates and request supporting documentation for the claim and the basis of RFR’s authority to undertake the collection.

If you have received any GTS balance due bills from RFR, please contact sbeyer@transportlaw.com and forward copies of the balance dues and any other correspondence to TLC Headquarters.

[1] Contact TLC Headquarters for an email copy of the history of this saga.

[2] From the 11^th Circuit Court of Appeals decision denying Elmer Twilley’s appeal to reduce his sentence: “Regarding Twilley’s criminal history, the PSI shows that he had fourteen prior convictions from 1979 to 1993, including theft by deception, negotiating worthless checks, and attempted failure to redeliver a hired vehicle.”

The decision is available online at http://www.ca11.uscourts.gov/unpub/ops/200615101.pdf

Safety Threat of "Reincarnated" Motor Carriers

Distracted Drivers

Piracy

Beware of Those Scammers!

Gainey Transportation Services Scam