The more than $600 million judgment in a Texas court case against C.H. Robinson has been affirmed by the judge that heard the case.
Judge Dianne Jones of Dallas County Court on Friday affirmed the July verdict of $604,025,000 handed down in July against C.H. Robinson (NASDAQ: CHRW) as a result of a fatal accident that killed three persons in March 2021.
One of the three persons killed in the wreck was Gorgonio Gonzalez, an employee driver of carrier Lupus Superior that was hired by C.H. Robinson to move a load for Arizona Beverages. His death made finding the cause of the accident difficult to ascertain.
The lead named plaintiff in the case is the estate of Jennifer Lipe, represented by Peyton Lipe. Jennifer Lipe was one of the persons killed in the crash that occurred in Jackson, Mississippi, though the case was heard in Texas because that is the headquarters of Lupus Superior.
The case of Lipe vs. Lupus Superior, the carrier hired by C.H. Robinson, is problematic for C.H. Robinson on two key fronts.
One is the $600-million plus verdict. While there have been nuclear verdicts in trucking larger than that–though not many–there is no known precedent for a verdict of that size against a publicly-traded company with an investment-grade credit rating and an end-second quarter balance sheet of $5.8 billion. Some of the larger verdicts were handed down against companies that were effectively ghosts and didn’t participate in their defense.
(It is notable that the second quarter balance sheet for C.H. Robinson listed cash and cash equivalents of $154.9 million, far below the Lipe award).
Who’s in control?
But the other major issue for C.H. Robinson, and by extension the brokerage community in general, is the jury’s finding, in response to a question in the jury’s charge, that driver Gonzalez was “operating the vehicle in the furtherance of a mission for the benefit of C.H. Robinson and subject to control by C.H. Robinson as to the details of the mission.”
If that finding is upheld on appeal, it means the brokerage industry would have gone in just a few months from liability protection under the Federal Aviation Administration Authorization Act (F4A) being blown away in May by the Supreme Court’s Montgomery decision, to a precedent that may be set by Lipe vs. Lupus Superior that the driver at a carrier is effectively controlled by the brokerage that hired the trucking company.
In a prepared statement released late Friday following the affirmation, C.H. Robinson reiterated several of the same points that it made not only when the initial decision was handed down in July but also in various forums since then.
The company expressed sympathy for the “profound loss suffered by the families in this case.”
“But C.H. Robinson did not cause or contribute to the accident, and accountability must be grounded in the facts and the law,” Dorothy Capers, chief legal officer at C.H. Robinson, said in the prepared statement.
Capers’ statement brought up a question facing brokers in the post-Montgomery landscape: what constitutes a hiring process that can protect them?
Dorothy Capers of C.H. Robinson
She pointed out, as has been done before, that Lupus Superior had a Satisfactory rating from the Federal Motor Carrier Safety Administration (FMCSA) and had “safely delivered nearly 270 loads for our customers.”
“The carrier is an independent company and the driver worked for them,” Capers said in the statement. “C.H. Robinson does not employ drivers.”
“The extreme nature of this judgment underscores why a clear national standard for what constitutes a safe carrier is needed now,” Capers’ statement added. “America’s freight network should not be governed by safety standards determined after the fact, state by state and courtroom by courtroom.”
It is an issue that has been raised publicly by the Transportation Intermediaries Association. In June, it called for federal action of some kind to determine what a broker can rely upon to protect itself when hiring brokers.
The size of the payout does not end with the $604 million. As TD Cowen’s Jason Seidl noted in an analyst report released soon after news spread of the affirmation, there is also approximately $107 million in pre-judgement interest affirmed by Judge Jones.
“We believe the substantial interest charge was less appreciated by investors and drove weakness in trading immediately after the judgment was entered, though this was included in the plaintiff’s originally proposed judgment,” Seidl wrote.
The interest rate being applied to the judgment is 6.75%.
“Assuming CHRW moves to appeal and this results in a multi-year process, this would imply an even larger compounded charge if appeal is unsuccessful,” Seidl added.
C.H. Robinson, Seidl wrote, has a “non-trivial incentive to settle this lawsuit eventually if appeal sees adverse developments, though overturning the vicarious liability ruling (where C.H. Robinson was found to control the driver) in appeal is likely to remain a first preference.”
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