Transamerican Freight Lines, Inc v. Brada Miller Freight Systems, Inc

• Decision Date: 12 November 1975
• Docket Number: No. 74-54,74-54
• Citation: 96 S.Ct. 229,423 U.S. 28,46 L.Ed.2d 169
• Parties: TRANSAMERICAN FREIGHT LINES, INC., Petitioner, v. BRADA MILLER FREIGHT SYSTEMS, INC., et al
• Court: U.S. Supreme Court

423 U.S. 28

96 S.Ct. 229

46 L.Ed.2d 169

TRANSAMERICAN FREIGHT LINES, INC., Petitioner,

v BRADA MILLER FREIGHT SYSTEMS, INC., et al.

No. 74-54.

Argued Oct. 8, 1975.

Decided Nov. 12, 1975.

Syllabus

Respondent Brada Miller and petitioner Transamerican, two licensed motor carriers, made an agreement whereby respondent leased a vehicle to petitioner, to be operated by respondent's driver over petitioner's authorized route. Under the lease petitioner was to "have the control and responsibility for the operation of said equipment in respect to the public, shippers and Interstate Commerce Commission," but respondent agreed to indemnify petitioner for claims arising out of respondent's negligence, though the indemnification clause specifically did not limit petitioner's liability to the public in connection with the use of the leased equipment. While the vehicle was being operated under the lease, an accident occurred, and a suit was brought against the carriers predicated on the negligence of the vehicle's driver. Petitioner settled the claim and then sought recovery against respondent in District Court under the indemnification clause. That court granted respondent's motion for summary judgment on the ground that the clause contravened an ICC regulation requiring that lease agreements between regulated carriers must contain a written undertaking that "control and responsibility for the operation of the equipment shall be that of the lessee." The Court of Appeals affirmed, reasoning that since respondent, contrary to the intent of the regulation, had agreed to bear the costs of its own negligence, it had assumed control and responsibility and that the indemnification clause was ineffective. Held: The indemnification agreement entered into by petitioner and respondent does not contravene ICC's control-and-responsibility requirement. Pp. 35-43.

(a) An indemnification agreement violates the ICC requirement only if the lessor was in control of the service provided as well as of the vehicle's physical operation. Here control over the vehicle, as agreed between the parties, remained in petitioner, and the furnishing of respondent's driver involved only ministerial control and not delegation of responsibility for the shipment. Pp. 38-40.

(b) Nor did the indemnification provision conflict with ICC safety regulations, because such a provision, which places ultimate financial responsibility on the negligent lessor, may tend to increase rather than diminish protection of the public. P. 41.

497 F.2d 926, reversed and remanded.

Alphonso H. Voorhees, St. Louis, Mo., for petitioner.

Joseph L. Leritz, St. Louis, Mo., for respondents.

Mr. Justice BLACKMUN delivered the opinion of the Court.

In this case we are concerned with the "control and responsibility" requirement of the Interstate Commerce Commission's equipment leasing regulation, 49 CFR § 1057.3(a) (1975),¹ applicable to authorized motor car- riers. The question before us is narrow: Does the control-and-responsibility requirement prohibit, as against public policy, an agreement between carriers by which the lessor indemnifies the lessee for loss caused by the negligence of the lessor?

I

On January 19, 1968, respondent Brada Miller Freight Systems, Inc., entered into an agreement with petitioner Transamerican Freight Lines, Inc., whereby Brada Miller, as lessor, leased to Transamerican, as lessee, a tractor and trailer operated by driver H. L. Hardrick for a trip from Detroit, Mich., to Kansas City, Mo.² Transamerican held authority from the ICC to serve those points, and the leased equipment was to be operated over Transamerican's routes "without deviation." Brada Miller represented that, as § 1057.3(a) specifies, Kansas City was "in the direction of a point" which it was "authorized to serve." The lease recited that the equipment was "to be operated only by a competent employee" of Brada Miller, "in which event said employee . . . shall be the representative of" Brada Miller. App. 90; Brief for Petitioner A-2. It further provided:

"4. It is mutually understood and agreed, that (Transamerican) during the term of this lease shall have the control and responsibility for the operation of said equipment in respect to the public, shippers and Interstate Commerce Commission for such period that said equipment is operated under the terms of this lease as provided in Paragraph 1 hereof.

"9. . . . (Brada Miller) hereby agrees to indemnify and save harmless (Transamerican) from any and all claims, suits, losses, fines or other expenses arising out of, based upon or incurred because of injury to any person or persons, or damage to property sustained or which may be alleged to have been sustained by reason of any negligence or alleged negligence on the part of (Brada Miller), its agents, servants or employees . . . . Nothing in this Paragraph 9 contained shall be construed to in anywise limit the liability of (Transamerican) to the public in connection with the use of said equipment under this Agreement." Ibid.

Hardrick was a Brada Miller driver and employee. Pursuant to the Commission's regulation, 49 CFR § 1057.4(c) (1975), Transamerican, before the trip, made the required inspection of the equipment and filed a report that it was safe. App. 66-67, 89, 90. It checked the medical report on Hardrick. Id., at 75. It affixed to the door of the tractor an identification placard stating that it was operated by Transamerican and reciting its number assigned by the ICC; the placard remained so affixed throughout the trip. Id., 55-58, 63-65.

On the way to Kansas City, and near Smithboro, Ill., the vehicle driven by Hardrick and an automobile operated by Sandra Wear collided. Wear was injured. Transamerican reported the accident on the ICC's prescribed form. Wear later filed suit in the United States District Court for the Southern District of Illinois against both Brada Miller and Transamerican. She alleged that the accident was caused by Hardrick's negligence. Brada Miller and Transamerican filed cross-claims against each other in that litigation. During the trial Wear settled her claim against Transamerican for $80,000 and dismissed her cause of action with prejudice.³ Transamerican then amended its cross-claim by pleading the settlement and seeking recovery from Brada Miller for the settlement amount plus the expenses incurred in defending the Wear action.

Brada Miller in due course moved for summary judgment against Transamerican. It did so on the ground that "the pleadings, depositions, answers to interrogatories and exhibits on file show that the indemnity provision of the trip lease . . . is contrary to public policy and is unenforceable." Id., at 91.

The District Court granted Brada Miller's motion. In an unreported opinion, the court cited § 204(e) of the Interstate Commerce Act, 24 Stat. 379, as added, 49 Stat. 543, as amended, 49 U.S.C. § 304(e),⁴ which authorizes the Commission to prescribe regulations with respect to motor carriers' use, under leases, of motor vehicles not owned by them, and § 1057.4(a)(4) of the regulations,⁵ issued pursuant to that authority, as governing the lease between Brada Miller and Transamerican. It then followed what it regarded as precedent that had been established by its controlling court in Alford v. Major, 470 F.2d 132 (CA7 1972). In Alford the Seventh Circuit had concluded:

"Therefore, since the indemnification clause would permit Major to circumvent the regulations' requirement that leased carriers exert actual control over the leased equipment and the borrowed drivers, we find that the indemnification clause is unenforceable." Id., at 135.

The Court of Appeals affirmed with an unpublished opinion. Wear v. Transamerican Freight Lines, 497 F.2d 926 (CA7 1974). It, too, relied on 49 U.S.C. § 304(e), on 49 CFR § 1057.4, and on its earlier Alford case. It emphasized its observation in Alford, 470 F.2d, at 135, quoting the trial court in that case, that the intent of the regulations " 'was to make sure that licensed carriers would be responsible in fact, as well as in law, for the maintenance of leased equipment and the supervision of borrowed drivers.' " Pet. for cert. A-10. It felt that "control and cost bearing" were related, and that the regulations required the party with the duty of responsibility and control under the statute "to internalize the cost of any breach of this duty." Id., at A-12. It reasoned that inasmuch as Brada Miller had agreed to bear the costs of its own negligence, it had assumed control and responsibility and that the indemnification clause therefore was ineffective.

Because the Court of Appeals asserted, ibid., that Alford could not be distinguished from Allstate Ins. Co. v. Alterman Transport Lines, Inc., 465 F.2d 710 (CA5 1972), we granted certiorari.⁶ 420 U.S. 971, 95 S.Ct. 1389, 43 L.Ed.2d 650 (1975).

II

The issue before us, therefore, is whether the indemnification provision in the lease agreement between Brada Miller and Transamerican violates the Commission's applicable regulation and, as a consequence, is contrary to public policy and unenforceable. In order to place the issue in proper perspective, we note, initially, certain general aspects of motor carrier operations.

Demand for a motor carrier's services may fluctuate seasonally or day by day. Keeping expensive equipment operating at capacity, and avoiding the waste of resources attendant upon empty backruns and idleness, are necessary and continuing objectives. It is natural, therefore, that a carrier that finds itself short of equipment necessary to meet an immediate demand will seek the use of a vehicle not then required by another carrier for its operations, and the latter will be pleased to accommodate. Each is thereby advantaged.

A lease of equipment, which is permissible under defined circumstances, must be distinguished, however, from a sharing or lending of operating authority, which is not permitted. Under the Motor Carrier...