February 4, 2010
CORA C. CHINN, GILBERT F. CHINN, AND MARY L. CHINN, PLAINTIFFS-APPELLANTS,
MARK TRANSPORTATION, INC., ARFA ENTERPRISES, INC., AMERICAN HESS CORPORATION, CITGO PETROLEUM CORPORATION, AND VLADIMIR KHUTORYANSKY, DEFENDANTS-RESPONDENTS.
CHRISTINE HIGGINS AND ANTHONY PILLA, PLAINTIFFS-RESPONDENTS,
MARK TRANSPORTATION, INC., DEFENDANT-RESPONDENT.
ANGELA SCOTT, PLAINTIFF-RESPONDENT,
VLADIMIR KHUTORYANSKY, MARK TRANSPORTATION, INC., KARL SCHEIMREIF, KURT SCHEIMREIF, CHRISTINE HIGGINS, MICHAEL PILLA, KHALIL BIRDSONG AND DEADRIA BIRDSONG, DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Law Division, Burlington County, Docket Nos. L-829-06, L-1807-05 and L-2048-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued January 11, 2010
Before Judges Lisa, Baxter and Coburn.
Plaintiffs Cora Chinn, Gilbert Chinn and Mary Chinn appeal from a February 15, 2008 order that granted the motion of ARFA Enterprises, Inc. (ARFA) for summary judgment, and from a March 12, 2008 order that denied plaintiffs' motion for reconsideration. We agree with plaintiffs' contention that there were genuine issues of material fact on the question of whether: (1) Mark Transportation Inc. (MTI) was an independent contractor whose negligence could not be attributed to ARFA; and (2) even if MTI was an independent contractor, whether ARFA was liable because it had hired an incompetent contractor. We conclude plaintiffs' proofs on both issues were sufficient to raise a genuine issue of material fact that required denial of ARFA's motion for summary judgment. We reverse and remand.
On July 20, 2003 at 8:50 p.m., defendant Vladimir Khutoryansky, an employee of defendant MTI, was driving a tractor-trailer containing a load of gasoline on Route 130 in Delran when he "blacked out" and crashed into the vehicles in front of him, injuring plaintiffs. Although Khutoryansky denied being tired, he told police at the scene of the accident that he had started work that day at 8:00 a.m., which meant that he had been driving for thirteen hours. MTI and Khutoryansky eventually stipulated to liability, acknowledging that Khutoryansky's negligence was the sole cause of the accident.
ARFA is an interstate wholesaler and marketer of gasoline and diesel fuel. It provides and transports fuel to more than 100 gas stations in New Jersey and Pennsylvania. In 2001, ARFA decided to cease the transportation and delivery of fuel in order to reduce its liability exposure. Consequently, in 2003, ARFA allowed the leases on its tractors to lapse and returned them to the leasing company. ARFA sold all five of its tanker trailers to MTI. It was at this juncture that the relationship between ARFA and MTI began.
MTI incorporated in New Jersey on May 10, 2000, and originally delivered furniture for Levitz, but halted such work in 2003. MTI's corporate minutes establish that in 2003 its officers authorized the purchase of tanker trailers from ARFA; however, ARFA's own corporate minutes do not reveal any approval of such sale. The transfer of the tanker trailers from ARFA to MTI appears to have been accomplished informally. Moreover, there is no evidence of a transfer of money from ARFA to MTI for the purchase; an ARFA principal merely stated that the dollar amount "was minimal."
ARFA transferred all of its driver qualification files on all of its drivers, including Khutoryansky, to MTI in June 2003. Markiian Grek, a principal of MTI, testified at his deposition that he checked his drivers' driving records every six months. Although Grek claimed to have had a medical examination and qualification form for Khutoryansky prior to July 20, 2003, he was never able to produce these documents. Alex Prahkin, a representative of ARFA, explained that he did not recall ever having any record of Khutoryansky undergoing a medical examination at any time from 2001 through August 27, 2003.
After June 2003, ARFA no longer directly owned any tractors or tanker trailers, nor did it directly employ any truck drivers to transport its fuel products to its customers. As of July 2003, ARFA used Lee Transportation, Sunoco Transportation, Dana Transportation, Aero Transportation and MTI to deliver its fuel products to its customers.
In the summer of 2002, ARFA and MTI together retained a consultant to advise them of the certifications, registrations, and licenses necessary under state and federal law for MTI to operate as a fuel delivery transportation company. MTI and ARFA asked the consultant whether MTI could lawfully transport fuel for ARFA if MTI did not have its own "operating authority." Ultimately, the consultant advised MTI that even as a one-truck fuel carrier, MTI would be required to comply with state and federal regulations; MTI then asked the consultant to obtain all necessary federal approvals. MTI planned to obtain the State licenses by itself. Although MTI received some of the approvals before the July 20, 2003 accident, the United States Department of Transportation (DOT) Certification, MC-4360043, was not issued to MTI until August 27, 2003, after the accident.*fn1
Before hiring MTI to deliver motor fuel to its customers, ARFA conducted no investigation of MTI or of Khutoryansky. Both Prahkin and Grek testified at depositions that ARFA never documented any investigation of compliance with the Federal Motor Carrier Safety Regulations (FMCSR) either by MTI or by Khutoryansky. Prahkin testified that, as of the date ARFA first hired MTI as a carrier, he was unsure if ARFA had ever verified, or even inquired, whether MTI had the necessary operating authority to permit it to transport gasoline on ARFA's behalf.
Prahkin explained that as a purchaser and seller of gasoline, ARFA was aware that it had a responsibility to ensure driver safety for the motoring public. In fact, ARFA entered into three separate agreements, a Distributor Franchise Agreement with Citgo, a Marketer Franchise Agreement with Citgo, and a Throughput Agreement with Hess, in which ARFA expressly agreed to comply with applicable regulations, including all the FMCSR regulations, for the safe transportation of petroleum products. In those agreements, ARFA represented that it, as well as all of its employees and agents, were fully informed of all governmental regulations relating to the transportation of petroleum products.
However, Grek testified that ARFA did not supply any driver training or truck driving safety information to MTI or Khutoryansky regarding compliance with the FMCSR safety regulations. Prahkin testified that prior to July 2003, ARFA did not have any written operating or safety procedures for its own drivers or its contractors. Furthermore, prior to July 2003, MTI had no written training materials for any of its drivers, nor could Grek remember whether MTI received any training materials from ARFA regarding the FMCSR regulations prior to that time.
Khutoryansky began his employment with ARFA in 1996, and remained employed by ARFA until he was transferred to the MTI payroll in June 2003. When he began his employment with MTI, Khutoryansky was not required to prepare an application for employment. He testified at his deposition that the work he performed for MTI was identical to the work he had performed for ARFA. According to Khutoryansky, one day he was working for ARFA, and the next he was working for MTI. The only significant change was the changing of the signs on the outside of the trucks.
After MTI acquired ARFA's trucks and employees in June 2003, ARFA permitted MTI to use a desk and a fax line at ARFA's Pennsauken office, free of charge. However, MTI did not store its tractors and tanker trailers on ARFA's property, and ARFA had no role in the maintenance of MTI's vehicles.
Whenever one of ARFA's customers notified ARFA that the customer's fuel inventory was low, ARFA would notify MTI accordingly and MTI would make a delivery the following day. MTI decided which driver to assign to each such delivery. ARFA provided MTI with access cards for entry into the Hess terminal because ARFA owned the gasoline products being transported from the terminal.
Although MTI established the driver schedules for its drivers on a daily basis, ARFA had substantial control over the delivery schedules. ARFA provided MTI with the time frame for each delivery, and would prioritize each delivery. ARFA had the option of changing that priority whenever necessary, and was also in charge of delivery cancellations and rerouting.
Grek testified that prior to the accident in question, there were no written agreements or written leases between ARFA and MTI regarding MTI's transportation of petroleum products on ARFA's behalf, nor were there any written agreements specifying the payment method or the amounts to be paid for deliveries. Rather, MTI issued invoices to ARFA for fuel deliveries it made, doing so on an irregular basis. Regardless of how ARFA was billed, ARFA paid MTI's invoices on a weekly basis.
As to the corporate structure of ARFA and MTI, the two have no shareholders, officers or directors in common, nor have they shared directors or officers at any time in the past.
In support of its motion for summary judgment, ARFA provided an expert report from Ira S. Lipsius, who opined that on the day of the accident, MTI was performing exempt intrastate transportation and therefore needed no operating authority from DOT. Lipsius also determined that all of the deliveries performed on the date of the accident, "were within 100 nautical miles of the origin point." Thus, according to Lipsius, "ARFA was not required to hire a carrier possessing motor carrier authority to carry the petroleum products within New Jersey." Ultimately, Lipsius opined that "[p]ursuant to Federal Motor carrier statutes and regulations, ARFA is not liable for the alleged negligence of... MTI or MTI's drivers or employees."
Plaintiffs retained Terry E. Morgan as their liability and transportation expert. Morgan concluded that MTI was an incompetent carrier because it lacked proper operating authority, in violation of the FMCSR regulations. Morgan opined that the "MTI/ARFA equipment operating on the public highway at the time of the accident should have been placed out-of-service in compliance with [49 C.F.R.] § 392.9a." Accordingly, had MTI's equipment been placed out-of-service, as required by the FMCSR regulations, "it would not have been involved in the accident which injured [plaintiffs]."
Morgan expressly disagreed with Lipsius's conclusions, finding that MTI/ARFA "was not performing exempt intrastate transportation," but rather "was transporting hazardous materials in interstate commerce." He also concluded that "[t]he incompetence of MTI and their driver, Vladimir Khutoryansky, was overwhelmingly known, or should have been known, by ARFA and some of the incompetence of MTI was preceded and committed by ARFA itself when Khutoryansky worked for ARFA 'in the same job.'"
Finally, Morgan opined that "ARFA assumed control of every meaningful aspect of [MTI's] operation." He explained:
[MTI] did not operate an independent business, but performed functions that are an essential part of ARFA's normal operations; they need not have any meaningful prior training or experience, but receive the minimal training necessary to perform the functions required of them by ARFA; they do business with assistance and guidance from ARFA; [MTI] does not ordinarily engage in outside business; [MTI's] operations constitute an integral part of ARFA's business under its substantial control; they have no substantial proprietary interest beyond the investment in trucks; and [MTI] has no significant entrepreneurial opportunity for gain or loss.
In granting ARFA's motion for summary judgment, the motion judge determined that ARFA had hired MTI as an independent contractor and did not retain control over its activities. Therefore, ARFA was insulated from liability for the negligence of MTI and Khutoryansky. The judge reasoned:
Under the agreements which MTI had with ARFA, they were an independent contractor. They controlled the hours of work of everything else of their drivers. And all ARFA did was call MTI... and say, hey, you know, we need 30,000 gallons of gasoline delivered to Joe's Gas Station up on [Route] 130 and when they did, they would go to the [fuel depots].... They pull in, they get the fuel, they load on their fuels and they go off to the station and to deliver the fuel.
There's no control by ARFA and payroll's records support that Khutoryansky was an... MTI employee and MTI owned the truck and the trailer....
The court later denied plaintiffs' motion for reconsideration for the same reasons.
On appeal, plaintiffs argue that the trial court erred in granting ARFA summary judgment because there were genuine issues of material fact as to whether "ARFA controlled the intricate means and methods of work by MTI and [Khutoryansky]," and whether MTI was fully integrated into the business of ARFA. In particular, plaintiffs contend that "the [t]rial [c]court incorrectly believed that there was no control [of MTI by ARFA] and relied upon the sole fact that the payroll records showed that [Khutoryansky] was an MTI employee and MTI allegedly owned the truck and trailer." Plaintiffs also contend that even if MTI was an independent contractor, as ARFA claimed, summary judgment was wrongly granted because there was a genuine issue of material fact on the question of whether ARFA was liable to plaintiffs for hiring MTI and Khutoryansky, because they were incompetent contractors.
We review the trial court's grant of summary judgment de novo. See Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). Employing the same standard the trial court uses, ibid., we review the record to determine whether there are material factual disputes and, if not, whether the undisputed facts viewed in the light most favorable to plaintiff nonetheless entitle defendants to judgment as a matter of law. See Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). Summary judgment must be granted if "the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law."
"It is well-settled that when a person engages an independent contractor to do work that is not itself a nuisance, he is not vicariously liable for the negligent acts of the contractor in the performance of the contract." Puckrein v. ATI Transport, Inc., 186 N.J. 563, 574 (2006). See also Baldasarre v. Butler, 132 N.J. 278, 291 (1993) ("Generally... the principal is not vicariously liable for the torts of the independent contractor if the principal did not direct or participate in them."). The immunity of the principal who hires an independent contractor rests on the distinction between such a contractor and an employee:
The important difference between an employee and an independent contractor is that one who hires an independent contractor "has no right of control over the manner in which the work is to be done, it is to be regarded as the contractor's own enterprise, and he, rather than the employer is the proper party to be charged with the responsibility for preventing the risk, and administering and distributing it." [Baldasarre, supra, 132 N.J. at 291 (quoting W. Page Keeton, Prosser & Keeton on the Law of Torts § 71 (5th ed. 1984)).]
"In contrast, a servant is traditionally one who is 'employed to perform services in the affairs of another, whose physical conduct in the performance of the service is controlled, or is subject to a right of control, by the other.'" Mavrikidis v. Petullo, 153 N.J. 117, 132 (1998) (quoting W. Page Keeton, Prosser & Keeton, supra, § 70 at 501).
There are, however, three exceptions to the general rule that principals are not liable for the actions of the independent contractors they hire: (1) where the principal retains control of the manner and means of doing the work subject to the contract; (2) where the principal engages an incompetent contractor; or (3) where the activity constitutes a nuisance per se. Majestic Realty Assocs. v. Toti Contracting Co., 30 N.J. 425, 431 (1959). Here, plaintiffs rely on the first and second of those two exceptions. As to the first, plaintiffs maintain that ARFA controlled the means and methods of work performed by MTI and Khutoryansky, and that MTI was fully integrated into the business of ARFA.
In Mavrikidis, the Court established several factors that a court must consider to determine whether a principal maintains the right of control over an individual or a corporation claimed to be an independent contractor. The factors include:
(a) the extent of control which, by the agreement, the master may exercise over the details of the work;
(b) whether or not the one employed is engaged in a distinct occupation or business;
(d) the skill required in the particular occupation;
(e) whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;
(f) the length of time for which the person is employed;
(g) the method of payment, whether by the time or by the job;
(h) whether or not the work is a part of the regular business of the employer; [and]
(i) whether or not the parties believe they are creating the relation of master and servant. [Mavrikidis, supra, 153 N.J. at 132 (quoting Restatement (Second) of Agency § 220(2) (1958)).]
We turn to an application of the Mavrikidis factors:
(a) Extent of Control Over Details of Work: ARFA points to several facts in its favor. It contends that MTI created the delivery schedules for its drivers on a daily basis, and provided them with the tractors and tanker trailers. ARFA also maintains that MTI performed all maintenance on the tractors and tanker trailers, and garaged them at a location chosen by MTI. ARFA also argues that MTI was incorporated as a separate entity, and that MTI's payroll records establish that Khutoryansky was an employee of MTI, not ARFA.
Plaintiffs, for their part, point to evidence of substantial control of MTI by ARFA. They argue that ARFA controlled, or substantially controlled, the fuel delivery routes, the cancellation and rerouting of deliveries, the amount of fuel shipped, the price of the fuel, and the priority of the deliveries. Second, AFRA controlled the access card to the fuel depots. Third, ARFA and MTI shared office space and equipment. Fourth, MTI leased the same tractors that ARFA had leased, purchased its tanker trailers from ARFA, and hired ARFA's driver to do essentially the same job he had earlier performed for ARFA. Indeed, Khutoryansky testified that one day he was working for ARFA, and the next day he was working for MTI; the only significant change was changing of the signs.
Clearly there were genuine issues of fact as to the extent of control by ARFA over the details of the work MTI performed on ARFA's behalf.
(b) Distinct Occupation or Business: Genuine issues of material fact also exist on the question of whether ARFA and MTI were engaged in distinct occupations or businesses, or whether instead MTI was assisting ARFA in the performance of ARFA's business. While ARFA contends that it was a shipper, wholesaler and marketer of petroleum products, and that MTI was merely a carrier, ARFA was, just prior to the accident, a carrier, as it was in the business of shipping its own motor fuel. The record establishes that ARFA transferred its tanker trailers to MTI, for little or no compensation, and that MTI retained ARFA's employees, used the same tanker trailers that ARFA had used, and shared office space and equipment. Thus, there is a question of fact as to whether ARFA and MTI were engaged in distinct occupations or businesses, or whether MTI was merely an extension of ARFA's business.
(d) Skill Required in Particular Occupation: ARFA acknowledged that the shipment of petroleum products, by its nature, requires special precautions in handling, and ARFA represented that it would inform and advise all its employees and agents of the applicable regulations and provide appropriate training of such personnel. Genuine issues of fact exist as to whether ARFA did so, whether MTI was aware of the applicable regulations, or had obtained its own operating authority from DOT. Thus, a factfinder could conclude that MTI relied on ARFA's skill and ARFA's licenses.
(e) Instrumentalities, Tools, and Place of Work: ARFA points to evidence establishing that MTI provided the tractor and tanker trailer to Khutoryansky, and that the tractor and tanker trailer were owned or leased, registered, insured and maintained by MTI.
However, as plaintiffs correctly argue, there remain questions surrounding the transfer of the trailers from ARFA to MTI. Although ARFA produced MTI's corporate minutes authorizing the purchase of the tanker trailers, it did not produce its corporate minutes authorizing the sale. Furthermore, there is evidence that the transfer by ARFA to MTI was not an arms-length transaction at fair market value; according to ARFA, the transfer was for a "minimal" sum. Indeed, it is unclear if any money was actually transferred.
Furthermore, ARFA provided MTI with office space and equipment, the fuel access cards, and paid all expenses associated with the deliveries. Thus, a reasonable jury could find that ARFA provided MTI and MTI's drivers with the instrumentalities, tools, and the place of work from which to operate.
(f) Length of Time of Employment: Although MTI's relationship with ARFA existed for only a short time prior to the accident, Khutoryansky had been employed by ARFA for eight years prior to the time he began working for MTI. He never applied for a job with MTI. Instead he was merely transferred from one payroll to the other. This evidence could be interpreted by a finder of fact as inconsistent with ARFA's claim that ARFA and MTI were independent entities.
(g) Method of Payment: There are no written agreements between ARFA and MTI describing the payment method or the amounts to be paid. MTI submitted invoices on a regular basis to ARFA, and ARFA paid MTI directly. The absence of a written contract between the two could lead a reasonable jury to find that MTI was merely an extension of ARFA and not a separate and independent entity.
(h) Regular Business of the Employer: ARFA contends that the work performed by MTI was not part of its regular business because "[a]s of June 2003, fuel delivery was not part of the regular business of ARFA." However, prior to that time, fuel delivery was a major part of ARFA's regular business. Moreover, in light of the fact that ARFA transferred its trailers to MTI, MTI retained ARFA's drivers, shared office space and equipment with ARFA, leased the same tanker trailers that ARFA had leased, and made deliveries only for ARFA up until the date of the accident, a question of fact exists as to whether MTI was a separate business or instead a part of ARFA.
(i) Parties' Belief: ARFA contends that this factor is compelling, because ARFA specifically intended to get out of the fuel delivery business. However, ARFA had no written agreement with MTI for the delivery of the very product that ARFA had previously delivered. Moreover, Khutoryansky himself believed he was performing the same job he had always performed, because nothing changed when he started working for MTI.
In light of the Mavrikidis factors, we conclude that although there was sufficient evidence for a factfinder to determine that ARFA did not retain the right of control over MTI, when the competent evidential materials are viewed in the light most favorable to plaintiffs, there is a sufficient basis to permit a rational factfinder to conclude that MTI was not an independent contractor. Consequently, ARFA was not entitled to summary judgment as a matter of law on the independent contractor issue. R. 4:46-2(c); Brill, supra, 142 N.J. at 539-41.
We turn now to the second Majestic Realty exception upon which plaintiffs rely, namely that ARFA "engage[d] an incompetent contractor," see Majestic Realty, supra, 30 N.J. at 431, because Khutoryansky lacked the required medical certifications, MTI and Khutoryansky exceeded the applicable federal hours of service regulations and MTI lacked DOT operating authority.
We turn first to plaintiffs' claim that Khutoryansky did not have the necessary medical examination certification, and therefore was unqualified to drive. If he did not, plaintiffs argue that a jury could find ARFA negligent because it failed to require and audit Khutoryansky's driver qualification file before the date of the accident.
ARFA responds that Khutoryansky was medically cleared to drive. It contends that the medical examination certification presented during discovery expired in February 2005, and since it was valid for two years, "it would have been issued in February 2003 - before the accident." Finally, ARFA argues that "even if the [plaintiffs'] argument is sound, there is no reason to believe that ARFA knew of this condition prior to the date of this accident, so there would be no basis to find that it is liable under this theory."
In rendering his decision, the motion judge did not specifically address this issue, notwithstanding the fact that ARFA's counsel admitted that "there [wa]s a question of fact as to whether or not [Khutoryansky had] a medical certificate."
As we have noted, "[u]nder the second Majestic exception, a principal may be held liable for injury caused by its independent contractor where the principal hires an incompetent contractor." Mavrikidis, supra, 153 N.J. at 136. "The notion of liability for hiring an incompetent contractor is derived from basic negligence principles." Puckrein, supra, 186 N.J. at 575. However, such liability attaches only if the principal is aware that the contractor he hired was incompetent and such incompetence created a risk of harm to third parties. Id. at 576. In other words, to prevail against the principal for hiring an incompetent contractor, a plaintiff must show that the contractor was, in fact, incompetent or unskilled to perform the job for which he/she was hired, that the harm that resulted arose out of that incompetence, and that the principal knew or should have known of the incompetence.
In Puckrein, supra, 186 N.J. at 578-81, the Court addressed the issue of whether the principal "violated its duty to use reasonable care in selecting a trucker and whether it knew or should have known of [the trucker's] incompetence." Id. at 579. Regarding the principal's duty of inquiry, the Court explained:
[A principal] may be charged with negligence in hiring an independent contractor where it is demonstrated that he should have known, or might by the exercise of reasonable care have ascertained, that the contractor was not competent.... [A] company whose core purpose is the collection and transportation of materials on the highways, has a duty to use reasonable care in the hiring of an independent trucker including a duty to make an inquiry into that trucker's ability to travel legally on the highways. At a minimum, [the principal] was required to inquire whether its haulers had proper insurance and registration because without those items the hauler had no right to be on the road. [Id. at 579-80 (internal quotations and citations omitted).]
The FMCSR regulations are specifically incorporated into New Jersey law by statute and regulation. See N.J.S.A. 39:5B-32; N.J.A.C. 13:60-2.1. N.J.A.C. 13:60-2.1 provides that "[the Superintendent of the State Police] hereby adopts and incorporates, by reference... the [FMCSR regulations], and all supplements and amendments hereto...." ARFA does not dispute plaintiffs' claim that MTI qualifies as a "motor carrier" that is obligated to comply with FMCSR regulations governing driver qualifications.
As to those qualifications, 49 C.F.R. § 391.11(b)(4) specifies*fn2 that no person may operate a motor vehicle unless he or she is "physically qualified to drive" by virtue of a medical examination. See 49 C.F.R. § 391.45 (setting forth the medical certification requirements to establish that an individual is physically qualified to drive). The evidence in the record presented a genuine issue of material fact on whether Khutoryansky possessed the required medical certificate. The actual medical examination certificate provided for Khutoryansky is dated August 27, 2003, which is after the accident. Although ARFA produced a medical examination certificate that appeared to have expired on February 5, 2005, it is unclear when it was issued. ARFA contends that certificate was issued in February 2003, and therefore Khutoryansky was medically examined and certified at the time of the accident. However, a jury could reject that testimony because, if true, ARFA would have obtained two certificates covering the same period, one obtained in February 2003 and the other in August 2003.
The evidence presented by ARFA was not conclusive, and therefore there remained a genuine issue of fact whether Khutoryansky was medically examined and certified in accordance with 49 C.F.R. § 391.11(a) and 391.45 on the date of the accident. Moreover, ARFA's argument on appeal conflicts with its concession at oral argument in the Law Division that "there [wa]s a question of fact as to whether or not [Khutoryansky had] a medical certificate."
Next, ARFA argues that even if Khutoryansky did not have the necessary medical examination certification, it did not have knowledge of his condition prior to the date of the accident, and therefore there would be no basis to find that it was liable for his negligence. This argument is unpersuasive.
First, there is evidence that ARFA knew of the FMCSR regarding driver qualifications in general, as well as Khutoryansky's qualifications specifically. Corsey, the transportation carrier consultant hired by ARFA and MTI, testified that Prahkin and Grek were familiar with state and federal requirements for compliance with driver qualifications relating to the transportation of motor fuel.
Moreover, Khutoryansky worked for ARFA for approximately eight years and ARFA did not produce any of Khutoryansky's medical records prior to the accident. A jury could determine that ARFA had a duty to have Khutoryansky medically examined and certified, and would have known if he had no certification.
Second, in light of ARFA's Distributor Franchise Agreement with Citgo, its Marketer Franchise Agreement with Citgo, and its Throughput Agreement with Hess, a jury could find that ARFA expressly assumed the duty to comply with all the FMCSR regulations, and therefore had an obligation to ensure that Khutoryansky was medically examined and certified as required by the FMCSR regulations.
Third, pursuant to Puckrein, ARFA had a duty to inquire into MTI's ability to travel legally on the highways. See Puckrein, supra, 186 N.J. at 580. This would have included its drivers' medical qualification to drive.
We recognize that ARFA could be liable only if Khutoryansky's disqualification was the cause of the harm to plaintiffs. "The employer of a negligently selected contractor is subject to liability under the rule stated in this Section for physical harm caused by his failure to exercise reasonable care to select a competent and careful contractor, but only for such physical harm as is so caused." Restatement (Second) of Torts § 411 comment b (1965). Although Khutoryansky does not know exactly what happened, he claims that he "blacked out" while driving and crashed into the vehicles in front of him. He also stated that he did not fall asleep, and refused to say that he lost consciousness. Thus, there were questions of fact as to what happened to Khutoryansky, and whether he had a medical condition that caused him to "black out" or lose consciousness. It is for a jury to determine whether Khutoryansky's "black[ing] out" was due to a medical condition that would have been discovered through a medical examination.
In light of the summary judgment standard, all the evidence was required to be viewed in the light most favorable to the plaintiffs. R. 4:46-2(c); Brill, supra, 142 N.J. at 539-41. The trial court did not do so, and therefore the grant of summary judgment was error. Furthermore, ARFA's and Khutoryansky's deposition testimony involved issues of credibility, which should have precluded summary judgment. See Brill, supra, 142 N.J. at 540 (observing that where issues of credibility are presented, summary judgment is generally inappropriate). We thus conclude that the issue of whether Khutoryansky lacked the required medical certification was sufficient to withstand ARFA's motion.
Plaintiffs also argue that the trial court erred in granting ARFA summary judgment because there were genuine issues of material fact as to whether ARFA may be vicariously liable for MTI's and Khutoryansky's negligence because ARFA hired, and continued to employ, MTI and Khutoryansky even though ARFA knew MTI and Khutoryansky were violating the hours of service regulations. ARFA responds that there is no evidence that it had any knowledge that MTI violated the hours of service regulations because there was no evidence that such a violation occurred on any day other than the date of the accident, July 20, 2003.
In rejecting plaintiffs' arguments, the motion judge explained:
In this case, there's no evidence which shows MTI or ARFA knew or had reason to know that the driver for MTI was not complying with the log books. We don't know... the rule book says so many hours of continuous driving. If he stopped for a half-an-hour at Joe Blow's Hot Dog Stand, does that half-hour come off of the twelve hours? Oh, and does he stop and take a nap which is often done...
But -- so you do take naps or whatever, but there's no evidence anywhere that this guy worked more than the continuous hours than allowed by the federal statutes.
And also I know plaintiff disagrees that the hundred mile radius does not apply, but in my reading of the federal statutes and the exemptions, et cetera, I find that it does apply. And that goes, I guess, keeping the log. If you don't travel more than a hundred miles, you don't have to keep a log....
As we have observed, plaintiffs argue that by entering into three separate agreements, the Distributor Franchise Agreement with Citgo, the Marketer Franchise Agreement with Citgo, and the Throughput Agreement with Hess, ARFA expressly assumed the duty of care with regard to the regulations for the safe transportation of motor fuel, including all the FMCSR regulations. Plaintiffs also point to the hours of service regulation, 49 C.F.R. § 350.341(e)(1), which prohibits a driver such as Khutoryansky from driving more than twelve consecutive hours. The undisputed evidence established that Khutoryansky had driven nearly thirteen hours immediately before the accident occurred.
Notwithstanding the mandates of 49 C.F.R. § 350.341, and ARFA's contractual obligations to comply with all state and federal regulations, ARFA conceded that it did not specifically inquire, implement, or require any limits on the number of hours that its drivers or contract drivers, like Khutoryansky, could drive. Furthermore, Grek admitted that ARFA never inquired about, or limited, the number of driving hours for MTI before the accident.
In addition, because ARFA contractually assumed the responsibility of complying with all the state and federal regulations for the safe transportation of motor fuel by entering into agreements with Citgo and Hess, a jury could determine that ARFA had reason to know whether Khutoryansky was complying with the hours of service regulations. See Puckrein, supra, 186 N.J. at 576.
Finally, because the hours of service regulations limit the number of hours a driver can drive continuously, thereby decreasing the likelihood of driver fatigue, and because ARFA contractually assumed the duty of ensuring compliance with those regulations, the alleged violations may have had a causal connection to the accident. The determination of whether said violations were a proximate cause of the accident should be decided by a jury. See Anderson v. Sammy Redd & Assocs., 278 N.J. Super. 50, 56 (App. Div. 1994), certif. denied, 139 N.J. 441 (1995) (observing that questions of causation are the province of a jury, not the judge).
In light of this evidence, the judge's conclusion that there was no evidence that MTI or Khutoryansky had failed to comply with the hours of service regulations was error. The evidence presented by plaintiff on the question of ARFA's knowledge that Khutoryansky and MTI were exceeding the twelve-hour per day driving limit of 49 C.F.R. § 350.341 was sufficient to withstand ARFA's summary judgment motion.
Plaintiffs also argue that the trial court erred in granting ARFA summary judgment because there were genuine issues of material fact on the question of whether MTI lacked operating authority to transport motor fuel, and therefore whether MTI was an incompetent contractor. ARFA responds that MTI was a carrier for hire performing exempt intrastate transportation on the date of the accident, and did not require federal operating authority. In granting summary judgment to ARFA, the trial court did not specifically address this issue.
49 C.F.R. § 392.9a requires a motor carrier to secure operating authority before initiating transportation operations, and every motor vehicle lacking such operating authority must be ordered out of service. Specifically, 49 C.F.R. § 392.9a provides:
(a) Registration required. A motor vehicle providing transportation requiring registration under 49 U.S.C. 13902 may not be operated without the required registration or operated beyond the scope of its registration.
(b) Penalties. Every motor vehicle providing transportation requiring registration under
49 U.S.C. 13902 shall be ordered out-of-service if determined to be operating without registration or beyond the scope of its registration. In addition, the motor carrier may be subject to penalties in accordance with 49 U.S.C. 14901.
Here, it appears that MTI lacked the appropriate operating authority as a transporter of motor fuel. MTI's U.S. Department of Transportation Certification, MC-4360043, was not issued until August 27, 2003, after the date of the accident. ARFA has provided no evidence to establish that MTI had the necessary operating authority prior to the date of the accident. In fact, ARFA admits in its brief that MTI lacked operating authority prior to the accident: "Although MTI did not receive its operating authority until August 27, 2003, MTI complied with the applicable financial responsibility requirements necessary for receipt of operating authority on the date of this accident."
In particular, ARFA argues that MTI was a carrier for hire performing exempt intrastate transportation on the date of the accident, and did not require federal operating authority. ARFA contends that "all of the deliveries made by MTI in July 2003 in the [Commonwealth] of Pennsylvania were within the 'commercial zone' of Philadelphia and therefore were likewise considered to be exempt and non-regulated transportation."
The FMCSR regulations do not apply to interstate transportation within the "commercial zone" of a municipality.
49 C.F.R. § 372.241. The commercial zone of a city with a population exceeding one million, such as Philadelphia, extends for twenty miles beyond the boundary lines of the municipality.
49 C.F.R. § 372.241(c)(7). Accordingly, ARFA contends that any transportation within that "commercial zone," even if it involved transportation across state lines, is considered exempt transportation and not subject to the FMCSR regulations.
ARFA's argument is unpersuasive and could not entitle it to summary judgment as there remain issues of fact whether MTI performed solely exempt intrastate transportation on ARFA's behalf. There is evidence in the record that MTI had performed interstate transportation for ARFA outside the commercial zone of Philadelphia prior to July 2003. If MTI performed any interstate transportation for ARFA, it did so without operating authority and was subject to be ordered "out-of-service." See 49 C.F.R. § 392.9a.
Out-of-service status would have precluded MTI and Khutoryansky from making deliveries for ARFA, rendering MTI an incompetent contractor. Indeed, plaintiff's expert, Morgan, concluded that MTI was an incompetent contractor because it lacked the necessary operating authority, and therefore should have been placed out-of-service.
Furthermore, if MTI's trailers had been placed out of service due to lack of operating authority prior to the accident, Khutoryansky would not have been delivering motor fuel for ARFA and this accident would not have occurred. Thus, there may be a causal connection between the alleged violation and the accident, and a jury could determine that said violation was a proximate cause of the accident.
ARFA maintains that it had no reason to know that MTI lacked the necessary operating authority. We conclude there is a question of fact on whether ARFA knew or should have known that MTI lacked the necessary operating authority to transport the motor fuel for ARFA.
First, there is undisputed evidence that ARFA was aware of the FMCSR regulations regarding operating authority. Corsey, the transportation carrier consultant hired by ARFA and MTI, testified that Prahkin and Grek were familiar with state and federal requirements for compliance with operating authority relating to the transportation of motor fuel. Also, Prahkin knew that ARFA's operating authority was not transferable or assignable, and therefore that MTI was required to obtain its own operating authority.
Moreover, pursuant to Puckrein, ARFA had a duty to inquire into MTI's ability to travel legally on the highways, which would include MTI's operating authority necessary to transport the motor fuel on ARFA's behalf. Puckrein, supra, 186 N.J. at 580. Thus, there are genuine issues of material fact that should have precluded summary judgment on the question of whether MTI had the necessary operating authority to transport the motor fuel for ARFA, and if not, whether ARFA knew or had reason to know of MTI's lack of operating authority.
In conclusion, there were genuine issues of material fact both on whether MTI was an independent contractor, and on whether ARFA knowingly hired an incompetent contractor. Summary judgment should not have been granted. Brill, supra, 142 N.J. at 540.
Reversed and remanded.