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NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
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 ...