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Lease Review – Now’s the Time

November 12, 2003

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Neill T. Riddell

Article Originally Published: November 2003

The information contained in this article is not intended to be legal advice. Readers should not act or rely on this information without consulting an attorney.

The Lease. You’ve seen it. We all have. You may even have one, or one of its innumerable variations, in your desk drawer right now.

Likely drafted sometime in Reagan’s first term, the identity of its author is one of history’s mysteries. Years of copying and recopying have resulted in a document whose print is now fuzzy, running across the page in a sort of cockeyed manner.

But, it is The Lease. The standard owner-operator contract.

And for many years it worked just fine. One of the reasons for this, of course, is that little attention was paid to The Lease. Sure, there were ICC regulations which talked about what the document should and should not contain. There was infrequent regulatory review, however, and even less actual enforcement, whether with respect to the content of

The Lease or actual compliance with its provisions.

Things started to change in 1996. The ICC, along with its laissez faire approach to the leasing regulations, was legislated out of its role in the industry, replaced by the FHWA and then the FMCSA. It was not the transfer of responsibility that worked the most notable change relative to The Lease, however. Rather, it was the inclusion of a provision in the ICC Termination Act establishing a private cause of action for persons alleging injury arising from a carrier’s alleged failure to comply with the Act and its implementing rules.

Since that time motor carriers have seen the growth of a cottage industry built on class action law suits on behalf of owner-operators against carriers alleged either to have used leases failing to meet the requirements of the so-called Truth-In-Leasing regulations or to have failed to have conducted the carrier/owner-operator relationship in a manner consistent with lease provisions facially complying with the regulations.

To date, such actions have targeted larger carriers, such as Swift, Prime, Heartland Express, Mayflower and, most recently, Allied. The reason for this is obvious. Litigation with these carriers is more likely to generate the “pot” attractive to class-action plaintiff counsel.

It would be ill advised, however, to find comfort in the notion that smaller carriers are not being currently targeted. As larger targets dwindle, targets of secondary opportunity are sure to come to the forefront.

Although “victories” are being reported by some carrier parties, as well as by owner-operator interests, it is important to note that these tend not to be total victories. Instead, they more often than not relate to procedural issues, such as statutes of limitation, failure to exhaust arbitration procedures, and like, rather than the more substantive issues raised in litigation. More important is the fact that the underlying, fundamental exposure of carriers to the private actions of owner-operators is now well recognized.

The bulk of the lease-related litigation currently revolves around “escrows” and owner-operator “charge-backs.” The leasing regulations cover a wider range of issues, however, and any one of them could serve as a possible litigation trap.

Because of this, it is advisable for all carriers now leasing equipment and drivers to undertake a review of their lease documents and practices. It may very well be time to update, or maybe even replace, The Lease.