Pig or Prince? Cleaning up Your CSA Scores - May Call for an Extreme Makeover
SAN ANTONIO, TX… For truckers, a bad Compliance, Safety, Accountability (CSA) BASIC score can lead to lost business says Stephen T. Dennis, a partner and transportation expert with Strasburger & Price, LLP, a Texas-based law firm. But, Dennis says, for some who find themselves in that situation, “reincarnation” may be the key.
Dennis asks, “How many times have you been confronted with this conversation? ‘I would love to use your services, but one of your Compliance, Safety, Accountability (CSA) BASIC scores has a yellow triangle with an exclamation point. My lawyer tells me that my company may be subject to potential liability if I use you. Clean up your BASIC scores and we can relook at a business relationship’.” Dennis explains there are things you can do.
In fact, he says, “There are numerous ways to clean up your CSA BASIC scores, but in some circumstances, it may make sense to start over and create an entirely new company.” Dennis says it sounds more difficult than it really is. He says, “But as with all ‘reincarnation,’ you want to make sure your company comes back as a prince and not a pig.”
The reincarnation god, also known as the Federal Motor Carrier Safety Administration (FMCSA), has set up new rules that you need to consider in making any decision to reincarnate. The intent of the rules is to prevent motor carriers from reincarnating when they engage in egregious instances of noncompliance and evasion related to the Federal Motor Carrier Safety Regulations.
According to Dennis, the new rules were proposed as a result of a tragic incident. In this case, a 2008 fatal bus crash in Sherman, Texas spurred action. Investigation revealed that the motor carrier did not have operating authority from the FMCSA. Instead, it had an application for authority pending with the Agency. More importantly, the bus company turned out to be a reincarnation of another bus company which the FMCSA recently placed out of service. Not surprisingly, the FMCSA wanted to ensure this situation did not arise again.
To prevent tragic accidents from reincarnated motor carriers or their affiliates, the FMCSA invoked its power to issue out-of-service orders. Specifically, motor carriers, intermodal equipment providers, brokers, and freight forwarders determined to reincarnate or operate as affiliates to avoid enforcement action or a negative Dennis says that, “administrative review applies to any out-of-service order issued.” He says, “In addition to being placed out of service, the FMCSA may also consolidate the compliance records of reincarnated carriers and their predecessor affiliated carriers. In other words, if your reincarnated company finds itself under FMCSA scrutiny, there is a strong chance that your new company will be placed out-of-service and will be stuck with your previous company’s safety record."
Dennis says, “Sounds like a pig to me.”
Making sure your new company is a prince and not a pig takes some thoughtful action. As always, the devil is in the details.
The FMCSA notes that a motor carrier who changes its operational model for a legitimate business purpose and not to avoid FMCSA regulation or enforcement is not prohibited by the reincarnation rule. Of course, the definition of a “legitimate purpose” and the meaning of “avoid[ing] FMCSA regulation or enforcement” remain to be seen. Nonetheless, there are some guiding principles that should be helpful.
Specifically, the FMCSA looks at the intent behind the motor carrier’s conduct. If a new motor carrier shows an attempt to avoid compliance with regulations or the consequences of past violations, then an out-of-service order may be issued. Conversely, if the totality of available information demonstrates a legitimate business purpose for the change, such as a corporate restructuring or the addition of a new or even somewhat different ownership structure, then it is likely that no order would be issued.
The FMCSA will be using 13 factors to guide this determination. The factors are rather lengthy, but range from the consideration exchanged for assets purchased or transferred, to the commonality of drivers and other employees.
In addition to the FMCSA regulations, other practical considerations regarding reincarnation should be considered. For example, if you are seeking a fresh start and clean CSA scores, then you need to make sure that old habits that led to undesirable CSA scores are addressed and remedied. Failure to do this will likely put you back in the same position or will cause you to face even greater scrutiny from the FMCSA.
“Another thought,” SAYS Dennis, “is that your reincarnated company will be a brand new carrier.” He says, “Many customers may not be comfortable working with a ‘start up.’ As a result, you may want to discuss reincarnation with your customers prior to reincarnating. After all, reincarnation may not make sense if your reincarnated company cannot find any business.”
Strasburger & Price, LLP is a full-service law firm with offices in Austin, Collin County, Dallas, Houston, and San Antonio, Texas (as Strasburger Price Oppenheimer Blend), New York City, Washington, D.C. and through Strasburger & Price, S.C., Mexico City. Strasburger serves as a trusted adviser to publicly and privately held companies, entrepreneurs, governmental entities and individuals. Strasburger attorneys represent a variety of companies including start up, middle market and international corporations. For more information about Strasburger, please visit www.strasburger.com.