Factory Mutual Insurance Company v. One Source Logistics, Llc

NOTICE OF MOTION AND MOTION to Dismiss Case

C.D. Cal.October 28, 2016

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MOTION TO DISMISS Factory Mut. Ins. Co. v. One Source Logistics LLC, Case No.: 2:16-cv-06385 Kenneth R. Feit (NY Bar No. 1541614) admitted pro hac vice kfeit@tellcheser.com Tell, Cheser & Breitbart 320 Old Country Road Garden City, NY 11530 Tel: (516) 535-1550 Fax: (515) 535-1552 Attorney for Defendant ONE SOURCE LOGISTICS LLC UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA FACTORY MUTUAL INSURANCE COMPANY, Plaintiff, vs. ONE SOURCE LOGISTICS LLC, Defendant. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No.: 2:16-cv-6385 JAK (JPRx) NOTICE OF AND MOTION TO DISMISS COMPLAINT AND SUPPORTING MEMORANDUM OF POINTS AND AUTHORITIES FRCP Rule 12(b)(6) Date: February 27, 2017 Time: 8:30 AM Place: Courtroom 750 Judge: Hon. John A. Kronstadt PLEASE TAKE NOTICE that on Monday, February 27, 2017, at 8:30 AM, or as soon thereafter as counsel can be heard, in Courtroom 750 at the Roybal Federal Building, 255 East Temple Street, Los Angeles, California 90012, Defendant ONE SOURCE LOGISTICS LLC will move this Court before the Honorable John A. Kronstadt pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure: (1) dismissing Plaintiff’s first cause of action for breach of services agreement on the Case 2:16-cv-06385-JAK-JPR Document 16 Filed 10/28/16 Page 1 of 2 Page ID #:118 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MOTION TO DISMISS Factory Mut. Ins. Co. v. One Source Logistics LLC, Case No.: 2:16-cv-06385 ground that the terms of services agreement preclude the requested relief, and (2) dismissing Plaintiff’s second cause of action for negligent selection on the ground that such cause of action is barred by statute. This motion is made following the conferences of counsel pursuant to L.R. 7-3 which took place on September 12, 2016 and October 11, 2016 concerning the substance of this motion and a potential resolution of this matter, but were unable to reach any agreement eliminating the necessity of this motion. This motion is made upon this Notice of Motion, the attached Memorandum of Points and Authorities, the Declaration of Kevin Lynch, all papers on file in this action, and upon such further evidence as may be presented at the hearing of this motion. Dated: October 28, 2016 Respectfully submitted, . s/Kenneth R. Feit . Kenneth R. Feit Attorney for Defendant One Source Logistics LLC -2- Case 2:16-cv-06385-JAK-JPR Document 16 Filed 10/28/16 Page 2 of 2 Page ID #:119 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MEMORANDUM OF POINTS AND AUTHORITIES Factory Mut. Ins. Co. v. One Source Logistics LLC, Case No.: 2:16-cv-06385 Kenneth R. Feit (NY Bar No. 1541614) admitted pro hac vice kfeit@tellcheser.com Tell, Cheser & Breitbart 320 Old Country Road Garden City, NY 11530 Tel: (516) 535-1550 Fax: (515) 535-1552 Attorney for Defendant ONE SOURCE LOGISTICS LLC UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA FACTORY MUTUAL INSURANCE COMPANY, Plaintiff, vs. ONE SOURCE LOGISTICS LLC, Defendant. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No.: 2:16-cv-6385 JAK (JPRx) MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS COMPLAINT FRCP Rule 12(b)(6) Date: February 27, 2017 Time: 8:30 AM Place: Courtroom 750 Judge: Hon. John A. Kronstadt Defendant One Source Logistics LLC respectfully submits the following Memorandum of Points and Authorities in support of its motion to dismiss the Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Case 2:16-cv-06385-JAK-JPR Document 16-1 Filed 10/28/16 Page 1 of 17 Page ID #:120 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 i MEMORANDUM OF POINTS AND AUTHORITIES Factory Mut. Ins. Co. v. One Source Logistics LLC, Case No.: 2:16-cv-06385 Table of Contents Table of Authorities ............................................................................................... ii I. Introduction ...................................................................................................... 2 A. The Complaint .......................................................................................... 2 B. The Agreement .......................................................................................... 4 II. Argument ......................................................................................................... 6 A. THE AGREEMENT’S EXCULPATORY PROVISION RELIEVES OSL OF LIABILITY ........................................ 6 B. FEDERAL LAW PRECLUDES THE NEGLIGENCE CAUSE OF ACTION ....................................................... 9 III. Conclusion ..................................................................................................... 13 Case 2:16-cv-06385-JAK-JPR Document 16-1 Filed 10/28/16 Page 2 of 17 Page ID #:121 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ii MEMORANDUM OF POINTS AND AUTHORITIES Factory Mut. Ins. Co. v. One Source Logistics LLC, Case No.: 2:16-cv-06385 Table of Authorities Cases AIG Europe Ltd. v. Gen. Sys. Inc., 2014 WL 3671566 (D. Md. 2014) ................................................................. 11 Alpine Fresh Inc. v. Jala Trucking Corp., 016 WL 3876656 (D.N.J. 2016) ................................................................... 12 Ameriswiss Tech. LLC v. Midway Line of Illinois Inc., 88 F. Supp. 2d 197 (D.N.H. 2012) ............................................................... 12 ASARCO LLC v. England Logistics Inc., 71 F. Supp. 3d 990 (D. Ariz. 2014) .................................................... 10, 11, 12 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ........................................................................................ 9 Belnick Inc. v. TBB Glob. Logistics Inc., 106 F. Supp. 3d 551 (M.D. Pa. 2015) ............................................................ 12 Chubb Grp. of Ins. Cos. v. H.A. Transp. Sys. Inc., 243 F. Supp. 2d 1064 (C.D. Cal. 2002) ......................................................... 10 Doe YZ v. Shattuck-St. Mary’s Sch., 2016 WL 5858641 (D. Minn. 2016) .............................................................. 13 Ebarle v. Lifelock Inc., 2016 WL 5076203 (N.D. Cal. 2016) (8th Cir. 2011) ...................................... 6 Gage v. HSM Elec. Prot. Servs., Inc., 655 F.3d 821 (8th Cir. 2011) ........................................................................... 7 Huntington Operating Corp. v. Sybonney Exp., Inc., 2010 WL 1930087 (S.D. Tex. 2010) ............................................................. 12 Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001) ................................................................... 6 Case 2:16-cv-06385-JAK-JPR Document 16-1 Filed 10/28/16 Page 3 of 17 Page ID #:122 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 iii MEMORANDUM OF POINTS AND AUTHORITIES Factory Mut. Ins. Co. v. One Source Logistics LLC, Case No.: 2:16-cv-06385 Marx Companies LLC v. W. Trans Logistics Inc., 2015 WL 260914 (D.N.J. 2015) ................................................................... 12 Moss v. Infinity Ins. Co., 2016 WL 3753109 (N.D. Cal. 2016) ............................................................. 13 Non Typical Inc. v. Transglobal Logistics Grp. Inc., 2012 WL 1910076 (E.D. Wis. 2012)............................................................. 11 Robertson v. Dean Witter Reynolds Inc., 749 F.2d 530 (9th Cir. 1984) ......................................................................... 13 St. Jude Med. S.C. Inc. v. Biosense Webster Inc., 818 F.3d 785, 788 (8th Cir. 2016) ................................................................. 6 Statutes 49 U.S.C. §13102(2) ...................................................................................... 2, 5, 10 49 U.S.C. §14501(b)(1) .................................................................................... 10, 13 49 U.S.C. §14706(a)(1) ......................................................................................... 10 Case 2:16-cv-06385-JAK-JPR Document 16-1 Filed 10/28/16 Page 4 of 17 Page ID #:123 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 2 - MEMORANDUM OF POINTS AND AUTHORITIES Factory Mut. Ins. Co. v. One Source Logistics LLC, Case No.: 2:16-cv-06385 MEMORANDUM OF POINTS AND AUTHORITIES I. Introduction Plaintiff Factory Mutual Insurance Company brings this subrogation action to recoup its payment to its insured Christopher & Banks Corporation (“C&B”) for the loss of a shipment of women’s clothing. The shipment was loaded on a motor truck in City of Industry, California for transportation to Plymouth, Minnesota. Plaintiff alleges that an impostor stole the shipment. Subject matter jurisdiction is premised on the parties’ diverse citizenship. Defendant One Source Logistics LLC (“OSL”), as an intermediary, matched C&B’s shipment with motor carrier GC Logistics. In so doing, OSL functioned as a “broker” consistent with the statutory definition in 49 U.S.C. §13102(2), which reads: “The term ‘broker’ means a person, other than a motor carrier or an employee or agent of a motor carrier, that as a principal or agent sells, offers for sale, negotiates for, or holds itself out by solicitation, advertisement, or otherwise as selling, providing, or arranging for, transportation by motor carrier for compensation.” A. The Complaint A copy of the Complaint is attached to the Declaration of Kevin Lynch as Exhibit A. The Complaint describes OSL as “a freight broker arranging for the carriage of goods in transit.” (Ex. A, Complaint, ¶ 2.) The Complaint states that “a certain Transportation and Logistics Services Agreement” governed the brokerage Case 2:16-cv-06385-JAK-JPR Document 16-1 Filed 10/28/16 Page 5 of 17 Page ID #:124 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 3 - MEMORANDUM OF POINTS AND AUTHORITIES Factory Mut. Ins. Co. v. One Source Logistics LLC, Case No.: 2:16-cv-06385 operations that OSL provided to C&B, which included arranging motor carrier shipments via “trucking companies federally licensed to haul cargo pursuant to 49 U.S.C. section 13902.” (Ex. A, Complaint, ¶ 5, 6.) In October 2014,1 OSL brokered the C&B shipment at issue, comprised of women’s clothing, which was picked up in City of Industry, California, but was never delivered to the designated destination in Plymouth, Minnesota. (Ex. A, Complaint, ¶4.) The Complaint generally attributes recurring thefts of shipments by imposters to the presumed carelessness of brokers like OSL who designate motor carriers to transport shipments without first doing sufficient due diligence. (Ex. A, Complaint, ¶7.) The Complaint identifies GC Logistics as the motor carrier assigned to transport the C&B shipment, and alleges that OSL had no prior relationship with GC Logistics, that GC Logistics lacked the required federal license, and that OSL made errors in the vetting and selection of CG Logistics. (Ex. A, Complaint, ¶8.) According to the Complaint, criminals deceived OSL by “masquerading as CG Logistics,” supposedly enabling the criminals to receive and steal the shipment. (Ex. A, Complaint, ¶9.) 1 It is understood that the date “October 6, 2016” in Paragraph 4 of the Complaint should actually read “October 6, 2014.” Case 2:16-cv-06385-JAK-JPR Document 16-1 Filed 10/28/16 Page 6 of 17 Page ID #:125 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 4 - MEMORANDUM OF POINTS AND AUTHORITIES Factory Mut. Ins. Co. v. One Source Logistics LLC, Case No.: 2:16-cv-06385 B. The Agreement The Transportation and Logistics Services Agreement (the “Agreement”) is Exhibit B to the Declaration of Kevin Lynch. For purposes of this motion, the pages of Exhibit B have been numbered from B1 to B16. The Agreement refers to C&B as “Customer.” (Ex. B, Agreement, p. B1, first unnumbered paragraph.) The “Scope of Services” section states in part: “Customer agrees to engage OSL to provide logistics consulting, transportation management services and to tender its commodities for transportation by motor carriers through OSL as an intermediary as described in the attached Exhibits.” (Ex. B, Agreement, p. B1, ¶ 1.) The Agreement’s Exhibit A, under the heading “Property Brokerage Services,” states in relevant part: “OSL shall arrange for the intrastate and interstate domestic transportation of Customer’s Freight through the selection of duly authorized motor carriers. a. Customer agrees to tender its Freight for transportation by motor carriers through OSL as an intermediary and to delegate to OSL complete working control over each shipment of commodities. b. OSL shall arrange for the transportation of the shipments through various motor carriers which are under contract directly with OSL.” (Ex. B, Agreement, p. B9, ¶ 1.) Section 10 of the Agreement, headed “Compliance With Applicable Law,” begins at the end of page B3 and continues to page B4, where it states: “The parties agree that for purposes of arranging motor carrier transportation under this Agreement, Case 2:16-cv-06385-JAK-JPR Document 16-1 Filed 10/28/16 Page 7 of 17 Page ID #:126 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 5 - MEMORANDUM OF POINTS AND AUTHORITIES Factory Mut. Ins. Co. v. One Source Logistics LLC, Case No.: 2:16-cv-06385 OSL is and at all times will be operating as a ‘property broker’ as defined in 49 U.S.C. §13102(2),2 and not as a ‘motor carrier’ or a ‘freight forwarder.’” (Ex. B, Agreement, p. B3, ¶ 10.) Section 11 of the Agreement, headed “Cargo Claims,” states in relevant part: “OSL shall not be liable to Customer for claims, including, but not limited to: (a) cargo loss, damage or delay claims . . . except to the extent such claim is due directly to the negligent acts or omissions, willful misconduct or bad faith of OSL, its employees or agents.” (emphasis added, Ex. B, Agreement, p. B4, ¶ 11.) The beginning of Section 11 and Exhibit A provide that “OSL shall provide Services relating to the administration of cargo claims[.]” (Ex. B, Agreement, p. B4, ¶ 11, p. B10, p. 4.) The Agreement, in Section 7, “Governing Law,” provides in part: “This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota, unless superseded specifically by applicable federal laws and regulations.” (Ex. B, Agreement, p. B7, ¶22.) The Agreement, in its first unnumbered paragraph, gives Minnesota addresses for both C&B and OSL (Ex. B, Agreement, p. B1.) 2 The text of 49 U.S.C. §13102(2) is quoted on page 2 of this Memorandum. Case 2:16-cv-06385-JAK-JPR Document 16-1 Filed 10/28/16 Page 8 of 17 Page ID #:127 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 6 - MEMORANDUM OF POINTS AND AUTHORITIES Factory Mut. Ins. Co. v. One Source Logistics LLC, Case No.: 2:16-cv-06385 II. Argument A. THE AGREEMENT’S EXCULPATORY PROVISION RELIEVES OSL OF LIABILITY The Agreement, in Section 11, “Cargo Claims,” in the following language, relieves OSL of liability for the loss of the C&B shipment: “OSL shall not be liable to Customer for claims, including, but not limited to: (a) cargo loss, damage or delay claims . . . except to the extent such claim is due directly to the negligent acts or omissions, willful misconduct or bad faith of OSL, its employees or agents.” (emphasis added, Ex. B, Agreement, p. B4, ¶ 11.) The Agreement is properly before the Court, although this is a Rule 12(b)(6) motion to dismiss, because the Complaint “necessarily relies” on the Agreement to support the first cause of action and its authenticity is not subject to genuine dispute. Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001). The Complaint alleges diversity jurisdiction. (Ex A, Complaint, ¶3.) The Agreement includes a Minnesota choice of law provision. (Ex. B, Agreement, p. B7, ¶22.) In diversity cases, the choice of law rules of the state where the federal court is situated control. Ebarle v. Lifelock Inc., 2016 WL 5076203 at *7 (N.D. Cal. 2016). Minnesota recognizes contractual choice of law provisions. St. Jude Med. S.C. Inc. v. Biosense Webster Inc., 818 F.3d 785, 788 (8th Cir. 2016). “[T]he Minnesota Supreme Court has explained that exculpatory clauses do not violate public policy when applied to claims of ordinary negligence, but do Case 2:16-cv-06385-JAK-JPR Document 16-1 Filed 10/28/16 Page 9 of 17 Page ID #:128 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 7 - MEMORANDUM OF POINTS AND AUTHORITIES Factory Mut. Ins. Co. v. One Source Logistics LLC, Case No.: 2:16-cv-06385 violate public policy, and are therefore unenforceable, against claims of ‘willful and wanton negligence.’” Gage v. HSM Elec. Prot. Servs., Inc., 655 F.3d 821, 825, (8th Cir. 2011). “Willful and wanton negligence,” as understood under Minnesota law, refers to a defendant’s failure to exercise ordinary care when actually aware that a person or property is in a position of peril, and the defendant has the ability to avert the danger to the person or property, but fails to do so. Id. at 826. In Gage, a security service monitored a house, received a low temperature alarm from the house, and thus became aware that the house was endangered by low temperatures, but failed to notify anyone on its call list. Subsequently, a pipe in the house burst due to low temperatures, causing property damage. Id. at 823. The Eighth Circuit found a question of fact concerning whether the alarm company employee who received the alarm signal, although aware of a presently existing peril, “was willingly ignoring her duty” to follow the procedures made necessary by the low temperature alarm. Id. at 829. The Complaint in this action makes no claim that any OSL employee or agent had contemporaneous knowledge of an existing peril endangering the shipment. The Complaint makes no claim that OSL was aware of the impostor’s scheme as it was unfolding. The “willful and wanton negligence” exception is therefore inapplicable. There is another reason why the “willful and wanton negligence” exception is inapplicable. The Eighth Circuit explained in Gage that under Minnesota Case 2:16-cv-06385-JAK-JPR Document 16-1 Filed 10/28/16 Page 10 of 17 Page ID #:129 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 8 - MEMORANDUM OF POINTS AND AUTHORITIES Factory Mut. Ins. Co. v. One Source Logistics LLC, Case No.: 2:16-cv-06385 law contractual exculpatory provisions that violate public policy are unenforceable. Id. at 825. The authorities cited in Point B of this Memorandum show that federal law displaces state law and precludes negligence claims against brokers. While Minnesota law controls the construction of the Agreement, to the extent that it may be necessary to determine if enforcing the Agreement as written would violate public policy, the more pertinent public policy considerations are expressed by the overriding federal law rather than the supplanted state law. Therefore, a contractual provision that relieves a broker from liability should not be regarded as contrary to public policy. The Complaint fails to include factual allegations showing that the loss of the C&B shipment was “due directly to the negligent acts or omissions, willful misconduct or bad faith of OSL, its employees or agents.” (emphasis added, Ex. B, Agreement, p. B4, ¶ 11.) The Complaint says nothing to causally connect OSL’s lack of a prior relationship with GC Logistics, or GC Logistics’ lack of the required federal license, or any of OSL’s other unspecified errors in its vetting and selection of CG Logistics, to the “criminals masquerading as GC Logistics,” or to the theft of the shipment. The Complaint fails to demonstrate that OSL’s alleged acts and omissions were even a remote cause of the theft. The Complaint is devoid of allegations of facts to show how OSL’s supposed acts and omissions led to the impostors’ receipt and theft of the shipment. A creative mind may be able to envision various imaginary Case 2:16-cv-06385-JAK-JPR Document 16-1 Filed 10/28/16 Page 11 of 17 Page ID #:130 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 9 - MEMORANDUM OF POINTS AND AUTHORITIES Factory Mut. Ins. Co. v. One Source Logistics LLC, Case No.: 2:16-cv-06385 scenarios, but the Complaint lacks factual allegations from which reasonable inferences can be drawn. “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, ibid., a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of a cause of action’s elements will not do. Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all of the complaint’s allegations are true.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 545 (2007). The Agreement’s exculpatory language is valid and enforceable under Minnesota law. The Complaint does not allege that OSL engaged in “willful and wanton negligence” as the term is understood under Minnesota law, or that the loss of the shipment was “due directly to the negligent acts or omissions, willful misconduct or bad faith of OSL.” The Agreement validly relieves OSL of liability for the loss of the shipment, and thus demonstrates that the Complaint fails to state a claim upon which relief can be granted. B. FEDERAL LAW PRECLUDES THE NEGLIGENCE CAUSE OF ACTION The Complaint alleges that OSL’s function, as broker, was to make arrangements to transport C&B shipments by “trucking companies federally licensed to haul cargo pursuant to 49 U.S.C. section 13902,” (Ex. A, Complaint, ¶ 6) The Case 2:16-cv-06385-JAK-JPR Document 16-1 Filed 10/28/16 Page 12 of 17 Page ID #:131 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 10 - MEMORANDUM OF POINTS AND AUTHORITIES Factory Mut. Ins. Co. v. One Source Logistics LLC, Case No.: 2:16-cv-06385 shipment was loaded in City of Industry, California for delivery in Plymouth, Minnesota. Plaintiff complains that “[a]fter pickup in City of Industry, it was never delivered to Plymouth.” (Ex. A, Complaint, ¶ 4) It is evident that the shipment was an interstate shipment subject to the Carmack Amendment, 49 U.S.C. 14706(a)(1). The Carmack Amendment governs motor carriers and freight forwarders, but not brokers. Chubb Grp. of Ins. Cos. v. H.A. Transp. Sys. Inc., 243 F. Supp. 2d 1064, 1068-1069 (C.D. Cal. 2002). The Complaint’s description of OSL’s services is consistent with the 49 U.S.C. §13102(2) definition of “broker” quoted on page 2 of this Memorandum. Courts have held that the Interstate Commerce Commission Termination Act (“ICCTA”), 49 U.S.C. §14501(b)(1), precludes negligence actions against brokers. Section 14501(b)(1) reads as follows: (1) General rule. -- Subject to paragraph (2) of this subsection, no State or political subdivision thereof and no intrastate agency or other political agency of 2 or more States shall enact or enforce any law, rule, regulation, standard, or other provision having the force and effect of law relating to intrastate rates, intrastate routes, or intrastate services of any freight forwarder or broker. ASARCO LLC v. England Logistics Inc., 71 F. Supp. 3d 990 (D. Ariz. 2014), is on point. The shipper asked England Logistics and CR England to arrange Case 2:16-cv-06385-JAK-JPR Document 16-1 Filed 10/28/16 Page 13 of 17 Page ID #:132 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 11 - MEMORANDUM OF POINTS AND AUTHORITIES Factory Mut. Ins. Co. v. One Source Logistics LLC, Case No.: 2:16-cv-06385 an interstate shipment. They engaged Plumley Trucking, who, through Plumley Logistics, assigned the shipment to Pavlyukh Express, whose driver picked up the shipment, after which the shipment was never seen again. Id. at 993. The plaintiff alleged that the Plumley entities breached their duties by engaging Pavlyukh Express, a new company that lacked an established history, and by otherwise failing to exercise due care. Id. at 1004. The ASARCO court determined that the “negligence claims against the Plumley and England Defendants [were] pre-empted under §14501 and all Defendants [were] entitled to summary judgment on ASARCO’s negligence claims[.]” Id. at 1007. ASARCO noted that one court found preemption in part because “given the amount of damages sought on the negligence claim, permitting such a claim to go forward would have an economic effect on the rates the broker charges and how it provides transportation services.” 3 Id. at 1006. ASARCO noted that a second court ruled that the ICCTA preempted a negligence claim against a broker for failing to advise the shipper that the carrier was underinsured. 4 Id. at 1006. ASARCO noted that a third court ruled that the ICCTA preempted a negligence claim against a broker for failing to ensure that the carrier maintained sufficient 3 The cited case is Non Typical Inc. v. Transglobal Logistics Grp. Inc., 2012 WL 1910076 at *3 (E.D. Wis. 2012). 4 The cited case is AIG Europe Ltd. v. Gen. Sys. Inc., 2014 WL 3671566 at *4 (D. Md. 2014). Case 2:16-cv-06385-JAK-JPR Document 16-1 Filed 10/28/16 Page 14 of 17 Page ID #:133 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 12 - MEMORANDUM OF POINTS AND AUTHORITIES Factory Mut. Ins. Co. v. One Source Logistics LLC, Case No.: 2:16-cv-06385 insurance. 5 Id. at 1006. All of the factors that led ASARCO to dismiss the negligence claims apply with equal force to the second cause of action. Other decisions are to the same effect. See Belnick Inc. v. TBB Glob. Logistics Inc., 106 F. Supp. 3d 551 (M.D. Pa. 2015) (Tort claims against broker preempted as a matter of law by ICCTA. Id. at 553.); Alpine Fresh Inc. v. Jala Trucking Corp., 2016 WL 3876656 (D.N.J. 2016) (Common law negligence and bailment claims against broker preempted by ICCTA. Id. at *5.); Marx Companies LLC v. W. Trans Logistics Inc., 2015 WL 260914 (D.N.J. 2015) (Claims premised on duties to adhere to professional freight broker standards and to retain only competent, honest and reliable motor carriers held barred by ICCTA. Id. at *2 and *4.); and Ameriswiss Tech. LLC v. Midway Line of Illinois Inc., 888 F. Supp. 2d 197, 200 (D.N.H. 2012) (Negligence claim against broker “expressly preempted” by the ICCTA. Id. at 200 and 205.) The preceding authorities demonstrate that the ICCTA precludes a claim premised on the alleged acts and omissions listed in paragraph 12 of the Complaint, and the asserted due diligence shortcomings described in paragraphs 7, 8 and 9 of the Complaint. 5 The cited case is Huntington Operating Corp. v. Sybonney Exp., Inc., 2010 WL 1930087 (S.D. Tex. 2010). Case 2:16-cv-06385-JAK-JPR Document 16-1 Filed 10/28/16 Page 15 of 17 Page ID #:134 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 13 - MEMORANDUM OF POINTS AND AUTHORITIES Factory Mut. Ins. Co. v. One Source Logistics LLC, Case No.: 2:16-cv-06385 The second cause of action, like the first cause of action, fails to allege facts demonstrating a causal connection between the alleged acts, omissions and lack of due care, and the theft of the shipment. It is therefore worth noting that proximate cause is an essential element of a negligence claim. Doe YZ v. Shattuck-St. Mary’s Sch., 2016 WL 5858641 (D. Minn. 2016) (Proof of a Minnesota negligence claim requires evidence that the breach of a duty of care was a proximate cause of the injury. Id. at *18). Moss v. Infinity Ins. Co., 2016 WL 3753109 (N.D. Cal. 2016) (Proof of a California negligence claim requires evidence that the breach of a legal duty to use due care was the proximate or legal cause of the resulting injury. Id. at *3) The Interstate Commerce Commission Termination Act, 49 U.S.C. §14501(b)(1), preempts negligence actions against brokers. The Complaint fails to include factual allegations establishing a causal connection between the alleged acts, omissions and lack of due care, and the theft of the shipment. The Complaint’s second cause of action thus fails to state a claim upon which relief can be granted. III. Conclusion Dismissal of the Complaint’s two causes of action under Rule 12(b)(6) is required because both are deficient for the “(1) lack of a cognizable legal theory [and] (2) insufficient facts under a cognizable legal claim.” Robertson v. Dean Witter Reynolds Inc., 749 F.2d 530, 534 (9th Cir. 1984). These deficiencies cannot be cured Case 2:16-cv-06385-JAK-JPR Document 16-1 Filed 10/28/16 Page 16 of 17 Page ID #:135 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 14 - MEMORANDUM OF POINTS AND AUTHORITIES Factory Mut. Ins. Co. v. One Source Logistics LLC, Case No.: 2:16-cv-06385 by an amended pleading. It is therefore respectfully requested that the Complaint be dismissed, outright and in its entirety. Dated: October 28, 2016 Respectfully submitted, s/Kenneth R. Feit . Kenneth R. Feit Attorney for Defendant One Source Logistics LLC Case 2:16-cv-06385-JAK-JPR Document 16-1 Filed 10/28/16 Page 17 of 17 Page ID #:136 Case 2:16-cv-06385-JAK-JPR Document 16-2 Filed 10/28/16 Page 1 of 3 Page ID #:137 Case 2:16-cv-06385-JAK-JPR Document 16-2 Filed 10/28/16 Page 2 of 3 Page ID #:138 Case 2:16-cv-06385-JAK-JPR Document 16-2 Filed 10/28/16 Page 3 of 3 Page ID #:139 EXHIBIT A Case 2:16-cv-06385-JAK-JPR Document 16-3 Filed 10/28/16 Page 1 of 6 Page ID #:140 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 JOSHUA A SOUTHWICK (246296) GIBSON ROBB & LINDH LLP 201 Mission Street, Suite 2700 San Francisco, California 94105 Telephone: (415) 348-6000 Facsimile: (415) 348-6001 Email: jsouthwick@gibsonrobb.com Attorneys for Plaintiff FACTORY MUTUAL INSURANCE COMPANY UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA FACTORY MUTUAL INSURANCE COMPANY; Plaintiff, v. ONE SOURCE LOGISTICS, LLC; Defendant. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No.: 2:16-cv-06385 COMPLAINT ________________________________ (Damages in the sum of $371,245.73) Plaintiff's complaint follows: GENERAL ALLEGATIONS 1. FACTORY MUTUAL INSURANCE COMPANY ("FM GLOBAL") is a duly licensed corporation headquartered in, and organized under the laws of the state of Rhode Island. FM GLOBAL brings this action on its own behalf and as the subrogee and assignee of CHRISTOPHER AND BANKS CORPORATION ("C&B"). / / / COMPLAINT Case No.: 2:16-cv-06385; File No.: 5723.14 Case 2:16-cv-06385-JAK-JPR Document 1 Filed 08/25/16 Page 1 of 5 Page ID #:1Case 2:16-cv 06385-JAK-JPR Document 16-3 il 10/ 8/ 2 f 6 I : 41 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2. Plaintiff is informed and believes and on the basis of that information and belief alleges that ONE SOURCE LOGISTICS, LLC (“ONE SOURCE”) is a Minnesota corporation with its principal place of business in Minnesota, and was at all times material a freight broker arranging for the carriage of goods in transit. 3. The parties hereto are completely diverse, and the amount in controversy exceeds the jurisdictional limit. Jurisdiction is proper under 28 U.S.C. section 1332. Venue is proper in this district pursuant to 28 U.S.C. section 1391(b)(2). 4. On or around October 6, 2016, ONE SOURCE agreed to broker a load of women’s clothing on behalf of C&B. The clothing was to be carried from City of Industry, California, to Plymouth, Minnesota. After pickup in City of Industry, it was never delivered to Plymouth. C&B’s cargo of clothing had a landed value of some $371,245.73. 5. ONE SOURCE and C&B are parties to a certain TRANSPORTATION AND LOGISTICS SERVICE AGREEMENT (“the SERVICE AGREEMENT”) that governed ONE SOURCE’s logistics services with respect to C&B, including its brokerage operations. The SERVICE AGREEMENT applied to the shipment of women’s clothing that is the subject of this action. 6. The SERVICE AGREEMENT provides, among other things, that ONE SOURCE is to arrange shipments of C&B’s freight with motor carriers. Motor carriers of freight are trucking companies federally licensed to haul cargo pursuant to 49 U.S.C. section 13902. 7. In the past decade, criminals have effected numerous cargo thefts by posing as legitimate trucking companies. These “impostor” claims are a well- known and well-documented industry problem, and have been the subject of numerous industry publications and trainings. Generally, the criminals present fake documentation to load brokers like ONE SOURCE. Careless load brokers COMPLAINT Case No.: 2:16-cv-06385; File No.: 5723.14 - 2 - Case 2:16-cv-06385-JAK-JPR Document 1 Filed 08/25/16 Page 2 of 5 Page ID #:2Case 2:16-cv 06385-JAK-JPR Document 16-3 il 10/ 8/ 3 f 6 I :142 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 who do not perform their due diligence – including cross-checking addresses, email addresses, phone numbers, insurance ACCORD forms, and federal licenses – then assign these loads to the criminals, and provide them with the load paperwork and other authenticating information. The criminals then show up to pickup the goods having been provided all the necessary documents and information by the load broker. 8. Here, ONE SOURCE failed to hire a licensed motor carrier to move the cargo as required by federal law and the SERVICE AGREEMENT. Instead, it elected to delegate C&B’s $371,245.73 cargo to persons with whom it had no prior relationship. Specifically, ONE SOURCE purported to tender the load to a “GC LOGISTICS” under a “Transportation Supply Agreement” dated October 3rd, 2014, just three days before the load was to be picked up. Plaintiff is informed and believes that ONE SOURCE had no prior relationship with “GC Logistics” and was in a rush to broker the load, leading to errors in its vetting and selection process. 9. The “GC Logistics” that ONE SOURCE arranged to carry the load was not a licensed motor carrier. To the contrary, ONE SOURCE was duped by criminals masquerading as “GC Logistics.” These criminals subsequently received the load and stole it. ONE SOURCE breached duties of care owed to C&B to ensure that C&B’s freight was carried by duly licensed, insured motor carriers and was not assigned to thieves. 10. As a result of the theft and non-delivery, C&B and its insurers made claims against ONE SOURCE and its liability insurers. They each refused to pay the claim. As a result, and pursuant to its policy of insurance, FACTORY MUTUAL was contractually obligated to satisfy C&B’ claim for the loss of the cargo, and made payments of $366,245.73 to C&B, which was the value of the goods net of C&B’s deductible. Plaintiff therefore brings this action as a subrogee of C&B. COMPLAINT Case No.: 2:16-cv-06385; File No.: 5723.14 - 3 - Case 2:16-cv-06385-JAK-JPR Document 1 Filed 08/25/16 Page 3 of 5 Page ID #:3Case 2:16-cv 06385-JAK-JPR Document 16-3 il 10/ 8/ 4 f 6 I :143 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 FIRST CAUSE OF ACTION (BREACH OF SERVICES AGREEMENT) 11. Plaintiff re-alleges and incorporates herein with like force and effect as though set forth fully each and every allegation of paragraphs 1 through 9 as set forth above. 12. ONE SOURCE breached the SERVICE AGREEMENT by, among other things: (a) failing to broker C&B’s cargo to duly licensed motor carriers; (b) negligently providing proprietary load information to unknown criminal third parties who used the information to steal the load; (c) failing to use reasonable care in its selection of motor carriers to haul C&B’s cargo; (d) instructing C&B’s designated agents to release the cargo to third parties who stole the cargo; and (e) failing to ensure that the motor carriers hired to carry the load had cargo legal liability insurance at actual value and agreed to cargo liability pursuant to 49 U.S.C. section 14706; (f) other breaches according to proof. 13. As a result of the aforesaid breaches, the cargo was not delivered to C&B, and plaintiff and its insured suffered a loss in the amount of $371,245.73, no part of which has been paid despite demand therefore. SECOND CAUSE OF ACTION (NEGLIGENT SELECTION) 14. Plaintiff re-alleges and incorporates herein with like force and effect as though set forth fully each and every allegation of paragraphs 1 through 12 as set forth above. 15. ONE SOURCE owed C&B a duty to use reasonable care in its selection of duly licensed motor carriers. ONE SOURCE breached this duty of COMPLAINT Case No.: 2:16-cv-06385; File No.: 5723.14 - 4 - Case 2:16-cv-06385-JAK-JPR Document 1 Filed 08/25/16 Page 4 of 5 Page ID #:4Case 2:16-cv 06385-JAK-JPR Document 16-3 il 10/ 8/ 5 f 6 I :144 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 care when it failed confirm the identity of the persons to whom it assigned C&B’s valuable cargo, and where it failed to confirm whether they carried insurance, were properly licensed, and/or were authorized agents and representatives of duly licensed motor carriers. 16. As a result of the aforesaid breaches, the cargo was not delivered to C&B, and plaintiff and its insured suffered a loss in the amount of $371,245.73, no part of which has been paid despite demand therefore. WHEREFORE, plaintiff prays that this Court enter judgment in its favor and against the defendants; that this Court decree payment by the defendants to plaintiff in the amount of $371,245.73, together with prejudgment interest thereon, and costs of suit herein; and that plaintiff have such other and further relief as in law and equity it may be entitled to receive. Dated: August 25, 2016 Respectfully submitted, GIBSON ROBB & LINDH LLP /s/ JOSHUA A. SOUTHWICK Joshua A. Southwick, Esq. Attorneys for Plaintiffs FACTORY MUTUAL INSURANCE COMPANY COMPLAINT Case No.: 2:16-cv-06385; File No.: 5723.14 - 5 - Case 2:16-cv-06385-JAK-JPR Document 1 Filed 08/25/16 Page 5 of 5 Page ID #:5Case 2:16-cv 06385-JAK-JPR Document 16-3 il 10/ 8/ 6 f 6 I :145 EXHIBIT B Case 2:16-cv-06385-JAK-JPR Document 16-4 Filed 10/28/16 Page 1 of 17 Page ID #:146 Original: 10/13/08 TRANSPORTATION AND LOGISTICS SERVICES AGREEMENT This Transportation and Logistics Services Agreement ("Agreement") is made and entered into this first day of September, 2008 by and between Christopher & Banks Corporation, with offices located at 2400 Xenium Lane North, Plymouth, Minnesota 55441 (hereinafter referred to as "Customer"), and One Source Logistics, LLC, a Minnesota limited liability company, with its principal office located at 109 -27'" Avenue Northeast, Minneapolis, Minnesota 55418 ("OSL"). WITNESSETH: WHEREAS, Customer is engaged in the shipping and receiving of women's apparel and accessories for sale in its retail stores ("Freight"); and WHEREAS, OSL is authorized as a property broker to arrange for the interstate transportation of property by motor carrier under License No. MC-465495-B issued by the Surface Transportation Board, and further engages in the provisioning of third party logistics consulting and transportation management services. WHEREAS, Customer is desirous of engaging the logistics and transportation management services of OSL for the transportation of Customer's freight in interstate and intrastate commerce. NOW, THEREFORE, in consideration of the mutual covenants and promises in this Agreement, the parties agree as follows: I. Scope of Services. a. This Agreement applies to OSL's performance of a variety of transportation and logistics services as more fully identified herein and further described in the attached Exhibits. Customer agrees to engage OSL to provide logistics consulting, transportation management services and to tender its commodities for transportation by motor carriers through OSL as an intermediary as described in the attached Exhibits. The specific services to be provided by OSL are more fully described on Exhibits A and C, as amended from time to time by the parties and as to be reflected in a Statement of Work entered into between the parties ("Services"). Any additional services requested by Customer and to be provided by OSL under this Agreement shall be subject to good faith negotiations between the parties concerning the scope and pricing for such services. As appropriate, an amended Exhibit A, B and C or Statement of Work shall be prepared and signed by OSL and the Customer for any such additional services. B1 Case 2:16-cv-06385-JAK-JPR Document 16-4 Filed 10/28/16 Page 2 of 17 Page ID #:147 b. During the term of this Agreement, Customer agrees to utilize OSL exclusively as its single source provider of transportation services for all domestic LessAhan-Truckload, Truckload and partial shipments when Customer is the payor of the freight charges, excluding FedEx shipments or such other service provider as is designated in writing by Customer. 2. Bills of Lading. For each shipment of freight as described in Exhibit A-1 ("Freight") tendered by or to Customer under this Agreement, OSL will prepare and complete a uniform bill oflading to be issued and executed by a motor carrier arranged by OSL under this Agreement. The bill of lading shall be signed by the carrier showing the kind, quantity and condition of the property received at the point of origin. In the event of any conflict between the terms and conditions of the bill oflading and this Agreement, the terms and conditions of this Agreement shall govern. 3. System. OSL shall provide an information management system to enable Customer to tender shipments, calculate rates and view shipment status ("System"). The System provided by OSL shall function in accordance with the operating standards and capabilities as more fully described on Exhibit A. OSL shall at all times possess and maintain all right, title and interest in the System. Customer acknowledges and agrees that nothing in this Agreement operates in any manner to confer upon, or vest in, Customer any right, title or interest in or lien on the System, other than the limited right to use the System on a royalty-free basis for purposes of this Agreement with OSL. Customer further agrees not to make any modifications or adjustments to the System and to keep the System at all times free and clear of all liens and encumbrances. 4. Reporting. OSL shall provide reports to Customer as more fully described on Exhibit A. Each report shall be in a form and contain such information as mutually agreed to by the parties. 5. On-Site Management Services. OSL agrees to provide to Customer the on-site personnel management Services as more fully described on Exhibit C. 6. Rates and Charges. a. For all Services provided under this Agreement, Customer agrees to pay OSL in accordance with the rates and charges set forth on Exhibit B. b. Where this Agreement does not have an applicable rate specified on Exhibit B, as it may be amended, Customer shall pay OSL at the rates agreed to in writing between Customer and OSL at or prior to the performance of the Service. Promptly after Customer and OSL tentatively agree upon an oral rate, OSL shall prepare a written confirmation of the rate and send it via facsimile to Customer, which - 2 - B2 Case 2:16-cv-06385-JAK-JPR Document 16-4 Filed 10/28/16 Page 3 of 17 Page ID #:148 shall be deemed accepted if not rejected by Customer within three (3) business days following receipt from OSL. 7. Invoices and Payment. a. OSL shall present invoices to Customer for Services performed under this Agreement at the time of delivery of a shipment. The form and format of invoices shall be based on OSL's billing system. The invoice shall include all Services and shipments for which OSL has provided Services the preceding calendar month. Payment terms shall be Net 30 days. Upon receipt of payment from Customer, OSL shall remit monies due to the authorized motor carrier. Customer agrees that it shall not have the right to offset amounts in dispute with motor carriers concerning claims or other disputes of any kind by deduction of said amounts from monies due OSL. OSL shall have no lien, and hereby waives and releases any right to any lien, security interest or encumbrance, whether statutory or otherwise, upon any shipment of property tendered by Customer under this Agreement. b. Interest shall accrue begirming on the first day after any invoiced amount is due and payable at the lesser of l .0% per month or the maximum rate permitted by applicable law. 8. Insurance. Unless otherwise requested by Customer in writing to OSL prior to a shipment, all motor carriers arranged by OSL will be required to maintain public liability and cargo insurance as required by applicable law but in no event shall any cargo of Freight be insured for less than its actual value. 9. Contracts With Motor Carriers. OSL represents and warrants to Customer that all motor carriers selected and engaged by OSL to provide the actual transportation of Customer's property pursuant to this Agreement shall be subject to a separate written agreement between OSL and each motor carrier. OSL further represents and warrants that all agreements with such motor carriers shall contain terms and conditions relating to (a) an obligation to transport commodities in a timely manner as specified on the bill of lading; (b) an express waiver of any and all rights and remedies of the motor carrier against Customer pursuant to 49 U.S.C. §14JOl(b); (c) rates and charges applicable to the transportation and related services to be perfonned appended as a schedule to OSL's contract and not dependent upon any motor carrier tariff; (d) automobile liability, commercial general liability, workers' compensation and cargo liability insurance (at actual value per Section 8); (e) cargo liability based on 49 U.S.C. § 14706; and (f) waiver of any statutory or common law lien, security interest or other encumbrance against the property. 10. Compliance With Applicable Law. Customer and OSL each agree to comply with applicable federal, state and local statutes, rules, regulations and ordinances the performance of this - 3 - B3 Case 2:16-cv-06385-JAK-JPR Document 16-4 Filed 10/28/16 Page 4 of 17 Page ID #:149 Agreement. The parties agree that for purposes of arranging motor carrier transportation under this Agreement, OSL is and at all times will be operating as a "property broker" as defined in 49 U.S.C. § 13102(2), and not as a "motor carrier" or a "freight forwarder." OSL will arrange for the surface transportation and delivery of Customer's property pursuant to contracts between OSL and certain motor carriers wherein OSL is the named shipper vis-a-vis such motor carriers. Customer is responsible to ensure that its products intended for transportation are properly marked or labeled in accordance with all applicable laws and regulations. J J. Cargo Claims. OSL shall provide Services relating to the administration of cargo claims as described on Exhibit A. All decisions regarding the disposition of any freight loss and damage claims, including but not limited to, decisions regarding compromise, settlement and litigation of such claims, shall be made by Customer. If Customer decides to litigate any aspect of any freight loss or damage claim, Customer shall pay all of its expenses incurred therewith. OSL shall not be liable to Customer for claims, including, but not limited to: (a) cargo loss, damage or delay claims; or (b) bodily injury or property damage claims asserted by third parties against the carrier and/or Customer, except to the extent such claim is due directly to the negligent acts or omissions, willful misconduct or bad faith of OSL, its employees or agents. J 2. Independent Contractor. It is mutually understood and agreed that OSL is and shall remain an independent contractor of Customer and nothing herein shall be construed to be inconsistent with such relationship or status. Neither party hereto is authorized to act for or in any manner represent itself as an agent of the other or to conduct or enter into any agreement for or on behalf of the other party. OSL specifically represents that it is not acting as an agent for any specific motor carrier for purposes of this Agreement or in conjunction with ru1y transportation provided under this Agreement. OSL is free to perform brokerage, transportation management and logistics consulting services for parties other than Customer. 13. Solicitation By Motor Carriers. a. Customer understands that OSL enters into agreements with other carriers which may prohibit back solicitation of the Customer by the carrier. Customer agrees to promptly notify OSL in any event where a carrier has solicited the Customer when that carrier has been used by OSL for shipments on behalf of the Customer within a period of one (l) year prior to the event of solicitation. b. Except as provided in Section I .b., Customer shall be precluded from using any motor carrier at any time without the participation of OSL in the shipment with respect to domestic Less-than- - 4 - B4 Case 2:16-cv-06385-JAK-JPR Document 16-4 Filed 10/28/16 Page 5 of 17 Page ID #:150 Truckload, Truckload and partial shipments of Freight when Customer is the payor of the freight charges, excluding FedEx shipments or such other carrier as is designated in writing to OSL by Customer. 14. Confidentiality. Each party shall consider this Agreement and all information relating to this Agreement as confidential and proprietary. In connection with the performance of Services hereunder, OSL and Customer may learn of certain trade secrets or other proprietary information of the other party or Customer's customers. Neither OSL nor Customer shall disclose any such confidential information to any third party or use such confidential information other than in connection with the perfonnance of Services under this Agreement, except as required by law or court order or with the prior written approval of the other party. Upon the expiration or termination of this Agreement, each party will promptly return or otherwise certify the destruction of confidential information of the other party. 15. Term and Termination. This Agreement shall remain in effect for an initial period of three (3) years from the date set forth above; provided, however, that as of and after the first anniversary of the Effective Date, Customer may terminate this Agreement, with or without cause, by providing ninety (90) days prior written notice to OSL. This Agreement shall automatically renew for additional one ( l) year periods, unless written notice of an intent to terminate is given by either party at least ninety (90) days before the expiraJion of the initial or renewal period. Provided, however, either party may terminate this Agreement upon ten ( l 0) days prior written notice in the event of failure by a party to cure, to the satisfaction of the non-defaulting party, any of the following defaults within said notice period. Defaults giving rise to a party's right to terminate under this Section are as follows: a. A party's failure to pay when due any payment required to be made under the tenns of this Agreement; b. A party's failure to perfonn or comply with any tenn or condition of this Agreement; c. A party admitting in writing to any party and in any context the inability to pay its debts generally as they become due; or d. A party becoming insolvent or consenting to the appointment of a receiver or other similar official of itself or any substantial part of its property. Immediate and automatic termination may occur if either of the following takes place: a. A party filing a petition in bankruptcy or petition to take advantage of any insolvency act; or -5- B5 Case 2:16-cv-06385-JAK-JPR Document 16-4 Filed 10/28/16 Page 6 of 17 Page ID #:151 b. A party making an assignment for the benefit of its creditors or a petition in bankruptcy being filed against the party or it being adjudicated bankrupt in a court of competent jurisdiction. 16. Remedies. a. After the occurrence of any event of default by one party, the other party shall be entitled to terminate this Agreement and to pursue against the first party any and all rights and remedies otherwise available at law or in equity, including a civil action to compel the first party's specific performance of its obligations under this Agreement. Neither party shall be liable to the other party for any incidental, special, consequential or punitive damages incurred, including lost profits or lost business opportunities, as a result of any act or default of a party. b. Upon the effective date of any such termination of this Agreement, OSL shall have no continuing obligation to provide Services to Customer nor shall Customer have any obligation to pay for any Services provided following the termination. Termination of this Agreement shall not affect one party's liability to the other party by reason of any act, default or occurrence prior to such termination or any liabilities or obligations of such party which survive the termination of this Agreement. 17. Force Majeure. Neither party will be liable for the failure to perform under this Agreement if such failure, delay or other omission is caused by strikes, acts of God, war, accidents, civil disorder, or similar circumstances beyond the party's reasonable control. 18. Notices. Any notice, demand, request or other instrument which may be or is required to be made or given under this Agreement shall be delivered in person or sent by United States certified mail, return receipt requested, postage prepaid and addressed as shown in the first paragraph of this Agreement. Such notice is effective upon receipt by the addressee. The address to which any such notice, demand, request or other instrument must be sent may be changed if the parties to this Agreement are given written notification of such change of address. 19. Successors And Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors in interest, assigns and legal representatives. OSL shall not assign, transfer or delegate its duties under this Agreement to any person, firm or corporation without first obtaining the written consent of Customer, which consent will not be unreasonably withheld. Customer may freely assign this Agreement to one or more of its related entities. 20. Waiver And Severabilitv. a. The failure of OSL or Customer to insist upon the strict performance of any provision of this Agreement or to exercise any right or privilege herein, or the waiver by either party of any breach of any of the terms, covenants or conditions of this Agreement, shall not be - 6 - B6 Case 2:16-cv-06385-JAK-JPR Document 16-4 Filed 10/28/16 Page 7 of 17 Page ID #:152 construed as thereafter waiving any such tenn, covenant or condition, right or privilege, but the same shall continue and remain in full force and effect. Neither party will be deemed to have waived any provision of this Agreement unless such waiver is expressly set forth in a writing signed by the waiving party. b. In the event any statute, ordinance or governmental rule or regulation shall apply to invalidate or supersede any of the terms and conditions of this Agreement, the remaining portions of this Agreement shall to the extent possible remain in full force and effect. 2 L Entire Agreement. This Agreement, including the Exhibits, contains the entire agreement between the parties hereto with respect to the subject matter and supersedes all prior discussions and understandings, oral or written, with respect to such subject matter. To the extent a provision of an Exhibit is inconsistent with a provision of this Agreement (exclusive of Exhibits), the terms set forth in the Agreement shall control. No change in or addition to the terms, provisions or conditions of this Agreement or Exhibits shall be valid or binding unless in writing duly executed by the authorized representatives of both parties hereto. Except as otherwise provided, this Agreement may only be amended or modified by a writing signed by both parties. 22. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota, unless superseded specifically by applicable federal laws and regulations. It is mutually agreed that either OSL or Customer shall exercise any right or remedy hereunder in the State of Minnesota, County of Hennepin or the United States District Court in Minnesota. 23. Warranty. OSL represents and warrants to Customer: (a) that all Services shall be perfonned and provided in a workmanlike manner and with professional diligence and skill and shall be in confonnity with the specifications and otl1er perfonnance requirements set forth herein or any Exhibit hereto; (b) Customer's receipt of the Services and the use of the SRM System shall not infringe any right of any third party, including any patent, copyright, trademark, or trade secret right; (c) OSL's actions and perfonnance under this Agreement will be in full compliance with all applicable federal, state and local laws, statutes, acts, ordinances, rules, codes, standards and regulations; and (d) OSL is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the full legal power and authority to own its properties and to carry on its business as now conducted and as proposed herein to be conducted. -7- B7 Case 2:16-cv-06385-JAK-JPR Document 16-4 Filed 10/28/16 Page 8 of 17 Page ID #:153 24. Indemnity. a. Except to the extent caused by the negligence or willful misconduct of Customer, OSL shall defend and indemnify and hold harmless Customer (including its affiliates, subsidiaries, employees, officers and directors) from and against any and all third-party claims, losses, liabilities, costs or expenses arising from or relating to (i) any breach of any representation or warranty hereunder by OSL; (ii) a breach of any other provision of this Agreement including, but not limited to, its Exhibits by OSL; or (iii) any negligent or willful act by OSL, its employees or agents. b. Except to the extent caused by the negligence or willful misconduct of OSL, Customer shall defend and indemnify and hold harmless OSL (including its affiliates, subsidiaries, employees, officers and directors) from and against any and all third-party claims, losses, liabilities, costs or expenses arising from or relating to (i) any breach of any representation or warranty hereunder by Customer; (ii) a breach of any other provision of this Agreement including, but not limited to, its Exhibits by Customer; or (iii) any negligent or willful act by Customer or its employees. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year above first written. ONE SOURCE LOGISTICS, LLC CHRISTOPHER & BANKS CORPORATION - 8 - B8 Case 2:16-cv-06385-JAK-JPR Document 16-4 Filed 10/28/16 Page 9 of 17 Page ID #:154 Exhibit A Services OSL and Customer acknowledge and agree the details of the specific Services to be provided under the Agreement shall be governed by a Statement of Work ("SOW") to be mutually developed between the parties. Each party shall cooperate with the other party, and their respective employees and consultants working on a SOW, as may reasonably be required to develop and implement the Agreement in an efficient manner. The parties intend and agree that the SOWs are evolving documents and shall be developed and amended in writing from time to time to reflect such developments and modifications as mutually agreed to by the parties. OSL and Customer will schedule periodic meetings during the term of this Agreement for the purpose of discussing the particular Services to be performed, future direction and to review and assess the performance of Services by OSL. The periodic meetings will be scheduled by OSL and Customer on mutually agreed dates and in mutually agreed locations. Notwithstanding the foregoing need to discuss and develop the SOWs, OSL will provide the following general description of Services: 1. Property Brokerage Services OSL shall arrange for the intrastate and interstate domestic transportation of Customer's Freight through the selection of duly authorized motor carriers. a. Customer agrees to tender its Freight for transportation by motor carriers through OSL as an intermediary and to delegate to OSL complete working control over each shipment of commodities. b. OSL shall arrange for the transportation of the shipments through various motor carriers which are under contract directly with OSL. c. Customer's Freight transported by vendor pick ups and inbound shipments to Customer routed by its suppliers are excluded from the scope ofOSL's responsibilities. 2. Modes of Transportation The Services provided by OSL will relate to the following modes of transportation for the Customer: B9 Case 2:16-cv-06385-JAK-JPR Document 16-4 Filed 10/28/16 Page 10 of 17 Page ID #:155 a. Local Cartage - Area: All Points USA., b. Less-than-Truckload (Dry Vans), and c. Truckload (Dry Vans). 3. Customer's Commodities I Locations OSL's Services will be provided for the Customer's commodities listed on Exhibit A-1 moving to or from the Customer's locations set forth on Exhibit A-2. Customer represents and warrants such commodities shall not include any product which is classified as a "hazardous material" or "hazardous substance" under applicable federal or state law. 4. Claims Administration Services OSL will undertake to investigate, file, prosecute and attempt to resolve Customer's freight loss and damage claims against motor carriers. a. Customer will provide written notice to OSL of any claim for freight loss or damage. If OSL receives notice of any claim from Customer, OSL shall proceed to handle the claim subject to Customer's direction. b. OSL shall provide Customer with all available information requested by Customer and other information reasonably necessary for Customer to make an informed decision about the handling and disposition of any such claim. Upon request, OSL shall provide to Customer a copy of all communications with carriers and carrier's insurers and agents, made on Customer's behalf in connection with freight loss and damage claims. c. OSL shall not under any circumstances allow any commodities to be sold or made available for sale or otherwise disposed of in any salvage markets, employee stores or any other secondary outlets, without Customer's prior written consent If such written consent is granted, any salvage credit obtained shall be paid by the motor carrier to Customer. 5. Logistics Consulting and Transportation Management Services OSL will consult with Customer and make recommendations regarding the following: B10 Case 2:16-cv-06385-JAK-JPR Document 16-4 Filed 10/28/16 Page 11 of 17 Page ID #:156 a. Contracts and certain transportation needs b. Inventory control and warehousing c. Vendor/supplier freight management d. Carrier and mode of transportation optimization, forecasting, routing and load planning 6. Systems Services OSL will assist Customer in the implementation of an SRM System ("System"). The System will enable Customer to have visibility of purchase order status, shipment tracking, and shipment delivery schedules. The rate and charges for the System ate set forth on Exhibit B. 7. Reporting Services OSL will provide Customer with monthly reports relating to the following: a. Measure inbound cost, b. Measure outbound cost, and c. Measure on-time performance, which Customer and OSL agree will be customized for Customer's use. B11 Case 2:16-cv-06385-JAK-JPR Document 16-4 Filed 10/28/16 Page 12 of 17 Page ID #:157 Exhibit A-1 Customer's Commodities L Clothing 2. Store fixtures 3. Store Supplies B12 Case 2:16-cv-06385-JAK-JPR Document 16-4 Filed 10/28/16 Page 13 of 17 Page ID #:158 Exhibit A-2 Customer's Locations l. 2400 Xenium Lane North, Plymouth, MN 55441 2. Vendor locations as communicated by Customer to OSL from time to time B13 Case 2:16-cv-06385-JAK-JPR Document 16-4 Filed 10/28/16 Page 14 of 17 Page ID #:159 Exhibit B Rates and Charges A. Property Brokerage Services I. Less-than-Truckload Rates a. Current version of Mars 500 Rate Base b. Discount: 78% c. Minimum Charge: $85.00 per shipment d. Scope: All points within continental United States and Canada 2. Truckload Rates. a. State-to-State rate metrics per Exhibit B-1 attached b. New Store Truckload outbound shipments are point-to-point Flat rates per Exhibit B-2 attached or as mutually agreed to by Customer and OSL c. Truckload rates stated in cents per mile 3. Fuel surcharges and accessorial charges on LTL and Truckload shipments shall be paid by Customer to OSL. B. Claims Administration Services I. $0.00 per claim C. Logistics Consulting and Transportation Management Services I. Management Fee: $0.00 D. Systems Services I. OSL will not assess a charge to Customer for use of the OSL System. E. Other I. Customer commits to OSL a minimum of $750,000 of combined inbound domestic and/or outbound transportation services each year of the Agreement. B14 Case 2:16-cv-06385-JAK-JPR Document 16-4 Filed 10/28/16 Page 15 of 17 Page ID #:160 Exhibit C On-Site Personnel Management Services l. General a. As part of the Services provided under the Agreement, OSL will provide to Customer on- site management personnel on an "as needed" basis and to assist in the performance of the items described in Exhibit A. The OSL personnel will not be dedicated to Customer, but will perfonn other work for OSL while on-site. As between OSL and Customer, the management personnel will at all times remain employees of OSL, who will be solely responsible for deduction, reporting and payment of all payroll taxes, unemployment insurance, workers' compensation coverage, any other employment-related expense, supervision, general discipline and discharge of employees performing Services. Whenever employees are performing on-site management Services under the direction of Customer, then Customer is responsible for all acts of workers relative to third parties, except gross negligence, willful misconduct and employee dishonesty. b. Customer will furnish any OSL employees with such office space, telecommunications, computer connectivity and access to business office functions as reasonably necessary to perfonn the Services under this Exhibit. 2. Status ofOSL Personnel a. OSL shall have the sole right and responsibility to establish the terms and conditions of employment, including discipline, of each worker provided to Customer to perfonn on-site management services to Customer. However, Customer shall have the right to detennine the specific tasks to be performed by each employee. Customer shall refer to OSL for resolution all matters affe~"ting the employment of the employees. b. If Customer determines that the on-site management services performed by any of the employees provided by OSL are not satisfactory, Customer will so notify OSL and OSL shall withdraw such employee and furnish another employee within thirty (30) days who meets the qualifications required for the Services. 3. Rates and Charges a. Customer will not be assessed any additional rate or charge for purposes of any OSL on- site personnel. B15 Case 2:16-cv-06385-JAK-JPR Document 16-4 Filed 10/28/16 Page 16 of 17 Page ID #:161 4. Duration and Termination a. This Exhibit C shall become effective as of the date of the Agreement and shall continue for the term of the Agreement. In the event Customer, from time to time, requires additional on-site personnel management Services, the parties will execute supplemental Schedules. The Services of any on-site management personnel shall be terminated immediately upon death, incapacity or termination of any employee supplied by OSL. 5. Independent Contractor a. The status of each OSL employee performing on-site personnel management Services to Customer is that of an independent contractor and not of an agent or employee of Customer. The parties acknowledge and agree that neither OSL nor any of its employees shall under any circumstances be considered an employee or agent of Customer for any purpose whatsoever. 6. Nonsolicitation or Hiring of OSL Employees a. Customer agrees during the term of the Agreement and for a period of twelve {12) months thereafter, Customer shall not, directly or indirectly, solicit the employment of or employ any of the OSL employees providing on-site personnel management Services; provided, however, that Customer is not be prohibited from employing any such person who (i) contacts Customer on his or her own initiative directly or indirectly and witl10ut any direct or indirect solicitation by Customer or (ii) replies to an advertisement of employment or job posting. 7. Insurance a. OSL shall provide workers' compensation insurance covering each employee performing on-site personnel management Services under this Exhibit in accordance with applicable State laws. OSL shall maintain and provide Customer with a certificate of insurance reflecting the level and terms of its workers' compensation, automobile and comprehensive general liability ("CGL") insurance (which CGL policy shall be at least $1.0 million per incident and $1 .0 million in the aggregate), which certificates shall provide that the carrier will notify Customer thirty (30) days in advance of any cancellation, termination or non-renewal of such policy. B16 Case 2:16-cv-06385-JAK-JPR Document 16-4 Filed 10/28/16 Page 17 of 17 Page ID #:162