Matthew Leffler (The Armchair Attorney) on Montgomery and the New Era of Broker Liability

Transcript auto-generated from the recording. Speaker labels are approximate; light cleanup applied.

Jesse (00:00.994)
Welcome everyone to another episode of the Freight Show. We've got Matthew Leffler here. Matthew, great to have you on. I'm excited for this conversation.

Matthew Leffler (00:07.984)
Thank you for having me, Jesse. I am excited. I love the robots. I applaud the robots. I support our robot overlords and I will betray the humans the first opportunity.

Jesse (00:19.636)
This is fun because I've obviously followed you on LinkedIn for a while, but we haven't got the opportunity to meet. And I'm excited to kind of dive into all things legal in freight. It's been a super interesting couple of months and several years, and I think it'll continue to be. But I wanted to dive in at the beginning into the Montgomery decision, which I'm sure you've spent a lot of time thinking about. I think the thing that I'm sort of curious about, we do have now, it feels like it was months ago. Maybe it was like six weeks ago or something, maybe even two weeks, but I'm curious to hear your perspective both on what do you think from your perspective is the significance of this decision, what do you think the impact is going to be on the industry in the short, medium and long term. I've got some perspectives that I'd love to get your take on as well. But I'm also curious to understand even since that decision, what have we sort of seen actually playing out that might give us some clues as to what the long term impact is going to be.

Matthew Leffler (01:32.39)
Yeah, I mean, it feels like only yesterday we had this ruling. It's been a couple months at this point. We're still unpacking the significance of Montgomery. But I will say this: for brokers, 3PLs, and all the rest, this is the most profound Supreme Court decision in your business. It is the biggest thing. The general idea, to first kind of unpack it, there's a regulation, a law signed in 1994, F4A we call it. It's an aviation statute, but it has this stuff about brokers, has stuff about when brokers can be potentially responsible for the negligence of a motor carrier. So the reality is, 20 years ago, about maybe 5% of freight was moved by brokers. Today it's like 25-30% of freight is moved by brokers. So brokers have captured an enormous market share. But most brokers have all operated with the general understanding: if a trucking company that I've hired to move something has a catastrophic accident, driver falls asleep or whatever, I'm not going to be responsible for that. So that was a general presumption for a long time. And that is no longer the case. So to get into the Montgomery case itself, it goes back to every other kind of broker case. There is a truck driver who's hired by a broker, the motor carrier is involved in an accident. They sue the motor carrier. They're dead on arrival. They're bankrupt the moment they get sued, and they go after the broker. And they say, Broker, you should have known that this trucking company was unsafe. And because you let them in the door into your network, you're the one who caused this. So even before Montgomery, we had this split among the federal circuits. And I'm a law professor, I like to talk about these things. Splits in the federal circuits are amazing.

Matthew Leffler (03:26.073)
Different appellate courts. You're in California, so that's like the Ninth Circuit Court of Appeals. I'm in Illinois, that's the Seventh Circuit Court of Appeals. Our appellate courts looked at the exact same law, the F4A law, and looked at similar facts, and came to different conclusions. In the Ninth Circuit, they said brokers could be held liable for the negligence of a motor carrier. And in the Seventh Circuit, they said no, brokers can't be held responsible for a motor carrier who does something dangerous and gets into an accident. Well, it went to the Supreme Court. And at the Supreme Court, that split among the circuits was finally resolved. And I'll be honest with you, I was wrong. I was so wrong. I thought the Supreme Court would go on the side of the brokers. Going into that case, everything looked like the brokers were going to be victorious. But this was a unanimous decision. And what it ends up making in front of us right now is two questions that no one has an answer to. The first question is: what is an unsafe motor carrier? No one can tell you that. Not even the FMCSA. And the separate question is, what is a reasonable vetting process when you vet a motor carrier? What is reasonable? No one knows that either. So the only way to get answers is through litigation. So this is a very interesting moment in the brokerage industry. And it's going to have a really long-lasting impact as insurance companies begin to understand the risk, shippers and everyone else starts to understand what liability the brokers are now on the hook for.

Jesse (05:04.93)
Yeah. I'm curious, and you maybe have not done this, so there'll be common law that will need to get litigated to give clues about what is reasonable. I'm also curious, have you seen any other parallels in other industries? Because when I looked into this, I did think it was kind of interesting. My view was when I looked at the legislation, sometimes I feel like either it was going to get decided in the Supreme Court or there was going to be legislation around this, because it was quite unusual for an intermediary to have no liability in the safety regime of an industry. When I looked at other spaces, that's just not really the case.

Matthew Leffler (05:49.54)
Yeah, a lot of people think of brokers and motor carriers like a general contractor with their subcontractors. So the general contractor was working with everybody, they share the liability. It's not like that though in transportation. It's a lot more similar, I would think, to travel agents. So if you were my travel agent and I couldn't book flights directly on an airline, I use you, you put me on a flight from Chicago to New York, the plane crashes. I don't go sue Jesse and say, Jesse, you put me on a dangerous plane. The challenge that brokers have, and this is really the fundamental issue with all of this. The FMCSA, the Federal Motor Carrier Safety Administration, the big regulator that regulates the brokers and the motor carriers, they have a budget of about a billion dollars a year. Half of that budget goes to things like projects and grants and bridges and all the other stuff that they do. The other half is for compliance, investigations, all that. There are over 600,000 or so motor carriers. Sometimes there's more, sometimes there's less. Something like 94% of motor carriers have no safety rating. So if you went to the government and said which one of these motor carriers is safe, you wouldn't know. You have no way to know. So for a broker, what they have done traditionally is price, route and service. They will work with the shipper, find the price, and then they look at the databases of who's authorized to do the job that I'm looking to have someone perform. They're not maintenance experts. They don't operate or own trucks. They just simply connect people. And that's where the discrepancy happens: you have regulators that don't have enough resources. So you don't know who's safe and who's not safe. And you have brokers trying to find any number of these trucking companies to move stuff. They use other technologies, there's a bunch of different vetting platforms, but ultimately you're really at the discretion of the federal government to do their job and make sure the trucking companies are operating safely. So this industry is insane. Just to give an example, the minimum insurance for an over-the-road motor carrier to operate in this industry is $750,000. $750,000 in general liability insurance. That number was set in 1985. Now, I was born in 1985. I would not benchmark insurance to the year that I was born. And so a lot of motor carriers are underinsured. And so when the accidents happen, the motor carriers are already gone. They're already dead and bankrupt, even if they haven't filed yet. The brokers still have some money. And that's why we've seen this trajectory of plaintiff attorneys going after brokers, going after shippers, going after leasing companies, because they know someone's got the money and it's not the motor carrier.

Jesse (08:46.38)
Yeah. So is this the same legislation that governs a travel agent's selection of an airline? It's a parallel, yeah.

Matthew Leffler (08:54.428)
No, it's a parallel. It's a good example to kind of help people understand what freight brokers do.

Jesse (09:06.562)
Yeah, I can see the other side of it. It is hard, isn't it? Because I sort of think about a system. The broker, the FMCSA does regulate safety, but at the same time, a lot of brokers do have decent data. And I think if there is stuff that you sort of learn, and if you are just totally disregarding information that you have available to you, it does make sense. I'm curious about what you think the probability is that there is legislation that gets introduced to fill the gap here a little bit? Because it does create a lot of uncertainty for a long time. The idea is that brokers have a role to play in safety, but what do you think of that happening?

Matthew Leffler (09:55.44)
It's such a strange situation we're in. And I really want to try to be unbiased in how I look at this. But if you look at the actual pleadings, the documents filed, the appellate briefs, the amicus briefs in the Montgomery case, you had not only the US Chamber of Commerce, but you had the TIA, obviously they were involved with this. But you also had the FMCSA and the Department of Transportation. And they were all on the side of brokers saying, look, they do not have the expertise. They don't have the resources. Our database is not meant to be used as a this is safe, this is not safe. And what ends up happening, C.H. Robinson obviously was the respondent, the defendant in this litigation. And one of the stories that came out was this motor carrier that was in the accident had a conditional safety rating. And what is interesting for everyone to understand is that you can't go to the government and say, audit me. They don't do that. They just randomly pick you. If they pick you, they try to do it within the first 12 to maybe 18 months that you've been in business. And what they do is go through all your records and say, we're going to give you a rating. You can be satisfactory, meaning you've satisfied the requirements. You can be conditional, meaning you've tried your best, you have some areas to improve. And then you have people who have basically had their authority removed. And what's happened is the carriers that have no data about them become the ones that don't have the conditional rating. So we have about 6,000 motor carriers enter the industry every single month. And the challenge becomes: if our government cannot tell you who is safe and who is not safe, what hope do brokers have? Now, I think you're right, there's other tools brokers can use. RMIS, Highway, gen logs, there's a bunch of technologies out there, but none of those will tell you: is the driver sleepy? Did the driver get a good inspection on his truck before he took off? No way to know. So what the question has become for brokers is not necessarily that you have to guarantee the motor carrier is safe. You have to have a process that's reasonable. So that becomes what is your written policy? Do you deviate from it? And if you deviate, you're in trouble. That's the real takeaway. You're going to have a lot of litigation trying to figure this thing out.

Jesse (12:18.838)
So what do you think practically, if you were advising a brokerage now, what do they need to do to start to prepare for this future?

Matthew Leffler (12:28.795)
The best thing I can say, first off, is do not take legal advice from a podcast. If you think you need a lawyer, you probably do. It's not me, unless of course you're paying me, then I'm happy to represent you. That being said, what you really want to do is two things. Number one, work with your insurance company. Talk with your broker, talk with your advisors on the insurance side and say, here's my policy. Is this good enough? What else are your other clients doing? Tell me where I'm missing the ball. And the same thing goes with your outside counsel. Go to your lawyers and say, we have this new Supreme Court ruling. We don't necessarily know if we need to make big changes or if we just need to keep doing what we're doing. And that'll give you a good temperature read. If you're a truck driver, you get preventative maintenance on your truck probably every few months, maybe every six months. So you want to maintain these things. Same goes for how you vet motor carriers and how you continually monitor their conditional statuses. How are they doing? How many trucks do they have? All those things are going to be really important initial things. Longer term, it becomes a question of your policies. Do you have people trained on them? Do you have people that deviate from them? So if you have someone who has a written policy and they don't follow it, I'm coming for you. Someone is coming for you and we will squeeze you until you cry uncle. The other thing I think we're going to find, for brokers, there is no legal requirement to carry contingent auto or third-party liability. You don't have to carry that. The only thing you have to have as a broker is a surety bond, a $75,000 surety bond. You're not going to get away with that. Even if the government doesn't tell you you need to have insurance, you better have insurance, because when lawyers come knocking, you need someone to defend you and those defense costs covered. And that's what insurance does. For the brokers that do have insurance though, it's very, very scary. We have heard rumors. I've talked to people who've said that they've seen their insurance premiums go up by three to five times what they were previously. So you are seeing the insurance companies start to bake in this new kind of liability. And it wasn't necessarily totally new, because some circuits allowed brokers to be sued, but now it's every circuit. It's every single state. And brokers are certainly on notice. Now, as to regulations, man, I don't know. I'd love to think we'd focus on this as a potential avenue, but realistically, I don't think so. I think they're going to look at the brokers and say, go buy insurance. The real solution for me is give the FMCSA far more resources. Give them the resources to investigate and audit motor carriers. That solves both the problems of brokers who want to know who a safe carrier is, and for us, the motoring public.

Jesse (15:23.22)
It's very interesting. I was curious, you mentioned hearing about situations where insurance costs were increasing three to five times. It's almost impossible to know what is driving that. I'm curious though, how much of that do you think is the fraud and theft that is happening versus the liability shifts? It's probably a bit of a blend. I'm even curious to think about the quantum of risk exposure, because it feels like everyone's getting loads stolen all the time. So that is happening a lot. But the challenge is that these nuclear judgments can be very, very large relative to a single stolen load. So even a small probability is going to cost a lot.

Matthew Leffler (16:00.208)
Yes, that's right. When you have an accident, and there's a truck involved, most of the time the trucking company is not at fault. It is just some other four-wheeler who's driving and not paying attention and something terrible happens. But even in the cases where the motor carrier is at fault, no one knows the moment the accident happens what the responsibility, what the damages are going to look like, who other parties are there. So the strategy for plaintiff attorneys, and I am more defense-minded but I certainly understand what plaintiffs do, is to say, who is everybody I could possibly sue? So what has happened is it used to be the case, you sue the motor carrier, you get your money, you go on to the next thing. Now, every lawyer who's involved in these cases, you are going to sue the broker no matter what. Even if the broker has a reasonable vetting process, I don't know that. No one knows that. We'll go through discovery. And so one of the interesting things we're going to find over the next few months is every big broker that has held their carrier selection process as confidential and proprietary, that ain't confidential, buddy. We are all going to see exactly how these companies behave. And C.H. Robinson was one of the best after the Montgomery case. They put out a press release that here's our new vetting platform. Here's how we're going to do it. We're going to increase our minimum for auto liability. And they've kind of said, here's how we're going to go forward. So on the liability side, why that goes up the way it has is, to your point, we don't know if it's a $200,000 claim or a hundred million dollar claim. And we need to make sure we're insuring for those risks. Even motor carriers can't get policies that are two million bucks because it's so expensive. So brokers are going to face it. Now on the cargo theft and fraud side, everybody, from Tucker Carlson to Guy Fieri, they're all getting their stuff stolen. And it's a symptom of the broader problem with our supply chain, but it's certainly something that has caught the American public's attention.

Jesse (18:22.412)
I am Australian, and America is unique in the plaintiff's attorney industry and the scale of it. And it blows my mind. Honestly, I am biased. I don't like this industry. I think it's horrific and tragic what happens to individuals, but the thing is, it's so interesting because it feels like things have just really run away. Part of the challenge is that it's knowable what the risk on the road is. We know how many accidents are happening, whether they're going up or down and the scope of damage. Except you have no idea what the damages claims are going to do and they keep escalating. I studied law, I never practiced, but I studied tort law and I remember there's countries like New Zealand, for example, that basically have statutes where if something happens to you, you get paid damages out of a government fund essentially. And there's almost a schedule for it. You lose a finger, you lose an eye. It's knowable, the risk. But it's totally unknowable in this circumstance.

Matthew Leffler (19:49.008)
I knew you had some law in there, because you used common law. Most people have no idea what common law is. You do, because Australia and New Zealand and Britain all follow this English common law. So does America. Now there's statutes and all this. So the first thing I'll say is, unlike the schedules, that is exactly how workers' compensation works. If you're an employee and you lose your arm, it sucks, and no one ever wants that to happen, but there is a book, and that book will say this pays this. It's very knowable. In our country, when it comes to plaintiff and civil litigation, it is something where we try not to interfere with the jury. If the jury thinks someone's life is worth $20 million, who are we to say the jury was wrong? And so there are a couple really interesting incentives. First of all, for most people who don't know how American law works, for plaintiff attorneys, they are paid a contingent fee, meaning they get nothing unless they win. And then they get 33%. So for these big verdicts, these hundred million dollar ones, even a five million dollar one, lawyers are making good money. They are making great money, far more than the defense attorneys on the other side. No doubt about that. So that is certainly an issue. What we have seen happen in many states across this country, we call it tort reform. And what it really means is we're going to curb your damages. You might get a massive verdict, and the best example I can think of is the Wabash case in Missouri, where a passenger vehicle smashed into the back of a parked trailer, killed the driver and the passenger. They sued the trailer manufacturer for a lot of interesting things and they won. And they won $462 million. But the court revised that number because Missouri had laws that said if your compensatory damages are this number, the punitive damages cannot exceed that by five times. So there are mechanisms. But without really good tort reform, these numbers are going to continue to keep flying because everyone watches the TV shows and they see all these big numbers and they go, that's got to be the going rate.

Jesse (22:04.566)
Is there political incentive to pass tort reform? I imagine it's a challenging one because the hearts and minds of the public is so geared towards outrage at these super tragic accidents. But the commercial impact of that on the economy is a little bit more diffuse. It's businesses that are harmed by it. How widespread is that tort reform and is it happening?

Matthew Leffler (22:29.967)
That's a very good question. So tort reform is generally championed by pro-business conservatives. So they say, we want to try to reduce what we have to pay for premiums, reduce what we may have to pay for payouts, it makes it more predictable, it's better for businesses, more companies can thrive when these things are curbed. On the other side, the plaintiff's bar tends to be more liberal. They tend to want the big juries to give the power to do big things. You can go both sides. There are some Republicans who don't like tort reform, not a lot. But I would say the biggest advocate for tort reform, at least in our industry, is the American Trucking Associations, as well as the US Chamber of Commerce. Both of those entities push this stuff very, very hard. On the plaintiff side, one of the newer phenomenons most people don't realize is that there are now private equity or venture cap funds that will back plaintiffs. They will give the plaintiff money. It's insanity. And there are laws in some states that require you to disclose, hey, I have this venture cap fund that gave me two million bucks. They can't influence what the lawyer does, but they might be able to. But this has become a phenomenally profitable pathway for investors as well as plaintiff attorneys. And part of the challenge is this is our own fault. As an industry, the national out of service rate for commercial vehicles is 22%. One in five trucks and trailers on the road right now are unsafe. If you or me looked at them and said, that shouldn't be on the road. And that's what we have every single day. So plaintiff attorneys are starting to realize just how opportunistic it is to jump into this type of litigation.

Jesse (24:31.18)
It's a challenging situation because objectively the numbers are getting worse, right? The roads seem like they're getting less safe. And I think about this in the context of deregulation of the trucking markets. I presume it's gotten worse since then. It's almost this trade off where you had a few carriers, easier to regulate, and maybe safety was better. But now you've got this totally deregulated market and it's very hard to police.

Matthew Leffler (25:07.535)
That's a phenomenal question. The story of where we are right now is a story of deregulation. So to go back into history, 1976, my father gets his first job working for a company called Roadway. This is before deregulation. In 1980, there were three trucking companies that moved America. There was Conway or CF, there was Yellow, and there was Roadway. And CF and Yellow would compete to see who was number two and number three, because my father would emphasize Roadway was always the best. But let's look back in time. In 1980, there were 18,000 motor carriers. And in 1980, the average truck driver made about $38,000 a year. Adjusted for inflation, it's like $120,000, $130,000.

Jesse (26:05.186)
It's like what the UPS drivers make today.

Matthew Leffler (26:08.801)
Absolutely. Or the old Dominion drivers or the Walmart drivers. There are still jobs in this business that pay really well. But what you saw happen was the dismantling of organized labor for trucking. So in 1980, it was like 80% were Teamsters or unionized. Today it's a fraction of that. Instead of 18,000 motor carriers, it's 600,000 or so. So the numbers are just insane. And yet the liability requirements have remained static since 85. So you look at our industry and you go, how in the world do we have so much theft and fraud and dangerous stuff? It was by design. Jimmy Carter signed the Motor Carrier Act in 1980 because he believed it would reduce the cost for American consumers by eight billion a year. That's billion with a B. Today it's like 35 billion or so. So all of this is happening in this world. My own father, he gets this idea. A company comes and says, hey, we want to make a competitor to UPS, but we're not going to have our own employees, our own drivers, our own mechanics. Would you start a company to maintain the equipment? That business was called Roadway Package Systems. Roadway Package Systems became a company called Caliber, and Caliber became FedEx Ground. So when people are like, how is this industry so archaic? It's not. The people, and you know this, you've met a lot of people in this business, they are brilliant. This is a tough business to be good at. But the big operators, they are good because they know how to grow in great times and to survive in bad times. So my father's business ended up being the largest provider of maintenance for FedEx Ground for 20 some odd years. So I love this industry. I never had a chance. I was always going to be in this business. But that's the real problem we see, that a lot of the things we say today, this is terrible, those are choices made when we did deregulation in 1980. This was the natural progression of things, which is why automation is so fascinating, because that's the next level that we're going to see. And it's happening faster than most people realize.

Jesse (28:17.686)
Super interesting. There's a lot more to unpack there, but let's shift gears. I'm curious to understand a little bit more around what regulatory changes are getting made or need to get made to be able to support the rollout of autonomous vehicles. My co-founder was an early employee, number two at Kodiak Robotics, who is one of the leaders in that space, and they have full self-driving vehicles on limited runs now. So it feels like the next five years, who knows, but we are going to start seeing more and more of this. What is happening there? Because it feels like regulatory is going to be one of the big blockers here.

Matthew Leffler (29:03.899)
Yeah, to speak to Kodiak or Aurora or others that are doing great jobs, the technology is here. The only thing that's the barrier is the regulatory framework. What are the rules we've got to operate by? So I'm going to split it apart into two categories. Level four automation, which is generally looked at as remote operators, that's one thing, it's very close. And the other one is level five, that's like the remote assistant, that's a little further off. We see that in oil and gas to an extent, but the remote operator, that is the one that's absolutely fascinating.

Jesse (29:42.786)
And remote operator, is that there is a human, is it still a one to one ratio of operator to driver?

Matthew Leffler (29:49.734)
That's a great question. The answer is we don't know. But to your point, yes, there is somebody who is not inside that truck that is operating that truck. Now, it could be the case that the truck is fully autonomous and the operator only gets involved if there's an exception. So here are the questions we don't have answers to that we will absolutely have answers to in the next probably one, maybe two years. How many vehicles can a remote operator successfully operate? Is it 10? Is it one? Is it 100? We don't know, but there will absolutely be federal regulations on that. Another question: what kind of training should they have? To get a CDL in this country, it takes about a month to drive an 80,000-pound machine. Will a remote operator have the same requirements? Will they have drug and alcohol testing? Will they have hours of service? Presumably yes, but those regulations are not written yet. What has been written, and this is the part we were talking about before we started recording that I'm really excited about, the changes come incrementally. So Kodiak's a good example. Kodiak and Aurora, every single day, they are moving freight between Houston and Dallas back and forth. Most of the time they have a safety driver, but this is intrastate. So it's not crossing state lines, it is happening every single day. What happens when the truck breaks down? Now, in any other circumstance with a truck and a driver, you have about 10 minutes to get out of the truck and put down three cones. And the three cones signify I'm broken down, I need help. Robots can't do that. Well, they don't want to do that. You could get a drone, the drone could put cones, but they don't want that. They want something simpler. And what they asked for was a beacon. So Aurora got this waiver a little while ago, and the beacon spins around and says, I'm broken down. That waiver was for one year, but the year has lapsed. Now it's time to either extend the waiver or remove it. And what happened, this was actually last month, the FMCSA put out a proposal to waive the cones in favor of the beacons for five years. And they said this waiver would apply to every other autonomous trucking company in the country. So what do Americans get to do when these rules get proposed? You get to comment. You get to write something and say, I like it, I hate it. This one rulemaking, this waiver of this one rule, had less than 400 people comment on it. We live in the most interesting time in human history, and we, as any human in the world, have more power now than we've had ever. You can say things to thousands of people. You can influence people in ways that was never possible before. And yet, one of the most profound safety changes in the business of transportation had almost no one comment. I'll tell you who did comment, I did, and every other autonomous trucking company, every single one of them. And just a couple months before this proposal was put out, Secretary Duffy granted a similar waiver of a safety regulation for the rail industry. This administration likes experimentation with autonomous technologies. So if people are like, I don't think it's going to happen, it's happening now and it doesn't require your consent. But if you do want to participate, you probably should.

Jesse (33:29.334)
What was your comment? Is it public? Are we allowed to see?

Matthew Leffler (33:38.694)
I'll send you a link after we're done. You could go to the actual rulemaking piece, look up my last name and find the comment that I did. I am in favor of autonomous trucks. The reality is, driving a truck commercially is the eighth most dangerous job in the United States. It is a very, very dangerous job. It is underinsured. Most trucking companies do not carry enough insurance. They are poorly maintained with a 22% on average out of service rating. You cannot have an autonomous truck that's 20% out of service. No one would ever accept a truck on the road that is autonomous and not maintained properly. And so for me, I do believe in progress. I do believe in technology. Now, there are big questions I have around who can surreptitiously enter that vehicle, take control of it, and shut it down. Because we go back to the Teamsters and deregulation. One of the reasons why deregulation happened was because the Teamsters could stop the country. The Teamsters could just say, hey everybody, don't go to work today. And no one wanted that power in an organized union like that. The longshoremen still have that kind of power, but the Teamsters not really. So the autonomous trucking piece for me is not just that the technology needs to be proven. We have to have good disclosures and regulations, but ultimately you have to have safety protocols that prevent hostile foreign nations from taking control of your infrastructure. And that's the part that we don't really have a ton of stuff on that I've seen. But yeah, I'm all for the robots.

Jesse (35:09.536)
It sounds like that was a big one. I remember hearing about this. Are there any other regulatory barriers? What is the process for getting something approved to be autonomous? Do you need to get something approved, or is it the company bearing the risk and they could do it earlier? And these levels, are they actually in regulation or is it common language about what the levels are?

Matthew Leffler (35:38.556)
The level four and level five, that is industry speak. You can look at the Commercial Vehicle Safety Alliance, the CVSA, and they have their version of autonomous regs. They have a pretty strong opinion on these things. Generally speaking, it is limited by whatever regulator is on top of you. So if you're trying to go across state lines, it's the federal government. If you're doing just within your own state, it's the local state regulations. If you're doing completely off-highway on your own, which is a lot of the oil and gas stuff or yard trucks, Outrider is a great example of autonomous yard trucks, you don't need anybody. You just go do what you want to do. But ultimately, you need your insurance company to understand what you're doing. So when it comes to autonomous vehicles, a lot of people are like, who's at fault if an accident takes place? Well, everybody. You're going to sue the manufacturer, you're going to sue the technology company, you'll sue the remote operator, you'll sue the motor carrier. And if it's a defect on the equipment side, that's product liability. If it's a defect on the maintenance side, you didn't take care of the asset, that's general negligence. So there is a framework to do liability findings. But when it comes to how do you get this stuff deployed, it is state by state, unless the feds come in and say, we're taking supremacy over all of it. Any regulation you have, we're just going to ignore it. That's the other pathway that we're very likely to see in the next couple of years.

Jesse (37:04.588)
Are there any other big pieces of legislation that need to get passed to unblock or enable this? Or is it now like prove the safety case and work with the regulatory body to demonstrate that it's safe enough to get on the road?

Matthew Leffler (37:19.131)
That's a really good question too. From my perspective, I do believe the FMCSA, as it sits today, probably has the statutory authority to make regulations on autonomous trucks. They may not want that. They may prefer for Congress to step in, make a law, and maybe empower them with more resources. There's a highway bill that has some stuff around autonomous vehicles. There's a thing in Congress called the Self-Drive Act. And that's all about autonomous vehicles. There's parts of it that I love, parts that I really don't love. And then on the state level, every state tries to ban autonomous vehicles. Your state actually has tried to ban it twice. So the Teamsters and OOIDA have worked together to ban driverless trucks in California. And twice Governor Newsom has vetoed it. So if people think my local government is going to say no, they're not. They all like robots. They all know it is a safer type of technology, generally speaking, and it does save money. There's no doubt about it, it will save enormous amounts of money on the cost of labor and maintenance if it's done correctly.

Jesse (38:34.018)
I think this'll just be one of these things where I don't know if it's five or ten or twenty years, but we're going to look back and be like, can't believe we let humans drive these things.

Matthew Leffler (38:44.891)
I think you're right. If we look back at the biggest things, besides the internal combustion engine, what were the biggest things the transportation industry dealt with? The big one was containerization. No one thought the world was going to go to a box standard that every country would acknowledge. And even the longshoremen thought it. They went on strike for a hundred days and they lost. So you would never go back to a world before containers. Same with deregulation. Even if we are upset that maybe the stuff isn't maintained as well or not as strong employee cultures, it's cheaper. We're not going to go back to spend more. And autonomous vehicles, it's the same thing. Those trucks do not need meal periods. They don't need to have hours reset. It's maintenance and fuel. That's it. Then go.

Jesse (39:31.852)
Yeah, it's just progress. And who knows, maybe there's electric trucks at some stage. On the theft side, cargo theft has been interesting to see. It's the thing that has captured the public imagination around this stuff, along with the C.H. Robinson Montgomery case. It's so wild to me. I'm trying to think of another example of an industry that is as affected by organized crime the way this is. It is crazy what is going on, that every broker, it doesn't matter if you're thousands of people or a few, is just sitting there trying to play defense against a barrage of theft of things that are worth a hundred thousand bucks.

Matthew Leffler (40:31.195)
This is a fascinating thing to look at. So the reported fraud and theft of cargo in the US is around a billion dollars, but people think it's far more. Some people, TIA, the Transportation Intermediaries Association, they believe it's about 35 billion a year. I don't know if that's the number I would stick with, but it's billions. And one of the challenges, it's important to note this is a phenomenon of, and I don't mean to be cruel to my broker friends, I love my broker friends, it's a brokered freight issue. If you're a full truckload or an LTL carrier, there's always theft, there's always stuff that falls off the back of the truck. But it's not strategic the way it is for brokers and motor carriers in the brokered freight world. And part of this is because of how fragmented it is, but also how, I wouldn't say lazy, that's not the right word, but how we chase to reduce costs. So a lot of big brokers, and you guys I think are benefiting from this shift, we offshore, offshore, offshore. Well, when the offshore people don't have jobs anymore, they still remember every single thing about our industry. They can take what they learned and find ways to defraud American consumers. And that's the big issue. Every American bears the cost when things are not where they're supposed to be. And so it's not just opportunistic, but realistically the big issue is strategic cargo theft by criminal cartels, transnational criminal cartels. And we might look and say, well, Highway or gen logs or DAT or whoever else, they can solve it. You cannot beat the cartel. You're never going to do that. And the cartels, they just look down the line of where they can find avenues to attack. They attack it as hard and fast as they can, and when it no longer is available, they move on.

Jesse (42:35.128)
So what is it? Tell us about the proposed bill. It passed the House, right?

Matthew Leffler (42:54.575)
So how it happens today, if you lose a load of cargo, you call the police, and the police say that's a civil matter. Or they say, well, it didn't happen here, we don't have jurisdiction. So you call someone else. And you're just telephone tagged trying to find someone who cares. That $100,000 or $200,000 of stuff is gone. But there aren't any people that are brutally victimized, not hurt. They just lost their money. So it's been a very difficult pathway going after these things. What CORCA does, the Combating Organized Retail Crime Act, this is probably the most profound change in how we look at cargo theft in this country. It would create a new unit under the Department of Homeland Security that would consolidate all of the different federal agencies, the state governments, and the local agencies to try to put together a task force to go after the cartels that are doing this. And that's the only really way this is going to be successful. What is so exciting about CORCA is literally everybody loves it. There's 160 co-sponsors in the House. There's the ATA, TIA, IANA, US Chamber of Commerce, every alphabet suit, they all love it. It is now in the Senate and it has stalled. President Trump has said he's not going to sign any legislation unless his voting stuff gets passed. And that's not quite sure if that's going to happen. So these really important pieces of legislation are just sitting and waiting. And CORCA is by far the best tool to combat organized crime in this country when it comes to freight and cargo theft. And we're just waiting for the government to do the job we pay them to do.

Jesse (44:12.67)
Why do you think it's the best way to combat it? Is it that there's not clear ownership, there's not clear jurisdiction, there's not resources? Or why do you think this will move the needle?

Matthew Leffler (44:26.499)
One of the really interesting things to think about is let's say the fraud happens, but let's just say it's like Eastern Europe. There's some fraud in Eastern Europe. How are you going to go after anyone? How is the local government of St. Charles, Illinois, or San Francisco going to go after some criminal cartel that's outside of your nation? And so part of the challenge is that we all have these silos that are completely locked away from everybody else. We don't know where our authority ends, where someone else's begins. And there's a very strong incentive not to collaborate. Shippers pay out a lot of money for stolen stuff and they don't admit to it. They'll say, they want $10,000 and we'll get our stuff back. Pay them. Just pay it, get the stuff back. So that is the challenge we run into, that there are so many competing interests, it really requires a collective action solution. And that's what governments are designed to do. I love the technology partners that I get to work with and other companies that are chasing these things. They are not governments. They have nowhere near the power of the federal government to combat this type of crime. And as much as I love these companies, they're not best suited for doing this. So that's why for me, CORCA is super compelling. And I do think it will get passed. Who knows when?

Jesse (45:59.834)
Have you looked at this, are there other examples of rampant commercial theft or fraud that have been stamped out in other industries? Are there any parallels for how you tackle this?

Matthew Leffler (46:07.545)
I go back to the retail aspect. So the retailers have not stopped shrink. It's a trillion dollars a year. So for retailers, they build in shrink. They build into their operating budgets, we're going to lose a portion of our stuff every year. Because they don't want to have their own security people arresting or grabbing people who are trying to leave. That's only going to make things worse. And so you see all across the big metro areas, certain things are behind locked gates. You can't get to them. Shrink in the retail space, my numbers might be wrong, but it might be like a trillion bucks. But they're okay with it. They can live with that amount going. For our industry, what we've seen become this big prevalent thing is not the opportunistic, like this truck broke down, we ripped into the back and grabbed a bunch of stuff. It's they know exactly what's inside that trailer. They know exactly where it's going. They've hacked into the ELD and rerouted the truck. Driver has no idea that this has happened. And that's why it's a sophisticated entity that private companies can be helpful, but they're not going to be able to stop it. As for other places, I don't know. We did a good job on fentanyl for a little bit and then we kind of gave up on that. So it just depends on where your government focuses their attention. If they're not focused on trying to reduce these types of things, they're only going to continue to accelerate.

Jesse (47:40.495)
Super interesting. That'll be interesting to see how long it takes to move the needle on this stuff. Final, go for it.

Matthew Leffler (47:47.0)
My hope is we're never going to stop fraud and cargo theft. It's always going to be part of it. The FMCSA pushing MODIS, which has had some growing pains, that has been helpful. That will be helpful. But you do need resources and you need a part of the government that is focused on our industry. We move 70 some odd percent of all of the stuff we buy, we probably should invest in this. But ultimately, fraud and cargo theft is not a great thing. Vehicle maintenance is abysmal. 22%. It's insane.

Jesse (48:15.16)
It's crazy. I'm not surprised. It's a tough incentive, because you've just got a bunch of companies that are going to go out of business if this thing breaks down or something bad happens. And you see this with other things, even Ubers and stuff that are in these fleet vehicles. Sometimes I get into those and, I got into one the other day and it broke down on a freeway and I had to walk down the freeway with my luggage. And I was like, this thing's crazy. Somebody, this shouldn't be allowed to be on the road. I didn't even know how it got here.

Matthew Leffler (48:51.269)
I think it's a great analogy. Because the reality is we have made the barriers to enter so easy. They're so low. And when the barriers to enter are low, sometimes people say it's because there's a driver shortage. There is no driver shortage. But you have these stories that get told that we have to reduce the cost of the barriers to enter. And with the Uber driver who broke down the side of the road, Uber itself can't control that driver. They do not want that driver to be an employee. That is the same problem the freight brokers have. Do they want the drivers to be safe? Absolutely. Do they want to ask the driver for copies of the vehicle inspection reports and the DVIRs? You're starting to control them too much. And so you're in this really delicate balance where if you do too much, you're going to get sued. If you do too little, you're going to get sued. The solution, I hate to say this, is having the government increase the barriers to enter. If someone said in California, the only way you can be an Uber driver is if you have half a million dollars of liability insurance, how many of them would go out of business? How many would stop driving for Uber? There'd be a portion. It would mean you and me pay more for that. And most people would rather have things be unsafe, dangerous, or easy to defraud than to pay more. And that is the story of the American experience.

Jesse (50:10.188)
That's exactly it. It's free markets, baby. Go to Europe if you wanted something different. Final topic. Tell us about the Slaughter case around the FTC and what the impact of that could be in transportation.

Matthew Leffler (50:27.399)
So this is going to take me time to unpack. Here's the reality: we are watching this incredible transformation of the federal government as it relates to federal independent agencies. So before I can talk about Slaughter, I'm going to go back to Chevron. And Chevron was this case back 40 some odd years ago that said if an administrative agency is interpreting its own statute to say what am I allowed to do, what can't I do, we would defer to the agency and say, yes, you have the right to do that. And the best example that people get really upset about, and for good reason, there was a case a couple of years ago where OSHA, the Occupational Safety and Health Administration, was going to mandate vaccinations for COVID, make every business do vaccinations or have a testing program. And it got challenged in the federal courts and eventually got to the Supreme Court. And the Supreme Court basically said, there's nothing in your statute that allows you to do this. You've overstepped your bounds. So they said, if you want that authority, go back to Congress, ask them to modify your statute. And that case was the first really big chink in the armor of this federal administrative state. The next big one was a case called Loper Bright. Loper Bright invalidated Chevron. It pushed the story of the OSHA case, said we do not want federal agencies to overstep their bounds. We want them to be very clear what they're allowed to do. For example, the FTC tried to ban non-competition agreements. Your wonderful state of California banned non-competes 100 years ago. But 30 million Americans have non-competes. The FTC came in and said we're going to ban them. And then the court said, no, you're not. You don't have that authority. And that gets us to the Slaughter case, which is a more recent one, happened last week. Here's the story. When you are nominated to be part of an agency at the leadership level, there's only certain ways you can lose your job. Usually they're like for a cause, you did this wrong, now you're gone. You have to give a reason, or at least you did until last week. And what happened in the FTC case with Slaughter was this woman was fired, she lost her job, and she wanted to get reinstated. And it went to the Supreme Court, and the Supreme Court said no. The federal government, the executive branch, has complete authority over its branch. If you need to get Congress to limit that power, that is unconstitutional. We're not going to allow that. And so what this case stands for, for all of our supply chain friends, there's another case going on with the Surface Transportation Board. There's a guy named Primus, he was fired by Trump about a year and a half ago. He has been suing and seeking reinstatement. He will likely not get that reinstatement. What this really boils down to is going forward, if your administrative agency is at political odds with the new president, you could probably lose your job for any reason. Now it doesn't apply to the Federal Reserve. That case was also litigated and decided. The Federal Reserve is special. You can't just fire the board members. But everything else you can. And this case, the Slaughter case, will be one of the most important cases in the next probably couple decades, because it really does change ninety years of Supreme Court precedent.

Jesse (54:04.6)
That's super interesting. But couldn't you just fudge us, I mean, it feels like you serve at the pleasure of the president in a lot of these cases, whether or not they just fire you without any reason or just make up a reason.

Matthew Leffler (54:31.387)
That's another great question. The reality is with these statutes that give you the guidance for how these people are hired and terminated, they basically said before this litigation, if you're going to fire this person, it's got to be for cause. That is the guardrails we're putting in place. And the Trump administration could absolutely have made up reasons and said, here's our causes, but that is not what they were testing. They were testing this idea called the unitary executive theory, meaning if you're the president, everything on your payroll is yours, and you can do whatever you want with them. And so this case, they explicitly did not give a reason for why they terminated this person so that they could test whether that theory would be successful. And it was. It's actually very reminiscent of the IEEPA case, which is like the reciprocal tariff case. These powers, even though Trump lost that case eventually, had he been successful, would have been a disaster for the American experiment. Because these powers, they don't just stay with the guy who's in office. Once that person leaves, every future person gets all of that power. And you can just imagine what your worst political nightmare would do if they had the power to fire everybody who disagrees with them politically. And that's what Slaughter stood for. Now within the last week is the same thing. He fired a bunch of people from the election board. Same thing. You have to have reasons for firing them. Doesn't need them.

Jesse (56:03.128)
So this was decided now. And so there is precedent. This was a Supreme Court case. Super interesting.

Matthew Leffler (56:09.519)
So what's going to happen is if you get fired from your job as a member of a board for one of these federal agencies, and you want to get reinstated, you're going to either say, my agency is like the Federal Reserve or it's like the FTC. If it's like the FTC, you lose your job. If you're like the reserve, maybe you get reinstated. But it's a different calculus. And that's going to cause a lot more uncertainty than most people realize, because it's a big departure from what we did for the last almost hundred years. But we'll make do. We always make do.

Jesse (56:42.498)
It's interesting because one of the things growing up in Australia is that when the Australian constitution was written, we had these examples of various forms of democracy. And the US was the big modeling one, but obviously we're a colony of Britain originally. So there was some blended. In Australia, there's this principle of responsible government, where the executive and the legislature are not as separate as they are in the US. And I think in Australia, that is probably how it works, whoever the head of the major departments are that report into the prime minister, who is selected by the party, I don't think you need cause and that is just something that shifts as part of the political parties.

Matthew Leffler (57:33.615)
Yeah, it's interesting because the way that our administrative agencies function is to give enormous power to the presidents. Like you say, you're Congress, I don't want to make laws on clean air, I'm going to give it to the EPA. EPA does whatever they do, and I'm done with it. And so when they gave these powers to the executive branch, they would put these guardrails in. But now those guardrails are unconstitutional. So now it's just power. And man, isn't power great.

Jesse (58:00.77)
Matthew, final question for you, what are you excited about for the industry over the next twelve months? What are the buds that you think are coming?

Matthew Leffler (58:11.831)
What I would emphasize to everyone who listens to this and sees this, we are in one of the most interesting times in human experience. We are going to see a profound change the next five to ten years that we will never fully appreciate until we're decades past it. This age of automation is here now. And even though we've been saying it's going to be here or it'll never be here, it's happening now. And we will look back twenty or thirty years and we will be completely gobsmacked by how transformational this has been. So being a person in this time is incredibly helpful. If you have any opinions on how the future gets worked out, comment on the proposals for the rulemaking from the FTC, FMCSA, whoever else is out there. They do read every single comment. They will incorporate that and you need to have a voice. This is your democracy. Whether you participate or not isn't my decision. It's yours.

Jesse (59:01.262)
I love it. A call to arms to support the organs of democracy that exist today. I agree. It is a very momentous time, because I think you're right, we'll look back in five or ten years and who knows, but I think this is going to be one of the most important epochs in human history, and we're living through it.

Matthew Leffler (59:29.935)
A hundred percent. I just hope it's not the great filter. My big worry is the Fermi paradox, like where are all the aliens? Do we all get cut off?

Jesse (59:39.904)
Yeah, they all found this. This is the last twenty years. You sort of think we're going to take off into this utopian bliss, but actually this is what happened to all the aliens.

Matthew Leffler (59:48.961)
We're all just destroyed. We'll come back in twenty years. We'll redo the podcast and we'll see what's changed.

Jesse (59:54.582)
I know. Look, if we're all going to go out, I at least want to be there for the Terminator. You know what I mean? If we're all going to go out, let me see it.

Matthew Leffler (01:00:05.999)
This is why when I comment in favor of the robots, I hope they remember me. We've got to make the sacrifice. We have no choice.

Jesse (01:00:10.902)
Yeah, exactly. I say thank you to my AI all the time. Waymo, I'm like, thank you so much. They'll remember. Thank you, Matthew. Actually, what do you go by? Matthew, typically?

Matthew Leffler (01:00:25.133)
I go by anything. Matthew works, Matt works. My friends all call me Matt. Professional people might call me Matthew, but I respond to any four-letter word typically. Professor, I'm an adjunct. I'm not that fancy.

Jesse (01:00:37.646)
Cool. Well, thanks so much for the conversation. It was great to have you on.

Matthew Leffler (01:00:41.72)
Thank you for having me.