Chameleons--the reptiles, that is--are known for their ability to change their physical appearance to blend into their surroundings. The Federal Motor Carrier Safety Administration (FMCSA), which is primarily responsible for regulating highway safety, has ascribed similar characteristics to nefarious motor carriers who attempt to avoid the consequences of non-compliance by closing up shop and reincarnating under a different name or USDOT number. These so-called "chameleon carriers" believe that by doing so, they'll start with a "clean slate" and leave their regulatory problems behind them. While this may have been a viable strategy in the past, it is no longer, as the FMCSA has developed investigatory and enforcement processes to curb the practice. In this article, we'll explore exactly how the agency weeds out these carriers and what consequences they face.
But first, what exactly is a chameleon carrier? Although the FMCSA doesn't specifically define chameleon carriers in its regulations, it has described them as carriers who submit new applications for registration, often under a new name, in order to continue operating after having been placed out of service for safety-related reasons; to avoid paying civil penalties; to circumvent denial of applications for operating authority based on a determination that they were not fit, willing, or able to comply with the applicable statutes or regulations; or to otherwise avoid a negative compliance history.
Why are chameleon carriers prohibited?
The dangers posed by so-called chameleon or "reincarnated" carriers were made apparent following a fatal bus crash in Sherman, Texas in 2008. The FMCSA's investigation of that accident revealed the carrier involved did not have active operating authority but had an application pending with the agency. The company had been previously placed out of service due to safety-related defects and was in the process of applying under a new name to avoid the implications of that out-of-service order.
Following that accident, the FMCSA began vetting passenger and household goods carrier applicants to determine whether they were reincarnations or affiliates of other motor carriers with negative compliance histories. Then, in 2011, the agency codified its vetting procedures in a formal rulemaking aimed at prohibiting reincarnated or affiliated carriers from successfully evading accountability for their compliance history.
In its chameleon carrier rulemaking, the FMCSA explains, "the practice of 'reincarnating' as a new carrier or of operating affiliated companies to circumvent Agency enforcement actions and avoid a negative compliance history or enforcement action has created an unacceptable risk of harm to the public because it results in the continued operation of at-risk carriers and thwarts FMCSA's ability to carry out its safety mission." Accordingly, the FMCSA now actively investigates and shuts down chameleon carriers.
How does the FMCSA uncover chameleon carriers?
In its 2011 rulemaking, the FMCSA established new processes for identifying and prosecuting chameleon carriers. 49 CFR 386.73 authorizes the agency to issue out-of-service orders to carriers determined to be reincarnated or operating as affiliates to avoid enforcement action or a negative compliance history. The rule also establishes procedures to consolidate the compliance records of reincarnated or affiliated entities, such that the negative compliance history is attached to any affiliated carriers being used for an "improper purpose."
In particular, that rule allows the FMCSA to issue an out-of-service order to and/or consolidate USDOT records of any carrier who has operated or attempted to operate under a new identity or as an affiliated entity to:
Avoid complying with an FMCSA order;
Avoid complying with a statutory or regulatory requirement;
Avoid paying a civil penalty;
Avoid responding to an enforcement action; or
Avoid being linked with a negative compliance history.
Under the rule, FMCSA may determine that a carrier is reincarnated if there is substantial continuity between the entities such that one is merely a continuation of the other. It may determine that a carrier is an affiliate if the business operations are under common ownership and/or common control. In making this determination, FMCSA considers the following factors:
Whether the new or affiliated entity was created for the purpose of evading statutory or regulatory requirements, an FMCSA order, enforcement action, or negative compliance history. In weighing this factor, FMCSA may consider the stated business purpose for the creation of the new or affiliated entity.
The previous entity's safety performance history, including, among other things, safety violations and enforcement actions of the Secretary, if any;
Consideration exchanged for assets purchased or transferred;
Dates of company creation and dissolution or cessation of operations;
Commonality of ownership between the current and former company or between current companies;
Commonality of officers and management personnel;
Identity of physical or mailing addresses, telephone, fax numbers, or email addresses;
Identity of motor vehicle equipment;
Continuity of liability insurance policies or commonality of coverage under such policies;
Commonality of drivers and other employees;
Continuation of carrier facilities and other physical assets;
Continuity or commonality of nature and scope of operations, including customers for whom transportation is provided; and
Advertising, corporate name, or other acts through which the company holds itself out to the public;
The agency has explained that it weeds out potential chameleon carriers by leveraging its various electronic databases to automatically scan for similarities among new and existing registrants. Specifically, FMCSA uses its New Applicant Screening (NAS) tool to identify matches against all existing motor carriers in FMCSA’s databases along various data fields such as company name, address, phone number, applicant name, etc. The potential matching companies associated with each application are then inputted into software known as ARCHI, which further links to other FMCSA and PHMSA databases such as the Motor Carrier Management Information System (MCMIS), Enforcement Management Information System (EMIS), Safety and Fitness Electronic Records (SAFER) System, and HIP.
The ARCHI uses these information sources to automatically process and assign a risk level to each application based on the calculated match and motive scores. FMCSA uses this risk level to determine next steps, including denying applications and pursuing further enforcement action.
What happens to chameleon carriers?
The FMCSA's regulations set out the process the agency follows when it elects to pursue chameleon carriers. Section 386.73(f) requires the FMCSA to initiate a formal proceeding by issuing an order that:
Provides notice of the factual and legal basis of the order;
In the case of an out-of-service order, identifies the operations prohibited by the order;
In the case of an order that consolidates records maintained by FMCSA, identifies the previous entity and current or affiliated motor carriers, intermodal equipment providers, brokers, or freight forwarderswhose records will be consolidated;
Provides notice that the order is effective upon the 21st day after service;
Provides notice of the right to petition for administrative review of the order and that a timely petition will stay the effective date of the order unless the Assistant Administrator orders otherwise for good cause; and
Provides notice that failure to timely request administrative review of the order constitutes waiver of the right to contest the order and will result in the order becoming a Final Agency Order 21 days after it is served.
Carriers who receive such an order can petition the agency for administrative review by filing a petition with the agency's Assistant Administrator. If timely filed, the petition kicks of an administrative review process involving legal briefing and argument to the Assistant Administrator, who will make a final determination based on the record.
As explained by the Assistant Administrator in prior cases:
The [FMCSA Field Administrator (FA)] has the burden of demonstrating by a preponderance of the evidence that the carrier's purpose in operating under a new identity or as an affiliated carrier as set forth in 49 CFR 386.73(a) (out-of-service order) and 386.73(b) (record consolidation order) was improper. A carrier operates with an improper purpose if it creates a new identity or operates through an affiliate to: "(1) Avoid complying with an FMCSA order; (2) Avoid complying with a statutory or regulatory requirement; (3) Avoid paying a civil penalty; (4) Avoid responding to an enforcement action; or (5) Avoid being linked with a negative compliance history." To demonstrate reincarnation or affiliation, the FA must prove that at least one of these five purposes occurred.
Even if the carriers are substantially the same or under common ownership and/or control, the FA must still demonstrate that the carriers had an improper purpose for the reincarnation or affiliation. Whether the companies were related as affiliates or one was the reincarnation of the other, however, makes little difference so long as an improper purpose, which is the heart of the regulation, can be demonstrated by a preponderance of the evidence.
In the matter of Mountain Express, LLC, Docket No. FMCSA-2018-0170 (July 2, 2018).
If the purported chameleon carrier fails to challenge an agency order or loses on appeal, the order will become effective. This will lead to either the carrier being placed out of service or its USDOT records (including any negative compliance history) being consolidated with its affiliated carrier(s).
How widespread is reincarnation?
Unfortunately, the FMCSA doesn't publish detailed statistics about chameleon carriers or its efforts to prosecute them. However, in a 2012 report to Congress, the Government Accountability Office (GAO) noted that the “number of carriers with chameleon attributes” increased “from 759 in 2005 to 1,136 in 2010." It went on to explain that "18 percent of the applicants [for operating authority from the FMCSA] with chameleon attributes were involved in severe crashes compared with 6 percent of new applicants without chameleon attributes.” Given the substantial rise in the number of DOT registration applicants over the past few years, it would not be surprising to learn that the number of "carriers with chameleon attributes" has likewise risen significantly over that time frame.
In a prior article, we discussed situations where carriers maintain two or more USDOT registrations. Many of these situations are benign, but as we discussed in that article, FMCSA’s chameleon carrier regulations are one of many reasons we think such carriers should consider consolidating their USDOT registrations.
According to FMCSA data, chameleon carriers are much more likely to be involved in serious accidents. Even if their intentions are pure, carriers with a history of non-compliance who seek to establish or work through an affiliated entity will, in most cases, be targeted by the FMCSA and prohibited from doing so. For this reason, carriers who have a history of non-compliance are much better off to follow the proper procedures to improve their compliance posture.
For even more in-depth training on DOT safety regulations, be sure to check out our industry-leading online courses for safety managers and drivers at www.trucksafeacademy.com. And if you need assistance improving your safety program or responding to an FMCSA order, feel free to contact us.
About Trucksafe Consulting, LLC: Trucksafe Consulting is a full-service DOT regulatory compliance consulting and training service. We help carriers develop, implement, and improve their safety programs, through personalized services, industry-leading training, and a library of educational content. Trucksafe also hosts a monthly live show on its various social media channels called Trucksafe LIVE! to discuss hot-button issues impacting highway transportation. Trucksafe is owned and operated by Brandon Wiseman and Jerad Childress, transportation attorneys who have assisted some of the nation’s leading fleets to develop and maintain cutting-edge safety programs. You can learn more about Trucksafe online at www.trucksafe.com and by following Trucksafe on LinkedIn, Facebook, Twitter, and YouTube.