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FAQ »What
is Federal Service Corporation?
1. WHAT IS FEDERAL SERVICE CORPORATION? Federal Service is an independent contractor primarily engaged in administrating claims for a number of financial institutions authorized by the Federal Motor Carrier Safety Administration to hold collateral for and issue BMC-85 "Property Broker's Trust Fund Agreements". Most of the trustees we represent are commercial banks, but most of the trusts we administrate claims for are held by Pacific Financial Association, a specialized financial enterprise whose operations are the subject of this presentation. To date, Pacific Financial has issued more than 3,000 BMC-85s. 2. What are Federal Service Corporation's responsibilities? Even though Pacific Financial always exercises executive control over the trusts they issue, they have delegated all BMC-85 claims evaluation functions to Federal Service. Our staff handles all communications relating to claims, and is responsible for advising the trustee accordingly. If you attempt to contact Pacific Financial directly regarding a claim they almost always will refer you back to this office. 3. WHAT IS THE DIFFERENCE BETWEEN A BOND AND TRUST AGREEMENT? BMC-85 "Property Broker's Trust Fund Agreements" are an alternative method of satisfying the $10,000 bond requirement for a transportation broker's license. The primary difference between a bond and a trust agreement is that with a "bond" (BMC-84) some insurance company's reserves are placed at risk, and with a "trust agreement" (BMC-85) the broker's own assets are placed at risk. "Bonds", are issued by state insurance commission with respect to reserve requirements. "Trust agreements" are issued by financial institutions, and are subject to no reserve requirements whatsoever. Effectively, the only regulation to which BMC-85 trustees are subject pertains to their responsibility for handling other people's money, pursuant to oversight by at least one federal or state agency for appropriate statutory purposes. 4. What DIFFERENCES DOES THAT MAKE TO CLAIMANTS? From a claimant's point of view, the difference between a "bond" (BMC-84) and a "trust agreement" (BMC-85) is fundamental: With a "bond", the bonding company is always in the driver's seat when it comes to paying claims, because from legal standpoint it's always their money. Bond "collateralization", when required, merely constitutes advance reimbursement. With a "trust agreement", on the other hand, the trustee has to consider the broker's point of view, because the broker's own assets are placed directly at risk. 5. DOES THAT MEAN MOTOR CARRIERS SHOULD NOT BE DOING BUSINESS WITH BROKERS WHO HAVE TRUST AGREEMENTS? Not at all, unless they plan on submitting "questionable" claims. A major problem is that both types of indemnification are limited to $10,000, and most bonding companies can't think of any way to charge enough of a premium on a $10,000 instrument to bother evaluating claims properly. The first time you have a valid claim turned down by a bonding company because they just paid out the last $3,000 you should have received to some motor carrier who delivered a load of Christmas trees on New Year's Eve you'll know what we mean. Even though sometimes it may require a more extensive process for claimants to get money out of federally mandated trusts than out of state mandated insurance reserves, with trusts there's a significantly greater likelihood that enough funds will be left to pay valid claims when the process is complete. 6. WHAT DO WE HAVE TO DO TO GET PAID? The first thing you have to do to qualify for payment is provide us with all relevant information and a sworn statement before the Federal Motor Carrier Safety Administration as to the accuracy of your representations. The simplest way to do that is to employ one of Pacific Financial's "Carrier's Claim Applications", the text of which incorporates such language in a standard format. You may obtain an example of that form by calling this office and requesting one be faxed or mailed to you. After completing the form you must mail, not fax, and executed original to our PO Box along with copies of all relevant supporting documentation. Next, be sure to respond to any inquiries we might make. If there's a dispute, you may have to undertake a complete process of arbitration or adjudication in order to get paid. In over 95% of the cases we've found that brokers may be expected to pay claimants directly and shortly after they become aware that claims are or soon will be filed against their trusts. The squeaking wheel gets the grease. If a broker disputes a claim, whether or not the broker would be "held legally liable", in accordance with the specific provisions of paragraph 6 of the BMC-85 form. both "good faith" and "held legally liable" are established terms of art, and we rely strictly upon advice of counsel regarding any determination as to any trustee's legal liability for any claim. Essentially, if a broker fails to pay you directly you will be entitled to collect from their trust after legal liability may be verified, out of any funds available at that time. 8. Can the trustee refuse to pay us? Yes. The trustee can refuse to pay you (i) if there's no money left in a trust, (ii) if the movement which occasioned your claim did not occur within the effective term of a BMC-85 filing, (iii) if the movement which occasioned your claim was not subject to economic (as opposed to safety) regulation by the Federal Motor Carrier Safety Administration (such as movements involving exempt commodities, movements prior or subsequent to movements by air or rail, or movements in intrastate commerce), or (iv) if you've failed to establish legal liability. 9. HOW CAN WE ESTABLISH LEGAL LIABILITY? The quickest way to establish legal liability would be a broker's failure to deny (i) that they owe the full amount of your claim and (ii) that they owe it now (as opposed to, for example, owing it after the underlying shipper pays). Another way would be for you to obtain a final arbitration ruling or judgment to that effect. If a broker formally contests any significant aspect of your claim, and the issue never has been arbitrated or adjudicated, at least some delay is inevitable unless the broker fails to maintain communications and/or otherwise cooperate fully and promptly with this office, which as a matter of contract always is regarded as a constructive admission of liability (such as when a broker "melts down" and vanishes). 10. How long will we have to wait to collect on a valid claim? It varies. For example, if a legal liability has been established and the claims pending against a trust total less than $10,000, our counsel usually directs us to advise the trustee your claim in line for payment immediately. If the claims pending against a trust total more than $10,000, our counsel usually directs us to advise the trustee to file a "Notice of Cancellation" immediately and defer payment until all possible claimants have had the opportunity to file and validate their claims (which could take several months), and then either (i) pay a percentage of each presumably valid claim on a pro-rate basis, or (ii) begin paying the full amount of each presumably valid claim in the order in which the movements which occasioned such claims were conducted, until all remaining trust funds are exhausted. A third option, one seldom employed by Pacific Financial though customary among bonding companies would allow either category of surety instrument providers to begin paying the full amount of each presumably valid claim immediately in the the order in which they were filed, until all remaining funds are exhausted. The trustee's only legal constraint in choosing between those three options is consistency within each individual trust. 11. Don't claims have to be paid within a certain period of time? No. In the first place, no "claims have to be paid" by any BMC-85 trustee unless such "claims" are deemed to be valid, and then only up to a total of $10,000 or less. In the second place, payment schedules always depend on the circumstances described above. Significantly, we've found that certain claimant's attorneys contact us in order to insist that "federal regulations" require that the trustee pay their clients immediately. Then sometimes the same attorneys will contact us later representing other claimants after those same trusts have been exhausted and insist that the trustee should have deferred any payment until those claimants would have had the opportunity to file and/or obtain judgments as well. Some attorneys even have threatened suit against Pacific financial for not holding onto trust funds until the statute of limitations for contract actions in the relevant jurisdiction might run ( which in Arizona could be up to six years)! 12. will we get paid faster if we call your office incessantly? No. The trustee is not your debtor. Federal Service's staff members harbor no guilt over your not getting paid promptly by a broker you chose to do business with. In fact, our attorneys advise us consistently that all the legal authorities on the subject must interpreted as prohibiting any BMC-85 trustee form favoring persistent claimants over any others. The value of any BMC-85 filing always has been that it represents $10,000 in liquid net worth devoted entirely to the satisfaction of shipper or motor carrier claims. As a matter of federal law, the only thing any trustee is allowed to do with any part of the corpus of any BMC-85 trust is pay valid claims, or refund any balance to the broker if no claims are in prospect. No BMC-85 trustee can attach any part of any trust fund for their own account, even to discharge a debt. 14. will we get paid faster if we sue the trustee? No. The only legal theory under which any trustee might be "held legally liable" to any claimant out of their own capital for any payment procedure that trustee might choose would be if such a trustee were to pay out trust funds in a manner which favors one class of claimants over another (such as paying out trust funds on a priority basis to those claimants who sue them). 15. what can federal service corporation do for us? We're here to expedite the claims process. Speaking for the organization which processes "bond" claims for roughly 1 out of 8 active transpiration brokers in the county, the majority of such filing results in prompt payment by the brokers themselves, and we're not averse to threatening abusive brokers with cancellation or other persuasive sanctions in order to encourage them to do the right thing. Please be assured that $10,000 trust quickly becomes a burdensome asset in the event of excessive numbers of or particular time-consuming individual claims, since none of it can be attached to compensate the referenced trustee for extra processing costs (see questions 13 above). If you've got it coming, we want to see you get paid almost as much as you do. 16. what else can federal service corporation do for us? If you have questions regarding your rights as a carrier engaged in brokered transactions, please feel free to contact us for advice regarding alternate methods of recovery. In most instances, carriers unable to collect the full amount of their freight charges out of bond or trust funds can proceed collaterally against the underlying shipper or shippers involved in such transactions for all or the balance of any such entitlements. Should you need assistance in recovering your unpaid charges from shippers, we suggest you contract our contract affiliate, Transport Factoring Associates, at 602-424-1774.
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