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Chalos & Co is proud to announce that our principal and founder, George M. Chalos, has been inducted into Fellowship of Litigation Counsel of America, an invitation-only trial lawyer honorary society recognizing accomplished and highly qualified attorneys across the bar. With ever-diminishing percentages of cases reaching trial, U.S. litigation practice has been redefined, and courtroom expertise with superior results are at a premium.  Fellowship in the LCA is limited to less than one-half of one percent of American lawyers.  Fellows are selected following an evaluation of their effectiveness and accomplishments in litigation and trial work, as well as ethical reputation. The purpose of the LCA is to recognize highly qualified and deserving lawyers through their exceptional advocacy, high ethical standards, scholarly contributions, and excellence within the litigation process.  Mr. Chalos’ induction into this distinguished organization reflects the recognition of his professional accomplishments, experience,  commitment to excellence by other exceptional litigation peers from around the U.S. and beyond.

Last week, the U.S. District Court for the Southern District of Texas published proposed Prize Rules and Standing Interrogatories for Prize Proceedings for public comment. The Court’s proposal follows reports in late August that the Department of Justice intends to revive prize proceedings to condemn Iranian tankers and cargo captured under the U.S. naval blockade.  A statement by the U.S. Attorney for the Southern District of Texas confirms that his office is ready to proceed with such cases (report).

In our April update, Blockade and Capture: the significance of M/V TOUSKA, we explained that the Persian Gulf blockade had activated the long-dormant maritime law of prize. The original April blockade was lifted in mid-June under the interim U.S.-Iran MOU and then reinstated after the ceasefire ended. Like the first blockade, the reinstated blockade was announced in a social media post by the President. This time, however, a formal notice quickly followed. On July 14, the Joint Maritime Information Center issued Advisory Note 015-26, announcing that U.S. Central Command would enforce a naval blockade of all Iranian ports and coastal areas from 2000Z on July 14, 2026.

The Southern District of Texas proposal would open the door to applying the law of prize to vessels captured by the U.S. Navy for violating the blockade and would allow the judicial sale of captured vessels. The development is historically significant because, to our knowledge, no federal court has current and effective rules for prize cases.  In addition, the Federal Rules of Civil Procedure expressly provide that they do not apply to prize proceedings (Rule 81(a)(1)). Rules for prize cases are necessary because the prize statutes themselves refer to judicial proceedings. The last time a federal court published prize rules appears to have been January 8, 1942, one month after Pearl Harbor, when the Federal Court for the Southern District of New York re-adopted rules based on that Court’s prior practices from the U.S. Civil War.

The proposed rules would apply to prizes brought into the Southern District of Texas, and to prizes held abroad or appropriated by the government where the Attorney General or Secretary of the Navy elects to proceed in Texas.

The rules address the process from the point of capture onward. They allow the Capture Authority (the Navy Commanding Officer who directs the capture of the prize) to administer standing interrogatories at or near the time of capture, through NCIS agents or similarly qualified personnel under its direction. The Capture Authority must notify the court, a prize commissioner, and the U.S. Attorney within sixty (60) days of capture of either the prize’s arrival in the District, or of the Secretary of the Navy’s designation.  The U.S. Attorney must file a libel, traditionally, the maritime equivalent of a complaint, within one hundred fifty (150) days. A warrant of arrest then issues, and the prize vessel or cargo enters the custody of the Court. Claimants to the prize—owners and holders of properly perfected security interests—have 14 days to file a Verified Statement of Right or Interest. If no proceedings are started within one hundred fifty (150) days, a claimant may petition for restitution. The proposed rules allow for summary judgment on the initial record, interrogatory answers, and the claimant’s verified statement. The Court may enter default judgment of condemnation if no claim is filed within fourteen (14) days of execution of process or publication.

The Texas proposal is recognizably based on the Southern District of New York’s rules. The proposal, however, introduces several new features, such as the Capture Authority’s role in conducting examinations.  (The 1942 rules reserved this function for the commissioners). In addition, the standing interrogatories have been updated to obtain facts relevant to establishing violations in the modern context and summary judgment may be pursued. The proposed sixty (60) day notice requirement and one hundred fifty (150) day timeframe for filing a libel provide more time than the 1942 rules allowed. Finally, the proposed rules implement modern protections for witnesses, consistent with the Geneva Conventions, by making answers voluntary and allowing consultation with counsel beforehand.

The U.S. District Court for the Southern District of Texas has taken an essential step toward reviving the long-dormant law of prize. The Court will accept comments on the proposed rules until October 23, 2026. The short time between the U.S. Attorney’s announcement and the Court’s publication suggests that implementation will proceed promptly. If so, the Court could soon be the first in generations to adjudicate prize cases.

For more information on the proposed war prize rules and/or US admiralty law generally, please contact us at info@chaloslaw.com.

We are pleased to announce the release of the 2026 edition of the ICLG – Shipping Law, featuring Chalos & Co.’s contribution on U.S. shipping law and practice.

Our U.S. chapter examines a range of issues relevant to the maritime and shipping industries, including casualty and cargo claims, vessel arrest and security, procedural and evidentiary matters, enforcement of judgments and arbitral awards, offshore wind and renewable energy, and notable recent developments in U.S. maritime law.

The ICLG – Shipping Law continues to provide a useful comparative resource for those navigating the legal and regulatory frameworks affecting the international shipping industry.

We appreciate the opportunity to contribute to this year’s publication and thank Global Legal Group and ICLG for their collaboration.

Click here to read the U.S. chapter.

 

On August 24, 2026, the U.S. Department of the Treasury announced a wide-sweeping sanctions campaign branded “Operation Economic Outcast,” doubling down on its efforts to economically subdue the Islamic Republic of Iran and its enablers. The Treasury Department described the event as an economic “D-Day” aimed at closing off every financial channel that sustains the Iranian regime and the Islamic Revolutionary Guard Corps (IRGC) and warned that it has mapped the networks, facilitators, and financial channels Iran uses to smuggle oil, evade sanctions, and fund terrorism.

The campaign consists of four (4) coordinated actions. First, Treasury expanded the categories of Iran-related conduct that may be subject to secondary sanctions in the future by issuing determinations against five (5) critical sectors of the Iranian economy — digital assets, technology, gold, aviation, and shipping. Second, OFAC designated nearly sixty (60) entities, individuals, and vessels across multiple jurisdictions tied to illicit nuclear and missile technology procurement, cyber operations, and oil-revenue generation networks. Third, OFAC suspended several general licenses that had previously authorized certain remittance payments to Iran and Iranian access to the U.S. cultural and academic system. Fourth, OFAC issued additional guidance on the sanctions risks of acceding to Iranian demands relating to shipping through the Strait of Hormuz.

The addition of the five (5) sector determinations issued under Section 1(a)(i) of Executive Order 13902 may be the most impactful of the measures. Executive Order 13902 authorizes the Secretary of the Treasury, in consultation with the Secretary of State, to designate additional sectors of the Iranian economy whose operators become exposed to sanctions. Effective August 24, 2026, OFAC determined that E.O. 13902 now reaches the aviation, digital asset, gold, shipping, and technology sectors — building on earlier determinations covering Iran’s financial sector (2020) and its petroleum and petrochemical sectors (2024). This addition may significantly expand the sanctions by reaching any person, regardless of location, that operates in any of these sectors of the Iranian economy. By extension, non-Iranian counterparties who knowingly engage in significant transactions connected to those sectors, as well as foreign financial institutions that facilitate them, face secondary sanctions, including exposure to blocking sanctions or loss of access to the U.S. financial system.

Of greatest concern to commercial maritime, trading and bunkering clients,  are the actions targeting Iran’s shadow-fleet shipping network and oil-revenue facilitators. OFAC designated UAE-based broker Mohammad Ahmed Suhil Fattouh (known as “Captain Hamzah”) and his company Amdeh Ship Management under E.O. 13224 for support to the National Iranian Oil Company, and UAE-based broker Ivan Obukhov and his company Foscom FZE under the same authority for facilitating IRGC-Qods Force oil sales, including more than $100 million in cryptocurrency payments. OFAC also designated Singapore-based Azure Shipping and Mansoor Tayabbhai Gandhi, together with related entities, under E.O. 13902 for operating in the petroleum sector; and the Shamkhani-linked Wellbred commodities-trading group — including a French cooking-oil refinery it acquired in 2024 — under E.O. 13902. Finally, OFAC designated five (5) shadow-fleet vessel owners under E.O. 13902’s petroleum-sector authority and identified their tankers, which have moved millions of barrels of Iranian crude and petroleum products, as blocked property.

For more information on the US Treasury’s “Operation Economic Outcast” and/or US sanctions generally, please contact us at: info@chaloslaw.com

MSC Shipmanagement Limited pled guilty and was sentenced in the U.S. District Court for the District of South Carolina for charges arising from the June 2024 M/V MSC MICHIGAN VII “runaway ship” incident during its outbound transit from Charleston Harbor. The company was sentenced to pay a $6 million criminal fine and to serve a four (4) year term of probation.  The two-count Information charged a failure to immediately report a hazardous condition, in violation of 46 U.S.C. § 70036(b)(1) and 33 C.F.R. § 160.216(a), and obstruction of an agency proceeding, in violation of 18 U.S.C. § 1505. The underlying hazardous condition, as charged, related to a problem with the ship’s main engine governor linkage that required the ship’s engineers to manually manipulate it to achieve the engine speed orders signaled from the bridge telegraph during maneuvering.

The failure-to-report charge is notable because the specific condition underlying the runaway—the disconnection of the linkage rod from the governor—was not alleged as a known defect that could have been reported before the vessel got underway and appears to have developed during the outbound transit.  In addition, the Information fails to charge anyone senior to the Chief Engineer, whether onboard or ashore, with awareness of the hazardous condition. Specifically, the Information locates all knowledge and reporting responsibility at the engineering-department level.  Notably, individuals in the engineering department, including but not limited to the Chief Engineer, are not among the persons—i.e. the owner, agent, master, operator, or person in charge—on whom 33 C.F.R. § 160.216 expressly places a duty to report, yet the prosecution effectively imposes the immediate-reporting obligation on him as the senior officer aware of the condition.

Consequently, the charge in this matter now, perhaps unfairly, puts a company’s statutory obligation for immediate reporting directly on an officer, who may be actively engaged in managing an unfolding shipboard crisis or casualty. This convergence of operational crisis management and regulatory duty represents a heightened willingness by the U.S. Coast Guard and Department of Justice to impose liability for conditions unknown to shoreside management.

At present, and even though more than two (2) years have elapsed since the incident, the National Transportation Safety Board’s investigation (DCA24FM044) remains pending, and neither the NTSB nor the U.S. Coast Guard have issued final public findings. This sequence stands in contrast to the M/V DALI bridge allision, where the NTSB adopted its final report and probable-cause determination in late 2025, months before the Department of Justice announced criminal charges against the vessel’s owner and operator in 2026.

The prosecution and sentence announced by the Department of Justice is a compelling reminder of the importance of the immediate reporting of hazardous conditions aboard vessels operating in U.S. waters and reflects a heightened reporting obligation under the Ports and Waterways Safety Act: the duty to notify the nearest Coast Guard Sector Office exists as soon as a responsible officer becomes aware of the condition. A failure to do so can (and does) carry criminal consequences. Vessel operators and their officers are well advised to treat the immediate-reporting requirement as an operational priority rather than a post-incident formality.

For more information concerning the Ports and Waterways Safety Act and marine casualty reporting obligations to the US authorities, please contact us at: info@chaloslaw.com

In Trailer Bridge, Inc. v. Louisiana Int’l Marine, L.L.C., No. 25-30331 (5th Cir. 2026), the Fifth Circuit Court of Appeals confirmed that the supplier of tugs to the charterer of a barge established a maritime lien despite the inclusion of a no-lien clause in the barge charter party. In August 2020, Trailer Bridge, Inc., a freight service company, chartered two flat deck barges to Work Cat Trans Gulf. The Barge Charter contained a “no-lien” clause that required Work Cat to indemnify Trailer Bridge against any lien arising upon the barges during the contract period.

In November 2020, Work Cat finalized a six month charter agreement for Louisiana International Marine to provide two tugboats to tow the barges. Work Cat was required to pay a daily rate to use the Tugs, including the cost of fuel and lubricants. Work Cat settled only one quarter of its invoices with LIM before it filed for bankruptcy in May, 2021. LIM filed a proof of claim in bankruptcy seeking to recover its unpaid invoices.

Trailer Bridge sold both Barges by November 2022. Subsequently, LIM sent a Notice of Lien and Demand for Payment to one of the purchasers. Trailer Bridge intervened to defend the lawsuit, arguing that the Barges were exempt from a maritime lien pursuant to the Barge Charter’s no-lien clause. After a two day bench trial, the Eastern District Court of Louisiana determined that LIM had a lien against both Barges. Trailer Bridge appealed the verdict.

The Fifth Circuit Appeals Court first considered whether LIM established a maritime lien under the Commercial Instruments and Maritime Liens Act. Under CIMLA, a party may obtain a maritime lien if it provides necessaries to a vessel on the order of the owner, or a person authorized by the owner. The Fifth Circuit reasoned that the towing services provided to the Barges constituted necessaries that Work Cat was authorized by the owner to obtain, thereby creating a maritime lien.

The Appellate Court noted that the Barge Charter’s no-lien clause did not prevent a maritime lien from arising unless the entity providing necessaries had actual knowledge of the clause before agreement. LIM gained actual knowledge of the clause by December 20, 2020, but the Tug Charter was executed on November 12, 2020. As such, LIM lacked actual knowledge of the no-lien provision at the relevant time. Trailer Bridge then argued that LIM had an independent duty to investigate whether any no-lien provision applied to the Barges. The Appellate Court similarly rejected this argument, noting that CIMLA is silent on whether a diligence standard applies to no-lien clauses in maritime contracts.

The Fifth Circuit rejected LIM’s attempt to include the costs of fuel and lubricant used while the Tugs serviced the Barges in its maritime lien. The justices noted that the value of a maritime lien is strictly limited to the value of necessaries provided to a vessel. The Court concluded that fuel and lubricant costs were ancillary to this purpose and did not impact the value of the maritime lien.

The Fifth Circuit affirmed the judgment of the District Court in full.

Trailer Bridge, Inc. v. Louisiana Int’l Marine, L.L.C., confirms the application of maritime liens despite the inclusion of a no-lien clause in maritime contracts and the absence of a diligence requirement for providers of necessaries to discover the clause. Additionally, the Fifth Circuit’s opinion clarifies that maritime liens are constrained to value of necessaries provided to a vessel.

For more information on CIMLA or the decision in Trailer Bridge v. Louisiana Int’l Marine, L.L.C., please contact us at info@chaloslaw.com

Last month, the Ninth Circuit Court of Appeals awarded attorneys’ fees to a petitioner seeking recognition and enforcement of a foreign arbitration award who had been forced to defend against a frivolous appeal based on “hyperformalistic objections” by the respondent, against whom the arbitration tribunal issued its award. After opining on the flimsy merits of the appeal in March, the Ninth Circuit issued an order to show cause. In it, the Court observed, “Winebow knew or should have known that its claims were frivolous, and it should bear the cost of this self-indulgent appeal.” Franz Haas GmbH SRL v. Winebow Inc., No. 25-4105 (9th Cir. Mar. 26, 2026).

The case arose from a petition in the Central District of California to confirm an Italian Arbitration Award under the New York Convention. Pursuant to Article IV of the Convention, on November 25, 2024, Petitioner Haas moved to confirm an award in its favor against Respondent Winebow. Because Petitioner’s initial filing omitted some of the documents necessary to proceed with its motion, Petitioner moved for leave to amend its submission on February 20, 2025. Respondent opposed the motion for leave, arguing all necessary documents must be produced at the time of filing, and that Petitioner’s translations of the award were inaccurate. The District Court rejected these arguments and ultimately confirmed the award.

Respondent then appealed the confirmation to the Ninth Circuit, which issued its opinion on April 9, 2026. In its appeal, Respondent repeated the unsuccessful arguments it made at the District Court level. Echoing the District Court, the Ninth Circuit determined that none of the arguments raised by Respondent seriously objected to the substance of Petitioner’s motion to confirm the award. Rather, Respondent focused on trivialities that did not impress the Court. Notably, Respondent repeated its claim that the translations of the Italian Arbitration Award were inadequate to meet the standard of Article IV. However, Respondent identified only one (1) incorrect word in the translation. Amusingly, Respondent derided the translation for using “foreign language”; in fact, the only non-English phrase used in the translation was “pactum renovandi,” a Latin term of art that the award accurately defined in English.

The Ninth Circuit concluded that Respondent’s appeal was “frivolous,” as it failed to raise a substantive argument on which the District Court’s decision could be overturned. It specifically pointed to Respondent’s focus on insignificant and minute faults in Petitioner’s submissions as evidence that its arguments were non-substantive and therefore frivolous. After the parties had presented their positions in response to the Court’s order to show cause, the Ninth Circuit ordered that Respondent and its firm, jointly and severally, were liable for all attorneys’ fees and costs associated with the appeal of the District Court’s confirmation of the Italian Arbitration Award. The Court noted that Respondent’s frivolous legal arguments were “selected and introduced” by its counsel, which justified the joint and several liability between Respondent and its legal counsel.

The Ninth Circuit’s decision in Winebow will likely deter frivolous appellate litigation of foreign arbitration awards. Specifically, by imposing costs and fees directly onto Respondent’s counsel, Winebow stands as a potent warning that attorneys may be “on the hook” for losses incurred through meritless appellate litigation arising from foreign arbitration. The decision also strengthens the expectation that district courts will efficiently expedite arbitration confirmations under the New York Convention.

For more information on the Ninth Circuit’s ruling in Franz Haas GmbH SRL v. Winebow Inc., please contact us at info@chaloslaw.com

In Jules v. Andre Balazs Props., 2026 U.S. LEXIS 2035 (2026), the U.S. Supreme Court (“SCOTUS”) confirmed that a federal court with original jurisdiction over a claim stayed pending arbitration retains jurisdiction to confirm the resulting arbitral award. The dispute in Jules arose in March 2020 when Adrian Jules, a former hotel employee in California, sued his former employer in the U.S. District Court for the Southern District of New York, alleging unlawful discrimination in violation of federal and state law. The employer, citing the parties’ arbitration agreement, moved to stay proceedings pending arbitration under § 3 of the Federal Arbitration Act (“FAA”). After the U.S. District Court granted the motion, Jules commenced arbitration and received a $34,500 award. When the employer moved to confirm the award under §§ 9 and 10 of the FAA, Jules cross-moved to vacate the award on the basis that the District Court lacked jurisdiction to confirm the award. The District Court disagreed with Jules’ argument and confirmed the award. On appeal, the Second Circuit Court of Appeals affirmed the District Court’s ruling. The U.S. Supreme Court granted certiorari to review the Second Circuit’s decision.

Jules argued to the U.S. Supreme Court that the District Court lacked jurisdiction to confirm the arbitral award because of a lack subject matter jurisdiction. In support of the argument, Jules cited two (2) prior SCOTUS decisions—Vaden v. Discover Bank, 556 U.S. 49 (2009), and Badgerow v. Walters, 596 U.S. 1 (2022), whereinthe SCOTUS permitted federal courts to “look through” a motion to confirm a freestanding arbitral award to determine if the substantive dispute invoked federal subject matter jurisdiction and previously held that a federal court cannot confirm a freestanding arbitral award if the substantive dispute in an award did not give rise to subject matter jurisdiction. Jules argued that, when applied to his case, this “look through” provision would compel a finding that the District Court lacked jurisdiction to confirm the arbitral award because the substantive dispute in the arbitration concerned state claims and lacked diversity jurisdiction.

In a unanimous decision, the U.S. Supreme Court disagreed with Jules’ arguments. Justice Sotomayor distinguished Vaden and Badgerow from Jules and wrote, the disputes in Vaden and Badgerow involved freestanding arbitration, where no federal court had original jurisdiction over the claims prior to arbitration. A federal court which did not possess original jurisdiction is obliged to conduct a separate jurisdictional analysis to confirm an arbitral award. By contrast, in Jules, the federal court sitting in New York possessed original jurisdiction over Jules’ claims prior to granting a stay pending arbitration. Therefore, the District Court retained original jurisdiction to confirm the arbitral award and warned that § 3 of the FAA aims to avoid the cost of additional litigation by allowing federal courts to stay proceedings during arbitration. Jules’ argument, the U.S. Supreme Court reasoned, would give rise to an independent jurisdictional analysis for every motion to confirm an award, creating additional litigation that would defeat the purpose of § 3.

By confirming that federal courts retain original jurisdiction to confirm arbitral awards under § 3 of the FAA, Jules reduces the risk of costly post-arbitration litigation and confirms that the “look through” provision, introduced in Badgerow, only applies to freestanding arbitral awards and not § 3 arbitrations.

For more information on the Federal Arbitration Act or the U.S. Supreme Court’s decision in Jules v. Andre Balazs Props., please contact us at info@chaloslaw.com

OFAC has announced a settlement of alleged violations of the Iranian Transactions and Sanctions Regulations (ITSR) with Adani Enterprises Limited (AEL) of India.  The enforcement originated in AEL’s purchase of cargoes of liquefied petroleum gas (LPG) from a Dubai-based trader purporting to supply Omani and Iraqi gas. In these transactions, AEL was the consignee for LPG cargoes bound for India. It had contracted with a Dubai supplier as shipper and vessel charterer and took title to each cargo at Mundra Port. The Dubai supplier controlled all shipping arrangements — chartering the vessels, loading the Iranian-origin LPG, and issuing the falsified certificates of origin that misrepresented the cargo as Omani or Iraqi. AEL, as the receiving terminal operator with no direct relationship with the shipowners, relied on those documents for its knowledge of cargo origin.

At the time of the dealings, AEL followed its affiliates’ 2020 OFAC sanctions compliance program, which prohibited Iranian and/or sanctioned vessels and Iranian-origin cargo from entering AEL-affiliated ports. AEL conducted its standard Know Your Customer (“KYC”) process on the Dubai Supplier and its affiliates, which identified no matches with OFAC’s List of Specially Designated Nationals (SDN) and Blocked Persons (the “SDN List”).  None of the parties involved in AEL’s LPG imports were sanctioned at the time of the LPG shipments, and none of the documentation provided to AEL contained any information explicitly pointing to Iranian origin of the LPG. Yet unbeknownst to AEL, an affiliate of the Dubai Supplier had been designated by OFAC in March 2023 pursuant to E.O. 13846 for purchasing LPG from Iran-based SDN Persian Gulf Petrochemical Industries for resale. AEL sanctions compliance program, and its affiliates’, did not include other measures to account for risks arising from its dealings.

OFAC determined that during the dealings in 2023-2025, AEL learned of concerns that cargoes supplied by the Dubai Supplier may have originated in Iran. OFAC found that for the period in which the apparent violations occurred, vessels carrying the Dubai supplier’s cargoes routinely engaged in suspicious behavior, including (1) Automatic Identification System (AIS) manipulation, including spoofing and prolonged unexplained AIS dark periods; (2) uneconomic or illogical vessel movements or port calls; and (3) frequent name, ownership, and/or Flag State changes.  OFAC further found fault with the documentation provided by the Dubai Supplier, which was indicative of falsification, including: (1) illogical and nonsequential numbering of certificates of origin, (2) repeated unexplained delays in post-shipment issuance of documents, and (3) use of outdated document templates.

Finally, OFAC considered the prices offered by the Dubai supplier, which it concluded were sufficiently below the predominant market rate and should have prompted greater due diligence by AEL. According to the Enforcement Release, AEL did not demonstrate that it took sufficient steps to investigate the red flags beyond reviewing shipping documentation and obtaining assurance from the Dubai Supplier that it was not selling Iranian-origin LPG.

Based on OFAC’s investigation, with which AEL cooperated, thirty-two (32) apparent violations of § 560.203(a) of the Iranian Transactions and Sanctions Regulations (ITSR), 31 C.F.R. part 560 were identified exposing AEL to a maximum penalty of $384,208,088.  The violations were pursued on a causation theory: OFAC characterized AEL’s violations as having “caused U.S. financial institutions to process 32 U.S. dollar (USD) denominated payments totaling approximately $192,104,044 for the shipments.”  After weighing the applicable aggravating and mitigating factors in OFAC’s Enforcement Guidelines, the office agreed to settle the enforcement action for $275,000,000.

OFAC’s imposition of liability on a non-US commodity buyer based on “red flags” associated with the loading of the cargo and vessel operations is significant.  OFAC’s view that “Red flags should have put AEL on notice that the LPG actually originated from Iran” demonstrates the serious compliance risk exposure to non-US cargo interests, particularly in the oil and gas trade and underscores the importance of its recent Guidance on Sham Transactions and Sanctions Evasion issued March 31, 2026.

This update is provided for general information and is not legal advice.  To further discuss the above or how this enforcement may affect your interests, please contact us at info@chaloslaw.com.

The U.S. Supreme Court issued an important unanimous decision yesterday with significant implications for the transportation and logistics industry. That decision, Montgomery v. Caribe Transport II, LLC, No. 24-1238 (May 14, 2026), holds that negligent-hiring claims against transportation brokers are not preempted by the Federal Aviation Administration Authorization Act of 1994 (FAAAA).

The case arose from a collision between two trucks on an Illinois highway, one of which was stopped on the side of the road. The motor carrier that struck the parked truck held a “conditional” FMCSA safety rating reflecting deficiencies in driver qualifications, vehicle maintenance, and crash rate. Notwithstanding these, the broker engaged the motor carrier for the shipment at issue and, based on this, the plaintiff sued the broker for negligent hiring.

THE HOLDING

The issue before the Supreme Court originated in a statutory federal preemption provision covering laws “related to a price, route, or service” of brokers and carriers. The provision, however, contains a safety exception preserving state authority “with respect to motor vehicles.” The Court held that a negligent-hiring claim based on a carrier’s poor safety record plainly falls within that exception and is not preempted.

Four federal Courts of Appeals had addressed the question and divided evenly. Two circuits held that the safety exception required a “direct link” to motor vehicles and, consequently, did not apply to transportation brokers. Two others had reached the opposite conclusion. The Supreme Court resolved this split, rejecting the “direct link” requirement in favor of the ordinary meaning of the statutory phrase “with respect to motor vehicles.”  The Court interpreted this to require that the claim just “concerned” motor vehicles, a looser standard that allows negligent hiring claims in collision cases like the one at issue. In doing so, the Court was careful to note the exception’s limits: it “saves only a subset of preempted claims: those involving regulations concerning motor vehicle safety.” State laws governing prices, routes, or services with no relationship to safety remain fully preempted.

ANTICIPATED IMPACTS

The decision opens the door to pursuing brokers as defendants in jurisdictions where those claims were previously dismissed on preemption grounds. In the wake of this decision, brokers should review their carrier vetting procedures and how that vetting is documented. Brokers who conduct reasonable due diligence should be well-positioned to defend against negligent-hiring claims.

While the decision resolves the circuit split on broker liability for negligent hiring, the boundary between preempted claims involving “rates, routes, and services” and viable “safety” claims will continue to be tested in the lower courts. We expect active litigation clarifying the scope of the “safety” exception to preemption, particularly regarding the decision’s impacts on negligent-hiring claims in adjacent areas like cargo damage and non-broker parties such as 3PLs, freight forwarders, and digital freight platforms.

For more information on this decision contact us at info@chaloslaw.com.