Motor Carrier Safety: New Applicant Reviews Should Expand to Identify Freight Carriers Evading Detection
Published: 2012-03-22T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Federal Motor Carrier Safety Administrations (FMCSA) mission is to ensure motor carriers operate safely in interstate commerce. FMCSA partners with state agencies to conduct a variety of motor carrier oversight activities, which are carried out by certified auditors, inspectors, and investigators. Some motor carriers have registered under a new identity and begun to operate in interstate commerce, violating federal law in an effort to disguise their former identity and evade detection by FMCSA. Such carriers are known as chameleon carriers.
GAOs objectives were to examine (1) the prevalence of chameleon carriers; (2) how well FMCSAs investigative programs are designed to identify suspected chameleon carriers; and (3) what constraints, if any, FMCSA faces in pursuing enforcement actions against suspected chameleon carriers.
To address these objectives, GAO analyzed data on new applicants; reviewed investigative program guidance, federal motor carrier laws and regulations, GAO and other reports, and selected state corporate successor liability laws; observed two new entrant safety audits; and interviewed FMCSA headquarters and field officials, state officialsincluding law enforcement agenciesand motor carrier stakeholders.
section_title: What GAO Found
paragraphs: FMCSA does not determine the total number of chameleon carriers within the motor carrier industry. Such a determination would require FMCSA to investigate each of the tens of thousands of new applicants that register annually and then complete a legal process for some of these suspected chameleon carriers, an effort for which FMCSA does not have sufficient resources. Rather, FMCSAs attempt to identify chameleon carriers among new applicants, referred to as the vetting program, is limited to bus companies (passenger carriers) and movers (household goods carriers). These two relatively small groups, representing only 2 percent of all new applicants in 2010, were selected because they present consumer protection and relatively high safety risks. Through the vetting program, FMCSA conducts electronic matching of applicant registration data against data on existing carriers and investigates each application from these two small groups, but does not determine whether all other new applicants, including freight carriers, may be attempting to assume a new identity. Federal internal control standards direct agencies to assess the risks they face to determine the most effective allocation of federal resources, including how best to distribute resources for activities such as investigations and enforcement. GAO demonstrated how analysis of registration data can be used to assess risk by targeting all new applicant carriers that have attributes similar to those of chameleon carriersfor example, company registration data that match data for another carrier with a history of safety violations. Using FMCSA data, GAO found an increasing number of carriers with chameleon attributes, from 759 in 2005 to 1,136 in 2010. GAO also found that 18 percent of the applicants with chameleon attributes were involved in severe crashes compared with 6 percent of new applicants without chameleon attributes.
FMCSAs investigative programsthe vetting and new entrant safety assurance programsare not well designed to identify suspected chameleon carriers. The vetting program assesses all passenger and household goods carriers applying for operating authority, but it does not cover other groups of carriers, including freight truck carriers, which represented 98 percent of all new motor carrier applicants in 2010 and were more likely to be involved in fatal crashes than passenger carriers. The new entrant safety assurance programwhich involves a safety audit for all new entrants, including freight carriersentails a brief assessment of whether a carrier may be chameleon, but is primarily designed to educate new entrants about federal motor carrier safety regulations. The safety audit includes questions to elicit information on connections between new and previous carriers, but auditors lack necessary guidance on how to interpret the responses to distinguish chameleon carriers from legitimate carriers.
FMCSA faces several constraints in pursuing enforcement actions against suspected chameleon carriers. For example, as a result of a 2010 decision by an FMCSA Assistant Administrator, it is unclear whether FMCSA should use a state or a federal legal standard to demonstrate that a carrier is a chameleon. Thus, evidence is gathered to meet both a state and federal legal standard, which can lead to differing enforcement actions across states and has increased the time necessary to pursue chameleon carrier cases. FMCSA is pursuing several options to achieve a single standard, including providing input to Congress on a legislative proposal, monitoring chameleon carrier cases that could clarify the 2010 decision, and pursuing a separate rulemaking. Other constraints on FMCSA enforcement actions include a resource-intensive legal process, the inability to preclude carriers from obtaining multiple registration numbers, and low maximum fines.
section_title: What GAO Recommends
paragraphs: FMCSA should expand the vetting program using a data-driven approach; and provide guidance to improve the new entrant program. FMCSA generally concurred with our recommendations.

section_title: Letter
paragraphs: For years, some motor carriers have registered and been operating illegally  in interstate commerce by using a new identity in an effort to disguise their  former identity and evade enforcement actions issued against them by the  Federal Motor Carrier Safety Administration (FMCSA)—the federal agency  responsible for overseeing motor carrier safety. Such carriers are referred  to as chameleon carriers and may include interstate passenger carriers  (intercity and charter or tour bus operators), household goods carriers  (hired by consumers to move personal property), or freight truck carriers  (shippers of commercial goods).
Chameleon carriers can pose risks to the public. For example, the carrier  operating a bus involved in an August 2008 crash in Sherman, Texas, in  which 17 passengers were killed and several others were injured, was  found by the National Transportation Safety Board (NTSB) to be a  chameleon carrier that FMCSA had ordered out-of-service 2 months  earlier. Subsequent fatal bus crashes have intensified public scrutiny over  passenger carriers and led FMCSA to focus its oversight efforts on  passenger carriers that it suspects may be chameleons. FMCSA also  recognized the need to strengthen its oversight of household goods  carriers to protect consumers from unscrupulous operators.
In a July 2009 report on chameleon carriers, suggesting that 20 passenger carriers were chameleons and referred  about 500 freight and household goods carriers to FMCSA for further  investigation. These carriers had attempted to register with FMCSA in  fiscal year 2007 or 2008, and each had submitted registration data that  were similar to data submitted by another carrier that FMCSA had  ordered out-of-service. We noted that FMCSA had taken steps to improve  how it identified suspected chameleons among passenger and household  goods carriers, including initiating a vetting program to examine new  applications for operating authority, and was planning to expand its  actions to other types of carriers if it could obtain the resources to do so.
Recognizing that chameleon carriers are often difficult to catch because they  close down and reopen as new companies, you asked us to examine  FMCSA’s ongoing efforts to identify and pursue enforcement actions against  chameleon carriers, including freight carriers. To do so, we addressed the  following questions: (1) How prevalent are chameleon carriers? (2) How well  are FMCSA’s investigative programs designed to identify suspected  chameleon carriers? (3) What constraints, if any, does FMCSA face in  pursuing enforcement actions against suspected chameleon carriers?
GAO, Motor Carrier Safety: Reincarnating Commercial Vehicle Companies Pose Safety  Threat to Motoring Public; Federal Safety Agency Has Initiated Efforts to Prevent Future  Occurrences, GAO-09-924 (Washington, D.C.: July 28, 2009).
Management Information System, enforcement actions taken against  carriers in its Enforcement Management Information System, and  insurance information from its Licensing and Insurance databases. We  used these databases to match registration data in key fields, such as  company names, addresses, and phone numbers, between new applicant  carriers and carriers with history in the industry. We analyzed data for  new applicants from January 1, 2005, through December 31, 2010,  against data for all carriers that had registered with FMCSA since June 1,  1974. To assess the reliability of these databases, we reviewed  documentation on data collection efforts and quality assurance  processes, talked with knowledgeable FMCSA officials about these data,  and checked the data for completeness and reasonableness. We  determined that the data were sufficiently reliable for describing this  population of motor carriers and performing our data-matching analysis.
To determine how well FMCSA’s investigative programs are designed to  identify chameleon carriers, we reviewed federal motor carrier laws and  safety regulations; federal internal control standards; related reports and  statements published by GAO, NTSB, and the U.S. Department of  Transportation’s Office of Inspector General; documentation about  FMCSA’s applicant review processes and procedures, which FMCSA  refers to as the vetting program; FMCSA policy memorandums on the  new entrant safety assurance program and the monitoring of potential  chameleon new entrant motor carriers; and FMCSA’s Field Operations  Training Manual. We also observed two new entrant safety audits—one in  California of a new passenger carrier and the other in Virginia of a new  freight carrier. Finally, to identify constraints FMCSA faces in pursuing  enforcement actions against chameleon carriers, we reviewed federal  motor carrier laws and regulations; GAO and other reports; FMCSA’s  summary and analysis of 50 states’ corporate successor liability laws,  which identified relevant case law and explained the legal standards  currently used to determine corporate successor liability; and FMCSA  decisions affecting FMCSA’s enforcement authority, among other things.  In addition, to address all of our objectives, we interviewed officials at  FMCSA headquarters in Washington, D.C.; 4 regional service centers;  and 10 selected division offices. We also interviewed law enforcement  agencies in the 10 states whose division offices we had selected to  understand how the agencies are involved in identifying or taking  enforcement actions against chameleon carriers. We selected the 10  division offices and states primarily because they were the ones with the  most registered interstate carriers. In addition, we interviewed NTSB  officials, industry associations, and safety advocacy groups. For further  details on our scope and methodology, see appendixes I and II.
We conducted this performance audit from March 2011 to March 2012 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: FMCSA’s mission is to reduce injuries, fatalities, and the severity of crashes  involving large commercial trucks and buses conducting interstate  commerce. With more than 1,000 staff members at headquarters, 4 regional  service centers, and 52 division offices (one in each state, Washington, D.C.,  and Puerto Rico), FMCSA carries out this mission by administering and  enforcing federal motor carrier safety and hazardous materials regulations  and by gathering and analyzing data on motor carriers, drivers, and vehicles,  among other things. Division offices partner with state agencies to conduct a  variety of motor carrier oversight activities carried out by certified auditors,  inspectors, and investigators. These oversight activities are funded by Motor  Carrier Safety Assistance Program grants, which totaled about $165 million  in fiscal year 2010. FMCSA’s total budget for fiscal year 2011 was  approximately $550 million.
The interstate commercial motor carrier industry is large and dynamic.  According to Department of Transportation data, there were more than  500,000 active interstate carriers and intrastate hazardous materials carriers  in 2010, including about 66,000 new carriers that applied to enter the  industry. The vast majority of these carriers apply as freight carriers. While the largest motor carriers operate upwards of 50,000 vehicles, 80 percent of  carriers are small—operating between 1 and 6 vehicles. Fatalities due to  accidents involving large trucks (including vehicles operated by both freight  and household goods carriers) and buses (operated by passenger carriers)  generally declined from 2000 through 2009. FMCSA officials attributed the  declines to actions taken by the federal government, the motor carrier  industry, and safety groups. Fatalities and the estimated fatality rate for large  trucks and buses are shown in figure 1. In 2009, more than 3,600 people  were killed in crashes involving large trucks and buses.
FMCSA oversees two main groups of interstate motor carriers: (1) private  carriers, who run an internal trucking operation to support a primary  business in another industry, such as a retail store chain, and (2) for-hire  carriers that sell their trucking services on the open market. Private and  for-hire motor carriers seeking to operate in interstate commerce must  register once with FMCSA, and thereby obtain a U.S. Department of  Transportation (USDOT) number—a unique identifier used for collecting  and monitoring safety information acquired during audits, compliance  reviews, inspections, and crash investigations. USDOT numbers are  issued after carriers submit information about their business, such as the  name of the business and the company’s officers, a mailing address,  business and cell phone numbers, the tax number (employer identification  number or social security number) used to identify the business entity,  and other information. For private carriers, this submission completes the  registration process, and they can begin operating. In contrast, for-hire  carriers must also obtain operating authority, which dictates the type of  operation the carrier may run and the cargo it may carry.36,209 private carriers registered and 29,421 for-hire carriers applied for  operating authority with FMCSA.
Before the August 2008 bus crash in Sherman, Texas, FMCSA had no  dedicated process to identify and prevent chameleon carriers from  applying for and receiving operating authority. At that time, a carrier could  take on a new identity by applying online for operating authority using the  same information (business name, address, phone number(s), and  company officer name(s), or other information) on file for the old carrier.  FMCSA did not have a process to identify these applications and thus  would have granted operating authority to an apparent new entrant after  the carrier submitted the appropriate data.
Immediately after the Sherman crash, FMCSA established the vetting  program to review each new application for operating authority submitted  by for-hire passenger carriers. Subsequently, in April 2009, FMCSA  began to apply the vetting program to household goods carriers. Under  this program, FMCSA conducts a two-step process:
First, FMCSA uses a new applicant screening algorithm to  electronically compare and match information contained in the  carrier’s application to data for poorly performing carriers dating back   This match information is used by a dedicated team (called  to 2003.the vetting team) as indicators for further investigation.
Second, the vetting team reviews each new for-hire passenger and  household goods carrier’s application for completeness and accuracy  and takes additional steps to determine whether the applicant is a  chameleon carrier. For example, the team compares information in  the application to information available on the Internet, including a  carrier’s address; phone number; public filings with the state (e.g.,  articles of incorporation); and, if available, the company website. The  vetting team also works with FMCSA division offices to take  advantage of local officials’ knowledge of individual carriers.
FMCSA’s ability to vet for-hire motor carriers that apply for operating  authority stems from the Secretary’s statutory authority to withhold  registration for operating authority from a carrier that does not meet  federal safety fitness standards or is unwilling and unable to comply with  all applicable statutes and regulations. It does not have this authority to  vet and, therefore, potentially reject the registrations of private carriers,  which may begin to operate as soon as they receive a USDOT number.
If the computer-matching process or FMCSA division office review  identifies a suspected chameleon carrier, FMCSA requests clarification  from the applicant. If the carrier does not respond or the response  indicates the applicant is attempting to become a chameleon carrier,  FMCSA rejects the application. The entire vetting process, including the  electronic matching and the application review, can take anywhere from a  few weeks to more than 2 months depending on several factors, including  how long it takes the applicant to respond to any FMCSA requests.
After a carrier registers for a USDOT number, FMCSA uses the new  entrant safety assurance program to examine all new entrants registered  to operate in interstate commerce—including all for-hire and private  passenger, household goods, and freight carriers—and intrastate  hazardous materials carriers. Under this program, which began in 2003,  carriers are required to undergo a safety audit within 18 months of  obtaining a USDOT number and beginning interstate operations. The  purpose of this audit is to determine whether carriers are knowledgeable  about and compliant with applicable safety regulations. In 2009, FMCSA  added a set of six, yes/no questions to the safety audit designed to elicit  information indicative of any connections with other carriers to help the  certified auditors and investigators that conduct these audits identify  potential chameleon carriers. At the end of the audit, a carrier may pass  or fail. If the carrier fails the audit, the carrier may continue to operate, but  must submit a plan for corrective action. Upon receiving written  confirmation that it has failed the audit, a carrier has between 45 and 60  days to provide an acceptable response or request an administrative  review of the safety audit findings before the new entrant registration is  revoked and the carrier is no longer permitted to operate in interstate  commerce.
FMCSA operates other programs that identify suspected chameleon  carriers. For example, officials may identify suspected chameleon carriers  during compliance reviews, which are in-depth examinations of carriers  identified as high crash risks, or during roadside inspections of vehicles  that include checks for compliance with driver and maintenance  requirements. FMCSA has also implemented a new safety oversight initiative—the Compliance, Safety, Accountability program—under which  it plans to introduce several new investigative programs, including  targeted roadside inspections, off-site investigations, and on-site focused  investigations. Like compliance reviews and roadside inspections, these  new oversight programs may identify a suspected chameleon carrier  during either a review or a follow-up review or inspection initiated to  gather additional evidence on the carrier.
Identifying a suspected chameleon carrier is the first step in determining  whether the carrier is attempting to conceal its identity. FMCSA and state  officials then conduct an investigation. When federal or state investigators  or auditors first suspects that a carrier may be a chameleon, they work  with officials in one of FMCSA’s 52 division offices and attorneys in four  regional service centers to gather evidence and assemble the  documentation needed to demonstrate that a new carrier is the same  entity as a prior carrier and is attempting to evade a prior FMCSA  enforcement action or a poor safety record. After gathering as much  information as possible, a division office provides the evidence to a  regional service center, where FMCSA attorneys decide whether to  initiate a legal process in order to prove that the new carrier is responsible  for the actions of the prior carrier (referred to as “corporate successor  liability”). As part of their evaluation, the attorneys assess the strength of the evidence and give highest priority to those cases involving carriers  with serious safety violations. If the attorneys determine that the evidence  for a chameleon carrier case is insufficient, FMCSA does not pursue the  case and the carrier continues its operations. The carrier is only  recognized as a chameleon once FMCSA proves that the carrier is a  chameleon based on the applicable legal standard or a carrier admits it  created a new identity to evade detection.
Once FMCSA gathers the necessary evidence against a chameleon,  FMCSA issues a notice of claim to tie the history of the chameleon carrier  to that of its predecessor. The notice of claim may include several  enforcement actions, including ordering a carrier to cease operations— called out-of-service orders—for safety violations and failure to pay civil  penalties. For example, one of the fines FMCSA assesses on chameleon  carriers is for evading regulations, which ranges from $200 to $500 for the  first violation and $250 to $2,000 for any subsequent violation, as  established by regulation. FMCSA may assess higher civil penalties for  carriers that are proven chameleons and can assess any unpaid penalties  of the predecessor carrier to the successor carrier.
section_title: FMCSA Does Not Determine the Prevalence of Chameleon Carriers; Our Analysis Found More than 1,100 New Applicant Carriers with Chameleon Attributes in 2010
subsections: section_title: FMCSA Cannot Readily Determine the Number of Chameleon Carriers
paragraphs: FMCSA does not determine the prevalence of chameleon carriers  because doing so would require extensive investigation of the tens of  thousands of new applicants that register with FMCSA each year and, in  some cases, the completion of a legal process. However, FMCSA, state  enforcement officials, and industry and safety association representatives  we interviewed offered general, varying impressions of the number of  chameleon carriers in the motor carrier industry. For example, a number  of FMCSA and state officials with whom we spoke believed that while the  number of chameleon carriers is a relatively small proportion of new  entrant carriers, it is also a serious or growing problem. In addition,  groups of officials from Florida, Georgia, Illinois, and North Carolina  stated that chameleon carriers are either a serious or a growing problem  that they encounter regularly.
Given the volume of new applicants and the necessary resources to  investigate them, FMCSA uses the vetting program to focus its review of  new applicants on two groups of carriers—for-hire passenger and  household goods carriers. FMCSA has chosen to vet all applicants in  these groups for two reasons: (1) according to officials, these two groups  pose higher safety and consumer protection concerns than other carrier  groups and (2) it does not have the resources to vet all new carriers and  these two groups present a manageable number. As part of the vetting  program, FMCSA uses registration data to compare information for every  applicant in these two groups to information from previously registered  carriers to identify any matches. Officials use these results to inform  decisions about whether to grant operating authority to the applicants.
According to FMCSA, however, data analysis by itself cannot positively  identify chameleon carriers that are purposefully trying to evade  oversight; matches do not always signify an issue. For example, vehicle  data can match when new carriers legitimately have purchased and are  using vehicles that were once owned by other carriers. Company names  also can match when carriers independently selected the same name.  Therefore, while data analysis is a helpful tool, FMCSA must conduct  further investigation to determine the reasons for an apparent relationship  between carriers and, unless the carrier admits to being a chameleon,  undertake a legal process to determine whether the carrier is a  chameleon. (Our assessment of the processes used to demonstrate a  carrier is a chameleon is discussed later in this report.)
While FMCSA’s exclusive focus on passenger and household goods  carriers limits the vetting program to a manageable number, it does not  account for the risk presented by chameleon carriers in the other groups  that made up 98 percent of new applicants in 2010. In our view, data  analysis can be used to target other types of new applicants—including  freight carriers—that are more likely to be chameleons for further  investigation as they register or apply for operating authority. While  FMCSA only has statutory authority to accept or reject applications of for- hire motor carriers, examining all new applicant carriers, including private  carriers, as they register for a USDOT number with FMCSA is important  to provide officials with information about all carriers subject to their  oversight activities. FMCSA and other federal agencies use data analysis  to target entities or items with certain risk factors. Specifically, FMCSA  uses state inspection and other data to identify carriers with a poor safety  record for follow-up reviews. In addition, the Department of Homeland  Security uses a targeting strategy, which includes a computerized model,  to help select imported containers for additional review, inspection, or  both. Regularly using data analysis for targeting new applicants would  allow FMCSA to expand its examinations of newly registered carriers to  include new applicants of all types using few or no additional staff  resources, as discussed in the next section of this report. As we have  previously reported, federal agencies need to assess the risks they face  to determine the most effective allocation of federal resources, including  how best to distribute resources for investigative and enforcement-related  activities.
To demonstrate that it is possible to use data analysis to target new  applicants for further investigation, we developed a method and applied it  to FMCSA data to identify carriers with chameleon attributes. We defined  such carriers as those that met two criteria:  1.  They submitted registration information that matched information for a  previously registered carrier.2.  The previously registered carrier had a motive for evading detection.
We use the term “motive” to describe carriers that had a history of  safety violations or filed for bankruptcy that might motivate a carrier to  become a chameleon carrier.
These criteria are similar to those FMCSA uses during the electronic  matching step in the current vetting process for for-hire passenger and  household goods carriers. However, we applied our method to all carriers  and established a threshold for selecting new applicants for further  investigation, whereas FMCSA limits its electronic matching to for-hire  passenger and household goods carriers and does not have a  mechanism or threshold for determining which new applicants to  investigate further because it vets all the carriers in these two groups. An  example of a carrier that met our criteria was a 2009 new applicant that  had submitted registration information with the same company name,  company officer, and phone number as a previously registered carrier  that had been in a crash and ordered out-of-service by FMCSA. An  example of a carrier that did not meet our criteria was a 2008 new  applicant that matched a previously registered carrier on six different  pieces of information—address, company name, company officer, Dun &  Bradstreet number (a unique nine-digit number used to identify a  business location), employer identification number, and phone number— but the previously registered carrier did not have a motive for evading  detection, as defined by our criteria for this analysis. Because we were  interested in demonstrating a method of targeting new applicants as they  registered or applied for operating authority, and not specifically in  counting the number of chameleons that might currently be operating, we  did not attempt to exclude carriers that never operated or ceased to  operate after they registered with FMCSA. This approach is consistent  with the purpose of our analysis, which was to provide an objective,  efficient means of identifying carriers that may warrant additional  investigation as they enter the motor carrier industry, not specifically to  identify chameleon carriers. For a detailed discussion of our data analysis  method, see appendix II.
section_title: Our Analysis Identified More than 1,100 New Applicant Carriers with Chameleon Attributes in 2010
paragraphs: Through our data analysis, we identified 1,136 new applicant carriers with  chameleon attributes in 2010—an increase from 759 in 2005. During this  6-year period, carriers with chameleon attributes accounted for about 1.7  percent of the approximately 326,000 new applicants that registered and   Of the carriers with  were subject to FMCSA oversight activities.chameleon attributes, freight carriers made up about 94 percent,  passenger carriers about 3 percent, household goods carriers about 2  percent, and carriers with authority to operate multiple carrier types (any  combination of freight, passenger, and household goods) less than 1  percent. These percentages remained fairly stable over the 6-year period.  Because freight carriers represented the majority of carriers, they showed  the largest numerical increase of carriers with chameleon attributes, from  724 carriers with chameleon attributes in 2005 to 1,082 such carriers in  2010. (See table 1.)
Although freight carriers accounted for 94 percent of the carriers with  chameleon attributes that we identified, freight carriers also made up  about the same percentage of all new applicants (about 93 percent).  When we looked at the rates at which carriers of different types had  chameleon attributes, we found that passenger carriers were more likely  to have chameleon attributes than were carriers of other types.  Specifically, over the 6-year period from 2005 through 2010, the  percentage of new applicant passenger carriers with chameleon attributes  was higher in every year (ranging from 1.9 to 3.3 percent) than the  percentages for freight carriers (ranging from 1.6 to 1.9 percent) and  household goods carriers (ranging from 0.6 to 1.2 percent). (See fig. 2.)
One concern with our approach, which FMCSA raised in connection with our  data-matching efforts as well as its own, is that the matching may not give an  accurate picture of the total number of chameleon carriers for two reasons.  First, data matching could identify carriers that have legitimate business  reasons for registering a new company that appears to be related to an older  one, and second, similar or even identical registration information may  inadvertently or coincidentally be submitted by unrelated companies. We  were able to address this concern in part by analyzing data about whether an  older carrier had a motive to evade detection—information that we and  FMCSA believe indicates that a new carrier is more likely to be a chameleon.  In particular, we looked at the relative likelihood that an old carrier with and  without a motive would match a new applicant. If data matches were only the  result of carriers having legitimate business reasons for assuming a new  identity or coincidental similarities in registration information, then we would  expect old carriers with a motive to be no more likely to match new  applicants than old carriers without a motive. In fact, however, we found that  old carriers with a motive were roughly twice as likely to match a new  applicant in 2009 or 2010 as were carriers without a motive. This suggests  that the data-matching component of our analysis was effective in detecting  carriers with chameleon attributes and not just carriers with legitimate  reasons to assume new identities or coincidental similarities to previously  registered carriers.
While this test demonstrates that our method identified carriers with a  motive to evade detection, further investigation would be needed to  confirm whether any of the carriers on our list of carriers with chameleon  attributes actually are chameleons. We believe using the two criteria of  matching registration information and a motive to evade detection  provides a sound basis for targeting. Using a risk-based, data-driven  approach such as the one we outline would allow FMCSA to use  available resources to target all types of carriers, including freight, and  then periodically evaluate the effectiveness of the methodology and  adjust its method based on the outcomes of follow-up investigations.  Without such a method, FMCSA cannot target a manageable group of  new applicant carriers of all types for investigation and possible  enforcement action, an important caveat given FMCSA’s staffing levels.
section_title: Carriers with Chameleon Attributes Present High Safety Risks
paragraphs: The carriers we identified as having chameleon attributes presented high  safety risks relative to new applicants without these attributes. Through  our analysis, we found that crashes involving carriers with chameleon  attributes resulted in 217 fatalities and 3,561 injuries from 2005 through  2010.attributes were three times more likely than all other new applicant  carriers to later be involved in a severe crash—one in which there was a  fatality or injury. As table 2 shows, 18 percent of carriers with chameleon  attributes were involved in a severe crash at some point between their  time of registration and the end of 2010, compared with 6 percent of new  applicant carriers without these attributes. In addition, carriers with  chameleon attributes were three times more likely than all other new   Moreover, 2005 through 2010 new applicants with chameleon  applicant carriers to be assessed a fine by FMCSA for violating safety  regulations. Specifically, 6 percent of carriers with chameleon attributes  were assessed a fine at some point between their time of registration and  the end of 2010, compared with 2 percent of the rest of the new applicant  population. However, carriers with chameleon attributes were less likely  than all other new applicants to be placed out-of-service for safety  violations by FMCSA during this same period.
section_title: FMCSA’s Investigative Programs Are Not Well Designed to Identify Chameleon Carriers across All New Applicants
subsections: section_title: Vetting Program Is Designed to Identify Chameleon Carriers but Is Neither Comprehensive nor Risk-Based
paragraphs: FMCSA’s vetting program, established in August 2008 immediately  following the Sherman, Texas, bus crash, is designed to assess the ability  of an applicant for new operating authority to comply with FMCSA motor  carrier safety regulations and, in part, to determine whether the new   The program—which is FMCSA’s  applicant may be a chameleon carrier.primary effort to identify chameleon carriers—is labor-intensive, according  to officials, requiring detailed reviews of each application, national  consumer complaint database queries, and outreach to division offices to  obtain additional information about new applicants. Carriers that make it  through the vetting process having met FMCSA’s standards for fitness,  willingness, and ability to comply with all applicable federal statutes and  regulations are granted operating authority. Reasons for denying operating  authority include an assessment that a new applicant may be a chameleon  carrier.
Although the vetting program is labor-intensive, it is effective because it  allows FMCSA to evaluate a carrier’s potential for compliance, including  any indicators that the carrier may be a chameleon, before the carrier  obtains operating authority. At this time the burden is on the carrier to  provide FMCSA with any information it needs to evaluate the carrier’s  application, and FMCSA can withhold operating authority from a carrier  that it suspects of being chameleon. After a carrier obtains operating  authority, however, FMCSA is required to gather evidence and prove that  the carrier is a chameleon—a process that calls for significantly more  resources, as discussed later in this report. Therefore, as FMCSA officials  and safety advocates have observed, it is more effective for FMCSA to  identify chameleon carriers up front through vetting than it is to pursue  them after they have obtained operating authority.
FMCSA recognizes the benefits of identifying chameleon carriers early,  before they obtain operating authority. However, FMCSA officials stated  they do not have the resources to vet all for-hire carriers that apply for new  operating authority. Therefore, as noted, FMCSA focuses the vetting  program on for-hire passenger and household goods carriers, which  together account for about 2 percent of the approximately 66,000 new  applicant carriers in 2010. FMCSA has selected these two types of carriers  because it sees the chameleons among them as presenting risks to  consumers. Specifically, crashes involving unsafe passenger carriers, such  as the Sherman bus crash, may have multiple fatalities. In addition,  passenger carriers with safety violations have a motive to become  chameleon carriers to conceal their history of violations from consumers, as  well as from FMCSA. Similarly, unscrupulous household goods carriers  that have defrauded consumers, such as by holding their property hostage  until they have paid more than agreed to have their property delivered,  have a reason to become chameleon carriers to avoid association with  complaints from defrauded consumers. Having a statutory consumer  , FMCSA vets every for-hire passenger and  protection responsibilityhousehold goods carrier so that consumers will have greater assurance  when they buy bus tickets or contract with movers that the carriers they are  dealing with are safe, honest, and comply with FMCSA regulations.
From August 2008 through May 2011, FMCSA vetted 5,777 for-hire  passenger and household goods carriers. Table 3 shows the results of  FMCSA’s vetting program, including the number of carriers that were  approved or rejected, withdrew, or switched their application to operate as  a freight carrier rather than a household goods carrier. FMCSA officials  believe, but cannot be certain, that some of these carriers withdrew or  switched their application to avoid the vetting program.
FMCSA officials credit the vetting program with helping to prevent and  deter unsafe for-hire passenger and household goods carriers, which can  include potential chameleon carriers, from obtaining operating authority.  However our analysis found that the vast majority of passenger and  household goods carriers do not have chameleon attributes and therefore  FMCSA is using the majority of its program resources to vet carriers that  may not represent a higher risk of being chameleons. At the same time, the  current vetting program excludes 98 percent of all new applicants, such as  all freight carriers as well as private passenger carriers. Moreover,  according to our analysis, freight carriers present safety risks that are as  great as or greater than those presented by passenger carriers. As  discussed, freight carriers made up 94 percent of the carriers we identified  with chameleon attributes from 2005 through 2010, and carriers with  chameleon attributes were about three times more likely than all other new  applicants to be involved in a severe crash or to be assessed a fine by  FMCSA for a safety violation. In addition, according to 2009 Department of  Transportation crash data, the number of fatalities per fatal crash is nearly  the same for large trucks (1.13) as for buses (1.15), even though buses  have more occupants. Furthermore, the number of people who died in  truck crashes in 2009 (3,380) is more than 13 times greater than the  number who died in bus crashes (254). (See fig. 3).
As previously noted, federal agencies must assess the risks they face to  determine the most effective allocation of federal resources, including the  best distribution of resources for enforcement-related activities. Other  federal organizations have reviewed the vetting program and  recommended that FMCSA (1) show the program is effective and (2) use  a risk-based approach to target its limited resources before expanding the  program to all new freight carrier applicants. First, NTSB recommended  that FMCSA add a performance evaluation component to the vetting  program to show whether the new applicant screening algorithm is  effectively preventing carriers with a history of evading safety  requirements from continuing to operate.recommendation and is working to implement it. The results of the vetting   FMCSA agreed with this  program appear to indicate that it has value in preventing many carriers  from obtaining operating authority, but its effectiveness remains to be  determined. As our presentation of FMCSA’s data in table 3 shows, 1,408  of the 5,777 applicants for new operating authority were rejected and  another 594 withdrew their applications.
Second, the Department of Transportation’s Inspector General reported  that expanding the vetting program to include freight carriers would  require a risk-based approach, since FMCSA has limited resources to   Our analysis suggests that a risk-based  examine all new applicants.approach would allow such an expansion with few or no additional staff  resources. Specifically, with six dedicated specialists, FMCSA vetted, on  average, 175 for-hire passenger and household goods carriers per month  from August 13, 2008, through May 18, 2011 (5,777 carriers divided by  33 months). Expanding the program to include all the freight carriers with  chameleon attributes that we identified using our data-driven, risk-based  approach would require FMCSA to vet, on average, an additional 74  freight carriers per month (5,329 freight carriers divided by 72 months), or  a total of 249 carriers per month. If, for example, six specialists can vet an  average of 175 carriers per month, or about 29 carriers per specialist,  then eight to nine specialists (or two to three more specialists) should  reasonably be expected to vet 249 carriers per month, on average,  including all the passenger and household goods carriers that FMCSA  currently vets, plus the freight carriers we identified with chameleon  attributes. Alternatively, if FMCSA were to modify its current program and  vet only carriers with chameleon attributes identified through data  analysis, it could vet all passenger, household goods, and freight carriers  with chameleon attributes using fewer specialists than it now uses.  FMCSA officials stated that, given the safety risks associated with  passenger carriers, they would be unwilling to exclude any of them from  the vetting program. Yet no matter which approach FMCSA takes to  vetting passenger carriers, the use of data analysis would allow it to  expand the vetting program to include freight carriers with chameleon  attributes and give FMCSA an early opportunity to detect and deny  operating authority to freight carriers that pose safety risks.
section_title: New Entrant Safety Assurance Program Audit Includes Questions Designed to Help Identify Chameleon Carriers but Does Not Provide Related Guidance
paragraphs: Newly registered motor carriers, including those that were vetted, are  required to enter the new entrant safety assurance program and undergo  a safety audit. This audit is mainly designed to educate new entrant  carriers about federal motor carrier safety regulations, ensure they are  able to comply with these regulations, and require them correct any  deficiencies before continuing to operate. The audit now includes a set  of six, yes/no questions that FMCSA added to the audit in 2009 to help  auditors elicit information from new entrants about connections they may  have with other carriers—a characteristic of chameleon carriers. These  questions provide a cursory review of new entrants with regards to  whether they may be chameleon carriers.
The new entrant safety assurance program provides the first opportunity  for FMCSA to assess freight and private passenger carriers, which are  not currently vetted. The program does not, however, allow FMCSA to  deny the new entrant registration of a carrier simply because it suspects  that the carrier may be a chameleon. Instead, freight and private  passenger carriers acquire provisional registration when they submit new  entrant applications to FMCSA, often months before they undergo a  safety audit, and it is not as easy for FMCSA to prevent them from  operating as it is to deny operating authority to for-hire passenger and  household goods carriers through the vetting program. FMCSA can  place new entrant carriers out-of-service for at least 1 of 16 safety  violations, but not because it suspects the carrier of being a chameleon.
According to representatives responsible for safety audits in the states we  contacted, the set of six, yes/no questions added to the safety audit helps  raise new staff awareness of chameleon carriers and reminds more  experienced staff to watch for them. Yet, they said the questions may not  help them identify chameleon carriers because there is little guidance on  how to use the questions. Specifically, FMCSA’s electronic Field  Operations Training Manual—a guide that helps to standardize audits  across all states and includes law enforcement best practices—provides  instructions for staff to follow when conducting the safety audit, but  contains no guidance for these questions, even though it includes  guidance for all other questions asked during the audit. According to  FMCSA, the computer application used during the safety audit—called  SENTRI—provides some guidance on what constitutes an affiliation with  another carrier and how to document responses to these questions.  However, this guidance does little to help staff distinguish legitimate  carriers from chameleons, does not provide follow-up questions that could  help them make this distinction, and does not require them to collect any  evidence that could be used during the enforcement process at a later  date. As a result, staff lack direction on how to use the yes/no questions  to distinguish a chameleon from a legitimate carrier, what follow-up  questions to ask when carriers provide information, what documents to  request from a suspected chameleon carrier, and how to document  suspicions in the safety audit report that a carrier may be chameleon. The  representatives told us the lack of guidance on how to use the questions  made it difficult to distinguish chameleon from legitimate carriers. For  example, according to representatives of Pennsylvania’s Bureau of  Transportation and Safety, an auditor could mistakenly flag one carrier as  a suspected chameleon for leasing vehicles from another carrier when  the leasing can be a legitimate business transaction between the two  companies. Florida Highway Patrol officers commented that a question  about whether a carrier was affiliated with another was not useful  because corporate officers may have legitimate professional associations  with other corporate officers of other carriers. According to federal internal  control standards, federal agencies, such as FMCSA, are to develop and  clearly communicate guidance that flows from agency priorities. Without  guidance for staff on how to use the six yes/no questions related to  identifying chameleon carriers, FMCSA cannot ensure that the new  entrant program will effectively identify such carriers. In commenting on  our findings, FMCSA stated that as part of a larger effort to improve the  new entrant program, it is reviewing the questions used to detect  chameleon carriers during the safety audit process, which is where  FMCSA believes the best impact can be made. In addition, FMCSA plans  to ensure that all the questions are clear, including those used to identify  chameleon carriers, and auditors understand how to answer them  properly in order to obtain the best information. According to FMCSA,  these efforts are to be completed by summer 2012, and will include  associated guidance and training for all new entrant auditors.
section_title: Other Investigative Programs May Incidentally Identify Chameleon Carriers
paragraphs: Once a motor carrier passes FMCSA’s new entrant safety audit, no other  federal investigative program is specifically designed to identify  chameleon carriers, including compliance reviews and roadside  inspections, which are typically used to examine high-risk carriers.  Compliance reviews examine carriers that have been identified as high  crash risks through an assessment of accident reports or safety  performance records. Roadside inspections check carriers for compliance  with driver and vehicle maintenance requirements. Neither of these  investigations is designed to identify chameleon carriers, but can  incidentally lead to identifying such carriers. For example, safety  investigators conducting compliance reviews or roadside inspectors have  identified chameleon carriers because they happened to see  documentation (e.g., a driver’s hours-of-service logbook or vehicle  maintenance records) labeled with another carrier’s name, noticed the  vehicle marked with another carrier’s name or USDOT number under a  coat of fresh paint, or recognized a suspected chameleon carrier in the  local area. During one roadside inspection in Florida, an inspector noticed  a freight truck displaying a makeshift cardboard sign with the carrier’s  name written in magic marker. The crude sign, along with the driver’s  suspicious behavior, led the inspector to notify FMCSA, which determined  the carrier was a suspected chameleon carrier. While such evidence may  alert investigators to possible chameleon carriers, New York officers said  that it is difficult to identify potential chameleon carriers during roadside  inspections because drivers may not carry the documentation inspectors  need to evaluate a carrier’s legitimacy.
section_title: FMCSA Faces Several Constraints in Pursuing Enforcement Actions against Suspected Chameleon Carriers
paragraphs: FMCSA faces several constraints in pursuing enforcement actions  against suspected chameleon carriers. As a result of a 2010 decision by  an FMCSA Assistant Administrator, it is not clear whether a state or a  federal legal standard should be used by FMCSA to demonstrate that a  carrier is a chameleon. This uncertainty can lead to differing enforcement  actions across states and has increased the time necessary to pursue  chameleon carrier cases. Other constraints include a resource-intensive  legal process and limitations in FMCSA’s enforcement authorities.  FMCSA is pursuing options to address these constraints.
subsections: section_title: FMCSA Is Constrained by the Lack of a Single Legal Standard for Demonstrating a Carrier Is a Chameleon
paragraphs: The lack of a single standard for demonstrating that a carrier is a  chameleon—or, in legal terminology, the corporate successor of a  previous carrier that assumed a new identity to evade detection— constrains FMCSA’s ability to take enforcement actions. The legal  standard for determining corporate successor liability varies among  states, and until 2006, FMCSA used the applicable state standard to  determine liability. In a 2006 decision, an Administrative Law Judge  applied a federal legal standard rather than a state standard to  demonstrate corporate successor liability. However, a 2010 decision by  an FMCSA Assistant Administrator left an open question as to which  standard—federal or state—FMCSA should use to determine motor  carrier successor liability. For a more detailed discussion of state  corporate successor liability within the motor carrier industry, see  appendix III. Absent a single federal legal standard, FMCSA attempts to  gather evidence to meet both the federal standard and the state  standards that could be applicable in a case. Applying multiple standards  may lead to enforcement actions that differ from state to state and,  according to FMCSA officials, gathering evidence to meet both the federal  and the applicable state standard has increased the amount of time  necessary to pursue enforcement actions against chameleon carriers. For  example, FMCSA officials in the Southern Service Center told us that  before the 2010 decision they spent 3 to 6 weeks pursuing several  enforcement actions against chameleon carriers, but now spend between  6 to 12 months pursuing similar actions.
The following illustrates how corporate successor liability laws vary  among the states, resulting in enforcement actions that differ from state to  state as some carriers may choose to incorporate in states where  demonstrating corporate successorship is relatively difficult.
Under Texas law, an acquiring entity may not be held responsible or  liable for any liabilities of the transferring entity unless the acquirer   FMCSA officials  clearly assumes responsibility for the liabilities.recognize that it is difficult to pursue enforcement cases in Texas,  unless the carrier admits to being a chameleon.
It is also difficult to demonstrate corporate successorship in New York,  according to FMCSA and state officials. For FMCSA to pursue a  chameleon carrier case in New York, the prior carrier must have  stopped operating before the new carrier started operating. If the two  carriers operated concurrently at any point, FMCSA could have  difficulty in pursuing the case under the New York standard.
In Florida, the same people (officers, directors, and stockholders)  must be involved in both the former and the current business for the  carrier to be considered a chameleon. Suspected chameleon carriers may identify another person, such as a spouse or other  relative, as the officer of the new company, making it difficult for  FMCSA to pursue the case.
However, FMCSA officials in the Midwestern and Eastern Service  Centers stated that the 2010 decision by the Assistant Administrator did  not greatly affect their pursuit of chameleon carrier cases because some  of the state standards within their region (e.g., Pennsylvania, Illinois, and  Michigan) generally mirror the federal standard. Therefore, collecting  evidence to meet both the federal and applicable state standard only  slightly increased the amount of evidence needed and had a minimal  effect on the amount of work required to pursue chameleon carrier cases.
section_title: FMCSA’s Enforcement Actions Are Constrained by a Resource-Intensive Legal Process
paragraphs: Mitchell v. Suburban Propane Gas Corp., 581 N.Y.S.2d 927 (1992); Morales v. City of  New York, 849 N.Y.S.2d 406 (2007). other suspected chameleon carriers may also pose risks and continue to  operate because FMCSA does not have the resources to pursue  enforcement actions against them.
Specifically, FMCSA issues a NOC charging the suspected chameleon  carriers with violating a federal regulation in effect against the carrier’s  presumed predecessor, as shown in figure 4. The carrier can decide to  pay the fine, contest the NOC, or fail to respond to the NOC. If the carrier  fails to respond to the NOC, FMCSA orders the carrier out-of-service after  90 days. If the carrier contests the NOC, the process provides four  alternative routes, each with a number of steps. If FMCSA is able to  demonstrate that the suspected chameleon carrier and its presumed  predecessor are the same entity, the process concludes with a final  agency order, which allows FMCSA to take the enforcement actions  identified in the order. For example, a final agency order may require  the successor carrier to pay the fines owed by the predecessor carrier,  adjust the successor carrier’s rating to reflect the entire history of the  company, or order the successor carrier to cease operations. However, if  at any point during the investigation or the NOC process the carrier  admits to being a chameleon carrier, pays any penalties associated with  violations, and comes into compliance, FMCSA can merge the carrier’s histories and records without going through the entire NOC process.Merging the carriers’ safety records helps ensure that FMCSA has an  accurate account of the carrier’s safety record under one USDOT number  for monitoring the carrier in the future.
As figure 4 shows, several steps in the NOC process have time frames  set for completion while others do not. The required time frames alone  add up to several weeks or months, and the additional time that may be  needed for the remaining steps, such as a formal hearing, can further  prolong the process. The time taken to complete the NOC process varies  widely. FMCSA officials said cases usually take weeks—from the NOC to  the final agency order—but can take anywhere from months to years.
section_title: Limited Enforcement Authorities Further Hamper FMCSA’s Enforcement Efforts
paragraphs: According to state officials, as well as industry association and safety  advocate groups, FMCSA has limitations on its authority that have  hampered the effectiveness of its enforcement actions. Specifically,  FMCSA cannot preclude carriers, including suspected chameleon  carriers, from acquiring a new USDOT number. A new number allows a  carrier to operate under a new identity and thus avoid any association  with its history operating under another USDOT number, including any  fines or out-of-service orders incurred under its former identity. FMCSA  officials have stated that it is not illegal for a carrier to apply for multiple  USDOT numbers because carriers may have legitimate business reasons  for needing more than one number. For example, carriers that operate in  different locations may want to separate their business practices across  multiple routes or businesses. However, carriers that apply for multiple  USDOT numbers may also do so to prevent or avoid subsequent  detection as chameleon carriers. To strengthen its enforcement efforts  against chameleon carriers, FMCSA stated that it is drafting a rule in  response to a congressional mandate that would enable it to deny an  application for operating authority of a for-hire motor carrier if any of the  company’s officers has engaged in a pattern or practice of avoiding  compliance, or concealing noncompliance with such regulations. It also  stated that a recently issued Notice of Proposed Rulemaking would adopt  new procedures for issuing orders to cease operations and consolidating  safety records against chameleon carriers.both rules later this year.
In addition, the maximum fines that FMCSA is legally permitted to impose  on motor carriers, including chameleon carriers, are low, which constrains  the agency’s ability to take enforcement actions. According to a recent  NTSB report, the fines imposed on carriers for violations are low and do  not serve as an effective deterrent. NTSB further concluded that the fines for serious violations are so low that some carriers, especially  passenger carriers, may treat them as a cost of doing business. FMCSA  and state officials, as well as industry association representatives, have  also expressed concerns about the deterrent value of FMCSA’s fines. For  example, a civil penalty that can be assessed against chameleon carriers,  such as for evasion of regulations, ranges from $200 to $500 for the first  violation and $250 to $2,000 for any subsequent violation. This penalty  is potentially less than the cost to apply for operating authority, which is  set at $300. FMCSA officials acknowledged that setting fines at the  appropriate levels is a delicate balancing act. The fines must be high  enough for carriers to view them as a deterrent and not simply as a cost  of doing business, but not so high that carriers choose to become  chameleons to avoid payment. Nonetheless, FMCSA is seeking  legislation to increase the statutory fines, as discussed in the following  section.
section_title: FMCSA Has Provided Input to Congress on a Legislative Proposal to Address Constraints on Its Enforcement Efforts
paragraphs: To address constraints on its enforcement efforts and make it easier to  identify chameleon carriers, FMCSA provided input to congressional  committees on a legislative proposal. This proposal included language  establishing a federal legal standard for determining corporate  successorship that would set a single standard nationwide. This standard  would expressly preempt state corporation successor laws applying only  to federal motor carrier safety. According to FMCSA officials, the federal  standard would be consistent with FMCSA’s mission to ensure motor  carrier safety and would establish FMCSA’s authority over the chameleon  carrier corporate succesorship issues. The federal standard would include  specific criteria for determining what constitutes a successor carrier and  would eliminate the need for FMCSA to apply various state laws in its  chameleon carrier cases. Furthermore, a single nationwide standard  would provide uniformity in FMCSA’s enforcement actions against  chameleon carriers. In addition, such a standard could discourage  carriers from incorporating their business in states where corporate  successorship is difficult to demonstrate—a phenomenon that FMCSA  officials suspect takes place now. For example, corporate successor  liability is generally more difficult to prove in New York than it is in New  Jersey and Pennsylvania, which may encourage carriers that understand  the legalities of corporate successorship to consider reincorporating in  New York. In addition, FMCSA is pursuing two other means to achieve a  single federal legal standard. First, officials are monitoring chameleon  carrier cases to identify one that could be used to clarify the 2010  Assistant Administrator’s decision. An Administrative decision indicating  FMCSA should use a single federal standard would have a similar effect  to congressional action included in FMCSA’s legislative proposal.  Second, FMCSA is also pursuing a separate rulemaking effort to modify  its enforcement regulations by codifying a single standard into regulation  and by adopting expedited procedures for administrative adjudication of  chameleon carrier cases. This rulemaking would articulate a standard that  would be refined based on subsequent FMCSA decisions.
The legislative proposal also includes changes that would increase the  fines and penalties FMCSA is legally permitted to give carriers for  noncompliance so that the penalties are not so low as to be viewed  simply as a cost of doing business. For example, current law sets the  minimum fine for evasion of regulation, which ranges from $200 to $500,  would be increased to $2,000 to $5,000, and the maximum fine, which  now ranges from $250 to $2,000, would be increased to $2,500 to  $7,500. Other penalties associated with serious safety violations would  also be increased.
section_title: Conclusions
paragraphs: Preventing chameleon motor carriers from operating under a new identity  is important because they present significant safety risks to the motoring  public and, in the case of for-hire carriers, FMCSA faces constraints in  removing them from the road after they have obtained operating authority.  FMCSA has made strides toward protecting consumers from some of  these unscrupulous carriers by vetting for-hire passenger and household  goods carriers to identify and deny operating authority to those that may  be chameleon carriers. However, these two types of carriers together  accounted for only about 2 percent of the new motor carrier population in  2010, leaving the remaining 98 percent unvetted and free to operate  before they undergo a new entrant safety audit—a program that provides  some opportunity for auditors to identify potential chameleon carriers, but  is not primarily designed to do so. Our analysis of FMCSA data found that  of the more than 1,100 new motor carrier applicants in 2010 that had  chameleon attributes, the vast majority were freight carriers. Given that  the number of fatalities is far greater for freight carriers than for  passenger carriers, we believe that FMCSA should not exclude freight  carriers from its vetting program. Even with the large number of new  applicant carriers and constraints on its resources, FMCSA could target  the carriers that present the highest risk of becoming chameleons by  using a data-driven, risk-based approach. Targeting could reduce the  population of carriers to be vetted to a manageable number. FMCSA  could choose to apply a data-driven, risk-based approach to all types of  carriers, or could limit its use to freight carriers while continuing its current  practice of vetting all for-hire passenger and household goods carriers.  We believe that our targeting method, which considers both matching on  registration information and having a motive to evade detection, provides  a sound basis for FMCSA to select new applicant carriers for further  investigation. Yet we also recognize that FMCSA will need to periodically  evaluate the effectiveness of this approach as officials investigate carriers  and learn more about the attributes of chameleon carriers. By applying a  risk-based approach and expanding the vetting program to include freight  carriers, FMCSA would help keep unsafe carriers off the road and reduce  the amount of time, effort, and money necessary to investigate and  prosecute chameleon carriers at a later date.
In addition, FMCSA is not taking full advantage of the new entrant safety  assurance program audit to identify potential chameleon carriers,  including those that slipped through the vetting program and those that  are freight carriers undergoing scrutiny for the first time. While the audit  includes a set of questions designed to help auditors identify chameleon  carriers, FMCSA’s electronic Field Operations Training Manual lacks  guidance on how to use the questions during the audit to distinguish  chameleons from legitimate carriers. For example, the guidance should  prompt auditors on what types of follow-up questions to ask and what  further evidence should be collected based on carrier’s responses.  FMCSA is reviewing the new entrant audit questions, but unless the  guidance contains such aspects, FMCSA lacks assurance that the new  entrant auditors can effectively identify chameleon carriers.
Absent a single standard for determining corporate successor liability,  FMCSA can take months to develop a case to meet both a federal and the  applicable state standard in order to prove that the carrier is a chameleon,  and subsequently carry out enforcement actions. A federal standard would  make the enforcement process parallel across all states, especially in  states where FMCSA currently faces difficulties demonstrating corporate  successor liability. A federal standard would also discourage carriers from  incorporating across state lines to evade detection. FMCSA is currently  exploring three different avenues for establishing a federal standard: (1)  congressional action, (2) monitoring a case that could lead to the  establishment of a single federal legal standard for chameleon carrier  cases in all states, and (3) rulemaking. We support these efforts and  believe establishing a federal standard is important to ensure a more  efficient, consistent, and uniform enforcement process.
section_title: Recommendations for Executive Action
paragraphs: To help FMCSA better identify chameleon carriers through its vetting  program, the Secretary of Transportation should direct the FMCSA  Administrator to take the following three actions:
Develop a data-driven, risk-based vetting methodology that  incorporates matching and motive components for targeting carriers  with chameleon attributes.
Using this new methodology, expand the vetting program as soon as  possible to examine all motor carriers with chameleon attributes,  including freight carriers.
Periodically evaluate the effectiveness of this methodology using the  results of investigations and refine as necessary.
In addition, to help FMCSA identify chameleon carriers that present safety  risks, FMCSA should strengthen the new entrant safety assurance  program audit by developing guidance to the questions contained in the  electronic Field Operations Training Manual designed to help the new  entrant auditor identify chameleon carriers, including (1) how to use the  questions to distinguish chameleon from legitimate carriers, (2) what  types of follow-up questions to ask, and (3) what evidence to collect.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Department of Transportation for  its review and comment. FMCSA generally concurred with our  recommendations. In commenting on a draft of this report, officials  provided additional information on how they plan to implement these  recommendations, including developing plans to expand the vetting  program to include for-hire freight carriers, but did not indicate when they  would do so.
FMCSA had several comments on our methodology for identifying  carriers with chameleon attributes. Specifically, officials questioned the  inclusion of currently inactive carriers—carriers that never operated or  eventually ceased to operate in the motor carrier industry. The purpose of  our analysis was to identify carriers that may warrant additional  investigation as they apply to enter the motor carrier industry, not to  identify the number of chameleon carriers that currently exist. Therefore,  it would have been inappropriate to remove inactive carriers from our  analysis. Officials also had methodological concerns about (1) using  motive to select carriers with chameleon attributes, which could allow  some chameleon carriers to go undetected, including those carriers that  have consistently evaded FMCSA enforcement actions (i.e. carriers that  take on new identities before FMCSA has an opportunity to document  safety violations), and (2) including bankruptcy, which is not a safety  violation, as one of our six motive criteria. However, as our report  indicates, we believe that a risk-based targeting method that includes  motives, such as bankruptcy, provides a sound basis for FMCSA to  examine those carriers that are more likely than others to be chameleons.  Yet we also recognize that FMCSA will need to evaluate the effectiveness  of its approach and alter it, as necessary.
In its comments, FMCSA agreed with us that using a risk-based approach  to expand vetting to freight carriers, such as the one recommended,  would require additional staffing resources. However, they indicated that  such an approach would require more resources than the 2-3 staff we  mentioned in the report. We believe that developing a risk-based  approach to vetting is the first step FMCSA must take before determining  the level of resources that may be needed for the vetting team.
FMCSA also provided technical corrections, which we have incorporated  throughout the report.
We are sending copies of this report to congressional committees  interested in motor carrier safety issues; the Secretary of Transportation;  the Administrator of FMCSA; and the Director of the Office of  Management and Budget. In addition, the report will be available at no  charge on the GAO website at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-2834 or flemings@gao.gov. Contact points for Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Staff who made key contributions to this report are listed in  appendix IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to determine the prevalence of chameleon carriers,  how well the Federal Motor Carrier Safety Administration’s (FMCSA)  investigative programs are designed to identify suspected chameleon  carriers, and what constraints, if any, FMCSA faces in pursuing  enforcement actions against suspected chameleon carriers.
subsections: section_title: Data Analysis
paragraphs: To identify new applicant carriers with chameleon attributes, we  conducted a data analysis that involved two basic steps: (1) comparing  registration information submitted by new applicants against that provided  by all existing motor carriers and (2) determining whether carriers had a  motive for concealing their histories. We obtained this information from  several U.S. Department of Transportation databases: the Motor Carrier  Management Information System (MCMIS), the Licensing & Insurance  system, and the Enforcement Management Information System, as of  May 2011. To assess the reliability of these databases, we reviewed  documentation on data collection efforts and quality assurance  processes, talked with knowledgeable FMCSA officials about these data,  and checked the data for completeness and reasonableness. We  determined that the data were sufficiently reliable for the purpose of our  data analysis. We analyzed data for new applicants from January 1,  2005, through December 31, 2010, against data for all carriers that had  registered with FMCSA since June 1, 1974. For a detailed technical  discussion of the scope and methodology for our data analysis, see  appendix II.
section_title: Assessing FMCSA’s Investigative Programs
paragraphs: To determine how FMCSA’s investigative programs are designed to  identify chameleon carriers, we reviewed federal motor carrier laws and  safety regulations; federal internal control standards; related reports and  statements published by GAO, the National Transportation Safety Board  (NTSB), and the Department of Transportation’s Office of Inspector  General; documentation about FMCSA’s vetting processes and  procedures, which FMCSA refers to as the vetting program; FMCSA  policy memorandums on the new entrant safety assurance program and  the monitoring of potential chameleon new entrant motor carriers; and the  Field Operations Training Manual. We also conducted a content analysis  of all our interviews to obtain views from federal and states officials on the  effectiveness of the vetting and new entrant safety assurance programs.  In June 2011, we observed two new entrant safety audits—one in Los  Angeles, California, of a new passenger carrier, and the other in Triangle,  Virginia, of a new freight carrier.
section_title: Identifying Constraints on Taking Enforcement Action
paragraphs: To identify the constraints FMCSA faces in pursuing enforcement action  against suspected chameleon carriers and how it is addressing them, we  reviewed federal motor carrier safety laws and regulations related to  FMCSA enforcement actions (Notice of Claims and Notice of Violations);  an FMCSA summary of State Successor Liability Case Law (July 2010),  which describes corporate successor liability law for all 50 states; two key  decisions related to corporate successor liability—the Williamson  Transport decisions of January 2009 and July 2010; a multipage,  corporate successor liability worksheet used to gather evidence against a  suspected chameleon carrier; and a legislative proposal provided to  congressional reauthorization committees in 2011 that is intended to help  address FMCSA constraints. We performed a legal analysis of select  case law to determine current FMCSA enforcement constraints. We also  interviewed FMCSA counsel to determine how the legislative proposal  would help alleviate those constraints. In addition, we reviewed other  documentation, including publications and testimonies, to assess how  FMCSA is addressing the constraints.
section_title: Interviews
paragraphs: To address these objectives, we interviewed FMCSA officials (data  analysts, program managers, and counsel) in Washington, D.C.; Field  Administrators, attorneys, managers and enforcement staff in all four  regional service centers (Eastern, Southern, Midwestern, and Western);  and Division Administrators in 10 of FMCSA’s division offices. In the  same 10 states where we interviewed FMCSA division officials, we also  interviewed law enforcement officials who were directly involved in  attempting to identify or in taking enforcement actions against chameleon  carriers. We selected these 10 states primarily because they had the  largest total number of interstate and hazardous materials intrastate  carriers identified in FMCSA’s Analysis and Information Resources  database as of May 2011. In addition, we considered other factors in  selecting these states, including the number of new entrant audits and  roadside inspections conducted in fiscal year 2010, the estimated fatality  rates per 100 million miles traveled in 2008, the level of participation in  the Performance and Registration Information Systems Management and  the new entrant safety assurance programs, suggestions made by  FMCSA and by industry and safety organizations, and the legal  requirements for determining corporate successor liability. Table 4 lists  the 10 state agencies we interviewed.
To address all three of our reporting objectives, we also interviewed  representatives of the following organizations:
Advocates for Highway and Auto Safety
Commercial Vehicle Safety Alliance
Motor Carriers Safety Advisory Council
National Private Truck Council
National Transportation Safety Board
Owner-Operator Independent Drivers Association
United Motorcoach Association  We conducted this performance audit from March 2011 to March 2012 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Additional Information on the Scope and Methodology of Our Data Analysis
paragraphs: This appendix contains additional information on our analysis of data on  carriers with chameleon attributes. The method presented here is used to  demonstrate the feasibility of using data to target carriers with chameleon  attributes. We did not conduct additional work to investigate the carriers  we identified and determine whether our approach is the most effective  means to target chameleon carriers. FMCSA may wish to consider  adjusting several elements of this approach, including our standardization  techniques, our match score formula, and the way we assessed motive to  become a chameleon carrier.
subsections: section_title: Criteria for Determining That a Carrier Had Attributes Consistent with Those of a Chameleon Carrier
paragraphs: We defined a carrier with chameleon attributes as one that met the  following two criteria:  1.  Match criterion. The new applicant carrier submitted registration  information that matched information for a previously registered  carrier.  2.   Motive criterion. The old carrier had a motive to become a chameleon,  which we defined as a history of safety violations or filed for  bankruptcy that might motivate a carrier to become a chameleon.
section_title: Data Sources
paragraphs: To identify new applicants with chameleon carrier attributes, we took two  basic steps: (1) compared registration information submitted by new  applicants against that provided by all previously registered motor carriers  (match criterion) and (2) determined whether the previously registered  carriers had a motive for concealing their histories (motive criterion). We  used information from the following Department of Transportation  databases: MCMIS, the Licensing and Insurance system, and the  Enforcement Management Information System, as of May 2011. To  create our population of motor carriers that had submitted registration  information to the department, we used data from MCMIS to generate a  list of all unique U.S. Department of Transportation (USDOT) numbers  (i.e., motor carriers) that had ever registered with the Department of  Transportation, including the date that these USDOT numbers were  added to the database (add date) and the most recent date that the  carrier entered the new entrant program (new entry date). Because we  were interested in demonstrating a method of targeting new applicant  carriers as they registered or applied for operating authority, and not  specifically in counting the number of chameleon carriers that might  currently be operating, we did not attempt to exclude carriers that might  be inactive or might have ceased to operate. Therefore, our list of carriers  with chameleon attributes likely includes carriers that are no longer  operating.
section_title: Matching
paragraphs: We selected a number of data fields on which to compare new carriers to  all previously registered carriers. Initially we considered the following  fields: carrier name, company officer name, employer identification  number (EIN), social security number (SSN), Dun & Bradstreet (D&B)  number, phone number (includes all possible comparisons among cell,  fax, and main numbers), address (includes physical and mailing), vehicle  identification number, vehicle license plate, driver license number, and  driver name. Based on conversations with FMCSA officials and an initial  analysis of the frequency of matches across these different fields, we  selected seven fields that we believe can be used to identify carriers with  chameleon attributes: carrier name, company officer name, EIN, SSN,  D&B number, phone number, and address.
We took several steps to improve the validity of our matches. We  standardized values in some fields, including addresses and names. We  also excluded records with missing or unusable values on key variables.  For example, we excluded records with missing values on any of our  match variables (listed earlier). For a number of the variables, we also  excluded records consisting of a single character or digit, records with  values consisting entirely of zeros or nines, and records with values that  would result in matches unrelated to chameleon attributes (e.g., used  terms like “unknown,” “none,” and “n/a”). Table 5 provides more details on  the standardization and cleaning we conducted.
If two carriers had an exact match on at least one of these data fields, we  then added them to our list of “carrier match pairs.” Within the pairs, we  coded each USDOT number as either a new carrier or an old carrier  based on the date that the USDOT number was added to the database.  In a number of instances, a new carrier matched more than one old  carrier. Because we were interested in identifying new carriers with  chameleon attributes, and not in counting the number of older carriers to  which they matched, we took just the strongest match for each new  carrier and discarded the others.
We calculated the strength of each match using a weighting formula  through which we assigned different weights to different fields. Our  weighting formula was based on (1) conversations with FMCSA and state  officials who indicated that certain data field matches were more likely to  indicate that a carrier was potentially a chameleon and (2) an evaluation  of data fields that carriers matched on. Based on these sources of  information, we derived a formula in which the seven data fields were  weighted and combined in the following way:  Match score = (carrier name x company officer name) + 2(SSN) + 2 (EIN)  + 2 (D&B number) + phone + 0.5(address)
In this formula, each of the variables is coded 1 if the two carriers match  on the corresponding data field and 0 otherwise. Thus, for example, if a  new carrier matched an old carrier on company officer, company name,  SSN, and phone, the new carrier would receive a match score of (1 × 1) +  2 + 1 = 4. Alternatively, if a new carrier matched an old carrier on carrier  name and address, but not on company officer name (or any other fields),  the new carrier would receive a score of (1 × 0) + 0.5 = 0.5. Note that  because of how carrier name and company officer name are combined in  the formula, neither of these fields counts toward a match unless matches  on both fields are present.
section_title: Motive
paragraphs: After completing our match of registration information, we coded each  carrier in the MCMIS universe according to whether it might have a  motive to evade detection, which meant having at least one of the  following attributes: filed for bankruptcy; involved in a severe crash; fined  by FMCSA; or issued an out-of-service order, an imminent hazard order,  or an unsatisfactory or unfit rating by FMCSA. We selected these  attributes based on discussions with FMCSA officials indicating that they  are possible reasons that a carrier might attempt to become a chameleon  and are attributes that FMCSA used for creating a list of poorly  performing carriers within its new applicant screening algorithm. Because  we did not have evidence indicating that any one motive was more likely  to result in a carrier becoming a chameleon we weighted all motives  equally. That is, the motive criterion was binary—a carrier either had a  motive or did not have a motive. In addition, we counted a carrier as  having a motive only if the first appearance of the motive predated the  new carrier’s registration with FMCSA. For example, a filing for  bankruptcy was counted as motive only if the old carrier filed for  bankruptcy before the new carrier registered. However, we were unable  to determine whether a motive, having initially appeared, was still present  at just the time when the new carrier registered. For example, FMCSA  may have rescinded an out-of-service order on an old carrier before the  new carrier attempted to register, and our data analysis did not  specifically exclude these types of cases.
section_title: Combining Matching and Motive
paragraphs: We incorporated motive to evade detection into our analysis in three  distinct ways. First, we used motive to assess whether the matching  component of our analysis was identifying carriers with a reason to be a  chameleon, as opposed to carriers with legitimate reasons to reincarnate  and carriers with registration information accidentally resembling an older  carrier’s. Second, we used motive to select a particular match score  threshold to be used in our definition of a carrier with chameleon  attributes—that is, a match score (calculated according to the above  formula) beyond which we classify a carrier as meeting the match  criterion. Finally, as noted earlier, motive was a component, separate  from matching, of our definition of a carrier with chameleon attributes. In  the following sections, we discuss these three uses of motive.
subsections: section_title: Using Motive to Assess Whether the Matching Component of Our Analysis Was Identifying Carriers with a Reason to be Chameleons
paragraphs: One concern with our approach is that data matching may not give an  accurate picture of the total number of chameleon carriers for two  reasons. First, data matching could identify carriers that have legitimate  business reasons for registering a new company that appears to be  related to an older one. Second, similar or even identical registration  information may inadvertently be submitted by unrelated companies. In  order to address this issue, we used information about whether an older  carrier had a motive to evade detection—a feature that we and FMCSA  believe indicates that a new carrier is more likely to be a chameleon than  a carrier without such a feature. In particular, we looked at the likelihood  that an older carrier with a motive would match a new applicant, as  compared to the likelihood that an older carrier without a motive would  match a new applicant. If the only causes of data matches were carriers  that had legitimate business reasons for assuming a new identity and  accidental similarities in registration information, then we would expect  older carriers with a motive to be no more likely to match new applicants  than older carriers without a motive. However, if matches do occur  because of chameleons registering, then we would expect older carriers  with a motive to be more likely to match new applicants than older  carriers without a motive. We formalize this reasoning as follows:   Using these formulas in conjunction with several different match score  thresholds, we found that a difference in the likelihood of a match for  carriers with a motive and those without depended on the particular  match score threshold that was used (see tables 6 and 7).
In table 6, the number in the final column, R, can be interpreted as  follows: when we used a match score threshold of 1.0 (see the first row of  the table), pre-2009 carriers with a motive were 2.1 times more likely to  match a new applicant in 2009 than were pre-2009 carriers without a  motive. Similarly, when we used a threshold of 1.5, pre-2009 carriers with  a motive were 2.6 times more likely to match a new applicant in 2009  than were pre-2009 carriers without a motive.
As shown in table 7, we conducted a similar analysis for 2010:  As the tables show, the difference in likelihood between carriers with a  motive and those without depended on the particular match score  threshold that we used. For both 2009 and 2010, we tested a range of  match score thresholds (from 1.0 to 2.5), and in all cases carriers with  motive were statistically significantly more likely to match a new applicant  than were carriers without motive.
These results suggest that the matching component of our analysis did  not merely detect accidental or benign matches, such as carriers that  registered a new company for legitimate business reasons, but rather  identified carriers seeking to evade detection. Specifically, if matches  occurred only for benign or accidental reasons, then we would expect  matching to be no more likely among carriers with a motive than among  carriers without. That is, we would expect R to be near 1.0. In fact, we  found that older carriers with a motive were roughly twice as likely to  match a new applicant in 2009 or 2010 as were older carriers without a  motive. This suggests that the data-matching component of our analysis  was effective in detecting carriers with chameleon attributes and not just  carriers with legitimate reasons to assume new identities or accidental  similarities to previously registered carriers. While this test demonstrates  that our method identified carriers with a motive to evade detection,  further investigation would be needed to confirm whether any of the  carriers on our list of carriers with chameleon attributes actually are  chameleons.
section_title: Using Motive to Select a Match Score Threshold
paragraphs: Having verified that data matching, as defined in our analysis, was related  to motive, we then used motive to select a match score threshold. Our  goal was to identify a match score threshold that was high enough to  avoid capturing many “false alarms”—that is, matches that occur for  accidental or benign reasons—and yet low enough so that our matching  criterion was not overly restrictive. To identify such a match score  threshold, we tested several different thresholds to identify the one with  the strongest relationship between whether an older carrier had a motive  and whether it matched a new applicant in 2009 or 2010. As the tables  above show, the highest value of R occurred at a threshold of 1.5 for both  2009 and 2010. Based on this analysis, we selected a 1.5 match score as  the optimal threshold. That is, the degree of match between the two  carriers’ registration information had to exceed the defined threshold of  1.5 for the new carrier to be classified as having chameleon attributes.
section_title: Using Motive as One Component of Our Definition of Carriers with Chameleon Attributes
paragraphs: Having used motive to refine the matching component of our definition,  we also used motive as a second component, in its own right, of a carrier  with chameleon attributes. Only if a carrier met both the match criterion  and the motive criterion was it classified as a carrier with chameleon  attributes.
section_title: Categorizing Carriers by Carrier Type
paragraphs: To determine carrier type—freight, passenger, household goods, or  multiple—we requested guidance from FMCSA officials. Following this  guidance, we took the following steps: (1) identified carrier types (freight,  passenger, household goods, and multiple operating authorities) for for- hire carriers using the demo carrier summary table in the Licensing and  Insurance database; (2) identified private carriers with passenger and  household goods operating authorities using the operation classification,  cargo classification, and carrier equipment tables in the MCMIS database;  and (3) classified the remaining carriers as private freight carriers. For  some part of our analysis, we combined for-hire and private carriers to  yield four categories: passenger, household goods, freight, and multiple  (where “multiple” included any combination of passenger, household  goods, and freight).
section_title: Appendix III: Standards for Corporate Successor Liability
paragraphs: FMCSA takes a series of steps to investigate whether a new carrier is a  chameleon—or in legal terminology, the corporate successor of a  previous carrier that assumed a new identity to evade detection by the  agency. Once FMCSA identifies a carrier as a potential chameleon carrier  that was either ordered out-of-service or had enforcement action taken  against it, FMCSA must demonstrate, by law, that the new carrier is the  “corporate successor” of the old carrier in order for the liability of the old  entity to attach to the new carrier. This linkage allows FMCSA to deny or  revoke operating authority or take enforcement action against the new  carrier.
The traditional common law rule of corporate successor liability states  that a corporation that acquires all or part of the assets of another  corporation does not acquire the liabilities and debts of the predecessor.
However, there are four traditional and widely accepted exceptions to this  rule. The majority of states follow the traditional rule for successor liability,  subject to the four traditional exceptions. There is also a federal rule used  to determine corporate successorship.
See, e.g., Bud Antle v. Eastern Foods, 758 F.2d 1451, 1456 (11th Cir. 1985); Mozingo v.  Correct Mfg. Co., 752 F. 2d 168, 174 (5th Cir. 1985).
Williamson Transport Co., Inc., Docket No. FMCSA-2004-17247 (March 2006). standard was not the proper test for determining motor carrier successor  liability, and that state law should have been used instead. However, in  response to a petition for reconsideration, the Assistant Administrator  found that “it is not necessary in this case to determine whether the  standard…should be the traditional common law, the particular state law,  or the federal doctrine of ‘substantial continuity,’” because the claimant  (FMCSA) did not succeed under any standard. This decision left an open  question as to which standard FMCSA should use to determine motor  carrier successor liability.
subsections: section_title: Standards for Successor Liability
paragraphs: The Federal Standard. The federal doctrine of “substantial continuity” is  an eight-pronged, judicially created test that attaches liability to a  successor company if it (1) retains the same employees, (2) retains the  same supervisory panel, (3) retains the same production facilities in the  same location, (4) continues producing the same products, (5) retains the  same name, (6) maintains continuity of assets, (7) maintains continuity of  general business operations, or (8) holds itself out the public as a  continuation of the previous corporation.that not all of these prongs need to apply in a given case, but rather that  these are the different factors that are weighed equally in determining  whether “substantial continuity” is established.
State Standards. State corporate successor liability laws vary from state  to state, based either on case law within the state or, in some instances,  state legislation. Most jurisdictions recognize the traditional rule for successor liability, also referred to as the common law rule, as their state  standard. This rule states that a corporation that acquires all or part of  the assets of another corporation does not acquire the liabilities and debts  of the predecessor, subject to several exceptions.also recognize four traditional exceptions:  1.  The purchasing company explicitly or implicitly agrees to assume the  debts or liabilities of the seller.  2.  The transaction amounts to a consolidation or merger (or “de facto  merger”).  3.  The successor entity is a mere continuation of the predecessor entity  (“mere continuation”). In most states, the key elements of mere  continuation are a common identity of the officers, directors, and  stockholders between the predecessor and successor. This  exception is aimed at owners or directors who may dissolve one  company and begin another to avoid debts and liabilities.  4.  The transaction was entered into fraudulently in order to escape  liability.
See, e.g., Bud Antle, Inc., 758 F.2d at 1456; Travis v. Harris Corp. 565 F.2d 443, 447  (7th Cir. 1977); Leannais v. Cincinnati, Inc. 565 F.2d 437, 439 (7th Cir. 1977); Ray v. Alad  Corporation, 560 P. 2d 3, at 7 (Cal. 1977). enforcement actions. These exceptions delineate elements that must be  met in order for the exception to apply and for liability to attach to the new  corporation. FMCSA officials have told us that the agency typically uses  the “mere continuation” theory to attach liability to the successor carrier,  but other theories (such as “de facto merger” or “fraud”) may be used.
As noted previously, most jurisdictions follow the traditional principle of  successor liability along with the four traditional exceptions. example, Florida, Georgia, Illinois, New York, and North Carolina  have adopted the traditional rule of successor liability and the four  traditional exceptions. In addition, a limited number of states have  adopted a nontraditional exception, the “continuity of enterprise”  exception.
See, e.g., Amjad Munim, 648 So.2d at 151 (recognizing that Florida follows the vast  majority of jurisdictions in honoring the traditional rule of corporate successor liability);  Vernon v .Schuster, 179 Ill.2d 338, 345 (Ill. 1977) (stating that the traditional rule, along  with the four exceptions, is recognized in the majority of American jurisdictions).
The “continuity of enterprise” exception uses factors similar to those used  in the federal “substantial continuity” standard. Factors other than the  traditional ones that are typically taken into account under this exception  are (1) retention of the same employees, (2) retention of the same  supervisory personnel, (3) retention of the same production facilities in  the same physical location, (4) production of the same product, (5)  retention of the same name, (6) continuity of assets, (7) continuity of  general business operations, and (8) whether the successor holds itself  out as the continuation of the previous enterprise.
In addition, there are states that have enacted legislation in place of  traditional common law rules and exceptions. For example, Texas has  enacted a statutory provision overriding the traditional rules and  exceptions. Under Texas law, an acquiring entity may not be held  responsible or liable for any obligations or liabilities of the transferring  domestic entity unless they are expressly assumed by the person. 8 provides a list of the successor liability laws in the 10 states we  examined.
Tex. Bus. Orgs. Code Ann. § 10.254(b). See Ford Bacon & Davis, L.L.C. v. Travelers  Insurance Co., 635 F.3d 734 (5th Cir. 2011)(applying revised Texas statute in refusing to  adopt product line exception). See also C.M. Asfahl Agency v. Tensor, Inc., 135 S.W.3d  768 (Tex. App. 2004) (applying statute and finding no liability because it was not expressly  assumed by the successor).
As stated previously, Texas has adopted a statute that only holds an acquiring entity liable for any  obligations or liabilities of the transferring domestic entity when they are expressly assumed by the  person. Tex. Bus. Orgs. Code Ann. § 10.254(b).
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, H. Brandon Haller (Assistant  Director), Russ Burnett, Lauren Calhoun, Matt Cook, Bess Eisenstadt,  Colin Fallon, David Hooper, Cathy Hurley, Steve Martinez, Anh Nguyen,  and Josh Ormond made key contributions to this report.