Tour bus firms frustrate regulators

The companies exploit loopholes to stay in business

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Outside New York's Winter Garden Theatre, where "Mamma Mia" is nearing the end of a 13-year Broadway run, unwitting tourists board a bus bearing the name of a company U.S. regulators tried to close two years ago.

New York Party Shuttle LLC was told to stop running buses in 2011 after failing a safety audit. A sister company in Washington was ordered off the road in April for violations that included lying about using a driver who failed a drug test, according to the shutdown order.

The companies nonetheless helped load buses daily in both cities, showing how businesses can exploit loopholes and murky jurisdiction to stymie regulators who say they're aggressively policing buses for hire.

"They're regulating an amorphous industry with moving targets, like a game of whack-a-mole," said Deborah Hersman, chairman of the U.S. National Transportation Safety Board, which investigates bus crashes.

The companies' owner, Houston lawyer C. Thomas Schmidt, said in an email and interview that his operations now fall outside of federal, state or local rules. Regulators to date have agreed or found no evidence to contradict him.

Bus transportation was the fastest-growing form of U.S. intercity travel last year, with scheduled departures up 7.5 percent to 1,052 trips a day, the most in four years, according to a DePaul University study. It's grown between 5.1 percent and 9.8 percent a year since 2006, reversing a 26-year decline.

The growth has come at a cost. In February, a bus carrying Mexican tourists returning from a day trip to the mountains crashed in California, killing eight people. In 2011, a bus carrying residents of New York's Chinatown coming back from a casino crashed in the Bronx with 15 fatalities.

"Reincarnated" carriers frustrate regulators because they repaint buses and change names to evade shutdown orders. The New York and Washington companies, which operate as OnBoard Tours, are different in that they operate in plain view.

Men wearing blue OnBoard Tours shirts check names off a clipboard as passengers present tickets for the "NY See It All" tour, with stops in Times Square, the Flatiron Building, Wall Street and Central Park's Strawberry Fields. A driver with an OnBoard Tours shirt sits behind the wheel. The scene repeats itself in Washington's "DC It All" tour.

Mr. Schmidt, in an interview, said his New York company can no longer be federally regulated because it doesn't operate over state lines. It isn't subject to state regulations because New York City sightseeing tours are exempt, he said.

Last year he persuaded a judge he wasn't a tour operator, either, in a decision that overturned a $71,200 fine imposed by the city Department of Consumer Affairs for operating a sightseeing company without a license.

In Washington, Mr. Schmidt has been allowed by U.S. regulators to run tours by chartering an outside bus operator. The shutdown order prohibits him from leasing or renting vehicles.

Federal regulators "have zero authority over a tour company," Mr. Schmidt said. "They only have authority over buses. The tour is not a bus thing. It's a walking thing and a boat thing. The bus just takes you from a couple of point As to a couple of point Bs."

In a December hearing before a New York City administrative law judge, Mr. Schmidt called himself a "travel agency of the modern day," comparable to Expedia.com, that sold tickets for other companies without operating buses or tours.

While Mr. Schmidt said he's not a tour operator, OnBoard Tours sells tickets through branded websites operated by a Delaware- based company whose officer is Mr. Schmidt, corporate records show.

Washington DC Party Shuttle LLC, which operates as OnBoard DC Tours, was the first company U.S. regulators closed this year after training 54 investigators to target what they deemed the riskiest operators.

Mr. Schmidt is the company's chief executive officer, and corporate records show he organized it.

Ray LaHood, then the U.S. transportation secretary, said in an April 24 news release that the department was "making good on our pledge to get unsafe companies off the road." The Federal Motor Carrier Safety Administration, the transportation department's bus regulator, has ordered 28 motorcoach companies to shut down since that effort began.

According to the 2013 shutdown order, Washington DC Party Shuttle and Mr. Schmidt can't be involved in bus operations in any way, even with rented or leased vehicles.

New York Party Shuttle has operated buses without insurance, according to a lawsuit related to a 2011 accident in which a pedestrian was injured. She is suing Mr. Schmidt to recover the cost of her medical bills, court records show.

In 2010, an insurance company revoked New York Party Shuttle's liability coverage. The insurer said it was misled into believing the buses weren't crossing state lines, according to an email obtained by Bloomberg and confirmed by the insurer as authentic.

"There are red flags at every turn," Lancer Insurance Co.'s Fran Walsh wrote in the email. "To knowingly be running across interstate lines illegally is unacceptable.

Mr. Schmidt and his companies remain blocked by federal regulators from operating buses. A proposal by Washington Party Shuttle to improve its safety practices and end the April shutdown order was rejected, said Marissa Padilla, a FMCSA spokeswoman.

"To date, we have no evidence that the out-of-service order that was issued against the company and its owner has been violated," Ms. Padilla said. "While we are aware that the owner sells tickets for tours through other carriers, the agency does not have the authority to regulate such activities."

Bus-ticket sellers aren't federally regulated, something U.S. accident investigators have identified as a safety concern since 2005. A motorcoach carrying senior citizens evacuating Hurricane Rita crashed, caught fire and killed 23 people. The nursing home used a broker which hired a company with a spotty safety.

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