State of Tex. v. U.S.

• Decision Date: 06 March 1989
• Docket Number: No. 87-4725,87-4725
• Citation: 866 F.2d 1546
• Parties: STATE OF TEXAS, Petitioner, v. UNITED STATES of America, and Interstate Commerce Commission, Respondents.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1546

866 F.2d 1546

STATE OF TEXAS, Petitioner, v. UNITED STATES of America, and Interstate Commerce

Commission, Respondents.

No. 87-4725.

United States Court of Appeals, Fifth Circuit.

March 6, 1989.

Robert Ozer, Anne Swenson, Asst. Attys. Gen., Gen. Litigation, State & County Affairs Div., Austin, Tex., for petitioner, State of Tex.

Victoria H. Tobin, Asst. Atty. Gen., Hugh Jeffrey Lanier, Atlanta, Ga., for amicus curiae, State of Georgia.

Robert S. Burk, Gen. Counsel, ICC, Michael L. Martin, Edwin Meese, III, Atty. Gen., U.S. Dept. of Justice, Robert B. Nicholson, John P. Fonte, Dept. of Justice, Laura Heiser, Washington, D.C., for the U.S. and ICC.

Jerry Prestridge, Austin, Tex., for Merchants Fast Motor Lines.

Hugh T. Matthews, Dallas, Tex., for Steere Tank Lines and Great Werstern Trucking.

Byrd R. Latham, P. Michael Cole, Asst. Attys. Gen., Athens, Ala., for Alabama Public Serv. Com'n.

Robert J. Higgins and Harriet Grant, Washington, D.C., for Intern. Broth of Teamsters, etc.

Keller & Heckman, Terrence D. Jones, Washington, D.C., for Nat'l American Wholesale.

William P. Jackson, Jr., Jackson and Jessup, P.C., Arlington, Va., for Armstrong and Reeves Transp. Co. of Georgia.

Kevin M. Williams, Gen. Counsel, Alexandria, Va., for Regular Common Carrier Conference.

Paul Rogers, General Counsel, Charles D. Gray, Assoc., Washington, D.C., for Nat. Ass'n of Regulatory Utility Com'rs.

Phillip Robinson and Mert Starnes, Austin, Tex., for Cent. Freight Lines.

William F. Pugh, Alexandria, Va., for Nat. Mtr. Freight Traffic Ass'n.

Robin A. McHugh, Helena, Mont., for State of Montana.

James T. Quinn, J. Calvin Simpson, and Janice E. Kerr, San Francisco, Cal., for Public Utilities Com'n of State of Cal.

Petition for Review of an Order of the Interstate Commerce Commission.

Before THORNBERRY, RUBIN and HIGGINBOTHAM, Circuit Judges.

ALVIN B. RUBIN and PATRICK E. HIGGINBOTHAM, Circuit Judges: ^*

Armstrong World Industries ships carpet from Georgia to a Texas warehouse. After a storage period, Armstrong ships the carpet onward from the warehouse to final destinations throughout Texas and in neighboring states. The ICC has issued a declaratory order holding that the carpet bound for Texas destinations moves in interstate commerce during its warehouse-to-destination trip. Texas wishes to regulate that trip, and challenges the ICC order on appeal. Texas asks us to hold that the ICC order is not final and hence unreviewable; that the ICC had no jurisdiction to enter the order; or, alternatively, that the ICC order must be reversed or vacated for both substantive and procedural defects. Finding no error, we deny the petitions to review and set aside the ICC's order.

I

A. Nature of the Dispute

This complex case arises out of a discrepancy between interstate and intrastate trucking rates in Texas. Interstate trucking rates, regulated by the ICC, are cheaper. E & B Carpet Mills, a division of Armstrong World Industries, ships carpet from Georgia to a warehouse it owns in Arlington, Texas. E & B would like to transport carpets from the Arlington warehouse to E & B customers throughout Texas at interstate rates. Texas and various local transport firms would like to force E & B to use state-licensed carriers, charging the higher intrastate rates, on its runs out of the Arlington warehouse. Shippers, truckers, state regulators, and federal agencies have litigated similar wrangles over "hub-and-spoke" distribution systems for at least sixty years. See, e.g., Atlantic Coast Railroad v. Standard Oil of Kentucky, 275 U.S. 257, 48 S.Ct. 107, 72 L.Ed. 270 (1927); Public Service Comm'n v. Wycoff, 344 U.S. 237, 73 S.Ct. 236, 97 L.Ed. 291 (1952).

This regulatory dispute turns upon whether the carpet "moves in interstate commerce" when it leaves the Arlington warehouse. Not surprisingly, both Texas and the ICC covet jurisdiction to adjudicate the meaning of "interstate" transportation in the first instance. Texas has initiated state court proceedings against E & B and Reeves, as is described in more detail below. Before those proceedings began, Armstrong went to the ICC and successfully sought a declaratory judgment construing the contested transport to be "interstate." Texas in this suit seeks, in essence, either to mitigate on jurisdictional grounds any preclusive effect that the ICC ruling might otherwise have, or to have the ICC order reversed or vacated despite the absence of any jurisdictional infirmity. The juxtaposition of these substantive and jurisdictional disputes puts Texas in the very unusual position of appealing an ICC order to this court while maintaining, among other things, that we lack jurisdiction to hear the appeal.

B. The Distribution System

E & B Carpet Mills manufactures carpets in Dalton, Georgia, and Winchester, Tennessee. E & B ships the carpet manufactured in Tennessee to Dalton, where the carpet is stored for later distribution. In order to serve its Texas customers, E & B has since 1969 maintained a service center in Arlington, Texas. E & B ships carpet from Dalton, Georgia, to this Arlington "hub," and then transports the carpet from Arlington to Texas customers (and to some customers in adjacent states) to meet demand.

Because the interstate or intrastate character of the Arlington-to-customer leg of E & B's distribution scheme depends upon E & B's "fixed and persisting" intent, or lack thereof, at the time the carpet leaves Dalton, the precise details of the shipping arrangement are important. About 31% of the carpet leaving Dalton for Arlington is designated at departure for a specific customer. The parties refer to such carpet as "sidemarked." The remainder is "non-sidemarked." The parties agree that the sidemarked carpet is in interstate commerce until it reaches the ultimate customer.

The non-sidemarked carpet usually sits in Arlington for between two to three months before being shipped on to customers. Over 90% of the carpet shipped to Arlington eventually goes to customers within Texas. Approximately 40% of the non-sidemarked is cut in Arlington pursuant to customer order before being shipped from Arlington. The non-sidemarked carpet is shipped from Dalton to Arlington on the basis of E & B's projections from its past dealing with its "major customers," who account for 80% of E & B's overall sales.

The transport arrangement that provoked this case developed after E & B's business at its Arlington service center declined. The center used to handle nearly 70% of E & B's transactions with Texas customers, but now handles only 35% of those transactions. This amount is 3% of E & B's sales nationwide.

In order to counteract the decline in the Arlington center's business, E & B developed a program under which it would quote customers a delivered rate for its carpet, a rate which would include the freight charges from Dalton to the customer. E & B initiated this program in June of 1984. Because E & B found that intrastate trucking rates were high, E & B employed Reeves Transportation Co. of Georgia, an interstate trucking firm specializing in the transport of carpet, to carry the carpet from Arlington at interstate rates. The Texas rates were about 38% higher than the interstate rates.

In order to take advantage of Reeves' interstate rates, E & B marks its carpet as slated for "storage-in-transit." The mark is made pursuant to the "storage-in-transit" provision in Reeves' tariff: Item 910 in tariff ICC REEV 225. The effect of this marking is to designate the carpet as remaining "in transit" while it sits in the Arlington warehouse, so that the Dalton-to-Arlington-to-customer journey is regarded as one, continuous trip. Adding the "storage-in-transit" mark to the shipments apparently involves no cost to E & B, and has no effect on the handling of the goods shipped.

When the non-sidemarked carpet leaves Dalton, the bill of lading lists "Arlington" as the destination. Sometimes E & B employs Reeves to ship the carpet from Dalton to Arlington, but sometimes it uses other rail or motor carriers. All of the carpet, however, travels pursuant to the Reeves "storage-in-transit" mark.

Reeves presently handles approximately 14 percent of the traffic out of the Arlington hub bound for points outside the Dallas-Ft. Worth commercial zone. Approximately 32 percent of the carpet carried by Reeves from Arlington is bound for Texas destinations. The remaining 68 percent goes to out-of-state customers. Affidavit of William F. Johnson, Vice President of Reeves Transportation, at 3. The record does not indicate how much of the carpet carried by Reeves to Texas buyers is non- sidemarked. E & B apparently would like to ship more carpet out of Arlington via Reeves, but Reeves lacks the capacity. E & B cannot find any other interstate trucking firm willing to take the work. Armstrong World Industries, Inc.--Transportation within Texas, Docket No. MC-C-10963 (August 25, 1987) at 4-5.

The rest of the carpet shipped from Arlington moves on local carriers. All of the carpet moving to the Dallas-Ft. Worth metropolitan area, where Arlington is located, moves via local carriers. Approximately 85 percent of the shipments within the Dallas-Ft. Worth area move via Viking Freight Service, an unregulated, inexpensive local carrier. The shipments on Viking move pursuant to E & B's "prepaid freight" program. Customer pickups and transport by customer-selected carriers account for the remaining 15 percent of the shipments within the Dallas-Ft. Worth area. Affidavit of John S. Pokrifcsak, Vice President of E & B Carpet Mills, at 8-9. In addition, 86 percent of the carpet shipped from Arlington to Texas points outside the Dallas-Ft. Worth commercial zone travels on intrastate carriers at intrastate rates.

When Reeves carries carpet from Arlington, the bill of lading lists "Arlington" as the initiation point. That bill of lading does not include any cross reference to the bill of lading that governed the...