Federal Exp. Corp. v. TENN. PUBLIC SERVICE COM'N, 3-87-0633.

• Court: United States District Courts. 6th Circuit. United States District Court of Middle District of Tennessee
• Citation: 693 F. Supp. 598
• Decision Date: 17 August 1988
• Docket Number: No. 3-87-0633.,3-87-0633.
• Parties: FEDERAL EXPRESS CORPORATION v. TENNESSEE PUBLIC SERVICE COMMISSION, et al.

693 F. Supp. 598

FEDERAL EXPRESS CORPORATION
v.
TENNESSEE PUBLIC SERVICE COMMISSION, et al.

No. 3-87-0633.

United States District Court, M.D. Tennessee, Nashville Division.

June 16, 1988.

On Motion to Reconsider August 17, 1988.

693 F. Supp. 599

William R. Willis, Jr., Marian F. Harrison, Willis & Knight, Nashville, Tenn., Jeffrey Rappuhn, for plaintiff.

Donald L. Scholes, Deputy Gen. Counsel, Henry Walker, Tenn., Public Service Com'n, Nashville, Tenn., for defendants.

Val Sanford, Gullett, Sanford, Robinson & Martin, Nashville, Tenn., Peter A. Greene, Thompson, Hine & Flory, Washington, D.C., for Purolator.

MEMORANDUM

WISEMAN, Chief Judge.

I.

Federal Express Corporation created the small package air express business in which it is an acknowledged world leader, transporting well over 700,000 packages every night.¹ Virtually every package is

693 F. Supp. 600

processed through the Federal Express system in the same way: it is picked up by a courier, taken to an airport, flown to one of Federal Express' airport hubs, sorted with other packages bound for the same location, and then transported away from the hub by air or truck to its ultimate destination. During this process, Federal Express tracks only the destination, not the origin, of each package. Packages from every conceivable location are initially taken to one location where they are then sorted by destination only. Approximately 90 percent of all packages transported by Federal Express are sorted at its Superhub in Memphis, Tennessee, the corporation's principal place of business. To make the system both economical and efficient, the same sorting procedure is followed for every package, even when its origin and destination are very near each other. Hence, a package sent by Federal Express from one floor of a Manhattan Skyscraper to another was first flown to Memphis and sorted with all the other packages to be transported that evening. To operate this system, Federal Express employs 56 Boeing 727's, 19 DC-10s, a specialized fleet of feeder aircraft, and a motor vehicle fleet exceeding 16,000 vehicles. Federal Express is a certificated air carrier operating under the grant of an all cargo authority issued by the Federal Aviation Authority under the Federal Aviation Act of 1958. Federal Express is also licensed as a motor carrier under the Interstate Commerce Act as an entity that holds itself out to the general public to provide motor transportation for compensation. See 49 U.S.C. § 10102(14)

Of the more than 700,000 packages transported nightly, approximately 1000 have both an origin and destination in Tennessee. Many of these Tennessee parcels are transported in exactly the same way other parcels are distributed: trucks pick up the parcels and take them to nearby aircraft; they are flown to Memphis and sorted; they are flown back to new destinations and ultimately delivered to the recipient by truck. Some Tennessee packages picked up near the Memphis hub, however, with destinations that are also near the hub are never transported by air. A courier picks them up, takes them by truck to the hub for sorting alongside other packages destined for points across the globe, and after sorting, takes them again by truck to their destination. Under Federal Express' current highly structured system, it is impossible for the courier who picks up the packages initially to know which of them will travel by air alone, which by motor vehicle alone, and which by a combination of air and ground transport. Using calculations derived after the fact, Federal Express estimates that it transports approximately 500 packages per night by motor vehicle solely within the state of Tennessee. These packages comprise less than 6 percent of Federal Express' Tennessee volume and less than .01 percent of Federal Express' National Volume.

The Tennessee Motor Carrier Act defines a motor carrier as follows:

"Motor carrier," when used in this chapter, means any person, firm, partnership, association, joint stock company, corporation, lessee, trustee, or receiver appointed by any court whatsoever, operating any motor vehicle with or without semitrailers attached, upon any public highway for the transportation of persons or property or both or for providing or furnishing such transportation service, for hire as a common carrier.

Tenn.Code Ann. § 65-15-102(c). A motor carrier cannot operate as a common carrier between two points in Tennessee without first obtaining a certificate of convenience and necessity from the Tennessee Public Service Commission ("TPSC"). Tenn.Code Ann. § 65-15-107. The TPSC has the power under Tennessee law to regulate motor carriers by approving rates, fares, charges, classifications, schedules, services, and modes of operation. Tenn.Code Ann.

693 F. Supp. 601

§ 65-15-106. Federal Express has never obtained a certificate of convenience and necessity from the TPSC

On July 2, 1986, the TPSC asked Federal Express to show cause why it was not subject to the Tennessee Motor Carriers Act.² Federal Express had a hearing before an Administrative Law Judge on July 23 and September 24 in which it argued against the TPSC's regulation of its operations. On February 24, 1987, the ALJ ruled that Federal Express was a motor carrier under Tennessee law and must apply for a certificate from the TPSC. TPSC reviewed the ALJ's order and heard oral argument from all the parties. After a review of the entire record, the TPSC affirmed the ALJ's decision and ordered Federal Express to apply for a certificate. On June 9, 1987, the TPSC issued a twenty-five page Show Cause Order in which it set forth its findings of fact and conclusions of law. At the hearing Federal Express had argued, inter alia,³ that section 105 of the Airline Deregulation Act of 1978, 49 U.S.C. App. § 1305, expressly preempted any state from regulating the rates, routes, or services of a certificated air carrier like Federal Express and that the Act impliedly preempted state law because it frustrated Congressional intent, interfered with the uniform national system Congress had fostered, and burdened interstate commerce. The TPSC gave Federal Express 30 days to comply with its order, later extending that deadline to August 25, 1987. The Tennessee Motor Carrier Act provides for judicial review of TPSC orders through the Tennessee state courts. Tenn.Code Ann. § 65-15-120; § 4-5-322. Alternatively, the TPSC may sue for an injunction in the state's chancery courts to enforce its orders against noncompliant parties. Tenn. Code Ann. § 65-15-121.

Federal Express filed a petition for review and an application for immediate stay with the Tennessee Court of Appeals. The company sought to delay its application for a certificate of convenience and necessity pending review of the TPSC's order. The Tennessee Court of Appeals denied the stay on August 6. On August 7, Federal Express filed a complaint in this Court.

In its complaint, Federal Express sought declaratory and injunctive relief against the TPSC, arguing that the Tennessee Motor Carrier Act was expressly preempted by the Airline Deregulation Act and impliedly preempted by the Commerce Clause.⁴ Plaintiff's motion for a temporary restraining order, forestalling application for the certificate, was granted on August 10. On September 11 and 12, this Court heard arguments on the motion for a preliminary injunction. Purolator Courier, a competitor with Federal Express that has complied with the Tennessee Motor Carrier Act, was permitted to intervene as a defendant. The hearing was consolidated with a bench trial on the merits. After the first day of trial in this Court, Federal Express voluntarily dismissed its appeal in state court, apparently hoping to undercut any possibility of abstention. The Court heard the testimony of two Federal Express executives⁵ as well as oral argument for two days, granted the preliminary injunction for an indefinite period, and took the decision on the merits

693 F. Supp. 602

under advisement.⁶ The Court also requested additional briefs on the issues of abstention and res judicata which were duly submitted. Careful review of the record reveals that the following issues are before the Court

1. Does this Court have subject-matter jurisdiction over Federal Express' claims?

2. If so, should the Court nonetheless abstain from deciding those claims?

3. Assuming that the Court has the power to decide this case and chooses to exercise that power, what preclusive effect must be given to decisions by a state administrative agency, the TPSC, concerning

a. its own jurisdiction;

b. its findings of fact; and

c. its conclusions of law.

4. If the plaintiff is not barred from this Court on res judicata principles, what are the results on the merits?

a. Does the Airline Deregulation Act of 1978, 49 U.S.C.App. § 1305, expressly preempt the Tennessee Motor Carrier Act and therefore prohibit TPSC from regulating Federal Express' intrastate motor carriage?

b. Does the Act impliedly preempt operation of the state regulatory scheme because the legislative history urges a uniform national air carrier scheme and because state regulation would unduly burden Federal Express' interstate operations?

Because the Court determines that under Public Service Commission v. Wycoff Co., 344 U.S. 237, 73 S.Ct. 236, 97 L.Ed. 291 (1952) and its progeny the Court has no subject matter jurisdiction, only the first issue need be addressed.

II.

This is not a diversity case. Federal Express' principal place of business is in Tennessee and the TPSC is a Tennessee state administrative agency. This Court only has subject matter jurisdiction if, as Federal Express acknowledged in its jurisdictional statement, the case presents a federal question.

To determine whether the case arises under federal law, the well-pleaded complaint rule requires the court to examine the plaintiff's complaint, not to anticipate federal defenses. So for example, a federal court has no...