In re Chateaugay Corp., Bankruptcy No. 86 B 11270 (BRL) through 86 B 11334 (BRL)

• Decision Date: 15 October 1987
• Docket Number: Bankruptcy No. 86 B 11270 (BRL) through 86 B 11334 (BRL),Adv. No. 86 5802A (BRL).
• Citation: 78 BR 713
• Parties: In re CHATEAUGAY CORPORATION, Reomar, Inc., the LTV Corporation, et al., Debtors. LTV STEEL COMPANY, INC., and Republic Drainage Products Company, Plaintiffs, v. DAVID GRAHAM CO., Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

78 B.R. 713 (1987)

In re CHATEAUGAY CORPORATION, Reomar, Inc., the LTV Corporation, et al., Debtors LTV STEEL COMPANY, INC., and Republic Drainage Products Company, Plaintiffs, v. DAVID GRAHAM CO., Defendant.

Bankruptcy Nos. 86 B 11270 (BRL) through 86 B 11334 (BRL), Adv. No. 86 5802A (BRL).

United States Bankruptcy Court, S.D. New York.

October 15, 1987.

Levin & Weintraub & Crames, New York City (Edmund M. Emrich, of counsel), for debtors.

LTV Corporation, Cleveland, Ohio (Kay Woods, of counsel), Augello, Pezold & Hirschmann, P.C., Huntington, N.Y. (George Carl Pezold, of counsel), for David Graham Co.

DECISION AND ORDER ON MOTION FOR SUMMARY JUDGMENT

BURTON R. LIFLAND, Chief Judge.

I. Introduction

On July 17, 1986 (the "Filing Date") The LTV Corporation and approximately sixty-six (66) of its affiliated companies, including LTV Steel Company, Inc. ("Steel") and Republic Drainage Products Company ("Drainage") (collectively the "Debtors") filed petitions for reorganization, under Chapter 11 of Title 11 of the United States Code (the "Code"). The Debtors continue in the management of their businesses and property as debtors in possession under §§ 1107 and 1108 of the Code.

Soon after the Filing Date, in a departure from previous practice and as a result of the Chapter 11 filing, David Graham Company ("Graham"), a freight carrier, sought to collect unpaid pre-petition freight charges for shipments made to the Debtors' consignees. Graham sent freight bills directly to consignees for previously delivered "prepaid" shipments. These consignees included Williams Construction Company, Inc. ("Williams") and IA Construction Corporation ("IA").

Upon the Debtors' application, this Court entered an order to show cause ("OSC") with a temporary restraining order ("TRO") enjoining Graham from taking or continuing any action to proceed against or collect any monies from Williams and/or IA and/or other customers of the Debtors. The Debtors simultaneously filed a complaint pursuant to Rule 7003 of the Fed.R. Bankr.P., seeking inter alia: (1) a determination that § 362 of the Code, and this Court's restraining order,¹ both stay Graham from continuing its actions against the Debtors' consignees, and a contempt finding against Graham on account of those actions to date; (2) a determination that pursuant to § 542 of the Code Graham is in possession of estate property, to the extent that it has collected money from any of the Debtors' customers as payment for prepaid freight charges, incurred prior to the Filing Date; (3) an accounting of all monies collected by Graham and an order compelling turnover of those funds to the Debtors; and (4) damages, including attorneys' fees, costs and disbursements.

Counsel for the parties appeared before this court and, pursuant to Rule 65(a)(2) of the Fed.R.Civ.P. as made applicable here by Rule 7065 of the Fed.R.Bankr.P., agreed to combine the hearing on the application for the TRO with the trial on the complaint. The parties submitted a joint stipulation of facts and agreed that there are no facts in dispute material to the outcome of this proceeding. In accordance with Rule 56 of the Fed.R.Civ.P., as made applicable by Rule 7056 of the Fed.R.Bankr.P., the hearing was treated as a motion for summary judgment.

II. Statement of Facts

The LTV Corporation is primarily engaged in the steel, aerospace/defense and energy industries. Steel is a component of the steel producing group of subsidiaries of the LTV Corporation. The steel group, a fully integrated steel producer, is the second largest steel operation in the United States. It is the largest producer of high quality steel bar products, and of hot and cold rolled sheets of steel for the automobile and consumer durable goods markets. Drainage, a wholly owned subsidiary of Steel, primarily processes and sells products made by Steel's hot-dipped galvanizing line.

Graham is a motor common carrier, licensed by the Interstate Commerce Commission ("ICC"), engaged in the business of moving freight throughout the United States.

Both prior to and subsequent to the Filing Date, Graham on a regular and routine basis, provided shipping services to the Debtors. Stipulation of facts ("Stip.") at paragraph 5. From 1985 through the Filing Date Graham was the primary motor freight carrier for the Debtors' outbound shipments transported from Harrisburg, Pennsylvania. Stip. at paragraph 7. Before the Filing Date, Graham transported shipments from the Debtors' Harrisburg facility to Williams and IA, two of the Debtors' customers. Stip. at paragraph 13. The parties have opted to focus on these two customers to the exclusion of others.

These shipments were evidenced by Uniform Bills of Lading marked "prepaid". Stip. at paragraph 13. This notation is recognized in the trade as signifying that freight charges will be paid by the consignor. The Bills of Lading were prepared by the Debtors, signed by Graham's drivers and billed directly to the Debtors. Stip. at paragraphs 9-11.

It was the Debtors' practice to bill its customers, including Williams and IA, on a unitary basis (one net amount for delivered materials inclusive of freight) and deposit the customers' payments in a general account. Stip. at paragraph 14. The Debtors paid the freight charges directly to Graham from that general account. Id. On occasion the Debtors even absorbed part of the customers' freight cost in order to be competitive with other steel producers whose proximity to their customers enabled them to offer their steel with a lower freight charge. Id. This practice, known as "freight equalization," is common in the steel industry. Id.

The ICC regulations allow a carrier 15 days during which it may extend credit. 49 C.F.R. § 1320.2(c) (1981). However, for a period of at least six months before the Filing Date, the Debtors paid invoices they received from Graham approximately thirty (30) days after receipt of those invoices. Stip. at paragraph 22. Graham has continued to extend such credit to the Debtors after the Filing Date. Stip. at paragraph 21.

When Graham billed the Debtors' consignees for outstanding "prepaid" freight charges, some consignees refused to pay inasmuch as they had already paid the Debtors for both materials and freight. Stip. at paragraph 16. Others who had not already paid, sent checks to the Debtors or Graham which were payable jointly to the Debtors and Graham. Id. Williams and IA were among the latter group, each issuing checks to cover the unpaid freight costs, jointly payable to Steel and Graham. Stip. at paragraph 18. The Debtors received such a check from Williams, but never cashed it. Id. Graham received such a check from IA, and cashed the check without the Debtors' endorsement. Id.

To date, Graham has acknowledged receiving payments on unpaid, pre-petition, "prepaid" freight charges in the amount of $7,379.10 from various consignees. Stip. at paragraph 19. In addition, due to confusion created by Graham as to who should receive the payments for freight charges, other customers of the Debtors have withheld in excess of $8,400 from payment of the Debtors' invoices. Stip. at paragraph 20. Debtors allege that the total amount of money withheld by its customers due to the actions of Graham or other freight carriers exceeds $600,000.

III. Issue

This proceeding raises the following two issues: first, whether a common carrier may agree to look exclusively to the consignor for payment of all freight charges; and second, whether such an agreement exists under the instant set of facts.

IV. Discussion

A. Jurisdiction

Graham first raised the issue, as to whether this Court has jurisdiction to adjudicate this matter, at the hearing. Transcript ("Tr.") at 25-26.

The instant controversy involves an alleged violation of the automatic stay imposed by § 362 of the Code, and a request for turnover of estate property pursuant to § 542. By their very nature these matters are integral to the administration of the Debtors' estate and are explicitly recognized as core matters. 28 U.S.C. §§ 157(b)(1), (b)(2)(A), (E) and (O). Accordingly, inasmuch as this is a core proceeding, this Court has jurisdiction to hear and rule on the issues raised in the complaint.²

B. The Interstate Commerce Act and the Uniform Bill of Lading

The instant controversy centers around a dispute in interpreting the limitations imposed by both the terms of the Uniform Bill of Lading³ and the Interstate Commerce Act ("ICA")⁴, upon the allocation of liability for freight charges.

A bill of lading serves three distinct functions: "First a receipt for the goods; second, a contract for their carriage; and, third, documentary evidence of title to the goods." In re Bills of Lading, 52 I.C.C. 671, 681 (1919). Pursuant to Congressional authority, the ICC has prescribed a uniform bill of lading ("UBOL") to be used in all domestic interstate freight shipments. Southern Pac. Transp. Co. v. Commercial Metals, 456 U.S. 336, 342, 102 S.Ct. 1815, 1820, 72 L.Ed.2d 114 (1982) (citing In re Bills of Lading, 52 I.C.C. 671 (1919), modified, 64 I.C.C. 357 (1921), further modified, 66 I.C.C. 63 (1922)).

The UBOL was created in order to promote uniformity and prevent discrimination. Illinois Steel Co. v. Baltimore & O.R.R., 320 U.S. 508, 510, 64 S.Ct. 322, 323, 88 L.Ed. 259 (1943) (citing In re Bills of Lading, 52 I.C.C. at 676-77, 678, 64 I.C.C. at 363, 364). More specifically, Congress sought to curb "discriminatory handling of rate collection and credit practices by requiring prompt and uniform collection of full tariff rates and charges." Consolidated Freightways Corp. of Del. v. Admiral Corp., 442 F.2d 56, 61 (7th Cir.1971); Farrell Lines Inc. v. Titan Industrial Corp., 306 F.Supp. 1348, 1349 (S.D.N.Y.1969), aff'd 419 F.2d 835 (2d Cir.1969), cert. denied, 397 U.S. 1042, 90 S.Ct. 1365, 25 L.Ed.2d 653 (1970).⁵ However, as discussed more fully below, the carrier's statutory obligation to collect full freight...