In re KMC Transport, Inc.
| Decision Date | 27 February 1995 |
| Docket Number | Bankruptcy No. 92-01488. Adv. No. 93-6236. |
| Citation | 179 BR 226 |
| Parties | In re KMC TRANSPORT, INC., Debtor. C. Barry ZIMMERMAN, Trustee, Plaintiff, v. FILLER KING COMPANY, Defendant. |
| Court | U.S. Bankruptcy Court — District of Idaho |
Kenneth R. Arment, Boise, ID, for plaintiff.
Terry L. Myers, Givens Pursley & Huntley, Boise, ID, for defendant.
Presently before the Court is defendant Filler King Company's motion to dismiss and defendant's motion for sanctions, costs and an award of attorney's fees under Federal Rule of Bankruptcy Procedure 9011 and 28 U.S.C. § 1927.
KMC Transport, Inc. (the "Debtor") filed its petition for relief under chapter 7 of Title 11 of the United States Code on May 7, 1992. The Debtor was a motor common carrier operating in interstate commerce under the authority of the Interstate Commerce Commission ("ICC"). Filler King Company ("Filler King") is a freight customer of the Debtor. Barry Zimmerman ("Trustee") is the duly appointed chapter 7 trustee.
On August 11, 1993, this Court authorized the Trustee's hiring of PASCO/Interstate Audit Company to audit the Debtor's freight bill for the purpose of determining whether these freight bills had been properly rated according to the tariffs filed with the ICC by the Debtor. The result of the audit showed $14,431.15 in undercharges made by the Debtor to Filler King between May 1989 and August 1991.
Pursuant to the Interstate Commerce Act ("ICA"), the Trustee seeks recovery of undercharges. Filler King contends it is a "small business concern" within the meaning of the Negotiated Rates Act of 1993, Pub.L. No. 103-180, 107 Stat. 2044 (1993) (the "NRA") and therefore has a complete defense to the Trustee's undercharge claims. The Trustee does not contest Filler King's status as small business.1 Instead, the Trustee contends either the NRA does not apply in bankruptcy proceedings or in the alternative that the NRA is unconstitutional.
The Trustee contends the NRA is not applicable in this proceeding because: (1) 11 U.S.C. § 541(c)(1)(B) and 363(l) make the NRA ineffective in bankruptcy proceedings; (2) retroactive application of the NRA would result in a violation of the Fifth Amendment; and (3) the NRA violated the separation of powers granted to the judiciary.
The ICC regulates interstate commerce of common carriers to insure that rates are both reasonable and nondiscriminatory. Maislin Industries, U.S., Inc. v. Primary Steel, Inc., 497 U.S. 116, 119, 110 S.Ct. 2759, 2762, 111 L.Ed.2d 94 (1990). To that end:
Federal regulations require all common carriers to file tariffs with the ICC, in which the carrier publishes the rates it will charge its customers. 19 U.S.C. § 10101 et seq. Carriers may not charge or receive a rate that they have not published in a filed tariff. 49 U.S.C. § 10761(a). As a result, a shipper may recover any amounts that a carrier has charged it over and above the filed tariff. Brizendine v. Cotter & Co., 4 F.3d 457, 460 (7th Cir.1993). Likewise, a carrier may recover any "undercharge," that is, the difference between a rate actually charged and a higher filed rate. Madler v. Artoe, 494 F.2d 323, 326 (7th Cir.1974). These rules comprise the so-called "filed rate doctrine." See Maislin Industries, U.S., Inc. v. Primary Steel, Inc., 497 U.S. 116, 127, 110 S.Ct. 2759, 2766, 111 L.Ed.2d 94 (1990).
Allen v. Spiegel, Inc., 169 B.R. 394, 395 (N.D.Ill.1994).
The Supreme Court described the justification for the filed rate doctrine as follows:
This rigid approach was deemed necessary to prevent carriers from intentionally "misquoting" rates to shippers as a means of offering them rebates or discounts. See S.Rep. No. 46, 49th Cong., 1st Sess., 181, 188-190, 198-200 (1886). As the Commission itself found: "Past experience shows that billing clerks and other agents of carriers might easily become experts in the making of errors and mistakes in the quotation of rates to favored shippers, while other shippers, less fortunate in their relations with carriers and whose traffic is less important, would be compelled to pay the higher published rates." Poor v. Chicago, B. & Q.R. Co., 12 I.C.C. 418, 421-422 (1907).
Maislin, 497 U.S. at 127-28, 110 S.Ct. at 2766.
In 1980, Congress passed the Motor Carrier Act of 1980, Pub.L. No. 96-296, 94 Stat. 793 (1980) which to some extent deregulated the trucking industry. The deregulation caused a great number of new motor carriers to enter the industry which in turn depressed shipping rates:
In many cases, however, carriers failed to file tariffs with the ICC to reflect the discounted rates negotiated with shippers. Such rates frequently remained unfilled, despite the fact that the 1980 MCA continued . . . requirement under the ICA that motor common carriers file tariff rates with the ICC and that these traffics would be applicable to all shippers seeking similar transportation movements.
The lower shipping rates caused by the Motor Carrier Act of 1980 also caused many motor carriers to file petitions for relief under the bankruptcy code. In the wake of these bankruptcies, many court appointed trustees sued the shippers for "undercharges" claiming that rates charged for specified shipments before had been below the tariff filed by the debtor with the ICC. In re Jones Truck Lines, Inc., 172 B.R. at 608.
In response, the ICC modified its interpretation of the filed rates doctrine to allow the defense of waiver based on carrier rate misquotation. In re Jones Truck Lines, Inc., 172 B.R. at 606. The Eleventh Circuit Court of Appeals and the Eighth Circuit Court of Appeals held the ICC had the authority to modify the filed rate doctrine by expanding the defense of "unreasonable practices" provided by 49 U.S.C. § 10704(a). Seaboard Sys. R.R., Inc. v. United States, 794 F.2d 635 (11th Cir.1986); and Maislin Industries, U.S., v. Primary Steel, Inc., 879 F.2d 400, 405 (8th Cir.1989), rev'd, Maislin, 497 U.S. 116, 110 S.Ct. 2759, 111 L.Ed.2d 94 (1990). Thereafter, shippers who found themselves being sued for undercharges by a bankrupt carrier "routinely asserted the defense that the carrier's or the trustee's attempt to collect these undercharges constitutes an `unreasonable practice.'" de Medici v. FDSI Management Group (In re Lifschultz Fast Freight Corp.), 174 B.R. 271, 275 (N.D.Ill. 1994). This defense became known as the "negotiated rates doctrine." Id.
This state of affairs continued until 1990, when the Supreme Court reversed the Eighth Circuit Court of Appeals and held the "negotiated rate doctrine" contravened the ICA and was therefore invalid. Maislin, 497 U.S. 116, 130, 110 S.Ct. 2759, 2768, 111 L.Ed.2d 94 (1990).2 In reliance on Maislin, the bankruptcy trustees continued to sue shippers for undercharges.
In 1993, Congress passed the NRA in direct response to the Supreme Court's decision in Maislin.
The basic reason for Congress\' passage of the NRA was to address the problem that trustees for bankrupt carriers were pressing businesses all across the country for payments on shipments made years before. . . . In the hearings of the House Subcommittee on Surface Transportation on this legislation, there was extensive discussion of the problems caused by undercharge claims asserted by trustees of bankrupt motor carriers. . . .
Jones Truck Lines, Inc. v. AFCO Steel, Inc., 849 F.Supp. 1296, 1299 (E.D.Ark. WD 1994).
The NRA provides shippers with several defenses to claims for undercharges brought pursuant to the filed rates doctrine under certain circumstances.3 The first defense created by the NRA directly reverses the Maislin decision. Section 2(e) of the NRA provides that if the carrier has ceased operations, "it shall be an unreasonable practice for a motor carrier . . . to charge for a transportation service provided before September 30, 1990, the difference between the filed rate and the negotiated rate." Thus shippers who relied on the pre-Maislin circuit and ICC law are protected from the retroactive effect of In re Maislin. However, the shipper must provide written evidence of the negotiated rate. NRA § 2(e)(6).
The second group of defenses created by the NRA allows shippers to settle undercharge claims brought by "non-operating carriers" for 20%, 15% or 5% of the undercharge claim depending upon the weight of the shipment and whether the shipper is a "public warehousemen." NRA § 2(a) The shipper's right to settle is optional; but if the shipper elects to settle, the carrier is bound by the shipper's decision. These defenses apply to all undercharge claims pending on the date of enactment (October 1993) of the NRA and to all claims arising out of shipments tendered before the second anniversary of the enactment of the NRA.4 Only those claims settled or finally adjudicated prior to the passage of the NRA are unaffected.5
The third set of defenses provided by the NRA, apply regardless of whether the carrier is operating or non-operating. NRA § 2(a)6 provides small businesses concerns, charitable organizations and shippers of recyclable goods with an absolute defense for all undercharge claims for the difference between the rates "billed and paid" and the rates filed. Like the settlement procedures these defenses also expire on December 3, 1995.
Following the enactment of the NRA, chapter 7 trustees have filed numerous adversary proceedings in bankruptcy courts for undercharges contending that the NRA is either unconstitutional or that the NRA does not apply in bankruptcy proceedings. The present case is part of this third waive of undercharge litigation.
The Trustee contends the NRA small business defense claimed by the defendant violates section 541(c)(1)(B) and 363(l) of the Bankruptcy Code. Section 541...
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