In re St. Johnsbury Trucking Co., Inc.
| Citation | 191 BR 22 |
| Decision Date | 24 January 1996 |
| Docket Number | No. 95 Civ. 1344 (SS). Bankruptcy No. 93 B 43136 (FGC). Adv. No. 95/8004A.,95 Civ. 1344 (SS). Bankruptcy No. 93 B 43136 (FGC). Adv. No. 95/8004A. |
| Parties | In re ST. JOHNSBURY TRUCKING COMPANY, INC., Debtor. ST. JOHNSBURY TRUCKING COMPANY, INC., Plaintiff, v. MORRISON-KNUDSEN COMPANY, INC., Defendant. |
| Court | U.S. District Court — Southern District of New York |
Howard J. Berman, Richard N. Tilton, Kenneth M. Lewis, John B. Hutton, Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, New York City, David G. Sperry, Law Offices of David G. Sperry, Independence, Missouri, for Debtor-in-Possession, Plaintiff.
George Carl Pezold, Raymond A. Selvaggio, Sean F. Beliles, Augello, Pezold & Hirschmann, P.C., Huntington, New York, for Defendant.
Wendy H. Schwartz, Assistant United States Attorney, United States Attorney for the Southern District of New York, New York City, Henri F. Rush, Ellen D. Hanson, Virginia Strasser, Theodore K. Kalick, Interstate Commerce Commission, Washington, DC, for Intervenor United States of America on behalf of the Interstate Commerce Commission.
Sara L. Chenetz, Richard Levy, Jr., Marcus Montgomery Wolfson P.C., New York City, for Intervenor The Official Committee of Unsecured Creditors of the Debtor.
Marianne Rowden, Robert L. Follick, Follick & Bessich, P.C., Huntington Station, New York, Daniel J. Sweeney, John M. Cutler, Jr., McCarthy, Sweeney & Harkaway, P.C., Washington, DC, for Amicus Curiae National Small Shipments Traffic Conference, Inc. and Health and Personal Care Distribution Conference, Inc. Nicholas J. DiMichael, Richard D. Fortin, Karyn A. Booth, Donelan, Cleary, Wood & Maser, P.C., Washington, DC, Marianne Rowden, Robert L. Follick, Follick & Bessich, P.C., Huntington Station, New York, for Amicus Curiae The National Industrial Transportation League.
These consolidated bankruptcy cases come before me on plaintiff's motion for a declaratory judgment holding certain provisions of the Negotiated Rates Act of 1993, Pub.L. No. 103-180, 107 Stat. 2044 (the "Rates Act")1 to be inapplicable in a bankruptcy proceeding, or, in the alternative, unconstitutional. I am also required to determine whether to certify this decision for appeal pursuant to 28 U.S.C. § 1292(b).
For the reasons discussed, I deny plaintiff's motion and hold that the Rates Act is constitutional and applies to plaintiff's claims. Because these issues raise controlling questions of law as to which there could be substantial ground for differences of opinion, the immediate appeal of which may materially advance the ultimate termination of the bankruptcy proceeding, I certify this decision for interlocutory appeal.
This is a freight undercharge case in all respects similar to the plethora of such cases filed in recent years by bankrupt trucking companies or their trustees in virtually every federal jurisdiction in the nation.
Undercharge claims are a byproduct of the turmoil attendant to the deregulation of trucking industry rates in the 1980s. They are claims for the difference between what a trucking company was legally required to charge its customers under the "filed rate" doctrine, and lower rates that were actually charged and collected during the 1980s when competition caused trucking companies to cut their rates. A substantial number of carriers did not survive in this competitive environment. The plaintiff in this action, St. Johnsbury Trucking Co., Inc. ("St. Johnsbury" or "plaintiff") is one such carrier. St. Johnsbury filed a Chapter 11 bankruptcy petition on June 15, 1993 and by June 15, 1995, the statutory deadline for the filing of undercharge claims, St. Johnsbury had sued over 400 shippers that were formerly customers. The Rates Act supplies a myriad of defenses to shippers against whom undercharge claims are brought. On April 5, 1995, I withdrew the reference from the Bankruptcy Court pursuant to 28 U.S.C. 157(d), in all those cases where defendants asserted a Rates Act defense and moved for withdrawal, and consolidated those cases solely for the purposes of determining the applicability and constitutionality of the Rates Act to the undercharge claims.2
Plaintiff maintains that the Bankruptcy Code's anti-forfeiture provisions, which seek to protect a debtor's estate by forbidding the forfeiture of property due to the debtor's "financial condition," 11 U.S.C. §§ 363(l) and 541(c)(1), prevent shippers from relying on the Rates Act and that § 9 of the Rates Act itself evinces a Congressional intent to strip shippers of undercharge defenses when the undercharge claims are asserted in a bankruptcy proceeding. Plaintiff alternatively claims that two of the undercharge defenses which completely bar its claims are an unconstitutional taking of it's property, i.e, its undercharge claims.
I note at the outset that at least 154 courts have considered some or all of the issues raised in this case, and the bankrupt carriers have lost in all but four. All of those four decisions have now been overturned on appeal.3 One circuit, the Eighth, had ruled on the issues presented here (in favor of the shippers) prior to the filing of briefs by the parties. Jones Truck Lines, Inc. v. Whittier Wood Products Co., 57 F.3d 642 (8th Cir. 1995) ("Whittier"). While this motion was sub judice, five other circuits, the Third, Fourth, Seventh, Ninth and Eleventh each ruled on the applicability issue and two (the Eight and the Eleventh) ruled on the constitutionality issue, all in favor of the shippers. Hargrave v. United Wire Hanger Corp., 73 F.3d 36 (3d Cir.1996) (per curiam) ("Hargrave"); Cooper v. B & L, Inc., 66 F.3d 1390 (4th Cir.1995) ("Cooper"); Lifschultz Fast Freight Corp. v. De Medici, 63 F.3d 621 (7th Cir.1995) ("Lifschultz"); In re Transcon Lines, 58 F.3d 1432 (9th Cir.1995), petition for cert. filed, No. 95-945, ("Transcon"), and Olympia Holding Corp. v. Power Brake Supply, Inc., 68 F.3d 1304 (11th Cir.1995) ("Olympia"). The Rates Act's applicability and constitutionality is one of first impression in the Second Circuit. Because I find the reasoning of the six other circuits compelling, I have adopted it in deciding this case.
Some history of Congressional and judicial action that has shaped the freight undercharge issue is useful. For most of this century, motor carrier rates were highly regulated by the Interstate Commerce Commission (the "ICC") pursuant to the Interstate Commerce Act, 49 U.S.C. §§ 10101 et seq. (the "ICA"). Under the "filed rate doctrine," common carriers such as St. Johnsbury were required to file their rates with the ICC and could not charge a different rate unless that rate was filed as well. 49 U.S.C. §§ 10761, 10762. In 1980, Congress passed the Motor Carrier Act (the "MCA") which was designed substantially to deregulate the trucking industry and promote competition. Pub.L.No. 96-296, 94 Stat. 793 (1980). The MCA, however, did not abolish the filed rate doctrine. Nevertheless, in response to the MCA, the ICC promulgated regulations which allowed common carriers to negotiate rates with each of their customers and thus in effect repealed the filed rate doctrine. As carriers began to fail in this new environment, bankruptcy trustees commenced undercharge claims as a means of enlarging the estate. In 1986, the ICC declared, again by administrative fiat, that undercharge claims by bankrupt carriers were barred as an "unreasonable practice." NITL — Pet. to Institute Rulemaking on Negotiated Motor Common Carrier Rates, 3 I.C.C.2d 99, 1886 WL (1986), as modified by 5 I.C.C.2d 623, 1989 WL 24926 (1989). The ICC's approach came to an end when the Supreme Court ruled, in Maislin Industries, U.S. Inc. v. Primary Steel, Inc., 497 U.S. 116, 135-36, 110 S.Ct. 2759, 2770-71, 111 L.Ed.2d 94 (1990) that "if strict adherence to §§ 10761 and 10762 as embodied in the filed rate doctrine has become an anachronism in the wake of the MCA, it is the responsibility of Congress to modify or eliminate these sections." The decision invalidated the ICC's "unreasonable practice" regulation.
The Maislin decision turned the trickle of undercharge suits into a torrent of litigation. Congress estimated that as of 1993, up to $32 billion in undercharge claims could be filed by bankrupt trucking firms. See H.R.Rep. No. 359, 103rd Cong., 1st Sess. 8, reprinted in 1993 U.S.C.C.A.N. 2534, 2535. Congress responded to this crisis by enacting the Rates Act.4 The legislative history of the Rates Act is replete with references to bankrupt carriers and it is clear that relieving shippers of the threat of such undercharge claims is the principal aim of the legislation. The Senate Report stated:
The bill, as reported, is intended to alleviate the freight motor carrier "undercharge" litigation crisis by establishing a procedure for resolving disputes resulting from efforts by Trustees for bankrupt motor carriers or nonhousehold goods forwarders to collect additional amounts for past transportation.
S.Rep. No. 103-79 at 1 (1993); H.Rep. 103-359 (1993) (same).
The Rates Act creates a three-tier mechanism for resolving undercharge claims. The first level is a settlement scheme requiring carriers who are "no longer transporting property" to accept from five to 20% of their claim, depending on the volume of the shipments and whether the service provided was carriage or warehousing. 49 U.S.C. § 10701(f)(1). At issue in this case is whether the words "no longer transporting property" trigger the Bankruptcy Code's antiforfeiture language. The second level is a blanket exemption from undercharge claims for shippers that qualify as small businesses, charitable organizations or shipper of recyclable materials. 49 U.S.C. § 10701(f)(2). St. Johnsbury claims this section as it applies to shippers claiming the small business exemption constitutes an unconstitutional taking in violation of the Fifth Amendment of the U.S. Constitution. The third level provides an alternative procedure to the first two for resolving...
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