Lifschultz Fast Freight Corp., Matter of

Decision Date18 August 1995
Docket NumberNo. 94-3661,94-3661
Citation63 F.3d 621
PartiesFed. Carr. Cas. P 83,979, 64 USLW 2143, Bankr. L. Rep. P 76,601 In the Matter of LIFSCHULTZ FAST FREIGHT CORPORATION, Debtor. Appeal of Bruce E. DE MEDICI, Trustee for Lifschultz Fast Freight Corporation.
CourtU.S. Court of Appeals — Seventh Circuit

Robert B. Walker (argued), John T. Siegler, Shawn, Mann & Niedermayer, Washington, DC, for trustee-appellant.

William D. Brejcha, Abramson & Fox, Chicago, IL, Robert J. Gallagher (argued), M. Shields Gallagher & Gallagher, Northampton, MA, for appellee.

Before POSNER, Chief Judge, and CUMMINGS and MANION, Circuit Judges.

MANION, Circuit Judge.

Lifschultz is a common carrier that charged FDSI, one of its freight shipping customers, less than the freight rate it filed with the Interstate Commerce Commission. But under the "filed rate" doctrine a shipper is legally liable to the carrier for the rate filed with the Commission even if the carrier charged a lesser rate. Thus when Lifschultz went into bankruptcy, the Trustee, on behalf of the bankruptcy estate, sought to recover the difference between the filed rate and the charged rate. FDSI moved for summary judgment asserting that the Negotiated Rates Act of 1993 insulated small business concerns from liability for these so-called undercharges. The district court agreed and granted summary judgment for FDSI. The Trustee appeals and, for the reasons given below, we affirm.

I. Background

Lifschultz is a common carrier and a debtor in bankruptcy. As a common carrier, Lifschultz is regulated by the Interstate Commerce Commission ("ICC") which administers the Interstate Commerce Act ("ICA"), 49 U.S.C. Sec. 10101 et seq. Under the ICA, common carriers are required to file the freight rates they will charge for freight carriage. 49 U.S.C. Sec. 10762. The regulatory regime created by the ICA requires those carriers to charge those filed rates, and only those rates, to customers. 49 U.S.C. Secs. 10761 & 10762. Under the "filed rate" doctrine, the shipper is liable to pay the filed rate, even if a carrier negotiated and charged a lesser rate.

But there is, or at least was, a widespread practice whereby carriers negotiate and customers pay less than the freight rates filed with the ICC. The difference between the rate that common carriers filed with the ICC, and the lower rate negotiated and actually charged to shippers, is one type of so-called "undercharge." The lesser rates that Lifschultz negotiated and charged FDSI are called "negotiated rates."

Between 1987 and 1990 Lifschultz negotiated and charged FDSI rates lower than those filed with the ICC. In 1990 Lifschultz went into bankruptcy and the Trustee was appointed to administer Lifschultz's bankruptcy estate. As frequently happens, the Trustee ordered an audit and discovered the undercharges. The Trustee brought suit against FDSI to recover the undercharges for the benefit of the bankruptcy estate. The merits were handled by the bankruptcy court, where FDSI moved for summary judgment. FDSI claimed that Section 2(a) of the Negotiated Rates Act ("NRA"), 1 codified at 49 U.S.C. Sec. 10701(f), prohibited the Trustee from recovering undercharges because FDSI was a small business concern. 2 The bankruptcy court agreed with FDSI and recommended that the district court grant FDSI's motion for summary judgment. The district court did so. The Trustee appeals.

II. Analysis

On appeal, the Trustee argues that the NRA does not apply to undercharge claims made by bankrupt carriers. In the alternative, he argues that if the NRA does apply to those claims, it violates the Bankruptcy Code. The Trustee's first argument rests on Section 9 of the NRA. Section 10701(f) lays out the procedures for resolving claims involving unfiled, negotiated rates. Section 9 of the NRA, however, states that the NRA will not limit the application of the Bankruptcy Code. The Trustee argues that applying Sec. 10701(f) to undercharge claims made by bankrupt carriers limits or otherwise affects the application of the Bankruptcy Code to such claims, and therefore violates Section 9 of the NRA. 3 Similarly, the Trustee notes that a subsection of the NRA, found at Sec. 10701(f)(9), exempts small business concerns from liability for undercharges. Thus, in the alternative, the Trustee argues that applying Section 2(a), Sec. 10701(f)(9), to undercharge claims brought by a bankrupt carrier violates the antiforfeiture provisions of the Bankruptcy Code, 11 U.S.C. Secs. 363(l ) and 541(c)(1)(B). In order to sort out these confusing if not conflicting provisions of the NRA, we first need to examine how they became law.

A. Statutory Background

The origin of the NRA has been described at length by other courts, so we will not recite all of the details here. See generally Maislin Industries, U.S. v. Primary Steel, Inc., 497 U.S. 116, 110 S.Ct. 2759, 111 L.Ed.2d 94 (1990); Reiter v. Cooper, --- U.S. ----, 113 S.Ct. 1213, 122 L.Ed.2d 604 (1993); H.R.Rep. No. 103-359, 103 Cong., 1st Sess., p. 8 (1993), reprinted at 1993 U.S.C.C.A.N. 2534, 2535; S.Rep. No. 103-79, 103d Cong., 1st Sess. (1993); In re Bulldog Trucking, Inc., 173 B.R. 517, 526-530 (W.D.N.C.1994). Suffice it to say that the Motor Carrier Act of 1980 significantly deregulated the trucking industry, causing an increase in competition. In an effort to preserve their market share, many carriers began to negotiate and charge rates lower than those filed with the ICC. When carriers that charged lower rates went bankrupt, bankruptcy trustees would usually attempt to recover undercharges for the benefit of the bankruptcy estate. To collect undercharges the trustees would pursue a three-pronged effort by challenging "negotiated rates," "coded rates," and "contract carriage rates" for various technical violations. See generally, S.Rep. No. 103-79, pp. 3-5 (1993); House Report 103-359, pp. 8-9, 1993 U.S.C.C.A.N. 2535-2536; White v. United States, 989 F.2d 643, 646-47 (3d Cir.1993). But their main focus was on negotiated rates which were illegal simply because they had not been filed as required by the ICA. Here, the trustee would claim that shippers must now pay the legal (and higher) rate filed with the ICC under the filed rate doctrine.

In response to these claims, shippers advanced "unreasonable practice" and "unreasonable rate" defenses. The shippers' "unreasonable practice" defense was actually promoted by the ICC (and called its "Negotiated Rates Policy") in order to prevent carriers from recovering negotiated rate undercharges. Thereby the ICC took the position that a carrier that attempted to collect a filed rate after having negotiated a lesser rate engaged in an "unreasonable practice" that violated 49 U.S.C. Sec. 10701(a). In Maislin supra, the Supreme Court struck down the ICC's Negotiated Rates Policy on the grounds that it violated the statutory duty created by the ICA to charge filed rates. At the same time, however, the Court implicitly confirmed the shippers' unreasonable rate defense by leaving open the question of how a shipper's right to damages caused by unreasonable rates under 49 U.S.C. Sec. 11705(b)(3) might affect undercharge claims. Maislin, 497 U.S. at 129 n. 10, 110 S.Ct. at 2767 n. 10.

Later in Reiter, the Supreme Court held that shippers could assert the statutory claim for damages caused by unreasonable rates as a counterclaim in an undercharge action. Reiter, --- U.S. at ----, ----, 113 S.Ct. at 1219, 1221. However, the Court also held that neither the ICA nor the doctrine of primary jurisdiction required that an unreasonable rate claim/defense be filed with, and determined by, the ICC before an undercharge action could be filed in federal court. Id. Therefore, the Court concluded, federal courts had discretion to award judgment on an undercharge claim pursuant to Fed.R.Civ.P. 54(b) before an unreasonable rate counterclaim/defense was resolved by the ICC. As Reiter illustrates, for obvious reasons shippers wished to avoid paying undercharge claims to bankrupt carriers while their unreasonable rate defense was still pending.

The Supreme Court's holding in Maislin began the process that culminated in Congress' enactment of the NRA, and there is no doubt that its drafters intended it to address undercharge claims brought by bankrupt carriers. See S.Rep. 103-79, pp. 5-6 (for efforts to pass undercharge legislation in the wake of Maislin ). References to bankrupt carriers dominate the House and Senate reports, see House Report 103-359, S.Rep. No. 103-79. And the NRA, as enacted into law, addresses each of the principal undercharge theories described earlier. With respect to negotiated rate undercharge claims, the NRA creates three classes of undercharge claims and provides that if a shipper pays a fixed percentage of their value, then the undercharge claim is deemed satisfied. See 49 U.S.C. Sec. 10701(f)(2), (3) & (4). Significantly, theses provisions of the NRA apply only to undercharge claims brought by carriers described in Sec. 10701(f)(1)(A), 4 and that class of carriers is almost wholly comprised of bankrupt carriers. The NRA also bars certain types of undercharge claims against small business concerns. See Sec. 10701(f)(9). And it addresses the Reiter decision by staying the payment of undercharge claims pending the ICC's determination of any unreasonable rate counterclaim/defense, see Sec. 10701(f)(6), and requiring federal courts to refer specific undercharge claims and related issues to the ICC. See Sec. 2(a), Sec. 10701(f)(1)(B)(v) & (f)(6), Sec. 2(e)(2), and Sec. 8. 5

B. Proper Construction of Section 9 of the NRA

Despite the NRA's apparent focus on the undercharge claims of bankrupt carriers, the Trustee argues that applying the Act to such claims violates Section 9 of the NRA. According to the Trustee, when the NRA is applied to prevent bankrupt carriers from recovering undercharges, it limits and otherwise affects the application of...

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