REA Exp., Inc. v. U.S.

• Decision Date: 16 September 1977
• Docket Number: D,No. 1165,1165
• Citation: 568 F.2d 940
• Parties: REA EXPRESS, INC., Bankrupt, L. Orvis Sowerwine, Trustee in Bankruptcy, Petitioner, v. UNITED STATES of America and Interstate Commerce Commission, Respondents. ocket 76-4278.
• Court: U.S. Court of Appeals — Second Circuit

Page 940

568 F.2d 940

REA EXPRESS, INC., Bankrupt, L. Orvis Sowerwine, Trustee in Bankruptcy, Petitioner, v. UNITED STATES of America and Interstate Commerce Commission Respondents.

No. 1165, Docket 76-4278.

United States Court of Appeals Second Circuit.

Argued May 23, 1977.

Decided Sept. 16, 1977.

John M. Cleary, Washington, D. C. (John K. Maser, III, and Donelan, Cleary, Wood & Maser, Washington, D. C.; Donald L. Wallace, and Whitman & Ransom, New York City; Marcus & Angel, New York City, on the brief), for petitioner REA Express, Inc., Bankrupt, L. Orvis Sowerwine, Trustee in Bankruptcy.

J. William Cain, Jr., Washington, D. C. (Jack R. Turney, Jr. and Robert R. Redman, Washington, D. C.; Tibor Sallay, White Plains, N. Y., on the brief), for intervenor Alltrans Express U.S.A., Inc. in support of petitioner.

John O'B. Clarke, Jr., Washington, D. C. (James L. Highsaw, and Highsaw, Mahoney & Friedman, Washington, D. C.; David J. Fleming, and Reilly, Fleming & Reilly, New York City; William J. Donlon, Rosemont, Ill., on the brief), for intervenor Brotherhood of Railway and Airline Clerks in support of petitioner.

Henri T. Rush, Atty., ICC, Washington, D. C. (Mark L. Evans, Gen. Counsel, ICC, and Charles H. White, Jr., Assoc. Gen. Counsel, ICC, Washington, D. C.; Donald I. Baker, Asst. Atty. Gen., and Lloyd John Osborn, Atty., Dept. of Justice, Washington, D. C., on the brief), for respondents United States and I. C. C.

John W. Bryant, Detroit, Mich., and Todd A. Peterman, Washington, D. C. (Richard H. Streeter, Edward K. Wheeler, and Wheeler & Wheeler, Washington, D. C.; Eames, Petrillo & Wilcox, Detroit, Mich.; Phillip Robinson, and Robinson, Felts, Starnes & Nations, Austin, Tex.; Nelson J. Cooney, Washington, D. C.; Daniel C. Sullivan, and Singer & Sullivan, Chicago, Ill., on the brief), for intervening respondents in support of the I. C. C.

Before WATERMAN and TIMBERS, Circuit Judges, and MEHRTENS, District Judge. ^*

TIMBERS, Circuit Judge:

On this petition to review orders ¹ of the Interstate Commerce Commission (the Commission), the essential questions are whether the Commission acted arbitrarily and capriciously and abused its discretion in dismissing for want of prosecution the application of the trustee in bankruptcy of REA Express, Inc. (REA) under § 206(a)(1) of the Interstate Commerce Act (the Act), 49 U.S.C. § 306(a)(1) (1970), ² for permanent operating authority of a nationwide "Hub" system of express service and at the same time in revoking the temporary authority previously granted to REA under § 210a(a) of the Act, 49 U.S.C. § 310a(a) (1970). ³

We hold that the Commission did not act arbitrarily and capriciously and did not abuse its discretion. Accordingly we deny the petition to review and affirm the orders of the Commission.

I. FACTS AND PRIOR PROCEEDINGS

(A) REA and the Hub System

" Express service", as defined by the Commission, entails the expedited carriage of goods upon firmly established schedules. The express carrier, whose services command premium rates, also must provide special handling for small parcels. REA Express, Inc., Application for ETA, 117 M.C.C 80, 88-89 (1971); Railway Express Agency, Inc., Extension-Nashua, N. H., 91 M.C.C. 311, 324 (1962). During the first half of this century express service was provided as an adjunct of the operations of the nation's railroads. In 1929 the railroads joined together to establish Railway Express Agency, Inc. (Railway Express), a non-profit agency designed to operate all express services provided by the railroads under their joint ownership and control. The non-profit arrangement continued until 1969. In that year the participating railroads, which were dissatisfied with Railway Express' continuous losses, extricated themselves from its ownership. REA Express, Inc. v. Alabama Great Southern Railroad Co., 343 F.Supp. 851 (S.D.N.Y.1972), aff'd, 412 U.S. 934 (1973). REA, the bankrupt herein, emerged as an independent company which carried on the business of Railway Express.

Upon the organization of REA in 1969, it provided express service with a routing system significantly different from the railroad oriented system which its predecessor had operated. The steady decline in railroad passenger service after World War II had forced Railway Express into increasing reliance on supplementary operations by motor carrier. By 1962 it had acquired nearly 1,700 separate motor carrier operating rights from the Commission. These piecemeal acquisitions left Railway Express with an uncoordinated and unmanageable system of interlocking rail and motor routes. It consequently decided that a fundamental restructuring of its routing system was necessary.

In 1968 Railway Express submitted to the Commission under § 206 of the Act an application for permanent operating authority for a "Hub" system of operations. The salient feature of such system was its selection of 24 central points or hubs for the dispatch and receipt of traffic. Each hub was connected with each other hub by a regular motor route or rail line-haul route. A "satellite" area, served exclusively by motor carrier, surrounded each hub. All traffic to and from locations within the satellite area moved via the hub city. Railway Express, pursuant to § 210a(a) of the Act, made the usual application for temporary authority pending the Commission's action on its application for permanent authority. The Commission found that Railway Express met the "immediate and urgent need" requirement of § 210a(a) for its Hub service and accordingly granted the temporary authority. Saginaw Transfer Co. v. United States, 312 F.Supp. 662 (E.D.Mich.1970) (three-judge court); Estes Express Lines v. United States, 292 F.Supp. 842 (E.D.Va.1968) (three-judge court), aff'd, 394 U.S. 718 (1969) (per curiam) (grant of temporary authority sustained).

Railway Express commenced Hub operations in 1968 under the temporary authority. Its successor, REA, took no effective steps thereafter in prosecuting the permanent authority application. It relied on the temporary authority granted to Railway Express for continued Hub operations during the entire period of REA's existence. Once the Hub system was placed in operation under the temporary authority, it proved a disappointment to REA. As a result, in 1971 REA sought to abandon the Hub system and to replace it with a new system of irregular route service. In its new application for temporary authority REA represented that, despite strenuous efforts to implement the Hub system, it nevertheless had proved both "costly and inefficient for REA, and inadequate in providing service to the public." On August 9, 1971 the Commission denied the new application on the grounds that no immediate and urgent need had been demonstrated and the irregular route service proposed would be inconsistent with the concept of express service.

Although REA carried on under the temporary Hub authority, its actual operations departed significantly from those contemplated in the 1968 application. Referring to Hub operations in general, the Commission stated in its 88th Annual Report, at 54-55 (1974):

"The (Hub) concept proved to be inefficient, necessitating considerable exceptions to the basic operating plans. . . .

(T)he system today bears little resemblance to the original concept. . . ."

(B) REA's Bankruptcy and the Rexco Division

REA's operations continued to decline. As a result of the recession and other factors, ⁴ on February 18, 1975 it filed a petition for an arrangement under Chapter XI of the Bankruptcy Act in the Southern District of New York. The company continued operations as the debtor in possession until November 6, 1975. On that date it was adjudicated a bankrupt and ordered liquidated. Regular express services ceased the following day. Since then liquidation has been substantially completed. REA no longer has any operational capability.

Backing up for a moment to August 1975 during the period of REA's unsuccessful reorganization proceeding we come to the event which precipitated the Commission's proceedings here under review: establishing the Rexco Division of REA. Rexco amounted to little more than a brokerage business. Independent agents stationed at various locations east of the Rockies and acting on a commission basis solicited truckload traffic from shippers and then arranged for carriage in owner-operated trucks. A small Rexco office near Philadelphia solicited some business, but its chief function was billing shippers and paying agents and owner-operators. Rexco did not own or operate any equipment. It employed no drivers. It exerted little direct control over the operations carried on in its name. It failed to comply with the regular-route restrictions in REA's operating authorities and with the governing REA tariff. And by dispensing with fixed schedules and limiting itself to truckload shipments, Rexco lost any resemblance to the "express service" which REA was authorized to perform.

(C) Proceedings before the Commission and the Alltrans Application

Particularly on longer hauls, Rexco undersold competing irregular-route carriers. Its business grew rapidly. Apparently because Rexco was the only profitable REA operation, the REA trustee in bankruptcy on November 10, 1975 amended his embargo notice so as to exempt Rexco from the embargo on all REA operations which the trustee, upon taking office three days earlier, had placed on all traffic tendered to REA. By December 11, 1975, 18 of the motor carriers whose business Rexco had been diverting responded with complaints filed with the Commission seeking a cease and desist order against Rexco's unlawful operations. On December 1, American Trucking Associations, Inc. (ATA), one of the intervening respondents herein, filed with the Commission a petition seeking dismissal of the still-pending 1968 application for permanent Hub authority and concomitant revocation of the 1968 temporary authority for failure to...