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LIFSCHULTZ v. UNITED STATES

June 21, 1956

Sidney B. LIFSCHULTZ, Ida Lifschultz, Bernice Brown, Rose Grossman, Nora Bergman, and American National Bank and Trust Co. of Chicago, as Executor of the Estate of Samuel E. Lifschultz, deceased, as co-partners doing business as Lifschultz Fast Freight, Plaintiffs,
v.
UNITED STATES of America and Interstate Commerce Commission, Defendants



The opinion of the court was delivered by: HERLANDS

This is an action to enjoin and vacate and annul a report and two orders of the Interstate Commerce Commission.

The question to be decided is: Did the Interstate Commerce Commission properly deny plaintiffs' application for a territorial enlargement of plaintiffs' permit because of the applicant's prior illegal transactions?

 The parties before us are: (1) the plaintiffs-partners of Lifschultz Fast Freight, who will be referred to collectively in this opinion as 'the applicant'; (2) the defendants, United States of America and Interstate Commerce Commission, who will be referred to for purposes of this opinion as 'the Commission'; and (3) two intervenors, Acme Fast Freight, Inc. and Universal Carloading & Distributing Co., Inc., who will be referred to as 'the intervenors.'

 The facts are detailed in the administrative proceedings heretofore had herein, which are reported in 285 I.C.C. 569 and 285 I.C.C. 659. We shall refer only to such facts as are necessary for the determination of the question before us.

 This action is brought under 28 U.S.C.A. §§ 1336, 1398, and 2321-2325. By it the applicant seeks to have the Court (1) enjoin the Commission; (2) set aside and annul the following report and orders of the Commission: a report and order made on July 6, 1955 (285 I.C.C. 659) and an order denying reconsideration made on December 5, 1955; and (3) remand the matter to the Commission with instructions to grant the applicant's application for extended operating authority and to issue an amended permit authorizing the same. The Commission seeks to dismiss the complaint.

 On June 10, 1953, the applicant filed an application (subsequently amended on September 9, 1953) whereby it sought to extend its freight forwarder's permit to include additional territory for which it did not then have operating authority. Prior to the filing of the application here involved, the applicant had authority to operate as a freight forwarder of general commodities between points in Maryland, Pennsylvania and the United States north and east thereof, and certain limited points in southern Wisconsin, northern Illinois, and northwestern Indiana, and in Iowa along the west bank of the Mississippi River; also between other areas (Minnesota, Texas and California) not here pertinent. By the application in issue, the applicant sought permission to extend its service as a freight forwarder between the eastern area already served and all points in Iowa, Michigan, and Wisconsin, not already included in its operating authority.

 Shortly after the application was filed, three freight forwarders filed protests in opposition. (Two of these protestants are intervenors in the case at bar.) In the administrative proceedings, seventeen motor common carriers intervened in opposition to the application.

 Hearings were held before a Commission examiner on October 19 and 20, 1953, in New York City, and on November 5 and 6, 1953, in Milwaukee. On March 16, 1954, the examiner filed a proposed report, recommending that the application be granted. After considering exceptions filed by the applicant, various intervenors and the protestants, and after oral argument, the Commission filed its report on October 19, 1954, granting the application. 285 I.C.C. 569.

 Between the latter date and July 6, 1955, there were various proceedings which resulted in the reopening of the matter. On July 6, 1955, the Commission decided to deny the application, 285 I.C.C. 659; and on December 5, 1955, the Commission filed its order denying the applicant's petition for reconsideration.

 The report proposed by the examiner on March 16, 1954 was rejected by the Commission in so far as it sought to impose the surrender of one of the applicant's permits (an unused permit to service points in Texas, Minnesota and California) as a condition to the granting of the applied-for extension of authority in Wisconsin, Iowa, and Michigan. But the report proposed by the examiner was accepted by the Commission -- both in its original decision of October 19, 1954 and its reconsidered decision of July 6, 1955 -- with respect to the critical finding an conclusion that the applicant, prior to filing the application, had engaged in illegal westbound shipments to Iowa and Wisconsin during the period between August 1, 1953 and September 4, 1953. These shipments, one hundred and twelve in number, had originated in the applicant's authorized Eastern territory, but were destined to points in Iowa and Wisconsin outside the applicant's authorized territory. The illegality of these shipments and the effect to be given that illegality are the crux of the case.

 Each of the shipments that were found to be illegal involved freight movements from a point of origin and receipt within the applicant's territory to a break-bulk or distribution point (such as Chicago or Milwaukee) within the applicant's territory, and thence by motor common carrier to the point of ultimate destination which was outside the authorized area. The last segment of the movement -- from the break-bulk point to the point of destination -- was, in each of the condemned transactions, beyond the last point of the applicant's authorized service.

 It was and is the applicant's contentions that the challenged westbound shipments were lawful because: (A) the applicant had not published through traffic rates applicable to such shipments; (B) the rate paid was a combination of rates, covering a movement from point of receipt to the break-bulk point and another movement from the break-bulk point to the point of destination; (C) the truckman used in making the last haul, from break-bulk point to the point of destination, had been selected, in most instances, by the consignor or consignee, and only in a minority of instances by the applicant; (D) the applicant had disclaimed responsibility for the last haul and had manifested that disclaimer by inserting upon the shipping documents the name of the ultimate consignee 'in care of' a truckman, whose noted address was within the applicant's authorized territory; (E) the applicant had not issued a through bill of lading covering such shipments beyond the break-bulk point; and (F) by virtue of all of the foregoing circumstances, the applicant did not render service as a freight forwarder during that segment of the movement from the break-bulk point to the point of ultimate destination, and hence the applicant did not operate beyond its authorized territory.

 The above contentions by the applicant were rejected by the examiner and the Commission in both its original and reconsidered decisions. Those administrative authorities held that the applicant had been required to issue a through bill of lading covering each such shipment; that the applicant could not effectively have disclaimed responsibility for a shipment to its point of ultimate destination; and that the services rendered by the applicant in connection with each of such shipments, which included arranging for the movement from the break-bulk point to the point of destination, constituted freight forwarding beyond the applicant's authority.

 The original report (October 19, 1954) of the Commission stated, 285 I.C.C. at 575-576:

 'It is clear that a freight forwarder must issue a through bill of lading or receipt for property received by it for transportation in forwarder service. Once the property is in the possession of the forwarder, such property must stay in its possession or control either physically or theoretically to the ultimate destination. This is so whether the final delivery is made by the forwarder or by a motor carrier acting as the forwarder's agent. Consequently, the freight forwarder cannot relinquish responsibility for a shipment short of the ultimate destination.'

 The reconsidered report (July 6, 1955) expressed precisely the same conclusion in almost the same words. 285 I.C.C. at 663-664.

 Thus, the Commission, both in its original and reconsidered decisions, and the examiner were in accord that the applicant had engaged in illegal shipments. However, the Commission, in its first decision, and the examiner took the position that the applicant's illegal acts should be forgiven, and that the applicant should be admonished but found to be qualified. Upon reconsideration, the Commission reversed itself to the extent of holding that, in view of the applicant's illegal activities in the face of two prior warnings, the applicant 'has failed to establish that it is qualified, or that the proposed operation as a freight forwarder in interstate commerce would be consistent with the public interest and the national transportation policy.' The Commission declared: 'We are convinced, on reconsideration, that sound administration of the act requires more than admonishment in the instant proceeding.' 285 I.C.C. at 665.

 We therefore turn to a consideration of the two fundamental questions -- whether the finding of illegality was supported by substantial evidence, considering the record as a whole; and whether the Commission's final disapproval of the application, predicated upon that illegality, was a proper exercise of the Commission's judgment in the light of the applicable statutory criteria and standards.

 In determining that the applicant had acted as a freight forwarder with respect to the movements from the break-bulk point within the authorized area to the point of ultimate destination outside that area, the Commission properly rejected as without merit the applicant's argument based upon its non-publication of through rates and its alleged disclaimer of responsibility for the final haul. See Judson-Sheldon Corp. Application, 260 I.C.C. 473, 476-478 (1945). The Commission, no less than the Court, was required to pierce the surface appearance of the transactions and the form of the bill of lading in order to determine the real character of the regulated business. Baer Bros. Mercantile Co. v. Denver R.G.R. Co., 1914, 233 U.S. 479, 490-491, 34 S. Ct. 641, 58 L. Ed. 1055; Illinois Cent. R. Co. v. De Fuentes, 1915, 236 U.S. 157, 35 S. Ct. 275, 59 L. Ed. 517. The regulatory power cannot be defeated by a subterfuge or stratagem.

 The vital inquiry concerns the actual nature of the service between the point of disassembly or break-bulk, which was within the authorized territory, and the point of ultimate destination, which was outside the authorized territory. When an individual shipment is distributed from the break-bulk point to the point of destination by a connecting motor common carrier, this last segment of the haul must be viewed realistically as a part of the freight forwarder's total operation. The applicant in the case at bar would like to consider the significance of that last segment isolated from the antecedent processes and services which brought the shipment to the break-bulk point, where it was turned over to the connecting carrier. With this contention we do not agree.

 A proper appraisal of the record requires a restatement of the very nature of a freight forwarder's service. The freight forwarder does not engage in actual transportation. His function is to arrange for transportation by affording to individual consignors who ship less than-truckload quantities the economies that can be effected by consolidating or bulking such freight into larger shipments for the purpose of moving them to common points of distribution or delivery.

 A forwarder shipment is received at a point of origin or pick-up point. This may be either the place where the freight forwarder maintains its assembly station or terminal; or it may be some other point where, usually, a motor common carrier will accept the shipment and bring it to the assembly terminal. When the shipment arrives at the freight forwarder's assembly terminal, the individual shipments are consolidated, depending upon their destination, and routing is arranged. When the consolidated shipments arrive at the freight forwarder's distribution or disassembly terminal nearest the point of ultimate destination, they are separated. At this break-bulk point, arrangements are made to have the individual shipments picked up by a connecting common carrier, who makes delivery to the consignee at the point of ultimate destination.

 A freight forwarder issues a bill of lading to the consignor, acknowledging the receipt of the shipment and agreeing to transport or deliver it at a specified place to the named consignee. See definitions in Federal Bills of Lading Act, § 42, 49 U.S.C.A. § 122. A 'through' bill of lading is one whereby the freight forwarder agrees to transport the goods from the point of origin to the designated point of destination, although such transportation may extend over the lines of connecting carriers. 9 American Jurisprudence, Carriers, 662, 663.

 Where the point of origin is within the freight forwarder's authorized territory, the freight forwarder provides service from that point of origin by: (A) undertaking at the point of origin to initiate the process which ends with the delivery to the ultimate consignee named in the bill of lading; (B) undertaking at the point of origin to turn over the shipment at the break-bulk point to a connecting carrier; (C) arranging for and actually turning over the shipment at the break-bulk point to the connecting carrier; (D) making and facilitating the payment to the connecting carrier and attending to the incidental but necessary clerical details, such as providing information as to weight, shipping instructions, name and address of the consignee, paying or advancing the charges. Each of such services is rendered in connection with, and is an inseparable part of, a shipment from point of origin to point of destination, covered by the freight forwarder's bill of lading. The essence of the freight forwarder's function is to act as a liaison and arranger, as distinguished from an actual carrier. The freight forwarder 'forwards' by making arrangements for packing, shipping, distributing, turning over to and receiving from connecting carriers. That the turning over by the freight forwarder at a break-bulk point to a connecting carrier for delivery to the consignee at a point of destination constitutes part of the freight forwarding operation simply recognizes the realities of the business.

 Title 49 U.S.C.A. § 1002(a)(5)(A) specifically includes as one of the elements of the term 'freight forwarder,' the undertaking whereby the freight forwarder 'provides for the performance of * * * distributing operations.' (Emphasis supplied.) Thus, the aspect of the case covered by evidence relating to the applicant's providing for the performance of distributing operations by turning over the shipments at break-bulk points in Milwaukee and Chicago to carriers who would then deliver the shipments to points outside of the applicant's authorized area, constitutes one of the elements encompassed within freight forwarder service. Such service, to be lawful, must be performed within the territorial limits for which the freight forwarder has authority. 49 U.S.C.A. § 1010(a, e).

 Title 49 U.S.C.A. § 1002(a)(7) expressly states that the term " service subject to this chapter" does not include that part of the freight forwarder's undertaking for the performance of which the transportation by motor vehicle 'when incidental to transportation by aircraft' is utilized. The fair implication is that, where a freight forwarder utilizes the services of a motor common carrier in performing that part of the forwarder's undertaking relating to 'distributing operations' other than transportation by aircraft, the utilization of motor vehicle transportation is comprehended within freight forwarder's "service subject to this chapter", and falls within the scope of the forwarder's permit.

 The applicant argues that the eastbound and westbound shipments were 'identical' and that the Commission erroneously condemned the westbound shipments while approving the eastbound shipments. This argument overlooks a basic distinction. In the case of eastbound shipments that originated at points outside the applicant's authorized territory and were brought to applicant's assembly terminals at Chicago and Milwaukee, the applicant issued a bill of lading only at Chicago or Milwaukee, and that bill covered the shipment from such point of receipt to the respective point of destination, both of which points were within the applicant's authorized territory. Thus, the applicant assumed no responsibility for shipments in respect to movements outside his territory.

 On the other hand, in the case of the challenged westbound shipments which originated within the applicant's territory but were destined to points outside applicant's authorized area, the applicant was required to issue through bills of lading; and it was responsible for the shipments to their respective points of destination, which latter points were outside the applicant's authority.

 The responsibility referred to in the latter instances is predicated upon: (A) the provisions of the statute, as interpreted by the Supreme Court; (B) the express order of the Commission, and (C) the record considered as a whole, which supports the proposition that the applicant either actually issued through bills of ...


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