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FREIGHT FORWARDERS INST. v. UNITED STATES

January 26, 1967

Freight Forwarders Institute, Acme Fast Freight, Inc., National Carloading Corporation, Republic Carloading & Distributing Co., Inc., and Universal Carloading & Distributing Co., Inc., Plaintiffs
v.
United States of America, Interstate Commerce Commission, Defendants



The opinion of the court was delivered by: FEINBERG

FEINBERG, C.J.

This is an action to review two orders of the Interstate Commerce Commission which allowed Piggy-Back Shippers Association of Florida ("Piggy-Back") to continue operation. *fn1" Therefore, once again *fn2" the cumbersome, inefficient machinery of a statutory three-judge court must be invoked to review the Commission's action. *fn3" For reasons set forth below, we sustain the Commission insofar as it ruled, but remand for reconsideration of the issue it failed to decide.

Piggy-Back is one of a growing number of unlicensed shipper associations *fn4" whose activities pose a threat to Commission-regulated freight forwarders such as the five plaintiffs and two intervening plaintiffs in this case. *fn5" Freight forwarders offer a transportation service to the public for profit; they specialize in the handling of less than carload or truckload freight and supply fast transportation including pickup and delivery. Shipper associations are also organized to obtain the benefit of volume freight rates; they are composed of groups of independent shippers of freight who have banded together for this purpose. However, they do not hold themselves out to the public but perform services on a nonprofit basis only for their dues-paying members. *fn6" Thus, these business entities are similar but nonetheless distinct, and the difference between them has been recognized by Congress. A freight forwarder is subject to the provisions of Part IV of the Interstate Commerce Act (the "Act"), 49 U.S.C. §§ 1001-22, and is defined in relevant part in 49 U.S.C. § 1002(a)(5), as

 
any person which . . . holds itself out to the general public as a common carrier to transport or provide transportation of property . . . for compensation, in interstate commerce, and which, in the ordinary and usual course of its undertaking, (A) assembles and consolidates . . . shipments of such property, and performs . . . break-bulk and distributing operations with respect to such consolidated shipments, and (B) assumes responsibility for the transportation of such property from point of receipt to point of destination, and (C) utilizes, for the whole or any part of the transportation of such shipments, the services of a carrier or carriers subject to chapters 1, 8, or 12 of this title [i.e., rail, pipe line, motor or water carriers].

 Freight forwarders are required to obtain operating permits from the Commission and are subject to regulation in various other ways. On the other hand, the Act also takes note of shipper associations; thus, 49 U.S.C. § 1002(c) specifically precludes from regulation

 
the operations of . . . a group or association of shippers, in consolidating or distributing freight for . . . members thereof, on a nonprofit basis, for the purpose of securing the benefits of carload, truckload, or other volume rates . . . .

 Although the Act recognizes and defines both types of organizations, whether a particular entity is one or the other - the issue presented here - may be a troublesome question. *fn7" This case began in October 1963, when the Commission on its own motion *fn8" commenced an investigation of Piggy-Back's activities to determine, among other things, whether it had been operating as a freight forwarder without a permit. There ensued a hearing before an examiner, a decision by Division 1 of the Commission, and denial of reconsideration by the full Commission. The Commission discontinued the proceedings against Piggy-Back, finding that although it had operated unlawfully in the past, Piggy-Back had sufficiently reformed to become a bona fide shipper association. Plaintiffs argue here that (1) the Commission's conclusion is not supported by substantial evidence and should be set aside; and (2) the Commission committed legal error in refusing to rule upon plaintiffs' claim that Piggy-Back is improperly participating in joint loading operations.

 Our discussion of plaintiffs' first point requires a close examination of the facts. Piggy-Back was organized in 1962 as an unincorporated association under Florida law. Theodore Helin, the moving party in its formation, conceived the idea of forming a shipper association to combine highway trailers on railroad flatcars, so-called "piggyback" service. Because of cost considerations, this service is used only when there are two trailers to ship; moreover, the rail tariffs provide that there must be a mixture of commodities. *fn9" Therefore, as a practical matter, many shippers, who have only one trailerload or one commodity to ship, could not use piggyback service unless they banded together. Helin contacted the initial group of shipper members, drew up the association's articles and by-laws, called the organizational meeting, actually appointed the "elected" members of the board of directors, and obtained a contract as general manager with compensation at the rate of 10 cents per hundred pounds of freight handled. Thereafter, Helin exercised a free hand, unencumbered by effective control by the board of directors, whose principal decisions at meetings amounted to approval of new membership applications secured by Helin. By August 1963, Helin had run the association into about $20,000 debt. All of these findings by the examiner and Division 1 are undisputed, as is the legal conclusion reached from these facts - that up to this time, because Helin and not the members exercised full control over operations, Piggy-Back was not a bona fide shipper association entitled to non-regulated status. *fn10"

 At this point, the positions of the parties diverge. The following additional findings are under particular attack: Beginning in August 1963, the theretofore passive directors became alarmed by the financial condition into which Helin had led their association and took an active interest in its management; a new general manager was appointed, this time on a straight salary basis; the new manager was not permitted to sign checks independently; he was required to submit weekly financial reports to the board and reports to the members as well; indeed, the board exercised complete supervision and control over him; efforts were being made, and had been modestly successful, to pay off the association's debts; and no freight other than that of shipper members was being handled by the association. Thus, the examiner and Division 1 found generally that Piggy-Back was no longer "a 'paper' creature" of the general manager's own conception or a cloak under which an independent entrepreneur was acting. *fn11" Plaintiffs contend that the evidence of steps taken to reform Piggy-Back in the six months or so prior to the hearing was not substantial enough to justify the Commission's conclusion that Piggy-Back had now become eligible for the non-regulated status to which it was admittedly not entitled during the Helin regime.

 The scope of our review of the Commission's findings is narrow: It is limited to determining whether the Commission's findings are based on "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion," or, phrased differently, on enough evidence to justify a refusal to direct a verdict, had there been a jury trial. Consolo v. Federal Maritime Comm'n, 383 U.S. 607, 619-21, 16 L. Ed. 2d 131, 86 S. Ct. 1018 (1966). Applying this standard, we conclude that based on the entire record there is substantial evidence for the findings that "the 'coming to life' of the association . . . appears to have put an entirely different complexion upon the subject," and that as of the time of the hearing Piggy-Back was a bona fide shipper association. We need not feel enthusiastic about this conclusion. Whether a sinner has reformed is hardly ever free from doubt, a reason why the Commission has recently suggested that the Act "be amended to require associations to satisfy the Commission that they are bona fide shipper associations before they begin operations." *fn12" In any event, exercising the appropriate review, we will not set aside the Commission's findings on the extent or significance of the change in Piggy-Back's operations.

 Plaintiffs attack not only the evidentiary basis for these key findings but also the legal criteria applied by the examiner and Division 1 to decide whether Piggy-Back qualified as a non-regulated shipper association or was instead an illegally operating freight forwarder. In Atlanta Shippers Ass'n - Investigation of Operations, 316 I.C.C. 259, 278 (1962) (Division 1), reconsidered, 322 I.C.C. 273, 283 (1964) (full Commission), the Commission engaged in a full-scale analysis of the distinctions between the two; one of the tests there announced was:

 
Are the freight consolidating and distributing operations such that any person or persons other than the shipper-members of the association (a) have any right or ability to control, direct, or dominate such operations, or (b) bear the essential risks and burdens, financial and otherwise, of conducting the operations under consideration?

 Negative answers to both questions are necessary to justify non-regulation. Plaintiffs argue that these criteria, which the Commission applied in this case, are insufficient because they do not require that association members be liable jointly and severally for the association's debts. Such an additional requirement was tangentially stated by Division 1 in its initial decision in the Atlanta Shippers case [supra], 316 I.C.C. at 278. However, the full Commission modified Division 1's test in its subsequent opinion in Atlanta Shippers, 322 I.C.C. at 285-88, expressly rejecting the need for joint and several liability of shipper association members. Indeed, in that opinion, the Commission ruled that a shipper association could be incorporated (unlike Piggy-Back), even though this might tend to reduce individual liability. *fn13" The Commission noted that, whether incorporated or not, shippers who are members of a non-regulated association are responsible as the beneficial owners of the goods moved and cannot insulate themselves in that respect from third persons, *fn14" that certain other risks are readily insurable, and that the major risk run by a shipper association is that the savings on volume rates will be eaten up by uneconomical operating costs. We agree with the Commission that it is sufficient that these risks not be borne by any party other than the shipper association itself, whatever its limitations on individual member liability, as long as the members in good faith exercise responsible control over their association's operations. See Atlanta Shippers, supra, 322 I.C.C. at 285.

 Plaintiffs argue that despite the full Commission's rejection of the requirement that members be both jointly and severally liable, we should defer to the statement of the court in Freight Consolidators Coop., Inc. v. United States, 230 F. Supp. 692, 696 (S.D.N.Y. 1964), which, in affirming an order of the Commission in Atlanta Shippers, quoted Division 1's language to the contrary. Plaintiffs point out that the court rendered its decision after the full Commission's decision reversing Division 1 on this point, and plaintiffs add that the court refused to amend its opinion to take account of the full Commission's reversal. As to the latter argument, we think the court's denial of motions to amend its opinion is at most ambiguous; the court denied them without further elaboration on the dual grounds that the motions were untimely and without merit. Moreover, alteration of the opinion would not have changed the judgment. See orders dated Sept. 23, 1964, Freight Consolidators Coop., Inc. v. United States, 63 Civ. 55, S.D.N.Y. Finally, we think it apparent from a careful reading of the court's opinion that the ...


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