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March 14, 1968

Homer White, Inc., Plaintiff
United States of America, Interstate Commerce Commission, Consolidated Truck Lines Limited, Direct Transport Limited, and Intercity Truck Lines Limited, Defendants

Feinberg, Circuit Judge, Burke, Chief Judge, and Henderson, District Judge.

The opinion of the court was delivered by: FEINBERG


This is an action to set aside an order of the Interstate Commerce Commission, which denied two applications of plaintiff Homer White, Inc., one pursuant to section 206(a)(7)(A) of the Interstate Commerce Act, 49 U.S.C. § 306(a)(7)(A), for a "grandfather" certificate of registration authorizing plaintiff to continue operating in interstate and foreign commerce, and the other for an initial certificate of interstate and foreign commerce motor carrier operating authority under section 207 of the Act, 49 U.S.C. § 307. For reasons given below, we deny the relief sought.

 A 1962 change in the Interstate Commerce Act provides the background for the key issues in this case. Prior to 1962, a motor carrier operating solely within the confines of a state could easily obtain the incidental right to transport property moving in interstate or foreign commerce under the second proviso of what was then section 206(a)(1), 49 U.S.C. § 306(a)(1), commonly referred to as the "second proviso." *fn1" All that the intrastate carrier had to do was file with the Interstate Commerce Commission a certified copy of its intrastate authorization from a state commission together with a notice of intent to operate in interstate and foreign commerce. As indicated in greater detail below, this privilege was available to an intrastate carrier as long as it was not so affiliated with another carrier operating in interstate or foreign commerce that the two carriers were under common control. Because of abuses of the second proviso exemption, this simple statutory scheme was changed in 1962. Significantly for our purposes, the new statute, sections 206(a)(6), (7), 49 U.S.C. §§ 306(a)(6), (7), accorded "grandfather" status to carriers that were lawfully operating under the second proviso as of October 15, 1962. This case is primarily concerned with whether Homer White, Inc., was lawfully operating on and before that day.

 Plaintiff is a motor common carrier of property, which for many years has held a New York State certificate authorizing it to operate in upstate New York. In March 1951, plaintiff utilized the simple second proviso procedure then in effect; its filing was accepted for registration by the Interstate Commerce Commission. Accordingly, plaintiff was empowered to carry goods moving in interstate and foreign commerce on routes within New York upon which it had state operating authorization. In December 1955, Glenn A. Scobie purchased all of plaintiff's outstanding stock. Shortly thereafter, he acquired a twenty-five per cent common stock interest in Scobie's Transport, Ltd. (Scobie's), a Canadian-based carrier. Even before acquiring this stock, and at all times relevant here, he was employed by Scobie's for the solicitation of international traffic at a salary of $10,000 a year. As the name would indicate, Scobie's was family owned, the other shareholders being Glenn's father and two brothers.

 In 1961, Scobie's, which had been interchanging traffic with United States carriers in United States customs compounds at Buffalo and Niagara Falls since 1926, filed an application with the Commission for authority to serve the two cities and North Tonawanda, New York, also near the Canadian border. As a result, the relationship between Scobie's and plaintiff was brought to the Commission's attention by competing carriers protesting the grant of authority sought by Scobie's. The Commission granted Scobie's authority to operate into the United States to Buffalo and Niagara Falls for the purpose of interchanging Canadian traffic with connecting American carriers. Overland Express, Ltd., Extension - New York Points, 92 M.C.C. 757 (1963). The final certificate was withheld, however, pending determination of the control relationship then existing between Scobie's and plaintiff Homer White, Inc. As to Scobie's, this question became moot in March 1964, when the Scobie family sold Scobie's to a subsidiary of the Canadian National Railway.

 However, plaintiff's status still remained to be settled. During the period while Scobie's application was pending, Congress repealed the second proviso of section 206(a)(1) of the Act, referred to above, and enacted sections 206(a)(6), (7). These sections continued the second proviso exemption, codified many procedural and substantive developments, and granted "grandfather" status to carriers operating under the second proviso as of October 15, 1962. Such carriers were required, however, to apply for authorization to continue their operations; under section 206(a)(7)(A), approval was conditioned upon the carrier's showing, among other things, that it was

in operation solely within a single State as a common carrier by motor vehicle in intrastate commerce (excluding persons controlled by, controlling, or under a common control with, a carrier engaged in operations outside such State) . . . .

 In January 1963, plaintiff duly applied for a registration certificate pursuant to the "grandfather" provision. Plaintiff subsequently also sought an initial certificate of public convenience and necessity under section 207 of the Act, in the event the Commission denied it "grandfather" status.

 Following extensive hearings, the examiner recommended denial of plaintiff's applications. As to the "grandfather" application, the examiner concluded that on and before October 15, 1962, plaintiff was under common control and managed in a common interest with Scobie's; plaintiff was therefore ineligible under section 206(a)(7)(A). As to plaintiff's other application, the examiner concluded that plaintiff had failed to sustain its burden of proving that the operation for which it sought a certificate was, or would be, required by the present or future public convenience and necessity. By order of March 8, 1967, the Commission affirmed and adopted the conclusions and findings of the examiner and adopted his recommended order denying plaintiff's applications. Homer White, Inc., "Grandfather" Registration Application, 105 M.C.C. 255 (1967). The filing by plaintiff of its complaint in the United States District Court for the Western District of New York required the convening of this three-judge court.

 Plaintiff's primary contention is that under the terms of section 206(a)(7)(A), Scobie's is not a "carrier engaged in operations outside" New York. If this is so, then the fact of common control becomes irrelevant and Homer White, Inc., is entitled to registration. Cf. Security Transp. Co. - Purchase - Security Truck Line, 93 M.C.C. 385 (1963); Monon Transp. Corp. Common Carrier Registration Application, 44 M.C.C. 325 (1945). Plaintiff points to section 203(a)(14) of the Act, 49 U.S.C. § 303(a)(14), which defines "common carrier by motor vehicle" as:

any person which holds itself out to the general public to engage in the transportation by motor vehicle in interstate or foreign commerce of passengers or property . . . .

 It is apparently agreed that Scobie's is not in "interstate commerce." Plaintiff argues that Scobie's is not in "foreign commerce" either, at least for these purposes; the latter term is defined in section 203(a)(11) as commerce "between any place in the United States and any place in a foreign country . . . ." 49 U.S.C. § 303(a)(11).

 Plaintiff's argument actually is that for the common control prohibition of section 206(a)(7)(A) to apply, the other carrier (Scobie's) must itself be subject to Interstate Commerce Commission jurisdiction and, in considering whether it is, we must eliminate any activities in the state in which the second proviso carrier (Homer White, Inc.) operates. To make its point dramatic, plaintiff argues that otherwise the Commission could prohibit common control of an intrastate carrier and one entirely in a foreign country, e.g., England, a result not intended by Congress. *fn2" We may assume arguendo the first part of this proposition, that Scobie's must itself be subject to Commission jurisdiction. However, this is irrelevant because the problem plaintiff would pose is not before us; Scobie's is not a carrier operating solely in Canada. Scobie's operates between Canada and locations in New York State, as the examiner properly found. Overland Express, Ltd., Extension - New York Points, 92 M.C.C. 757 (1963). We see no reason to ignore that fact or to assume the contrary and deal with the problems that might thus be presented. Cf. Canada Packers, Ltd. v. Atchison, T. & S.F. Ry., 385 U.S. 182, 17 L. Ed. 2d 281, 87 S. Ct. 359 (1966) (per curiam). The crucial issue is the second part of plaintiff's argument, that in deciding whether the other carrier (Scobie's) is subject to Commission jurisdiction, we cannot consider that carrier's activities in the state in which the second proviso carrier operates. To assess this contention, we must examine the purpose of the 1962 amendments.

 When the Motor Carrier Act was passed in 1935, it was thought that transportation by a solely intrastate carrier of property moving within the confines of a state but in interstate or foreign commerce would be incidental to that carrier's intrastate operations and relatively unimportant. See H.R. Rep. No. 1090, 87th Cong., 2d Sess. (1961), 2 1962 U.S. Code Cong. & Admin. News 3165, 3167-68. Thus, the second proviso allowed intrastate carriers with state authorization to operate within their states without duplicative federal regulation. See Baggett Transp. Co. - Purchase - W. A. Bishop, 36 M.C.C. 659 (1941). However, the basic assumption proved incorrect and the tail began to wag the dog. Many intrastate operators became important links in the routes of connecting carriers extensively engaged in interstate and foreign commerce; state certificates were often obtained only to provide a link in the chain. Thus, ...

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