# Appendix — Public Utilities Commission v. Federal Express Corp.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1992
- **Citation:** 504 U.S. 979

## Text

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UGE GF TRE CLERK
In the Supreme Court

OF THE
United States

OcTOBER TERM, 199]
THE PuBLic UTILITIES COMMISSION OF THE STATE OF
CALIFORNIA, PATRICIA M. ECKERT, G. MITCHELL WILK,
JOHN B. OHANIAN, DANIEL WM. FESSLER, NORMAN D.
SHUMWAY, NEAL J. SHULMAN, and WILLIAM R. SCHULTE,
Petitioners,

VS.

FEDERAL EXPRESS CORPORATION,
Respondent.

APPENDIX TO
PETITION FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

PETER ARTH, JR.
EDWARD W. O'NEILL
JAMES T. QUINN
MARK FOGELMAN
COUNSEL OF RECORD
Public Utilities Commission
of the State of California
505 Van Ness Avenue
San Francisco, CA 94102
Telephone: (415) 703-1992
Counsel for Petitioners

September 23, 1991

BOWNE OF SAN FRANCISCO. INC + 190 NINTH ST + SF... CA 94103 * (415) 8664-2300

Appendix A

Appendix B

Appendix C

Appendix D
Appendix E

Appendix F

a-i

TABLE OF CONTENTS

Federal Express Corp. v. Pub. Util.
Comm’n of California, 936 F.2d 1075 (9th
RE Re re ee re ere

Federal Express Corp. v. Pub. Util.
Comm'n of California, 716 F.Supp. 1299
Se PE eo ooo l cs Vacuvereweres

Federal Express Corp. v. Pub. Util.
Comm'n of California, 723 F.Supp. 1379
OS Te Bier ety eee ant an earns

Constitutional and Statutory Provisions ...

Re Regulation of General Freight Transpor-
tation by Truck, 33 Cal.P.U.C.2d 333
(1989), modified, 35 Cal.P.U.C.2d 307
SOU Garuacceas : Fock e re eect renne,

Selected Record References ............

Page

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C-]
D-|

APPENDIX A

FEDERAL EXPRESS CORPORATION,
Plaintiff-Appellant,

Ve

CALIFORNIA PUBLIC UTILITIES COMMISSION;
Stanley W. Hulett; Donald Vial; Frederick R. Duda;
John B. Ohanian; G. Michael Wilk; Victor Weiser;

Norman Kelley,
Defendants-Appellees.

No. 89-16444.

United States Court of Appeals,
Ninth Circuit.

Argued and Submitted March 14, 1991.
Decided June 25, 1991.
Dissenting Opinion June 27, 1991.

Before BEEZER and NOONAN, Circuit Judges, and
SINGLETON, District Judge.

NOONAN, Circuit Judge:

Federal Express Corporation (Federal Express) brought suit
against the California Public Utilities Commission and individual
named defendants (the PUC), seeking a declaration that regula-
tions of the PUC, as applied to Federal Express, impose an
unconstitutional burden on interstate commerce and are pre-
empted by the Airline Deregulation Act, 49 US.C. App. § 1305,
and an injunction against the PUC enforcing them against Fed-
eral Express. On cross-motions for summary judgment, the dis-
trict court found no preemption and no unconstitutional burden
and entered judgment for the PUC 723 F.Supp. 1379. We now
reverse the district court and direct that judgment be entered for
Federal Express.

* The Honorable James K. Singleton, United States District Judge
for the District of Alaska, sitting by designation.

A-2

FACTS
The following facts are undisputed:

Federal Express is an air carrier operating under the authority
of the Civil Aeronautics Board as provided in subchapter IV of
the Federal Aviation Act of 1958, 49 U.S.C. App. § 1371. The
Carrier operates sixty Boeing 727 aircraft, twenty-one DC10
aircraft, and more than one hundred specifically designed Cessna-
208 aircraft. In planes operated, Federal Express is one of the
largest airlines in the United States.

Federal Express is an “all-cargo” carrier, that is, it carnes no
passengers. It carries packages. The packages are picked up by
van in the communities serviced, trucked to an airport, flown to a
“hub” where they are sorted, put on other aircraft to their
destinations, and trucked by van to their recipients. Federal
Express’ main hub is Memphis. Between midnight and two
o'clock each morning over 700,000 packages are delivered, sorted,
and re-routed at the Memphis facility.

Oakland, California is a regional hub in this system. Packages
destined for ten western states are transported here, sorted, and
sent on to their destinations. Over 200,000 packages each week
are transported that have both their origin and destination in
California. Packages collected at Oakland and bound for Los
Angeles may be shipped there in three different ways: (1) to
Memphis, back to Los Angeles; (2) directly to Los Angeles by
air, (3) by truck from Oakland to Los Angeles. The trucks carry
the packages in specially designed “aircraft containers.” In the
evening a sing!e truck runs from Oakland to Los Angeles, and two
trucks go from Los Angeles to Oakland carrying packages that do
not fit on board the Oakland-bound night flight. In the morning
one truck goes from Oakland to Los Angeles and one from Los
Angeles to Oakland carrying second day delivery packages that do
not make the evening flight. Most of the packages in any truck are
packages in interstate commerce; some carry exclusively inter-
State packages.

Federal Express guarantees delivery by 10:30 a.m. the day after
a package has been picked up. There is a ful! refund if a package
is even one minute late. To keep this schedule, even the most

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minor delays must be avoided, and Federal Express must be
prepared to meet changing weather, mechanical breakdowns, and
varying conditions at airports. As the system operates as an
integrated whole, a delay of even one half-hour at an airport may
affect thousands of packages at the Memphis sorting point. The
system would not achieve its goal of certain, speedy service
without backup equipment and alternative modes of transporta-
tion. In particular, as far as Federal Express’s California opera-
tions are concerned, the choice of one of the three modes of
transportation from Oakland to Los Angeles depends on air
traffic, control delays, weather, aircraft availability, and the vol-
ume of packages in the entire system.

As trucks are an essential component of the system, Federal
Express operates over 2,600 trucks in California. The trucks are
licensed to use the highways by the PUC. Up until early 1987
Federal Express also paid a quarterly fee assessed by the PUC on
its estimated gross operating revenue under Cal.Pub.Util.Code
§ 5003.1.

The PUC is an agency of the state of California with authority
to regulate common carriers on the highways of California.
California Constitution, Art. XII, § 4; Cal.Pub.Util.Code §§ 1063
and 3501 et seq. (West 1975 & Supp.1991). Under the statutory
authority conferred by Public Utility Code §§ 486-496 the PUC
has issued orders governing the tariffs of common carriers, Gen-
eral Order 80-C, February 7, 1990; for the suspension of the
tariffs, General Order 113-B, July 2, 1980; and for their public
inspection, General Order 139, September 1, 1976. The PUC
regulates the terms of the bills of lading the freight bills and
‘“accessorial services” documents issued by the carriers, General
Order 155, March 1, 1987. The PUC provides a procedure by
which carriers may obtain variances from its orders. The PUC has
represented to the court that its regulatory program is “flexible”
and “adaptive.”

A-4

PROCEEDINGS

On September 23, 1987 Federal Express brought this action in
the district court with the results stated above. Federal Express
appeals.

ANALYSIS

Federal Express appeals both on the ground that the state
regulation excessively burdens interstate commerce and on the
ground that state regulation is preempted by act of Congress. We
need not and do not consider the first ground as we find statutory
preemption exists. As this legal conclusion is dispositive, there is
no need for further proceedings in the case other than entry of
judgment.

In the section on federal preemption, the Airline Deregulation
Act of 1978 provides as follows:

Except as provided in paragraph (2) of this subsection, no
State or political subdivision thereof... shall enact or enforce
any law, rule, regulation, standard, or other provision having the
force and effect of law relating to rates, routes or services of any
air carrier having authority under subchapter IV of this chapter
to provide air transportation.

49 U.S.C.App. § 1305(a)(1) (1988). The exception provided in
subsection (2) is air transportation wholly within the state of
Alaska. It has no application here.

Federal Express is an air carrier having authority under sub-
chapter IV, 49 U.S.C. App. § 1371, to provide air transportation.
The PUC is seeking to impose regulations with the effect of law
on its services. Q.E.D.—federal preemption is required by a
federal statute that expressly preempts state regulation.

Our cases, however, have not read the statute quite so literally
or without attention to the context of other law into which the
statute fits. Thus we have taken into account the presumption
against preemption when Congress legislates in the fields of
common law tort and contract. See California v. ARC America
Corp., 490 U.S. 93, 101, 109 S.Ct. 1661, 1665, 104 L.Ed.2d 86
(1989); West v. Northwest Airlines, 923 F.2d 657, 659 (9th

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Cir.1991). While preemption has been enforced against a claim
based on a state statute regulating access to transportation, an
accompanying tort claim for the intentional infliction of emotional
harm was held to be unpreempted. Hingson v. Pacific Southwest
Airlines,743 F.2d 1408, 1415-16 (9th Cir.1984).

In a closer case we have also recognized that a California
regulation against the recording of telephone conversations with-
Out warning could "xe applied to an airlines, reservation system
and was not preempted. Air Transport Ass'n v. Public Util.
Comm'n, 833 F.2d 200, 207 (9th Cir.1987), cert. denied, 487
U.S. 1236, 108 S.Ct. 2904, 101 L.Ed.2d 936 (1988). Indeed, the
district court relied on this decision in making its decision in the
instant case. But we did inject the caution in Air Transport: “This
is not, however, an appropriate case for the definitive resolution of
the scope of federal preemption under the Deregulation Act.” /d.
The regulation in question was construed to relate to neither rates
nor routes nor services of an air carrier. /d.

Air Transport should be understood as allowing the state to act
in an area of non-economic regulation—to impose a general rate
for the protection of telephone users without carving out an
exception for air carriers. In the same way it is uncontested in this
case that the general traffic laws of California and its safety
requirements for trucks on its highways apply to Federal Express;
only economic regulation is challenged. In short, despite the very
broad and apparently all-inclusive language of the statute, com-
mon sense and common practice have forbidden that the statute
be taken literally and have restricted its range. Interpreted in
terms of its purpose and in the context of other laws, the Airline
Deregulation Act as it applies in this case preempts action by the
State that regulates the rates and terms of service offered by an air
carrier.

The trucking operations of Federal Express are integral to its
operation as an air carrier. The trucking operations are not some
separate business venture; they are part and parcel of the air
delivery system. Every truck carries packages that are in interstate
commerce by air. The use of the trucks depends on the conditions
of air delivery. The timing of the trucks is meshed with the

Se

A-6

schedules of the planes. Federal Express owes some of its success
to its effective use of trucking as part of its air carner service.

The PUC’s regulation of rates. of discounts and promotional
pricing, of claims, of overcharges, of bills of lading and freight
bills, and its imposition of fees enters the zone that Congress has
forbidden the states to enter. Its regulatory scheme does not
restate common law principles of tort and contract. Its regulatory
scheme goes far beyond safety on highways. Most of the regula-
tions challenged here are obviously economic—they bear on
price. Those regulations which are not patently economic—the
rules on claims and bills of lading, for example—relate to the
terms on which the air carrier offers its services. Terms of service
determine cost. To regulate them is to affect the price. The terms
of service are as much protected from state intrusion as are the air
carrier’s rates.

Our reading of the plain words of the statute is confirmed by
consideration of the purposes of the Airline Deregulation Act and
the Federal Aviation Act of 1958. The aim of federal preemption
is to prohibit a state “from enacting any law, establishing any
standard determining routes, schedules, or rates, fares, or charges
in tariffs of, or otherwise promulgating economic regulations, for
any air carner certified by the Board.” H.Conf.Rep. No. 1779,
95th Cong., 2d Sess. 94, reprinted in 1978 U.S. Code Cong. &
Admin.News 3737, 3773, 3804. The Federal Aviation Act of 1958
confided to federal authority the “promotion of adequate, eco-
nomica!, and efficient service by air carriers at reasonable
charges,” 49 U.S.C. § 1302(c). Amending the 1958 act in 1977,
Congress specifically required “‘a sound regulatory environment”
where decisions, “reached promptly,” “facilitate adaptation of the
air transportation system to the present and future needs of the
domestic and foreign commerce of the United States,” 49
U.S.C.App. § 1302(a)(5). In particular, in 1977, Congress
sought the “encouragement and development of an expedited all-
cargo air service system,” 49 U.S.C.App. § 1302(b)(1), and
Congress sought under the same heading, “Factors for all-cargo
air service,” the “encouragement and development of an inte-
grated transportation system,” 49 U.S.C.App. § 1302(b) (2).

A-7

Federal Express is exactly the kind of an expedited all-cargo
service that Congress specified and the kind of integrated trans-
portation system that was federally desired. Because it is an
integrated system, it is a hybrid, an air carrier employing trucks.
Those trucks do not destroy its status as an air carrier. They are
an essential part of the all-cargo air service that Federal Express
innovatively developed to meet the demands of an increasingly
interlinked nation. Congress has freed it from the constrictive
grasp of economic regulation by the states.

REVERSED and REMANDED with instructions to enter
judgment for the plaintiffs granting the injunctive relief requested.

SINGLETON, Jr., District Judge, dissenting.

Congress has preempted state regulation of certain activities of
air carners. The statute provides in part:

[ N jo state or political subdivision thereof [except Alaska]...
shall enact or enforce any law, rule, regulation, standard, or
other provision having the force and effect of law relating to
rates, routes, or services of any air carrier having authority
under subchapter IV of this chapter

49 U.S.C.App. § 1305(a)(1) (1988). In this case we are asked to
apply this statute to the operations of Federal Express Corpora-
tion (Federal Express), a conceded air carrier. We must deter-
mine whether Congress intended to preempt state economic
regulation of Federal Express’s transportation of cargo exclusively
by truck and exclusively within the borders of California. | am of
the view that Congress did not intend to preempt state regulation
of Federal Express’s purely intrastate trucking business and there-
fore dissent from this court’s decision.

This case turns on the meaning of certain phrases in the
applicable statute. In order to determine the scope of the statute
we must determine whether California’s threatened economic
regulations “relat[e] to rates, routes, or services of any air carrier
[ authorized by federal law] to provide air transportation.” Clearly
Congress intended to exempt activities pertaining to setting rates,
determining routes, and providing services of an air carrier neces-

eee ee

A-8

sary to provide air transportation.’ It would appear equally clear
that Congress did not intend to exempt activities of an air carrier
that were not related to the provision of air transportation.’

In determining which activities are exempt and which are not,
it is useful to consider an analogy to the insect kingdom. All
caterpiliars have the potential of becoming butterflies and flying
above the earth. However, many caterpillars succumb before
metamorphosis and live their entire lives earthbound. If we
analogize packages to insects, this case is about caterpillars and
not butterflies.’

California’s concessions make this an easy case. The state
recognizes that in order to transport goods by air it is necessary to
get them from a collection point to an airplane and that state
economic regulation of incidental truck traffic is preernpted. The

' Congress defines an “air carrier” as a citizen of the United States
engaging in “air transportation.” 49 U.S.C.App. § 1301(3) (1988).
Congress defines “air transportation” in part as “interstate” transporta-
tion by aircraft. 49 U.S.C.App. § 1301(10). “Interstate air commerce”
means “the carriage by aircraft of... property for compensation...
whether such commerce moves wholly by aircraft or partly by aircraft
and partly by other forms of transportation.” 49 U.S.C.App. § 1301 (23).

California apparently does not contend that these definitions restrict
the exemption in section 1305 to state regulation of interstate transporta-
tion of goods by aircraft, nor does it contend that the statute permits
state regulation of intrastate carriage of goods by air. It does argue,
however, that by defining “air transportation” to include goods carried in
part by aircraft and in part by trucks. Congress did intend to permit state
regulation of goods carried exclusively by truck.

> For purposes of analysis it is useful to refer to those activities which
Congress chose not to regulate and which it preempted the states from
regulating as exempt activities. Those activities which the states are free
to regulate wil! be called nonexempt activities.

* Parcels which are carried at some point in an airplane for brevity will
be called air packages. Those parcels that never see the inside of an
airplane will be called land packages. By analogy air packages would be
butterflies and land packages caterpillars. It might be more apt to call
them dead caterpillars because if they reach their destination without
ever entering an airplane they never wil] become butterflies.

A-9

state also implicitly concedes that if Federal Express picks up a
package in Memphis, flies it to Oakland, and transports it by
truck to Los Angeles, the entire trip, including the ground leg, is
preempted from state regulation. Thus California makes no claim
to regulate commerce carried wholly or partly by airplane. See 49
U.S.C.App. §§ 1301(10) and (24) (1988).

California seeks to regulate the carriage of only those packages
that never see the interior of an airplane. I see nothing in the cited
Statute that preempts California from doing so. It seems clear to
me that transporting packages solely by truck within California is
not a service of an air carrier authorized to provide air
transportation.

The majority never explains how the carriage of goods by land
is somehow transformed into the carriage of goods by air.’ Federal

*The majority never expressly discloses it reasoning. The majority
opinion describes Federal Express’s air transportation activities. It ar-
gues a point that California concedes, that Congress would frown on
attempts to regulate air transporation. It finesses the question presented
here whether transportation of land packages is exempt from regulation.
It distinguishes certain cases. It pursues another point conceded by
California, that transportation of air packages in Federal Express trucks
is exempt and it concludes with a paean to deregulation of air carriers.
Implicit in the opinion is the assumption that Federal Express has so
integrated its business by including both air packages and land packages
in each truck, that California’s attempts to regulate the latter necessarily
regulates the former. If this is the rationale, then the holding would be
that anytime an industry intermixes exempt and nonexempt activities
neither can be regulated by the state. If the United States Supreme
Court or this court had ever previously so held, those decisions should be
cited rendering the majority’s opinion unassailable. The majority cites no
cases for this proposition, however. Rather, it seeks to distinguish prior
decisions of this court which held that state regulation of activities which
were Clearly “scrvices of an air carrier” were not preempted. Even if we
accept the distinction the majority draws between “economic” and
“non-economic” regulation, a troublesome distinction in context, the
distinction does not advance the majority’s decision. The fact that
regulation of some “air services” is not preempted does not support a
holding that services that have no connection with “air transportation”
are preempted.

A-10

Express has a number of arguments. It contends the statute
exempts any service performed by an air carrier, and concludes
that it is primarily an air carrier and so any transportation activity
it conducts automatically becomes exempt.’ Thus, if Federal
Express diversifies into the florist or pizza business in San
Francisco and uses its fleet of trucks to deliver flowers or pizza in
the Bay Area presumably the selling of flowers or pizza become
activities preempted from state regulation whether airplanes play
any part in the delivery or not. I cannot accept this argument and
I do not believe the majority intends its decision to extend this
far.°

Federal Express’s primary argument is that its business is so
integrated that it would be inconvenient to segregate land pack-
ages from air packages. In fact Federal Express maintains that no
one ever knows until the last minute whether a given package will
be flown or driven to its intrastate destination. To accept this
argument is to confuse Federal Express’s other commerce clause
arguments with its preemption arguments. Federal Express’s
unilateral decision to mix its intrastate carriage of goods by truck

* Federal Express errs in my view by focusing on the term “services”
in the statute and ignoring the context “of an air carrier authorized to
provide air transportation.” In context, it is clear that only “air services,”
by which I mean services constituting air transportation, are exempt.

°The majority might respond to the “pizza” example by echoing
Justice Holmes famous riposte, “not... while this court sits.” Panhan-
dle Oil Co. v. Mississippi ex rel. Knox, 277 U.S. 218, 223, 48 S.Ct. 451,
453, 72 L.Ed. 857 (1928) (Holmes, J., dissenting). While unwilling to
formulate a principle that would distinguish “air services” from other
potential services of an air carrier, the majority might recognize a point
at which ground services were so divorced from air services that
economic regulation of the former would not impede performance of the
latter. Compare Justice Stewart's test for obscenity, “I know it when I
see it.” Jacobellis v. Ohio, 378 U.S. 184, 197, 84 S.Ct. 1676, 1683, 12
L.Ed.2d 793 (1964) (Stewart, J., concurring).

This approach is flawed in my view because it does not guide the trial
bench and the bar in deciding other cases. My proposed resolution has
the advantage of providing a bright line rule.

A-l1

with the carriage of other packages taken from airplanes cannot
transform purely ground transportation into air transportation.

The majority may be influenced by the fact that only a small
percentage of the packages currently carried by Federal Express
trucks really qualify as caterpillars. On this record, the over-
whelming majority appear to be butterflies. We must recognize,
however, that nothing is static in the highly competitive transpor-
tation industry. The majority’s decision will free the trucking
business of Federal Express from any state economic regulation.
This will open the door for substantial increases in Federal
Express’s trucking business and give it a substantial competitive
advantage over trucking companies that must comply with state
regulation. The majority really does not set out a rationale for
determining when an air carrier’s ground transportation loses its
quality as air transportation. The majority decision could be read
as exempting any transportation services Federal Express wishes
to provide. The majority does not tell us how many airplanes
Federal Express must fly to Sacramento each month, in order to
insulate daily truck traffic between Oakland and Sacramento from
state regulation. Will one Cessna 208 carrying three packages
between Oakland and Sacramento authorize Federal Express to
send a dozen trucks packed with goods between the two cities free
of state regulation? The majority does not address packages
deposited on the San Francisco peninsula for delivery in the East
Bay that never see an airplane. In my view, we should apply the
plain language of the statute.’ Federal Express’s air transportation
services, including land transportation incidental thereto, are
exempt from state regulation while its exclusively intrastate land
transportation services are not exempt from state regulation. If

’ Miners search for gold in creek beds and frequently are misled by
pyrites. Judges search for plain meaning in statutes and are frequently
misled by a mirage. A claim that any statute has a “plain meaning” is at
the very best an overstatement. More often it begs the question to be
answered. My view of the statute at least finds support in its context and
if we look beyond immediate context my reading of the statute finds
support in Congress's purpose as disclosed in the language used in the
Statutes governing air carriers as a whole.

A-12

the two overlap, we are presented with general commerce clause
concerns, not preemption concerns.

The majority finds preemption and therefore has no need to
address Federal Express’s other commerce clause arguments. The
trial court essentially found that the commerce clause challenges
were not ripe for resolution until Federal Express sought and was
denied state exemptions. In the trial court’s view until we know
how California actually applies its regulatory system to Federal
Express’ business, it is premature to decide the commerce clause
issues. This view seems plausible to me but the state only
reluctantly endorsed it after much prodding at oral argument.”

If we were to conclude that all the commerce clause issues
were ripe for adjudication and elect to decide those issues now, I
would be reluctant to do so on a summary judgment record. I do
not believe that all material facts are undisputed. I would much
prefer to give the parties their day in court and then have the trial
court address each of Federal Express’s contentions in carefully
fashioned findings of fact. See Fed.R.Civ.P. 52. I therefore re-
spectfully dissent and favor affirming the trial court’s decision on
the preemption issue but remanding on other commerce clause
issues for findings of fact and conclusions of law after a full
hearing on the merits.

* The state prefers to argue that even if all of Federal Express’s factual
assertions are accepted as true, Federal Express has not sustained its
burden under the standards articulated in Pike v. Bruce Church, Inc.,
397 U.S. 137, 90 S.Ct.844, 25 L.Ed.2d 174 (1970). I am unpersuaded
that Federal Express’s other commerce clause arguments can be re-
solved as a matter of law.

APPENDIX B

FEDERAL EXPRESS CORP.,
Plaintiff,

We

CALIFORNIA PUBLIC UTILITIES COMMISSION, et al.,
Defendants.

No. C-87-4891 MHP.

United States District Court,
N.D. California.

March 30, 1989.
MEMORANDUM AND ORDER
PATEL, District Judge.

Plaintiff, which provides a nationwide small package express
delivery service, brought this action seeking a declaration that
California Public Utilities Code §§ 486-496 are unconstitutional
as an impermissible burden on interstate commerce under the
Commerce Clause and as preempted by the Airline Deregulation
Act (“the Act”), 49 U.S.C.App. § 1305. Plaintiff also seeks an
injunction preventing defendants from enforcing regulations
promulgated pursuant to state statutory authority. The case is now
before the court on cross-motions for summary judgment. Having
considered the submissions of the parties, for the following
reasons, the court grants defendants’ motion for summary judg-
ment on the preemption issue only. The court denies both
motions for summary judgment on the burden on interstate
commerce issue and orders the parties to submit supplemental
pleadings on that issue.

BACKGROUND

Federal Express operates an interstate package air delivery
system rationwide under a grant of authority pursuant to the
Federal Aviation Act, 49 U.S.C.App. § 1371. Plaintiff charges all
customers throughout the country the same rates for service.
Plaintiff claims that it does not offer an intrastate delivery service
in California that is separate from its nationwide service. Plaintiff

B-2

concedes, however, that 3.5% of its total volume represents
business that both onginates in and is destined for locations
within California. According to plaintiff packages originating and
destined for California may be transported through three different
sorting routes: 1) by air to Memphis; 2) by air to Los Angeles or
Oakland; or 3) by truck to Los Angeles or Oakland when air
transportation is not available due to lack of capacity or adverse
weather conditions. If the packages are sent to Memphis, they are
then flown back to California. With each method, the packages
are transporied to their final destinations in California by small
trucks.

Defendants California Public Utilities Commission (hereinaf-
ter “CPUC”) and its various officials regulate the portion of
plaintiff's business which is conducted purely intrastate and solely
by truck. Since 1984, Federal Express has sought and received
two types of authority from the CPUC: a California Highway
Common Carrier Certificate, which is registered to a subsidiary,
and a California Highway Contract Carrier Permit. Plaintiff also
conducts intrastate business pursuant to a rate tariff filed with the
CPUC which became effective February 1, 1985. According to
the CPUC, Federal Express’ subsidiary paid quarterly transporta-
tion rate fund fees to the CPUC from 1984, after obtaining
intrastate motor carrier authority, until some point in 1987.

In 1986, the CPUC learned of a Tennessee lawsuit in which
plaintiff's vice president H. Doyle Cloud testified that Federal
Express was operating in California without paying authorization
ground transportation rates because it believed that the regula-
tions did not apply to it as an interstate carrier. By letter of
November 20, 1986, addressed to plaintiffs chief executive of-
ficer, the CPUC staff initiated an informal investigation of plain-
uff's failure to comply with state licensing regulations. This
informal investigation culminated in June 1987 with a formal staff
letter identifying two areas of noncompliance and requiring com-
plete correction by November |, 1987, to avoid formal enforce-
ment action. Although plaintiff failed to comply with this
demand, the CPUC never initiated formal enforcement
proceedings.

B-3

Plaintiff also failed to comply with certain regulatory reporting
requirements. The CPUC responded by imposing fines and
threatening other penalties.

Plaintiff filed this action for declaratory and injunctive relief on
December 9, 1987. On May 17, 1988, the court denied defen-
dants’ motion to dismiss the complaint. Defendants have submit-
ted papers showing that the CPUC has agreed not to pursue any
related action against Federal Express regarding the payment of
fees or the filing of reports during the pendency of this lawsuit.

EVIDENTIARY MOTIONS

Plaintiff has made five motions to strike various portions of
defendants’ submissions. The court rules as follows:

1) The motion to strike pages 26 through 35 of defendants’
memorandum of points and authorities is DENIED, since that
submission was within the limits previously set by this court.

2) The motion to strike the portion of the Quinn declaration
and article regarding Federal Express’ advocacy of a nationwide
campaign to preempt state motor carrier jurisdiction is
GRANTED, since such evidence is irrelevant to this action.

3) The motion to strike references to United Parce! Service
and Purolator Courier is GRANTED, since those references are
inadmissible hearsay.

4) The motion to strike the opinion offered by CPUC official
Donald H. Smith about tracking intrastate ground movements is
GRANTED, since that opinion lacks foundation and Mr. Smith
has not been qualified as an expert witness.

5) The motion to strike a legal memorandum which was cited
in and attached to a letter sent by the CPUC to Federal Express
in February 1987 is DENIED, insofar as that memorandum is
admitted only for the purpose of showing how the CPUC in-
formed plaintiff of its enforcement operations and not for the
content of the legal opinion.

LEGAL STANDARD

Under Federal Rule of Civil Procedure 56, summary judgment
shall be granted “‘against a party who fails to make a showing

B-4

sufficient to establish the existence of an element essential to that
party’s case, and on which that party will bear the burden of proof
at trial... since a complete failure of proof concerning an essen-
tial element of the nonmoving party’s case necessarily renders all
other facts immaterial.” Celotex Corp. v. Catrett, 477 U.S. 317,
322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). See also T.W.
Elec. Serv. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630
(9th Cir.1987) (the nonmoving party may not rely on the
pleadings but must present specific facts creating a genuine issue
of material fact); Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986) (a dispute
about a material fact is genuine “if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.’’).

The court’s function however, is not to make credibility deter-
minations. Anderson, 477 U.S. at 250, 106 S.Ct. at 2511. The
inferences to be drawn from the facts must be viewed in a light
most favorable to the party opposing the motion. 7. W. Elec.
Serv., 809 F.2d at 631.

DISCUSSION

Federal Express contends that the application of CPUC regula-
tions to its intrastate ground operations is unconstitutional on two
grounds: |) such regulations are preempted by the Airline De-
regulation Act, 49 U.S.C.App. § 1305, under the Supremacy
Clause (Art. VI, cl. 2) of the U.S. Constitution; and 2) such
regulations place an unconstitutional burden on interstate com-
merce, under the Commerce Clause (Art. I, Sec. 8, cl. 3).
Defendants seek summary judgment on both grounds.

I. PREEMPTION

Plaintiff Federal Express argues that the CPUC regulations are
barred by |) express preemption, 2) implied preemption where
Congress intended to occupy the field, and 3) conflict preemption
where state law clashes with Congress’ objectives, even if Con-
gress did not intend to occupy the field. See, e.g. Hillsborough
County v. Automated Medical Laboratories, Inc., 471 U.S. 707,
714-715, 105 S.Ct. 2371, 2375-2376, 85 L.Ed.2d 714 (1985)
(summarizing preemption case law). Where state regulatory
powers are challenged, courts must presume that state laws are

B-5

not preempted unless preemption is shown to be the clear purpose
of the Congress. See, e.g., Pacific Legal Foundation v. Staff
Energy Resources Conservation and Dev. Comm'n, 659 F.2d 903,
919 (9th Cir.1981), affd, 461 U.S. 190, 206, 103 S.Ct. 1713,
1723, 75 L.Ed.2d 752 (1983) (courts assume that states’ police
powers take precedence unless Congress clearly demonstrated
contrary intent). The burden of proof therefore falls on those
arguing that state laws are preempted, so plaintiff must bear that
burden.

A. Express Preemption

Plaintiff contends that 49 U.S.C.App. § 1305(a) expressly
prohibits the CPUC regulation of Federal Express. This section
States:

Except as provided in paragraph (2) of this subsection, no
State or political subdivision thereof... shall enact or en-
force any law, rule, regulation, standard, or other provision
having the force and effect of law relating to rates, routes, or
services of any air carrier having authority under subchapter
IV of this chapter to provide air transportation.

Whether this section preempts CPUC regulation of intrastate
ground transport turns on the meaning of two phrases: “relating
to” and “rates, routes, and services.’ Federal Express asserts that
its groundbased routes are services within its integrated air-
ground transportation system. Invoking the plain meaning rule of
Statutory construction, defendants counter that the intrastate
trucking operation of Federal Express is not covered by the
language of section 1305(a).

In a similar case, the Ninth Circuit rejected an expansive
reading of the term “services.” Air Transport Ass'n v. Public
Utilities Comm'n of California, 833 F.2d 200, 207 (9th
Cir.1987), cert. denied, __. US. , 108 S.Ct. 2904, 101
L.Ed.2d 936 (1988) (section 1305(a) does not preempt CPUC
regulation prohibiting recording of telephone conversations with-
out warning). The Ninth Circuit reasoned that:

The type of telephone operations utilized by the airlines is
not peculiar to airlines and is similar to those operations used

B-6

by other national service industries where reservations are
required, such as hotels and motels, and car rental companies

Id. Thus, telephone reservation operations are not services within
the meaning of section 1305(a). Jd. Compare, e.g., Hingson v.
Pacific Southwest Airlines, 743 F.2d 1408, 1415 (9th Cir.1984)
(air carrier seating policies for handicapped passengers held to be
“services” and therefore preempted by section 1305(a) ).

Plaintiff has failed to satisfy the Air Transport Association test
since it has not shown that Federal Express intrastate trucking
operations are singularly airline services. Although Federal Ex-
press’ ground operations are commercially linked to its air trans-
portation system, its hauling operations are not substantially
different from services provided by other motor carriers.

Plaintiff also argues that the ground transportation services
“relate to” the air transportation provided by Federal Express,
analogizing to the Supreme Court’s broad interpretation of
ERISA preemption of any state laws which “relate to” any
employee benefit plan. 29 U.S.C. § 1144(a). See, e.g., Pilot Life
Insurance Co. v. Dedeaux, 481 U.S. 41, 47-48, 107 S.Ct. 1549,
1552-1553, 95 L.Ed.2d 39 (1987). However, this reading of
ERISA preemption should not be taken as a canon of general
statutory interpretation. The legislative history of ERISA indi-
cates that Congress specifically intended a broad reading of
preemption in that context. Pilot Life, 481 U.S. at 45-46, 107
S.Ct. at 1551-1552 (citations omitted). Plaintiff cites no compa-
rable legislative history concerning section 1305(a). It is true,
however, that the legislative framework of section 1305(a), the
Airline Deregulation Act of 1978, was aimed at creating ““com-
prehensive legislation” to supply “a gradual and phased transition
to a deregulated system.” Hughes Air Corp. v. Public Utilities
Comm'n, 644 F.2d 1334, 1337 (9th Cir. 1981) (citation
omitted).

Even assuming arguendo that the phrase “relating to” should
be read expansively, plaintiff's position is problematic. The court
has found no cases in which the phrase “relating to” in this
section has been applied to regularly conducted ground transpor-

B-7

tation.' Compare, e.g., Anderson v. USAir, Inc., 818 F.2d 49, 57
(D.C.Cir. 1987) (state law requirement of courteous service on
airplane preempted by section 1305(a) ). Under the interpretation
urged by Federal Express, virtually any air carrier-owned or
operated service would escape state regulation if it established the
slightest nexus between its various activities.? The court declines
to strain such a reading from section 1305(a).

B. Implied Preemption

In order to show that the Airline Deregulation Act of 1978
impliedly preempts CPUC regulations, plaintiff must offer “evi-
dence of a congressional intent to pre-empt the specific field
covered by the of state law.” Wardair Canada, Inc. v. Florida
Dept. of Revenue, 477 U.S. 1, 6, 106 S.Ct. 2369, 2372, 91 L.Ed.2d
1 (1986) (state sales taxation of airline fuel not preempted by
Federal Aviation Act). The Act expressed the legislative intent
that the aviation industry be permitted to develop and grow
competitively in response to market forces. 49 U.S.C.App.
§ 1302(b). Plaintiff cites the following language from the policy
declaration preceding the Act:

(1) The encouragement and development of an expedited all-
Cargo air service system, provided by private enterprise, re-

' Federal Express also relies on regulations issued by the Civil
Aeronautics Board (now enforced by the Department of Transporta-
tion) to support its argument that section 1305(a) preempts a broad
range of air carrier activities. Nothing in those regulations suggests that
ground transportation is covered. In particular, to read the exemption for
“mode of operations” in 14 C.F.R § 399.110(d) as including Federal
Express trucks distorts the regulatory language.

> At the hearing plaintiff's counsel admitted that he could not draw
the line at which a business with both air and ground transportation
services would qualify within the interpretation of “all-cargo system”
urged by Federal Express. In response to the court’s questioning,
plaintiffs counsel sought to distinguish Federal Express from a hypo-
thetical business certified as an air carrier where over 50% of its revenues
derived from ground transportation. Yet plaintiffs counsel declined to
specify the point at which such business would become an “integrated
transportation system” in the parlance of Federal Express.

ES a ER ee

B-8

sponse to (A) the present and future needs of shippers, (B) the
commerce of the United States, and (C) the national defense.

(2) The encouragement and development of an integrated
transportation system relying upon competitive market forces
to determine the extent, variety, quality and price of such
Services.

49 U.S.C.App. § 1302(b). Plaintiff urges the court to find that by
using phrases such as “all-cargo air service system” and “‘inte-
grated transportation system,” Congress intended to include Fed-
eral Express’ ground transportation activities.

Neither the definitional framework of the Act nor its legislative
history supports such an argument. An “all-cargo air service
system” is defined in the statute simply as “the carriage by
aircraft in interstate or overseas air transportation of only property
or mail, or both.” 49 U.S.C.App. § 1301(11). As to the notion of
an integrated transportation system, the only language that might
pertain to ground transportation is found in the definitions of
“interstate air transportation” and “interstate air commerce”
which include the movement of commerce in part by aircraft and
in part by “other forms of transportation.” Jd, § 1301(23) & (24).
Here, however, the CPUC is not attempting to regulate ship
ments of Federal Express in which intrastate ground transporta-
tion is combined with air transport. Rather, it is attempting to
regulate shipments which involve only the intrastate ground
transportation. Hence, these statutory definitions are not
implicated.

In the many pages of Congressional reports accompanying the
Airline Deregulation Act no mention is made of ground transpor-
tation activities, while repeated references are made to air trans-
portation and flights. See, e.g., H.Rep. No. 95-1211, 95th Cong.,
2nd Sess. 15-16, reprinted in 1978 U.S.Code Cong. & Ad-
min.News 3737, 3751-3752 (discussing preemption);
H.Conf.Rep. No. 95-1779, 95th Cong., 2nd Sess. 94-95, reprinted
in 1978 U.S.Code Cong. & Admin.News 3773, 3804-3805 (dis-
cussing preemption).

Proponents of the Airline Deregulation Act of 1978 declared
that Congress intended to prevent the states from regulating air

B-9

transportation. See Hughes Air Corp., 644 F.2d at 1336-1337
(discussing legislative history of Airline Deregulation Act). In
1984, Congress expanded the reach of the Act by amending the
preemption clause to replace the words “interstate air transporta-
tion” with “air transportation.” See 49 U.S.C.App. § 1305(a) (1)
(Supp. III 1985) (amending 49 U.S.C.App. § 1305(a)(1)).

Furthermore, other post-1978 legislation indicates that Con-
gress did not intend the federal government to occupy the field of
intrastate ground transportation. Numerous amendments to the
interstate Commerce Act, 49 U.S.C. § 10101 et seq., including
the Motor Carrer Act of 1980, Pub.L. 96-296, 94 Stat. 793, and
the Bus Regulatory Reform Act of 1982, Pub.L. 97-261, 96 Stat.
1102, have allowed regulation of intrastate motor travel to remain
in the hands of the states. The Airline Deregulation Act explicitly
provides that, with narrow exceptions, the “power of a State to
regulate intrastate transportation provided by a motor carrier” is
not diminished by the grant of jurisdiction to the Interstate
Commerce Commission (“ICC”) ito regulate interstate motor
transportation. 49 U.S.C. § 10521(b) (1).°

Plaintiff has presented no evidence to demonstrate that Con-
gress viewed Federal Express as an “integrated air-ground sys-
tem” whose operations should be considered under the single
rubric of air carrier. While such legislative understanding may be

* Interstate Commerce Comm'n v. Texas, 479 U.S. 450, 107 S.Ct.
787, 93 L.Ed.2d 809 (1987) cited by plaintiffs, is easily distinguishable
from the case at bar. There the Supreme Court held that the [nterstate
Commerce Commission (hereinafter “ICC”’) had authority to exempt
from state regulation the motor freight portion of an intrastate “in-
termodal’”” movement of goods (an intermodal movement allows a
carmier to transport a trailer and its goods over rail on a flatcar and then
to haul the trailer on the highway). 479 U.S. at 460-61, 107 S.Ct. at 793
(interpreting 49 U.S.C. § 10505(f)). The parties had not disputed that
the same provision gave the ICC authority to exempt the rail freight part
of the journey from state regulation. Jd. at 452, 107 S.Ct. at 789.

Here the CPUC is not seeking to regulate “intermodal” transporta-
tion. Additionally, plaintiff does not rely on an exemption order autho-
rized by the regulatory authonty of a federal agency.

——————V—

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short-sighted, correction must be sought from Congress, not the
courts.

C. Conflict Preemption

Finally, plaintiff argues that the CPUC’s regulation of Federal
Express’ intrastate activities conflicts with the objectives and
goals of the Act. The court must construe the Airline Deregula-
tion Act to avoid conflict with other legislation in the transporta-
tion field. Cf. Louisiana Public Service Comm'n v. Federal
Communications Comm'n, 476 U.S. 355, 370, 106 S.Ct. 1890,
1899, 90 L.Ed.2d 369 (1986) (reconciling different jurisdictional
provisions and finding that Congress created dual regulatory
system for telephone service). One key to Congressional thinking
on this matter is the Interstate Commerce Act which deprives the
Interstate Commerce Commission of jurisdiction over certain
motor carriers when air transport is also involved. For example,
where transportation of property by motor carrier is part of a
continuous movement involving air transportation, the ICC does
not have jurisdiction. 49 U.S.C. § 10526(a) (8) (B). However, the
exemption does not extend to motor carrier service of an air
carrier. It is limited to those goods actually transported by joint
air and ground carriage. Another example found in the same
section is the exemption of motor carrier transportation when
used as a substitute for air transportation in emergency situations.
Id. § 10526(a)(8)(C).

These exemptions suggest that Congress viewed ground and air
transportation as belonging to two different regulatory regimes
under normal circumstances. The Interstate Commerce Act fur-
ther demonstrates that Congress intended to specify when motor
Carrier transportation was to be seen as an adjunct to air transpor-
tation and therefore exempt from the ICC’s jurisdiction. See, e.g.,
49 U.S.C. § 10526(a)(8)(A) (removing from ICC jurisdiction
“transportation of passengers by motor vehicle incidental to
transportation by aircraft’).

For the reasons articulated above, the court finds that under the
Interstate Commerce Act, Congress contemplated a multi-layer
system of transportation regulation. The court therefore finds that

B-11

CPUC regulations do not conflict with federal legislation in the
transportation field.

Il. BURDEN ON INTERSTATE COMMERCE

Plaintiff also contends that the CPUC regulations are an
unconstitutional burden on interstate commerce, prohibited by
the Commerce Clause (Art. I, § 8, cl. 3). The legal tesi for
determining the validity of state statutes that affect interstate
commerce is set forth in Pike v. Bruce Church Inc., 397 U.S. 137,
90 S.Ct. 844, 25 L.Ed.2d 174 (1970):

Where the statute regulates evenhandedly to effectuate a legiti-
mate local public interest, and its effects on interstate com-
merce are only incidental, it will be upheld unless the burden
imposed on such commerce is clearly excessive in relation to
the putative local benefits. If a legitimate local purpose is
found, the question becomes one of degree. And the extent of
the burden that will be tolerated will of course depend on the
nature of the local interest involved, and on whether it could be
promoted as well with a lesser impact on interstate activities.

Id. at 142, 90 8.Ct. at 847; see also Burlington Northern R.R. Co.
v. Dep't of Public Service Regulation, 763 F.2d 1106, 1114 (9th
Cir.1985) (challenger to state regulation must show that it
“impedes substantially the free flow of commerce from sjate to
state”’). pr

Federal Express contends that enforcement of the CPUC
regulations will place an unreasonable burden on interstate com-
merce because the regulations will increase operating costs, result
in delays in delivery times and reduce operating, pricing and
discount flexibility. The CPUC counters that Federal Express’
scenario of burdens is unfounded and that CPUC regulation of
Federal Express would be reasonable and tailored to Federal
Express’ existing method of operation.

Much of Federal Express’ Commerce Clause analysis is prem-
ised on its contention that it cannot determine at the time of
package pick-up whether a package from a location in California
will move solely by ground transportation or partially by air.
Federal Express contends that this inability to separate packages

B-12

before shipment will require Federal Express to comply with the
CPUC regulations for all California shipments, even those which
will not be delivered solely by intrastate ground carrier.

As the parties have not fully explored the burden on interstate
commerce which would result from a post-shipment estimate of
the packages which have traveled solely by truck in California,
the court declines to grant summary judgment. The court directs
the parties to conduct additional discovery, if warranted, and file
supplemental! pleadings addressing the factual issues raised by the
court.

Specifically, the parties are directed to address whether or not
Federal Express can identify, after packages have been shipped,
those packages that have traveled solely by truck in California.
Federal Express concedes that such post-shipment scanning is
conceivable. See Lawrence Decl. at para. 8. Counsel for the
CPUC, in oral argument on September 26, 1988, stated that the
CPUC will accept estimates of the number of packages shipped
by Federal Express solely by ground transportation in California
in order to assess quarterly transportation rate fund fees. See also
Smith Dec. at para. 8.

Whether the CPUC regulations would pose an unreasonable
burden on interstate commerce under such an estimate system
has been not been addressed by the parties. Consequently, the
parties are hereby directed to address whether the CPUC regula-
tions would pose an unreasonable burden on interstate commerce
if Federal Express were required to estimate the number of
packages which have traveled solely in intrastate commerce. In
addition, the CPUC is directed to address in greater detail the
public benefits to be realized from the CPUC regulations chal-
lenged herein.

Plaintiff and defendant are hereby ordered to file declarations
or other evidentiary submissions addressing the issues discussed
above. In relation to those issues the parties may file supplemen-
tal memoranda of no more than ten (10) pages in length. These
papers shall be filed within sixty (60) days of the date of this
order. No replies shall be filed.

CONCLUSION

Plaintiffs have failed to carry their burden of proof with regard
to the preemption argument. On the other hand, defendants have
shown that the CPUC regulations were not barred by the
Supremacy Clause. Defendants are hereby granted partial sum-
mary judgment on the issue of preemption. The parties’ motions
for summary judgment on the burden on interstate commerce
issue are denied, and the parties are directed to file supplementary
pleadings in accordance with this order.

IT IS SO ORDERED.

APPENDIX C

FEDERAL EXPRESS CORP.,
Plaintiff,

Vv.

CALIFORNIA PUBLIC UTILITIES COMMISSION, et al.,
Defendants.

No. C-87-4891 MHP.

United States District Court,
N.D. California.

Oct. 11, 1989.
SUPPLEMENTAL OPINION
PATEL, District Judge.

Plaintiff, a nationwide smal! package express delivery service,
brought this action seeking a declaration that California Public
Utilities Code §§ 486-496 are unconstitutional as an impermissi-
ble burden on interstate commerce under the Commerce Clause
and as preempted by the Airline Deregulation Act (“the Act”),
49 U.S.C. App. § 1305. Plaintiff also seeks an injunction prevent-
ing defendants from enforcing regulations promulgated pursuant
to state statutory authority. By order of March 30, 1989, the court
granted defendants’ motion for summary judgment with respect
to the preemption issue and ordered additional briefing on the
burden on interstate commerce issue. 716 F.Supp. 1299
(N.D.Cal.1989).

The case is now before the court on cross-motions for summary
judgment. Having considered the submissions of the parties, for
the following reasons, the court grants defendants’ motion for
summary judgment on the interstate commerce issue.

BACKGROUND

The factual background of this case was discussed extensively
in the court’s order of March 30, 1989, and is not repeated here.
Briefly stated, the remaining issue is whether or not California
Public Utilities Code (“CPUC”) regulations governing the por-
tion of Federal Express business which is conducted intrastate

C-2

and solely by truck unconstitutionally burden interstate com-
merce. The challenged regulations apply to areas including finan-
cial reporting, capitalization, insurance and safety.

In its order of March 30, the court asked the parties to address
three questions: 1) whether Federal Express can identify, after
packages have been shipped, those packages that have traveled
solely by truck in California; 2) whether the CPUC regulations
would pose an unreasonable burden if Federal! Express were
required to estimate the number of packages which have traveled
solely in interstate commerce; and 3) which public benefits derive
from the CPUC regulations at issue.

LEGAL STANDARD

Under Federal Rule of Civil Procedure 56, summary judgment
shall be granted “against a party who fails to make a showing
sufficient to establish the existence of an element essential to that
party’s case and on which that party will bear the burden of proof
at trial... since a complete failure of proof concerning an essen-
tial element of the nonmoving party’s case necessarily renders all
other facts immaterial.” Celotex Corp. v. Catrett, 477 U.S. 317,
322-23, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). See also
T.W. Elec. Serv. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626,
630 (9th Cir.1987) (if the moving party meets its initial burden
of demonstratingthe absence of any genuine issue of material fact,
the nonmoving party may not rely on the pleadings but must

“present specific facts creating a genuine issue of material fact);
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct.
2505, 2510, 91 L.Ed.2d 202 (1986) (a dispute about a material
fact is genuine “if the evidence is such that a reasonable jury
could return a verdict for the nonmoving party.”’).

The court’s function, however, is not to make credibility deter-
minations. Anderson, 477 U.S. at 255, 106 S.Ct. at 2513-14. The
inferences to be drawn from the facts must be viewed in a light
most favorable to the party opposing the motion. 7.W. Elec. Serv.,
809 F.2d at 631.

C-3

DISCUSSION

When state regulations arguably affect commerce among
states, the Commerce Clause of the United States Constitution
(Art. I, § 8, cl. 3) is implicated. Federal Express argues that the
application of CPUC regulations to its intrastate ground opera-
tions places an unconstitutional burden on interstate commerce in
violation of the Commerce Clause. If a regulation operates even-
handedly and creates only incidental effects upon interstate com-
merce, it passes constitutional muster unless “the burden imposed
on such commerce is clearly excessive in relation to the putative
local benefits.” Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90
S. Ct. 844, 847, 25 L.Ed.2d 174 (1970); see also Burlington
N.R.R. Co. v. Dep't of Pub. Serv. Regulation, 763 F.2d 1106, 1114
(9th Cir.1985) (challenger to state regulation must show that it
“impedes substantially the free flow of commerce from state to
state”’).

A. Burdens Imposed by the CPUC Regulations

Federal Express contends that enforcement of the CPUC
regulations will place an unreasonable burden on interstate com-
merce because the regulations will increase operating costs, result
in delays in delivery times and reduce operating, pricing and
discount flexibility. The CPUC counters that Federal Express’
scenario of burdens is unfounded and that CPUC regulation of
Federal Express is reasonable and tailored to Federal Express’
existing method of operation.

First, Federal Express asserts that it cannot determine at the
time of package pick-up whether a package from a location in
California will move solely by ground transportation or partially
by air. According to plaintiff, this inability to segregate packages
before shipment will require it to comply with the CPUC finan-
cial and other requirements for all California shipments, even
those which do not travel only by intrastate ground transportation.
It further contends that its “state of the art” tracking system does
not enable it to collect information regarding the mode(s) of
transportation taken after packages are delivered. Lawrence
Supp.Dec. paras. 3, 5-6; Nehls Dec. paras. 3-4. However, an
earlier declaration submitted by plaintiffs indicated that “it is

|

C-4

conceivable to scan trucks which are unloading to record which
packages were in a truck.” Lawrence Dec. para. 5. This declara-
tion also stated that Federal Express was planning to change its
system to allow tracking of truck routes. /d. para. 6.

Plaintiff now asserts that the development of post-delivery
scanning which would identify transportation modes will require
several years of research and the expenditure of an estimated $10-
20 million. Lawrence Supp. Dec. para. 6; Nehls Dec. para. 4
(stating that under current system post-transportation scanning
would not provide accurate data). Federal Express also states that
post-delivery scanning would slow down services. Lawrence Supp.
Dec. para. 6; Nehls Dec. para. 3. Although defendants doubt the
accuracy of Federal Express’ representations on this issue, they
offer no evidence that the declarations are false or inaccurate.
Since the record is uncontradicted, the court accepts as true
plaintiffs assertions concerning the difficulty of post-delivery
scanning under the current system.

Second, the parties addressed the feasibility of Federal Express
providing the CPUC with estimates of packages and the mode of
transportation, and paying fees in accordance with this arrange-
ment. Plaintiff argues: 1) that estimating the number of packages
that are carried by ground transportation within California would
not relieve Federal Express of the burden of other CPUC general
orders and regulations and 2) that Federal Express cannot be
assured that CPUC will not refuse to accept estimates in the
future.

As to the second contention, the court notes that counsel for
the CPUC, at the hearing on September 26, 1988, stated that the
CPUC will accept estimates of the number of packages shipped
by Federal Express solely by ground transportation in California
in order to assess quarterly transportation rate fund fees. Indeed,
during the calendar years 1985 and 19S6 and through the first
quarter of 1987, Federal Express paid quarterly operating fees to
the CPUC under a formula arrived at by the CPUC and appar-
ently agreed to by the plaintiff. Diani Aff. paras. 7, 14 and Exs.
B-E appended thereto. These fees were paid by Federal Express
and accepted by the CPUC on the basis of estimates. Further-
more, the payment of these estimated fees apparently did not

C-5

jeopardize plaintiffs profits. Dumng the period when Federal
Express paid estimated quarterly fees to the CPUC, its revenues
increased steadily in California and throughout the United States
(with the exception of a small decline in California revenues in
the first quarter of 1987). /d. para. 15 and Ex. D attached. The
method of allowing Federal Express to pay estimates thus appears
to have worked reasonably well in the past. Since there is no
dispute that the CPUC will now allow Federal Express to pay
estimated fees, the court need not speculate whether such ar-
rangements will be permitted in the future.’

Plaintiff also argues that paying estimated taxes would not
relieve it of the unreasonable burden imposed by other PUC
orders governing its operations such as rates, rate changes, re-
funds, and claims procedures. See Tucker, Bledsoe, Lawrence,
Chnstensen, Allen, Sherman, Germano and McNeal Decs.;
Plaintiffs Supp. Memo, Ex. 4H. According to plaintiff, Federal
Express cannot segregate packages flown by air from those carried
by Luck. Plaintiff declares that, even if Federal Express could
separate packages according to the type of transportation used, it
would not be feasible to distinguish between packages carried
across state lines and those transported only within California.
Federal Express depicts a scenario in which CPUC regulations
would force the corporation to assume that all packages, whether
carried by air or by ground, or across state lines or within
California, qualify for CPUC regulation. Such action allegedly
would impinge upon interstate commerce by forcing uniformity
across the states.

Federal Express’ picture must be moderated by a touch of
realism. Plaintiff contends that five different general orders issued
by the CPUC affect its intrastate truck operations. With regard to

' Plaintiffs protest that the CPUC policies have not been consistent,
but the court finds that an prediction of future harm is entirely
speculative at this point. Thus, any claim advanced by plaintiffs prem-
ised on the possibility that CPUC may reject estimates in the future
does not meet the case or controversy requirement of Article III of the
United States Constitution. See, e.g., O'Shea v. Littleton, 414 U.S. 488,
94 S.Ct.669, 38 L.Ed.2d 674 (1974) (discussing mpeness).

C-6

at least one order, the rate justification provision, the CPUC has
allowed Federal Express to charge rates for intrastate carnage
within California that are identical to its other rates. Defendants’
Supp. Memo, Attachment 2 at 2, 9-10. The CPUC asserts that it
will grant variances for the cost justification requirements as well
as the other general orders to which Federal Express objects. /d.
at 2-10.

Federal Express relies on Brown-Forman Distillers v. Nev. York
State Liquor Auth., 476 U.S. 573, 582 n. 5, 106 S.Ct. 2080, 2086
n. 5, 90 L.Ed.2d 552 (1986) and Jn re Beer Institute, 849 F.2d
753, 760 (2d Cir.1988), affd sub nom. Healy v. Beer Institute,
U.S. —__, 109 S.Ct. 2491, 105 L.Ed.2d 275 (1989) for the
proposition that constitutional nghts cannot be made dependent
on the discretion of a state agency. However, Brown-Forman and
Healy involved entirely different facts than are presented here. In
Brown-Forman the Court struck down a New York liquor statute
which required that every producer affirm that the prices charged
for every bottle of liquor sold in New York did not exceed that
charged in any other state during the same month. 476 US. at
582-583, 106 S.Ct. at 2086. Healy invalidated the Connecticut
statute which contemporaneously controlled liquor prices relative
to other states, and which restricted a brewer’s ability to offer
volume discounts. 109 S.Ct. at 2502-2503. In both Brown-For-
man and Healy, the Court invalidated liquor statutes because
their regulation of liquor prices had an extraterritorial effect and
produced a pricing gridlock on a regional and even national level.
See Healy, 109 S Ct. at 2501-2503 (discussing unconstitutional
effects).

Healy articulates a three part test for evaluating the extraterri-
torial effect of state regulation: 1) whether the state statute
applies to commerce wholly outside the state’s borders;
2) whether a statute has the “practical effect” of controlling
conduct outside a state’s borders; and 3) how the statute affects
legitimate regulations imposed by other staffs, and what impact
would be created if other states enacted similar legislation. 109
S.Ct. at 2499. Applying this test to the instant case, the court
finds that the C”UC regulations do not apply to commerce
outside California, nor has there been any evidence that CPUC

C-7

regulations will have the practical effect of controlling commerce
outside California. Plaintiff has made no showing that CPUC
regulations will conflict with other states’ regulations, nor is there
any suggestion that the CPUC regulations will create an eco-
nomic gridlock in the transportation industry.’

One further distinction merits discussion. In Healy, the Court
also found the Connecticut statute unconstitutional because the
liquor statute applied only to brewers engaged in interstate com-
merce. 109 S.Ct. at 2501. Here the opposite situation is true: the
CPUC is attempting to regulate the intrastate ground operations
of Federal Express in the same manner that it currently regulates
other intrastate ground transportation. Rather than seeking equal
treatment with intrastate companies, Federal Express is actually
seeking more favorable treatment than is received by those
Carriers operating solely in California.

As to the contention that variances (which plaintiffs prefer to
call exemptions) will not necessarily be forthcoming from the
CPUC, it is not clear whether such variances were previously
granted when Federal Express was paying estimated quarterly
fees. Moreover, plaintiffs have presented no concrete evidence of
harm that would result if such variances were not given.

B. Benefits of CPUC Regulations

Against this meager showing of burdens resulting from the
CPUC regulations, the court balances the benefits allegedly
derived from the regulation. Federal Express contends that the
regulations provide no public benefits. To support this position, it
cites testimony before the CPUC and a CPUC staff report
expressing the need to reform the California regulatory system to
benefit the ratepayers.

* With respect to other state statutes and regulations, including those
administered by the CPUC, the supplemental summaries submitted by
the parties show these requirements do not unreasonably burden inter-
state commerce. Many of the regulations are similar to or less onerous
than comparable federal regulations. Others impose burdens only to the
extent that the activities are intrastate. In the latter case, the regulations
go to matters ordinarily left to state regulation, such as driver safety,
vehicle safety, and protection of state citizens’ interests.

C-8

On the other hand, the CPUC asserts that its regulations help
protect consumers, promote highway safety, and benefit the state
economy. Smith Aff. They also stress that in 1988 the California
legislature gave the CPUC greater responsibility for monitoring
vehicle maintenance and driver qualifications. Cal.Pub.Util.Code
§§ 1063.5, 3553, 3557 (West Supp. 1989). Moreover, the CPUC
points out that the payment of quarterly fees finances its highway
safety and maintenance programs.

Plaintiff's evidence does not tend to show that the CPUC
regulations provide no public benefit, nor that its functions are
merely superfluous.’ As demonstrated by the above legislation,
the California state legislature clearly views CPUC enforcement
of safety regulations as a significant public benefit. Furthermore,

* For instance, plaintiff attempts to rely upon excerpts from the
proposed Decision of the Administrative Law Judge in the Regulation of
General Freight Transportation by Truck. No. 1.88-08-046. See Plain-
tiffs Letter Brief, dated July 3, 1989 (containing excerpts from Pro-
posed Decision). The proposed decision recommends flexibility in rate
regulation, Proposed Decision at 80, and states that “the most effective
way to improve safety is through direct safety regulation and enforce-
ment.” /d. at 58-59. On the other hand, the proposed decision also states
that, while other state agencies bear direct responsibility for safety
regulation, the CPUC “has an indirect, but equally important, role of
cooperating with these agencies when Commission regulated carriers are
involved” /d. at 63. The functions CPUC shares with other state
agencies include: 1) suspending or revoking unsafe carriers’ operating
authority; 2) listing carner equipment; and 3) listing owner-operators
and drivers, licenses. /d.

Furthermore, the organizational charts submitted by both parties
indicate that there is considerable coordination between the CPUC and
State agencies such as the California Highway Patrol (CHP) and the
Department of Motor Vehicles, as well as between CPUC and the
Interstate Commerce Commission. However, the summaries show in
many instances that the CPUC does not duplicate, but complements
activities of these other agencies. See, e.g., Cal. Pub.Util.Code § 3631.5
(requiring liability insurance for motor carriers hauling hazardous
materials, who have been licensed by the CHP); Cal.Pub.Util.Code
§ 3553 (requiring new holders to show that they can meet CHP safety
standards ).

C-9

the United States Supreme Court has noted that “the question of
safety .. . is essentially a matter of public policy, and public policy
can, under our constitutional system, be fixed only by the people
acting through their elected representatives.” Bhd. of Locomotive
Firemen and Eng'rs v. Chicago, Rock Island and Pacific R.R. Co.,
393 U.S. 129, 138 89 S.Ct. 323, 328, 21 L.Ed.2d 289 (1968)
(upholding numerical requirements for train crew members
against Commerce Clause and equal protection challenge).

Additionally, in Raymond Motor Transp., Inc. v. Rice, 434
U.S. 429, 98 S.Ct. 787, 54 L.Ed.2d 664 (1978), the Supreme
Court declared:

[T]he Court has been most reluctant to invalidate under the
Commerce Clause “state legislation in the field of safety
where the propriety of local regulation has long been recog-
nized.” ...In no field has this deference to state regulation
been greater than that of highway safety regulation. ...
Thus, those who would challenge state regulations said to
promote highway safety must overcome a “strong presump-
tion of [their] validity.”

Id. at 143-44, 98 S.Ct. at 795 (citations omitted) .*

In the instant case, the court finds that plaintiffs have not
overcome the strong presumption of the validity of the CPUC
regulations.

* State highway regulations merit special deference because the bur-
den of nondiscriminatory regulations generally falls on local economic
interests, and because the states bear primary responsibility For policing
highway conditions. Raymond Motor Transp., 434 U.S. at 444 n. 18, 98
S.Ct. at 795 n. 18. Nevertheless, in Raymond Motor Transp., the Court
invalidated Wisconsin's regulations governing the length and shape of
trucks. The Court found uncontradicted evidence that the regulations
did not contnbute to highway safety and concluded that the regulations
significantly raised costs, slowed transportation, and prevented transfers
from any of the thirty-three states where the prohibited trucks were
legal. Jd. at 444-445, 98 S.Ct. at 795-96. The record here is completely
lacking in such evidence, regarding both the burdens and benefits of the
regulations.

CONCLUSION

Plaintiffs have failed to carry their burden of proof with regard
to their interstate commerce argument. On the other hand,
defendants have shown that the CPUC regulations do not consti-
tute an unreasonable burden. Defendants are therefore
GRANTED summary judgment on the interstate commerce

clause issue. Plaintiffs motion for summary judgment is
DENIED.

There being no remaining issues, this case is hereby
DISMISSED.

IT IS SO ORDERED.

APPENDIX D

U.S. Const., Art. VI, cl. 2
The Supremacy Clause

This Constitution, and the Laws of the United States which
shall be made in Pursuance thereof; and all Treaties made, or
which shall be made, under the Authority of the United States,
shall be the supreme Law of the Land; and the Judges in every
State shall be bound thereby, any Thing in the Constitution or
Laws of any State to the Contrary notwithstanding.

U.S. Const., Art. 1, § 8, cl. 3
The Commerce Clause

To regulate Commerce with foreign Nations, and among the
several States, and with the Indian Tribes;

49 U.S.C. App. § 1301(3)

(3) “Air carrier” means any citizen of the United States who
undertakes, whether directly or indirectly or by a lease or any
other arrangement, to engage in air transportation: Provided, That
the Board may by order relieve air carriers who are not directly
engaged in the operation of aircraft in air transportation from the
provisions of this chapter to the extent and for such periods as
may be in the public interest.

49 U.S.C. App. § 1301(10)

(10) “Air transportation” means interstate, overseas, or for-
eign air transportation or the transportation of mail by aircraft.

49 U.S.C. App. § 1301(11)

(11) “All-cargo air service” means the carriage by aircraft in
interstate Or Overseas air transportation of only property or mail or
both.

49 U.S.C. App. § 1301 (23)

(23) “Interstate air commerce” “overseas air commerce’, and
“foreign air commerce”, respectively mean the carnage by air-
craft of persons or property for compensation or hire, or the
carriage of mail by aircraft or the operation or navigation of

D-2

aircraft in the conduct or furtherance of a business or vocation, in
commerce between, respectively—

(a) a place in any Staff of the United States, or the
District of Columbia, and a place in any other Staff of the
United States, or the District of Columbia; or between places
in the same State of the United States through the airspace
over any place outside thereof; or between places in the same
Territory or possession of the United States, or the District of
Columbia;

(b) a place in any State of the United States, or the
District of Columbia, and any place in a Territory or posses-
sion of the United States; or between a place in a Territory or
possession of the United States, and a place in any other
Territory or possession of the United States; and

(c) a place in the United States and any place outside
thereof;

whether such commerce moves wholly by aircraft or partly by
aircraft and partly by other forms of transportation.

49 U.S.C. App. § 1301(24)

” “

(24) “Interstate air transportation”, “overseas air transporta-
tion”, and “foreign air transportation”, respectively, mean the
carriage by aircraft of persons or property as a common carrier for
compensation or hire or the carriage of mail by aircraft, in
commerce between, respectively—

(a) a place in any Staff of the United States, or the
District of Columbia, and a place in any other State of the
United States, or the Districtof Columbia; or between places
in the same Staff of the United States through the airspace
over any place outside thereof; or between places in the same
Territory or possession of the United States, or the District of
Columbia;

(b) a place in any State of the United States, or the
District of Columbia, and any plane in a Termitory or posses-
sion of the United States; or between a place in a Territory or

D-3

possession of the United States, and a place in any other
Territory or possession of the United States; and

(c) a place in the United States and any place outside
thereof;

whether such commerce moves wholly by aircraft or party by
aircraft and partly by other forms of transportation.

49 U.S.C. App. § 1302(b)

In addition to the declaration of policy set forth in subsection
(a) of the section, the Board, in the exercise and performance of
its powers and duties under this chapter with respect to all-cargo
air service shall consider the following, among other things, as
being in the public interest:

(1) The encouragement and development of an expedited
all-cargo air service system, provided by private enterprise,
responsive to (A) the present and future needs of shippers,
(B) the commerce of the United States, and (C) the
national defense.

(2) The encouragement and development of an inte-
grated transportation system relying upon competitive mar-
ket forces to determine the extent variety, quality, and price
of such services.

(3) The provision of services without unjust discrimina-
tions, undue preferences of advantages, unfair or deceptive
practices, or predatory pricing.

49 U.S.C. App. § 1305(a)

(1) Except as provided in paragraph (2) of this subsection, no
State or political subdivision thereof and no interstate agency or
other political agency of two or more States shall enact or enforce
any law, rule, regulation, standard, or other provision having the
force and effect of law relating to rates, routes, or services of any
air carner having authority under subchapter IV of this chapter to
provide air transportation.

(2) Except with respect to air transportation (other than
charter air transportation) provided pursuant to a certificate
issued by the Board under section 1371 of this title, the provisions

D-4

of paragraph (1) of this subsection shall not apply to any
transportation by air of persons, property, or mail conducted
wholly within the State of Alaska.

49 U.S.C. App. § 1371 (a)

No air carrier shall engage in any air transportation unless there
is in force a certificate issued by the Board authorizing such an
Carrier to engage in such transportation.

49 U.S.C. § 10521 (b)
(b) This subtitle does not

(1) except as provided in sections 10922(c)(2), 10935,
and 11501(e) of this title, affect the power of a State to
regulate intrastate transportation provided by a motor carrier,

(2) except as provided in sections 10922(c)(2) and
11501 (e), authorize the Commission to Prescribe or regulate
a rate for intrastate transportation. provided by a motor
carrier,

(3) except as provided in section 10922(c)(2) of this
title, allow a motor carrier to provide intrastate transportation
on the highways of a State; or

(4) except as provided in section 11503a and section
11504(b) of this title, affect the taxation power of a State
over a motor Carrier.

49 U.S.C. § 10526(a) (8)

(a) The Interstate Commerce Commission does not have
jurisdiction under is subchapter over

(8)(A) transportation of passengers by motor vehicle
incidental to transportation by aircraft;

(B) transportation of property (including baggage) by
motor vehicle as part of a continuous movement which, prior
or subsequent to such part of the continuous movement, has
been or will be transported by an air carrier or (to the extent
so agreed by the United States andyapproved by the Civil
Aeronautics Board or its successor agency) by a foreign air
carmier, or

D-5

(C) transportation of property by motor vehicle in lieu of
transportation by aircraft because of adverse weather condi-
tion or mechanical failure of the aircraft or other causes due
to circumstances beyond the control of the carrier or shipper,

49 U.S.C. § 10528

A motor carrier of property providing transportation exempt
from the jurisdiction of the Commission under paragraph (6),
(8), (11), (12), or (13) of section 10526(a) of this subchapter |
may transport property under such paragraph in the same vehicle
and at the same time as property which the carrier is authorized
to transport under a certificate issued under section 10922(b) of
this subtitle or under a permit issued under section 10923 of this
subtitle. Such transportation shall not affect the unregulated
Status of such exempt property or the regulated status of the
property which the carrier is authorized to transport under such
certificate or permit.

Cal. Const., Art. XII, § 4

The common may fix rates and establish rules for the transpor-
tation of passengers and property by transportation companies,
prohibit discrimination, and award reparation for the exaction of
unreasonable, excessive, or discriminatory charges. A transporta-
tion company may not raise a rate or incidental charge except
after a showing to and a decision by the commission that the
increase is justified, and this decision shall not be subject to
judicial review except as to whether confiscation of property will
result.

Cal. Pub. Util. Code § 701

The commission may supervise and regulate every public utility
in the State and may do all things, whether specifically designated
in this part or in addition thereto, which are necessary and
convenient in the exercise of such power and jurisdiction.

Cal. Pub. Util. Code § 1061

No common carmier shall operate or cause to be operated any
auto, truck, or other self-propelled vehicle not operated on rails,
for the transportation of property as a common carrier for com-

D-6

pensation on any public highway in this state except in accor-
dance with the provisions of this part.

Cal. Pub. Util. Code § 1062
The commission may do all of the following:

(a) Supervise and regulate every highway common carrier and
cement carrier in this state.

(b) Fix the rates, fares, charges, classifications, and rules of
each of these carriers.

(c) Regulate the accounts, and service of each of these carri-
ers, and require the filing of annual and other reports and of other
data by these carriers.

(d) Supervise and regulate these carriers in all other matters
affecting the relationship between them and the shipping public.

(e) Directly or through its employees, representatives, or in-
spectors photocopy or electrostatically or photostatically
reproduce at the commission’s expense the accounts, books,
papers, and documents of any of these carriers at either the
premises of the carrier or the offices of the commission. A carrier
may determine whether the copying or reproduction is done at its
premises or at the offices of the commission, and where copying
or reproduction expenses are incurred by the carrier, the commis-
sion shall, upon request, reimburse the carrier for the expenses.

The commission, by general order or otherwise, may prescribe
rules applicable to any and all highway common carriers and
cement carriers. The commission, in the exercise of the jurisdic-
tion conferred upon it by the California Constitution and by this
part, may make orders and prescribe rules affecting highway
common carriers and cement carriers, notwithstanding the provi-
sions of any ordinance or permit of any city, city and county, or
county, and in case of conflict between its order or rule and any
ordinance or permit of a city, city and county, or county, the order
or rule of the commission shall prevail.

D-7

Cal. Pub. Util. Code § 1063(a)

(a) No common carrier shall begin to operate any motor
vehicle, for the transportation of property for compensation on
any public highway in this state without first having obtained from
the commission a certificate declaring that public convenience
and necessity require that operation. No certificate shail be
required of any highway common carrier for the performance of
pickup, delivery, or transfer services by the carrier within the
carrier’s lawfully published pickup and delivery zones insofar as
the pickup and delivery limits do not include territory in excess of
three miles from the corporate limits of any city or three miles
from the post office of any unincorporated point.

Cal. Pub. Util. Code § 1070

(a) The commission may, at any time, for a good cause,
suspend, and upon notice to the holder of a certificate, and upon
opportunity to be heard, revoke, alter, or amend, that certificate.

(b) As an alternative to the suspension, revocation, alteration,
or amendment of a certificate pursuant to subdivision (a), the
commission may impose upon the holder of the certificate a fine
of not exceeding five thousand dollars ($5,000) for a first offense
and not exceeding twenty thousand dollars ($20,000) for any
second or succeeding offense. The common may assess interest
upon any fine imposed, the interest to commence upon the day
the payment of the fine is delinquent. All fines and interest
collected shall be deposited at least once each month in the State
Treasury to the credit of the General Fund.

(c) For purposes of this section, “good cause” includes, but is
not limited to, a consistent failure of the holder of the certificate
to maintain vehicles in a safe operating condition and in compli-
ance with tue Vehicle Code and with regulations contained in
Title 13 of the California Administrative Code relative to motor
vehicle safety, as shown by the records of the commission, the
Department of the California Highway Patrol, or the common
carrier.

D-8

Cal. Pub. Util. Code § 3502

The use of the public highways for the transportation of
property for compensation is a business affected with a public
interest. It is the purpose of this chapter to preserve for the public
the full benefit and use of public highways consistent with the
needs of commerce without necessary congestion or wear and tear
upon such highways; to secure to the people just and reasonable
rates for transportation by carriers operating upon such highways;
and to secure full and unrestricted flow of traffic by motor carriers
over such highways which will adequately meet reasonable public
demands by providing for the regulation of rates of all transporta-
tion agencies so that adequate and dependable service by all
necessary transportation agencies shall be maintained and the full
use of the highways preserved to the public. It is the further
purpose of this chapter to eliminate, so far as reasonably possible,
the excessive use of highways that has resulted from excessive
crosshauling of portland and similar cements which has hereto-
fore pertained, when they are hauled in a motor vehicle or motor
vehicles loaded substantially to capacity with such commodity or
commodities, since these commodities move in great volume in
vehicles that are loaded substantially to the permissible gross
weight limited provided by the Vehicle Code.

Cal. Pub. Util. Code § 3502.1

The Legislature finds and declares that it is the policy of this
State to achieve increasingly efficient utilization of energy in the
performance of transportation services by highway carriers.

Cal. Pub. Util. Code § 3541

No highway permit carrier shall engage in the business of the
transportation of property for compensation by motor vehicle over
any public highway in this state, except in accordance with the
provisions of this chapter which is enacted under the power of the
State to regulate the use of public highways.

Cal. Pub. Util. Code § 5003.1

Every railroad corporation, express corporation and freight
forwarder, as these terms are defined in Part 1 (commencing with
Section 201) of Division 1, and every motor transportation broker,

D-9

as defined in Section 4803, and every person or corporation
owning or operating motor vehicles in the transportation of
property for hire upon the public highways under the jurisdiction
of the commission shall, between the first and 15th days of
January, April, July, and October of each year, file with the
commission a statement showing the gross operating revenue
derived by that person or corporation from the transportation of
property for the preceding three calendar months, and shall, at the
time of filing the report, pay to the commission a fee of ten dollars
($10) for each quarter. Every express corporation, freight for-
warder, motor transportation broker, and every person or corpora-
tion Owning or operating motor vehicles in the transportation of
property for hire upon the public highways under the jurisdiction
of the commission shall, at the time of filing the report, pay to the
commission a fee equal to one-third of | percent of the amount of
the gross operating revenue, except as follows:

(a) For any particular fiscal year, the commission, with the
approval of the Department of Finance, may fix the fee at less
than one-third of | percent of that amount.

(b) The commission may increase the fee pursuant to subdivi-
sion (b) of Section 5003.2.

Appendix E

Decision 90-02-021
February 7, 1990

BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA

In the Matter of the Regulation
of General Freight Transportation by Truck.

1.88-08-046
(Filed August 24, 1988)

ORDER MODIFYING DECISION 89-10-039,
GRANTING LIMITED HEARING,
DENYING REHEARING IN ALL OTHER R{ISPECTS,
LIFTING STAY,

AND DENYING PETITION FOR MODIFICATION OF
D.89-10-039

On October 12, 1989, we approved Decision (D.) 89-10-039
(the Decision), our Decision on Rate, Safety, and Subhaul
Regulation for General Freight Transportation. The Decision was
° to become effective in 30 days. However, the California Team-
sters Public Affairs Council and the California Trucking Associa-
tion (CTA) filed applications for rehearing sufficiently in advance
of the Decision’s effective date to secure an automatic stay of the
Decision pursuant to Public Utilities Code § 1733(a). Three
additional applications for rehearing were also timely filed: one by
Willig Freight Lines, one by the Ad Hoc Carriers Committee,
and one by the California Coalition for Trucking Deregulation
and Viking Freight System, Inc. (Coalition/ Viking). CTA filed a
response to the Coalition/ Viking application. National Small
Shipments Traffic Conference, Inc. and the Health and Personal
Care Distribution Conference, Inc. (NSSTC) also filed a reply to
the applications for rehearing.’ On December 18, 1989, Lou

' Pursuant to Commission policy and Rule of Practice and Procedure
87, the Assistant General Counsel in charge of reviewing applications for
rehearing, for good cause shown, granted NSSTC permission to file its
reply after the period provided for in Rule 86.2 had expired.

,

E-2

Filipovich (Filipovich) filed a petition for modification of the
Decision. On that same date, in D.89-12-054, we extended the
stay of the Decision pending further order of the Commission, in
order to provide sufficient time to carefully consider the numerous
allegations raised in the lengthy applications for rehearing.

We have now completed our review of the applications for
rehearing, the replies, and the petition for modification and are
prepared to respond to them. But first, we wish to comment on
the applications, particularly the application of CTA. CTA’s
application for rehearing was 180 pages long. In light of its
repetitious and often pointless arguments, this length was exces-
sive. Moreover, despite the length of its application, CTA made
many vague references to the record, claiming that there was
unrebutted evidence in the record concerning various points
without citing to any particular exhibit or transcript page. (See,
e.g., CTA’s application at 56, 119.) Our Rule of Practice and
Procedure 86.1 provides that:

Applications for rehearing shall set forth specifically the
grounds on which applicant considers the order or decision of
the Commission to be unlawful or erroneous. Applicants are
cautioned that vague assertions as to the record or the law,
without citation, may be accorded little attention.

We have dealt with the applications for rehearing of the Decision
in accordance with Rule 86.1. (See also Public Utilities Code
§ 1732). "

Having carefully considered each of the issues and arguments
raised in the applications for rehearing, we are of the opinion that
the ‘cision should be modified in several respects. In response
to criticisms of the Decision’s variable cost floor, we have recon-
sidered the need for, and the appropriate method of calculating,
this floor. Based on our review of the evidence, our legal analysis,
and due consideration of the arguments of the various applicants
for rehearing and those filing responses, we have decided: (1) that
this floor should apply only to common carriers, and (2) that we
will use, at least on an interim basis, the minimum wage, rather
than carrier-specific calculations, to determine the driver labor
component of the variable cost floor. We explain the reasons for

E-3

adopting these aspects of our general freight program in a Modi-
fied Decision attached hereto.’

We remain committed to the concept of a variable-cost floor
price for common carriers as a part of our new general freight
program. And we do not wish to delay implementation of this
program. Accordingly, the Modified Decision adopts a variable
cost floor that we will implement at the earliest possible date, at
least on an interim basis.’ However, in light of the considerable
concern expressed about how the variable cost floor ought to be
calculated, we will grant a limited rehearing to consider: (1) com-
ments on our adopted, interim variable-cost floor price, and (2)
any alternative proposals for determining a variable-cost floor for
common carriers. At this limited rehearing we will also consider
how the figures used in calculating the variable cost floor can be
updated from time to time. This rehearing wiil not reconsider
whether a variable-cost floor ought to be the rate floor for
common carriers. In the meantime, we will proceed to imple-
ment the variable cost floor as adopted in the attached Modified
Decision.

We have carefully considered each of the issues and arguments
raised in the applications for rehearing and are of the opinion that
sufficient grounds for granting rehearing have not been shown,
other than to the extent outlined above. Accordingly, we will lift
our prior stay of the Decision. We are, however, of the opinion
that the Decision should be modified in several additional re-
spects. Many of these changes are intended to better explain our
new general freight program and why we are adopting it. Other
changes just involve fine-tuning in the details of General Order
147-B. We will not here recapitulate all of the changes we are

* Rather than including in this decision line-by-line modifications to
the onginal Decision, we are attaching to this decision a complete
version of D. 89-10-039 as modified today (the Modified Decision).
This consolidated document will make it easier for all those affected to
understand our new general freight program.

We are making the General Orders that implement our new program
effective March 15, 1990, to allow sufficient time for printing and
distnbution of the Modified Decision and the General Orders

E-4

making in the Decision and its accompanying General Orders.
They appear in the attached Modified Decision.

In its application for rehearing, CTA alleges that the Commis-
sion must prepare an Environmental Impact Report (EIR)
before implementing our new general freight program. We have
previously concluded that while the poticy provisions of the
California Environmental Quality Act (CEQA) (Public Re-
sources Code § 21000 et seq.) apply to ratemaking proceedings,
the EIR provisions of CEQA do not. Re: Rules of Practice and
Procedure, 75 Cal. P.U.C. 133, 142 (1973); Peninsula Commute
and Transit Committee, 75 Cal. P.U.C. 243 (1973). The Deci-
sion implements a new system for regulating the rates of general
freight carriers. Thus, this is a ratemaking proceeding and the
EIR provisions of CEQA do not apply. The Modified Decision
does consider the environmental impacts CTA alleges.

To the extent that we have neither granted limited rehearing
nor modified the Decision, we are of the opinion that the argu-
ments raised in the applications for rehearing lack sufficient merit
to require any further response. To a large degree the applications
for rehearing merely reargue points raised earlier and rejected in
the original Decision.

We have also considered the arguments raised in the Petition
for Modification filed by Filipovich. Filipovich asks us to hold the
Decision in abeyance pending resolution of unresolved issues
concerning subhaulers, including Filipovich’s request for imple-
mentation of a mandatory rate system for subhaulers. We are
unwilling to delay the needed reforms contained in the Decision
until we are able to resolve the subhauler issues. On the other
hand, we note that the Decision ordered additional hearings on
several subhauler issues, including possible rules on the division of
revenues between prime carriers and subhaulers. Accordingly, we
will dismiss Filipovich’s petition for modification without
prejudice to his participation in those additional hearings. We will
consider the proper resolution of the several subhauler issues after
the conclusion of those hearings.

E-5

Conclusion of Law

The EIR provisions of the California Environmental Quality
Act do not apply to a ratemaking proceeding such as this one.

Therefore, good cause appearing,
IT IS ORDERED that D.89-10-039 is modified as follows:

1. D.89-10-039 is replaced by Modified D.89-10-039, At.ach-
ment | hereto. More specifically Pages 1 through 139 are replaced
by Revised pages | through 153 and Appendices C, D, and E are
replaced by revised Appendices C, D, and E. Appendices A, B,
and F remain unchanged. Attachment | hereto is a complete
version of the Modified D.89-10-039 (and includes the revised
General Orders and all other appendices as well).

IT IS FURTHER ORDERED that:

2. A limited rehearing is hereby granted to consider com-
ments on the adopted variable-cost floor for common carriers, any
alternative proposals for determining a variable-cost floor for
common carriers, and how the figures used in calculating the
variable-cost floor can be updated from time to time. Any
alternative proposals concerning just what costs should be in-
cluded within the variable-cost floor and how the variable-cost
floor should be calculated will fall within the scope of this limited
rehearing. However, alternatives proposing that something other
than variable cost should be the basis of our common carrier floor
price are outside the scope of this limited rehearing. Proposals to
subject special contracts to the floor price are also outside the
scope of this limited rehearing.

3. This limited rehearing shall be held at such time and place
and before such Commissioner or Administrative Law Judge as
shall hereafter be determined.

4. The Executive Director shall provide notice of such rehear-
ing to the parties hereto in the manner prescribed by Rule 52 of
the Commission’s Rules of Practice and Procedure. Persons who
have not made a formal appearance in this case and who wish to
be notified of the date of the rehearing should contact the
Commission’s Process Office.

E-6

5. Except as granted herein, rehearing of D.89-10-039, as
modified hereby, is denied.

6. The stay of D.89-10-039, ordered by D.89-12-054, is
hereby lifted.

7. Filipovich’s petition for modification of D.89-10-039 is
denied, without prejudice to his raising at our additional hearings
on subhauler issues any matters discussed in his petition for
modification that are relevant to those proceedings.

8. The Executive Director shall serve a copy of this decision,
including Attachment 1, on all highway common carriers and
highway contract carriers.

This order is effective today.

Dated February 7, 1990, at San Francisco, California.

G. MITCHELL WILK
President
FREDERICK R. DUDA
STANLEY W. HULETT
JOHN B. OHANIAN
PATRICIA M. ECKERT
Commissioners

E-7
INDEX
Subject
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ES
ES ee eee
California Trucking Association (CTA) ........ cay
Ad Hoc Carriers Committee (Ad Hoc) ............
California Teamsters Public Affairs Council
Ne ee eeseess
Highway Carriers Association/Willig Freight Lines
Ee
Parties Represented by Edward J. Hegarty (Hegarty)
West Coast Freight Tariff Bureau (WCFTB) .......
Pacific Motor Taniff Bureau (PMTB).......... ae
Cal-West Tariff Bureau (CWTB) .................
National Motor Freight Tariff Association (NMFTA)
rouper Athearn, 3r. (Athearn) .........-0cceeveeee
ee SIs ogg uly dix u 6 np_s.00 «40 4s
Parties Represented by Gary Haas (Haas)..........
Division of Ratepayer Advocates (DRA) ...........
California Coalition for Trucking Deregulation and
ee
Silver, Rosen, Fischer & Stecher, P.C. (Fischer) ....
California Manufacturers Association (CMA).......
Center for Public Interest Law (CPIL) ............
National Small Shipments Traffic Conference, Inc. and
Health and Personal Care Distribution Conference,
est oe wae be 69 We rus, «
Amenicans for Safe and Competitive Trucking (ASCT)
United States Federal Trade Commission (FTC) ....
United States Department of Transportation (DOT)
California League of Food Processors (CLFP) ......
Analysis of Current Regulatory Program ......
Policy Considerations............. Ber
Goals of Truck Regulation |
“Destructive Competition” .........

Revised
_Page
E-10
E-10
E-1]
E-12
E-13
E-13
E-17

E-8

Revised

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EES Rg eT ee E-48
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TE REET De Foe py a E-5]
EE a ars rer ee E-52
a ae ri re We wing wines wins E-52
Legal Authority for a Flexible Rate System ......... E-56
Contract vs. Common Carriage.................... E-6]
Zome OF ReasOMaABbemess... wc ccc cence E-63
Safety and Entry Requirements ................... E-66
Parties Supporting Rate Regulation.............. E-67
Parties Supporting Direct Enforcement........... E-69
se yay does bee sees en ee
Py TRGUPOMIIOUINGS «. «2 5 5 nce e cee: E-73
ee ee a i week e eke wd E-75
Adopted Regulatory Program ....................... E-77
Common Carmer Tariff Rates................... E-77
Common Carner Contracts Rates ................ E-78
Pere E-78
I oe owas ude cree cweevc.ee¥s E-79
Ne eg oe ao a-ase br E-79
URC REe SOO Cate ed yn anne eed E-79
Safety, Service and Price Discrimination............ E-82
Limits to Zone of Reasonableness ................. E-84
A eae celedece ca ness cs E-87
Incentives for Common Carnage .................. E-9]
Common Carner Contract Regulations ............. E-93
special Contract Regulations ...............:.+.+:- E-94
TS gi ge a a greg only yg! oly wil tnd os E-96
Environmental Considerations..................... E-98
Legal Authority for Adopted Program.............. E-99
ee eae OR ie 5 wie, 9. ewe oS E-99
Cr ae eg a ea de was E-10]
ARE gre Siete yn a Ane Ree AD E-105
EPR aep ara iia eg Sarees Sram ah Anta eae ph E-105
CE CL UL al! oa Neat at 5 hee acct E-106

E-9

Revised
Subject Page
SE asi eh aha ener eae oh ee teen eee E-108
PU a dc ovat eas eae eee hoe ek cso N es E-108
Mike Conrotto Trucking (Conrotto) ............. E-110
Southern California Motor Delivery, Inc. (SCMD) E-110
RA aes cera ous cn aa eC ers nee on E-110
DRA, Coalition and Dedicated Contract Carriage,
Tn wages ose Weasel dae de euin ee woe ee E-110
BR EE RIE oat Ee cee SNE ars E-111
Cee SE 3 i555 ch ceadea te obaveuGores E-115
De tedovdt eles ceekece eer es LAR e rook E-116
en oxs cad er es Dees ee We kee nurinus E-116
SE cos be oe tiene payt eh eee sare’ F-116
* er eet ste Peay acetate E-117
Dee eC RG had Kise Wak Shean rmemeeey E-117
RE FEL y Tesh stage l owwawee tiene keke aiada E-117
ON Cad os bs iy 50a dad oes ears eee waen E-117
ERE Rs ees otk A a a. E-117
Ne he ig a ane ee ree ye tis Rid Ge E-117
GE ig oy as Sek plank eee vA ii ae atiwe ments E-118
Epectvomas Dein TMIGTCROMNE . coi bac chee cece E-119
nr ae E-119
PUR ere wa gn On oe ck Oe «ere ee E-123
Sa sell ies pret Ree te ree eR Fiend E-143
AR aie ei BE, Eeeread pet aay Ten keg ae LA ea ILA F-145
TABLE | Current Regulatory Program ............. E-39
TABLE 2 Motor Carrier Safety Programs ........... E-74
TABLE 3 Calculation of Other Costs............... E-89
TABLE 4 Adopted Regulatory Program............. E-122
APPENDIX A. List of Appearances ............... E-148
APPENDIX B. Applicable Sections of the Constitution,
Pumme Utlees Code ............-.: E-150
APPENDIX C. General Order 80-C ............... E-163
APPENDIX D. General Order 147-B .............. E-176
APPENDIX E. General Order 155-A .............. E-194

APPENDIX F. List of Acronyms................ . E-200

E-10

ATTACHMENT |

Decision 89-10-039
as modified by Decision 90-02-021 on February 7, 1990

BEFORE THE PUBLIC UTILITIES COMMISSION OF
THE STATE OF CALIFORNIA

In the Matter of the Regulation
of General Freight Transportation
by Truck.

1.88-08-046
(Filed August 24, 1988)

(Appearances are listed in Appendix A.)

Decision on Rate, Safety, and Subhau! Regulation
for General Freight Transportation

OPINION

Summary

This decision finds that a workably competitive market exists in
the general freight trucking industry and adopts a flexible regula-
tory program which allows the efficiencies of the market place to
determine transportation rates. In addition to the flexible rate
program a number of safeguards are adopted to ensure the public
is provided safe, reliable service at reasonable, nondiscmminatory
rates. These safeguards include some limitations on common
Carner rates, a monitoring program, a minimum level of service
requirement for common carmiers, a requirement that all rates and
associated discounts be filed and available for public inspection,
and a toll-free telephone number for verifying carner operating
authonity

We believe this approach provides the benefits of competition
with the control of regulation only where needed. Carners will be
able to openly compete for customers, but common carriers will
not be allowed to discnminate without justification. Shippers will
be free to have service tailored to their needs, and the trucking

E-1]

industry will be able to respond to market pressures rather than
regulatory mechanisms. We fully expect the dynamics of Califor-
nia’s economy to be matched by the dynamics of general freight
trucking, with the public the main benefactor of a more respon-
sive and efficient industry. Safety will not be compromised in this
achievement. Commission initiated and legislatively mandated
programs will be in place to provide the public with direct
regulation and enforcement of safety standards.

Under our flexible program, common carners wi!! be allowed
rate freedom within a zone of reasonableness. The upper end of
the zone is a 10% annual cap on rate increases; the lower bound is
a minimum level of vanable costs. Common carrier rate changes
outside the adopted zone and collectively set rates require a
formal application with appropnate justification. Contract carriers
are not restricted by the adopted zone ir establishing rates. To
minimize direct competition between common and contract carmi-
ers, contract carners are only authonzed to enter into special
contracts which provide for a special relationship between the
carner and the shipper or for service not normally provided under
common carner tanffs. All rates and contracts must be filed with
the Commission. However, common carrier rate changes not
requiring an application are effective on 10 days’ notice. Special
contracts are effective after 20 days’ notice.

Subhauling will be subject to a division of revenues (between
prime carner and subhauler) to be determined after additional
hearings.

Background

The issues raised in this proceeding were first addressed in Case
(C.) 5436, et al., and later in Decision (D.) 90663, dated August
14, 1979. That decision set up a transition period leading to
decreased rate regulation. (At about the same time, D.89575
(October 31, 1978) resulted in the initial opening of entry into the
general commodities common carnage field for thousands of
California permitted carners.) With the passage of five years,
1.84-05-048 was opened. That investigation included 26 hearing
days, testimony from many segments of the transportation com-
munity, and an en banc oral argument. Finally, D.86-04-045,

E-12

dated April 16, 1986, adopted the present regulatory program as
represented in General Order (G.O.) 147-A. Before its adoption
in D.86-12-102, G.O. 147-A was the subject of extensive work-
shops conducted by the Commission’s Transportation Division
staff.

G.O. 147-A implemented a system of carrier-made rates, a rate
window, rate exempt dedicated equipment contracts, and the
imposition of a Truck Freight Cost Index (TFC!) that impacts
rates for common and contract carners in California. Addition-
ally, the decision set up a new procedure for future justification of
reduced rates and the review of rate reductions that were granted
during the transition period.

It should be clear to the trucking industry that the progression
of our attempts to meet the changing situation in California
intrastate transportation has been developing over an extensive
period. Our movement toward relaxed rate regulation has not
been easy, but the issues have been repeatedly addressed and the
parties have had ample opportunity to assemble their evidence
and develop the record.

Aside from the fact that this proceeding is only part of a
continuing progression of investigations, this is not a proceeding
that contemplates total deregulation. The proposals which have
been presented are premised on the Commission retaining juns-
diction over the carriers operating in the State. This would be
consistent with our treatment of various aspects of specialized
transportation such as fresh fruits and vegetables and tank truck
operations, which were released from rate regulation only.

Procedural History

On December 16, 1987 an order was issued setting en banc
hearings to consider the State’s regulation of the for-hire trucking
industry. This included consideration of all sectors in the trucking
industry, not just general freight. En banc hearings were held in
San Francisco on March 10 and 11, 1988 and in Los Angeles on
March 18, 1988. At those hearings panels of experts and a parade
of witnesses, including the Commission’s Division of Ratepayer
Advocates (DRA), expressed concerns about the regulation of
the for-hire trucking industry.

E-13

On August 24, 1988, Order Instituting Investigation (1.) 88-
08-046 an investigation into the regulation of general freight
transportation by truck was issued. 1.88-08-046 identified the
Commission’s regulatory objectives and invited a thorough re-
examination of the current scheme of regulation. Prehearing
conferences which established procedural rules were held on
September 14, 1988 and October 17, 1988.

Fifty-four days of evidentiary hearings commenced on Novem-
ber 7, 1988 and concluded on February 24, 1989. Additionally,
two public comment hearings were held, one in Los Angeles on
December 5, 1988 and the other in San Francisco on December
12, 1988. The 56 volumes of transcripts totaled 7,286 pages.

The appearance list includes 59 individuals and organizations,
18 of which submitted briefs. One hundred six witnesses offered
testimony including !9 rebuttal witnesses. A total of 186 exhibits
and 13 reference items were received.

In accordance with § 311, the proposed decision of ALJ Fer-
raro was mailed on June 6, 1989. Comments were received from
16 parties. These have been reviewed and carefully considered by
the Commission. Many changes induced by the comments and
during our own deliberations have been incorporated into the final
decision.

Positions of the Parties

Below is a description of each party’s position with respect to
rate regulation. The parties strongly disagreed on the proper
amount of rate regulation for the general freight trucking indusiry.
Their positions spanned the continuum from total deregulation to
rigid rate regulation. In addition to the main issue of rate
regulation, parties also addressed the closely related issues of:
collective ratemaking, subhauling, safety, and credit rules. Each
issue is discussed in a separate section.

California Trucking Association (CTA)

CTA is one of the largest and most active trucking organiza-
tions in the State, with about 2,500 members. CTA conducts
programs on management and truck safety, has local and state-

E-14

wide committees which address important trucking issues, and
engages in lobbying activities on behalf of its members.

CTA recommends increased economic regulation for a stable
industry capable of meeting the state’s needs. Additionally, CTA
fears rate deregulation will cause rate discrimination, a reduction
in service to small shippers and rural communities, increased
highway accidents, and an increase in highway congestion and air
pollution. If the market is allowed to set transportation rates,
CTA argues that the Commission would give advantage to large
volume shippers and high-volume traffic lanes.

According to CTA, during relaxed rate regulation (1980-1986)
shippers, using market power, forced carriers to lower rates. This
resulted in reduced carrier revenues and discouraged capital
investment. General freight carriers suffered major losses of
capital which manifested themselves in bankruptcies, exit from
the industry, older equipment, and lower wages. The large num-
ber of bankruptcies and firms exiting the industry during this
transition period resulted in poor quality service to some shippers
and general instability in the industry. CTA states that lower
trucking rates in the transition period: (1) increased shipper
profits by nearly $1 billion, (2) were not passed through to
consumers, and (3) continued until the current regulatory pro-
gram was instituted.

CTA points out that in 1986 California carriers received a 10%
rate increase. the first general rate increase in the Commission
tariffs since 1980. This led to reinvestment in trucking equipment
and employee drivers. To plunge these carriers back into cutthroat
rate competition would cause disastrously low profit margins,
impossible debt-to-asset ratios, and increase the difficulty of
attracting new capital. Furthermore, market-set raies lead to
overcapacity; carriers expand fleets and duplicate services in an
attempt to increase market share. This results in an extra cost that
society eventually pays for in pollution, congestion, and higher
rates to shippers without market power.

CTA also asserts that the less-than-truckload (LTL) industry
has large economies of scale which support predatory behavior.
CTA points to the significant concentration in the interstate LTL

E-15

industry since rate deregulation in 1980 as evidence of this
behavior. Additionally, CTA cites examples of rate discrimination
in rate deregulated markets by Interstate Commerce Commission
(ICC) carriers and lost service and increased rates to rural
shippers. CTA believes that: (1) secret rates and discounts
prevalent under deregulation prevent shippers from making in-
formed decisions and effectively bargaining for rates, and (2)
service to rural areas does not always support multiple carriers,
which without rate regulation will result in shippers paying
monopoly prices.

According to CTA, highway safety has also suffered because of
relaxed rate regulation. CTA claims reductions in rates have lead
to the use of older and inadequately maintained equipment, lower
driver wages, and inadequately trained and emotionally unsuited
drivers. CTA states that truck drivers are identified as the primary
cause of over 90% of truck-at-fault accidents and argues that a
direct connection exists between rate regulation and highway
safety. Additionally, CTA believes that carriers in poor financial
condition will delay needed maintenance, hire poor quality driv-
ers, and operate in an unsafe manner.

In another area related to motor carrier infrastructure, CTA
cites the recent enactment of SB 151 (Stats. 1987, Ch. 1301)
which gave the South Coast Air Quality Management District
(District) authority to restrict traffic within its jurisdiction. The
law also provides for the formation of other jurisdictions through-
out the state. Among the proposals being considered by the
District are peak period fee assessment, traffic diversion, requiring
Carriers to retrofit equipment with engines which burn clean fuel,
and outright bans. Additionally, the City of Los Angeles has
proposed ordinances and the California Air Resources Board has
adopted guidelines for restricting truck traffic to minimize air
pollution. CTA claims this threatens free access to California's
freight transportation infrastructure and recommends Commis-
sion action to reduce the involvement of local jurisdictions.

CTA’s proposed regulatory program will require all common
carriers to file rates through tariff bureaus granted Public Utilities
(PU) § 496 antitrust immunity. Within the bureaus, individual
carriers will have the right of independent action. Proponents of

E-16

any change in a common carrier rate must either be a tanff
bureau member carrier whose traffic is directly affected, or an
affected freight bill payer. All bureau rate changes must receive
Commission approval before publication. All common carriers
must publish rates to all points and places in their service area.
Cost justifications for rate changes shall include the costs of
Operating in compliance with all State and Federal laws including:
the speed limit, hours of service limitations (including waiting or
delay times), and compliance with weight regulations.

Contract carriers will be required to file contracts with the
Commission. Rate increases may be filed on one day’s notice and
rate reductions must be filed on 30 days’ notice, measured from
the date of publication in the Commission’s Transportation Cal-
endar. Rate reductions must be cost-justified under the same
rules aS common carmer cost justifications. All contracts must
include a provision which makes the shipper co-liable for all
accidents arising from the carner’s performance for the contract
shipper. A carrier would have no limit on the number of non-
dedicated contracts it may enter.

Contract carriers will be limited to three dedicated contracts.
To be eligible to use dedicated contracts a contract carrier must
meet the following conditions: (1) only carrier employees or
subhaulers paid in accordance with a cost-justified settlement
schedule may be used, (2) balance sheet assets must be at least
1.4 times greater than current liabilities, (3) labor cost on the
_Carrier’s income statement must meet the labor ratio test, (4) at
least 50% of the carrier’s revenue must be earned from intrastate
California transportation, and (5) a driver selection and training
program, and an equipment maintenance, repair and replacement
program must be in place.

Additionally, carriers wishing to use cost justifications and
dedicated contracts must place, at an acceptable lev

[Text truncated at 120,000 characters. The full text is on the page linked above.]

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385009_2764%3A02. Public record. Not legal advice.