Petition — American Trucking Assns. v. United States

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IN THE

Supreme Court of the United States

OCTOBER TERM, 1983

AMERICAN TRUCKING ASSOCIATIONS, INC., et al.,

. Petitioners,

UNITED STATES OF AMERICA and

INTERSTATE COMMERCE COMMISSION,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

NELSON J. COONEY

Gen. Counsel

ROBERT A. HIRSCH

Attorney

(Counsel of Record)

AMERICAN TRUCKING ASSOCIATIONS,

INC.

1616 P Street, N.W.

Washington, D.C. 20036

(202) 797-5343

KEVIN M. WILLIAMS

Counsel

REGULAR COMMON CARRIER

CONFERENCE, INC.

1616 P Street, N.W.

DONALD E. Cross

(Counsel of Record)

THOMAS M. AUCHINCLOSS, JR.

BRIAN L. TROIANO

Rea, Cross & AUCHINCLOSS

700 World Center Building

918-16th Street, N.W.

Washington, D.C. 20006

(202) 785-3700

Attorneys for Petitioner,

Steel Carriers’ Tariff Association,

Inc.

RoBert J. HIGGINS

JOAN M. DARBY

DICKSTEIN, SHAPIRO & MORIN

Suite 1000

2101 L Street, N.W.

Washington, D.C. 20037

(202) 828-2249

Attorneys for Petitioner,

International Brotherhood of

Teamsters, Chauffeurs,

Warehousemen and Helpers

of America

QUESTIONS PRESENTED FOR REVIEW

The Interstate Commerce Act requires a motor carrier

which transports property for compensation to obtain

operating authority from the Interstate Commerce Com-

mission and comply with various statutory requirements.

A shipper which transports its own freight is not sub-

ject to ICC regulation. When a shipper leases both

equipment and drivers from a single-source to transport

its own freight, the Commission must determine if the

transportation is for-hire carriage subject to regulation

or exempt private carriage. With this background, the

following questions are presented:

1. Whether the Eleventh Circuit erred in finding

that the new test established by the ICC for de-

termining whether a leasing arrangement is reg-

ulated for-hire motor carriage or exempt private

motor carriage is consistent with the Motor Car-

rier Act of 19807

2. Whether the Eleventh Circuit, contrary to the

Fifth Circuit decision in Central Forwarding,

erroneously concluded that the National Trans-

portation Policy is an independent source of

power for ICC action designed to enhance the

economic position of unregulated entities to the

detriment of regulated carriers?

3. Whether the Eleventh Circuit misinterpreted

this Court’s decision in Drum to permit the ICC

to reject the requirement that the characteristic

burdens of transportation, including an employ-

ment relationship, be present if a single-source

leasing arrangement is to ~ualify as bona fide

unregulated private carriage?

(i)

THE PARTIES

The parties to the proceeding before the Eleventh Cir-

cuit are listed below.

Petitioners and intervenors supporting petitioners

were as follows:

American Movers Conference,

American. Trucking Associations, Inc.,

Bowman Transportation, Inc.,

Charter Express, Inc.,

Common Carrier Conference—Irregular Route (now

Interstate Carriers Conference“),

Frank Bros. Trucking Co.,

Hedrick Associates, Inc.,

Import Dealers Service Corporation,

International Brotherhood of Teamsters, Chauffeurs,

Warehousemen and Helpers of America,

J. H. Rose Truck Line, Inc.,

National Association of Regulatory Utility Commis-

sioners,

National Automobile Transporters Association,

National Tank Truck Carriers, Inc.,

North Alabama Transportation, Inc.,

Osborne Truck Line, Inc.,

Port Norris Express Co., Inc.,

Regular Common Carrier Conference, Inc.,

Ryder Truck Lines, Inc.,

Senn Trucking Company,

Southern Intermodal Logistics, Inc.,

Specialized Carriers and Rigging Association, and

Steel Carriers’ Tariff Association, Inc.

Respondents and intervenors supporting respondents

were as follows:

United States of America,

Interstate Commerce Commission,

National-American Wholesale Grocers’ Association,

National Industrial Traffic League (now “National

Industrial Transportation League”),

Private Carrier Conference, Inc., and

Private Truck Council of America

111

Petitioners American Movers Conference, Interstate

Carriers Conference, National Automobile Transporters

Association, National Tank Truck Carriers, Inc., Regular

Common Carrier Conference, Inc., and Specialized Car-

riers and Rigging Association are affiliated conferences

of the American Trucking Associations, Inc. (ATA). The

intervening-respondent Private Carrier Conference, Inc.,

is also an affiliated conference of ATA. Ryder Truck

Lines, Inc., is a wholly-owned subsidiary of IU Interna-

tional Corporation. Through IU, Ryder Truck Lines,

Inc., is affiliated to the numerous companies listed in Ap-

pendix G. Petitioners herein are not aware of any other

corporate affiliations of the parties.

TABLE OF CONTENTS

TABLE OF AUTHORITIES

JURISDICTION

STATEMENT OF THE CASE

REASONS FOR GRANTING THE WRIT

a. The case is of exceptional national importance

because of its critical impact on the viability of

the regulation of for-hire motor carriage Con-

gress reaffirmed in the Motor Carrier Act of

1980

b. The decision of the Eleventh Circuit conflicts

directly with a decision of the Fifth Circuit re-

garding the National Transportation policy

c. The decision conflicts with the principle estab-

lished by this Court regarding the control and

characteristic burdens of transportation a ship-

per must assume in single-source leasing ar-

. =

CONCLUSION

(v)

TABLE OF AUTHORITIES

CASES: Page

American Trucking Ass’ns, Inc. v. Atchison, To-

peka, & Santa Fe Railroad Co., 387 U.S. 367

(1967) 10

Central Forwarding, Inc. v. ICC, 698 F.2d 1266

D 10, 11, 12

Ex Parte No. MC-122 (Sub-No. 2), Lease of Equip-

ment and Drivers to Private Carriers, 132 M. C. C.

756 (1982) 2

Heavy Equipment Rental Co., Investigation, 98

ine . 15, 16

Lovell —Investigation of Operations, 92 M. C. C. 728

(1963) 15

Ontario Company Declaratory Order, 112 M. C. C.

211 (1970) 15

Personnel Service, Inc.— Investigation or Opera-

tions and Practices, 110 M. C. C. 695 (1969) 15, 16

Rayette, Ine.— Investigation of Operations, 108

M. C. C. 410 (1969) 15

SEC v. Chenery Corp., 822 U.S. 194 (1947) 12

United States v. An Article of Drug Bacto-Unidisk,

394 U.S. 784 (1969) ; 5

United States v. Drum, 368 U.S. 370 (1962) e 3, 5, 13,

14, 15, 16

62 Cases, More or Less, Each Containing Six Jars

of Jam, et al. v. United States, 340 U.S. 593

(1951) 5

STATUTES:

28 U.S.C. § 1254 (1) 2

28 U.S.C. § 2342 (5) 8

28 U.S.C. § 2844

49 U.S.C. § 10101. —————— 4, 10, 11, 1

Motor Carrier Act of 1980, Pub. L. No. 96-296, 94

Stat. 798 et seq. (July 1, 1980) a passim

Section 8

Section 5

Section 5 (b) (4)

Section 7

Section 9 6,

Section 10 (a) (2)

vii

TABLE OF AUTHORITIES—Continued

MISCELLANEOUS: Page

H.R. Rep. No. 96-1069, 96th Cong., 2d Sess.

(19800) 6, 7, 8

S. Rep. No. 96-641, 96th Cong., 2d Sess. (1980) 7

———,

IN THE

Supreme Court of the United States

OCTOBER TERM, 1983

No.

AMERICAN TRUCKING ASSOCIATIONS, INC., et al.,

Petitioners,

UNITED STATES OF AMERICA and

INTERSTATE COMMERCE COMMISSION,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

The American Trucking Associations, Inc., Interstate

Carriers Conference, National Automobile Transporters

Association, National Tank Truck Carriers, Inc., Regu-

lar Common Carrier Conference, Inc., Specialized Car-

riers and Rigging Association, Steel Carriers’ Tariff As-

sociation, Inc., and International Brotherhood of Team-

sters, Chauffeurs, Warehousemen, and Helpers of Amer-

ica, respectfully petition for a writ of certiorari to re-

view the judgment of the United States Court of Ap-

peals for the Eleventh Circuit.

peals for the Eleventh Circuit, attached as Appendix B,

is reported at 716 F.2d 1369 (1983).

JURISDICTION

The decision of the Eleventh Circuit was entered on

October 11, 1983. Petitioners moved the court on Octo-

ber 26, 1983 for a stay of the mandate. pending the filing

of a petition for writ of certiorari. By order dated No-

vember 17, 1983, the Eleventh Circuit granted the motion

and stayed its mandate to and including December 5,

1983 (Appendix C). By subsequent order, the court fur-

ther stayed its mandate to and including December 7,

1983 (Appendix D). The jurisdiction of this Court is

invoked under 28 U.S.C. § 1254(1).

STATUTES

The relevant statutory provisions are set forth in Ap-

pendix E.

STATEMENT OF THE CASE

After notice and comment, the Interstate Commerce

Commission (ICC or Commission) on February 17, 1982

served its decision in Ex Parte No. MC-122 (Sub-No. 2),

Lease of Equipment and Drivers to Private Carriers, 182

M. C. C. 756 (1982). This decision rejected the long-

standing “control and substance” test applied by the ICC

and by federal courts for determining whether a lease

of both of the traditional instrumentalities of transpor-

tation—vehicle and driver—from a single source consti-

tutes for-hire carriage (subject to ICC regulation) or

private carriage (exempt from such regulation). Under

the “control and substance” test, a shipper which leases

stitute unlawful for-hire carriage, and the burden to

rebut has rested upon the parties to the lease.'

The first prong, the control test, requires that the

shipper direct, dominate, and control the transportation.

The second prong, the burdens test, requires that the ship-

per bear the financial risk for the operation of the vehi-

cle and the carriage of its goods. This two-pronged test

was established by this Court in United States v. Drum,

368 U.S. 370 (1962).

In lieu of the control and substance test, the ICC has

substituted a so-called “control and responsibility” test,

under which leasing arrangements are, as a practical

matter, presumed to be exempt private carriage. Under

this test, a shipper’s right to lease transportation no

longer requires that the lessor’s driver enter into an em-

ployee relationship. Moreover, the new test defines the

characteristic burdens of transportation as the burdens

of management and responsibility to the public rather

than the customary financial burdens associated with the

maintenance, depreciation and risk of equipment non-

utilization. The avowed purpose of this concededly more

lenient test is to improve the efficiency of.exempt pri-

vate carriage and to give unregulated owner-operators

an additional source of revenue. Appendix A at 21a.

Petitions for review of the ICC’s decision were filed

with the Eleventh Circuit in No. 82-5247 on February

26, 1982, and in No. 82-8133 on March 4, 1982, pursuant

to 28 U.S.C. §§ 2342 (5) and 2344.2 The court consoli-

dated the two docketed cases.

1 The single-source lessor may be (a) an owner-operator, (b) a

“fleet” owner, or (c) a commercial leasing company, such as Hertz

or Leaseway Transportation (see Appendix F).

2 Ryder was the petitioner below in No. 82-5247; ATA and all

others petitioners herein were petitioners below in No. 82-8183.

Petitioners and intervening petitioners were regulated motor car-

riers, associations of such carriers, National Association of Regu-

Petitioners presented five main arguments to the court.

First, the ICC’s decision is a rule rather than a policy

statement. Second, the agency’s decision is irrational

because it is inconsistent with and undermines the statu-

tory scheme for the regulation of transportation, includ-

ing the changes enacted in the Motor Carrier Act of

1980 (MCA). Third, the decision conflicts with this

Court’s decision in Drum, and decisions of the ICC and

other federal courts. Fourth, the agency improperly re-

lied upon the National Transportation Policy (NTP),

49 U.S.C. § 10101, as a mandate to improve the competi-

tive capabilities of non-regulated transportation entities

vis-a-vis regulated motor carriers. Finally, the ICC failed

to abide by the requirements of the National Environ-

mental Policy Act and the Energy Policy and Conserva-

tion Act.

The Eleventh Circuit rejected each of the petitioners’

arguments. It found the decision to be a policy state-

ment rather than a rule. The Eleventh Circuit con-

cluded that the ICC’s determinations on the energy and

environmental impact comported with the statutes and

regulations. It concluded that the decision was “not in-

consistent with the provisions of the Motor Carrier Act”

and found that the Commission’s assertion of changes in

the industry, as supported by the NTP, provides a ra-

tional basis for the decision. Finally, the court held that

the new test adopted by the ICC was not in conflict with

Drum.

Petitioners respectfully submit there are special and

important reasons why this Court should review the de-

cision of the Eleventh Circuit.

latory Utility Commissioners and International Brotherhood of

Teamsters. The carrier interests are aggrieved because the agency’s

decision will result inevitably in the diversion of traffic from regu-

lated motor carriers to non-regulated owner-operators, commercial

leasing companies and any other entity willing to provide a truck

and driver for the carriage of the shipper’s freight under a single-

source leasing arrangement.

REASONS FOR GRANTING THE WRIT

(a) This Case Is Of Exceptional National Importance

Because Of Its Critical Impact On The Viability Of

The Regulation Of For-Hire Motor Carriage Congress

Reaffirmed In The Motor Carrier Act Of 1980.

This Court has frequently granted certiorari when an

agency establishes a standard which defines the scope of

the administration of a remedial statute and affects the

jurisdiction of that agency to regulate in the public in-

terest. See United States v. Drum, supra; United States

v. An Article of Drug Bacto-Unidisk, 394 U.S. 784

(1969), rehearing denied, 398 U.S. 954 (1969); and 62

Cases, More or Less, Each Containing Six Jars of Jam

et al. v. United States, 340 U.S. 598 (1951).

In Drum, this Court viewed the identical question,

whether the ICC properly developed a standard for dis-

tinguishing for-hire carriage from private carriage, to

be of sufficient national importance to warrant its review.

Similarly, in Bacto-Unidisk, the Court granted certiorari

to review an agency’s interpretation of the term “drug,”

which was a prerequisite to involving the full measure of

its regulations, because it raised issues of substantial

administrative importance wie the governing statute.

394 U.S. at 791.

Petitioners submit that the decision of the Eleventh

Circuit poses the same crucial issues as those posed in

these previous cases and thus warrants review. The

Eleventh Circuit’s decision undermines the essence of the

system of economic regulation of for-hire carriage con-

templated by Congress, and renders nugatory the recent

legislative changes made by Congress in the MCA.“ It will

have a significant and swift impact on the regulation of

Neither the ICC’s nor the court’s decisions adequately illumi-

nates the severe adverse economic impact of the ICC’s decision on

regulated motor carriers. The agency record contains substantial

evidence of freight diversion from regulated motor carriers to

single-source leasing arrangements.

for-hire carriage, because every owner-operator, which

are estimated to be in excess of 125,000, fleet owners,

and all commercial leasing companies, such as Leaseway

Transportation which has over 8,000 drivers and 78,000

vehicles, are permitted to enter into unregulated and

secretive leasing arrangements with shippers to perform

transportation for-hire not subject to ICC regulation.

Given huge nationwide commercial lessors such as Lease-

way, the vast population of independent owner-operators,

the vague and often-conflicting standards enunicated by

the ICC (see, e.g., Appendix A at 34a-35a n.34), and the

systematic reductions in the ICC’s enforcement staff,

any meaningful enforcement of the new test will be

impossible.

The Eleventh Circuit has concluded that the ICC’s de-

cision “is not inconsistent with the provisions of the

Motor Carrier Act.”* The court reached this erroneous

conclusion, notwithstanding that by its own analysis the

statutory provisions relied upon by the ICC provided no

support for the decision.

The court noted that the ICC relied upon sections 5, 7,

and 9 of the MCA. Among other things, section 5 re-

duces the burden of proof that an applicant has to meet

in order to obtain motor carrier operating authority

from the ICC. The court agreed with petitioners’ argu-

ment that the “greater leniency in determining whether

a particular arrangement constitutes private carriage

might be viewed as inconsistent with a congressional pol-

icy of encouraging entry into the regulated sector” (em-

phasis in original) .*

Attached as Appendix F is a full page advertisement of Lease-

way Transportation which was placed on several recent occasions in

prominent newspapers and periodicals having nationwide circulatio=.

5 Appendix B at 89a.

* Appendix B at 87a. Additionally, in sections 5(b)(4) and

10(a)(2) of the MCA, Congress fashioned remedial relief for

independent owner-operators in order to facilitate their business

opportunities and increase their operating efficiencies. H.R. Rep.

No. 96-1096, 96th Congress, 2d Sess. 16 (1980). These provi-

The Eleventh Circuit’s decision clearly will discourage

entry by “owner-operators” into the regulated sector be-

cause they can serve shippers as independent contractors

while at the same time the shippers can shed themselves

of the financial burdens of operating a transportation

service. Moreover, it encourages regulated carriers to

voluntarily seek revocation of their operating authority,

which require compliance with ICC regulatory constraints

and impose administrative costs, and substitute single-

source leasing arrangements.

The court was unable to draw any “inferences” from

sections 7 and 9 of the MCA in support of the ICC’s

decision.

Section 7 was intended by Congress to benefit both

private carriers and owner-operators by increasing the

number of commodities exempt from ICC regulation. In

reviewing the legislative history of the provision, the

court noted that the Senate expressed “continued concern

for the diversion of traffic by private carriers from the

regulated carrier industry.“ This congressional concern

will become stark reality under the Eleventh Circuit’s

decision, which in effect renders all commodities exempt

when transported under single-source leasing arrange

ments between shippers and a variety of unregulated en-

tities.

Section 9 of the MCA permits a 100 percent wholly-

owned transportation company to provide compensated

sions established an entry provision permitting independent owner-

operators to transport food and related products upon a demonstra-

tion that they are fit, willing and able to perform the service. See

Appendix E at 101a-102a, also House Report at 16-17. This “fitness-

only” test is an exception to the more exacting entry standard

required of applicants generally; ordinarily applicants must demon-

strate fitness and that the proposed service will serve a useful public

purpose, responsive to a public need or demand.

Appendix B at 88a, citing S. Rep. No. 96-641, 96th Cong., 2d

Sess. 8 (1980).

intercorporate hauling for its parent corporation and af-

filiates. Testimony before Congress had revealed that the

ICC’s administrative prohibition against compensated in-

corporated hauling by shippers without operating author-

ity had “prevented many corporate families from maxi-

mizing their transportation potential.“ The court prop-

erly recognized that Congress rejected a proposal to re-

quire only 51 percent ownership to qualify and insisted

upon a 100 percent ownership, explaining that it was

“preserving the essential role of private carriage, but

doing so with a minimum conflict with the common car-

rier concept. Under the Eleventh Circuit’s decision,

a shipper’s transportation subsidiary which is less than

100 percent affiliated with its parent or subsidiary com-

panies can engage in compensated intercorporate hauling

simply by utilizing the device of single-source leasing ar-

rangements. This result will defeat the intent of Con-

gress, which carefully weighed and prescribed the scope

of section 9.

It is clear from the legislative history of the MCA,

that Congress sought to address and remedy the specific

problems which the affected persons, “including drivers,

independent owner-operators, shippers, truckers, and con-

sumers,” „made known to it. It did so through carefully

designed and precise revisions in the law." It is sig-

nificant that despite the many regulatory revisions leg-

islated through the MCA, Congress left intact the fun-

damental regulatory requirements which have historically

House Report at 21-22.

Appendix B at 87a.

10 House Report at 8.

11“The Motor Carrier Act of 1980 is the product of over 18

months of continuous study of one of the most complex issues ever

undertaken by [. . . Congress]. House Report at 1. The Congress

“worked hard to forge a workable, practical, reasonable piece of

legislation that will modernize the current regulatory system.”

Id. at 9.

governed the for-hire motor carrier industry. Congress

has retained the statutory requirement that for-hire

motor carriers must obtain operating authority from the

ICC before performing for-hire transportation. Congress

has preserved the statutory prescriptions that for-hire

motor common carriers of property must file and publish

tariffs containing their rates. Discriminatory and preda-

tory pricing continue to be unlawful. Congress left un-

touched the long-standing statutory definitions of “motor

carrier,” “motor common carrier,” “motor contract car-

rier,” and “motor private carrier,” thus preserving the

statutory bounds within which the distinct sectors of the

industry may lawfully operate.

Petitioners submit that the Eleventh Circuit erred when

it found the ICC’s decision not to be inconsistent with

the MCA. Its own analysis of the MCA and its findings

require the conclusion that Congress did not expressly or

implicitly provide the ICC with the statutory authority

to devise a test which undermines and renders meaning-

less the MCA, in general, and sections 5, 7, and 9, in

particular.

Congress was extremely careful to provide the ICC

with explicit direction and well-defined parameters in

the MCA. Section 3 emphatically warns:

.. that in order to reduce the uncertainty felt by

the nation’s transportation industry, the Interstate

Commerce Commission should be given explicit di-

rection for regulation of the motor carrier industry

and well-defined parameters within which it may act

pursuant to congressional policy; that the Interstate

Commerce Commission should not attempt to go be-

yond the powers vested in it by the Interstate Com-

merce Act and other legislation enacted by — se

and that the legislative and

be implemented with the least amount of

to the transportation system consistent with the

scope of the reforms enacted.

12 Appendix E at 99a-100a.

Review by this Court is manifestly necessary and war-

ranted in order to preserve any meaningful distinction

between private and for-hire carriage which Congress

intended.

(b) The Decision Of The Eleventh Circuit Conflicts Directly

With A Decision Of The Fifth Circuit Regarding The

National Transportation Policy.

Because there are no specific provisions in the MCA

which expressly support its actions, the ICC relied upon

the National Transportation Policy (NTP), 49 U.S.C.

§ 10101, as an independent source of authority for its de-

cision to adopt a more lenient policy toward single-source

leasing arrangements and thereby enhance the economic

and competitive positions of unregulated private carriers,

owner-operators, and leasing companies. Appendix A at

25a-26a. Both before the agency and in the court below

petitioners challenged that reliance. They argued that the

NTP acts only as a guideline to the ICC in carrying out

its delegated regulatory powers and cannot be construed

as a congressional mandate to the agency to improve the

economic position of unregulated entities to the detriment

of regulated carriers. The ICC calls this contention “un-

tenable”. Appendix A at 25a. The court below also re-

jects petitioners’ argument, concluding “that the Commis-

sion’s assertion of changes in the industry, as supported

by the National Transportation Policy, provide a rational

basis for” the ICC’s action (emphasis supplied).

The ICC’s and Eleventh Circuit’s interpretation of the

reach of the NTP is in direct conflict with the recent in-

terpretation of the Fifth Circuit in Central Forwarding,

18 Appendix B at 90a. In arriving at this proposition, the court

relied upon statements of this Court in American Trucking Associa-

tions v. Atchison, Topeka & Santa Fe Railroad Company, 887 U.S.

367 (1967). However, the Eleventh Circuit's reading of Atchison

was selective and out of context and is thus in error. Read in its

entirety, it is manifestly clear that Atchison does not ascribe such

power to the NTP.

Inc. v. ICC. * Central Forwarding involved an ICC effort

to improve the working conditions of unregulated owner-

operators by fixing compensation to be paid them by reg-

ulated carriers. The ICC claimed that it was empowered

to act in this manner by virtue of various terms of the

NTP. The Fifth Circuit unanimously rejected the ICC’s

argument, holding that “[t]he statute [referring to the

NTP] does not purport to grant any powers to the Com-

mission” but rather operates to “constrain [the ICC] to

act in accordance with the mandates provided in the stat-

utes; it exists neither as an independent“ nor un-

fettered” source of regulatory authority.“ As the Fifth

Circuit properly reasoned:

.. . Such a reading would make superfluous much of

the rest of the Revised Interstate Commerce Act,

with its detailed guidelines and delegations of au-

thority, . . . . Such a reading would also make mean-

ingless section 3 of the Motor Carrier Act of 1980

(citation omitted), admonishing the Commission to

stay within the “well-defined parameters . . . vested

in it by the Interstate Commerce Act and other legis-

lation enacted by Congress.

The Fifth Circuit’s decision respecting the reach of the

NTP cannot be squared with the Eleventh Circuit’s deci-

sion on the same matter. Under the Fifth Circuit’s deci-

sion, a congressional policy encouraging “fair wages and

working conditions” in the regulated transportation in-

dustry does not empower the ICC to enhance the economic

position of unregulated owner-operators. On the other

hand, the Eleventh Circuit has approved ICC reliance on

congressional policy favoring competitive and efficient

regulated to justify agency action designed

4 698 F.2d 1266 (1983).

8 Id. at 1288.

16 Jd. at 1284. The ICC did not appeal the Fifth Circuit's decision.

17 Jd. The Court went on to question whether such a congressiona!

grant of authority “might well amount to an unconstitutional dele-

gation of legislative authority.” /d.

to enhance the competitive position of unregulated owner-

operators. The Eleventh Circuit was obviously troubled

by that reliance and attempted to deal with the problem

as follows:

Further, we find no clear error of judgment in the

Commission’s assertion that competition will be en-

hanced by the proposed relaxation of standards with

respect to single-source leasing by shippers. Even if

the amendments to the National Transportation Pol-

icy were concerned only with the regulated sector, it

would be rational to assume that providing owner/

operators alternatives to employment solely with

common and contract carriers would lead to greater

competition for their services within that sector.

Such competition would in turn foster a healthier

transportation industry in both the regulated and

unregulated sectors.“

This attempted resolution only exacerbates the problem.

Contrary to Central Forwarding the court below ap-

proves agency action which has no basis in the substan-

tive provisions of the Act simply because in its view

that action will “foster [a] healthier . . . unregulated

sector.” Moreover, the Eleventh Circuit is wrong not only

on the law on this point but in its reasoning as to the

kind of competition contemplated by the NTP. According

to the court below, the NTP encourages competition

among regulated carriers and between those carriers and

shippers for the services of truck drivers and their

trucks. There is nothing in the Act to support such

reasoning. Competition for the services of truck drivers

tends to increase the price paid for those services. In-

creased prices paid by carriers and shippers for the serv-

18 Appendix B at 89a-90a. In reaching this conclusion, the Elev-

enth Circuit h.s supplied its own reasoned basis for the ICC’s ac-

tion—one which the ICC had not provided. In so doing, the

Eleventh Circuit violated a fundamental principle of this Court. mat

reviewing courts should not attempt to make up for deficiencies in

an agency's decision by supplying their own reasoned basis. SEC v.

Chenery Corp., 822 U.S. 194, 196 (1947

ices of truck drivers is an increase in the cost to them of

providing the goods and services they sell. Those in-

creased costs, in turn, must be recovered by increasing

the prices charged the public for those goods and services.

Thus, the kind of competition envisioned by the court

below will tend to increase prices for the regulated car-

riage of goods whereas the kind of competition for freight

traffic contemplated by the MCA designed to lower those

prices. The reasoning of the court below on this point

has so far departed from the plain meaning of the stat-

ute as to call for an exercise of this Court’s power of

supervision.

Court Regarding The Control And Characteristic Bur-

dens Of Transportation A Shipper Must Assume In

Leasing Arrangements.

In 1962, this Court articulated the test governing the

determination whether a single-source leasing arrange-

ment constitutes for-hire or private carriage. United

States v. Drum, 368 U.S. 870 (1962). In Drum, this

Court upheld an ICC decision that owners of transporta-

tion equipment, who leased their vehicles and hired their

services to a shipper, but retained the expense of main-

taining and operating the equipment, and the risk of cas-

ualty loss and premature depreciation, were, in substance,

engaged in for-hire transportation. Under these circum-

stances, this Court found that the shipper had shed itself

of what the Court referred to as “the characteristic bur-

dens of transportation” and was purchasing for-hire car-

riage from an unregulated entity contrary to the Inter-

state Commerce Act.

The statutory definitions of common carrier, contract

carrier, and private carrier have not changed since 1962.

Because they are imprecise, the Commission is permitted

some discretion in framing a workable test that is con-

sistent with the objectives of economic regulation.“ As

19 This Court stated in Drum that [a] primary objective of the

scheme of economic regulation is to assure that shippers generally

this Court recognized, however, the test developed must

impose practical limitations upon unregulated competition

with a regulated industry. Id. at 375. The test approved

by the Eleventh Circuit imposes neither practical nor en-

forceable limitations.

The test announced by this Court in Drum was a two-

part “control” and “substance” test. A shipper had to

establish that it possessed and exercised the right to con-

trol, direct, and dominate the transportation. The control

test focused on operational control. It was supplemented

by the substance test, which examined whether, in fact,

the circumstances indicated that the shipper had assumed

the characteristic burdens of transportation.

In Drum, this Court assumed that the shipper did con-

trol the operation. Jd. at 381, and nn. 23 and 24. It noted

that the ICC’s “interest in ‘control’ in turn generated an

interest in whether the drivers of the leased equipment

were in substance treated as the shipper’s employees.”

Id, at 382. A requisite genuine employment arrangement

was found to be present.“ Id. at 379. Justice Harlan, in

the dissent, repeatedly emphasized that the presence of a

bona fide employee relationship was fundamental to his

conclusion that the leasing arrangement was in substance

private carriage. Id. at 393-396.

will be provided with a healthy system of motor carriage to which

they can resort to get their goods to market.” Id. at 874. It identi-

fied two purposes served by the economic regulation of motor car-

riers. First, it permitted the ICC to review motor carrier rates

and services for the protection of shippers. Id. at 875. Second, it

limited the ability of private carriers to divert traffic which would

harm regulated carriers upon which shippers rely. Jd. As discussed

in subsection (a), supra, the MCA reaffirmed the economic regula-

tion of the motor carrier industry and carefully delineated and

circumscribed new opportunities for private carriers and owner-

operators.

2° An employment relationship was established under a collective

agreement with the union which provided the lessors with employ-

ment privileges enjoyed by its employees. Id. at 378.

The Eleventh Circuit has now rejected this prerequisite

of an employment relationship and will permit shippers

to lease directly equipment with drivers who remain in-

dependent contractors. The court’s decision is in conflict

with this Court’s reasoning that a bona fide employee

relationship is fundamental to a determination that a

leasing arrangement is in substance private carriage.

To petitioners’ best knowledge, an employment relation-

ship has been present in each case in which the ICC has

held that the leasing arrangement was legitimate private

transportation. Thus, the Eleventh Circuit’s decision

violates the longstanding coherent body of administrative

and judicial precedent.

In Drum, this Court for the first time articulated the

requirement that a shipper must assume the “character-

istic burdens of transportation.” Id. at 375. These bur-

dens were stated as: (1) the risk of premature deprecia-

tion or catastrophic loss of equipment, (2) the risk of a

rise in variable operating and maintaining costs, and

(3) the risk of equipment non-utilization. Jd. 379-380.

The test sanctioned by the Eleventh Circuit clearly

rejects this Court’s ruling that a shipper’s assumption of

these characteristic burdens of transportation are essen-

tial to bona fide private carriage. The Eleventh Circuit

sanctioned this departure for three reasons. First, it

stated that since Drum, the ICC has restated the test of

substance in terms of the characteristic burdens of trans-

portation. Appendix B at 77a, citing Personnel Service,

Inc.—Investigation of Operations and Practices, 110

M. C. C. 695, 704-706 (1969); Heavy Equipment Rental

Co., Investigation, 98 M.C.C. 365, 394 (1964). Second,

the court stated that the Drum decision reflects a judicial

deference to the agency’s judgment on what burdens are

21 See, e. g., Lovell—Investigation of Operations, 92 M.C.C. 728

(1968) ; Rayette, Inc. Investigation of Operations, 108 M.C.C. 410

(1969) ; and Ontario Company—Declaratory Order, 112 M.C.C. 211

(1970).

characteristic. Finally, the court felt that the examina-

tion of various factors surrounding the leasing arrange-

ment through the new test is consistent with Drum.

Petitioners agree with the Eleventh Circuit that the

ICC may and should examine the circumstances surround-

ing the lease. However, the Eleventh Circuit misinter-

preted Drum when it failed to recognize that an employ-

ment relationship is a fundamental burden a shipper

must assume under the substance test and that the bur-

dens which are “characteristic” of motor carrier trans-

portation cannot be altered by changes in the ICC’s regu-

latory philosophy.

Contrary to the suggestion of the Eleventh Circuit,

neither Personnel Service nor Heavy Equipment Rental

involved a significant, if any, departure from the rea-

soning and characteristic burdens test this Court articu-

lated in Drum. In Personnel Service, the ICC found the

lease to constitute legitimate private carriage because of

the “true employer-employee relationship between ship-

per and driver” and because the shipper’s payments to

the lessor were “very closely and directly related to the

actual costs incurred in the operations of the instrumen-

talities. ...” 110 M.C.C. at 709-710. The evidence indi-

cated that the shipper bore the financial burden of equip-

ment maintenance, rising variable costs of wages and

fuel, and non-use of equipment. Id. at 710. In Heavy

Equipment Rental, the ICC concluded that the lease was

unlawful for-hire carriage because the circumstances in-

dicated that “the employer relationship with the drivers

is illusory” and the shipper had divorced itself from the

transportation. 98 M.C.C. at 394. The failure of the

shipper to bear the burden of equipment expenses for

fuel, lubricants, tires, operating supplies, and necessary

repairs was considered by the ICC and is entirely con-

sistent with Drum.

The fact that the ICC may have assimilated the char-

acteristic burdens of transportation under the substance

test does not provide support for the Eleventh Circuit’s

rejection of the longstanding and essential requirement

of (1) an employment relationship between the shipper

and the equipment operator, and (2) assumption by the

shipper of the requisite financial burdens incurred in the

carriage of its goods.

For these reasons, petitioners submit that the Eleventh

Circuit's decision conflicts with Drum and the coherent

body of legal precedent.

CONCLUSION

For all of the reasons set forth herein, Petitioners

pray that a writ of certiorari issue to the United States

Court of Appeals for the Eleventh Circuit.

Respectfully submitted,

NELSON J. COONEY

(Counsel of Record)

AMERICAN TRUCKING ASSOCIATIONS,

INC.

1616 P Street, N.W.

DONALD E. Cross

(Counsel of Record)

THomas M. AUCHINCLOsS, JR.

Brian L. TROIANO

Attorneys for Petitioner,

Carriers’ Tariff Association,

ne.

Rosert J. HIGGINS

Joan M. DaRBY

DICKSTEIN, SHAPIRO & Moni

Suite 1000

2101 L Street, N.W.

Attorneys for Petitioner,

International Brotherhood of

Teamsters, Chauffeurs,

Warehousemen and Helpers

of America

APPENDICES

APPENDIX A

INTERSTATE COMMERCE COMMISSION

Ex PARTE No. MC-122 (Sub-No. 2) ‘

LEASE OF EQUIPMENT AND DRIVERS TO PRIVATE CARRIERS

AGENCY:

ACTION:

SUMMARY:

Interstate Commerce Commission

Policy Statement

By this notice, the Commission modifies and

makes final its proposed policy statement in

Lease of Equipment and Drivers to Private

Carriers, 132 M. C. C. 351 (1980), 45 Fed. Reg.

86766 (December 31, 1980), concerning the

distinction between private and for-hire car-

riage where a private carrier conducts its op-

erations with equipment and drivers leased

from unregulated lessors, including owner-

operators. Discussed is the practical and legal

distinction, and the factors that the Commis-

sion will now consider in determining whether

such operations by private carriers fa!! outside

the scope of the Commission’s jurisdiction, 49

U.S.C. § 10524 (a), or instead constitute for-

hire transportation by the lessor of the equip-

ment with drivers, for which a certificate or

permit is required. “4

EFFECTIVE DATE:

This policy is effective 30 days from the date of pub-

lication of this notice in the Federal Register.

For FURTHER INFORMATION CONTACT:

Robert G. Rothstein

(202) 275-7912

Edward E. Guthrie

(202) 275-7691

SUPPLEMENTARY INFORMATION:

This proceeding was instituted on December 31, 1980,

by the publication of 2 notice in the Federal Register

stating our intention to reexamine the Commission’s tests

used to distinguish private from for-hire carriage. The

tests operate generally to preclude owner-operators and

others not holding authority from the Commission from

leasing their equipment with drivers directly to private

carriers. We recognize the continued need to maintain a

workable distinction between for-hire and private car-

riage. We propose (a) to focus primarily on the control

exercised over a lessor, and (b) to repudiate the presump-

tion that construed lessors to be carriers for hire where

their lessees are private carriers.

Comments—Generally

The Commission received approximately 155 comments,

representing over 200 persons.“ Commentors may be

placed in four general groups. There were approximately

40 comments from individuals, the vast majority of whom

identified themselves as owner-operators. With four ex-

ceptions, all owner-operators endorsed our proposal. Com-

ments were received from 30 manufacturers and shippers,

many of which operate private fleets. All shippers and

manufacturers agreed with the basic principle of allowing

145 Fed. Reg. 86766 (December 31, 1980), Lease of Equipment

and Drivers to Private Carriers, 132 M.C.C. 351 (1980).

2 See Appendix A.

owner-operators to lease directly to shippers/private car-

riers, although many commentors in this group proposed

modifications. Over 30 associations and trade groups re-

sponded. Generally, associations representing owner-op-

erator and shipper interests were in favor of the proposal,

while associations and trade groups representing the

regulated motor carrier industry opposed it. Lastly, over

120 regulated motor carriers voiced their opposition to

the proposal.

In addition to written comments, the Commission on

October 14, 1981, conducted an oral hearing in Washing-

ton for the purpose of eliciting additional views and sup-

plementing the record.* Twenty-seven parties, represent-

ing over 45 interests, appeared and presented evidence

which substantially echoed their respective or representa-

tive comments filed earlier.

Conclusions

In light of recent changes in statutory direction, and

the Commission’s changes in regulatory policy over the

past few years, we believe it is reasonable to reassess the

Commission’s approach to defining the line between pri-

vate and for-hire carriage. We think we can prospectively

draw the line somewhat differently than we have in the

past when considering whether a particular lease ar-

rangement constitutes private vis-a-vis for-hire carriage,

based on the consideration of factors not previously iden-

tified in Commission decisions.

We shall continue to look at all the circumstances sur-

rounding a lease arrangement to determine whether the

lessor holds out only the use of the instrumentalities of

transportation, i.e., truck and driver, or whether it in-

stead holds out what is in substance a complete trans-

portation service for compensation. The former would be

See Notice Of Oral Argument On Proposed Policy Statement,

served September 29, 1981, 46 Fed. Reg. 48344.

exempt, while the latter would be subject to regulation.

In making individual determinations, we will focus on the

elements of control, responsibility, and performance of the

key organizing and management functions of a trans-

portation company as the critical elements in evaluating

the character of the service provided. We will, however,

no longer employ the rebuttable presumption announced

in the Church case, infra, that leases of equipment with

drivers to shippers ordinarily give rise to for-hire trans-

portation by the lessor. Neither will we use the virtually

irrebuttable presumption contained in the Oklahoma Fur-

niture decision infra, that an owner-operator driving his

own equipment has the right and power to defeat the

lessee’s control. We will abandon the suggestion contained

in earlier cases that legitimate private carriage results

only when an owner-operator becomes an employee of the

private carrier. We also believe that there is no longer

any justification for maintaining different standards for

judging lease arrangements with drivers, depending on

whether the lessee is a private or for-hire carrier.

We are confident that our new approach is in accord

with existing statutory requirements. Nevertheless, we

intend to monitor the practical effects of the policy change

we are adopting on the regulated sector, private carriers,

owner-operators, and the shipping public on a continuing

basis. If actual operations under the new policy disclose

effects that are clearly contrary to the public interest or

the National Transportation Policy, we are prepared to

make adjustments or changes in our policy.

Preliminary Matters

Various commentors raise three objections directed

more to the Commission’s procedures than to the merits of

our proposal. Commentors claim, first, that Congress has

recently considered and rejected a similar proposal, and

that we may not now proceed to overturn that legislative

determination; second, that a policy statement is an inap-

propriate vehicle for our proposed changes; and, third,

that we have evidenced a prejudgment of the issues pre-

sented. We find no merit in any of these claims.

1. Legislative History. Nothing in the legislative his-

tory prevents the action we are proposing. The com-

mentors have not pointed out to us, and our research has

not revealed, any measure similar to our proposal here

which was explicitly examined by either the Senate or the

House during their deliberations on the Motor Carrier

Act of 1980.“ Congress plainly left a number of regula-

tory problems unaddressed in the Act. The fact that Con-

gress could have legislated further, or that Congress di-

rectly addressed certain concerns, cannot be considered as

an explicit determination to preclude the exercise of our

statutory authority to reexamine policy areas not specifi-

cally addressed by Congress, provided our ultimate deter-

mination is consistent with the law and is a reasonable

exercise of our discretionary authority.

2. Use of a Policy Statement. Several commentors

object to the use of a policy statement rather than a sub-

stantive rule as a vehicle for setting forth new guidelines

regarding the distinction between private and for-hire

carriage. Ryder Truck Lines, for example, contends that

our policy statement will have a substantial impact on

motor carrier operations and, therefore, should be con-

ducted within the ordinary rulemaking provisions of the

Administrative Procedure Act (APA).

The procedural objections of the various commentors

are without merit since we have in fact given full notice

of our proposal, have received comments, and, following

* Schneider Transport et al., assert that Congress rejected pro-

posals to grant owner-operators backhaul authority for all com-

modities and authority to lease to shippers. (See their comments

at page 8.) They point to no express rejection, however. The over-

all tone of their presentation suggests that any such rejection is to

be implied from the fact that the area of private carriage was gen-

erally considered during development of the Motor Carrier Act.

examination of the comments, are announcing the new

guidelines on 30 days’ notice, all as required by section

553 of the APA. In other words, we have fully complied

with all applicable requirements for notice-and-comment

rulemaking. See American Bus Ass’n v. United States,

627 F.2d 525 (D.C. Cir. 1980).

However, we believe that something less rigid than a

formal rule is more suitable to our purposes here. An

interpretative rule is a statement issued by an agency to

advise the public of the agency’s construction of the

statute it administers, or what the court described in

Guardian Federal Savings and Loan Ass’n. v. FSLIC,

589 F.2d 658, 664 (D.C. Cir. 1978), as a clarification or

explanation of an existing statute. A policy statement is

a statement issued by an agency to advise the public

prospectively of the manner in which the agency proposes

to exercise a discretionary power. See generally, Attorney

General’s Manual on the Administrative Procedure Act

(1947) at page 30. Our proposal falls within both of these

definitions.

Our purpose in issuing this policy statement is to an-

nounce to the public what factors we will consider as

sufficient to establish private carriage with leased equip-

ment and drivers, so that affected parties may conform

their future conduct to the statute as interpreted by the

Commission and thus avoid Commission enforcement ac-

tion. Whether any particular arrangement constitutes

private or for-hire carriage will continue to be decided on

a case-by-case basis in light of the facts disclosed in that

case. Use of an interpretive or policy statement thus

seems to be quite permissible. See Regular Common Car-

rier Conference v. United States, 628 F.2d 248 (D.C. Cir.

1980).

3. Purported Prejudice. The Regular Common Carrier

Conference of the American Trucking Associations

(RCCC) asserts that we have prejudged the issues pre-

sented in favor of the proposal, and have unfairly placed

upon commentors the burden of dissuasion. The Confer-

ence points to a number of statements in our notice which

it believes demonstrates our asserted predetermination.

The RCCC seriously misconceives the nature of the

notice- and- comment process. Our preliminary review of

the subject area satisfied us that some review of the tra-

ditional tests for distinguishing between private and for-

hire carriage was warranted in light statutory changes

and the enormous growth of private and for-hire carriage.

The major necessity, we concluded, was to reassess what

the statute required and review what types of distinctions

need to be maintained between private and for-hire car-

riage. We also had doubts about the continued validity

of the legal presumptions which have been employed

through the years and have had the effect of precluding

shippers from engaging the services of owner-operators

in factual circumstances where we now believe that legiti-

mate private carrier operations can be conducted. We

sought comments on our analysis and the effect of pos-

sible changes on the concerned parties. As will be seen,

our overall assessment, including our lega! analysis, has

changed somewhat in light of the comments submitted.

History of the Commission’s Approach to the

Leasing Issue

1. Leasing To Shippers. The issue with which this

proceeding is concerned has been before the Commission

ever since the passage of the Motor Carrier Act of 1935.

By that Act, Congress undertook to regulate interstate

motor carriage for hire (with certain exceptions not here

relevant)“ but excluded from its coverage the carriage

by shippers of their own goods;* it also did not bring

5 The precise limits of the Commission’s jurisdiction over motor

carriage are codified at 49 U.S.C. 10521 (a).

The exclusion of private carriage is codified at 49 U.S.C.

10524 (a). This provision stems not fi om the 1935 Act itself, but

under regulation those persons who merely lease or pro-

vide to others the instrumentalities of transportation, e.g.,

truck and drivers.“ The problem arose by drawing the

line, among a nearly infinite variety of business arrange-

ments, between those activities which must be licensed by

the Commission and those that are exempt from licensing.

As summarized in United States v. Drum, 368 U.S. 370,

374 (1962):

The Commission, therefore, has had to decide whether

a.particular arrangement gives rise to that “for-

hire” carrf&ge which is subject to economic regula-

tion in the public interest, or whether it is, in fact,

private carriage as to which Congress determined

that the shipper’s interest in carrying his own goods

should prevail.

The leading decision by the Commission is H.B. Church

Truck Service Co. Com. Car. Application, 27 M.C.C. 191

(1940), involving an applicant for authority which, as a

sideline, leased trucks with drivers to a few shippers.*

The Commission found that the leasing service was not

held out to the general public; that the leased trucks were

painted to suit the particular shippers, and served no one

from a 1958 amendment which was intended to write into the stat-

ute the “primary business” test applied by the Commission in the

Lenoir Chair case. See Brooks Transp. Co. v. United States, 98

F. Supp. 517 (E.D. Va. 1950), aff'd, 340 U.S. 940 (1951); Inter-

state Commerce Commission, Seventy-First Annual Report (1957),

p. 187; Seventy-Second Annual Report (1958), pp. 132-133. See also

the definition of “motor private carrier” codified at 49 U.S.C.

10102 (14).

T Rittenhouse-Investigation of Certificate, 78 M.C.C. 389 (1958) ;

Personnel Service Inc., et al.—Investigation, 110 M.C.C. 695 (1969).

Since the applicant was plainly a common carrier for most pur-

poses, it was frequently referred to as “the carrier”, even in that

portion of the opinion where the question at issue was whether the

applicant in its leased-truck activities was acting as a lessor or as a

carrier for hire.

else; and that the applicant provided the truck and driver,

maintained the vehicle, and paid all operating expenses

including property, public liability, and collision insur-

ance. In the course of holding that this operation repre-

sented contract carriage, the Commission said (27 M.C.C.

at 195-96) :

With reference to the leased-truck operations, the

first question presented is whether the operation is

that of applicant, as the performance of transporta-

tion for hire, or whether it is private carriage, per-

formed by the shipper. The line of distinction be-

tween the two is not always clear. Essentially the

issue is as to who has the right to control, direct, and

dominate the performance of the service. If that

right remains in the [lessor] carrier, the carriage is

carriage for hire and subject to regulation. If it rests

in the shipper, it is private carriage and not subject

to regulation * * *. The question as to who has the

right to control and direct must be answered in the

light of all the facts and circumstances surrounding

the transaction between the carrier and shipper, and

of the actual practices in the conduct of the operation

thereunder. No one element of such facts and cir-

cumstances is by itself conclusive.

Clearly, so-called leases of equipment by a carrier

to a shipper may differ materially in their results

from a regulatory standpoint from leases by one car-

rier to another. The former are sometimes subter-

fuges and devices to evade regulation, particularly as

to operating authority and rates. The public interest

requires that we use diligence to prevent evasions of

regulation through such devices. Consequently, in

cases in which the question of the status created by

a lease of equipment with drivers by a carrier to a

shipper is presented, in the absence of a showing to

the contrary, the presumption arises that the trans-

portation is performed by the carrier for compensa-

10a

tion, in other words is for-hire transportation and as

such is subject to regulation. This presumption will,

of course, yield to a showing that the shipper has the

exclusive right and privilege of directing and con-

trolling the transportation service, as, for example,

if the equipment were operated by the shipper’s em-

ployee. (Emphasis added)

The Church decision stated that the presumption of for-

hire transportation would yield to a showing that the

shipper-lessee had “the exclusive right and privilege of

controlling the transportation service”. The Commission

continued, however, to take into account all the facts and

circumstances surrounding the transaction” (as provided

in Church), including facts and circumstances having no

obvious bearing on the issue of exclusive control (e.g.,

the form of compensation received by the lessor). In

time, this concern for facts and circumstances not directly

related to control came to be articulated as a secondary

test of “substance”, i.e., “are any persons here [before

the Commission], in substance, engaged in the business

of interstate or foreign transportation . . for hire?”

Pacific Diesel Rental Co.—Investigation of Operations, 78

M.C.C. 161, 172 (1958).* As late as Pacific Diesel it was

stated that “control” and “substance” were really a single

test, although articulated in two alternative forms; but

the following year, in Oklahoma Furniture Mfg. Co.—

Investigation of Operations, 79 M.C.C. 408, 409-10

(1959), these were stated as two separate questions to be

answered.

The Commission had indicated in Church that a shipper

could rebut the presumption of for-hire carriage and

establish the existence of bona fide private carriage by

placing the driver of the leased equipment on its payroll

as an employee. Where the driver of the leased equip-

The quoted language is paraphrased from Georgia Truck Sys-

tem v. I. C. C., 128 F.2d 210, 212 (5th Cir. 1941).

lla

ment was also its owner, however, it held in Pacific Diesel

that the continuing relationship of the owner-drivers to

the lessor (a leasing company) negated the inference of

exclusive control in the lessee-shippers based on the terms

of the written lease arrangements between them and the

lessor and the fact that each shipper placed the driver or

drivers on its payroll for the duration of its lease.““

The following year, in Oklahoma Furniture, supra, the

Commission came to the same conclusion even though in

this case there was no intermediary and no indication of

control by anyone but the shipper; the leases from the

owner-operators to the shipper were long-term; and the

Commission assumed, arguendo, that the status of the

owner-operators as employees of the shipper was bona

fide. Notwithstanding these significant differences from

Pacific Diesel, the Commission found (79 M.C.C. at 411):

There is present, whenever the owner-operator

drives his own equipment, the right and power of the

lessor to defeat any supposed right of control that

the shipper-lessee may believe exists. We are satis-

fied that the company does not have the exclusive

right and privilege of controlling the transportation

service considered.

As to the “substance” test, the Commission concluded that

the arrangements between the shipper and the owner-

operators constituted contract carriage. It pointed to the

10 Pacific Diesel Rental Co., supra. The owner-drivers leased their

rigs to Pacific Diesel, which then subleased the equipment to a

number of shippers. Although the latter lease agreements ostensibly

allowed the shippers to furnish their own drivers, in fact the vehi-

cles were invariably driven by their owners. The evidence indicated

that the drivers typically reported en route to Pacific Diesel rather

than to the shippers, and that the shippers traced the vehicles

through Pacific Diesel; and there was other evidence of control by

Pacific Diesel over en-route operations. The Commission found the

overall pattern to be more akin to typical common carriage on the

part of Pacific Diesel than to private or even contract carriage.

12a

various transportation risks borne by the owner-operators

rather than the shipper, and held that none of the de-

partures from the usual conditions of contract carriage

shown by the evidence were sufficient to distinguish the

arrangement at issue from such carriage.

Commissioner Webb, in his dissenting statement (79

M. C. C. 416, at 417), said of the result:

No one can fail to grasp the significance of this

Sweeping pronouncement. It means, plainly and

simply, that .. the mere status of owner-operator-

lessor is said automatically to defeat lessee control

irrespective of the existence of convincing facts to

the contrary.”

The Supreme Court in Drum, supra, affirmed the Com-

mission, but its opinion did not preclude the Commission

from now eliminating the presumption that the leasing of

both equipment and driver services from the same source

constitutes for-hire transportation.

The Court began its analysis by noting that the statute

evinces a purpose to “impose practical limitations upon

unregulated competition in a regulated industry”. 368

U.S. at 375. By this we think it clear that the Court

meant that the Commission must devise practical and

meaningful distinctions between for-hire and private car-

riage so that persons may not simply engage in unregu-

lated competition with the regulated industry under the

guise or label of private carriage.

The Court then went on to say (368 U.S. at 375;

emphasis supplied) :

11 The dissent further cited fifteen indicia of true private car-

riage in the facts of record, and concluded that “it is highly un-

likely that there is any carrier in the United States whose connec-

tion with the prime attributes of transportation service is as

tenuous as that of the respondents [cwner-operators].”

13a

From the outset the Commission has correctly in-

terpreted [the statutory definitions] as importing that

a purported private carrier who hires the instru-

mentalities of transportation from another must—if

he is not to utilize a licensed carrier assume in

significant measure the characteristic burdens of the

transportation business.

This indicates the Court’s judgment of the basic test

that the statute requires—i.e., assumption of “the charc-

tertistic burdens of the transportation business”.

Applying this basic test, the Court then reviewed the

particular facts and concluded that the Commission was

within its discretion in finding that the shipper had not

assumed enough of the burdens of transportation. In

particular, the Court, like the Commission, focused on

the financial burdens left with the owner-operator, in-

cluding the risk of a “rise of variable costs such as fuel,

repairs and maintenance”, the risk of equipment loss or

damage, and “the risk of non-utilization of high priced

equipment.” 368 U.S. at 379-380:

Two significant conclusions pertinent to the present in-

quiry can be drawn from the opinion in Drum. First, the

opinion does not indicate that the statute requires the

Commission to presume that leasing both equipment and

driver from the same source constitutes for-hire trans-

portation. Indeed the Court’s opinion is in no way based

on any such presumption. So long as we can reasonably

conclude that the shipper bears the characteristic burdens

of transportation to a significant degree, we may find

12 368 U.S. at 384. The phrases “burdens of transportation” or

“the characteristic burdens of the transportation business” (368

U.S. at 375) do not seem to have been employed in any Commission

decision up to that time. However, the Court made clear that it was

not formulating a new test of its own, but was simply restating in

clearer language the “substance” test which it considered the Com-

mission had been applying all along.

l4a

private carriage even though the equipment and driving

services are leased from the same source.

Second, the Court’s affirmance of the Commission’s

weighing of the financial burdens in the Drum case itself

does not establish that that kind of financial burden analy-

sis is statutorily required, or that those particular burdens

must always fall on the shipper. The opinion makes clear

that the Court was, at bottom, deferring to the Commis-

sion’s considerable discretion in weighing the totality of

factors on a case-by-case basis, and affirming it because

it was not unreasonable. Thus, the Court clearly recog-

nized, at 368 U.S. 375-76, that application of the “bur-

dens” test in individual cases is a matter for our

judgment:

the problem is one of determining—by reference to

the clear but broad remedial purpose of a regulatory

statute committed to agency administration—the ap-

plicability to narrow fact situations of imprecise

definitional language which delineates the coverage

of the measure.

Later in its opinion, 368 U.S. at 384, the Court noted

that the “Commission allowably dealt with this novel

situation as an integral and unique problem in judgment,

rather than simply as an exercise in counting common

places. Nor did it leave the basis for its decision unarticu-

lated.” The Court also recognized that Congress gave us

a “range of responsibility” when determining the defini-

tion of a particular operation. 368 U.S. at 385. The

Court found the Commission’s conclusion that financial

risks are a significant burden of transportation to be well

within that range. Id. Finally, the Cour: criticized the

district court for attempting to inject its judgment into

the agency’s domain. 368 U.S. at 386. All of these state-

18 368 U.S. at 385 Justices Harlan and Whittaker dissented; Jus-

tices Douglas and Black concurred in a brief statement calling the

case “a marginal one on which commissioners as well as judges

might differ.” 868 U.S. at 386.

15a

ments show that we have flexibility to determine when a

private carrier has assumed the characteristic burdens of

transportation.

In decisions subsequent to Drum, the Commission has

often relied largely on the “burdens” (formerly “sub-

stance”) test affirmed in Drum, which essentially answers

the earlier control“ test, and leases by owner-operators

to shippers have been upheld as private carriage. In

Ontario Company—Declaratory Order, 112 M.C.C. 211

(1970), for example, the Commission found private car-

riage where owner-operators leased their rigs to a shipper

for periods of 35 days at a time, were paid a fixed weekly

rental and reimbursed their actual expenditures for fuel,

oil, tolls, and en-route repairs, and were placed on the

shipper’s payroll. The lease agreements gave the shipper

“exclusive possession and control”, and the shipper speci-

fied the places and times of pickup and delivery (it

allowed the owner-operators to select the route)“ Simi-

larly, in Rayette, Inc.—Investigation of Operations, 108

M.C.C. 410 (1969), the Commission summarily affirmed

an Administrative Law Judge’s finding of private car-

riage where owner-operators leased their rigs to a shipper

from month to month and were paid union-scale wages

plus certain additional sums for stop-offs and extra hours,

and were reimbursed for tolls, extra labor, and fuel taxes.

The separate rental fees for the trucks were ca!culated on

a mileage basis, out of which the operators paid for fuel,

oil, meals, lodging, and repairs and maintenance. The

shipper established the delivery schedules, but the op-

erators chose routes and rest stops. Equitable title to the

equipment was in the owner-operators, but legal title was

held in trust by the shipper (the trust being revocable on

demand) to aid the owner-operators in obtaining both

financing and state vehicle registration. The Administra-

This decision was upheld on judicial review in National Motor

Freight Traffic Ass'n v. United States (No. 480-71, D.D.C., Apr. 25,

1973) (complaint dismissed).

16a

tive Law Judge, in distinguishing earlier cases such as

Drum, cited particularly the shipper’s holding of legal

title to the equipment. The judge minimized the im-

portance of the fact that the owner-operators rather than

the shipper bore the risk of nonutilization of expensive

equipment—a factor stressed in Druwm—on the basis that

here the risk was purely theoretical, since all the leased

equipment and drivers had in fact been kept busy full

time for many ye 8.“

Subsequent to Ontario and Rayette, and up to the pas-

sage of the Motor Carrier Act of 1980, there have been

no noticeable shifts in the Commission’s decisional stand-

ards regarding leases of equipment by owner-operators to

shippers, and it would appear to be a fair summary of

the Commission’s most recent pre-1980 Act policy to say

that these arrangements will pass muster if the shipper

assumes full control of the operation (which does not pre-

clude allowing the owner-operator to choose his own routes,

fuel stops, rest stops, and the like, or making him re-

sponsible for repairs and maintenance), if the owner-

operator is placed on the shipper’s rolls as an employee,

if the shipper assumes a significant share, if not all, of

the characteristic risks and burdens of transportation, and

if the evidence as a whole does not make it appear that

a subterfuge or device to evade regulation is involved.

2. Leasing To Regulated Carriers. The Commission’s

attitude toward owner-operator leases to regulated car-

15 See also Lovell—investigation of Operations, 92 M.C.C. 728

(1968). There, an individual owning several rigs leased them to

two shippers and provided drivers who were employed by him but

who, the Commission found, became bona fide employees of the

shippers. The shippers were found to be in exclusive control of the

transportation operation. The Commission emphasized that the

“burdens” test of Drum had not replaced the “control” test of

Church, but merely supplemented it. It found that the lessor’s

assumption of significant financial risks did not remove the lease

arrangement from the parameters of private carriage (92 M.C.C.

at 734-735).

17a

riers has taken an entirely different course. Such leases

were common long before the passage of the Motor Car-

rier Act in 1935, and the Commission had to deal with

their consequences in its grandfather licensing cases.“

Beginning with Dixie Ohio Exp. Co. Common Carrier

Application, 17 M.C.C. 735, 737-741 (1939) the Commis-

sion applied the test that operations with vehicles leased

from owner-operators would be considered those of the

lessee-carrier if they were “under its direction and con-

trol, and under its responsibility to the general public as

well as to the shipper” (17 M.C.C. at 740), whether or

not the driver was an employee. After tracing the subse-

quent development of the case law in this area, the Com-

mission said in Lease and Interchange, supra, at 681:

It now seems to be accepted that when an au-

thorized carrier furnishes service in vehicles owned

and operated by others, he must control the service

to the same extent as if he owned the vehicles, but

need contro] the vehicles only to the extent necessary

to be responsible to the shipper, the public, and this

Commission for the transportation.” (Emphasis

added)

The Commission held that, where these tests are met, an

authorized carrier may provide service with vehicles owned

and operated by independent contractors. It may not,

however, “farm out” its authority to others for opera-

tions in which it lacks “the elements of direct control over

the movement and handling of freight, and of full re-

sponsibility to the shipper. .. .” (52 M.C.C. at 682).

In particular, the Commission’s report nowhere sug-

gests that owner-operators leasing their equipment to

regulated carriers were themselves engaging in for-hire

16 A detailed historical review appears in Ex Parte No. MC-43,

Lease and Interchange of Vehicles by Motor Carriers, 52 M.C.C. 675,

679-683 (1951) (hereinafter cited as “Lease and Interchange’).

See also H. B. Church, supra, 27 M. C. C. at 200-201.

18a

transportation requiring authority from the Commission,

except where the lease was a sham and the owner-operator

himself was holding out service to the public or con-

trolling the transportation operation to an extent incon-

sistent with the control required of the regulated carrier.

See American Trucking Ass’ns v. United States, 344 U.S.

298 (1953), upholding the Commission’s right to adopt its

leasing regulations.

Although the Commission’s leasing regulations have

undergone a variety of changes in the 30 years since they

were first adopted, the requirements of control and re-

sponsibility by the lessee have remained constant. They

are currently embodied in section 1057.12 (d) (1) of the

regulations:

d) Exclusive possession and responsibilities.—

(1) The [written] lease shall provide that the au-

thorized carrier lessee shall have exclusive possession,

control, and use of the equipment for the duration of

the lease. The lease shall further provide that the

authorized carrier lessee shall assume complete re-

sponsibility for the operation of the equipment for

the duration of the lease.

In contrast to leases to shippers, the Commission has not

fashioned any presumptions, rebuttable or otherwise,

where owner-operators have leased their rigs to regulated

carriers.

The Commission’s traditionally different approach to

the definitional distinction between private and for-hire

carriage grew out of a regulatory environment in

19a

Commission surveillance of the rates and services of

licensed motor carriers. As long as the overall transporta-

tion service remained subject to regulation, as was the

case where equipment lessors dealt only with regulated

carriers, there was no likelihood of traffic diversion to the

unregulated sector, and abuses could be dealt with through

the exercise of the Commission’s regulatory authority

(including the imposition of leasing regulations) over the

regulated carriers.

3. Conclusions. Neither the presumptions of for-hire

carriage stated in Church, supra, and of defeasance of

control by owner-operators, stated in Oklahoma, supra,

nor the different standards of control for owner-operator

leases to shippers vis-a-vis regulated carriers, is required

by the language of the Motor Carrier Act. Both presump-

tions and the differing standards were devised by the Com-

mission in pursuit of regulatory objectives, principally the

protection of the regulated sector, at an earlier period in

time.

In addition to creating a presumption of for-hire car-

riage by a lessor of equipment with driver to a private

carrier/shipper but not to a regulated carrier, and other-

wise maintaining different decisional standards in the two

situations, the Commission has from time to time redefined

the distinction between for-hire carriage by the lessor and

private carriage by the lessee. The Oklahoma Furniture

case represents an extreme development, where the Com-

mission undertook to make the presumption of for-hire

carriage virtually irrebuttable whenever equipment leased

to a shipper was driven by the owner-lessor. Earlier

cases, in particular Pacific Diesel, supra, on which the

opinion in Oklahoma Furniture greatly relied,” suggested

* In particular, the record in Pacific Diesel disclosed a great deal

20a

no such general conclusion, and contradicted the sugges-

tion made in H. B. Church that the presumption could be

rebutted by showing that the driver of leased equipment

was the lessee’s employee.“ Later cases likewise retreated

from the extreme position of Oklahoma Furniture, even

though that decision was upheld by the Supreme Court.

Within quite broad limits, then, we believe the responsi-

bility for drawing the line between private and for-hire

carriage has been confided by Congress to the Commis-

sion’s expert judgment, informed by its appreciation of

the regulatory climate, policies, and needs of the time.“

Factors Favoring a Reappraisal

In American Trucking Ass’ns v. Atchison, T. & S.F.

Ry. Co., 387 U.S. 397, 415-16 (1967), the Supreme Court

observed that administrative agencies have not merely

the right but the affirmative duty to reappraise their regu-

latory policies periodically in light of changing conditions

and circumstances affecting the industries they regulate.

The changed conditions which persuade us that a change

in policy is now appropriate are of two kinds: those which

have occurred in the trucking industry generally since our

earlier policies were adopted, and those specifically brought

about by the Motor Carrier Act of 1980.

First, it is obvious that the motor carrier industry of

today bears little resemblance to the precarious, frag-

mented, and unstable industry of the mid-1930’s, which

Congress undertook to rescue by the Motor Carrier Act of

18 The operation of equipment by the shipper’s employee was

offered in Church as an example of how the for-hire presumption

could be rebutted. As such, we believe other factors relating to

control are not, and in fac“ have not been excluded as methods of

rebutting the presumption.

10 In a subsequent decision, the Supreme Court cited Drum as

authority for the proposition that “judicial review of. [the

agency's) expert judgment is necessarily a limited one.” SEC v.

New England Electric System, 390 U.S. 207, 211 (1968).

21a

1935. Common and contract carrier trucking has grown

into one of the nation's major industries, with enormous

revenues and a solidly established position as an indis-

pensible major element in the nation’s freight trans-

portation system. At the same time, private carriage has

also grown and solidified its position, transporting some

40 percent of the nation’s traffic that moves by truck, and

actually outnumbering regulated carriers by a ratio of

approximately 9 to 1.” We do not believe that any action

taken here will have a major effect on the overall balance

between the regulated and private sectors of the industry.

What is at issue here is the ability of private carriers,

like regulated carriers, to improve their overall efficiency

by augmenting their fleets with equipment and drivers

leased from owner-operators.** The Commission’s past

policy toward such leases has precluded private carriers

from using this potential source of fleet augmentation.

By changing our policy in this respect, we will open up

this additional source of fleet augmentation to private car-

riers, while at the same time opening up an additional

source of revenues to owner-operators, who have been

particularly hard-pressed by both the present economic

recession and the rapid escalation of fuel prices over the

past several years.

No commentor has suggested any reason to conclude

that allowing this method of fleet augmentation for private

carriers will result in a significant change in the balance

between the private and regulated sectors of the truck-

ing industry. Private carriers today are able to aug-

2° See U.S. General Accounting Office, “Issues in Regulating In-

terstate Motor Carriers” (June 20, 1978), at p. 13.

21 For applicability to regulated carriers, see 49 U.S.C. § 10922

() (3). There is no similar statutory provision allowing private

carriers to augment their fleets with equipment leased from

owner-operators.

2 It is notable that the major commentors who oppose a policy

change in this area (i.e., the Motor Carrier Lawyers Association

22a

ment their fleets by leasing equipment and hiring drivers

from different sources,“ so the ability to use owner-

operators, i.e., equipment and drivers leased from a single

source, for this purpose will hardly work any major

change in the scope of their operations.

Second, the recent enactment of the Motor Carrier Act

of 1980 makes it particularly appropriate to reappraise

our policy toward leases of equipment with drivers to

private carriers, in the light of the many changes made

in the regulatory scheme. While Congress did not change

the statutory definitions of private and for-hire carriage,

it also did not undertake to write the Commission’s past

interpretations of the definitions into the statute itself.“

The conclusion we draw is that Congress continues to rely

on the Commission, as it has in the past, to establish the

boundary line between private and for-hire carriage on a

case-by-case basis of adjudication and periodic policy

statements.

The Commission’s determination of that boundary line

has shifted in the past, both in terms of the practical

arrangements presented, and in terms of the Commission’s

articulation of the tests to be applied and the emphasis it

has chosen to give to various relevant factors in succeed-

ing cases. We are fully aware of the statutory admoni-

tion that we not go beyond the powers vested in us by the

Interstate Commerce Act and other legislation.“ How-

ever, we must assume that Congress expects the Commis-

and the various branches of the American Trucking Associations)

confine their comments almost entirely to purely legal argumenta-

tion, with little or no discussion of practical consequences.

23 See note 7.

* Compare the 1958 amendment to the definition of private car-

riage, which was expressly designed to write the Commission’s

“primary business” test into the statute. See supra, footnote 5.

25 See section 3 of the Motor Carrier Act of 1980, Public Law

96-296, July 1, 1980.

23a

sion to go on bearing the responsibility for drawing the

line in light of existing law and regulatory policies.

Congress undoubtedly still wants a distinction to be

maintained between regulated and private carriage, and

we fully intend to maintain such a distinction. But we

find in neither the language nor the legislative history of

the 1980 Act any directive to confine private carriage to

as narrow a scope as possible, or to employ presumptions

no longer justified by present-day realities to interfere

with legitimate interests of private carriers to augment

their fleets through arrangements not fundamentally in-

consistent with their status as private carriers.

The 1980 Act gives evidence that Congress also recog-

nizes both private carriers and noncarrier owner-operators

as legitimate branches of the overall trucking industry.

Thus, in the interests of the private carrier industry,

Congress carved out from the Commission’s jurisdiction

compensated intercorporate hauling.” Similarly, in the

interests of the owner-operator industry, Congress ex-

panded the scope of the exempt commodities that owner-

operators may transport,“ and further directed the Com-

mission to allow a simplified fitness-only licensing pro-

cedure to grant owner- operators authority to carry food

and agriculture-related commodities.“ While none of the

2649 U.S.C. 10524(b) and (e), added by section 9 of the Motor

Carrier Act of 1980, 94 Stat. 798. Compensated inter corporate

hauling (CIH) is not private carriage; it is a limited category of

for-hire transportation exempted from coverage under the Act,

where the carrier and the shipper are both members of the same

“corporate family” as defined in section 10524(c). The earriers

benefitting from this new exemption, by and large, are those which

have heretofore operated as private carriers. See Ex Parte No. MC-

122 (Sub-No. 1), Implementation of Intercorporate Hauling Re-

form Legislation 45 Fed. Reg. 86761 (December 31, 1980).

27 49 U.S.C. 10526 (a) (6), (11), (12), (18), as amended or added

by section 7 of the 1980 Act, 94 Stat. 797.

28 49 U.S.C. 10922 (b) (4) (E), and (b) (6), added by section 5 of

the 1980 Act, 94 Stat. 794; See also 49 U.S.C. 10923(b) (5), and

24a

cited provisions directly affect the question under con-

sideration, they do demonstrate on the part of Congress

an acceptance of the continued value of these branches of

the trucking industry and a disposition to make provisions

for them.”

Moreover, the 1980 Act gives evidence that Congress is

much less concerned than it formerly was over the possi-

bility of diversion of traffic from existing regulated car-

riers. New section 10922(b)(2)‘B) provides that the

Commission shall not find diversion of revenue or traffic

from an existing carrier to be in and of itself inconsistent

with the public convenience and necessity. It is true, as

several commentors point out, that this provision is in the

context of admission of new carriers into the regulated

industry. It has no direct application to determining the

boundary line between private and for-hire carriage. But

the avoidance of diversion was never an end in itself.

Rather, it was a policy adopted in order to achieve an

earlier regulatory objective of maintaining a stable traffic

base for a relatively limited number of regulated car-

riers—an objective which has now been subordinated by

Congress in the Act in favor of heightened competition.

Since fear of diversion of traffic from regulated to private

Owner-Operator Food Transportation, 132 M. C. C. 521 (1981), 46

Fed. Reg. 19494 (March 31, 1981).

* Furthermore, the Commission in 1978 determined to allow pri-

vate carriers for the first time to enter the regulated industry, in

order to improve the efficiency and economy of their operations,

without giving up their private-carrier operations or status. Toto

Purchasing & Supply Co., Inc., 128 M.C.C. 873 (1978); see also

Ex Parte No. MC-118, Grant of Motor Carrier Operating Authority

to an Applicant Who Intends to Use it Primarily as an Incident to

the Carriage of its Own Goods and its Own Nontransportation Busi-

ness, 43 Fed. Reg. 33945 (Aug. 2, 1978), and 43 Fed. Reg. 55051

(Nov. 20, 1978). Since Congress was well aware of this important

change in Commission policy when it was drafting the 1980 Act,

and took no steps to reverse the new policy, we believe it implicitly

has Congressional approval.

25a

carriers provided much of the motivation for the Commis-

sion’s former policy, we think that Congress’ lessened con-

cern over traffic diversion can and should legitimately be

considered in reappraising that policy.

We also think that the 1980 Act, by reducing the bar-

riers to the entry of new carriers into the regulated

industry, has also reduced any incentive such carriers

might have to devise subterfuges to remain outside the

reach of regulation. See Pacific Diesel, supra. Since the

fear of subterfuges and evasion was a major part of the

Commission’s motivation in adopting its presumption of

for-hire carriage in Church, supra, of contro] defeasance

by owner-operators in Oklahoma, supra, and in scrutiniz-

ing owner-operator leases to shippers in subsequent cases,

the greatly decreased incentives to evade regulation under

the 1980 Act strongly suggest a reapprasial of both

presumptions.

Finally, we think the new National Transportation

Policy (NTP) for motor carriers of property adopted by

the 1980 Act“ calls for a reappraisal of our former

policy. Several commentors insist that both the new and

the old NTP apply only to regulated carriers, but in view

of the over-all scope of the 1980 Act, and of its specific

provisions cited above affecting private carriers and

owner-operators, we think this contention is untenable.

We believe the whole tenor of the 1980 Act negates any

such exclusive concern on the part of Congress for the

regulated sector of the trucking industry. Congress cer-

tainly wanted to maintain a strong and viable regulated

sector, because it knew that many shippers have relied

and will continue to rely on that sector for their trucking

needs. But we believe that Congress similarly wanted to

maintain strong and viable private-carrier and owner-

operator sectors, because it equally knew that many ship-

0 49 U.S.C. 10101(a) (7), added by section 4 of the 1980 Act,

94 Stat. 793.

26a

pers have likewise relied and will continue to rely on

private carriage.

It is with these thoughts in mind that we turn to a

redefinition of the distinction between private and for-hire

carriage in the context of leases of equipment with drivers

to shippers.

Tests to be Employed

We have decided to eliminate the presumption announced

in H. B. Church, supra, that leases of equipment with

drivers to shippers ordinarily give rise to for-hire trans-

portation by the lessor rather than exempt private car-

riage by the lessee. As noted above, any incentives to

indulge in “subterfuges and devices to evade regulation”

(Church) have been so far reduced under the current

regulatory scheme of relaxed entry that no such presump-

tion any longer seems appropriate.

No commentor has suggested any persuasive reason why

such a presumption should be retained. The Commission

created the presumption in pursuit of earlier regulatory

objectives, and can now discard it as obsolete in light of

current objectives. We believe the presumption no longer

serves any useful purpose. If the circumstances sur-

rounding a particular lease arrangement suggest that

a “subterfuge or device” to evade our authority may be

present, we have ample means to penetrate any such

evasive scheme and ascertain the facts.

For similar reasons, we will remove the presumption

raised in Oklahoma Furniture that whenever an owner-

operator drives his own equipment, there is present the

right and power to defeat any supposed right of control

that the shipper/lessee may believe exists. There appears

to be no reason for the imposition of this presumption on

owner-operator-shipper leases, and no commentor specifi-

cally addressed its retention. In removing it, the way will

be cleared for the consideration of convincing facts tend-

ing to show control by the shipper, which facts could not

27a

heretofore vitiate the conclusion of unauthorized for-hire

carriage where an owner-operator leased his equipment

to a shipper.

We conclude that there is no longer any justification for

maintaining different standards in judging lease arrange-

ments with drivers, depending on whether the lessee is a

private or for-hire carrier. Disposing of the presump-

tions just discussed will equate the private sector with

the regulated sector, which is free from presumptions

that wrest away a carrier’s control over an owner-

operator. Analytically, the question of whether the pro-

vider of equipment with driver under a lease arrange-

ment is simply acting as a traditional lessor of the

instrumentalities of transportation, or instead is providing

a transportation service itself under the guise of an

equipment lease, does not at all depend on the identity of

the lessee.

Some commentors assert that the status of a lessor of

equipment with driver to a shipper is fundamentally

different from that of a similar lessor to a regulated car-

rier because the former holds his service out to the general

public while the latter holds it out only to regulated

carriers. This analysis is faulty because it avoids the

basic question of precisely what it is that the lessor in

such cases is holding out.

The crucial element, we believe, is precisely what serv-

ices a lessor holds out to perform. If he holds out what

is in substance a complete transportation service for

compensation, then he is acting as common or contract

carrier, depending on whether he holds out to the public

(or a definable segment thereof) or only to selected

shippers. If he holds out only the use of instrumentalities

of transportation, i.e., trucks and drivers, then he is not

acting as a carrier for hire no matter how widely his

service is held out.

The true distinction can best be understood by looking

at the situation primarily from the shipper’s point of

28a

view. The underlying business reality is that contract

and common carriers on the one hand, and lessors on the

other, sell different services. The services sold by leasing

companies are called factor inputs: vehicles, labor, and

closely associated items, such as vehicle maintenance.

They do not sell transportation because they do not deter-

mine the best way to utilize these resources in order to

move freight. A contract or common carrier, however, in

addition to providing all the services of a lessor, also

combines the resources in order to produce a separate

composite product: a transportation service. This requires

that, unlike the lessor, the contract or common carrier

must possess and provide the key management and organi-

zational functions that characterize a transportation com-

pany. These include dispatch, scheduling movements, and

general coordination.

From the shipper’s point of view, the difference between

use of a contract carrier and a lessor (whether an owner-

operator or commercially leased equipment and drivers)

is the amount of control and responsibility that must be

exercised and assumed. If the shipper itself performs the

functions necessary to convert the labor and capital in-

puts into transportation, then it is a private carrier and

the arrangement with the lessor of vehicles and/or driv-

ers is a true lease. If the shipper turns over these re-

sponsibilities to the lessor, then it is not a private carrier,

and its partner in the transaction is a for-hire carrier.

The key to the distinction, both in the marketplace and in

law, is the issue of control. To effectively perform the

transportation service, the carrier (private or for-hire)

must have control over the major factor inputs (labor and

vehicles). Thus, a truck-leasing firm, including one that

undertakes for a fee to service and maintain the leased

equipment, is clearly not a for-hire carrier unless its

service goes considerably farther and encompasses the

actual provision of an organized transportation service.

29a

Another reality of the marketplace is that the typical

owner-operator, that is, the individual who owns a single

vehicle which he also drives, with no further organization

or employees except perhaps a substitute driver, is ordi-

narily not in a position to offer a shipper a complete

transportation service comparable to that typically offered

by a common or contract carrier. The functions of dis-

patching, scheduling, and coordination of freight ship-

ments are simply beyond his capabilities. Even in his

recognized role as transporter of exempt agricultural

commodities, the owner-operator typically finds it neces-

sary to work through such intermediaries as brokers, who

perform the complementary functions of a transportation

service he is not able to provide.

Thus, a shipper that uses the services of an owner-

operator will typically have to perform for itself those

additional functions which transform the capital and labor

inputs (vehicle and driver) into a total transportation

service, simply because the owner-operator will not be

capable of performing them satisfactorily." If the shipper

is unprepared or unwilling to perform these integrative

functions for itself, then it will turn to a contract or com-

mon carrier, whose services are readily available. We do

not see any significant likelihood that individual owner-

operators will be able to offer shippers services that will

be functionally equivalent to, or competitive with, the

services of authorized common or contract carriers.

Owner-operators may well be able to offer services which

cost less than those of common or contract carriers, but

only because they will be fundamentally different, less

complete services, i.e., the provision of factor inputs which

This is equally true whether or not the shipper already has a

fleet of trucks which it operates with employee drivers. If it does,

it will presumably already be performing the integrative and man-

agement functions typical of a carrier; if it does not, either it will

have to employ additional management personnel to perform these

functions, or they will have to be added to the duties of existing

management personnel.

80a

the shippers themselves will have to organize and fashion

into a transportation service.

Authorized carriers which today use the services and

equipment of owner-operators must add their own services

of dispatching, scheduling, and general coordination, prior

to selling the resultant transportation service to shippers.

If owner-operators are permitted to lease their equipment

and driving services directly to shippers, the shippers will

have to undertake the functions currently performed by

the authorized carriers. Whether the latter arrangement

will be economically attractive to a shipper will depend

simply on whether his cost for performing these functions

is greater or less than the authorized carrier’s charge for

performing them.

This form of product competition, made possible by

removing the regulatory obstacles to the use of owner-

operator services by shippers and private carriers, will in

our judgment further the objectives of the Motor Carrier

Act of 1980, particularly in the promotion of competitive

and efficient transportation services in order to meet the

needs of shippers, receivers, and consumers; to allow a

variety of quality, price, and service options to meet chang-

ing market demands and the diverse requirements of the

shipping public; and to allow the most productive use of

equipment and energy resources—the last because owner-

operators will have a broader market for their services

and private carriers will have an additional source of

fleet augmentation to meet their changing transportation

needs.

In contrast to individual owner-operators, large equip-

ment leasing companies are typically quite capable of

performing the additional management functions which

turn the capital and labor inputs into a complete trans-

portation service. Thus, we intend to scrutinize carefully

those leasing arrangements with drivers where the lessor

obviously has the capability of providing the key organiz-

31a

ing and management functions that characterize a trans-

portation company, particularly in situations where the

lessee’s ability to perform these functions for itself may

be in question.

What remains, therefore, is the test or tests to be ap-

plied in drawing the necessary legal distinction between

for-hire carriage by the lessor of equipment with driver

vis-a-vis regulated or private carriage by the lessee, de-

pending on whether the lessee is a regulated carrier or

shipper. Our tests will naturally focus on the factors of

control and responsibility and on the critical organizing

and management functions which transform raw factor

inputs into an integrated transportation service. Control

is of primary importance to us because without assured

control, the lessee of equipment with driver cannot perform

the critical organizing and management functions. Re-

sponsibility follows from control, and the lessee’s accept-

ance of responsibility serves to verify the reality of its

control. The organizing and management functions, of

course, are the very elements that separate the mere pro-

vision of factor inputs from the performance of an

integrated transportation service.

We will not restrict our inquiry to the formal recitals

of the lease agreement, but will—as in past—examine all

surrounding facts and circumstances and the actual con-

duct of operations under the lease to ascertain if the true

substance of the arrangement is in accord with that recited

in the formal agreement.

Our renewed emphasis on contro] and responsibility

does not mean we are no longer concerned with “the

characteristic burdens of transportation“ the corollary

test used to determine control in Church, articulated in

Drum, and followed in later Commission cases.** The con-

In this respect, as is evident, our thinking relative to control

has undergone refinement since the publication of our original notice

of proposed policy statement.

82a

siderations inherent in this test will continue to be taken

into account, not as a separate test, as suggested in Drum,

but rather as part of the examination of the greater and

primary issue of control. Performance of the critical

organization and management functions that create a true

transportation service, and the exercise of control neces-

sary in order to do so, are in our view the two most

important “characteristic burdens of transportation”.

Moreover, additional characteristic burdens flow from the

responsibilities the le. ee must accept, the most important

being liability to the public for injuries caused by the

transportation operation, responsibility for compliance

with safety regulations, and risk of loss or damage to the

cargo, all as discussed in greater detail below.

Our present view of what the term “characteristic bur-

dens of transportation” encompasses is not the same as

that utilized in the Commission’s earlier decisions. Spe-

cifically, we do not see great relevance in the degree of

predictability either of the cost of transportation to the

lessee-shipper, or of the compensation of the lessor-owner-

operator. These and other questions concerning the form

and calculation of payments by the lessee to the lessor are

matters of bargaining between the parties, and in most

cases will have little bearing on which of the parties is in

substance providing the transportation service, as analyzed

above.

Similarly, we do not see the relevance of which party

to the transaction bears the risk of idleness or non-

remunerative use of equipment. This is undoubtedly a

burden, but not one necessarily characteristic of a trans-

portation service. A shipper can clearly shift this risk

from itself to an equipment-leasing company, without

in any way relying on the latter to perform the key or-

ganizational and management functions of a transporta-

tion service; and it has not been suggested in such cases

that the lessor of equipment without drivers, merely by

assuming this risk, becomes a for-hire carrier. The pre-

33a

vailing method of compensating owner-operators who lease

to regulated carriers—payment of a fixed percentage of

the revenues earned by the carrier for its use of the leased

equipment—puts the risk of idleness or nonremunerative

use (empty backhauls) squarely on the owner-operator,

yet this has not been treated as making him a for-hire

carrier.“ We are convinced this risk is more properly a

matter for bargaining between the parties, and that ap-

propriate adjustments in price will be made depending on

which party bears the risk of idleness or nonproductive

use of equipment, or how they share that risk, without

the necessity of drawing inferences as to which party is

in substance performing the transportation service.

Accordingly, while we will take all relevant factors into

account, we intend to focus on control, responsibility, and

the performance of key organizing and management func-

tions of a transportation service as the critical elements

in determining who is performing the service, and in

characterizing the type of carriage being performed.

Where control, or responsibility, or performance of the key

organizing functions is unclear, we will endeavor, without

introducing any presumptions or preconceptions, to ascer-

tain where each of these factors predominantly lies. If we

find that the lessor is in practice performing the functions

characteristic of a transportation service, we will con-

clude that that lessor is performing an unauthorized com-

mon or contract carrier service. If the evidence is unclear

or in conflict, we will attempt to see where the factors

predominantly point.

As to the degree of control and responsibility that must

be exercised by the lessee to show that it rather than the

lessor is performing the transportation service, we will

adopt the test stated for similar leases in the regulated

The Commission’s original leasing regulations outlawed com-

pensation based on a percentage of revenues, 52 M.C.C. at 726, but

this provision was subsequently repealed.

84a

sector in Lease and Equipment, supra, 52 M.C.C. at 681,

and quoted above at p. 14:

... [W]hen an authorized carrier furnishes service

in vehicles owned and operated by others, he must

control the service to the same extent as if he owned

the vehicles, but need control the vehicles only to the

extent necessary to be responsible to the shipper, the

public, and this Commission for the transportation.

(Emphasis added)

When a private carrier furnishes service in vehicles

owned and operated by others, it must control the service

to the same extent as if it owned the vehicles, but need

control the vehicles only to the extent necessary to be re-

sponsible to the public and the Department of Transporta-

tion.

The above are the minimum requirements that must be

met in a lease of equipment and driver to a shipper in

order to have the arrangement viewed as private carriage

conducted by the shipper-lessee. If actual operations con-

ducted under the lease accurately reflect our requirements,

a presumption will arise that the transportation being

performed is private carriage controlled by the shipper.

This presumption may be rebutted with a showing that

actual operations, in any respect, tend to weaken the con-

trol and responsibility required of a shipper-lessee when

conducting transportation operations with equipment and

drivers leased from a single source. Appendix B contains

sample lease language that meets the minimum require-

ments and establishes the presumption. The preceding

requirements are particularized as follows:

(1) The lease agreement must provide, and the sur-

rounding facts must reflect, that the leased equipment is

exclusively committed to the lessee’s use for the term of

the lease,“ for any purpose consistent with the provisions

This implies that the lease must have some definite and ascer-

tainable term, which will be discussed infra. This requirement is

35a

of the lease. This requirement does not preclude the

lessor’s own use of the equipment during periods of the

lease when it is not being utilized by the lessee. We see

no reason why a lessee cannot sublease the equipment to

a third party if the lease so permits. We caution, however,

that a private carrier lessee may presently not sublease

to an authorized carrier for periods less than thirty days.

This issue is the subject of a pending proceeding docketed

in Ex Parte No. MC-43 (Sub-No. 12), Leasing Rules

Modifications (46 Fed. Reg. 15300, March 5, 1981).

(2) The lease agreement must provide, and the sur-

rounding facts and actual operations must show, that the

lessee has exclusive dominion and contro] over the trans-

portation service conducted by it with the leased equip-

ment during the term of the lease. It is not inconsistent

with such control over the transportation service to allow

the driver of the equipment to select routes, fuel stops,

rest stops, repair stops, and perform other ministerial

matters relating to control of the vehicle. It is incon-

sistent with his status as a simple lessor, however, to

delegate to him managerial elements of control over the

transportation service provided.“

(3) The lessee must maintain public liability insurance

or otherwise accept responsibilty to the public for any

injury caused in the course of performing the transporta-

tion service conducted by it with the equipment during

not inconsistent with a provision making the lease renewable by

either party, or terminable by either or both parties on specified

notice. It is similarly not inconsistent with the lessee’s full and

exclusive right of use to provide in the lease that the lessor may

use the equipment for his own purposes at such times during the

period of the lease as the lessee has no use for it.

35 An owner-driver may perform such functions in loading and

unloading as an employee would ordinarily perform, consistent with

industry practice, but he should not be called on to perform such

managerial functions as the hiring of additional employees for

loading and unloading.

86a

the term of the lease. To this end, the equipment must

display appropriate identification showing operation by

the lessee during the performance of such transportation.

The ultimate liability (including any liability for damages

in excess of insurance policy limits) will remain on the

lessee.** This will be a significant protection to the public,

since both a shipper/private carrier and a regulated car-

rier perform essentially the same service, and should be

similarly responsible for public injury. As a practical

matter, shippers will generally be better able both to

afford adequate insurance coverage and to respond in

damages than a typical owner-operator.

(4) The lessee must accept responsibility for, and bear

the cost of, compliance with safety regulations during

performance by it of any such transportation service.

This is not inconsistent with a requirement that the driver

pay any traffic fines he may incur, but responsibility for

infractions over which the lessor has no control should

remain on the lessee, who, in an overload situation, for

example, controls the amount of cargo loaded as a man-

agerial element of the transportation service.

(5) The lessee must bear the risk of damage to the

cargo, subject to any right of action it may have against

the lessor for the latter’s negligence. This could be covered

by cargo liability insurance or other means, such as self-

insurance. This means that a private-carrier lessee—

since the driver is merely its agent and the cargo never

leaves its possession—cannot look to the lessor to bear the

typical insurer’s liability of a carrier.“

0 The lessee’s acceptance of responsibility to the public is not

negated by any right of action it may have against the owner-

operator for injury caused by the latter’s negligence.

* A common carrier bears an insurer’s liability to its shipper in

most circumstances, subject to reasonable limitation by tariff pro-

vision; a contract carrier’s liability to its shipper is a matter of

contract. A clause in a lease agreement making and equipment

lessor liable for cargo loss would thus tend to indicate either com-

37a

(6) The term of the lease must be for a minimum

period of 30 days. We will focus on the standard of con-

trol used in owner-operator leases to private carriers, as

we have in the past concerning such leases to regulated

carriers. It would be inconsistent to permit private car-

riers to engage owner-operators for less than 30 days,

while requiring a 30 day minimum of regulated carriers

as an indicator of control. A lesser minimum period

would also confer an economic tool upon private carriers,

which could be used to the detriment of for-hire carriers.

The foregoing are conditions that are normally as-

sumed by authorized carriers in holding out their service to

the public. We believe they are indispensable to show that

the lessee rather than the lessor of equipment with driver

is performing the characteristic functions of a carrier.

In including these conditions but excluding others (which

may be viewed by some commentors as indispensable),

we believe we are acting “well within the range of the

responsibility Congress assigned to the Commission.” See

United States v. Drum, supra, 368 U.S. at 385.

There remain a number of other features of lease

agreements that are not conclusive on the issue of con-

trol, but may nevertheless be entitled to weight in char-

acterizing leasing arrangements which are presented as

private carriage. We list the following, without intend-

ing to exclude consideration of other features which have

been discussed in past cases or may be found to be

significant in future ones:

(1) Whether the lease agreement is in writing. This

is not an indispensable element of a valid contractual

agreement, absent some applicable state law to that effect,

and we have no authority to impose it on private car-

mon or contract carriage; a clause negating such liability by the

lessor would tend to negate common carriage, though not neces-

sarily contract carriage.

38a

riers as we have in the case of regulated carriers which

lease equipment from owner-operators or other carriers.“

However, the best evidence of the minimum requirements

and other provisions entitled to weight in determining

whether a leasing arrangement is private carriage is a

written lease. It follows that we will subject oral leases

to more careful and detailed scrutiny than written leases.

(2) Whether the lease is for round trips. One-way

leases may facially be inconsistent with the exclusive

commitment requirement, and with performance by the

lessee of the key organizing and management functions

which distinguish a true transportation service from the

mere provision of instrumentalities. However, as we

observed earlier, a provision in a lease agreement allow-

ing the lessor to use the equipment for his own purposes

during the period of the lease when the lessee has no

need for it would not necessarily be inconsistent with the

lessee’s full and exclusive right of use. Thus, where the

lessee has freight moving in one direction only, we do

not believe that the concept of exclusive commitment is

compromised or mitigated where, consistent with the

terms and provisions of the prime lease, the lessor exe-

cutes a concurrent and more or less complementary lease

for backhaul purposes and repositioning of equipment.

(3) Whether the driver becomes the lessee’s employee.

A requirement to this effect was considered but never

imposed by the Commission when it was first reviewing

owner-operator leases to regulated carriers.” On the

other hand, employment of owner-operators has been per-

ceived as being a requirement in the case of their leasing

to shippers, in order to avoid a finding of rnauthorized

38 49 C.F.R. 1057.11(a).

% gee Dixie Ohio Exp. Co. Common Carrier Application, 17

M.C.C. 735 (1939).

39a

for-hire carriage by the lessor. The result has been

to preclude the latter type of lease, since very few owner-

operators have been willing to give up their status as

independent contractors. Although acceptance of such

status is certainly confirmatory evidence that the lessee

exercises exclusive possession, control, and dominion of

the transportation service, we believe an owner-operator

can maintain his status as an independent contractor

without necessarily extending the scope of his holding out

beyond the use of his equipment and his own services as

a driver, or negating the lessee’s exclusive possession and

control. Any intimations to the contrary in our past

decisions are expressly negated.

(4) Whether the equipment is sometimes driven by a

person other than the owner-operator or someone selected

by him. While not essential, this is obviously a factor

tending to show that the lessee is in full and exclusive

command of the transportation operation.

(5) Whether the lease is of tractor only, or of tractor

and trailer. The lessee’s ownership of the trailers pulled

by leased tractors tends to show it as bearing a burden

of transportation, though not one of the essential ones

(see our earlier discussion).

(6) Who assumes the risk of loss or damage to the

equipment, and who pays for fire, theft, and collision

insurance thereon. This is essentially a matter for bar-

gaining between the parties. Requiring the owner-

operator-lessor to bear these risks and costs is not neces-

sarily inconsistent with performance of the carrier role

by the lessee; but if the lessee agrees to bear these risks

and costs, it tends lo strengthen its assertion of control.

% No Commission decision has flatly required this, but it has not

escaped attention that the only cases of owner-operator leases to

private carriers which were upheld by the Commission as constitut-

ing private carriage have in fact been those where the owner-

operators became employees. See, e.g. Ontario Company De claru-

tory Order, 112 M.C.C. 211 (1970).

40a

(7) Whether the lessee pays or reimburses the driver

for such expenses as fuel, oil, tolls, en-route repairs, and

loading/unloading charges. A fixed allowance per mile

covering some or all of these expenses is not inconsistent

with a true lease situation. See Rayette, supra. Neither

is a negotiated lump-sum payment covering some or all

such expenses. If the lessee specifically pays or reim-

burses them, however, that fact is further evidence that

it performs and controls the transportation function.

(8) Whether the lessor is required to repair and main-

tain the equipment. Equipment leasing companies often

offer this service, for a fee, in connection with long-term

leases, without any implication of for-hire carriage on

their part. The same absence of implication should apply

to owner-operator lessors, regardless of whether they

charge a fee for this service.

(9) Whether the léase provides for some fixed mini-

mum payment, regardless of use. A provision for a mini-

mum payment is relevant but not essential. Although

the risk of nonutilization was a factor stressed in Drum,

we agree with the Administrative Law Judge’s assess-

ment in Rayette that this factor is purely theoretical

where the equipment is kept busy, and thus is not a

significant burden of transportation which can be of

assistance in resolving the primary issue of control.

(10) Whether the lessee is assisting the lessor finance

the equipment, and/or whether it holds legal title in trust

for the lessor. This is a strong factor showing assump-

tion by the lessee of a “burden of transportation”, which

helps to answer the control issue. See Rayette, supra.

Conclusion. As stated at the outset, the foregoing is

not intended to be an exhaustive listing of all the factors

which have been or may be found to be relevant to the

determination of whether a particular private operation

conducted with leased singly-sourced equipment and

drivers is in fact private carriage. We think, though,

4la

that the foregoing factors reasonably and clearly indi-

cate how we will deal with other factors that may tend

to establish who has control. We repeat that the fore-

going 10 factors are peripheral, and that we expect to

focus most of our attention on the six essential elements

of a lease arrangement discussed earlier.

We are well aware that the parties to such arrange-

ments want practical assurances that their operations

will not be suddenly overturned on some technicality or

other. Appendix B contains sample lease language which

meets the minimum requirements for control] where a

shipper leases equipment and drivers from a single source.

Properly executed, a lease form containing this language

raises the presumption of a private carriage conducted

by the lessee. Our inquiries will ascertain whether the

actual operations are an accurate reflection of the lan-

guage set forth in the lease. We believe that the dis-

cussion in this policy statement will give all affected

parties sufficiently clear guidelines so that they can order

their affairs with confidence.

Further Arguments by Opponents

The opponents of our proposed policy statement make

a number of arguments that are neither procedurally nor

directly related to the issue of where the line should be

drawn between private and for-hire carriage. Several of

not help noticing, however, that these arguments come

not from the owner-operators themselves but from mem-

bers and representatives of the regulated industry, whose

interests here are rather plainly opposed to those of the

owner-operators.

1. Master Licensing. A major contention of certain

commentors is that adoption of the proposed policy state-

42a

ment would be tantamount to a form of master licensing

prohibited by the Motor Carrier Act of 1980.“

These commentors misunderstand the nature of our

policy statement. The master licensing prohibition is

designed to prevent the Commission from announcing in

a rulemaking proceeding general findings of public con-

venience and necessity which would not thereafter be

subject to reexamination in any subsequent individual

licensing proceeding. The Congressional prohibition was

in response to specific Commission proposals of this type;

see, for example, Chemical Leaman Tank Lines, Inc. V.

United States, 368 F. Supp. 925 (D. Del. 1973). The

statutory ban is expressly limited to Commission licensing

proceedings. Our instant proposal is not a licensing pro-

ceeding, however, and makes no findings of public con-

venience and necessity. It simply advises the public in

general terms when we believe our regulatory jurisdiction

will ordinarily be triggered. As the previous discussion

makes clear, owner-operators will not under our policy

statement be able to operate in the same manner as

licensed carriers.

2. Absence of Existing Protection for Owner-Operators.

Many commentors correctly point out that Owner-

operators who lease to private carriers will not be covered

by the various protections of the so-called “truth-in-

leasing“ regulations.“ This effect, they contend, is con-

1 P. L. 96-296, 94 Stat. 798, §5(b)(3) and §10(a)(6); 49

U.S.C. 10922 (b) (3) states “The Commission may not make a

finding relating to public convenience and necessity under para-

graph (1) [of subsection 10922 (b)] which is based upon general

findings developed in rulemaking proceedings.” 49 U.S.C. 10923

(a) (6) makes essentially the same language applicable to applica-

tions for contract carrier permits.

49 C. F. R. 1057.12; Ex Parte No. MC-43 (Sub-No. 7), Lease

and Interchange of Vehicles, 181 M. C. C. 141 (1980), aff'd sub nom.

Global Van Lines, Inc. v. I. C. C., 627 F.2d 546 (D.C. Cir. 1980).

43a

trary to congressional concern and to the statute itself.

We disagree.

Owner-operators need not lease to private carriers un-

less they wish to do so. In many cases, the protections

which our regulations accord owner-operators when they

lease to regulated carriers may encourage them to retain

their association with the latter.

We believe owner-operators should be given the choice

of leasing their services and equipment in either a regu-

lated or an unregulated environment. In return for

relinquishing the truth-in-leasing protections enjoyed

while under lease to a regulated carrier, the owner-

operator can negotiate his own protective arrangements

with the private carrier. In the final analysis, however,

we have no jurisdiction to impose on owner-operator

leases to private carriers the regulatory protections which

owner-operators now enjoy when leasing to regulated

carriers.

The fuel surcharge issue is similarly tendered by op-

ponents of the proposal as an existing owner-operator

benefit which would be lost if this policy is effected. The

fuel surcharge program“ was designed to compensate

owner-operators for their increased costs of fuel by means

of a surcharge on the gross transportation charges which

must be remitted by the carrier to the owner-operator.

The surcharge program has been eliminated, with com-

pulsory mileage-based compensation taking its place.“

As with the truth-in-leasing protections, we have no

jurisdiction to impose a fuel payments program upon

private carriers. However, with an opportunity to nego-

tiate leasing charges directly with individual shippers,

% Ex Parte No. 311 (Sub-No. 1), Expedited Procedures for Re-

covery of Fuel Costs, decision served June 4, 1979.

Ex Parte No. 311 (Sub-No. 4) Modification of the Motor Car-

rier Fuel Surcharge Program 46 Fed. Rem 50070 (October 9,

1981), 47 Fed. Reg. ( 1982).

44a

owner-operators can ensure that their fuel costs are con-

sidered, thus obviating the need for a supplemental fuel

payment.

3. Compensated Intercorporate Hauling.—Our original

proposal noted that in a related proceeding, we concluded

that compensated intercorporate hauling (CIH) operations

performed by a corporate subsidiary established for the

specific purpose of providing for-hire transportation

solely for its parent and/or corporate affiliates are exempt

under the Motor Carrier Act.“ This conclusion was

affirmed in the adoption of final rules in that proceeding.“

A commentor has questioned whether owner-operators

may lease directly to a separately-incorporated subsidiary

engaged solely in CIH operations pursuant to the rules

set forth in Ex Parte No. MC-122 (Sub-No. 1).

The unquestionable intent of Section 9 of the 1980

Motor Carrier Act is to exempt intercorporate hauling

from the Commission’s regulatory jurisdiction, once the

limited formalities of notice and publication are complied

with, to the same extent as private carriage has hereto-

fore been exempted. While we have no jurisdiction to

regulate intercorporate hauling, we do retain our au-

thority to determine what constitutes intercorporate haul-

ing within the confines of the statute.

A corporate transportation subsidiary which handles

the transportation requirements of its parent or affiliates

is effectively a private carrier. We therefore see no basis

#5 Ex Parte No. MC-122 (Sub-No. 1), Jmplementation of Inter-

corporate Hauling Reform Legislation 45 Fed. Reg. 45526 (July 3,

1980). Compensated Intercorporate Hauling was established by

Section 9 of the Motor Carrier Act, and is exempt from our jurisdic-

tion once the ministerial formality of notice (and subsequent pub-

lication) is complied with.

4% Ex Parte No. MC-122 (Sub-No. 1), Jmplementation of Inter-

corporate Hauling Reform Legislation, 45 Fed. Reg. 86761 (De-

cember 81, 1980).

45a

for precluding legitimate leasing by owner-operators or

others to intercorporate haulers, regardless of whether

they are separately incorporated. We stress, however,

that a corporate subsidiary wishing to engage in exempt

compensated intercorporate hauling by leasing vehicles

and driver services from owner-operators must assume

the characteristic burdens of transportation in exactly

the same manner as does a private carrier operating

without a transportation subsidiary. If a transportation

subsidiary leased vehicles and driver services from

owner-operators, but did not assume the characteristic

burdens of transportation, the owner-operator, and not

the transportation subsidiary, would be rendering the

transportation service to the corporate family. Because

such an arrangement would not fulfill the requirements

of section 10524(b) that the transportation for the cor-

porate family be “provided by a person who is a member

of a corporate family”, the arrangement would constitute

provision of for-hire transportation, subject to our juris-

duction, and not exempt private carriage.

4. Highway Safety. Several commentors assert that

adoption of our proposal will be detrimental to highway

safety. They point to expressed Congressional concerns

for the continued safety of motor carrier operations,“

concerns which resulted in the enactment of sections 29

and 30 of the Motor Carrier Act of 1980.** Commentors

claim that allowing owner-operators to enter into short-

term leases (i.e., those of less than 7 days’ duration)

with shippers would bring the owner-operators within an

See H.R. Rep. 96-1069, 96th Cong., 2nd Sess., pp. 6, 41-43.

Section 29 requires filing evidence of insurability (bond, insur-

46a

exception to the Federal Motor Carrier Safety Regula-

tions“ concerning the qualifications of drivers. Carriers

which utilize drivers falling within the exception for

“intermittent, casual, or occasional drivers” are not re-

quired to investigate those drivers’ qualifications or their

past safety violations, or to review their driving records

annually. Commentors contend that to allow private

carriers to take advantage of this exception would de-

feat the beneficial] results sought to be obtained by Con-

gress in enacting sections 29 and 30, and flatly assert

that private carriers using owner-operators on an “inter-

mittent, casual, or occasional” basis will be prone to a

higher incidence of highway accidents.

Insofar as leases to private carriers must be of 30 days

duration, at mirümum, the same as for regulated car-

riers, these arguments are without merit. Nevertheless,

we must emphasize that the primary jurisdiction over

motor vehicles safety regulation is vested in the Bureau

of Motor Carriers Safety of the Department of Trans-

portation, and requests for any regulatory changes should

be addressed to DOT.

5. Leases by Commercial Lessors. Many commentors

insist that commercial equipment lessors cannot be ex-

cluded from the scope of our policy statement and that

any attempt to do so would arbitrarily discriminate be-

tween owner-operators and commercial lessors. Other

commentors assert that leases of equipment with drivers

by commercial lessors to private carriers would auto-

matically constitute for-hire transportation by the com-

mereial lessors for which authority would be required.

Our earlier analysis of the fundamental distinetion

between leasing and for-hire carriage convinces us that

commercial lessors, like owner- operators, may lease

* 49 C. F. R. Part 396.

47a

equipment with drivers to shippers without becoming for-

hire carriers. The same principles governing the distine-

tion between private and for-hire carriage would be

equally applicable to leasing companies and owner-opera-

tors. Many commercial] leasing companies, if they sup-

plied drivers for the equipment they leased, might want

to take the final step and offer their customers a full

transportation service. For this they would of course

require Commission authority.“ As we pointed out ear-

lier, the large commercial leasing company that leases

equipment with drivers to private carriers has a greater

potential for entering the field of for-hire carriage than

does the typical owner-operator. We expect to scrutinize

such leasing arrangements with care in light of the

typically greater ability of commercial lessors to engage

in for-hire carriage.

6. Leases by Authorized Carriers. Regulated carriers

are precluded from leasing equipment, with or without

drivers, to private carriers or shippers under most cir-

cumstances by Subpart E of the leasing regulations.”

As a matter of legal analysis, however, we see no rea-

son why authorized carriers cannot lawfully engage in

the leasing of equipment with drivers to private carriers

51 See, for example, Pacific Diesel Rental Co.—Investigation of

Operations, 78 M.C.C. 161 (1958), a case in which the Commission

held that the “lessor” was, in fact, engaged in for-hire carriage,

and which would probably be decided the same way under our

proposal.

52 49 C. F. R. § 1057.41. This section sets out four exceptions to the

general ban on authorized carrier leasing to private carriers or

shippers: (a) Leases with or without drivers are permitted for

transporting newspapers or for local cartage within a commercial

zone (49 U.S.C. 10526 (a) (7) and (b)(1); (b) leases with drivers

are permitted when the carrier's certificate or permit specifically

so provides; (c) leases without drivers are permitted where the

cargo is moving on railroad bills of lading; and (d) leases without

drivers are permitted where approval of the rental contracts has

been obtained from the Commission.

48a

just as other lessors can. On the other hand, regulated

carriers obviously have the capability of performing those

functions which characterize a for-hire transportation

service, and indeed it is just those functions that they

hold themselves out to the public as being ready, willing,

and able to perform. Were authorized carriers allowed

to lease equipment with drivers to private carriers, the

former would have to make it very clear to a prospective

lessee that it was not undertaking to perform these

management functions with respect to the leased equip-

ment and drivers. If it did not in fact perform them,

the arrangement could perfectly well be held a bona fide

lease and valid private carriage by the lessee, assuming

our six criteria described above were met.

In such circumstances, it would be solely the bar of the

existing regulation that would preclude an authorized

carrier from leasing equipment with drivers to a shipper

or private carrier.

Accordingly, we will institute a proceeding to deter-

mine whether Subpart E of the leasing regulations should

be repealed or modified to bring it into line with the

policy adopted here.

7. Tax Status of Owner-Operators Leasing to Private

Carriers. Some commentors assert that owner-operators

who lease to private carriers under our proposal would be

treated as employees for tax purposes, because of the

degree of control the private carrier would have to exer-

cise to establish true private carriage. This argument has

little relevance to our regulatory functions. For general

legal purposes, we held long ago that a regulated carrier

can carry on its service with equipment leased from

owner-operators as independent contractors, and it is our

understanding that owner-operators are not typically

treated as employees for tax purposes when they lease to

regulated carriers. Lease and Interchange, supra, 52

M.C.C. at 681. The tests we will apply henceforth will

49a

—

require no greater degree of control where the lessee is

a private carrier than where it is a regulated carrier,

and we have specifically repudiated any past implication

that an owner-operator-lessor leasing to a private carrier

must become an employee.“

8. Definition of Private Carrier“. Some commentors

are concerned that our use of the term “private carriers”

in the title of this proceeding implicitly restricts the ap-

plicability of this policy to those shippers with existing

private carriage fleets. This is not our intent. A private

carrier is in essence a shipper or manufacturer which

transports its own goods.“ We see no distinction between

use of this policy to augment existing private carriage

operations or to inaugurate new private carriage service.

Thus, where the term “private carrier“ has been used,

the word “shipper” may be substituted so as not to

preclude the lease of equipment and drivers to those

shippers without existing private carriage operations.

Environmental and Energy Considerations

As noted in the proposed policy statement, it is ex-

pected that the proposed action will “improve operating

efficiencies, reduce empty mileages, and increase pro-

ductivity of revenue equipment, thus contributing to the

conservation of energy resources”. In an analysis pre-

pared for the Federal Energy Administration,“ the

Charles River Associates, Inc., found that restrictions on

leasing equipment to other carriers and restrictions on

mixing exempt, contract, private, and common carriage

could cause unnecessary additional empty backhauls, ve-

hicle mileage, and fuel consumption. Although the energy

See pp. 16-17 and 36-87, also n. 18.

% 49 U.S.C. f 10102(14) defines “motor private carrier“.

U.S. Federal Energy Administration, Potential Fuel Conser-

vation Measures by Motor Carriers in the Intercity Freight Mar-

ket”, Vol. 1, March 1977, Washington, D.C.

50a

impact of allowing owner-operators to lease equipment to

private carriage has never been specifically examined,

it is expected that the proposed action wil] reduce empty

backhauls, net vehicle mileage, and fuel consumption.

Attendant to the reductions in vehicle mileage will be

a slight reduction in truck-related accidents, noise, and

air pollution. No other energy consumption or environ-

mental impacts are expected.

This analysis presumes that owner-operator flexibility

will not be unduly restricted in their agreements with

private carriers. Such contractual restrictions could

cause operating inefficiencies and increased energy con-

sumption.

Decided: February 9, 1982.

By the Commission, Chairman Taylor, Vice-Chairman

Gilliam, Commissioners Gresham and Clapp. Commis-

sioner Gresham concurred in part and dissented in part

and reserves the right to submit a separate expression

which will be issued in a notice.

JAMES H. BAYNE

Acting Secretary

[SEAL]

51a

APPENDIX A

Comments received in Ex Parte No. MC-122 (Sub-No. 2)

Individuals

Jim Sanot Easton, PA

C. Tim Stoughton Lancaster, OH

James W. Blackburn N. Wilkesboro, NC

Ron Rebideau Plymouth, VT

Ray Anderson Greenville, OH

Randy E. Anderson Lancaster, OH

Troy A. Hill Federal Way, WA

Thomas J. & Joanne

T. Kennedy, Jr.

Hackettshown, NJ

Lawrence E. Dellinger Arlington, VA

R. Terry Stoughton Not given

Phil L. Noland Not given

Louis W. Scruggs Not given

Eric E. Matchette, III Mission Hills, KS

Jim Shaw Salt Lake City, UT

Les Zimmermann Youngstown, OH

Joe Hess Greenville, OH

Alfred E. Bakos Porter, IN

Tony A. Taylor Bristol, TN

Donald A. Hayes Merrillville, IN

Ted Obolsky Passaic, NJ

Brian Obolsky Passaic, NJ

Bill Hodge Holdmdel, NJ

Ed Koch E. Rutherford, NJ

Jeff Mauksa Passaic, NJ

John J. Dean Passaic, NJ

Robert J. Dudek Fairfield, NJ

Mark Thaugas Holmdel, NJ

Richard Deview Wayne, NJ

James Cook, Jr. Jeffrey, NH

Perry D. Daniels Harrisonville, PA

Clara L. Bowen Greenville, NC

52a

Ronnie G. Black Birmingham, AL

David & Catherine

Fredericksen Neenah, WI

Ray McCallister Sandy Lake, PA

Frank Haines Connellsville, PA

Billy C. Usery Guntersville, AL

Gail A. Dowds Augusta, GA

Robert Shaw Portland, ME

Robert E. Kramer Rice’s Landing, PA

Warren R. Shafer Columbus, OH

Bob Cain Walla Walla, WA

Shippers/Private Carriers

Monsanto Company

Mills & Nebraska Lumber

Dayco Corporation

Speciality Auto Sales, Inc.

Midland Cooperatives, Inc.

Northwestern Steel and Wire Company

TRW, Inc.

Onan Corporation

Nucor Corporation

Surrette Storage Battery Co., Inc.

Cook Paint and Varnish Company

B-D Oil Company

Anchor-Hocking Corporation

Hunt-Wesson Foods, Inc.

Slaughter Brothers, Inc.

J.R. Industrial Corporation

J.C. Penney Company, Inc.

Hill-Rom Company, Inc.

The Pillsbury Company

Boise Cascade Corporation

Union Camp Corporation

Exide Corporation

Comet Rice, Inc.

Geo. A. Hormel & Co., Oscar Mayer & Co., and The Rath

Packing Company (jointly)

53a

Nekoosa Papers, Inc.

Chattanooga Brick and Tile, Inc.

Amoco Oil Company

Petrolane, Inc.

Black & Decker Mfg. Co. (Appearance at oral hearing

only)

Carriers

Ellerbrock Trucking, Inc.

Silvey Refrigerated Carriers, Inc./Rand Leasing

Corporation, Inc.

Ranger Division, Ryder Truck Lines, Inc.

Schilli Motor Lines, Inc.

Louis J. Capolino Trucking

Old Dominion Freight Lines, Inc. & Deaton, Inc. (jointly)

Bowman Transportation, Inc., Floyd & Beasley Transfer

Co., Inc., Bruce Johnson Trucking Co., Inc., and R.J.

Taylor and G. G. Taylor Co. (jointly)

Mason & Dixon Lines, Inc.

Chandler Trailer Convoy, Inc.

Watkins Motor Lines

Cooper Motor Lines, Inc.

East Texas Motor Freight Lines, Inc.

Blalock Truck Lines, Inc., F.J. Boutell Driveway Co., Inc.,

J.N. Carr Transport, Inc., L-J-R Hauling, Incorporated,

Milk Tank Lines, Inc., National Transportation Serv-

ices, Inc., & Underwood & Weld Co., Inc., (jointly).

Crete Carrier Corporation, Shaffer Trucking, Inc., and

Sunflower Carriers, Inc. (jointly).

C & H Transportation Co., Inc., Frank Bros. Trucking

Co., and J. H. Rose Truck Line, Inc. (jointly).

Alvan Motor Freight, Inc., Earl C. Smith, Inc., Jones

Transfer Company, McDuffee Motor Freight, Inc.,

Parker Motor Freight, Inc., Transamerican Freight

Lines, Inc., United Trucking Service, Inc., United

Trucking of Kentucky, Inc., and White Star Trucking,

Inc.

Interstate Motor Freight System, Steel Division

54a

Daily Express, Inc. and Samuel J. Lansberry, Inc.

(jointly).

Commercial Carrier Corporation and Clay Hyder Truck-

ing Lines, Inc. (jointly).

Kephart Trucking Company

Wenham Transportation, Inc.

Leaseway Transportation Corp.

J & P Trucking Co., Inc.

Tajon, Inc.

Yellow Freight System, Inc.

Ace Doran Hauling and Rigging Co.

W.R. Durand Trucking, Inc.

Key Way Transport, Inc., Wisconsin Pacific Express,

Inc., Zipeo Trucking, Inc., Coldway Food Express, Inc.,

Builders Transportation Co., Leo J. Umerley, Inc.,

Roadhound Truck Company, R.G.C. Cargo Carriers,

Inc., Pinto Trucking Service, Inc., G.G. Parsons Truck-

ing Co., J. M. C. Transport, Inc., H & M Motor Lines,

Fall River & New Bedford Express Co., Inc., Direct

Courier, Inc., Command Cargo Corporation, Mmar

Transportation, Inc., Galveston Truck Lines Corp.,

The Terminal Corporation, MAC of Wisconsin, Inc.

(jointly).

Schneider Transport, Inc., Schneider Tank Lines, Inc.,

Trans-National Truck, Inc., Distribution Service Sys-

tem, Inc., WNI, Inc., and National Bulk Transport,

Inc. (Jointly).

Trucking

W & L Motor Lines, Inc.

Dixie Express, Inc.

Priority Freight Systems, Inc.

Joe Brown Company, Inc.

Monkem Co., Inc.

Artim Transportation System, Inc.

Herzog Trucking Company, Inc.

Hahn Trucking Line, Inc.

55a

AID Incorporated

Arrow Truck Lines, Inc., Hi-Way Dispatch, Inc.

Bob Witaker & Son

Frozen Food Express, Inc.

Unidentified Carrier comment submitted by Sam Zuzich

Arrow Transfer & Stefage Company

Motek Transport, Inc.

Yeary Transfer Company

General Delivery Incorporated

Midwest Emery Freight System, Inc., Little Audrey’s

Transportation Co., Inc., Belford Trucking Co., and

Trans-Cold Express, Inc. (jointly).

Refrigerated Transport Co., Inc., and Coastal Transport

& Trading Co. (jointly).

Charter Express, Inc., Hedrick Associates, Inc., Import

Dealers Service Corporation, North Alabama Transpor-

tation, Inc., Osborne Truck Line, Inc., Port Norris Ex-

press Co., Inc., Wiley Sanders Truck Lines, Inc., Senn

Trucking Company, Southern Intermodal Logistics,

Inc., The Service Transport Co., Victory Freight-way

System, Inc. (jointly).

Michigan & Nebraska Transit Co., Inc., and Pulley

Freight Lines, Inc. (jointly).

Ryder Truck Lines, Inc.

Osterkamp Trucking Inc.

Matlack, Inc. (Appearance at oral hearing only)

Melton Truck Lines, Inc.

Stewart Trucking Company, Inc.

Associations and Others

Walter C. Gleba, Jr.

Chamber of Commerce, Fargo, ND

Independent Truckers Association (Arizona Chapter)

Independent Truckers Association (South Dakota Chap-

ter)

Independent Truckers Association (Ohio Chapter)

Independent Truckers Association (Indiana Chapter)

Independent Truckers Association (Colorado Chapter)

Independent Truckers Association (National)

56a

Owner-Operators-Independent Drivers Assn. of America

E. V. Swift

John Gettman

Dump Transport Industries Association

Private Carrier Conference

National-American Wholesale Grocers Association

South Dakota Independent Truckers Assn. (West Chap-

ter)

National Industrial Traffic League

Specialized Carriers and Rigging Association

National Furniture Warehousemen’s Association

Regular Common Carrier Conference of the American

Trucking Assns., Inc.

Truck Renting and Leasing Association

Steel Carriers’ Tariff Association, Inc.

American Movers Conference

Food Marketing Institute

National Agricultural Chemicals Association

Owner Operator Magazine

William Biederman and Irving Klein, Attorneys

U.S. Department of Transportation

Eastern Labor Advisory Association (Cement and Tank

Divisions) and Labor Relations Advisory Association

(jointly)

Private Truck Council of America, Inc.

American Trucking Associations, Inc.

Truckers Action Conference

National Agricultural Transportation Association

Motor Carrier Lawyers Association

Common Carrier Conference—Irregular Route

International Brotherhood of Teamsters, Chauffeurs,

Warehousemen, and Helpers of America

Indiana Farm Bureau Cooperative Association, Inc.

Interstate Commerce Commission, Office of Special Coun-

sel

National Automobile Transporters Association

Texas Citrus Exchange

Sunkist Growers, Inc.

57a

APPENDIX B

The following language, inserted into a lease of equip-

ment and driver(s) between an unregulated lessor and

a shipper or private carrier, meets our six minimum

criteria for the performance of private carriage by a

shipper utilizing unregulated equipment and drivers from

a single source, and raises a rebuttable presumption of

private carriage, exempt from Commission jurisdiction

under 49 U.S.C. 10524(a). Parties may or may not de-

sire to address in the lease other issues characterizing a

transportation service, some of which are identified in

the decision.

1. The period for which the lease applies shall be for

30 days or more.

2. The equipment subject to the lease shall be exclu-

sively committed to the lessee’s use for the term of the

lease.

3. During the term of the lease, the lessee shall accept,

possess, and exercise exclusive dominion and control over

the leased equipment. The lessee shall further assume

complete responsibility for the operation of the equip-

ment.

4. The lessee shall maintain public liability insurance,

in amounts required by law, or shall otherwise accept

responsibility to the public for any injury to persons or

damage to property sustained during the performance by

it of any transportation with leased equipment and driv-

ers. The lessee agrees to display appropriate identifica-

tion on all equipment leased by it, showing operation by

the lessee during the performance of such transportation.

5. During performance by it of transportation, the

lessee shall accept responsibility for, and bear the cost of,

compliance with safety and other requirements imposed

by the Interstate Commerce Commission, the Department

of Transportation (Bureau of Motor Carrier Safety),

58a

and the various State and local requirements. This in-

cludes, but shall not be limited to, compliance with driv-

ers’ hours-of-service rules, driver licensing, acquisition of

applicable permits, and length and weight requirements.

6. The lessee agrees to maintain in effect, throughout

the period of the lease, adequate cargo loss and damage

insurance coverage covering the property being trans-

ported, or to otherwise remain liable for such cargo dam-

age and/or loss.

59a

APPENDIX B

UNITED STATES COURT OF APPEALS

ELEVENTH CIRCUIT

Nos. 82-5247, 82-8133

RYDER TRUCK LINES, INC.,

Petitioner,

UNITED STATES OF AMERICA and

INTERSTATE COMMERCE COMMISSION

Respondents.

BOWMAN TRANSPORTATION, INC., et al.,

Petitioners,

UNITED STATES OF AMERICA, and THE

INTERSTATE COMMERCE COMMISSION,

Respondents.

Oct. 11, 1983

Petitions for Review of Orders of the

Interstate Commerce Commission

Before KRAVITCH, HENDERSON ahd ANDERSON,

Cireuit Judges.

R. LANIER ANDERSON, Circuit Judge:

60a

Petitioners’ request that we set aside a policy state-

ment issued by the Interstate Commerce Commission

(ICC or Commission) in a proceeding formally entitled

Ex Parte No. MC-122 (Sub-No. 2), Lease of Equipment

and Drivers to Private Carriers (February 9, 1982).

In essence, the ICC has announced a new formula for

determining whether a particular transportation leasing

arrangement constitutes “for-hire carriage,” subject to

ICC regulation, or “private carriage” exempt from such

regulation. Because we conclude that a rational basis

exists for the new formula proposed by the ICC, we deny

the petition.

I. The Regulation of “For-Hire” Carriage.

The Motor Carrier Act of 1935, 49 Stat. 543-67, 49

U.S. C. A. § 10101, et seg. (West 1982 Pamphlet), sub-

jects the provision of for-hire motor transportation to

regulation by the ICC. The aim of the act generally is

“to assure that shippers . . . will be provided a healthy

system of motor carriage to which they may resort to get

their goods to market.” United States v. Drum, 368

U.S. 370, 374, 82 S.Ct. 408, 410, 7 L.Ed.2d 360 (1962);

see S. Doc. No. 152, 73rd Cong., 2d Sess. (1934); H.R.

Doc. No. 89, 74th Cong., Ist Sess. (1935); H. R. Rep. No.

1645, 74th Cong., Ist Sess. (1935). In order to achieve

this goa] of a stable transportation industry, the Act

provides for collective rate- making and erects stringent

1 Petitioners in these consolidated actions include Ryder Truck

6la

barriers to entry into the transportation industry to en-

sure the need for, and reliability of, those carriers au-

thorized to engage in for-hire transportation. The Act

also recognizes the need to allow a merchant to continue

to transport its own goods “in furtherance of its non-

transportation business,” Mercury Motor Express, Inc.

v. United States, 648 F.2d 315, 317 (5th Cir. June 18,

1981) ;* see S. Rep. No. 482, 74th Cong., Ist Sess. (1935);

H.R.Rep. No. 1645, supra. The Act therefore regulates

only “common” or “contract” carriers that engage in

transportation for compensation or “for-hire carriage.”

See 49 U.S.C.A. §§ 10102 (11) & 10102(12). The Act

specifically exempts from regulation private carriage.

49 U.S. C. A. § 10102(13).

The original Motor Carrier Act, however, did not pro-

vide a substantive definition of private carriage, but

rather defined private carriers as transporters of prop-

erty who are neither common nor contract carriers.

Thus, from the outset the ICC was entrusted with the

responsibility of determining when the provision of trans-

portation services constitutes exempt private carriage.

Moreover, the ICC was required to define this exemption

in a manner consistent with Congress’ desire to protect

shippers from the diversions of traffic that would result

from an overly competitive transportation industry. See

United States v. Drum, 368 U.S. at 374-76, 82 S.Ct. at

410-11. This policy of protecting the motor carrier in-

dustry, requiring stringent barriers to entry into the

industry, led the ICC at an early date to scrutinize closely

nominally private transportation arrangements. Of par-

ticular concern to the ICC was a practice known as

“single-source leasing,” in which the shipper leases both

vehicle and driver from the same source. For example,

In Bonner v. City of Prichard, 661 F.2d 1206 (1ith Cir. 1981)

(en banc), this court adopted as binding precedent all of the deci-

sions of the former Fifth Circuit handed down prior to the close of

business on September 30, 1981. /d. at 1209.

when a shipper leases the vehicle and driving services of

an owner/operator, the ICC must determine whether that

owner/operator is engaging in transportation for com-

pensation (for-hire carriage) or whether the shipper is

legitimately engaged in procuring equipment and service

necessary to engage in private carriage, incidental to its

primary non-transportation business. A single-source ar-

rangement potentially can be used to evade the ICC’s

regulatory authority.

In H.B. Church Truck Service Co. Common Carrier

Application, 27 M.C.C. 191 (1940), overruled, 132

M.C.C. 758 (1982), the ICC recognized the possibility of

subterfuge in single-source leasing and attempted to lay

down a test to be used when determining whether such

arrangements constitute private carriage. The Commis-

sion stated that “[e]ssentially the issue is as to who has

the right to control, direct, and dominate the performance

of the service.“ Id. at 195. If that right of control re-

mained with the lessor, then the lessor would be engaged

in for-hire carriage, and subject to ICC regulation. On

the other hand, if the right to control, direct and domi-

nate remained with the lessee (i.e., shipper), then the

shipper would be engaged in exempt private carriage.

Equally important, however, the Commission announced

that a presumption of for-hire carriage would arise when

the shipper leases both vehicle and driver from a single

source, such as an owner/operator or a leasing agency.

This presumption would yield “to a showing that the

shipper has the exclusive right and privilege of directing

and controlling the transportation service, as, for exam-

ple, if the equipment were operated by the shipper’s em-

ployee.” Id. at 196. Finally, the determination necessary

to rebut the presumption of for-hire carriage would be

made in light of all facts and circumstances, none of

which would be conclusive by itself.“ Thus, the

In Church the Commission found that the arrangement

did constitute for-hire transportation. The particular facta

63a

case formulated the “control” test for distinguishing pri-

vate carriage from for-hire carriage, and created a re-

buttable presumption of for-hire carriage when the

shipper engages in single-source leasing.

In 1958, Congress, seeing the need to reinforce the

Commission’s efforts at preventing subterfuge and eva-

sion of its authority, amended the Motor Carrier Act to

clarify somewhat the definition of private carriage. This

amendment provided that in order to constitute exempt

private carriage it is necessary that:

(1) the property is transported by a person engaged

in a business other than transportation; and

(2) the transportation is within the scope of, and

furthers a primary business (other than transporta-

tion) of the person.

Pub.L. 85-626, 72 Stat. 574 (1958), codified at 49

U.S.C.A. § 10524 (West 1982 pamphlet) (emphasis

added); see H.R.Rep. No. 1922, 85th Cong., 2d Sess.

(1958); S. Rep. No. 1647, 85th Cong., 2d Sess. (1958).*

led the Commission to hold that the shipper had not exercised suffi-

cient control over the lessor were: (1) the lessor was responsible

for maintenance of the vehicle; (2) the lessor paid operating ex-

penses, drivers’ salaries, taxes and unemployment compensation;

and (3) the lessor provided liability and collision insurance. See

27 M. C. C. at 195-96.

The “primary business” test may be viewed as the overall defi-

nition of private carriage, while the “control” test, and later, the

“substance” test, see below, are the means for determining whether

transportation is incidental to a primary business. See Farris &

Southern, Federal Regulatory Policy Affecting Private Carrier

Trucking, 49 1.C.C.Prac.J. 508, 512-15 (1982). Congress’ adoption

of the primary business test was caused by the proliferation of so-

called “buy-sell” arrangements under which carriers attempted to

avoid ICC regulation by literally purchasing the goods to be trans-

ported and then selling them upon reaching their destination. By

engaging in such arrangements carriers would literally be shipping

their own goods: superficially, this would seem to constitute pri-

64a

Contemporaneously with the 1958 amendments, the

Commission itself began to reformulate the control test

it had announced in Church. Thus, in Pacific Diesel

Rental Co.—Investigation of Operations, 78 M.C.C. 161

(1958), the Commission held that the contro] test re-

quired an answer to the following question: “Are any

persons. . . in substance engaged in the business of in-

terstate or foreign transportation. . for hire?” Id. at

172 (using both new formulation and older “control”

test). The reformulation signaled a more searching in-

quiry that was to focus not only on the physical aspects

of control and direction, but also on the financia! ar-

rangements existing between the lessor and the shipper.*

This refinement reached its culmination in Oklahoma

Furniture Manufacturing Co.—Investigation, Operations,

79 M. C. C. 403, 409-10 (1959), overruled, 132 M. C. C. 758

(1982), in which the Commission announced that the con-

trol test was a separate inquiry from that required in

Pacific Diesel, and that Pacific Diesel in essence created

a supplementary test of “substance.” Under the Com-

vate carriage. Both the Commission and Congress, however, saw

the arrangement quite differently. See Brooks Transp. Co. v.

United States, 98 F.Supp. 517 (E.D. Va. 1950), aff'd, 340 U.S. 925,

71 S.Ct. 501, 95 L.Ed. 668 (1951) (mem.). Thus, the Senate Report

states that the amendment was intended “to correct most of the

abuses that have arisen in the name of private carriage and yet

would not in any way jeopardize or interfere with the operations of

private carriers to provide transportation service—even if the

charge is made—as an integral part of a primary business func-

tion.” S. Rep. No. 1647, supra, at 5. See also Nuclear Diagnostic

Laboratories, Inc., Contract Carrier Application, 131 M.C.C. 578,

581-84 (1979). Perhaps more significant, however, was the Senate's

continued concern with the diversion of traffic from regulated car-

riers to illegitimate private carriers. Such illeritimate carriers

could avoid not only ICC rate and licensing requirements, but could

also avoid payment of federal excise taxes. S.Rep. No. 1647, supra

at 23.

5 See generally, M. Fair & J. Guandolo, Transportation Regula-

tion 84 (8th ed. 1979).

ES ee ee ee

65a

mission’s new two-pronged test, in order to find that a

particular arrangement constitutes private carriage, it

would be necessary that no person other than the shipper

had “any right to control, direct, and dominate” the

transportation service and that no person was “in sub-

stance, engaged in the business of . . . transportation of

property ... for hire.“ 79 M.C.C. at 410. Moreover,

the Commission stated that with regard to the first prong,

the control test, “there is present, whenever the owner-

operator drives his own equipment, the right and power

of the lessor to defeat any supposed right to control that

the shipper lessee may believe exists.” Id. at 411 (em-

phasis added). As a result of this two-prong test, the

exercise of physical contro] and domination by the shipper

no longer would necessarily suffice to support a finding of

private carriage. Rather, under the “substance” prong

of the inquiry, the Commission would examine the finan-

cial relationship between the lessor and the shipper in

an effort to determine whether the lessor was in effect

providing a transportation service to the shipper.*

This new formulation by the Commission was expressly

upheld by the United States Supreme Court in United

States v. Drum, 368 U.S. 370, 82 S.Ct. 408, 7 L.Ed.2d

360 (1962). During the course of its opinion, the Su-

preme Court examined Commission case law and stated

that the new two-prong test announced by the Commis-

* The financial factors found by the Commission in Drum, which

proved the existence of for-hire carriage, were as follows: (1) the

owner/operators provided exclusive use for a continuous period of

time; (2) equipment was furnished, maintained and driven by the

owners; (3) all operating costs and trip expenses were borne by

the owners; and (4) the owners guaranteed a fixed cost for the

transportation and assumed the risk of all losses. 79 M.C.C. at 412.

One authority has identified 14 factors that often are considered by

the Commission in making its determination. See generally, Mat-

thews, Truck Leasing by Shippers and the Problem of Dangling

Instrumentalities, 32 I. C. C. Prac. J. 870 (1964). For a concise history

of the development of the Commission’s views as to what constitutes

private carriage, see Farris & Southern, supra note 3, at 506-16.

66a

sion was in reality “an explicit recognition [of] a

premise which has long been implicit in [the Commis-

sion’s] decisions: That some indicia of private carriage

may be assumed, and detailed surveillance of operations

undertaken, without a shipper’s having significantly

shouldered the burdens of transportation.” 368 U.S. at

383-84, 82 S.Ct. at 414-15 (emphasis added). The court

thus interpreted the Commission’s examination of the

financial relations between the parties as permissibly

treating financial risks as a significant burden of

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