Petition — RYDER/PIE NATION NATIONWIDE, INC. v. UNITED STATES (Nos. 83-1030, 83-943, 83-1119)

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83710380 DEC 22 1983

ALEXANDER L. STEVAG,

CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1983

RYDER TRUCK LINES, INC.,

Petitione”’,

Vv.

UNITED STATES OF AMERICA and

INTERSTATE COMMERCE COMMISSION,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

JOHN C. BRADLEY

Suite 1801

1600 Wilson Boulevard

Arlington, VA 22209

(708) 522-0900

Counsel for Petitioner

RyYDER/PIE NATIONWIDE, INC.

(formerly Ryder Truck Lines, Inc.)

Of Counsel:

RICE, CARPENTER AND CARRAWAY

1600 Wilson Boulevard

Arlington, VA 22209

DATED: December 22, 1983

WILson - Eves Printing Co.. Inc. - 789-0096 - WASHINGTON, D.C. 20001

QUESTIONS PRESENTED

The Motor Carrier Act provides definitional distinc-

tions between (a) regulated motor carriers which per-

form transportation for compensation, and (b) unregu-

lated shippers which, as private carriers, haul their own

property. When a shipper leases both of the instrumen-

talities of transportation—vehicle and driver—from a

single source, an issue periodically has arisen as to

whether the resulting transportation is for-hire carriage

by the lessor or private carriage by the lessee.

Reversing more than 40 years of consistent interpreta-

tion by both it and Federal Courts, including this Court,

the Interstate Commerce Commission [ICC] issued what

it labeled a “policy” statement radically changing the

test or formula to be applied in resolving such issues.

The Eleventh Circuit Court of Appeals affirmed. With

this background, the following questions are presented:

(1) Did the Eleventh Circuit err in finding that the

ICC had the power to reject the test for distin-

guishing between private and for-hire carriage

announced by this Court in Drum?*

(2) Whether the National Transportation Policy

[NTP] [49 U.S.C. §10101(a) and (b)] consti-

tutes a mandate to the ICC to improve the eco-

nomic and competitive position of unregulated

SS ee eee

ers

(3) Are the new definitional distinctions

the ICC and affirmed by the Eleventh Circuit de .

structive of and in conflict with the statutory

scheme enacted by Congress?

* United States v. Drum, 368 U.S. 870 (1962).

(i)

_—_.) =e

THE PARTIES

The parties to the proceeding before the Eleventh Cir-

cuit are listed blow.

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. [Ryder]

(renamed Ryder/PIE Nationwide, Inc.)

Senn Trucking Company

Southern Intermodal! Logistics, Inc.

Specialized Carriers and Rigging Association

Steel Carriers’ Tariff Association, Inc

Respondents and intervenors supporting respondents

were as follows:

United States of America

Interstate Commerce Commissior

National-American Wholesale Grocers’ Association

National Industrial Traffic League (now “National

Industrial Transportation League” )

Private Carrier Conference, Inc.

Private Truck Council of America

Ryder is a wholly-owned subsidiary of IU Interna-

tional Corporation [IU]. Through IU, Ryder is affiliated

with the numerous companies listed in Appendix G. Peti-

tioner has no knowledge concerning corporate affiliations

of the other parties.

TABLE@F CONTENTS

SPT TED eeticerecctdcntninqnenneciincmnsesnnonion

TABLE OF AUTHORITIES ...

OPINIONS BELOW

STATEMENT OF THE CASE .W0...........-.-c-cscseeeeeeeees

REASONS FOR GRANTING WRIT OF

IEE Siethiciscsmnedsneictgmimbtinence canines

A. Historical Background 2.2.2.2 .ceoceeceeeneneeee

Nature Of The Problem

The Church Decision

The Oklahoma Furniture Decision

This Court’s Decision In Drum

B. Rejection Of This Court’s Test In Drum _.....

The ICC’s New Formula _.....

Muddling Of The Elements

Resulting Conflict With Drum

C. Erroneous Application Of NTP To Unregulated

Entities

Reliance On The NTP ..

(v)

TABLE OF CONTENTS—Continued

NTP Confined To Regulated Entities _.............

Erroneous Concept Of Competition :

D. New Formula Destructive Of Statutory Scheme..

Amendments In 1980

Retention Of Statutory Definitions

Appendix A—U.S. Court of Appeals Opinion, 716 F.2d

1869 (1983)

Appendix B—Interstate Commerce Commission Opin-

ion, 182 M.C.C. 756 (1982)

Appendix C—U.S. Court of Appeals Stay Order *

Appendix D—U.S. Court of Appeals Stay Order

Appendix E—Statutes Involved In Proceeding

Appendix F—Wall Street Journal Article Concerning

Leaseway

Appendix G—Corperations Under Commen Control

With Ryder

Appendix H—Citations To Terminology Used By ICC

And The Eleventh Circuit

vii

TABLE OF AUTHORITIES

CASES: . Page

All Points, Inc.—Investigation of Operations, 128

I A nsitanshenninoenetalitliey 5

Allen—Investigation of Operations and Practices,

eS 8 Sencar cre ee 5

Bridge Auto Renting Corporation v. Pedrick, 174

F.2d 788 (2nd Cir. 1949) 5

Central Forwarding, Inc. v. 1.C.C., 698 F.2d 1266

a aa a A 15

H. B. Church Truck Service Co., Com. Car. Appli-

cation, 27 M.C.C. 191 (1940) ................................ 6, 7, 16

NLRB v. Bell Aerospace Co., 416 U.S. 267 (1974).. 16

1.C.C. v. Moore, 236 F.Supp 168 (MD FL-1964)...... 5

Lease Of Equipment And Drivers To Private Car-

riers, 182 M.C.C. 351 (1980) ................................ 2

Oklahoma Furniture Mfg. Co.—Investigation, Op-

erations, 79 M.C.C. 408 (1959) 0... 7, 8, 16,18

Pacific Diesel Rental Co.—Investigation of Opera-

tions, 78 M.C:C. 161 (1968) ...............2....00...... 5

United States v. Dakota-Montana Oil Co., 288 U.S.

ERE ARE AE 16

United States v. Drum, 368 U.S. 370 (1962) ........ i, passim

United States v. LaTuff Transfer Service, 95

F.Supp. 875 (D MN-1950) 0. 5

Zemel v. Rusk, 381 U.S. 1 (1965) 16

STATUTES:

28 I premEses Te 1

I so ahioe ichnshicitinlitanen-tdtiidinkataans neti 4

§ 23844 = 4

ee i, passim

REIS a a 2,14

EA SSR Ee 2, 16

a ae a 2,16

$ 10921 .. 2,15

§ 10922... 2, 15

§ 109238 15

49 C.F.R. § 1057 17

viii

TABLE OF AUTHORITIES—Continued

Page

Motor Carrier Act of 1935 5, 15

Motor Carrier Act of 1980 5, 7, 15, 16, 18

House Report No. 96-1069, 96th Cong., 2nd Sess... 17

Pub. Law 96-296, 96th Cong., 94 Stat. 793... 17

IN THE

Supreme Court of the United States

OCTOBER TERM, 1983

No. —

RYDER TRUCK LINES, INC.,

7 Petitioner,

UNITED STATES OF AMERICA and

INTERSTATE COMMERCE COMMISSION,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

Ryder/PIE Nationwide, Inc. [Ryder], formerly Ryder

Truck Lines, Inc., petitions for a writ of certiorari to

review the judgment of the United States Court of Ap-

peals for the Eleventh Circuit entered on October 11,

1983.

OPINIONS BELOW

The opinion of the United States Court of Appeals for

the Eleventh Circuit as reported at 716 F.2d 1369

(1983), is attached as Appendix A. The opinion of the

Interstate Commerce Commission as reported at 1382

M.C.C. 756 (1982), is attached as Appendix B.

JURISDICTION

The decision of the Eleventh Circuit was entered on

October 11, 1983. This Petition was filed within 90 days

of that date. The jurisdiction of this Court is invoked

under 28 U.S.C. § 1254(1).

STATUTES INVOLVED

Involved in this proceeding, and reproduced in whole

or in part in Appendix E hereto, are 49 U.S.C. § 10101

{the National Transportation Policy], § 10102(12), (13),

and (14) [Definitions], § 10524 [Transportation further-

ing a primary business ], § 10526 [Miscellaneous exemp-

tions], § 10921 [Requirement of operating authority],

and § 10922 [Licensing and related matters].

STATEMENT OF THE CASE

The Mctor Carrier Act, 49 U.S.C. § 10101, et seq.,

defines motor common carriers and motor contract car-

riers as those which haul the property of others for com-

pensation, 49 U.S.C. §10102(12) and (18). Conse

quently, they are frequently referred to as “for-hire”

carriers. On the other hand, a motor private carrier is

one which, essentially, hauls its own property, 49 U.S.C.

§ 10102(14). A for-hire carrier must obtain operating

authority from the Interstate Commerce Commission

[ICC] and subject itself to ICC regulation. The ICC has

no jurisdiction over a private carrier. It has often been

necessary for the ICC or a Federal Court to determine,

in a given fact situation, which type of carriage was

On December 24, 1980, the Interstate Commerce Com-

mission [ICC] made public a “proposed policy statement”

[PPS] in Ex Parte No. MC-122 Sub No. 2, Lease Of

Equipment And Drivers To Private Carriers, 182 M.C.C.

transporting would be diverted to unregulated transpor-

tation entities.

On February 17, 1982, in the same proceeding, the ICC

made public a “policy” statement, 132 M.C.C. 756, pur-

porting to modify and make final the PPS referred to

above, effective March 25, 1982.

The ICC’s “policy” statement—for the expressed pur-

pose of promoting efficiency and economy among shippers

not subject to ICC jurisdiction and proclaiming a broad

area of administrative discretion to re-define the distinc-

tions between for-hire and private carriage—purported

to establish a six point test which, if satisfied, would

create a presumption that one leasing a vehicle with

driver to a shipper for transportation of the shipper’s

goods in interstate commerce is engaged in private car-

riage. As demonstrated infra, pages 10-12, the so-called

test is so fluid that in real world terms it is no test at all.

Substantial reliance was placed upon the National Trans-

portation Policy [NTP], 49 U.S.C. § 10101, in justifying

the ICC’s redrawing of boundary lines between for-hire

and private carriage, and in proclaiming its power to

do so.

The ICC has attempted to accomplish what it has

referred to as “redefinition of the distinction” (1382

M.C.C. at 772; App. B, p. 26b) between for-hire and

private carriage. For decades the agency and the Courts,

including this Court in Drum, in making the definitional

distinctions, held that a single-source lessor was engaged

in for-hire carriage unless the shipper (a) ,exercised a

degree of dominion and control over the driver which

could be achieved by making him its employee, or (b) as-

sumed “* * * in significant measure the characteristic

burdens of the transportation business,” * i.e., the shipper

shouldered significant financial burdens and risks.

1 Drum, 868 US. at 875,

In contradiction to every known precedent, administra-

tive or judicial, the ICC has sought to make drastic

revisions in the “boundary line,”* so drastic that a

single-source lessor who has merely executed an ICC-

prescribed lease form is presumed to be participating with

the shipper in private carriage. Indeed, they may even

enter into oral leases, and because the arrangement on its

face would be beyond the ICC’s jurisdiction, both the

agency and State enforcement officials are, as a practical

matter, powerless to police it.

Under what the Eleventh Circuit referred to as the

ICC’s “new formula” (716 F.2d at 1871; App. A, p. 2a),

(a) owner/operators, estimated to exceed 125,000 in

number, (b) fleet operators whose numbers are unknown,

and (c) commercial lessors, such as Hertz,, Avis, Ryder

Truck Rental, Leaseway Transportation, Inc., and scores

of others, would be able, without submitting to ICC regu-

lation, to engage in what heretofore has been defined as

regulated for-hire carriage. Thus, the ICC’s new “policy”

would have the effect of exempting from regulation tens

of thousands of persons providing both vehicle and driver

to haul a shipper’s goods.

Under date of February 26, 1982, Petitioner Ryder,

Case No. 82-5247, forwarded to the U.S. Circuit Court of

Appeals for the Eleventh Circuit a petition for review of

the ICC’s decision, pursuant to 28 U.S.C. §§ 2842(5) and

2344. Subsequently, Bowman Transportation, Inc. [Bow-

man], joined by The American Trucking Associations,

Inc. [ATA], and a number of other parties, Case No. 82-

8133, also sought judicial review. Still other parties in-

tervened either in support of or in opposition to the ICC.

The Court consolidated the two cases.

Under date of March 16, 1982, Petitioner Ryder for-

warded to the Eleventh Circuit a motion for stay of the

ICC’s decision. The motion was granted.

* For examples of use of the term, see 182 M.C.C. at 770, 771;

App. B, pp. 22b, 24b; 716 F.2d at 1888; App. A, p. 27a.

On October 11, 1983, the Eleventh Circuit issued its

decision affirming the ICC. Subsequently, it stayed its

mandate pending disposition of proceedings before this

Court, see Appendices C and D. On December 7, 1983,

the American Trucking Associations, Inc., and various

other parties filed a petition for writ of certiorari, Case

No. 83-943.

REASONS FOR GRANTING WRIT OF CERTIORARI

A. Historical Background

Nature Of The Problem

Since the original Motor Carrier Act* was passed in

1935, the ICC* and the Courts*® have often faced the

responsibility of determining whether the owner of a

vehicle leasing it to a shipper for transportation of the

shipper’s goods was engaged in unregulated private* or

regulated for-hire carriage. Stated somewhat differently,

it has been necessary to determine whether the lessor was

engaging in for-hire transportation subject to regulation

or the lessee in unregulated private carriage. Most often

these cases have involved an owner wao, in addition to

* Formerly 49 U.S.C. §§ 801, et seq. (now 49 U.S.C. §§ 10101, et

seq.). The Motor Carrier Act of 1980 [MCA-1980] made substan-

tial changes in the law, but did not touch the statutory distinctions

between for-hire carriers and shippers hauling their own goods.

* Among many, three representative examples are Pacific Diesel

Rental Co.—Investigation of Operations, 78 M.C.C. 161 (1958);

Allen—investigation of Operations and Practices, 79 M.C.C. 727

(1959); and All Points, Inc.—investigation of Operations, 123

M.C.C. 242 (1975).

5 Among many, three representative examples are United States

v. LaTuff Transfer Service, 95 F Supp. 375 (D MN-1960), a criminal

proceeding; Bridge Auto Renting Corporation v. Pedrick, 174 F.2d

778 (2nd Cir. 1949), a tax proceeding; and /.C.C. v. Moore, 236

F.Supp. 168 (MD FL-1964), an injunction proceeding.

* The ICC has no jurisdiction over private carriers, i.e., persons

transporting their own property.

providing the vehicle, has also functioned as the vehicle’s

driver, i.e., single-source leasing of the two instrumentali-

ties of transportation—vehicle and driver. Thus, an

owner/operator is “an individual who owns a single

vehicle which he also drives * * *.” [182 M.C.C. at 774;

App. B, p. 29b]. It has been estimated that there are

more than 125,000 owner/operators in the United States

today.

However, there are two other classes of entities which

may engage in single-source leasing. One is a so-called

“fleet owner” who owns more than one vehicle and may

hire others to drive. The other is the commercial] lessor"

who may own: many thousands of vehicles. Included

among them are such entities as Leaseway Transporta-

tion,* Ryder Truck Rental,® Jartrans, Hertz, Avis, and

many others.

The Church Decision

In a landmark case, H. B. Church Truck Service Co.,

Com. Car. Application, 27 M.C.C. 191 (1940), the ICC

found that where transportation of a shipper’s goods was

performed by means of single-source leasing, there was

a rebuttable presumption that the lessor was engaged in

regulated for-hire carriage. More specifically, where

Church * leased vehicles with drivers to a shipper by the

week, it was concluded that Church was engaged in con-

tract carriage subject to ICC regulation. It was noted

that the presumption would yield if, for example, “the

T See 182 M.C.C. at 785-786; App. B, pg. 46b.

®See text of an advertisement appearing in the Wall Street

Journal, November 30, 1988, proclaiming the availability of 8,000

drivers and 78,000 vehicles, Appendiz G. See also “Riding in the

Fast Lane,” OF: See aka: Panty Mishen, Deaber: We, 1983,

p. 54.

* No connection with Petitioner Ryder.

’ * Under the ICC’s new formula, Church today probably would be

considered a fleet owner.

equipment were operated by the shipper’s employee,” ™

i.e., the owner/operator was an employee subject to con-

trol by the shipper in the status of an employer.

The Church decision adopted what has been called a

“control test.” In order that the means by which a ship-

per’s goods were transported could qualify as bona fide

private carriage, it was necessary to demonstrate that

the shipper had exclusive control over the transportation

being accomplished. Thus, where the driver actually be-

came the shipper’s employee, the issue of control would

be resolved in the shipper’s favor.

The Oklahoma Furniture Decision

There have been dozens, if not scores, of ICC and court

decisions which have followed the Church control test. At

this juncture one warrants specific recognition because it

culminated in a decision by the U.S. Supreme Court. In

Oklahoma Furniture Mfg. Co. —Investigation, Operations,

79 M.C.C, 403, 410-411 (1959), in a proceeding involv-

ing use of owner/operators by a shipper, the ICC em-

phasized that the Church case presumption could be re-

butted only if the shipper was shown to have the ezclu-

sive right and privilege of controlling the transportation

service. It then found that the provision by the owner/

operator of both of the significant instrumentalities of

transportation (vehicle and driver) and the assumption

of the costs of operation gave the owner/operator the

“right and power * * * to defeat any supposed right to

contro] that the shipper-lessee may believe exists.” (79

M.C.C. at 411). It concluded, therefore, that the owner/

operators were “in substance” (79 M.C.C. at 412) en-

gaged in for-hire carriage subject to regulation under the

Motor Carrier Act, even though the shipper “relieved

them of certain of the burdens of their for-hire trans-

portation” service (79 M.C.C. at 415).

27 M.C.C. at 196.

This Court’s Decision In Drum

The U.S. Supreme Court affirmed Oklahoma Furniture

in United States v. Drum, supra, stating that:

“* * * the Commission’s resolution of the issue does

not seem to us to violate the coherence of the body

of administrative and judicial precedents so far de-

veloped in this area, * * *.” (368 U.S. at 376.

The Court further found that the ICC’s decision:

“* * * betokens no heedless departure from the

beaten track of administrative decision which might

occasion a judicial curb upon the exercise of admin-

istrative discretion.” (368 U.S. at 384)

Thus, this Court upheld the ICC, at least in part be-

cause the ICC’s Oklahoma Furniture decision was con-

sistent with administrative and judicial precedents. Fur-

ther, the Court put its imprimatur on the ICC’s defini-

tional decision with the statement that:

“* * * From the outset the Commission has correctly

interpreted them as importing that a purported pri-

vate carrier who hires the instrumentalities of trans-

portation from another must—if he is not to utilize

a licensed carrier—assume in significant measure

the characteristic burdens of the transportation busi-

ness.” (368 U.S. at 375)

It is clear from the text of the Drum decision that

“characteristic burdens” this Court had in mind were

principally of a financial nature, including capital invest-

ment, risk of premature depreciation or catastrophic loss,

risk of rise in variable costs of fuel, repairs and main-

tenance, risk of non-utilization, and the risk of non-

productive backhaul (368 U.S. at 379, 380). Under the

circumstances, this Court found that the shipper had,

“* * * so far emancipated itself from the burdens of

transportation that to permit it, on such terms, to secure

a transportation service from these unlicensed owner/

operators would be inconsistent with the statutory

scheme” (368 U.S. at 380). The statutory terminology

distinguishing private and for-hire carriers is the same

now as it was then.

B. Rejection Of This Court’s Test In Drum

The ICC’s New Formula

ICC and court decisions since Drum have uniformly held

that single-source leasing by a shipper involved the lessor

in for-hire carriage, unless it could be found (a) that the

driver had become an employee of the shipper, subject to

dominion and contro] as such, or (b) the shipper had as-

sumed in significant measure the “characteristic burdens”

of the transportation business. Petitioner believes the two

standards to be compatible one with the other.

The iCC’s “policy” statement of February 9, 1982, if

allowed to become effective, would constitute an abrupt

reversal of the definitional distinctions between for-hire

and private carriage developed by the ICC and the

Courts. And while both the agency and the Eleventh Cir-

cuit purported to view the ICC statement as merely an

expression of non-binding “policy,” terminology utilized

by both reveals beyond a doubt an awareness that the

real world effect was an actual redefinition of statutory

distinctions, as may be seen from Appendix H hereto.

Stating that other features might be considered (132

M.C.C. at 780; App. B, p. 37b), the ICC adopted a

vague six-part test which, if nominally satisfied, would

establish a presumption of private carriage (132 M.C.C.

at 778; App. B, p. 34b). It further provided that if a

written form lease was entered into on a form it pre-

scribed merely reciting the six elements, a presumption

of private carriage would arise (132 M.C.C. at 778, 793;

App. B, pp. 34b, 57b), apparently without any require-

ment of faithful adherence to these lease terms.” The

12 Because the ICC has no jurisdiction over shippers it has no

power to “prescribe” a form of Jease or to impose requirements

of any kind upon transactions between shippers and unregulated

entities such as owner/operators or leasing.compa.nies.

10 r

six elements may be summarized as follows (132 M.C.C.

at 793; App. B, p. 57b) (emphasis added) :

1. The period for which the lease applies shall be

for 30 days or more.

2. The equipment subject to the lease shall be

exclusively committed to the lessee’s use for the term

of the lease.

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

exercise exclusive dominion and control over the

leased equipment, and assume complete responsibility

for the operation of the equipment.

4. The lessee shall accept responsibility to the

public for any injury to persons or damage to prop-

erty, and agree to display appropriate identification

on all equipment leased by it.

5. During performance by it of transportation, the

lessee shall accept responsibility for, and bear the

cost of, compliance with governmental safety and

other requirements.

6. The lessee agrees to remain liable for cargo

damage and/or loss.

Muddling Of The Elements

It then proceeded to gut these elements by stating that

the 30-day exclusivity provisions “does not preclude

lessor’s own use” of the vehicle when the lessee was not

utilizing it, nor would it prevent interim sublease to a

third party (132 M.C.C. at 778; App. B, p. 35b). Fur-

ther, the ICC stated that the concept of exclusive commit-

ment is not compromised when, “the lessor executes a

concurrent and more or less complementary lease for

backhaul purposes and repositioning of equipment.”

(182 M.C.C. at 780; App. B, p. 38b). Moreover, an oral

lease would be permissible (132 M.C.C. at 780; App. B,

pp. 37b-38b).

Thus, if the single-source lessor carries an ICC-devised

written lease form in his cab, he is preswmed to be en-

gaged in private carriage. The lease form will bestow

upon the lessor the same aura of authenticity that an

I©C-issued operating license would. Moreover, the lessor

can enter into any number of “concurrent” leases with

other parties. In real world terms, an owner/operator

may rove the country picking up loads wherever he finds

them, subject only to the requirement that an ICC-devised

lease form be executed when each load is picked up.

In this way no shipper bears the risk of idle equipment

or lack of backhaul freight, and one of the hallmark

burdens of for-hire carriage is borne by the owner/

operator or leasing company. The lessee need only accept

nominal responsibility for public liability and property

damage, execute the lease form, assume the risk in the

first instance that its property may be subject to dam-

age, and instruct the lessor where to take the load.” Or

the parties can enter into an oral lease, the provisions of

which would be virtually impossible to prove. It is obvi-

ous that, having announced its six-part “test,” the ICC

then systematically reduced its prescriptions to what can

aptly be called a confused mess.

Resulting Conflict With Drum

It is clear that the ICC’s new definitional distinctions

cannot be squared with this Court’s decision in Drum.

It is also clear that the Eleventh Circuit viewed the ICC’s

decision as having rejected Drum (716 F.2d at 1375,

13 The shipper’s acceptance of responsibility to the public does not

nega right of action it may have against the owner/operator

or ng company for injury caused by the latter’s negligence

(182 M.C.C. at 778, fn. 86; App. B, p. 36b). Similarly, the shipper

may recover from the lessor for cargo loss or damage resulting from

the lessor’s negligence (132 M.C.C. at 779; App. B, p. 36b). In

short, the shipper as a practical matter may shift these burdens

to its lessors just as it does when it purchases for-hire transpor-

tation.

1379; App. A, pp. 9a, 18a), as we believe it did. We

further believe that the ICC was bound by Drum, absent

a pertinent statutory amendment by Congress, or a modi-

fying decision by this Court.

Again, in real world terms, the ICC has sought to

create a vast area of exemption from regulation open to

owner/operators, fleet owners, and commercial lessors

alike. In a decision which does not disguise the Court’s

doubts and reservations (716 F.2d at 1376 fn. 10, 1384;

App. A, pp. lla, 28a), the Eleventh Circuit sustained

the ICC.

C. Erroneous Application Of NTP To Unregulated

Entities

Reliance On The NTP

The avowed purpose of the ICC’s shift away from the

Drum requirements is to improve the competitive posture

and economic position of unregulated private carriage and

owner/operators and leasing companies (132 M.C.C. at

769; App. B, pp. 21b-22b). It finds authority for this

shift in the NTP, 49 U.S.C. § 10101—-stating that, “* * *

the new national transportation policy (NTP) * * * calls

for reappraisal of our former policy.” (132 M.C.C. at

771; App. B, p. 25b). It further found specifically that

the NTP is applicable to unregulated entities—private

carriers and owner/operators (132 M.C.C. at 771-772;

App. B, p. 25b).

The Eleventh Circuit agreed, also placing strong em-

phasis upon the NTP. Referring to the justification ad-

vanced by the ICC for its action, the Court stated: (716

F.2d at 1382; App. A, p. 24a)

“* * * In particular, the Commission points to the

amendments in the National Transportation Policy,

which stress the promotion of ‘competitive and effi-

cient transportation services,’ and contends that

these amendments demonstrate congressional aware-

ness of basic changes in the motor carrier industry.”

The Court further stated: (716 F.2d at 13885; App. A,

pp. 3la-32a)

“* * * Even if the amendments to the National

Transportation Policy were concerned only with the

regulated sector, it would be rational to assume that

providing owner/operators alternatives to employ-

ment 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 regu-

lated and unregulated sectors.”

If we correctly translate the Court’s remarkably am-

biguous statement, it seems to have said that, even if

the NTP is not applicable to unregulated entities, its pro-

visions justify promoting a healthier unregulated sector

through more competition. With all due respect to the

Eleventh Circuit, its conclusion is in direct conflict with

the premise it initially postulated.

NTP Confined To Regulated Entities

The ICC believed that the NTP is applicable to unregu-

lated entities and the Eleventh Circuit concluded that it

empowered the ICC to act as it did. However, § 10101 (a)

directs the ICC to (emphasis added) “* * * provide for

impartial regulation of the modes of transportation sub-

ject to this subtitle, and in regulating those modes * * *”

to accomplish certain enumerated things. A shipper which

transports its own goods is not subject to the subtitle nor

to ICC regulation. Neither is an owner/operator partic-

ipating in bona fide private carriage. The ICC has no

power over the shipper, and Congress has not given the

ICC responsibility for the welfare of private carrier in-

terests. Yet, the ICC took it upon itself to assume both

the power and the responsibility.

Subsection (7) thereof specifically relates (emphasis

added), “ * * * to transportation of property by motor

carrier * * *.” By statutory definition a “motor private

carrier” is a person “other than a motor carrier * * *,”

49 U.S.C. § 10102(14). Unlicensed lessors, if engaged in

bona fide private carriage, are effectively omitted from

the reach of the NTP, as are their unregulated lessees.

Yet, the ICC stated that “to improve their overall effi-

ciency by augmenting their fleets with equipment and

drivers leased from owner-operators * * * * we will open

up this additional source of fleet augmentation to private

carriers * * *.” (182 M.C.C. at 769; App. B, p. 21b)*

Erroneous Concept Of Competition

The Eleventh Circuit agreed, referring to increased

competition in the private sector (716 F.2d at 1382; App.

A, p. 24a), fostering the competition desired by Congress

(716 F.2d at 1382; App. A, p. 25a), heightened competi-

tion (716 F.2d at 1383; App. A, p. 27a), and greater

competition for the services of owner/operators (716 i°.2d

at 1385; App. A, p. 32a). Both the agency and the Court

ignored the obvious, namely, that the NTP seeks to pro-

mote competition among regulated carriers for the busi-

ness of shippers, an important objective being to assure

low prices. The ICC and the Eleventh Circuit would pro-

mote more competition for driver services and equipment,

thus assuring higher costs to the carrier and higher

prices to the consumer.

Both the ICC and the Eleventh Circuit found in the NTP

the power to change and the justification for changing

statutory definitions. The real effect is that of a statu-

tory amendment, or, at the very least, a new regulation,

as the ICC must have recognized when it touched the

necessary Administrative Procedure Act bases. The de-

cisions of both the agency and the Court are inconsistent

14 As well as from fleet owners and commercial lessors (182

M.C.C. at 786; App. B, pp. 46b-47b).

18 See also, 182 M.C.C. at 775, 788; App. B, pp. 30b, 50b.

and in conflict with that of the Fifth Circuit in Central

Forwarding, Inc. v. 1.C.C., 698 F.2d 1266 (5th Cir.

1983),

wherein the Court stated: (at p. 1283)

“We cannot agree with the Government’s conten-

tion that section 10101 is a source of ICC rulemak-

ing authority. Based on the wording of the statute,

its legislative history, and prior judicial construc-

tions, we conclude that the National Transportation

Policy operates to constrain rather than grant rule-

making authority.”

D. New Formula Destructive Of Statutory Scheme

Amendments In 1980

The Motor Carrier Act, since its inception in 1935, and

after a number of interim amendments, has continued to

make it unlawful to engage in for-hire carriage without

first obtaining the appropriate common carrier certifi-

cate or contract carrier permit. The Motor Carrier Act

of 1980 [MCA-1980] made certain changes in the statu-

tory scheme, among them easier access to motor carrier

operating authority. But Congress retained the require

ment of operating authority, 49 U.S.C. § 10921.

As pertinent her& the MCA-1980 made several other

statutory changes. Among other things:

(1)

(2)

It took away from the ICC whatever power it had

to indulge in “master licensing”—the granting of

motor carrier operating rights to a specified group

based upon general findings developed in rule-

making proceedings [see §§ 10922(b)(3) and

10923 (b) (6) ];

It made available to owner/operators the right to

obtain operating authority to transport food and

other edible products, et al., upon a showing of

fitness only [§ 10922(b) (4) (E)], thus making it

easy for them to cross over into the regulated sec-

tor;

(3) It also expanded the scope of exempt commodities

that owner/operators may transport [§ 10526 (a)

(11), (12) and (18)];

(4) Reversing rulings by the ICC, under the heading

“private carriage,” §9 of the Act exempted from

the ICC’s jurisdiction transportation performed

by one member of a corporate family for an-

other,”* proyided the participants are 100% under

common control [§ 10524(b)]; and

(5) It added subsection (7) to the NTP [§ 10101].

Retention Of Statutory Definitions

However, the longstanding and well recognized distinc-

tions between regulated for-hire carriage and unregu-

lated private carriage by a shipper were not touched.

The MCA-1980 is the latest of a number of legislative

re-enactments since the definitional distinctions between

for-hire and private carriage emerged in a long line of

administrative and judicial decisions dealing with the

issue. That Congress has amended the Act on a number

of occasions without altering the statutory definitions is

strong proof that it agrees*’ with the prior interpreta-

tions of the ICC and the Courts.**

In short, Congress has modified certain aspects of the

regulatory scheme and left others intact. For-hire car-

riers must still obtain operating rights, and when they do

16 Commonly referred to as Compensated Intercorporate Hauling

{C.1.H.}.

17 NLRB v. Bell Aerospace Co., 416 U.S. 267, 274-275 (1974),

United States v. Dakota~-Montana Oil Co., 288 U.S. 459, 466 (1983) ;

Zemel v. Rusk, 381 U.S. 1, 11 (1965).

18 The Eleventh Circuit rejected Petitioners’ re-enactment argu-

ment, observing that, “* * * the parties have brought to our atten-

tion no congressional comment on either the definition of private

carriage as formulated in Drum or the presumptions regarding

single-source leasing adopted by the Commission in the Church and

Okdahoma Furniture decisions.” (716 F.2d at 1378).

they are subject to many requirements of law and regu-

lation, and not the least of which are those relating to

filing of tariffs, rate reasonableness, and the so-called

“truth in leasing” regulations, 49 C.F.R. § 1057.

The statutory scheme enacted by Congress contemplates

a strong and financially sound regulated motor carrier

industry, and the NTP directs the ICC to perform its

duties with that objective firmly in mind. The ICC’s

new definitional distinctions are directly antithetical to

Congress’ objectives because the agency’s single-source

leasing scheme would divert traffic and revenue from

regulated carriers upon whom the general public depends,

and would force them to pay more for owner/operator

equipment.

That Congress was all too keenly aware of the ICC’s

propensity to exceed its jurisdiction is clear from the

following text in House Report No. 96-1069, 96th Con-

gress, 2nd Session, to wit: (pp. 10-11)

“In revising the statute, Congress also intends to

give the Interstate Commerce Commission explicit

direction for the regulation of the motor carrier in-

dustry and to ease that industry’s uncertainty about

the future of regulation by the Commission. The

Commission is admonished to stay within the

ers specifically vested in it by the revised law.”

Furthermore, Public Law 96-296, Congress, 94 Stat.

793, was passed with this further admonition in Chapter

3 thereof under the heading “Congressional Findings”

[emphasis added] :

“* * * the Interstate Commerce Commission should

be given explicit direction for regulation of the mo-

tor carrier industry and well-defined parameters

within which it may act pursuant to corgressional

policy; that the interstate Commerce Commission

should not attempt to go beyond the powers vested

in it by the Interstate Commerce Act and other leg-

islation enacted by Congress; and that legislative

and resulting changes should be implemented with

the least.amount of disruption to the transportation

system consistent with the scope of the reforms en-

acted.”

Contrary to the regulatory scheme enacted by Con-

gress, the ICC would enable single-source lessors by the

tens of thousands to provide what for decades has been

considered for-hire transportation. No operating author-

ity would be required. And no regulatory obligations or

expense would be imposed. The ICC would provide ex-

emption from regulation for owner/operators estimated

to number more than 125,000 and for many commercial

lessors, at least one of which, Leaseway Transportation,

advertises to availability of 8,000 drivers and 78,000 ve-

hicles. In contrast, Roadway Express, Inc., the nation’s

largest regulated motor common carrier of general freight

reported to the ICC in its 1982 Annual Report” that it

owned 7,354 tractors and 14,494 trailers. Petitioner

Ryder, then the nation’s fifth largest motor common car-

rier of general freight, reported 2,920 tractors and 6,615

trailers. The potential for disruption of the regulatory

scheme emplaced by Congress is awesome.

A little over two decades ago, this Court deemed the

matter of definitional distinctions in the Oklahoma Furni-

ture case to be of such magnitude and importance that

its consideration of an appeal was warranted. The result

was the Drum decision. The issues presented to the Court

in this proceeding are of much greater importance, involv-

ing not only reversal of this Court’s decision in the Drum

case, and erroneous application of the NTP to unregu-

lated entities, but also exemption from regulation on a

grand scale with enormous potential for disrupting the

regulatory structure Congress envisioned when it enacted

the MCA-1980.

1® See Trinc’s Blue Book of the Trucking Industry, 1988 Edition.

Petitioner Ryder/PIE Nationwide, Inc., respectfully

requests that this Petition for a Writ of Certiorari be

granted.

< Respectfully submitted,

JOHN C. BRADLEY

Suite 1801

1600 Wilson Boulevard

Arlington, VA 22209

(708) 522-0900

Counsel for Petitioner

RYDER/PIE NATIONWIDE, INC.

(formerly Ryder Truck Lines, Inc.)

Of Counsel:

RICE, CARPENTER AND CARRAWAY

1600 Wilson Boulevard

Arlington, VA 22209

DATED: December 22, 1983

APPENDICES

APPENDIX A

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 and ANDERSON,

Circuit Judges.

R. LANIER ANDERSON, Circuit Judge:

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, 78rd Cong., 2d Sess. (1934); H.R.

Doc. No. 89, 74th Cong., 1st Sess. (1935) ; H.R.Rep. No.

1645, 74th Cong., 1st Sess. (1935). In order to achieve

this goal of a stable transportation industry, the Act

provides for collective rate-making and erects stringent

1 Petitioners in these consolidated actions include Ryder Truck

Lines, Inc., American Trucking Associations, Inc., Common Carrier

Conference-Irregular Route, Regular Common Carrier Conference,

National Tank Truck Carriers, Inc., Specialized Carriers and Rig-

ging Association, National Automobile Transporters Association,

Bowman Transportation, Inc., and the Steel Carriers Tariff As-

sociation, Inc. The following parties are intervenors in this action:

the National Association of Regulatory Utility Commissioners, the

American Movers Conference, and the Internationa! Brotherhood of

Teamsters, Chauffeurs, Warehousemen, and Helpers of America.

All petitioners and intervenors hereinafter will be referred to col-

lectively as “petitioners.”

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., 1st 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,

2In Bonner v. City of Prichard, 661 F.2d 1206 (11th 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. Jd. 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.” Jd. 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 shipner 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 controiling the transportation service, as, for exam-

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

ployee.” Jd. 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 Church

3 In Church the Commission found that the arrangement at issue

did constitute for-hire transportation. The particular facts which

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, atuended 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 (8) 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-

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 control 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 contro] and direction, but also on the financial 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, 93 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 illegitimate 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).

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.” Jd. 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) al! operating costs and trip expenses were borne by

the owners; and (4) the owners guaranteed a fixed cost for the

transportation aud 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 1.C.C.Prac.J. 370 (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 505-16.

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 trans-

portation. Jd. at 385, 82 S.Ct. at 415. To date, the Com-

mission generally has followed the analysis set forth in

United States v. Drum, and has examined not only the

degree of contro! exercised by the shipper but also the

financial obligations, liabilities, and risks allocated to

each party. Further, the Commission has continued to

rely on the presumptions announced in Church and Drum.

See, e.g., All Points, Inc.—Investigation of Operations,

123 M.C.C. 242 (1975) ; Snyder’s Wholesale Liquors, Inc.,

Petition, 113 M.C.C. 528 (1971); American Equipment

Rental, Inc.—Investigation, 96 M.C.C. 383 (1964). Com-

pare Ontario Co.—Declaratory Order, 112 M.C.C. 211

(1970); Rayette, Inc.—Investigation of Operations, 108

M.C.C. 410 (1969).

II. The Policy Statement

The instant proceeding commenced on December 24,

1980, when the ICC made public a proposed policy state-

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

ment and Drivers to Private Carriers, 1382 M.C.C. 351,

45 Fed. Reg. 86766 (Dec. 31, 1980) (Notice of Proposed

Policy Statement). The purpose of the proposal was “to

consider whether, in light of the exempt nature of private

carriage operations, [the Commission] should modify

[the] current policy prohibiting persons who do not hold

operating authority from this Commission (e.g., owner/

operators) from leasing their equipment with drivers di-

rectly to private carriers for the performance of private

carriage operations. .. .” 182 M.C.C. at 352. Accord-

ingly, the Commission solicited notice and comment from

all interested parties, held a public hearing during the

course of the proceeding, and issued its final policy state

ment on February 9, 1982. See Lease of Equipment and

Drivers to Private Carriers, 132 M.C.C. 756 (1982), 47

Fed. Reg. 7885 (Feb. 23, 1982).’

The substance of this new policy was a reformulation

of the criteria to be applied in determining whether a

particular leasing arrangement constitutes private or for-

hire carriage. Specifically, the Commission declared that

no longer would it employ the presumption announced in

Church that leases of equipment with drivers (single-

source leases) ordinarily constitute for-hire transporta-

tion by the lessor. Further, the Commission rejected the

presumption announced in Oklahoma Furniture and up-

held in Drum that an owner/operator when driving his

own equipment has the inherent right and power to de

feat the shipper’s ability to control, direct and dominate

transportation. In addition to eliminating these presump-

tions, the Commission promuigated a list of factors that

it will examine when determining whether exempt private

carriage exists.* Further, the Commission announced a

list of minimum requirements which if included in a

lease between a shipper and an owner/operator would

create a presumption that “the transportation being per-

7 The final policy statement was to become effective 30 days after

publication in the Federal Register, thus complying with § 4 of the

Administrative Procedure Act. See 5 U.S.C.A. §553(d) (West

1977).

® According to the Commission:

[We intend to focus on control, responsibility, and the per-

formance of key organizing and management functions of a

transportation service as the critical elements of determining

who is performing service, and in characterizing the type of

carriage being performed.

132 M.C.C. at 777.

10a

formed is private carriage controlled by the shipper.”

132 M.C.C. at 778. According to the Commission, such

a presumption could be rebutted by a showing that the

actual operation of the lease arrangement indicated an

absence of the degree of control and responsibility re-

quired of the shipper.°*

* The list of minimum requirements is as follows: (1) the leased

equipment must be exclusively committed to the lessee’s use for the

term of the lease; (2) the lessee must have exclusive dominion and

control over the transportation service during the term of the lease;

(3) the lessee must maintain liability insurance for any injury

caused in the course of performing the transportation service; (4)

the lessee must be responsible for compliance with safety regula-

tions; (5) the lessee must bear the risk of damage to cargo; and

(6) the term of the lease must be for a minimum period of 30 days.

132 M.C.C. at 778-79. According to the Commission, when the fore-

going terms are embodied in a lease, then a presumption of private

carriage will arise. Additionally, the Commission enumerated ten

other factors which, though not conclusive, are entitled to weight:

(1) whether the lease is in writing; (2) whether the lease is for

round trips; (3) whether the driver becomes the lessee’s employee;

(4) whether the equipment is sometimes driven by a person other

than the owner/operator or someone selected by him; (5) whether

the lease is of tractor only, or of tractor and trailer; (6) who as-

sumes the risk of loss or damage to the equipment, and who pays

for fire, theft, and collision insurance thereon; (7) whether the

lessee pays or reimburses the driver for such expenses as fuel, oil,

tolls, en route repairs, and loading/unloading charges; (8) whether

the lessor is required to repair and maintain the equipment; (9)

whether the lease provides for some fixed minimum payment, re-

gardiess of use; and (10) whether the lessee is assisting the lessor

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

for the lessor. Jd. at 780-82. The primary thrust of the Commis-

sion’s enumeration is to deemphasize certain of the factors referred

to in Drum as “significant burdens of transportation.” 368 U.S. at

385, 82 S.Ct. at 415. In particular, the Commission no longer views

as highly significant such factors as whether the shipper has avoided

the need for capital investment, whether the lessor assumes the

risk of non-utilization of property, whether maintenance is per-

formed at the expense of the lessor, and whether compensation is

based on mileage or is at a flat fee. Compare 182 M.C.C. at 776,

with Heavy Equipment Rental Co., Investigation, 98 M.C.C. 365

(1964). According to the Commission, other factors are equally or

lla

The policy statement makes clear, however, that the

Commission will not rely upon any precise formula or

list of criteria, or:

restrict [its] inquiry to the formal recitals of the

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

all surrounding facts and circumstances and the

actual conduct of operations under the lease to as-

certain if the true substance of the arrangement is

in accord with that recited in the formal agree-

ment.”

Id. at 776.

more indicative of private carriage. See 182 M.C.C. at 776 (“Our

present view of what the term ‘characteristic burdens of transporta-

tion’ encompasses is not the same as that utilized in the Commis-

sion’s earlier decisions”).

10 The Commission’s list of criteria which give rise to a presump-

tion that service is private carriage is comparable to the criteria

now used to determine whether an owner/operator may lease his

equipment and services to a regulated common carrier. Indeed, the

Commission has explicitly stated that henceforth the same test of

control shall govern regardless of whether the user is a regulated

carrier or a private shipper:

When a private carrier furnishes service in vehicles owned and

operated by others, it must control the service to the same ex-

tent as if it owned the vehicles, but need control the vehicles

only to the extent necessary to be responsible to the public and

the Department of Transportation.

182 M.C.C. at 777 (paraphrasing standard of control used for

leases by owner/operators to regulated carriers, see Lease and

Interchange of Vehicles by Motor Carriers, 52 M.C.C. 675, 681

(1951) ), modified, 64 M.C.C. 361 (1955), modified, 68 M.C.C. 553

(1956); see 49 C.F.R. § 1057.-11-.12. During the course of this

proceeding, the Commission placed great reliance on the inherent

logic of applying the same test of control to private shippers that

has always been applied to common carriers leasing from a single

source. The logic is not compelling, however. As the Commission

points out, the use of different standards of “control,” depending

upon whether the lessee is a shipper or a regulated carrier, may be

explained by the earlier policy of encouraging owners and operators

l2a

On March 4, 4982, parties in opposition to the policy

statement petitioned the Commission for a stay of its

order pending judicial review. This petition was denied

on March 18, and a petition for judicial review of the

Commission’s policy statement was duly filed in this

court.

Although the great number of petitioners has resulted

in an even greater number of issues, petitioners’ essential

to ally themselves with the regulated industry. By affirmatively

discouraging the use of owner/operators by shippers, the ICC could

ensure that they would be regulated by virtue of their relationship

to a regulated carrier. See 132 M.C.C. at 767. Thus, the Commis-

sion argues, because Congress is no longer concerned with protect-

ing carriers from diversions of traffic, there is no reason to con-

tinue discouraging owner/operators from working for private ship-

pers. This argument has a superficial appeal, but is vulnerable in

several respects. First, the Commission’s parity argument ignores

the reality of the regulations regarding the owner/operator-

common carrier relation. Regulated carriers which utilize the

services of owner/operators have for some time been subject to

“Truth in Leasing” regulations which are aimed primarily at pro-

tecting owner/operators. See 49 C.F.R. § 1057. The requirements

contained in those regulations go much further toward ensuring

that common carriers assume control and responsibility for leased

owner/operators than anything the Commission has proposed as

between shippers and owner/operators. Second, a more relaxed

standard of control in the regulated carrier context would be rea-

sonable because there is no possibility for subterfuge; owner/

operators hauling goods for others through some kind of arrange-

ment with a regulated carrier will be regulated in any event, either

by direct regulation of the owner/operator, or, if controlled by the

carrier, by regulation of the carrier. There can be no escape from

regulation. It is for precisely this reason, i.e., escaping regulation,

that owner/operators may attempt to lease to private carriers.

Thus, the potential for subterfuge is present only in the private

carriage context. Further, the Commission’s “parity” argument

does not take into account the significant reasons, other than eco-

nomic, for encouraging owner/operators to bring themselves under

the control of regulated rather than private carriers. See Record

at 155-71 (documenting safety requirements imposed by common

carrier on owner/operators). For these reasons, the Commission’s

attempt to equate the control requireemnts in the regulated and

private context is not, by itself, persuasive.

13a

contentions are as follows: (1) the Commission im-

properly proceeded by way of a general statement of

policy rather than through rule-making; (2) the pro-

posed changes are beyond the Commission’s statutory au-

thority; (3) the change in policy is arbitrary, capricious,

or an abuse of discretion; and (4) the Commission failed

to abide by the requirements of the National Environ-

mental Policy Act (NEPA), 42 U.S.C.A. § 4321, et seg.

(West 1977), and the Energy Policy and Conservation

Act (EPCA), 42 U.S.C.A. § 6201, et seg. (West 1977).

Each of these contentions will be discussed in turn.

III. Policy Statement or Rule-Making

Petitioners first argue that because of the far reaching

and binding effect which the policy statement will have

on future adjudication the Commission acted improperly

in proceeding by way of a general statement of policy

rather than through a rule-making procedure in accord-

ance with the requirements of § 4 of the Administrative

Procedure Act, 5 U.S.C.A. § 553 (West 1977) .™

Petitioners concede that though this proceeding was

labeled a “proposed policy statement,” the Commission

complied with the notice and comment requirements of

§ 4. Nonetheless, in order to determine the relevant

standard of review, see 5 U.S.C.A. §706(2) (West

1977), we must determine whether the Commission’s

action was properly denominated a general statement of

11 Section £53 requires generally that the agency provide notice

of a proposed rule-making in the Federal Register, referer:ce to the

legal authority under which the rule is proposed, and a description

of the subjects and issues involved. Further, § 553 requires that

interested parties have an opportunity to submit relevant data,

comments, and arguments. Finally, the agency must publish the

rule 30 days prior to its effective date, and incorporate in the rule

a “concise general statement” of the rule’s basis and purpose. See

5 U.S.C.A. §553 (West 1977). However, § 553 exempts from the

“notice and comment” requirements “interpretive rules, general

statements of policy, or rules of agency organization, procedure, or

practice.” 5 U.S.C.A. §553(b) (A) (emphasis added).

l4a

policy. Although making this determination is often

“akin to wandering lost in the Serbonian bog,” Jean v.

Nelson, 711 F.2d 1455 (11th Cir. 1983), reh’g granted,

714 F.2d 96 (1983), “enshrouded in considerable smog,”

Noel v. Chapman, 508 F.2d 1023, 1030 (2d Cir.), cert.

denied, 423 U.S. 824, 96 S.Ct. 37, 46 L.Ed.2d 40 (1975),

the question need not detain us long.

Generally, whether a particular agency proceeding an-

nounces a rule or a general policy statement depends

upon whether the agency action establishes “a binding

norm.” Guardian Federal Savings and Loan Association

v. Federal Savings and Loan Insurance Corp., 589 F.2d

658, 666 (D.C. Cir. 1978) (quoting Pacific Gas & Elec-

tric Co. v. FPC, 506 F.2d 33, 38 (1974); see American

Trucking Association v. ICC, 659 F.2d 452, 463 (5th Cir.

Oct. 28, 1981) (Unit A), cert. denied, — U.S. —, 108

S.Ct. 1272, 75 L.Ed.2d 493 (1983); Mercury Motor Ex-

press, Inc. v. United States, 648 F.2d at 319; Brown

Express, Inc. v. United States, 607 F.2d 695, 701 (5th

Cir. 1979); Regular Common Carrier Conference of the

American Trucking Associations, Inc. v. United States,

628 F.2d 248, 250-51 (D.C. Cir. 1980). The key inquiry,

therefore, is the extent to which the challenged policy

leaves the agency free to exercise its discretion to fol-

low or not to follow that general policy in an individual

case, or on the other hand, whether the policy so fills out

the statutory scheme that upon application one need only

determine whether a given case is within the rule’s

criterion. As long as the agency remains free to consider

the individual] facts in the various cases that arise, then

the agency action in question has not established a bind-

ing norm. See American Trucking Associations, Inc. v.

ICC, 659 F.2d at 463; Regular Common Carrier Con-

ference of the American Trucking Associations, Inc. v.

United States, 628 F.2d at 251 (if agency explicitly says

new policy leaves open free exercise of informed discre-

tion, then rights and duties have not actually been

15a

diminished, and binding norm has not been established) ;

Guardian Federal Savings and Loan Association v. Fed-

eral Savings and Loan Insurance Corp., 589 F.2d at 667

(agency must remain prepared to defend policy in sub-

sequent proceeding and may not claim matter is fore

closed).

As noted earlier, the Commission has explicitly stated

that each case shall be decided by examining the totality

of the facts bearing upon the relationship between the

lessor and the shipper. Although the Commission has

enumerated various criteria which establish a presump-

tion of private carriage, this presumption remains re-

buttable. In particular the Commission has stated that

it will scrutinize the actual operation of apparently con-

forming leases to determine whether the terms have been

followed. The use of such presumptions generally serves

to direct the analysis but not necessarily the answer.

Therefore, the use of presumptions does not reasonably

transform a statement of policy into a binding norm.

See Regular Common Carrier Conference of the Ameri-

can Trucking Associations, Inc. v. United States, 628

F.2d at 251 (use of rebuttable presumptions preserves

discretion to determine each case on its own: factual cir-

cumstances). In our view this case is quite similar to

Guardian Federal Savings and Loan Association v. Fed-

eral Savings & Loan Insurance Corp., supra.* We con-

12In Guardian Federal Savings and Loan, the agency promul-

gated criteria by which to measure the adequacy of audits required

of certain lending institutions. The court held that although the

criteria were quite specific, nonetheless they were not determinative

of the adequacy of an audit, and the agency remained free to accept

nonconforming audits. See 589 F.2d at 666-68. Likewise, although

a lease between a shipper and lessor may comply with the terms

recommended by the Commission’s policy statement, if the facts

indicate that the actual operation of the arrangement constitutes

the provision of transportation services, or if factors above and

beyond the provisions contained in the lease indicate same, then

the Commission remains free to deny private carrier status.

16a

clude that, to the extent the Commission abides by its dis-

claimer of having established a binding norm, its char-

acterization of this action as a generai statement of

policy was correct.

As a general statement of policy, the Commission’s

action is reviewed by this court only to determine whether

it is arbitrary, capricious, an abuse of discretion, or

otherwise contrary to law or in excess of the Commis-

sion’s statutory authority. 5 U.S.C.A. § 706(2) (A)-(D)

(West 1977) ; see Mercury Motor Express, Inc. v. United

States, 648 F.2d at 319; Assure Competitive Transporta-

tion, Inc. v. United States, 635 F.2d 1301, 1307 (7th Cir.

1980). Under this standard our task is limited to deter-

mining “whether the decision was based on a considera-

tion of the relevant factors and whether there has been

a clear error of judgment.” Bowman Transportation, Inc.

v. Arkansas-Best Freight System, 419 U.S. 281, 285,

95 S.Ct. 438, 441, 42 L.Ed.2d 447 (1974); see American

Trucking Association, Inc. v. United States, 642 F.2d

916, 920 (5th Cir. April 17, 1981) (court inquires only

to see that statement rationally supported, that agency

considered relevant factors and avoided clear errors, and

that agency articulated rational connection between facts

found and conclusions premised on those facts) ; National

Tour Brokers Association v. ICC, 671 F.2d 528, 532

(D.C. Cir. 1982) (review under arbitrary and capricious

standard confined to whether rational basis may be found

in facts of the record) ; Consolidated Rail Corp. v. United

States, 619 F.2d 988, 993 (3d Cir. 1980) (same). Thus,

as long as the “agency policy is within the agency’s dele-

gated power and meets the test of reasonableness, a court

may not upset it without usurping the agency’s power.”

2 K. Davis, Administrative Law Treatise § 7.5, at 25

(2d ed. 1979). See also Baltimore Gas and Electric Co.

v. National Resources Defense Council, Inc., — U.S. —,

—, 103 S.Ct. 2246, 2257, 76 L.Ed.2d 437, 452 (1983).

We proceed to a determination of whether the policy

statement satisfies these limited requirements.

17a

IV. The Commission’s Statutory Authority to Define

Private Carriage.

Petitioners’ primary contention is that the Commis-

sion’s attempt to reformulate the test for defining pri-

vate carriage was beyond its statutory authority. Peti-

tioners advance the following three arguments in sup-

port of this contention: (1) the Motor Carrier Act re-

quires adherence to the definition and presumptions

announced in Church and in Drum; (2) adherence to the

definition and the presumption formerly relied upon are

mandated by the Supreme Court’s opinion in Drum; and

(3) adherence to the definition and its presumptions is

required by implicit Congressional approval of the Drum

case. In our view these contentions must ultimately fail.

First, the parties have brought to our attention no

congressional comment on either the definition of private

carriage as formulated in Drum or the presumptions

regarding single-source leasing adopted by the Commis-

sion in the Church and Oklahoma Furniture decisions.

The only attempt by Congress to legislate with regard to

the substantive definition of private carriage occurred in

the 1958 amendments to the Motor Carrier Act. In those

amendments, Congress ratified the Commission’s decision

to adopt the “primary business test” when determining

whether a shipper’s carriage of goods in addition to its

own private carriage rendered that shipper or the carrier

leased by that shipper a common or contract carrier sub-

ject to ICC permit and licensing regulations. See Nuclear

Diagnostic Laboratories, Inc., Contract Carrier Applica-

tion, 131 M.C.C. 578, 581-84 (1979). Although congres-

sional explanation of the amendment centered on the

continued concern for diversion of traffic from regulated

carriers to illegitimate private carriers, see S.Rep. No.

1647, supra, at 23, neither the House nor the Senate at-

tempted to formulate a comprehensive distinction between

private and for-hire carriage. Rather, the amendment

was aimed at a specific type of arrangement commonly

18a

used to avoid the label of for-hire carriage. See supra

note 3.1% Likewise, although the Motor Carrier Act of

1980 addressed certain limited aspects of the unregulated

carriage industry, there is no discussion in either the

House or the Senate Report regarding the appropriate

distinction between private and for-hire carriage. Thus,

there is no merit to the contention that adherence to the

Drum analysis with its concomitant presumption is man-

dated by congressional statements in the Motor Carrier

Act and its amendments.

Similarly, we are convinced that the Drum case itself

does not require continued use of the presumptions re-

jected by the ICC in this proceeding. Rather, throughout

its opinion in Drum the Supreme Court reiterated the

need to accord the Commission some discretion in deter-

mining the appropriate scope of for-hire carriage. For

example, the Court commented on the evolving “tech-

nique” of analysis used by the Commission. In upholding

the Commission’s formulation of an appropriate definition

of private carriage, the Court explicitly stated that the

Commission’s conclusions “were well within the range of

responsibility Congress assigned to the Commission.”

368 U.S. at 385, 82 S.Ct. at 415.

It is true that the Court imposed certain constraints

upon the Commission’s discretion. For example, the

13 The following excerpt from House Report 1922 is indicative of

the sentiments expressed in support of the amendment:

This amendment provides that no person shall, in connection

with any other business enterprise, transport property by

motor vehicle in interstate or foreign commerce unless such

transportation is incidental to, and in furtherance of, the

primary business enterprise (other than transportation) of

such person. There is no intention on the part of this com-

mittee in any way to jeopardize or interfere with bona fide

private carriage, as recognized in [Brooks Transp. Co. v.

United States, 340 U.S. 925, 71 S.Ct. 501, 95 L.Ed. 668 (1951),

aff g 98 F.Supp. 517 (E.D. Va. 1950) }.

H.R.Rep. No. 1922, supra, at 18.

19a

Court stated that because the statutory definitions of

private and for-hire carriage “must, if they are to serve

their purpose, impose practical limitations upon unregu-

lated competition in a regulated industry, they are to be

interpreted in a manner which transcends the merely

formal.” Id. at 375, 82 S.Ct. at 410. Moreover, the Court

suggested that the Commission’s occasional reformula-

tions of the distinction between private and for-hire car-

riage were permissible largely because each formulation

revolved around a central and implicit theme: “a pur-

ported private carrier who hires the instrumentalities 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.”

Id. at 375, 82 S.Ct. at 410.

Indeed, since Drum the Commission has frequently re-

stated its test of substance in terms of the “characteristic

burdens of transportation.” See Personnel Service, Inc.—

Investigation of Operations and Practices, 110 M.C.C.

695, 704-06 (1969); Heavy Equipment Rental Co., In-

vestigation, 98 M.C.C. 365, 394 (1964). Overall, how-

ever, the Court’s opinion reflects a deference to the Com-

mission’s informed judgment as to what types of burdens

are characteristic of the provision of for-hire transporta-

tion. See 368 U.S. at 385, 82 S.Ct. at 415 (Commission’s

belief that financial risks are a significant burden of

transportation is well within range of responsibility as-

signed to Commission) ; id. at 374, 82 S.Ct. at 410 (for-

mulation of private carriage in Drum is recent instance

of Commission’s developing technique of decision) ; id. at

376, 82 S.Ct. at 411 (Commission’s current resolution of

problem does not violate coherence of body of administra-

tive and judicial precedents so far developed in this

area). Finally, the Court expressly sanctioned an anal-

ysis which focuses on the totality of circumstances rather

than the dispositive significance of any one factor. See

id. at 384, 82 S.Ct. at 415 (emphasizing use of totalities

20a

and noting that indicia are “instruments of decision, not

touchstones”’; “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”).

Although the Commission’s new statement of policy

abandons the presumptions regarding single-source leas-

ing announced in Church and Oklahoma Furniture, and

affirmed in Drum, the Commission has continued to ad-

here to an approach that requires examination of all cir-

cumstances regarding the relationship between the lessor

and the shipper. Moreover, this adherence to an intensely

factual determination informed by relevant criteria at

least facially ensures the interpretation of private car-

riage “in a manner which transcends the merely formal.”

Id. at 375, 82 S.Ct. at 410. At most the Commission’s

new policy articulates new criteria for determining when

the control of the transportation by the shipper indicates

that the shipper has shouldered the burdens of trans-

portation necessary to have assumed control over the

lessor. Thus, rejecting the presumption of for-hire car-

riage arising from single source leasing, and the pre-

sumption that the owner/operator possesses the inherent

power to defeat the control of the transportation by the

shipper, is indicative only of the Commission’s new views

as to which burdens constitute significant indicia of pri-

vate transportation. Compare Personnel Service, Inc.—

Investigation of Operations and Practices, 110 M.C.C. at

709-10. See also supra note 8. We therefore conclude

that the Supreme Court’s opinion in Drum does not

preclude the Commission’s reconsideration of the pre-

sumptions announced in Church and Oklahoma Furniture.

-Finally, petitioners assert that the Commission’s long-

standing interpretation of private carriage, combined

with Congress’ failure to articulate a differing inter-

pretation, precludes the Commission from formulating

a different test at this late date. Thus, petitioners argue

2la

that Congress has implicitly approved the standards de-

scribed in Drum.

Generally, courts place great weight upon long-stand-

ing interpretations and policies announced by an agency,

and closely scrutinize departure from agency precedent.

See, e.g., NLRB v. Bell Aerospace Co., 416 U.S. 267, 94

S.Ct. 1757, 40 L.Ed.2d 134 (1974); Atchison, Topeka

& Santa Fe Railway Co. v. Wichita Board of Trade, 412

U.S. 800, 93 S.Ct. 2367, 37 L.Ed.2d 350 (1973); Ameri-

can Trucking Associations v. Atchison, Topeka and Santa

4 Although NLRB v. Bell Aerospace Co. involved an agency in-

terpretation of its statute rather than a policy statement, the anal-

ysis used by the Supreme Court is instructive. In Bell, the NLRB

had certified a union as the bargaining representative of a group

of “managerial employzes.” In so doing, the NLRB rejected its

long-standing interpretation that managerial employees are not pro-

tected by the labor laws; instead, the NLRB held that only man-

agerial employees responsible for “the formulation and implemen-

tation of labor relations policies” are excluded by the National

Labor Relations Act. 416 U.S. at 269-72, 94 S.Ct. at 1759-61. The

Supreme Court reversed the NLRB, holding that the Board was

bound by its earlier, long-standing interpretation. In support of its

holding, the Court relied primarily on Congress’ legislative reac-

tion to the NLRB’s interpretation at the time of the Taft-Hartley

Act. When drafting the Act, Congress inserted specific provisions

to make clear that certain types of employees were excluded by the

Act. In other instances, however, Congress explicitly found it un-

necessary to legislate with regard to certain employees, including

managerial employees, because such employees already were ez-

cluded under the Board’s interpretation of the NLRA. See id. at

277-84, 94 S.Ct. at 1763-67. Subsequent to passage of the Taft-

Hartley Act, the Board continued to adhere to this interpretation

for over two decades. Thus, the Court concluded that Congress’

express reliance on the Board’s interpretation, combined with the

Board’s long-standing adherence, made that interpretation binding

on the Board. See id. at 285-89, 94 S.Ct. at 1767-69. See also Asso-

ciation of American Railroads v. ICC, 564 F.2d 486, 498 (D.C. Cir.

1977) (“doctrine of reenactment” applies only if Congress was

aware of agency interpretation and affirmatively indicated intent

not to change interpretation). As indicated earlier, there is no evi-

dence that Congress has made any relevant statements regarding

Drum sufficient to call into play the doctrine of reenactment.

22a

Fe Railway, 387 U.S. 397, 87 S.Ct. 1608, 18 L.Ed.2d 847

(1967); Mercury Motor Express, Inc. v. United States,

648 F.2d 315 (5th Cir. 1981); Missouri-Kansas-Texas

Railroad Co. v. United States, 632 F.2d 392 (5th Cir.

1980), cert. denied, 451 U.S. 1017, 101 S.Ct. 3004, 69

L.Ed.2d 388 (1981). On the other hand, the Supreme

Court has stated:

[T]he Commission, faced with new developments or

in light of reconsideration of the relevant facts and

its mandate, may alter its past interpretation and

overturn past administrative rulings and prac-

tice. . . . [T]his kind of flexibility and adaptability

to changing needs and patterns of transportation is

an essential part of the office of a regulatory agency.

American Trucking Associations v. Atchison, Topeka and

Santa Fe Railway Co., 387 U.S. at 416, 87 S.Ct. at 1618

(national transportation policy may authorize Commis-

sion departure from precedent even when Congress has

considered specific proposals to legislate particular change

promulgated by Commission immediately prior to Com-

mission’s action) ; see Atchison, Topeka & Santa Fe Rail-

way Co. v. Wichita Board of Trade, 412 U.S. at 808, 93

S.Ct. at 2375 (agency may flatly repudiate past norms,

deciding that changed circumstances no longer require

those norms in order to effectuate congressional policy,

so long as agency clearly sets forth grounds for such de-

parture) ; Missouri-Kansas-Texas Railroad Co. v. United

States, 632 F.2d at 402-03 (Commission changes in guide-

lines valid when the result of process of weighing the

public interest which is entrusted to Commission).

The Commission has seized upon its responsibility to

monitor the effect of its policies on the industry, and has

argued throughout this proceeding that its policy change

is supported by changed circumstances. According to the

Commission, these circumstances include passage of the

1980 amendments to the Motor Carrier Act and overall

23a

changes in the transportation industry. The test gen-

erally used for determining the validity of agency

changes in policy is essentially the same as the test for

determining whether agency action is arbitrary, capri-

cious, or an abuse of discretion. Because both determina-

tions depend upon the existence of a rational basis for

the agency action, see Mercury Motor Express, Inc. v.

United States, 648 F.2d at 319; Assure Competitive

Transportation, Inc. v. United States, 635 F.2d at 1307;

Association of American Railroads v. ICC, 564 F.2d at

495, we will treat these two determinations as one.

V. Basis for the Policy Change.

The Commission argues that changes in the nature of

the trucking industry occurring since passage of the 1935

Act provide adequate support for its change in policy.

Specifically, the Commission contends that neither the

regulated sector nor the private carriage sector occupies

the tenuous position it occupied in 1935.%

The Commission apparently infers from the increased

stability of both the regulated and unregulated sectors

that there is a reduced need for protection of regulated

carriers from encroachment by private carriers. The

Commission further reasons that reduced barriers to en-

try into the regulated sector decrease the likelihood of

subterfuge which motivated the Commission to adopt at

an early date a stringent test for defining private car-

riage. See All Points, Inc.—Investigation of Operations,

123 M.C.C. 242, 250-52 (1975). The Commission con-

cludes that its new policy statement, retaining as it does

the basic test of control announced 40 years ago, will

15 See 182 M.C.C. at 768 (motor carrier industry bears little

resemblance to precarious, fragmented, and unstable industry of

the mid-30’s). According to the Commission, approximately 40%

of truck carriage in this country is transported by private carriers,

and private carriers outnumber regulated carriers 9 to 1. Jd. at 769.

24a

have no “major effect on the overall balance between the

regulated and private sectors of the industry.” 132

M.C.C. at 769.

The Commission further argues that adopting the more

lenient approach toward single-source leasing by private

shippers will increase both competition and efficiency in

the private sector by opening up an additional source “of

fleet augmentation.” Additionally, the new policy will

provide added opportunities to owner/operators at a time

in which they are in dire economic straits. The Commis-

sion therefore concludes that all of these factors together

indicate that circumstances have changed sufficiently in

40 years to allow a corresponding change in the Com-

mission’s treatment of single-source leasing by private

shippers.

As additional support for its policy change, the Com-

mission relies upon “changes in statutory direction,” 132

M.C.C. at 757, resulting from the 1980 amendments to

the Motor Carrier Act. See Pub.L. 96-296, 94 Stat. 1898

(1980), codified at 49 U.S.C.A. § 10101, et seg. (West

1982 Pamphlet). In particular, the Commission points to

the amendments in the Nationa] Transportation Policy,

which stress the promotion of “competitive and efficient

transportation services,” and contends that these amend-

ments demonstrate congressional awareness of basic

changes in the motor carrier industry. 49 U.S.C.A.

§ 10101."* The Commission believes that a more lenient

16 The 1980 amendments added the following language to the Na-

tional Transportation Policy:

[I]t is the policy of the United States Government [to provide

for the impartial regulation of the modes of transportation

subject to this subtitle, and in regulating those modes—].. . .

(7) with respect to transportation of property by motor

carrier, to promote competitive and efficient transportation

services in order to (A) meet the needs of shippers, re-

ceivers, and consumers; (B) allow a variety of quality and

price options to meet changing market demands and the

25a

approach to single-source leasing by private carriers will

provide both private carriers and owner/operators with

more options when structuring their respective trans-

portation arrangements. The Commission concludes that

its reformulation of the test for private carriage will

result in greater utilization of equipment and necessary

support for the private carrier industry, thereby foster-

ing the competition desired by Congress.

The Commission also points to various amendments

either specifically addressed to exempt carriage or which

reasonably suggest a different regulatory treatment of

such carriage. For example, prior to the 1980 amend-

ments Commission rules prohibited the hauling of the

shipper’s goods by a member of the shipper’s corporate

family, such as a wholly-owned subsidiary, without a

certificate: In the Commission’s view this did not con-

stitute private carriage. Section 9 of the 1980 Act, how-

ever, removed this restriction and permitted such inter-

corporate hauling, provided the parent corporation owned

a 100% interest in the transporting subsidiary. See 49

U.S.C.A. $ 10524(b). The 1980 Act also expanded vari-

ous existing exemptions in order to permit more efficient

use of unregulated carriage. Thus, $7 of the Act in-

creased the number and type of exempt commodities in

order to decrease the incidence of empty backhauls, and

increased the exemption for motor carrier transportation

diverse requirements of the shipping public; (C) allow

the most productive use of equipment and energy re-

sources; (D) enable efficient and well-managed carriers to

earn adequate profits, attract capital, and maintain fair

wages and working conditions; (E) provide ad maintain

service to smal] communities and smal) shippers; (F) im-

prove and maintain a sound, safe, and competitive pri-

vately-owned motor carrier system; (G) promote greater

participation by minorities in the motor carrier system ;

and (H) promote intermodal transportation.

Pub.L. 96-296, 94 Stat. 798 (1980), codified at, 49 US.CA.

§ 10101 (a) (7) (West 1982 Pamphiet) .

26a

incidental to air transportation.'’ The Commission con-

tends that these specific provisions all support a more

lenient approach to defining private carriage in order to

eliminate inefficiency and foster competition in the over-

al] transportation industry.

In the Commission’s view, however, the most sig-

nificant support for its change in policy stems from the

reduction in barriers to entry resulting from the amend-

ments. For example, §5 of the 1980 Act substantially

reduces the burden of proof on persons applying for com-

mon carrier certification and contract carrier licensing.

See 49 U.S.C.A. §§ 10922, 10923 (West 1982 Pam-

phlet)."* The Commission emphasizes that Congress has

turned away from the protectionist attitude embodied in

the 1935 Act, which required strict maintenance of the

line between private and common carriage in order to

prevent diversions of traffic detrimental to both the ship-

pers and the transportation industry. Rather, in an-

nouncing a transportation policy which focuses on ease

17 See 49 U.S.C.A. § 10526 (West 1982 Pamphlet) ; H.R.Rep. No.

1069, supra, at 18, reprinted in 1980 U.S. Code Cong. & Ad. News

2283, 2300 (to alleviate backhaul problem unregulated motor car-

rier should be allowed to transport certain farm supply items back

to areas of agricultural production); id. at 19, reprinted in 1980

U.S. Code Cong. & Ad. News 2301 (discussing purpose of expand-

ing “incidental-to-air” exception).

1® The House Renort states:

Section 5 reflects the Committee's strong belief that increased

competition and potential competition will bring about the most

efficient and economical delivery of transportation service to

the public.

The new entry section provides for a balanced approach to

entry, which, by lessening the burden of proof on applicants

and correspondingly increasing the burden on persons opposing

the application, will encourage new applicants to file for au-

thority to provide needed service.

H.R.Rep. No. 1069, supra, reprinted in 1980 U.S. Code Cong. & Ad.

News 2283, 2296.

27a

of entry and competition, Congress has implicitly sanc-

tioned more lenient treatment of nominally private car-

riage. Presumably these reduced standards will permit

many more businesses to enter the regulated transporta-

tion industry, with the result that existing carriers will

be less protected from natural competitive forces and

more subject to diversions of traffic. Thus, the Commis-

sion concludes:

(T]he 1980 Act gives evidence that Congress is much

less concerned than it formerly was over the pos-

sibility of diversion of traffic from existing regulated

carriers, 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 commentators 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 of 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 carriers—an objective which has now heen

subordinated by Congress in the act in favor of

heightened competition. Since fear of diversion of

traffic from regulated to private carriers provided

much of the motivation for the Commission’s former

policy, we think that Congress’ lessened concern over

traffic diversion can and should legitimately be con-

sidered in reappraising that policy.

We also think that the 1980 Act, by reducing the

barriers to the entry of new carriers into the regu-

lated industry, has also reduced any incentive such

carriers might have to devise subterfuges to remain

outside the reach of regulation. See Pacific Diesel,

28a

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 control defeasance by owner-

operators in Oklahoma, supra, and in scrutinizing

owner-operator leases to shippers in subsequent

cases, the greatly decreased incentives to evade regu-

lation under the 1980 Act strongly suggest a reap-

praisal of both presumptions.

132 M.C.C. at 771.

Admittedly, the evidence adduced by the Commission

in support of a change in circumstances is not over-

whelming. A reading of the statutory language as well

as the relevant House and Senate report suggests that

when Congress was speaking of greater competition in

the transportation industry, it was concerned primarily

with competition within the regulated transportation

industry. See S.Rep. No. 641, 96th Cong., 2d Sess. 2-6

(1980) .**

Moreover, Congress’ relaxed concerns for diversions of

traffic from existing carriers might be read as limited to

the context of determining whether to grant certificates

19 According to the Senate Committee, the central] feature of the

1980 Act was the reduction of entry barriers into the regulated

sector. This goal would be achieved primarily by lessening the

“public necessity and convenience” requirement necessary to secure

certification, and by creating a presumption that applicants would

operate in the public necessity and convenience. Further, the

amendment reduced the ICC’s power to regulate motor carrier

rates. However, the Committee stressed the need for “entry free-

dom” in order to “produce a competitive environment in which

rates will not be excessively high.” S.Rep. No. 641, supra, at 6.

This reference to competitive environment apparently is addressed

primarily to the regulated sector. The competitive environment

would be achieved by balancing ease of entry with rate flexibility.

Id. at 11. The House Report mirrors the Senate’s concerns and

goals. See H.R.Rep. No. 1069, supra, at 8-17, reprinted in 1980

U.S. Code Cong. & Ad. News 2290-99.

29a

of public convenience and necessity. Thus, Congress’ di-

rective that the agency no longer consider diversion of

traffic as itself inconsistent with public convenience and

necessity may simply have been another mechanism for

reducing barriers to entry into the regulated sector. See

S.Rep. No. 641, supra, at 24. See generally 49 U.S.C.A.

§ 10922 (procedure and criteria to be used in issuing cer-

tificates to common carriers). In fact, greater leniency

in determining whether a particular arrangement con-

stitutes private carriage might be viewed as inconsistent

with a congressional policy of encouraging entry into the

regulated sector. Cf. S.Rep. No. 641, supra, at 116 (100%

ownership requirement for intercorporate hauling “pre-

serves the essential role of private carriage, but does so

with a minimum of conflict with the common carrier con-

cept”).

Finally, it is not clear what inferences may be drawn

from Congress’ extension of certain specific exemptions

in the 1980 Act. For example, although the amendments

do allow intercorporate hauling by a wholly-owned sub-

sidiary, Congress rejected proposals that would have al-

lowed such hauling by less than wholly-owned subsidi-

aries. See Economic Regulation of the Trucking Indus-

try: Hearings Before the Committee of Commerce, Sci-

ence, and Transportation on S. 2245, 96th Cong., 2d Sess.

1463-64 (1980) ($8 of the Senate bill would have ex-

empted intercorporate hauling from regulation when the

parent corporation owned 51% of transporting subsidi-

ary). Similarly, Congress rejected a proposal aimed spe-

cifically at allowing private carriers which transport ex-

empt commodities on a “front haul” to carry nonexempt

commodities on the back haul, thereby increasing carry-

ing capacity and eliminating inefficiencies in the private

carrier sector. See id. at 1461-63. See also Economic

Regulation of the Trucking Industry: Hearings before

the Committee on Commerce, Science, and Transportation

on S. 2245, 96th Cong., 2d Sess. 1765-1810 (1980) (testi-

30a

mony regarding back haul exemptions for “true owner/

operators”). Further, in support of a provision in the

1980 Act exempting the transportation of processed food,

the Senate specifically commented upon the extent to

which private carriage had taken much of the business

away from the regulated carriers:

With respect to the motor carrier transportation of

[processed, nonexempt food], almost 70 percent is

transported today by private carriage. In other

words, by their actions shippers in this country have

indicated that the regulated motor carrier system is

not meeting their needs to a substantial extent.

S.Rep. No. 641, supra, at 8. The foregoing language im-

plies a continued concern for the diversion of traffic by

private carriers from the regulated carrier industry.”

2° Various petitioners have asserted that in fact Congress con-

sidered and rejected proposals to accomplish what the Commission

has here sought to do. Our review of the legislative materials,

however, has not disclosed any specific proposals debated and re-

jected. Moreover, even if Congress had been confronted with such

legislative proposals, we would not necessarily conclude that the

Commission was precluded from acting on its own. In its report,

the Senate stated:

In addition to the specific provisions of this bill, there are other

areas where the Committee did not act, either because it ap-

proved current Commission policy or felt that the Commission

was the proper forum for the interested parties to address the

issues.

S.Rep. No. 641, supra, at 4. This statement by Congress substan-

tially weakens any argument that through its inaction Congress

has prohibited the changes sought by the Commission in its policy

statement. Petitioners argue further, however, that in effect this

policy statement is an attempt to institute “master licensing” based

on general findings and conclusions rather than individual adjudi-

cations. Congress specifically prohibited such an approach with re-

gard to certification. See 49 U.S.C.A. § 10922(b). In our view, how-

ever, petitioners’ contention is without merit. See American Truck-

ing Ass'n, Inc. v. United States, 642 F.2d at 920-22.

3la

In the end, however, we are mindful of the Commis-

sion’s responsibility for reexamining its rules and policies

in light of changed circumstances. See American Truck-

ing Associations v. Atchison, Topeka and Santa Fe Rail-

way Co., 387 U.S. at 415-16, 87 S.Ct. at 1618 (Commis-

sion’s flexibility and adaptability to changing needs and

patterns of transportation are essential part of the office

of regulatory agency; national transportation policy is

yardstick by which correctness of Commission’s actions

will be measured). Thus, the Commission may reject

long-standing policies, interpretations, and guidelines so

long as its action is rationally based and consistent with

the Commission’s statute. See, e.g., Atchison, Topeka &

Santa Fe Railway Co. v. Wichita Board of Trade, 412

U.S. at 808, 93 S.Ct. at 2375; Mercury Motor Express,

Inc. v. United States, 648 F.2d at 319; National Tour

Brokers Association v. ICC, 671 F.2d at 531-33. More

over, in finding that changed circumstances reasonably

permit a change in policy an agency is entitled to rely to

some extent on the experience and expertise it has ac-

quired during the course of its existence, see Mercury

Motor Express, Inc. v. United States, 648 F.2d at 319;

National Tour Brokers Association v. ICC, 671 F.2d 532-

33, as long as this reliance on agency experience is docu-

mented and made a part of the record so that the courts

can determine whether the agency’s action is facially ra-

tional. See Mercury Motor Express, Inc. v. United States,

648 F.2d at 319; National Tour Brokers Association v.

ICC, 671 F.2d at 533.

As discussed above, the proposed policy change is not

inconsistent with the provisions of the Motor Carrier Act.

Further, we find no clear error of judgment in the Com-

mission’s assertion that competition will be enhanced by

the proposed relaxation of standards with respect to sin-

gle-source leasing by shippers. Even if the amendments

to the National Transportation Policy were concerned

only with the regulated sector, it would be rational to

assume that providing owner/operators alternatives to

82a

employment solely with common and contract carriers

would lead to greater competition for their services with-

in that sector. Such competition would in turn foster a

healthier transportation industry in both the regulated

and unregulated sectors. See National Tour Brokers As-

sociation v. ICC, 671 F.2d at 5383 (Commission may rely

on experience as long as it fully explains perceptions

supporting action, and makes its experience part of rec-

ord) .#

Recently, in Mercury Motor Express, Inc. v. United

States, supra, a panel of the former Fifth Circuit con-

sidered a similar policy change. In Mercury Motor the

Commission had announced that in light of changes in

the industry it was abandoning its forty-year-old policy

of denying incidental contract authority to private ship-

pers. 648 F.2d at 317.” According to the Commission,

the “dynamic expansion” of the motor carrier industry

no longer supported the protectionist attitude behind the

rule, while such factors as the need for energy efficiency

clearly required reconsideration. The court thus held that

the changed policy was consistent with the Motor Carrier

Act and “rational on its face.” Jd. at 320. Here, too, we

conclude that the Commission’s assertion of changes in

the industry, as supported by the National Transporta-

tion Policy, provides a rational basis for reconsidering

and rejecting the presumptions announced in Church and

Oklahoma Furniture.

21 It is important to reflect on the fundamental change rendered

by the 1980 amendments to the Motor Carrier Act. From 1935

until the present, Congress has steadfastly adhered to the goal of

a stable and efficient transportation system. From 1935 until 1980,

the primary means for securing such a system was by protecting a

relatively small pool of common and contract carriers. In 1980,

however, Congress apparently decided that the goal of a stable and

efficient system now could be attained by substantially greater com-

petition.

22 Under the rule of Geraci Contract Carrier Application, 7 M.C.C.

869 (1938), the Commission would generally deny common or con-

33a

Petitioners contend that MC-122 will result in an in-

crease in subterfuge to avoid regulation, and that the

new criteria effectively destroy the distinctions between

private and for-hire carriage. In our view, however, it is

well within the Commission’s area of expertise to postu-

late a decreased danger of subterfuge.* Further, the

Commission has expressly declared that it intends to main-

tain the distinction between private and for-hire car-

riage, see 132 M.C.C. at 770, and that it will continue to

ferret out for-hire schemes which purport to be private

shipping. Jd. at 772. In our view the better arena for

holding the Commission to these promises and ensuring

that its determinations are made in “a manner which

transcends the merely formal,” United States v. Drum,

368 U.S. at 375, 82 S.Ct. at 410, will be in the context of

individual enforcement proceedings. We conclude that

the new policy is a rational response to the Commission’s

findings of changed circumstances. See Regular Common

Carrier Conference of the American Trucking Associa-

tions, Inc. v. United States, 628 F.2d at 252.

tract authority to a private shipper unless it could be shown that

the incidental authority would in no way impinge upon the interests

of existing regulated carriers. This rule was deemed necessary to

protect a weak industry.

23 It should be recalled that the danger of subterfuge was largely

the cause for the Commission’s heretofore strict reading of private

carriage. Of course, should subterfuge continue as a threat to a

stable and efficient regulated industry, we expect the Commission

to respond accordingly.

24In Regular Common Carrier Conference, supra, a panel of the

United States Court of Appeals for the District of Columbia Circuit

approved a similar ICC policy change. The court added a caveat,

however, which we deem particularly appropriate, and therefore

adopt:

We emphasize that, although we do not set aside the Com-

mission’s pronouncement, neither do we place an imprimatur

on certain ambiguous—and perhaps legally unsound—comments

in it.... [O]nly subsequent adjudications will reveal whether,

as petitioners fear, the Commission is attempting to evade [a]

34a

VI. Compliance With NEPA and EPCA.

Under the NEPA, agencies are required to consider

possible environmental effects of proposed federal actions.

Generally, this consideration takes the form of any Envi-

ronmental Impact Statement (EIS). See 42 U.S.C.A.

$4332 (West 1977). Additionally, the EPCA requires

statutory requirement .... If such an attempt is revealed, it

will then be proper for a court to act.

628 F.2d at 252. In particular, we have some concern with some of

the Commission’s language which might be interpreted to place

overwhelming significance upon the rather vague concept of “a

complete transportation service,” 132 M.C.C. at 773, as a prereq-

uisite for finding for-hire carriage. The Commission describes

this concept only as involving “key management and organizational

functions that characterize a transportation company,” including

“dispatch, scheduling movements, and general coordination.” Id.

An overemphasis on this concept, and a pro-private carriage bias

in the application thereof, could result in a complete blurring of

the line between private and for-hire carriage. For example, there

would be serious question about a finding of private carriage in

the case of a single owner/operator who controlled all of his own

activities subject only to a shipper’s designation of a pick up time

and place and a time and place of destination. Such an owner/

operator would seem clearly, under any reasonable standard, to be

hauling the goods of another; or conversely, the arrangement would

seem clearly not to reflect a “shipper or manufacturer which trans-

ports its own goods.” Jd. at 787. And yet, we cannot be sure such

an owner/operator, who in effect manages and schedules only his

own activities, would fall clearly within the “complete transporta-

tion service” concept. Our concern is alleviated to a great extent by

the fact that the Commission's decision also places significant re-

liance on whether or not the shipper exercises control and responsi-

bility, and on the Commission’s assurances that the determination

will be based upon the totality of the circumstances, that the prac-

tical distinction between private and for-hire carriage will be main-

tained, and that subterfuges will not be tolerated. Moreover, liti-

gants wii be free to challenge the Commission's application of the

instant policy in individual enforcement proceedings.

We are satisfied that the Commission's policy, if applied in a rea-

sonable manner, is a rational response to changed circumstances,

and ia within the range of responsibility assigned the Commission

by Congress.

35a

the ICC to consider the possible effect of its actions on

reducing energy consumption. When necessary, this re-

quirement includes preparing a Statement of Energy Im-

pact (SEI). See 42 U.S.C.A: § 6362(b) (West 1977).

The obligations to prepare an EIS and an SEI, however,

are not mandatory. Rather, the requirements of the

NEDA are triggered only for “major federal actions sig-

nificantly affecting the quality of the human environ-

ment,” 42 U.S.C.A. § 43832(2)(C), and the EPCA re

quires an energy statement only where practicable. 42

U.S.C.A. § 6362(b). Thus, with regard to both State-

ments, the Commission is accorded a large amount of

discretion in determining either the necessity for prepar-

ing the Statement or the scope of the inquiry it will per-

form. See Mercury Motor Express, Inc. v. United States,

648 F.2d at 319-20 (decision by Commission that action

is neither major federal action significantly effecting

human environment nor major regulatory action under

the EPCA is reversible only if arbitrary, capricious or

abuse of discretion); American Trucking Association,

Inc. v. United States, 642 F.2d at 923 (5th Cir. 1981)

(agency may reasonably conclude that impact statement

not necessary); Sierra Club v. Hassell, 636 F.2d 1095,

1098 (5th Cir. 1981) (Unit B). We conclude that the

agency’s determination that the proposed action is ex-

pected to reduce fuel consumption in the industry was

sufficient under the EPCA. Further, the Commission’s

conclusion that no environmental impacts are expected

comports with the Commission’s own regulations and

general practice. See 49 C.F.R. §§ 1105.6, 1106.5.

CONCLUSION

On the basis of the foregoing, the petitions for review

of MC-122 are DENIED.

APPENDIX B

INTERSTATE COMMERCE COMMISSION

Ex PARTE No. MC-122 (Sub-No. 2)

LEASE OF EQUIPMENT AND DRIVERS TO PRIVATE CARRIERS

AGENCY: Interstate Commerce Commission

ACTION: Policy Statement

SuMMaRyY: By this notice, the Commission modifies and

makes fina] 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 fall 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.

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 a 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.2 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. Al! 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 ora] 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, depenaing 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 3.) 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

5538 of the APA. In other words, we have fully complied

with all applicable requirements for notice-and-comment

rulemaking. See American Bus Ass’n Vv. 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. Vv. 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 Vv. United States, 628 F.2d 248 (D.C. Cir.

1980).

8. 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 of 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 legal] 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 from the 1985 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” carriage 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, 93

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. 182-188. See also

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

10102 (14).

7 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-

10b

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. 403, 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 Vv. 1.C.C., 123 F.2d 210, 212 (5th Cir. 1941).

1lb

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.

12b

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 [owner-operators].”

13b

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 charac-

teristic 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.

14b

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. Jd. Finally, the Court 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.” 368 U.S. at 386.

15b

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,possessien 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 calculated 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).

16b

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 Drwm—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 years.”

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 weuld 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-

5 See also Lovell—Investigation of Operations, 92 M.C.C. 728

(1963). There, an individual owning several rigs leased them to

two shippers and provided drivers who were employed by him

who, the Commission found, became bona fide employees of

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

transportation operation. The Commission emphasized that

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

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

assumption of significant financial risks did not remove the lease

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

at 734-735).

take FE

17b

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

“A detailed historical review appears in Ex Parte No. MC-48,

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

679-688 (1951) (hereinafter cited as “Lease and Interchange’).

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

18b

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 Vv. 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

leases to regulated carriers is understandable in light of

the regulatory environment in which it grew up. As

recognized by the Supreme Court in the Drum decision,

the definitional distinction between private and for-hire

carriage grew out of a regulatory environment in which

it was considered essential to limit diversion of traffic

from the class of regulated carriers upon which most

shippers had to rely for service, and the overal] public

interest was ultimately to be protected by comprehensive

19b

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 contro] 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

'T In particular, the record in Pacific Diesel disclosed a great deal

of evidence showing that the lessor rather than the lessee was in

actual control of the transportation service, notwithstanding recitals

to the contrary in the written lease agreements. The evidence in

Oldahoma Furniture was altogether different, closely resembling

that in Rayette.

20b

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 respc.:si-

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 fact have not been excluded as methods of

rebutting the presumption.

1#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 Engiand Electric System, 390 U.S. 207, 211 (1968).

21b

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.** Thé 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.

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

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

carriers to augment their fleets with equipment leased from

owner-operators.

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

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

22b

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.

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

96-296, July 1, 1980.

23b

sion to go on bearing the responsibilit:: 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 (c), 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 carriers

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), /mplementation of Intercorporate Hauling Re-

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

27 449 U.S.C. 10526(a) (6), (11), (12), (13), 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

24b

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 ad

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