Petition — NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS v. UNITED STATES (Nos. 83-1119, 83-943, 83-1030)

Supreme Court brief1984

Ask Donna

What actually matters in this document.

Text

83 - 1 1 1 9 Office oTL ED US

JAN 6 1984

No. ————

ALEXANDER L. STEVAS.

= —= a we AI

IN THE x

Supreme Court of the Wuited States

OCTOBER TERM, 1983

NATIONAL ASSOCIATION OF

REGULATORY UTILITY COMMISSIONERS,

Petitioner,

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

WILLIAM PAUL RODGERS, JR.*

Genera! Counsel

CHARLES D. GRAY

Assistant General Counsel

GENEVIEVE MORELLI

Deputy Assistant General Counsel

National Association of Regulatory

Utility Commissioners

1102 ICC Building

Post Office Box 684

Washington, D.C. 20044

(202) 628-7324

* Counsel of Record

Dated: January 9, 1984

WILSON - Eres Printing Co., Inc. - 789-0096 - WasHINGTON, D.C. 20001

QUESTIONS PRESENTED FOR REVIEW

The Motor Carrier Act requires a motor carrier which

transports property for compensation, inter alia, to obtain

operating authority from the Interstate Commerce Com-

mission. A shipper transporting its own freight is not

subject to regulation by the Commission under the Act.

When a shipper leases both equipment and drivers from

a single source to transport its freight, the Commission

and State regulatory agencies, to properly enforce the

requirements of the Act, must decide if such transporta-

tion is for-hire carriage subject to regulation or exempt

private carriage. With this background, the following

questions are presented in this petition:

1. Whether the Eleventh Circuit erred in affirming an

ICC “policy statement” which for practical purposes elim-

inates the distinction between regulated for-hire carriage

and private carriage upon which State enforcement of

Federal economic regulatory laws is based?

2. Whether the decision of the Eleventh Circuit affirm-

ing the ICC’s “policy statement” is consistent with this

Court’s decision in Drum that the definitions of for-hire

and private carriage contained in the Act must establish

practical and enforceable limitations upon private ship-

pers?

(i)

THE PARTIES

The parties to the proceeding before the Eleventh Cir-

cuit are listed below.

Petitioners and intervenors supporting petitioners

were as follows:

American Movers Conference,

American Trucking Associations, Inc.,

Bowman Transportation, Inc.,

Charter Express, Inc.,

Common Carrier Conference—Irregular Route (now

“Interstate Carriers Conference’) ,

Frank Bros. Trucking Co.,

Hedrick Associates, Inc.,

Import Dealers Service Corporation,

International Brotherhood of Teamsters, Chauffeurs,

Warehousemen and Helpers of America,

J. H. Rose Truck Lines, Inc.,

National Association of Regulatory Utility Commis-

sioners,

National Automobile Transporters Association,

National Tank Truck Carriers, Inc.,

North Alabama Transportation, Inc.,

Osborne Truck Lines, Inc.,

Port Norris Express Co., Inc.,

Regular Common Carrier Conference, Inc.,

Ryder Truck Lines, Inc.,

Senn Trucking Company,

Southern Intermodal! Logistics, Inc.,

Specialized Carriers and Rigging Association, and

Steel Carriers’ Tariff Association, Inc.

Respondents and intervenors supporting respondents

were as follows:

United States of America,

Interstate Commerce Commission,

National-American Wholesale Grocers’ Association,

iii

National Industrial Traffic League (now “National

Industrial Transportation League”),

Private Carrier Conference, Inc., and

Private Truck Council of America

Petitioner National Association of Regulatory Utility

Commissioners (NARUC) is a quasi-governmental non-

profit organization. Within its membership are the gov-

ernmental agencies of the fifty States and of the District

of Columbia, Puerto Rico and the Virgin Islands engaged

in the regulation of carriers and utilities. More specifi-

cally, the members of the NARUC include the State offi-

cials responsible for ensuring that motor carriers operat-

ing in their respective jurisdictions provide transporta-

tion services in a lawful, financially responsible manner.

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED FOR REVIEW ............... i

EES A I al tne ii

Se er a v

TABLE OF AUTHORITIES ..0......--ccccccosssscccsssssseeseee vi

ERR ei ae ec 1

ELE TIT ier een RE Ree AO 2

STATUTES AND REGULATIONS ...000..0....-cccccsceeeee- 2

STATEMENT OF THE CASE 0.0.......c..ccccccccescesceseess 2

REASONS FOR GRANTING THE WRIT .................. 5

a. This case is of exceptional national importance

because of its critical impact on the ability of

State regulatory officials to enforce lawful motor

carrier operations in the public interest 5

b. The decision of the Eleventh Circuit affirming

the Commission’s single-source leasing policy

directly conflicts with this Court’s decision in

Drum that definitions of for-hire and private

carriage must establish practical and enforce-

able limitations upon private shippers

ETI eiscksstcathiesbectnishietininssseniesitagcaeapicoe senntiinantasdid 17

(v)

TABLE OF AUTHORITIES

CASES: Page

Ex Parte No. MC-122 (Sub-No. 1) Lease of Equip-

ment and Drivers to Private Carriers, 182 M.C.C.

a ao sienaaeed 2-3

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

Application, 27 M.C.C. 191 (1940) ......00.... 9,10

Oklahoma Furniture Manufacturing Co.—Investi-

gation of Operations, 79 M.C.C. 403 (1959) _....... 9

United States v. Casale Car Leasing, Inc., 385 F.2d

of 4, ee 10

United States v. Drum, 368 U.S. 370 (1962) ......3, 4, 9, 10,

13, 14, 15, 17

STATUTES:

a eRe”) ERAS 4

LN 4

a 2

I a i SD 8

ae Ae PA ees 2

A ae PR ee 16

et SR Ce ie eres 5

ee 5

ACT eee be Li OM me A 5

er i i ie 5, 7

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

4 ESA oy Se See erete oe 15

Public Law 89-170, 79 Stat. 648 (1965) 0... 5, 6

REGULATIONS:

Be I I ID viccicsncxcenissvaqmicienitstinasideinstiniacimeciiniticiassid 6, 7,8

| RC SEER atine Terra aN =e 8,9

EE a EL ROR SE 8,9

ETAT SPLOT NE = 6

| SEER Sates Oe EN 3 ll

MISCELLANEOUS:

National Association of Regulatory Utility Com-

missioners, 1982 Annual Report on Utility and

Carrier Regulation (Washington, D.C. 1988)... 6,7

IN THE

Supreme Court of the United States

OCTOBER TERM, 1983

No. —

NATIONAL ASSOCIATION OF

REGULATORY UTILITY COMMISSIONERS,

Petitioner,

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

The National Association of Regulatory Utility Com-

missioners (NARUC) petitions for a writ of certiorari

to review the judgment of the United States Court of

Appeals for the Eleventh Circuit entered on October 11,

1983.

OPINIONS BELOW

The opinion of the United States Court of Appeals for

the Eleventh Circuit, attached as Appendix A, is reported

at 716 F.2d 1369 (1983). The opinion of the Interstate

Commerce Commission, attached as Appendix B, is re-

ported at 132 M.C.C. 756 (1982).

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 AND REGULATIONS

Relevant statutory provisions and regulations are set

forth in Appendix E.

STATEMENT OF THE CASE

The Motor Carrier Act (MCA) [as codified in the

Interstate Commerce Act, Subtitle IV of Title 49, U.S.

Code] defines motor common carriers and motor contract

carriers as those carriers which transport the property

of others for compensation in interstate and foreign com-

merce. 49 U.S.C. §§ 10102(12) and( 13). Under the

MCA, a motor private carrier is defined as a carrier

transporting its own property. 49 U.S.C. § 10102(14).

A carrier transporting goods for compensation (a for-

hire carrier) is subject to the regulatory authority of the

Interstate Commerce Commission (ICC or the Commis-

sion) under the MCA, 49 U.S.c. § 10521, and therefore

must, inter alia, obtain operating authority from the

ICC. Private carriers are exempt from regulation under

the MCA, and therefore, need not obtain ICC operating

rights. Given the thousands of motor vehicles operated

on a daily basis by both for-hire and private carriers,

State and Federal enforcement officers must frequently

and consistently determine whether an individual fact sit-

uation constitutes regulated or exempt interstate trans-

portation.

On February 17, 1982, following notice and comment,

the Commission served its decision in Ex Parte No. MC-

1 Unless otherwise noted, all references to Title 49, U.S. Code are

to West Supp. 1982.

122 (Sub-No. 1), Lease of Equipment and Drivers to Pri-

vate Carriers, 182 M.C.C. 756 (1982) Appendix B. In

the words of the ICC, the primary purpose of this deci-

sion was to redefine “the distinction between private and

for-hire carriage in the context of leases of equipment

with drivers to shippers.” App. B at 26b. In this sweep-

ing decision, the ICC explicitly rejected the “control and

substance” test employed by the Commission, the States,

and the judiciary for determining whether a lease to a

shipper of both the motor vehicle and its driver from a

single source constitutes regulated for-hire carriage or

exempt private carriage. Under this legal test, a shipper

that undertakes such single-source leasing must both

control the transportation (i.e., direct, dominate and con-

trol the transportation), and assume in substance the

characteristic burdens of transportation (i.e., bear the

financial risk for the operation of the vehicle, employ-

ment of its driver and carriage of its goods) to be classi-

fied as an exempt private carrier. Importantly, under

this test a given single-source lease was presumed to con-

stitute for-hire carriage unless rebutted by the leasing

parties. This two-pronged test for drawing the boundary

between regulated and exempt carriage was established

by this Court in United States v. Drum, 368 U.S. 370

(1962).

To replace the longstanding “control and substance”

test, the Commission in its February 1982 decision cre-

ated a new legal standard—the “control and responsibil-

ity” test to define the boundary between regulated and

exempt carriage. This new test abolishes the presump-

tion that absent rebuttal, single-source leasing arrange-

ments constitute for-hire carriage. Under the test, a

shipper need not establish an employer/employee rela-

tionship with the driver of a leased vehicle to establish

private carriage. Neither must the shipper assume the

customary burdens associated with the financial risks of

vehicle maintenance or nonutilization.

Petitions for review of the Commission’s decision were

filed with the Eleventh Circuit in No. 82-5247 on Feb-

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

pursuant to 28 U.S.C. §§ 2342(5) and 2344. The cases

were consolidated. On April 19, 1982, the Eleventh Cir-

cuit granted the NARUC’s petition to intervene in No.

82-8133.

Before the Eleventh Circuit, the NARUC argued that

the ICC’s new test for establishing the boundary between

for-hire and private carriage would have a devastating

affect upon efforts of State regulatory agencies to enforce

the requirements of State and Federal law within their

respective jurisdictions. Relying upon this Court’s deci-

sion in Drum, supra, holding that the definitions of for-

hire and private carriage must “impose practical limita-

tions” upon unregulated competition “in a manner which

transcends the merely formal” (368 U.S. at 375), the

NARUC asserted that when the ICC’s new policy took

effect, there would be no practical basis for State en-

forcement and regulatory officials to determine whether

an individual single-source leasing arrangement consti-

tuted private carriage or unlawful for-hire carriage.

On October 11, 1983, the Eleventh Circuit issued its

decision affirming the ICC. Appendix A. Subsequently, it

stayed its mandate pending proceedings before this Court.

Appendices C and D. On December 7, 1983, the American

Trucking Associations, Inc., et al., filed a petition for writ

of certiorari, No. 83-943. On December 22, 1983, Ryder

Truck Lines, Inc. filed a separate petition for certiorari

in No. 83-1030.

REASONS FOR GRANTING THE WRIT

a. This Case Is Of Exceptional National Importance Be-

cause Of Its Critical Impact On The Ability Of State

Regulatory Officials To Enforce Lawful Motor Carrier

Operations In The Public Interest

In 1965, the Congress enlisted willing States to join

the efforts of the Interstate Commerce Commission to en-

force the regulatory requirements of the MCA against

interstate carriers of passengers and property. Section

1 of the statute—Public Law 89-170, 79 Stat. 648

(1965)*—authorized the ICC to enter into cooperative

agreements with the States “to enforce the economic laws

and regulations of . . . . the United States concerning

highway transportation”. 49 U.S.C. § 11502(a) (2) (C).

Under section 2 of Public Law 89-170, Congress per-

mitted individual States to require that interstate for-

hire motor carriers register their Commission-granted

operating authority. Specifically, under 49 U.S.C.

§ 11506, a State may require that interstate common and

contract carriers file the following information with its

State regulatory commission or department of transpor-

tation:

(1) copies of certificates (in the case of common

carriers) and permits (in the case of contract

carriers) issued by the Commission under 49

U.S.C. §§ 10922 and 10923 (Appendix E at 8e-

10e) ;

(2) a list of motor vehicles operating pursuant to

such certificates and permits;

(8) evidence of liability and cargo insurance cover-

age or qualification 2s a self-insurer; and

‘4) the name of an agent for the service of process

within the State.

2 Codified at 49 U.S.C. § 11502, see Appendix E at 12e.

* Codified at 49 U.S.C. § 11506, see Appendix E at 13e.

The Commission has promulgated regulations imple-

menting Public Law 89-170 (49 C.F.R. Part 1023) which

provide the States with a Federally sanctioned mechanism

to enforce these registration requirements against inter-

state motor carriers. Under the enforcement provisions

of these regulations, 49 C.F.R. § 1023.103,*‘ a participat-

ing State may impose criminal and civil penalties against

a motor carrier operating within its borders that, for ex-

ample, performs regulated interstate motor carriage with-

out a certificate or permit issued by the ICC, fails to

tory agency, lacks adequate insurance, operates motor

vehicles not previously registered with the State, or fails

to designate a resident agent for the service of process.

Sanctions imposed by a State for such violations may in-

clude fines, vehicle impoundment and criminal prosecu-

tion. According to the most recent information collected

by the NARUC from its member commissions, forty

States apply and enforce the Public Law 89-170 registra-

tion requirements against interstate motor carriers pos-

sessing operating authority issued by the Commission.°

On an operational level, the basic enforcement tech-

nique used by the States to monitor operations of all classes

and types of motor carriers remains the road check.* As

* Appendix E at l6e.

5 National Association of Regulatory Utility Commissioners, 1982

Annual Report on Utility and Carrier Regulation (Washington,

D.C. 1983) at 759. (“NARUC Annual Report”) The forty States:

Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connec-

ticut, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky,

Louisiana, Massachusetts, Michigan, Minnesota, Mississippi, Mis-

souri, Montana, Nebraska, Nevada, New Hampshire, New Mexico,

North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South

Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Wash-

ington, West Virginia, Wisconsin and Wyoming. In addition, be-

ginning on February 1, 1984, New York will enter this enforcement

program.

* State regulation of interstate carriers possessing ICC operating

authority is complicated by the fact that two additional categories

the name implies, State enforcement personne] set up

road blocks and stop motor vehicles to examine the law-

fulness of carrier operations. Regulated and exempt in-

terstate carriers, as well as intrastate carriers, are asked

to produce evidence of proper State registration, proper

insurance coverage, and resident agent designation, in

addition to lawful vehicle size and weight compliance.

Many States have extremely active road check programs

which result in high levels of fines and arrests for viola-

tions of Federal economic law. For example, in calendar

1982, the State of Montana observed a total of 113,826

interstate trucks and buses, uncovering 3,001 violations,

resulting in $238,794 in fines. In 1982, Georgia made

1,321 arrests for interstate carriers collecting $311,400

in fines. Iowa arrested 4,208 interstate carriers and col-

lected $177,885 in fines.”

In sum, a vast majority of the States have taken seri-

ously their responsibility to enforce the requirements of

of carriers provide transportation services in and through the re-

spective State jurisdictions: interstate carriers exempt from Com-

mission regulation and intrastate carriers subject to State economic

regulation. To enforce lawful and financially responsible exempt

interstate carriage, many States have extended the registration and

enforcement program established by P.L. 89-170 to exempt carriers.

By passing legislation patterned after 49 U.S.C. § 11506 and 49

C.F.R. Part 1023, 27 States have implemented registration and

enforcement programs which require interstate exempt carriers

such as private carriers to register their operations, to maintain

adequate levels of insurance, and to designate local process agents.

NARUC Annual Report, at 759.

Regarding intrastate motor carriage, 45 States require that motor

carriers providing transportation services within their respective

boundaries obtain operating authority from their State regulatory

agencies. In addition to issuing intrastate authorities, these State

agencies pervasively regulate major aspects of intrastate carriage:

operating territories, service abandonments, rates, accounting prac-

tices, safety, levels of insurance coverage and even the issuance of

securities. NARUC Annual Report, at 773-774.

7 NARUC Annual Report at 753.

the MCA. Strong State enforcement efforts are sanc-

tioned and encouraged by Public Law 89-170, as well as

the National Transportation Policy, 49 U.S.C. § 10101 °

(NTP), which prescribes a safe, economically sound na-

tional transportation system regulated in cooperation

with the States and State officials, in which Federal law

is “enforced to carry out the [NTP].” 49 U.S.C.

§ 10101(b).* Clearly then, such broad and active involve-

ment by the States in the enforcement of Federal laws as

specifically and explicitly authorized and encouraged by

Congress creates an issue of national significance and

importance when the effectiveness of these efforts is jeop-

ardized.

There can be little doubt that the decision of the Com-

mission as affirmed by the Eleventh Circuit does consti-

tute a grave threat to State motor carrier enforcement

through a road check system. One of the first and most

crucial issues confronting a State enforcement officer is

whether the interstate carrier he or she has stopped is a

private carrier needing no ICC operating rights or a for-

hire carrier that’ must provide proof of its authority

through the registration requirements contained in 49

C.F.R. Part 1023.° The determination that the State

officer must make which is affected by the Commission’s

decision involves that vehicle that is stopped at a road

check which: (a) contains commodities.which are subject

to ICC regulation; (b) operates in interstate commerce;

and driven by the owner-operator (or his employee) or

the employee of the leasing company; (d) is purportedly

8 Appendix E at 2e.

* Jd.

1° Under 49 C.F.R. § 1023.11 an interstate for-hire carrier may

not operate in a participating State unless and until its authority

has been properly registered. Appendix E at 15e. In additivn, the

carrier may be required to identify each vehicle operated pursuant

to its authority. 49 C.F.R. § 1023.31. Jd.

exempt from Commission regulation as a private carrier

operating under a single-source lease; and (e) is there-

fore not previously registered with the State under 49

C.F.R. §§ 1023.11 and 1023.31. With this vehicle and

this carrier in mind, a comparison of the tests employed

by the ICC to draw the line between for-hire and private

carriage before and after its February 1982 decision

makes clear the enforcement problems created for the

States by that decision.

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

Application, 27 M.C.C. 191 (1940) (Church), the Com-

mission held that a lease of equipment with driver to

shipper creates a presumption of regulated, for-hire car-

riage by the lessor. Only if the shipper-lessee could prove

that it had “the exclusive right and privilege of directing

and controlling the transportation service” could the pre-

sumption of for-hire carriage be rebutted. 27 M.C.C. at

195-196. In Oklahoma Furniture Manufacturing Co.—

Investigation of Operations, 79 M.C.C. 403 (1959) (Ok-

lahoma Furniture), the Commission provided further

guidance for the enforcement of the distinction between

regulated and private carriage. The ICC, in interpreting

the Church control test, held that an owner-operator driv-

ing his own vehicle has the power to defeat “any sup-

posed right to control that the shipper-lessee may believe

exists.” 79 M.C.C. at 411. This decision necessarily

strengthened the presumption in favor of regulated car-

riage in cases in which the driver of the leased vehicle

was also its owner. In United States v. Drum, 368 U.S.

370 (1962) (Drum), this Court affirmed the Commis-

sion’s decision in Oklahoma Furniture, holding that the

lease arrangement under review therein did not constitute

private carriage because “the Company—([the shipper-

lessee] was able to spare itself—and pass to the owner-

operators—certain characteristic burdens of the trans-

portation business.” 368 U.S. at 379."

11 The “burdens” of transportation which the Court found crucial

in Drum included the owner-operators’ capital investment in equip-

Returning to the example described supra at 8-9, the

“control and substance” test distilled from Church and

Drum provides the State enforcement officer with a read-

ily applicable and intelligible rule of law to determine

whether the driver’s claim to be exempt from regulation

is bona fide, or whether the vehicle is in fact engaged in

unlawful for-hire transportation of regulated commodi-

ties in interstate commerce without ICC authority. Under

the Church and Drum analysis, the lessor is presumed to

be engaged in unauthorized for-hire carriage unless the

enforcement officer is satisfied that the lessor has satis-

factorily rebutted the presumption by providing evidence

that the shipper-lessee exercises sufficient control of the

transportation service and has assumed the burdens of

the transportation business. United States v. Casale Car

Leasing, Inc., 385 F.2d 707, 711 (2nd Cir. 1967). Ab

sent the production of some evidence of “control and sub-

stance’’,” the fact that the vehicle is found transporting

regulated commodities in interstate commerce without

ICC authority creates the presumption of for-hire car-

riage which establishes probable cause for the officer to

take enforcement action in a road check situation.

In place of the “control test” announced in Church

coupled with the “substance test” announced in Drum,

the Commission’s February 1982 decision would reverse

the presumption of for-hire carriage as long as six “min-

imum criteria for the performance of private carriage

by a shipper” were met. Appendix B at 57b.* The most

ment, risk of premature depreciation or loss, unforeseen increases in

operating and maintenance costs, and the risk of non-utilization of

“high-priced equipment.” 368 U.S. at 379-380.

12 Such evidence would include bills of lading, employment status

of the driver, copies of written lease agreements, and markings on

the vehicle.

18 These six criteria, in essence, establish the minimum terms of

a single-source lease which the ICC indicates will satisfy its new

definition of private carriage: (1) the lease must be for 30 days or

significant change in the legal tests for distinguishing

for-hire from regulated carriage, of course, is the ICC’s

decision to eliminate the presumption of for-hire carriage.

See also Appendix B at 26b. The elimination of this

presumption will fundamentally affect State enforcement

procedures. Returning to the example supra, under the

Commission’s decision, the State officer will no longer be

able to base a finding of probable cause solely on the

unrebutted fact that the vehicle in question is transport-

ing regulated commodities in interstate commerce with-

out an ICC certificate or permit. Simply stated, he or

she can no longer presume that such carriage is unlawful

for-hire carriage. Rather, the officer must determine if

the single-source lessor has satisfied the six “minimum

criteria”, drawing no inference from the carrier’s here-

tofore apparent for-hire status.

Although the six minimum criteria upon which the

officer must now determine the status of the single-source

lessor would appear to establish objective measures for

drawing the line between for-hire and private carriage,

they are so riddled with exceptions and qualifications as

to render them unenforceable.

The most serious and obvious deficiency is the fact that

the Commission’s decision does not require that single-

source leases be in writing. Appendix B at 37b. In ef-

fect, the Commission has determined that hard evidence

of the six minimum criteria deemed necessary to estab-

lish private carriage need not be available to State en-

more; (2) the equipment subject to the lease must be exclusively

committed to the shipper’s use; (3) the shipper must agree to

except exclusive control and responsibility for the use of the equip-

ment; (4) the shipper must provide liability insurance and equip-

ment identification; (5) the shipper must ensure safety compliance;

and (6) the shipper must maintain cargo insurance. See Appendix

B at 57b.

14 The ICC does, however, require written leases between for-hire

regulated carriers and owner operators. 49 C.F.R. § 1057.11(a).

forcement officers in a road check situation. Presumably

then, the officer confronting the purported private carrier

must accept as evidence of the shipper’s “control and

responsibility” the driver’s oral explanation of an oral

lease agreement. We submit that standing alone the lack

of a written lease requirement in the Commission’s deci-

sion creates a formula for chaos for State enforcement

efforts.’*

The Commission’s decision creates additional enforce-

ment problems for the States beyond the question of a

written lease. Although the Commission appears to re-

quire that equipment subject to a single-source lease be

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

the lease and that the shipper must accept exclusive con-

trol over leased equipment (Appendix B at 57b), the ICC

would permit subleasing to third parties during the leas-

ing period. Appendix B at 34b-35b. Moreover, the Com-

mission would apparently permit multiple subleases dur-

ing the period of the principal lease. Jd. Presumably,

such subleases may be oral leases with other shippers

which comply with the six minimum criteria.

In light of the [CC’s decision, we return once more to

the road check situation described supra: the State offi-

cer confronting the unregistered interstate vehicle trans-

porting regulated commodities without ICC authority now

finds that the driver has no written single-source lease;

rather, the driver claims to be operating on an oral sub-

lease with a shipper during the period of an oral lease

with a second shipper. Under the ICC’s decision, this

arrangement may be perfectly legitimate private car-

riage, or it may be a subterfuge to avoid for-hire regula-

tion. Although the true status of this carrier may be

15 In its decision, the Commission contends that it has no author-

ity to require a written lease. Appendix B at 38b. Yet, it found the

authority to require that leases apply for 30 days or more, or that

shipper-lessees meet safety and insurance requirements. Appendix

B at 57b.

determinable in a judicial-type proceeding, the State offi-

cer must determine on the spot whether this purported

private carrier is in fact performing illegal for-hire car-

riage. We submit that the enforcement problems inherent

in this situation are obvious. Without the presumption

of for-hire carriage, without a written lease requirement,

and without a binding exclusivity requirement, we sub-

mit that State enforcement will become no more than

guesswork.

As we have shown, the ICC’s decision is of excep-

tional national importance, directly and seriously harm-

ing the efforts of at least forty-one States to vindicate

Federal and State policies that lawful motor carriage be

vigorously enforced on the Nation’s highways. In light

of the importance of this case, the Eleventh Circuit’s de-

cision to affirm the Commission requires review by this

Court because that decision directly conflicts with this

Court’s decision in United States v. Drum, supra, an is-

sue to which we now turn.

b. The Decision Of The Eleventh Circuit Affirming The

Commission’s Single-Source Leasing Policy Directly

Conflicts With This Court’s Decision In Drum That

Definitions Of For-hire And Private Carriage Must

Establish Practical And Enforceable Limitations Upon

Private Shippers

In United States v. Drum, supra, this Court agreed to

review the identical question presented herein: whether

the ICC properly developed a legal standard for distin-

guishing regulated for-hire carriage from exempt private

carriage. There, in the context of an individua! enforce-

ment pruceeding, the Court held that in light of the “im-

precise definitional language” of the statute (i.e., the

MCA), the ICC was obligated to establish workable and

practical definitions of for-hire and private carriage to

ensure that unregulated private carriage would not en-

croach upon regulated industry:

“Accordingly, the statutory definitions, while con-

firming that a shipper is free to transport his own

goods without utilizing a regulated instrumentality,

at the same time deny him the use of ‘for compensa-

tion’ or ‘for hire’ transportation purchased from a

person not licensed by the Interstate Commerce Com-

mission. Because the definitions must, if they are to

serve this purpose, impose practical limitations upon

unregulated competition in a regulated industry, they

are to be interpreted in a manner which transcends

the merely formal.”

“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 a narrow fact situation of imprecise

definitional language which delineates the coverage

of the measure.”

368 U.S. 375-376.

Clearly, by this language, this Court intended that the

ICC devise and implement definitions of for-hire and pri-

vate carriage which are practically discernible (“which

transcend the merely formal”) in order that the imprecise

statutory definitions could be molded into an effective

mechanism for enforcing the licensing requirements of

the MCA against shippers seeking to avoid the reach of

the regulatory statute.

As we have shown, supra, the ICC’s February 1982

decision, despite its extended discussion of “changed cir-

cumstances”, new Congressional policy and the like, con-

tains no workable mechanism which would enable State

enforcement personnel to practically distinguish for-hire

and private carriage on a daily basis."° We respectfully

16 Indeed, in order to establish a consistent enforcement policy

aimed at preventing the subterfuge of for-hire regulation, a State

would be well-advised to issue citations to the driver of every single-

source vehicle its officers can observe. Ultimate resolution of the

submit that the Eleventh Circuit’s affirmance of the Com-

mission’s failure to abide by the instructions of this Court

in Drum is error, requiring review by this Court.

The Eleventh Circuit devoted little attention to the en-

forcement issue in its affirmance. Appendix A at 38a.

Basically, the Court concluded that the enforceability of

the Commission’s single-source leasing policy was best

left for another day “in the context of individual en-

forcement proceedings.” Jd. In avoiding this issue, the

Court agreed with the Commission’s argument that

“changed circumstances” justified its new leasing policy,

but admonished the ICC to respond accordingly to evi-

dence that subterfuge of for-hire carriage requirements

“continue as a threat to a stable and efficient regulated

industry... .” Jd., at n.23.

In reaching these conclusions, the Eleventh Circuit’s

misunderstanding of the requirements of Drum is ap-

parent. First, the Court’s’reliance upon so-called “changed .

circumstances” is misplaced. The statutory definitions of

common carrier, contract carrier, and private carrier,

and the requirement that regulated carriers obtain certifi-

cates or permits have not changed since this Court’s de-

cision in Drum 17. Despite major reforms to the MCA,”

Congress has chosen to preserve the basic distinction be-

tween for-hire and private carriage, and to require that

parties performing for-hire transportation be regulated

under the MCA. Although as in Drum, the statutory

definitions remain imprecise, the ICC’s new single-source

leasing policy, as we have shown, is so destructive of the

operational distinction between regulated and exempt

carrier’s claim of private carriage would then occur in a judicial

proceeding better suited to determining compliance with the ICC's

new definitions.

17 See Appendix E.

18 Most notably, the Motor Carrier Act of 1980, Pub. L. No. 96-

296, 94 Stat. 798 (1980).

carriage necessary for effective enforcement that the

Eleventh Circuit’s conclusion to affirm requires review.

Second, contrary to the Eleventh Circuit’s language,

subterfuge is not prosecuted to maintain a “stable and

efficient regulated industry.” Rather, States seek to pre-

scribe unlawful for-hire carriage because it is illegal pur-

suant to the requirement of 49 U.S.C. § 10921 (Appendix

E at 83) that all for-hire carriers be licensed by the ICC.

Clearly, a State does not prosecute an individual carrier

because his unauthorized for-hire carriage poses a threat

to regulated industry. Indeed, it would be virtually im-

possible for any party to prove, for example, that the

unlawful operations of a single owner-operator occasioned

such a broad threat. Yet, the Eleventh Circuit apparently

directs the Commission (and presumably the States) to

take action against subterfuge only when violation of the

MCA reaches epidemic proportions. Appendix A at 33a,

n.23. In issuing this directive, the Eleventh Circuit again

misapprehends the requirement of Drum that the defini-

tions of the MCA impose practical limitations on unregu-

lated private carriage.

Finally, despite its concern that the ICC’s policy may

destroy an enforceable line between for-hire and private

carriage, the Eleventh Circuit concludes that the Com-

mission’s policy “if applied in a reasonable manner”

should be upheld. Appendix A at 38a-34a, n.24. We re-

spectfully submit that the Commission’s policy, based as

it is upon six “minimum criteria” with their attendant

loopholes and exceptions (Appendix B at 57b), is incapa-

ble of application “in a reasonable manner” in the con-

text of State enforcement activities. As we have shown,

the crucial determination which must be made by a State

officer confronting a single-source leasing situation (i.e.,

whether the carrier is a private or illegal for-hire car-

rier) will be mere guesswork. It is difficult to conceive

of a more arbitrary enforcement policy, but the States

may well be forced to cite each privately leased driver

they observe in order to apprehend that percentage of

carriers which will abuse the ICC’s new leasing policy.

Clearly, this Court should review this policy to avoid

such a result.

For these reasons, we submit that the Eleventh Cir-

cuit’s decision conflicts with this Court’s holding in Drum

that the definitions of the MCA “be interpreted in a man-

ner which transcends the merely formal.” 368 U.S. at

375. The Commission’s policy, ill-suited as it is to effec-

tive, practical enforcement of the laws of the United

States and the States, is precisely the sort of formalism

that Drum would proscribe.

CONCLUSION

For all of the reasons set forth herein, Petitioner prays

that a writ of certiorari be issued to the United States

Court of Appeals for the Eleventh Circuit.

Respectfully submitted,

WILLIAM PAUL RODGERS, JR.

General! Counsel

CHARLES D. GRAY

Assistant General Counsel

GENEVIEVE MORELLI

Deputy Assistant General Counsel

National Association of Regulatory

Utility Commissioners

1102 ICC Building

Post Office Box 684

Washington, D.C. 20044

(202) 628-7324

Dated: January 9, 1984

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,

Vv.

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, 73rd Cong., 2d Sess. (1934); H.R.

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

1645, 74th Cong., 1st Sess. (1985). 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 International 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 shipper leases both vehicle and driver from a single

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

This presumption would yield “to a showing that the

shipper has the exclusive right and privilege of directing

and controlling the transportation service, as, for exam-

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

ployee.” 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

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, amended the Motor Carrier Act to

clarify somewhat the definition of private carriage. This

amendment provided that in order to constitute exempt

private carriage it is necessary that:

(1) the property is transported by a person engaged

in a business other than transportation; and

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

furthers a primary business (other than transporta-

tion) of the person.

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

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

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

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

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

cient control over the lessor were: (1) the lessor was responsible

for maintenance of the vehicle; (2) the lessor paid operating ex-

penses, drivers’ salaries, taxes and unemployment compensation;

and (3) the lessor provided liability and collision insurance. See

27 M.C.C. at 195-96.

* The “primary business” test may be viewed as the overall defi-

nition of private carriage, while the “control” test, and later, the

“substance” test, see below, are the means for determining whether

transportation is incidental to a primary business. See Farris &

Southern, Federal Regulatory Policy Affecting Private Carrier

Trucking, 49 1.C.C.Prac.J. 508, 512-15 (1982). Congress’ adoption

of the primary business test was caused by the proliferation of so-

called “buy-sell” arrangements under which carriers attempted to

avoid ICC regulation by literally purchasing the goods to be trans-

ported and then selling them upon reaching their destination. By

engaging in such arrangements carriers would literally be shipping

their own goods: superficially, this would seem to constitute pri-

Contemporaneously with the 1958 amendments, the

Commission itself began to reformulate the control test

it had announced in Church. Thus, in Pacific Diesel

Rental Co.—Investigation of Operations, 78 M.C.C. 161

(1958), the Commission held that the contro] test re-

quired an answer to the following question: “Are any

persons ... in substance engaged in the business of in-

terstate or foreign transportation . . . for hire?” Id. at

172 (using both new formulation and older “control”

test). The reformulation signaled a more searching in-

quiry that was to focus not only on the physical aspects

of control and direction, but also on the 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. 408, 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) all operating costs and trip expenses were borne by

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

transportation and assumed the risk of all losses. 79 M.C.C. at 412.

One authority has identified 14 factors that often are considered by

the Commission in making its determination. See generally, Mat-

thews, Truck Leasing by Shippers and the Problem of Dangling

Instrumentalities, 32 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, 132 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. .. .” 132 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 promulgated 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 V.S.C.A. $553(d) (West

1977).

8 According to the Commission:

[Wle 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-

gardless of use; and (10) whether the lessee is assisting the !essor

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 132 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.

132 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. 558

(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

12a

On March 4, 1982, 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 182 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 requirements 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; (8) 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 seq.

(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

1! Section 553 requires generally that the agency provide notice

of a proposed rule-making in the Federal Register, reference 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 genera] 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. 23, 1981) (Unit A), cert. denied, — U.S. —, 1038

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 Aierican 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-

2 In 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.

l6a

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 general 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. 488, 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

jconsidered 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, 1381 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.'* 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

18 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 93 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.” Jd. 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 bec: use 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 contro] 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 184 (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

14 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 employees.” 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, 493 (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 seq. (West

1982 Pamphlet). In particular, the Commission points to

the amendments in the National 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 small communities and small 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. 793 (1980), codified at, 49 U.S.C.A.

§ 10101(a) (7) (West 1982 Pamphlet).

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-

all 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

1? 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).

18 The House Report 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 been

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 requlated 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

*® 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 suprort 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

32a

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 533 (Commission may rely

on experience as long as it fully explains perceptions

supporting action, and makes its experience part of rec-

ord) .7?

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.

369 (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 252.4

tract authority to a private s»ipper unless it could be shown that

the incidental authority woule 4“ 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 genera) 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 whici. 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 will 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 is 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

NEPA are triggered only for “major federal actions sig-

nificantly affecting the quality of the human environ-

ment,” 42 U.S.C.A. § 4332(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, capriciousyer

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:

ACTION:

SUMMARY:

Interstate Commerce Commission

Policy Statement

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. All shippers and

manufacturers agreed with the basic principle of allowing

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

and Drivers to Private Carriers, 182 M.C.C. 351 (1980).

2 See Appendix A.

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

riers, although many commentors in this group proposed

modifications. Over 30 associations and trade groups re-

sponded. Generally, associations representing owner-op-

erator and shipper interests were in favor of the proposal,

while associations and trade groups representing the

regulated motor carrier industry opposed it. Lastly, over

120 regulated motor carriers voiced their opposition to

the proposal.

In addition to written comments, the Commission on

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

ton for the purpose of eliciting additional views and sup-

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

ing over 45 interests, appeared and presented evidence

which substantially echoed their respective or representa-

tive comments filed earlier.

Conclusions

In light of recent changes in statutory direction, and

the Commission’s changes in regulatory policy over the

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

Commission’s approach to defining the line between pri-

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

draw the line somewhat differently than we have in the

past when considering whether a particular lease ar-

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

based on the consideration of factors not previously iden-

tified in Commission decisions.

We shall continue to look at all the circumstances sur-

rounding a lease arrangement to determine whether the

lessor holds out only the use of the instrumentalities of

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

stead holds out what is in substance a complete trans-

portation service for compensation. The former would be

% See Notice Of Oral Argument On Proposed Policy Statement,

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

exempt, while the latter would be subject to regulation.

In making individual determinations, we will focus on the

elements of control, responsibility, and performance of the

key organizing and management functions of a trans-

portation company as the critical elements in evaluating

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

no longer employ the rebuttable presumption announced

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

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

portation by the lessor. Neither will we use the virtually

irrebuttable presumption contained in the Oklahoma Fur-

niture decision infra, that an owner-operator driving his

own equipment has the right and power to defeat the

lessee’s control. We will abandon the suggestion contained

in earlier cases that legitimate private carriage results

only when an owner-operator becomes an employee of the

private carrier. We also believe that there is no longer

any justification for maintaining different standards for

judging lease arrangements with drivers, depending on

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

We are confident that our new approach is in accord

with existing statutory requirements. Nevertheless, we

intend to monitor the practical effects of the policy change

we are adopting on the regulated sector, private carriers,

owner-operators, and the shipping public on a continuing

basis. If actual operations under the new policy disclose

effects that are clearly contrary to the public interest or

the National Transportation Policy, we are prepared to

make adjustments or changes in our policy.

Preliminary Matters

Various commentors raise three objections directed

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

our proposal. Commentors claim, first, that Congress has

recently considered and rejected a similar proposal, and

that we may not now proceed to overturn that legislative

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

propriate vehicle for our proposed changes; and, third,

that we have evidenced a prejudgment of the issues pre-

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

1. Legislative History. Nothing in the legislative his-

tory prevents the action we are proposing. The com-

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

not revealed, any measure similar to our proposal here

which was explicitly examined by either the Senate or the

House during their deliberations on the Motor Carrier

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

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

gress could have legislated further, or that Congress di-

rectly addressed certain concerns, cannot be considered as

an explicit determination to preclude the exercise of our

statutory authority to reexamine policy areas not specifi-

cally addressed by Congress, provided our ultimate deter-

mination is consistent with the law and is a reasonable

exercise of our discretionary authority.

2. Use of a Policy Statement. Several commentors

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

stantive rule as a vehicle for setting forth new guidelines

regarding the distinction between private and for-hire

carriage. Ryder Truck Lines, for example, contends that

our policy statement will have a substantial impact on

motor carrier operations and, therefore, should be con-

ducted within the ordinary rulemaking provisions of the

Administrative Procedure Act (APA).

The procedural objections of the various commentors

are without merit since we have in fact given full notice

of our proposal, have received comments, and, following

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

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

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

at page 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

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

with all applicable requirements for notice-and-comment

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

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

However, we believe that something less rigid than a

forma] 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. vy. FSLIC,

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

explanation of an existing statute. A policy statement is

a statement issued by an agency to advise the public

prospectively of the manner in which the agency proposes

to exercise a discretionary power. See generally, Attorney

General’s Manual on the Administrative Procedure Act

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

definitions.

Our purpose in issuing this policy statement is to an-

nounce to the public what factors we will consider as

sufficient to establish private carriage with leased equip-

ment and drivers, so that affected parties may conform

their future conduct to the statute as interpreted by the

Commission and thus avoid Commission enforcement ac-

tion. Whether any particular arrangement constitutes

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

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

case. Use of an interpretive or policy statement thus

seems to be quite permissible. See Regular Common Car-

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

1980).

3. Purported Prejudice. The Regular Common Carrier

Conference of the American Trucking Associations

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

sented in favor of the proposal, and have unfairly placed

upon commentors the burden of dissuasion. The Confer-

ence points to a number of statements in our notice which

it believes demonstrates our asserted predetermination.

The RCCC seriously misconceives the nature of the

notice-and-comment process. Our preliminary review of

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

ditional tests for distinguishing between private and for-

hire carriage was warranted in light 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 overal] assessment, including our lega] analysis, has

changed somewhat in light of the comments submitted.

History of the Commission’s Approach to the

Leasing Issue

1. Leasing To Shippers. The issue with which this

proceeding is concerned has been before the Commission

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

By that Act, Congress undertook to regulate interstate

motor carriage for hire (with certain exceptions not here

relevant),® but excluded from its coverage the carriage

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

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

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

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

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

under regulation those persons who merely lease or pro-

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

truck and drivers.* The problem arose by drawing the

line, among a nearly infinite variety of business arrange-

ments, between those activities which must be licensed by

the Commission and those that are exempt from licensing.

As summarized in United States v. Drum, 368 U.S. 37°,

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. 137; Seventy-Second Annual Report (1958), pp. 132-133. 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 contro] 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 V. 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 shippors 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 Diese] 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) :

‘1! 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

1).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. /d. 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-

1 368 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 possession and control”, and the shipper speci-

fied the places and times of pickup and delivery (it

allowed the owner-operators to select the route).’* Simi-

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

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

an Administrative Law Judge’s finding of private car-

riage where owner-operators leased their rigs to a shipper

from month to month and were paid union-scale wages

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

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

The separate rental fees for the trucks were 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 ¥. 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 Drum—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 On'’ario and Rayette, and up to the pas-

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

no noticeable shifts in the Commission’s decisional stand-

ards regarding leases of equipment by owner-operators to

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

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

that these arrangements will pass muster if the shipper

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

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

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

sponsible for repairs and maintenance), if the owner-

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

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

the characteristic risks and burdens of transportation, and

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

a subterfuge or device to evade regulation is involved.

2. Leasing To Regulated Carriers. The Commission’s

attitude toward owner-operator leases to regulated car-

158 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 but

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

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

transportation operation. The Commission emphasized that the

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

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

assumption of significant financial risks did not remove the lease

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

at 734-735).

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. 785, 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-43,

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

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

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

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 v. United States, 344 U.S.

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

leasing regulations.

Although the Commission’s leasing regulations have

undergone a variety of changes in the 30 years since they

were first adopted, the requirements of control and re

sponsibility by the lessee have remained constant. They

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

regulations:

(d) Exclusive possession and responsibilities —

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

thorized carrier lessee shal] 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 shal] 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 overall 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 control for owner-operator

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

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

tions and the differing standards were devised by the Com-

mission in pursuit of regulatory objectives, principally the

protection of the regulated sector, at an earlier period in

time.

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

riage by a lessor of equipment with driver to a private

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

wise maintaining different decisional standards in the two

situations, the Commission has from time to time redefined

the distinction between for-hire carriage by the lessor and

private carriage by the lessee. The Oklahoma Furniture

case represents an extreme development, where the Com-

mission undertook to make the presumption of for-hire

carriage virtually irrebuttable whenever equipment leased

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

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

opinion in Oklahoma Furniture greatly relied,” suggested

17 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

Oklahoma 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 responsi-

bility for drawing the line between private and for-hire

carriage has been confided by Congress to the Commis-

sion’s expert judgment, informed by its appreciation of

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

Factors Favoring a Reappraisal

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

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

observed that administrative agencies have not merely

the right but the affirmative duty to reappraise their regu-

latory policies periodically in light of changing conditions

and circumstances affecting the industries they regulate.

The changed conditions which persuade us that a change

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

have occurred in the trucking industry generally since our

earlier policies were adopted, and those specifically brought

about by the Motor Carrier Act of 1980.

First, it is obvious that the motor carrier industry of

today bears little resemblance to the precarious, frag-

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

Congress undertook to rescue by the Motor Carrier Act of

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

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

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

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

rebutting the presumption.

In a subsequent decision, the Supreme Court cited Drum as

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

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

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

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 1.7% 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.2* The Commission’s past

policy toward such leases has precluded private carriers

from using this potential source of fleet augmentation.

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

this additional source of fleet augmentation to private car-

riers, while at the same time opening up an additional

source of revenues to owner-operators, who have been

particularly hard-pressed by both the present economic

recession and the rapid escalation of fuel prices over the

past several years.

No commentor has suggested any reason to conclude

that allowing this method of fleet augmentation for private

carriers wil] 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-

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

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

*! 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.

22 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.

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

96-296, July 1, 1980.

23b

sion to go on bearing the responsibility for drawing the

line in light of existing law and regulatory policies.

Congress undoubtedly still wants a distinction to be

maintained between regulated and private carriage, and

we fully intend to maintain such a distinction. But we

find in neither the language nor the legislative history of

the 1980 Act any directive to confine private carriage to

as Narrow a scope as possible, or to employ presumptions

no longer justified by present-day realities to interfere

with legitimate interests of private carriers to augment

their fleets through arrangements not fundamentally in-

consistent with their status as private carriers.

The 1980 Act gives evidence that Congress also recog-

nizes both private carriers and noncarrier owner-operators

as legitimate branches of the overall trucking industry.

Thus, in the interests of the private carrier industry,

Congress carved out from the Commission’s jurisdiction

compensated intercorporate hauling.** Similarly, in the

interests of the owner-operator industry, Congress ex-

panded the scope of the exempt commodities that owner-

operators may transport," and further directed the Com-

mission to allow a simplified fitness-only licensing pro-

cedure to grant owner-operators authority to carry food

and agriculture-related commodities.** While none of the

7649 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), Implementation of Intercorporate Hauling Re-

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

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

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

2849 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 admission of new carriers into the regulated

industry. It has no direct application to determining the

boundary line between private and for-hire carriage. But

the avoidance of diversion was never an end in itself.

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

earlier regulatory objective of maintaining a stable traffic

base for a relatively limited number of regulated car-

riers—an objective which has now been subordinated by

Congress in the Act in favor of heightened competition.

Since fear of diversion of traffic from regulated to private

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

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

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

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

order to improve the efficiency and economy of their operations,

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

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

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

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

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

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

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

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

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

has Congressional approval.

25b

carriers provided much of the motivation for the Commis-

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

cern over traffic diversion can and should legitimately be

conside

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.