The Jubilee Panel! Half-Century Game Changers that Rocked the - - PDF document

The Jubilee Panel! Half-Century Game Changers that Rocked the Transpo World! And How They Impact Our Practices Today Mid-90s Motor Carrier Freight Charge Reform Negotiated Rates Act of 1993 and Trucking Industry Regulatory Reform Act of 1994 by Kathleen C. Jeffries Scopelitis, Garvin, Light, Hanson & Feary, LLP Pasadena, California 50th Transportation Law Institute Norfolk, Virginia November 10, 2017

Mid-90s Motor Carrier Freight Charge Reform

Negotiated Rates Act of 1993 and Trucking Industry Regulatory Reform Act of 1994 For many years, interstate trucking was heavily regulated by the Interstate Commerce Commission (“the ICC”). Beginning in the late 1970s, a series of administrative and legislative actions liberalized regulation of the industry, culminating in deregulation in 1980. Though deregulation had its significant benefits, it was not entirely without pitfalls. Deregulation of trucking industry rates resulted in great turmoil in relationships between carriers and shippers, leading to conflicting positions taken by the ICC and the Supreme Court, and ultimately requiring action by Congress to calm the waters. Background As a consequence of deregulation of the trucking industry through the Motor Carrier Act, Pub.L.No. 96-296, 94 Stat. 793 (1980) (“the MCA”), the number of licensed motor carriers more than doubled in the 1980s. As anticipated, deregulation resulted in increasingly fierce competition among carriers. For most of the 20th century, motor carrier rates were highly regulated by the ICC pursuant to the Interstate Commerce Act (“the ICA”). Under the “filed rate doctrine,” common carriers1 were required to file with the ICC tariffs containing their rates and could not charge a different rate unless that rate was filed as well. 49 U.S.C. §§ 10761 and 10762. The primary purpose behind mandating the collection of filed rates was to prevent carriers from discriminating among shippers in the pricing of services. The ICA contained an explicit prohibition on “unreasonable discrimination” by motor common carriers. The filed rate doctrine was designed to further this objective by foreclosing the possibility that carriers maintain one rate on file while either negotiating another (secret) lower rate with some shippers or providing those shippers with illegal rebates or discounts. The doctrine thus protected smaller shippers from being undercut competitively. The MCA, though intended to promote competition among carriers, did not abolish the filed rate doctrine. Many carriers, however, in response to the increased competition fostered by the MCA, negotiated and charged rates lower than those filed with the ICC. A substantial number of carriers did not survive in the competitive environment. What followed was a plethora of cases filed by bankrupt trucking companies or their trustees in virtually every federal jurisdiction in the nation to recover the “undercharge” amounts - the difference between the filed rate that a trucking company was legally required to charge its customers and the lower rate negotiated with and paid by the customers. Shippers who had negotiated in good faith rate discounts found themselves billed by the bankruptcy trustees or debtors for the full rate.

1 The tariff-filing requirement underlying the filed rate doctrine applied to motor common carriers,

not to motor contract carriers, whose rates were set out in continuing, individual agreements with their particular customers. 49 U.S.C. § 10102(16).

To thwart these claims, the ICC took the position that a carrier attempting to collect a filed rate after having negotiated a lesser rate engaged in an “unreasonable practice” in violation of the ICA, thus, in effect, repealing the filed rate doctrine. NITL—Pet. to Institute Rulemaking on Negotiated Motor Common Carrier Rates, 3 I.C.C.2d 99 (1986), as modified by 5 I.C.C.2d 623 (1989). The Supreme Court, however, applied the filed rate doctrine strictly, often with harsh

• results. Shippers were charged with constructive knowledge of the rates, and were

thus liable for the filed rate even if a carrier intentionally misquoted the applicable

• rate. In 1990, the Court invalidated the ICC’s “unreasonable practice” regulation,

ruling, in Maislin Industries, U.S., Inc. v. Primary Steel, Inc., 497 U.S. 116, 135-36, 110 S.Ct. 2759, 2770-71, 111 L.Ed.2d 94 (1990), that “[i]f strict adherence to §§ 10761 and 10762 as embodied in the filed rate doctrine has become an anachronism in the wake of the MCA, it is the responsibility of Congress to modify or eliminate these sections.” The Maislin decision turned the trickle of undercharge suits into a torrent of

• litigation. Congress estimated that, as of 1993, undercharge claims filed by bankrupt

trucking firms approached $32 billion. 1993 Enactment of the Negotiated Rates Act In response to Maislin and the worsening “undercharge crisis,” Congress enacted the Negotiated Rates Act of 1993, Pub.L. No. 103-180, 107 Stat. 2044 (1993) (“the NRA”). The NRA offered shippers options and defenses to undercharge claims on interstate shipments through a three-tiered scheme: small businesses, charities and shippers of recyclable materials were exempted from undercharge suits; other shippers had the

• ption of settling claims by carriers or forwarders no longer transporting property at

five to 20 percent of their value (20 percent for a shipment of 10,000 lbs. or less; 15 percent for a shipment over 10,000 lbs.; and five percent where the payor was a public warehouse); and, for a transportation service negotiated prior to September 30, 1990, shippers had the alternative option of challenging any claims by a defunct carrier or freight forwarder as an unreasonable and unlawful practice, with jurisdiction given to the ICC to determine the unreasonable practice. Congress, through the NRA, did more than just address the undercharge crisis. They reformed a number of other rate-related rules and regulations. The Act established prospective requirements that identified the precise information that must be included in tariffs filed by common carriers; shortened the statute of limitations for the filing of claims by a motor common carrier or freight forwarder for recovery of transportation or service charges and by any person to recover overcharges by a motor carrier to 36 months; required a motor contract carrier to enter into a written agreement (separate from a bill of lading or receipt) for the provision of transportation

services2, subjecting the contract carrier to both civil and criminal penalties for violations of the contract requirement; and prohibited off-invoice discounting3. 1994 Enactment of the Trucking Industry Regulatory Reform Act Notwithstanding all the reforms of the NRA to address the undercharge problem and

• ther rate-related issues, the filed rate doctrine remained in place. It was not until

the next year, through the Trucking Industry Regulatory Reform Act of 1994, Pub.L.

• No. 103-311, 108 Stat. 1673 (1994) (“TIRRA”), that the requirement of filing tariffs

containing non-household goods carriers’ individually-set rates was eliminated. Interpreting the effect of that aspect of TIRRA, the ICC stated that “[e]liminating the filed rate doctrine with respect to individually determined rates should significantly reduce the fear of potential undercharge disputes that has plagued the shipping public for almost a decade.” Policy Statement on the Trucking Industry Regulatory Reform Act of 1994, 10 I.C.C.2d 251 (1994). Through TIRRA, common carriers were permitted to set forth their rates and rules in the form of price lists, purchase orders or “exempt-circulars” in addition or as an alternative to tariffs maintained by the carriers and provided to customers in written

• r electronic form upon request rather than filed with the ICC. The filed rate doctrine

remained in effect only for carriers that chose to participate in collectively-set rate bureau tariffs, household goods carriers and carriers operating in. noncontiguous domestic trade. By eliminating the filed rate requirement for most motor common carriers and rendering the individual tariffs then on file with the ICC null and void, TIRRA was considered to have accelerated the process of promoting competition among interstate motor carriers. TIRRA also tightened the timelines for challenging rates and billed charges. The law reduced to 180 days the time within which a carrier or shipper may challenge a rate after payment is made and made such notice a prerequisite to collecting overcharges and undercharges within the 36-month statute of limitations established by the NRA. In addition, TIRRA codified rulings of the ICC and courts prohibiting a carrier from collecting a rate determined by a referenced tariff (i.e., the National Motor Freight Classification or HHG Mileage Guide) unless the carrier is a participant in the tariff.

2 The NRA (in amended 49 U.S.C. § 10702) established that, at a minimum, contracts shall: (1) be in

writing; (2) identify parties thereto; (3) commit the shipper to tender and the carrier to transport a series of shipments; (4) contain contract rate or rates for the transportation service to be or being provided; and (5) state that it provides for the assignment of motor vehicles for a continuing period of time for the exclusive use of the shipper; or state that it provides a service designed to meet distinct needs of the shipper.

3 In off-bill discounting, suppliers could obtain a discounted transportation rate from their carriers

but the receiver was billed at the “listed” (or full) transportation rate. The discount would go to the supplier contracting the freight but the full list price would be paid by the receiver. The new rule prohibited any motor carrier from reducing a rate set forth in its tariff or contract for any person but the one paying for the transportation service; required motor carriers to disclose actual rates, charges

• r allowances for such transportation service; prohibited persons from causing a motor carrier to

present false or misleading information with respect to such rates, charges or allowances; and set forth civil penalties for knowingly paying, accepting or soliciting reduced rates in violation of these rules.

Freight Charge Regulation Today as a Result of NRA and TIRRA The following year, Congress abolished the ICC and purportedly eliminated most truck economic regulation through the ICC Termination Act of 1995, Pub.L. No. 104- 88, 109 Stat. 803 (1995) (“ICCTA”). Though the NRA was officially repealed, most of its material provisions as well as those of TIRRA survived in modified form. The “truth-in-billing” and “off-bill discounting” requirements of the NRA were placed, in a somewhat watered-down condition, in 49 U.S.C. § 13708, requiring carriers to state on their freight bills that “a reduction, allowance or other adjustment may apply” when they engage in off-bill discounts. Furthermore, the undercharge defenses established by the NRA are codified in § 13709 in application to unfiled negotiated transportation rates. TIRRA lives on through Chapter 37 of Title 49 today through the tariff filing and rate reasonableness requirements limited by TIRRA to household goods and noncontiguous trade carriers and the non-tariff-filing billing and collecting practices established for other motor carriers. New to ICCTA, and still in place today, is a reduced 18-month statute of limitations for civil actions by motor carriers to recover freight charges; and missing from ICCTA and still gone today is the prohibition against unreasonable price discrimination by motor carriers, effectively eliminating the prior prohibition against offsetting freight claims against freight charges.