Rea Express, Inc., Bankrupt, L. Orvis Sowerwine, Trustee in Bankruptcy v. United States of America and Interstate Commerce Commission

568 F.2d 940, 1977 U.S. App. LEXIS 11537
CourtCourt of Appeals for the Second Circuit
DecidedSeptember 16, 1977
Docket1165, Docket 76-4278
StatusPublished
Cited by8 cases

This text of 568 F.2d 940 (Rea Express, Inc., Bankrupt, L. Orvis Sowerwine, Trustee in Bankruptcy v. United States of America and Interstate Commerce Commission) is published on Counsel Stack Legal Research, covering Court of Appeals for the Second Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Rea Express, Inc., Bankrupt, L. Orvis Sowerwine, Trustee in Bankruptcy v. United States of America and Interstate Commerce Commission, 568 F.2d 940, 1977 U.S. App. LEXIS 11537 (2d Cir. 1977).

Opinion

TIMBERS, Circuit Judge:

On this petition to review orders 1 of the Interstate Commerce Commission (the Commission), the essential questions are whether the Commission acted arbitrarily and capriciously and abused its discretion in dismissing for want of prosecution the application of the trustee in bankruptcy of REA Express, Inc. (REA) under § 206(a)(1) of the Interstate Commerce Act (the Act), 49 U.S.C. § 306(a)(1) (1970), 2 for permanent operating authority of a nationwide “Hub” system of express service and at the same time in revoking the temporary authority previously granted to REA under § 210a(a) of the Act, 49 U.S.C. § 310a(a) (1970). 3

We hold that the Commission did not act arbitrarily and capriciously and did not abuse its discretion. Accordingly we deny the petition to review and affirm the orders of the Commission.

I. FACTS AND PRIOR PROCEEDINGS

(A) REA and the Hub System

“Express service”, as defined by the Commission, entails the expedited carriage of goods upon firmly established schedules. The express carrier, whose services command premium rates, also must provide special handling for small parcels. REA Express, Inc., Application for ETA, 117 M.C.C. *944 80, 88-89 (1971); Railway Express Agency, Inc., Extension-Nashua, N. H., 91 M.C.C. 311, 324 (1962). During the first half of this century express service was provided as an adjunct of the operations of the nation’s railroads. In 1929 the railroads joined together to establish Railway Express Agency, Inc. (Railway Express), a non-profit agency designed to operate all express services provided by the railroads under their joint ownership and control. The non-profit arrangement continued until 1969. In that year the participating railroads, which were dissatisfied with Railway Express’ continuous losses, extricated themselves from its ownership. REA Express, Inc. v. Alabama Great Southern Railroad Co., 343 F.Supp. 851 (S.D.N.Y.1972), aff’d, 412 U.S. 934 (1973). REA, the bankrupt herein, emerged as an independent company which carried on the business of Railway Express.

Upon the organization of REA in 1969, it provided express service with a routing system significantly different from the railroad oriented system which its predecessor had operated. The steady decline in railroad passenger service after World War II had forced Railway Express into increasing reliance on supplementary operations by motor carrier. By 1962 it had acquired nearly 1,700 separate motor carrier operating rights from the Commission. These piecemeal acquisitions left Railway Express with an uncoordinated and unmanageable system of interlocking rail and motor routes. It consequently decided that a fundamental restructuring of its routing system was necessary.

In 1968 Railway Express submitted to the Commission under § 206 of the Act an application for permanent operating authority for^ a “Hub” system of operations. The salient feature of such system was its selection of 24 central points or hubs for the dispatch and receipt of traffic. Each hub was connected with each other hub by a regular motor route or rail line-haul route. A “satellite” area, served exclusively by motor carrier, surrounded each hub. All traffic to and from locations within the satellite area moved via the hub city. Railway Express, pursuant to § 210a(a) of the Act, made the usual application for temporary authority pending the Commission’s action on its application for permanent authority. The Commission found that Railway Express met the “immediate and urgent need” requirement of § 210a(a) for its Hub service and accordingly granted the temporary authority. Saginaw Transfer Co. v. United States, 312 F.Supp. 662 (E.D. Mich.1970) (three-judge court); Estes Express Lines v. United States, 292 F.Supp. 842 (E.D.Va.1968) (three-judge court), aff’d, 394 U.S. 718 (1969) (per curiam) (grant of temporary authority sustained).

Railway Express commenced Hub operations in 1968 under the temporary authority. Its successor, REA, took no effective steps thereafter in prosecuting the permanent authority application. It relied on the temporary authority granted to Railway Express for continued Hub operations during the entire period of REA’s existence. Once the Hub system was placed in operation under the temporary authority, it proved a disappointment to REA. As a result, in 1971 REA sought to abandon the Hub system and to replace it with a new system of irregular route service. In its new application for temporary authority REA represented that, despite strenuous efforts to implement the Hub system, it nevertheless had proved both “costly and inefficient for REA, and inadequate in providing service to the public.” On August 9, 1971 the Commission denied the new application on the grounds that no immediate and urgent need had been demonstrated and the irregular route service proposed would be inconsistent with the concept of express service.

Although REA carried on under the temporary Hub authority, its actual operations departed significantly from those contemplated in the 1968 application. Referring to Hub operations in general, the Commission stated in its 88th Annual Report, at 54-55 (1974):

“The [Hub] concept proved to be inefficient, necessitating considerable exceptions to the basic operating plans. . . . *945 [T]he system today bears little resemblance to the original concept. . . . ”

(B) REA’s Bankruptcy and the Rexco Division

REA’s operations continued to decline. As a result of the recession and other factors, 4 on February 18, 1975 it filed a petition for an arrangement under Chapter XI of the Bankruptcy Act in the Southern District of New York. The company continued operations as the debtor in possession until November 6, 1975. On that date it was adjudicated a bankrupt and ordered liquidated. Regular express services ceased the following day. Since then liquidation has been substantially completed. REA no longer has any operational capability.

Backing up for a moment to August 1975 —during the period of REA’s unsuccessful reorganization proceeding — we come to the event which precipitated the Commission’s proceedings here under review: establishing the Rexco Division of REA. Rexco amounted to little more than a brokerage business. Independent agents stationed at various locations east of the Rockies and acting on a commission basis solicited truckload traffic from shippers and then arranged for carriage in owner-operated trucks. A small Rexco office near Philadelphia solicited some business, but its chief function was billing shippers and paying agents and owner-operators. Rexco did not own or operate any equipment. It employed no drivers.

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568 F.2d 940, 1977 U.S. App. LEXIS 11537, Counsel Stack Legal Research, https://law.counselstack.com/opinion/rea-express-inc-bankrupt-l-orvis-sowerwine-trustee-in-bankruptcy-v-ca2-1977.