Waste Management Partners of Bozeman, Ltd. v. Montana Department of Public Service Regulation

96-525

No. 96-525

IN THE SUPREME COURT OF THE STATE OF MONTANA

1997

WASTE MANAGEMENT PARTNERS OF
BOZEMAN, LTD., d/b/a THREE RIVERS
DISPOSAL COMPANY,

Appellant,

v.

MONTANA DEPARTMENT OF PUBLIC
SERVICE REGULATION, MONTANA
PUBLIC SERVICE COMMISSION, and
HARRY ELLIS, d/b/a/ CUSTOMIZED SERVICES,

Respondents.

APPEAL FROM: District Court of the First Judicial District,
In and for the County of Lewis and Clark,
The Honorable Thomas Honzel, Judge presiding.

COUNSEL OF RECORD:

For Appellant:

William Andrew Wilson, Denver, Colorado; John Alke, Hughes, Kellner,
Sullivan & Alke, Helena, Montana

For Respondent:

Denise Peterson, Montana Public Service Commission, Helena, Montana;
Jerome Anderson, Helena, Montana

Submitted on Briefs: May 15, 1997
Decided: August 26, 1997
Filed:

__________________________________________
Clerk

file:///C|/Documents%20and%20Settings/cu1046/Desktop/opinions/96-525%20Opinion.htm (1 of 11)4/16/2007 11:38:30 AM
96-525

Justice William E. Hunt, Sr., delivered the Opinion of the Court.

Appellant Three Rivers Disposal Company (Three Rivers), formerly Waste
Management Partners of Bozeman, Ltd., appeals from the decision issued by the First
Judicial District Court, Lewis and Clark County, affirming upon judicial review the
order
of the Montana Public Service Commission (PSC) granting Harry Ellis d/b/a Customized
Services (Ellis) a Class D certificate to transport garbage in Madison and Gallatin
Counties. We affirm the District Court.
The following issues are presented on appeal:
1. Did the PSC apply the correct standard for granting Class D certification?
2 Did the District Court err when it affirmed the PSCþs finding that Ellis
was
a fit applicant?
3. Did the District Court err when it affirmed the PSCþs finding that the
public
convenience and necessity required that it authorize Ellisþ service?
4. Did the District Court err when it affirmed the PSCþs finding that Three
Rivers would not be impaired by granting Ellisþ application?
5. Did the PSC err by failing to follow its own precedent, and if so, did it
err
by failing to provide a reasoned explanation for its departure from that precedent?
FACTUAL BACKGROUND
Three Rivers has hauled the majority of garbage in Gallatin and Madison
Counties
since 1983. On three occasions, Ellis has filed an application with the PSC for a
Class
D certificate to transport waste products on routes within those same counties and
thereby
directly compete with Three Rivers. Each time, Three Rivers has protested Ellisþ
application on the grounds that granting the certificate would infringe upon its
area of
operations and harm both it and its customers.
Ellis d/b/a Rozel Corp. filed his first application in 1984. The PSC denied
that
application, finding that the grant of authority would have a negative impact upon
Three
Rivers and the public. (Ellis I) It found that the þpublic convenience and
necessityþ for
an additional garbage service had not been established, because there was no
evidence of
unmet demand and few concerns regarding the adequacy of Three Riversþ service or its
rates. Additionally, the recent history of the area demonstrated that competition
would
adversely impact Three Rivers and the consumer. The publicþs need for stability at
that
time outweighed any advantages brought by competition. The Montana Supreme Court
upheld the PSCþs decision in Rozel Corp. v. Dept. of Pub. Serv. Regulation (1987),
226
Mont. 237, 735 P.2d 282.
Ellis filed a second application in 1987. (Ellis II) The PSC rejected his

file:///C|/Documents%20and%20Settings/cu1046/Desktop/opinions/96-525%20Opinion.htm (2 of 11)4/16/2007 11:38:30 AM
 96-525

application without a hearing.
The third application, which is the subject of this appeal, was filed on
January 20,
1994. After conducting hearings in Bozeman, Montana, on April 13 and 14, 1994, and
in Ennis, Montana, on May 11, 1994, the PSC granted Ellisþ application on December
9, 1994. The PSC found that Ellis was fit to provide service; that there was
substantial
unmet consumer need for additional service; that Three Rivers would not be harmed by
the grant of the application; and that competition would promote the public interest
with
improved service. Three Rivers moved the PSC to reconsider its order, which the PSC
denied on April 24, 1995.
Three Rivers petitioned for judicial review of the PSCþs decision to the First
Judicial District Court, Lewis and Clark County. The District Court affirmed the
PSC,
holding that the PSC properly considered Ellisþ application and that the facts
presented
in 1994 were vastly different from those in 1984 when the PSC denied Ellisþ
application.
It further held that substantial credible evidence supported the PSCþs
determinations.
Three Rivers appeals from the District Courtþs decision.
STANDARD OF REVIEW
Section 2-4-704, MCA, sets forth the standards for judicial review of an
administrative agencyþs decision. Under those statutory standards, conclusions of
law
will be reversed if they are incorrect. Steer, Inc. v. Department of Revenue
(1990), 245
Mont. 470, 474-75, 803 P.2d 601, 603. The Court defers to an agencyþs interpretation
of a statute that it administers. Norfolk Holdings v. Dept. of Revenue (1991), 249
Mont.
40, 44, 813 P.2d 460, 462.
An agencyþs findings of fact will be reversed only if they are clearly
erroneous.
Steer, Inc., 803 P.2d at 603. In Interstate Production Credit v. DeSaye (1991), 250
Mont. 320, 820 P.2d 1285, the Court adopted a three-part test to determine if a
finding
is clearly erroneous. First, the Court will review the record to see if the
findings are
supported by substantial evidence. If they are, the Court will next determine
whether the
finder of fact has misapprehended the effect of the evidence. Third, the Court will
review the record to determine whether it is left with the þdefinite and firm
conviction
that a mistake has been committed.þ DeSaye, 820 P.2d at 1287 (citing U.S. v. U.S.
Gypsum Co. (1948), 333 U.S. 364, 68 S.Ct. 525, 92 L.Ed. 746).
ISSUE ONE
Did the PSC apply the correct standard for granting Class D certification?
As stated earlier, the Court reviews an agencyþs conclusions of law to determine
whether its interpretation of the law is correct. Steer, Inc., 803 P.2d at 603.
Section 69-12-323, MCA, sets forth the factors the PSC must consider when
rendering a decision on an application for a Class D motor carrier certificate to

file:///C|/Documents%20and%20Settings/cu1046/Desktop/opinions/96-525%20Opinion.htm (3 of 11)4/16/2007 11:38:30 AM
 96-525

transport
waste materials:
(2)(a) If after hearing upon application for a certificate, the
commission finds from the evidence that public convenience and necessity
require the authorization of the service proposed or any part thereof, as the
commission shall determine, a certificate therefor shall be issued. In
determining whether a certificate should be issued, the commission shall
give reasonable consideration to the transportation service being furnished
or that will be furnished by any railroad or other existing transportation
agency and shall give due consideration to the likelihood of the proposed
service being permanent and continuous throughout 12 months of the year
and the effect which the proposed transportation service may have upon
other forms of transportation service which are essential and indispensable
to the communities to be affected by such proposed transportation service
or that might be affected thereby.

(b) For purposes of Class D certificates, a determination of public
convenience and necessity may include a consideration of competition.

The PSC interpreted 69-12-323, MCA, as requiring it to address five factors when
considering Ellisþ application. Those factors are:
1. Is the applicant fit and able to perform the proposed service?

2. Does the public convenience and necessity require the authorization
of the proposed service?

3. Can and will existing carriers meet the public need for the proposed
service?

4. Would the proposed service have an adverse impact on existing
transportation services?

5. (discretionary for Class D applications, only) If there is a public
need for the service and applicant is fit to provide the service (even
if existing carriers could meet the need or might be harmed by
granting the application), would competition with the existing
carriers promote the public interest? (Emphasis added.)

In summarizing these factors, the PSC concluded that an applicant þmust show that the
public convenience and necessity require the proposed service,þ and that the PSC þmay
consider competition as a factor in determining public convenience and necessity.þ
Three Rivers argues that the PSCþs interpretation of the factors it must
consider
is incorrect, and the District Court erred when it implicitly embraced them.
Specifically,
it takes issue with the emphasized portion of the fifth factor outlined above
wherein the
PSC stated it had discretionary authority to evaluate whether competition provided
by a
fit applicant would promote the public interest, even if existing carriers could
meet the
need or might be harmed. It argues that the PSC can consider the benefits of

file:///C|/Documents%20and%20Settings/cu1046/Desktop/opinions/96-525%20Opinion.htm (4 of 11)4/16/2007 11:38:30 AM
 96-525

competition
to the public interest only after first finding that the existing services are
inadequate, that
there will be no economic impairment to the existing services, and that the
applicant is
fit.
We first note that Three Riversþ concerns are hypothetical only, because in
fact,
the PSC did find that Three Riversþ service was inadequate; it did find that Three
Rivers
would not suffer economic impairment by the grant of the additional authority; and
it did
find that Ellis was a fit applicant. Moreover, before conducting any evaluation of
competition, the PSC made the threshold determination that the applicant was fit.
Thus,
even were this Court to accept Three Riversþ analysis of the PSCþs decision and to
adopt
Three Riversþ arguments, Three Rivers would not prevail.
In any event, we hold that PSC employed the correct standard. The heart of
Three Riversþ contentions actually appears to center on the interplay between the
consideration of competition as a factor in granting authority and how that
consideration
affects Three Rivers economically. As Three Rivers itself correctly stated in Rozel
Corp., the legislature has chosen to partially regulate the garbage industry in
Montana.
Rozel Corp., 735 P.2d at 285. By enacting Section 69-12-323(2)(b), MCA, it has given
the PSC the discretion to consider competition in order to handle potential harmful
monopoly situations. Rozel Corp., 735 P.2d at 285. Consideration of competition may
be beneficial in some cases, although certainly not in all cases.
Inherent in the concept of competition is the notion that the new applicant
may
take away some business of the existing transport service. This alone will not
mandate
that the PSC deny the application. Rather, the issue is whether under the particular
factual circumstance of the case, competition would impose undue hardship and impair
the existing transportþs ability to provide service to an extent contrary to public
interest.
This can only be decided on a case-by-case basis in conjunction with a consideration
of
the other elements the PSC outlined above.
When determining whether the public convenience and necessity requires the PSC
to authorize an additional authority, the legislature placed no limits on the order
in which
the PSC must evaluate competition as Three Rivers suggests. The PSC can properly
consider competition as one additional factor in assessing the public convenience and
necessity.
In this case, after considering the threshold issue of whether Ellis was a fit
applicant, and after finding that there was an unmet public need, the PSC then
properly
weighed the particular factual circumstances to determine whether competition would
be
beneficial to the public convenience and necessity. It did not view competition as

file:///C|/Documents%20and%20Settings/cu1046/Desktop/opinions/96-525%20Opinion.htm (5 of 11)4/16/2007 11:38:30 AM
 96-525

a stand-
alone controlling element, but rather as only one factor in the context of the
principles
of motor carrier regulation. We hold that the PSC used the proper legal standards. .
ISSUE TWO
Did the District Court err when it affirmed the PSCþs finding that Ellis was a
fit
applicant?
When evaluating whether an applicant is fit, willing and able to provide
service,
the PSC considered the following factors:
1. The financial condition of applicant;

2. The intention of the applicant to perform the service sought;

3. The adequacy of the equipment the applicant has to perform the
service;

4. The experience of the applicant in conducting the service sought; and

5. The nature of the previous operations, if there are allegations of
illegal operations.

Three Rivers asserts that Ellis was not a fit applicant, because (1) he owns
only
two older garbage trucks--a 1975 Del Rio and a 1983 Ford; (2) he does not employ a
full-time mechanic; and (3) his net worth is only $293,000. However, the PSC found
no
evidence that Ellisþ equipment was in disrepair, required a full-time mechanic, or
would
otherwise fail to meet the garbage rounds. Additionally, the performance of the job
duties does not require garbage haulers to own the newest or most technologically
advanced equipment. Although his equipment may be older, Ellisþ financial records
indicated that he had the capability to operate and maintain his present equipment
and to
acquire new equipment as needed. Additionally, with regard to the other criteria
considered by the PSC, Ellis intends to perform garbage-hauling services year-
round.
He also had many years of prior experience hauling garbage in Texas and even in
Montana on a contract basis.
Three Rivers next claims that Ellis is unfit because Ellis has allegedly
operated
illegally in the past. Three Rivers first refers to an incident wherein Ellis
allegedly
hauled garbage without proper authority. However, the PSC found that although Ellis
had received a citation for hauling without authority, some of that hauling was
actually
exempt demolition work. Ellisþ citation was thus reduced upon his appearance in
court.
The record supports the PSCþs findings. Indeed, according to testimony, the court
had
dismissed his fine and only ordered Ellis to pay $25.00 in court costs.

file:///C|/Documents%20and%20Settings/cu1046/Desktop/opinions/96-525%20Opinion.htm (6 of 11)4/16/2007 11:38:30 AM
 96-525

Three Rivers also claims that a complaint was issued against Ellis on one other
occasion for allegedly violating the Montana Motor Carrier Act. But that evidence
was
not made a part of the record at the hearings before the PSC, and this Court will not
consider it now.
Third, Three Rivers refers to an incident wherein Ellis had allegedly not paid
certain workersþ compensation insurance coverage for an employee over a three-month
period in 1993. It argues that the PSC abused its discretion in refusing to
consider that
incident and find Ellis unfit. On appeal, the PSC argues that workersþ compensation
issues are not within the PSCþs jurisdiction. The evidence below regarding this
allegation
is minimal. The record does not reveal whether a claim was even filed against
Ellis.
Evidence of illegal activity, even if willful, does not automatically
disqualify an
applicant. Rather, the PSC has routinely considered bad faith operations as only one
element in assessing fitness. See, e.g., Application of Schlegel & Sons
Contractors, Inc.
(December 23, 1993), Docket No. T-93.41.PCN, Order No. 6247a. The PSCþs position
is consistent with that taken by the ICC. See Armored Carrier Corporation v. United
States (1966), 260 F.Supp. 612, 615 (E.D.N.Y), affþd., 386 U.S. 778, 87 S.Ct. 1476,
18 L.Ed.2d 524 (1967). In this case, the PSC found that allegations of illegal
activity
were scant and did not rise to the level of persistent illegal activity sufficient
to require
the PSC to engage in analysis as to whether they impinged on Ellisþ fitness.
Substantial
evidence supports the PSCþs decision. Assessing allegations concerning violations
of the
Motor Carrier Act is peculiarly within the expertise of the PSC. We hold that the
PSC
did not err in failing to find that either alleged violations of that Act or alleged
violations
of the Workersþ Compensation Act rose to the level to require the PSC to conduct a
detailed analysis of the violations. Moreover, we hold that the PSC was not clearly
erroneous in failing to find that they rendered Ellis unfit. The District Court did
not err
in affirming the PSC.
ISSUE THREE
Did the District Court err when it affirmed the PSCþs finding that the public
convenience and necessity required that it authorize Ellisþ service?
When determining public convenience and necessity, the PSC uses the analysis set
forth by the Interstate Commerce Commission in Pan-American Bus Lines Operation
(1936), 1 M.C.C. 190:
The question . . . is whether the new operation or service will serve a
useful public purpose, responsive to a public demand or need; whether this
purpose can and will be served as well by existing lines or carriers; and
whether it can be served by the applicant with a new operation or service
proposed without endangering or impairing the operations of existing
carriers contrary to the public interest.
The PSC may additionally consider competition. Section 69-12-323(2)(b), MCA.

file:///C|/Documents%20and%20Settings/cu1046/Desktop/opinions/96-525%20Opinion.htm (7 of 11)4/16/2007 11:38:30 AM
 96-525

Three Rivers argues that the PSCþs decision finding that there was a need for
Ellisþ
service was clearly erroneous. It asserts that it was only natural that some of its
customers were dissatisfied, but that there was insufficient evidence that its
service was
inadequate.
To the contrary, however, evidence of Three Riversþ inadequate service and the
public need for another garbage hauler was overwhelming. The PSC exhaustively
detailed
the testimony of approximately 40 witnesses who testified about their
dissatisfaction with
Three Rivers. In short, Three Riversþ service was spotty and unreliable. It
frequently
failed to haul away customersþ garbage, and when it did, it often left the dumpsters
overturned with garbage strewn on the ground. Some customers had to routinely
monitor
Three Rivers to ensure that the garbage would actually be hauled away on the date and
time it was scheduled for pickup. Even though customers complained, Three Rivers
frequently charged them for services that were not rendered. Moreover, Three Riversþ
staff treated the public with disdain. Many customers testified that when they
telephoned
Three Rivers to complain, they were treated rudely and with a take-it-or-leave-it
attitude.
At least one customer testified he was called a liar when he complained that the
garbage
was not hauled away. Three Rivers discontinued service to some of the customers who
complained. The PSC found that Three Riversþ own witnesses corroborated the public
testimony. Specifically, it found that Three Rivers keeps lists of "chronics," tells
customers they are wrong, and informs customers who complain that if they do not like
it, they can haul the garbage themselves. It allows its staff to persist in treating
customers in a derogatory manner.
In spite of the poor service, Three Rivers charged customers dramatic rate
increases. For example, the superintendent of one school district testified that
rates for
the district increased from $216.00 to $459.89 per month without any notice. The
mayor
of another city testified that Three Rivers approached the city council and proposed
a
400% rate increase. In 1993 when negotiations between Three Rivers and the city
broke
down, the city disassociated itself from Three Rivers. In fact, many of Three
Riversþ
former residential and commercial customers have been forced to haul their own
garbage
due to Three Riversþ inconsiderate treatment, unreliable service, and large rate
increases.
Based upon this overwhelming evidence, we hold that the PSCþs finding that there was
substantial unmet shipper need was not clearly erroneous.
Three Rivers points to the PSCþs finding that Three Rivers "has the authority,
facilities, equipment and financial wherewithal" to provide service to the Gallatin
and
Madison County customers, and argues that notwithstanding customer complaints Ellisþ

file:///C|/Documents%20and%20Settings/cu1046/Desktop/opinions/96-525%20Opinion.htm (8 of 11)4/16/2007 11:38:30 AM
 96-525

application should therefore be denied. But whether the existing service is
capable of
providing adequate service means nothing if it is unwilling to provide adequate
service.
The PSC therefore properly exercised its discretion and considered the element of
competition when assessing public need and convenience. It found that Three Rivers
had
created a niche for competition which Ellis could fill by providing alternative
service.
The PSC found, and we agree, that competition in this case will promote the public
interest in improving services and perhaps rates, and filling consumer needs that
Three
Rivers has failed to meet. We hold that the PSCþs findings were not clearly
erroneous,
and the District Court correctly affirmed its decision.
ISSUE FOUR
Did the District Court err when it affirmed the PSCþs finding that Three Rivers
would not be impaired by granting Ellisþ application?
Three Rivers disputes the PSCþs finding that Three Rivers would not be harmed
by granting Ellisþ application. It points to the testimony of its executive officer
and its
principal partner. The executive officer testified that Three Rivers upgraded its
services
with a variety of modern equipment and a maintenance shop and that lost revenue will
hurt its ability to pay for equipment costs. Its principal partner feared that some
of its
prime customers would utilize Ellisþ services, resulting in a significant financial
loss to
Three Rivers.
But the PSC found that Three Riversþ operating statement and financial reports
indicated that it was þflush with equipment, facilities, [and] staffþ as well as
expensive
computer equipment with þunnecessary bells and whistles.þ Moreover, Three Rivers has
extensive resources. Its gross revenues had increased from $1,200,000 in 1986 to
$2,368,000 in 1992. Other parts of Three Riversþ financial reports included costs
such
as embezzling costs and landfill development costs, which the PSC stated were not the
responsibility of the public. Based upon these findings, the PSC concluded that
with all
its resources, Three Rivers would not be harmed by the grant of Ellisþ application
to an
extent contrary to public interest.
It is not the function of this Court to weigh the evidence. Our review
indicates
that the PSCþs conclusions are based upon adequate findings of fact, supported by
substantial evidence in the record. We conclude that the PSC gave reasonable
consideration to Three Riversþ service. We hold that the PSCþs findings are not
clearly
erroneous and the District Court correctly affirmed its decision.

ISSUE FIVE
Did the PSC err by failing to follow its own precedent, and if so, did it err by

file:///C|/Documents%20and%20Settings/cu1046/Desktop/opinions/96-525%20Opinion.htm (9 of 11)4/16/2007 11:38:30 AM
 96-525

failing to provide a reasoned explanation for its departure from that precedent?
Three Rivers argues that the PSCþs decision in this case is diametrically
opposed
to its decision in Ellis I. Citing Atchison Topeka and Santa Fe Railroad Co. v.
Board
of Trade (1973), 412 U.S. 800, 93 S.Ct. 2367, 37 L.Ed.2d 350, it argues that the PSC
therefore had a duty to explain its departure from the prior decision. Having
failed to
do so, it asserts that the PSCþs decision must be reversed.
It is a well-established principle of agency law that an agency has a duty to
either
follow its own precedent or provide a reasoned analysis explaining its departure.
Atchison Topeka and Santa Fe Railroad Co., 412 U.S. at 808. But in this case, the
PSC
did not depart from its prior policies and standards. Indeed, its decision in this
case is
entirely consistent with its decision in Ellis I.
The factual landscape when Ellis I was decided in 1984 differed significantly
from
that a decade later when it rendered the decision in this case. Ten years ago,
there were
few concerns about the adequacy of Three Riversþ service or the reasonableness of its
rates. There were only a few isolated instances of missed garbage pickups. The
majority
of the witnesses at the hearing testified that the service was satisfactory. While
a few
people complained about Three Riversþ rates, the complaints did not lead the PSC to
conclude that an additional garbage hauler was necessary. In short, there was
insufficient
evidence that Three Rivers had provided inadequate service or that public convenience
and necessity required additional service. Moreover, the route involved in Ellis I
involved primarily Gallatin County, while the route in this case involves both
Gallatin and
Madison Counties, with some territorial exclusions.
With regard to the element of competition, the PSC correctly noted in 1984 that
69-12-323(2)(b), MCA, gave it discretion to consider competition, and it stated
that in
some cases the advent of competition would be beneficial to the public interest.
Indeed,
it expressly stated that the þCommission can conceive of instances where competition
would exert a positive influence in the maintenance of good quality service and
reasonable
rates.þ The PSC also correctly noted, however, that competition in the abstract is
insufficient standing alone to justify granting an application. Rather, there must
be
sufficient evidence in the record based upon the specific facts at hand to establish
public
convenience and necessity.
Based upon the facts in 1984, the PSC found that competition at that time would
be destructive. Recent history had demonstrated that the area needed stability,
because
competition had produced a negative impact upon both the industry and the consumer.

file:///C|/Documents%20and%20Settings/cu1046/Desktop/opinions/96-525%20Opinion.htm (10 of 11)4/16/2007 11:38:30 AM
96-525

Three Rivers had been the first company in the decade prior to 1984 that was a
healthy
carrier, adequately serving the area. In that same decision, the PSC warned Three
Rivers
that þ[t]his is not to say that the public should be prepared to tolerate unmet
demand or
inadequate service or unreasonable rates should they occur in the future. [Three
Rivers]
remains on notice that the Commission retains the power to reexamine the situation
and
grant a new authority should the circumstances merit it.þ
Ten years later, the PSC determined that the circumstances merited it. None of
the PSCþs standards or application of the law changed, only the facts did. We
therefore
hold that the PSC did not depart from established precedent. The District Court
correctly
affirmed the PSCþs order.
We affirm the order of the District Court.

/S/ WILLIAM E. HUNT, SR.

We Concur:

/S/ KARLA M. GRAY
/S/ JAMES C. NELSON
/S/ JIM REGNIER
/S/ TERRY N. TRIEWEILER

file:///C|/Documents%20and%20Settings/cu1046/Desktop/opinions/96-525%20Opinion.htm (11 of 11)4/16/2007 11:38:30 AM