State Ex Rel. Utilities Commission v. Bird Oil Co.

273 S.E.2d 232 (1981)

STATE of North Carolina ex rel. UTILITIES COMMISSION, Kenan Transport Company and North Carolina Motor Carriers Association, Inc., Agent for Motor Common Carriers
v.
BIRD OIL COMPANY et al.

No. 50.

Supreme Court of North Carolina.

January 6, 1981.

Allen, Steed & Allen, P. A., by Thomas W. Steed, Jr., and Joseph W. Eason, Raleigh, for plaintiffs-appellants Kenan Transport Co. and North Carolina Motor Carriers Ass'n, Inc., Agent.

Hatch, Little, Bunn, Jones, Few & Berry by David H. Permar, Raleigh, for protestants-appellees.

CARLTON, Justice.

I.

On 17 April 1963 the North Carolina Motor Carriers Association, Inc., agent for carriers of petroleum products participating in the Motor Freight Tariff, filed with the North Carolina Utilities Commission a Supplement to the then-existing tariff. The supplement established "Dedicated Service" rates which essentially provided for a fifteen percent lower rate for intrastate shipments of gasoline, kerosene, jet fuel, diesel fuel oil No. 1, and fuel oils Nos. 1, 2 and 3, provided that the common carrier assign a single unit of the carrier's equipment to the exclusive and continuous use in intrastate commerce of one shipper for a minimum of one hundred hours per week for twenty consecutive weeks. Pursuant to statutes applicable at that time the Utilities Commission conducted the usual investigation and hearing and issued its order in Docket No. T-825, Sub 68 on 27 September 1963 finding the dedicated service rates just and reasonable and ordering them into effect. 53 N.C. Utilities Comm. Reports 524 (1963). Dedicated service rates have remained in the petroleum tariff of the North Carolina Motor Carriers Association, Inc. [hereinafter "NCMCA"], as amended and re-issued from time to time, since September 1963.

On 5 January 1978 NCMCA, as agent for motor common carriers, filed a proposed amendment to the existing dedicated service rates, Item 8005-A of Supplement 8 to Petroleum Tariff No. 5-0, N.C.U.C. No. 110. The proposed amendment allowed hours generated by the dedicated unit of equipment used in interstate commerce, in addition to hours in intrastate commerce, to be counted in determining whether the minimum of one hundred hours per week required by the dedicated service rule had been met. This type provision is commonly referred to as a "commingling clause."

On 23 January 1978 the Utilities Commission issued an order of suspension, investigation and notice of hearing, suspending Item 8005-A, Dedicated Service, Paragraph (f) for a period of 270 days and setting the matter for hearing on 10 May 1978.

On 8 February 1978 the Utilities Commission Public Staff filed its Notice of Intervention.

Appellees, fuel oil jobbers, filed a verified protest to Item 8005-A on 17 April 1978 and moved, pursuant to G.S. 62-136, to expand the scope of the hearing to include an investigation of the existing dedicated service rates.

On 2 May 1978 Kenan Transport Company, on behalf of itself and other motor vehicle common carriers participating in the proposed revision in the dedicated service rules, filed a response in opposition to the protest and a motion to expand and continue the hearing.

The Utilities Commission issued an order on 4 May 1978 allowing the protestants to intervene as protestants in opposition to the proposed revision in the dedicated service rules, expanding the scope of the hearing pursuant to G.S. 62-136 to include an investigation of the existing dedicated service rates, ordering the motor common carriers participating in the tariff to file additional information, and continuing the hearing to 2 August 1978.

A hearing was held before the hearing examiner on 2 August 1978. Both Kenan and protestants presented evidence. On 5 January 1979 the hearing examiner issued a recommended order approving the commingling amendment, cancelling the prior order of suspension and investigation and dismissing the proceeding.

On 22 January 1979 the protestants filed their exceptions to the recommended order. Following a hearing on the exceptions, the Utilities Commission issued its final order on 11 April 1979, overruling and denying protestants' exceptions and adopting and affirming the recommended order.

Protestants appealed to the Court of Appeals. That court vacated the order of the Utilities Commission, holding, inter alia, that "the entire dedicated rate provision is discriminatory and preferential in violation of G.S. 62-140 and other applicable portions of the General Statutes pertaining to Motor Carriers." 47 N.C.App. at 9, 266 S.E.2d at 843 (emphasis added). Judge Vaughn dissented, noting that the existing rate structure is presumed to be just and reasonable and that the protestants have the burden of proving otherwise. In his opinion, the findings of the Commission were conclusive because they were supported by substantial evidence in view of the entire record.

NCMCA and Kenan appealed to this Court as a matter of right by virtue of Judge Vaughn's dissent. For reasons stated below, we reverse the Court of Appeals and direct that the order of the Utilities Commission be reinstated.

Other facts pertinent to our decision are noted below.

II.

Before addressing the merits, we note that none of the parties to this cause suggested in brief the applicable scope of judicial review on this appeal. Moreover, the Court of Appeals' opinion presents no review standard other than the generalization that its task was to "ascertain whether the orders ... conform to the mandate of the General Assembly." This is a serious omission. In presenting appeals to the judicial branch from state administrative agencies, it is essential that the parties present their contentions as to the applicable scope of judicial review. Likewise, the reviewing court should make clear the review standard under which it proceeds. The proliferation of appeals from state administrative agencies during recent years requires an orderly appellate process. Such order is totally lacking when one body must guess the scope of review provided by another and when the parties fail to structure their arguments on appeal according to the relevant standard.

We therefore turn to a determination of the appropriate scope of judicial review of the order of the Utilities Commission. While most appeals in this State from the actions of administrative agencies to the judicial branch are governed by our Administrative Procedure Act, G.S. Chapter 150A, the Utilities Commission is specifically exempted from the coverage of that chapter. G.S. § 150A-1(a) (1978). When judicial review of administrative actions is provided in the statute under which the administrative action is taken, the right of appeal to the courts is to be first determined by looking at the statute. 2 Am. Jur.2d Administrative Law § 559 (1962). We therefore turn to the public utilities chapter of our General Statutes, Chapter 62, to determine the appropriate scope of judicial review of an order of the Utilities Commission. G.S. 62-94 is controlling. That section provides, inter alia, that the reviewing court may (1) affirm, (2) reverse, (3) declare null and void, (4) modify, or (5) remand for further proceedings, decisions of the Commission. The Court's power to affirm or remand is not specifically circumscribed by the statute. However, the power of the court to reverse or modify and, a fortiori, to declare null and void, is substantially circumscribed to situations in which the court must find (a) that appellant's substantial rights, (b) have been prejudiced, (c) by Commission findings, inferences, conclusions or decisions which are

(1) in violation of constitutional provisions; or

(2) in excess of statutory authority or jurisdiction of the Commission, or

(3) made upon unlawful proceedings, or

(4) affected by other errors of law, or

(5) unsupported by competent, material and substantial evidence in view of the entire record as submitted, or

(6) arbitrary or capricious.

G.S. § 62-94(b) (1975); see Daye, North Carolina's New Administrative Procedure Act: An Interpretive Analysis, 53 N.C.L. Rev. 833, 911-12 (1975). Other provisions of the statute provide that "due account shall be taken of the rule of prejudicial error," G.S. § 62-94(c) (1975), and that orders of the Commission "shall be prima facie just and reasonable," G.S. § 62-94(e) (1975).

Read contextually, therefore, the requirements that "substantial rights have been prejudiced," that error must be prejudicial and that actions of the Commission are presumed just clearly indicate that judicial reversal of an order of the Utilities Commission is a serious matter for the reviewing court which can be properly addressed only by strict application of the six criteria which circumscribe judicial review.^[1]

In light of the foregoing, it becomes necessary for this Court to determine under which criterion for review the Court of Appeals should have addressed this proceeding. Only then can we decide whether the Court of Appeals' decision was proper.

The controlling review statute, G.S. 62-94, also provides that an "appellant shall not be permitted to rely upon any grounds for relief on appeal which were not set forth specifically in his notice of appeal filed with the Commission." G.S. § 62-94(c). Protestant-appellants in the Court of Appeals, appellees here, were apparently aware of this provision, for in their Exceptions and Notice of Appeal four of the six criteria noted above were referred to in attacking various findings and conclusions of the Commission, e. g., that the Commission's order was in excess of statutory authority, made upon unlawful proceedings, affected by other errors of law and unsupported by competent, material and substantial evidence in view of the entire record. While taking this broadside approach in giving notice of appeal, however, protestants did not bring forward and argue these specific statutory grounds for reversal of the Commission's order in their brief to the Court of Appeals.

The proper scope of review can be determined only from an examination of the issues presented for review by the appealing party. The nature of the contended error dictates the applicable scope of review. In their appeal to the Court of Appeals, protestants presented three issues for review, the gists of which were: (1) whether the lower rate charged users of dedicated service is unlawfully discriminatory and preferential; (2) whether offering of dedicated rate service by a common carrier unlawfully converts a common carrier into a contract carrier; and (3) whether the Recommended Order and Final Order of the Commission are erroneous as a matter of law because they do not contain the findings and conclusions required by law. From these issues it is apparent that the basis for all the proffered issues is protestants' contention that the Commission committed "errors of law" in reaching its decision. Additionally, although the Court of Appeals' opinion does not disclose the standard under which that court considered the issues, its holding that the dedicated rate scheme is discriminatory and preferential implicitly indicates a determination that the Commission committed an error of law and the opinion is written accordingly. Moreover, appellants essentially argue to this Court that the Commission's order was proper as a matter of law and that the Court of Appeals erred as a matter of law in vacating the Commission's order.

From all these factors, plus our review of the record, we think it obvious that G.S. 62-94(b)(4), whether the order is affected by errors of law, governs our review. Having determined the specific statutory scope of our review, we turn to the merits of the controversy and apply the record and contentions to the stated criterion for review.

III.

In their protest filed with the Commission on 17 April 1978, protestants alleged essentially that the dedicated service rate constitutes "an unreasonable preference or advantage in violation of N.C.G.S. 62-140 and the publication of said dedicated service rates is in violation of the proscription contained in N.C.G.S. 62-140 ...." The Court of Appeals held that "the entire dedicated rate provision is discriminatory and preferential in violation of G.S. 62-140 ...." The primary question before us, therefore, is whether upon a review of the entire record the dedicated rate scheme violates the provisions of G.S. 62-140. That statute provides in pertinent part as follows:

(a) No public utility shall, as to rates or services, make or grant any unreasonable preference or advantage to any person or subject any person to any unreasonable prejudice or disadvantage. No public utility shall establish or maintain any unreasonable difference as to rates or services either as between localities or as between classes of service.

G.S. § 62-140 (Cum.Supp.1979) (emphases added).

This statute has led to establishing in this jurisdiction the laudable rule of law that there must be no unreasonable discrimination by public utilities between those receiving the same kind and degree of service. See State ex rel. Utilities Comm. v. Mead Corp., 238 N.C. 451, 78 S.E.2d 290 (1953). In establishing rates, the statute plainly prohibits (1) unreasonable preferences, (2) unreasonable advantages, (3) unreasonable prejudices, (4) unreasonable disadvantages and (5) unreasonable differences. G.S. § 62-140. Neither the statute nor the case law, however, prohibits any preferences, advantages, prejudices, disadvantages, differences or discrimination in setting rates. The long-established question of law with respect to rate differentials is not whether the differential is merely discriminatory or preferential; the question is whether the differential is an unreasonable or unjust discrimination. Id. This interpretation is not inconsistent with the "[additional declaration of policy for motor carriers" provided in G.S. 62-259^[2] and quoted in the Court of Appeals' opinion. The emphasis of that statute is on "unfair" and "undue" preferences, advantages and competitive practices.

This Court has previously interpreted the meaning of "unreasonable," as used in G.S. § 62-140, in State ex rel. Utilities Comm. v. Teer Co., 266 N.C. 366, 146 S.E.2d 511 (1966). In Teer the Court upheld a Commission order which concluded that a rate differential on two rail lines of approximately equal distance with the same destination was not ureasonable. The reason for the rate differential was the difference in number and cost of the switching movements required for each line. Justice Lake, writing for the Court, concluded that "a substantial difference between the costs of rendering the two services justifies some difference in the rates, nothing else appearing." Id. at 376, 146 S.E.2d at 518. The Teer Court reiterated its approval of statements made by courts in other jurisdictions that, "[t]he charging of different rates for service rendered under varying conditions and circumstances is not unlawful," Brown v. Pennsylvania Public Utility Comm., 152 Pa.Super. 58, 61, 31 A.2d 435, 437 (1943), and that "[a]ny matter which presents a substantial difference as a ground for distinction between customers, such as quantity used, time of use, or manner of service, is a material ... factor," Ford v. Rio Grande Valley Gas Co., 141 Tex. 525, 527, 174 S.W.2d 479, 480 (1943).

Likewise, Justice Higgins, writing for the Court in State ex rel. Utilities Comm. v. North Carolina Motor Carriers Ass'n, stated:

[R]ate-making involves more than mileage.... There are factors involved in rate-making which justify lower per-mile rates from some points than from others.... The law does not contemplate that all rates shall be equal for like distances. Room is left for a rate structure which takes all factors of rate-making into account. [The statute] makes unlawful a rate that creates an unjust discrimination or undue or unreasonable advantage.

253 N.C. 432, 440, 117 S.E.2d 271, 276 (1960) (emphases in original).

From the foregoing and other sources has emerged the principal of law in this jurisdiction that "[t]here must be substantial differences in service or conditions to justify difference in rates." State ex rel. Utilities Comm. v. Mead Corp., 238 N.C. at 462, 78 S.E.2d at 298; accord, State ex rel. Utilities Comm. v. Municipal Corps., 243 N.C. 193, 203, 90 S.E.2d 519, 527 (1955).

From the authorities noted above we are able to list several factors previously approved by this Court which constitute "substantial differences in service or conditions" and, therefore, justify a rate differential: (1) quantity of use, (2) time of use, (3) manner of service, and (4) costs of rendering the two services.

Applying the foregoing to the record before us, we find substantial and competent evidence of each of the factors listed above to support a finding of "substantial differences in service or conditions" of transportation services rendered to shippers under the dedicated rate vis-a-vis the services rendered shippers under the general rate. There was substantial evidence that: (1) the cost per shipment for carriers on dedicated traffic was 15.5% lower than cost per shipment on nondedicated traffic, (2) the manner of service is different in that fewer tractor-trailers and drivers are required to serve dedicated traffic than nondedicated traffic, (3) the quantity of use for dedicated traffic is obviously greater than for nondedicated traffic in light of the 100 hour per week minimum usage requirement, and (4) the time of use of dedicated traffic is different in that practically full-time loading and unloading facilities must be available to carriers under the dedicated rate while nondedicated rate users normally make available such facilities only during the normal 40 to 50 hour work week.

The record also discloses a "substantial difference in ... conditions." Testimony established that a driver of dedicated equipment became more familiar with loading and unloading requirements of a customer and this familiarity is beneficial from the standpoint of safety, thus reducing the frequency and costs of accidents.

We do not attempt here to itemize every difference between dedicated and nondedicated service. It is unnecessary for us to reach the argument presented with respect to whether competition is a factor which would justify a rate differential. The evidence is more than abundant to justify the finding of a "substantial difference in services and conditions" from the factors discussed above.

Protestants place heavy reliance on two decisions of this Court: Lumber Company v. Railroad, 136 N.C. 479, 53 S.E. 823 (1904), and State ex rel. Utilities Comm. v. Railway, 256 N.C. 359, 124 S.E.2d 510 (1962). This reliance is misplaced. Not only are these cases clearly distinguishable from that before us, neither endorses any rule contrary to that reaffirmed here. Both of these cases stand for the proposition that unlawful discrimination exists only when a rate differential or other preference is applied to those operating under substantially similar circumstances and conditions. Such is not the situation disclosed by the record before us.

The burden of proving that the dedicated service rate is discriminatory and preferential lies here with protestants, the complaining parties. G.S. § 62-75 (1975); accord, State ex rel. Utilities Comm. v. Edmisten, 291 N.C. 424, 230 S.E.2d 647 (1976). We are also governed by the statutory provisions that: (1) rates established by the Commission shall be deemed just and reasonable, G.S. § 62-132 (1975); (2) the rates or other actions of the Commission shall, on appeal, be "prima facie just and reasonable," G.S. § 62-94(e); and (3) this Court, on appeal, must give due account to the rule of prejudicial error, G.S. § 62-94(c).

Applying the appropriate criterion for judicial review here as discussed in Section II of our opinion, we find that no "substantial rights" of protestants "have been prejudiced," that no prejudicial error was committed in the proceedings before the Commission, and that the Court of Appeals erroneously held as a matter of law that the dedicated rate provision is discriminatory and preferential in violation of G.S. 62-140 and other statutes. We hold that there were no errors of law in the proceedings before the Commission and its order as contemplated by G.S. 62-94(b)(4).

IV.

Appellees next contend that use of the dedicated rate structure circumvents statutory restrictions by allowing a common carrier to convert itself, in effect, into a contract carrier and then charge a lower rate than common carriers charge.

In presenting this argument, protestants point to the testimony of the Kenan witness who explained the dedicated rate operation. According to his testimony, once a petroleum transport is assigned to dedicated service, it becomes unavailable for use by other shippers during its twenty or more weeks of operation under the dedicated rate plan. For example, if a dedicated service transport is returning empty after making a delivery, it cannot be used for another shipper; neither can it be used for another shipper if sitting idly. This raises the possibility that a dedicated carrier would have to refuse service to a shipper at a time it may actually have equipment available. Protestants argue that this, for all practical purposes, converts a common carrier to a contract carrier.

The crucial question therefore is whether a common carrier which commits a part of its equipment to dedicated use should be regarded as a matter of law as a contract carrier. Our statutes and case law impel a negative answer.

G.S. 62-3(7) defines a common carrier as one "which holds itself out to the general public" to engage in transportation services. G.S. 62-3(8) refers to a contract carrier as one "which, under an individual contract or agreement" engages in transportation services "other than the transportation referred to in subdivision (7) of this section."

From these statutes, it is clear that the crucial test to determine whether one is a common carrier is whether he holds himself out as such. This Court so held in Jackson v. Stancil, 253 N.C. 291, 116 S.E.2d 817 (1960) where it was said, "The crucial test as to `whether one is a common carrier is whether he holds himself out as such, either expressly or by a course of conduct, that he will carry for hire on a uniform tariff all persons applying ... so long as he has room.'" Id. at 302, 116 S.E.2d at 825 (citations omitted); accord, Cantlay & Tangola, Inc. v. Senner, 92 Ariz. 63, 373 P.2d 370 (1962).

It is true, as protestants argue, that any service rendered by a common carrier to a shipper under the dedicated rate arrangement is the result of a contract between the carrier and the shipper. There is absolutely nothing in the record before us, however, to indicate that such contracts preclude a common carrier from rendering service to the public generally or interfere with the carrier's holding itself out to serve the public. To the contrary, the record discloses that the common carriers participating in the dedicated rate arrangement are holding themselves out to and do indeed provide transportation services to other petroleum shippers. Additionally, while contract carriers must establish a minimum rate, they are not required to charge all shippers the same rate, Explanation of the North Carolina Truck Act of 1947, N.C. Utilities Comm. General Order No. 4066-A, 8 (June 1, 1948). Common carriers, on the other hand, must charge a uniform tariff for their services. While the dedicated rate is less than the regular rate and results in lower charges for larger shippers, the dedicated rate is equally available, and on the same terms, to all. We find nothing inconsistent between the dedicated rate structure and the duty of common carriers to hold themselves out to the general public and provide service impartially to all persons requesting service. We hold that the Commission did not commit an error of law as contemplated by G.S. 62-94(b)(4) in adhering to the same view.

V.

We note finally that we are not insensitive to the plight of protestants. The resulting inequity to protestants from the dedicated rate structure is, however, as Judge Vaughn correctly notes in his dissent, that the major oil companies in some cases base the freight or shipping allowance given to the oil jobber on the dedicated rate rather than the regular tariff. Any loss suffered by the oil jobbers due to their inability to use the dedicated service results from the petroleum pricing arrangement between them and the major oil companies and not from any unlawful rate structure approved by the Utilities Commission.

For the reasons stated above, the decision of the Court of Appeals is reversed and this cause is remanded to that court with directions to reinstate the order of the Utilities Commission, dated 11 April 1979, in Docket No. T-825, Sub 226, establishing paragraphs (a) through (f) of Item 8005-A in Local Motor Freight Tariff No. 5-0.

Reversed and remanded.

BROCK, J., did not participate.

NOTES

[1] For a similar analysis of the judicial review section of the North Carolina Administrative Procedure Act, G.S. Chapter 150A, see Daye, supra, 53 N.C.L.Rev. at 911-12. We acknowledge that the legislative intent that court reversal of administrative agency action be substantially circumscribed is more clearly stated in G.S. 150A-51 than in G.S. 62-94. In spite of the slight variation in wording of the two statutes, however, we think the intent of our Legislature in providing for judicial review of orders of the Utilities Commission and other state agencies covered by the Administrative Procedure Act to be essentially the same. We also stress again the importance of uniformity in judicial review of administrative decisions. See Commissioner of Insurance v. Rate Bureau, 300 N.C. 381, 395, 269 S.E.2d 547, 559 (1980).

[2] That statute provides:

In addition to the declaration of policy set forth in G.S. 62-2 of Article 1 of Chapter 62, it is declared the policy of the State of North Carolina to preserve and continue all motor carrier transportation services now afforded this State; and to provide fair and impartial regulations of motor carriers in the use of the public highways in such a manner as to promote, in the interest of the public, the inherent advantages of highway transportation; to promote and preserve adequate economical and efficient service to all the communities of the State by motor carriers; to encourage and promote harmony among all carriers and to prevent discrimination, undue preferences or advantages, or unfair or destructive competitive practices between all carriers; to foster a coordinated statewide motor carrier service; and to conform with the national transportation policy and the federal motor carriers acts insofar as the same may be practical and adequate for application to intrastate commerce.

G.S. § 62-259 (1975) (emphasis added).