Whitaker v. Power Brake Supply, Inc.

United States Court of Appeals,

Eleventh Circuit.

No. 94-3081.

In re OLYMPIA HOLDING CORPORATION, et al., Debtors.

Lloyd T. WHITAKER, as Trustee of the Estate of Olympia Holding
Corporation, Plaintiff-Appellant,

v.

POWER BRAKE SUPPLY, INC., a Texas Corporation, Defendant-
Appellee,

United States of America, on behalf of the Interstate Commerce
Commission, Intervenor-Appellee.

Nov. 15, 1995.

Appeal from the United States District Court for the Middle
District of Florida. (No. 91-1077-CIV-J-16), jOHN h. mOORE, ii,
cHIEF jUDGE.

Before HATCHETT and CARNES, Circuit Judges, and OWENS*, Senior
District Judge.

HATCHETT, Circuit Judge:

In this appeal, we affirm the district court's ruling that

Bankruptcy Code sections 363(l ) and 541(c)(1) do not proscribe the

application of the Negotiated Rates Act of 1993 (NRA), partially

codified at 49 U.S.C. § 10701(f), to a bankruptcy trustee's

undercharge claim.

INTRODUCTION

The Motor Carrier Act of 1980 (MCA), Pub.L. No. 96-296, 94

Stat. 793, substantially deregulated the trucking industry. At the

same time, the Interstate Commerce Act, 49 U.S.C. § 10101, et seq.,

mandated that motor carriers file their rates with the Interstate

*
Honorable Wilbur D. Owens, Jr., Senior U.S. District Judge
for the Middle District of Georgia, sitting by designation.
Commerce Commission (ICC), and that carriers and shippers adhere to

those rates. Many carriers, however, responding to the increased

competition the MCA fostered, negotiated and charged rates lower

than those they had filed with the ICC. When some of those

carriers later filed for bankruptcy, their trustees attempted to

recover the "undercharge" amounts—the difference between the filed

rate and the negotiated rate—to benefit the bankruptcy estates.

See generally Maislin Indus. v. Primary Steel, 497 U.S. 116, 110

S.Ct. 2759, 111 L.Ed.2d 94 (1990).

In 1989, the ICC adopted a policy determining that "a carrier

engages in an unreasonable practice when it attempts to collect the

filed rate after the parties have negotiated a lower rate."

Maislin, 497 U.S. at 130, 110 S.Ct. at 2768. In Maislin, however,

the Supreme Court rejected the ICC's policy, finding that it

violated the Interstate Commerce Act. Maislin, 497 U.S. at 133,

110 S.Ct. at 2769. The Court concluded that "[i]f strict adherence

to §§ 10761 and 10762 [of the Interstate Commerce Act] 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." Maislin, 497 U.S. at 135-36, 110 S.Ct.

at 2771.

In response to the Maislin decision, Congress enacted the

Negotiated Rates Act of 1993 (NRA), Pub.L. No. 103-180, 107 Stat.

2044, partially codified at 49 U.S.C. § 10701(f) (1995), which, as

discussed below, provides relief to shippers faced with undercharge

claims. In this case, we address for the first time the

applicability of the NRA to a bankruptcy trustee's undercharge
claim.

BACKGROUND

During the 1980s and 1990, P*I*E Nationwide, Inc. (P*I*E), a

large trucking company, provided motor carrier services at a

negotiated rate for appellee Power Brake Supply, Inc. (Power

Brake). Power Brake paid the negotiated rate as billed. On

October 16, 1990, P*I*E filed for bankruptcy under chapter 11 of

the Bankruptcy Code. Around December 30, 1990, P*I*E ceased

operations. The bankruptcy court later converted the case to a

chapter 7 proceeding and appointed appellant Lloyd Whitaker as

trustee for the estate.1

Since July 1991, Whitaker has instituted approximately 32,000

adversary proceedings in bankruptcy court against P*I*E's former

customers, including Power Brake. As of February 1993, the United

States District Court for the Middle District of Florida had

withdrawn the bankruptcy court references in approximately 250 of

those proceedings. On February 12, 1993, the district court

entered a case management order that implemented a lead case
2
approach to resolving issues common to the withdrawn cases. In

February 1994, the district court selected the instant action to

resolve the issue of the applicability of the NRA to Whitaker's

undercharge claims.

Whitaker's amended complaint asserts an undercharge claim for

1
P*I*E is now known as Olympia Holding Corporation.
2
This case involves an undercharge claim based on a
challenge to negotiated rates. For simplicity, we will refer to
this type of claim as an undercharge claim. Whitaker has also
pursued undercharge claims challenging the coded rates and
contract carriage rates that P*I*E charged its customers.
$3,516.88 against Power Brake. In January 1994, Power Brake moved

to dismiss the complaint pursuant to section 2(a)(9) of the NRA, 49

U.S.C. § 10701(f)(9), which exempts small-business concerns from

undercharge liability. In support of its motion, Power Brake

submitted an affidavit from its chief executive officer stating

that it qualified as a small-business concern under the NRA. In

July 1994, the district court granted Power Brake's motion, and

this appeal followed.

CONTENTIONS
Whitaker contends that sections 363(l ) and 541(c)(1) of the

Bankruptcy Code preclude application of section 2(a) of the NRA to

his undercharge claim. Therefore, he argues that the district

court erred in granting Power Brake's motion.3 In response, Power

Brake argues that the district court properly ruled that sections

363(l ) and 541(c)(1) do not proscribe the application of the NRA

to Whitaker's claim.

3
Whitaker presses two other claims that we reject without
lengthy discussion. Whitaker first argues that the NRA
effectuates a taking of private property without just
compensation in violation of the Fifth Amendment. Though
Whitaker did not raise this argument in the district court, we
exercise our discretion to address this claim. See Dean Witter
Reynolds, Inc. v. Fernandez, 741 F.2d 355, 360-61 (11th
Cir.1984). We conclude that Whitaker's takings challenge lacks
merit. See Jones Truck Lines, Inc. v. Whittier Wood Prod. Co.
(In re Jones Truck Lines, Inc.), 57 F.3d 642, 651 (8th Cir.1995)
(Whittier ) ("[T]he NRA is a valid exercise of congressional
authority to regulate commerce, not an unconstitutional
taking.").

We also find that Whitaker's argument that Power Brake
did not meet its burden of proof lacks merit. Whitaker
contends that the district court improperly precluded him
from conducting discovery on this issue. This contention is
not sustainable. The record supports the district court's
holding that the general stay of discovery governing this
action was lifted in September 1993.
 ISSUE

The issue we address in this case is whether the district

court erred in holding that the small-business exemption of the NRA

applies to insulate Power Brake from Whitaker's undercharge claim.

DISCUSSION

The district court fashioned its order as a dismissal of

Whitaker's amended complaint. In rendering its decision, however,

the district court considered an affidavit furnished in support of

Power Brake's motion to dismiss. Therefore, we treat the district

court's ruling as one granting summary judgment for Power Brake.

See Fed.R.Civ.P. 12(b). "We review the district court's ruling on

a motion for summary judgment de novo and apply the same standards

as those controlling the district court." Adams v. Poag, 61 F.3d

1537, 1542 (11th Cir.1995).

Whitaker asserts that the district court erred in holding that

the small-business exemption of section 2(a)(9) of the NRA, 49

U.S.C. § 10701(f)(9), applies to his undercharge claim against

Power Brake.4 Whitaker argues that sections 363( ) and 541(c)(1)
l

of the Bankruptcy Code (the Code) preclude the application of the

exemption to his claim.

Section 2(a)(1) of the NRA, 49 U.S.C. § 10701(f)(1), provides

in pertinent part:

(1) In general.—When a claim is made by a motor carrier of
property ..., by a freight forwarder ..., or by a party
representing such a carrier or freight forwarder regarding the
collection of rates or charges for such transportation in
addition to those originally billed and collected by the
carrier or freight forwarder for such transportation, the

4
Section 2(a) of the NRA adds subsection (f) to 49 U.S.C. §
10701.
 person against whom the claim is made may elect to satisfy the
claim under the provisions of paragraph (2), (3), or (4) of
this subsection, upon showing that—

(A) the carrier or freight forwarder is no longer
transporting property or is transporting property for the
purpose of avoiding the application of this subsection;
and

(B) with respect to the claim—

(i) the person was offered a transportation rate by
the carrier or freight forwarder other than that
legally on file with the Commission for the
transportation service;

(ii) the person tendered freight to the carrier or
freight forwarder in reasonable reliance upon the
offered transportation rate;

(iii) the carrier or freight forwarder did not
properly or timely file with the Commission a
tariff providing for such transportation rate or
failed to enter into an agreement for contract
carriage;

(iv) such transportation rate was billed and
collected by the carrier or freight forwarder; and

(v) the carrier or freight forwarder demands
additional payment of a higher rate filed in a
tariff.

49 U.S.C. § 10701(f)(1) (1995) (emphasis added).5 Section 2(e)(1)

of the NRA states:

(1) General rule.—For purposes of section 10701 of title 49,
United States Code, it shall be an unreasonable practice for
a motor carrier of property ... providing transportation

5
Paragraph (2), NRA section 2(a)(2), enables shippers to
settle undercharge claims relating to shipments weighing 10,000
pounds or less "by payment of 20 percent of the difference
between the carrier's applicable and effective tariff rate and
the rate originally billed and paid." 49 U.S.C. § 10701(f)(2)
(1995). Paragraph (3), NRA section 2(a)(3), allows shippers to
pay 15 percent of the undercharge amount to satisfy claims
involving shipments of more than 10,000 pounds. 49 U.S.C. §
10701(f)(3) (1995). Paragraph (4), NRA section 2(a)(4), permits
shippers to pay 5 percent of the undercharge amount to settle
claims involving public warehousemen. 49 U.S.C. § 10701(f)(4)
(1995).
 subject to the jurisdiction of the Commission ..., a freight
forwarder ..., or a party representing such a carrier or
freight forwarder to attempt to charge or to charge for a
transportation service provided before September 30, 1990, the
difference between the applicable rate that is lawfully in
effect pursuant to a tariff that is filed ... by the carrier
or freight forwarder applicable to such transportation service
and the negotiated rate for such transportation service if the
carrier or freight forwarder is no longer transporting
property ... or is transporting property ... for the purpose
of avoiding the application of this subsection.

49 U.S.C. § 10701 note (1995) (emphasis added).

Section 363(l ) of the Code renders unenforceable laws that

operate to limit a trustee's right to use, sell, or lease estate

property because of the debtor's insolvency or financial condition.

Section 363(l ) reads:

(l ) Subject to the provisions of section 365, the trustee may
use, sell, or lease property under subsection (b) or (c) of
this section ... notwithstanding any provision in a contract,
a lease, or applicable law that is conditioned on the
insolvency or financial condition of the debtor ... and that
effects, or gives an option to effect, a forfeiture,
modification, or termination of the debtor's interest in such
property.

11 U.S.C. § 363(l ) (1993). Section 541(c)(1) of the Code protects

against the enforcement of laws that would prevent a debtor's

property from becoming a part of its estate due to the debtor's

insolvency or financial condition:

(c)(1) Except as provided in paragraph (2) of this subsection,
an interest of the debtor in property becomes property of the
estate ... notwithstanding any provision in an agreement,
transfer instrument, or applicable nonbankruptcy law—

(A) that restricts or conditions transfer of such
interest by the debtor; or

(B) that is conditioned on the insolvency or financial
condition of the debtor ... and that effects or gives an
option to effect a forfeiture, modification, or
termination of the debtor's interest in property.

11 U.S.C. § 541(c)(1) (1993).
 Whitaker contends that section 2 of the NRA applies only to

carriers "no longer transporting property," and thus constitutes

(1) applicable law, (2) "that is conditioned on the insolvency or

financial condition of the debtor," and (3) effects a forfeiture,

modification, or termination of the debtor's interest in property,

i.e., the undercharge claims. Accordingly, he argues that the NRA

violates sections 363(l ) and 541(c)(1) of the Code.6

Whitaker's argument fails for two reasons. First, the

application of sections 2(a)(1) and 2(e)(1) of the NRA is

contingent on a carrier's operational status, not financial

condition. As the Ninth Circuit has held:

The term "financial condition" represents a concept that is
somewhat broader than operational status. In some cases,
especially when a business has no potential source of
significant revenues other than from its operations, a
business's operational condition and financial condition might
be considered one and the same. However, because of the
unusual nature of the motor freight industry ..., a motor
common carrier's solvency or financial condition was not
necessarily dependent upon the continuation of operations.
There are many former motor common carriers of freight ...
that have remained solvent and financially healthy not by
continuing their operations, but by turning to the lucrative
business of suing their former customers.

Gumport v. Sterling Press (In re Transcon Lines), 58 F.3d 1432,

1440 (9th Cir.1995). Moreover, in rejecting a claim identical to

6
In further support of his argument, Whitaker cites section
9 of the NRA, which reads:

Nothing in this Act (including any amendment made by
this Act) shall be construed as limiting or otherwise
affecting application of title 11, United States Code,
relating to bankruptcy; title 28, United States Code,
relating to the jurisdiction of the courts of the
United States (including bankruptcy courts); or the
Employee Retirement Income Security Act of 1974.

49 U.S.C. § 10701 note (1995).
Whitaker's, the Eighth Circuit has stated:

There is no reason to question the plain meaning of the
language used by Congress, however. The distinction between
operating and nonoperating carriers is a sensible one that
furthers the NRA's purpose. Carriers which are still
operating, whether bankrupt or not, have an incentive to
maintain good relations with their customers and are less
likely to file undercharge claims. Regardless of their
financial condition, nonoperating carriers have no such
incentive and seem much more likely to pursue undercharge
claims.

Whittier, 57 F.3d at 649. We agree with the reasoning of the Ninth

and Eighth Circuits and hold that section 2 of the NRA is not

conditioned on a carrier's insolvency or financial condition.7

Whitaker's claim also fails because the small-business

exemption to the NRA applies to all carriers, not just those no

longer transporting property. Under section 2(a)(1), a party

attempting to settle an undercharge claim pursuant to sections

2(a)(2), (3), or (4) must show that the carrier "is no longer

transporting property." The small-business exemption, however,

requires no such showing from a party invoking its protection. The

exemption, NRA section 2(a)(9), reads:

(9) Claims involving small-business concerns, charitable
organizations, and recyclable materials.—Notwithstanding
paragraphs (2), (3), and (4), a person from whom the
additional legally applicable and effective tariff rate or
charges are sought shall not be liable for the difference
between the carrier's applicable and effective tariff rate and
the rate originally billed and paid—

(A) if such person qualifies as a small-business concern
under the Small Business Act (15 U.S.C. 631 et seq.)....

49 U.S.C. § 10701(f)(9) (1995). We assume that had Congress

intended to require a party invoking section 2(a)(9) to show that

7
We note that the Fourth Circuit has reached the same
conclusion. See Cooper v. B & L, Inc. (In re Bulldog Trucking,
Inc.), 66 F.3d 1390, 1397-98 (4th Cir.1995) (Cooper ).
the undercharge claimant was "no longer transporting property," it

would have included that language within the exemption or included

section 2(a)(9) with sections 2(a)(2), (3), and (4) under section

2(a)(1). Indeed, Congress referenced sections 2(a)(2), (3), (4),

and (9) together under section 2(a)(7).8 Consequently, we conclude

that the small-business exemption to the NRA applies to all

carriers, not just those no longer transporting property. See

Cooper, 66 F.3d at 1396 ("[T]he requirements of 49 U.S.C. §

10701(f)(1)(A) do not apply to shippers seeking to defeat claims

under paragraph 9."); In re Lifschultz Fast Freight Corp., 63 F.3d

621, 631 (7th Cir.1995) ("[T]he conditions set forth in 49 U.S.C.

§ 10701(f)(1)(A) need not be satisfied in order for a shipper to

enjoy the immunity from undercharge claims provided by §

10701(f)(9)."); Whittier, 57 F.3d at 648 ("[A] shipper need not

prove that a carrier is no longer transporting property before

taking advantage of the exemption."). Therefore, the

small-business exemption is not contingent on a carrier's

insolvency or financial condition.

In sum, section 2 of the NRA does not violate sections 363(l

) and 541(c)(1)(B) of the Code, and thus the district court

properly held that section 2(a)(9) of the NRA insulates Power Brake

from Whitaker's undercharge claim.

CONCLUSION

8
Section 2(a)(7) provides: "Limitation on statutory
construction.—Except as authorized in paragraphs (2), (3), (4),
and (9) of this subsection, nothing in this subsection shall
relieve a motor common carrier of the duty to file and adhere to
its rates, rules, and classification as required in sections
10761 and 10762 of this title." 49 U.S.C. § 10701(f)(7) (1995).
 For the foregoing reasons, we affirm the judgment of the

district court.

AFFIRMED.