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July 25, 1980

LIFE SAVERS, INC., Defendant.

The opinion of the court was delivered by: BIUNNO


Metro, a "shipper's agent", sues Life Savers for the unpaid balance of invoices submitted by Metro to Sentinel Shippers, Inc., a non-profit California corporation formed in 1976 to serve its members in consolidating or distributing freight for them (and not for others) in order to secure the benefits of carload, truckload or other volume rates from common carriers.

 Acting in that capacity, Sentinel was exempted from I.C.C. regulation under those provisions of the statute and regulations applicable to "freight forwarders" who hold themselves out to the general public. This was by virtue of 49 U.S.C. § 1002(c)(1), now revised as 49 U.S.C. § 10562(3).

 The fact that freight shipped by the carload, truckload, or in volume is less costly per unit of goods shipped, under traditional common carrier published tariffs is well-known and needs no elaboration here. See Columbia Shippers, supra, at p. 312, footnote 2 for a common example.

 Life Savers was not a charter member of Sentinel. It became interested in possible membership during the gasoline shortage of 1979, combined with a strike of owner-operators of tractor/trailers, as testified to by Mr. McDuffee in his deposition. Presumably, it had theretofore handled its freight through the services of such owner-operators. In conversation with a manufacturer of confectionary products faced with similar shipping problems, Mr. McDuffee learned of the existence of Sentinel, which was recommended. He spoke to a Sentinel representative by phone, discussed origin and destination points, rates and the like, and was sent some materials. These were Deposition Exhibits 8 and 9, being a letter of March 22, 1979 with the names of four suggested draymen (to handle shipments to and from railheads at various locations), a list of members of Sentinel (including such shippers of freight as Fleischmans Distilling, Heublein Corp., Kaiser Aluminum & Chemical, Nestle's Corp., Pacific Electric, Skil Corp., Standard Brands, F. W. Woolworth and J. M. Schmucker's), an opinion letter (dated May 18, 1977) from general counsel for Sentinel outlining material to answer questions most often asked by shipper-members and their house counsel, a note that the $ 50. application fee was waived, a copy of the certificate of incorporation of Sentinel, and a form of application for membership.

 Mr. McDuffee filled out the application (Exh. 9), attached a sheet of approximate monthly tonnage from three points of origin to two points of destination, and sent it in. Rates quoted by Sentinel are Exhibit 14, these being Mailgrams dated 3/20/79 and 5/20/79.

 Some shipments were sent through Sentinel on a tryout basis. These were evidently handled to Life Savers' satisfaction, and the use of Sentinel's services was increased.

 At first, Sentinel was paid by check on receipt of invoices. Later, because Life Savers' general volume of checks (not only for Sentinel) is high, Sentinel was placed on a sight draft basis, being supplied with drafts for presentation with specified supporting documentation attached. See Exh. 12.

 Under date of October 30, 1979 (Exhibit 10), Sentinel wrote Life Savers in connection with the annual meeting of members set for November 14, 1979, enclosing a ballot to vote for directors, a copy of the by-laws, and an invitation to attend the annual meeting and dinner, at which the annual report for 1978-1979 would be given. The ballot was not returned, and no arrangements were made to have someone attend the meeting on behalf of Life Savers.

 Sentinel engaged the services of Metro, a shipper's agent also exempt from regulation (49 U.S.C. § 1002(c)(2), now revised as 49 U.S.C. § 10562(4)). In this capacity, Metro paid Conrail (New York to Chicago) or Atcheson, Topeka & Santa Fe (Chicago to West Coast) as rail carriers, as well as draymen moving trailers between the Conrail and ATSF yards in the Chicago terminal area, and billed Sentinel.

 As required by 49 C.F.R. § 1320.1, the name of Life Savers was provided by Sentinel as the beneficial owner of all goods shipped by Life Savers through Sentinel.

 In effect, then, Sentinel had an open account with Metro on which it received bills and invoices. The documentation affecting the Life Saver shipments with which this case is concerned is presented in three bulky volumes of exhibits, verified by the motion affidavits of Whiteside and Saviello on behalf of Metro.

 This documentation is not in dispute. Life Savers does present after-the-fact analyses of amounts, through the affidavit of McDuffee and also in his deposition, suggesting that Sentinel's aggregate charges to Life Savers amounted to more than Metro's billings to Sentinel, and that Metro's billings to Sentinel (one instance is selected) were for more than it paid to others (rail carriers, draymen) plus the consolidation charge of $ 50. per trailer.

 These materials, however, do not amount to raising a genuine issue of a material fact on the amount claimed. Neither Sentinel nor Metro could possibly function, even on a break-even basis, unless revenues were enough to cover direct out-of-pocket expense plus overhead for operation and fixed costs. Since both Sentinel and Metro were exempt from regulation, they were free to make charges without being limited to filed tariffs of their own. McDuffee's testimony at deposition, despite the criticism in his affidavit, is that Life Savers' coast-to-coast shipment expense through this arrangement was some $ 200. per trailer less than it would otherwise have been.

 Thus, the issue on Metro's motion for summary judgment is not the amounts of the unpaid billings, but the issue of Life Savers' obligation to pay Metro.

 In this respect, there is no genuine issue of material fact, and Metro has shown its entitlement to payment as a matter of law.

 As a shippers' association, Sentinel could act only as the agent of such members as used its services for freight shipments in order to gain the advantage of consolidation and pooling of freight at volume rates.

 Thus, Sentinel could not act on its own account. It could act solely and exclusively as agent for its members who were the principals on each of their shipments, a fact underscored by the I.C.C. required designation of the beneficial owner of the goods. There is no issue raised here that the charges on a given shipment were due to freight of some member other than Life Savers. The claim made is for billings to Sentinel on account of Life Savers' shipments only.

 For purposes of the motion, Life Savers' assertion that it paid Sentinel by check, as billed, at the start of the relationship, and by sight draft with documentation attached later on, is taken as a fact not in dispute. By one of these methods or the other, Life Savers says it paid Sentinel all but $ 41,513. of what it was billed, this deficit in payments being due to learning that Sentinel had made an assignment for the benefit of creditors, and that Metro had not been paid for charges on shipments in transit.

 As presented, the legal issue is whether it is sufficient for Metro to show, as it has shown without contradiction, that Sentinel was formed, organized and held itself out to be a non-profit shippers' association coming within the exemption of 49 U.S.C. § 10562(3), that Life Savers' became a member of Sentinel, that the shipments involved were shipments by Life Savers made by it through Sentinel, and that Metro has not been paid for the charges billed to Sentinel on account of these Life Savers shipments.

 Metro's contention is that given this showing, Sentinel's activity for Life Saver shipments was necessarily as agent for Life Savers (in the true principal/agent sense) and not in any other capacity or for its own account, thereby binding Life Savers and obligating it to Metro with the same effect as though Life Savers had dealt directly with Metro.

 Life Savers, on the other hand, contends that as a matter of law Metro may not have any recovery from Life Savers without first establishing, as a matter of fact, that Sentinel acted as Life Savers' agent in the sense mentioned, for each and every shipment in suit.

 It points to decisions such as Freight Forwarders Institute v. U. S., 263 F. Supp. 460 (D.N.Y., 1967) (3-judge court) for the proposition that the question whether an entity like Sentinel is in fact an exempt shippers association acting solely as agent for each member shipping goods through it depends on how the organization was operated, and whether full control of its activities was in the hands of the members.

 Freight Forwarders was a case that began with an investigation started by the I.C.C. to determine, among other things, whether an unincorporated Florida association known as "Piggy-Back Shippers Association of Florida" (Piggy-Back) had been operating as a freight forwarder without a permit. See, e.g., 49 C.F.R. Parts 1150, 1151.

 At the administrative hearing, it appeared that Piggy-Back had been organized in 1962 by one Helin, who conceived the idea of combining highway trailers on railroad flatcars for "piggyback" service, which promised economies only when there were two trailers to ship per flatcar and when the commodities were mixed. Shippers with a single trailer load could not benefit from piggyback service unless they banded together. Helin recruited the initial group of shipper members, drew articles and by-laws, called the organizational meeting, appointed the "elected" board of directors, and obtained a contract to serve as general manager at a commission of 10 cents per hundred pounds of freight handled. Thereafter, he ran the whole show without any effective control by the board (except to approve new members), and by August, 1963 had run Piggy-Back into debt of about $ 20,000.

 The hearing examiner and Division I found these facts and concluded that during the period described, Piggy-Back was not a bona fide shippers association entitled to non-regulated status because Helin, rather than the members, exercised full control over operations.

 In August, 1963 the formerly passive directors became alarmed and took action. Helin was replaced by a general manager on straight salary who could not sign checks alone. Weekly financial reports to the Board and members were required. Complete supervision and control over the manager were exercised by the Board. Modestly successful efforts to pay the association debts were begun. No freight other than that of shipper members was handled. On this state of facts, the examiner and Division I found that Piggy-Back was no longer a "paper creature" of Helin's own conception, or a cloak under which an entrepreneur was acting, and that it had become eligible for the non-regulated status to which it was not entitled during Helin's regime.

 A cease-and-desist order was entered against Helin. Beyond that the full Commission denied reconsideration, discontinued the proceedings against Piggy-Back and allowed it to continue operations.

 This determination was challenged in the 3-judge court suit brought by Freight Forwarders Institute and other plaintiffs. One of the arguments made was that since the early operations under Helin were unlawful, the Commission could not "reward" Piggyback by allowing it to continue. Plaintiffs, in effect, sought a draconian rule that once a shippers association violated the Act, its operations must be stopped. The court declined to so "hamstring" the Commission in exercising its discretion to determine the appropriate remedy for past illegal activity.

 A second point, namely that the Commission had failed to decide whether a non-regulated shippers association could engage in the practice of "co-loading" or "joint loading" a trailer on the same flatcar as a trailer loaded by another non-regulated shipper, resulted in a remand to the I.C.C. for further proceedings. What the outcome in that case was does not appear, but the practice was later upheld as lawful in Columbia Shippers, etc. v. U. S., 301 F. Supp. 310 (D.Del., 1969) (3-judge court).

 Except for one case to be mentioned later, the reports dealing with shippers associations, their characteristics, the legal requirements to be met and satisfied, the relationships between them, their members and third parties, have either been administrative decisions of I.C.C. or decisions of courts called upon to review the I.C.C. rulings.

 In fact, even the classic decision that shippers associations may incorporate, the Atlanta Shippers case, is an I.C.C. decision, 316 I.C.C. 259 (1962) (Division I), reconsidered 322 I.C.C. 273 (1964) (full Commission). It was in the second ruling, on reconsideration, that the Commission decided the non-regulated shipper associations could incorporate, noting that:

"... whether incorporated or not, shippers who are members of a non-regulated association are responsible as the beneficial owners of the goods moved and cannot insulate themselves in that respect from third persons ..."

 as the ruling is analyzed by the Freight Forwarders court, 263 F. Supp. at 465.

 This history of administrative rulings and judicial decisions reviewing them indicate that inquiries into the legal status of shippers associations, to decide whether or not it is entitled to operate free of agency regulation are inquiries for the I.C.C. to conduct, either on the basis of a complaint or on its own initiative, and not for the courts in the first instance. Courts, of course, may be faced with such questions in a civil or criminal penalty proceeding under 49 U.S.C. § 11901, et seq., but inquiries directed to the determination of an association's status de jure, as such, are obviously for the Commission.

 In a case like the present one, where the issue involves a member's own liability to a third party, whose services were engaged by the association, the showing made is sufficient to establish the association's status de facto, and proceed accordingly. Sentinel purported to act as a qualified shippers association and Life Savers was not only admittedly a member but directed to be made through Sentinel and as a member the shipments in suit. The de facto showing of Sentinel's exempt status is sufficient to invoke the principle that a shipper member who is the beneficial owner of the goods shipped through the association cannot insulate itself from responsibility to third parties, such as Metro. This is not a matter of imposing liability on a member for corporate obligations. It is a matter of holding the member responsible for its own shipments of its own freight handled on the member's account and for the member's benefit by the association which can only serve, for that purpose, as the member's ...

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