#2198 signed 2-16-96
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
AMERICAN FREIGHT SYSTEM, INC., et al., DEBTORS.
PROCEDURAL ORDER FOR THE ADVERSARY PROCEEDINGS
COMMENCED BY AMERICAN FREIGHT SYSTEM AND RELATED DEBTORS
WHICH, FOLLOWING PASSAGE OF THE NEGOTIATED RATES ACT OF 1993,
INVOLVE THE NEWLY-CREATED SMALL-BUSINESS DEFENSE
TO FREIGHT UNDERCHARGES
This matter is before the Court sua sponte. Before filing for bankruptcy in 1988, American Freight System, Inc., and certain related companies were in the business of transporting freight by truck. They stopped doing business when they filed for bankruptcy. Some time ago, the Court ordered their cases substantively consolidated, and will therefore refer to all the debtors simply as AFS.
When AFS filed for bankruptcy, it had outstanding accounts receivable. After it filed, it had its records audited and determined that it had additional potential accounts receivable, due in part to alleged freight undercharges. Postpetition, AFS filed over one thousand adversary proceedings in which it sought to collect on the accounts receivable and freight undercharges. Many of the suits are still pending. The Court believes at least a few of the pending adversary proceedings do not involve freight undercharges.
Late in 1993, Congress passed and the President signed into law the Negotiated Rates Act of 1993 (NRA). P.L. No. 103-180, 1993 U.S.C.C.A.N. (107 Stat.) 2044 to 2053 (codified at 49 U.S.C.A. §10701(f), in a note to §10701, and at scattered sections of title 49). Among other things, the NRA created a new defense which exempts "small-business concerns," certain charitable organizations, and shippers of "recyclable materials" from certain freight undercharge claims. 49 U.S.C.A. §10701(f)(9). So far, only the small-business concern portion of the defense has been raised by any of the defendants in AFS's adversary proceedings. Last year, this Court decided that, in addition to establishing its status as a small-business concern, a defendant asserting the defense must also make the showings required under §10701(f)(1)(A) and (B), namely that: (A) AFS is no longer transporting property, and (B) AFS offered it a shipping rate not on file with the ICC, it tendered freight in reliance on the offered rate, AFS did not properly file the offered rate, AFS billed it for the offered rate and it paid that rate, and AFS is now demanding it pay some higher rate that was on file. American Freight System v. Valiant Products (In re American Freight System), 185 B.R. 345 (Bankr.D.Kan. 1995); see also American Freight System v. Sagaz Industries (In re American Freight System), ___ B.R. ___, 1996 WL 29084 (Bankr.D.Kan. Jan. 17, 1996) (Robinson, J.) (reaching same conclusion); Primary Steel v. Maislin Industries, U.S., Interstate Commerce Commission Decision, Motor Carrier, No. MC-C-10961, 1993 WL 522910, slip op. at 4 (Dec. 15, 1993) ("[T]he section 10701(f)(9) 'no liability' rule presumably applies only in the negotiated rates context described in section 10701(f)(1)."). Judge Robinson has already determined under 49 U.S.C.A. §10701(f)(1)(A) that AFS is no longer transporting property. American Freight System v. ICC (In re American Freight System), 174 B.R. 604 (Bankr.D.Kan. 1994) (Robinson, J.); see also American Freight System v. ICC (In re American Freight System), 179 B.R. 952 (Bankr. D. Kan. 1995) (the NRA does apply to AFS and is constitutional). The Court will apply that ruling to all the AFS adversary proceedings. Consequently, two potential factual questions about the small-business defense remain open.
However, the NRA appears to have divided adjudicative responsibility for these questions. It expressly provided that any disputes about whether a carrier's claims come within §10701(f)(1)(B) were to be resolved by the ICC,(1) 49 U.S.C.A. §10701(f)(1), but did not specify how disputes about a shipper's alleged status as a small-business concern are to be resolved. Shortly after the NRA was enacted, the ICC indicated it assumed that question would be determined by the court where the claim was pending or by the administrative agency charged with administering the Small Business Act. Primary Steel v. Maislin Industries, 1993 WL 522910, slip op. at 4. The Court has reviewed the size regulations adopted by the Small Business Administration pursuant to the Small Business Act, see 13 C.F.R. §121.101 to 121.601 (1995), and concludes no administrative determination should be required. Unless some party makes a request accompanied by a persuasive argument for referring the question to the SBA, the Court will itself resolve disputes about a defendant's status as a small-business concern.
Many of the defendants in the pending AFS adversary proceedings have already raised the small-business defense. As indicated, none have claimed the defense for charitable organizations or shipments of recyclable goods. So far as the Court is aware, AFS has contested both the defendant's status as a small-business concern and the assertion the charges it seeks to recover arose as a result of unfiled negotiated shipping rates. The Court believes it is now necessary to enter this order to establish a standard procedure for dealing with the small-business defense in all the AFS adversary proceedings. The Court is aware the defense is probably not relevant to all of them, but is not willing to commit the resources that would be required to review them to see which ones it might apply to. To avoid that difficulty, the original of this order will be filed in the main AFS bankruptcy case and a copy will be filed in each adversary proceeding. A copy will also be sent to counsel of record in all the adversary proceedings. Counsel will need to determine for themselves whether this order affects their particular proceeding.
The following procedure is hereby adopted for the raising and resolution of the small-business
defense created by the NRA:
1. a. Any defendant which has not already raised the defense must file a pleading doing so within thirty days of the entry of this order. The pleading should be in the form of a properly supported summary judgment motion, indicating not only why the defendant qualifies as a small-business concern but what evidence the defendant relies on to establish that the charges sought satisfy the requirements of §10701(f)(1)(B). The defendant must also specify which of the charges sought satisfy those requirements. Any defendant subject to this requirement which fails to file such a pleading will be deemed to have waived the defense.
b. A defendant which has already filed a summary judgment motion based solely on its alleged status as a small-business concern must supplement its motion to indicate what evidence it relies on to establish that the charges sought satisfy the requirements of §10701(f)(1)(B) and specify which of the charges sought satisfy those requirements. This paragraph shall also apply to the few cases in which the Court has already denied the defendant's summary judgment motion based on the defense. This includes at least the cases against Valiant Products, Adv. No. 90-7289, Luetzow Industries, Adv. No. 90-7351, Berkshire Electric Cable, Adv. No. 90-7308, and Sagaz Industries, Adv. No. 90-7393.
2. a. AFS will have the usual twenty days, as provided by District of Kansas Rule 7.1(b), to respond to any motions or supplements filed pursuant to paragraphs 1(a) and (b). If AFS responds that it has insufficient information to controvert or concede the defendant's asserted status as a small-business concern, AFS will have thirty days to do discovery to gain the information necessary to controvert the assertion. AFS will have ten more days after that discovery period ends to amend its response to indicate whether it in fact controverts the assertion. In those cases where the Court has previously set a deadline for such discovery, AFS will remain bound by the deadline set for the specific case.
b. In cases where the defendant has already filed a summary judgment motion like the one described in paragraph 1(a), AFS has responded that it has insufficient information to controvert or concede the defendant's alleged status as a small-business concern, and the Court has not yet ruled on the motion, AFS will have thirty days from the entry of this order to do discovery to gain the information necessary to controvert the allegation. AFS will have ten more days after that discovery period ends to amend its response to indicate whether it in fact controverts the allegation.
3. For each adversary proceeding, the Court will review the pleadings filed pursuant to paragraphs 1 and 2, and enter an order either resolving the question of the defendant's small-business status or scheduling any further hearings that may be necessary to do so.
a. In any case in which the defendant is determined to be a qualified small-business and AFS concedes that some or all of the charges it seeks to recover satisfy the requirements of §10701(f)(1)(B), judgment will be entered for the defendant on those charges.
b. In any case in which the defendant is determined to be a qualified small-business and AFS disputes that some or all of the charges it seeks to recover satisfy the requirements of §10701(f)(1)(B), the Court will refer the case to the ICC's successor to resolve the dispute under §10701(f)(1)(B). The Court's referral orders will direct the defendant to commence an appropriate action before the administrative agency within a specified time and authorize the parties to ask the agency to resolve any other issues within its primary jurisdiction at the same time, if appropriate.
c. In any case in which the defendant has raised the defense but is determined not to be a qualified
small-business, the Court will enter an order rejecting the defense and scheduling further hearings
The deadlines set in this order will be extended only for good cause.
IT IS SO ORDERED.
Dated at Topeka, Kansas, this _____ day of February, 1996.
JAMES A. PUSATERI
CHIEF BANKRUPTCY JUDGE
1.Congress recently abolished the ICC, and transferred its responsibilities under the NRA to another entity, apparently the Surface Transportation Board. See ICC Termination Act of 1995, Pub.L. No. 104-88, 109 Stat 803 (1995).