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#2170 signed 8-25-95



In re:



Case No. 88-41050-11






Adversary Case No. 90-7308


This proceeding comes before the court on defendant's motion for summary judgment based on the small-business concern defense created by Congress in the Negotiated Rates Act of 1993. Debtor-plaintiff, American Freight System (AFS), appears by counsel Kurt Stohlgren of Hillix, Brewer, Hoffhaus, Whittaker & Wright of Kansas City, Missouri, and Joseph L. Steinfeld, Jr. of Sims, Walker & Steinfeld of Washington, D.C. The defendant Berkshire Electric Cable Company (Berkshire) appears by counsel Gene A. DeLeve of Berman, DeLeve, Kuchan & Chapman of Kansas City, Missouri. The Court has reviewed the relevant pleadings and affidavits and is now ready to rule.


AFS seeks to recover freight charges based on transportation services it provided to Berkshire. AFS claims that the undercharges were the result of an erroneous discount it gave to Berkshire. Berkshire claims that as a small business concern, it is exempt from undercharge liability under the Negotiated Rates Act of 1993. Pub. 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).

Berkshire seeks to take advantage of a provision of the NRA based on its possible status as a small-business concern, contending that status relieves it from liability for all the freight charges AFS seeks to recover. To support this claim, it has submitted two affidavits signed by its president and one signed by its attorney, Mr. DeLeve. Its president asserts that Berkshire: (1) manufactures and insulates nonferrous wire; (2) has not had more than 116 employees at any time since 1986 and has never had as many as 1,000 employees; (3) under the Standard Industrial Classifications used under the Small Business Act to determine what companies qualify as small businesses, falls within code number 3357, a classification in which a "small business" can have up to 1,000 employees; (4) is independently owned and operated, and has two stockholders; (5) is not affiliated with any other company or business; and (6) is not dominant in its field of operation, having a 2% share of a market in which its three largest competitors probably have 50%. AFS contends these assertions constitute improper legal conclusions rather than "real" evidence, which it argues would include documents evidencing Berkshire's Standard Industrial Classification, documents evidencing its domestic and foreign affiliates, subsidiaries, or companies with common ownership, its tax returns, balance sheets, and income statements for 1991 through 1993, corporate reports prepared or attested to by a c.p.a., and documents it produced describing its business. AFS asks the Court to strike the president's affidavits, along with a supplemental brief Berkshire filed. AFS also claims it has undertaken discovery to try to obtain such materials from Berkshire.

Mr. DeLeve asserts that AFS has supplied what it calls "Balance Due Bills" which show that AFS had billed Berkshire for a number of shipments based on certain discounts, Berkshire paid the amounts billed, and AFS now seeks to recover the amounts originally allowed as discounts. AFS has not attacked this affidavit and admits all the charges it seeks to recover are for the difference between the tariff rate it contends was applicable and effective and the amount it originally billed and Berkshire paid.

AFS also argues the NRA does not apply to it, but Judge Robinson has rejected all its arguments in this regard in two decisions in another adversary proceeding connected with AFS's bankruptcy case. American Freight System v. ICC (In re American Freight System), 174 B.R. 604 (Bankr.D.Kan. 1994) (Robinson, J.) (AFS is "no longer transporting property" for purposes of the NRA); 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). Although AFS has appealed these rulings, the Court does not intend to relitigate the issues they dealt with, but will continue to apply them unless and until they are reversed or otherwise altered on appeal.


Federal Rule of Civil Procedure 56, governing grants of summary judgment, is made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7056. FRCP 56(c) provides that this Court must grant summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." In considering the motion for summary judgment, the court must examine all the evidence in the light most favorable to the party against whom summary judgment is sought. Summary judgment is inappropriate if an inference can be drawn from the facts that would allow the non-movant to prevail. The court must consider factual inferences tending to show triable issues in the light most favorable to the existence of those issues. Where different ultimate inferences may properly be drawn, summary judgment should be denied. United States v. O'Block, 788 F.2d 1433, 1435 (10th Cir. 1986).

Because the NRA created the small-business concern defense long after this proceeding was filed, the Court believes AFS is entitled to an opportunity to perform discovery so it may determine whether there is a basis to dispute Berkshire's qualification as a small-business concern. This precludes granting Berkshire's motion at this time. The Court does not accept, however, AFS's apparent view that Berkshire's status can only be proven through documents and not through its president's testimony. AFS will be given 30 days from the entry of this order to do such discovery. The Court assumes that once this discovery is completed, the parties will be able to determine whether they have any genuine disputes about Berkshire's status, and so will not now consider their dispute about the sufficiency of Berkshire's affidavits.

Berkshire contends that under the NRA, it can exempt itself from all AFS's charges simply by showing that it is a small-business concern under the Small Business Act, 15 U.S.C.A. §631, et seq. See 49 U.S.C.A. §10701(f)(9). AFS contends this defense also requires Berkshire to show that: (1) AFS is no longer transporting property, §10701(f)(1)(A); and (2) AFS offered it a 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, §10701(f)(1)(B). This Court recently decided that the defense created by §10701(f)(9) is available only if the shipper makes the showings required under §10701(f)(1)(A) and (B). American Freight System v. Valiant Products (In re American Freight System), ___ B.R. ___, 1995 WL 475610, 1995 Bankr. LEXIS 1106 (Bankr.D.Kan. Aug. 8, 1995). Of course, for AFS's cases, Judge Robinson has already determined that AFS is no longer transporting property. Mr. DeLeve's affidavit indicates, and AFS does not dispute, that AFS billed at a discounted rate, Berkshire paid that rate, and AFS now seeks to recover the difference between the discounted and the non-discounted rates. The affidavit does not, however, indicate that AFS offered an unfiled rate, that Berkshire relied on the offered rate in tendering the freight, that AFS did not properly file the offered rate, or that the offered rate was the amount AFS billed for. These facts may be true, indeed would not be inconsistent with the affidavit, but for summary judgment purposes, they have simply not been shown to be true.

For these reasons, even considering all the materials submitted, Berkshire's motion for summary judgment must be denied. The motions to strike the president's affidavits and the supplemental brief consequently are moot, and are hereby denied. AFS is hereby given 30 days from the date of this order to conduct discovery about Berkshire's status as a small-business concern. Once that is accomplished, the parties should ask the Clerk to schedule a pretrial or status conference, whichever would be appropriate for this proceeding.


Dated at Topeka, Kansas, this _____ day of August, 1995.





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