Motor Carrier Bankruptcy Claims

MOTOR CARRIER BANKRUPTCY CLAIMS
by James A. Calderwood, Esquire

published in Transportation & Distribution, March 2003

The news that on September 3, 2002, Consolidated Freightways (CF) had filed for bankruptcy and ceased operations was a shock to everyone in the transportation industry. CF could trace its origins back nearly 8 decades. It is the largest motor carrier operation to ever go into bankruptcy. It put over 15,000 personnel out of work and shut 42 terminals. It has been reported that CF had lost over $200 million in the 12 months before it ceased operations.

CF is not the only motor carrier to seek bankruptcy protection in the last couple of years.

A carrier bankruptcy can have a serious impact on many who had dealings with it. Not only do employees lose their jobs and shareholders their investments; but customers, suppliers and lenders also experience serious problems.

Large corporate bankruptcies, such as that of CF, present a great many legal problems as various stake holders try to lay claim to the assets that remain or may be collected. Secured creditors are those who have a claim on a specific asset. In the motor carrier context that could be a lender who financed the

purchase of a particular truck and filed a perfected lien with a state or locality recording the lien. The lender may be able to recover the truck in question, sell it and, if there is any excess over what was owed, return the excess to the bankrupt estate.

Most creditors fall into the unsecured creditor category and must look to the possibility of at least a partial recovery of what they are owed as the assets of the bankrupt are liquidated. In a bankruptcy there is usually an unsecured creditors committee whose attorney seeks to accumulate as many assets as possible for the creditors.

Shippers may have numerous issues with respect to a motor carrier bankruptcy. One that often arises deals with offsets. The shipper may owe the carrier money for transportation services already performed, but, also have claims for damages, lost goods, late delivery, or simply a dispute over the charges. The shipper wants to offset these claims against what it owes the carrier. Unfortunately for shippers the bankruptcy code does not permit offsets. It may be possible under certain circumstances to have a bankruptcy court modify this rule. This is something to be considered with legal counsel.

The no-offset rule may sound harsh to a shipper, but it should be borne in mind that many other persons also have claims and are adversely impacted. Employees may not receive their final paychecks, banks may not have loans repaid and suppliers may not receive their compensation. All of these interests are competing for a pot of assets that usually is not big enough to satisfy all. Consequently, these unsecured creditor claimants can often be at odds with each other over who is due what.

One of the assets of a bankrupt carrier is any money still owed it for transportation services. If a shipper were to offset against sums it owes then other claimants would argue the shipper received a preference over other unsecured creditors.

Motor carrier bankruptcies today should at least not force shippers to confront the "undercharge" horror that shippers experienced about 10 years ago. The undercharge issue resulted from motor carriers charging shippers what were, in effect, negotiated rates. A shipper would receive a rate quote from a trucker and utilize the carrier for a shipment. The shipper then paid the invoice and that was it.

Problems arose when motor carriers went bankrupt. Trustees for the carriers soon noticed that the charges were often less than the applicable rate in the motor carrier’s tariff filed with the old Interstate Commerce Commission (ICC). The trustees claimed that the lawful rate was that stated in the filed tariff at the ICC and not the quoted, billed and paid rate. By this time the ICC had practically stopped monitoring tariff filings and shippers rarely checked to see if a quoted rate was actually in a tariff. Thousands of suits were filed against shippers to collect the "undercharge" (the difference between the filed tariff rate and what was actually billed).

In 1990 the Supreme Court ruled in favor of the trustees and against shippers declaring that the tariff rate was the lawful rate.

Congress then jumped into the fray and enacted legislation to prevent such abuses against shippers. For one thing, Congress abolished tariffs with respect to motor carriers (except for household goods and offshore domestic commerce).

Congress also passed the Trucking Industry Regulatory Reform Act which provides that if a motor carrier is going to bill a shipper for any charges in addition to those originally billed it must do so within 180 days of the receipt of the original bill in order to have a right to collect the additional charges. This prevents carriers from trying to collect charges based on a rate claim more than 6 months old. In addition, Congress gave the Surface Transportation Board the exclusive right to rule on certain undercharge claims rather than a bankruptcy court. To date, in such matters, the Board has been shipper friendly.

Motor carrier bankruptcies present a variety of claim issues and shippers need to tread carefully in their actions with respect to the bankrupt entity.

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