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Hudson Transit Lines Inc. v. United States

June 17, 1985


Two cases are consolidated for appeal. On the first (Docket Nos. 83-4165, 83-4171) protestant Hudson Transit petitions for review of an order made by the Interstate Commerce Commission that granted certificates to Pine Hill-Kingston Bus Corporation and Adirondack Transit Lines permitting them to provide unrestricted bus service over routes in New York and New Jersey pursuant to the Bus Regulatory Reform Act of 1982, 49 U.S.C. § 10921 et seq. Hudson Transit also appeals from the grant of a similar certification to Fugazy Express (Docket Nos. 84-4077, 84-4079). In the second appeal (Docket Nos. 84-4105, 84-4107) the New Jersey Department of Transportation petitions for review of an order made by the ICC that granted certificates to C.L.D. Transportation and Fugazy Express permitting them to transport passengers over routes to Atlantic City, New Jersey. Protestant claims that these routes are "special operations" within the meaning of 49 U.S.C. § 10922(c)(2)(H). Orders in docket Nos. 83-4165, 83-4171, 84-4077, 84-4079 affirmed. Orders in docket Nos. 84-4105, 84-4107 vacated.

Author: Cardamone

Before: LUMBARD, MANSFIELD and CARDAMONE, Circuit Judges.

CARDAMONE, Circuit Judge:

Since the end of World War II Americans' overwhelming preference for the use of their private automobiles has been the primary cause of a seriously eroded public transport. As a result, the intercity passenger bus industry in the United States is in a state of decline that shows little sign of turning about. During the depths of the depression in the 1930's there was widespread concern over the creation of an oversupply of passenger transportation. To meet this concern, Congress in 1935 empowered the Interstate Commerce Commission to bring about equality of regulation between intrastate and interstate motor carriers to prevent such an oversupply. In the last decade the winds of deregulation have swirled through the legislature, first sweeping away the ICC's authority over rail and air travel, and then leading Congress to enact the Bus Regulatory Reform Act of 1982, designed to deregulate the ailing bus industry. Congress's new prescription for the financially ailing bus industry, embodied in the 1982 legislation, places a new emphasis on increased competition and aims to rejuvenate intercity bus travel.

These consolidated appeals are taken from decisions of the Interstate Commerce Commission (ICC or Commission) granting applicant bus companies unrestricted authority to transport passengers in the suburban New York City area and to Atlantic City, New Jersey. In the first group of cases an existing commuter service carrier has challenged the Commission's refusal to impose operating restrictions on its grant of certain licenses permitting applicants to provide service. In the second group of cases the State of New Jersey has challenged ICC orders that authorized two carriers to provide bus service to Atlantic City, claiming that such service would constitute prohibited special operations. These issues require us to analyze, for the first time, the Bus Regulatory Reform Act of 1982. Before analyzing these issues, it is necessary to review briefly Congress's involvement in the interstate bus industry.


Intercity bus transportation in the United States had its genesis around 1910. By 1930 virtually every state regulated the industry. Because of the Supreme Court's ruling in Buck v. Kuykendall, 267 U.S. 307, 69 L. Ed. 623, 45 S. Ct. 324 (1925), the scope of state regulation was limited to intrastate bus transportation, leaving unregulated the growing interstate bus industry. In the 1930's bus companies, trade associations, railroads, and state regulatory agencies called for federal legislation. The depression had undercut the financial stability of many carriers, and it was feared that competition would drive them out of business. Falling prices had caused many carriers to lower their service and safety standards.

In response Congress enacted the Motor Carrier Act of 1935 which led to the organization of a highly regulated, public utility-type bus industry. That Act empowered the Commission to control the number of carriers and the service provided. The Act's licensing provisions, which applied equally to motor carriers of property and passengers, required motor carriers to demonstrate to the ICC that they were "fit, willing, and able" to perform the proposed service, and that the service was "required by the present or future public convenience and necessity." Motor Carrier Act of 1935 § 207(a), 49 U.S.C. § 307(a) (1976) (later codified at 49 U.S.C. § 10922(a) (Supp. IV 1980)), amended by Bus Regulatory Reform Act of 1982 § 7, 49 U.S.C. § 10922(c) (Bus Regulatory Reform Act sections hereinafter referred to by sections of Title 49, U.S.C.). The Commission could issue a certificate only for operations over a "regular route and between specified places." 49 U.S.C. § 10922(d)(3) (Supp. IV 1980). Regular-route service involves scheduled transportation between fixed points over specific routes or highways. See Falwell v. United States, 69 F. Supp. 71, 77 (W.D. Va. 1946), aff'd, 330 U.S. 807, 67 S. Ct. 1087, 91 L. Ed. 1264 (1947). This type of service operates on a published timetable so that passengers can wait at a terminal or roadside stop on a designated route and be confident that sooner or later a bus will come along to collect them. The regular-route system eventually covered all of the United States, Canada, and Mexico and it is now possible to make a journey by bus from Alaska to Panama. See Thomas, Unleashing the Greyhounds--The Bus Regulatory Reform Act of 1982, 6 Campbell L. Rev. 75, 87 (1984).

The Commission first established the test which it would use to apply the "public convenience and necessity" standard in Pan-American Bus Lines Operation, 1 M.C.C. 190, 203 (1936), stating:

The question, in substance, is [1] whether the new operation or service will serve a useful public purpose, responsive to a public demand or need; [2] whether this purpose can and will be served as well by existing lines or carriers; and [3] whether it can be served by applicant with the new operation or service proposed without endangering or impairing the operations of existing to the public interest.

To prevent an oversupply of transportation, the Commission applied this test for over 40 years.

By the early 1970's economists and administrators clamored for a change and urged the creation of a regulatory scheme that would abandon the protectionist system of the 1935 Act and encourage free market management of the industry. See Adams, A Changing Transportation Policy for the 1980's, 17 Harv. J. on Legis. 397, 397-98 (1980). As a consequence, the ICC began more frequently to consider the benefits of competition in reaching its decisions, see Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 297-99, 42 L. Ed. 2d 447, 95 S. Ct. 438 (1974) (recognizing the Commission's "prerogative" to adopt a "policy of facilitating competitive market structure"). It shifted the burden with respect to the third part of the Pan-American guidelines to require the objectant to show that existing operations would be impaired in a way that would harm the public interest, see Airport Shuttle Service, Inc. v. I.C.C., 219 U.S. App. D.C. 238, 676 F.2d 836, 839 n.5 (D.C. Cir. 1982), and modified the Pan-American test by eliminating the second, and most "protectionist," criterion, see Assure Competitive Transportation, Inc. v. United States, 635 F.2d 1301, 1305-06 (7th Cir. 1980) (finding it within the Commission's power to give more weight in its decisions to "the benefits of healthy competition and less to protecting existing carriers"). The Commission concluded that a more competitive market with easier entry would allow new carriers to provide efficient service using modern technology.

Thus, although the Commission had shifted its decision-making emphasis, the 1935 Act remained virtually unchanged until Congress enacted the Motor Carrier Act of 1980. This Act effected two major revisions. First, it eased entry into, and significantly reduced barriers to competition in, the trucking industry. The House Report, H.R. Rep. No. 1069, 96th Cong., 2d Sess. 3, reprinted in 1980 U.S. Code Cong. & Ad. News 2283, 2285, stated:

The legislation establishes a new Federal policy which is to promote a competitive and efficient motor carrier industry in order to accomplish certain goals. Those goals include meeting the needs of shippers, receivers, and consumers; allowing price flexibility; encouraging greater efficiency, particularly in the use of fuel; and providing service to small communities.

Congress designed the 1980 Act "[to] increase[] opportunities for new carriers to get into the trucking business and for existing carriers to expand their services." Id. It virtually eliminated collective ratemaking in the trucking industry. Id. at 2286. Second, it revised the procedural handling of all motor carrier cases to expedite the proceedings before the Commission. The new procedures allowed the ICC to handle almost all of its cases without formal hearings or personal appearances by the parties. Oral hearings are used infrequently. 49 C.F.R. §§ 1160.68, 1160.72 (1984). See American Transfer & Storage Co. v. ICC, 719 F.2d 1283, 1301 (5th Cir. 1983). The 1980 Act did not affect the licensing of buses.

In 1982 Congress enacted the Bus Regulatory Reform Act (Bus Reform Act or Act), the statute before us on this appeal. Picking up where the Motor Carrier Act of 1980 left off, the Bus Reform Act was designed to facilitate entry into the intercity passenger carriage market by replacing the traditional "public convenience and necessity" test with a "public interest" test. Sen. Rep. No. 411, 97th Cong., 2d Sess. 15, reprinted in 1982 U.S. Code Cong. & Ad. News 2308, 2322 (the "public interest requirement" was intended to be "interpreted as a substantially lesser entry standard test than the traditional public convenience and necessity standard").

The procedure for obtaining authorization to operate regular-route service works as follows. First, an applicant must show the ICC that it is "fit, willing, and able to provide the transportation to be authorized by the certificate and to comply with [the Act] and regulations of the Commission." § 10922(c)(1)(A). See 49 C.F.R. § 1160.71 et seq. At this initial stage the ICC inquires about the applicant's safety record and whether it meets the minimum financial requirements found in § 10927. § 10922(c)(6). Further, the proposed regular-route transportation must be subject to the jurisdiction of the Commission.*fn1 After publication of the proposed service in the Federal Register, any motor carrier described in § 10922(c)(7) may protest the issuance of the certificate. The protestant has the burden of proving that the applicant is not fit, willing, and able to provide the proposed service, or that "the transportation to be authorized is not consistent with the public interest." § 10922(c)(1)(A).

In making its findings relating to public interest, the Act directs the Commission in consider the following factors: (A) "the transportation policy of the Act; (B) the "value of competition to the traveling and shipping public;" (C) the effect of issuance of a certificate on "motor carrier of passenger service to small communities;" and (D) whether issuance of a certificate would impair the ability of any other motor carrier to provide service "except that diversion of revenue or traffic" from another motor carrier, in and of itself, will not be sufficient to support a finding that the grant of authority will impair the ability of the other carrier to operate. § 10922(c)(3). Congress outlined the "transportation policy" of the Act in § 10101, listing a number of interests. The Commission must continually balance the interest in economic efficiency and competition with the interest in safe and adequate service.

The importance of competition in bringing about efficient transportation services is the critical policy consideration that the Commission must weigh in resolving licensing protests that relate to public interest. In the view of Congress, competition between carriers brings about letter wages for employees, lower rates for consumers, and more efficient use of technology, equipment, and fuel. § 10101. The Act is designed to achieve these ends by limiting what the applicant must show to acquire a certificate and by expediting the licensing procedures in order to relax entry requirements. Its procedures are designed to promote service to intermediate points by removing restrictions on existing licenses, § 10922(i)(4), and to facilitate the granting of certificates for service along intrastate routes over which federal authority has been, or will be granted. § 10922(c)(2)(A), (B).

Congress did not plan to abandon all control of intercity bus travel and leave its fate in the hands of the marketplace. See Sen. Rep., supra, at 16 ("It should be clearly understood, however, that the burden placed on Protestants is not insurmountable and that the entry test should not be treated by the ICC as a regulatory charade"). Congress sought to maintain service to smaller communities, foster commuter service, and ensure adequate bus service to as many people as possible. With almost every licensing application, if a carrier protests the issuance of a certificate, the Commission must evaluate how the proposed service will affect smaller communities and existing commuter operations, see § 10922(c)(1)(A), (2)(A), (2)(B), and (i)(4).*fn2 In special cases involving bus service to isolated communities and service that will substitute for discontinued rail service or, in some cases, discontinued bus service, the Act presumes that the proposed service is in the public interest. In these cases all that the Act requires is that the applicant prove that it is fit, willing, and able to perform. § 10922(c)(4). With this review of the regulatory background, we turn to the first series of cases on this consolidated appeal.


(Docket Nos. 83-4165, 83-4171, 84-4077 ...

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