Cooper v. Productive Trans , 147 F.3d 347 ( 1998 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
In Re: BULLDOG TRUCKING,
INCORPORATED,
Debtor.
LANGDON M. COOPER, Trustee for
Bulldog Trucking, Incorporated, No. 97-2209
Plaintiff-Appellee,
v.
PRODUCTIVE TRANSPORTATION
SERVICES, INCORPORATED,
Defendant-Appellant.
Appeal from the United States District Court
for the Western District of North Carolina, at Charlotte.
Graham C. Mullen, District Judge.
(CA-96-305-3-MU, CA-96-393-3, BK-90-31936, AP-92-3325)
Argued: March 2, 1998
Decided: June 22, 1998
Before WIDENER and MURNAGHAN, Circuit Judges, and
HILTON, Chief United States District Judge for the
Eastern District of Virginia, sitting by designation.
_________________________________________________________________
Affirmed by published opinion. Judge Murnaghan wrote the opinion,
in which Judge Widener and Chief Judge Hilton joined.
_________________________________________________________________
COUNSEL
ARGUED: Robert Joseph Gallagher, M. SHIELDS GALLAGHER
& GALLAGHER, P.C., Northampton, Massachusetts, for Appellant.
Joseph Adam Hess, SHAWN, MANN & STEINFELD, L.L.P., Wash-
ington, D.C., for Appellee. ON BRIEF: Joseph L. Steinfeld, Jr., John
T. Siegler, SHAWN, MANN & STEINFELD, L.L.P., Washington,
D.C.; Langdon M. Cooper, ALALA, MULLEN, HOLLAND & COO-
PER, P.A., Gastonia, North Carolina, for Appellee.
_________________________________________________________________
OPINION
MURNAGHAN, Circuit Judge:
In this case, we are called upon to decide whether a final unap-
pealed judgment is rendered invalid by the district court's allegedly
erroneous exercise of jurisdiction to determine defenses asserted
under the Negotiated Rates Act of 1993 ("NRA"), Pub. L. No. 103-
180, 1993 U.S.S.C.A.N. (107 Stat.) 2044. The case grows out of the
bankruptcy of Bulldog Trucking, Inc. ("Bulldog"), a motor common
carrier. The trustee in bankruptcy for Bulldog initiated an adversary
proceeding against Productive Transportation, Inc. ("PTI"), to recover
the difference between the tariff rate filed by Bulldog with the Inter-
state Commerce Commission ("ICC") and the lower rate actually paid
by PTI for Bulldog's services. Summary judgment was awarded to
the trustee, and PTI failed timely to appeal. PTI now presents a collat-
eral challenge to the validity of the judgment, arguing that the district
court lacked jurisdiction to determine defenses advanced by PTI pur-
suant to provisions of the NRA. PTI also appeals the district court's
denial of a motion to compel the trustee to deposit judgment proceeds
into court.
Having carefully considered PTI's arguments, we hold that the
judgment is not vulnerable to collateral attack. Furthermore, we dis-
cern no error in the district court's denial of PTI's motion to require
the trustee to deposit judgment proceeds into court. Therefore, we
affirm.
2
I
Bulldog, a Georgia-based motor carrier, transported freight for PTI
between February 28, 1988, and October 12, 1990. On December 11,
1990, Bulldog filed a Chapter 11 bankruptcy petition in the United
States Bankruptcy Court for the Western District of North Carolina.
The chapter 11 petition was converted to a chapter 7 liquidation on
February 14, 1991.
On March 21, 1991, the bankruptcy court entered an order autho-
rizing Trans-Allied Audit Company, Inc. ("Trans-Allied"), to conduct
an audit of Bulldog's freight bills for the purpose of determining
whether the rates billed conformed to the tariff rates filed by Bulldog
with the ICC. Trans-Allied concluded, on the basis of the completed
audit, that PTI owed Bulldog $45,047.37 in undercharges. After PTI
refused to pay the freight charges, the trustee initiated an adversary
proceeding against PTI seeking payment of $45,047.37 with interest.
PTI asserted a counterclaim against Bulldog, alleging that Bull-
dog's filed rates were unreasonable. Upon PTI's motion, and in light
of the Supreme Court's decision in Reiter v. Cooper, 507 U.S. 258
(1993), the bankruptcy court entered an order referring the rate rea-
sonableness issue to the ICC on April 13, 1993. The order permitted
PTI to seek a determination by the ICC that Bulldog's filed rates were
unreasonable, and an award of reparations in the amount of the differ-
ence between the tariff rate and the rate determined to be reasonable
by the ICC. See 49 U.S.C. § 11705(b)(3) (1995).1
PTI and Bulldog were advised that the court would entertain
motions for summary judgment on the undercharge claim. The court
stated, however, that enforcement of a judgment in the trustee's favor
would be stayed for twelve months or until the trustee presented evi-
dence that additional delay was not warranted, to allow the ICC a rea-
sonable opportunity to decide PTI's rate reasonableness counterclaim.
_________________________________________________________________
1 Section 11705 was omitted in the general revision of subtitle IV of
title 49 of the United States Code effected by the ICC Termination Act
of 1995 ("ICCTA"), Pub. L. No. 104-88, 1995 U.S.S.C.A.N. (109 Stat.)
803.
3
Cross-motions for summary judgment were filed by the trustee on
June 8, 1993, and by PTI on October 28, 1993.
On December 3, 1993, before the bankruptcy court had taken any
action regarding the parties' summary judgment motions, the NRA
was signed into law. Although the NRA did not abrogate entirely a
cause of action for undercharges, it afforded several remedies to ship-
pers facing such suits. See Cooper v. B&L, Inc. (In re Bulldog Truck-
ing, Inc.), 66 F.3d 1390, 1394 (4th Cir. 1995). Section 2(e) made it
an unreasonable practice for a carrier to pursue claims for under-
charges with respect to freight transported prior to September 1990,
and vested the ICC with jurisdiction to determine whether an attempt
to collect the filed rate constituted an unreasonable practice. NRA
§ 2(e)(1) (codified as amended at 49 U.S.C.§ 13711). Section 8
granted jurisdiction to the ICC to resolve disputes over whether ship-
ments provided by a carrier were contract carriage or common car-
riage. NRA § 8 (codified as amended at 49 U.S.C. § 13710(b)).
Shipments transported as contract carriage are exempt from the filed
rate requirement; therefore, carriers may not claim undercharges for
such shipments. See B&L, Inc., 66 F.3d at 1394-95.
On December 8, 1993, PTI moved the bankruptcy court to refer its
unreasonable practice and contract carriage defenses to the ICC for
adjudication along with the rate reasonableness counterclaim. The
bankruptcy court denied PTI's motion on February 25, 1994, and PTI
noted an interlocutory appeal to the district court.
On July 13, 1994, while PTI's interlocutory appeal was still pend-
ing before the district court, the bankruptcy court issued a Recom-
mended Order and Memorandum Decision advising the district court
to enter summary judgment in favor of the trustee. The district court
adopted the proposed order and memorandum decision of the bank-
ruptcy court in full on December 8, 1994.
The district court held that the antiforfeiture provisions of the bank-
ruptcy code, see 11 U.S.C. §§ 541(c)(1) & 363(l), precluded the
enforcement of § 2(e) of the NRA against the trustee. Therefore, the
court concluded that the unreasonable practice defense was unavail-
able to PTI. The court further determined that § 8 of the NRA did not
divest the district court of jurisdiction to decide the issue of contract
4
carriage. According to the district court, § 8 of the NRA was unen-
forceable in bankruptcy because it conflicted with the jurisdictional
provisions of 28 U.S.C. §§ 157 and 1334. After considering and
rejecting PTI's contract carriage defense on the merits, the district
court awarded summary judgment to the trustee.
Notwithstanding the continued pendency of PTI's counterclaim
before the ICC, the district court directed that judgment be entered
immediately and certified as final under Fed. R. Civ. P. 54(b).
Acknowledging PTI's right to have the rate reasonableness claim
determined by the ICC, however, the court stated that it would not
rescind the April 13, 1993, order permitting PTI to pursue its
counterclaim.2 PTI failed timely to appeal the district court's final
judgment.
Approximately six months later, in June 1995, the district court
ordered that ten interlocutory appeals regarding the NRA's applicabil-
ity in bankruptcy proceedings be stayed pending our decision in
Cooper v. Stonier Transp. Group, Inc. (In re Bulldog Trucking, Inc.),
66 F.3d 1400 (4th Cir. 1995). Notwithstanding the entry of final judg-
ment on the trustee's undercharge claim, PTI's interlocutory appeal
of March 1994 was among those stayed by the district court.
In B&L, Inc. and Stonier, consolidated appeals arising out of the
Bulldog bankruptcy proceedings, we considered whether the NRA
was applicable in the bankruptcy context. We held, first, that the
unreasonable practice defense afforded shippers by§ 2(e) did not vio-
late the antiforfeiture provisions of the bankruptcy code. B&L, Inc.,
66 F.3d at 1398; Stonier, 66 F.3d at 1402. Second, we determined that
the NRA required referral of a defense of unreasonable practice to the
ICC for initial decision, subject to review by the court of original
jurisdiction. B&L, Inc., 66 F.3d at 1398; Stonier, 66 F.3d at 1402 n.2.
Finally, we concluded that referral of a contract carriage defense to
_________________________________________________________________
2 We are perplexed by both parties' insistence on brief that the district
court decided the merits of PTI's rate reasonableness claim when award-
ing summary judgment to the trustee. The need to certify the judgment
as final under Rule 54(b) arose precisely because the reasonable rates
question remained pending before the ICC and was not adjudicated by
the district court.
5
the ICC was mandated by § 8 of the NRA. B&L, Inc., 66 F.2d at
1399-1400; Stonier, 66 F.3d at 1402.
Following our decisions in B&L, Inc. and Stonier, the district court
entered a general order remanding the ten stayed appeals to the bank-
ruptcy court. On August 14, 1996, PTI filed a renewed motion to refer
the contract carriage and unreasonable practice defenses to the Sur-
face Transportation Board3 for determination. The bankruptcy court
denied PTI's motion on September 4, 1996, and the district court
affirmed. The court reasoned that the defenses PTI sought to refer had
already been determined in the summary judgment proceeding.
Therefore, the court concluded, PTI was precluded by the doctrine of
res judicata from raising the issues again.
PTI also sought an order requiring the trustee to deposit judgment
proceeds collected from PTI into court pending determination of
PTI's counterclaim by the ICC. The bankruptcy court denied PTI's
motion on July 18, 1996, and the district court affirmed on July 30,
1997. PTI timely appealed.
II
We have jurisdiction of the appeal pursuant to 28 U.S.C. § 158(d).
See Capitol Credit Plan v. Shaffer, 912 F.2d 749, 751 (4th Cir. 1990).
"Because the district court sits as an appellate court in bankruptcy,
our review of the district court's decision is plenary. In other words,
we apply the same standard of review as the district court applied to
the bankruptcy court's decision." Bowers v. Atlanta Motor Speedway,
Inc. (In re Southeast Hotel Properties Ltd. Partnership), 99 F.3d 151,
154 (4th Cir. 1996) (citation omitted). The instant case presents ques-
tions of law, which we review de novo. Id.
_________________________________________________________________
3 The ICCTA provided for the dissolution of the ICC. ICCTA § 101,
Pub. L. No. 104-88, 1995 U.S.S.C.A.N. (109 Stat.) 803, 804. In place of
the ICC, Congress created the Surface Transportation Board within the
Department of Transportation. ICCTA § 201, 49 U.S.C. § 701. For ease
of reference, however, we refer to the agency as the ICC throughout this
opinion.
6
A
PTI maintains that the district court erred in denying its renewed
motion to refer the defenses of contract carriage and unreasonable
practice to the ICC for decision. According to PTI, the final judgment
that preceded PTI's renewed motion, which fully determined PTI's
defenses, presents no bar to relitigation because the district court
lacked subject matter jurisdiction to decide the issues. Relying on our
decisions in B&L, Inc. and Stonier, PTI contends that by mandating
the referral of unreasonable practice and contract carriage questions
to the ICC, the NRA divests the district courts of jurisdiction to
decide the defenses in the first instance.
Because PTI failed to present its arguments regarding the applica-
bility of the NRA defenses to us in a timely appeal, however, we are
faced not with the question whether the district court had jurisdiction
to determine PTI's defenses but rather, whether that court's determi-
nation of the jurisdictional issue in its favor precludes relitigation of
the question other than on direct review. See Stoll v. Gottlieb, 305
U.S. 165, 171 (1938).
"It is a fundamental precept that federal courts are courts of limited
jurisdiction," constrained to exercise only the authority conferred by
Article III of the Constitution and affirmatively granted by federal
statute. Owen Equip. and Erection Co. v. Kroger , 437 U.S. 365, 374
(1978); see Randall v. United States, 95 F.3d 339, 344 (4th Cir.
1996), cert. denied, 117 S. Ct. 1085 (1997). A primary incident of that
precept is our duty to inquire, sua sponte, whether a valid basis for
jurisdiction exists, and to dismiss the action if no such ground
appears. See Bender v. Williamsport Area Sch. Dist., 475 U.S. 534,
541 (1986); Baird v. Palmer, 114 F.3d 39, 42 (4th Cir. 1997). Liti-
gants in federal courts have a corresponding right to challenge subject
matter jurisdiction at any time, including on direct appeal. See
Insurance Corp. v. Compagnie Des Bauxites, 456 U.S. 694, 701-02
(1982).
Nevertheless, federal courts have the authority to determine
whether they have jurisdiction, and "[t]heir determinations of such
questions, while open to direct review, may not be assailed collater-
ally." Chicot County Drainage Dist. v. Baxter State Bank, 308 U.S.
7
371, 376 (1940). The rule applies with equal force to suits in which
jurisdiction has been expressly determined and those in which resolu-
tion of the jurisdictional question is merely implicit. See Compagnie
Des Bauxites, 456 U.S. at 702 n.9 ("A party that has had an
opportunity to litigate the question of subject matter jurisdiction may
not, however, reopen that question in a collateral attack upon an
adverse judgment.") (emphasis added); Stoll , 305 U.S. at 171-72
("Every court in rendering a judgment tacitly, if not expressly, deter-
mines its jurisdiction over the parties and the subject matter."). The
rationale for a general prohibition against collateral attacks was artic-
ulated by the Supreme Court in Stoll:
It is just as important that there should be a place to end as
that there should be a place to begin litigation. After a party
has had his day in court, with opportunity to present his evi-
dence and his view of the law, a collateral attack upon the
decision as to jurisdiction there rendered merely retries the
issue previously determined.
Stoll, 305 U.S. at 172.
The rule of finality has yielded only to narrow exceptions that give
effect to substantial concerns of public policy. See Chicago, Milwau-
kee, St. Paul and Pacific R.R. Co. v. United States , 585 F.2d 254, 258
(7th Cir. 1978); United States v. Eastport S.S. Corp., 255 F.2d 795,
803 (2d Cir. 1958). Mere error in the exercise of jurisdiction will not
render a prior judgment invalid. "A court has the power to determine
its own jurisdiction and an error in that determination will not render
the judgment void. Only in the rare instance of a clear usurpation of
power will a judgment be rendered void." Lubben v. Selective Serv.
Sys. Local Bd. No. 27, 453 F.2d 645, 649 (1st Cir. 1972); see Hooks
v. Hooks, 771 F.2d 935, 949-50 (6th Cir. 1985).
In Kalb v. Feuerstein, 308 U.S. 433 (1940), the Supreme Court
held that the constitutional grant to Congress of the exclusive power
to regulate bankruptcy empowered Congress to oust the jurisdiction
of state courts over bankruptcy matters by vesting exclusive jurisdic-
tion in the federal courts, and thus to render state court judgments
purporting to decide bankruptcy questions vulnerable to collateral
8
attack. Id. at 438-39. The Court explained that fundamental principles
of federalism outweighed the interest in finality:
It is generally true that a judgment by a court of competent
jurisdiction bears a presumption of regularity and is not
thereafter subject to collateral attack. But Congress, because
its power over the subject of bankruptcy is plenary, may by
specific bankruptcy legislation create an exception to that
principle and render judicial acts taken with respect to the
person or property of a debtor whom the bankruptcy law
protects nullities and vulnerable collaterally. . . . The States
cannot, in the exercise of control over local laws and prac-
tice, vest state courts with the power to violate the supreme
law of the land.
Id. at 438-39 (footnotes omitted). The Court has also invalidated a
judgment on collateral review when the earlier exercise of jurisdiction
violated principles of sovereign immunity. United States v. United
States Fidelity & Guar. Co., 309 U.S. 506, 514 (1940) (holding that
"[c]onsent alone gives jurisdiction to adjudge against a sovereign,"
and "[a]bsent that consent, the attempted exercise of judicial power
is void.").
The Second Restatement of Judgments establishes a presumption
of finality, subject to three narrow exceptions. A collateral attack on
the judgment for lack of subject matter jurisdiction is prohibited
unless: (1) the exercise of jurisdiction constituted a "manifest abuse
of authority"; (2) "allowing the challenged judgment to stand would
substantially infringe the authority of another tribunal or agency of
government"; or (3) "the judgment was rendered by a court lacking
capability to make an adequately informed determination" as to its
own jurisdiction. Restatement (Second) of Judgments§ 12 (1982); see
Blinder, Robinson & Co. v. SEC, 837 F.2d 1099, 1104 (D.C. Cir.
1988); Hodge v. Hodge, 621 F.2d 590, 593 (3d Cir. 1980).
B
With these principles in mind, we consider PTI's arguments. PTI
first contends that § 2(e)(1), which vests jurisdiction in the ICC to
decide whether a carrier's attempt to collect a filed rate constitutes an
9
unreasonable practice, placed that issue beyond the jurisdiction of the
district court. According to PTI, the district court's exercise of juris-
diction was a "manifest abuse of authority." Alternatively, PTI main-
tains that allowing the judgment to stand "would substantially infringe
the authority" of the ICC.
PTI's argument is not well taken, for it misapprehends the nature
of the district court's action. The court never reached the merits of
PTI's unreasonable practice defense, but held at the threshold that the
§ 2(e) defense was unavailable in bankruptcy because it conflicted
with the antiforfeiture provisions of the bankruptcy code. It is beyond
dispute that whether statutory schemes are in conflict is a legal ques-
tion entrusted to judicial resolution, not to agency determination.
Because the district court had jurisdiction to construe the statutes in
question, PTI's collateral attack on the judgment for want of subject
matter jurisdiction is without foundation.
Next, PTI maintains that the district court lacked jurisdiction to
decide PTI's contract carriage defense in the first instance. PTI relies
on § 8 of the NRA, which provides that the ICC"shall have jurisdic-
tion to, and shall, resolve" disputes over whether shipments provided
by a carrier were contract or common carriage. The district court
decided that the shipments here at issue were contract carriage after
concluding that § 8 did not mandate referral of the issue to the ICC.
We have since held that questions of contract carriage should be
decided initially by the ICC, subject to later review by the courts, rea-
soning that § 8 creates presumptive primary jurisdiction in the ICC.
B&L, Inc., 66 F.3d at 1399. Therefore, we agree with PTI that the dis-
trict court erred in refusing to refer the contract carriage question to
the ICC.
Nevertheless, we conclude that the error does not warrant setting
aside an unappealed judgment. The district court's refusal to refer the
issue of contract carriage was not a "clear usurpation of power" but
was merely erroneous, resting as it did on a reasonable, albeit mis-
taken, interpretation of intersecting provisions of the NRA and other
jurisdictional statutes.
Furthermore, we cannot agree with PTI that "allowing the judg-
ment to stand would substantially infringe the authority" of the ICC.
10
Any improper exercise of jurisdiction necessarily intrudes on the
power of another tribunal, but not every such intrusion implicates
public concerns that outweigh the countervailing interest in finality.
Mindful that Congress has expressly manifested an intent to entrust
the initial decision of questions of contract carriage to the ICC, we
nevertheless conclude that the district court's exercise of jurisdiction
did not fundamentally disturb the distribution of governmental powers
so as to require invalidation of the unappealed judgment challenged
here.
III
Finally, PTI argues that the district court erred in denying PTI's
motion to deposit the judgment proceeds into court pending resolution
of its counterclaim before the ICC. PTI maintains that the Supreme
Court's decision in Reiter v. Cooper, 507 U.S. 258 (1993), requires
judgment proceeds to be deposited with the court while a shipper
seeks a rate reasonableness determination.
In Reiter, the Court recognized that the entry of separate judgment
in favor of an insolvent carrier could threaten a shipper's ability to
collect reparations following a favorable decision by the ICC on a rate
reasonableness claim. Id. at 270. Nevertheless, the Court refused cate-
gorically to prohibit the entry of separate judgment in favor of insol-
vent carriers, noting that remedies could be fashioned to protect the
shipper's ability to collect reparations. Id. at 270-71. As an example,
the Court suggested that a shipper could be directed to deposit the
judgment with the court pending the outcome of the ICC reparations
action. Id.
PTI seeks to transform the Court's example into an inflexible rule,
arguing that the judgment proceeds must be deposited with the bank-
ruptcy court until the ICC renders a decision in the rate reasonable-
ness action. We do not believe that such a result is required by Reiter
or warranted on the facts of this case. Almost five years have elapsed
without decision by the ICC on PTI's claim against Bulldog for repa-
rations. We also note that PTI's motion was filed only after the trustee
had expended more than $12,000 in estate resources to collect the
judgment. On those facts, we can discern no error in the district
11
court's decision to affirm the denial of PTI's motion by the bank-
ruptcy court.
For the foregoing reasons, the orders of the district court are hereby
AFFIRMED.
12