The Farm Cooperative Service is an excellent agency staffed with intimately knowledgeable people, with some notable experts in the field of transportation.

How can any legitimate farmer cooperative object to having the U.S. Department of Agriculture furnish to the Commission a list of farmer cooperatives for transportation purposes? If a cooperative desires to engage in interstate commerce on a for-hire basis with nonmembers, should there be any objection to notifying the Commission of such intention? Or of the ICC's right to examine the records to ascertain compliance with the law?

Can a farmer cooperative honestly object to its nonmember for-hire transportation being limited as to the commodities hauled?

What is the other side of the coin? If the farmer cooperative objects to this bill, then what they are in fact demanding is the right to engage in common carriage without a show of public convenience and necessity. Failure to accept this bill is a clear admission that what the cooperatives want is a special privilege the like of which exists nowhere else in society-that is, the right to enter into large scale competition on an all commodities basis with the common motor carrier who is required to live under a complicated system of regulation while the cooperative enjoys freedom from regulation are, indeed, freedom from a large measure of responsibility now incumbent upon the common carrier, I might say all of the responsibilities now encumbent on the common carriers.

Finally let me make this point. The transportation of the commercial traffic of this country can be (like Gaul) divided into three parts. One part moves by private and contract carriage, another by the exempt for-hire carriers, the third by the regulated common

carriers.

Of these three entities, only the regulated common carriers have the obligation to serve the public generally.

Down through the years the portion handled by the common carriers has been subject to a process of erosion. I refer to court decisions, such as the Frozen Food Express decision in 1956 (351 U.S. 49) and the Northwest decision this year.

Some part of the damage done by the Frozen Food Express decision was remedied by the Congress in 1958, when you spelled out the commodities the transportation of which would be considered to be exempt. We feel that similar action is now called for in the case of farmer cooperatives. We cannot believe that Congress intended for farmer cooperatives, who assume no responsibility for serving the public generally, to cut into the already diminished share of those common carriers who do assume responsibility for serving the public. Mr. Chairman, we urge your favorable consideration of the proposed bill which I have just recommended.

May I at this point call attention to a copy of an article by one of our attorneys which appeared in the ICC Practitioners' Journal for April 1966. It is, "Agricultural Cooperatives: A New Force In Transportation," by Harry J. Jordan. That article deals with the legal and other aspects of my statement. I have a copy here and would like to have it introduced into the record, as an appendix to my statement.

Senator LAUSCHE. It will be so done.

Mr. PINKNEY. May I conclude Mr. Chairman, by going pack to the national transportation policy. It seems to me that if we follow on the national transportation policy, it becomes absolutely necessary that this particular situation, which definitely will affect the competence and the ability of the common carriers of this country to do their duty, this situation should be corrected.

I thank you very much, sir.

Senator LAUSCHE. Mr. Sender, do you have any questions?
Mr. SENDER. Just one question.

Mr. Pinkney, if the Department of Agriculture refused to place the name of an agricultural cooperative on its list, would the agricultural cooperative, under the requirements of the Administrative Procedure Act, be afforded the opportunity of a hearing before the Department of Agriculture?

Mr. PINKNEY. There is no provision made in the legislation as I have drafted it, but I am satisfied that-I will be happy to look into it-I would be satisfied that he would be afforded some redress. He would be afforded an opportunity of hearing, and I think under the law as it now stands, but I am not certain, Mr. Sender.

Senator LAUSCHE. At least, it is your position that the rights afforded by the Administrative Procedures Act should be accorded to it.

Mr. PINKNEY. Every stage of the proceeding; yes, sir.
Senator LAUSCHE. All right, thanks very much.

AGRICULTURAL COOPERATIVES, A NEW FORCE IN TRANSPORTATION

By Harry J. Jordan*

When Congress passed the Motor Carrier Act in 1935, it saw fit to exempt from economic regulation by the Interstate Commerce Commission "motor vehicles controlled and operated by a cooperative association as defined in the Agricultural Marketing Act. . . This exemption is expressed in Section 203(b) (5) of the Act 2 and the reason given for it was to aid cooperative associations in performing their agricultural functions by engaging in transportation of farmrelated commodities without being dependent upon commercial carriers.3

Generally, in the past the only problem regarding the exemption has been whether, in a given fact situation, the operations of a group of individuals organized as an agricultural cooperative in fact met the definition of such an association under the Marketing Act. Recently, however, a unique and far-reaching question respecting the scope of the exemption of Section 203(b) (5) presented itself: Whether the exemption of that section extends to for-hire transportation by a bona fide agricultural cooperative of non-farm-related products for nonmembers of the cooperative association? This issue occurred in two cases, one before the Commission and one in the courts.

*Mr. Jordan is a general attorney on the staff of the American Trucking Associations, Inc. A former attorney advisor with the Interstate Commerce Commission, he is a 1958 graduate of the University of Pittsburgh School of Law and a member of the United States Court of Appeals for the District of Columbia Circuit and the United States District Court for the District of Columbia.

1 There are two broad fields of regulation under the Interstate Commerce Act-safety and economic. Safety regulation deals with qualifications and maximum hours of service of employees and standards of equipment. Economic regulation covers, to name only a few areas, such matters as who may engage in motor carriage-for-hire, the routes or areas to be served, and the rates to be charged. See Taff, Commercial Motor Transportation, 514-17 (3rd ed. 1961).

2 Section 203(b) (5), 49 U.S.C. § 303(b) (5), provides as here pertinent:

Nothing in this part, except the provisions of section 204 relative to qualifications and maximum hours of service of employees and safety of operation or standards of equipment shall be construed to include motor vehicles controlled and operated by a cooperative association as defined in the Agricultural Marketing Act, approved June 15, 1929, as amended, or by a federation of such cooperative associations, if such federation possesses no greater powers or purposes than cooperative associations so defined

379 Cong. Rec. 12218-12220 (1935).

Cf., I.Č.C. v. Nelson Cooperative Marketing Ass'n, 209 F. Supp. 697 (W Cooperative Association, 236 F. Supp. 873 (S.D. Iowa 1964); Machinery I Commodity Service, 86 M.C.C. 5 (1961); Agricultural Transportation As Operations, 96 M.C.C. 293 (1964)-petition for reconsideration pending.

I.C.C. v. Iowa y. Agricultural restigation of

In the Commission proceeding, Cache Valley Dairy Association Investigation Of Operation, division 1 found non-farm-related transportation operations by the cooperative to be beyond the exemption of Section 203(b) (5) and ordered the respondents in that case to cease and desist from such transportation activities. This case is now pending before the Commission, on reconsideration.

The court case, I.C.C. v. Northwest Agricultural Cooperative Ass'n., Inc., is a significant proceeding and could be one of the most important decisions handed down in the field of transportation in some time. It was instituted by a Commission complaint filed in a United States District Court in Oregon to enjoin Northwest from hauling general commodities throughout the United States, for non-member merchants and manufacturers, without a certificate of public convenience and necessity as required by Section 203 (c) of the Interstate Commerce Act.7

Northwest is a non-profit corporation organized under the Idaho Marketing Act for the purpose of enabling its members collectively and economically to transport their agricultural products to markets. It is solely engaged in transportation activities and operates a fleet of long haul trucks for this purpose. On return trips from market places, Northwest transports farm supplies back to its members. However, the volume of these supplies does not equal the amount of farm products shipped outbound and, consequently, Northwest has empty space in its trucks. To make use of this space Northwest nade a practice of back-hauling non-farm-related commodities for non-members of the association. For example, it transported for non-members such things as furnaces, air conditioners, and water heaters from California to Idaho; machinery from Minnesota to Idaho; hardware from New Jersey to Oregon; wire springs from Illinois to Oregon; yarn from Oregon to Idaho; door hanger parts from New York to Oregon; and roofing materials from California to Idaho. From November 13, 1963, to March 19, 1964, Northwest received approximately $230,375 for transportation services. Approximately $41,000, or about 16 percent of that sum, was derived from the transportation of non-farm commodities for non-members. It was this latter type of transportation which the Commission sought to have stopped. In support of its complaint, the Commission contended that transportation activities of agricultural cooperatives are not completely exempt under Section 203(b) (5) from its economic regulation. It pointed out in this respect that an agricultural cooperative is defined in the Agricultural Marketing Act as one dealing in "farm products, . . . farm supplies and/or farm business services,3 It admitted that transportation services performed for members of the association directly or functionally related to their agricultural activities, were exempt from its economic regulation. But, it argued that for-hire transportation of nonexempt commodities for non-members of an association is not exempt, and thus Northwest's transportation of such commodities without a certificate of public convenience and necessity violated the Act.o

Northwest's defense to the suit was that the transportation was exempt under Section 203(b) (5). It pointed out that its for-hire transportation of non-exempt commodities for non-members produced much less revenue than it received from transporting member products, and that the income from such activities inured to the benefit of members of the association by economizing their marketing expenses.

10

The district court (Judge Solomon) agreed with the Commission's reading of Section 203(b) (5) and permanently enjoined Northwest from engaging in forhire transportation unless "such transportation is directly beneficial or func

596 M.C.C. 616 (1964).

234 F. Supp. 496 (D. Ore. 1964).

7 Section 203 (c), 49 U.S.C. § 303(c), provides that "no person shall engage in any for-hire transportation business by motor vehicle, in interstate or foreign commerce, on any public highway. . . unless there is in force with respect to such person a certificate or a permit issued by the Commission authorizing such transportation.

Section 1141] of the Agricultural Marketing Act, 12 U.S.C. § 1141), provides, in relevant part:

(a) As used in this subchapter, the term "cooperative association" means any association in which farmers act together in processing, preparing for market, handling, and/or marketing the farm products of persons so engaged, and also means any association in which farmers act together in purchasing, testing, grading, processing, distributing, and/or furnishing farm supplies and/or farm business serv ices; Provided, however, That such associations are operated for the mutual benefit of the members thereof as such producers or purchasers and conform . . . to the following. . . .

Third. That the association shall not deal in farm products, farm supplies, and farm business serv ices with or for nonmembers in an amount greater in value than the total amount of such business transacted by it with or for members. . . .

tionally related to farming activities of [the Association's] members." In his opinion, Judge Solomon stated:

Though Congress intended to exempt agricultural cooperatives from regulation under the Act in the transportation of their goods to market and their necessary supplies and services on return, I do not read the statute as granting these associations an exemption to enter the general transportation business. Undoubtedly the Association's practice affords economies to its members, but these are economies not intended to be conferred by the Act.11 But on appeal by Northwest to the Ninth Circuit Court of Appeals, the district court's decision was reversed.12 The court of appeals first held that, since the agricultural cooperative exemption of the Interstate Commerce Act broadly applies to "motor vehicles controlled and operated by a cooperative association as defined in the Agricultural Marketing Act," the limitation upon Northwest's transportation activities urged by the Commission "must be found in the definition of a cooperative association in the Agricultural Marketing Act." 13 The court then held that "a cooperative does not lose its status by engaging in activities other than its primary statutory activity so long as they are incidental and necessary to its effective performance [as an agricultural cooperative]," and that "Northwest's transportation of non-farm products and supplies was incidental and necessary" to the effective performance of Northwest's farm service within this test.14 In thus finding all of Northwest's transportation activities to be exempt, the court stressed that Northwest's transportation of non-farm products was limited to backhauls, was small in relationship to its overall transportation operations, and "it is not economically feasible to operate the trucks empty on return trips." 15 The court added, however, that "A cooperative will retain its exemption only so long as it remains in essential character a 'cooperative association.""" "A cooperative would not be of this character," it went on to warn, "if its non-farm related business exceeded that which was necessary and incidental to its farm-related business, and it is difficult," said the court, "to imagine circumstances under which non-farm related business could approach fifty percent of the total and still remain incidental and necessary to farm-related business." 10 A petition for a writ of certiorari "7 from the Supreme Court was sought by the Solicitor General on behalf of the Commission,18 but it was denied.19

To stake out the boundaries of the court of appeal's decision: the court has held that a bona fide agricultural cooperative may transport non-farm-related commodities for non-members of the cooperative and still be exempt from economic regulation by the Interstate Commerce Commission, provided such transportation does not approach too closely fifty percent 20 of the cooperative's total transportation business. Stated more bluntly, it has held that agricultural cooperatives are free, subject of course to the percentage of business limitation, to engage in general trucking.

The potential impact of the Northwest case upon the operations of regulated carriers is significant. In according a sweeping exemption from economic regulation by the Commission to the transportation activities of agricultural cooperatives, it permits such cooperatives to engage in extensive unregulated transportation of non-farm-related commodities in competition with the operations of regulated rail and motor carriers. And the cooperatives are at a decided advantage because their rates are not subject to control by the Commission, as are the rates of regulated carriers. Thus agricultural cooperatives may charge rates as low as they deem necessary for the purpose of attracting traffic.21 to fill empty backhauls. Obviously these rates are going to be below those of the regulated carriers with the result that such carriers are going to lose traffic.

Furthermore, even though the Northwest case involved only the backhauling of non-farm-related commodities, the principle of the case would appear to apply

11 Ibid.

12 Northwest Agri. Coop. Ass'n. v. Interstate Com. Com'n., 350 F. 2d 252 (1965).

Id. at 255.

14 Ibid.

14 Ibid.

14 Id. at 256.

No. 807, October Term, 1965, Interstate Commerce Commission v. Northwest Agricultural Cooperative Association, Inc.

The Department of Agriculture supported the decision of the court of appeals, and its position in this respect was noted in the petition (Petition, p. 8). 1934 LW 3255 (January 25, 1966).

Inasmuch as the court failed to indicate at what point short of fifty percent a cooperative's transportation operation would cease to be "incidental and necessary" to its primary business function as a farm cooperative, the precise line of demarcation between what is exempt and what is not exempt must await further court action.

The record in this case illustrates the range of commodities which would be subject to diversion.

to transportation of any commodities deemed "necessary and incidental" to a cooperative's farm-related activities. Thus, for example, a cooperative with trucks idle might, on the basis of this decision, use them to transport for-hire, at rates below those of regulated carriers, the products of a nearby steel or textile mill. Again traffic and revenues would be lost by the regulated carriers serving such plants. And there would be nothing to prevent an agricultural cooperative from transporting non-farm-related commodities outbound from the cooperative when going to a member's farm to pick up his products for movement back to the cooperative for further processing or sale.

The extent to which agricultural cooperatives will be able to divert traffic from regulated carriers plainly bears a direct relationship to the number of cooperatives and the amount of equipment they operate. Unfortunately there does not appear to be a great deal of information available regarding the transportation activities of agricultural cooperatives. But what data is available shows that, on January 1, 1961, the 9,294 farm cooperatives of the United States owned or leased an estimated 33,000 trucks (power units).23 A study of 19 such cooperatives showed total expenditures for transportation in excess of $100,000,000 in 1962, including $12,411,364 for transportation in their own trucks. At that time, 18 of these cooperatives had backhauls for 46,627 trips, or 21.8 percent of the 213,606 trips their 603 trucks made in 1962. Of these backhauls, almost 93 percent carried the cooperatives' own goods, and less than one percent appears to involve transportation not functionally related to farming. However, the report from which this data is taken concludes that "Lack of backhaul tonnage is a limiting factor in cooperative truck operations." 24 The decision of the court of appeals now holds out the clear prospect that cooperatives will, in the future, be able to obtain that backhaul tonnage by diverting non-farm-related commodities from regulated motor and rail carriers.

It is clear that the Northwest case is going to benefit agricultural cooperatives by enabling them to better utilize their motor equipment. In turn non-farmrelated transportation activities by cooperatives seems certain to increase and, correspondingly, the amount of traffic diverted from regulated carriers. In fact, the potential growth in transportation of non-farm-related commodities by cooperatives appears limited only by the percentage figure alluded to by the court of appeals as being the point at which a cooperative would lose its exemption, and the cooperative's own initiative.

Moreover, besides encouraging new competition from legitimate agricultural cooperatives, the Northwest case will also give added impetus to "gray area" operators to adopt the form of an agricultural cooperative in order to avoid federal regulation. In this respect it is worth noting that even now substantial amounts of traffic are being diverted from authorized motor and rail carriers by various groups and organizations performing general transportation service under the guise of exempt agricultural cooperatives.25 And the decision by the court of appeals, so far as the regulated carriers are concerned, should make a bad situation

worse.

To conclude, it is impossible to forecast at this time what tonnage and revenues will be lost by regulated carriers to agricultural cooperatives because of the Northwest case. Nonetheless, it appears safe to predict that a substantial amount of high-rated traffic will be diverted from regulated carriers and that the economic impact of this loss upon such carriers, particularly the smaller ones, is not going to be good. It is equally safe to predict that, unless the Northwest case is overruled by the Supreme Court,26 or changed by legislative enactment, in the near future, the operations of agricultural cooperatives are going to grow substantially, and that they are going to be a significant new force to be reckoned with in the transportation industry.

Senator LAUSCHE. Mr. D. J. Gibson, president of the Midwest Coast Transport, Inc., Sioux Falls, S. Dak. You may proceed.

23 Bowser, Motortruck Operations of Farmer Cooperatives, General Report 109, Farmer Cooperative Service, U.S.D.A., February, 1963.

24 Camp, Motortruck Operating Costs of Farmer Cooperatives, General Report No. 121, Farmer Cooperative Service, U.S.D.A., June, 1964.

25 See footnote 4 supra.

26 It has been held by the Supreme Court that its denial of certiorari imports no expression of opinion on the merits of the case and does not indicate approval of the decision of the court below. Brown v. Allen, 344 U.S. 443 (1953); U.S. v. Carver, 260 U.S. 482 (1923). It is also well-settled that the decision of one circuit court of appeals does not bind the others. Cf. C.I.R. v. Hansen, 360 U.S. 446 (1959); Flora v. U.S., 357 U.S. 63 (1958). Thus if another circuit court should render a decision contrary to the Northwest case and if review by the Supreme Court is sought and granted, the law could change. However, until that time, the Ninth Circuit's decision remains the highest court interpretation of the scope of the exemption contained in Section 203(b) (5) of the Interstate Commerce Act.