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January 30, 1975

The VALLEY LINE COMPANY et al., Plaintiffs,
The UNITED STATES of America and the Interstate Commerce Commission, Defendants

The opinion of the court was delivered by: SCALERA


This is an action under the provisions of 28 U.S.C., sections 1336, 1398, 2284 and 2321-2325 and 5 U.S.C. sections 701-706, to set aside orders of the Interstate Commerce Commission (Commission) entered in its Finance Docket F26737, Katy Industries, Inc.-Control-Cenac Towing Co., Inc., 342 I.C.C. 666. Those orders held that Cenac Towing Co., whose transportation operations are exempted from regulation by the Commission, is not a "carrier" within the meaning of section 5(13) of the Interstate Commerce Act and that, therefore, the Commission does not have jurisdiction over the proposed acquisition of Cenac by Katy Industries, Inc., a company controlling the Missouri-Kansas-Texas Railroad.

 Katy Industries, Inc. controls the Missouri-Kansas-Texas Railroad through ownership of 97 percent of the outstanding shares of the railroad's common stock. Although Katy is not a carrier, the Missouri-Kansas-Texas Railroad is a common carrier by railroad subject to Part I of the Act. (49 U.S.C. § 1 et seq.)

 Cenac is a corporation engaged in water transportation. This transportation consists of the movement of crude oil, in bulk, from numerous storage platforms located in the Gulf of Mexico and in various bays, lakes and sounds to terminals and refineries located in Texas, Louisiana, Mississippi, Alabama and Florida, and other operations generally involving the transportation of oil, oil products or oil producing equipment. In addition, Cenac rents or charters tugboats and barges to the oil industry for the transportation of drill pipe, service trucks, pumps, motors, drill water, mud, and other items required in oil well construction. This latter renting and chartering of equipment brings Cenac within the jurisdiction of the Commission as a contract carrier by water under section 302(e) of the Act. (49 U.S.C. § 902(e))

 Section 309(f) of the Act (49 U.S.C. § 909(f)) requires that a carrier obtain a permit from the Commission before engaging in the operations of a contract carrier by water. Section 302(e) of the Act provides for a procedure whereby the Commission may issue an order exempting the transportation activities of a contract carrier such as Cenac from regulation under Part III of the Act. Thus, section 302(e) of the Act states, in part:

"Whenever the Commission, upon its own motion or upon application of any interested party, determines that the application of the preceding sentence to any person or class of persons is not necessary in order to effectuate the national transportation policy declared in this Act, it shall be order exempt such person or class of persons from the provisions of this part . . . ."

 The plaintiffs, The Valley Line Company, Union Mechling Corporation, The Ohio River Company, Gulf-Canal Lines, Inc., Federal Barge Lines, Inc., Dixie Cariers, Inc., and American Commercial Barge Line Company, are common carriers by water engaged in the transportation of commodities generally on the Mississippi River System including the Gulf of Mexico.

 By application filed August 3, 1971, Katy Industries sought authorization under section 5(2) for the acquisition of Cenac. Section 5(2)(a)(i) of the Interstate Commerce Act declares that consolidation or mergers of carriers, joint acquisitions of carriers by other carriers, and acquisitions of two or more carriers by a non-carrier "shall be lawful, with the approval and authorization of the Commission." According to section 5(13), a "carrier," for the purposes of section 5(2), means inter alia, "a water carrier subject to Part III." Cenac, by virtue of its furnishing vessels for compensation, falls within the definition of "contract carrier by water" in section 302(e). However, because Cenac has been exempted from the provisions of the Act by the Commission, Katy moved, concurrent with its application, to dismiss the application on the ground that Cenac was not a carrier subject to Part III of the Act and consequently no approval of the proposed acquisition was required under section 5(2). Katy's motion was denied "without prejudice, pending consideration of the further development of the record."

 The application was referred to an Administrative Law Judge for hearing and recommendation of an order. Hearings were held on five days in April, 1972, in Washington, D.C. Twenty-two parties protested the application. Seven of the protestants offered evidence. The Administrative Law Judge, in a decision served February 13, 1973, found that "so long as the exemption under section 302(e) is in effect, Cenac is not a water carrier within the meaning of section 5(13) and, therefore, section 5(2) is not applicable." 342 I.C.C. at 672.

 The protestants filed exceptions to the report and recommended order of the Administrative Law Judge and petitioned for oral argument before the entire Commission. Katy replied to the exceptions and petition. In a decision and order served July 17, 1973, the Commission's Division 3 affirmed the Administrative Law Judge's findings and conclusions with minor modifications, finding that:

". . . the Administrative Law Judge properly found that Cenac is not a water carrier within the meaning of Section 5(13) and our jurisdiction under Section 5(2), as regards the resulting common control of MKT and Cenac, cannot be invoked so long as Cenac's operations remain within the exemption conferred upon it under Section 302(e), the case herein for the indeterminate future. Accord IML Sea Transit Ltd. v. United States, 343 F. Supp. 32, 38 (N.D.Calif.1972), affirmed sub nom., Interstate Commerce Commission v. IML Sea Transit Ltd., Et. Al., 409 U.S. 1002 [93 S. Ct. 433, 34 L. Ed. 2d 295] (1972), wherein the three-judge Federal court pertinently held that IML Sea Transit was not operating as a freight forwarder through its use of certain Hawaiian motor carriers subject to Part II of the Act until such time as the Commission exercised its power to consider or revoke the certificates of exemption granted to said Hawaiian motor carriers; . . ." 343 I.C.C. at 667.

 Petitions for reconsideration were filed by protestants. Katy replied. Division 3 of the Commission, acting as an Appellate Division, denied the petitions in an order served January 21, 1974. At this juncture the proceeding became final. ...

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