Trail v. Transportation Management Svcs. ( 1998 )

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
LARRY G. TRAIL, )
FILED
) July 15, 1998
Plaintiff/Appellee, )
) Cecil W. Crowson
VS. ) Appellate Court Clerk
)
TRANSPORTATION MANAGEMENT ) Rutherford Chancery
SERVICES, ) No. 94CV-954
)
Defendant/Appellee, )
) Appeal No.
AND ) 01A01-9607-CH-00314
)
SKYLINE TRANSPORTATION, INC., )
)
Defendant/Appellant. )
APPEAL FROM THE CHANCERY COURT
FOR RUTHERFORD COUNTY
AT MURFREESBORO, TENNESSEE
THE HONORABLE ROBERT E. CORLEW, III, CHANCELLOR
For Transportation Management Services: For Skyline Transportation, Inc.:
Roland M . Lowell Linda J. Hamilton Mowles
Bruce, W eathers, Co rley, Dugh man & Lyle Lewis, King, Krieg, Waldrop & Catron
Nashville, Tennessee Knoxville, Tennessee
AFFIRMED AND REMANDED
WILLIAM C. KOCH, JR., JUDGE
OPINION
This appeal involves a dispute between two trucking companies over the
enforceability of a contract to sell intrastate operating rights along specified routes
in Middle and East Tennessee. The purchaser declined to honor the contract when
it became worthless as a result of federal deregulation of intrastate commercial
trucking. In an interpleader action filed in the Chancery Court for Rutherford
County, the seller asserted that the purchaser breached the contract, and the purchaser
asserted that the contract permitted it to cancel in the event of deregulation. The trial
court granted the seller’s motion for summary judgment after determining that the
purchaser did not have the right to cancel the contract because the federal
deregulation occurred after the contract’s consummation date. The purchaser asserts
on this appeal that it is entitled to relief from its contractual obligation because the
contract was essentially worthless. We have determined that the contract remains
enforceable and, therefore, affirm the trial court.
I.
Skyline Transportation, Inc. and Transportation Management Services, Inc. are
trucking companies operating in Tennessee. Skyline desired to purchase several of
Transportation Management’s routes in Middle and East Tennessee, and on
December 27, 1993, the two companies entered into a contract wherein Skyline
agreed to acquire the rights for $80,000. At the time of this transaction, the sale and
transfer of operating authority from one trucking company to another required
approval by both federal and state regulators. Accordingly, the parties agreed that
Skyline would place $8,000 in escrow when the contract was executed and would pay
the remaining balance after the appropriate state and federal regulatory authorities
approved the sale.
Both companies were aware of discussions on the national level to deregulate
the intrastate trucking business and understood that trucking companies would not be
required to obtain state regulatory approval to operate on intrastate routes if these
efforts were successful. Recognizing that deregulation would render their contract
worthless, the parties included the following provision in their contract:
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The operating rights comtemplated [sic] herein shall be
transferred by SELLER to PURCHASER no later than the
consumation [sic] date, by all necessary documents which
the parties hereby agree to execute, including but not
limited to a bill of sale, and subject to conditions set out
herein, which documents shall confer on PURCHASER
good and merchantable title to all of said operating rights
free and clear of any and all liens, claims and
encumberances [sic] of any kind whatever. Should any
pre-emptive action by the federal government or should the
State of Tennessee, no longer require operating authority
for intrastate motor carrier transportation, prior to the
consummation date hereof, then PURCHASER shall have
the option of terminating and canceling this Agreement and
having all monies held in trust or escrow returned to it
forthwith.
The contract expressly defined the “consummation date” as “a date falling after the
effective date of the final grant orders of the ICC approving this transaction, and
falling within the time permitted by the final grant orders to consummate this
transaction provided therein, and upon order of the Tennessee Public Service
Commission recognizing transfer of ownership of the certificates.”
On April 22, 1994, the Interstate Commerce Commission (“ICC”) granted
Skyline temporary operating authority to lease the rights covered by its contract with
Transportation Management. On June 3, 1994, the ICC published a notice that it had
approved the complete transfer of the operating rights from Transportation
Management to Skyline. When this approval became final on August 3, 1994, the
ICC notified the parties that it would issue the operating authority in Skyline’s name
when the parties submitted a jointly signed notice of consummation. On August 8,
1994, the Tennessee Public Service Commission (“PSC”) entered an order directing
that its records be amended to reflect the transfer of Transportation Management’s
intrastate certificates to Skyline in order “to conform this agency’s records to federal
law.”
While Skyline and Transportation Management were seeking federal and state
regulatory approval for the transfer of Transportation Management’s authority to
Skyline, legislation deregulating intrastate transportation of property was winding its
way through the Congress. In October 1993, the House of Representatives passed the
Aviation Infrastructure Act of 1993 that contained no provisions preempting state
regulation of intrastate trucking. However, in June 1994, the Senate replaced the
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House bill with the Federal Aviation Authorization Act of 1994 that included a
provision preempting state regulation of intrastate trucking.1 On August 5, 1994, a
conference committee approved the Federal Aviation Authorization Act of 1994 with
modifications and recommended it for passage.2 On August 8, 1994, the House of
Representatives and the Senate agreed to the conference committee report containing
the preemption provision.3 The President approved the legislation on August 23,
1994,4 and it became effective according to its own terms on January 1, 1995.5 The
preemption provision in the Federal Aviation Authorization Act of 1994 rendered
Transportation Management’s certificates of convenience and necessity for the
intrastate routes desired by Skyline essentially worthless.6
Some time during the second week of August 1994, Skyline learned that the
House of Representatives and the Senate had passed the Federal Aviation
Administration Authorization Act of 1994 containing the preemption provision. On
August 18, 1994, Transportation Management forwarded the notice of confirmation
required by the ICC to Skyline for its signature. On August 22, 1994, Skyline
1
According to some contemporary accounts, Congress had debated ending state regulation
of trucking as far back as early 1992. See What do Sears, Nader, Frito-Lay, and Bush Have In
Common?, Business Week, April 6, 1992, at 30. The preemption language was included in a rider
placed on a multi-billion dollar airport funding bill in June 1994. See Cheap Truckin’, National
Review, Nov. 7, 1994, at 54.
2
See H.R. Conf. Rep. No. 103-677 (1994), reprinted in 1994 U.S.C.C.A.N. 1715.
3
See 49 U.S.C.A. § 14501(c) (West 1997). The federal statute contains several specific
exceptions to the restriction of state regulation, none of which are applicable here.
4
See Statement by President William J. Clinton Upon Signing H.R. 2739, reprinted in 1994
U.S.C.C.A.N. 1762-1.
5
See Federal Aviation Administration Authorization Act of 1994, Pub. L. No. 103-305, §
601(d), 108 Stat. 1607 (1994).
6
The Congress recognized that the preemption provision would devalue existing certificates
of convenience and necessity. The conference committee’s report states:
During the hearing on preemption of State regulation held by the House
Committee on Public Works and Transportation on July 20, 1994, concerns were
raised regarding the devaluation of operating rights and its effect on motor carriers,
as a result of preemption of State authority to regulate the price, route, or service for
intrastate transportation. Some motor carriers have purchased or paid to acquire the
authority to operate trucks in many States. These operating rights for many motor
carriers, especially small carriers, are an important part of their net business assets.
The conferees recognize that this will eliminate the asset value of the operating
authority of those affected motor carriers.
H.R. Conf. Rep. No. 103-677, at 88-89 (1994), reprinted in 1994 U.S.C.C.A.N. 1715, 1760-61.
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informed Transportation Management that it declined to execute the notice of
consummation and that it was exercising its right to cancel the contract.
On August 25, 1994, the attorney holding Skyline’s initial escrowed payment
filed an interpleader action in the Chancery Court for Rutherford County requesting
a determination of the parties rights and obligations to the money being held in
escrow. Transportation Management and Skyline answered the complaint and joined
issue on whether Skyline had breached the contract by declining to execute the notice
of consummation and by declining to pay Transportation Management the remaining
balance due under the contract. Both parties eventually filed motions for summary
judgment. On January 31, 1996, the trial court granted Transportation Management’s
summary judgment motion, finding that Skyline could not cancel the contract because
the federal legislation became effective after the contract’s self-defined
consummation date. Skyline then perfected this appeal.
II.
The essence of Skyline’s position in this case is not difficult to grasp. It signed
a contract to purchase the rights to operate over routes owned by Transportation
Management and agreed to pay a price for these rights commensurate with its
estimation of their value at the time. Before Skyline paid the agreed price, the rights
it purchased lost their value through no fault of either Skyline or Transportation
Management. Skyline now does not desire to pay $80,000 for operating rights that
are available to it at no cost and argues that “[e]quity should acknowledge the
propriety of relieving [it] . . . from any obligation to pay eighty thousand dollars for
a transfer of something which has absolutely no value . . ..”
It is important to recognize from the outset that this is not a case of commercial
frustration. Ever since the destruction of the dance hall involved in the case of Taylor
v. Caldwell, 122 Eng. Rep. 309 (K.B. 1863), the law has recognized that a party’s
performance under a contract may be excused, when, through neither party’s fault,
the contract’s principle purpose has been totally thwarted. In modern parlance, the
doctrine of commercial frustration excuses a promisor from performing when the
promisor can show (1) that the risk of the frustrating event was neither foreseen nor
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caused by the parties and (2) that the frustrating event has destroyed or nearly
destroyed either the value of the performance or the object or purpose of the contract.
See Williams v. Whitehead, 854 S.W.2d 895, 897 (Tenn. Ct. App. 1993); Haun v.
King, 690 S.W.2d 869, 871 (Tenn. Ct. App. 1984); Restatement (Second) of
Contracts § 265 (1981). The doctrine affords a means by which courts allocate a risk
when the parties have not anticipated or allocated the risk in their agreement. See In
re M & M Transp. Co., 13 B.R. 861, 869-70 (Bankr. S.D.N.Y. 1981).
The frustrating event in this case is the deregulation of the intrastate
trucking business. Both Skyline and Transportation Management were cognizant that
state or federal regulators might “no longer require operating authority for intrastate
motor carrier transportation” and included in their agreement a specific provision
allocating the risk that deregulation might occur. The fact that they were both aware
of the possibility of deregulation places this case beyond the commercial frustration
doctrine. The parties are not entitled to risk allocation by operation of law when they
have allocated the very same risk for themselves. Accordingly, our task in this case
is to ascertain and give effect to the parties’ risk allocation as reflected in their
contract.
III.
The parties took the possibility of deregulation into account during their
negotiations. Transportation Management initially proposed to give Skyline the right
to cancel the contract if the State ceased requiring operating authority for intrastate
routes before the contract’s consummation date but later agreed to Skyline’s proposal
to extend the right of cancellation to circumstances where the federal government
preempted state regulation of motor carriers before the contract’s consummation date.
Accordingly, we must look to the contract to answer the following three outcome
determinative questions: (1) when did the contract’s consummation date occur, (2)
when did the federal government preempt state regulation of intrastate motor carriers
or when did the State cease requiring operating authority for intrastate routes, and (3)
did the federal government preempt state regulation of intrastate motor carriers or did
the State cease requiring operating authority for intrastate routes before the contract’s
consummation date.
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A.
Contracting parties are free to allocate risks as they see fit. See Wilson v.
Tennessee Farmers Mut. Ins. Co., 219 Tenn. 560, 566, 411 S.W.2d 699, 702 (1966);
Brown Bros., Inc. v. Metropolitan Gov’t, 877 S.W.2d 745, 749 (Tenn. Ct. App. 1993).
When they have reduced their agreement to writing, their rights and obligations are
governed by their written contract. See Cookeville Gynecology & Obstetrics, P.C. v.
Southeastern Data Sys., Inc., 884 S.W.2d 458, 461 (Tenn. Ct. App. 1994). Courts do
not concern themselves with the wisdom or folly of contracts, see Chapman Drug Co.
v. Chapman, 207 Tenn. 502, 516, 341 S.W.2d 392, 398 (1960); Brooks v. Networks
of Chattanooga, Inc., 946 S.W.2d 321, 324 (Tenn. Ct. App. 1996), and are not at
liberty to relieve parties from obligations that later prove to be burdensome or
unwise. See Hillsboro Plaza Enters. v. Moon, 860 S.W.2d 45, 47 (Tenn. Ct. App.
1993).
Courts must interpret contracts as written. See Bob Pearsall Motors, Inc. v.
Regal Chrysler-Plymouth, Inc., 521 S.W.2d 578, 580 (Tenn. 1975). We review the
contract as a whole. See Warren v. Metropolitan Gov’t, 955 S.W.2d 618, 623 (Tenn.
Ct. App. 1997); Wilson v. Moore, 929 S.W.2d 367, 373 (Tenn. Ct. App. 1996). We
must also give a contract’s language its plain, natural, and ordinary meaning, see
Hardeman County Bank v. Stallings, 917 S.W.2d 695, 699 (Tenn. Ct. App. 1995);
Gredig v. Tennessee Farmers Mut. Ins. Co., 891 S.W.2d 909, 912 (Tenn. Ct. App.
1994), and must avoid strained interpretations that create ambiguities where none
exist. See Farmers-Peoples Bank v. Clemmer, 519 S.W.2d 801, 805 (Tenn. 1975);
Empress Health and Beauty Spa, Inc. v. Turner, 503 S.W.2d 188, 190-91 (Tenn.
1973).
B.
The two dates material to the resolution of this dispute are the contract’s
“consummation date” and the date of the federal government’s “pre-emptive action.”
The contract does not identify a specific consummation date but rather states that the
“consummation date” must (1) follow the effective date of the ICC’s final order
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approving the transaction, (2) occur during the time period permitted by the ICC’s
order, and (3) be “upon the order of the Tennessee Public Service Commission
recognizing transfer of ownership of the certificates.” The consummation date is not
the same as the closing date because the contract states that conducting a closing is
optional.
The phrase “upon the order of the Tennessee Public Service Commission
recognizing transfer of ownership of the certificates” supplies the clearest indication
of the parties’ intentions. When introducing a condition or event, the preposition
“upon” usually connotes “on the occasion of” or “at the time of” with little or no
interval thereafter. See Webster’s Third New International Dictionary 2518 (1971);
Bryan A. Garner, A Dictionary of Modern Legal Usage 904 (2d ed. 1995).
Accordingly, as we construe the contract, its consummation date is the date on which
the transaction receives final regulatory approval from the PSC. This interpretation
is consistent with the parties’ understanding that the transfer of the routes could not
take effect until they obtained both federal and state regulatory approval.
The ICC’s order became final on August 3, 1994. It did not contain a specific
time period for consummating the transaction.7 Thereafter, on August 8, 1994, the
PSC “recognized” the ICC’s final order. The PSC’s order represented the last
regulatory hurdle for the parties’ transaction, and therefore, the contract’s
consummation date fell on August 8, 1994.
The final date to be determined is the date that the federal government took
“pre-emptive action.” Under the Supremacy Clause in U.S. Const. art. VI, cl. 2,
preemption occurs when there is an actual conflict between federal and state law, see
Freightliner Corp. v. Myrick, 514 U.S. 280, 287, 115 S. Ct. 1483, 1487 (1995), or
when Congress’s legislation is so pervasive that it leaves no room for state legislative
action. See Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516, 112 S. Ct. 2608,
2617 (1992). Congressional intent to preempt state law must be reflected in the text
and structure of the federal statute, see Ingersoll-Rand Co. v. McClendon, 498 U.S.
7The ICC’s letter notifying the parties that its June 3, 1994 notice of approval had become
final stated only that “[b]efore the involved authority can be issued in the new owners [sic] name,
a Notice of Consummation signed by both parties must be filed with the Commission. This notice
should be in letter form and must include the signatures of both parties.” The ICC did not establish
a deadline for filing this letter.
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133, 138, 111 S. Ct. 478, 482 (1990), and the best evidence of preemptive intent is
an express preemption clause. See CSX Transp., Inc. v. Easterwood, 507 U.S. 658,
664, 113 S. Ct. 1732, 1737 (1993).
The Federal Aviation Administration Authorization Act of 1994 contains an
explicit provision preempting state or local regulation of intrastate motor carriers with
respect to the transportation of property.8 See 49 U.S.C.A. § 14501(c)(1) (West
1997). Accordingly, the “federal pre-emptive action” could have occurred no earlier
than the enactment of the Federal Aviation Administration Authorization Act of
1994. Since the federal lawmaking power is shared by both houses of Congress and
the President,9 see I.N.S. v. Chadha, 462 U.S. 919, 947, 103 S. Ct. 2764, 2782 (1983),
the earliest date that “federal pre-emptive action” could have occurred would have
been August 23, 1994, when the President signed the legislation.10
Skyline did not have a right to cancel its contract with Transportation
Management because the contract’s consummation date occurred fifteen days before
the date of the “federal pre-emptive action.” Accordingly, Skyline breached the
contract by declining to sign the notice of consummation and by refusing to pay
Transportation Management the remaining balance of the contract.
IV.
We affirm the judgment and remand the case to the trial court for whatever
further proceedings consistent with this opinion may be required. We tax the costs
of this appeal to Skyline Transportation, Inc. and its surety for which execution, if
necessary, may issue.
8
The statute contains several exceptions to the general preemptive rule which are not
applicable to this case.
9
U.S. Const. art. 1, § 1, vests the federal government’s law-making power in the Congress.
See Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 588-89, 72 S. Ct. 863, 867 (1952).
However, the laws passed by Congress cannot take effect until they have been presented to the
President under the Presentment Clause in U.S. Const. art. I, § 7, cl. 2. Legislation that has not been
passed by both houses of Congress and presented to the President cannot become law. See Clinton
v. City of New York, ___ U.S. ___, ___, 1998 WL 333013, at *14 (U.S. June 25, 1998); I.N.S. v.
Chadha, 462 U.S. at 957-58, 103 S. Ct. at 2787.
10
An argument can be made that the “federal pre-emptive action” did not occur until January
1, 1995 when 49 U.S.C.A. § 14501(c) became effective. This case does not require us to choose
between August 23, 1994 and January 1, 1995 because both dates occur after the consummation date
of the parties’ contract.
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______________________________
WILLIAM C. KOCH, JR., JUDGE
CONCUR:
_______________________________
SAMUEL L. LEWIS, JUDGE
_______________________________
BEN H. CANTRELL, JUDGE
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