IRB-88-022-AK

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STATE OF MINNESOTA

OFFICE OF ADMINISTRATIVE HEARINGS

FOR THE MINNESOTA TRANSPORTATION REGULATION BOARD

In the Matter of the Petition of

DeLaria Transport, Inc. to Transfer

the Petroleum Authority Issued FINDINGS_OF_FACT,

Under Irregular Route Common Carrier CONCLUSION _AND

Permit No. 24982 to a Certificate of RECOMMENDATION

Public Convenience and Necessity as

a Petroleum Carrier Under Petroleum

Carrier Certificate No.

("Petroleum Products in Bulk, Within

the Twin Cities and Contiguous

Cities and Villages")

On October 15, 1987, the parties appeared before the undersigned

Administrative Law Judge pursuant to an Order for and Notice of Hearing. No

traditional hearing was held. instead, a lengthy conference was held

regarding the nature of the Petition, the issues to be discussed during any

hearing, and the legality of the Board's authority to grant the relief

requested. It was agreed that in lieu of a hearing, the parties would submit

briefs and the Administrative Law Judge would rule on the issues. The

resolution of those issues would dictate whether or not any additional

evidentiary hearings would be needed.

Petitioner DeLaria Transport, Inc. was represented by Grant Merritt, Grant

Merritt & Associates, Ltd., Attorneys at Law, 4644 IDS Center, Minneapolis,

Minnesota 55402. Protestant Indianhead Truck Line, Inc. was represented by

William E. Flynn, O'Connor & Hannan, Attorneys at Law, 3800 IDS Center,

Minneapolis, Minnesota 55402-2254. Numerous other petroleum carriers had

representatives in the audience although Mr. Flynn was the only one who

participated in the proceedings. His brief was filed on behalf of Indianhead,

Wayne Transport, Inc., Quickie Transport, Inc., and Dahlen Transport, Inc.,

although only lndianhead is a formal party.

The last brief in this matter was received on November 18, 1987.

Notice is hereby given that, pursuant to Minn. Stat. 14.61, and the

Rules of Practice of the Public Utilities Commission, as applicable to the

Transportation Regulation Board, and the Rules of the Office of Administrative

Hearings, exceptions to this Report, if any, by any party adversely affected

must be filed within 20 days of the mailing date hereof with the Transportation

Regulation Board, Minnesota Administrative Truck Center, 254 Livestock

Exchange Building, 100 Stockyards Road, South St. Paul, Minnesota 55075.

Exceptions must be specific and stated and numbered separately. Proposed

Findings of Fact, Conclusions and Order should be included, and copies thereof

shall be served upon all parties. If desired, a reply to exceptions may be

filed and served within ten days after the service of the exceptions to which

reply is made. Oral argument before a majority of the Board may be permitted

to all parties adversely affected by the Administrative Law Judge's

recommendation who request such argument. Such request must accompany the

filed exceptions or reply, and an original and five copies of each document

must be filed with the Board.

The Minnesota Transportation Regulation Board will make the final

determination of the matter after the expiration of the period for filing

exceptions as set forth above, or after oral argument, if such is requested

and had in the matter.

Further notice is hereby given that the Board may, at its own discretion,

accept or reject the Administrative Law Judge's recommendation and that said

recommendation has no legal effect unless expressly adopted by the Board as

its final order.

STATEMENT OF ISSUE

May the Board legally redesignate authority currently exercised pursuant

to an irregular route common carrier permit to a petroleum carrier certificate

as part of a two-step transaction which contemplates the subsequent transfer

of the certificate to another carrier without complying with the restrictions

of Minn. Stat. 221.151 relating to activities within the past two years?

Based upon all the filings and proceedings herein, the Administrative Law

Judge makes the following:

FINDINGS OF FACT

1. On April 2, 1958, the Minnesota Railroad and Warehouse Commission

issued an irregular route common carrier permit to George DeLaria. This

permit authorized the transport of petroleum products in bulk within the Twin

Cities and contiguous cities and villages. On November 12, 1962, the

Commission extended the permit to include the transportation of cottonseed,

linseed and soybean oils, raw and refined processed derivative products from

origin points of Minneapolis, Savage, Red Wing and Mankato, to all points in

Minnesota including origin points. On July 28, 1966, the Commission

transferred the authority held by George DeLaria to DeLaria Transport, Inc.

The scope of the permit transferred was exactly the same as had originally

been held by George DeLaria.

2. At some point prior to April of 1987, it appears that the permit was

further extended to include liquid resins and liquid sugars, corn syrup and

blends (with various limitations not material to this proceeding).

3. On October 15, 1986, the Board issued its decision in the Dombrock

redesignation proceeding (In_the Matter of the Petition of DombrocK. Inc.

d/b/a Metro Transports, ... for a redesignation of its IRCC permit No. 42238

to a PC Certificate-_No,_156., Docket No. IRCC 47238, PC-156/MR-85-348). In

that Order, the Board allowed Petitioner Dombrock to redesignate its

authority, previously held in the form of an IRCC permit, to a petroleum

Carrier certificate. In the Order, and the Memorandum attached thereto, the

Board noted that less than a handful of motor carriers hold IRCC permit

authority to transport petroleum products. It noted that for over 20 years,

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members of various regulatory bodies have contended that those IRCC permits

were issued in error, and ought to have been issued as PC certificates. The

Dombrock Board encouraged permit carriers to apply for PC certificates "with

present permit restrictions intact." It opined that this would eliminate the

category of permit petroleum carriers "with no adverse effect whatsoever" on

present certificated petroleum carriers.

4. At some point in 1986 or 1987, DeLaria Transport determined to

concentrate its efforts on the carriage of cottonseed oil, linseed oil, and

other non-petroleum products. On April 29, 1987, DeLaria filed a Petition

seeking redesignation of a portion of its IRCC permit (the portion allowing

the transportation of petroleum products) to a petroleum carrier certificate.

DeLaria wanted the remainder of the IRCC permit (the part relating to

cottonseed oil and other non-petroleum products) to remain intact. By letter

dated May 8, 1987, the Board indicated that it would not approve the Petition

to redesignate only a portion of the IRCC permit. Any Board ex_partg order

allowing redesignation from IRCC to PC would contain language cancelling the

permit in its entirety, and require DeLaria to file a new Petition for IRCC

authority.

5. On July 23, 1987, DeLaria and Mississippi Transport, Inc. (an

unrelated entity) filed a Petition requesting authorization for a temporary

lease of "the certificate of public convenience and necessity as a petroleum

carrier held by [DeLaria Transport, Inc.]" as well as a joint petition for a

permanent transfer of the certificate.

6. On July 29, 1987, the Board issued two separate Orders of interest

herein. In the first Order, the Board authorized the issuance to DeLaria

Transport, Inc. of a certificate of public convenience and necessity as a

petroleum carrier, indicating that once the redesignation becomes permanent,

the remaining parts of the IRCC permit (related to cottonseed oil, etc.) would

be cancelled. This Order was issued on an ex_parte basis, and was published

in the Board's weekly calendar of July 31, with a Protest date of August 20.

On the same day, the Board issued an Order authorizing the temporary lease of

the petroleum certificate from DeLaria to Mississippi for a period of six

months from July 29, 1987, or until the Board has issued an Order on the

permanent transfer of the certificate.

7. On July 31, 1987, the Board published notice of both the Petition for

redesignation and a new Petition from DeLaria seeking IRCC authority for the

non-petroleum products (cottonseed oil, etc.) which it previously held under

its old IRCC permit. Both set a Protest date of August 20.

B. On August 20, Indianhead Truck Line mailed a Notice of Intent to

Protest in connection with the Petition to transfer the IRCC permit's

petroleum authority to a petroleum carrier certificate. The Board then set a

hearing for October 15, 1987 and mailed notice of the hearing to DeLaria, its

attorney, and Indianhead.

9. On October 15, 1987, DeLaria and its attorney appeared at the

hearing, as did Indianhead and its attorney. Due to the rather unusual nature

of the proceeding, a lengthy off-the-record discussion was had to discuss the

various statutory and regulatory standards and precedents applicable to the

Petition. It was determined that, in lieu of an evidentiary hearing at that

point, briefs would be submitted on the legality of allowing the Petitioner to

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proceed as it had sought to. Depending upon the outcome of the ruling on

legality, an additional evidentiary hearing might or might not be needed.

Based on the foregoing Findings, the Administrative Law Judge makes the

following:

CONCLUSIONS

1. The Transportation Regulation Board has jurisdiction over the subject

matter of the hearing.

2. Proper notice of the hearing was timely given, and all relevant

substantive and procedural requirements of law or rule have been fulfilled

and, therefore, the matter is properly before the Administrative Law Judge.

3. There is no statutory or rule prohibiting the redesignation, even if

it is to be followed by a subsequent transfer. This is true even if the

subsequent transfer would result in greater authority being transferred than

had been exercised by Petitioner within the two-year period immediately

preceding the transfer.

4. The Dombrock case was similar enough to this case to allow it to stand

as administrative precedent for the legality of the redesignation. See,

Memorandum.

THIS REPORT IS NOT AN ORDER AND NO AUTHORITY IS GRANTED HEREIN. THE

TRANSPORTATION REGULATION BOARD WILL ISSUE THE ORDER OF AUTHORITY WHICH MAY

ADOPT OR DIFFER FROM THE FOLLOWING RECOMMENDATIONS.

It is the recommendation of the Administrative Law Judge to the Board that

it issue the following:

ORDER

That the Petition of DeLaria Transport, Inc. to redesignate the petroleum

authority issued under Irregular Route Common Carrier Permit No. 24982 to a

certificate of public convenience and necessity as a petroleum carrier under

Petroleum Carrier Certificate No. ______ limited to petroleum products in

bulk, within the Twin Cities and contiguous cities and villages, be GRANTED.

Dated this 8th day of December, 1987.

ALLAN W. KLEIN

Administrative Law Judge

NOTICE

Pursuant to Minn. Stat. 14.62, subd. 1, the agency is required to serve

its final decision upon each party and the Administrative Law Judge by first

class mail.

Reported: Tape Recorded.

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MEMORANDUM

The economic reality of what DeLaria is seeking to accomplish is the sale

of its petroleum carriage business to Mississippi Transport. In the end,

Mississippi Transport will carry petroleum products, and DeLaria Transport

will carry non-petroleum products. The regulatory reality, however, is

nowhere near as simple. In the end, Mississippi will have a petroleum carrier

certificate authorizing the carriage of petroleum products, in bulk, within

the Twin Cities and contiguous cities and villages. DeLaria Transport will

have a new IRCC permit, authorizing the transport of cottonseed oil, etc.

There is no statute or rule authorizing redesignation of authority from a

permit to a certificate. However, there is administrative precedent from the

Dombrock proceeding. It will be recalled that in that situation, Dombrock was

allowed to redesignate its IRCC permit to a PC certificate. The day after the

Board entered its ex parte order redesignating the permit as a certificate,

Dombrock filed a joint petition with Blue Transit, Inc., requesting that the

Board approve the transfer of its newly designated certificate to Blue. Blue

was the holder of PC Certificate No. 138 and Contract Carrier Permit No. 2601,

and would be barred by Minn. Stat. 221.151, subd. I from receiving the

transfer of Dombrock's IRCC permit. But there was no statute to prohibit the

transfer of Dombrock's new PC certificate to Blue. By structuring the

transaction as a two-step process, Dombrock was allowed to transfer its

petroleum business to Blue without running afoul of the statutory prohibition.

In the case of DeLaria and Mississippi, Petitioner desires to engage in a

two-step process to avoid the operation of a different part of the same

statute. Minn. Stat. 221.151, subd. 1 provides, in part, that:

In determining the extent of the operating authority to be

conducted by the transferee under the sale or lease of the

permit, the past operations of the transferor within the

two-year period immediately preceding the transfer must be

considered. Only such operating authority may be granted

to the transferee as was actually exercised by the

transferor under the transferor's authority within the two-

year period immediately preceding the transfer as evidenced

by bills of lading, company records, operation records, or

other relevant evidence.

Petitioner takes the position that if its two-step transaction is allowed,

this statute would not apply because Petitioner would be transferring a

certificate, not a permit. Protestant, on the other hand, alleges that the

proposed redesignation is nothing but a sham to avoid the operation of the

statute, and that the public interest would be harmed if the transaction is

allowed. Protestant alleges that Petitioner's operations have, in fact, been

very limited in the two-year period at issue, and that if the transfer is

allowed without limitation, it would have the effect of allowing a new entrant

into the already-crowded petroleum carriage business in the Twin Cities area.

The question boils down to one of whether the proposed two-step

transaction is merely a sham to avoid the operation of the statute and

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therefore ought not to be allowed, or whether it is a permissible use of the

law to obtain a beneficial result which Petitioner is entitled to. The

Administrative Law Judge has concluded that he is bound to follow the agency's

past interpretation, particularly where the statute and rules do not

explicitly contravene it. In the Dombrock case, an administrative law judge

recommended that the Petition to redesignate from an IRCC permit to a PC

certificate be denied, because it contravened a statute. There, as here, the

purpose of the transaction was to avoid a statutory "roadblock" to the

transfer of authority. The Board, however, reversed the administrative law

judge and granted the certificate. In the course of doing so, it explicitly

encouraged other permitted carriers to apply for certificates. The Petitioner

in this case, DeLaria Transport, can hardly be faulted for taking advantage of

an inv i tat i on to solve an otherwi se d iff i cult problem.

The best analogy for what is being done here occurs on a daily basis in

the business world in connection with individual and corporate income tax

planning. Persons go to great lengths and complexities to attempt to minimize

(or even eliminate) their tax liabilities, and they are permitted to do so, so

long as their transactions are not fraudulent. Judge Learned Hand has

written:

[A] transaction, otherwise within an exception of the

tax law, does not lose its immunity, because it is actuated

by a desire to avoid, or, if one choose, to evade, taxation.

Anyone may so arrange his affairs that his taxes shall be

as low as possible; he is not bound to choose that pattern

which will best pay the Treasury; there is not even a

patriotic duty to increase one's taxes.

Helverinq v. Greqory, 69 F.2d 809, 810 (CA 2, 1934), aff'd sub nom., Gregory v.

Helveing, 393 U.S. 465. Despite the language in the quotation, however, the

actual result of that case was to deny the taxpayer the advantage of all her

machinations, and require her to pay substantial taxes despite having gone to

great lengths to fashion a transaction which appeared, on its face, to be

nontaxable. The court reasoned that the law was written to give preferential

treatment to transactions that had a legitimate business purpose other than

mere tax avoidance. In the particular case before the court, however, there

was only one purpose: that of tax avoidance. Under those facts, the court

held that the transaction was a sham, and the taxpayer had to pay taxes as if

she had not created the elaborate artifice to avoid them.

The Board had the opportunity to consider similar reasoning in the

Dombrock case, yet it allowed the redesignation and subsequent transfer, and

encouraged others to redesignate. Although there are superficial differences

between that case and this one (a different part of section 221.151 is being

avoided by the transaction, and an industry participant has protested in this

one, whereas the Commissioner of Transportation protested in Domb rock), the

fundamental transactions are the same. The Administrative Law Judge feels

constrained to follow the Board's past precedent, although he believes a

strong argument can be made that there is no legitimate business purpose to

either of the two-step transactions other than avoiding the statutory

prohibitions of section 221.151.

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II.

There is no need for any evidentiary hearing. Protestant wanted to

demonstrate the limited scope of the operating authority that had actually be

exercised by DeLaria within the two-year period immediately preceding the

proposed transfer. As noted earlier, that statute only applies to transfers

of permits by sale or lease, not to redesignations from a permit to a

certificate. Given the ruling set forth above, allowing the redesignation,

the evidence which Protestant desired to submit would be irrelevant. It would

not matter whether DeLaria had engaged in wide-ranging activities, only narrow

activities, or none at all. One could assume any of those levels, and the

result would be the same. Therefore, there is no reason to have an additional

evidentiary hearing at this time.

A.W.K.

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