Reproduced with the Permission of Miles L. Kavaller

California shippers now have a new and effective tool to deal with freight undercharge claims. Senate Bill 595, California's version of the federal Negotiated Rates Act of 1993 has been signed by the Governor and is now in effect. Its provisions may well be applicable to the undercharge claims of Industrial Freight System and Superior Fast Freight. The new law exempts small businesses entirely from the payment of undercharges. A small business concern is defined by the regulations issued by the Small Business Administration which classify companies using standard industrial codes. A small business concern is determined by either the number of its employees or its annual gross revenues.

Companies which do not qualify as small businesses may satisfy a claim by payment of twenty percent (20%) of the undercharge for shipments weighing 10,000 lbs. or less or fifteen percent (15%) of the undercharge for shipments weighing more than 10,000 lbs.

Undercharge claims may be resisted by filing a timely complaint with the California Public Utilities Commission under California Public Utilities Code 737. A complaint with the agency must be filed within ninety (90) days after service of a court filed complaint by the highway carrier, freight forwarder, a party representing the carrier or a freight forwarder or the assignee of a carrier or freight forwarder, including a bankruptcy trustee. In the case of a bankruptcy, however, relief must first be obtained from the automatic stay imposed by 362 of the Bankruptcy Code. Among other things, the complaint may challenge the reasonableness of the legally applicable freight rate or charges claimed. No additional payments are required to be made to the undercharge claimant until the PUC has made a determination.

No doubt, the attorneys representing the bankruptcy trustee in the Industrial Freight System undercharge litigation will challenge the applicability of this new law arguing that it violates the anti-forfeiture provisions of the federal Bankruptcy Code. However, three (3) federal courts of appeal have rejected similar arguments which attacked the applicability of the federal Negotiated Rates Act of 1993 including the Ninth Circuit Court of Appeals which covers California in its ruling in Gumport (Trustee for Transcon Lines) v. Sterling Press, _____ F.3d _____ (9th Cir. Sept. 14, 1995) (1995 W.L. 542527). My guess is that SB 595 will withstand any such challenge.