Opinion ID: 758676
Heading Depth: 3
Heading Rank: 2

Heading: Coronet's Undue Burden Contention

Text: 22 Coronet did not furnish financial data showing that restoration would impose higher costs than contracting does. Nor has Coronet shown that it is in a precarious financial position making it unable to withstand the costs of restoration, whatever they are. Hence Coronet has not established that restoration will cause undue hardship because of cost per se. 23 Coronet makes a different sort of undue hardship argument. It contends that restoration will cause undue hardship by forcing it to forego contract trucking services, standard in its industry, that now fully meet its needs and satisfy its customers, replacing them with the problematic services of an untested, in-house alternative that it must construct from whole cloth. The record demonstrates that Coronet's last in-house transportation department, closed in 1989, was plagued with problems. Coronet has presented the testimony of two witnesses--Coronet's president, Thomas Padden and William Jaquith, 6 an expert transportation consultant, both uncontradicted in the record and both credited by the ALJs, that Coronet lacks the experience and expertise to run a satisfactory in-house trucking service.1. Testimony of William Jaquith 24 William Jaquith testified that Coronet's former in-house transportation department had been poorly operated. Jaquith testified that Coronet had poor record-keeping and regulatory compliance procedures, frequent breakdowns with no long-term arrangement for service, insufficient garage space for a truck fleet, inadequate expertise to maintain equipment, and an aging fleet. Jaquith described the condition of Coronet's fleet in 1989 as comparable to fleets that existed in the 1950s and 1960s. According to Jaquith, Coronet's poor recordkeeping, sloppy maintenance, and overall lack of expertise and experience in operating a trucking department resulted in an operation that was wholly inefficient. Indeed, as to Coronet's trucking talents, Jaquith stated bluntly: They are not good truckers. They're not even mediocre truckers. 25 Hence, according to Jaquith, if Coronet wished to resume its in-house department today it would have to structure it in a much different, more sophisticated, way. To operate a private fleet, Jaquith testified that Coronet would have to retain a transportation consultant; terminate the contract with LMI; and replacing LMI's services by: (a) negotiating for equipment (trucks, tractors and trailers) with a national leasing firm such as Penske; (b) securing a source for fuel and emergency breakdown service; (c) hiring a transportation management team; (d) acquiring insurance; (e) instituting driver training and drug testing; (f) purchasing a computer system comparable to LMI's (for record-keeping) to control costs; (g) locating a terminal; and (h) arranging for a back-up carrier to prevent service failures during the six-month transition period; and (i) hiring management personnel to run its private fleet, including a general manager, terminal manager, clerk and several dispatchers. 7 26 Even if all these innovations and improvements could be realized, however, Jaquith opined that Coronet should not resume operation of its private fleet. He testified that Coronet's in-house transportation department was structured in a now-obsolete manner. As a private operator, Jaquith testified that Coronet lacked the necessary regulatory authority to develop backhauls--loads that fill the otherwise empty miles back from where a truck has made its delivery. Jaquith testified that companies had not operated in this manner for decades: 27 The fleet as it operated in those days was typical of what we found in the '60's and '70's; it was being run in a private fleet one way with finished product and came back empty. You can't do that any more and stay competitive. 28 Jaquith testified that a resumption of Coronet's private fleet operation would penalize them to the tune of about $460,000, because that's what the backhaul credits ... amount to right now. 8 29 Jaquith opined that dedicated carriers, which have the necessary approvals to engage in backhauls, could make the company a better deal financially. He concluded that it would simply make no sense for Coronet to revert to its previous private fleet operation with no backhauls. Such fleets, he said, are basically being eliminated all over the country. Jaquith testified that private fleets may have made some sense in the days of regulation, when the opposing carrier rates were $3 to $4 a mile. They don't now, when a dedicated fleet can come in at a price these people do. 30 Jaquith testified that in order to develop backhaul business and remain competitive, Coronet would have to operate as a common carrier. To do this, it would have to both take all of the above steps necessary to run a private fleet and also apply for interstate and intrastate operating authorities, and workers' compensation insurance, and obtain a sales-oriented general manager to solicit backhaul traffic. Jaquith further testified that accounting and regulatory requirements would also necessitate some corporate restructuring; he stated that Coronet would have to create a separate division or corporate subsidiary for the trucking operation. Jaquith testified that the transition to common carrier status would take approximately six months. During that time, Jaquith opined that, even with a back-up fleet, Coronet risked a substantial service failure due to late deliveries of its perishable products. He noted that Coronet's contracts with customers were on a handshake basis--in other words, they could be terminated at any time, for any reason. 9 31 Jaquith testified that Coronet did not have the expertise or experience to run a common carrier operation. To do so, Jaquith testified, Coronet will in essence have to go into the motor carrier business, which is a different business than their primary business, which is processing salads and lettuce. He testified that if Coronet terminated the contract with LMI and attempted to operate as a common carrier, it would be unable to maintain the bulk of the backhaul business generated by LMI. Based upon his review of Coronet's trucking operations and its present, successful, arrangement with LMI, Jaquith opined that there was no logical business reason for Coronet to go back into the trucking business, and that if it had to do so, 32 I'd recommend they get out of that business as quickly as they can.... They should not be in that business. 33 Jaquith testified that shortcomings similar to those he found in Coronet's in-house department had caused two-thirds of the twenty-five companies with which he has consulted in the last decade to convert to a contract fleet rather than attempt to operate their own, sophisticated, fleets. According to Jaquith, those companies that did not contract were local companies (rather than long-distance carriers like Coronet) providing special services beyond just trucking, calling for special arrangements that were best performed by their own trained personnel. Thus, according to Jaquith, the trend in the industry in 1989, if not before, was for companies to enter full-service contracts with carriers like Ryder and LMI for their shipping needs. 34 Jaquith noted that under the Ryder and LMI contracts, Coronet had increased its trucking efficiency by approximately fifty percent. He testified that common carriers like Ryder and LMI operate using the latest technology for specifications, engineering, preventive maintenance, repair, disposition patterns, fuel use, and so on. In addition, Jaquith testified, these common carriers have detailed records regarding the costs and efficiency of their fleets, and are in a position superior to that of private fleets to develop backhauls with sister or cousin operations. Unlike Coronet's old department, moreover, which relied upon truck stops to repair disabled trucks, Jaquith testified that Ryder and LMI have garage networks that allow trucks to be repaired and back in service within an hour. Jaquith also pointed out that Ryder and LMI have established locations throughout the country where drivers can rest after driving their maximum number of hours. 35 Jaquith testified that today's truck fleets are leased, not owned, and were not serviced by in-house mechanics as had been Coronet's practice prior to 1989. Under the leases, the lessor provides the fuel, servicing, and so on--indeed, Jaquith testified that the lessor will insist on servicing the vehicles. Thus, whether as a private fleet or common carrier, Coronet could lease its trucks, but it would not be in a position to hire in-house mechanics to service and maintain a leased fleet. 2. Testimony of Thomas Padden 36 Padden came to Coronet in 1986 after considerable experience at McDonald's. He was promoted from Vice-President to President and General Manager in 1990. According to the ALJ in the unfair labor practices proceeding, Padden presented credible evidence that Coronet's transportation department had long been troubled by problems and shortcomings which the full-service transportation system provided by Ryder could serve to remedy. Specifically, Padden mentioned (1) an inadequate and aging fleet of trucks, (2) inefficient record-keeping involving fuel, permits and federal and state regulatory requirements, (3) safety program deficiencies, (4) maintenance and on-the-road breakdown problems, (5) inadequate garage and parking facilities, (6) routing, and (7) parts inventory problems. 37 Padden testified that, based upon the foregoing problems and others, he came to the conclusion in 1986 that Coronet should not be in the distribution business. The ALJ in the unfair labor practice proceeding stated that he believed Padden's testimony that he (Padden) concluded prior to 1989 that Coronet should get out of the distribution [trucking] business. The ALJ in the instant compliance proceeding likewise credited the sincerity of Padden's belief on this score (... I credit absolutely Padden's statement of his intention to eliminate Respondent's in-house transportation department....). 10 38 Padden testified that he was made president of Coronet in 1990 because Howard Long had been asked by McDonald's to become involved with certain foreign operations, and hence had to spend much of his time abroad. Padden testified that once he was elevated to president of the company, he was solely in charge of decisions relating to the method Coronet used to transport its product. Padden stated that as of January 1990 he no longer needed approval from Long or anyone else to subcontract for trucking services. The ALJ found Padden's testimony on this issue credible. 11 39 Padden testified that he believed that the same problems with the transportation department he had outlined at the unfair labor practice hearing would have existed had it still been operating in 1993. He believed that nothing would have changed for the better. He continued, 40 My opinion is based on the fact that what we do and do best is further process produce. What we don't do best is run a trucking operation. 41 Accordingly, Padden said he would have moved[the trucking department] out after he became president in 1990 [had it still been going], replacing it with a skilled transportation company that could bring a total package to Coronet. 42 Padden gave various reasons for preferring a contract operation. He mentioned safety concerns and potential criminal liability of executive officers for safety violations. He testified that he and his people lacked expertise and experience in trucking operations. He mentioned, as did Jaquith, the litany of separate operations necessary to put together a smooth-running transportation department and the desirability of a contractor who provided and managed the total package, freeing Coronet's management from that responsibility. Padden testified that, before he became president, he spent forty percent of his time dealing with transportation issues; after Ryder took over, Padden testified that he spent only five percent of his time on such issues. 43 Padden pointed out in his testimony that when Coronet briefly experienced problems in 1991 with a contractor whom they quickly replaced, Padden chose not to go back to an in-house operation because we didn't do it right the first time, we certainly are not in any shape to do it right the second time. Padden said he wanted someone who had some expertise. Otherwise, he continued, 44 We're back to square one.... [I]f we were to again try to do our own fleet program, I'm going to have to hire people with that area of expertise. I'm back in the same throes of we need systems, we need software programs, we need probably special equipment to take care of tractor trailers. We need a facility to be able to take care of the equipment. We need somebody that's going to be very good in recordkeeping. 45 Padden credited Ryder and LMI with developing Coronet's backhaul business. He testified that backhaul revenues are essential to Coronet's business because they allow Coronet to offer its product to customers at a lower cost, thus generating company goodwill. Padden described, for example, how LMI called to his attention a firm that needed to deliver records to California from Pennsylvania, and helped coordinate use for this purpose of the same trailers employed for Coronet's lettuce shipments. While Padden testified that he had some experience working with McDonald's to develop backhauls, 12 he testified repeatedly that he considered it essential that Coronet hire a fulltime general manager with marketing and sales experience to handle the backhaul business. 46 Padden testified that Coronet was completely satisfied with the services provided by LMI. In addition to backhaul business, Padden credited LMI for other innovations that have resulted in increased efficiency. For example, Padden noted that LMI had created a domicile in Plainville, Connecticut, enabling drivers from Wheeling to be replaced there so as to avoid hours violations and speed up running time to Massachusetts. 47 Padden testified that once a general manager was hired to run the transportation department, assuming one could be found in the area and for the right salary, there would be some delay as that employee became familiar with Coronet's operation. 13 Padden expressed concern that Coronet might lose some or all of its business during this transition period and noted, as had Jaquith, that Coronet's contracts with its customers were on a handshake basis. In addition to this delay, Padden testified that it was uncertain whether Coronet could quickly obtain the specialized tractor-trailers needed to ship its produce. While LMI might sell or lease some of these trailers to Coronet, Padden noted that LMI was not contractually obligated to do so. Thus, Padden expressed some doubt that Coronet could simply take over where LMI left off if the contract was terminated.