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STATE OF MICHIGAN COURT OF APPEALS

_____________________________________ FEDERAL ARMORED SERVICE, INC., Appellant, v MICHIGAN PUBLIC SERVICE COMMISSION, et al., Appellees. ______________________________________ FEDERAL ARMORED SERVICE, INC., Appellant/Cross-Appellee, v CITY TRANSFER CO., INC. and LOOMIS ARMORED, INC., Appellees-Cross-Appellants, and MICHIGAN PUBLIC SERVICE COMMISSION, et al., Appellees. ______________________________________ FEDERAL ARMORED SERVICE, INC., Appellant, No. 172845 LC Nos. 00013501; 000T-1213 No. 172844 LC No. 00013501 UNPUBLISHED July 26, 1996

v MICHIGAN PUBLIC SERVICE COMMISSION, et al., Appellees. ______________________________________ FAS-LAR, INC., et al., Appellants, v MICHIGAN PUBLIC SERVICE COMMISSION, et al., Appellees. _______________________________________ Before: Gribbs, P.J., and Hoekstra and Charles Stark,* JJ. PER CURIAM.

No. 172846 LC No. 00023409

No. 173034 LC Nos. 00013501; 000T-1213

In Docket Nos. 172844, 172845, and 172846, plaintiff Federal Armored Service, Inc. (Federal) appeals orders entered by the Michigan Public Service Commission (PSC) on December 20, 1993, January 7, 1994, and February 9, 1994. In Docket No. 173034, plaintiffs Fas-Lar, Inc. (FasLar), et al. appeal the PSC's December 20, 1993 and February 9, 1994 orders. In a cross-appeal in Docket No. 172845, defendants City Transfer Co., Inc. (City Transfer) and Loomis Armored, Inc. (Loomis) appeal the PSC's December 20, 1993 and February 9, 1994 orders. We affirm in all cases. Federal is a for-hire carrier engaged in the transportation of certain commodities, including cash, commercial paper, and other valuables, between points in Michigan and several locations in northern Indiana. The majority of Federal's movements are carried out via ground-based vehicles, such as armored cars; however, Federal also has an air division. Fas-Lar is the sole shareholder of Federal. Fas-Lar has eight shareholders, Harry and Jo Ann Larkin, Mike and Sue Larkin, Bill and Mary Larkin, and Robert and Marlene Larkin. _________________________________ *Circuit judge, sitting on the Court of Appeals by assignment.
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The Michigan Motor Carrier Act (MCA), MCL 475.1 et seq.; MSA 22.531 et seq., regulates the for-hire transportation of property by motor vehicle in Michigan intrastate commerce. As of late 1991, Federal and its predecessor had held MCA authority for over 20 years. In addition, Federal held air carrier authority pursuant to a certificate issued by the Federal Aviation Administration. On December 31, 1991 Federal's MCA authority was revoked by operation of law for failure to renew. MCL 479.10; MSA 22.575. Federal filed applications to reinstate its authority, and continued to operate under temporary authority. That temporary authority allowed Federal to serve the shippers it previously served, but not to expand. On September 3, 1992 City Transfer filed a complaint against Federal. The complaint alleged, inter alia, that Federal performed unauthorized moves, failed to charge its customers in accordance with published tariffs, failed to prepare appropriate shipping documents, illegally interlined traffic with another courier, and engaged in deceptive practices by alleging preemption of strictly ground movements. Federal's application for renewal of authority and City Transfer's complaint were consolidated. While the cases were pending, the PSC issued an order in In the Matter of Federal Armored Service, Inc, Case No. 23409 (Case No. 5). Case No. 5 dealt with an application by Federal to extend its authority. In that case, Federal contended that the PSC had no authority to regulate the transportation of property by motor vehicle if that service was incidental to continuous transportation by air. Relying on 49 USC 1305(a)(1), which precludes states from enacting any law, regulation, etc. "relating to rates, routes, or services of any air carrier having authority under subchapter IV of this chapter to provide air transportation," and Federal Express Corp v California Public Utilities Comm, 936 F2d 1075 (CA 9, 1991), which held that the use of motor vehicles as an integral part of an air delivery system is within interstate commerce and is not subject to state regulation, the PSC found that Federal's rates and billing practices for its air-ground service were not subject to its jurisdiction and that instances of noncompliance were irrelevant to a determination of fitness. The PSC found that the record demonstrated the existence of a number of ground-based violations, including billing not in compliance with published tariffs, and improper billing and documentation practices. The PSC granted the application for extension of authority, but assessed Federal $10,000 for its violations of the MCA, the PSC rules, and the published tariffs. City Transfer claimed an appeal. In City Transfer Co v Public Service Comm, unpublished opinion per curiam of the Court of Appeals, decided March 2, 1994 (Docket No. 156558), this Court affirmed the PSC's decision. The Motor Carrier Enforcement Division of the Michigan State Police conducted an investigation in City Transfer's complaint case against Federal. Based on the results of that investigation, the PSC Staff alleged that Federal knowingly and intentionally conducted illegal operations and disregarded the MCA and PSC rules.

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In a proposal for decision (PFD) issued on August 2, 1993 the administrative law judge (ALJ) focused in particular on Federal's armored car service. The ALJ limited its examination to Federal's work for a single shipper, Paychex, during the period February 5, 1992 through May 7, 1993. This period represented the time from the close of Case No. 5 through the close of the record in the instant proceeding. The ALJ reviewed representative records from March, July, and October of 1992. The ALJ found that Federal committed 23,975 violations. These violations fell into various categories: (1) recordkeeping violations of MCA rules; (2) operations beyond the commodity and territorial scope of its existing authority; (3) tariff violations involving failure to assess and collect charges in accordance with published tariffs; (4) the giving of unlawful rebates and concessions; (5) falsification of records for the purpose of creating the false impression of good faith; (6) unlawful interlining service; (7) failure to obtain PSC decals; and (8) conduct constituting a subterfuge to evade the MCA and PSC rules, including the attempt to coerce a shipper. The ALJ recommended an assessment of $1 million. Rejecting Federal's argument that it had made a good faith effort to bring its operations into compliance, the ALJ recommended that Federal's application be denied, that its present authority be suspended for two years, and that a moratorium on new applications be imposed for two years. In an order dated December 20, 1993 the PSC denied Federal's application and granted City Transfer's complaint. Stating that the threshold issue in the case was whether federal law preempted state regulation of Federal's intrastate motor carrier operations, the PSC noted that 49 USC 1305(a)(1) provided in pertinent part:

Except as provided in paragraph (2) of this subsection, no State or political subdivision thereof and no interstate agency or other political agency of two or more States shall enact or enforce any law, rule, regulation, standard or other provision having the force and effect of law relating to rates, routes, or services of any air carrier having authority under subchapter IV of this chapter to provide air transportation. The PSC acknowledged that Federal held a certificate issued by the Federal Aviation Administration which qualified it to operate as an air carrier. In addition, the PSC acknowledged that in Case No. 5, it found that

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