Topic:
PREEMPTION; FEDERALISM; MOTOR VEHICLES; TRUCKS;
Location:
TOWING;
Scope:
Background;

OLR Research Report


The Connecticut General Assembly

OFFICE OF LEGISLATIVE RESEARCH




October 11, 1995 95-R-1077

TO:

FROM: James J. Fazzalaro, Principal Analyst

RE: Regulation of Tow Truck Operators

You asked for an explanation of the current situation regarding state regulation of tow truck operators with respect to what appears to be a federal law preempting state regulation.

SUMMARY

In 1994, Congress enacted a law prohibiting states and localities from enforcing any laws, regulations, or other restrictions relating to the rates, routes, or services of intrastate motor carriers of property. The legislation started out as a means of leveling the competitive playing field between two large package delivery services after one, Federal Express, won a Supreme Court case that freed it from regulation as a motor carrier in California. As Congress considered the measure, the federal preemption of state regulation expanded until it encompassed the entire motor carrier industry. What appears to have been not completely clear to the Congress at the time was the fact that administrative rulings of the Interstate Commerce Commission (ICC) considered the tow truck industry to be property carriers generally subject to ICC authority. Consequently, the towing industry took the position once the legislation passed that it was no longer subject to state economic regulation.

When a number of officials from cities around the country expressed concern over this interpretation of what was initially thought to be a more restricted preemption of state authority, Congress quickly took up a corrective bill that would have restored regulatory authority over the towing industry, at least for an additional two years until 1997. The bill passed the House on September 29, 1994 and the Senate on October 6, but the Senate added two provisions that the House found unacceptable and the measure was returned to the Senate on the last day before the Fall recess. The Senate failed to consider the measure before adjourning on October 8 and the preemption has been implemented without the modification that would have restored state authority over towers.

Apparently, the ICC's opinion that towers are property carriers for purposes of the regulatory preemption is based upon an administrative interpretation and not any clear statutory language in the Interstate Commerce Act or the recent preemption legislation. The Interstate Commerce Act does not specifically define what constitutes “property” under its provisions, but it specifies that emergency towing of accidentally wrecked or disabled vehicles should be considered outside of ICC regulatory authority. This has apparently been interpreted through ICC rulings to mean that other types of towing are considered property transportation subject to regulation and, by extension, that the legislation preempting state regulation of motor carriers of property thus applies to towing services. Our efforts to clarify this as the actual line of reasoning have been somewhat unsuccessful.

Connecticut's regulation of towing services has always been considerably different than the way it regulates freight haulers. The law gives the Department of Motor Vehicles (DMV) the authority to regulate towers, but restricts who may provide such services to those licensed as motor vehicle dealers or repairers. Towers must file their rates and charges with the agency and the commissioner may disapprove those he finds are not “just or reasonable” based on rates published in standard industry manuals. There are also various other record keeping, equipment, inspection, and operational requirements.

The DMV has issued an advisory to towing services that it no longer will regulate towing rates pursuant to the federal preemption, but that it will continue to regulate storage charges and other aspects of the industry. It is not clear from the advisory how the DMV makes the distinction between towing rates and storage rates when frequently both the towing and the storage is provided by the same entity. The DMV advisory also does not address the issue of whether others besides licensed dealers and repairers can provide towing services to the public from now on. The argument could be made that this restriction controls entry into the industry and is clear regulation of service.

FEDERAL PREEMPTION OF STATE REGULATION

Since January 1, 1995, federal law has prohibited a state, its political subdivisions, or a political authority of two or more states from enacting or enforcing any law, regulation, or provision having the force of law that relates to the “price, route, or service of any motor carrier or any private motor carrier with respect to the transportation of property” (P.L. 103-305, 601). Certain areas are not covered by this preemption. These include a state's safety regulatory authority, the authority to impose route controls or size and weight limitations for vehicles or controls based on the hazardous nature of cargo, and regulation with respect to minimum amounts of financial responsibility for a carrier and self-insurance authorizations.

A state may continue to regulate uniform business practices, cargo liability and credit rules, bills of lading and receipts, and antitrust immunity for joint rate and route filings, freight classifications, and mileage guides, but only if the regulation is not more burdensome than federal regulation of the activity and the regulatory requirements are voluntarily agreed to by the carriers.

Background Information on Preemption of State Regulation

The history of the federal law that currently preempts state regulation of intrastate motor carriers of property goes back to a 1992 U.S. Supreme Court decision that focused on state regulation of the package delivery industry. The Federal Express Corporation (FedEx) had challenged California's authority to regulate its motor carrier operations. The court ruled that intrastate economic regulations could not be applied to FedEx because it was considered an air carrier and such regulation was preempted by the Airline Deregulation Act of 1978. The decision had significant implications in the express package delivery service industry in that FedEx's main competitors, such as United Parcel Service (UPS), were organized as motor carriers instead of air carriers and thus remained subject to state regulations.

Actions taken by several states in response to the court ruling tended to create further inequities for certain carriers that use a high percentage of owner-operators as drivers instead of their own employees or that operated strictly over-the-road instead of as integrated air-highway operations such as FedEx. Although it had received relief in California when that state revised its regulations following the court ruling, UPS, which was basically a trucking company that had recently expanded into air freight, was concerned that it would be at a significant competitive disadvantage if it could not generally operate throughout the country with the same freedom as FedEx. Thus, it joined with FedEx in an effort to get the Congress to provide general relief from state regulation of cargo transportation using combined air and highway modes.

The Federal Preemption

As a result of this two-year lobbying effort, the pending airport development aid bill was amended to preempt state regulation of intermodal air freight carriers. Once this happened, a number of the larger less-than-truckload carriers (smaller mixed freight shipments) lobbied to expand the preemption to include them in exchange for dropping their opposition to the proposal. This in turn involved the smaller trucking companies in the lobbying effort as they feared limiting the preemption to the larger carriers might drive them out of business. Ultimately, the provision was broadened to include all carriers in a general preemption of state regulation of intrastate freight operations.

The state preemption was enacted as a provision of the Federal Aviation Administration Authorization Act of 1994 (FAAA Act) and signed by President Clinton on August 23, 1994. Almost immediately, tow truck operators began claiming that they were exempt from state regulation because they were property carriers and thus under the preemption. There is some evidence that Congress may have been somewhat confused over this issue during and immediately after debate and passage of the FAAA Act.

Response to Preemption

Within a month of the act being signed into law, Congress was considering a “technical” amendment that would have postponed extension of the regulatory preemption to the towing industry for two years. Floor debate on the amendment suggests strongly that some members of Congress were concerned about the implications of the FAAA Act on local juridsictions, particularly the cities, where the vast majority of regulation of tow truck operators takes place. (Connecticut appears to be one of only about eight states that has state level regulation of towers.)

In introducing the amendment, Representative Rahall of West Virginia stated that the purpose of the bill was to “address an item which Congress did not intend to be within the scope of section 601 (the regulatory preemption section of the FAAA Act).” He stated further:

The purpose of Section 601 was to address issues relating to the intrastate transportation by motor carrier of general freight and express mail small packages.

We now find that the act would also affect the ability of a State to regulate tow trucks in those States which engage in such regulation.

This clearly was not our intention. And, in fact, many states regard the regulation of tow trucks a matter of consumer protection.

For this reason, the pending measure would provide for continued State economic regulation of intrastate tow and wrecker services where such regulation exists (Congressional Record, H 10351, September 19, 1994).

The bill was adopted under a motion of unanimous consent and a voice vote approval. Rep. Rahall then amended it to limit its effect to a two-year period, until January 1, 1997. The Senate passed the Rahall bill by voice vote on October 6, but added two more provisions in the process—one that allowed local governments to join states in regulating towing and another dealing with an unrelated matter. This proved to be fatal to the measure as the House refused to accept the Senate's additions to the bill and sent it back in its original form. The Senate adjourned on October 8 without taking any further action on the corrective legislation.

Thus, while no corrective action was ultimately taken, two things appear evident from the record. One is that the functional interpretation of the law previously passed, which was provided by the ICC, was that it applied to tow trucks. The other is that Congress appears to have intended that this not be the case. But no similar legislation appears at this time to be under consideration during the current Congressional session.

Interpretation of Tow Trucks as Property Carriers

One of the things that has contributed to the confusion over the application of the current law to the towing industry is that most people apparently were not aware, either at the time the law was passed or shortly thereafter, that the ICC considered tow trucks to be property carriers in the same vein as freight lines and small package delivery services.

A clear understanding of how inclusive the term “motor carriers of property” was did not seem to occur until very late in the legislative process, if not actually after the point at which the preemption compromise was reached. In any case, the implications with respect to towing services appear to have been lost in the larger issues regarding competition between air freight services and large vs. small trucking companies.

After the FAAA Act went into effect, several members of Congress inquired of the U.S. Department of Transportation (USDOT) whether the act jeopardized state regulation of towing. USDOT responded that “tow truck operators are considered to be motor carriers of property under the (Interstate Commerce) Act and are, under some circumstances, subject to ICC jurisdiction.” (see USDOT letter to Sen. Robert Packwood, attached.)

We discussed this issue with Edward Rastatter, Chief of the Regulatory Review and Planning Division of the USDOT, who provided the letter. In providing this guidance to members of Congress, Rastatter stated that the actual interpretation of the meaning of the term “carriers of property” is the ICC's and not USDOT's. The Interstate Commerce Act does not actually define what constitutes “property” in any specific way in this context. Rastatter stated that the interpretation is based on “past ICC rulings” which we have been unable to locate. While we cannot say for certain at this point, these rulings appear to stem from what is actually a statutory exemption to ICC authority, instead of an express grant of authority over towers.

The federal law lays out numerous exceptions to ICC authority over motor carriers of certain items. In one such exception, the law specifies that a motor carrier is not subject to ICC jurisdiction if it is engaged in “the emergency towing of an accidentally wrecked or disabled motor vehicle” (49 U.S.C. 10526(b)). It may be that the ICC rulings are based, as it appears, on the interpretation that since only these interstate “nonconsensual” tows were made statutorily exempt from ICC authority, all other towing must be subject to ICC authority. This, in turn, apparently leads to the interpretation of the scope of the preemption in the FAAA Act that the law's reference to motor carriers of property engaging in intrastate commerce means, by implication, all carriers subject to ICC regulation and not just the most obvious ones that were the ostensible reason why the preemption was enacted.

We have had to speculate on the line of reasoning used by the ICC because we have, as yet, been unable to locate the actual ICC rulings that lead to the interpretation. We contacted the ICC Chief Counsel's office for information and were referred to the USDOT as the source of authority. This led us to Rastatter who apparently was unaware that the distinction was a matter of ICC administrative interpretation and not clearly in the statute. He provided us with the letter and other guidance they have given to those inquiring about this issue, but not with the ICC rulings on which the interpretation is based. We are continuing to try to obtain these specific rulings and will make them available to you if we get them.

CONNECTICUT REGULATION OF TOW TRUCKS

Connecticut has never regulated tow trucks as property carriers. Historically, motor carriers of property were regulated much like other utilities and came under the control of the Public Utilities Commission and, later, the Department of Public Utilities Control. Regulatory authority over motor carriers was transferred to the Department of Transportation in 1988.

State economic regulation of these businesses was typical of economic regulatory schemes elsewhere. Generally, a business was not allowed to begin operations without first obtaining a certificate of public convenience and necessity. Getting such a certificate required the prospective carrier to demonstrate that the service proposed was both necessary and in the public interest. Besides regulating how a carrier could enter and exit the business, these regulated businesses typically had to file their rates and tariffs for approval, provide proof of insurance coverage or financial responsibility that satisfied state requirements, operate only along approved routes, and meet various administrative and other requirements. (Most of this regulation of intrastate motor carriers, except for household goods carriers, was abolished in 1995 in conformance with the federal preemption.)

Connecticut has never applied any of these motor carrier requirements to tow trucks. Rather, an entirely different set of laws governs tow truck operations and they bear little similarity to the extensive level of regulation to which freight carriers were subjected. The law allows only businesses that are licensed as motor vehicle dealers or repairers by the DMV to “engage in the business of operating a wrecker for the purpose of towing or transporting for compensation motor vehicles which are disabled, inoperative, or wrecked or are being removed in accordance with the provisions of 14-145 (towing from private property)” (CGS 14-66).

In addition to limiting who may engage in providing public towing services, the law provides for a form of rate regulation. While it does not require that wrecker operators get their rates affirmatively approved by the DMV, it requires that a schedule of rates and charges, including but not limited to storage charges, for services to be rendered within the state be filed with the DMV. While the law does not require that these rates and charges receive DMV approval, it does allow the DMV commissioner to disapprove any charge if he feels that it is not “just and reasonable.” With regard to charges for towing and transporting vehicles, the commissioner must be guided by rates published in standard industry manuals. Towing operators are prohibited from charging more than the rates on file with the DMV unless this is approved through an amended rate schedule.

Some of the other requirements applicable to wrecker operators include:

1. a wrecker operator cannot tow a vehicle to a storage facility unless the storage facility's rates and charges have been filed with the DMV;

2. each vehicle used for towing for compensation must be specifically registered as a wrecker and pay a $46 registration fee;

3. each wrecker must be inspected with respect to its number, equipment, and identification, and to determine its mechanical condition and whether it is properly equipped to do its intended work;

4. a wrecker must have two flashing yellow lights. These lights must be mounted at least eight feet above the road surface and as far to the back of the cab as practicable, indicate the full width of the vehicle, be visible in all directions at all times, and be operated whenever the wrecker is at an accident scene or location of a disabled vehicle and when towing the disabled vehicle;

5. wreckers are also required to have: an amiable spotlight, a working fire extinguisher mounted in a permanent bracket, securely mounted hoisting equipment of sufficient capacity to perform the intended work, and three flares to be used while performing its services during twilight or nighttime hours;

6. the registrant or operator of a wrecker is prohibited from offering or giving any gratuity or inducement of any kind to a police officer or anyone else to obtain towing business or recommendations for towing, storing, or estimating repairs to disabled vehicles;

7. no dealer or repairer licensee operating a wrecker may require a vehicle owner to sign a contract for damage repairs as part of the towing consideration or to sign a repair order or estimate authorization until the towing job has been completed; and

8. wrecker owners must keep records subject to DMV inspection that contain (1) each towed vehicle's registration number, (2) the date and time the tow was begun and completed, (3) the location from which the vehicle was towed and its destination, (4) total mileage involved in the tow, (5) the towing charge and any other charges for tow-related services, (6) the name and address of the person who requests the tow, and (7) any other information the DMV commissioner requires. The tower must also maintain copies of any contracts he has with private property owners or lessees.

CURRENT DMV POSITION REGARDING PREEMPTION

The DMV appears to have accepted the validity of the preemption argument with respect to its regulatory power, but only in certain respects. In an advisory, sent to dealer and repairer licensees engaging in towing operations, the DMV has interpreted the federal law to preempt its authority over towing rates only. It maintains that the law does not affect its authority over “safety related items.” Thus it maintains that towers still must comply with statutory provisions relating to equipment, inspections, insurance filings, wrecker registrations and use of wrecker plates, removal of abandoned vehicles, private property tows and declaratory statements (CGS 14-145), record keeping, and filing storage rates.

The advisory further states that municipalities which contract with towers or use a rotation system for providing towing services may continue to do so.

ISSUE ANALYSIS

Regardless of the somewhat indirect line of reasoning under which the FAAA Act provision has been interpreted to apply to the intrastate towing industry, most of the principal administrative agencies seem to have accepted its application, at least for the time being, including the Connecticut DMV. To date, it appears that no effort has been made in Congress to consider another “corrective” bill. Rastatter believes that there will be consideration of legislation that could restore a state's authority to regulate nonconsensual tows, but nothing has moved forward yet. Even if Congress may have inadvertently created a dilemma for states and localities, most everyone seems to have accepted the implications.

The type of regulation to which Connecticut law has subjected wrecker services has clearly been considerably different than the way it has regulated freight haulers. The emphasis on providing the DMV commissioner with authority to disapprove unjust or unreasonable rates based on consideration of standard published rates within the industry and not mere discretion is a somewhat consumer oriented type of regulation, and considerably less pervasive than what freight carriers have historically been subjected to. Regardless, it is still considered to be economic regulation subject to preemption under the federal law. Whether future incidents of exorbitant towing charges cause the issue to be revisited on the federal level remains to be seen. Ironically, it may be the motor carrier industry itself, which gained the most from the intrastate regulation preemption, that may turn out to be the most vulnerable to unregulated towing rates.

The most immediate issue for Connecticut seems to be how far the regulatory preemption should be read to extend. So far, the DMV has taken the position that it has lost its authority to regulate towing charges, but specifically maintains that its authority to regulate storage charges remains intact. We do not know how the agency makes the distinction between the two charges since they frequently, but not always, are part of the same service. The agency apparently feels that storage can be distinguished from the actual towing with respect to the meaning of service. The industry is not likely to accept that distinction and the regulation of storage and other charges associated with the towing process appears tenuous.

Perhaps the distinction is based on the limitation that only licensed dealers and repairers can be towers. This allows for a separation of the towing aspect, which might be considered as separately regulated under CGS 14-66, and the storage aspect, which would come under regulation as part of the dealer's or repairer's licensed business. But since one of the basic principles of economic regulation is controlling who may or may not engage in the business in the first place, the state may no longer have as viable a position for restricting who may provide public towing services to dealers and repairers. The DMV advisory does not address this issue at all, but it could become a major point of contention if someone attempts to provide public towing services without a dealer's or repairer's license.

Rastatter felt that both the limitation to dealers and repairers and the distinction between towing and storage rates might be difficult to maintain under the current federal law.

JJF:pa

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