MAISLIN INDUSTRIES, US, INC. v. PRIMARY STEEL, INC.
Legal provision: Interstate Commerce, as amended
Argument of Thomas M. Auchincloss, Jr.
Chief Justice Rehnquist: We'll hear argument now in Number 89-624, Maislin Industries v. Primary Steel.
Mr. Auchincloss: Thank you, Mr. Chief Justice.
Mr. Chief Justice, and may it please the Court:
The issue presented in this case asks whether a shipper who utilizes the services of a motor common carrier has a legal right to the benefit of an unfiled illegal rate, or must the shipper pay the carrier's lawful tariff rate.
Quinn Freight Lines, one of the petitioners in this case, was a motor common carrier that conducted operations in interstate commerce pursuant to authority granted by the ICC and under tariffs on file with the ICC.
The respondents are a shipper, Primary Steel, who utilized the services of Quinn, and the Interstate Commerce Commission.
The facts in this case indicate that Primary and Quinn negotiated rates for the transportation of steel products from a point in Connecticut to destinations in 12 states.
Notwithstanding the fact that Quinn did not file its rates with the Interstate Commerce Commission, transportation was performed over a period of nearly three years, and roughly 1,100 shipments were transported.
Following the bankruptcy of Maislin and Quinn, it was discovered by the rate auditors who were retained by the estate of Maislin that the transportation charges assessed Quinn... assessed Primary by Quinn were in fact not on file in tariffs on file with the ICC.
Now, the rate auditors made demand for payment of undercharges, that is the difference between the filed tariff rates and the unfiled rates that were assessed on the carrier's freight bills.
Primary refused to pay the undercharges, and an action was instituted in the United States District Court in the District of Missouri, Kansas City specifically.
The district court, upon motion of Primary, referred three issues to the Interstate Commerce Commission for consideration.
First, whether Quinn's rates, applicable filed tariff rates that is, were in fact applicable to the shipments transported by Primary, or by Quinn on behalf of Primary; second, whether Quinn's rates were reasonable pursuant to standards established under the Interstate Commerce Act; and third, whether Quinn would be barred from the collection of its undercharges by virtue of two provisions contained in the Interstate Commerce Act: first, Section 10701, which relates to carrier practices, reasonable rates and so on, and secondly, the so-called Tariff Requirement Act, or provision of the act, which is Section 10761 of the Act.
In an advisory decision issued by the Interstate Commerce Commission, the Commission ignored the applicability issue and the rate reasonableness issue, and instead decided that the carrier should be foreclosed from collecting its undercharges, based solely on the language of Section 10701 of the Act, which again is that provision which requires carriers' rates and practices to be reasonable.
Following the advisory decision, the district court issued its decision in which it upheld the ICC advisory opinion, noting also that the negotiated rate proposition was an unreasonable practice and in fact foreclosed the carrier from collecting its undercharges.
The court also held that there was no provision contained in the Interstate Commerce Act which foreclosed the Commission from issuing a policy statement which in effect said that it would henceforth consider equitable defenses to carriers' efforts to collect lawful tariff charges.
On appeal the Eighth Circuit court of appeals affirmed the district court's decision for essentially the same reasons.
Now, the contact which gives rise to this case, an agreement between a common carrier and a shipper to do business at a rate other than the lawful filed tariff rate, is explicitly prohibited by the Interstate Commerce Act.
In upholding the district court's decision, the court of appeals failed to recognize the extremely narrow relief offered to shippers under the Interstate Commerce Act for the recovery of reparations or undercharges on past motor common carrier shipments.
Congress has created a mechanism, a statutory framework, in fact, under which shippers and motor carriers will conduct their business.
The essence of that framework is the common carrier's tariff.
All transactions between shippers and motor carriers must be conducted pursuant to explicit tariff provisions.
Unknown Speaker: What section says that?
Mr. Auchincloss: --That's Section 10761 of the Act, Your Honor.
Carriers cannot perform a service.
They cannot perform transportation unless there are explicit provisions in the tariff which underlie that service or that transportation.
All dealings conducted pursuant to the tariff, of course, are subject to scrutiny, either by the ICC or by other shippers or carriers who would have an interest in what the common carrier's holding out may be.
Failure to adhere to the filed tariff can result in civil penalties or criminal penalties.
That is why we say in our reply brief in this instance that in fact the unfiled illegal rate is the antithesis of the statutory rate policy promulgated by the Congress.
Unknown Speaker: Mr. Auchincloss, suppose the railroad or the trucker had filed the rates like he said he would.
Mr. Auchincloss: Yes, sir.
Unknown Speaker: It would have applied to everybody, wouldn't it?
Mr. Auchincloss: That is correct.
Unknown Speaker: Not just this one transaction.
Mr. Auchincloss: That is correct.
Those rates are available for anybody who would utilize the services of a common carrier.
That is precisely what the Act intends.
The Act intends equality of treatment between shippers, and it is intended to avoid discrimination by permitting carriers and shippers to engage in these secret rate agreements which foreclose from public view examination of the rate arrangements under which a shipper's transportation is performed.
Unknown Speaker: Mr. Auchincloss, it... it used to be true, did it not, that even if the rate was unreasonably high when it was paid, the shipper could not get any money back, if he paid the filed rate?
Mr. Auchincloss: That is correct.
Unknown Speaker: But that is no longer true.
Mr. Auchincloss: That is correct.
Unknown Speaker: And that was true at the time we decided the T.I.M.E. case.
Mr. Auchincloss: That is correct.
Well, prior to T.I.M.E., and T.I.M.E. held that shippers had no recourse for transportation rates that were applicable to past transportation.
Unknown Speaker: But they now do.
Mr. Auchincloss: But they now do.
Unknown Speaker: So... so it really isn't true that... anymore at least, that the filed rate is the governing rate.
What... the most you can say is that it is the governing rate in one direction.
Mr. Auchincloss: --Well, it's the governing rate until the Interstate Commerce Commission, upon referral from a district court in the instance of a motor carrier or a motor common carrier, determines that the carrier's rate was either not applicable or was unreasonable.
There are explicit provisions in the Act now which are the result of the 1965 legislation, which provide a mechanism by which shippers can ask the Commission whether or not a carrier's rates applicable to its past shipments were reasonable or not.
Unknown Speaker: But in light of that change in the Act, might it not be reasonable to reconsider whether our decision in the T.I.M.E. case should come out the same way?
Mr. Auchincloss: Well, the provisions in the Act which Congress formulated provide shippers with a very narrow remedy for the relief that you suggest, as for relief in a prospective fashion, or whether or not it's an attack upon an existing rate.
I mean, there are other provisions in the Act which provide specifically how that mechanism should operate to give shippers relief.
There are provisions that relate specifically to... investigation and suspension proceedings, complaint proceedings.
And in this instance, upon referral from a district court, whether or not a carrier's rates are reasonable or unreasonable.
Unknown Speaker: But if they are held to be unreasonable in such... on such a referral, everybody who has been charged that rate has some remedy.
Is that it?
Mr. Auchincloss: Everybody who has been charged that rate would certainly have a cause of action.
That is correct.
There is a rule of rate-making, contained in Section 10701(c), I believe it is, of the Act, which provides specific standards by which the Commission must evaluate the reasonableness of carriers' rates, whether prospective or future application, or whether in the instance of past transportation performed on behalf of a shipper, precisely what rates, or what levels of rates are reasonable for that transportation.
Unknown Speaker: Suppose we hold, as you wish in this case, that the shipper has to pay the tariff rate, even though it is unreasonable.
So the shipper goes ahead and pays it.
Can the shipper then bring a suit for reparations for the excessively high rate that he has been--
Mr. Auchincloss: Well, I don't know whether you are talking in a hypothetical sense, Your Honor, whether or not--
Unknown Speaker: --Well, no, I'm not talking hypothetically.
Because if that is the result of what we do today, that you just require two suits, initially, since the carrier cannot raise the issue, the shipper has to pay the money.
But then, of course, the shipper can raise the issue, so he can--
Mr. Auchincloss: --Well, in that connection I should say that in the Interstate Commerce Commission proceeding evidence was submitted on referral from the district court addressing the reasonableness of the carrier's rates.
In fact extensive cost evidence was submitted which established, according to the expert retained by the Quinn estate, that the rates were within a so-called zone of reasonableness.
Given that, those rates are in fact just and reasonable under the standards of the Act.
An operating ratio based on a revenue cost basis was produced which indicated that the composite revenue expense experience for that transportation produced an operating ratio of 96.3 percent.
So in this particular case, the shipper has had that determination.
Unknown Speaker: --So you would not necessarily say that we would come out the way you want us to come out if this were a case in which it was an unreasonable rate?
You would not be making the same arguments you are making?
Mr. Auchincloss: That is correct.
That is correct.
Well, again, that opportunity was before the Commission.
I mean, the Commission had ample opportunity, and the shipper had two occasions to object to the Commission's failure to reach a determination on rate reasonableness.
First it could have taken exception to the Commission decision, which in fact didn't address the matter of rate reasonableness.
It let that opportunity pass.
When the district court took the advisory decision and in effect made it its own, it took no exception at the district court level to that same absence of rate determination.
So in fact, as I have already indicated, there were three issues presented to the district court.
Unknown Speaker: So do we take this case on the assumption that the rate was reasonable, but that the decision just rests on whether it was an unreasonable billing practice?
Mr. Auchincloss: That... that's precisely the case.
Unknown Speaker: That's how we take the case.
Mr. Auchincloss: That's exactly it.
And in fact, a reference to the record in the case indicates quite clearly.
There is testimony presented by a cost expert, and of course, the shipper presented his own cost expert, who developed evidence trying to show that the carrier's rate was not reasonable.
Unknown Speaker: But you do concede that had the challenge been to the reasonableness of the rate and had that been sustained, then that is a valid defense?
Mr. Auchincloss: Oh, we wouldn't be here today.
I mean, if the Commission had made a determination that the carrier's rate was not reasonable, there would be no cause of action.
In fact, the Commission has primary jurisdiction to consider the issue of rate reasonableness.
And we concede that.
There is absolutely no question about that.
Unknown Speaker: What was the basis of the Commission's determination that this was an unreasonable practice?
Mr. Auchincloss: Well, the Commission has taken Section 10701(a) of the Act, which requires that carrier rates, classifications, rules and practices be reasonable.
It has tied that together with its alleged primary jurisdiction.
And the district court bought this and the court of appeals bought it, and on the basis of that simply say that we can negate the application of a filed rate by virtue of our rate reasonableness and practice reasonableness jurisdiction, and in effect not hold that carrier to collection of its legal charges.
Unknown Speaker: But what was the reasoning of the ICC?
Mr. Auchincloss: Well, the reasoning is essentially that, that it has jurisdiction under 10701 to determine whether carrier practices are reasonable.
Unknown Speaker: Yeah, but they based it on the fact that they... there was an agreement.
Mr. Auchincloss: Well, there was an agreement, but it was never reduced to tariff form.
Unknown Speaker: All right, there was an agreement, and the shipper paid the lower rate relying on it.
And the carrier failed to file a new tariff.
Mr. Auchincloss: Well, that is correct, but--
Unknown Speaker: And they say that that is an unreasonable practice then.
That's what they say.
Mr. Auchincloss: --That's what they say, but--
Unknown Speaker: But what's wrong with that?
Mr. Auchincloss: --Well, this Court has held on at least two occasions, certainly in T.I.M.E. and Montana-Dakota, that rate reasonableness or practice reasonableness is not a justiciable legal right.
It is simply a criterion for application in an administrative proceeding to determine a lawful rate.
Unknown Speaker: I just... that, frankly, sounds like jargon to me.
Mr. Auchincloss: --Well, it is the Court's reasoning, Your Honor.
Unknown Speaker: Well, it may have... I... perhaps... the Court has been known to reason in jargon.
But can you explain it in any more comprehensible language?
Try hard, Mr. Auchincloss.
You're not really trying.
Mr. Auchincloss: Thank you, Your Honor.
Well, you have to look at the framework, again, of the Interstate Commerce Act.
10761 is intended to keep the dealings of carriers and shippers open to the public.
The Commission says the carrier engaged in an unreasonable practice by failing to bill its tariff rate, and therefore the shipper's entitled to this relief.
We contend that Congress has made no such provision.
Maxwell, of course, and the cases that have come down since Maxwell, are quite clear on the point that the shipper... his legal right is measured by the applicable lawful tariff.
Now, he has a mechanism under the Interstate Commerce Act, and particularly in this instance if it was past transportation, past transportation charges, to allege in a carrier suit for undercharges that the carrier's rate was unreasonable.
And when confronted with that the district court has to refer that issue to the ICC.
And if a rate reasonableness determination is reached, then, of course, the matter is resolved.
And again, as Justice O'Connor--
Unknown Speaker: The ICC used 10701 for this.
It says a rate must be reasonable.
Mr. Auchincloss: --Well, again, that is not an explicit command to do anything other than look at the overall practices conducted by carriers in terms of their tariffs.
I say... this is certainly recited in our reply brief, all of the practices of carriers must in one way or another be attached to its tariff.
It is a fact that a carrier cannot engage in a practice that does not have some relation to its tariff.
This is an agreement outside of the tariff.
It has nothing at all to do with whether or not--
Unknown Speaker: Who could... well, why can't the ICC take a new look at the thing?
Mr. Auchincloss: --Well, it has in this instance, obviously.
Unknown Speaker: Yeah, but why can't it?
Mr. Auchincloss: Well, again, we say this is not what Congress intended.
10761 requires strict adherence to the filed tariff.
It is the mechanism by which all of this business is transacted.
And looking at a billing practice, and I suppose there are many practices carriers might engage in that conceivably have some bearing on its general holding out, but not something so central as whether or not a general provision like rate reasonableness can negate the application of a very specific requirement that tariffs maintain rates which are available for the public generally.
Unknown Speaker: May I ask you a question about the facts of the case?
This is... the cargo that was carried here was steel.
Mr. Auchincloss: That is right.
Unknown Speaker: Did the... this particular carry... carrier carry steel for other shippers?
Mr. Auchincloss: That's correct.
Unknown Speaker: And at what rate were the other shippers charged?
Mr. Auchincloss: Well, presumably, and it's... it's really not in the record, but--
Unknown Speaker: Well, if it's not in the record then you really can't answer.
Mr. Auchincloss: --Well, the holding out of the carrier was its filed tariff on file with the Interstate Commerce Commission.
Unknown Speaker: Was it holding out other than the fact that it had a filed tariff?
Mr. Auchincloss: No, it did not.
Unknown Speaker: So that we really don't know what rate they charged others.
Mr. Auchincloss: Well, I would say this, that there was evidence, or there is evidence presented in the Commission proceeding that dealt with the carrier's billing practices generally, and there were allegations made in the Commission proceeding that the carrier was engaged in some kind of nefarious conduct which sought to avoid application of the filed rate requirement.
However, that evidence indicated that the carrier's billing accuracy was over 95... or over 99 percent, and in fact most of the transactions presumably, on the basis of that.
And at the time of its bankruptcy the carrier was doing business with something like 23,000 shippers.
Unknown Speaker: Yes, but they didn't all ship steel.
Mr. Auchincloss: --No, absolutely not.
Unknown Speaker: But there were others that shipped steel?
Mr. Auchincloss: --Yes, I am sure there were.
Unknown Speaker: You're sure there were?
Does the record tell us?
Mr. Auchincloss: Well, the carrier had rates applicable--
Unknown Speaker: Because if there weren't there wouldn't be really the danger of discrimination that is... lies at the heart of the filed rate doctrine.
Mr. Auchincloss: --Well, of course, there is not specific evidence in the record to answer your specific question.
Unknown Speaker: So there is no evidence to show that the departure from the filed rate was discriminatory.
Mr. Auchincloss: Not specifically as it relates to other specific shippers, that's correct.
I should say also that the matter of the filed rate contained, and the requirement contained in 10761 of the Act has some very specific exceptions which Congress has also put into the Interstate Commerce Act.
Those relate specifically to the conduct of carriers pursuant to tariffs or at arrangements other than tariffs.
And the most important of these is the requirement that... or the authority extended to the Commission to authorize contract carriers to conduct business at schedules that are not on file with the Interstate Commerce Commission.
There are two explicit provisions in Section 10761 and 10762 which relate to the matter of relieving contract carriers from that requirement.
So that specific exemption, we believe, stands in stark contrast to what the Commission is authorizing by virtue of its alleged authority under Section 10701 of the Act.
There are other provisions which relate specifically to transportation by household goods carriers who are authorized to perform their transportation at free... or at binding estimates which need not relate to the tariff.
They are simply concocted by whatever method the carrier might devise in order to arrive at its reasonable charges.
Unknown Speaker: In this case is there evidence that the parties purported to be negotiating a new tariff?
Or was it just an agreement to discount off the existing tariff?
Mr. Auchincloss: Well, it was... there were communications between the carrier and the shipper in which they agreed that the transportation charge would be whatever it was.
That was reduced to some handwritten letter form, which passed between the two, and simply recited what the rates would be by destinations from the Connecticut origin.
Unknown Speaker: Suppose it were clear from the course of dealing that the parties purported to be agreeing on a new tariff that the carrier would then file, and then the carrier just neglects to file?
Mr. Auchincloss: Well, that situation could arise, quite obviously, and it didn't in this situation.
But in instances in which the carrier alleges he is going to file his tariff and he doesn't, and it is later discovered that this situation has developed, the carrier, or the shipper has recourse, again pursuant to the provisions in the Act which permit determinations of whether or not that carrier's rate is reasonable or not.
Unknown Speaker: Did... didn't this carrier promise to file the tariff that he negotiated with the shipper?
Mr. Auchincloss: No, there was no explicit promise to do anything.
In fact, there is testimony from two of the officials of the shipper who simply indicate they had no knowledge of tariffs.
Unknown Speaker: There was no finding in any... either the agency or the lower courts on this point?
Mr. Auchincloss: Not directly, no.
Unknown Speaker: Well, when you say not directly, what do you mean?
Mr. Auchincloss: --Well, I mean that they engaged in this transaction and discussion to arrive at rates, but the carrier never said, and it was never reduced to any written form or other form, that I will file that in a tariff I have on file with the Interstate Commerce Commission.
And the shipper, again, alleged that he had no knowledge of tariffs.
So the question apparently didn't arise in their dealings as to exactly how this conduct would proceed.
Unknown Speaker: But I take it from the answer you gave to me it wouldn't make any difference in your view of the case in any event?
Mr. Auchincloss: That is correct.
The filed rate is required to be applied, and it's available to all shippers who would utilize the service of that carrier.
And, of course, it should have been in this instance.
And the only relief available to the shipper is a determination that the filed rate in fact was not just and reasonable.
Unknown Speaker: Mr. Auchincloss, what was the unreasonable practice found by the Commission specifically?
Was it the charging of rates below the tariff rate, or was it the quoting of rates below the tariff rate and then the attempt to collect the tariff rate?
Mr. Auchincloss: Well, the court of appeals terms it a billing practice.
The carrier's practice of billing rates that were not contained in its tariff was an unreasonable practice.
Unknown Speaker: I see.
Mr. Auchincloss: And this--
Unknown Speaker: The unreasonableness is not trying to get the full tariff rate, even though you agreed to less.
The unreasonableness was agreeing to less in the first place.
Mr. Auchincloss: --That is correct.
That is correct.
Well, essentially, again, it comes in the form of... they latch onto this word practice contained in 10701 of the Act.
Unknown Speaker: What did they... what did the Commission call it?
Mr. Auchincloss: The Commission calls it a billing practice, the carrier's billing and collection practices.
Unknown Speaker: Well, but I would think they... what... the issue is whether they could collect the tariff.
Mr. Auchincloss: That is correct.
Unknown Speaker: I mean collect what they should have.
Mr. Auchincloss: Well, collect what they should have under the filed tariff.
Unknown Speaker: Well, attempting to try to collect what they hadn't agreed to, what... again, what is the unreasonable practice?
Trying to collect something they had agreed not to, or what?
Mr. Auchincloss: Well, the Commission says the... yes, the Commission says that the billing practice which the carrier engaged in, which resulted in the non-application of the filed rate, resulted in the carrier charging something less, and the carrier should be foreclosed from collecting its undercharges.
That is the difference between the lower quoted rate and the higher filed rate.
Unknown Speaker: Well, what does the Commission suggest would keep whatever suggests to the carrier that it adhere to its tariffs?
Mr. Auchincloss: Well, the Commission makes no suggestion along those lines at all.
In fact, the Commission has been opposed to... the current Commission at least... has been opposed to the file tariff system in its entirety.
They have made statements on the Hill that they think this is a process that doesn't serve the procompetitive aspects of the Motor Carrier Act of 1980.
In fact, however, we say, as this Court said in Square D, if that is a matter that must be reviewed, then it should be reviewed by Congress.
Congress, in enacting the 1980 legislation, made it clear that explicit instructions were being in effect issued to the Commission to follow a certain course of conduct.
One of those very explicit requirements was if you do business with a motor common carrier, or for that matter a railroad--
Unknown Speaker: So it doesn't make any difference to the... I guess it doesn't make any difference to the Commission whether the... whether the carrier had ever intended to live up to its tariff or not.
All it had to do was to quote a lower rate and that's the end of it.
Mr. Auchincloss: --Well, that is one of the evils of this case.
That is correct.
That is precisely the point.
What would stop shippers in the future from engaging in precisely that kind of conduct with carriers who were willing to do it?
You can do your business as a common carrier on the strength of a telephone call quotation of a rate or a letter quotation of a rate, disregarding what's contained in the tariff, and then subsequently alleging that well, we had a negotiated rate, so it really doesn't matter what my tariff provided.
Unknown Speaker: I take it that... that in the Commission's view, departing from the tariff would... could never... could never result in any kind of a penalty of any kind?
Mr. Auchincloss: Well, the Commission says that it is not overturning or modifying to any significant degree the carrier's requirement... the common carrier's requirement that he file tariffs with the Commission and he observes those.
But, of course, that is a statement in the breach.
It is not a statement in the application.
Because in fact we have here--
Unknown Speaker: Did you say that departing from the filed rate is a... could be a crime?
Mr. Auchincloss: --Yes, it is.
It is a penalty--
Unknown Speaker: In a civil penalty?
Mr. Auchincloss: --It could be civil, if there is intentional misapplication of the tariff.
Unknown Speaker: Well, it can't be... it can't be... I guess saying it's an unreasonable practice doesn't... wouldn't prevent the imposition of a penalty from departing from the tariff.
Mr. Auchincloss: Well, the Commission has powers to determine what practices generally may result in violations of explicit provisions of the Act, but they must be explicit provisions.
Civil penalties and criminal penalties attach to failure of a carrier to apply its filed tariff.
And if there is a rebate situation involved, that's a criminal proposition.
Unknown Speaker: I suppose the Commission could say well, you have been unreasonable, and you not only can't collect this difference between the tariff and what you charged, but we are also going to penalize you for departing from the tariff.
Mr. Auchincloss: The Commission could, if it would.
Unknown Speaker: But you don't think that's much... these days, much of a incentive to comply with the tariff?
Mr. Auchincloss: Well, the Commission has not been enforcing those provisions in the Interstate Commerce Act, Your Honor.
The Commission could have stopped this whole process early on, after the enactment of the Motor Carrier Act of 1980, if the Commission had simply made examples of those carriers and shippers who were engaged in this kind of conduct.
It could have cited them, brought them to court, and corrected the problem.
But it never occurred.
I would like to reserve the balance of my time for rebuttal.
Unknown Speaker: Very well, Mr. Auchincloss.
Argument of Thomas W. Merrill
Mr. Merrill: Thank you, Mr. Chief Justice, and may it please the Court:
The facts and legal issues presented by this case are typical of hundreds of proceedings which are now pending in the lower courts involving insolvent motor carriers.
These cases share a... common pattern or sequence of events, which consists of the following.
First, a shipper negotiates a rate with a motor carrier, an event which happens hundreds and even thousands of times today... every day, under the competitive regime established by the Motor Carrier Act of 1980.
Second, the carrier fails to file that rate in a tariff, as it is required to do by the Interstate Commerce Act.
Third... and as the shipper relies on the carrier to do.
Unknown Speaker: Mr. Merrill, Mr. Auchincloss said there was no evidence in this case that the... there was ever any agreement on the part of the shipper and the carrier that the carrier would file the tariff, file the new rate.
Mr. Merrill: There was no evidence of an agreement, but there... the Commission specifically found that Primary, the shipper, relied on Quinn, the carrier, to implement the proper... implement properly the quoted rates.
That's at page 43a of the petitioners'--
Unknown Speaker: So the Commission found that the shipper relied on the carrier.
Mr. Merrill: --The Commission's finding was that the shipper relied on the carrier to do everything that the law requires to properly implement the negotiated rate, yes.
Unknown Speaker: Doesn't every shipper do that?
I mean, is that a special finding for this case?
I assume every shipper assumes that the carrier is going to comply with the law.
Mr. Merrill: It probably is true that most every shipper assumes that the carrier will comply with the law.
Unknown Speaker: If that alone were a justification for departing from the tariff, from the filed rate, it would always be a justification for a departure.
Mr. Merrill: --What... I think the important point here about the Commission's reliance element is that there can be no evidence that the shipper had knowledge that the carrier in fact was not intending to file the rate in the tariff.
That type of evidence would suggest that the shipper, as well as the carrier, was in violation of the law, and particularly had violated the Elkins Act.
But there is no requirement in the statute that imposes a duty on the shipper to make inquiry of the carrier about whether it is complying with the law.
And so the Commission has carefully tailored its negotiated rates policy to conform with the various statutory requirements.
And that's the main purpose of the element that the shipper must have been able to reasonably rely on the carrier doing whatever the law requires to lawfully implement its rate.
Unknown Speaker: Mr. Merrill, do we take this case on the assumption that the tariff rate was a reasonable rate?
Mr. Merrill: Justice O'Connor, the Commission did not reach the rate reasonableness issue.
It said nothing about it.
Unknown Speaker: In our addressing the legal issue, do we need to assume that it was a reasonable rate?
Mr. Merrill: I don't think the legal analysis should turn on whether the rate was either assumed to be reasonable or assumed to be unreasonable.
The Commission found--
Unknown Speaker: Well, I am answering my question, then.
I want you to assume it was a reasonable rate.
Mr. Merrill: --Yes.
Unknown Speaker: And then tell me whether the statute 1070... 10761(a) requires the carrier to collect the filed tariff.
Mr. Merrill: The statute does require that, Justice O'Connor.
Unknown Speaker: And are there criminal penalties and civil penalties potentially for not doing that?
Mr. Merrill: Yes, there are.
The carrier is subject to potential criminal liability for knowingly charging a rate less than the tariff rate, or soliciting a rate less than the tariff rate.
Unknown Speaker: Well, then how can the Commission say, under those circumstances, that not collecting the tariff is an unreasonable billing practice?
Mr. Merrill: I think what the Commission has done here is not--
Unknown Speaker: It just... it seems very hard to understand.
Mr. Merrill: --The Commission is not forgiving carriers of their obligation to file rates and tariffs.
The Commission has no intention of doing that whatsoever, and it has stated that quite explicitly in both of its negotiated rates opinions.
What the Commission is doing here is finding that the carrier has committed an unreasonable practice by, among other things, violating its statutory duties.
The petitioners have suggested, or tried to obscure the fact of who is really at fault here, suggesting that somehow the shipper is somehow to blame for this.
But it's... under the statute it's the carrier that has the duty to file its agreed-upon rates and tariffs.
It's the carrier that has the duty to charge and collect the tariff rate, which it did not do for years here.
It was billing the shipper at the negotiated rate, not at the tariff rate.
And so it is the carrier that has committed statutory violations.
And what the Commission has said is that in terms of... of administratively determining the appropriate remedies for violations of those sections of the Act and for committing unreasonable practices--
Unknown Speaker: We are going to compel you to continue to violate it--
Mr. Merrill: --No, we are going--
Unknown Speaker: --is what they have said in effect.
Mr. Merrill: --We are going to declare it an unreasonable practice for the carrier to obtain a windfall, essentially, based on its own violation of the statute.
Unknown Speaker: But in answering Justice O'Connor, you... you... you spoke as though the only obligation of the carrier is to file the tariff rate.
It is not.
Mr. Merrill: No, there is--
Unknown Speaker: It... it is his obligation to charge the tariff rate.
Mr. Merrill: --It's... it's stated in... the first sentence of 7061(a) says the carrier must file, and 7062(a) says the same thing, and then the second section of Section 7061(a) says the carrier must only charge and collect the rate at tariff.
Unknown Speaker: Well, then let's charge and collect that.
And... and what the Commission said--
Mr. Merrill: And the carrier violated that provision.
Unknown Speaker: --What the Commission said, as Justice O'Connor pointed out, is that complying with that is an unreasonable billing practice.
Mr. Merrill: No, the Commission has not said that simply not collecting the tariff rate is an unreasonable billing practice.
What the Commission has said is that when these four elements are identified... negotiation of the rate; reliance by the shipper on the carrier's compliance with all statutory requirements; nevertheless the carrier goes ahead and charges and collects the negotiated rate, not the tariff rate, over a long period of time typically; and finally, many years later, typically when the carrier is bankrupt, comes back and attempts to collect the much higher tariff rate... that that course of conduct, taken together, is an unreasonable practice.
And when the facts are found by the Commission that will support a finding that there is an unreasonable practice, the Commission will advise the courts that the unreasonable practice should preclude the carrier from collecting its full tariff charges.
Unknown Speaker: Even though the undercharging may have put it into bankruptcy.
Mr. Merrill: --It's possible that the carrier, through its own improvidence... went into bankruptcy.
There may be no--
Unknown Speaker: I would think creditors.
I think creditors have some stake in this, don't they?
Mr. Merrill: --Yes, but I don't think there is any conflict between the bankruptcy laws and the Commission's negotiated rates policy.
The Commission's... the policy doesn't apply just to bankrupt carriers.
Unknown Speaker: Well, they... I would suppose, if... if... if the... if the carrier had an obligation to collect a rate that it didn't collect, that it... somebody owes it something.
Mr. Merrill: That's correct, but the carrier is--
Unknown Speaker: And the creditors ought to insist that the trustee bring a lawsuit, which he did.
Mr. Merrill: --The carrier has no right to collect a tariff rate that is found to be unreasonable.
The petitioners this morning, or this afternoon, have conceded that if the Commission enters a finding that the rate was unreasonable, the Commission's find even unreasonableness supersedes.
Unknown Speaker: I know, but we judge this case as though the rate was reasonable.
Mr. Merrill: And similarly the Commission has found in negotiated rates that if the carrier has committed an unreasonable practice, which is defined by these elements that I have summarized, that the finding of an unreasonable practice should supersede the filed tariff rate and prevent full collection.
So, essentially, the carrier or its trustee in bankruptcy is... is asserting the right to collect an unreasonable charge, and there is no right that creditors of the bankrupt have to obtain the benefit of... of an illegal charge.
Again, let me stress that the, the statutory violations which admittedly have occurred here are duties which the statute imposes on the carrier.
They are not imposed on the shipper.
The carrier is essentially before this Court seek... seeking to obtain a windfall produced by its own statutory violations.
The shipper has engaged in no affirmative misconduct in these cases whatsoever, and in fact typically has no way to get these charges back, because they were passed on, to the extent that they were passed on to their... the shipper's customers years ago, and those transactions have long since been closed.
The only real difficulty with the Commission's... the only two legal issues, I think, that need to be resolved in order to rule... to uphold the Commission's policy are two.
Petitioners have conceded that if this were an unreasonable rates case that the Commission's order finding an unreasonable rate would supersede the tariff rate.
So one issue that has to be decided is whether or not there is any difference under the statute between unreasonable rates and unreasonable practices, whether the statute draws a line between those two things, such that a finding of unreasonable practices does not supersede a tariff filing, whereas a finding of unreasonable rates would.
And the second issue is whether or not the Commission has primary jurisdiction to consider unreasonable practice claims that are referred to it by the courts.
And I think the answer to both of those questions is that... is that the Commission's decision is fully justified.
The provision that carriers must engage in reasonable practices is found in the very same sections of the statute that say that the carrier must engage in... must charge reasonable rates, Section 10701(a) and Section 10704.
So the same statutory provisions govern both cases.
In addition, this court has held on many occasions that when a claim of unreasonable practices is raised in the course of a judicial action, that that claim implicates the administrative discretion of the ICC and must be referred to the ICC for determination.
It can't be decided by courts.
So in terms of the primary jurisdiction jurisprudence, the court has drawn no distinction between unreasonable rates and unreasonable practices.
And for those reasons we think that the petitioners' suggestion that somehow, merely because the Commission is relying on its practices jurisprudence here rather than... or practices authority rather than its rates authority, that a different result ought to maintain.
I think it is also important that what is involved here is the Commission's essentially attempting to reconcile two different provisions of the statute.
You have Section 10761(a), which the petitioners rely on, which requires the carrier to file its rates and tariffs and collect only the tariff rates, but you also have the duty to engage, to maintain reasonable practices.
Commission... the petitioners' theory essentially is that the one section, the tariff filing section, completely... completely trumps the unreasonable rates practice, because neither the courts nor the Commission would have any authority whatsoever to grant relief to shippers in this type of circumstance presented by this case.
They would be no way that they could obtain any type of damages or reparations for unreasonable practices that are in fact statutory violations.
But the Commission's determination here has essentially attempted to accommodate or reconcile these two statutory provisions.
Unknown Speaker: Mr. Merrill, can I ask about this, what the unreasonable practice is again?
As I understand it, it would not have been an unreasonable practice if they had been agreeing to the lower rate, but charging the higher rate, the tariff rate, all along.
Mr. Merrill: I think that is correct.
Unknown Speaker: And it would not have been an unreasonable practice if they had been agreeing to the lower rate, and charging the lower rate all along, and then continued to charge the lower rate the last time around.
That also would not have been an unreasonable practice.
Mr. Merrill: You may have no collection action--
Unknown Speaker: You said it was essential to the whole thing that there had been the prior practice of both agreeing to and actually billing the lower rate.
Mr. Merrill: --I don't think the attempt to collect the rates adds anything to the unreasonableness.
It simply is the occasion on which the Commission becomes aware that these unreasonable practices has been going on.
Unknown Speaker: So the unreasonable practice, then, is not trying to collect the higher rate, it's just what?
Mr. Merrill: It's the--
Unknown Speaker: Agreeing to the lower rate.
Mr. Merrill: --Agreeing to the lower rate.
The shipper's reliance on the carrier to conform that rate to the law, i.e., file it in a tariff.
Unknown Speaker: But that is not a billing practice.
Mr. Merrill: --That's a solicitation practice.
And finally the carrier's persisting in charging and collecting the negotiated rate as opposed to the tariff rate.
These are cases typically that have gone on for some... some period of time.
Unknown Speaker: Part of the element is the failure to file, is part of the unreasonableness.
Mr. Merrill: The failure to file is a key part, yes.
I mean, the statute in two places--
Unknown Speaker: You didn't mention it.
Mr. Merrill: --I have already mentioned them, 10761(a) and 10762, imposes on the carrier the duty to file the rates for its transportation services in tariffs.
And the carrier has violated that duty in this case.
Unknown Speaker: Well, but you could say that in any case where the carrier agrees to a lower rate, doesn't file a tariff for that lower rate, and then bills the lower rate.
You could say there has been an unlawful billing practice.
But I had thought that our case law prevents that.
I had thought that what the statute means is you have to bill the tariff rate.
Mr. Merrill: Well, the Commission's not... again, I mean, the petitioners try to suggest that the Commission has repealed the filed tariff doctrine.
The Commission has no intention of doing that whatsoever, and I... the Commission... for example, the Commission's policy doesn't apply to cases of isolated misquotation.
The Commission's policy only applies to the circumstances identified in this decision.
Unknown Speaker: xxx reason to depart from the tariff.
Mr. Merrill: No.
A misquotation would be where there is an agreement to abide by the tariff, and some mistake occurs.
That is like in the facts in the Maxwell case, where Mr. Maxwell basically was of the same state of mind as the railroad.
They both wanted him to be able to go, wherever it was, St. Louis to Salt Lake City and back at a certain rate, and the railroad just got the wrong line on the tariff.
Unknown Speaker: I suppose the Commission's approach would cover the situation where the... where the shipper wants a lower rate and... than he knows in the carrier's tariff.
And the carrier says well, you're a great customer, okay, you're going to get the lower rate, but please don't tell anybody.
And he goes ahead and charges it for two or three years, and then he goes bankrupt.
Mr. Merrill: No, the Commission's policy would not apply in a case--
Unknown Speaker: Well, why not?
Mr. Merrill: --Well, because the statute, Section 11902 of the Interstate Commerce Act, which is part of the Elkins Act, imposes treble damage liability on shippers for knowingly accepting a rebate from the tariff rate.
So if the... the Commission, I think, was trying to navigate around that.
Quite clearly the Commission did not want to vindicate shippers who have engaged in what is a clear statutory violation.
But that's the only point in the statute where--
Unknown Speaker: So the... the shipper has to be innocent, is that it?
Mr. Merrill: --That is correct.
The shipper has... the shipper may not have knowledge of the carrier's derelictions of its statutory duty.
The negotiated rates policy only applies in those cases where the shipper is innocent, has not informed itself and otherwise has no notice--
Unknown Speaker: Was there a finding to that effect here?
Mr. Merrill: --Yes, I think the Commission again found that... that the... I can't recall the precise language at this moment, but on page 42a and 43a of the Commission's decision in this case there is discussion of the states of mind of both the carrier and the shipper.
And... and it's... it's clear also from the evidence that was submitted in the record that the shipper... the shipper was not vigilant in this case.
The shipper did not hire a tariff watching agency or something like that to double check on the carrier to make sure it was not breaching its statutory obligations.
But there is no suggestion in the evidence that the shipper had actual knowledge or notice of the... of the carrier's misdeeds.
Unknown Speaker: Mr. Merrill, may I ask you a question about the Commission's policy?
It is not directly involved in this case, but if there were negotiated rates, two different negotiated rates for competing types of shipments that should normally be covered by the filed tariff, but they were not the same, would the policy apply?
Mr. Merrill: In other words you have--
Unknown Speaker: You have discrimination between negotiated rates.
Mr. Merrill: --One tariff, and one shipper negotiates, the other one doesn't?
Unknown Speaker: No, no, no.
The one carrier negotiates with two different shippers, and tells them both that he will file the negotiated rate.
But the two shippers get different negotiated rates.
Mr. Merrill: I see.
What you have just described is really an everyday happening in the motor carrier industry today.
The negotiation of rates--
Unknown Speaker: See, that triggers a concern that isn't necessarily shown by the record of this case, the possibility of discrimination, which has always been something that--
Mr. Merrill: --Yes.
The Act still prohibits discrimination.
There's no question about that.
And... discrimination, however, has... is defined more narrowly today than it was back in the heyday of the filed rate doctrine and the Court's early decisions.
A shipper has to show competitive injury in order to establish discrimination, and the carrier can defeat a claim of discrimination by showing that there is some relevant difference in the transportation characteristics of the two movements, like the costs are different, for example.
But if those elements are satisfied, if a shipper can show competitive injury, that there is a disparity in rates, that the same carrier controlled both rates, and the carrier can't show a difference in costs or other relevant transportation characteristics, yes, discrimination is a possibility.
But what is really going on in the motor carrier industry, and the Commission's decision reflects this, is that at least when you are dealing with something like we are in this case, which is a full truckload shipment of a particular commodity, steel in this case, which is carried on flatbed trucks, that it is common throughout the industry for... for carriers to call up shippers and to dicker over rates, and for the parties to reach an agreement about a particular rate that will apply.
And this is true for companies like Primary; it is true for Primary's competitors.
Unknown Speaker: --Is it common practice not to adhere to the filed tariffs?
Mr. Merrill: No, no.
We don't think it's a common practice not to--
Unknown Speaker: Well, what did you just say?
Mr. Merrill: --It's a common practice to negotiate a rate, with the expectation--
Unknown Speaker: Yes, but this is a tariff rate.
Mr. Merrill: --With the expectation that the negotiated rate will then be filed in the tariff.
That is correct.
Now, these are what are called commodity rates.
You have to remember--
Unknown Speaker: Well, then... then it is common practice not to... common practice to agree to charge a rate that is not on file with the Commission.
Mr. Merrill: --No.
There is an agreement on a rate, with the understanding that then, before the movement occurs--
Unknown Speaker: Well, there was no such understanding in this case.
And you say that it's irrelevant to... to this case.
Mr. Merrill: --There was no specific proof of an agreement to file a tariff in this case.
Unknown Speaker: Well, and you say it is irrelevant whether there was or not.
Mr. Merrill: Well, the Commission's policy is that what is relevant is whether or not the shipper relied on the carrier to do what was necessary to comply with its... the law, which includes filing the tariff rate.
But there was no specific--
Unknown Speaker: All shippers do.
I mean, all shippers do.
I... anybody I deal with, I assume that they are going to comply with the law.
Can't you always say that, unless there is some indication where they specifically agree now, I am telling you I am not going to file this rate, I suppose.
But normally, if they say nothing about it, the Commission would say the same thing it did here, wouldn't it?
Mr. Merrill: --I think... I agree with you, Justice Scalia, that people who do business normally assume that the people they are doing business with will comply with the law.
They think that they are not conspiring to violate the antitrust laws, that they are paying their taxes and so forth.
And essentially, under the Commission's policy, unless there is some indication that the shipper is conniving with the carrier to discriminate against its competitors by getting some off tariff rate, and there is no expectation by either party that it is going to be filed, the policy will apply.
But you'd have to say... if there is some showing of that, then the policy does not apply.
Unknown Speaker: --Mr. Merrill, could I ask this.
You said earlier that there are hundreds of cases involving this problem.
Do you have any idea what percentage of those hundreds of cases involve rates that are reasonable rates, or as to which there is no claim that the rates... that the tariffed rates were unreasonable?
Mr. Merrill: I have no idea, Justice Scalia.
I think the typical--
Unknown Speaker: Well, that might make a big difference.
I mean, we're not talking here about whether the Commission might achieve this by finding the rate to have been unreasonable.
Mr. Merrill: --The Commission has not entertained very many cases on the merits since 1980 alleging unreasonable motor carrier rates.
They have been quite scarce.
Unknown Speaker: xxx the concept.
Mr. Merrill: What?
Unknown Speaker: They don't have to.
It doesn't like the concept.
Mr. Merrill: Well, the shippers don't like the concept either, because the shippers can go out and get different quotations and tariff rates from different carriers.
I mean, competition in the marketplace has really eliminated a lot of the need for supervision of unreasonable rates and discriminatory rates, which is what Congress basically had in mind when it passed the 1980 Act.
Let me... let me specifically make mention of the Court's case law which is relied on here, and in particular the so-called filed rate doctrine, and point out first of all that the filed rate doctrine is not a term which appears in the statute.
Nor is it a term, as far as I am aware, which appears in any of this Court's cases construing the Interstate Commerce Act.
That term can be found in some gas cases, but does not appear in the Court's decisions under the Interstate Commerce Act.
And I think it is important that the Court act with some precision in defining exactly what is meant by that term in deciding this particular case.
The older cases that are cited, Maxwell, Fink, Mug and so forth, are all cases that were adjudicated in court.
There was no reference to the ICC.
The ICC was not a party in those cases.
And basically the holdings of those cases are that a court is not permitted to deviate from the filed tariff rate and inquire whether the rate is reasonable or whether equitable circumstances might create a valid defense to collection of the tariff rate.
But the same time that those cases make that... state that rather inflexible rule, the cases also recognize that the rule does not apply to the Interstate Commerce Commission.
Maxwell itself says that the rule... the strict rule applies unless the Commission finds that the rate is unreasonable.
And there are--
Unknown Speaker: Do you know of any instance where the Commission has gotten after some carrier for negotiating a rate lower than the tariff rate, and in short just plain violate the statute?
Mr. Merrill: --The Commission, I don't know the names of the cases, but I asked and I was told that the Commission has had enforcement proceedings within the recent... 1988 and 1989, against carriers--
Unknown Speaker: Because if you say this is this... this practice is just common everyday occurrence around, and the Commission isn't doing anything about it, it sounds like the whole business of requiring carriers to comply with the statutory requirement of charging the same to everybody is just hash.
Mr. Merrill: --Well, I don't think it's that bad, Justice White.
The Commission... the Commission does not want to... the Commission wants to encourage carriers to file these rates and tariffs.
I mean, the Commission has nothing against the tariff filing requirement.
Unknown Speaker: How are they doing that?
How are they doing that?
Mr. Merrill: Well, one way... well, first of all, this proceeding is largely retrospective in orientation.
The Commission was confronted with a problem.
The problem was this avalanche of lawsuits filed in bankruptcy proceedings with carriers seeking to recover much... much higher rates than had been agreed to with shippers.
And the Commission basically in these proceedings, these negotiated rates proceedings, is trying to figure out what is the best thing to do about that problem.
And I think by telling the carrier that you can't gain a windfall, you can't somehow, after the fact obtain a huge increase in the rate that the shipper never agreed to, in fact helps to serve to dissuade carriers from engaging in this unreasonable practice.
I don't think there is any tension or inconsistency between a deterrence-type rationale and what the Commission is doing in this particular case.
The Commission has not gone by special proceeding beyond this to focus on whether or not some other measures might be appropriate to try and encourage carriers to tow the line.
But at least insofar as what they have done here, I don't see any... any inconsistency between what they have done and those larger objectives.
Unknown Speaker: It's like estoppel?
Mr. Merrill: It's... I hate to use that word, because these old cases from this Court say that no estoppel is permitted--
Unknown Speaker: Exactly.
Mr. Merrill: --but it's a Commission--
it's a Commission finding of an unreasonable practice which supersedes the filed rate requirement.
Let me briefly mention the second legal issue.
I have said the first legal issue really was whether or not the... a different rule should apply for unreasonable practices and unreasonable rates, and turn briefly to the primary jurisdiction issue, since it is featured in the petitioners' briefs and is an argument that can generate some confusion.
The question here is whether, although, of course, the Commission has primary jurisdiction to consider an unreasonable rate referral from the Court, it has no primary jurisdiction to consider an unreasonable practices referral.
And I don't... we don't think that there is any basis for this either in the T.I.M.E. decision or anywhere else.
Essentially the argument is that the unreasonable practice involved here falls into a crack in the law.
The petitioners admit that is this were an unreasonable rate claim it would be expressly governed by the statute that Congress passed to overrule the T.I.M.E. decision.
And they admit that if this were an unreasonable practice of the sort that was involved in the Hewitt-Robins case, which was decided three years after T.I.M.E., it would also be subject to the Commission's primary jurisdiction.
But they say that this case falls into a crack between those two broad areas of the law, and therefore is not subject to primary jurisdiction.
The... the key assumption that they are making is that the rationale of the T.I.M.E. decision lives on, even though T.I.M.E. was overturned by Congress.
And that under the rationale of the T.I.M.E. decision there would be no basis to refer this issue to the Commission, because the rationale of the T.I.M.E. decision was that the Commission can't accept a case on referral where it doesn't have independent jurisdiction to grant relief on its own.
And the short answer to that is that that particular rationale was expressly repudiated by this Court in the Hewitt-Robins case, which was decided three years after T.I.M.E. At page 89 of Hewitt-Robins the Court said this, and I quote,
"The practice of the Commission in making such determination in the first place, even though it has no power to award reparations in a given case, has long been exercised and is supported by a long line of cases. "
In short, this Court itself repudiated the rationale that the petitioners are relying upon shortly after the T.I.M.E.... case came down.
And for that reason alone, Commissioner's argument has no merit and should be rejected.
If the Court has no further questions, I thank the Court.
Unknown Speaker: Thank you, Mr. Merrill.
Mr. Auchincloss, do you have rebuttal?
You have two minutes remaining.
Rebuttal of Thomas M. Auchincloss, Jr.
Mr. Auchincloss: I do, Your Honor.
I think it is well to look at the Hewitt-Robins case in light of the government's argument.
In fact, Hewitt-Robins involved a practice, the practice of routing.
The carrier routed interstate shipments, or intrastate shipments over an interstate route, and thereby applied a higher rate than was applicable under its interstate, or intrastate route, the result being, and this is what this Court held, that that common law right to a reasonable route exists and was not extinguished by the enactment of the Interstate Commerce Act.
That's the kind of practice the Commission has traditionally looked at, and that is the kind of practice the Court has looked at in terms of what is a lawful proposition versus an unlawful proposition.
We contend here, of course, that in fact the secret rate agreement is an unlawful proposition.
The Commission and the courts have always wrestled with practices that revolve around tariff provisions, not around secret agreements.
The government says that the culprit in this is the carrier, because the carrier failed to follow through on its duty to file a tariff.
Well, in fact the law charges shippers with knowledge of tariff provisions as well, and Primary was no small shipper.
The record indicates it shipped 43 million pounds via this carrier over a nearly three-year period.
So in fact the conduct that we are talking about was not unreasonable in terms of the carrier's practice solely.
It was the shipper who neglected to even ask the carrier whether or not it had a tariff applicable to this movement, notwithstanding its allegations it knew nothing about the law.
The law requires this, but I know nothing about it.
It made shipments to United States Steel, one of the largest producers in the country, obviously, and notwithstanding that United States Steel undoubtedly audits its freight bills, Primary says it didn't have to.
So this whole process--
Chief Justice Rehnquist: Thank you, Mr. Auchincloss.
The case is submitted.
Unknown Speaker: The honorable court is now adjourned until tomorrow at ten o'clock.