Cases by Issue - Railroad Regulation

Norfolk & Western R. Co. v. Train Dispatchers - Oral Argument

Fri, 09 Jan 2009 14:49:42 +0000

Case:

Norfolk & Western R. Co. v. Train Dispatchers

Media File:

89-1027_19901203-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of Jeffrey S. Berlin

Chief Justice Rehnquist: We'll hear argument next in No. 89-1027, Norfolk and Western Railway Company v. American Train Dispatchers Association and a companion case.

Mr. Berlin, please proceed.

It is BERL-in and not Ber-LIN I take it?

Mr. Berlin: Either way is fine, Mr. Chief Justice.

Unknown Speaker: Well, good.

Okay.

[Laughter]

Mr. Berlin: Mr. Chief Justice, and may it please the Court:

This case presents an important question of Federal law.

The provision in issue is a section of the Interstate Commerce Act, 49 U.S.C., section 11341(a).

That section applies to a railroad participating in a consolidation that has been approved by the Interstate Commerce Commission.

It provides that such a railroad is exempt from all other law to the extent necessary to let the railroad carry out its consolidation.

The question before this Court is whether this exemption protects the railroad from claims that are based on the railroad's contracts and are asserted exclusively under Federal law.

The particular contracts involved here are labor agreements, and the particular law is the Railway Labor Act.

Since 1920 in a series of statutes, Congress has encouraged the nation's railroads to merge and consolidate under the supervision of the Interstate Commerce Commission.

To this end, Congress has given the ICC exclusive jurisdiction over matters with in its authority and given to railroads participating in approved consolidations a broad exemption from other legal restraints.

This exemption originated in the Transportation Act of 1920, was reenacted in 1933, reenacted in 1940, and took its present form in 1978 when it was recodified without substantive change.

CSX Transportation and Norfolk Southern are two of today's large railroad systems.

Each system was formed when two previously separate railroad systems were placed under common control with ICC approval.

On receipt of that approval, these railroads set out to achieve the traditional purposes of mergers and consolidations, which include the realization of greater economies and efficiencies through the combination of facilities, the elimination of redundant facilities, the bringing control of various operations into single locations, and otherwise taking advantage of economies of scale that the consolidations make possible.

Now as part of carrying out their consolidations, CSX Transportation and Norfolk Southern each sought to transfer work from one of their previously separate properties to the other.

CSX Transportation had a freight car heavy repair shop at Way Cross, Georgia and another, same kind of shop, at Raceland, Kentucky.

CSXT didn't need to retain both shops, and the facility at Raceland was larger and more modern and it had substantial excess capacity.

Therefore, CSXT proposed to bring to Raceland the freight heavy repair work that was previously done at Way Cross.

Norfolk Southern proposed to make a slightly different kind of operational change.

Norfolk Southern operates more than 2,000 locomotives.

Previously the distribution of locomotives... their assignment to specific trains and facilities... was handled separately on each of Norfolk Southern's two constituent railroads.

Now, Norfolk Southern proposed to bring all of this work to one location where one of the railroads would administer the work for the whole Norfolk Southern system.

The unions in each case resisted the railroad's proposed changes contending that these changes were inconsistent with provisions of their existing labor agreements and also that the Railway Labor Act gave the unions the right to insist that the changes not be made until either the unions had agreed to them or the railroads had exhausted the Railway Labor Act's virtually endless process for the negotiation of changes to existing agreements.

The ICC held that the railroad's proposed changes were exempt by virtue of section 11341(a) from claims asserted under the Railway Labor Act, including claims based on labor agreements.

The Commission found that the railroad's actions were subject to the processes of the ICC's employee protective conditions, which had been imposed on both consolidations as required by a different section of the Interstate Commerce Act, section 11347.

The protective conditions confer on employee a generous array of compensatory benefits including a guarantee of wage protection for as long as 6 years if they are affected by the consolidation.

And the protective conditions also establish a procedure for the negotiation and, if necessary, arbitration of an agreement to govern the manner in which a railroad may implement its approved consolidation if the implementation will cause employees to be dismissed or displaced or will require a rearrangement of the work force.

And it was that procedure that was followed in these cases and which led to the ICC's decision.

The court of appeals reversed.

It held that the exemption from all other law reaches only positive legislative enactments and is ineffective against claims asserted under contracts.

The court reasoned that because labor agreements are a form of contract, the statutory exemption does not apply to them and to the claims asserted by the unions in these cases.

Now that decision of the court of appeals was surely incorrect.

Contractual obligations are binding only because of the law and an exemption from law bars enforcement of those obligations.

This Court held in 1948 in Schwabacher that the statutory exemption covers claims based on contracts.

Unknown Speaker: Mr. Berlin, can interrupt to ask you a question about the statutory language?

The exemption is necessary to let that person carry out the transaction; hold, maintain, and operate property; and exercise control and so forth.

Which of the predicates are you relying on?

Is it necessary to carry out the transaction, the necessary to operate their property, or the necessary to exercise control?

Mr. Berlin: Both transfers of work, Justice Stevens, were part of... first part of carrying out the approved transaction.

So the person carrying out the transaction in each case was the railroads.

An exemption from claims that--

Unknown Speaker: You say that the merger of the repair facilities 4 or 5 years later was essential to the merger of the two railroads?

Mr. Berlin: --That's not how we put it, Justice Stevens.

The statute requires that the railroad be carrying out its approved transaction... that is, the consolidation of the railroads... and that the exemption then be necessary to let that carrying out proceed, so that it is the--

Unknown Speaker: So that any amalgamation of facilities anytime in the future would be exempt from all law?

Mr. Berlin: --No, Justice Stevens, the exemption does not reach to any conceivable amalgamation in the future.

The--

Unknown Speaker: Then why does it reach to this one?

Mr. Berlin: --In this case, the railroads were carrying out the traditional purposes, that is, the combining of extra facilities or the centralization of control.

The court recognized many years ago in Texas v. United States in 1934 that the broad congressional purpose in giving exclusive authority to the ICC over consolidations requires that the scope of the exemption be interpreted broadly as that purpose.

Now, here the railroads were doing what are paradigmatic changes in their work force.

The combination of two facilities--

Unknown Speaker: Do they have to be paradigmatic changes?

Why doesn't it cover any change that will increase the efficiency of the combined operation as opposed to two separate operations?

Mr. Berlin: --It covers a great many such changes.

Unknown Speaker: How do we know which ones it covers?

That's the heart of my question.

Mr. Berlin: These are the easy cases, Justice Stevens.

I don't mean to duck the question, but I want to start with my--

Unknown Speaker: Well, the easiest case is legal objections to the transaction itself.

That's the easiest one, which even the court of appeals would recognize.

Mr. Berlin: --Certainly.

Unknown Speaker: But this is... theoretically you could have merged the two legal entities and continued to operate the two separate car facilities... repair facilities.

Mr. Berlin: Oh, certainly, and that situation occurred for some years, but it was... it is always anticipated when complex entities such as these railroad systems engage in mergers and other consolidations that there will over time be operational changes to realize the efficiencies and economies that Congress wants the railroads to achieve under the--

Unknown Speaker: What if an executive of one of the corporations had a contract with tenure to it that he was no longer needed because you've already got one chief executive officer.

Could you fire him without worrying about the contract?

Not a collective bargaining agreement... ordinary private contract.

You don't need this guy anymore.

Mr. Berlin: --Such a situation could certainly be within the reach of the exemption.

Unknown Speaker: I know it could be, but do you think it is?

Mr. Berlin: Yes.

But let me say that the working out of this exemption before we can get to a situation where we say everything may be... the exemption may sweep so broadly that virtually all contracts could be covered by it.

Surely that is too broad a statement of what this exemption does.

Before an action of a railroad... combined railroad... is going to enjoy the protection of the exemption, that action first must be a part of... they must encompassed within the approved consolidation in the first instance.

Second, the railroad must be carrying out what was approved, and third, the exemption must be necessary to the carrying out.

Now, one qualification that whenever we talk about hypotheticals involving employees is that the labor protective conditions provide compensation for employees who are affected.

Chief executive officer would not enjoy that.

Unknown Speaker: The case would be equally strong without the labor protective provisions, wouldn't it?

Mr. Berlin: Yes, it would.

But Congress has shown by providing a compensatory mechanism in the labor protective conditions which it requires the ICC to impose on these transactions that the statutory exemption is going to affect employees.

The court recognized in Lowden in 1939 that consolidations inevitably will cause employees to lose their jobs, suffer reductions in their wages, and lose their seniority rights which are defined by contracts.

And when that happens the employees are going to be compensated.

Now, the enactment of the protective conditions legislation for the first time in 1940 was part of a major legislative review of the ICC's authority and the scope of the exemption in the Transportation Act of 1940.

When Congress first put that statutory foundation under labor protection which the ICC had just begun... recently begun at that time... putting into effect on its own, Congress looked at the entire range of questions that bear on this issue.

For example, Congress had to decide whether to reenact the general exemption from all other legal restraints, as it was then phrased in the law.

And Congress did so.

Congress passed up at the time the opportunity that was suggested to it to reenact a temporary measure that had been in effect in Title I of the Emergency Railroad Transportation Act of 1933 that prevented these things.

Unknown Speaker: Mr. Berlin, looking at that same statutory language that Justice Stevens was asking you about, at what stage and by whom is a finding of necessity made?

Mr. Berlin: The... Justice Stevens in his concurrence in the BLE case in 1986 suggested that any tribunal that is called upon to assess whether a competing claim may be asserted may be the one called upon, may have to determine whether the exemption is necessary to the carrying out of the transaction.

In this case, however, it comes up, Mr. Chief Justice, through the actual procedures of the protective conditions which Congress has directed be put into place.

Unknown Speaker: Well, did the court of appeals in this case rest any of its decision on the conclusion that this was not necessary?

Mr. Berlin: No, it did not, Mr. Chief Justice.

The court of appeals didn't reach the issue of carrying out and it didn't reach the issue of necessity.

All the court of appeals held is that claims based on labor agreements may never come within the scope of the statutory exemption.

That's the--

Unknown Speaker: Even though everyone would concede that the action overriding those kinds was necessary?

Mr. Berlin: --Even assuming that were the case, that's right.

What the court of appeals did was rely on its conclusion that the exemption from all other law pertained only to positive statutory enactments.

The court cut a wedge through the middle of the Railway Labor Act and distinguished between contract claims, which is what it... what the court perceived to be asserted in this case and other types of claims that might be brought under the Railway Labor Act or rest on the Railway Labor Act.

We submit and have discussed our briefs that that distinction is illusory, that claims arising under labor agreements are only assertable because of the Railway Labor Act as labor agreements in the railroad industry are creatures of the Railway Labor Act.

The contracts carry out the RLA commands, and it's only the RLA that makes them enforceable.

And so we think that one thing this Court should do as it visits the issue is hold that the exemption reaches claims assert... that it may reach claims asserted under labor agreements, and as part of that, that it reaches claims asserted under the Railway Labor Act.

That is, there's no way to just sever this out and say that's as far as the case should go.

Unknown Speaker: What claims under the collective bargaining agreements had to be overridden here?

Mr. Berlin: Well, Justice White, one of the difficulties is in pinning down precisely what the specific claims were in both cases.

In the CSX case, the employees on the Seaboard property, the property in which that Way Cross shop was located, had what is called the Orange Book collective bargaining agreement which had been negotiated in connection with an earlier merger that resulted in that Seaboard Railroad.

They contended that the Orange Book contractually barred the merged railroad from moving work... their work... from Raceland... from Way Cross, Georgia, where it was covered by the Orange Book to the property at Raceland, Kentucky, which was not in that original Orange Book merger.

So they said that the Orange Book was a bar itself, a contractual bar.

By way of example in the Norfolk Southern case involving the transfer of employees who perform work known as distribution of locomotive power, the employees were to be moved... or the work was to be moved and employees given an opportunity to follow it from a property where one union had a contract that covered that work to the other property where the work was done by management officers of the other company.

And the employees in that case contended that their agreement barred the transfer, although the specifics were always unclear to us, and also that before the transfer could be accomplished, the railroad had to negotiate with the union over the terms of the transfer.

That is that the Railway Labor Act conferred on their employees through their union the right to insist on negotiation before such a change could be made.

Below, the railroads thought they were at issue over the question of claims based on the Railway Labor Act, encompassing but broader than claims simply asserted on specific labor agreements.

Unknown Speaker: Was this a... if the unions had had their way, would this have been a major dispute or minor dispute?

Mr. Berlin: The unions contended that the minor... the major dispute rules applied.

That is that a change... a unilateral change in working conditions was under way and that they had the right to insist on the bargaining process be followed.

Unknown Speaker: Okay.

Mr. Berlin: Again--

Unknown Speaker: Mr. Berlin, as I recall your brief, you're not arguing, although I guess you'll settle for purposes of this case, that it's only RLA contracts that are superseded by this legislation.

You believe that any contractual commitment is.

Mr. Berlin: --Justice Scalia, the question that the court took on certiorari is whether the exemption applies to claims based on agreements that are asserted under Federal law.

Now we would be quite content, I assure you--

Unknown Speaker: Well, some of your argumentation... well, I forget which brief and which of your co-petitioner... which brief is which... but one of them makes the argument that of course if there is a commitment to bondholders that would stand in the way of a merger, that would be overridden by the ICC's action.

Is that your position?

Mr. Berlin: --Yes, such a claim, Justice Scalia, is surely within the scope of the exemption.

The court as much as said so in Schwabacher.

Unknown Speaker: And that's not an RLA agreement?

Mr. Berlin: No, that's right.

With the Court's permission I'd like to save the rest of time for rebuttal.

Unknown Speaker: Very well, Mr.--

--Counselor, I would like to ask you one question.

I take it the necessity clause of 13... of 341 has to comply with the minimum requirements of 347... of 11347?

Mr. Berlin: Justice Kennedy, any action that the... the answer is yes.

If employees are to be affected, that is, displaced or dismissed or somehow have their work arrangements changed, even if the statutory exemption does apply as we say it does, those employees receive the compensatory and procedural protections of the protective conditions that are imposed by the ICC under section 11347.

Unknown Speaker: Is that of relevance in our interpreting the scope and effect of... 11341?

Mr. Berlin: We do not depend on the protective conditions to sustain our reading of the exemption.

Unknown Speaker: Don't we have to interpret the act according to its whole design, all of its sections?

And what I'm getting at is whether or not we shouldn't really have the Commission's interpretation of 11347 in front of us in order to make this determination.

Mr. Berlin: Well, Justice Kennedy, the Commission... well, first the statutory exemption predates the protective conditions by almost 4 years... 40 years... statutorially and almost that much before the ICC began imposing them on its own authority.

The... but the ICC said when it heard these cases on remand from the court of appeals and rendered a decision under the protective conditions that its decision was... in deciding it was bound to apply the reading that the court of appeals gave to 11341(a)'s exemption provision.

And in a later decision last summer, the ICC has made clear that if this Court reverses the court of appeals on the exemption, the ICC will have to revisit its decision on the protective conditions.

So the ICC sees 11347's scope as dependent, at least in part, on whether there is an exemption out there.

And we say that the... that that's clearly right, that the congressional action most recently in 1976 relating to employee protection, was done against the background of 56 years of this preexisting exemption and it bears that way, rather than the other.

The availability of the protective conditions and their compensation and procedural protection is important in that recognizes the congressional attention to the interests of employees but by no means necessary to the existence of the exemption.

Unknown Speaker: Mr. Berlin, I have to interrupt, too.

You're saying, if I understand you, if you say you must comply with 11347, that that statute is not an other law within the meaning of 11341.

Mr. Berlin: 0 [inaudible].

Unknown Speaker: Because otherwise you'd be exempt from it.

Mr. Berlin: That... that's right.

I think it's part of the same statute and Congress expects the ICC and the railroads to comply with it even in exempt situations.

Unknown Speaker: 347 is not another law?

Mr. Berlin: I think it's not, but even it were, an exemption from it would never be necessary because Congress has said that.

Unknown Speaker: Thank you, Mr. Berlin.

Mr. Minear, we'll hear now from you.

Argument of Jeffrey P. Minear

Mr. Minear: Mr. Chief Justice, and may it please the Court:

The issue in this case is whether section 11341(a) of the Interstate Commerce Act exempts a participant in a Commission-approved transaction from its contractual obligations.

We submit that section 11341(a) does exactly that.

We based our conclusion squarely on the language of the statute.

Section 11341(a) states that a carrier participating in an approved transaction is exempt from the antitrust laws and from all other law as necessary to carry out the transaction.

That exemption is easily sufficient to embrace those laws governing contractual obligations.

Unknown Speaker: Well, one wouldn't have to read it that way as an original proposition had it not been for Schwabacher.

At least that's my view that you could say law means governing law, not contracts which come into... into existence as a result of that law.

Mr. Minear: Well, with all respect, Your Honor, I think that that would be a difficult proposition.

The reason is this.

Contracts derive their force only from the fact that they're enforceable through law.

What is actually being exempted here is the enforcement of those laws.

A naked promise without the background of law behind it would not be subject to this provision.

But there would be no need for the exemption as well.

Now, this Court recognized as you note that principle in Schwabacher, that in fact contractual obligations are subject to the 11341(a) exemption.

In that case the court held that the Commission's approval of a railroad merger could deprive dissenting shareholders of their contract rights under State law.

The same is true in this case.

Section 11341(a) preempts the union's rights--

Unknown Speaker: One of the issues in that case was what did the State law require.

Mr. Minear: --Not exactly, Your Honor.

I think the question there... to give you the background on this case.

The dissenting shareholders argued that they're entitled to accrued dividends under the corporate charter and that that was enforceable through Michigan law.

The Commission--

Unknown Speaker: Even if the amount were greater than the reasonable value of the shares in the exchange.

Mr. Minear: --That is correct.

Unknown Speaker: And there had been no determination of whether they would be entitled to it or not.

Mr. Minear: That is correct.

And the court held that the Commission should rule on that issue and its ruling would be dispositive.

And it's noted, for example, that first the Commission must consider the public interest in approving that transaction--

Unknown Speaker: It would be dispositive of the State law question of whether they're entitled to 100 cents on the dollar on the accrued dividends.

Mr. Minear: --What it would effectively do is prevent them from enforcing their contractual rights under State law.

That is the effect of the exemption.

It prevents enforcement of law.

But the same is true in this case.

As I said, section 11341(a) preempts the union's rights under the collective bargaining agreements to the extent that enforcement of those rights would prevent the railroad from carrying out the approved transaction.

Indeed if it were otherwise many of these transactions could simply not take place.

Now, the unions do not quarrel with our basic position as section 11341(a) can preempt the enforcement of contractual rights.

Nor do they quarrel with the result in Schwabacher.

Instead the unions argued the contract in this case should be treated differently, because the Commission, in their view, has no authority or control over labor matters.

Now there are two fundamental problems with this position.

First, the union's argument is to whether the Commission has authority, control, or jurisdiction over labor matters are beside the point.

Section 11341(a) by its terms exempts a participant in a Commission-approved transaction from all law to the extent necessary to carry out the transaction.

The exemption does not depend on whether the Commission has jurisdiction over the subject matter of that law.

Second, the union's assertion is simply not correct.

The I... the Interstate Commerce Act requires the Commission to consider and address labor matters when approving a proposed merger.

Indeed, as this Court recognized in Lowden v. The United States, mergers almost invariably affect collective bargaining agreements, and the Commission must consider those effects when evaluating the proposed transaction.

Moreover, there is no need to read into section 11341(a) an implied exception for labor contracts, because the Interstate Commerce Act contains other provisions.

They are designed specifically to protect rail labor from hardships that might result from a merger.

First, as I've mentioned, the Commission must consider the interests of rail labor when deciding whether the proposed transaction is in the public interest.

Second, the Commission must address the terms of the merger transaction--

Unknown Speaker: May I ask you a question similar to the one I asked the... Mr. Berlin?

Mr. Minear: --Yes, sir.

Unknown Speaker: Supposing one of the two railroads had long-terms leases on its executive offices and they wanted to consolidate their executive offices, could they cancel the lease?

Mr. Minear: It depends... the Commission looks at this in two parts.

Unknown Speaker: Well, what does the statute provide?

Mr. Minear: Well, the Commission... the statute provides that they would be exempt from their enforcement of those contracts to the extent necessary to carry out the transaction.

Unknown Speaker: Well, let's assume it's necessary and just the same number of dollar savings that you get out of consolidating two car repair facilities.

Mr. Minear: Well, the Commission will look at this in two steps.

First, it will ask whether this proposed activity of the railroad is a part of the approved transaction.

This is essentially a matter of interpreting the transaction itself.

Unknown Speaker: Not interpreting the contract... how do you interpret the transact without interpreting the contract?

Mr. Minear: Well, the contract... you're talking about--

Unknown Speaker: In other words, the contract doesn't provide for the cancellation on my executive office leases and this contract doesn't provide for the consolidation of the car repair facilities, does it?

Mr. Minear: --The... it was a finding by the arbitrator that in fact the transaction did contemplate--

Unknown Speaker: Well, I understand it contemplated it.

But was there a contractual requirement that these--

Mr. Minear: --As part of the transaction, no, but I do not believe that's necessary and the Commission does not believe that that's necessary.

Rather they look to whether this was a contemplated activity under the transaction.

Once it makes that--

Unknown Speaker: --Supposing they could prove that they contemplated merging the office space in the two headquarters' offices?

Mr. Minear: --Well, that's--

Unknown Speaker: But there's nothing said about it in the contract.

Mr. Minear: --There's nothing... this again is a matter that the arbitrator decided in this case.

It's not that the question's presented squarely here.

Unknown Speaker: Well, what's your view about my hypothetical?

Mr. Minear: My view of your hypothetical is that this would be submitted to the appropriate tribunal.

They would determine first whether it was a part of the approved transaction.

If so, the next question would be--

Unknown Speaker: Well, what if appropriate tribunal decides whether the lease on some property on Wall Street is part of the transaction?

Mr. Minear: --Well, the... tribunal is going to make that determination by looking at the terms of the transaction, implied and in fact.

Unknown Speaker: What tribunal?

I'm asking what tribunal makes that determination?

Mr. Minear: It will be the tribunal that has been asked to enforce the contract lease most likely.

The parties--

Unknown Speaker: Like the New York State Court would do.

Mr. Minear: --New York State Court, for example.

They would examine the transaction and make a determination whether this was contemplated under the transaction, whether it was implied in fact in the transaction, and they'd make the second determination of whether this interferes with carrying out whether the enforcement of the lease interferes with the carrying out of that particular activity under the transaction.

Unknown Speaker: Well, didn't the arbitration committee decide that this shop consolidation was actually authorized by the Commission's 1980 order?

Mr. Minear: Yes, they did imply they found it implied in the terms of the transaction.

It was not like the--

Unknown Speaker: Well, then the Commission affirmed that.

Mr. Minear: --And the Commission did affirm that as well.

Unknown Speaker: So this was actually contemplated or authorized by our 1980 order.

Mr. Minear: Yes, and the court of appeals did not reach that issue, so it's not part of this case.

The issue before this case is the interpretation--

Unknown Speaker: Well, so as it comes to us, it was authorized?

Mr. Minear: --Yes, that is correct.

Now, as I was saying the... not only is the public interest considered in the course... the labor interests considered in the course of the public interest evaluation of the Commission.

In addition, the Commission must add to the terms of the merger special provisions that are specifically designed to protect rail labor for dislocations that might result from carrying out the merger.

And then finally, as we've talking about, section 11341's exemption applies only to the extent that is necessary to permit implementation for the transaction.

In some the expressed terms of the act provide ample protection for rail labor.

There's simply no need for this Court to create additional protections that are not part of the legislative scheme.

I'd like to reserve the remainder of my time for petitioners' rebuttal.

Unknown Speaker: Thank you, Mr. Minear.

Mr. Mahoney?

Argument of William G. Mahoney

Mr. Mahoney: Mr. Chief Justice, and may it please the Court:

The union respondents agree that the sole issue before this Court is whether section 11341(a) standing alone overrides contracts including collective bargaining agreements.

But the petitioners and the Federal respondents acknowledge that, regardless of how this Court rules on that specific question, the disputes between the parties will not be resolved.

In its reply brief at page 3, Norfolk Southern states that the decision here will be useful as a guide to the ICC for, quote,

"it will matter in the application of the ICC's authority to administer employee protective conditions under section 11347 whether the railroads are already exempt from the Railway Labor Act and labor agreements to the extent necessary to permit them to carry out the approved consolidation. "

And Norfolk Southern continues,

"The Interstate Commerce Commission has made clear that it will have to reconsider its remand decision if this Court agrees with the petitioners and the Federal respondents as to the extent of the section 11341 exemption. "

In short, it is Norfolk Southern's position that should this Court agree with it, 11341(a) will preempt 11347.

It is our position that section 11341(a) standing alone should not be read as overriding collectively bargaining agreements.

But if such an interpretation is applied to it, section 11347 must then be considered because the exemption of 11341 extends only to railroads that are prevented from carrying out a merger or a control transaction as approved and conditioned, and section 11347 supplies the conditions.

In Texas against The United States this Court held that the scope of the immunity is measured by the purpose which Congress had in view--

Unknown Speaker: I think the railroad said that the... is it their position that the protective provisions don't apply at all if they win?

I thought they... the protective provisions will at least guarantee 6 months... 6 years of pay--

Mr. Mahoney: --They will, but strip them of their contract rights--

Unknown Speaker: --Isn't the real issue whether they not only can transfer the work, but transfer the employees to the new location?

Mr. Mahoney: --No, I don't think that's the issue, Your Honor.

The issue is whether--

Unknown Speaker: Well, it was, though.

There was an issue that was--

Mr. Mahoney: --No, the issue about the transfer, which was tried before the arbitrators in both cases, and in both cases the arbitrators found that these transfers were authorized by the Commission, because the Commission said they were authorized by the Commission and the arbitrators considered themselves an agent.

Unknown Speaker: --The first part of my question was do you understand the railroads to contend that the protective provisions do not apply in the sense that they object to 6 months... 6 years' worth of pay?

Mr. Mahoney: No, Your Honor.

Unknown Speaker: No, they do not.

Mr. Mahoney: No.

They don't object to that, but what they want to do is--

Unknown Speaker: No, but they want to transfer... they want to transfer the employees to the new location so they can work.

Mr. Mahoney: --Well, they want to absolve themselves of the contractual obligations they have under such as the Orange Book, which the arbitrator found they did not have to move.

The arbitrator found that the Orange Book, for example, restricted the... prohibited the transfer of work and prohibited transfer of employees beyond the old SCL property.

And he said, well, the Commission says this is necessary in order to carry out this transaction, and this is an approved transaction so we'll move the work, but we don't have to move the employees.

And the Commission turns right around and says, oh, that's egregious error, because that places this in conflict with our order, our 5-year-old merger order which didn't say anything about the Raceland, Way Cross shops at all and couldn't have.

Nobody knew it was going to happen in those days.

What they have done is they have extended the term transaction... approved transaction... to every single thing that the carrier wants to carry out as a result of the transaction.

And that's what the protection is there for: to protect employees--

Unknown Speaker: If you have a labor contract that... would... with the rail unions that say there will be no consolidations of facilities.

Mr. Mahoney: --Yes, Your Honor.

Unknown Speaker: Then the ICC could decree mergers until the cows come home and nothing would happen except that technically there would be one company operating inefficiently instead of two.

Mr. Mahoney: No, under the Railway Labor Act, Your Honor, there would... something would happen and what would happen--

Unknown Speaker: What would happen?

Mr. Mahoney: --Well, it might take awhile but it would happen, and that would be that at the end of the procedures of the Railway Labor Act they could put whatever they wanted into effect.

Unknown Speaker: At the end of the procedures of the Railway Labor Act?

Mr. Mahoney: They could put whatever they wanted into effect.

And right now the emergency board is hearing cases which contains the railroad's position that they want this authority to make these moves.

They don't have it.

They want it.

They've placed it before the emergency board as their bargaining proposition under section 6.

Their--

Unknown Speaker: But it is your position that all a railway labor union has to do is put in its contract with management that there shall be no consolidation of facilities without the consent of the union and, in effect, whatever the ICC decrees, no matter how specific it gets for that matter about a merger or a consolidation, it will not be effective because it cannot override that contractual obligation.

Mr. Mahoney: --Your Honor, in the first place, I think--

Unknown Speaker: I think it can take a yes or no.

Is that your position or not?

Mr. Mahoney: --No, it is not.

Unknown Speaker: All right.

Why not?

Mr. Mahoney: It's not my position because if you had a contract, I would judge, that was directly opposed to an order of the Commission, you could override the contract as the court said the Congress could do in L&N against Motley when they outlawed passes.

But you can't... you wouldn't outlaw the obligation... there is in our contractual obligation that obviously the other party paid for.

The railroad is not going to give that sort of a benefit away.

Unknown Speaker: I don't understand.

I don't understand what you're saying.

Mr. Mahoney: Well, there's an obligation... a contract obligation as this Court said in L&N against Motley... that they might not... they might take away specific performance, but they just can't wipe out all--

Unknown Speaker: Oh, I see, so what you're saying is, well, the new company would be permitted to merge facilities as the ICC has said but they will have to pay compensation to the union for that.

Mr. Mahoney: --They would have to go back and make that determination--

Unknown Speaker: Which would probably be compensation in the amount of the efficiency that they were trying to eliminate, right?

I mean the wages of all of the people who would have otherwise been eliminated.

Mr. Mahoney: --Well, you have to look at... 11347 requires two things it seems to me.

It requires the things that Mr. Berlin was saying... the compensation, the 6 years' protection and money... but it also expressly says preservation of wages, rules, and working conditions.

Preservation of collective bargaining and collective bargaining agreement rights.

Unknown Speaker: Well, to the extent that that governs, I don't think the railroads are arguing that they aren't bound by that.

They're just arguing about whether 41 permits them to, apart from the guarantees that are made in the legislation, override a contract.

And your position is that if the labor union has an inefficiency built into a contract, it cannot be eliminated by the ICC.

Mr. Mahoney: It can.

It can.

Unknown Speaker: Well, not without compensation.

I--

Mr. Mahoney: Not without compensation, correct.

Yes, Your Honor.

Unknown Speaker: --Okay, you want to say it can be eliminated with compensation.

I regard that as not being eliminable.

Mr. Mahoney: I think there's a constitutional difference--

Unknown Speaker: I mean, you could buy back anything from the unions.

I mean, management can go in and say, let's eliminate this if we'll give you this much money.

Mr. Mahoney: --If it will sell [inaudible] so sure.

That's true.

Unknown Speaker: ICC for that.

Mr. Mahoney: It is our position rather that it is the overall view of Congress in regulating rail transportation was to ensure the adequate, safe, efficient, and uninterrupted flow of interstate commerce by rail and to accomplish that, the Congress enacted three basic statutes and a number of ancillary statutes.

The Interstate Commerce Act, the Railway Labor Act, and the Federal Railroad Safety Act.

And the... as this Court said in Schwabacher, the Interstate Commerce Act governs issuance of securities, car supply, joint use of terminals, abandonments, and so forth, and also governs all financial transactions governing combinations of railroads.

Its only relationship to employees is to consider their interests in reaching public interest findings and to impose minimum standards to protect employees against the effects of its orders.

The second element, the Railway Labor Act, as this Court noted, was a complementary regime to the Interstate Commerce Act.

You noted that in Pittsburgh and Lake Erie.

And this act governs labor relations.

It governs the making and maintaining of agreements effecting rates of pay, rules, and working conditions.

And section 7 first to the Railway Labor Act provides that if there is a controversy regarding those matters and a party refuses to submit that to arbitration, he shall not be construed... it shall not be construed as a violation of any legal obligation imposed upon such party by the terms of this act or otherwise.

And that is precisely what the Commission says the employees must do now.

They must submit their contracts to arbitration, changes in their contracts to arbitration.

Elimination of their contracts and their right to representation to arbitration.

The third part of these... of this tripartite statutory arrangement is the Safety Act, administered by the Federal Railroad Administration.

Now, the petitioners and the Federal respondents stressed the exclusive and plenary nature of the Interstate Commerce Act, that it is the supreme law of the land.

And so it is, but so is the Railway Labor Act and so is the Safety Act in their specific spheres of governance.

And there's no doubt that any State law that intrudes upon that exclusive sphere of the Interstate Commerce Act is preempted by the supremacy clause as implemented by 11341.

And that was the situation in Schwabacher, where this Court held the State law chartering the railroad and was preempted to the extent it conflicted with the Interstate Commerce Act because Congress had occupied the field by giving complete control of the capital structure of railroads to the Interstate Commerce Commission, just as the Railway Labor Act is supreme, plenary, and exclusive in the governance of the making and maintaining of agreements affecting rates of pay, rules, and working conditions.

Now the impact of these statutes do overlap, and when they do they must be accommodated, giving as full effect as possible to the meaning and purpose of each.

For example, the safety laws certainly impact.

They're expensive.

They impact upon the efficiency of railroads, the flexibility of railroads.

The Railway Labor Act does the same thing.

But Congress says each of those things... each of those statutes are necessary in a public interest.

There has never been before 1983 a court or of the Commission or an arbitrator ever to hold that any provision of the Railway Labor Act or a collective bargaining agreement to be in conflict with any provision of the Interstate Commerce Act or an ICC order.

It's never happened, but in 1983, the Commission, in the R.G.W. case, held that conflict existed, and in 1985 it held that, by virtue of 11341, its orders and not the Railway Labor Act or labor contracts governed employee/management relations in connection with an approved transaction.

And by an approved transaction the Commission meant that any action made operationally or economically feasible or desirable by the merger.

In other words, any result of the merger.

The Commission made no attempt at accommodation of the two statutes at all or the separate complementary purposes, not did it even acknowledge that prior to 1983, no conflict had ever been held to exist.

The Commission just invaded the Railway Labor Act's sphere of governance, declared the existence of a conflict, and proclaimed itself the winner.

Unknown Speaker: Mr. Mahoney, can I ask you something about section 11347?

Mr. Mahoney: Yes, sir.

Unknown Speaker: I had assumed that the reason it provides that the arrangement and the order approving the transaction must require that the employees of the affected rail carrier will not be in a worse position related to their employment as a result of the transaction during the 4 years following the effective date.

I assumed when I read it that the reason for that was without it, their employment rights could be altered.

Are they not talking about contractual rights of employment there?

Mr. Mahoney: We're not and they never were and they never had been, Your Honor.

Unknown Speaker: What... what--

Mr. Mahoney: What they meant was they could abolish jobs, could always abolish jobs, cut back your work forces--

Unknown Speaker: --Even if you had a contractual... I mean, if there were a commitment to have so many jobs on a particular run?

Mr. Mahoney: --Oh, no, Your Honor.

Unknown Speaker: No?

Mr. Mahoney: No.

No, those were never changed by these agreements.

But they were changed by agreement.

They were never changed by statute... by requirement of the Commission.

As a matter of fact, prior to 1983, we didn't even reach the question of contracts.

The protective arrangements, if you look at the protective arrangements in all the agreements, they don't provide for any compensation for loss of contracts rights.

They provide for compensation for loss of jobs, for being required to transfer, and so forth.

And this was all done by agreement.

And agreements were always made.

I don't recall in 40 years of practice before the Interstate Commerce Commission under the Railway Labor Act that there was ever not an agreement as a result of a merger.

There were a number of agreements... a number of mergers that took place and are still in existence in which there are different agreements on different sections of the railroad, like the Burlington Northern, because they never got together and put all of the agreements together, but they set it up as divisions.

But I don't recall anytime--

Unknown Speaker: I see.

So you think what this means is that if there were a, let's say, a station master who would have served at a particular location, even though he could contractually have been transferred but in fact he was serving where he lived, this provision means that even though you had a contractual right to transfer him, you won't... you won't transfer him for 4 years?

Mr. Mahoney: --No, it doesn't mean that.

If you have a contractual right to transfer him, you can transfer him, give him seniority anywhere, and he's got to exercise that seniority or he gets no protection.

Unknown Speaker: Is the reading of the section that the railroad and the union can reach an agreement with respect to the effects of the merger on the employees, but that this is a minimum standard that the ICC must insist upon.

Mr. Mahoney: Yes, Your Honor.

Unknown Speaker: Is that what you're saying?

Mr. Mahoney: That's exactly right.

As in the original language of 52(f), the third sentence says, notwithstanding the foregoing, the parties may reach whatever reasonable agreement they wish.

And that has always been the case.

Now the... because they have taken over an area... this is a little unusual.

It's not like Schwabacher, it's not like any of the cases that I've read... Daniel... the Daniel case, Seaboard case or any of those, because here there is a direct invasion of another complementary regime which Congress designed to govern rail transportation in the United States.

It's a direct invasion of that.

There's never been any conflict before.

The Commission declared the conflict, created the conflict, and then said, we win.

Unknown Speaker: Well, Mr. Mahoney, certainly the antitrust laws are set aside.

Mr. Mahoney: Oh, yes, Your Honor.

And that's done explicitly.

Unknown Speaker: Well, so why shouldn't all... well, why shouldn't all other law after the antitrust laws include other Federal laws?

Mr. Mahoney: I think all... you can set aside all other law, but this you had to find first of all it seems to me an explicit conflict.

There has to be some... no chance at accommodation.

Here, there is accommodation.

Unknown Speaker: Do you think... do you think in Schwabacher there was a conflict?

Mr. Mahoney: Not with any Federal law, Your Honor.

No, it was a conflict with State law.

Unknown Speaker: Well, was there a conflict with State law?

Mr. Mahoney: It preempted that, yes.

Unknown Speaker: Well, why shouldn't Federal law be equally preempted?

Mr. Mahoney: Because where Congress has enacted complementary regimes of law to govern the same subject matter, such as rail transportation in the United States, it seems to me that before one of those can be interpreted to supersede or preempt the other, there should be... it should be a very clear conflict and no possible way of accommodating and allowing both of those laws to proceed.

Unknown Speaker: I can certainly understand the merit of that argument if neither law said anything with respect to the other.

But here the ICA says that people... a participant in this transaction are exempt from the... I mean, it deals with conflict and says that this law prevails, as I read it.

Mr. Mahoney: That's true, Your Honor, but the... it's only exempt insofar as necessary to carry out an order as conditioned.

And the condition is 11347 and 11347 says preserve all collective bargaining agreements and collective bargaining rights.

I don't see how anyone can get out of that circle.

It's there.

You can't ignore it.

If you're going to determine--

Unknown Speaker: But now you're not arguing the Railway Labor Act as having to be adjusted and compromised along with the ICA.

You're saying that this act itself.

Mr. Mahoney: --That's correct, Your Honor.

Unknown Speaker: Those are two different arguments really.

Mr. Mahoney: Well, the railway... I'm saying that the Railway Labor Act as a separate regime is not invaded... cannot be invaded or should not be invaded by 11341 unless there's an absolute conflict that can't be avoided.

Unknown Speaker: Okay.

Mr. Mahoney: But at the same time if you're going to say that, yes, you can read 11341 that way, then you have to go to 11347 because 11340 exempts only those carriers in carrying out transactions as conditioned.

They have to carrying them out as conditioned.

And one of the conditions is a minimum level of preserving all collective bargaining agreements.

Unknown Speaker: But 11347 doesn't say that?

Does it, or am I wrong?

Mr. Mahoney: 11347 says--

Unknown Speaker: What is the language that you... you told the Chief Justice that 11347 says that all existing and collective bargaining contracts have to be preserved, and I just don't see that in the section, unless I'm missing something.

Mr. Mahoney: --Section 11347, Your Honor, says that they must... that the Commission must impose as a minimum level of protection the protections that were imposed by the Secretary of Labor for the protection of employees in the Amtrak case, when Amtrak was created.

And you go to that statute and you find in that statute the precise sections 2 and 3 of the New York Dock Conditions, which the Commission just adopted, not adapted, by adopted from the Secretary and put them in, and those become the requirements of law.

Unknown Speaker: But do those refer to the collective bargaining contracts?

Mr. Mahoney: They say... section 2 says they must be... preserve all collective bargaining and collective bargaining rights, privileges and benefits.

And section 3 says you must preserve... no employee shall lose any protective agreement like the Orange Book, and he has the right to elect between his protective agreement and the conditions imposed by the Commission.

And that if he picks one, when that one expires he can then go to other one.

That's what section 3 says.

The Commission doesn't even mention that and wipes out the Orange Book.

So it's a... it does... we respectfully submit, Your Honor, as we've pointed out at... I think you'll find that on... 11347 is on 5a and then the New York Dock Conditions is sections 2 and 3... or [inaudible].

Unknown Speaker: 11347 just covers the period for 4 years after the date of the final action of the Commission, doesn't it?

Mr. Mahoney: No.

No, Your Honor, that covers the period for 6 years from the date the employee is affected.

The employee could be affected 3, 4, 5, 6 years later.

And from the date of his adverse effect, then he is protected for 6 years forward of that date.

Unknown Speaker: Well... didn't I... it must say that in something that's not before me, because although the first part certainly says 4 years.

Mr. Mahoney: The first part of what, Your Honor?

Unknown Speaker: The first part of 11... unless I'm simply dealing with a typographical... 11347.

Mr. Mahoney: 11347 is... we've printed it out on page 4a of our appendix.

On a rail carrier involved in a transaction which... for approval, which is sought under 11344, the ICC shall require the carrier to provide a fair arrangement at least as protective of the interest of employees who are affected by the transaction as the terms imposed under this section before February 5, 1976.

That was the old New Orleans conditions which were the Washington Agreement upon which it was superimposed for the first 4 years Oklahoma conditions, and that was because the Oklahoma--

Unknown Speaker: Yes, but then go on to the last sentence of 11347 at the top of page 5a of your appendix.

There it does say, will not be in a worse position related to employment as a result of transaction during the 4 years following the effective date of the following action of the Commission.

Mr. Mahoney: --That's correct, Your Honor.

But--

Unknown Speaker: How long ago did the Commission act in this case?

Mr. Mahoney: --The problem is... the Commission acted in this case in 1980, but here it says you not only have to impose... the conditions that were imposed before February 5, but the terms established under 405 of the Rail Passenger Service Act.

And that's what we were talking about a moment ago.

The terms established under 405 of the Rail Passenger Service Act are... as set forth in sections 2 and 3 of the New York Dock condition.

I mean, that's what this entire case is about, that--

One of the conditions is preserve collective bargaining right and collective bargaining agreement rights, and that's what they didn't do here.

That's what they... that's what they simply... they simply wiped out.

The employees, for example, the ATDA... the employees represented by the ATDA, the American Train Dispatchers Association, on the Norfolk and Western Railroad, they were required to go to another railroad controlled by Norfolk Southern, which was the Southern Railroad.

And when they went to the Southern Railroad, when they got there, they no longer had representation under their... under the law... under the statute, and they no longer had a contract.

No contract protection.

Now, they may think... someone might say, well, they were much better off.

Well, maybe they were and maybe they weren't.

That isn't the point.

The point is that they didn't have any contract protection anymore and they didn't have any representation anymore.

And the fellows at Way Cross they were sent from the old SCL railroad in Way Cross, Georgia, up to Raceland, a commonly controlled CSX-controlled railroad, another railroad.

These aren't the same railroads.

These are separate railroads under common control.

CSX controlled both railroads that... you go there.

When they go there, they were under a different contract with different rules and different working conditions.

And half of them have this contract right which the arbitrator found required them to stay in... on SCL property for life, lifetime employment or lifetime full compensation in lieu of employment.

Unknown Speaker: Not required them to stay, but required the railroad to keep them if they'd wanted.

Mr. Mahoney: Or prohibited them from moving.

I'm sorry.

I misspoke myself.

Prohibit them from moving.

They could stay there with lifetime employment or lifetime protection, compensation... full compensation in lieu of employment, and the Commission now says to them, not any more.

If you stay there, you're going to get nothing.

If you want that lifetime protection, move to Raceland.

You've got to get off the SCL property.

That's the contract violation and for which they would get nothing.

And the Commission has said--

Unknown Speaker: Didn't the Commission say that the promise of lifetime employment was also abrogated, or not?

Mr. Mahoney: --Well, only if... no, if they moved.

The Commission said that if they moved, the carriers said that they would give them a lifetime protection if they moved.

But of course they could say next week, let's move again.

It became sort of worthless.

But nevertheless, if they stayed, which they had the right to do according to the arbitrator, who interpreted the agreement.

If they stayed there, then they got no protection at all of any kind.

Unknown Speaker: Mr. Gallagher, why isn't that one in that a separate section?

I thought this case just involved 11341, and I thought the court below held that there simply is no power under that to alter the contractual arrangements.

Mr. Mahoney: That's correct.

Unknown Speaker: You're making the argument that under 11347, there is a specific preservation of those contractual arrangements.

That may be, but that wasn't what the court below--

Mr. Mahoney: That's correct, Your Honor.

He never reached--

Unknown Speaker: --had before it.

Mr. Mahoney: --But all... my point is here that if you say that 11341, or lean to the proposition that 11341 supersedes contracts or overrides contracts, then you have to look at 11347, because 11347... 11341 only extends protections or exemptions to those carriers.

Unknown Speaker: So we could tell the court of appeals below you're wrong about 22341, remand, and tell them to consider 11347, if we think that 11341 says nothing about not impairing--

Mr. Mahoney: Well, that's correct, Your Honor, you could do that, Your Honor.

Unknown Speaker: --We could do that.

Mr. Mahoney: And unfortunately that, we think, would be a terribly unjust thing to do in these cases, simply because these people have been deprived of these rights for 5 years, 8 years, 10 years.

The Commission is... the Commission is now interpreting contracts, interpreting collective bargaining agreements.

I cited a couple in a couple of footnotes.

Where they're now interpreting agreements to see if they violate the Commission orders or whether the orders violate the contract.

That's unheard of.

They are now doing what the National Railroad Adjustment Board has exclusive authority to do.

They've never done that before.

It's never... no contract has ever been held or eliminated or modified by any order including the only three cases they ever cite, which is a '63 Eighth Circuit case which upheld a contract; a Burlington Northern case in '75 with their supervisors, which also upheld the contract; and the statement that the ICC made in 1974 when the trustee of the Erie-Lackawanna wanted to get out from under a contract.

He wanted to get out from under the contract.

He went back to the Commission and said, we want out from under this attrition agreement, and we came in and opposed it on two grounds and fortunately I raised the question.

One was that you don't have authority to do that, ICC, and the other was you shouldn't do it anyway because they haven't approved their case.

And the ICC said, well, yeah, we got the authority because our '63 court of appeals said we did.

But we're not going to exercise that authority because they didn't make their case.

So there's never been a contract upset until now, until the Commission, who has found this conflict and who started upsetting contracts.

And, Your Honors, we don't want to go back and start all over again on this on another 4 years.

There might not be enough of the employees left to bother with.

And besides that, the Commission has recognized... in this remand decision, they recognized that since their decision this has caused such enormous deterioration in the labor/management relations in this industry and it has.

And that is one of things that they're supposed to avoid and this Court said in Lowden that you should avoid if possible.

And they have created this terrible upset among these employees and management.

Because management likes it.

There's no bargaining anymore.

Why should they bargain with us anymore?

All they have to do is say, the Commission says this consolidation 10 years down the road has been authorized.

And if you have a consolidation you've got to move from A to B, naturally.

That's by definition.

So it's necessary.

It's an authorized, necessary consolidation.

The contracts go out the window and everything is moved.

There's no way to prove that isn't necessary.

It is by definition necessary to go from A to B if you're going to consolidate A with B.

And that's the great problem that we face, and we think that what they have done is they've taken 11347, which is clearly... no question it was designed as a shield to protect employee rights against ICC orders, convert it into a sword, and cut out their contract rights.

If there are no other questions, Your Honors, I conclude my argument.

Thank you very much.

Unknown Speaker: Thank you, Mr. Mahoney.

Mr. Minear, I believe you reserved 2 minutes for rebuttal.

Rebuttal of Jeffrey P. Minear

Mr. Minear: Thank you, Mr. Chief Justice.

I think it's important to emphasize the that issue in this case is the construction of 11341(a) and in particular the meaning of the phrase,

"the antitrust laws and any other law. "

The unions have raised at great length the question of the meaning of section 11347.

That is an issue that is presently before the Commission on remand in this case.

It is an issue that will be addressed after this Court addresses this issue of 11341.

We do not think it's necessary for the Court to interpret 11347 in this proceeding.

In fact, it would be quite improvident to do so.

Beyond that the unions have not raised any issue beyond the... that reaches the plain language of the statute here.

We think that the plain language controls 11341(a) covers all law including all laws related to enforcement of contract.

Thank you.

Chief Justice Rehnquist: Thank you, Mr. Minear.

The case is submitted.

Unknown Speaker: The honorable court is now adjourned until Monday next at ten o'clock.

Attribution:

The OYEZ Project

Featured:

Icc v. Texas - Oral Argument

Fri, 09 Jan 2009 14:48:30 +0000

Case:

Icc v. Texas

Media File:

85-1222_19861210-argument.mp3

Related Transcript:

1986_85_1222_argument.xml

Transcript:

Argument of Richard G. Taranto

Chief Justice Rehnquist: We will hear arguments next in two consolidated cases, No. 85-1222, ICC against Texas, et al., and No. 85-1267, Missour-Kansas-Texas Railraod Company against Texas.

You may proceed whenever you're ready, Mr. Taranto.

Mr. Taranto: Mr. Chief Justice, and may it please the Court:

This case concerns one particular form of mixed train-truck transportation, and whether the Interstate Commerce Commission could properly allocate this particular form of mixed service to the system of rail carrier regulation, rather than the system of motor carrier regulation.

Specifically, the transportation at issue in this case is TOFC service, trailer-on-flatcar or container-on-flatcar service, which involves a rail portion, during which the trailer or container rides on a railroad flatcar, and a motor portion, during which the trailer or container is pulled by motor vehicle.

Even more specifically, this case concerns only one particular form of TOFC service, a category of what has long been called Plan II service, where the entire service is provided by an interstate rail carrier on equipment owned and operated by the rail carrier.

The ICC decided in this case that that particular form of Plan II service should be subjected to the system of rail carrier regulation, and not to the system of motor carrier regulation.

Unknown Speaker: Mr. Taranto, part of the equipment is trailer rigs, truck-trailer rigs owned by the railroad?

Mr. Taranto: That's right.

Unknown Speaker: So that it travels over the road in tractor-trailer rigs owned by the railroad; is that it?

Mr. Taranto: That's right.

That trucks that pull the trailers or containers on the road in this case are owned by the rail carrier itself.

Unknown Speaker: For you to prevail, we have to decide that's a form of rail service?

Mr. Taranto: You have to decide that that is transportation provided by a rail carrier within the meaning of the Staggers Act.

My argument today is--

Unknown Speaker: Well, that... that fact is important to your--

--They could just as easy said, rail.

Mr. Taranto: --I'm sorry, Justice?

Unknown Speaker: They could just as easily have said, by rail, instead of saying, by a rail carrier.

Just to confuse us.

Mr. Taranto: Well, it is true that the statute generally uses the term, transportation provided by a rail carrier in various places.

And that it is not entirely consistent in its use of language.

But the phrase, transportation provided by a rail carrier, under the literal definition of the word transportation, includes motor vehicle as well as rail movement.

The Interstate Commerce Commission decided in this case that for the entire portion of TOFC service, both the motor and the truck portion, that the proper system of regulation for the entire service is the rail carrier provisions and not the motor carrier provisions.

This case arose as a result of Congress' passage of the Staggers Act in 1980.

That statute, which extended and furthered the deregulation policies first put into place in the mid-1970s, made major changes in the system of rail carrier regulation in the United States.

The general findings and policies set forth in the statute are important to this case, because the state expressly provides that individual provisions of the entire Interstate Commerce Act must be interpreted to further the declared national rail transportation policy.

The Staggers... in the Staggers Act, Congress expressly found that overregulation had contributed to the financial plight of the rail industry, and that much regulation was today unnecessary, largely because transportation had become much more competitive.

It then went on to set out a new national rail transportation policy, which emphasized deregulation at the Federal level; maximum possible reliance on market forces in rail carriers providing transportation; uniformity between State and Federal regulation; and, in particular, the promotion of intermodal transportation.

Congress went even one step further, and expressly amended the national transportation policy that applies to other modes of transportation, to give the rail policy express priority.

That policy must govern whenever a government action has an impact on rail carriers.

Unknown Speaker: You say, is that explicit in the statute, Mr. Taranto?

Mr. Taranto: Yes, in the very first words of Section 10101, the general national transportation policy, says that the following shall govern except when policy has an impact on rail carriers, in which case the specific rail carrier policy will govern.

In its first act pursuant to the Staggers Act, new... the Staggers Act new exemption provision, the ICC determined, in this case, that both the truck and train portions of rail-provided TOFC service should be exempt.

It took this action pursuant to two... to one of the two important provisions of the Staggers Act that is in issue in this case.

The exemption provision that the Staggers Act added to the Interstate Commerce Act changed what had been the historical practice.

Historically, all rail carrier activities were subject to an extensive system of regulation, covering the rates charged and most other aspects of rail carrier activities.

In 1976, Congress took one step and granted the Commission power to exempt activities.

But there was a limit in that provision.

Only activities of limited scope could be exempt.

The ICC began considering whether TOFC service, fell within that exemption, and Congress specifically noted the potential availability of the exemption provision as written when it was considering the Staggers Act.

But in the Staggers Act, Congress expanded the exemption power, and specifically directed the Commission to examine rail activities to determine when regulation was no longer necessary to protect shippers against an abuse of market power.

Congress also added to the exemption provision a specific section designed to promote the exemption of rail... of transportation provided by a rail carrier as part of intermodal service.

The second important provision of the Staggers Act--

Unknown Speaker: Mr. Taranto, excuse me for interrupting, because you answered my question earlier.

But could you again give me that Section... could you tell me what page of your appendix or petition that section is on?

Mr. Taranto: --I don't believe that the petition includes the general national transportation policy.

Unknown Speaker: Something that critical was not included in the relevant statutes?

Mr. Taranto: It is included in the statutes; not in the appendix here.

In Section 10101, the general national transportation policy, which comes just before 10101a, the language I was referring to appears.

The pre-emption provision of the Staggers Act is the second important provision in this case.

And that provision worked an even more fundamental change in the system of rail carrier regulation.

Historically, an interstate rail carrier was subjected to a dual system of regulation.

And intrastate shipment was initially subjected to State regulation, with appeal to the Interstate Commerce Commission, to simplify matters, only if the State action discriminated against or unduly burdened interstate commerce.

Congress radically altered the balance of Federal and government authority in the Staggers Act.

After the Staggers Act, a State was permitted to continue regulation intrastate transportation only if it did so in accordance with Federal standards and procedures, and it had obtained certification from the ICC to continue that regulation.

In this case, Texas has been denied certification.

It was denied certification while the ICC decision that is at issue here was pending in the Fifth Circuit.

The precise chronology is as follows.

The ICC granted the exemption to TOFC service, both the motor and rail portions, in 1981.

That decision was affirmed by the Fifth Circuit in its American Trucking Association's case of 1981.

In the early eighties Texas, like many States, had provisional authority to continue regulating.

And under that provisional authority, it determined that for intrastate shipments it retained the authority to regulate the motor portions of TOFC service.

The ICC disagreed with that decision by Texas, and that decision was in turn--

Unknown Speaker: xxx distinguished it, didn't they?

Mr. Taranto: --The ICC said that it's 1981 exemption--

Unknown Speaker: No, I mean the second... Court of Appeals.

Mr. Taranto: --Yes, when that case went to the Fifth Circuit, the Fifth Circuit said that the transportation involved in the earlier case was interstate transportation; that the shipments there crossed State lines during the entire... at some point during the single TOFC service.

In this case, they said a different analysis is required when the service is purely intrastate.

And the Fifth Circuit determined that intrastate motor portions constituted transportation provided by a motor carrier, subject to the Motor Carrier Act, which expressly reserves such activity to State regulation.

It is our position that the Fifth Circuit decision was wrong because it took too simplistic a view of the statutory scheme, and because it failed to give the ICC the deference it is due in making an allocation decision, a decision about where to allocate an inherently mixed form of transportation in a complex regulatory scheme.

Unknown Speaker: I don't see that the Fifth Circuit mentioned the provision which you referred me to earlier.

Did the government argue that provision to the Fifth Circuit?

Mr. Taranto: I'm not aware that the government made any argument based on the express priority given to the rail carrier policy.

We showed in our brief that the language of the two or three particular provisions at issue in this case can bear the construction that the Commission gave it.

First of all, the motor vehicle portion of TOFC service in fact constitutes transportation provided by a rail carrier, because transportation is given a broad definition in the statute that encompasses not just rail but also motor vehicle movement.

Second, when a rail carrier provides motor vehicle transportation, as an adjunct to, incidental to, its rail transportation, it need not automatically become transformed into a motor carrier.

Not all motor vehicle movement is by definition movement by a motor carrier.

The particular provisions at issue here, of course, can't be read in isolation, as this Court... this Court's approach in its American Trucking Association's case of 1967, we think, took the proper approach.

First of all, the statutory scheme simply does not divide the world of motor vehicle movement and rail movement according to the same line that the statutory scheme is generally divided between motor carriers and rail carriers.

Unknown Speaker: Am I correct that the argument on which the Fifth Circuit based its decision had not been presented to the ICC?

Is that right?

In the proceedings before the ICC did Texas make the argument that ultimately prevailed in the Fifth Circuit?

Mr. Taranto: The Fifth Circuit rested its decision on the view that this was transportation provided by a motor carrier.

Unknown Speaker: Right.

A motor carrier.

Mr. Taranto: The ICC decision in this case itself does not reflect that... that argument.

I'm afraid I'm just unaware of what arguments were made in the proceeding leading up to the ICC decision.

The opinion itself does not reflect that.

Unknown Speaker: We don't really know the views of the ICC on this point?

Mr. Taranto: Well, we do know the view of the ICC that both the motor and truck portion is-properly brought within the rail carrier provisions of the Interstate Commerce Act.

The ICC decision itself does not speak about the Motor Carrier Act provision.

It does speak about the Motor Carrier Act, but not about the particular reservation of State authority.

Unknown Speaker: Mr. Taranto, Texas was decertified after some 40 items of disagreement with the Texas Commission, is that right?

Mr. Taranto: Yes, that's right.

Unknown Speaker: Has the ICC had the same trouble with other State commissions in finding them recalcitrant?

Mr. Taranto: As far as I'm aware, Texas today remains the only State to have been denied certification.

There was a long process in which many States applied for certification.

Many of those States were eventually granted certification.

Some in the course of the application process dropped out, and decided that they would no longer continue seeking certification.

Unknown Speaker: Of course, it's a large State, and there's probably a lot of intrastate movement in Texas that might not be the case in other States.

Mr. Taranto: Certainly, Texas is larger than most States, but other States have an enormous amount of intrastate movement.

Unknown Speaker: xxx I suppose.

Mr. Taranto: Yes.

The specific question, whether Congress has ever addressed itself to whether truck movement can be encompassed in the rail carrier provisions has a fairly clear answer.

Congress has simply never said anything on that subject.

What Congress has said is that it sought to promote intermodal transportation, both in the specific exemption provision of the Staggers Act in adding, as part of the Motor Carrier Act of 1980, the promotion of intermodal transportation, to the general national transportation policy; and in taking a variety of other actions.

When one turns, finally, to the general rail carrier policy set out in the Staggers Act, nothing could be clear that... than that the ICC decision in this case furthers that policy.

The ICC decision here furthers the deregulatory policy; the policy of ensuring... of eliminating disparities between Federal and State regulation; and the policy of promoting intermodal transportation.

It is our view that because there is nothing specifically in the statute contrary to the ICC construction of the statute; and because the ICC decision here furthers the national rail transportation policy; that the ICC decision was correct, and that the Fifth Circuit decision should be reversed.

I would like to reserve the remainder of my time for rebuttal.

Argument of Michael E. Roper

Chief Justice Rehnquist: Thank you, Mr. Taranto.

We'll hear now from you, Mr. Roper.

Mr. Roper: Mr. Chief Justice and may it please the Court:

The issue before this Court is the narrow question of whether Congress delegated power to the ICC to exempt the motor portion of intrastate TOFC transportation provided by a rail carrier.

There is no dispute that the ICC does have, and did properly exercise, the power to exempt both the motor and rail portion of transportation provided by a rail carrier, when that transportation was on a interstate basis.

Likewise, there is no dispute that the ICC could and did exempt the rail portion of intrastate TOFC-COFC transportation provided by a rail carrier.

Railroad petitioners, all of whom are interstate rail carriers operating in Texas, concur in the analysis made by the government, and that will not be repeated here, hopefully.

Instead, my primary focus will be on what the practical effect of the decision below will be, if that decision is allowed to stand.

Petitioning railroads will suffer real and tangible harm if the motor portion of intrastate TOFC transportation provided by a rail carrier, is subject to regulation by the Railroad Commission of Texas.

While it is true that petitioners are not presently engaged in a large amount of that type of transportation, one reason for that is the uncertainty created by the decision below.

Railroad petitioners view complete intrastate TOFC-COFC transportation as a necessary component of their ability to be fully effective competitors in the State of Texas and other large States where there is a potential for long-haul transportation by rail.

The major effect of the decision below will be to prevent railroad petitioners from competing with intrastate motor carriers.

Texas has essentially conceded in its brief that its aim is just that, to protect intrastate motor carriers from competition.

One wonders why Texas is so concerned about protecting an industry, when that industry apparently is not itself concerned.

The Texas intrastate motor carriers have not appeared at any stage of this case before the ICC or the courts.

We believe it is safe to assume that motor carriers would have contested this matter if they were truly fearful of this competition.

In any event, railroads will not be able to effectively compete because of the higher costs and less flexibility associated with transportation that is partially regulated and partially deregulated.

Unknown Speaker: I don't really understand that.

You can't have it both ways.

Either it's... you're saying, it's important to you, but it's not important to them.

It seems to me if it's important to you, it ought to be important to the Texas motor carriers, too.

Mr. Roper: Well, you would think so--

Unknown Speaker: You're going to make money and they're not going to lose any.

It really doesn't work that way, it seems to me.

Mr. Roper: --We will be able... if the motor portion is deregulated as the rail portion, we will be able to provide additional competition there is no question about that.

Unknown Speaker: And the Texas truckers must lose money.

I mean, it seems to me you have to pick one argument or the other.

Maybe the Texas truckers just trust the State of Texas to preserve their interests.

Mr. Roper: Well, given the history of the Railroad Commission, I could certainly understand why they would put that trust there.

But in any event, I don't think it's necessarily an either/or situation.

TOFC-COFC transportation involves the movement of usually two trailers or containers on one flatcar.

Under the TOFC exemption adopted by the ICC, a portion of the movement must be over the rail in order for the rail carrier to be able to provide over-the-road motor vehicle service in its own trucks.

Both interstate and intrastate TOFC-COFC shipments move on the same flatcars, in the same trains, and receive the same physical handling.

However, if the decision below stands, the intrastate TOFC-COFC shipments will be subject to economic regulation by the RCT, Railroad Commission, while the interstate shipments will be exempt from economic regulation.

The example discussed in railroad's opening brief is illustrative of the problem.

That example concerned a shipper making an intrastate shipment from Houston to Texarkana, Texas, and a shipper making a TOFC shipment from Houston to Texarkana, Arkansas.

The rail carrier chosen by the first shipper would move the trailers over its tracks to Dallas, and then would have to obtain either a certificate to operate as a motor carrier to move the trailers to Texarkana, Texas, or would have to use another certificated motor carrier for that portion of the move.

The interstate shipper, using--

Unknown Speaker: Yes, but isn't the anomaly present if you were just a motor carrier and you didn't have a rail involved?

One going to Texarkana, Texas is subject to the Texas Commission.

One going across the State line is subject to the Interstate Commerce Commission.

Mr. Roper: --That is true, but in this case, Congress has form a different form of regulation.

Unknown Speaker: I understand.

But I don't think the anomaly adds much to your argument is all I'm saying.

Mr. Roper: Well, I think it's illustrative of the problem you have with the dual regulatory system, that Congress has concluded was too much of a burden on the rail carrier industry.

And that's why they did what they did.

It is interesting to note that Texas did not dispute the validity of this example, but rather stated that the disparity was condoned by Congress.

We believe that statement to be erroneous.

Because Congress, in adopting the Staggers Act, specifically found that separate State and Federal regulatory policies were to be eliminated.

Congress therefore preempted State regulation of intrastate rail transportation except to allow certified States to regulate in accordance with Federal standards and procedures.

Texas, of course, because of its decertification, does not even have that power.

If the decision below stands, the policy of uniformity between Federal and State regulation will be frustrated.

That result would be contrary to the stated policy in 49 U.S.C. 10101a of assuring that intrastate regulation is consistent with Federal standards.

We also believe that the decision below conflicts with this Court's holding in the Transcontinental Gas Pipe Line case.

As this Court held, once the Congress has decided not to regulate in an area such as economic regulation, the States are not free to step in and regulate.

Texas is attempting to do just that by asserting that the ICC does not have the power to exempt the full intrastate TOFC transportation provided by a rail carrier.

The Staggers Act expressly adopted the policy to rely on market forces, rather than economic regulation.

And we believe Texas' attempt to frustrate that police is contrary to the holdings in Transco.

Unknown Speaker: It did... the Act does exempt intrastate transportation by motor, doesn't it?

Mr. Roper: By motor?

Unknown Speaker: Yes.

By motor carrier?

Mr. Roper: No--

Unknown Speaker: What is the phrase that the Fifth Circuit relied upon?

Mr. Roper: --Well, the Fifth Circuit said that the ICC and Congress had to be talking only about interstate transportation when they were talking about motor and rail portions.

Unknown Speaker: Well, isn't there language in the act that allows States to regulate intrastate motor transportation?

Mr. Roper: Yes, there is.

Yes, there is.

But this is not transportation provided by motor carriers.

Unknown Speaker: Well, that's where the argument is really.

Because if it is transportation provided by motor carriers, it isn't subject to that kind of market forces analysis that the other forms of motor transportation are?

Mr. Roper: Not to the degree, although the 1980 Motor Carrier Act, I think, did loosen up the regulatory control significantly for interstate motor carriers.

But it is our position that the statute that was adopted by Congress, where they said, transportation provided by a rail carrier, is exactly covering this type of transportation.

These are all rail carriers.

It is transportation provided by these rail carriers.

And beyond that, the first portion of 49 U.S.C. 10505 talks about matters relating to transportation provided by rail carriers.

And this is certainly a matter that relates to transportation provided by a rail carrier.

You must have a prior or subsequent move over the rail in order for this exemption to apply.

So I don't think it's... the construction of the statute, you know, is clear that transportation which, as defined in the Interstate Commerce Act, does include motor vehicle, when it's transportation provided by a rail carrier, it falls exactly within the statute.

And that is our position.

That's all I have.

Thank you.

Argument of Fernando Rodriguez

Chief Justice Rehnquist: Thank you, Mr. Roper.

We'll hear now from you, Mr. Rodriguez.

Mr. Rodriguez: Mr. Chief Justice, and may it please the Court:

For well over 50 years the Railroad Commission of Texas has regulated intrastate motor carriage, within the State of Texas.

That regulation has been active.

That regulation has been vigorous.

But I submit to the Court that at the same time, that regulation has been even-handed, and has been entirely in keeping with the legislative mandate under which the Railroad Commission operates.

That legislative mandate was given to the Commission by the Texas legislature.

In early 1984, the ICC, acting pursuant to what it considered to be its jurisdiction and authority, exempted from regulation the motor carrier portion of a totally intrastate TOFC shipment.

I agree with Mr. Roper that the question in this case is simply this: Did the ICC have the jurisdiction under its statutes, under the sections in its statutes, to exempt the motor carrier portion of a purely intrastate TOFC shipment, or, as the State of Texas contends, is there a countervailing force to that?

The State of Texas contends... Mr. Chief Justice, I think that was the question you were asking just a moment ago... that Section 10521b is an express limitation on the power of the ICC to regulate intrastate motor carriage.

Unknown Speaker: May I just ask at that point, suppose that instead of granting an exemption, the ICC had felt there was a danger that the railroad would have a monopoly and would gouge the shippers, and wanted to regulate rather than exempt the entire TOFC or whatever you call it combined type of service, including the intrastate motor carriage portion.

Your position is, they couldn't have done that either.

Mr. Rodriguez: Your Honor--

Unknown Speaker: What is your position on that?

Mr. Rodriguez: --Justice Stevens, we're still talking about a purely intrastate movement?

Unknown Speaker: Correct.

You'd have the same--

Mr. Rodriguez: Yes, Your Honor.

Unknown Speaker: --transportation at issue.

But instead of ordering the State to exempt, the ICC had said, we'd like to regulate this, because we're afraid the railroad's going to gouge the shippers?

Mr. Rodriguez: Yes, Your Honor, we contend that under 10521b, which is the express reservation of power to the States, the ICC... the ICC simply has no jurisdiction--

Unknown Speaker: You'd say they didn't have jurisdiction there either?

Mr. Rodriguez: --Yes, Your Honor, that's correct.

In short, this is clearly a case that involves preemption or not preemption.

And that being the case, we have to apply the principles of preemption.

Now we recognize... the State of Texas recognizes... that Congress' authority to regulate interstate between the intrastate commerce which they seek to regulate and interstate commerce, as long as they choose a reasonable method, which comports with Constitutional limitations, they can regulate those intrastate commerce type of movements.

Unknown Speaker: Textually, your argument comes down to the argument that this transportation is not being... is being provided by a motor carrier rather than by a railroad; isn't that what it all boils down to?

Mr. Rodriguez: That's what it all boils down to, Justice Scalia.

Unknown Speaker: Well, it seems to me it's being provided by a railroad.

Mr. Rodriguez: Well, Your Honor, is a truck not a struck simply because it has Burlington Norther or MKT on the side, when that truck provides the same type of service which John Doe Freight Lines provides?

Our contention is that you do not... you consider what section of the statute you come under by looking at the type of transportation provided.

You do not look at who owns the particular type of vehicle.

If it is motor vehicle transportation as defined by the statute in 10102--

Unknown Speaker: Then how could you get ICC jurisdiction over the motor carrier portion of interstate transportation.

Do you assert that the ICC doesn't have jurisdiction over that either?

Mr. Rodriguez: --No.

Yes, they do, Your Honor.

The ICC does have jurisdiction over interstate motor carriage.

Essentially--

Unknown Speaker: But supposing only the rail portion is interstate and the motor portion is intrastate.

Under your view who has jurisdiction?

Mr. Rodriguez: --Well, Your Honor, I think that's an interstate movement.

I think that would be an interstate movement.

A purely intrastate movement would be something like a movement by truck from Brownsville, Texas to Houston, at which point it is placed on a flatcar.

The flatcar goes to Dallas, at which point the trailer comes off the flatcar, is attached to a truck, and is carried to, say, Wichita Falls.

It's a purely intrastate movement.

That's the type of movement we're talking about in this case.

If there's a leg of that transportation that crosses State lines, then we're talking about an interstate movement, and that's not involved here.

Unknown Speaker: But Mr. Rodriguez, if the motor portion of interstate TOFC movements can be exempted, why doesn't that necessarily mean that the motor portion of intrastate movement is also transportation by a rail carrier?

Mr. Rodriguez: Justice O'Connor, that's... you've essentially grasped what this case is all about.

That is what it comes down to.

The ICC contends that under the definition, that the definition is so broad that it includes this type of traffic.

We contend that it does not for a number of reasons.

Number one, there is a specific statutory expression of power reserved to the States in 10521b, which says specifically, that nothing in this statute is meant to take away intrastate motor carriage regulation from the States; that's a paraphrase.

But more importantly, transportation as defined in Section 10102... I think it's section 25... does not mean what they say it means for a number of reasons.

Number one, it's a recodification of the prior statutes in which the definition of transportation was different for motor carrier, water carrier, and freight forwarding.

Number two, it's in the disjunction; it is not in the conjunctive.

It talks about X, Y, Z, or a different type of transportation.

Finally, Your Honor, transportation is defined broadly because it is used in the statute in many different contexts.

Clearly to me, and to the State of Texas, it has... while it's defined broadly, it means different things in different contexts.

And that's why it's much too simplistic to say that transportation provided by a rail carrier includes any other type of ancillary transportation such as motor carrier traffic, which a railroad might seek to provide.

Unknown Speaker: Well, if there's some question about it, don't we owe some deference to the ICC as the Agency administering the Staggers Act?

Mr. Rodriguez: Your Honor, I would agree that some deference is due the ICC.

But once again, we have a countervailing force because we're apply preemption analysis to this type of case.

When we have... when we deal with a Congressional grant of authority to regulate interstate commerce that involves the State, in which the State is being preempted from a function which it has traditionally done, the cases say that there has to be a clear expression of intent on the Congress to do that.

And I think that comes about because the States are essentially different creatures.

They are not like a private party.

That is why we have a Tenth Amendment, and that's why we have an Eleventh Amendment.

They stand in different stead than a private party.

I think there is something of a problem in that when we talk about Tenth Amendment cases, the Garcia case complicates things somewhat.

Previously, we had thought... we who represent the States had thought that there was a body of law which included--

Unknown Speaker: Mr. Rodriguez, can I interrupt you just a second?

Mr. Rodriguez: --Yes, sir.

Unknown Speaker: Are you making a Constitutional argument in this case, or is it just a question of statutory construction?

Mr. Rodriguez: Well, it's a question of statutory construction, Your Honor.

But to do that, I think I need to refer to the type of preemption analysis that's done in an interstate commerce case.

Unknown Speaker: But you would not contest the power... if everything were spelled out just as the government, your opponent, says it is, you wouldn't contest the power of Congress to deregulate this particular kind of transportation?

Mr. Rodriguez: Absolutely not, Justice Stevens.

If Congress said, tomorrow, we want intrastate motor carriage either exempted from regulation or given to the ICC, we'd have no case.

We concede that.

Unknown Speaker: Doesn't the Staggers Act do just about that?

Mr. Rodriguez: Just about that, Your Honor.

That's the key phrase.

If you look at the statutory... or the legislative history of the Staggers Act, there is clearly an intent on the part of Congress to improve the financial position of the railroads.

We do not contest that.

There is an intent on Congress to avoid, as much as possible, the system of dual regulation which applied to the railroads.

We do not contest that.

But the Staggers Act, Justice Marshall, was an accommodation.

There were those in Congress at the time that simply wanted to exclude the States from any and all regulation.

And Senator Broyhill's compromise, which is... which found its way ultimately into the statute, was that there will be different levels of regulation.

They did do away with much of the red tape.

But the States can still regulate intrastate rail carriage, as long as they comply with the standards which the ICC sets.

Even if they comply with the standards which the ICC sets, an appellant can take a decision from a State regulatory body to the ICC on the grounds that it contravenes an ICC policy.

But furthermore, there is still that specific expression of... or that express reservation of powers to the States in 10521b.

And that is what the Fifth Circuit went off on in this case, and that is what we contend prevents the ICC from exerting regulatory control--

Unknown Speaker: xxx which--

Mr. Rodriguez: --No, Your Honor, they haven't.

Unknown Speaker: --The ICC is better able to interpret that Act than you or the Fifth Circuit.

Mr. Rodriguez: To a certain extent, I would agree, Your Honor.

There is a measure of deference which is owed the ICC.

But that measure of deference disappears when you have an express statutory reservation of power, as you have in 10521b.

Unknown Speaker: 0 xxx.

Mr. Rodriguez: Well, that's all part of the same Act.

Your Honor.

The point I was trying to make, Justice Stevens, when I was talking about the Garcia case, is that previously we had thought that in an interstate commerce case, when you're talking about interstate commerce, Congress can legislate against the States, can intrude upon what normally would be considered State sovereignty, as long as there is no Constitutional impedient to that.

After Garcia, where we are now told that there are no traditional notions of what is a government function, that in fact we have to participate in the political process to safeguard whatever prerogatives we would like to have, we are left essentially between a xx a hard place.

We have to go... we have to depend on Congress not Overregulate.

And yet we have to go to Congress to preserve our own prerogatives.

What that says to me... and we also are still acknowledging the facts that States are different; that they constitute or they hold a special position in our Federal system.

Unknown Speaker: Well, I don't think it's correct to say you go to Congress to preserve your power to regulate.

What you're saying is, your adversaries did not persuade Congress to take that power away from you.

And they say that the statute clearly did take it away if you read it literally.

Mr. Rodriguez: That's correct.

That's correct.

Unknown Speaker: But you didn't have to have the initiative to go to Congress to preserve your regulatory power.

You're really saying they didn't accomplish what they say they did.

Mr. Rodriguez: Well, in part that's true, Your Honor.

And perhaps the States were lucky in that this particular section, 10521b, is in the statute, particularly in light of what Garcia v. San Antonio Metropolitan Transit Authority says.

The point of all this, Your Honor, is that--

Unknown Speaker: Of course that 10521b says except as provided in these other sections.

And those are the very sections that the ICC relies on as taking it away, isn't it?

Mr. Rodriguez: --No, Justice Stevens, I think you're talking about the three sections which are specifically referred to in--

Unknown Speaker: 11501e and... yes.

Mr. Rodriguez: --Those three sections refer to intrastate motor carriage of passengers.

Those talk about busses.

Unknown Speaker: I see.

Mr. Rodriguez: They do not talk about intrastate motor carriage of property.

Unknown Speaker: Oh, no, the question is whether this is intrastate transportation provided by a motor carrier.

That's what 1025b(1) exempts.

So you still boil down to the question, is this transportation provided by this railroad, quote, transportation provided by a motor carrier, within the meaning of 10521b.

Mr. Rodriguez: I think probably that's correct, Your Honor.

What that leads us to, then, is a question of statutory interpretation.

Unknown Speaker: Right.

Is this a rail carrier or a motor carrier?

Mr. Rodriguez: And is our statutory interpretation better than the ICC's?

In this particular case... clearly; I mean I'm here to win the case... I submit that ours is the best interpretation.

And I think ours is the best interpretation because it goes and turns on the plain meaning of the words.

To my way of thinking, the ICC's interpretation, how they get to what constitutes transportation provided by a rail carrier, is tortured and arduous.

Our interpretation, on the other hand, basically is very clear.

It says a truck is a truck, and a train is a train.

Unknown Speaker: And they say a railroad is a railroad.

Mr. Rodriguez: They say a truck is a railroad, Mr. Chief Justice.

At some point... at some point I think you have to look at the common meaning of words.

If you look at Section 10102, I think there are four definitions which basically foreclose this issue.

I've already gone over section 25 which defines transportation.

The next one I'd like to discuss is Section 10102, Sections 12 and 13, which talk about what is a motor common carrier, and what is a motor contract carrier.

And essentially both of those are persons who hold themselves out to the public to provide motor vehicle transportation for compensation over highways.

Unknown Speaker: That isn't the issue.

The issue is, what is transportation by a motor common carrier, and what is transportation by a railroad?

Does it mean... it's easy to identify what's a railroad or what's a motor carrier.

What's hard, and there's really no... you could go either way... is whether transportation by a railroad means only rail transportation by a railroad or truck transportation by a railroad; then, likewise, whether transportation by a motor carrier means... would any problems arise if we adopted the government's meaning for transportation by a railroad, by a rail carrier, I assume you'd have to adopt the same position for the meaning of transportation by a motor carrier, wherever it appears in the Act; that is, wherever the Act says anything relating to transportation by a motor carrier, it would include rail transportation by a motor carrier, so long as the rails are owned by a motor carrier.

Mr. Rodriguez: Your Honor--

Unknown Speaker: Would that make the government uncomfortable in any way?

Mr. Rodriguez: --I don't know if it would make the government uncomfortable.

But I think what you're saying follows logically.

And I think that's the incongruity.

It simply can't mean everything for everyone.

Transportation means--

Unknown Speaker: It could.

Mr. Rodriguez: --Well, I hope not, Your Honor.

Unknown Speaker: It lends itself to that meaning, certainly.

Transportation provided by a rail carrier means any form of transportation the rail carrier provides.

Mr. Rodriguez: Well, that's clearly the position that the ICC is taking in this case.

Put Your Honor, we contend that... that that simply does not jibe with what the prior legislative... or prior legislative enactments.

You had three separate definitions of transportation, all of which were codified and combined in the section.

Now, we're talking about the whole statute.

And through the statute, the term "transportation" is discussed.

Now, clearly it can't mean everything for everybody.

In the context of transportation provided by a motor carrier, does it also talk about... does it also include the term, vessel?

Are we talking about barges?

I submit to the Court that it does not.

And at some point you have to impose some level of logic and clarity on this.

Another reason which I believe augurs in our favor and against the government is that if, in fact... if, in fact, transportation provided by a motor carrier... excuse me, transportation provided by a rail carrier includes transportation which otherwise would be motor carrier traffic, then I submit there would have been absolutely no reason to include in 10505f the specific reference to intermodal movements.

Unknown Speaker: xxx.

Mr. Rodriguez: 10505f, Your Honor.

Unknown Speaker: I don't have it readily in mind.

Mr. Rodriguez: If I may, Your Honor, 10505f says, the Commission may exercise its authority under this section to exempt transportation that is provided by a rail carrier as a part of a continuous intermodal movement.

If in fact the ICC is correct, and the phrase, transportation provided by a rail carrier includes motor carrier traffic, there would have been absolutely no sense in including that section.

That section specifically recognizes intermodal traffic.

And it was put there for a purpose.

And yet, even though it was put there for a purpose, we still have Section 10521b staring us in the face, which is the express reservations of power to the States to regulate intrastate motor carriage.

What that says to me is that the Congress intended the ICC have the power to regulate, or to exempt from regulation, on an interstate basis, motor carrier traffic that's part of TOFC service.

The express reservation of power--

Unknown Speaker: Well, now, wait a minute.

Do you say 10505f refers to--

Mr. Rodriguez: --Intermodal.

Unknown Speaker: --It doesn't refer to... you're not saying that refers to the truck portion of what the railroad provides?

Mr. Rodriguez: That's what intermodal movements are.

It's combined movements.

Unknown Speaker: But then you've given away your case.

Because they use the same language in f that they do in a, that is, transportation that is provided by a rail carrier.

And you're saying, in f, it means truck transportation provided by a rail carrier?

Mr. Rodriguez: Only as modified by the term, intermodal movement, Your Honor.

There is no reference to intermodal movement in 10505a.

Unknown Speaker: It isn't modified by that.

It says, except transportation that is provided by a rail carrier, which phrase, you assert, includes only rail transportation, as a part of a continuous intermodal movement.

That would mean only the rail portion of the continuous intermodal movement.

Mr. Rodriguez: Your Honor, we believe that the inclusion of the word, intermodal movement, is an express... it's an expression by Congress that there is a type of movement which will be allowed.

That type of movement is an intermodal movement involving TOFC, involving trains, involving trucks--

Unknown Speaker: yes, but is it the truck portion of it?

If it can be the truck portion of it there, then you can read it the same way up in a.

I thought your whole case hinges upon the fact that the phrase, transportation that is provided by a rail carrier, means rail transportation.

And if it means that up in a, then it must in f.

Mr. Rodriguez: --Your Honor, it would, except for the fact that f contains the phrase, intermodal movement.

Unknown Speaker: It just says, as a part of a continuous intermodal movement.

So it's the rail portion of a continuous intermodal movement.

Mr. Rodriguez: Well, Your Honor, I think we read it differently from the way you read it.

Unknown Speaker: We sure do.

What else do you have?

Mr. Rodriguez: Your Honor, the problem is, I think, the States are being whipsawed.

In Garcia, you've got the States having to rely on the political process to preserve their own initiatives.

And yet we have to go to Congress and depend on Congress not to overregulate in areas which are traditionally left to the States, such as this.

Nonetheless, we still have a recognition that the States, as States, hold a special place in the Federal system.

I believe there is a necessary corollary to that.

And the corollary is, if a statute is at all confusing, if a statute is at all ambiguous, then that ambiguity must be resolved in favor of the States.

That's the only conclusion which I can draw from the interstate commerce cases and the Garcia case--

And what we have here, Your Honor, is demonstrated by the fact that the ICC uses such a tortured interpretation to get to where it's going, is the fact that Congress did not make the statute clear.

In that case, the dispute, the ambiguity must be resolved in favor of the States.

If it's not, it is for Congress to clarify.

And Congress can clarify very easily by simply referencing in 10521b, one other section, perhaps 11501, where they could say that there's a specific... there's a specific power to exempt intrastate motor carriage when part of a TOFC movement.

They have not done that.

I do not think that it is for the ICC to put that there when they are faced with the specific reservation of power in 10521b.

If I might just respond to a couple of points that Mr. Roper made, as I stated when I started, the Railroad Commission of Texas has regulated motor carrier traffic in Texas intensively.

And unless this Court tells us that we cannot do so, they intend to continue to do that.

But that does not mean that they intend to provide an unfair competitive advantages... advantage to motor carriers.

Part of their legislative mandate, under Article 911b, which is the Texas statute which controls their jurisdiction, is the fostering of a motor carrier... the motor carrier industry as a viable alternative for shippers.

But that does not mean that they want to impose an unfair competitive advantage on railroads providing TOFC service intrastate.

There is no unfair disadvantage imposed on the--

Unknown Speaker: I assume the interest of the State of Texas is to prevent this intermodal transportation from cutting the rates below the floor that applies to the motor carriers, isn't that right?

Mr. Rodriguez: --I'm sorry, Your Honor.

Unknown Speaker: They want to protect the motor carriers from cut-rate competition by the intermodal carrier; isn't that what it is?

Mr. Rodriguez: There is economic regulation involved in this, Your Honor.

Unknown Speaker: I mean, it's an attempt to protect the carriers from what they would regard as unfair competition by an unregulated carrier.

Mr. Rodriguez: That's correct, Your Honor.

But they as motor carriers would not pay anything less, or anything more, than other similarly situated motor carriers providing that type of service in the State.

That is not an unfair competitive advantage.

That is an attempt to create equal markets for everybody competing in the same type of service.

There is no infirmity in that.

There is no Constitutional infirmity.

There is nothing which transgresses the policies of the Staggers Act or the Interstate Commerce Act.

Unknown Speaker: Well, I would think you would be making the same argument if it's an interstate movement, but the truck portion of it is wholly intrastate; but you aren't.

Mr. Rodriguez: Your Honor, if it's an interstate movement, while we might... while the State of Texas or the Railroad Commission might like to do something, they simply do not have the ability to do so.

Because if it's an interstate movement, it is without the regulation of the Railroad Commission of Texas.

Unknown Speaker: Just because of the... just because you concede that's what the Act says?

Mr. Rodriguez: That's what the Act says, Your Honor.

In closing, we would simply, respectfully pray that this Court affirm the judgment or the opinion of the Fifth Circuit in this case.

The Fifth Circuit opinion was ably reasoned, and it distinguished the prior ATA case; and it recognizes the specific reservation of power under 10521b, which is the exact same type... the exact same type of reservation of power which this Court affirmed in the Louisiana Public Service case, which involved the FCC.

In that case, we had section 152b, which said that the Federal Communications Commission had no authority over intrastate rates, charges or practices.

This Court held that that was a specific reservation of power for the States to regulate intrastate depreciation rates.

I submit to the Court that that is precisely what we have here.

And based on that reasoning, I think that the Fifth Circuit opinion should be affirmed.

Thank you.

Rebuttal of Richard G. Taranto

Chief Justice Rehnquist: Thank you, Mr. Rodriguez.

Mr. Taranto, do you have anything more?

You have three minutes remaining.

Mr. Taranto: Nothing further.

Chief Justice Rehnquist: Very well.

The case is submitted.

Unknown Speaker: The honorable court is now adjourned until monday next at ten o'clock.

Attribution:

The OYEZ Project

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ORAL ARGUMENT OF JAMES H. PIPKIN, JR., ESQ. ON BEHALF OF THE PETITIONER

Chief Justice Burger: We will hear arguments next in Southern Pacific Transportation Company against Commercial Metals.

You may proceed whenever you are ready now.

Mr. Pipkin: Thank you, Mr. Chief Justice, and may it please the Court:

I represent petitioner, Southern Pacific Transportation Company, a railroad common carrier involved in this action.

In essence, the action is an effort by the carrier to recover from the shipper or consignor... in this case, respondent Commercial Metals Company... freight charges incurred in transporting three separate carload shipments of steel cobble, which is a form of scrap steel, from Detroit, Michigan to southern California back in 1974.

The dollar amount involved in these movements is small; it is less than $14,000 total.

The legal issue presented is of great significance to the nation's railroads and motor carriers.

It is whether a carrier's right to recover transportation charges from a consignor can be barred by an implied remedy based on a violation of the ICC's credit regulations.

Or putting it another way, it is whether an equitable defense should be added to the credit regulations as an enforcement mechanism.

The courts below found that the carrier violated the ICC's credit regulations with respect to all three shipments here involved, by delivering the first shipment without checking the credit worthiness of the consignee and by accepting checks which were later returned for insufficient funds, and one of which was for an amount less than that subsequently determined to be due.

Though Southern Pacific contends that the actions with respect to the second and third cars do not violate the credit regulations, we concede a violation with respect to the first.

So the question is what consequences arise from that violation.

And the courts below found that while Southern Pacific had made a prima facie case of a right to recovery from the consignor, the credit violation gave rise to an affirmative defense which barred collection of the charges.

The argument I would like to make this morning is basically twofold.

It is first, that the lower court's decision is inconsistent with the purposes of the credit regulations as well as their language and history and 50 years of case law; and second, that the decision, if allowed to stand, will have serious adverse consequences to the nation's transportation system.

Unidentified Justice: Before you get into your argument, may I ask you a question about the facts, Mr. Pipkin.

Does the record tell us whether the consignor was paid for the goods?

Mr. Pipkin: I am not sure that it is in the record, but it is conceded in respondent's brief on the merits that he was paid.

Unidentified Justice: Oh, it is.

I missed it.

Thank you.

Mr. Pipkin: One of our reasons for saying that the court below erred is based on the contract between the carrier and the consignor.

Unidentified Justice: Mr. Pipkin, let me interrupt you a little bit.

What is the percentage of consignors that sign that annotation?

Mr. Pipkin: There is no information that is available that really would give an overall percentage of that.

I understand in the case of Southern Pacific it is something like one-third.

Unidentified Justice: I couldn't hear Justice Stevens's question and I may be repeating, but what is the status... does the record show the status of the Southern Pacific's suit against Carco?

Mr. Pipkin: The record doesn't show the status.

It shows that the summons and the complaint were unable to be served, both by special processor who were hired by the carrier, and subsequently by the Marshall's office of the court.

No service was ever made, and in fact, the record shows that the carrier was unable even to track down the consignee through the Secretary of State's office of the state of California.

So all that the record really shows is that service was unable to be obtained, and that the consignee effectively vanished.

Unidentified Justice: Were the goods ever paid for?

Mr. Pipkin: Yes, sir.

That was the answer to Mr. Justice Stevens' question.

The consignor is the party that requests the transportation service and selects the consignee.

And the consignor fills out a bill of lading, which is the basic contract between the consignor and the carrier.

Its terms are described by the Interstate Commerce Commission, and unless the bill of lading explicitly provides to the contrary, the consignor is presumed to be primarily liable for the freight charges.

The consignor has the option, however, of disclaiming liability for the charges by executing the so-called "non-recourse clause" that appears on the face of the bill of lading.

If the consignor fails to sign the non-recourse clause, it becomes primarily liable for the freight charge, and the carrier knows that if he is unable to collect from the consignee, he can then turn to the consignor for payment.

Unidentified Justice: What is the practical effect of the non-recourse clause?

What incentive does the consignor have not to sign it?

Mr. Pipkin: Well, that involves the business relationships essentially between the consignor and the consignee.

Any consignee would rather receive goods on credit, and most goods do move on credit.

Approximately 95 % of the goods in interstate freight transportation move on credit.

If the consignor signs the non-recourse clause which says that he is not liable for payment, the carrier is then more likely to deliver that shipment to the consignee on a COD basis, unless he knows the consignee well and has dealt with him in the past.

The consignee clearly would rather not have that situation arise, and if he has two prospective sellers of goods, one of which will not sign the non-recourse clause and one which does, he would rather get the goods from the consignor so it will arrive on a credit basis rather than COD.

But that is really a business judgment and it involves, to some extent, almost whether it is deemed insulting to the consignee to receive it on that basis.

But in any event, the continuing liability of the consignor who does not sign the non-recourse clause is clear from the language of the bill of lading and clear under the case law for the last 60 years, and in fact, as this Court has expressly recognized that in the Illinois Steel case cited in our briefs.

The cases also indicate that under the Interstate Commerce Act, the carrier has a duty to collect the freight charge, and if he cannot collect it from the consignee, he must try to collect it from the consignor.

Allowing a violation of the credit regulations to be used as a bar against collection from the consignor would be inconsistent with those cases and the essential purposes that they endorse.

Apart from the contract, the principal reason for our position basically is the statute and the regulations are part of a comprehensive regulatory scheme, and they are totally silent on any affirmative defense arising from violation of the credit regulations.

And I would like to speak just for a second about the history.

The credit regulations can be traced back to 1918 during the first World War when the Director General of the railroads then issued something called General Order Number 25, which essentially put interstate freight transportation on a cash basis, with a few exceptions.

The purposes are undisputed for taking that action.

They were to increase the working capital of the carriers by reducing the amount of freight charges that would be outstanding, owed by the consignees, and to reduce discrimination.

And when in 1920 the Congress enacted what became Section 3(2) of the Interstate Commerce Act, the issue here involved... that is the basis for the credit regulations.

The continued that same policy.

Carriers were told that they could not deliver freight until the charges were paid, except under such rules and regulations as the commission should prescribe.

The same purposes were true, though... to protect the carriers and their working capital, and to prevent discrimination.

And the regulations adopted by the commission left a great deal of discretion to the carriers.

The main one is one that says that the carrier can extend credit for a specific period upon taking whatever precautions are deemed by it to be adequate to assure payment.

Those regulations are still in effect and have been for 61 years, they are enforced by the Interstate Commerce Commission primarily through a $5000 civil penalty, but also occasionally by cease and desist orders or injunctive proceedings.

And in this whole regulatory scheme there is no hint that a credit violation can be utilized as an affirmative defense, or that Congress intended that to be an enforcement mechanism.

And that engrafting such a defense on the regulatory scheme would in no way further the purposes of that scheme, which were to protect the carrier's working capital and to prevent discrimination.

In addition, the ICC has taken a very clear position on this same issue that is before the Court.

It has expressly said in the CGF Grain case that we cite in our briefs that a credit regulation... credit violation, excuse me... has no effect on a consignor's liability.

Unidentified Justice: We don't have any views of the ICC in this case, do we?

Mr. Pipkin: No, we don't, Your Honor.

But we do have that clear expression of their view on the precise issue that is before the Court.

And the agency's interpretation, the agency that is responsible for promulgating the regulations and enforcing them is, we submit, entitled to great weight.

And lastly, the decisions shortly after the credit regulations were issued uniformly rejected arguments that violations of the credit regulations barred recovery of the freight charges.

And we cite decisions particularly in 1924 and 1925 that raised exactly the same issue where state supreme courts rejected the same contention that is made.

The same thing had happened when the motor carrier credit regulations were promulgated at a later time than those that apply to the railroads.

The courts considering that uniformly rejected estoppel as a defense.

For 50 years after that railroad credit regulation was issued, no court held that a violation could bar recovery of freight charges.

Unidentified Justice: I am sorry, Mr. Pipkin, would you tell me again the name of that case, the ICC--

Mr. Pipkin: The ICC?

It is called CGF Grain.

Unidentified Justice: --Have you cited it?

Mr. Pipkin: Yes, Your Honor, we have.

Unidentified Justice: Don't bother, I will get it.

Thank you.

And they agree with you?

Mr. Pipkin: Yes, Your Honor.

It is 351 ICC, 710.

And it is referred to in both of our briefs.

Unidentified Justice: And the ICC agrees with you?

Mr. Pipkin: Yes, Your Honor.

Now, we recognize that there are cases cited by Commercial Metals in this case, virtually all of which involve a situation where there is a consignee who has had some misrepresentation made to him by a carrier, and the result is that the consignee has relied on that misrepresentation and taken some detrimental action; and where the court has found that if payment were to be required, the consignee would have effectively paid twice.

And the courts in those... or, a number of the courts addressing those cases have held that there can be an estoppel in that situation.

What I would point out is that whatever the merits of those decisions, those cases do not turn on a violation of the credit regulations but rather on a misrepresentation by the carrier in detrimental reliance.

And they involve a consignee, not a consignor, and the kind of situation that is addressed there cannot arise in the consignor context.

And there has been payment by someone at least in most cases of the full charge, albeit to the wrong person.

In only one aberrational case, prior to this one, has any court held that a consignor can take advantage of a credit violation.

All other cases have been resolved by enforcing payment.

And what we say is that in the fact of that history where the credit regulations have been interpreted consistently from the time of their promulgation through the next 50 years, this Court should not, in the 1980's, engraft a new affirmative defense upon them.

The other reasons that we give for reaching that conclusion have to do with the consequences of the lower court's decision.

If the decision is upheld, one result, simple result, is the practical elimination of the non-recourse clause which has been in the bill of lading for 61 years and which obviously has been viewed as having some purpose.

And I say that it will be practically eliminated because the credit regulations require that payment be made within five days.

If the shipper doesn't pay it within five days, technically a credit violation will have occurred.

And whenever the carrier then turns to the consignor, the consignor will be able to say well, you violated the credit regulations by not forcing payment within that five-day period, so in effect, it will make no difference whether the non-recourse clause is signed or not.

Second and more importantly, more and more consignors and consignees will claim that they do not have to pay because of some credit violation.

There are several possible results to this, all of them we submit bad.

First, the carriers, as the amicus brief filed by the ATA and the AER indicate, may be forced to curtail extensions of credit.

As I mentioned, 95 % of freight now moves on credit, and the amount of credit outstanding on shipments in any year is something like $25 billion.

If a carrier knows that the consignor will no longer be liable for a charge if he is unable to collect from the consignee, the carrier will insist on payment COD in a much higher percentage of the cases.

This has a serious effect on the credit relationships; it also will impair efficient rail operations because it will result in cars having to sit there for a longer period of time until cash can be obtained from the consignee.

And in addition, we suggest that the Court should not overlook the increased litigation that inevitably will occur in order to ascertain liability for freight charges.

The decision below will be read as saying that every violation of the credit regulations gives rise to an affirmative defense.

That would be highly unfair, and even Commercial Metals does not go that far.

When the ICC has reviewed the operation of the credit regulations from time to time, they have found that many violations occur, many violations are unavoidable, and that the majority of those violations are actually caused by shippers rather than carriers.

And that is because of this situation where the ICC's jurisdiction is over the carriers.

The regulations are worded that payment must be received within five days, if it is properly extended in the first place.

Well, the carrier often doesn't have any control over whether that payment can be enforced or not from the consignee.

So it clearly would be unfair to say that there is any kind of an estoppel situation in all cases.

So what Commercial Metals has done in this case is take the position that there is a fault standard which should be read into this.

They are basically saying that there should be an estoppel only when the violation is the carrier's fault.

But I suggest that that is part of a standard that raises many hard issues.

First of all, what is meant by fault.

Is negligence enough, or does the carrier have to take some action intentionally in order to violate the regulations or create some discrimination?

The regulations say, moreover, that before extending credit, a carrier must take whatever precautions it deems appropriate, so it leaves it essentially up to the carrier what precautions to take.

Well, if fault becomes the test, will there be some standard read into that.

Will the carrier be required to take some minimal precautions so that it is no longer up to him entirely what he should do, and what standards would be applied.

Failure to pay within five days.

That is something that would not appear to be the fault of the carrier in most cases.

But if a court has to determine whether a failure to collect is a carrier's fault, can it impose some standard on the carrier to do something other than just sit there for those five days?

Unidentified Justice: Mr. Pipkin, does the record in this case disclose whether the carrier made any credit inquiry of any nature in this instance?

Mr. Pipkin: The record indicates that the carrier did not investigate the credit worthiness of the consignee.

We know nothing beyond that.

We don't know whether the agent who had the car tendered to him felt that he knew enough about the company based on his personal knowledge, or the fact that it had a plant across the street or whatever, that he could make his own determination, or what.

We just know there was no investigation of credit worthiness.

So in determining the trick question--

Unidentified Justice: We should judge the case on the basis that the company needn't... you are suggesting that there need be no investigation.

Mr. Pipkin: --I am not suggesting that, Your Honor.

I am saying that that would violate the credit regulations, by--

Unidentified Justice: Yes, but you are suggesting that to come out where you want to come out, there needn't be any investigation.

Mr. Pipkin: --I am suggesting that this Court should adopt a blanket rule saying that in the case of consignors who have the opportunity to protect themselves by signing the non-recourse clause, there should be no--

Unidentified Justice: Well, you are suggesting that we construe the statute that way.

Mr. Pipkin: --Yes, Your Honor.

Unidentified Justice: And you say that the regulation construes it that way.

Mr. Pipkin: That is the way it has been up until now.

Unidentified Justice: And so it wouldn't make any difference if the agent or the railroad deliberately didn't make an investigation.

Mr. Pipkin: It is our position that there should be a blanket rule, but let me say further on that... we concede that there is a violation in this case.

We don't concede that there is any connection between that violation and the loss that occurred, which is something we think the courts below slurred over very quickly.

Unidentified Justice: It wouldn't make any difference if there was, would there?

Mr. Pipkin: In our view, it should not.

But on that first shipment, there was no credit check.

But the carrier in that case could have, as it did in the case of the second and third shipments, required a check.

That would not have violated the credit regulations, but the check would have bounced the same way the other two did, and it would have... the result would have been the same.

We would have been unable to collect from the consignee and had to turn to the consignor.

So we don't think there is a causal connection between those two events.

So in addition to determining the tricky question of whether a violation has occurred, the courts, if the rule advanced by Commercial Metals were to prevail, would also have to grapple with this vague fault standard, applying it in particular factual situations and along the way, coming up with possibly some kind of substantive standards.

And since the dispute would be between two private parties, there would be no assistance from the agency that is charged with enforcing and promulgating the regulations.

And also, since many of the actions would be in state courts that might have their own different standards to apply in equitable estoppel cases, the result clearly will be not only increased litigation, but inconsistent results, and the result would be to take an issue that for the last 60 years has been characterized by certainty and uniformity and transform it into one where confusion and inconsistent results will probably prevail.

Unidentified Justice: Mr. Pipkin, may I ask another question, just looking at the CFG case that you rely heavily on.

That appears to be an under-charge case rather than a non-payment case, isn't it?

And would that necessarily then have the same rule as one involving... whether a credit violation excuses payment of the full charge.

I am not saying that you are necessarily wrong, but I am just not sure that I understand why that case--

Mr. Pipkin: We don't deny that the statement in that case is essentially addictive, that it is a statement of the agency's position which is broad and covers this situation.

Unidentified Justice: --But then the agency goes on to say it is a question to be determined by the courts and not by the commission in the collection situation.

Mr. Pipkin: Oh, that is true.

They are saying that when that dispute arises it will be the court that decides it.

But in the face of a lack of support, as a legal matter, for the proposition advanced by Commercial Metals and in view of the adverse practical consequences that will occur, I think the Court has to ask what is there to commend an affirmative defense in a situation like this.

I would suggest that there are no policy reasons relating to the credit regulations or the credit statute that would be advanced by allowing this defense; in fact, it is contrary to those purposes, and there is no policy justification in terms of the effective operation of the transportation system.

And further, there is no need because the consignor already has the ability to protect himself, but wants this Court to create an additional remedy for him.

We don't believe that that is necessary or justified.

Thank you.

I would like to save the rest of my time for rebuttal.

Chief Justice Burger: Mr. Sudbury?

ORAL ARGUMENT OF DAVID M. SUDBURY, ESQ. ON BEHALF OF THE RESPONDENT

Mr. Sudbury: Mr. Chief Justice, and may it please the Court:

The Southern Pacific, having admittedly engaged in illegal, negligent and inequitable conduct today comes before this Court seeking to transfer the very fruit of that action to an innocent consignor.

The Interstate Commerce Commission Act, specifically, Section 3.2 entitled Payment of Freight as a Prerequisite to Delivery, prohibits a railroad from delivering any freight shipped by it until all charges have been paid, except under express circumstances promulgated by the rules and regulations of the Interstate Commerce Commission.

The applicable regulations which counsel has conceded have been violated, at least with regard to the first shipment are located in 49 CFR 1320.1, and they provide that a railroad may extend, only for a very limited number of days, credit under certain circumstances, provided that it takes precautions to ensure timely payment of charges.

Unidentified Justice: Mr. Sudbury, can I interrupt with a question on this.

How did their discount hurt your client?

Mr. Sudbury: Justice Stevens, the failure of the railroad, in this case, to take any precaution with regard to any credit check whatsoever of the consignee... admittedly, the consignee was not a credit patron of the railroad, had never applied for credit and had never been given credit.

The decision to extend credit to the consignee was a pure act of voluntarism on the part of the railroad.

Unidentified Justice: But supposing they had checked it out and said we find you are a bad credit risk; we are not going to deliver the goods.

And they called your client up and said what do you want us to do?

What would you have said?

Mr. Sudbury: At that point in time, Your Honor, our worst expectations would have been to have had possession... or at least, to have control of the material that was in a yard in California, had not been released to the consignee.

Once it went to the consignee, the party that had written hot checks here and didn't pay the--

Unidentified Justice: But you would have been liable for the freight charges.

Mr. Sudbury: --Under Section 7, that is right, Your Honor, we would--

Unidentified Justice: And you would have had the goods back, but instead of the goods you have got payment for the goods.

So how does it... I don't understand how you are that badly hurt.

Mr. Sudbury: --The shipment--

Unidentified Justice: If you weren't paid for the goods, I would understand.

But you were paid.

Mr. Sudbury: --The sale was made for Detroit.

What we received was the for purchase price, free onboard the rail carrier in Detroit.

We were not paid in this case for the freight charges to California.

That is why the bill of lading was, as the railroad has admitted, freight collect.

Unidentified Justice: I understand that, but I still don't quite understand how you are hurt because had you been advised of the situation, you could have gotten the goods back, but you still would have had to pay the freight.

I don't know how much these goods are worth, I don't have any idea, but I wonder if you would have been... if you were put to the elections of either taking money for the goods or saying keep the goods and ship them back, what you would have done.

Mr. Sudbury: Well, the goods were approximately $46,000.

The freight charges obviously are $14,000.

I think that is in the record in the deposition of Mr. Hillman.

The point is, though, that the control of the goods, once they were let out of the railroad's hand without any credit precautions whatsoever, they gave us no choice.

We never got to that stage.

The railroad never contacted us.

It was strictly in the railroad's dominion to determine whether they were going to release the goods, and when they did so, in fact, they didn't contact us for two years and seven months later to tell us that it had not been paid for.

By that time, the record shows, the railroad's attempts to even locate the consignee were impossible.

Had they contacted us, we were in touch with the consignee, we could have perhaps applied some pressure to make sure the goods were paid for.

And I think even more specifically, to answer your question, I want to call the Court's attention to the facts involved in the dates of these shipments.

The first shipment left Detroit on April 11, 1974.

That shipment arrived and was released, admittedly without any credit check, to the consignee on April 25, 1974.

We didn't even ship the last two cars, the rail cars, they didn't leave Detroit until May 2nd, sometime after the consignee had the first car already in his possession.

Specifically to answer your question, we certainly would not have shipped the second two if we knew there was any problem with the first.

Unidentified Justice: And does the record tell us when you were paid?

Mr. Sudbury: By the consignee?

Unidentified Justice: Yes.

Mr. Sudbury: The payment for the goods was made prior to shipment.

Unidentified Justice: Counsel, the stipulation of facts really don't refer to what an acceptable credit inquiry by the carrier would have disclosed.

And it just would seem to me that the record might have indicated whether the information, if disclosed, would have been acceptable by industry standards.

There just isn't anything here, is there?

Mr. Sudbury: There is nothing, Your Honor, because, of course, there was no credit inquiry made.

The stipulation says that Carco had never even applied for credit.

Unidentified Justice: And the stipulation does not appear to cover the further inquiry of what it would have disclosed had an inquiry been made.

Mr. Sudbury: It does not.

The facts are that the consignee never paid for the first shipment, and the fact is that the rail... the freight charge was some two weeks past due when the second cars arrived, and the fact is that the railroad released the second two cars; one by an extension of further credit when they took a check for less than the full amount of the freight charge, and both those checks were shortly returned by the consignee's bank marked insufficient funds.

From there, the railroad was not able to find the consignee.

Unidentified Justice: What evidence do you have, counsel, that the legislative body, the Congress, was concerned about protection of the consignee, the shipper, in enacting Section 3.2.

The evidence that we have examined would indicate that the concern of Congress was with the protection of the carriers, not the shipper.

Mr. Sudbury: The purpose of the Act, as set forth in the preamble, is to promote the orderly and efficient transportation policy throughout the United States.

Specifically, it refers to encouraging sound economic conditions in transportation throughout the United States.

Certainly,--

Unidentified Justice: That is just the preamble to the Transportation Act of 1920, isn't it, which had a lot of provisions in it.

Mr. Sudbury: --That is correct.

The railroad's position that the shipper, or that the consignor in this case, is not protected by any legislative history simply defies the realities of the transportation shipment.

The fact is that the railroad released these goods, extended the credit on its own volition.

They improperly and in violation of not only the regulations but the law... the law says in Section 3.2 that no carrier by railroad and no express company subject to the provisions of this chapter shall deliver or relinquish possession at destination of any freight transported by it until all tariff charges have been paid, except under such conditions as the Interstate Commerce Commission may from time to time prescribe.

Unidentified Justice: That is true, but do you have anything in the legislative history that indicates that that provision was enacted for the benefit of the shipper?

Mr. Sudbury: Under the railroad's argument, Justice O'Connor, the legislative history was directed solely toward increasing the cash floe of the railroad.

Certainly, the extension of credit on their part here was an act which they voluntarily undertook that hurt or certainly handicapped that cash floe in this case.

Unidentified Justice: Mr. Sudbury, I take it that in light of this discussion you have just been having with Justice O'Connor, that you agree that this case is to be decided in light of the Act and the regulations; this is not a common law suit.

Mr. Sudbury: No, to the contrary, Your Honor.

The Act specifically states that... in its savings clause... that it was not designed or intended to eliminate any remedies that were available at the common law.

Specifically,... in fact, an argument which I will get to in just a minute is that in addition to a violation of the regulations, this was a violation of the express contract between the parties.

Unidentified Justice: Even inspite of the failure to sign the non-recourse clause?

Mr. Sudbury: That is correct, Your Honor.

The non-recourse clause is a means by which a consignor can relieve itself absolutely of any liability, as a matter of contract.

The failure to sign it does not ipso facto mean that the consignor should not have available to it certain equitable defenses, as the Fifth Circuit recognized in this case.

That is really the thrust of the railroad's position.

Our position is that the option to sign the non-recourse part of Section 7 is just that; it is a contract option.

It doesn't preclude any other remedies available at common law to a party to the contract.

The simple fact in this case is that had the Southern Pacific observed these relatively simple but mandatory rules, this loss would not have occurred.

I referred specifically to Section 3.2 of the Act previously.

Specifically, the Commission, in promulgating regulations under that Act, has said that the carrier, upon taking precautions deemed by it to be sufficient to assure payment of the tariff charges within the credit period specified in this part, may relinquish possession of the freight.

The fact is in this case, admittedly, they took absolutely no precautions.

By regulation, therefore, the commission has made two requirements for the granting of credit, and these are pertinent to the issues under consideration.

First, the railroad must take precautions at least to some degree to assure itself of timely payment of the charges.

Unidentified Justice: Excuse me, Mr. Sudbury, is the non-recourse clause or the opportunity to sign one, is that a matter of voluntary agreement or is that somehow required by law?

Mr. Sudbury: No, it is a matter of voluntary agreement, Your Honor.

Unidentified Justice: So some of them... bills of lading do not include it, then, I take it.

Mr. Sudbury: My understanding is that at least with rail carriers, all bills of lading have that option on it.

Whether it is signed or executed or not is a matter of contract--

Unidentified Justice: Yes, but to have it on it, what, is just a matter of railroad practice or custom or something?

Mr. Sudbury: --I believe the form of the bill of lading has it on it in practically every instance I have ever seen, yes.

Unidentified Justice: But you don't say it has in it because some law requires it.

Mr. Sudbury: The commission has promulgated a form of bill of lading for rail carriers; it has not done so, my understanding, is for motor carriers.

The rail carriers do have--

Unidentified Justice: And the form promulgated by ICC includes?

Mr. Sudbury: --Includes this clause which may be executed, yes.

Unidentified Justice: Well, I just wonder could either a rail carrier or a consignor insist on its deletion before the transaction of shipment is completed?

Mr. Sudbury: Well, the non-recourse part of Section 7 does not come into play unless it is specifically--

Unidentified Justice: Signed.

Mr. Sudbury: --affirmatively signed by the consignor.

In this case, it would not signed, admittedly.

The reasons for it are unknown.

But the point is that in not signing it, that was not a violation of any regulation, a violation of any statute.

That was a matter of contract option, either through foresight or for whatever the reason, it was not signed.

And we have admitted that.

And as the Fifth Circuit, that makes us primarily liable, together with the consignee who has accepted the goods, for the freight charges.

However, that does not absolutely mean that we don't have the right to raise whatever defenses that we are entitled to as a matter of law.

Unidentified Justice: Do you think a consignee could depend on the same grounds that you are depending on?

Mr. Sudbury: Well, our... you mean had it not paid the charges and been sued?

Unidentified Justice: Yes.

Mr. Sudbury: Absolutely not.

Our standard, as it has been referred to, our test that it would seem logical to apply is that you must have equity on your side.

Certainly a consignee who received the goods who had not paid the charges is not going to be heard to complain that it is not required to pay because the railroad never investigated its credit worthiness.

Unidentified Justice: So it is not enough just to have a bare violation of the statute and regulation.

Mr. Sudbury: That is correct, Your Honor, and we have never suggested that.

In fact, as the railroad has pointed out, the large majority of the violations of the regulations are required where the consignee receives freight and does not make payment within a certain period of time.

Unidentified Justice: Of course, in one sense, your client, the consignor, selected the consignee, and your argument imposes this pre-selected consignee on the carrier, doesn't it?

Mr. Sudbury: We selected to do business with this person on an fob Detroit basis, that is correct, Your Honor.

We did not instruct the railroad... in fact, to the contrary, under the law and regulations, we expected that they would either collect the charges at the time of delivery or shortly thereafter, certainly within a matter of days.

Again, we were not even notified of this loss for over 31 months.

As I pointed out, the railroad mailed its bill for the first carload on April 25, 1974.

This was for the carload that was released without any credit check or payment whatsoever.

Unidentified Justice: Let me go back a bit, Mr. Sudbury.

Suppose the railroad had said to the consignee, cash on the line or no delivery.

Then they would have to... I don't know whether this would have involved a lot of demurrage, but at any rate, they would have had to, in effect, impound the entire shipment, wouldn't they, until paid?

Mr. Sudbury: That is correct, Your Honor.

Unidentified Justice: Now, who then would be liable?

Mr. Sudbury: For the demurrage?

Unidentified Justice: For the demurrage and the freight charges.

Mr. Sudbury: The courts have held that lawful charges include not only the freight charges but also the demurrage and not signing Section 7, had the consignee just refused the shipment for some reason, gone out of business before it got there, we would have been liable, the consignor would have been liable for the freight, as well as the demurrage charges.

That is a risk or an expectation that we were willing to assume under the circumstances.

What we were not willing to assume was the total lack of any credit check on the part of the railroad, and then the unbridled extension of credit on their part, coupled with their action in not coming back against the party to whom they now claim and the Fifth Circuit held has principal liability for two and a half years after the fact.

Unidentified Justice: In what respects are you worse off as a result of the delivery?

Mr. Sudbury: We have no... obviously no ability to go back against the consignee, at least based on the record that the railroad has in trying to locate him.

We have had no more success.

The counsel for the railroad suggested that an agent may have released this because he was down the street.

Well, he is down the street from the railroad in Alhambra, California and not at our office in Detroit, Michigan.

Unidentified Justice: Well, you are worse off by the amount of the freight, aren't you?

Mr. Sudbury: We were not paid the freight in the first place.

Unidentified Justice: I know, but what you are objecting to is that there is a claim for freight charges against you.

Mr. Sudbury: That is correct.

Unidentified Justice: And you had... they already had their money.

And if the railroad had investigated and not delivered the goods, you would have had the goods, too.

Mr. Sudbury: That is correct.

Unidentified Justice: And if you would have had to pay the freight charges that the consignee should have paid, you could have taken it out of their money.

Mr. Sudbury: That is correct.

Unidentified Justice: You couldn't keep all their money and the goods, too, I wouldn't think.

You would only have to give back the money that... the balance after you collected the freight charges.

Mr. Sudbury: We were paid for the goods fob Detroit,--

Unidentified Justice: So you had the money already.

Mr. Sudbury: --That is correct, Your Honor.

Unidentified Justice: And if you could have gotten the goods back, too, you could easily have paid the freight charges.

Mr. Sudbury: Certainly.

As I was saying, the railroad mailed its bill for the first carloads on April 25, 1974.

Giving the railroad the benefit of the most liberal interpretation of the regulations dealing with when it was due, the first bill was already two weeks' past due when the second cars arrived and were released by the railroad.

Obviously, the last two cars were released when the bill was blatantly delinquent.

The counsel for the railroad has pointed out that the railroad accepted two checks for the last two cars, one of which is inexplicably in an amount approximately $900 short of the proper amount.

Their brief refers to some transposition of numbers, but still, that amounted to an extension of credit on the part of the railroad.

They have also asked how accepting a check for the last two, or two checks for the last two cars, somehow is related to the first car.

Well, the facts is at that point, they had a credit history with Carco whom they had never dealt with before.

They had an account past due for some two weeks which had not been paid.

They had nothing in their credit file from a customer who had never even admittedly applied for credit.

They took two checks that subsequently were returned to the bank for insufficient funds.

The Fifth Circuit opinion states that Southern Pacific was in direct violation of the Act by extending credit without any precaution whatsoever and for a period of time in excess of the period required in the regulations.

The question was asked earlier about whether we contend this is a violation of the common law.

We do.

In addition to the violation of the Act, the railroad's conduct breached the contract between the parties.

As the railroad has admitted and the case law is clear, the bill of lading is a common law contract.

This contract expressly provides that the service of a carrier is to be performed in accordance with the conditions listed on the back of the contract terms and conditions, on the back of that document, which is unfortunately poorly reproduced in the Joint Appendix, Section 7.

It is at pages 37 and 41, although illegible.

I would refer you to page 1(a) of the appendix to the brief of the National Industrial Traffic League which has the entire document.

It reads that the owner of the consignee shall pay the freight and average, if any, and all other lawful charges accruing on said property.

But except in those instances where it may lawfully be authorized to do so, no carrier by railroad shall deliver or relinquish possession at destination of the property covered by this bill of lading until all tariff rates and charges on it have been paid.

What we are saying is that this is an express contract between the parties that was violated.

Unidentified Justice: The Fifth Circuit didn't pass on that contention, did it?

Mr. Sudbury: They did not get to... or address that point.

In that regard, Southern Pacific mistakenly portrays the Interstate Commerce Commission's view of its role in determining the liability of consignors and consignees under bills of lading.

Specifically, at footnote 1, page 2 of the Southern Pacific's reply brief on the merits, it implies that the Interstate Commerce Commission has expanded its jurisdiction to include interpretation of the liability of parties to a bill of lading contract.

In fact, the Interstate Commerce Commission in the CGF Grain case, as was mentioned earlier, specifically has reiterated what it classifies as its longstanding position that the question of a contract is to be resolved... or the question of liability under a contract... is to be resolved by the courts.

The Commission said that the question of complainant's liability does not turn on whether any provision of the Act has been violated, but rather is governed by the bill of lading contract between the parties, and it must be decided by interpreting that contract.

For this reason, it is a question to be determined by the courts and not this Commission.

This conclusion is in accordance with numerous past cases in which the Commission has declined to decide questions of liability as between a consignor and a consignee.

In reply to the... this position, the railroad has once again in its reply brief looked to a purported historical analysis to attempt to portray the first sentence of Section 7 as actually two clauses somehow combined in history into a single sentence.

The fact is that those two clauses do relate to the consignee.

When the bill of lading is executed, the consignee is not even a party to the contract; the law is he only becomes a party to it when he accepts the goods upon delivery.

Such a convoluted analysis as called for or requested by the railroad is not required.

The contract obligation is clear, and that obligation was breached, in addition to the violation of the Act.

The Fifth Circuit held that the Southern Pacific, although establishing a prima facie case of primary liability on the part of Commercial Metals, nevertheless permitted Commercial Metals to raise an equitable defense based on the facts.

Unidentified Justice: Well, it sounds to me like you are saying well, the railroad's conduct didn't release us from our liability, it just damaged us.

But the court of appeals held that this failure just released the consignor from liability, didn't it?

Mr. Sudbury: Right, that it was an equitable defense which could be raised in the suit for the charges.

Unidentified Justice: Whether or not it did you any damage, right?

Mr. Sudbury: The opinion of the Fifth Circuit did not directly address the question of whether or not we were damaged.

The trial court's opinion clearly did; it referred to the gross negligence of the railroad which resulted in the loss.

Unidentified Justice: Well, the breach is admitted, the breach is admitted, but you insist that ipso facto, as soon as there is a breach, you are released.

Mr. Sudbury: The railroad--

Unidentified Justice: That is what the holding was.

Mr. Sudbury: --Your Honor, the railroad came back against us when they, apparently two and a half years later, discovered that they were not going to be able to find the consignee.

The damage--

Unidentified Justice: Well, that may be so.

Maybe they breached the contract, but that is a different argument than you are released from liability just by the breach.

Mr. Sudbury: --Well, our position is--

Unidentified Justice: Is it a different argument?

And it is one that the court of appeals didn't reach.

Mr. Sudbury: --It gave rise to our right to assert a defense to the claim which the trial court and the Fifth Circuit recognized.

Unidentified Justice: Well, it may have given you a right to say you have been hurt and you should have a counterclaim.

But that is different, isn't it?

Mr. Sudbury: A counterclaim against the carrier?

Unidentified Justice: Yes.

Mr. Sudbury: That was not what the court so held.

We have not presumed--

Unidentified Justice: I know the court didn't hold that, but it seems to me that is what you... that is a different argument than saying that you are released.

Mr. Sudbury: --Well, I think the Fifth Circuit held that the remedies available as equity give rise to equitable defenses which would recognize--

Unidentified Justice: I know what it held, but that is just saying that the railroad's conduct just released you.

I think the court, the Fifth Circuit, has followed other courts which have recognized these equitable defenses, Your Honor, specifically in the Admiral case, the case decided in the Seventh Circuit.

The court there went on to say that under the facts in that circumstance that the plaintiff, the carrier, had created the risk of loss by its credit practices.

It said it contributed to the gravity of the loss by allowing, in this case, the consignee's unsatisfied debts to accumulate beyond a lawful and reasonable time for credit.

Under these circumstances, we find no difficulty in holding the plaintiff estopped to collect payment of the freight charges from the defendant.

Mr. Sudbury, as you correctly pointed out, that is, of course, a consignee case where the consignee would have, in effect, paid double if it was held liable.

Are there any cases like this one where the consignor has been excused from his liability?

There are a whole line of them, I know, on the double-payment situation.

Mr. Sudbury: --The Atcon case referred to by counsel for the railroad is a case exactly on point, although that case doesn't even... the facts in that case don't reveal whether or not there was an initial violation of the law and regulations based on the unbridled extension of credit to the consignee in that case.

All it says is that the carrier's failure to come back against the consignor within the time period set forth in the regulations is a violation of the credit restrictions, and therefore, a defense can be raised.

Unidentified Justice: Which case was that, again?

Mr. Sudbury: The Atcon versus Brown... Brown Transportation v. Atcon, cited.

The court in Admiral stated that Congress did not intend to fashion a sword to insure collection in all instance and to shield or insulate the carrier from the legal consequences of its otherwise negligent or inequitable conduct.

That is exactly what the railroad seeks here.

The court continued that these same considerations lead us to reject plaintiff's claim that the principles of equitable estoppel have no application in any action for the collection of freight charges.

In considering the carrier's plea for equitable relief in the Admiral case, the court said that it would not blind itself to the plaintiff's unlawful conduct in violating the credit regulations as enacted by the Commission.

In that case, the defendant could not be charged as a matter of law with knowledge of the preface.

In our case, we certainly could not be charged with the knowledge of extension of credit to a consignee of which we had no knowledge for some two and one-half years.

Permitting recovery in this case would serve only to reward the carrier for its unlawful as well as inequitable conduct.

We decline to turn the Motor Carrier Act's equivalent of Section 3.2 inside out to achieve that result.

Equitable estoppel or equitable defenses have been recognize in other cases the Mason & Dixon Lines and Crossville Rubber Company, the Atcon case, specifically referred to previously, Allied Van Lines, Aero Mayflower, all cases cited in the briefs.

Referring to a previous decision of this Court in a case in which equitable estoppel defense was allowed, the Eighth Circuit in 1972 in the Southern Pacific Transportation Company v. Campbell Soup case specifically stated that we think it is equally plain, however, that this Court in the Fink decision, 1919 case, did not intend to impose a species of absolute viability upon consignees by ruling out the defense estoppel under all circumstances.

We think the critical question in this case is whether judicial recognition of an estoppel defense will contravene the anti-discriminatory purpose of the Act.

The Fifth Circuit specifically found that that anti-discriminatory purpose was not contravened.

We received... Commercial Metals received no windfall.

We were not paid for any freight that we are holding and refusing to pay someone.

Forcing us to pay the carrier in this case would not benefit anyone except the carrier, and in fact, it would be obviously to our detriment.

The trial court and the Fifth Circuit's opinion do not result in discrimination against any competitor of the shipper, nor did it discriminate against any locale or geographic region.

As found in the court below, the party guilty of granting the preference in this case was the Southern Pacific.

To turn that illegal preference against CMC is illogical and not required by law.

Chief Justice Burger: We will resume there at 1:00 o'clock, counsel.

You have seven minutes for rebuttal.

Mr. Pipkin, you may continue.

ORAL ARGUMENT OF JAMES H. PIPKIN, JR., ESQ. ON BEHALF OF THE PETITIONER -- Rebuttal

Mr. Pipkin: Mr. Chief Justice, I really have nothing to add unless there are question by the bench.

Chief Justice Burger: Very well.

I hear none.

Thank you, gentlemen, the case is submitted.

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Icc v. Oregon Pacific Industries, Inc. - Oral Argument

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Case:

Icc v. Oregon Pacific Industries, Inc.

Media File:

73-1210_19741120-argument.mp3

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73-1210_19741120-argument

Transcript:

Argument of Charles H. White, Jr.

Chief Justice Warren E. Burger: We'll hear arguments first this morning in 73-1210, Interstate Commerce Commission against Oregon Pacific Industries.

Mr. White, you may proceed whenever you’re ready.

Mr. Charles H. White, Jr.: Mr. Chief Justice, may it please the Court.

This is a direct appeal from a final judgment of a three-judge District Court setting aside a Commission’s car Service Order rendered pursuant to 1(15) of the Interstate Commerce Act.

Although the case is couched in technical terms, the issue before this Court is quite simple.

The issue was whether the lower court erred in finding that the order of the Commission was a rate order fixed without due process considerations or instead was it an order directed at the use to which the boxcars were put.

We submit that Service Order 1134 is a temporary order aimed at the extended use of the scarce boxcar resources as mobile lumber warehouses during a period of unquestioned transportation emergency and as such well within the reach of 1(15).

This Court is well aware given the light of the Allegheny-Ludlum case in Florida East Coast of the chronic boxcar shortage facing the country today.

There's no need to believe on that point.

However, the order that we are considering here today arises out of an emergency over and above the chronic shortage.

In 1972 and early 1973, the country was enjoying a tremendous economic boom, record crops were being harvested and moved to the country elevators and a completely unexpected event happened to create a transportation emergency.

The unprecedented and unexpected Russian grain deal completely strained and place unsustainable strain on the boxcar fleet.

The Commission moved on many fronts to make sure that the cars moved in the public interest during this time of transportation emergency.

Justice Potter Stewart: When was that, in the summer of 1973?

Mr. Charles H. White, Jr.: No Your Honor.

This was in the fall harvest of 1972 going into the early spring of 1973.

This was the time of the crisis that hit the nation.

The Commission orchestrated a series of car Service Orders to move the cars expeditiously.

For instance, in Service Order 1120, it limited the number of jumbo covered hopper cars that were available to any unit train shippers so that all grain shippers would have a fair share of the -- of this transportation resource to move the grain.

In 1121, the Commission was faced with the situation of growing congestion of the ports and it cut back on the free time available to the shippers of grain.

In 1117, perhaps the most important of the car Service Order in that series; the Commission diverted coal cars, the open top hopper cars from the coal industry to the movement of grain and as pertinent here, the Commission decided in the face of the emergency that unrestrained, unlimited reconsignment by the lumber shippers was exacerbating the transportation emergency and car Service Order number 1134 temporaril limited the reconsignment privileges of the lumber shippers.

Reconsignment that the issue before the Court today is markedly different from the transit privileges that this Court considered in the Wichita case briefly a transit privilege allows the shipper to stop his movement for the physical activity of something like inspecting the grain or creosoting lumber and to continue on with the movement and still enjoy the benefits of the true rate.

Reconsignment on the other hand allows a stopping in movement simply to change the billing or the destination but preserves to the shipper the through rate.

Justice Potter Stewart: The stop -- just an arbitrate place or other or what, how is that?

Mr. Charles H. White, Jr.: In the specific instance of lumber shipping of the --

Justice Potter Stewart: They moved from west to east basically?

Mr. Charles H. White, Jr.: Yes Your Honor.

And there are various points that have the truckage facilities which the lumber wholesalers used to stop the cars, to let the cars sit out as lumber warehouses while a market develops.

Justice Potter Stewart: Were there half a dozen or dozen places that have these facilities?

Mr. Charles H. White, Jr.: Yes Mr. Justice Stewart, in that order.

It's a physical -- there must be physical facilities to set out strings of boxcars in its -- in the order of a couple of dozen.

Justice Potter Stewart: And these are the Midwest somewhere?

Mr. Charles H. White, Jr.: Primarily in the Midwest, but in a far west possibly in Wyoming, Washington State but generally the movement is correctly pointed from the northwest towards the east and the reconsignment points might conceivably be in any place in that quadrant of the country.

And in fact, that leads to an interesting point reconsignment of its very nature must involve some degree of security because a certain percentage of the lumber that's reconsigned is reconsigned backwards or perhaps not in the most expeditious route to the final destination.

The lumber wholesalers are the primary users of the reconsignment technique.

A lumber is sold -- a lumber is marketed in two ways.

Primarily, there are large mills, lumber mills that have their own storage capacity and their own sales force.

There are also small mills which collectively provide the bulk of the lumber that comes eastward.

The small mills typically have no storage facilities nor that they have a sales force.

They looked to the lumber wholesalers off to market the lumber and to provide the -- where withhold for storage.

But the lumber wholesalers themselves have no storage capacity.

They simply purchase the lumber and immediately cost it to be loaded on to the boxcars and set the boxcars in motion eastward and the boxcars are held that the reconsignment point until a market is made.

The boxcars, while they're at a reconsignment point, are subject only to the external stimulus of demurrage.

Under the tariffs they're pertaining, there is no limit to the time that the boxcars can sit idle.

Demurrage is the only incentive to get the cars moving.

But in a case of a rising market, a case of an inflationary time, the demurrage incentive has typically been found not to excite fast release of the scarce boxcars.

Chief Justice Warren E. Burger: The shippers sometimes in effect use the demurrage as storage cost, in fact, do they not?

Mr. Charles H. White, Jr.: Yes, Mr. Chief Justice, I believe they do.

Justice William J. Brennan: Mr. White, what are the problems have been had the Commission elected to increase the demurrage sufficiently to bring back the same result?

Mr. Charles H. White, Jr.: Well, Your Honor if the demurrage was increased sufficiently as you put it, the exact -- the limitation of the storage time would still be uncertain.

Demurrage as you know has a gradual increase.

The overriding need that the Commission felt was to get the cars back into motion quickly and within a time period that was reasonably determined to be five working days.

An increase in the demurrage rate would provide an incentive, you're correct in asking that question getting the cars back but it's not certain when it would become economically feasible, economically sufficient in magnitude to get the cars rolling.

The Commission in this case felt a need to get the cars back in at least five days.

And as the Commission stated in its Service Order itself, demurrage hadn't been working in this particular segment of the economy.

It hadn't been providing a significant incentive to get the cars back on motion.

Justice Potter Stewart: Demurrage that goes progressively, doesn't it?

Mr. Charles H. White, Jr.: Yes, Your Honor, it does.

Justice Potter Stewart: It's not so much a day, it's so much --

Mr. Charles H. White, Jr.: Well, it can be structured of any where the Commission chooses I believe but it's --

Justice Potter Stewart: But it gets greater per day as the --

Mr. Charles H. White, Jr.: Yes, in step --

Justice Potter Stewart: And has the number of days increase?

Mr. Charles H. White, Jr.: Yes Mr. Justice Stewart.

During the emergency period, the Commission looked very carefully at the statistics of just what distortions in the transportation system were being provided by the reconsignment technique.

And I have found that by early 1973, the supply of the 40-foot wide door boxcars was averaging in a daily basis over 600.

The 50-foot cars were over 2,200 scarce.

And of all boxcars, we were experiencing a scarcity of something in the order of 13,000 cars.

Meanwhile, the Commission's studies show that the average whole time of reconsignment point was 10 days and holding experiences of 20 to 30 days were not uncommon.

In this light, a Commission determined that the emergency was being exacerbated by the reconsignment technique and issued car Service Order number 1134.

In the face of the Order itself, the Commission's rationale was completely outlined.

The Commission found that the shortage of boxcars was impeding the movement of many commodities that the cars were being held for excessive periods of reconsignment points, that the practice was immobilizing cars needed by shippers of other commodities and perhaps most important that demurrage technique was not a sufficient incentive to get the cars moving.

So, the Commission suspended as it can under 1(15) (a) the car service rule which is embodied in open-ended reconsignment.

It limited reconsignment to five days, it did not eliminate reconsignment.

The Commission went one step further and explained in gratuitous language what the legal effect was of suspending the car service rule.

It explained the purpose of the car Service Order, it explained the result that after the fifth day, after the reconsignment privilege has terminated the shipper must bear as he would anyways some of the local rates.

Those words are not words of rate prescription, they are a merely description of what the legal affect of the order is.

Justice William J. Brennan: Went to a lot of money, doesn't it?

Mr. Charles H. White, Jr.: Yes indeed, it does, Your Honor.

Justice William J. Brennan: Had there been any precedent for this sort of thing?

Mr. Charles H. White, Jr.: I'm sorry sir?

Justice William J. Brennan: Any precedent for this sort of thing?

Mr. Charles H. White, Jr.: Yes sir.

There's a case exactly in point that upholds a car Service Order of this --

Justice Potter Stewart: It was a little bit of bind in answering that question of My brother Brennan, didn't you stipulate --

Mr. Charles H. White, Jr.: Yes indeed.

They were in a bind.

Precisely, in a bind and I explained candidly in the footnote, I did not locate those car Service Orders until after the Court had rendered --

Justice Potter Stewart: But there is a stipulation that there's no precedent?

Mr. Charles H. White, Jr.: There is a stipulation.

Justice Potter Stewart: Well, in fact, is that there is at least one or maybe two precedent, right?

Mr. Charles H. White, Jr.: Yes, indeed, that's the case.

Justice Byron R. White: And in any event there is no list that the rate -- the rate -- the basis, changes on the fifth day?

Mr. Charles H. White, Jr.: No Your Honor, I'd like to --

Justice Byron R. White: Are you charge -- you charge some of the individual rates rather than the joint rate?

Mr. Charles H. White, Jr.: I'd like to --

Justice Byron R. White: Or the true rate?

Mr. Charles H. White, Jr.: Mr. Justice White, I'd like to try and answer your question this way: the Commission suspendeit as it can under 1(15)(a) the car service rule which allows through rate privileges with reconsignment.

It look --

Justice Byron R. White: Well, what was in the tariff?

Mr. Charles H. White, Jr.: That was in the tariff.

The fact that was in the tariff does not limit the Commission's ability to suspend it under 1(15) (a), the Commission has given extremely broad powers to suspend any and all practices or rules during a transportation emergency.

Justice Byron R. White: Rates too?

Mr. Charles H. White, Jr.: This must, yes Your Honor.

This must the car service rule must embrace tolls that are imbedded in tariffs.

The Commission did not set rates, it only limited the use of boxcars as warehouses for five days and I submit, Your Honor, that on the face of the statute, the face of 1(15), it has the power to do that.

1(15) (a) gives the Commission power in an emergency to suspend any rule, any and all rules in effect with respect to car service.

Car service, in turn, is defined by 1(10) as to embrace the use to which cars are put.

Reading 1(10) and reading 1(15) together, the Commission must have under 1(15) and we submit it does have the ability to suspend car service rules embedded in tariffs.

Justice Harry A. Blackmun: Do you say that the other side of Mr. Justice White's question is that if the car moves within the designated time, the rate isn't change at all?

Mr. Charles H. White, Jr.: Precisely that, Mr. Justice Blackmun.

The --

Justice Harry A. Blackmun: So, it depends on how we look at it?

Mr. Charles H. White, Jr.: The rate -- exactly, that the option is left with the shipper.

As long as the shipper seeks only transportation and reasonable reconsignment, there's absolutely no change in the rate he must pay.

And in effect, car Service Order number 1134 reached precisely that goal.

The average detention time was driven down to five days.

There has been very -- I have not received any information that there has been much of any additional charges paid.

The average whole time was brought down within the reach of the car Service Order and the cars moved in the public interest during the crisis the order worked.

Justice William H. Rehnquist: Mr. White, before the Commission entered its order that's on appeal here supposing that you put lumber in a boxcar in Portland and consign it to Chicago and then exercise your reconsignment privilege as the shipper to say it goes back to Denver and it's all them at least sold in Denver, now, what rate would the shipper pay?

Mr. Charles H. White, Jr.: The shipper would pay ,Mr. Justice Rehnquist the through rate from Portland to Denver.

Justice William H. Rehnquist: You mean he could ship it --

Mr. Charles H. White, Jr.: Even with that built-in security that I eluded to earlier, that the security is a -- it's a part of the practice that is necessary if reconsignment is fully a part --

Justice William H. Rehnquist: Even if it ended up -- if they want to if he is going back to Seattle he don't -- he'd pay only from Portland to Seattle?

Mr. Charles H. White, Jr.: I believe that's right, Mr. Justice Rehnquist, and that leads me to a point that this Court touched upon way back in a Turner Lumber case that reconsignment privileges are during times of economic crisis anyway is inherently ways for transportation resources.

They have been tolerated by the Commission.

They haven't been formally promulgated in anyway.

The tariff provisions provided -- providing for reconsignment have been merely tolerated and during times of unquestioned crisis -- transportation crisis, the lights of which we experienced during Russian grain deal, that practice has not been and should not be tolerated one way against the overriding public need to keep the cars moving for all commodities.

That leads me to another point, Mr. Justice Rehnquist.

The -- my brother is concerned that car Service Order 1134 eliminates the reconsignment practice, it does not.

It during -- its duration, during the crisis limited the practice to five working days and it did not eliminate reconsignment and because it did not eliminate reconsignment as a marketing technique, I submit that the mechanism in 1134, mechanism for adjusting the needs of a particular segment of the economy vis-à-vis the overall economy must be preserved to the Commission.

1134, I submit, is a careful accommodation of the public interest and the interest of a segment of the economy.

The Court did not throw up the particular accommodation; the Court instead threw up the whole mechanism.

Justice Harry A. Blackmun: Mr. White, if you -- let me theorize a little bit.

If the ICC didn't have this emergency power, do you think it would have by this time have devised some solution to this long standing chronic problem?

Mr. Charles H. White, Jr.: Mr. Justice Blackmun, which chronic problem do you mean, the car shortage or the reconsignment?

Justice Harry A. Blackmun: The car shortage.

Mr. Charles H. White, Jr.: Well, --

Justice Harry A. Blackmun: It seems lways to be with us --

Mr. Charles H. White, Jr.: I can report that the Commission has taken a very significant and important step just this week I believe in ex parte 241.

This Court had the earlier face of 241, the Allegheny-Ludlum case.

The Commission is exercising its authority which it firmly believes it has to order the nation's carriers to augment their boxcar fleet.

There's a motion to show cause and a show cause order outstanding today ordering the nation's railroads to restore their boxcar fleets to the standards that pertain in the 1970 to 1972 period.

Justice William J. Brennan: Financing on that I gather has put a problem.

Mr. Charles H. White, Jr.: It's -- the financing is a mixed problem because some of the nation's railroads as you know, Mr. Justice Brennan, are in the financial trouble but others are not.

Justice William J. Brennan: But this applies uniformly?

Mr. Charles H. White, Jr.: This applies uniformly and it is aimed at increasing the fleet by some 69,000 units and reducing the bad order ratio.

So, the Commission has taken forceful steps and Congress has taken forceful steps.

There's legislation pending right now, the Senate 1149, looking towards financial aid from Congress and looking ultimately towards the creation of a national boxcar fleet if the financial doesn't work.

So, very important strides are being made.

But, I think we can predict with some certainty that it will take time and during the time it takes, there will be -- we can state with a certainty, continuations are periodic reoccurrences of transportation emergencies and because we can safely predict that transportation emergencies will be in our future, the Commission needs to have a full array of remedial tools to cope with emergencies as they come over the horizon.

That means it must have a full array of demurrage techniques, it must have a full array of free time limitation techniques and it must in this particular instance preserve the technique --

Justice William J. Brennan: I gather this order -- did this order ever come effective?

Mr. Charles H. White, Jr.: This order was effective during the -- and it worked.

The first step of the judicial review in this case was a TRO hearing and which that TRO was denied and the Service Order worked.

It was in effect from May until the three-judge hearing I believe was in August or September.

Justice William J. Brennan: Has the emergency that prompted it --

Mr. Charles H. White, Jr.: The emergency probably --

Justice William J. Brennan: That's over, is it?

Mr. Charles H. White, Jr.: I would say given the lumber prices in the housing industry that probably is over now.

But it was the order was alive --

Justice William J. Brennan: Well, I meant the grain deal.

Mr. Charles H. White, Jr.: Oh, well, --

Justice William J. Brennan: That was the emergency that created it.

Mr. Charles H. White, Jr.: No Your Honor, that was -- yes, that was a -- the part of this tremendous unexpected emergency.

But the emergency itself was being exacerbated by the lumber reconsignment practices which using the plaintiff --

Justice William J. Brennan: You mean independent of the grain?

Mr. Charles H. White, Jr.: Independent of but it was an event that could not be tolerated in the face of the overriding need to get the cars moving.

Chief Justice Warren E. Burger: Well, in the past three years, we've had three or four years, we've had two or three car shortage cases here before us, have we not?

Mr. Charles H. White, Jr.: Yes indeed, Mr. Chief Justice.

Chief Justice Warren E. Burger: All emergency situations stemming from other factors?

Mr. Charles H. White, Jr.: No, I respectfully would not call them all emergency situations.

You have had --

Chief Justice Warren E. Burger: But you said car shortage problem --

Mr. Charles H. White, Jr.: -- there were chronic shortage problems that is not what I'm here talking about today, Your Honor.

We're talking about a -- and very unusual emergency existing on top of the chronic shortage.

Chief Justice Warren E. Burger: But there's nothing unique about a car shortage problem in this country from time to time, is there?

Mr. Charles H. White, Jr.: No, we have -- we're in a period of a chronic shortage.

Chief Justice Warren E. Burger: But sometimes we have the cars but we have them in places where they aren't needed.

Mr. Charles H. White, Jr.: Indeed, we do and that's one of the reason why we have to have -- the Commission has to have the ability to order the cars to be moved to where they are needed the most.

Justice William J. Brennan: Well, Mr. White, the statute of course confers this power only shortage of equipment or other emergency and you just said that this is a chronic condition.

Is it --?

Mr. Charles H. White, Jr.: No Your Honor --

Justice William J. Brennan: -- if it's chronic?

Mr. Charles H. White, Jr.: I'm trying to explain, if I may, that what I'm talking about here is a series of car Service Orders and the car Service Order that was aimed at an emergency.

Justice William J. Brennan: Well, it's a never ending emergency, wasn't it?

Mr. Charles H. White, Jr.: No, indeed, I don't believe it is.

Chief Justice Warren E. Burger: I understood your answer to be that there has been a chronic shortage for some time but this was an extraordinary emergency.

Mr. Charles H. White, Jr.: This was an emergency on top of the chronic shortage, an emergency that triggered the extraordinary summary powers that the Commission has.

Justice William J. Brennan: That being the grain -- that the grain deal --

Mr. Charles H. White, Jr.: The grain deal was one segment of it as I have mentioned, Mr. Justice Brennan.

Justice William J. Brennan: Well, that's over?

Mr. Charles H. White, Jr.: That's over.

Yes, indeed.

Justice William J. Brennan: Now, what's left in the way of the emergency?

Mr. Charles H. White, Jr.: I don't believe that the emergency that supported 1134 still exists and that's totally consistent with.

Justice William J. Brennan: Well, nobody know that then if you prevail here what happens to 1134?

Mr. Charles H. White, Jr.: If we prevail, 1134 might -- 1134 is still is in existence but it has been suspended by the Court.

Justice William J. Brennan: I know that but if you prevail, what happens?

Mr. Charles H. White, Jr.: If we prevail --

Justice William J. Brennan: Reinstated?

Mr. Charles H. White, Jr.: If we prevail, 1134 probably would be terminated because of the -- beyond of the emergency.

We're not here for that simple reason, we're here to preserve a technique, a remedy, an adjustment mechanism that might be used in the future and that must be available to the Commission in the future.

Justice William J. Brennan: But you don't think that something like mootness about this thing?

Mr. Charles H. White, Jr.: Indeed, I don't, Mr. Justice Brennan.

The Court recently looked that the mootness issue on the DeFunis case but one of the exceptions to the DeFunis is as the Court pointed out was the southern Pacific Terminals case versus ICC which involved precisely the same kind of order that we have here in the sense that they were recurring short term orders that could be mooted out, so to speak, that could be non-effective by time the Courts cut mechanism into reviewing them.

We precisely have the same situation here, we can predict future emergencies and we can predict the repetition of the same kind of a question before the courts and we respectfully submit that this is a -- and indeed if there ever was a situation where the exception to DeFunis applies that here might have a capable -- initial capable of repetition yet evading judicial review.

Justice Harry A. Blackmun: Well, Mr. White, following through a little on this, didn't the 1134 by its terms have an expiration date?

Mr. Charles H. White, Jr.: Indeed, it did as to all car Service Orders and they last for the -- well, let me just explain --

Justice Harry A. Blackmun: Do you mean half months in duration by its terms?

Mr. Charles H. White, Jr.: Well, it originated --

Justice Harry A. Blackmun: Unless --

Mr. Charles H. White, Jr.: In six weeks I believe the first time around and it was renewed.

And this is precisely the -- it's a mechanism that's necessary in emergency situations.

At the end of the expiration of the duration of the car Service Order, the Commission has compelled to again look at the situation to determine if the emergency still exists.

If it doesn't still exists the car Service Order terminates.

Justice Harry A. Blackmun: Well, if you prevail here it doesn't go automatically back into effect at this late date?

Mr. Charles H. White, Jr.: Yes, it goes into effect but it compel -- the Commission will be compelled to consider the underlying economics to see if indeed the emergency still persists and if it does not persist car Service Order 1134 will have done its -- well have been terminated and will no longer apply.

Justice Harry A. Blackmun: Let's see if I follow that, if you prevail here even though there's been no extension to November 20, 1974, it's your position that it will automatically go back into effect?

Mr. Charles H. White, Jr.: The Commission has -- time -- from time to time extended the car Service Order but it had no application.

It extended it for this reason, Mr. Justice Blackmun, during this period the Commission has been very carefully building a record of statistics.

If we are successful today and car Service Order 1134 is reinstated, it will have the body of information upon which to make a judgment whether the emergency still exists and more likely than not will determine that it does not exist in car Service Order will be terminated.

Justice William H. Rehnquist: Well, is there somewhere in the record, Mr. White, something other than the notations at page 17 of the appendix which indicates that the original expiration date was May 15 or July 31, 1973 some indication that the Commission has renewed it?

Mr. Charles H. White, Jr.: Yes indeed.

It has been renewed on that date as renewed the second time but of course it was suspended by the -- was held void ab initio by the Court, so it had no effect other than the Commission has been gathering data all during this period and obviously we'll be forced or we'll take it upon itself to reexamine the underlying premises of the car Service Order at determination of judicial review.

Justice William H. Rehnquist: Well, did the Commission extend the order, and their subsequent order as extending the order?

Mr. Charles H. White, Jr.: Yes it did Mr. Justice Rehnquist.

Justice Harry A. Blackmun: Where has that appeared?

Mr. Charles H. White, Jr.: It appears in the federal register -- I can't cite you the pages but when an order is extended, it is -- a notice has given to the public by federal register publication.

I certainly I can't provide the Court --

Justice Harry A. Blackmun: But it isn't in the record here?

Mr. Charles H. White, Jr.: Sir?

Justice Harry A. Blackmun: It isn't in the appendix here?

Mr. Charles H. White, Jr.: No, it isn't but I certainly can supply the Court with --

Chief Justice Warren E. Burger: You supply the clerk with copies and of course your friend --

Mr. Charles H. White, Jr.: Indeed, I will, Mr. Chief Justice.

Justice Byron R. White: What is the essential to extend the car Service Order?

Mr. Charles H. White, Jr.: The Commission's judgment, Mr. Justice White, that the emergency --

Justice Byron R. White: The emergency still exists?

Mr. Charles H. White, Jr.: Still exists and that that judgment is subject to both administrative review by way of petition for reconsideration and judicial review on whether or not there was indeed --

Justice Byron R. White: Though it's been extended every two or three months since --

Mr. Charles H. White, Jr.: While this matter is pending before this Court, yes, Your Honor.

Justice Byron R. White: There are whole series of extension?

Mr. Charles H. White, Jr.: Yes Your Honor, the order is alive but suspended.

It has not been in effect.

Justice William H. Rehnquist: Was there any reason why the Commission couldn't have a sought a stay from this Court after the three-judge District Court set its order aside?

Mr. Charles H. White, Jr.: No Your Honor, there's no reason why it could not have.

Justice Harry A. Blackmun: Mr. White, --

Mr. Charles H. White, Jr.: Yes Mr. Justice.

Justice Harry A. Blackmun: -- the evidence from what you have said that the car shortage problem is chronic although you suggest that this particular order was triggered by the soviet wheat deal, let's assume it is severely chronic and that this practice of affording what in effect you've characterize as storage facilities has to be eliminated or modified on a long term basis not just an order of 60 or 90 days, under what section to the Act would the Commission proceeded and what would the procedure be?

Mr. Charles H. White, Jr.: I suspect the Commission would undertake a rule making procedure probably under Section 15(7) that basically allows the Commission to examine the rate structure.

It would be a rule making proceeding with full notice and full participation by the parties something in line without the proceeding perhaps in ex parte 241 perhaps even indeed a sub-numbered proceeding in that case, the case of course that was reviewed here in Allegheny-Ludlum.

The Commission would provide full due process protection in any kind of a overhaul or long term change in the marketing practice.

It -- my judgment, it would probably be something akin to ex parte 241, investigation of boxcar adequacy.

Chief Justice Warren E. Burger: Thank you, Mr. White.

Argument of Seymour L. Coblens

Mr. Seymour L. Coblens: Mr. Coblens.

Mr. Chief Justice and members of the Court, may it please the Court.

In answer, since I do not get any rebuttal, I'd like to answer some of the questions of my friend.

In answer to Mr. Justice Stewart's question, I believe, and possibly there was a misunderstanding.

As far as I know, there is no judicial precedent upholding an order of this kind.

There is an order that the Commission couldn't even find and nobody else could until they dredged it up which they claim to be a precedent that is number one.

Chief Justice Warren E. Burger: Well, would that make any difference if in fact --

Mr. Seymour L. Coblens: No, --

Chief Justice Warren E. Burger: -- is there an overlook?

Mr. Seymour L. Coblens: It doesn't make any difference, Your Honor, except the fact that I didn't want there to be any misunderstanding that there was a judicial precedent upholding in order of this kind and I don't think that there has been a judicial precedent.

As far as I know, this is the first case of this kind and in so far as I know, as far as the industry is concerned, this matter is something that the industry as such was not aware of, at least not recently.

Now, with respect to the question of Mr. Justice Rehnquist, a statement was made that if it went from Portland to Denver and back to Seattle that there would be no charge it is my understanding that is not the correct statement of the facts.

I have been informed that there is no way in which you can back hold a car, it has to move forward from west to east.

You can't, if you move it backwards then it becomes an entirely new rate.

This is the information I have received and I respectfully, I believe my brother is in error when he made that statement.

Now, with respect to order number 1134, it is still in existence and as my brother has stated.

It is in full force and effect, it can be activated by the Commission at any time and that solely in the discretion of the Commission whether it's made effective.

So, that --

Justice Harry A. Blackmun: But dependent on the finding of emergency?

Mr. Seymour L. Coblens: Dependent upon the finding of emergency but as of the Lohman, it is not the --

Justice Harry A. Blackmun: Apparently, it stayed, isn't it?

Mr. Seymour L. Coblens: I beg your pardon, it has not stayed sir.

Justice Byron R. White: Well, what did the Court -- what did the District Court do?

Mr. Seymour L. Coblens: Oh, I beg your pardon.

The District Court stayed the effectiveness of the order.

Justice Byron R. White: The order --

Mr. Seymour L. Coblens: It declared it null and void not by reason of emergency but by reason of the fact that it was an illegal rate order.

Justice Byron R. White: So, it's not in the effect?

Mr. Seymour L. Coblens: It's not in the effect in so far as becoming effective as far as the rates are concerned but the District Court made no finding with respect to emergency because certain precedents which I will --

Justice Byron R. White: But do you agree that the Commission had going for the procedure of extending the order?

Mr. Seymour L. Coblens: Yes sir.

This is true.

I have seen the --

Justice Byron R. White: And each time asserting an emergency?

Mr. Seymour L. Coblens: Each time as far as I recall asserting an emergency.

Now, this Court can affirm the judgment of the courts below on one of two grounds.

The first is to follow the reasoning of the District Court and hold that Service Order number 1134 did not constitute a car Service Order as authorized by 49 U.S.C. 1(15) and was invalid because as the Court stated, it was in illegal rate fixing order developed through procedures lacking due process.

Now, let me say parenthetically, nobody before this Court argues that the Interstate Commerce Commission does not have the power assuming that it uses due process to do what it desires assuming that it gives due hearing with respect to reconversion.

I think my brother admitted that if it uses Section 1549 U.S.C. 1(15), it can issue a new tariff or compel a new tariff but in that case of course we would have to have a hearing and the industry input would have to be there and you would not have bungled without us knowing anything about it.

The industry would have an opportunity to have something to say.

At this point, there is no opportunity whatsoever the order was issued before we even know about it and sometime it become effective before the industry knows anything about it.

So, there is no question about the power of the Interstate Commerce Commission assuming that it provides ordinary due process which Section 1(15) does not provide and this is what this case is all about as I indicated in my brief.

Chief Justice Warren E. Burger: Could you give a hypothesis as to how long that due process might take the kind of due process you're talking about.

Mr. Seymour L. Coblens: Well, of course the Court well knows the --

Chief Justice Warren E. Burger: But not that we measure due process by time when we're --

Mr. Seymour L. Coblens: By time I would say --

Chief Justice Warren E. Burger: -- confronted with an emergency that does enter into, doesn't it?

Mr. Seymour L. Coblens: But Your Honor, we've had an emergency for 75 years and this business of reconsignment has been in existence for 50 years and as my brother states, they can expect further emergencies from time to time.

So, that when you're talking in terms of possibly a year as against 50 years or 75 years, it seems to me that if this Court which balances the interest and this is the balance wheel of the nation really that even assuming it takes a year they give due process which it might very well.

The element of due process which the Court well knows is so important is worth it particularly when we know that for years and years and years unless something is done we're going to have some emergency or another, if it's not the Russian grain deal, it will be the Patagonian wheat deal or it will be some other deal that will come in and because the basic fact is there just not enough cars and when you don't have enough cars the slightest dislocation causes a “emergency on the basis of the Interstate Commerce Commission”.

Justice Harry A. Blackmun: Mr. Coblens, in that connection, suppose the Commission issued an order just stating that no car could be held more than five days of the reconsignment point valid without a hearing?

Mr. Seymour L. Coblens: Yes sir, they filed without a hearing under 1(15) if they found an emergency.

Justice Harry A. Blackmun: So that they could go that far?

Mr. Seymour L. Coblens: That is correct sir --

Justice Harry A. Blackmun: And you'd have no objection?

Mr. Seymour L. Coblens: I would have an objection.

If we have no -- I'd be to the extent possible I would try to prevent it.

My basic point is number one, the court below held that this was a rate order and consequently they say to decide as a rate order.

In addition to that, as I would like to propose out orally argued, the fact that this Court noted probable jurisdiction and did not merely affirm on the basis of the opinion indicates the Court is interested in the broader aspects of the case, then the points made by the court below.

The court below went on perfectly sound and legal grounds namely that it was a rate order and Section 1(15) did not provide for changes in rates but there is underlying this whole case and something I'd like to get across to the Court a more fundamental question, a question which is this Court peculiarly is designed to take care of.

And that question is this, “Must this Court or any court accept the ipse dixit of the Interstate Commerce Commission inspite of all the evidence to the contrary that the freight car situation on the nation's railroad is a temporary emergency which should be dealt with under the provisions of 491 U.S.C. 15 rather than a long continuing and probably permanent problem” and as the Court well knows this is what we have.

Section 49 U.S.C. 114 which is the general rule making power and provides full due process procedures and Section 49 U.S.C. 15 which is the true and joint rate provision of the Interstate Commerce Act provides an ordinary means of dealing with the problem giving all interest to parties full due process rights.

The broader issue before this Court and it can only be made before this Court is whether this Court will sanction the abrogation of the doctrine of judicial supremacy which I have been taught and have taught others to believe is one of the principle doctrines of American constitutional law.

Chief Justice Warren E. Burger: If I understand your friend's argument on this matter of a chronic condition related to an emergency, it's perhaps vaguely analogous to a person who has diabetes which is chronic but goes into diabetic shock perhaps from time to time and perhaps he analogize this immediate situation to a diabetic shock which cause for something ordinary -- something other than ordinary treatment?

Mr. Seymour L. Coblens: Except the fact and I forget now how many diabetic shocks to lumber industries has had in this regard where orders of various kinds have been issued against the lumber industry by reason of one “emergency” after another.

Now, how many emergencies make an emergency?

This is what you're up against.

How many emergencies do you have to have before you had a chronic situation and it's my contention, Your Honor, that when you have an emergency that existed for 50 years so there about it's not an emergency anymore.

It's a -- it's something that should be dealt with giving the input of the industry under either Section 1(14) or Section 15 which allows due process rights.

Justice Byron R. White: This isn't the basis the District Court went on.

Mr. Seymour L. Coblens: This is not the basis of the District Court --

Justice Byron R. White: The District Court said that you know it's an emergency and it seems to accept that fact that it was, it isn't a car Service Order.

Mr. Seymour L. Coblens: The issue of emergency was not raised before the District Court and for a perfectly good reason.

I had two cases against the --

Justice Byron R. White: So, the question is whether it's a car Service Order or not?

Mr. Seymour L. Coblens: Well, that's what the way the District Court, I believe, however, when it comes up to this Court, this Court can --

Justice Byron R. White: Well, did you assert in the District Court?

You attacked the order, didn't you?

Mr. Seymour L. Coblens: I attack the order --

Justice Byron R. White: Did you say it wasn't an emergency?

Mr. Seymour L. Coblens: I did not bring that point before the Court because the Court had already ruled against me on that question and I will confess it.

Justice Harry A. Blackmun: What you're really arguing now is that even if the District Court was wrong in calling it a rate order --

Mr. Seymour L. Coblens: That's right.

Justice Harry A. Blackmun: But it is the car Service Order, you say nevertheless you're entitled to an affirmance because there's no emergency?

Mr. Seymour L. Coblens: That's correct sir.

And that this Court asked --

Justice Harry A. Blackmun: What do we have before us, on which we can judge whether there was a original --

Mr. Seymour L. Coblens: The history and the cases that Justice Rehnquist wrote and I have cited in my brief.

This is a long --

Chief Justice Warren E. Burger: Are we going to fact -- are we going to be fact finders on that?

Mr. Seymour L. Coblens: I don't think it's a fact finding.

I think this Court has already held that there's a chronic car shortage, Justice Rehnquist has held that, has stated that.

Justice Byron R. White: Well, let me ask you, are you supporting the District Court's conclusion?

Mr. Seymour L. Coblens: I am supporting the District Court's conclusion and --

Justice Byron R. White: Except for the reasons that it used?

Mr. Seymour L. Coblens: That's right, sir.

Justice Byron R. White: That it is not a car Service?

Mr. Seymour L. Coblens: That's correct sir.

I say that I have two strings to my bowl.

I believe --

Justice Byron R. White: Tell me again why this isn't a car Service Order but a rate order.

Mr. Seymour L. Coblens: Because of the fact that it affects the rates, the traditional and historic way in which car Service Order have been enforced and except for the two orders that frankly I didn't know about and the ICC didn't know about, the traditional way is by use of demurrage charges and as has been stated --

Justice Byron R. White: But it increases the cost to the shipper?

Mr. Seymour L. Coblens: It increases the cost to the shipper, everything increases the cost to the shipper or to ultimate buyer in an economic sense.

Justice Byron R. White: And unfortunately, yes.

Justice Potter Stewart: Well, it increases the cost.

This has been pointed out only if the order doesn't -- only to the extent that the purpose of the order is not achieved.

The purposes of the order is to free up freight cars and to the extent it does to the extend it prevents freight cars being used in this way longer than five days then it doesn't increase much at all?

Mr. Seymour L. Coblens: But the difficulty with that is that this is what the Intestate Commerce Commission has stated as I point out in my record and in the affidavit before the court below, there are many economic arguments for reconversion and for the practices of the lumber industry and the lumber industry or the wholesale lumber industry has never have an opportunity to submit those arguments because never has the Interstate Commerce Commission taken this question off in a full due process hearing.

Justice Byron R. White: If you -- but if this were just a demurrage in short putting a uniform charge daily charges or something like that for holding a car too long, you wouldn't -- you probably wouldn't be here?

Mr. Seymour L. Coblens: I would not be here because --

Justice Byron R. White: But this puts a very different charge on different shippers --

Mr. Seymour L. Coblens: That is correct.

Justice Byron R. White: -- depending on what the rate structure?

So, the extra charges depended upon a rate rather than a demurrage some uniform charge?

Mr. Seymour L. Coblens: That -- what it does is it splits up the rate from a through and joint rate.

My brief and the affidavit shows that in some cases triples the rate and it's grossly aggravates the situation rather than --

Justice Harry A. Blackmun: Well, it doesn't triple it if the car moves?

Mr. Seymour L. Coblens: I beg your pardon.

Justice Harry A. Blackmun: It doesn't triple it if the car moves.

Mr. Seymour L. Coblens: That is true.

Justice Harry A. Blackmun: And this Court has upheld the demurrage charges against challenge and I guess what I want and I think that Mr. Justice White wants is what's the difference?

Mr. Seymour L. Coblens: The difference is in the structure of the Interstate Commerce Act, the Interstate Commerce Act only gives authority to the Interstate Commerce Commission for emergency action in the case of rules under 1(15).

Justice Brandeis in the Pecan case which I have cited has stated that 1(15) must be very strictly construed and that it is only traditional and at that time it was traditional only to enforce rules by various -- either by prohibitions or criminal prohibition or by in some cases demurrage charges.

Now, if we follow Justice Brandeis' reasoning that this in effect the quasi-criminal statute and since the Interstate Commerce Act in this particular section because of the very emergency factor involved and because of the fact that it does a way with due process must be strictly construed.

Therefore, the court below held that since it is such and unusual remedy and since Section 1(15) does not give that remedy, it does not come under the terms of Section 1(15) and that's the difference because of the fact that in one case due process is granted and in the other case it is not.

The Commission has had authority under Section 49 U.S.C. 15 to deal with this problem fo 50 years.

Justice Harry A. Blackmun: Can't you say the exactly the same thing about demurrage charges exactly the same thing and further I thought a little while ago you had conceded that if the Commission put out a plain bar order and said no car maybe held more than five days, this should be all right without due process.

Mr. Seymour L. Coblens: No, if I said so I misspoke myself Your Honor.

Justice Byron R. White: Yes, but it wouldn't -- you wouldn't say it was a great order, would you?

Mr. Seymour L. Coblens: No sir, I would say that it --

Justice Byron R. White: Well, it would be to the effect it would have the same effect, wouldn't it?

Mr. Seymour L. Coblens: It might have yes, it would have the same effect in the sense that it would put criminal penalties presumably, Your Honor, that there have to be some penalties of some kind.

Justice Byron R. White: Yes, but it wouldn't be a rate or the Commission unless the Commission said the line “all rates would apply” -- the individual rates would apply as the individual rate wouldn't apply did at least with the car order.

Here, they went on and said the individual rates will apply not the through rate.

Mr. Seymour L. Coblens: That is correct sir.

I don't know exactly -- I can't guess what penalty the Interstate Commerce Commission.

In some cases, they imposed fines in some cases they imposed jail sentences so that made to the violation of the Interstate Commerce Act.

Justice Byron R. White: In other case, do so when they say no more than five days they put the demurrage charge.

Mr. Seymour L. Coblens: They put a demurrage charges on it.

That is true sir and my contention is --

Justice William J. Brennan: I think it is conceivable that demurrage charge could be the equivalent of the increase rate, couldn't it in dollars?

Mr. Seymour L. Coblens: Except --

Justice William J. Brennan: And of course --

Mr. Seymour L. Coblens: Except the fact that --

Justice William J. Brennan: No couldn't be -- I mean suppose there were $100.00 a day demurrage charge?

Mr. Seymour L. Coblens: No, it might not be or if it's $10,000.00 a day I assume so but you get to a point at which a demurrage charge becomes more than something different than a demurrage charge.

Justice Byron R. White: Well, here, if they hold it one day too long it cost let's say the example of $1,500.00.

Mr. Seymour L. Coblens: That's correct sir.

That's correct.

Justice Byron R. White: For $7,500.00 a day.

Mr. Seymour L. Coblens: So that you come down to a question I suppose a question of degree in the sense that when in a demurrage charge usually starts at $10.00 a day and make it over $20.00 or $25.00, $50.00 or what have you that has been the traditional way and which it's done.

I -- if at the five days they put a demurrage charge of $1,500.00 --

Justice William J. Brennan: Which a day?

Mr. Seymour L. Coblens: A day which I suppose is something the Commission --

Justice William J. Brennan: Well, the demurrage charge will have to be uniform the way this rate thing works some -- I gather some shippers pay according to these examples thousands dollars more of the 300 more other 600.

Mr. Seymour L. Coblens: That is correct depending upon where it finally winds up.

A demurrage charge would be uniform but let's say if it was $1,500.00 a day, my contention then would be and I think would be justified that this isn't true demurrage.

This is in effect a change of quality rather than purely quantity.

At some point, a change in quantity becomes a change in quality and my contention is that based upon the way in which this order was designed and is designed, I'm talking specifically with 1134.

It's a rate order, it's designed to affect the rate are which commodities move, rates at which commodities move on a through and joint rate are governed by Section 49 U.S.C. 15.

Section 49 U.S.C. 15 provides due process rights.

Section 1(15) which is the one under which 1134, all it requires under the -- under its word is that “the Commission is of the opinion that and emergency requires” is required.

And the worst part about that is that several courts of this country have held and I've cited them, the Dougherty case and the two Southern Railroad cases have held that we as a Court cannot go into the question of whether the opinion of the Interstate Commerce Commission is it is not justified or we can do is to decide whether or not the Interstate Commerce Commission is corrupt to arbitrary or some other thing.

Now, --

Justice Potter Stewart: And it's because of those cases that you didn't make your lack of emergency argument --

Mr. Seymour L. Coblens: That is correct sir.

That is exactly so and the reason I didn't make it in my case -- in my court was because my court -- the US District Court for the District of Oregon had decided the Dougherty case, and as an advocate, the court well know it would be foolish for me to go before a court which had ruled adversely to me and try to make an argument which they have ruled adversely to me on.

So, I had -- I took another argument which I think is perfectly valid and I used it.

Now, before this Court however I'm on an entirely different situation.

I am -- before the Court which has authority for the whole nation.

You can look at the thing as a whole, you can look at it.

Is this due process and is this a violation of due process and are we violating the rule of judicial supremacy which this Court has recently upheld in US versus Nixon?

Are we violating that rule, in the Dougherty case and in the two Southern Railway cases by saying that --

Justice William O. Douglas: Mr. Coblens?

Mr. Seymour L. Coblens: Yes sir.

Justice William O. Douglas: You referred the due process as you have quite frequently, you are not speaking in a constitutional sense, are you?

You're not urging that there's been a constitutional denial of due process?

Mr. Seymour L. Coblens: No, I'm arguing that the whole scheme of the Interstate Commerce Act except for Section 1(15) provides a hearing provides all the administrative procedures which allow you to bring before the Commission itself, the economic arguments on behalf of the industry.

I don't know, Your Honor, and I have never really thought the question through whether or not an Interstate Commerce Act which did not provide for due process and all these other cases would be struck down by this Court.

This Court has never been faced with that problem because the history of the Interstate Commerce Act has been that if any thing the Interstate Commerce Commission has been overly solicitous in all cases except under 1(15) and it's this exception of 49 U.S.C 1(15) that I am here complaining about particularly as used in this case.

Does that answer the Court's question?

Justice Harry A. Blackmun: Yes, in this case you're making a statutory argument?

Mr. Seymour L. Coblens: I'm making a statutory argument but I think that if in all other cases, if the other provisions of the Interstate Commerce Act did not provide due process, I think certainly counsel -- other counsel -- thank you sir.

Other counsel would've been here long before me arguing the constitutional question and I would not be here possibly arguing the constitutional question.

Now, I feel it -- before this Court, this question is not an emergency.

How long do you have a situation which is existed admittedly for 50 years and which we know it's going to exist for another 50 years unless a complete change is made?

How can the Interstate Commerce Commission claim that it's an emergency and emergency as I understand is based upon the dictionary definition is a “sudden, total and unexpected event”.

Justice Byron R. White: While the Commission in here apparently suggests to you that if the District Court is reversed on the car service as against rate order issue then the Commission is going to -- you're going to have some chance to litigate before the Commission again with respect to --

Mr. Seymour L. Coblens: We never did have a chance to litigate, Your Honor.

Justice Byron R. White: Well, I know but they still have to decide each time whether there's an emergency.

Mr. Seymour L. Coblens: This is true but we never get a chance to litigate.

Justice Byron R. White: Why you can't even litigate and you can --

Mr. Seymour L. Coblens: No, I cannot because under the Dougherty case and under the --

Justice Byron R. White: I know you can raise it, you may lose, you'll see if you lose.

Mr. Seymour L. Coblens: Well, I can raise it, Your Honor, but I can raise it only under such conditions as gives me no chance at all.

It's like a Mexican escape, Your Honor.

You are --

Justice Byron R. White: If someone renews an order every three or four months for three or four years that on the basis of an emergency, it doesn't sound much like the case you're talking about.

Mr. Seymour L. Coblens: But they don't renew it on the basis of every four years, this is a --

Justice Byron R. White: You mean every two or three months.

Mr. Seymour L. Coblens: Every two or three months.

Justice Byron R. White: Well, that's what I said.

Mr. Seymour L. Coblens: But I do not have any judicial --

Justice Thurgood Marshall: Didn't you waive it?

Mr. Seymour L. Coblens: I beg your pardon sir.

Justice Thurgood Marshall: Didn't you waive the argument on emergency?

Mr. Seymour L. Coblens: Did I waive it sir?

Justice Thurgood Marshall: You knew about it and you decided not to raise it, what's the difference of being a non-waiver?

Mr. Seymour L. Coblens: A waiver is when a person --

Justice Thurgood Marshall: As you said, it's intelligently done.

Mr. Seymour L. Coblens: I beg your pardon sir?

Justice Thurgood Marshall: Waiver is what is intelligently done and saying that this was.

Mr. Seymour L. Coblens: Well, also it's when you have a choice.

I had no choice.

A waiver is a situation where a man who has a choice between A and B intelligently chooses B.

I had no choice in this case between A and B because --

Justice Thurgood Marshall: You have to use A and B.

Mr. Seymour L. Coblens: Not practically sir.

Chief Justice Warren E. Burger: Are you suggesting that judges never changed their minds about some things?

Justice Thurgood Marshall: Well, when you have the same judge, it's very difficult to get them to change his mind.

Chief Justice Warren E. Burger: We've all tried it and sometimes exceeded, haven't we in practice?

Mr. Seymour L. Coblens: Yes sir.

Chief Justice Warren E. Burger: We, even here we change our minds sometimes.

Mr. Seymour L. Coblens: Well, this Court is unique, I must say that.

This Court because of your very -- because of the way and which this Court sits and because of your very unique position -- excuse me sir.

Chief Justice Warren E. Burger: And you may finish your sentence.

Mr. Seymour L. Coblens: Thank you sir.

Because of your very unique position in the American history, this Court is not a court, it's the highest court of political decision that there is in the American constitutional system.

And consequently, you, as conditions change have the right to change your mind.

Other courts do not have that right and don't exercise it.

Thank you, sir.

Chief Justice Warren E. Burger: Thank you gentlemen.

The case is submitted.

Featured:

Passenger Corp. v. Passengers Assn. - Oral Argument

Thu, 23 Aug 2012 18:23:52 +0000

Case:

Passenger Corp. v. Passengers Assn.

Media File:

72-1289_19731112-argument.mp3

Related Transcript:

72-1289_19731112-argument

Transcript:

Argument of E. Barrett Prettyman, Jr.

Chief Justice Warren E. Burger: We will hear arguments first this morning in Number 72-1289, National Railroad Passenger Corporation and others against National Association of Railroad Passengers.

Mr. Prettyman, you may proceed whenever you’re ready.

Mr. E. Barrett Prettyman, Jr.: Mr. Chief Justice and may it please the Court.

I’m Barrett Prettyman and I represent the petitioners in this case which is hereon certiorari from the D.C. Circuit.

The case presents rather a narrow question, namely, which parties can sue for alleged violations of the Rail Passenger Service Act of 1970, the Amtrak Act.

We claim, petitioner’s claim that under the statutory language and pursuant to the Congressional intent, only the Attorney General and where a labor agreement is involved, employees and their representatives can sue for these alleged violations.

Respondent which is an association of railroad passengers, claims that anyone who is injured and aggrieved by an alleged violation of the Act can bring suit to Federal District Court.

That really is the only issue before the Court this morning.

Before I go into the facts of the immediate case, I’d like to give you just a brief background of the Act itself because it bears on the problem.

This Act was passed because of a genuine concern on behalf of the Congress and the people that all intercity passenger traffic in this country was going to disappear.

In 1929, there were 20,000 passenger trains in this country.

And by 1970, there were only 360.

The plain, hard, cold fact of the matter is that the passengers in this country simply could not pay the high cost of operating this train.

At the same time, Congress in passing the Act did not intend to stop all discontinuances of trains.

Quite to the contrary, it recognized that some additional paring was in order if any rail passenger traffic was going to be preserved.

Unknown Speaker: That’s P-A-R-I-N-G or P-A-I-R, paring?

Mr. E. Barrett Prettyman, Jr.: P-A-R sir. P-A-R-I-N-G, paring.

Unknown Speaker: Paring.

Mr. E. Barrett Prettyman, Jr.: Some additional cutting down, yes sir.

Therefore Congress devised a rather elaborate plan, purpose of which was instead of the individual railroads hereafter deciding which train and when it was going to submit the ICC for paring down, instead the Secretary of Transportation would construct a basic system of passenger service.

The minimum system that the country should have and that would consist therefore of all essential service which hopefully would be preserved.

And a corporation was formed, Amtrak, which was given power to enter into contracts with various -- to railroads and take over their passenger service to be funded by government funds, tickets, and the railroads themselves paying entry fees.

The corporation, Amtrak would operate this basic system and would either operate or discontinue the excess service above the basic system.

I’d like to emphasize again now that the purpose of the Act was not to preserve all passenger service but rather in the words of the House Report to effect a rational reduction of present service in order to save any passenger service.

When the Act became effective, the Secretary of Transportation did designate the basic system, a 21-city pairs (P-A-I-R) with 42 trains running daily as part of the basic system as it developed.

When Amtrak took over passenger service, it actually operated originally some 180-passenger trains and today that’s up to a 198.

The Central of Georgia’s only remaining passenger trains just prior to the passage of this Act were the Nancy Hanks between Savannah and Atlanta and Trains 13 and 14 between Albany, Georgia and Birmingham.

And these trains were not part of the basic system.

Consequently, notice was given of their discontinuance and on April 1, 1971 when the Act did become effective, those trains were discontinued.

However, prior to that the respondent here brought a suit in the Federal District Court against Amtrak, the Central of Georgia and the Southern Railway seeking a temporary restraining order to prevent the discontinuance of these three trains.

It was alleged that the Act was violated because of the relationship between Central and Southern.

Southern down and virtually all of the stock of Central.

Southern itself had decided not to enter into contract with Amtrak.

But the Central of Georgia had and they claimed north, the railroad association here claimed that either the entire railway system had to enter into a contract or no part of it could.

No subsidiary could.

And it sought a permanent injunction restraining the parties from enforcing any contract which did not include the entire Southern system.

The District Court denied the temporary restraining order and dismissed the complaint on the theory that NARP had no standing because of Section 307 which provides that if Amtrak or any railroad violates the Act, the District Court shall have jurisdiction upon petition of the Attorney General of the United States or in the case involved in the labor agreement upon petition of any employee affected thereby including duly authorized employee representatives.

And the District Courts were given jurisdiction to grant equitable release upon petition of those parties.

Now it’s clear that the Court of Appeals reversed and held that there was standing.

That's clear that Congress has the authority to limit the right to sue under an Act of this kind.

This Court has so held in other cases.

So the only question here really is whether Congress intended to do so.

Did it intend to restrict the right to sue?

We think very clearly it did.

We just take the statutory language standing alone.

We’ll note that it doesn’t provide specifically that anyone aggrieved or injured can sue.

It does not even provide that the specified remedies in the statute are in addition to other remedies.

It doesn’t even provide that the specified remedies didn’t extinguish any remedy or right of action not in consistent herewith which it has done in other statutes.

And instead, specifically names the persons who are going to be able to petition the Court.

In this case however, we do not have to rely upon the words of the statute alone because there are some very specific and direct legislative history that goes right to the point before the Court.

In the original draft of the bill, the District Court was given jurisdiction to sue Amtrak, Amtrak alone -- given jurisdiction when there is a suit against Amtrak alone.

Upon petition of the Attorney General or in the case involved in a labor agreement upon petition of any individual affected thereby.

Now, you’ll note two things about that.

First of all, Amtrak alone could be sued and secondly, it didn’t say anything about labor representatives just the employees.

At the hearings which ensue labor representatives came along with ten proposed amendments to the Act.

One of them would have specifically allowed any aggrieved party to bring a suit for violation of the Act.

As labor spokesman said as the Bill now reads, only the Attorney General except in cases involving a labor agreement could bring actions.

Now the Secretary of Transportation who had a good deal to do with this Act in including -- following up on various sections of it, thereupon wrote the committee a letter addressing himself to the various proposed amendments.

And he said, I would oppose -- I would be opposed to permitting any person to seek enforcement of Section 307.

Now thereupon what happen?

This is important because this is not a case oPassengers. f legislative history where we have the committee ignoring people who have submitted views on the contrary.

The committee actually did make specific changes in the bill.

For example, according to following labor’s wish which the Secretary had no objection to; they added specifically that representatives of employees could sue as well as the employees themselves.

Again, following labor’s wish and the secretary thought it was unnecessary but it didn’t oppose it.

They introduced the allowing other railroads to be sued as well as Amtrak.

In other words, not just Amtrak alone but other railroads could also be sued under the Act.

But because of the Secretary’s objection, the committee specifically refused to introduce this concept of permitting all aggrieved persons to sue.

The Secretary had objected to it and the committee left it out and the Bill was passed without it.

It seems perfectly clear to us from this that Congress intended only those parties that were designated in the Bill in the statute to be able to sue.

This case therefore becomes like Switchmen’s Union and Montana-Dakota Utilities and Fleischmann Distilling, and Calhoon versus Harvey and so forth.

The cases where the specific remedies which were mentioned excluded others including suits by aggrieved parties.

In addition however, there are very important policy reasons why Congress left out aggrieved parties and why this Court should not sanction it.

The Secretary of Transportation, the ICC and Amtrak, all were given very unusual authority and responsibility to fashion a workable passenger transportation system in this Act.

For example, this Amtrak is supposed to make a profit eventually even though it was recognized that these various railroads were losing millions on their passenger traffic.

So it is a very complex and difficult job that was fashioned here.

And if anybody can sue the railroad, certain things are clearly going to happen.

For example, even if there’s a single suit in regard to the discontinuance of an important line, you are going to have delays if temporary restraining orders are entered which as our brief shows could cost literally millions to Amtrak.

But even more importantly, if more than one person sues, if suits are brought in regard to a single discontinuance in Alabama and then Georgia, etcetera, you’re going to have the possibility of not only the temporary delays of one case but you’re going to have possibilities of conflict between circuits which are going to unduly delay the discontinuances that are clearly called for by the Act.

This case therefore becomes similar to Halloway versus Brist-Myers which is cited to the Court in our reply brief which interestingly was decided by -- also by the D.C. Circuit but by a completely different panel from the panel that decided the instant case.

And they decided that the private party even though aggrieved does not have a right to sue under the Federal Trade Commission Act.

And the Court specifically pointed out the vexatious litigation that could ensue.

It pointed out to private parties may institute piecemeal lawsuits reflecting disparate concerns and not a coordinated enforcement program.

That same principle is precisely applicable here.

Unknown Speaker: You filed it with reply brief, Mr. Prettyman?

Mr. E. Barrett Prettyman, Jr.: Yes, sir.

And I hope you have it.

Unknown Speaker: I don’t seem to have it here.

Mr. E. Barrett Prettyman, Jr.: I’ll see that you get one, (Voice Overlap) I’m sorry.

Unknown Speaker: Well, I’ll get it if you file this.

Thank you.

Mr. E. Barrett Prettyman, Jr.: It was filed about a week ago.

Finally, to allow brief persons to sue here simply makes no sense if you look at the overall plan of the Act.

Right now, no discontinuances of the basic system are allowed.

They won’t be allowed until July 1 of 1974.

After July 1 of 1974, the Railroad Amtrak if it wants to discontinue a basic service train it has to give 30 days notice.

Thereupon, the Interstate Commerce Commission, if it decides not to investigate under Section 13 (a) of the Interstate Commerce Act that is the end of it.

And this Court has said in City of Chicago that there is no appeal by a private person from that decision not to investigate.

On the other hand, if the ICC does investigate the discontinuance and passes upon it, an aggrieved party can appeal that ruling to the Court.

It seems to us clear that certainly in regard to the basic system, it makes no sense whatever to allow an aggrieved party to bypass this procedure which has been established and to rush in to the District Court with an original suit even before the ICC had a chance to operate.

In other words, so that I’m clear, a notice is given a discontinuance and before the ICC even gets to decide whether it’s going to investigate private party runs into the District Court and brings on original suit and wants to sue because of the discontinuance.

That doesn’t make any sense.

As to the non-basic system track, certainly the Court would not allow a private party, a broader authority to attack the discontinuance of a non-basic system train than it would, a basic system train because Congress has specifically provided right here in the Act that a non-basic system train can be discontinued at any time just with 30 days notice.

That’s all that’s necessary.

And the Congressional will having been expressed that you can discontinue that easily a non-basic service train, it certainly makes no sense to allow an aggrieved person to run into Court and attempt to attack it.

So on all of these grants it seems to us on the basis -- the statutory language as it stands, on the basis of the legislative history which I pointed out where the aggrieved party was specifically left out on the basis of the public interest involved and seen that Amtrak can really operate and discontinue, etcetera and finally on the basis of common sense in the light of the legislative scheme.

We think that clearly that District Court was right in throwing out this case.

I might just add that the Attorney General, the responsible official under the Act agrees with us as expressed both in letters and by the position of the Solicitor General which has been filed before the Court.

The United States agrees that aggrieved parties cannot sue and that the responsible official for bringing lawsuits for discontinuance etcetera is the Attorney General.

I’d like to reserve the remainder of my time unless the Court has questions.

Chief Justice Warren E. Burger: Very well, Mr. Prettyman.

Mr. MacDougall.

Argument of Gordon P. Macdougall

Mr. Gordon P. Macdougall: Mr. Chief Justice and may it please the Court.

My name is Gordon P. MacDougall representing the respondent here, the National Association of Railroad Passengers.

It’s a non-profit corporation, with its principal office in Washington D.C., also joined us on amicus by the National Association of Regulatory Utility Commissioners or the State Regulatory Agencies of the 50 states.

And we support the decision below which held that public -- for a non -- I might say persons other than the Attorney General and labor organizations have a right to enforce legal duties imposed by the Rail Passenger Service Act of 1970.

I might say it’s not in the briefs and all of the reply brief of the petitioner Amtrak was filed I guess about a week ago.

But also the president just a week ago signed a new law, Public Law 93146 which made substantial revisions in Amtrak Act.

Now that PL 93146 was not available as of Friday and hadn’t been printed (Voice Overlap).

Unknown Speaker: Does that have anything in the bearing of this?

Mr. Gordon P. Macdougall: Yes, it makes certain changes in the periods of Section 404.

I don’t think it changes the principles involved in this case.

Unknown Speaker: Well, does the change having the language of that particular statute?

Mr. Gordon P. Macdougall: Yes, it does change the statute.

Yes.

Unknown Speaker: Was was changed?

307?

Mr. Gordon P. Macdougall: It changes a number about seven or eight sections of the statute.

Unknown Speaker: No, but does it -- like any change (Voice Overlap).

Mr. Gordon P. Macdougall: No change in Section 307 (a).

I might say that the Department of Transportation as shown in the appendix to the brief of the petition here.

I have the March 15, 1973 report of the Department of Transportation upon the Amtrak Act with certain legislator recommendations.

And one of the legislator recommendations of DOT was to eliminate judicial review of passenger train discontinuance as Congress did not adopt that recommendation and the extensive amendments which were approved by the president last week do not embrace any changes to section 307 (a) or to the right of persons to take decisions of the ICC and pass the discontinuance cases to Court and for judicial review left -- that part was left unchanged.

The DOT’s recommendations were not followed.

Now the opinion below was 35 pages, it was unanimous and it’s our judgment that the Southern Railway is under illegal duty by virtue of Section 404 of the Amtrak Act to operate in Nancy Hanks Passenger Train between Atlanta and Savannah until at least January 1, 1975, unless it contracts with Amtrak before that time.

And that the discontinuance which took place on May 1, 1971 purportedly under Section 401 (a), one of the Act was in violation of the Act and breached its duty to the public the way every passenger train operating between those two cities.

We, Passengers Association are in the class to be protected by the Act and it is the interest to be protected.

We do not look at the Amtrak Act as being primarily as indicated perhaps this morning as a way for the railroads to unload their passenger trains.

To be sure, there is some wordings in the Committees’ Report particularly the House Committee reports say that certainly some kinds of an Act have to be discontinued but the purpose of the statute was not to discontinue trains but to keep trains in operation to expand trains.

The purpose was to prevent the complete abandonment of service.

The complete corporation was selected to “revitalize real passenger service.”

And that the overriding, the committee said the overriding purpose of this legislation is to preserve and promote intercity rail passenger service.

That the -- we just -- we were very active.

The NARP were very active in getting the Amtrak Act through Congress and we do not look at it as the primary function was to allow discontinuance of trains.

We look at it as to --

Unknown Speaker: Did you make an effort to get a provision in that to give you a right to sue?

Mr. Gordon P. Macdougall: We look at Section 307 (a) as a super section.

But that is that we have the right to sue that 307 (a) was something because this was going to be a quasi governmental corporation too and since the Attorney General might not have the right to go in and sue Amtrak, we look at this is a super section.

Otherwise, to give the Attorney General remedies beyond that which any ordinary person would have or which the Attorney General would otherwise have.

Unknown Speaker: I interpreted your answer to be no, you didn’t make any effort?

Mr. Gordon P. Macdougall: No, we made no effort to put a specific section on judicial review and in fact, there is nothing in the legislative history that shows anything on this other than that the railway labor people, certainly, the railway labor people, AL Chesser of the UTU testified, he said, to the way it looks it appears that the public doesn’t have the right to judicial review, he said it appears.

Attorney Hickey who represented a competing or a rather different Railway Labor Group which Mr. Chesser is not in, the Railway Labor Executive Association, he said, well, look to him that the statute did not allow judicial review.

So he proposed both Mr. Chesser and Mr. Hickey propose amendments that were exactly the same to amend Section 307 (a) on their theory, to get judicial review.

The committee said nothing about it in the report.

The Railway Management opposed Labor’s Amendment and hence, Labor Management didn’t say what they opposed of the amendment.

It just said we opposed.

Mr. Hickey said that to the committee and as soon the tetimony said Railway Management has opposed to it.

Unknown Speaker: Were -- but has nothing to do with your position at all, don’t you?

Mr. Gordon P. Macdougall: No, our position is that --

Unknown Speaker: The opposition is that the language you figured was broad enough and now you’re going to litigate it?

Mr. Gordon P. Macdougall: Well, we --

Unknown Speaker: Instead of asking Congress to include it?

Mr. Gordon P. Macdougall: No, the -- we look at Section 307 which was taken from the Comsat Act.

This was taken as -- what the changes from the Comsat Act.

If we looked at that Section, it has given the Attorney General powers that an ordinary person wouldn’t have.

We felt that we have and there was no need of what we have the right to go to Court.

The Courts have jurisdiction under 1337, 28 U.S.C. 1337.

This is a –- there is no question that the Courts have jurisdiction.

There is no question that under Section 404, the certain duties the railroad has to continue train service unless it contracts with Amtrak.

And we didn’t see any particular need for a specific section just to duplicate 28 U.S.C. 1337, it says you can go to Court.

The Courts do have jurisdiction.

he Owen effect -- what Wolby said, Secretary Wolby came, the title of this Section is by the way “Sanctions.”

He said, Sanctions are normally imposed by the government.

Just consequently he would be opposed to meeting any person to seek enforcement of the Act of Section 307.

As he looked at the Sanctions. something above and beyond judicial review.

And then he said with respect to inclusion of railroads, he said he thinks existing statutes apply to them.

And it says to a certain -- to an extent the corporation is exempt from such statutes or statutory requirements.

The consequent basis I am not sure that would be necessary to make Sanctions applicable to any railroad.

So this is particularly so here for such Sanctions expressly reached “any action practice for policy.”

The corporation has a quasi public character in many respects and the scope of the sanctions with respect to it is appropriate.

What I -- so I turned Section 307 as a super section, to safeguard the public interest because Congress was creating a quasi public corporation.

And I didn’t want to have all the litigation controlled by private parties.

They want to give the Attorney General power to jump in at some times.

I might say that Section 307 doesn’t say that only the Attorney General can bring suits.

It says that the Attorney General is authorized to bring suit and the word authorize comes from the committee report.

The committee report in describing Section 307 said it authorize the Attorney General to go to Court.

Chief Justice Warren E. Burger: Do you think he could have that right if the Act has been silent on the subject?

I don’t think the Attorney General --

Chief Justice Warren E. Burger: Just mentioned the employees and labor organizations?

Mr. Gordon P. Macdougall: You mean if -- I don’t quite get your question Mr. Justice.

Chief Justice Warren E. Burger: Well --

Mr. Gordon P. Macdougall: It's a question if there was a --

Chief Justice Warren E. Burger: Take the attorney’s all references to the Attorney General out statute?

Could he bring the suit?

Mr. Gordon P. Macdougall: I question whether he could.

Under Section 517 of the Title 28 as I -- it says the Attorney General can go to Court to protect the interest of the United States.

It says of -- and it doesn’t say much more than that.

It's kind of a weak section.

It just says that the Attorney General can always go to Court but it doesn’t say what he can do and this question came up during the legislative history of the Comsat Law, Communications Sattelite Act of 1962.

That’s where Section 307 comes from and there was a lot of debate on setting up Comsat.

All of the government research, that they're going to the space program and it wants it’s -- as a result special powers in the Attorney General and therefore I think that if the section had been silent as to the Attorney General, there’s a severe doubt that he could do the things that Congress intended him to because this Section says, Attorney General can go to anything that violates the purposes and policies of the Act.

That’s what it is, purposes and policies.

And it says any threatened action, he can go and get an injunction.

It’s kind of broad.

In fact, there’s some doubt.

The Justice Department has expressed some doubt as to the powers from our brief which is the white covered brief on pages 29 and 30.

Particularly on page 30, we have a letter there -- Mr. Gray, Assistant Attorney General to Congressman Slack which was submitted in the case to which this was consolidated below and they say that Department Justice said that the Attorney General does not have the authority to sue for construction of the Act or to enjoin a purely technical violation rather the authority to sue is granted to protect and enhance the legislative purpose.

And they have a lot of doubt about it and the reason for that is that when the Comsat Section, which is Section 403, Communications Sattelite Act of 1962 was carried over to the Amtrak Section.

A certain phrase was deleted and that was the phrase that allows -- would allow the Attorney General to go for a specific violation of the Act.

That clause reads, “Or if the corporation or any other person shall violate any provision of this chapter.”

None other words, the authority of the Attorney General to go after a violation of any provision was deleted from the Communication’s Act when it was carried over to the Amtrak Act.

And there’s some doubt as to what -- considerable doubt as to what power the Attorney General really has here.

And as a practical matter, the Attorney General has never gone into Court.

We've asked them to do it.

We filed a suit.

NARP did in the fall of 1970 against Union Pacific.

Judge Jones granted an injunction and the railroad withdrew the Discontinuance Act in Kansas City.

It filed another suit in the Supreme of 1971 against the Southern Railway for discontinuance.

Judge June Green gave us an injunction, railroad dropped it.

Both these cases, the Attorney General didn’t come in, we had to do it ourselves.

And there was of course the question of standing at that time.

Justice William H. Rehnquist: Mr. Gordon MacDougall.

Mr. Gordon P. Macdougall: Yes.

Justice William H. Rehnquist: In the Amtrak enabling legislation, do you find the sort of provision that you find in the creation of some Federal Corporations authorizing it to sue and be sued?

Mr. Gordon P. Macdougall: There is a section in the Amtrak Act which when the early section, Section 301, it doesn’t say anything about that.

It just says the corporation is hereby created in Washington D.C.

Section 301 and 302 and I see nothing in it that authorize the corporation to be sued or be sued.

In fact one of the matters raised by the Court of Appeals was, what if Amtrak has to dispute with another railroad, particularly was stick to the amounts due under Section 401 that cause for joining Amtrak and so forth.

What if Amtrak disagrees?

Amtrak is not giving power to sue under Section 307 (a) if you look at it that way.

It just says the Attorney General can do it or Labor Organization, Amtrak or railroad are not covered as plaintiffs the way Section 307 reads.

So that’s why we think that Section 307 is really meant to be a super section to protect (Voice Overlap).

Justice William H. Rehnquist: How about the Savings Clause in 307 that speaks that there’s -- I can’t -- I can’t quote (Voice Overlap)?

Mr. Gordon P. Macdougall: Well, it says they can sue.

They said the District Court has jurisdiction unless otherwise prohibited by law.

Unknown Speaker: That’s a certain Savings Clause and there is also Section B to which allows other remedies beyond the Amtrak Act.

Mr. Gordon P. Macdougall: A part of it, unless otherwise prohibited seems to have come from the Comsat Acts and not to allow the Attorney General to get injunction against labor unions.

It appears to be that’s where it comes in.

Not -- no history about it though when Congress was debating the Amtrak Act.

Unknown Speaker: Mr. MacDougall, ain ordinary circumstances when a railroad wants to discontinue a train, what does it do?

Mr. Gordon P. Macdougall: It goes to either the State Commission or to the Interstate Commerce Commission.

Unknown Speaker: Depending on what kind of a train it is?

Mr. Gordon P. Macdougall: That?

Unknown Speaker: Let’s assume they go into Interstate Commerce Commission.

They have just given notice today?

Mr. Gordon P. Macdougall: If it's a -- the train operates between two states to give a notice.

Unknown Speaker: Give a notice to the Interstate Commerce Commission?

Mr. Gordon P. Macdougall: Right.

Unknown Speaker: And then what happen?

Mr. Gordon P. Macdougall: The ICC, they need to decide as to hold an investigation or not to?

Unknown Speaker: And how long does it have to do that?

Mr. Gordon P. Macdougall: That’s four months.

Unknown Speaker: And the train goes on during that period?

Mr. Gordon P. Macdougall: If the commission institutes an investigation that requires continued operation during that period.

If the train operates wholly within one state which is the Nancy Hanks, it must go to the State Commission.

Unknown Speaker: Yes.

Mr. Gordon P. Macdougall: It must go to State Commission first.

You cannot go to ICC and that is carried over unto the Amtrak.

Unknown Speaker: Now except for the Amtrak Act, would you say you can go directly into the Court prior to any proceedings before the commission?

Mr. Gordon P. Macdougall: Yes, I would say that if a railroad –- well, let’s put it this way, yes in some cases and it depends upon the state law that would govern because the Interstate Section 1381 was an optional statute that go the ICC or go to each state served by the train.

So it will depend on the state law.

Our point is here, apart from that that the Congress said intercity rails passenger service shall be continued if a railroad doesn’t join Amtrak.

There's a positive obligation in the Amtrak Law (Voice Overlap).

Unknown Speaker: Discontinuance are still subject to the same provisions, aren’t they?

You’re going to --

Mr. Gordon P. Macdougall: Not necessarily, only if the train has been operated by Amtrak for more than two years.

Otherwise, Amtrak could discontinue the trains without going to states.

Unknown Speaker: But what about if a --

Mr. Gordon P. Macdougall: Depends upon whether it’s in the basic system.

Trains in the basic system for two years or operated by Amtrak for two years then Amtrak must go through the ICC.

Unknown Speaker: But what about a company railroad makes a contract with Amtrak to operate certain trains.

What about it’s other train?

Mr. Gordon P. Macdougall: Under the statute, the way we construe it, the railroad must contract.

That’s the best our complaint below that they must contract for it with Amtrak for all of their intercity passenger service.

They can’t like the Southern does.

Pick and choose.

Take the profitable lines in Washington D.C. to New Orleans run that itself but let the Nancy Hanks join the subsidiary.

They're joining Amtrak and discontinue that.

The statute says, 401 (a) (1) that the railroad must contract with Amtrak for all of the intercity passenger service operated by that railroad.

Unknown Speaker: Well, do they extent it, there’s any administrative participation in the discontinuance process.

Your position is that you should be able to get into Court before or wholly aside from that?

Mr. Gordon P. Macdougall: No.

Where it -- no, where the -- as the administrative procedure, that should -- has to be followed but the Amtrak could discontinue trains apart from the administrative procedure, trains operated less than two years.

Unknown Speaker: What about this train?

Mr. Gordon P. Macdougall: This train was not subject to the ICC at all.

Unknown Speaker: It was subject to what?

Mr. Gordon P. Macdougall: It was subject to if the Southern had contracted for all of the intercity passenger service then it could give notices effective May 1, 1971 to discontinue all their intercity passenger service without any intervention by the ICC.

In fact, that’s what happens throughout the country.

Unknown Speaker: Well, what about, was this Nancy Hanks, what was it subject to?

Mr. Gordon P. Macdougall: It was subject to the Georgia Public Service Commission because it operated wholly within Georgia.

Unknown Speaker: Did the railroad give notice there?

Mr. Gordon P. Macdougall: No, it didn’t have to because under its theory it was contracting with Amtrak and thereby was able to just give a notice on May 1, they would discontinue the trains.

Unknown Speaker: To whom?

Mr. Gordon P. Macdougall: To the public.

To give a notice to the public and file it with the ICC.

And the ICC says --

Unknown Speaker: Could the ICC have stopped it if it wanted.

Mr. Gordon P. Macdougall: No.

The ICC issued regulations in March of 1971 saying that they do not have jurisdiction to stop it.

It was just a filing for notice provision, that’s all.

Justice Thurgood Marshall: But there is an interstate train involved in this case, isn’t it?

Mr. Gordon P. Macdougall: Yes, there is inter and intrastate trains.

Justice Thurgood Marshall: Well, the interstate train, is it before the ICC?

Mr. Gordon P. Macdougall: No.

There were no provisions to --

Justice Thurgood Marshall: I thought you said you have to give notice?

Mr. Gordon P. Macdougall: Today, today now.

If we are to have a discontinuance today -- today that is and of course these other railroads on operating trains today it’s mostly Amtrak just a few railroads operating today.

If the Southern works are discontinued today, they'd have to go to ICC.

So with Amtrak unless it's a train of Amtrak is not operated for two years.

Justice Thurgood Marshall: In this particular one that’s in this case, are they required to go to the ICC or not?

Mr. Gordon P. Macdougall: No, they were not.

Justice Thurgood Marshall: Then are they not required by law?

Mr. Gordon P. Macdougall: No.

Even if they -- even if it had been proper.

Justice Thurgood Marshall: Why not?

Mr. Gordon P. Macdougall: Why not?

Because when the Amtrak Act was passed, if they followed certain procedures in the Amtrak statute they were allowed to discontinue the train.

Now if the Southern Railway contracted for all of its intercity service with Amtrak then the Southern was allowed by the statute to follow notice to discontinue the service.

Justice Thurgood Marshall: Notice with whom?

Mr. Gordon P. Macdougall: With the governors of all the states and with the ICC and post it at all of the stations.

Unknown Speaker: But that service would be picked up by Amtrak?

Mr. Gordon P. Macdougall: No, no.

It hasn’t been.

No.

It would not be.

You see, there were 527 intercity trains before May 1, 19-- there are some disputes how many -- 527 intercity trains.

The Railroad was supposed to notice to discontinue all of them except those who didn’t join Amtrak and then Amtrak decided which ones to operate and operate its own service.

Unknown Speaker: So who did the discontinuance?

Mr. Gordon P. Macdougall: The Railroads.

This suit is primarily against the Railroad (Voice Overlap)

Unknown Speaker: Amtrak also made the decision, isn’t it?

Not to operate?

Mr. Gordon P. Macdougall: Yes, Amtrak only decid -- well, Amtrak didn’t have complete freedom.

Amtrak had to operate the basic system service plus service above that which they wanted to operate.

Unknown Speaker: Could they count -- could Amtrak have operated these trains if it wanted to?

Was this train covered by the contract?

Mr. Gordon P. Macdougall: This -- Amtrak did not contract for any service to be maintained by the Central of Georgia Lines of the Southern?

Unknown Speaker: Well, no, yes.

Could Amtrak would like to operate on these trains if it wanted to?

Mr. Gordon P. Macdougall: I would think Amtrak -- if the contract was valid with there Southern Railway System.

It could, yes.

It could have operate it.

Made an agreement with the Central of Georgia to operate, yes.

Unknown Speaker: It could have but it didn’t?

Mr. Gordon P. Macdougall: It didn’t.

Right.

We’re not -- we’re assuming that on the ground that Southern has to have all of its service.

Unknown Speaker: All or nothing?

Mr. Gordon P. Macdougall: All or nothing.

Unknown Speaker: I’m a little confused Mr. MacDougall.

Is it your position that assuming your basic premise, namely that it have to be all or nothing.

Mr. Gordon P. Macdougall: Right.

Unknown Speaker: Since it was not, but then Southern or Central Georgia, it’s wholly on subsidiary, may not discontinue the Nancy Hanks unless Southern does what?

Mr. Gordon P. Macdougall: No, it must -- the Nancy Hanks must not be discontinued until January 1, 1975 by Section 404 of the Amtrak Statute.

Unknown Speaker: Well, but if it wants to discontinue -- oh! You mean that’s not prohibition?

Mr. Gordon P. Macdougall: Absolute prohibition.

It can’t discontinue by State Law, ICC or anything unless through the Southern Railway.

The Southern Railway if we assume they could -- not contract for their -- to Amtrak for their New Orleans to Washington D.C. train, the Southern Railway cannot discontinue that train until January 1, 1975.

Unknown Speaker: Unless meanwhile may they contract with Amtrak?

Mr. Gordon P. Macdougall: Unless it decides --

Unknown Speaker: To cover all of the –-

Mr. Gordon P. Macdougall: Yes, right.

That’s a specific obligation on the public.

I mean on the railroads it must maintain the service to the public until January 1, 1975.

Unknown Speaker: That took it out you say of the regular discontinuance?

Mr. Gordon P. Macdougall: Yes, it made an affirmative duty on the railroad, an affirmative right from the railroad passenger to get that service to January 1, 1975.

It cannot discontinue andyu transport --

Justice Thurgood Marshall: Enunciates -- running now?

Mr. Gordon P. Macdougall: Nope.

Justice Thurgood Marshall: Where is it?

Mr. Gordon P. Macdougall: I really don’t know.

Its --

Unknown Speaker: Discontinued.

It's been -- it was discontinued.

Justice Thurgood Marshall: How are you going to start to run again if you don’t know where it is?

Mr. Gordon P. Macdougall: Well, the Southern Railway has the equipment to run the train.

Unknown Speaker: I’m pretty sure they do have the trains in this (Inaudible).

They're operating their own train service between Washington and --

Justice Thurgood Marshall: You're talking about the Nancy Hanks.

Mr. Gordon P. Macdougall: Yes.

Justice Thurgood Marshall: You don’t even know where the engine is?

Mr. Gordon P. Macdougall: [Laughter attempt] I think -- I really don’t know.

I really don’t know where it is.

Its part of -- I just don’t know who discontinued and if we basically (Voice Overlap).

Justice Thurgood Marshall: If its all that it need, that you have to go find the Nancy Hanks and if you told it (Inaudible)?

Mr. Gordon P. Macdougall: Well, the Southern –- it doesn’t that way to have a pool of equipment of diesel equipment and a pool of coach cars.

I don’t think and in fact there is a surplus now if railroad coaches and railroad equipment and I don’t think there’s any difficulty in restoring that one train should -- would be entitled to.

Justice Thurgood Marshall: I don’t agree with you though. (Inaudible).

Unknown Speaker: Mr. MacDougall you’ve been very responsive and very informative in your answer to questions from the bench about the merits of your claim.

But, do you agree with your Brother, Mr. Prettyman that the merits of your claim aren’t here at all, that what we have here is just the meaning of Section 307?

Mr. Gordon P. Macdougall: Right.

You’re having here whether --

Unknown Speaker: Whether or not you have the right to --

Mr. Gordon P. Macdougall: Right to go to court to assert a duty which still the Railroad owes --

Unknown Speaker: You would agree with him if that’s the only issue?

Mr. Gordon P. Macdougall: Yes, the lower court assumed the validity of our position and one under the --

Unknown Speaker: For purposes of this issue?

Mr. Gordon P. Macdougall: Right.

I'll point out to you that the -- there’s no structure within the government, within the Attorney General’s Office for making any decision as to whether to go to Court or not.

In fact, if you look at page 42 (a) -- 43 (a) of the petition for cert which is a very dark blue document.

What the Attorney General does is it gives to Amtrak, in this case to Mr. William O. Bittman who was the attorney for Amtrak in this case.

He is to Mr. Bittman the authority to raise the question or if he wants him or not.

When the Attorney General does decide to go to Court -- as indicated in the petition for cert.

They just tell Amtrak, well, if you want raise it for the judge you can and here’s your authority to speak on behalf of the Attorney General.

There is no section on -- to enforce the Amtrak law within the Department of Justice.

There is no framework of expertise as a letter of a certain Attorney General Gray which I pointed out in page 30 of our brief -- 130 of our brief says, DOT has the expertise.

Department of Justice doesn’t have any expertise on this.

There’s no statutory framework or administrative agencies such as we have on the Halloway case which was cited to us this morning.

And if there isn’t a right to go to Court there is just as not going to be anyway to -- for us to have our rights asserted.

There is no way.

The Attorney General is not qualified.

All it does is delegate to the attorney for the Amtrak to represent the position of the government and there is nothing in the legislative history to show why a committee.

The next it was a sub-committee of the house.

Why the sub -- it rejected Labor’s Amendment, Labor’s Amendment would've gone further and ask for right for damages and other things and the only thing that go -- the way we look at it is that, this section was to be a super section.

A section to authorize the Attorney General to go into Court because there are important interests of the government at stake in setting up the Amtrak Act.

There's a lot of money involved.

It was a quasi public thing.

The president appoints all the directors and that this required special public attention, special standing for the Attorney General.

The last thing I like to say is that, allowing access to Court will not frustrate the statutory purpose.

It counts from the petitioner said that the -- this one single train that’s continued why it’s going to be disaster.

What Congress assumed that sometimes Amtrak would not be allowed to discontinue a train that Amtrak wanted to discontinue?

They contemplated Amtrak might lose a case here or there.

And there’s just as the only way to allow the purposes of the Amtrak Act to be fulfilled is to allow private suits we feel.

I made a lot of argument in their brief on adequacy of services while forgetting discontinuances.

What about people who have complaints as to meal service, private cars, reservation proceeding -- procedures, no smoking sections and so forth.

Can anybody to go to Court on that.

Well, the answer is the Amtrak Act by Section 801 has said you go to the ICC on that.

They say the ICC shall set the standards so there’s no danger from inadequacy of service standpoint that they are going to be a multitudes of suits.

The real thing is --

Justice Thurgood Marshall: You're telling me the ICC is on that duly?

Mr. Gordon P. Macdougall: Yes, they do.

Justice Thurgood Marshall: Why?

Mr. Gordon P. Macdougall: They -- in the Amtrak Act Section --

Justice Thurgood Marshall: Aren’t the private suits going to take over all of that?

Mr. Gordon P. Macdougall: No, the Amtrak statute says for adequacy of service.

The ICC is obligated to set up the regulations and also that section was one of those amended last and is known part of Public Law in 93146.

So as to the standards of service and everything, there is a procedure and that’s the ICC, was put in there.

So really what we’re talking about is discontinuances and allowing private suits will enhance the statutory scheme.

There simply is no remedy elsewhere.

There is no staff at the Department of Justice.

Unknown Speaker: What if a locality wants a railroad to continue or the Amtrak to continue some local service but Amtrak doesn’t want to continue and the Amtrak says, well, you can pay for our lawsuits?

Mr. Gordon P. Macdougall: That’s one of the options.

Unknown Speaker: And what if they get into an argument about that, where is that argument to be settled?

Mr. Gordon P. Macdougall: The statute is as clear -- if they have a case, they can file it in Court but that would have to be --

Unknown Speaker: That provision specifically provides?

Mr. Gordon P. Macdougall: No, it does not.

They'd have to go to court and say -- point to some of sections of the Amtrak Statute that gives -- that makes Amtrak is a duty upon Amtrak to provide certain service to a community on a certain circumstances.

It have to point to where the Amtrak Statute makes a duty on Amtrak to do something.

Unknown Speaker: Well it does make a duty -- put a duty as long as the locality is willing to pay for the lawsuits?

Mr. Gordon P. Macdougall: That’s right.

There is a duty in that.

Right.

Unknown Speaker: And --

Mr. Gordon P. Macdougall: And if Amtrak didn't do it, presumably they would -- that they wold go to court and say Amtrak is in violation of the statute.

Unknown Speaker: No administrative --

Mr. Gordon P. Macdougall: There is on that -- I believe in that there's a provision for arbitration by the Department of Transportation.

I’m not sure there is a section on that.

Section 403 (Voice Overlap)

Unknown Speaker: Without exhausting that you wouldn’t think you could go right in the Court, don’t you?

Mr. Gordon P. Macdougall: I would think it have to -- in any time, you go to Court you have to exhaust.

Unknown Speaker: But you say there’s nothing to exhaust in your –-

Mr. Gordon P. Macdougall: And ours is not because these are the discontinuances that came effective May 1, 1971 when the railroad posted 527 intercity trains.

We thought there were only 360.

There’s a question of what is an intercity train, what’s a commuter train, that is one issue now on the Courts.

Other issue is did the Southern Railway contract for all of its service, did they or did they not?

And there’s no remedy administered to remedy for that and there’s no remedy in the Department of Justice.

We tried mandamus in one case and mandamus is not the remedy either.

Chief Justice Warren E. Burger: Thank you Mr. MacDougall.

Do you have anything further Mr. Prettyman?

Rebuttal of E. Barrett Prettyman, Jr.

Mr. E. Barrett Prettyman, Jr.: Yes, sir.

Indulge just a moment because --

Unknown Speaker: I am little confused Mr. Pretyman (Voice Overlap) precisely what role now the ICC or the other state agencies play?

Mr. E. Barrett Prettyman, Jr.: Yes sir, I thought perhaps --

Yes, I’ll answer that and track it through for you if I may just quickly refer Mr. Justice White to 403 (b) sir, there is a specific provision if the community and the railroad and Amtrak can’t reach an agreement, it goes to the Secretary of Transportation forum.

Now let’s go back before the Act was passed and follow this through.

And Mr. Justice White raised the key question here, this Act is not cutoff a right which was a prior right which existed before.

Before this Act was passed, in so far as the Nancy Hanks wan concern, a party could not go to the Court.

He would do one or two things.

If the Nancy Hanks -- the Railroad wanted to cutoff the Nancy Hanks, they would go first if they wanted to to the state, the Public Service Commission of Georgia.

If they didn’t’ get relief there, they could go under 13 (a) 2 before the ICC.

He could not -- a private party could not go to Court.

He could bring a complaint before the Public Service Commission or the ICC.

But if the ICC decided to do nothing about it, as Mr. Justice Douglas said for the Court in the City of Chicago, it was no right of appeal of that decision.

So before the Act in terms of an intrastate train like the Nancy Hanks, the procedure was administrative and you went to Court only if the ICC took the matter or passed upon it and decided for example that it wasn’t going to discontinue, then and only then there was a right to review.

Now in terms of trains 13 and 14 which were interstate, what happened before this Act was that again the private party could make a complaint to the ICC.

The ICC, if it decided not to investigate, that ended the matter.

If it decided to investigate and pass on the merits then there was an appeal to three-judge District Court.

So this Act didn’t cutbakc -- cutoff a right which existed before.

This Act substituted a slightly different system.

Now here’s what happens under the Act, if it is a basic system train --

Unknown Speaker: One designated by the Secretary?

Mr. E. Barrett Prettyman, Jr.: Exactly, designated as part of the basic system which means that it is essential to our transportation needs in passenger train.

If it is part of that, no discontinuances can take place until July 1, 1974, none.

After July 1, 1974, if they want to discontinue a train, they go pursuant to 13 (a).

And they go before the ICC and they file their notice and the ICC either decides to do nothing, let it be discontinued in which case as this Court has said there is no appeal or it decides to investigate.

It makes the decision on the merits and then there is the normal appeal through the Court.

Now as to excess trains, that is trains which are not part of the basic system.

And this would've affected the trains involved in this case.

They weren’t part of the basic system.

They were purely excess train.

In so far as those trains are concern, they can be discontinued at anytime with two exceptions.

There has to be a 30-day notice to alert the public so they can make their plans and so forth.

Or if the train is operated continuously by Amtrak, picked up by Amtrak and operated continuously for two years, it becomes part of the basic system and then everything it relates to the basic system.

Unknown Speaker: But otherwise all it’s required to discontinue was the notice?

Mr. E. Barrett Prettyman, Jr.: Is the notice and that shows Congress’ clear intent you see, as I indicated before, it recognized that there has to be still some more paring to get down to (Voice Overlap) what we can support.

Unknown Speaker: You were saying, when this is a Nancy Hanks, it was just a notice, 30-day notice; you agree apparently that no administrative agency could stop it?

Mr. E. Barrett Prettyman, Jr.: Exactly and sir, let’s assume --

Unknown Speaker: Well, excuse Mr. Prettyman is this -- is there an expressed exception from the Section 13 procedures?

Mr. E. Barrett Prettyman, Jr.: Yes, sir.

Unknown Speaker: In other cases?

Mr. E. Barrett Prettyman, Jr.: Yes, sir.

If you look at 14 -- look at 404 (b) (2).

Unknown Speaker: Oh! Where is that?

Mr. E. Barrett Prettyman, Jr.: Well, unfortunately Mr. Justice ,I’m most apologetic, we don’t give you the entire statute in our briefs which we should have.

Unknown Speaker: What if there is not 4--?

It’s 4 -- Section 404 (b) (2).

I was not in the case originally and I --

Unknown Speaker: (Inaudible)But with respect to the train involved in this case there were no administrative remedies to be solicited or (Voice Overlap) to go primary jurisdiction of any administrative agency?

Mr. E. Barrett Prettyman, Jr.: Congress didn’t want any.

No.

Unknown Speaker: Only the notice would (Inaudible)?

Mr. E. Barrett Prettyman, Jr.: Yes.

Unknown Speaker: Do you have the pertinent provision of 404 (b) (2) before you?

Mr. E. Barrett Prettyman, Jr.: Yes, sir.

Would you like me to read it to you?

Unknown Speaker: If you don’t mind?

It does take a long time to find it.

Mr. E. Barrett Prettyman, Jr.: Sure, 40 (b) --

Yes.

404 (b) (2) says, “Except as otherwise provided in this paragraph and in Section 403 (a)”, that would relate to the two trains -- for the trains operated for two years, “service beyond that proscribed for the basic system undertaken by the corporation upon its own initiative may be discontinued at anytime.

No such service undertaken by the corporation on or after January 7 -- January 1, 1973, this is now as amended, shall be discontinued until the expiration of a one year period beginning on the date of the enactment of the sentence.”

Originally, they could simply be discontinued at anytime when this was amended.

In 1973, they put a one year cut Your Honor.

Chief Justice Warren E. Burger: Is that what you call the excess service?

Mr. E. Barrett Prettyman, Jr.: That’s the excess service, yes, sir.

In other words, let’s assume that instead of these trains being discontinued when the Act came into effect, let’s supposed that Amtrak would pick them up which it could have done and answered to your question sir.

The Amtrak could have decided even though they weren’t part of the basic system to operate the Nancy Hanks in Trains 13 and 14.

If it had decided to do so and it has operated a number of trains in excess to the basic system then this would come into play and it would be operating them.

If they -- if it operated them for two years, they became part of the basic system.

If they were not part of the basic system and they wanted to discontinue then this Section would come into play.

Unknown Speaker: And if they never pick them up at all?

Mr. E. Barrett Prettyman, Jr.: Then the --

Unknown Speaker: They'll use that notice if that --

Mr. E. Barrett Prettyman, Jr.: In this case, it was just prior to April 1, 1973 -- 1971 and the Central of Georgia gave the notice that on the effective date, April 1, 1971, the trains would be discontinued pursuant to 404.

You see, the statute allowed as the April 1, 1971 was the date under the Act when the discontinuance thence forth could take place if they were not part of the (Voice Overlap).

Unknown Speaker: (Inaudible) As you read that Mr. Prettyman, I detect no expressed reference to an exception from the Section 13 procedures.

Not in terms at least to it.

There’s no reference to Section 13?

Mr. E. Barrett Prettyman, Jr.: That is correct.

And that is because if you look at the way the Act is set up, it is pure dichotomy between basic system trains.

Unknown Speaker: Where is the provision for a 30-day notice?

Is that in the section or some other?

Does the 30 days apply to these trains?

Mr. E. Barrett Prettyman, Jr.: It would apply to these trains, that is if –-

Unknown Speaker: Where is that?

What section is that?

Mr. E. Barrett Prettyman, Jr.: Well, 401 I believe that this is --

Unknown Speaker: Is this not a simple Act, is it?

Mr. E. Barrett Prettyman, Jr.: Sir, it’s a very complicated Act, it certainly is.

Well, 13 (a) (1) provides that any Railroad discontinuing a train here under must give notice and accordance with the notice procedures contained in 13 (a) (1) of Title 49 and that is the 30 days.

The ICC has interpreted that not as calling the ICC into it but simply as meaning that --

Unknown Speaker: Then give notice?

Mr. E. Barrett Prettyman, Jr.: That they give the notice provided in 13 (a) which happens to be --

Unknown Speaker: Well, the ICC has decided they have no jurisdiction to stop the discontinuance of excess?

Mr. E. Barrett Prettyman, Jr.: Of excess, but they’ve already definitely do in terms of the basic system.

Unknown Speaker: What about local agencies are they (Inaudible)?

Mr. E. Barrett Prettyman, Jr.: No sir, because there is a provision I think its 802 which says, that no discontinuance of any train can be made anywhere except pursuant to this Act.

In other words, that the procedures in the Act must be followed as to all trains throughout United States.

The main point though Mr. Justice is that if you go back before the Act, you will find that there was simply no right at any time just to go directly in the Court prior to the state agency or the ICC having that and that is precisely the situation that they are trying to get around now by saying they can come in before the ICC or anybody else even offered?

Unknown Speaker: Or they can come in even though the Attorney General does not?

Mr. E. Barrett Prettyman, Jr.: Yes.

Unknown Speaker: The Attorney General like the agency might decide not to intervene?

Mr. E. Barrett Prettyman, Jr.: Well, yes.

The Attorney General -- it's not quite the picture painted here.

The Attorney General has been investigated in tremendous number of complaints.

It has one right now involving the Penn Central that the Attorney General is investigating and while there had been no suits, the Department of Justice has a man who follows this carefully.

There are continuous reports to the Congress, to the Secretary, to the President about the operations and he exercises a very diligent role in this matters.

Justice William H. Rehnquist: Mr. Prettyman, what if the operator of an excess train simply discontinues it without giving the 30-day notice?

Does anybody have any remedy?

Mr. E. Barrett Prettyman, Jr.: Then the Attorney General, I’m sure is authorize to bring suits under the act could go in and perhaps the ICC itself.

I don’t know.

But if he wouldn’t -- since he would not be following the Act -- Let me answer it this way.

Since the Act specifically provides for the 30-day notice and since he would be in effect disobeying the Act then the Attorney General would have the obligation to go in and make sure that the 30-day notice was given.

Justice William H. Rehnquist: Just as he presumably does in the respondents case here if the respondents are right on the merits?

Mr. E. Barrett Prettyman, Jr.: Exactly.

And he looked at this and decided that they were owrong.

Thank you very much.

Chief Justice Warren E. Burger: Thank you gentlemen.

The case is submitted.

Featured:

Atchison, T. & S. F. R. Co. v. Wichita Bd. Of Trade - Oral Argument

Thu, 23 Aug 2012 18:24:18 +0000

Case:

Atchison, T. & S. F. R. Co. v. Wichita Bd. Of Trade

Media File:

72-214_19730228-argument.mp3

Related Transcript:

72-214_19730228-argument

Transcript:

Argument of Earl E. Pollock

Chief Justice Warren E. Burger: We'll hear arguments next in 72-214, the Atchison, Topeka & Santa Fe Railway against the Wichita Board of Trade, and 72-433, Interstate Commerce Commission against the Wichita Board of Trade.

Mr. Pollock, you may proceed.

Mr. Earl E. Pollock: May it please the Court.

Within the past year, this is the third case to come before the Court, arising out of efforts to release the critical shortage of freight cars on the nation's railroads.

The other two cases Allegheny-Ludlum and Florida East Coast involve rules and rates intended to discourage delay in returning cars.

This case involves railroad charges intended to discourage the in-transit inspection of grain and in that way reduce the wasteful use of cars.

The new tariffs were published by the railroads almost exactly three years ago to become effective on March 28, 1970, but before the effective date, the Interstate Commerce Commission, acting under Section 15(7) of the Act suspended the charges for the maximum seven month period provided by the statute.

The suspension was voluntarily extended by the affected railroads for an additional six months.

The charges were finally put into effect in May 1971.

After extensive hearings, the Commission found that the charges were just and reasonable and also found that the charges would make a substantial contribution to the improvement of the national freight car supply.

The District Court, the court below, set aside the Commission's order, in addition without any request by the plaintiffs to grant such relief, without any discussion of its authority to grant such relief, without any finding of irreplaceable injury, and indeed without any injunction findings whatsoever.

The District Court suspended the charges which are then been in effect for over a year.

Thereafter, this Court entered and ordered which stayed the judgment below and which permitted the rates to go back into effect.

My co-counsel, Mrs. Christian, Associate General Counsel of the Commission will present the position of the appellants and the United States on the District Court's suspension of the charges, while my argument will deal with the District Court's decision on the merits of the Commission's order.

These tariffs imposed charges for interrupting grain shipments for the purpose of in-transit inspection.

This service involves stopping a car loaded with grain while it is already en-route, switching the car to a separate track at a few locations in the country, where the car is held for sampling and grading of the contents, waiting for disposition orders from the shipper or his consignee after he receives the results of the inspection, and then eventually switching the car back into the regular line-haul movement.

The car delay resulting from this practice amounts on the average to more than three days for each and every inspection.

Now this delay can readily be avoided by having the inspection, if an inspection is desired, made either at the point of origin or at the point of destination after delivery, or by omitting the inspection altogether as it's frequently done.

Historically, the nation's railroads have made separate charges for providing in-transit inspection service, but in the western district, unlike the east which has been doing this since 1963, these charges previously applied, although with a number of various substantial exceptions, only to the second and subsequent inspections on any one grain shipment.

The first inspection in other words, was in the western district provided without additional charge.

This extraordinary practice grew out of a legal requirement which no longer exists.

Until five years ago, the inspection of interstate grain shipments was required by Federal Law, but in 1968, Congress repealed this requirement.

At the same time, the Congress authorized inspection on the basis of so called submitted samples.

The result of these changes in the law is that under the law at present, any shipping point in the country can also be an inspection point.

The --

Justice Potter Stewart: Under the former requirement that the inspection have to take place while the grain was in in-transit?

Mr. Earl E. Pollock: No, Mr. Justice Stewart, it did not have to be done while it was in transit, but as the Commission pointed out because of prior practice and because of convenience, the practice of in-transit inspection of grain continued.

Justice Potter Stewart: So it wasn't a requirement?

Mr. Earl E. Pollock: It was not required and in fact, one of the principal reasons for the Commission's decision in this case is to stimulate the grain trade so as to depart from this practice in the light of the Commission's findings that in-transit inspection is by no means essential.

Justice Potter Stewart: but it wasn't essential, as you just told me, under the old law?

Mr. Earl E. Pollock: That's right, that's right.

It could have been done the other way but it was not.

The court below found with respect to this 1968 repeal that the primary purpose of the Congress was to affect an increased utilization of rail cars.

Nevertheless, in-transit inspections continued in very large numbers even after the repeal, amounting in 1969 to over or almost half a million inspections in just the western district alone.

Now faced with this situation and an increasingly critical car shortage, the western railroads responded by publishing the tariffs which are challenged in this case.

These tariffs imposed essentially the same charge for the first in-transit inspection that previously applied to the second and subsequent inspections.

The tariffs of course apply only to grain shipments which are inspected while in-transit.

There is no charge if the shipment is inspected at origin or at destination after delivery or if inspection is avoided altogether.

And before the Commission, the railroads even expressed the hope that they would not have to collect one single cent of these charges because the purpose was to avoid the inspections and not to raise revenue.

The Commission summarized this decision of holding the charges in four chief findings.

First of all, the Commission found that because of the repeal in 1968 and because of other evidence in record, in-transit inspection is no longer essential to the orderly marketing of grain.

The Commission found instead that this service was entirely optional with shippers and their consignees, and that the basic responsibility of the railroads with respect to transportation does not require them to provide this service.

Justice William H. Rehnquist: Does the basic impetus Mr. Pollock for these inspections come from the consignee or the shipper?

Mr. Earl E. Pollock: Primarily, the consignee and indeed primarily from the grain exchanges which are the principal plaintiffs in this case.

Indeed there is a considerable economic advantage to these grain exchanges by virtue of the in-transit inspection of grain, since if the shipment is made to a particular point for the in-transit inspection, at that point the grain merchants in that particular area have in fact a captive market with respect to that grain shipment.

The grain being there, it then becomes exceedingly difficult for reconsignment of that grain to a distant market or to a market which would require a back call on the transportation and indeed this is the -- it is this kind of dislocation, particularly among the grain dealers and the grain exchanges which has brought forth the principal opposition to these charges.

In other words, the Commission found that this service was purely an accessorial service, it was a special service and it was quite like a service, for example, that was needed for delivery of the goods.

Second, the Commission sustained the reasonableness of the combination of the line-haul rate and these inspection charges.

The Commission pointed out that under the Terras, the aggregate charges could never exceed the maximum reasonable level determined by the Commission and the Commission reaffirm the vitality of the maximum level, pointing out that there was probably no segment of the country's railroad freight structure that had been reviewed more frequently and intimately than the one that has application to the movement of grain.

Third, the Commission found that the inspection charges themselves, are just and reasonable because they were less than the cost of the service to the railroads.

And fourth, the Commission found that the charges would materially increase car utilization and that elimination of in-transit inspection of grain would increase the number of available freight cars by several thousand annually.

The Commission retained jurisdiction to determine whether any funds derived from these charges should be used to upgrade the railroad freight car fleets and for this purpose, the Commission ordered the railroads to file periodic reports showing just what was the actual operation of these charges.

These reports dramatically confirm the effectiveness of these charges in reducing the volume of in-transit inspections.

They also serve to demonstrate, as the Commission found, the purely optional elective nature of the in-transit inspection service.

The report show that the frequency of such inspections before the charges became effective was nearly two-and-a-half times higher than the frequency afterwards.

Stated otherwise, there is already been, in the short time of these charges have been an effect, a 60% reduction and the frequency continues to decline because of the economic incentive which these charges provide.

The most recent report shows that there was only about one in-transit inspection for every five grain shipments.

The Commission's findings were sustained by the District Court as supported by substantial evidence, but the court satisfied the Commission's order on the sole ground that the Commission did not adequately explain what the court viewed as a departure from an allegedly long-established Commission doctrine.

The court based this conclusion not on the Commission's findings, but instead on an expressly secondary reasons cited by the Commission for distinguishing a 1969 decision by the Commission.

Entirely, on this very slim read, just four sentences taken out of a 43-page report, four sentences, constituting little more than a dictum, the court below held that the Commission had adopted what the court called an evidentiary rule which is discriminatory per se and that the Commission had thereby departed from its prior decisions which require consideration of the reasonableness of the aggregate charges in these service cases.

Justice William O. Douglas: What did they say about the Arrow case?

Mr. Earl E. Pollock: It said absolutely nothing, Your Honor.

There is not one word in the court's decision concerning Arrow or its authority to grant that relief.

The only thing that appears in the opinion is that in the very last sentence of the opinion, Mr. Justice Douglas, after the court sets aside the order, it adds a sentence saying that the charges are suspended until further notice and permission of this Court.

There is no reference at all to this very important Arrow issue which my colleague Mrs. Christian will be dealing with in greater detail.

Justice Byron R. White: Well, what if -- what if the District Court had held the findings of the Commission were not supported by substantial evidence and set them aside?

Then on the -- could it have enjoined the rates under Arrow or not?

Mr. Earl E. Pollock: No Your Honor, because all that we would have in that case would be a situation where the Commission had intervened with respect to carrier made rates and the entire seven month period of suspension had expired.

Justice Byron R. White: You say that the only -- that the only -- that the only, the thing was suspend the rates once the seven months is expired, is a finding by the Commission, that they were unjust and unreasonable?

Mr. Earl E. Pollock: That's right, that's what the --

Justice Byron R. White: What happens when the court sets aside a Commission's finding that they are just and reasonable?

And a court sets them aside, what happens to the rates?

Could the Commission just sit there and lead the rates in --

Mr. Earl E. Pollock: The matter would then go back to the Commission for consideration of the alleged error pointed out by the District Court.

Justice Byron R. White: But until and unless they find the rates unjust and unreasonable, the rates stand to affect?

Mr. Earl E. Pollock: That's right.

That has --

Justice Byron R. White: In the court, the Commission can just the bat the ball back and forth forever?

Mr. Earl E. Pollock: No, it isn't quite like that, Your Honor.

As it was planned out in the Arrow decision itself and as Mrs. Christian will deal with in greater detail.

Justice Byron R. White: Sorry, I didn't mean to --

Mr. Earl E. Pollock: No, that's quite alright, Your Honor, I would like to answer that immediately, that is the Congress provided two very specific remedies for that situation.

It dealt with that situation.

It provided number one, a reparations remedy by which any unjust charges can be collected and second it authorized the Commission to institute an accounting and refund order whereby --

Justice Byron R. White: Why would the Commission ever do it if it didn't agree with the court?

Mr. Earl E. Pollock: It would be again within the matter of the discretion of the Commission to grant such relief, Your Honor, while it is considering whether the court's order is appropriate.

Justice Byron R. White: Yes, but it couldn't enjoin the rates -- enjoin the rates, could it after --

Mr. Earl E. Pollock: It can set aside the rates.

Justice Byron R. White: Could set aside the rates?

Mr. Earl E. Pollock: Yes, it can set aside the rates.

Justice Byron R. White: But it couldn't do that except upon of finding of just and reasonable?

Mr. Earl E. Pollock: That's right.

That's right, but that's exactly the structure that was set up and the delicate balance which was established by Congress and I am sure Mrs. Christian will spell that out even more thoroughly.

I find that my time is up and I am sure that Mrs. Christian will deal further with that issue.

Chief Justice Warren E. Burger: Mrs. Christian?

Argument of Betty Jo Christian

Ms Betty Jo Christian: Mr. Chief Justice and may it please the Court.

As Mr. Pollock has stated, my argument this morning will be devoted to the second issue presented by this case.

That is even assuming that the District Court correctly reversed the Commission's decision on the merits and remanded the case to the Commission for further proceedings did it nevertheless act beyond the scope of its power in ordering that that the rates themselves be suspended unless and until otherwise ordered by the court.

On this issue, I am speaking on behalf of both the United States and the Commission.

It is our position that the order of the court was beyond the scope of its powers.

Mr. Pollock has already stated the facts related to the suspension issue and I will not repeat them in any detail.

Briefly these rates went into effect on May 4, 1971, and they remained in effect until the Commission had issued its original decision and during the entire pendency of this judicial review proceeding.

It was after a year later, in May of 1971 –1972, the District Court issued its opinion, reversing the Commission's decision and setting aside the rates.

It is this portion of the order, that we believe is beyond the scope of the court's power.

The solution of this issue turns on Section 15(7) of the Interstate Commerce Act as interpreted by this Court in 1963 in Arrow Transportation Company against Southern Railway.

Under Section 15, the right to initiate changes in their rates is essentially a matter for the managerial discretion of the carriers.

The Commission is empowered to declare the rates unlawful only after full investigation.

The only other limit upon the carrier's right to initiate changes in their rates is the provision of Section 15(7) which authorizes the Commission in its discretion to suspend the rates for a maximum period of seven months.

The statute explicitly provides that if the proceeding has not been completed at the end of the seven month period, the rates “shall go into effect.”

In the Arrow case, this Court was faced with a question of whether a District Court would have jurisdiction to itself suspend or enjoin the rates after the seventh month period had expired, but before the Commission had issued its original decision in the case.

This Court held that it could not do so.

It is stated at page 667 of its opinion that the intention of Congress in enacting Section 15(7) was to vest in the Commission, the sole and exclusive power to suspend and to withdraw from the judiciary any pre-existing power to grant injunctive relief.

The only difference between Arrow and this case is the stage at which the court has employed a judicial suspension.

We do not believe that this is a sufficient difference toward a different result

.In other words, we believe that the reasoning of Arrow applies here.

In the first place, the basic Congressional policy of Section 15(7) as confirmed in Arrow is to allocate between the shippers and carriers, the risks and versions that are necessarily associated with any proposed rate change.

Inevitably, a carrier proposing a change in its rates wishes to implement that proposal immediately, while the shippers on the other hand would prefer to delay it until the lawfulness of the rates has been finally determined.

The policy of Congress as adopted in Section 15(7) was essentially a compromise.

It provided that during the first seven months, the risks and the burdens of a proposed rate change should be placed entirely on the carriers.

That is, if the Commission chooses to suspend, the carrier cannot implement its rate change and if the rates are ultimately found to be lawful, the carrier has no remedy, it can never recover the lost remedies or the other lost benefits of that seven month period.

Justice William J. Brennan: Mrs. Christian?

Ms Betty Jo Christian: Yes sir.

Justice William J. Brennan: You attach any significance to footnote 22 in the Arrow opinion?

Ms Betty Jo Christian: On footnote 22, Your Honor, this Court pointed out that it was not reflecting in anyway upon decisions recognizing a limited power of the courts to preserve the status quo pending judicial review.

Justice William J. Brennan: Is that this case?

Ms Betty Jo Christian: That is not this case.

To begin with, the --

Justice William J. Brennan: Well it was -- what was on review was a final agency action, wasn't it?

Ms Betty Jo Christian: What was on review was a final agency action, Your Honor, but this footnote does not apply for two reasons.

In the first place, it was not issued pending judicial review, it was issued at the conclusion of the review proceeding, pending reconsideration of the case by the agency.

Secondly, the suspension order entered here by the court did not preserve the status quo.

These rates have been in effect for over a year.

The effect of the court's order was to change the status quo.

So the suggestion of a limited power to maintain the status quo pending judicial review simply is not this case.

We believe that the careful Congressional balancing of the risks and burdens of suspension which this Court held in Arrow, Congress intended to place on the carrier for the first seven months and upon the shippers thereafter, subject to the protection of a possible accounting and refund provision of a recollection suit applies equally when the case is pending before the Commission on remand, as when it was pending before the Commission in the first instance.

In neither event has the lawfulness of the rates than finally determined.

And we believe that the Congressional policy is that once the seventh month period has expired, the carriers are entitled to place their rates into effect and to keep them in effect unless and until the rates are finally adjudged unlawful.

Justice Byron R. White: And I kind of take it that the courts do not have that power either, do they, can find the rates unlawful?

Ms Betty Jo Christian: This is exactly the point I was coming to Mr. Justice Stewart.

Justice Byron R. White: And until the Commission finds them unlawful, the rates stand to affect, is that it?

Ms Betty Jo Christian: That is correct, Your Honor.

In this case --

Justice Byron R. White: Now, what about my question to Mr. Pollock where the Commission upholds the rates as lawful and they are in effect and the District Court claims that the judgment is not supported by substantial evidence, it sets aside the Commission's findings and let us assumes the court is quite right that the Commission's finding weren't supported by substantial evidence.

Well, further reasons were invalid, the rates still stand to effect, I gather?

Ms Betty Jo Christian: Yes Your Honor, it is solely a question of substantial evidence.

It would be up to the agency as to whether to decide the case on the present record in which case they would be obliged to summarily find that the rates have not been shown just and reasonable, and to order a -- or to order (Voice Overlap)

Justice Byron R. White: If these are automatically followed from the -- if the record remains the same, the Commission must then automatically enter a judgment finding them --

Ms Betty Jo Christian: I would not say automatically, Your Honor.

Certainly I can conceive of a situation in which a court opinion makes it clear that under the legal standards established by the court, the rates cannot possibly be justified.

In that situation, the Commission would have no alternative, but to immediately enter it an order.

Justice Byron R. White: Could a District Court order a Commission to find them unlawful unless the record is examined?

Ms Betty Jo Christian: I think that the court could not order them to find the rates unlawful, but certainly its opinion could be written in such a way that under the court's legal standards, the Commission would have no alternative but to find them unlawful.

In that situation, the Commission could simply enter an order finding an accordance with the legal standards established by the court that the rates have not been shown to be just unreasonable and ordering them canceled.

If it was strictly a question of substantial evidence which might be supplemented by further evidence, then there would be a matter for the discretion for the Commission as to whether to permit the carriers to reopen the record to offer further evidence.

Justice Byron R. White: Can the Court itself enter a refund order contingent upon finding of unlawfulness.

Let's suppose that when the seven months expire, the Commission does not enter any order about a refund in the event of finding unlawfulness?

Ms Betty Jo Christian: Certainly, in connection with an appeal of the agency's final decision to court, the courts and the agency have assumed that the courts have the power to issue an accounting and refund order.

As a matter of fact, this Court issued an accounting and refund requirement at the time that it granted a stay of the lower court's judgment in this case.

We have always assumed that the court does have that power.

Justice Byron R. White: Even if it cannot find the rates unjust and unreasonable or suspend them?

Ms Betty Jo Christian: Exactly, Your Honor.

It is other equitable powers to impose conditions for the protection of the shipments such as an accounting and refund provisions are not affected in anyway.

In addition to the Congressional policy which I have mentioned that the carriers be permitted to put their rates into effect after seven months and keep them in effect unless and until they are found unlawful, we believe the Arrow decision cited two additional policy reasons for denying the court's power of judicial suspension which we believe are equally applicable when the case is pending before the Commission on remand as when it was pending in the first instance.

In the first place, this Court pointed out that the exercise of a judicial suspension power would interfere with the primary jurisdiction of the agency and as I have just pointed out in answering Mr. Justice White's questions, the agency continues to have primary jurisdiction to determine the lawfulness of specific rates even though an error of law has been pointed out by the courts and the case remanded to the Commission.

The actual determination of the lawfulness of the rates is still for the primary jurisdiction of the Commission.

And the same nexus that this Court found in Arrow between primary jurisdiction and the suspension power applies here as in the situation that existed in Arrow.

Secondly this Court pointed out in Arrow that if the courts were permitted to suspend, the result might be different results to different shippers.

The same situation could occur if the judicial suspension were permitted in connection with a remand because as this Court is aware, any number of suits can be brought to set aside the same Commission order in district courts all over the country.

If those courts should reach different results, one sustaining and the other reversing the Commission and if the reversing court were permitted to exercise a suspension power, then you would have the same type of different results to different shippers that this Court was concerned within Arrow.

Thank you.

Chief Justice Warren E. Burger: Thank you Mrs. Christian.

Mr. Sweeney?

Argument of Daniel J. Sweeney

Mr. Daniel J. Sweeney: Mr. Chief Justice and may it please the Court.

I am representing here the Wichita Board of Trade and 37 other grain industry groups which comprise in effect the farmers in the Western United States, the country grain elevator operators in that part of the country, as well as the boards of trade on which grain is bought and sold and many of the grain companies which are the people who buy and sell the grain.

First of all, this concept of inspection does not explain itself.

What we mean here by inspection is a grading of the grain in order to determine the quality of the grain and the value of the grain.

Grain is susceptible to moisture, susceptible to contamination of farm material and kernel content and this type of thing.

So that to know the other call out of grain does not tell you anything about what it is value is or whether it can be used for human food and things like that.

So you have to get a grade in order to determine these things.

The practice over the years as these gentleman have told you and the young lady has been to take this grade at a marketplace such as Chicago or Kansas City or Omaha.

The cars come in there and the government employed samplers take the the sample of the grain.

They write down to Board of Trade and it is inspected and analyzed by impartial government people and they say, this carload is number 2, yellow corn and it has so much moisture in it and so forth.

At that point, it becomes a salable commodity because we know what we have.

So that the reason why the grain has been inspected in transit has not been because of the Grain Standards Act.

It has been because this is the place to do it.

This is where the market is, this is the condition of a grain on a day that it is sold on a market and this is where the impartial inspection is available.

The change --

Justice William H. Rehnquist: If it is in transit, that suggested that it was originally destined somewhere beyond this market, does not it?

Mr. Daniel J. Sweeney: No, it shipped to the market.

It will go from a country elevated to the market say to Omaha for instructions and re-consignment.

After the inspection is made then whoever buys the grains says well, ship it to Chicago or something like that.

You do not know who is going to buy the grain until it is inspected, that is the whole idea.

In other words, when you bring it to central grain exchange, they can bring that sample before the Board of Trade and people all over the country, all of the world can bid on that grain and in effect the farmers getting the benefit of this total market.

The other way to go always for the farmer to ship his grain to Omaha to one of the handful -- maybe half a dozen elevators that are located there.

He is at the mercy of those people, he has to sell to them.

The other way he can go now is to ship it in there and have it inspected and pay the $17, in which case he is paying $17 extra a car was something that he has always done and which is already paid for under the line haul rate itself.

Chief Justice Warren E. Burger: Are you suggesting there are no other alternatives for solving the problem?

Mr. Daniel J. Sweeney: Well, I think the alternative that many people have suggested is that if the railroads are really concerned about giving the shippers an incentive to eliminate the grain inspection, the thing for them to do would be to reduce their rates.

In other words, let us say the rate is $0.20 from a point in Nebraska at Omaha.

Chief Justice Warren E. Burger: Well, that is obviously an easy solution, but the carrier has no interest in the quality of that grain, has he?

Mr. Daniel J. Sweeney: The carrier has no interest in the quality of grain, however, by providing a service which is of value, he is enhancing the attractiveness of the railroad service, but the point is that the carriers, when they made the $0.20 rate for example, they put into that rate $0.2 specifically because of the cost of the grain inspection, this was stipulated in the record.

If the rate was not a full service rate, if the rate did not include the grain inspection, that rate would be $0.18.

So what I am saying to you is if they want to give them an incentive, let us do what they should do.

They can not take away the service and continue the charge us the full $0.20.

Chief Justice Warren E. Burger: You agree with I think it was Mr. Pollock's comment that the railroads lose money on this inspection and that the inspection process costs more than the enhanced rate.

Do you agree with that?

Mr. Daniel J. Sweeney: Well, if you are talking about the $17 per car charge, the $17 approximates what it costs --

Chief Justice Warren E. Burger: We are just talking about his generalization.

Do you agree with that?

Mr. Daniel J. Sweeney: They are always not losing money on grain traffic.

They are making a very substantial profit.

For example, somebody put some evidence in that on the whole, they are making 150% of the direct cost.

Chief Justice Warren E. Burger: Well, that was not my question.

Mr. Daniel J. Sweeney: I am trying to get your question.

Chief Justice Warren E. Burger: Well, my question was just of losing money on the inspection process standing alone, that is so that they would rather eliminate the whole process and from their point of view, they argue that they would be better off?

Mr. Daniel J. Sweeney: Now, he has not said that he is losing money on inspection process.

What he has said is that part of the total transportation as has existed has been a portion in the middle whereby the grain has been inspected and takes three days to do that and he said they are occupying our cars for three days.

Now, if we can put something new in the tariff, that will discourage that, eliminate it, then we can free up more cars and alleviate to some extent the grain car shortage, this is the basic proposition on which they present this case to the ICC.

Justice Thurgood Marshall: But there is not dispute that the carrier is not interested in this inspection, doesn't it?

They would be just relieved, get rid of it once and for all, is that correct?

Mr. Daniel J. Sweeney: I do not think that is correct, Your Honor because if they want to do that, they would have proposed and said, as from tomorrow, we will not form any grain inspections, regardless of price.

They have not done that.

They said, we will continue to perform grain inspections, but we will do it at an additional cost of $17 in addition to our rates which already pay us once for that.

Justice Thurgood Marshall: As I understand the Mr. Pollock to say that they just leave, stop the while business.

They are not -- what interest does the railroad in having the grain inspected?

What possible interest do they have?

Mr. Daniel J. Sweeney: Well, they are competing with other modes of transportation.

Railroads are not the only way to route this grain and by having this grain inspection and allowing the grain to come to the market in a car, the man in the field, the farmer, he has an opportunity of bringing his grain to market and getting a price on a competitive market.

Now the other way he can go is he can put on a truck and he can send it to market but if he does that, he is not going to get the same market structure.

He is not going to have the advantage of a nationwide buyers, he is going to get less money.

For example, he could have a lower truck rate than the rail rate and this many times happens and he can ship by rail nevertheless at a higher price because when he gets to the market, he is going to have the advantage of the marketplace.

Justice Thurgood Marshall: So the inspection helps the carrier?

Mr. Daniel J. Sweeney: The inspection helps the carrier to get grain on his railroad instead of having that grain go down the river on the barge, instead of going by truck.

Justice Thurgood Marshall: And if on the other hand he is willing to give up that great asset, you object to it?

Mr. Daniel J. Sweeney: Yes Your Honor we object it for two reasons.

First of all, he is destroying the marketing structure which we have built up over 50 years.

He is putting a lot of people out of business that are involved in this thing.

The second thing that he is doing is he is saying to us, I am going to take the service away from you and as I continue to charge you a rate which includes a specific cost of that service.

We would have a much different case, if they were here saying, we took our rates and we took two cents off, we have published upper grades.

Now this is what has happened in the past, and that is why this case is at such cross roads.

In the past where the railroads wanted to put rates in without inspection, they have reduced their rate.

They have said we will drop from $0.20 to $0.18.

We will now give you an $0.18 rate which you can use without grain inspection.

We will give you an incentive and this is what has happened and now all of a sudden, they have switched into this new position.

They want to take away the grain inspection and they want to keep the higher rates which compensate them for it and they cannot have it both ways.

If they want to go down this other road, if they want to come back next week, they can publish a new tariff and say, every rate in the West shall be $0.2 lower whenever a grain inspection is weighed.

This is a way that they could have gone.

They could have avoided all these problems.

They could have solved the car supply problem that they have been talking about that it said that they want, but they did not want to do that.

They wanted to add a charge so that the man who takes the grain inspection has to pay for it once in the rate and secondly with the $17 and the man who was prevented from doing it because he says, I do not want to add another $17, he still pays the old rate which included the compensation.

So that people that are using the inspection are being deprived because they're paying double, people who don't use the inspection are being deprived of the service that they're paying for right now today.

Justice William H. Rehnquist: Would you say that's tantamount to an increase in the line haul rate?

Mr. Daniel J. Sweeney: It certainly is Your Honor.

It's increasing the total charges and in effect it's increasing the line haul rate indirectly by reducing the service.

You still pay the same price but you get a service more.

Chief Justice Warren E. Burger: It's a paradox though, isn't it?

It's an increase in total rate which the carrier doesn't want.

Isn't very often carriers don't want to increase, isn't it?

Isn't that situated --

Mr. Daniel J. Sweeney: Well, it's selected, Your Honor, as we figure they've collected between four and five million dollars a year on this so they've been getting money on this.

Chief Justice Warren E. Burger: Well, I'm just relying on what they represent in the argument?

Mr. Daniel J. Sweeney: I find that paradoxical.

I think if they were really sincere and all they wanted to do was get this goal of helping the car supply, they would come out with a very straightforward proposition.

They would say we're going to knock two cents off every rate.

As of tomorrow, if you don't take your inspection, you're going to save two cents.

This is what I call an incentive.

What they've been calling an incentive is actually a penalty.

They're saying you're already paying for it once, tomorrow you're going to pay for it twice.

We can't go along with that.

Unfortunately, the Interstate Commerce Commission did.

Now, we get to the question of why are the Interstate Commerce Commission decisions renewed at all by courts.

The reason is, because Congress put statutes and they said you can interpret these statutes and you can apply them to the facts, but you can't do it arbitrarily and that's exactly what we have here.

We have an arbitrary decision.

We have decision where the Commission was overwhelmed with all this evidence and repetitive testimony, all this legislative history from the Grain Standards Act about how important car supply is, and how this thing is going to help car supply.

So the commissioners are sitting there and they've got letters in their files, they've got complaints, they've got people criticizing them in the newspapers about the car supply.

Really, the problem is that the railroads just don't buy enough cars to replace the old ones.

In the last 15 years, they've dropped 300,000 box cars, they used to have over 600,000.

Now we've got 300,000 plus.

So when they talk about a saving here, 300,000 cars a year or 600,000 cars a year, this is not the solution to the car shortage problem.

It's a small step in that direction, but it's not the great solution as presented.

So the Commission looked up and they said, well this is a car supply case, we're going to approve this thing and at that point they said we are not going to follow the statute and we're not going to look at this pile of evidence over here.

We, at the Commission know well enough, what's good for the public, what's good for the railroad's car supply.

We don't have to look at statute then we have to look to the merits of the decision with this background, because this is really the background on which the Commission decided the case.

When the Commission came here, in a jurisdictional statement they specifically said to this Court that they were not going to ask the Court to review the merits of their decision.

Apparently at that time, when they first came here they were convinced that they couldn't defend their decision.

In the last few months something has happened.

They filed a brief and they're now trying to defend themselves on the merits.

I'm not going to question their right to do that, but I think it does show a little bit that there was certain lack of confidence in their own decision.

What do you have to prove in a case like this?

You have to prove that the changes, in the rates and charges are just and reasonable.

This is Section 15(7) of the Interstate Commerce Act.

Now one bar is on thing, when you have concepts of just and reasonable, it's somewhat vague and what is a just and reasonable rate.

Well, in this particular case, in this particular Act, Congress put in specific standards that the Commission shall consider in determining what is a just and reasonable rate.

The standards are in 15 (a) (2) of the Interstate Commerce Act.

One thing is that they must show that the rates are at the lowest cost consistent with the total services and the other thing is, they have to show the effect on the movement of the traffic, whether or not the traffic would be diverted.

So the Commission then has to come to grips with the situation.

More specifically within three months before these tariffs were published, the District Court in Ohio had affirmed a decision of the ICC in the transit charges case, which was the same kind of a situation.

The Southern Railroads decided that we've been providing transit on cotton for long time at the line haul rate.

We will now add a charge of something like $50 a car for it.

That case went before the ICC and the ICC decided, one you have got to present costs for the through movement, show us how much it cost to handle this traffic, how much your cost is for the transit and give us your total revenue and your total cost, otherwise we can't determine the overall reasonableness of your proposal.

The other thing I said is that there would be a likelihood that you're going to lose lot of traffic to the trucks if you raise your rate like this.

That case went to the District Court in Ohio, and was affirmed by the District Court and then went to this Court and was affirmed.

So here we're starting out and we're going to trial in this case and the railroads have got to prove these things.

Yet, they put in no evidence whatsoever on these issues and this is how the case comes to the Commission and they are sitting, trying to write a report which is going to find these rates just and reasonable when the railroads have put no evidence in on two issues that are spelled out by Section 15 (a) (2).

Well, they had quite a job on the hand trying to do that.

Here is how they went about it.

They said well, we don't have to follow the principles of the Southern Transit case, which incidentally are the statutory principles.

They said, this case is different from the Southern Transit case where we said you have to have total cost with the total movement and show us how much money you're making on this traffic before we're going to let you tack a charge on top of it.

So they said, well, in this case, we've got thousands of rates in a wide area.

Where we've got a big job on our hands like this, well it's just too much to ask railroads to supply with cars.

We shouldn't have to do that.

Well, of course, the Southern Transit case involved rates throughout the South and involved all the railroads and involved thousands of rates.

So this distinction was I would say specious at this point.

I don't know how stronger these people are defending that in this case.

They talk about it as a dictum, they walk away, it's virtually a dictum.

This Court many years ago in the (Inaudible) Divisions case said that there are means of meeting it when you've got thousands of rates involved, present typical evidence and there was some kind of a sample, show us representative rates and that's good enough.

This is how the business of the Commission is carried on.

Everyday, all the day we've got cases involving thousands of rates.

Nobody throws up their hands and says there is thousands of rates, they don't put any evidence.

That's not true at all, where you've got thousands of rates, the justification and necessity for putting in these costs required by the statute is even greater, because there is more people affected by a case like this.

They could have broken this case into 50 different cases, let each railroad try their own case.

It would be that much less rates in each one, but because they all come together and all simultaneously try to put this thing across.

It doesn't take out of the statute and leave him from the statutory burden of proof.

The other way that Commission went on this point is they said, well, we find that way back in 1934 issued a decision on grain rates and in that case we looked very closely and we decided what a reasonable level of rate would be.

Now if we take those rates, and add to it, every single general increase we've had in the last 40 years, we will find that that total rate is still higher than what the shippers would get here if they add the $17 on top of the rates that they're paying today.

What had happened is that the 1934 rates have become obsolete.

They no longer move the grain traffic today.

If these were the only rates that we have in the tariffs, the grain traffic wouldn't move by rail at all.

It would either be uneconomic or the barges and the trucks would get it on.

There is no question about that.

These rates are as high as the sky.

So the Commission said, well, we've got that, and as long as the railroads haven't exceeded those rates, which their principle witness said, are paper rates don't move any traffic, as long as they don't like see those rates, we find that, this is alright.

Justice William H. Rehnquist: But that at least amounts to a finding by the Commission, whether supported or otherwise, doesn't it, that even treating this as an increase in the line haul rate is justified?

Mr. Daniel J. Sweeney: I would treat that as a conclusion rather than a finding.

The findings that are required on the Section 15 (a) (2), the Commission shall consider the relationship between the costs and the revenue.

Now instead of doing what they're supposed to do on the 15 (a) (2), they off into the wide blue yonder and they say, well, we'll consider the fact that these rates are not higher than the 1934 rates plus a 150% over the last 40 years.

They did not do what the statute said.

We don't deny that they have the right to throw this kind of language into report and say well, these rates are no higher than the 1934 rates plus a 150%, but that doesn't excuse them in anyway, from fulfilling their function under 15 (a) (2), which says, you shall consider the costs and the revenues.

They have to consider the costs and the revenues today.

This is what it's all about.

What's happening today?

How much does it cost in the handle of traffic today?

They can't just simply say we've got res judicata, we've got a rate that was decided four years ago.

There is no res judicata in administrative law and Commission cases.

They've got to come in.

They've got to get evidence.

They've got to decide it on the facts.

They have to know how much profit are the railroads making on these rates today.

Can they afford to reduce the rate and give them a reduced scale of rates instead of adding something on top of them, on top of rates in many cases which are rather high.

They try to get off the hook.

They try to walk away from the statute, or refine to an old decision.

Now if you stay with that for a moment, let's say they prescribed the rates of 1934, 10 cents, that rate today is say 25 cents.

It's gone up 150%.

There was never any prescription by the Commission that 25 cent rate is just and reasonable.

In order to bridge this tremendous leap from a 10 cent rate to a 25 cent rate, the Commission said, well, over the years those cases have gone up in this general increase cases and therefore every time we got any general increase case, this rate now becomes a new maximum reasonable rate.

Well, that isn't true at all.

They have been taken to court after general increase cases where shippers and groups of shippers have ask the court to review and say, our rates are unjust and unreasonable with this 5% increase.

The Commission and the railroads say, that's not involved here.

The level of the rates and whether they are just and reasonable is not involved in our general increase cases.

All we are looking for in general case is a total piece of money.

We need $15 million, you could buy this year and the justness and reasonableness of the rates on grain, the rates of potatoes, the rates automobiles are just not involved in this case.

And this Court sustained a decision of a District Court on exactly that point that you can even get a review of the justness and reasonableness of the rates established in these general increase cases.

Now they want to have the other side of the coin and come back here and say, oh, yes, these rates are just and reasonable.

They were established in a general increase cases as just and reasonable.

Those two concepts cannot live together.

There is no room for both of those things do exist side-by-side.

If they found them just and reasonable, then they should really review it.

I don't see how they could find it just and reasonable, they never looked at them, all they look at in those general increase cases is the total revenue need of the railroads.

So they need 5% more money and if they find that they do it, they'll give it to them.

I want to say just something on this Arrow case and we have here a special situation and all the talk about possible refunds gives us no help at all.

These people have put in a charge which they want to be a barrier.

They have come into this Court to say that since the charge went in, 50% of these inspections no longer take place.

So that on the shipments which they have precluded, nobody is going to get a refund of $17 a car on a shipment that wasn't inspected because the charge was so high that nobody could use it.

On the other 50% what happened to the charge is that it was passed onto the farmer.

When the purchase was made from the farmer they deduct the freight rate and the $17 a car, that's taken right away from him.

He is not a party to the transportation with the railroad, he has nothing to do with the shipment.

He will never get that $17 back.

Everyday that this case goes on without restoring the District Court's decree, the farmer is loosing $17 on every car that is inspected.

The other way he loses is that he is losing his market.

He can't get this nationwide market that we have been providing him.

So we have people going out of business.

We have grain inspectors that have been fired, we have this whole system of marketing through grain inspection which is being gradually destroyed and taken apart while the litigation goes forward and the railroads understandably and the ICC, not quite so understandably say that no one can do anything about it and they rely upon Arrow case which said that we don't want single judge courts doing a job before the ICC decision which can only be done by three-judge courts under the statute after an ICC decision.

We summit that the railroads lose a case, they can go to court get the Commission set aside and then they can put their rates in.

On the other hand, the shipper should have the same power.

They should have the same right.

They shouldn't be just going to court to touch bases and to go back to the ICC again.

They should be able to get some substantial relief while the case was back to the ICC.

Bearing in mind particularly that it isn't necessary for the Court to say this is just and reasonable or it's not just and reasonable.

Justice William J. Brennan: Why do you say Mr. Sweeney that Arrow doesn't apply here?

Mr. Daniel J. Sweeney: Because Arrow concerned itself with what could take place before the decision of the Commission?

What would happen if the Commission doesn't makes its decision within a seven month suspension, but takes them a year?

What happens in that five months before the Commission has discharged that function and they said we do not think that the Court should be taking a crack at this kind of case before the Commission and its primary jurisdiction, has completed the record and has made its findings.

At that point as it was noted in the footnote the case belongs to the three judge courts, it's up to them to decide and it's up to them to decide whether the situation is such that they have to grant some kind of ancillary relief and we asked that court to grant us ancillary relief.

We didn't have some grant, the specific relief that they did, but we asked them to order the ICC on remand to immediately have this rates canceled.

Justice William J. Brennan: What do you say to Mrs. Christian's argument that the footnote dealt only with the maintenance in the status quo?

Mr. Daniel J. Sweeney: Well the status quo, Your Honor, is the last piece of those status prior to litigation.

In this case, that was prior to the publication of the rates, prior to this controversy arising there was no inspection charge.

Now because they had succeeded in maneuvering this case that by the time, they got to the courthouse the rates have been in for a few months.

It doesn't change the court's right to restore the status quo, the status quo that existed before the case.

Chief Justice Warren E. Burger: You don't read the Arrow case as taking the judges out of rate making men as in the barred terms that the opinion seems to read?

Mr. Daniel J. Sweeney: I don't think that affects rate making one way or the other I think for a court to issue an injunction like they did here, all they are saying is that you are required on the 16, section 15 (7) to fulfill a burden of proof of showing the rate is just and reasonable.

The District Court below found the statutory requirements that the railroads had to put in cost.

There was no evidence whatsoever in the record.

The railroads had failed to meet the burden of proof and all of the District Court was saying is since you've failed to meet your burden of proof in a case in which you had ample of time to do so, as of this date you have no further right to keep those rates in.

Without prejudice to down the road perhaps the ICC will give them another hearing, perhaps some decisions, some valid decisions will be issued some day that will approve this.

But in the mean time, the life of these rates as of September 1971, when the ICC issued it's decision, was critically dependent upon whether or not the ICC found that they had fulfilled their burden of proof and if they didn't fulfill the burden of proof as of the next day, they have no right to be in effect and the court is in effect saying you made a mistake, you didn't follow the law and therefore these rates have to go out, until such time as you fulfill your obligation and prove that they are just and reasonable.

Thank you.

Chief Justice Warren E. Burger: Mr. Imhof.

Argument of William A. Imhof

Mr. William A. Imhof: Mr. Chief Justice and may it please the Court.

My name is Imhof, I represent the secretary of Agriculture.

The secretary is represented here today because both of the issues principally before the Court today are of vital concern to farmers.

Farmers after all are the fellows who are bearing this charge that we have been fighting about.

The grain farmer in the West sells his grain to a country elevator.

He receives the price that day at Minneapolis or Chicago less the cost of getting it there by railroad.

Historically, line-haul rate included a stop for inspection which facilitated that the sell of the grain at the market.

Now the railroads have added a penalty charge over and above the line-haul rates for the inspection and that penalty charge too is deducted from the price the farmer receives for his grain.

And this burden is especially better for the farmer because he knows and indeed our friends, the railroads conceded at the hearing below, that they were already collecting for this inspection charge out of the line-haul rate and therefore the new inspection charge from a revenue standpoint for the railroads is largely gravy.

However, we are more greatly concerned and I will confine my remarks to appellant's attack upon the equitable jurisdiction of District Courts, upon review of ICC orders and this issue is of concern not only to grain farmers but to farmers generally.

Farmers rely heavily upon rail transportation for both transportation of their produce and also for their supplies.

Their livelihood, sometimes even their economic survival depends on having available rail transportation at reasonable rates.

Of course, what is their first line of defense against unreasonable rates?

It's the Commission, but if the Commission makes a mistake, if it approves a railroad proposed charge on less than requisite amount of substantial evidence, where should they go?

Until recently, it seemed clear enough that a shipper could bring suit in a three-judge District Court which if it sustained his charges about the Commission's failure, could enjoin collection of the charge.

This was the view of the Alabama District Court and of the Fifth Circuit whose judgments you affirmed in the case in Arrow.

In this case of course, it was the view of the District Court in Kansas.

We belief it was also the District Court -- the view of the District Courts in California in the Cantley case, and in the District of Columbia in the Ad Hoc Committee on Consumer Protection case.

I think we might note in passing that it was also the view of the Illinois District Court in the Inland Waterways case which was relied upon by the railroads, this Court reversed the District Court in that case but didn't question the exercise of equitable jurisdiction by the District Court.

I think the District Court in that case did go too far and foreclosed the discretion of the agency on remand and that was the reason that it was overturned by this Court.

Just over two years ago, however, a District Court, three-judge District Court in New York declined to enjoin collection of Commission approved rates on the ground that the theory of the decision of this Court in Arrow logically extended foreclosed such relief.

The small shipment decision was of course pressed upon the Kansas Court in this case, but the Kansas Court declined to alter its judgment and indeed refused to stay of its judgment especially because the farmer who was bearing this inspection charge, can be protected only if collection of the charge is enjoined.

The appellants argue that the injunction issue is controlled by Arrow and that under Section 15(7) of the Interstate Commerce Act, only the Commission can suspend the railroad rate and then only for the statutory period.

However they overlook the fact that the suspension provision in Section 15(7) is confined by its own terms to the period prior to Commission decision and they also overlook the fact that in Arrow, both this Court and the lower courts were careful to confine their holdings to the situation presented, that is where the Commission had not yet completed its investigation or issued an order.

While both the District Court and the Court of Appeals in Arrow denied the availability of injunctive relief at that stage, both concluded that after final order by the Commission approving railroad rates, the three-judge court upon review of that order has the power to enjoin the effect in the rates, in affirming those judgments.

This court also pointed out that judicial cognizance of the reasonableness of rates is confined to review by a three-Judge court of the ICC order, it can't take place before that.

We submit that therefore upon a fair reading Arrow lends no support to appellant's arguments.

This is not simply our conclusion.

We would refer Your Honors to the decision of the D.C. Circuit Court of Appeals which is referred to in the decision in ad hoc committee on consumer protection.

We note also that in that case, the Court held injunctive relief to be available not withstanding that there was a possibility of a motion for reconsideration before the Commission.

The dichotomy drawn by the courts in Arrow and Ad Hoc between the judicial roll before and after decision by the Commission approving rates is entirely consistent with the statutory scheme.

The Congress provided for two situations.

The Arrow case dealt with of them and that was shippers resorting to injunction prior to Commission decision and they amended 15(7) to provide for that.

But in this case we are not talking about 15(7), we are talking about the urgent deficiencies act which Congress provided especially for judicial review of Commission orders.

It created a commerce court and transferred the jurisdiction of that court in turn to the district courts.

It had no intention at anytime of restricting the equitable powers of the circuit courts or the commerce court in making those transfers.

I think I would like to address a couple of specific points which have been of interest to the Justices in the arguments presented heretofore this morning.

Justice William J. Brennan: Before you do, let me ask, what's your answer on Mrs. Christian argument on Status quo?

Mr. William A. Imhof: On footnote 22, Your Honor?

Justice William J. Brennan: Yeah.

Mr. William A. Imhof: First of all I think we might argue, we might well remember that the court here did not flatly remanded to the Commission and lose hold of it.

The court retained jurisdiction over this case.

So it is for all practical purposes pending judicial review and Professor (Inaudible) at least has sanctioned that as a legitimate judicial device to retain jurisdiction of a case.

Justice Byron R. White: It's certainly is anticipated that the Commission is going to take some further proceedings in the meanwhile?

Mr. William A. Imhof: Yes, Your Honor, I suppose it would be, yeah.

Justice Byron R. White: No, I think so it would – we set aside the order because you haven't given a decent enough reasons.

Mr. William A. Imhof: I would assume that it would be remanded with directions.

It was not remanded with directions here or may be it was.

The proceeding is not in consistent with its opinion.

So the answer will be yes, Your Honor, yes.

I would like to address perhaps Your Honor's question about the possibility of a decision being bated back and forth between the reviewing court and the Commission.

I think if you logically extend the Commission's argument to its fullest length you are reviving the negative order doctrine.

As you remember the Commerce court produced the decision in Procter & Gamble and in Procter & Gamble, this Court held that an order such as the one we are referring to here is a negative order not subject to judicial review.

Of course, then injunctive relief was not available because the court never even got jurisdiction over the order.

But if you push their argument to its logical extent, I think we are getting right back to the negative order doctrine and I don't believe this Court should take that action.

I don't believe that this Court in overturning the negative order doctrine in the Rochester Telephone case, had any intention of the --

Justice Byron R. White: What you are saying is -- it's not been held that rates are unjust and unreasonable, don't you or do you?

Mr. William A. Imhof: I tend yes, Your Honor.

I believe that's a matter of exclusive jurisdiction of the Commission.

Justice Byron R. White: And has the Congress provided or hasn't that the rates may not be suspended beyond seven months until there is a finding of it as unjust and unreasonable?

Mr. William A. Imhof: Until there is an order of the Commission, Your Honor, I submit that that's a very valid and vital distinction in this case.

Justice Byron R. White: Order in case that they unjust and unreasonable?

Mr. William A. Imhof: Till there is an order of the Commission in the proceeding pending at that time before the Commission.

The judgment made by the Congress was to keep the courts out of the Commission's hair for whatever period of time it required for the Commission to exercise initially at least its primary jurisdiction.

That period varied.

Justice Byron R. White: So you say that if rates in effect Commission finds the rates just and reasonable, the Commission itself could suspend the rates beyond the seven months pending judicial review?

Mr. William A. Imhof: If the rates were just and reasonable?

Justice Byron R. White: Yeah, they are kind of just and reasonable?

Mr. William A. Imhof: No, no, Your Honor, I do not.

Justice Byron R. White: You don't, even though a court could?

Mr. William A. Imhof: A court could suspend the rates if it found that the Commission's decision was not supported in your example by substantial evidence.

Therefore the Commission's finding that the rates were just and reasonable would have no support, it would be invalid to find support.

Justice Byron R. White: Well I know, I know but that still leaves the rates in effect that under the seven months rule?

Mr. William A. Imhof: And not once the court has jurisdiction over the case, I would submit Your Honor.

I don't think you can draw on this dichotomy between judicial review of an order and equitable relief and I feel this matter is perhaps disposed off in the footnote in the the Rochester Telephone case as to the forms of directions which would be available to a court upon review of such an order.

I believe it's 1229.

Justice William J. Brennan: Have you fully answered my question?

Mr. William A. Imhof: I am not sure if I did or not, Your Honor, I believe I answered the first part as to whether or not the Court is retaining jurisdiction, pending judicial review and Mr. Sweeney has pointed the case as indicating the status quo can be restored and I submit to Your Honor, that effect would answer the second question.

Justice William J. Brennan: You associate yourself with that argument?

Mr. William A. Imhof: With that argument, yes, I do, Your Honor, Thank you very much.

Chief Justice Warren E. Burger: Thank you Mr. Imhof.

Mr. Pollock you have about four minutes left.

Rebuttal of Earl E. Pollock

Mr. Earl E. Pollock: May it please the Court.

May I first of all point out that much of the argument made by the appellees here bears no relationship either to the findings made by the Commission which I comment to Your Honors, or to the proceeding that was conducted before the Commission.

For example, Mr. Sweeney's principle argument here concerning the necessity of a cost analysis under section 15 (a) (2) was never raised before the Commission and of course, under this Court's decision in Tucker and in other cases is barred, but more fundamentally, the appellee's arguments and I think this gets perhaps to crux of it failed to take account of the nature of the rate making function and the Commission's role and discretion in performing that function.

When it comes to carrier made rates there is contrary to the appellee's suggestion no single rate which is reasonable.

There is instead a zone of reasonableness and this zone is located between a reasonable maximum and a reasonable minimum, and the carrier is free under repeated decisions of this Court, without a special permission from the Commission to adjust its rates as well as those rates stay within the zone of reasonableness and do not violate the Act.

Now what could the Commission do here.

On the basis of its own prior decisions and its particularized attention year after year after year, decision after decision after decision, the Commission reaffirmed the vitality of the current maximum reasonable level and said across even if we add, even if we were to add these inspection charges to the existing line-haul rates, the resulting combination would still not exceed the zone of reasonableness.

Further more, and in particular relation to Mr. Justice White's earlier question, I think it is important to recognize that under the statutory scheme, carrier initiated rates are valid unless set aside by the Interstate Commerce Commission and not vice versa.

In other words, under the statutory scheme, a carrier need not get permission to institute rates, instead the carrier has that right.

Congress gave the carrier that right subject only to the Commission power to suspend the rates for this limited period of seven months and it was on that basis that this Court in Arrow said that that is the only exception made by Congress and neither the Commission nor courts can intervene beyond that.

With respect to the optional nature of the inspection, Mr. Sweeney has said that this is absolutely essential but look at the facts.

At the present time, only one inspection is made for every five shipments certainly indicating that it is not essential.

Further more in-transit inspection has never taken place, as the Commission pointed out on Page 15 of the Appendix, with respect to all large traffic carrying grain, all truck traffic carrying grain and now 80 % of the shipments go without -- by rail, go without any in-transit inspection.

It is for the Commission to determine whether this is a necessity and the Commission found -- Pages 56 and Pages 17 through 90 of the Appendix that it was not essential and certainly, this is not the form to re-argue the nitty-gritty of rate making issues.

If there is anything which is committed to the discretion of Interstate Commerce Commission, it is this matter of determining what constitutes a reasonable rate under established principles.

It is also instructive, I would say is closing that although both appellees now argue for the necessity of the suspension power in courts, they do not even see fit to request such relief in the District Court.

Chief Justice Warren E. Burger: Thank you, Mr Pollock, thank you, gentlemen.

The case is submitted.

Featured:

United States v. Allegheny-Ludlum Steel - Oral Argument

Thu, 23 Aug 2012 18:22:35 +0000

Case:

United States v. Allegheny-Ludlum Steel

Media File:

71-227_19720327-argument.mp3

Related Transcript:

71-227_19720327-argument

Transcript:

Argument of Samuel Huntington

Chief Justice Warren E. Burger: First this morning in number 71-227, United States and Others against Allegheny-Ludlum Steel Corporation.

Mr. Huntington you may proceed whenever you are ready.

Mr. Samuel Huntington: Mr. Chief Justice and may it please the Court.

This case is here on direct appeal from a three-judge District Court sitting in the Western district of Pennsylvania.

The question presented is whether the District Court erred in adjoining the enforcement of two car service rules adopted by the Interstate Commerce Commission to govern the movement of freight cars.

The rules were promulgated under Section 1 (14) (a) of the Interstate Commerce Act which authorizes the Commission to establish reasonable rules with respect to car service.

For more than a century, railroads have freely interchanged freight cars so that freight could be shipped from point of origin to point of destination on a single car.

To govern the return of freight cars through their owners, railroads as early as 1902, adopted a code of car service rules.

Similar rules are now published by appellee, the American Association of Railroads for AAR and virtually all railroads in the country have agreed to abide by that.

The railroads Record of Compliance with the AAR car service rules however has been poor particularly during times of general freight car shortage.

The Commission in this case determined that a number of the AAR rules should be enforced and thus adapted them verbatim as Commission rules.

The two rules here under attack, rules 1 and 2, generally require that unloaded freight cars be returned either empty or loaded in the direction of the railroads owning the cars.

Freight car shortages have been a serious and recurring problem throughout most of this century.

In the 1940s for example, the Commission concluded after a general investigation that railroads as a group had failed to provide adequate freight car service.

The Commission at that time did not adopt mandatory rules in the hopes that the railroad would take steps to solve the problem themselves.

By the the 1960s however, it became apparent that the problem was getting worse.

Clearly voluntary action by the railroads had not provided the solution.

To meet the crisis, the Commission acted on a number of related fronts.

These actions included adjusting their per diem charges that one railroad pays for the use of another's cars, enforcing the requirement that boxcars be free of debris when unloaded and the sponsoring remedial legislation.

The Commission's attempt to add an incentive element in the per diem charges is a subject of another appeal pending before this Court, it's the Florida East Coast Railway appeal, no. 70-279.

The instant case was initiated by the Commission to investigate all aspects of freight car shortages and to consider the prescription of mandatory car service rules.

The evidence in this case showed that the total number of freight cars owned by railroads declined from 1955 to 1964 by more than 12%.

While the individual capacity, the average capacity of individual cars increased during that period, the aggregate capacity of all cars also declined by 5%.

The decline was shortest more than 22% with respect to plain boxcars.

Plain boxcars which make up about one-third of the number of freight cars in the country are the workhorse of the car fleet.

Many railroads and practically all the shippers participating in these proceedings acknowledge the existence of a chronic national freight car shortage.

In fact, appellee, that's the National Industrial Traffic League testified, a witness testified that the number of freight cars in the long run should be doubled in order to meet the needs of the shippers.

To combat the shortage and dislocation of freight cars, the Commission's Bureau of Operations proposed that certain car service rules be made mandatory.

Appellees have attempted to paint a picture of virtual uniform opposition to the imposition of mandatory rules.

In fact however, some railroads and more than some shippers testified that enforceable car service rules were needed.

The strongest opposition to mandatory enforcement of car service rules came from the steel industry.

Witnesses for the industry testified that steel companies have special problems with respect to the loading of freight cars.

The companies introduced studies to show that full compliance with the car service rules 1 and 2 would be impractical.

The same studies however which are cited at page 44 of the Steel appellees' brief, these same studies indicated that a vast improvement in the percentage of compliance with the car service rules was possible, albeit at some cost to the steel companies.

On completion of the hearings, the examiner filed a report recommending discontinuance of the proceedings on the grounds that no shortage of freight cars existed and also on the ground that prescription of the car service rules for mandatory observance was unwarranted.

Justice Potter Stewart: Mr. Huntington, you told us earlier that the Commission moved on several related fronts in attacking this basic problem, one adjusting the per diem and another requiring that the debris be removed from cars before they were returned.

You mentioned sponsoring legislation in Congress.

No new legislation related to this problem has been enacted, has it?

Mr. Samuel Huntington: No, it hasn't no.

Justice Potter Stewart: There have been hearings by --

Mr. Samuel Huntington: There have been hearings but nothing has, no final action has been taken place.

In rejecting the examiner's conclusions the Commission fully analyzed the data on shortages and found that there is in fact a freight car shortage and the Commission also found that an alarmingly low percentage of freight cars are on the lines of their owners at any given time.

The Commission concluded that because freight car owners have such little use of their cars, they are less able to meet the particular needs of their shippers and they have little incentive to spend money purchasing new cars or spend money to maintain their existing cars to high standards.

The Commission therefore prescribed AAR Rules 1 and 2 among others for mandatory observance stating that the primary objective was to increase the availability of cars to their owners.

In that way, railroads could better provide for their shippers and those railroads with deficient car supplies would be identified and compelled to purchase new cars.

Rules 1 and 2 as adopted by the Commission, had a built-in exception provision.

On petitions for reconsideration, the Commission adopted Rule 19 which established an additional procedure for obtaining exceptions.

To determine the validity of the Commission's action here, the starting point is of course the statute Section 1 (14) (a) of the Interstate Commerce Act.

We have traced the legislative history of that section in our brief and I will not go into that here.

The one point I would like to make, I would like to meet the appellee's contention that the statute was designed solely to deal with distribution problems of freight cars as opposed to problems of an inadequate number of freight cars.

I would like to just make three points with respect to that.

First, a look at the original Esch Act of which Section 1 (14) (a) was a part, shows that the act was indeed concerned with the supply of freight cars.

The part of the original Act conferring emergency powers on the Commission, conditioned the exercise of such powers on a determination that an emergency exists in respect of the “supply or use” of cars.

When later an additional provision which is now Section 1 (14) (a) was added to confer powers upon the Commission in non-emergency situations, the Congress simply did not put in that prerequisite requirement for a finding that there was an emergency, so the supply or use language was simply left out of that provision.

Second point I would like to make is that the house report on the Esch Act which is cited at page 21 of our brief, clearly reflects a concern with the under equipment of the roads or the lack of sufficient cars.

Finally, any doubt as to the coverage of the original Esch Act was removed in 1920.

The original Act had defined car service to include the movement, distribution, exchange, interchange and return of cars.

In 1920, the definition was amended to include the use, control, supply, movement etcetera of cars.

The primary thrust of appellee's attack on the Commission's adoption of Rules 1 and 2 is that the Commission failed to make certain findings and failed to get proper attention to the adverse effects of it's order.

It is claimed for example that the Commission should have made a finding with respect to the shortages on high ownership lines.

I think, it would be useful here to define what I mean by high ownership lines.

High ownership roads, as I shall use the term, are those which come relatively close to meeting their responsibilities to provide a fair share of the nation's freight cars.

It's thus defined a high ownership railroad could be a small carrier owning in absolute terms a small number of cars provided that the carrier was meeting its general responsibility to provide a fair share of the nation's supply of cars.

The District Court faltered the Commission for failing to find that freight car shortages were more acute on high ownership railroads than on low ownership railroads.

Appellees appeared was -- assert more generally, that the Commission's order is defective since the Commission did not find that high ownership railroads have a need for the return of their car.

In our view, there are several reasons why neither of these findings was necessary.

First, as I have said, the purpose of the Commission's order was to increase the overall supply of freight cars.

Clearly some railroads would have to purchase additional cars, while the order in general is expected to provide an incentive for all railroads to acquire cars, it in particular puts the onus on the low ownership lines, where it rightly should be.

Second, even if there were no shortages on high ownership lines, enforcement of the rules would not necessarily create an excess or surplus of cars on those lines.

While high ownership railroads will have their own cars returned to them more expeditiously, they in turn, of course, will have to return foreign cars on their systems to the owning roads.

Finally, in the event that a surplus should develop on a particular railroad, the road could make the surplus cars available to other railroads who had a need for those cars.

This could be down under the Exception Provision provided in Rules 1 and 2 and moreover the Commission always has the emergency authority under Section 115 of the Act to order the cars to ship -- to order any surplus car shipped to an area where they are needed.

Appellees also assert that the Commission should have made a finding with respect to the financial capacity of low ownership railroads to acquire new equipment, but the Commission's order does not direct any particular railroad to purchase equipment.

What it does do is to provide an incentive for railroads to purchase equipment.

There are a variety of methods of financing new equipment many of which do not require substantial initial capital outlays.

A witness for the Southern Pacific, for example, testified that that company had acquired a leasing corporation and was prepared to lease freight cars to railroads who were unable to purchase them outright.

And a special provision in the Bankruptcy Act, which we have cited at page 30 of our brief, makes it possible for railroads undergoing reorganization to purchase new equipment.

The Pan-Central, for example, has been able to acquire new equipment while it has been in reorganization and one of the railroads that supported the adoption of mandatory rules here, be then New York, New Haven and Hartford was itself in reorganization at the time of the proceedings.

In general, the argument that specific findings should have been made with respect to shortages in financial capacity must be put in the context of what was and what was not possible in these proceedings.

The Commission squarely acknowledged that it was unable to make findings of shortages on particular carriers.

Obviously therefore, it could not make findings with respect to the financial ability of low ownership roads to acquire equipment.

Yet the Commission could find and did find that the railroads as a whole did not own an adequate number of freight cars.

To say that in spite of this finding, the Commission was powerless to act until every aspect of the shortage was fully analyzed and categorized, would be to restrict unduly the Commission's authority under Section 1 (14) (a) to meet shortages by adopting reasonable car service rules.

Finally, appellees (Inaudible) the Commission for failing to find that the rules would in fact increase the supply of freight cars, but no one can predict exactly what the outcome of mandatory enforcement of these rules will be.

The Commission's conclusion that it's order should have the effect of increasing supply, we submit was entirely reasonable and fully justified by its reasoning which is disclosed by its opinion.

And finally the Commission recognizing that in the light of experience modification to the rules might be necessary, specifically held the proceeding open, so that as experience developed, they could take steps to modify the rules.

Apart from the alleged absence of required findings, appellees contend the enforcement of rules wanted to impose undue hardship on shippers and railroads and like and will completely alter the traditional methods of moving traffic.

To begin with, particularly this later charge brings a little bit hollow, since it is in fact, the railroad's own rules which are being enforced here.

But more to the point, enforcement of the rules will not, as is suggested, result in the abolishment of a national pool of freight cars.

The rules do not prohibit the loading of foreign freight cars.

They simply prescribe the circumstances under which it can be done.

Railroads both large and small will continue to use a mixture of foreign and home cars to meet the needs of their shippers.

With respect to the undue hardship argument, everyone recognizes that 100% compliance with the AAR rules will not be possible.

Indeed a Commission witness testified that it was impossible to write any set of car service rules which could be complied with a 100% of the time.

The Exception provisions adopted by the Commission, we submit, provide the necessary relief which will allow these rules to be workable.

The first provision is contained in note B to Rules 1 and 2 and that's at page 34 of our brief.

That provision permits the railroads involved to negotiate exceptions to the rules where inequities arise.

Now these negotiations will be subject only to the concurrence of the car service division of the AAR, prior approval of the Commission will not be necessary.

It is expected that the AAR would keep the Commission informed as to what sort of exceptions it was approving, but the initial responsibility would be on the railroads themselves to negotiate exceptions and then to obtain the approval of the AAR.

There is no requirement that request to the AAR be in writing and none is sought to be imposed by the Commission.

Nor will a separate exception be required with respect to each individual freight car that is proposed to be loaded not in compliance with the rules.

Negotiated exceptions may in fact involve many freight cars and -- so that appellee's assertion that there will be a flood of request for exceptions, I think, they've predicted something like 40,000 a month, we submit is a very gross exaggeration indeed.

Now where an agreement between the railroads cannot be obtained or where the AAR car service rules does not endorse such an agreement, then Rule 19 comes in to play.

Now rule 19 which was adopted by the Commission on reconsideration grants very broad -- is a very broad grant of authority.

I would just like to read a quote from that rule.

Under that rule, the bureau of operations is given the authority to grant exceptions “for the purpose of further improving car supply and utilization, increasing availability of cars to their owners, improving the efficiency of railroad operations or alleviating inequities or hardships.

The Commission's order promulgating Rule 19 goes even further and specifically authorizes the Bureau of Operations to modify the car service rules for the purposes specified in Rule 19.

Justice William H. Rehnquist: Mr. Huntington, how much paper work would you want to have to go through to get an exception under Rule 19?

Mr. Samuel Huntington: Under Rule 19, I believe the -- you would have to most like -- well, I am not sure this has been worked out.

I'd imagine that for broad exceptions, say which might cover the operations of an entire plant, the submission would have to be in writing.

Now for more casual exception covering only a matter of few cars, I think it might be done simply by telephone and not (Inaudible).

Another attack made by appellee is that the Commission has not provided the courts with the basis for determining whether it's adoption of car service Rules 1 and 2 is consistent with the National Transportation Policy adopted by Congress.

Under that policy, the Commission must administer the Interstate Commerce Act to promote an adequate economical and efficient National Transportation System, but clearly the Commission's action here comports with that policy, since the whole purpose of the adoption of the rules is to promote adequate freight car service and it is this adequate freight car service which the railroads have thus far been unable to provide by themselves.

I would like to reserve the rest of my time for rebuttal.

Chief Justice Warren E. Burger: Very well, Mr. Huntington.

Mr. Truitt.

Argument of Max O. Truitt, Jr

Mr. Max O. Truitt, Jr: Mr. Chief Justice, may it please the Court.

I will present the argument on behalf of the shippers in this case and Mr. Moloney will argue on behalf of the railroads, so we need to divide our time evenly.

On behalf of the shippers, let me say that, we're willing to accept the finding of the conclusion that there is a freight car shortage.

I don't believe it is fair to characterize it as Mr. Huntington did, as a chronic national shortage and I don't believe the record will support that, but we are not willing to accept the Commission's proposed remedy for two reasons.

The first is that when you take Car Service Rules 1 and 2 and make them mandatory, they are not, we contend, reasonable car service rules as required under Section 1 (14) of the Interstate Commerce Act, because they will work enormous injury both to shipper and carriers, without we contend any offsetting benefit and because in fact, they cannot be complied with and because the exceptions provisions to which Mr. Huntington has referred are wholly inadequate.

Secondly, we contend that the imposition of these rules for mandatory observance as a method of solving the freight car shortage problem, as a method of causing an increase in the number of cars that exists simply is not rational.

The thrust of Car Service Rules 1 and 2 is this.

When a railroad unloads a car that it does not own, Car Service Rules 1 and 2 oblige it to return that car to its owner.

The purpose of returning the car to the owner is as the Commission concedes, to make the car available to its owner and the obligation to return takes precedence over the needs of any shippers that maybe located on the lines where the car was unloaded to have their freight moved.

Now it was an obvious correlative of returning cars to owners, it is perfectly clear that some railroads are deprived of the use of those cars, and that some shippers do not get their freight moved by the mere accident of being located on a line which does not happen to have a car of proper ownership, in which its freight can be loaded.

At the present time, the railroads have access either by owning cars or by renting them to a national carpool and access to this pool enables car-poor roads, that is those that don't own enough to serve their shippers by using the cars ship along to other roads.

This has been worked out as a result, really, of a national policy in favor of moving freight as opposed to returning cars merely to their owners.

For example, if for instance, the Southern Pacific loads up all of its own boxcars and sends them of from the direction of the East, it does not have to stop sending traffic in the way till gets its cars back.

It can send the cars of other railroads, can load them and send them wherever the freight needs to go.

The Commission's order changes all of that and as I say, creates an absolute claim by an owner on the use of this car and it gives his shippers a preferential access to rail transportation.

Our first argument is that the Commission's order cannot be sustained as an order which prescribes a reasonable Car Service Rules, of course, the rules are not reasonable for their main obligatory.

As the record reflects, the absolute compliance with the rules will cause enormous injury to shippers.

The injury to the shippers and I must say, that the steel industry was only one of several which opposed these rules vigorously, is detailed throughout the record.

The gypsum industry opposed, the grocery industry opposed, the chemical industry opposed, every industry which brokers its products in transit opposed, because obviously, if you're located on the West-coast and you are sending a car, you are sending a load East and you are going to sell it on the way, and you don't know until it gets midway across the country, whether it's going to end up in Portland, Maine or in Miami, Florida, you can't very well load that car in compliance with the rules.

The steel industry, particularly detailed an absolute inability to forecast the needs at the loading docks in order to order cars of appropriate ownership, even if the roads which serve the plants happen to have proper ownership cars on hand.

The hearing examiner found, for example, that at the Youngstown plant at Campbell, Ohio, the obligation to comply with the rules, would create a situation which couldn't be dealt with, the steel company simply did not have the room, the switching facilities to load cars properly.

And it was this kind of evidence and that kind of finding which the Commission, I think rather cavalierly characterized as some extra switching and short delays.

Other shippers as I say, also opposed the observance of these rules on a mandatory basis vigorously.

The Commission, indeed acknowledged or the hearing examiner acknowledged that the shippers presented a solid opposition to the rules.

Now against that solid opposition and against the evidence that mandatory observance would injure shippers, one would suppose that the Commission would have found that there would be some offsetting benefits in terms of car service, but there isn't.

The best the Commission can do is to say that return of cars to the owners will improve utilization by making them available to the owners and it is here, I think that, we and the government, so fundamentally disagree.

If improving -- if making cars available to the owners is really going to improve car service, well then it must be because there is freight on the owner's lines to be shipped or there is more freight on the owner's lines to be shipped, or that whatever freight that is there is in greater need of shipment than the freight which is located where the car was unloaded.

But there is no such evidence anywhere in the record and it is for that reason, of course, that there is no finding.

Moreover, in the 1947 proceeding, to which Mr. Huntington referred, it's entitled Car Service Freight Cars and it is eluded to at page 20 of our brief, the Commission found that in times of car shortage, maximum utilization of the existing freight cars fleet required, ignoring Car Service Rules 1 and 2, and instead of taking an unloaded empty and sending it back to the owner, to or toward the owner, if there wasn't load ready to go with it, that the maximum utilization of the freight car fleet was achieved by taking that empty and sending it to the nearest freight in moving that.

In this proceeding, the Commission has offered absolutely no justification whatsoever for departing from that precedent.

Accordingly, we urge as our first point, that the rules cannot be sustained as reasonable Car Service Rules.

Our second --

Justice Potter Stewart: These rules 1 and 2 go back how far?

Mr. Max O. Truitt, Jr: I believe the present per diem in Car Service Agreement, Mr. Justice Stewart, goes back to about 1920.

The rules have existed in this form for about that long, I don't mean in this particular form of words, but in this set of --

Justice Potter Stewart: Basic structure --

Mr. Max O. Truitt, Jr: It is a -- it's a -- it isn't a set of instructions really, it's a statement of preference.

If the Southern Pacific Railroad has a load freight that is bound for Maine and it has one of its own cars and it has a car of Northwestern road and it has a Boston and Maine car, it's in the rule state of preference for loading the B&M and sending that car back towards to its own road, but it's never been -- it's never been obligatory and it's has never been enforced so that freight is left un-shipped.

So that if the only cars, the Southern Railroad has are the Boston and Maine cars and it has a load going to Seattle, Washington, and it doesn't have a Seattle, Washington car, then it can use the B&M car and send the freight up there.

Under the Commission's proposal of course, they won't be able to do that, that will be a violation of car service --

Justice Potter Stewart: Well under the wording, or am I wrong, under the wording of Rules 1 and Rules 2 as adopted voluntarily by the association and its members that, the Southern Pacific or whatever your road was, wouldn't have been free to do that?

Mr. Max O. Truitt, Jr: Well the rules, although they may read on their face as flat --

Justice Potter Stewart: In fact, the common law of the --

Mr. Max O. Truitt, Jr: In fact, the common law of the railroad --

Justice Potter Stewart: They weren't appeared.

Mr. Max O. Truitt, Jr: -- is such that they have been always allowed to make common sense transportation officer good judgments about whether violation of the rules is going to move the freight and in fact, in 1967, when the current version of the AAR Rules was adopted, it was a good faith, a standard of good faith diligence was written into the rules expressively.

So that it is never been an absolute prohibition or an absolute injunction about how cars --

Justice Potter Stewart: Even though its literal words might imply other way?

Mr. Max O. Truitt, Jr: Yes sir, that is correct.

Chief Justice Warren E. Burger: But these rules voluntarily agreed upon have not prevented box cars, freight cars, from sitting empty in one part of the country for long periods when they are desperately needed in another parts, isn't that true?

Mr. Max O. Truitt, Jr: I believe there is some evidence of that in the record, Mr. Chief Justice, yes.

Justice Potter Stewart: The Commission has found that in --

Mr. Max O. Truitt, Jr: I believe it did find that.

The question though is whether the rules, the argument to which I am about to come is whether the imposition of these rules for mandatory observance, is a rational way of expanding the size of the freight car fleet for that after all is what the Commission is really about, that's what it was really trying to do.

The theory of the Commission's order is simply to make the poor poorer.

You take the railroads don't own enough cars and you don't let them rent cars, then in theory they will have to go out and buy cars and that is, I believe, the acknowledged purpose of the rules, but we contend that that there are simply no findings to support such a proposal.

In the first place, there are no findings of which shippers will be deprived of cars or of which or what type volume of freight will be delayed or transferred to competitive modes of transportation, nor is there any explanation in the Commission's report of how depriving some identified shippers of their access to railroads, and thus depriving those railroads of the revenues they could earn, if they could use the cars to move freight, is consistent with the goals of the National Transportation Policy which are to foster, adequate, economical and efficient service.

Although the Commission is obliged under the National Transportation Policy to administer the Act so as to foster economic conditions, sound economic conditions among carriers, to prevent destructive, competitive practices and to prohibit unjust discrimination.

There are no findings in the Commission's report concerning the impact of its order on aspect of competition.

The hearing examiner noted that evidence existed in the record, that the rules would have an effect on competition and indeed he chastised some of the Commission witnesses for failing to develop what precisely the impact would be.

But the Commission's report here is absolutely silent and it gives absolutely no consideration to what effect these rules will have on shippers, on carriers, rail carriers or indeed, on one class of carrier as opposed to another class of carrier, so we don't have any idea what the Commission's Rule will really do.

The final and I think the most glaring omission is the failure to find that any road will be financially able to purchase cars since the objective of the Commission's proceeding is to cause railroads to increase their ownership it seems only reasonable that the Commission should determine that they are able to do that do that.

It didn't and the reason it didn't, I suppose, is perfectly clear.

As we mentioned in our brief, commissioner Stafford of the Commission, when he was testifying on one of the Bills you asked about, Mr. Justice Stewart, just last year, testified before the Senate Commerce Committee that the railroads simply didn't have the economic capability of solving the freight car shortage.

That I think is why there is no evidence about which roads could buy, that is why there is no finding that the roads deprived would in fact be able to buy.

Indeed, when you consider the whole statute, you will discover that there is one section which is Paragraph 21 of Section 1, which authorizes the Commission to acquire railroads, to acquire facilities, but it doesn't permit the Commission to do that unless the Commission finds that the roads which will be ordered to acquire facilities can in fact do so without impairing their financial ability of serving the public and discharging their common carriage obligations.

Mr. Chief Justice, one word in response to the question you asked me specifically; the evidence to which the Commission adverted, box cars sitting idle was in its discussion of assigned cars.

Those are cars assigned by a road to a particular shipper.

It was not, in respect to general purpose freight cars, which is the classic cars and to which this order applies.

Accordingly, we urge that the decision of the District Court should be affirmed.

Thank you.

Chief Justice Warren E. Burger: Very well, thank you Mr. Truitt.

Mr. Moloney.

Argument of William M. Moloney

Mr. William M. Moloney: Mr. Chief Justice, may it please the Court.

I am here representing the Association of American Railroads and it's member lines.

It is my purpose and it's my hope that I will be able to highlight some of what we consider to be the unusual aspects of this case or at least aspects that we consider to be out of the ordinary.

Now the rhetoric used in this case might be the inevitable result of the case, and you heard a part of that from government counsel a moment ago when he referred to owner railroads or a railroad that owns almost as many cars as it should own, but there is nothing in his evidence to identify that railroad or any other railroad, or how many cars that railroad should own, or whether it owns a relatively higher percentage of cars or it's relatively low percentage of cars.

Now this is the rhetoric mismatch that this case really finds itself bogged down in.

We find the use of such descriptive terms in instance owner railroads and non-owner railroads and we find descriptive terms such as railroads owning an inadequate supply of freight cars and railroads owning an adequate supply of freight cars.

We find such times as railroad's responsibility being shifted for car ownership.

We find such times as the use by one railroad of the car belonging to another railroad which later railroad owns a relatively high number of freight cars.

In the word what we find here is an apparent alignment of the haves against the have nots as far as a railroad industry is concerned.

Now there is no evidence in this record from which to define those terms or from which to identify those railroads and yet it is argued by the government that the Commission's order will benefit the haves and then it will deprive or penalize the have nots.

There seems to be a very clear implication that they have railroads do or at least that they should support the Commission's order and that only that you have not railroads oppose the Commission's order, but do not be mislead.

The railroads have been unanimous in their opposition to this Commission's order from the very moment it was first proposed by the Commission, the Bureau of Operations.

Now the government says this -- this proceeding was instituted to determine, whether the mandatory rules should be proposed.

The first statements that were filed in a proceeding before the Commission were addressed to absolutely nothing, and as the Commission's order did nothing accept come in – to say come in with your hat in hand and a let us hear from you.

It was only when the Commission's Bureau of Operations, put in their own statements and they proposed mandatory car service rules, that the railroads then said, we cannot with live with any such provision and they said that practically, unanimously.

Now when I said come in with your hat in hand and then it was directed at nothing, there was a series of questions that the Commission have attached to its order, and it was -- our proposals or our statements who addressed to that.

What is the Examiner says, it was pretty much in a vacuum, and he laid out the reasons, why it seemed to be pretty much in a vacuum.

Now this evidence contain -- or this record contains no evidence at all as to which railroads own an adequate, or which railroads own an inadequate supply of cars.

And indeed the most significant thing is that, it contains absolutely no standards by which to judge, what is adequate or by which to judge, what is inadequate, either by individual railroads, or indeed by all railroads collectively.

I think the Chief Justice asked the question about cars sitting around the country.

You heard government counsel say that the Commission admitted that it was unable to find a shortage of freight cars on any particular railroad.

Now obviously, if it was unable to find the shortage of cars on any particular railroad, it was unable to find a shortage of cars in any particular areas of the country.

Because it would be very simple to find cars shortages on railroads in the West, car shortages on railroads in the East, car shortages on railroads in the South, and to point to the railroads, but the answer was the Commission could not do that, and we understand why, no evidence in the record.

Now the same uniform front of opposition to the Commission's order applies to the shippers and the peculiar thing about that is, that it applies to the shippers, whether they happened to be located on the so called have not railroads and supposedly thereby being benefited by the Commission's order, or whether they are located on the unidentified have not railroads, that is the haves being benefited, the have nots being hurt, wherever those shippers are located, we found them unanimous, unanimous in opposition to the Commission's order.

Indeed you have in this case, National Industrial Traffic League and you have the National Association of Shippers Advisory Board.

Put together, those organizations represent somewhere in the neighborhood of about 35,000 shippers in the United States, and indeed it has been estimated that they account for over 80% of the commercial traffic in this country.

The Commission justifies its order on the basis, that its primary purpose is to give the railroad owners ready to use of their own cars, but that pointed out to you now these same railroads because we are practically unanimous in this, these same railroads tell the Commission no thank you.

Your order will be unreasonably injurious and detrimental to us, and it will hurt the shippers that we serve and further more your order is unlawful and we cannot live with it.

And now let there be no mistake, the railroads are not aligned in groups contending for and against this Commission's order.

They are before you as they were before the Commission and before the court below.

They stand here united for all practical purposes, united in their opposition to the Commission's order.

Justice Harry A. Blackmun: Mr. Moloney twice you've said for all practical purposes, this say infers for me, the reservation in part, is there any reservation?

Mr. William M. Moloney: Well, I have to make reservations for certain things that were pointed out such as the New Haven Railroad, which we think is a very unusual situation.

I have to make exceptions for instance to, to some terminating railroads, that -- well, let's say the Florida East Coast Railroad, as we've often said it's rather hard or I have often said it's rather hard to load a car off to Peninsula, Florida without loading it back in the direction of the owner, someone must own it somewhere.

Now the court below is not mislead by any implication of contending factions within the rights of the railroad industry, or within shipper rights or indeed of any contention between those two rights.

Chief Justice Warren E. Burger: What was the genesis of the order?

Mr. William M. Moloney: The genesis of the order to return the cars to the owners.

Mr. Chief Justice, I think the genesis of the order was a determination by the Commission in this instance and we said so in our brief below, a determination by the Commission in this instance said it was going to come out with an order and this is the order that the Commission came out with.

Chief Justice Warren E. Burger: Nobody wanted any change in the status quo?

Mr. William M. Moloney: No one that I know of, and I say that I mean no significant group of shippers.

Indeed in the government -- government's brief, they refer to for instance to the Commission of the State of Oregon as supporting, as supporting, mandatory car service rules.

But the examiner in his report took up in detail the testimony of the Commission of the State of Oregon and indeed the Commission Rules said, now when you file your evidence before us, we want you to file evidence and we want you to file argument, and we want you to distinguish between the two.

And everything that the Commission of Oregon said about mandatory car service rules, the examiner said, I find that in argumentative section of your presentation and I do not consider that evidence.

As far as the -- as far as the Department of Agriculture is concerned, and that's cited in the Commission's brief, the witness for the Department of Agriculture, when he took the stand and submitted himself to cross examination, he admitted that they did not favor mandatory car service rules, except on a temporary basis and for the sole purpose of accumulating statistical information which was absent from the record.

And indeed, when I asked that witness, what he considered to be the worth of this record, he said, he did not think that the record permitted the Commission to make an intelligent decision.

So the Bureau is – the ICC Bureau is practically the only that proposed this.

Now the origin, the genesis, what made him do it, I have no idea, but the proposal of mandatory Car Service Rules 1 and 2 for whatever reason, originated with the Bureau of Operations of the Interstate Commerce Commission and as I'll point out later with one man actually.

In fact, I think we have referred to it is as inspired vision almost and that witness is the only one that I know off that came out with this firm demand.

Now, the National Transportation Policy has been mentioned.

We feel that the United Front in opposition to the Commission's order makes the National Transportation Policy, and the measuring of the Commission's order in this case, against that policy highly important.

Because here you have for all practical purposes, the shippers and receivers of freight and the railroads that serve those shippers and receivers standing before you and saying this order is unlawful and it is harmful.

Is it not be un-proper that you look more carefully at the National Transportation Policy and how this order comports with it?

Now as applied to this case, that National Transportation Policy really means, that the Commission's order here must be in the interest of providing fair and impartial regulation of railroads, of providing the shippers with economic, adequate and efficient railroads service and of fostering sound conditions in the railroad industry.

Now I suppose, we may treat all of these provisions as the National Transportation Policy as something that would be embraced within the general term of public interest.

But to the question, that wherein lies the public interest to be served in this case, we are compelled to submit that the answer to that question can only be found in the interest of the receivers and shippers of railroad freight and of the railroads it serves and if that public interest can be found anywhere else, it escapes us.

Now another twist, that we find a little peculiar in this case is, that the Commission's abrupt departure from long established policies and principles then with little or no explanation as to why they departed.

Until the decision in this case, there had not been a shadow of doubt that in times of car shortage, the railroads had an obligation to achieve and without regard to car ownership, the maximum utilization of all freight cars available.

Indeed, the National Transportation Policy on the public interest to be served seem to us to permit no other course of action, but here the Commission finds a car shortage, but it says, we are no longer interested in obtaining maximum utilization of freight cars during that shortage.

Instead, it orders a movement, a car movement pattern which it says itself is inconsistent with the maximum utilization of freight cars during the time of the shortage.

And it does this, it does this on the theory that, that will force some unidentified railroads to buy an indeterminate number of freight cars and regardless of their financial condition to do so.

Now how a deliberate aggravation of an existing what they found to be an existing chronic freight car shortage, how a deliberate aggravation of that shortage can possibly be in the public interest and comport with the National Transportation Policy is something that the Commission report and order leaves entirely to the imagination of the Court.

Now as we see it the Commission has taken what I term a page from the International Diplomacy book and we think it's embarked on a course of workmanship.

Now we -- I say that not in guess, but in seriousness because in both the jurisdictional statement and the brief, the government says that the order here in issue is one of the series of actions, that it is taken to alleviate the crisis which it finds to exist.

I am sorry, I think my time is expired.

Chief Justice Warren E. Burger: Mr. Huntington, you have about 9 minutes left.

Rebuttal of Samuel Huntington

Mr. Samuel Huntington: Thank you Mr. Chief Justice.

In respect to Mr. Justice Blackmun's question I would simply like to point out that the New York New Haven & Hartford Railroad was not the only railroad to support mandatory enforcement of car rules.

The BNO and CNO supported the rules, that's at page 188-189 of the Appendix.

The Great Northern supported the rules at page 190 of the Appendix, and the Pennsylvania Railroad supported the rules at 198 of the Appendix.

These are not small railroads.

Now with respect to the argument that these rules will not increase the utilization or not improve the utilization of cars, I would simply like to stress again, that the purpose here is not to increase the utilization of primary purpose, but to increase the supply.

If the supply continuous to diminish, you can have the best utilization in the world, but still be faced with the crisis.

Chief Justice Warren E. Burger: Well how can you -- I am little puzzled this to how you can separate the two things.

If you have --

Mr. Samuel Huntington: Well I think, I think --

Chief Justice Warren E. Burger: you have (Inaudible) cars then there is and that create a pressure for more cars to meet the same demand?

Mr. Samuel Huntington: Well the -- what -- I think if we look at in terms of the short range effect and the long range effect, clearly, if you are interested only in the short-term then you will want to load whatever cars are available with whatever freight to go anywhere.

But if you are interested in the long-term to increase the supply then you want to create a set of circumstances which will encourage the roads to purchase new cars and that is what the Commission has sought to do here.

They have sought to provide the railroads with an incentive, they have sought to give the railroads greater use of their cars.

So that they will then have some incentive to go out and purchase cars.

They have also sought to put the owners on the particular low ownership roads that should be purchasing new cars so that they can know that they are deficient, there will be pressure on them to purchase new cars and they can justify their needs.

Now as the Penn Central for example which is in reorganization has been able to purchase cars because there is pressure on that railroad and they can go before the bankruptcy court and they can justify the need and this is essentially what the Commission is seeking to do here, to put railroads in a position where they will have to meet that need by taking whatever steps are available to them.

Justice Lewis F. Powell: Mr. Huntington what type of evidence was submitted to the Commission in support of its finding that there is an acute shortage of cars, and from what sources did the evidence come?

Mr. Samuel Huntington: Well the evidence came from first from submissions to the Commission by the railroad showing that over a ten-year period from 1955-1964, the total number of freight cars in the nation had decreased particularly with respect to plain boxcars and the total aggregate capacity had also decreased.

Justice Lewis F. Powell: Had the demand increased during that period?

Mr. Samuel Huntington: The demand had decreased, but at a much lower level.

The demand decreased by about 3% whereas total capacity had decreased about 5%.

With respect to plain boxcars though where the shortage is the strongest, the total capacity had declined I believe around 12%.

In addition to that there was evidence that there were indeed shortages being reported by shippers and these were compiled in various reports submitted to the AAR and introduced into evidence in this record.

Now these reports did come under heavy attack as being somewhat exaggerated and the Commission fully dealt with that in its opinion.

It recognized the fact that shippers sometimes order more cars then they need.

The AAR had in its treatment of these figures reduces them by 50% and that perhaps would be a good ballpark method of dealing to these statistics.

Justice Lewis F. Powell: Was the Commission motivated to act by complaints from shippers or did it act on its own motion?

Mr. Samuel Huntington: It acted -- it initiated this investigation on its own motion.

The fact is though that virtually all the shippers testifying and participating in this proceeding, testified that there was indeed a national shortage.

One other question I would like to address to myself here is the effect that this order will have on competition and the effect that it will have on low ownership railroads.

In their brief and here in argument the contentions that competition among railroads will suffer, seems to be based on two assumptions.

One, that small carriers will no longer have access to a national freight carpool, and two, that it is the small carriers who will suffer most from the rules, but neither of these assumptions has justified.

First of all, as I stated before railroads will continue to load foreign cars.

They will use a mixture of foreign and home cars.

There is no absolute rule here that you have to send the car back empty.

You simply have to find the car of the right ownership and then you can load it and send it back in that direction.

Second, many small railroads maybe high ownership roads, that is they may already contribute their fair share of cars to the national pool and finally, even the assertion that the financially weak railroads will be affected the most, is somewhat undercut by the experience in Penn Central where need is shown the necessary step that can be taken.

In conclusion, I would like to say that the Commission here could not make specific findings as to the ownership levels on particular roads, the data wasn't available.

To take care of this, the Commission adopted a formula in this very proceeding and the railroads are compiling data and they already are submitting it to the Commission, and in the future the Commission will have much better data on which to act.

The proceeding is open for that very reason.

As the data comes in, the Commission can take the necessary steps to modify its rules, but what they did find here was it there was an overall shortage and that something had to be done not five years from now, but right now and we submit that under these circumstances that the mandatory adoption of these rules at this time is fully appropriate.

Thank you.

Chief Justice Warren E. Burger: Thank you Mr. Huntington, thank you gentlemen.

The case is submitted.

Featured:

Norfolk & Western R. Co. v. Nemitz - Oral Argument

Thu, 23 Aug 2012 18:19:23 +0000

Case:

Norfolk & Western R. Co. v. Nemitz

Media File:

70-97_19711021-argument.mp3

Related Transcript:

70-97_19711021-argument

Transcript:

Argument of Martin M. Lucente

Chief Justice Warren E. Burger: Number 97, Norfolk and Western Railroad against Nemitz.

I will just give the bar, time to disperse.

Mr. Lucente.

Mr. Martin M. Lucente: This is not in anticipation of the argument in fact.

Chief Justice Warren E. Burger: You must not feel that you are not as good at drawing cards.

I think you may proceed now Mr. Lucente.

Mr. Martin M. Lucente: Mr. Chief Justice and may it please the Court.

The primary question presented by this case involves Section 5 (2) (f) in the Interstate Commerce Act.

Initial provisions of that Section required Interstate Commerce Commission as a prerequisite, the approval of a merger to impose protective conditions for the benefit of employees affected by the transaction.

That last sentence as an alternative to the imposition of conditions by the Commission, provide that not withstanding any other provisions of the act, in agreement pertaining to the protection of employees maybe entered into by any carrier and a duly authorize representative that with its employees.

At issue here, the relationship between the Commission’s authority to impose protective conditions and the right of representatives, their carriers and their employees to enter into agreements concerning that subject.

The claims asserted by the respondents in this case arise out of the 1964 merger of the Nickel Plate, Norfolk and Western and several other carriers.

As a part of that transaction, the Norfolk and Western required the Sandusky Line from the Pennsylvania Railroad.

The respondents were employed by the Pennsylvania and worked on the Sandusky Line prior to its sale to the Norfolk and Western.

His employees seek certain payments which they contend they are entitled to under the Commission’s order approving the merger.

When the N and W sought Commission approval of the merger approximately 20 railroad unions intervened in opposition and asked the Commission to impose protective conditions by the benefit of employees who might be affected.

Following extensive negotiations however, the brotherhood of railroad trainmen which representative respondents and the other unions entered in to an employee protection agreement with the Norfolk and Western dated January 10, 1962.

This agreement which we cited that it was made pursuant to the last sentence of Section 5(2)(f) provided a type of employee protection which differed significantly from that which Section 5(2)(f) requires when the Commission imposes protective conditions.

And protective benefits are prescribed by the Commission and employees pre-merger compensation must be protected for a period of four years or for the number of years of employment prior to the merger whichever is less.

There is no guarantee of continued employment and the protection flows only from the employing carrier.

When the protective benefits are prescribed with the 1962 agreement however when far beyond this type of protection and constituted in effect a lifetime guarantee of employment and compensation.

Initial paragraph, the agreement provided that with respect to Nickel Plate employees, N and W would take such employees into his employment would guarantee that they would not be adversely affected with respect to employment or compensation subsequent to the merger.

Paragraph 2 of the agreement provided the same thing for Wabash employees.

Section 3 of the agreement covered the Pennsylvania employees on the Sandusky Line, They were given an option first to remain with the Pennsylvania or to become employees of the N and W.

Section 3 provided that those electing N and W employment would not be deprived of employment or placing the worst position with respect to compensation except and I quote “that Norfolk and Western shall not be required to provided employment to any such employee of greater duration than such employee and joined under Sandusky Line in the year prior to merger.”

The written record of the negotiations with respect to this agreement shows that the parties by this proviso intended to make the guarantee for Pennsylvania employees, co-extensive with there pre-merger employment experience on the Sandusky Line.

In this respect, the protection provided by Section 3 differed somewhat from that provided by Sections 1 and 2, under Sections 1 and 2 the employees were protected on the basis of their full pre-merger earnings, by protection for Pennsylvania employees was limited to their earnings from the Sandusky Line.

The reason for this difference lies in the nature of the transaction.

With respect to the Nickel Plate and Wabash employees who were covered by Sections 1 and 2, the Pennsylvania or the N and W rather required the entire working territory that these employees held seniority rights over.

The protection which the N and W provided was accordingly based on their pre-merger employment without limitation.

The Pennsylvania employees then on the other hand who worked on the Sandusky Line, also worked in other portions of the Pennsylvania which were not acquired by the N and W.

Operations on the Sandusky Line or Maine by employees of the Pennsylvania who had seniority right over the entire Toledo Division.

Sandusky Line was a only part of the Toledo Division.

These employees worked part of the time on the Sandusky Line and part of the time another portions of the Toledo Division.

When the N and W acquired the Sandusky Line it thus acquired only a portion of the working territory of these employees and it offered protection limited to the portion of the territory acquired.

This type of protection was intended primarily to discourage an excessive transfer of Pennsylvania employees to the N and W pursuant to the option which I have already referred to.

If a transfer appeared attractive only to those with full time earnings on the Sandusky Line, it was assumed that a sufficient number of employees would remain with the Pennsylvania to permit it, to man its operation on the remaining portions of the Toledo Division and that the number electing employment with the N and W would be fairly consistent with the operational need down the acquired line.

Despite this purpose some employee with limited earnings on the Sandusky Line did elect to become N and W employees.

The respondent in this situation, in this case rather, illustrate the situation.

Prior to the merger, the respondents here worked primarily on other portions of the Toledo Division spending only very limited time on the Sandusky Line.

They nevertheless chose to abandon their former working territory and to limit themselves to the Sandusky Line, which had provided only minimal work opportunities for them.

Had these employees remained with the Pennsylvania, it is unlikely that the sale of the Sandusky Line would have any appreciable effect on their earnings.

To return to the chronology events, the Commission approved the merger in 1964.

Its report referred to the fact that the employee representatives in the N and W had entered into an agreement pertaining to employee protection and as to such employees the Commission found that in view of the agreement, no conditions be imposed for the protection of those employees covered by such agreements.

Now, with respect to employees not covered by the agreement, the Commission did prescribe and imposed in its order of approval the traditional for your income protection with Section 5 2 f requires in those circumstances.

The approved transactions were consummated in October 1964.

During the month immediately following the N and W and the brotherhood attempted to compute protective benefit due to the Sandusky Line employees.

The N and W was able to obtain from the Pennsylvania earnings data pertaining only to total earnings over the Toledo Division.

It was unable to obtain in the initial stages following the merger, a break down showing wages earned on the Sandusky Line alone.

It was consequently impossible on basis of that data to determine the benefits due to employees under Section 3.

Accordingly, an implementing agreement and a letter of understanding were entered into.

The letter of understanding provided for monetary payments which met the immediate needs of the employees, while the implementing agreement contained a very detailed formula with respect to the calculation of benefits.

The agreement very expressly provided that such benefits were to be determined by taking the total compensation received by the affected employees for service performed on the Sandusky Line in 12 months prior to merger and dividing by 12.

Following this disposition of the matter several of the employees, former Pennsylvania employees, complained to their union officials that implementing agreement 1A and the letter of understanding did not provide the payment that they were entitled to under the 1962 agreement.

These employees contented that the 1962 agreement protected entire earnings over the entire Toledo Division that implementing agreement 1A gave them something less.

The brotherhood officials, who had negotiated these agreement, advised the complaining employees that their interpretation of the 1962 agreement was wrong and that implementing agreement 1A as fully consistent with the 1962 agreement.

The complaining employees were then afforded to full hearing before the brotherhood of National Board of Appeals where their position was fully presented and thoroughly considered.

The employees also urged before the board that the question of the meaning of the 1962 agreement at relationship to the implementing agreement 1A should be taken to arbitration and as provided by the agreement.

The Brotherhood's National Board of Appeals, is very highest appellate body concluded that the position taken by the employees was without merit and that implementing agreement 1A was entirely consistent with the 1962 agreement.

The board also did conclude that there was no disagreement between brotherhood and the N and W as to the meaning of these agreements and it consequently inclined to invoke arbitration.

Employees then instituted the present action under Section 9 of the Interstate Commerce Act under theory that the N and W had acted contrary to the 1962 agreement, that the Commission had incorporated the 1962 agreement in to its order, that the N and W had therefore violated an order of interstate Commerce Commission.

The N and W moved for dismissal in summary judgment under ground, one, that the Court was without jurisdiction since the action was going to enforce a collective bargaining agreement not an order of the Commission.

Two, the arbitration procedures of the 1962 agreement were alternatively the process of the National Railroad Adjustment Board provided exclusive remedies and three, that implementing agreement 1A governed the rights of the employees in this matter.

District Court denied these motions but granted a cross motion for summary judgment and issued to declaratory judgment upholding the 1962 agreement interpretation for which the respondents contended.

The Court of Appeal deferred holding that under Section 5 (2) (f), the Commission must prescribe protection for affected employees whether or not a prior agreement on this subject has been made.

The court acknowledged the Commission had expressly disclaimed any intent or obligation to prescribe protective conditions but it held that the Commission order must nevertheless be construed to impose the provisions of the 1962 agreement, because of the court’s view of the meaning of the Section 5 (2) (f).

The court accordingly concluded that the right set forth in the 1962 agreement were incorporated in the 1964 order and for purposes of Federal Court jurisdiction stand from such order.

Chief Justice Warren E. Burger: We will begin after lunch.

Very well, you may proceed.

Mr. Martin M. Lucente: Mr. Chief Justice, and may it please the Court.

I had just described to the holdings of the Courts below.

I should now like to discuss the respects in which we can consider those decisions to be wrong.

The basic and primary error of the decisions below concerns the conclusion that the Interstate Commerce Commission as required by Section 5 (2) (f) of the Act to prescribe protection for employees despite the existence of a prior collective bargaining agreement on this subject.

In terms of the act, its legislative history, it clearly show that congress intended to preserve for the parties to a merger, the right to resolve employee protection problems reflect to bargaining and that an agreement on the subject was to be a self sustaining alternative to the prescription of conditions by the Commission.

This is apparent both in the terms of the Act and its legislative history.

Respect to the letter structure of the Act, the first two sentences require the Commission as a part of its approval of a covered transaction to prescribe conditions for the benefit of affected employees.

The last sentence specifically provide that not withstanding any other provision of the Act, representatives of the carrier and there employees may enter into agreements pertaining to protection of employee.

The only possible reason for the inclusion of this not withstanding language was to ensure that nothing in the Act would be construed to limit the right to make agreements and to require any questions in this regard to be resolved in favor of the party's right to make collective bargaining agreements pertaining to employee protection.

The only provisions of the Act which relates in any way to employee protection are the provisions Section 5 (2) (f).

The first two sentences of that section are thus the only possible source of restrictions on the party's rights to agree to employee protection would seem indisputable therefore that the notwithstanding clause of Section 5 (2) (f) eliminates any restrictions on the collective bargaining process which might otherwise be inferred from the first two sentences relating to the Commission's authority and obligations in the premises.

This apparent literal meaning is amply confirmed by the legislative history of the Section.

This history shows that Section 5 was the results of an agreement between labor and management that congress enacted the substantive provisions upon which the parties agreed.

The labor spokesman for the sponsoring group stated at the so called Washington Job Protection Agreement provided a suitable protection in the event of a merger and that labor would not be seeking legislation on the subject at all, were not for the fact that approximately 15% of the Railroads were not parties to the agreement.

This spokesman said that if we could get all of the roads into the agreement, we would not even suggest protection as a matter of law.

Thus the requirement that the Commission imposed protection for employees was intended to be operative only in the event that a voluntary agreement had not been reached on this subject prior to Commission approval.

The principle congressional spokesmen supporting this legislation stated the purpose of the Section as follows and I quote.

“He proposed labor clause, set-up specifics standard for the Commission to follow.

But this provision also contained a clause that permits the industry through the processes of the collective bargaining, to work out its problems in a democratic manner.”

The congressmen primarily involved in the passage Section 5 (2) (f) thus clearly expressed the view that the language of Section 5 (2) (f) provided standards for the Commission to follow but only where the parties did not resolve employee protection problems through a voluntary collective bargaining agreement.

This legislative history revealed that every group, that was active in sponsoring Section 5 (2) (f) was opposed to agency dictated protection in every merger and was insistent that the process of collective bargaining be preserved as an alternative to agency prescription of protective conditions.

Despite this overwhelming evidence of the purpose and meaning of Section 5 (2) (f), the Courts below construed the severely limited ability of unions and the carriers to enter into agreements with respect to the protection and to require the Commission to impose protection in every instance.

The decisions below effectively eliminate the last sentence of Section 5 (2) (f) as an operative portion of the statute.

Under these decisions, the Commission is required to review agreements relating to employee protection, to determine their adequacy and to impose the terms and conditions which it considers proper.

The collective bargaining agreement thus become nothing more than a suggestion to the Commission as to what it might do in the case pending before it.

If the third sentence of Section 5 (2) (f) were eliminated from the statute entirely, no one would question the right of labor and management to enter into a stipulation, submit the stipulation to the Commission suggesting what protective conditions should be imposed.

But under the decision below that is sole function which is now attributable to the last sentence of Section 5 (2) (f), the last sentence thus become a virtually meaningless appendage to the Section.

Unknown Speaker: Can I ask you, that the Commission does incorporate in its order the terms of an agreement entered into between the union and the company, may the union and the company after the Commission enters its order, arrive in an agreement different from what the Commission has put in its order?

Mr. Martin M. Lucente: Under the decision below --.

Unknown Speaker: Well, what is your view?

Mr. Martin M. Lucente: My view of the statute is that if the Commission has entered an order which imposes certain protective conditions, the parties thereafter, under the last sentences of Section 5 (2) (f), have the right to enter into an agreement -- .

Unknown Speaker: Contrary for setting different terms --

Mr. Martin M. Lucente: which might be at different terms in those prescribed.

Unknown Speaker: And do you not have to win on that point to win this case?

Mr. Martin M. Lucente: No.

No Your Honor, we do not because in this case the agreement upon which we rely principally that the agreement that was entered into prior to the Commission’s order approval --

Unknown Speaker: Exactly.

Mr. Martin M. Lucente: This was arrived at prior to the Commission’s order of approval.

Unknown Speaker: Let us assume that the prior agreement and the Commission's order have terms in them that are different from the later agreement.

Mr. Martin M. Lucente: Then we have to convince you Your Honor that under Section 5 (2) (f) the party subsequent to a merger, may collectively bargain and adjust the condition to suit what they considered to be the —

Unknown Speaker: So, to win you have got to overturn then I take it or you would like to overturn the construction of the prior agreement, given to that agreement by the District Court and Court of Appeals?

Mr. Martin M. Lucente: We assume Your Honor that the prior agreement was not incorporated in the Commission authority.

Unknown Speaker: That is one point.

Mr. Martin M. Lucente: Then we need only prove as I said that under the Section 5 (2) (f), the parties have a right to enter in to such a prior agreement and if any dispute arises as to what the prior to agreement means then there is a process and arbitration and the other administrator process is open to determine that question.

If the prior agreement stands then Your Honor as independent self-sustaining collective bargaining agreement and the party's right with respect to are the same with respect to any other collective bargaining agreement.

Unknown Speaker: Yes, but to my understanding, then go on, supposedly Commission’s order is an order pursuant to the first two sentences of section.

And it becomes operative for a year, year and a half, then the unions and the carrier, and what carrier would that be? The surviving carrier or merger sit down and make a brand new agreement that then supersedes the board’s order, is that your position?

Mr. Martin M. Lucente: To the extent that it provides for different conditions, it would, yes supersede the conditions imposed—

Unknown Speaker: Is that by reason of the proviso or not?

Mr. Martin M. Lucente: It is by reason of the proviso.

The proviso Your Honor relates both to agreements which are made prior to Commission approval of a merger.

And it is also relates to agreement which are made subsequent to Commission approval of the merger.

And in both instances the notwithstanding language of that proviso is intended to make it clear that the parties may make an agreement pertaining to employee protection notwithstanding the other provisions of the act which in effect means notwithstanding the first two sentences of that Section.

And the first, two sentences of that Section are the sentences pursuant to which the Commission Acts when it imposes protective conditions.

Unknown Speaker: Well, that does not happen in the subsequent agreement?

Mr. Martin M. Lucente: There are subsequent agreement made Your Honor but if the frequently happens that the subsequent agreements will implement or explain the terms that fill in the details that more general provisions in the prior agreement and the -- so that the process of negotiating with respect to conditions which arise after the merger is consummated, is a very vital and active one.

Unknown Speaker: What has been the practice since 5 (2) (f) came on the books, when the merger is contemplated, do the unions and the carriers sit down and workout these preliminary agreements before the approval of the --

Mr. Martin M. Lucente: That frequently has been the practice Your Honors.

Unknown Speaker: Which has been the -- is that more generally the case?

Mr. Martin M. Lucente: That is more generally the case at least in the last 10 years than having the Commission prescribe condition without any prior agreement by the party.

And more general condition currently is for the parties to sit down and workout agreement pertaining to employee protection before the Commission enters its orders.

Unknown Speaker: Is there any reference made to such agreements when are completely executed before the approval in the order of approval, is there any reference in the order of approval?

Mr. Martin M. Lucente: The Commission in its report will refer to those and it did in this case, Your Honor.

Unknown Speaker: It is order of approval, is there any reference (voice overlap) -

Mr. Martin M. Lucente: Not in the order of approval in the form or order of approval.

But in the report it does set forth the fact that the parties have entered into an agreement and as it does in this case, it resides that because the parties have made an agreement pertaining to this subject there is nothing for us to do under Section 5 (2) (f).

Unknown Speaker: No, first or second sentence of provisions at all?

Mr. Martin M. Lucente: Well, in this case that is right with respect to employees covered by the agreement.

That I should add that this additional detail that sometimes the agreements which are made do not cover all of the employees and the Commission in its order of approval will then impose terms and conditions where the employee is not covered.

Unknown Speaker: Under the first two sentences?

Mr. Martin M. Lucente: Under the first two sentences.

But when an agreement has been made, the invariable practice of the Commission, and this is discussed in detail in amicus brief which the United States and the Commission has submitted in this case Your Honor.

In variable practice of the Commission where an agreement has been made is to recite that fact in its report and then to proceed to approve the merger on the ground that the agreement provides the protection required by Act and its order need not provide that protection.

Chief Justice Warren E. Burger: So try to assume that this custom that you described of having the railroad and the union workout these agreements as simply reflection of the fact that most often they would rather workout their own problems, then have some governmental agency impose agreements on them.

Mr. Martin M. Lucente: That is undoubtedly a situation Your Honor and it permits the railroads and the unions to workout into the problems that are not only directly relevant to employee protection but are also relevant to other situations which will arise in connection with the merger.

The Great Northern Burlington merger for example which is before this Court, the parties worked out voluminous agreements, implementing the manner in which the various seniority District would be put together on the combined properties, the manner which trains would be made and including among the terms of the agreement protection for employee, which is quite customary and when these agreement are made as they are almost invariably made in current mergers for the parties to workout problems of employee protection and at the same time to workout many other labor relations problems that tended upon the contemplated merger.

The whole thing fits together as one bundle as it works.

As one of the difficulties of the approach below that the Court looked at the agreements only for this very narrow area of whether it provides full protection for four years based on all earning and it ignored all of the other aspects of the agreement.

And the respects in which the agreement dealt with other things.

And dealt with them on a very favorable basis as far as the unions are concerned.

One other further point I would like to make, conclusion is that the Lower Court’s decision are also wrong because they failed to give appropriate effect to this Court’s holdings in Republic Steel versus Maddox and in Vaca versus Sipes regarding administrative remedies and the necessity of their exhaustion before judicial remedies can be invoked.

I call the Court's attention again to the amicus brief filed by United State and the Commission as discussed of the legislative history Interstate Commerce Commission’s interpretation of the statute and arrives at the conclusions which I have stated with respect to what Section 5 (2) (f) mean.

Chief Justice Warren E. Burger: Mr. Lucente, may I ask one question before you sit down.

You are adhering to your position on the jurisdictional issue here I take it.

Mr. Martin M. Lucente: Yes.

Chief Justice Warren E. Burger: Do you have a comment about the suggestion in your opponent’s brief that Norfolk and Western apparently, by its answer, conceded that the 1962 agreement was incorporated in 64?

Mr. Martin M. Lucente: Yes, I do Your Honor in the District Court, Your Honor, when the complaint wad filed it alleged that the plaintiff’s claims were based upon the 1964 order of the Commission.

In a number of paragraph it alleged that the order had been incorporated, the agreement had been incorporated in the order.

The Norfolk and Western first filed a motion to dismiss.

The Board filed an answer to the District Court.

The motion to dismiss as the District Court judge recognized at pages 28 and 29 at the appendix, stated that jurisdiction did not lie in the District Court because the order had not been incorporated, the agreement had not been incorporated in the order and that the parties were proceeding under the terms of a collective bargaining agreement not under the terms of the Commission order.

The lower court overruled that contention.

It held in effect that under the Section 5 (2) (f), the parties were not permitted to enter into a collective bargaining agreement prior to approval and it held therefore that the agreement must me considered to be part of the Commission’s order of approval.

Now, subsequent to that the N and W filed an answer, and in that answer it admitted the allegations of three or four paragraphs in a single part of his answer and among the allegations admitted in that answer was a conclusion of laws stated in the complaint, the effect that the agreement of 1962 had been incorporated in the Commission’s order.

So, the N and W at that stage of the proceeding Your Honor was merely acknowledging what had already been established as the law of the case.

It did not make any admission as to what the Commission had done in the premises and we had merely abided by what the District Court had already ruled with respect to whether or not the agreement was incorporated in the order.

And of course, subsequently, on appeal, we raised the point again, and the order did not incorporate the agreement which the parties had made.

Unknown Speaker: I have just one other question in that is, if you should prevail here, do these claimant’s, your opposition, have any place to go?

Mr. Martin M. Lucente: The Commission Your Honor has suggested in its brief in the United States, the Commission has suggested that under Section 5 (9) of the Interstate Commerce Act and under Section 5 (2) that it has some responsibility to supplement its order, if it can be shown that supplementation of its prior order is necessary in order to make the order consistent with the public interest.

So, I take it that the respondent here if they have complaint of the adequacy of the protection in the agreement can go back to the Commission. Moreover, the respondents here have the right to go to the adjustment board with their individual complaints about what the agreements mean.

The adjustment board does not require presentation by the brotherhood on behalf of an individual, they can present there own individual claims. And accordingly they go the adjustment board for a determination as to what their rights are in premises.

Unknown Speaker: Here is an initial agreement in 1962 and we just ignore the Commission's order on theory of the case, then we have a subsequent agreement, and that subsequent agreement just purports to interpret the prior agreement.

It does not take the approach, if prior agreement says 'a' and we are going to change the protections that the 1962 agreement set-up, is that not correct?

Mr. Martin M. Lucente: That it what is at the fact in this situation, as what I have in this case.

Unknown Speaker: Now, would you say that the subsequent agreement if it took the approach that we are going to change the protectors of ‘62 agreement would nevertheless be valid.

Mr. Martin M. Lucente: Yes, I would because of the not withstanding clause of the -- the subsequent agreement, Your Honor, stands on its own feet as an independent collective bargaining agreement.

Unknown Speaker: I do not suppose the statute would intended to give such an agreement any validity that did not otherwise have.

Mr. Martin M. Lucente: Yes, I agree with that.

Unknown Speaker: What?

Mr. Martin M. Lucente: I would agree to that.

Unknown Speaker: That is wholly aside from the statute, do you think a union and a employer may renegotiate downward, the benefits of a prior collective bargaining contract?

Mr. Martin M. Lucente: Yes, I think that under the notwithstanding clause of the proviso -- independent of the statute, I am sorry.

I would think so Your Honor because of the general principles regarding the authority of a collective bargaining representative, the collective bargaining representative has the authority to change the terms of a prior agreement at --

Unknown Speaker: Subject only I suppose to Vaca against Sipes considerations of good faith representation.

Mr. Martin M. Lucente: We are contending for here with respect to these agreements is the reorganization of the traditional principle that the collective bargaining representative, in the absence of Vaca Versus Sipes and doctrine that can do it, has authority to bind the class that it represents and it may do so even though the terms differ from those of the previously --

Unknown Speaker: Let me ask you this, thus I will not hold you anymore.

Let us suppose we disagreed with you and agreed with the Courts below that the subsequent agreement actually changed the 1962 agreement.

That the 1962 agreement meant one thing and the ‘65 agreement meant the other, in short we disagreed with the union and the company as to what the ‘62 agreement meant.

What should we do then, because the both Courts below have given a construction of the ‘62 agreement contrary to your point.

Now, we agree with the two Courts below then affirmance would have to rest on the idea that even if the two parties negotiating had thought they were changing the ‘62 agreement, they nevertheless would have changed them.

I am not sure they would have.

Let us assume the ‘62 agreement had clearly said earnings are to be measured by reference to the entire Toledo Division.

It could have been any argument about it, and then the two parties sat down.

Do you think they would nevertheless come out saying we are going to reduce that pay and measure it by the Sandusky service at all?

Mr. Martin M. Lucente: There is a possibility although.

I think it is quite unlikely but it has happened in mergers and --

Unknown Speaker: Well it has happened, but what should we do?

Should we assume that or what would we have to remand it?

Mr. Martin M. Lucente: You would not reach the question Your Honor of whether the subsequent agreement change the prior agreement, I take it unless it is first determined that the Court of Appeals and the District Court were correct in their interpretation of Statute --

Unknown Speaker: I am just assuming, assume we agreed with them.

Mr. Martin M. Lucente: I think that if the Court arrives at that conclusion that and if the issue could properly be put to the District Court as to what these agreements means that there are issues which are properly triable back there as to --

Unknown Speaker: But the Court is already, the District Court and Court of Appeals have already said that the 62 agreement has been modified by the ‘65 agreement.

Mr. Martin M. Lucente: The District Court Your Honor also left open certain issues to be arbitrated and Court of Appeals held that those issues should be resolved and set by the District Court.

So, there is something remaining to be done in the District Court.

Chief Justice Warren E. Burger: Thank you.

Mr. Murray.

Argument of Thomas J. Murray, Jr.

Mr. Thomas J. Murray, Jr.: Mr. Chief Justice, may it please the Court.

I would like to respond immediately to the discussion concerning this post merger agreement.

We submit that the holdings of the District Court and the Court of Appeals are unequivocal that what the agreements themselves show is not that the subsequent agreement modified or altered the protection given these employees by the 1962 agreement but that it abrogated any meaningful protection that these employees received.

That was their finding by simply reading the two agreements, the pre-merger and the subsequent agreement.

Just how dramatically the two, the latter agreement modified that the protection which we submit and the Courts found was imposed by the Commission, is I believe set forth in some detail in our brief at page 31 and what we conclude there in our discussion of that portion of the record is that --in net effect what happened to these men, three years after the merger was that they were forced to payback the limited benefits which Norfolk and Western said they were entitled to because having had received an unemployment compensation during the 18-month period immediately after the merger.

They, under the law, were now receiving theoretically at least income through the subsequent agreement.

And since the amounts that they had received, in non-employment compensation for the most part were not any greater than they have received by way of these subsequent agreements.

They literally were told that, now they are back on their feet and back at work, they were literally told they had to repay this.

I just point this out because it dramatizes in practical, a point of fact, how seriously the subsequent agreements abrogated or nullified the protected features of the pre-merger agreement.

Chief Justice Warren E. Burger: Are you suggesting us that they breach your fiduciary duty as the --

Mr. Thomas J. Murray, Jr.: Mr. Chief Justice, I do not believe the record as it was at the time the Court below entered summary judgment permitted a sufficient development of the facts in this case quite candidly to permit a comment categorically as to whether there was bad faith.

I would say this that there was at the very least, a perfunctory handling of the claims of these small bands of Sandusky men by their union at the very least, if not bad faith.

But that particular aspect of the case did not develop the question of whether or not their union impacted-

Chief Justice Warren E. Burger: That is why I was leading up that you are suggesting here to take into attack the agreement, undermined on that ground you got a heavy, heavy burden and can you undermine it just because it turns out to be an improvidence, undesirable, unwise agreements having in mind the rather explicit provisions of the statute in the last sentence of the statute.

Mr. Thomas J. Murray, Jr.: Permit me to respond to that question and I hope responsibly.

We are not here contending that subsequent to agreements, the unions and railroad can get together and make what is termed in the industry implementing agreements.

Quite the contrary we recognized the fact that implementing agreements are absolutely necessary to carry-out the various features of these mergers.

Our contention here is and the Courts below held that the very language of the third sentence of Section 5 (2) (f) which says that the agreements which pertain to the protection of the interest of the employees may be entered into subsequent to these orders of approval.

That this at the very least requires that all of the protection, all of the meaningful protection given by the Interstate Commerce Commission in its order simply cannot be wiped out by an agreement whether it is based on bad faith, a mistake.

If the Court please, the District Court and the Court of Appeals we submit did not reach the question of the motive behind the unions and turning down the appeal of these men when they appeal to their National Board of Appeals.

It merely looked at the two agreements and said this agreement takes away everything that was given by the agreement prior to the merger.

And I might, Mr. Chief Justice, add one further point in the same thing.

The position of these trainmen was that their union temporized on their behalf and we believe that if we were permitted -- had we been permitted to develop the evidence in this case, it would have been that more temporization and perfunctory handling or lack of grasp about the complexities of their claim on the part of that union hierarchy which was responsible for the fact that its union did not act on their behalf.

Chief Justice Warren E. Burger: Conceivably that might be the cause of action of some kind against the union, that would be in agreement to this situation, would it?

Mr. Thomas J. Murray, Jr.: No, Your Honor it would not.

It has been suggested and if I may just attempt to respond to that question, during Mr. Lucente's comments, the Court referred to -- the Mr. Justice White asking the assuming that the jurisdictional determination of the Court below concerning incorporation as accepted as fact.

Assuming this to be the case what would be the results?

I believe, Mr. Justice Blackmun asked the question of whether how Mr. Lucente would answer the question of the admission and the answer as to to the fact of incorporation.

We want to meet this case head on in this Court not on any technical admissions in the answer.

And we want to meet it head on for two reasons.

And we submit that as an intensely practical matter unless the decisions of the Court below are affirmed on the question of jurisdiction employees who are denied protection will have no practicable avenue of redress to come back to Mr. Chief Justice Burger’s question.

One suggestion in the brief of the appellee is that employees in the position of these trainmen could very well sue their own union for bad faith.

That would have been one alternative course of action open to them.

And we submit that this, as well as the other arguable avenues are re-dress which have been argued are utterly impracticable.

These men were out of work, on unemployment, they were now in a restructured union situation and to suggest that men in this position should now have to sue their own union, assuming that would be even be a viable, alternative open to them, should have to sue their own union and thereby in effect have to pay their own merger protection from the union dues they were paying in, we suggest is manifestly contrary to the explicit intentions of Section 5 (2) (f) and its power -- yes, Your Honor?

Unknown Speaker: If you would you apply 5 (2) (f) there must be without the guard to whether there are prior agreements or not, at the time of approval, a provision imposed by the ICC under Sections 1 and 2?

Mr. Thomas J. Murray, Jr.: That is our position.

Unknown Speaker: And then you go on from that to say that the notwithstanding clause then is limited in application to implementing agreements, that is agreements which implement that provision?

Justice William J. Brennan: No Your Honor.

We concede that has been the practice that the unions and railroads can enter into agreements prior to Commission approval with respect to their own protection, and Mr. Justice Brennan let me respond --

Unknown Speaker: Excuse me, I just want to be sure though.Although you do concede, I gather this is under the notwithstanding clause that unions and the railroads may enter into agreements before the merger and after the merger, you nevertheless contend that there must be Section 1 and 2 conditions imposed by the ICC in the order of approval, is that right?

Mr. Thomas J. Murray, Jr.: That is correct and if I may respond just briefly further.

I believe the ICC in a very exhaustive study of the legislative history has placed its emphasis on the theory that if the Interstate Commerce Commission is not to step aside and disavow any connection or any obligation where they have met, where the unions and the railroads have agreed to conditions, that the result would be encroachment upon traditional collective bargaining process.

And what we are suggesting here, attempting to suggest in out brief is that the important point, the important focus in this type of situation should not be at the pre-merger stage.

But it should be on the question of how the employee who is actually caught up in these mergers and in the aftermath stages is going to enforce them.

And here is why we think that it is not only vital to these employees, it is vital to the railroad industry itself that as far as the operation of the Interstate Commerce Act itself, that Section 511 of that act to be given full play in these situations whether it is the employees who come to Court saying, look, we have not been for protected as we were promised under the agreement or whether it is the railroad.

More importantly as far as the broader economic and social aspects of this case are concerned, I would think would be the situation where the railroad comes in and says we are trying to get this merger implemented and as happened in the North Western case.

The unions there took the position that the railroad can not put this consolidation into effect without complying with the major dispute procedures of the Railway Labor Act.

And in that case the Court we think very perceptively held that in facts exactly the facts as the Court found before, the facts before the Court in this case, that the only way that you are going to as a practical matter, avoid a situation where the union could hold a thread of strike over the railroad, as a condition of meeting its post merger conditions despite what the Interstate Commerce Commission said, how its post merger conditions with respect to the consolidation were going to be carried out.

The only way you were going to protect against this threat would be if you held that the Interstate Commerce Act applied.

And in the North Western case, where it was the railroad that came into Court and said in cases and in a factually similar case to this one where the Commission had simply acknowledged the existence of a prior agreement with respect to merger conditions.

Justice Byron R. White: Would you be satisfied if it were held that the Interstate Commerce commission did not incorporate these terms of the contract that did not have to but that a contract made pursuant to this authorization of the federal statute, is enough in itself to present a federal question, (Inaudible) federal court. I know you would like to have the right answer given by the Court but would you be satisfied as far as jurisdiction is concerned?

Mr. Thomas J. Murray, Jr.: As far as jurisdiction is concerned I feel we would establish jurisdiction, yes, there would be basis for jurisdiction.

Justice Byron R. White: And then you would raise the same question, may subsequent agreement modified either a prior agreement or an order the Commission?

Mr. Thomas J. Murray, Jr.: I would only Mr. Justice White question the phrasing of that.

We do not question that it can modify it.

What we are talking about is can it now -- reduce it, yes, take away the benefit.

Justice Byron R. White: Would you say we could reduce this?

Mr. Thomas J. Murray, Jr.: No, no Your Honor we say that—

Justice Byron R. White: Well, that what I mean.

It may lower benefit, it may have something in the agreement lower the benefit?

Would you say no?

Mr. Thomas J. Murray, Jr.: We say it may not lower the benefits.

Justice Byron R. White: Yes, would you say that whether the prior right you are claiming is stated in the contract or Commission order.

Mr. Thomas J. Murray, Jr.: That is correct.

Justice Byron R. White: So those questions are inevitably in the case?

Mr. Thomas J. Murray, Jr.: I would have to say they are.

Unknown Speaker: If as you have said that the 5 (2) (f) has to be interpreted, by saying, “Yes, you may have a prior agreement, but there must be protective provisions in the board's order of approval.”

Suppose you have a prior agreement that gives less protection than the provisions in the board’s order, which prevails?

Mr. Thomas J. Murray, Jr.: Well, we would say Your Honor that if I understand your question correctly, it is our position --

Unknown Speaker: Supposed they had said earning were to be -- the board order said earnings were to be based on legal service.

But the prior agreement said earnings would be computed on the basis on Sandusky service.

Which would prevail, even though the unions and the railroads entered into the earlier Sandusky basis agreement pursuant to the notwithstanding clause.

Mr. Thomas J. Murray, Jr.: We feel Your Honor that the soundest possible decision for the railroad industry and for the employee would be to have this Court hold that the Section 5 (2) (f) imposes an obligation on the Commission to assure whether through imposition or through operation of law, a minimal level of protection up to four years compensation protection, that we feel -- and the reason I say that is—

Unknown Speaker: What you are really saying is the board order and not the prior agreement would be holding requirement.

Mr. Thomas J. Murray, Jr.: That is correct and let us assume-

Unknown Speaker: That is the way I see in its amicus brief, concede that, since it may enter supplemental order and award supplemental benefits over and above any agreement?

Mr. Thomas J. Murray, Jr.: I believe Your Honor that the Commission in its brief as I recall it took the position that these employees would be protected by the fact that the Interstate Commerce Commission, will always come in and supplement this order with respect to benefits, and all the worst thing is that is perfectly commensurate with our position but so long as the employees who are politically weakened or who are pragmatically weakened by these mergers have at least the minimal protection because without it they do not have any redress.

Chief Justice Warren E. Burger: What you are doing and your suggestion may have -- in fact, the same agreements to add to the statute, a provision after the word employees, unless said the supplemental agreement reduces the benefits of the employees?

Mr. Thomas J. Murray, Jr.: I would not say that you have to add that we feel that—

Chief Justice Warren E. Burger: But you are reading the statute as to those words were in -- .

Mr. Thomas J. Murray, Jr.: Mr. Chief Justice I believe this Court in two cases that brotherhood in the Maine subway case and the railway labor executive's case in reviewing this legislative history held without getting to the question of the effect of the third sentence agreement.

That the second sentence of Section 5 (2) (f) composes a mandatory minimum duty on the Commission to impose four years of compensation protection.

It is so construed the first and second sentences and what we are saying here is that leaving aside the question of any technical admission about incorporation of the agreement, what we are saying here is that, unless at the enforcement stages, employees who are caught up in the type of situation these men were caught up, have a right to come in to the Court and invoke the remedial scheme of the Interstate Commerce Act which gives them attorney’s fees, cost, unless they have this practical means of assuring that the protection promise them as a condition of approval of these mergers.

They do not really have any practicable avenue of redress, the other than suing their own union which has been suggested, the other two alternatives that I believe have been mentioned are to go to the National Railroad Adjustment Board.

This would be a five-year process on the average for men who desperately need to help now.

Now, that the merger has dislocated and in this regard, I want to point out something that should be stressed about the record in this case.

These men’s primary working connections with the city of Sandusky on the average I believe they had approximately 10 to 20 years seniority at the time, that this merger went into effect.

The year prior to this merger, their opportunities for employment at Sandusky had diminished because of the very facts which gave a reason for the merger to take place in the first place, so, you had a declining volume of revenue and traffic at Sandusky.

So, that during that period immediately prior to the merger, their work opportunities were limited, but these were men that had homes at Sandusky.

And 15 days before this merger took place, they received a notification that they could uproot and go to Toledo and remain with Pansy or they could take employment with the Norfolk and Western Railway Company.

And in that agreement unequivocally was stated or attached to that agreement, I should say was the portion of the pre-merger agreements which categorically stated that if you take employment with the Norfolk and Western Railway Company, you will have your employment protected and you will not be placed in the worst position with respect compensation at anytime during Norfolk and Western employment.

We might add here at this point that these men have never claimed the full arguable scope of that protection.

They have never claimed that they had a right to a job at Sandusky.

Justice Harry A. Blackmun: Is that not one of the point here as to what that first agreement means, it is arguable that is there any more than that provided further that none of such employees shall be deprived of the employment or placed in a worst position with respect to compensation at any time during such employment, except and so forth, does that mean just a partial years employment?

It does not mean a four-year, is it arguable is what I am asking, Mr. Murray?

Mr. Thomas J. Murray, Jr.: Yes, Mr. Justice Blackmun, you just read part of Section 3 but attached to that same agreement was a very simple formula and which is admitted was part of that agreement.

And it provided that the employee’s protection was to be supplemented to the extent that it fell below his average monthly compensation.

Based upon the last 12 months in which he performs service divided by 12.

And it is practical matter the only exposure of the Norfolk and Western and Sandusky under this pre-merger agreement was during the transitional period and this is alluded to indirectly by the District Court because this particular merger protection agreement had a built in a protection against failure of the merger.

If your Court may have noted that there was a proviso in there that if the Norfolk and Western’s traffic or revenues declined as a result of this merger, these employees will not be protected.

And all that means is that neither you have to meteor of operations, Pennsylvania is going out of operation, the Norfolk and Western is coming in and to the extent that after this merger, the Norfolk and Western business declined from that point on, these employees would not have any protection.

The only thing that they are asking, they only thing that they have asked here is for that simple compensation protection as a result of being out of the job at Sandusky after the merger and that is the only thing that they have asked.

Chief Justice Warren E. Burger: Does not that really add up to where we were before that perhaps they made an improvident agreement?

Mr. Thomas J. Murray, Jr.: We would concede that, Mr. Chief Justice Burger, if the union agreed to what Norfolk and Western claims they agreed here, it was at least improvident, if not egregious and unfair.

If you look from their point of view, these men are out of work and they filed their claim, they are told, “You cannot be compensated for the simple reason that we do not have Pennsylvania earnings available so, wait!” and they wait a year, this is what happened to them. They wait a year and the pressure builds up within the union so that their local chairman puts pressure on the intermediate run and they go to Cleveland and they sit down and they enter in to this subsequent agreement which we have alluded to here.

Chief Justice Warren E. Burger: What is the rather dangerous proposition to for all contracted parties to urge this kind of relief from provident contracts, I suspect that sometime railroads make provident contracts, would they be entitled to relief because of that?

Mr. Thomas J. Murray, Jr.: All that we would say is that Your Honor, where you have a statute with the clear policy, underlying policy reasons at the Interstate Commerce Act Section 5 (2) (f) has -- which has a sole purpose of existence employee protection, to say that for any reason because of political motivation, because of ignorance of what is in the Interstate Commerce Acts or the Interstate Commission's Order.

If the railroads can sit down with the representatives of these employees who are politically and practically disrupted in their lives by and can simply abolish out of hand, the protection given by the Interstate Commerce Commission which is exactly what happened here.

Then in this type of case, the protection of the Interstate Commerce act is a cruel illusion and that is what it turned out to be to these men.

These men ended up literally in a worst position.

These employees literally ended up in a worst position that if the Interstate Commerce Act had never been written and then if they had never been promised anything under the pre-merger agreements as a practical matter.

Justice Thurgood Marshall: We are assuming all you say in order to give you the relief you want, do we not have to rewrite the notwithstanding clause?

Mr. Thomas J. Murray, Jr.: No, Mr. Justice Marshall, I would submit that you really do not, as matter of fact, we feel that notwithstanding clause is very much --

Justice Thurgood Marshall: You mean Sections 1 and 2 among others --

Mr. Thomas J. Murray, Jr.: That is correct that there is nothing really inconsistent between the third sentence of Section 5 (2) (f) in the first and second sentences.

We feel that all that this boils down to is that the Interstate Commerce Commission is required to impose conditions where the parties can agree upon.

And where the parties agree upon and the very least that they have to do is make sure that the employees who are going to be most drastically affected in their employment relationships receive the minimal level of protection.

That is all we are saying.

We have an alternative argument in there that even this Court should hold that notwithstanding clause relieves the Interstate Commerce Commission of any responsibility whatsoever with respect to employee protection and at the very least this Court should hold as a practical matter, if you are going to have these mergers carried out at all, is that at the enforcement stages, they have a right to the remedial scheme of the Interstate Commerce Act first of all.

And secondly, that their unions cannot sit down and literally undo out of hand, protection afforded by the Interstate Commerce Commission or by the agreement between the union and the Railroad at the time that the protective conditions were considered and agreed upon.

Chief Justice Warren E. Burger: It is a little like arguing though, I suggest that Railroad should not have its interest undone because of the provident agreement made by their lawyers thereat.

Mr. Thomas J. Murray, Jr.: Mr. Justice Burger, may I come back to a point that I tried to make a moment ago.

As a practical matter, it would be far more disastrous for the railroad industry, if this Court should reverse the reasoning of the District Court and the Court of Appeals, then it would be for the employees in the position of these plaintiffs, if I may take a moment to explain why.

The basic holding of this Court, of the Courts below is that Section 511 exempts the carriers and the railroads from the operation of the Railway Labor Act.

These men are coming here merely saying that under the Interstate Commerce Act they have certain rights to protection.

Now, turn that around if you would for sake a hypothetical illustration.

Suppose that Sandusky, that the employees had put their foot down through their unions and said “We are not going ahead with this merger until you comply with the major dispute procedures of the Railway Labor Act”.

That is we do not like certain condition that we agreed upon and we do not like certain condition the Interstate Commerce Commission imposed here.

And before you can go ahead, we will strike, if you go ahead and change our contract.

Now, all that we are saying here is that the same principles which the Court applied below, that is if you are going to get these mergers in to effect and efficaciously provide employment for the employees, and if you are going to absolved the railroad from having the unions hold a threat of strike over their head, if they do not do something different to the Interstate Commerce Commission order, as was the case in North Western, you simply got to reconcile the objectives of the Railway Labor Act which we concede require collective agreements on all matters and the requirements of the Interstate Commerce Act.

And that is what the Court did.

And we suggest that there is a real genius in the decisions of the Courts below, a very great perception because in effect it hires out the disputes related to mergers and makes the Interstate Commerce Act the applicable law and obviates the risk of national rail strikes, in situations where the unions do not like what the Interstate Commerce Commission requires.

We feel that, if I may say in conclusion, we feel that the results to the railroad industry itself would be far more deleterious and far more adverse, if the decisions of the Courts below were reversed, as reflected in this most practical intensely practical aspects by the fact situation in the North Western case upon which the District Court and the Court of Appeals very heavily relied.

Justice Potter Stewart: In your hypothetical case Mr. Murray, if the union and the employees did not like the conditions that were imposed by the ICC and they did strike, could the strike be enjoined?

Mr. Thomas J. Murray, Jr.: Yes, it could, Your Honor, yes it could.

Justice Potter Stewart: Why?

Mr. Thomas J. Murray, Jr.: Well, if I may use the phrase -- the real beauty of the decision below, because the Court held the Interstate Commerce Act and not the Railway Labor Act applies -- if may call your attention Mr. Justice Stewart to 49 US Section 511 which exempts the carriers and the employees from the operation of the Railway Labor Act.

Justice Potter Stewart: There would be a illegal strike and that could be enjoined?

Mr. Thomas J. Murray, Jr.: And as it was done in the North Western, they threatened a strike and if I may say just in conclusion, I lost the case in the Northern District of Ohio, three-and-a-half weeks ago where the railroad and Norfolk and Western came in and rely on this very decision.

The Nemitz case and I may take just a moment to give Mr. Justice Stewart the facts of that case.

The Railroad attempted to change the merger benefits, to adjust them downward as a result of the Hours of Service Act Amendments which limit the number of hours an employee can work.

And the union took a National strike ballot and they asked me to take the case to Court and I knew this Nemitz case was here and I knew we are gong to meet it and we did and we lost.

And we lost because the Court said that the law that applies here is the Interstate Commerce Act and the Nemitz decision and the rationale of the Nemitz in North Western decisions literally, in that case in C 70-145 that will be recorded in the federal supplement, that case literally removed the risk of the National Railroad strike and it is give an expeditious avenue of determination of disputes which arise in the aftermath of these complicated rail consolidation which are bound to create disputes out of confusion or ignorance or whatever as was done this case, and in this case it just happened to be that the victims of the confusion were the employees, it could very well up in the railroad, the railroads themselves.

Chief Justice Warren E. Burger: Very well thank you Mr. Murray.

You have about 3 minutes to left, if you need it Mr. Lucente.

Rebuttal of Martin M. Lucente

Mr. Martin M. Lucente: -- The court please, just in reference to this last case that Mr. Murray cited, beholding that Court in that case was that, the arbitration provisions governed that the employees were required to arbitrate and could not maintain a judicial action for the purpose of securing an interpretation.

It was not the provision of the Interstate Commerce Act that came into play in that decision but the fact that arbitration period in the underlying document and that of course is characteristic of the agreements which the employees made.

That is all I have.

Chief Justice Warren E. Burger: Thank you gentlemen.

The case has submitted.

Featured:

B. & O. R. Co. v. Aberdeen & R. R. Co. - Oral Argument

Thu, 23 Aug 2012 18:10:18 +0000

Case:

B. & O. R. Co. v. Aberdeen & R. R. Co.

Media File:

13_19681017-argument.mp3

Related Transcript:

13_19681017-argument

Transcript:

Argument of Edward A. Kaier

Chief Justice Earl Warren: Number 13 and Number 15, the Baltimore and Ohio Railroad Company et al., appellants, versus Aberdeen and Rockfish Railroad Company et al., and Interstate Commerce Commission, appellant versus Aberdeen and Rockfish Railroad Company et al.

Mr. Kaier, you may proceed with your argument.

Mr. Edward A. Kaier: Mr. Chief Justice and may it please the Court.

This is an appeal from a decree of a three-judge court for the Eastern District of Louisiana setting aside an order of the Interstate Commerce Commission which prescribe the joint -- the divisions of joint rates to be received by Northern and Southern Railroads respectively from freight traffic moving between official territory and southern territory in both directions.

Official territory may generally be described as that part as the northeastern part of the United States and the southern territory the southeastern part.

More particularly, official territory would be the territory east to the Mississippi river north of the Ohio and certain cities in Virginia such as Richmond.

Southern territory is east of the Mississippi and south of official territory.

The appellants are the Interstate Commerce Commission and the Northern Railroads and the appellees are the Southern Railroads and two associations, one the southern governor's conference and the other Southeastern Association of Railroad and Utility Commissioners.

Your Honors will recall I believe that a joint rate is one which applies over two or more railroads but is stated in a single sum.

The divisions in issue in this case were primary divisions.

That is to say divisions which applied to and from the certain gateways between Northern and Southern railroads and if there was more than railroad north to the gateway those two railroads over three railroads would get their share of the revenue from subdivisions of the primary division and likewise south of the gateways.

Those subdivisions were not in issue in this case only the primary divisions.

The railroad's evidence both that submitted by the Southern lines and that's submitted by the Northern lines was on a group basis in which all the Northern lines were grouped together and there figures submitted by on the group basis and likewise for the Southern lines.

And it was decided by the Commission on a group basis except that the Norfolk Southern Railroad one of the Southern group, was awarded division higher than that granted to the Southern lines generally.

This was in recognition of its greater revenue needs and there is no issue about that before the Court.

The Commission is empowered by paragraph 6 of Section 15 of the Interstate Commerce Act to prescribe just and reasonable divisions whenever after hearing in its opinion it finds that the existing divisions are unjust unreasonable or inequitable.

The case before the Commission was one that was originally decided in 1953.

Before that decision, the divisional factors prescribed for Southern lines were generally 25% higher mile per mile than those prescribed for Northern lines.

And on the very important item of citrus fruit which moves in great larger in South to the North, the -- an earlier case had fixed the divisions as high as 85% higher than the Northern lines factors.

Now, I should correct that.

The Northern lines -- the Southern lines didn't get divisions 85% higher but the factors which go into make that were 85% higher so that the Southern line got something a lesser percentage than the 85% but very substantially more than the Northern lines.

In the 1953 decision, which is in a decision in the same docket of the Commission as the order here under review -- in the 1953 decision, the Commission concluded that if it were to give controlling weight to the Northern lines cost studies, it would have to give them higher divisions than the Southern lines.

But it regarded the sum elements of the cost as being transient in nature and it's found that it would be the safest assumption for the future that neither group of railroads would have a substantially lower basis of operating expenses than the other.

So, it prescribed equal fact to divisions for both groups of lines.

In 1959, that same proceeding was reopened upon petition of the Northern Railroads.

They alleged in the petition that the experience of the intervening years had confirmed their contention that their cost were higher than those of the Southern lines.

The Commission reopened the case; evidence was taken between 1959 and 1961 resulting in what the lower court called a massive record.

There were extensive briefs proposed report by two examiners recommending increase divisions for the Northern lines, exceptions, replies and oral argument.

The Southern lines contended before the Commission that the relative costs of performing the service involved constitute the decisive measure in determining just and reasonable divisions.

They urged the Commission to find such cost on the basis of the average territorial costs as shown by the Commission's Rail Form A formula for official territorial lines and for Southern territorial lines respectively but subject to 12 adjustments in those territorial average cost which Southern lines proposed.

The Commission accepted five of the adjustments and rejected seven.

The result in unit costs, cost per ton for certain services per ton mile for certain for train mile for others, those unit costs were then applied to the Southern lines traffic study which those lines stated and the Commission agreed accurately measured the transportation characteristics of the precise traffic to which the divisions involved applied.

The Commission found that the cost that which it thus arrived that is the Form A territorial cost with five adjustments that were permitted were reasonably accurate and reliable for determining the relative contribution by the groups on a cost of service basis.

It found that both groups of carriers are being efficiently operated.

It examined each of the other factors specified by Section 15, paragraph 6 and on all the other facts of record and it concluded that everything was equal except the cost of performing the service.

It found also --

Chief Justice Earl Warren: Except the cost for what did you say --

Mr. Edward A. Kaier: The cost of performing the service involved.

Chief Justice Earl Warren: Yes.

Mr. Edward A. Kaier: As to which it found the Northern lines cost higher than those of the Southern lines.

And it concluded therefore that the relative cost of the parties in performing the service but properly serve as a guide for the determination of just reasonable and equitable divisions.

That then was the end of everything except to translate its cost findings into division scales.

The Southern lines asked the Commission to base the divisional scales to be prescribed on their cost evidence as modified to the extent that any of their proposed adjustments might be rejected and the Commission did precisely that.

Its formal finding of course was at the present divisions were unjust and unreasonable and inequitable.

It prescribed the new divisional scales from the Southern lines cost as adjusted.

Ten of the 11 Commissioners concurred in the majority opinion.

One Commissioner thought that the Northern line should have increased divisions but not as rate in increase as had been prescribed in the majority opinion.

Overall, the divisions of the Southern lines were reduced by 3% that's a stipulated figure.

Upon suit by the Southern lines and the two conferences that I have mentioned the southeastern association and the southern governors, the District Court held that the cost evidence should have been more refined than the territorial averages that the Commission itself was obliged to see the evidence of the cost of performing the specific traffic was of record and that the order should therefore be set aside for lack of substantial evidence and adequate findings.

The District Court's order was stayed pending disposition of this appeal.

The Northern lines have been receiving revenues based upon the higher divisions since April of 1965.

But subject to a refund provision under which if the Commission's order is permanently set aside, the Northern lines would have to refund the difference and amount now approximately $30 million.

Chief Justice Earl Warren: We'll recess.

Mr. Kaier, you may continue your argument.

Mr. Edward A. Kaier: Thank you Mr. Chief Justice.

I would like now to discuss the question whether the use of official and Southern territorial costs is supported by substantial evidence and adequate findings of the Commission or whether in truth, the District Court's opinion represents a substitution of its judgment without of the Commission as to the weight to be given evidence and the degree of refinement necessary with respect to the complex question of railroad cost evidence.

Then I plan to discuss the passenger deficit issue.

The Commission having included in the freight service costs a portion of passenger deficits on a pro rata basis for both Northern and Southern lines.

Justice Byron R. White: Did you just before you started -- just straighten me out.

What's the difference between cost and revenue?

Mr. Edward A. Kaier: Well, cost if Your Honor please --

Justice Byron R. White: Is that fully distributed?

Mr. Edward A. Kaier: It is fully distributed cost and revenue need --

Justice Byron R. White: But that excludes any need for profit?

Mr. Edward A. Kaier: No, there's a return element in that --

Justice Byron R. White: In fully distributed?

Mr. Edward A. Kaier: In fully distributed cost, there's a return of 4% on value of property.

Justice Byron R. White: Well then, what would the revenue need?

Mr. Edward A. Kaier: Revenue need then is something over and above that kind of cost.

If a Railroad --

Justice Byron R. White: For investments?

Mr. Edward A. Kaier: -- is -- no, it's just to continue it on operation for Railroad is in badly need of revenue and divisions based upon relative cost alone even fully distributed are not sufficient then the Commission has the power to award higher divisions to keep that railroad in operation.

Justice Byron R. White: The railroads need revenues except to pay its loss for the return.

Mr. Edward A. Kaier: Well, the cost involved, Your Honor, would be just the cost of performing the particular service involved but it would have all the cost of performing the other service not involved in a given case.

Here, you see the cost related only to the cost of performing the North-South freight service but the Commission does have that power to grant something over and above the cost of performing the service on the basis --

Justice Byron R. White: For what, for example?

Mr. Edward A. Kaier: For nothing.

I mean to say it doesn't relate to anything.

The Railroad needs the money and therefore, --

Justice Byron R. White: It does?

Mr. Edward A. Kaier: Pardon me?

Justice Byron R. White: It does?

Mr. Edward A. Kaier: Yes.

Justice Byron R. White: What's it needed for?

Mr. Edward A. Kaier: It needs it to continue operation.

It's not getting enough money to continue operation and therefore it has to have something over and above its fully distributed cost.

Now, the classic case on that is the New England division's case decided back in 20th by Justice Brandies, in which that kind of revenue need -- was used by the Commission.

It was not here.

Now, first as to the Commission's findings I believe, Your Honors, that a review of appendix B to the Commission's report which contains 42 pages of discussion of the adjustments proposed by the Southern lines in the Form A territorial costs will convince -- will be convincing that the Commission has with unusual thoroughness set forth the reasons why it disposed of these cost issues in the manner which it did.

And I will not at this point have anything further to say about findings in general.

As to the factual support for the use of territorial average costs, I'd like to point out these things to the Court.

First, the investigation brought in issue the divisions of rates on virtually all articles moving between the North and the South from every station in the North to every station in the South over every Northern Railroad and every Southern Railroad.

It was territory wide both of the Northern end and on the Southern end.

The fact that the proceeding was of such great scope a territory wide proceeding itself I submit established a strong case for the use of territorial cost.

Both generally, and with respect to such factors as car costs, switching, empty return ratios and other large factors of that nature as to which the Southern lines said, “Our higher costs” that is they said that the high cost of the Northern lines were attributable to these factors.

Now, in the class rate case, which was affirmed by this Court in New York versus United States back in 1947, the Commission said, “There are different degrees of cost of refinement in costs depending upon the purposes for which they are intended.

The ascertainment of the cost of transporting a particular commodity over a single railroad or group of railroads obviously requires more refinement in procedure and the calculation of relative cost for transporting all traffic or important and well define segments of traffic by territorial groups of carriers.”

The present case was clearly one involving relative costs for transporting important segments of traffic by territorial groups of carriers.

Next, in the 1953 decision in this same case, --

Justice Abe Fortas: Well, do the Northern roads and the Southern roads devote the same percentage of their cars and their property and so on to the North-South traffic?

Mr. Edward A. Kaier: No, I don't think they do, Your Honor.

Justice Abe Fortas: What are those percentages, give me an illustration in some respect?

Mr. Edward A. Kaier: Well, the only illustration I can give you Your Honor is that the traffic involved in the North-South traffic involved for Southern lines is very much greater than for Northern lines.

I believe that it's about 20% for Southern lines and about 6% for Northern.

Justice Abe Fortas: Well, that's just offhand and matter of first impression that's would make some kind surprising offhand that the Commission would use a totality of cost of any of these items as the basis instead of correcting it for the particular traffic involved.

Mr. Edward A. Kaier: Well, if Your Honor please in that --

Justice Abe Fortas: That is what it did, isn't it?

Mr. Edward A. Kaier: It did that except to the extent that it allowed five of the adjustments that were submitted by the Southern lines and declined seven.

So do you see Your Honor on the great body of this cost evidence the territorial cost evidence; the Southern lines themselves used the territorial costs.

It amount to almost 90% of all the cost that they submitted where the territorial averages.

Justice Abe Fortas: I know, but however that might be, it did strike me is being rather odd that the Commission would use this aggregate basis in considering such a relatively small factor of the business of the Northern roads particularly and of the Southern roads and especially in view of the fact that the percentage of -- was different in the case of the North and the South and radically different.

Mr. Edward A. Kaier: Now, if Your Honor please, in the class rate case which was the first case in which the Commission used cost evidence under this formula and before this formula was devised, they had no reliable way of getting service cost.

In that case, the percentage that class rate traffic was of total traffic of the railroads involved was an even lower percentage than that involved here for either Northern or Southern lines.

And then, there was the Mountain Pacific class rate case in which it was lower than this, very substantially lower.

And in the transcontinental divisions case which Your Honors decided very recently in Chicago and North Western versus Santa Fe Railway Company.

In that case, the Commission made a number of adjustments and it concluded that in a case dealing with territorial wide application of rates or divisions that the territorial costs and the refine costs are substantially the same.

I don't mean to suggest that there was more refinement there than there was here.

Justice Abe Fortas: Well, was there such finding here?

Mr. Edward A. Kaier: No, Your Honor.

Justice Abe Fortas: That's what I missed in this --

Mr. Edward A. Kaier: There was not a finding in those words.

Justice Abe Fortas: Was there anything like it, that's what I've been finding.

Mr. Edward A. Kaier: Yes, there was a finding that the costs as adjusted accurately and reliably represented the cost of performing the North-South service.

Justice Abe Fortas: I know, but that's not quite pinpointed to the problem that I have in mind, is it?

Well, I think you're going to get to the commuter problem.

Mr. Edward A. Kaier: Yes, Your Honor.

Justice Abe Fortas: And to my mind, that perhaps most vividly presents the issue that has troubled me.

Mr. Edward A. Kaier: Very well, Your Honor.

Justice Potter Stewart: There wasn't a commuter problem isolated as such in the Chicago and North-Western railroad?

Mr. Edward A. Kaier: No, there was not Your Honor.

But I just like to say in pursuance for a moment of the point that I have been arguing that the present record establishes that the North-South traffic has handled as an indiscriminate part of the whole with all the other traffic of the Northern railroads, and our witness said in view of the fact the way a railroads are operated, he was sure the same thing was true in the South.

And this related to all the upper -- all the large operations switching in origin terminal, line whole service in road trains or freight or weight trains, empty return ratios and all of those various large categories of traffic.

Now, if Your Honors please, I will go now -- I was going to say more in this first point, but I think I better get to the passenger deficit point.

And at the outset, I want to point out that when the Northern lines brought forth their cost study, they predicated it upon the freight service costs alone.

They have nothing in it for any kind of passenger service.

The Southern lines complained that contrary to the practice of the cost finding section of the Commission, we have not included the passenger deficit, and they said and I quote their words, “The Northern line study is defective in computing constant costs without consideration of passenger deficits.”

Now, although it was to the disadvantage of the Northern lines that the Commission consider passenger deficits because we would have done better just on freight service cost alone, we stated that we would have no objection to their -- in their inclusion.

But that we did object to the Southern line's proposal that there be called out of the passenger deficits so much thereof as might be attributable to commutation service, which was the proposal of the Southern lines.

They sought to justify that proposal, proposal to exclude commutation deficits upon the theory that --

Justice Hugo L. Black: Exclude what?

Commutation deficits.

Upon the theory that commutation service is frequently performed over facilities that are used for that purpose alone, and not used for freight or other passenger service.

Whereas they said, it is generally true that the kind of passenger service other than commutation incurs a deficit principally or almost wholly because of the allocation of expenses to the service, for the passenger service which are common with freight.

They say that in the case of the regular passenger service, intercity passenger service, if the freight -- if the passenger service were discontinued, the cost would go on and have to be born by freight service.

Now, the Commission analyzed the Southern lines contention in the context of the distinction which the Southern lines thus urged between commutation deficits as being direct deficits and the others as being allocated.

Commission found that although many individual items of expense could be regarded as solely related to suburban service that this was not true of the services as a whole.

And it found that it could not be treated entirely apart from the freight service.

And in concluding its analysis, the Commission said that because the suburban service deficit includes common cost which must be incurred to provide freight service and intercity passenger service, the deficits from commutation service should not be excluded from the constant cost allocated to the North-South traffic.

Justice Hugo L. Black: Was either side challenge that finding?

It could not be computed?

Mr. Edward A. Kaier: Well Your Honor, I didn't intend to say that they could not be computed.

I wouldn't say one way or another about that.

The Commission's finding was that the cost, the suburban service deficit includes common cost with freight service.

The deficits from commutation service should not be excluded from the constant costs.

Justice Hugo L. Black: I asked you that question because I've been wondering here, how much, how strongly one can say that the Commission can accurately figure cost passenger service and the cost of freight service, the whole system of railroads, North and South?

Mr. Edward A. Kaier: Your Honor, it imposes very great problems.

Justice Hugo L. Black: How much of its judgment, how much of it is finding and how much of it is guessed worth?

Mr. Edward A. Kaier: If Your Honor please, in a case called rail passenger train deficit, in 306 ICC at 714 decided in 1959, I believe that you will find there an expression of the Commission to the extent to the effect that in deciding how much of the common cost should be allocated is largely a question of judgment, and a rather speculative factor.

Justice Hugo L. Black: 306 ICC, what page?

Mr. Edward A. Kaier: 306 at 417.

Justice Hugo L. Black: Well now, you started off as I recall it by saying that they found that the cost of carriage for the Northern railroad was more in the cost of the Southern railroad?

Mr. Edward A. Kaier: Yes Your Honor.

Justice Hugo L. Black: Is that accurate?

Can they make that finding?

Mr. Edward A. Kaier: Oh yes.

Justice Hugo L. Black: How?

Mr. Edward A. Kaier: Well, they make that on the basis of the application of a cost formula, which they used day in and day out.

This is a formula used by the Commission and by all the parties before including the Southern lines, we can and we got --

Justice Hugo L. Black: I understand that so far.

Mr. Edward A. Kaier: Oh this, and I'm speaking now of the formula for determining --

Justice Hugo L. Black: Is that the that was whole formula that takes sample?

Mr. Edward A. Kaier: Oh, there are some sampling in it Your Honor, but by and large it's an analysis of the accounts of the railroads which are kept in accordance with the Commission's uniform system of accounts, and they'll get a unit cost of performing this service or that, and then a traffic study is made to find out how many units of the cost -- how many units of that service are involved in the service your studying.

They'll apply the unit cost to that.

This is done day in and day out before --

Justice Hugo L. Black: I understand it's done, but how much of it must we consider to really as you read that from that 306 Illinois is a question of judgment?

Mr. Edward A. Kaier: Well Your Honor, I did --

Justice Hugo L. Black: How much is a question of accurate findings of facts.

Mr. Edward A. Kaier: It might reference to it being a matter of judgment had to do with the passenger service and only those expenses of the passenger that are common with freight.

I didn't mean to say that this formula of the Commission for determining freight service cost was dependent upon judgment.

Justice Hugo L. Black: Do they have to get it from the books of the railroad?

Mr. Edward A. Kaier: They get it from annual reports of the railroads which account by the account are submitted to the Commission.

Justice Hugo L. Black: Do they analyze it in any way to see if it is correct?

Mr. Edward A. Kaier: Well, the Commission regularly has investigators going checking books of railroads.

Justice Hugo L. Black: Kind of an over supervision.

Mr. Edward A. Kaier: Yes Your Honor.

Justice Hugo L. Black: But do they ever investigate those cost to see if they are put down on the books accurately?

Or do they just kind of accept it and add them all up?

Mr. Edward A. Kaier: Your Honor, I don't know the extent to which that audit how deep it goes.

Justice William J. Brennan: Mr. Kaier, may I ask --

Mr. Edward A. Kaier: Yes sir.

Justice William J. Brennan: Do I get this correctly.

The initial Northern lines position as I understood you was that all these cost status should be limited to freight?

Mr. Edward A. Kaier: Yes Your Honor.

Justice William J. Brennan: And the Southern line insisted that no, they should also be taken under consideration, passenger to the extent of intercity, but not commuter?

Mr. Edward A. Kaier: Correct.

Justice William J. Brennan: That's what it is?

Mr. Edward A. Kaier: Yes Your Honor.

Justice William J. Brennan: I gather intercity uses the same facilities for freight and passenger?

Mr. Edward A. Kaier: Well, sometimes it does.

Other times, there's enough of it that there has to be an extra track, and certainly, there has to be stations, and then you got direct expenses you are such as a train true wages, locomotives, cars, couch yards, you've own these facilities which are attributable only to passenger service on the intercity side as well as the commuters.

Justice Byron R. White: But anyway, this was the purported justification of distinguishing between intercity --

Mr. Edward A. Kaier: It was.

Justice Byron R. White: And commuter service.

Mr. Edward A. Kaier: Yes Your Honor, it was.

Justice Byron R. White: Because the South I gather does not have the commuter problem as Northern line?

Mr. Edward A. Kaier: That is correct.

There's one Southern line that has a big commuter operation, the Illinois Central, but by and large, they do not.

Now, I would like to develop that point that the non-commutation passenger service has a great deal of expenses that are solely related to that service.

The kind of service that's rendered down South, a local train service, intercity passenger train service, they have these solely related expenses, and the Commission didn't exclude those when it made it's calculation of the commuter -- passenger deficit to the allocated to this North-South freight service.

I believe it to be of great importance in connection with this point Your Honors to point out to you that the Commission allocated the overall deficit; that is from all passenger operations to the North-South service, both for Northern and Southern lines.

The Northern lines passenger revenues exceeded the solely related passenger costs.

We had a deficit only when common costs were added.

Now, the Southern lines on the other hand, their direct passenger costs, their solely related passenger costs exceeded their passenger revenues.

The District Court found that it was proper in the North-South traffic, North-South service in costing it out to include common expenses, but not solely related.

On -- we are the ones therefore who satisfy that standard.

The Commission's allocation of costs included for us only common expenses which the Court said could be allocated, but for the Southern lines, it included not only common, but the solely related expenses too.

Justice Hugo L. Black: What do you mean by common?

Mr. Edward A. Kaier: Common is between freight and passenger.

Now, I should like to call attention to the fact that there's not question of the Commission's power to consider passenger deficits in making freight rates and I submit in the divisions.

You held in the King case that it was proper for the Commission to consider passenger deficit and fixing freight rates, and the Court did not distinguish there between solely related cost and the other kind of cost.

Justice Hugo L. Black: Is any question of freight rates involved here or just --

Mr. Edward A. Kaier: Well, this is just --

Justice Hugo L. Black: Limited to division?

Mr. Edward A. Kaier: This is limited to the divisions Your Honor.

Of course, the Commission has considered the passenger deficits in fixing the general level of freight rates, and it seems fare therefore to consider the passenger deficits in dividing the freight rates.

But if they do it ought to be the overall deficits.

I like to take just a minute from my rebuttal if I -- it's that's proper Your Honor?

I would like to say that -- in the CNNW case which you decided very recently, fixing divisions between transcontinental lines that called Mountain Pacific and the Mid-western lines; you have substantially the same cost questions involved here, except that you didn't have this passenger deficit matter.

Justice Hugo L. Black: Are they the most expensive to operate?

Mr. Edward A. Kaier: Oh, I don't think so Your Honor and I really don't know.

I haven't compared those.

Justice Hugo L. Black: Over the mountains, I believe?

Mr. Edward A. Kaier: Over the mountains.

Well, for that factor that they would be surely, but that they're not involved here.

I just cite that case as a precedent.

In that case Your Honors, the two conferences which are here aligned with the Southern railways filed a petition for leave to file an amici brief.

They made the point that if this Court where to decide the cost issues in that case, it would prejudice the decision and it would control the decision in our case in the lower court.

They said that to all intents and purposes, the cost issues in that case where exactly the same as the cost issues in the present case.

And I submit to Your Honors that that decision is a very important precedent in the decision of this case.

Thank you.

Argument of Arthur J. Cerra

Mr. Arthur J. Cerra: If it please the Court, my name is Arthur Cerra and I'm an Assistant Associate General Counsel of the Interstate Commerce Commission.

These appeals present a question of major importance to the Interstate Commerce Commission's Section 156 duty to ensure just reasonable and equal divisions as between connecting rail carriers.

Now, as Mr. Kaier's indicated, District Court held that Rail Form A territorial cost not a proper yardstick for measuring North-South traffic, and that the Commission was required to produce more refine data to ascertain the actual cost of that service.

In reaching that conclusion, the court below disregarded key determinations made by the Commission.

First, they disregarded first in rejecting the Commission's comprehences of analysis of Rail Form A, and its application to all the units of service that were rendered in North-South traffic, and these units are service being the ones that comprise what is being measured.

The District Court paid little attention to these findings and analysis of the Commission.

And secondly, the Court disregarded the findings made by the Commission after its review of all the evidence submitted by the parties that this cost reliably and accurately reflect the traffic in question.

Now, those findings were based on evidence that the traffic moves over all railroads and between all stations in both territories, and it's not handled as a distinct entity at all, but rather, it's average traffic handled as an indiscriminate part of all traffic and it possesses no distinguishing characteristics.

Now, this Court observed in the CNNW case that the ascertainment of cost and the treatment of accounting problems concern factual matters relating entirely to the -- and directly pertaining -- excuse me, relating entirely to the special and complex matters of the railroad industry.

The court had no familiar -- the court below had no familiarity with these problems and either sought here to obtain more accuracy or to restrict the consideration that the Commission could give to these matters solely to the cost directly pertaining to the traffic in question.

We believe that such an effort to achieve a theoretically perfect cost formula really does constitute an unwarranted incursion into the administrative domain.

And for this reason, railroads are multi-purpose facilities.

They produce a number of transportation services for the common use of physical facilities and employee services.

Now, how do we obtain the cost for these services?

When there are direct cost, we can allocate them to the traffic.

When there are not direct cost, they are common cost, there have to be some kind of judgment, empirical judgments made on determining how to allocate this, or how is it done.

It's done on the revenue basis.

Justice Hugo L. Black: (Inaudible)

Mr. Arthur J. Cerra: Between different kinds of traffic of railroads Mr. Justice Black, for example, a car of North-South traffic might travel in the train with traffic from various other areas of the country when it reaches the border.

The same engine is used.

The same fuel is used.

The same switching crews.

How do you allocate the cost running that train between the traffics?

Well, you allocate it on the basis of the revenue used that it produces.

You find out what the costs are, and each traffic bears that portion of those cost.

That's what the Commission did in this case.

As I was saying, where a railroad -- as all these railroads are a multi-purpose facilities and they produce a number of transportation services.

When we try to ascertain whereas here, if any given body a traffic uses physical facilities in common and employee services in common with other traffic, and it's been shown that it has not distinguishing characteristics from any other type of traffic, it would appear to us that the application of Rail Form A cost is plainly proper.

Justice Abe Fortas: Well, that really cuts very deep doesn't it?

Would you apply that principle to all problems under the Act?

Mr. Arthur J. Cerra: I didn't quite understand your question, Your Honor.

Justice Abe Fortas: Well, suppose you had a particular plain ascertainment cost of kind particular types of commodities, you do that don't you?

Mr. Arthur J. Cerra: We do, Your Honor.

Justice Abe Fortas: And that most to those cost are a part of a joint cost that involved many other operations.

But somehow rather by the wizardry of accounting techniques we do disentangle them and do make the segregation.

I'm not saying that it always makes sense and to do that or it's always worthwhile if that's a duty that always should be imposed on the ICC.

But certainly, you do it in some instances for some purposes.

And what I have not got clear in my mind is, what are the special reasons here why you did not do it?

Particularly in view of the relatively small amount of the overall cost or an overall traffic represented by the North-South traffic and especially on the Northern roads?

That's what I haven't heard yet or read, so far as I recall.

Mr. Arthur J. Cerra: Mr. Justice Fortas, this is precisely what the Commission did here.

This traffic we shown to be not distinguishable in any characteristic from any other traffic that the railroad handles.

Now, that being solely --

Justice Abe Fortas: Well, it's distinguishable.

It's got a different point of origin, different point of destination.

It's North-South through traffic and I don't suppose you're going to say that it would be impossible or even impractical as a matter of accountancy to breakout cost for that segment of the traffic.

You wouldn't say that, would you?

Mr. Arthur J. Cerra: Well, the question I would have to ask in that, how do we get these cost Your Honor?

We would have to get this cost by starting out with Rail Form A.

Starting out with Rail Form A and trying to make a segregation of all the services that were performed on North-South traffic.

Justice Abe Fortas: I just think that'd be a very sensible way of going about it.

Mr. Arthur J. Cerra: And that's precisely what happened in this case.

Justice Abe Fortas: But you did not break it down.

What you relied on was Rail Form A aggregate cost as I understand it without making any segregation whatever.

Mr. Arthur J. Cerra: But the aggregate cost Your Honor are all the services that are performed by the railroad to provide all the work units in expenses that takes to provide any amount of traffic that the railroads handle.

And when you throw this all in one pool and they're using common facilities, a unit cost for each type of service, then you go to the railroad's traffic study for a year which shows all the services units that were rendered in performing North-South traffic, and you multiply those unit cost of service against the revenue units, and you come out with the cost for the traffic.

That is what the Commission did here.

Justice Abe Fortas: Yes, but a further or refinement beyond that would be possible, would it not?

For example, don't we have -- isn't it necessary to decide here whether it was or was not appropriate just to take an illustration to use these commuter costs?

Now, I understand you're -- I think I understand the Commission's reason for it.

The Commission says that there are no separate facilities that are used for the commuter-passenger traffic.

And therefore, the Commission says “We did not break out those cost and eliminate them for this particular purpose.”

But that presents a problem.

Wouldn't you agree that that presents a problem of standards?

Mr. Arthur J. Cerra: The standards that it would present arise from the problem that here, the Commission used fully distributed cost.

Now in the CNNW case, they used out of pocket cost.

They didn't consider any of these overhead items and distributed as to that traffic.

So the distinguishing feature here is that the Commission used fully distributed cost.

Now --

Justice Abe Fortas: I know, but you get the question of should it.

Mr. Arthur J. Cerra: Should it?

Justice Abe Fortas: Of course you did, but should it?

Mr. Arthur J. Cerra: And this is the determination of cost which depends on policy.

The Commission has formulated a policy of saying following this Court's decision in North Dakota in 1915, the North Dakota case we cited in our brief that when cost are being considered, the Commission must not only ascertain the cost directly pertaining to the service, but it also must ascertain in a portion those causes which are joint or not directly pertaining to it.

And every railroad has certain overhead expenses.

Now, if we have these overhead expenses and we're going to say that it should not be portioned on a revenue unit basis between all given bodies of traffic, we're going to find out that sooner or later, the railroads are not being able to recouped this overhead expenses from anybody of traffic.

So as a policy matter, the Commission has said here fully distributed cost, meaning an apportionment of all overhead burdens must be divided and that part will be divided here in accordance that this North-South traffic bears to the total traffic of both groups of railroads.

Justice Abe Fortas: Well, I'm not going to pursue any further beyond suggesting to you that basic problem here is as I understand it, arises from the fact that the Commission said, “We're going to make the -- we're going to review these divisions on the basis of comparative cost.”

Isn't that right?

Mr. Arthur J. Cerra: That is correct Your Honor.

Justice Abe Fortas: Not of the factors cost, not what the railroad's need, but cost.

Then, the Commission I should think would have a duty if any standards are to be applicable here to show that it has -- and reasonable limits applied cost standards.

Namely that it has ascertained cost on some proper sensible basis.

I'm very much in favor of latitude to the ICC and this -- its terrible jobs as I have expressed in various times, but they have to be some standards here.

And instead of that, what the ICC did here was to take a gross figure, cost of a total operations, including some rather elements that offhand, there of surprising, such as computed charges and the unsegregated kind charges or whatever that item is.

And -- then you have arrived at your conclusion on that basis and that's what's bothers some here, and it's not because you could not make a further refinement of these costs, is it?

Mr. Arthur J. Cerra: Your Honor, the refinement we made based on the Rail Form A computations and based on the fact that parties who seek to show that there are differences in one given body of traffic as compared to average traffic were shown here.

The Commission reviewed the attempts by the Southern lines to show these bodies of traffic do distinguishing from average traffic, and they rejected seven and accepted five.

So, -- that means I'm through.

I'm sorry Your Honors.

I did want to cover just quickly the point of the Southern Governor's Conference.

They parrot the arguments of the Southern lines, but they claim as a matter of law that even if the Northern lines experience higher cost of service, the Commission must find that such higher cost reflect inherent territorial disadvantages before it may give effect to such cost and then territorial division's case.

And this contention is based on the premise that the Commission made no adequate findings to dispose of their claim and therefore, its order is going to produce dire consequences and upon the economy of the South and effectively nullify the present and future economic gains that the South was scheduled to receive as by virtue of the New York case.

Well, we ask the Court only to consider the findings that the Commission did make in response to each one of these contentions, and the findings that rejected these contentions or explain why the Commission couldn't accept them or clearly expressed in its report.

We don't think any further findings are required.

Argument of Carl E. Sanders

Mr. Carl E. Sanders: May it please the Court.

My name is Carl Sanders.

I represent the Southern Governor's Conference.

I represent the Southeastern Association of Railroad and Utility Commissioners.

I come to the Court with a little different version, a little different view of what this case is all about.

Of course, I have two.

We've been in this case since the very beginning, and we've had to listen to the arguments between the Northern and Southern railroads, and we've heard all of these evidence about the question of cost.

But we contend and we respectfully insist today that this not just a private dispute over revenue between Northern and Southern railroads, but that this case involves a much bigger question, and that this case really involves the fact that the Commission has abandoned the territorial relationship of equality between the North and the South.

And they've done this without any explanation whatsoever so far as we've been able to ascertain.

This is -- sir?

Justice Hugo L. Black: The equality of cost?

Mr. Carl E. Sanders: Equality of -- that they are differences this Court in 1947 in New York versus Unites States determined that they were no differences between the official territory of the North and the Southern territory, and by virtue of that, you established the uniformity of rates and then subsequent to that, the uniformity of divisions.

We have been in this case.

It's been our observation that there has been no determination, no reasons given.

No adequate reasons given why the decision in the New York versus United States case is not just as sound today as it was in 1947.

And that this business about it being costing more money to run the railroads in the North as compared with running a railroad in the South is not based on any inherent difference, which is the words that this Court used when it became necessary to just divisions or just rates that they should be some inherent difference.

And so, you put us on an equal basis, and we've been on that equal basis and we see no reason under the evidence that was submitted before the Commission.

We see no reason to change this basis and give the North now a preference in divisions for operating railroads in the North when they have not proven to anybody satisfaction that it cost any more money to operate a railroad in the North and it does in the South today.

If Your Honor please, it's of course, it is inflation matter, and what it amounts to is this, it simply amounts to the fact that under this order of the Commission, they are going to give them an average of 17% more, up to a maximum of 34% more, but carrying the same amount of freight over the same distance in the North as it relates to the South.

And that's what it amounts to.

Now, --

Justice Potter Stewart: I'd understood that the net average change in the divisions with 3%.

Mr. Carl E. Sanders: 17%, that's a net average change in the amount of money we cost the Southern railroads.

I think is what --

Justice Potter Stewart: Yes.

Mr. Carl E. Sanders: -- Mr. Kaier said, but the division preference that they are giving in this case is an average of 17% more to the Northern railroad for carrying -- if you got a whole of 50 miles in the North and we've got an identical whole of 50 miles in the South, they are going to give them an average of 17% more in the North for carrying that same amount of traffic over that same distance as we would get for carrying the same amount of traffic over the same distance in the South.

And it does go as high as 34% in the record.

And so, this is not something new from --

Justice Potter Stewart: And now, tell me what is the 3%?

Mr. Carl E. Sanders: The 3% that they're talking about is the amount of money that is going to take away from the Southern railroads operating revenues.

I believe it's the correct interpretation of that.

Justice Hugo L. Black: What's the theory on which they based the finding, if they even have a finding can you argue with that --

Mr. Carl E. Sanders: All right sir.

Justice Hugo L. Black: -- with the increased cost of operating in the North?

Mr. Carl E. Sanders: The theory, if there is a theory, is that they say that there is a difference.

They say there's -- it cost more money to operate a railroad in the North.

Justice Hugo L. Black: Why?

Mr. Carl E. Sanders: They don't give any reasons.

This is our point.

This is what the Southern Governor's Conference and the Southeast Railroad Commissions are complaining about.

We say that if they made a finding that under the Administrative Procedure Act, they've got to give the reason for the finding.

And we say that if there is a finding, they've got to have evidence to support that finding.

Now, I can quote what they have said in this case.

The ICC said this, this is from the record, “Other factors being equal, the cost differences between the North and the South are the product of and reflect inherent advantages and disadvantages in the two territories.”

Now, this is what they said.

We contend it of course --

Justice Hugo L. Black: Which one do they claim has the most advantages?

Mr. Carl E. Sanders: Sir?

Justice Hugo L. Black: Which one do they claim as the most inherent advantages or disadvantages?

Mr. Carl E. Sanders: Well, they claim that the North has the greatest disadvantage may it please Mr. Justice and --

Justice Hugo L. Black: What is that disadvantage they point out?

Mr. Carl E. Sanders: The only disadvantage that we can ascertain from this record is one, perhaps an over capacity of railroad facility in the North.

We think that if there's any cost difference between operating a railroad in the North today as compared with this operating one in the South from this record, it would be because they've got more capacity in the North than we have in the South.

And of course, they did not -- they recognize --

Justice Hugo L. Black: Do you mean the competition was keen?

Mr. Carl E. Sanders: No sir, I mean that back in the day and times when the Northern Railroad System was first built, to be perfectly candid about it, all industry in this country was located in the Northern part of the country.

And at that time of course, there was a great deal of railroads that were built.

Since that time, of course, much of the industry in this country, some of it thank goodness, has come to the south.

And now the fact that we do have industry in the south, we have an overcapacity of railroads in the north.

And so they say, well as a result of that they've got maybe more wages.

They've got perhaps some of these transitory costs that are tendered to operating an oversized railroad.

Now, since that time, since this decision and they recognize this in the Commission but they didn't do anything about it.

They said “We raise the question what's going to happen when they have these merges?”

And they said, “We can't go into merges.

We can't consider that other than to recognize that there are going to be merges.”

And since that time in the Pan Central Merger case, the Commission found that the Pan Central merger would save $80 million a year.

And yet there's not any recognition given whatsoever in this proceeding for these savings that are taking place in the north.

What we are trying to do, Mr. Justice Douglas in his opinion in New York versus United States said that of all things that we don't want to happen is that we don't want to create a manmade trade barrier.

And if we are going to have a manmade trade barrier as the rate structure then existed, and so we're going to equalize the rates and at the same time they equalize the divisions.

Now what this northern railroads' are asking this Court to do now in a subtle fashion is to re-impose in another manner the same manmade trade barrier between the north and the south, except instead of doing it through the structure of rates.

They are now asking you to do it through preferences and divisions.

And it creates the same problem that we had 25 years ago.

Justice Thurgood Marshall: What's the difference in consequences?

Mr. Carl E. Sanders: The difference in consequences is that if you allow this situation to stand as it stands now with the preference in division, the difference in consequence is this.

First of all, we are going to have to pay for this inflation.

It's going to come out of the hide of the southern shipper.

It's going to come out of the hide of the southern economy.

It's going to come out at one fashion or another.

We can't operate railroads in the south and give the north 17% more for that same traffic.

So we either going to have to raise the rates in the south.

That means that the southern rate goes back up and we have a rate in the south that's greater than the north.

O, if we don't raise the rate in the south, we're going to have to reduce the service.

And that means that instead of being able to provide the same service that you can get in the north that instead of being able to buy say with the amount of money that's involved in this case, we can buy several hundred freight cars in the south for these railroads that are operating in the south.

But if this Commission order is allowed to stand, that means that these freight cars that we could buy and be using in the south, they're going to be using them in the north.

Justice Abe Fortas: But Governor, what percentage of the total revenues of the southern railroads are we talking about here?

Mr. Carl E. Sanders: We're talking about 3%, I believe.

Justice Abe Fortas: No, I mean overall?

What's the -- how much of their revenues, what percentage of their total revenues to the southern roads does the southern division derive from these does--

Mr. Carl E. Sanders: 20%.

Justice Abe Fortas: -- the southern roads derive from the division then?

Mr. Carl E. Sanders: 20%, Mr. Justice.

Justice Abe Fortas: 20% from all of their revenues?

Mr. Carl E. Sanders: Yes sir.

Yes sir.

Justice Abe Fortas: Now the next thing I want to ask you is this.

As I understand it, what you're seeking is an affirmance of the District Court order?

Mr. Carl E. Sanders: Yes sir, I sure am.

Justice Abe Fortas: And the question before us is whether we'll affirm the District Court order not whether we --

Mr. Carl E. Sanders: Yes sir.

Justice Abe Fortas: -- like what's happening or we don't like it.

Mr. Carl E. Sanders: Yes sir.

And I think if may it please Mr. Justice Fortas, that if this Court will affirm the other point that I'm seeking.

And I want to conclude my argument, but this Court will affirm the district judge's decision.

All we want and all we've ever asked for, and we've raised the question at every level from the beginning up, is to ask the Commission to go in to all of the economic facets and all of the economic factors in the northern territory and in the south.

And if they go in to all of those factors, which they did not do in this case, then we are perfectly willing to stand by whatever the decision might be.

But we have never been --

Justice Abe Fortas: Well provided it comes out right.

Mr. Carl E. Sanders: No sir.

We would like -- we believe it will come out right.

The other point I want to make before I sit down, if might.

And this is the other thing that the Commission is doing in this case that I think is very significant is that for 30 odd years, they have followed the principle of primary local responsibility.

And that is that the territory where the cost factor is involved should bear the course to that territory, not super impose it on some other territory.

And what they're asking us to do in the south is subsidize the northern railroads.

And one other factor and I will sit down because my time is up and I know Mr. Trienens is a much better lawyer than I ever hope to argue this case.

But the other factor is these commuter deficits.

Now, you gentlemen know, may it please the Court, that the south has come a long way in the last 20 years.

You also know that according to every economic indicator in this country today, we are still below any other section of the country regardless of the progress that we have made.

They have settled us, the Commission has in this case, with commuter deficits in the north, which have no relationship whatsoever to us in the south at this time.

However, I happen to have the privilege this month of heading up a committee in Atlanta, Georgia to go to the people in metropolitan Atlanta for a $433 million bond issue, nothing to do with the railroads now, $433 million bond issue for rapid transit.

And we are coming to grips with that problem because we know we have to come to grips with that problem, and we don't think that we should have to subsidize the commuter deficits in the north, and at the same time come to grips with the problem ourselves in the south and pay that ourselves.

We simply, in conclusion, we simply feel this way.

We want equal treatment with all sections of the country.

We want a free economy unhampered by any manmade trade barriers.

And certainly if we think we are entitled to equality of equal treatment with any other section of the country, and certainly if we are going to receive less than that, we think that the Commission should at least give us some explanation while we are going to have to be relegated to a second class status.

Thank you very much.

Argument of Howard J. Trienens

Mr. Howard J. Trienens: May it please the Court.

I'm Howard Trienens, I represent the Southern Railroads.

When we started out this case, we were equal partners with the Northern Railroads and we were dividing uniform and equal basis of rates.

As Governor Sanders has pointed out, this case has changed that relationship.

We are now not -- unequal.

This case was tried on the expressive mission of the Northern Railroads.

They were seeking a disproportionate division of a uniformed structure of rates.

They wanted a disproportionate share.

And they got it, for performing exactly the same service on the same car moving between the territories.

They have given a 17% inflation, 17% more for performing the same service on the same car.

I'll show where that came from and why that's not supported by any evidence.

Justice Hugo L. Black: You mean about per mile?

Mr. Howard J. Trienens: Per mile, yes sir.

300 miles on the south, same car, 300 in the north they get 17% more compensation for doing that same work on that same car under this order.

Justice Hugo L. Black: You say before the Commission acted the amount was equal?

Mr. Howard J. Trienens: 50-50.

We split it equally when there were -- we each perform half the service with an equal haul.

We split it 50-50, and we were splitting it equally and we were splitting a uniformed system of rates which were --

Justice Hugo L. Black: Who filed the petition?

Mr. Howard J. Trienens: Northern Railroads.

Northern Railroads.

Justice Byron R. White: Mr. Trienens, do you on your side of the case, question the principle that if were so that the cost of the northern road in handling this class --

Mr. Howard J. Trienens: This train.

Justice Byron R. White: -- was (Inaudible) and the southern (Inaudible) can make this kind of effect.

Do you question the division based on profit?

Mr. Howard J. Trienens: We would question it unless they carry through, and did two more things.

First found that these differences in cost, just because a fellow spends more money shouldn't get a medal for that.

But these differences in cost were inherent, inherent in the difficulty of the territory.

They couldn't cure it by consolidations.

They couldn't cure it by becoming more modern.

They couldn't cure it, it was inherent.

Now if it wasn't inherent difference like that amount in the Goldberg that'd be something else.

And also --

Justice Hugo L. Black: You mean necessary?

Mr. Howard J. Trienens: Necessary.

That's right, a necessary difference in the cost.

Not just they happen to spend the more money --

Justice Potter Stewart: Or do you mean just they had to make a finding as to efficiency?

Mr. Howard J. Trienens: Well, efficiency in this case is a somewhat slippery word.

Now, I think they found they were equally efficient.

But that meant they found that they were --

Justice Potter Stewart: Well you know they found that then.

Mr. Howard J. Trienens: They were operating the systems as they then existed with equal efficiency.

They didn't say, because obviously they merged Pan and Central, and they merged a new haven to create efficiencies that these separate railroad managements could not achieve by themselves.

There's quite a difference in there.

Well now, this situation of unequality puts the south in a uniquely different position.

Throughout the country, east of the Rockies, the rates are uniform.

The east and the west, Midwest, the east and the southwest, the divisions relate to the rates and they're uniform.

Even out in Mount Pacific territory where there is an inflation, it's related directly to the higher level of rates and the Commission related them on a basis of consistency as was pointed out in this Court's opinion in the Transcontinental case.

This is the only case, the first case where inter-territorial rates have been divided so that one railroad gets a disproportionate division of uniform rates.

This is the only case.

Now how'd it get that way?

Here's how it happened.

They used Rail Form A as to which there is no quarrel.

Rail Form A is a formula that chops these railroads costs into various elements.

We have no quarrel with how it divides the cost as between elements vital, terminal or otherwise.

What we did was we analyzed this Rail Form A cost, and we said “How come these Form A averages are 17% higher? How does it happen?”

Well, we looked at that sort of thing we would all think of as railroad cost first.

The sort of thing Mr. Cerra indeed talked about.

Running a train, paying the crew, buying the locomotive, fuel, maintaining the roadway, stations, all the sort of things you first think of in railroad costs.

Are they higher in the north on an average basis?

No, it doesn't cost anymore to run a train in the north.

And that's true whether you use these Form A averages or you don't.

The Rail Form A and these averages have nothing to do with this inflation when it's the items that you think of is running trains, maintaining the roadway and that sort.

So, where did this inflation come from?

Here's where it came from.

It came from a handful of items.

Commuter deficits, border point interchanges, car cost, empty return ratios and just a handful of items that we discussed in our briefs.

Now, it's not surprising and shouldn't be surprising that the cost for some items are higher in the north.

After all, the north is a very different place.

It's a highly industrialized territory.

Of course they got a lot of commuter service in the south as of now.

It hasn't anything to do with north-south freight traffic.

And indeed the Commission found as a finding of fact that many items, many items of suburban service are solely related to suburban service.

Meaning the finding that these cost haven't anything to do with north-south freight traffic.

Justice Abe Fortas: Well may I interrupt you there --

Mr. Howard J. Trienens: Surely.

Justice Abe Fortas: -- if you don't mind?

In fixing freight rates, the Commission does take into account deficits on passenger service, am I right on that?

Mr. Howard J. Trienens: In so far as fixing relationships between north and south.

Justice Abe Fortas: No, no.

I'm not talking about that.

Just in fixing freight rate.

Freight rates, does the Commission take into account deficits on passenger service?

Mr. Howard J. Trienens: The Commission has in the past, and I can't say -- I can't look behind what they think of it, has in the past said that it did consider deficits from passenger service.

It has also said --

Justice Abe Fortas: Pardon, go ahead and finish that sentence then.

Mr. Howard J. Trienens: It has also said that they've treated commuter deficits as a separate problem which should not be dealt with by the freight shipper subsidizing the service, but rather should be dealt with by the local community.

Excuse me.

Justice Abe Fortas: The answer to my answer to my question yes?

Mr. Howard J. Trienens: The answer is yes.

It's the passenger deficits, but no as to commuter service.

Justice Abe Fortas: And you say there are Commission rulings to the effect that commuter service will -- deficits on commuter service as distinguished from passengers other intercity passenger service, will not be considered.

Mr. Howard J. Trienens: As a matter of Commission policy.

Justice Abe Fortas: In fixing freight rates?

Mr. Howard J. Trienens: Yes sir.

And that --

Justice Abe Fortas: But here, your point is that they have considered deficits on commuter service in fixing these divisions?

Mr. Howard J. Trienens: That's right.

And I want to draw another line here though.

Because in these rate cases, the reason they consider passenger deficit at all was to meet the revenue needs of these carriers.

They needed more money so they raised the rates to give them these -- give them these money including -- and they took into consideration passenger deficits.

In this case, they have expressly disclaimed revenue needs as a basis for decision.

They say that their order is based on the cost of north-south freight traffic, freight traffic.

And they have found that the commuter deficits are based at least many items of the cost are --

Justice Abe Fortas: And you're saying that they have not used -- let me see if I can be precise about this.

If I correctly understand your last statement, you're telling us that the Commission has not used the cost of passenger service, intercity passenger service, except for the cost of common facilities for the purpose of arriving at the cost for purposes of fixing freight rates?

Mr. Howard J. Trienens: Not quite sir.

Not quite.

Justice Abe Fortas: Let me hear you state it.

Mr. Howard J. Trienens: They picked as their standard of this whole case the cost of north-south freight traffic.

They further found that many items of commuter cost solely and then --

Justice Abe Fortas: I know that as to this case.

Mr. Howard J. Trienens: -- or then as to this case, they nevertheless went in and put the whole passenger deficit into this --

Justice Abe Fortas: I understand as to this case.

I'm asking you generally, when the Commission figures cost for purposes of a freight rate case, not a division case, a freight rate case.

Does the Commission take into account the cost of passenger service or does it not?

Mr. Howard J. Trienens: I can't answer that Your Honor.

And the reason I can't is that in the early 50's, they did say they would reflect the passenger deficits in a rate increase.

In 1959, they went to Congress and have been finished this passenger deficit investigation, they said that as to commuter, commuter deficit should not be subsidized by freight shippers.

And they have acted consistent with that since that time.

There were no freight rate increases from about '59 to '67.

And in the latest decision, I just can't answer your question.

I just don't know.

I do know in their last decision, they said this.

And this bears upon the argument that we got to use Form A cost and these averages because it's essential to our rate cases.

In that case, they had among other freight commodities not merely citrus fruit, but all perishables from north-south, territory wide, and somebody put in Rail Form A unadjusted cost with respect to these rates that they were increased.

And the Commission said “Territorial average cost are entitled to little weight in determining the cost of handling particular movements.

And by that they mean a territorial wide movement of this very traffic.

So the idea of anything you do here about Rail Form A is going to embarrass them and all in their administration rate cases.

That's how by their own state --

Justice Hugo L. Black: Does it mean how to pocket cost?

Mr. Howard J. Trienens: In that case, they were showing both.

Justice Hugo L. Black: When you've been referred to cost, the Commission had been referred to cost, has it been out of pocket cost?

Mr. Howard J. Trienens: No sir.

Justice Hugo L. Black: What does it include?

Mr. Howard J. Trienens: It includes -- what I regard as a --

Justice Hugo L. Black: Value of the property used?

Mr. Howard J. Trienens: The full cost of performing this north-south service.

It would include a return on the value of the property.

For example, return of the value of the car used to all this traffic.

That's right sir, all of full cost of handling this north-south carrier.

That's what I understood the Commission to mean, and I don't quarrel with that feature of it.

Justice Hugo L. Black: What you claim is that they take a shipment of oranges in Florida that the south now will get -- hardly going through the south.

Those railroads will get 17.5% less of the division of the cost?

Mr. Howard J. Trienens: Yes sir, 17% less than the north for doing the same service.

Now let's see how it got this way.

I've already said that it wasn't operating the trains and it wasn't the roadway.

It was a handful of items.

And I think I can illustrate how this inflation came to be by giving an example as to one of these items.

I will take again a car coming from the south that moves across over (Inaudible) Potomac area, right across 14th St.Bridge.

That's an interchange point.

That's where the Southern Railway comes in into Pan Central and the B&O goes north.

And there is a service performed there.

It's the cost of interchanging these cars.

These same cars come in, same car go out and there is a cost involved in interchanging them.

Now when you look at the Commission's order in this case and see how they construct it, there's a separate factor which they call cost of interchanging gateways.

This is a separate factor.

It's isolated and we can think about just how this works.

The railroad operate this joint yard and the record makes it perfectly clear uncontroverted that the cost for each railroad coming in that yard and going out of that yard is exactly the same.

Exactly the same and you'd know that'd be the same.

They're in the same yard dealing with the same cars through the same joint facility.

The record is uncontroverted that the costs are exactly the same.

The record also shows the same thing at these other interchange points, Cincinnati, Evansville, Louisville.

We're all in the same yards interchanging the same cars.

Alright, now how did they get the inflation?

Well, they said, “Here is an element of cost of interchange.

We will use the territorial average.

The territorial average per car interchange throughout the south is used and the territorial average throughout the north is used.”

And it happens that those averages are 58% higher than the north.

Now I don't question that on the average for all the traffic, the average cost is 58% higher than the north.

After all, as was pointed out earlier, 94% of the northern total traffic is something else.

It's not this traffic, it's something else.

It's interchanging with western lines in the expense of Chicago district, its lots of other things.

It's --

Justice Hugo L. Black: Does the increase cost of the depot, the station and the tracks and the land of the railroad of the north and south enter into the competition?

Mr. Howard J. Trienens: They do enter, Your Honor.

And as to those items, stations, land there was no difference in the averages or -- there's no quarrel about it.

There's just wasn't -- that doesn't where this inflation came from.

It came from just a handful of items like this border interchange which was 58% higher, these car costs for the same car which are 32% higher and throwing in the commuter deficits.

It's that kind of thing that counted for this whole inflation.

Justice Hugo L. Black: You say the car cost was 32% of it?

Mr. Howard J. Trienens: You take the average car cost, meaning all the cars of all different kinds throughout the south and all the cars of all different kinds throughout north, and the average cost is 32% higher per mile than the north.

Justice Hugo L. Black: Is that suppose to be due to the fact that they have better cars?

Mr. Howard J. Trienens: Well --

Justice William O. Douglas: Some of it is due to a specialized equipment, isn't it?

Mr. Howard J. Trienens: Some of it is due to more specialized equipment.

The north after all is the manufacturing center.

They have more specialized equipment.

Some of it is due to the fact that the north uses more coal, and it rents coal cars and coal rentals enter into all this.

But when we're talking about a boxcar handling north-south traffic and it's the same car moving from the south through an interchange into the north.

The same car, there's no rational explanation or even an effort to explain why for that car, it could be 32% higher than the north.

That's the whole question here.

We're talking about north-south freight traffic.

And the question is, whether there is any evidence to support these higher costs for the items where the whole inflation comes from and show they in fact happen on this north-south freight traffic.

Justice Hugo L. Black: Would you deny if they actually had shown in the evidence that the cost is 35% more on the north that they would be entitled to a bigger division?

Mr. Howard J. Trienens: Well I would deny it because I can't conceive of it being so.

The northern lines didn't really try to show it was so as to these cars.

They just --

Justice Hugo L. Black: That's it.

Suppose they did?

Mr. Howard J. Trienens: If they did and if it was inherent, and I'm not making to do to avoid it.

Justice Hugo L. Black: You mean natural?

Mr. Howard J. Trienens: Natural, and the result of efficient operations as to these cars.

And the northern -- and this was something peculiar of the north-south freight traffic, then they would, under the Commission's standard here, they would be entitled to it.

Justice Hugo L. Black: Well is the main challenge then due to the findings?

Mr. Howard J. Trienens: It's due part --

Justice Hugo L. Black: Or of increased cost in the north?

Mr. Howard J. Trienens: Partly to the findings which go to the -- where they don't go to the questions of how the cost could be higher on these cars in north-south traffic, partly the findings which don't respond to that and in large part to the evidence.

There is no substantial evidence that the cost of these items, these items that account for the whole inflation.

There's no substantial evidence or any evidence that these costs are in fact higher in the north on these cars.

So it's both findings which don't really address themselves to this question and the lack -- complete lack of evidence.

Justice Hugo L. Black: Is that what the court found?

Mr. Howard J. Trienens: Yes sir.

And I would -- I think it's important here at this stage to say exactly what this Court found in three or four sentences here, and also say what they didn't found, because just what this court below found is critical here.

The Court analyzed the facts as follows.

They pointed out that only a few, relatively few elements of the cost are higher.

And it's uncontroverted that many items of cost are no higher on northern railroads and southern railroads.

The inflation is attributable to relatively few cost items, and they list -- the court lists, commuter, interchanging cars, cost of freight cars and a few others.

As to these controverted items, the court below said, and they're all denying this, “The Commission relied exclusively on territorial average cost.”

Now, here's the holding of the court.

Judge --

Justice Hugo L. Black: What does that mean precisely?

Mr. Howard J. Trienens: It means that as to such things as the interchange work out here at Potomac Yard, they used territorial average cost of all traffic in the north and all traffic in the south, bulk of which had nothing to do with this north-south freight traffic.

And the average was 58% higher.

So they divided these rates just as though it cost us 58% more to do the same work in the same yard in the same car.

They used these averages.

And it's like, in that point Your Honor, it's like the -- like this Court said in the Mechling Barge case, this was a barge rail relationship.

The Court said, “The un-sifted averages put forward by the Commission do not measure the allegedly greater cost of the carriers nor indeed show they exist.”

These territorial average don't show that the cost are 58% higher in doing this workout in Potomac Yard nor indeed show that there's any difference at all.

And the record shows that's causing the same --

Justice Byron R. White: You don't -- you don't really deny the fact that on some segments of this traffic -- of their traffic in northern roads have higher cost.

Mr. Howard J. Trienens: Yes I do.

Justice Byron R. White: Like for example car cost, on segments of traffic they really do have the substantially higher car cost.

Mr. Howard J. Trienens: No sir.

Justice Byron R. White: Your point is that -- no?

Mr. Howard J. Trienens: No.

If you -- if your question was on this traffic they have --

Justice Byron R. White: No, I said on some segments of their traffic.

And your point is that you ought to look at this north-south traffic to determine car cost.

Mr. Howard J. Trienens: Alright.

Justice Byron R. White: It's maybe to between New York and Buffalo carrying some kind of the traffic car cost or two or three times this high?

Mr. Howard J. Trienens: Or different cars on a different something else.

Justice Byron R. White: But your point is that that cost shouldn't be used major north-south traffic cost.

Mr. Howard J. Trienens: That's right.

Not only shouldn't be used as a matter of principle, but shouldn't be used under the very standard selected by the Commission itself, which was the cost of north-south freight traffic.

Justice Byron R. White: Yes.

Mr. Howard J. Trienens: And it isn't that I say that somewhere else they spend more on these cars.

It's different cars, I mean, 94% of their traffic is different, commodity is different, traffic or specialized cars.

They're just different things apparent light with light.

Well, I was about to give the basis of the decision below, and I'd like to read slowly if I may, just exactly what the court below held.

Justice Potter Stewart: But can you tell us what page of the --

Mr. Howard J. Trienens: It's on 349 of the appendix, volume 1 of the appendix.

Justice Potter Stewart: Thank you.

Mr. Howard J. Trienens: The Commission stated its exclusive standard to be the relative cost of handling the specific freight traffic to which the divisions apply.

We are persuaded that the order is not based on substantial evidence nor supported by recent findings within the meaning of Sections 8 (b) and 10 (e) of the Administrative Procedure Act, because the use of territorial averages accounting for the northern inflation has not been supported with findings or evidence relating any such inflation to the north-south freight traffic.

That is the holding below.

Now, let me also quote from the Court to make it plain what the holding below is not, because this morning, it was suggested that the Court had substituted its view of the case, that the court below had rewaived the evidence, that's not so.

Here's what the Court said, “With the Commission's expertise in mind, it is our duty to review the record and the conclusions reached as required by the provisions of the Administrative Procedure Act.

As to the sufficiency of the evidence to support the order, it is not the proper function of this Court to substitute its judgment or to weigh evidence.

On the other hand, it is our duty to ascertain whether or not the findings and conclusion are supported by substantial evidence.”

Couldn't find a clearer statement of what the court's function is, and what the court's function is not.

And I want to emphasize again, it was not the District Court that substituted any view of its own that the test here ought to be north-south freight traffic cost, that was the Commission's own announced standard.

This Court took that standard as it had to, and determine whether there was substantial evidence to support this inflation with respect to those several cost items that accounted for the entire inflation.

Justice Abe Fortas: How old is the cost material in this record?

Mr. Howard J. Trienens: 1956 cost.

Justice Abe Fortas: And I suppose if this case goes back, the whole thing left be done over again, won't it?

Mr. Howard J. Trienens: It took the southern line six months between the time the north completed their case to we completed our case.

The rest of this time was taken in the northern lines deciding to use ‘56 cost in 1959 in another procedure in which we played no part.

I don't -- I know it's a great problem for this Court to have one of these old stale cases come up here.

I don't think we should be penalized and we should have to forego uniform division, because other people and other agencies took an inordinate amount of time.

We were not accountable for any delay before the Commission.

Justice Abe Fortas: This case was in the Commission nine years?

Mr. Howard J. Trienens: Oh, 1959 was when the north got around to starting this really, to 1965.

Six years, something like that.

Justice Abe Fortas: Six years, and then in the courts since then?

Mr. Howard J. Trienens: Yes sir.

Then we'd be back trying it out now if the Commission, I presume, would not decide to appeal this.

But to that, we have no control over that.

Justice Abe Fortas: Well, they say the whole proceeding would've been over if you haven't decided before the Court.

Mr. Howard J. Trienens: That's right.

Now, I think I will emphasize that the District Court not only use the standard that the Commission itself had selected, north-south freight cost.

But the District Court did its duty under the Administrative Procedure Act.

This is in a matter where that court had any choice.

Administrative Procedure Act directs the reviewing court shall set aside Commission action, found to be unsupported by substantial evidence.

That's the part of a District Court's job to the reviewing court to look into these records and see whether there is substantial evidence.

That's all this District Court did and found none to support these inflations and the items that they actually occurred.

I also realized that this Court is very busy with many constitutional issues and it can't take upon itself the job of reviewing these administrative records.

But I do submit that the District Court is the initial responsibility and it was fulfilled in this case in a well reasoned opinion, and using precisely the standards that the statute required.

Now, there was statement this morning that this Court had somehow immunized from judicial review, cost findings and anything as complicated as the Railroad Divisions case and citing the so called Transcontinental case of two terms ago.

Now that just didn't so.

At the time that case was tried, there were common issues.

The east was involved in that case when the Transcontinental case was first brought, and there were common issues.

Some of these car costs and other issues were involved.

Commuter never was.

By the time it got to this Court, the eastern roads, the northern roads it settled up.

And this Court observed that many of these issues just didn't have to be reached and weren't reached.

And when this Court itself reviewed, because the District Court hadn't even reached the question, when this Court itself reviewed the cost determinations of the Commission, it didn't say, “You're immune from judicial review.”

It looked as to whether there was substantial evidence.

And on the only item where there -- which is common to the two cases that there was evidence, there was a study of the specific traffic in that case.

There is no study in this case and the north refused to make a study.

Now there is a feature of the Transcontinental case.

Justice Hugo L. Black: How long would it take for the Commission to make its study and use it through with the case?

Mr. Howard J. Trienens: Well, Your Honor, the way I look at it this way.

The -- it would be very easy for the Commission to get through with this case correctly.

The northern lines wanted an inflation in their divisions.

Commission says, “All right, the test is cost of north-south freight traffic.”

On this record, and in any record we've seen yet, there is no evidence that as to these items that make up the inflation has any evidence that cost more on the north on this traffic.

Now what the Commission ought to do is say “Dismissed, you haven't proved your inflation.”

That's easy, dismissed.

Justice Hugo L. Black: But I say, how long would it take for them to have a full interview and make the kind of finding which you think should be made?

Mr. Howard J. Trienens: I didn't find -- I think should be made right now until the northern lines or anybody presents some evidence that the costs are in fact higher on this traffic.

The findings ought to be they haven't proved their case and ought to be dismissed.

Justice Abe Fortas: So, your direct answer is somewhere between five minutes and 15 years, isn't it?

Mr. Howard J. Trienens: The lower court recognized, Your Honor that in saying that there wasn't substantial evidence.

It didn't mean that the Commission was the captive of the Northern Railroad's failure to present evidence.

That the Commission had the right and the power to go out and make any kind of comprehensive cost that it wanted.

Now, if it did that, that would take time.

But the Commission has no duty to do that.

The Commission's duty is to decide the case on the record, and if there's no evidence to support an inflation, their duty is not to give it.

Justice Abe Fortas: Well, that didn't quite it, is it?

Because Commission's made a finding that the existing divisions are not fair and reasonable.

And that finding is not being presented for decision here.

The District Court didn't make a judgment on it as I read it, isn't that right?

Mr. Howard J. Trienens: District Court said that the -- that the --

Justice Abe Fortas: The District Court said the Commission's result was an error in making these adjustments.

It did not find that the existing divisions were fair and reasonable, did it?

Mr. Howard J. Trienens: Well I --

Justice Abe Fortas: Alright, so that the --

Mr. Howard J. Trienens: No, I don't think it did either.

Justice Abe Fortas: -- the parties here, the northern roads or whoever wants to do it has a right to obtain a Commission determination as to what adjustments would be necessary to make the rates fair and reasonable.

So that if the decision of the ICC is set aside here, it will necessarily follow, will it not, that there'll have to be further Commission proceedings.

And that those proceedings will be on the track record will be quite lengthy, it's just a fact of life.

Mr. Howard J. Trienens: I don't agree with that in this situation for this reason.

This isn't the case like southern case was 15 years ago, like the Transcontinental case was a couple of years ago, where the divisions were a big scattered mess that everybody agreed were wrong.

This is a case where they had found a uniform scale of divisions to fit the uniform rates that are now in existence.

If this case is sent back to the Commission, the present order set aside, you don't go back to some chaos that everybody recognize it has to be changed.

You go back to the uniform equal partner divisions of rates.

Now, if they want to persist, if the northern lines wish to persist in obtaining an inflation, let them start by presenting some evidence that the cost --

Justice Hugo L. Black: You keep saying obtaining inflation.

What do you mean by that?

Mr. Howard J. Trienens: I mean Your Honor that has contrasted with the way it was before this order where we were equal partners.

And we each --

Justice Hugo L. Black: You mean if they want to insist on getting more than the south gets?

Mr. Howard J. Trienens: If they want more than equal share, they ought to prove it.

That's right Your Honor.

Justice Byron R. White: You see the way this works out probably if they get a dollar you just get $0.50, is that right?

Mr. Howard J. Trienens: Up until this order.

Justice Byron R. White: That's right.

And under this order, what is it?

Something like 58-42 or something, 58 or?

Mr. Howard J. Trienens: Well, specifically the way it's worked is that there are two scales, a northern scale and a southern scale.

Under this order of the northern scale is 17% higher at 300 miles.

You run these scales through --

Justice Byron R. White: How do you get --

Mr. Howard J. Trienens: $0.56 and $0.44.

56-44 instead of being equal partners.

Justice Byron R. White: Yes.

Mr. Howard J. Trienens: That's the way it works.

Justice Byron R. White: Well I suppose the same finding why the Commission looks for the increased rate with an increased joint rate?

Mr. Howard J. Trienens: It didn't so indicate.

They --

Justice Byron R. White: I mean that's normal (Inaudible).

Mr. Howard J. Trienens: No, I don't believe so Your Honor.

Ability to move the traffic, ability to meet truck and barge competition, revenue needs of the railroads.

The cost --

Justice Byron R. White: The cost is --

Mr. Howard J. Trienens: Well, they have a very low --

Justice Byron R. White: They thought, for example and said “Right, we are thinking it has to do this.”

Mr. Howard J. Trienens: Well they used to 15 years ago, yes sir.

But you can read these last few rate cases, and I'm just not able to recite as to what they based it on it, except the revenue needs of the railroads not cost as -- not -- certainly not cost of specific 6% of the traffic.

Justice Byron R. White: How it represents -- certainly some of the part of the revenue needs that the -- or --

Mr. Howard J. Trienens: Well, some part of it yes.

But of course the northern revenue needs are dominated by the 94% of their freight traffic that's not this segment.

So it's a larger more commingle we'd miss.

Now, I'd like to turn to the last illustration.

And I think all these are merely illustrations of the use of these averages to inject something into the cost that really have nothing to do with cost of north-south freight traffic.

And this is this passenger deficit problem.

Now it's -- in the Transcontinental case, this Court noted in an argument in which the western worlds were urging that their passenger deficits be reflected.

This Commission -- this Court said “While the Commission has sometimes acted to offset passenger deficits and freight rate cases, the issues are quite different.

When in a division's case, it is argued that carriers in one part of the country should subsidize the passenger operations of carriers elsewhere.”

The Court didn't get into that matter in the prior case because the east was out of it, and they held that they -- it should really dropped out of the case.

Now here, the Commission has included the total passenger deficits, and I think we're all entitled to ask how come and why.

Should any passenger deficits be included when we're talking about north-south freight cost? Well the southern lines theory and this was brought out earlier.

The southern lines theory is that there are common costs.

Taken again as a bridge across the 14th St.-- right next to the 14th St. Bridge is a railroad bridge, and it's got be painted.

It's got to be repaired and it's used by passenger trains and it's used by freight trains.

And if we just cut out all the passenger trains, we're still going to have to paint it and we're still going to repair it.

It's a common cost and it's proper if the passenger revenues can't pay for the pay.

It's proper to charge that common cost against the freight.

Now, I don't quarrel with the Commission on that concept.

Commission adopted that concept.

They said that common cost should be reflected.

I don't quarrel that.

The northern lines, and indeed Commission counsel have some quarrels with that in their brief.

They have quite a number of theories of how this passenger deficit ought to be treated.

They were not accepted by the Commission and many of them are inconsistent with what the Commission did.

What the Commission did was say that where there are common costs that must be incurred to provide freight service, such costs are properly chargeable to freight service, so far so good.

The problem here is that these commuter lines up north contain many items of cost, many items of cost.

Tracks, yards, stations, separate facilities that can be considered solely related to suburban service, solely and exclusively related to suburban passenger service.

Those aren't my words.

Those are the findings of the Commission in this case.

Justice Byron R. White: Just about a generalization that --

Mr. Howard J. Trienens: Many individual items of suburban service can be considered solely related as suburban.

Justice Abe Fortas: Well the same thing is true of intercity passenger cars, isn't it?

The fact of the matter is that isn't that southern roads have cery large cost for intercity passenger servicing and deficits.

And the northern roads have great cost and deficits with respect to commuter service.

And the impact of those two things held very differently.

But if you're going to talk about segregating common cost and then making an allocation, are you really arguing for a difference between passenger cost on the one hand and commuter cost on the other hand, or are you -- how can you do that?

Except on the basis that it's better for the south to do it on that basis, but logically you can't argue that way, can you?

Mr. Howard J. Trienens: When this --

Justice Abe Fortas: Don't you have to say that the right thing to do to make your argument, right thing to do is to take your common cost as between passenger or commuter and -- on the one hand, and freight on the other hand and then allocate it.

Mr. Howard J. Trienens: That's right.

That's exactly --

Justice Abe Fortas: And as between freight on the one hand and passenger plus commuter on the other hand.

Mr. Howard J. Trienens: That's exactly what we argue.

Exactly what we argued and what we did was go in and say that there is a large body of cost that aren't common and shouldn't be allocated, because this large body of cost are solely related to these northern commuters.

They have nothing to do with the cost of north-south freight traffic.

We got our evidence on that from a presentation of the Northern Railroads.

Mr. Justice Black asked the question “How do you find our these things?”

We got from a presentation of the Northern Railroads to Congress at the time that they were going to Congress as they still are and saying that local communities ought to support this commuter service.

Justice Byron R. White: Mr. Trienens, didn't the Commission say that even if there are a lot of cost in the commuter service that are not common but solely related to commuter service, nevertheless they should be included and allocated?

Mr. Howard J. Trienens: That isn't the way I read it.

They say because the commuter deficit includes common cost which should be incurred to provide -- which must be incurred to provide freight service.

Such costs are properly chartered.

Justice Byron R. White: Well, but they also conceded there were some solely related costs?

Mr. Howard J. Trienens: That's right.

Justice Byron R. White: But they nevertheless included them.

Mr. Howard J. Trienens: Yes, and that's the point -- exactly the point on which the District Court said “You've given no reason of why you should flip in the solely related cost.”

Yet they did.

Now the other side of this question is, well if that so, why don't you throw out any solely related passenger cost in the south?

Now that's exactly what we suggested to the Commission when this point was first made by the examiner.

We said, “If you think there are solely related costs in the south, and we can mention those for you, throw them both out.

Under your standard of the cost of freight traffic, throw them both out.”

And we would still -- the south would still be better off from the way you did it.

And the Commission never even mentioned that exception, and the northern lines keep saying “Well, the south has all these.”

Sure we do.

Sure it ought to be out.

If south and north and ought to be out in the south.

And the Commission should exclude them in both territories.

We don't question that.

We've urged it.

We've gotten brushed off from that one.

Now, I've given two illustrations.

I've given the border interchange situation.

I've given the commuter.

I've briefly addressed myself to this car cost feature.

All these items are essentially the same situation.

It's an inclusion in north-south freight cost of things that have not been shown to have anything to do with this inflation.

I want to simply summarize by saying that the District Court did exactly what the Administrative Procedure Act required it do.

Reviewed the Commission's findings and it reviewed the record to determine whether this inflation which is granted the north was supported by reason finding and substantial evidence.

Without invading in any way the province of the Commission to set the policy standards upon which division should be made.

The court below found as it had to find on this record that the inflation was not supported by substantial evidence relating the higher averages to this source --

Justice Abe Fortas: Excuse me sir.

This is what bothered me.

It's on page 31 in your brief.

This is what I recall.

You say it is generally agreed that the intercity passenger deficits must be considered as part of the cost of providing freight service.

For such deficits are usually the result of cost allocated in the passenger operations from common facilities, which must be maintained in order to provide freight service.

Mr. Howard J. Trienens: Yes sir.

Justice Abe Fortas: Suburban passenger deficits however, required another matter.

Now do I understand what you have just said in the colloquy with me to supersede this statement and that you do agree that the solely -- that the cost solely allocable to passenger -- intercity passenger operations on the one hand and to commuter operations on the other hand, should be treated the same way and they should both be eliminated?

Mr. Howard J. Trienens: Yes sir.

And I don't regard this as superseding it because the testimony I refer to says that the great bulk of the passenger deficit is --

Justice Abe Fortas: Well I haven't checked the testimony.

I'm checking what you said in your brief.

Mr. Howard J. Trienens: I'm saying that to the extent that you have to qualify this by the existence of solely related deficits.

To that extent, they ought to go out in both territories.

I noted that the District Court had not intruded in any way on the policy decisions of the Commission.

It's not like the barge railing at Mole case last year where a District Court had decided that it, the District Court would decide what the standard ought to be.

Here the Commission fixed the standard.

The District Court did not touch it at all.

It simply found whether there was substantial evidence to support the Commission's decision under that standard.

Now we believe that the District Court having performed its duty as required by the Administrative Procedure Act that its judgment remanding the case of the Commission should be affirmed.

Thank you sir.

Rebuttal of Edward A. Kaier

Mr. Edward A. Kaier: May it please the Court.

Chief Justice Earl Warren: Mr. Kaier.

Mr. Edward A. Kaier: Mr. Trienens agreed that the Form A cost formula is a good cost formula.

The territorial cost as developed by that cost formula were applied to the precise elements of service incurred in performing this north-south traffic as revealed by the southern lines cost study.

The southern lines know where to look for situations in which territorial average costs may not proper -- accurately reflect the cost of this service.

They looked for those places.

They presented to the Commission their reasons why they thought that territorial average cost were not good.

The Commission minutely examined each one of those reasons in appendix B to its report, and showed that these adjustments of southern lines were based upon assumptions and wholly invalid evidence.

And they showed why they thought the territorial average cost were good.

I commend to Your Honors a reading of Section (b) to the Commission's report.

And I believe you will be satisfied about that.

Mr. Trienens talked about car costs.

They said that they wanted to get the cost closer to the north-south traffic.

And what do you suppose they offered in substitution for the northern and southern lines cost, on car cost?

They used the average car cost of all the railroads in the United States.

And the Commission minutely examined that and said no that that wasn't representative.

That the northern and southern lines own cost were more representative of the car cost than the U.S.car cost.

The southern line said, “The car cost of the northern and southern lines are not representative here because mostly in this service boxcars are use, whereas the northern and southern lines have more open hopper cars.”

The Commission analyzed that, and it found that it cost more to own and maintain open hoppers than boxcars.

So to that extent, the territorial cost would over -- would be an overstatement, rather than an understatement.

Now, if Your Honors please, they also said that there was a difference in utilization.

The Commission analyzed that and found that that wasn't a factor.

The Commission said, “It is known what the facts -- what factors caused the northern lines to have higher car cost than southern.”

In the first place, northern lines have more -- have higher wages, pay higher wage rates than southern lines.

They said the northern lines pay higher taxes than southern lines and that overall there is a greater utilization in the south than in the north.

I think we pretty adequately covered that on our brief.

Your Honors, in the Transcontinental case --

Justice Hugo L. Black: Is it true that the railroad rates in the north are higher than those in the south for the regular employees?

Mr. Edward A. Kaier: If Your Honor please --

Justice Hugo L. Black: -- to the unions?

Mr. Edward A. Kaier: Let me answer by reference to a decision of the Commission.

I wanted to get to that point.

Our friends on the other side have said that the rates are equal.

They're talking only about class rates.

Class rates boom only 1% of the traffic.

The Commission said in the cases cited on page 14 of our reply brief, “Rate levels within the north have become higher than within the south.”

And they said that in a case back in '56, and we've shown that since that time in general freight rate increase cases, the Commission has allowed even greater increases within the north and from and to the north that --

Justice Hugo L. Black: The north in weight, as I had an idea that the rates of the employees that belong to the general and the national union are the same, is that it?

Mr. Edward A. Kaier: No Your Honor.

The increases are generally the same, but they are imposed on higher base wages than the south.

I submit Your Honors that this case really could be controlled by the CNNW case.

To all intents and purposes, the questions on these costs issues are the same.

Thank you.

Chief Justice Earl Warren: I think we'll adjourn now.

Featured:

American Lines v. L. & N. R. Co. - Oral Argument

Thu, 23 Aug 2012 18:30:52 +0000

Case:

American Lines v. L. & N. R. Co.

Related Transcript:

797_19680424-argument

Transcript:

Argument of Harry C. Ames, Jr.

Chief Justice Earl Warren: You may continue with your argument.

Mr. Harry C. Ames, Jr.: Mr. Chief Justice, may it please the Court.

I represent in 797, the Waterways Freight Bureau and the Regulated Barge Lines party to the case.

The Commission in this proceeding having found that the proposed rail rate to be above rail out-of-pocket cost and therefore compensatory, it addressed itself to the real issue or problem in this case that of its power under Section 15a(3) of the Act to the determination by comparison of costs which mode, rail or water, possess the inherent advantage of low costs and whether that advantage, if it lay with the water carriers, would be impelled.

It was no longer the simple problem of whether the rail rate standing in issue by itself was profitable rate to the railroads.

This must be borne in mind in consideration of the method and approach used by the Commission in reaching its determinations of who is the low cost carrier.

This is an effort by the Interstate Commerce Commission to ascertain which mode of carriage should be permitted in the public interest, not in the interest of the proponent mode alone to continue to participate in the transportation in question.

This proceeding is an outgrowth of the long line of cases reaching back some 40 years and more in which the water carriers have been forced to fight rail rate reductions designed to pick off vital tonnage.

The precise rate in question in this ingot molds case became effective March 19, 1965, almost immediately following the decision by the division of the Commission which was issued in February 1965.

The Commission found that this tonnage, ingot molds is a part of a group embracing iron and steel products which group is a third most important commodity group transported in barge line service.

It, the group, represents 11% of the barge line revenue.

It is one of only 11 groups of tonnage which account for 81.45% of the total barge revenue.

The Commission fully understood in fully mandated statements that the traffic is of more consequence to the barge lines than to the railroads and it was dealing with a railroad concept that would not only impair the ability of the water carriers to compete but to actually exist.

The barge lines in this case introduced evidence to prove and did prove that their inherent advantage of low cost would be impaired by this rate set at a level below the barge line fully distributed cost, that barge lines went one step further and proved that their inherent advantage could be destroyed by the ability in the railroads to take such a step with respect of only a few groups of commodities.

This evidence in this case was directed to the language of this Court in the New Haven case where at page 78, it was said the principal reason for the reference to Section 15a(3) as the hearing shown was to emphasize the power of the Commission to prevent the railroad from destroying or impairing the inherent advantages of other modes and the precise example given to the Senate Committee which led to the language adopted was a case in which the railroads by establishing on a part of their operations a compensatory rate below their fully distributed cost forced a smaller, competing, lower cost mode to go below its own fully distributed cost and thus perhaps to go out of business.

This conclusion was reiterated by this Court at page 759 in the same decision where it was discussing unfair or destructive competitive practices.

So the test before the Commission in ingot molds was not solely as the rail proponents would have us believe determined whether the rate was profitable to the railroads.

The test was the issue of intermodal competition under Section 15a(3).

First the division and secondly the Commission addressed themselves completely to this problem.

Vital findings of fact of the division and adopted by the Commission were first that the proposed rate was above rail out-of-pocket cost and therefore compensatory.

Second, that the barge's fully distributed costs were below such cost by the rails.

Third, that the proposed rate was below the rail's fully distributed cost and that the proposed rate was below the barge's fully distributed cost.

These findings --

Justice Byron R. White: Excuse me, does the -- does the record indicates how much of the barge's revenue comes from these particular items that are in --

Mr. Harry C. Ames, Jr.: The actual figure of revenue?

Justice Byron R. White: Well, what percentage?

Mr. Harry C. Ames, Jr.: 81% of their revenue would come from the 11 groups of commodity from 11 groups of --

Justice Byron R. White: That are involved here?

Mr. Harry C. Ames, Jr.: No, from the iron and steel group, approximately 11%.

Justice Byron R. White: Well, I take it that the barges, like the railroads, would have to recover their fully distributed costs from somewhere.

Mr. Harry C. Ames, Jr.: They have to -- have to recover their fully distributed costs from practically everything they buy.

Justice Byron R. White: It will either be from this traffic or some other traffic.

Mr. Harry C. Ames, Jr.: That's right sir.

Justice Byron R. White: And this is -- this is the -- the commodities that are involved here, about 10% of the barge's revenue --

Mr. Harry C. Ames, Jr.: The group of commodities to which ingot molds belong, yes, iron and steel products, roughly 11% of the revenue of the barge lines.

Justice Byron R. White: And the railroads have to get their costs from some place, I suppose, either this traffic or some other.

Mr. Harry C. Ames, Jr.: Yes, they have to get it.

For example, from other ingot mold traffic moving out of the same plant that this traffic moves out.

Justice Byron R. White: Fully distributed cost includes profit?

Mr. Harry C. Ames, Jr.: Yes.

Justice Byron R. White: And all overhead, depreciation --

Mr. Harry C. Ames, Jr.: Constant cost and the out-of-pocket cost.

Justice Byron R. White: And the fair return?

Mr. Harry C. Ames, Jr.: Yes.

Justice Byron R. White: Thank you.

Justice Abe Fortas: Yesterday, I discussed with the counsel who preceded you what the applicable standards were.

In your judgment as you understand it, are the standards that govern a case of this sort before the Commission confined to a comparison of cost or whatever type of cost -- whatever type of cost it might be?

Mr. Harry C. Ames, Jr.: Mr. Justice Fortas, I believe that in this case, this ingot molds case, the only problem before the Commission as the case was presented to the Commission by both barge lines and the rails was this question of the inherent cost advantage.

Justice Abe Fortas: Yes, but that's not my question.

As you read the statute, what -- is that the only standard that the Commission may or is required to take into account in deciding a case of this sort?

Mr. Harry C. Ames, Jr.: No.

I think it was incumbent upon the Commission and I think the Commission did consider what the effect of the impairment or destruction of the inherent cost advantage would be.

As they stated, it would impair their ability to actually exist.

Justice Abe Fortas: Now, that is because of the statement of policy in the National Transportation Act and the standards of the National -- the National Transportation Policy is made an applicable standard to this kind of a proceeding by expressed language of 158 --

Mr. Harry C. Ames, Jr.: 15a(3), that's right.

Justice Abe Fortas: Now, are you --

Mr. Harry C. Ames, Jr.: Consideration must be given to the National Transportation Policy.

Justice Abe Fortas: Right.

Alright.

Now, lets' -- let me see if I can get this clear in my own mind, if you don't mind.

The Commission has to take into account the cost factors, which is what you've been discussing.

The Commission should under the statute also take into account the relevant parts of the National Transportation Policy, is that right?

Mr. Harry C. Ames, Jr.: Yes, sir.

Justice Abe Fortas: Now, my next question is did the Commission here take into account not only the cost factors but also some considerations with respect to the National Transportation Policy?

Mr. Harry C. Ames, Jr.: Well yes, I think the Commission --

Justice Abe Fortas: And if it did so, could you, without too much spending a lot of time, show me just where in the Commission's opinion it did take that into account?

Mr. Harry C. Ames, Jr.: Well, I think the Commission took that into account, Mr. Justice Fortas, where it made a -- reached a conclusion that the effect of this rate and the concept advanced by the railroads would be to not only affect the barge line's ability to compete but also to actually exist.

Justice Abe Fortas: Alright.

Now, may I ask you at some point during the course of the total argument to hand the clerk a statement of the reference to the record?

Mr. Harry C. Ames, Jr.: That's appendix 68.

Justice Abe Fortas: Appendix --

Mr. Harry C. Ames, Jr.: Appendix 68, the joined appendix page 68.

Justice Abe Fortas: Thank you.

Mr. Harry C. Ames, Jr.: Now, these facts in this ingot molds case set forth precisely the problem discussed in the New Haven case an attempt by the high cost carrier by going below its fully distributed cost to force the low cost carrier to go below its fully distributed cost to compete.

Now, at the time that the ingot molds case was being tried before the Commission and at the time that the New Haven case was still before the courts, the Commission had before the case involving the movement of grain and in that case, the Commission referring to the New Haven case in the pendency of the issues pointed out that it was -- its -- part of its duty in the Grain case to consider which method of cost would be used in determining this question of an inherent cost advantage and it addressed itself directly to the problem.

And in the Grain case, it came up with the general rule that when regulated carriers were involved in an intermodal competitive situation such as we have in the Grain case, the Commission would use fully distributed cost for the purpose of measuring the inherent cost advantage.

Now, in the ingot molds case, both the division and the full Commission made referenced to the Grain case and to the general rule in the Grain case and used that rule as the rational basis for arriving at their conclusion in this case, the ingot molds case, that the measure of inherent cost advantage would be based upon fully distributed cost of both carriers.

The Commission refused the rail carrier's request in the Grain case to adjust upward the water carrier cost by adding public cost.

Just as in the ingot molds case, it refused to adjust downward the rail cost by ignoring constant cost.

Either action would have in effect eliminated or ignored the water carrier's inherent advantage of low cost.

The Commission having established the rule in the Grain case was perfectly within its right and it was its duty to follow that rule in this case because the rail carriers presented no reason for a departure from the general rule.

The rail carriers contended in this case that in determining the low cost mode, no comparison should be made.

The Commission should simply determine if the railroad was enhancing its profit by charging a rate in excess of out-of-pocket cost.

The Commission rejected this approach citing the New Haven case and this Court's admonition that it must decide how to measure the cost advantage.

The Commission reasoned that it could not compare by considering only the cost of the rail mode.

We find that the much discussed testimony of the four economists speaking for the railroads were summarized by the division as follows, that out-of-pocket costs rather than fully distributed costs should be the only basis for a pricing floor, that determination of the most economic form of transportation should be out-of-pocket cost and that there can be no meaningful comparison of full costs of rail versus water.

The full Commission adopted this summary.

The Commission did not ignore this testimony as suggested by the lower court but it did reject the proposals.

Based upon the decision in the Grain case and in the line of quoted decision, it rejected the out-of-pocket cost as a measure of comparison.

It is plain that while using out-of-pocket cost as a pricing floor may be proper when only the one mode of railroad is considered, the Commission rejected and with reason the proposal that only the rail rate and cost should be considered in the case under Section 15a(3).

It was never made clear by the economists just what was meant by the contention that out-of-pocket costs were best used in the determination of the most economic form of transportation or just how this would be a determinative if only one form of transportation was to be considered.

It was not necessary that the Commission set forth in detail all of its reasons for rejecting this testimony as determinative of the issues as in BNO versus U.S. -- 239 U.S. 349.

The court -- this Court held there is no requirement that the Commission specify the weight given to any item of evidence or fact or disclose mental operations by which its decisions are reached.

The lower court in questioning the Commission's use of out-of-pocket cost to determine the price floor in the Grain case mistakenly assumed that the Commission was considering inherent advantage of low cost in the same context as in this case.

It was not.

There was no comparison made in that case of the cost of unregulated carriers with those of the rails.

Section 15a(3) applies to different modes of transportation subject to the regulations under the Act.

Faced with the fact that traffic moved primarily in unregulated transportation, the Commission saw its task is different than any controversy such as in ingot molds.

In this ingot molds decision, the Commission discussed the division report, adopted the findings of fact and conclusions consistent with its decision, fully discussed the contentions of the parties made in their petition for reconsideration, incorporated by reference its discussion in the Grain case including the complete discussion of fully distributed versus out-of-pocket cost as a measure of cost advantage, pointed out that the precise example given to the Congress as a reason for the language in Section 15a(3) is precisely the situation under discussion, discussed the importance of the traffic to the water carriers, concluded as did the division that barge-truck method on a fully distributed basis was the low cost mode, that the rail rate below the barge's fully distributed cost impends upon the ability of the barge-truck mode to completely assert its inherent cost advantage.

In conclusion, may I say that contrary to the lower court's opinion, this is a normal situation involving intermodal competition between water and rail carriers, a situation contemplated in Section 15a(3), a situation in which the Commission is directed by the statute and by this Court in New Haven to determine the low cost mode of transportation.

In this normal situation, the Commission has rejected the rail's suggestion or proposal that it consider only rail out-of-pocket cost.

It would not decide the issue in that factor.

Instead, the Commission has adopted what it has described as its general rule to use fully distributed cost as a measure in determining the low cost agency.

Thank you.

Chief Justice Earl Warren: Mr. Friedman.

Argument of Daniel M. Friedman

Mr. Daniel M. Friedman: Mr. Chief Justice, may it please the Court.

The United States opposed the Interstate Commerce Commission in this case before the District Court and is opposing it before this Court because it believes that its decision in this case is not in conformity with the standards which Congress provided in Section 15a(3) for it to follow in cases involving rate regulation in intermodal competition situations.

In the New Haven case, this Court said that there can be no doubt that the purpose of this provision 15a(3) was to permit the railroads to respond to competition by asserting whatever inherent advantage of cost and service they possessed.

Our basic position before this Court in this case is that the Commission here on this record has not given an adequate explanation as to why the inherent advantage here doesn't lie with the railroads rather than as it found with the barges.

And we think, as I shall develop, that its decision turning down in this case the fully compensatory rail rates on ingot molds in fact prevents the very kind of vigorous hard competition between different modes of transportation that Congress intended to further in the 1958 amendments to the Act.

Now, I want to state at the very outset and all candid that the position we're taking in this case here add variance from the position we took in our brief before in the New Haven case as was brought out yesterday.

Quite frankly, we have reexamined our position that we took in New Haven in the light of some intervening factors.

I'll just mention them briefly.

First, that Mr. Justice White pointed out in the New Haven case the Court did not accept our argument.

Secondly, we have in this case the benefit of the economic testimony that was not before the Court in the New Haven case.

And finally, we have the fact that in 1966, the Council of Economic Advisors itself recommended the use of out-of-pocket cost as the basis for determining cost advantage in intermodal situations.

Justice Byron R. White: Is that in your brief?

Mr. Daniel M. Friedman: Which, Mr. Justice?

Justice Byron R. White: That last item that you --

Mr. Daniel M. Friedman: Yes, that is set forth in our brief.

We've set forth in our brief a reference that has not been quoted.

We set forth a reference to the view position taken by the Council of Economic Advisors and also of the views of the Department of --

Justice Byron R. White: What did the council say?

Mr. Daniel M. Friedman: The council said that they thought that in intermodal situations, the appropriate method for determining cost advantage for purposes of determining the inherent advantage should be on the basis of out-of-pocket cost rather than fully distributed cost.

Justice William J. Brennan: (Inaudible)

Mr. Daniel M. Friedman: This was an -- in its general economic report to the President was discussing the various -- the whole economy and it suggested this, as I shall develop when I come to my argument.

This would lead to a more efficient utilization of the nation's transportation resources, this type of pricing.

Justice Byron R. White: You've got to say something more about that.

Mr. Daniel M. Friedman: Oh yes, yes.

I'm going to in a couple of minutes.

I just like at the outset, to put the issue in an appropriate frame of reference, to say a little bit more as to what is meant when we talk here of out-of-pocket as against fully distributed costs.

By out-of-pocket, we mean those costs that are directly related to the particular movement of traffic involved.

To put it the other way, these are costs that would not be incurred if the particular movement had not been made, and these are figured over what we call relatively long term.

It isn't just limited to the cost that would be incurred this week in moving one shipment.

It's the amount that the particular type of traffic involved incurs as specific additional expenses.

The long-term costs on the other hand are costs that are incurred whether or not the particular traffic is carried.

And thus, by definition, these long-term costs do not vary in respect to this particular traffic and also bear no particular relation to the traffic.

Justice Byron R. White: But they must be recovered.

Mr. Daniel M. Friedman: They must be recovered --

Justice Byron R. White: At some traffic some time.

Mr. Daniel M. Friedman: Some time, that is correct, Mr. Justice, and we think that -- as I shall develop when I come in a moment to the economic testimony that permitting pricing on an out-of-pocket basis, that is pricing which gives the railroad its immediate expenses incurred in carrying this traffic plus something else as a contribution to total costs actually results in helping the achievement of meeting these total fixed costs rather than hurting it.

And I think that's the basic flow in the entire argument that has been made by our opponent.

Justice Byron R. White: Well, Mr. Friedman, what if all traffic were priced at that level?

Mr. Daniel M. Friedman: Well, obviously Mr. Justice, if all traffic were priced at this level, the railroad couldn't operate at a profit.

It couldn't run that way.

But the fact --

Justice Byron R. White: How come you just now -- how come you're just focusing on this particular traffic?

Mr. Daniel M. Friedman: Well, because -- because this is the particular --

Justice Byron R. White: You could say the same thing about all traffic item by item and if you did, you'd end up broke.

Mr. Daniel M. Friedman: But this -- but Mr. Justice, in a competitive system where someone is pricing --

Justice Byron R. White: Yeah, but competition doesn't remove the necessity from meeting those costs from some place.

Mr. Daniel M. Friedman: No, but those costs under the most economic utilization of resources, those costs will ultimately be met.

Mr. Justice, may I say something on this, that this type of pricing, out-of-pocket pricing is not something unusual.

It's not something unusual that was resorted to just in this particular case.

Now, this is basically, it seems to us the way in which the railroads price at page 141 of the record in this case, based on the statistics developed by the Commission, the witness stated that in 1960, 65%, almost two-thirds of all of this country's rail traffic moved at rates that were below fully distributed costs.

That is almost two-thirds of the total traffic in this country moved at rates of the type involved in this case.

Now, I'd also like to mention one other thing in connection with the calculation of these rates.

As the Commission determines out-of-pocket costs, that includes some element of the fixed cost because they do allow a rate of return on a part of the carrier's plant investment.

They also however in calculating fixed costs take into account such things as passenger deficits.

That has to be made up of course, but obviously, passenger deficits have nothing to do with the railroad's expenses in moving this particular freight.

Chief Justice Earl Warren: I suppose those figures -- the two-thirds though would be changing day by day, would they not, because of the railroads in handling their passenger traffic on the grounds that they -- they don't need an out-of-pocket expense?

Mr. Daniel M. Friedman: Well, they -- it might as a result of that drop, Mr. Chief Justice.

But I think the significant thing about this figure is that at least a few years ago, and I assume it hasn't substantially changed today --

Chief Justice Earl Warren: Maybe it hasn't substantially changed if they get rid of all of their passenger traffic, which they're rapidly doing.

Mr. Daniel M. Friedman: No.

I think Mr. Justice -- I think it's a fair assumption that today still, still probably the majority of rail traffic does move on this basis.

Now, I'd like to come, if I may, to the economic testimony in this case because I think --

Chief Justice Earl Warren: Let me ask you -- let me ask you this question.

If they don't get fully distributed expenses in this situation, cost in this situation where they have competition, do not rate payers have to make that up where there is no competition?

Mr. Daniel M. Friedman: Well, they do Mr. Justice, in one -- in one sense yes and in one sense no.

They have to make it up in the sense that obviously, the total operation has to be borne by all of the customers of the railroad's total expenses.

But the fact is -- the fact is that in this very case, permitting the railroad to carry this traffic at a rate that yields it more than its out-of-pocket cost actually contributes something to the total amount that the railroad has to earn.

In other words, the other customers of this railroad -- and let's assume a man who is shipping furniture and does not have this rate, this man is actually better off in the long run if the railroads carry this traffic at this rate than they don't because before this rate was put into effect, the railroads were carrying virtually none of this traffic.

That meant there was nothing on this traffic that was producing anything toward the total of the fixed cost.

Under this rate which caused the out-of-pocket cost to roughly $4.70 when the rate is $5.11, that means that for every ton of ingot molds that moves, $0.41 is contributed toward meeting the railroad's total overhead cost.

Now, in our whole economic system, pricing under our system involves facing up to the competitive situation.

Of course, where the railroads are not faced with this competition, they're going to price at what the traffic will bear.

This is true of any businessman.

If I'm a manufacturer of television sets and I have a particular television set which is because of its special characteristics has no competition, I am going to try and will be able to get a much higher rate of return on the sales of those sets than I can get at a set where I have four or five competitors.

Now, I got --

Justice Abe Fortas: But doesn't the statute commit all of that to the ICC and not to the Department of Justice?

Mr. Daniel M. Friedman: It does, Mr. Justice.

It does commit it to the Commission of --

Justice Abe Fortas: Now what you have, it seems to me that the very heavy burden of showing that the Commission has exceeded its powers under the law or has misapplied them that the economic judgment, as I understand it in these cases, is an economic judgment for the ICC to make.

Now, let me ask you whether as you read this statute, the only factors that are covered in here are compared to cost factors however they may be interpreted, or whether the National Transportation Policy has to be -- under the statute has to be considered.

Mr. Daniel M. Friedman: Our answer --

Justice Abe Fortas: And the next question, do you -- what do you make of the paragraph in the Commission's opinion on page 68 of the joint appendix which the Commission says an inherent cost advantage under the National Transportation Policy reasonably could not embrace a concept that would impair the ability of a character -- of a carrier not only to compete but to exist.

Now, are you -- is or is not that an appropriate standard and do you attack that finding as unsupported by the evidence here?

Mr. Daniel M. Friedman: Let me first answer your first question on what we think --

Justice Abe Fortas: Because I think there could be only one agency that would exercise debatable economic judgments on behalf of the Unites States Government.

And as I read the statute, that agency is the ICC.

Mr. Daniel M. Friedman: We recognize, Mr. Justice, of course that it's the Commission, as this Court said in New Haven, that the determination of how to preserve and further inherent advantage is a matter in the -- as it said in the first instance where the Commissions informed judgment.

Our quarrel basically with the Commission here is that we don't think they have adequately explained how they reached their judgment in this case.

And we think they haven't explained the in the like of the economic testimony, which I'll --

Justice Abe Fortas: Well, there are two things.

Are there -- this is my first question -- are there two things of cost factors in the National Transportation Policy or do you dispute that?

Mr. Daniel M. Friedman: Well, we think that the cost factors are one element of the National Transportation Policy.

Justice Abe Fortas: I understand that, but are there other factors in the National Transportation Policy that the statute commands A or B permits the Commission to take into account?

Mr. Daniel M. Friedman: Most assuredly there are.

Justice Abe Fortas: Now, did the Commission take into account here factors other than the cost factors?

Mr. Daniel M. Friedman: We think not, Mr. Justice.

Justice Abe Fortas: Well, what do you make of page 68 in this paragraph to which the counsel who preceded you --

Mr. Daniel M. Friedman: Well, we challenge -- we challenge that the Commission has given any basis in this case --

Justice Abe Fortas: That's separate.

That's not the same thing.

Now, the Commission did consider and it did take into account the impact upon the barge lines and the railroads impacted the survival -- the survival impact of this decision or the principal involved here, did it not?

Mr. Daniel M. Friedman: It took it into --

Justice Abe Fortas: Now, what you're saying is that it took it into account incorrectly --

Mr. Daniel M. Friedman: That is correct.

Justice Abe Fortas: -- or improperly.

Mr. Daniel M. Friedman: That is correct, yes.

Justice Abe Fortas: Incorrectly?

Mr. Daniel M. Friedman: Incorrectly.

Justice Abe Fortas: Now, tell us why.

Tell us why the -- do you think that this kind of allegedly selective rate reduction by the roads to compete with respect to a particular segment of a very complex traffic pattern could have no effect whatever on the survival ability of either the roads or the barge-truck services?

Mr. Daniel M. Friedman: I think that the evidence is clear that in this case that this particular rate cut on ingot molds could have no impact on the ability of the barge lines to compete.

The barge lines themselves, Mr. Justice, have conceded --

Justice Abe Fortas: What happened?

Is there anything in the record as to -- did those rates go into effect the rail rates?

Mr. Daniel M. Friedman: Yes, they have gone into effect.

Justice Abe Fortas: And is there anything in the record showing whether there was a diversion of traffic, this ingot traffic from the barges to the railroads?

Mr. Daniel M. Friedman: There is -- there is none -- there is nothing in the record, Mr. Justice, except that the witnesses have testified that -- the barge witnesses testified that they could not get this traffic at the same rate as the railroad.

Justice Abe Fortas: Now, do you -- now let's assume that the record evidences that the barge lines would lose this traffic --

Mr. Daniel M. Friedman: I think it's -- I think as I understand it in fact since the rail rate has gone into effect, the barge lines have not gotten any of this traffic.

The railroads have gotten --

Justice Abe Fortas: You mean it lost the traffic.

Mr. Daniel M. Friedman: It lost the traffic.

Justice Abe Fortas: Alright.

Now, are you saying to us that that evidence -- we assume that that is proof now.

Are you saying to us that that proof is not sufficient to support the Commission's finding or conclusion on page 68 of the joint appendix?

Mr. Daniel M. Friedman: Yes, that's precisely what we're saying, Mr. Justice.

Justice Abe Fortas: Now, will you please tell me why you think that the loss of this traffic cannot -- to the barge lines, cannot reasonably be relied upon by the Commission as a factor to disallow the railroad freight cut here.

Mr. Daniel M. Friedman: Because, Mr. Justice, there's nothing to show -- there's nothing to show that this particular cut would have any serious impact on the barge lines and in any way threaten their survival.

Let me come to the -- what the Commission said in this case.

The Commission said that this traffic is more important to the barge lines than the railroads.

It said that this particular broad category, iron and steel products is the third largest category of traffic that barges handle.

It gives them -- it represents approximately 11% of their revenues.

Now, I take it the implication in this is that if this rate cut is permitted, therefore it will follow that the railroads could make comparable rate cuts on all similar traffic and thus take away from the barge lines a total of 11% of their traffic.

Now, there's nothing to indicate at all in this record that there's any similarity in the conditions relating to these particular ingot molds and all the rest of the traffic.

Justice Abe Fortas: My point, Mr. Friedman, which I'm sure you anticipate, is that really, isn't that a judgment for the Commission --

Mr. Daniel M. Friedman: Well, it said --

Justice Abe Fortas: -- to make that nice debatable -- forgive me, a debatable judgment which you have just made now?

You may be right, you may be wrong.

I don't know.

But is it your business or our business either?

Or is it the business of your Commission?

Mr. Daniel M. Friedman: It's the business of the Commission, Mr. Justice, but the Commission we think has to explain -- has to explain out of belief why it reached its conclusion.

I just like to mention on the question of the importance of this traffic.

At page 3 of the brief for the barge line appellants in this case, in number 797, they described the ingot molds traffic itself as of minor traffic significance.

That's what they themselves say.

They themselves recognized that this particular item of traffic is of minor significance.

Now, I'd like to come, if I may, to the --

Justice Thurgood Marshall: Mr. Friedman, do you take the position that the Commission ignored the economic testimony or didn't give proper weight to it or what is your position?

Mr. Daniel M. Friedman: Well, we take the position that Commission did not adequately explain in the light of the economic testimony why on this record it was the barge lines rather than the railroads that had the inherent advantage.

In other words, the Commission did not adequately explain -- the Commission did not adequately explain why out-of-pocket rather than fully distributed was not the appropriate measure for determining inherent cost.

Justice Byron R. White: Well, I thought Mr. Justice Fortas -- in your discussion, Mr. Justice Fortas, you conceded that the -- that there was some impact on the -- on the -- that if you go below fully distributed cost and go down to the barge rate that the barges are going to lose this particular traffic.

Mr. Daniel M. Friedman: Yes, I did.

But my point is that -- that's the essence of competition I think, Mr. Justice.

Justice Byron R. White: Well, I know but it's also -- that's a different point.

That's a different point in saying the Commission didn't explain why it was using fully distributed costs.

It simply said the barge lines aren't going to survive.

Mr. Daniel M. Friedman: Now, they didn't -- well, they said the barge lines weren't going to survive but that -- they explained that as the reason for using fully distributed costs.

Let me, if I may, come to what the Commission -- the explanation the Commission gave, and first just by way of a little background what the economic testimony was in this case.

We had four distinguished economists in this case who dealt with the whole question the economics of so-called incremental cost price fixing.

The basis -- the whole thing is the railroads have already sunk into the economy a great deal of money.

They have these very heavy fixed costs.

And the economists pointed out that if you attempt to determine the inherent cost advantage on the basis of these heavy fixed costs, you're necessarily introducing an arbitrary element into this situation.

These costs are apportioned among the different commodities on a basis that has no direct relationship, no relationship at all to the particular cost incurred.

And that as long as it -- as I get back from carrying the particular commodity more than it costs me out-of-pocket more than my expenses of carrying the commodity, I am better off than if I didn't carry the commodity at all.

Justice Byron R. White: Mr. Friedman, I think you were up here several years ago in National Dairy --

Mr. Daniel M. Friedman: Yes.

Justice Byron R. White: -- arguing what's an unreasonable low cost.

Do you think under Section 3 of the Clayton Act that this railroad price here would have been at unreasonably low -- this rate would have been at unreasonably low price?

Mr. Daniel M. Friedman: I -- I just can't answer that, Mr. Justice because in the National Dairy case --

Justice Byron R. White: Well, you certainly must be answering it.

You must be answering it no.

You're saying that this would be perfectly all right in the -- in normal competitive affairs --

Mr. Daniel M. Friedman: Well, of the least --

Justice Byron R. White: -- if you price at that out-of-pocket cost rather than fully distributed cost.

And I just want to know for example whether under Section 3 the railroads can do this and still claim that they're charging a reasonable rate and not unreasonably lower.

Mr. Daniel M. Friedman: Well, Mr. Justice, of course under Section 3, there's the further element of the predatory purpose --

Justice Byron R. White: It has nothing to do -- that has nothing to do with my question.

I didn't suggest it.

I didn't ask you whether it would be violating Section 3.

I asked you whether or not this would be at an unreasonably lower rate under Section 3.

Mr. Daniel M. Friedman: I -- my own feeling is that it would not be, but I -- I have to -- I have to qualify my answer because I believe in the National Dairy case, the evidence from the case went back in this pride show that they were below their fully distributed costs, but I'm not -- I'm not sure that that's -- that's the only reason I would think -- I would think, Mr. Justice, that this is the type of pricing that it is permitted.

Now, the Commission, when it dealt with this economic evidence, gave several reasons why it said it was not persuasive.

The first reason it gave was -- basically, it said well, we have always in the past in dealing with this problem of intermodal competition treated fully distributed rather than out-of-pocket cost as the basis for determining inherent advantage.

They cited a group of cases for this proposition and with one exception none of the cases really discussed the economics of the problem at all.

The one case that did discuss it was the Grain case that Mr. Ames has relied on.

Now, I think the significance of the Grain case is while the Commission said in that case that when dealing with competition between regulated modes of competition it will look to fully distributed cost, the holding in the case -- the holding in the case was that because the competing water traffic was unregulated, they would determine inherent advantage on the basis of out-of-pocket costs and they upheld a reduced railroad rate because of the fact that the railroad's rates were above out-of-pocket costs even though they were below the barge lines.

And I think it's significant to see what the Commission said in explaining in that case why where you had an unregulated mode it was appropriate to use out-of-pocket costs as the basis for determining inherent advantage because it seems to us the very reasoning the Commission gave in that case for reaching that result there applies equally to the situation present in this case.

What the Commission said is as follows and this is on 321 ICC at pages 601 to 602.

The Commission said the optimum utilization of this excess capacity, and it was referring to the fact that the railroads used the word had sunk a great deal of capital into excess capacity.

The optimum utilization of this excess capacity is clearly consistent with the objectives of the National Transportation Policy provided that the existence of such excess capacity is not used as a destructive competitive weapon, and the fact that railroad rate was going to be below the barge rate and thus obviously take some of the business away was not viewed by the Commission as a destructive competitive weapon.

In the instant proceeding, it is clearly in the public interest and in furtherance of the National Transportation Policy to permit the respondents to utilize their excess plant capacity to increase their net revenues.

Knowing the Commission here has recognized the fact that it benefits the railroads, it benefits the shippers, it leads to the more efficient utilization of the nation's transportation resources to permit the railroad to price at a level which produces something over and above its cost incurred in carrying the traffic.

Now, the Commission gave some other explanations as to why it felt that in this case, fully distributed costs were the appropriate method of determining inherent cost.

It said the following at page 67 to 68 of the record, merely because a carrier is able without incurring an out-of-pocket loss to handle certain traffic at rates below fully distributed costs and perhaps by diverting sufficient tonnage from its regulated competitors to maximize thereby the contribution that such traffic would make to its overhead does not necessarily mean that the carrier is the more efficient of the two.

Well, it seems to us that if in fact one carrier can handle the traffic at a lower rate than another that is it can sell its goods cheaper and still make a profit that by definition is the most efficient operator.

What efficiency means in the industrial sense is the ability to produce goods cheaper.

Then the Commission made the following statement.

It said that by reducing its rate -- this is at page 71 of the appendix -- by reducing its rate below the level of the barge-truck full costs, the respondent railroads have unlawfully impinged upon the ability of the barge-truck mode competitively to assert its inherent cost advantage -- competitively to assert its inherent cost advantage.

But long before, three years before the railroads had filed this rate reducing the level to the barge lines, the barge lines themselves had put into effect the rate of $5.11 which is below their fully distributed costs of $5.19.

Now, there are two other respects I'd like to talk about in the Commission's report, and while we think the Commission in this case has not adequately focused on these issues, why we think the Commission has not done the kind of job it should do if its expertise is to be given great weight by the Court.

The Commission focused exclusively on the cost aspect of inherent advantage.

The claim that the barges, whether they have the inherent cost advantage.

But inherent advantage is, as this Court has recognized in New Haven, has another element.

It includes service as well as cost.

And if in fact at the same rate the railroads are going to get all of this traffic, this would seem to indicate very clearly that at least as far as the service advantage is concerned, that lies with the railroad.

That it seems to us is an inherent advantage of the railroad.

And the Commission nowhere in its report attempted to deal with this face of the case.

Now, in addition with dealing with the National Transportation Policy, the Commission restricted itself solely to the provision that the Act is to be administered to recognize and preserve the inherent advantages of each mode of transportation.

The statute, however, directs the Commission to give due consideration to the objectives -- plural, objectives -- of the National Transportation Policy.

And the objectives of course are not limited to preserving the inherent advantage of each form.

They more broadly included a wide range of factors.

Particularly, the Commission is enjoined to promote safe, adequate, economical and efficient services and force to sound economic conditions and transportation.

These are factors which we think in the face of this economic testimony, the Commission was required to give some consideration to explain in the light of what the realities are of pricing of railroad services, to explain why permitting this type of pricing was not in the public interest in furthering these other objectives of the Act.

Now, Mr. Helmetag who represents the railroads will discuss in greater detail of a legislative history of this statute, but we think basically what is shown here is the very kind of hard competition that commerce intended in Section 15a(3) for the railroads to be allowed to do.

We think basically with 15a(3) contemplated was that as long as the railroads were able to carry a product at a figure above their full -- their out-of-pocket costs and as long as viewed in the light of those out-of-pocket costs a prima facie at least, the railroads would have the inherent advantage.

If that is the situation, what commerce intended was to leave it to the marketplace, to leave it to the customers to decide which of the competing modes of carriage they wish to select, not to allow the Commission in fact to step in and say no because of the fact that the barges are going to lose this little bit of traffic and because we're concerned that if they lose this, this will be the opening wedge.

Therefore, it must be stopped.

And I would like to close, if I may, with two sentences from this Court's opinion in the New Haven decision where this Court said, If there is one fact that stands out in bold relief in the legislative history of Section 15a(3), it is that Congress did not regard the setting of a rate at a particular level as constituting an unfair or destructive competitive practice simply because the rate would divert some or all of the traffic from a competing mode.

If a carrier is prohibited from establishing a reduced rate that is not detrimental to its own revenue requirements merely because the rate will divert traffic from others, then the carrier is thwarted from asserting its own inherent advantages of cost and service.

And we think that is precisely this case.

Chief Justice Earl Warren: Mr. Friedman, the thing that I don't quite understand is this.

As I understood you to say, you couldn't have this kind of rate making throughout the railroad business because if it did, they corrode.

Mr. Daniel M. Friedman: That's right.

Chief Justice Earl Warren: They couldn't possibly operate.

Now, doesn't this mean that if they can find this to type or the standard that you support, only in competitive situations that all of these other cause will have to be loaded on to the people where there is no competition?

And if so, is that the proper rate making?

Mr. Daniel M. Friedman: I answered that Mr. Chief Justice.

Yes, it is the proper rate making because I think the idea that -- but omitting this kind of rate making on this particular commodity, you're loading the course on to the other, to the other shippers.

I suggest that in fact they're not loading the cost on your permitting in fact the cost to be reduced.

That is if I may suggest come back again on this particular shipment by providing the carrier with additional revenue, it would not have received had it not been carrying the ingot molds traffic and it's clear that unless they came down to the barge rate, they couldn't get it by enabling the carrier to get this additional revenue, this additional revenue which would not otherwise has gotten.

The other shippers are actually better off in the long run because they have to bear less of this burden for each ton of ingot molds that moves, the man who is shipping try -- furniture or the man who is shipping building blocks, the man who is shipping anything else has in the totality, these other shippers have to pay $0.41 less to the overheard cost.

And the very nature of competition is such I think that when you are faced with a competitive situation, what you will do is to set your price at a level that will maximize the profits from that traffic.

If you have a competitor, if you're competing with another form of transportation, you have to make your rate competitive if you hope to get that.

If you don't have the competitor, you don't get it but there's nothing, if I may use the word insidious about this rate making scheme as there's not really loading the cost of the total fixed cost on the other shippers.

In the long run, the other shippers benefit because as the result of this form of rate making, the total cost that they have to meet are help buttons, they're not handed by it.

Chief Justice Earl Warren: Well then I get back to Mr. Justice Fortas' question, isn't that something for the Commission to determine?

Mr. Daniel M. Friedman: Yes, I think it --

Chief Justice Earl Warren: That's what it said for --

Mr. Daniel M. Friedman: I think in the last analysis, it is for the Commission to determine but we think in this case, the Commission -- and in determining this, it seems to me the Commission has to make a reason satisfactory explanation as to why it reached that result and we don't think it has done it in this case.

The reasons we think the Commission has given do not justify its conclusion.

Chief Justice Earl Warren: But would you ask us to vacate this case and send it back for further findings or you just ask us to reverse it?

I mean, did you just ask us to affirm it?

Mr. Daniel M. Friedman: Well, the District Court's order itself has remanded this case to the Commission for reconsideration in the light of its opinion and we are urging affirmance of that.

We think this case must go back to the Commission for reconsideration.

Justice Abe Fortas: Mr. Friedman, do I correctly understand that overall generally the railroads, the greater portion of the railroads costs, are fixed cost rather than out-of-pocket cost as compared with the barges.

Mr. Daniel M. Friedman: As compared with the barges.

Yes, the barges have very --

Justice Abe Fortas: So that if you took the standard of out-of-pocket cost, the railroads would always have a built-in advantage on the basis of what you've been arguing to us.

Mr. Daniel M. Friedman: I can't -- not necessary.

Justice Abe Fortas: Why not?

Mr. Daniel M. Friedman: If they might depend on the fact of a particular case.

Justice Abe Fortas: I know but why wouldn't they have the advantage.

There is an enormous spread between the total cost including fixed as well as out-of-pocket cost and just the out-of-pocket cost.

Mr. Daniel M. Friedman: Well, if they do have this --

Justice Abe Fortas: So what you're really doing is saying that in every case the Commission has to -- has to allow the railroads the right to lower prices to cut their rates within that marginal area.

That's the thrust of your argument.

You maybe right, you may be wrong as a matter of economics.

As a matter of paying out the National Transportation Policy but I really wonder if that isn't a matter for the ICC and not for this Court and not if I may respectfully say so for the Department of Justice.

Mr. Daniel M. Friedman: Well, I think as to the latter Mr. Justice, we felt that as a party in this case, it was our -- it was appropriate for us to indicate to the Court the reasons why we would disturb in trouble by the way the Commission had decided this case.

Now I think it's true that probably in most instances of this type, the inherent advantage maybe with the railroads.

Justice Abe Fortas: What you're really saying if I correctly understand this.

The thrust to what you're saying is that anytime the railroads want to do it, they can cut prices within this marginal area to a degree and an extent that the barges -- barge lands cannot and take advantage of that for the purpose of taking away business from barge lines.

Mr. Daniel M. Friedman: Well, I suggest two things Mr. Justice.

First, I cannot say and I just don't know whether in every case that would be the fact and that in many situations where even though the actual movement to transportation by barge may have higher out-of-pocket cost than higher out-of-pocket cost in rail but maybe other problems that maybe for example in this very case, the barge transportation had additional charge as truck trans like at the end of it.

Justice Abe Fortas: I couldn't agree with your more.

I don't know either.

You don't know and I don't know and -- but the statute said that the ICC ought to know or if it doesn't know that we're all in a bad fix because it's got the power and the duty.

Mr. Daniel M. Friedman: The ICC should know and we think if the ICC would adequately explain why it has selected fully distributed rather than out-of-pocket, that maybe an area where it would be within the informed discretion and not subject to reversal by the courts.

But in this case, we think it hasn't done that.

I suggest the concertinos opinion in vain for any reason to explanation that deals with the facts of this case, that deals with the record other than wearing the most conclusively on its statement.

Justice William J. Brennan: Well, Mr. Friedman, did it say we chose fully distributed rather than out-of-pocket because if we don't choose fully distributed, this puts the barge line out of business.

Isn't that an explanation?

Mr. Daniel M. Friedman: But that as I suggested Mr. Justice does not --

Justice William J. Brennan: Wasn't that an explanation?

Mr. Daniel M. Friedman: That's an explanation for where it were sound one but that explanation I think is not supported by this record.

Justice William J. Brennan: If it was sound one, that's your difficulty.

Mr. Daniel M. Friedman: If it was supported by this record.

It would have to -- they would have to show that there is some real danger that by permitting the ingot molds, that permitting this type of rate to go in effect on ingot mold, this would carry over to the entire contraries of traffic and would enable the railroads to really -- to club the barges to death and we don't think there is any basis for that contention.

Argument of Carl Helmetag, Jr.

Mr. Carl Helmetag, Jr.: Mr. Chief Justice and may it please this Court.

Chief Justice Earl Warren: Mr. Helmetag.

Mr. Carl Helmetag, Jr.: I'm appearing here today on behalf of the railroad appellees both the principal appellees which included the railroads that published this rate mainly the what have now the Penn Central Company and the Louisville and Nashville Railroad and also for the large group of railroads that intervened in the proceedings below in support of the principal railroad appellant in that case.

I would say at the outset that our position here is the same as the position that -- which Mr. Friedman has advanced for the United States Government and it's the same position that the antitrust division of the Department of Justice took in the court below.

I think it might be well to emphasize at the outset one of the points that Mr. Friedman touched upon.

This particular ingot mold rate involves a very small amount of traffic some 4,000 tons of business a year moving in barges or in rail cart and 600-ton shipment about eight or ten shipments a year.

This rate which the railroad published this rate of $5.11 which equals the charge of the competing barge-truck group just equal, it doesn't undercut it.

This rate is a very typical rate.

It's a rate of which there is literally thousand of this type of rates maintained not only by the railroad but by the truck lines and by the barge lines.

That is a rate which in response to competitive situations is reduced below the so-called fully distributed level but which is above the out-of-pocket cost level and therefore produces either you want to call it a contribution to the railroad constant expenses which are the expenses which aren't incurred in the rendition of this traffic or it produces the problem.

The two things there are anomalous.

I might say that if the barge lines in this case had not argued that this particular rate interfered with their inherent advantage, the Commission would have approved this rate.

It regularly, everyday approved rates of this type.

In every instance and virtually every instance where competitive rates are before the Commission and they are bound to be compensatory and as this rate was beneficial to the proponent carriers on revenue requirement.

The Commission upon those showing will approve the rate so that in this instance --

Chief Justice Earl Warren: May ask you this.

Mr. Carl Helmetag, Jr.: Yes sir.

Chief Justice Earl Warren: In emphasizing as you say this -- the small amount of traffic, are you suggesting to us that this is just de minimis and that we shouldn't pay any attention to it or are you arguing that this should be applied to all intermodal transportation so that you get that -- the benefits of it whether it's large or small?

Mr. Carl Helmetag, Jr.: We say that the principles that we advocated here and which we're bound to be consistent with the legislative history of Section 15a(3) and the National Transportation Policy should govern all intermodal competitive rate situation.

Chief Justice Earl Warren: And then the small amount here, that's the amount to anything as far as the argument is concerned.

Mr. Carl Helmetag, Jr.: No.

We're not basing our argument on the fact that this is a relatively insignificant type of traffic but I did want to put it in the right prospective there.

The Commission could not have made any finding that taking this traffic from this very prosperous and vigorous barge carrier would have driven the amount of business.

They just couldn't make that kind of a finding but every piece of traffic that we seek, every piece of traffic that were in a competitive market for we regard it but you don't want to upgrade before it into the railroad industry.

Half that's we make on this type of business in totality which enable the railroads to either meet their constant expenses or to approximately.

Now, our position as I say here is that what the Commission has done in this instance and bear in mind what they've done here.

They have fixed as the floor for railroad pricing, not railroad cost, nothing related to the railroad transportation carriage of this but the fully distributed cost level of the competing mode namely this barge-truck group.

The lawfulness of our rate, the rail rate is being judged not by the characteristics of our business and not by our cost but by the cost of another competing mode.

Now, when this matter came before the lower court, the lower court made a very exhaustive review of the legislative history not only of Section 15a(3) which is the controlling statutory standard but judging the awfulness of these reduced intermodal competitive rate but also and perhaps more importantly of the National Transportation Policy itself.

I would remind perhaps Mr. Justice Fortas that in response to the questions he has been asking that Section 15a(3) does not order the Commission merely to judge the lawfulness of these reduce rates by the National Transportation Policy but contains other specific standards.

For example, if you would turn to page 34 of the appendix, the controlling statutory standards in Section 15a(3) which is the standard that apply to this type of reduced intermodal competitive rate making is the first one, the Commission in determining whether a rate is valid than a reasonable minimum rate shall consider the facts and circumstances attending the movement of traffic by the carrier or carriers to which the rate is applicable.

Now, that standard says that the Commission in judging the lawfulness of this rate should do so in respect to the characteristics of rail movement and the cost of the rail movement not the cost of the competing barge lines and then it goes on to say, rates of a carrier shall not be held up to a particular level to protect the traffic of any other mode of transportation giving due consideration to the objectives in multiple not the single objective.

The objectives of the National Transportation Policy declared in this Act.

Justice Byron R. White: Well on that basis, I take it that the railroads didn't need to stop at $4.00 -- what was the price that was set here?

The rates --

Mr. Carl Helmetag, Jr.: The rate of $5.11.

Justice Byron R. White: They just certainly didn't need to stop at $5.11.

Mr. Carl Helmetag, Jr.: No, but they --

Justice Byron R. White: They could have gone right down to one penny above their cost.

Mr. Carl Helmetag, Jr.: Their cost in this case of performing this -- yes sir.

The cost on this case of performing this service was $4.70 a ton.

Justice Byron R. White: And you could have gone -- and you could have gone to $4.70 a ton.

Well, why did you stop at $5.11?

Mr. Carl Helmetag, Jr.: Because the uncontroverted testimony in this case was if the railroad were to effectively compete with this particular piece of businesses, ingot mold --

Justice Byron R. White: This is as long as you have to go to get the traffic.

Mr. Carl Helmetag, Jr.: We would have to have a rate of $5.11 which would equal the charge being made by the competitive barge-truck service.

Justice Byron R. White: But that's irrelevant to what they're charging or you could go right on back down to what you're saying, you could go right down to your cost.

Mr. Carl Helmetag, Jr.: I'm saying we could sir but I'm saying that in this instance, the testimony of the shipper and we believe the shipper and the Commission have no reason not to believe it was that if the railroad were to have an opportunity to compete for this traffic, they had to have devices equal to those of the competing barge-truck group and we did published that rate and we've gotten some of the business.

Justice Byron R. White: Surely, the person who testifies that way wouldn't say you wouldn't get it if you were lower.

Mr. Carl Helmetag, Jr.: No sir, it wouldn't but he said that that was the rate we would have to maintain and there was no advantage to us to go any lower because we would get less return above our out-of-pocket cost.

By the way, I might point out that this out-of-pocket cost --

Justice Byron R. White: But it does still be practicable to you in your approach to get $4.70.

Mr. Carl Helmetag, Jr.: Yes sir.

It would be profitable because it would make some contribution to the cost and expenses which we were not then getting.

Justice Byron R. White: Which other people are then paying.

Mr. Carl Helmetag, Jr.: Sir, they're not paying it because nobody is making this contribution until you get this particular piece of traffic.

When you get it, you get the contribution and that goes towards the railroad's cost and expense.

Justice Byron R. White: Well, I think if you already have your rate structured fixed before this time to have recovered your fully distributed cost.

Mr. Carl Helmetag, Jr.: Sir?

No sir.

Justice Byron R. White: If somebody.

Mr. Carl Helmetag, Jr.: No sir.

I might say that that is not the fact.

Justice Byron R. White: You're not making a profit.

Mr. Carl Helmetag, Jr.: We are making a profit sir but most of the railroads in the country do not cover their fully distributed cost.

Let me just say this for example to make this clear to you.

Since 1958 when Section 15a(3) was enacted.

The railroads have reduced their rates 13.5% across the Board.

Now, that means that's in the face of generally rising cost.

Now, notwithstanding that fact and they have improved their overall situation very greatly.

Now, the reason they done that is that they now have a competitive pricing structure.

They are in a position by maintaining lower prices to attract business and therefore more nearly cover their constant expenses.

If we are precluded from maintaining this rate far from enabling as to recover our constant expenses, we don't get them on this particular business.

If we don't get them on a whole lot of other pieces of business like this, we do not make our constant expenses.

Now, that's the reality to the situation in order to improve our situation, we have to put in competitive prices, price which would bring the business to us and make some contribution toward the costs and expenses.

Now, I would in --

Justice Byron R. White: Now what the --

Mr. Carl Helmetag, Jr.: Yes sir.

Justice Byron R. White: -- if your cost -- if you have it by demand, you would say you could not put a rate if below $5.00 demand?

Mr. Carl Helmetag, Jr.: Yes sir.

Justice Byron R. White: Why?

Mr. Carl Helmetag, Jr.: Because it's well established by the case in this Court by cases in all the District Court and by long line of cases which nobody require with before the Commission that if we publish a rate below the expenses which we incur in providing the service, i.e. the out-of-pocket cost that that rate is non-compensatory and unlawful.

It then violates in the National Transportation Policy.

Justice Byron R. White: But it hasn't anything to do with the barges.

Mr. Carl Helmetag, Jr.: It hasn't anything to do with the barges but --

Justice Byron R. White: That would be wrong even if there were --

Mr. Carl Helmetag, Jr.: Wrong in any instance but the barge line which would be the normal situation to come in here and complain before the Commission that that is an unlawful rate because it is below the railroad expenses that are incurred in providing the service which is being priced and that would be found unlawful.

That's the normal situation.

It happen everyday before the Commission.

I'm running a little short of time but I would like to just say something about the legislative history of this section.

Particularly with respect to the requirement that the Commission recognized and preserves inherent advantages, this requirement came into law, and in 1935, a part of the Motor Carrier Act of 1935 and it came in at the insistence of the motor carrier industry.

Now, the reason they insisted upon this, they were afraid that the Commission would require the motor carrier to raise their rates in order to protect the railroad.

The legislative history makes it clear that what the motor carriers insisted upon was the right to have their rate reflects their own cost characteristics.

Now, in 1940 when the Congress had before the Transportation Act of 1940 which brought on the regulation the water carrier industry, the water carrier made the same demand.

They insisted that if they were going to be brought on the regulation that the Commission in judging the lawfulness of their rate do it with respect to their own cost considerations and not the cost considerations of the railroad and in 1958 when the Section 15a(3) was before the Congress, Senator Smathers, Senator Wheeler to come and testify into what was the intent and purpose of the National Transportation Policy with respect to the preservation of inherent advantages and Senator Wheeler said that the purpose was to just as I have stated.

To make certain that the Commission in judging the lawfulness of rates of any mode would do so with respect to that mode's cost -- own cost characteristics and not the characteristics of another mode.

And during our colloquy with Senator Schoeppel who -- Senator Wheeler made the statement in this part, Senator Schoeppel said this.

?Of course all of that was tied to one cord of factor namely that those rates when they were established would be compensatory was it not, talking about the preservation of inherent advantage.

And Mr. Wheeler who had managed the 1940 Act in the Motor Carrier Act said, to be part in this matter exactly, as long as they were compensatory then they could reduce the rate.

The water carrier could reduce their rate as long as they were compensatory to take business of way or the motor carriers could reduce their rates to a compensatory level to take business away from the railroad and the railroad could reduce their rate to meet competition so long as they are compensatory.

Now, it was in view of that legislative history that the lower court found that normally, the Commission should approve rate when it binds their compensatory.

And that in this case since they have found they were compensatory and beneficial to the railroad own revenue requirement, they should have approved them but if they weren't going to approve them, they had a very heavy obligation to show why they were taking it diametrically opposite approach.

That is approach inconsistent with the legislative history of Section 15a(3).

I would -- if I had the time, I would point out that the lower court made a great reference to the new automobiles case and said that that case in which the Commission had dealt with the 1940 Act provided the proper philosophy to be applied in this situation but the Commission had not followed it.

They didn't follow it here.

And therefore, the lower court quite properly concluded that what the Commission had done here was inconsistent with the legislative history and the intent of Congress that carriers and this intermodal situation should be normally free to reduce their rates provided their compensatory and provided they're not detrimental to the carrier's own requirements and in doing that, the lower court was echoing precisely what this Court had said in New Haven.

And this Court in New Haven as the Court will remember said that carriers should not be prohibited from reducing a rate which is compensatory and which is not detrimental to its own requirements merely because such a rate would have divert traffic from the competitive mode.

And that Court went on to say that this applied even though it would take all of the traffic from another mode and even though it would destroy the other mode so that the impact of this rate on the barge line would have no concern to the Commission under both the New Haven doctrine and under the legislative history of the applicable section and I see it that I'll close on that note.

I would invite attention -- the Court's attention to the fact that we have detailed in our brief the legislative history of the applicable standard.

I would mention to Mr. Justice White that the report of the accounts of economic advisors is quoted in part to page 36 of our brief in Footnote 78.

Chief Justice Earl Warren: Mr. Goodman.

Argument of Leonard S. Goodman

Mr. Leonard S. Goodman: Mr. Chief Justice and members of the Court.

In the guise of asking more findings from the Commission, the department and the appellees generally would impose a rule of law on the Commission.

In their view, the Commission must permit the railroads to decrease their rates within this margin between full cost and out-of-pocket cost in the discretion of the railroads.

The counsel for the railroads has stated to this Court, the Commission had no concern with the effect on the barge lines.

Now, I wish to emphasize very strongly that affirming the lower court's decision means that this Court affirms that rule of law and our reason for appeal was to overturn that rule of law.

Now, the appellees urge that this particular rate that was before the Commission would not seriously affect the barge lines while the Commission's judgment differed.

Its judgment differed with respect both to the effectiveness rate on the barge lines and with respect to the effect of this practice, this measure of inherent advantage that the railroads espoused the effect of this practice on the barge lines.

Further, the Commission's findings in this case are indeed sufficient to support the Commission's full cost standard.

Now, I believe the counsel for the department inadvertently state to this Court that the Commission had not even considered service advantages.

If the Court please, at pages 40 and 43 of the record, there are findings there concerning the service advantages and findings to the effect that service advantages are not determinative of the issue in this case.

Justice Hugo L. Black: What did you mean by different, you mean the full cost or the out-of-pocket cost?

Mr. Leonard S. Goodman: Well, Your Honor in this case, it was a difference in dollars and cents as between $7.59 cents which was the full cost -- fully distributed cost of the railroads and $4.69 which was their out-of-pocket cost of handling this ingot mold traffic and this is apparently the position of the railroads that within their discretion, they should have the opportunity to file any rate at a level between those two figures.

Justice Hugo L. Black: Why would that comply with inherent advantage situation or provision?

Mr. Leonard S. Goodman: It infringes the inherent advantage clause of the National Transportation Policy because it deprives if the railroads are permitted to file rates on this basis, it would tend to deprive the barge lines of an inherent cost advantage.

Justice Hugo L. Black: Are the railroads making money or losing money on this one, as a whole?

Mr. Leonard S. Goodman: That's debatable but apparently, they're making money.

This is profitable to the railroads.

Justice Hugo L. Black: But why do you say that the full cost is $7.00 if they're making money.

How could they make money if the full cost is $7.00 something and they carry it to $5.00?

Mr. Leonard S. Goodman: No, they make money in this sense.

If they filed a rate at their full cost level or in some higher figure than $5.11 --

Justice Hugo L. Black: What do you mean by full cost -- what it actually cost for the transporter?

Mr. Leonard S. Goodman: Well, actually in the sense that it includes depreciation and includes many -- it includes the --

Justice Hugo L. Black: Will that have to be included in order to show how much it cost?

How can it be done without including that?

Mr. Leonard S. Goodman: Your Honor, they make money only in this sense that they -- when they obtain the traffic, they are able to make some contribution to their constant cost which without the traffic, they would not make any contribution too.

This constant cost go on whether or not they handle this traffic and when they --

Justice Hugo L. Black: What's the full cost of the barge line?

Mr. Leonard S. Goodman: The full cost of the barge lines is about $5.19.

Justice Hugo L. Black: Why does -- between $7.00 and $5.00.

Mr. Leonard S. Goodman: Well, on of the main differences is that the barge lines do not have a right of way cost.

They do not pay user charges.

They don't have to pay for the use of the waterways.

That's a very real difference between the two modes of transportation and we believe --

Justice Hugo L. Black: In other words, that's -- what would you call that?

Inherent advantage?

Mr. Leonard S. Goodman: Yes, yes, this is precisely what Senator Wheeler said during the legislative history of the Transportation Act.

This wasn't inherent cost advantage.

This was a natural advantage to the water carriers.

Justice Hugo L. Black: Why did the Commission or anyone else then go on the basis of less than the full cost in determining the inherent advantage?

Mr. Leonard S. Goodman: We don't.

Justice Hugo L. Black: Well, I understood you to say they did.

Mr. Leonard S. Goodman: No.

Justice Hugo L. Black: The total cost of the railroad is $7.00.

Mr. Leonard S. Goodman: Well, we made that initial comparison of that $7.00 and something to $7.59 with the $5.19 of the barge lines and made a determination that on the basis of that comparison, the barge lines were the low cost mode.

They possess that the inherent--

Justice Hugo L. Black: That's what you understand the basis of the Commission's holding?

Mr. Leonard S. Goodman: That is the Commission's holding Your Honor.

Justice Hugo L. Black: And the basis of it is that I understand from you now, the full cost of the railroad is $7.00 and something and the full cost of the barge line is $5.00.

Mr. Leonard S. Goodman: That's true.

Yes.

Justice John M. Harlan: (Inaudible)

Mr. Leonard S. Goodman: I'm sorry, I don't understand.

Justice John M. Harlan: Are they depending on where you start the whole case as to whether the Commission's standing starting off the practice that the first thing that you have to do is to find out which either the railroad or the barge lines has the inherent advantage.

Your position is that the inherent advantage of the barge line is determined on the basis of fully distributed cost which is exactly appears to be determined on the basis of (Inaudible), isn't that the issue?

Mr. Leonard S. Goodman: Well Your Honor, I don't believe that's precisely the issue because the railroads are not so much concerned with determining inherent advantages and with comparing costs.

Justice John M. Harlan: That's what I'm actually talking about.

Mr. Leonard S. Goodman: Yes, this is our position.

This is our position that you must make a comparison and you must make this determination.

Justice John M. Harlan: If the Commission was wrong of the matter withstanding the same inherent advantage determined by fully distributed cost and based on the fact that the premise that under the proper standing the railroads have the inherent advantage.

How come this case would not be quite different?

Mr. Leonard S. Goodman: Yes it might.

Yes.

Justice Hugo L. Black: How could they find that if the cost -- the actual cost is $7.00?

Why can't they decide to what the actual cost is?

Why can't you get anything else out of any formula that's been created by anybody?

Mr. Leonard S. Goodman: Well, it's the purpose --

Justice Hugo L. Black: In determining the inherent advantage of each, how can you get away from the fact that you must consider the total cost to the railroad and the total cost to the barge?

Mr. Leonard S. Goodman: Well, Mr. Justice Black, we suggested on brief a matter which was not within the Commission's report, a competition of counsel solely that the same result might have been reached on this record if the Commission had taken the out-of-pocket cost of the railroads and it's simply added to that, the constant right of way cost of the railroads so as to prevent the railroads from undermining from taking away the inherent advantage of the barge lines and not having this cost.

Justice Hugo L. Black: How can you get it without some kind of an artificial distinction having no basis in fact, away from the fact inherent advantage shown by the full cost of the railroad and the full cost of the barge?

Mr. Leonard S. Goodman: This is a standard that the Commission has employed and is --

Justice Hugo L. Black: That you want to choose.

Mr. Leonard S. Goodman: Yes.

Justice Hugo L. Black: Well, how can you get away from that matter unless you have some kind of an artificial formula that does not meet the actual facts of the competition?

Mr. Leonard S. Goodman: We have not tried to and I --

Justice Hugo L. Black: That's what I was trying to see if that's your position.

Mr. Leonard S. Goodman: We have not tried to and I think I must agree with you to do any other formula would be artificial.

Justice Potter Stewart: But any other but the other formula is the one embraced by the annual report of the Council of Economic Advisers and that's 1966 report isn't it among other experts?

Mr. Leonard S. Goodman: Well, Council of Economic Advisers did suggest that the most efficient use of society's resources would be made under an out-of-pocket standard but it was never explained on this record shifting the traffic away from an existing barge service to an existing railroad service made more efficient use of society's resources.

Both services were in existence, both services should be used.

Thank you.

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Argument of Robert W. Ginnane

Chief Justice Earl Warren: Number 40 -- Number 14, Interstate Commerce Commission, Petitioner, versus Atlantic Coast Line Railroad Company et al.

Mr. Ginnane.

Mr. Robert W. Ginnane: Mr. Chief Justice, may it please the Court.

This case began with an order of the Interstate Commerce Commission which did only one thing.

It ordered the respondent railroads, pay reparations of about $8900 to a shipper, Thomson Phosphate Company, based upon shipments of ground phosphate rock from Florida points at -- in Illinois.

This Court granted the Commission's petition for a writ of certiorari to review the decision of the Court of Appeals for the Fifth Circuit that the respondent railroads could bring suit, seeking review of the Commission's reparation order under the statutory provisions governing the review of Commission orders generally.

We contend that contrary to the court below that the railroads may not bring suit to challenge a Commission order awarding reparation, but that they may attack that order only by way of defense to the Commi -- to the shipper's suit seeking to enforce the reparation order under the provisions of Section 16, paragraph 2 of the Interstate Commerce Act.

We contend that only in this way can there be effectuated two congressional purposes.

First, to leave to the shippers rather than to the Government, the enforcement of reparation orders and secondly, to accord to the shippers' specific procedural rights as to venue cost and attorney's fees which will enable shippers to assume that work.

The railroad brought this suit in 1961 in the United States' District Court for the Middle District of Florida, naming United States and the Commission as defendants.

The shipper was not named as a defendant and has not intervened.

The railroads brought this suit in Florida in reliance upon three statutory provisions.

The first was Section 17, paragraph 9 of the Interstate Commerce Act which is set forth in our brief at page 3.

We submit that on its face, 17 (9) is simply a requirement for the exhaustion of administrative remedies.

The railroad contend that 17 (9) refers us to the Judicial Code, Section 1336, that's in our brief at page 2, which provides that except as otherwise provided by Act of Congress, the District Court shall have jurisdiction of any civil action to enforce, enjoin, set aside any order of the Interstate Commerce Commission.

The railroad further point to the venue provision 1398 of the Judicial Code, which provides that such an action shall be brought only in the judicial district wherein is the residence or office of plaintiff or one of the plaintiffs.

So the railroad contended in this case that under Section 1336, they could bring their own direct action in the District Court for review of the Commission's reparation order and that under the general venue provision of 1398, they could bring it in Jacksonville, Florida where the Atlantic Coast Line, a respondent here and a plaintiff below, has its principle place of business.

Now, we admit that 1336 and 1398 of the Judicial Code, provide for the judicial review of the general wrong of ICC orders.

However, we contend that they are -- those two sections are rendered inapplicable by the specific provisions of Section 16, paragraph 2 of the Interstate Commerce Act as to what shall happen when the Commission directs railroads to pay reparations to a shipper.

Before getting into the heart of the problem, I can refer briefly to the prior Court decisions on this point.

This Court has never given plenary consideration to the point.

In 1911, in Southern Railway Company v. United States, the former Commerce Court of United States held on a literal reading of its jurisdiction to review any order of the Commission that it could entertain such a suit by a railroad at attacking a reparation order.

That case has not been cited since 1911.

Later in 1924, a three-judge district court and in 1937 the Third Circuit, have held that a railroad may not maintain such a direct suit.

I might also say that a mere glance at the annotations to Section 16 (2) of the Annotation Code, shows that there are large number of cases in which the courts have look up reparation orders in the context of a suit brought by the shipper under 16 (2).

For 50 years, except for three -- of three cases in which I have mentioned before and this case, for 50 years, the courts have reviewed reparation orders in the context of a suit brought by the shipper.

Before going into the details of Section 16 (2), I think it may be useful to point out the Court the status of a reparation order issued by the Commission as compared to the other types of orders, many other types of orders which the Commission issues.

Since the Hepburn amendments of 1906, with the exception of orders for the payment of money, the Commission's orders are self-executing, self-operating, in that they must be obeyed subject to penalty unless a court sets them aside.

And it was -- in making orders – such orders other than for the payment of money, self-operative for the first time in 1906 that Congress for the first time provided for direct review of Commission orders.

In addition, if a railroad fails to obey any order of the Commission other than for the payment of money, the Commission or any party injured may go into court and seek affirmative enforcement.

In contrast, when the Commission orders a railroad to pay reparations to a shipper, that is an order for the payment of money, that order is not self-operative.

By that I mean, that if the railroad is unwilling to comply and pay, nothing happens.

It is not subject to any penalty.

Moreover, the Commission is not empowered to go into court to enforce a reparation order.

Rather Section 16 (2) has its own specific machinery.

It's set forth in pages 4 and 5 of our brief and it provides that the complainant, that is the shipper, may file in the District Court of United States for the District in which he resides, on which is located the railroad's office or through which the railroad operates or in any state court which has jurisdiction of the railroad, a complaint.

Justice Tom C. Clark: What's the [Inaudible]

Mr. Robert W. Ginnane: 016 (2) -- 16 (2) by ninety years–-

Justice Tom C. Clark: [Inaudible]

Mr. Robert W. Ginnane: 16 (2) in one form or another has been in the Act since 1887, in substantially its present form that has been there since 1906.

Justice Tom C. Clark: In 17 (9) is part of 1940?

Mr. Robert W. Ginnane: It is part of the Transportation Act of 1940.

Justice Tom C. Clark: What year?

Mr. Robert W. Ginnane: 1940.

Such a suit in the District Court Section 16 (2) says, "Shall proceed in all respects like other civil suits for damages,” except that the findings and order of the Commission, “shall be prima facie evidence of the facts therein stated” and except that the plaintiff shall not be liable for costs except those which accrue on his own appeal and the plaintiff if he finally prevails, shall be allowed a reasonable attorney's fee to be taxed and collected as part of a cost of suit.

Justice John M. Harlan: Mr. Ginnane, that means if the [Inaudible]

Mr. Robert W. Ginnane: As a practical matter search through the years, no.

Justice John M. Harlan: [Inaudible]

Mr. Robert W. Ginnane: No.

What happen -- what has happened in the judicial application of these provisions is that the review is just the same as in a direct review procedure.

Justice John M. Harlan: What is the statute that you suggest it?

Mr. Robert W. Ginnane: The statute was phrased this way because it was thought necessary to preserve the carriers' right to trial by jury, the money claim.

As a practical matter that they do not often ask of a trial by jury.

The result is in the Court of Appeals for the Second Circuit a few years ago held in a new a process Deere case that the standards are the same as an ordinary judicial review.

Are the Commission's findings supported by substantial evidence?

Are they in accordance with the statute and were they made after a fair procedure?

Justice John M. Harlan: The way you [Inaudible] that this was [Inaudible]

Mr. Robert W. Ginnane: This Court has not had occasion to.

This Court has made it very clear that under Section 16 (2) it finds that the carrier has a full opportunity to defend against the Commission's order on any ground that would be available on a direct review proceeding.

Justice John M. Harlan: [Inaudible]

Mr. Robert W. Ginnane: It could happen.

I don't know of such a case.

I put it this way.

The Court could do it, however, whether the shipper would have a right to a trial by trial in that situation.

Justice John M. Harlan: [Inaudible] the shipper owner said well actually [Inaudible]

Mr. Robert W. Ginnane: Let me go back sir, I think I misled you.

If the shipper is attacking the Commission's order as not giving him enough then he does not proceed under 16 (2) to enforce the order.

He would file – he would find action on the 1336, challenging the Commission's order.

The Commission erred as a matter of law or as a matter of clear evidentiary record in -- and not awarding him more.

There had been such suits filed in recent years.

Section 16 (6) -- Section 16 (2) is invoked by a shipper in a suit against the carrier not in a suit against -- against the Commission seeking to attack Commission's order.

We think Section 16 (2) has four salient features.

The First it provides that the Commission order awarding reparations shall be enforced by the shipper not by Commission.

It gives the shipper a choice of venue, including most importantly the District in which he resides.

It largely freezes the shipper from a liability for a costs and finally, it allows the shipper a reasonable attorney's fee if he prevails.

We believe this whole procedure, careful procedural pattern of 16 (2) were before him, if it's the court below held the carrier instead of waiting for the shipper's suit which must be brought within a year, instead of winning for the shipper's suit, it instituted its own direct review proceeding in a suit brought against the United States and the Commission.

In this case, railroad brought the suit down in Florida, naming United States and the Commission as defendants.

The shipper wasn't named, hasn't intervened so the burden of sustaining the reparation order was transferred as a practical matter from the shipper to the Government.

In the meantime, the shipper has filed his own suit under 16 (2) up in New York City.

That suit is being held in the abeyance on this litigation.

The respondent railroad contend that the provisions of 17 (9) of the Interstate Commerce Act and 1336 of the Code in authorizing actions to enjoin any order of Commission must be read as including all orders.

Now, we -- we point out that this Court in a series of cases, Los Angeles Railroad, Griffin has held to the contrary.

In Waterman for example, these cases were -- were summarized briefly by this Court as follows and I quote, “this Court long has held that statutes which employ broad terms, to confer power of judicial review are not always to be read literally.

Rather this Court has held that the meaning of a statutory provision for review of any order must be read and must be found in the context of a statute about.”

And so, we say that this Court is wholly free as a matter of statutory construction to hold that a railroad may attack a reparation order only by way of defense to a shipper's suit under 16 (2) in order to carry out the legislative policies underlying 16 (2).

Next the railroads contend that they should not be relegated to defense in a 16 (2) suit because they say 16 (2) is not a review provision and they seem to say that the District Court in a 16 (2) suit brought by the shipper would not have power to review the Commission's findings.

We think this Court has clearly held of the contrary.

In 1915 in Meeker case, this Court held that Section 16 (2), cuts off no defense, interposes no obstacle to a full contestation of all the issues.

And in 1949 in U.S. v. ICC this Court referred as guaranteeing railroads a complete judicial review of adverse reparation orders.

So we submit that there would no unfairness in relegating the railroads to the remedy of defending against the reparation order by way of defense to the shipper's 16 (2) suit.

Justice John M. Harlan: Now I suppose that Commission's order [Inaudible]

Mr. Robert W. Ginnane: Unsupported by evidence?

It should have after unfair procedure --

Justice John M. Harlan: [Inaudible]

Mr. Robert W. Ginnane: That -- they can attack it in any ground which they could raise in a direct review proceeding, legal evidentiary procedure.

Justice John M. Harlan: So they could in fact set aside the Commission's order procedure [Inaudible]

Mr. Robert W. Ginnane: There are number of such cases in the books through the years.

Justice Abe Fortas: Mr. Ginnane, as I understand that and I may be wrong about this.

What happens on the shipper suit is that the findings and order of the Commission are offered as prima facie evidence then the shipper further if he wanted to supplement that evidence, that is to say that Commission's findings and order and carrier can introduce evidence to show that despite their prim -- prima facie -- the findings in order are incorrect, is that right?

Mr. Robert W. Ginnane: I think what would happen that the defending carrier will -- would produce a record, evidentiary record made before the Commission and state that this record does -- just doesn't provide substantial evidentiary support for the Commission‘s findings.

Justice Abe Fortas: Ordinarily, the knowledge – it occurs to me as antitrust claim in a -- findings in order in any antitrust action brought by the Government.

And when that is used as prima facie evidence in a private suit then the procedure -- I believe is as I have described it, but you're telling me that as practical matters, it's different here?

Mr. Robert W. Ginnane: The case has suggests as a practical matter one or two things happens.

If the shipper comes into Court in Section 16 (2) suit with a certified copy of a Commission report and order and nothing more happens, he's got his prima facie case right.

Justice Abe Fortas: Yes.

Mr. Robert W. Ginnane: The carrier can do one or two things.

He can seek to introduce evidence de novo in the court so I think there would be a growing reluctance on the part of courts to permit that.

Most likely what he would do today, he would present the evidentiary record made before the Commission and state “This is -- this record does not provide evidentiary support of the Commission's findings.

Justice Abe Fortas: But as a matter of law is it -- is it your view that under this statute, the carrier could come in and introduce evidence in a usual way --

Mr. Robert W. Ginnane: That's the way the statute seems to read.

Justice Abe Fortas: And similarly, the shipper could come in and introduce supplementary evidence?

Mr. Robert W. Ginnane: Not to get more than the Commission had awarded it.

Justice Abe Fortas: No, but to -- to whatever purpose he choose to reinforced to strengthen the case made to reinforce or supplement the prima facie case.

Mr. Robert W. Ginnane: And I take at that evidence normally it would be in the form of a certified copy of the evidence which he had presented to the Commission.

Presumably, he has made his case there.

As a practical matter, both shipper and carrier will have made their case before the Commission.

Justice John M. Harlan: [Inaudible]

Mr. Robert W. Ginnane: For -- the purpose of my argument, I really don't have to say this certainly and --

Justice John M. Harlan: It's the petition of the appellant?

Mr. Robert W. Ginnane: All I have to say is in our committee it's entirely fair to relegate the carrier to it’s defense of a shipper’s suit under 16 (2).

All I have to show and I think I have is that the scope of review available to the carrier in a 16 (2) is at least as broad as it would be in a direct review proceeding.

And this Court I think is so held is at least that broad.

If -- if the carrier gets a broader review in his defense to the Section 16 (2) suit.

Justice John M. Harlan: [Inaudible]

Mr. Robert W. Ginnane: That of the conclusion --

Justice John M. Harlan: [Inaudible]

Mr. Robert W. Ginnane: Of course, the carrier could reply without --

Justice Hugo L. Black: I hope in the --

Mr. Robert W. Ginnane: How can I settle for a narrower scope of review, I'd take my chances with that.

But from -- to support my position, I need only demonstrate and I think I have that the scope of review available to the railroad as a defendant of 16 (2) suit is at least is broad.

At the review, he could get it in any other way.

Justice John M. Harlan: [Inaudible]

Mr. Robert W. Ginnane: That the concern which you just expressed sir seems to be the core I think of the decision below.

The Court of Appeals put it this way and it is pages 58 and 59 of the record.

The Court said, “This assures some symmetry and the construction and maintenance of a national transportation policy.”

The Attorney General the general counsel of the commission are directly and immediately responsible for the conduct of that litigation and the advocate of an assertion of contentions being essential in the public interest.

The court below added that by contrast in the shippers 16 (2) suit, absent intervention by United States of the Commission.

It said, “The sole spokesman in behalf of the Commission's order as the private party seeking partisan relief opposed by formidable experienced counsel for the Commission.

Now with all respect to the court below that's been no showing made that public interest have suffered by leaving the enforcement of -- of reparation orders to shippers under Section 16 (2).

We cannot recall, certainly not in my 10 years in the Commission, I can't recall a Section 16 (2) suit in which United States or the Commission has sought to intervene.

Surely, we would consider it, if one were called to out attention involving broad transportation issues.

But in practice that isn't what has happened.

Justice Abe Fortas: Mr. Ginnane, here you're presenting this as I understand your theory that 16 (2) provides an adequate method of review of the Commission order?

Mr. Robert W. Ginnane: Well, the review and also an inadequate enforcement machinery in which -- in which the burden of enforcement was left by the Congress to the shipper rather than place it up on the Government.

And these --

Justice Abe Fortas: We decide --

Mr. Robert W. Ginnane: -- And the Commission is not authorized to bring a suit under 16 (2).

Justice Abe Fortas: As I studied this, it seems I -- I perhaps was misled by my own study of this thing, but it occurred to me that the Commission, in one point of view maybe functioning here as nothing more than sort of a master to make a findings and conclusions that are not self-executing and then if that is so then you wouldn't -- might consider whether the absence of judicial review is legal.

If your concern is nothing more than finding of master in subsequent proceedings are -- in the hands of interested [Inaudible] and that was my understanding of this, but I take it that you would reject that in the absence --

Mr. Robert W. Ginnane: Well, the reparation order is not self-operative in the sense that if the railroad declines to pay and meets the order, it is not subject to any penalty, nothing happens unless the shipper and only the shipper is authorized to do so, unless the shipper brings a suit under Section 16 (2).

Justice Abe Fortas: Well, perhaps I can state my difficulty this way.

If you assume that the type of order that the Commission enters in a reparations case is an order which requires judicial review then I -- it made me that there's problem here which is of considerable difficulty.

Is that your assumption that as a matter of law a Commission's reparation order requires judicial review machinery?

Mr. Robert W. Ginnane: Before a carrier can be required to pay, yes.

He must -- he must have his day in Court.

Justice Abe Fortas: I didn't want to ask you but I get you.

That is -- it was not my question.

I said a review of that order as distinguished from a -- an independent proceeding in which the Commission's findings and orders are merely part of the mass of evidentiary material.

That is -- you can have a court arriving at a result in theory at any rate that is opposite or contrary to the result that the Commission arrived at, but the court's contrary decision being based upon evidence before it, which is not before the Commission, is that correct or not?

Mr. Robert W. Ginnane: Theoretically there could be such a case, yes sir.

But I would also submit that there is no constitutional requirement that direct judicial review be made available as long as the order is not self-enforcing.

Congress could provide for such direct review.

I would concede that the order is final in the sense that the administrative action is complete.

There's nothing more for the Commission to do but we don't -- but our position in brief is that Congress has not provided for direct review of such orders.

It has provided that the carrier can have this day in Court, at least, as broad as he would have a direct review proceeding by way of defense to the shipper's suit.

We would say in that accomplishes two purposes.

It leaves the burden of enforcement of reparation orders which Congress apparently thought did not involve typically broad transportation issues to shippers.

At least the shipper in a position in Section 13 (2) proceeding to get the procedural benefits of venue, freedom from costs, and right to an attorney's fee if he wins which co -- which are the tools which Congress gave him as we see it, to carry the burden of enforcement of such orders.

Justice Byron R. White: Well, Mr. Ginnane, why -- you would rather stay out of what you call review proceedings of your decisions which underlie reparation order, you prefer to stay out of those of the 16 (2) suits I take it.

Mr. Robert W. Ginnane: That's right.

Justice Byron R. White: And then this time left the Court pass on your -- on the Commission's judgments which might involved matters of some import, only a fact that how much the dollars and cents of reparation --

Mr. Robert W. Ginnane: I had --

Justice Byron R. White: -- the courts pass on that without being there at all?

Mr. Robert W. Ginnane: Sir, it's been going out for about 50 years.

Justice Byron R. White: Well, I didn't -- again, that --

Mr. Robert W. Ginnane: And we would --

Justice Byron R. White: -- the answer is yes --

Mr. Robert W. Ginnane: We answered yes.

Justice Byron R. White: You'd rather stay out of it.

Mr. Robert W. Ginnane: We'd rather stay out.

Of course, in the particular case involving broad issues and general importance, I think we would -- any Court would allows us to intervene.

Justice Byron R. White: Have you ever?

Mr. Robert W. Ginnane: In my 10 years with the Commission, we have not sought to intervene in such a case nor has one been called to our attention of which we seriously consider it.

Justice Byron R. White: Although, the shipper -- the shipper can -- that the carrier has not way of getting you in the Court to -- for purposes of judicial review one of the reparation orders according to your view.

Mr. Robert W. Ginnane: That's correct, sir.

Justice Byron R. White: And if the -- he cannot finally have any carrier under 16 (2) proceeding sets your order aside, the railroad -- the railroad cannot have your order set aside.

All -- all the Court can do is say that the shipper or this railroad doesn't need pay this particular shipper.

Mr. Robert W. Ginnane: That maybe so technically and that seem to trouble the court below a little bit that all the court could do would say, “Well, you don't have to pay this particular shipper but here these other shippers over here which under the Phillips case can bring other suits because they're similarly situated.

Our only answer to that is so far as we know it has not been a practical problem.

We -- we are not aware of those rep – repetitive suits situations.

Thank you.

Justice John M. Harlan: [Inaudible]

Mr. Robert W. Ginnane: It maybe amazing sir --

Justice John M. Harlan: [Inaudible]

Mr. Robert W. Ginnane: Surprisingly, we do not know of situations for that it's been nothing.

Thank you.

Chief Justice Earl Warren: Well then Mr. McDonald.

Argument of J. Edgar Mcdonald

Mr. J. Edgar Mcdonald: Mr. Chief Justice, members of this Honorable Court.

I think if I may I would like to state at the very outset that my answers to most of the questions addressed to Mr. Ginnane with the possible exception of those posed by Mr. Chief Justice -- Mr. Justice White would have been exactly the reverse to the answers he gave this Court.

For example, before I attempt to deal with my prepared argument, it's my understanding that the law is entirely clear in response to the first question that Mr. Justice Harlan asked that the Court could not change the amount of damages which the Commission had found a particular complainant to -- entitled to in a Section 1 case, a Section which alleged that the charges under attack were unjust and unreasonable in violation to that section.

As a matter of fact, this Court itself and I don't have immediate reference to it but it's the brief, this Court itself has said in the case of that kind and incidentally, the case that precipitated this particular proceeding before this Court is what -- is the Section 1 case.

This Court has said that the amount damages, is in effect fixed.

It's the difference between the rate originally charged which is a sale before the Commission as unreasonable and the Commiss -- and the rate which the Commission decides would have been a reasonable rate and so on.

In other words, if the sale rate for 50 cents, and the Commission says, a reasonable rate would have been 40 cents, the damages are fixed.

There 10 cents per 100 pounds times the weight of the shipment and there's nothing for the court to do with that.

Now in Section 3 case, where the allegations before the Commission turn on a finding of undue preference and undue prejudice and there which is extremely rare incidentally, there the Commission decides that the complainant is entitled to damages.

The amount of damages there determines as I read the cases can be looked at by the -- by the court because there the damages go beyond the measure of the rates charged for transportation.

There the Court is entitled to look, to see whether or not the plaintiff has been made whole for his total damages which is not the case in a Section 1 proceeding.

Now --

Justice Abe Fortas: Does it appear in the statute Mr. McDonald?

Mr. J. Edgar Mcdonald: Sir?

Justice Abe Fortas: Does that distinction appeared with the statute in any way or what's the basis of that?

Mr. J. Edgar Mcdonald: I'm sorry Mr. Justice Fortas, I can't give you a direct answer now except to say that I don't think it appears in the statute, but it appears in some of the earlier cases of this Court that I can't give you reference to right here and now which dealt with the amount of damages awarded by the Commission in Section 3 cases.

I hesitate to even guess, it seems to me so called Chicago Junction case.

Justice Abe Fortas: You are saying that there are decisions of this Court that support the propositions that you just stated?

Mr. J. Edgar Mcdonald: Yes, sir.

Justice Abe Fortas: And not cited in your brief?

Mr. J. Edgar Mcdonald: I'm not sure that I've cited in the brief, the cases which support the Section 3 -- authority of the Court to change the amount of damages in a Section Free case.

I don't think we've done that.

If the Court wants, I'll be glad to do it in --

Justice Abe Fortas: It's nothing in the Section 16 (2) that would indicate that difference there, is there?

Mr. J. Edgar Mcdonald: No, sir, not at all.

Mr. Ginnane makes much of the choice of venue here.

What he was very careful to avoid was to point out that the place of business of the shipper involved was in Illinois, it was in Illinois Corporation but his choice of venue was in New York City.

I don't take any particular quarrel with the choice of venue.

I think -- but I think I ought to say one thing more about it.

That shipper suit was filed just six days before the expiration of the statute of limitations and I'm speculating somewhat but I gather that it was done largely at the instance or suggestions of the Commission itself.

If Mr. Ginnane, Mr. Goodman says, that's not so, I wouldn't quarrel or challenge their word in that respect.

Now, Mr. Justice Harlan spoke about an order in the Section 16 (2) and asked if the order could be set aside and the -- the reply briefs of Mr. Ginnane, on the bottom of page 5 in the top 6, admits that the order couldn't be set aside.

And you cannot incidentally again in response to one of Mr. Justice Harlan's questions, you can not introduce evidence as you could in the trial de novo in a so-called Section 16 (2) suit.

And I can say incidentally that I learned that the hard way because I was involved in a new process Deer case that Mr. Ginnane referred to which was referred in the Southern District of New York before an extremely sympathetic judge and the facts in that particular case, but who finally decided that in the right of an opinion by his own Circuit Court of Appeals, he had no choice but to refuse receipt of any additional evidence.

Justice Byron R. White: Was it tried this on the record then?

Mr. J. Edgar Mcdonald: Yes, sir.

Just on the record before the Commission and as I understand it, that's the only thing that you entitled to have.

Justice Byron R. White: That's the Second Circuit case, how about it?

Mr. J. Edgar Mcdonald: That's the new process Deere case.

Justice Byron R. White: Yes.

But how about -- how about have it presently that's -- that they accept the rule that's the understanding?

Mr. J. Edgar Mcdonald: That's my understanding of it, yes sir.

Justice Byron R. White: And I gather that this was a -- this ruling was it the response of the -- this represents the Commission review clearly.

Mr. J. Edgar Mcdonald: Yes, sir.

That's my understanding of it and the --

Justice Mr. Justice Brennan : Commission [Inaudible]

Mr. J. Edgar Mcdonald: Sir?

Justice Mr. Justice Brennan : Was the Commission in that case?

Mr. J. Edgar Mcdonald: No, sir.

They weren't in the case.

No, I didn't understand Mr. Justice White was asking me that.

It's actually --

Justice Mr. Justice Brennan : Now tell me.

Under 17 (9) would you -- would it be different?

Which you have decided on the record -- I mean, that proceeding would be a proceeding under record below?

Mr. J. Edgar Mcdonald: Exactly, without the introduction of any -- of any evidence.

I say that in any review proceeding, we are confined entirely to the record before the Commission and the only thing to would be decided is whether or not the Commission's determination and its resulting order, are in all things valid as a matter of laws as I think Mr. Chief -- Justice Harlan put it.

Justice Mr. Justice Brennan : Well, that's I don't understand Mr. McDonald.

What -- what I understood you to say was that in that Deere case, a 16 (2) proceeding --

Mr. J. Edgar Mcdonald: Yes, sir.

Justice Mr. Justice Brennan : – you are limited to review on the record made before the Commission.

Mr. J. Edgar Mcdonald: We were denied that -- we were denied any attempt to put in evidence.

Justice Mr. Justice Brennan : Yeah.

Well, what you say that the determination was made on record before the Commission?

Mr. J. Edgar Mcdonald: That's right.

Justice Mr. Justice Brennan : Well that is how I think you are worse than you'd be in the 17 (9) proceeding?

Mr. J. Edgar Mcdonald: Well, I think I can answer that in a hurry maybe I shouldn't stop to my prepared argument instead of being so anxious to answer Mr. Ginnane, indicate that my answer would have been different.

In a so called 17 (9) case and the -- or so called 1336 case, the only thing that's involved is the validity of the Commission's -- the record before the Commission, the validity as a matter of law.

The Commission's determination in any resulting order and in it, you would allege in accordance with the various decisions of this Court, the Commission exceeded its constitutional authority that it was invalid or rather that it -- in violation of the Constitution that exceeded its statutory authority or that in some other way it was in -- arbitrary.

Now, in the particular proceeding here, the Commission refused to recognize the statute of limitation as the courts below found.

If that's not arbitrary, I don't know what it is?

And that was the basis on which we went to court to have the Commission's order to set aside.

Now in the 17 -- in a 17 (9) or 1336 action, the effect of it is contrary to a Section 16 (2) order that the administrative findings of the Commission and its order are set aside.

And then Tom Jones or Frank Smith or anybody else in any other part of the country, allegedly similarly situated is in no position to go into any Court, State or Federal or back to the Commission and in effect to say, I want the same treatment as my brother guy.

It just can't be done because the order is nullified and set aside and that's the crucial thing here.

Justice Mr. Justice Brennan : Well, what -- what happen -- I gather, your position is in the 16 (2) of all the things you have told us could be asserted in 17 (9) or 1336 proceedings, would also be asserted by way of defense in 16 (2).

If you prevail under 16 (2) proceeding, the shipper does not get an order against the railroad to pay the reparation, but the order of the Commission itself remains to the books.

Mr. J. Edgar Mcdonald: That is right.

I --

Justice Mr. Justice Brennan : Now, what -- well, now what -- what value is an order treated that way of a 16 (2) proceeding, even though it's still on the books, what value is it to any other shipper?

Mr. J. Edgar Mcdonald: Well, any other shipper can go into a State Court or another Federal District Court and on the presentation of the same record another Court can decide that it does agree, just as in one of the decisions this morning four the esteemed gentleman on this bench disagreed with their five brothers in a disposition of a particular case.

In a case brought in Maine for example, the District Court there may find -- yes the complainant --

Justice Mr. Justice Brennan : Or the finding of the Court --

Mr. J. Edgar Mcdonald: -- in the Court's course entitled.

Justice Mr. Justice Brennan : -- has the facts in any experience.

It was 16 (2) proceedings where reparations were not ordered at the conclusion of the proceeding where nevertheless the ICC order has been relied on in another instance.

Is there any experience to that?

Mr. J. Edgar Mcdonald: I can't give you a direct answer Mr. Justice Brennan to that.

I can't think of any at the moment, but I do say more important to that.

The principles -- the principles and the precedents that are involved in the administrative findings can and I'm sure have been relied on.

I have no doubt about that.

Now, my time is fast running.

I've said and we have said in substance in our brief and I'm sure I don't have to repeat it here that Section 16 (2) is not a review section as Mr. Ginnane has indicated with.

And this Court has said in the substances as has others that it's an action sounding in tort for damages and that it's a civil action that can be brought only by the party claiming damage or injury.

Its nowhere the accident and I'm sure it isn't for the reason of Mr. Ginnane said that the Commission wasn't empower to enforce the reparation order.

It is because it involved the taking of money which -- in which they had no direct interest.

Anybody entitled to damages from a railroad who is charge to unlawful rate would be the plaintiff in the case and they have referred or left rather to the -- to their right to seek seek damages they would as this Court has said in any of the civil action for damages.

Now, 1336 the section of the judicial review statute that gives the carriers the right -- gives anybody a right to seek, to enjoin set aside then no an Commission order is a so-called direct review section.

And I'm afraid my time will go before I have a chance to say after the line if that so.

So let me say that -- I put this way, if I may.

In two decisions at least by this Court, United States against ICC and Pennsylvania against United States, the opinions in which were both written by Mr. Justice Black, it seems to me that there's no question whatever that this Court has in all and every -- in practical results taken the position already that suits to it maybe brought to enjoin any order for the requirement of the Commission and not as they say any order except one requiring the payment of money.

Now, the late Mr. Justice Frankfurter in the first case, United States against the ICC reported at 337 U.S. in a -- in a dissent that if I recall correctly was longer rather than the opinion.

Trying to read into the statute, into the Section 16 (2) the very language that Mr. Ginnane contends for all practical purposes is there.

That the -- that the -- I guess it's the other way around, excuse me, that 1336, trying to read into that language.

Any order or requirement other than one for the payment of money, but the Court obviously didn't listen to it then and I know of no reason why I should listen to him now.

Justice Byron R. White: Well, I guess if you are going to 17 -- under 17 (9) railroad -- again, instead of being put off the 16 (2), you wouldn't have choice -- the railroad will have a choice of venue that would enjoin 16 (2) and it wouldn't have to pay any attorney's fees.

Mr. J. Edgar Mcdonald: There's no question -- well, I'm not so sure that that's true because as the court pointed below Mr. Justice White, any complainant before the Commission can as a matter of right to intervene in a suit that is brought by a carrier against the United States and the Interstate Commission.

And incidentally as I mention in that brief, right now we have an action similar to this pending in the District Court in Baltimore.

If my memory serves me correctly, it's been there over two years now, waiting the disposition of this jurisdictional issue, involving some 16 or 18 complainants -- plaintiffs before the -- complainants before the Commission.

In a few instances, two have intervened in the proceeding and filed a counter claim, seeking damages and an award of attorney's fees and costs and I don't think there's anything wrong with that.

I think that's entirely proper but the important thing about the disposition that we're trying to make indicates of that time where the plaintiff as if they become, excuse me, where the complainants before the Commission were all the way from California to Maine.

I'm sure that the figures are minimum of 16 and I recall a republic steel company in Cleveland.

I recall somebody else in San Francisco, California.

Now apart from those 16 or 18, the entitlement to bring suits that are in any time in the course of the first year to enforce the order there, other people unrelated to the action who had similar transportation services performed with them on the strength for the reparation of the administrative findings and order which we are there seeking review of, could go into any State Court or any Federal District Court and ask for damages on the strength to those findings.

Now, the action that we're attempting to take is to clear the air promptly.

If we don't do that we got to sit by and wait for the expiration of 12 months to see if any body is going to sue us if we don't comply.

Perhaps even more important in that ethically is no other way, this statute, the Interstate Commerce Act makes it a duty of carriers to comply with any order of the Commission as long it is on the book so to speak.

And while as my friend says there's no “penalty” as there is, if you fail to comply with an order, “telling you to publish a rate for the future to take effect one month from today when you can be subject to a $5,000 fine, there are penalties here as the law or the Court find it out and the -- as this Court has said itself in the Baldwin case which is likewise been shown in -- decided in my brief.

The purpose of 16 (2), according to this Court was not to place the burden of enforcement as Mr. Ginnane puts it on the complainant for the reasons I have indicated.

The Commission itself couldn't do it.

In any other respect or any other case, they have the right under Section 16 (12) to go into court and so do other people as well to compel enforcement.

In the case of a suit for money, that's left to the private parties, but the -- I forgot what I'm trying to say.

In any event the point of it here is, we would be, I started to say about the Baldwin case.

In the Baldwin case, this -- this Court said in the substance that the reason for 16 (2) was to preclude reluctant railroad.

I don't know if they use the term reluctant or not, but they certainly used terms like coercive.

They wanted to keep railroads from offering, harassing resistance to comply with these orders when they didn't have a defense.

Now, we are not here because we didn't think we had a defense to these things.

We think quite -- quite to the contrary and that's the reason we probably would has a good offense and undertook the pursue it and I'm not at all impressed by Mr. Ginnane's continued repetition about it here and in the brief but this is the first time in 50 years that somebody has thought of seeking judicial review directly.

Maybe there were another case as I'm -- I'd be the first to say that in the -- I would think in the large of jar of instances where that railroads defend reparation cases before the Commission and lose they comply with them.

They pay Comm -- they pay the amount specified in the Commission's order with interest.

It's only an extreme cases whereas in this one in the Baltimore one that I've talked about where they're satisfied and would believe in their minds that they have a good reason to challenge the validity of the of the Commission's administrative findings and order as a matter of law that they do what they did here.

And again, that doesn't deprive any shipper of a choice of venue or attorney's fees or anything else if he chooses to protect themselves, but he doesn't even have to do it.

But the lower court commented on that too and pointed out that as practical matters, if we have a direct review proceeding and lose, the complainant before the Commission is almost home free so to speak.

There's no defense left then in the Section 16 (2) and contrary to the position taken by the Government, I can't imagine any single instance in which railroads, who lost the direct review proceeding brought under Section 17 (9) or 1336, not to mention the Administrative Procedure Act, incidentally, would even bother trying further to contest the validity of that action or require any complainant -- any complainant to become a plaintiff in a Section 16 (2) suit to get the reparation that then I don't think any defense to which it is simple as that to me.

Now, the -- another thing that I think this Court should know is that in the cases that I referred to already which the opinions are written by Mr. Justice Black, the United States took a position directly opposite that which the United States and the Commission combined are attempting to turn it here.

In those cases, they in effect said and I pointed this out in my brief as I recall correctly at page 19 and begin around 33.

In those cases, the United States took the position in substance that this language of the statute was clear and that there was no doubt at all that any order meant any order and that any party could attack him in a Section 1336 suit.

Now in its brief, the -- and particularly in its reply brief as I recall correctly or if it is not there incidentally, it is in the Government's brief in the case following this immediately, the Consolo case which was not consultative for oral argument by this Court but in the in its -- in its brief -- I'm sorry, I've lost my thought and I'm trying to find a place it here.

Oh, in its brief, they -- now, I have lost my thought.

Finally -- finally, the Court -- I'm sorry the Government in its – argument here says in substance that the fact that there's slight difference that they talk about in a Section 16 (2) suit.

He can get the administrative findings and order set aside and the other when you can is from that standpoint doesn't mean anything that we have no cause to compliant.

Oh, I say with that's all -- that's all the cause in the world we need to complain.

What they may think is minor in some instances maybe major from our standpoint – One thing more; Mr. Ginnane referred to a case that was before the courts in the 1913, if I recall correctly the so called Southern Railway case and mentioned the fact that nothing came of that because of the complaint was withdrawn and it couldn't be appealed.

I think the Court should know that the decision in that case, it wasn't written by was at least joined in by Judge Knapp who had been challenging the Interstate Commerce Commission for some 12 or 14 years, prior to his appointment to the bench and as such he appeared as a witness before Congress on a number of occasions when revisions of the Act where under consideration.

He certainly, if anybody was, was thoroughly familiar with the meaning of the phrase “Any order or requirement” at the time the decision in the Southern Case was laid down.

And that -- that one important in that it was referred to in a St Louis versus Ophalen case by this Court which again is referred to in our brief.

I wouldn't for a moment consider -- I'm sorry I find my time is in --

Chief Justice Earl Warren: No.

No, you have five minutes from the time that red-white light comes off.

Mr. J. Edgar Mcdonald: Thank you.

Chief Justice Earl Warren: Red light will come after that.

Mr. J. Edgar Mcdonald: Thank you.

I wouldn't attempt the burden the Court with comments on the legislative history there of this -- of the Hepburn Act which is referred to both in brief and Mr. Ginnane's argument.

But the -- there's no question but what -- there was extensive discussion in the Congress as to the meaning of the language that we're here particularly concern with any order or requirement.

I have here represent pages of 40 congressional record beginning at 6685 and running through 6787.

I just like to say that in the discussion on the floor the -- the knowledge of these words and the import was so well understood that Senator Bacon asked not once but several times if there was any language in any words in the dictionary that could be more specific in substance and at one spot and this is short, so I suppose I must point to this extent at 40 congressional records 6773 when they were discussing an amendment which eventually became part of the Hepburn Act, Senator Bacon said, “Here is an amendment offered by the Senator from Iowa which is absolutely without limitation which is as broad as human language can make it, giving to the Court the right to review every order or requirement made by the Commission.”

Now, the thing that I haven't understood from the beginning of this proceeding --

Chief Justice Earl Warren: Who made that statement Mr. McDonald?

Who did you say made that statement?

Mr. J. Edgar Mcdonald: Senator Bacon.

Senator Bacon.

Chief Justice Earl Warren: Yes, go on.

Mr. J. Edgar Mcdonald: With reference to this particular pros -- that the Hepburn amendment when I was under consideration on the floor of Congress and the Section that was then being discussed was Section 5 where this particular language occurs where the jurisdiction and venue is conferred with respect to and I quote again, “Any order or requirement” of the Commission.

Chief Justice Earl Warren: Is he one managers of the Bill?

Mr. J. Edgar Mcdonald: Sir?

Chief Justice Earl Warren: Was he one of the managers of the Bill, Bacon?

Mr. J. Edgar Mcdonald: I can't answer that.

Mr. Boyer who will be one of those arguing in the next case I'm sure can.

I started to say that finally that the one thing that I don't understand is the thought of the Commission that when an order -- when administrative findings and orders by the Commission in a reparation case are attacked by the losing party that the Commission shouldn't be called upon to defend that.

They admit, they found out the hard way in 337 U.S. that if they deny reparation it's proper to seek review -- to find out whether denial was proper as matter of law.

They found out in 363 that the losing party in a referral case, one that reached the Commission from me to the Court of Claims for example, the State Court or anything like that the losing party can seek review before the courts under Section 1336, but in the case of a railroad who loses before the Commission in a case, they say you can't have direct review there.

It must wait on the eventually of possibility that you will be sued in court within the one year and if nobody sues you, the -- as the court below said, you are left with unsatisfactory law for all to use them satisfactory presents.

I trust that this Court will be as impressed by the decision of the lower court, Circuit Court of Appeals as I was and will find accordingly.

Thank you.

Chief Justice Earl Warren: Very well.

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