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ILLINOIS CENT. R. CO. v. UNITED STATES

November 2, 1951

ILLINOIS CENT. R. CO. ET AL.
v.
UNITED STATES.



Before Lindley, Circuit Judge, Barnes and Perry, District Judges.

The opinion of the court was delivered by: Lindley, Circuit Judge.

    This is an action brought pursuant to 28 U.S.C. § 1398, 2284, 2321-2325, to set aside an order of the Interstate Commerce Commission fixing maximum rates and adjusting allegedly discriminatory rates charged by plaintiffs and other carriers for the shipment of new passenger automobiles. Joined as defendant with the United States is the Interstate Commerce Commission. Interveners are Chrysler Corporation, Hudson Motor Car Company, Packard Motor Car Company, Nash-Kelvinator Corporation, Studebaker Corporation and Willys-Overland Motors, Inc., all having been complainants in the proceeding before the Commission.

Interveners are engaged in the manufacture and sale of passenger automobiles. They are competitors of General Motors Corporation and Ford Motor Company. Packard, Nash and Hudson each operate single plants, at which they manufacture and assemble their products, located at Detroit, Michigan, Kenosha, Wisconsin and Detroit, Michigan, respectively. Chrysler has its manufacturing plant at Detroit and assembly plants at Evansville, Indiana, Los Angeles and San Leandro, California. Studebaker has its manufacturing plant at South Bend, Indiana and an assembly plant at Los Angeles. Willys-Overland operates a manufacturing plant at Toledo, Ohio and an assembly plant at Los Angeles.

General Motors maintains manufacturing plants at Detroit, Flint, Pontiac and Lansing, Michigan, and assembly plants at Roseland and Doraville, Georgia; Kansas City and St. Louis, Mo.; Linden, N.J.; Wilmington, Delaware; Baltimore, Maryland; Cincinnati, Ohio; Janesville, Wisconsin; Los Angeles, Oakland and Raymer, California; Tarrytown, New York. Ford maintains manufacturing plants at Detroit, and Dearborn, Michigan, and assembly plants at Kansas City and St. Louis, Mo.; Atlanta, Georgia; Louisville, Ky.; Memphis, Tenn.; Norfolk, Virginia; St. Paul, Minn.; Sommerville, Mass.; Chester, Penn.; Chicago, Illinois; Long Beach, Richmond and Los Angeles, California.

The factual situation out of which this litigation has grown is quite complex in its overall aspects, but can, we think, be reduced to relative simplicity for purposes of this decision. Railroads were originally the principal means for transportation of new automobiles. With the development of hard roads, they have been faced with increasingly serious competition from truckers, both common and contract carriers. It became apparent, early in the growth of the competition, that the truck has a distinct advantage over the railroad in the shipment of automobiles on a "short haul". However, as the carriage increases in distance, the truck's advantage shows a marked decrease. This may be attributed to a number of factors, two of the more apparent being that railroads are not so hampered in their movement, as are trucks, by varying weather conditions, and that the initial rapidity of truck delivery is largely overcome in a long distance haul by the slower but constant movement of the train.

The interveners, other than Chrysler, are the so-called minor producers of passenger cars in this country, who have their plants in the industrial midwest except for small expansions. Their competitors, Ford and General Motors, are the major producers of motor cars. Although these two originated and still maintain their production largely in the midwest, they have, as we have observed, expanded their activities throughout the country. All manufacturers of automobiles market their products in all parts of the country. Hence, for example, it is necessary for Hudson to ship a completed car from Detroit to New York in order to reach that market. So too as to the other interveners, i.e., from their midwest plants. Ford and General Motors on the other hand, assemble their cars at Sommerville, Mass., and Linden, N.J., respectively. Thus their shipment to the common market of New York City is much shorter than that of the interveners. This fact is repeated time and again as Ford and General Motors ship their cars from "strategically located" assembly plants which are near the various regional markets, while interveners must ship their products from their manufacturing plants.

It is thus apparent that, to a great extent, Ford and General Motors shipments are of "short-haul" nature, while those of interveners are, quite generally, long-haul. Due to the truck advantage in short hauls, the railroads have experienced much more competition from truckers in the Ford and General Motors areas than they have from the areas in which interveners manufacture and assemble. To meet this competition, the railroads have lowered their rates on new automobiles moving out of those areas in which Ford and General Motors maintain assembly plants. Not being faced with such severe competition in those areas where interveners manufacture, the railroads have left the rates there at a higher level. As a result situations such as the following have arisen: Studebaker ships cars from its South Bend plant to Keokuk, Iowa. The first class rate is 98 cents per hundred pounds. Studebaker is charged 83 cents per hundred pounds. Ford or General Motors ship cars from their plants at Kansas City, Mo., to Keokuk. The first class rate is $1.01 per hundred pounds. They are charged 41 cents per hundred pounds. Thus, although the destination is common and the first class rates are nearly equal, Studebaker is charged 42 cents per hundred pounds more than Ford or General Motors. Although the differences are not always so great as in this instance, nevertheless this situation is reflected many times in the complete railroad rate structure.

Further pertinent factors include the general increase in automobile production in the past fifteen years and the means normally employed by railroads in determining freight rates. A first-class rate per hundred pounds is first determined, from any given point of embarkation to any given destination, varying according to the length of the haul and the nature of the land over which the route passes. Taking these first class rates as a basis, sub-classes are then established based on the particular commodity shipped. Here such factors as the amount of the commodity ordinarily shipped, its perishability, the general care which has to be accorded it, are taken into consideration. Thus furniture may be shipped at 70%, cattle at 95%, citrus fruits at 100% of first class. When automobiles first became a commodity for rail shipment they were rated at 100% of first class. Later this was reduced to 85% and became the maximum rate that could be charged for transportation of new automobiles. This maximum rate was in effect at the time this litigation was commenced. It should be remembered, however, that lower rates than maximum are permitted, if competition demands. It is this reduction which brings about the disparity previously pointed out.

The Commission found for complainants and issued an order (1), establishing 75 per cent of first class as the maximum rate which would be charged for the shipment of complainants' new automobiles, except shipments to mountain-Pacific and transcontinental territories; (2), prohibiting maintenance of rates for the shipment of complainants' automobiles which exceeded the rates extended to Ford and General Motors for shipment to common destinations, by more than the difference between 75% of the first class rate out of complainants' plants and 50% of the corresponding first class rate out of Ford or General Motors assembly plants, except in those areas located in mountain-Pacific and transcontinental territories. Plaintiffs filed a petition for reconsideration; this was denied. They then filed their complaint in this court.

Plaintiffs' averments as to invalidity of the order basically raise four contentions: (1) the order is arbitrary, as it is not supported by substantial evidence; (2) the Commission is in effect attempting to equalize economic-geographic advantages held by Ford and General Motors, and, in so doing, is exercising a power not conferred upon it by Congress; (3) the Commission misconstrued and failed to apply Section 15a of the Act, 49 U.S.C.A. § 15a, in issuing its order; (4) the Commission acted arbitrarily in denying the petition for reconsideration. These assertions will be taken up in the order stated.

The Contention that the Order is Arbitrary and not supported by Substantial Evidence.

Plaintiffs' first contention hereunder is that the Commission arbitrarily disregarded certain evidence showing that the rates extended intervener, Chrysler, at its Evansville, Indiana plant were just as favorable as rates offered to Ford and General Motors out of their St. Louis plants to common destinations. This evidence, it is said, would have proved that plaintiffs are not discriminating against interveners. However, the record discloses that the Commission had before it substantial evidence upon this question and considered it carefully. Thus it said: "The Chrysler Corporation has an assembly plant at Evansville where it assembles Plymouth automobiles for shipment to the South and Southwest. Defendants publish some commodity rates from Evansville, but they are on a higher level than the rates from General Motors and Ford assembly plants to the same States. For example, to destinations in Tennessee, rates from Evansville average from 67 to 70 percent of first class, as compared with average rates of 45 to 49 percent of first class from assembly plants of General Motors and Ford. Commodity rates accorded Evansville to the Southwest average 59 percent of first class, while those from the assembly plants of General Motors and Ford to Arkansas destinations average from 34 to 45 percent." We are not concerned with the weight of the evidence except to ascertain from an examination of the entire record whether it supports the Commission's finding in this respect. After such examination we do not feel at liberty to announce that the finding is not supported by the record as a whole. In Mississippi Valley Barge Line Co. v. United States, 292 U.S. 282, 286, 287, 54 S. Ct. 692, 694, 78 L.Ed. 1260, the court said: "* * * The judicial function is exhausted when there is found to be a rational basis for the conclusions approved by the administrative body." We believe that such a rational basis existed.

In 1945 the Commission concluded a general rate investigation in which it surveyed the entire rate structure for new automobiles moving in interstate commerce. At that time it was represented to the Commission that the railroads were engaging in the practice of offering lower rates to Ford and General Motors at their assembly plants, than they were offering Chrysler at its manufacturing point. The Commission did not then condemn the practice. Plaintiffs now contend that the situation then existing has not changed and that, unless there has been a change in conditions, the Commission is acting arbitrarily in ordering a modification of the rate schedule at this time. In short, plaintiffs are asserting that the Commission is being arbitrarily inconsistent. Irrespective of the fact that there is no requirement that the Commission remain steadfastly consistent in its disposition of matters before it, irrespective of changing times, economics, industrial practices and laws, it is to be observed that the Commission expressed its reluctance to reverse a prior determination unless changes in conditions demanded it. It pointed out, however, that in the ex parte investigation of rates only Chrysler of the present interveners, was represented, thus implying that perhaps a more lucid presentation and consequent understanding of the problem had been presented in this proceeding. The report further shows that the Commission had taken notice of the increase in automobile production and of a general rate increase since its ex parte investigation. These factors, in the opinion of the Commission, warranted a change in position. This court ...


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