Before Castle, Circuit Judge, and Hoffman and Austin,
The opinion of the court was delivered by: Julius J. Hoffman, District Judge.
In this action, the plaintiff railroads seek an order
setting aside and permanently enjoining orders of the
Interstate Commerce Commission entered on September 11, 1962,
and December 7, 1962, in the proceeding entitled Cudahy
Packing Company v. Akron, Canton & Youngstown Railroad
Company, et al., I.C.C. Docket No. 32551. Defendants are the
United States of America and the Interstate Commerce
Commission. Intervening as plaintiffs are Patrick Cudahy Inc.,
Oscar Mayer and Company, and Dubuque Packing Company.
Intervening as defendants are the Cudahy Packing Company, John
Morrell & Company, the Rath Packing Company, Geo. A. Hormel &
Company, and the State Corporation Commission of Kansas.
A three-judge court was convened in accordance with title
28 U.S.C. § 2284 and 2325. Jurisdiction over this proceeding is
conferred by title 28 U.S.C. § 1336. The scope of review to
which we are limited is prescribed by title 5 U.S.C. § 1009(e)
(Administrative Procedure Act).
The Chicago, Milwaukee, St. Paul and Pacific Railroad
Company, one of the plaintiffs herein, has its principal
offices in the Northern District of Illinois.
The Cudahy Packing Company instituted the proceeding before
the Commission, joining most of the nation's railroads as
defendants. In its complaint, Cudahy alleged that the rail
rates on fresh meats and packinghouse products from its meat
packing plants at Omaha, Nebraska, Denver, Colorado, and
Wichita, Kansas, to destinations throughout the United States
were relatively unjust and unreasonable, unduly prejudicial to
the complainant, and unduly preferential of competitors with
plants at other origins in the Midwest, in violation of
sections 1 and 3 of the Interstate Commerce Act, 49 U.S.C. § 1
and 3. The complaint specifically refers to the rates from
Omaha, Denver, and Wichita, but it was broadened during the
Commission proceedings to include other complaining origins,
and the Commission report states that the issues presented upon
the record concern the rate relationships of midwestern origins
in general on and west of the Illinois-Indiana State line. The
complaint sought new origin relationships in the rates from the
Midwest to the East and to the West. Various midwestern
packers, commissions, and associations were allowed to
intervene, some supporting the complainant and some supporting
the defendants in the Commission proceeding.
The Commission, on September 11, 1962, in the order here
assailed, found that the rail rates from points west of the
Mississippi River to official territory (i.e., the area east
of the Illinois-Indiana State Line and north of the Ohio
River) were unduly prejudicial to such origins and shippers
there located and unduly preferential to origins and shippers
on and east of the Mississippi River, in violation of section
3(1) of the Act. The Commission, in all other respects, found
that the rates had not been shown unlawful.
On December 7, 1962, the Commission denied the petitions of
the defendants and intervening defendants (as aligned before
the Commission) for reconsideration of the report and order.
The effect of this order is to require the railroads to
provide for all origins west of the Mississippi River the same
relative level of rates on fresh meats and packinghouse
products as those maintained from Dubuque, Iowa, to
destinations in official territory, as tested by uniform
percentages of the Docket 28300 first-class rates. (For
background information concerning the territorial divisions,
class rates, exception rates, and commodity rates, see New
York v. United States, 331 U.S. 284, esp. 289-90 nn. 1-3, 67
S.Ct. 1207, 91 L.Ed. 1492 (1947)).
The existence of the rate disparity which the Commission
found to exist is not contested in this proceeding.
Illustrative of the disparity is a comparison, made by the
complainant in the Commission proceedings, between the through
rates on fresh meats, in boxes, from Omaha to New York and
from Dubuque to New York. The Omaha rate, with a distance of
1,358 miles, is 207 cents; it is 35.4% of the current docket
28300 class-100 rate, and at a minimum of 30,000 pounds
produces car-mile revenue of 45.7 cents. The Dubuque rate,
with a distance of 1,061 miles (86% of the Omaha-New York
distance), is 143 cents (69.1% of the Omaha-New York rate); it
is 28.5% of the class-100 rate, and produces car-mile revenue
of 40.4 cents. (P. 9 of Commission report. Page references for
the Commission report are for the copy of the report made
"Exhibit A" by plaintiffs and appended to the complaint.) The
disparity, it was shown, was not justified by the difference
in cost of service to the two regions; the rate spread was
shown to be substantially
greater than the cost spread for these areas.
In challenging the validity of the Commission's order,
plaintiffs and intervening plaintiffs (all hereinafter
included in the term "plaintiffs") contend that: (1) The
Commission failed to make certain basic and essential findings
of fact necessary to support the conclusions reached therein;
(2) The Commission unlawfully found that the existence of
facts justifying an inequality in freight rate treatment was
a matter of defense to be proved by the defendants in the
Commission proceeding; and (3) The Commission's ultimate
finding that the involved rates are unduly prejudicial to
certain shippers and unduly preferential to others is not
supported by substantial evidence of record, and, in fact, is
contrary to the evidence.*fn1
I. BASIC OR ESSENTIAL FINDINGS OF FACT
Plaintiffs urge that an order of the Commission made under
section 3(1) of the Interstate Commerce Act, finding rates to
be unduly prejudicial to certain shippers and unduly
preferential to other shippers, must be supported by certain
basic or essential findings, namely, (1) That a disparity in
freight rates exists; (2) That this disparity has injured the
party allegedly prejudiced and benefited the party allegedly
preferred, and (3) That traffic from both the prejudiced and
preferred points moves under substantially similar
circumstances and conditions. Plaintiffs assert that the
Commission has not made findings of fact on number (2) and (3)
above, and that, as a result, the order is invalid.
Defendants take the position that the Commission has made
all the basic findings necessary to support its order.
Defendants further contend that, in any event, the Commission
is not required to make an express finding of similarity of
transportation conditions. We shall first consider whether the
Commission is required to find such a similarity of conditions
as support for its order under section 3(1) of the Act, and
whether, if it is so required, it has done so.
(a) Substantial Similarity of Transportation Conditions
Defendants first contend that the Commission, in an order
under section 3(1), need only make the ultimate statutory
finding that the rates in question are unduly preferential to
some shippers and unduly prejudicial to other shippers, and
enough subsidiary findings to show that the Commission has
considered the several factors relevant to its conclusion.
Defendants assert that the Commission was not required to make
a specific finding that the transportation conditions are
Section 14(1) of the Interstate Commerce Act,
49 U.S.C. § 14(1), requires only that the report of the Commission
(except in damage cases) "shall state the conclusions of the
Commission, together with its decision." Nevertheless, a
finding in the language of the applicable statutory provision
is not enough; the report must contain, in addition, those
"basic or essential findings required to support the
Commission's order." Florida v. United States, 282 U.S. 194,
215, 51 S.Ct. 119, 75 L.Ed. 291 (1931). To the same effect, see
Alabama Great So. R.R. v. United States, 340 U.S. 216, 71 S.Ct.
264, 95 L.Ed. 225 (1951); Chicago & E. Ill. R.R. v. United
States, D.C., 107 F. Supp. 118 (1952), aff'd, 344 U.S. 917, 73
S.Ct. 346, 97 L.Ed. 707 (1953); Stanislaus County,
Calif. v. United States, 193 F. Supp. 145 (N.D.Cal. 1960).
The "basic findings" which the Commission must make are
those which are essential to the existence of its authority to
promulgate the rule or enter the order in question. Lubetich
v. United States, 315 U.S. 57, 62 S.Ct. 449, 86 L.Ed. 677
(1942); United States v. Baltimore & O.R.R., 293 U.S. 454,
463, 55 S.Ct. 268, 79 L.Ed. 587 (1935). "[T]he basic findings
essential to the validity of a given order will vary with the
statutory authority invoked and the context of the situation
presented." Alabama Great So. R.R. v. United States,
340 U.S. 216, 228, 71 S.Ct. 264, 272, 95 L.Ed. 225 (1951).
Defendants suggest that "basic findings" are not required to
support an order made by the Commission under section 3(1),
relying principally upon Chesapeake & O. Ry. v. United States,
11 F. Supp. 588 (S.D.W. Va.), aff'd, 296 U.S. 187, 56 S.Ct.
164, 80 L.Ed. 147 (1935). In that case, the district court
"[o]nly the ultimate condition and not formal
and precise findings of fact, are required of the
commission in order to bring a particular case
within the terms of this section of the statute.
United States v. B. & O. Ry., 293 U.S. 454, 55
S.Ct. 268, 79 L.Ed. 587. * * *
"* * * No case is cited on behalf of petitioner
which holds that when the commission makes an order
under section 3 of the act it must make any finding
in addition to one couched in the language of the
statute. It is difficult to see just what further
findings of fact, other than those made by the
commission, could have been made in order to
justify the order entered." 11 F. Supp. at 593-594.
The language relied upon by defendants in this decision is
not persuasive. First, it should be understood that the B. &
O. case, relied upon by the district court in the above
quotation, supports the proposition that section 14 of the ICA
requires that the Commission make findings only upon the
"ultimate condition" and does not require (except in damage
cases) that detailed findings be made. The B. & O. case,
however, recognized that basic, or quasi-jurisdictional,
findings are required. Second, in Chesapeake, the Commission's
findings were not made solely in the language of the statute;
the district court stated that "Here the commission has not
only found the ultimate condition bringing the case within the
terms of the statute but has also found the specific facts."
11 F. Supp. at 593. And it ruled that the Commission had made
all findings necessary "to justify the order entered." 11
F. Supp. at 594. In affirming the district court's decision, by
a per curiam decision, the Supreme Court stated:
"This Court, upon an examination of the record,
agrees with the conclusion of the District Court
that the order in was sustained by findings of the
Commission acting within its statutory authority
and that these findings were adequately supported
by evidence." 296 U.S. 187, 188, 56 S.Ct. 164.
Against this background, it is evident that the italicized
sentence in the above quotation from the district court
decision in Chesapeake is dictum.
Defendants further rely upon Community & Johnson Corp. v.
United States, 156 F. Supp. 440 (D.N.J. 1957), as supporting
the proposition that in addition to the ultimate finding, the
Commission need only show that it took cognizance of the
evidence concerning essential issues and weighed it along with
other factors. In that case, the court stated, 156 F. Supp. at
page 443, that
"* * * there were findings of fact made on those
points which the Commission considered relevant
to settling the controversy before it. This is
all that the statute requires. Capital Transit
Co. v. United States, D.C.D.C. 1951, 97 F. Supp. 614,
Although this may be all that the statute requires, it is not
all that the courts require where a basic finding is in issue.
The proposition that the Commission's findings under section
3 are exempt from the "basic finding" requirement is
unsupported by any logical reason for an exemption. Other
cases have applied this requirement to orders under section 3.
In New York Cent. R.R. v. United States, 207 F. Supp. 483
(S.D.N.Y. 1962), and Stanislaus County, Calif. v. United
States, 193 F. Supp. 145 (N.D.Cal. 1960), the Commission's
findings in section 3 cases were held to be insufficient to
sustain its orders. To the same effect, see Boston & Me. R.R.
v. United States, 202 F. Supp. 830 (D.Mass. 1962), aff'd, 83
S.Ct. 1312, 10 L.Ed.2d 419 (1963). And in New York v. United
States, 331 U.S. 284, 67 S.Ct. 1207, 91 L.Ed. 1492 (1947),
where the Supreme Court was concerned with sections 3 and
15(1) of the ICA, the Court upheld the Commission's findings
with respect to a violation of section 3 as sufficient,
without any suggestion that the ultimate statutory finding was
Defendants finally contend that in the cases relied upon by
plaintiffs, the basic findings found lacking were ultimate
statutory findings. In a number of cases, however, the basic
findings held lacking have not been ultimate statutory
At this point it is useful to observe that there appear to
be three principal categories of decisions regarding the
"basic finding" requirement:
(1) In one category, the Commission's findings have been
held insufficient because its ultimate finding was not that
required by the statute in question. Thus, in United States v.
Baltimore & O.R.R., 293 U.S. 454, 55 S.Ct. 268, 79 L.Ed. 587
(1935), the Court held that where the statute authorized the
Commission to make changes in safety rules where required to
remove "unnecessary peril to life or limb," the Commission's
order modifying a safety rule on the ground that "safety"
required the change was invalid.
(2) In a second category, the Commission's findings have
been held insufficient because, although it made the correct
ultimate statutory finding, it employed an incorrect legal
test in reaching that finding. Thus, in Florida v. United
States, 282 U.S. 194, 51 S.Ct. 119, 75 L.Ed. 291 (1931), the
Commission had found that certain intrastate rates resulted in
an "unjust discrimination against interstate commerce," in
violation of section 13(4) of the Act, as then worded. The
Commission's supporting findings were based upon comparisons
between the inter- and intrastate rates. The Supreme Court
held, however, that the Commission could not find an unjust
discrimination against interstate commerce unless it
considered the relationship of intrastate rates to the income
of the railroads and found that the revenue from intrastate
traffic placed an undue burden upon the interstate traffic.
Thus, in arriving at its ultimate finding, the Commission had
failed to employ the right legal test. See also Texas & Pac.
Ry. v. Interstate Commerce Com'n, 162 U.S. 197, 16 S.Ct. 666,
40 L.Ed. 940 (1896).
(3) In a third category, the Commission's findings have been
held insufficient because, although the Commission made the
correct ultimate statutory finding, and although the
Commission showed at least an awareness of the correct legal
test to be employed, it failed to make sufficiently explicit
its supporting findings. Thus, in United States v. Chicago,
M., St. P. & Pac. R.R., 294 U.S. 499, 55 S.Ct. 462, 79 L.Ed.
1023 (1935), the Commission had found that a proposed rate
reduction would be "unreasonable" under section 15 of the Act.
It supported this conclusion essentially by its finding that
the proposed rates would be disruptive of a general rate
structure. The Supreme Court held that this finding was not in
itself a sufficient basis for the order canceling the proposed
rates, and that certain other findings, in addition, were
essential. The Court noted
that the report of the Commission contained certain inferences
or suggestions with respect to the factors involved in those
findings which the Court held were lacking; the Court,
"The difficulty is that it has not said so with
the simplicity and clearness through which a
halting impression ripens into reasonable
certitude. In the end we are left to spell out,
to argue, to choose between conflicting
inferences. Something more precise is requisite
in the quasi-jurisdictional findings of an
administrative agency. * * * We must know what a
decision means before the duty becomes ours to
say whether it is right or wrong." 294 U.S. at
pp. 510-11, 55 S.Ct. at p. 467.
See also Atchison T. & S.F. Ry. v. United States,
295 U.S. 193, 55 S.Ct. 748, 79 L.Ed. 1382 (1935), and Stanislaus
County, Calif. v. United ...