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ATCHISON, TOPEKA AND SANTA FE RY. v. UNITED STATES

June 27, 1963

THE ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY ET AL., PLAINTIFFS,
v.
UNITED STATES OF AMERICA AND INTERSTATE COMMERCE COMMISSION, DEFENDANTS.



Before Castle, Circuit Judge, and Hoffman and Austin, District Judges.

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 substantially similar.

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 stated:

    "[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.
  (Emphasis supplied.)

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.
  (Emphasis supplied.)

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,
  621."
  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 alone enough.

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 findings.

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, however, stated:

  "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 ...


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