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July 7, 1964


Before Knoch, Circuit Judge, and Marovitz and Parsons, District Judges.

The opinion of the court was delivered by: Parsons, District Judge.

  As the Gulf of Mexico frames the Southeast boundary of the State of Texas, a number of bays and inlets provide natural settings for ports for seagoing vessels. Principal among these ports are those located at or near the Texas cities of Houston, Galveston, Texas City and Freeport. Railroad lines of the Chicago, Rock Island and Pacific Railroad Company, the Atchison, Topeka and Santa Fe Railway Company, the Fort Worth and Denver Railway Company, the Missouri-Kansas-Texas Railroad Company, and the Missouri Pacific Railway Company, run from points west, north and northeast into each of these Gulf ports, except that only the Missouri Pacific Railway Company runs also to Freeport, the southernmost of these ports. More than seventy other railroads by connections with these five roads are available for shipments to and from these several Gulf ports. All railroads, however, must depend for movements to and from Freeport upon connection through the Missouri Pacific Railway. Their shipping rates to Freeport have been higher than to the other three ports.

Freeport is located on Brazos Harbor and is the oldest port on the Texas coast. It was an active port for shipping until 1918, when the accumulation of silt deposited by the Brazos River precluded its use by oceangoing vessels. Thereafter, the ports at Houston, Galveston and Texas City became the principal ports along that part of the Gulf. Activities to re-establish Freeport as an active port began in 1927, and after much work and sacrifice taxwise on the part of the property owners of the area, dock facilities were completed and the first seagoing vessel docked at the new port of Freeport in 1955. No grain storage facilities are available yet, but there are companies who would spend the millions needed for their construction if railroads would ship as cheaply to Freeport as they do to Houston, Galveston and Texas City. When the railroads refused voluntarily to accord Freeport rate equality with those nearby ports, the Brazos River Harbor Navigation District, the political entity which constructed and maintains the new port, filed a complaint with the Interstate Commerce Commission, asking that the railroads be required to remove their rate discrimination against it. On April 30, 1963, Division 2 of the Commission issued a report and order granting Freeport the relief it sought.

This is an action brought by the Atchison, Topeka and Santa Fe Railway Company, the Chicago Rock Island and Pacific Railway Company, the Fort Worth and Denver Railway Company, and the Missouri-Kansas-Texas Railroad Company, to enjoin, set aside, suspend and annul an order of the Interstate Commerce Commission entered on April 30, 1963, in the proceeding before it entitled Brazos River Harbor Navigation District of Brazoria County Texas v. The Abilene and Southern Railway Company, et al., Docket No. 33558, 319 I.C.C. 54, and 322 I.C.C. 528. The Houston Port Bureau, Inc., intervened as plaintiff on behalf of the railroads. The Brazos River Navigation District and the Department of Agriculture intervened as defendants on behalf of the Government and the Interstate Commerce Commission.

The complaint before the Commission had alleged that the rail rates maintained by 82 carriers on traffic moving in interstate and foreign commerce through the Port of Freeport from and to points in Texas, Louisiana, Oklahoma, Kansas, Arkansas, Missouri, New Mexico, Colorado, Arizona and California, were higher than rail rates applicable to the same traffic moving from and to the same points in these states through the ports of Galveston, Texas City and Houston. It charged that such higher rates were (1) unjust and unreasonable, and (2) unduly prejudicial to the Port of Freeport, in contravention of 49 U.S.C.A. §§ 1 and 3.

The Commission found that there had been no showing that the higher rates were unjust and unreasonable, but that it had been shown that the rates were unduly prejudicial to the Port of Freeport, and therefore violative of 49 U.S.C.A. § 3. On April 30, 1963, the Commission ordered the railroads to "cease and desist * * * from practicing [this] undue prejudice and preference * * *." The Commission affirmed its order on November 19, 1963, and, as later to be discussed herein, "amplified" its order on April 22, 1964. At the time this matter came before this Court, the effective date of the Commission's order was August 5, 1963. Today, the effective date of the order is July 7, 1964.

Jurisdiction of this Court has been invoked under 28 U.S.C.A. §§ 1336, 1398, 2284, 2321-2325 inclusive, and 5 U.S.C.A. § 1009. Plaintiff railroads in their original and amended complaints before us assert that the orders of the Commission are unlawful for the following reasons: (1) The Commission failed to make certain basic and essential findings of fact necessary to support its conclusions, such as a finding that the higher rates actually resulted in injury to the Port of Freeport, and a finding that the traffic through both the preferred and prejudiced ports moves under substantially similar circumstances and conditions; (2) the Commission erroneously construed Section 3(1) of the Interstate Commerce Act as requiring it to place the four ports on a rate parity; (3) the findings of the Commission compel the conclusion that the higher rates are actually not discriminatory; (4) the Commission based its order on the erroneous principle that discrimination can be found alone on a comparison of the distances of the four ports from the points of origin or destination of rail shipments; and (5) the Commission erred in failing to consider the effect of its orders upon the revenues of the plaintiff railroads.

Regarding this last contention, plaintiff railroads urge strongly that the effect upon them of the Commission's orders would be to compel them to increase their rates to the Galveston, Texas City and Houston ports, or to require the Missouri-Pacific Railway Company (not a party to these proceedings) to join them in rate reductions to Freeport; and under either alternative would cause traffic to be diverted from their roads to the Missouri-Pacific, whose lines also reached to some of the same points of origin or destination. Plaintiff railroads thus without justification would be deprived of substantial revenue.


At the outset, this Court is confronted with a procedural issue of potential constitutional significance. The original order of the Commission emanated from a 2 to 1 majority of its Division 2, on April 30, 1963. (319 I.C.C. 54). Plaintiff railroads then filed a petition for reconsideration by the entire Commission, alleging the inadequacy of the Division 2 report and order. On November 19, 1963, that petition was denied. Under Section 17(4) of the Interstate Commerce Act [49 U.S.C.A. § 17(4)], the determination of November 19, and its order that the railroads proceed with the publication of reduced rates, became administratively final. Again, on January 9, 1964, plaintiff railroads filed another petition with the Commission asking it to reconsider its ruling and order, and seeking a postponement of the effective date of rate reduction announced in the order of November 19. As the days approached the deadline for advance publication of rate reduction to meet the schedule set out in the order of November 19, and the Commission not having acted on this second petition for reconsideration, the plaintiff railroads came into this Court, filed their complaint for a permanent injunction, and asked as an emergency matter that this Court temporarily restrain the operation of the Commission's orders pending a final determination on the complaint. The Judge of the District Court to whom the case was assigned issued the temporary restraining order and forthwith applied to the Chief Judge of the Court of Appeals for the Seventh Circuit for the appointment of a Three-Judge Court to hear the matter. Forthwith the appointments were made, and with all of the parties before him, including the Interstate Commerce Commission, the District Judge set up a schedule for pleadings and briefs, and set the cause to be heard by the Three-Judge Court at 2:00 P.M. on May 21, 1964. The other judicial affairs of the three Judges were arranged to meet this schedule. However, on March 17, 1964, without notice to the other parties, or request from or notice to the Court, the Interstate Commerce Commission, on its own motion purportedly "for good cause appearing" issued a further order reopening its case (I.C.C. Docket 33558) for the purpose of "reconsideration" of the Division 2 report and order.

On March 23, 1964, this action on the part of the Commission was for the first time brought to the attention of the District Judge by a filing by the parties of a stipulation that all further proceedings in this cause be stayed for a period of thirty days, pending a reconsideration by the Commission of its order of April 30, 1963. It is again to be noted that no request was made of the Court to stay its proceedings prior to the Commission's ex parte action of March 17. It is also to be presumed from the language of the stipulation that the understanding allowed the plaintiffs by the Government and the Commission was that the new proceedings before the Commission would in fact be a reconsideration in the traditional meaning of that word. On April 27, 1964, the other parties and the Court were informed that on April 22, 1964, a new order of the Interstate Commerce Commission had been rendered superseding and "amplifying" the original order of April 30, 1963. (322 I.C.C. 530). This new order set the effective date for the rate decreases at July 7, 1964. The original schedule set by the Court became meaningless. The temporary restraining order became unnecessary and was discharged (28 U.S.C. § 2284). Plaintiffs were given time to plead over, and new dates were set for responsive pleadings and briefs. A new date for hearing before the Three-Judge Court was set for June 17, 1964, at 2:00 P.M., and again the Judges rearranged their other judicial affairs to accommodate this change in the schedule. The matter was heard on that date.

In Dixie Carriers, Inc. v. United States, 143 F. Supp. 844 (S.D.Texas 1956) a Three-Judge Court was faced with a similar situation. It approached the situation by looking at the reason given in the new Commission order for reopening the case, i.e., "good cause appearing therefor", and reasoning that such a cryptic phrase was inadequate to support the reconsideration of the earlier order, held the new order to be void and of no effect. The Commission explained that it had subsequently issued an additional order to supply the necessary findings and reasoning omitted from the earlier order. But the Court in rejecting this excuse stated at page 850 of 143 F. Supp.:

    "The simple phrase `and good cause appearing
  therefor' is inadequate to upset prior positive
  findings, and for the reasons set forth in
  Amarillo-Borger [Express v. United States,
  138 F. Supp. 411 ...

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