United States District Court, Northern District of Illinois, E. D
May 24, 1965
CHICAGO, BURLINGTON & QUINCY RAILROAD COMPANY, GREAT NORTHERN RAILWAY COMPANY, NORTHERN PACIFIC RAILWAY COMPANY, SOO LINE RAILROAD COMPANY, UNION PACIFIC RAILROAD COMPANY, AND NORFOLK AND WESTERN RAILWAY COMPANY, PLAINTIFFS,
UNITED STATES OF AMERICA AND INTERSTATE COMMERCE COMMISSION, DEFENDANTS.
Before Castle, Circuit Judge, and Perry and Austin, District
The opinion of the court was delivered by: Perry, District Judge.
Plaintiff railroads in this action under Sections 1336,
1398, 2284 and 2321 through 2325, inclusive, of Title 28,
United States Code, seek to suspend, enjoin, annul and set
aside the Interstate Commerce Commission's order of June 5,
1964, entered in proceedings designated before the Commission
as Docket No. 17000, Rate Structure Investigation, Part VII,
Grain and Grain Products Within the Western District and For
Export, in so far as that order modifies previous orders in
said proceeding dated October 22, 1934 and March 4, 1936.
(Reference hereinafter made to "plaintiffs" will include those
who have intervened as plaintiffs in this action.)
This cause came on for hearing before a duly designated
three-judge statutory court which finds that it has
jurisdiction of the subject matter hereof and of the parties
It appears that in 1959 and 1960 five separate complaints,
presenting similar issues, were filed with the Interstate
Commerce Commission and consolidated for hearing and
disposition, and that after proceedings had, the Commission on
June 5, 1964, filed its Report and entered its order.
On page 755 of its Report, the Commission said:
"As indicated in appendix A, the complainants
allege that the rate-break combinations
applicable on certain grain shipments transited
at the considered primary markets are unjust and
unreasonable, unduly discriminatory, and subject
the complainants to undue prejudice and
disadvantage to the undue preference and
advantage of other interior transit points and
operators who are permitted to transit similar
shipments at lower rates.
"It should be stressed that the level of the
considered rates is not in issue. Moreover, the
complainants concede that on the great majority
of the considered traffic, which flows from west
to east, the normal drawing areas for each of the
primary markets are territories from which there
are no through rates by way of these markets less
than the rate-break combinations, and therefore
present no problem to the primary market.
However, it is contended that on a small but
important segment of the traffic the rates
applicable on shipments transited at the primary
markets subject those markets and the transit
operators located thereat to an unreasonable
handicap in competing with interior markets and
transit operators. It is only in instances where a
one-factor through rate from origin to transit
destination, lower than the rate-break combination
applicable on shipments transited at a particular
primary market, applies through that primary
market on shipments transited at interior points,
that the rate-break combinations are alleged to
be unlawful. Complainants seek transit on these
lower rates through the primary markets. * * *"
The Commission's order of June 5, 1964, here under attack,
dismissed the complaints but it did not stop there. Although
the considered rates applied only to limited and specified
areas, and although the Commission's Report recognized that
complainants' contentions related to a "small but important
segment of the traffic," the Commission further ordered
"That the proceeding in Docket No. 17000, Rate
Structure Investigation, Part VII, Grain and
Grain Products Within the Western District and
for Export, 205 I.C.C. 301 and 215 I. C.C. 83,
be, and it is hereby, reopened for
reconsideration, and that the orders entered
therein, on October 22, 1934, and March 4, 1936,
respectively, be, and they are hereby, modified
so as to be vacated and set aside to the extent
that they require observance of rate-break
combinations and of proportional rates therein
prescribed as the exclusive basis of charges on
shipments of grain and grain products at points
from which proportional rates are applicable,"
thus abolishing the absolute "rate break" rule not only as to
the limited area covered by the five complaints but also
throughout the entire Western district.
It appears that at no time did the Commission give any
notice that it contemplated reopening Docket 17000, Part VII,
nor did it give any notice in Docket 17000, Part VII of the
proposed modification of the orders of October 22, 1934 and
March 4, 1936 to make observance of the "ratebreak" rule
voluntary or permissive instead of mandatory throughout the
entire Western district.
Plaintiffs base this suit on the failure of the Commission
to comply (a) with Section 16(6) of the Interstate Commerce
Act (49 U.S.C. § 16(6) and (b) with Section 4 of the
Administrative Procedure Act (5 U.S.C. § 1003) which prescribes
Plaintiffs do not gainsay the authority of the Commission to
act or rule in the premises but contend that such action and
ruling should have been preceded by notice in order to afford
plaintiffs an opportunity to be heard and to present data on
the question of the vacation of the absolute "ratebreak" rule
throughout the entire Western district. They contend that
their arguments made and data presented before the Commission
were confined to the places and traffic involved in the
proceedings on the five complaints.
It is interesting to observe that the recommended Report and
order prepared and filed by the Examiner, who held lengthy
hearings in the matter of the five complaints, contains the
following paragraph relating to the issues:
"All of the complaints challenge the legality
of charges on grain and grain products caused by
the absolute rate-break rule with respect to
certain of its applications at Minneapolis,
Minn., and the lower Missouri River markets of
Kansas City, Omaha and St. Joseph, Mo., and
Kansas City, Atchison and Leavenworth, Kans.
While one of the complaints attacks the
lawfulness of the rule per se, the evidence is
confined to specific rate situations. Only the
lawfulness of these is considered herein. Relief is
sought only as to existing rates and existing
to which limitation of the issues no exception was taken.
It appears that at one point during the proceedings before
the Commission on the five complaints, the Secretary of
Agriculture of the United States, an intervenor, requested
that Docket 17000, Part VII, be included in the proceedings
but the request was denied by the Commission.
Re: Notice required by Section 16(6) of Interstate Commerce
At page 775 of its Report the Commission said that its
action in vacating the mandatory aspect of the rule was done
pursuant to its authority under Section 16(6) of the
Interstate Commerce Act. That section provides that "The
commission shall be authorized to suspend or modify its orders
upon such notice and in such manner as it shall deem proper."
(emphasis supplied) Clearly the giving of some form of notice
is contemplated by the statute.
Re: Notice required by Section 4 of the Administrative
In Docket 17000, Part VII, the Commission prescribed a
mandatory rule known as the "ratebreak system" which was in
effect throughout the entire Western district. "`Rule making'
means agency process for the formulation, amendment, or repeal
of a rule" (5 U.S.C. § 1001(c)) and the Commission's action in
modifying the orders in Docket 17000, Part VII, and making
permissive or voluntary that which had theretofore been
mandatory, constituted "rule-making."
Section 4(a) of the Administrative Procedure Act provides
"General notice of proposed rule making shall be
published in the Federal Register (unless all
persons subject thereto are named and either
personally served or otherwise have actual notice
thereof in accordance with law) and shall include
(1) a statement of the time, place, and nature of
public rule making proceedings * * *."
The order of June 5, 1964 does not come within any of the
exclusionary provisions of Section 4 which excuse compliance
with notice requirements.
Defendants contend that plaintiffs had sufficient actual
notice. However, notice cannot be ascribed to these plaintiffs
because they were present and participated in the
five-complaint proceedings before the Commission. Parties to
proceedings cannot be expected to grope through the
litigation. These plaintiffs were entitled to clear, decisive
notice of the Commission's contemplated enlargement of the
issues in the proceeding and of the proposed amendatory action
in Docket 17000, Part VII. We agree with Vice Chairman Webb
who stated in his dissent that "No segment of the grain trade
and no carrier had any reason to suppose that any such drastic
action was within the scope of this proceeding."
For reasons herein stated, the Court finds that the order of
the Interstate Commerce Commission dated June 5, 1964, in the
Commission's Docket 17000, Part VII, Grain and Grain Products
within the Western District and for Export, to the extent that
said order modifies prior orders in said Docket entered
October 22, 1934 and March 4, 1936, is void and concludes that
said order to the extent hereinabove specified must be vacated
and set aside and its enforcement permanently enjoined, all
without prejudice to further proceedings before or by the
Interstate Commerce Commission not inconsistent with this
In arriving at our conclusions herein this court is not
considering or passing on the question of whether orders of
the Interstate Commerce Commission respecting freight rates
applicable to grain or grain products, freight rates
applicable or the rules governing such rates should be
modified or changed in an appropriate proceeding by the
Interstate Commerce Commission.
This memorandum opinion shall constitute the court's
findings of fact and conclusions of law.
Judgment in accordance with opinion.