Petitions for Review of an Order of the Interstate Commerce Commission
Before Pell and Bauer, Circuit Judges, and Will, Senior Judge.*fn*
Petitioners appeal from a decision of the Interstate Commerce Commission that certain tariff schedules filed by the intervening respondent railroads are not unlawful under the Interstate Commerce Act. For the reasons hereinafter stated, we reverse and remand.
Prior to 1976, rates from Chicago*fn1 to eastern destinations for wheat and wheat products which arrived in Chicago by rail, lake vessel, or barge were lower than rates from Chicago to eastern destinations for wheat and wheat products which arrived in Chicago by for-hire motor carrier. This difference resulted from the railroads' practice of charging ex-rail wheat the proportional rate east of Chicago while charging ex-motor carrier wheat the flat rate east of Chicago. A flat rate is a local rate of one or more carriers. A proportional rate is a portion of the through rate based on a percentage and/or differential over or under the Chicago to New York rate. Proportional rates are generally lower than flat rates between the same points.
In 1976, in its case No. 35825, the Interstate Commerce Commission held that this practice illegally discriminated against ex-motor carrier traffic in violation of the Interstate Commerce Act. The Court of Appeals for the Eighth Circuit affirmed that ruling in Atchison Topeka & Santa Fe Railway Co. v. United States, 549 F.2d 1186 (8th Cir.), cert. denied, 434 U.S. 874, 98 S. Ct. 223, 54 L. Ed. 2d 154, 98 S. Ct. 224 (1977).
To comply with the ICC order that they cease their discriminatory application of rates, the railroads proposed a plan Plan A which, if it had become effective, would have cancelled all proportional rates out of Chicago. The flat rates would have been applied whether the traffic was ex-motor carrier or ex-rail. The rates proposed by Plan A were suspended while the ICC conducted its investigation, docketed on the suspension and investigation docket as No. 9194.
Before the ICC reached a decision on Plan A, however, the railroads asked for and received permission to cancel the suspended Plan A tariffs and to file a second plan, Plan B. Under Plan B, proportional rates would be applied to ex-rail and ex-motor carrier traffic for nontransit movements east of Chicago. Flat rates would be applied on shipments being transited east of Chicago. "Nontransit shipments are transported in a continuous movement from origin to destination, usually over direct service routes." Transit on Wheat Between Reshipping Point and Destination, 362 I.C.C. 529, 556 (1980). Transit shipments are interrupted at least once for storage or processing. The term transit applies both to the interruption and to the transit privilege which permits a shipper to mill or store the shipment at a designated point and continue to use the through rate to the final destination. A separate transit fee rather than a higher rate was charged for transit shipments. Under Plan B, the transit privilege would be available only if the shipper chose to be charged the flat rate; if the shipper was charged the proportional rate from Chicago to the transit destination, he would be charged the flat rate upon reshipment from the intermediate point. Plan B did not discriminate against ex-motor carrier traffic. The railroads claimed that the cancellation of transit on proportional rates was necessary because transit shipments under the previous tariff schedules were not producing adequate revenue.
The railroads also asked the Commission for relief from its outstanding order in Southwestern Millers' League v. Atchison, Topeka and Santa Fe Railway, 227 I.C.C. 794 (1938), and from section 10726 of the Interstate Commerce Act. Southwestern Millers' had established different outbound rates from Chicago depending on where the shipment had originated. Section 17026 prohibits carriers from charging more for a shorter distance than for a longer distance over the same route in the same direction, 49 U.S.C. § 10726(a)(1)(A), or more under a through rate than under the total of the intermediate rates. 49 U.S.C. § 10726(a)(1)(B).
The petitioners argued before the Commission that the revenue difficulties of the railroads could be solved by charging a higher transit fee, and that Plan B violated sections 10741(a) and (b) of the Interstate Commerce Act by preferring transit users west of Chicago and prejudicing transit users east of Chicago who would be charged the higher flat rates because of where they took transit. The petitioners also argued that the railroads had violated section 10706(a)(2)(A) of the Interstate Commerce Act by failing to follow the docketing procedures established in the Agreement of the Eastern Railroads Under Section 5b of the Interstate Commerce Act. The ICC rejected the petitioners' arguments, held that Plan B complied with their order in the ex-motor carrier case, and that the rates were lawful and not illegally discriminatory, and granted respondents the relief requested.
In this appeal, petitioners raise four issues: whether the ICC erred in finding that the tariff schedules in Plan B did not violate the notice procedures set forth in the Agreement of the Eastern Railroads Under Section 5b of the Interstate Commerce Act; whether the ICC erred in finding that the tariff schedules in Plan B did not violate 49 U.S.C. §§ 10704, 10741(a), and 10741(b); whether the ICC erred in ruling that the tariff schedules did not violate the merger conditions imposed on Conrail, the Chessie System, Norfolk & Western, and Burlington Northern; and whether the ICC erred in denying the motion of petitioners to compel answers to interrogatories about the railroads' revenue. Because we hold that the railroads violated 49 U.S.C. § 10706(a)(2) (A) by failing to follow the rate-setting procedures established in the Agreement of the Eastern Railroads Under Section 5b of the Interstate Commerce Act, we need not decide the other issues.
The intervening respondent railroads are parties to the Agreement of the Eastern Railroads Under Section 5b of the Interstate Commerce Act, an agreement which the ICC has approved. See Eastern Railroads Agreements, 277 I.C.C. 279 (1950).*fn2 The Agreement specifies procedures for the "joint consideration, initiation, or establishment" of rates. If the railroads comply with these procedures, they can agree on joint rates and what otherwise might be a conspiracy to set prices in violation of the antitrust laws is not actionable. 49 U.S.C. § 10706(a)(2)(A) (formerly section 5b of the Interstate Commerce Act).
The rate-setting process occurs in several committees created by the Agreement and composed of representatives of the member railroads. Initially, a proposal is submitted to the relevant committee defined by the subject matter of the proposal and the territory which would be affected by it*fn3 in writing and signed by the ...