# United States v. Florida East Coast Railway Co./Dissent Douglas

* Court Documents
* Case Syllabus
* Opinion of the Court
* Dissenting Opinion Douglas
[p246] MR. JUSTICE DOUGLAS, with whom MR. JUSTICE STEWART concurs, dissenting.
The present decision makes a sharp break with traditional concepts of procedural due process. The Commission order under attack is tantamount to a rate order. Charges are fixed that nonowning railroads must pay [p247] owning railroads for boxcars of the latter that are on the tracks of the former. These charges are effective only during the months of September through February, the period of greater boxcar use. For example, the charge for a boxcar that costs from $15,000 to $17,000 and that is five years of age or younger amounts to $5.19 a day. Boxcars costing between $39,000 and $41,000 and that are five years of age or younger cost the nonowning railroad $12.98 a day. The fees or rates charged decrease as the ages of the boxcars lengthen. 49 CFR § 1036.2. This is the imposition on carriers by administrative fiat or a new financial liability. I do not believe it is within our traditional concepts of due process to allow an administrative agency to saddle anyone with a new rate, charge, or fee without a full hearing that includes the right to present oral testimony, cross-examine witnesses, and present oral argument. That is required by the Administrative Procedure Act, 5 U.S.C. § 556 (d); § 556 (a) states that § 556 applies to hearings required by § 553. Section 553 (c) provides that § 556 applies "[w]hen rules are required by statute to be made on the record after opportunity for an agency hearing." A hearing under § 1 (14)(a) of the Interstate Commerce Act fixing rates, charges, or fees is certainly adjudicatory, not legislative in the customary sense.
The question is whether the Interstate Commerce Commission procedures used in this rate case "for the submission of... evidence in written form" avoided prejudice to the appellees so as to comport with the requirements of the Administrative Procedure Act. The Government appeals from the District Court's order [p248] remanding this case to the Commission for further proceedings on the incentive per diem rates to be paid by the appellee railroads for the standard boxcars they use.
In 1966, Congress amended § 1 (14)(a) of the Interstate Commerce Act to require that the Commission investigate the use of methods of incentive compensation to alleviate any shortage of freight cars "and encourage the acquisition and maintenance of a car supply adequate to meet the needs of commerce and the national defense." 49 U.S.C. § 1 (14)(a). While the Commission was given the discretion to exempt carriers from incentive payments "in the national interest," it was denied the power to "make any incentive element applicable to any type of freight car the supply of which the Commission finds to be adequate...." Ibid.
The Commission's initial investigation under this authority (31 Fed. Reg. 9240) was terminated without action because it "produced no reliable information respecting the quantum of interim incentive charge necessary to meet the statutory standards." 332 I.C.C. 11, 16. A subsequent study of boxcar supply-and-demand conditions (32 Fed. Reg. 20987) yielded data that were compiled in an interim report containing tentative charges and that were submitted to the railroads for comment. 337 I.C.C. 183. Although the Commission was admittedly uncertain whether its proposed charges would accomplish the statutory objective, id., at 191, and even though "the opportunity to present evidence and arguments" was contemplated, id., at 183, congressional impatience militated against further delay in implementing § 1 (14)(a). Consequently, the Commission rejected the requests of the appellees and other railroads for further hearings and promulgated an [p249] incentive per diem rate schedule for standard boxcars. 337 I.C.C. 217.
Appellees then brought this action in the District Court alleging that they were "prejudiced" within the meaning of the Administrative Procedure Act by the Commission's failure to afford them a proper hearing. 322 F.Supp. 725 (MD Fla. 1971). Seaboard argued that it had been damaged by what it alleged to be the Commission's sudden change in emphasis from specialty to unequipped boxcars and that it would lose some $1.8 million as the result of the Commission's allegedly hasty and experimental action. Florida East Coast raised significant challenges to the statistical validity of the Commission's data, and also contended that its status as a terminating railroad left it with a surfeit of standard boxcars which should exempt it from the requirement to pay incentive charges.
Appellees, in other words, argue that the inadequacy of the supply of standard boxcars was not sufficiently established by the Commission's procedures. Seaboard contends that specialty freight cars have supplanted standard boxcars and Florida East Coast challenges the accuracy of the Commission's findings.
In its interim report, the Commission indicated that there would be an opportunity to present evidence and arguments. See 337 I.C.C. 183, 187. The appellees could reasonably have expected that the later hearings would give them the opportunity to substantiate and elaborate the criticisms they set forth in their [p250] initial objections to the interim report. That alone would not necessarily support the claim of "prejudice." But I believe that "prejudice" was shown when it was claimed that the very basis on which the Commission rested its finding was vulnerably because it lacked statistical validity or other reasoned basis. At least in that narrow group of cases, prejudice for lack of a proper hearing has been shown.
Both Long Island R. Co. v. United States, 318 F.Supp. 490 (EDNY 1970), and the present case involve challenges to the Commission's procedures establishing incentive per diem rates. In Long Island, however, the railroad pointed to no specific challenges to the Commission's findings (id., at 499), and the trial was conducted on stipulated issues involving the right to an oral hearing. Id., at 491 n. 2. Since Long Island presented no information which might have caused the Commission to reach a different result, there was no showing of prejudice, and a fortiori no right to an oral hearing. In the [p251] present case, by contrast, there are specific factual disputes and the issue is the narrow one of whether written submission of evidence without oral argument was prejudicial.
The more exacting hearing provisions of the Administrative Procedure Act, 5 U.S.C. § 556-557, are only applicable, of course, if the "rules are required by statute to be made on the record after opportunity for an agency hearing." Id., § 553 (c).
United States v. Allegheny-Ludlum Steel Corp., 406 U.S. 742, was concerned strictly with a rulemaking proceeding of the Commission for the promulgation of "car service rules" that in general required freight cars, after being unloaded, to be returned "in the direction of the lines of the road owning the cars." Id., at 743. We sustained the Commission's power with respect to these two rules on the narrow ground that they were wholly legislative. We held that § 1 (14)(a) of the Interstate Commerce Act, requiring by its terms a "hearing," "does not require that such rules 'be made on the record'" within the meaning of § 553 (c). Id., at 757. We recognized, however, that the precise words "on the record" are not talismanic, but that the crucial question is whether the proceedings under review are "an exercise of legislative rulemaking" or "adjudicatory hearings." Ibid. The "hearing" requirement of § 1 (14)(a) cannot be given a fixed and immutable meaning to be applied in each and every case without regard to the nature of the proceedings.
The rules in question here established "incentive" per diem charges to spur the prompt return of existing cars and to make the acquisition of new cars financially attractive to the railroads. Unlike those we considered in [p252] Allegheny-Ludlum, these rules involve the creation of a new financial liability. Although quasi-legislative, they are also adjudicatory in the sense that they determine the measure of the financial responsibility of one road for its use of the rolling stock of another road. The Commission's power to promulgate these rules pursuant to § 1 (14)(a) is conditioned on the preliminary finding that the supply of freight cars to which the rules apply is inadequate. Moreover, in fixing incentive compensation once this threshold finding has been made, the Commission "shall give consideration to the national level of ownership of such type of freight car and to other factors affecting the adequacy of the national freight car supply...."
[p253] The majority finds ICC v. Louisville & Nashville R. Co., 227 U.S. 88, "sufficiently different" as to make the opinion in that case inapplicable to the case now before us. I would read the case differently, finding a clear mandate that where, as here, ratemaking must be [p254] based on evidential facts, § 1 (14)(a) requires that full hearing which due process normally entails. There we considered Commission procedures for setting aside as unreasonable, after a hearing, carrier-made rates. The Government maintained that the Commission, invested with legislative ratemaking power, but required by the Commerce Act to obtain necessary information, could act on such information as the Congress might. The Government urged that we presume that the Commission's findings were supported by such information, "even though not formally proved at the hearing." Id., at 93. We rejected the contention, holding that the right to a hearing included "an opportunity to test, explain, or refute.... All parties must be fully apprised of the evidence submitted or to be considered, and must be given opportunity to cross-examine witnesses, to inspect documents and to offer evidence in explanation or rebuttal." Ibid. I would agree with the District Court in Long Island R. Co., supra, at 497, that Congress was fully cognizant of our decision in Louisville & Nashville R. Co. when it first adopted the hearing requirement of § 1 (14)(a) in 1917. And when Congress debated the 1966 amendment that empowered the Commission to adopt incentive per diem rates, it had not lost sight of the importance of hearings. Questioned about the effect that incentive compensation might have on terminating lines, Mr. Staggers, Chairman of the House Committee on Interstate and Foreign Commerce and floor manager of the bill, responded: "I might say to the gentleman that this will not be put into practice until there have been full hearings before the Commission and all sides have had an opportunity to argue and present their facts on the question." 112 Cong. Rec. 10443 (emphasis added). Nor should we overlook the Commission's own interpretation of the hearing requirement in § 1 (14)(a) as it applies to this case. The Commission's order initiating [p255] the rulemaking proceeding notified the parties that it was acting "under authority of Part I of the Interstate Commerce Act (49 U.S.C. § 1 et seq.); more particularly, section 1 (14)(a) and the Administrative Procedure Act (5 U.S.C. §§ 553, 556, and 557)." Clearly, the Commission believed that it was required to hold a hearing on the record. This interpretation, not of the Administrative Procedure Act, but of § 1 (14)(a) of the Commission's own Act, is "entitled to great weight." United States v. American Trucking Assn., 310 U.S. 534, 549; Norwegian Nitrogen Products Co. v. United States, 288 U.S. 294, 315.
The majority, at one point, distinguishes Morgan v. United States, 304 U.S. 1 (Morgan II) on the ground that the proceedings there involved were "quasi-judicial," "and thus presumably distinct from a rulemaking proceeding such as that engaged in by the Commission here." It is this easy categorization and pigeonholing that leads the majority to find Allegheny-Ludlum of controlling significance in this case. Morgan II dealt with the "full hearing" requirement of § 310 of the Packers and Stockyards Act, 42 Stat. 166, as it related to ratemaking for the purchase and sale of livestock. It is true that the Court characterized the proceedings as "quasi-judicial." [p256] But, the first time the case was before the Court, Morgan v. United States, 298 U.S. 468, Mr. Chief Justice Hughes noted that the "distinctive character of the proceeding was legislative: "It is a proceeding looking to legislative action in the fixing of rates of market agencies." Id., at 479. Nevertheless, the Secretary of Agriculture was required to establish rates in accordance with the standards and under the limitations prescribed by Congress. The Court concluded: "A proceeding of this sort requiring the taking and weighing of evidence, determinations of fact based upon the consideration of the evidence, and the making of an order supported by such findings, has a quality resembling that of a judicial proceeding. Hence it is frequently described as a proceeding of quasi-judicial character. The requirement of a 'full hearing' has obvious reference to the tradition of judicial proceedings...." Id., at 480.
Section 1 (14)(a) of the Interstate Commerce Act bestows upon the Commission broad discretionary power to determine incentive rates. These rates may have devastating effects on a particular line. According to the brief of one of the appellees, the amount of incentive compensation paid by debtor lines amounts to millions of dollars each six-month period. Nevertheless, the courts must defer to the Commission as long as its findings are supported by substantial evidence and it has not abused its discretion. "All the more insistent is the need, when power has been bestowed so freely, that the 'inexorable safeguard'... of a fair and open hearing be maintained in its integrity." Ohio Bell Telephone Co. v. Public Utilities Comm'n, 301 U.S. 292, 304.
Accordingly, I would hold that appellees were not afforded the hearing guaranteed by § 1 (14)(a) of the Interstate Commerce Act and 5 U.S.C. §§ 553, 556, and 557, and would affirm the decision of the District Court.

## Notes

* ↑ 5 U.S.C. § 556 (d) provides that a "sanction may not be imposed" without a full hearing, including cross-examination. But § 556 (d) makes an exception, which I submit is not relevant here. It provides: "In rule making... an agency may, when a party will not be prejudiced thereby, adopt procedures for the submission of all or part of the evidence in written form." (Emphasis added.)
* ↑ See Hearing before the Subcommittee on Surface Transportation of the Senate Committee on Commerce, 91st Cong., 1st Sess. (1969).
* ↑ Florida East Coast argues, for example, that the Commission's finding of a boxcar shortage may be attributable to a variety of sampling or definitional errors, asserting that it is unrealistic to define boxcar deficiencies in such a manner as "to show as a 'deficiency' the failure to supply a car on the day requested by the shipper no matter when the request was received." The Government's contention that a 24-hour standard was not used seems unresponsive to this argument. See 337 I.C.C. 217, 221.
* ↑ In the Long Island case the court, speaking through Judge Friendly, said: "Whether there was to be an oral hearing or not, the Long Island's first job was to examine the basic data and find this out. Nothing stood in its way.... If, on examining the data, the Long Island had pointed to specifics on which it needed to cross-examine or present live rebuttal testimony and the Commission had declined to grant an oral hearing, we would have a different case. Instead the Long Island's request for an oral hearing was silent as to any respect in which the Commission's disclosure of greater detail or cross-examination of the Commission's staff was needed to enable it to mount a more effective argument against the Commission's proposal. The last sentence of § 556 (d) would be deprived of all meaning if this were held sufficient to put the agency on notice that 'prejudice' would result from the denial of an oral hearing. Even taking into account the further representations that have been made to us, we fail to see that prejudice has been established." 318 F. Supp. 490, 499.
* ↑ Title 49 CFR § 1036.1 provides: "Application.—Each common carrier by railroad subject to the Interstate Commerce Act shall pay to the owning railroads, including the owning railroads of Canada, the additional per diem charges set forth in § 1036.2 on all boxcars shown below,... while in the possession of nonowning railroads and subject to per diem rules. These charges are in addition to all other per diem charges currently in effect or prescribed. Mexican-owned cars are exempt from the operation of these rules. The rules of this part shall apply regardless of whether the foregoing boxcars are in intrastate, interstate, or foreign commerce." As I have noted, § 1036.2 contains a schedule of per diem rates or fees for the use of another's boxcars which have been shunted onto its tracks, the rates or fees being definite or precise and controlled by two variables: the cost of the boxcars and the ages of the boxcars. These rates or fees, according to the record, amount to millions of dollars a year.
* ↑ The Commission discusses the critical factual issues to be resolved in fixing incentive compensation rates under § 1 (14) (a) in Incentive Per Diem Charges, 332 I.C.C. 11, 14-15: "Before an incentive element, either interim or long-term, can be added to the per diem charge for the use of any particular type of freight car, we are required to give consideration to the national level of ownership of that type of car and to other factors affecting the adequacy of the national freight car supply. We have observed that the adequacy of the national freight car fleet depends upon the interplay of a number of factors, none of which can be said to be of superior importance. Further, since the effect of an incentive charge must be produced over a future period, consideration must be given to possible changes in these factors. In recent years many innovations and improvements have taken place in car design and operation. In the transportation of many commodities the standard boxcar has been replaced by cars capable of transporting greater loads with substantially less damage. In the transportation of grains, railroads are converting more and more to the use of large covered hopper cars. Shippers of lumber and plywood have found modern cars designed to facilitate transportation of their products increasingly desirable. At the same time, many of these cars are adaptable to the transportation of other commodities when not needed in the particular trade for which they were designed. In large part, the special service boxcars, covered hoppers and flatcars of various types handle traffic which formerly moved in general service boxcars. The same is true to some extent with respect to refrigerator cars. Their larger size and, with respect to the flatcars in trailer-on-flatcar (TOFC) service, their more rapid turnaround, enables them to provide service which would require many more of the general service boxcars which they replaced. "Valid conclusions as to the types of cars, the construction of which for future use is to be encouraged by application of either an interim or long-range incentive charge, and which must be found to be in inadequate supply pursuant to the statutory requirement, necessarily require consideration of the extent to which the transportation service they perform is or can also be provided by cars of other types. Such consideration requires a thorough analysis of the services currently desired by the shipping public and those reasonably to be anticipated in the future. An overall, nationwide review of traffic and service demands and trends must precede any valid determination of the existing or prospective national requirements for freight cars of particular types. It is quite obvious that application of an incentive charge which served to encourage the acquisition of cars not adaptable to efficient provision of needed service over their normal lifetime would not be in the national interest. Shipper need, demand and acceptance with respect to future equipment is a significant factor."
* ↑ In its final report, the Commission apparently still believed that its proceedings had to comply with the provisions of § 556 of the Administrative Procedure Act. The report stated that the parties had been granted a hearing in accordance with those provisions. 337 I.C.C., at 219.
* ↑ Morgan II considered in some depth the parameters of a "full hearing." The majority takes the position that the case is inapposite because the hearings provided in this case do not "suffer from the defect found to be fatal in Morgan"—i.e., the parties were "fairly advised" of the scope and substance of the Commission proceedings. In Morgan II, however, there was no question that a "full hearing" included the right to present oral testimony and argument. 304 U.S. 1, 18-20.