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AMERICAN LINES V. LOUISVILLE & N. R. CO., 392 U. S. 571 (1968)
US Supreme Court Decisions On-Line> Volume 392 > AMERICAN LINES V. LOUISVILLE & N. R. CO., 392 U. S. 571 (1968)
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The congressional intent stated in the National Transportation Policy is to provide for fair regulation of all transportation modes subject to the Act, administered so as to preserve "the inherent advantage of each." The ICC found that the per ton fully distributed cost of moving the traffic was $7.59 for the railroads and $5.19 for the barge-truck service, and the long-term out-of-pocket cost was $4.69 for the railroads and estimated to be about $5.19 for the barge-truck service and, in any event, higher than $4.69. Uncontroverted shipper testimony was that price solely determined which service would be used, but that all traffic would go to the railroads if their rates were the same as those of the barge-truck combination. The ICC rejected the railroads' contention that out-of-pocket costs should be the chanrobles.com-red
New Haven, supra, at 372 U. S. 758. Pp. 392 U. S. 579-582. chanrobles.com-red
268 F.Supp. 71, reversed and remanded. chanrobles.com-red
The basic issue in these cases is whether the action of the Interstate Commerce Commission in disallowing a rate reduction proposed by the appellee railroads, 326 I.C.C. 77 (1965), was consistent with the provisions of § 15a(3) of the Interstate Commerce Act, 49 U.S.C. § 15a(3), added by 72 Stat. 572 (1958), which governs ratemaking in situations involving intermodal competition. A subsidiary but related issue is whether the Commission adequately articulated its reasons for disallowing the proposed rate. A statutory three-judge court, upon appeal of the Commission's decision by the appellee railroads, held that the Commission's decision was erroneous on both of the foregoing grounds. 268 F.Supp. 71 (D.C.W.D. Ky.1967). Because of the importance of § 15a(3) as the primary guide to ICC resolution of rate controversies involving intermodal competition, we noted probable jurisdiction of the appeal taken by the Commission and the competing carriers from the decision of the District chanrobles.com-red
Page 392 U. S. 575
Court. [Footnote 1] 389 U.S. 1032 (1968). For the reasons detailed below, we conclude that the District Court erred in its rejection of the Commission's decision and the grounds on which it was based, and we reverse.
In the course of the administrative proceedings that followed, the ICC made the following factual findings, about which there is no real dispute among the parties. The fully distributed cost [Footnote 3] to the railroads of this service chanrobles.com-red
Page 392 U. S. 576
was $7.59 per ton, and the "long-term out-of-pocket costs" [Footnote 4] were $4.69 per ton. The fully distributed cost to the barge-truck service [Footnote 5] was $5.19 per ton. [Footnote 6] The out-of-pocket cost [Footnote 7] of the barge-truck service was not separately computed, but was estimated, without contradiction, to be approximately the same as the fully distributed cost, and higher, in any event, than the out-of-pocket cost of the railroads. The uncontroverted shipper testimony was to the effect that price was virtually chanrobles.com-red
Page 392 U. S. 577
The ICC rejected the railroads' contention that out-of-pocket costs should be the basis on which inherent advantage should be determined. The Commission observed that it had in the past regularly viewed fully distributed costs as the appropriate basis for determining which of two competing modes was the lower cost mode as regards particular traffic. It further indicated that the legislative history of § 15a(3) revealed that Congress had in mind a comparison of fully distributed costs when it inserted the reference to the National Transportation chanrobles.com-red
Page 392 U. S. 578
The District Court read the statute and its accompanying legislative history to reflect a congressional judgment that inherent advantage should be determined in most cases by a comparison of out-of-pocket costs, and that, therefore, railroads should generally be permitted to set any individual rate they choose, as long as that rate is compensatory. [Footnote 8] The court also held that the chanrobles.com-red
Page 392 U. S. 579
Commission had failed adequately to articulate its reasons for deciding that the proper way of determining which mode of transportation was the more efficient was by comparison of fully distributed costs, rather than out-of-pocket costs. Although this latter holding appears first in its opinion, it is evident that it must logically follow its ruling on the meaning of § 15a(3), since, if Congress in enacting that section had already decided that inherent advantage should be determined by reference to fully distributed costs, there would be no special burden on the Commission to justify its use of them.
"to provide for fair and impartial regulation of all modes of transportation subject to the provisions of this act, so administered as to recognize and preserve the inherent advantages of each. . . . "
Page 392 U. S. 580
The enactment of § 15a(3) in 1958 was due primarily to complaints by the railroads that the ICC had maintained rates at artificially high levels in older to protect competing modes from being driven out of business by railroad competition. [Footnote 9] The bill that eventuated in the language that is presently § 15a(3) originally provided that the ICC, in considering rate reductions, should, in a proceeding involving competition with another mode of transportation, "consider the facts and circumstances attending the movement of the traffic by railroad, and not by such other mode." (Emphasis added.) 372 U.S. at 372 U. S. 754. This language was objected to strongly by both the ICC and representatives of those carriers with which the railroads were in competition. See Hearings on S. 3778 before the Senate Committee on Interstate and Foreign Commerce, 85th Cong., 2d Sess. (1958). The basic ground of objection was that, by looking only to the effect of a rate reduction on the carrier proposing it, the ICC would be unable to protect the "inherent advantages" enjoyed by competing carriers on the traffic to which a rate reduction was to be applied. chanrobles.com-red
Page 392 U. S. 581
372 U.S. at 372 U. S. 758. chanrobles.com-red
Page 392 U. S. 582
Since these cases are identical to the example just described, it would seem that, at the very least, the result reached by the Commission here is presumptively in accord with the language of the statute and with the intent of Congress in utilizing that language. [Footnote 10] chanrobles.com-red
Page 392 U. S. 583
We think that the District Court erred in its reading both of the prior New Haven decision and of the extent to which Congress intended to foster intermodal competition. We note first that nothing in the language of the New Haven opinion indicates a preference for either out-of-pocket or fully distributed costs as a measure of inherent advantage; rather, all that is said is that the appropriate measure "may be" neither. Given the fact that the insertion of the reference to inherent advantage into chanrobles.com-red
Page 392 U. S. 584
§ 15a(3) came about at the insistence of carriers that were demanding that fully distributed costs be the sole measure of that advantage, [Footnote 11] we think that the clear import of the foregoing statement in the New Haven opinion was that the Commission could, after due consideration, decide that some other measure of comparative costs might be more satisfactory in situations involving intermodal competition than the one it had traditionally utilized. [Footnote 12] That is a far cry from saying that it must.
The District Court apparently believed that the Commission was required to exercise its judgment in the direction of using out-of-pocket costs as the rate floor chanrobles.com-red
Page 392 U. S. 585
because that would encourage "hard" [Footnote 13] competition. We do not deny that the competition that would result from such a decision would probably be "hard." Indeed, from the admittedly scanty evidence in this record, one might well conclude that the competition resulting from out-of-pocket ratemaking by the railroads would be so hard as to run a considerable number of presently existing barge and truck lines out of business.
We disagree, however, with the District Court's reading of congressional intent. The language contained in § 15a(3) was the product of a bitter struggle between the railroads and their competitors. One of the specific fears of those competitors that prompted the change from the original language used in the bill was that the bill, as it then read, would permit essentially unregulated competition between all the various transportation modes. It was argued with considerable force that permitting the railroads to price on an out-of-pocket basis to meet competition would result in the chanrobles.com-red
Page 392 U. S. 586
eventual complete triumph of the railroads in intermodal competition because of their ability to impose all their constant costs [Footnote 14] on traffic for which there was no competition.
The economists who testified for the railroads in this case all stated that such an unequal allocation of constant costs among shippers on the basis of demand for railroad service, i.e., on the existence of competition for particular traffic, [Footnote 15] was economically sound and desirable. Apart from the merits of this contention as a matter of economic theory, [Footnote 16] it is quite clear that it was chanrobles.com-red
Page 392 U. S. 587
a contention that was not by any means wholly accepted by the Congress that enacted § 15a(3). One of the specific examples given of an undesirable practice, and accepted by the members of the Commerce Committee chanrobles.com-red
Page 392 U. S. 588
that drafted the statute as such, was a case in which certain railroads had engaged in day-to-day differential pricing on the carriage of citrus fruit from Florida depending on whether competitive carriage was available chanrobles.com-red
Page 392 U. S. 589
by ship that day. See Hearings, supra, at 153-155. Similar complaints were made about seasonal variations in rates by railroads depending on whether winter conditions interfered with the carriage of freight by water. Id. at 162-163 . Yet, from an economic standpoint, such rate variations make perfect competitive sense insofar as maximization of railroad revenues is concerned. [Footnote 17]
The simple fact is that 15a(3) was not enacted, as the railroads claim, to enable them to price their services in such a way as to obtain the maximum revenue therefrom. The very words of the statute speak of "preserv[ing]" the inherent advantages of each mode of transportation. If all that was meant by the statute was to prevent wholly noncompensatory pricing by regulated carriers, language that was a good deal clearer could easily have been used. And, as we have shown above, chanrobles.com-red
Page 392 U. S. 590
at least one version of such clear language was proposed by the railroads and rejected by the Congress. If the theories advanced by the economists who testified in this case are as compelling as they seem to feel they are, Congress is the body to whom they should be addressed. The courts are ill-qualified indeed to make the kind of basic judgments about economic policy sought by the railroads here. And it would be particularly inappropriate for a court to award a carrier, on economic grounds, relief denied it by the legislature. Yet this is precisely what the District Court has done in this case.
It is in this connection that the timing of this case takes on particular significance. We have already observed that the ICC has presently pending before it a broad-scale examination of the whole question of the cost standards to be used where comparisons of intermodal cost advantages are required. Rather than await the result of that rulemaking proceeding, the railroad chanrobles.com-red
Page 392 U. S. 591
appellees here determined to attempt to raise precisely the same issues in a much more circumscribed proceeding by unilaterally reducing their rates on one item of traffic. The District Court totally ignored the temporary nature of the ICC's action in this case and the pendency of the rulemaking proceeding. Instead, it went ahead and, in the guise of resolving this particular controversy over a single rate reduction, rendered a decision which, for all practical purposes, made the rulemaking proceeding moot. While there might be some justification for such a course when the applicable statute clearly requires the agency to arrive at a given result, this case is emphatically not such a situation. As this Court stated in New Haven, "[t]hese and other similar questions should be left for initial resolution to the Commission's informed judgment." 372 U.S. at 372 U. S. 761.
We have already observed that the District Court erred in interpreting the New Haven decision to require chanrobles.com-red
Page 392 U. S. 592
the Commission to permit out-of-pocket pricing in most instances. Given the fact that New Haven indicated that the Commission was to exercise its informed judgment in ultimately determining what method of costing was preferable, it is clear that the District Court also erred in refusing to permit the Commission to exercise that judgment in a proceeding it reasonably believed would provide the most adequate record for the resolution of the problems involved. We can see no justification for denying the Commission reasonable latitude to decide where it will resolve these complex issues, in addition to how it will resolve them. The action by the District Court here not only deprives the Commission of the opportunity to make the initial resolution of the issues, but also prevents it from doing so in a more suitable context.
Id. at 390 U. S. 776. That principle is equally applicable to rate regulation carried out by the ICC, especially where, as here, the determination made on an interim basis is in general accord with both the legislative history of the statute involved and the results in prior cases decided by the agency. Accordingly, we hold that the Commission had ample authority to decline to deal with the broad contentions advanced by the railroads in chanrobles.com-red
Page 392 U. S. 593
this individual rate case, and that the District Court erred in failing to recognize that authority.
The District Court also appears to have held that the Commission did not adequately explain how the rate set by the railroads would impair or destroy the barge-truck inherent advantage. Yet the Commission pointed out that the principle proposed by the railroads would, if recognized, permit the railroads to capture all the traffic here that is presently carried by the barge-truck combination because the railroads' out-of-pocket costs were lower than those of the combined barge-truck service. The District Court seems to have been impressed by the fact that the railroads were merely meeting the barge-truck rate, despite the uncontroverted evidence that, given equal rates, all traffic would move by train. Given a service advantage, it seems somewhat unrealistic to suggest that rate parity does not result in undercutting the competitor that does not possess the service advantage. In any event, regardless of the label used, it seems self-evident that a carrier's "inherent advantage" of being the low cost mode on a fully distributed cost basis is impaired when a competitor sets a rate that forces the carrier to lower its own rate below its fully distributed costs in order to retain the traffic. In addition, when a chanrobles.com-red
Page 392 U. S. 594
rate war would be likely to eventually result in pushing rates to a level at which the rates set would no longer provide a fair profit, the Commission has traditionally, and properly, taken the position that such a rate struggle should be prevented from commencing in the first place. Certainly there is no suggestion here that the rate charged by the barge-truck combination was excessive, and in need of being driven down by competitive pressure. We conclude, therefore, that the Commission adequately articulated its reasons for determining that the railroads' rate would impair the inherent advantage enjoyed by the barge-truck service.
Although I do not doubt that an administrative agency may, where the orderly processes of adjudication or rulemaking chanrobles.com-red
Page 392 U. S. 595
require, defer the resolution of issues to more appropriate proceedings, [Footnote 2/1] I should have had the greatest difficulty in saying that, in fact, this had occurred, or had been intended to occur, in these cases. [Footnote 2/2] Nonetheless, chanrobles.com-red
Page 392 U. S. 596
given both the Court's conclusion and the isolated statements in the Commission's opinion consistent with that conclusion, I believe it best to acquiesce in the result reached by the Court, rather than to express my views chanrobles.com-red
Page 392 U. S. 597
as a single Justice upon the issue which the Court shuns. [Footnote 2/3]