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Baltimore & Ohio R. Co. v. United States - 298 U.S. 349 (1936) :: Justia US Supreme Court Center
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Baltimore & Ohio R. Co. v. United States - 298 U.S. 349 (1936)
Case	U.S. Supreme CourtBaltimore & Ohio R. Co. v. United States, 298 U.S. 349 (1936)Baltimore & Ohio Railroad Co. v. United StatesNo. 312Argued January 14, 15, 1936Reargued March 3, 4, 1936Decided May 18, 1936298 U.S. 349APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES
1. The function of the Interstate Commerce Commission, in prescribing divisions of joint rates under § 15(6) of the Interstate Commerce Act, is a legislative function. P. 298 U. S. 356.
2. Exertion of the power of the Commission in that regard is conditioned upon its finding, after a full hearing, that the divisions in force do not, or in the future will not, comply with the standards specified by § 1(4). Id.
3. In proceedings to determine and prescribe divisions, the Commission is governed by §§ 1(4), 15(6), and 15a(2) of the Act; it is not required or authorized to investigate or determine whether the joint rates are reasonable or confiscatory; its duty is to make the divisions fair, and this does not depend upon the level of the rates or the amounts of revenue to be divided. P. 298 U. S. 357.
4. When made in accordance with the Act, the Commission's orders prescribing divisions are equivalent to Acts of Congress requiring the carriers to serve for the amounts so specified. Id.
5. An order of the Commission prescribing divisions, or continuing them in force, may be declared void and its enforcement permanently enjoined at the suit of a carrier whose share of the joint rate proves to be noncompensatory, even though the joint rate itself be not confiscatory. Id.
6. An order of the Commission denying relief to a carrier complaining under § 15(6) of the Act of unjust and inequitable divisions of joint rates operates to require service under them, and, though negative in form, is in effect affirmative. P. 298 U. S. 358.
7. An order of the Commission sustaining divisions of joint rates as just, reasonable, and equitable under § 15(6) of the Act is not arbitrary and in excess of the Commission's power because based in part on the financial needs of the carriers. Id.
8. In determining, under § 15(6) of the Act, the divisions of joint rates on a particular class of traffic, the Commission may consider not only the revenues, operating expenses, taxes, and returns attributable to that particular traffic, but also those that are Page 298 U. S. 350 attributable to all the operations of the railroad properties of the carriers. P. 298 U. S. 360.
9. A report and order of the Interstate Commerce Commission from which some of the members dissent has the same legal effect as if supported by all. P. 298 U. S. 361.
10. Findings of the Commission in fixing divisions under § 15(6) of the Act and its determination of the significance of the particular facts found held conclusive though too much weight was given to the financial needs of carriers. P. 298 U. S. 362.
11. Where the application of carriers to the Interstate Commerce Commission for just, reasonable, and equitable divisions of joint rates under § 15(6) of the Act raised no question of confiscation, held that the findings in its report could not be construed as addressed to that issue. P. 298 U. S. 363.
12. Denial by the Interstate Commerce Commission of a petition for rehearing of an order sustaining divisions of joint rates, the petition raising for the first time the issue of confiscation, held to amount to a command by the Commission that, notwithstanding their invocation of constitutional protection, the petitioning carriers must make the adjustment ordered, involving the payment of enormous sums and the use of their property to serve the public for the compensation specified in the order. P. 298 U. S. 363.
13. Upon the question whether the divisions of joint rates prescribed by the Interstate Commerce Commission constitute just compensation within the meaning of the Fifth Amendment, the findings of the Commission could not constitutionally be made conclusive. The District Court may receive evidence in addition to what was before the Commission and weigh all the evidence and make its own findings in deciding the constitutional question. St. Joseph Stock Yards Co. v. United States, ante p. 298 U. S. 38. P. 298 U. S. 364.
14. A carrier petitioning the Commission for just, reasonable, and equitable divisions of joint rates -- the reasonableness of the rates themselves not being in question -- is not obliged to raise in advance the question whether the existing divisions are confiscatory. Held that, in this case, the complaining carriers who sought in vain, by petition for rehearing, to have the Commission inquire into the alleged confiscatory results of its order were entitled to seek judicial relief. P. 298 U. S. 369.
15. Evidence held insufficient to prove with the requisite certainty that the divisions of joint rates on transportation of citrus fruit have proved or will prove to be confiscatory. P. 298 U. S. 372.
9 F.Supp. 181 affirmed. Page 298 U. S. 351
Appeal from a decree of the District Court of three judges which dismissed a bill to enjoin the enforcement of an order of the Interstate Commerce Commission determining divisions of joint rates on transportation of citrus fruit.
This is a suit in equity [Footnote 1] brought by appellants against the United States to set aside and permanently to enjoin the enforcement of an order of the Interstate Commerce Commission based on its report made July 3, 1933, and modified in accordance with its report of January 8, 1934. [Footnote 2] The Commission, July 10, 1928, had prescribed rates on citrus fruit [Footnote 3] from places of production in Florida to points in Official Classification Territory. [Footnote 4] The order Page 298 U. S. 352 here in controversy prescribes divisions as between southern carriers hauling from Florida to Richmond, Virginia, and other gateways and northern carriers hauling to destinations and prescribed adjustment to be made by the latter. [Footnote 5] The Boston & Maine and other northern Page 298 U. S. 353 carriers intervened as parties plaintiff. [Footnote 6] The Commission and the Atlantic Coast Line and other southern carriers intervened as parties defendant. [Footnote 7] The complaint assails the order upon the grounds that it is based on a misconstruction of the act and is confiscatory. The case was tried by three judges. In addition to the evidence given before the Commission, there were offered and received at the trial the testimony of many witnesses and much documentary evidence. The court held plaintiffs not entitled to relief dismissed the case. [Footnote 8] They appealed. [Footnote 9]
The history and structure of the joint rates shed light on questions to be decided. June 25, 1908, the Commission found the rates, called "gathering rates," from places of shipment in Florida to junctions in the northern part of that state reasonable, but that the charges for transportation from the junctions to the north were unreasonable. Page 298 U. S. 354 It prescribed "proportionals" which were added to the gathering rates to make joint rates applicable over through routes to destinations. Included in the proportionals were stated amounts, called "specifics," per box of estimated weight of 80 pounds to cover hauls beyond the gateways. These specifies went to the northern lines, and constituted their share of the joint rates. [Footnote 10]
In 1915, the Commission allowed the carriers in official territory a general rate increase of 5 percent, [Footnote 11] and, in 1917, granted an additional 15 percent. [Footnote 12] These increases were applicable generally to interterritorial hauls. The specifics for northern lines were not advanced. In 1918, while the carriers were under federal control, the director general raised rates 25 percent. The divisions to the southern and northern lines were increased by that ratio. In 1920, after the railroads were returned to their owners, the Commission granted to carriers in the southern group a general rate increase of 25 percent, and to those in the eastern group, which included the northern lines here involved, an advance of 40 percent. It also authorized charges for interterritorial hauls to be raised by 33 1/3 percent. [Footnote 13] While that was enough to increase the southern carriers' shares by 25 percent and those of the northern lines by 40 percent in harmony with the respective rate increases, each group of carriers received divisions raised by 33 1/3 percent. The northern lines emphasize the fact that, if their divisions had kept step with rates in that territory, they would have been increased four times, whereas, in fact, their divisions did not share at all in either of the first two advances, and only partially in the fourth -- i.e., 33 1/3 instead of 40 percent. Page 298 U. S. 355
The joint rates prescribed by the Commission's order of July 10, 1928, were specified amounts per 100 pounds. The assumed weight of 80 pounds per box to which were applied the specifies to cover hauls of the northern carriers was too low. While the Commission failed definitely to find actual average weight per box, its report distinctly indicates that it was about 90 pounds. [Footnote 14] After the taking effect of the new rates, the northern lines in trunk line and New England territories took, out of the freight charges they collected, and retained as their divisions per 100 pounds 25 percent more than the specific per box. The northern lines in central territory adopted 90 pounds as the basis on which to make conversion of the rate per box to rate per 100 pounds. The increase was slightly over 11.1 percent
The divisions were not satisfactory to either group of carriers. November 22, 1930, the Atlantic Coast Line and other southern carriers filed their complaint [Footnote 15] requesting the Commission to condemn the divisions of citrus fruit rates to trunk line and New England territories, then being received by them, as a violation of the requirements of § 1(4) to prescribe just, reasonable, and equitable divisions in accordance with § 15(6), and to require adjustment and refund to be made by northern lines in respect of transportation subsequent to the complaint. January 3, 1931, the Commission instituted a general investigation [Footnote 16] in respect of divisions of joint interterritorial rates between official and southern territory. April 20, 1931, the northern lines filed a cross-complaint. To prevent duplication, the general investigation, so far as it concerned divisions of rates on citrus fruit in central territory, was set for hearing on the same record as the complaint of the southern lines in respect Page 298 U. S. 356 of divisions of rates to trunk line and New England territory. [Footnote 17] Thus, the issue concerning divisions of citrus fruit rates from Florida to destinations in official territory was segregated from the broader controversy. The order here assailed assigns to appellants divisions yielding more than did those accepted by them for a long time prior to the taking effect of the rate order of July 10, 1928.
There was before the Commission no question as to the validity of the joint rates. There was no claim that they were not sufficient to cover "out-of-pocket costs" -- i.e., the amount by which performance of the service covered by the rates caused operating expenses and taxes to be higher than otherwise they would have been. Nor was it suggested that they were confiscatory -- i.e., not sufficient to cover operating expenses and taxes justly apportionable to the traffic plus an amount reasonably sufficient in the circumstances to constitute just compensation for the use of the carriers' property in that service. The division of presumably reasonable rates was the only problem before the Commission. Neither complaint alleged that existing divisions were not more than sufficient to cover the out-of-pocket costs, or that they were confiscatory.
The Commission was required to decide whether, in respect of the joint rates, the carriers had discharged the duties imposed upon them by § 1(4) -- i.e.,
"to establish just, reasonable, and equitable divisions thereof as between the carriers . . . participating therein which shall not unduly prefer or prejudice any of such participating carriers."
The prescribing of divisions is a legislative function. [Footnote 18] Exertion of that power by the Commission is conditioned upon its finding, after a full hearing, that Page 298 U. S. 357 the divisions then in force do not, or in the future will not, comply with the specified standards. In proceedings to determine and prescribe divisions, the Commission is governed by §§ 1(4), 15(6), 15a(2); it is not required or authorized to investigate or determine whether the joint rates are reasonable or confiscatory. The question whether it complied with the requirements of the Act does not depend upon the level of the rates or the amounts of revenue to be divided. The purpose of the provisions just cited is to empower and require the Commission to make divisions that colloquially may be said to be fair. [Footnote 19]
But this does not imply that, without regard to amount, the carriers are bound to accept prescribed divisions. Congress is without power, directly or through the Commission, to require them to serve the public at rates that are confiscatory. When made in accordance with the Act, the Commission's orders prescribing divisions are the equivalent of Acts of Congress requiring the carriers to serve for the amounts specified. Taken, as they must be, in connection with the duties to the public imposed by law upon the carriers, they command service, and for that purpose expropriate the use of carriers' property. If, when made the prescribed divisions are or later shall become less than just compensation, the carriers may not be required to serve therefor. [Footnote 20] And, if after appropriate effort, they fail to obtain divisions of nonconfiscatory joint rates that do constitute just compensation for their services, including the use of their properties, Page 298 U. S. 358 the carriers may, by suit in equity, have the order prescribing, or requiring to be kept in force, the challenged divisions adjudged void, and its enforcement permanently enjoined. [Footnote 21] Section 15(6) requires the Commission, on complaint of any participating carrier, to determine whether existing divisions are just, reasonable, and equitable, and, if not, to prescribe others that do comply with the law. Its denial of relief from existing divisions operates to direct service under them. Though negative in form, the order of denial is affirmative in effect. In some circumstances, carriers may accept rates or divisions that do not yield enough to cover operating expenses and taxes that are fairly apportionable to the service plus a reasonable return for the use of their railroads. If revenues yielded exceed the amounts by which operating expenses are increased on account of the service covered by such charges, then legitimately the carriers' net earnings may thus be enhanced. When conditions permit, such rates or divisions may be established and kept in force without detriment to competing carriers, shippers, other transportation, or the public. Just as an owner may sell his property for less than the amount he would be entitled to have upon expropriation, so may carriers, conditions warranting it, render service for less than, by exertion of sovereign power, they could be compelled to accept.
1. Appellants maintain that the order is arbitrary and in excess of statutory power
"because the commission erroneously subordinated all matters which, under § 15(6) . . . , it is required to consider to the element of southern lines' supposed 'financial need.'"
In substance, Congress, by that paragraph, authorizes the Commission to take into account all that is relevant to the ascertainment of fair divisions. While presumed Page 298 U. S. 359 valid, its order may be annulled if shown to rest on a misconstruction of the Act or upon inadequate or unsupported findings of fact. [Footnote 22] The Commission alone is authorized to decide upon weight of evidence or significance of facts. There is no single test by which "just," "reasonable," or "equitable" divisions may be ascertained; no fact or group of facts may be used generally as a measure by which to determine what division will conform to these standards. Considerations that reasonably guide to decision in one case may rightly be deemed to have little or no bearing in other cases. Error as to the weight to be given financial needs, operating costs, or other material facts is not a misconstruction of the Act.
The report shows that the Commission received much evidence bearing upon the standards set by § 15(6) to govern it in making the divisions. Appellants' claim that the order rests exclusively upon the southern lines' financial needs is negatived by the record. Many other facts were shown to have been presented and considered. There is no requirement that the Commission specify the weight given to any item of evidence or fact or disclose mental operations by which its decisions are reached. [Footnote 23] Useful precision in respect of either would be impossible. And it would be futile upon the record to attempt definitely Page 298 U. S. 360 to ascertain the weight assigned to any fact or argument in prescribing the divisions. We find no support for appellants' claim.
2. Appellants also maintain that the order is in excess of power granted by the act because, as they assert, the Commission considered rates of return from the carriers' entire operations on all their railroad property, instead of fair return from transportation of citrus fruit on the use fairly attributable to that service.
More specifically, the substance of their claim is that the Commission transgressed or disregarded the clause of § 15(6) which requires that it
"shall give due consideration, among other things, to . . . the amount of revenue required to pay their respective operating expenses, taxes, and a fair return on their railway property held for and used in the service of transportation."
Their contention assumes and depends upon a construction of the quoted clause that would limit consideration of the return to services covered by the divisions under consideration and prohibit taking into account returns from all service. But that is not the meaning of the clause. The language "property held for and used in the service of transportation" is broad enough to include all carrier property. It requires no discussion to demonstrate that § 15(6) authorizes the Commission to take into account and give due weight to revenues from all transportation service, the operating expenses and taxes chargeable to the same and the amounts available as compensation for the use of all carrier property. And unquestionably the paragraph also empowers the Commission to take into account the revenues, expenses, taxes, and returns attributable to the service covered by the divisions under consideration. The record shows that the Commission received and considered evidence in relation to both these matters of fact. Page 298 U. S. 361
The question whether the carriers in the southern or northern groups were in the worse financial position was a close and difficult one. After full hearing, the Commission decided that the needs of the southern lines were greater. It appears to have given much weight to that fact. Four members dissented, and filed an opinion in which they compared and commented on the prescribed divisions in substance as follows:
For a haul of 600 miles, the northern factor is 87 and the southern 161. The latter is 85 percent higher than the former. The average hauls are about 825 miles in the south and 375 miles in the north. For these distances, the factors are 194 for the south and 60 for the north, or O.235 per mile for the longer haul in the south and O.160 per mile for the shorter haul in the north. The advantage per mile is 47 percent for the south. Taking into consideration the respective lengths of haul and the fact that divisions, like rates, should decrease per mile as the length of haul increases, this 47 percent checks well within the 85 percent in the first test.
For the average southern haul of 825 miles, the southern factor is 94 percent of the corresponding first-class rate, whereas the northern factor is 62.5 percent. Yet the southern class rates average more than 30 percent higher than the eastern class rates, and the Commission has several times found that this difference is not fully justified by transportation conditions.
Transportation conditions in Florida are less favorable than in the South generally, but a Florida arbitrary is added to the rate. It is deducted before proration, and added to the southern division of the balance of the joint rate. Gathering expense is high, but so is delivery expense at destination. The Commission was obliged to lean heavily on history and on the fact that, while both sets of carriers are badly off financially, the southern lines appear to be worse off than the northern. Historical Page 298 U. S. 362 considerations were not entitled to much weight. While financial need is important, the report and order of the Commission gave it too much weight.
The wide difference of opinion among the members may suggest doubt as to some basic findings of fact, but it gives no support to appellants' claim that the Commission acted arbitrarily or in excess of powers granted by the Act. The legal effect of the challenged report and order is the same as if supported by all members of the Commission. [Footnote 24] Although it may be plain that, if considered without regard to the facts other than relative transportation and costs of the service, the divisions would seem extremely favorable to the southern lines, the Commission's findings based on evidence and its determination as to the significance of pertinent facts found are conclusive. Appellants' contention cannot be sustained.
At the trial, the United States and Commission moved that no evidence be received other than that contained in the record before the Commission. The court denied the motion. Counsel for the United States and Commission do not here claim that the ruling was erroneous. But it has been suggested that the trial court should not have received evidence other than that introduced before the Commission; that it was not permitted to make findings, but was bound to accept those of the Commission if supported by evidence. Decisions in lower Federal courts Page 298 U. S. 363 touching the points thus raised are not harmonious. [Footnote 25] Their determination has an important bearing upon the decision here to be made. It is therefore necessary to decide what, in respect of admission and consideration of evidence, should have been the scope of the trial in the District Court. [Footnote 26]
There is no statute that can be held to limit as suggested trial of an issue of confiscation. No question as to compensation in the constitutional sense was raised by the complaints to the Commission. The issues there concerned only the fairness of divisions. Prior to the taking effect of the order, appellants filed a petition for rehearing in which they claimed that its enforcement would confiscate their property; they then made substantially the same contentions as they make in this suit, and sought opportunity to support them by evidence in order to obtain the Commission's findings of fact and decision upon the question of confiscation. But the Commission denied their application. That denial of hearing amounted to a command of the Commission that, notwithstanding their petition to it invoking constitutional protection, appellants must make the specified adjustment involving the payment of enormous sums, and use their property to serve the public for the compensation specified in the order. As the carriers' application to the Commission for just, reasonable, and equitable divisions under § 15(6) raised no question of confiscation, its findings in the report may not be construed as addressed to that issue. Page 298 U. S. 364
4. There is a wide and fundamental difference between the question whether the Commission, in prescribing divisions found by it to be just, reasonable, and equitable, complied with the procedural requirements of the Act,