Case Name: SOUTHERN PACIFIC COMPANY and Union Pacific Railroad Company, Plaintiffs, v. The UNITED STATES of America and the Interstate Commerce Commission, Defendants
Court: United States District Court for the District of Nebraska
Jurisdiction: United States
Decision Date: 1967-12-06
Citations: 277 F. Supp. 671
Docket Number: Civ. No. 02577
Parties: SOUTHERN PACIFIC COMPANY and Union Pacific Railroad Company, Plaintiffs, v. The UNITED STATES of America and the Interstate Commerce Commission, Defendants.
Judges: Before LAY, Circuit Judge, and ROBINSON and VAN PELT, District Judges.
Reporter: Federal Supplement
Volume: 277
Pages: 671–690

Head Matter:
SOUTHERN PACIFIC COMPANY and Union Pacific Railroad Company, Plaintiffs, v. The UNITED STATES of America and the Interstate Commerce Commission, Defendants.
Civ. No. 02577.
United States District Court D. Nebraska.
Dec. 6, 1967.
Raymond E. McGrath, Omaha, Neb., Alan C. Furth and Robert L. Pierce, San Francisco, Cal., for plaintiff Southern Pacific.
G. Clark Cummings, New York City, William P. Higgins, Omaha, Neb., for plaintiff Union Pacific.
David F. Turner, John H. D. Wigger, Larry Meyer, Dept, of Justice, Washington, D. C., Theodore L. Richling, U. S. Atty., Omaha, Neb., for defendant the United States.
Robert W. Ginnane, Fritz Kahn, Betty Jo Christian, Washington, D. C., for defendant Interstate Commerce Commission.
Dennis McCarthy, Salt Lake City, Utah, Ernest Porter, Denver, Colo., Donald R. Ross, Omaha, Neb., for defendant intervener Denver & Rio Grande.
E. Barrett Prettyman, Washington, D. C., Yale C. Holland, Omaha, Neb., for defendant intervener Western Pacific.
Before LAY, Circuit Judge, and ROBINSON and VAN PELT, District Judges.

Opinion:
LAY, Circuit Judge.
Plaintiffs, Southern Pacific and Union Pacific seek equitable relief to enjoin the Interstate Commerce Commission from enforcement of a supplemental order, dated January 6, 1966, modifying the Commission's order of February 6, 1923, entitled Control of Central Pacific by Southern Pacific, Finance Docket No. 2613.
While the one general issue before us is the legality of the preferential routing and solicitation by the Southern Pacific Company and the Union Pacific Railroad, plaintiffs argue their case within the frame work of two basic questions. First, they challenge the propriety of modifying a condition originally imposed by the Interstate Commerce Commission upon the Southern Pacific when it acquired the Central Pacific Railway in 1923 (the Control case, 76 I.C.C. 508 (1923)). The second question concerns the legality of a 1924 agreement and the practices thereunder, providing for reciprocal solicitation and routing by Union Pacific and Southern Pacific in each other's behalf.
By its 1923 order the Commission approved and authorized, subject to nine conditions, the acquisition by the Southern Pacific of control of the Central Pacific Railway Company through lease and stock ownership. The fifth condition, hereinafter referred to as condition (e), read as follows:
"That the Southern Pacific Company shall cooperate with the Union Pacific Railroad Company to secure by active solicitation the routing of the maximum of freight traffic via the lines of the Union Pacific Railroad Company and the Central Pacific Railway Company through the Missouri River and Ogden, Utah, as parts of one connected continuous line, between all points in California and Oregon north of and including Caliente and Santa Margarita, Calif., and south of and including the Klamath Falls branch and Kirk, Ore., on the one hand, and points north and west of a line along the northern boundaries of Oklahoma and Arkansas, to the Mississippi River, thence along the Mississippi and Ohio Rivers (but not including intermediate cities on the Ohio River) to Wheeling, W. Va., and thence on a line drawn just east of Pittsburgh, Pa., and Buffalo, N. Y., to Niagara Falls, N. Y." (Emphasis ours.)
At the time, the Denver and Rio Grande Western Railroad (hereinafter the Rio Grande) acquiesced in the 1923 condition. However, in 1957, the Rio Grande sought to reopen the control proceedings for modification of condition (e). In 1962, the Commission in a 6-5 decision refused to modify the original condition so as to eliminate all reference to the Union Pacific. The Rio Grande then sought relief from the District Court in Colorado. The Commission's order was set aside by the District Court and the proceeding remanded for the Commission to consider additional evidence. Denver & R.G.W. R.R. v. I.C.C., D.C., 229 F.Supp. 249 (1964). Upon reconsideration, the Commission revised its prior holding and modified the condition omitting the Union Pacific's name as originally recommended by the Examiner. The Commission likewise held the 1924 agreement and practices of the Southern Pacific and the Union Pacific contrary to the National Transportation Policy (49 U.S.C. prior to § 1), and their preferential routing in violation of Section 3(4) of the Interstate Commerce Act, 49 U.S.C. § 3(4).
We sustain the action of the Commission and deny the injunctive relief requested.
It is helpful to understand the routes of the various carriers as demonstrated on the attached map, Appendix A. The Union Pacific operates the route east of Ogden via Cheyenne to Omaha, and also makes interchanges at Denver with the Rio Grande, via routes through northeastern Colorado and central Kansas east to Omaha and Kansas City. The southern route of the Southern Pacific is a transcontinental route from the west coast to Kansas City via El Paso. The Central Pacific, now the Southern Pacific, by complete merger in 1959 (Southern Pac. Co. Merger, 307 I.C.C. 806) connects at the Utah Gateway with both the Rio Grande and the Union Pacific and goes west to California.
Western Pacific, an intervening defendant, competes with the Southern Pacific both on its north-south route through California and Oregon and its east-west route from, San Franciso to Ogden. Western Pacific connects at Salt Lake City with both the Rio Grande and the Union Pacific. The Rio Grande operates two main lines between Denver and Ogden. One is via Pueblo, the other is through the Moffat Tunnel and the Dotsero cutoff. West of Dotsero the lines are identical to Ogden. The Dotsero cutoff and the Moffat Tunnel were opened in 1934, thereby reducing the distance between Denver and Ogden by 175 miles.
The Commission observed:
"The differences in distance, whether in favor of the Southern Pacific-Rio Grande routes or the Southern Pacific-Union Pacific routes, are insignificant from the standpoint of length of hauls [and 'maintenance of schedules'], and therefore the two routes are substantially comparable. " 317 I.C.C. 469, 475-76 (1962).
Under condition (e) and the 1924 agreement between Southern Pacific and Union Pacific, the plaintiffs have been routing and soliciting in favor of each other's lines at the Utah Gateway, in preference to any other interchanging lines.
Plaintiffs now urge that the Commission has no power to reopen the 1923 Control proceeding or to modify condition (e). We disagree. As the Commission said in its 1966 order:
"[F]uture changes of circumstances were undoubtedly one of the reasons which prompted inclusion of condition (i) reserving jurisdiction to reopen for supplemental orders as appropriate in the light of future events."
The Commission "has the power to retain jurisdiction for the purpose of making modifications that it finds necessary in the light of subsequent circumstances Baltimore & O. R.R. v. United States, 386 U.S. 372, 387, 87 S.Ct. 1100, 1108, 18 L.Ed.2d 159 (1967). See also 49 U.S.C. § 5(9). Any rule to the contrary could illogically bind our national transportation system to archaic philosophies beneficial only for conditions of the past, but detrimental to the public welfare today.
We turn to the substantive problems involved. A brief background is necessary. In 1862 and 1864 the Pacific Railroad Acts were passed by Congress. These Acts authorized the building of the first transcontinental railroad in this country which found completion in the historic joinder at Promontory, Utah, of the two roads, the Union Pacific and the Central Pacific, on May 10, 1869.
Thereafter, in 1887, the Interstate Commerce Act was passed, and at that time, as recently observed, the railroads, then "had a practical monopoly of freight transportation and discriminations flourished." American Trucking Assoc., Inc. v. Atchison, T. & S.F. Ry., 387 U.S. 397, 406, 87 S.Ct. 1608, 1613, 18 L.Ed.2d 847 (1967). As other roads began to develop in this country, railroads began to view the competitive future. In 1912 the Supreme Court was confronted with the control of the Southern Pacific by the Union Pacific. This was disapproved in United States v. Union Pac. R.R., 226 U.S. 61, 33 S.Ct. 53, 57 L.Ed. 124 (1912), as being a restraint of trade violative of the Sherman Antitrust Act of 1890.
Thereafter, because of the interlocking financial and physical relationships between Central Pacific and Southern Pacific's California lines, the Southern Pacific was forced to defend a lease and stock acquisition of the Central Pacific. This was similarly denied, with the Supreme Court making this relevant observation :
"The proof is ample that the policy of the Southern Pacific system has been to favor transportation on its line by securing for itself, whenever practicable, the carriage of freight which would normally move eastward or westward over the shorter line of the Central Pacific Railroad and its connections [the central route], for its own much longer and wholly owned southern route. This course was limited by an arbitrary rule during the time the Union Pacific dominated the Southern Pacific from the stock purchase [of Southern Pacific's stock by Union Pacific] in 1901 until the so-called 'unmerger' in 1913, as the result of the decision of this court in the Union Pacific Case [United States v. Union Pac. R.R., 226 U.S. 61 [, 33 S.Ct. 53, 57 L.Ed. 124]]. The compelling motive of this course of conduct is obvious. The Southern Pacific owns and controls the southerly route, and receives 100 per cent, of the compensation for freight transported by its road and water lines. Over the Central Pacific route it receives but a fraction of the freight, because the Union Pacific with its Eastern connections take up the carrying from Ogden to the East. Self-interest dictates the solicitation and procurement of freight for the longer haul by the Southern Pacific lines." United States v. Southern Pac. Co., 259 U.S. 214, 231, 42 S.Ct. 496, 499, 66 L.Ed. 907 (1922).
In 1920 the first Transportation Act was passed. 41 Stat. 456 (1920). It rec ognized that the "public welfare" would be better served by a national transportation system. Subject to the Interstate Commerce Commission's approval and direction, common carriers could otherwise merge or join together notwithstanding the prohibtion of antitrust or other laws.
Immediately thereafter, the Southern Pacific sought authorization from the Commission to acquire control of Central Pacific under the Act, 41 Stat. 480-482, as amended, 49 U.S.C. § 5(2) (1964). This was opposed by the Union Pacific. After a long hearing the Union Pacific and others withdrew their objection and the Commission attached to its approval of the merger nine specified conditions. Condition (e), supra reflected similar concern of the Commission over Southern Pacific's favoring its longer route to the jeopardy of the transcontinental route of Central Pacific and Union Pacific. The newly approved merger and conditions were embodied in the decree of the District Court. United States v. Southern Pac. Co., 290 F. 443 (D.Utah 1923). No appeal was taken from the order of the Commission or court.
THE PACIFIC RAILROAD ACTS
In the present proceeding the Union Pacific and the Southern Pacific urge that condition (e) is not only lawful but accords with a mandate of the Pacific Railroad Acts. They argue that all conditions attached to the 1923 order by the Commission were nothing more than the fulfillment of the Acts.
Subsequent to the Commission's approval of the acquisition of Central Pacific by the Southern Pacific, an agreement was entered into with the Union Pacific which was theoretically premised upon condition (e). The 1924 agreement (1) obligated Union Pacific and Central Pacific to preferentially solicit for each other, (2) obligated Union Pacific and Central Pacific to preferentially route freight unrouted by the shipper along the Union Pacific and Central Pacific line and (3) expanded the territory of the preferential solicitation and routing beyond condition (e). The failure of the Commission in the 1962 proceeding to consider this agreement and practices thereunder motivated the District Court to remand the case to avoid "splintered issues," under authority of A. L. Mechling Barge Lines, Inc. v. United States, 376 U.S. 375, 84 S.Ct. 874, 11 L.Ed.2d 788 (1964).
Plaintiffs similarly defend the 1924 agreement and the practices under the Pacific Railroad Acts, arguing that, like the conditions in the Interstate Commerce Commission order, they too simply embody the statutory benefits accorded them by the Acts, and therefore cannot be countermanded by order of the Commission.
In 1962, in their first supplemental order, the Commission interpreted the Pacific Railroad Acts in accord with plaintiffs' contention. 317 I.C.C. 469 (1962). Upon reconsideration in its 1966 order, the Commission reversed itself. We feel the 1966 order and its interpretation is in accord with the correct construction of the Pacific Railroad Acts. These Acts provide in part as follows:
"The track upon the entire line of railroad and branches shall be of uniform width, to be determined by the President of the United States, so that, when completed, cars can be run from the Missouri River to the Pacific coast; the whole line of said railroad and branches and telegraph shall be operated and used for all purposes of communication, travel, and transportation, so far as the public and government are concerned, as one connected, continuous line; " Act of July 1, 1862, ch. 120, § 12, 12 Stat. 495.
" the several companies authorized to construct the aforesaid roads are hereby required to operate and use said roads and telegraph for all purposes of communication, travel, and transportation, so far as the public and the government are concerned, as one continuous line; and, in such operation and use, to afford and secure to each equal advantages and facilities as to rates, time and transportation, without any discrimination of any kind in favor of the road or business of any or either of said companies, or adverse to the road or business of any or either of the others Act of July 2, 1864, ch. 216, § 15, 13 Stat. 362 (codified in 45 U.S.C. § 83).
This language was interpreted by the Supreme Court in United States v. Union Pac. R.R., 226 U.S. 61, 33 S.Ct. 53, 57 L.Ed. 124 (1912). Mr. Justice Day stated:
"These acts, it is said, are only intended to secure the permanent physical connection of the roads, and to provide for equal accomodations upon the basis of independent carriage, and outline no method by which the two roads can be compelled to make a joint through rate, and that at the time of the stock transfer there was no such provision in the interstate commerce acts. Therefore, it is said that the Union Pacific, no less than the Rio Grande, would have been practically at the mercy of the Southern Pacific in the favorable or unfavorable treatment which might have been accorded to it in the matter of through business to be transported eastwardly. The purpose of Congress to secure one permanent road to the coast so far as physical continuity is concerned is apparent, but we do not think the acts stop with that requirement. It is provided that facilities as to rates, time and transportation shall be without any discrimination of any kind in favor of either of said companies, or adverse to the road or business of any or either of the others; and the purpose of Congress to secure a continuous line of road, operating from the Missouri river to the Pacific coast as one road, is further emphasized in the act of Congress of June 20, 1874, [c. 331,18 Stat. Ill,] making it an offense for any officer or agent of the companies authorized to construct the roads, or engaged in the operation thereof, to refuse to operate and use the same for all purposes of communication, travel and transportation, so far as the public and government are concerned, as one continuous line, and making it a misdemeanor to refuse, in such operation and use, to afford and secure to each of said roads equal advantages and facilities as to rates, time and transportation, without any discrimination of any kind in favor of or adverse to any or either of said companies." 226 U.S. at 91-92, 33 S.Ct. at 59.
Plaintiffs construe the above language of the Court to mean that the Union Pacific and Central Pacific must prefer one another to the prejudice of a connecting line, but that no other carrier may discriminate against either of them. This contradicts not only the spirit of the acts, but the plain language as well.
Mr. Justice Day added:
"Such practices of systematic and preconcerted discrimination as are said to have destroyed the Rio Grande's carrying trade as a connection for the East for business at Ogden would have violated the statute as discriminations adverse to the Union Pacific, and be equally violative of the letter and spirit of the acts of Congress. Certainly such discriminations could be restrained by the courts (Union Pacific Railway Co. v. Chicago, Rock Island & Pacific Railway Co., 163. U.S. 564, 603, 604 [16 S.Ct. 1173, 41 L.Ed. 265]), and might possibly have resulted in a forfeiture of all rights under the acts of Congress." (Emphasis ours.) 226 U.S. at 92, 33 S.Ct. at 59.
Section 15 of the Act prohibits "discrimination of any kind in favor of the road or business of any or either of said companies, or adverse to the road or business of any or either of the others (Emphasis ours.)
The case of Union Pac. Ry. v. Chicago, R.I. & P. Ry., 163 U.S. 564, 16 S.Ct. 1173, 41 L.Ed. 265 (1896), as cited by Mr. Justice Day, is contrary to plaintiffs' position. Under the authority of the Pacific Railroad Acts, the Supreme Court enjoined the Union Pacific from discriminatory practices to other connecting lines. The Union Pacific reasoned it would fail in its public duty by fulfilling a trackage and bridge agreement with connecting roads across the Missouri River. The Court enforced the contracts between the carriers and said:
"For the provisions of the Pacific Railroad acts relating to the bridge over the Missouri river, its construction and operation, imposed on the Pacific Company the duty of permitting the Rock Island Company to run its engines, cars and trains over the bridge and the tracks between Council Bluffs and Omaha 163 U.S. at 586, 16 S.Ct. at 1181.
"It is impossible for us to ignore the great policy in favor of continuous lines thus declared by congress, and that it is in effectuation of that policy that such business arrangements as will make such connections effective are made." (Emphasis ours.) 163 U.S. at 589, 16 S.Ct. at 1183.
The original Section 15 of the Act of 1862, and its amendatory provisions, are clear indication that the vision of Congress was not confined to the Union Pacific and the Central Pacific or just their branch lines, nor were their privileges to be forever exclusive:
" any other railroad company now incorporated, or hereafter to be incorporated, shall have the right to connect their road with the road and branches provided for by this act, at such places and upon such just and equitable terms as the President of the United States may prescribe. Wherever the word company is used in this act it shall be construed to embrace the words their associates, successors, and assigns, the same as if the words had been properly added thereto." (Emphasis ours.)
Mr. Justice Strong said in review of the Pacific Railroad Acts in Union Pac. R. R. v. Hall, 91 U.S. 343, 345-346, 23 L.Ed. 428 (1875):
"The scheme of the act of Congress, then, is very apparent. It was to secure the connection of the main line, by at least three branches, with the Missouri and Iowa Railroads, and with a railroad running eastwardly from Sioux City in Iowa, either through that State or through Minnesota. An observance of this scheme, we think will aid in considering the inquiry at what place the act of Congress, and the orders of the President made in pursuance thereof, established the eastern terminus of the Iowa branch. From it may reasonably be inferred that the purpose of Congress was to provide for connections of the branches of the main line of the Union Pacific road with railroads running through the States on the east of the Territory, and to provide for those connections within those States, at points at or near their western boundaries." (Emphasis ours.)
The purpose of Congress by the passage of the Pacific Railroad Acts was to create a strong link between the East and the West, sufficient to ensure military protection for the isolated areas if needed, as well as a dependable and speedy means of commercial and social access. But it is clear that Congress envisioned not only a single, unbroken cross-nation line, but a network of railroads feeding and complementing the transcontinental route.
Plaintiffs insist that to afford equal solicitation to the Rio Grande at Ogden would constitute discrimination against the Union Pacific under the Pacific Railroad Acts. We cannot agree. Preferenc-' es and discrimination are among the prohibitions of the Acts and are in no sense sanctioned by them.
We conclude that plaintiffs' reliance on the Pacific Railroad Acts is unavailing.
MODIFICATION OF CONDITION (e) UNDER § 5(2) (a).
Plaintiffs argue alternatively that the Commission did not have sufficient grounds to find that condition (e) was no longer "just and reasonable" under Section 5(2) (a) of the Interstate Commerce Act.
The Commission considered evidence which clearly demonstrated the change since 1923 in the circumstances of Rio Grande as a competing line using the Ogden Gateway. The Commission points out that the "primary objective" of the conditions in the 1923 Control proceeding, wherein stock acquisition by Southern Pacific of Central Pacific was approved, was "the protection of the competitive position of the transcontinental route of the Central Pacific via Ogden against the Southern Pacific's possible preference for its long-haul southern route via El Paso." 328 I.C.C. 345, 354 (1966). The Commission states:
"The Rio Grande in no way seeks to disturb such a method of operation. But the Rio Grande now also maintains through routes and joint rates with the Southern Pacific at Ogden, and by means of its several eastern connections also operates as one connected, continuous central or Overland transcontinental line through Ogden and the Missouri River to points beyond, and we now see no valid reason for a continuance of a requirement by this Commission under which Rio Grande is precluded from equality of treatment by the Southern Pacific so far as traffic solicitation is concerned. The Rio Grande does not seek to have the Southern Pacific prefer it at the Ogden interchange to the prejudice of the Union Pacific or any other railroad. It only seeks an equal competitive position.
*
"Had the petitioner's competitive situation at Ogden been more than that of a minor connecting line in 1923, we have no doubt that the requirements of condition (e) would have been different from those actually imposed in the Control case.
"After consideration of the full record, without the procedural limitations before imposed, we now find that the present effect of the discriminatory practices against the Rio Grande in the preferential solicitation and routing of traffic results in a stifling of competition between the Union Pacific and the Rio Grande on Transcontinental traffic. It tends to relegate the Rio Grande to a secondary status as a transcontinental carrier. The concern of Congress in 1862 and 1864 that there be a strong transcontinental rail line operated as one connected, continuous line, is not thwarted by the existence of several such transcontinental lines operating today.
"Upon reconsideration, we now find that in view of changed circumstances and developments since its imposition, condition (e) is no longer just and reasonable. Under present day circumstances it is'contrary to the public interest and the national transportation policy. The Congressional desire reflected in the Pacific Railroad Acts has been fulfilled by the existence of several central transcontinental routes. The Rio Grande is an important segment of one of these routes. The national defense and the public welfare of the country will not now be served by favoring one of these central transcontinental routes at the expense of another under present day circumstances." (Emphasis ours.)
Plaintiffs place much significance upon the Commission's original denial of modification in 1962 and subsequent reversal in 1966 after remand "without additional facts before it." However, it is apparent to us, at least, that in 1962 the Commission was guided more by an erroneous interpretation of the Pacific Railroad Acts than it was by considerations of "public interest." Furthermore, at the time of the remand from the district court, nothing had been finally decided. Cf. United States v. United States Smelting, Refining & Min. Co., 339 U.S. 186, 198, 70 S.Ct. 537, 94 L.Ed. 750 (1950). Under these circumstances it is "consistent with a concept of administrative power which emphasizes a broad and continuing administrative initiative. " to gauge the Commission's action by the public interest, rather than by its previous statements. See Jaffe, Judicial Control of Administrative Action 714 (1965). And, when the Commission reheard the case in 1966, it did consider as new evidence the 1924 Agreement and the implications and practices thereunder, in accordance with the direction of the remanding district court.
The Commission found that pursuant to said agreement:
"In December 1946, representatives of the parties adopted a map on which areas are marked 'as the areas described in the [1924] agreement although the said representatives recognize that the areas so marked are not precisely those described in the language of the agreement and that they are not authorized to modify or supplement the said agreement.' The eastern territory outlined includes western trunkline territory west of the Missouri River in Colorado, Wyoming, 'Kansas, Nebraska, South Dakota, and North Dakota. Southern Pacific also solicits and routes traffic via Union Pacific from and to Nevada and Utah, and in Oregon, North of Kirk, to but not including Portland.
"Southern Pacific has also agreed to preferentially solicit and route via Ogden and the Union Pacific (1) export and import traffic moving through California ports in the western preferred territory; (2) traffic from or to points on lines constructed or acquired subsequent to the Commission's 1923 order; and (3) traffic requiring stop to complete loading or to partially unload within the preferred western territory where the western origin or destination is located outside of such territory."
The testimony of traffic managers for the plaintiffs indicated that all freight agents were frequently and fully instructed to carry out the solicitation and routing practices outlined by the agreement.
Our National Transportation Policy is said to be "the yardstick by which the correctness of the Commission's actions will be measured." Schaffer Transp. Co. v. United States, 355 U.S. 83, 87-88, 78 S.Ct. 173, 176, 2 L.Ed.2d 117 (1957), as recently cited with approval in American Trucking Assoc., Inc. v. Atchison, T. & S. F. Ry., 387 U.S. 397, 421, 87 S.Ct. 1608, 18 L.Ed.2d 847 (1967). Mr. Justice Clark stated in Baltimore & O. R.R. v. United States, 386 U.S. 372, 386, 87 S.Ct. 1100, 1107, 18 L.Ed.2d 159 (1967):
"This Court has often pointed out that the national transportation policy 'is the product of a long history of trial and error by Congress. .' McLean Trucking Co. v. United States, 321 U.S. 67, 80, 64 S.Ct. 370, 88 L.Ed. 544 (1944). In that case it found that the Transportation Act of 1920 'marked a sharp change in the policies and objectives embodied in those efforts.' [Ibid.] In that Act the Congress directed the Commission to adopt a plan for consolidation of the railroads of the United States into 'a limited number of systems.' 41 Stat. 481 (1920). Consolidation would be approved by the Commission upon a finding that the transaction was in harmony with and in furtherance of the complete plan of consolidation and that the public interest would be promoted. But the Commission was warned that 'competition shall be preserved as fully as possible.' [Ibid.] The initiation of this unification, however, the Congress left wholly with the carriers. The Commission was given no power to compel mergers. This pattern was carried forward in the Transportation Act of 1940, 54 Stat. 898; however, § 5 of the former Act was amended to authorize the Commission to approve carrier-initiated proposals which it found to be consistent with the public interest and upon fust and reasonable conditions." (Emphasis ours.)
And Mr. Justice Brennan in a concurring opinion, 386 U.S. at 402, 87 S.Ct. at 1116, observed:
"The ICC has recognized that inquiry into a proposed transaction does not end with the possibilities for increased economies, but extends to 'the effect of the transaction upon adequate transportation service to all parts of the public which would be so affected, »
Here, the Commission determined that the routes of the Southern Pacific formed at Ogden with the Union Pacific and the Rio Grande are now "substantially similar." Although the 1962 and the 1966 Commission orders lend appearance, as Mr. Justice Douglas says in Baltimore & O. R.R. v. United States, supra, 386 U.S. at 449, 87 S.Ct. at 1141 (dissenting in part), of having been "decided by different regulatory bodies rather than the same commission," nevertheless we feel there exist sufficient findings to support modification of condition (e) as being no longer "just and reasonable" nor in accord with the "public interest."
In this regard, it should be recalled that it is only "our task to scrutinize the Commission's authority, not the substance of its exercise." American Trucking Assoc., Inc. v. Atchison, T. & S. F. Ry., supra, 387 U.S. at 412, 87 S.Ct. at 1617. As Mr. Justice Frankfurter said in Rochester Telephone Corp. v. United States, 307 U.S. 125, 145-146, 59 S.Ct. 754, 764, 83 L.Ed. 1147 (1939):
"So long as there is warrant in the record for the judgment of the expert body it must stand. Having found that the record permitted the Commission to draw the conclusion that it did, a court travels beyond its province to express concurrence therewith as an original question. 'The judicial function is exhausted when there is found to be a rational basis for the conclusions approved by the administrative body.' "
PRACTICES UNDER 1924 AGREEMENT.
Despite the admonition of the District Court of Colorado that the agreements and practices arising from condition (e) must be considered together with the condition itself, plaintiffs nevertheless urge that their practices were not specifically passed upon, and that the 1924 agreement can survive with or without the modification of con dition (e) in the Control proceedings. There are many reasons why this position must fail.
First, we defer to the approach of the Colorado District Court in construing the condition, agreement and practices as one issue. Notwithstanding plaintiffs' protestations of their own use of awkward language in their 1924 agreement, we join in the observation of the Commission that the agreement was devised for "the stated purpose of arriving at a common understanding of the meaning of the conditions and for making them reciprocally obligatory. " With condition (e) modified, any authority for preferential routing or solicitation between the Union Pacific and Central Pacific must cease. See note 1, supra.
Secondly, these practices between the parties, as we have observed, are not required by the Pacific Railroad Acts, but in fact are in direct contravention of them. The only possible sanction for the practices and the agreement was the original 1923 version of condition (e), which embodied a Commission-approved exemption pursuant to a provision of the Transportation Act of 1920, now codified as 49 U.S.C. § 5(11). However, it is seriously in doubt whether within the Control proceedings the Commission could authorize the Union Pacific to preferentially solicit and route for the Southern Pacific (Central Pacific) in contravention of the Pacific Railroad Acts.
It is true that the Commission under Section 5(11) of the Act could grant immunity from the "antitrust laws" as well as from "all other restraints, limitations and prohibitions of law." But it is important to consider that immunity can only be given under Section 5(11) to those "carriers participating in a transaction approved or authorized under this section The Union Pacific was not a "carrier participating" in the merger or lease and stock acquisition of the Central Pacific by Southern Pacific. It is true they intervened to file objections, but it is agreed that the Commission had no jurisdiction over the Union Pacific to impose obligations on it. As the Commission acknowledges, the Union Pacific only acquiesced in the proceedings and conditions set forth. Under these circumstanstances, the Commission had no authority to relieve the Union Pacific from any "restraints or prohibitions of law" under Section 5(11). In any event it should be clear, as we have observed, that by modification of condition (e) the Commission has removed any ostensible approval for discrimination by the parties.
Third, the Commission observed that both practices are contrary to the national transportation policy, as declared by the Transportation Act of 1940. As the Commission has observed, the preferential solicitation and routing by the plaintiffs "tends to relegate the Rio Grande to a secondary status as a transcontinental carrier." The Commission found that the preferential soliciting and routing "stifle competition"; that the "public welfare" and "national defense" are better served by the maintenance of several strong, central transcontinental routes; and that "equality of treatment" must be a dominant consideration when dealing with competing lines that are "substantially similar," such as the Union Pacific and the Rio Grande.
The Commission's discretionary appraisal of the facts with regard to the national transportation policy must stand if there is evidence to warrant the decision. McLean Trucking Co. v. United States, 321 U.S. 67, 64 S.Ct. 370, 88 L.Ed. 544 (1944). Mr. Justice Rutledge commented in McLean:
"The national transportation policy requires the Commission to 'promote economical service and foster sound economic conditions in transportation and among the several carriers; to encourage the establishment and maintenance of reasonable charges for transportation services, without unjust discriminations, [or] undue preferences or advantages
"In short, the Commission must estimate the scope and appraise the effects of the curtailment of competition which will result from the proposed consolidation and consider them along with the advantages of improved service, safer operation, lower costs, etc., to determine whether the consolidation will assist in effectuating the over-all transportation policy. Resolving these considerations is a complex task which requires extensive facilities, expert judgment and considerable knowledge of the transportation industry. Congress left that task to the Commission 'to the end that the wisdom and experience of that Commission may be used not only in connection with this form of transportation, but in its coordination of all other forms.' 79 Cong.Rec. 12207. 'The wisdom and experience of that commission,' not of the courts, must determine whether the proposed consolidation is 'consistent with the public interest.' Cf. Interstate Commerce Commission v. Illinois Central R. Co., 215 U.S. 452, [30 S.Ct. 155, 54 L. Ed. 280;] Pennsylvania Co. v. United States, 236 U.S. 351, [35 S.Ct. 370, 591 L.Ed. 616;] United States v. Chicago Heights Trucking Co., 310 U.S. 344, [60 S.Ct. 931, 84 L.Ed. 1243]; Purcell v. United States, 315 U.S. 381, [62 S. Ct. 709, 86 L.Ed. 910]. If the Commission did not exceed the statutory limits within which Congress confined its discretion and its findings are adequate and supported by evidence, it is not our function to upset its order." 321 U.S. at 86-88, 64 S.Ct. at 380.
Public interest germane to this case includes (1) adequacy of service, (2) economy and (3) the efficient use of transportation facilities. See New York Central Securities Corp. v. United States, 287 U.S. 12, 24-25, 53 S.Ct. 45, 77 L.Ed. 138 (1932). But also, until we totally evolve a new approach toward railroad consolidation, Congress requires the Commission, as well as the courts, to give "consideration of all important consequences including anticompetitive effects." Denver & R. G. W. R.R. v. United States, 387 U.S. 485, 492, 87 S.Ct. 1754, 1759, 18 L.Ed.2d 905 (1967).
Finally, the Commission determined that the preferential routing of traffic not routed by the shipper was a direct violation of Section 3(4) of the Interstate Commerce Act. Section 3(4) reads in part as follows: "All carriers shall not unduly prejudice any connecting line in the distribution of traffic that is not specifically routed by the shipper."
Plaintiffs urge that this holding is erroneous since there exists no proof (other than evidence received in 1922 that at that time from 2 to 4 per cent of the freight was unrouted) that sufficient shipping was affected to create "undue prejudice" at the present time by reason of the preferential routing. However, this overlooks the fact that the agreement attacked involves preferential solicitation as well as preferential routing, and that between the two practices 100 per cent of the freight originated by the plaintiffs and not routed before the railroad is contacted, is either solicited or directly routed for the plaintiffs.
The prohibition of Section 3(4) is against discriminatory conduct of the carrier against connecting lines. The Act cannot be circumvented by wrongfully inducing the shipper to commit the discrimination in place of the carrier. In other words, the legislation is not to be so weakly construed that it permits ihe carrier to accomplish indirectly what he cannot do by direct preferential routing. In view of the clear policy expressed by the statute, we see no meaningful distinction between arbitrarily soliciting the unrouted freight at that time and arbitrarily routing it should the shipper leave it unrouted.
The statute must be interpreted broadly to effectuate its purposes in the public interest. B & C Truck Leasing, Inc. v. I. C. C., 283 F.2d 163, 164-165 (10 Cir. 1960). As is stated in the Shreveport case, Houston, East & West Texas R. Co. v. United States, 234 U.S. 342, 356, 34 S.Ct. 833, 838, 58 L.Ed. 1341 (1914), "there is no basis for the contention that Congress intended to exempt any discriminatory action or practice of interstate carriers affecting interstate commerce which it had authority to reach." In Western Pac. R.R. Co. v. United States, 382 U.S. 237, 244, 86 S.Ct. 338, 343, 15 L.Ed.2d 294 (1965), the Supreme Court said:
"In the absence of any settled construction of § 3(4), then, its manifest purpose to deprive railroads of discretion to apportion economic advantage among competitors at a common interchange must be the basic guide to decision."
Thus, we feel that preferential solicitation when done on a "preconcerted" and "systematic" discriminatory basis, as conducted by the parties herein, falls within the statutory prohibition of Section 3(4) as well. The preferential solicitation dictated by the agreement is without concern for competitive benefits of similar lines and without relationship to the best possible service to the shipper. It is as much an apportionment of "economic advantage" as direct routing itself. As plaintiffs argue, preferential solicitation has been referred to without disapproval by the Commission occasionally under special circumstances. See, e. g., Chicago, I. & L. Ry. Co. Reorganization, 254 I.C.C. 539, 557, 559 (1943), 254 I.C.C. 673, 689 (1944); Minneapolis, St. P. & S. S. M. Ry. Co. Reorganization, 252 I.C.C. 525, 574-75, 252 I.C.C. 615, 653 (1942). Of course the present case where Southern Pacific was obliged to solicit for the Central Pacific route rather than its own El Paso route is another example. But special circum stances were involved, such as the reorganization and merger of two formerly separate lines. Discrimination on a purely arbitrary anticompetitive basis, where the connecting lines prejudiced offer equal facilities and service, is far outside the scope of permissible activity and must be disapproved.
Since all freight that is not independently routed by the shipper is solicited or routed discriminatorily to the prejudice of the Rio Grande, Section 3(4) prohibits both such practices as being "unduly prejudicial," without further facts before us.
The Commission applied Section 3(4) only to the preferential routing. We are cognizant that we are "powerless" to affirm discretionary agency action other than on the grounds invoked by the agency. Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 169, 83 S.Ct. 239, 9 L.Ed.2d 207 (1962). However, in the construction of Section 3(4), we are not reviewing agency discretion. And although fully relying upon the expertise of the Commission in review of this entire matter, apropos is Professor Jaffe's statement:
"The judgment of the expert may, as we have seen, be relevant to the decision, but it cannot by reason of its 'pure' quality, its specifically expert character, transform a question of law into a question of fact and so insulate the decision from legal judgment." Jaffe, Judicial Control of Administrative Action, p. 580 (1965).
Other arguments are made by the defendants and intervenors concerning violation of Section 15(1) and of the antitrust laws. Since the Commission has not relied upon these grounds, they require no discussion.
In conclusion, we find no authority under (1) the Pacific Railroad Acts, (2) the National Transportation Policy or (3) Section 3(4) of the Interstate Commerce Act for the plaintiffs' discriminatory routing and solicitation agreement or practices, or for the retention of the original condition. We find the Commission made adequate findings to support the modification of its 1923 order under Section 5(2) of the Interstate Commerce Act.
We deny plaintiffs', request to enjoin, set aside, annul and suspend the supplemental order of the Commission dated January 6, 1966, entered in Finance Docket No. 2613, Control of Central Pacific by Southern Pacific, and accordingly dismiss the complaint and enter judgment for the defendants herein
It is so ordered.
APPENDIX A
. This same case was heard by the District Court in Colorado in 1963, but was remanded to the Commission for consideration of additional evidence. The District Court in discussing the issues, observed:
"This preferential solicitation was attacked as being improper or illegal under several sections of the Act as well as the antitrust law. The origin and the authority for these practices were contained in both condition (e) and the 1924 agreement. These two items eonstituted the physical evidence of the authority for the practice, but it was the practice, or the authority for the practice, which was attacked by the plaintiff, and where this authority might he physically found would seem to he of minor importance. Thus in effect there was but one general issue before the Examiner and before the Commission, although in somewhat different context." (Emphasis ours). Denver & R. G. W. R.R. v. I.C.C., D.C., 229 F.Supp. 249, 253, 254 (1964).
. The modified condition reads:
"That the Southern Pacific Company shall continue to secure t>y acti/oe solicitation the routing of the maximum of freight traffic through the Missouri River and Ogden, Utah, between all points in California and Oregon, north of and including Caliente and Santa Margarita, Calif:, and south of and including the Klamath Falls branch and Kirk, Oreg., on the otie hand, and points north and west of a line along the northern boundaries of Oklahoma and Arkansas, to the Mississippi River, thence along the Mississippi and Ohio Rivers (but not including intermediate cities on the Ohio River) to Wheeling, W. Va., and thence on a line drawn just east of Pittsburgh, Pa., and Buffalo, N.Y., to Niagara Falls, N.Y.(Emphasis ours.)
. Western Pacific observes in its brief, p. 10, n. 7:
"In January 1966, Western Pacific filed with the Commission a complaint against Union Pacific and Southern Pacific, alleging that the Agreement of 1924, the Memorandum of 1947, and the preferential practices implemented thereunder violate Section 1 of the Sherman Act, the National Transportation Policy, and Sections 3(4), 5(1) of the Interstate Commerce Act. By stipulation of the parties, a hearing on that complaint is being stayed pending the ultimate disposition of the instant case."
. Condition (i), also part of the 1923 I.C.C. order, provides:
"That this proceeding may be reopened at any time by order of the Commission either upon the initiative of the Commission or, in the discretion of the Commission, upon the motion of any person claiming an interest in the matter, for the purpose of making such orders as the Commission may deem necessary or appropriate supplementary to the present order."
. Act of July 1, 1862, ch. 120, 12 Stat. 495; Act of July 2, 1864, ch. 216, 13 Stat. 362 (codified in 45 U.S.C. § 83).
. The Interstate Commerce Act was further amended by the Transportation Act of 1940, 54 Stat. 899.
. In the recent order of the Commission denying control of the Western Pacific by either the Southern Pacific or the Santa Fe, the Commission observed:
"We have considered the possibility of authorizing one or the other of the applicants herein to acquire control of Western Pacific subject to a solicitation condition to safeguard the central route of Western Pacific similar to the condition imposed in the Central Pacific case. However, the situation here does not contain the element of intermingled properties and operations necessitating the control authorization in the Central Pacific case, and, moreover, Santa Fe has recorded its ohjeetion to any condition which would require solicitation from its own territories for Western Pacific, either to the West or East of the Utah gateways." Southern Pacific Co.—Control —Western Pacific R.R., 327 I.C.C. 387, 400 (1965). (Emphasis ours.)
. The other relevant conditions generally required the Southern Pacific to cooperate or join the Union Pacific in maintaining service, schedules and rates via the Ogden Gateway and the line of the Central Pacific.
. Plaintiffs urge that in 1923 it was the mutual understanding of the parties, including the Rio Grande, that condition (e) was in furtherance of the Pacific Railroad Acts and therefore should not be set aside. Apropos here is Mr. Jus tico Brennan's statement that "the ICC is not prisoner of the parties' submissions." See Baltimore & O. R.R. v. United States, 386 U.S. 372, 430, 87 S.Ct. 1100, 1129, 18 L.Ed.2d 159 (1967) (concurring opinion).
. The Union Pacific openly acknowledges this construction in a footnote on page 67 of Union Pacific's brief, when it argues:
"The 1864 Pacific Railroad Act prohibits 'any discrimination of any kind in favor of the road or business of any or either of said companies and adverse to the road or business of any or either of the others.' (emphasis added) Yet to compel Southern Pacific only to solicit the Central Pacific portion of the Central Pacific-Union Pacific route is discrimination in favor of the Central Pacific portion. This is quite apart from the fact that Southern Pacific solicitation via Rio Grande is discrimination against Union Pacific."
. This section is now codified as 45 U. S.C. § 82. Congress recognized that the Act might be further amended when it said:
"And be it further enacted, That congress may, at any time, alter, amend, or repeal this act." 13 Stat. 356 § 22. And as observed in Union Pac. Ry. v. Chicago, R.I. & P. Ry. supra, 163 U.S. at 589, 16 S.Ct. at 1183:
"On June 15, 1866, an act was approved, [c. 124, 14 Stat. 66,] 'to facilitate commercial, postal and military communication among the several states,' carried forward as section 5258 of the Revised Statutes, which provided that 'every railroad company in the United States, whose road is operated by steam, its successors and assigns, be, and is hereby, authorized to carry upon and over its road, boats, bridges and ferries, all passengers, troops, government supplies, mails, freights and property on their way from any state to another state, and to receive compensation therefor, and to connect with roads of other states so as to form continuous lines for the transportation of the same to the place of destination.' " (Emphasis ours.)
. Despite numerous attempts during the Congressional debates to cut off the proposed branch lines, the majority consistently voted to retain them for such reasons as Senator Wade of Ohio expressed in his speech of June 19, 1862:
"I believe the branches are as essential as the main trunk; that they will assist in building it; that they will furnish a motive for the embarking of money in the main line. It will be a mighty lonesome business to commence the main line in a mere wilderness, where it has nothing to attach itself to. You have got to begin it where it will seem to the world of no use whatever. Why, sir, it is like building a bridge across a magnificent river and never framing your abutments, by which you can get on to it. I do not think it is best that this should be done." Cong. Globe, 37th Cong., 2d Sess. 2807 (1862).
In Section 9 of the 1862 Act, the Leavenworth, Pawnee, and Western Railroad Company of Kansas was granted authority to build a line from a point on the Missouri River in Kansas to the Union Pacific line to the north, "upon the same terms and conditions in all respects as are provided in this act for the construction of the railroad and telegraph line first mentioned (Emphasis ours.) In Section 13, the Hannibal and St. Joseph Railroad Company of Missouri was specifically authorized to connect itself to the new transcontinental route. In the amendatory act passed in 1864, which is to be construed together with the 1862 Act (14 Opinions of Atty. Gen. 233 (1873)), Congress further authorized the Kansas railroad companies to make connection with the proposed Union Pacific line where practicable or desirable; in addition, if the Union Pacific company by the time of such con nection was not "proceeding in good faith to build the said railroad through the territories," the Kansas company was authorized to take over the project and build to the junction with the Central Pacific. Sections 9, 12. In Section 18, the Burlington and Missouri Railroad Company was given specific authority to join its line to the Union Pacific. For discussion of the decision to include branches and connecting lines within the scope of the Acts, see Russell, Improvement of Communication with the Pacific Coast as an Issue in American Politics 1783-1804 at pp. 296-320 (1948). See also Trottman, History of the Union Pacific 10-22 (1923).
. As the district court stated in United States v. Southern Pac. Co., 239 F. 998, 1006-1007 (D. Utah 1917), rev'd on other grounds, 259 U.S. 214, 42 S.Ct. 496, 66 L.Ed. 907 (1922):
"Those statutes require physical connection with the Union Pacific to make a through line and the furnishing of equal advantages and facilities as to rates, time and transportation loithout discrimination of any kind." (Emphasis ours.)
. Citing Chicago, B. & Q. R. Co.—Control, 271 I.C.C. 63, 146. See also Detroit, T. & I. R. Co.—Control, 275 I.C.C. 455, 489, sustained sub nom. New York, C. & St. L. R.R. v. United States, 95 F.Supp. 811 (N.D.Ohio 1951).
. "Conditions (a) through (d) generally require the Southern Pacific to cooperate or join with the Union Pacific in maintaining service, schedules, and rates via the Ogden gateway and the line of the Central Pacific.
"It was observed in the Control case that there was no jurisdiction therein to enforce an order against the Union Pacific or carriers other than the Southern Pacific and Central Pacific. However, the Union Pacific accepted and approved the conditions made, as they apply to the Southern Pacific and its constituent lines, and evinced its intention to comply therewith so far as its cooperation was necessary or required." 317 I.C.C. at 472.
. "It is hereby declared to be the national transportation policy of the Congress to provide for fair and impartial regulation of all modes of transportation subject to the provisions of this Act [chapters 1, 8, 12, 13, and 19 of this title], so administered as to recognize and preserve the inherent advantages of each; to promote safe, adequate, economical, and efficient service and foster sound economic conditions in transportation and among the several carriers; to encourage the establishment and maintenance of reasonable charges for transportation services, without unjust discriminations, undue preferences or advantages, or unfair or destructive competitive practices; to cooperate with the several States and the duly authorized officials thereof; and to encourage fair wages and equitable working conditions; —all to the end of developing, coordinating, and preserving a national transportation system by water, highway, and rail, as well as other means, adequate to meet the needs of the commerce of the United States, of the Postal Service, and of the national defense. All of the provisions of this Act [chapters 1, 8, 12, 13, and 19 of this title] shall be administered and enforced with a view to carrying out the above declaration of policy." 49 U.S.O. (prior to § 1).
. See National Transportation Policy, S. Rep.No. 445, 87th Cong., 1st Sess. 260-61 (1961).
. The agreement states, "the parties shall cooperate to secure by active solicitation the routing of the maximum, of freight traffic via Union Pacific and Central Pacific lines .
"It is understood that such traffic as has origin or destination east of the Missouri River will be solicited and routed via the Union Pacific between the Missouri River and Ogden, and via the Southern Pacific west of Ogden; such traffic as has origin or destination west of the Missouri River will be solicited and routed via Ogden so as to afford Union Pacific and Southern Pacific respectively the longest practicable haul." (Emphasis ours.)
. As the parties, including the Interstate Commerce Commission, have observed in their briefs and arguments, solicitation on a reciprocal basis, as well as routing, are to some degree found in industry practices. We note the discussion in Conant, Railroad Mergers and Abandonments 34-35 (1964):
"If the shipper does not control the entire routing of shipment, the initial carrier will be free to choose which connecting carriers will transport the shipment to its final destination. At major connecting points, such as Chicago, St. Louis, Kansas City, and Omaha, an initiating carrier must choose which of a number of connecting lines should receive shipments bound for major cities on two or more routes.
In the absence of price competition, the choice is usually made on the principle of reciprocity. A railroad transfers to connecting carriers as many cars as it receives from them, or, if traffic is not balanced in both directions, a railroad transfers cars to connecting carriers in some proportion to cars received.
"But the reciprocity of interchange of connecting railroads is not short-term. A railroad will develop long-run interchange preference patterns to protect its own longest hauls by favoring connecting carriers that are not its rivals for any segment of traffic. Thus, the Chicago and North Western, which has a main line from Chicago to Omaha, has established wide interchange with the complementary Union Pacific which extends from Omaha west to Denver, Ogden, and Portland. Neither the North Western nor the Union Pacific has substantial interchange at Omaha with the Rock Island or the Burlington, both of whose lines run from Chicago to Denver and thus rival the North Western and part of the Union Pacific."