Earl Warren: No. 97 Baltimore & Ohio Railroad Company et al. Appellants versus Boston & Maine Railroad Company et al. No. 98 Maryland Port Authority et al. Appellants versus Boston & Maine Railroad. No. 99 Interstate Commerce Commission Appellant versus Boston & Maine Railroad. Mr. Ginnane.
Robert W. Ginnane: May it please the Court. I'm sharing the argument for the appellants in these cases with Mr. Langdon, counsel for the appellant, railroads and Mr. Marbury, counsel for the appellant ports served by the appellant railroads. The consolidated appeals and from the decision of a three judge court in the District of Massachusetts, which set aside an order of the Interstate Commerce Commission. The Commission's order issued after suspension of tariffs an extensive administrative proceedings required the cancellation of two sets of proposed railroad rates on export and import traffic excluding iron ore, coal, and coke moving between the North Atlantic ports, which are the ports of Norfolk North, Norfolk, Baltimore, Philadelphia, New York, Albany, Boston, Portland Maine on the one hand and an interior area known as differential territory. Differential territory consists of the States, points in the States of Illinois, Indiana, Ohio, Michigan except the Northern Peninsula and strips of Wisconsin and Pennsylvania. I might identify export import rates. Export import rates in much of the United States are at a lower level than the domestic rates to and from the same port. For example, through the North Atlantic ports, the average export rate is $0.25 and the average import rate is $0.115 per 100 pounds, below the corresponding domestic rates. Specifically, the commission ordered the cancellation of reduced rates proposed by the railroads serving Albany, Boston, Portland, and New York, which we all refer to as the Northern Tier ports. The purpose of their proposal was to equalize at the level of the rates applicable to and from Baltimore. The export import rates to and from these Northern Tier ports with the export import rates to and from the Southern Tier ports of Baltimore, Philadelphia, and Hampton roads. Secondly, the commission ordered the cancellation of conditional and retaliatory rate reductions filed by the railroads serving the Southern Tier ports. Now the export import rates on most traffic on differential territory to and from Philadelphia are $0.02 per 100 pounds below the rates applicable to and from New York. Baltimore has rates $0.03 per 100 pounds below New York. Hampton Roads has rates $0.03 below New York for the Western Port points in the Western portion of differential territory. Boston has the same level of rates as New York. Portland has rates at the New York level except it has import rates on the Baltimore level on import traffic which moves through Portland and via Canadian lines into differential territory. These rate differences on export import traffic have been known for many years as the North Atlantic port differentials and their basic structure has been in existence with brief intervals since 1877. So the basic geography of this 90-year-old transportation dispute is this, the average distance from points in differential territory is 698 miles to Baltimore, 750 miles to Philadelphia, 804 miles to New York and 921 miles to Boston. The purpose of the rate reductions proposed by the railroads serving the Northern Tier ports was to eliminate these differentials and the purpose of the conditional and retaliatory rate proposals of the line serving the southern tier ports was to preserve the existing differentials at a lower rate level if, but only if the reduced rates proposed by the northern alliance were approved. The commission found that the proposed reduced rates to Albany, New York, Portland, and Boston separately and collectively are not shown to be reasonably related to the present rates in light traffic between the same interior points and the southern tier points. And that they would result in undue preference of and advantage to the named ports and undue prejudice and disadvantage to the southern tier ports. Section 31 of the interstate commerce act, the great anti-discrimination section provides that it should be unlawful for any railroad to give any undue or unreasonable preference or advantage to any particular person, locality, port and conversely to subject any person, locality or port to undue or unreasonable prejudice or disadvantage. Now summarizing the issues before the commission, because of dispute between the parties as to what the precise issues were then and are now. The commission had before the proposal of a northern alliance to eliminate the differential. Their basic justification was that the existing differentials resulted in an undue diversion of traffic to the southern alliance and to the southern ports. They contemned that the sole purpose of the differentials was to offset lower steamship rates at New York and Boston than existed at the southern tier ports. So offset in the sense of creating a uniform through rate from the internal point to European destination no matter what port the movement went through. And they contemned that with the equalization of the steamship rates by 1935. There was no further justification for differentials and that they were entitled to rate parity with the southern tier ports regardless of the distance and cost advantages of the railroads serving the southern tier ports, they say cost distance had nothing to with it. Now, the line serving the southern tier port justified, sought to justify their retaliatory rate reduction to maintain the differentials on the ground that if they were eliminated there would be an undue diversion of export import traffic to the northern tier ports, particularly to New York. It is fundamental in this case that none of the railroads northern or southern decided merely to move the structure of differentials rates down to a lower rate level, thereby dissipating their revenues in a rate war. The real issue was whether the commission was to impose rate parity on the railroads handling export import traffic to the north Atlantic ports from Portland to Northern that is to enforce the elimination of the port differentials. This issue was made very clear in the motion to affirm filed in this court by all of the railroad appellees. They said it is fundamental that if the appellee railroads lawfully reduced their rates to basis of equality with the rates of the opponent railroads as a matter of necessity in order to meet competition. Then a retaliatory reduction by appellants must be condemned as unnecessary to meet competition. The Boston appellees stick to that position in their main brief here, the New York appellees are ambiguous. The commission considered an unusual detail, these conflicting claims adds to the diversion resulting from equalization or from the differentials. Some of its largely unchallenged findings maybe summarized in part here. I say in part because the commission reports are likely and in great detail on this very complicated matter. Commission pointed out that the present differentials measured in cents per hundred pounds have lost much of their relative importance by reason of the great increase in freight rates and in the value of commodities since 1877. The differentials have stayed at $0.02 and $0.03, if they had increased proportionally with the rate level they'd be $0.10 or $0.12 or $0.15.
Byron R. White: 1877.
Robert W. Ginnane: 1877. And they are less than the differences in domestic rates between the same points, because the domestic rates generally reflect differences in distance and services. Now, this export/import traffic here involved is of two types; bulk cargo and general cargo. The largest in volume is the bulk cargo, consisting largely of low value commodities, which are loaded and unloaded by mechanical facilities. General cargo includes manufactured and semi-manufactured goods of relatively high value and usually packaged in some form. The general cargo requires far more supplemental service and handling in a port than does bulk cargo. So, it's the general cargo, which provides a much greater employment and revenue per ton to a port than does bulk cargo. Now, there is a great deal on the record in the commissions findings as to the general dominance of the port of New York and the Atlantic export and foreign trade, it's so well known, I won't bother to go into it. Moreover, we're concerned here only with the effect of the differentials upon that portion of the North Atlantic foreign trade, which moves to and from differential territory. The commission found the evidence inadequate to show the comparative trends in the movement of differential territory traffic between the northern tier ports versus the southern tier ports.And because it couldn't determine -- what the trend had been, it was unable to make a finding that with the elimination of the steamship differentials by 1935, there had followed a diversion of traffic, an undue diversion of traffic to the southern lines and southern ports
Speaker: [Inaudible]
Robert W. Ginnane: One of the factors, that's right.
Speaker: What did you say about the fact that in effect, it is agreed that [Inaudible]
Robert W. Ginnane: No sir, I would not.
Speaker: What would you say about [Inaudible] Philadelphia for much greater differentials than what has been finally fixed in the 1877 agreement, and much smaller differentials then they've had before 1877, the other factor --
Speaker: [Inaudible]
Robert W. Ginnane: But I will point out later, the commission found in 1905 that the differentials at all times exceeded the differences in steamship rates, they were not tailored together.
Speaker: [Inaudible]
Robert W. Ginnane: Just those two.
Speaker: Compromising with the geographical location, the geographical advantages of Baltimore and Philadelphia and equalizing with the ocean rates.
Speaker: [Inaudible]
Robert W. Ginnane: I can answer it very briefly sir right now. The commission has gone to great lengths and equalizing rates on different coasts. Moreover, to enable a small dominated port to compete at least some of the traffic. The commission has never enforced parity, where it would result in a diversion of traffic, an undue diversion of traffic to an already dominant port such as New York.
Speaker: [Inaudible]
Robert W. Ginnane: The commission --in a case which I will discuss later and which came before this Court in the Texas and Pacific case, the commission intervened in the Galveston, Houston situation to require the differentials we established in favor of Galveston recognizing its distance advantages so that it could compete in terms of its geographical location with the port of New Orleans. And that by the way was a case in which the steamship rates to the two ports were the same, it's very similar to the present case.
Speaker: [Inaudible]
Robert W. Ginnane: I'm sure it's lost the deal to Houston.
Speaker: I remember when I was there [Inaudible]
Robert W. Ginnane: But it was the Galveston, New Orleans situation which led to this Court's decision in Texas and Pacific case, which in turn led to what we think was for the purposes of this case the decisive 1935 Amendment of Section 3(1). Now there was on the record before the commission a detailed study for a test year ending July 1956 and the movement of traffic export/import traffic to and from differential territory. The commission summarized that and I would like the quote it, because I know it's very important “Of a total of about 11 million tons of exports and imports, exclusive of import petroleum, iron ore and export coal handled between the North Atlantic ports that's all of those ports and the effective territory about one-third moved through the Northern Tier ports. The preponderance of the tonnage passed through the Southern Tier ports, but as the imports, the excess consisted almost wholly of ores other than iron ore and as for exports, it was represented wholly grain and grain products.” The commission went on, the complete dominance by New York of the North Atlantic general cargo traffic to and from the differential territory is clear. Of imports, its volume exceed of that of all the other ports combined was more than double out of Baltimore and almost four times that of Hampton Roads. As to general cargo exports New York's volume was 62.7% of the total volume for all of the North Atlantic ports and over 50% greater than the Southern Tier ports combined. Now the Commission didn't have any trouble finding out how New York was able to attract this traffic not withstanding the differentials. New York has a preponderance of excellent steamship services far surpassing that available to Southern Tier ports. The General Cargo Services have much more frequent sailings to a wide variety of trading areas around the world and its supplemental port services ranging from international banking to Stevedoring, freight forwarding, marine insurance are unique among the North Atlantic ports. So, the Commission concluded that New York with its superior port services was able to attract most of the General Cargo traffic not withstanding the lower rates, the differentially lower rates to Philadelphia and Baltimore. And indeed attracted export traffic from shippers in the backyard, a few miles from Baltimore and Philadelphia ports. The Commission concluded from such circumstances that the proposed rate equalization would result in an undue diversion of traffic from the Southern Tier ports to the Northern Tier ports and particularly New York. The Commission found that the proposed rate equalization would not materially affect the flow of traffic through Boston, Portland and Albany and has based that conclusion on the fact that Boston, which has long had the same rates as New York and Albany, which as for years had lower rates than New York on the Philadelphia level simply haven't been able to compete significantly against New York. Finally, the Commission found the greater distance of the Northern Tier ports from the affected territory and the higher cost of service to and from those ports is firmly established. The cost evidence in support of that finding will be summarized for the Court by Mr. Langdon. Thus the problem before the commission boiled onto this. Nobody wanted to see both sets of rate reductions going to effect, thereby merely putting the differentials down to a lower level, the dissipation of carrier revenues in a rate war just the kind of rate war, which gave rise to these differentials. So the real issue before the commission was whether to enforce rate parity upon all the railroads servicing the North Atlantic ports or to maintain the differentials at the present level. The commission concluded that it would not enforce a rate parity, which would ignore the distance and cost advantages of the railroad serving the southern tier ports, and at the same time result in an undue diversion of traffic from the southern tier ports to New York. In so doing, it was applied the accepted principle that a discrimination which is produced by charging equal rates for unequal service is prohibited by the statute just as much as one resulting from unequal rates for equal service. Now the Lower Court set aside the Commission's decision and I quote “In so far as it prevents differential eliminating rates from becoming effective.” We think the Court erred in several major respects. We contend that it erred in making its own independent finding, that on this evidence the Northern lines certainly have established prima facie the reasonableness of their rates. We think it further erred in concluding that the commission had based its decision of a finding of a violation of Section 3(1) solely on the distance advantages of the Northern Tier Ports. The Court stating that while differences in cost might be relevant, there were neither findings nor evidence as to cost. In fact, the Court overlooked both the Commission's finding as to relative cost and the evidence in support of it which Mr. Langdon will be summarizing. And finally we submit that the Court erred in holding that distance was irrelevant to the port differentials. Which it said, were established solely to equalize the aggregate of rail ocean charges. Now we think it erred in holding that the purpose of the 1935 amendment to Section 3(1) was to permit all ports in the carrier serving them to compete for all import traffic thereby maximizing the number of ports available. Turning to the history of the differentials, and the role which distance has played in it. Even prior to 1887, 1877 Baltimore and Philadelphia by agreement between the Northern Lines and the Southern Lines enjoyed differentially lower rates, sometimes there were arbitrary differentials and sometimes they were measured by distance. But they were substantially greater than the differentials fixed in the 1877 agreement. They were so much greater in fact that they became intolerable to the New York Central and Erie. And after a final major rate war Central, Erie, Pennsylvania and Baltimore and Ohio entered into the famous 1877 agreement. That agreement is in volume four of the record at page 1903. It recites that it was made to avoid all future misunderstandings in respect of the geographical advantages or disadvantages of the cities of Baltimore, Philadelphia and New York as effected by rail and ocean transportation. And with a view of effecting an equalization of the aggregate cost of rail and ocean transportation between all competitive points in the west and all domestic and foreign ports reached through above cities. The agreement further provided that the rates to and from Boston should not be less than the rates to and from New York. Now it's the language of this 1877 agreement that's the foundation of the argument of the appellees and the position of the Lower Court, that relative distances and cost had no part in the establishment of the differentials. And that they were established solely to equalize the total rail, ocean charges, and that when the steam ship rates were equalized by 1935 then there was no further justification for the differential rates. A careful study of the historical materials, which are set forth in the various appellants briefs will show to the contrary. I can give just two or three brief examples. For example, in 1905, the Commission examined the differential rate structure as an arbiter at the request of the commercial interest of the Atlantic ports. It found that if the equalization of the combined rail, ocean rate, and I quote, “Where the proper basis of making the differential, the present differentials are too high, for they undoubtedly exceed the difference in ocean rates.” In our opinion they always have from the very first. So we think it's clear that the 1877 agreement included a compromise of claim of a claim of the Southern Tier Ports, particularly Baltimore and Philadelphia for larger differentials, indeed they had up till then enjoyed larger differentials. Again in 1898 the Commission rejected the complaint of New York commercial interest that the lower rates to Baltimore and Philadelphia were prejudicial to New York in violation of Section 3(1) and on rejecting that complaint the Commission said “We do think that in determining whether is an undue preference, the advantage which Philadelphia and Baltimore possess by way of distance should be considered.” In 1925 the Commission rejected a similar complaint from the commercial interest of the port of Boston and again it said “In passing upon whether or not undue preference and prejudice exist, it is well settled that cost of service is a factor which must be taken into account.” And turning to this particular set of facts they said “In view of the very substantial advantages in distance from differential territory, which Philadelphia and Baltimore enjoy, as compared with New York and Boston, we are unable to find that there is anything unlawful about the port differentials in favor of Philadelphia and Baltimore.” So again and again and again the relative distances and costs have been taken into account, both in the establishment of the differentials and in their maintenance from 1877 down to date.
Speaker: [Inaudible]
Robert W. Ginnane: No indeed, and in a real sense it happened. As I pointed out before with the general increase in the level of rates and in the value of goods, these differentials which have been at $0.02 and $0.03 cents per 100 Pounds since 1877 are much less against it than they were in 1877.
Speaker: [Inaudible]
Robert W. Ginnane: That problem has -- that's not a new problem, the Commissioner has considered in one context or another again and again, years ago that Commission pointed out in response to some sort of complaint from the port of New York that much of it's problems were the development of the South Atlantic, the Gulf and the West Coast ports. New Orleans alone, they say nothing of the seaway, accounts for a great deal of the grain export traffic which formally would go largely to the North Atlantic ports.
Speaker: [Inaudible]
Robert W. Ginnane: All the time, and major economic change is going on.
Speaker: [Inaudible]
Robert W. Ginnane: The Commission held that competition was not the sole factor to be determined in fixing these rate relationships. It should take into account and make some allowance for the geographical advantages, the cost advantages of the carriers serving the Southern Tier Ports, cost advantages which as I read the appellee's briefs are not challenged in this Court. Finally I shall like to discuss the proper construction of Section 3(1) as applied to the facts of this case. We believe that the legal key to this issue lies in the purpose and history of a 1935 amendment to Section 3(1). The 1935 Amendment added the words, port and port districts to the --
Hugo L. Black: Port and port what?
Robert W. Ginnane: Port and port districts. To the entities which were to be protected from undue preference and prejudice. That 1935 amendment was the aftermath to this Court's decision in Texas and Pacific Railroad Company, the United States in 289 US decided 1933. Now that case arose out of Commission Orders issued in 1925 and 1927 in which the Commission found that the maintenance of equalized export and import rates to and from the ports of Galveston and New Orleans and defined inland territory on the other hand, not withstanding the distance advantages of Galveston was unduly prejudicial to Galveston and unduly preferential to New Orleans. And the commission prescribed fixed differentials in favor of Galveston in those situations where the distances from the inland territory to New Orleans exceeded the distances to Galveston by 25%. And I think a significant in that case that the Commission also found that the ocean rates were the same to those two ports. In Texas and Pacific, this Court set aside the Commission's order. Specifically it held that ports were not included within the word -- meaning of the word locality as used in Section 3(1). And the Chief Justice Hughes and justices Stone, Cardozo and Brandeis decided. But there was more in the decision of the majority of this Court from a technical interpretation of the word locality, whether or not locality included port. Rather that interpretation flowed from the Court's view of basic legislative purposes, but the court said and may I quote briefly, the legislative history of act, now that we are talking about the legislative history of the Hepburn Act as well as the original Interstate Commerce Act. The legislative history of the act demonstrates that Congress did not intend to forbid the equalization of export or import rates by lines serving the several ports. These rates it was said were not to be proportioned to the respective distances between inland origins or destinations and the ports. Now, if the decision and rational of the majority of this Court in Texas and Pacific is the law of the land today. Then the applees have got a very good case against the application of Section 3(1) to these facts, that we submit that it hasn't been the law since the 1935 Amendment. We submit that the mere insertion of the word port in 1935 in Section 3(1) indicates that ports like shippers, localities, regions ought to be protected from undue preference and prejudice, even though this means inevitably some restriction on the competitive freedom of carriers. It also means that in determining preference and prejudice as between competing ports just as between competing regions or shippers or cities, the Commission is to apply transportation standards, standard which admittedly include the factors of relative distance and cost. But there is more to what had been just -- just the amendment. There is some legislative history in the Senate where essentially this case was argued. Well, when the bill is reported in the Senate, Senator Huey Long of Louisiana tried to retain, tried to keep the victory which New Orleans had won in this Court in the Texas and Pacific case, and he tried to do it by offering an amendment and the amendment would have read, where rates and charges of common carries to ports are made as reductions to equalize rates to ports served by competing carriers. It shall not be termed undue preferences or prejudice. Well, if the Long amendment had been a passed, sort of a proviso to Section 3(1), the appellees again would be in very good shape here. But the Long Amendment was rejected after an extensive debate. Now the appellees would dismiss this in a footnote. They said the Long amendment said nothing about distance, true, in haec verba, it didn't, but the entire Senate debate was replete with discussion as to whether the Commission should take into account relative distance and cost in dealing with this competitive export-import rate matters. For example, referring to the bill and to Senator Long's Amendment, Senator Smith pointed out --
Hugo L. Black: From where?
Robert W. Ginnane: New Jersey. The object of the bill is to prevent further discrimination against ports where they are more advantageously situated by a virtue of their nearness to the source of supply. If this amendment, Senator Long's Amendment should be agreed to, we might just as well tear up the reminder of the bill. So we say that the debate in the Senate and the Long Amendment amounts to a specific rejection of the appellee's basic argument that relative distances and cost are irrelevant and that enforced parity of rates is the only answer. Briefly, we think the appellee's case was argued and lost in the Senate in 1935.
Hugo L. Black: I noticed that some of its [Inaudible] He was from Maryland.
Robert W. Ginnane: He was from Maryland –
Hugo L. Black: And so, the controversy in Baltimore court, Maryland court, New Jersey court, New Orleans.
Robert W. Ginnane: Well, Senator Tydings spoke immediately following this passage for --
Hugo L. Black: What were the particular inputs in this Amendment?
Robert W. Ginnane: He agreed with Senator Smith's analysis and he agreed with senators and that if the Long Amendment was adopted, they might just as well got fiddled.
Hugo L. Black: Might what?
Robert W. Ginnane: Might just as well got fiddled. Senator Tydings agreed whole heartedly with Senator Smith.
Hugo L. Black: Yeah, it entered it in the Baltimore court, particularly wasn't it, or was it.
Robert W. Ginnane: Well, I am sure he had Baltimore's interest very much in mind.
Hugo L. Black: Is Baltimore involved in this time, one way or the other.
Robert W. Ginnane: Here today?
Hugo L. Black: Yeah.
Robert W. Ginnane: Very much.
Hugo L. Black: How?
Robert W. Ginnane: Baltimore contends that under enforced rate equalization there would be an undue diversion of traffic on Baltimore as from the other southern tier ports to the northern tier ports, particularly New York. The Port of Baltimore is an active party to this case and I can assure Your Honor.
Earl Warren: Mr. Langdon?
Jervis Langdon: Mr. Chief Justice, may it please the court. Mr. Ginnane has talked and discussed the relationship issue in this case. There is another very important issue in this case and that has to deal with the reasonableness of the rates, because when as in this case, reduced rates are proposed by railroads, they have the burden of proving them lawful, specifically proving them first to be reasonable and then to be properly related. Actually the issue of reasonableness is a threshold issue. You don't really reach the relationship question until you have first shown your rates to be reasonable. In this case, the commission found on the reasonableness, issue of reasonableness that the New York Railroads had not shown their rates to be compensatory, refused to find that the rates were compensatory. And this of course, meant that the rates could not be reasonable if not shown to be compensatory. The Lower Court in Boston made its own evaluation of the evidence and reached a conclusion that a Prima Facie case the reasonableness had been made. Obviously, the court had to do this because reversing the commissions on the issue of relationship, it had to make a finding of reasonableness. I want to give you a little of the background, because my argument goes to the point that the New York Railroads did not sustain the burden of proving their rates to be compensatory.
Hugo L. Black: [Inaudible]
Jervis Langdon: They refused to find them compensatory sir, they did not include in their ultimate finding any mention on reasonableness, but in the body of the report they refused to find after considering the subject that the rates were compensatory and in the dissenting opinion, the majority opinion is construed as being that the New York Railroads failed to sustain the burden of proving their rates to be compensatory.
Hugo L. Black: [Inaudible]
Jervis Langdon: There is a finding, but it does not amount to a finding that the rates are compensatory. There is a finding that the out-of-pocket cost would just match the revenue level or the revenue level would exceed the cost by a very small margin. But then, the commission went on to point out that this cost study applied to only part of the traffic and to determine whether the rates would be compensatory, they had to know the cost which were not supplied as to all of the traffic that the rates would attract and also the Commission said that, we have got to determine too what the contribution should be. They very clearly came to the conclusion that there had not been a showing that the rates had been -- not been assuring that the rates were compensatory, refused to find them compensatory.
Hugo L. Black: [Inaudible]
Jervis Langdon: No, very definitely not sir. We think that the lower Court finding that a prima facie case of reasonable, has been made should be reversed and reveal that not having proven their case, because of the refusal to supply cost data that these New York Railroads indulged in that they should -- having made their bid should line it and that the case should be dismissed, because they did not sustain their burden to prove the rates to be compensatory.
Hugo L. Black: [Inaudible]
Jervis Langdon: They made no ultimate finding sir, but as I said in the body of the report there is the very definite conclusion that these rates had not been shown to be compensatory. Now, I might --
Hugo L. Black: [Inaudible]
Jervis Langdon: Yes, but in addition to that sir, you've got to determine -- someone has to determine the extent to which the cost must be covered. There has to be a contribution. The mere fact that rates are on the same level as the cost without any contribution it doesn't necessarily make them compensatory.
Potter Stewart: What do you mean by contribution?
Jervis Langdon: Contribution to net earning, I mean after the cost of moving the traffic is taken into account a contribution to the constant expenses those expenses don't vary with the traffic and net earnings.
Hugo L. Black: [Inaudible]
Jervis Langdon: Well, any minimum rate any -- to qualify as a minimum rates sir, a reasonable minimum rate it certainly has to be shown to be compensatory to cover cost. This is a first step in the showing of the competitive rate to be reasonable as to show that's its compensatory under the law that is now, it's basic, basic principle. Now in this case of course we have the very unusual situation in that from the very beginning of the case, the Pennsylvania Railroads and the B&O, which serve New York along with these other railroads undertook cost studies, not only at New York, but at Philadelphia, Baltimore and the Hampton Roads lines showed their cost, computed their cost at Hampton Roads and those costs first were computed on a full cost basis and indicated that at New York the ratio of cost to revenue was in an area of a 120 to 100. At Baltimore, the revenue, the costs were only 75% of revenue, Philadelphia slightly higher, Hampton Roads, the cost were 50% of the revenue. I would like to mention Hampton Road, because this is an example of the type of discrimination against which these equalizing rates, which these equalizing rates are designed here according the New York interest. The area of Hampton Roads with the 30 miles more of service than New York from differential territory and a $0.03 advantage in rate. They have a $0.40 per 100 pound advantage in cost. In other words, on export traffic moving from differential territory to Hampton Road, the cost of movement is $0.40 per 100 pound or $8.00 a ton less than moving it to New York. Moreover, the $0.03 differential isn't adequate even on traffic that originates on the Chesapeake in Ohio and Norfolk in Western which are local to Hampton Road to keep that traffic to the local port that the Chesapeake in Ohio and then Norfolk in Western server. 80% of the originated traffic on the CNO, and NNW from differential territory moves to New York despite the fact that Hampton Roads has a $0.03 advantage in rate. In other words in this instance the differential reflecting a $0.40 advantage in cost, isn't nearly large enough to get Hampton Roads a fair share of the traffic. The same relative situation obtains at Baltimore where we have a decided cost advantage over New York. Philadelphia has a decided advantage over New York. I want to emphasize the situation at New York, because at New York export import traffic is handled in a way that is different than of the other ports. Freight arrives at the Jersey Railhead in New York and is unloaded and reloaded in the lighters. And lighters are then towed around the harbor by tugs and the freight given delivery to individual steamships at the peers designated and at the time they designate. Freight is really expensive service. All of the traffic between differential territory and New York, practically all of the traffic including grain, between differential territory in New York is handled this way. This means that New York costs are bound to be high, in the area of $6 to $7 a ton higher than at the other ports. Now its said that this bulk traffic which New York hopes to get will not be costly, it will be handled, they say on the Jersey shore and the lightering service will be avoided. The New York Railroad were encouraged to bring in their cost of handling this traffic that would be attracted by these equalized rates, they refused. We filed a petition with the commission and we asked the commission to investigate the cost of handling traffic at New York to determine whether or not the cost that the BNO and the Pennsylvania Railroad had computed were in fact representative and could be relied on. The New York Railroads resisted this petition. They said that, this is a relationship case, the level of the rates is immaterial. They said further there is delay involved in this and they said finally that of course your costs due from the southern ports are lower. You have the volume; if we had volume we too could have lower costs, but they refused point blank to bring in their cost. The commission denied the petition for an investigation of the cost of New York. They said that it will be delaying and they said further the New York Railroads have their burden of proof, let them come forward. And the New York Railroads --
Potter Stewart: Is there any dispute as to who has the burden of proof?
Jervis Langdon: No sir, there can be no dispute on that point. Under the statute the New York and Boston railroads have the burden of proving their lower rates to be reasonable just as we have the burden of proving our matching reductions to be reasonable and related. But the New York railroads as I say, refused to come forward and they spent their entire time at the hearings insofar as this particular subject was concerned, trying to tear down and break down our Pennsylvania B&O cost at New York, saying they were unrepresentative, but refusing to come forward with their own cost. In anyway, they produced not one single figure dealing with New York Central costs, all they did was try to restate our figures on the B&O and Pennsylvania to show how much money we were making. And then, there came at this point in the trial the sort of a break that comes once in a while, the President of the New York Central Railroad publicly admitted, and this is all in the record, that their freight service to and from New York was conducted at a staggering annual loss. In the case of 1957, it was $10,350,000, and it enhances the, he said this loss was attributable to deliveries to Manhattan and the lighterage service which enhances the New York cargo services.
Hugo L. Black: Is that quoted in your brief?
Jervis Langdon: Yes sir. It's in the reply brief and in the main brief sir. I'll find it and point it out on rebuttal. I don't come to it right at the moment, but it was a clear statement made at that time in connection with some controversy there in New York City and it's in this record, of course, it's introduction in the record here, it was resisted very strongly by the New York Railroads, but it was admitted in the relevant portion of it. It was admitted in this record and at that point, there was no further explanation, no offer of cost figures on the part of the New York Central, Erie, any of them. And the result is that when the commission had this issue before it, we had during the course of the hearings tried to develop and accept as much criticism of our B&O Pennsylvania Railroad figures as the New York Central and other railroads had offered. We tried to develop as accurate cost figures for our own traffic as possible and we did get down to the point where there was a large agreement among the railroads as to B&O Pennsylvania Railroad costs. And there was an exception on only their controversy, remaining controversy on only one essential point, and that was this; we took the position, that at New York Harbor with this lighterage service, that this traffic was chargeable with 100% of the cost of that service, that is full cost should be used rather than as insisted by the New York Central, partial cost should be used. In the example of their approach, the cost of maintaining the floating equipment in New York, the New York Central would charge our export/import traffic with only 10% of the cost of maintaining the floating equipment. In other words, the implications are that if traffic doubled in New York, the cost of maintaining the floating equipment would increase only 10%, and why? They said, with an increase in traffic, the average loading of these lighters will increase, and you won't run with a doubling in traffic, you won't run nearly as -- you won't double your lighter miles, you'll only increase them 10% because of this increase in average loading. The difficulty with that basic position is that our studies, which were un-refuted of the actual performance of the lighterage service in New York Harbor over a long period of time with ups and downs in traffic indicated that as the traffic went up, so did the lighterage miles. As the traffic went down, so did the lighterage miles and in direct proportion. Moreover, the lighters per tug, know of the lighters, the tug comes in the middle and he gets as many lighters as he can going in up to four or five sometimes going in the same direction. Our studies indicated that over a period of time despite the ups and downs in the lighterage miles, there was a constant relationship one-and-a-half lighters per tug. This didn't change with the ups and downs in traffic. So consequently, without demonstrated 100% variability of cost with the ups and down in traffic, we thought and still think that this traffic should be charged with the full cost. This is the basic difference in the cost figures. Under our cost figure, which the commission did not accept, 110%, the ratio is cost to revenue 110%. The commission split the difference between the parties and came out with an answer that the revenues were just about equal to the expenses or made a vary -- or exceeded them a very small margin, but again, refused to find that the rates has been shown to be compensatory. Now the Lower Court reversed because they said these rates are prima facie reasonable, because there is only a small reduction, as if that had anything to do with it. They said, these rates are compensatory, because the average revenue are twice the average revenues on average traffic as a whole, under this specific traffic. They also take into account that maybe the expenses are four times the average expenses. And then, they reached the conclusion that the commission had in fact found these rates compensatory by finding that the revenues equaled the cost, when the commission very clearly reserved the right in order to determine whether these rates were compensatory to have the cost supplied to the traffic that these Northern Railroads hope to get and attract as a result of the rates. Now, the question as to a remand, we think that is taken included Your Honors by a decision in the Boston Court some four or five years ago. When the Boston Court was asked to review an order of the commission, wherein certain rates on import iron ore were found to be non-compensatory. And the Court was asked to consider another different approach to the cost questioned. And the parties indicated that in any event there ought to be a remand to the commission in order to consider this further cost approach. And this is what the court said and I think it's altogether appropriate here. We feel that the Boston Railroads must be prepared to sink or swim with the cost study they submitted to the commission as properly modified, which we have no affirmative reason to believe did not reflect the lowest possible cost estimate. To decide otherwise, would open the door to a potentially endless series of hearings and appeals. On the present record, the Boston Railroads have failed to satisfy the burden of proof imposed on them by Congress and the commission's determination that the proposed rates from Boston to differential territory would be non-compensatory was entirely profitable. In that case, a remand was requested and denied here, no one expect the United States which was not a party to the case is asking for a remand. Thank you sir.
Speaker: [Inaudible]
Robert W. Ginnane: Yes sir, they did.
Speaker: [Inaudible]
Robert W. Ginnane: The ultimate finding sir is to reason one is --
Speaker: [Inaudible]
Robert W. Ginnane: They went on -- that's sir, they went on the prejudice point and the ultimate finding.
Speaker: [Inaudible]
Robert W. Ginnane: With this exception sir that in the body of the report where the cost -- subject is discussed at length, they came to the conclusion or they rather refused to find the rates compensatory, this was the holding of the Boston Court, the Lower Court in the case acknowledged that the Commission had refused to find the rates compensatory.
Speaker: [Inaudible]
Robert W. Ginnane: No sir, I would say that the burden of proving the rates to be compensatory was on the New York railroads.
Speaker: [Inaudible]
Robert W. Ginnane: No sir I'm asking this Court only to reverse the Lower Court and I think that in those circumstances the Commission having refused to find the rates compensatory, that burden approved not having been sustained the case is over. Thank you.
Earl Warren: Mr. Marbury.
William L. Marbury: Mr. Chief Justice, may it please the Court. Your Honors may remember from school days the old saying of Andrew Fletcher of Saltoun, that if he could write his country's ballads, he cared who wrote our laws. Lawyers have a variation on that, they say that if they can state the issue they cannot write the opinion. If your Honors have read the briefs or when you have read them or when you come to read the briefs in this case you'll find it difficult to recognize that the parties are talking about the same case. You'll find it difficult to recognize that the issues dealt within one brief are the issues discussed in another. And it seems to me that therefore that it maybe worthwhile for me to go back right to the beginning and see what the issue was before the Commission and then what it was in the District Court. Now what was before the Commission? Here was a controversy going back into 1877 and before, between the North Atlantic Ports as to what the fair rate relationship was. Before 1877, there was no regulation, the carriers would come to an agreement usually by the way at a much higher differential than this one. And then they get tired of it and they start a rate war and they'd fight it out. And finally they decided that they'd like to have done with that and they adopted an agreement, the major carriers, fixing what is essentially the present rate relationship, there have been modifications, but this is what essentially it was. Now they said and I can only say to Your Honors that in appendix A to the brief of the Maryland Port Authority, you will find a very careful historical study of this matter. I made it myself, so I am bound to say that I think it's fair and accurate. But at any rate there it is and it goes back into this subject and I think it is perfectly clear that this was a compromise, that it was not intended -- was not based on any fixed principle that it was not intended merely to equalize ocean rates, that it was not intended to merely to recognize distance differences, that it was an essentially a comprise to stop a rate war. It has been so recognized over the years by the Commission. They have repeatedly in sustaining it against the fact, said that it was not to be tested by any single criteria. It was not to be tested by the ocean rates. Incidentally, some of them were equalized before 1908. And yet the Commission maintained the rate relationship against attack -- under attack. A great many of them had been equalized by the time the Boston case came before the Commission in 95 ICC. In fact, the commission then said they couldn't see that that there was any advantage to the Northern tier ports and yet they sustained it. So I can't take the time here to go in detail in to the history. I simply ask Your Honors to read the Appendix A to the Maryland Port Authority's brief, I think it's an adequate answer to an argument which is plausible, but on top. Now what then was the issue? Here you have the Northern tier ports Boston, Albany and New York and a very reluctant Portland. Actually Portland is very unhappy about this thing, it comes in and says that they're against it, but -- a very unhappy Portland tagging along because they have to, saying we want to abolish this differential that's been enforced now for 90 years or more than 85 years. But on the other hand, you have the carriers that serve Baltimore and Philadelphia and Hampton Roads, saying we'll fight this to the limit, no sir. You can't do it to us and they are backed up by their port interests. Now that's what the commission had before it, it had rate reductions intended to equalize no other purpose, they didn't want them unless they were going to achieve parity. And they had on the other hand matching reductions intended to prevent equalization and protect the differential. So they were faced with a rate war, there wasn't any question about it. The rate war had begun at the early stages, but there it was your attack on some tier had been met by the call for volunteers and they were off to the races. Now what was the commission going to do under those circumstances, what should they do? Well, there were certain interesting features about this situation. One was that the distance in the case of Baltimore and Philadelphia, the distance advantage you'll have to look at a map, it's very substantial, as to New York and of course much more so as to Boston and Portland and Albany.
Potter Stewart: Between those ports and the differential territory you mean?
William L. Marbury: Yes sir, well that's all I'm talking about.
Potter Stewart: That's all is it?
William L. Marbury: Now not as to Hampton Roads, there was – there they had as to New York, actually New York is 30 miles nearer on the average than Hampton Roads, but there was a cost difference. It was a cost difference which was never denied. As a matter of fact Your Honor, I think it's important enough to justify my -- I wanted to read my Section 1, here it is, here it is. Actually the cost difference is admitted in an answer to the petition which Mr. Langdon has told you about, where they were trying to get the New York people to disclose their costs and have an investigation made to the terminal costs of New York. The New York appellee railroads came in and said, we admit we have higher costs in the Southern tier ports, that has nothing to do with this case. And they never have denied it, they didn't deny it in the District Court, they don't deny it here. There isn't any question about it, that the carriers that served Hampton Roads and Baltimore and Philadelphia have lower costs and much lower cost, than the carriers that served Boston and New York. Not only is it admitted, the only testimony in the record, the witness Hay, the witness of Paterson, the witness of Warren, all these things are referred to in the briefs and reply briefs of my brother Langdon and he has got it all out there, there isn't any question about it. There is established, firmly established, as those are the words the commission used, the lower cost. Now, so we have a rate war and we have the fellows who are trying to defend the deferential with a lower cost. And what's going to happen if that rate war goes on? You are going to have the deferential reestablished to a lower level and you've got a bunch of carriers who were broke or about to go broke or in a bad situation. There is no question about it that everybody agrees to that. My brothers on the other side wail about their financial condition just as loudly as Baltimore to Ohio and the Pennsylvania wail about theirs and with justice. Now, so what's the Commission to do, is it to sit back and say well “Let the devil take the hindmost and let them fight it out.” Or are they to take a look at this situation and exercise their powers under the act to prevent this senseless waste of carrier revenue and to determine what the proper relationship is in prescribing. Now they can do that in either one or two ways. They could let these rates go into effect that the northern carriers have proposed and say to the southern carriers you can't file yours. And that's imposing an enforced parity on the southern carrier and that's what they were asked to do by these appellees here before the Commission, that's what they asked them to do. Or they can do what they did do, and that is to say, “No sir, we are going to cancel all these rates and that in effect means that you have got to maintain the existing differential.” That's what they did do. Now why did they do it? Why did they do it? Well, in the first place, they had a look at these differentials to see how they operated, the contention was made not only that this was an obsolescent historical survival from the 19th century for which there was no longer any justification, but the contention was made that they were operating in such a way as to penalize the northern carriers in the ports that they served. And so, the Commission took a very careful look at that as page after page with careful, scrupulous analysis of the evidence. And they came to the conclusion that, that was not true, that New York had not made out its -- or let me put it this way, that New York had not made out its case nor had any of the northern carriers in that respect. Now it is true that there are some -- if you take mere tonnages that because the lower carriers have specialized in bulk facilities and Your Honor please what else were they to do? New York has an overwhelming advantage when it comes to the vast mass of general cargo, which is the high rated, high value cargo. If you want to know what general cargo is; have a look at the exhibit attached to Mr. Langdon's original brief, and you will see there lists of hundreds of items, which move 100% through New York or 98% through New York at the general cargo. And it's everything from steel presses that would fill half of this Court room down to cigarettes. I mean, you have New York today with an overwhelming dominance in the field of the high rated, high value cargo. You have these out ports clinging on and they have been clinging on and this has been going on from the beginning by specializing in facilities and in the handling of bulk cargoes. Now what happened was that a lot of ore began to be imported after World War II, some of it before that, but a great deal of it after World War II and it has changed the tonnage figures and there got to be a good deal of grain going to Europe right after the war and that changed tonnage figures. These tonnage figures are subject to a rapid fluctuation Your Honors. And as everybody knows, seaway is a tremendous competitor when it comes to this bulk business and primarily competes with the ports that live on the bulk business. This is what the Commission found when they looked at it. Now, I haven't got the time here to go into an analysis of the Commission's opinions. I have tried to make it in the brief, which I prepared here on behalf of the Maryland Port Authority. I think you will find that, that the Commission met head-on the arguments that were made as to unfairness that this thing was operating in such a way as to give an unreasonable advantage to the Southern Tier ports, to Baltimore and Philadelphia and New York. I think they meant that argument and I think that at any rate they meant it in such a way that I'm sure that Your Honors will not want to go in to it and try to say that they were wrong, it's supported by all sort of subsidiary findings and everything of that sort. All right, so then and incidentally they, so they found that the thing in practice was operating in a way that was not unfair, they found that the Southern Ports had developed their economies largely on the basis of this differential, they found that without the differential, New York would have a monopoly of the general cargo business and would divert a great deal of the bulk business as well. They found that there would be undue diversion, that's what they called undue diversion to New York and they came to the concussion that under those circumstances there was nothing wrong with letting the differential stand if it was, now, all right. But the question is, what are you going to base, how you are going to proceed, how you are going to act? Well, obviously they couldn't say that the existing differential was unlawful. There is no basis for that, as a matter of fact my brother argued that. They go right up to it and a great deal of everything saying about how awful this is, but then they say if, if there is any prejudice, it was against the Northern Ports. And they said these case differs from the cases which the commission has decided over the years where they held there was no prejudice in the existing differential, it differs, but they say, this is all immaterial, it doesn't matter whether this – they say it doesn't matter whether they, Southern Ports have a geographical advantage, it doesn't matter whether they have a cost advantage, it doesn't matter whether their traffic is going to be diverted to New York, it doesn't matter that the existing rate is not unlawful, none of those things matter, according to their theory of the case. The only thing that matters is, that the Northern railroads would like to carry more bulk business and they think that in order to do that they should be allowed to lower their rates. Now that is in essence what they argued. Now the commission first place had to look at this question of what the Northern, at these rates to see whether or not actually this undue diversion which they had found and on found on -- certainly on a reasonable basis, does it matter, does it matter that the effect of these rates, if they are permitted to go into effect and the Southern carriers are not allowed to do it. In other words, an enforced parity, does it matter then that would be disregarding a geographical advantage, that it would be disregarding a cost advantage, that it would be disregarding the fact that under parity, the Southern court would lose the traffic, the general traffic that they now have and allow their bulk traffic and would simply be in no position to compete it all, do those things matter? Well the commission thought they didn't matter, the commission thought they are matter to the extent of justifying or finding under section 3, that there would be undo prejudice. Now Mr. Ginnane in his brief and in his argument has pointed out to you that when the statute was amended in 1935, the commission was given the power to do exactly that, to waive these factors and to come to that conclusion. And I think he has shown this conclusively and this argument, these things don't matter that the railroads can compete and are free to compete regardless. I think it's fully answered in his brief, but I would like to call your attention to another aspect of the matter anyhow. Suppose that you don't go so far and defined prejudice, was it necessary for the commission to find that these rates are prejudicial, was it necessary? Well actually the Solicitor General, if I understand his brief, it says, admits that it wasn't, that even though there was no finding under section 3(I) that the commission would have had the power in order to prevent sensed dissipation of carrier revenue by a rate war that could have only resulted in restoring the differential at the same level that they would have had the power to prevent that, exercise their powers under section 15 to prescribe the maintenance of the existing differentials, that's the way what I understand he says. My brother is representing the railroads dispute there, they say no, no, if you can not make a section 3(I) finding you can't do anything. Well, I say that the law is against them on that. Your Honors decision in the Milwaukee case, the opinion of Mr. Justice Cardozo in that case echoed by Judge Henry Friendly in the New York Central Iron Ore case down in -- which is cited on our briefs show perfectly clearly, that there is no question abut the power of the commission when they're faced with a rate war to prescribe a reasonable relationship and to do so without making any independent finding of prejudice under Section 3(1) as such, they have the power to do that. Now, the Solicitor General says, in effect, well, I don't dispute that they have the power, but I suggest that this case would be referred back to them, so they can make more findings, they should make a fully distributed cost study, a fully distributed cost study. Well, now I submit if Your Honor please, so they haven't made a Court finding. Now, I submit that here is the case in which the appellee have chosen their ground, they say it doesn't make any cost, make no difference, we're not going to give you any cost evidence, we're not going to respond to any efforts, although they are reminded that the burden of proof is on them. You'll find in here when the commission declined to force them to submit cost studies, they reminded them that the burden of proof is on them. Now, although reminded of their burden they said, “No sir, we choose to take the position that costs are immaterial. They admit the lower cost. What is there to remand the case to the commission for? Nobody argues against -- can argue against the lower cost, they're conceded. Nobody can argue against the fact that the careers are badly over, that's conceded. Nobody can argue against the fact that you have a rate war. Now, one last thing, they say, what this all -- issue all disappeared from the case when it got before the commission. I mean, before the District Court, how did that happen? They said there was no cross appeal. Your Honors, what was there to appeal from? The southern carriers had found conditional matching rates to take effect only in the event that the rates of the northern carriers became effective. Since the rates of the northern carriers were ordered canceled, theirs automatically fell with them, what was there to appeal from? How could they appeal from -- there was nothing to appeal from. The argument here is that while the issue before the commission was one thing, it suddenly disappeared when it came before the District Court. I submit if Your Honor please, that if that is the best, that counsel of the evidence, that the counsel in this case can figure out a reply to this argument. Then all I can say about that is that it indicates, I think, that the argument must be a pretty strong one. Now it seems to me that there can be no reasonable ground for doubt that faced with the situation which the commission found itself here, once they had answered the arguments which Justice Goldberg had indicated that they were to be answered in this case, once they had examined into those question and satisfied themselves. I see, I have one more minute, I'd like to say one more word about this business of -- well, if they are equalized everywhere else why not here? Your Honor, the answer is, New York. You don't have a New York anywhere else overshadowing these other ports. New Orleans did, overshadowed Galveston and the commission did there insist on a differential. Your Honors reversed them, but then the Congress, I think reversed you, and incidentally there were a four man minority there that reached by Chief Justice Hughes, Mr. Justice Stone, Mr. Justice Brandeis, Mr. Justice Cardoza, and I think that the fact that Congress established their minority opinion as the law of the land, is not one which we would cavil today. Now, that's the real answer, you've got New York completely overshadow, now what about Boston, what about these other ports? Unless you are going to say, that because a port is handicapped as Boston is or Portland or Albany, that you are going to give them a differential under the port that has the advantage of distance which the commission has never done, never in it's history, that would be bare faced allocation, that would be bare faced allocation nothing else, it would be simply sitting up here and saying Boston hadn't got enough, so we'll give it a rate below New York even though the cost of service is great.