Warren E. Burger: We'll hear arguments next in 72-214, the Atchison, Topeka & Santa Fe Railway against the Wichita Board of Trade, and 72-433, Interstate Commerce Commission against the Wichita Board of Trade. Mr. Pollock, you may proceed.
Earl E. Pollock: May it please the Court. Within the past year, this is the third case to come before the Court, arising out of efforts to release the critical shortage of freight cars on the nation's railroads. The other two cases Allegheny-Ludlum and Florida East Coast involve rules and rates intended to discourage delay in returning cars. This case involves railroad charges intended to discourage the in-transit inspection of grain and in that way reduce the wasteful use of cars. The new tariffs were published by the railroads almost exactly three years ago to become effective on March 28, 1970, but before the effective date, the Interstate Commerce Commission, acting under Section 15(7) of the Act suspended the charges for the maximum seven month period provided by the statute. The suspension was voluntarily extended by the affected railroads for an additional six months. The charges were finally put into effect in May 1971. After extensive hearings, the Commission found that the charges were just and reasonable and also found that the charges would make a substantial contribution to the improvement of the national freight car supply. The District Court, the court below, set aside the Commission's order, in addition without any request by the plaintiffs to grant such relief, without any discussion of its authority to grant such relief, without any finding of irreplaceable injury, and indeed without any injunction findings whatsoever. The District Court suspended the charges which are then been in effect for over a year. Thereafter, this Court entered and ordered which stayed the judgment below and which permitted the rates to go back into effect. My co-counsel, Mrs. Christian, Associate General Counsel of the Commission will present the position of the appellants and the United States on the District Court's suspension of the charges, while my argument will deal with the District Court's decision on the merits of the Commission's order. These tariffs imposed charges for interrupting grain shipments for the purpose of in-transit inspection. This service involves stopping a car loaded with grain while it is already en-route, switching the car to a separate track at a few locations in the country, where the car is held for sampling and grading of the contents, waiting for disposition orders from the shipper or his consignee after he receives the results of the inspection, and then eventually switching the car back into the regular line-haul movement. The car delay resulting from this practice amounts on the average to more than three days for each and every inspection. Now this delay can readily be avoided by having the inspection, if an inspection is desired, made either at the point of origin or at the point of destination after delivery, or by omitting the inspection altogether as it's frequently done. Historically, the nation's railroads have made separate charges for providing in-transit inspection service, but in the western district, unlike the east which has been doing this since 1963, these charges previously applied, although with a number of various substantial exceptions, only to the second and subsequent inspections on any one grain shipment. The first inspection in other words, was in the western district provided without additional charge. This extraordinary practice grew out of a legal requirement which no longer exists. Until five years ago, the inspection of interstate grain shipments was required by Federal Law, but in 1968, Congress repealed this requirement. At the same time, the Congress authorized inspection on the basis of so called submitted samples. The result of these changes in the law is that under the law at present, any shipping point in the country can also be an inspection point. The --
Potter Stewart: Under the former requirement that the inspection have to take place while the grain was in in-transit?
Earl E. Pollock: No, Mr. Justice Stewart, it did not have to be done while it was in transit, but as the Commission pointed out because of prior practice and because of convenience, the practice of in-transit inspection of grain continued.
Potter Stewart: So it wasn't a requirement?
Earl E. Pollock: It was not required and in fact, one of the principal reasons for the Commission's decision in this case is to stimulate the grain trade so as to depart from this practice in the light of the Commission's findings that in-transit inspection is by no means essential.
Potter Stewart: but it wasn't essential, as you just told me, under the old law?
Earl E. Pollock: That's right, that's right. It could have been done the other way but it was not. The court below found with respect to this 1968 repeal that the primary purpose of the Congress was to affect an increased utilization of rail cars. Nevertheless, in-transit inspections continued in very large numbers even after the repeal, amounting in 1969 to over or almost half a million inspections in just the western district alone. Now faced with this situation and an increasingly critical car shortage, the western railroads responded by publishing the tariffs which are challenged in this case. These tariffs imposed essentially the same charge for the first in-transit inspection that previously applied to the second and subsequent inspections. The tariffs of course apply only to grain shipments which are inspected while in-transit. There is no charge if the shipment is inspected at origin or at destination after delivery or if inspection is avoided altogether. And before the Commission, the railroads even expressed the hope that they would not have to collect one single cent of these charges because the purpose was to avoid the inspections and not to raise revenue. The Commission summarized this decision of holding the charges in four chief findings. First of all, the Commission found that because of the repeal in 1968 and because of other evidence in record, in-transit inspection is no longer essential to the orderly marketing of grain. The Commission found instead that this service was entirely optional with shippers and their consignees, and that the basic responsibility of the railroads with respect to transportation does not require them to provide this service.
William H. Rehnquist: Does the basic impetus Mr. Pollock for these inspections come from the consignee or the shipper?
Earl E. Pollock: Primarily, the consignee and indeed primarily from the grain exchanges which are the principal plaintiffs in this case. Indeed there is a considerable economic advantage to these grain exchanges by virtue of the in-transit inspection of grain, since if the shipment is made to a particular point for the in-transit inspection, at that point the grain merchants in that particular area have in fact a captive market with respect to that grain shipment. The grain being there, it then becomes exceedingly difficult for reconsignment of that grain to a distant market or to a market which would require a back call on the transportation and indeed this is the -- it is this kind of dislocation, particularly among the grain dealers and the grain exchanges which has brought forth the principal opposition to these charges. In other words, the Commission found that this service was purely an accessorial service, it was a special service and it was quite like a service, for example, that was needed for delivery of the goods. Second, the Commission sustained the reasonableness of the combination of the line-haul rate and these inspection charges. The Commission pointed out that under the Terras, the aggregate charges could never exceed the maximum reasonable level determined by the Commission and the Commission reaffirm the vitality of the maximum level, pointing out that there was probably no segment of the country's railroad freight structure that had been reviewed more frequently and intimately than the one that has application to the movement of grain. Third, the Commission found that the inspection charges themselves, are just and reasonable because they were less than the cost of the service to the railroads. And fourth, the Commission found that the charges would materially increase car utilization and that elimination of in-transit inspection of grain would increase the number of available freight cars by several thousand annually. The Commission retained jurisdiction to determine whether any funds derived from these charges should be used to upgrade the railroad freight car fleets and for this purpose, the Commission ordered the railroads to file periodic reports showing just what was the actual operation of these charges. These reports dramatically confirm the effectiveness of these charges in reducing the volume of in-transit inspections. They also serve to demonstrate, as the Commission found, the purely optional elective nature of the in-transit inspection service. The report show that the frequency of such inspections before the charges became effective was nearly two-and-a-half times higher than the frequency afterwards. Stated otherwise, there is already been, in the short time of these charges have been an effect, a 60% reduction and the frequency continues to decline because of the economic incentive which these charges provide. The most recent report shows that there was only about one in-transit inspection for every five grain shipments. The Commission's findings were sustained by the District Court as supported by substantial evidence, but the court satisfied the Commission's order on the sole ground that the Commission did not adequately explain what the court viewed as a departure from an allegedly long-established Commission doctrine. The court based this conclusion not on the Commission's findings, but instead on an expressly secondary reasons cited by the Commission for distinguishing a 1969 decision by the Commission. Entirely, on this very slim read, just four sentences taken out of a 43-page report, four sentences, constituting little more than a dictum, the court below held that the Commission had adopted what the court called an evidentiary rule which is discriminatory per se and that the Commission had thereby departed from its prior decisions which require consideration of the reasonableness of the aggregate charges in these service cases.
William O. Douglas: What did they say about the Arrow case?
Earl E. Pollock: It said absolutely nothing, Your Honor. There is not one word in the court's decision concerning Arrow or its authority to grant that relief. The only thing that appears in the opinion is that in the very last sentence of the opinion, Mr. Justice Douglas, after the court sets aside the order, it adds a sentence saying that the charges are suspended until further notice and permission of this Court. There is no reference at all to this very important Arrow issue which my colleague Mrs. Christian will be dealing with in greater detail.
Byron R. White: Well, what if -- what if the District Court had held the findings of the Commission were not supported by substantial evidence and set them aside? Then on the -- could it have enjoined the rates under Arrow or not?
Earl E. Pollock: No Your Honor, because all that we would have in that case would be a situation where the Commission had intervened with respect to carrier made rates and the entire seven month period of suspension had expired.
Byron R. White: You say that the only -- that the only -- that the only, the thing was suspend the rates once the seven months is expired, is a finding by the Commission, that they were unjust and unreasonable?
Earl E. Pollock: That's right, that's what the --
Byron R. White: What happens when the court sets aside a Commission's finding that they are just and reasonable? And a court sets them aside, what happens to the rates? Could the Commission just sit there and lead the rates in --
Earl E. Pollock: The matter would then go back to the Commission for consideration of the alleged error pointed out by the District Court.
Byron R. White: But until and unless they find the rates unjust and unreasonable, the rates stand to affect?
Earl E. Pollock: That's right. That has --
Byron R. White: In the court, the Commission can just the bat the ball back and forth forever?
Earl E. Pollock: No, it isn't quite like that, Your Honor. As it was planned out in the Arrow decision itself and as Mrs. Christian will deal with in greater detail.
Byron R. White: Sorry, I didn't mean to --
Earl E. Pollock: No, that's quite alright, Your Honor, I would like to answer that immediately, that is the Congress provided two very specific remedies for that situation. It dealt with that situation. It provided number one, a reparations remedy by which any unjust charges can be collected and second it authorized the Commission to institute an accounting and refund order whereby --
Byron R. White: Why would the Commission ever do it if it didn't agree with the court?
Earl E. Pollock: It would be again within the matter of the discretion of the Commission to grant such relief, Your Honor, while it is considering whether the court's order is appropriate.
Byron R. White: Yes, but it couldn't enjoin the rates -- enjoin the rates, could it after --
Earl E. Pollock: It can set aside the rates.
Byron R. White: Could set aside the rates?
Earl E. Pollock: Yes, it can set aside the rates.
Byron R. White: But it couldn't do that except upon of finding of just and reasonable?
Earl E. Pollock: That's right. That's right, but that's exactly the structure that was set up and the delicate balance which was established by Congress and I am sure Mrs. Christian will spell that out even more thoroughly. I find that my time is up and I am sure that Mrs. Christian will deal further with that issue.
Warren E. Burger: Mrs. Christian?
Betty Jo Christian: Mr. Chief Justice and may it please the Court. As Mr. Pollock has stated, my argument this morning will be devoted to the second issue presented by this case. That is even assuming that the District Court correctly reversed the Commission's decision on the merits and remanded the case to the Commission for further proceedings did it nevertheless act beyond the scope of its power in ordering that that the rates themselves be suspended unless and until otherwise ordered by the court. On this issue, I am speaking on behalf of both the United States and the Commission. It is our position that the order of the court was beyond the scope of its powers. Mr. Pollock has already stated the facts related to the suspension issue and I will not repeat them in any detail. Briefly these rates went into effect on May 4, 1971, and they remained in effect until the Commission had issued its original decision and during the entire pendency of this judicial review proceeding. It was after a year later, in May of 1971 –1972, the District Court issued its opinion, reversing the Commission's decision and setting aside the rates. It is this portion of the order, that we believe is beyond the scope of the court's power. The solution of this issue turns on Section 15(7) of the Interstate Commerce Act as interpreted by this Court in 1963 in Arrow Transportation Company against Southern Railway. Under Section 15, the right to initiate changes in their rates is essentially a matter for the managerial discretion of the carriers. The Commission is empowered to declare the rates unlawful only after full investigation. The only other limit upon the carrier's right to initiate changes in their rates is the provision of Section 15(7) which authorizes the Commission in its discretion to suspend the rates for a maximum period of seven months. The statute explicitly provides that if the proceeding has not been completed at the end of the seven month period, the rates “shall go into effect.” In the Arrow case, this Court was faced with a question of whether a District Court would have jurisdiction to itself suspend or enjoin the rates after the seventh month period had expired, but before the Commission had issued its original decision in the case. This Court held that it could not do so. It is stated at page 667 of its opinion that the intention of Congress in enacting Section 15(7) was to vest in the Commission, the sole and exclusive power to suspend and to withdraw from the judiciary any pre-existing power to grant injunctive relief. The only difference between Arrow and this case is the stage at which the court has employed a judicial suspension. We do not believe that this is a sufficient difference toward a different result .In other words, we believe that the reasoning of Arrow applies here. In the first place, the basic Congressional policy of Section 15(7) as confirmed in Arrow is to allocate between the shippers and carriers, the risks and versions that are necessarily associated with any proposed rate change. Inevitably, a carrier proposing a change in its rates wishes to implement that proposal immediately, while the shippers on the other hand would prefer to delay it until the lawfulness of the rates has been finally determined. The policy of Congress as adopted in Section 15(7) was essentially a compromise. It provided that during the first seven months, the risks and the burdens of a proposed rate change should be placed entirely on the carriers. That is, if the Commission chooses to suspend, the carrier cannot implement its rate change and if the rates are ultimately found to be lawful, the carrier has no remedy, it can never recover the lost remedies or the other lost benefits of that seven month period.
William J. Brennan, Jr.: Mrs. Christian?
Betty Jo Christian: Yes sir.
William J. Brennan, Jr.: You attach any significance to footnote 22 in the Arrow opinion?
Betty Jo Christian: On footnote 22, Your Honor, this Court pointed out that it was not reflecting in anyway upon decisions recognizing a limited power of the courts to preserve the status quo pending judicial review.
William J. Brennan, Jr.: Is that this case?
Betty Jo Christian: That is not this case. To begin with, the --
William J. Brennan, Jr.: Well it was -- what was on review was a final agency action, wasn't it?
Betty Jo Christian: What was on review was a final agency action, Your Honor, but this footnote does not apply for two reasons. In the first place, it was not issued pending judicial review, it was issued at the conclusion of the review proceeding, pending reconsideration of the case by the agency. Secondly, the suspension order entered here by the court did not preserve the status quo. These rates have been in effect for over a year. The effect of the court's order was to change the status quo. So the suggestion of a limited power to maintain the status quo pending judicial review simply is not this case. We believe that the careful Congressional balancing of the risks and burdens of suspension which this Court held in Arrow, Congress intended to place on the carrier for the first seven months and upon the shippers thereafter, subject to the protection of a possible accounting and refund provision of a recollection suit applies equally when the case is pending before the Commission on remand, as when it was pending before the Commission in the first instance. In neither event has the lawfulness of the rates than finally determined. And we believe that the Congressional policy is that once the seventh month period has expired, the carriers are entitled to place their rates into effect and to keep them in effect unless and until the rates are finally adjudged unlawful.
Byron R. White: And I kind of take it that the courts do not have that power either, do they, can find the rates unlawful?
Betty Jo Christian: This is exactly the point I was coming to Mr. Justice Stewart.
Byron R. White: And until the Commission finds them unlawful, the rates stand to affect, is that it?
Betty Jo Christian: That is correct, Your Honor. In this case --
Byron R. White: Now, what about my question to Mr. Pollock where the Commission upholds the rates as lawful and they are in effect and the District Court claims that the judgment is not supported by substantial evidence, it sets aside the Commission's findings and let us assumes the court is quite right that the Commission's finding weren't supported by substantial evidence. Well, further reasons were invalid, the rates still stand to effect, I gather?
Betty Jo Christian: Yes Your Honor, it is solely a question of substantial evidence. It would be up to the agency as to whether to decide the case on the present record in which case they would be obliged to summarily find that the rates have not been shown just and reasonable, and to order a -- or to order (Voice Overlap)
Byron R. White: If these are automatically followed from the -- if the record remains the same, the Commission must then automatically enter a judgment finding them --
Betty Jo Christian: I would not say automatically, Your Honor. Certainly I can conceive of a situation in which a court opinion makes it clear that under the legal standards established by the court, the rates cannot possibly be justified. In that situation, the Commission would have no alternative, but to immediately enter it an order.
Byron R. White: Could a District Court order a Commission to find them unlawful unless the record is examined?
Betty Jo Christian: I think that the court could not order them to find the rates unlawful, but certainly its opinion could be written in such a way that under the court's legal standards, the Commission would have no alternative but to find them unlawful. In that situation, the Commission could simply enter an order finding an accordance with the legal standards established by the court that the rates have not been shown to be just unreasonable and ordering them canceled. If it was strictly a question of substantial evidence which might be supplemented by further evidence, then there would be a matter for the discretion for the Commission as to whether to permit the carriers to reopen the record to offer further evidence.
Byron R. White: Can the Court itself enter a refund order contingent upon finding of unlawfulness. Let's suppose that when the seven months expire, the Commission does not enter any order about a refund in the event of finding unlawfulness?
Betty Jo Christian: Certainly, in connection with an appeal of the agency's final decision to court, the courts and the agency have assumed that the courts have the power to issue an accounting and refund order. As a matter of fact, this Court issued an accounting and refund requirement at the time that it granted a stay of the lower court's judgment in this case. We have always assumed that the court does have that power.
Byron R. White: Even if it cannot find the rates unjust and unreasonable or suspend them?
Betty Jo Christian: Exactly, Your Honor. It is other equitable powers to impose conditions for the protection of the shipments such as an accounting and refund provisions are not affected in anyway. In addition to the Congressional policy which I have mentioned that the carriers be permitted to put their rates into effect after seven months and keep them in effect unless and until they are found unlawful, we believe the Arrow decision cited two additional policy reasons for denying the court's power of judicial suspension which we believe are equally applicable when the case is pending before the Commission on remand as when it was pending in the first instance. In the first place, this Court pointed out that the exercise of a judicial suspension power would interfere with the primary jurisdiction of the agency and as I have just pointed out in answering Mr. Justice White's questions, the agency continues to have primary jurisdiction to determine the lawfulness of specific rates even though an error of law has been pointed out by the courts and the case remanded to the Commission. The actual determination of the lawfulness of the rates is still for the primary jurisdiction of the Commission. And the same nexus that this Court found in Arrow between primary jurisdiction and the suspension power applies here as in the situation that existed in Arrow. Secondly this Court pointed out in Arrow that if the courts were permitted to suspend, the result might be different results to different shippers. The same situation could occur if the judicial suspension were permitted in connection with a remand because as this Court is aware, any number of suits can be brought to set aside the same Commission order in district courts all over the country. If those courts should reach different results, one sustaining and the other reversing the Commission and if the reversing court were permitted to exercise a suspension power, then you would have the same type of different results to different shippers that this Court was concerned within Arrow. Thank you.
Warren E. Burger: Thank you Mrs. Christian. Mr. Sweeney?
Daniel J. Sweeney: Mr. Chief Justice and may it please the Court. I am representing here the Wichita Board of Trade and 37 other grain industry groups which comprise in effect the farmers in the Western United States, the country grain elevator operators in that part of the country, as well as the boards of trade on which grain is bought and sold and many of the grain companies which are the people who buy and sell the grain. First of all, this concept of inspection does not explain itself. What we mean here by inspection is a grading of the grain in order to determine the quality of the grain and the value of the grain. Grain is susceptible to moisture, susceptible to contamination of farm material and kernel content and this type of thing. So that to know the other call out of grain does not tell you anything about what it is value is or whether it can be used for human food and things like that. So you have to get a grade in order to determine these things. The practice over the years as these gentleman have told you and the young lady has been to take this grade at a marketplace such as Chicago or Kansas City or Omaha. The cars come in there and the government employed samplers take the the sample of the grain. They write down to Board of Trade and it is inspected and analyzed by impartial government people and they say, this carload is number 2, yellow corn and it has so much moisture in it and so forth. At that point, it becomes a salable commodity because we know what we have. So that the reason why the grain has been inspected in transit has not been because of the Grain Standards Act. It has been because this is the place to do it. This is where the market is, this is the condition of a grain on a day that it is sold on a market and this is where the impartial inspection is available. The change --
William H. Rehnquist: If it is in transit, that suggested that it was originally destined somewhere beyond this market, does not it?
Daniel J. Sweeney: No, it shipped to the market. It will go from a country elevated to the market say to Omaha for instructions and re-consignment. After the inspection is made then whoever buys the grains says well, ship it to Chicago or something like that. You do not know who is going to buy the grain until it is inspected, that is the whole idea. In other words, when you bring it to central grain exchange, they can bring that sample before the Board of Trade and people all over the country, all of the world can bid on that grain and in effect the farmers getting the benefit of this total market. The other way to go always for the farmer to ship his grain to Omaha to one of the handful -- maybe half a dozen elevators that are located there. He is at the mercy of those people, he has to sell to them. The other way he can go now is to ship it in there and have it inspected and pay the $17, in which case he is paying $17 extra a car was something that he has always done and which is already paid for under the line haul rate itself.
Warren E. Burger: Are you suggesting there are no other alternatives for solving the problem?
Daniel J. Sweeney: Well, I think the alternative that many people have suggested is that if the railroads are really concerned about giving the shippers an incentive to eliminate the grain inspection, the thing for them to do would be to reduce their rates. In other words, let us say the rate is $0.20 from a point in Nebraska at Omaha.
Warren E. Burger: Well, that is obviously an easy solution, but the carrier has no interest in the quality of that grain, has he?
Daniel J. Sweeney: The carrier has no interest in the quality of grain, however, by providing a service which is of value, he is enhancing the attractiveness of the railroad service, but the point is that the carriers, when they made the $0.20 rate for example, they put into that rate $0.2 specifically because of the cost of the grain inspection, this was stipulated in the record. If the rate was not a full service rate, if the rate did not include the grain inspection, that rate would be $0.18. So what I am saying to you is if they want to give them an incentive, let us do what they should do. They can not take away the service and continue the charge us the full $0.20.
Warren E. Burger: You agree with I think it was Mr. Pollock's comment that the railroads lose money on this inspection and that the inspection process costs more than the enhanced rate. Do you agree with that?
Daniel J. Sweeney: Well, if you are talking about the $17 per car charge, the $17 approximates what it costs --
Warren E. Burger: We are just talking about his generalization. Do you agree with that?
Daniel J. Sweeney: They are always not losing money on grain traffic. They are making a very substantial profit. For example, somebody put some evidence in that on the whole, they are making 150% of the direct cost.
Warren E. Burger: Well, that was not my question.
Daniel J. Sweeney: I am trying to get your question.
Warren E. Burger: Well, my question was just of losing money on the inspection process standing alone, that is so that they would rather eliminate the whole process and from their point of view, they argue that they would be better off?
Daniel J. Sweeney: Now, he has not said that he is losing money on inspection process. What he has said is that part of the total transportation as has existed has been a portion in the middle whereby the grain has been inspected and takes three days to do that and he said they are occupying our cars for three days. Now, if we can put something new in the tariff, that will discourage that, eliminate it, then we can free up more cars and alleviate to some extent the grain car shortage, this is the basic proposition on which they present this case to the ICC.
Thurgood Marshall: But there is not dispute that the carrier is not interested in this inspection, doesn't it? They would be just relieved, get rid of it once and for all, is that correct?
Daniel J. Sweeney: I do not think that is correct, Your Honor because if they want to do that, they would have proposed and said, as from tomorrow, we will not form any grain inspections, regardless of price. They have not done that. They said, we will continue to perform grain inspections, but we will do it at an additional cost of $17 in addition to our rates which already pay us once for that.
Thurgood Marshall: As I understand the Mr. Pollock to say that they just leave, stop the while business. They are not -- what interest does the railroad in having the grain inspected? What possible interest do they have?
Daniel J. Sweeney: Well, they are competing with other modes of transportation. Railroads are not the only way to route this grain and by having this grain inspection and allowing the grain to come to the market in a car, the man in the field, the farmer, he has an opportunity of bringing his grain to market and getting a price on a competitive market. Now the other way he can go is he can put on a truck and he can send it to market but if he does that, he is not going to get the same market structure. He is not going to have the advantage of a nationwide buyers, he is going to get less money. For example, he could have a lower truck rate than the rail rate and this many times happens and he can ship by rail nevertheless at a higher price because when he gets to the market, he is going to have the advantage of the marketplace.
Thurgood Marshall: So the inspection helps the carrier?
Daniel J. Sweeney: The inspection helps the carrier to get grain on his railroad instead of having that grain go down the river on the barge, instead of going by truck.
Thurgood Marshall: And if on the other hand he is willing to give up that great asset, you object to it?
Daniel J. Sweeney: Yes Your Honor we object it for two reasons. First of all, he is destroying the marketing structure which we have built up over 50 years. He is putting a lot of people out of business that are involved in this thing. The second thing that he is doing is he is saying to us, I am going to take the service away from you and as I continue to charge you a rate which includes a specific cost of that service. We would have a much different case, if they were here saying, we took our rates and we took two cents off, we have published upper grades. Now this is what has happened in the past, and that is why this case is at such cross roads. In the past where the railroads wanted to put rates in without inspection, they have reduced their rate. They have said we will drop from $0.20 to $0.18. We will now give you an $0.18 rate which you can use without grain inspection. We will give you an incentive and this is what has happened and now all of a sudden, they have switched into this new position. They want to take away the grain inspection and they want to keep the higher rates which compensate them for it and they cannot have it both ways. If they want to go down this other road, if they want to come back next week, they can publish a new tariff and say, every rate in the West shall be $0.2 lower whenever a grain inspection is weighed. This is a way that they could have gone. They could have avoided all these problems. They could have solved the car supply problem that they have been talking about that it said that they want, but they did not want to do that. They wanted to add a charge so that the man who takes the grain inspection has to pay for it once in the rate and secondly with the $17 and the man who was prevented from doing it because he says, I do not want to add another $17, he still pays the old rate which included the compensation. So that people that are using the inspection are being deprived because they're paying double, people who don't use the inspection are being deprived of the service that they're paying for right now today.
William H. Rehnquist: Would you say that's tantamount to an increase in the line haul rate?
Daniel J. Sweeney: It certainly is Your Honor. It's increasing the total charges and in effect it's increasing the line haul rate indirectly by reducing the service. You still pay the same price but you get a service more.
Warren E. Burger: It's a paradox though, isn't it? It's an increase in total rate which the carrier doesn't want. Isn't very often carriers don't want to increase, isn't it? Isn't that situated --
Daniel J. Sweeney: Well, it's selected, Your Honor, as we figure they've collected between four and five million dollars a year on this so they've been getting money on this.
Warren E. Burger: Well, I'm just relying on what they represent in the argument?
Daniel J. Sweeney: I find that paradoxical. I think if they were really sincere and all they wanted to do was get this goal of helping the car supply, they would come out with a very straightforward proposition. They would say we're going to knock two cents off every rate. As of tomorrow, if you don't take your inspection, you're going to save two cents. This is what I call an incentive. What they've been calling an incentive is actually a penalty. They're saying you're already paying for it once, tomorrow you're going to pay for it twice. We can't go along with that. Unfortunately, the Interstate Commerce Commission did. Now, we get to the question of why are the Interstate Commerce Commission decisions renewed at all by courts. The reason is, because Congress put statutes and they said you can interpret these statutes and you can apply them to the facts, but you can't do it arbitrarily and that's exactly what we have here. We have an arbitrary decision. We have decision where the Commission was overwhelmed with all this evidence and repetitive testimony, all this legislative history from the Grain Standards Act about how important car supply is, and how this thing is going to help car supply. So the commissioners are sitting there and they've got letters in their files, they've got complaints, they've got people criticizing them in the newspapers about the car supply. Really, the problem is that the railroads just don't buy enough cars to replace the old ones. In the last 15 years, they've dropped 300,000 box cars, they used to have over 600,000. Now we've got 300,000 plus. So when they talk about a saving here, 300,000 cars a year or 600,000 cars a year, this is not the solution to the car shortage problem. It's a small step in that direction, but it's not the great solution as presented. So the Commission looked up and they said, well this is a car supply case, we're going to approve this thing and at that point they said we are not going to follow the statute and we're not going to look at this pile of evidence over here. We, at the Commission know well enough, what's good for the public, what's good for the railroad's car supply. We don't have to look at statute then we have to look to the merits of the decision with this background, because this is really the background on which the Commission decided the case. When the Commission came here, in a jurisdictional statement they specifically said to this Court that they were not going to ask the Court to review the merits of their decision. Apparently at that time, when they first came here they were convinced that they couldn't defend their decision. In the last few months something has happened. They filed a brief and they're now trying to defend themselves on the merits. I'm not going to question their right to do that, but I think it does show a little bit that there was certain lack of confidence in their own decision. What do you have to prove in a case like this? You have to prove that the changes, in the rates and charges are just and reasonable. This is Section 15(7) of the Interstate Commerce Act. Now one bar is on thing, when you have concepts of just and reasonable, it's somewhat vague and what is a just and reasonable rate. Well, in this particular case, in this particular Act, Congress put in specific standards that the Commission shall consider in determining what is a just and reasonable rate. The standards are in 15 (a) (2) of the Interstate Commerce Act. One thing is that they must show that the rates are at the lowest cost consistent with the total services and the other thing is, they have to show the effect on the movement of the traffic, whether or not the traffic would be diverted. So the Commission then has to come to grips with the situation. More specifically within three months before these tariffs were published, the District Court in Ohio had affirmed a decision of the ICC in the transit charges case, which was the same kind of a situation. The Southern Railroads decided that we've been providing transit on cotton for long time at the line haul rate. We will now add a charge of something like $50 a car for it. That case went before the ICC and the ICC decided, one you have got to present costs for the through movement, show us how much it cost to handle this traffic, how much your cost is for the transit and give us your total revenue and your total cost, otherwise we can't determine the overall reasonableness of your proposal. The other thing I said is that there would be a likelihood that you're going to lose lot of traffic to the trucks if you raise your rate like this. That case went to the District Court in Ohio, and was affirmed by the District Court and then went to this Court and was affirmed. So here we're starting out and we're going to trial in this case and the railroads have got to prove these things. Yet, they put in no evidence whatsoever on these issues and this is how the case comes to the Commission and they are sitting, trying to write a report which is going to find these rates just and reasonable when the railroads have put no evidence in on two issues that are spelled out by Section 15 (a) (2). Well, they had quite a job on the hand trying to do that. Here is how they went about it. They said well, we don't have to follow the principles of the Southern Transit case, which incidentally are the statutory principles. They said, this case is different from the Southern Transit case where we said you have to have total cost with the total movement and show us how much money you're making on this traffic before we're going to let you tack a charge on top of it. So they said, well, in this case, we've got thousands of rates in a wide area. Where we've got a big job on our hands like this, well it's just too much to ask railroads to supply with cars. We shouldn't have to do that. Well, of course, the Southern Transit case involved rates throughout the South and involved all the railroads and involved thousands of rates. So this distinction was I would say specious at this point. I don't know how stronger these people are defending that in this case. They talk about it as a dictum, they walk away, it's virtually a dictum. This Court many years ago in the (Inaudible) Divisions case said that there are means of meeting it when you've got thousands of rates involved, present typical evidence and there was some kind of a sample, show us representative rates and that's good enough. This is how the business of the Commission is carried on. Everyday, all the day we've got cases involving thousands of rates. Nobody throws up their hands and says there is thousands of rates, they don't put any evidence. That's not true at all, where you've got thousands of rates, the justification and necessity for putting in these costs required by the statute is even greater, because there is more people affected by a case like this. They could have broken this case into 50 different cases, let each railroad try their own case. It would be that much less rates in each one, but because they all come together and all simultaneously try to put this thing across. It doesn't take out of the statute and leave him from the statutory burden of proof. The other way that Commission went on this point is they said, well, we find that way back in 1934 issued a decision on grain rates and in that case we looked very closely and we decided what a reasonable level of rate would be. Now if we take those rates, and add to it, every single general increase we've had in the last 40 years, we will find that that total rate is still higher than what the shippers would get here if they add the $17 on top of the rates that they're paying today. What had happened is that the 1934 rates have become obsolete. They no longer move the grain traffic today. If these were the only rates that we have in the tariffs, the grain traffic wouldn't move by rail at all. It would either be uneconomic or the barges and the trucks would get it on. There is no question about that. These rates are as high as the sky. So the Commission said, well, we've got that, and as long as the railroads haven't exceeded those rates, which their principle witness said, are paper rates don't move any traffic, as long as they don't like see those rates, we find that, this is alright.
William H. Rehnquist: But that at least amounts to a finding by the Commission, whether supported or otherwise, doesn't it, that even treating this as an increase in the line haul rate is justified?
Daniel J. Sweeney: I would treat that as a conclusion rather than a finding. The findings that are required on the Section 15 (a) (2), the Commission shall consider the relationship between the costs and the revenue. Now instead of doing what they're supposed to do on the 15 (a) (2), they off into the wide blue yonder and they say, well, we'll consider the fact that these rates are not higher than the 1934 rates plus a 150% over the last 40 years. They did not do what the statute said. We don't deny that they have the right to throw this kind of language into report and say well, these rates are no higher than the 1934 rates plus a 150%, but that doesn't excuse them in anyway, from fulfilling their function under 15 (a) (2), which says, you shall consider the costs and the revenues. They have to consider the costs and the revenues today. This is what it's all about. What's happening today? How much does it cost in the handle of traffic today? They can't just simply say we've got res judicata, we've got a rate that was decided four years ago. There is no res judicata in administrative law and Commission cases. They've got to come in. They've got to get evidence. They've got to decide it on the facts. They have to know how much profit are the railroads making on these rates today. Can they afford to reduce the rate and give them a reduced scale of rates instead of adding something on top of them, on top of rates in many cases which are rather high. They try to get off the hook. They try to walk away from the statute, or refine to an old decision. Now if you stay with that for a moment, let's say they prescribed the rates of 1934, 10 cents, that rate today is say 25 cents. It's gone up 150%. There was never any prescription by the Commission that 25 cent rate is just and reasonable. In order to bridge this tremendous leap from a 10 cent rate to a 25 cent rate, the Commission said, well, over the years those cases have gone up in this general increase cases and therefore every time we got any general increase case, this rate now becomes a new maximum reasonable rate. Well, that isn't true at all. They have been taken to court after general increase cases where shippers and groups of shippers have ask the court to review and say, our rates are unjust and unreasonable with this 5% increase. The Commission and the railroads say, that's not involved here. The level of the rates and whether they are just and reasonable is not involved in our general increase cases. All we are looking for in general case is a total piece of money. We need $15 million, you could buy this year and the justness and reasonableness of the rates on grain, the rates of potatoes, the rates automobiles are just not involved in this case. And this Court sustained a decision of a District Court on exactly that point that you can even get a review of the justness and reasonableness of the rates established in these general increase cases. Now they want to have the other side of the coin and come back here and say, oh, yes, these rates are just and reasonable. They were established in a general increase cases as just and reasonable. Those two concepts cannot live together. There is no room for both of those things do exist side-by-side. If they found them just and reasonable, then they should really review it. I don't see how they could find it just and reasonable, they never looked at them, all they look at in those general increase cases is the total revenue need of the railroads. So they need 5% more money and if they find that they do it, they'll give it to them. I want to say just something on this Arrow case and we have here a special situation and all the talk about possible refunds gives us no help at all. These people have put in a charge which they want to be a barrier. They have come into this Court to say that since the charge went in, 50% of these inspections no longer take place. So that on the shipments which they have precluded, nobody is going to get a refund of $17 a car on a shipment that wasn't inspected because the charge was so high that nobody could use it. On the other 50% what happened to the charge is that it was passed onto the farmer. When the purchase was made from the farmer they deduct the freight rate and the $17 a car, that's taken right away from him. He is not a party to the transportation with the railroad, he has nothing to do with the shipment. He will never get that $17 back. Everyday that this case goes on without restoring the District Court's decree, the farmer is loosing $17 on every car that is inspected. The other way he loses is that he is losing his market. He can't get this nationwide market that we have been providing him. So we have people going out of business. We have grain inspectors that have been fired, we have this whole system of marketing through grain inspection which is being gradually destroyed and taken apart while the litigation goes forward and the railroads understandably and the ICC, not quite so understandably say that no one can do anything about it and they rely upon Arrow case which said that we don't want single judge courts doing a job before the ICC decision which can only be done by three-judge courts under the statute after an ICC decision. We summit that the railroads lose a case, they can go to court get the Commission set aside and then they can put their rates in. On the other hand, the shipper should have the same power. They should have the same right. They shouldn't be just going to court to touch bases and to go back to the ICC again. They should be able to get some substantial relief while the case was back to the ICC. Bearing in mind particularly that it isn't necessary for the Court to say this is just and reasonable or it's not just and reasonable.
William J. Brennan, Jr.: Why do you say Mr. Sweeney that Arrow doesn't apply here?
Daniel J. Sweeney: Because Arrow concerned itself with what could take place before the decision of the Commission? What would happen if the Commission doesn't makes its decision within a seven month suspension, but takes them a year? What happens in that five months before the Commission has discharged that function and they said we do not think that the Court should be taking a crack at this kind of case before the Commission and its primary jurisdiction, has completed the record and has made its findings. At that point as it was noted in the footnote the case belongs to the three judge courts, it's up to them to decide and it's up to them to decide whether the situation is such that they have to grant some kind of ancillary relief and we asked that court to grant us ancillary relief. We didn't have some grant, the specific relief that they did, but we asked them to order the ICC on remand to immediately have this rates canceled.
William J. Brennan, Jr.: What do you say to Mrs. Christian's argument that the footnote dealt only with the maintenance in the status quo?
Daniel J. Sweeney: Well the status quo, Your Honor, is the last piece of those status prior to litigation. In this case, that was prior to the publication of the rates, prior to this controversy arising there was no inspection charge. Now because they had succeeded in maneuvering this case that by the time, they got to the courthouse the rates have been in for a few months. It doesn't change the court's right to restore the status quo, the status quo that existed before the case.
Warren E. Burger: You don't read the Arrow case as taking the judges out of rate making men as in the barred terms that the opinion seems to read?
Daniel J. Sweeney: I don't think that affects rate making one way or the other I think for a court to issue an injunction like they did here, all they are saying is that you are required on the 16, section 15 (7) to fulfill a burden of proof of showing the rate is just and reasonable. The District Court below found the statutory requirements that the railroads had to put in cost. There was no evidence whatsoever in the record. The railroads had failed to meet the burden of proof and all of the District Court was saying is since you've failed to meet your burden of proof in a case in which you had ample of time to do so, as of this date you have no further right to keep those rates in. Without prejudice to down the road perhaps the ICC will give them another hearing, perhaps some decisions, some valid decisions will be issued some day that will approve this. But in the mean time, the life of these rates as of September 1971, when the ICC issued it's decision, was critically dependent upon whether or not the ICC found that they had fulfilled their burden of proof and if they didn't fulfill the burden of proof as of the next day, they have no right to be in effect and the court is in effect saying you made a mistake, you didn't follow the law and therefore these rates have to go out, until such time as you fulfill your obligation and prove that they are just and reasonable. Thank you.
Warren E. Burger: Mr. Imhof.
William A. Imhof: Mr. Chief Justice and may it please the Court. My name is Imhof, I represent the secretary of Agriculture. The secretary is represented here today because both of the issues principally before the Court today are of vital concern to farmers. Farmers after all are the fellows who are bearing this charge that we have been fighting about. The grain farmer in the West sells his grain to a country elevator. He receives the price that day at Minneapolis or Chicago less the cost of getting it there by railroad. Historically, line-haul rate included a stop for inspection which facilitated that the sell of the grain at the market. Now the railroads have added a penalty charge over and above the line-haul rates for the inspection and that penalty charge too is deducted from the price the farmer receives for his grain. And this burden is especially better for the farmer because he knows and indeed our friends, the railroads conceded at the hearing below, that they were already collecting for this inspection charge out of the line-haul rate and therefore the new inspection charge from a revenue standpoint for the railroads is largely gravy. However, we are more greatly concerned and I will confine my remarks to appellant's attack upon the equitable jurisdiction of District Courts, upon review of ICC orders and this issue is of concern not only to grain farmers but to farmers generally. Farmers rely heavily upon rail transportation for both transportation of their produce and also for their supplies. Their livelihood, sometimes even their economic survival depends on having available rail transportation at reasonable rates. Of course, what is their first line of defense against unreasonable rates? It's the Commission, but if the Commission makes a mistake, if it approves a railroad proposed charge on less than requisite amount of substantial evidence, where should they go? Until recently, it seemed clear enough that a shipper could bring suit in a three-judge District Court which if it sustained his charges about the Commission's failure, could enjoin collection of the charge. This was the view of the Alabama District Court and of the Fifth Circuit whose judgments you affirmed in the case in Arrow. In this case of course, it was the view of the District Court in Kansas. We belief it was also the District Court -- the view of the District Courts in California in the Cantley case, and in the District of Columbia in the Ad Hoc Committee on Consumer Protection case. I think we might note in passing that it was also the view of the Illinois District Court in the Inland Waterways case which was relied upon by the railroads, this Court reversed the District Court in that case but didn't question the exercise of equitable jurisdiction by the District Court. I think the District Court in that case did go too far and foreclosed the discretion of the agency on remand and that was the reason that it was overturned by this Court. Just over two years ago, however, a District Court, three-judge District Court in New York declined to enjoin collection of Commission approved rates on the ground that the theory of the decision of this Court in Arrow logically extended foreclosed such relief. The small shipment decision was of course pressed upon the Kansas Court in this case, but the Kansas Court declined to alter its judgment and indeed refused to stay of its judgment especially because the farmer who was bearing this inspection charge, can be protected only if collection of the charge is enjoined. The appellants argue that the injunction issue is controlled by Arrow and that under Section 15(7) of the Interstate Commerce Act, only the Commission can suspend the railroad rate and then only for the statutory period. However they overlook the fact that the suspension provision in Section 15(7) is confined by its own terms to the period prior to Commission decision and they also overlook the fact that in Arrow, both this Court and the lower courts were careful to confine their holdings to the situation presented, that is where the Commission had not yet completed its investigation or issued an order. While both the District Court and the Court of Appeals in Arrow denied the availability of injunctive relief at that stage, both concluded that after final order by the Commission approving railroad rates, the three-judge court upon review of that order has the power to enjoin the effect in the rates, in affirming those judgments. This court also pointed out that judicial cognizance of the reasonableness of rates is confined to review by a three-Judge court of the ICC order, it can't take place before that. We submit that therefore upon a fair reading Arrow lends no support to appellant's arguments. This is not simply our conclusion. We would refer Your Honors to the decision of the D.C. Circuit Court of Appeals which is referred to in the decision in ad hoc committee on consumer protection. We note also that in that case, the Court held injunctive relief to be available not withstanding that there was a possibility of a motion for reconsideration before the Commission. The dichotomy drawn by the courts in Arrow and Ad Hoc between the judicial roll before and after decision by the Commission approving rates is entirely consistent with the statutory scheme. The Congress provided for two situations. The Arrow case dealt with of them and that was shippers resorting to injunction prior to Commission decision and they amended 15(7) to provide for that. But in this case we are not talking about 15(7), we are talking about the urgent deficiencies act which Congress provided especially for judicial review of Commission orders. It created a commerce court and transferred the jurisdiction of that court in turn to the district courts. It had no intention at anytime of restricting the equitable powers of the circuit courts or the commerce court in making those transfers. I think I would like to address a couple of specific points which have been of interest to the Justices in the arguments presented heretofore this morning.
William J. Brennan, Jr.: Before you do, let me ask, what's your answer on Mrs. Christian argument on Status quo?
William A. Imhof: On footnote 22, Your Honor?
William J. Brennan, Jr.: Yeah.
William A. Imhof: First of all I think we might argue, we might well remember that the court here did not flatly remanded to the Commission and lose hold of it. The court retained jurisdiction over this case. So it is for all practical purposes pending judicial review and Professor (Inaudible) at least has sanctioned that as a legitimate judicial device to retain jurisdiction of a case.
Byron R. White: It's certainly is anticipated that the Commission is going to take some further proceedings in the meanwhile?
William A. Imhof: Yes, Your Honor, I suppose it would be, yeah.
Byron R. White: No, I think so it would – we set aside the order because you haven't given a decent enough reasons.
William A. Imhof: I would assume that it would be remanded with directions. It was not remanded with directions here or may be it was. The proceeding is not in consistent with its opinion. So the answer will be yes, Your Honor, yes. I would like to address perhaps Your Honor's question about the possibility of a decision being bated back and forth between the reviewing court and the Commission. I think if you logically extend the Commission's argument to its fullest length you are reviving the negative order doctrine. As you remember the Commerce court produced the decision in Procter & Gamble and in Procter & Gamble, this Court held that an order such as the one we are referring to here is a negative order not subject to judicial review. Of course, then injunctive relief was not available because the court never even got jurisdiction over the order. But if you push their argument to its logical extent, I think we are getting right back to the negative order doctrine and I don't believe this Court should take that action. I don't believe that this Court in overturning the negative order doctrine in the Rochester Telephone case, had any intention of the --
Byron R. White: What you are saying is -- it's not been held that rates are unjust and unreasonable, don't you or do you?
William A. Imhof: I tend yes, Your Honor. I believe that's a matter of exclusive jurisdiction of the Commission.
Byron R. White: And has the Congress provided or hasn't that the rates may not be suspended beyond seven months until there is a finding of it as unjust and unreasonable?
William A. Imhof: Until there is an order of the Commission, Your Honor, I submit that that's a very valid and vital distinction in this case.
Byron R. White: Order in case that they unjust and unreasonable?
William A. Imhof: Till there is an order of the Commission in the proceeding pending at that time before the Commission. The judgment made by the Congress was to keep the courts out of the Commission's hair for whatever period of time it required for the Commission to exercise initially at least its primary jurisdiction. That period varied.
Byron R. White: So you say that if rates in effect Commission finds the rates just and reasonable, the Commission itself could suspend the rates beyond the seven months pending judicial review?
William A. Imhof: If the rates were just and reasonable?
Byron R. White: Yeah, they are kind of just and reasonable?
William A. Imhof: No, no, Your Honor, I do not.
Byron R. White: You don't, even though a court could?
William A. Imhof: A court could suspend the rates if it found that the Commission's decision was not supported in your example by substantial evidence. Therefore the Commission's finding that the rates were just and reasonable would have no support, it would be invalid to find support.
Byron R. White: Well I know, I know but that still leaves the rates in effect that under the seven months rule?
William A. Imhof: And not once the court has jurisdiction over the case, I would submit Your Honor. I don't think you can draw on this dichotomy between judicial review of an order and equitable relief and I feel this matter is perhaps disposed off in the footnote in the the Rochester Telephone case as to the forms of directions which would be available to a court upon review of such an order. I believe it's 1229.
William J. Brennan, Jr.: Have you fully answered my question?
William A. Imhof: I am not sure if I did or not, Your Honor, I believe I answered the first part as to whether or not the Court is retaining jurisdiction, pending judicial review and Mr. Sweeney has pointed the case as indicating the status quo can be restored and I submit to Your Honor, that effect would answer the second question.
William J. Brennan, Jr.: You associate yourself with that argument?
William A. Imhof: With that argument, yes, I do, Your Honor, Thank you very much.
Warren E. Burger: Thank you Mr. Imhof. Mr. Pollock you have about four minutes left.
Earl E. Pollock: May it please the Court. May I first of all point out that much of the argument made by the appellees here bears no relationship either to the findings made by the Commission which I comment to Your Honors, or to the proceeding that was conducted before the Commission. For example, Mr. Sweeney's principle argument here concerning the necessity of a cost analysis under section 15 (a) (2) was never raised before the Commission and of course, under this Court's decision in Tucker and in other cases is barred, but more fundamentally, the appellee's arguments and I think this gets perhaps to crux of it failed to take account of the nature of the rate making function and the Commission's role and discretion in performing that function. When it comes to carrier made rates there is contrary to the appellee's suggestion no single rate which is reasonable. There is instead a zone of reasonableness and this zone is located between a reasonable maximum and a reasonable minimum, and the carrier is free under repeated decisions of this Court, without a special permission from the Commission to adjust its rates as well as those rates stay within the zone of reasonableness and do not violate the Act. Now what could the Commission do here. On the basis of its own prior decisions and its particularized attention year after year after year, decision after decision after decision, the Commission reaffirmed the vitality of the current maximum reasonable level and said across even if we add, even if we were to add these inspection charges to the existing line-haul rates, the resulting combination would still not exceed the zone of reasonableness. Further more, and in particular relation to Mr. Justice White's earlier question, I think it is important to recognize that under the statutory scheme, carrier initiated rates are valid unless set aside by the Interstate Commerce Commission and not vice versa. In other words, under the statutory scheme, a carrier need not get permission to institute rates, instead the carrier has that right. Congress gave the carrier that right subject only to the Commission power to suspend the rates for this limited period of seven months and it was on that basis that this Court in Arrow said that that is the only exception made by Congress and neither the Commission nor courts can intervene beyond that. With respect to the optional nature of the inspection, Mr. Sweeney has said that this is absolutely essential but look at the facts. At the present time, only one inspection is made for every five shipments certainly indicating that it is not essential. Further more in-transit inspection has never taken place, as the Commission pointed out on Page 15 of the Appendix, with respect to all large traffic carrying grain, all truck traffic carrying grain and now 80 % of the shipments go without -- by rail, go without any in-transit inspection. It is for the Commission to determine whether this is a necessity and the Commission found -- Pages 56 and Pages 17 through 90 of the Appendix that it was not essential and certainly, this is not the form to re-argue the nitty-gritty of rate making issues. If there is anything which is committed to the discretion of Interstate Commerce Commission, it is this matter of determining what constitutes a reasonable rate under established principles. It is also instructive, I would say is closing that although both appellees now argue for the necessity of the suspension power in courts, they do not even see fit to request such relief in the District Court.
Warren E. Burger: Thank you, Mr Pollock, thank you, gentlemen. The case is submitted.


Earl Warren: Perkins versus Standard Oil Company of California. Mr. MacLaury, you may continue.
Richard J. Maclaury: Mr. Chief Justice, may it please the Court. I'd like to return for a moment to the question Mr. Justice Douglas asked yesterday and the suggestion that there must have been a control by Western over Regal because of Western's 55% stock interest in Regal and my response to Mr. Justice Douglas' question was that although Western was in a position to control Regal, there was no evidence that there was in fact control. I'd like to add and answer to this morning and say that I think it will be recognized that Western as a majority stockholder in Regal had an obligation to the minority stockholders in Regal and it was Western's obligation as a majority stockholder to honor its obligations to the minority and to see that Regal could resell its gasoline at a price that would return to Regal a normal profit. In other words, that the majority in Western had an obligation to refrain from dealing with Regal and controlling Regal to the point that Regal would operate at a loss. Now, the fact is that Western paid Signal slightly higher or approximately the same prices towards gasoline that Perkins paid Standard. Now, Signal owned a majority interest in Western and was obligated to treat the minority interest in Western fairly and to refrain from compelling Western to operate at a loss, or to sell at a loss to Regal. Beyond this, the fact of the matter was that the minority stockholders in Western were actually the controlling officers and control the operations of Western and they were in a very good position to see that their own interests were properly taken care of.
Byron R. White: Well, whether there was control or not, I suppose Signal's lower price was either passed on Western, and if it wasn't passed on, I suppose the Perkins case gets much covered, doesn't it.
Richard J. Maclaury: It certainly does, yes.
Byron R. White: But was that issue put to the jury? Didn't that have to if the jury -- I suppose on one theory of the case, the jury would have had to have found that it was passed on.
Richard J. Maclaury: No, I do not believe so, --
Byron R. White: Well, they --
Richard J. Maclaury: -- Your Honor.
Byron R. White: -- came out with the verdict of Perkins.
Richard J. Maclaury: Yes, they did. I'd like to step back a moment and say this that the respondents asked that this question of passing on be put to the jury. The Court refused to do that and I might say there that on page 5 of our brief, --
Byron R. White: Well, this -- let me put and ask something else. If it was passed on a regular basis, that doesn't really make much difference about control, does it?
Richard J. Maclaury: No.
Byron R. White: And if it wasn't passed on, it doesn't make any make difference about the petroleum.
Richard J. Maclaury: I think that's correct. And the fact of the matter is that there's no dispute between petitioners and respondents as to the price that Western paid for its gasoline. That evidence was put in on the basis of invoices. The invoices of Signal oil and gas to Western and there was no conflict in it and that that evidence, that invoice evidence is summarize in the footnote at page 22 of our brief. And it shows that for virtually all of the time, Western paid a higher price for gasoline than Perkins.
Byron R. White: But how come does Regal get off with selling at such a low price?
Richard J. Maclaury: Well, that's --
Byron R. White: Does it buy its gas at a low price? Now, how does that operate?
Richard J. Maclaury: Now, that -- that I think goes to the very question in the policy question as to why Congress cut this liability off at the third level. Regal as established in the evidence had very large well-situated stations. They concentrated on the sale of gasoline. They concentrated on large volume stations. They open with the well-advertised campaign and it was Perkins own marketing experts, it wasn't the professor, or somebody, theoretician. He had actually worked for years in the Portland market. He was an independent this time and he testified that he was in Portland then, and he said it wasn't the prices of Regal that had the impact. The real impact of Regal was on its tremendous advertising campaign, its promotional campaign and its method of selling of a gasoline.
Byron R. White: You mean it didn't -- they didn't have lower prices?
Richard J. Maclaury: No.
Byron R. White: Selling prices.
Richard J. Maclaury: I think we have to accept for the purpose of this record here that there was a reduction in the price in Portland of some four cents immediately after Regal came on the market. But Mr. Justice White, we could not attribute that four-cent reduction in the Portland market to the less than half cent advantage that Signal had over Perkins and at the very time that Regal opened, Perkins was paying a higher price, and Signal was paying a higher price than Perkins.
Byron R. White: Doesn't the record show what Regal paying for gas?
Richard J. Maclaury: There is no direct evidence in this record as to what Regal was paid except the ordinary interest and I think it should be drawn that Western paid a higher price than Perkins and we can assume the Western is going to sell to Regal a loss.
Byron R. White: But you're suggesting now that it's quite rational to -- rational in terms that Regal although selling it four cents below what the price was, nevertheless, was paying the same price for gas that other people were.
Richard J. Maclaury: Yes, that is what I'm suggesting and I'm suggesting also that because of Regal's more efficient operation, Regal was probably taking a lower profit than these other marketers. They were probably operating on a large volume and low unit cost. And there also, Regal did not perform the ordinary regular services that you connect with service stations such as the lubrication and repairs and that sort of thing. They very efficiently concentrated on the sale of gasoline. That was the testimony of petitioners and witnesses. And I think a lot of it could be attributed to that.
Abe Fortas: But if you sell gasoline, low cost per gallon, the more gasoline and that's all you sell, the more gasoline you sell, the more money you lose, isn't that right?
Richard J. Maclaury: You're absolutely correct, --
Abe Fortas: Which is like --
Richard J. Maclaury: -- Mr. Justice Fortas.
Abe Fortas: -- ribbons, so that unless in a costume, the more ribbons you sell, the more money you lose.
Richard J. Maclaury: You're absolutely correct, of course.
Abe Fortas: I wanted to ask you (Voice Overlap), the question that I asked you yesterday if I may, but I didn't ask it well. I'll try it again today. Let us suppose that Signal owned a 100% of Western and Western owned a 100% of Regal and let us suppose that Standard sold to Signal at a lower price than it sold the same product to Perkins, would that -- and let's assume that all they have -- the statutory requirements were met about the competition, would that be a violation of 2 (a)?
Richard J. Maclaury: I would have to answer that Mr. Justice Fortas in this way, without more, the answer would be no. I still think it would take a factual inquiry to determine whether or not there was actual direction by Signal of the decisions of Western and by Western on the decisions of Regal. I don't think the inquiry of the burden would be nearly as strong or as heavy as it is in this situation. But of course that is not the situation that we got here.
Abe Fortas: I understand but I respect the logic of your answer. I expect you probably have to answer it that way consistently with your position.
Richard J. Maclaury: I'd like to go one step further than that. I believe it is the presumption in virtually every deal of the law that where there are separate entities, these separate entities make their own decisions but I recognize that whether it's a 100% control, the burden of showing the contrary is not nearly the burden that the petitioner would have here. We also have this further problem which I was going to mention Mr. Justice Fortas, that where Signal is holding itself out as an independent corporation, where Western is holding itself out as an independent corporation, where Regal is holding itself out as an independent corporation. If there was actual price control down the line, I think there will be a serious danger of violation of the Sherman Act and I don't think such a serious violation of the law can be lightly inferred just on the matter of this control -- of stock control.
Byron R. White: I just still wonder if control is very relevant.
Richard J. Maclaury: Well, that brings me -- I think it is relevant and I think it brings me to --
Byron R. White: But if Standard's price cut was passed on right on through, passed right on through at all levels, I wouldn't think the lack of control would necessarily ruin Perkin's case.
Richard J. Maclaury: Well, it would here. I'll put it this way, if the ultimate seller was Western Hyway on the third level, then control makes no difference at all but even if this price differential had been passed on all the way down to Regal at the fourth level, then I say that that is beyond the purview of Robinson-Patman. Mr. Justice White, that brings me to the --
Byron R. White: Unless you view it as a line commerce case.
Richard J. Maclaury: Unless you view it as a line of commerce case as we acknowledged yesterday and that brings me to a further answer perhaps to the questions you asked yesterday and that was this question that the original language of the Clayton Act decide. We're not Signal and Perkins' competitors on the secondary level. I think the answer to that is that within the meaning of the language of the Robinson-Patman Act, the answer must be no. The first answer is that Robinson-Patman uses the word competition in its practical sense. That means as an endeavor by two or more persons to get the same trade from the same people at the same place at the same time. Now, the evidence is --
Byron R. White: Perkins was competing with somebody?
Richard J. Maclaury: Well, I'm certain that Perkins was competing with somebody, yes.
Byron R. White: While they had lower prices than Signal as in fact making lower or less than competition and whatever market purposes he's competing, it wouldn't make any difference whether Perkins and Signal were competing or not.
Richard J. Maclaury: Well, let me answer that -- let me respond to that this way. Just because somewhere down the line, a purchaser of Signal gasoline may be third, fourth, fifth level down below, a purchaser of Signal gasoline somewhere confronted and competed with a purchaser of Perkins gasoline, that wouldn't make Perkins and Signal a competitors or competitors for the purpose of this Act. And then that couldn't -- that wouldn't mean that Perkins and Signal competed on the secondary level because if this was so then every non-primary line case would have to be a secondary line case. And clearly, this is what -- it's not what Congress meant. Congress recognized the realities of the market. It recognized the different levels. When Congress talked about competition with the grantor, competition with the favorite purchaser, competition with the customer of the favorite purchaser and if the argument is accepted just because somewhere way down the line, there are people who compete for the gasoline derived from these two sources, Signal and Perkins. Now, that means that Perkins and Signal were competing at the secondary line then this elaborate definitional language used by Congress would be entirely superfluous. Congress could simply have forbidden price discriminations whose effect may be “to injure, destroy or prevent competition with any person.” But Congress and I think wisely so refrained from going that far because --
Abe Fortas: Why -- How and why did Congress cut off the line of responsibility in that way on the grounds that it would not be fair to attribute a responsibility to the original supply here standing, is that right?
Richard J. Maclaury: I think that is correct. There could be so many --
Abe Fortas: Can you think of any other reason, I can't.
Richard J. Maclaury: Well, I could think there could be so many intervening factors by the time you even get to the third level that would be responsible for the --
Abe Fortas: So that
Richard J. Maclaury: -- pricing.
Abe Fortas: -- one of the question you have here is whether that reasoning of the Congress applies to a case where there is majority stock ownership down the line, that is to say whether in that kind of a case where you have a line of majority stockholders that fall all the way through such as you have here. The reasoning of Congress applies that is to say that it would not be fair or appropriate to obtain responsibility upon the original seller here standing.
Richard J. Maclaury: Now, there are just one or two other points I would like to cover before my time is up and I see I have only a few moments left and that is this. Petitioner asks that the jury verdict be reinstated. We suggest that that should not be done. There were many material errors the trial could have presented to the Court of Appeals which the Court of Appeals did not rule upon. One of them was this question of causality and that question of causality cuts across the Robinson-Patman Act standards as well as the original Clayton Act standard. Now, in addition there were serious and important questions concerning liability. There were questions concerning the fact of injury. There were also questions concerning the good faith meeting of competition defense. Some of these questions that Court of Appeals ruled on against Perkins, others it reserved the ruling but admonished that its failure to rule was not to be taken by the trial court as appellate approval. Now, to resolve these questions would require a review of this vast record of some 6000 pages of transcript and some 15,000 or more pages of exhibits which we suggest would more appropriately be left in the first instance to the Court of Appeals. I have one more point. There has been some talked about Regal selling at a loss, Mr. Justice Fortas. Regal must not have sold at a loss because there was a difference between five and six cents according to Perkins' testimony between the price that Regal sold and the price that Perkins' single retail station in Vancouver sold. Now, this difference certainly could have been attributed to the less than one-half cent price differential that was granted in Signal after January. And again, I don't think we can assume that Regal would sell at a loss because I don't think that there would have -- I think that the majority stockholders there in Western would have been violating their obligations to the minority to have compelled Regal to sell.
Abe Fortas: Can the record show the price that Regal paid?
Richard J. Maclaury: No, Your Honor. There was no evidence in the record of the price that Regal paid.
Abe Fortas: Why is that?
Richard J. Maclaury: I do not know why. The auditor for Regal was on the stand. He was also the auditor for Western. He testified as to what Western's prices were for the invoices in but he was not asked any questions by the petitioner as to what Regal's price was and certainly this was a crucial element of proof that was available to petitioner but he failed to comply.
Abe Fortas: Are the invoices in the record?
Richard J. Maclaury: The invoices from Signal to Western are in the record but not from Western to Regal.
Abe Fortas: I see.
Earl Warren: Mr. Kintner.
Earl W. Kintner: It was the auditor -- Mr. Chief Justice, may it please the Court. It was the auditor who was put on the stand by Standard and Mr. MacLaury examined him and did not ask any question with respect to the price. As a matter of fact, Mr. MacLaury said yesterday in his argument that the minority ownership and Western Hyway lay with the officers of Western Hyway. I quote you from the printed record a question to the same auditor by Mr. MacLaury with respect to the years 1955, 1956, 1957. What entities or what persons own the stock, a capital stock of Western Hyway Oil Company? Answer: In Western Hyway Oil Company, 60% of the shares were owned by Signal Oil and Gas Company and 40% was owned by three individuals who were corporate officers but he didn't ask corporate officers of Signal or corporate officers of Western Hyway.
Byron R. White: Could you just briefly tell me what your ultimate theory is here under the Robinson-Patman Act? Is it the line of commerce theory or is it the injuring or preventing competition with Regal?
Earl W. Kintner: I think sir that that there two -- there are at least two possible alternatives here for this Court. I believe beyond question that the Ninth Circuit was wrong with respect to the old Clayton Act.
Byron R. White: Well, but what's your theory? What's your theory about that? How did you prove a case under Robinson-Patman Act?
Earl W. Kintner: I think that the case can be proved under old Clayton Act by showing a discrimination. Mr. MacLaury has indicated the jury --
Byron R. White: Now, discrimination between Perkins and Signal.
Earl W. Kintner: Perkins and Signal, there was a --
Byron R. White: And then what is the -- what is the line of commerce that is injured?
Earl W. Kintner: The line of commerce is a whole northwest, the petroleum marketing as our expert witness indicated.
Byron R. White: You mean that's the whole -- you mean on all levels?
Earl W. Kintner: Yes, sir.
Byron R. White: Of wholesale or --
Earl W. Kintner: The competition is down at the retail level. This is where the injury is felt. This is where the price war started.
Byron R. White: (Voice Overlap) the line of commerce is the retail sale of gasoline?
Earl W. Kintner: Yes Your Honor and in this instance, retail and the wholesale because Perkins had a average profit of 1.54% and Standard itself indicated that it took two cents to live.
Byron R. White: Well, is there anything in the record about the characteristics of this market, the geographic market and the product market and what advantage Perkins has in it or not?
Earl W. Kintner: The Perkins had 2.4% of the overall market.
Byron R. White: That is in the record.
Earl W. Kintner: That is in the record. That's the equivalent of what Sun Oil has nationally. Perkins sold 8% of Standard's gallonage in that market. Standard had 30% of that market. Perkins lost 13% of its gallonage of gasoline, 50% of its gallonage of fuel oil during the claim period and Signal gained 50% during the claim period. Perkins was making an average of 1.54 cents a gallon, Standard's own witnesses stated that it took 2 cents a gallon to live and if you added the discrimination which Standard gave to Signal to Perkins' price, Perkins would have had 2.2 cents per gallon which would have given him a fighting chance of living in that market. Now, there's no evidence as to the price that Regal sold in that market. Standard's own executive acknowledged that Regal had a better price than Perkins and that Regal would wreck that market unless something was done to control them. There's no evidence of Western's price of course to Regal. Standard was in a position to supply this but didn't do it. And in that connection, this Court has held with respect to the matter of --
Byron R. White: But you have the burden of proof in that case, didn't you?
Earl W. Kintner: Yes, Your Honor and if I might return to this question of control, I think that we adduced a sufficient evidence from which the jury could have inferred that there was control with respect to Regal and Western by Signal.
Hugo L. Black: What was that evidence?
Earl W. Kintner: I beg your pardon.
Hugo L. Black: What was that evidence?
Earl W. Kintner: The amount of ownership and --
Hugo L. Black: Besides the ownership?
Earl W. Kintner: There is other evidence that Standard treated an offer made to Western Hyway for the purchase of gasoline as an offer made to Signal, its customer. That is in the record. And we think that looking at the whole evidence, the whole record, the jury could reasonably have inferred that there was control.
Abe Fortas: You would agree wouldn't you that the fact that Regal sold at a lower price than Perkins does not establish a violation of law standing alone?
Earl W. Kintner: Not standing alone sir.
Abe Fortas: I know. As I understood Mr. Justice White's question and the same question I have in my mind, could you state as succinctly just what the theory was on which you tried this case. It wouldn't just let Regal sold for a lower price than Perkins. What is the theory on which this case was tried? I was a little startled to learn that the invoices showing the prices paid by Regal are not in this record. But apart from that parenthetical remark, would you say -- tell us just what your theory was and is on this case.
Earl W. Kintner: The theory was that Standard gave a better price to Signal which resulted as it was passed down the line in a price war which spread from Portland as one would drop a pebble into a pool of water throughout the Northwest Territory, in northwest market. Also there is considerable proof that that Standard because of this price war gave special assistance to its retail stations which were branded stations which were competing with the Perkins stations just as Perkins stations were competing with the Regal stations. So that what you have here as Dr. Munn pointed out in his testimony is an examination of the whole petroleum marketing situation in the northwest and based upon his hypotheticals, he found that there was a lessening of competition, a tendency to work monopoly, and a probability of higher prices.
Abe Fortas: So you would -- so you suggest it makes no difference that whether Signal, Western, and Regal were or were not connected by a stock ownership makes no difference at what level the Signal stations were in terms of their remoteness from Standard.
Earl W. Kintner: I think sir that under the old Clayton Act, it makes no difference with respect to a showing of injury not based upon functions. But --
Abe Fortas: What do --
Earl W. Kintner: -- alternatively --
Abe Fortas: -- you mean when you said the old Clayton Act?
Earl W. Kintner: This is the first alternative spelled out in the amended Clayton Act which is a carryover of the language, the same language used in Sections 3 and 7 which this Court has interpreted many times. I say under that --
Abe Fortas: What part of the law are you talking about?
Earl W. Kintner: I'm talking about the amended, the Robinson-Patman.
Abe Fortas: Section 2 (a)?
Earl W. Kintner: Section 2 (a), amendments to the Clayton Act which carried over in the amendments. The first alternative injured the competition and tendency toward monopoly and added the functional amendment to the Clayton Act under which I also think we have adequate evidence here in this record from which the jury could have found that the requisite injury.
Abe Fortas: Your theory cuts back far behind, far underneath years and years of gloss on Section 2 (a) then.
Earl W. Kintner: Section 2 (a) has been glossed at the functional level many times. I think it's time this Court ruled on the first alternative and made that first alternative applicable as it has made the summarily language at or under Sections 3 and 7. Thank you.