Opinion ID: 390017
Heading Depth: 2
Heading Rank: 2

Heading: The Legality and Enforceability of Private Contracts

Text: 47 Given ICC jurisdiction over the Council Bluffs rate, BN argues in the alternative that the Commission erred under pre-Staggers Act decisional law in prescribing the agreed rate as a reasonable maximum. 48 BN first maintains that under the Interstate Commerce Act prior to Staggers Rail Act amendments, contract rates were unenforceable. The railroad relies principally on American Broadcasting Companies, Inc. v. FCC, 643 F.2d 818 (D.C.Cir.1980), and on a line of precedent discussed at length therein. Id. at 822, citing Armour Packing Co. v. United States, 209 U.S. 56, 28 S.Ct. 428, 52 L.Ed. 681 (1908); Aero Trucking, Inc. v. Regal Tube Co., 594 F.2d 619 (7th Cir. 1979); Illinois Central Gulf R.R. v. Golden Triangle Wholesale Gas Co., 586 F.2d 588 (5th Cir. 1978); Farley Terminal Co. v. Atchison, T. & S. F. Ry., 522 F.2d 1095 (9th Cir.), cert. denied, 423 U.S. 996, 96 S.Ct. 423, 46 L.Ed.2d 370 (1975). 49 These decisions recognize that the ICC is charged by statute with eliminating preferential and discriminatory rates. Accordingly, the cited cases hold that parties cannot by their own secret or preferential agreement alter the enforceability of a rate that has been approved by the ICC. 50 This precedent is inapplicable here. The determinative feature of the cited cases is a conflict between the duly filed rate approved by the regulatory agency, and a different rate arising from a private agreement, rate representation, or equitable consideration. In such circumstances, the established tariff rate, approved by the ICC, must prevail. Armour Packing Co. v. United States, supra, 209 U.S. at 81-82, 28 S.Ct. at 435-36; Farley Terminal Co. v. Atchison, T. & S. F. Ry., supra, 522 F.2d 1095; Chicago, B. & Q. R.R. v. Ready Mixed Concrete Co., 487 F.2d 1263 (8th Cir. 1973). 51 Here, by contrast, the ratemaking authority of the regulatory agency is not threatened by attempts to enforce a rate other than the legal tariff. Rather, under the terms of the Commission's October 1, 1980 decision, the parties' contract rate and the rate approved as a reasonable maximum by the ICC through normal statutory procedures are the same. 17 Cf. American Broadcasting Companies, Inc. v. FCC, supra, 643 F.2d 818, at 825 (expressly declining to construe the situation before the court as one of consistency between a private contract and the effective tariff approved by the regulatory agency). A need to protect the authority of the regulatory agency against rights arising from a private agreement accordingly cannot provide the basis for nonenforcement of the parties' agreement here. 52 Burlington Northern further argues that contract rates were illegal per se under ICC decisional law prior to the Commission's issuance of a new policy on contract rates in 1978. 18 Citing National Gypsum Co. v. United States, 353 F.Supp. 941, 949 (W.D.N.Y.1973); Great Lakes Ship Owners Association v. Chicago & N. W. Ry., 337 ICC 287, 293 (1970); Guaranteed Rates from Sault Ste. Marie, Ontario to Chicago, 315 ICC 311, 323 (1961); Contract Rates on Rugs & Carpeting from Amsterdam, N.Y. to Chicago, 313 ICC 247 (1961), aff'd New York Central R. R. v. United States, 194 F.Supp. 947 (S.D.N.Y.1961), aff'd per curiam, 368 U.S. 349, 82 S.Ct. 391, 7 L.Ed.2d 384 (1962). 53 Although the legal status of private contracts was unclear prior to 1978, BN overstates the case. The language describing private agreements as unlawful per se was merely dictum in a plurality decision. Guaranteed Rates from Sault Ste. Marie, Ontario to Chicago, supra, 315 ICC at 323. As the Commission has subsequently noted, this decision is certainly not authoritative or in any way binding. 19 Ex Parte 358-F, Change of Policy, Railroad Contract Rates (General Policy Statement), 361 ICC 205, 208 (1979), citing Guaranteed Rates, supra, 315 ICC 311. The Commission further noted that Contract Rates on Rugs, one of the principal cases cited for the illegality of private contracts, encouraged ratemaking innovations such as contract rates so long as such rates comport with statutory standards. Contract Rates on Rugs & Carpeting from Amsterdam, N. Y. to Chicago, supra, 313 ICC 247. 54 We conclude that the BN-IPL agreement was not illegal per se and was properly given evidentiary value in the ICC's October 1, 1980 decision. 20 Ideal Cement Co. v. Atchison, T. & S. F. Ry. Co., 280 ICC 55 (1951); Sonken-Galamba Corp. v. Chicago, B. & Q. R.R., 172 ICC 233, 236 (1931); H. P. Hood & Sons v. Delaware & Hudson Co., 17 ICC 15, 18-19 (1909). 55 The Commission's approach to the parties' agreement here was particularly appropriate because it recognized the uncertain legal status of contracts entered into prior to 1978. 21 I & S 9199, supra, 364 ICC at 191-93, 197-98. 56 This is not to say that a rate agreement can control the Commission's determination of a just and reasonable rate. Lumber from and to Hampton & Branchville R. R., 264 ICC 419, 425 (1946); Shreveport Chamber of Commerce v. Gulf, C. & S. F. Ry., 201 ICC 73, 74 (1934); Holley Matthews Manufacturing Co. v. Yazoo & Mississippi Valley R. R., 15 ICC 436, 437 (1909). However, given the fact that no secret or preferential private agreement is involved here, the Commission's consideration of the agreement as evidence bearing on a reasonable rate was not erroneous as a matter of law. 22