Opinion ID: 351545
Heading Depth: 1
Heading Rank: 4

Heading: statutory authority to impose ipd

Text: 43 As indicated above, the commission has in my judgment failed to make out a case for imposition of IPD on XF cars even assuming its proffered syllogism adequately implements the statutory scarcity requirement. My primary objection to what the Commission has done here goes beyond this, however, for it seems to me that the Commission has stepped beyond the bounds of its authority under Section 1(14)(a) of the Act. 44 Section 1(14)(a) as amended in 1966 allows IPD to be imposed only if the Commission finds both that a shortage of a particular type of car exists and that incentive elements are necessary to provide just and reasonable compensation to freight car owners, contribute to sound car service practices    , and encourage the acquisition and maintenance of a car supply adequate to meet the needs of commerce    . 36 It is easy to understand how all of the latter objectives would be met if the national car-pool system were malfunctioning as described in Part I supra. Any increase in per diem would presumably provide an incentive to railroads to return foreign cars which they were not using and would thereby contribute to sound car service practices. 37 Such an effect is inherent in any time charge, whether for railroad cars, library books, or bulldozers. In addition, because incentive per diem is by definition an increment above basic per diem the expense involved in owning and maintaining (any given) type of freight car, including a fair return on value, 49 U.S.C. § 1(14)(a) (emphasis added) over the long run it would be advantageous to users of foreign cars to build cars of their own so that, by incurring ownership costs roughly equal to basic per diem, 38 they might avoid the higher sum of basic per diem and incentive per diem. 45 Given the definition of basic per diem in Section 1(14)(a) to include a fair return on value, it also becomes clear that the just and reasonable compensation to freight car owners for which IPD can be instituted must be something other than fair return on money invested. That something else, according to the Commission, is a return to compensate for the earning power or the value of the use of the vehicle which is lost by the owner when (a car is) used or appropriated by other carriers. ICC, Seventy-First Annual Report, supra, at 137. 39 Because the average daily revenue which accrues to a car in use is well above basic per diem, 40 the owner who cannot use his car and who, because of nation-wide shortages, has no other cars on-line to put into revenue service loses more net revenue than he gains by receiving basic per diem. Thus when a non-owning road, by hook or by crook, arrange(s) to utilize cars owned by other roads, United States v. Allegheny-Ludlum Steel Corp., supra, 406 U.S. at 745, 92 S.Ct. at 1945, it appropriates to itself incremental revenue which in fairness belongs to the car's owner. 46 The legislative history of the 1966 amendment to Section 1(14)(a) confirms that the fit of the amendment to the regulatory problem described in Part I is no coincidence and that the statutory inadequacy of supply requirement can best be understood as shorthand for congressional concern that IPD not be imposed except where the Commission has found that the disincentives associated with the national car-pool system have contributed to creation of an inadequate supply of a particular type of car. Indeed, the legislative history of the 1966 amendment shows rather clearly that in Congress' view the primary reason for the shortage which IPD was to correct was the widespread use of foreign cars, especially by eastern railroads. Thus to Senator Magnuson, sponsor in the Senate of the bill which became the 1966 amendment, 47 (t)he shortage (which the amendment was intended to correct) results from the fact that many western roads build sufficient cars, but the trouble is that when the cars are on eastern roads, in the course of delivering goods to eastern markets, there is a reluctance on the part of some railroads in the East to return the cars    .    48 Some railroads find it more desirable to keep the boxcars and pay the $3 or $4 rental at one time it was less than $2 than to buy boxcars. It is less costly to rent cars than to build them. 49 111 Cong.Rec. 15375 (1965). See also S.Rep.No.386, 89th Cong., 1st Sess. 3 (1965); S.Rep.No.452, 86th Cong., 1st Sess. 4-5 (1959). A similar understanding of the problem was echoed in the House. See, e. g., 112 Cong.Rec. 10437 (1966) (remarks of Rep. Mize) (when the per diem charge is low, as it is now, it is cheaper to rent a car than it is to buy or build one); id. at 10438-10439 (remarks of Rep. Adams) ((o)bviously it has been cheaper for many railroads to simply take the new cars produced by other railroads and hold them on their lines and pay a minimal rental rather than produce new cars). See also Hearings on H.R. 2230, H.R. 7165, and S. 1098 Before the House Committee on Interstate and Foreign Commerce, 89th Cong., 1st Sess. 20, 30, 32-33, 39 (1965) (remarks of sponsors of legislation to amend § 1(14)(a)). 50 Notwithstanding the focus of the 1966 amendment, the Commission has chosen here to apply IPD to a type of freight car which has never been part of the national pool of free-running boxcars. Instead, use and return of XF cars had been governed until the order in this proceeding by Association of American Railroads Car Service Directive 155 41 under which XF cars could be, and apparently often were, 42 assigned to a single shipper for its individual and exclusive use. 43 Once assigned, XF cars could not be used by connecting lines for any purpose other than completion of a through haul unless the shipper-assignee directed the car to be loaded on the connecting line. 44 In all other cases, Directive 155 plainly required that (a)fter unloading, such cars must be returned empty to (the) assigned loading point via reverse of load movement. 45 There is no evidence in the record that this particular car service directive has been abused. 46 To the contrary, GMI commented that its assigned car program had been a success in part because of its ability in practice to direct the movements of each car assigned to it. 47 Moreover, the crux of the Commission's scarcity analysis is that roads without XF cars are supplying XM cars, not foreign XF cars, to food shippers. 48 Thus any shortages of XF cars cannot, on the record here, be attributed to roads using foreign XF cars to meet the needs of their shippers. 49 In addition, there is no evidence in the record to indicate that XF cars are not returned promptly to their assigned points of origination. Again, the comments suggest that the reverse is true since the two shipper-assignees who made statements both indicated that their XF cars made more revenue trips per year than the national average for freight cars and neither mentioned any dissatisfaction with the achieved rate of XF utilization. 50 51 The modification of Directive 155 required by the order here under review, see XF Report, supra, 350 ICC at 19, does not change the foregoing conclusions materially. The XF Report prohibits assignment of cars to a single shipper, but continues to allow assignment to a single location which can presumably be a location on the owning railroad's line for use in originating shipments on the owner's line. See id. Thus, for example, Grand Trunk Western Railroad now assigns all its cars to Battle Creek, Michigan, a location convenient to a number of its major food shippers, 51 and is apparently allowed to continue this practice under Directive 155 as modified. 52 52 The record before us does not, therefore, support the conclusion that the disincentives to car ownership associated with the national boxcar pool have affected the supply of XF cars. This raises the question whether the broad language of the 1966 amendment nonetheless allows imposition of IPD on XF cars even though the existence of the core problem to which Congress addressed the 1966 amendment has not been established. I think it does not, although this conclusion is not free from difficulty given the blunderbuss nature of IPD 53 and the fact that imposition of IPD under the present regulations might result in more XF cars being built. 54 53 Initially, it is important to note that there is no evidence that XF cars are being appropriated by non-owning lines for their own use or are being allowed to stand idle, and consequently IPD on XF cars is in essence a tax on the function of terminating through hauls. Although Congress clearly appreciated that IPD would accrue while this function was performed, the legislative history of the 1966 amendment to Section 1(14)(a) indicates that no assessment of IPD was to be made on the termination function except where this was incidental to the mechanics of imposing IPD on improper uses of foreign cars. 54 The Commission chairman testified before Congress that it was not the Commission's position that net per diem debtors should be taxed as such because at least some debtors would be short lines, or terminating or bridge roads, which ought properly to be using foreign cars to minimize inefficient unloaded car movements. 55 Not willing to take the chairman's word that the Commission would examine the effect of IPD on such lines and make exemptions where appropriate, the Senate Commerce Committee amended the Commission's proposed bill to require the Commission to consider the need to exempt carriers    owning an adequate number of freight cars to meet their responsibilities (and) carriers terminating a substantially higher percentage of interline traffic than they originate    , S.Rep.No.386, supra, at 2, 5, from IPD requirements. Although this language was removed by the House, see H.R.Rep.No.1183, 89th Cong., 1st Sess. 1 (1965), this deletion was not intended to work any substantive change in the factors the Commission was to consider. As explained by Senator Cotton during debate on the motion to concur in the House amendment: 55 Under the Senate version of the bill, the ICC was specifically empowered to exempt from the incentive, or penalty, element of the freight car charges any or all of the groups (expressly enumerated in the Senate bill). 56 The aim of these provisions of the Senate bill, which I had a part in suggesting, was to assure reasonable and fair consideration of the special problems arising in the industry, including the problem of the terminating railroads, whose per diem charges are not related to the number of boxcars they may own. 57 In the bill before us today, as it has come back from the House of Representatives, the four types of circumstances spelled out in the Senate bill are not directly listed. It is clear, however, that all the factors listed in the Senate bill still have to be considered by the    Commission, and the Commission would have the power, and the duty, not to apply the incentive element to any group of carriers, and even a single carrier, where those four circumstances, or any other circumstances, made it in the national interest to do so. 58 112 Cong.Rec. 10756 (1966) (emphasis added). Senator Cotton's understanding of the effect of the House amendment seems clearly correct since the same view was taken by Representative Staggers, House floor manager for the bill: 59 (T)he committee amendment provides that the Commission would be empowered in its discretion to exempt from the incentive element provisions any group of carriers where the Commission finds such exemption to be in the national interest. This provision enables the Commission to make exemptions from paying an incentive element by class of carrier, and permits the Commission to consider the several factors specifically authorized in the Senate bill. 60 112 Cong.Rec. 10435 (1966). 61 The conclusion that IPD was not to be applied except where there was some evidence that the breakdown of the national car-pool system had contributed to car shortages is further buttressed by a consideration of the meaning of the phrase just and reasonable compensation used in the 1966 amendment to describe IPD payments. The reason the Commission adopted IPD rather than a simple penalty to be paid to the United States appears to be that car owners were losing revenue in times of shortage because their cars were being appropriated by non-owners and because no foreign cars were available on the owners' lines to take the place of cars lost to non-owners. 56 The Senate too took the position that the reason for giving compensation above basic per diem was to provide just compensation to freight car owners by recognizing the value of the use of such equipment   . S.Rep.No.386, supra, at 4. 62 Inexplicably, Representative Staggers stated that the House amendment to the Senate bill rejected this concept of use value since it was essentially    an approach to the problem through penalties rather than through incentives. 112 Cong.Rec. 10435 (1966). This statement notwithstanding, there is nothing in the legislative history of the House amendment which gives any other credible reason for compensating freight car owners for the use of their cars in time of shortage. This is especially so today when the Commission has set basic per diem rates in accord with the standards set out in Section 1(14)(a) so that the criticism often voiced in the House debate that the basic per diem did not give a sufficient return on value to the owners of freight cars can no longer be validly made. 57 Thus, while it is possible that the House meant to confer power on the Commission to increase the financial return to car owners without regard to whether non-owners were using foreign cars improperly, such a construction is unlikely since there is no express statement to this effect in either the House report or the debates on the House bill and since this construction would be inconsistent with the House's retention of the Senate's exemptions for roads which were net per diem debtors and yet which had the correct number of cars. 58 63 Finally, the history of the 1976 amendment to Section 1(14)(a) also supports the view that IPD is proper only where railroads are using foreign boxcars in times of shortage. That amendment added a preamble to Section 1(14)(a) which reads: It is the intent of Congress to encourage the purchase, acquisition, and efficient utilization of freight cars. Pub.L.No.94-210, 94th Cong., 2d Sess. § 212, 90 Stat. 46-47 (1976). While this language would support a very broad reading of the Commission's authority to impose IPD, the legislative history of this preamble discloses that the concern of Congress was to authorize and encourage a remedy for improper use of foreign freight cars: The first change (the preamble) provides that the intent of Congress is to encourage ownership of cars and discourage the use of cars not owned. H.R.Rep.No.725, 94th Cong., 1st Sess. 73 (1975) (emphasis added). 64 Further evidence that IPD cannot be imposed except as a corrective for disincentives to freight car ownership associated with the national car-pool system can be found in the Commission's interpretation of the shortage requirement in all other IPD proceedings. 59 The Commission's attempt to impose a system like IPD in 1947 was predicated on evidence that cars were not being properly returned to the lines of their owners. Car shortages, while providing the need to take corrective action, were incidental to the form of regulatory action proposed. 60 The first three Commission IPD reports after the 1966 amendment 61 focused almost exclusively on the question whether there was a nationwide shortage of XM boxcars. However, a contemporaneous Commission Report, Investigation of Adequacy of Railroad Freight Car Ownership, Car Utilization, Distribution, Rules and Practices, 335 ICC 264 (1969), demonstrated conclusively that the factors of poor utilization and non-owner use of XM cars existed, see id. at 294-295, 62 and accounts for the absence of any Commission discussion of this problem in the IPD reports. 65 In the first IPD report to discuss in detail the evidence needed to justify imposition of IPD, Incentive Per Diem Charges 1968, 349 ICC 303 (1975), issued only months before the XF car rules, the Commission declined to extend IPD to covered hopper cars, stating that the record did not meet the evidentiary standards for imposing IPD which it defined as follows: 66    (W)e are amenable to an expansion of the incentive per diem program to cars other than general service boxcars if (1) a record is made showing the car to be in short supply, (2) a record is made showing a reluctance to expeditiously release the car by the terminating or delivering railroad   . 67 Id. at 311 (emphasis added). This position was reiterated a few months after promulgation of the XF car rules in the Commission's notice of proposed rulemaking in Incentive Per Diem Charges Gondolas, 40 Fed.Reg. 44851 (1975). There the Commission stated: 68 The record should be developed to describe current utilization and distribution practices in order to examine the impact of these practices on gondola car supply.    69 Id. at 44851. 70 In summary, with the conclusion of the XF proceeding the Commission has come completely about in its understanding of the uses to which IPD should be put. In 1947 IPD was envisioned as a short-term tool which was presented to the Palmer court as a device whose purpose was wholly independent of any notion of compensation for car owners. 63 Between 1947 and 1966 short-term changed to long-term and the purely regulatory purpose was given overtones of compensation for use value. Today we are asked by the Commission to approve a use of IPD which cannot be said on the record before us to serve any of the regulatory purposes envisioned for IPD in either 1947, 1966, or 1976. With Section 1(14)(a) stripped of its regulatory heritage, however, it is simply not possible to assume that IPD will contribute to sound car service practices 64 and, further, the phrase just and reasonable compensation loses the only apparent meaning Congress ever intended it to have. Accordingly, I would vacate the Commission's orders. 65 See 5 U.S.C. §§ 706(2)(A), 706(2)(C) (1970). Moreover, even if my understanding of Section 1(14)(a) is mistaken, the Commission has at the very least departed without explanation from its contemporaneously announced standard of proof and for this reason as well should be reversed. See Greyhound Corp. v. ICC, 179 U.S.App.D.C. 228, 230, 231, 551 F.2d 414, 416-417 (1977).