Opinion ID: 389258
Heading Depth: 1
Heading Rank: 5

Heading: Scienter Under the Hepburn Act.

Text: 37 Since the referral to the Commission necessitates a remand to the district court we find it unnecessary to deal with most of the remaining issues, which may be mooted and will certainly be illuminated by the construction imposed on the tariff by the Commission. We think it well, however, to address here an issue of law decided by the district court, relating to U.S. Steel's defense of lack of scienter against liability under the Hepburn Act in the circumstances of this case. 38 The Hepburn Act makes it an offense for a shipper to knowingly receive or accept a rebate or offset against the regular charges as fixed by the (tariffs). See n.1, supra. The district court, relying on Armour Packing Co. v. United States, 209 U.S. 56, 28 S.Ct. 428, 52 L.Ed. 681 (1908) and Union Petroleum Corp. v. United States, 376 F.2d 569 (10th Cir. 1967), held that it is no defense even if the shipper establishes that it received the rebate in the good faith and reasonable belief that it was authorized to do so under the applicable tariff in the belief, in effect, that it was paying no more and no less to the carrier than the regular charge fixed by the tariff, and did not believe, much less know, that it was receiving a rebate or offset against the subsequently determined regular charge. According to the district court, (i)t is simply not a defense to (a Hepburn Act) forfeiture suit that the defendant gave a mistaken legal interpretation to the tariff (T)he requirement that the shipper must 'knowingly' receive a concession requires only that the shipper must have intentionally done something the effect of which was to violate the statutory prohibitions. The district court would thus in effect read the scienter requirement out of the Hepburn Act, and impose strict liability on shippers who receive rebates or offsets against the regular charges fixed by tariff, even where the shipper may honestly and reasonably believe that it is receiving no unauthorized rebate or offset. 39 We do not think that Congress intended to go so far. As its legislative history reveals, the Hepburn Bill 17 was sent from the House of Representatives to the Senate in early 1906. 18 When Senator McCumber originally introduced the treble forfeiture amendment, it contained no scienter requirement. 19 The Senate adopted the treble forfeiture provision but proscribed only knowingly and willfully receiving rebates or offsets against normal charges. 20 The Conference Committee struck knowingly and willfully from the amendment, making the provision one essentially of strict liability, like Senator McCumber's original proposal. 21 This deletion sparked considerable debate in the Senate, and these debates indicate that the Senate was unwilling to punish with criminal or treble forfeiture sanctions honestly mistaken departures from published rates or honest mistakes as to the appropriate rate. 22 The Conference Committee reinstated the requirement that departures from published rates be knowing to warrant the Hepburn Bill sanctions. 23 The bill passed both houses with this language. There is little doubt that the Hepburn Act was not intended to impose sanctions on shippers who receive rebates or offsets in the honest and reasonable belief that they are entitled to them under the terms of the applicable tariffs. 40 This conclusion is confirmed by Lehigh Coal & Navigation Co. v. United States, 250 U.S. 556, 40 S.Ct. 24, 63 L.Ed. 1138 (1919), a case similar to this one in many respects. In Lehigh Coal the shipper had for some years prior to the enactment of the Hepburn Act been receiving a rebate of 14% of the applicable tariff rate from the carrier under the terms of the contract between them. After the Hepburn Act went into effect, a footnote was added to the tariff which apparently provided for the rebate in the tariff itself. All of the tariffs filed by the carrier after 1906 contained the footnote, and the shipper continued to receive the rebate, apparently with the knowledge of the I.C.C. itself. In the subsequent criminal prosecution under the Elkins Act as amended by the Hepburn Act, one of the shipper's defenses was 41 (T)hat it had not knowingly accepted a rebate within the meaning of the Act its contention being, that the allowance had been accepted in good faith, in the honest belief that the allowance was properly and legally noted and provided for in the filed and published tariffs. 42 250 U.S. at 561, 40 S.Ct. at 25. 43 At the close of the trial the district court struck from the record all of the evidence on the subject of the shipper's good faith, 44 (A)nd refused to submit the question of good faith to the jury, holding that the (shipper's) honest belief that the allowance was permitted by the tariffs and the footnote thereto could not affect the issue, for the reason that the (shipper) knew the contents of the tariffs, and knew also that the allowance was actually made and received. 45 Id. at 562, 40 S.Ct. at 25. 46 The Supreme Court held that this was error. Noting that the shipper's misunderstanding of the tariff (if any) was induced by practice and the opinion of those in authority that the act was complied with, the Court found that the word 'knowingly' must be considered and given exculpating effect if error there was, id. at 566, 40 S.Ct. at 26, specifically holding that the shipper had 47 (A) right to offer evidence that the allowance was received under the honest belief that it was lawfully established by the tariff, and under the honest belief that in receiving it he was not disregarding what he believed to be the provisions of the tariff but was complying therewith(.) 48 Id. at 562, 566, 40 S.Ct. at 25-26. 49 The clear implication is that a shipper has a defense against a prosecution under the Hepburn Act if it establishes its honest and reasonable belief that it was entitled under the terms of the applicable tariff to any rebate or offset it may have received. 50 Armour Packing Co. v. United States, 209 U.S. 56, 28 S.Ct. 428, 52 L.Ed. 681 (1908), and Union Petroleum Corp. v. United States, 376 F.2d 569 (10th Cir. 1967), are not to the contrary. Armour Packing was decided before Lehigh Coal and under the version of the Elkins Act in effect before the insertion of the word knowingly by the 1906 amendments. In any case, in Armour Packing the shipper clearly knew what tariff applied and what rates that tariff fixed; its defense to the Elkins Act prosecution was that it believed in good faith that its contract with the carrier, rather than the published tariff, controlled the rates it must pay. The Supreme Court simply held that the shipper would be held to know that as a matter of law the tariff rates prevailed over the contract rates; the Court specifically reserved the question later addressed in Lehigh Coal and raised here, Whether shippers who pay a rate under the honest belief that it is the lawfully established rate, when in fact it is not, are liable under the statute  209 U.S. at 85-86, 28 S.Ct. at 437. Union Petroleum too is distinguishable from this case. There the shipper paid the carrier a transit or through rate lower than the local rates even though it was substituting one product for another at an intermediate point of the journey. Its defense to the Elkins Act prosecution was that it acted in the honest and reasonable belief that it was entitled to avail itself of the transit tariff privilege. 376 F.2d at 573. The Tenth Circuit rejected this defense, finding that the shipper had full knowledge of the tariffs as well as all facts which would render the transit privilege inapplicable and discriminatory herein  Id. We think that this finding was probably sufficient to negate the shipper's good faith defense on the merits, on the ground that the shipper could not have believed honestly and reasonably that it was entitled to the transit rate in view of its full knowledge of the relevant tariffs and the facts rendering the transit rate inapplicable. We recognize that there is language in Union Petroleum that suggests that the court rejected the shipper's good faith defense in principle. To the extent that that language is inconsistent with the legislative history of the Hepburn Act and the holding of the Supreme Court in Lehigh Coal, we simply disagree with it. 51 We conclude that a shipper has a defense to a treble forfeiture proceeding under the Hepburn Act if it can establish that any rebates or offsets it may have received (even though these are later determined to be unauthorized by the applicable tariff) were received in the honest and reasonable belief that they were in fact authorized by the tariff, and that in receiving them the shipper was not disregarding what it believed to be the provisions of the tariff but was complying therewith. Lehigh Coal & Navigation Co., 250 U.S. at 562, 566, 40 S.Ct. at 25-26. No other question concerning the scope of the scienter requirement of the Hepburn Act is raised by the record in this case, and we neither express nor imply any further opinion on that matter. As to the defense here recognized, we believe that where a shipper can establish its honest and reasonable (though mistaken) belief by reference to ambiguities in the tariff itself, the history of its adoption and of practice under it or the opinions of those in authority about the rates fixed thereby, the shipper has a good defense. We leave the application of these principles to the facts of this case to the district court on remand. 52 In conclusion, we vacate the judgment of the district court adopting the magistrate's finding and remand for further proceedings in accord with this opinion. The Government, if it wishes to proceed with this action, shall file a petition for a declaratory order with the Commission for a determination of whether U.S. Steel's receipt of rebates was against regular charges established by the tariff. Southern Pacific Transportation Co. v. United States, 505 F.2d 1252, 1254 (Ct.Cl.1974). Upon referral to the Commission, the Commission should allow both parties to present evidence on the proper construction of the tariff. Once the Commission has interpreted the tariff, both U.S. Steel and the Government shall have the opportunity to challenge the Commission's interpretation in the district court, 28 U.S.C. § 1336(b). 53 The constitutional issues concerning vagueness and the denial of due process need not be passed upon until a more authoritative interpretation of the tariff is made. A different interpretation of the tariff may obviate these issues. The district court's judgment on these issues is vacated and these issues should be reviewed, if necessary, by the court following referral to the Commission in light of the evidence produced before the Commission and the court. 54 The judgment of the district court is ordered vacated and the cause is remanded for further proceedings consistent with this opinion.