State of New York v. United States Hildreth v. Same Atchison Co v. Same 345

• Citation: 331 U.S. 284,67 S.Ct. 1207,91 L.Ed. 1492
• Decision Date: 12 May 1947
• Docket Number: Nos. 343,S.F.R,s. 343
• Parties: STATE OF NEW YORK et al. v. UNITED STATES et al. HILDRETH, Governor, et al. v. SAME. ATCHISON, T. &CO. et al. v. SAME. to 345
• Court: United States Supreme Court

331 U.S. 284

67 S.Ct. 1207

91 L.Ed. 1492

STATE OF NEW YORK et al.

v UNITED STATES et al.

HILDRETH, Governor, et al.

v. SAME.

ATCHISON, T. & S.F.R. CO. et al.

v. SAME.

Nos. 343 to 345.

Argued March 3, 4, 5, 1947.

Decided May 12, 1947.

Rehearing Denied June 9, 1947.

See 331 U.S. 866, 67 S.Ct. 1527.

Appeals from the District Court of the United States for the Northern District of New York.

[Syllabus from pages 284-286 intentionally omitted] Mr. Parker McCollester, of New York City, for appellants State of New York and others.

Mr. Henry F. Foley, of Boston, Mass., for appellants State of Maine and others.

Mr. Douglas F. Smith, of Chicago, Ill., for appellants A., T. & S.F.R. Co. and others.

Mr. Edward H. Miller, of Washington, D.C., for The United States.

Mr. Daniel W. Knowlton, of Washington, D.C., for Interstate Commerce Commission.

Mr. J. V. Norman, of Washington, D.C., for Southern States & Southern Governors' Conference.

Mr. Byron M. Gary, of Topeka, Kan., for States of Arkansas, Kansas, and others.

Mr. Justice DOUGLAS delivered the opinion of the Court.

The orders of the Interstate Commerce Commission, which appellants seek to have set aside, resulted from two separate investigations instituted by the Commission on its own motion in 1939 to inquire into the lawfulness or unlawfulness of most of the then existing rate-making standards for interstate railroad class freight rates in the United States. One investigation related to classifica- tion¹ under which commodities move by rail freight. The other related to class rates.² The two investigations were consolidated and were covered by one report, as the problems of classification and of class rates³ are closely interrelated. The findings of the Commission as to classifications are not directly involved here. For the orders of the Commission under attack are interim orders which affect only class rates, increasing them in some areas and decreasing them in others. But a review and summary of the Commission's findings both on classifications and on class rates are essential for an understanding of the problem.

While there are three major classification territories, there are five major rate territories.⁴ Official Territory, roughly speaking, lies east of the Mississippi and north of the Ohio and Potomac Rivers; it includes most of Virginia. Southern Territory lies south of Official Territory and east of the Mississippi. Western Trunk-Line Territory is located approximately between Official Territory and the Rocky Mountains. Southwestern Territory lies south of Western Trunk-Line Territory and west of the Mississippi and includes Arkansas, Texas, Oklahoma, and part of Louisiana. Mountain-Pacific Territory includes Montana and New Mexico and all territory west of the Rockies. Only Mountain-Pacific Territory is not involved in these cases.

The three major classifications are Official, Southern and Western.⁵ But there is great lack of uniformity in the classifications. The problem is one with which the Commission has long wrestled.⁶ But prior to the present investigation its chief accomplishment in this field had been to establish classification uniformity within the separate territories. National classification uniformity was still in the main lacking. Many differences between classifications on a particular rating are matters of substance; others are matters of nomenclature. Moreover, there has been a tendency among carriers to work against the evolution of uniform classifications by making exceptions which remove commodities from the classifications for rate-making purposes.

Section 1(4) of the Interstate Commerce Act as amended, 24 Stat. 379, 54 Stat. 899, 900, 49 U.S.C. § 1(4), 49 U.S.C.A. § 1(4), provides that it shall be the duty of common carriers to establish just and reasonable classifications applicable to through freight rates and charges. Section 1(6) prohibits every unjust and unreasonable classification. Section 3(1), 49 U.S.C.A. § 3(1), prohibits discrimination. And § 15(1), 49 U.S.C.A. § 15(1), empowers the Commission to prescribe just, fair, and reasonable classifications, after a finding that existing classifications are unlawful. The Commission found that the existing classifications are unlawful and will continue to be unawful unti l there is national uniformity of classification. It found that differences in the applicable classifications affect the levels of the class rates as much as or more, in some instances, than the differences in the levels of the class rate scales themselves. It found that shippers in one territory pay more than shippers in another territory on the same article because of classification differences; that territorial boundaries separating classification territories are artificial and cause serious complications; that where geographic conditions produce divergent costs, revenue requirements, or other conditions requiring rate adjustments, the adjustments should be made not in the basic classification itself but in the rate levels or by the creation of legitimate exceptions to the classification; that amongst the classifications there was no real uniformity of classification ratings although the same classification principles are applicable throughout the nation. It concluded that without such uniformity it is impossible to maintain just and reasonable relationships between class rates for competing commodities; that it is feasible for the carriers to establish a uniform classification. The Commission gave the railroads the opportunity to take the initiative in preparing the new uniform classification—an invitation which, we are advised, has been accepted.

Prior to this proceeding the Commission made four major class rate investigations—one for each of the rate territories except Mountain-Pacific. ⁷ These established class rate structures on a regional basis, i.e. they established some degree of uniformity in class rates within each territory or subdivision of a territory. But they did not deal with interterritorial class rates by harmonizing regional rate adjustments one with the other. As a result there are separate interterritorial rate structures applicable to freight traffic moving from one territory into another.

These territorial class rate structures are exceedingly complicated. There is no basic uniformity amongst them and they are computed by varying formulae.

The Commission found that class rates within Southern, Southwestern and Western Trunk-Line territories, and from those territories to Official Territory, were generally much higher, article for article, than the rates within Official Territory. It found that higher class rates have impeded the development and movement of class rate freight within Southern, Southwestern and Western Trunk-Line territories and from those territories to Official Territory. It concluded that neither the comparative costs of transportation service nor variations in the consists⁸ and volume of traffic within the territories justified those differences in the class rates. The Commission also determined that equalization of class rates is not dependent on equalization of nonclass rates and that interterritorial rate problems can be solved only by establishing substantial uniformity in class ratings and rates.

Section 1(4) and (5)(a) of the Act require rates and charges to be just and reasonable. The Commission found that the intraterritorial class rates applicable to the territories in question and the interterritorial class rates between the territories violate those provisions.

Section 3(1) of the Act outlaws undue or unreasonable preferences or advantages to any region, district, or territory. Te Commissi on found that the relation between the interterritorial class rates to Official Territory from the other territories in question and the intraterritorial class rates within Official Territory results in an unreasonable preference to Official Territory as a whole, and to shippers and receivers of freight located there, in violation of § 3(1). The Commission, acting pursuant to its authority under § 15(1) of the Act, prescribed reasonable and nondiscriminatory class rates to cure the preference found to exist, the new rates to become applicable simultaneously with the new revised classification which, as we have noted, the Commission ordered to be established.

But time will be required to formulate a uniform classification. And the Commission concluded that pending completion of that undertaking certain interim readjustments in the existing basis of class rates, based on existing classifications, could be made—readjustments which would be just and reasonable, and which would reduce to a minimum the preferences and prejudices which the Commission found to be unlawful in the existing system. It determined that the several intraterritorial freight-rate structures should be brought closer to the same level and be constructed on the same pattern or scheme. It concluded that as many differences as possible between the interterritorial rates and the intraterritorial rates should be eliminated. It accordingly ordered that existing interstate class rates⁹ applicable to freight traffic moving at the classification ratings within Southern, Southwestern, and Western Trunk-Line territories interterritorially between those territories, and interterritorially between each of those territories and Official Territory, be reduced 10 per cent subject to qualifications not important here. It also ordered that interstate class rates for freight traffic moving at classification ratings within Official Terriroty be increased 10 per cent, subject to qualifications not relevant to our problem. It found the new interim class rates just and reasonable. 262 I.C.C. 447, supplemental report, 264 I.C.C. 41.

The new interim rates were ordered to become effective January 1, 1946. Prior to that date, New York and other northern States, appellants in No. 343, filed their petition in ...