Chicago and North Western Railway Company v. Atchison, Topeka and Snt Fe Railway Company United States v. Atchison, Topeka and Santa Fe Railway Company

• Decision Date: 29 May 1967
• Docket Number: Nos. 8 and 23,s. 8 and 23
• Citation: 18 L.Ed.2d 803,387 U.S. 326,87 S.Ct. 1585
• Parties: CHICAGO AND NORTH WESTERN RAILWAY COMPANY et al., Appellants, v. The ATCHISON, TOPEKA AND SNT A FE RAILWAY COMPANY et al. UNITED STATES et al., Appellants, v. The ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY et al
• Court: U.S. Supreme Court

387 U.S. 326

87 S.Ct. 1585

18 L.Ed.2d 803

CHICAGO AND NORTH WESTERN RAILWAY COMPANY et al., Appellants,

v The ATCHISON, TOPEKA AND SNT A FE RAILWAY COMPANY et al.

UNITED STATES et al., Appellants,

v. The ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY et al.

Nos. 8 and 23.

Argued April 19, 1967.

Decided May 29, 1967.

[Syllabus from pages 326-328 intentionally omitted]

Arthur J. Cerra and Hugh B. Cox, Washington, D.C., for appellants.

Howard J. Trienens, George L. Saunders, Jr., Chicago, Ill., Calvin L. Rampton, Salt Lake City, Utah, and Cyril M. Saroyan, San Francisco, Cal., for the appellees.

Mr. Justice STEWART delivered the opinion of the Court.

This is a controversy between the Mountain-Pacific railroads and certain Midwestern railroads, involving the proper division between them of joint rates from through freight service in which they both participate. Dissatisfied with their share of existing divisions, the Midwestern carriers called upon the Interstate Commerce Commission's statutory authority to determine that joint rate divisions 'are or will be unjust, unreasonable, inequitable, or unduly preferential,' and to prescribe 'just, reasonable and equitable divisions' in their place.¹ The Commission found that the existing divisions were unlawful, and established new divisions which, on the average, gave the Midwestern carriers a greater share of the joint rates.² The District Court set aside the Commission's order on the ground that certain of its findings were deficient.³ We noted probable jurisdiction, 383 U.S. 964, 86 S.Ct. 1269, 16 L.Ed.2d 307, to consider important questions regarding the Commission's powers and procedures raised by the District Court's decision.

I.

There were originally three groups of railroads involved in the proceedings before the Commission: the Eastern, Midwestern, and Mountain-Pacific carriers. The Eastern railroads operate in the northeastern area of the United States extending south to the Ohio River and parts of Virginia and west to central Illinois. Midwestern Territory lies between Eastern Territory and the Rocky Mountains, and the rest of the United States to the west constitutes Mountain-Pacific Territory. The latter is subdivided into Transcontinental Territory—comprising the States bordering the Pacific, Nevada, Arizona, and parts of Idaho, Utah, and New Mexico—and Intermountain Territory. The railroads operating in Southern Territory, which includes the southeastern United States, were not involved in the proceedings before the Commission.⁴

Railroads customarily establish joint through rates for interterritorial freight service, and the divisions of these rates, fixed by the Commission or by agreement, determine what share of the joint tariffs each of the several participating carriers receives. See St. Louis S.W.R. Co. v. United States, 245 U.S. 136, 139—140, n. 2, 38 S.Ct. 49, 50, 62 L.Ed. 199. In 1954 the Eastern carriers filed a complaint with the Commission seeking a greater share of the joint tariff on freight traffic east and west between Eastern Territory and Transcontinental Territory. Shortly thereafter, the Midwestern carriers also filed a complaint, requesting higher divisions on (1) their intermediate service on Eastern-Transcontinental traffic, (2) thir service on freight traffic east and west between Midwestern Territory and Transcontinental Territory. Some of the Midwestern lines had long believed that the Mountain-Pacific carriers enjoyed an unduly high share of the joint tariffs for these categories of traffic. When joint rates for traffic to the western United States were first established in the 1870's, rates were divided on the basis of the miles of carriage rendered by the participating railroads, but the Mountain-Pacific carriers enjoyed a 50% inflation in their mileage factor. ⁵ In 1925, after the Commission had begun, but not yet completed an investigation of the existing divisions, the Mountain-Pacific carriers agreed to modest increases in the Midwestern railroads' share of joint rates. The divisions between Mountain-Pacific and Midwestern carriers have remained unchanged since that time.⁶

In the proceedings before the Commission, which consolidated the Eastern and the Midwestern complaints, the Mountain-Pacific railroads not only defended the existing divisions, but sought a 10% increase in their share. Regulatory commissions of States in Mountain-Pacific Territory also intervened. The consolidated proceedings involved rate divisions affecting about 300 railroads, which voluntarily aligned themselves into three groups—Eastern, Midwestern, and Mountain-Pacific—and submitted evidence and tried the case on this group basis. A great deal of time was consumed in compiling and introducing massive amounts of evidence—more than 800 exhibits and over 11,200 pages of testimony. The Hearing Examiners made a recommended report in 1960. After considering written briefs and oral arguments from the various groups of parties, the Commission issued its original report in March of 1963. The Commission found the existing divisions to be unlawful, and prescribed increased divisions for the Midwestern and Eastern carriers, effective July 1, 1963.

When exercising its statutory authority to establish 'just and reasonable' divisions under § 15(6) of the Interstate Commerce Act, the Commission is required to:

'(G)ive due consideration, among other things, to the efficiency with which the carriers concerned are operated, the amount of revenue required to pay their respective operating expenses, taxes, and a fair return on their railway property held for and used in the service of transportation, and the importance to the public of the transportation services of such carriers; and also whether any particular participating carrier is an originating, intermediate, or delivering line, and any other fact or circumstance which would ordinarily, without regard to the mileage haul, entitle one carrier to a greater or less proportion than another carrier of the joint rate, fare or charge.'⁷

After reviewing the nature of the traffic involved and considering the special claims of the various groups, the Commission found that 'none of the contending groups is more or less efficiently operated than another,' and that 'there are no differences in the importance to the public attributable to the three contending groups of carriers.' Its decision thus turned on more direct financial considerations, to which the Commission devoted a substantial part of its lengthy report. Under Commission practice, these financial considerations are divided into 'cost of service' and 'revenue needs.' The former consists of the out-of-pocket expenses directly associated with a particular service, including operating costs, taxes, and a four percent return on the property involved. 'Revenue needs' refers to broader requirements for funds is excess of out-of-pocket expenses, including funds for new investment.

In determining cost of service, the Commission relied upon a cost study prepared by the Mountain-Pacific railroads, but introduced certain modifications that produced different results. The Commission found that existing divisions on Eastern-Transcontinental traffic gave the Mountain-Pacific carriers revenues that exceeded their costs by 57%, while the Midwestern and Eastern railroads received only 43% and 22% more, respectively, than their costs for the service they contributed. On Midwestern-Transcontinental traffic, the Commission found that the divisions gave the Mountain-Pacific carriers revenues 71% above cost, while the Midwestern lines received only 39% above cost; on this traffic the Midwestern railroads bore 31.5% of the total cost but received only 27.1% of the total revenue.

In assessing comparative revenue needs, the Commission found that the average rate of return for 1946—1958, based on net railway operating income from all services as a percentage of the value of invested property,⁸ was 3.40% for the Eastern roads, 3.49% for the Midwestern group, and 4.64% for the Mountain-Pacific carriers. The Commission also found that the Mountain-Pacific railroads had the most favorable record and trend in both freight volume and freight revenues, and the Eastern railroads the least favorable, with the Midwestern roads occupying an intermediate position. In response to the Mountain-Pacific carriers' complaint that their net operating income from all services had not increased as fast as net investment in recent years, the Commission noted that this was primarily due to disproportionate passenger deficits that offset favorable income from freight services. The Commission also discounted the contention that the Mountain-Pacific carriers were entitled to greater revenues to provide funds for new investment, finding that the needs of the various carrier groups for such funds were not appreciably different. The claim of the Midwestern carriers that they had the most pressing need for revenues was also rejected by the Commission.

From all this evidence, the Commission concluded 'that there should be increases in (the Eastern carriers') divisions reflecting revenue need as well as cost.' While the very poor financial position and high revenue needs of the Eastern carriers were thus important elements in prescribing increases in their divisions, the Commission went on to find cost considerations the controlling factor with regard to the Midwestern divisions: 'As between the (Mountain-Pacific railroads) and the (Midwestern) railroads the differences in earning power are less marked, but our consideration of the evidence bearing on cost of service previously discussed convinces us that the primary midwestern divisions as a whole are too low.'

In establishing higher divisions for the Eastern carriers, the Commission relied upon the existing percentages governing divisions of the various rates between well-defined subareas in Eastern Territory and points in Transcontinental...