Alabama Great Southern R. Co. v. United States

• Decision Date: 12 January 1950
• Docket Number: No. 49C1434.,49C1434.
• Citation: 88 F. Supp. 982
• Parties: ALABAMA GREAT SOUTHERN R. CO. et al. v. UNITED STATES et al.
• Court: U.S. District Court — Northern District of Illinois

88 F. Supp. 982

ALABAMA GREAT SOUTHERN R. CO. et al. v. UNITED STATES et al.

No. 49C1434.

United States District Court N. D. Illinois, E. D.

January 12, 1950.

COPYRIGHT MATERIAL OMITTED

Harold E. Spencer, Chicago, Illinois, for plaintiffs.

Otto Kerner, Jr., U. S. Attorney, Chicago, Illinois, for defendant.

C. R. Hillyer, Chicago, Illinois, Wayne M. Hoffman, Chicago, Illinois, Wm. J. Fanning, Chicago, Illinois, for interveners.

Before LINDLEY, Circuit Judge, and SULLIVAN and IGOE, District Judges.

LINDLEY, Circuit Judge.

This is an action to set aside and enjoin the order of the Interstate Commerce Commission entered in a proceeding entitled Rail and Barge Joint Rates, No. 26712. The Commission, by order of October 8, 1934, instituted this proceeding as a general investigation into the lawfulness of differentials then existing between all-rail rates and barge-rail rates, established by the Commission in the three years from April, 1929, to March, 1932. In the course of extensive hearings during the ensuing eight years, more than 16,000 pages of testimony and over 1,500 statistical exhibits were received in evidence. Upon conclusion of the hearings, an examiner submitted a report, to which exceptions and replies were filed by all interested parties. Following oral argument before the entire Commission, that body, on July 7, 1948, issued its report and order, which, as modified and corrected by its supplementary report of June 13, 1949, required common carriers by rail and water to establish joint rates over certain through routes specified in the report, these joint rates to be based upon the differentials prescribed in said report. Plaintiffs contend that the order is arbitrary and beyond the Commission's authority, and urge that it be set aside and its enforcement perpetually enjoined.

A brief history of the controversy which lies at the root of this cause may be of some assistance in its resolution. The Federal Control Act of March 21, 1918, 40 Stat. 451, which directed the Railroad Administration to establish water transportation on certain inland waterways, was the first step in the attempted revival of water transportation on the Mississippi River and its tributaries, and the Warrior River. Before any conclusive evidence relative to the propriety of this undertaking was obtained, the war had ended, but Congress, in the Transportation Act of 1920, 41 Stat. 456, provided for continuation of the Mississippi-Warrior barge line service, directing that its operations be under the control of the War Department. Four years later, Congress created the Inland Waterways Corporation, of which the Secretary of War was the sole incorporator, and transferred to it the direction of this enterprise. This arrangement persisted until July 1, 1939, when supervision of the Inland Waterways Corporation, operator of the Federal Barge Lines, passed to the Department of Commerce. Meanwhile, privately owned and operated common carriers by water had become active on the Mississippi, and this fact impelled Congress to include in the Transportation Act of 1940, Part III of the Interstate Commerce Act, 49 U.S.C.A., § 901 et seq., a comprehensive plan for regulation, by the Interstate Commerce Commission, of all water carriers engaging in interstate commerce, this legislation having as its declared purpose the preservation of the inherent advantages of each mode of transportation through the impartial regulation of all

In 1918, the Director General of Railroads, recognizing that shippers would not avail themselves of the slower, more hazardous barge service unless the barge rates were lower than the all-rail rates between the same points, determined that the port-to-port rates should be 80% of the all-rail rates between the same ports, and that the same differential should be applied to shipments moving through the same ports over joint rail-barge routes. This rate system was put into effect over certain through routes designated by the Director General. After 1920, when the War Department took control of Federal Barge Lines, unsuccessful attempts to persuade the railroads to enlarge the existing joint-rate structure culminated in the filing of a complaint with the Interstate Commerce Commission, in which Federal asked the Commission to prescribe joint rail-barge rates over a number of routes suggested by Federal. The Commission, observing that many of the proposed routes were unduly circuitous and that there was insufficient evidence to enable it to determine which, if any, of the others should be established, suggested that joint rates over some of the routes might better be established through friendly negotiations with the rail lines. Some new joint rates were fixed in that fashion, but the results were, on the whole, so unsatisfactory that Congress, in 1928, passed the Denison Act, which directed the Commission to issue certificates of public convenience and necessity to common carriers by water on the Mississippi, the Warrior, and their tributaries, and, in the event the railroads refused voluntarily to establish through routes and joint rates with such carriers, authorized the Commission to establish such routes and rates and to "fix reasonable minimum differentials between all rail rates and joint rates in connection with said water service."

The Commission, acting under the authority conferred on it by this act, granted certificates of public convenience and necessity to Federal Barge Lines, Mississippi Valley Barge Line Company, and American Barge Line Company, and announced the so-called Ex Parte 96 formula for determining whether additional through routes proposed by the barge lines should be established. This formula, which was designed to avoid the establishment of through routes which would be unduly circuitous or over which the barge line's portion of the joint haul would be so short that the interchange expense would offset the assumed economies of water transportation, provided that the joint rates over the routes which were established should incorporate the 20% differential first adopted by the Director General in 1918, except that, for such routes as barely met the distance requirements of the formula, the differential should be only 10% of the all-rail port-to-port rate. Railroad complaints attacking the reasonableness of the rates and differentials fixed pursuant to the Ex Parte 96 formula led the Commission to undertake the general investigation out of which the present controversy arises.

At the outset of this proceeding the railroads announced their intention of showing that, contrary to popular belief, the cost of transporting freight over barge-rail routes was not less but, on the contrary, actually more than the cost of transporting it all-rail. The barge lines insisted that this was not true. Both sides introduced voluminous evidence relative to their respective costs of service, all of which was referred by the Commission to its cost section for study and interpretation. Although the cost section concluded generally that the cost of joint rail-barge shipping was greater than that incurred in direct all-rail routing and that this was due chiefly to the added terminal handling involved in joint rail-barge traffic, the Commission declined to review this conclusion or to make any finding as to relative all-rail and barge-rail costs in the period covered by the cost studies (1933-1938) because, as it said, "since then there have been radical changes in the conditions affecting cost of transportation service by barge as well as by rail." The Commission did state that "we cannot find that at the present time there are demonstrable economies in barge-rail transportation * * * which from the stand-point of cost of service would justify differentials." However, the Commission felt that the proviso, in section 307(d) of the Transportation Act of 1940, 49 U.S. C.A. § 907(d), that "In the case of a through route, where one of the carriers is a common carrier by water, the Commission shall prescribe such reasonable differentials as it may find to be justified between all-rail rates and the joint rates in connection with such common carrier by water," did not mean, as the railroads contended, that proof of lower cost of barge-rail service was a necessary condition precedent to the exercise of its authority to prescribe differentials between all-rail and barge-rail rates, and, finding that the differentials set forth in the appendix to its report, were "justified as reasonable" and "necessary and desirable in the public interest," it ordered the railroads and the barge lines to establish joint rates based on such differentials. These differentials, it might be observed, do not result in the establishment of a wholly new system of joint barge-rail routes and rates; they are, rather, revisions of and additions to the rate structure created under the Ex Parte 96 formula, which was in effect when the commission's general investigation was initiated.

The position of the plaintiffs, in short, is that, because the Commission could find no demonstrable economies in the barge-rail service which, from the standpoint of cost of service, would justify differentials, there is no legal basis for the Commission's order, based, as they say, solely on its belief that the order is in accord with Congressional intent and policy. They urge that the order, far from carrying out the intent of Congress, violates the national transportation policy, as declared in the Transportation Act of 1940, by depriving the railroads of their inherent advantage of lower cost of service and giving to the water carriers advantages to which they are not entitled on their merits and which Congress did not intend them to have. Finally, the plaintiffs contend that the order is not supported by basic findings of fact, and that this failure to disclose the basis on which the differentials were determined renders it arbitrary and unlawful. The...