Florida East Coast Railway Company v. United States, Civ. No. 70-574

• Decision Date: 18 February 1971
• Docket Number: Civ. No. 70-574,70-577.
• Citation: 322 F. Supp. 725
• Parties: FLORIDA EAST COAST RAILWAY COMPANY, a corporation, Florida East Coast Building, St. Augustine, Florida, Plaintiff, v. UNITED STATES of America and Interstate Commerce Commission, Defendants. SEABOARD COAST LINE RAILROAD COMPANY, Plaintiff, v. UNITED STATES of America and Interstate Commerce Commission, Defendants.
• Court: U.S. District Court — Middle District of Florida

322 F. Supp. 725

FLORIDA EAST COAST RAILWAY COMPANY, a corporation, Florida East Coast Building, St. Augustine, Florida, Plaintiff, v. UNITED STATES of America and Interstate Commerce Commission, Defendants.

SEABOARD COAST LINE RAILROAD COMPANY, Plaintiff, v. UNITED STATES of America and Interstate Commerce Commission, Defendants.

Civ. Nos. 70-574, 70-577.

United States District Court, M. D. Florida, Jacksonville Division.

February 18, 1971.

Walter G. Arnold, Arnold & Stratford, Jacksonville, Fla., A. Alvis Layne, Kim D. Mann, Washington, D. C., for Florida East Coast Railway.

John S. Cox, Cox, Webb & Swain, Jacksonville, Fla., Richard A. Hollander, Richmond, Va., for Seaboard Coast Line Railroad.

John N. Mitchell, Atty. Gen., John H. D. Wigger, Atty., Dept. of Justice, Fritz R. Kahn, Gen. Counsel, Leonard S. Goodman, Associate Gen. Counsel, I. C. C., Washington, D. C., John L. Briggs, U. S. Atty., Jacksonville, Fla., for defendants.

Before SIMPSON, Circuit Judge, and McRAE and SCOTT, District Judges.

SIMPSON, Circuit Judge:

These are actions under Title 28, U.S. C. Sections 1336, 1398, 2284 and 2321-2325, to set aside the incentive per diem rates established by the Interstate Commerce Commission (Commission) in its rulemaking proceeding entitled Incentive Per Diem Charges—1968.¹ In this proceeding the Commission issued two formal reports comprising its decision, the interim report of December 12, 1969² and the final report of April 28, 1970.³

On August 28, 1970, Judge McRae for this three-judge court entered two orders restraining the operation of the Commission orders but only insofar as they affected the two plaintiffs before the court. The temporary restraining orders were amended by order of August 31, 1970, to prevent the plaintiffs from benefitting from the rules and charges during the period they were not required to pay incentives by requiring them to keep records in order to make restitution to other railroads if so ordered by final decision of this court.

The dispute arose against the following background. For a number of years portions of the nation have been plagued with seasonal shortages of freight cars in which to ship goods. The incentive per diems are an attempt by the Commission to alleviate this problem at least in part.

The Commission was first given the power in 1917 to regulate car service and the compensation paid by railroads for the use of cars not owned by the railroad utilizing the car. The current statutory authority for such regulation is embodied in Section 1(14) (a) (49 U.S.C. § 1(14) (a)) of the Interstate Commerce Act:

§ 1, par. (14). Establishment by Commission of rules, etc., as to car service. (a) The Commission may, after hearing, on a complaint or upon its own initiative without complaint, establish reasonable rules, regulations, and practices with respect to car service by common carriers by railroad subject to this chapter, including the compensation to be paid and other terms of any contract, agreement or arrangement for the use of any locomotive, car, or other vehicle not owned by the carrier using it (and whether or not owned by another carrier), and the penalties or other sanctions for nonobservance of such rules, regulations, or practices.

The Commission also was given the power to meet emergency situations by summary measures without notice or hearing. Title 49, U.S.C., Sec. 1(15). Considering these powers insufficient to meet the continuing crisis in the railroad industry, Congress in 1966 added the following language to Section 1(14) (a) to give the Commission wider discretion in dealing with rail car shortages:

In fixing such compensation to be paid for the use of any type of freight car, the Commission shall give consideration to the national level of ownership of such type of freight car and to other factors affecting the adequacy of the national freight car supply, and shall, on the basis of such consideration, determine whether compensation should be computed on the basis of elements of ownership expense involved in owning and maintaining such type of freight car, including a fair return on value, or whether such compensation should be increased by such incentive element or elements of compensation as in the Commission's judgment will provide just and reasonable compensation to freight car owners, contribute to sound car service practices (including efficient utilization and distribution of cars), and encourage the acquisition and maintenance of a car supply adequate to meet the needs of commerce and the national defense. The Commission shall not make any incentive element applicable to any type of freight car the supply of which the Commission finds to be adequate and may exempt from the compensation to be paid by any group of carriers such incentive element or elements if the Commission finds it to be in the national interest.

Thereafter the Commission began an investigation, Ex Parte No. 252, Incentive Per Diem Charges, to determine the appropriateness of the establishment of an increased incentive. 332 I.C.C. 11, 12 (1967). In October 1967, the Commission concluded that the information it had accumulated was insufficient to draw any conclusions therefrom, and discontinued the proceeding. In December 1967, the Commission initiated a rulemaking procedure requiring the Class I and II railroads to gather and report to the Commission detailed information concerning freight car supply and demand for a specified period. It is clear that at that time further hearings were contemplated prior to the enactment of any new rules. The information submitted by the railroads was analyzed and presented to Congress by the Commission in a "Report of the Results of Freight Car Study in Ex Parte No. 252 (Sub. No. 1)". Members of the Senate Subcommittee on Surface Transportation expressed considerable dissatisfaction with the Commission's apparent inability to take effective steps toward eliminating the national shortage of freight cars. Comments were general that the Commission was conducting too many hearings and taking too little action. Senators pressed for more action and less talk, but Commission counsel expressed doubt respecting the Commission's statutory power to act without additional hearings. Despite Commission counsel's expressed misgivings about straightaway action, the Commission in December 1969 published an Interim Report announcing its tentative conclusions to adopt incentive per diem charges on standard boxcars based on the information compiled by the railroads to be in effect from September 1 to the end of February of each year. Attached to the Report was a proposed rule adopting the Commission's tentative conclusion. The railroads were requested to make statements of position and were informed "that any party requesting oral hearing shall set forth with specificity the need therefor and the evidence to be adduced". Seaboard Coast Line (Seaboard) and Florida East Coast (FEC) requested oral hearings, as did numerous other railroads. In April 1970, however, the Commission entered its order without holding further hearings, finding that the procedure did not prejudice the parties and that further hearings could be held as experience under the incentive plan dictated. These suits followed.

Seaboard, in its attack upon the actions of the Commission, alleges (1) that the Commission failed to afford it a proper hearing and that such failure prejudiced Seaboard, (2) that the Commission failed to comply with the requirements of Section 1(14) (a) of the Act, and (3) that the Report and order of the Commission does not contain reasons and findings sufficient to support the Commission's conclusions. FEC joins in Seaboard's arguments that it was improper for the Commission to act without further hearings and that the Commission's conclusions are not based on substantial evidence, and also adds the contentions that (1) the Commission's order is so unreasonable as to deny due process and (2) that the Commission should have exempted FEC from incentive per diem payments. Since we find that the Commission acted illegally in denying the plaintiff railroads a hearing before the imposition of the incentive per diem charges, we pretermit discussion of all but the first point.

The parties agree that what is at issue is the question of what degree of procedural due process accompanies a Commission rulemaking proceeding. Section 1 (14) (a) of the Interstate Commerce Act clearly states that the Commission may establish reasonable rules, regulations, and practices with regard to the subjects described therein after hearing. Section 1(14) (a), however, is modified by provisions of the Administrative Procedure Act (APA), Title 5, U.S.C. § 551 et seq. Section 553(c) provides "When rules are required by statute to be made on the record after opportunity for an agency hearing, Sections 556 and 557 of this title apply instead of this subsection". The pertinent section to the problem at hand, Section 556(d), provides:

(d) Except as otherwise provided by statute, the proponent of a rule or order has the burden of proof. Any oral or documentary evidence may be received, but the agency as a matter of policy shall provide for the exclusion of irrelevant, immaterial, or unduly repetitious evidence. A sanction may not be imposed or rule or order issued except on consideration of the whole record or those parts thereof cited by a party and supported by and in accordance with the reliable, probative, and substantial evidence. A party is entitled to present his case or defense by oral or documentary evidence, to submit rebuttal evidence, and to conduct such cross-examination as may be required for a full and true disclosure of the facts. In rule making or determining claims for money or benefits or applications for initial licenses an agency may, when a party will not be prejudiced thereby, adopt procedures for the submission of all or part of the evidence in written form. (

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