Isbrandtsen Co. v. United States

• Citation: 96 F. Supp. 883
• Parties: ISBRANDTSEN CO., Inc. v. UNITED STATES et al.
• Decision Date: 21 March 1951
• Court: U.S. District Court — Southern District of New York

96 F. Supp. 883

ISBRANDTSEN CO., Inc. v. UNITED STATES et al.

United States District Court S. D. New York.

March 21, 1951.

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John J. O'Connor, Washington, D. C. (William L. McGovern, Washington, D. C., of counsel), for plaintiff.

Burlingham, Veeder, Clark & Hupper, New York City (Roscoe H. Hupper and Burton H. White, New York City, of counsel), for North Atlantic Continental Freight Conference et al.

Paul D. Page, Jr. and George F. Galland, Washington, D. C., for Federal Maritime Board.

Gareth M. Neville and Robert Murray, Washington, D. C. (Malcolm Hoffman, of counsel), for Department of Justice.

Henry A. Cockrum, for Secretary of Agriculture.

Before FRANK, Circuit Judge, and RYAN and SAMUEL H. KAUFMAN, District Judges.

FRANK, Circuit Judge.

1. The plaintiff, the Attorney General, and the Secretary of Agriculture contend that in no circumstances can a dual-rate provision (i. e., an exclusive patronage, or dual-rate, or contract-noncontract provision) in a conference agreement be valid under 46 U.S.C.A. § 812, Third.² We need not, and do not, decide whether or not that contention is sound.³ For the purposes of this decision, we shall assume that, as the Board contends, in some circumstances the Board may, pursuant to 46 U.S.C.A. § 814,⁴ approve a conference agreement containing such a provision. For even so, we think that, on the record now before us, the dual-rate provision in each of these conference agreements is invalid.

2. In effect, the Board's position is that such a provision may be authorized under Sec. 814 unless the Board finds that it is "unjustly discriminatory or unfair as between carriers, shippers, exporters, importers, or ports".⁵ But the Board has made a finding, and the evidence before the Examiner shows that the announced contract and noncontract rates of the conference carriers, acting pursuant to the dual-rate provisions of the conference agreements, were such that the spread between those rates was arbitrary. The conference carriers thus interpreted the dual-rate provisions of the conference agreements as authorizing such an arbitrary spread, and the Board held valid the dual-rate provisions thus interpreted.

The effect of the Board's order is to approve the dual-rate provisions which permit unreasonable spreads between the contract and noncontract rates. We hold such dual-rate provisions to be unlawfully discriminatory between shippers, and we therefore set aside the Board's order.

3. In Swayne & Hoyt Ltd. v. United States, 300 U.S. 297, 303, 57 S.Ct. 478, 481, 81 L.Ed. 659, the Court said that a differential, pursuant to a conference agreement, between contract and noncontract rates was "prima facie discriminatory since the two rates were charged for identical services and facilities * * *."⁶ As the Board, in justifying its decision, refers to decisions of its predecessors,⁷ it is well to note that in Rawleigh v. Stoomvart, 1 U.S.S.B. 285, 293, the Shipping Board said that a contract-noncontract clause in a conference agreement would violate the statute "where the spread is such in amount as to constitute unlawfulness."⁸

4. Here, then, the complainant, before the Board, made out a case of unlawful discrimination by presenting the agreements containing the dual-rate provisions together with proof of the unreasonableness of the spread between the announced contract and noncontract rates. For a witness called by the carriers, Andrews, Secretary since 1935 of one of the two Conferences,⁹ testified on cross-examination, that "generally the noncontract rates were fixed at a differential of approximately 20% above the contract rates" and that: "I don't think the making of rates by differential is a proper basis, for that is an arbitrary basis."¹⁰ No evidence was offered contradicting this statement of the arbitrary nature of the differential.

The trial examiner made an initial report to the effect that the dual-rate provisions were not illegal per se. After receiving this report, the Commission (later superseded by the Board) issued a supplemental order returning the case to the examiner with directions to make findings as to whether the exclusive-contract provisions of this case "(1) are unjustly discriminatory or unfair as between * * * shippers, or (2) operate to the detriment of the commerce of the United States, or (3) are in violation of the provisions of the Shipping Act. * * *." The order also directed the examiner to rule upon the proposed findings of fact submitted by the complainant.¹¹

The examiner in his second report, pursuant to this order, found, as proposed by complainant, that the noncontract rates "were fixed by means of an arbitrary differential at a level 20% to 30% higher than the currently existing scale."¹² (As the testimony quoted in footnote 10 shows, the announced contract rates were fixed by adopting that scale.) The Board did not in precise terms adopt this finding. But, in oral argument before the court, counsel for the Board construed its decision as accepting the examiner's findings in so far as they were not inconsistent with its own report. There is nothing in the Board's report inconsistent with this finding of the examiner.¹³ Accordingly, we conclude that the Board made this finding its own.

It should be added that, according to the evidence, the Conferences propose to offer contract rates to the federal government and its agencies, which ship by the conference carriers many tons of commodities, without requiring those shippers, as distinguished from private shippers, to sign exclusive patronage contracts.

5. We have, then, a specific finding, supported by the evidence, of a "constitutive" or "pivotal" or "basic" fact, i. e., that the spread between the rates announced, in accordance with the dual-rate provisions, was arbitrarily determined.¹⁴ This specific finding is inconsistent with the Board's finding, as an "ultimate" fact and in the very words of the statute, that the "dual rate system * * * is not unjustly discriminatory or unfair as between * * * shippers." That latter finding, since it cannot be rationally inferred in the face of the specific finding of a "basic" fact, cannot stand up.¹⁵ Dual-rate provisions which authorize arbitrary differentials are obviously not reasonable.¹⁶ For arbitrary conduct means unreasoned or unreasonable conduct, i. e., without reference to an adequate determining principle or standard;¹⁷ and unreasonable discrimination is the equivalent of "unjust" discrimination.¹⁸ Consequently, here the rates proposed to be charged shippers who do not sign contracts are unreasonably, and therefore unjustly, discriminatory; and the dual-rate provisions which permit such rates are invalid.

6. The Board's predecessors in some of their decisions have said that the validity of a dual-rate provision in a conference agreement is a question which must be determined by the facts in each case.¹⁹ It may be urged, however, that some of those decisions contain intimations that sufficient facts exist to validate such a provision, as part of a conference agreement, if it appears merely that any carrier may join the conference and that the dual-rate provision will create "stability" by tending to drive competing non-conference carriers into the conference or out of business.²⁰ It is by no means clear that such administrative interpretations, even if unambiguous, uniform and consistent, would be tenable, in the light of the provision in Sec. 814 as to unjustly discriminating provisions in conference agreements.²¹ But we need not deal with that question. For (perhaps due to the way in which the statutory powers have been frequently shifted from one agency to another) the decisions of the Board (none of which approving a dual-rate provision has heretofore come to court) have lacked uniformity and consistency;²² and, in such circumstances, administrative interpretations have little weight.²³

What is even more to the point, in each of the cases in which such intimations occurred, there was absent any specific finding, such as we have here, that the spread between the contract and noncontract rates, permitted by the dual-rate provisions, was arbitrary. As previously noted, in Rawleigh v. Stoomvart, 1 U.S.S.B. 285, the Shipping Board said that a dual-rate provision in a conference agreement is invalid if it authorizes a spread which is unlawful. In no subsequent decision by the Board, or by any of its predecessors, has that ruling been rejected. In the Rawleigh case, however, the Shipping Board sustained such a provision without considering the spread. But it did so only because, as the Board's opinion, 1 U.S.S.B. at page 288 discloses, there the complainant had explicitly stated: "The question of rates from our viewpoint * * *, or the spread between them, is entirely immaterial and outside the scope of this proceeding." For that reason, the Board held, 1 U.S.S.B. at pages 288, 293 that that particular proceeding "does not present for determination anything other than the lawfulness in the trade concerned of the contract-noncontract rate practice itself, apart from and independent of any factor of quantum of spread," and "involves no issue respecting anything other than the lawfulness of the contract rate practice per se." But the instant case is in that respect clearly distinguishable: Here the complainant proved before the Board that the spread was not reasonable; the Board, by its supplemental order, directed the examiner to rule upon findings of fact proposed by the complainant; the examiner, in conformity with that direction, explicitly found that the differential between the rates was arbitrary; and the Board has adopted that finding.

7. It might conceivably be suggested that, nevertheless, the Board properly ignored the unreasonableness of the spread, authorized by the dual-rate provisions, because plaintiff, before the Board, attacked the dual-rate provisions not for such unreasonableness, but...