Long Island R. R. Co. v. U.S.

• Decision Date: 21 December 1977
• Docket Number: D,No. 192,192
• Parties: The LONG ISLAND RAIL ROAD COMPANY, Petitioner, v. The UNITED STATES of America, and the Interstate Commerce Commission, Respondents, S & K Farms, Inc., and Freight Users Association of Long Island, Inc., Intervening Petitioners, Southern Pacific Transportation Company, the Atchison, Topeka and Santa Fe Railway Company, Missouri Pacific Railroad Company, St. Louis Southwestern Railway Company, and Union Pacific Railroad Company, Intervening Respondents. ocket 77-4118.
• Court: U.S. Court of Appeals — Second Circuit

Page 254

568 F.2d 254

The LONG ISLAND RAIL ROAD COMPANY, Petitioner, v. The UNITED STATES of America, and the Interstate Commerce

Commission, Respondents,

S & K Farms, Inc., and Freight Users Association of Long

Island, Inc., Intervening Petitioners,

Southern Pacific Transportation Company, the Atchison,

Topeka and Santa Fe Railway Company, Missouri Pacific

Railroad Company, St. Louis Southwestern Railway Company,

and Union Pacific Railroad Company, Intervening Respondents.

No. 192, Docket 77-4118.

United States Court of Appeals, Second Circuit.

Argued Oct. 19, 1977.

Decided Dec. 21, 1977.

Walter J. Mykowski, Washington, D. C. (George M. Onken, Richard H. Stokes, Jamaica, N. Y.), for petitioner.

Kenneth G. Caplan, Washington, D. C. (Mark L. Evans, Robert S. Burk, I. C. C., Washington, D. C., Robert L. Thompson, Andrea Limmer, U. S. Dept. of Justice, Washington, D. C.), for respondents.

George Carl Pezold, Huntington, N. Y. (Augello & Pezold, P. C., Huntington, N. Y.), for intervening petitioners.

John MacDonald Smith, San Francisco, Cal., Robert P. Shaughnessy, New York City, for intervening respondents.

Before LUMBARD, FEINBERG and VAN GRAAFEILAND, Circuit Judges.

VAN GRAAFEILAND, Circuit Judge:

This is a petition by the Long Island Rail Road for review of an order of the Interstate Commerce Commission denying cancellation of a rate schedule filed by intervening-respondent railroads. It is the continuation of a running dispute between the LIRR and the intervening railroads, and some familiarity with the background is essential to an understanding of the issues.

When Congress passed the Railroad Retirement Amendments of 1973, Pub.L. 93-69, 87 Stat. 162, which increased substantially the taxes levied upon the railroads for the benefit of their employees' retirement system, it did not intend that the burden of this added impost should fall upon the railroads. Long Island Railroad v. United States, 388 F.Supp. 943, 944 (E.D.N.Y.1974); S.Rep.Nos. 202 & 221, 93d Cong., 1st Sess., reprinted in (1973) U.S.Code Cong. and Admin.News, pp. 1612, 1636, 1654-55. Accordingly, by the Railroad Rate Adjustment Act of 1973, Pub.L. 93-69, Title II, 87 Stat. 166, Congress created an expedited procedure whereby the railroads could obtain rate increases to recapture their added costs. See 49 U.S.C. § 15a(6). ¹

Acting as a group, most of the nation's railroads applied for and received a general increase in freight rates of 2.8%. See Ex Parte No. 299, Increases in Freight Rates and Charges to Offset Retirement Tax Increases 1973, 350 I.C.C. 673 (1975). ² Because this change in rates was a uniform one, some railroads recovered more than their increased costs and some recovered less. Although the ICC recognized that this inequity existed, it refused to adopt a plan whereby excess revenues earned by the more fortunate roads would be pooled and paid to the less fortunate ones. See Ex Parte No. 299, supra, 350 I.C.C. at 676-77.

The LIRR, whose business is devoted primarily to intrastate passenger carriage, ³ would have recouped only a small portion of its retirement tax expense from a 2.8% Increase in freight rates. For this reason, it refused to join the other roads in their united application in railroad parlance, as used by the ICC, it "flagged out" of the proposed rate increase. Proceeding on its own, the LIRR secured Commission approval to impose a 12.5% "terminal surcharge" and to retain all the proceeds accruing therefrom. The product of this dichotomy in treatment has been protracted conflict and litigation.

The catalyst which combined with the terminal surcharge to bring about this unhappy state was a long accepted practice ⁴ of the Commission known as group-rating. Under this practice, multiple points of origin or of destination are grouped by areas, and uniform freight rates are applied to each area. This grouping of rates is thought to encourage competition among producers in an area, Ayrshire Collieries Corp. v. United States, 335 U.S. 573, 576, 69 S.Ct. 278, 93 L.Ed. 243 (1949), to effect equality of opportunity among both railroads and shippers, The New York Harbor Case, 47 I.C.C. 643 (1917), and to simplify the publication of tariffs, The New England Divisions Case, 261 U.S. 184, 198, 43 S.Ct. 270, 67 L.Ed. 605 (1923). Groups of long standing are presumably fair to all of the roads involved, S. Bender Iron & Supply Co. v. Louisville & Nashville Railroad, 173 I.C.C. 23, 24 (1931), and evidence as to traffic, operating conditions and tariff requirements of a group is deemed generally to be typical of its members. Chicago & North Western Railway v. Atchison, Topeka & Santa Fe Railway Co., 387 U.S. 326, 342, 87 S.Ct. 1585, 18 L.Ed.2d 803 (1967); The New England Divisions Case, supra, 261 U.S. at 199, 43 S.Ct. 270. Although disruption of a group by an individual tariff filing is not unlawful per se, see United States v. Chicago, Milwaukee, St. Paul & Pacific Railroad, 294 U.S. 499, 507, 55 S.Ct. 462, 79 L.Ed. 1023 (1953); Baltimore and Ohio Railroad v. United States, 249 F.Supp. 712 (W.D.Pa.1965), aff'd, 385 U.S. 3, 87 S.Ct. 32, 17 L.Ed.2d 2 (1966), such a filing will often be met by an ICC finding that the separate rate is "unjust and unreasonable" under § 1(5) of the Interstate Commerce Act, 49 U.S.C. § 1(5), or "unduly preferential" under § 3(1), 49 U.S.C. § 3(1). See, e. g., Ayrshire Collieries Corp. v. United States, supra, 335 U.S. at 587, 69 S.Ct. 278; United States v. Chicago, Milwaukee, St. Paul & Pacific Railroad, supra, 294 U.S. at 506, 55 S.Ct. 462; Pennsylvania Railroad Co. v. United States, 260 F.Supp. 536, 537 (E.D.Pa.1965), aff'd, 382 U.S. 368, 86 S.Ct. 535, 15 L.Ed.2d 421 (1966).

The New York rate group, of which the LIRR is a member, has been in existence for many years. See The New York Harbor Case, supra, 47 I.C.C. at 712. LIRR's rate parity with this group would remain intact only if LIRR's 12.5% Surcharge was not added onto the line haul charges applicable generally in the New York area. Prior to the proceeding under review, the LIRR was able to maintain substantial parity by flagging out of two general rate increases in which the other New York carriers participated, Ex Parte No. 299, supra, (2.8%) and Ex Parte No. 305, Nationwide Increase of 10% In Freight Rates and Charges 1976, I.C.C. (1977). When the LIRR's 12.5% Surcharge was added to the rates which preceded these general increases, the total charges for traffic moving over its lines were approximately the same as the total charges for traffic moving over other lines in the New York area.

This meant, of course, that Western and Southern carriers who participate with the LIRR in long haul movements were unable to secure the benefit of the general rate increases that might otherwise have been applicable to the freight involved. To this extent, LIRR recouped its added retirement costs at the expense of these participating carriers. The Western and Southern lines have petitioned for review of the ICC orders permitting use of the 12.5% Surcharge in this manner, and that proceeding is now pending in the Fifth Circuit. ⁵

What brings the parties before our Court is an unsuccessful attempt by the LIRR to follow the same general procedure in connection with the Southwestern Railroads' proposed upward revision of rates on fresh perishables moving in refrigerator cars out of the Southwest territory. Because the LIRR refused to concur in the new rate scale, i. e., flagged out, the rates could not be applied to destinations on that line. The other roads refused LIRR's request that they concur in separate rate levels for LIRR traffic which, when combined with its terminal surcharge, would result in a level of rates and charges to points on the LIRR approximately equal to the rates and charges to points on other railroads serving the New York City rate group area. Thereafter, at a hearing into the reasonableness and lawfulness of the new tariffs, the LIRR was permitted to intervene in order that it might challenge the validity of the proposed rates and seek Commission-prescribed rates for traffic over its own line. The Administrative Law Judge found that, although the rates under investigation were just and reasonable, they constituted "an unreasonable practice in violation of § 1(6)" and were "unduly prejudicial and preferential in violation of § 3(1)", because, when combined with the LIRR surcharge, they did "not make the total transportation charges paid by LIRR receivers the same as those paid by the other receivers in the New York City rate group."

Division Two of the Commission ⁶ refused to adopt this portion of the Administrative Law Judge's order, finding that: (1) the rates to points on the LIRR were lower than rates to other New York group points because the LIRR failed to join in the new rates; (2) the evidence failed to establish that the rates to points on the LIRR, when combined with the LIRR's surcharge, resulted in unequal total transportation charges in violation of §§ 1(6) and 3(1) of the Act; (3) the record did not show that receivers on the LIRR were unduly prejudiced by the difference in rates, and none appeared or otherwise complained that they were so prejudiced. ⁷

Upon the refusal of the entire Commission to find that an issue of general transportation importance was involved, see 49 C.F.R. § 1100.101(a), the LIRR petitioned this Court for review.

It is well settled that the function of a reviewing court in cases such as this is extremely limited. See, e. g., Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 285, 95 S.Ct. 438, 42 L.Ed.2d 447 (1974). "Whether a preference or advantage or discrimination is undue or unreasonable or unjust is one of those questions of fact that have been confided by Congress to the judgment and discretion of the Commission . . . ," Manufacturers Railway Co. v. United States, 246 U.S. 457, 481, 38 S.Ct. 383, 389, 62 L.Ed. 831 (1918); and, unless the...