Panama Canal Company v. Grace Line Grace Line v. Panama Canal Company

Decision Date28 April 1958
Docket NumberNos. 251,252,s. 251
Citation2 L.Ed.2d 788,356 U.S. 309,78 S.Ct. 752
PartiesPANAMA CANAL COMPANY, Petitioner, v. GRACE LINE, Inc., et al. GRACE LINE, Inc., Isbrandtsen Company, Inc., Luckenbach Steamship Company, Inc., et al., Petitioners, v. PANAMA CANAL COMPANY
CourtU.S. Supreme Court

Sol. Gen. J. Lee Rankin, Washington, D.C., for Panama Canal co.

Mr. Charles Dickerman Williams, New York City, for Grace Line and others.

Mr. Justice DOUGLAS, delivered the opinion of the Court.

Respondents, American shipping companies using the Panama Canal, brought this suit in the District Court to compel petitioner, the Panama Canal Co., to prescribe new tolls for the use of the Canal and to refund tolls which it was alleged had been illegally collected in the past. The District Court dismissed the complaint for lack of jurisdiction of the subject matter, 143 F.Supp. 539. The Court of Appeals refused relief for a refund but on other phases of the complaint entered a summary judgment for the respondent. 243 F.2d 844. The cases are here on petitions for certiorari which we granted because of the importance of the questions presented. 355 U.S. 810, 78 S.Ct. 37, 2 L.Ed.2d 29. 1

Petitioner was created by Congress in 1950. 64 Stat. 1041. It holds the assets of the Panama Canal and has the duty of operating and maintaining it. It may sue and be sued in its corporate name. Canal Zone Code, Tit. 2, § 248, 62 Stat. 1078, as amended, 64 Stat. 1038. Prior to 1950 the Panama Canal was operated by the President through the Governor of the Canal Zone. 37 Stat. 561. Business activities incident to that operation were conducted by the Panama Railroad Co., a federal corporation, 62 Stat. 1076, which was an agency and instrumentality of the United States, ibid. Those auxiliary business activities were 'designed and used to aid' in the management and operation of the Canal. See People of State of New York ex rel. Rogers v. Graves, 299 U.S. 401, 406, 57 S.Ct. 269, 271, 81 L.Ed. 306. Since 1950 all those business activities have been carried on by petitioner, the Panama Canal Co., all of whose stock is held by the President or his designee, Canal Zone Code, Tit. 2, § 246(a), the present designee being the Secretary of the Army.

The Hay-Pauncefote Treaty, proclaimed February 22, 1902, 32 Stat. 1903, provided in Article III that the 'charges of traffic shall be just and equitable.' Under the original Panama Canal legislation, 37 Stat. 562, the President was authorized to fix the tolls on six months' notice by proclamation. Under that Act the tolls were to be not less than 75¢ nor more than $1.25 per net registered ton. In 1937 the ceiling was lowered to $1 per net vessel ton, the minimum of 75¢ being retained. 50 Stat. 750. When President Truman in 1948 sought to increase the toll rate to the statutory maximum, 62 Stat. 1494, Congress asked the President to withhold action until the entire problem could be studied. See H.R.Rep. No. 1304, 81st Cong., 1st Sess. 7. President Truman agreed by revoking his proclamation, 64 Stat. A433, and agreeing to the study.

On the basis of that study Congress separated the governmental functions of the Canal from its transit and business functions, the latter to be operated by petitioner. See H.R.Doc. No. 460, 81st Cong., 2d Sess.; H.R.Rep. No. 2935, 81st Cong., 2d Sess. It was learned that if the Canal were operated at cost, the tolls would have to be raised to a prohibitive level. Congress therefore undertook to reduce the financial burden that was imposed upon the users of the Canal. The interest on the capital investment of the United States was reduced and interest accrued during the construction period was to be disregarded for the purposes of computing interest on the capital investment. Free transits of government-owned vessels were eliminated for accounting purposes. The supporting business activities previously operated by the Panama Railroad Co. were to bear a proportionate share of the cost of the Canal Zone Government from which they had been exempted. H.R.Doc. No. 460, 81st Cong., 2d Sess. And the 'net costs of operation of the Canal Zone Government' were declared by Congress 'to form an integral part of the costs of operation of the Panama Canal enterprise as a whole.' See Canal Zone Code, Tit. 2, § 246(e), 64 Stat. 1041.

It was to carry out these provisions that the Congress merged the functions of operating and maintaining the Canal with the business activities formerly carried on by the Panama Railroad Co. At the same time, the Congress, by the Act of September 26, 1950, 64 Stat. 1038, Canal Zone Code, Tit. 2, §§ 411, 412, made changes in the provisions for the fixing of tolls.

Section 411 provides:

'The Panama Canal Company is authorized to prescribe and from time to time change (1) the rules for the measurement of vessels for the Panama Canal, and (2), subject to the provisions of the section next following, the tolls that shall be levied for the use of the Panama Canal: Provided, however, That the rules of measurement, and the rates of tolls, prevailing on the effective date of this amended section shall continue in effect until changed as provided in this section: Provided further, That the said corporation shall give six months' notice, by publication in the Federal Register, of any and all proposed changes in basic rules of measurement and of any and all proposed changes in rates of tolls, during which period a public hearing shall be conducted: And provided further, That changes in basic rules of measurement and changes in rates of tolls shall be subject to, and shall take effect upon, the approval of the President of the United States, whose action in such matter shall be final and conclusive.'

Section 412(b) provides the formula which petitioner must employ in computing new tolls:

'Tolls shall be prescribed at a rate or rates calculated to cover, as nearly as practicable, all costs of maintaining and operating the Panama Canal, together with the facilities and appurtenances related thereto, including interest and depreciation, and an appropriate share of the net costs of operation of the agency known as the Canal Zone Government. In the determination of such appropriate share, substantial weight shall be given to the ratio of the estimated gross revenues from tolls to the estimated total gross revenues of the said corporation exclusive of the cost of commodities resold, and exclusive of revenues arising from transactions within the said corporation or from transactions with the Canal Zone Government.'

By § 412(c) vessels operated by the United States, including naval ships, may 'in the discretion of the President' be required to pay tolls. In the event they do not, tolls shall nevertheless be computed for that use and the amounts thereof 'shall be treated as revenues of the Panama Canal Company for the purpose of prescribing the rates of tolls.'

A Committee of the Congress in 1953 directed petitioner to determine the adequacy of the canal tolls. See H.R.Rep. No. 889, 83d Cong., 1st Sess. 10. Petitioner in reply stated that no increase in tolls was at that time indicated but that, should canal traffic decline, and should the decline appear likely to continue for an appreciable length of time, 'the Company will promptly take the steps available to it to increase the rates of tolls.'2

Petitioner, being a wholly owned government corporation, is subject to annual audit by the General Accounting Office. 59 Stat. 599, 31 U.S.C. § 850, 31 U.S.C.A. § 850. And it is provided that the Comptroller General shall report on this audit to the Congress with 'such comments and information as may be deemed necessart to keep Congress informed of the operations and financial condition' of the corporation, 'together with such recommendations' as the Comptroller General may deem advisable. 31 U.S.C. § 851, 31 U.S.C.A. § 851.

The Comptroller General in 1955 expressed the view that the petitioner had allocated too high a share of the costs of the Canal Zone Government, of the corporate overhead, and of interest payments to the operations of the Canal and too little to its supporting or auxiliary activities. H.R.Doc. No. 160, 84th Cong., 1st Sess. According to his method of cost allocation, the canal operations showed a large surplus, the auxiliary or supporting activities a deficit. Ibid. He also claimed that the prices charged for the latter activities were inadequate. Ibid. He went on to give his construction of § 412(b) of the Canal Zone Code, which was that the tolls must be computed exclusively on the basis of the cost of operating the Canal without reference to the losses incident to the auxiliary or supporting operations. Ibid. He thought this result to be unsound and recommended that § 412(b) be amended to provide specifically that any losses of the auxiliary or supporting activities be included in the cost basis for the determination of the canal tolls. Ibid.

Petitioner vigorously opposes that construction of § 412(b), maintaining that the Comptroller's methods of cost allocation and his conclusions violate both sound accounting practices and the Act. Petitioner in particular objects to the Comptroller General's view that the Act requires the computation of toll rates without regard to any deficit in the operation of the auxiliary or supporting business activities. Petitioner concludes that the downward revision of the tolls recommended by the Comp- troller General is not in harmony with the congressional program and that no change in the toll formula is needed.

It was shortly after the Comptroller General's Report for 1954 was submitted to the Congress that respondents instituted this suit.

It is, we think, impermissible to conclude that, because petitioner may sue and be sued, this suit can be maintained. We deal here with a problem in the penumbra of the law where generally the Executive and the Legislative are supreme. We do not say, for we are not called upon to do...

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