Southern Ry. Co. v. United States

• Decision Date: 06 April 1976
• Docket Number: Civ. A. No. 1776-73.
• Citation: 412 F. Supp. 1122
• Court: U.S. District Court — District of Columbia
• Parties: SOUTHERN RAILWAY COMPANY et al., Plaintiffs, and The Denver & Rio Grande Western Railroad Company et al., Intervening Plaintiffs, v. UNITED STATES of America and Interstate Commerce Commission, Defendants, and Pacific Fruit Express Company, Intervening Defendant.

412 F. Supp. 1122

SOUTHERN RAILWAY COMPANY et al., Plaintiffs and The Denver & Rio Grande Western Railroad Company et al., Intervening Plaintiffs, v. UNITED STATES of America and Interstate Commerce Commission, Defendants and Pacific Fruit Express Company, Intervening Defendant.

Civ. A. No. 1776-73.

United States District Court, District of Columbia.

April 6, 1976.

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John K. Mallory, Jr., Charles F. Lettow, Cleary, Gottlieb, Steen & Hamilton, Washington, D. C., for plaintiffs and movant.

Thomas E. Kauper, John H. D. Wigger, Dept. of Justice, Washington, D. C., Earl J. Silbert, U. S. Atty., Washington, D. C., for defendant United States.

Fritz Kahn, Hanford O'Hara, I.C.C., Washington, D. C., for defendant I.C.C.

David G. Macdonald, John Guandolo, Macdonald & McInerny, Washington, D. C., Herbert A. Waterman, Charles W. Burkett, Michael A. Smith, San Francisco, Cal., Harry Lustgarten, Jr., Omaha, Neb., for intervening defendant.

Before LEVENTHAL, Circuit Judge, JONES and GREEN, District Judges.

LEVENTHAL, Circuit Judge:

This is an action under 28 U.S.C. §§ 1336(a), 2321-2325¹ to suspend, annul, or set aside the report and order of the Interstate Commerce Commission (ICC or Commission) in Ex Parte No. 137, Contracts for Protective Services, 318 I.C.C. 111, decided August 27, 1962 (1962 Order).

I. INTRODUCTION

A. Parties and Contentions

Plaintiffs are several common carriers by railroad.² Defendants are the Commission and the United States of America, as statutory defendant under 28 U.S.C. § 2322. Intervening defendant is the Pacific Fruit Express Company (PFE), a company engaged in the furnishing of cars containing mechanical heating and refrigeration units for the protection of perishable commodities against heat and cold. PFE is wholly owned by the Union Pacific Company and the Southern Pacific Transportation Company.

This action was filed on September 17, 1973. Various motions to dismiss of defendants and intervening defendant were denied on July 17, 1974, although the issue of the applicability of the doctrine of laches was reserved for this decision. Argument on the motions to dismiss was heard on May 27, 1975.

In the 1962 order, the Commission conditionally approved for a limited time only certain contracts for the provision of "protective services"³ pursuant to § 1(14)(b) of the Interstate Commerce Act, 49 U.S.C. § 1(14)(b),⁴ and set forth certain standards governing the filing and content of new contracts to replace these and other existing contracts and arrangements. This challenge was precipitated by a subsequent action of the Commission, not specifically under review here,⁵ in No. 35515, Contracts — Protective Service Between Pacific Fruit Express Company and the Akron, Canton and Youngstown Railroad Company, et al., 340 I.C.C. 754 (1972) (1972 declaratory order). There the Commission declared that under the 1962 Order connecting or terminating carriers (non-originating carriers) are being furnished "protective services" when they receive cars with mechanical refrigeration units originating elsewhere, even though the car line companies⁶ providing the units are "foreign car lines" in that they perform no additional services over connecting railroads' lines, and must submit their agreements or arrangements with the car lines for approval by the Commission.

Plaintiff railroads argue: (1) This interpretation is not supported by findings and substantial evidence in the 1962 Order. (2) If the 1962 Order is so interpreted, there is no statutory authorization for it under § 1(14)(b). (3) The 1962 Order, so interpreted, is procedurally defective because of vagueness and failure to comply with the notice and comment requirements for rule-making under the Administrative Procedure Act (APA). (4) Under this reading, the 1962 Order mandates pooling agreements illegal under § 5(1) of the Act, 49 U.S.C. § 5(1), without prior specific Commission approval. (5) The Commission's actions subsequent to 1962 in unconditionally approving contracts not containing agreements between non-originating railroads and foreign car lines for the provision of mechanical protective service (MPS) and consistently failing to clarify the scope of its 1962 Order attached an impermissible retroactive effect to the Commission's present interpretation. Defendants and intervening defendant, in addition to disputing the foregoing contentions on the merits, maintain that plaintiffs' action is barred by the doctrines of exhaustion of administrative remedies and laches.

B. Outline of Ruling

This case has a protracted history, due in significant measure to the imprecision of the 1962 Order, and prolonged not only by Commission indecisiveness and inaction but by affirmative conduct creating the distinct impression that the 1962 Order did not reach the issues in dispute here. These are considerations that would render inequitable any ruling rejecting the lawsuit for laches. As for the defense of exhaustion of administrative remedies, while we have been sorely tempted to remand to the ICC for clarification before undertaking any decision on the merits, we are reluctant to prolong the anxiety and confusion in this regulatory no-mans land. The lack of clarity in the 1962 Order, compounded by the Commission's subsequent actions, has hampered our consideration of the merits. After reflection, we conclude that there is authorization in the 1962 Order and § 1(14)(b) for the Commission's present interpretation, and we also decline to set aside the 1962 Order because of the procedural objections of plaintiffs. Thus, we are clear as to the legality of prospective application of the order as interpreted in 1972. However, we recognize, in light of the tortuous history of this case, that there is a problem of unfairness as well as a possible statutory barrier in § 15(6) of the Act, 49 U.S.C. § 15(6),⁷ if plaintiff carriers are exposed to liability, whether through administrative or private enforcement actions, for their previous non-compliance with the 1962 Order as interpreted in 1972.⁸ Since the ICC has yet to make clear that it understands the 1962 Order to impose substantive liability on plaintiff carriers in the absence of either superseding contracts approved by the Commission under § 1(14)(b) or administrative enforcement proceedings, and indeed has suggested otherwise in the 1972 interpretive ruling, we remand to the Commission to determine whether, and as of what point, plaintiffs can be held liable for their previous non-compliance. As part of the proceedings on remand, we also urge it to investigate the possibility of conducting a settlement conference among all the interested parties (which would not be limited to the formal parties in this action). Such an approach might better accommodate the interests within this troubled transportation sector than continued litigation, and would aid judicial administration as well as uniformity of regulatory policy by terminating pending lawsuits in different courts.⁹ Finally, we decline to enjoin enforcement of the 1962 Order, as to retrospective application, pending the outcome of administrative proceedings on remand.¹⁰

II. BACKGROUND AND PRIOR PROCEEDINGS

In order to understand the various contentions of the parties, a somewhat detailed background is necessary.

A. Statutory Scheme in General

Section 1(4) of the Act makes it the duty of every common carrier by rail to furnish transportation upon reasonable request and to establish just and reasonable rates. Section 3(4) requires every common carrier to provide facilities for the interchange of traffic. Compensation for inter-line traffic is provided by through rates with other railroads, as established by the railroads under § 1(4) or the Commission under § 15(3). 49 U.S.C. §§ 1(4), 3(4), 15(3).

As part of the railroad's duty to provide transportation service, section 1(11) requires the carrier to provide reasonably adequate and suitable "car service" for all the traffic it holds itself out to transport. And in the case of perishable commodities, the obligation extends to the provision of rail cars with protection against heat or cold.¹¹ The shipper or receiver of perishables pays two charges, one for transportation and one for protective service, both of which are covered by railroad tariffs filed with the Commission. In a shipment involving more than one carrier, these charges are in the form of joint tariffs.

The duty to furnish cars and protective service in the first instance is placed on the originating carrier, and the arrangements are usually made with wholly-owned subsidiaries acting as car line companies. With respect to inter-line shipments, the statutory duty to accept cars in interchange gives rise to inter-line arrangements, with transportation charges divided among participating railroads in agreed-upon shares or "divisions." Protective service charges are allocated as between the roads and the car line companies by "division sheets," in the absence of bilateral contracts between particular roads and car line companies. Rental for the use of the cars is paid by non-owning railroads to car-line companies.

The Commission regulates compensation to the car line company for the use of the car or "car service" under § 1(14)(a),¹² and for "protective service" rendered under § 1(14)(b). Section 1(14)(a) was enacted in 1917, and amended in 1940, to make clear that it covered compensation for the use of the car "whether or not owned by another carrier." The Commission sought enactment of § 1(14)(b) in 1940 because doubts as to its jurisdiction over car line companies prevented close scrutiny of their relationship with their parent roads in determining the actual cost of providing protective service so that the Commission would have a proper basis for approving cost-related protective service tariff charges to be paid by shippers.¹³

The dispute...