United States v. Florida East Coast Railway Company 8212 279, No. 70

CourtUnited States Supreme Court
Writing for the CourtREHNQUIST
Citation410 U.S. 224,35 L.Ed.2d 223,93 S.Ct. 810
PartiesUNITED STATES et al., Appellants, v. FLORIDA EAST COAST RAILWAY COMPANY et al. —279
Decision Date22 January 1973
Docket NumberNo. 70

410 U.S. 224
93 S.Ct. 810
35 L.Ed.2d 223
UNITED STATES et al., Appellants,

v.

FLORIDA EAST COAST RAILWAY COMPANY et al.

No. 70—279.
Argued Dec. 7, 1972.
Decided Jan. 22, 1973.

Samuel Huntington, Washington, D.C., for appellants.

A. Alvis Layne, Washington, D.C., for appellee Florida East Coast Railway Co.

Page 225

Richard A. Hollander, Richmond, Va., for appellee Seaboard Coast Line Railroad Co.

Mr. Justice REHNQUIST delivered the opinion of the Court.

Appellees, two railroad companies, brought this action in the District Court for the Middle District of Florida to set aside the incentive per diem rates established by appellant Interstate Commerce Commission in a rule-making proceeding. Incentive Per Diem Charges—1968, Ex parte No. 252 (Sub.-No. 1), 337 I.C.C. 217 (1970). They challenged the order of the Commission on both substantive and procedural grounds. The District Court sustained appellees' position that the Commission had failed to comply with the applicable provisions of the Administrative Procedure Act, 5 U.S.C. § 551 et seq., and therefore set aside the order without dealing with the railroads' other contentions. The District Court held that the language of § 1(14)(a)1 of the Interstate Commerce

Page 226

Act, 24 Stat. 379, as amended, 49 U.S.C. § 1(14)(a), required the Commission in a proceeding such as this to act in accordance with the Administrative Procedure Act, 5 U.S.C. § 556(d), and that the Commission's determination to receive submissions from the appellees only in written form was a violation of that section because the respondents were 'prejudiced' by that determination within the meaning of that section.

Following our decision last Term in United States v. Allegheny-Ludlum Steel Corp., 406 U.S. 742, 92 S.Ct. 1941, 32 L.Ed.2d 453 (1972), we noted probable jurisdiction, 407 U.S. 908, 92 S.Ct. 2431, 32 L.Ed.2d 682 (1972), and requested the parties to brief the question of whether the Commission's proceeding was governed by 5 U.S.C. § 553,2

Page 227

or by 5563 and 557,4 of the Administrative Procedure Act. We here decide that the Commission's proceeding was governed only by § 553 of that Act,

Page 228

and that appellees received the 'hearing' required by § 1(14)(a) of the Interstate Commerce Act. We, therefore, reverse the judgment of the District Court and

Page 229

remand the case to that court for further consideration of appellees' other contentions that were raised there, but which we do not decide.

Page 230

I. BACKGROUND OF CHRONIC FREIGHT CAR SHORTAGES

This case arises from the factual background of a chronic freight-car shortage on the Nation's railroads, which we described in United States v. Allegheny-Ludlum Steel Corp., supra. Judge Simpson, writing for the District Court in this case, noted that '(f)or a number of years portions of the nation have been plagued with seasonal shortages of freight cars in which to ship goods.' 322 F.Supp. 725, 726 (MD Fla.1971). Judge Friendly, writing for a three-judge District Court in the Eastern District of New York in the related case of Long Island R. Co. v. United States, 318 F.Supp. 490, 491 (EDNY 1970), described the Commission's order as 'the latest chapter in a long history of freight-car shortages in certain regions and seasons and of attempts to ease them.' Congressional concern for the problem was manifested in the enactment in 1966 of an amendment to § 1(14)(a) of the Interstate Commerce Act, enlarging the Commission's authority to prescribe per diem charges for the use by one railroad of freight cars owned by another. Pub.L. 89—430, 80 Stat. 168. The Senate

Page 231

Committee on Commerce stated in its report accompanying this legislation:

'Car shortages, which once were confined to the Midwest during harvest seasons, have become increasingly more frequent, more severe, and nationwide in scope as the national freight car supply has plummeted.' S.Rep.No.386, 89th Cong., 1st Sess., 1—2.

The Commission in 1966 commenced an investigation, Ex parte No. 252, Incentive Per Diem Charges, 'to determine whether information presently available warranted the establishment of an incentive element increase, on an interim basis, to apply pending further study and investigation.' 332 I.C.C. 11, 12 (1967). Statements of position were received from the Commission staff and a number of railroads. Hearings were conducted at which witnesses were examined. In October 1967, the Commission rendered a decision discontinuing the earlier proceeding, but announcing a program of further investigation into the general subject.

In December 1967, the Commission initiated the rulemaking procedure giving rise to the order that appellees here challenge. It directed Class I and Class II line-haul railroads to compile and report detailed information with respect to freight-car demand and supply at numerous sample stations for selected days of the week during 12 four-week periods, beginning January 29, 1968.

Some of the affected railroads voiced questions about the proposed study or requested modification in the study procedures outlined by the Commission in its notice of proposed rulemaking. In response to petitions setting forth these carriers' views, the Commission staff held an informal conference in April 1968, at which the objections and proposed modifications were discussed.

Page 232

Twenty railroads, including appellee Seaboard, were represented at this conference, at which the Commission's staff sought to answer questions about reporting methods to accommodate individual circumstances of particular railroads. The conference adjourned on a note that undoubtedly left the impression that hearings would be held at some future date. A detailed report of the conference was sent to all parties to the proceeding before the Commission.

The results of the information thus collected were analyzed and presented to Congress by the Commission during a hearing before the Subcommittee on Surface Transportation of the Senate Committee on Commerce in May 1969. Members of the Subcommittee expressed dissatisfaction with the Commission's slow pace in exercising the authority that had been conferred upon it by the 1966 Amendments to the Interstate Commerce Act. Judge Simpson in his opinion for the District Court said:

'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.' 322 F.Supp., at 727.

Judge Friendly, describing the same event in Long Island R. Co. v. United States, supra, said:

'To say that the presentation was not received with enthusiasm would be a considerable understatement. Senators voiced displeasure at the Com-

Page 233

mission's long delay at taking action under the 1966 amendment, engaged in some merriment over what was regarded as an unintelligible discussion of methodology . . . and expressed doubt about the need for a hearing . . .. But the Commission's general counsel insisted that a hearing was needed . .. and the Chairman of the Commission agreed . . ..' 318 F.Supp., at 494.

The Commission, now apparently imbued with a new sense of mission, issued in December 1969 an interim report announcing its tentative decision to adopt incentive per diem charges on standard boxcars based on the information compiled by the railroads. The substantive decision reached by the Commission was that so-called 'incentive' per diem charges should be paid by any railroad using on its lines a standard boxcar owned by another railroad. Before the enactment of the 1966 amendment to the Interstate Commerce Act, it was generally thought that the Commission's authority to fix per diem payments for freight car use was limited to setting an amount that reflected fair return on investment for the owning railroad, without any regard being had for the desirability of prompt return to the owning line or for the encouragement of additional purchases of freight cars by the railroads as a method of investing capital. The Commission concluded, however, that in view of the 1966 amendment it could impose additional 'incentive' per diem charges to spur prompt return of existing cars and to make acquisition of new cars financially attractive to the railroads. It did so by means of a proposed schedule that established such charges on an across-the-board basis for all common carriers by railroads subject to the Interstate Commerce Act. Embodied in the report was a proposed rule adopting the Commission's tentative conclusions and a notice

Page 234

to the railroads to file statements of position within 60 days, couched in the following language:

'That verified statements of facts, briefs, and statements of position respecting the tentative conclusions reached in the said interim report, the rules and regulations proposed in the appendix to this order, and any other pertinent matter, are hereby invited to be submitted pursuant to the filing schedule set forth below by an interested person whether or not such person is already a party to this proceeding.

'That any party requesting oral hearing shall set forth with specificity the need therefor and the evidence to be adduced.' 337 I.C.C. 183, 213.

Both appellee railroads filed statements objecting to the Commission's proposal and requesting an oral hearing, as did numerous other railroads. In April 1970, the Commission, without having held further 'hearings,' issued a supplemental report making some modifications in the tentative conclusions earlier reached, but overruling in toto the requests of appellees.

The District Court held that in so doing...

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