United States v. Great Northern Ry Co

• Decision Date: 02 June 1952
• Docket Number: No. 151,151
• Citation: 72 S.Ct. 985,343 U.S. 562,96 L.Ed. 1142
• Parties: UNITED STATES et al. v. GREAT NORTHERN RY. CO
• Court: U.S. Supreme Court

343 U.S. 562

72 S.Ct. 985

96 L.Ed. 1142

UNITED STATES et al.

v GREAT NORTHERN RY. CO.

No. 151.

Argued Jan. 8, 9, 1952.

Decided June 2, 1952.

Rehearing Denied Oct. 13, 1952.

See 73 S.Ct. 4.

Mr. Ralph S. Spritzer, Washington, D.C., for appellants, United States, and Interstate Commerce Commission.

Mr. Arnold H. Olsen, Butte, Mont., for appellants, Vaier Community Club and Board of R.R. Com'rs of Montana.

Mr. Art Jardine, Great Falls, Mont., for appellant, Montana Western Ry. Co.

Mr. Louis E. Torinus, Jr., St. Paul, Minn., for appellee.

Mr. Chief Justice VINSON delivered the opinion of the Court.

This is a suit to enjoin enforcement of an order of the Interstate Commerce Commission establishing joint rates over through routes. In this case, unlike Thompson v. United States, 343 U.S. 549, 72 S.Ct. 978, the through routes in question already exist since the carriers concerned have continuously provided through service over the same through routes at a combination of separately established rates. The Commission did not change any route or alter the total amount charged for any shipment but did order the establishment of joint rates in place of the combination rates. The Commission also ordered a division of revenues between the carriers in order to provide additional revenue for one financially weak carrier. The question presented is whether the Commission has power to establish joint rates for the purpose of assisting a carrier to meet its financial needs.

The Montana Western Railway Company, incorporated in 1909, furnishes the only rail service over the twenty miles between Valier, montana, and Conrad, Montana, where connection is made with the interstate rail lines of the appellee Great Northern Railway. Appellee and a land irrigation company, new called the Valier Company, furnished the money to build the railroad. The Montana Western's stock is owned by the Valier Company and its bonds in the sum of $165,000 are held by appellee.

Operation of the Montana Western has been unprofitable. An average annual deficit of over $18,000 has been experienced during the fifteen years preceding this case. The Montana Western's general manager estimated that the total annual revenue deficiency under existing rates would amount to $33,825. In addition to the anticipated operating losses, continued operation of the Montana Western would require construction of a new bridge and a new roundhouse and replacement of a large number of cross ties. The Montana Western has not been able to satisfy either its bonded indebtedness or the interest thereon. Moreover, appellee has advanced money to pay operating losses to the extent that Montana Western's total debt to appellee amounted to $737,604 at the beginning of these proceedings. Apparently because of the Montana Western's value as a feeder line providing profitable traffic, appellee offered to provide additional funds for the rehabilitation of the Montana Western and offered to extend the maturity date of the mortgage bonds. However, the Montana Western's officers refused to extend the bonds on the ground that there was no hope of ever paying off the indebtedness. Thereafter, appellee announced that: 'In view of the Montana Western's attitude * * * the Great Northern cannot be expected (to make further cash advances).'

The Montana Western applied to the Interstate Commerce Commission for the permission to abandon its entire line required under 49 U.S.C. § 1(18—22), 49 U.S.C.A. § 1(18—22) on the ground that, without financial assistance from appellee, continued operation of the line was not economically feasible. After hearings in the abandonment proceeding had demonstrated the financial plight of the Montana Western, the Valier Community Club, representing shippers in the Valier area, instituted another action before the Commission.¹ The shippers' purpose was to preserve existing through routes originating at Valier by securing for the Montana Western the additional revenue needed for continued operation. Since ninety percent of the Montana Western's revenue is derived from grain traffic, additional revenue necessarily had to be obtained through adjustment in the grain rate structure.

Grain now moves on through routes from Valier over the Montana Western line to Conrad where appellee continues the through shipment to market. Under the existing grain rate structure, a shipper pays a through rate of 71 1/2 cents per hundred pounds on a shipment from Valier to Minneapolis. This through rate is also called a combination rate because it is a combination of Montana Western's separately established proportional rate of 9 cents from Valier to Conrad plus appellee's proportional rate of 62 1/2 cents to Minneapolis.² Complainant Valier Community Club did not propose to alter any existing through routes or change the amount of any through rates. Rather, complainant asked the Commission to increase Montana Western's revenue by substituting 'joint rates' for the present combination rate and determining a division of joint rates that would have the effect of increasing the Montana Western's present compensation of 9 cents for the Valier to Conrad segment of the through shipments.

After hearing evidence on the complaint, an Examiner recommended that the Montana Western's application for abandonment be denied because of the public need for railroad service in the Valier area. He further recommended that joint rates on grain be established from Valier to all interstate points on appellee's lines at the level of the present combination rates. After comparing division of revenues on similar joint rates established on other lines in the area, the Examiner recommended that the Montana Western receive a division of 10 cents, an increase of 1 cent over the present proportional rate. The Interstate Commerce Commission agreed that the public need for rail service in the Valier area called for denial of the abandonment application. The Commission also agreed that the public interest required establishment of joint rates. However, the Commission, stating that financial needs were a justification for relatively high divisions, ordered for example, that the Montana Western receive 16.3 cents as its share of the 71 1/2 cents through rate on a shipment from Valier to Minneapolis. 275 I.C.C. 512. It is conceded by the Commission in this Court that its order establishing joint rates was but a means to the end of assisting the Montana Western to meet obvious financial needs.

Appellee brought this action in the District Court to enjoin enforcement of the part of the Commission's order establishing joint rates and divisions of revenues. A three-judge court rejected the Commission's contention that Section 15, paragraphs (3) and (6), of the Interstate Commerce Act authorized the order; instead, it enjoined enforcement of the order as one prohibited by a provision of Section 15(4).³ 96 F.Supp. 298. The relevant statutes are set forth in the margin.⁴ The case was brought here on direct appeal by the United States, the Interstate Commerce Commission, the Valier Community Club, the Montana Western Railroad, and the Board of Railroad Commissioners of the State of Montana, appellants. 28 U.S.C. (Supp. IV) § 1253, 28 U.S.C.A. § 1253.

First. Under Section 15(3), the Commission is empowered to 'establish through routes, joint classifications, and joint rates, fares, or charges'. The only pertinent limitation to their establishment found in Section 15(3) itself is that the Commission deem such action 'necessary or desirable in the public interest'.

Once joint rates are lawfully established, the Commission is authorized by Section 15(6) to prescribe 'just, reasonable, and equitable divisions' of revenue between the participating carriers and to determine such divisions by giving due consideration to various listed factors, including 'the amount of revenue required' by participating carriers. In Akron, C. & Y.R. Co. v. United States, (The New England Divisions Case), 1923, 261 U.S. 184, 189 195, 43 S.Ct. 270, 273, 275, 67 L.Ed. 605, this Court held that Section 15(6) was designed for affirmative use in relieving the financial needs of weak carriers. ⁵

Section 15(4) conditions the powers granted the Commission in Section 15(3). Prior to the Transportation Act of 1940, Section 15(4) contained two provisions, one being the restriction on the Commission's power to establish a through route that would require a carrier to short haul itself, considered in Thompson v. United States, 343 U.S. 549, 72 S.Ct. 978, and the other granting the Commission additional power to establish through routes in emergencies. The 1940 revision of Section 15(4) retained the emergency through route provision, increased the power of the Commission to establish through routes which require a carrier to short haul itself and added the following provision:

'No through route and joint rates applicable thereto shall be established by the Commission for the purpose of assisting any carrier that would participate therein to meet its financial needs.'

The Commission's order in this case did not establish any through route, but did establish joint rates for the admitted purpose of assisting the Montana Western Railway to meet its financial needs. As stated above, the District Court held that such an order was prohibited by the abovequoted provision of Section 15(4).

Second. Much of appellants' argument against the holding of the District Court misses the mark. Appellants construe the prohibition against establishing through routes for the purpose of assisting a carrier to meet its financial needs as limited to cases where short hauling is a problem. Appellants would have the Court read the financial assistance prohibition as merely another restriction on the Commission's power to require a carrier to short haul itself in addition to the restriction against short hauling found in the first provision of Section 15(4). Since existence of a...