All States Freight, Inc. v. New York New Haven and Hartford Railroad Company/Opinion of the Court

This is an appeal from the judgment of a three-judge district court setting aside an order of the Interstate Commerce Commission which had disallowed certain freight rates filed by the New York, New Haven & Hartford Railroad Company (hereafter 'the New Haven') and other rail carriers. The issue presented is whether s 1(6) of the Interstate Commerce Act, as amended, which requires carriers 'to establish, observe, and enforce just and reasonable classifications of property for transportation, with reference to which rates, tariffs, regulations, or practices are or may be made or prescribed,' is applicable to so-called all-commodity freight rates. The Commission, with three members dissenting, held that § 1(6) does apply to such rates, and that the section was violated by the rate schedules here in question. 315 I.C.C. 419. The District Court held that § 1(6) requires 'the maintenance in being of class rates' but does not prohibit 'competitively compelled departures from classifications, within the established maxima, absent some other violation of the Act than the mere departure from the classification.' 221 F.Supp. 370, 374. We agree with the District Court and affirm the judgment before us.

A general word as to the basic distinction between class rates and commodity rates may be appropriate before proceeding to the specifics of the present case. Class rates were at the foundation of the railroad rate structure at the time of the enactment of the Interstate Commerce Act in 1887. Such rates are applied to traffic through two separate tariffs. One tariff, the 'classification,' assigns each of the many thousand commodities carried by rail to one of presently some 30 categories or classes, based upon the commodity's particular characteristics. A companion tariff specifies the rate at which each class of freight will be carried. By contrast, commodity rates, which were also in existence at the time of the original passage of the Interstate Commerce Act, are rates made specifically applicable for the carriage of a particular commodity or group of commodities from one designated point to another. The original function of commodity rates, which are generally lower than class rates, was to encourage the movement of bulk commodities, such as coal and grain. With the onset and rapid growth of intermodal competition, the railroads increasingly turned to commodity rates in an effort to prevent diversion of traffic to other modes of transportation. Since 1932, numerous all-commodity or all-freight rail rates have been established between various points throughout the country. Typically, such rates have not literally applied to all commodities, but to a broad number, and they have often applied only to mixed carload shipments. Today only a small fraction of rail carload tonnage moves on class rates; by far the major portion moves on commodity rates of some kind.

In the summer of 1958 the rail carriers competing with the New Haven established a trailer-on-flatcar service. Under this system truck-trailers loaded with various commodities are brought to the railroad's loading ramp for carriage on freight cars to destination for delivery to the consignee at the railroad's unloading ramp. This type of service was instituted in an effort to meet motor carrier competition. Eastern Central Motor Carriers Assn. v. Baltimore & O.R. Co., 314 I.C.C. 5. The New Haven had physical clearance problems and equipment shortages which prevented its participation in this type of freight transportation, and during the first two months that the trailer-on-flatcar rates were in effect on competing railroads, the New Haven lost the equivalent of more than 350 cars of traffic from Boston to St. Louis, and suffered substantial further losses of traffic westward from other New England points.

In order to compete with the trailer-on-flatcar rates, and in an effort to cope with a significant imbalance between eastbound and westbound traffic over its lines, the New Haven filed with the Commission the all-commodity rates which have become the subject of the present litigation. These rates applied to traffic between specified New England points and Chicago and St. Louis. Restricted to boxcar freight moving westward, in straight or mixed carloads, the rates were graduated according to minimum weight per car. They did not apply to certain designated kinds of traffic.

The Commission initially suspended the rates, but allowed them to become effective on July 6, 1959, and they have remained in effect since that date. Various motor carrier associations and some of their individual members protested the rates, but in February 1961, Division 2 of the Commission filed a report approving them. 313 I.C.C. 275. On reconsideration later that year, the full Commission held by a divided vote that the rates violated § 1(6) of the Act. 315 I.C.C. 419. The District Court set aside the Commission's order and enjoined its enforcement, holding that the order rested on an erroneous interpretation of § 1(6) of the Act. The intervening protestants brought this appeal here, and we noted probable jurisdiction. 376 U.S. 961, 84 S.Ct. 1122, 11 L.Ed.2d 980.

It is clear that § 1(6) gives the Commission power to require that carriers maintain just and reasonable classifications in conjunction with the setting of class rates. The question here posed is whether that section applies to commodity rates as well, and specifically whether it applies to all-commodity rates. No doubt the language of the statute, 'just and reasonable classifications of property' and 'just and reasonable regulations and practices affecting classifications' is susceptible of a construction which would embrace the rates in issue here. The rates do not apply to a single, uniquely identifiable article but to a large group of commodities, which could be described as a classification of property. But the fact that the terms of the statute can be interpreted broadly enough to encompass these rates without doing violence to the English language does not settle the problem. It remains to inquire whether the legislative history warrants or the statutory structure supports such a broad interpretation.

At the time of the enactment of the Interstate Commerce Act the vast preponderance of rail freight traffic moved on class rates. These classes as well as the rates applicable to them varied greatly among different railroads and different sections of the country. When the Interstate Commerce Act was formulated, consideration was given to empowering the Commission to prescribe classifications, but it was finally concluded that the provisions of the bill which required publication of rates and classifications, together with the provisions regulating unreasonable rates, would ultimately prove adequate to achieve the desired uniformity of classifications. Beginning with its First Annual Report, however, the Commission expressed its concern with the continuing lack of uniformity in freight classifications, and seven years later recommended that it be empowered to make a uniform classification. In 1906 the Hepburn Act gave the Commission power for the first time to prescribe maximum reasonable rates, but transportation charges could still be increased by changes in the classification of any commodity.

The Commission had succeeded in exercising power over classifications in proceedings under §§ 1, 2, and 3 of the Act, and in many cases had declared classifications of particular commodities to be unreasonable. However, the power of the Commission to halt manipulation of the classification rate system had been thrown into serious doubt by a case decided in 1905.

It was against this background that § 1(6) was enacted in 1910 as part of the Mann-Elkins Act, which also gave the Commission power to find classifications unreasonable and to prescribe reasonable classifications for the future. The immediate genesis of these provisions seems to have been a special message to Congress by President Taft recommending ' * *  * that the commission shall be fully empowered, beyond any question, to pass upon the classifications of commodities for purposes of fixing rates, in like manner as it may now do with respect to the maximum rate applicable to any transportation.'

During the course of the debate on the proposed bill in the House of Representatives, Congressman Russell, a member of the Committee on Interstate and Foreign Commerce, said

'(T)he shipper can be extorted from; he can be made to pay an     unjust rate just as well through classification as he can      through the fixing of a rate. The carriers can put an article     in one classification, subject to a given rate, and if the      Interstate Commerce Commission sees fit to declare that rate      unreasonable, and reduce it, declaring what shall be a      reasonable rate to take its place, the carrying corporation      can obtain the same benefit and put the shipper under the      same disadvantages by simply changing the classification of      the article.'

Chairman Mann stated that 'classification of freight is just as important as rates, because by moving a particular article from one class to another you affect the rates.' He added that 'in the course of time undoubtedly the power of the commission to have control of classifications will lead to greater uniformity and possibly to complete uniformity of classifications.' The Senate Report alluded only to the doubt which had been recently cast upon the Commission's power to deal with classifications.

This legislative history makes it apparent that the object of § 1(6) was to give the Commission clear power to deal with the twin problems which had arisen in the administration of class rates-the possibility of their manipulation to avoid maximum rate regulation and their lack of uniformity. Those problems never affected commodity rates, because those rates were competitively compelled reductions from whatever class rates would otherwise be applicable, and because standardization of commodity rates would have been completely inconsistent with their basic function of accommodating specific particularized competitive conditions. The legislative history thus fully supports the conclusion that the reach of § 1(6) of the Act was confined to class rates.

This conclusion is amply confirmed by the pattern of the Commission's decisions since § 1(6) was enacted. The course of those decisions makes clear that the Commission has given full consideration to the question of whether § 1(6) applies to all-commodity rates, and has squarely decided that the section is inapplicable. All-commodity rates first came under scrutiny of the Commission more than 25 years ago. In 1937 and 1938, the Commission approved all-commodity rates on four different occasions without the slightest suggestion that the rates were subject to the provisions of § 1(6). The principal concern of the Commission's inquiry in these cases was to ascertain whether the rates were prejudicial to any person, locality, or description of traffic. In a similar case decided in 1939, Commissioner Alldredge filed a dissent expressing the view that § 1(6) did apply to all-commodity rates, and that the rates in question violated that section by lumping into a single category articles which had traditionally been assigned to different categories under the customary classification criteria. With Commissioner Alldredge's dissent putting in issue the applicability of § 1(6), it is clear that the Commission consciously rejected his position. Two years later, however, the view taken by Commissioner Alldredge prevailed in a two-to-one order by Division 3, which struck down all-commodity rates as violative of § 1(6). With the decisions thus in conflict, the problem received consideration by the full Commission a year later in All Freight to Pacific Coast, 248 I.C.C. 73. There the Commission squarely held that § 1(6) does not apply to all-commodity rates. Its report stated:

'Respondents now maintain a full line of class rates governed     by the western classification from and to all of the points      involved in this proceeding, as required by section 1(6) of      the Interstate Commerce Act. They also maintain hundreds of     lower rates as exceptions to the classification, including      commodity rates, that are not subject to the classification      ratings nor to rules as to mixing of commodities in      car-loads. * *  * 'Class rates normally reflect the maximum of   reasonableness on goods falling within the various   classes of traffic. Commodity rates are established, and  necessary or desirable exceptions to the classification   are made, when circumstances and conditions suggest that   the class basis is too high for application on the   traffic. We have approved this basis of rate making, and  have never required commodity rates to conform to the   ratings of the classification.' 248 I.C.C., at 86-87.

In a separate concurrence, Commissioner Eastman said:

'As is well known, the classifications of freight which the     railroads publish are for the purpose of governing the      application of their class rates. The latter are used when no     rate has been published applying specifically to the movement      in question, such specific rates being called commodity      rates. The railroads carry, of course, a vast multitude of     separate and distinct commodities, and the class rates are a      convenient device for avoiding the publication of a like      multitude of separate and distinct rates. * *  * ' 248 I.C.C.,      at 88.

Thereafter, the Commission rejected other challenges to all-commodity rates based on § 1(6) upon the authority of the Pacific Freight decision, and the two-to-one decision based on § 1(6) which Division 3 had previously rendered was recalled and decided upon another ground. In the years that followed, the Pacific Freight case was regarded as controlling, and all-commodity rate cases were decided without reference to the provisions of § 1(6). Finally, it is significant that in approving the trailer-on-flatcar service instituted by the New Haven's rail competitors in 1958, the Commission did not discern any problem created by § 1(6).

Thus both the legislative history and the course of the Commission's decisions clearly impel the conclusion that § 1(6) does not apply to all-commodity rates. In reaching this conclusion, we hardly need add that, as the Act is structured, these rates are subject to full policing by the Commission under other provisions. If a commodity rate is too high, the Commission may reduce it. If a commodity rate unjustly discriminates against a shipper, the Commission may order the discrimination removed. If a commodity rate results in an undue preference in favor of or an unreasonable prejudice against any person, locality, or description of traffic, the Commission may require that appropriate adjustments be made. If a commodity rate is unreasonably low, the Commission may order that it be increased.

The District Court's opinion contains, by way of dicta, considerable discussion concerning the continuing validity of the concept of value of service as a factor in the setting of railroad freight rates, and that subject was also discussed in the briefs and oral arguments in this Court. But the extent to which value of service may continue as a valid element in assessing the lawfulness of rates under the sections of the Act applicable to commodity rates is a question we need not and do not decide. We decide only that the District Court was correct in holding that the issues in this case 'should never have been framed under § 1(6).'

Affirmed.

Mr. Justice WHITE, with whom THE CHIEF JUSTICE, Mr. Justice BLACK and Mr. Justice BRENNAN join, dissenting.