Central Company of New Jersey v. United States/Opinion of the Court

This suit was brought in the federal District Court for New Jersey to enjoin the enforcement of an order of the Interstate Commerce Commission on the ground that it exceeds the powers of the Commission, was arbitrary, and is void. The plaintiffs were the Central Railroad of New Jersey, the Pennsylvania, and 21 other railroads located in Trunk Line territory and New England. The defendants were the United States and the Interstate Commerce Commission. The former filed a motion to dismiss; the latter an answer which admitted the material allegations of the bill of complaint. On these pleadings the case was heard before three judges on an application for a preliminary injunction. This was denied without written opinion; and the case is here on appeal under the Act of October 22, 1913, c. 32, 38 Stat. 208, 220.

The order of the Commission was entered upon a petition of the American Creosoting Company to which these twenty-three carriers-and no others -were made respondents. American Creosoting Co. v. Director General, 61 Interst. Com. Com'n R. 145. It alleged that the petitioner had a creosoting plant at Newark, N. J., which was connected by switch tracks with the Central and the Pennsylvania; that these carriers had failed to establish there the privilege known as creosoting in transit; that this failure was unjust and unreasonable in violation of section 1 of the Act to Regulate Commerce of February 4, 1887 as amended (Comp. St. § 8563), and that it was also unjustly discriminatory in violation of section 3 (section 8565). The Commission found that failure to establish this transit privilege was not unjust or unreasonable and denied relief under section 1. But it found on the facts hereinafter stated that this failure subjected the company to unjust discrimination; and, granting relief under section 3, the Commission directed that the discrimination be removed by the respondents, who are the appellants here.

By the privilege called creosoting in transit forest products received for shipment may be stopped and unloaded at an intermediate point, there subjected to the process of creosoting, and later forwarded on the original bill of lading to the destination therein named. Where the privilege is granted and availed of, delivery is made of the commodity to the creosoting plant, as if that were the final destination. It is there unloaded and treated; and at some time thereafter it is redelivered to the carrier, as if there were an initial shipment of the creosoting product. Then it is forwarded to the final destination. Although some charge is made for the transit service, the shipper secures thereby a lower freight rate. For through rates are generally much less than the rate on the untreated forest product from point of origin to the transit point plus that on the treated product from there to destination.

The plant of the American Creosoting Company is not reached by lines of any of the twenty-three appellants except the Central and the Pennsylvania. Neither of these two carriers accords the creosoting in transit privilege at any point on its lines; and no competitor of the company has a plant on those of either. Nor is the privilege granted in Trunk Line territory by any carrier, with a single exception not here material. Some competitors of the American Creosoting Company have plants in Mississippi, Indiana, Illinois, Ohio, and Pennsylvania; and the several railroads on which these plants are located have, each acting independently, established the privilege at the places where those plants are situated. Under the rules of the Commission governing the making, filing and publishing of tariffs, privileges like creosoting in transit are treated as a matter local to the railroad on which the transit point is situated. Whether the privilege shall be granted or withheld is determined by the local carrier. If granted the local carrier determines the conditions; and these are set forth in the local tariff. Although a joint through route with joint rates is established by concurrent action of several carriers, the transit privilege may thus be granted by a carrier without the consent of, and without consulting, connecting carriers. And the whole revenue received for use of the privilege is retained by the local carrier. The appellants did not participate in any way in establishing the transit privileges enjoyed by competitors of the Newark concern on lines of the Southern and Midwestern carriers; and none of those carriers is controlled by any of the appellants. But appellants did join with those Southern and Midwest railroads in establishing joint rates on forest products over routes which pass through the points at which this privilege prevails and also through Newark.

The order entered by the Commission declares that the twenty-three carriers, 'in so far as they participate in tariffs carrying joint rates' on these forest products 'through Newark from points in Southern classification territory to points in Northern New Jersey, Eastern New York and New England,' subject the American Creosoting Company to undue prejudice and disadvantage; and it directs these twenty-three carriers to avoid this undue prejudice. How the discrimination shall be removed is not prescribed. In effect, the order directs that, unless the Central and the Pennsylvania establish the privilege at Newark, the twenty-three carriers must withdraw from all tariffs establishing the joint rates. As to administrative orders operating in futuro, the Commission's findings of fact are conclusive, subject to qualifications here not pertinent; and a finding that the discrimination is unjust is ordinarily a finding of fact. Manufacturers' Ry. Co. v. United States, 246 U.S. 457, 481, 482, 38 Sup. Ct. 383, 62 L. Ed. 831. But the question presented here is whether the discrimination found can be held in law to be attributable to the appellants, and whether they can be required to cancel existing joint rates, unless it is removed. No finding made by the Commission can prevent the review of such questions. Interstate Commerce Commission v. Diffenbaugh, 222 U.S. 42, 32 Sup. Ct. 22, 56 L. Ed. 83; Philadelphia & Reading Ry. v. United States, 240 U.S. 334, 36 Sup. Ct. 354, 60 L. Ed. 675.

Creosoting in transit, like other transit privileges, rests upon the fiction that the incoming and the outgoing transportation services, which are in fact distinct, constitute a continuous shipment of the identical article from point of origin to final destination. The practice has its origin partly in local needs, partly in the competition of carriers for business. The practice is sometimes beneficial in its results; but it is open to grave abuses. To police it adequately is difficult and expensive. Unless adequately policed, it is an avenue to illegal rebates and seriously depletes the carriers' revenues. Railroad managers differ widely as to the policy of granting such privileges. The Commission clearly has power under section 1 of the Act to Regulate Commerce as amended to determine whether in a particular case a transit privilege should be granted or should be withdrawn. For that section requires, among other things, that carriers establish, in connection whth through routes and joint rates, reasonable rules and regulations. The Commission might, therefore, acting under section 1, have directed the Central and the Pennsylvania to establish the creosoting in transit practice at Newark, if it deemed failure to do so unreasonable or unjust; or it might, in an appropriate proceeding, have directed the Southern and Midwestern carriers to discontinue the practice on their lines, if it deemed the granting of the privilege to be unreasonable or unjust. But it did neither. Instead it sought to accomplish by indirection either one result or the other and ordered under section 3 that the discrimination found to exist be removed. Twenty-one of the appellants are powerless either to cause the Central and the Pennsylvania to install the privilege at Newark or to cause the Southern and Midwestern carriers to discontinue the practice on their lines. The Central and the Pennsylvania are likewise powerless to cause these connecting carriers to withdraw the privilege. They can, it is true, equalize conditions by establishing the privilege at Newark. But to do so would involve departure from a policy to which they have steadfastly adhered and adhesion to which was held by the Commission not to be unreasonable. If should establish the privilege at Newark, they would act contrary to their judgment and would adopt a practice which some connecting carriers had introduced without their concurrence or consent, and which may hereafter, upon appropriate inquiry, be held by the Commission to be unjust and unreasonable. Congress could not have intended that under such circumstances relief should be afforded under section 3, when a direct remedy is available under section 1.

It is insisted that the order leaves appellants the alternative of withdrawing from the tariffs which establish joint rates with the Southern and Midwestern carriers through Newark. The order does not so provide in terms; and in fact the alleged alternative is illusory. The undue prejudice found arises not from the existence of joint rates, but from conditions local to other railroads. Cancellation of the joint rates would not change those conditions. Although the joint rates were withdrawn, the established through routes would remain. The duty to provide such routes is specifically enjoined by paragraph 4 of section 1 (Comp. St. § 8563), and, under the provisions of paragraph 1 of section 6 (section 8569), the separately established rates of the several connecting carriers would, in the absence of joint rates. apply to through transportation. So far as appears, the Newark concern would be under the same disadvantage as compared with its competitors, whether the traffic moved on the combination of the rates local to the several lines or on joint rates. Even the abolition of the through routes (which is not suggested) would leave the relative positions of the several creosoting concerns unchanged. Cancellation of the joint rates would, at most, relieve appellants from the charge that they are violating the provisions of section 3.

It is urged that, while the undue prejudice found results directly from the individual acts of Southern and Midwestern carriers in granting the privilege locally, the appellants, as their partners, make the prejudice possible by becoming the instruments through which it is applied. Discrimination may, of course, be practiced by a combination of connecting carriers as well as by an individual railroad; and the Commission has ample power under section 3 to remove discrimination so practiced. See St. Louis & Southwestern Ry. Co. v. United States, 245 U.S. 136, 144, 38 Sup. Ct. 49, 62 L. Ed. 199. But participation merely in joint rates does not make connecting carriers partners. They can be held jointly and severally responsible for unjust discrimination only if each carrier has participated in some way in that which causes the unjust discrimination, as where a lower joint rate is given to one locality than to another similarly situated. Penn Refining Co. v. Western N. Y. & P. R. R. Co., 208 U.S. 208, 221, 222, 225, 28 Sup. Ct. 268, 52 L. Ed. 456. Compare East Tennessee, Virginia & Georgia Ry. Co. v. Interstate Commerce Commission, 181 U.S. 1, 18, 21 Sup. Ct. 516, 45 L. Ed. 719. If this were not so, the legality or illegality of a carrier's practice would depend, not on its own act, but on the acts of its connecting carriers. If that rule should prevail, only uniformity in local privileges and practices or the cancellation of all joint rates could afford to carriers the assurance that they were not in some way violating the provisions of section 3. What Congress sought to prevent by that section as originally enacted was not differences between localities in transportation rates, facilities, and privileges, but unjust discrimination between them by the same carrier or carriers. Neither the Transportation Act 1920, February 28, 1920, c. 91, 41 Stat. 456, nor any earlier amendatory legislation has changed, in this respect, the purpose or scope of section 3.

Reversed.