Denver & Rio Grande Western Railroad Company v. Union Pacific Railroad Company/Opinion of the Court

These cases all involve the validity of a single order of the Interstate Commerce Commission establishing through railroad routes and prescribing joint through rates for carriage of certain goods over the routes. The Commission's order was made after lengthy hearings upon complaint of the Denver & Rio Grande Western Railroad Company. The Rio Grande's main line runs from Ogden, Salt Lake City, and Provo, Utah, across much of Colorado to Denver, Pueblo, and Trinidad. The chief controversy involved in this case is between the Rio Grande and the Union Pacific Railroad Company. The Union Pacific lines which are relevant here run from points in Washington and Oregon through Idaho, Utah, Wyoming, Colorado, Kansas, and Nebraska, going as far east as Omaha and Kansas City. The Union Pacific and Rio Grande connect at Ogden, Salt Lake City, and Provo, Utah, and at Denver, Colorado. The connection at Ogden is known as the Ogden Gateway, meaning the gateway between the northwestern states served by the Union Pacific and states to the south and east served by the Rio Grande. The Union Pacific has used its strategic position in the northwest territory in such a way that practically all traffic between the Northwest, Denver and points east and south of Denver goes over its lines. For this reason the Northwest is often referred to as 'closed door' territory. This situation caused the Rio Grande to file its complaint with the Commission. It charged that the Union Pacific had agreements with other connecting railroads named defendants under which goods could be carried to and from the Northwest at joint through rates, but that the only way the Rio Grande could carry goods to and from this area was by exacting higher 'combination rates,' which are the sum of local rates. These high rates practically bar the Rio Grande as a connecting carrier for through shipments to and from the Northwest. The Rio Grande asked the Commission to order the Union Pacific to establish and maintain for the future 'just, reasonable and non-discriminatory competitive joint through rates' with the Rio Grande. It charged that the Union Pacific's failure to establish and maintain such rates violated §§ 1(4), 3, 15(1), and 15(3) of the Interstate Commerce Act. Section 15(1) authorizes the Commission to proscribe individual or joint rates or practices that are 'unjust or unreasonable or unjustly discriminatory or unduly preferential or prejudicial' and to prescribe rates and practices that are 'just, fair, and reasonable.' Section 15(3) empowers the Commission to establish through routes and joint rates whenever deemed by the Commission 'to be necessary or desirable in the public interest.' Section 15(4), which is very important in this controversy, places restrictive conditions upon the Commission's power to establish through routes under § 15(3) when the establishment of a through route would require a railroad 'without its consent, to embrace in such route substantially less than the entire length of its railroad and of any intermediate railroad operated in conjunction and under a common management or control therewith, which lies between the termini of such proposed through route * *  * .' This provision is generally referred to as a prohibition against making a railroad 'short-haul' itself. Among other findings the Commission must make under § 15(4) before establishing a through route which requires a railroad to short-haul itself is that the new route 'is needed in order to provide adequate, and more efficient or more economic, transportation * *  * .'

The Rio Grande's petition before the Commission alleged that through routes with the Union Pacific already existed through the Ogden Gateway. It contended that they had been created and used by the Union Pacific. On this basis Rio Grande claimed that the restrictive conditions of § 15(4) did not apply and that the Commission need not concern itself with those conditions but should proceed to establish reasonable joint rates under § 15(3). After hearing much evidence the Commission rejected this contention and found that the through routes claimed by Rio Grande did not exist. The Commission went on to find, however, that through routes should be established with reference to certain commodities such as fruits, perishable foods, and livestock in a limited geographical area. The Commission found, in accordance with § 15(4) that these new routes were needed 'to provide adequate and more economic transportation * *  * .' It also found as required by § 15(3) that through routes and joint rates for the specified commodities were 'necessary and desirable in the public interest.' 287 I.C.C. 611, 659.

On the basis of its findings the Commission ordered the Union Pacific to establish through routes for the specified commodities and to establish joint rates the same as applied on its own and other connecting lines. The Union Pacific considered itself aggrieved because the order required establishment of some through routes and joint rates. The Rio Grande considered itself aggrieved both because of the geographical limitations of the Commission's order and because joint rates were not established for all commodities. The Union Pacific challenged the I.C.C. order in a three-judge United States District Court in Nebraska and the Rio Grande challenged it in a three-judge United States District Court in Colorado. See 28 U.S.C. §§ 1336, 2284, 2321-2325, 28 U.S.C.A. §§ 1336, 2284, 2321-2325. The Colorado court upset the order on a single ground. It held that there was no substantial evidence to support the finding that through routes were not in existence. Had the Commission found there were established through routes, the Colorado court reasoned, much broader relief for the Rio Grande might have been ordered, since the restrictions of § 15(4) would not have been applicable. Consequently the Colorado court remanded the case to the Commission for further consideration. D.C., 131 F.Supp. 372. The Nebraska court accepted the Commission's finding that no through routes were in existence. It then held that there was evidence before the Commission sufficient to support the finding under § 15(4) that through routes were needed 'in order to provide adequate and more economic transportation' for specified commodities shipped from the Northwest to initial destination points on the Rio Grande for 'in-transit privileges incident to reshipment to points east of Denver * *  * .' D.C., 132 F.Supp. 72, 82. The Nebraska court declined, however, to sustain the Commission's action with reference to shipments not requiring such transit services. Both District Court decrees are now before us on direct appeal under 28 U.S.C. §§ 1253 and 2101(b), 28 U.S.C.A. §§ 1253, 2101(b). They were consolidated for oral argument and we treat them together here. It is convenient to take up first the Colorado court's holding.

In considering the question of through routes under § 15(4) we begin with our recent holdings and opinions in Thompson v. United States, 343 U.S. 549, 72 S.Ct. 978, 96 L.Ed. 1134; United States v. Great Northern R. Co., 343 U.S. 562, 72 S.Ct. 985, 96 L.Ed. 1142. We there emphasized the purpose of § 15(4) to bar the Commission from compelling railroads to establish through routes resulting in trunkline 'short-hauls' without faithful observance of restrictive conditions imposed by that section. At the same time we recognized that Commission action is not necessary to the creation of through routes. We pointed out that a through route is ordinarily a voluntary arrangement, express or imlied, between connecting carriers, and that the existence of such an arrangement depends on the circumstances of particular cases. We said in Thompson v. United States, supra, 343 U.S. at page 557, 72 S.Ct. at page 983, that 'In short, the test of the existence of a 'through route' is whether the participating carriers hold themselves out as offering through transportation service.' Findings of through routes can therefore be made on the basis of express agreements between carriers or on the basis of inferences drawn from continuous practices sufficient to show that through routes exist even though not provided for in formal contracts or tariffs. The question in each case is one of fact. Cf. Through Routes and Through Rates, 12 I.C.C. 163, 166-167. The Colorado court viewed the evidence here as showing beyond dispute the existence of through routes both by formal tariffs and by long railroad practices. Whether the evidence could have justified the Commission in finding the existence of through routes we need not determine. We are satisfied, however, that the evidence before the Commission did not compel it to make such a finding and that its conclusion that the through routes claimed were not in existence is supported by substantial evidence.

There was evidence that as early as 1897 the Union Pacific and lines it controlled did establish through routes to and from points in the 'closed' northwest territory through the Ogden Gateway, and did establish joint through rates with the Rio Grande on the same basis as the joint through rates on Union Pacific's own lines. But these joint rates were canceled by Union Pacific in amended tariffs published between 1906 and 1912. Apparently there was no language in the published amended tariffs expressly and formally declaring that the through routes by way of the Ogden Gateway were also to be deemed closed. The amended tariffs, however, resulted in very high combination rates for northwest traffic transported by the Rio Grande. The effect of these high rates has been greatly to handicap if not actually to close the Rio Grande as an artery for through traffic between the Northwest, Denver and points south and east. Of course the effect of such rates might not be enough standing alone to show a voluntary abandonment of the through routes. See Virginia R. Co. v. United States, 272 U.S. 658, 666, 47 S.Ct. 222, 225, 71 L.Ed. 463; Thompson v. United States, supra, 343 U.S. at pages 556-558, 72 S.Ct. at pages 982, 983. At the same time it cannot be said that the Union Pacific's failure formally to declare the through routes abandoned in 1906 (when it canceled joint rates) automatically left the through routes in existence for § 15(4) purposes in 1949 when this litigation started. Cancellation of the rates in 1906 without formal cancellation of the routes is only a circumstance to be considered along with other circumstances in determining whether through routes now exist. The Colorado court relied on railroad practices as other circumstances which, considered with the failure expressly to abandon through routes, were sufficient to compel the Commission to hold that through routes did exist. We turn to that.

At best for the Rio Grande the evidence of railroad practices with reference to the continued existence of through routes showed the following. Despite the high combination rates a small number of shipments continue to trickle through the Ogden Gateway to and from the closed northwest territory. in 1948, which the Commission considered a representative year, a number of carload shipments moved on through bills of lading along the alleged through routes. But none of them coming from the Northwest went further than points on the Rio Grande in Colorado also served by the Union Pacific and connecting lines. There were a few shipments of various commodities from east and south of Denver which went by way of the Rio Grande through the Ogden Gateway. The total shipments over the alleged through routes, however, were no more than a fractional part of one percent of the traffic carried to and from the Northwest by way of the Union Pacific routes. It is also undisputed that through routes and joint rates exist for eastbound shipments of sheep and goats. During World War II some Army troop and supply trains moved over the Rio Grande on through bills of lading. In addition to the foregoing some traffic moved over the Rio Grande in 1949 when snow storms blocked the Union Pacific route through Wyoming. These movements were made under service orders of the Commission, which did not exercise its authority under § 15(4) to establish emergency through routes.

The Union Pacific produced evidence tending to show that there were no through routes. It quite plainly appears from the record that there has been a long-standing struggle between the Union Pacific and the Rio Grande over the efforts of the Union Pacific to keep the Ogden Gateway closed. We think the record supports the finding of the Commission that:

'There is no indication that any of the defendants has ever     solicited any traffic from and to the areas here concerned      for routing over a Rio Grande route by which a higher      combination rate applied, or has ever used such a Rio Grande      route except where called upon to do so by routing specified      by the shipper or by a prior connecting carrier. In other     words, so far as this record shows, 'the carriers' course of      business' has been and is to use the Union Pacific routes      except where called upon to use the Rio Grande routes by      force of shippers' or connecting carriers' routing. The whole     course of conduct of the Union Pacific, so far as revealed,      has been for many years and is now to guard jealously its      long haul and not open commercially the Rio Grande routes on      this traffic.' 287 I.C.C., at 618.

We ahhere to the 'holding out' test of the Thompson case. The evidence before the Commission was not such as to compel it to find that the Union Pacific held itself out as offering through service over the Rio Grande lines. It was error for the Colorado District Court to set aside the Commission's finding and to remand the case to the Commission. This brings us to a consideration of the Nebraska District Court's action.

The Commission required the Union Pacific to establish through routes and joint rates with the Rio Grande for the carriage of certain commodities including livestock, fresh fruits and vegetables, frozen foods, butter, and eggs. The order rested on the Commission's conclusion that such through routes and joint rates were 'necessary and desirable in the public interest, in order to provide adequate and more economic transportation * *  * .' 287 I.C.C., at 659. This conclusion was based on findings from a vast amount of evidence both oral and written. The pertinent language of § 15(4) allows the Commission to establish through routes where 'needed in order to provide adequate, and more efficient or more economic, transportation.' The dispute in the Nebraska court and here relates principally to the adequacy of the existing transportation services. The efficiency of Union Pacific services was established beyond dispute.

Section 15(4) empowers the Commission to consider the interests of shippers and the kind of services they get and need as well as the interests of carriers in determining whether additional routes should be established to provide 'adequate' and 'more economic' transportation service. We have held that in determining this question the Commission should look beyond the mere adequacy of the carrier's physical operations 'to the broader public interest which embraces service to shippers and the rates they pay.' Pennsylvania R. Co. v. United States, 323 U.S. 588, 591-593, 65 S.Ct. 543, 544, 89 L.Ed. 478. The duty of the Commission, as we there stated, is to try to strike a fair balance in satisfying the needs of shippers, railroads, and the public. This of course calls for the Commission to exercise its informed judgment, having in mind its statutory obligation to develop, coordinate and preserve an adequate national transportation system. This it did. Relying on our interpretation of § 15(4) in the Pennsylvania Railroad case, the Commission considered the various interests here. It found that: 'Because of their generally perishable nature, food articles * *  * must be moved to market with expedition and care, and over as many routes as possible. This requires that many routes be open in order that unnecessary interruptions of the free flow of such commodities may be avoided and that as much flexibility as possible in the distribution process be permitted. A number of services, not only at origin and destination, but en route, which are not usually required in the movement of ordinary traffic, must be provided for these perishable and semiperishable commodities.' 287 I.C.C., at 656. There are facilities along the Rio Grande route for feeding and grazing livestock in transit, and for partial unloading, storing or processing other shipments in transit. As a result shippers in the northwest territory were found to be 'debarred from effective participation in the widespread system developed for the marketing of such commodities' and processors, shippers and dealers along the Rio Grande were found to be at a disadvantage in competing with those on the Union Pacific. For the specified commodities the Commission found the Union Pacific routes to be 'inadequate and less economical than are the Rio Grande routes.' The Nebraska District Court sustained the Commission's order with reference to shipments which required transit services on the Rio Grande. We agree with this portion of the holding. We cannot say that the Commission acted in excess of its authority in concluding, on the mass of evidence before it, that through routes and joint rates on the specified commodities were needed to provide adequate and more economic transportation and were necessary in the public interest.

But the scope of the Commission's order was cut down by the Nebraska court insofar as it established through routes and joint rates on shipments that did not require transit services such as we have mentioned. We disagree with the Nebraska District Court in this respect. The evidence showed and the Commission found that in marketing food and other perishable products it is a general practice among railroads to allow diversion of carloads in transit as markets are found and sales are made. The successful operation of this practice requires the existance of joint through rates to the final market, since diversion or reconsignment would often, as a practical matter, be unavailable to a shipper who is compelled to reconsign his goods at high combination rates. The Commission found that 'If a shipment reaches a point through which a combination of rates applies and the sale is lost, it is frequently necessary to dispose of the shipment at that point at a forced or distress price. Such points are called closed or pocket markets.' 287 I.C.C., at 642. To illustrate its conclusion that combination rates result in inadequate transportation service in situations where shippers are compelled to reconsign, the Commission noted that: 'Idaho producers are in competition with shippers in other producing areas and find it difficult to compete on shipments routed over the Rio Grande via Ogden or Salt Lake City. One Idaho shipper has made few sales of potatoes in the Southwest in the last several years because of pocket markets there.' 287 I.C.C., at 643. Pocket markets, of course, exist because reconsignment is possible only at high combination rates. We see no reason why a shipper's privilege to have his goods reconsigned at joint rates should not be considered on the same basis as transit services in determining the adequacy and economy of existing transportation. We think it was error for the Nebraska court to narrow the scope of the Commission's order by excluding shipments of commodities which so urgently need the advantage of reconsignment privileges at joint rates.

Many other arguments are made against the Commission's order. It is pointed out, for example, that the Rio Grande road has more curves than the Union Pacific. Its grades are steeper. Consequently its traffic is sometimes slower. It is contended that the evidence as a whole is insufficient to justify the holding that the esablishment of through routes will be of such great advantage to shippers and the public that the Union Pacific should be compelled to short-haul itself. We are not unmindful of the force of the arguments made by the Union Pacific and by those who have intervened on its side. It is entirely possible that the Commission could have made findings contrary to those it did make. But on the whole we are unable to say that the Commission did not strike a fair balance in finding that the evidence required the establishment of these through routes and joint rates. After consideration of all the contentions made, we hold that the Nebraska court should have sustained the Commission's order in full. Since the Commission's order is justified under §§ 15(1), 15(3) and 15(4) we have no occasion to consider contentions raised under §§ 3(1) and 3(4).

The judgment of the District Court of Colorado is reversed with directions to dismiss the bill. The judgment of the Nebraska District Court is affirmed insofar as it affirmed the order of the Commission, and is reversed insofar as the court refused to enforce the Commission's order.

It is so ordered.

Mr. Justice FRANKFURTER, dissenting.