King v. United States (344 U.S. 254)/Opinion of the Court

The questions here are: (1) whether the Interstate Commerce Commission, in prescribing intrastate freight rates for railroads under § 13(4) of the Interstate Commerce Act, may give weight to deficits in passenger revenue; and (2) whether the findings of the Commission which are involved in this proceeding are sufficient to sustain the rates it has prescribed. Our answer to each question is in the affirmative.

This is an action against the United States brought in the United States District Court for the Northern District of Florida, under 28 U.S.C. (Supp. V) § 1336, 28 U.S.C.A. § 1336, by appellants 'as and Constituting the Florida Railroad and Public Utilities Commission.' They ask the court to enjoin, set aside and annul an order of the Interstate Commerce Commission requiring Florida railroads to establish intrastate freight rates which will reflect the same increases as have been authorized by it for comparable interstate traffic.

The underlying proceedings originated in 1940. The Interstate Commerce Commission then undertook a nationwide investigation of interstate railroad freight rates, under §§ 13(2) and 15a(2) of the Interstate Commerce Act, in conformity with the National Transportation Policy stated in § 1 of the Transportation Act of 1940. The investigation dealt with past and future freight and passenger operations, intrastate as well as interstate. A Committee of Cooperating State Commissioners sat with the Commission and took part in its deliberations. Mounting railroad operating costs and declining passenger revenue led the Commission, in 1946, to authorize a nationwide increase of 20% in basic interstate freight rates. Ex Parte No. 162, Increased Railway Rates, Fares, and Charges, 1946, 264 I.C.C. 695, 266 I.C.C. 537.

In 1947, the Commission found such further increases in operating costs and decreases in passenger revenue that it authorized an additional nationwide interim increase of 10% in interstate freight rates. Soon it raised this to 20%. In a third report it varied the percentage in different areas, with the result that in the southern territory, including Florida, the increase was 25%. The 1948 final report confirmed this 25% increase. Ex Parte No. 166, Increased Freight Rates, 1947, 269 I.C.C. 33, 270 I.C.C. 81, 93, and 403. The Commission's estimates of revenue contemplated the application of the increased rates to intrastate, as well as to interstate, transportation. The report concludes with the statement that the 'Committee of Cooperating State Commissioners * *  * authorize us to state that they concur in the foregoing report.' 270 I.C.C. 403, 463.

Upon publication of these reports, the railroads asked their respective state authorities to authorize comparable increases in intrastate rates. The Florida Commission approved most of the increases but declined to approve the final increase from 20% to 25%.

On petition of the Florida railroads, the Interstate Commerce Commission undertook its own investigation of Florida intrastate railroad rates under § 13(3) and (4) of the Interstate Commerce Act, 41 Stat. 484, 49 U.S.C. § 13(3) and (4), 49 U.S.C.A. § 13(3, 4). A full hearing was had before a Commissioner and an examiner, followed by a hearing upon exceptions to the examiner's report. The Commission recommended that intrastate freight rates be established 'between points in Florida which will reflect the same increases as are, and for the future may be, maintained by respondents (railroads) on like interstate traffic to and from Florida, and within Florida under our authorizations in Ex Parte No. 162 and Ex Parte No. 166 * *  * .' Finding No. 8, 278 I.C.C. 41, 73.

The Interstate Commerce Commission then gave the Florida Commission a final opportunity to permit the increased rates to be applied to intrastate transportation. Upon the latter's failure to act, the Interstate Commerce Commission ordered the railroads 'thereafter to maintain and apply for the intrastate transportation of freight from and to points in the State of Florida freight rates and charges which shall be no lower than the approved rates and charges, or on the approved rate bases, as provided in said report.'

Before that order took effect, this action was filed. A three-judge District Court was convened. 28 U.S.C. (Supp. V) § 2325, 28 U.S.C.A. § 2325. Two short line railroads and numerous shippers intervened as plaintiffs. The Interstate Commerce Commission and all Class I railroads operating in Florida intervened as defendants. The entire record of the proceeding before the Commission, under § 13(4), was introduced. The court sustained the Commission and dismissed the complaint. 101 F.Supp. 941. That judgment is here on appeal. 28 U.S.C. (Supp. V) §§ 1253, 2101(b), 28 U.S.C.A. §§ 1253, 2101(b).

I. The Interstate Commerce Commission in prescribing intrastate freight rates for railroads under § 13(4) of the Interstate Commerce Act may give weight to deficits in passenger revenue.

In Ex Parte No. 168, Increased Freight Rates, 1948, 272 I.C.C. 695, 276 I.C.C. 9, the Commission reviewed the changing attitudes it has adopted concerning the role of passenger deficits and freight rates. In such cases as the Five Per Cent Case, 31 I.C.C. 351, the Commission in 1914 concluded that each class of service should completely and independently provide its own proportionate share of expenses and profits. In 1949 the Commission says:

'However, because of changed theories adopted by Congress in     the Transportation Act, 1920, and because as a practical matter the increasing degree of      unprofitableness of the passenger traffic menaced the      continuity of an adequate national system of transportation,      we were forced to a more comprehensive view of this question. We observe, also, that at the time of those decisions the     railroads enjoyed a practical monopoly in supplying      transportation, but that situation no longer exists.' 276      I.C.C. at 34.

Citing with approval its similar views in Ex Parte No. 103, Fifteen Per Cent Case, 1931, 178 I.C.C. 539, and Ex Parte No. 123, Fifteen Per Cent Case, 1937-1938, 226 I.C.C. 41, the Commission summarizes its present position as follows:

'These cases are typical of our more recent holdings upon     this question. While we regard it as 'trite to say that each     particular service, coach, sleeper, parlor car, and head end,      should as nearly as may be pay its own way and return a      profit' (Eastern Passenger Fares in Coaches, 227 I.C.C. 17,      25), and we have accepted the contention that there may be      traffic that should not be burdened with a shortage of      passenger service return (Livestock, Western District Rates,      190 I.C.C. 611, 629), yet, if passenger service inevitably      and inescapably cannot bear its direct costs and its share of      joint or indirect costs, we have felt compelled in a general      rate case to take the passenger deficit into account in      adjustment of freight rates and charges. Both the freight and     passenger services are essential, and revenue losses or      deficits on the one necessarily must be compensated by      earnings on the other if the carriers are to continue      operations. Both may be subjected to reasonable rates and     charges to produce the fair aggregate return, even though      thereby a higher rate of return may be exacted from the one      than from the other. (Property Owners' Committee v. Chesapeake & O. Ry.     Co., 237 I.C.C. 549, 565.)' Id., at 35. See also, Ex Parte     87, Revenues in Western District, 113 I.C.C. 3, 23.

This change of policy was the inevitable consequence of steadily increasing passenger operating costs, together with the growth of vigorous competition from automobiles and other forms of transportation which made it futile to compensate for the passenger deficits by increasing passenger rates. The railroads were forced to abandon passenger mileage, reduce service and improve their facilities, while fixing passenger rates at a level as adequate as competition permitted.

In recent years, a nationwide passenger deficit has been obvious except during the peak of wartime passenger traffic. The ratio between passenger operating expense and revenue has varied in different areas but has been uniformly unfavorable to the railroads.

Section 15a(2) of the Interstate Commerce Act and the National Transportation Policy of 1940 reflect this broad concept of the unity of the Nation's transportation system. They direct the Commission to consider, among other things, the need, in the public interest, of adequate and efficient railway transportation service and the need of revenues sufficient to sustain such service. It permeates such general revenue proceedings as Ex Parte Nos. 162 and 166, supra. It leaves no ground for a claim that the Commission may not give weight to passenger revenue deficits in prescribing interstate freight rates to meet over-all revenue needs. See United States v. Louisiana, 290 U.S. 70, 54 S.Ct. 28, 78 L.Ed. 181.

The question remains whether that Commission may give weight to deficits in passenger revenue (either interstate or intrastate) when prescribing intrastate freight rates under § 13(4). It is conceivable that some considerations properly given weight by the Commission in prescribing interstate freight rates in a general revenue proceeding might not be applicable equally to transportation within a particular state.

In the instant case, however, there is no showing that the character of operating conditions in Florida intrastate passenger traffic differs substantially from that of interstate passenger operations in the southern territory generally. On the contrary, the Commission observes that-

'Increased passenger deficits, by reason of the continuing     rise in operating expenses and the growing use of other froms      of transportation, is a condition bearing alike upon      intrastate and interstate rates. There is here no claim or     showing that the passenger deficits of the respondents do not      result from intrastate as well as interstate operations, and      the passenger deficit of the East Coast, which operates      entirely within Florida, would appear to indicate to the      contrary.

'The record affords no justification for a difference in     treatment in this respect (passenger deficits) between      Florida intrastate traffic, on the one hand, and interstate      traffic to and from Florida, on the other hand. The question     of passenger deficits is a serious one for both carriers and      shippers, and would become even more serious for interstate      shippers if this burden were imposed entirely upon them      (rather than being shared on a like basis with intrastate      shippers on the same lines).' 278 I.C.C. at 67-68. See     opinion below, 101 F.Supp. at page 944.

It appears from the report in Ex Parte No. 168, 276 I.C.C. at 40, that, in 1948, the passenger service operating ratio for the southern territory was 127.3% while the operating ratios of the three principal Florida railroads in that year were 120%, 127% and 128%. In Florida, moreover, the discontinuance of railroad passenger service would not permit the discontinuance of high speed tracks and equipment because of the need for fast freight schedules to transport perishable fruits and vegetables from Florida. The Commission dealt with the freight and passenger revenues and properties of the Florida roads as a whole when determining the need for increases in interstate freight rates. Nothing has been demonstrated which would demand different treatment of these properties in relation to the intrastate activities.

The Commission also finds that 'the Florida intrastate rates (without the 5% increase) * *  * are abnormally low and are not contributing their fair share to the revenues required by respondents (Florida railroads) to enable them to render adequate and efficient service and to operate profitably, and thereby accomplish the purpose of the Interstate Commerce Act *  *  * .' Finding No. 5, 278 I.C.C. at 72.

In the instant case there is no evidence which would require the Commission to treat Florida intrastate rates differently from interstate rates in southern territory. Instead, there are findings that it would cause unjust discrimination against interstate commerce in Florida if the intrastate freight rates are not increased so as to reflect the same increase as is applied by the Commission to like interstate traffic in the southern territory. See note 13, infra.

The same National Transportation Policy applies to § 13(4) as to § 15a(2). Whichever section is used, the same economic considerations underlie the relation between freight rates and passenger deficits, whether interstate or intrastate. This was well considered throughout the opinion of the Court in United States v. Louisiana, supra. It was there said:

'This court has consistently held that this section (§ 13(4))     is to be construed in the light of section 15a(2) and as      supplementing it, so that the forbidden discrimination      against interstate commerce by intrastate rates includes      those cases in which disparity of the latter rates operates      to thwart the broad purpose of section 15a to maintain an      efficient transportation system by enabling the carriers to      earn a fair return. So construed, section 13(4) confers on the Commission the power     to raise intrastate rates so that the intrastate traffic may      produce its fair share of the earnings required to meet      maintenance and operating costs and to yield a fair return on      the value of property devoted to the transportation service,      both interstate and intrastate.' 290 U.S. at pages 74-75, 54      S.Ct. at page 31.

This was confirmed in Florida v. United States, 292 U.S. 1, 5 6, 54 S.Ct. 603, 605, 78 L.Ed. 1077.

We conclude that there is no reason why the Commission may not give weight to passenger deficits in prescribing the intrastate freight rates in Florida, as it does in prescribing interstate freight rates for the southern territory.

Several of the Commission's findings which lend support to its order are printed in the margin. Its authority to prescribe the rates now before us rests on the provision, in § 13(4), that when it finds that an intrastate rate causes 'any undue, unreasonable, or unjust discrimination against interstate or foreign commerce * *  * ' it shall prescribe such rate as, in its judgment, will remove the discrimination. Note 1, supra. The Commission's finding No. 7 meets this requirement. The Commission there finds that the maintenance of the existing intrastate rates within Florida 'on bases lower than those herein approved causes and in the future will cause, (1) in all instances, unjust discrimination against interstate commerce * *  * .' 278 I.C.C. at 73. If supported by adequate subsidiary findings, the ultimate finding thus sustains the authority of the Commission and the validity of its order. North Carolina v. United States, 325 U.S. 507, 514, 65 S.Ct. 1260, 1264, 89 L.Ed. 1760; Florida v. United States, 292 U.S. 1, 54 S.Ct. 603, 78 L.Ed. 1077; Id., 282 U.S. 194, 51 S.Ct. 119, 75 L.Ed. 291; United States v. Louisiana, 290 U.S. 70, 54 S.Ct. 28, 78 L.Ed. 181. The court below adds that it is 'clear from the evidence in the case that it (the existing intrastate rate) did result in undue, unreasonable and unjust discrimination against interstate commerce * *  * .' 101 F.Supp. 941, 945.

The nature and adequacy of the findings necessary to support an ultimate finding of 'unjust discrimination against interstate commerce' were considered in North Carolina v. United States, supra. In that case this Court held that the Commission's findings were not adequate to support the Commission's order to raise state-wide intrastate passenger rates from 1.65 cents per mile to 2.2 cents per mile, although the latter rate was prescribed by the Commission as a minimum rate for comparable interstate passenger service on the same lines and trains. The finding which was primarily needed, and was there found lacking, was one that the intrastate service at 1.65 cents per mile did not contribute its fair share of the earnings required to meet maintenance and operating costs and to yield a fair return on the value of the property directed to the transportation service, both interstate and intrastate.

This Court held that the mere disparity between the rates for comparable intrastate and interstate service was not enough per se to establish the requisite unjust discrimination. Confronted with evidence that the interstate rate of 2.2 cents per mile was above a reasonable rate level for comparable intrastate passenger service, a finding supported by evidence was held to be necessary to show the contrary. Such a finding, lacking in the North Carolina case, is supplied here by finding No. 3, which states that the 'intrastate rates * *  * herein approved will not exceed a just and reasonable level.' 278 I.C.C. at 72.

In the North Carolina case there was no finding that the existing intrastate rate was inadequate. In fact, its ample adequacy was indicated by evidence of an extraordinarily large volume of available traffic and profits. In contrast, the Commission, in the instant case, has found that the existing 'Florida intrastate rates * *  * which are below the (proposed) level herein authorized, are abnormally low and are not contributing their fair share to the revenues *  *  * and that the burden thus cast upon interstate commerce is undue to the extent that these intrastate rates *  *  * are less than they would be on the basis herein approved.' Finding No. 5, id., at 72-73, and see 45-59. The report adds that 'the revenue loss as estimated by the respondents (railroads) because of the failure to authorize the increases herein sought is $915,325 a year.' Id., at 65.

Whereas in the North Carolina case there was evidence to indicate that the conditions in that State were more favorable to profitable intrastate transportation of passengers than in the Nation at large, here the Commission's finding No. 2 expressly states that 'the transportation conditions incident to the intrastate transportation of freight in Florida are not more favorable and such conditions in the Florida peninsula are somewhat less favorable than those (1) within southern territory and (2) between Florida and interstate points.' Id., at 72, and see 63-67.

Supporting the conclusion that the proposed increase in the Florida intrastate freight rates will not drive away business but will prove profitable and reasonable, the Commission in its finding No. 6 says that 'the establishment of intrastate rates * *  * increased sufficiently to equal the level herein approved will substantially increase respondents' (railroads') revenues therefrom, and will constitute not more than a fair proportion of respondents' total income *  *  * .' Id., at 73.

The foregoing findings cover the needs emphasized in the North Carolina case. They go far beyond the bare disparity between the existing intrastate rate and the proposed minimum rate which is in substantial uniformity with the interstate rate. These findings demonstrate that the proposed rate in Florida will be within the zone of reasonableness and, in the opinion of the Commission, will cause the intrastate freight traffic to contribute a fair share of the earnings.

The Commission has applied to the Florida operations the same conclusion it reached as to the need for increased revenue on a national basis and has distributed the burden within Florida along the same lines it followed when estimating the revenues available in the southern territory from intrastate as well as interstate operations. In the absence of any showing that it is not applicable to Florida, the evidence which forms the basis of the Commission's nationwide order becomes the natural basis for its Florida order.

The Commission in the instant case has provided that these 'findings are without prejudice to the right of the authorities of the State of Florida, or any other interested party, to apply for a modification thereof as to any specific intrastate rates * *  * on the ground that they are not related to the interstate rates *  *  * on like traffic in such a way as to contravene the provisions of the Interstate Commerce Act.' Id., at 74. Certain of the rates in the original order already have been modified or removed from that order. 101 F.Supp. at page 946.

No question has been raised here as to the adequacy of the evidence upon which any of the findings are based. Although no such point is urged, supporting evidence appears in the record of the 'full hearing' under § 13(4), all of which was introduced in evidence in the court below. Much of the factual material that was before the Commission in Ex Parte No. 162 and Ex Parte No. 166, and the reports in those cases, were before the Commission and the court below in the present proceedings. To permit such material and reports to be applied under § 15a but not under § 13(4) would be contrary to the complementary nature of those sections.

'The decision in the first proceeding, that the increase in     interstate rates was reasonable, was made in the hope that      the state commissions would bring intrastate rates into      harmony. When they failed to do so, the Commission reaffirmed     its finding that the new interstate rates were reasonable and      found that the intrastate rates must be raised in order that      the intrastate traffic may bear its fair share of the revenue      burden. It is plain from the nature of the inquiry that the     rate level, to which both classes of traffic were raised, was      found reasonable on the basis of the traffic as a whole. Where the conditions under which interstate and intrastate     traffic move are found to be substantially the same with      respect to all factors bearing on the reasonableness of the      rate, and the two classes are shown to be intimately bound      together, there is no occasion to deal with the      reasonableness of the intrastate rates more specifically, or      to separate intrastate and interstate costs and revenues. Compare American Express Co. v. State of South Dakota ex rel. Caldwell, 244 U.S. 617, 37 S.Ct. 656, 61 L.Ed. 1352; United     States v. Louisiana, supra (290 U.S. 70, 54 S.Ct. 28, 78      L.Ed. 181); Florida v. United States, supra (292 U.S. at page      1, 54 S.Ct. 603, 78 L.Ed. 1077).' Illinois Commerce      Commission v. United States, 292 U.S. 474, 483-484, 54 S.Ct. 783, 786-787, 78 L.Ed. 1371. See, also, Montana v. United     States, D.C., 106 F.Supp. 778, 783.

The appellants point out that in the North Carolina case, this Court mentioned the absence of other findings. Those, however, are not needed to sustain an order already supported by such findings as have been made in this case.

For example, the North Carolina case mentions the absence in that case of a finding that the existing 1.65 cent per mile intrastate passenger rate was confiscatory. Such a finding, supported by competent evidence, would have provided a constitutional ground for enjoining the state rate. See Norfolk & Western R. Co. v. Attorney General Conley of West Virginia, 236 U.S. 605, 35 S.Ct. 437, 59 L.Ed. 745; Northern Pacific R. Co. v. North Dakota, 236 U.S. 585, 35 S.Ct. 429, 59 L.Ed. 735. The Interstate Commerce Commission's jurisdiction over intrastate rates, however, is not limited to cases where those rates are confiscatory. It is sufficient that the existing intrastate rates cause 'unjust discrimination against interstate or foreign commerce * *  * .' In that event, § 13(4) directs the Commission to prescribe intrastate rates that will remove the discrimination without raising the rate beyond the zone of reasonableness. See United States v. Louisiana, supra, 290 U.S. at pages 74-75, 54 S.Ct. at page 31, 78 L.Ed. 181; Florida v. United States, 282 U.S. 194, 211, 51 S.Ct. 119, 123, 75 L.Ed. 291; Wisconsin R. Commission v. Chicago, B. & Q.R. Co., 257 U.S. 563, 585-586, 42 S.Ct. 232, 236, 66 L.Ed. 371.

Similarly, the North Carolina case mentions, but does not make indispensable, the specific findings in dollars which were absent there. Reference was made in the North Carolina case to the absence of 'findings as to what contribution from intrastate traffic would constitute a fair proportion of the railroad's total income' and also to the absence of any 'finding as to what amount of revenue was required to enable these railroads to operate efficiently.' 325 U.S. at page 516, 65 S.Ct. at page 1265, 89 L.Ed. 1760. The Court emphasized the Commission's reliance on 'the mere existence of a disparity between what it said was a reasonable interstate rate and the intrastate rate fixed by North Carolina.' Ibid. In the instant case the Commission does not rely upon the mere disparity between the intrastate and interstate rates. On the contrary, the Commission states that the Florida intrastate rates 'are abnormally low and are not contributing their fair share to the revenues required * *  * to render adequate and efficient service and to operate profitably, and thereby accomplish the purpose of the Interstate Commerce Act *  *  * .' Finding No. 5, 278 I.C.C. at 72. Also, in finding No. 6, it says that the establishment of the proposed increases in intrastate rates 'will substantially increase respondents' revenues therefrom, and will constitute not more than a fair proportion of respondents' total income * *  * .' Id., at 73. More is not needed. It is not necessary, for general revenue purposes, to establish for each item in each freight rate a fully developed rate case.

'(T)he administrative arm of the Commission (would be) paralyzed, if instead of adjudicating upon the rates in a large territory on evidence deemed typical of the whole rate structure, it were obliged to consider the reasonableness of each individual rate before carrying into effect the necessary increased schedule.' United States v. Louisiana, 290 U.S. 70, 75-76, and see pages 78-79, 54 S.Ct. 28, 31, and see pages 32-33, 78 L.Ed. 181. See also, Illinois Commerce Commission v. United States, 292 U.S. 474, 483, 54 S.Ct. 783, 786, 78 L.Ed. 1371; Florida v. United States, 292 U.S. 1, 9, 54 S.Ct. 603, 606, 78 L.Ed. 1077; Georgia P.S.C.ommission v. United States, 283 U.S. 765, 774, 51 S.Ct. 619, 622, 75 L.Ed. 1397; Wisconsin R. Commission v. Chicago, B. & Q.R. Co., 257 U.S. 563, 588, 42 S.Ct. 232, 237, 66 L.Ed. 371. Where the Commission seeks to deal generally with rates and revenues in a large area on evidence typical of the area as a whole, it may proceed by way of a general order supported by sufficient evidence applicable to the whole territory. At the same time it is well for it to leave the way open, as it did here, for modifications of that general order in specific situations where the general order is not justly applicable. North Carolina v. United States, supra, 325 U.S. at pages 518, 535, 65 S.Ct. at pages 1266, 1274, 89 L.Ed. 1760.

For these reasons, we conclude that the findings before us sustain the order of the Commission and that the Commission was authorized to give the weight it did to passenger deficits when prescribing intrastate freight rates. The judgment accordingly is affirmed.

Affirmed.

Mr. Justice BLACK is of opinion that the facts found by the Commission were not adequate to support the order and would set aside the order on authority of North Carolina v. United States, 325 U.S. 507, 65 S.Ct. 1260, 89 L.Ed. 1760.

Mr. Justice DOUGLAS, with whom Mr. Chief Justice VINSON concurs, dissenting.