United States v. Great Northern Railway Company (343 U.S. 562)/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. 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. 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). 96 F.Supp. 298. The relevant statutes are set forth in the margin. 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.

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 short-hauling problem presupposes the existence of alternate rail connections, such a problem cannot arise in this case where the Montana Western is the only carrier serving Valier.

Appellants would have the Court ignore the fact that the financial assistance prohibition stands as a separate sentence in Section 15(4). Certainly that sentence is grammatically capable of independent significance. And it may be noted that the sentence is directed to a specific problem that arose in the administration of the Commission's power under Section 15(3) and (4) to establish through routes-a problem quite separate from that presented by the restrictionagainst short hauling. This different problem arises when a carrier asks the Commission to establish a through route, not primarily to serve any need of the shipping public for additional routes, but because the carrier needs additional revenue which it seeks to obtain by diverting to its own line traffic served by other routes. The question presented in such a case is whether the Commission's power to establish through routes 'in the public interest' extends to establishing through routes, with the resulting rearrangement in the movement of rail traffic, for the purpose of meeting the financial needs of a carrier. This question was presented in the through route litigation that led to the 1940 revision of Section 15(4) and was repeatedly raised during the legislative consideration of the amendments to Section 15(4).

As revised in 1940, Section 15(4) deals at length with the short-haul problem and, in addition, contains the separate sentence prohibiting the establishment of through routes for the purpose of assisting a carrier to meet its financial needs. Since this prohibition stands an an independent sentence dealing with an independent problem, we cannot accept appellants' suggestion that the sentence can be ignored unless a short-hauling problem is also involved in the case.

Third. Although the prohibition against establishment of through routes and joint rates applicable thereto for the purpose of assisting a carrier to meet its financial needs cannot be read as limited to short-hauling situations, it by no means follows that the prohibition may be read as applicable to all Commission orders establishing joint rates.

The Interstate Commerce Act contemplates the existence of through routes in the absence of joint rates. And this Court expressly has approved the Commission's consistent recognition of the existence of through routes whether the through rates applicable thereto are joint rates or combinations of separately established rates. As a result, the establishment of joint rates is an act separate and distinct under the statute from the establishment of through routes. In this case, the Commission ordered the establishment of joint rates over through routes, Valier to Minneapolis for example, which were already in existence on a combination of proportional rates. Under the Commission's order, the same cars would move over the same racks to the same destinations and at the same through rates a § before. It is a matter of little concern to shippers whether combination rates or joint rates at the same level are charged, so long as the through route continues to be available. Whatever theories may be advanced as to determining the existence of a through route where no traffic passes over the route, see Thompson v. United States, 343 U.S. 549, 72 S.Ct. 978, it is not questioned that through routes over the Montana Western and appellee's lines long have been in existence. These through routes were not established by the Commission in this case.

Commission action establishing joint rates in lieu of combination rates for service over through routes is a proper form of regulation. It is crucial to this case that the financial-needs prohibition of Section 15(4) does not limit the Commission's power to establish joint rates generally, but deals only with the power to establish a 'through route and joint rates applicable thereto', i.e., those joint rates applicable to a through route established by the Commission. Since the order in this case did not establish a through route, Section 15(4) does not affect the Commission's power in this case. And, because joint rates published by two or more carriers are by definition always applicable to a through route over the lines of those carriers, reading the financial assistance prohibition as affecting this order establishing only joint rates for existing through routes would render the words 'applicable thereto' surplusage, attributing to Congress a useless and misleading use of words.

It is one form of regulation to redistribute revenues between connecting carriers by determining divisions of revenues received on existing through routes. The economic ramifications are quite different if the Commission establishes through routes which divert traffic to the lines of a financially weak carrier. Such action not only serves to assist that carrier financially but can also, at the same time, cause important changes in the movement of traffic, diverting traffic to a new geographic area at the expense of other carriers and other areas. Congress amended Section 15(4) to prohibit tinkering with through routes for the purpose of assisting a carrier to meet its financial needs. But the provision of Section 15(4)-the restrictions against short hauling, the financial-needs prohibition and the emergency route provision-all deal with the Commission's power to establish through routes.

Congress could well have prohibited the Commission from considering financial needs in issuing any order under Section 15(3). This was proposed in one bill and expressly rejected by a congressional committee. Or, Congress could have prohibited consideration of financial needs in ordering establishment of joint through routes where through routes were in existence, as was also proposed. Instead, Congress adopted a provision prohibiting reliance on financial needs only in respect to orders establishing through routes. It is our judicial function to apply statutes on the basis of what Congress has written, not what Congress might have written. Where, as here, the Commission did not establish through routes, Section 15(4) has no application.

Beginning with the Transportation Act of 1920, Congress has regulated the railroads not only to prohibit such abuses as excessive and discriminatory rates but also with the purpose of assuring adequate transportation service. The New England Divisions Case, supra. The relationship between this transportation policy and the power of the Commission to prescribe divisions of joint rates was described by the Court in United States v. Abilene & Southern R. Co., 1924, 265 U.S. 274, 284-285, 44 S.Ct. 565, 568, 68 L.Ed. 1016:

'It is settled that in determining what the divisions should     be, the Commission may, in the public interest, take into      consideration the financial needs of a weaker road, and that      it may be given a division larger than justice merely as      between the parties would suggest 'in order to maintain it in      effective operation as part of an adequate transportation      system,' provided the share left to its connections is      'adequate to avoid a confiscatory result.' Dayton-Goose Creek      R. Co. v. United States, 263 U.S. 456, 477, 44 S.Ct. 169,     (171), 68 L.Ed. (388); New England Divisions Case, 261 U.S.     184, 194, 195, 43 S.Ct. 270, (274, 275), 67 L.Ed. 605.'

The power of the Commission to establish joint rates is similarly essential to the congressional policy of assuring adequate transportation service, as expressly stated in the New England Divisions Case, supra, 261 U.S. at 194-195, 43 S.Ct. at pages 270-275, 67 L.Ed. 605. The Transportation Act of 1940 reenacted the provisions of the Interstate Commerce Act implementing that policy and added that the Act was to be administered so as to develop, coordinate, and preserve an adequate 'national transportation system.' Since the financial assistance prohibition of Section 15(4), added by the Transportation Act of 1940, restricted the Commission's power over joint rates only in respect to those joint rates applicable to through routes established by the Commission, the Commission's power to establish joint rates over existing through routes remains unimpaired.

As a result, the Commission is empowered, in the public interest, to cause a redistribution of revenue between two carriers participating in transportation of through traffic. It is immaterial, from the viewpoint of the public, whether the revenue was obtained by charging joint rates established by agreement of the carrers or by a combination of separately established rates. And, from the viewpoint of the national transportation system, it is immaterial whether an independently owned rail line is saved from abandonment by such a redistribution of revenue or whether permission to abandon a branch of a main line carrier is denied on the basis of a similar reallocation of revenue. Just as the Commission may examine into the value of a branch line as 'feeding' additional traffic to the main line of a single carrier, the value of the Montana Western as producing traffic for appellee need not be disregarded by the Commission. Indeed, the Montana Western's value in producing profitable traffic for appellee is shown by the fact that appellee was willing to continue and even increase its financial support while the Montana Western itself chose to seek abandonment.

We hold that the District Court erred in enjoining the Commission's order as prohibited by Section 15(4). Apart from the question of the Commission's power to establish joint rates, the Commission's order establishing joint rates and divisions in this case is attacked for want of essential findings and for lack of substantial evidence justifying continued operation of this particular carrier. Since it is the practice of this Court not to review an administrative record in the first instance after finding that a lower court has applied an incorrect principle of law, the case is remanded to the District Court for further proceedings not inconsistent with this opinion.

Reversed and remanded.

Mr. Justice BLACK, Mr. Justice JACKSON and Mr. Justice BURTON concur in the result.