American Commercial Lines, Inc. v. Louisville & Nashville R. Co.

PETITIONER:American Commercial Lines, Inc.
RESPONDENT:Louisville & Nashville R. Co.
LOCATION:United States District Court of Maryland

DOCKET NO.: 797
DECIDED BY: Warren Court (1967-1969)
LOWER COURT:

CITATION: 392 US 571 (1968)
ARGUED: Apr 23, 1968 / Apr 24, 1968
DECIDED: Jun 17, 1968

Facts of the case

Question

  • Oral Argument – April 24, 1968
  • Audio Transcription for Oral Argument – April 24, 1968 in American Commercial Lines, Inc. v. Louisville & Nashville R. Co.

    Audio Transcription for Oral Argument – April 23, 1968 in American Commercial Lines, Inc. v. Louisville & Nashville R. Co.

    Earl Warren:

    Number 797, American Commercial Lines Incorporated versus Louisville and Nashville Railroad Company et al.

    Number 804, American Trucking Association versus Louisville and Nashville Railroad Company.

    Number 808, The American Waterways Operators versus Louisville and Nashville Railroad Company and Number 809, Interstate Commerce Commission versus Louisville and Nashville Railroad Company.

    Mr. Goodman.

    Leonard S. Goodman:

    Mr. Chief Justice and may it please the Court.

    In this case, the Pennsylvania Railroad, now the Penn Central Transportation Company and other railroads sought to cut their rate on ingot molds which are iron forms in which molten steel is cast from $11.86 per ton to $5.11 per ton to capture traffic that had moved for a decade by combination barge and truck service.

    The Commission found that the new railroad rate would impair an inherent cost advantage of the barge-truck mode of transportation.

    The Commission ordered the railroads to cancel the offending rate.

    The District Court of three judges reversed the Commission’s decision and the Commission is here today on direct appeal.

    This is the first rate case to reach the courts involving the standards governing the fair competition between regulated carriers of different modes of transportation since this Court’s decision in the New Haven case.

    Interstate Commerce Commission versus New York, New Haven and Hartford decided in 1963 reported in 372 of the United States Reports.

    The New Haven case was the first in which this Court addressed itself to the role of the Commission in overseeing rate competition among different modes of transportation following the 1958 Amendments to the Interstate Commerce Act.

    Like the New Haven case, the present case involves the meaning of the 1958 Amendment to Section 15 (a) (3) of the Act.

    The Amendment added this language.

    Rates of a carrier shall not be held up to a particular level to protect the traffic of any other mode of transportation giving due consideration to the objectives of the National Transportation policy declared in this Act.

    And the particular objective of the transportation policy that is here in issue again like New Haven is the recognition and preservation of inherent cost advantages as between competing modes of transportation.

    When the present case was before the Commission, the railroads and the barge lines followed strictly the format described in the New Haven case for presenting the issue of which mode possesses an inherent cost advantage.

    The railroads first showed that their newly reduced rate of $5.11 would more than cover their long-term out of pocket costs of $4.69 and hence the reduced rate was just unreasonable from the standpoint of railroad revenue requirements.

    They then showed their full cost of carrying this traffic to be $7.59 that is the out of pocket cost of $4.69 plus a share of the constant expenses of running the railroad.

    The barge-truck mode then claimed an inherent cost advantage and brought forth data relating to its own cost.

    The barge-truck mode showed that the railroads were reducing their rate below the barge-truck full cost of $5.19 and they are on a full cost basis.

    The barge-truck mode possessed an inherent cost advantage.

    The railroads countered by saying that no cost comparison should be made.

    They then said that if one is to be made, the costs on the barge side should include the governmental cost of improving the water rights of way or the Commission should ignore on the rail side of the equation, all rail constant costs.

    The Commission held it would not follow either of the railroads suggestions.

    Determination of inherent cost advantage requires a cost comparison.

    William O. Douglas:

    None of these roads are land railroads, are they?

    Leonard S. Goodman:

    I don’t know the answer to that question.

    Citing a proceeding in which it had given more detailed consideration to the question of what costs are relevant to a comparison between railroads and barge lines, the Commission held that it would adhere to a comparison of full costs of the two competing modes and down the basis — on the basis of such a comparison here the rail rate impaired the barge lines low cost advantage and should be cancelled.

    When the case came before the lower court, the lower court held agreeing with the railroads that no comparison of rates was necessary or proper as a matter of law since the railroad rate of $5.11 more than covered the rail out of pocket costs of $4.69.

    Leonard S. Goodman:

    The Court held that as a matter or law, the Commission was powerless to order the railroad rate cancelled.

    Byron R. White:

    What is the comparable figure for the barges or was there one that ascertains that’s so called out of pocket or was it just fully distributed.

    Leonard S. Goodman:

    There was no comparable out of pocket figure ascertained on this record for the barge —

    Byron R. White:

    Did the barges are normally the same as fully distributed?

    Leonard S. Goodman:

    In the New Automobiles case, the Commission had a footnote to the effect that the barge full cost is approximately 90% variable and the Commission’s formula with respect to truck costs also relies upon a 90% factor.

    Byron R. White:

    What does that mean?

    Leonard S. Goodman:

    That means that the out of pocket cost are roughly 90% of this $5.19.

    Potter Stewart:

    Much higher percentage then for the railroad.

    Leonard S. Goodman:

    Much higher.

    Potter Stewart:

    Yeah.

    Leonard S. Goodman:

    Yes.

    The lower court cites the issue of what costs are relevant to comparing cost of different modes and of measuring inherent cost advantages of different modes.

    The opinion below contradicted the plain meaning of the statute in relying upon what was profitable for the proponent of the rate.

    Section 15 (a) (3) requires the Commission to give due consideration to the National Transportation Policy.

    The policy in turn requires the Commission to recognize and preserve inherent advantages of each mode subject to its regulation.

    Besides this due consideration required on the face of Section 15 (a) (3), the final sentence of the National Transportation Policy itself requires the Commission to administer the entire act in accordance to the requirements of the policy.

    As this Court stated in the Schaffer Transportation case decided in 1957, the policy provides a yard stick by which the correctness of the Commission’s action will be measured.

    The Commission could not properly end its inquiry as the lower court required us to do with the finding that the rate would benefit the railroads.

    The lower court’s decision that the Commission was required to end its inquiry with the finding that the rate would benefit the railroads was contrary to the decision of this Court in the New Haven case.

    This Court specifically stated that the Commission’s task does not end upon finding that a reduced rate will benefit the proponent of the rate.

    As this Court stated in the New Haven case, the precise example given to the Senate Committee which led to the language adopted in 1958 was a case in which the railroads by establishing a compensatory rate forced a smaller competing lower cost mode to go below its own fully distributed cost and thus perhaps to go out of business.

    This Court stated that the principal purpose of the reference to the National Transportation Policy that was contained in Section 15 (a) (3) was to emphasize the Commission’s power to prevent the railroads from setting a rate which would impair or destroy the inherent advantages of competing modes of transportation and the precise example given by this Court of how this impairment might occur in the normal case was by the railroads forcing a competing mode with a cost advantage on particular transportation to establish a non-profitable rate in order to attract traffic.

    (Inaudible)

    Leonard S. Goodman:

    I’m sorry.

    (Inaudible) cases that specific reservation held.

    Leonard S. Goodman:

    Well, this Court held in New Haven Mr. Justice Harlan that the Commission must weigh the effect of the rail rate reduction on competing carriers.

    Well, I am suggesting to you is New Haven précised question that you brought here, which is why I am (Inaudible).

    Leonard S. Goodman:

    If the précised question here Your Honor is in terms of how you measure an inherent advantage of what group of cost you used then I would agree with you.

    This was not reached in New Haven but the lower court has created a rule of law that you look only to the profitability of this rate to the proponent of the rate.

    Now, that question we submit was reached in New Haven and this Court held in New Haven that you do not look only to the profitability of the rate to the proponent but the Commission has a further task.

    Leonard S. Goodman:

    Now, the appellees in the lower court rely heavily on the Commission’s 1945 decisions in the New Automobiles case.

    Of course this Court in New Haven referred to New Automobiles as a case whose result was particularly favored by Congress in 1958 but appellees in the lower court received no comfort to the New Automobiles decision.

    New Automobiles was cited in Congress only for the proposition that rail rates should not be held up merely to make certain that all modes participate in the traffic.

    This is the only principle of New Automobiles that Congress endorsed as this Court expressly stated in New Haven.

    The New Automobiles was cited by Congress in opposition to the cases in which the Commission had held that in its judgment, certain rail reductions were lower than necessary to meet competition without reference to inherent cost advantages.

    And Congress in 1958 sought to give new emphasis to protecting these advantages.

    In looking only to the costs of the proponent of the rate to decide the lawfulness of the rate, the lower court gave to the railroads in this case what years of law being before Congress had failed to attain.

    We suggest that the ruling below does not differ from two of the so-called three shall nots which Congress rejected in the 1950s and which this Court discussed in the New Haven case.

    The railroads lobbied for years that the Commission and I quote, “Shall not consider the effect of such charge on the traffic of any other mode of transportation or the relation of such charge to the charge of any other mode of transportation.”

    These were the first two of the three shall nots.

    These shall nots died in committee only to be revived in the ruling of the lower court.

    The lower court sought to remove what it called a restriction on competition with its ruling and to free the railroads to operate that were beneficial to themselves.

    The lower court improperly assumed, we submit, improperly assumed that Congress legislated in 1958 exclusively to further competition between the modes of transportation and to remove cost comparisons from rate proceedings.

    We submit such is not the case again as this Court stated in New Haven.

    The principle reason for the reference back to the National Transportation Policy in Section 15 (a) (3) was to emphasize the Commission’s power to prevent the railroads from impairing the inherent cost advantages of competing modes of transportation by rate cutting.

    In the New Haven case, the Department of Justice acknowledged that the Commission must compare costs and protect the carrier having the lower fully distributed costs.

    In fact so strongly did the department believed that the inherent advantage of lower full costs must be protected from impairment that it would have imposed the differential favoring the barge lines that had lower full costs.

    Byron R. White:

    In what page was this?

    Leonard S. Goodman:

    This was in the New Haven case in the brief of the Department of Justice.

    In terms of the present facts, the department then would have prohibited the railroads from charging anything less than $7.51 on ingot molds.

    In contrast, the department has filed a brief in the present case arguing that as a matter of law, the carrier with a lower full cost should be stripped of all protection and the railroads may file any rate that benefits themselves indeed down to $4.69, the railroads own out of pocket cost level.

    Byron R. White:

    Government — did the Government and the — what if —

    Leonard S. Goodman:

    The principle of the —

    Byron R. White:

    I think — on this, on what comes with the one involved —

    Leonard S. Goodman:

    The Government won the New Haven case to the extent that the Government urged that the Commission should take steps to protect the inherent cost advantages of the mode of transportation in competition with the railroad.

    The same sort of steps which the department would now have the Commission abandoned.

    Strangely, the department’s brief says nothing of this inconsistency with its New Haven position.

    More strangely still is the department’s current position contrary to the decision of this Court in New Haven that the Commission has no power either to recognize an inherent cost advantage on the level other than out of pocket cost or to stop the railroads from making unduly lower rates that impair another mode’s cost advantage.

    The department in fact would ignore the Commission has been rate power.

    It would turn the clock back about 50 years when the Commission could only stop the railroads from again increasing an unduly low rate.

    Leonard S. Goodman:

    Consistent with the prior decisions, the Commission here found that a comparison of the full cost of each mode must be made to determine which mode has an inherent cost advantage and that it would exercise its minimum rate power to cancel a rate that impaired such an advantage.

    The Congress have the request of the Commission did not lay down any test of inherent cost advantage as a matter of law.

    Significantly, the only time that Congress addressed itself to the question was to consider whether full costs should be adopted as a matter of law for every case.

    In New Haven, this Court implied that a full cost comparison would be an appropriate measure of inherent cost advantages but it stated explicitly that the choice among different measures was one of utility and one for the Commission to make.

    The inherent cost advantage that Congress primarily concerned itself with was no secret from the parties to this case.

    Senator Wheeler had stated in 1940 during the course of the legislative history of the Transportation Act of that year.

    When the — and this I quote, “When the Bill speaks of inherent advantages of the shipping interest, it refers to carriers which can transport at a cheaper rate because they can ship by water by way of canals and the ocean so they have natural advantages and they do not have the expense of the upkeep of the rights of way as railroads do.

    It was this absence of right of way costs that Congress specially sought to preserve as a recognized cost advantage of water carriers and the railroad witnesses in the present case also recognize the barge lines cost advantage in relation to the railroads only to urge that the Commission should permit the railroads to defeat disadvantage.

    In their view, the Commission should either ignore rail constant costs altogether or increase barge line costs by the amount of the Government cost of improving the waterways and the railroads repeat on brief in this Court that only some of their right of way costs should enter into the comparison.

    Here, the Commission simply incorporated the discussion of this issue contained in the earlier Green case.

    Commission had their help that full cost has actually born by the water carriers and not hypothetical costs should be used to compare the cost of railroads and water carriers.

    The congressional policy has been to exempt inland water carriers from user charges and hence to exempt shippers by water from paying for the waterways.

    The Commission therefore refused to compare cost of operation as if the water carriers did in fact pay user charges.

    It simply recognized and preserved the existing cost advantage of the water carriers and consistent with its ruling in the Green case.

    The Commission here both refused to increase the water carrier cost by any part of the Government’s cost of building, improving or maintaining the inland waterways and refused to decrease the railroads cost to remove any part of the railroad right of way cost.

    Byron R. White:

    Why should the Commission — if it was going to say that the limit of the railroad’s ability to compete on these rates is to make sure that the low cost carrier of the barges by your definition wasn’t able to recover their fully distributed cost.

    Why wouldn’t the — why shouldn’t the ICC have just set a differential and say — you wouldn’t say that — you wouldn’t necessarily concluded the railroads couldn’t go below their fully distributed cost.

    Leonard S. Goodman:

    No.

    Byron R. White:

    This is so you couldn’t deprive the barges of their fully distributed cost.

    Leonard S. Goodman:

    Yes.

    Byron R. White:

    So that would mean that if matching the rate took all the freight, there should be a differential.

    Leonard S. Goodman:

    Mr. Justice White, the Commission was not asked to set a differential in this case.

    The whole question of service advantages was out of the case.

    In fact, in this decision and on this record, the railroads are left free to assert whatever service advantages they have.

    The Commission’s decision just doesn’t reach your question.

    Byron R. White:

    Well —

    Leonard S. Goodman:

    It was not raised as an issue by any party.

    We were not asked to establish differentials.

    We were not asked to prescribe a railroad rate.

    Byron R. White:

    Is there anything in the Commission’s opinion that would include the railroads from setting a rate of $6.00?

    Leonard S. Goodman:

    Not in the present opinion.

    Byron R. White:

    You don’t think that they’re prevented from going below $7.00 or whatever their fully distributive costs are?

    Leonard S. Goodman:

    Fully distributive cost of $7.59.

    The present opinion merely orders the railroads to cancel a rate of $5.11.

    That’s the full scope of the —

    Byron R. White:

    Because that’s depriving —

    Leonard S. Goodman:

    Depriving the barge lines of an inherent advantage —

    Byron R. White:

    Because they are the low cost carrier.

    Leonard S. Goodman:

    They are the low cost carrier.

    Byron R. White:

    As measured by fully distributive cost.

    Leonard S. Goodman:

    Yes.

    The full distributive cost of the barge lines, here being $5.19.

    If the Court please, the Commission in its report and in its brief has not stated that fully distributive costs are the only measure of inherent cost advantage nor that full costs are the only way to protect the obvious inherent cost advantages of the barge lines.

    The Commission in its report refers to the limited record before it.

    It refers to the railroad’s request for an out of pocket standard that would amount to a radical departure from precedent and it states that more detailed consideration will be given to the entire question in a broad rule making proceeding that is in fact still pending before the agency.

    And the Commission in its brief also shows that a full cost comparison was not even necessary to the result reached by the Commission that the railroads here are the high cost mode of transportation even if we set to one side the entire group of railroad constant costs and draw from that group only the constant right of way costs and add those constant right of way costs to the out of pocket costs of the railroads even in that sort of comparison, the railroads are the high cost mode of transportation.

    What we do emphatically urge is this.

    First, that the Commission’s task in overseeing the competition between railroads and other modes of transportation does not end when the Commission has found that a particular railroad rate is beneficial to the proponent railroads.

    Secondly, the Commission must compare the costs of competing carriers in order to recognize cost advantages.

    Third, the task of recognizing and preserving inherent cost advantages is an administrative task, not a judicial task.

    And finally that on this limited record, the Commission exercised a rational choice of full costs rather than out of pocket cost in making this comparison of costs and rationally held that the rail rate reduction below the barge-truck full cost level unlawfully impair the low cost advantage enjoyed by the barge-truck mode.

    Abe Fortas:

    As I understand it, you — your submission is based on the proposition that the statute confines the Commission to comparative cost advantages however they maybe defined.

    You listed four points and every one of them had to do with the comparative cost.

    Leonard S. Goodman:

    This case involves in a question of service advantages.

    Abe Fortas:

    I — I understand that but I say that how about other competitive factors or larger factors that relate to a competitive situation or other element stated in the National Transportation Policy, are those out in this kind of case?

    Leonard S. Goodman:

    Oh, no.

    Abe Fortas:

    This kind of case?

    Leonard S. Goodman:

    By no means, Your Honor.

    Abe Fortas:

    But well —

    Leonard S. Goodman:

    They’re not out.

    Leonard S. Goodman:

    They’re not —

    Abe Fortas:

    You just said — you just listed four factors.

    Leonard S. Goodman:

    Yes.

    Abe Fortas:

    And every one of them had to do with cost comparison.

    Leonard S. Goodman:

    True.

    Abe Fortas:

    Now, my question to you is as the Commission construes and applies the statute in determining a case of this sort comparing railroad and barge-truck service.

    Leonard S. Goodman:

    Yes.

    Abe Fortas:

    Does the Commission confine itself to — compared to cost factors or does it take into account other elements?

    If it takes into account other elements, what are they and did it do so here?

    Leonard S. Goodman:

    Well, the other elements are as you have stated Mr. Justice Fortas listed in the National Transportation Policy and in Section 15 (a) (3) but they were not — they’re not involved in this case.

    This is a very narrow case involving the protection of the carrier cost —

    Abe Fortas:

    When you say they are not involved here, you mean the Commission didn’t take it into account.

    It didn’t place any emphasis on them.

    Is that what you’re saying, so far as what the Commission did here that based solely on cost comparison?

    Leonard S. Goodman:

    Well, there is some — I think that’s accurate.

    Abe Fortas:

    Although there are other statutory standards that are relevant and that define the Commission’s power, are you saying that too?

    Leonard S. Goodman:

    I say that no other statutory standards are involved in this case.

    Abe Fortas:

    That’s not what I ask you.

    I said, are there other statutory standards that are relevant to the exercise of the Commission’s power in this type of situation?

    Leonard S. Goodman:

    Well, Section 15 (1) of the Interstate Commerce Act —

    Abe Fortas:

    Which says what as replied in here?

    Leonard S. Goodman:

    Which involves a — the Commission’s power to prescribe, to determine a just and reasonable rate is involved and that we are not limited to a Section 4 sort of power in which we can only limit a railroad after the fact and not permit the railroad to increase a rate.

    In other words, under Section 15, we can’t — we do have power over — we have a minimum rate power.

    Abe Fortas:

    Isn’t the Commission also required to take into account the preservation of the two — of the competing modes?

    What is that language of the transportation policy?

    Leonard S. Goodman:

    Recognize — it’s on page 3 of the Government’s brief.

    Abe Fortas:

    In your brief?

    Leonard S. Goodman:

    Yes.

    Page 3.

    Abe Fortas:

    Does the Commission take into account a promotion of a sound, adequate, economic and efficient service in determining this kind of issue?

    Abe Fortas:

    Does it or does it not?

    Leonard S. Goodman:

    Yes, it does in certain cases.

    Abe Fortas:

    But it did not here?

    Leonard S. Goodman:

    This case does not involve the rendition of a particular service.

    Abe Fortas:

    I understand that but I would assume that rate has a great deal to do with whether the barge lines for example will survive and well, on the other end whether the railroads will survive.

    But you tell me that all the Commission does here regardless of this broad statutory language is to take into account the comparative cost factors.

    Leonard S. Goodman:

    Oh!

    No.

    I understand your question and I’m sorry.

    Abe Fortas:

    I’m sorry, I tried to make it clear but I obviously haven’t succeeded.

    Leonard S. Goodman:

    Now, there are findings in this report and the Commission has stated that the rail rate would, in addition to impairing a cost advantage of the barge lines, also lead to a destruction of the barge lines that in that sense, it is a — it is destructive of the barge service.

    Abe Fortas:

    Well now, did the Commission take that into account in this case or not?

    Leonard S. Goodman:

    Yes, sir.

    Abe Fortas:

    Well, why did you say it took into account only the cost factors?

    Or do I misunderstand you totally?

    Leonard S. Goodman:

    Well, the cost factor also determines the type of consideration that the Commission gave to the destructiveness of the competition here.

    Byron R. White:

    It also means that the railroad has to recover its full cost some place else.

    Leonard S. Goodman:

    Yes, sir.

    Earl Warren:

    We’ll adjourn now.