Southern Railway Company v. North Carolina – Oral Argument – January 14, 1964

Media for Southern Railway Company v. North Carolina

Audio Transcription for Oral Argument – January 15, 1964 in Southern Railway Company v. North Carolina

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Earl Warren:

Number 74, Southern Railroad Company, Appellant, versus North Carolina et al.

Mr. Ginnane.

Robert W. Ginnane:

Mr. Chief Justice, may it please the Court.

These consolidated appeals, one by the United States in the Interstate Commerce Commission and Number 93 and the other by the Southern Railroad Company, in Number 74, are from the judgment of a three-judge District Court sitting in North Carolina.

I am appearing on behalf of the United States and the Interstate Commerce Commission.

I’m sharing the appellant’s time with Colonel Joyner, Counsel for the Southern Railroad Company.

The judgment of the court below did two things.

It set aside an order of the Interstate Commerce Commission under Section 13a (2) of the Interstate Commerce Act which authorized the Southern Railroad Company to discontinue the operation of two passenger trains between Greensboro and Goldsboro, both points in North Carolina.

And secondly, the judgment below, prominently and perpetually, enjoined Southern from discontinuing the operation of these two trains.

Section 13a was enacted in 1958, as a part of the Transportation Act of 1958.

For the first time, it authorized the Commission to permit the discontinuance of particular train services as distinguished — as distinguished from the total abandonment of a line of railroad.

How long is this (Inaudible)

Robert W. Ginnane:

This line of — this line of railroad, Greensboro to —

(Inaudible)

Robert W. Ginnane:

129 miles.

Paragraph (1) of Section 13a deals with the discontinuance of trains operated from a point in one State to a point in another State that is, which I would refer to as interstate.

Now, paragraph (2) here involved the deals with discontinuance of trains operated wholly within the boundaries of a single State.

Last term this Court in New Jersey v. New York, Susquehanna & Western Railroad, had occasion to interpret and apply that dichotomy as between paragraph (1) and paragraph (2).

Paragraph (2) provides that where a State authority has denied a railroad application for permission to discontinue an interstate train or where the local commission has failed to act upon such an application, for 120 days, then the railroad is authorized to petition the Interstate Commerce Commission for permission to discontinue the service of the train.

And 13a (2) further provides that the Commission may grant such authority, only after full hearing and upon findings by it that the present or future public convenience and necessity permit as such discontinuance and that the continued operation of such train will constitute an unjust and undue burden on the interstate operations of the carrier or upon interstate commerce.

In this case, the North Carolina Commission had previously denied an application by Southern under state law for authority to discontinue the trains.

And the action of the State Commission was sustained by the Supreme Court of North Carolina.

After that, Southern filed a petition with the — with the Interstate Commerce Commission under Section 13a (2).

After a hearing at which the State and other protestants appeared and participated, the Commission hearing examiner issued a detailed report, it appears in the record at page 25, in which he recommended that Southern be authorized to discontinue these two trains.

Following exceptions of the examiner’s report, Division 3 of the Commission, consisting of three commissioners, issued its report and in which had adopted the examiner’s findings of fact and conclusions and stated its views on certain of the issues presented by the parties.

According to the precise operating facts, these two trains operate.

Actually, it’s the same set of equipment operating once a day in each direction.

They operate between Greensboro and Goldsboro which they — I say, both points in North Carolina, with intermediate stops, including Raleigh and Durham.

The distance — the total distance is about 129 miles.

There’s a map at page 79 of the record which Your Honors may find of assistance in visualizing the physical problem involved, page 79 in — in volume 1 of the printed record.

Robert W. Ginnane:

The green line represents part of the Southern Railway system.

The branch here involved from Greensboro over to Goldsboro has been underlined in red.This is Southern’s main line, going up through Greensboro.

The blue line is the main line of the seaboard moving through Raleigh, approximately midpoint on this branch line.

And this yellow line moving through Selma is the main line of the Atlantic Coast Line Railroad.

These two trains constitute the only rail passenger service remaining on this Greensboro-Goldsboro branch.

They consist of a locomotive, a passenger car, a combination of passenger baggage express car.

Also, they include a pullman sleeper, which operates only between Raleigh and Greensboro.

The sleeper is switched into other Southern Railroad trains at Greensboro so as to provide through sleeping car service to Washington.

As a matter of fact, the appellees state in their brief that this through pullman sleeper car service is the principal public convenience still served by these two trains.

Potter Stewart:

That’s from Raleigh to Washington, it doesn’t the —

Robert W. Ginnane:

It would be from Raleigh over to Greensboro —

Potter Stewart:

Yes.

Robert W. Ginnane:

— on this line.

Potter Stewart:

And then northbound —

Robert W. Ginnane:

Then — then the car would be switched in the northbound trains on Southern’s main line.

Potter Stewart:

Well, now, in the — does a pullman know on the — on both of these trains, in other words, in each direction?

Robert W. Ginnane:

That’s right.

So they have two sleeper services via Greensboro to Raleigh, north — both northbound and southbound.

Both the hearing examiner and the Commission found that the operation of these trains results in a net loss to Southern.

And that their discontinuance would result in actual annual savings considerably in excess of $90,000 a year.

It found that the public use of the trains had declined sharply since 1948.

For example in 1948, both trains carried 56,700 passengers, an average of 77 per train — per trip.

While in 1950, they carried 14,700 passengers, an average of 20 per trip.

During the same period, the passenger revenues per trip declined from $82 to $28.

Now, both the hearing examiner and the Commission noted the fact that on the five months — first five months of 1961, the latest figures in the record, that there had been an increase in the average number of passengers from 20 to 29 and on the passenger revenue per trip from $28 to $35, but it noted that this increase was largely due to movements of school children.

And even assuming that such an increase was neither temporary nor seasonal, the Commission found that during those first five months of 1961, there were total passenger revenues for the two trains of $10,600 and that that was less than one-third of merely the train and engine crew wages of $36,000 to — for getting fuel every station expense and everything else.

The revenues were less than one-third of the direct crew and engine wages.

The examiner made detailed findings, adopted by the Commission, as the alternative transportation service which would be available upon the discontinuance of these two trains.

And that will be discussed in some detail, if the Court please, by Colonel Joyner, with whom I’m sharing the argument.

The Commission found that the cost to the carrier of operating the trains greatly exceeds the benefit derived by the traveling public and that the public would not be materially inconvenienced by the discontinuance of the trains.

Robert W. Ginnane:

Thereupon, it made the basic findings required by the statute that public convenience and necessity permit the discontinuance.

And that their continued operation would impose unjust and undue burden upon Southern’s interstate operations and upon interstate commerce.

Now, the court below based its judgment on two grounds.

It said, “As a matter of law, we think that the ICC cannot be said to have made a proper finding unless it takes into account the profits that Southern Railway makes in its freight operations on the same intrastate line,” that is on this Greensboro-Goldsboro segment.

And the court went on to compute by a method which we will show to be fallacious, that in 1960, this Greensboro-Goldsboro segment made a net freight operating profit of $630,000 as compared with the direct passenger loss of $90,000.

And the court made its own finding that taking into account, total operation of this line, again, meaning the Greensboro-Goldsboro line.

There is a profit, not a loss, a benefit, not a burden.

And then it went on, having found that there was no burden, to make its own independent determination that convenience on this public convenience necessity required maintenance of the service.

We think the court erred in both respects.

We submit that the court erred in holding that under Section 13a (2), the Commission could not authorize the Southern to discontinue these two trains without considering whether freight operations, over this particular branch line, produce sufficient earnings as a whole so that the whole branch operation made a fair contribution to Southern’s overall financial condition.

And we submit that the court erred in making its own independent evaluation of the facts as to burden and as to public use and need of the service.

If the Court please, I shall devote my share of the argument largely to our contention as to the proper construction of 13a (2).

But first, I think it maybe necessary to clarify what that question is.

I say that because in the brief filed by the Railway Labor Executives’ Association, as amicus curiae, they state that the District Court held that it was error for the Commission to conclude that their was an undue burden without taking into account the total financial results of operation of the trackage involved and the overall prosperity of Southern, that is this Southern system-wide operations.

And a similar suggestion appears in the brief of the North Carolina interest.

Now, it’s true that at page 640, the court of the — the lower court does appear to be saying that.

But after a detailed discussion and analysis, the court makes itself clear as follows –What page did you say?

At 640, the record at 640.

The lower court uses language which seems to support our allies’ statement of issue.

But thereafter, after detailed analysis and discussion and at page 654, the court makes clear what it’s holding in these terms at page 654.

The court says, “But it is unfair to compare the loss from a particular segment of a passenger rail line to the total profit of the company nor is this the test.”

The question is whether the particular segment, which they meant Goldsboro — Greensboro here.

The test is whether the particular segment of the railway involved is contributing its fair share to the overall company operations.

So we submit that the question — that the real question of statutory construction, presented by the decision below, and certainly the one we thought we will bring into the Court, was whether under Section 13a (2), the Commission may authorize the discontinuance of passenger trains operated over a particular branch or segment of track, without determining whether freight operations over that particular branch or segment, produce a profit or a deficit.

Earl Warren:

(Inaudible)

Robert W. Ginnane:

No.

Earl Warren:

(Inaudible)

Robert W. Ginnane:

Well, to begin with —

Earl Warren:

(Inaudible)

Robert W. Ginnane:

— the — the standards are the same —

Earl Warren:

(Inaudible)

Robert W. Ginnane:

— in both paragraph (1) and paragraph (2).

Earl Warren:

(Inaudible)

Robert W. Ginnane:

Theoretically, except that the Commission is required —

Earl Warren:

(Inaudible)

Robert W. Ginnane:

— as — as on the abandonment statute to — to bounce the burden against the public’s need for service and it does so.

Earl Warren:

(Inaudible)

Robert W. Ginnane:

Theoretically.

I can give you — I can give you one brief figure to show what actually happens in the last fiscal year for which I have figures, 1962 and in proceedings under the — this 13a (2), intrastate trains.

The Commission authorized the discontinuance of 15 trains and required the continued operation of 51.

So well —

Earl Warren:

(Inaudible)

Robert W. Ginnane:

— well, the quantum of passenger service is diminishing in this country, it is not — it is not disappearing overnight and will not.

Earl Warren:

(Inaudible)

Robert W. Ginnane:

(Inaudible)

William J. Brennan, Jr.:

But the Commission has (Voice Overlap) —

Robert W. Ginnane:

The — the balance between the use and need for the service and — and the burden of providing.

Turning to the language of the statute, we think that alone is dispositive here.

Under 13a (2), the Commission was find that the continued operation of such train will produce the unjust or undue burden.

The burden is to be measured by the operating results of the train, not by a branch line.

But the economic and legislative history we think, make this even clearer.

When Congress enacted Section 13a in 1958, it was dealing with the specific and relatively recent form of ways to transportation resources.

It was dealing with the revolution in passenger transportation.

By 1957, intercity passenger traffic in the United States, which was just before 13a was enacted, had the following concestor, rail, 3.7%, motorbus, 3.5%, air, 3.9%, private automobile, 88%.

And with this decline in public patronage, that service began to produce substantial deficits which were interrupted only briefly in World War II years.

According to the Commission studies, by 1956, the annual aggregate railroad passenger deficit amounted to about $700 million.

So when Congress turned the railroad problems in 1958, one of its primary concerns was to reduce — to alleviate this huge debilitating financial drain on the railroad system.

As the House Committee put it a major cause of the worsening railroad situation is the unsatisfactory passenger situation.

Not only is the passenger end of the business not making money, it is losing a substantial portion of that produce by freight operations, where this passenger service cannot be made to pay its own way because of lack of patronage at reasonable rates, abandonment seems called for.

The Senate Committee put it that the maintenance and operation of such outmoded services and facilities constitutes a heavy burden on interstate commerce.

Robert W. Ginnane:

We think that supports the little (Inaudible) of Section 13a (1).

But Congress was concerned — the Congress itself found that the operation of passenger trains, not much patronage and of a heavy deficit, by itself, creates a burden on interstate commerce.

That has not be operation — the total operations of a branch line you’ll look at to — to find the burden, you’ll look to the operation of the particular services.

As a matter of fact, the real issue before Congress, the real fighting issue, was not whether the Commission should be empowered to authorize the discontinuance of losing passenger services but whether it should be required to do so.

That issue arose out of the fact that as the bill, which contained 13a (2), was reported from both the Senate and House Committee — Commerce Committees.

It provided that the Commission could not require the continued operation of a train, unless it found that service was required by public convenience necessity and that such operation will not result in a net loss therefrom to the carrier.

At that point, once the carrier showed a net loss, as the carrier did here in the operation of a particular train, it have the unfettered right to take it off.

Now, this net loss standard was objected to particularly by Senator Javits from a great commuter state, who feared and he was right just among face of the language that it would leave the Commission powerless to prevent the discontinuance of deficit commuter trains on which some large cities heavily depend.

And he unsuccessfully, that is in the Senate, proposed deletion of the net loss standard in favor of, to use his words, giving ICC a balanced authority to deal with the situation, both in respect of losses and in respect to the public in way of convenience necessity.

Eventually, in the Conference Committee, the net loss standard was deleted in favor of the present standard to Section 13a.

And in the Senate debate approving the conference bill, Senator Javits remarked that now, the Commission would have to look at the overall situation of the entire railroad in order to determine the inequity of requiring it to continue a particular commuter branch.

But there was not a word in all of this debate.

There was not a word to suggest that in determining whether a particular passenger service constitutes a loss.

The Commission must also look to freight operations on that particular branch or segment of traffic, not a word.

Now, we submit there are also practical reasons which precluded the interpretation of the lower court.

And that’s this, whether or not Southern’s freight operations between Greensboro and Goldsboro produce a profit is quite fortuitous that has no necessary relationship to the — to the public’s need for — for passenger service.

There might — it — it might be losing money on freight service.

But — concede with them — it could be an overwhelming public need for the passenger service.

So we think our — that the Commission’s power to require the continuance of passenger services, for which there’s a substantial need, should not be made to hinge on it but purely fortuitous factor of how profitable freight — how freight — how profitable freight operations happen to be on that particular branch.

The court below, in arriving at its interpretation of Section 13a (2), relied very heavily upon a transfer to Section 13a (2) of this Court’s construction of the somewhat different standards in Section 13 (4), which deals with the Commission’s powers to prescribe the intrastate freight rates and particularly with the interpretation prior to the amendment of Section 13 (4) in 1958.

The lower court’s reasoning is extensive and somewhat complicated but I would summarize it, and I hope fairly, this way.

Prior to 1958, in the Milwaukee case in 355 U.S. and the Utah case in 356 U.S., this Court held that under Section 13 (4), the Commission must make findings with respect to the results of all of a railroad’s intrastate operations, all commodities, freight, passenger, before it may conclude that a particular intrastate rate creates unfair discrimination against interstate commerce.

Thereupon, the court below concluded that this passenger train discontinue its cases under 13a (2), standing in a fortiori relationship to Section 13 (4) cases which are described as the existing law applicable to discontinuance matters.

Well, at this point, the Court had to recognize that in 1958, following this Court’s Milwaukee and Utah decisions, Congress amended Section 13 (4) extensively.

But the language which we contend makes unnecessary in intrastate rate cases, any findings by the Commission as to the results of the railroad’s total intrastate operations.

So the court below found decisive significance in the — in the fact that in enacting Section 13a (2), in the same Transportation Act of 1958, Congress had not there provided with equal specificity that an intrastate train discontinue its cases.

The Commission need not consider the results of all of the railroad’s intrastate operations within the particular State.

We discussed this leg of the court’s opinion in some detail on our brief.

But I like to make two points with respect to that rational now.

There was no ICC power with respect to train discontinuance as distinguished from total abandonment prior to 1958.

Robert W. Ginnane:

Secondly, even consuming the validity and we don’t.

Now, the court’s analysis of Section 13 (4) and its treatment by this Court and its amendment by Congress, it simply doesn’t support the result the lower court arrived at because no principle of looking to all of the results of a — of a carrier’s intrastate operations, ties in with the lower court’s principle that you must look to all the carriers in operations on a particular branch line.

They’re just entirely different things.

So we submit that both the language of Section 13a (2), its literal language, perhaps more important, its obvious economic regulatory purpose, its specific legislative history stand for the proposition that the Commission in passing upon applications for train discontinuance and this would be the same where there was an interstate train or intrastate train and the standards are the same, is to look at two things, the burden that — upon the carrier of — of providing the particular deficit passenger service versus the public’s need and use of that service.

Potter Stewart:

The — the first criterion, the burden upon the carrier certainly does have something to do with the carrier’s overall profit-loss statement, doesn’t it?

Robert W. Ginnane:

The Commission has indicated, it was in a commuter case involving Alabama’s commuter services to New Orleans that when it is dealing with a passenger service for which there’s a substantial demand and where alternative — alternative methods of transportation are not readily apparent, that it will — that it will look to the carrier’s overall financial position.

And I –What — if that is so, (Inaudible)

That will be the — I understood him to refer to the overall — to the profitability of the carrier’s total system operations.

Now, the court below held that that wasn’t a test.

They said that you — you’ll look to the total operations on the particular branch line or segment and for that, we respectfully submit there is no basis in — in the statute or its history.

I would like to discuss briefly some collateral matters.

At page 17 of the North Carolina brief, it is contended that Southern leases the Goldsboro-Greensboro branch from the State of North Carolina and that the lease requires continuance of passenger service, as the court below held that the law is settled that any such lease is subordinate to the power of Congress to regulate interstate commerce.

I’d like to refer briefly and critically to the lower court’s method of computing a freight profit of $630,000 on — under this branch line.

It was done by multiplying Southern’s system-wide average freight earnings per mile by a figure of 61% because it was — it was said that the average traffic density on that branch was 60% of Southern’s system-wide average density.

It was such a computation wholly ignores the effect of traffic volume on profits in an industry with high fixed cost.

And worse view — worse yet, the computation of profits included both interstate and intrastate freight movements.

A theory which we don’t believe can be supported under any interpretation of the statute.

And finally, I’d like to refer to the appellee’s argument that consideration must be given to the circumstance that 58% of Southern’s losses on these trains is offset by income tax reductions.

As to this, we think the court below correctly and pungently dispose of it by noting that uneconomical transportation is not rendered less so by passing a portion of the burden to Federal and State Governments in the form of reduced income taxes.

And citing forth very pertinently we think this Court’s Purcell decision in 315 U.S.

I’m yielding the time to Mr. Joyner.

Earl Warren:

We’ll recess now Mr. —