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TEXAS & PACIFIC RAILWAY CO. ET AL. v. UNITED STATES ET AL.

decided: May 29, 1933.

TEXAS & PACIFIC RAILWAY CO. ET AL
v.
UNITED STATES ET AL.



APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF TEXAS.

Hughes, Van Devanter, McReynolds, Brandeis, Sutherland, Butler, Stone, Roberts, Cardozo

Author: Roberts

[ 289 U.S. Page 630]

 MR. JUSTICE ROBERTS delivered the opinion of the Court.

The Galveston Commercial Association complained to the Interstate Commerce Commission that carload commodity rates on import, export and coastwise traffic between a portion of western classification territory and Galveston were unreasonable, and their relationship with those to and from Houston, Texas City, Beaumont, Port Arthur, and Orange, Texas, and New Orleans, La., was unduly prejudicial to Galveston.*fn1 The claim of unreasonableness

[ 289 U.S. Page 631]

     was abandoned as was also the assertion of discrimination in favor of the other Texas ports. The latter intervened and prayed the same relief as might be accorded Galveston in respect of rate relationship with New Orleans. The issue was therefore narrowed to one of prejudice to them and preference of New Orleans. Railroads serving the Texas ports and various shippers and commercial bodies intervened in support of the complaint; interests connected with the port of New Orleans and shippers intervened in opposition.

The Commission found that export and import rates on fourteen commodities from or to points in Arkansas, Texas, Oklahoma, southern Kansas, and Louisiana west of the Mississippi River, were unduly prejudicial to Galveston and unduly preferential of New Orleans. In all instances where the distance to Galveston is less than the distance to New Orleans by not over one hundred miles it permitted equal rates; but for differences in distance exceeding one hundred miles it prescribed certain named minimum differentials in favor of Galveston.*fn2

On rehearing the prior decision was modified by including the other Texas ports with Galveston in the finding of undue prejudice; substituting a twenty-five per cent. difference in distance for the 100-mile basis; exempting from the scope of the order rates to or from points on the Texas & Pacific and the Louisiana Railroad & Navigation Company;*fn3 exempting rates on petroleum

[ 289 U.S. Page 632]

     and its products; and making certain other changes not here material.*fn4

The proceeding was later reopened for the purpose of deciding whether the Texas & Pacific and the L. R. & N. should continue to be exempted. The Commission reversed its previous finding and included them within its orders.*fn5 Both carriers filed bills in the District Court to enjoin the enforcement of all the orders except in so far as the second exempted them from the finding of preference and prejudice. The cases were consolidated, and upon final hearing before three judges the bills were dismissed.*fn6 The plaintiffs, Texas & Pacific and L. R. & N., and also the State of Louisiana, the New Orleans Traffic Bureau and other intervenors appealed.

The Texas ports are served by some half dozen lines which either themselves or through their connections reach the areas of origin or destination embraced in the Commission's order. Generally speaking their routes trend north rather than east of Galveston. The Southern Pacific is the only carrier serving both Galveston and New Orleans. Texas is also connected with New Orleans by the Gulf Coast Lines, by the Texas & Pacific, extending east from El Paso through Dallas and Fort Worth to Shreveport, La., and thence southeast to New Orleans, and by the L. R. & N., which connects eastern Texas and western Louisiana with that port. Several other lines extend between New Orleans and western Louisiana, Arkansas, Kansas, and Oklahoma.

With minor and immaterial exceptions the carriers serving the Texas ports and New Orleans have for many years equalized the import and export commodity car-load rates between the territory embraced in the Commission's orders and Galveston and New Orleans. The gravamen

[ 289 U.S. Page 633]

     of the complaint is that in many instances the distance to New Orleans is so much greater than that to the Texas ports, and the increased haul so important a part of the service rendered, that this factor should be reflected in a fixed differential in rates. The Commission's order prescribing differentials is challenged only in so far as it compels the Texas & Pacific and the L. R. & N. to establish rates to New Orleans higher by the amount of the fixed differentials than those charged between the same interior points and the Texas ports. Inasmuch as the assertion of unreasonableness was withdrawn and the Commission made no finding that the Galveston rates were unreasonable, the prohibitions of § 1 of the Act to regulate commerce, as amended, are not involved.*fn7 The evidence failed to show that the rates of the Texas & Pacific and the L. R. & N. on export and import shipments to and from New Orleans were not compensatory. The Commission refused to find that they were so low as to cast a burden on other traffic. There was therefore no basis for an order fixing minimum reasonable rates under § 15 (1) of the Act.*fn8 The parties agree that authority for the order must be found in § 3 (1), which is:

"It shall be unlawful for any common carrier . . . to make or give any undue or unreasonable preference or advantage to any particular person, company, firm, corporation, or locality, or any particular description of traffic, in any respect whatsoever, or to subject any particular person, company, firm, corporation, or locality, or any particular description of traffic, to any undue or unreasonable prejudice or disadvantage in any respect whatsoever."*fn9

The appellants contend that in the circumstances disclosed the ports as such are not localities preferred or

[ 289 U.S. Page 634]

     prejudiced, but that if they may be so denominated the Texas & Pacific and the L. R. & N. can not be held responsible for any undue prejudice to the Texas ports, since they do not reach those ports with their own lines or control the rates to or from them. They also assert that the orders violate Article I, § 9, of the Constitution, which prohibits any regulation of commerce giving preference to ports of one State over those of another; are without support in the evidence, and arbitrary.

The cause has been twice argued; it was first presented at the October Term, 1931, and on account of the importance of the questions involved a reargument was ordered and was had at the October Term, 1932.*fn10 Statement of certain facts and settled principles will tend to clarify and define the issues presented.

The traffic with which we are concerned does not move on through bills of lading, but the movement is, nevertheless, from points of origin to a foreign or coastal destination, or vice versa, and is, therefore, essentially through transportation. Compare Binderup v. Pathe Exchange, 263 U.S. 291, 309. As the Commission said in this case, "A port is neither the destination nor the origin of traffic passing through it. It levies toll on the traffic, in substantially the same manner as do common carriers, in its charges for the use of its facilities in the transfer of traffic between the rail and water carriers."

[ 289 U.S. Page 635]

     Although the shipper in the first instance consigns the commodity to the port and a separate contract is made for ocean carriage, the through rate none the less consists of the rail rate to the port, plus the ocean freight, which is the same from all Gulf ports.*fn11

The choice of route is determined solely by the rail rates from or to the ports. If these are equalized the shipper has an option; but if they are disparate the route through the port taking the higher rate is necessarily excluded. A very slight differential in the rail rate, in some instances as little as a fraction of a cent per hundred pounds, will divert the traffic through the port so advantaged. The application of a distance scale to the rail rate automatically precludes shipment through the more distant port.

Long prior to the passage of the Act to regulate commerce the railroads, recognizing this situation, and desiring to hold to their own lines the traffic running to ports which they served, equalized rates through the ports reached by their own lines with those maintained by their rivals to other ports, or established differentials in favor of their own ports in order to retain a portion of the competitive export business. And a carrier serving two ports has for like reason fixed an equal or lower rate to the more distant of the two, solely to meet the competition of rivals who reached it by more direct routes. These practices have not been indulged either to aid or to harm a port as such, but solely to obtain or retain business for the carrier's own line.*fn12 With the abstract fairness of such adjustment

[ 289 U.S. Page 636]

     neither the Commission nor the courts have any concern. This is not to say, however, that the rates promulgated are beyond the Commission's jurisdiction. While that body has no control over the ocean rate, it has power to compel a reasonable charge for the rail haul. Compare Armour Packing Co. v. United States, 153 Fed. 1; News Syndicate Co. v. New York Central R. Co., 275 U.S. 179, 186-7.*fn13 As the carriers are in competition for the business they may, within the zone of reasonableness,*fn14 prescribed by the statute, adjust their rates so as to obtain or retain the desired traffic for their own lines. Interstate Commerce Comm'n v. Alabama Midland Ry. Co., 74 Fed. 715, 723-4; 168 U.S. 144, 172-3; Skinner & Eddy Corp. v. United States, 249 U.S. 557, 564; United States v. Illinois Central R. Co., 263 U.S. 515, 522.

The theory of the Act is that the carriers in initiating rates may adjust them to competitive conditions, and that such action does not amount to undue discrimination; Texas & Pacific Ry. Co. v. Interstate Commerce Comm'n, 162 U.S. 197. There the charging of rates on import traffic moving from a port on through bills of lading, much lower than those fixed for domestic transportation, was held not to amount as matter of law to discrimination forbidden by § 3. The carrier showed, in justification of the lower rates on import traffic, that unless these were permitted water and rail-and-water competition would divert the traffic away from the port of New Orleans and the carrier's lines extending from that

[ 289 U.S. Page 637]

     port. Since that decision it has been recognized that export and import shipments, although not made on through bills, might lawfully be transported at rates below those charged for domestic traffic between the same points.*fn15 The same purpose not to stifle competition justifies relief under § 4 from the prohibition against charging the same or less for a longer than for a shorter haul. Interstate Commerce Comm'n v. Baltimore & Ohio R. Co., 145 U.S. 263, 276; Interstate Commerce Comm'n v. Alabama Midland Ry. Co., 168 U.S. 144, 164; Louisville & N. R. Co. v. Behlmer, 175 U.S. 648, 671; Intermountain Rate Cases, 234 U.S. 476, 483-485. And relief under the Fourth Section has been granted on this ground in respect of export and import rates. Export and Import Rates, 169 I.C.C. 13.

[ 289 U.S. Page 638]

     While the carriers may, therefore, meet competition by equalizing rates or maintaining differentials both to interior points and to ports, they may not adjust their rates with the motive of injuring or aiding a shipper, a particular kind of traffic, or a locality, for so to do is to depart from the transportation standard, conformity to which the Act contemplates, and substitute others which are prohibited. A tariff published for the purpose of destroying a market or building up one, of diverting traffic from a particular place to the injury of that place, or in aid of some other, is unlawful; and obviously, what the carrier may not lawfully do, the Commission may not compel. Southern Pac. Co. v. Interstate Commerce Comm'n, 219 U.S. 433, 444; Interstate Commerce Comm'n v. Diffenbaugh, 222 U.S. 42, 46; Ellis v. Interstate Commerce Comm'n, 237 U.S. 434, 445; United States v. Illinois Central R. Co., 263 U.S. 515, 524; Atchison Page 638} T. & S. F. Ry. v. Interstate Commerce Comm'n, 190 Fed. 591; Anchor Coal Co. v. United States, 25 F.2d 462, 471.*fn16

1. In the light of the facts exhibited by the record and the principles underlying the Act, are ports, in respect of export, import and coastwise traffic, localities susceptible of undue preference or prejudice within the meaning of § 3? The purpose of §§ 2, 3 and 4, as exhibited by committee reports and explained by those in charge of the bill in Congress, was to prevent unjust discrimination resulting from existing practices. Similar commodities were, without reason or excuse, carried at different rates. Shippers similarly situated were put on unequal terms. Producers and consumers at points of origin and destination were prejudiced by unequal treatment in the matter of rates or service. Obviously localities of origin or destination might also be prejudiced by undue discrimination. One of the most prevalent and reprehensible practices at which the Act was aimed was the charging of a less or an equal rate for a longer haul upon the same line or route. The Act was passed for the protection of those who pay or bear the rates. The standards it establishes are transportation standards, not criteria of general welfare. The word "localities," therefore, has its proper office as denoting the origin or destination of traffic and the shipping, producing, and consuming areas affected by rates and practices of carriers. The term was, however, not intended to cover a junction, a way station, a gateway, or a port, as respects traffic passing through it.

Considered as points of origin or destination any or all of these are localities within the purview of the section.

[ 289 U.S. Page 639]

     All of them may, moreover, though not considered as localities served, be involved in acts of discrimination. The situation here presented furnishes a close analogy to proportional rates or combination rates, and with respect to either of these the charge on shipments through a given gateway or port may discriminate against traffic passing through another so as to deprive a shipper of his right of choice of route through either.*fn17 In such case, however, the discrimination operates upon the shipper, not upon the port. There are through rates, proportional rates, and combination rates, applicable to traffic routed through river crossings and gateways. It seems too plain for argument that the Commission has no authority, upon a showing by a gateway that under an existing tariff too much traffic passes through another, or too little through it, to readjust the rates and prescribe differentials so as to divert traffic through the complaining gateway. The interests and industries of a gateway are not entitled thus to obtain a benefit reflected from additional traffic which would be diverted by such action of the Commission. We perceive no difference in principle as to export or import traffic routed through ports.

The legislative history of the Act demonstrates that Congress did not intend to forbid the equalization of export or import rates by lines serving several ports in order to meet competition. These rates, it was said, were not to be proportioned to the respective distances between inland origins or destinations and the ports.*fn18 Both

[ 289 U.S. Page 640]

     equalizations and differentials had for some time been maintained in the rates to various Atlantic ports. Congress was aware of this, and had no intention of interfering with the maintenance of these rate adjustments.

Appellees say, however, that the Commission has always treated ports as localities within the meaning of § 3, and exercised the power to abate discrimination by prescribing differentials in export rates. They add that though the Act has been several times amended, this section has been retained in its original form and Congress has thus sanctioned the Commission's interpretation. Where a statutory body has assumed a power plainly not granted, no amount of such interpretation is binding upon the courts. Interstate Commerce Comm'n v. C., N. O. & T. P. Ry. Co., 167 U.S. 479, 510. This we think is the situation here presented, for, as we have said, the word localities is used with reference to places of origin and

[ 289 U.S. Page 641]

     destination; its employment is not intended to permit the Commission, in its discretion, to favor or hamper a community having no such relation to the service of transportation.

Moreover we do not find that any such settled construction had been adopted or that Congress intended to sanction it. With few and occasional exceptions the Commission has not until a recent date essayed to prescribe differentials in export rates. Prior to the Hepburn Amendment in 1906, port differentials were considered in three cases.*fn19 In the first certain carriers applied for leave to equalize their export rates to Boston with those charged to New York. The petitions were dismissed on the ground that the Commission should not authorize what the carriers might lawfully do without permission. In the second, a New York trade association complained that the maintenance of differentials in export rates to Philadelphia and Baltimore voluntarily established by the carriers worked undue prejudice against New York. The Commission found they did not result in undue prejudice; though it treated the ports as localities which would be entitled to relief under a proper showing. In the third case shippers and carriers serving north Atlantic ports submitted to the Commission the question of the fairness of the current differentials, and that body acted merely as an arbitrator and not in its official capacity.

The legislative history of the Hepburn amendment discloses a clear intent not to confer power to circumscribe the adjustment of export and import rates by the carriers to meet ...


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