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NEW YORK v. UNITED STATES

May 9, 1946

STATE OF NEW YORK et al.
v.
UNITED STATES. ATCHISON, T. & S.F. RY. CO. et al. v. SAME



Consolidated suits pursuant to 28 U.S.C.A. §§ 41(28) and 43-48, inc., and also under general jurisdiction of a court of equity, by the States of New York, Delaware, Indiana, Maryland, Michigan, New Jersey, Ohio, Wisconsin and the Commonwealth of Pennsylvania, against the United States of America, and by the Atchison, Topeka & Sante Fe Railway Company and others against the United States of America, to enjoin, set aside, annul and suspend orders of the Interstate Commerce Commission requiring an increase of 10 per cent. in the class rates charged by railroads for transporting freight in so-called Official Territory and a decrease of 10 per cent. in class rates charged by railroads for transporting freight in the so-called Southern Territory, Western Trunk Line Territory, and Southwestern Territory, and corresponding changes in the interterritorial rates, wherein numerous parties in interest were permitted to intervene.

Decree entered dismissing petitions, but dismissal of petition by Western Lines is without prejudice to another suit to restrain enforcement of ad interim rates if they are found, after a fair test, to be confiscatory.

 These two suits put in issue the validity of the same orders of the Interstate Commerce Commission and were consolidated for hearing before a court of three judges constituted in accordance with provisions of the Urgent Deficiencies Act, 38 Stat. 29.

 The first was brought against the United States by the States of New York, Delaware, Indiana, Maryland, Michigan, New Jersey, Ohio, Wisconsin, and the Commonwealth of Pennsylvania to enjoin, set aside, annul and suspend orders of the Interstate Commerce Commission requiring an increase of ten per cent in what are called the class rates charged by the railroads for transporting freight in the so-called Official Territory and a decrease of ten per cent in the class rates charged by railroads for transporting freight in the so-called Southern Territory, Western Trunk Line Territory and Southwestern Territory and corresponding changes in the interterritorial rates. Parties in interest were permitted to intervene *fn1" and, after hearing, an injunction pendente lite was granted.

 Thereafter the Atchison, Topeka, and Sante Fe Railway Company and others which will be referred to as the Western Lines, *fn2" brought another petition against the United States in which the same relief was sought in respect to the same orders. Interested parties were allowed to intervene. *fn3" These two suits were heard as a consolidated action all questions relating to venue having been waived

 In order to understand the issues here presented, as well as the action of the Commission and the relevancy of the facts found by it, some preliminary statement of what was in 1939 apparently the prevailing situation in this country in respect to freight classifications and freight rates is necessary.

 For the purpose of fixing freight rates the country was, and now is, divided into the four territories already mentioned and one other which is called Mountain-Pacific Territory, and which is not involved in these suits. It covers the States of Montana, New Mexico, the western portions of Colorado and Wyoming, and all the States west of them. The other territories, which are involved in these suits, may be roughly described as follows: Western Trunk Line Territory includes the States east of Mountain-Pacific Territory, north of Oklahoma and Arkansas, and west of the Mississippi River and the greater part of Wisconsin and the northwestern portion of Michigan. Southwestern Territory includes the country south of Western Trunk Line Territory and west of the Mississippi River. Southern Territory consists of the country lying east of the Mississippi and south of the Ohio and Potomac rivers. Official Territory comprises the remainder of the country lying north of the Ohio and Potomac rivers and east of the western boundary of Lake Michigan and a line drawn diagonally therefrom to the western bank of the Mississippi River opposite Illinois. Official Territory has two subdivisions one of which includes all of New England and the other of which, known as Zone C, takes in the northern part of Michigan and a small part of Wisconsin. In the Southern Territory the greater part of Florida is a subdivision and in Western Trunk Line Territory there are Zones I, II, III, and IV. In each of these subdivisions rate differentials are applicable which vary the class rates from those in force elsewhere in the territories.

 There are different freight rates in all the territories and these are known as class rates, exceptions to class rates, column rates and commodity rates. Only the class rates are involved in these suits. They are rates based on published classifications which are lists of commodities by name grouped in designated classes. To compute a freight charge under class rates it is necessary to know the classification, the rate for that classification and then take into account factors like weight of the shipment and distance to be carried. The basic rate so fixed for Class I is applicable percentage-wise to the other classes, the rates for them being higher or lower than for Class I as the case may be. Commodity rates are special rates which have been fixed for designated commodities transported between specified points regardless of the class rates; column rates are special rates for certain named commodities which are based upon a given percentage of the class rates; and exception rates are, as their name implies, variations from the class rates. There are also key rates which apply to certain so-called key points. These differing rates, of which all but the class rates will hereafter be called for convenience special rates, have come into being because of various considerations among which have been competition between the railroads themselves, between railroads and carriers by water and by motor truck, orders issued by the Interstate Commerce Commission, which will hereafter be called the Commission, composition and amount of traffic available for carriage, cost of operation and other like relevant factors. The result is more or less of a hodgepodge at least so far as class rates are concerned and various efforts have been made to secure greater uniformity and simplicity in rate making ever since the Commission was created. Despite the efforts of the Commission and the cooperation of the railroads these efforts have heretofore been mainly fruitful only in respect to improving conditions in regard to intraterritorial rates.

 Not only have the class rates varied among the territories, but the classifications published for the several territories have been so different that like articles were, and are, often classified in one class in one territory and in a different class in the others or in one of them. All of this has brought about a most complex system of class rate fixing which has, generally speaking, produced lower class rates for Official Territory than for the others though that appears not to hold true in respect to special rates. Another result has been that a greater proportion of all freight in Official Territory moves on class rates than in the others were exception, column and commodity rates have become more prevalent, though it has come about that in all the territories only a comparatively small percentage of the entire freight carried has been on class rates. What is so carried moves both in carload, and in less-than-carload, lots and the cost of its transportation varies accordingly throughout the territories and also varies somewhat because of dissimilar conditions affecting cost of operation.

 Although the products of farm, mine and forest are by no means negligible within Official Territory, that portion of the country does in some respects stand apart from the remainder because it is there that the greatest concentration of industrial plants, population, and buying power is found. The larger and better markets which producers in general wish to reach are found there and the prevailing lack of uniformity in classifications and in class rates, in so far as they directly bear upon the cost of transportation by freight within Official Territory and interterritorially between it and the other territories, and indirectly through the special rates, was thought by many to be on the whole more favorable to Official Territory, and to shippers and receivers of freight therein, than to the other territories and their shippers and receivers of freight.

 It was against this general background that the Commission determined to institute two investigations and on July 29, 1939, issued orders which, as later modified, resulted in prolonged hearings by Division 2 of the Commission upon due notice to all parties in interest, as to the lawfulness of the classifications and of the class rates in each of the territories now involved. These investigations known as Docket No. 28300 which dealt with the rates and Docket No. 28310 which dealt with the classifications were so related that they were conducted simultaneously. The cooperation of the state commissions was sought in accordance with section 13 of the Interstate Commerce Act, 49 U.S.C.A. § 13, and a committee representing such commissions sat with the Division. The investigation became extremely comprehensive and a large amount of evidence was received which was reviewed by the full Commission. It filed a proposed report in No. 28310 providing for the creation of a uniform classification for all the territories, including that part which is now subject to what is called the Illinois classification which has some interstate application in a border area between Official Territory and Western Territory but has no interterritorial effect, to be compiled by the Commission or by the railroads for the approval of the Commission provided the railroads were willing to undertake the task. The railroads indicated their willingness to do so and the classification is now being made. That will require an enormous amount of work and will take a considerable time, perhaps years. No issues respecting that classification which is dealt with in Part I of the Report are raised now.

 Without serving a proposed report in No. 28300, the Commission filed a comprehensive report dealing with class rates to become effective when the classification is prepared and approved. This report contained numerous findings as to the characteristics of the existing rate structures, the importance of interterritorial traffic, the relative levels of class rates in each territory and the indirect results of the proposed revision. Evidence afforded by intricate and detailed cost studies made by employees of the Commission to show the relative cost of the carriage of freight in the several territories was also received and considered following revisions of the studies made in response to criticisms by interested parties. Findings were made as to interterritorial class rates, the relative levels of revenue from all freight in the Southern and Official Territories, the effect of applying the Official Territory level of all freight rates to all freight moved in Southern Territory, the relative costs and composition of all freight moved in Southern Territory, and the rates of return. The Commission also made findings as to the effect of the class rates on shippers in Southern Territory, the relative costs and composition of the traffic , the rates of return and their effect on the economic development of that territory. Findings on similar or kindred subjects were made respecting the other territories and the interterritorial freight movement among them. The costs of carload and less-than-carload service were considered and findings made as to each. Findings were made as to the effect of motor truck and waterborne freight competition, as to the effect of the special rates on movement of freight taking class rates, and of the discrepancies in the existing class rates on the attainment of uniformity in classification. There is an area geographically within Official Territory which is served by the so-called Pocahontas lines, which are predominantly coal carrying roads, that is for statistical purposes at times treated separately from the remainder of Official Territory because, though those railroads do carry freight at class rates, the bulk of their freight, being coal, is quite different in respect to the means and cost of carriage from the kinds of freight which characterize the carriage elsewhere in the territory. For like reasons Kentucky in the Southern territory was at times likewise treated separately from the remainder of Southern territory in the Report.

 The Commission then found as follows:

 '1. That the intraterritorial class rates (except as they apply to rail-and-water coastal service or relate to short-or weakline arbitraries) applicable within official, Illinois, southern, southwestern, and western trunk-line territories, are, and for the future will be, unjust and unreasonable, in violation of section 1(4) and (5) of the act.

 '2. That the interterritorial class rates in issue in this proceeding applicable between official, Illinois, southern, southwestern, and western trunk-line territories are, and for the future will be, unjust and ...


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