The Baltimore and Ohio Railroad Company v. The Alabama Great Southern Railroad Company

506 F.2d 1265, 165 U.S. App. D.C. 226, 1974 U.S. App. LEXIS 6682, 1974 WL 333591

• Court: Court of Appeals for the D.C. Circuit
• Decided: October 1, 1974
• Docket: 73-1017
• Status: Published

Opinions

WILKEY, Circuit Judge:

This case concerns intricacies of the Interstate Commerce Act and the relationship of the Act to the common law and judicial equitable discretion. The precise question is whether this court should order a retroactive readjustment of divisions of agreed joint rates. We agree, although for somewhat different reasons, with the District Judge that this question should be answered in the negative.

I. THE NORTH-SOUTH DISPUTE

At issue in this case is the proper division of joint rates on freight shipped between North¹ and South. When freight is shipped between the two regions, a single (joint) rate is charged. This rate is divided between the northern and southern railroads involved, according to the prescribed “division.” This allows the railroads better to coordinate their freight service.

Since 1953 the division between the northern railroads, such as the Baltimore & Ohio, and the southern railroads, such as the Alabama Great Southern, has been set on an equal-factor basis.² Hence, the relative share of the joint rate is the same as the relative share covered by each railroad of the total mileage which an item is shipped. If freight is shipped an equal distance on northern and southern lines, the two share equally in the joint rate charged.

In 1956, eighteen years ago, the northern railroads requested the ICC grant them higher divisions than the ratio under the equal-factor scheme, because of their belief that their costs had increased relative to the southern railroads’ costs. After nine years, the ICC granted a new division, giving the northern lines an increase in their share.³ This ICC decision was based largely on its finding of increased territorial average costs on all traffic in the North vis-a-vis the South. On review of the ICC order, however, the Supreme Court affirmed a lower court finding that there was no substantial evidence that territorial average costs were the same as comparative costs of North-South traffic,⁴ and the case was thereafter remanded to the ICC for further hearings.⁵

The ICC issued a new order in 1970,⁶ which was set aside by a three-judge federal district court in Louisiana.⁷ After remand to the ICC, the proceedings were dismissed (without prejudice) by the ICC in 1971, on the grounds that the record was stale, as it was based upon evidence of costs in 1956-59.⁸

The northern railroads began anew in 1972, and once more requested that the ICC change the division so as to increase their share.⁹ Recognizing that the ICC could only change divisions for the future,¹⁰ the northern railroads brought suit in U.S. District Court to obtain a retroactive readjustment of divisions. Considering the 16 years which by then had elapsed since the northern railroads brought their complaint against discriminatory divisions to the ICC, their desire to get into court with a prayer for retroactive, or at least contemporary, relief is understandable. As is made clear below, our difficulty is not incompassion with the equities of appellants’ plight, but a deference to the clear statutory intent plus discernible countervailing equities. In particular the northern railroads sought damages for the southern railroads’ “violations of their statutory and common law duties to maintain reasonable divisions during the period of the pending administrative proceeding.” ¹¹ The northern lines additionally suggested that determination of the reasonableness of the division during the pendency of administrative proceedings be referred to the ICC, under a primary jurisdiction theory.

The southern railroads filed an answer and a motion for summary judgment seeking dismissal for failure to state a claim upon which relief can be granted. The District Court ordered dismissal of the complaint, on the ground that section 15(6) of the Interstate Commerce Act prohibits the courts as well as the ICC from awarding retroactive changes in divisions where joint rates are agreed on by the parties rather than imposed by the ICC.¹² We affirm the dismissal for the reasons hereinafter explored.

11. THE UNDERLYING LEGAL FRAMEWORK

The Interstate Commerce Act deals specifically with the question of divisions of joint freight rates in section 15(6).¹³ In pertinent part this section provides:

Whenever, after full hearing upon complaint or upon its own initiative, the Commission is of opinion that the divisions of joint rates, fares, or charges, applicable to the transportation of passengers or property, are or will be unjust, unreasonable, inequitable, or unduly preferential or prejudicial as between the carriers parties thereto (whether agreed upon by such carriers, or any of them, or otherwise established), the Commission shall by order prescribe the just, reasonable, and equitable divisions thereof to be received by the several carriers, and • in cases where the joint rate, fare, or charge was established pursuant to a finding or order of the Commission and the divisions thereof are found by it to have been unjust, unreasonable, or inequitable, or unduly preferential or prejudicial, the Commission may also by order determine what (for the period subsequent to the filing of the complaint or petition or the making of the order of investigation) would have been the just, reasonable, and equitable divisions thereof to be received by the several carriers, and require adjustment to be made in accordance therewith.

Thus, section 15(6) gives the ICC the power to change divisions of joint rates when it finds them to have been unreasonable. If the joint rates were established pursuant to an ICC order, then the change of divisions may be effective as of the date of the filing of the complaint or the date of the ICC order of investigátion. But if the joint rates were not established by the ICC, i. e., were agreed rates, then the ICC can only order a prospective change of divisions.

In the case at bar, it is conceded that the rates are agreed rates,¹⁴ and the ICC itself cannot order a retroactive change of divisions. The question is whether the courts can or should award retroactive relief from allegedly unreasonable divisions, when the ICC is prohibited from so doing by statute.

The Supreme Court explored the scope of section 15(6) in 1928 in Brimstone R.R. v. United States.¹⁵ The Court noted “the studied purpose [of Congress] to grant no power to require readjustments of past receipts from agreed joint rates.” ¹⁶ In the Court’s view, railroads might assent to rates only because of the divisions made; allowing retroactive revision of the division would destroy the basis on which the agreement was made. Since the power retroactively to change divisions is so enormous, the Court felt it important carefully to preserve the distinction drawn by Congress between agreed and ICC-established rates.

The Brimstone ease and section 15(6) deal explicitly only with the power of the ICC; Brimstone as binding authority could easily be distinguished from the instant case where the court’s power is sought to be invoked. However, we believe that the principles inherent in the Brimstone opinion are equally applicable in the current proceeding.

III. APPLICATION TO THE NORTH-SOUTH DISPUTE

A. Brimstone and Section 15(6)

Railroads often agree among themselves to establish joint rates. Behind the agreement lies an expectation of each railroad as to the division it will receive. Railroads would be hesitant to agree to low joint rates if they thought their division might be reduced retroactively. In this case, as in Brimstone, it would be “exceedingly harsh if not wholly unreasonable” to destroy retroactively the basis for the agreed rates.¹⁷

We think the Brimstone analysis is controlling in the case before us. Where joint rates are agreed upon by the parties, we will not retroactively upset the division, on the equitable grounds that railroads might not agree on such rates if they suspected the possibility of court-imposed retroactive change. We reach this result taking into account the action of Congress in ruling out retro-activity where agreed rates are involved, and the philosophy of Brimstone in avoiding the “exceedingly harsh” consequences of a ruling that carriers agreeing to divisions could have imposed on them an open-ended contingent liability of enormous proportions.

If a railroad believes the division of agreed joint rates to be unreasonable or unfair, it may apply to the ICC for a prospective adjustment of the division. The adjustment would be effective as of the date of the ICC order of adjustment. We must give deference to the overall scheme of Congress to place railroad rate regulation in the hands of the ICC. But it did not see fit to confer upon the ICC the power to adjust retroactively divisions of rates agreed upon by the carriers, for the reasons enunciated in Brimstone and here. The plight of the northern lines arises from the obviously foreseeable situation we have here. Whether relief in this and similar cases, present and future, should come from a revision of the statute, or an acceleration of the glacial movement at the ICC, is not for us to say. We do not hold that under no circumstance could a court exercise its equitable judicial discretion, for neither Congress in the statute nor the Supreme Court in Brimstone treated of this, but here we think it unwise to permit a railroad to circumvent the limitation on the ICC’s power of retroactive adjustment by seeking an award of damages from this court for the period between the initiation of a complaint and a possible award of future relief by the ICC. There are no allegations of deliberate delaying tactics by the opposing carriers, nor of anything but the time-honored tardigrade pace at the ICC; in the event of obvious protracted dalliance our judgment might well be contrary.¹⁸

B. Related Provisions of the ICC Act and Common Law Remedies

We do not believe that other provisions of the Interstate Commerce Act dictate a result different from the one which we reach. The northern railroads’ argument that sections 1(4), 8, 9, and 22 ¹⁹ suggest the court should order retroactive relief here is unpersuasive.

In brief, the pertinent provisions of the sections are as follows. Section 1(4) requires railroads to establish “just and reasonable rates” and “just, reasonable, and equitable divisions” of joint rates. Section 8 provides that railroads failing to perform according to the Act are liable for damages due to such violations. Section 9 allows those damaged by violations to sue in court for recovery of damages. Section 22 states that “nothing in this part contained shall in any way abridge or alter the remedies now existing at common law or by statute, but the provisions of this part are in addition to such remedies . . . .” Finally, a 1940 amendment to the Act declares the policy of Congress is “[to] foster sound economic conditions in transportation and among the several carriers ... all to the end of developing, coordinating, and preserving a national transportation system ...”

Construing these provisions broadly, we cannot agree with the northern railroads that they compel award here of retroactive damages by this court. First, it is not at all clear that our national transportation system would be better served under the approach suggested by the northern railroads than by refusing the sharp disruptions due to retroactive division changes. Second, it would appear irrational to hold the southern railroads as violating section 1(4)’s requirement of reasonable divisions when the divisions have been approved by the ICC. Insofar as there is a statutory obligation to provide reasonable divisions and rates, the statutory framework and context define a duty as implemented by orders of the ICC,²⁰ a duty which is necessarily prospective in the case of agreed rates.

Furthermore, we do not accept the northern railroads’ contention that a common law remedy should be adopted here. While section 22 does explicitly retain common law remedies, it does so with the implicit understanding that only such remedies as are consistent with the statute are to be retained. As noted long ago by the Second Circuit, “from the passage of the Interstate Commerce Act previously existing common-law remedies, inconsistent with the statute, were supplanted.” ²¹

The Second Circuit concluded in 1936 that a common law remedy should not be applied in a case which was similar in many ways to the case at bar.²² In the case before the Second Circuit, the ICC had prescribed new joint rates but not the percentage of division thereof. The northern railroads thereafter refused to accept the previously agreed-upon division. The southern railroads sought a more favorable division from the ICC, which ordered a change in percentage of division effective on the date of the filing of the complaint, not at the earlier date of the new joint rates. The southern railroads then sought relief from the court for the period from the time the ICC prescribed the joint rates until the date the complaint was filed. The Second Circuit denied such relief, stating that

Section 15(6) clearly indicates an intention to limit the operation of retroactive adjustments of divisions. . It is not enough to say that, because of established principles of equity and common law, a reasonable share of the proceeds of the transportation was due the appellants for the services performed. The remedy conferred by the Interstate Commerce Act and the one by which the appellants’ rights are governed defined the procedure by which justice could be obtained.²³

While the Second Circuit dealt with prescribed rates and we deal with agreed rates, there is a key similai’ity: both cases involve retroactive application of a remedy by a court, a remedy which is clearly proscribed in section 15(6) with regard to the ICC. We follow the route charted by the Second Circuit and deny a common law remedy here.²⁴ We think that route preferable to the approach taken by district courts in Maryland and Pennsylvania in 1935 cases.²⁵

Contrary to the suggestion of the northern railroads, we do not believe that the Supreme Court decision in Hewitt-Robins, Inc. v. Eastern Freight-Ways, Inc. mandates application of a common law remedy by us. As to “the survival of a judicial remedy under the saving clause,” the Court held:

Survival depends on the effect of the exercise of the remedy upon the statutory scheme of regulation. According to [the saving clause], if the remedy is inconsistent with that scheme it does not survive. . . . Here, . the exercise of the judicial remedy supports its overall purposes and is nowise inconsistent with the congressional scheme embodied within its four corners.²⁶

The same could not be said in our case; we deny the judicial l'emedy as “inconsistent with the congressional scheme” in the situation at bar.

Furthermore, the Court in Hewitt-Robins rested its decision on the particular factors involved there in carrier routing practices, and specifically distinguished the case from challenges regarding reasonableness of rates. Thus, the doctrine of T.I.M.E., Inc. v. United States 27 was left standing when questions of the reasonableness of charges were at issue. It is important to note also that both cases dealt with the Motor Carrier Act rather than the portion of the Interstate Commerce Act at issue in the case at bar.

We thus conclude that it would be inconsistent with the thrust of section 15(6) and prior judicial decisions to grant the relief sought by the northern railroads. Under the circumstances of this case, retroactive changes in divisions should not be judicially ordered. The decision below granting summary judgment to appellees and dismissing appellants’ complaint is hereby

Affirmed.

1 . As used in this opinion, North refers to the northeast quadrant of the United States, and South refers to the southeast quadrant.

2 . Official-Southern Divisions, 287 L.C.C. 497, 289 L.C.C. 4 (1953). Prior to 1953 the southern railroads received higher divisions than the northern roads, due in part to higher costs at the time. Divisions of Rates, Official and Southern Territories, 234 L.C.C. 175 (1939). The Supreme Court, however, found the entire rate system discriminatory against the South in New York v. United States, 331 U.S. 284, 67 S.Ct. 1207, 91 L.Ed. 1492 (1947).

3 . Official-Southern Divisions, 325 L.C.C. 1, modified, 325 L.C.C. 449 (1965).

4 . Baltimore & Ohio R.R. v. Aberdeen & Rockfish R.R., 393 U.S. 87, 91, 89 S.Ct. 280. 21 L.Ed.2d 219 (1968), aff’g and modifying Aberdeen & Rockfish R.R. v. United States, 270 F.Supp. 695 (E.D.La.1967).

5 . Order of three-judge court, E.D.La., reprinted in Brief for Appellees at A-5.

6 . Official-Southern Divisions, 337 I.C.C. 74 (1970).

7 . Unpublished order.

8 . ICC Orders 29885, 29799, reprinted in Appendix at 6-a.

9 . ICC Docket No. 35585.

10 . See text at note 13 infra.

11 . Brief for Appellants at 10 (emphasis supplied). The complaint filed by the northern railroads sought relief as of 1 January 1972, whereas the proceeding before the ICC was not commenced until 17 March 1972. No reason has been given for the change of date for starting to compute relief requested in the northern railroads’ brief before this court.

12 . 350 F.Supp. 719 (D.D.C.1972).

13 . 49 U.S.C. § 15(6).

14 . See Brief for Appellants at 10 n. 9; Brief for Appellees at 6-7.

Rates are considered agreed rates unless they are specifically set by the ICO. If mere ICC approval of a private agreement were sufficient to make rates prescribed rates, the intent of Congress in distinguishing between the two would be violated. See Brimstone R.R. v. United States, 276 U.S. 104, 122-123, 48 S.Ct. 282, 72 L.Ed. 487 (1928).

15 . 276 U.S. 104, 48 S.Ct. 282, 72 L.Ed. 487, (1928).

16 . Id. at 121, 48 S.Ct. at 287.

17 . Id. at 122, 48 S.Ct. at 287.

18 . When the northern railroads first sought a change in divisions, it took nine years before the ICC entered an order. This strikes the court as an unreasonably long time, notwithstanding the fact that three of those years resulted from a request by the parties for a delay. See Brief for Appellant at 6 n. 3.

There is presently pending in the House of Representatives a proposed amendment to the Surface Transportation Act which would require the ICC to hand down a ruling on these divisional questions within 32 months.

19 . These sections are also codified in Title 49, U.S.Code.

20 . Cf: Holloway v. Bristol-Myers, 158 U.S.App.D.C. 207, 485 F.2d 986 (1973). While both the divisions and the rates were originally prescribed by the ICO, rate increases, leaving the divisions untouched, have made the rates “agreed rates.”

It is interesting to note the Supreme Court’s statement in Alton R.R. v. United States, 287 U.S. 229, 235-236, 53 S.Ct. 124, 126, 77 L.Ed. 275 (1932) :

So long as the joint rates voluntarily established remain in force, each carrier is entitled as of right to the division originally agreed upon, unless a readjustment of the divisions has been made either by the parties or by the Commission pursuant to the power conferred by paragraph 6 of § 15. ... If they deemed its divisions unreasonably large, they could have invoked the power of the Commission to make a reduction.

21 . Atlantic Coast Line R.R. v. Delaware & H.R. Corp., 86 F.2d 721, 723 (2d Cir. 1936). See also Texas & Pac. Ry. v. Abilene Cotton Oil Co., 204 U.S. 426, 446-447, 27 S.Ct. 350, 51 L.Ed. 553 (1907), where the Supreme Court stated,

[Section 22] cannot in reason be construed as continuing in shippers a common-law right, the continued existence of which would be absolutely inconsistent with the provisions of the act. In other words, the act cannot be held to destroy itself. The clause is concerned alone with rights recognized in or duties imposed by the act, and the manifest purpose of the provision in question was to make plain the intention that any specific remedy given by the act should be regarded as cumulative, when other appropriate common-law or statutory remedies existed for the redress of the particular grievance or wrong dealt with in the act.

22 . Atlantic Coast Line R.R. v. Delaware & H.R. Corp., 86 F.2d 721.

23 . Id. at 724.

24 . This route was also taken in Atlantic Coast Line R.R. v. Boston & M. R. R., 18 F.Supp. 886 (D.Mass.1937).

25 . The Maryland District Court in Atlantic Coast Line R.R. v. Baltimore & Ohio R.R., 12 F.Supp. 711, seemed to rely on a distinction from the Brimstone case, vis., that there were agreed rates in Brimstone but not in the Maryland case. Such distinction, even assuming it valid, is inapplicable here. The Pennsylvania District Court opinion in Atlantic Coast Line R.R. v. Pennsylvania R.R., 12 F.Supp. 720, is inconsistent with the logic we find persuasive here.

26 . 371 U.S. 84, 89, 83 S.Ct. 157, 160, 9 L.Ed.2d 142 (1962).

27 . 359 U.S. 464, 79 S.Ct. 904, 3 L.Ed.2d 952 (1959).