New York v. United States, 331 U.S. 284 (1947)

MR. JUSTICE JACKSON, dissenting.

I find it impossible to agree with this extraordinary decision. I will discuss but one of its phases -- that which is treated in subdivision Eighth of the Court’s opinion. This holds that the Interstate Commerce Commission has, and rightfully has exercised, the power to add 10% to certain basic freight rates affecting the Northeastern part of the United States. This increase was not asked by the railroads, goes to the prosperous and the insolvent ones alike, and is not even claimed to be necessary to pay the cost of service and a fair return on the property used in rendering it. This additional assessment is in no sense compensation for handling the traffic which the railroads concede was adequately compensated before. It is really a surtax, see Brandeis, J., in New England Divisions Case, 261 U.S. 184, 196, added solely to increase shipping costs in the Northeastern part of the United States for the purpose of handicapping its economy and in order to make transportation cost as much there as it does in areas where there is less traffic to divide the cost. The surcharge burdens the territory where fifty percent of the consuming population of the United States resides by adding an estimated $15,000,000 per year to its shipping bills. It adds that much to the revenues of the Northeastern railroads with no showing or finding that it is needed to meet costs of furnishing railroad service.

The most important reason advanced for sustaining this order is the claim that this surcharge is to cure a discrimination in favor of the Northeastern territory against the South and West. Briefly and generally, the discrimination is said to consist in this: mile for mile, a higher average charge is made for transportation under the present classifications in the more sparsely settled areas of the South and West than is more in the denser traffic regions of the Northeast. Why, then, should not the alleged discrimination be removed by lowering the high rates of the South and West? The answer is that they cannot be reduced further than the ten percent already ordered in this proceeding, because the railroads of the South and West, in view of their costs, could not bear further decrease. So the only other way of equalizing the rates, and making it as costly to move goods there as anywhere in the United States, is to make the shippers in the Northeastern territory pay the railroads this additional 10% which they have not asked and do not need.

The Court’s approval of this order is based on an entirely new theory of "discrimination." It has never before been thought to be an unlawful discrimination to charge more for a service which it cost more to render. Discrimination heretofore has been found to exist only when an unequal charge was exacted for a like service, or vice versa. But now it is held to be an unlawful discrimination if railroads of the Northeast do not make the same charge as other railroads in the South or West for a different transportation under different cost conditions. The Government frankly advocates this new concept of discrimination as necessary to some redistribution of population in relation to resources that will reshape the nation’s social, economic, and perhaps its political life more nearly to its heart’s desire. It says in its brief to us:

There is no direct relation between the distribution of natural resources and the distribution of population in the United States. It happens that some of the areas richest in natural resources in the United States are sparsely populated. If the raw materials making up those natural resources are to be converted into finished products in that vicinity, allowing the area some economic benefit from their conversion, it will be necessary to transport considerable volumes of finished goods for long distances. Necessarily, minerals are obtained where the deposits occur, and agricultural products must be produced in areas of suitable soil and climate. It is the task of the transportation system to carry commodities from points of production to consuming centers throughout the United States and to the ports for export. The more freely and cheaply the products are carried, the more competition there will be, the more production there will be, and the better will our transportation system serve our national economy.

The maintenance of a sound national economy requires the proper use of natural resources to insure reasonable economic opportunity of a stable nature for the people in each of the regions of the country. As indicated, population distribution is not in accord with the distribution of natural resources, and it would require many years for people to move to where these resources are, assuming it possible to induce such millions to migrate, or that it would be wise policy to do so, even if possible. There are also areas of one-crop agriculture in which the people face readjustments to restore and protect the land and to obtain additional sources of livelihood.

In view of all this, one of the basic principles in making freight rates should be the elimination of rate barriers against regional development, not to charge our economy, but to remove discriminatory conditions which unfairly and unlawfully prevent the possibility of change.

The Court’s entire discussion of the discrimination feature of this case is an acceptance of the Government’s position, without which the last support for this order would fail.

No authority can be found in any Act of Congress for the imposition of this surcharge on the Northeast solely to penalize it for being able to transport goods cheaper due to its density of population and volume of traffic . The policy of Congress remains as it long has stood: "adequate and efficient railway transportation service at the lowest cost consistent with the furnishing of such service." Interstate Commerce Act, § 15a(2), 48 Stat. 220, 54 Stat. 912, 49 U.S.C. § 15a(2). Congress has never intimated, much less declared, a purpose to deprive the territory in which fifty percent of the nation’s consumers reside of the benefit of this policy. The Ramspeck resolution did no more than to direct the Commission’s attention to earnest complaints that the South and West were being mistreated in the matter of rail rates, and very properly to direct that they determine such complaints on their merits. True, in 1940, the provision prohibiting undue prejudice and preference was amended by the addition of "region, district, territory," to the list of persons or things not to be unduly prejudiced or preferred. Transportation Act, 1940, § 5(a), 54 Stat. 902, 49 U.S.C. § 3(1). But the Act already prohibited undue prejudice or preference to any "locality," and it is conceded that the 1940 Act made no change in the substantive law of discrimination. Senator Wheeler, Chairman of the Interstate Commerce Committee of the Senate, showed clearly that, while it would "make toward the equalization of rates," 84 Cong.Rec. 6072, it was not intended to accomplish what is here attempted. The following colloquy occurred:

MR. FRAZIER. Is it the expectation of the committee that, by the amendment in section 52 [now section 5(b) of the Act], the rates in the various classification territories will be equalized or made the same in different territories?

MR. WHEELER. I do not think that is possible.

MR. FRAZIER. I do not see how it is possible. I was wondering what the intention was.

MR. WHEELER. It is not possible for a number of reasons. For example, it costs more to carry freight over the mountains in two trains than to carry it on the plains in one train. Likewise, we must recognize the fact that railroad transportation service and rates depend somewhat on the intensity of the traffic. In long stretches of territory with no traffic, shippers must pay more for railroad service than do shippers in a densely settled part of country where traffic is plentiful and where there is much competition from busses, trucks, and things of that kind. However, it seems to me from my study of the question that apparent inequalities ought to be corrected. . . .

MR. FRAZIER. In North Dakota, we have a large volume of wheat to transport in the fall of the year, and because we have that large volume, and because our territory is practically level, we have a rather beneficial rate on wheat as compared with some other territories. Our railroad commission and traffic experts are afraid that the provision to which reference has been made will take that special rate away from us.

MR. WHEELER. I believe this provision will help the people of the Senator’s State, rather than harm them in many respects.

MR. FRAZIER. We have a much lower rate than prevails in many other sections of the country. If rates are to be equalized, it will mean raising our rates.

MR. WHEELER. The bill does not mean that rates are to be equalized. . . . The people of the Senator’s State might just as well disabuse their minds of the fear that, as a result of the bill, they will lose any benefit which they now have. . . .

(84 Cong.Rec. 5890.)

The Court never before has confided to any regulatory body the reshaping of our national economy. In Texas & Pacific R. Co. v. United States, 289 U.S. 67, the following statement of the law was made:

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.

289 U.S. at 637. See also Southern Pacific Co. v. I.C.C., 219 U.S. 433; I.C.C. v. Diffenbaugh, 222 U.S. 42, 46; United States v. Illinois Central R. Co., 263 U.S. 515, 524.

The Interstate Commerce Commission also accepted this as the law. In Stoves, Ranges, Boilers, etc., 182 I.C.C. 59, the majority said, "It is not within our power to equalize natural disadvantages of locations," 182 I.C.C. at 68, the Commissioner Eastman was even more explicit, saying, 182 I.C.C. at 74:

However, it is undeniable, I think, that, in the past, both southern manufacturers and southern carriers have shows a tendency to demand that the rates to the North be equalized in level with those within the North, on the ground that such equalization is commercially essential to the southern industries. It is a sufficient answer to say that it is not our province to equalize commercial conditions. However, the evidence in this case has served a useful purpose in making it quite clear that the southern manufacturers have certain advantages over their northern rivals, so far as operating and overhead costs are concerned, which would have to be taken into consideration if it were our duty to equalize commercial conditions through an adjustment of freight rates.

The Court shrouds this simple legal issue as to whether there is power to levy this surtax on the Northeast, in elaborate discussions of the evils of existing freight classifications and affirmations of the Commission’s power to correct them. Neither of these propositions has ever been in doubt. But what importance can the Commission’s power over classifications have in testing validity of this order? To correct classification was the asserted object of this proceeding, but that power has not been exercised at all. Not one classification is changed. Instead, a flat boost is made against traffic in the Northeast and a flat reduction for traffic in the South and West is ordered, leaving every inequality, discrimination, injustice or illegality in classifications just where the Commission found them. If there is proof of specific discrimination, injustice, and illegalities in this case, why are they not now ordered corrected? If there is not sufficient proof of any specific discrimination, how can we hold that there is a general discrimination so extensive as to warrant this levy on the Northeast to correct them?

Perhaps the most incomprehensible of the Court’s grounds for sustaining this order is that we do not have here a "revenue problem." It is admitted that the Northeastern rates before increase are not proved nor found by the Commission to be noncompensatory to the railroads or otherwise to threaten harmful effects upon the revenues and transportation efficiency of the carriers who get the increase. It also is admitted that the absence of such proof and findings might be fatal to this increased rate, for,

If this were a case of determining whether existing rates passed below the lowest or above the highest reaches of reasonableness, the point might be well taken.

Can the label affixed to a proceeding make legal what under another label would be invalid? Because the proceeding professes to correct classifications, a purpose now long and indefinitely deferred, may it be used incidentally to raise the rates of the whole Northeastern territory without any showing of need therefor? Whether we call the case a "revenue case" or something else, and whether we decline to denominate the problem a "revenue problem" and style it something else, the order under review is a revenue order and nothing else. It adds 10% to the revenues of the Northeastern roads from traffic moving under the rates in question; it knocks 10% off from the Southern and Western traffic under them. It exacts for the railroads added revenues; it lays on shippers the burden of providing those added revenues. This order admittedly might be invalid if the increased revenue were given to the railroads because they had made a claim to need it, and had only the present evidence and findings to support an allowance of their claim. So the conclusion is that the order is valid only because the railroads have no revenue problem and have not made a case entitling them to increased revenue. That is all I can get from the answer that it is a valid order only because "we do not have here such a revenue problem."

I long have heard the complaint that freight rates discrimination against the South. I have been inclined to suspect it to be true, and have hoped to see an impartial and exhaustive study and decision on the subject. But this case does not meet that description. The student of economics will be puzzled at the Court’s citation of the fact that the average employed person in the South earns only half as much as those in the Northeast as being in some way attributable to these freight rates. And the student of the judicial process will find instruction in the contrast between today’s decision and that of Interstate Commerce Commission v. Mechling, 330 U.S. 567, in its regard for inherent advantages, in its attitude to "unsifted" averages as a basis for raising rates and in its deference to the administrative expertise of the Interstate Commerce Commission.

I am not unaware of the difficult position in which the Interstate Commerce Commission finds itself in cases of this character. Commissioner Eastman gave voice to it in dissent in Alabama v. New York Central R. Co., 235 I.C.C. 255, 333, as follows:

The Commission is called upon to decide this case, on the record, after it had in effect been decided, in advance and without regard to the record, by many men in public life, of high and low degree, who have freely proclaimed their views on what they conceive to be the basic issues. Their thesis has been that the section of our country generally known as the South is our "Economic Problem No. 1," because, among other things, it is low in industrial development, and that a major reason for this condition has been and is an unfair adjustment of freight rates which has favored the producers of the North and burdened those of the South. It has become a political issue. While, however, the South gave birth to the issue, public representatives of the West now cry out against like supposed oppression, and public representatives of the North or East, as it is variously called, have risen in defense of their section.

Under such conditions, it is not easy to decide the case without being influenced by emotional reactions, one way or the other, which should play no part in the decision.

But, by administrative succession and judicial fiat, the regulatory power of the Federal Government over commerce is now used to force a surtax on transportation of one section of the country admittedly not needed to compensate the railroad for the carriage, but to take away from its inhabitants one of the advantages inherent in its density of population, regardless of the disadvantages which density of population also causes.

The observation of Commissioner Mahaffie in this case seems to me appropriate and accurate:

. . . In a country so vast as this, with its widely varied resources and differing transportation needs, it seems to me a mistake to try to compel general equality in rates except to the extent equality is justified by transportation conditions. I think the effort to do so must necessarily fail. But I am afraid the process of finding out whether it can be done will be painful and costly. The prejudice finding on which the new adjustment is largely predicated are calculated, if carried to a logical conclusion, to lead to a rigid rate structure based on mileage. While this may seem on its face to be equitable, its accomplishment would entail radical industrial and agricultural readjustments. I doubt if the country should be required to incur the expense of making them.

(262 I.C.C. at 708.)

MR. JUSTICE FRANKFURTER joins in this opinion.