Baltimore & Ohio R. Co. v. United States, 298 U.S. 349 (1936)

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Author: Justice Brandeis

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Baltimore & Ohio R. Co. v. United States, 298 U.S. 349 (1936)

MR. JUSTICE BRANDEIS, concurring.

I agree that the suit is without merit, and that the District Court was right in dismissing the bill. Two objections to the order of the Commission, unsubstantial but otherwise proper subjects for judicial review, were disposed of briefly below, and have rightly received like treatment here. It is the third objection -- the claim of "confiscation" -- to which the attention of both courts has been directed. That claim imposed upon the lower court six days of hearings. It imposed upon this Court a reargument and a huge record. With the briefs, it weighs avoirdupois 67 pounds. The narrative statement of the testimony occupies 1,237 pages of the printed record in this Court; the briefs fill 546 pages. There are, besides, 428 exhibits. In my opinion, the applicable rules of procedure forbade the lower court from passing upon the question of "confiscation" in this suit. If "confiscation" is threatened, there is ample remedy; but the redress must be sought in a different proceeding.

First. The question on which I differ from the Court is this: where, in a suit to set aside a divisions order under the Urgent Deficiency Act of October 22, 1913, c. 32, 38 Stat. 208, 216, the Court concludes that there was, in entering the order, no error of law or of fact and no irregularity of procedure or abuse of discretion, may it proceed to inquire into a charge, not seasonably made before the Commission, that the divisions order would result in "confiscation" when applied to the through rates prescribed by a rate order then in force, which rate order had been acquiesced in by all participating carriers and was not then under review? In my opinion, the answer should be "no." For, if the charged "confiscation" is due to the alleged inadequacy of the prescribed through rates, the appropriate remedy is to apply to the Commission to revise the rate order. If the charged "confiscation" is due to alleged failure of the Commission to allot to the complaining carriers their fair share of an adequate through rate, they are barred from complaining in this suit, because they failed seasonably to raise, before the Commission, that issue and present there the evidence in support thereof. They could, of course, apply to the Commission to modify the order so as to make it just for the future.

While the Commission may at any time modify or supersede an order, no court has power to set an order aside except for inherent error or procedural irregularity. To hold that this divisions order may be set aside because "confiscation" will result if it is applied in connection with the rate order not under review, and not objected to, would make of that claim a paramount and prerogative right hitherto unknown to the law.

Second. The treatment of the suit as a "confiscation case" has led to serious misconceptions. The term "confiscation" is appropriately used only in a proceeding for the fixing of rates, where the objection is made that the Commission, in prescribing rates, made them so low that they are not compensatory, and that the government is thereby taking private property for the public without paying compensation. The order under review is not a rate order. It is an order under § 15(6) of the Interstate Commerce Act, which fixes, as between the carriers participating in existing through rates, "just, reasonable, and equitable divisions," but leaves the through rate undisturbed. Ordinarily, divisions of through rates are governed by agreement between the carriers. It is only where they fail to agree that an application is made under that section.

In a proceeding to fix "just, reasonable, and equitable divisions," "confiscation" can never be an ultimate issue. For, as a matter of substantive law, the fact that the share allotted to one is not compensatory is without legal significance. The Commission’s task is solely to make a fair division of existing rates. A division, although fair, may conceivably fail to give any of the connecting carriers adequate compensation for the service rendered, because the through rate -- the thing to be divided -- is itself inadequate. Or conceivably the through rate may be so generous that all participants will receive compensatory divisions although, as between themselves, the division itself is unfair. The fact that the share assigned to one is noncompensatory will be of evidential value if accompanied by evidence that some other carrier is receiving better treatment. But, unless it appears that some other carrier was so favored, the noncompensatory character of the division would be entirely immaterial. And, even when relevant, may be of little or no weight because of other considerations.

At best, the noncompensatory character of the share, if proved, would be only one of the many subsidiary evidential facts which Congress, by § 15(6), has commanded the Commission to take into consideration in determining what a fair division is. These are,

among other things, . . . the efficiency with which the carriers concerned are operated, the amount of revenue required to pay their respective operating expenses, taxes, and a fair return on their railway property held for and used in the service of transportation, and the importance to the public of the transportation services of such carriers, and also whether any particular participating carrier is an originating, intermediate, or delivering line, and any other fact or circumstance which would ordinarily, without regard to the mileage haul, entitle one carrier to a greater or less proportion than another carrier of the joint rate, fare, or charge.

Thus, a division may be "just, reasonable and equitable" although it allots to one carrier a noncompensatory share and to another carrier a compensatory share, because it was inefficiency in operation by the former which rendered its share noncompensatory. Or the seemingly preferential treatment of the latter might be justified by the fact that it was the originating carrier, and hence entitled by established transportation practice to the larger share of the through rate.

If inadequacy of a prescribed through rate is the reason why the share of one of the participating carriers is noncompensatory, it has ample remedies under the Interstate Commerce Act and the Constitution. It may at any time apply to the Commission for an increase of the through rate, and if the increase is improperly denied, a remedy is available in the courts by a "confiscation" suit. That remedy would be open although the prescribed rate had been acquiesced in, for every rate order is subject to revision at any time upon application to the Commission. A divisions order likewise is always subject to revision, but change in the through rate would not necessarily render the existing decisions unfair.

Third. The through rates which the Commission was requested to divide in the proceeding under review are those on citrus fruit from Florida to points north of the Potomac and Ohio rivers. These had been prescribed by order entered July 10, 1928, Railroad Commissioners of Florida v. Aberdeen & Rockfish R. Co., 144 I.C.C. 603, and the level of rates thereby prescribed was acquiesced in. That order did not deal with divisions. The divisions governing the Florida citrus fruit traffic had, for many years prior to July 10, 1928, been fixed by agreement. After entry of that order (which reduced the through rates on the average about 67 cents a ton), there developed a controversy as to the divisions. Being unable to agree, all the carriers -- the southern lines by original complaint, the northern lines by cross-complaint -- applied to the Commission under § 15(6) of the Interstate Commerce Act, and asked it to fix the "just, reasonable, and equitable divisions." By order entered July 3, 1933, the Commission did so, Atlantic Coast Line R. Co. v. Arcade & Attica R. Co., 194 I.C.C. 729. It is that divisions order which it is sought to have set aside with a view to having the share of the northern carriers increased at the expense of the southern. Two alleged errors of law charged to the Commission were quickly disposed of by the court as being unsubstantial. Did it commit any error of law or of fact, or was it guilty of an abuse of discretion in respect to the claim of "confiscation"?

The proceedings which resulted in the entry of the divisions order, and the efforts to have it set aside, were as follows:

(a) The southern lines filed their complaint with the Commission on November 22, 1930. The cross-complaint of the northern lines followed on April 20, 1931. Hearings began on May 11, 1931, and continued for more than seven months. Briefs were filed before the Examiners. When their proposed report was submitted to the parties, both sides filed exceptions. In the proceedings before the Examiners, there was no claim by the northern lines that the divisions sought by the southern lines would be confiscatory. The Examiners’ proposed report did not mention that subject, and there was no claim made that divisions recommended by them would be confiscatory. The case was argued orally before the full Commission on the exceptions to the Examiners’ report, and extensive briefs were submitted. There was no claim or suggestion before the Commission that the division sought or proposed would be confiscatory. On July 3, 1933, the Commission entered the order for the divisions which it found to be "just, reasonable, and equitable." There was no reference to the subject of confiscation in the accompanying report, which occupies 34 pages. Atlantic Coast Line R. Co. v. Arcade & Attica R. Co., 194 I.C.C. 729-762.

(b) The northern lines presented a petition requesting that the hearing be reopened for reconsideration on the evidence already introduced and supplemental data called from statistical reports in the Commission’s files, which it was agreed should be treated as evidence. On October 9, 1933, the proceedings were reopened as requested to reconsider, upon the evidence originally submitted and that then added, whether there had been an error of judgment in fixing the divisions. There was no claim made in this petition for a rehearing that the divisions which had been prescribed by the order of July 3, 1933, were confiscatory. The Commission discussed in a supplemental report of 13 pages the errors assigned; concluded that the objections were unfounded, and on January 8, 1934, affirmed the divisions prescribed. There was no reference in the supplemental report to the subject of confiscation. Atlantic Coast Line R. Co. v. Arcade & A. R. Co., 198 I.C.C. 375-387.

(c) On April 27, 1934, the northern carriers presented a second petition for a rehearing, and with it presented, as additional evidence, "cost studies." There was no suggestion that these were, in a legal sense, newly discovered evidence; nor was there a contention that they were evidence of a change in economic or traffic conditions which required that the Commission’s conclusion should be changed. The main claim was, as in the first petition for rehearing, that the Commission erred in its judgment. But he second petition contained a claim that the divisions awarded to the northern lines were confiscatory. On May 14, 1934, this second petition was denied without opinion.

(d) On May 25, 1934, the northern carriers brought this suit in the federal court for Eastern Virginia to set aside the order of July 3, 1933. The bill sought relief on five grounds. Prominent among them was the claim that this division was confiscatory. At the hearing before the three judges, which began on September 17, 1934, and occupied six days, the plaintiffs introduced in evidence a transcript of the evidence before the Commission on which the order complained of had been entered and confirmed, consisting of 2,054 pages of oral testimony and 358 exhibits. Over objections of the defendants, the plaintiffs were permitted to introduce additional oral evidence, of which the transcript fills 1,066 pages; also, 70 exhibits. On December 31, 1934, the court entered a final decree dismissing the bill. Its unanimous opinion disposes briefly of the objections other than confiscation. To that subject nearly all of the 18-page opinion is devoted. 9 F.Supp. 181-199.

(e) The application for appeal to this Court was filed February 26, 1935. Of the grounds for relief set forth in the bill, only three were insisted on at the original argument, namely: (1) That the Commission subordinated all matters which under § 15(6) it was required to take into consideration to the single element of the southern lines’ supposed financial needs. (2) That, while purporting to give "due consideration" to a "fair return" on the railway property of the southern lines, the Commission "considered only the rates of return of said Southern lines from the entire operations of such lines, instead of a fair return on Southern lines’ property fairly attributable to the service of transporting citrus fruit." (3) That the divisions allowed are confiscatory. On the reargument, confiscation was the only subject discussed, and the opinion of the Court deals mainly with it.

Fourth. Clearly, the Commission did not err either in a ruling of law or a finding of fact as to "confiscation," since it made no ruling of finding on that subject. Was it guilty of an abuse of discretion in refusing to pass upon it? Congress conferred upon the Commission power to grant or deny, in its discretion, a petition for rehearing of a decision. Interstate Commerce Act, § 16a. It may be granted after entry of an order or before, and the case may be reopened to admit additional evidence. The "cost studies" submitted with the second petition for rehearing were not, in a legal sense, newly discovered evidence. There was a belated offering of evidence in support of a belated contention. The purpose was to introduce, at that late day, more evidence bearing upon the question of what would be fair.

The refusal to grant the second petition for a rehearing was not an abuse of discretion. Federal appellate courts will not, in civil cases, upon review of the judgment of the trial court, consider any objection not seasonably presented below, and an objection first presented in a petition for rehearing which has been denied is not seasonably presented unless, in connection with the denial, that objection was specifically passed upon. This rule is of general application. It governs the appellate court’s action whether the objection raises a constitutional question or relates to a matter of lesser dignity. No reason has been suggested why that rule should not apply equally to a judicial review by the district courts, and this Court, of the action of the Commission. And no case has been found in which the applicability of the rule to a case like the present has been questioned.

The case at bar is not like Atchison, Topeka & Santa Fe Ry. Co. v. United States, 284 U.S. 248, where the order was set aside because the Commission refused to reopen the case and hear additional evidence. That offered was of changed conditions, important, because every rate order is subject to revision upon changes in conditions, and the change which had occurred since the hearings was catastrophic. To refuse to reopen the hearing under those circumstances was held to be an abuse of discretion. In the case at bar, no controlling change of condition was alleged. There was not even a claim of newly discovered evidence. The Atchison case rests upon its exceptional facts. It is apparently the only instance in which this Court has interfered with the exercise of the Commission’s discretion in granting, or refusing, to reopen a hearing. Compare United States v. Northern Pacific R. Co., 288 U.S. 490, 492 et seq.; Illinois Comm’n v. United States, 292 U.S. 474, 480-481; St. Joseph Stock Yards Co. v. United States, ante, p. 38.

Fifth. Thus, the divisions order is free of inherent error. Paragraph 4 of § 1 imposes upon the Commission the duty of establishing "just, reasonable, and equitable divisions" [of through rates] "which shall not unduly prefer or prejudice any of such participating carriers." As the Court says, the purpose of Congress is "to empower and require the commission to make divisions that colloquially may be said to be fair." It adds:

When made in accordance with the act, the commission’s orders prescribing divisions are the equivalent of Acts of Congress requiring the carriers to serve for the amounts specified. . . . They command service, and for that purpose expropriate the use of carriers’ property. If, when made, the prescribed divisions are or later shall become less than just compensation, the carriers may not be required to serve therefor. And if, after appropriate effort, they fail to obtain divisions . . . that do constitute just compensation for their services, including the use of their properties, the carriers may, by suit in equity, have the order prescribing, or requiring to be kept in force, the challenged divisions adjudged void and its enforcement permanently enjoined.

That additional statement is, in my opinion, without support in any act of Congress. No law gives to a divisions order any greater or other effect than that expressed in its words. The divisions order, which alone is here under review, contains no command that the "carriers serve for the amounts specified." Nor does it "command service" at all. It merely directs

that said complainants, cross-complainants, defendants and respondents, according as they participate in the transportation be, and they are hereby notified and required to cease and desist, on and after November 1, 1933, and thereafter to abstain from asking, demanding, collecting or receiving, divisions of said joint rates upon other bases than those prescribed.

The only command to serve is contained in the rate-order not here under review.

The Court states further: "Prescribing of divisions is a legislative function." It would be more accurate to say that the task imposed by § 15(6) is a judicial, or quasi-judicial function incident to the legislative process of rate regulation. Despite the doctrine of the separation of powers, the Commission, like other governmental bodies, exercised certain administrative and judicial, as well as legislative, functions. Many of its administrative or judicial orders may affect the earnings and net income of the carriers, and thus affect indirectly the adequacy of existing rates, but they are in no sense rate orders.

Prominent among determinations judicial in their nature are those under § 3 whether allowances made to one shipper for the use of his facilities, or for services, are, as between him and competing shippers, fair, or whether they constitute preferential treatment; determination under paragraph 15 of § 1, of the fair amount payable by one carrier to another for the use of terminals or equipment or for services rendered; determinations under paragraph 12 of § 1, whether distribution made of coal cars among shippers is just and reasonable; determinations under the Valuation Act of March 1, 1913, c. 92, 37 Stat. 701, of the fair value of railroad properties. Among the administrative functions is that of determining under the Safety Appliance and Boiler Inspection Acts what changes in equipment are required in order to insure safety; under paragraphs 4 and 9 of § 1, what additional facilities and equipment are required to insure adequate transportation service; under paragraphs 2 to 10 of § 1, whether a carrier should be permitted to issue securities or assume financial obligations, and, if so, on what terms; under paragraphs 18 to 22, whether a carrier should be permitted to construct, acquire, or control an additional line, or to abandon the whole, or any part of, one existing.

In such judicial or administrative determinations, it might conceivably be contended that expenditures ordered would so reduce net earnings as to render noncompensatory some existing prescribed rates. But the contention would not convert the proceeding into a rate case. If the claim that, by reason of the expenditure ordered, prescribed rates would cease to be compensatory proved to be well founded, the appropriate remedy would be to seek a modification of the rate order which had thus become confiscatory, not to set aside the administrative or judicial order which inherently was, and remained, free of error.

Sixth. The question discussed is not one of merely procedural importance. To permit inquiry into the question of confiscation under the procedure here pursued might affect seriously the substantive rights of other participating carriers. As the divisions order merely allots the share of each in existing rates, any addition to the share given to one must necessarily be taken from the share of others. For aught that appears, the share of the southern carriers received, or insisted upon, is no more than a compensatory return. If the Court had in this case concluded that the share allotted to the northern carriers was noncompensatory, and pursuant to its action their share were increased, the result might be to make the share of the southern carriers noncompensatory.

In passing upon the issue of confiscation, the Court discussed the question whether the trial court properly admitted evidence which had not been introduced before the Commission, and decided that the evidence was admissible. I do not agree with the Court’s conclusion on that subject. But, as the issue of "confiscation" was, in my opinion, not properly before the trial court, I refrain from discussing the question what evidence would have been admissible if that issue had been. See Crowell v. Benson, 285 U.S. 22, and St. Joseph Stock Yards Co. v. United States, supra.

MR. JUSTICE STONE, MR. JUSTICE ROBERTS And MR. JUSTICE CARDOZO join in this opinion.

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Chicago: Brandeis, "Brandeis, J., Concurring," Baltimore & Ohio R. Co. v. United States, 298 U.S. 349 (1936) in 298 U.S. 349 298 U.S. 382–298 U.S. 392. Original Sources, accessed August 14, 2022, http://www.originalsources.com/Document.aspx?DocID=4UD38KF1LAYUUAM.

MLA: Brandeis. "Brandeis, J., Concurring." Baltimore & Ohio R. Co. v. United States, 298 U.S. 349 (1936), in 298 U.S. 349, pp. 298 U.S. 382–298 U.S. 392. Original Sources. 14 Aug. 2022. http://www.originalsources.com/Document.aspx?DocID=4UD38KF1LAYUUAM.

Harvard: Brandeis, 'Brandeis, J., Concurring' in Baltimore & Ohio R. Co. v. United States, 298 U.S. 349 (1936). cited in 1936, 298 U.S. 349, pp.298 U.S. 382–298 U.S. 392. Original Sources, retrieved 14 August 2022, from http://www.originalsources.com/Document.aspx?DocID=4UD38KF1LAYUUAM.