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NORTH CAROLINA ET AL. v. UNITED STATES ET AL.

decided: June 11, 1945.

NORTH CAROLINA ET AL
v.
UNITED STATES ET AL.



APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES FOR THE EASTERN DISTRICT OF NORTH CAROLINA.*fn*

Stone, Roberts, Black, Reed, Frankfurter, Douglas, Murphy, Jackson, Rutledge

Author: Black

[ 325 U.S. Page 508]

 MR. JUSTICE BLACK delivered the opinion of the Court.

The North Carolina State Utilities Commission brought suit to enjoin enforcement of an order of the Interstate

[ 325 U.S. Page 509]

     Commerce Commission. 258 I. C. C. 133. The Federal Economic Stabilization Director acting through the Price Administrator sought and was granted the right to intervene as a party plaintiff. A federal district court of three judges denied the injunction, 56 F.Supp. 606, and the case is here on direct appeal under § 210 of the Judicial Code.

This clash between state and federal agencies came about because the State Commission and the Interstate Commerce Commission each claimed the paramount power to fix railroad rates in North Carolina. The North Carolina Commission ordered railroads doing business in the state to charge no more than 1.65 cents per mile for carrying intrastate coach passengers from one point in the state to another. Despite this State Commission order, the Interstate Commerce Commission authorized the same railroads to charge 2.2 cents per mile for the same type of carriage.*fn1

The Interstate Commerce Commission asserted its power to prescribe these purely intrastate rates under § 13 (4) of the Interstate Commerce Act. 49 U. S. C. § 13 (4). That section, which is set forth below,*fn2 empowers

[ 325 U.S. Page 510]

     the Interstate Commerce Commission to prescribe intrastate railroad rates under certain conditions, despite conflicting state orders as to the same rates. The conditions that Congress imposed as a prerequisite to Commission action are that the Commission shall hold a "full hearing" and find that the state-prescribed rates either caused (1) undue or unreasonable advantage, preference, or prejudice, as between persons or localities in intrastate commerce on the one hand, and interstate commerce on the other hand, or (2) undue, unreasonable, or unjust discrimination against interstate commerce. The Commission held hearings which are challenged on various grounds as falling short of "full" hearings. It made findings and concluded that the 1.65 state rate was unduly prejudicial to interstate passengers, and that the state rate constituted an undue and unjust discrimination against interstate commerce. These conclusions are attacked on the ground that they are supported neither by findings nor evidence. The crucial question involved in all these contentions is whether the indispensable prerequisites to the exercise of the Federal Commission's power over intrastate rates have been shown to exist with sufficient certainty. Before making any detailed reference to the hearings, findings or evidence, it would be helpful to set out certain guiding principles which lead us to a resolution of the crucial question.

Section 13 (4) does not relate to the Commission's power to regulate interstate transportation as such. As to interstate regulation, the Commission is granted the broadest powers to prescribe rates and other transportation details. See United States v. Pennsylvania R. Co., 323 U.S. 612. No such breadth of authority is granted to the Commission over purely intrastate rates. Neither § 13

[ 325 U.S. Page 511]

     (4), nor any other Congressional legislation, indicates a purpose to attempt wholly to deprive the states of their primary authority to regulate intrastate rates. Since the enactment of § 13 (4), as before its enactment, a state's power over intrastate rates is exclusive up to the point where its action would bring about the prejudice or discrimination prohibited by that section. When this point -- not always easy to mark -- is reached, and not until then, can the Interstate Commerce Commission nullify a state-prescribed rate.

Intrastate transportation is primarily the concern of the state. The power of the Interstate Commerce Commission with reference to such intrastate rates is dominant only so far as necessary to alter rates which injuriously affect interstate transportation. American Express Co. v. South Dakota, 244 U.S. 617, 625. A scrupulous regard for maintaining the power of the state in this field has caused this Court to require that Interstate Commerce Commission orders giving precedence to federal rates must meet "a high standard of certainty." Illinois Central R. Co. v. Public Utilities Commission, 245 U.S. 493, 510. Before the Commission can nullify a state rate, justification for the "exercise of the federal power must clearly appear." Florida v. United States, 282 U.S. 194, 211-212. See also Yonkers v. United States, 320 U.S. 685. And the intention to interfere with the state's rate-making function is not to be presumed, Arkansas Commission v. Chicago, R. I. & P. R. Co., 274 U.S. 597, 603; nor must its intention in this respect be left in serious doubt. Illinois Commerce Comm'n v. Thomson, 318 U.S. 675, 684-685. The foregoing cases also stand for the principle that the Interstate Commerce Commission is without authority to supplant a state-prescribed intrastate rate unless there are clear findings, supported by evidence, of each element essential to the exercise of that power by the Commission. We shall now take up the two grounds upon which the Commission set aside the state order.

[ 325 U.S. Page 512]

     " Shreveport " case.*fn3 Houston, E. & W. T. R. Co. v. United States, 234 U.S. 342. In the " Shreveport " case the Commission found from evidence that certain Texas intrastate rates to Texas points were far below the interstate rates charged to carry the same types of freight from Shreveport, Louisiana. The distances and conditions of both transportations were found to be substantially the same. The Court sustained the Commission's conclusion that the Texas intrastate rates constituted an unfair discrimination against Shreveport and persons doing business there. The Commission's order was not statewide, but only required removal of the discrimination against the particular localities and business groups affected by the discrimination.

In Railroad Commission v. Chicago, B. & Q. R. Co., 257 U.S. 563, 579, 580, this Court refused to sustain a Commission order nullifying all state passenger rates because of a discrimination against interstate travelers and against localities. The Commission had found there as here that state and interstate passengers rode on the same trains in the same car and perhaps in the same seats. It had found there, as it did here, that this constituted an undue discrimination against interstate passengers, and it issued a general sweeping order against all intrastate

[ 325 U.S. Page 514]

     passenger rates. This Court pointed out that the order went far beyond the principles announced in the Shreveport case, and declined to sustain the statewide order on this phase of the case. See also Florida v. United States, 282 U.S. 194, 208. So here, the finding that interstate passengers paid higher fares than intrastate passengers for the same facilities is an inadequate support for nullifying state rates on the ground that they constitute unjust discrimination against interstate passengers.

Discrimination Against Interstate Commerce. One ground of the Commission's order was that the intrastate rates discriminated against interstate commerce as such. The findings of the Commission on which this conclusion rested were that the 2.2 cents interstate rate was just and reasonable; the same trains in general carried both interstate and intrastate passengers; the North Carolina railroads to which the intrastate rates were applied, would have received $525,000 more annual income from the passengers they carried had the 2.2 cents interstate rate been applied; from this the conclusion was reached that intrastate traffic was "not contributing its fair share of the revenue required to enable respondents to render adequate and efficient transportation service."

This conclusion of the Commission, if based on findings supported by evidence, would justify its order. For in Florida v. United States, 292 U.S. 1, 5, we said that § 13 (4) authorized the Commission "to raise intrastate rates so that the intrastate traffic may produce its fair share of the earnings required to meet maintenance and operating costs and to yield a fair return on the value of property devoted to the transportation service, both interstate and intrastate." We sustained the Commission's order there because it was based on findings supported by evidence that the intrastate rate "was abnormally low and less than reasonably compensatory . . . 'insufficient under all the circumstances and conditions to cover the full cost of the

[ 325 U.S. Page 515]

     service.'" Neither in its formal findings nor in its discussion of the facts did the Commission indicate that the North Carolina railroad rates here involved were less than compensatory or insufficient to cover the full cost of service. Nor did they find that maintenance of these rates was necessary to the operation of a nationally efficient and adequate railway system.*fn4

[ 325 U.S. Page 516]

     But the question posed by the Commission's conclusion was whether the particular North Carolina railroads were obtaining from North Carolina's intrastate passenger rates their fair part of such funds as were required to enable these particular railroads to render adequate and efficient service. The Commission made no findings as to what contribution from intrastate traffic would constitute a fair proportion of the railroad's total income. It made no finding as to what amount of revenue was required to enable these railroads to operate efficiently. Instead, it relied on the mere existence of a disparity between what it said was a reasonable interstate rate and the intrastate rate fixed by North Carolina. It thought this action was justified by this Court's opinion in Illinois Commerce Comm'n v. United States, 292 U.S. 474, 485.*fn5 Aside from the fact that "the mere existence of a disparity between particular rates on intrastate and interstate traffic does not warrant the Commission in prescribing intrastate rates," Florida v. United States, 282 U.S. 194, 211-212; Utah Edible Livestock Rates and Charges, 206 I. C. C. 309, there is reasonable doubt as to whether the Commission had ever fixed 2.2 cents as the only reasonable interstate rate.

The whole argument that it had done so rests primarily on an order made in 1936. At that time, the Commission made a comprehensive investigation of rates throughout the nation, and after elaborate discussion made findings

[ 325 U.S. Page 517]

     of fact. It concluded that any rate over 2 cents per passenger mile would be unreasonable and unlawful. But it also declared that a rate of 1.5 cents then commonly charged throughout the Southern states, would not be "unreasonable or otherwise unlawful." 214 I. C. C. 174, 257. Railroads in the South continued to charge 1.5 cents most of the time from then until 1942. March 2, 1942, upon an application of the American railroads, the Commission in Ex parte 148, granted a general 10% increase on all rates then in existence. This increase it found was necessary to enable the railroads "to continue to render adequate and efficient railway-transportation service during the present emergency." 248 I. C. C. 545, 565. The Commission specifically stated, p. 606, that its conclusion was not based on "individual, sectional, or particular industrial desires or needs." Four months later, on July 14, 1942, certain railroads operating in the South, including the railroads involved in the North Carolina case, filed a petition with the Commission asking that it modify its 1936 order, so as to permit them to charge 2.2 cents per mile. Two weeks later, without a hearing, without evidence, and without discussion, the Commission entered an order declining to amend its 1936 order, but modifying its 10% rate increase order, "so as to authorize " the petitioning railroads to charge 2.2 cents per mile. It made no finding that the railroads needed this increase in order to maintain adequate railroad systems and of course could not have done so unless it relied upon the old 1936 evidence. There was no issue of this nature raised by any of the parties in the 10% rate increase proceedings. Neither before nor since these Southern railroads were authorized by the Commission to increase their interstate rate to 2.2 cents has any hearing been held on the subject. Petition of North Carolina for a hearing was denied. Nor has there been any finding based on evidence that the 1.65 cents rate which the Commission

[ 325 U.S. Page 518]

     found adequate, and neither "unreasonable nor unlawful," has ceased to be such. We are unable to find from any of the various orders that the Commission has ever yet made findings supported by evidence and upon them set aside its 1936 conclusions that a 1.5 cents rate for Southern territory was reasonable and lawful, except to the extent that it held that a 10% increase was justifiable.

Furthermore, even assuming that the Commission had previously made a valid 2.2 cents per mile general order broadly applicable to all railroads in the Southern territory or throughout the nation, it does not follow that such a general order must permanently stand as to each and every separate railroad or railroad system. The very nature of such a broad general order requires that it contain a saving clause for future modification and adjustment of particular rates. This Court declared that such a saving clause was essential even at the time that all surplus railroad profits were pooled for the common good of the national system. Railroad ...


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