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SEATRAIN LINES, INC. v. UNITED STATES

September 1, 1964

SEATRAIN LINES, INC., Plaintiff, Waterways Freight Bureau and the Port of New York Authority, Intervening Plaintiffs,
v.
UNITED STATES of America and Interstate Commerce Commission, Defendants, The Missouri Pacific Railroad Company et al., Intervening Defendants



The opinion of the court was delivered by: AUGELLI

Plaintiff Seatrain Lines, Inc. (Seatrain), a common carrier by water, challenges the validity of an order and report made by the Interstate Commerce Commission (Commission) on August 6, 1963, in proceedings entitled 'Aluminum Articles from Sandow, Tex., to Pennsylvania and New York', 319 I.C.C. 431.

We are here concerned only with those parts of the challenged order and report that pertain to the movement of aluminum articles from Sandow, Texas, to Cressona, Pennsylvania, by all-rail and rail-water-rail routes. It is with respect to this movement that Seatrain objects to the Commission's finding that the all-rail rates in issue do not discriminate against Seatrain in violation of section 3(4) of the Interstate Commerce Act (Act), 49 U.S.C.A. § 3(4).

 The all-rail route originates at Sandow, Texas, with the Rockdale, Sandow & Southern Railroad Company, which in turn connects with the Missouri Pacific Railroad Company at Marjorie, Texas. From that point the Missouri Pacific continues the run to Longview, Texas, where connection is made with the Texas & Pacific Railway Company, which moves the shipment to Texarkana, Arkansas. At Texarkana connection is again made with the Missouri Pacific, which then proceeds north and eastward to three alternate gateways: St. Louis, Missouri; East St. Louis, Illinois; and Flinton, Illinois. At these gateways connections are made with other rail carriers for further eastward movement to Cressona, Pennsylvania.

 The rail-water-rail route also originates at Sandow, Texas, with the Rockdale, Sandow & Southern Railroad Company. In this movement, too, connection is made with the Missouri Pacific at Marjorie, Texas. From Marjorie, the shipment moves via the Missouri Pacific to Texas City, Texas. At this point the cars thus transported by rail, with lading intact, are loaded aboard a Seatrain vessel for movement by water to Seatrain's northern port at Edgewater, New Jersey. At Edgewater the cars, again with lading intact, are transferred to a rail carrier for ultimate destination to Cressona, Pennsylvania.

 The presently effective all-rail through rate for the aluminum traffic here involved is $ 1.19 per hundred pounds, minimum 100,000 pounds. This is a joint rate maintained by all the railroads participating in the movement. The rail-water-rail rate presently effective is $ 1.15 per hundred pounds, same minimum. This is a non-concurring through rate composed of the local rail rate of 44 cents from Sandow to Seatrain's port at Texas City, Seatrain's ocean rate of 43 cents from Texas City to Edgewater, and the local rail rate of 28 cents from Edgewater to Cressona.

 The aluminum traffic giving rise to the present controversy originated in 1952 when the Aluminum Company of America built an ore reduction plant at Sandow, Texas, to produce aluminum billets for its fabricating plants located at Cressona, Pennsylvania, and Rome, New York. From 1952 until January, 1959, the aluminum traffic moved exclusively over the all-rail route from Sandow to Cressona and Rome. In January, 1959, Seatrain commenced to participate in the business. Thereafter, the traffic pattern shifted to Seatrain, the last movements by all-rail having occurred during the period of a longshoremen's strike in October, 1959. A statement of the rate manipulations that brought about this change will prove helpful to an understanding of the case.

 Prior to November 10, 1958, the all-rail rate for the aluminum movement from Sandow to Cressona was a fraction more than $ 1.43 per hundred pounds. Seatrain's rail-water-rail rate was a fraction more than $ 1.69. This represented a combination of the local rail rate of 72 cents from Sandow to Texas City, the ocean rate of a little over 50 cents from Texas City to Edgewater, and the local rail rate of 47 cents from Edgewater to Cressona. Effective November 10, 1958, the local rail rate from Sandow to Texas City was reduced from 72 cents to 44 cents. This gave Seatrain a differential in its favor of 2.1 cents over the all-rail rate. On January 10, 1959, the local rail rate from Edgewater to Cressona was reduced from 47 cents to 39 cents. The differential in favor of Seatrain now amounted to 10.1 cents. A reduction made by Seatrain on its ocean rate in this same month of January from 50 1/4 cents to 47 1/2 cents, increased this differential to 12.85 cents. On May 8, 1959, Seatrain reduced its ocean rate to 40 cents, thereby increasing its differential to 20.35 cents. The rail-water-rail rate was now $ 1.23 as compared with the all-rail rate of $ 1.43, which had remained constant during this period.

 On June 21, 1959, the all-rail rate was reduced to $ 1.30 thus cutting down Seatrain's differential to 7 cents. Following this, on July 24, 1959, Seatrain reduced its ocean rate to 36 cents which resulted in a rail-water-rail rate of $ 1.19 as against the all-rail rate of $ 1.30. This produced a differential of 11 cents in favor of Seatrain. On February 20, 1960, the all-rail rate was reduced to $ 1.19 to match Seatrain's rate. On February 29, 1960, Seatrain again reduced its ocean rate from 36 cents to 32 cents. This made the rail-water-rail rate $ 1.15, a differential of 4 cents in favor of Seatrain over all-rail. In May, 1960, a reduction in the local rail rate from Edgewater to Cressona from 39 cents to 28 cents, enabled Seatrain to increase its ocean rate to 43 cents and still maintain a rate 4 cents lower than all-rail. This same differential has continued to the present time.

 The proceedings with which we are here concerned, and which resulted in the order and report under attack, stemmed from cross protests filed with the Commission by certain railroads and by Seatrain in connection with the reduction of the all-rail rate from $ 1.30 to $ 1.19 and the rail-water-rail rate from $ 1.19 to $ 1.15. The Commission, in Docket No. 33362, ordered an investigation into the lawfulness of Seatrain's rail-water-rail rate, and in Docket No. 33373 ordered an investigation into the lawfulness of the all-rail rate. These two dockets were consolidated and the matter was heard on one record before an examiner for the Commission.

 Seatrain contended before the examiner that the railroads, by reducing the all-rail through rate from $ 1.30 to $ 1.19, without making a corresponding reduction in the local rail rates from Sandow to Texas City and from Edgewater to Cressona, were practicing selective rate cutting solely for the purpose of eliminating Seatrain's participation in the aluminum traffic. Seatrain argued that, to the extent the all-rail rate under investigation in Docket 33373 was on a lower level than the local rail rates maintained to and from the ports used in connection with Seatrain's water route, it was discriminatory against Seatrain and in violation of section 3(4) of the Act. The railroads, on the other hand, argued for equality of rates, stating that they had a proposed rate pending of $ 1.15, which they did not seek to justify. The railroads suggested that the Commission fix a rate of $ 1.15 for both carriers for a trial period of one year in order to ascertain whether or not the traffic could be shared on that basis. In answer to this proposal Seatrain pointed out that it was the low-cost carrier; that because of inherent disabilities in its operations, it could not hope to compete with the railroads at equal rates; and that, in order to compete, it needed a rate differential in its favor.

 The examiner decided in favor of Seatrain and found that the failure of the railroads to provide proportional rates to and from Seatrain's ports on a comparable basis with the reduced all-rail rate from Sandow to Cressona was discriminatory and contrary to the national transportation policy. In a report and order dated November 16, 1960, in which he recommended that the Commission direct the railroads to maintain proportional rates to and from the Seatrain ports, the examiner prescribed the formula to be used to eliminate the unlawfulness he found to exist in the rail rate under investigation. The formula was based on the Docket 28300 first-class rates prescribed by the Commission in 'Class Rate Investigation, 1939', 281 I.C.C. 213. Section 6(11) (b) of the Act, 49 U.S.C.A. § 6(11)(b), which authorizes the Commission to establish the proportional rates suggested by the examiner, provides that 'by proportional rates are meant those which differ from the corresponding local rates to and from the port and which apply only to traffic which has been brought to the port or is carried from the port by a common carrier by water.'

 During the pendency of the aluminum proceedings, investigations and hearings in other cases having comparable issues, but involving different commodities (DDT in Docket No. 7513, and soda ash in Dockets No. 33698 and 7552), resulted in decisional conflicts on the application and interpretation of section 3(4) of the Act. In light of these developments the Commission, on its own motion, by order dated January 26, 1962, reopened the aluminum proceedings, combined them with the DDT and soda ash cases, and set all matters down for oral argument before the entire Commission on the section 3(4) discrimination issue. The matter was heard on March 7, 1962. Pending determination thereof, the action in this Court was held in abeyance. On August 6, 1963, by report and order dated that day, the Commission decided, so far as is here pertinent, that the reduced all-rail rate in issue in Docket 33373 did not discriminate against Seatrain in violation of section 3(4) of the Act, and by a vote of 6 to 3 affirmed the Division 2 decision, with two members of the Commission not participating.

 On September 11, 1963, Seatrain filed its amended complaint herein. Leave to intervene as plaintiffs in this action has been granted to The Port of New York Authority and to Waterways Freight Bureau, an association of common carriers by barge. The Missouri Pacific Railroad Company and other railroads which had appeared in the aluminum proceedings before the Commission were allowed to intervene as defendants. The arguments of all intervenors in support of the position of either Seatrain or the Commission, as the case may be, have been considered by the Court, and no separate reference to such arguments will be made in this opinion.

 The limited scope of judicial review of orders of the Commission is well established. A court cannot substitute its judgment for that of the Commission, but can only ascertain whether there is warrant in the law and facts for the order under review. If, upon a review of the whole record, there is a rational basis for the action of the Commission and no abuse of discretion or prejudicial departure from the requirements of law, the determination of the Commission will not be disturbed. Shein v. United States, 102 F.Supp. 320 (D.N.J.1951); Northern Valley Transfer, Inc. v. Interstate Commerce Commission, 192 F.Supp. 600 (D.N.J.1961); Chicago, Rock Island & Pacific Railroad Co. v. United States, 205 F.Supp. 378 (N.D.Ill.1962).

 With a full appreciation of the limitations thus placed upon us, we nevertheless conclude that the Commission erred in its interpretation and application of section 3(4) of the Act to the facts of this case. That section, in pertinent part, reads as follows:

 'All carriers subject to the provisions of this chapter * * * shall not discriminate in their rates, fares, and charges between connecting lines, * * *. As used in this paragraph the term 'connecting line' means the connecting line of any carrier subject to the provisions of this chapter or any common carrier by water subject to chapter 12 of this title.'

 It is clear that section 3(4) prohibits discrimination between connecting carriers. The Commission found that Seatrain is a connecting carrier within the meaning of section 3(4), but concluded that Seatrain had failed to prove a violation of that section. This conclusion was based upon findings that 'the two different routes, all-rail and rail-water-rail, comprehend completely different services', and that the 'relevant transportation circumstances and conditions at the two points of interchange are so radically different that a finding of discrimination against Seatrain would be arbitrary and capricious'. In addition to the foregoing, the Commission also found that there had not been sufficient identification of the discriminating railroad or railroads.

 On brief, the Commission submits that even if, as contended by Seatrain, these findings are insufficient and unsupported, such legal infirmity will not avail Seatrain because of Seatrain's failure to carry its burden of proving comparability of transportation conditions and identity of the offending rail carrier or carriers. Seatrain claims it did not fail in its burden of proof; that it made out a prima facie case of discrimination; and that the burden thereupon passed to the railroads to show such dissimilarity in transportation service as would justify the difference in rates.

 We now turn to a study of the record on the issue of discrimination under section 3(4) of the Act.

 As to the identity of the railroads guilty of discrimination, the record does not, in our view, support the Commission's conclusion that Seatrain did not sufficiently identify the discriminating railroads. The evidence points directly to the Missouri Pacific and the Rockdale, Sandow & Southern. Both participate in the movements of the aluminum traffic from Sandow to the points of interchange with the eastern railroads at either St. Louis, East St. Louis or Flinton, and from Sandow to Seatrain's point of interchange at Texas City. It is true that two additional carriers are separately involved in the movements over both routes. On the Sandow-Texas City route, the services of the Texas City Terminal Railway Company are utilized to switch the railroad cars to the lifting facilities of Seatrain for placement aboard ship. On the run from Sandow to an eastern gateway, the Texas & Pacific Railway Company participates in one segment of that route. While a reading of the Commission report does not reveal what consideration, if any, was given to the fact that these two additional carriers were also involved in the aluminum traffic in the manner indicated, the argument seems to be that their participation therein somehow precluded a finding of discrimination against the Missouri Pacific and the Rockdale, Sandow & Southern.

 So far as the Texas City Terminal Railway Company is concerned, it can hardly be considered an independent carrier on the Sandow-Texas City run. There is testimony, not disputed, that the Company is owned by the Missouri Pacific and other railroads, and that its function is to act as the switching agent for such railroads, for which services it receives a switching charge. There is no indication whatsoever that it has any voice or responsibility for the level of the line-haul rate to Texas City. It is clear that in this case, the Company acted solely as the agent of the Missouri Pacific in switching the cars to Seatrain. See Missouri Pacific Railroad Co. v. Reynolds-Davis Grocery Co., 268 U.S. 366, 45 S. Ct. 516, 69 L. Ed. 1000 (1925).


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