CHICAGO & N.W. R. CO. V. A., T & S.F. R. CO., 387 U. S. 326 (1967)

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U.S. Supreme Court

Chicago & N.W. R. Co. v. A., T & S.F. R. Co., 387 U.S. 326 (1967)

Chicago & North Western Railway Co. v.

Atchison, Topeka & Santa Fe Railway Co.

No. 8. Argued April 19, 1967

Decided May 29, 1967*

387 U.S. 326


Eastern and Midwestern railroad carriers filed a complaint with the Interstate Commerce Commission (ICC) seeking higher divisions of joint tariffs on transcontinental freight traffic. In consolidated proceedings, which involved rate divisions affecting about 300 railroads, the carriers voluntarily aligned themselves into three groups, Eastern, Midwestern and Mountain-Pacific, and submitted evidence and tried the case on this group basis. The ICC found the existing divisions unlawful, and prescribed increased divisions for the Midwestern and Eastern roads. Relying on a Mountain-Pacific cost study, modified by the ICC in certain respects, the ICC found that the Mountain-Pacific carriers' revenues exceeded service costs by much larger percentages than the revenues of Eastern or Midwestern railroads. In assessing comparative revenue needs, the ICC found that the average rate of return, based on net railway operating income as a percentage of the value of invested property, was 3.40% for the Eastern roads, 3.49% for the Midwestern group, and 4.64% for the Mountain-Pacific carriers. The ICC noted that the fact that net operating income of Mountain-Pacific roads had not increased as fast as net investment in recent years was due primarily to disproportionate passenger deficits that offset favorable freight income. Based on revenue needs and service costs, the ICC concluded that there should be increases in the Eastern carriers' divisions, and simply increased their percentages of the existing rates between well defined sub-areas in Eastern Territory and points in Transcontinental Territory. The ICC concluded that Midwestern divisions should be increased, finding cost considerations to be the controlling factor. Since the Midwestern-Transcontinental subgroupings were not well defined, the ICC adopted a weighted mileage basis of apportioning chanrobles.com-red

Page 387 U. S. 327

the rates, determined through the use of divisional scales, as suggested by both the Midwestern and Mountain-Pacific carriers. Petitions for reconsideration included requests for special treatment by three roads claiming that the divisions had an unduly harsh effect on them. The ICC issued a supplemental order substantially reaffirming its original order. The District Court, in an action brought by certain Mountain-Pacific carriers, set aside the ICC's orders. The court held that the ICC's findings were insufficient because made on a group basis, that the Interstate Commerce Act required findings on an individual basis with respect to each of the 300 railroads involved, and that the ICC was obliged to determine, in precise dollar amount, the revenue needs of each railroad and the revenue effect on each road of the new divisions. All of the Eastern and some of the Midwestern carriers reached settlement agreements with the Mountain-Pacific roads covering rate divisions affecting them, and the remaining dispute mainly concerns divisions between the Mountain-Pacific railroads and eight principal Midwestern carriers.


1. The ICC has authority to take evidence and make findings on a group basis. New England Divisions Case, 261 U. S. 184. Pp. 387 U. S. 340-343.

(a) The "actual necessities of procedure and administration" require proceeding on a group basis in ratemaking and divisions cases involving large numbers of railroads. Pp. 387 U. S. 341-342.

(b) The premise that evidence pertaining to a group is typical of its members may be challenged by an individual carrier, which will be accorded independent treatment by the ICC upon proper request. P. 387 U. S. 342.

(c) Here, the carriers voluntarily aligned themselves into groups and requested new divisions on a group basis. P. 387 U. S. 343.

2. The ICC's failure to state the revenue needs of each carrier in terms of precise dollar amount was not error. Pp. 387 U. S. 343-351.

(a) The ICC found revenue needs important factors only for the Eastern divisions, and since those divisions are not in issue, the ICC's treatment thereof is no longer relevant. Pp. 387 U. S. 344-345.

(b) Assuming that the ICC attached some limited significance to revenue needs in increasing Midwestern divisions, its treatment was not legally inadequate. The use of comparative rates of return, on a value, rather than book cost basis, is an appropriate foundation for the exercise of administrative judgment as to relative financial strength. Pp. 387 U. S. 345-347. chanrobles.com-red

Page 387 U. S. 328

(c) The question of passenger deficits was of negligible relevance to the ICC's decision to increase Midwestern divisions. Pp. 387 U. S. 348-351.

3. In light of the insubstantiality of appellees' attacks on the ICC's conclusions on service costs, which had reasoned foundation and were within the scope of its expert judgment, further District Court proceedings thereon would not be appropriate even though the District Court had not dealt directly with those conclusions and it is not generally this Court's practice to initially review an administrative record. Pp. 387 U. S. 351-356.

4. The ICC's "expert discretion" plays a considerable role in the technical area of railroad rate divisions, and there was sufficient explanation for its exercise here in devising a special divisional scale designed to produce the moderate increases in Midwestern divisions it found justified by cost evidence. Pp. 387 U. S. 356-361.

(a) The remedy the ICC chose was appropriately calculated to achieve moderate overall increases in the Midwestern divisions. Pp. 387 U. S. 358-359.

(b) The ICC was not obligated to make precise dollar amount findings of the effect of the new divisions on each of the carriers or carrier groups involved; it was not undertaking to transfer sums of money from Mountain-Pacific carriers to Midwestern roads to meet the latter carriers' revenue needs. Pp. 387 U. S. 359-360.

(c) The ICC did not exceed its proper role in weighing and interpreting the evidence when it prescribed a minimum division of 15%. Pp. 387 U. S. 360-361.

5. The ICC did not err in its treatment of the three individual carriers which asserted that the divisions prescribed would have an unfair and unduly harsh impact on them. Pp. 387 U. S. 361-367.

(a) No carrier has a vested right to divisions it may have negotiated, and the mere fact that the new divisions may cause a net reduction in revenues does not establish their invalidity, especially since it has not been shown that the new divisions do not fairly reflect complainants' cost of service. Pp. 387 U. S. 362-363.

(b) At the time of the ICC's orders, the impact of the new divisions on Denver & Rio Grande was uncertain, and the voluntary negotiation of subdivisions was available; accordingly, the ICC was justified in refusing plenary consideration of the carrier's claims at that time. If the road's ability to provide service is jeopardized, it may apply to the ICC for relief. Pp. 387 U. S. 363-367.

238 F.Supp. 528, reversed and remanded. chanrobles.com-red

Page 387 U. S. 329


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