Reply Brief — Freeland v. United States

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IN THE {L_MICHAEL RODAK, JR. CLERK

*

Supreme Court of the United States

OCTOBER TERM, 1977

No. 77-457

EXXON PIPELINE COMPANY,

. Petitioner,

UNITED STATES OF AMERICA AND

INTERSTATE COMMERCE COMMISSION,

Respondents.

On Petitions for Writ of Certiorari to the

United States Court of Appeals for

the Fifth Circuit

REPLY OF EXXON PIPELINE COMPANY

TO THE BRIEFS IN OPPOSITION OF RESPONDENTS

FRANK L. HEARD, JR. RICHARD J. FLYNN

P. O. Box 2220 LEE A. MONROE

Houston, Texas 77001 JOSEPH B. TOMPKINS, JR.

Of Counsel

November 10, 1977

SIDLEY & AUSTIN

1730 Pennsylvania Avenue, N.W.

Washington, D.C. 20006

(202) 624-9000

Attorneys for

Exxon Pipeline Company

WILSON - EPES PRINTING Co. INC. - RE 7-6002 - WASHINGTON. D.C. 20001

IN THE

Supreme Court of the United States

OCTOBER TERM, 1977

No. 77-457

EXXON PIPELINE COMPANY,

Petitioner,

V.

UNITED STATES OF AMERICA AND

INTERSTATE COMMERCE COMMISSION,

Respondents.

On Petitions for Writ of Certiorari to the

United States Court of Appeals for

the Fifth Circuit

REPLY OF EXXON PIPELINE COMPANY

TO THE BRIEFS IN OPPOSITION OF RESPONDENTS

The briefs in opposition to the petitions for certiorari

are primarily devoted to the same arguments which were

raised, unsuccessfully, in opposition to the petitioners’

stay applications. Those arguments have not gained in

merit with the passage of time.

The federal parties continue their attempt to abolish

all restraints on abuse of the suspension power. Despite

2

the narrow language used in the carefully drafted Chessie

opinion (United States v. Chesapeake & Ohio R. Co., 426

U.S. 500 (1976)), they continue to claim that Chessie

overruled Moss v. CAB, 430 F.2d 783 (D.C. Cir. 1970),

“insofar as the decision in Moss purports to place general

limitations on a regulatory agency’s ability to use its

suspension power to induce the filing of a modified rate

tariff... .”' This attempt by the government to elimi-

nate all restraints against arbitrary abuse of this potent

regulatory tool serves only to emphasize the importance

of this case and the need for plenary review.

We have previously answered this attempt to pervert

the holding of Chessie (Petition, pp. 19-20), and will

not again do so here. However, there are three argu-

ments made in the briefs in opposition which we have

not previously addressed. These are: (1) the argument

that abuse of the suspension power is not subject to

judicial review; (2) the argument that the particular

interim rates imposed by the Commission were reason-

able; and (3) the argument that the validity of the re-

fund condition is not presently ripe for review. We ad-

dress those arguments in turn.

A. Abuse of the Suspension Power Is

Subject to Judicial Review

The Alaskan Respondents base their arguments on the

premise that exercise of the suspension power is not

subject to judicial review. Like Judge Roney, we be-

lieve that this issue need not be reached in this case

because of the dual nature of the Commission’s action,

combining as it does a suspension order and a ratemak-

ing order in one document (Pet., p. 41a). If the Court

1 Brief in Opposition of the Federal Parties, at 12.

2 Cf., United States v. SCRAP, 412 U.S. 669, 693 n. 17 (1973),

where the Court considered the applicability of Moss to the Commis-

sion order before it, but concluded that the particular conditions

does reach this issue, however, it should rule that an

order suspending a carrier-initiated rate, unlike a re-

fusal to suspend, is subject to judicial review.

No claim could be made that judicial review of such

an order is precluded under the general test this Court

has evolved for determining reviewability. In Dunlop v.

Bachowski, 423 U.S. 814 (1975), for instance, the Court

allowed review of a decision at least as discretionary as

a suspension decision, namely, a government decision not

to file an enforcement action.

The Alaskan respondents apparently contend, however,

that the general principles governing judicial review are

rendered inapplicable to the suspension power by this

Court’s decisions in United States v. SCRAP, 412 U.S.

669 (1973), and Arrow Transportation Co. v. Southern

R. Co., 372 U.S. 658 (1963). This claim must founder

on the fact that SCRAP, the more recent of the two

cases, while clearly holding that a court has no power

to enjoin the implementation of railroad rate schedules

which the Commission refuses to suspend, specifically

left open the question of whether a decision to suspend

rates was subject to judicial review and the question

whether suspension decisions should be reviewed when a

claim was made, as it is here, that the Commission had

acted beyond its statutory powers. 412 U.S. at 698 n.

22. It also ignores the fact that in Chessie, a suspension

case, this Court considered at length the legality of the

Commission’s action, and remanded the case for further

judicial review in the District Court. United States v.

attached to the Commission’s refusal to suspend “did not, in

any meaningful sense, transform the carrier-made rate into a

Commission-made rate.” Implicit in the Court’s analysis is an

acceptance of the Moss theory that rates forced on carriers through

use of the suspension power are agency-made rates. Moreover, the

Court did not repudiate the District Court’s suggestion that if

Moss did apply, it would be an “alternative ground for avoiding

the Arrow decision.” Id.

4

Chesapeake & Ohio R. Co., 426 U.S. 500 (1976). Fi-

nally, respondents’ claim is based on a careless reading

of SCRAP and Arrow. Those cases were based on the

concept of primary jurisdiction, see Atchison, T. & S.F.

R. Co. v. Wichita Board of Trade, 412 U.S. 800, 820

(1973), and held only that a court may not itself sus-

pend rates. That question of relief is far different from

the question of whether a court may review an agency’s

exercise of its suspension power to determine whether

the agency has acted within the scope of its statu-

tory powers or has abused its discretion.* Cf. Dunlop v.

Bachowski, supra, 423 U.S. 814, in which the Court

allowed judicial review while reserving the question of

injunctive relief. See also Wichita Board of Trade, supra,

412 U.S. at 822-826.

Thus, the respondents’ attempt to immunize abuse of

the exercise of the suspension power from judicial review

must fail. It is unsupported by the cases on which they

rely, and inconsistent with this Court’s subequent deci-

sion in Chessie.

B. The Interim Rates Were Unreasonable

The respondents contend, and the Fifth Circuit held,

that both the decision to impose interim rates and the

A significantly different question is involved when the agency

does not suspend filed rates than when it does. Unlike a suspension

order, which must include a statement in writing of the reasons for

suspensiofi. a refusal to suspend need not be accompanied by a

statement of reasons. See 49 U.S.C. § 1507); Oscar Mayer & Co. v.

United States, 268 F.Supp. 977, 981 (W.D. Wis. 1967). This is clear

evidence that a refusal to suspend is not judicially reviewable. Cf.

Morris v. Gressette, 45 U.S.L.W. 4773, 4776 (June 20, 1977). More-

over, because shippers can be fully protected by refund conditions

or reparations orders, there is less need for judicial review when

an agency decides not to suspend an increase. When an increased

rate is suspended, the carrier cannot be made whole for any under-

collection of revenues during the suspension period, and, as in the

present case, if an initial rate is suspended, the carrier cannot per-

form the proposed service at all.

5

level of the interim rates are beyond the scope of judi-

cial review. In an effort to make this extraordinary asser-

tion more palatable, the respondents now contend that

the particular result in this case is not unjust. Even if

that factual assertion were true, it would be irrelevant to

the legal issues in this case, for the issues here concern

the validity of a holding which makes no distinction be-

tween just and unjust agency action. More importantly,

the respondents’ factual assertion is false, for the rates

imposed here were manifestly unreasonable. This case

illustrates the danger created by the Fifth Circuit hold-

ing, namely, the danger that arbitrary and unreasonable

interim rates will be imposed without a full hearing.

While this is obviously not the time to argue in detail

the merits of the Commission’s prescribed interim rates,

there are two major flaws in the Commission’s rate-

making methodology in this case which should be men-

tioned briefly. First, the Commission failed to take into

account the fact that the TAPS “initial” level of through-

put actually cannot be reached until 1978. The maximum

possible throughput during the suspension period is far

lower. As a result, the owners cannot ship enough barrels

of oil to earn the revenues allowed by the Commission.

To obtain the return on investment which the Commission

found proper, the owners would have to charge more dur-

ing the suspension period than the proposed long-term

rates which the Commission suspended. To achieve the

rate of return authorized by the Commission at the re-

duced throughput during the start-up period, Exxon, for

instance, would have to charge roughly $9.00 per barrel,

as opposed to the $6.27 in its original filing or the $5.10

allowed by the Commission.“

The second major error in the Commission’s rate calcu-

lation relates to the treatment of the enormous expense

Supplement to Petition of Exxon Pipeline Company for Recon-

sideration, ICC I&S Docket No. 9164 (filed July 22, 1977).

6

of restoring the terrain on which the pipeline was built

to its original state at the end of the pipeline’s life. The

Commission allowed collection of an annual sum which

will be grossly insufficient to cover this expense, in part

because the Commission failed to allow for the fact that

the amount collected will be subject to the federal income

tax. As a result, at the end of the pipeline’s economic

life, Exxon would have only $233 million to meet an esti-

mated $466 million liability.

We will not respond here to the attempt of the Alaskan

respondents to raise in this Court several attacks on the

proposed rates which were not found persuasive even by

the Commission. It is enough here to note that the re-

spondents’ ill-conceived, result-oriented efforts to defend

an untenable legal theory must fail, for the result reached

by the Commission in this case is both unsupportable and

unjust.

C. Ripeness of the Dispute Concerning the

Refund Condition

The Alaskan respondents coniend that there is no pres-

ent case-or-controversy concerning the validity of the re-

fund condition. That argument verges on the frivolous.

The effect of the Commission’s order was to require Exxon

to take certain action—file an amendment to its proposed

tariff including a refund condition. If Exxon had failed

to do so, it would not have been allowed to use its share

of the pipeline capacity. Whether Exxon was required to

comply with this directive was certainly a live issue; the

Commission’s order was reviewable because it had an im-

mediate impact on Exxon’s rights and obligations. See

Pennsylvania Railroad v. United States, 363 U.S. 202,

205 (1960); City of Chicago v. United States, 396 U.S.

162 (1969). By submitting to the Commission’s require-

ment, Exxon was forced to relinquish a possible defense

*

7

to reparations and to relieve the shippers of the burden

of proof which they would otherwise have in a reparation

proceeding. See 49 C. F. R. 5 1100. 100. If Exxon had

simply complied with the requirement without protest,

it is not at all clear that it could have challenged the

validity of the refund condition at some later time. As

in the leading case of Abbott Laboratories v. Gardner,

387 U.S. 136, 152 (1967), immediate review is appro-

priate because the agency action has a direct, immediate

effect, and places the aggrieved party in a dilemma in

which it must comply or suffer unfavorable consequences.

D. Conclusion

In our petition for certiorari, we have pointed out the

importance of the issue presented by this case. The Fifth

Circuit allowed the Commission to engage in ratemaking

without a hearing under the pretext of exercising its sus-

pension power, in total disregard of this Court’s holding

in ICC v. Cincinnati, N.O. & T.P. Ry., 167 US. 479

(1897), that the ratemaking power is never to be extended

by implication. The Fifth Circuit also based its far-

reaching decision upon a perverse misreading of this

Court’s opinion in the Chessie case. As a result of the

Fifth Cireuit's decision and the conflicting decision of the

* Reparations are not automatically available as of right when a

rate is found prospectively unreasonable. In Arlington Heights

Fruit Exch. v. Southern Pacific Co., 39 I. C. C. 88, 93 (1916), for

instance, the Commission denied reparations because it “was con-

sidering a novel service only recently introduced, whose efficiency

and permanence were in some degree problematical.” The Com-

mission ommented that:

“Under such circumstances the question of fixing a reasonable

rate is attended with no little uncertainty, and the immediate

establishment of an appropriate and reasonable charge for the

new service is possibly requiring more of the carriers than in

fairness could be exacted.” Ibid.

We believe that such a defense may be available if a shipper

sought reparations from Exxon.

8

D. C. Circuit in Moss, the present state of the law is

confused concerning the existence of restraints on abuse

of the suspension power. Moreover, the court’s decision

below invites further disregard by administrative agen-

cies of the statutory and Constitutional limitations on

their power. Only this Court can resolve the present un-

certainty on these important issues of administrative law

created by the Fifth Circuit’s decision.

Petitioner respectfully requests that its petition for

certiorari in this important case be granted.

Respectfully submitted,

/s/ Richard J. Flynn

FRANK L. HEARD, JR. RICHARD J. FLYNN

P. O. Box 2220 LEE A. MONROE

Houston, Texas 77001 JOSEPH B. TOMPKINS, JR.

Of Counsel SIDLEY & AUSTIN

1730 Pennsylvania Avenue, N.W.

Washington, D.C. 20006

(202) 624-9000

Attorneys for

Exxon Pipeline Company

CERTIFICATE OF SERVICE

I, Richard J. Flynn, counsel for petitioner Exxon Pipe-

line Company and a member of the bar of this Court,

hereby certify that, pursuant to Rule 33, copies of Exxon

Pipeline Company’s Reply to the Briefs in Opposition of

the Respondents have been served upon all parties to the

proceeding below and upon the additional parties listed

below via first class mail, postage prepaid by depositing

the same in the United States Postal Service at Washing-

ton, D. C., this 10th day of November, 1977:

Wade H. McCree, Jr., Esquire

Solicitor General

Department of Justice

Washington, D. C. 20530

H. G. Homme, Jr.

Acting Secretary

Interstate Commerce Commission

Washington, D. C. 20425

Edward W. Wadsworth, Clerk

United States Court of Appeals

for the Fifth Circuit

600 Camp Street

New Orleans, Louisiana 70130

/s/ Richard J. Flynn

RICHARD J. FLYNN