Petition — S & E Shipping Corp. v. United States (Nos. 79-1716, 79-1708, 79-1718)

IN THE

SUPREME COURT OF THE UNITED STATES

S & E SHIPPING CORP., Petitioner,

We

THE UNITED STATES OF AMERICA and

INTERSTATE COMMERCE COMMISSION, Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

ROBERT J. ABLES

1919 Pennsylvania Avenue, N.W.

Washington, D. C. 20006

Telephone: 202/223-4000

Counsel for Petitioner

April 30, 1980

INDEX

Page

er SR a aad ce oe abe 6 ep eens Ce hee eb eh eneeteae 1

ak RE GRINS 6. 6 AO Sah 0 Oe bh eeld 64 sh ok Wb wee ove wee eee 2

CN PE RRUEME cic ci ee cere esieeseccevensececsos 2

Ce a ee PETC EETELS. TCT ETT Tree 2

SESCUCOLY PEGVISLONS ANVOLVER, 2 ccccccccsscccccaces 7

Reenpons for granting Che WEIE. .vcccccsccccccccsces 8

1. The decision below conflicts

with decisions of other courts

of appeal and the Supreme Court

as to the proper interpretation

and application of 49 U.S.C. §

3(4) and the National Transpor-

COCA POLLS s va boc Kec cerecwedesccccccescees 8

2. Statutory and public interest

considerations require the

Commission to protect water

carriers of exempt bulk com-

modities, the same as other

carriers. The Commission and

2Ower COUFC GiG NOt GO CHAS... ccvcceceseces « 22

COMIS LUD LON 0 ob 4 oc oc 6CC hee S Hees S Ke HER Es ecseeesedeses 24

CITATIONS

Cases:

American Express Co. v. South Dakota,

244 U.S. 617, 624 (1916)..... SP Sere ee ee ee es» 2G

District of Columbia v. Grimes,

Ss CRs: ROORTE CEPORD bc ececccawescoceces ll

Doraiswamy v. Secretary of Labor,

Saw Cue Bae, BOF EM. F LASTS) ccvccccvccvsceues ll

I.C.C. v. B & O Railroad,

BOS. Use Sees Sees OTe CABS) 6c cesta visccs coven &6

I.C.C. v. Mechling,

Bae Wek, SAT G Me BER LESS t ade cece pecde pence 17

Lake Carriers' Association v. U.S.,

399 F.Supp. 386 (N.D.OhiO 1975)... .cccccccccvee 18

Lenkin, et al v. District of Columbia,

461 F2d. 1215, 1230 fn. 113

(DABSEISCe CGE COLMMDAE CAICSULE) wo ciccccccocecesic 1l

7c

ii

Polisnik v. U.S.,

259 F2d. 951, 952 Em. 3 (1958) .. ccc cccccccscecs

Seatrain Lines, Inc. v. U.S.,

233 F.Supp. 199, 209 (D.N.J. 1964)... cece

Western Pacific Railroad Co. v. U.S.,

382 U.S. 237 (1965)

Western Pacific Railroad Co. v. U.S.,

263 F.Supp. 140, 145 (N.D.Cal. 1966)...........

Miscellaneous:

I.C.C. Annual Reports

Vol. 69, De WWeccececcccccccccecccesessccccccecs

Vol. 725 Bu AOBicccdcacceeseeewasesserdecscicer

Senate Report No. 91-1030,

9lst Cong. 2d session, Pp. 129... cece eeeesees

10

10,15,17

10,14

21

21

23

IN THE

SUPREME COURT OF THE UNITED STATES

1980 Term

No.

S & E SHIPPING CORP., Petitioner,

Vv.

THE UNITED STATES OF AMERICA and

INTERSTATE COMMERCE COMMISSION, Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

The petitioner S & E Shipping Corp. respectfully

prays that a writ of certiorari issue to review the

decision and opinion of the United States Court of

Appeals for the Second Circuit entered in this pro-

ceeding on May 7, 1979.

OPINION BELOW

The opinion of the Court of Appeals (600 F2d 349)

appears in the Appendix to the petition by the State

2

of New York for the same writ of certiorari. S &E

Shipping Corp. has consulted with the state, and

adopts as its own the Appendix filed by the State of

New York.

JURISDICTION

The decision and order of the Court of Appeals

for the Second Circuit was entered on May 7, 1979.

A timely petition for rehearing in banc was denied on

January 31, 1980 following an order by the court on

October 3, 1979 posing certain questions to all active

parties before deciding on a rehearing to clarify the

parties interests, financial and otherwise, with re-

spect to the rates in issue. Those questions were

answered on October 19, 1979. This petition for

certiorari was filed within 90 days of the date that

the petition for rehearing in banc was denied. This

Court's jurisdiction is invoked under 28 U.S.C. Sec-

tion 1254(1).

QUESTION PRESENTED

Whether the railroad unit train rates in issue

discriminate unlawfully against Great Lakes water car-

riers, such as S & E Shipping Corp., as connecting car-

riers at Buffalo, New York in water/rail competition

for carrying wheat from the north central states to a

shipper's facility in Pennsylvania in violation of Sec-

tion 3(4) of the Interstate Commerce Act and the

National Transportation Policy.

STATEMENT OF THE CASE

The cargo in dispute is grain (wheat). It origi-

nates in the north central states and is delivered in

bulk to milling centers in the east to be distributed

7T

3

and sold as flour to processors and consumers in the

north and mid Atlantic states.

The basic issue is the lawfulness of a unit train

rate on wheat from Minnesota and Wisconsin origins

(Twin Cities and Twin Ports) to Martins Creek, Pennsyl-

vania, which is 327 miles southeast of Buffalo, New

York. The tariff at issue is published by the Soo Line

Railroad Company (Soo) and Consolidated Rail Corporation

(Conrail) to apply during the open navigation season on

the Great Lakes. Wheat potentially can move to Martins

Creek over an all rail route via Soo to Chicago, thence

via Conrail to Martins Creek, or a lake-rail route via

water carrier to Buffalo, thence via Conrail to Martins

Creek. Soo and Conrail and other railroads also publish

a unit train rate from Twin Ports to Buffalo which is

designed to provide an alternative to the practice of

storing wheat in vessels during the closed navigation

season. This rate is not competitive with the lake

vessel charges available during the open navigation

season and generally does not move traffic during that

season.

In either case, the Soo and Conrail control the

ultimate delivered price of wheat since both, together,

establish the rate on the all rail route. Conrail,

alone, establishes the rate for the rail leg of the

lake-rail route. There is no dispute but that Conrail

has established charges for connecting water carriers

at Buffalo which are twice as much, on a ton mile basis,

as it charges for its rail connection with the Soo at

Chicago. 356 I.C.C. at 92.

Water carriers (which are called "boats" on the

Great Lakes, even though, frequently, they are larger

than ocean going vessels) are an integral part of the

national transportation system, particularly as they

Carry cargoes in bulk such as iron ore, coal, grain,

limestone, sand, cement and petroleum products. They

are essential for the commerce and defense of the

nation. When they carry such bulk commodities, they

are exempt from economic regulation by the Interstate

4

Commerce Commission (I.C.C. or Commissicn). 49 U.S.C.

903(b) .2/

Besides the two railroads who are proponents of

the disputed rail rates, the other active parties at

the court level are a shipper, a lake carrier, a state,

a maritime union and the Commission.2

ConAgra, Incorporated (ConAgra) is a milling com-

pany based in Omaha, Nebraska and is the shipper in-

volved in this dispute. The shipper supports the rail

rates.

S & E Shipping Corp., petitioner here, is a ship-

ping company on the Great Lakes. It is the largest car-

rier of grain by shipping companies operating on the

Great Lakes. The basic movement of grain by S & E (and

other water carriers) is from Twin Ports to Buffalo.

S & E opposes the railroad rates.

New York State represents the interests of Buffalo

and surrounding area in opposition to the rail rates.

The Seafarers International Union AFL-CIO (SIU)

represents certain maritime interests on the Great

Lakes and is opposed to the railroad rates.

1/ Citations to Title 49 of the U. S. Code are presented

herein as before the codification required by Public

Law 95-473 (Act of October 17, 1978, 92 Stat. 1466)

in order to conform to citations in this case by the

Commission and Court of Appeals.

2/ A measure of the significance of the case, in the

public interest, is the number of other parties

who participated actively in the proceedings below.

In addition to the parties in the appeal to the

courts, one party supported the rates; twenty op-

posed (including other railroads; millers; Boards of

Trade; public interest groups in Twin Ports, Seaway

Authority, Niagara Frontier and Erie County, New York;

and Great Lakes operators). There were also numerous

letters from senators and congressmen opposing the

rail rates.

5

The Interstate Commerce Commission heard the case

and decided that the railroad rates were lawful.

About 172 vessels in the Great Lakes fleet move

bulk commodities in the domestic commerce. The car-

riers and shippers negotiate rates and service, based

essentially on the law of supply and demand. They have

been doing business like this for generations - in the

case of S & E Shipping Corp. for almost 150 years. As

a result, trading patterns, facilities and people have

come to depend on the lake carriers and shippers con-

tinuing in such relationship.

One such fixture is Buffalo, New York.

For as long as can be remembered, grain has been

Carried by boat from the Twin Ports to the Buffalo

mills, made into flour and sold largely in the eastern

markets. Thus, Buffalo is the milling center of the

United States.

There has been no complaint through the years

about this arrangement - not from shippers, millers,

consumers, port interests on the Great Lakes, unions

or the working people - not even the government.

In this setting, ConAgra, out of Omaha, Nebraska,

decided to enter the eastern market. It did not join

the Buffalo millers. Instead, it set up operations in

Martins Creek. The shipper first looked to insure its

supply lines. Negotiations with the Soo and Erie

Lackawanna Railroad Company (later Conrail), produced

a unit train rate from Twin Ports and Twin Cities.

These rates became effective on June l, 1974.

In the navigation season on the Great Lakes (1i.e.,

when the lakes are not ice-bound), grain can be trans-

ported by boat to Buffalo and then by Conrail to Mar-

tins Creek. The sailing distance between Twin Ports

and Buffalo is 992 miles. The rail mileage between

Buffalo and Martins Creek is 327 miles. The rail mile-

age between Twin Ports and Martins Creeks is 1,383 miles.

e-*,

6

The through charge to Martins Creek, boat/rail per

CWT is about 72 cents.3/ In the off navigation season,

grain can be transported through Buffalo (which has a

unit-train rate from Twin Ports) and then by Conrail, at

88 cents per CWT.

The unit train rates on wheat direct from Twin

Ports and Twin Cities to Martins Creek were set at about

72 cents for the navigation season and 88 cents in the

off season. These rates were specifically set by the

railroads to match the boat/rail rate. The rail rate

by Conrail (which holds monopoly service east of Buffalo)

for the 327 mile segment beyond Buffalo is over 80 per-

cent of the all rail rate for 1,383 miles from Twin Ports.

The case dates back to 1972. Although ultimate find-

ings were favorable to the railroads, the Interstate Com-

merce Commission had also found, en route to its final de-

cision, that a first set of unit train rates was in viola-

tion of the Interstate Commerce Act because of an illegal

tie-in arrangement between the railroads and the shipper,

and, later, that the same set of rates without the tie-in

were unlawful from Twin Ports. The Court of Appeals in

its first decision found that Great Lakes bulk carriers

were entitled to protection under the Interstate Commerce

Act, despite contrary findings by the Commission. The

court set aside the Commission's order and remanded the

case to the Commission to determine whether the protested

rail rates violate Section 3(4) of the Interstate Com-

merce Act by discriminating against lake carriers as

connecting lines at Buffalo.

After the remand, the Commission decided there was

no such unlawful discrimination against lake carriers as

connecting lines. In reaching this judgment, the Com-

mission substituted Chicago for Buffalo as the point of

3/ All rates in issue have increased, proportionately,

since 1972.

7

connection between lake carrier and rail service. Also,

the Commission found that a hypothetical 50 car unit

train service from Buffalo to Martins Creek was not

practical and therefore could not cure the rate dis-

crimination which it had already found did exist as be-

tween the Chicago-Martins Creek and Buffalo-Martins

Creek rail segments. The Court of Appeals in its second

decision on the merits, by a split vote, sustained the

Commission. The dissenting judge (Timbers) on the se-

cond panel had written the opinion for @ unanimous panel

in the court's first consideration of the case. The two

judges in the majority (Van Graafeiland and Moore) had

not acted on the case before the remand to the Commission.

Upon request by S & E and other parties opposing

the disputed rail rates that the court reconsider the

decision in banc, the three judges who had decided the

case in the second panel requested the parties to answer

certain questions. In doing so, the court specifically

advised the parties that it would serve no useful pur-

pose to speculate on a Chicago connection between lake

and rail service because: “Once loaded at the source,

economy would demand a through lake trip to Buffalo”.

The court also advised the parties not to argue the

hypothetical case of bringing 5U-car unit trains into

Buffalo and shipping from that point to Martins Creek.

All active parties answered the question. The court,

with the same dissent, denied petitions for rehearing.

STATUTORY PROVISIONS INVOLVED

49 U.S.C. §3(4)

- Connecting lines

49 U.S.C. §903(b)

- Bulk exemptions

49 U.S.C. §3(1)

- Interchange of traffic, prejudice

49 U.S.C. 10101

- National Transportation Policy

46 U.S.C. 1101

- National Maritime Policy

46 U.S.C. 1177, P.L. 91-469

(Rehabilitation Great Lakes Fleet)

*%

REASONS FOR GRANTING THE WRIT

‘1. The Decision Below Conflicts With The Decisions Of

Other Courts Of Appeals And The Supreme Court As To

The Proper Interpretation And Application Of 49

U.S.C. §3(4) and the National Transportation Policy.

Section 3(4) of Title 49 provides with respect to

interchange of traffic that carriers shall “afford all

reasonable, proper, and equal facilities for the inter-

change of traffic" between their respective lines "and

connecting lines”. Further, with respect to such inter-

change, carriers "shall not discriminate in their rates,

fares and charges between connecting lines, or unduly

prejudice any connecting line in the distribution of

traffic....*.

Both majority and dissenting judge agree that "S & E

Shipping falls within the protective umbrella of Section

3(4)..." 600 F2d at 355, fn. 3.

The protested tariff is unlawful. It violates Sec-

tion 3(4) of the Act and is contrary to the National

Transportation Policy4/ in that Conrail while serving

the port o* Buffalo does not afford comparable rate re-

ductions or unit train service on wheat interchange be-

tween lake carriers and that railroad, nor does it af-

ford comparable rate reductions or unit train service on

flour milied in Buffalo and moving to eastern destina-

tions, such as New York and Philadelphia.

4/ 49 U.S.C. 10101. It is the policy of the United States

"to provide for the impartial regulation of the modes

of transportation" subject to regulation by the I.C.C.

and the Commission, in regulating those modes, among

other things, is “to recognize and preserve the in~

herent advantage of each mode of transportation”.

9

The protested tariff constitutes unfair and destruc-

tive competition in violation of National Transportation

Policy in that such tariff fails to recognize the inherent

advantage of Great Lakes water carriers to provide low

cost transportation service and the Commission has no dis-

cretionary power to approve any type of rate which reduces

the inherent advantage of water transportation in whole or

in part.

It is no longer in dispute that a rate differential,

unjustified by cost differences, has been shown. The Com-

mission so found. 356 I.C.C. at 92. The resulting ques-

tion, therefore, (as framed by Judge Timbers in his dis-

sent, at 2526) is whether the railroads can justify charg-

ing twice as much to transport wheat over a rail route

that connects with a water carrier than over the compet-

ing rail route that connects with another railroad, de-

spite the fact that the rail revenue yield on the water-

rail route is substantially higher than the yield on the

competing rail route.

The unjustified maintenance of a rate disparity be-

tween connecting lines is prejudical and discriminatory

and is specifically prohibited by 49 U.S.C. Sec. 3(4).

In its first decision reported at 346 I.C.C. 814,

the Commission did not reach the question of whether the

unit train rate discriminated against the lake carriers

because it held the lake carriers were not entitled to

the protection of the statute. The Court of Appeals in

its first decision held that the Commission erred in so

holding and remanded the proceeding to the Commission

“for the limited purposes of determining whether proposed

rates discriminate against the lake carriers as connect-

ing lines." 568 F2d at 897.

Protestants of the rail rates had previously con-

tended that the rate disparity was not cost justified,

i.e., that the cost of performing rail service over the

two competing routes did not justify disparate rate

treatment. Controlling precedent holds that if a rail-

road cannot cost justify that disparate rate treatment,

i.

10

the rates are discriminatory.- Western Pacific Railroad

Co. v. United States, 382 U.S. 237 (1965); Seatrain Lines

Inc. v. United States, 233 F.Supp. 199, 209 (D.N.J. 1964);

and Western Pacific Railroad Co. v. United States, 263

F.Supp. 140, 145 (N.D.Cal. 1966).

On remand, the Commission accepted additional evi-

dence showing the changes in the level of rates. The new

evidence showed that Conrail still charges twice as much

to transport 100 lbs. of wheat one mile when it connects

with a water carrier at Buffalo than when it connects ~

with a fellow railroad at Chicago. The Commission found

that this disparity in rate treatment could not be justi-

fied on the basis of relative costs. 356 I.C.C. at 92.

This should have put an end to the matter.

The Commission found, however, that since Conrail

could not perform the inter-train service from Buffalo

in connection with water carriers, no discrimination

existed. The complaint, however, is not that there is

no unit train service out of Buffalo but that the water

carriers are discriminated against at Buffalo because the

railroad rate is twice as much on a per mile basis when

the railroad connects with a water carrier than when it

connects with a fellow railroad and the railroads have

never justified this disparity.

A majority of the Second Panel of the Court of Ap-

peals based its decision on the ground that it would be

inefficient and uneconomical for Conrail to institute

unit train service fren Buffalo to Martins Creek, 600

F.Supp. at 352-353. It is to be emphasized, however,

that the fact that a hypothetical unit train service

cannot be instituted is wholly irrelevant to the deter-

mination of whether the rate in issue is discriminatory.

This was the controlling issue under the remand from the

Court of Appeals to the Commission. The court remanded

for the specific limited purpose of determining whether

the rate discriminates against lake carriers, that is,

whether the disparate rate treatment was cost justified

and not to consider the question of whether the lack

of unit train service from Buffalo to Martins Creek dis-

ll

Criminates against lake carriers. The latter question is

the only question addressed by the Commission on remand

and the only question affirmed by the majority opinion.

Clearly, therefore, as the dissenting opinion states

"The Commission on remand either has misconstrued [the

Court's] mandate or has ignored it." The majority de-

cision is thus based on a fundamental misunderstanding

of the court's prior opinion and the purpose of the re-

mand.

The two judges (Van Graafeiland and Moore) who were

not on the case before effectively told the one judge

(Timbers) who was on the case before and who had written

the opinion for a unanimous court, what the first panel

meant when it sent the case back to the Interstate Com-

merce Commission.

This was highly unusual. >_/

S/ Polisnik v. U.S., 259 F.2d 951, 952, fn 3, (1958) (Dis-

trict of Columbia Circuit). Three judge court felt

bound to affirm exclusionary rulings by District judge

even when they disagreed with his rulings, where the

court en banc had reaffirmed the rule that was the

basis for the ruling by the District judge. District

of Columbia v. Grimes, 404 F.2d 1337, :1342-43 (1968)

(District of Columbia Circuit). Court held defendant

could not be convicted without colliding head on with

established precedents and that it must follow earlier

rulings as they can only be overturned by court en banc.

Lenkin, et al. v. District of Columbia, 461 F.24 1215,

1230, fn. 113 (District of Columbia Circuit). S®anel

said it needed authority to overturn another panel.

Tulford v. Klein, 529 F.2d 377, 379 (1976) 5th Cir. LA.

"One panel of this court may not overrule another pre-

vous panel, absent controlling Supreme Court authority”.

Doraiswamy v. Secretary of Labor, 555 F.2d 832, 847 fn

9 (1978) (District of Columbia Circuit). Court, as a

panel, does not have authority to overturn holdings of

another panel. The proposal should have been addressed

to the court, en banc.

12

S & E had argued after the Commission's decision on

remand that the court wanted the Commission to decide if

there was discrimination, at Buffalo, not with the Chicago

connection, as determined by the Commission. Judge Tim-

bers apparently agreed with that argument. In addition

to his statement that the Commission disregarded the order,

he emphasized that the majority of the court had supported

a “hypothetical” unit-train service, which to him was

“totally beyond the scope of our mandate".

The force of the dissent and, perhaps, the argument

of protestants in their request for rehearing may have

prompted the court to consider the merits further. In any

event, the court propounded to the parties a series of

questions. There was no opinion from the court after re-

ceiving answers to the questions. But the questions re-

veal fundamental uncertainty about the case suggesting,

as petitioner contends, that an important national trans-

portation policy issue is at stake, which warrants review

by this Court.

Questions By The Court Of Appeals After Decision On

Merits. In the order by the second panel of the Court

of Appeals directing the parties to submit briefs in re-

sponse to questions, certain comments by the court, which

were pertinent to the questions asked, show that the dis-

sent is the better opinion.

The Court stated:

No interest would be served by

speculating on a Chicago lake-

rail interchange. Once loaded

at the source, economy would

demand a through lake trip to

Buffalo. Nor should there be

argument based on bringing 50-

car unit trains into Buffalo

and shipping from that point

to Martins Creek.

13

By this comment the court effectively disposed of

matters featured at earlier stages of this proceeding.

This is especially significant with respect to the

matter of the 50-car unit train service between Buffalo

and Martins Creek (the so-called hypothetical new unit-

train service). This was the sole basis for the Com-

mission's decision to permit “the railroads to maintain

a rail rate structure which discriminates against water

carriers at Buffalo", Majority Opinion at page 2527.

S & E submits that this effectively disposes of the

dispute, in accordance with Judge Timbers' dissent

wherein he stated at page 2527:

The railroads, in my view, have

totally failed to justify the un-

disputed rate discrimination

which has been found, permitting

ConRail to earn roughly twice as

much, after expenses, from its

Buffalo-Martins Creek route as

from its Chicago-Martins Creek

route.

The Court also stated:

However, the Buffalo-Martins

Creek rate is not per se deter-

minative of discrimination but

only as related to the total

rates from grain source to Mar-

tins Creek via lake-rail or

all-rail methods of transporta-

tion. We had assumed that this

Court was being asked ‘to order

the cancellation of the unit-

train rates from Twin Ports and

Twin Cities to Martins Creek be-

cause the Buffalo to Martins

Creek rates are proportionately

higher and more profitable’.

The proper comparison of rates is not all inclusive,

14

as stated, by determining the discriminatory nature of

the all-rail rates by comparing them with the rates from

grain sources to the ultimate destination on the lake-rail

route. The comparison made by the lower court ane~the

Commission is that described by Judge Timbers.

The facts are undisputable that a prima facie case

of discrimination, prohibited by Section 3(4), has been

presented in that there exists a disparity between the

rail portion of the ex-lake traffic and the proposed all-

rail rate.§/ the railroad cannot justify the undisputed

rate discrimination found which permits Conrail to earn

twice as much after expenses from its Buffalo-Martins

Creek route as from its Chicago-Martins Creek route.

The existence of discriminatory rates against lake

carriers in violation of Section 3(4) is determinative

of this proceeding in that the rail carriers failed to

justify these rate disparities, under the rule of Western

6/ Stated in somewhat different terms the district court

in Western Pacific Railroad Company v. United States,

263 F.Supp. 140, 145 (N.D.Cal. 1966) described the

discrimination as follows:

“Such discrimination exists when a carrier

(in this case Northern Pacific or Union

Pacific) enters into a joint through rate

arrangement with another connecting line

carrier (in this case Southern Pacific),

but refuses to enter into the same rate

arrangement with another connecting line

(in this case Western Pacific)."

15

Pacific Railroad Co. v. United States, 382 U.S. 237 (1965).2/

Actual Questions. The court inquired whether the 40-cent

rate from Buffalo to Martins Creek was discriminatory and

if so, how?

The question indicates fundamental uncertainty what

the court was deciding. In the opinion of the second panel

in discussing the 40-cent rate, the majority stated:

The rate eastward from Buffalo was

the same, however, regardless of

whether grain movement into Buffalo

from the west was by ship, rail, or

truck. Clearly, no carrier from

the west could claim that it was

being discriminated against because

of the higher Buffalo to Martins

Creek rate.

This statement must be read in conjunction with the

court's more recent comment introducing the questions

wherein it was stated:

“...the Buffalo-Martins Creek rate

is not per se determinative of dis-

crimination - but only as it is re-

lated to...fother rates])."

7/ The nature of this burden was described in a subse-

quent decision following the Supreme Court's mandate

in 263 F.Supp. 140 at 146 (N.D.Cal. 1966):

“The burden of proceeding would then shift

to defendants to prove some dissimilarity

of operating conditions that would sub-

stantially affect them in the event they

were required to grant equality of treatment.”

16

This more recent statement of the court is consistent

with the lake carriers' position and, more importantly,

with the distinctions drawn by the United States Supreme

Court dating back to the earliest decisions following en-

actment of the Interstate Commerce Act. See I.C.C. v.

B & O Railroad, 145 U.S. 263, 276, 277 (1892). Again in

American Express Co. v. South Dakota, 244 U.S. 617, 624

(1916) Mr. Justice Brandeis said:

"...rates may be within the zone of

reasonableness and yet involve un-

just discrimination (citing B & O

Railroad). Proceedings to remove

unjust discrimination are aimed di-

rectly at the relation of rates."

(emphasis the court's).

The lake carriers have never contended the 40-cent

rate from Buffalo to Martins Creek was discriminatory in

itself. This is so because the question of rate dis-

crimination concerns a relationship of rates and no pur-

pose can be served to attempt to evaluate a rate ina

vacuum unrelated to other rates or charges.

When the Buffalo-Martins Creek rate is related to the

all rail rate from Chicago to Martins Creek, the discrimi-

nation against S & E as a connecting carrier at Buffalo is

that the high rail rate out of Buffalo supports - subsi-

dizes it may be said - the very low rail rate out of

Chicago for Martins Creek. Since the basis for the rail-

roads charging high rates out of Buffalo is the low water

rate into Buffalo (thereby giving the railroads several

strings to pull in fashioning a rail rate into Martins

Creek from Chicago or Buffalo), the railroads are dis-

criminating against the low cost water carrier which the

National Transportation Policy, Section 3(4) and common

sense say should be preserved.

It follows that the high rail rate out of Buffalo

is discriminatory against lake carriers connecting at

Buffalo in violation of Section 3(4).

17

Question About Trans-Shipment At Buffalo. The court

also asked about the effect, if any, of a trans-shipment

of grain at Buffalo from lake to rail on the overall rates

from source to Martins Creek.

This question raises the rule of Western Pacific Rail-

road Co. v. United States, 382 U.S. 237 (1965), which the

court did not properly apply. Judge Timbers pointed out

it is undisputed on the record that a rate differential

exists, unjustified by cost differences, and that the

rule in Western Pacific places the burden on the railroads

to justify the differential on the basis of different

operating conditions - which they did not do.

The premise for any such justification was eliminated

by the court deciding not to consider the Commission's in-

vention of a Chicago connection. That is, the Commission

substituted Chicago for Buffalo to satisfy Section 3(4)

requirements after finding operational difficulties on a

service not in issue.

The difficulty with that finding, as Judge Timbers

pointed out in his dissent, is that it is not based on

“existing actual conditions but on a hypothetical new

unit-train service.” Railroads are entitled to take into

account their different operating costs in establishing

rates over two routes and charge different rates according-

ly. But that does not mean they can allege inefficiencies,

difficulties or mythical problems unrelated to costs as a

justification. The Supreme Court in I.C.C. v. Mechling,

330 U.S. 567 (1947) at 581, made this clear:

"But the extra service must fit the

extra charge and cannot justify lump

sum rate increases which cut into

the inherent advantage of cheaper

barge transportation which Congress

intended to guaranty to shippers."

On this basis, the trans-shipment of grain at Buffalo

from lake to rail has no relationship to the over-all

rates from source to Martins Creek other than the cost/

. a

18

revenue comparisons established in this record, namely,

that Conrail earns about “twice as much, after expenses"

in the rail segment of the water-rail route and this re-

flects disparity of treatment amounting to discrimination

under Section 3(4).

Question About All Rail Rates. Another question by the

court warrants special comment.

The court asked about the propriety of the all-rail

rates from the grain sources to Martins Creek.

As the court was still asking basic questions about

the dispute, even though this was the third time it was

considering the case on the merits, it was not thought to be

ungraceful to say that the court missed the good oppor-

tunity it had the first time it considered the case to

decide it on grounds on which the dispute is actually

based, i.e., prejudice to water carriers in violation

of the National Transportation Policy, supra.

The court had declined to rule upon the lake car-

riers' argument that the Commission erred in failing to

protect the lake carriers, the Port of Buffalo and other

Buffalo interests from prejudicial and discriminatory rail

rates and practices which were designed to divert wheat

traffic away from Buffalo because this claim, based on

Section 3(1) of the Act (49 U.S.C. §3(1)), had not been

presented to the Commission. The argument, however, had

been based on the National Transportation Policy.

The court did note that the argument was based

primarily on Lake Carriers' Association v. United States,

399 F.Supp. 386 (N.D.Ohio 1975) (three-judge court). The

decision in that case, under similar competitive condi-

tions, was for the lake carriers based on considerations

of the National Transportation Policy.

In deciding not to rule on this argument by the lake

carriers, the court could not find “exceptional circum-

19

stances which would impel us to consider the issue here

despite the failure to present it to the Commission."

This Court might conclude there were exceptional

circumstances.

Like the ship with a thousand leaks, lake carriers

were busy responding to every salvo by the Interstate

Commerce Commission. The Commission said, for instance,

lake carriers were not entitled to protection under the

Interstate Commerce Act because they were exempt bulk

carriers (for which the Commission had no taste, as

evidenced by almost yearly recommendations to Congress

since 1940, to eliminate the bulk cargo exemption - but

where the Congress went the other way and increased the

exemption); that lake carriers were not connecting car-

riers deserving of protection, even under Section 3(4);

that lake carriers were not deserving of consideration

on economic competition with railroads because they did

not provide the precise cost data which I.C.C. regulated

railroads were in a position to provide, etc.

Lake carriers had their hands full.

The Commission did not relent in its efforts to

sink the lake carriers even after the unanimous decision

of the first panel of the Court of Appeals in its first

decision that lake carriers were entitled to protection

and that S & E was a connecting carrier at Buffalo. Wit-

ness: the Chicago connection. While that court advised

lake carriers to disregard that issue, it cannot be dis-

missed from the water carriers' consideration of the case

that the Interstate Commerce Commission has gone to ex-

treme limits to see that water carriers, which are

mandated by Congress to be protected by the Commission

the same as any other mode of carrier, did not get re-

quired protection from undue prejudice and disadvantage

by the railroads.

As indicated, water carriers on the Great Lakes have

carried grain, satisfactorily, from the upper lakes to

Buffalo for a very long time. The railroads knowing of

20

the restrictions in the Interstate Commerce Act against

driving out service by a competing mode set rates speci-

fically to match the water rail rate from Twin Ports to

Martins Creek. Those rail rates will go up surely once

water competition is eliminated.

The National Transportation Policy forbids this re-

sult.

This Court should not, without review of lower court

and Commission proceedings, permit a new service which is

consciously and deliberately set up to eliminate the es-

tablished service, particularly as the Congress has in-

sisted that a carrier which has the inherent advantage

in cost or service should be preserved, in the public

interest.

2s Statutory And Public Interest Considerations Require

The Commission To Protect Water Carriers Of Exempt

Bulk Commodities The Same As Other Carriers - The

Commission And Lower Court Did Not Do This.

At the time the Commission authorized the protested

rail rates in 1976, it noted the prospects for the

imminent financial failure of the Erie Railroad and the

hope for its survival under the Rail Reorganization Act.

Indeed, the Commission gave the appearance of being a

cheerleader for the Erie. Although the Commission found

that the rail rates were not cost justified, it approved

them.

In its public interest deliberations, the Commission

should also have considered the positive action taken by

the Congress to upgrade the Great Lakes fleet.

The Merchant Marine Act, 1970, (46 U.S.C. 1101, P.L.

91-469 (1970)) was passed almost unanimously. For the

first time, Congress extended very substantial tax and

other financial aid to rehabilitate the domestic Great

Lakes fleet. Also, the Congress officially designated

21

the Great Lakes as the fourth seacoast of the United

States. Since that time, additional legislation has

been passed to enable the Corps of Engineers to extend

the navigation season on the lakes and to earmark speci-

fic percentages of government aid to upgrade Great Lakes

shipping.

As a result, more new boats were built for the

domestic Great Lakes service immediately after the 1970

Act than in the previous 45 years combined.

Since 1954, the Interstate Commerce Commission has

repeatedly recommended to the Congress that it repeal

the exemption for bulk cargo water carriers under Sec-

tion 303(b) of the Act. (49 U.S.C. §903(b)).

In its 68th annual report to the Congress in 1954,

the I.C.C. stated:

"...tiie exemption adversely affects

the public interest in stable, rea-

sonable and properly related rates

and makes effective regulation of

water transportation impossible..."

(p. 20).

In its 69th annual report in 1955, the I.C.C. repeat-

ed the statement and added that it favored bills which

would remove the bulk exemption for water carriers (p. 18).

In 1958, in its 72nd annual report, the I.C.C. ex-

pressly recommended the repeal of Section 303(b), giving

the following reasons for its recommendation:

“Because of the various exemptions

in part III of the act, the greater

percentage of all domestic for-hire

water transportation is free from

economic regulation by the Commis-

sion. The most significant of

these is the so-called bulk commod-

ity exemption.

22

This exemption puts the regulated

carriers to a distinct competitive

disadvantage and results in dis-

crimination between shippers and

localities. The public interest

in stable, reasonable, and proper-

ly regulated rates cannot find ex-

pression in the complete absence

of control of such a large segment

of the bulk-carrying trade.

Enactment of this recommended

amendment would go a long way to-

ward correcting this undesirable

Situation and would also con-

stitute an important step toward

equality of treatment of carriers

of the various modes." (p. 142).

The Commission again made this recommendation in

1961. It held to the same position in later years.

The Commission's fundamental opposition to exempt

dry bulk water carriers may be explained by its long

held economic philosophy that, in order to exercise its

responsibilities under the Act, it had to have equal

economic control of all carriers subject to its juris-

diction.

The Transportation Act of 1940 made water carriers

in the domestic commerce subject to the jurisdiction of

the I.C.C. From that time, the Commission has opposed

exemptions for bulk water carriers in order not to impinge

upon the effectiveness of the Act as a whole - as it

viewed its responsibilities. But, most significantly,

Congress has gone the other way. Over the opposition of

the Interstate Commerce Commission, bulk commodity exemp-

tions for water carriers under Part III of the Act have

been extended - not restricted. Whereas, previously,

there had been some statutory restrictions on the number

and kind of commodity exemptions, at present, the exemp-

tion in Section 303(b) applies "to the transportation by

water carrier of commodities in bulk".

23

The Commission's reactionary policy towards water

carriers has been emphasized not simply to dramatize that

the Commission erred in this case in its findings that

Great Lakes bulk carriers were not entitled to protection

as connecting lines under Section 3(4) of the Act. The

Court of Appeals in its first decision corrected that

error. But, the point of Commission opposition to exempt

water carriers warrants consideration because, after the

remand, the Commission had a special dilemma how to re-

spond to the court.

The Commission had found in its first decision that

the rail rates between Buffalo and Martins Creek were not

cost justified and, accordingly, that there was - or would

have been - discrimination against a carrier entitled to

protection as a connecting line. The Commission, however,

did not treat this question because it had found that the

lake carriers were not entitled to Section 3(4) protec-

tion. When the first court panel sent the case back and

asked for a finding about rate discrimination against

water carriers as connecting lines at Buffalo, the Com-

mission was without a basis to justify its earlier de-

cision supporting the protested rail rates. Since there

was already a presumptive finding of such discrimination,

the Commission had to find other justification. It came

up with "the Chicago connection". Setting up its own

straw man, it then knocked it down. Even the majority

of the court in the second panel saw through this and

specifically advised the parties not to brief the point.

The Commission's attempted circumvention of the

court's question, upon remand, is evidence of the Com-

mission's fundamental opposition to protection for bulk

water carriers. The lower court should have found this

to be error.

The Commission should not be permitted to disregard

legislation such as the Merchant Marine Act, 1970 or the

legislative history supporting that Act, which authorized

research projects to determine the adverse effect on

Great Lakes shipping by railroad rate structures. (Sen-

ate Report No. 91-1080, 9lst Cong. 2d Session., p. 129.)

r

24

Surely, the agency which has statutory responsibility

to maintain a balanced transportation system, including

water carriers of exempt bulk commodities, should not be

permitted to disregard the steady, deliberate enactment

of law which is specifically intended to sustain domes-

tic water transportation as a key segment of our national

transportation system. The statutory injunction to main-

tain this segment of the system is particularly signifi-

cant, currently, because of legislation in the transporta-

tion industries emphasing de-reculation. The Great Lakes

Carriers operate on competitive principles of the law of

supply and demand, satisfying shipper, industry and con-

sumer needs without the need for economic regulation by

federal agencies.

No sensible judgment can be made that legislation to

help railroads was intended at the same time to undermine

the positive program by Congress to build up and rely on

the nation's unregulated water carriers “to carry its

domestic water-borne commerce." 46 U.S.C. 1101.

A vital part of our national transportation system

is threatened by the railroad actions in this case.

Many jobs and people will be affected by the outcome.

There is concern for national commerce and defense. The

majority of the lower court did not seem sure of its

opinion. The dissenting member did. Decisions by other

Courts of Appeal and the Supreme Court are at odds with

the majority opinion. A writ of certiorari should be

granted.

CONCLUSION

For these reasons, a writ of certiorari should issue

to review the decision and order of the Second Circuit.

Respectfully submitted, .

foe J.

April 30, 1980 Counsel yBn itioner

25

CERTIFICATE OF SERVICE

This is to certify that on April 30, 1980, I mailed

to the following persons, postage prepaid, three copies

of the foregoing petition, in accordance with paragraph

3 of Rule 33, Rules of the Supreme Court.

Robert J.

1919 Penns

Washington, D. C. 20006

Counsel for Petitioner

S & E Shipping Corp.

General Counsel

Interstate Commerce Commission

Washington, D. C. 20423

Solicitor General

Department of Justice

Washington, D. C. 20530

C. Harold Peterson

Soo Line Railroad

804 Soo Line Building

Minneapolis, Minnesota 55440

Peter A. Greene

Conagra Incorporated

404 Farragut Building

900 - 17th Street, N.W.

Washington, D. C. 20006

Gordon P. MacDougall

Commonwealth of Pennsylvania and

Pennsylvania Public Utility Commission

1100 - 17th Street, N.W., Room 907

Washington, D. C. 20036

nia Avenue, N.W.

26

John A. Daily

Conrail

6 Penn Center Plaza

Philadelphia, Pennsylvania 19105

Jeremiah Jochnowitz

Assistant Solicitor General

Attorney General's Office

Capitol

Albany, New York 12223

David Jaffe

Schulman and Abarbanel

Empire State Building

350 Fifth Avenue

New York, New York 10001

6 100s