Appendix — Nueces County Navigation District No. 1 v. Interstate Commerce Commission

OCTOBER TERM, 1962

NUECES COUNTY NAVIGATION DISTRICT NO. 1

Petitioner,

vs.

INTERSTATE COMMERCE COMMISSION, ET AL,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

APPENDIX

FRANK C. BROOKS, ESQUIRE |

8300 Douglas Ave., Suite 800

Dallas, Texas 75225

Telephone: (214) 373-9175

Counsel for Petitioner

August 1982

THE CASULLAS PRESS, INC. - 1717 K Street N.W. - Weshingten, 0.C. - 223-1229

Appendix A —

Appendix B —

TABLE OF CONTENTS

Opinion of the United States Court of

Appeals for the Fifth Circuit, May 6, 1982

Report and Order of the Interstate Com-

merce Commission, No. 36491 (Sub-No.

1), Decided December 19, 1977 ..........

Decision of the Interstate Commerce

1980 ee

Order of the Interstate Commerce Com-

mission, No. 31098, January |, 1954 .....

Order of the Interstate Commerce Com-

mission, No. 33447, November 14, 1961 ..

Order of the United States Court of Ap-

peals for the Fifth Circuit, Denying Peti-

tion for Rehearing, June 1, 1982 .........

APPENDIX A

NUECES COUNTY NAVIGATION DISTRICT NO. 1,

et al., Petitioners,

Vv

INTERSTATE COMMERCE COMMISSION, et al.,

Respondents.

PRODUCERS GRAIN CORPORATION, et al.,

Petitioners,

v.

INTERSTATE COMMERCE COMMISSION, et al.,

Respondents.

NUECES COUNTY NAVIGATION DISTRICT NO. 1,

et al, Petitioners,

Vv

INTERSTATE COMMERCE COMMISSION, et al.,

Respondents.

PRODUCERS GRAIN CORPORATION, ¢i al.,

Petitioners,

v.

INTERSTATE COMMERCE COMMISSION, et al.,

Respondents.

Nos. 78-1348, 79-1816, 80-1842 and 80-1843.

United States Court of Appeals, Fifth Circuit.

May 6, 1982.

TATE, Circuit Judge:

The petitioners, who represent port and shipper in-

terests in Corpus Christi, Texas, seek review of an ad-

judication of the Interstate Commerce Commission that a

rail rate of a carrier was not discriminatory to Corpus

Christi, and of an order of the Interstate Commerce Com-

mission that, inter alia, adopted a new standard of “com-

mon control” to be used in carrier rate discrimination

cases under 49 U.S.C. § 10741(b), and that reopened and

vacated two earlier Commission decisions. We affirm the

Commission’s rule-making and vacation orders, but we

find that review of the Commission’s dis-riminatory-rate

adjudication is now moot.

The underlying central issue concerns the substantive

and procedural propriety of the Commission’s actions in

adopting a new standard or rule of a narrow nature. The

narrow area of the rule focuses on the determination of

whether a common carrier has under 49 U.S.C. § 10741(b)

subjected a port to rates that are unreasonably

discriminatory with regard to those to other ports, in in-

stances where that carrier does not itself provide direct

service but must do so by joint rates issued in conjunction

with a connecting carrier. The new standard requires a

finding that the originating carrier has actually con-

tributed to or controlled the rate insofar as it is

discriminatory. Under the prior or replaced standard, the

originating and connecting carriers were conclusively

presumed to have “common control” of the joint rates —

that, acting in conjunction as a network, they directly and

effectively controlled the rates between the preferred port

and the prejudiced port. For reasons to be stated, we find

the Commission’s adoption of a new rule of decision to be

non-arbitrary and within its administrative discretion and

the statutory limits for that discretion set by Congress.

3a

We should further note that the Staggers Rail Act of

1980, Pub.L.No. 96-448, 94 Stat. 1895 (1980), was not

signed by the President into law until October 14, 1980.

Without intimating that our rationale would necessarily be

affected otherwise, we note that the Act does not apply to

our review of the present decisions of the Commission,

which were docketed (and decided) prior to the effective

date of the Act. Jd. § 706.

Introductory Summary

In the attached appendix, we have set forth the full cita-

tion and nomenclature of the proceedings and parties to

whom we will refer herein. As shown by these pro-

ceedings, the context in which the present issues arise is as

follows:

In 1977, Frisco (a rail carrier) published reduced carload

rates on wheat from origins in Oklahoma and Kansas to

various Texas ports (Houston, Galveston, etc. — “other

Texas ports”), but not to Corpus Christi. Prior to this

publication, the rates had been equal to all Texas ports;

the reduced rates for the other Texas ports were about 3

1/2 cents per hundred pounds less than those for Corpus

Christi. Various Corpus Christi port and shipping interests

protested, including Nueces County (a Texas port district),

Producers (a regional grain marketing cooperative with a

large-volume grain elevator at Corpus Christi), and

Dreyfus (a large-scale shipper of grain that used the Pro-

ducers elevator at Corpus Christi). The basis of their pro-

test was that the rates were unduly preferential of the other

Texas ports, and prejudicial to the Corpus Christi port, in

violation of former Section 3(1) of the Interstate Com-

merce Act, now (in the 1978 recodification) 49 U.S.C.

§ 10741(b).

4a

Frisco had lowered the rates io the other Texas ports to

meet rail and truck rate competition. The reason it had not

done so for Corpus Christi was that Frisco had no direct

line into that port, and the other connecting rail carriers to

that port (MoPac and Southern Pacific) had refused to

concur in a lowered joint rate equivalent to that pub-

lished for the other ports.

In its 1977 decision in Wheat I (see appendix for this and

other citations herein) rejecting these protests, the Com-

mission held that Frisco was not in control of and did not

participate in the disparate rates for Corpus Christi,

because Frisco had made a good faith offer of division of

the joint rates (to divide the lower rates fairly between the

connecting carriers and itself), but these carriers had re-

jected this offer. Due inter alia to the protestant’s conten-

tion that Frisco’s reduced rates to other Texas ports

violated outstanding Commission orders in 1954 and i961

decisions in Corpus Christi I, the Commission reopened

Wheat I. In Wheat II (19795), it then reinstated its holding

that the Frisco rates to Corpus Christi were not

unreasonably discriminatory (for the same reason of

Frisco’s lack of control thereof), but it also ordered the

Corpus Christi I cases to be reopened to determine

whether those decisions were consistent with Wheat 11.

In Corpus Christi I (1954 and 1961), the Commission

had concluded that the joint rates of various carriers

transporting grain from the Midwest were unduly pre-

judiciai to Corpus Christi and unduly preferential of the

other ports. In so finding, the Commission relied upon a

presumed network “common control” of joint rates, so

that — if the joint rate was discriminatory — each of the

carriers joining in it was held to participate in the

discriminatory rate. Accordingly, the Commission entered

“alternative orders,” which were still in effect at the time

Sa

of Wheat I (1977) and Wheat II (1979). (By an alternative

order issued to correct discriminatory rates, the offending

carrier(s) are ordered to abate the discrimination by rais-

ing one rate, lowering the other, or altering both. See,

e.g., Texas & Pacific Ry. Co. v. United States, 289 U.S.

627, 650, 53 S.Ct. 768, 776, 77 L.Ed. 1410 (1933).)

Pursuant to Wheat II, after service, notice was pub-

lished in the Federal Register reopening the Corpus Christi

I cases (1954 and 1961). Wheat II, then before this court

on petition for review, was on motion remanded to the

Commission for its further consideration. In the resulting

Corpus Christi II, decided in 1980, the Commission ex-

pressly abandoned its former presumed “common control”

of joint rates and held that, in the determination of

discriminatory rate issues under § 10741(b), it would in the

future utilize an analysis of actual control by the

originating carrier (applying the good faith order of divi-

sions test enunciated in the Wheat cases).' It therefore

'In Wheat Ii, the Commission discussed in detail how the actual

common control-good faith offer of divisions test operates.

According to the Commission, “the protestant has the initial burden

of proving that the originating carrier could serve both the preferred

and prejudiced parts either by itself or by means of connecting car-

riers, acting as a network or otherwise.” 359 1.C.C. at 603. In Wheat

II, the Commission noted that Frisco serves the preferred ports direct-

ly and can serve Corpus Christi indirectly by means of Southern

Pacific or MoPac. Id.

Once the protestant has satisfied its burden of showing that the

origin carrier could serve both points, the burden shifts to the origin

carrier (or to the connecting carriers if they too, have actual control,

see 364 1.C.C. at 275) to rebut the protestant’s evidence of common

control by showing that the respondent has made a good faith offer of

division of revenues to the connecting carriers, but was unsuccessful

in obtaining a concurrence. If the respondent can show that it did

make this good faith offer, the Commission contends, “it demonstrates

that [the origin carrier] has no actual control of the rates to the ports

which it does not serve directly.” 359 1.C.C. at 603.

6a

vacated the decisions in Corpus Christi I and reaffirmed

its holdings in Wheat I and Wheat II.”

Wheat Adjudications Moot

Before discussing the viable issues under review, we note

of our own motion that the Wheat adjudications (that

Frisco’s grain rates to Corpus Christi are not shown to be

unreasonably discriminatory under § 10741(b) are moot.

2In the Wheat adjudications, the Commission likewise rejected the

protestant’s alternative request that, even if common control be found

absent, the Commission could prescribe non-discriminatory rates to

Corpus Christi pursuant to 49 U.S.C. § 10704(a)(1), former Section

15(1) of the Interstate Commerce Act. This provision authorizes the

Commission, inter alia, to prescribe a rate (including a maximum or

minimum rate) if, after hearing, it decides that a carrier's rate violates

the Interstate Commerce Act as recodified, Subtitle IV, 49 U.S.C.

$§ 10101 et seq. The Commission found that, absent Frisco’s control

of the disparate rates to Corpus Christi, no discriminatory-rate viola-

tion of the statute was proved.

Prescription of a rate under section 10704 differs from the issuance

of an alternative order under section 10741(b) in that, as the Commis-

sion interprets section 10704, the latter is a remedial section that re-

quires violation of some substantive section of the Act as a predicate

for rate prescription. (Of course, if the Commission had found

unreasonable discrimination under § 10741(b), a substantive viola-

tion, that would have justified issuance of a rate-prescription; but it

did not.) On the other hand, issuance of an alternative order is a

specific response to a violation of section 10741(b), prohibiting

unreasonable rate discrimination.

No claim was made in the present proceedings that Frisco’s rates

were “unreasonable” or violated the statute other than being

unreasonably discriminatory to Corpus Christi, a contention rejected

by the Commission. The Commission expressly noted that its present

decision(s) did not preclude the Corpus Christi interests from further

proceedings under § 10704 that raised such issue.

In view of our determination that the petitions to review the Wheat

holdings are moot, we do not reach this issue. See also note 6, infra.

7a

Following Wheat I, MoPac concurred in a reduced joint

rate to Corpus Christi equivalent to the reduction published

for the other Texas ports. As a result, it is not contested

that Corpus Christi is no longer prejudiced by the Frisco

rates initially complained of. Accordingly, the three peti-.

tions for review that raise issues directed soiciy to the in-

validity of the Wheat dctciminations’ are dismissed‘ as

moot.

No suggestion of mootness is made with regard to the

Corpus Christi II issues presented by the remaining peti-

tion for review. See note 3. That decision’s vacation of the

continuing rate-equalization orders in Corpus Christi I

deprived Corpus Christi interests of a former remedy by

which to attack rail rate disparities; and its adoption by

way of rule-making of a new rule (actual control, rather

than the formerly presumed common control of joint

rates) has obvious continuing effects.

The Issues

The remaining issues presented to us for review may be

summarized as follows:

'These petitions are our docket nos. 78-1348, 79-1816, and

80-1842. The remaining petition, our docket no. 80-1843, raises still

viable issues. See appendix to this opinion.

“Before the Commission, where petitioners conceded that Wheat /

and Wheat I] were moot for the reason noted, they also contended

that the proper remedy was to vacate these decisions rather than to

dismiss them, as was suggested also in oral argument before us.

Whatever merit this procedural approach to mootness has where

issues of res judicata are implicated, see United States v. Munsing-

wear, Inc., 340 U.S. 3%, 71 S.Ct. 104, 95 L.Ed. 36 (1950), the

policies there involved do not apply here; for, among other reasons,

the non-moot Corpus Christi II, see infra, itself vacated the Corpus

Christi I decisions and itself established the new precedential rule con-

cerning “common control” (the harms sought to be avoided by peti-

tioners in having Wheat | vacated instead of dismissed).

I. A _ substantive attack upon the Commission’s

replacement of the former presumed “common control”

rule by the new “actual control” test as an unjustified

abrogation by the Commission of its previously settled in-

terpretation designed to advance the anti-discriminatory

purposes of the Interstate Commerce Act.

Il. A primarily procedural attack upon the Commis-

sion’s vacation by Corpus Christi IT in 1980 of its 1954 and

1961 Corpus Christi I decisions.

I. The Commission’s Replacement of the Presumed

“Common Control” Rule by an “Actual Control”

Test

In the context of the scheme of the Interstate Commerce

Act (“the Act”), where carriers are permitted to establish

rates for their services, the Act provides that no common

carrier may “subject a person, place, port, or type of traf-

fic to unreasonable discrimination.” 49 U.S.C.

§ 10741(b).° It is to be noted that this provision includes

‘Section 10741(b) provides in full:

A common carrier providing transportation or service

subject to the jurisdiction of the Commission under

Chapter 105 of this title [49 U.S.C. §§ 10561 et seq., the

1978 recodification of the Act] may not subject a person,

place, port, or type of traffic to unreasonable discrimina-

tion. However, subject to subsection (C) of this section,

this subsection does apply to discrimination against the

traffic of another carrier providing transportation by any

mode.

In an Act of October 17, 1978, 92 Stat. 1337, Congress recodified

and simplified the language of the Interstate Commerce Act. Section

10741(b) replaces the former section 3(1) of the Act. Section 3(1) for-

bade “undue or unreasonable preference or advantage,” while

10741(b) forbids “unreasonable discrimination.” The recodification

was expressly intended to effect no substantive change in the Interstate

9a

within its scope only whether a given carrier provides

discriminatory rates to a preferred and to a prejudiced

point; it has no application where the rates of a given car-

rier to one point are disparate with those of another carrier

to an equivalent point. Texas & Pacific Ry. Co. v. United

States, 289 U.S. 627, 649-50, 53 S.Ct. 768, 776, 77 L.Ed.

1410 (1933).

With regard to joint rates to a point — those combined

charges for the services of both the originating and the

connecting carriers (with division thereof decided between

the joining carriers) —, the Supreme Court early stated

that

participation in joint rates does not make con-

necting carriers partners. They can be held joint-

ly and severally responsible for unjust

discrimination only if each carrier has par-

ticipated in some way in that which causes the

unjust discrimination . . . . If this were not so,

the legality or illegality of a carrier’s practice

would depend, not on its own act, but on the acts

of connecting carriers.

Central Railroad Company of New Jersey v. United

States, 257 U.S. 247, 259, 42 S.Ct. 80, 83, 66 L.Ed. 217

(1921). As the Court later stated, reiterating the point: “A

carrier or a group of carriers must be the common source

Commerce Act. The Commission has stated in one of the decisions in

the present appeal that “[bJecause there is no substantive change in the

law under the recodified statute and because many of the court and

Commission decision (sic) arose under the former act, we shall use in-

terchangeably sections 3(1) and 10741 and the terms “unreasonable

discrimination” and “undue preference and prejudice.” Nueces County

Navigation District No. 1 v. Abilene & Southern Railway Company,

364 1.C.C. 269, 270 n. 3 (1980) (Corpus Christi I]). The petitioners

concede that the revision made no substantive change in the Act.

10a

of the discrimination — must effectively participate in

both rates, if an order for correction of the disparity is to

run against it or them.” Texas & Pacific Ry. Co., supra,

289 U.S. at 650, 53 S.Ct. at 776. (Emphasis supplied.)*

*The petitioners argue that the later decisions of Ayrshire Collieries

Corporation v. United States, 335 U.S. 573, 69 S.Ct. 278, 93 L.Ed. 243

(1949) and New York v. United States, 331 U.S. 284, 67 S.Ct. 1207, 91

L.Ed. 1492 (1947) somehow modified the holdings in Central Railroad

and Texas & Pacific Ry. Co., supra, that an alternative order to end

rate-discrimination may not be issued unless the carrier(s) effectively

participated in the discriminatory joint rate. We reject this contention.

As the Commission noted, Wheat IT, 359 1.C.C. at 597-98, these deci-

sions explicitly did not refer to a situation where an alternative order

is the appropriate relief. See, e.g., Ayrshire, supra, 335 U.S. at 593-94,

69 S.Ct. at 289.

A stronger argument is made by the petitioners, however, that these

decisions indicate that, even if an alternative order is not appropriate,

the Commission is entitled to prescribe rates if the joint rates are

unreasonably discriminatory (i.e., even in the absence of joint con-

trol). We have previously noted that the mootness of the Wheat ad-

judications precludes our reaching the specific demand for prescribed

rates in those cases. See note 2.

Nevertheless, we recognize that a strong argument could be made

that the Commission’s view as to when rate-prescription is ap-

propriate (rather than an alternative order) in discriminatory rate

cases, as enunciated in Wheat I and Wheat II, could be regarded as

non-moot rule-making in Corpus Christi II; there, in reaffirming the

Wheat cases, the Commission specifically modified its Wheat “discus-

sion of rate prescriptions in the absence of common control.” 364

L.C.C. at 279. We decline to so characterize the Wheat rate-

prescription “discussion” and its modification in Corpus Christi II.

While it is difficult to disagree in the abstract with the Commission’s

view that under present circumstances Ayrshire and New York do not

permit rate prescription unless a rate is both unreasonable and

discriminatory — and that a rate cannot be discriminatory under the

statute unless the carrier effectively participates in it — we do not feel

it appropriate to rule upon the propriety of the Commission’s views on

the matter upon a record devoid of factual data suggesting how the

rates at issue could be unreasonably discriminatory in violation of sec-

tion 10741(b), even though no individual rate at issue is either

unreasonable or a violation of section 10741(b).

By way of further background, a rate-discrimination

case, § 10741(b) is established by showing (1) that there is

a disparity in rates, (2) that the complaining party is com-

petitively injured, actually or potentially, (3) that the car-

riers are the common source of both the allegedly pre-

judicial and preferential treatment, and (4) that the

disparity in rates is not justified by transportation condi-

tions. The complaining party has the burden of

proving the presence of the first three factors, and the car-

riers have the burden of justifying the disparity, if possi-

ble, in connection with the fourth factor. See, e.g.,

Chicago & Eastern Illinois Railroad Company v. United

States, 384 F.Supp. 298 (N.D.IIl. 1974), aff'd. mem. 421

U.S. 956, 95 S.Ct. 1943, 44 L.Ed.2d 445 (1975).

The issue before us involves solely the third element

needed to establish a claim of discriminatory rate — that

the carrier be the “common source” of both prejudicial

and preferential rates. The order issued in Corpus Christi

II — establishing an “actual control” test rather than a

presumed “common control” of joint rates — resulted

from notice served and published in the Federal Register

to the effect that the Commission was “considering mov-

ing from a conclusive presumption of common control to

an analysis of actual control over the joint rates.”’ The

’The notice published at 44 Federal Register 67558-559 (No. 228,

November 26, 1979), stated that the Commission was reopening the

Corpus Christi I decisions and invited briefs and comments. The |

notice provided:

Summary: The above-captioned cases [the Corpus Christi

cases] are being reopened to determine if the port equaliza-

tion orders entered in these proceedings should be

modified. As the orders presently exist, the carriers are re-

quired to maintain equivalent rates to both the Houston

area ports and Corpus Christi. The orders were entered

partly on the basis of the railroads’ ability to control the

rates to the Gulf ports. Our reexamination of these cases

12a

decision of the Commission in Corpus Christi '! limited its

consideration to this criteria,* and its modification of its

will be limited to the issue of actual control of rates to the

Gulf ports and how control of these rates influences the

Commission's authority to order relief in cases arising

under 49 U.S.C. 10741. We will focus on situations where

carriers cannot agree on rate policies and, as a result, con-

currences to joint rate changes cannot be secured. We will

also explore the circumstances, if any, in which a violation

of 49 U.S.C. 10741 might exist if common control of rates

is not found when unequal rates are proposed to the Gulf

ports. We believe this action is necessary to appropriate

regulation in this area.

Supplemental Information: Our purpose in reopening the

Corpus Christi cases is to determine wheiher these out-

standing port equalization orders require modification to

recognize current rate-making situations not contemplated

when the outstanding orders were issued . . . .

We are considering moving from a conclusive presump-

tion of network common control to an analysis of actual

control over the joint rates. The principal test of actual

control which we are considering is discussed in Wheat,

Oklahoma and Kansas to Texas Gulf Ports, 357 1CC 382

(1977), 359 ICC 592 (1979) [Wheat IT], which is presently

pending on court appeal.

An extended analysis of actual common control is a

departure from past Commission decisions and directly af-

fects the operation of the Corpus Christi orders. Ac-

cordingly, it is necessary to reopen these proceedings and

receive comments. Participants should comment on the ap-

propriate legal analysis of the issue of rate control in cases

arising under 49 U.S.C. § 10741. Commentors should also

address the question of, under what circumstances, if any,

unequalized rate proposals should be found to violate

§ 10741 when there is no common control.

PRs Commission noted, however, Corpus Christi I], 364 1.C.C. at

This limiting of the issues to only one of the criteria

13a

former test to determine whether a carrier is the “common

source” of the discriminatory rates is the only substantive

issued posed for us by this petition for review.

A. “Presumed Common Control” and “Actual

Control” Tests

In Texas & Pacific Ry. Co., supra, as previously noted,

the Supreme Court had indicated that, for a carrier nar-

ticipating in allegedly discriminatory joint rates to meet

the “common source” requirement (i.e., that the carrier be

the source of both the prejudicial and the preferential

rate), the carrier “must effectively participate in both

rates.” 289 U.S. at 650, 53 S.Ct. at 776 (emphasis sup-

plied).

At the times that the Corpus Christi I cases were decided

in 1954 and 1961, the Commission used a “network com-

mon control” theory to determine whether carriers effec-

tively participated in a discriminatory joint rate. By this

test, the Commission, in effect, conclusively presumed

common control because the carriers involved acted as a

network, so that each was responsible for the joint rate. In

the 1954 Corpus Christi case, the carriers were found to

have effective common control of the rates simply by vir-

under section 10741(b) was not and is not intended to

detract from the importance the Commission places on the

other three criteria. The fourth factor, similarity or

disparity in transportation conditions, continues to be our

primary consideration. It is axiomatic that there can be no

discrimination if economic and operational analysis proves

that different rates are appropriate. This analysis includes

review of matters such as the different distances involved,

alternative routings available, differences in the cost of

service, and, especially, any “ifferences in competitive con-

- ditions.

l4a

tue of carrier participation in joint rates. See 291 1.C.C. at

469-470. In the 1961 Corpus Christi case, the carriers at-

tempted to argue that “no one carrier effectively controls

the rates to Corpus Christi and the other allegedly prefer-

red ports.” 315 1.C.C. at 162. Without any discussion of

the matter, but citing Texas Pacific Ry., supra, the Com-

mission asserted that the carriers “acting in conjunction

with the originating lines, directly and effectively control

the rates.” Id.

During the 1970’s the Commission began to modify its

approach to this analysis of common control. For exam-

ple, in Soybeans, Midwest to Chicago and Gulf Ports, Ex-

port, 335 1.C.C. 883, 890 (1970), vacated as moot, 416

U.S. 953, 94 S.Ct. 1964, 40 L.Ed.2d 303 (1974), the Com-

mission refused to find common control by an origin car-

rier where connecting carriers refused to concur in rate

changes, and where there was no showing of mutual and

joint participation in the action alleged to be

discriminatory. In Corn and Soybeans Midwest to Gulf

Ports, For Export, 349 1.C.C. 1, 4(1974), the Commission

held that where a carrier served one port directly and one

by means of a joint service with a second railroad, section

10741(b) “does not give this Commission the power to re-

quire equalized rates in the event that the second railroad

refuses to participate in an equalized joint rates.”

The Commission’s movement away from applying a

conclusive presumption of common control of joint rates

culminated in Wheat I and, particularly, in Wheat II. In

the latter decision the Commission explicitly adopted an

“actual control” test, see note 1, and explicitly rejected the

common-control presumption: “To summarize, because

of the need to assure rate flexibility, we have required

proof that the railroads actually control the rates to the

preferred and prejudiced ports. In this regard, we believe

1Sa

that the presumption of control extending from the ex-

istence of a network such as was found to exist in the Cor-

pus Christi cases is insufficient to assure that actual con-

trol exists. While seeking proof of actual control, we have

allowed the railroad to show that it does not have such

control because it could not, after acting in good faith, ar-

rive at divisions agreements.” Wheat IT, 359 1.C.C. at 604.

As a consequence, after service and publication of notice,

reopening Corpus Christi I to consider a substitution of an

actual control test for the former presumption of network

control, see note 7, the Commission by way of a rule-

making procedure adopted in Corpus Christi II the order

presently under review: “The actual controi standard shall

be used to determine the common source of unreasonable

discrimination under 49 U.S.C. 10741(b) in future

challenges to carrier rate adjustments to the ports in these

proceedings.” 364 1.C.C. at 279.

B. The Scope of Our Review

The scope of our review of Interstate Commerce Com-

mission action is reiterated in Missouri-Kansas-Texas

Railroad Company v. United States, 632 F.2d 392 (Sth

Cir. 1980), cert. denied, 451 U.S. 1017, 101 S.Ct. 3004, 69

L.Ed.2d 388 (1981), which involved, in part, the Commis-

sion’s adoption of a different standard for determining

whether a railway merger is “consistent with public in-

terest.” We stated: “We can ask only whether the Commis-

sion has observed the statutory limits that Congress has set

for its discretion, whether its action was arbitrary or

capricious, or whether its findings are supported by ade-

quate analysis and substantial evidence in the record as a

whole.” Jd. at 400.

The “arbitrary and capricious” standard is narrow and

l6a

permits a reviewing court merely to consider whether the

agency decision “was based on a consideration of the rele-

vant factors and whether there has been a clear error of

judgment.” Citizens to Preserve Overton Park, Inc. v.

Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 823-24, 28

L.Ed.2d 136 (1971). The “substantial evidence” standard

requires a determination that agency findings are sup-

ported by “such relevant evidence as a reasonable mind

might accept as adequate to support a conclusion.” Con-

solidat-d Edison Co. v. N. L. R. B., 305 U.S. 197, 229, 59

S.Ct. 206, 217, 83 L.Ed. 126 (1938). If the evidence of

record is such that it supports inconsistent inferences and

conclusions, the courts must defer to administrative

choice. /ilinois Central Railroad Co. v. Norfolk &

Western Railway Co., 385 U.S. 57, 69, 87 S.Ct. 255, 262,

17 L.Ed.2d 162 (1966). This same standard of review is

used in our review of a Commission rate determination.

See Systems-Fuels, Inc. v. United States, 642 F.2d 112 (Sth

Cir. 1981).

The judicial deference that is accorded to a Commission

action of the present nature is attributable to the fact that

“the courts have always recognized that Congress intended

to commit to the Commission the determination, by ap-

plication of an informed judgment to existing facts, of the

existence of forbidden preferences, advantages and

discrimination.” United States v. Chicago Heights Truck-

ing Co., 310 U.S. 344, 352-53, 60 S.Ct. 931, 936, 84 L.Ed.

1243 (1940). The broad discretion thus accorded to the

I.C.C. in these cases has long been recognized as necessary

to the types of value judgments therein involved:

Whether a preference or advantage or

discrimination is undue or unreasonable or un-

just is one of those questions of fact that have

been confided by Congress to the judgment and

17a

discretion of the Commission... and upon

which its decisions, made the basis of ad-

ministrative orders operating in future, are not to

be disturbed by the courts except upon a showing

that they are unsupported by evidence, were

made without a hearing, exceed constitutional

limits or for some other reason amount to an

abuse of power.

Manufacturers’ Ry. Co. v. United States, 246 U.S. 457,

481, 38 S.Ct. 383, 389, 62 L.Ed. 831 (1918).

The “narrow scope within which Congress has confined

judicial participation” in the Commission’s rate deter-

minations is attributable to the fact that “[t}he process of

rate making is essentially empiric... fluid and

changing . . . [involving] factors that must be valued as

well as weighed.” Congress has, therefore, given the Com-

mission “the duty of being responsive to the dynamic

character of transportation problems.” Board of Trade of

Kansas City v. United States, 314 U.S. 534, 546, 62 S.Ct.

366, 372, 86 L.Ed. 432 (1942).

C. The Actual Common Control Standard

In adopting the actual common control standard, the

Commission swept away a presumption of network com-

mon control that it used for many years to impose strict

liability on carriers based on their participation in joint

rates and the presence of interconnecting rail lines. We

must now determine, within the narrow scope of review

that we have, whether the Commission acted properly in

abolishing this former presumption and in adopting, in-

stead, a test that centers on factual issues that determine

whether the carrier participated in the actual control of the

disparate joint rate claimed to be discriminatory.

18a

When we considered a Commission change in policy in

the context of railroad mergers, we stated that “it is

established beyond argument that an agency may change

its policies so long as it identifies and articulates its reasons

for doing so.” Missouri-Kansas-Texas Railroad Company

v. United States, 632 F.2d 392, 403 (1980), cert. denied,

451 U.S. 1017, 101 S.Ct. 3004, 69 L.Ed.2d 388 (1981). Our

opinion in Missouri-Kansas-Texas echoed that of the

Supreme Court in American Trucking Associations, Inc.

v. Atchison, Topeka, and Santa Fe Railway Company,

387 U.S. 397, 87 S.Ct. 1608, 18 L.Ed.2d 847 (1967), in

which the Commission had changed its former interpreta-

tions and then argued, much as the Commission does in

the present case, that its past interpretation was based on

an erroneous interpretation of principles enunciated by

various judicial decisions. The Supreme Court did not,

however, rest its analysis of the propriety of the Commis-

sion change in interpretation on the Commission’s argu-

ment that its own prior decisions in a course of twenty-five

years were erroneous. Rather, instead it specifically

recognized the ability of the Commission to change its

mind and to change its prior interpretations:

[T]he Commission, faced with new develop-

ments or in light of consideration of the relevant

facts and its mandate, may alter its past inter-

pretation and overturn past administrative rul-

ings and practice .. . . Regulatory agencies do

not establish rules of conduct to last forever;

they are supposed, within the limits of the law

and of fair and prudent administration, to adopt

their rules and practices to the Nation’s needs in a

volatile, changing economy.

387 U.S. at 416, 87 S.Ct. at 1618.

Our principal concern, then, is to determine whether

19a

the Commission has observed the statutory limits that

Congress has set for its discretion, and that the Commis-

sion has exercised such discretion and has explained its

departure from previous policy so that a reviewing court

may determine that the decision is reasoned and not ar-

bitrary. Burlington Truck Lines v. United States, 371 U.S.

156, 167-68, 83 S.Ct. 239, 245, 9 L.Ed.2d 207 (1962);

Missouri-Kansas-Texas Railway Company v. United

States, 632 F.2d 392, 403 (1980), cert. denied, 451 U.S.

1017, 101 S.Ct. 3004, 69 L.Ed.2d 388 (1981).

Applying the criteria set forth above, we first note that,

under section 10741(b) of the Act, Congress gave the

Commission a mandate “to protect persons, places, ports,

or traffic types from unreasonable discrimination. This

duty was reiterated in transportation policy sections of the

revised Interstate Commerce Act 49 U.S.C. 10101.” Cor-

pus Christi II, 364 1.C.C. at 276. “Whether a discrimina-

tion in rules or services of a carrier is undue or

unreasonable has always been regarded as peculiarly a

question committed to the judgment of the administrative

body, based upon an appreciation of all the facts and cir-

cumstances affecting the traffic.” New York v. United

States, 331 U.S. 284, 347, 67 S.Ct. 1207, 1240, 91

L.Ed.1492 (1947). Despite the petitioners’ claims to the

contrary, Congress has never sanctioned the “network

common control” standard, nor is there any semblance of

Congressional intent that such standard be frozen into the

administrative process of determining whether joint rates

are discriminatory.’ Thus, the Commission's abolition

*Notwithstanding the broad discretion that is necessarily accorded

to the Commission in these cases, the petitioners offer two arguments

to show that the adoption of the actual common control is contrary to

legislative intent.

First, the petitioners argue that Congress adopte’ the “network”

common control analysis because it made certain amendments to the

20a

of the network common control presumption, and its new

practice of requiring proof of actual joint control, is not

shown to be a matter not entrusted to the Commission’s

sound discretion.

Likewise, the Commission clearly explained its depar-

ture from previous policy so that we may determine

whether its decision is arbitrary and not irrationally

founded. The Commission provided extended discussions

of the actual common control standard in both Wheat

cases, in its Federal Register annoucement of reopening of

the Corpus Christi I cases, and in the Corpus Christi Il

Act after various alleged “network” common control were decided, and

did not challenge “network” control analysis. Even if we are to assume

that the cases that the petitions cite were true “network” common con-

trol cases, we cannot accept the peititioners’ argument that all former

administrative policy, practice, and regulation are, in effect, “frozen”

every time Congress amends or enacts a statute without disputing the

current corpus of agency jurisprudence.

Second the petitioners claim that Section 202(f) of the Railroad

Revitalization and Regulatory Reform Act of 1976, (the “4R Act”), 49

U.S.C. § 10711, precludes the Commission from changing its policy.

Section 10711, provides that ratemaking amendments in the 4R Act

should not be construed to modify the application of Section

10741(b). The petitioners conclude from this that Congress impliedly

adopted the “network” common control analysis, thus precluding

agency abolition of the “network” common control presumption.

There is nothing in the 4R Act to indicate that Congress wished to

do anything to upset Commission discretion in discrimination cases;

rather, Section 10711 provides only that the 4R Act is not meant to af-

fect the discrimination statute. In addition, although section 101(b)(3)

of the 4R Act was not included when the Interstate Commerce Act was

recodified in 1978, it is nevertheless helpful in interpreting the effect of

the 4R Act generally. Section 101(b)\(3) of the 4R Act provides that

Congress intended to “permit railroads greater freedom to raise or

lower rates for rail services in competitive markets.” Abolishing the

“network” common control presumption certainly tends to effect that

policy.

2la

decision itself. The Commission explained that its network

common control standard was tantamount to a presump-

tion that imposed strict liability on carriers for the ex-

istence of rate disparities. The Commission now wishes to

abandon the network common control standard, and

adopt a standard that will impose liability only when there

is actual control, to accord with actual fact rather than

resulting from an arbitrary presumption.

Thus, the Commission has determined upon an analysis

to be utilized that it deems to be appropriate for the deci-

sion of discriminatory rate protests, a matter within its

statutory authority. The adoption or change of a method

of analysis to be used in the administrative decision of

such matters is not shown to be beyond the discretion en-

trusted to the Commission in its administration of matters

statutorily regulated by it. The Commission has clearly ar-

ticulated a non-arbitrary basis for the method of analysis

adopted by it. Finding these criteria are met, judicial review

extends no further. We affirm the order in question.

The petitioners produce seemingly endless arguments

about the “evils” of the actual control standard. All of

these arguments, however, assume that our court may

engage in broad review and substitute its judgment for

that of the well-reasoned decision of the Commission. We

may not.

Il. The Procedural Attack upon the 1980 Corpus

Christi Il Vacation of the 1954 and 1961 Corpus

Christi I Decisions.

In 1979, the Commission reopened the 1954 and 1961

Corpus Christi I decisions to determine whether they

should be modified and to consider whether the Commis-

sion should move from a conclusive presumption of net-

22a

work common control to an analysis of actual control as

had been previously discussed in Wheat I]. The Commis-

sion did so after service and after publication of notice (see

note 7), in procedures that fully complied with the rule-

making requirements of the Administrative Procedure

Act. See Corpus Christi IT, 364 1.C.C. at 271-72. Ultimate-

ly, the reopening led to the Commission’s 1980 Corpus

Christi II, which no* only adopted the new actual control

standard (see Part I of this opinion), but also to vacation

of the Corpus Christi I 1954 and 1961 decisions.

The petitioners mount a procedural attack upon the

vacation of these prior orders. They contend that in the

1980 reopening of the Corpus Christi I case, the Commis-

sion should have proceeded by adjudication and not by

rulemaking and that the vacation of the Corpus Christi I

orders were improper. We find no merit to these conten-

tions.

The choice between rulemaking and adjudication “is

one that lies primarily in the informed discretion of the ad-

ministrative agency.” S.E.C. v. Chenery Corporation, 332

U.S. 194, 203, 67 S.Ct. 1575, 1580, 91 L.Ed. 1995 (1947).

The Commission is given rutemaking power in section

10321 of the Act,'® and the Commission may choose to

use its rulemaking power as long as it does not abuse its

discretion in so doing.

The Commission argues, and we accept, that rulemak-

ing was particularly appropriate in this case because the

purpose of re-opening the Corpus Christi I cases was to

consider the adoption of a new standard of common con-

trol that would transcend the interests of the particular

_ 'Section 10321 states: “The Commission may prescribe regula-

tions in carrying out this subtitle.”

23a

petitioners and carriers originally involved in the Corpus

Christi I cases. Further, the petitioners have not shown

any harm as a result of the agency decision to proceed by

rulemaking.

The Commission was entirely reasonable in giving all in-

terested parties an opportunity to comment on agency

policy and the Commission did not abuse its discretion in

deciding to proceed by rulemaking.

Similarly, the Commission did not act improperly in

vacating the Corpus Christi I orders. The Commission

has authority to reopen cases at any time, and the peti-

tioners’ claim that the cases should not be reopened simply

because they were decided 18 and 25 years ago is without

merit. Cf., American Farm Lines v. Black Ball Freight

Service, 397 U.S. 532, 540, 90 S.Ct. 1288, 1293, 25

L.Ed.2d 547 (1970). The Commission’s vacation of the

earlier continuing orders that conflicted with its new

policy may reasonably be considered an appropriate

method within the Commission’s discretion by which it

could implement its adoption of the new actual common

control standard.

The petitioners’ claim that the vacation was improper

because it imposes retroactive liability is mistaken, because

no retroactive liability was imposed. The original Corpus

Christi I orders applied prospectively, and the only effect

of the adoption of the new standard of actual common

control is to permit unequalized rates in the future where

no actual common control in fact exists. (If such une-

qualized rates are in fact proposed, the petitioners of

course still have adequate remedy to protest them upon

any grounds accorded by law.)

The petitioners’ final claim that the Commission should

24a

not have vacated the orders without determining whether

common control to Corpus Christi exists under the new

standard is without merit. As the Commission points out,

the effect of vacation is not to change rates currently on

file. If carriers subsequently initiate rate changes, they can

be examined on an individual basis.

Conclusion

For the reasons stated:

(1) We DISMISS petitions in our docket nos. 78-1348,

79-1816, and 80-1842, which attack the Wheat adjudica-

tions that rejected Corpus Christi claims of discriminatory

rates, as MOOT.

(2) We AFFIRM the orders complained of by the peti-

tion in our docket no. 80-1843, finding that these orders,

(a) adopting the new actual control standard and (b)

reopening and vacating the 1954 and 1961 Corpus Christi I

orders, were procedurally proper and within the Commis-

sion’s authority and discretion.

DISMISSED AS MOOT IN PART: AFFIRMED IN

PART.

25a

APPENDIX

The Consolidated proceedings before us result from

four petitions for review of Interstate Commerce Commis-

sion, (“the Commission” or “the I.C.C.”) orders:

1. Our docket number 78-1348, being a petition filed

by the Nueces County Navigation District No. 1, Corpus

Christi (“Nueces County”), a political subdivision of the

State of Texas, which seeks review of a report and order of

the Commission dated December 19, 1977, Wheat,

Oklahoma and to Kansas to Texas Gulf Ports, 1.C.C.

docket no. 36491 (Sub-No. 1), 357 1.C.C. 382 (1977), a

decision that held that the reduced rates of wheat from

points in Oklahoma and Kansas to various Texas ports

was not unduly preferential to them nor prejudicial to the

Corpus Christi port. We will refer to this decision as

Wheat I.

2. Our docket number 79-1816, a petition by Nueces

County and by Producers Grain Corporation (“Producers

Grain”), a regional grain marketing association of

Amarillo, Texas, which seeks review of an I.C.C. decision

of February 2, 1979, Wheat, Oklahoma and Kansas to

Texas Gulf Ports, 1.C.C. docket no. 36491 (Sub-No.1),

359 1.C.C. 592 (1979), which (after reopening Wheat J)

reaffirmed its action on broader basis. We will refer to

this decision as Wheat II.

3. Our docket number 80-1842, another petition by

Nueces County and by Producers Grain, which seeks

review of an I.C.C. decision dated July 21, 1980, Nueces

County Nav. Dist. No. 1 v. Abilene & Southern Ry. Co.,

I.C.C. docket no. 31098 (but also embracing I.C.C.

docket nos. 33447 Nueces County Nav. Dist. v. Atchison,

T & S.F. Ry., and 36491 (Sub-No. 1), Wheat Oklahoma

26a

and Kansas to Texas Gulf Ports), 364 1.C.C. 269 (1980)),

a decision that:

(a) vacated earlier orders in I.C.C. docket nos. 30918,

Nueces County Navigation District No. 1 v. Abilene and

Southern Railway Company, 291 1.C.C. 459 (1954), and

in docket no. 33447, Nueces County Navigation District v.

Atchison T & S.F. Railway Company, 315 1.C.C. 155

(1961) — to be referred to as the “Corpus Christi I” cases.

These previous decisions had held joint rail rates

discriminatory as to Corpus Christi based upon the Com-

mission’s former presumed “common control” rule;

(b) held that a new “actual control” (of a discri-

minatory rate) standard, adopted in the opinion, shall

be used in the determination of unreasonable discrimina-

tion in future challenges to carrier rate adjustments to the

ports in these proceedings instead of a former presumed

“common control” of joint rates that were discriminatory;

and

(c) affirmed the decision in Wheat J and II, supra, in-

sofar as it applied the actual control analysis, but modified

its discussion relative to rate prescription in the absence of

common control. We will refer to this decision as Corpus

Christi Il.

By this petition for review, Nueces County and Pro-

ducers Grain reiterate their objections to the holdings in

Wheat I and II and reaffirmed in Corpus Christi IT, that

the reduced rail rates of wheat to various Texas ports were

not discriminatory to the Corpus Christi port.

4. Our docket number 80-1843, is yet another petition

by Nueces County and by Producers Grain that seeks

review of the same July 20, 1980 1.C.C. decision, Corpus

Christi II, supra, but which in this instance attacks the

27a

reopening of the earlier 1954 and 1960 Nueces County

decisions (the (a) holding above), and also attacks the deci-

sion’s adoption of the new “actual control” standard in the

above (b) portion of the ruling.

A number of parties have intervened in the proceedings

before us.

In support of the respondent Coinmission, the follow-

ing rail carriers intervened: The Missouri Pacific Railroad

(“MoPac”); the Southern Pacific Transportation

(“Southern Pacific”); the Atchison, Topeka & Santa Fe

Railway Company (“Santa Fe”); and Burlington Northern

Inc. (successor in interest to the St. Louis-San Francisco

Railway Company — the “Frisco” Railway). Houston

Port Bureau, Inc., also intervened in support of the

respondent Commission’s orders.

The Bunge Corporation and the Louis Dreyfus Cor-

poration (“Dreyfus”) intervened in support of the peti-

tioners, Nueces County and Producers Grain.

28a

APPENDIX B

No. 36491 (Sus-No. 1)

WHEAT, OKLAHOMA AND KANSAS TO

TEXAS GULF PORTS

Decided December 19, 1977

Reduced rates on wheat from points in Oklahoma and Kansas to

Galveston, Houston, Texas City, Beaumont, and Port Arthur,

Tex., for export found not to be unduly preferential of those

ports and prejudicial to Corpus Christi, Tex., or otherwise

unlawful. Proceeding discontinued.

Donald E. Engle, Hugh L. McCully, Donald E. Ran-

son, and Donal L. Turkal for respondents.

Frank C. Brooks, Andrew P. Goldstein, and Raymond

R. Nolen for protestants.

G. E. Strange for intervener in support of respondents.

REPORT AND ORDER OF THE COMMISSION

By THE COMMISSION:

By schedules effective February 20, 1977, respondent, St.

Louis-San Francisco Railway Company (Frisco or respon-

dent) published reduced carload rates' from 1 to 3 1/2

cents lower than previously effective rates on wheat from

‘Rates are stated in amounts per hundred pounds.

29a

origins to Oklahoma and Kansas? to the Beaumont,

Galveston, Houston, Port Arthur, and Texas City, Tex.,

ports for export, but not to the port of Corpus Christi,

Tex. Prior to the reductions, the Frisco maintained iden-

tical rates to all the above destinations. Upon protest of

Louis Dreyfus Corporation (Dreyfus) and the joint protest

of Nueces County Navigation District No. 1 (District) and

Producers Grain Corporation (Producers), all of which

represent Corpus Christi interest, and protest of Texas

Grain and Feed Association (Texas Grain), representing

various Texas grain elevators and feed mills, the investiga-

tion of the proposed rates was entered into by order dated

February 16, 1977 (served February 24, 1977). Because

Frisco claimed in initial statements that the failure to af-

ford reduced rates to Corpus Christi was due to the non-

concurrences by the Missouri Pacific Railroad Company

(MoPac or MP) and Southern Pacific Transportation

Company (Southern Pacific or SP), we broadened the in-

vestication by order dated August 4, 1977, to designate

these carriers as respondents.

In our initial consideration of the evidence, we found

significant questions had been raised as to the possible

preferential treatment of the Beaumont, Galveston,

Houston, Port Arthur, and Texas City ports and the possi-

ble prejudicial treatment of the port of Corpus Christi, a

situation which would violate section 3(1) of the act. One

of the elements to establish a section 3(1) violation is that

the originating carrier has control of both the preferred

and prejudiced rates. Respondent alleged in its initial

statement that it did not have common control over both

?Arkansas City and Winfield, Kans., and Bender, Blackwell, Eddy,

Goltry, Grainville, Helena, Lamont, Middletown, Peckam, and Salt

Fork, Okla.

30a

the allegedly preferred and prejudiced rates since it could

not force connecting lines to concur.

In situations where one railroad serves one port directly

and the other port by joint service with a second railroad,

this Commission has stated that a carrier does not have

common control if it offers to establish equivalent service

at equivalent rates, but the connecting carrier declines.

Corn & Soybeans Midwest to Gulf Ports, 349 1.C.C. 1, 4

(1974). The initial statements showed that the Frisco re-

quested concurrences from other carriers, some of which

concurred while others did not.

In our order dated September 8, 1977, we stated that we

were no longer satisfied that offers of divisions by

Originating carriers are sufficient by themselves to

demonstrate a willingness to provide equivalent service at

equivalent rates, unless it is clearly and convincingly

shown by the carriers :hat these offers were made in good

faith. The order further stated:

Without such a showing, the originating car-

rier may predicate the lower joint rate upon a

division of revenues which substantially reduce

the share of the connecting carrier or carriers. By

so doing the origin carrier could virtually compel

the non-concurrence of the connecting carriers.

In order to establish that it has made good faith

offers of divisions with non-concurring

railroads, respondent should submit evidence

showing: (1) the amount and proportion of the

offer of divisions in the case at issue; (2) the

amount and proportion of the established basis

of division, if any, on the particular commodity

and over the particular route; and (3) the amount

and proportion of the established basis of divi-

sions and identical or comparable commodities

3la

over identical or comparable routes. Respondent

may also submit any other evidence, including

cost data, to support its case.’

Respondent Frisco depicts the reduction as necessary to

meet the direct competition of The Atchison, Topeka and

Santa Fe Railway Company (Santa Fe) and the Chicago,

Rock Island and Pacific Railroad Company (Rock

Island), both of which published similar reduced rates on

wheat.

In Investigation and Suspension Docket No. 9132,

Wheat, Kansas and Oklahoma to Texas Gulf Ports, decid-

ed February 7, 1977,‘ the Santa Fe’s reductions were

found just and reasonable and not otherwise in violation

of the Commission’s order in docket No. 31098, Nueces

County Nav. District No. 1 v. Abilene & S. Ry. Co., 291

1.C.C. 459 (docket No. 31098) and docket No. 33447,

Nueces County Nav. Dist. No. 1 v. Atchison, T. & S. F.

Ry. Co., 315 1.C.C. 155 (docket No. 33447).

Frisco refers to the testimony in 1.&S. Docket No. 9132,

wherein Santa Fe justified its reductions on the basis that

successive general increases had increased the rail rates to

the extent that motor carrier competition was becoming a

significant factor. Frisco claims that, while it is affected by

motor carrier competition, it is more directly affected by

the reduced Santa Fe and Rock Island rates. Maps submit-

ted by Frisco illustrate the close proximity of Frisco’s, San-

This criteria was subsequently modified to require (1) information

relevant to the offer of divisions in the issue case and (2) information

relevant to any established bases of divisions on similar or identical

commodities over similar or identical routes. Supporting detail, in-

cluding cost data, proportional rates, or other basis for divisions of-

fers can be submitted.

“Appeal docketed sub nom., Producers Grain Corporation v. In

terstaie Commerce Commission, No. 77-1788 Sth Cir.

32a

ta Fe’s, and Rock Island’s lines. Respondent draws the

conclusion that without these reductions, wheat will move

either by the competing rail carriers or trucks.

Union Equity Co-Operative Exchange (Union Equity),

which supports the reduction herein, is a regional

cooperative with 226-member elevator organizations

located in 7 States, and has elevators totaling 50.3 million

bushels storage capacity at Enid, where a considerable

amount of grain is stored during the harvest season. Enid,

Okla., located no further than 90 miles from the involved

origins, is an important transit point for the grain trade.

Union Equity also has elevators at Forth Worth and

Houston, Tex., with capacities of 5 and 6.5 million

bushels, respectively.

The table below shows the amount of grain handled by

the Frisco from all origins to Enid and from Enid to

various guif ports.

St. Louis-San Francisco Railway Company

shipments handled to and from Enid, Okla.

1973 1974 1975 1976

All origins to Enid, Okla ......... 640 1,093 1,276 2,125

Enid to Beaumont, Tex .......... 446 86503 295 54

Enid to Corpus Christi, Tex. ...... 14 32 70 111

Enid to Galveston, Tex .......... 37 63 105 351

Enid to Houston, Tex ............ 2,584 2,118 2,503 2,055

Enid to Port Arthur, Tex ......... 14 8§6€2 il 31

Total Enid tothe Texas ports ... 3,095 2,778 2,984 2,602

Union Equity argues that general increases have

distorted the rate structure between various “rate-break”

border points, so that in one instance stations only 6.6

33a

miles apart have seen an increase from a 2-cent differential

(30 and 32 cents) between the two stations in 1968 to a

4-cent differential in 1977 (66 and 70 cents). The issue

rates would reduce this individual differential 1.5 cents (66

and 67.5 cents). These differentials in the transportation

costs force the disadvantaged elevators either to absorb

the rate differential or obtain a cheaper means of

transporting their wheat, purportedly by trucks. Evidence

was also presented to show that wheat has moved via truck

from nine of the involved origins to both Enid and

Houston.

The Houston Port Bureau, Inc., which represents the

port of Houston in transportation matters, includes in its

membership organizations which own elevators with total

capacity of 27 million bushels. It argues that the Frisco

must be permitted to meet both rail and motor carrier

competition. It also contends that since the port of

Houston has more available capacity than protestants, it

will draw more export grain through its facilities. In order

to accomplish this, it states that competitive rates must be

available.

As stated, protestants to this proceeding include the

District and Producers, both of which filed a joint state-

ment, and Dreyfus, and Texas Grain. Producers is a

regional grain marketing cooperative association with 6.4

million bushel capacity elevator located at Corpus Christi.

The exporting of bulk grain through the Corpus Christi

port is one of Producers’ principal operations, with wheat

accounting for 31.3 percent of the total volume from 1972

through 1976. Producers’ witness has testified that the

Commission decisions in docket Nos. 31908 and 33447,

supra, were a major factor in Producers’ decision to pur-

chase its Corpus Christi elevator facility.

34a

Producers testifies that the rate reductions work out to

6/10 of 1 cent to 2.1 cents per bushel and that, other fac-

tors being equal, a difference of a fraction of a cent per

bushel will determine if a contract will be made between

buyer and seller.

Producers acknowle«,<s that it cannot directly identify

the quantity of wheat it has received in the past from the

issue origins, but points out that since wheat loses its

origin identity when loaded into a terminal elevator, it is

possible that a substantial amount of wheat originated at

the issue origins. According to its corporate records, from

1972 through 1976 there were over 8,600 railcars contain-

ing wheat billed at Wichita, Kans., Enid and Fort Worth

which were unloaded at the Corpus Christi terminal. As

further evidence of its need for the reduced rates, Pro-

ducers submits that it has obtained 11 new members in

Kansas and Oklahoma since January 1, 1976, although it

does not state whether those members are affected by the

reductions herein.

In attempting to obtain the issue rates to Corpus

Christi, Producers contacted both MoPac and Southern

Pacific and requested their concurrence in the (then) pro-

posed rates. MoPac refused on the basis that “(d)etailed

study of economics involved prohibits our participation in

joint routes.” Southern Pacific provided a similar explana-

tion:“***this publication does not generate sufficient

revenues to cover cost of performing services.”

Producers criticizes these refusals and refers to MoPac’s

and Southern Pacific’s participation in joint-line rates

from Texas origins to Corpus Christi and Laredo, Tex.,

for export. According to protestant, for traffic in which

MoPac and Southern Pacific concur, revenues for wheat,

110,000-pound minimum, range from $1.08 to $1.24

(average $1.15) per car-mile while the revenues provided

35a

by the reduced rates at issue, 150,000- and 190,000-pound

minima, would yield from $1.06 to $1.64 (average $1.38)

per car-mile.

District operates facilities at the port of Corpus Christi,

including a shipside grain elevator with a 5.6 million

bushel capacity.

District states that most wheat coming from Kansas and

Oklahoma is shipped to Corpus Christi from terminal

rather than country elevators. It points out that while

the reduced rates at issue originate at country elevators,

most of the wheat from these origins will ordinarily move

into a terminal elevator, such as located at Enid. Thus,

although the Frisco originated 111 cars in 1976 for ship-

ment from Enid to Corpus Christi, it would not be possi-

ble for the District to ascertain how much of this wheat, if

any, came from the involved origins. Rate comparisons

have been submitted to demonstrate that the seduced

rates, effective February 20, 1977, and subject to the Ex

Parte No. 336 increase, are between 0.5 cent below to 2

cents above the Ex Parte No. 330 level effective October 7,

1976. Because all the carriers participated in these rates at

the Ex Parte No. 330 level, District implies these carriers

shoulc publish the reduced rates since they would general-

ly furnish revenues above the Ex Parte No. 330 level.

Dreyfus argues that the Frisco claim of motor carrier

competition has not been sustained by independent .

evidence, but that the principal reason behind Frisco’s rate

reductions is the Commission decision in 1.&S. Docket No.

9132, supra, wherein similar reductions were granted to the

Santa Fe. Since the Frisco’s reduced rates were published

to become effective February 20, 1977, the end of the

suspension period in I.&S. Docket No. 9132, and not

before, Dreyfus believes that these rates are published as a

direct response to the Santa Fe rate reductions.

36a

Protestants, in their respective arguments, contend that

the rates violate the existing orders of docket Nos. 31098

and 33447, supra. Producers, District, and Dreyfus con-

tend that the main issue is whether a carrier can avoid the

port equalization orders or the constraints of section 3(1)

when, through independent action, it only has to state that

it is willing to join its connections in publication of the

reduced rates. Since Frisco does not reach any gulf ports

nor do MoPac and Southern Pacific directly serve any of

the origins, Producers and District contend that the joint-

line rate is not controlled by any particular party, but that

the rate is collectively controlled by all the parties to the

rate. It is also alleged that there are no transportation con-

ditions which justify the higher rates. Producers and

District also argue that the reduced rates violate section

1(4) of the act which requires railroads to maintain just

and reasonable rates and reasonable routes.

In its reply, Frisco has extended its exhibit showing the

number of cars from the involved origins to the transit

points of Wichita and Fort Worth. A total of 270 cars of

wheat moved from the origin points to the transit points

between 1973 and 1976, while during this same period 65

and 86 carloads of wheat moved from Forth Worth and

Wichita, respectively, to Corpus Christi.

Frisco criticizes Producers’ presentation because it only

showed the wheat coming from the transit points and not

the specific origins involved in this proceeding. Other

figures were criticized because they related to grain in

general and not wheat specifically.

Frisco argues that if this rate decrease is denied, pro-

testants would not benefit since the wheat traffic handled

by Frisco will instead be handled by the Santa Fe, the

Rock Island, and motor carriers. With respect to motor

37a

carrier competition, it is alleged that this competition,

described in 1.&S. Docket No. 9132, supra, has radically

changed since docket Nos. 31908 and 33417 which were

decided in 1953 and 1961, respectively. Frisco refers to the

development of an extensive interstate highway system

and the heavy trucks which use this system.

DIVISION AND Costs OF SERVICE

In its initial presentation, Frisco presented cost evidence

relating to the through movement. On reopening the

record, Frisco submitted testimony detailing its present

and proposed offers of divisions. In response to this latter

testimony, Dreyfus costed the service for each carrier and

related these costs to the present and proposed offers of

divisions.

In developing its cost evidence for the through move-

ment, Frisco selected Helena and Winfield because they

represented the shortest and longest distances, respective-

ly, to Enid. The evidence was based on wheat shipments

transited at Enid and moving under carload minimum

weights of 150,000 and 190,000 pounds. Variable costs

were based on the application of the Commission’s Rail

Form A, Statement No. 1F1-73, “Formula for Use in

Determining Rail Freight Service Costs” to the 1975 ex-

penses and statistics of those rail carriers assigned to

region VII (Western District). Respondent adjusted those

regional average costs for weight, switching costs and

charges, interchange and through train, and way train

movements. District and Producers criticized this cost

presentation and state that the study should have been

based on the unit costs of the actual railroads and that an

actual average lading weight of 200,000 pounds should

have been used. However, respondent and protestants are

in agreement that the reduced rates are profitable.

38a

It should be noted that we are unable to verify the 1975

costs computed by respondent. Additionally, respondents’

evidence has several deficiencies. The carriers are region V

carriers except for Southern Pacific, which is a region VI

carrier. Furthermore, respondent failed to explain the pro-

cedures it used to update its costs and the methods it used

in adjusting the 1975 unit costs to reflect tare weight and

terminal switching adjustments.

We have developed costs from Winfield and Helena to

Corpus Christi based on statement No. ICI-74, “Carload

Cost Scales, 1974.” Adjustments have been made to reflect

the following specific movement characteristics: tare

weight, way and through train costs, actual interchange

costs on a loaded car-mile basis, inclusion of an absorbed

switching cost on movement to Galveston, and a

50-percent reduction in origin and destination terminal

switching costs and freight train costs reflecting the

economics associated with multiple car movements. Our

restatement is shown below.

39a

Costs, rates and rate/cost comparisons as computed by the Section of

Cost and Valuation as well as respondent's variable cost computations

Movement description Actual Weight computations carloadat revenue comparison

miles (pounds) January 1977 September per col. 6+

cost level 30,1976 ~=—s carload col. $

cost level’

w @ ® 4 ‘ (6) ft]

Winfield, Kans., Transit Enid

1. Enidto Galvesion ............ 859.7 150,000 $945.56 $834.31 $1,192.50 143

2. Enidto Houston ............. 807.6 150,000 919.83 7799.90 = 1,192.50 153

3. Enidto Galveston ............ 801.5 150,000 906.35 797.93 1,192.50 149

4. Enidto Houston ............. 749.4 150,000 880.62 743.53 1,192.50

S$. Enidto Galveston ............ 837.3 190,000 991.85 1,282.50 14s

6. Enidto Houston ............. 746.7 130,000 862.80 726.97 1,012,350 i”

7. Enidto Galveston ............ 826.8 190,009 983.83 878.79 1,282.50 146

8. Enidto Houston ............. 688.5 150,000 823.59 1,012.50 147

9. Enidto Corpus Christi ........ 7 190,000 1,087.81 977.63 1,510.50 155

10. Enid to Corpus Christi ........ 99.5 190,000 1,034.27 1,009.74 1,510.30 190

11. Enid to Corpus Christi ....... 1,009.4 150,000 1,055.78 906.03 1,192.50 132

See footnote at end of iabie.

12. Enid to Corpus Christi ........ 864.8 190,000 1,022.39 917.01 1,282.50 140

13. Enid to Corpus Christi ........ 908.6 190,000 968.85 949.12 = 1,282.50 135

14. Enid to Corpus Christi ........ 948.5 150,000 998.75 853.10 8 1,012.90 119

‘Costs were updated to the September 30, 1976 cost level utilizing the Commission's suggested update procedure

outline in 1.C.C. Statement No. 2-58, “Rail Carload Cost Scales by Territories as of January 1, 1958.”

As the restatement shows, the reduced rates contribute

substantial revenues above variable costs.

As previously stated, we requested information as to the

offered divisions. Frisco has complied by submitting the

divisions as used on the present rates and those proposed

to MoPac and Southern Pacific. Protestants have ana-

lyzed this evidence, relying on costs and comparisons of

car-mile revenues.

40a

The statements submitted by respondent are contained

in appendixes A and B. Appendix A shows the divisions

between respondent and MoPac in percentages and in

revenues, both present and proposed, and compares the

divisions from the issue origins to Houston and Corpus

Christi. Twenty-four rates are shown; only six involve

reductions, but all are on rates to Corpus Christi. These

reductions range from 0.2 to 0.7 cents, while Frisco’s share

is reduced in all instances and varies from 0.7 to 3.5 cents.

The statement for the Southern Pacific (appendix B) in-

volves only the Corpus Christi destination. All the rates to

Corpus Christi have reductions which range from 0.3 to

1.1 cents. Frisco’s share is again reduced in all instances,

the reductions ranging from 0.6 to 2.4 cents.

Frisco has testified that the divisions offered to the con-

necting carriers reflect the same percentage divisions as

previously concurred in by the connecting carriers.

Southern Pacific states that its participation in any rate

adjustment is conditioned on its earnings for those rates.

This carrier emphasizes that it is not the normal railroad

pricing procedure of carriers operating in this particular

geographical territory to become involved in questions

regarding divisions each time a rate change is being con-

sidered, because to adjust those divisions each time a rate

is reduced would result in unmanageable situations. Only

on rare occasions is a special basis of divisions agreed

upon which alters the prevailing basis, and in many cases

those changes are related only to additional routings on

present rates. Southern Pacific points out that the subject

rates were progressed by independent notices and that

Corpus Christi delivering lines were not consulted as to the

level of rates to be established nor were they ever advised

as to the reasons that Frisco felt it was imperative to

publish the reduced rates. It is Southern Pacific’s position

me *eese

4la

that had it been consulted, it would have advised the

Frisco that the rates should not be progressed because

revenues accruing for Southern Pacific’s account were less

than Rail Form A variable costs for the service. Southern

Pacific also has testified that the Frisco has never made

any offer of revised divisions. Southern Pacific alleges

that its variable cost from its connection with the Frisco at

Fort Worth to Corpus Christi is 26.22 cents in a rail-

owned covered hopper car with net load of 190,000

pounds contrasted with the 24.6 cents share of the revenue

the Frisco has proposed to allow Southern Pacific for this

service.

Protestants, District and Producers, in their joint state-

ment dated October 17, 1977, provided a table depicting

total railroad mileage from the 12-named origins to Cor-

pus Christi, Tex. From each origin the mileage is stated to

reflect (1) Frisco’s mileage from origin to interchange

point at Fort Worth or Dallas, Tex.; (2) MP mileage from

Fort Worth to Corpus Christi; and (3) SP mileage from

Dallas to Corpus Christi. Also shown are Frisco’s, MP’s,

and SP’s percentage distribution of the total mileage and,

in a subsequent table, protestants have calculated Frisco’s

percentage share of the total through revenues. Further-

more, in response to Frisco’s second opening statement,

those protestants have presented certain selected car-mile

earnings from various origins. Such revenue data was ex-

tracted from respondent, Frisco’s showing of divisions and

minimum revenues from the involved rail carriers.

Protestant Dreyfus submitted a study of the variable

costs associated with the movement of the subject traffic

from 12 Frisco origins to Houston, Galveston, Port Ar-

thur, and Corpus Christi, Tex. Cost data relative to fully

allocated costs have also been presented, as well as a com-

parison of the proposed revenue divisions with the

variable costs for each of the participating carriers.

42a

Costs submitted by Dreyfus are based on 1975 Rail

Form A territorial average costs for regions V and VI, up-

dated to reflect wage and price levels as of April 1977. The

development of such costs reflects movements of wheat in

covered hopper cars carrying a net load of 200,000

pounds. Mileages were based on tariff route distances fur-

nished by Louis Dreyfus Corporation. The study also in-

cludes switching costs of the Houston Belt and Terminal

Company (HB&T) and the Port Terminal Railroad

Association (PTRA) at the Houston destination, as well as

a switching charge of $42.24 per carload made by the

Galveston Wharves Railroad.

Dreyfus has also included the cost applicable to inter-

change switching for the movement from Frisco to the

switching lines at Galveston and Houston, that is, inter-

change with HB&T, PTRA, and Galveston Wharves

Railroad.

Regarding interchange costs at Corpus Christi, Dreyfus

notes that the service to the public elevator is provided

every third year by either the SP, MP, or Texas-Mexican

Railway. Switching service to the private elevator,

operated by Producers Grain Corporation, is provided by

MP. Accordingly, Dreyfus included the costs of only one-

third of an interchange on SP movements to Corpus

Christi, since SP incurs one full interchange cost every 3

years. On movements via the MP to Corpus Christi,

Dreyfus included a weighted average of one-third an in-

terchange for that carrier since there is no interchange in-

volved in the movement to Producers’ elevator and only

two-thirds of an interchange involved on movements to

the public elevator.

Dreyfus’ cost witness has updated 1975 Rail Form A

variable costs to an April 1977 cost level using the index

computed by the Western Railroad Association, adjusting

43a

the index downwards slightly so that it may be applicable

to Rail Form A costs which include not only operating ex-

penses, rents, and taxes, but also the cost of capital.

After computing the variable costs applicable to the

issue traffic, Dreyfus developed a table depicting the rates,

variable costs, and rate-cost comparisons for through

movements originating on the Frisco, at Winfield and

Helena, to the gulf ports of Galveston, Port Arthur,

Houston, and Corpus Christi. Data were shown separately

for shipments with one transit stop at Enid and for non-

transit shipments. This data indicate that on transited

movements from the two origins, the proposed reduced

rates produce ratios of revenues to variable cost ranging

from 120 to 149 percent on the through movement. On

nontransit shipments, the reduced rates range from 139 to

175 percent of through movement variable costs.

Dreyfus has aiso computed the average ratio of rate to

variable costs for these movements. These computations

are alleged to show that the ratio of the average rate to

variable costs ranges from 128 to 139 percent on transited

shipments and 148 to 164 percent on nontransited

shipments. Dreyfus concludes that the reduced rates in-

volved in this proceeding cover the railroads’ fully

allocated costs (based or. the allocation of constant costs

on a dollar basis) since an examination of Rail Form A

application for regions V and VI indicates that the total

constant expenses amount to approximately 28 percent of

total variable expenses.

In addition to presenting evidence relating to the com-

pensatory nature of the through movements, Dreyfus has

also submitted variable costs per hundredweight and ap-

plicable divisions for the Frisco’s portion of the haul via

the various routes to Corpus Christi, as well as the con-

dda

necting carriers’ portion of the haul. The results of this

showing are set forth below:

Variable cost =: Revenue division Ratio: revenue

Origin and routing cents per cwt. cents per cwt. to variable cost

Frisco MP or Frisco MP or Frisco MP or

SP SP SP

()) @Q) @) (4) tb) ] (6) ”

Winfield, Kansas Percent Percent

Frisco-Dallas-SP .............. 42237 UMD MS lol 104

Frisco-Ft. Worth-SP ........... Si M6 BOD UMS 186 100

Frisco-Ft. Worth-MP .......... 3.1 M2 SMS 250 195 103

Helena, Oklahoma

Frisco-Dallas-SP .............. 09 2.7 49 246 149 91

Frisco-Ft. Worth-SP ........... 18 M6 49 246 (44 88

Frisco-Ft. Worth-MP .......... NS M2 42 33 139 96

According to Dreyfus’ tables the revenue divisions

allowed to the connecting carriers produce revenues which

are below, or only marginally higher than, the variable

costs incurred by the connecting carriers. Furthermore,

Dreyfus notes that the costs, shown for Frisco, include the

cost of transit and if no transit was provided, Frisco’s costs

would be almost 8 cents per hundredweight lower. As a

result, Frisco’s division of the revenue would be even more

remunerative.

Although SP attempted to show some evidence relative

to costs of service consideration, it provided no support or

explanation of the variable costs it introduced. However,

the variable cost SP shows for the movement from Win-

field, Kans., to Corpus Christi, Tex., with interchange at

Forth Worth is only slightly higher than the variable cost

computed by protestant Dreyfus for the same movement,

4Sa

(i.e. 26.22 cents compared to 24.6 cents). Accordingly, we

believe the variable costs shown by SP is not

unreasonable.

We are unable to verify the cost presented by Dreyius

since the Commission’s most recent Rail Form A reflects

only those costs for the year 1974. However, we find pro-

testant’s cost methodology to be acceptable for the most

part. Dreyfus’ use of an average actual lading weight more

appropriately reflects the costs incurred in handling the

issue traffic since costs are predicated upon the actual

weight being transported rather than the tariff minimum

weight. Dreyfus’ exclusion of regional average switching

costs at destination and its inclusion of switching charges

paid to terminal switching companies, at Houston and

Galveston, is acceptable.

Based on the routings shown in Dreyfus’ cost study, it

appears that the number of interchanges was overstated.

However, we have not restated the cost applicable to the

through moveuients since such restatement would not alter

the showing that revenues exceed variable costs on those

movements by substantial margins.

With respect to the interchange reflected in the cost of

movements from either origin to Corpus Christi, Dreyfus

has improperly computed the cost of providing service in

any given year. The use of average interchange costs

understates the total costs of providing service in a year in

which MoPac or Southern Pacific must interchange the

traffic to the public elevator. Furthermore, average inter-

change costs overstate the total costs in a year on which

MoPac or Southern Pacific serve the public elevator

directly. Accordingly, we have restated the costs shown by

Dreyfus to reflect actual interchange costs incurred by the

involved carriers in the movement to Corpus Christi. Our

46a

restatement is shown below and reflects revenues and costs

in cents per hundredweight for the Frisco as well as the

connecting carriers. It should be noted that protestants’

use of onc: :hir.eraiPinierchange cost would reflect the

appropriate expense incurred by the connecting carriers if

one were examining the cost of service for a 3-year period.

SP SP

(1) (2) (3) (4) (5) (6)

Winfield, Kansas Percen Percent Percent

Frisco-Dallas-SP

(a) Delivery to public

Ee 33.5 224 55.5 25.0 166

b) Delivery to public

elevator by MP or Tex-Mex ...... 33.5 23.2 55.5 25.0 166

Frisco-Ft. Worth-SP

a) Delivery to public

EE ee ec ccsabnbe 344.5 23.3 55.5 25.0 161

b) Delivery to public

elevator by MP or Tex-Mex ...... 45 2.1 55.5 25.0 161

Frisco-Ft. Worth-MP

a) Delivery to public

elevator by MP ................ 3445 23.1 $5.2 25.3 160

b) Delivery to public

elevator by SP or Tex-Mex ...... 34.5 238 $5.2 25.3 160

c) Delivery to private

eLr

and cents

Origin routing per

Frisco MP or Frisco MP or

SP SP

(1) (2) Q) (4) (5)

Helena, Ok/*homa

Frisco-Dallas-SP

(a) Delivery to public

Pe 30.3 22.4 4.6 21.9

b) Delivery to public

elevator by MP or Tex-Mex ...... 3.3 0 =—-23.2 4.6 21.9

Frisco-Ft. Worth-SP

a) Delivery to public

a 31.2 23.3 4.6 21.9

b) Delivery to public

elevator by MP or Tex-*4ex ...... 3.2 «6241 4.6 21.9

Frisco-Ft. Worth-MP

a) Delivery to public

SEE - ndbbcvncsccoones 31.2 23.1 45.2 23.3

b) Delivery to public

elevator by SP or Tex-Mex ...... 31.2 23.8 45.2 23.3

c) Delivery to private

49a

The results of our restatement do not materially alter

the showing made by Dreyfus; that is, the proposed re-

duced rates produce revenues which approximate variable

costs, in some instances apparently failing to cover them,

and in other instances si.,htly exceeding the variable costs

of service of the connecting carrier. The revenues exceed

the variable costs of the through movement. The cost

study presented by Dreyfus reflects the variable costs in-

curred in movements to the port of Corpus Christi from

only 2 of the 12 named origins. However, Frisco has not

criticized the study in that regard

Both Frisco and Dreyfus contend that cost study shown

by Dreyfus overstates the cost of service. Frisco claims the

use of regional average costs do not accurately reflect the

cost of terminal services at specific origins and destina-

tions. Dreyfus states its costs are overstated since it did not

reflect specific characteristics of the issue traffic

movements, but only regional average movement

characteristics. Additionally, Dreyfus points out that its

costs are also inflated by its failure to reflect economies

associated with multiple-car shipments outbound from the

transit point. We agree with the contentions made by both

parties with respect to such overstatement.

On the reopened record Dreyfus argues that a finding of

common control is unnecessary in this proceeding

because, if the rates are found to violate section 3(1), our

order would not give the origin carrier the option of lower-

ing or raising its rates, but would instead order cancella-

tion of the issue rates. This protestant submits that if com-

mon control is a necessary element to establish that these

rate reductions violate section 3(1), then we must compel

an adjustment in the divisions. It also submits that the

rates are highly remunerative on the through bases, and

50a

that a divisions offer which denies the connecting carrier

its earnings potential is not in good faith. Alternatively,

should this Commission find that respondent acted in

good faith in its offers of divisions, then the connecting

carriers’ rejections of these offers should constitute “bad

faith”.

District and Producers argue that a bona fide offer of

divisions must be fair and equitable and that it is incum-

bent on respondent to demonstrate this aspect, irrespective

of the length of time that the existing basis has been in ef-

fect. Frisco states that there are instances where it receives

less of its proportionate share of joint revenues than an ex-

act proportionate share of the joint costs would indicate.

Frisco acknowledges that it would appear that perhaps

it receives somewhat more than its costs would justify,

however, in other situations involving MoPac. and

Southern Pacific, Frisco receives less. Frisco argues it was

not required either explicity or implicity by the order to

justify its percent share of the present rates or the share it

would receive from the proposed rates, and that the Com-

mission’s Only purpose in entering the subject order on

divisions offers was to assure itself that Frisco was not of-

fering divisions which substantially reduced the shares of

the connecting carriers. Frisco believes its evidence is clear

that no substantial reductions in revenues would occur to

the connecting carriers under the proposed rates as com-

pared to those divisions which those carriers receive under

the present rates and that Frisco has not predicated lower

joint rates upon a divison of revenues which substantially

reduces the share of the connecting carriers. Thus, Frisco

criticizes the car-mile earning comparisons of District and

Producers because the comparisons do not give recogni-

tion to the actual movement of the traffic. Respondent

also argues that Corpus Christi is geographically disadvan-

Sla

taged because the dist »nces between Helena and Corpus

Christi and between Winfield and Corpus Christi are 260

and 250 miles, respectively, greater than between those

origins and Houston. Respondent also submits that Cor-

pus Christi could not possibly be damaged since Frisco

and other rail carriers are handling to some degree traffic

which has allegedly moved in motor carrier service, to

other ports Frisco claims that motor carrier service has not

been made available to Corpus Christi.

As to Dreyfus’ assertion that Frisco is either acting in

bad faith in offering divisions to MoPac which diminishes

MoPac’s revenues or MoPac is acting in bad faith in not

accepting the offer if the offered divisions do not diminish

MoPac’s revenues, Frisco claims it has no explanation for

MoPac’s refusal to join in rates which do not reduce its

revenues but which do substantially reduce Frisco’s

revenues.

DISCUSSION AND CONCLUSIONS

The statutory burden of proof is on the respondent car-

riers to demonstrate that the issue rate reductions are

lawful. In order to make a finding that these reductions do

not violate section 3(1) of the act, as alleged by pro-

testants, the evidence must show that there is not a dispari-

ty in rates, that the protestants herein are not actually or

potentially competitively injured, that respondent carriers

are not the common source of the rates to both the pre-

ferred and prejudiced ports, or that the rate disparity, if

any, is justified by the transportation conditions. See

Chicago & Eastern Illinois R. Co. v. United States, 384 F.

Supp. 298, 300-301 (N.D. Ill. 1974), affirmed 421 U.S. 956

(1975).

52a

The evidence of record shows that there is a rate dispari-

ty of 1 to 3% cents to the detriment of Corpus Christi and

in favor of the other gulf ports. As the testimony shows,

the nature of grain pricing is such that contracts to pur-

chase wheat are affected by price considerations in frac-

tions of a cent. This rate disparity, then, can and will

adversely affect a potential buyer’s ability to procure

wheat for shipment to Corpus Christi. Although respond-

ent states that other factors affect the ability to procure

wheat, this statement is entitled to little weight without a

factually supported statement concerning what those fac-

tors are and what effect they will have.

Frisco objects to Producers’ evidence that Producers has

received traffic from the origin area as inadequate because

the evidence only shows that wheat has been received from

terminal stations which receive shipment from the in-

volved origins, and not what the specific origins are. The

failure to reflect the origin is explained by Producers’

statement that normally wheat loses its origin identity

when it is unloaded at a terminal elevator. While the ter-

minal elevators receive wheat from origins other than in-

volved herein, the evidence still indicates that substantial

amounts of wheat had been received from the involved

origins. We note the absence of any testimony that the ter-

minal elevators receive only a small portion of their traffic

from those origins.

We conclude that there is sufficient evidence to

demonstrate that Producers, District, and Dreyfus, have

suffered an actual or potential injury.

In regard to common control, in prior cases the Com-

mission has found that where the origin carrier proposed

an equal joint rate to Corpus Christi, and made an offer of

divisions of revenue to a connecting carrier to Corpus

53a

Christi, but the connecting carrier did not concur in the

joint rate, that the origin carrier was found not to have

“control” over the rate to Corpus Christi. 1.&S. 9132,

Wheat, Kansas and Oklahoma to Gulf Port, supra, note 2;

1.&S. 9052, Wheat, New Mexico and Texas to Texas

Ports, 355 1.C.C. 237, (decided October 19, 1976);° Corn

& Soybeans Midwest to Gulf Ports, 349 1.C.C. 1 (1974).®

As stated, although the Commission has not previously in-

quired into what divisions were offered, there is concern

that if an origin carrier is not required to show that it has

made a good faith offer of divisions, it couid always evade

a finding of common control by predicating a lower joint

rate upon a division of revenues which substantially

reduces the share of the connecting carrier, or upon some

other condition which could reasonably be expected to in-

duce the nonconcurrence of the connecting carrier. If the

connecting carrier would refuse to concur, the Commis-

sion would be left with no alternative but to find that the

carrier did not have common control. Accordingly, in the

order of September 7, 1977, in this proceeding the Com-

mission announced that it would require the origin carrier

to establish that it had made a good faith offer before it

could claim that nonconcurrence of the connecting carrier

deprived it of common control. If it appeared in light of

evidence submitted that a reasaonable offer was made,

then good faith would be shown.

Although protestants have argued that divisions are ir-.

relevant to this proceeding, common control is a concept

designed to insure that the carrier or carriers causing viola-

‘Appeal docketed sub nom., Nueces Count) Navigation District

‘No. 1 v. Interstate Commerce Commission, No. 76-4490, Sth Cir.

*Appeal docketed sub nom., Nueces County Navigation District

No. 1 vy. United States, No. CA-3-74-1253-D, N.D. Tex.

S4a

tion of section 3(1) has the alternative to raise or lower the

rates at issue, so as to restore parity. Texas & Pacific Ry.

Co. v. United States, 289 U.S. 627, 650 (1933). Thus, the

carrier or carriers must effectively participate in both the

prejudicial and preferential rates. But if two carriers

refuse to act in concert to set a joint rate to a port in which

they can only serve jointly, because of a genuine divisions

dispute, they cannot reasonably be said to be in control of

the joint rate. Our inquiry into divisions in this proceeding

extends from a concern that such a dispute could be

deliberately induced, as described above. If so, the carrier

making the divisions offer should not be able to claim that

it lacks common control. No. 36491, Wheat, Oklahoma

and Kansas to Texas Gulf Ports, sheet 11, (decided Oc-

tober 20, 1977).

The evidence submitted in regard to the present and pro-

posed divisions amply demonstrates that the change in

revenues to be received by the connecting carriers under

the reduced rates is not substantial. The changes observed

in revenues are for the most part, in fractions of 1 cent; as

a consequence, the change in operating ratios are only | or

2 percent.

We are concerned that the operating ratios are below

variable costs or only marginally above variable costs.

Frisco contends that our order is limited to whether the

reductions in offers of divisions are substantial and not as

to the absolute values of the offers. We must emphasize

that we have elicited the offers of divisions with a view to

determining whether the origin carrier made a good faith

offer. Further, we are in agreement with the parties that

the construction of a divisional scale is not solely a matter

of costs and mathematics but reflects many corsidera-

tions. The evidence herein indicates that the proffer of

divisions, if accepted, would result in revenues which are

SSa

very close to variable costs, sometimes slightly above and

sometimes slightly below variable costs. Because of the

lack of precision of the cost evidence (the parties agree

that the costs are somewhat overstated) the revenues could

most accurately be described as marginally compensatory.

The evidence on this record shows that the respondent

did not attempt to induce deliberately the nonconcurrence

of its connecting carriers. It offered divisions of revenue

premised upon the same basis as the existing divisions,

tender, if accepted, would have produced no reduction in

the connecting carriers’ percentage share of the revenues

from the through movement and, at most, only a small

reduction in the absolute revenues received by the con-

necting carriers. We note that in some instances there

would be no change in the revenues received by the

MoPac.

This is not to say that a tender of the same divisions by

an origin carrier will necessarily result in a finding that it

has made a good faith tender of divisions. Changed cir-

cumstances may render a previously reasonable divisions

tender not only unacceptable to the connecting carrier but

also so clearly unacceptable that its tender can be viewed

as reflecting something less than good faith on the part of

the originating carrier. The marginal profitability of the

existing divisions to the connecting carriers means that a

tender of the existing divisions under any changed cir-

cumstances merits careful examination. However, the

change here is not so great, nor are the resulting divisions

so obviously noncompensatory that we can conclude that

the respondent offered them in an attempt to induce non-

concurrence by the connecting carriers.

In view of the record herein, we believe that respondent

S6a

has sustained ‘t< burden of proof that the offers of divi-

sions were mauc¢ in good faith, and that respondent has no

common control over the rates. Under the circumstances,

we need not reach the issue of the similarity of transporta-

tion conditions characteristic of the movements in issue.

In view of the above; we conclude that the issue

schedules do not violate section 3(1) of the act.

District and Producers have argued that the reduced

rates violate section 1(4) of the act apparently under the

theory that through routes and just and reasonable rates

are no longer in effect. We do not agree. The evidence of

record, including cost evidence relating to the through

movements, amply demonstrates that the present and pro-

posed rates are just and reasonable. Further, outside of

the allegation that the proposed schedules violate section

1(4), there is no evidence which would indicate that the

parties would be unable to move the issue traffic from the

origizs to Corpus Christi. For these reasons, we find that

the rates have been shown to be just and reasonable and

not in violation of section 1 of the act.

We find that the assailed rates are not unduly pre-

judicial to Corpus Christi and unduly preferential of

Galveston, Houston, Texas City, Beaumont, and Port Ar-

thur.

We further find that this decision is not a major Federal

action significantly affecting the quality of the human en-

vironment within the meaning of the National En-

vironmental Policy Act of 1969.

COMMISSIONER MURPHY, dissenting:

Respondent Frisco’s evidence fails to convince me that it

did, in fact, enter into serious negotiations over divisions

57a

with the Missouri Pacific and the Southern Pacific on ex-

port grain to Corpus Christi. Actually, the evidence con-

clusively shows that the Frisco seeks, as an afterthought,

to justify its initial purported offer to the two carriers. The

majority’s approval of such a device raises serious ques-

tions of due process, among other defects.

My position with regard to the exclusion of Corpus

Christi in reduced rates on export grain has been noted ina -

number of proceedings and needs no further elaboration.’

Succinctly stated, such proposals are in violation of the

Gulf port equalization orders. See also, Public Law

94-210, section 202(f).

Today’s decision leaves shippers and other interests at

Corpus Christi in an unenviable position. They are left

with virtually no remedy to counter the prejudicial treat-

ment of the Frisco although the act was specifically de-

signed to preclude such prejudicial treatment. Obviously,

in the face of the majority’s decision today, protestants

must look to other forums for relief.

I respectfully dissent.

COMMISSIONER STAFFORD, dissenting:

I have previously noted my opposition to any require-

ment that the publishing carrier make a showing of a good

faith offer to establish a joint rate.

In this proceeding, the majority found that a good faith

offer was made primarily because it was based on one

same percentage division as currently exists. I am con-

"See, for example, Corn & Soybeans Midwest to Gulf Ports, 349

L.C.C. 1, 6-8 and No. 36491, Wheat, Oklahoma and Kansas to Texas

Gulf Ports, 357 1.C.C. 352 (1977).

58a

cerned, however, that future cases may not be as clear cut.

The result will be that the parties will have to introduce the

same type and quantum of evidence as they would in any

ordinary divisions proceeding.

Unless the Commission is willing to formulate extensive

guidelines about good faith offers and reasonable divi-

sions, we should not be getiing involved here. Anyone who

has followed the Commission through the years knows

that divisions cases are the most difficult we have, and in-

volve many imprecise, vague and obscure issues of law and

accounting. Every time we tangle with divisions matters,

we learn that this subject is best left to arm’s length

bargaining among the carriers.

COMMISSIONER GRESHAM, dissenting:

I believe that the subject schedules must either be

canceled or extended to Corpus Christi. I cannot agree

with the basis of the order, whether Frisco has failed to

satisfy its burden of proof as to a good faith offer to divi-

sions to its connecting carriers. Common control would

exist to these gulf ports even if good faith were estab-

lished. See Texas & Pacific Ry. Co. v. United States, 289

U.S. 627, 655-70 (1933) (Stone, J., dissenting).

See also Nueces County Nav. District No. 1 v. Abilene

& S. Ry. Co., 253 1.C.C. 745, 749 (1942); Port of New

York Authority v. Baltimore & O. R. Co., 248 1.C.C.

165, 182 (1941); Albany Port District Comm. v. Ahnapee

& W. Ry. Co., 219 1L.C.C. 151, 172 (1936).

I have previously expressed my position in a number of

proceedings, including Corn-& Soybeans Midwest to Gulf

Ports, 349 1.C.C. 1, 6-8 (1974); Corn & Soybeans Midwest

to Gulf Ports, For Export, 339 1.C.C. 595, 626 (1971);

Wheat and Grain Sorghums, Midwest to Texas Ports, 337

59a

1.C.C. 777, 782 (1970); and Soybeans, Midwest to

Chicago & Gulf Ports, Export, 335 1.C.C. 883, 893 (1970).

It is ordered, That this proceeding be, and it is hereby,

discontinued.

By the Commission.

(Seal) H.G. Homme, Jr.,

Acting Secretary.

Re a ot ee

APPENDIX A

Statement showing MP divisions of rates south of Fort Worth, Tex, on export shipments of wheat, and

comparison of MP share of present and proposed rates in cents

Presem’ Proposed’ Reduction

‘ - MP on

From Te MP percem MP pro MP MP ore MP proposed

revenue’ Rave portion = minimum Rate portion) = minimum present

(eat. C revenue’ (co. C revenuc’ rates

a col. D) « col. H)

(A) (B) (c) ™» (eB) (FP) (a) (MH) ® ”)

Tesas

Gottry- --~-~--------------- Howston 03 68 5 139 184 5 135 164 ‘NC

Do Corpus Christi----—--—---- n 685 19 23.3 “5 21.3 23.3 NC

Helena Houston -------------------~ D3 5 139 184 67.5 13.7 a4 NC

Do Corpus Cheristi------—---- n “5 29 23.4 675 216 23.3 NC

Kansas

Winfield Howston --------------------- 19.9 905 16.0 i1s4 m5 158 a4 NC

Do - Corpus Christi-—-—-——- uA 5 23.3 23.5 ns 230 23.3 #3

Arkansas City Houston --—----------------- 19.9 905 16.0 is4 m5 154 184 NC

Do Corpus Che isti----------— uA 0.5 25.3 233 5 wo 23.3 a7

Oklahoma

Do Corpus Christi---—------- n 73.5 23.5 23.3 75 23.2 23.3 #2

Bender Houston ------------------- ~~ 2.3 73.5 49 164 7.5 4.7 184 nC

Do Corpus Cher isti-----—------- n 73.5 23.5 23.3 72.5 23.2 23.3 42

4d bad

RRRRRRRRS ESR

| SsssIIss sees

|?

i

|

:

?

i

Present’ Proposed’ * Reduction

SLSF to SUSF

From To percemt SF SLSF SsLoF St SE propused

revenue’ Rate proportion actual Rate proportion actual =: v8. present

(eol. C revenue’ (cot. C revenue’ rates

x col. D) « col. G)

(A) (B) (Cc) (D) (EB) (F) (G) (HM) mw ”)

Oklahoma Texas

Gotery ---- ---eereeereeneeeeee: Houston. ------------ 97 ons 546 50.1 6.5 53.0 46) 20

Do covcceceeeceeweeeeee Coppa Chiriati----------- 68 66.5 6 452 6.5 45.2 43.2 20

Helene -------------2---2e---0+ How “om ---------0- o2n-eene- 7 68S 346 50.1 675 538 “1 10 g

De -------e-eeeeeveeveenrenes Corpus Christi------------ 6A “as 466 45.2 675 459 “42 10

Kansas

Winfietd -------------------- Houston --------------2------ 1 80.5 45 62.1 9.5 69.7 61.1 10

Do Corpus Christi----------- 686 805 55.2 $5.2 9.5 45 54.5 a7

Arkansas City --------- Houston ------------eerreeee #01 805 55.2 621 1.5 629 wo 20

Do ee Corpus Chiristi-n--------- 686 00.5 $5 $5.2 7.5 539 539 43

Oklahoma

Middleton ---4----------<-- Hemston --------ree--eeeeeeee 7 73.5 58.6 55.1 712.5 578 “1 10

Do Corpus Che isti------------ 68 73.5 30.0 300 715 “5 492 on

Bender ee "7 73.5 58.6 55.1 75 578 44 10

Do Corpus Christi------------ 68 73.5 300 300 715 0) “9.2 On

See footnotes at end of table.

Fort Worth and comparison of SLSF share of present and proposed cents—C ontinued

Present’ Proposed’ Reduction

SLSF to SLSF

From To percent SLSF SLSF SLSF SLSF proposed

revenue’ Rate proportion = actual Rate proportion § actual §=—s v5. present

(col. C revenue’ (col. C revenue’ rates

a col. D) x col. G)

(A) (B) «c) (D) (G) (H)

Oklahoma Texas

Peckham ------------. -------- Houston --------------------- 9.7 73.5 58.6 $5.1 7” 566 $26 -25

Do Corpus Christi------------ 68 73.5 50.0 $0.0 ) 48.3 47.7 23

Gratnville -- Houston 7 73.5 58.6 $5.1 7 56.6 52.6 -25

Do Corpus Christi--------- -- 68 73.5 30.0 50.0 7 48.3 47.7 23

Blac kwetl- 07 n 57.4 $3.6 “5 55.4 Sit -25

Do Corpus Christi----------- 68 n 490 48.7 0.5 473 46.2 -25

Eddy Houston - "7 n $74 53.6 68.5 54.6 30.1 35

Do Corpus Cheisti--------—--- 68 n 49.0 “a7 68.5 466 45.2 35

Lamont Houston --------------------- 9.7 ui 55.8 $1.6 67.5 53.8 a1 25

Do Corpus Cheisti------------ co) vn 476 467 67.5 45.9 “42 25

Sekt Fork Houston 7 n 55.8 $1.6 67.5 53.8 “o1 -25

Do Corpus Christi------------ 68 n 476 “67 67.5 459 2 -25

‘Races stated im columas D through ) in cents per hundred pounds at Ex Parte No. 336 level.

"Provided for in SLSF D/B 16K3-Grain-2. MoPac D/B No. 14249, MoPac receives @ minimum of 23.3 cents per cwt. south of Fort Worth.

.

Statement showing SP divisions of rates south of Fort Worth or Dattas. Tex. on export shipments of

wheat, and comparison of SP share of present and proposed rate im cents

Te

(8)

o4

07

aa

33SSS585

23.2

23.2

22.7

22.7

22.2

29

21.6

26

725

25

”

A]

as

08S

67.5

67.5

AAR ARAAR

feeERERR

724-Grain-6, SP D/B 1999.

through H in cents per hundred pounds a Ex Parte No 336 level.

Statement showing SLSF divisions of rates on export shipments of wheat, wien routed in connection SP from Fort Worth

or Dallas, Tex., and comparison of SLSF share of present and proposed raws in cents

Present’ Proposed’ Reduction

SLSF SLSF

From To percent’ Rate SLSF Rate SLSF proposed

rates

(A) (B) «c) (D) (E) (F) (G)

Oklahoma Texas

Gottry Corpus Christi --------------------- 68 68.5 466 66.5 45.2 14

Helena -do 68 68.5 466 67.5 45.9 0.7

Kansas

Winfield -do o 80.5 $5.5 9.5 349 06

Arkansas City -do o 80.5 55.5 78.5 $4.2 13

Oklahoma

Middleton -do 68 73.5 50.0 7.5 49.3 07

Bender -do -- oe 73.5 50.0 72.5 0.3 07

Peckham -de oe 73.5 50.0 7 48.3 1.7

Grainviile -do 68 73.5 50.0 7 48.3 1.7

Biackwell -do --- 68 n 4.0 os 473 1.7

Eddy -40 ----- ------------ ne n 490 085 46.6 24

Lamont -do 8 nr 476 67.5 45.9 7

Sekt Fork -do 68 7 476 67.5 45.9 1.7

‘Rates stated in columns D through H are in cents per hundred pounds at Ex Parte No. 336 level.

"Provided for in SLSF D/B 1724-Grain-6, SP D/B 1999.

66a

APPENDIX C

No. 36491 (Sus-No. 1)

WHEAT, OKLAHOMA AND KANSAS TO

TEXAS GULF PORTS

Decided February 2, 1979

Alternative order cannot be issued when origin carrier, which directly

serves preferred ports bu: only indirectly serves a prejudiced

port, is not in actual contol of rates to the prejudiced port. Ac-

tual control determined by surrounding circumstances, in-

cluding good faith offers of divisions. Prescribed rates found

not to be appropriate, justified both on the bases of policy con-

siderations and on the record. Proceeding discontinued.

Donald E. Engle, Hugh L. McCully, Donald E. Ran-

som, and Donal L. Turkal for respondents.

Frank C. Brooks, Andrew P. Goldstein, Raymond R.

Nolen, and M.H. Swanson for protestants.

DECISION

SUMMARY

The central issues in this proceeding are: (1) whether the

reduced carload rates on wheat which are afforded to

various Texas gulf ports but not to Corpus Christi, TX,

are unduly preferential to these various Texas gulf ports

and prejudicial to Corpus Christi in violation of 49 U.S.C.

10741(b) (formerly section 3(1) of the Interstate Com-

67a

merce Act (act)),' and (2) whether the reduced rates

violate outstanding orders in Nueces County Nav. District

No. 1 v. Abilene & S. Ry. Co., 291 1.C.C. 459 (1954), and

Nueces County Nav. Dist. No. | v. Atchison, T. & S.F.

Ry. Co., 315 1.C.C. 155 (1961) (the Corpus Christi cases).

A distinction must be made between preference and pre-

judice and undue preference and prejudice. As a general

rule, not all preferences to one locality and prejudice to

another are considered undue and thus unlawful. In order

to find undue and unlawful preference and prejudice, the

following elements must exist. (1) There must be a rate

disparity. (2) There must be actual or potential injury. (3)

A similarity of transportation conditions must exist to

both the preferred and prejudiced points. Finally, in order

to provide a remedy with an alternative order, the carrier

or carriers must control the rates to both the preferred

and prejudiced points. Texas & Pacific Ry. Co. v. U.S.,

289 U.S. 627 (1933). An alternative order is one which

allows the carrier or carriers to adjust the rates by raising

the preferred rate, or lowering the prejudicial rate or alter-

ing both to remove the unlawfulness.

Our determination of the issues in this proceeding

hinges on the fourth element; that is, whether there is com-

mon cuntrol of the rates to both the preferred and pre-

judiced ports. (The other three elements are also discussed

in this decision.) Without this fourth element, an alter-

native order cannot be issued under section 10741.

'The Interstate Commerce Act was revised and codified without

substantive change on October 17, 1978, at 49 U.S.C. 10101 ef seq.

Under the revised code. 49 U.S.C. 10741 prohibits “unreasonable

discrimination,” a term replacing “undue preference and prejudice” of

section 3(1) in the former act. In order to be consistent with the prior

report, and because there is no substantive change in the new code. we

will continue to use the terms “preference” and “prejudice.”

Respondent, St. Louis-San Francisco Railway Co.

(Frisco), which does not serve Corpus Christi directly, did

not publish the reduced rates to that port because it could

not obtain concurrences from the two connecting carriers

which serve Corpus Christi. The two connecting carriers,

Missouri Pacific Railroad Company (MoPac) and

Southern Pacific Transportation Company (SP), were also

made respondents in this proceeding. We found in the

prior decision that the reduced rates violate neither section

3(1) of the act (49 U.S.C. 10741) nor our outstanding Cor-

pus Christi orders. These findings were based upon ovr

conclusion that Frisco does not possess common control

over the rates to both the preferred and prejudiced ports.

Protestants Louis Dreyfus Corporation (Dreyfus) and

Nueces County Navigation District No. i and Producers

Grain Corporation (collectively District) present the

following basic arguments. First, a finding of control is

unnecessary to issue an alternative order under section

10741. Second, if common control is a necessary element

to issue an alternative order, then Frisco commonly con-

trols the rates both to the preferred ports and to the pre-

judiced port of Corpus Christi, thus allowing the issuance

of an alternative order. Third, a finding of common con-

trol is an unnecessary element to prescribe rates. Fourth,

the publication of the reduced rates to ports other than

Corpus Christi is within the scope of the outstanding Cor-

pus Christi order.

After careful consideration of these arguments, we con-

clude first, that common control of the rates to both the

preferred and prejudiced ports remains a necessary ele-

ment for issuing an alternative order. Second, in our opin-

ion Frisco does not control the rates to Corpus Christi.

Therefore, we cannot issue an alternative order. Third,

not only does this record fail to afford a basis for rate

69a

prescriptions, but also considerations of carrier rate flex-

ibility would preclude our prescribing rates in any event.

Finally, the Corpus Christi cases will be reopened to deter-

mine whether those decisions are consistent with the action

taken in this case.

BACKGROUND

In the prior report served December 19, 1977, reduced

carload commodity export rates on wheat from points in

Oklahoma and Kansas to the Texas ports of Beaumont,

Galveston, Houston, Port Arthur, and Texas City, but not

Corpus Christi, were found not unduly preferential or pre-

judicial or otherwise unlawful. Petitions for ad-

ministrative review were filed January 9, 1978, by pro-

testants Dreyfus and by District.2 On the same date,

Cook Industries (Cook) filed a petition for leave to in-

tervene and a petition for administrative review.

Respondents replied.

We reopened this proceeding on the present record by

our order of June 20, 1978, subject to court approval, to

reconsider the highly important and unusual issues raised

both in this case and in other cases discussed below.

Cook’s petition to intervene was granted in the same

order. The facts are accurately stated in the prior report

and are repeated here only to the extent necessary for an

understanding of the issues.

Subsequent to our prior decision, Frisco received a con-

currence from one of the connecting carriers, MoPac.

?Because our full Commission decision was

final, District a court in Nueces County Navigation

District No. | and Producers Corporation v. Interstate 2 -y. y4

merce Commission and United States of America, Sth Cir. No.

78-1348.

70a

Consequently, rates equivalent to those in effect on

Frisco’s lines to the other Texas gulf ports became effec-

tive February 22, 1978, to Corpus Christi.

By letter filed January 27, 1978, Frisco requested that

this proceeding be discontinued. SP and protestant

Dreyfus agreed thai this proceeding should be discon-

tinued. Dreyfus, however, also requested that the decision

be vacated.

The filing of equal rates to Corpus Christi could be con-

sidered to moot the case by removing the alleged prejudice

to that port. In the recent series of cases dealing with port

equalization policy for the Texas gulf ports, similar con-

currences have also been filed, technically mooting those

cases. E.g., |. and S. No. 8576, Corn & Soybeans Midwest

to Gulf Ports, for Export, 349 1.C.C. 1 (1974), pending on

review in Nueces County Navigation District, et al. v.

United States, et al., N.D. Tex., No. CA-3-74-1253D; I.

and S. No. 9052, Wheat, New Mexico and Texas to Texas

Ports, 355 1.C.C. 237 (1976), petition for review dismissed

as moot in Nueces County Navigation District No. 1, et al.

v. ICC, et al., Sth Cir., No. 76-4490; I. and S. No. 9132,

Wheat, Kansas and Oklahoma to Texas Gulf Por‘-; peti-

tion for review dismissed as moot in Producers Grain

Corp., et al. v. ICC, et al., Sth Cir., No. 77-1788; and this

proceeding.’ Although each of the above cases has been

vacated (with the exception of this proceeding), we are

readopting the reasoning of 1. and S. No. 8576, 1. and S.

No. 9052, and I. and S. No. 9132 to the extent they do not

conflict with the decision herein.

‘We wish to emphasize that port equalization is currently under

study by the Commission. This study by the Rail Service Planning Of-

fice had examined precedent cases, rate relationships, traffic flow,

and carrier and port operating practices; a final report was issued

January 1979. Following study of that report, the Commission will

again examine the issue of port relationships.

Tila

These cases appear to fall within the scope of Southern

Pac. Terminal Co. v. ICC, 219 U.S. 498, 515 (1911), in

that the legal questions are “continuing” and “capable of

repetition, yet evading review.” Super Tire Engineering

Co. v. McCorkle, 416 U.S. 115 (1974). Because we do not

wish to thwart judicial review on grounds of mootness, we

expressly refused in our order of June 20, 1978, to grant

Dreyfus’ petition for vacation of our decision in this pro-

ceeding.

In the prior decision, we found rate disparities, injury,

and similarity of transportation circumstances. Never-

theless, we concluded that the crucial element of common

control was not present based on the application of the

“good faith” test.* and that, without common control, the

rates cannot be found to violate section 10741.

The carriers’ argument that transportation conditions to

Corpus Christi vary from those of the other ports was not

adopted in the prior decision. The transportation condi-

tions are not shown to have changed significantly from

those that existed when the Corpus Christi equalization

orders were entered in 1954 and 1961 and thus do not pre-

vent a finding of a section 10741 violation herein.

However, the establishment of the defense of different

transportation conditions is not essential to respondents’

case in view of the finding of lack of common control.

In discussing this proceeding, it is helpful to look at

cases which have preceeded it, including the Corpus

Christi cases on which protestants rely. In the Corpus

Christi cases, the Commission concluded that the MoPac

“The facts relevant to “good faith” test were discussed at length in

our prior decision of December 19, 1977. Briefly, the divisions offered

in connection with the reduced rates were not such as to compel

nonacceptance.

72a

and the Texas and New Orleans (now part of Southern

Pacific), together with other carriers which served the

Texas ports, acting in conjunction with the originating

lines in the origin territory, directly and effectively con-

trolled the rates to (as pertinent herein) the preferred ports

(Galveston, Houston, and Port Arthur) and the prejudic-

ed port (Corpus Christi). Under such circumstances the

carriers act as a network in controlling the rates to both

the preferred and prejudiced ports. Factors in determin-

ing a network are discussed later in this decision.

The 196] Corpus Christi decision upheld the 1954 deci-

sion in regard to common control and found it still to ex-

ist. In both the 1954 and the 1961 cases, which relied on

the theory of network common control, the carriers were

directed to remove the undue prejudice found to exist to

Corpus Christi. These orders are still in effect.

More recent rate reductions accorded to various Texas

ports but not Corpus Christi have resulted in decisions

where, on the facts presented, we concluded that the car-

rier proposing the reduction did not have common control

over the rates to the preferred and prejudiced ports.

The first of these cases was Soybeans, Midwest to

Chicago & Gulf Ports, Export, 335 1.C.C. 883 (1970). As

relevant to this case, the Commission there found the pro-

posed reduced rates on soybeans just and reasonable and

otherwise lawful and not in violation of the outstanding

orders providing for equal treatment of Corpus Christi.

The Chicago, Rock Island and Pacific Railway Company

(Rock Island) and Kansas City Southern Railway Com-

pany had sought approval for reduced rates from the rate

bureau membership but received a negative vote. The rates

were then published individually by the two carriers.

Because neither carrier reached Corpus Christi, each of-

73a

fered to join in the reduced rates with the connecting car-

riers which served Corpus Christi (MoPac and SP).

Because the destination carriers did not accept, there was

not the joint participation in rate action which there had

been in the 1/954 Corpus Christi cases. In the absence of

such carrier interaction, we refused to find common con-

trol. While the matter was pending on judicial review, the

carriers established equivalent joint rates to Corpus

Christi, thereby mooting the case. Nevertheless, the court

reviewed the Commission’s decision, disagreed with it, and

reversed the case. While that adverse judgment was pend-

ing on appeal in the Supreme Court, the Commission

vacated its decision. The Supreme Court then remanded

the case to the district court with directions to dismiss the

case as moot.’

In a subsequent rate reduction, Rock Island proposed

reduced multiple-car rates on corn and soybeans over its

lines from the Midwest to Galveston, Houston, and Texas

City but not to Corpus Christi; the connecting carriers

again failed to concur. Corn & Soybeans Midwest to Gulf

Ports, for Export, 339 1.C.C. 595, modified at 349 1.C.C.

1 (1974). At 349 1.C.C. 4, we stated that if one railroad

serve one port directly and serves the other by joint service

with a second railroad, section 3(1) (section 10741) does

not give this Commission the power to require equalized

rates in the event that the second railroad refuses to par-

ticipate in equalized joint rates.¢

*Chicago, R. I. & Pacific R.R. v. Nueces County Navigation

District, 415 U.S. 953 (1974).

*E.g., 1. and 8S. No. 9052. Wheat, New Mexico and Texas to Texas

Ports, supra; and 1. and 8. No. 9132. Wheat, Kansas and Oklahoma

to Texas Gulf Ports, supra.

T4a

Subsequent cases have posed the issue of common con-

trol under similar circumstances.’ We conclude that com- |

mon control was present in those cases. We based our

findings on more detailed knowledge of the circumstances

relating to the offers and refusals of division ar-

rangements.

ALTERNATIVE ORDERS AND COMMON CONTROL

Unless common control exists, no alternative order can

be issued under section 3(1) to remedy undue preference

and prejudice. In Texas & Pacific Ry. Co., supra, the

Supreme Court held that, to be subject to an order under

section 3(1) (49 U.S.C. 10741), a carrier or group of car-

riers must be the common source of the discrimination, ef-

fectively participate in both the preferential and pre-

judicial rates, and be in such a situation that they have an

actual alternative to raise one rate, lower the other, or

alter both. The carriers do not have such an alternative

unless they control the rates to both the preferred and pre-

judiced points. Texas & Pacific, supra, at 650.

Protestants argue that Ayrshire Corp. v. United States,

335 U.S. 573 (1949), explicitly modified, and partially

overruled the court’s prior decision in the Texas & Pacific

case. In Ayrshire, the court concluded that while the rates

violated section 3(1) (section 10741), common control was

not a necessary element when a section 15(1) order (now 49

U.S.C. 10704) prescribing rates is issued. The court had

previously stated in Texas & Pacific that minimum/max-

imum rate orders issued pursuant to section 15(1) (section

"1. and S. No. 9169, Corn, Wheat or Grain Sorghums, to Texas

Ports, 359 1.C.C. 132 (1978); Wheat, Oklahoma and Kansas to Texas

Guif Ports, 3$7 1.C.C, 382 (1977).

7Sa

10704) would not require the options of 21 alternative

order. Texas & Pacific, supra, at page 650, footnote 39.

The court again pointed this out in Ayrshire at pages

593-594:

This is not a case like Texas & Pacific R. Co. v.

District argues that New York v. United States, 331

U.S. 284 (1947), and a 1940 amendment to section 31)

(section 10741) overturned the decision in Texas & Pacific

and thus eliminated the need for a finding of common

76a

control. We do not agree. The 1940 amendment extended

the prohibition against discrimination to regions, districts,

and territories, New York, supra, pp. 296-97. As the court

stated in New York, at page 300, “In other words, Con-

gress did not introduce a new standard of discrimination

by its amendment to section 3(1); it merely made clear its

purpose that regions, districts, and territories should be

the beneficiaries of the law against discrimination.”

Although this statement was made in the context that the

Commission must take into account the transportation

conditions in deciding whether there is discrimination be-

tween territories, it appears equally applicable here,

especially in view of the court’s statements in New York.

There the court distinguished Texas & Pacific on the

ground that the principle there announced “is applicable

only where the Commission is directing the carriers to

remove the discrimination” but not “where, as here, the

Commission in order to eliminate territorial discrimina-

tions proceeds under § 15(1) to fix new reasonable rates.”

331 U.S. at 342. Accordingly, a finding of common con-

trol is still necessary to issue an alternative order.

PRESCRIBED RATES AND COMMON CONTROL

Protestants argue that prescribed rates could be ordered

without a finding of common control. This argument is

based on the fact that the first three elements of a section

10741 violation have been established (rate disparties, in-

jury, and transportation conditions). They argue that

since the fourth element of common control is needed only

to establish a basis for an alternative order, a finding of

common control is unnecessary for an order prescribing

rates. The New York case decided that this Commission

has authority to prescribe rates without a finding of com-

mon control to remedy territorial discriminations. New

Tla

York, supra, pp. 340-343. It is unclear from that case as to

whether the court would have reached the same conclusion

if the issues had been limited to section 31) (section

10741). The court in Ayrshire, citing New York, stated,

however, that the Commission can remove undue

preference and prejudice by prescribing rates, even though

the rates under consideration were within the zone of

reasonableness.' Ayrshire, supra, p. 594.

We believe prescribed rates under section 15(1) are not

warranted because of the nature of the traffic and the flex-

ibility needed to adjust rates as competitive conditions re-

quire.* It is well recognized that trucks are not regulated

when hauling agricultura’ »> oducts, and water carriers are

not regulated when carryimg commodities in bulk, the

manner in which most grain is transported. These carriers

have the flexibility to adjust rates as economic and

transportation conditions require. By comparison,

prescribed rates would leave the rail carriers with little or

no flexibility. Prescribed rates could result in charges

which become too high in times of rapidly changing

transportation and economic conditions. High rates as a

result of rate prescriptions could prevent or restrict the

*As discussed in the prior report, the reduced rates are clearly within

the zone of reasonableness. Protestants have argued both explicitly

and implicitly that the issue is not that their rates are too high, but that

identical rates are not afforded to both Corpus Christi and the other

Texas ports.

°A rate is prescribed under a section 10704 order. This order re-

mains in effect unless modified. To modify a prescribed rate a carrier

must first petition for permission to change the rate level. This peti-

tion is subject to opposition, reopening of the administrative pro-

ceeding and possible court appeal. See Atchison, T. & S.F. Ry. Co. v.

United States, 284 U.S. 248 (1932). If the permission to change the

rate is granted, the carrier may then publish the change. However, this

rate change still remains subject to possible investigation and suspen-

sion in a subsequent proceeding.

78a

farmers’ ability to market farm products and could un-

justifiably cause increases in consumer prices. The carriers

themselves would lose revenues if a higher level of rates

prevented traffic from moving. On the other hand,

prescribed rate might eventually result in noncompen-

satory revenues to the carriers because of rapid inflation.

Further, the record in this proceeding is not sufficiently

comprehensive to permit a rate prescription. There is no

evidence as to what effects prescribed rates would have on

the grain rate structure. Past rate prescriptions have been

in relationship to existing commodity rate structures. E.g.,

Ayrshire Corp. v. United States, supra; Youngstown Co.

v. United States, 295 U.S. 476 (1935), and Franklin

Limestone Co., Inc., v. Alabama G.S.R. Co., 264 1.C.C.

753 (1946). Here protestants have the burden of

establishing a record sufficient for rate prescriptions, '® in-

cluding evidence describing the regional grain rate struc-

ture, the effects of prescribed rates for one carrier on this

structure, and sufficient economic justification as to why

prescribed rates should take precedence over carrier flex-

'°The prior decision incorrectly implies that the burden of proof is

on the respondent carriers in regard to section 3(1) (section 10741). A

carrier's burden of proof under a section 15(8) investigation relates to

the justness and reasonableness of the proposal. 49 U.S.C. section

10707. A respondent carrier does not initially have the burden of pro-

of in respect to section 3(1) issues, except in regard to transportation

conditions. Lake Cargo Coal, Ky., Va., and W. Va. to Ashtabula

Harbor, 326 1.C.C. 63, 69 (1965). 329 1.C.C. $49, $53 (1967). Pro-

testants have the burden in justifying prescribed rates. We note that

under the Administrative Procedure Act (5 U.S.C. $56), the propo-

nent of an order has the burden of proof unless otherwise provided by

statute. Cf. Lake Cargo Coal, Ky., Va., to Ashtabula Harbor, supra.

This result is also dictated by logic. If the burden of proof were on a

carrier to show that prescribed rates were not justified, this would

ase an eanausite Caden ens conterbeis ce on heewn casin the

ALTERNATIVE ORDER

We now turn from the issue of whether rates should be

prescribed to the issue of whether an alternative order can

be issued under section 10704. The factual question is

whether Frisco exercises actual control over the rates in

such a manner that an alternative order can be issued. In

Texas & Pacific the court stated that a carrier must be the

common source of the rates to both the preferred and pre-

judiced points before we may issue an alternative order.

The court stated at 289 U.S. 649:

Where, however, a carrier whose lines reach, or

which controls the rate to, one of the destina-

tions, is a party to a joint rate to the other but

cannot make or control the latter rate, or though

it were to withdraw as a party thereto, or to

cancel the rate, the discrimination would still

continue — it cannot be held responsible, nor

can any order to remove the prejudice run

against it. [Footnote omitted.]

At 289 U.S. 650-51, the court quoted with approval

from Central Railroad of New Jersey v. United States, 257

U.S. 247:

In the Central Railroad case it was said (p.

259): But participation merely in joint rates does

not make connecting carriers partners. They can

be held jointly and severally responsible for un-

just discrimination only if each carrier has par-

ticipated in some way in that wnich caused th.

unjust discrimination; as where a lower joint rate

is given to one locality than to another similarly

situated. (Citing cases.) If this were not so, the

legality or illegality of a carrier’s practice would

depend, not on its own act, but on the acts of its

connecting carriers***. What Congress sought to

prevent by that section [3], as originally enacted,

was not differences between localities in

transportation rates, facilities, and privileges,

but unjust discrimination between them by the

same carrier or carrier. [Emphasis added.]

If Frisco does not effectively participate “in some way in

that which causes the unjust discrimination,” then it can-

not have common control. /bid.

In the simplest case, one carrier serving both points

would clearly have common control. Similarly, if two or

more carriers serve both points between them and are

acting in concert, they would also have common control.

The difficult factual questions arise as to whether the car-

riers are acting in concert when the origin carrier must

serve one of the ports by a connecting carrier (which can-

not serve the issue origins) and the connecting carriers do

not concur in the origin carrier’s changed rates.

Prior orders equalizing rates to Corpus Christi and

other Texas ports were entered on the basis of our powers

under section 3(1) (section 10741). We have the authority

under section 10741 to remedy unreasonable discrimina-

tion between ports by a single carrier or a group of carriers

acting in concert. If, for example, the origin carrier serves

both the Galveston and Corpus Christi ports, we may re-

quire the carrier (under appropriate circumstances) to

publish equivalent rates to both ports. Further, if two

railroads jointly serve these two ports, they cannot publish

rates favoring one port. We do not have the authority

under section 10741 to equalize rates between two ports if

each port is served by only one of two carriers and the two

carriers do not act in concert.

In Albany Port District Comm. v. Ahnapee & W. Ry.

Co., 219 1.C.C. 151, 172 (1936), the Commission found

that a massive differential rate adjustment covering ports

in the north Atlantic region demonstrated that the railroads

serving those ports had acted in concert.'' While none of

the carriers served all the ports directly, as a group they

had control of the rates to all the ports at issue.

In Beaumont, Tex., Port Comm. v. Abilene & S. Ry.

Co., 253 1.C.C. 127, 132-33 (1942), we found a network of

rail systems because of the railroad’s many points of in-

tersection and because each of the carriers participated in

joint rates to each of the ports and inland points covered

by the complaint. A situation similar to the Beaumont case

ws found in the 196] Corpus Christi case. 315 1.C.C. at

162. While the 1954 Corpus Christi order dealt with a

broader origin area, the Commission again found that a

network controlled the rates to the preferred and preju-

diced ports. 291 I1.C.C. at 470.

In the Corpus Christi cases, the Commission presumed

that because of the interrelated nature of the rail network,

common control existed. We do not believe that this

'!'Thus the amount of a port rate between Baitimore and a point in

Michigan is primarily determined, not by considering the distance and

the transportation conditions appertaining to the routes over which

that rate applies, but by deducting a certain differential from the rate

between New York and the Michigan point. This differential rate ad-

justment was formed by the voluntary joint action of all the carriers

serving the ports. It depends for its very existence upon the continued

participation of every such carrier. And so long as this adjustment

remains in existence each of these carriers effectively participates not

only in the rates over its own line, but in every rate in the entire struc-

ture. In other words, the carriers serving the ports, acting together, ex-

ercise effective control over the entire structure of port rates to and

from the ports other than Albany [219 1.C.C. 172.]

82a

analysis is adequate in addressing the complex fact pat-

tern we have before us. Here the Frisco has published a

reduced rate by independent action in which the MoPac

and SP have not concurred. Given these facts, and absent

any deliberate action on the part of the Frisco to induce

this nonconcurrence, we cannot find that any rail carrier

controls the rates to the ports in question, nor can we find

that these carriers acting in concert commonly control the

rates. There is no evidence that the pricing policies of these

railroads with regard to these ports have been jointly

developed. On the contrary, each railroad has acted within

the scope of its legitimate management discretion to

establish cost related rates for these services by indepen-

dent action. The Corpus Christi cases will be reopened to

determine whether those decisions are consistent with the

action taken here.

Our decision to focus on actual control, rather than to

presume that carrier interaction inevitably leads to com-

mon control, is reinforced by important policy considera-

tions. Congress stressed in the 4R Act that railroads have a

need for flexibility in ratemaking if they are to compete in

today’s competitive environment.'? Requiring equalized

rates to the ports abscit actual common control stifles

ratemaking initiatives. Independent and aggressively com-

petitive ratemaking must be encouraged.

Our interest in assuring that rail carriers have actual

common control has developed in two stages. In the first

set of cases, we determined that when a necessary connect-

ing carrier refused to participate in joint equalized rates,

the origin and connecting carriers were not acting in con-

cert and, therefore, did not have common control over

'*See section 101(b)(3) of the 4R Act.

83a

these rates.'? In the second group of decisions, which

includes this case, we expressed concern that an origin

railroad could evade a finding of common control by

predicating its proposed joint rates on an unreasonable of -

fer of division of revenue, thus assuring that the con-

necting carriers would refuse to enter into the joint rate.'*

We, therefore, required the origin carrier to show that it

has made good faith offers of divisions. The mechanics of

the good faith test can best be explained by beginning with

a discussion of respondents’ and protestants’ respective

burdens on the issue of common control.

To demonstrate common control, the protestant has the

initial burden of proving that the originating carrier could

serve both the preferred and prejudiced ports either by

itself or by means of connecting carriers, acting as a net-

work or otherwise. Here, Frisco serves the preferred ports

directly and can serve Corpus Christi indirectly by means

of SP or MoPac. After the protestant has shown that

respondent can serve all the points, the burden then shifts to

respondent to go forward and rebut protestant’s evidence

of control by showing that respondent made a good faith

effort to arrive at a division of revenue agreement with the

connecting railroads, but was unsuccessful in doing so.

When respondent makes such a showing, it demonstrates

that it has no actual control of the rates to the ports which

it does not serve directly. There is, then, no common con-

''Soybeans, Midwest to Chicago and Gulf Ports for Export, supra;

Corn & Soybeans Midwest to Gulf Ports, for Export, 349

L.C.C.1.(1974); L. and 8. No. 9052 (embraces |. and S. No. 9052 (Sub-

No. 1)) Wheat, New Mexico and Texas to Gulf Ports, supra; |. and S.

No. 9132, Wheat, Kansas and Oklahoma to Texas Gulf Ports, supra.

'*No. 36491, Wheat, Oklahoma and Kansas to Texas Gulf Ports,

supra, |. and 8. No. 9169, Corn, Wheat or Grain Sorghums, to Texas

Ports, supra.

84a

trol of the rates under consideration. The burden of pro-

ducing evidence on this issue is placed on the respondent

carrier since it alone has access to the division of revenue

information. '*

To summarize, because of the need to assure rate flex-

ibility, we have required proof that the railroads actually

control the rates to the preferred and prejudiced ports. In

this regard, we believe that the presumption of control ex-

tending from the existence of a network such as was found

to exist in the Corpus Christi cases is insufficient to assure

that actual control exists. While seeking proof of actual

control, we have allowed the railroad to show that it does

not have such control because it could not, after acting in

good faith, arrive at divisions agreements.

DIVISIONS

We turn now to the topic of division of revenue itself,

and what is a good faith offer. Our concern is that if an

origin carrier is not required to show that it has made a

good faith offer of divisions, it could always evade the

finding of common control by predicating a lower joint

rate upon an offer for divisions of revenues which

svostantially reduces the share of the connecting carrier,

01 upon some other condition which could reasonably be

expected to induce the nonconcurrence of the connecting

carrier. If the connecting carrier refuses to concur after a

good faith offer of divisions, the Commission is left with

no alternative but to find that the origin carrier does not

have common control over the rates to the prejudiced

port.

From the facts of this case, there is no doubt that Frisco

negotiated divisions in good faith in its attempt to obtain

''See Rate Incentives for Capital Investment, 353 1.C.C. 760, 766

(1977).

85a

concurrences. It went through established rate bureau pro-

cedures, and, after a negative vote by the bureau member-

ship, independently published the lower rates. Even before

independent publication, Frisco still attempted to obtain

concurrences, based on existing division arrangements

from the MoPac and SP, so that the reduced rates would

be effective to Corpus Christi.'* The divisions proffered

by Frisco were basically identical to those in effect prior to

the rate reductions. The cost evidence indicates that the

revenues to the connecting carriers, both with the prior

and new rates, were compensatory or only slightly non-

compensatory.

The important factor is not the compensatory na _ .ce of

the divisions, but whether the tender of existing divisions

could be considered a good faith offer. Because the

tender, if accepted, would have resulted in, at the most,

only a small reduction of the connecting carrier’s revenues,

we again conclude that the respondent did not attempt

deliberately to induce the nonconcurrence of its connect-

ing carriers, and that the offers were made in good faith.'’

'®We note that Frisco ultimately did obtain concurrences from Fort

Worth and Denver Railway Company and Missouri-Kansas-Texas

Railroad Company to the preferred ports.

'’This is not to say that a tender of the same divisions by an origin

carrier will necessarily result in a finding that it has made a good faith

tender of divisions. Changed circumstances may render a previously

reasonable divisions tender not only unacceptable to the connecting

carrier but also so clearly unacceptable that its tender can be viewed as

reflecting something iess than good faith on the part of the originating

carrier. The marginal profitability of the existing divisions to the con-

necting carriers means that a tender of the existing divisions under any

changed circumstances merits careful examination. However, the

change here is not so great, nor are the resulting divisions so obviously

noncompensatory that we can conclude that the respondent offered

them in an attempt to induce nonconcurrence by the connecting car-

riers.

Thus Frisco’s actions in attempting to obtain concur-

rences, both prior and subsequent to the rate bureau’s re-

jection, demonstrate Frisco’s failure to participate effec-

tively in the rates to Corpus Christi. We believe that this

inability to obtain concurrences to Corpus Christi after

making good faith divisions offers amply demonstrates

that Frisco cannot be held responsible for the acts of the

destination carriers and that the lawfulness of the reduc-

tions should not depend on the actions of those carriers.

Texas & Pacific, supra, pages 650-51, citing the Central

Railroad case. We conclude, then, that Frisco does not

have control over the rates to the prejudiced port of Cor-

pus Christi. Because Frisco lacks the necessary control

over the rates to both the preferred and prejudiced ports,

no alternative order can be issued.

The parties contend that we should not inquire into divi-

sions in a section 3(1) proceeding. Protestants believe that,

to the extent that inquiring into good faith offers of divi-

sions is an extension of Corn & Soybeans, this test is un-

warranted in view of the Corpus Christi orders. The car-

riers want us to look only at rates and services without in-

vestigation and disclosure of divisions information. Our

obligation, however, is to make a decision consistent with

the legal principles of Texas & Pacific and with facts ade-

quate to support our conclusions. Omission of the good

faith test would leave the record barren of facts which are

essential to our conclusions on the common control issue.

We are not attempting to conclude what divisions are

proper, but merely that they were offered in good faith.

Our examination of (1) the similarity between existing

proposed divisions, (2) Frisco’s efforts to obtain concur-

rences to Corpus Christi, and (3) the relatively small

changes in the revenue-to-variable costs ratios, lead us to

87a

conclude that Frisco acted in good faith and thus does not

control the rates to Corpus Christi.'*

In spite of these conclusions, Dreyfus would have the

present rates to the preferred ports canceled under section

15(8),'* thus placing the former and higher rates in effect.

Dreyfus apparently reasons that an order to cancel the

rates, in contrast to an alternative order, would not re-

quire a finding of common control. We do not find it nec-

cessary to resolve this point because, under the cir-

cumstances of this case, we will not require a higher level

of rates where the lower level is sufficiently compensatory.

In the prior decision the cost data showed the lower rates

to the preferred ports at 139 to 160 percent of variable

costs. In the absence of evidence to the contrary, these

ratios sufficiently demonstrate the reduced rates to be

compensatory. Dreyfus indirectly supports this view when

it terms the sought reduced rates to Corpus Christi, to

which the transportation costs are higher, as compen-

satory. Accordingly, we will not order the reduced rates

canceled.

We a: . urged to conclude that if Frisco acted in “good

faith” by its divisions offers, then the connecting carriers

acted in “bad faith” by their refusal to join in the reduced

rates. We do not agree. Negotiations such as these,

'*Protestants have filed a petition for further hearing. Protestants

seek to show that Frisco’s division offers were considered too low by

the connecting carriers. This request is denied. This issue is not

whether the carrier offered the largest divisions possible but whether

the negotiations were conducted in good faith considering the existing

conditions.

'"We note that in section 202(f) of the Rail Revitalization and

Regulatory Reform Act, which amends section 15(7) of the Interstate

Commerce Act (now section 15(8)), expressly states that nothing in

the 4R Act amends sections 2, 3, or 4 of the Interstate Commerce Act

(now 49 U.S.C. 10741 and 10726).

although carried out in good faith, will not necessarily

culminate in concurrences. In other words, the test is not

whether an agreement is reached, but the substance of the

negotiations. Here the connecting carriers acted in good

faith and within managerial discretion in rejecting offers

that, although they were on the same percentage basis as

existing divisions, were slightly lower in monetary terms.

Further, our reason for inquiring into the proffered divi-

sions was solely for determining common control and

whether a section 10741 order would lie. A finding that all

parties to the divisions negotiations acted in good faith

precludes the entry of an alternative 3(1) order, under sec-

tion 10741. Even if we were to find that the connecting

carriers had acted in bad faith, they cannot control, and

thus cannot adjust, the rates for shipments originating and

terminating on Frisco’s line.?° Thus there cannot be a

section 10741 alternative order solely against the con-

necting carriers.

On reconsideration, we find that the assailed rates are

not in violation of section 10741 or otherwise unlawful.

This decision does not affect the quality of the human en-

vironment.

2°Dreyfus states that “this mistaken focus of the majority's new sec-

tion (1) doctrine is the fact that an origin carrier supposedly cannot

compel a connecting carrier to join in a proposed rate reduction” and

cites Carolina, C. & O. Ry. Co. v. Southern Ry. Co., 299 1.C.C. 335,

affirmed Southern Ry. Co. v. United States, 153 F. Supp. 57. This

case focused on the reasonableness of the through rates. Lower rates

were prescribed because the routes were commercially closed. The

record in the present proceeding does not show that the route has been

commercially closed, and thus would not justify requiring connecting

carriers to join in a proposed rate reduction.

COMMISSIONER STAFFORD, concurring:

While I agree with the ultimate result, I reaffirm my op-

position to the good faith offer of divisions test.

Congressional policy, most recently enunciated in the

Railroad Revitalization and Regulatory Reform Act of

1976 (Public Law 94-210), indicates a clear intention to

give railroads the greatest leeway in pricing flexibility.

This so-called “good faith” test injects the Commission

even more deeply into matters involving carrier manage-

ment and pricing policies. The issue was resolved rather

easily in this proceeding; however, other cases will surely

be more difficult and time-consuming. If the carriers can-

not arrive at a mutually acceptable joint rate among

themselves. I see no need for the Commission to impose

itself into the negotiating process.

COMMISSIONER GRESHAM, dissenting:

My dissent to the December 19, 1977 decision in this

proceeding expressed the view that (1) the respondent car-

riers commonly control the rates at issue and (2) the

schedules under investigation should either be canceled or

extended to Corpus Christi. Within 2 months of that deci-

sion, respondents Frisco and MoPac did establish equal

rates.

I find the patter)» of these Gulf port cases’' to be

disturbing: rates are protested as prejudicial to Corpus

Christi; the Commission investigates and finds (over

?'In addition to the present proceeding, see also Investigation and

Suspension Docket Nos. 8454, 8576, 9052 (Sub-No. 1), and 9132. I.

and S. No. 8454 is perhaps typical. Denied relief by the Commission,

Nueces County filed its court brief in August 1972. Shortly thereafter,

in September 1972, the carriers extended the rate reductions to Corpus

vigorous dissent) no violation of former section 3(1), now

49 U.S.C. 10741(b), because of a lack of common control

by the respondents; protestants seek judicial review; then,

once the carriers become convinced that protestants are

serious, they back down and offer equivalent rates to Cor-

pus Christi. In my opinion, these ultimate filings confirm

the carriers’ control of the traffic.

Two other aspects of today’s decision are also troubling.

The majority has ignored section 202(f)(3) of the 4R Act

which arguably qualifies the ratemaking flexibility given

the rail industry insofar as port rate relationships are con-

cerned. It has also failed to determine if its decision will

have a significant adverse effect on the competitive posi-

tion of the shippers and consignees servi.d by the respond-

ent carriers, in violation of 49 U.S.C. 10704(e)(2), former

section 15a(5).

The majority has declined to act under 49 U.S.C.

10704(a)(1), former section 15(1), because of the nature of

the traffic and the flexibility needed by the carriers to ad-

just rates promptly. Taken literally, this is a declaration

that the Commission now disavows the use of former sec-

tion 15(1) with respect to grain. Without expressing an

opinion on whether that approach is right or wrong, I note

that it is at apparent odds with the pending action in Feed

Grains to New England, 356 1.C.C. 678, 694-95 (1977),

appeal docketed sub nom. New England Grain and Feed

Council, et al. v. United States, No. 77-1324, D.C. Cir-

cuit, filed April 1, 1977.

For these reasons and the additional reasons noted in

my separate expression of December 19, 1977, I respect-

fully dissent from today’s decision.

9la

92a

APPENDIX D

No. 31098'

NUECES COUNTY NAVIGATION DISTRICT No. 1

v. ABILENE & SOUTHERN RAILWAY COMPANY,

ET AL.

Decided July 21, 1980

Upon reopening of No. 31098 and No. 33447, actual control and not

network of common control found to be (he proper standard in

Corpus Christi cases to establish common source of

unreasonable discrimination under 49 U.S.C. 10741. Good faith

test can be used to show actual control. Prior orders based on

network common control vacated. In No. 36491 (Sub-No. 1)’

standard applied and prior decision affirmed, as modified.

DECISION

By THE COMMISSION:

BACKGROUND

The Commission has enuciated a four-part test to deter-

mine the issue of unreasonable discrimination under sec-

tion 10741(b).

2359 1.C.C. $92 (1979). A petition for review of this case

before the ith crc in Now. 71348 and 79-1816, Nueces

ik

See also Increased Rates Frozen Fruits & Vegetables, 351

L.C.C. 676, 682 (1976); Prince Albert Pulp Co., Lid. v.

Canadian Natl. Rys., 349 1.C.C. 482, 491 (1974); In-

vestigation of Railroad Freight Rate Structure, 345 1.C.C.

1364, 1417 (1976). Thus, a finding of common control

(element three of the four-part test) has been found

necessary for a violation of 49 U.S.C. 10741. See Texas &

Pacific Ry. Co. v. United States, 289 U.S. 627, 650 (1933).

By notice served November 15, 1979 and published in

the Federal Register on November 26, 1979, we reopened

No. 31098, Nueces County Nav. District No. 1 v. Abilene

& S. Ry. Co., 291 1.C.C. 459 (1954) and No. 33447,

Nueces County Nav. Dist. No. 1, v. Atchison, T. & S.F.

Ry. Co., 315 1.C.C. 155 (1961) (the Corpus Christi cases)

to determine if port equalization orders entered in these

proceedings based on earlier findings or violations of sec-

tion 10741(b) should be modified. We indicated that our

reexamination of these cases would be limited to the issue

of actual control of rates to the gulf port and how control

of these rates influences the Commission’s authority to

order relief in cases arising under 49 U.S.C. 10741(b)

94a

(formerly section 3(1) of the Interstate Commerce Act).

We stated that we would focus on situations where carriers

cannot agree on rate policies and, as a result, concurrences

to joint rate changes cannot be obtained. We noted that

we favored an analysis of actual control over joint rates in

place of a conclusive presumption of common control.

This limiting of the issues to only one of the criteria

under section 10741(b) was not and is not intended to

detract from the importance the Commission places on the

other three criteria. The fourth factor, similarity or

disparity in transportation conditions, continues to be our

primary consideration. It is axiomatic that there can be no

discrimination if economic and operational analysis

proves that different rates are appropriate. This analysis

includes review of matters such as the different distances

involved, alternative routings available, differences in the

cost of service, and, especially, any differences in com-

petitive conditions.

The need to undertake this transportation co7ditions

analysis depends, however, on the complaining party’s

ability to satisfy the remainder of the test. Accordingly, as

we were concerned here with the standard to be used in

determining common control (the third criteria), and a

Under 49 U.S.C. 10741(b) of the revised act, a common carrier

“may not subject a person, place, port, or type of traffic to

unreasonable discrimination.” Under former section 3(1) of the act, it

was unlawful for any common carrier “to make, give, or cause any un-

due or unreasonable preference or advantage” or to subject a person,

place. port, or type of traffic “to any undue or unreasonable

preference or advantage” or to subject a person, place, port, or type of

traffic “to any undue or unreasonable prejudice or disadvantage.”

Because there is no substantive change in the law under the recodified

Statute, and because many of the court and Commission decision

arose under the former act, we shall use interchangeably section 3(1)

and 10741 and the terms “unreasonable discrimination” and “undue

preference and prejudice.”

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change in that test could, in and of itself, invalidate our

earlier prescription orders in these proceedings, we saw no

reason to raise as an issue in this proceeding the transpor-

tation conditions issue.

The Federal Register notice requested that parties com-

nent on the appropriate legal analysis of the issue of rate

control in cases arising under 49 U.S.C. 10741 and the cir-

cumstances, if any, under which unequalized rate pro-

posals should be found to violate 10741 when there is no

common control.

Fifteen parties filed comments. As might have been an-

ticipated, the port interests generally contended that there

is no need to depart from network common control, that

the good faith test is not an appropriate measure of com-

mon control, and that common control is not required to

find a violation of section 10741 except when an alter-

native order is sought. The rail interests, on the other

hand, argued that the old Corpus Christi orders have been

preempted by the 4R Act and currently applicable stand-

ards of railroad ratemaking, that any future violations of

section 10741 must be proven on the basis of actual com-

mon control, and that, absent common control, there are

no circumstances under which rate proposals should be

found to violate section 10741. We have considered all the

comments received. They are discussed in detail below.

In the Corpus Christi cases, the Commission concluded —

that the carriers serving the Texas ports, acting in conjunc-

tion with the originating lines, directly and effectively con-

trolled the grain and grain product rates to the preferred

ports (Galveston, Houston, and Port Arthur) and the pre-

judiced port (Corpus Christi). 291 1.C.C. at 470; 315

I.C.C. at 163. We further found that these rates “are and

for the future will be, unduly prejudicial to Corpus Christi

and unduly preferential” of Galveston, Houston, and

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other Texas ports to the extent that the rates to Corpus

Christi exceed those to Galveston and Houston. 291

1.C.C, at 470; 315 1.C.C. at 163. The orders implementing

the Corpus Christi reports required each of ihe defendant

carriers “according 2s iney participate in the transporta-

tion” io maintain rates which will prevent the undue

preference and prejudice found to exist. For the reasons

set forth in this decision, we find that the network com-

mon control standard used in these reports to determine

undue preference and prejudice was inadequate and

should be replaced with an actual control standard. We

shall vacate the outstanding orders in these proceedings.

Future challenges under 49 U.S.C. 10741 to carrier rate

adjustments to the ports involved in these proceedings

shall be considered under the actual control standard.

PROCEDURAL ISSUES

The Nueces County Navigation District No. 1 and Pro-

ducers Grain Corporation (District) and the Bunge Cor-

poration and Louis Dreyfus Corporation (Bunge) filed a

petition requesting service of pleadings on all parties par-

ticipating in the reopened cases and filing of replies. They

argue that, because this is an adjudicatory proceeding, this

procedure is necessary. We disagree. Under the APA, a

rate prescription is treated as a rule, 5 U.S.C. 551(4). See

Alaska Steamship Co. v. FMC, 356 F.2d 59, 61 (9th Cir.

1966). This is a rulemaking and not an adjudication

because the Commission ordered the dependent carriers to

abstain in the future from maintaining export rates on

grain from the involved origin points to Corpus Christi

that exceed those to the other Texas ports. 49 U.S.C.

10741. See Texas & Pacific Ry. Co. v. United States, 289

U.S. 627, 650 (1933). We are considering a broad change

in approach, not application of a prior theory of law to

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one particular set of facts. As required for a rulemaking

proceeding under the APA, notice was published in the

Federal Register informing interested persons of “either

the terms or substance of the proposed rule or a descrip-

tion of the subjects and issues involved.” 5 U.S.C. 553(b).

Further, we do not believe cross-service and replies are

necessary to a proper decision.

District filed on February 25, 1980, a motion to strike

all or part of a number of pleadings because they are not

briefs on the legal issues but attempts at injecting factual

materials into this proceeding. The New Orleans Traffic

and Transportation Bureau filed a motion to sirike on

February 28

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