Petition for Writ of Certiorari — American Trucking Associations v. Federal Communications Commission

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TATES ¢ T. OF APPEAtS FOR

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‘TABLE OF CONTENTS = *

Poe Page

Opinions : Below biaresiene seeks peeees toveesecusoe §

_ Jurisdiction ............... eae erg oe Cebdeskisde

Questions Presented ...............- eecaewiens 4:

Constitutional and Statutory Provisions swthanitninde —-

Statement of the | Case ... cece eee ecee eee seeeee ere oe

A, On the Discrimination Question vetecccccecece — 3

B. On the Due Process Question .................. F

C. Proceedings Before the Court of ' Appeals oseece eS

‘Reasons for Allowenee of the Writ :..... ee aa. “9

I. The Court of Appeals Has Decided an Important ;

-Question of Federal: Statutory Law Which Has

Not Been, But ‘Should Be, Settled by This

ME STAs TCLS Ch Saab wadaduekeswiNeeveeeatne « 10

A. This Case Presents the First Judicial Review.

-of Section 202(a) of the Communications Act

. of 1934, and Its Applicability to Competitive |

Rate- Making Sonn Oks seb eb ceveheienseshery 10.

B. The Court of Appeals Has Too Narrowly:

Construed Section 202(a)' Without Regard

a to Bemtutery Cemteme 2... cc ccc ccceccces '-10

C. The Court of Appeals’ Interpretation ! is in |

Conflict With Decisions of This Court Inter-

preting Comparable Provisions of the Parent °

Interstate Commerce Act and Other Similar

oat coeur 13.

D. In Striking Down Certain Rates as Discrim-

inatory, Although Only.in Theory, the Com- .

mission Creates a Greater Real Discrimina-

to the Short Range Benefit Only of | -

, AT&T and a Less Efficient Competitor .... 15

E. The Court of Appeals’ Decision Would Im-

_ “pose a Severe Burden Upon Users of Bulk

Communications, and Inhibit National Eco- —

nomic Growth Attributable to the Greater

Reliance Upon Communications Services ..... 17

ii 3 catered Continued 4

, Page

IL The. Court of ‘a Erred in Failing to eonk:

nize That the Federal Communications Commis-

' sion’s Uniqué Procedures ‘Are in Conflict with

Decisions of This Court Applying Principles of

Constitutional Due’Process ...............+035. 20

_A. The Commjssion’s Purported Justification

of Its Procedures as ‘‘Legislative’” Action *°

Be ND ooh onda vn va deh bates xk) coe! — 26 -.

‘B. The Commission’s ‘ Petesbaies Cannot c

Justified by the Administrative Proced

Act eee ener CHEN COTS COE C CSS DO 2 6H 6:08 27

- (. The-Commission’s Procedures ‘Are olen

_——~. Among Federal Rate-Making Agencies, and _ ~

_ Have Been Uniformly Criticized By Leading:

PI ogc tcbeSeapencscksccetecss ass 30

| Conclusion | pain ksilones seaeax See ee aa. 33°

Appendix ‘A—Opinion of the Court of Appeals ...... la

Appendix B-—Jndgment of the-Court of Appeals .... 26a

— C—Constitutional ane Statutory Provisions

: Involved ....ccccccccccsccencvctscees 26a

Appendix D—Aeronautical Radio, Inc., TELPAK Serv- vi

ices in Use or on n Order, July, 1962. (J. A.

: °/ ME cs cUsDkas hes uae cers cunre Kes nie ks 35a

; -* Trucking’ nara Shared TELPAK _-:

Services (JA. 437) ...sscessuseeeeees 36a

Service “to Public Through Airlines

TELPAK (J.A. 1086-1091) .......... 37a

a Appendix 1b Reaniotors and Policy Problems Pre-

sented by the Interdependence of Com- _

"9+. puter and Communication Services and

Facilities, Docket No. 16979, FCC -66- :

BE as cu Phtasccdedtndadsevarabetens 4la —

: panes F—Illustrative Excerpts From Unprinted

| | Transcript ficaVdidedaecednes ees -. 48a-

.

ee f . We cS IESE LE LENE LINE LPNS. | 9

ae

Contents Continued es iii

o ‘INDEX TO. CITATIONS ;

Page

Aiefecigh, Rate Cin, Minimum Rates for Airfreight som.

: -14 ‘\.

Forwarders,’ 26 C.A.B. 339'(1958) .............

Allocations of Frequencies in the Bands Above 890 Mc,

' 27 FC.C. 359 (1959), 29 F.C,C. 825 (1960) ....... 3

Amerittan Airlines, Inc. v. CAB, 235° F.2d 845 (D.C.

_ Cir. 1956), cert. denied, 353 U.S. 905 (1957) *...... 26

American Airlines, Inc. v. CAB, 359 F.2d 624 (D.C.

'' Cir. 1966), cert. douted, 385.U.S. 843 (1966) ...... 14

* American Tel: & Tel. Co., 2 F.C.C. 2d 142 (1965), 2

DAE WET CREED Kecedcivcasivecss .. 9, 21, 29, 31

Amos Treat & Co. v. SEC, 306 F.2d 260 (D.C. Cir,

eee se ee

Baltimore €'0. BR. v. United States, 345 US. 150

(1953) s....seeeeeressseceersheseseeecnseeees 17

Bruce’s diols Inc v. American Can Co., 330 U.S. 143

(+ BERRA RAE ERA RRB ere ease | rae ngs mane gs wee 12

- Chicago, ‘M. & St. P. Ry. v. Minnesota, 134 US. 418,

SEE cuits ou ok axWh shod uedhaeiedscadiceddas

City of/Rochester v. Rochester Gas & Electric Corp., *

83 N.Y. 39, 134 N.E. 828 (1922):................ 12

Columbia Research Corp. v. Schaffer, 256 F.dd 677.

i a Sy ED 8 es02 sev ccapees ss seead hwssevns 23,28

Davis & Randall, Inc. v. United States, 219 F.Supp. |

_ 673 (W.D.N.Y. EE vied che tewnasebuaesaees 25

FEC v. Pottsville cele We Co. . 309 U.S. 134 |

Sg ORS SORE PS et ete a Pe ee = a

Gonzales v. United States, 348 U.S. 407 (1955): . . .23, 26, 28

Gonzales v. United States, 364.U.S. 59 (1960)......... 23

Grain in Multiple-Car Shipments—River Crossings to

the South, 318 I.C.C. 641 (1963) ................ 19

‘Hannah v. Larche, 363 U.S. 420 (1960) ............ 23, 26

ICC v. Baltimore & O. R.R., 145 U.S. 263 (1892) . ..14,15

“ICC v. Delaware, L. & W. RR., 220 U.S. 235 (1911) . :

ICC v. Louisville dN. R-R. 297 US. 88 (1913) ...... 26°

. ICC_v. New York, N. H. é H: R.R. 372 US. 744

(1963) Ap RTE HE Ne ee aS Te 16

ct

ae Michigan Consolidated Gas C6. v. FPC, 283 F.2d 204

A _” Contents cat — .

fi "Page

(D.C. Cir. BENE cane de nntmevr cavesacddes ences 17 .

Mississippi Valley Barge Lime Co. v. ‘United States, coke

292 GS. TE iin kt me deudeaicn be ee tenes 66s 17

‘ Molasses from New Orleans, La., to Peoria and Pekin, )

IU, 235-1.C.C. 485 (19BS) oi iwesvevecececseces

Morgan v. United States, 304 U.S. 1 (1938) .-... 22, 24,28.

Murchison, In re, 349 U.S. 133 (1955) ...2..0....00. 23. =:

NaSMville, C. & St. L. Ry. v. Tennessee, 262 US. 318 *

rp Mr SS. 750s aden baeresk sed bdcbesbanbewsenves 11 --

Opp Cotton Mills, Inc. v. Administrator, 312 U.S.’ 126

{ME Skike bees tabs Race ddkae cheered i eeessiess 26

Pan American World ‘dioiaee Inc. v. CAB, 261 F2d

- 754 (D.C. Cir. 1958), anv. denied, 359 U.S. 912

ES Gb buh eee oe cua Pelese caccaueenentesss 26

Regulatory and Policy Problems Presented by the In-

~ terdependence of Computer and Communication

‘Services and Facilities, Docket’ No. 16797, FCC ae

66-1004 (App.- SEE: susp iesevevausentdvonsweses 19 .

Rules Governing Ex Parte Communications in Hearing

Proceedings,/1 F.C.€: 20:49 (1965) ....... .'. 9, 21, 31.

Saalfield Publishing Co. v. Atchison, T. & S. F. Ry.,

- 274 T.C.C. 584 (1949) ............ jusvcadenwsan 15

Sangamon Valley Televiston Corp v. United States, |

: 269 F.2d ont (D.C. Cir. 1959) occ. ccc cccwlecese 23, 28+

Southern Ry. v.Virginia, 290 U.S. 190 (1933) ......... 26;

Texaco, Inc. v. FTC, 336 F.2d 754 (D.C. Cir. 1964) .. 23

“Trans World Airlines, Inc. v. CAB, 254 F.2d 90 (D. C.

Ge ME Di Sueedeete eh dnb sendsdvesevacahcane's ' 23

United States v. Abilene & So. Ry., 265 US. 4 ~~.

+ (1924) ........ SRST NE eee TI 24,31 _

Vitarelli v. Seaton, 359 U.S. 535 (1959) satimuelh alka 25

Willner v. Committee an.Character, 373 U.S. 96 (1963) 23

Wilson &.Co. v. United States, 335 F.2d. 788 (7th Cir. -

_ 1964), cert. denied, 380 U.S..951 (1965) .....4.. 21

Wine, Pacific Coast to the East, 329 1.C.C. 167 (1966) . 17

Wong Y ang “ny v. McGrath, 339 U.S. 33 venues . .28, 31

a

.

= Comments of Federal Communications Bar Association

‘ a

Contents Continued ¢.\ SH

Constitution and Statutes . | ‘i . Page’,

_ ConsrrrvTIon OF THE Unrrep. StTaTEs, AncexDMENT , Me

CI TEMAS: bce ve ucoctécenvessageedessedees “Rane :

- Administrative Procedure Act. iveeut ewes 3, 27, 98, 29, 32 @

Section 2, 5 U.S.C. $1001 (A yp. 30a)... .: seen 27, 29

Section 5, 5: U.S.C. §.1004 (App. 31a) ........,...27,29

- Section 8, 5 U.S.C. § 1007 (App. 32a) .......%.... 20

Section 12, 5 U.S.C. $1011 (App. 32a-33a) ».......° 29

Communications Act of 1934, as pmended ... -3; 17,19, 29:

- ~ Section’ 1, 47 U.S.C..§ 151 (App. 26a-27a) 2:...... 18

Section 201, 47 U:S.C. 1 (App. 27a) .: "2.5, 6,11-13 |.

-. Sectfon 202, 47 U.S.C. § 202 (App, 27a): 3,5, 10-13, 17

“ Section 204, 47 U.S.C. § 204 (App. 28a)........... 26

. Section 205, 47 U.S.C. §205-(ADY. 28a) ° RADY PREM

“Section 402, 47.1).8.C. § 402 ..... reper ry Seen esie > ee

Section 409, 47 US.C. § 409. (App. 296.308} scekcun ae

Interstate Commerce if” ee Ee cxtchiaaombave: ae

Section 3, 49 U.S.C. §2...... SUSI SO ‘HL 18

Judicial Code, section 1254 (1), 98 v. S.C. .§ 1254(1) . ;

es pve Review Act, section 10, § U.S.C. de 1040 hh :

Other Authorities © ay ane ° in

Administrative Cudlertane of the United a Final

Report, Recommendation No. 19, S. Doo. Now, Se.

. ». 88th Cong., Ist. Sess. (1963) eee wedia ieee ns 31...

- Administrative Conference ittee on ‘Rule ‘Making, :

Improvement in the Cond ct of Federal; Rate Pre |

ceedings, S. Doc. No. 24° 88th Cong: Ist Sess. .

CE ccceen ees ie ieaidaaeeweneetane es cas 124,32

CAB Regulation No. PS-24, Policy Statementé, Amend- |

$e No. ‘3 to Part 399—Statements of General

olicy on Blocked Space Service. (1964),; if €. E.R.

SE th <ccengvesc ch ssauia bud une MET AN ens 13

‘Oukan of Federal Communications Bar es '

tion, June 11, 1964, FCC Docket 15381 ........... ;

on Petition for Reconsideration, Oct. 6,1965, FCC |

, i EE EL: o aadee ab kanied eanadeaeweasnuecaes 3t°

Comments of the Ameri Bar Seétio n on Admini-°

__ strative Law on Petition for Reconsidération, Mar. re

18, 1966, FOC Docket =. a a epee Avecun vases $31

6 4 % : os Pe.

vii 2 _- Contents Continued. ,

ees, 4 | Page

; We item ine, TROIND ooo oo sdencs dees ee

2 Davis, ADMINISTRATIVE Law Treatise (Supp. a 31 -

H. R. Rep. No. 1850, 73rd Cong., 2d Sess. oo aa ho

H. R. Rep. No. 1980, 79th Cong., 2d Sess.. (1946) ...<27, 28

S. Rep. No. 781, 73rd Cong., 2d Sess. (1934) «......... 13°

S. Rep. No. 152, 79th Cong., 2d Sess. (1945) ......... 27

S. Rep. No. 1234, 89th Cong., 2d Sess. (1966) ........ 27

Starr. Srupy, ADMINISTRATIVE CONFERENCE OF THE

UNITED Sratzs, PROCEDURES FOR Hanpuine Rate

Cases In THE CAB DEN Siren ckdwesse ewes Cress OD

P, Starr Stupy, ADMINISTRATIVE CONFERENCE OF THE

UNITED Srares, THe Conpuct or Rate -PRoceEp-

SOS UE SU Tes TEED. one oo Sheeceidexecnses 30

Starr Srupy, ApmMyisTRaTIVE CONFERENCE OF THE

‘UNITED Srares; THe Conpuct or Rate PRoceep-

_INGS In THE ICC (1961) . (aktidhotes wbdhewsantens 30

IN THE

hisiine Court of the United States

OctoBER TERM, 1966

No.

* AMERICAN TRUCKING ASSOCIATIONS, INC., ET AL.,. .

Petitioners |

Ve

FEDERAL CoMMUNICATIONS: Commissron; ET AL.,

Respondents |

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR.

THE DISTRICT OF COLUMBIA CIRCUIT

~ —_—

Petitioners, American Trucking Associations, Inc.,

Twin Coast Newspapers, Inc., Aeronautical Radio, Inc.,.

Air Transport Association of America, American Air-

lines, Inc., Eastern Airlines, Inc., and Lockheed Air-

eraft Corporation, respectfully pray that a writ of cer- _

tiorari issue to review the judgment of. the United

States Court of Appeals for the District of Columbia

. Circuit ai on irs 15, 1966. |

OPINIONS BELOW :

The tentative decision -of the. Federal Com aunica- —

tions Commission (J.A. 681-721)’ is reported at 38 .

F.C.C. 370 (1964) ; the memorandum opinion ard order

- of ‘the Commission on final decision (J.A. 1116-31) is .

reported at 37 F.C.C. 1111 (1964); and the: memo-

randum opinion and order of the Commission on re-

consideration (J.A. 1173-87) is reported at 38 F.C.C.

761 (1965). The opinion of the United States Court ~

of Appeals for the District of Columbia Circuit is not

- yet officially reported, and appears in ieee A.

JURISDICTION |

The judgment of the Court of Appeals er to be

reviewed was dated and entered on September 15, 1966..

The jurisdiction of this Court is invoked under section

- 1254(1) of the Judicial Code, 28 U.S.C. § 1254(1),

section 402($) of the Communications Act of 1934, 47

U.S.C. § 402(j), and. section 10 of the Judicial Review

et, 5 U. S.C. § 1040.

QUESTIONS PRESENTED ;

1. Whether, in order to determine the legal propriety

of developmental volume communications rates such as

those here involved, section 202(a) of the Communica-

tions Act, proscribing unjust discrimination, is com-

pletely self-sufficient, or whether it should be read to-

gether with section 201(b) permitting ‘‘commercial”’

1 Citations to the joint appendix filed in the court below and ‘

with this Court are designated ‘‘J.A.’’ Citations to other parts

of ‘the record certified by the Court of. Appeals are designated

‘“‘R.”? References to the unprinted trafscript in the Commission’s

proceeding are designated ‘‘Tr.”’ Other references to the un- ~

printed record in the Commission’s proceedings are designated

“‘U.R.”’ References to the appendix hereto are designated

66 App. 99 . F ; ae . :

3

(a volume use classification) and other “reasonable”

.classifications, and in the light of the ‘‘ public interest”’

developmental mandates of the Act.

ae Whether constitutional due process is denied

when a Bureau of the Federal Communications Com-

mission, which actively participated as a party in a

vigorously contested rate case, is permitted through

the same pérsonnel to draft the agency’s initial deci-

sion, and to advise and assist ex parte the ageney

members i in reaching their decisions. 3

CONSTITUTIONAL AND STATUTORY PROVISIONS

"INVOLVED * |

The pertinent provisions of the Constitution of the

United States, the Communications Act of 1934, as

amended, and the Administrative Procedure Act are |

set: tal in Appendix € hereto, pages 26a to 33a, nasi

_ STATEMENT OF THE CASE

A. On the Discrimination Question

“TELPAK, the subject of- these ‘esiliae is a

tariff offering by the American Telephone and Tele-

graph Company’ (hereinafter “‘AT&T’’) of develop-

"mental volume communications rates to meet the large .

and growing requirements of.government, conimerce,

and industry for large capacity communications facil-

ities between specified points (J.A. 1188): Ind rule .

making proceeding, Allocations of Frequencies in the

pope Above 890 Mc, 27 ¥.C.C. 359 (1959), 29 F.C.C.

5 (1960), the Federal Communications Conimission

Chereinafter ‘‘the Commission” or ‘‘the FCC’’) for

, the first time issued general authorization for private

enterprises to construct their own microwave facili-

ties, ee permitting bulk communication users to

o

0

meet their requirements by private systems purchased

_at relatively low cost from non-carrier manufacturers .

mCE A. 126, 1341). In response to the needs of the na-

“tional economy and the competition of. private micro-

‘wave systems, the TELPAK tariff’ was filed by the .

' earrier on January 16, 1961 (J.A. 1308-28).

TELPAK provides communications paths of various

widths (TELPAK ‘channels) capable of transmitting

various forms of electrieal communication required by ~

‘a modern business, such as telephone, teletypewriter,

control, signalling, facsimile, and data. Four sizes of

channels are offered, TELPAK A, B, C, and D, hav-.

ing carrier spectrum assignments ‘of ‘48, 96, 240, and

approximately 1,000 kilocycles: per second, respectively.

pee, ned charges for the basic transmission path and

for terminating the channels at the customers’ prem-

ises vary with the size and length of the TELPAK

channel and the type and number of circuit termina-

tions provided. When TELPAK .was first offered,

AT&T estimated that its existing customers would be.

able bn effect savings in charges ranging between $6

millionvand $12 million annually (J.A. 1188-89).?

After a controversy arose concerning the identity .

of the ehannels to be furnished, AT&T filed an amend-

ment.to the TELPAK tariff to clarify its intentfon to

furnish at its discretion either single broadband ‘‘dis-

ctete’’ channels or various ‘‘diverse’’ channels to meet

a customer’ s requirements (J.A. 1255-56). re. :

2 By April 1, 1965, there were 1,190 interstate TELPAK cus- —

tomers using the equivalent of 18,000,000 voice channel miles,

accounting for monthly revenues of approximately $8,800,000, or

$105,600,000 per annum (AT&T Application for Interlocutory In-

junction, July 1, 4965). The Commission has estimated savings

of 51%, 64%; 1%, and 85% on TELPAK: A; _B; C, and D

respectively - A, 694).

BEAL ene AE Lead owe enh

Neuere

D

>

protests by Western Union Telegraph Company,

' AT&T’s common. carrier .competitor (J.A. 1256-76),

and Motorola, Inc., a private microwave equipment

manufacturer (J.A. 1276-93), the Commission on Sep-

tember 8, 1961, suspended the tariff for the three-

month statutory period and ordered an investigation

’ upon four issues: (1) whether the charges were unjust

and unreasonable under section 201(b) of the Com-

munications Act;* (2) whether there would result any

unjust or amreasonable discrimination or prejudice

under section 202(a) ;*~(3) whether TELPAK would

have. unlawful competitive effects upon other car-

riers or upon private manufacturers; and (4) whether

* the. Commission should prescribe rates (J.A. 6-10). ’

. During hearings before ’ a hearing examiner extend-

ing over thirty-six days in 1961 and 1962, Motorola _

and Western Union intervened in opposition to the _

TELPAK rates. Numerous users of TELPAK serv-

8° All pean practites, Pane me cael for ¢ or in

connection with such communiéation service shall be just and rea-

sonable, and any such charge, practice, classification, or regulation y

that is unjust or unreasonable is deetlared to be unlawful: Provided,

. That communications by wire or radio subject to this chapter may

~ be Classified into day, night, repeated, unrepeated, letter, commer-

cial, press, Government, and such other classes as the Commission

‘may decide to be just and reasonable, and different charges may

be made for the different ‘classes of communications . ea 47

U.S.C. §:201(b). fare a |

4«<Tt ghall be unlawful for. any common carrier to make any un-

just or unreasonable discrimination in charges, practices, classifica-

tions, regulations, facilities, or servides for or in connection with |

like communication service, directly or indirectly, by any means —

or device, or to make or give any undue or unreasonable preference

or advantage to any particular person, class of persons, or locality

. to shy undue or, unreasonable a or disadvantage.’’ 47

U. S. C. § 202(a)..

‘

6 3

ice, including petitioners herein, intervened in support

of the tariff; presenting extensive evidence concerning

their dependence upon the TELPAK offering for the

expansion of their communications facilities and the

resultant. beneficial effects upon the economics and

efficiency of their operations and services to the public:

(J.A. 267-530). ,

The Commission issued its tentative decision on

March 18, 1964 (J.A. 681-721), adopted the findings.

and conclusions therein. by a memorandum opinion -

and order issued on December 23, 1964 (J.A. 1116-31),

and affirmed on reconsideration on May 3; 1965 (J.A. .

1173-87). No findings. were made or conclusions

| yeached on Issue“ (1)” relating to the applicability. of

section 201(b) of the Act. On Issue ‘‘(2)” the Com-

mission found TELPAK A and B to be discriminatory

under section 202(a) of tle Act, holding that TELPAK

services are ‘‘like’’ private line services offered under

another tariff at higher rates; that-no material cost

' differences: are attributable to TELPAK service as

- compared to private line services; that TELPAK A

and B are not: justified by competitive necessity ; and

that the record was inadequaté to permit a determina-

tion whether TELPAK C and D are compensatory,

although apparently ‘justified by competitive necessity

(J.A. 718). On Issue “‘(3)”’ the Commission declared

. it was unnecessary to determine whether TELPAK’

rates are lawful in relation to competition, but noted -

‘tin passing”’ that substantial revenues may have been

- diverted from Western Union and that the establish-

ment of private microwave systems may have been

effectively inhibited (J.A. 717-19). The Commission

did not itself prescribe new: rates under Issue ‘‘(4),’’

but ordered AT&T to “unify” TELPAK A and B

Pe CANE Oa AS

« Initial Decision without Init

7

. rates with private line rates, and to furnish a cost

justification for PELPAK Cand D (J.A. 1127).

B. On the Due Process Question .

The Commission’s order instituting e TELPAK

investigation specified thatthe examine 'to be ‘desig-

nated to preside at the hearing would certify the record -

_to_the ‘Commission for decision without preparing ~

~ either an initial or recommended decision (J.A. 10).

AT&T and intervenor Aeronautical -Radio, Inc., re- ©

quested modification of the order to provide for initial

decision by a hearing examiner, and requested that the

- Commission’s’ Common Carrier Bureau -not be per-

mitted to participate i in the decisional stage of the pro-

ceeding. (J.A. 11-18). These requests were opposed

by intervenors Motorola (J.A. 36-41) and Western

Union (J.A. 22-24), and by the Common Carrier Bu-

reau (J.A. 24-35). The Commission by order issued —

February 12, 1962, denied the requests for modification,

with Commissioner Ford dissenting (J.A. 51-56), and

clearly indicated that it would rely upon the Common

Carrier Bureat to draft the initial decision @ A. 53). ,

5 Since petitioners had argued that expedition did not require

omission of a decision by the hearing examiner, and the Commission

had failed to find facts as to the necessity for such omission as —

required by its rules, the Commission thereupon made such a find-

ing in the conclusory language of the rule: . ‘‘The essentiality of

expedition to this proceeding is implicit in petitioners’ arguments

in their pleadings. That the’ Examiner’s decision may be omitted

‘under similar conditions likewise is clear. -Accordingly, we find

here upon the record that due apd timely execution of our func-

tions unavoidably and imperat ively requires the certification of

the record by the Hearing Exdminer in this proceeding to us for

or Recommended Decision by such

Examiner.’’ (J.A. 53.) Pd

Ser eee ee See . Feet nai ia a

.

Cie

From the beginning of the hearing, the Common

Carrier Bureau appeared as a party, through its coun- |

- sel, William M. Lesher and Peter M. Aridersen (J.A.

1337, Tr. 4-5, -U.R. 547 (p. 6), 50-51). These counsel,

together with other counsel from the Bureau who ap-

peared later in the hearing; took an active part in the

- hearing, with extensive cross-examination of wittiesses |

-| (see, ¢.g., J.A. 1348-50, 1357-59, 1363-66, 1370-71, 1374- -

82, 1388, 1436-37, 1463-64, . Tr. 1743-99, 2100-05, 2176-

84), arid objections to evidence (see, e. I+» J.A. 591- 94,

4160-61, 1471, Tr. 2373-74).°

The presiding examiner, recognizing his figurehead.

capacity, repeatedly requested the advice of the Bureau .

/ - eounsel before making rulings upon the evidence, with

the explicit recognition that Bureau counsel would be.

_ writing the teritative decision (see, ¢.g., Tr. 1731-32, °

1901, 1928, 1982-83, 1985, 1988; 1993, 201011, 2088,

2373-74).". -Thus, at one point the examiner asked

Bureau counsel-whether lie considered certain proffered —

evidence to be material, and stated: ‘After all, I recog-

nize the. fact, Mr. Lesher, that you are going to be

_. responsible, I assume, for writing the initial decision

in this case.’”? (J.A. 1460.) :

The tentative. decision of the Commission was in

fact prepared by the Bureau counsel, Mr. Lesher, Mr.

Andersen, and persons working under their direction |

(see J.A. 53, 992-94, 1175, Tr. 1982-83, 2529, 2535).

Bureau counsel also. participated in closed conferences ©

off-the-record with the Commissioners to discuss the

tentative decision, the exceptions of other parties, and

6 Tilustrative quotations ‘from the unprinted transcript are re-

printed in Appendix F.

"See sbid.

inode Sid ee gf Seton

9

the final decision and order (see J:A. 53, 992-94, 1175).

The Commission has admitted that.under existing

procedures ‘“‘the Bureau conducts an investigation

and participates in’ the hearing. .... The Bureau also#

however, has an active role in the decision of record —

| - rulemaking proceedings. ” Rules Governing Ez Parte

‘ Communications in Hearing Proceedings, 1 F.C.C. 2d -

49, 52 (1965); see also. American Tel. & Tel. Co., 2

F.C.C. 2d: 142 (1965), 2 F'.C.C. 2d 877 (1966).

C. Proceedings Befpre the Court of Appeals |

Eight petitions for review were filed before the

United States Court of Appeals for the District of

Columbia Circuit, Western Union alone intervening

in opposition to the petitions. After an interlocutory

is): injunction was granted on August 13, 1965, pending

en ae "review, the Court of Appeals affirmed the orders of the

| Commission on September 15, 1966. Motions to stay

the transmission of the court’s opinion ‘and certified

. eopy of its judgment were denied by the Court of Ap-

_ peals by order entered October 18, 1966. |

| REASONS FOR ALLOWANCE OF THE WRIT

The substantive and procedural anomalies: of this

. rate increase case, some of which have. been noted |

~ above, and others of which are hereinafter developed,

are matched only by the importance of the case to the

future of rate regulatidn of the comminications

industry and, \indeed, possibly to the — of rate-

making in general.

10

_ 1. THE COURT OF APPEALS HAS ECIDED AN IMPORTANT

QUESTION OF FEDERAL STA’ RY LAW WHICH HAS NOT

BEEN, BUT SHOULD BE, SETTLED BY THIS COURT.

| A. Case Presents the First Judicial Review of Section

202 the Communications Act of . 1934, and Its Ap ‘7?

4 Pplicability to Competitive Rate-Making

For the first time in its history, judicial ore is

. sought of section 202(a) of the Communications Act

_ of 1934, as amended, 47 U.S.C. § 202(a), which was

invoked by the F'€C, in an unduly narrow construction

and out of statutory context, to condemn as ‘“‘dis-

-eriminatory”’ bulk package rate, offerings by. AT&T

and the Bell system to users of their facilities having

an expanding need for large volume communications

services. AT&T itself ear in “its brief before °

the court below:

This is a landmark case in the donpunicatons + 3

industry...,Jegal standards important’to competi-

tive rate making in the communications industry

are hefore the courts fie the bicly time in this

case.

“/and ‘indeed the court balow cipatontiy one the

‘importance of its decision in commending the full text

of the three Commission opinions ‘‘to the attention of

any éther reviewing authority and of any student re-:

‘ searching in this area”? (App. 25a). 3

B. The Court of Appeals Has Too Narrowly Construed Section

202(a) Without Regard to Statutory Context '

In upholding the Commission’s action striking

down developmental volume rates as discriminatory . ‘

under section sta of the Act, the Court of Appeals

stated:

- The prohibition a = different charges to dif-

ferent “a or like services under uke cir-

| 7m.

a cumstances: is flat sia are rg the perti-

.. ~_ nent section of the statute bristles with “any”.. It

is made unlawful for ‘‘any’’ carrier-to make “‘any”’ ~

unjust discrimination by ‘‘any”’ means, -or to make

‘‘any’’ undue preference to ‘‘any’’ particular per- ‘

son, or to subject ‘‘any” person to “any”? undue

prejudice. [ App. es |

a’

7"

"Pak: Heckina 90064) of tis Contiiniadaetions-Aak- tee =

section 2 of the Interstate Contmerce Act, 49: U.S.C.

. §2, from which it was derived, does not prohibit every

discrinsination, but ‘“‘only that discrimination which

- is unreasonable, undue, or unjust,’’ Nashville, C. & St.

_ L. Ry. v. Tennessee, 262 U. Rs | 318, 322 (1923).

| “The money difference in price,” declares the Court ...

«of. Appeals, Sis the- care of the proscription” (App.

17a). But a money difference in price. by definition

_ -is- contemplated as‘ valid and permissible in the ex-.

press companion provision, section 201¢b) of the Act, .

that ‘‘different charges may be made for the different

~ elasses of communications,’’ 47 U.S.C,’ 201(b). Thus,

communications thereunder “‘may be <lassified into

day, night [classification by- ‘time], repeated, unre~

peated [classification by frequency], letter [ classifica-

tion by form], commercial [classification by volume

user], press, Government [classification by character

of the user] and such other classes as the Commission

may decide to be just and reasonable” (ibid.) (em-—

phasis added). . TELPAK: is merely a ‘manifestation

in the communications industry of common classifica-

tions by volume use and Volume user—represented in

the acceptation of classes such s ‘‘residential,” ‘‘com- ‘.

mer¢ial,’’ and ‘‘industrial’’ in gas; electric, and other

. utility tariffs. THLPAK is in — a — commer-

. cal’’ classification.

. . . é e e - ?

im . . 4

. * y

i, P a j ‘

-. a ad .

° : . , sd :

>. ? “ -

q@”

12 2

Volume discounts find everyday ‘acceptance in our

economic system. {‘Quantity discounts are among the

oldest, most widely employed and best known of dis-

count .practices. They are common in retail: trade,

wholesale trade, and manufacture-jobber relations.

They are common in regulated as well.as unregulated

price structures.’ Bruce’s Juices, Inc. v. American

Can Co., 330 U.S. 748, 745-46 (1947). ‘The com-

Seat does. not pay the same rate as the occasional

_ traveler. The shipper by carload is not charged as the

shipper of -a singlé package. Telephone rates -per

message are lowered as the number of messages in-

- creases. Gharges for water: vary- with the quantity .

consumed.’’ City of Rochester v. Rochester Gas &

Electric Corp., 33 N.Y. 39, 48, 134 N.E.'828, 831 (1922).

(Cardozo, J., for the court) (citations omitted).

~The thrust of the Commission’s decision is that

volume rates are discriminatory, and therefore un-

lawful under section 202(a) of the Act, unless affirth-.

atively justified by a difference in costs or competitive

necessity: - This gloss upon,section 202 (a) is no part

of the Act. Indeed, not one of the classes’enumerated

by illustration. in section 201(b) as reasonable dif-

ferentiations can be justified on a cost or competitive

necessity basis, except perhaps to the limited extent it

may be: inferred that cost savings are inherent in

‘ volume uses or users—an inference which is neces- ~

sarily fully. as applicable and valid for TELPAK

- volume rates. ° o 7

_. -Séetion 201(b), however, was oniesialiae encod by

_the Commission and the court below, despite the fact

that the very first j dssue designated by. the Commission

in defining the scope of the hearjng expressly called ©

- for determination of the applicability of section 201 .

(b). of the Act: (J.A. 685). Nevertheless, through

13

three successive opinions of the Commission and the

opinion of the Court of Appeals, not a single reference

was made to the possible reasonableness of TELPAK

rates ‘as a class of rates under section 201(b), much .

‘less was any determination made of that issue.

\ The egregious effect of this narrow interpretation

of section 202(a) out of statutory context is to impinge

upon_basic. priziciples of. communications rate-making

by rejecting virtually every classification as discrimi-—

nation, and virtually every discrimination as invidious

- and as unlawful, despite the express classification and

| _— differentiation prorat of section 201 (b).

Cc. “The Court of Appeals’ Sebioneiittes is in Conflict With De- |

cisions of This Court Interpreting Comparable Provisions

of the Parent Interstate Commerce Act and Other Similar

Acts

The prohibition of section n 202(a) of the Communica- =f

tions Act against unjust or unreasonable discrimina- . ~

tion was purposefully drawn by the Congress to con-

form with comparable provisions of section 2 of the

Interstate Commerce Act, 49 U.S:C. §2. S. Rep. No.

781, 73rd Cong., 2d Sess. 4 (1934); H. R. Rep. No.

1850, 73rd Cong., 2d Sess. 5 (1934). The action strik-

‘ing down TELPAK volume rates under section 202(a),

however, violates the settled interpretation upholding .

the validity of comparable volume shipment rates

under the parent Act:

It is well settled that iin in the quanti-

“ties shipped as a single shipment may afford a

fair and reasonable basis for differences in trans-

portation rates. In railroad transportation, these

differences are currently recognized as between car-

load, less-than-carload, and any-quantity lots. In

truck transportation, in addition to truckload and

less-than-truckload rates there are so-called volume

rates. In connection with the latter, there is no

Sipe Rh te PD aie RN ithe ect A etc Seer er nr

ae | |

requirement as to the loading in a single truck.

[Molasses from New Orleans, La., to Peoria and

Pekin, Ill., 235 1.C.C. 485, 498-99 (1939). ]

There is indeed a striking historical parallel in the

shared use of TELPAK services by various members

of the airline, trucking, and other industries with the |.

traditional shared use of carload rates in railroading;

ICC v. Delaware, L. dé WwW. _R.R.; 220 U. S. 235, 242-43

(1911).

~ The rate “spreads”? between volume ‘id non-volume

rates, based upon a volume classification and not upon

a demonstrated cost differential, have been the life

‘blood of the’ forwarding business in the railroad indus-

try, tbid., as well as the airline industry, where ‘‘ weight

breaks”’ are a usual and normal practice, Airfreight

Rate Case, Minimum Rates for Airfreight Forwarders,

26 C.A.B. 339, 341-42 (1958). — ~

In principle, TELPAK rates are not ‘nities the

- ,commutation ticket rates long upheld, [CC v. Balti-

‘more & O. R.R., 145 U.S. 263, 277- -B (1892), in the

railroad industry, whereby a payment is made at a

discount for tickets whether or not all of the trips

contracted for are taken. Nor<are they unlike the

‘‘blocked space’? tariffs in -the airline industry,

_ which’ permit shippers to reserve a_ particular

amount or “‘block”’ of cargo space on a regular re-

. curring basis at rates which are reduced, but must be

_ paid whether or not all the space is used. .CAB Regu-

lation No. PS-24, Policy Statements, Amendment No.-

3 to Part 399 —Statements of* General Policy on

Blocked Space Service (1964),* now coditied as 14

C.F.R. § 399.37. ,

8 Affirmed on rehearing’ en bane sub nom. American ie

Inc. v. CAB,:359 F. 2d 624 (D.C. Cir. — cert. demed, 385 U.S.

843 (1966). ~

15

° a

volume charges for 12 and 24 voice grade communica-

tions: channels’ equivalent to such ‘‘carload’’ and

‘‘weight break’? quantity charges. To declare them in-

valid is in direct conflict with this Court’s decisions

accepting similar practices under the parent provisions

of the Interstate Commerce “Act and with the recog-

nized comparable ‘rate practices of the regulated air-

line industry. |

oD. in. Striking Down Certain Rates as Discriminatory, i

though Only in Theory, the Commission Creates a Greater

‘Real Discrimination, to the Short Range Benefit Only of

AT&T and a Less Efficient Competitor

TELPAK A and B rates provide developmental

TELPAK A and B rates for 12 and 24 voice chan-

nels have been declared unlawful‘upon findings of

theoretical discrimination in the abstract by compari-.

son with private line tariffs, not upon a showing of

actual injury.® At'the same time, the Commission has

indicated that there exists apparent justification. for

®No party ‘offered evidence of injury to non-volume users

resulting from the TELPAK offering. One intervenor alone,

United Press International, complained that an advantage accrued |

to its competitor because of the levels of the rates. (J.A. 719). |

Oné user, however, ‘ ‘cannot be said to be injured by the fact |

|

that another is able in a particular instance’’ to receive a more |

favorable rate.. ICC v. Baltimore & O. R.R., 145 U.S. 263, 280-81 |

(1892).. Nor can ipjury to non-users be inferred from a mere

difference in rates: -‘‘That there are in existence commodity

rates ...on a level lower than the applicable rates . . . does not of

itself show that this difference in rates results in any undue prej-

udice to complainant i in the marketing of its products. To establish’

undue prejudice and preference, the evidence must be such as to

make reasonably clear how and. where an assailed disparity in

the relative levels of rates operates to the advantage of parties

or traffic alleged to be favored and to the detriment of other parties.

or traffic. They may not be assumed or left to inference. General

declarations as to competition, unsupported by evidentiary facts,

’ and a mere showing of disparity of rates do not warrant a finding

of undue prejudice and preference.’ Saalfield Publishing Co. v.

Aichison T. & S.F. Ry., 274 I. C.C. 584, 588 (1949).

|

CN eT SP ¥

a a al ich iA a eee

16

TELPAK -C and D rates of 60:and 240 voice grade |

channels (J.A. 1125-26). The result is that the Com-

mission, purportedly protecting smaller users unable

to qualify for the smaller volume rates, has not amelio- - -

rated but heightened any: real discrimination. Com-

mon carrier customers with inadequate requirements

for TELPAK C€C and D rates now would be deprived of

‘any opportunity to benefit from TELPAK A and B

rates, unlike the larger users. In addition, users in

localities with heavy traffie can continue to receive the

benefits of TELPAK C and D rates, but users in -

smaller communities with more modest channel re-

quirements are deprived of intermediate volume rates

(see App. D, pp. 35a-40a). |

This anomaly succeeds in bestowing a rate increase

- benefit (but only for the short run’°) only upon AT&T

and Western: Union, its cémmon carrier competitor

- and chief protagonist in, these’ proceedings, although

the Commission has specifically declined to assess TEL- .

: PAK’s lawfulness in relation to competition (J.A.

. 717-18) . This Court has held, however, that the Com-

mission may not serve as a “‘giant handicapper” to |

‘require rates to be raised to an artificially high level

‘merely to protect a less efficient competitor. ICC v.

New York, N. H. & - RR., 372 U.S. 744, T5T- 58

(1963).

_ There is.all the more reason why a common carrier

should be permitted to establish developmental volume —

rates where, as here, they are designed to meet the

competition of an unregulated competitor (in this case,

Motorola) whose costs are undisclosed (J.A. 1448, 1453,

10 In the short run, present TELPAK users will of necessity con- ‘

tinue to rely upon common carrier facilities. In the longer run,. -

where practicable,- present TELPAK users will acquire their own

private microwave facilities in preference to higher cost private

lines leased from common carriers. . ,

ae |

-

' 1456) and whose prices are subject to change without

notice or restriction. Cf. Mississippi Valley Barge Line

Co. v. United States, 292 U.S. 282, 284 (1934); Wine,

Pacific Coast to the East, 329 I.C.C. 167 (1966).

E. The Court of Appeals’ Decision Would Impose a Severe

Burden Upon Users of Bulk Gommunications, and Inhibit |

National Economic Growth Attributable to the Greater

Reliance Upon Communications Services

In respects which are ‘critical for rate. regulation in

the communications industry, both the Commission and

the court below have misconceived the legal signifi-

eance of developmental volume rates, in concluding

. that they can-be justified only by demonstrable cost

’ savings or precise competitive necessity (J.A.-1122-

23; App. 19a). It is submitted that there is an even.

higher, over-riding consideration which is applicable

. across the board and which must ultimately govern—

. the public interest standard, equally controlling in all - .

- the regulated industries, FCC v. Pottsville Broadcast-

ing Co., 309 U.S. 134, 142-43 (1940), cf. Baltumore &

O. R.R. v. United States, 345 U.S. 146, 150 (1953), and —

permeating the fabric of the Communications Act.

. ‘In viewing the public interest, the Commission’s vi-

sion is not to be limited to the horizons of the private

parties to the proceeding.’’ Michigan Consolidated Gas

Co. v. FPC, 283 F. 2d 204, 226 (D.C. Cir. 1960): .

In the sterilizing application of section 202(a) to

TELPAK rates, both the Commission and the Court »

of Appeals have also misconceived the factual signifi-

eance of the case,.in failing to recognize the public:

interest achievements of developmental volume com-

munications rates in stimulating the broad surge in the ~

use of communications services and facilities. It is no

exaggeration, and the record fully demonstrates, that

business and industrial enterprises throughout the

country, large and small, have constructed vast, ¢éom-

; . 1 2 3

i Sakic RE amass,

Preheat ola i ieee:

Ge eae ee

jon ROK

= :

4 ‘

«4

! “ra 18

plex, and in many cases nationwide communications

networks-around- the ‘TELPAK offerings, upon which

they rely to meet their communications needs efficiently ~~

and effectively ; that TELPAK A and B rates are an

integral aspect of these networks, serving communities

which could not otherwise be served and acting as build-:

ing blocks in national. communications systems for —

service to the public as well as for private business;

that there has been a revolutionary increase in the

reliance on communications systems which has lead to

major and dramatic improvements on a nationwide

basis in the efficiency and sophistication of communica-

_ tions facilities; and conversely, that the availability of

such ‘‘rapid, efficient, Nation-wide, and world-wide

wire and radio communication service with adequate |

facilities at reasonable charges’’ (section 1 of the Com-

munications Act, 47 U.S.C. §151) represented in the

TELPAK rates have contributed enormously to busi-.

ness and industry expansion in meeting public needs

éd. A. 267-530).

The essence of the TELPAK rates in | eiadiatine

the explosion in the use of communications facilities

for: business and industrial needs has been precisely

* the’ developmental or promotional character of the

charges, in contrast with the levels (prohibitive in

large part) of private line charges.”

11 As one example, in the case of the airline industry, elimination

of TELPAK A.and B would increase the cost of equivalent facili- -

ties for TELPAK A by 82.7%, or an additional $502, 464 per

annum, and for TELPAK B by 101.8%, or an additional $547,176

per annum (R. 1627). Although there has been a notable im-’'

provement in airline operations, reservations and other services,

organization, and structure attributable to improved communica-

tions facilities, the obvious reaction to an increase in charges of °

this magnitude would be a curtailment of services and a revision

_in operations in line with budgetary allocations (R. 1628).

In the case of the trucking industry, as another example, which °

ranks third among the a TELPAK users (after the Govern-

0.

F

Likewise incalculable is the stultifying effeet of the

greatly increased rates upon the requirements of other

industries for voice, data processing, high speed fac-

simile, and other volume communications facilities.”

In laying a deadening hand upon technological innova-

tion through developmental volume communications

rates, the Commission has effectively suspended and

retarded the tangible contributions which can be made

to meet public needs. Such technological efficiencies

and managerial initiative constitute elements to be pro-

* moted under the national policy of the Communica- _

tions Act, rather than to be stultified. Cf. Grain in

Multiple-Car Shipments—River Crossings to the

South, 318 1.0.0. 641, 690 ae .

’-ment and the airline industry),°and is composed ‘in the over-

| whelming majority of small companies, elimination of TELPAK A

and B rates would approximately double the $1,825,000 per annum

paid for TELPAK A and B facilities alone over 8,570 miles (R.

1644-45). In many cases these facilities would very likely bé aban-- -

doned, utilization of TELPAK C and D facilities would be reduced: |

as economically unfeasible; and there would be ‘‘an incalculable

dislocation in a variety of shipper services now achieved by the

use of TELPAK facilities including central dispatching and sched-

uling of over-the-road vehicles, quick and efficient transmission of

_ freight bills from origin to-destination and tracing of lost and

delayed shipments’’ (R. 1645-47). ;

12The public interest aspect of the growing interdependence

_. between computers and-high speed facsimile facilities and com-

miunivations facilities such as TELPAK was one of the matters

of significance pointed out by the interventions of Xerox and IBM

in the Commission proceeding (J.A. 733, 755-64). Belatedly, the

Commission on Noyember 9, 1966, embarked upon a public inquiry

into the regulatory and poliey questions which are being raised

by the growing interdependence of computer services and tech-

nology, and communications facilities and services of common

carriers (App. E, pp. 41a-42a). .

SME ia CT gp Rarer digs 9

SIE PRIMERS Tree LR IAA as. so ha cht INE AIM aD

RENO ODL tera avy We eRe

90

II. THE COURT OF APPEALS ERRED IN FAILING To RECOGNIZE

- THAT THE FEDERAL COMMUNICATIONS COMMISSION’S

UNIQUE PROCEDURES ARE IN CONFLICT WITH DECISIONS

OF THIS COURT APPLYING PRINCIPLES OF CONSTITU-

TIONAL DUE PROCESS.

~The Court of Appeals disposed of the challenge to

the FCC’ S ee in two short sentences of its

opinion:

. Section 8(a) of the Administrative Procedure

Act permits the agency itself to issue a tentative

decision in place of an examiner’s report: Exam-

ination of this record satisfies us that the Com-

mission complied with all procedural require-

‘ments. [App. 23a. |

With all due respect, it is submitted that the Court Of

Appeals misconceived the constitutional due process

error complained of by the petitioners. It was not the

mere absence of an examiner’s report. Instead, it was

absence of a fair hearing by reason of:

(1) Absence of an examiner’s report, without’ any

factual ‘findings to support the belated, purely

conclusory finding on the necessity for by-pass.

ing such report (J.A. 10, 53) ; .

(2) Participation of Bureau counsel, as an active

advocate in tke proceéding, lined up on issues

of consequence with the only other opponents of

TELPAK, namely, Motorola and Western

Union (e.9., J.A. 591-94, 1348-50, 1357-59,

1363-66, 1370-71, 1374-82, 1388, 1436- 37, -1460- 61,

é

14 64, 1471, Tr. 1743- 99, 2100: 05, 2176-84, -

2373-74, 2426) ;1°

| (3) Deferral of the examiner to Bureau counsel on ~~

all important rulings on evidence, in view of

the pre-announced order of the Commission to

18 Illustrative quotations from the unprinted transcript are re-

—-* in Appendix F.

4

7 : :

21 2 Meir

- the effect that Bureau counsel would write the .

- initial decision (e.g., Tr. 1731-32, 1901, 1928,.

1982-83, 1985, 1988, 1933, 2088, 2373-74) s

(4) Actual drafting of the. initial decision by Bu-

‘ reau counsel Cd. A. 58, 992-94, 1175, 1460) ;

(5) Absence of any briefing or oral argument on

the merits by Bureau counsel which would have —

‘ indicated the Bureau position and given the

- other ‘parties the opportunity to rebut; and

| x6) Participation of Bureau counsel in ex parte con-

‘sultation with the Commission on its final deci-

sion (¢g., J.A. 53, 992-94, 1175; Rules Gov- —

erning Ex Parte Communications in H. earing

Proceedings, 1 F.C.C. 2d 49 (1965); American

Tel. & Tel. Co..2 F.C.C. 24 142 (1965), 2 F.0.0.

2d 877 (1966)).

. The Commission acknowledges that its ‘unusual pro- -"

cedures are ‘‘consistently, empléyed’’ and ‘‘have been

used in several recent important Commission rate-

-making proceedings.’’ American Tel. & Tel. Co.,

supra at 144. The Commission is even now. employing -

these procedures in a rate proceeding (tbid.),-in spe--

cific reliance upon Wilson & Co. v.' United States,

_ 335 F. 2d.788 (7th Cir. 1964), cert. denied on this

issue, 380 U.S.'951 (1965), and this Court’s denial of

certiorari there, as support for the legality of its pro-

cedures. - Unless stopped by this Court the Commission

will continue'to use these. questiona ble procedures, and

. other administrative agencies will feel free to use simi-

lar procedures in tate-making and other “rule \mak- .

ing”? proceedings. . If: these procedures are basically

and constitutionally unfair, as we submit they clearly

are, important rate proceedings of even greater length.

-

_ 14 See ibid.” y

. 7 °

a

é 2 s

=o -

PA Oe TR eg RTA ORT EE MR ieee eres

> - —

ee “i

and scope than here involved will be jeopardized in

their entirety. —

The Commission’s procedures conflict with the. prin-

: ciple that due process is denied when a participant in

-an administrative proceeding—whatever the interest

represe ted by him—is permitted. to intervene ex parte _

in the 50 a ae process.’ . This is the clear hold-

ing of Morgan v. United States, 304 U.S: 1 (1938),

‘whieh involved a rate-making proceeding before the’

Secretary of Agriculture. Counsel from the Depart- °

,ment’s Bureau of Animal Industry participated in the

. hearing, and ther drafted findings for presentation to

the Secretary and participated in several private con- .

ferences with the Secretary with respéct to these find-

ings. Tn this context, this Court said:

The vast. expansion of this field of administrative

- regulation in response to the pressure of social

“needs is made possible under our system by ad-

_ herence to the basic principles that the legislature

shall appropriately determine the standards of ad-

ministrative action and that in administrative pro-

ceedings of a quasi-judicial character the liberty -

and property of the citizen shall be protected by

’ the rudimentary requirements cf fair play. These

demand ‘‘a fair and open hearing,’’—essential

alike-to the legal validity of the administrative

regulation and to the maintenance of public confi-

dencé in the value and soundness of this important

governmental ee [304 U. S. at 14-15. (Em-

ie phasis added.)

In holding thereafter that the ex “parte peendetts s :

tions by Bureau counsel to the Secretary without no-

tice or opportunity to respond being granted to other ©

participants violated due process, this. Court stated :

The right to a hearing embraces not only the. right

to present evidence but also a reasonable oppor-

a to know the claims of the opposing party

ae kr 23

and to meet them. The right to submit argument |

_ implies that opportunity ; otherwise the right may -

‘be but a barren one. Those who are brought into —

“eontest with the Government in a quasi-judicial

proceeding aimed at the control of their activities

are entitled to be fairly advised of what the Gov-

ernment proposes .and to be heard upon its pro-

posals before it issues its final command. [304 .

U.S. at-18-19.] ae

Other applications of this principle are found in,

e.g., Gonzales v. United States, 348-U.S. 407 (1955) ;”°

Willner v. Committee on Character, 373 U.S. 96 (1963) ;

, In re Murchison, 349 U.S. 133 (1955) #Sangafton Val-

ley Television Corp. v. United States, 269 F. 2d 221

(D.C. Cir. 1959); cf. Gonzales v. United States, 364

U.S. 59, 66 (1960) (dissenting ei ; Hannah Vv.

Larche, 363 U.S. 420 A ots - | | ‘

8 In holding there that fairness tequired that a selective service’.

exemption applicant be-allowed to inspect the recomméhdation of .

the Department of Justice, this Court stated: ‘‘The petitioner was ©

entitled to know the thrust of the Department’ Ss recommendation

so he could muster his facts and arguments to meet its contentions. *

. [T]he right to file a statement before the Appeal Board in- ©

éludes the right“to file a meaningful statement, one based on all

the facts in the file and made with awareness of the recommenda- ©

tions and arguments to be Gountered.’’ 848 U.S. at 414-15. ©

16 The decision below is also eesti when measured ‘a

the general march toward fairness in administrative sdoscalinds: :?

See, ¢.g., Amos Treat & Co. v. ‘SEC, 306: F. 2d 260, 266-67" (D.C.

~ Cir. 1962) ; Trans World Airlines, Inc. v. CAB; 254 F. 2d 90, 91 -

~. (D.C. Cir: 1958) ; Columbia Research Corp. v. Schaffer, 256 F- x i

.677 (2d Cir. 1958) ; Texaco, Inc. v. FTC, 336 F. 2d 754 (D. _

Cir. 1964). As the court stated in the Trang World Airlines;case :

‘‘The fundamental requirements of ‘fairness in the performance

of such [quasi-judicial ] functions require at least that one who par-

ticipates in a case on behalf of any party, whether actively: or -

merely formally by being on pleadings or briefs, take no part in TL,

the decision of that case by any tribunal on which he nay there. © on

after sit.’” 254 F. 2d at 91. ; ;

+ © «¢*

.

f » *

. ® "oe

7

, . 24

In the present-.case Bureau counsel who were advo-

cates in the case” also participated ex nite in the

decision-making process. The inherent vice in entrust-

ing the initial selection of evidence and preparation of

. findings to an advoeate is shown in the present case.

The tentative decision (J.A. 681-721) drafted by the

Common Carrier Bureau counsel (and which other

‘parties did not see until its issuance by the Commis-

sion) accorded little or no weight to evidence presented

by numerous’ users of the new communications serv-

ices.* _ The tentative decision was clearly the critical

document in this case. The Court of Appeals stated:

‘*'The findings and conclusions of the Tentative Deci-

sion were in major part affirmed [by the Commission ]

without extended discussion. Our review, therefore, is °

directed . procedurally. to the more comprehensive

Tentative Decision of March 20, 1964.”” (App. lla.) —

“The Commission claims that, the interests of other

parties are protected because if the staff commits

-error, it ‘will show up ‘in the tentative decision and

. 17 The facts in this ease clearly belie the Commission’s conten-

tion that the position of Bureau eounsel in’a rate proceeding is

‘not ‘‘adversary:’’ An argument in Morgan v. United States,.304

U.S. at 20,«that the Bureau ¢éounsel’s position there was not

“adversary”? was dismissed by this Court as one which ‘‘has regard

to the mere form of the proceeding and ignores realities.”* See .

also United States v. Abilene & So. Ry.> 265 U.S. 274 (1924). The

Administrative Conference Committee on Rulemaking noted that

when an agency staff participates in rate cases, ‘it is inevitable

that the staff to.a degree will become merely another adversary

party to the proceeding.”’ S. Dos. No. 24, 88th Cong., 1st Sess.

85 (1963).

18 Thus the General Services Administration, an -agency of the.

United States, stated in its. ‘‘Exceptions and Supporting Reasons’’

that the tentative decision failed ‘‘to consider or give weight to

testimony and eviderice presented by GSA. and other customer <~

intervenors’’ (J.A. 812-13), «and that in many instances. ‘‘the

‘Tentative Decision completely ignores the arguments of GSA and

. other customer intervenors’’ (J.A. 815; see also. J.A. 822, 824-25).

ee pe he 25

will be ocvvieted on the basis of the eneciiias filed by

parties. But the same Bureau counsel who prepare

. the tentative decision also confer ex parte and advise

_ the Commission -with respect. to the validity of the .

exceptions and the form of the final decision. Itstrains. —

credulity to believe that these persons will not have:

_. protective instincts with respect to their tentative de-

cision. Judge Friendly, speaking for a -thrte-judge .

eourt, recently disposed of a claim much the same as |

that of.the Commission by observing that ‘‘for com-

missioners, as for judges, freedom of decision is at

least subconsciously constricted once a position has —

been publicly taken.’’ Davis &-Randall, Inc. v. United

_ States, 219 F. Supp. 673, 679 (W.D. N.Y. 1963).

-. The. FCC’s order dispensing with a hearing exam-

iner’s report was also arbitrary under the Commission’s

own rules which then provided, in pertinent part, that _

the examiner designated-for the proceeding ‘‘shall pre- _

pare an initial (or recommended) decision,” except .

where ‘‘the Commission finds upon the record that due

and timely execution of its functions imperatively and

unavoidably requires that no recommended decision be

issued by-the presiding officer.’’ 22 Fed. Reg. 10991-

92 (1957). (Emphasis added.) No finding in this

respect was made by the Commission at the time of its

original order on September 8, 1961 (J.A. 6-10), and

when this deficiency was pointed out, a perfunctory

. finding was made only in the exact conclusory language

of the rule without any. specific findings based upon

facts particular to this case (J.A. 52-53). ” An ageney

_. must comply with its published rules, e.g., Vitarelli v.

Seaton, 359 U.S. 535 (1959),-and a finding required.

19 The fact that Bureau counsel took 15 months to prepare the

tentative decision certainly belies the Commission’s conclusion

that due and timely execution of its functions required dispensing

with the hearing examiner’s initial. decision.

¥ ce

eran

ed

26

by statute or rule is insufficient if it merely recites the |

language of the statute. or rule without finding facts

-or circumstances which support the ultimate finding.

. American Airlines, Inc, v. CAB, 235 F. 24.845, 851

_ (D.C..Cir. 1956), cert. denied, 353 U.S. 905 (1957) ;

Pan American World Airways, Inc, v. CAB, 261 F..2d

754 (D.C. Cir. 1958), cert. denied, 359 U.S. 912 (1959).

A. The Commission’ s Purported Justification of Its Procedures

. as “Legislative” Action Is Insufficient.

The Communications. Act émpowers the Commission

to determine and prescribe reasonable charges and fair

practices, only ‘‘after full opportunity for hearing,”

47 U.S.C. §§ 204, 205(a). The Commission, however, .

attempts to justify its distinct rate-making procedures

with the out-dated argument that this is ‘‘legislative”’

~ action. But as this Court stated in Hannah v. Larche,

363 U.S. 420, 442 (1960), ‘‘when governmental agen-

cies adjudicate or make binding determinations which .

directly affect the legal rights of individuals, it is im-

perative that those agencies ‘use the. procedures which

have traditionally been associated with the judicial

process.’’ See also the following cases in which this

Court rejected ‘arguments that various - procedures

were not required because the proceedings were ‘‘legis-

lative’’: Southern Ry. v. Virginia, 290 U.S. 190 (1933) ;

ICC v. Louisville & N. R.R.,; 227 U.S. 88 (1913) ; ef.

Opp Cotton Mills, Inc. v. Adininistrator, 312 U.S. 126

(1941) ; Gonzales v. United States, 348 U.S. 407 (1955).

Speaking on the very question posed by the present

kind of proceeding, this Court has. stated: .

~The question of the reasonableness of a rate of

charge for transportation by a railroad company,

involving as it does the element of reasonableness

both as regards the ‘company ‘and as regards the

public, is eminently a question for judicial investi-

@

eae

a thinness wi tect tt ad). it De Nae tat Pr eli ts BE

ey :

gation, requiring. due. process of law for its deter-

mination.. [Chicago, M. & St. P. Ry. v. ind

sota, 134 U.S. 418, 458, (1890).]

B. The Commission’s iupbinzoas Cannot Be-Justified by the

Administrative Procedure Act

“That his Commission’s procedures in the present case _

are riot specifically prohibited by the Administrative

Procedure Act is no answer to the proposition that

these procedures are basically unfair.” In fact, the

House Committee report on the Act made it clear that

in some rate cases, failure to maintain separation of

functions would be unfair even. though such failure

might not violate the wording of the Act.- After ex-

20 Section 5(e) of the Administrative an Act (5 U.S.C.

§ 1004(c)), which contains its: only ‘‘separation of functions’’

provision, applies only to ‘‘adjudication,’’ not to “‘rule making,’’

and ‘‘rule making’’ is ‘defined to include ‘‘the approval or prescrip-

tion for the future of rates’? (5 U.S.C. §1001(c)). In addition,

: section 5(e) is specifically inapplicable to initial licensing cases and

‘‘proceedings involving the validity or application of rates.’’

Although the Act was intended to further ‘‘fairness’’ in admin-

istrative procedure, it was admittedly a ‘‘beginning,’’ not the

last word. See H.R. Rep. No. 1980, 79th Cong., 2d Sess. 48 (1946) ;

92 Cone. Rec. 5646-63 (1946). : Thus, the Senate Judiciary Com-

mittée urged that the exemptions of rule making and initial

‘licensing cases from section 5(c)- not bé applied ‘‘where cases -

present sharply contested issues of fact’’ (S. Rep. No. 752, 79th

Cong., Ist Sess. 30 (1945)). See also 92 Cona. Rec. 2159 (1946)

(statement of Senator McCarran, sponsor of the bill).

In the 89th Congress just ended, the Senate. Judiciary Com- |

mittee stated: ‘‘Rulemaking, by its nature, is concerned with,

general policy matters rather than with specific and particular

problems. It is legislative i in character. The application of a rule

to a particular situation in: the Committee’s view ts a matter for

adjudication, requiring evidence and proof different in nature

from that justifying the formulation of the rule, itself.’’ S. Rep.

No. 1234, 89th Cong., 2d Sess. 8 (1966). (Emphasis added.) (The -

full Senate concurred, for it passed the: Bill (S. 1336) that would

have made rate cases involving identified parties in specific situa- ©

tions subject to all adjudicatory procedures:)

>

PIRES Th NT

28

plaining that initial license cases and ‘‘cases involving

_ the validity or application of utility or carriers’ rates”’

were exempted from the Act’s separation of functions

requirements, the Committee stated:

There are, however, some instances of either. kind

of case which tend to be accusatory in-form and

involve sharply controverted factual issues, to

which agencies should not. apply the exceptions,

because they are not to be interpreted as preclud-

ing fair procedure where it is requred. [H.R.

Rep. No. 1980, 79th Cong., 2d Sess. 30 bie

(Emphasis added. y}

In accord with the intent of Congress, the courts

~ have not hesitated to require stricter procedures than

_ provided in the Administrative Procedure Act and

similar statutes where needed. for fairness. See, ¢.g.,-

“Wong Yang Sung v. McGrath, 339 U.S. 33 (1950) ;

Gonzales v. United States, 348 U.S. 407 (1955); Co-

lumbia Research Corp. v. Schaffer, 256 F. 2d 677 (2d .

Cir. 1958) ; Amos Treat & Co. v. SEC, 306 F. 2d 260.

(D.C. Cir. 1962); Sangamon Valley Television Corp.

v. United States, 269 F. 2d 221:(D.C.-Cir. 1959). In

the Sangamon Valley case, the court rejected the FCC

argument that ex parte communications were per-

_ missible because the proceeding was ‘‘rule making”

rather than ‘‘adjudication.” The court agreed in-

stead with the Department of J ustice, , which stated: in

its brief:

The ‘néed tn fairness cannot Sens on whether the

label ‘“‘quasi-legislative’’ or. ‘‘quasi-judicial’’ be

applied. The outcome of this proceeding, we em-

phasize, affected particular. interests in a con-

- erete, substantial way. ... From this it seems:

- clear that the Court’s task of ensuring that an

Oe a AS oe ote Fy tary hi dain hehe hesitinie

29 |

agency has acted ‘‘in accordance with the cher-

ished judicial tradition embodying the basic con-

cepts of fair play’’ (Morgan v. United States, 304 -

U.S. 1, 22) is not ended, or necessarily even aided,

by attaching one or the other label to the agency

proceeding under réview. What is important is

the substance of the proceeding and the nature of

the interests involved. [Bricf for . bani

States, p. 10.} al

In short, the proseriptions of the pie

Procedure Act” are not to be equated with due process.

This is expressly recognized in section 12 of the Act,

which declares that ‘‘nothing in this Act shall be held

to diminish the constitutional rights of any person

oe US.C. eS

21 Interestingly enough, the ‘nition relied upon the exemp- |

tion of rate-making from the separation of functions provision,

(section 5(c)) but in doing so, it ignored not only the formal

appearance of the Common Carrier Bureau as a party (J.A.

1337, Tr. 4-5, U.R. 547 (p. 6),.50-51), but also section 2(b) defining

““person’” as other than agencies, and ‘‘party’’ as ‘‘any person

. or agency\named or admitted as a party’? (5 U.S.C. § 1001(b)),

as well as section 12 which expressly provides: ‘‘Except as other-

wise required by law, all requirements or privileges relating to

evidence or procedure shall apply equally to agencies and persons,

- 5 USC. § 1011.

_ 22 Section 409 of the Communications Act of 1934 (47 U.S.C.

§ 409, App. 29a), as amended in 1952 to tighten ‘‘separation of

functions’’ provisions in FCC ‘‘adjudication’’ proceedings only

(as defined in the. Administrative Procedur@ Act), was not cited ©

below by the Commission or the court, but was a secondary point

of reliance by the Commission in American Tel. & Tel. Co., 2

F.C.C.2d 142, 145 (1965). Such statutory provision cannot

legalize any procedure of the Commission which constitutes denial

of due process in a.‘‘sharply controverted’’ rate case. The con-

stitutional guarantee of basic fairness is, of course, no more subject

to repeal or amendment by the Communications’ Act than by the

- Administrative Procedure Act. — 9

——————“—-

C. The Commission’s Procedures Are Unique Among Federal

Rate-Making Agencies, and Have Been. Uniformly

_ Criticized By Leading Authorities

Tt is significant that no other federal rate-making

agency functions as does the FCC. Before the Civil

Aeronautics Board and the Federal Power Commission,

the presiding hearing examiner normally prepares the

initial decision in formal rate cases. While the Inter-

state Commerce Commission normally omits the hear-

ing examiner’s initial decision in eases involving sus-

pension of proposed rates changes, it does not do so

in non-suspension rate cases where a hearing is held.

- Even in ICC suspension eases the presiding examiner

prepares for the Commission a draft of. a proposed .

decision. The staff counsel and other personnel of

‘each of those agencies who: participate in the hearing .

‘have no part in the preparation of. the initial or final

decisions, and are not permitted to consult ex parte

with the examiner or the agency members.”

In recognition of the basic defects in the FCC’s

-rate-making . procedures, leading study groups and

commentators have: generally condemned them. The

_ Federal Communications Bar “Association and the

American Bar Association’s Administrative Law See-

tion have filed presentations with the FCC criticizing

as unfair the Common Carrier Bureau’s participation

23See Starr Srupy,- ADMINISTRATIVE CONFERENCE OF THE

Unirep States, ProceDurREs FoR HANDLING RATE CASES IN THE

CAB 11, 13-14, 34-38, 45, 51-52, 53-56, 57-58 (1962) ; Starr Srupy,

ADMINISTRATIVE CONFERENCE OF THE UNITEp States, THE CoNDUCT ©

- OF Rate PRocEEDINGs IN THE FPC 32-33, 49, 52, 56-63 (1962) 4

Starr Stupy, ADMINISTRATIVE CONFERENCE OF THE UNITED STATES,

- THE Conpuer or RaTE PROCEEDINGS INTHE ICC 51-52, ) 66, 68-70 —

aie

My

——— ee

31

_ in the decisional process in rate-making proceedings.™

\The Administrative Conference of the United States

recommended that in administrative rate eases, ‘‘un-

less special réasons in the particular case require its

-omission, the’ presiding officer should prepare and .

publish a decision.’’ The Conference went on to récom-

_ mend ‘that ‘‘the agency’s. staff ... be required, as are

_ other parties, to produce its evidence and state its

position at an early point and be treated in all other

respects as a party.’’ In particular, ‘‘off-the-record

communications between the presiding examiner and

members of the agency’s staff who participate in the ©

= hearing should be governed by the same principles

3?

made applicable to outside participants . . Recom- -

mendation No. 19, S. Doc. No. 24, 88th Cong., 1st. Sess.

50, 51-52 (1963). (Emphasis added).*

‘ 24See FCC cian 15381; Comments of Federal ‘Communica-

tions Bar Association, pp. 5.6, June 11, 1964; Comments of the Fed- —

eral Communications Bar Association on Petition for Revtonsidera-

tion, p. 2, Oct. 6, 1965; Comments of the American Bar Asso-.

ciation Section on Administrative Law on Petition for Reconsid-:

eration, Mar. 18, 1966. See also 2 Davis, sh eames Law

TREATISE § 13.02 (Supp. 1965). : ;

25 The FCC has adverted to the Administrative iced rec-

ommendation, but ‘says that it has jnsufficient staff personnel to

function otherwise than in its present manner. This plea of

administrative economy is unavailing in light of the express re-

jection of the very same argument in Wong Yang Sung vy. McGrath,

339 U.S. 33, 46 (1950). See also United States v. Abilene & So.

Ry., 265 U.S. 274 (1924). Moreover, the FCC-is not itself unani-

mous in’ approval of its procedures. Commissioner Loevinger

vigorously opposes the path being followed by the Commission. See

American Tel. & Tel. Co., 2 F.C.C. 2d 142, 157 (1965), 2 F.C.C.

2d 877, 883 (1966) (dissenting opinions); Rules Governing Ex

Parte Communications in Hearing Proceedings, 1 F. C.C, 2d 49, 62

(1965) (dissenting haa .

PRB TS OAIEY

32

Cd

The Conference’s. Committee on Rulemaking pub-

lished a report in support of these recommendations in

which it observed that’ ‘‘the basic principle of fair-

ness which underlies separation-of-functions ideas is

. applicable to ex parte consultation with; participants

in rate proceedings,” and stated: | |

‘Discussions with staff members participating in

the case as. lawyers or witnesses should be kept on

the same basis as with cutside participants; that js,

the discussion should be limited to procedural or

other matters falling within the traditional -ex

-parte area or all the ne should be notified or

_ present.”

p

26S. Doc. No. 24, 88th Cong., Ist Sess. 105 (1963). - The Com- .

mittee Report also stated: ‘‘The basic reasons which s@pported

the emphasis in the Administrative Procedure Act on the role of

the hearing examiner in agency decisions remain important today.

Procedures which allow staff members to conduct ex parte inves-

- tigations, render tentative decisions, and then advise the agency

heads with respect to the final decision would tend to ‘be ariitrary

m fact as well as appearance. Use of the independent hearing

examiner protects against one-sided, biased, or arbitrary staff de-_

terminations and eliminates the appearance or ‘actuality of un-.

fairness. ”? Td. at 82. (apiphante added. )

if

e

33

CONCLUSION

For the foregoing reasons, this petition for writ of

certiorari actus be granted. i

Sesdebaly sated,

-<

Wuaiam E. MILLER,

Ritwarp P. Taytor,

' Ropert M. Goo.rick,

HERBERT E. Forres,

1250 Connecticut Avenue, N. W.,

Washington, D. C. 20036

JOHN E. STEPHEN,

Air Transport Association

Se of America,

' - 1000 Connecticut Avenue, N. W.,

Washington, D. C. 20036

Srepror & JOHNSON, DonALp C. BEELAR,

KIRKLAND, ELLIs, HODsON, - 800 World Center Building,

CuaFrerz & MASTERs,*— Washington, D: C. 20006,

. ARNOLD & PorTER, - - se

McKenna & Wiuxmson, - _ Harotb L. Russet,

~~ 825 Citizens & Southern .

; “Wemaiagton, 2:0... | i National Bank Building,

GAMBRELL, HARLAN, RUSSELL Atlanta, Georgia 30303

& Move

’ PavuL A. PORTER,

Atlanta, Georgia, * 1229 ee Street, N. W.,

Of Counsel Washington, D. C. 20036

JEREMIAH COURTNEY,

908 Twentieth Street, N. W.,

Washington, D. C. 20006

JOSEPH M. KITPNER, -

1705 DeSales Street, N. W.,

| Washington, D. C. 20036

Attorneys: oul Petitioners

“December 13, 1966.