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SCOTT PAPER CO. v. UNITED STATES

March 8, 1974

SCOTT PAPER COMPANY and International Paper Company, Plaintiffs, Terminal Railway Alabama State Docks, Plaintiff-Intervenor,
v.
UNITED STATES of America and Interstate Commerce Commission, Defendants, Southern Railway Company et al., Defendant Intervenors



The opinion of the court was delivered by: BRODERICK

This is an action under the provisions of 28 U.S.C. §§ 1336, 1398, 2284 and 2321-2325 and 5 U.S.C. §§ 701-706, to set aside, annul and permanently enjoin and to remand for further proceedings free of error of law an Order of the Interstate Commerce Commission dated August 2, 1972 entered in Docket No. 35225 International Paper Company and Scott Paper Company v. The Akron, Canton and Youngstown Railroad Company, et al.

In the complaint filed December 31, 1969 with the Interstate Commerce Commission, Scott Paper Company (Scott) and International Paper Company (International) alleged, inter alia, *fn1" that the failure of the defendant railroads *fn2" to absorb the full amount of the switching charges of the Terminal Railway Alabama State Docks *fn3" (Terminal Railway) on movements of pulpwood and wood chips *fn4" inbound to Scott and International at Mobile, Alabama resulted in an unjust and unreasonable charge and practice in violation of Sections 1(5) *fn5" and 1(6) *fn6" of the Interstate Commerce Act. *fn7" The complaint sought a cease and desist order, the establishment of rates and charges absorbing in toto the switching charges, and the award of reparations for the alleged excess previously collected.

On January 18, 19 and 20, 1971 a hearing was held before an Interstate Commerce Commission (Commission) Hearing Examiner. After the filing of briefs by the various parties, the Examiner's report and recommended order, dated July 30, 1971, was issued. The Examiner found that Scott and International had failed to show that the railroads' refusal to absorb the full amount of the switching charges of Terminal Railway resulted in an unjust and unreasonable charge or practice in violation of Section 1(5) and 1(6) of the Act, and recommended the dismissal of the complaint.

 Scott and International filed exceptions to the report and recommended order, and on August 2, 1972, Review Board Number 4 of the Commission issued an order overruling the exceptions, adopting as its own, with some modifications, the statements of facts, conclusions and findings contained in the Examiner's report and recommended order, and dismissed the complaint. On September 8, 1972 Scott and International filed a petition for reconsideration of the August 2, 1972 order of Review Board Number 4, and this was denied by Division 2 of the Commission, acting as an Appellate Division, by order of November 22, 1972. A subsequent joint petition by Scott and International seeking a review by the entire Commission on the basis that the proceeding involved an issue of general transportation importance was denied by the Commission on January 24, 1973.

 The complaint before us was filed by Scott and International on March 22, 1973, seeking to enjoin, annul and set aside the August 2, 1972 order of the Commission and seeking a remand of this case to the Commission for further proceedings free of error of law. Scott and International also requested the convening of a three-judge court pursuant to 28 U.S.C. §§ 2284 and 2325. On April 9, 1973 Chief Judge Collins J. Seitz convened a three-judge court pursuant to 28 U.S.C. §§ 2284. On May 29, 1973 the Court granted the motion of the four line-haul railroads to intervene as defendants in this action. *fn8" Terminal Railway filed a motion to intervene as a plaintiff in this proceeding on October 5, 1973, which was granted by the Court on October 31, 1973. This matter was heard before the three-judge panel on February 4, 1974.

 Prior to January 28, 1964, except for a five-week period commencing on July 1, 1963, all the switching charges of Terminal Railway, amounting to $ 7.14 per car, were fully absorbed by the line-haul carriers. Effective January 28, 1964, Terminal Railway increased its charge from $ 7.14 to $ 10.71 per car for switching pulpwood and wood chips in large sized cars. On November 29, 1969 the switching charge for all cars carrying pulpwood and wood chips was further increased to $ 11.35 per car. The line-haul carriers did not increase the amount of absorption beyond the sum of $ 7.14 per car, so that there remains an unabsorbed charge of $ 4.21 per car in connection with pulpwood and wood chips delivered to Scott International chips delivered to Scott and International

 The record shows that there are some 66 paper mills located in the area south of the Ohio and Potomac Rivers and on and east of the Mississippi River (Alabama (13), Florida (9), Georgia (12), Kentucky (2), Louisiana (3), Mississippi (4), North Carolina (7), South Carolina (5), Tennessee (5) and Virginia (6)). The paper industry in this region (the South) is a major one, and approximately 500,000 carloads of pulpwood and wood chips are shipped to paper mills therein annually, under tariff schedules known as the 'Modified Roanoke Rapids Scale.' Since 1957 this rate has been applied uniformly throughout the South by all major railroads for both interstate and intrastate traffic.

 Scott and International offered evidence at the Commission hearing that the physical terminal switching operations provided on pulpwood and wood chips by Terminal Railway are similar to those provided by the four line-haul carriers to ten other paper mills in the South. There are no switching charges published or involved at four of these locations since the plants at these four places are served only by a line-haul carrier on a direct basis. Switching charges are published at the remaining six locations by such carriers when switching for other railroads, and these switching charges range from $ 5.67 per car to $ 11.41 per car and are fully absorbed by the line-haul carriers. The number of pulpwood and wood chip cars handled at these six locations is substantially less than the number of cars handled for Scott and International at Mobile.

 The Hearing Examiner found that the failure of the line-haul carriers to absorb the total switching charge on pulpwood and wood chips moving to Scott and International at Mobile was not an unreasonable practice in violation of Section 1(6) of the Act when compared with the absorption practices in the South. He based this conclusion on two grounds. First, he said that a finding of an unjust discrimination or undue preference was a prerequisite to the finding of a violation of Section 1(6) of the Act and concluded that Scott and International failed to prove either unjust discrimination or undue preference. Second, he found that Scott and International had failed to produce sufficient evidence from which a probative comparison could be made as to whether their traffic in pulpwood and wood chips delivered to their plants at Mobile moves in 'like' manner with all other pulpwood and wood chips in the South. Finally, the Hearing Examiner concluded that the total amount of the charges, line-haul plus switching, was not unreasonable in violation of Section 1(5) of the Act merely because it exceeded the level prevailing under the Modified Roanoke Rapids Scale of Rates because the Scale of Rates was not at its maximum level of reasonableness and there was no evidence in the record upon which he could base a finding that the addition of the small amount of $ 4.21 per car of unabsorbed switching charges would result in rates which exceeded the maximum level of reasonable charges.

 Scott and International contend that the order of the Commission of August 2, 1972, which adopted 'as our own' the findings, recommendations and conclusions of the Hearing Examiner, with minor modifications, must be set aside for four reasons. First, they claim that it was legal error to hold that 'in the absence of unjust discrimination or undue prejudice the Commission cannot require a line-haul carrier to absorb a connecting line's switching charges' under Section 1(6) of the Act. Second, they claim that they made out a prima facie case in support of their contention that the unabsorbed switching charge was unreasonable in violation of Section 1(6) of the Act, and that it was legal error and an unexplained and unjustified departure from long-established Commission doctrine to find that they had not offered 'sufficient evidence from which a probative comparison could be made as to whether their traffic in wood and chips moved at the assailed rates in 'like' manner with all other traffic' moving in the South. Third, Scott and International claim that the Commission, by adopting the finding of the Hearing Examiner that the total amount of the charge was not unreasonable in violation of Section 1(5) of the Act, made an unjustified and unexplained departure from its long-established doctrine that the best test of the reasonableness of a rate is a comparison of the assailed rate with other rates in effect on like traffic moving in the same general territory. Fourth, and finally, Scott and International claim it was error to deny their offer of rebuttal evidence, through an expert witness, to show that the Modified Roanoke Rapids Scale was highly profitable to the line-haul carriers.

 SCOPE OF REVIEW

 The scope of the Court's review of decisions of an administrative agency of the United States such as the Interstate Commerce Commission is expressly set forth in 5 U.S.C. § 706, which provides in pertinent part:

 To the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action. The reviewing court shall --

 (2) hold unlawful and set aside agency action, findings and conclusions found to be --

 (A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; . . .

 (E) unsupported by substantial evidence . . . In making the foregoing determinations, the Court shall review the whole record or those parts of it cited by a party, and due account ...


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