East Tennessee, Virginia & Georgia Railway Co. v. Interstate Commerce Commission

Background

Freight from the Atlantic seaboard to interior points moved under two different rate systems: a lower “northern” or trunk-line system and a generally higher “southern” system. The Louisville and Nashville Railroad offered an unusually low rate to Nashville, which forced southern carriers through Chattanooga either to match that low Nashville rate or lose business. Shippers in Chattanooga complained to the federal regulator (the commission), which found a violation of the long-and-short-haul rule and ordered carriers to stop charging more to Chattanooga, the shorter haul, than to Nashville, the longer one.

Reasoning

The key question was whether competition created by other regulated carriers could itself justify charging a lower rate for the longer haul without the regulator’s prior approval. The Court concluded the commission misread the statute: when real, substantial competition affects rates, that competition can produce the “dissimilar circumstances” allowing carriers, on their own motion, to charge a lower rate for the longer haul. Because the commission applied the wrong legal rule, the Court reversed the commission’s order, instructed the lower courts to set aside their enforcement decree, and sent the case back so the commission can reassess the matter under the correct legal standard.

Real world impact

The ruling lets rail carriers consider destination competition when setting rates and requires the regulator to reexamine the facts rather than bar carriers from doing so. The decision is not a final setting of Chattanooga’s rates; it sends the matter back for further agency review.

Dissents or concurrances

Mr. Justice Harlan dissented, as noted in the opinion, but the opinion does not elaborate his reasoning.