Monday, May 20, 2019

Motor Carrier Regulation and the Law, 1920-1955

[Longtime LHB readers will recall that for the exam in my legal history course at Georgetown Law i write an essay about some regulatory regime I did not cover in class and ask students to draw comparisons with those we did.  (Last year's, on meat inspection, is here, and earlier one on the US Commerce Court is here)  This year's essay, on the regulation of motor carriers, follows.  Dan Ernst.]

“Motor carriers unit gets underway” (LC)
“The story of transportation in the United States,” wrote David Lilienthal, who had studied with Felix Frankfurter at the Harvard Law School in the early 1920s, “has been marked by constant and almost bewildering changes in the facilities by which the movement of men and goods has been effected.”  In the early twentieth century, one of the most bewildering changes was the transformation of motor vehicles from a rich person’s plaything to a major competitor of railroads for the nation’s freight.  Already in 1920, the states had registered 1 million trucks; by 1929, the number was 3.7 million.  Railroads considered such motor carriers pests that threatened to consume their revenue, and they looked to government to bottle them up.

Until 1935, motor carrier regulation was the province of the states.  By the 1920s, most already had “public utility commissions” that regulated railroads; water, gas, and electric companies; and other “businesses affected with a public interest.”  Perhaps for that reason, as a scholar wrote, it was ‘but natural” that these commissions would regulate motor carriers as well.  Still, motor transport companies differed from railroads in important respects, including especially their much lower fixed costs. Trucks operated on publicly owned roads; railroads had to pay for their rights of way and lay their own tracks.  Also, trucks were much less expensive than locomotives and train cars.  Thus, barriers to entering the motor carrier industry were far lower than the railroad industry.  If the core mission of railroad regulation had been to ensure that railroads allocated their fixed costs to shippers fairly; the core mission of motor carrier regulation was to limit competition, thereby making, it was said, the transportation industry more stable and safe.

The foundation for motor carrier regulation was the “certificate of convenience and necessity,” issued by a commission not as a property interest but a revocable license to serve the public for a fixed period of time.  Commercial motor carriers could not operate without one.  To get one they had to show that the public needed their services and that they had the financial wherewithal to meet that need.  Motor carriers also had to abide by “tariffs” set by the commission.  These schedules fixed minimum, maximum or actual charges for the transport various classes of goods.  The commissions also issued a host of safety regulations and oversaw the mergers, issuance of securities, and other financial actions of regulated companies. Disputes could arise when commissions denied applicants certificates or revoked them for malfeasance, which were quasi-adjudicative acts.  They could also arise in rate-setting, a quasi-legislative act.

Commissions that denied applicants their certificates because they concluded that existing railroads and motor carriers did or could meet the needs they might well find themselves in court.  Court challenges that claimed legislatures had unconstitutionally delegated their power to commissions usually failed.  Courts typically upheld commissions when their organic acts simply empowered them to regulate railroads “and other transportation companies” without specifically mentioning motor carriers.  Courts sometimes treated “public convenience and necessity” a question of law for the judges to define, but most treated it as a factual matter, turning on many factors and committed to the broad discretion of the commission.  David Lilienthal, the Frankfurter protégé quoted above, said the question involved “a complex set of facts [calling] for the exercise of administrative and business judgment of the highest order.” It was “at bottom,” he wrote, “a question of public policy,” which legislature had resolved against “ruinous competition,” with its “uneconomic duplication of facilities” and “consequent economic waste.”

 Courts required commissions to give applicants a hearing and to make formal findings “sufficiently specific so as to enable the court to review it intelligently.”  They also required commissions to support those findings with the courts deemed proper evidence.  In the 1920s, courts varied considerably in how intrusively they reviewed the record before the commission.  Some settled for “substantial” evidence.  Others were even more deferential.  They would overturn commissions only “where there was no evidence at all to support the finding, where the procedural requirements imbedded in due process of law have not been observed, the plain provisions of the statute ignored, or the commission’s discretion abused.”  But some courts insisted on deciding for themselves which way the “weight of the evidence” lay.  Lilienthal noted that although the Illinois Supreme Court said it was not its job to “try the question anew and substitute its judgment for that of the commission,” it had repeatedly gone on to do just that, “carefully reviewing the details heard by the commission” and setting aside orders that protected railroads from the motor carriers’ competition.

Lilienthal, writing in 1927, had an explanation.  “The [Illinois] Supreme Court may feel that the work of the commission should be subjected to such close scrutiny because of its practice of rarely giving reasons for its orders.”  As a rule, the commission issued its orders without opinion.  “It becomes therefore well-nigh impossible for the court and the bar to comprehend upon what principles the commission is proceeding, or what it may do under a given set of circumstances.  An important corrective to arbitrary or ‘political’ decisions is thus eliminated.”

Just a few years later, the Great Depression arrived.  Shipping-by rail and by road-plummeted.  To straighten out the mess, Congress, at Franklin D. Roosevelt’s request, created the office of Federal Coordinator of Transportation on the last of the Hundred Days.  To that post FDR appointed Joseph B. Eastman, a Phi Beta Kappa graduate of Amherst, who had served on the ICC commissioner since 1918.  While serving, he declined lucrative offers of jobs in private industry on more than one occasion.  Justice Brandeis said Eastman had “more interest in the public service and less in his own career than any man I have ever known.”

Eastman needed two years to produce federal legislation to empower the ICC to regulate motor carriers as well as railroads.  The result, he declared, was neither “railroad-minded” nor “truck-minded” but “transportation-minded.”  Still, the motor carriers balked.  Eastman’s bill did direct the ICC to regulate motor carriers “in such manner as to recognize and preserve the inherent advantages of, and foster sound economic conditions in” the motor transport industry, but it also directed the ICC to “improve the relations between and coordinate transportation by … motor carriers and other carriers.”  As Eastman himself later acknowledged, the declaration of policy was so general that probably no court could void an ICC order as inconsistent with its terms.

The motor carriers only agreed to support the bill, enacted as the Motor Carrier Act of 1935, after winning the concession that its implementation would be entrusted to a new Bureau of Motor Carriers (BMC).  Instead of relying on the ICC’s existing staff, the BMC would have its own Sections of Accounting, Finance, and Tariff-Making with personnel recruited from the motor carrier industry and state commissions.  Many BMC personnel in fact had such backgrounds, but the bureau’s director was John L. Rogers, an ICC official shaped by many years within and regulating the railroad industry.  Rogers had been Eastman’s principal assistant in drafting the Motor Carrier Act, under which the ICC, not the BMC, issued all orders involving motor carriers.

 BMC had its own lawyers, housed in the Section of Law and Enforcement.  Eastman explained that other ICC bureaus had found it “highly desirable to have attorneys who specialize in the particular enforcement questions which arise” and thus thought that BMC should have some too.  He added, however, that BMC lawyers would not “have anything to do with the presentation of cases in court involving the constitutionality of the act or whether … we have departed from statutory provisions.”  The ICC’s Chief Counsel, who reported directly to the commissioners, would handle those matters himself.  The lawyer who headed the BMC’s legal section was Jack Garrett Scott, a 1921 graduate of the University of Denver Law School, who, with the help of his U.S. Senator, had earlier landed well-paying jobs at the National Recovery Administration.  At BMC his staff grew from 10 attorneys (in addition to himself) in 1935 to 48 by the end of 1939-all hired under the procedures of the U.S. Civil Service Commission.  “I do not how or from what sources we could have obtained lawyers who . . . would have done a better job than ours,” Scott claimed.  He thought they were “more representative” than the group he could have otherwise assembled.  After Pearl Harbor, Scott landed the plum job of general counsel for the Office of Defense Transportation (ODT), a war agency discussed below.  He left government in 1944 to become general counsel of the National Association of Motor Bus Operators, whose members were regulated by the BMC and the ODT.

As elsewhere in the ICC, the examiners who presided over BMC’s hearings were organized into their own “Section of Complaints” and did not fraternize with Scott’s lawyers.  (The hearing examiners had their own annual banquets, which they called “growls.”)  Although the procedures in their hearings did not perfectly track those of the common-law courts they followed them more closely than did those of other agencies.  Thus, although an ICC attorney was almost apologetic about the occasional admission of hearsay evidence, he also noted that the motor carriers’ lawyers could make opening statements, file preliminary motions, cross-examine witnesses, and generally had great latitude in making their cases.  “In the vast majority of cases,” an industry lawyer observed, the parties accepted the administrative findings as final.  Only a “very small fraction . . . ever reach the courts.”

Eastman himself fretted that the proceedings under the Motor Carriers Act might “become too formal and abused by our friends, the lawyers, so that it will result in aggravating and unwholesome delays.”  That is just what a member of the research staff of the Attorney General’s Committee on Administrative Procedure concluded had happened after he observed the hearings at which the ICC produced the record upon which its rate tariffs would be based.  “The pattern followed is that of the court room,” he complained.  “The Commission apparently has not discovered-or has rejected-the advantages that flow” from legislative investigations.   “Anyone may file an appearance and become a party and all parties have practically unlimited right of cross-examination,” even though “the determination of the proper rate level is not a matter which lends itself to strict judicial methods.”

In December 1941, Eastman was named Director of a new Office of Defense Transportation (ODT).  “I suppose we are ‘bureaucrats,’” Eastman mused, but if so ODT staff were also “men of extensive practical experience in transportation” with no other motive than to help win the war.  Lawyers did not doubt their good intentions, but they also observed that the agency’s new system of “war necessity” certificates put their clients “under the thumb of the ODT.”  Motor carriers and their clients tended to agree.  When customers complained that taxi companies were suspending their service after the morning rush hour, the drivers replied that they couldn’t help it: “the ODT has cut us down.”  Truckers complained that ODT took too long to issue certificates of war necessity and excessively restricted their mileage.  An ODT official replied, “We’re not trying to put anyone out of business, but we do want to weed out inefficient and wasted mileage which has no place in the war effort.”  If truckers cared to dispute their allotments, he added, “we’ll get to their appeals right away.”

Eastman addressed these concerns in one of his last public addresses.  (He died of overwork in March 1944.)  In its general outlook, if not in all its particulars, the editors of the ABA Journal claimed, his speech was “in accord with the spirit and objectives of the American Bar Association’s proposed bill for improving administrative procedures.”  Eastman declared that administrative tribunals like the ICC and ODT had to be free of the “political domination” that he had ruined some commissions.  Judges ought not “to substitute their own judgment on the facts for the judgment of administrative tribunals,” but they also should not defer too much.  In particular, they should insist that administrators back up their findings with “substantial evidence.”  Further, administrators needed to provide a “full hearing and argument of the issues”-although the hearing need not be an oral one.  And although the commission was a tribunal, it had a broader, “administrative” mission that meant it could not wait for private parties to initiate proceedings and to depend on them to gather all pertinent facts.  Rather, it should act on its own initiative.  Presiding officials need not be “technical experts”; they just had to be able to “comprehend facts quickly and to consider them in their relation to the law logically and with an open mind.  Zealots, evangelists and crusader have their value before an administrative tribunal,” Eastman concluded, “but not on it.”

When the war ended, ODT was dismantled and the ICC regained its suzerainty over rail and road transportation.  But, at least according to one political scientist in 1952, the post-Eastman ICC was a fallen idol.  Its appropriations were down; its reversal rate in appeals to the courts were up; and its “leadership and staff [had] manifestly deteriorated in quality.”  He attributed the ICC’s fall to its failure to keep up with a changing political environment and to assemble a new coalition of interests that would save it from becoming just the railroads’ servant.  For example, after the war, the ICC had alienated motor carriers by dissolving the BMC’s Accounts and Finance Sections and transferring their personnel to the ICC’s own counterparts.  No longer did the commissioners have to rely on BMC reports in deciding to issue a rate tariff or other order.  Truckers who had once thought the ICC did more good than harm were now demanding that it be broken up.

Prompts.  Four prompts followed.  They asked students (1) to discuss judicial review of PUC and BMC orders; (2) to state whether, based on the note they read on his "Form and Limits of Adjudication," Lon Fuller would have agreed with the researcher for the Attorney General Committee on Administrative Procedure; (3) to compare popular and lawyerly criticism of the ODT and the OPA; and (4) to compare the place and fate of the BMC within the ICC with that of the AAA within USDA during Jerome Frank's time as general counsel.

Sources. For overviews, I consulted Merle Fainsold, Lincoln Gordon and Joseph C. Palamountain, Jr., Government and the American Economy, 3d ed. (1959) and Morton Keller, Regulating a New Economy (1990).  The quotations attributed in the exam solely to David E. Lilienthal were in fact from a series of articles Lilienthal jointly authored with Irwin S. Rosenbaum.  I omitted Rosenbaum in part to simplify the exam and in part because I could find out nothing about him in the brief time I had to write it.  Other source for generalizations about judicial review of PUC decisions weer the summaries in Decennial Digests and some mid-century treatises on the law of motor carriers.

Mohundro's Notes on Motor Carrier Act, 1935, a bound set of teaching materials assembled by Otis Lee Mohundro for his course at the National University Law School proved to be an extensive and useful source book on the Motor Carrier’s Act and the early stages of its implementation.  I supplemented it with the Annual Reports of the ICC; volume 4 of I. L. Sharfman’s Interstate Commerce Commission; the Attorney General's Committee on Administrative Procedure's research monograph devoted to the ICC; Herman F. Miller, “Practice before the Interstate Commerce Commission” John Marshall Law Quarterly 6 (1940): 235-43 and Samuel P. Huntington’s famous article, “The Marasmus of the ICC; The Commission, the Railroads, and the Public Interests,” Yale Law Journal 61 (1952): 467-508.  Jack Garrett Scott wrote approvingly of hiring lawyers through the Civil Service Commission in a letter to the President’s Committee on Civil Service Improvement, dated December 11, 1939, appearing the Report 150 of the PCCSI on reel 110 of the Library of Congress’s holdings of the Felix Frankfurter Papers.

Newspaper reportage on the ODT is Taxicab Closing Brings Complaints, Fort Myers News-Press, May 6, 1943, and an article in the St. Louis Post-Dispatch, December 3, 1942.  The lawyer who griped about his clients being under ODT’s thumb was Ivan Irwin, in an address before the Bar Association of Dallas, December 5, 1942, published in The Dallas Bar Speaks 286-295.  The ABA opines approvingly on one of Eastman’s thoughts on administrative procedure in “A ‘Credo’ as to the Judicial Function of Administrative Tribunals,” ABAJ 30 (May 1944); 266-67.  Eastman’s speech also appears in a volume of his collected works.

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