MERRILL, Circuit Judge.
The orders here under review
The orders are here attacked as in excess of the Commission's authority as bestowed by § 14b of the Shipping Act of 1916, as amended 46 U.S.C. § 813a (Supp. V, 1964)
Petitioners are three of some sixty steamship conferences affected by The Dual Rate Cases and orders entered pursuant to that report. These conferences are rate-fixing associations of carriers, all of whom are engaged in the waterborne commerce of the United States and whose association is permitted by § 15 of the Shipping Act of 1916, as amended 46 U.S.C. § 814 (Supp. V, 1964), subject to approval of their agreements of association by the Federal Maritime Commission.
These proceedings involve those provisions of the several agreements of association which permit the fixing of "dual rates": the granting by a conference of preferential rates to shippers who have agreed with the conference to patronize it exclusively.
Prior to the enactment of the legislation with which we are here concerned the lawfulness of dual rate contracts had long been questioned as contrary to established antitrust policy. In 1958 the Supreme Court in Federal Maritime Board v. Isbrandtsen Co., 356 U.S. 481, 78 S.Ct. 851, 2 L.Ed.2d 926 (1958), had held such a contract to be in violation of § 14 Third of the Shipping Act of 1916, 39 Stat. 733 (1916), and had thus cast doubt on the validity of such arrangements. Congress sought to clarify and remedy the situation. After three years of study Public Law 87-346, 75 Stat. 762 (1961), was enacted October 3, 1961. Its declared purpose was "* * * to authorize ocean common carriers and conferences thereof serving the foreign commerce of the United States to enter into effective and fair dual rate contracts with shippers and consignees * * *." By § 3, interim validity of existing dual rate agreements was provided.
The meat of the Act was in what has become § 14b of the Shipping Act of 1916, as amended, 75 Stat. 762 (1961), 46 U.S.C. § 813a (Supp. V, 1964), which provides that the Federal Maritime Commission shall permit dual rate agreements,
The authority of the Commission to permit such contracts was limited by requiring that the contracts in eight specified respects meet the congressional judgment as to what they should include. Listed as specification Nine was the requirement that a contract shall contain "* * * such other provisions not inconsistent herewith as the Commission shall require or permit." Thus was imposed upon the Commission the task of reviewing and revising all agreements under which the conferences were operating with respect to dual rates.
The provisions for interim validity of existing dual rates contracts set forth a schedule for bringing those contracts into line with § 14b's requirements. The conferences, within six months, were to file with the Commission their proposals as to how their existing contracts should be amended to meet the new requirements. Thereafter the existing contracts as so amended should be valid for a further period of one year, during which period "the Commission shall approve, disapprove, cancel or modify all such agreements and amendments in accordance with the provisions of this Act." By subsequent enactment the time allowed the Commission (and the period of interim validity) was extended to April 3, 1964, 77 Stat. 5 (1963).
These petitioners duly submitted their proposed amendments to the Commission before expiration of the six-month period specified.
On March 21, 1962, the Commission gave notice by publication in the Federal Register, 27 Fed.Reg. 2647 (1962), that pursuant to the provisions of the Shipping Act it was considering the promulgation of certain rules and regulations governing the use of contract rate systems as authorized by § 14b.
On January 3, 1963, the Commission published in the Federal Register its "Notice of Proposed Final Rules and Uniform Agreement." Reciting its earlier notice the Commission stated:
There followed a proposed uniform contract for all conferences.
A storm of protest arose from the conferences over this proposed resort to a uniform contract. The conferences contended that the Commission's function under § 14b was to conduct individual hearings on the amendments as proposed by the individual conferences to determine whether those amendments conformed to the requirements of that section.
The Commission acceded to conference demands. On April 9, 1963, it entered its "Order of Investigation and Hearing" respecting Pacific Coast European Conference (typical of the orders respecting the individual conferences) for hearing before an examiner upon the amended contract as proposed by that conference.
On December 3, 1963, petitioners' examiner rendered his initial decision. Subject to certain specified modifications, and subject to the rulings in Docket 1111, he concluded that the proposed contract met the requirements of § 14b and was not detrimental to the commerce of the United States, contrary to the public interest or unjustly discriminatory or unfair and should be permitted in use in foreign commerce by the conference.
On March 27, 1964, the Commission handed down its report entitled The Dual Rate Cases, together with orders in petitioners' proceedings to the effect "that the agreement submitted to the Commission by the respondents in the above proceedings are hereby approved in the form attached to this order" and providing that the attached form of order should become effective April 4, 1964, "to the exclusion of any other terms and provisions." The report and order were served on petitioners on March 30, 1964.
The form of contract attached to the order was initiated by the Commission pursuant to the findings and conclusions of The Dual Rate Cases and was not the contract considered by the examiner in petitioners' proceedings. It contained provisions not specifically required by § 14b and not discussed in the hearings had upon petitioners' proposed contracts.
Petitioners assert that they were thus required, on four days' notice, to commit themselves by agreement to grant concessions to contract shippers above and beyond those called for by the Shipping Act, as to which there has been no hearing in their proceedings, and which in fact were, as to them, unnecessary and prejudicial to the point of unfairness.
Petitioners did not seek rehearing before the Commission pursuant to its Rule 16, 18 Fed.Reg. 3726 (1953), 46 C.F.R. § 201.261,
1. Petitioners contend that their rights under their outstanding contracts constituted property rights protected by the Fifth Amendment; that Congress through enactment of § 14b and the Commission by imposing a mandatory agreement upon the conference without their consent have deprived them of their right freely to contract about their business affairs. Specifically, petitioners contend that their contracts constitute property which the Commission is "taking" without due process.
It is obvious, however, that although in contract form, what the Congress and the Commission have imposed upon the conferences is simply regulation. The conferences have no right, constitutional
2. Petitioners contend that the Commission has not proceeded in accordance with § 14b. They point to the statutory provision that the Commission shall permit the use by a conference of any contract providing dual rates unless the Commission finds the contract to be detrimental to commerce or contrary to public interest or unjustly discriminatory or unfair. They assert that the Commission has not so found as to their proposed contract, and that the hearing examiner expressly found to the contrary. They contend that the congressional intent, disregarded by the Commission, was to authorize conferences to continue under their existing contracts without interruption, provided only that they be amended to the extent required.
But petitioners overlook § 14b's all-important proviso — "provided that the contract * * * expressly * * * (9) contains such other provisions not inconsistent herewith as the Commission shall require or permit."
There was thus plain authority in and direction to the Commission to give consideration to and to require agreement on other matters than those occurring to Congress.
As to deference owed to existing contracts, the Commission had made it plain from the outset that it regarded uniformity of contract, a counterbalancing consideration, as desirable in the public interest. Legislative history demonstrates that such was the view of Congress as well.
As to the Commission's method of consolidating hearings upon issues and of filing a consolidated report, we note that there were approximately sixty different conference contracts submitted for approval. In each, the issue was whether the contract contained the provisions required by the new Shipping Act. Under these circumstances it would have imposed an unusually heavy burden upon the Commission to require it to treat each contract individually despite the existence of common questions.
We conclude that the Commission's procedures were not contrary to § 14b.
3. Petitioners attack the procedure followed by the Commission as violative of the Administrative Procedure Act in certain respects. They make the following contentions:
(a) Neither the order nor the report The Dual Rate Cases contain findings, conclusions or reasons or basis for the Commission's decision, contrary to the requirements of § 8(b) of the Administrative Procedure Act, 5 U.S.C. § 1007(b) (1958).
(b) Under § 7(d) of the Administrative Procedure Act, 5 U.S.C. § 1006(d) (1958), the transcript of testimony and exhibits in petitioners' proceedings should have constituted the exclusive record for decision of the Commission. By including in its approved contract clauses other than those under consideration in petitioners' proceedings, the Commission has gone beyond this record.
These sections of the Administrative Procedure Act relate primarily to adjudicatory proceedings rather than rule making proceedings. It is clear that in promulgating The Dual Rate Cases the Commission was proceeding in the area of rule making.
"Rule" and "rule making" are defined as follows in § 2(c) of the Administrative Procedure Act, 5 U.S.C. § 1001(c) (1958):
Petitioners contend that § 14b did not permit the Commission to proceed by general rule; that it was required by the Shipping Act to proceed on a contract-by-contract basis. For the reasons already discussed we cannot agree.
It is apparent that in rule making hearings the purpose is to permit the agency to educate itself and not to allow interested parties to choose the issues or narrow the scope of the proceedings. The purpose of the notice is to allow interested parties to make useful comment and not to allow them to assert their "rights" to insist that the rule take a particular form. The agency, in rule making, can look beyond the particular hearing record since it otherwise would be unable to draw upon its expertise.
That § 7 and § 8 of the Administrative Procedure Act are not to apply to the rule making hearings required by § 14b of the Shipping Act is also clear from § 4(b) of the Administrative Procedure Act:
While § 14b does require "notice and hearing," still, it does not require that the rules for which it provides be made "on the record" after opportunity for agency hearing. The provisions of § 7 and § 8 of the Administrative Procedure Act, therefore, do not apply to the rule making provisions of § 14b of the Shipping Act.
Petitioners contend that the Commission, by ordering hearings on the individual contracts proposed by the conferences, abandoned its rule making approach and resorted instead to a series of adjudicatory proceedings upon the individual contracts under consideration; that the requirements of § 7 and § 8 of the Administrative Procedure Act should apply to those proceedings. They assert that when, on March 27, 1964, The Dual Rate Cases was handed down, the Commission thus, without notice, reverted to rule making, disregarding and abandoning in mid-stream their adjudicatory proceedings and the rights of the conferences which were there in issue.
In this we agree in part with petitioners.
As we view the situation, the Commission was faced with the choice of going
Although the proposed uniform contract, as published in January, 1963, was never formally withdrawn, still, by acceding to conference demands, and by entering its orders of April 9, 1963, for hearing before an examiner of petitioners proposed contracts, the Commission indicated that it had chosen to proceed not by general rule but by individual adjudicatory proceedings on the individual contracts. Petitioners could reasonably assume from this action that they were engaged in a hearing under § 7 and § 8 of the Administrative Procedure Act, with the issues limited to such matters as were there presented.
We do not agree with petitioners that the Commission thereafter was without power to revert to general rule and that its only alternative was to proceed under § 7 and § 8.
In our judgment, however, under the requirements of the Administrative Procedure Act, it could not revert to general rule without first giving a § 4(b) notice of its intention and opportunity to petitioners to participate in the making of rules in the manner set forth in § 4(b). This it has not done. The remedy, however, is not through judicial action to restore to the conferences their own form of contract, but rather to restore to the conferences their opportunity to participate.
We conclude that the order of the Commission must be set aside and that in any new order opportunity must be afforded petitioners to participate in rule making in such manner as the Commission may direct pursuant to § 4(b); such participation, however, to be limited to such clauses of the proposed contract as were not, in subject matter, dealt with in the hearings in petitioners' adjudicatory dockets or in Docket 1111.
This is not intended to suggest that notice was deficient only in its scope and that it must have encompassed the whole of the rule which ultimately emerged. We recognize that such is not the law. The deficiency here was in failure to give any notice whatsoever. It is the prejudice resulting from this failure which is limited, and which impels us to limit the scope of the participation to which petitioners are entitled upon remand. Petitioners have already, through the hearings which have been had, enjoyed to the fullest participation in the making of the resulting rule in the areas covered by those hearings.
We gather that this area in which petitioners have already participated covers the greater portion of the contract as approved by the Commission. As to that portion, the Commission is, of course, free forthwith to promulgate rules and establish the substance of approved contracts as to petitioners.
As to the contract of one of the petitioners, Latin America/Pacific Coast Steamship Conference (Docket No. 1092), a hearing was ordered by the Commission but the conference was not named as party to Docket 1111. What we have said, however, applies to this petitioner as well as to the rest. Since the Commission was proceeding in the area where rule making was not required to be made "on the record," the notice and hearing requirements of § 4(b) of the Administrative Procedure Act were met if the conference had notice, and an opportunity to present its views to the Commission in hearing of Docket 1111. This it clearly had.
Accordingly the orders under review are hereby set aside.
"The Commission has before it the approval, disapproval, modification or cancellation of the above amended exclusive patronage (dual rate) contract.
"THEREFORE, IT IS ORDERED, That pursuant to sections 14b and 22 of the Shipping Act, 1916, an investigation and hearing is hereby instituted to determine whether the form of said exclusive patronage (dual rate) contract meets the requirements of section 14b, will be detrimental to the commerce of the United States or contrary to the public interest, or unjustly discriminatory or unfair as between shippers, exporters, importers, or ports, or between exporters from the United States and their foreign competitors, and whether the use of said form of exclusive patronage (dual rate) contract should be permitted or said contract should be ordered modified in any respect whatsoever pursuant to section 14b."
"This broad rulemaking mandate [of § 9] should move the Commission, for example, to deal with three matters which the National Industrial Traffic League has urged upon us and upon the House Committee. While we would be strongly opposed to trying to freeze into legislation the solution to any of these three problems, they present matters which it seems to us the Commission is equipped to an [sic] should deal with under its rulemaking function." Index to Legislative History of the Steamship Conference/Dual Rate Law, S.Doc.No. 100, 87th Cong., 1st Sess. 213 (1962).
"It is the expectation of the committee that a standard form of contract to be utilized by all conferences will be approved by the Board [now Commission] with such riders as may be required to suit the needs of a particular trade. This will greatly simplify the problem of shippers, who, of necessity must be members of a number of conferences, with respect to interpretation and application of differing provisions." Senate Committee on Commerce, Index to the Legislative History of the Steamship Conference/Dual Rate Law, S.Doc.No. 100, 87th Cong., 1st Sess. 120 (1962).
This objective was further emphasized by the Antitrust Subcommittee of the Committee on the Judiciary which played a major role (see Index to the Legislative History of the Steamship Conference/Dual Rate Law, supra, 117) in the formulation of Public Law 87-346 when it subsequently said:
"The Federal Maritime Commission should establish minimal standards for dual-rate contracts beyond those set forth in Public Law 87-346 and should devise and publish a basic form contract to be used by all conferences." H.Rept. No. 1419, 87th Cong., 2d Sess., page 390 (1962).
Petitioners argue that the House Reports should be paid little heed because the House-passed bill was amended in certain regards in the Senate. These amendments, however, had no bearing upon the need for uniform contracts. If anything, they strengthened the statutory position of the Commission from what it had been under the House-drafted bill. Thus the report of the House managers of the bill, after the Senate-House conference, stated that:
"The House authorized the Commission to make rules and regulations necessary under specified sections of the act: the Senate amended by broadening the authority to include the entire act. The House receded from its position." Index to the Legislative History of the Steamship Conference/Dual Rate Law, supra, 445.