United States v. Florida East Coast Railway Co.
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Full Opinion
UNITED STATES ET AL.
v.
FLORIDA EAST COAST RAILWAY CO. ET AL.
Supreme Court of United States.
Samuel Huntington argued the cause for the United States et al. With him on the briefs were Solicitor General Griswold, Assistant Attorney General Kauper, Fritz R. Kahn, and Leonard S. Goodman.
A. Alvis Layne argued the cause for appellee Florida East Coast Railway Co. With him on the brief was *225 Walter G. Arnold. Richard A. Hollander argued the cause and filed a brief for appellee Seaboard Coast Line Railroad Co.
MR. JUSTICE REHNQUIST delivered the opinion of the Court.
Appellees, two railroad companies, brought this action in the District Court for the Middle District of Florida to set aside the incentive per diem rates established by appellant Interstate Commerce Commission in a rulemaking proceeding. Incentive Per Diem Chargesย1968, Ex parte No. 252 (Sub-No. 1), 337 I. C. C. 217 (1970). They challenged the order of the Commission on both substantive and procedural grounds. The District Court sustained appellees' position that the Commission had failed to comply with the applicable provisions of the Administrative Procedure Act, 5 U. S. C. ยง 551 et seq., and therefore set aside the order without dealing with the railroads' other contentions. The District Court held that the language of ยง 1 (14) (a)[1] of the Interstate Commerce *226 Act, 24 Stat. 379, as amended, 49 U. S. C. ยง 1 (14) (a), required the Commission in a proceeding such as this to act in accordance with the Administrative Procedure Act, 5 U. S. C. ยง 556 (d), and that the Commission's determination to receive submissions from the appellees only in written form was a violation of that section because the appellees were "prejudiced" by that determination within the meaning of that section.
Following our decision last Term in United States v. Allegheny-Ludlum Steel Corp., 406 U. S. 742 (1972), we noted probable jurisdiction, 407 U. S. 908 (1972), and requested the parties to brief the question of whether the Commission's proceeding was governed by 5 U. S. C. ยง 553,[2]*227 or by ยงยง 556[3] and 557,[4] of the Administrative Procedure Act. We here decide that the Commission's proceeding was governed only by ยง 553 of that Act, *228 and that appellees received the "hearing" required by ยง 1 (14) (a) of the Interstate Commerce Act. We, therefore, reverse the judgment of the District Court and *229 remand the case to that court for further consideration of appellees' other contentions that were raised there, but which we do not decide.
*230 I. BACKGROUND OF CHRONIC FREIGHT CAR SHORTAGES
This case arises from the factual background of a chronic freight-car shortage on the Nation's railroads, which we described in United States v. Allegheny-Ludlum Steel Corp., supra. Judge Simpson, writing for the District Court in this case, noted that "[f]or a number of years portions of the nation have been plagued with seasonal shortages of freight cars in which to ship goods." 322 F. Supp. 725, 726 (MD Fla. 1971). Judge Friendly, writing for a three-judge District Court in the Eastern District of New York in the related case of Long Island R. Co. v. United States, 318 F. Supp. 490, 491 (EDNY 1970), described the Commission's order as "the latest chapter in a long history of freight-car shortages in certain regions and seasons and of attempts to ease them." Congressional concern for the problem was manifested in the enactment in 1966 of an amendment to ยง 1 (14) (a) of the Interstate Commerce Act, enlarging the Commission's authority to prescribe per diem charges for the use by one railroad of freight cars owned by another. Pub. L. 89-430, 80 Stat. 168. The Senate *231 Committee on Commerce stated in its report accompanying this legislation:
"Car shortages, which once were confined to the Midwest during harvest seasons, have become increasingly more frequent, more severe, and nation-wide in scope as the national freight car supply has plummeted." S. Rep. No. 386, 89th Cong., 1st Sess., 1-2.
The Commission in 1966 commenced an investigation, Ex parte No. 252, Incentive Per Diem Charges, "to determine whether information presently available warranted the establishment of an incentive element increase, on an interim basis, to apply pending further study and investigation." 332 I. C. C. 11, 12 (1967). Statements of position were received from the Commission staff and a number of railroads. Hearings were conducted at which witnesses were examined. In October 1967, the Commission rendered a decision discontinuing the earlier proceeding, but announcing a program of further investigation into the general subject.
In December 1967, the Commission initiated the rulemaking procedure giving rise to the order that appellees here challenge. It directed Class I and Class II line-haul railroads to compile and report detailed information with respect to freight-car demand and supply at numerous sample stations for selected days of the week during 12 four-week periods, beginning January 29, 1968.
Some of the affected railroads voiced questions about the proposed study or requested modification in the study procedures outlined by the Commission in its notice of proposed rulemaking. In response to petitions setting forth these carriers' views, the Commission staff held an informal conference in April 1968, at which the objections and proposed modifications were discussed. *232 Twenty railroads, including appellee Seaboard, were represented at this conference, at which the Commission's staff sought to answer questions about reporting methods to accommodate individual circumstances of particular railroads. The conference adjourned on a note that undoubtedly left the impression that hearings would be held at some future date. A detailed report of the conference was sent to all parties to the proceeding before the Commission.
The results of the information thus collected were analyzed and presented to Congress by the Commission during a hearing before the Subcommittee on Surface Transportation of the Senate Committee on Commerce in May 1969. Members of the Subcommittee expressed dissatisfaction with the Commission's slow pace in exercising the authority that had been conferred upon it by the 1966 Amendments to the Interstate Commerce Act. Judge Simpson in his opinion for the District Court said:
"Members of the Senate Subcommittee on Surface Transportation expressed considerable dissatisfaction with the Commission's apparent inability to take effective steps toward eliminating the national shortage of freight cars. Comments were general that the Commission was conducting too many hearings and taking too little action. Senators pressed for more action and less talk, but Commission counsel expressed doubt respecting the Commission's statutory power to act without additional hearings." 322 F. Supp., at 727.
Judge Friendly, describing the same event in Long Island R. Co. v. United States, supra, said:
"To say that the presentation was not received with enthusiasm would be a considerable under-statement. Senators voiced displeasure at the Commission's *233 long delay at taking action under the 1966 amendment, engaged in some merriment over what was regarded as an unintelligible discussion of methodology . . . and expressed doubt about the need for a hearing . . . . But the Commission's general counsel insisted that a hearing was needed . . . and the Chairman of the Commission agreed . . . ." 318 F. Supp., at 494.
The Commission, now apparently imbued with a new sense of mission, issued in December 1969 an interim report announcing its tentative decision to adopt incentive per diem charges on standard boxcars based on the information compiled by the railroads. The substantive decision reached by the Commission was that so-called "incentive" per diem charges should be paid by any railroad using on its lines a standard boxcar owned by another railroad. Before the enactment of the 1966 amendment to the Interstate Commerce Act, it was generally thought that the Commission's authority to fix per diem payments for freight car use was limited to setting an amount that reflected fair return on investment for the owning railroad, without any regard being had for the desirability of prompt return to the owning line or for the encouragement of additional purchases of freight cars by the railroads as a method of investing capital. The Commission concluded, however, that in view of the 1966 amendment it could impose additional "incentive" per diem charges to spur prompt return of existing cars and to make acquisition of new cars financially attractive to the railroads. It did so by means of a proposed schedule that established such charges on an across-the-board basis for all common carriers by railroads subject to the Interstate Commerce Act. Embodied in the report was a proposed rule adopting the Commission's tentative conclusions and a notice *234 to the railroads to file statements of position within 60 days, couched in the following language:
"That verified statements of facts, briefs, and statements of position respecting the tentative conclusions reached in the said interim report, the rules and regulations proposed in the appendix to this order, and any other pertinent matter, are hereby invited to be submitted pursuant to the filing schedule set forth below by an interested person whether or not such person is already a party to this proceeding.
.....
"That any party requesting oral hearing shall set forth with specificity the need therefor and the evidence to be adduced." 337 I. C. C. 183, 213.
Both appellee railroads filed statements objecting to the Commission's proposal and requesting an oral hearing, as did numerous other railroads. In April 1970, the Commission, without having held further "hearings," issued a supplemental report making some modifications in the tentative conclusions earlier reached, but overruling in toto the requests of appellees.
The District Court held that in so doing the Commission violated ยง 556 (d) of the Administrative Procedure Act, and it was on this basis that it set aside the order of the Commission.
II. APPLICABILITY OF ADMINISTRATIVE PROCEDURE ACT
In United States v. Allegheny-Ludlum Steel Corp., supra, we held that the language of ยง 1 (14) (a) of the Interstate Commerce Act authorizing the Commission to act "after hearing" was not the equivalent of a requirement that a rule be made "on the record after opportunity for an agency hearing" as the latter term is used in ยง 553 (c) of the Administrative Procedure Act. Since the 1966 amendment to ยง 1 (14) (a), under which *235 the Commission was here proceeding, does not by its terms add to the hearing requirement contained in the earlier language, the same result should obtain here unless that amendment contains language that is tantamount to such a requirement. Appellees contend that such language is found in the provisions of that Act requiring that:
"[T]he Commission shall give consideration to the national level of ownership of such type of freight car and to other factors affecting the adequacy of the national freight car supply, and shall, on the basis of such consideration, determine whether compensation should be computed . . . ."
While this language is undoubtedly a mandate to the Commission to consider the factors there set forth in reaching any conclusion as to imposition of per diem incentive charges, it adds to the hearing requirements of the section neither expressly nor by implication. We know of no reason to think that an administrative agency in reaching a decision cannot accord consideration to factors such as those set forth in the 1966 amendment by means other than a trial-type hearing or the presentation of oral argument by the affected parties. Congress by that amendment specified necessary components of the ultimate decision, but it did not specify the method by which the Commission should acquire information about those components.[5]
*236 Both of the district courts that reviewed this order of the Commission concluded that its proceedings were governed by the stricter requirements of ยงยง 556 and 557 of the Administrative Procedure Act, rather than by the provisions of ยง 553 alone.[6] The conclusion of the District Court for the Middle District of Florida, which we here review, was based on the assumption that the language in ยง 1 (14) (a) of the Interstate Commerce Act requiring rulemaking under that section to be done "after hearing" was the equivalent of a statutory requirement that the rule "be made on the record after opportunity for an agency hearing." Such an assumption *237 is inconsistent with our decision in Allegheny-Ludlum, supra.
The District Court for the Eastern District of New York reached the same conclusion by a somewhat different line of reasoning. That court felt that because ยง 1 (14) (a) of the Interstate Commerce Act had required a "hearing," and because that section was originally enacted in 1917, Congress was probably thinking in terms of a "hearing" such as that described in the opinion of this Court in the roughly contemporaneous case of ICC v. Louisville & Nashville R. Co., 227 U. S. 88, 93 (1913). The ingredients of the "hearing" were there said to be that "[a]ll parties must be fully apprised of the evidence submitted or to be considered, and must be given opportunity to cross-examine witnesses, to inspect documents and to offer evidence in explanation or rebuttal." Combining this view of congressional understanding of the term "hearing" with comments by the Chairman of the Commission at the time of the adoption of the 1966 legislation regarding the necessity for "hearings," that court concluded that Congress had, in effect, required that these proceedings be "on the record after opportunity for an agency hearing" within the meaning of ยง 553 (c) of the Administrative Procedure Act.
Insofar as this conclusion is grounded on the belief that the language "after hearing" of ยง 1 (14) (a), without more, would trigger the applicability of ยงยง 556 and 557, it, too, is contrary to our decision in Allegheny-Ludlum, supra. The District Court observed that it was "rather hard to believe that the last sentence of ยง 553 (c) was directed only to the few legislative sports where the words `on the record' or their equivalent had found their way into the statute book." 318 F. Supp., at 496. This is, however, the language which Congress used, and since there are statutes on the books that do use these *238 very words, see, e. g., the Fulbright Amendment to the Walsh-Healey Act, 41 U. S. C. ยง 43a, and 21 U. S. C. ยง 371 (e) (3), the regulations provision of the Food and Drug Act, adherence to that language cannot be said to render the provision nugatory or ineffectual. We recognized in Allegheny-Ludlum that the actual words "on the record" and "after . . . hearing" used in ยง 553 were not words of art, and that other statutory language having the same meaning could trigger the provisions of ยงยง 556 and 557 in rulemaking proceedings. But we adhere to our conclusion, expressed in that case, that the phrase "after hearing" in ยง 1 (14) (a) of the Interstate Commerce Act does not have such an effect.
III. "HEARING" REQUIREMENT OF ยง 1 (14) (a) OF THE INTERSTATE COMMERCE ACT
Inextricably intertwined with the hearing requirement of the Administrative Procedure Act in this case is the meaning to be given to the language "after hearing" in ยง 1 (14) (a) of the Interstate Commerce Act. Appellees, both here and in the court below, contend that the Commission procedure here fell short of that mandated by the "hearing" requirement of ยง 1 (14) (a), even though it may have satisfied ยง 553 of the Administrative Procedure Act. The Administrative Procedure Act states that none of its provisions "limit or repeal additional requirements imposed by statute or otherwise recognized by law." 5 U. S. C. ยง 559. Thus, even though the Commission was not required to comply with ยงยง 556 and 557 of that Act, it was required to accord the "hearing" specified in ยง 1 (14) (a) of the Interstate Commerce Act. Though the District Court did not pass on this contention, it is so closely related to the claim based on the Administrative Procedure Act that we proceed to decide it now.
*239 If we were to agree with the reasoning of the District Court for the Eastern District of New York with respect to the type of hearing required by the Interstate Commerce Act, the Commission's action might well violate those requirements, even though it was consistent with the requirements of the Administrative Procedure Act.
The term "hearing" in its legal context undoubtedly has a host of meanings.[7] Its meaning undoubtedly will vary, depending on whether it is used in the context of a rulemaking-type proceeding or in the context of a proceeding devoted to the adjudication of particular disputed facts. It is by no means apparent what the drafters of the Esch Car Service Act of 1917, 40 Stat. 101, which became the first part of ยง 1 (14) (a) of the Interstate Commerce Act, meant by the term. Such an intent would surely be an ephemeral one if, indeed, Congress in 1917 had in mind anything more specific than the language it actually used, for none of the parties refer to any legislative history that would shed light on the intended meaning of the words "after hearing." What is apparent, though, is that the term was used in granting authority to the Commission to make rules and regulations of a prospective nature.
Appellees refer us to testimony of the Chairman of the Commission to the effect that if the added authority ultimately contained in the 1966 amendment were enacted, the Commission would proceed with "great caution" in imposing incentive per diem rates, and to statements of both Commission personnel and Members of Congress as to the necessity for a "hearing" before Commission action. Certainly, the lapse of time of more than three years between the enactment of the 1966 amendment and the Commission's issuance of its tentative *240 conclusions cannot be said to evidence any lack of caution on the part of that body. Nor do generalized references to the necessity for a hearing advance our inquiry, since the statute by its terms requires a "hearing"; the more precise inquiry of whether the hearing requirements necessarily include submission of oral testimony, cross-examination, or oral arguments is not resolved by such comments as these.
Under these circumstances, confronted with a grant of substantive authority made after the Administrative Procedure Act was enacted,[8] we think that reference to that Act, in which Congress devoted itself exclusively to questions such as the nature and scope of hearings, is a satisfactory basis for determining what is meant by the term "hearing" used in another statute. Turning to that Act, we are convinced that the term "hearing" as used therein does not necessarily embrace either the right to present evidence orally and to cross-examine opposing witnesses, or the right to present oral argument to the agency's decisionmaker.
Section 553 excepts from its requirements rulemaking devoted to "interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice," and rulemaking "when the agency for good cause finds . . . that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest." This exception does not apply, however, "when notice or hearing is required by statute"; in those cases, even though interpretative rulemaking be involved, the requirements of ยง 553 apply. But since these requirements *241 themselves do not mandate any oral presentation, see Allegheny-Ludlum, supra, it cannot be doubted that a statute that requires a "hearing" prior to rulemaking may in some circumstances be satisfied by procedures that meet only the standards of ยง 553. The Court's opinion in FPC v. Texaco Inc., 377 U. S. 33 (1964), supports such a broad definition of the term "hearing."
Similarly, even where the statute requires that the rulemaking procedure take place "on the record after opportunity for an agency hearing," thus triggering the applicability of ยง 556, subsection (d) provides that the agency may proceed by the submission of all or part of the evidence in written form if a party will not be "prejudiced thereby." Again, the Act makes it plain that a specific statutory mandate that the proceedings take place on the record after hearing may be satisfied in some circumstances by evidentiary submission in written form only.
We think this treatment of the term "hearing" in the Administrative Procedure Act affords a sufficient basis for concluding that the requirement of a "hearing" contained in ยง 1 (14) (a), in a situation where the Commission was acting under the 1966 statutory rulemaking authority that Congress had conferred upon it, did not by its own force require the Commission either to hear oral testimony, to permit cross-examination of Commission witnesses, or to hear oral argument. Here, the Commission promulgated a tentative draft of an order, and accorded all interested parties 60 days in which to file statements of position, submissions of evidence, and other relevant observations. The parties had fair notice of exactly what the Commission proposed to do, and were given an opportunity to comment, to object, or to make some other form of written submission. The final order of the Commission indicates that it gave consideration to the statements of the two appellees here. *242 Given the "open-ended" nature of the proceedings, and the Commission's announced willingness to consider proposals for modification after operating experience had been acquired, we think the hearing requirement of ยง 1 (14) (a) of the Act was met.
Appellee railroads cite a number of our previous decisions dealing in some manner with the right to a hearing in an administrative proceeding. Although appellees have asserted no claim of constitutional deprivation in this proceeding, some of the cases they rely upon expressly speak in constitutional terms, while others are less than clear as to whether they depend upon the Due Process Clause of the Fifth and Fourteenth Amendments to the Constitution, or upon generalized principles of administrative law formulated prior to the adoption of the Administrative Procedure Act.
Morgan v. United States, 304 U. S. 1 (1938), is cited in support of appellees' contention that the Commission's proceedings were fatally deficient. That opinion describes the proceedings there involved as "quasi-judicial," id., at 14, and thus presumably distinct from a rulemaking proceeding such as that engaged in by the Commission here. But since the order of the Secretary of Agriculture there challenged did involve a form of ratemaking, the case bears enough resemblance to the facts of this case to warrant further examination of appellees' contention. The administrative procedure in Morgan was held to be defective primarily because the persons who were to be affected by the Secretary's order were found not to have been adequately apprised of what the Secretary proposed to do prior to the time that he actually did it. Illustrative of the Court's reasoning is the following passage from the opinion:
"The right to a hearing embraces not only the right to present evidence but also a reasonable opportunity to know the claims of the opposing party *243 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 contest with the Government in a quasi-judicial proceeding aimed at the control of their activities are entitled to be fairly advised of what the Government proposes and to be heard upon its proposals before it issues its final command." Id., at 18-19.[9]
The proceedings before the Secretary of Agriculture had been initiated by a notice of inquiry into the reasonableness of the rates in question, and the individuals being regulated suffered throughout the proceeding from its essential formlessness. The Court concluded that this formlessness denied the individuals subject to regulation the "full hearing" that the statute had provided.
Assuming, arguendo, that the statutory term "full hearing" does not differ significantly from the hearing requirement of ยง 1 (14) (a), we do not believe that the proceedings of the Interstate Commerce Commission before us suffer from the defect found to be fatal in Morgan. Though the initial notice of the proceeding by no means set out in detail what the Commission proposed to do, its tentative conclusions and order of December 1969, could scarcely have been more explicit or detailed. All interested parties were given 60 days following the issuance of these tentative findings and order in which to make appropriate objections. Appellees were "fairly advised" of exactly what the Commission proposed to do sufficiently in advance of the entry of the final order to give them adequate time to *244 formulate and to present objections to the Commission's proposal. Morgan, therefore, does not aid appellees.
ICC v. Louisville & Nashville R. Co., 227 U. S. 88 (1913), involved what the Court there described as a "quasi-judicial" proceeding of a quite different nature from the one we review here. The provisions of the Interstate Commerce Act, 24 Stat. 379, as amended, and of the Hepburn Act, 34 Stat. 584, in effect at the time that case was decided, left to the railroad carriers the "primary right to make rates," 227 U. S., at 92, but granted to the Commission the authority to set them aside, if after hearing, they were shown to be unreasonable. The proceeding before the Commission in that case had been instituted by the New Orleans Board of Trade complaint that certain class and commodity rates charged by the Louisville & Nashville Railroad from New Orleans to other points were unfair, unreasonable, and discriminatory. 227 U. S., at 90. The type of proceeding there, in which the Commission adjudicated a complaint by a shipper that specified rates set by a carrier were unreasonable, was sufficiently different from the nationwide incentive payments ordered to be made by all railroads in this proceeding so as to make the Louisville & Nashville opinion inapplicable in the case presently before us.
The basic distinction between rulemaking and adjudication is illustrated by this Court's treatment of two related cases under the Due Process Clause of the Fourteenth Amendment. In Londoner v. Denver, cited in oral argument by appellees, 210 U. S. 373 (1908), the Court held that due process had not been accorded a landowner who objected to the amount assessed against his land as its share of the benefit resulting from the paving of a street. Local procedure had accorded him the right to file a written complaint and objection, but not to be heard orally. This Court held that due process *245 of law required that he "have the right to support his allegations by argument however brief, and, if need be, by proof, however informal." Id., at 386. But in the later case of Bi-Metallic Investment Co. v. State Board of Equalization, 239 U. S. 441 (1915), the Court held that no hearing at all was constitutionally required prior to a decision by state tax officers in Colorado to increase the valuation of all taxable property in Denver by a substantial percentage. The Court distinguished Londoner by stating that there a small number of persons "were exceptionally affected, in each case upon individual grounds." Id., at 446.
Later decisions have continued to observe the distinction adverted to in Bi-Metallic Investment Co., supra. In Ohio Bell Telephone Co. v. Public Utilities Comm'n, 301 U. S. 292, 304-305 (1937), the Court noted the fact that the administrative proceeding there involved was designed to require the utility to refund previously collected rate charges. The Court held that in such a proceeding the agency could not, consistently with due process, act on the basis of undisclosed evidence that was never made a part of the record before the agency. The case is thus more akin to Louisville & Nashville R. Co., supra, than it is to this case. FCC v. WJR, 337 U. S. 265 (1949), established that there was no across-the-board constitutional right to oral argument in every administrative proceeding regardless of its nature. While the line dividing them may not always be a bright one, these decisions represent a recognized distinction in administrative law between proceedings for the purpose of promulgating policy-type rules or standards, on the one hand, and proceedings designed to adjudicate disputed facts in particular cases on the other.
Here, the incentive payments proposed by the Commission in its tentative order, and later adopted in its *246 final order, were applicable across the board to all of the common carriers by railroad subject to the Interstate Commerce Act. No effort was made to single out any particular railroad for special consideration based on its own peculiar circumstances. Indeed, one of the objections of appellee Florida East Coast was that it and other terminating carriers should have been treated differently from the generality of the railroads. But the fact that the order may in its effects have been thought more disadvantageous by some railroads than by others does not change its generalized nature. Though the Commission obviously relied on factual inferences as a basis for its order, the source of these factual inferences was apparent to anyone who read the order of December 1969. The factual inferences were used in the formulation of a basically legislative-type judgment, for prospective application only, rather than in adjudicating a particular set of disputed facts.
The Commission's procedure satisfied both the provisions of ยง 1 (14) (a) of the Interstate Commerce Act and of the Administrative Procedure Act, and were not inconsistent with prior decisions of this Court. We, therefore, reverse the judgment of the District Court, and remand the case so that it may consider those contentions of the parties that are not disposed of by this opinion.
It is so ordered.
MR. JUSTICE POWELL took no part in the consideration or decision of this case.
MR. JUSTICE DOUGLAS, with whom MR. JUSTICE STEWART concurs, dissenting.
The present decision makes a sharp break with traditional concepts of procedural due process. The Commission order under attack is tantamount to a rate order. Charges are fixed that nonowning railroads must pay *247 owning railroads for boxcars of the latter that are on the tracks of the former. These charges are effective only during the months of September through February, the period of greatest boxcar use. For example, the charge for a boxcar that costs from $15,000 to $17,000 and that is five years of age or younger amounts to $5.19 a day. Boxcars costing between $39,000 and $41,000 and that are five years of age or younger cost the non-owning railroad $12.98 a day. The fees or rates charged decrease as the ages of the boxcars lengthen. 49 CFR ยง 1036.2. This is the imposition on carriers by administrative fiat of a new financial liability. I do not believe it is within our traditional concepts of due process to allow an administrative agency to saddle anyone with a new rate, charge, or fee without a full hearing that includes the right to present oral testimony, cross-examine witnesses, and present oral argument. That is required by the Administrative Procedure Act, 5 U. S. C. ยง 556 (d); ยง 556 (a) states that ยง 556 applies to hearings required by ยง 553. Section 553 (c) provides that ยง 556 applies "[w]hen rules are required by statute to be made on the record after opportunity for an agency hearing." A hearing under ยง 1 (14) (a) of the Interstate Commerce Act fixing rates, charges, or fees is certainly adjudicatory, not legislative in the customary sense.
The question is whether the Interstate Commerce Commission procedures used in this rate case "for the submission of . . . evidence in written form" avoided prejudice to the appellees so as to comport with the requirements of the Administrative Procedure Act.[1] The Government appeals from the District Court's order *248 remanding this case to the Commission for further proceedings on the incentive per diem rates to be paid by the appellee railroads for the standard boxcars they use.
In 1966, Congress amended ยง 1 (14) (a) of the Interstate Commerce Act to require that the Commission investigate the use of methods of incentive compensation to alleviate any shortage of freight cars "and encourage the acquisition and maintenance of a car supply adequate to meet the needs of commerce and the national defense." 49 U. S. C. ยง 1 (14) (a). While the Commission was given the discretion to exempt carriers from incentive payments "in the national interest," it was denied the power to "make any incentive element applicable to any type of freight car the supply of which the Commission finds to be adequate . . . ." Ibid.
The Commission's initial investigation under this authority (31 Fed. Reg. 9240) was terminated without action because it "produced no reliable information respecting the quantum of interim incentive charge necessary to meet the statutory standards." 332 I. C. C. 11, 16. A subsequent study of boxcar supply-and-demand conditions (32 Fed. Reg. 20987) yielded data that were compiled in an interim report containing tentative charges and that were submitted to the railroads for comment. 337 I. C. C. 183. Although the Commission was admittedly uncertain whether its proposed charges would accomplish the statutory objective, id., at 191, and even though "the opportunity to present evidence and arguments" was contemplated, id., at 183, congressional impatience militated against further delay in implementing ยง 1 (14) (a).[2] Consequently, the Commission rejected the requests of the appellees and other railroads for further hearings and promulgated an incentive *249 per diem rate schedule for standard boxcars. 337 I. C. C. 217.
Appellees then brought this action in the District Court alleging that they were "prejudiced" within the meaning of the Administrative Procedure Act by the Commission's failure to afford them a proper hearing. 322 F. Supp. 725 (MD Fla. 1971). Seaboard argued that it had been damaged by what it alleged to be the Commission's sudden change in emphasis from specialty to unequipped boxcars and that it would lose some $1.8 million as the result of the Commission's allegedly hasty and experimental action. Florida East Coast raised significant challenges to the statistical validity of the Commission's data,[3] and also contended that its status as a terminating railroad left it with a surfeit of standard boxcars which should exempt it from the requirement to pay incentive charges.
Appellees, in other words, argue that the inadequacy of the supply of standard boxcars was not sufficiently established by the Commission's procedures. Seaboard contends that specialty freight cars have supplanted standard boxcars and Florida East Coast challenges the accuracy of the Commission's findings.
In its interim report, the commission indicated that there would be an opportunity to present evidence and arguments. See 337 I. C. C. 183, 187. The appellees could reasonably have expected that the later hearings would give them the opportunity to substantiate and elaborate the criticisms they set forth in their *250 initial objections to the interim report. That alone would not necessarily support the claim of "prejudice." But I believe that "prejudice" was shown when it was claimed that the very basis on which the Commission rested its finding was vulnerable because it lacked statistical validity or other reasoned basis. At least in that narrow group of cases, prejudice for lack of a proper hearing has been shown.
Both Long Island R. Co. v. United States, 318 F. Supp. 490 (EDNY 1970), and the present case involve challenges to the Commission's procedures establishing incentive per diem rates. In Long Island, however, the railroad pointed to no specific challenges to the Commission's findings (id., at 499), and the trial was conducted on stipulated issues involving the right to an oral hearing. Id., at 491 n. 2. Since Long Island presented no information which might have caused the Commission to reach a different result,[4] there was no showing of prejudice, and a fortiori no right to an oral hearing. In the *251 present case, by contrast, there are specific factual disputes and the issue is the narrow one of whether written submission of evidence without oral argument was prejudicial.
The more exacting hearing provisions of the Administrative Procedure Act, 5 U. S. C. ยงยง 556-557, are only applicable, of course, if the "rules are required by statute to be made on the record after opportunity for an agency hearing." Id., ยง 553 (c).
United States v. Allegheny-Ludlum Steel Corp., 406 U. S. 742, was concerned strictly with a rulemaking proceeding of the Commission for the promulgation of "car service rules" that in general required freight cars, after being unloaded, to be returned "in the direction of the lines of the road owning the cars." Id., at 743. We sustained the Commission's power with respect to these two rules on the narrow ground that they were wholly legislative. We held that ยง 1 (14) (a) of the Interstate Commerce Act, requiring by its terms a "hearing," "does not require that such rules `be made on the record' " within the meaning of ยง 553 (c). Id., at 757. We recognized, however, that the precise words "on the record" are not talismanic, but that the crucial question is whether the proceedings under review are "an exercise of legislative rulemaking" or "adjudicatory hearings." Ibid. The "hearing" requirement of ยง 1 (14) (a) cannot be given a fixed and immutable meaning to be applied in each and every case without regard to the nature of the proceedings.
The rules in question here established "incentive" per diem charges to spur the prompt return of existing cars and to make the acquisition of new cars financially attractive to the railroads.[5] Unlike those we considered in *252 Allegheny-Ludlum, these rules involve the creation of a new financial liability. Although quasi-legislative, they are also adjudicatory in the sense that they determine the measure of the financial responsibility of one road for its use of the rolling stock of another road. The Commission's power to promulgate these rules pursuant to ยง 1 (14) (a) is conditioned on the preliminary finding that the supply of freight cars to which the rules apply is inadequate. Moreover, in fixing incentive compensation once this threshold finding has been made, the Commission "shall give consideration to the national level of ownership of such type of freight car a