Public Util. Comm'n of Cal. v. United States , 78 S. Ct. 446 ( 1958 )

Mr. Justice Douglas

delivered the opinion of the Court.

Section 530 of the California Public Utilities Code, Cal. Stat. 1955, c. 1966, provides in part:

“Every common carrier subject to the provisions of this part may transport, free or at reduced rates:

“(a) Persons for the United States, ....

“The commission may permit common carriers to transport property at reduced rates for the United States, state, county, or municipal governments, to such extent and subject to such conditions as it may consider just and reasonable. Nothing herein shall prevent any common carrier subject to the provisions of this part from transporting property for the United States, state, county, or municipal governments, at reduced rates no lower than rates which lawfully may be assessed and charged by any other such common carrier or by highway permit carriers as defined in the Highway Carriers’ Act.” (Italics added.)

There is a large volume of military traffic between points in California. For many years the United States has negotiated special agreements with carriers as to the rates governing the transportation of government property. Property for the armed services has usually been transported at negotiated rates substantially equal to or lower than those applicable to regular commercial shipments.

The United States filed this suit for declaratory relief, 28 U. S. C. § 2201, in a three-judge District Court, asking that § 530 be declared unconstitutional insofar as it prohibits carriers from transporting government property at rates other than those approved by the Commission and requesting relief by injunction.

The District Court rendered judgment for the United States, 141 F. Supp. 168. The case is here by appeal, 28 U. S. C. §§ 1253, 2101 (b). We noted probable jurisdiction. 352 U. S. 924.

We are met at the outset with a contention that there is no “actual controversy” between the United States and the Commission within the meaning of 28 U. S. C. § 2201. If so, there is a fatal constitutional, as well as statutory, defect because of the manner in which the judicial power is defined by Art. III, § 2, cl. 1, of the Constitution. See Aetna Life Ins. Co. v. Haworth, 300 U. S. 227. The argument is that there is no allegation that the Commission had done or had threatened to do anything adverse to the United States or its agent.

Prior to 1955, § 530 provided that every common carrier “may transport, free or at reduced rates: . . . property for the United States . ...”¹ In 1955, § 530 was amended to eliminate that provision and substitute the provision already noted that the Commission “may permit” common carriers to transport property of the United States at reduced rates “to such extent and subject to such conditions as it may consider just and reasonable.” As also noted above, this amendment further provided that no common carrier shall be prevented from trans- . porting property of the United States “at reduced rates no lower than rates which lawfully may be assessed and charged by any other such common carrier or by highway permit carriers . . . .”² Prior to this amendment the Commission had authorized highway permit carriers to deviate from the prescribed minimum rates in connection with the transportation of property for the armed forces of the United States. To prevent the continuation of this exemption the Commission on August 16, 1955, canceled the deviation authorization for permit carriers as of September 7, 1955, the effective date of the amendment to § 530. On request of the Department of Defense the Commission postponed the effectiveness of that cancellation until December 5, 1955. On November 29, 1955, the Commission denied a further extension, stating:

“The provision of Item No. 20 of Minimum Rate Tariff No. 2 which permits carriers to deviate from the minimum rates in connection with the transportation of property for the Armed Forces of the United States constitutes an exception which was established prior to the amendment of Section 530. So long as this provision remains in effect, not only the permitted carriers but also the common carriers are without the rate regulation which clearly was contemplated under the recent legislative enactment. . . .

“The intent of the legislature should be carried out without further delay. Accordingly, the petition for further postponement will be denied. This action will in no way preclude carriers from filing applications for such rate exceptions as they may consider to be just and reasonable.”

As a result of this denial, common carriers could no longer transport any United States property at lower negotiated rates without Commission approval. For § 486 requires common carriers to file their rates with the Commission. Section 493 provides that no common carrier shall engage in transportation until its schedules of rates have been filed. Section 494 provides that no common carrier “shall, charge, demand, collect, or receive a different compensation for the transportation of persons or property . . . than the applicable rates . . . specified in its schedules filed . . . .” (A like provision is contained in Art. XII, § 22 of the California Constitution.) Moreover the Public Utilities Code provides penalties for violations of its provisions and orders issued thereunder. §§ 2107, 2112. These penalties are applicable not only to the carrier but to shippers as well. California Public Utilities Code, § 2112. As stated by the District Court, “If a United States officer were to negotiate with a carrier for 'reduced rates’ without permitting the defendant to determine whether it 'considered’ the conditions of the contract 'just and reasonable’, he could be thrown into the county jail.” 141 F. Supp., at 186.

The Commission has plainly indicated an intent to enforce the Act; and prohibition of the statute is so broad as to deny the United States the right to ship at reduced rates, unless the Commission first gives its approval. The case is, therefore, quite different from Public Service Comm’n v. Wycoff. Co., 344 U. S. 237, where a carrier sought relief in a federal court against a state commission in order “to guard against the possibility,” id., at 244, that the Commission would assume jurisdiction. Here the statute limits transportation at reduced rates unless the Commission first gives approval. The controversy is present and concrete — whether the United States has the right to obtain transportation service at such rates as it may negotiate or whether it can do so only with state approval.

There is a large group of cases involving the doctrine of primary jurisdiction which requires the complainant first to seek relief in the administrative proceeding before a remedy will be supplied by the courts. See Far East Conference v. United States, 342 U. S. 570; United States v. Western Pacific R. Co., 352 U. S. 59. In related situations we have insisted that an aggrieved party pursue his administrative remedy before the state agency and the state court prior to bringing his complaint to the federal court, so that the true interpretation of the state law may be known and its actual, as opposed to its theoretical, impact on the litigant authoritatively determined before the federal court undertakes to sit in judgment. See Alabama Federation of Labor v. McAdory, 325 U. S. 450; Leiter Minerals, Inc., v. United States, 352 U. S. 220.

These cases are inapposite. We know the statute applies to shipments of the United States. We know that it is unlawful to ship at reduced rates unless the Commission approves those rates. The question is whether the United States can be subjected to the discretionary authority of a state agency for the terms on which, by grace, it can make arrangements for services to be rendered it. That issue is a constitutional one that the Commission can hardly be expected to entertain. If, as in Aircraft Diesel Equipment Corp. v. Hirsch, 331 U. S. 752, and Allen v. Grand Central Aircraft Co., 347 U. S. 535, an administrative proceeding might leave no remnant of the constitutional question, the administrative remedy plainly should be pursued. But where the only question is whether it is constitutional to fasten the administrative procedure onto the litigant, the administrative agency may be defied and judicial relief sought as the only effective way of protecting the asserted constitutional right. In that posture the case is kin to those that hold that “failure to apply for a license under an ordinance which on its face violates the Constitution does not preclude review in this Court of a judgment of conviction under such an ordinance.” Staub v. City of Baxley, 355 U. S. 313, 319, and cases cited; Thomas v. Collins, 323 U. S. 516.

It is argued that 28 TJ. S. C. § 1342, bars the grant of relief in this case. It provides that the federal courts “shall not enjoin, suspend or restrain the operation of, or compliance with, any order affecting rates chargeable by a public utility and made by a State administrative agency or a rate-making body of a State political subdivision, where:

“(1) Jurisdiction is based solely on diversity of citizenship or repugnance of the order to the Federal Constitution . . . .”

Assuming, arguendo, that the Act applies to the sovereign who made it, there is no violation of its mandate in the relief granted here. In the present case, the challenge is not to a rate “order” but to a statute which requires the United States to submit its negotiated rates to the California Commission for approval. The United States wants to be rid of the system that subjects its procurement services to that form of state supervision.

We come to the merits. Congress has provided a comprehensive policy governing procurement. 10 U. S. C. (Supp. V) §§ 2301-2314. While competitive bidding is the general policy, § 2304 provides that “the head of an agency may negotiate such a purchase or contract, if—

“(2) the public exigency will not permit the delay incident to advertising;

“(10) the purchase or contract is for property or services for which it is impracticable to obtain competition; ³

“(12) the purchase or contract is for property or services whose procurement he determines should not be publicly disclosed because of their character, ingredients, or components; . . . .”

The regulations, promulgated to carry out these statutory provisions,⁴ are numerous and extensive.⁵ One provides that “volume shipments” shall be referred “at the earliest practicable time to the appropriate military traffic management office for a determination of the reasonableness of applicable current rates and, when appropriate, for negotiation of adjusted or modified rates.” ⁶

The Army regulations provide that the “least costly means of transportation will be selected which will meet military requirements and still be consistent with governing procurement regulations and transportation policies as expressed by Congress, contingent upon carrier ability to provide safe, adequate, and efficient transportation.” ⁷ Navy regulations provide that when applicable freight rates “appear excessive” they “may be negotiated for more equitable rates.” ⁸ The Air Force regulations provide for negotiations for adjustments or modifications of “commercial carriers' rates . . . only after a determination has been made as to the unreasonableness, unjustness or otherwise apparent unlawfulness of effective rates . ...”⁹

It seems clear that these regulations — which have the force of law, Leslie Miller, Inc., v. Arkansas, 352 U. S. 187; Standard Oil Co. v. Johnson, 316 U. S. 481 — sanction the policy of negotiating rates for shipment of federal property and entrust the procurement officers with the discretion to determine when existing rates¹⁰ will be accepted and when negotiation for lower rates will be undertaken. It also seems clear that under § 530 of the California Public Utilities Code this discretion of the federal officers may be exercised and reduced rates used only if the Commission approves. The question is whether California may impose this restraint or control on federal transportation procurement.

We lay to one side these cases which sustain nondiscriminatory state taxes on activities of contractors and others who do business for the United States, as their impact at most is to increase the costs of the operation. See, e. g., Esso Standard Oil Co. v. Evans, 345 U. S. 495; Smith v. Davis, 323 U. S. 111; Alabama v. King & Boozer, 314 U. S. 1; James v. Dravo Contracting Co., 302 U. S. 134. We also need do no more than mention cases where, absent a conflicting federal regulation, a State seeks to impose safety or other requirements on a contractor who does business for the United States. See, e. g., Baltimore & Annapolis R. Co. v. Lichtenberg, 176 Md. 383, 4 A. 2d 734, appeal dismissed, 308 U. S. 525; James Stewart & Co. v. Sadrakula, 309 U. S. 94. Penn Dairies v. Milk Control Comm’n, 318 U. S. 261, can likewise be put to one side. There the question, much mooted, was whether the federal policy conflicted with the state policy fixing the price of milk which the United States purchased. The Court concluded that the state regulation “imposes no prohibition on the national government or its officers.” Id., at 270. Here, however, the State places a prohibition on the Federal Government. Here the conflict between the federal policy of negotiated rates and the state policy of regulation of negotiated rates seems to us to be clear. The conflict is as plain as it was in Arizona v. California, 283 U. S. 423, 451, where a State sought authority over plans and specifications for a federal dam, in Leslie Miller, Inc., v. Arkansas, supra, where state standards regulating contractors conflicted with federal standards for those contractors, and in Johnson v. Maryland, 254 U. S. 51, where a State sought to exact a license requirement from a federal employee driving a mail truck. The conflict seems to us to be as clear as any that the Supremacy Clause, Art. VI, cl. 2, of the Constitution was designed to resolve. As Chief Justice Marshall said in M’Culloch v. Maryland, 4 Wheat. 316, 427,

“It is of the very essence of supremacy to remove all obstacles to its action within its own sphere, and so to modify every power vested in subordinate governments, as to exempt its own operations from their own influence.”

The seriousness of the impact of California’s regulation on the action, of federal procurement officials is dramatically shown by this record.

It is the practice of the Government not only to negotiate separate rates which vary from the class or “paper rate” ¹¹ but also to negotiate a “freight all kinds” rate which will cover hundreds of diverse items for the supply of a division of the Army or for a vessel that are needed at one place at one particular time. There is no provision in the California Code or the regulations for the making of such shipments. The findings are that if the Code is applied here, this type of arrangement would be abolished:

“This would make it necessary for the shipping officers to classify the hundreds and thousands of different items used in military operations, to segregate such items in accordance with published tariffs and classifications, to rearrange the boxing and crating of such items in order to meet the classifications and requirements of commercial traffic and fill out voluminous documents. This additional process could cause delays as high as thirteen hours in the shipment of one truckload or carload. In many situations a delay of this sort would seriously hamper or disrupt the military mission for which the shipment was made.”

Moreover, no rates exist for much of the military traffic, which means that, unless the United States can negotiate rates for each shipment, the shipments will be delayed for Commission action unless shipped under the established rates which are higher than negotiated rates.

General Edmond C. R. Lasher of the United States Army, who was Assistant Chief of Transportation, testified at the trial:

“for us to make these arrangements at the Washington level with the various states, let us say 48 states, with 48 varieties of methods to follow, we would find ourselves in an administrative morass out of which we would never fight our way, we would never win the war.”

Affirmed.

1 Cal. Stat. 1951, c. 764, p. 2045.

2 California Public Utilities Code § 3515 defines a “highway permit carrier” as “every highway carrier other than a highway common carrier or a petroleum irregular route carrier.”

3 The purpose of this subsection is “to place the maximum responsibility for decisions as to when it is impracticable to secure competition in the hands of the agency concerned.” S. Rep. No. 571, 80th Cong., 1st Sess., p. 8. The Senate Report goes on to state: “The experiences of the war and contracts negotiated since the war in the fields of stevedoring, ship repairs, chartering of vessels, where prices are set by law or regulation, or where there is a single source of supply, have shown clearly that the competitive-bid-advertising method is not only frequently impracticable but does not always operate to the best interests of the Government. It is, therefore, intended that this section should be construed liberally and that the review of these contracts should be confined to the validity and legality of the action taken and should not extend to reversal of bona fide determinations of impracticability where any reasonable ground for, such determination exists.”

It would seem, therefore, that negotiation was contemplated where rates, fixed by a government agency, are involved. And see H. R. Rep. No. 109, 80th Cong., 1st Sess., pp. 8-9. As stated by W. John Kenney, Acting Secretary of the Navy, who submitted the draft of this bill:

“The primary purpose of the bill is to permit the War and Navy Departments to award contracts by negotiation when the national defense or sound business judgment dictates the use of negotiation rather than the rigid limitations of formal advertising, bid, and award procedures.” Hearings before House Committee on Armed Services on H. R. 1366, 80th Cong., 1st Sess., Vol. 1, p. 425.

4 10 U. S. C. § 3012 (g) provides, “The Secretary [of the Army] may prescribe regulations to carry out his functions, powers, and duties under this title.” For comparable provisions applicable to the Navy and Air Force see 10 U. S. C. § 6011 and 10 U. S. C. § 8012 (f) respectively.

5 Armed Services Procurement Regulations, 32 CFR, 1957 Cum. Pocket Supp., § 1.108 et seq.

6 Id., § 1.306-10.

7 Army Regulation 55-142, ¶ 2, dated April 19, 1956.

8 Navy Shipping Guide, Part I, Art. 1800 (d) (3) (20).

9 Air Force Manual 75-1, ¶ 80501 (b), dated July 10,1956.

10 Section 22 of the Interstate Commerce Act, 24 Stat. 379, as amended, 49 U. S. C. §22, exempts transportation for the United States from the rate provisions of that Act. The provision in the law, respecting land-grant rates, which imposes on the United States the obligation to pay “the full applicable commercial rates,” 49 U. S. C. § 65, applies only to rates fixed by the Interstate Commerce Commission and is made expressly subject to § 22 of the Interstate Commerce Act.

11 The findings of the District Court state:

“Under the theory of rate regulation in California and elsewhere, every common carrier is required to have in existence at all times a published rate to cover the shipment of every known item between every conceivable point. This rate structure is known as the class or ‘paper rate.,’ Since the channels of commercial traffic are regular and well defined in accordance with the stability of trade, large commercial shippers seldom use the class rate but negotiate rates with the carriers known as ‘commercial rates,’ which are peculiarly suited and adapted to the requirements of the commerce involved. These commercial rates are usually considerably lower than the class rates. Very little commercial traffic moves at the class rate.”