## Facts

- The Interstate Commerce Commission (ICC) found a national shortage of railroad freight cars, with shippers frequently unable to obtain cars during peak demand.
- The ICC concluded the industry “car-pool” practice—cars remaining for extended periods on other railroads’ lines—contributed to the shortage by reducing railroads’ incentives to buy new cars and by limiting access to their own cars.
- In 1969, the ICC promulgated two car service rules requiring unloaded freight cars to be returned in the direction of the owning railroad’s lines, making mandatory practices that had often been voluntary.
- Railroads and shippers, including Allegheny-Ludlum Steel Corp., sued under federal statutes authorizing review of ICC orders, seeking to enjoin enforcement of the rules.
- A three-judge federal district court in the Western District of Pennsylvania invalidated the rules, finding them not “reasonable” under the Esch Car Service Act and concluding the ICC did not use procedures required by the Administrative Procedure Act (APA).
- A separate three-judge federal district court in Florida upheld the same rules.
- The United States appealed directly to the Supreme Court from the Pennsylvania decision.

## Issues

1. Whether the ICC’s freight-car return rules were “reasonable” rules governing “car service” under the Esch Car Service Act in light of the Commission’s findings and predictive judgment about alleviating the national freight-car shortage.
2. Whether the ICC was required to use APA formal rulemaking procedures under 5 U.S.C. §§ 556–557, or whether APA § 553 informal notice-and-comment rulemaking governed.

## Decision

- The Supreme Court reversed the Pennsylvania three-judge court and upheld the ICC’s rules.
- The Court held the rules were reasonable under the Esch Car Service Act, supported by substantial evidence of a national freight-car shortage and by record support for the ICC’s judgment that the rules would improve use of owners’ cars and encourage investment in new equipment.
- The Court held the ICC’s rulemaking was governed by APA § 553 and that §§ 556–557 did not apply because the Esch Act did not require rules to be made “on the record” after an agency hearing.
- The Court stated that a statutory requirement of a “hearing,” without more, does not trigger formal rulemaking; some “on the record” requirement or functional equivalent must appear in the governing statute.

## Legal Principles

- An agency’s policy judgment in a technically and economically complex regulatory area receives substantial judicial deference when supported by substantial evidence in the administrative record.
- Under the APA, formal rulemaking procedures in 5 U.S.C. §§ 556–557 apply only when another statute requires rules to be made “on the record after opportunity for an agency hearing,” or uses language functionally equivalent to that requirement.
- A statutory direction to act “after hearing,” standing alone, generally does not mandate APA formal rulemaking; notice-and-comment procedures under APA § 553 suffice absent an “on the record” requirement.

## Conclusion

The Supreme Court upheld the ICC’s mandatory freight-car return rules as a reasonable response to a national freight-car shortage and confirmed that, absent an “on the record” requirement in the governing statute, the APA permits agencies to proceed through § 553 informal notice-and-comment rulemaking rather than §§ 556–557 formal procedures.


United States v. Allegheny-Ludlum Steel Corp., 406 U.S. 742 (1972)