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RISS & CO. v. ASSOCIATION OF AMERICAN R.RS.

November 3, 1959

RISS & COMPANY, Inc., Plaintiff,
v.
ASSOCIATION OF AMERICAN RAILROADS et al., Defendants



The opinion of the court was delivered by: SIRICA

Plaintiff has moved for judgment on the pleadings, pursuant to Rule 12(c) of the Federal Rules of Civil Procedure, 28 U.S.C.A., to dismiss certain 'common law' counterclaims of defendants on the ground that these counterclaims do not state a claim upon which relief can be granted, and that this Court lacks jurisdiction of the subject matter.

Sixteen of the remaining individual railroad defendants in this civil antitrust suit have filed counterclaims against plaintiff, Riss & Company, Inc., alleging violations of certain federal and state laws and regulations relating to motor carriers. (Plaintiff's original complaint in this action, filed in 1954, alleged that beginning in or about 1950, defendants, most of whom are railroad companies, had agreed and conspired in unreasonable restraint of trade and commerce to injure or destroy plaintiff's business and to acquire a monopoly of land transportation of property in the United States in violation of Sections 1 and 2 of the Sherman Act (15 U.S.C.A. §§ 1, 2). (For a detailed statement of the background of this complex case see the opinion of this Court in Riss & Company, Inc. v. Association of American Railroads, D.C.D.C.1959, 170 F.Supp. 354.)) These counterclaims, filed in 1954, fall into three categories. The first category, filed by all sixteen railroads, alleges in substance that plaintiff transported freight to and from points not covered by certificates of convenience and necessity issued by the Interstate Commerce Commission and that plaintiff aided and abetted other motor carriers in performing transportation service which had not been authorized by the Commission under the authority of the Interstate Commerce Act (49 U.S.C.A. § 1 et seq.). (See Appendix A of this opinion for paragraphs 6-11 of counterclaims of defendant (66), The Pennsylvania Railroad Company, which are substantially the same as the counterclaims of this type filed by all counterclaiming defendants.) Defendants allege that as a result of such unlawful operation by plaintiff, defendant railroads were deprived of freight transportation business which they would have obtained but for the illegal operation of plaintiff. The counterclaims request damages for profits and revenues alleged to have been lost by the railroads.

 The Western railroads have also filed counterclaims similar to those to the Eastern Railroads mentioned above, and have filed additional counterclaims (not filed by the Eastern railroads) falling into a second distinct category. These additional counterclaims allege that plaintiff violated federal and state laws and regulations prescribing the maximum weight of loaded vehicles, the maximum length of equipment, the speed at which motor vehicles may be driven, the traffic rules which motor vehicles must obey, the safety appliances which must be provided, the length of time which drivers may continue to operate vehicles or remain on duty, and the length of time which operators may drive vehicles without rest. The Western railroads allege that as a result of such operations, plaintiff was able to advance its competitive position by delivering freight faster than the railroads, thus obtaining business which the railroads would otherwise have received. (See Appendix B of this opinion for paragraphs 19 and 20 of the counterclaims of defendant (40), The Missouri-Kansas-Texas Railroad Company, which are substantially the same as the counterclaims of this type filed by the other Western railroads).

 In the third category of counterclaims, defendant Western railroads further allege that they have suffered competitive injury as a result of plaintiff's unlawful control of another certified carrier in violation of Section 5(4) of the Interstate Commerce Act (49 U.S.C.A. § 5(4)). (See Appendix C for paragraphs 17 and 18 of the counterclaims of Western defendant (40), The Missouri-Kansas-Texas Railroad Company, which is substantially the same as the counterclaims of this type filed by the other Western railroads.)

 Plaintiff moved to dismiss these counterclaims in January, 1955. All parties filed extensive briefs on the subject and argument on the motion to dismiss was heard by Judge Schweinhaut on October 31 and November 1, 1955. In October, 1956, Judge Schweinhaut entered an order denying plaintiff's motion to dismiss without prejudice to its renewal at pretrial. Plaintiff's present motion for judgment on the pleadings is filed under the terms of Judge Schweinhaut's order of 1956 and is based in part on two recent decisions, Consolidated Freightways, Inc. v. United Truck Lines, Inc., Or.1958, 330 P.2d 522, certiorari denied, 1959, 359 U.S. 1001, 79 S. Ct. 1136, 3 L. Ed. 2d 1029; and T.I.M.E. Incorporated v. United States, 1959, 359 U.S. 464, 79 S. Ct. 904, 3 L. Ed. 2d 952.

 Before proceeding to a consideration of the basic issue before the Court, the counterclaims of the Western railroads alleging injury as a result of plaintiff's violation of federal and state highway and safety regulations (see Appendix B of this opinion) will be discussed.

 The Western railroads, in their additional counterclaims, allege that as a result of these violations, plaintiff obtained a competitive advantage in the apparent rapidity of its service and the amount of excess traffic handled, thus deriving business which the Western defendants would otherwise have obtained. To sustain their contention, the Western defendants cite a number of cases which illustrate the general rule that actions in violation of a criminal statute may be enjoined when they threaten or are causing irreparable harm to a competing business. See, e.g., Wichita Transp. Co. v. Peoples Taxicab Co., 1934, 140 Kan. 40, 34 P.2d 550, 552, 94 A.L.R. 771; New York, New Haven & Hartford R. Co. v. Deister, 1925, 253 Mass. 178, 148 N.E. 590; Northern Pac. Ry. v. Schoenfeldt, 1923, 123 Wash. 579, 213 P. 26; Princeton Power Co. v. Calloway, 1925, 99 W.Va. 157, 128 S.E. 89.

 The general rule of tort law is that one claiming damages for violation of a statutory duty must show that he belongs to the particular class that the statute was designed to protect and that he has suffered the particular harm that the statute was designed to prevent. See Prosser, Torts § 34 and cases cited therein (2d ed. 1955). It would appear obvious that highway speed and sleep regulations for carriers were designed to protect the public at large from highway accidents and not to protect a competing carrier from loss of business. See, e.g., Warlich v. Miller, 3 Cir., 1944, 141 F.2d 168, 170; 49 U.S.C.A. § 304(1)(2)(3); Va.Code Ann. § 46.1-390 (1958). Defendant Western railroads have not made a showing that they fall within that class of persons intended to be protected by highway safety statutes or that those statutes were designed to protect a rail carrier against competitive injury. Further, counsel for Western roads admit the difficulty of proving damages in such a situation. See Memorandum of Defendants (8), (9), (10), et seq., September 1, 1959.

 Accordingly, plaintiff's motion for judgment on the pleadings with regard to the counterclaims of defendants (8), (16), (21), (22), (23), (33), (40), (41), (70), (71), (76), (78) contained in paragraphs 19 and 20 of their answers and counterclaims to plaintiff's complaint is hereby granted, since these counterclaims fail to state a claim upon which relief may be granted.

 The remaining counterclaims involved in the present motion are only some of the many counterclaims filed by defendant railroads. Other counterclaims allege violations of the antitrust laws. The present motion is not directed to the antitrust counterclaims but only to those counterclaims in which the defendants have asserted a common-law cause of action for 'interference with a franchise'. The contentions of the parties with regard to these common-law counterclaims, in brief, are: Defendants allege that at common law the holder of a franchise was protected from unlawful interference by a competitor who was operating without, or in excess of, a franchise; that a railroad is a franchised operation and that when a transportation competitor operates in excess of its authority, this interference is actionable in damages. The plaintiff's argument is twofold. It contends that there were no common-law rights on the part of one interstate motor carrier to limit the extent of another such carrier's routes and operations, or to sue for damages based on regulatory violations by an interstate carrier, but that if such a common-law action ever existed, it was destroyed by the passage of the Motor Carrier Act of 1935 (49 U.S.C.A. § 301 et seq.). Plaintiff points to the legislative history of the Act and the Consolidated Freightways and T.I.M.E. cases, supra. The issue to be decided by the Court, therefore, is 'if the defendants ever had a common law action in damages for competitive injury resulting from a competitor's unlawful operation in excess of his statutory authority, did this remedy survive the passage of the Motor Carrier Act of 1935?'

 I

 The contention of the defendants that a common-law right of action for damages exists in favor of the holder of a franchise for loss of profits resulting from the operation by a competitor in excess of statutory authority.

 At common law, a railroad was said to be the holder of a franchise. Frost v. Corporation Commission, 1928, 278 U.S. 515, 520, 49 S. Ct. 235, 73 L. Ed. 483; People's Railroad v. Memphis Railroad, 1869, 10 Wall. 38, 77 U.S. 38, 51, 19 L. Ed. 844; McPhee & McGinnity Co. v. Union Pac. R. Co., 8 Cir., 1907, 158 F. 5, 10. Defendants cite many cases in support of their contention that an action for damages will lie when such a franchise is interfered with. However, an examination of these cases indicates that the vast majority dealt with requests for injunctive relief only and that in those few instances where damages were awarded, the situation involved competitive operations purely local in character and not approaching the vast interstate transportation of property conducted by the parties to this action. See: Town of East Hartford v. Hartford Bridge Co., 1850, 10 How. 541, 51 U.S. 541, 13 L. Ed. 531 (bridge; ferry); Menzel Estate Co. v. City of Redding, 1918, 178 Cal. 475, 174 P. 48 (ferry); Carroll v. Campbell, 108 Mo. 550, 17 S.W. 884; 1891, 110 Mo. 557, 19 S.W. 809 (ferry); McInnis v. Pace, 1901, 78 Miss. 550, 29 So. 835 (ferry). The usual remedies for protection of property rights generally are available for the protection of franchise rights and privileges, including injunctions to prevent unlawful invasion of or interference with the enjoyment of franchise rights (23 Am.Jur. Franchises §§ 37, 39 (1939)).

 An examination of a number of cases indicates that the remedy by way of a suit for injunction has been widely recognized and applied. However, defendants do not cite any case in the last fifty years in which damages were awarded for interference with a franchise operation interstate in scope. Defendants cite the case of Akers Motor Lines v. Malone Freight Lines, Inc., D.C.N.D.Ala.1950, 88 F.Supp. 654, for an implied holding that once the Interstate Commerce Commission had determined the rights of the parties under the Motor Carrier Act, damages might be available in a Federal Court against a motor carrier which operated in excess of its certificate of convenience and necessity. Again, this case involved a request for injunctive relief only. 88 F.Supp. at page 655. No case, prior to or in the twenty-four years since the passage of the Motor Carrier Act, has been cited by the defendants which held that a common-law action for damages of the kind asserted by the defendants would lie. In Consolidated Freightways v. United Truck Lines, 9 Cir., 1954, 216 F.2d 543, a non-diversity case brought under the Motor Carrier Act, the Ninth Circuit was confronted with the same lack of precedent for a common-law action for competitive injury brought under Part I of the Interstate Commerce Act. The Court said:

 '* * * appellant does not attempt to rely upon, nor does it cite, any judicial authority indicating resort to, or the application of, orthodox common law remedies against the carriers covered by Chapter I of the Interstate Commerce Act in any instance where unfair competition between carriers in the securing of business was the basis of a demand for relief. * * * appellant makes no such showing, and we are persuaded that none can be made.'(Emphasis added.) 216 F.2d at page 548.

 Whether such a cause of action for the vast competitive interstate injury asserted by the defendants in this case did exist prior to the passage of the Motor Carrier Act need not be determined at this time, since the Court is convinced that in any case, such a cause of action ...


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