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SOUTHERN RY. CO. v. UNITED STATES

October 23, 1980

SOUTHERN RAILWAY COMPANY et al., Plaintiffs,
v.
The UNITED STATES of America and The Interstate Commerce Commission, Defendants, and Pacific Fruit Express Company, Intervening Defendant



MEMORANDUM

Section 11105 of the Transportation Act, 49 U.S.C. § 11105, *fn1" gives the Interstate Commerce Commission authority to regulate rates carriers must pay to persons furnishing protective services against heat or cold for rail cars transporting spoilable goods. In 1976, this court held that the Commission had the power to regulate protective service rates prospectively. It remanded to the Commission for further consideration the question of whether railroads could or should be held responsible for previous noncompliance with its protective service rate orders, retaining jurisdiction in order to consider this issue in light of the Commission's conclusions. In response, the Commission ruled the railroads were liable to pay protective service rates ordered by the Commission retroactively.

I. Background

 The lengthy and complex history of this case is set out in detail in the court's earlier opinion. See Southern Ry. Co. v. United States, 412 F. Supp. 1122, 1127-34 (D.D.C.1976). We summarize this history only briefly, adding an account of the events which have occurred since the remand to the Commission.

 This order greatly confused the industry. Although one railroad petitioned for clarification and/or modification of the order, the Commission denied the petition. After the order became effective, on June 10, 1963, the Commission added to the confusion over its meaning by conditionally approving contracts submitted to it as being in compliance with the 1962 Order, including contracts that continued to use the apparently invalidated Division Sheet 7 and that failed to reimburse MPS suppliers for costs and reasonable profit.

 In 1965, Pacific Fruit Express Company ("PFE"), a company that provides MPS, brought an action in the Northern District of California against certain railroads for injunctive relief and to recover cost plus profit compensation for furnishing MPS units. That district court certified certain questions to the I.C.C. In response, in 1972, the I.C.C. provided the court with its conclusions in Contracts-Protective Service Between Pacific Fruit Express Company and the Akron, Canton & Youngstown R. R. Co., et al., 340 I.C.C. 754 (1972) ("the 1972 Order"). It declared that: (1) PFE's furnishing of a MPS unit constituted "protective service" within section 11105; (2) the 1962 Order required the filing of contracts between PFE and non-originating carriers; and (3) Division Sheet 7 was "specifically embraced" by the 1962 Order, and the failure to file contracts superseding it therefore violated section 11105. 340 I.C.C. at 754, 766-71. Consequently, the court held that the defendant railroads had violated the 1962 Order and section 11105 by failing to enter new contracts superseding Division Sheet 7, and that this violation gave plaintiffs a right of action for damages and injunctive relief. Pacific Fruit Express Co. v. Akron, Canton & Youngstown R. R. Co., 355 F. Supp. 700, 707 (N.D.Calif.1973), aff'd. 524 F.2d 1025 (9th Cir. 1975), cert. denied, 424 U.S. 911, 96 S. Ct. 1107, 47 L. Ed. 2d 315 (1976).

 Thereafter, plaintiff railroads brought this suit against the Commission, seeking to set aside its 1962 Order on the grounds, inter alia, that it was vague and lacked statutory authorization. PFE intervened as defendant in the suit. The court declined to set aside the 1962 Order, and further held that the 1962 Order, together with section 11105, authorized the Commission's 1972 Order and prospective application of it. The court was reluctant, however, to give retroactive effect to the 1972 Order which would expose the railroads to liability for past noncompliance with the 1962 Order. This reluctance about giving retroactive effect to the order derived, first, from equitable concerns. The court noted the vagueness of the 1962 Order, and the Commission's refusal to clarify it, as well as the I.C.C."s approval of Division Sheet 7 contracts despite their apparent violation of the 1962 Order. Second, this reluctance derived from concern whether retroactive enforcement of the order would be barred by section 10705 *fn2" of the Transportation Act, 49 U.S.C. § 10705, since the Supreme Court has interpreted that provision as prohibiting the I.C.C. from requiring readjustments of past divisions, or shares of the total revenue produced by a rail shipment, that have privately been agreed to by carriers. Brimstone R. and Canal Co. v. United States, 276 U.S. 104, 48 S. Ct. 282, 72 L. Ed. 487 (1928) ("Brimstone"). This concern was aggravated by the fact that this circuit has extended the Brimstone doctrine by holding that section 10705 bars courts, as well as the Commission, from equitably adjusting past agreements on divisions. B & O R. Co. v. Alabama Great Southern R. Co., 165 U.S. App. D.C. 226, 506 F.2d 1265 (D.C.Cir.1974) ("B & O "). This court recognized that the doctrine established in Brimstone did not necessarily govern the issue in the instant case because Brimstone, and section 10705, concern agreements on divisions between carriers, rather than specific compensation for protective services paid by carriers to MPS suppliers. Nevertheless, the court was concerned that section 10705 may bar an award of damages for past noncompliance with section 11105, since alteration of previous MPS contracts could indirectly affect division agreements by altering the expectations carriers had as to past receipts. In light of these reservations, the court remanded the issue of retroactive liability for noncompliance with the 1962 Order to the I.C.C. for further consideration, stating:

 
If it is the Commission's understanding that plaintiff carriers are liable for their previous non-compliance, then we will have to decide whether, and if so to what extent, considerations of equity or the Brimstone decision bar such liability.

 412 F. Supp. at 1147.

 The I.C.C. issued its response to the court's order, Contracts for Protective Services, 358 I.C.C. 638 (1978), on July 27, 1978. The Commission noted that various settlement conferences between interested carriers and car lines had been held, pursuant to a directive from the court, and that, as a result, all the railroads and car lines affected by the issue had settled. The Commission went on to answer the question of the propriety of imposing retroactive liability that was raised not only by this court but also by the United States District Court for the Eastern District of Pennsylvania, in Atchison, Topeka, & Santa Fe Ry. Co. v. Baltimore & Ohio R. Co., Civil Action No. 74-1859 (E.D.Pa., filed July 22, 1974). In that case, the Atchison, Topeka, and Santa Fe Railway Company ("Santa Fe"), a carrier which also provides protective services, sued the railroads, who are plaintiffs in this action, for their alleged failure to compensate for costs incurred, plus a reasonable profit, for MPS provided since 1963. *fn3" The Commission concluded that neither the lack of further administrative action, nor equitable considerations, nor the prohibitions of section 10705 barred retroactive liability under section 11105. It also concluded that no further administrative action was required before a private cause of action arose.

 On August 25, 1978, twenty one railroads petitioned the Commission to reconsider its July 27 Order in light of changed circumstances brought about by the settlements which had been reached between railroads and the major car lines. Specifically, the railroads argued that because Santa Fe was, after these settlements, the only remaining party suing the railroads for MPS damages, the Commission should reassess its July 27 Order because that order did not focus on the specific facts of Santa Fe's operations. The Commission declined to do so. Contracts for Protective Services, decided January 9, 1979.

 Plaintiffs and defendants have filed cross motions for summary judgment on the issue of retroactive liability. Since this dispute focuses on the validity of the Commission's 1978 and 1979 orders authorizing the imposition of retroactive liability, no material facts are in dispute and the Court will rule on the parties' motions. For reasons more fully stated below, we affirm the order.

 II. Scope of Review

 In the earlier opinion, Judge Leventhal, writing for this court, specifically and clearly indicated an intention to give deferential weight to the expertise of the Commission and the conclusions it reached on the remanded issues. The court emphasized that the Commission has primary jurisdiction to delineate national transportation policy. It stated that:

 
the Commission's analysis of the intendment and consequences of its order, if not clearly erroneous, must ...

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