The opinion of the court was delivered by: BACKER
This antitrust case is now before us on defendants' motion for summary judgment. Plaintiff REA Express, Inc. ('REA') was incorporated in 1928 by the nation's railroads to provide an expedited transport service for small packages to the public.
Approximately eighty-six railroads held all of REA's stock from the time of its formation until 1968. The shareholder railroads, together with some 300 short lines,
contracted with REA during this period to provide transport services to it. In 1969 nearly all the railroad-shareholders divested themselves of their REA stock and their control over the corporation
In 1928, at the time of the formation of REA, the railroads applied to the Interstate Commerce Commission ('ICC') for approval of their joint control of REA and of a pooling arrangement, under which: (1) express shipments would be carried by the railroads for REA under uniform operating contracts; and (2) REA's gross express revenues would first be used to pay the agency's out-of-pocket costs, and all remaining revenues would be paid to the roads in proportion to their express carriage as 'rail transportation revenues,' leaving REA with no net revenues of its own.
The ICC approved the control and pooling arrangements in 1929, and for the next forty years, REA was operated as a wholly owned joint facility of the participating railroads.
REA originally filed this action against 160 railroads comprising the major railroad-shareholders of REA, and a number of railroads which were parties to the uniform contracts but never REA shareholders. A number of former railroad shareholders of REA were not named as defendants. Some of those are roads which broke rank and agreed to certain individual dealings with REA after divestiture. After the complaint was filed, REA voluntarily dismissed without prejudice certain of the defendants from the action. Thirty-seven defendants filed motions alleging that venue in this District was improper (and some also attacked the validity of service of process). We held a conference with the parties, following which counsel for REA and counsel for the defendants reached an agreement resolving the pending motions. As a result of this agreement, the action was dismissed against nine defendants, ten defendants withdrew their venue motions, and the actions against thirteen defendants were transferred to other districts.
REA thereupon moved before the Judicial Panel on Multidistrict Litigation (JPML) under 28 U.S.C. § 1407 (1970) for the pretrial consolidation of the transferred actions in this Court. In addition REA requested that actions brought against it elsewhere by two of the defendants be consolidated with the actions here for pretrial proceedings: Seaboard Coast Line R.R. v. REA Express, Inc. (M.D.Fla., No. 70 -- 937); St. Louis-Southwestern Ry. Lines v. REA Express, Inc. (N.D.Cal., No. C -- 71 -- 2030 ACW). On December 21, 1972, the JPML transferred all of the actions to this Court under the above Jud.Pan.Mult.Lit. Docket Number. In Re REA Express, Inc., 352 F.Supp. 803 (Jud.Pan.Mult.Lit.1972).
A third action, Chicago, Milwaukee, St. Paul & Pacific R.R. v. REA Express, Inc., (N.D.Ill., No. 74C -- 1093) was later transferred here.
(For purposes of this opinion, we will refer to the Chicago, Milwaukee, St. Paul & Pacific R.R. as a party defendant.) REA has recently dismissed against a few other now defunct railroads.
B. Summary of Plaintiff's Claims
Plaintiff claimed the alleged conspiracy had three objectives. First, plaintiff alleges that, prior to divestiture, the defendants conspired to avoid competition among themselves and other railroads in furnishing transportation services to REA, by conferring with each other, both individually and through railroad rate bureaus, about prices to be charged REA for rail transportation services, and by dictating contract terms which were disadvantageous to the plaintiff. Inter alia, REA attacks a 1967 resolution of its railroad controlled Board of Directors, whereby the railroads supposedly established minimum charges to be imposed upon REA for TOFC (trailor-on-flat-car or 'piggyback') service, and which also limited REA's right to divert traffic from one railroad to another. Furthermore, after the railroads' sale of REA in 1969, the defendants allegedly continued their practice of avoiding competition with respect to REA by employing regional rate bureaus to establish uniform transportation contracts with REA. Plaintiff claims also that in late 1970 the defendants and other railroads attempted to impose increased charges upon REA for rail services and that, despite requests from the plaintiff, refused to negotiate individually concerning charges and terms for transportation services.
The second alleged purpose of the conspiracy was to impose excessive and onerous charges and other conditions on REA's use of the defendants' properties and facilities. The complaint charges that the defendants established uniform rates, terms and conditions which REA was obliged to accept in lease agreements for terminal space, and that in 1968, prior to the sale of REA to non-railroad interests, these terms were incorporated in Uniform Carrier's Agreements. REA claims that it has been unable to negotiate rentals at rates different from those uniformly applied and that in instances its efforts to terminate the standard leases have been ignored.
Third, REA claims that the conspiracy had the purpose and effect of preventing it from engaging in activities competitive with those of the railroads and from employing non-rail modes of transportation. As to this allegation, REA has asserted only pre-divestiture actions by the railroads. Plaintiff claims that between 1929 and 1959 REA was permitted to provide over-the-road truck service only with the consent of the affected railroads and that a May 1929 resolution by the REA board limited its management in negotiating contract terms with motor carriers. REA also claims that the railroads forced it to use motor carrier subsidiaries of the railroads and, prior to 1969, continually protested to the REA management concerning proposed applications for truck routes. In 1968 the railroads allegedly caused REA to seek ICC approval of an inefficient nationwide motor route system, and prevented REA from making appropriate applications to regulatory agencies in order to acquire appropriate routes. Additionally, it is claimed that defendants sought to limit REA's ability to provide air express service in competition with the railroads. The defendants and other railroads are alleged to have agreed with certain airlines that REA's contracts with the airlines would require excessive and non-competitive air express rates, and in 1948 allegedly directed REA's management, through its railroad controlled board, to ignore a CAB proposal for revision of the Air Express Agreement which would have proven favorable to REA.
C. The Grounds of Defendants' Motion for Summary Judgment
Defendants' motion for summary judgment is bottomed upon a number of distinct grounds, some of which apply to plaintiff's pre-divestiture claims, and others of which apply to its post-divestiture claims.
The first basis of defendants' attack on the pre-divestiture claims is that REA may not make a claim based upon the conduct of all its former shareholders or upon conduct which preceded the REA Holding Corporation's ownership. (The Holding Corporation was the vehicle for divestiture.) The attack is essentially upon plaintiff's standing. This defense proceeds from the doctrine announced by Dean Pound in the famous case of Home Fire Insurance Co. v. Barber, 67 Neb. 644, 93 N.W. 1024 (1903), that it would be inequitable to permit new stockholders to obtain a windfall recovery of a large part of their purchase price by bringing suit in the corporate name against prior management for its alleged misappropriations notwithstanding that the stock was worth all they paid for it and that they obtained all they bargained for. After the filing of defendants' motion the Supreme Court decided the case of Bangor Punta Operations, Inc. v. Bangor & Aroostook R.R., 417 U.S. 703, 94 S. Ct. 2578, 41 L. Ed. 2d 418 (1974), which adopted and applied the Home Fire principles in an antitrust context extremely similar to the case at bar.
In addition to the equitable doctrine, although closely related thereto, defendants seek dismissal of plaintiff's claims on the ground that the complaint fails to state a claim under the antitrust laws for the period in which REA was wholly owned by the railroads, asserting that antitrust decisions and enforcement policy recognize that a wholly owned subsidiary has no right to economic independence from its parents. Defendants also assert that all antitrust claims that accrued prior to April 3, 1967, are barred by the statute of limitations contained in § 4B of the Clayton Act, 15 U.S.C. § 15b (1970).
Finally, defendants contend that regulatory considerations bar prosecution of REA's claims. More specifically, they rely upon the immunity provisions of § 5(11) of the Interstate Commerce Act, 49 U.S.C. § 5(11) (1970), which accord immunity from the antitrust laws in connection with the control and pooling activities approved by the ICC under §§ 5(1) and 5(2) of that Act. Defendants assert that ICC approval under §§ 5(1) and 5(2) of what they consider to be the fundamental relationships between themselves and their express company subsidiary requires dismissal of plaintiff's predivestiture claims. Relying heavily upon the recent decision of the Supreme Court in Hughes Tool Co. v. Trans World Airlines Inc., 409 U.S. 363, 93 S. Ct. 647, 34 L. Ed. 2d 577 (1973) (hereinafter 'Toolco') to bolster their immunity claims, the defendants' argument, with material aid from Toolco, also elides into the claim that the ICC, by virtue of its pervasive regulatory power over the substance of the railroad-wholly owned express company relationship, pre-empted the field and removed it from antitrust scrutiny.
Defendants' attack upon plaintiff's postdivestiture claims is totally related to regulatory considerations. Their first contention is that plaintiff's claim based upon the alleged collaborative setting of TOFC rates is barred by the doctrine of Keogh v. Chicago & N.W. Ry., 260 U.S. 156, 43 S. Ct. 47, 67 L. Ed. 183 (1922), because of the allegedly impermissible risk of collision between the antitrust laws and the ICC rate regulatory scheme which maintenance of the action would create. Should we reject their Keogh argument, defendants ask us to hold that their alleged collaborative action was immunized by § 5a of the Interstate Commerce Act, 49 U.S.C. § 5b (1970), or, alternatively, that a reference to the ICC is necessary for clarification of the immunity issue. The immunity argument flows from defendants' contention that the railroads involved in this case are parties to rate conference agreements which have been made pursuant to the provisions of § 5a and approved by the ICC under that section. Defendant's ICC reference or primary jurisdiction argument is that, to the extent there is a question about the efficacy of those rate conference agreements in the factual context before us (plaintiff contends that § 5a is wholly inapplicable), the matter should be referred to the ICC for clarification before we address it further.
Needless to say, the plaintiff has skillfully and forcefully countered each of defendants' contentions.
D. The Record on the Summary Judgment Motion
The record before us on the summary judgment motion is massive. The parties spent over two years in developing that record in both formal and informal discovery. Numerous sets of interrogatories have been propounded and answered, and countless documents have been produced for inspection. The discovery was addressed solely to the merits of the liability issues. Because of the voluminous nature of the documents and the logistical difficulties of locating records kept by some of the short line railroads (or even the major ones) in the 1930's and 1940's for instance, discovery was mainly confined to post-1959 matters.
The discovery has fully and fairly amplified the acts and transactions upon which the action and the attacks thereon are based. It includes a stipulation of basic facts. Attached to the motion and answer are comprehensive affidavits with relevant documentary exhibits.
The parties have explicated their respective positions with extensive briefs. We held a hearing on the motion lasting a full day.
The briefs are masterworks, and credit is due Mr. Poul and Ms. Cohn for the plaintiff and Messrs. Zimmerman, Norton and Atwood for the defendants for their efforts. Mr. Poul and Mr. Zimmerman are also to be commended upon their lucid and cogent oral arguments, which were each of surpassing quality, and rank with the finest we have ever heard.
In the face of this vast record and the principle that summary judgment is granted sparingly in antitrust actions, Poller v. Columbia Broadcasting Systems, 368 U.S. 464, 82 S. Ct. 486, 7 L. Ed. 2d 458 (1962), one would think summary judgment an unlikely prospect in this case. However, despite the contentions of REA that defendants' theories are incorrect or inapposite to the facts, it is clear beyond peradventure that REA cannot recover on its claims based on predivestiture conduct. As to Count I this result follows not only from the application of the equitable principles of Bangor Punta, but also because, even taking the facts as plaintiff has advanced them, it has failed to state a claim under the antitrust laws, and because for the period of the railroads' control of REA, prosecution of plaintiff's antitrust claims is immunized, hence barred by § 5(11) of the Interstate Commerce Act. As to Count II, Bangor Punta is equally applicable, and the claim is also barred because of unanimous shareholder authorization and ratification.
The post-divestiture claims present more difficult problems. We have studied and restudied the record and the briefs with respect thereto, but because the point is so very close and because there are lacunae in the briefs and record which debar a decision at this time, we defer decision on those claims in order to allow further briefing and argument by the parties on the applicability of Keogh, supra, to this case, the scope of the § 5a exemption, and the complex primary jurisdiction issues raised by the defendants.
II. The History of REA and of its Relationship to the Railroads
Understanding of the legal issues raised by the defendant's motion requires a somewhat detailed explication of the history of REA, focusing particularly on its relationship with the railroad defendants and the extent to which that relationship has been the subject of oversight by the ICC. The recitation which follows is composed of uncontested facts and forms the background for the legal discussion in Part III below.
Prior to the formation of REA in 1929, the express business in the United States was conducted by companies (or, after 1918, one company) that were for the most part independent of the nation's railroads. These companies took orders from shippers and handled auxiliary pick-up and delivery service, though the actual movement of goods was performed by rail carriers under contractual arrangements between themselves and the express companies. Under these arrangements the shipper made full payment to the express company which in turn paid a fixed percentage of its gross revenues to the rail carrier.
During World War I, while the railroads were under federal control, the Director General of Railroads recommended to the express companies the formation of a single corporation to act as his agent in conducting express business. The Director General's proposal led to the formation of the American Railway Express Company, which was a consolidation of the seven then operating express companies.
After termination of federal control of the railroads, the ICC, pursuant to statutory authority,
approved the earlier consolidation of the express companies, enabling American Railway Express to carry on its consolidated operation.
American Railway Express continued to operate independently of the railroads for a period of about eight years, during which time the railroads encountered certain operational and regulatory problems in their relationship with it. These difficulties led to a decision by the railroads to form their own express company to purchase the assets of American Railway Express. REA was incorporated by agents of the railroads for this purpose in December 1928; shortly thereafter, REA and the prospective shareholding railroads (through appointed agents) submitted two applications to the ICC for approval.
In a second application (Finance Docket No. 7316), the railroads and REA sought approval under § 5(1) of the Act, 49 U.S.C. § 5(1) (1970), for the pooling aspects of the proposed uniform operating contracts under which express shipments would be carried by the railroads for REA. Under the pooling provisions, REA's gross express revenues would first be used to pay its out-of-pocket costs, and all remaining revenues would be paid to the roads in proportion to their express carriage as 'rail transportation revenues.' REA would thus be left with no net revenues. The application proposed that stock ownership in REA would be limited to the member roads of the American Railway Executives which traditionally carried nearly 98% of the nation's express traffic, but that all the nation's railroads, including over 300 short lines, could become parties to the uniform contracts.
After a joint hearing on the two applications, the ICC granted the requested relief in a single decision. Securities & Acquisition of Control of Railway Express Agency, Inc., 150 I.C.C. 423 (1929). The Commission's report detailed the control arrangement and makeup of the REA board, commenting that the objective of the railroad proposal was 'to provide for the future conduct of the express business through a separate agency, but in effect a joint facility of the railroads controlled by them through stock ownership.' 150 I.C.C. at 426. The Commission ...