the SEOA laid out the method of distribution of express revenues. The arrangement called for the railroads to be divided into four groups: eastern, southern, western and mountain-Pacific. Each railroad was to receive 85% of the gross revenue accruing on its lines for carload shipments. The remaining 15% of the full carload revenues, the revenues collected by REA on less-than-carload shipments, and all other REA income within each group was designated as the 'gross transportation revenue' for the group. Operating expenses and other deductible items were likewise ascertained separately for each regional group, and various items and charges (including interest) that were common to more than one group were apportioned among the groups. All of these items were then deducted from the group's revenues, and the remaining amount was designated 'rail transportation revenue.' The entire amount of 'rail transportation revenue' was then paid out monthly to all the railroad signatories (not just the shareholders) on a basis reflecting the amount of express business done by each road.
Under the contract REA would have no operating profit. REA's out-of-pocket expenses were small compared to total express revenues, and the express agency had first claim on those revenues for payment of expenses; the railroads were to be compensated for transportation services after REA's other creditors were satisfied.
The SEOA's, by their terms, remained in effect until 1954. The terms of the original agreements were, however, reviewed again by the ICC in 1951, as a result of an antitrust action brought by the United States against REA, charging primarily that the SEOA provision making REA the exclusive agent of the contracting railroads for the conduct of express business constituted a restraint of trade and an attempt to monopolize the express business in violation of the Sherman Act §§ 1 and 2.
REA A [ ] thereupon applied to the ICC for a clarification of whether the 1929 order of the Commission was an approval of the exclusive agency provisions of the SEOA. The district court granted a stay of the judicial proceedings pending termination of the administrative proceeding.
The ICC then supplemented its 1929 approval order in Express Contract, 1929, 275 I.C.C. 739 (1951). The Commission stated that the exclusive agency provisions were a 'necessary and essential ingredient' of the pooling arrangement.
The court thereupon dismissed the antitrust suit, relying on the antitrust immunity provisions of the Interstate Commerce Act, 49 U.S.C. § 5(11). United States v. Railway Express Agency, Inc., 101 F.Supp. 1008 (D.Del.1951).
C. Express Operations: 1954 -- 1959
The next time that the REA-railroad relationship was extensively reviewed by the ICC was in 1953, when the pooling, division of traffic, service and earnings provisions of a new SEOA (1954 SEOA) were submitted to the Commission, as required by § 5(1) of the Interstate Commerce Act. The ICC approved these provisions, which remained essentially unchanged from the earlier agreement. Express Contract, 1954, 291 I.C.C. 11 (1953). All of REA's shareholders executed the new agreement and ratified it at the subsequent REA annual shareholder meeting.
The 1954 SEOA contained a provision making REA responsible for supplying refrigerator cars required for the express business. REA's president recommended the purchase of 300 refrigerated express cars, and the Board of Directors adopted resolutions on May 25, 1954, September 28, 1954, and October 26, 1954, authorizing the purchase for a total cost of approximately $ 6,720,000. REA applied for and received ICC approval under § 20a of the Act, 49 U.S.C. § 20a (1970),
for the issuance of long term installment promissory notes to finance the acquisition of the cars. The ICC approval order stated that the Commission found that (1) REA appeared to be in need of additional refrigerator cars; (2) issuance of said notes (a) is for a lawful object within REA's corporate purposes and compatible with the public interest, which is necessary and appropriate for and consistent with the proper performance by REA of service to the public as a common carrier, and which will not impair its ability to perform that service, and (b) is reasonably necessary and appropriate for such purpose. See Railway Express Agency, Inc., Notes, ICC Finance Docket No. 18774 (1955). The actions of the REA Board of Directors in connection with the acquisition and financing were subsequently approved unanimously by REA's shareholders.
During 1955, REA's president recommended two more purchases of refrigerator cars (totalling 700 cars at a cost of approximately $ 15,000,000), and the Board of Directors and shareholders of REA unanimously authorized the purchases. Each of these purchases was financed in the same manner as the first, such financings being approved by the ICC pursuant to §§ 20a and 214 of the Act, 49 U.S.C. §§ 20a, 314 (1970). See Railway Express Agency, Inc., Notes, ICC Finance Docket No. 18984 (1955); Railway Express Agency, Inc., Notes, ICC Finance Docket No. 19961 (1957).
The ICC next reviewed the REA-railroad relationship in 1959, when the railroads and REA proposed another new SEOA. Between 1954 and 1959, the railroads had become dissatisfied with the continuing deficits of REA and determined to place REA on a profit or loss basis in order to encourage greater efficiency and cost consciousness on REA's part. To further this goal, the new SEOA was drafted to modify the manner in which REA's gross revenues were distributed. Instead of all of REA's net revenues being distributed to the railroads as reimbursement for their services, REA would pay the railroads on a 'car-foot mile' basis for other than carload transportation services, and retain one half of any excess after expenses as 'profit.'
The new agreement also gave REA greater routing freedom and the option of diverting traffic from rail to non-rail carriers.
It did not, however, alter in any way the railroad's ownership and control of REA. The ICC approved the pooling provisions of the new contract, Express Contract, 1959, 308 I.C.C. 545 (1959). All REA shareholders subsequently signed and ratified it.
Section 5 of Article 2 of the 1959 SEOA was amended in 1967 as a result of the increasing use by REA of trailer on flat car (TOFC or 'piggyback') service. The amendment reads as follows:
Where the maintenance of proper service standards for the transportation of express traffic makes it desirable to use trailer on flat car or container service for movement of express traffic, any Rail Company may contract with the Express Company to transport such express traffic under such terms as may be agreed, but without any undue preference or advantage or any undue prejudice or disadvantage, to the Express Company as compared with other users of comparable service performed by the Rail Company.
Shortly before the SEOA was amended, the board of REA adopted the following resolution:
RESOLVED, That, in administering 'Piggyback Amendment' to the Standard Express Operating Agreement (Article 2, Section 5), when and if it becomes effective, REA management shall not depart from the following policies without approval of the Board: