G. & T. Terminal Packaging Co., Inc. And Anthony Spinale v. Consolidated Rail Corporation

830 F.2d 1230

• Court: Court of Appeals for the Third Circuit
• Decided: October 22, 1987
• Docket: 86-5897
• Status: Published

Opinions

OPINION OF THE COURT

GIBBONS, Chief Judge:

Several rail shippers¹ of agricultural commodities appeal from a summary judgment in favor of Consolidated Rail Corp. (Conrail) in their action to set aside rates fixed by Conrail for their shipments. The shippers’ appeal poses the question whether the Congressional decisions in the Railroad Revitalization and Regulatory Reform Act of 1976 (4 R Act), Pub.L. No. 94-210, 90 Stat. 31, and the Staggers Rail Act of 1980, Pub.L. No. 96-448, 94 Stat. 1895, in favor of deregulation of most rail tariffs should be deemed to have overruled the holding in Texas & Pacific Railway Co. v. Abilene Cotton Oil Co., 204 U.S. 426, 27 S.Ct. 350, 51 L.Ed. 553 (1907) that courts may not entertain common law challenges to rates established pursuant to the Interstate Commerce Act. 49 U.S.C. §§ 10101-11917. The district court held that the Abilene Cotton Oil rule survives the 4 R Act and the Staggers Rail Act. We affirm.

I.

On April 10, 1980 rates for rail transportation of potatoes and other agricultural commodities were exempted from regulation under the Interstate Commerce Act. Ex Parte No. 436 (Sub No. 2), Rail General Exemption Authority — Miscellaneous Commodities (filed March 24, 1980), 45 Fed.Reg. 204 (1980). The plaintiff shippers are served by Conrail, which delivers to them at Hunts Point or Kingsbridge rail car shipments of potatoes and other commodities received from western connecting carriers. Apparently because the plaintiff shippers filed numerous claims against Conrail for loss or damage, Conrail informed all western connecting carriers in May or June of 1983 that it was imposing a surcharge of $500 or $600 per car (depending on the point of origin) on all rail car shipments to them. A Conrail internal memorandum noted that one of the plaintiff shippers had filed claims for amounts exceeding Conrail’s revenues. Faced with the surcharges of $500 or $600 per car, the shippers on September 30, 1983 wrote a letter to the Chairman of the Interstate Commerce Commission, contending that the rates were discriminatory and unreasonable and inquiring whether the Commission retained any jurisdiction over them. Herbert Hardy, Director of the Office of Proceedings, directed by ICC Chairman Taylor, responded:

The Interstate Commerce Commission no longer exercises jurisdiction over the rates charged by the railroads for the movement of the commodities covered by the exemption or over the practices engaged in by the railroads in the course of transporting them. Because your client and its affiliates appear to deal only in products covered by the agricultural commodities exemption, any dispute they may have with Conrail, or other railroads would have to be settled in the courts rather than before the Commission.

After receiving Mr. Hardy’s letter, the shippers filed in the district court a seven count complaint alleging that the new rates violated the Interstate Commerce Act, 49 U.S.C. §§ 10101-11917, the common law, the antitrust laws, and the United States Constitution. In essence the common law claims assert that the decision by Conrail to impose a surcharge on shipments to the plaintiff shippers was made in retaliation for the shippers pursuing valid claims for past damages and delays, and discriminated against them in comparison with shippers similarly situated. The district judge to whom the case was first assigned granted Conrail’s motion for summary judgment on the Interstate Commerce Act and constitutional claims. The antitrust claims were later dismissed with prejudice by stipulation. Conrail’s motion for summary judgment on the shippers’ common law claims was initially denied.

In September, 1985, Conrail filed a petition with the Interstate Commerce Commission, pursuant to 49 U.S.C. § 11701, requesting the commencement of a declaratory order proceeding to the effect that the commission retained jurisdiction over rates exempted pursuant to 49 U.S.C. § 10505, and that such jurisdiction was exclusive. On March 5,1986 the Commission, responding to the Conrail petition, stated that, despite Mr. Hardy’s letter,² it retained jurisdiction over exempted rates and that such unexercised jurisdiction preempted common law causes of action challenging such rates. Consolidated Rail Corporation— Declaratory Order — Exemption, 1 ICC 2d 895 (Feb. 27, 1987).

Armed with the Commissioner’s ruling, and with the intervening decision in Transcontinental Gas Pipe Line Corp. v. State Oil and Gas Bd. of Mississippi, 474 U.S. 409, 106 S.Ct. 709, 88 L.Ed.2d 732 (1986), Conrail renewed its motion for summary judgment.

In Transcontinental the Supreme Court considered whether the states could impose conditions on the first sale of natural gas which, by direct statutory exemption, was placed beyond regulation by the Federal Energy Regulatory Commission (FERC). Prior to 1978 regulation by FERC preempted any state regulation. See Northern Natural Gas Co. v. State Corporation Comm’n of Kansas, 372 U.S. 84, 83 S.Ct. 646, 9 L.Ed.2d 601 (1963). In the Natural Gas Policy Act of 1978, Pub.L. 95-621, 92 Stat. 3351, Congress substantially restricted FERC’s regulatory authority. The Transcontinental Court noted that a “decision to forego regulation in a given area may imply an authoritative federal determination that the area is best left zmregulated, and in that event would have as much preemptive force as a decision to regulate.” 106 S.Ct. at 717 (citations omitted). The Court refused to accept the argument that Congress “in revising a comprehensive federal regulatory scheme to give market forces a more significant role in determining the supply, the demand, and the price of natural gas, intended to give the States the power it had denied FERC.” Id.

A second district judge to whom the renewed Conrail motion for summary judgment was assigned, found both the Commission’s declaratory ruling and the Transcontinental Court’s reasoning to be persuasive and granted summary judgment. The order granting summary judgment on the shipper’s common law claims resulted in an appealable order because it disposed of all the remaining claims. See Fed.R. Civ.P. 54(b). This appeal followed. Since summary judgment was entered on all claims not voluntarily dismissed, our review is plenary.

II.

The shippers contend that the court erred in dismissing their statutory claims, in holding their common law claims to be preempted, and in dismissing their constitutional law claims. We address these contentions in that order.

A.

The shippers point out that under the Interstate Commerce Act a holder of a receipt or bill of lading is entitled to recover for the actual loss or injury to the property caused by the carrier. 49 U.S.C. § 11707(a)(1), (c)(1). They urge, as well, that this carrier’s responsibility for loss or damage survives deregulation. See First Pennsylvania Bank v. Eastern Airlines, Inc., 731 F.2d 1113 (3d Cir.1984). From these unquestionably sound premises the shippers urge the conclusion that an attempt to increase rates in an amount sufficient to cover the cost of processing, defending, and paying damage claims must be illegal. This conclusion, however, does not follow from the premises. The summary judgment record establishes that some of the plaintiff shippers have filed and are litigating loss or damage claims against Conrail, pursuant to 49 U.S.C. § 11707, in appropriate state courts. Recovery in those pending actions, or in any subsequently filed, will not be affected by the tariffs here challenged. The shippers’ statutory argument would be equally applicable to rates fixed by the Commission prior to deregulation, or to rates fixed under the 4 R Act and Staggers Rail Act for dominant non-exempt traffic. Yet the shippers cite no authority — statutory, regulatory, or judicial — for the proposition that carrier liability under section 11707 is not a cost which may be taken into account in fixing rates. The absence of such authority suggests the obvious: section 11707 prohibits rail carriers from relieving themselves of the cost of paying loss or damage claims; it simply does not deal with what costs may be taken in account in determining rates. Indeed the 4 R Act, as amended by the Staggers Act, states specifically that “[njothing in this subsection or section 11707 ... shall ... give the Commission the authority to require any specific level of rates or services based upon the provisions of section 11707____” 49 U.S.C. § 10505(e). Under the 4 R Act and the Staggers Act, levels or rates of service are to be determined primarily by competition in the marketplace for transportation services. Thus we agree with the district judges, both of whom rejected the claim that the challenged rates violated any relevant federal statute.

B.

On the motion for summary judgment we are obliged to accept as true the shippers’ contention that the surcharges imposed on their shipments resulted in tariffs higher than those being charged to some of their competitors. We also accept, arguendo, their legal contention that at common law there were remedies against common carriers for discrimination in rates among shippers. After the enactment of the Interstate Commerce Act, however, rail shippers were no longer subject to such remedies. See Texas & Pacific Railway Co. v. Abilene Cotton Oil Co., 204 U.S. 426, 27 S.Ct. 350, 51 L.Ed. 553 (1907) (no common law actions challenging rates established under the Interstate Commerce Act). See also Chicago & N.W. Transp. Co. v. Kalo Brick & Tile Co., 450 U.S. 311, 101 S.Ct. 1124, 67 L.Ed.2d 258 (1981) (state common law remedy imposing service requirements preempted by Interstate Commerce Act). From the time Abilene Cotton Oil was decided to date, no case has permitted a shipper to challenge a freight rate in a common law action. The shippers, however, discern in the deregulation scheme of the 4 R Act and Staggers Act a Congressional intention to restore the common law authority of the state or federal courts, at least in cases in which the Commission has found commodities to be exempt.

Prior to 1976, railroads were required to file tariffs with the Commission and interested parties were able to challenge these rates. 49 U.S.C.A. §§ 1(5), 15 (1959) (amended 1976, repealed 1980). The authority of the Commission to exempt rates from challenge has its roots in the 4 R Act, which had a declared purpose of “permitting] railroads greater freedom to raise or lower rates for rail services in competitive markets.” 45 U.S.C. § 801(b)(3) (1982). The exemption authority was a principal component of the Staggers Act, which furthered the policy of “allowpng], to the maximum extent possible, competition and the demand for services to establish reasonable rates for transportation by rail.” 49 U.S.C. § 10101a(l) (1982). But while both the 4 R Act and Staggers Act decreased the Commission’s role with respect to rate-making, neither their text nor their legislative history suggests a Congressional intention to resurrect common law remedies moribund since 1907. Indeed the Staggers Act expressly codified the holding of Abilene Cotton Oil, adding to the Interstate Commerce Act the provision:

The jurisdiction of the Commission ... over transportation by rail carriers, and the remedies provided in this title with respect to the rates, classifications, rules, and practice of such carriers, is exclusive.

49 U.S.C. § 10501(d) (1982). While this provision could be literally interpreted to mean that it is jurisdiction over provided remedies — and not the remedies themselves — which are exclusive, the legislative history belies such an interpretation:

The remedies available against rail carriers with respect to rail rates, classifications, rules and practices are exclusively those provided by the Interstate Commerce Act, as amended, and any other federal statutes which are not inconsistent with the Interstate Commerce Act. No state law or federal or state common law remedies are available.

H.R.Conf.Rep. No. 96-1430, 96th Cong., 2d Sess. 106, reprinted in 1980 U.S.Code Cong. & Admin.News 3978, 4110, 4138.

Since this statutory provision, as illuminated by legislative history, makes clear that the only remedies regarding rail rates are those provided by federal statutes, the savings clause, 49 U.S.C. § 10103 (1982), has no application to this case. The savings clause only states that “[e]xcept as otherwise provided in this subtitle,” common law remedies are cumulative. The explicit legislative intent that only federal statutory remedies exist is precisely the type of exception contemplated by the savings provision.

The shippers would have us apply the expressly preemptive provision in 49 U.S.C. § 10501(d) only in cases in which the Commission fixed rates, and not in cases where it exercised its exemption authority. The only possible textual support for such an interpretation of the section is the literal reading rejected above.

Moreover, an interpretation which viewed exempted rates as removed from the jurisdiction of the Commission would be inconsistent with the statutory scheme, which provides for the Commission’s ongoing jurisdiction over exempt traffic. 49 U.S.C. § 10505(d) permits revocation by the Commission of exemption where necessary to carry out the transportation policy of the Act. Congress determined that “there be continuing evaluation of the appropriateness of regulation and continuing deregulation where consistent with the Act’s policies.” Coal Exporters Ass’n of the United States, Inc. v. United States, 745 F.2d 76, 82 (D.C.Cir.1984), cert. denied, 471 U.S. 1072, 105 S.Ct. 2151, 85 L.Ed.2d 507 (1985). The exemption regulations provide that “fnjothing in this exemption shall be construed to affect our jurisdiction under section 10505 or our ability to enforce this decision....” 49 C.F.R. § 1039.10 (1986).

The ongoing jurisdiction to reconsider the exemption in light of competitive conditions is conferred in the first instance on the Commission, not on the courts. Recognition of a common law remedy with respect to rates would have the effect of substituting a court’s regulation for the Commission’s decision in favor of deregulation. In the 4 R Act and Staggers Act, Congress has decided in favor of permitting railroads to fix their own rates, subject only to the regulation imposed by the competitive market, except in cases where in the judgment of the Commission, competitive forces do not operate effectively. Until the Commission determines in a section 10501(d) proceeding that Conrail is dominant over the plaintiff shippers’ traffic in agricultural products this court cannot grant relief to the shippers. See Bessemer and Lake Erie R.R. Co. v. ICC, 691 F.2d 1104 (3d Cir.1982), cert denied sub nom., Western Coal Traffic League v. United States, 462 U.S. 1110, 103 S.Ct. 2463, 77 L.Ed.2d 1340 (1983). As the Commission noted in the Conrail Exemption Decision:

If another body were allowed to replace the regulatory restrictions dismantled at the Commission, the agency’s exemptive actions would be nugatory. Worse, the potential for variation and conflict among various decisionmakers could make the post-exemption regime more restrictive of rail carriers than the one suspended by exemption.

Consolidated Rail Corporation — Declaratory Order — Exemption, 1 ICC 2d 895 (Feb. 27, 1987).

The Commission’s analysis is consistent with that of the Supreme Court in the quite analogous context of deregulation of the natural gas industry. Transcontinental Gas Pipeline Corp. v. State Oil & Gas Board, 474 U.S. 409, 106 S.Ct. 709, 88 L.Ed.2d 732 (1986).³ It is, moreover, consistent with that of other courts which have addressed the issue. See Alliance Shippers, Inc. v. Southern Pacific Transp. Co., 673 F.Supp. 1005 (C.D.Cal.1986); Pittsburgh Terminal Corp. v. Baltimore & Ohio R.R., No. 84-1267 (N.D. Ohio Sept. 25,1986). Thus we agree with the district court that the shippers’ common law claims, whether considered as arising under state or federal common law, are preempted. Abilene Cotton Oil is still the controlling rule.

Judge Aldisert is concerned that our reading of the statute leave the shippers without a remedy for price discrimination. This argument ignores that the Commission, in granting the exemption, has determined that regulation is “not needed to protect shippers from abuse of market power.” 49 U.S.C. § 10505(a)(2)(B).⁴ The shippers’ remedy for price discrimination is simple: it can choose to use other means of transportation. Congress and the Commission have determined that the market is adequate protection; it is not the place of this court to disagree with that determination. Even if the shippers could show that Congress and/or the Commission were wrong, this would not permit us to allow damages. Thus, while it may be that the Commission would not award damages for discriminatory prices charged during a period of exemption, an issue not decided here, we do not agree that this possibility requires a different result.

C.

The shippers’ constitutional law claim is that by imposing discriminatory tariffs on their traffic, Conrail deprived them of property and liberty interests without due process of law. The first district judge to whom the case was assigned dismissed this claim on the theory that common law remedies were preserved by the Staggers Rail Act, and thus that there was a remedy, satisfying due process for any deprivation which may have occurred. Conrail contends that the shippers consented to this dismissal, and thus cannot now appeal it. The record, however, is sufficiently ambiguous with respect to any such consent that we deem it appropriate to address the merit of the contention.

Every court that has considered the matter has concluded that Conrail is not a governmental actor for purposes of constitutional analysis. See Morin v. Consolidated Rail Corp., 810 F.2d 720 (7th Cir.1987); Myron v. Consolidated Rail Corp., 752 F.2d 50 (2d Cir.1985); Wenzer v. Consolidated Rail Corp., 464 F.Supp. 643 (E.D.Pa.), aff'd 612 F.2d 576 (3d Cir.1979). While Conrail is subject to extensive government regulation, such regulation does not convert its conduct into governmental action for constitutional purposes. See Rendall-Baker v. Kohn, 457 U.S. 830, 841-42, 102 S.Ct. 2764, 2771-72, 73 L.Ed.2d 418 (1982). Thus we join those courts that have held expressly that Conrail is a private actor.

III.

The shippers’ statutory, common law, and constitutional arguments all lack merit. The summary judgment appealed from will therefore be affirmed.

1 . The shippers are G & T Terminal Packaging Co., Inc., Mr. Sprout, Inc., Tray Wrap, Inc., and Anthony Spinale. The shippers are located at Hunts Point Market or Kingsbridge, Bronx, New York. They purchase for resale potatoes or brussel sprouts grown in the western United States.

2 . The Commission explained that Mr. Hardy’s informal letter response was not binding on the agency. Consolidated Rail Corporation Declaratory Order Exemption; 1 ICC 2d 895 (Feb. 27, 1986).

3 . Nader v. Allegheny Airlines, Inc., 426 U.S. 290, 96 S.Ct. 1978, 48 L.Ed.2d 643 (1976), on which the shippers rely, is not helpful to them. In that case, the tort remedy could be utilized without intruding upon any judgment of the regulatory agency. Here, recognition of a tort remedy for discriminatory rates would involve case-by-case judicial regulation of rates in the face of a decision by a regulatory agency, acting pursuant to Congressional directives, that the market is sufficiently competitive that no regulation of rates is necessary. Surely it cannot be said here, as it was in Nader, that "any impact on rates that may result from the imposition of tort liability or from practices adopted by a carrier to avoid such liability would be merely incidental.” 426 U.S. at 300, 96 S.Ct. at 1985.

4 . The alternative basis for an exemption, where the Commission determines that the transaction or service is of limited scope, 49 U.S.C. § 10505(a)(2)(A), is not involved in this case.