Southern Railway Company v. United States

• Citation: 186 F. Supp. 29
• Decision Date: 18 July 1960
• Docket Number: Civ. A. No. 9586.
• Parties: SOUTHERN RAILWAY COMPANY et al., Plaintiffs, v. UNITED STATES of America and Interstate Commerce Commission et al., Defendants.
• Court: U.S. District Court — Northern District of Alabama

186 F. Supp. 29

SOUTHERN RAILWAY COMPANY et al., Plaintiffs, v. UNITED STATES of America and Interstate Commerce Commission et al., Defendants.

Civ. A. No. 9586.

United States District Court N. D. Alabama, S. D.

July 18, 1960.

COPYRIGHT MATERIAL OMITTED

Joseph F. Johnston and George F. Maynard, Cabaniss & Johnston, Birmingham, Ala., William D. McLean, N. K. Sneed, III, and Henry L. Walker, Washington, D. C., and William S. Pritchard and Winston B. McCall, Birmingham, Ala., for plaintiffs.

Robert A. Bicks and James H. Durkin, Dept. of Justice, Washington, D. C., William L. Longshore, U. S. Atty., Birmingham, Ala., and, Robert W. Ginnane, Gen. Counsel, and C. H. Johns, Jr., Associate Gen. Counsel, I. C. C., Washington, D. C., for defendants.

E. L. All and David J. Vann, White, Bradley, Arant, All & Rose, Birmingham, Ala., A. Alvis Layne, Jr., Washington, D. C., D. H. Markstein, Jr., Markstein & Cooper, and W. J. Sullivan, Jr., Sadler, Sadler, Sullivan & Herring, Birmingham, Ala., for intervenors.

Before RIVES and TUTTLE, Circuit Judges, and LYNNE, District Judge.

LYNNE, District Judge.

Proceeding under the provisions of 28 U.S.C.A. §§ 1336, 1398, 2284, 2321-2325, 5 U.S.C.A. § 1009, and 49 U.S.C.A. § 17 (1), plaintiffs, Southern Railway Company (Southern), Georgia Industrial Realty Company (Realty Company), a wholly owned subsidiary of Southern, and Birmingham Food Terminal Corporation (Terminal Corporation) brought this action to enjoin or set aside the report and order of the Interstate Commerce Commission, dated October 6, 1959, in the Commission's Docket No. 32241, Shaw Warehouse Company vs. Southern Railway Company, et al. The report of the Commission is officially reported at 308 I.C.C. 609.¹

The order complained of was entered in a proceeding commenced by the filing of the July 25, 1957, complaint of Shaw Warehouse Company (Shaw Company), in which proceeding the Bureau of Inquiry and Compliance of the Commission (Bureau of Inquiry), Birmingham Ice and Cold Storage Company (Birmingham Ice), Harris Transfer Company (Harris Transfer) and Harris Warehouse Company (Harris Warehouse), and the Louisville and Nashville Railroad Company intervened. Shaw Company, Birmingham Ice, Harris Transfer and Harris Warehouse also intervened as defendants herein pursuant to the provisions of 28 U.S.C.A. § 2323.

In the report and order here under attack, the Commission found that, in their leasing of the facilities known as the Birmingham Food Terminal (Terminal Facilities), Southern and its real estate development subsidiary, Realty Company, have violated the anti-concession prohibitions against undue and unreasonable discriminations, prejudices and advantages and against departures from, and the extension of privileges and facilities other than those specified in, the railroads' published tariffs 49 U.S. C.A. § 2, § 3(1), § 3(2) and § 6(7).

Before both Commission and Court plaintiffs have consistently maintained that the Commission had no power to grant the relief requested by Shaw or any of the warehouse intervenors under the foregoing sections of the Interstate Commerce Act. They insist that this is so for the reasons that none of the warehouse intervenors is a shipper or receiver of freight; that the railroad does not provide "a like and contemporaneous service in the transportation of a like kind of traffic under substantially similar circumstances and conditions" for the warehouse intervenors and the tenants of Terminal Corporation so as to give rise to a prohibited discrimination under 49 U.S.C.A. § 2; that without such discrimination there can be no unlawful "preference" prohibited by 49 U.S.C.A. § 3(1), and that there can be no prohibited rebate within the meaning of 49 U.S. C.A. § 6(7) without a showing that facilities are provided a shipper on a non-compensatory basis.

Having performed its duty to canvass the whole record of the proceeding before the Commission in obedience to the command of the Administrative Procedure Act (5 U.S.C.A. § 1009), instructed by the teaching of Universal Camera Corp. v. National Labor Relations Board, 340 U.S. 474, 71 S.Ct. 456, 95 L.Ed. 456, the Court, in a desire to compress its discussion of a voluminous and complex record within reasonable limits, will respond to plaintiffs' threshold contentions in the body of this opinion.

On the basis of specific findings that the rentals charged for the use of the railroad's facilities were substantially below those prevailing under established market practices, and that the railroad had followed a practice and pattern of delayed collection thereof, and of extending credit on freight bills beyond the the 96 hours allowed by the regulations of the Commission, it issued an order requiring plaintiffs to cease and desist from unlawful rental practices and to file with the Commission, in affidavit form, a statement of action which they have taken to correct such practices.²

The terminal facilities with which we are concerned came into existence as a result of a program initiated by Southern in 1954, designed to promote a produce terminal facility, shortly thereafter expanded into promotion of a fully integrated food wholesale, processing, and warehousing facility. Southern's study of the produce aspects of the project alone showed that if such facilities could be constructed at a location on the lines of Southern outside the reciprocal switching district of Birmingham, so as to assure exclusive rail sevice by Southern, it could expect to attract new freight revenues from its competitors, ranging up to five hundred thousand dollars per year.

Early in the promotion, Southern's vice president, F. H. Brown, instructed Joseph DeOreo,³ a professional promoter who had come to Birmingham at Southern's request and who had become affiliated with a local farmers' cooperative, Jefferson County Truck Growers' Association (Truck Growers), to concentrate his efforts on the six largest produce receivers in the area. Brown took the position that if a substantial number of these could be obtained, circumstances and trade influences would force the others to come into the terminal that Southern proposed to build. He stated that holdouts would "have to follow suit or wither on the vine * * * they would have to join the parade or perish."

The development was facilitated by the incorporation of Terminal Corporation on February 10, 1955, as a nonprofit corporation with paid-in capital of only two thousand dollars. This company has occupied no office space or other premises, and has had no employees or paid officials. It was designed as a conduit through which business between Southern and occupants of the Terminal could be channeled.

As originally conceived the promotion plan contemplated that the necessary land would be conveyed by Realty Company to Terminal Corporation under a 4 percent second mortage on which interest would be payable annually, but no principal payments would be due during the twenty-five-year life of the mortgage. A construction loan would be obtained in the name of Terminal Corporation, which loan would be secured by a first mortgage on the same land and the facilities to be constructed thereon. The land and improvements, subject to these first and second mortgages, would be leased to Realty Company for twenty-five years at a rental equivalent to the principal and interest payments required under the first mortgage. This lease would then be assigned to the first mortgagor as collateral security. Thereafter, Realty Company would lease the same property back to Terminal Corporation for the same rental period and for substantially the same rent. Facilities constructed on portions of the property for the individual tenant-purchasers would then be sold to such tenant-purchasers, subject to the mortgages and leases described. As a condition of securing the first mortgage loan, an agreement would be executed between Southern and the first mortgagor guaranteeing the performance of all of the obligations assumed by Realty Company under its lease of the property from Terminal Corporation. This guarantee by Southern was designed and intended to permit the tenant-purchasers to purchase their individual facilities, each independent of the other, without being required to make any down payment on the purchase price and to secure for them the lowest possible interest rate by extending to them the use of Southern's credit with the lending agency. The purchase price itself was to be substantially reduced by reason of the fact that Southern, for itself, was to pay a substantial portion of the costs, and was to retain title to certain portions of the land devoted to the use of the terminal participants. For example, the purchase price would not include any of the substantial costs of grading the property, or any of the value of land devoted to service tracks or a large portion of the land devoted to driveway areas serving the terminal. Nor would it include any of the costs of paving such driveway areas or those portions of driveway areas which crossed service track areas retained by Southern. The purchase price, however, was to include the interest costs of interim financing required during the period of actual construction.

On September 26, 1955, Atlantic Coast Line and several other railroads filed a petition with the Interstate Commerce Commission seeking an investigation into the legality of such proposed sales plan. Southern thereupon modified its terminal plan on October 18, 1955, agreeing, through Realty Company, to undertake the construction of the facilities and to lease them to the proposed tenant-purchasers, under separate leases for each, for a period of five years with option in the tenants to renew for an additional five-year period. The separate leases were to be assigned to Realty Company. The lease agreement provided that if the original plan was determined by proper authorities, to the satisfaction of Southern, to be legally...