Overbrook Farmers Union Co-op. Ass'n v. Missouri Pacific R. Co., s. 92-3138

• Decision Date: 31 March 1994
• Docket Number: Nos. 92-3138,92-3165,s. 92-3138
• Citation: 21 F.3d 360
• Parties: OVERBROOK FARMERS UNION COOPERATIVE ASSOCIATION, Plaintiff-Appellee and Cross-Appellant, v. MISSOURI PACIFIC RAILROAD COMPANY, Defendant-Appellant and Cross-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 360

21 F.3d 360

OVERBROOK FARMERS UNION COOPERATIVE ASSOCIATION Plaintiff-Appellee and Cross-Appellant, v. MISSOURI PACIFIC RAILROAD COMPANY, Defendant-Appellant and Cross-Appellee.

Nos. 92-3138, 92-3165.

United States Court of Appeals Tenth Circuit.

March 31, 1994.

Stephen C. Herman (Thomas F. McFarland, Jr. with him on the brief), of Belnap Spencer, McFarland & Herman, Chicago, IL, for plaintiff-appellee and cross-appellant.

Arvid E. Roach, II (Thomas H. Odom and John Jenab with him on the brief), of Covington & Burling, Washington, DC (Joseph D. Anthofer, Union Pacific R. Co., Omaha, NE, Michael B. Buser, of Shook, Hardy & Bacon, Overland Park, KS, with him on the brief), for defendant-appellant and cross-appellee.

Before TACHA, GOODWIN ^* and BRORBY, Circuit Judges.

GOODWIN, Circuit Judge.

Missouri Pacific Railroad Co. appeals a judgment which included one million dollars in punitive damages to Overbrook Farmers Union Cooperative Association. Overbrook cross appeals, asserting errors in limiting punitive damages to one million dollars and in other rulings.

Missouri Pacific owns and operates railroad lines subject to Interstate Commerce Commission ("ICC") jurisdiction, including the 40.1 mile Topeka Branch which serves two Overbrook grain elevators--one located at Overbrook, Kansas and the other located at Michigan Valley, Kansas. Overbrook purchases grain from area farmers, stores the grain in elevators, and markets it to independent buyers. Overbrook also receives shipments of fertilizer from independent suppliers which it stores at its facilities and sells to local farmers.

The Topeka Branch experienced extensive flood damage in late June 1984. On July 5, Missouri Pacific instituted an "embargo" of service. An embargo is a temporary measure permitted by the ICC when a carrier is unable to perform its functions as a common carrier. In September 1985, while the embargo was still in effect, Overbrook leased another elevator in Michigan Valley.

Missouri Pacific and Overbrook negotiated a series of "allowances"--i.e., rate reductions--to compensate Overbrook for the cost of trucking commodities to or from alternative railheads. On March 4, 1987, rail service had not been restored, and Overbrook declined to accept Missouri Pacific's most recent offer of substitute truck service. Overbrook then filed a one-count action alleging Missouri Pacific's violation of the Interstate Commerce Act provision requiring a regulated railroad to maintain service on reasonable request. 49 U.S.C. Sec. 11101(a).

The district court granted Missouri Pacific's motion to refer this question to the ICC. At the same time, Missouri Pacific sought formal ICC authority to abandon part of the Topeka Branch. The ICC initially granted this request, but later withdrew that decision. The ICC determined that the embargo had become unreasonable and left the issue of damages to the district court. Overbrook Farmers Union Coop. Assoc., 5 I.C.C.2d 316 (1989).

The district court awarded compensatory damages on three grounds: (1) increased trucking costs, (2) additional elevator throughput costs--i.e., the cost of processing products at a second elevator; and (3) lost profits. The district court then awarded one million dollars in punitive damages.

Missouri Pacific's Appeal

I. Availability of Punitive Damages

Missouri Pacific argues: (1) the Interstate Commerce Act does not provide for punitive damages for the statutory violation of refusal to provide service, and, in the alternative, (2) the evidence did not support an award of punitive damages. Before we reach those questions, however, we reject Overbrook's waiver argument based upon Missouri Pacific's failure to file objections to a magistrate judge's memorandum. Overbrook did not raise before the district court the question of waiver, and it is not appropriate to raise the point for the first time on appeal. It is clear from the record, in any event, that Missouri Pacific never at any time waived its objection to punitive damages.

The district court understandably found that Missouri Pacific had acted in willful violation of 49 U.S.C. Sec. 11101(a). The court found that the conduct was sufficiently egregious to warrant exemplary damages. The appeal thus raises a much discussed but still unsettled question whether the Interstate Commerce Act includes in its remedial scheme punitive damages for discontinuing carrier service.

This Circuit has considered many railroad cases, but none has been cited definitively holding that punitive damages may, or may not, be awarded for a willful refusal to provide rail service. Case law has been cited on both sides of the punitive damages issue. Compare Miller v. AAACon Auto Transport, Inc. 447 F.Supp. 1201, 1205 (S.D.Fla.1978) (stating potential availability of punitive damages); and Wright v. Chicago, B. & Q. R.R., 223 F.Supp. 660 (N.D.Ill.1963) (awarding punitive damages); with Pennsylvania R.R. v. International Coal Mining Co., 230 U.S. 184, 33 S.Ct. 893, 57 L.Ed. 1446 (1913) (finding that predecessor statute "provided for compensation--not punishment"); and Genstar Chemical, Ltd. v. ICC, 665 F.2d 1304, 1309 (D.C.Cir.1981), cert. denied, 456 U.S. 905, 102 S.Ct. 1750, 72 L.Ed.2d 161 (1982) (stating that Act "provides not for penalties but for compensation for actual harm").

Overbrook attempts to distinguish the cases relied upon by Missouri Pacific by stressing that they involved rate violations rather than service violations. This distinction is less than compelling, however, because the remedial provision pertaining to this section applies to both service and rate violations.

Section 10103 states: "Except as otherwise provided in this subtitle, the remedies provided under this subtitle are in addition to remedies existing under another law or at common law." The clause indicates that remedies under the Act are cumulative and in addition to other remedies existing at common law. Texas & Pac. Ry. Co. v. Abilene Cotton Oil Co., 204 U.S. 426, 446-47, 27 S.Ct. 350, 357-58, 51 L.Ed. 553 (1907). State courts retain concurrent jurisdiction to impose damages arising from a carrier's failure to discharge its common law duty to provide service upon reasonable request, so long as the matter does not call for exercise of administrative discretion. Pennsylvania R.R. Co. v. Puritan Coal Mining Co., 237 U.S. 121, 35 S.Ct. 484, 59 L.Ed. 867 (1915).

Conversely, common law remedies are not available to undermine judgments of fact and of reasonableness made by the Interstate Commerce Commission. Abilene Cotton Oil Co., 204 U.S. at 442, 27 S.Ct. at 356 (striking down state common law cause of action against carrier's allegedly unreasonable rates when ICC had previously determined rates to be reasonable); see Chicago & N.W. Transp. Co. v. Kalo Brick & Tile Co., 450 U.S. 311, 327, 101 S.Ct. 1124, 1135, 67 L.Ed.2d 258 (1981) (Act preempts common law causes of action for negligence and tort when ICC has made judgments of fact and reasonableness necessary for approving carrier's application for abandonment).

In this case, Overbrook filed a claim of a Sec. 11101(a) violation in federal district court. Overbrook did not include separate state causes of action to supplement the compensatory remedies provided by Sec. 11705. The district court, acknowledging the Commission's primary jurisdiction, referred the matter to the Commission, which concluded that Missouri Pacific's conduct violated Sec. 11101(a) by not providing service upon reasonable request. Overbrook Farmers Union Coop. Ass'n--Petition for Declaratory Order--Violation of 49 U.S.C. Sec. 11101(a), 5 I.C.C.2d 316, 326 (1989). Although the Supreme Court is silent on whether state tort remedies can enhance statutory remedies based on a Commission's finding of unreasonableness, Overbrook did not file state causes of action, and therefore cannot rely on the savings clause.

In awarding punitive damages, the district court stated:

The court finds that the conduct of the defendant railroad in terminating service to plaintiff was an intentional act. It was unlawful, and thus it was wrongful. It was in direct violation of its duty as a regulated common carrier to provide service until such time as it was relieved of that duty by the Interstate Commerce Commission. The conduct clearly falls within the definition of conduct for which punitive damages should be awarded.

Under the quoted reasoning, because virtually all rail carrier conduct that violates the Act is intentional, all violators would be liable for punitive damages. If punitive damages are appropriate, there should be a limiting principle. Without some reasonably objective standard, punitive damage claims will accompany every action filed by shippers aggrieved by refusal to provide service. At a minimum, before punitive damages can be imposed upon a carrier operating under an ICC order to provide service, the plaintiff must seek relief in addition to the statutory relief provided by Sec. 11705(b). If common law or state law remedies are invoked, and if not preempted by the Commerce Act, the trial court must make specific findings of conduct amounting to bad faith, oppressive or discriminatory purpose, or flagrant defiance of the regulatory scheme, and find little or no mitigating equities in favor of the carrier. Overbrook has not invoked state causes of action to trigger the savings clause.

The ICC has set its face against punitive damages for violations of the Act. See especially Henderson v. Southern Ry., 258 I.C.C. 413, 419-21, aff'd, 80 F.Supp. 32 (1948), rev'd on other grounds, 339 U.S. 816, 70 S.Ct. 843, 94 L.Ed. 1302 (1950) (holding that punitive damages are not awardable under Act to remedy racial discrimination in passenger service).

Overbrook suggests that the ICC has misinterpreted dicta in Pennsylvania R.R. v. International Coal Mining Co. It is true that the issue before the Supreme Court in Pennsylvania R.R. was not the...