Delaware & Hudson Ry. v. Consolidated Rail
| Decision Date | 17 November 1989 |
| Docket Number | No. 86-CV-810.,86-CV-810. |
| Citation | 724 F. Supp. 1073 |
| Parties | DELAWARE & HUDSON RAILWAY COMPANY, Plaintiff, v. CONSOLIDATED RAIL CORPORATION, Defendant. |
| Court | U.S. District Court — Northern District of New York |
James K. Manning, New York City (Paul Windels, III and Elizabeth Storch, of counsel), for Trustee in Bankruptcy of plaintiff.
McNamee Lochner Titus & Williams, Albany, N.Y. (Scott A. Barbour, of counsel), and Pepper Hamilton & Scheetz, Philadelphia, Pa. (Thomas E. Zemaitis, of counsel), for defendant.
In Del. & Hudson Ry. Co. v. Consol. Rail Corp., 654 F.Supp. 1195 (N.D.N.Y. 1987), this court denied Consolidated Rail Corporation's ("Conrail's") motion to stay or dismiss the plaintiff's complaint pursuant to the doctrine of primary jurisdiction.1 Id. at 1203. In this proceeding, Conrail moves for summary judgment against the plaintiff, Delaware & Hudson Railway Company ("D & H"). For the reasons stated below, defendant's motion for summary judgment is granted.
Familiarity with this case is presumed, and the following is based primarily on the background presented in Del. & Hudson Ry. Co., 654 F.Supp. 1195, 1197-98 (N.D.N. Y.1987).
D & H is a Delaware corporation which provides rail transportation services throughout the mid-Atlantic region.2 Conrail is a Pennsylvania corporation, established pursuant to the Regional Rail Reorganization Act of 1973, Pub.L. No. 93-236, 87 Stat. 985 (). Conrail was organized by Congress in part because of the collapse of regional railroads in the 1970's. See Blanchette v. Connecticut Gen. Ins. Corp., 419 U.S. 102, 95 S.Ct. 335, 42 L.Ed.2d 320 (1974). Conrail provides rail transportation services to both the Northeast and the Midwest.
D & H and Conrail are competitors. However, because of the nature of the railroad business, railroads jointly participate in the use of rail facilities, since no one railroad can provide service to every shipper location in the United States.
To enable railroads to provide national service, railroads participate in "through routes", which are business arrangements made between two or more railroads where they agree to move freight in continuous carriage between the origin on one railroad and the final destination on another. Railroads also operate "single line routes". On a single line route, the entire railway, from origin to destination, is owned by one railroad. Larger railroads, such as Conrail, own many of these single line routes. Smaller railroads, such as D & H, often must interconnect with the larger railroads, via through routes, to provide service to major metropolitan areas.
Competition between different companies is affected, to an extent, by regulations that railroads must follow. Prior to the late 1970's, price competition between railroads was considered to be unhealthy for both the railroad industry and the consumer. Consequently, the establishment and regulation of rates was the province of the Interstate Commerce Commission ("I.C. C."). This situation changed with the passage of the Railroad Revitalization and Regulatory Reform Act of 1976, Pub.L. No. 94-210, 90 Stat. 31, and the Staggers Rail Act of 1980, Pub.L. No. 96-448, 94 Stat. 1895 ("Staggers Act"). The Staggers Act was enacted in order to "allow, to the maximum extent possible, competition and the demand for services to establish reasonable rates for transportation by rail." 49 U.S.C. § 10101a(1). Among other changes resulting from this Act, the Staggers Act stripped the I.C.C. of all jurisdiction to review rates and charges except in limited circumstances. See 49 U.S.C. §§ 10701a and 10709.
In October 1982, Conrail implemented a rail-rate policy in order to maximize its profits. This rate-making policy, known as Conrail's "make or buy" policy, is central to the instant dispute. D & H alleges that this policy is exclusionary and unlawful in its implementation, while Conrail asserts that the make or buy policy is a legitimate, profit-maximizing program.
D & H has sued Conrail, alleging violations of Section 2 of the Sherman Act, 15 U.S.C. § 2 (1982). D & H claims that Conrail has monopolized, and attempted to monopolize, the market consisting of the transportation of newsprint from Eastern Canada to the mid-Atlantic states.3 D & H claims that certain policies of Conrail, in particular Conrail's make or buy policy, are anti-competitive. Conrail has moved for summary judgment on all claims against D & H.
For D & H to successfully prove a violation of the Sherman Antitrust Act, it must meet the requirements stated in United States v. Grinnell Corp., 384 U.S. 563, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966). The Supreme Court held that:
(t)he offense of monopoly under § 2 of the Sherman Act has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.
Grinnell at 570-71, 86 S.Ct. at 1704.
The first step in a court's analysis of a claim involving alleged monopolization is a definition of the relevant markets. Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 268 (2d Cir.1979), citing United States v. E.I. du Pont Nemours & Co., 351 U.S. 377, 391-93, 76 S.Ct. 994, 1005-06, 100 L.Ed. 1264 (1956).4
A determination of the relevant market in an antitrust claim requires inquiry into both the nature of the product, E.I. du Pont, 351 U.S. at 391, 76 S.Ct. at 1004-05, and the geographical area in which the alleged illegal conduct took place. Grinnell, 384 U.S. at 575-76, 86 S.Ct. at 1706. See also Oahu Gas Service Inc. v. Pacific Resources, Inc., 838 F.2d 360, 364 (9th Cir. 1988).
For purposes of this motion, both parties agreed, at oral argument, that the relevant market is the transportation of newsprint from Eastern Canada to the mid-Atlantic states. As a result of this narrow market definition, many of the claims against Conrail in D & H's complaint, including claims pertaining to Conrail's reciprocal switching rates, have been abandoned and are no longer an issue before this court.
While Conrail alleges that it does not possess monopoly power in the relevant market, since this court finds that the second element of an antitrust violation has not been proven by the plaintiff, the court will presume, for purposes of this motion, that Conrail does have monopoly power in this market.
The mere existence of monopoly power is not a violation of the Sherman Act. Rather, "the offense of monopolization under Section 2 of the Sherman Act requires proof of monopoly power ... plus conduct designed to maintain or enhance that power improperly." Olympia Equip. Leasing v. Western Union Telegraph, 797 F.2d 370, 373 (7th Cir.1986), citing United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 1703-04, 16 L.Ed.2d 778 (1966), Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 596 n. 19, 105 S.Ct. 2847, 2854, 86 L.Ed.2d 467 (1985).5
In determining whether a plaintiff has satisfied the second Grinnell requirement, the Aspen court held that proof of a general intent to monopolize was necessary to establish a Section 2 Sherman Act claim. Id. 472 U.S. at 602, 105 S.Ct. at 2857. In proving this intent on the part of Conrail, the plaintiff offers a memorandum of John H. Williams, Conrail's former assistant vice-president in charge of strategic analysis and planning. In this memo, written to Richard B. Hasselman, Conrail's Senior vice-president for operations, Williams said, concerning D & H,
This is relatively clear proof of Conrail's monopolistic intent. However, "the desire to crush a competitor, standing alone, is insufficient to make out a violation of the antitrust laws". Ocean State Physicians Health Plan, Inc. v. Blue Cross, 883 F.2d 1101, 1113 (1st Cir.1989).
A monopolist is not prohibited from engaging in business transactions merely because it is a monopolist. Thus, in U.S. Football League v. National Football League, 842 F.2d 1335 (2d Cir.1988), this circuit recently upheld the following jury instruction:
A monopolist has the same right to compete as any other company. Under the antitrust laws, a monopolist is encouraged to compete vigorously with its competitors and to remain responsive to the needs and demands of its customers.
Id. at 1361. See also Ocean State, where the court noted that Id., 883 F.2d at 1110 (citations omitted).
Nor is a monopolist required to engage in business transactions without taking into account how such transactions would affect the monopolist's business. Accordingly, in Aspen the Supreme Court approved the following jury instruction:
a company which possesses monopoly power and which refuses to enter into a joint operating agreement with a competitor in some manner does not violate Section 2 if valid business reasons exist for that refusal. In other words, if there were legitimate business reasons for the refusal, then the defendant, even if he is found to possess monopoly power in the relevant market, has not violated the law.
Id. 472 U.S. at 597, 105 S.Ct. at 2854.
Thus, the issue before this court is whether Conrail's make or buy policy was a legitimate business practice, and therefore not violative of Section 2, or whether this program was exclusionary and therefore impermissible under the Act. Accordingly, an examination of this policy is appropriate.
In 1982, Conrail instituted what it refers to as its make or buy rail-rate policy. Under this program, Conrail informed D & H that it would...
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Delaware & Hudson Ry. Co. v. Consolidated Rail Corp.
...of New York, Neal P. McCurn, Chief Judge, in favor of appellant Consolidated Rail Corp. ("Conrail") in this antitrust action. 724 F.Supp. 1073 (N.D.N.Y.1989). The district court found that D & H failed to raise a genuine issue of material fact with respect to any of its three claims, viz. m......