Del. & Hudson Ry. Co. v. Consol. Rail Corp.

• Decision Date: 02 March 1987
• Docket Number: No. 86-CV-810.,86-CV-810.
• Parties: DELAWARE AND HUDSON RAILWAY COMPANY, Plaintiff, v. CONSOLIDATED RAIL CORPORATION, Defendant.
• Court: U.S. District Court — Northern District of New York

654 F. Supp. 1195

DELAWARE AND HUDSON RAILWAY COMPANY, Plaintiff, v. CONSOLIDATED RAIL CORPORATION, Defendant.

No. 86-CV-810.

United States District Court, N.D. New York.

March 2, 1987.

Dewey Ballantine Bushby Palmer & Wood, New York City, and Sanford M. Litvak, of counsel, George H. Kleinberger, Delaware and Hudson Ry. Co., Watervliet, N.Y., Kinga M. LaChapelle, of counsel, for plaintiff.

McNamee Lochner Titus & Williams, Albany, N.Y., and Scott A. Barbour, of counsel, Pepper Hamilton & Scheetz, Philadelphia, Pa., Laurence Z. Shiekman, Stephen J. Cipolla, Sean P. Wajert, of counsel, for defendant.

MEMORANDUM-DECISION AND ORDER

McCURN, District Judge.

This treble-damage antitrust action is brought pursuant to 15 U.S.C. § 15. The plaintiff, Delaware and Hudson Railway Company ("D & H"), asserts that it has been injured by actions of the defendant, Consolidated Railway Company ("Conrail"), in contravention of Section two of the Sherman Act, 15 U.S.C. § 2, which forbids a person or company to "monopolize, or attempt to monopolize ... any part of the trade or commerce among the several States." Id. Pending before the court is a motion by Conrail to dismiss the complaint pursuant to F.R.C.P. 12(b)(6). Accordingly, all well-pleaded allegations in the complaint are accepted as true and provide the basis for this court's analysis and decision. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974).

I. BACKGROUND

D & H is a Delaware corporation which provides rail transportation services throughout the Mid-Atlantic region. Conrail is a Pennsylvania corporation organized pursuant to the Regional Rail Reorganization Act of 1973, Pub.L. No. 93-236, 87 Stat. 985 (codified as amended at 45 U.S.C. § 741). Conrail was organized by Congress because of the massive 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). It provides rail transportation services to the Northeast and the Midwest.

D & H and Conrail are competitors. Nevertheless, because of the nature of the railroad business they must jointly participate in the use of rail facilities. No railroad is capable of providing service to every shipper location in the United States. In order to provide national service, railroads are required to 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 belongs exclusively to one railroad. Larger railroads, such as Conrail, own many single line routes. The smaller railroads, such as D & H, often must interconnect with the larger railroads by the use of through routes to provide service to major metropolitan areas.

Through routes and single line routes may serve the same corridor.¹ Conrail owns a single line route between Chicago and Albany, while Conrail and D & H participate in a through route between those two cities. The through route consists of carriage on Conrail lines between Chicago and Buffalo, and carriage on D & H lines between Buffalo and Albany. There may also be more than one through route servicing the same corridor. Where two or more routes serve the same corridor, they are in direct competition for shippers' business in the corridor.

An important factor in competition is the price, or rate, charged to the shipper. There are three basic rates of concern in this action. A "single line rate" is the rate charged by the operator of a single line route. A "combination rate" is the aggregate of two or more rates on a through route. For example, on the Chicago-Albany through route described above, the combination rate could be the sum of the Conrail Chicago-Buffalo rate and the D & H Buffalo-Albany rate. Finally, a "joint rate" is a single rate charged to a shipper for transport on a through route. The revenues derived from joint rates are divided between the carriers participating in the through route pursuant to contract. On the Albany-Chicago route described above, for example, a single rate could be charged to shippers. The revenues derived from charging that rate would be divided between Conrail and D & H pursuant to a predetermined formula.

Regulation is also a factor in competition. Prior to the mid and late 1970's, price competition between railroads was considered to be unhealthy for the railroad industry and the consumer. Therefore, the establishment and regulation of rates was the province of the Interstate Commerce Commission ("ICC"). The ICC frequently encouraged or compelled the railroads to establish a system of "equalized joint rates". Under that system, the same rate applied equally over all single and joint routes serving a particular corridor.² In addition, a joint rate could not be changed or cancelled except with the concurrence of all carriers who participated in the relevant joint route, or after a lengthy proceeding before the ICC. The ICC also controlled other aspects of the railroad industry, including the imposition of reciprocal switching charges.³

The passage of the Railroad Revitalization and Regulatory Reform Act of 1976, Publ.L. No. 94-210, 90 Stat. 31, and the Staggers Rail Act of 1980, Publ.L. No. 96-448, 94 Stat. 1895 ("Staggers Act"), however, changed the face of railroad regulation by the ICC. In the preamble to the Staggers Act, Congress declared it to be the national policy "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 intended to substitute marketplace forces for regulation, the Staggers Act stripped the ICC of all jurisdiction to review rates and charges except in limited circumstances where they fall above or below certain jurisdictional thresholds. See 49 U.S.C. §§ 10701a and 10709. In addition, a carrier is now permitted to cancel a joint rate subject to certain exceptions. See 49 U.S.C. § 10705a(c).

II. COMPLAINT

Against the above background, D & H asserts that Conrail has violated Section two of the Sherman Act to the detriment of D & H. D & H claims that prior to Conrail's unlawful conduct, D & H provided an effective competitive alternative to Conrail service throughout many corridors. Conrail's conduct has allegedly interfered with that competition.

A. Count I

D & H first claims that Conrail has monopolized the railroad industry in the Eastern Territory.⁴ Paragraph eleven of the complaint asserts, in part:

In the Northeast, Conrail is the only railroad serving more than 2,600 stations with some 61,000 customers. Out of all the railroad stations in Connecticut and New Jersey, for example, Conrail exclusively serves over 75% and 80% respectively. In the Philadelphia and Northern New Jersey areas, Conrail exclusively serves over 98% of the railroad served stations. Any shipper wishing to ship from these captive stations must use Conrail until an open interchange⁵ is reached. Conversely, any shipper wishing to ship to these captive stations must use Conrail from the last open interchange to the stations served exclusively by Conrail. Any other railroad wishing to transport freight originating at or destined to Conrail's captive stations must deal with Conrail.

Conrail has allegedly exercised monopoly power, unlawfully monopolizing the Eastern Territory, through a series of acts described in paragraph fifteen of the complaint. D & H maintains that these acts were designed to single out routes in a corridor which were most profitable to Conrail, and force out the other routes in competition with Conrail's profitable routes. It is urged that Conrail selectively cancelled participation in joint rates on through routes effective July 25, 1981. When the joint rates were cancelled, the through routes became priced at a combination rate. Because combination rates are apparently higher than joint rates, these through routes, in which smaller railroads such as D & H participated, became disadvantaged competitively. Similar cancellations are claimed to have occurred in October of 1982 and July of 1984. D & H contends that Conrail has also refused to negotiate on the establishment of new joint rates which would be responsive to price competition and market conditions. Further, D & H asserts that Conrail has increased reciprocal switching charges to D & H to make the use of D & H lines prohibitively expensive to shippers, and that Conrail has engaged in other conduct designed to foreclose competition and monopolize the relevant market.

B. Count II

Count II of the complaint avers that Conrail has "attempted" to monopolize the relevant market in contravention of Section two of the Sherman Act. Paragraph twenty-three of the complaint lists several acts by Conrail which, in combination with those acts listed in Count I and discussed above, allegedly demonstrate Conrail's attempt to monopolize. These acts generally involve Conrail's use of its facilities in such a manner as to delay and impede the operation of D & H trains. For example, paragraph 23(a) provides that Conrail refuels its own trains on a main line used jointly by Conrail and D & H. The refueling purportedly delays priority trains of D & H.

C. Requested Relief

The complaint demands as relief treble damages pursuant to 15 U.S.C. § 15. The complaint does not provide the basis for damage calculation. Counsel for D & H did explain at oral argument, however, that D & H is seeking damages based on profits allegedly lost as a consequence of Conrail's actions. Trans. at 52-53. D & H also demands injunctive relief prohibiting Conrail from partaking in further anticompetitive conduct and restoring joint rates, among other things, cancelled by Conrail. Finally, plaintiff D & H...