A. Lindberg & Sons, Inc. v. United States

• Decision Date: 03 March 1976
• Docket Number: No. M-20-73 CA.,M-20-73 CA.
• Citation: 408 F. Supp. 1032
• Parties: A. LINDBERG & SONS, INC., a corporation, Plaintiff, v. UNITED STATES of America and Interstate Commerce Commission, Defendants.
• Court: U.S. District Court — Western District of Michigan

408 F. Supp. 1032

A. LINDBERG & SONS, INC., a corporation, Plaintiff, v. UNITED STATES of America and Interstate Commerce Commission, Defendants.

No. M-20-73 CA.

United States District Court, W. D. Michigan, N. D.

March 3, 1976.

COPYRIGHT MATERIAL OMITTED

Aaron Lowenstein, Negaunee, Mich., for A. Lindberg & Sons.

John H. D. Wigger, Dept. of Justice, Washington, D. C., for the U. S.

Manny H. Smith, I. C. C., Washington, D. C., for the I. C. C.

Before ENGEL, Circuit Judge, FOX, Chief District Judge, and MILES, District Judge.

ENGEL, Circuit Judge.

This is an action brought before a three-judge district court by A. Lindberg and Sons, Inc., under 28 U.S.C. §§ 1336, 1398, 2284 and 2321-2325, to review, vacate and set aside a decision and order of the Interstate Commerce Commission dated July 11, 1972 and entered in docket No. 35358, A. Lindberg and Sons, Inc. v. Chicago and North Western Transportation Co., et al. The order complained of adopted, with modifications, the report and order recommended by the hearing examiner denying all relief to Lindberg as complainant.

The proceedings before the Interstate Commerce Commission were handled under the modified procedure as set forth in Rules 45-54 inclusive, of the Commission's General Rules of Practice 49 C.F.R. § 1100.45-54. Charges and issues involved were presented by the filing of verified statements, exhibits and arguments related thereto. Lindberg's complaint before the Commission alleged that the defendant railroads had violated §§ 1(5), 2 and 3(1) of Part I of the Interstate Commerce Act, 49 U.S.C. §§ 1(5), 2, 3(1) when the railroads refused to extend to Lindberg certain reduced rates which were published in tariffs pertaining to the shipment of bentonite clay to certain taconite plants.

THE FACTS

Lindberg is engaged in the business of highway and heavy construction in the Upper Peninsula of Michigan. In 1970 it entered into a contract with Rust Engineering Company, the prime contractor in a development project for the Mead Corporation, at its paper mill located at Groos, Michigan, just north of Escanaba. Lindberg's part in the project was to build a watertight lining for a pulp mill sediment pond. For this purpose, it ordered 8,720 tons of bentonite clay from the American Colloid Company. Bentonite is a high quality clay which has as its principal characteristic a high propensity for liquid absorption. Its principal use is as a cohesive or binder. While similar clays, called subbentonites, can be found elsewhere and in foreign countries, they have a lesser propensity for liquid absorption. The primary source of bentonite is the Black Hills area centering about Belle Fourche in western South Dakota and Upton in eastern Wyoming. This lawsuit involves the shipment of the 8,720 tons of bentonite from Belle Fourche to Groos, a distance of about 1400 miles, and the rates charged by the intervenor railroads on those movements.¹

The rates for the shipment of bentonite from Belle Fourche was earlier challenged in a complaint filed July 17, 1961 in American Colloid Company v. Akron, C. & Y. R. Co., 321 ICC 92, and was directed to the carload rates on bentonite clay from Belle Fourche to points in the western trunkline and the official territories, it being claimed that the rates were violative of §§ 1 and 3(1) of the Act. The § 1 claim challenged the reasonableness of the published rates. After extensive investigation and findings concerning comparative rates and costs, it was found by the Commission that

". . . the record does not establish that the revenue-cost relationship under the assailed rates results in unreasonably high profits for the defendants". 321 ICC at 109

It is noteworthy for our purposes here to observe that in finding the rates not to be unreasonable, the Commission recognized that the rates from Belle Fourche were blanketed over wide geographic areas and bore little relationship to distance.² It is this basic rate found not unreasonable in American Colloid, as stepped up from time to time by general increases, which Lindberg was obliged to pay for the transportation of the bentonite it purchased from American Colloid. Thus, for the shipments of bentonite delivered to Groos in 1970, Lindberg paid $19.48 per ton and for those in 1971, it paid $22.02 per ton.

In 1964 interested steel and iron ore companies joined together to apply for a special lower rate for the shipment of bentonite to taconite plants located in Michigan and Minnesota, including shipments of taconite to the Empire Mine in Marquette, Michigan, a distance of approximately 50 miles beyond Groos on the line of shipment from Belle Fourche and other stations where the bentonite originated. In the iron ore pelletizing industry bentonite is used to produce iron ore pellets extracted from the low grade taconite found in Minnesota and Michigan. Approximately one net ton of clay is used in the production of 125 long tons of pellets.

Large quantities of the clay are demanded by the industry, and in 1969, 363,219 net tons of bentonite were so consumed. The application cited as reasons for the proposed reduced rates that:

"Iron ore pelletizing plants with very large total capacity are now operating or are under construction at these destination points and reduction is necessary to prevent the pellet producers from turning to import clay by water from European sources and depriving movement of western clay."

Accordingly reduced rates were published for bentonite moving from stations in Wyoming and South Dakota to stations in Michigan and Minnesota with the result that the rate per ton to the Empire Mine in 1970 was $11.91 or $7.57 less than the $19.48 rate paid by Lindberg. Likewise in 1971 the rate was $13.46 or $8.56 less than the $22.02 paid by Lindberg.

While rates to taconite plants in Minnesota and Michigan from all origins were equalized without regard for distance, the reduced rate was conditioned upon shipment of a minimum of 100,000 pounds of clay per cars of 2400 cubic feet or less, and 140,000 pounds of clay in cars exceeding that capacity. Likewise, the rate was made applicable only on clay used as a binder in the production of iron ore pellets "which receive a subsequent movement by rail or water".

Lindberg claims that upon making inquiry into the source of the required clay, it contacted the Johns-Manville Company. On May 19, 1970, Mr. Robert Fee, district manager of Johns-Manville, wrote Lindberg in part:

"Referring to our letter of quotation on supply of Bentonite, we have now learned from the Railroad that if we give them notice within the next two weeks we are assured of a freight rate of $11.34 per ton for this movement, rather than the $18.60 shown in our quotation letter."

While the authenticity of the letter from Johns-Manville seems not to be disputed, there was no further evidence of record as to what individual from the railroads might have furnished such information and beyond that, from which railroad such individual might have come, and accordingly the hearing examiner and the Commission saw fit to give only limited weight to the letter, it being essentially unsupported hearsay. It was also claimed by Lindberg that upon the strength of the Johns-Manville letter, it submitted a bid on the Mead job based upon anticipated freight rates as published for and applicable to the taconite plants. It is not shown that this alleged reliance upon the reduced rate was brought about by any conduct or representations by the carriers. Johns-Manville was never called upon to make good on its reduced quotation and apparently Lindberg proceeded to deal directly with American Colloid in purchasing the needed bentonite.

SCOPE OF REVIEW

Judicial review of orders of the Interstate Commerce Commission is narrowly limited. 5 U.S.C. § 706(2) provides in relevant part:

"To the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action. The reviewing court shall —

* * * * * *

(2) hold unlawful and set aside agency action, findings, and conclusions found to be —

(A) arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law;

* * * * * *

(E) unsupported by substantial evidence . . .

* * * * * *

In making the foregoing determinations, the court shall review the whole record or those parts of it cited by a party, and due account shall be taken of the rule of prejudicial error."

Each of the above-quoted subsections provides a separate standard for review. Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 95 S.Ct. 438, 42 L.Ed.2d 447 (1974). Under § 706(2)(E), our scope of review is limited to a determination of whether the Commission's findings are supported by "substantial evidence". Ill. Central R. Co. v. Norfolk and Western R. Co., 385 U.S. 57, 87 S.Ct. 255, 17 L.Ed.2d 162 (1966). The Supreme Court has defined the term "substantial evidence" as:

". . . `enough to justify, if the trial were to a jury, a refusal to direct a verdict when the conclusion sought to be drawn from it is one of fact for the jury.'" Ill. Central R.R., supra, at 66, 87 S.Ct., at 260, N.L.R.B. v. Columbian Enameling and Stamping Co., 306 U.S. 292, 59 S.Ct. 501, 83 L.Ed. 660 (1939).

We may not reverse the findings of the Commission simply because we might draw different inferences from the evidence. It is the job of the Commission to make findings of fact and the court may not substitute its own conclusions for those fairly drawn by the Commission from the evidence. United States v. Pan American Petroleum Corp., 304 U.S. 156, 58 S.Ct. 771, 82 L.Ed. 1262 (1938), Ill. Central R. Co., supra, 385 U.S., at 69, 87 S.Ct. 255.

Under § 706(2)(A), Commission action may also be set aside if it is "arbitrary and capricious". Under this standard Commission action will be...