Delaware & Hudson Ry. Co. v. Consolidated Rail Corp.

• Decision Date: 20 April 1990
• Docket Number: D,No. 1123,1123
• Parties: 1990-1 Trade Cases 69,001 DELAWARE & HUDSON RAILWAY COMPANY, Appellant, v. CONSOLIDATED RAIL CORPORATION, Appellee. ocket 89-9034.
• Court: U.S. Court of Appeals — Second Circuit

Page 174

902 F.2d 174

1990-1 Trade Cases 69,001

DELAWARE & HUDSON RAILWAY COMPANY, Appellant, v. CONSOLIDATED RAIL CORPORATION, Appellee.

No. 1123, Docket 89-9034.

United States Court of Appeals,

Second Circuit.

Argued April 4, 1990.

Decided April 20, 1990.

James K. Manning (Elizabeth Storch, and Brown & Wood, New York City on the brief) for appellant Delaware & Hudson Ry. Co.

Thomas E. Zemaitis, Philadelphia, Pa. (Laurence Z. Shiekman, Stephen J. Cipolla, Michael A. Ceramella, and Pepper, Hamilton & Scheetz, Philadelphia, Pa.; Scott A. Barbour, and McNamee, Lochner, Titus & Williams, Albany, N.Y.; Bruce B. Wilson, Constance L. Abrams and Consol. Rail Corp., Philadelphia, Pa., on the brief) for appellee Consol. Rail Corp.

Before FEINBERG, TIMBERS and WALKER, Circuit Judges.

TIMBERS, Circuit Judge:

Appellant Delaware & Hudson Railway Co. ("D & H") appeals from a summary judgment entered November 20, 1989 in the Northern District 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. monopolization, denial of an "essential facility" and attempted monopolization. On appeal, D & H asserts as error the district court's rejection of each of these three claims. It asserts that the court misconstrued the applicable law and, contrary to the approved practice at the summary judgment stage, failed to draw proper factual inferences in its favor.

After careful consideration, we hold that D & H's contentions are meritorious. For the reasons which follow, we vacate the judgment of the district court and remand the action.

I.

We summarize only those facts and prior proceedings believed necessary to an understanding of the issues raised on appeal.

A brief overview of recent developments in the freight railroad industry may help to place this dispute in context. Conrail was organized in the early 1970's in an effort to preserve the viability of freight transportation by rail in the northeastern and midwestern United States. Regional Rail Reorganization Act Cases, 419 U.S. 102, 108-09, 95 S.Ct. 335, 341-42, 42 L.Ed.2d 320 (1974). Several large railroads, including the giant Penn Central, had become insolvent. Congress saw as the solution a single system run on a for-profit basis. Id. Subsequently, Conrail absorbed still more insolvent railroads.

D & H is a much older and smaller system than Conrail. It controlled about 1,700 miles of track at its peak, while Conrail controls about 17,000. Conrail does not challenge the fact that, as a result of the disparity, D & H is forced to rely on Conrail's system in order to compete. In the market involved on this appeal--shipment of newsprint from eastern Canada to locations in the mid-Atlantic states of this Country--only Conrail can provide transport from start to finish in most instances.

An example used by the district court and by both parties in their briefs may illustrate the parties' relationship: A newsprint shipper seeks to have newsprint delivered from a point in Quebec, Canada, to Lancaster, Pa. There are two relevant options. One option would entail delivery via a Canadian railroad to Conrail's border facility. Conrail then would carry the cargo on its tracks for the entire journey. Under the other option, after receiving the cargo at its border facility, D & H would carry the cargo on its tracks only as far as Harrisburg, Pa. From there, it would have to complete the journey on Conrail's tracks.

Most of D & H's newsprint shipments therefore require the cooperation of Conrail. That cooperation takes the form of "joint rates". A joint rate is a cooperative rate--less than the sum of the separate rates of the individual railroads--charged to the shipper when the shipment requires the use of the tracks of two or more railroads. Each railroad's share of the rate usually is in proportion to the percentage of miles traveled on that railroad's tracks.

Until 1980, the Interstate Commerce Commission required cooperation in the setting of joint rates. In that year Congress moved to deregulate the railroads. The Staggers Rail Act of 1980, 49 U.S.C. Sec. 10101 et seq. (1988), left to the railroads the decision whether or not to cooperate, albeit subject to antitrust and other laws. H.R.Conf.Rep. No. 1430, 96th Cong., 2d Sess. 83 (1980), reprinted in 1980 U.S.Code Cong. & Admin.News 3978, 4110, 4114.

The dispute leading to this appeal arose when Canadian shippers and railroads sought to lower rates so that rail carriage of newsprint could compete more readily with carriage by truck. Conrail agreed to lower its rates on trips where it was the sole American carrier. It did not decline outright to cooperate in cases where it was the secondary ("short haul") carrier to D & H, but instituted a policy, called "make or buy", that achieved the same effect. Under that policy, Conrail would agree to the reduced rate only if its profit, called "contribution", matched its profit on the route where it was the sole carrier.

The effect of the make or buy policy can be demonstrated by reference to the example referred to above. On a Quebec-Lancaster carriage entirely on Conrail tracks, Conrail would earn $30,000 in revenue, less $20,000 in costs, for a contribution of $10,000. Prior to the make or buy policy, Conrail's revenue for the Harrisburg-Lancaster short haul route, when D & H was responsible for the long haul, would be $2,000, less costs of $750, for a contribution of $1,250. The make or buy policy was intended to assure that Conrail would receive the same contribution for any carriage in which it participated, whether it was the short or long haul carrier. Accordingly, under its new policy, Conrail demanded a contribution of $10,000 for the Harrisburg-Lancaster short haul route, an increase of 800%. The price for D & H's failure to agree to those terms was the denial by Conrail of any joint rates.

Conrail's action placed D & H in a bind between giving up almost all of its profits on a given route and losing entirely the ability to carry freight on the route. It decided not to concur in joint rates where the make or buy policy was in effect. It commenced the instant action in July 1986. In June 1988, D & H sought protection under Chapter 11 of the United States Bankruptcy Code.

After surviving a motion to dismiss, 654 F.Supp. 1195 (N.D.N.Y.1987), and after extensive discovery, D & H's antitrust claims were rejected by the district court on Conrail's motion for summary judgment. The three claims, all of which relate to the same product market (shipment of newsprint from eastern Canada to the mid-Atlantic states) and the same conduct (Conrail's make or buy policy), are those set forth in the second paragraph of this opinion.

From the summary judgment rejecting these claims, this appeal was taken by D & H which asserts that, since there are genuine issues of material fact with respect to the three claims, summary judgment was improper. We agree.

II.

On an appeal from a summary judgment, we review the record de novo to determine whether there are genuine issues of material fact. Fed.R.Civ.P. 56(c). We assess the record in the light most favorable to the non-movant and we draw all reasonable inferences in its favor. Ramseur v. Chase Manhattan Bank, 865 F.2d 460, 465 (2 Cir.1989). The non-movant, however, who must sustain the ultimate burden of proof, must demonstrate in opposing a summary judgment motion that there is some evidence which would create a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Conclusory allegations will not suffice to create a genuine issue. There must be more than a "scintilla of evidence," Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986), and more than "some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).

III.

We turn first to the question whether the make or buy policy constituted the offense of monopolization under Sec. 2 of the Sherman Act, 15 U.S.C. Sec. 2 (1988). To establish the defendant's liability, the plaintiff must demonstrate "(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." United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 1703-04, 16 L.Ed.2d 778 (1966).

(A)

Addressing the second element first, we must affirm the district court's ruling unless D & H has demonstrated that there is a genuine issue of material fact as to whether Conrail's make or buy policy constituted willful anti-competitive conduct in the relevant newsprint transportation market. Conrail's most significant contention in this regard is that, since the policy was intended to increase short-term, as well as long-term, profits, Conrail is insulated from liability.

Conrail finds support for this contention primarily in two opinions. The first is Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 105 S.Ct. 2847, 86 L.Ed.2d 467 (1985). There the Court affirmed a decision that the defendant had engaged in actionable conduct in its refusal to continue cooperating with a competitor. The Court held that a monopolist would not be liable merely because its actions adversely affected a competitor, if such actions were motivated by a valid business justification. Id. at 605, 105 S.Ct. at 2858. In determining that there was no valid justification, the Court found significant the fact that the defendant "was willing to sacrifice short-run benefits and consumer goodwill in exchange for a...