ARCHER DANIELS MIDLAND COMPANY v. United States

• Decision Date: 16 July 1969
• Docket Number: No. 4-68 Civ. 166.,4-68 Civ. 166.
• Citation: 301 F. Supp. 328
• Parties: ARCHER DANIELS MIDLAND COMPANY and The Pillsbury Company, Plaintiffs, and Chicago and North Western Railway Company; Chicago Great Western Railway Company; Chicago, Milwaukee, St. Paul and Pacific Railroad Company; and Chicago, Rock Island and Pacific Railroad Company, Intervening Plaintiffs, v. UNITED STATES of America, and the Interstate Commerce Commission, Defendants, and Public Service Commission of the State of North Dakota; Chamber of Commerce of Grand Forks, North Dakota; North Dakota Mill and Elevator Association; North Dakota State Wheat Commission; Great Northern Railway Company; Union Pacific Railroad Company; Board of Trade of Kansas City, Missouri; Nebraska Consolidated Mills Company; and General Mills, Inc., Intervening Defendants.
• Court: U.S. District Court — District of Minnesota

301 F. Supp. 328

ARCHER DANIELS MIDLAND COMPANY and The Pillsbury Company, Plaintiffs, and Chicago and North Western Railway Company; Chicago Great Western Railway Company; Chicago, Milwaukee, St. Paul and Pacific Railroad Company; and Chicago, Rock Island and Pacific Railroad Company, Intervening Plaintiffs, v. UNITED STATES of America, and the Interstate Commerce Commission, Defendants, and Public Service Commission of the State of North Dakota; Chamber of Commerce of Grand Forks, North Dakota; North Dakota Mill and Elevator Association; North Dakota State Wheat Commission; Great Northern Railway Company; Union Pacific Railroad Company; Board of Trade of Kansas City, Missouri; Nebraska Consolidated Mills Company; and General Mills, Inc., Intervening Defendants.

No. 4-68 Civ. 166.

United States District Court D. Minnesota, Fourth Division.

July 16, 1969.

Swidler & Belnap, by Harold E. Spencer and Daniel J. Sweeney, Chicago, Ill., and Rider, Bennett, Egan, Johnson & Arundel, by Stuart W. Rider, Jr., Minneapolis, Minn., for plaintiffs.

William F. Cottrell, Chicago, Ill., and Stringer, Donnelly & Sharood, by Philip Stringer, St. Paul, Minn., for intervening plaintiff Chicago and North Western Ry. Co.

Winston, Strawn, Smith & Patterson, by Bryce L. Hamilton, Chicago, Ill., and Stearns & Goetteman, by Harry S. Stearns, St. Paul, Minn., for intervening plaintiff Chicago Great Western Ry. Co.

Thomas H. Ploss, Chicago, Ill., and Rider, Bennett, Egan, Johnson & Arundel, by Stuart W. Rider, Jr., Minneapolis, Minn., for intervening plaintiff Chicago, Milwaukee, St. Paul and Pacific R. R. Co.

Don McDevitt, Chicago, Ill., and Stringer, Donnelly, & Sharood, by Philip Stringer, St. Paul, Minn., for intervening plaintiff Chicago, Rock Island and Pacific R. R. Co.

J. Earl Cudd, Asst. U. S. Atty., for the District of Minnesota, for defendant United States.

Raymond M. Zimmet, Washington, D. C., for defendant Interstate Commerce Commission.

John I. Finsness, Fargo, N. D., for intervening defendants Public Service Commission of the State of North Dakota, Chamber of Commerce of Grand Forks, North Dakota, North Dakota Mill and Elevator Association, North Dakota State Wheat Commission, Board of Trade of Kansas City, Missouri, and Nebraska Consolidated Mills, Co.

Byron D. Olsen and Curtis H. Berg, St. Paul, Minn., for intervening defendant Great Northern Ry. Co.

Howard E. Roos, Omaha, Neb., for intervening defendant Union Pacific R. R. Co. David C. Priebe, Minneapolis, Minn., for intervening defendant General Mills, Inc.

Before HEANEY, Circuit Judge, and DEVITT and NEVILLE, District Judges.

NEVILLE, District Judge.

Five railroads,¹ operating between Omaha, Nebraska, the Twin Cities (Minneapolis and St. Paul, Minnesota area,) and Chicago, Illinois filed and published tariff schedules, permitting what is called "milling-in-transit" privilege at the Twin Cities for wheat shipped on a through rate of 32.5 cents per cwt. from Omaha to Chicago. The transit privilege permits wheat shipped from Omaha² through Chicago to points east of the Illinois-Indiana border under a tariff rate of 32.5 cents per cwt. to Chicago to be stopped and unloaded at the intermediate point of the Twin Cities, and there stored, processed and manufactured into flour. The flour later is shipped on to Chicago without losing the benefit of the 32.5 cents per cwt. through rate. The proportional rate or charge from Omaha to Minneapolis is 25.5 cents and from Minneapolis to Chicago, 27.5 cents, a total of 53 cents, compared to the through rate from Omaha to Chicago of 32.5 cents, a difference of 20.5 cents per cwt. A similar transit privilege has been in effect for some years affecting some 12 or more flour mills located in cities in Minnesota south of the Twin Cities, the closest being Hastings, Minnesota, 18 rail-miles from the Twin Cities. April 25, 1966 the five railroads petitioned the Interstate Commerce Commission to make this transit privilege effective. The Examiner for the Commission on June 9, 1967, after a rather extensive evidentiary hearing entered an order denying the request on two grounds. He held (1) that the rates applicable under "the proposed milling-in transit privilege are noncompensatory and therefore unjust and unreasonable" under Section 1(5) of the Interstate Commerce Act,³ and (2) that the proposed tariffs are unduly preferential and prejudicial to millers in Nebraska, Kansas, Missouri, the Dakotas and elsewhere under Section 3 of that Act.⁴ He did not find unjust discrimination under Section 2 of the Act.⁵ On review of the Examiner's Order, the Interstate Commerce Commission (I.C.C.) (Division 2), after a hearing, on February 28, 1968, modified the Examiner's Order, and as so modified, affirmed it, limiting its findings however solely to the "noncompensativeness" of the proposed rates. After petitions for reconsideration had been filed the I.C.C. again affirmed the Examiner's Order. No mention is made by the I.C.C. in either of its orders of alleged discrimination (Sec. 2 of the Act) nor of preference and prejudice (Sec. 3 of the Act). The five railroads were ordered to cancel their schedules permitting the proposed milling-in-transit privilege at the Twin Cities.

May 16, 1968 the above action was filed with this court, brought by two Twin Cities flour millers Archer Daniels Midland Company (ADM) and The Pillsbury Company (Pillsbury) under 28 U.S.C. §§ 1336, 1398, 2284, 2321-2325 and 5 U.S.C. § 551 et seq. against the United States and the I.C.C. to enjoin, set aside and suspend the above orders of the I.C.C. Several of the railroads have intervened as plaintiffs, and some public bodies in North Dakota and Kansas, two milling companies and two additional railroads have become intervening defendants. On May 17, 1968 a judge of this court entered an order that until a three-judge court could be impaneled to hear argument and to make a decision, "the Interstate Commerce Commission is hereby restrained from making effective and enforcing its orders of February 28, 1968 and May 10, 1968." Thus for slightly more than a year as a result of this order the tariffs and schedules containing the milling-in-transit provision at the Twin Cities actually have been in effect and the railroads, ADM and Pillsbury have been operating thereunder.

For many years the I.C.C. has not allowed railroads to institute milling-intransit privileges at primary grain markets such as the Twin Cities area. Certain larger centers are designated as "rate break" points, including the Twin Cities. This absolute "rate break" rule was part of the complex grain rate structure devised by the Commission over thirty years ago and approved by the Supreme Court. See Board of Trade of Kansas City, Mo., v. United States, 314 U.S. 534, 62 S.Ct. 366, 86 L.Ed. 432 (1942).⁶ The present plaintiffs and the five railroads sought I.C.C. approval of the transit privilege and an order vacating the absolute "rate break" rule. After the Hearing Examiner issued his report but before the I.C.C. itself took any action in this case, the absolute "rate break" rule was vacated by the I.C.C. in Grain and Grain Products, 329 I.C.C. 824 (1967). Thus the present action is concerned only with the transit privilege and whether adequate proof to warrant it has been adduced.

The transit privilege designates the Twin Cities as a transit station on shipments from Omaha and related areas to Chicago or Milwaukee when the shipment ultimately is destined to stations east of the Illinois-Indiana state line. Wheat must be shipped to Minneapolis on which there is then paid the proportional rate from Omaha to Twin Cities of 25.5 cents. The outbound shipment from the Twin Cities can be either flour or wheat, but must be shipped in a minimum of 100,000 pounds per car. At this time an additional 7 cents per cwt. is paid, i. e. the balance of the 32.5 cents through rate, on the flour made of Omaha origin wheat. The transit privilege is further subject to several conditions:

1) Only one transit privilege is permitted.

2) Not more than 75 per cent of the weight of each inbound car of wheat may be applied against shipments of flour forwarded under the transit provision.

3) Not more than 50 per cent of the weight of each outbound shipment may be shipped at the transit balance of 7 cents to Chicago. The rest must be shipped at the normal local or proportional rate of 27.5 cents to Chicago.

The effect of the first condition is obvious — transit will be permitted only at the Twin Cities. The second condition reflects apparently the established fact that only 75 pounds of flour can be milled from 100 pounds of wheat. The third condition is the crucial one and will be discussed hereinbelow.

Subject to these conditions, the transit privilege offers the plaintiffs, ADM and Pillsbury, significant savings in shipping costs. They sought that reduction because of changes which they assert have taken place in the milling and baking industry. At one time the large eastern wholesale bakeries received sacked shipments of flour milled from either winter or spring wheat and blended the same by their own recipe at the bakery to achieve flour of the desired characteristics such as protein content and blending qualities. Particularly with the advent of covered hopper cars which permit bulk shipments of flour, these bakeries began to require flour preblended at the mill. Thus bread flour mills in Minneapolis need not only spring wheat from Minnesota and the Dakotas but also winter wheat from the Omaha market.⁷ They claim to need economical access to this winter wheat if they are to remain competitive in the sale of blended bakery flour to the east.⁸

The Commission's finding of noncompensativeness was based on a comparison of the out-of-pocket costs of the Omaha to Minneapolis to Chicago shipment with the revenue to be obtained therefrom. The average cost on the five railroads transporting wheat to Minneapolis and flour to...