Commonwealth Edison Co. v. Allis-Chalmers Mfg. Co., 14459.

• Citation: 335 F.2d 203
• Decision Date: 07 August 1964
• Docket Number: No. 14459.,14459.
• Parties: COMMONWEALTH EDISON COMPANY et al., Plaintiffs-Appellees, v. ALLIS-CHALMERS MANUFACTURING COMPANY et al., Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

335 F.2d 203 (1964)

COMMONWEALTH EDISON COMPANY et al., Plaintiffs-Appellees, v. ALLIS-CHALMERS MANUFACTURING COMPANY et al., Defendants-Appellants.

No. 14459.

United States Court of Appeals Seventh Circuit.

August 7, 1964.

Hammond E. Chaffetz, Richard M. Keck, W. Donald McSweeney, Edward R. Johnston, Holmes Baldridge, Chicago, Ill., for appellants.

Robert W. Bergstrom, Thomas L. Nicholson, Chicago, Ill., for appellees.

Before HASTINGS, Chief Judge, and SWYGERT and MAJOR, Circuit Judges.

SWYGERT, Circuit Judge.

This is an interlocutory appeal from an order of the district court sustaining plaintiffs' objections to interrogatories filed by defendants. Plaintiffs are sixteen public utilities engaged in generating and selling electricity. Defendants General Electric Company, Westinghouse Electric Corporation, and Allis-Chalmers Manufacturing Company manufacture power transformers and turbine-generators. Defendants McGraw-Edison Company, Maloney Electric Company, and Wagner Electric Corporation manufacture power transformers.

The complaints charged defendants engaged in price fixing conspiracies in violation of section 1 of the Sherman Act, 15 U.S.C. § 1, and are an aftermath of the so-called Philadelphia electric conspiracy cases. Plaintiffs seek treble damages, pursuant to section 4 of the Clayton Act, 15 U.S.C. § 15, resulting from allegedly excessive prices paid for power transformers and turbine-generators purchased from defendants.

Defendants sought by the interrogatories to determine the extent plaintiffs passed on to their customers the purported excess charges paid for the electrical equipment. The district judge ruled that evidence of passing-on which defendants might adduce would be irrelevant as a matter of law. His opinion appears in 225 F.Supp. 332. Pursuant to 28 U.S.C. § 1292(b), the district judge certified to this court that his ruling involved a question of importance of which an immediate appeal would advance the ultimate termination of these actions.

The question certified to this court is whether plaintiffs should be required to answer interrogatories designed to discover if they passed on to consumers of electricity, in whole or in part, the alleged overcharges in their purchase of electrical equipment used to produce and distribute electricity; that is, is this evidence relevant as a matter of law.

Interrogatories substantially similar were before five other district courts in companion electrical treble damage litigation. In three of the actions, objections to the interrogatories were sustained.¹ In two cases, the interrogatories were or will be answered.²

The district judge in the instant cases based his decision primarily on Chattanooga Foundry & Pipe Works v. City of Atlanta, 203 U.S. 390, 27 S.Ct. 65, 51 L. Ed. 241 (1906). There, the municipality, which operated a waterworks, sought threefold damages under the antitrust laws because of the purchase of pipe at allegedly unreasonable prices caused by an illegal arrangement among suppliers. The Court affirmed the city's recovery of the overcharge (trebled) resulting from the violation. Mr. Justice Holmes, speaking for the Court, said that the city was injured in its property by having to pay more than the worth of the pipe. The Justice made the further observation that, "When a man is made poorer by an extravagant bill we do not regard his wealth as a unity * * *. We do not go behind the person of the sufferer. We say that he has been defrauded or subjected to duress, or whatever it may be, and stop there." Defendants correctly point out that the issue of passing-on was not raised in Chattanooga. Yet it is the start of a line of decisions that guides the resolution of the problem we face.

The Supreme Court in a later decision, Thomsen v. Cayser, 243 U.S. 66, 37 S. Ct. 353, 61 L.Ed. 597 (1917), iterated the measure of damages enunciated in Chattanooga (reimbursement of excess charges). In Thomsen, plaintiffs sought damages under the antitrust laws for injuries caused by unreasonable rates charged for transporting freight by vessel because of a combination in restraint of foreign trade. The Court said that plaintiffs alleged an unreasonable rate and if the charge was true "the excess over what was reasonable was an element of injury." Again, there was no mention of whether the shippers had absorbed the excess charges or had passed them on to their customers.

The pass-on defense under federal law was initiated in cases arising under the Interstate Commerce Act. Section 1 of that act forbids carriers from charging "unjust and unreasonable rates";³ section 2 forbids carriers charging or receiving a "greater or less compensation" for services than they charge or receive from others;⁴ and section 8 renders carriers who violate any provision of the act liable for "the full amount of damages sustained."⁵

Southern Pac. Co. v. Darnell-Taenzer Lumber Co., 245 U.S. 531, 38 S.Ct. 186, 62 L.Ed. 451 (1918), was an action by a shipper against several railroads to recover reparations awarded by the Interstate Commerce Commission because of excessive freight rates. The Court, in rejecting the pass-on defense, held that "the general tendency of the law, in regard to damages at least, is not to go beyond the first step." It said that, "The plaintiffs suffered losses to the amount of the verdict when they paid. Their claim accrued at once in the theory of the law and it does not inquire into later events." Moreover, the Court observed that the "carrier ought not to be allowed to retain his illegal profit" and the one to recover was the shipper.

The Court distinguished cases like Pennsylvania R.R. v. International Coal Mining Co., 230 U.S. 184, 33 S.Ct. 893, 57 L.Ed. 1446 (1913), in which a shipper who paid only the reasonable rate sued under section 2 of the Commerce Act for discrimination because some other shipper had paid less. The Court said that in discrimination cases the damages depend upon remoter considerations.

Defendants urge that Darnell-Taenzer is irrelevant to the applicability of the pass-on defense to antitrust treble damage suits because of Keogh v. Chicago & N.W. Ry., 260 U.S. 156, 43 S.Ct. 47, 67 L.Ed. 183 (1922). There, a conspiracy in restraint of trade increased the freight rates on plaintiff's product. When plaintiff complained to the Interstate Commerce Commission, the Commission approved the rates. Having no grounds, therefore, to seek reparation, plaintiff sought to recover in an action in antitrust for treble damages. The Court denied recovery, holding that no cause of action existed under the Sherman Act. The Court observed, however, that the case "is not like those cases where a shipper recovers from the carrier the amount by which its exaction exceeded the legal rate," citing Darnell-Taenzer. Instead, the Court compared the case to the discrimination case, Pennsylvania R. R. v. International Coal Mining Co., supra, and indicated that under the antitrust laws "as under section 8 of the Act to Regulate Commerce * * * recovery cannot be had unless it is shown, that, as a result of defendants' acts, damages in some amount susceptible of expression in figures resulted." The Court concluded that the alleged damage to Keogh was based on a legal rate which was charged to all shippers and that a lower rate might not have injured him at all since every competitor would have been entitled to the same reduction. The Court said that under these circumstances no court could find that, if the rate had been lower, Keogh would have benefited; "the benefit might have gone to his customers, or conceivably, to the ultimate consumer."

We agree with the district judge that in Keogh the Court's discussion of damages was not required for its holding and was dictum. The Court specifically said that the sole question for decision was whether there was a cause of action under the antitrust laws. It is patent, therefore, that the discussion of damages was hypothetical and not the ratio decidendi of the decision.

Defendants also contend that Darnell-Taenzer has no application to actions for damages under the antitrust laws because it applies only to recovery under section 1 of the Commerce Act for overcharges in rates, regardless of the absence of pecuniary loss. To support their contention, they cite Pennsylvania R.R. v. International Coal Mining Co., supra, which involved an action under section 2 of the Commerce Act for rate discrimination. In Pennsylvania the Court said that a plaintiff seeking recovery under section 1 may recover "the excess, not as damages but as overcharge"; whereas the Court held that a suit under section 2 "is limited to the pecuniary loss suffered and proved."

Analyzing Darnell-Taenzer, Pennsylvania, and subsequent cases, it is apparent that the Court did not draw the distinction defendants urge. In both reparation overcharge and discrimination cases, pecuniary loss on the part of the shipper must be shown. In Darnell-Taenzer, the court of appeals said, "The amounts awarded represent the actual pecuniary loss of the respective plaintiffs." (221 F. 890 at 892.) And the Supreme Court reiterated, "The plaintiffs suffered losses through the amount of the verdict when they paid." (245 U.S. at 534, 38 S.Ct. at 186.) In reparation cases the payment of the overcharge is presumptive evidence of damages, whereas in discrimination cases the plaintiff must prove damage by showing loss of customers or having lowered his prices to meet competition. This was made clear in two cases, Adams v. Mills, 286 U.S. 397, 52 S.Ct. 589, 76 L.Ed. 1184 (1932), ICC v. U. S. ex rel. Campbell, 289 U.S. 385, 53 S.Ct. 607, 77 L.Ed. 1273 (1933). Thus the distinction between these two types of cases relates to the method of proving pecuniary loss and not to the question of whether actual loss is suffered by the plaintiff. We conclude that Darnell-Taenzer is not as restrictive a holding as defendants contend but has broader implications both...