Shaw Warehouse Co. v. Southern Railway Co.

• Decision Date: 03 March 1961
• Docket Number: No. 18138.,18138.
• Citation: 288 F.2d 759
• Parties: SHAW WAREHOUSE COMPANY, Birmingham Ice and Cold Storage Company, and Boggs Cold Storage Company, Appellants, v. SOUTHERN RAILWAY COMPANY et al., Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

288 F.2d 759 (1961)

SHAW WAREHOUSE COMPANY, Birmingham Ice and Cold Storage Company, and Boggs Cold Storage Company, Appellants, v. SOUTHERN RAILWAY COMPANY et al., Appellees.

No. 18138.

United States Court of Appeals Fifth Circuit.

March 3, 1961.

David J. Vann, Birmingham, Ala., A. Alvis Layne, Jr., Washington, D. C., E. L. All, D. H. Markstein, Jr., Francis H. Hare, Birmingham, Ala. (White, Bradley, Arant, All & Rose, Hare, Wynn & Newell, Markstein & Cooper, Birmingham, Ala., of counsel), for appellants.

Jos. F. Johnston, Birmingham, Ala., William D. McLean, Washington, D. C., L. Drew Redden, Leigh M. Clark, William S. Pritchard, Birmingham, Ala. (Cabaniss & Johnston, Birmingham, Ala., Rogers, Howard & Redden, Birmingham, Ala., N. K. Sneed, III, Washington, D. C., of counsel), for appellees.

Before HUTCHESON, BROWN and WISDOM, Circuit Judges.

WISDOM, Circuit Judge.

Shaw Warehouse Company, Birmingham Ice and Cold Storage Company, and Boggs Cold Storage Company sued the Southern Railway Corporation and two of its subsidiaries — The Alabama Great Southern Railway Company and The Georgia Industrial Realty Company¹ — under Sections 8 and 9 of the Interstate Commerce Act.² 49 U.S.C.A. § 8 and § 9. The complaint alleges that the defendants violated Sections 2, 3(1), and 6(7) of the Act.³ 49 U.S.C.A. §§ 2, 3 (1), 6(7). These sections prohibit a railroad from giving "any undue or unreasonable" concession, such as a preference or rebate, or from departing from published tariffs.

The case is unusual. The plaintiffs are not shippers or receivers of freight. They do not purport to render transportation services. Shaw Warehouse is served by Southern, but the other plaintiffs have no direct relationship with the carrier. The plaintiffs are public warehouse companies in Birmingham, Alabama. Each claims damages for business losses attributable to discriminatory rental practices in Southern's operation of a terminal, the Birmingham Food Terminal Corporation. The Act goes back almost seventy-five years. 24 Stat. 379 (1887). In a number of cases, Courts⁴ and the Interstate Commerce Commission have held that a railroad's rental practices in operating a terminal may violate the Act,⁵ but we have been able to find only one case in which a warehouseman sued a carrier for damages based on discriminatory rental practices.⁶

The complaint alleges that the Terminal leased warehouse facilities to the plaintiffs' competitors at rentals lower than the prevailing rentals for such facilities in Birmingham and did not require the tenants to make timely payments of rent. Such concessions would reduce the tenants' need for working capital. As a result of this unlawful advantage, the plaintiffs say, their competitors at the Terminal were able to cut rates and offer attractive inducements to customers — causing the plaintiffs to lose some of their storage accounts and to make costly rate reductions to keep other accounts. Southern, so the argument runs, expected to offset losses from concessions with increased freight revenues.

Southern denies that it made any undue concessions, asserts that there was no discrimination in relation to transportation (prerequisite to the plaintiffs' recovery under the Act), and insists that in any event there was no causal connection between its actions and the alleged injury, if any, to the plaintiffs. Southern argues that the plaintiffs seek to protect an entrenched warehousing position at the expense of consumers and the food distribution industry in the Birmingham area.

The district court consolidated the three suits for trial before a jury on the sole issue of the defendants' liability.⁷ The court narrowed the major factual issues to two: (1) "Was the rent charged to the tenants of the Birmingham Food Terminal a fair rental, in view of all the circumstances, a fair market rental, or was it less than the fair market rental, or was it less than a compensatory rental?" (2) "If you decide that it was a fair market rental and that it was a compensatory rental, then there would be a second question because the plaintiff is saying in each case that if it is conceded that the rental was a fair market rental or a compensatory rental, the railroad was guilty of unlawfully extending its credit to the tenants by failing to use due diligence in collecting the rent." The jury returned verdicts for the defendants.

We hold that the district court properly refused to direct a verdict, properly submitted the case to the jury, and properly charged the jury. Substantial evidence supports the verdicts.

I.

A compressed review of the complex background facts relating to the promotion and financing of the Terminal is essential to an understanding of the issues.

For several years prior to 1954, Southern attempted to sell certain property in Birmingham known as the Finley Yard. This was the site of an abandoned round-house and some twenty dilapidated buildings that became obsolete when Southern substituted diesel locomotives for steam locomotives. In January 1954 the Jefferson County Truck Growers Association, a farmers cooperative, showed an interest in the property as a possible location for a new produce market outside of the congested business section of Birmingham. The Truck Growers are not shippers or receivers of freight in interstate commerce, and could not conceivably compete with the plaintiffs. The Association's interest happened to coincide with a program of the railway for developing produce terminals in Chattanooga, Knoxville, Louisville, Richmond, and other cities as a bona fide freight-producing endeavor. So, the defendants say. Using the Truck Growers Association as a nucleus for a unified food warehousing facility located at a point outside the reciprocal switching district, Southern expected to gain new revenues estimated at $300,000 to $500,000 a year. The location would allow the Terminal to be served exclusively by Southern and its system lines, giving Southern a virtual monopoly of the produce traffic and forcing produce dealers in the area to move to the Terminal or perish. So, the plaintiffs say.

In April 1954, to help the initial promotion, Southern employed one Joseph DeOreo, a professional promoter experienced in railroad freight promotions.⁸ Southern, working with the Truck Growers, expanded the project into a fully integrated food terminal, including cold and dry storage warehouses, to be used in storing, processing, and distributing food and related products. The facilities were to be leased for long terms, at the expiration of which the property would be sold to the tenants. The organizing efforts went on for months. They were open and above board. Anyone had the right to participate — a right of dubious value to established warehouses long settled at their own locations. In February 1955 Southern and other interested persons finally organized the Birmingham Food Terminal and incorporated it, primarily as a conduit to Southern but also to establish a legal entity to deal with financing companies and contractors. The Terminal corporation is a shell; it is a non-profit corporation having no office space and no employees.

The original stockholders in the Terminal Corporation were the prospective tenant-purchasers. Only two of these, Nelson Company and Birmingham Terminal Cold Storage Company, were competitors of the plaintiffs.

The organizers' plan contemplated a sale of the Finley property (84.935 acres at $2500 an acre) from Southern through the Realty Company to the Terminal, without any down-payment and with the use of Southern's credit to obtain financing at a rate favorable to the purchasers. In payment, the Realty Company was to take a second mortgage from the Terminal on which four per cent interest would be paid annually, the principal to become due in twenty-five years. The Terminal Corporation was to finance the costs of construction by a loan from a lending agency, the loan to be guaranteed by Southern and secured by a first mortgage. Terminal would then lease the land and improvements to Realty Company for twenty-five years at a rental equivalent to the payments required under the first mortgage. This lease would be assigned to the lending agency as collateral security. Thereafter, the Realty Company would lease back to Terminal Corporation the same property for the same rental period at substantially the same rent. The property would then be sold to the tenant-purchasers, subject to the mortgages and leases.

To secure the first mortgage loan Southern would execute an agreement with the first mortgagor guaranteeing the performance of all the obligations assumed by Realty Company under its lease of the property from Terminal Corporation. The purpose of this guarantee was to permit each tenant to purchase his facility independent of the other tenants, without being required to make any down-payment on the purchase price. At the same time, it made possible a low interest rate because of reliance on Southern's credit. The purchase price included the interest costs of the interim financing required during the period of actual construction. The plaintiffs contend that the price did not represent anything like the full value of the property, since Southern was to pay a part of the costs and retain title to certain track and tramway areas. The alleged gap between the price and the value of the property is of critical importance, because the rental formula depended on the cost-base.

After the company was organized, Terminal obtained a commitment for a construction loan from the Equitable Life Assurance Society. Terminal engaged a building contractor. The contractor ordered steel fabricated specially for the building. Many of the prospective tenant-purchasers cancelled existing leases and made commitments preparatory to moving to the Terminal. The project was progressing smoothly according to plan when in September 1955 four competing carriers joined by Birmingham Ice, one of ...