Southern Pacific Company v. United States

• Decision Date: 06 December 1967
• Docket Number: Civ. No. 02577.
• Citation: 277 F. Supp. 671
• Parties: SOUTHERN PACIFIC COMPANY and Union Pacific Railroad Company, Plaintiffs, v. The UNITED STATES of America and the Interstate Commerce Commission, Defendants.
• Court: U.S. District Court — District of Nebraska

277 F. Supp. 671

SOUTHERN PACIFIC COMPANY and Union Pacific Railroad Company, Plaintiffs, v. The UNITED STATES of America and the Interstate Commerce Commission, Defendants.

Civ. No. 02577.

United States District Court D. Nebraska.

December 6, 1967.

Raymond E. McGrath, Omaha, Neb., Alan C. Furth and Robert L. Pierce, San Francisco, Cal., for plaintiff Southern Pacific.

G. Clark Cummings, New York City, William P. Higgins, Omaha, Neb., for plaintiff Union Pacific.

David F. Turner, John H. D. Wigger, Larry Meyer, Dept. of Justice, Washington, D. C., Theodore L. Richling, U. S. Atty., Omaha, Neb., for defendant the United States.

Robert W. Ginnane, Fritz Kahn, Betty Jo Christian, Washington, D. C., for defendant Interstate Commerce Commission.

Dennis McCarthy, Salt Lake City, Utah, Ernest Porter, Denver, Colo., Donald R. Ross, Omaha, Neb., for defendant intervener Denver & Rio Grande.

E. Barrett Prettyman, Washington, D. C., Yale C. Holland, Omaha, Neb., for defendant intervener Western Pacific.

Before LAY, Circuit Judge, and ROBINSON and VAN PELT, District Judges.

LAY, Circuit Judge.

Plaintiffs, Southern Pacific and Union Pacific seek equitable relief to enjoin the Interstate Commerce Commission from enforcement of a supplemental order, dated January 6, 1966, modifying the Commission's order of February 6, 1923, entitled Control of Central Pacific by Southern Pacific, Finance Docket No. 2613.

While the one general issue before us is the legality of the preferential routing and solicitation by the Southern Pacific Company and the Union Pacific Railroad,¹ plaintiffs argue their case within the frame work of two basic questions. First, they challenge the propriety of modifying a condition originally imposed by the Interstate Commerce Commission upon the Southern Pacific when it acquired the Central Pacific Railway in 1923 (the Control case, 76 I.C.C. 508 (1923)). The second question concerns the legality of a 1924 agreement and the practices thereunder, providing for reciprocal solicitation and routing by Union Pacific and Southern Pacific in each other's behalf.

By its 1923 order the Commission approved and authorized, subject to nine conditions, the acquisition by the Southern Pacific of control of the Central Pacific Railway Company through lease and stock ownership. The fifth condition, hereinafter referred to as condition (e), read as follows:

"That the Southern Pacific Company shall cooperate with the Union Pacific Railroad Company to secure by active solicitation the routing of the maximum of freight traffic via the lines of the Union Pacific Railroad Company and the Central Pacific Railway Company through the Missouri River and Ogden, Utah, as parts of one connected continuous line, between all points in California and Oregon north of and including Caliente and Santa Margarita, Calif., and south of and including the Klamath Falls branch and Kirk, Ore., on the one hand, and points north and west of a line along the northern boundaries of Oklahoma and Arkansas, to the Mississippi River, thence along the Mississippi and Ohio Rivers (but not including intermediate cities on the Ohio River) to Wheeling, W. Va., and thence on a line drawn just east of Pittsburgh, Pa., and Buffalo, N. Y., to Niagara Falls, N. Y." (Emphasis ours.)

At the time, the Denver and Rio Grande Western Railroad (hereinafter the Rio Grande) acquiesced in the 1923 condition. However, in 1957, the Rio Grande sought to reopen the control proceedings for modification of condition (e). In 1962, the Commission in a 6-5 decision refused to modify the original condition so as to eliminate all reference to the Union Pacific. The Rio Grande then sought relief from the District Court in Colorado. The Commission's order was set aside by the District Court and the proceeding remanded for the Commission to consider additional evidence. Denver & R.G.W. R.R. v. I.C.C., D.C., 229 F.Supp. 249 (1964). Upon reconsideration, the Commission revised its prior holding and modified the condition omitting the Union Pacific's name as originally recommended by the Examiner.² The Commission likewise held the 1924 agreement and practices of the Southern Pacific and the Union Pacific contrary to the National Transportation Policy (49 U.S.C. prior to § 1), and their preferential routing in violation of Section 3(4) of the Interstate Commerce Act, 49 U.S.C. § 3(4).

We sustain the action of the Commission and deny the injunctive relief requested.

It is helpful to understand the routes of the various carriers as demonstrated on the attached map, Appendix A. The Union Pacific operates the route east of Ogden via Cheyenne to Omaha, and also makes interchanges at Denver with the Rio Grande, via routes through northeastern Colorado and central Kansas east to Omaha and Kansas City. The southern route of the Southern Pacific is a transcontinental route from the west coast to Kansas City via El Paso. The Central Pacific, now the Southern Pacific, by complete merger in 1959 (Southern Pac. Co. Merger, 307 I.C.C. 806) connects at the Utah Gateway with both the Rio Grande and the Union Pacific and goes west to California.

Western Pacific, an intervening defendant,³ competes with the Southern Pacific both on its north-south route through California and Oregon and its east-west route from San Franciso to Ogden. Western Pacific connects at Salt Lake City with both the Rio Grande and the Union Pacific. The Rio Grande operates two main lines between Denver and Ogden. One is via Pueblo, the other is through the Moffat Tunnel and the Dotsero cutoff. West of Dotsero the lines are identical to Ogden. The Dotsero cutoff and the Moffat Tunnel were opened in 1934, thereby reducing the distance between Denver and Ogden by 175 miles.

The Commission observed:

"The differences in distance, whether in favor of the Southern Pacific-Rio Grande routes or the Southern Pacific-Union Pacific routes, are insignificant from the standpoint of length of hauls and `maintenance of schedules', and therefore the two routes are substantially comparable. * * *" 317 I.C.C. 469, 475-76 (1962).

Under condition (e) and the 1924 agreement between Southern Pacific and Union Pacific, the plaintiffs have been routing and soliciting in favor of each other's lines at the Utah Gateway, in preference to any other interchanging lines.

Plaintiffs now urge that the Commission has no power to reopen the 1923 Control proceeding or to modify condition (e). We disagree. As the Commission said in its 1966 order:

"Future changes of circumstances were undoubtedly one of the reasons which prompted inclusion of condition (i) reserving jurisdiction to reopen for supplemental orders as appropriate in the light of future events."⁴

The Commission "has the power to retain jurisdiction for the purpose of making modifications that it finds necessary in the light of subsequent circumstances * * *." Baltimore & O. R.R. v. United States, 386 U.S. 372, 387, 87 S.Ct. 1100, 1108, 18 L.Ed.2d 159 (1967). See also 49 U.S.C. § 5(9). Any rule to the contrary could illogically bind our national transportation system to archaic philosophies beneficial only for conditions of the past, but detrimental to the public welfare today.

We turn to the substantive problems involved. A brief background is necessary. In 1862 and 1864 the Pacific Railroad Acts⁵ were passed by Congress. These Acts authorized the building of the first transcontinental railroad in this country which found completion in the historic joinder at Promontory, Utah, of the two roads, the Union Pacific and the Central Pacific, on May 10, 1869.

Thereafter, in 1887, the Interstate Commerce Act was passed, and at that time, as recently observed, the railroads, then "had a practical monopoly of freight transportation * * * and discriminations flourished." American Trucking Assoc., Inc. v. Atchison, T. & S.F. Ry., 387 U.S. 397, 406, 87 S.Ct. 1608, 1613, 18 L.Ed.2d 847 (1967). As other roads began to develop in this country, railroads began to view the competitive future. In 1912 the Supreme Court was confronted with the control of the Southern Pacific by the Union Pacific. This was disapproved in United States v. Union Pac. R.R., 226 U.S. 61, 33 S.Ct. 53, 57 L.Ed. 124 (1912), as being a restraint of trade violative of the Sherman Antitrust Act of 1890.

Thereafter, because of the interlocking financial and physical relationships between Central Pacific and Southern Pacific's California lines, the Southern Pacific was forced to defend a lease and stock acquisition of the Central Pacific. This was similarly denied, with the Supreme Court making this relevant observation:

"The proof is ample that the policy of the Southern Pacific system has been to favor transportation on its line by securing for itself, whenever practicable, the carriage of freight which would normally move eastward or westward over the shorter line of the Central Pacific Railroad and its connections the central route, for its own much longer and wholly owned southern route. This course was limited by an arbitrary rule during the time the Union Pacific dominated the Southern Pacific from the stock purchase of Southern Pacific's stock by Union Pacific in 1901 until the so-called `unmerger' in 1913, as the result of the decision of this court in the Union Pacific Case United States v. Union Pac. R.R., 226 U.S. 61, 33 S.Ct. 53, 57 L.Ed. 124. The compelling motive of this course of conduct is obvious. The Southern Pacific owns and controls the southerly route, and receives 100 per cent. of the compensation for freight transported by its road and water lines. Over the Central Pacific route it receives but a fraction of the freight, because the Union Pacific with its Eastern connections take up the carrying from Ogden to the East. Self-interest dictates the solicitation and procurement of freight for the longer haul by the Southern Pacific lines." United States v. Southern Pac. Co., 259 U.S. 214, 231, 42 S.Ct. 496,

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