U.S. v. Bessemer and Lake Erie R. Co.

CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)
Citation230 U.S. App. D.C. 316,717 F.2d 593
Decision Date30 August 1983

Page 593

717 F.2d 593
230 U.S.App.D.C. 316, 1983-2 Trade Cases 65,583
No. 82-2065.
United States Court of Appeals,
District of Columbia Circuit.
Argued 29 April 1983.
Decided 30 Aug. 1983.

Page 594

Appeal from the United States District Court for the District of Columbia (D.C.Criminal No. 81-00396).

Kenneth C. Anderson, Washington, D.C., with whom Timothy W. Bergin, Washington, D.C., was on the brief for appellant.

Marion L. Jetton, Attorney, Dept. of Justice, Washington, D.C., with whom John J. Powers, III, Washington, D.C., was on the brief for appellee.

Richard J. Flynn, Terence M. Hynes and Thomas H. Yancey, Washington, D.C., were on the brief for amicus curiae urging reversal.

Before TAMM and WILKEY, Circuit Judges, and McNICHOLS, * Senior District Judge, United States District Court for the District of Idaho.

Opinion for the Court filed by Circuit Judge WILKEY.

WILKEY, Circuit Judge:

Most of the iron ore used in the "Steel Belt" of Pennsylvania, West Virginia, Ohio, and Kentucky comes from mines in the northwestern Great Lakes region and eastern

Page 595

Canada. This ore reaches its destination after a three stage journey: by rail carrier to the Great Lakes, across the Great Lakes by freighters, and by rail carriers to the mills. The appellant in this case is a rail carrier engaged in carrying ore from the freighters to the mills.

Along with other rail carriers, the appellant was charged under the Sherman Antitrust Act with conspiring to inhibit or eliminate competition. The alleged conspiracy involved concerted action by several railroads to forego competition among themselves, to eliminate or reduce competition from independent private docks, and to eliminate or reduce competition from motor carriers. The appellant was convicted pursuant to a plea of nolo contendere, but subsequently appealed.

This appeal raises three issues: (a) whether appellant's nolo contendere plea in the district court prevents this court from entertaining appellant's attack on the legal sufficiency of the indictment, (b) whether the doctrine of primary jurisdiction requires referral of this case to the Interstate Commerce Commission, and (c) whether section 5a of the Interstate Commerce Act immunizes appellant's conduct from prosecution under the antitrust laws.


A. Legal Background

For many years the Interstate Commerce Commission has regulated the rates set by rail carriers. 1 In the early days of ICC regulation, it was generally accepted that the agency's regulation supplemented, rather than supplanted, the antitrust laws. 2 Despite the potential for antitrust liability, railroads continued to act jointly in setting rates. The ICC condoned the practice. 3

In the mid-1940's the tension between the ICC's policy of permitting joint action through rate bureaus and the policy expressed in the antitrust laws of forbidding cartels became more marked. In 1944 the Antitrust Division of the Justice Department sought to enjoin several western railroads from rate-setting practices which allegedly violated the Sherman Act. 4 In the same year the state of Georgia sought to charge 21 eastern railroads with "a conspiracy in the restraint of trade" which unfairly increased freight rates to and through Georgia. The Supreme Court, in Georgia v. Pennsylvania R.R. Co., 5 permitted the latter suit, holding that "regulated industries are not per se exempt from the Sherman Act." 6 Acknowledging that the state could not bring suit to change the ICC-approved rates directly, the Court nonetheless held that the conspiracy to fix rates illegally was amenable to antitrust prosecution.

Congress responded in 1948 by passing the Reed-Bulwinkle Act, 7 section 5a of the Interstate Commerce Act. 8 The Act authorized the creation of rate bureaus to set agreements on "rates, fares, classifications,

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divisions, allowances, or charges." 9 It granted relief "from the operation of the antitrust laws with respect to the making of such agreement, and with respect to the carrying out of such agreement in conformity with its provisions and in conformity with the terms and conditions prescribed by the Commission." 10

B. Factual Background

The appellant in this case joined a rate bureau formed soon after the passage of the Reed-Bulwinkle Act. The original agreement won ICC approval in 1950. 11 No claim has been made that the original agreement, by its terms, fails to satisfy the requirements of section 5a. 12

The anticompetitive activity prosecuted here arises not from the formation of the rate bureau, but from the response of the members of the rate bureau to a technological innovation in carrying iron ore across the Great Lakes. At the time the rate bureau was formed, ships known as "bulkers" transported virtually all iron ore to Lake Erie docks in an unprocessed, mud-like form. 13 The bulkers were unloaded by heavy cranes, the most common of which were called "huletts." A hulett unloads ore from the hold of a ship using a clamshell-like claw that dips into the ship, grabs a load of iron ore, and carries it to the dock. The ore may either be loaded directly into waiting rail cars or moved to storage. 14

The railroads owned the unloading facilities and docks used to service the huletts. 15 In addition to publishing charges for transporting the ore, the railroads published a series of charges for unloading the ore from the freighters. The structure of these rates reflected an expectation that huletts would be used to unload the bulkers. 16

In the early 1950's a new technology developed for "pelletizing" the ore into high-grade pellets the size of marbles. 17 This new technology made it possible to ship the ore in vessels called "self-unloaders," which can discharge their cargo through use of a conveyor belt system that is built into the vessel. 18 Since the self-unloaders can lift the ore to deck level and drop it onto the dock, they eliminated the need for huletts or similar dock unloading equipment. 19

The new pelletization technology threatened to render obsolete the substantial investment the railroads had made in huletts and other unloading facilities. In addition, the new technology created the prospect that private docks not equipped with huletts--which had been unable to compete for the business of unloading bulkers--could now compete for the business of self-unloaders. The entry of private docks into the business would break the railroads' control over the shipment of iron ore from the freighters to the steel mills.

Those railroads charged in the indictment responded to the new technology by reaching a new, separate agreement "as early as" 1956. 20 The goals of the new agreement were three-fold:

(a) to inhibit or eliminate competition from private docks in the handling of iron ore on Lake Erie;

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(b) to inhibit or eliminate competition among themselves in the transshipment of iron ore without seeking or obtaining ICC approval in accordance with the 5a Agreement procedures; and

(c) to inhibit or eliminate competition from motor carriers in the transportation of iron ore from docks on Lake Erie to steel mills. 21

Over the ensuing years, the members of the conspiracy took a series of actions to implement their agreement. 22 Some of these actions took place within the structure of the pre-existing rate bureau; others took place outside it. 23 The indictment lists nine categories of acts taken in furtherance of the conspiracy:

(a) removing private docks from line haul tariffs filed with the ICC in Washington, D.C. so as to prevent such docks from handling iron ore from self-unloaders;

(b) amending line haul tariffs filed with the ICC in Washington, D.C. to provide that commodity line haul rates would apply only from railroad-owned docks;

(c) refusing to grant commodity line haul rates for rail movements of iron ore from private docks to steel mills;

(d) quoting the same charges for handling iron ore from self-unloaders as from bulkers even though services identified in the applicable tariffs were not to be performed;

(e) foregoing the right of independent action with respect to handling charges for iron ore from self-unloaders;

(f) refusing to lease railroad dock space to Litton Industries for the handling of iron ore from self-unloaders;

(g) without seeking or obtaining ICC approval in accordance with the 5a Agreement procedure, refraining from independently or collectively reducing line haul rates for rail movements of iron ore in order to meet truck competition;

(h) seeking to eliminate the trucking of iron ore from Pinney Dock, a private dock on Lake Erie; and

(i) seeking to prevent the trucking of iron ore from a railroad controlled dock at Lorain, Ohio by establishing an arbitrary usage charge applicable only to the transportation of iron ore by truck. 24

In 1981 the government brought an indictment charging that the 1956 agreement of the railroads to eliminate the competition created by self-unloaders violated the Sherman Antitrust Act. 25 The appellant, along with the other defendants, filed a series of motions seeking to dismiss the indictment. 26 After the district court rejected the preliminary motions, 27 the appellant entered a plea of nolo contendere. Judgment was entered, and the appellant was sentenced. 28 This appeal followed.


A. Appeal from Plea of Nolo Contendere

The appeal in this case follows a plea of nolo contendere by the appellant. For the purposes of this appeal, the plea of nolo contendere has the effect of a guilty plea. 29 The plea admits to every essential element of the offense that is well pleaded in the indictment. 30 Convictions pursuant to a nolo plea cannot be attacked on the merits, and can only be challenged by showing defects that affect the court's subject

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matter jurisdiction, or by showing that the indictment "fails to charge an offense." 31


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