Unio Pac Co v. United States

• Citation: 85 L.Ed. 1453,61 S.Ct. 1064,313 U.S. 450
• Decision Date: 02 June 1941
• Docket Number: No. 594,594
• Parties: UNIO PAC. R. CO. et al. v. UNITED STATES et al
• Court: United States Supreme Court

313 U.S. 450

61 S.Ct. 1064

85 L.Ed. 1453

UNIO PAC. R. CO. et al.

v UNITED STATES et al.

No. 594.

Argued April 9, 10, 1941.

Decided June 2, 1941.

Rehearing Denied Oct. 13, 1941.

Messrs. Blake A. Williamson, of Kansas City, Kan., for appellant Kansas City, Kan.

Messrs. Henry N. Ess, of Kansas City, Mo., Thomas W. Bockes, of Omaha, Neb., and Robert F. Maguire, of Portland, Or., for appellant Union Pac. R. Co.

Mr. James C. Wilson and Burt L. Smelker, both of Washington, D.C., for appellee United States.

Mr. Jonathan C. Gibson, of Chicago, Ill., for appellees, Atchison, T. & S.F. Ry. Co. and others.

Mr. William E. Kemp, of Kansas City, Mo., for appellee Kansas City, Mo.

Mr. Justice REED delivered the opinion of the Court.

This appeal involves the legality, under the Elkins Act, of appellants' activities and course of conduct with respect to the new Food Terminal at Kansas City, Kansas. That city and Kansas City, Missouri, are both part of a district known as Greater Kansas City, which for over three-quarters of a century had been served by a produce market located in Kansas City, Missouri. In 1937 the Union Pacific Railroad, acting upon the suggestion of two promoters, DeOreo and Fean, formulated a plan for the construction of a new market in Kansas City, Kansas. The Union Pacific in turn induced the City of Kansas City, Kansas, to undertake the development of such a market, which the City was to construct, operate and own. Union Pacific became interested in the development in order to increase the volume of its traffic; for unlike the situation in the Missouri market it was, with a minor exception, the only railroad with tracks serving the proposed Kansas site. Because business in the Greater Kansas City area was believed insufficient to support a split market, partly in Kansas and partly in Missouri, the plan included taking steps to persuade dealers on the Missouri side to move to Kansas. These negotiations will appear more fully below, but in general they contemplated certain concessions and free rents by the City of Kansas City, Kansas, to those dealers who decided to make the transfer. Ostensibly this was to compensate the dealers for their costs of removal, but actually, at least in some instances, it went somewhat beyond. Throughout the promotion, financing and leasing of the new market facilities, Union Pacific took a leading and dominant part. The market opened for operation on December 4, 1939.

On December 29, 1939, at the request of the Interstate Commerce Commission, the Government filed a bill to enjoin the Union Pacific, the City of Kansas City, Kansas, certain of their officers and agents, and thirty-three produce dealers, from violating the Interstate Commerce Act, 49 U.S.C. § 1 et seq., 49 U.S.C.A. § 1 et seq., and the Elkins Act, 49 U.S.C. §§ 41—43, 49 U.S.C.A. §§ 41—43, which prohibit rebates, concessions and discriminations in respect to the transportation of property by railroad in interstate commerce.¹ Under the provisions of section 3 of the Elkins Act,² four other railroads and the City of Kansas City, Missouri, were permitted to intervene as parties plaintiff. The district court issued a temporary restraining order, held hearings, and on April 10, 1940, granted a temporary injunction. After further hearings a permanent injunction was entered on July 13. The appeal comes direct to this Court by virtue of the Expenditing Act, 49 U.S.C. § 45, 49 U.S.C.A. § 45, under section 238(1) of the Judicial Code, 28 U.S.C.A. § 345(1). ³ The facts set forth in the findings and opinion of the District Court, 32 F.Supp. 917, together with the supporting record references specified by the district judge, give a clear statement of the origin and development of the Kansas City, Kansas, project:

Appellants DeOreo and Fean, before 1937, had promoted various metropolitan terminals with wholesale produce market and rail facilities. In December, 1936, they suggested to Union Pacific the feasibility of such a terminal to be served by its line at Greater Kansas City, and a plan was soon formulated for the construction of facilities on the Public Levee, property of Kansas City, Kansas; Union Pacific's aim was to increase its traffic and revenues from perishable food products. The plan contemplated that ownership of the terminal be vested in the City, which would be eligible for a PWA grant from the United States to cover part of the construction costs. A further consideration was that a city-owned market would be tax free, and thus able to offer dealers the inducement of especially low rentals. Union Pacific presented engineering and cost estimates to officials of the City of Kansas City, Kansas, who became interested in the project and determined that plans should go forward. Thereafter, Union Pacific and the City participated jointly in the promotion and financing of the terminal, and the court below found after a careful review of the evidence that Union Pacific took 'a leading and dominant part.' Union Pacific suggested the plan that financing be accomplished by a PWA grant and by revenue bonds of the City, secured only by revenue from the terminal and other levee property. Union Pacific suggested that the City make DeOreo and Fean exclusive leasing agents of the terminal for a period of ten years; when this contract was disapproved by PWA officials, the two promoters were persuaded to consent to its cancellation, and Union Pacific later causedsubstantial payments to be made to them by its subsidiary, the Kansas City Industrial Land Company. The City's first application for a PWA grant, which it prepared with Union Pacific's assistance, was denied, but a later application for $1,710,000 won approval in October, 1938. This supplied 45% of the cost of structures the City was to build; the remaining 55% was to be obtained by selling revenue bonds to investment bankers. Union Pacific helped the City secure state legislation authorizing the bonds; the bankers, however, declined to purchase them when Union Pacific refused to guarantee income sufficient to meet fixed charges. Union Pacific then decided to buy the bonds for itself, paying $3,000,000 plus accrued interest; $1,033,000 of this was used to retire outstanding revenue bonds, and the remainder made available for construction of the terminal. The bonds, which were held valid in State ex rel. Beck v. Kansas City, 149 Kan. 252, 86 P.2d 476, are secured solely by the revenues accruing from the terminal and other property on the Public Levee; they constitute no claim against the City's general revenues, and the district court found that they 'were and are speculative and were not then salable in the ordinary course of the commercial investment business.'

Union Pacific also caused its officers, employees and agents, and those of its subsidiary, the Kansas City Industrial Land Company, and its affiliate, the Pacific Fruit Express Company, to render various ervices related to the promotional, leasing and financing activities; it advanced money for financing preliminary expenses; and together with the City it supervised the actual construction. The terminal as completed consists of railroad facilities, owned by Union Pacific, for which it spent $603,000; and the City's wholesale produce market, with a cold storage plant, produce dealers' buildings, a farmers' market, and some terminal trackage, all constructed with funds derived from the PWA grant and the revenue bonds sold to Union Pacific.⁴ The Food Terminal is a unitary enterprise, with the market and the railroad facilities integral parts of a unified whole. Union Pacific has the only tracks reaching the terminal, except that the Missouri Pacific jointly serves the cold-storage plant.

Active solicitation of the Missouri dealers to move to Kansas began in June, 1937. As early as August, 1937, Union Pacific contemplated the necessity of giving inducements to dealers, either by making direct payments or by buying from them 'unwanted properties.' In the summer and fall of that year, DeOreo and Fean induced five of the Missouri dealers to serve on a committee for the promotion of the Kansas terminal, agreeing to pay each of them $5000 'in consideration of the services rendered * * * and the occupancy of the food terminal' as tenant. By August, 1938, Union Pacific's employees and agents had negotiated with other dealers with respect to cash payments and other inducements. As opposition developed on the Missouri side, the district court found that the campaign for enlistment of the Missouri dealers became 'open and intense.' Union Pacific, however, was anxious to avoid violating the Elkins Act, and sought the advice of its legal department, which rendered an opinion that payments made by the City to dealers would be lawful. With the assistance of a committee of prominent citizens, the City was persuaded to undertake such payments; in December, 1939, it passed Resolution 11275 authorizing use of the Public Levee Revenue Fund for settlements either with cash or credits on rental, or both, to cover costs incurred by prospective tenants, 'due to rental obligations on present places of business and costs due to abandonment of equipment and facilities now located in, and the good will of said established places of business.' The legality under state law of such payments by the City was promptly established in a test suit at least partially directed by Union Pacific. State ex rel. Parker v. Kansas City, 151 Kan. 1, 97 P.2d 104 and 151 Kan. 2, 98 P.2d 101.

The City, although now willing to make payments to prospective tenants where necessary, was lacking funds. In arranging for refrigerator service at the market, Union Pacific contracted to buy its entire Kansas City and Omaha ice requirements from the City Ice & Fuel Company. This company leased the market's cold-storage unit for fifteen years at $37,500 per year; Union Pacific now urged the company to pay the City $80,000 as advance rent. The City Ice & Fuel...