United States v. Union Pac. R. Co.

• Decision Date: 25 March 1940
• Docket Number: No. 440.,440.
• Parties: UNITED STATES et al. v. UNION PAC. R. CO. et al.
• Court: U.S. District Court — Western District of Missouri

32 F. Supp. 917

UNITED STATES et al. v. UNION PAC. R. CO. et al.

No. 440.

District Court, W. D. Missouri, W. D.

March 25, 1940.

Burt L. Smelker and Walter R. Taylor, both of Washington, D. C., and Thomas A. Costolow, of Kansas City, Mo., for plaintiffs.

Henry N. Ess and Charles Whittaker (of Watson, Ess, Groner, Barnett & Whittaker), both of Kansas City, Mo., and Robert F. Maguire, of Portland, Or., for defendant Union Pac. R. Co.

Alton H. Skinner, of Kansas City, Kan., pro se, for defendants Kansas City, Kan., and others.

John Murphy (of Harding, Murphy & Tucker), of Kansas City, Mo., for defendants Robinson and others.

Phineas Rosenberg, of Kansas City, Mo., for defendants DeOreo and another.

J. John Gillis, of Kansas City, Mo., for defendants Garrett Holmes & Co., Inc., and another.

J. C. Gibson and Roland J. Lehman, both of Chicago, Ill., and John N. Monteith (of Lathrop, Crane, Reynolds, Sawyer & Mersereau), of Kansas City, Mo., for A., T. & S. F. R. R.

Hale Houts (of Hogsett, Murray, Trippe, Depping & Houts), of Kansas City, Mo., for C., R. I. & P. R. Co.

Ilus M. Lee, Charles M. Howell, Jr., and Floyd E. Jacobs, all of Kansas City, Mo., for Kansas City, Mo.

Leonard Ulmann, of Kansas City, Mo., pro se.

Walter M. McFarland and A. C. Scott, both of Chicago, Ill., for C., B. & Q. R. R.

Leslie A. Welch, of Kansas City, Mo., for Missouri Pac. R. Co.

COLLET, District Judge.

Application for temporary injunction in proceeding instituted by the Attorney-General at the request of the Interstate Commerce Commission to restrain alleged violations of the Elkins Act, U. S.C.A. Title 49, Sec. 41 et seq.¹

The defendants are the Union Pacific Railroad Company, hereinafter referred to as the Union Pacific, the City of Kansas City, Kansas, and its officials, hereinafter referred to as the "City," a number of wholesale produce dealers who are interstate shippers, two individual defendants characterized as promoters and the latter's attorney.

It is charged that the Union Pacific and the City and the promoters as their agents have contracted to pay to some, and are offering to pay to other interstate shippers, and the defendant produce dealers as such interstate shippers have accepted or solicited cash and other valuable considerations and concessions for locating at a new produce market constructed at Kansas City, Kansas, on the Union Pacific's Interstate railroad. The Government contends that since the payments are to produce dealers (who were engaged in that business at Kansas City, Missouri) to induce them to move to the new market at Kansas City, Kansas, and there engage in the interstate transportation of produce over the Union Pacific's lines, the payments are concessions and are "in respect to the transportation of property in interstate commerce" with the result that such property will be transported at a less rate than that named in the tariff. United States v. Union Stock Yards & Transit Co., 226 U. S. 286, 33 S. Ct. 83, 57 L.Ed. 226. The City is not a common carrier and, acting independently, has the legal right to make the payments unless forbidden by the Elkins Act. State of Kansas ex rel. Attorney-General v. City of Kansas City, Kansas, et al., 151 Kan. 1, 97 P.2d 104, Id., 151 Kan. 2, 98 P.2d 101. It is charged that the plan for the making of the payments by the City was conceived by it and the Union Pacific acting as joint adventurers and carried out in furtherance of the joint adventure for the benefit of both, and amounts to a device which produces the results prohibited by the Elkins Act. It is plaintiffs' contention that one of the objects of the payments to the Missouri dealers is to bring about the discontinuance of a produce market now located in Kansas City, Missouri.

After the institution of this action, upon the application of the Government, the four railroads which serve the Kansas City, Mo., market and the City of Kansas City, Mo., were allowed to join in the proceedings upon the ground that they possessed such an interest as to justify participation as distinguished from their legal right to maintain the action under the Elkins Act. There was evidence tending to show that the annual loss in revenue to these four railroads would total approximately $750,000 if the Missouri market was discontinued.

The City concedes that it is about to make payments amounting to approximately $140,000 to Missouri produce dealers to induce them to move to the new market but asserts that its intention was and is to make the payments independently, on its own account, for the advancement of its own market, without any agreement or understanding with the Union Pacific, and without any intention to influence the movement of interstate traffic.

The Union Pacific denies any participation in the payments.

The separate answers of the many individual defendant produce dealers in some instances admit "conversations", "conferences" and discussions with representatives of the Union Pacific relative to payments to be made, but assert that no payments were promised by the Union Pacific. The answer of the defendant Litman alleges the consummation of an agreement with the City for cash payments to him without knowledge of any conspiracy. He further asserts that any action of this Court which would for any cause prevent him from receiving the agreed payment from the City will deprive him of his property without due process of law. Other issues presented are collateral and incidental.

The determination of the cause will depend upon (1) whether the payments are concessions "in respect to" interstate transportation and (2) are devices resulting in concessions or discriminations to interstate shippers. Since the City contends that the market is its individual enterprise and asserts full and sole responsibility for the payments which it concedes it has offered and contracted for, no good purpose would be served in reviewing the evidence bearing upon the City's activities. The facts relative to the interest and participation of the Union Pacific in the project and the joint nature of the enterprise are as follows:

Late in December, 1936, defendants Joseph DeOreo and William Fean who had theretofore promoted the construction of wholesale fresh fruit and vegetable markets conferred with a General Agent of the Union Pacific at Cleveland, Ohio, relative to a suitable locality for another such enterprise. They were referred to another agent of the Union Pacific at Kansas City. One of the termini of the Union Pacific was at Kansas City, Kansas, where it owned a tract of land known as the Fairfax District adjoining a tract owned by the City known as the Public Levee. Both of these tracts were or could be served by the Union Pacific. It was the opinion of an executive of the Union Pacific that the Public Levee was the more suitable location. Messrs. DeOreo and Fean were shown both of these tracts as well as others by the Kansas City representatives of the Union Pacific. The Public Levee was selected as the most desirable. The Union Pacific demonstrated much interest in the establishment of the proposed market on its lines. Within a short time officials of the Union Pacific investigated the financial standing and reputation of DeOreo and Fean, formulated a tentative general plan of financing, obtained plans of other markets, considered general plans for this market, examined the pertinent statutory law of Kansas, assisted in the preparation of amendments thereto necessary to authorize the construction of this market in the manner planned, assisted in securing the introduction of a bill in the Kansas Legislature making those amendments, conferred with a prospective purchaser of bonds to be issued by the City for the construction of the market, interested the City officials in the project, introduced DeOreo and Fean to those officials, obtained estimates of costs, and architects perspective, conferred with Federal Public Works Administration attorneys relative to necessary legislation, and prepared required amendments, developed plans for the construction of yard facilities, costing approximately $300,000, analyzed freight handling by all railroads at Kansas City, Missouri, and Kansas City, Kansas, of fruits and vegetables and prepared estimates of additional revenue to be derived by the Union Pacific from the construction of the market, assisted in obtaining the passage of the necessary legislation and the signature of the bill by the Governor, and undertook to forestall anticipated opposition from Kansas City, Missouri, all within three or four months from the time the subject was first mentioned. It advanced substantially all of the promotion expenses totaling more than $20,000, including advances (or conditional loans) to DeOreo and Fean, the expense of advertising the project, inspection trips to other markets, and of numerous trips to Washington by city officials and others in connection with the City's application for a grant of public funds. It prepared or collaborated in the preparation of the application for the grant, and furnished data supporting the application, furnished much of the engineering advice and direction, selected the architects, controlled the cost of the project and type of construction, directed the activities of Mr. Fean and Mr. DeOreo, and planned and supervised the project from beginning to end. It assisted in the preparation of the form of leases, procured the execution of many leases, and dictated the rental charges, took a leading part in the negotiations culminating in the leasing of the cold storage plant, the largest single source of revenue of the produce market, and when the private interests who were expected to purchase the revenue bonds for the principal part of the financing of the project declined to purchase unless the Union Pacific guaranteed the income the Union Pacific, rather than make this guaranty, elected to purchase the bonds in order to insure the success of the...