Western Transp. Co. v. Couzens Warehouse & Distributors, Inc.

• Decision Date: 14 December 1982
• Docket Number: No. 82-1263,82-1263
• Parties: WESTERN TRANSPORTATION COMPANY, Plaintiff-Appellant, v. COUZENS WAREHOUSE & DISTRIBUTORS, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1033

695 F.2d 1033

WESTERN TRANSPORTATION COMPANY, Plaintiff-Appellant, v. COUZENS WAREHOUSE & DISTRIBUTORS, INC., Defendant-Appellee.

No. 82-1263.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 23, 1982.

Decided Dec. 14, 1982.

Steven C. Weiss, Chicago, Ill., for plaintiff-appellant.

William H. Towle, Burke, Kerwin, Towle & Andrin, Chicago, Ill., for defendant-appellee.

Before BAUER, POSNER and COFFEY, Circuit Judges.

BAUER, Circuit Judge.

Plaintiff Western Transportation Company brought this action under Section 217(b) of the Interstate Commerce Act, 49 U.S.C. Sec. 10761 (1980), claiming that pallets belonging to Defendant Couzens Warehouse & Distributors, Inc. were transported by Western across state lines and that, therefore, Couzens must pay tariff charges. Couzens moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(1). The district court ruled that it did not have subject matter jurisdiction over the controversy and granted the motion to dismiss. We affirm.

I

Plaintiff Western carried shipments of various goods from Defendant Couzens' warehouse in Hodgkins, Illinois to points in Illinois, Iowa, and Michigan. The goods stored in the warehouse were owned by merchants who rented space from Couzens. Western shipped the goods to those merchants' customers. At the time that Western began transporting the goods, Western picked up the freight at Couzens' warehouse in Hodgkins and loaded it directly onto Western trucks.

Shortly after the shipping operations began, Western and Couzens orally agreed that Couzens would load the goods onto pallets before Western came to pick them up, in order to reduce the time it took Western drivers to load their trucks. Western then loaded the pallets onto its trucks. Western agreed to give Couzens an equal number of pallets in exchange, or to return Couzens' pallets whenever its drivers returned for another pick-up. Western orally agreed to take the pallets loaded with goods to its terminal in Chicago, Illinois, where Western would transfer the goods to its own pallets for shipment to the customers. The oral agreement was made in late 1975 or early 1976. The parties acted under this agreement until February 1979, when the shipping relationship ended. Significantly, Western does not challenge either the existence or the terms of the oral agreement. ¹

Western claims that beginning sometime in 1977, it began to transport the goods loaded on Couzens' pallets directly from the warehouse to customers in Iowa and elsewhere without transferring the goods to Western's own pallets at its Chicago terminal. Couzens denies any knowledge of Western's deviation from the oral accord. In an affidavit filed in support of the motion to dismiss, Couzens' former vice-president of traffic distribution detailed the oral agreement and averred that if Western used Couzens' pallets beyond the terms of the oral agreement, i.e. in interstate commerce, that use was unauthorized. On the other hand, Western argues that Couzens knew that the pallets were being handled in violation of the oral agreement, and that in any event the oral agreement was an illegal circumvention of the requirements of the commerce act that interstate pallet movements be covered by a published tariff. 49 U.S.C. Sec. 10761(a) (1980).

II

A. Validity of the Oral Agreement

The district court found that because the oral agreement between the parties did not authorize interstate transportation of Defendant Couzens' pallets, that court did not have jurisdiction to adjudicate the suit. ² Plaintiff Western argues that the oral agreement is invalid and therefore cannot defeat jurisdiction. Western claims that the Supreme Court's ruling in United States v. United States Smelting Co., 339 U.S. 186, 70 S.Ct. 537, 94 L.Ed. 750 (1950), supports its proposition. United States Smelting, however, only notes that preferential carrier services performed for shippers by rendering services beyond those which the carrier is obligated to perform under a filed tariff violate the Interstate Commerce Act. ³ The Supreme Court did not consider whether the services at issue there fell within the Act's parameters; that they did was not at issue. Here the question is not whether preferential services were performed in violation of an existing tariff, but rather whether the movements of the pallets themselves fall within the jurisdiction of the commerce act. Any further analysis would take us into the merits of Western's claim--the very step that dismissal for want of subject matter jurisdiction is designed to avoid. See infra section IIB.

The pallet exchange program at issue in Legality of Pallet Exchange Agreement, Kraft Foods Division of National Dairy Products Corp., 322 I.C.C. 439 (1964), does raise issues similar to those before us, but also is very different from the Western-Couzens relationship. In Kraft Foods, an association of motor common carriers petitioned the Interstate Commerce Commission seeking a declaration that a pallet exchange agreement between thirty of its members and Kraft Foods violated the Interstate Commerce Act. Kraft had a written agreement with the carriers giving the carriers the option to exchange pallets on any shipment rather than unloading goods from the pallets and reloading the goods onto other pallets. The goods were packaged food products processed and shipped by Kraft to its plants and warehouses in seven states and non-Kraft locations in additional states. The commission ruled that the movement of pallets was a "service in connection" with interstate transportation, and that the arrangement violated section 217 of the commerce act because it was not published in the appropriate tariff. Kraft Foods, 322 I.C.C. at 441-44. ⁴ Although both the Kraft Foods relationships and the Western-Couzens relationship contemplated exchange of pallets in the transportation of freight, the similarity ends there. The key difference is that the Kraft Foods pallet exchange agreements authorized interstate deliveries of the pallets in conjunction with the interstate movement of Kraft products.

Here, Couzens did not desire or authorize interstate movement of its pallets. The freight loaded on the pallets was not owned by Couzens, so the arrangement between Couzens and Western dealt only with the fourteen-mile haul from Hodgkins to Western's Chicago terminal. There is no basis for application of the Interstate Commerce Act. Western was bound by its agreement to move Couzens' pallets only to Chicago. Western cannot perform acts to its own advantage in violation of its contract and then claim a right to reimbursement under a statute that would not apply but for the unauthorized acts.

We conclude that the agreement to exchange Couzens' pallets was separate and apart from the movement of freight. The pallet exchange agreement was envisioned to entail only purely intrastate activity and, therefore, was perfectly valid despite the fact that it was not incorporated into a filed tariff, because the Interstate Commerce Act tariff requirements do not apply.

B. Rule 12(b)(1) Dismissal

As stated above, the district court dismissed this lawsuit for want of subject matter jurisdiction. Fed.R.Civ.P. 12(b)(1) (1966). Plaintiff Western argues that this was error because the court actually ruled on the merits when it held that the oral agreement was valid, thereby defeating jurisdiction. Western argues that under Bell v. Hood, 327 U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939 (1945), the district court was required to exercise jurisdiction because the pallets in fact moved across state lines. This characterization misconstrues the basis upon which a court exercises jurisdiction.

The Supreme Court in Bell v. Hood explained that jurisdiction is not defeated

by the possibility that the averments might fail to state a cause of action on which petitioners could actually recover. For it is well settled that the failure to state a proper cause of action calls for a judgment on the merits and not for a dismissal for want of jurisdiction. Whether a complaint states a cause of action on which relief could be granted is a question of law and just as issues of fact it must be decided after and not before the court has assumed jurisdiction over the controversy. If the court does later exercise its jurisdiction to determine that the allegations in the complaint do not state a ground for relief, then dismissal of the case would be on the merits, not for want of jurisdiction. [citations omitted.] The previously carved out exceptions are that a suit may sometimes be dismissed for want of jurisdiction where the alleged claim under the Constitution or federal statutes clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction or where such a claim is wholly insubstantial and frivolous.

327 U.S. at 682-83, 66 S.Ct. at 776. ⁵ Here, federal jurisdiction is proper only if the activities at issue involved interstate transportation of freight. To make that determination, the district court had to recognize the oral pallet exchange agreement. The oral agreement rendered the federal statute immaterial to the case.

The Supreme Court, in a series of decisions, has outlined the standards to apply when determining if a court has jurisdiction. In Oneida Indian Nation v. County of Oneida, 414 U.S. 661, 666, 94 S.Ct. 772, 776, 39 L.Ed.2d 73 (1974), a suit brought under the general federal question statute, 28 U.S.C. Sec. 1331(a) (1976), the Court set the standard for dismissal as when a claim is "so insubstantial, implausible, foreclosed by prior decisions of this Court, or otherwise completely devoid of merit as not to involve a federal controversy within the jurisdiction of the District Court...." Accord, Duke Power Co. v. Carolina Environmental Study Group, Inc., 438 U.S. 59, 70-71, 98 S.Ct. 2620, 2628-2629, 57 L.Ed.2d 595 (1978) (dismissal under Sec. 1331(a) proper only if cause of action is "patently...