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CHICAGO & N.W. RY. CO. v. PEORIA & P.U. RY. CO.

January 8, 1962

CHICAGO AND NORTH WESTERN RAILWAY COMPANY, A CORPORATION, PLAINTIFF AND COUNTERDEFENDANT,
v.
PEORIA AND PEKIN UNION RAILWAY COMPANY, DEFENDANT AND COUNTERCLAIMANT, AND ILLINOIS CENTRAL RAILROAD COMPANY, A CORPORATION; PEORIA AND EASTERN RAILWAY COMPANY, A CORPORATION; THE NEW YORK, CHICAGO AND ST. LOUIS RAILROAD COMPANY, A CORPORATION; CHICAGO & ILLINOIS MIDLAND RAILWAY COMPANY, A CORPORATION; AND THE PENNSYLVANIA RAILROAD COMPANY, A CORPORATION, DEFENDANTS, UNITED STATES TRUST COMPANY OF NEW YORK, AS TRUSTEE OF PEORIA AND PEKIN UNION RAILWAY COMPANY FIRST MORTGAGE DATED JANUARY 1, 1950, INTERVENER DEFENDANT AND COUNTERCLAIMANT.



The opinion of the court was delivered by: Mercer, Chief Judge.

This suit, instituted by plaintiff, Chicago and North Western Railway Company, against Peoria and Pekin Union Railway Company and other railroads, prays relief by declaratory judgment. Plaintiff has now moved for summary judgment in its favor upon its complaint, as amended. The nature of the case and the scope of plaintiff's position that it is entitled to summary judgment necessitates a rather thorough summary of the pleadings.

The complaint, as amended named as defendants, in addition to the Peoria and Pekin Union, Illinois Central Railroad Company, Peoria and Eastern Railway Company, the New York, Chicago & St. Louis Railroad Company, Chicago & Illinois Midland Railway Company, and The Pennsylvania Railroad Company. Upon leave of court first had, the United States Trust Company of New York, as Trustee of Peoria & Pekin Union Railway Company First Mortgage dated January 1, 1950, intervened as a defendant. Hereinafter, for convenience, the parties are referred to as plaintiff (sometimes C. & N.W.), P. & P.U., I.C., Nickle Plate, P & E., C. & I.M., Penn., and intervener. In the course of the summary and analysis of the pleadings reference will be made to the Toledo, Peoria & Western Railroad Company, Minneapolis & St. Louis Railway Company, The Peoria Terminal Company, Chicago, Rock Island and Pacific Railroad Company and Gulf, Mobile and Ohio Railroad Company, which, respectively, are hereinafter referred to as T.P. & W., M. & St. L. Terminal, Rock Island and G.M. & O.

P. & P.U. is a corporation, the stock of which is owned by plaintiff, C. & I.M., P. & E., Nickle Plate, Penn. and the Mississippi Valley Corporation, a wholly owned subsidiary of I.C. The board of directors of P. & P.U. consists of the principal officers of all owner railroads, who act in their official capacity as representatives of their respective railroads.

Historically, P. & P.U. was organized by certain proprietary railroad lines to handle terminal and switching traffic in the City of Peoria, Illinois. The rights and obligations of those proprietary lines and P. & P.U. relating, inter alia, to the transfer, switching or handling of freight cars coming into or going out of, or through the City of Peoria, were defined by a contract dated February 1, 1881. That contract is still in effect and has been extended for a term to February 1, 1981. I.C., P. & E., Nickle Plate, C. & I.M. and Penn. are successors in interest to the original proprietary lines and to the rights and obligations under the 1881 contract.

On December 1, 1911, plaintiff entered into a contract with P. & P.U. whereby it was agreed, among other things, that P. & P.U. would handle the transfer and switching of all cars of plaintiff coming into or going out of or through the City of Peoria at a uniform rate per car. That contract has been extended to February 1, 1981, and is the subject matter of the present suit.

Jurisdiction of the court is invoked in the cause upon diversity of citizenship, the claim involved exceeding the jurisdictional amount of $10,000.00.

With relationship to Peoria, plaintiff is a north-south trunk line railroad, operating over its line extending from Chicago to St. Louis, Missouri. Its main line passes westerly of the Peoria City limits, transversing, among others, places in the Peoria area known as Kickapoo Junction, Sommer and Hollis.*fn1

T.P. & W. is an east-west trunk line railroad, operating over its main line which, with trackage rights granted by other railroads, extends from Effnor, on the Illinois-Indiana State Line, through Peoria, to its western terminus at Lomax, Illinois, and Keokuk, Iowa. Its line intersects the main line of plaintiff at or near Hollis.

Prior to March 6, 1957, plaintiff and T.P. & W. constructed a new track connection between their respective lines at Sommer, located several hundred feet south of Hollis, designed to permit the direct interchange of freight between the two lines.*fn2 On March 6, 1957, direct interchange of freight between plaintiff and T.P. & W. was commenced at Sommer, a practice which has since continued, with the exception of one interruption not here material. Plaintiff and T.P. & W. sought, and obtained, approval of construction of the connecting line and of the arrangement for direct interchange of traffic, with exceptions not here material, from the Interstate Commerce Commission. F.D. No. 19922.

Sommer is in the Peoria vicinity, located southwesterly from and outside the corporate limits of the latter city. By use of the Sommer connection with T.P. & W., plaintiff has interchanged and now interchanges directly with the T.P. & W. substantial amounts of freight of a type which had, prior to March 6, 1957, been handled by the P. & P.U. within Peoria under the terms of the 1911 agreement, as extended. Therein lies the crux of the dispute which gave rise to the initial complaint.

After the direct interchange between plaintiff and T.P. & W. began, P. & P.U. took the position that that interchange was a violation of plaintiff's obligations under the 1911 contract, claiming the right under the contract to handle all C. & N.W. freight traffic destined for interchange in the Peoria vicinity to or from other railroads and all freight moving between plaintiff's line and consignees or shippers in the area served by P. & P.U.P. & P.U. demanded from plaintiff an accounting under the contract with respect to all freight interchanged directly with T.P. & W., and the payment to P. & P.U. by plaintiff of the contract rate for all cars so interchanged which, in the absence of the direct interchange connection at Sommer, P. & P.U. would have handled.

Prior to, and at the inception of this suit plaintiff took the position that the 1911 contract, as extended, would not preclude the direct interchange arrangement with the T.P. & W. and that plaintiff's operations in that respect did not constitute a violation of its contract with P. & P.U. Further, plaintiff alleged in its complaint that public benefit, added service efficiency and operating economy are derived from plaintiff's direct interchange connection with T.P. & W., which would be disrupted and destroyed if the claim of P. & P.U. were substantiated.

The complaint prayed a declaratory adjudication of the controversy which thus existed, and a judgment that the direct interchange connection between plaintiff and T.P. & W. at Sommer does not constitute a violation of the terms and provisions of the 1911 contract.*fn3

P. & P.U. answered the complaint and filed a counterclaim for injunctive relief and an accounting. Answers were filed by the other defendants.

Thereafter, on May 22, 1961, pursuant to leave of court, plaintiff filed an amendment to its complaint.

In its amended complaint, in addition to the allegations above summarized, plaintiff alleged that neither the 1911 contract nor the extension of that contract have been approved by the I.C.C. under Section 5(1) of the Interstate Commerce Act;*fn4 that the supplemental agreement between plaintiff and P. & P.U. extending the contract to February 1, 1981, had been approved by the I.C.C. under Section 5(2) of the Act,*fn5 under Finance Docket No. 15354, and no appeal was taken from the I.C.C. decision; that plaintiff, with I.C.C. approval, acquired the M. & St. L. on October 31, 1960, a railroad with which the tracks of P. & P.U. connect within the City of Peoria; that the M. & St. L. is now operated by plaintiff as a division of its railroad; that the M. & St. L. had for many years prior to October 31, 1960, interchanged traffic directly with T.P. & W., and with other railroads within Peoria, and that plaintiff, on its M. & St. L. division, has continued that interchange practice since the last-mentioned date; that the I.C.C. found in F.D. No. 19922, in which the Sommer interchange connection was approved, that P. & P.U. was unable to provide as efficient and economical service on certain traffic as is possible with the direct interchange between plaintiff and the T.P. & W.; and that no appeal was taken by anyone from the I.C.C. decision in F.D. No. 19922.

In its amendment to the complaint, plaintiff prays judgment that that part of the 1911 contract, as extended, which purports to grant to P. & P.U. exclusive rights to perform terminal services on, and to transfer, switch and handle all of plaintiff's cars destined to or from industries in Peoria and to switch or transfer all of plaintiff's cars destined for interchange to or from railroads other than the P. & P.U. in the Peoria vicinity constitutes a pooling arrangement within the meaning of Section 5(1) of the Act which has not been approved by the I.C.C. and is therefore, unenforcible as a violation of that Section and of the antitrust laws. 15 U.S.C.A. §§ 1, 2. Plaintiff further prays judgment that the portion of the 1911 contract, as extended, which purports to reserve to P. & P.U. all freight and passenger business originating at points on the line of P. & P.U. and which permits P. & P.U. to fix the rates to be charged on such traffic for companies using P. & P.U. tracks constitutes a pooling agreement and a contract in restraint of trade within the meaning of Section 5(1) and Section 1 and 2 of the Sherman Act. 15 U.S.C.A. §§ 1, 2. Finally, it is prayed, by the amendment to the complaint, that the court enjoin P. & P.U. from enforcing, or attempting to enforce, those provisions of the 1911 contract, as extended.

By its answer to the complaint, as amended, P. & P.U. admits the allegation of historical facts, the factual basis for its corporate existence, the ownership of its stock and the makeup of its directorship as alleged in the complaint, the substantial similarity of the contracts in existence relating to operation of its proprietary lines and tenant lines,*fn6 the existence of an actual controversy and the existence of diversity of citizenship.

Further answering the complaint as amended, P. & P.U. avers that the 1911 contract, as extended, also defines rights and duties between plaintiff and P. & P.U. relating to the transfer, switching or handling by P. & P.U. of all cars of plaintiff coming into, out of or through Peoria and to the transfer, switching and handling of all of plaintiff's cars in and near the City of Peoria, intended for transfer to all freight houses, warehouses, industries and to and from the tracks and yards of other railroads with which the tracks of P. & P.U. are connected. It further avers that the contract reserves to P. & P.U. all local freight business between the cities of Peoria and Pekin, and all intermediate points. P. & P.U. avers that the meaning, intent and effect of the contract was and is to vest P. & P.U. with the exclusive right to make up, break up and make transfers of all cars, both loaded and empty, consigned to or from plaintiff in the Peoria vicinity, and that the contract requires that all freight cars of plaintiff coming into, out of or through Peoria be delivered by plaintiff to P. & P.U. to be transferred, switched or handled. Finally, P. & P.U. avers that the contract requires that all of plaintiff's freight trains moving to or from Peoria shall pass over P. & P.U.'s track in accordance with the terms of the agreement.

Under its contract with plaintiff and the proprietary and tenant lines, P. & P.U. avers an exclusive right to the entire local rail traffic between Peoria and Pekin and intermediate points; to make transfers, switch and handle all cars consigned to or from any party to the several contracts; to transfer, switch and handle all cars consigned to or from all locations to which the tracks of P. & P.U. extend and to handle all cars moving between all points on P. & P.U. lines; to have all cars of the other contracting parties coming into, out of or through Peoria delivered to P. & P.U. to be by it transferred, switched or handled; and to have all freight trains of the other contracting parties moving to or from Peoria pass over P. & P.U. tracks.

With respect to the direct interchange between plaintiff and T.P. & W., P. & P.U. admits the establishment of the direct interchange connection at Sommer; the geographical location of Sommer outside the corporate limits of Peoria; and that plaintiff and T.P. & W. have, since the establishment of the Sommer connection, and now do, directly interchange freight traffic of a type which plaintiff formerly handled within the City of Peoria by utilizing the services of P. & P.U.

With respect to the M. & St. L. phase of the case, P. & P.U. admits that for many years prior to October 31, 1961, M. & St. L. had interchanged traffic directly with the T.P. & W. and other railroads within Peoria; that plaintiff, with I.C.C. approval, purchased the M. & St. L on the latter date and now operates that line as a C. & N.W. division; and that plaintiff on its M. & St. L. division has continued to direct interchange of traffic with railroads other than P. & P.U. within Peoria.

As to the I.C.C. proceedings, P. & P.U. admits that extension of the 1911 agreement was approved by the I.C.C. under Section 5(2) of the Act in F.D. No. 15354, and that no appeal was taken from that decision. It avers however, that the I.C.C. order constituted a ratification and approval of the agreement. It denies that the I.C.C. in F.D. No. 19922 found that the P. & P.U. is unable to provide service as efficiently on traffic interchanged between plaintiff and T.P. & W. or that switching of that interchange traffic by P. & P.U. would involve wasteful and unnecessary transportation. It admits that no appeal was taken by anyone from the decision in F.D. No. 19922, but it denied that the I.C.C. decision has any bearing upon the present controversy.

In support of the same premise, P. & P.U. denies that the public has any interest in the controversy and that there has been or will be any public benefits derived from the direct interchange of traffic between plaintiff and T.P. & W. at Sommer. Alternatively, P. & P.U. avers that any public interest in the controversy, arising out of any public benefits which might arise from the Sommer interchange, is slight and subordinate to the rights of P. & P.U. under its contract with plaintiff. Finally, by way of defense, P. & P.U. denies that the exclusive terminal and switching rights given to it by the 1911 contract constitutes a pooling agreement within the meaning of Section 5(1) of the Act, or that such provisions are unenforcible as a violation of the antitrust laws.

By its amended counterclaim, P. & P.U. alleges that the direct interchange of freight between plaintiff and T.P. & W. at Sommer is a violation of the 1911 agreement for which P. & P.U. is entitled to damages. It further alleges that plaintiff's operation of the M. & St. L. since October 31, 1960, has diverted traffic from P. & P.U. by: a. transporting cars and trains over P. & P.U. tracks from plaintiff's Adams Street Yard to and from the Bartlett Yards of the M. & St. L.; b. by making direct interchange of cars on the M. & St. L. division with the Rock Island and accepting direct interchange of cars from Rock Island and accepting direct interchange of cars from Rock Island at the Bartlett Yards; c. by making direct interchange of cars with and accepting interchange of cars from Terminal at the Bartlett Yards; d. by making direct interchanges of bridge traffic moving south on the M. & St. L., for east and west destinations, with the T.P. & W. which is alleged to be a violation of the contract and contrary to the order of the I.C.C. in F.D. No. 19922; e. by making direct interchange within Peoria with the T.P. & W. at the Iowa Junction connection of the T.P. & W. with the M. & St. L.; f. by plaintiff's continuation of use of the M. & St. L. freight house at the Bartlett Yards; and g. in other ways, unknown to P. & P.U. by use of the M. & St. L. Bartlett Yard and by means of connections of plaintiff's M. & St. L. division with other railroads and industries in the Peoria-Pekin area.

By its counterclaim, P. & P.U. prays judgment requiring plaintiff to produce books and records of its operation and account as to all aspects of business handled by plaintiff by direct interchange with the T.P. & W. at Sommer since March 6, 1957, as to all other direct interchanges with other carriers and as to all aspects of its operations through and by means of the track connections and facilities of plaintiff's M. & St. L. division, subsequent to October 31, 1960, for an accounting as to revenues allegedly lost by P. & P.U. by reason of such operations by plaintiff. It prays a judgment for damages as determined by means of such accounting and enjoining plaintiff from further violation of the 1911 contract, as extended.

The answer of the intervener parallels the averments of the answer of P. & P.U., averring that P. & P.U. has the exclusive right to handle the traffic which plaintiff now interchanges directly with T.P. & W. at Sommer and the traffic which plaintiff now interchanges directly with T.P. & W. and other railroads by operation of its M. & St. L. division since October 31, 1960. It prays that the court will sustain the 1911 contract as extended, as a valid, binding and subsisting agreement and that ...


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