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CHICAGO & N.W. TRANSP. CO. v. ATCHISON

United States District Court, Northern District of Illinois, E.D


November 7, 1973

CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY, PLAINTIFF AND COUNTER-DEFENDANT,
v.
THE ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY, DEFENDANT AND COUNTER-PLAINTIFF.

The opinion of the court was delivered by: Bauer, District Judge.

MEMORANDUM OPINION AND ORDER

This cause comes on the plaintiff's motion to dismiss the defendant's counterclaim.

This action is brought under the Interstate Commerce Act, 49 U.S.C. Part 1, Sections 1-26 inclusive, and the jurisdiction of this Court is allegedly based on 28 U.S.C. § 1331 and 1337. The matter in controversy exceeds the sum of ten thousand dollars exclusive of interest and costs.

Plaintiff, the Chicago and North Western Transportation Company ("North Western"), is a corporation organized under the laws of the State of Delaware with its principal place of business at Chicago, Illinois. North Western is engaged as a common carrier by rail for the carriage of goods in interstate commerce. North Western is the successor to substantially all of the transportation assets (and all rights, liabilities and obligations pertaining thereto) of Chicago and North Western Railway Company, a Wisconsin corporation.

The defendant, the Atchison, Topeka and Santa Fe Railway Company ("Santa Fe") is a corporation organized under the laws of the State of Delaware with its principal place of business in Chicago, Illinois. Santa Fe is engaged as a common carrier by rail for the carriage of goods in interstate commerce.

The plaintiff, in its complaint, alleges, inter alia, the following facts:

  1. North Western maintains a perishable produce
     terminal within the City of Chicago, known as the
     Wood Street Terminal, at which North Western
     handles perishable produce shipments in switch
     service and not as a line haul carrier, receiving
     no portion of the through freight revenue
     applicable to such shipments.

  2. Pursuant to applicable tariffs lawfully published
     and on file with the Interstate Commerce
     Commission, North Western as a switching carrier
     is required to perform on Santa Fe's behalf
     necessary re-icing services on refrigerator cars
     delivered to it by Santa Fe at Chicago, Illinois
     for switch movement at Wood Street Terminal.

  3. North Western and Santa Fe are parties to National
     Perishable Freight Committee Division Sheet 7,
     which is a valid and binding agreement prescribing
     the basis of division of charges and expenses for
     furnishing refrigeration services to perishable
     shipments in freight cars moving over the lines of
     both North Western and Santa Fe. Pursuant to Item
     30K, paragraphs (A)12 and (A)13 (Rules 224 and
     225) and Item 40A, Exception 1 of said Division
     Sheet 7, North Western is entitled to recover from
     Santa Fe North Western's actual cost of performing
     re-icing services on refrigerators cars delivered
     to North Western from Santa Fe for switch movement
     at Wood Street Terminal.

  4. During the period of June 7, 1965 to and including
     December 31, 1969, Santa Fe delivered 11,289
     refrigerator cars to North Western at Chicago,
     Illinois for switch movement at Wood Street
     Terminal. All of said cars required re-icing by
     North Western on Santa Fe's behalf. By reason of
     services rendered in re-icing said cars, and
     pursuant to said National Perishable Freight
     Committee Division Sheet 7, Santa Fe became
     indebted to North Western in the amount of
     $259,064.54, which represents the actual cost to
     North Western of performing the re-icing services.
     By virtue of tariff charges for said re-icing
     services payable by the shipper or the receiver,
     as the case may be, North Western has been paid
     $150,168.62 leaving a balance due and owing from
     Santa Fe of $108,895.92 which represents the
     difference between said tarriff charges collected
     from shippers or receivers and the actual cost to
     North Western of performing said re-icing
     services. Although requested by North Western to
     pay such $108,895.92, the defendant has neglected
     to pay any part thereof.

On September 4, 1973 Santa Fe filed its answer to North Western's complaint and also a counterclaim to recover certain expenses allegedly incurred by Santa Fe in providing mechanical protective services to mechanical (as opposed to ice) refrigerator cars moving over North Western's lines. The counterclaim is based on several orders of the
Interstate Commerce Commission relating to the provisions of mechanical protective services in conjunction with a judgment of United States District Court for the Northern District of California.

Santa Fe, defendant and counter-plaintiff, in its counterclaim, alleges the following facts:

  1. Pursuant to applicable tariffs lawfully published
     and on file with the Interstate Commerce
     Commission, counter-defendant and Santa Fe are
     required to transport perishable produce
     shipments, requiring refrigeration service, in
     interstate commerce. Such perishable produce
     shipments are transported in a large number of
     instances, over lines of either or both
     counter-defendant and Santa Fe, in mechanical
     refrigerator cars owned and furnished by Santa Fe.
     Refrigeration in these cars is provided by a
     mechanical unit which is attached to and located
     in the car. Ice is not needed to maintain a
     refrigerated condition in these cars.

  2. Counter-defendant and Santa Fe are parties to
     National Perishable Freight Committee Division
     Sheet 7, which is an agreement establishing among
     other things, the basis for the division of
     charges and expenses for furnishing mechanical
     protective services, including refrigeration to
     perishable shipments moving over the lines of
     counter-defendant, Santa Fe, and other railroads.
     Under Division Sheet 7, as it is presently
     constituted and was constituted during all periods
     of time pertinent herein, the participating
     railroads pay eighty percent of the mechanical
     protective service charge published in the
     Perishable Protective Tariff, which is lawfully on
     file with the Interstate Commerce Commission, to
     the owner of the refrigerator car.

  3. During all relevant periods of time this eighty
     percent payment was made to Santa Fe as the owner
     of such mechanical refrigerator cars with respect
     to all shipments transported in Santa Fe owned
     cars moving over the lines of the
     counter-defendant. The Interstate Commerce
     Commission, in its decision in Docket 35515,
     Contracts — Protective Service Between
     Pacific Fruit Express Company and the Akron,
     Canton and Youngstown Railroad Company, et al.,
     340 I.C.C. 754, interpreted its order published at
     49 C.F.R. § 1032.1 and 1032.2 to require a
     party furnishing and operating mechanical
     refrigerator cars for use in protecting perishable
     shipments moving over lines of railroads should
     recover its costs from those railroads so
     utilizing that car. At all times pertinent herein
     Santa Fe furnished large numbers of refrigerator
     cars which were used in protecting shipments of
     perishable produce moving over the lines of
     counter-defendant.

  4. Notwithstanding the payments received by Santa Fe
     as a car owner pursuant to Division Sheet 7, Santa
     Fe, at all times pertinent, has been unable to
     recover its costs in furnishing protective
     services to various railroads, including
     counter-defendant. For the years 1970, 1971 and
     1972 the deficit incurred by Santa Fe as a
     supplier of mechanical refrigerator cars in
     furnishing such protective service for cars on the
     lines of counter-defendant amounted to
     $214,699.65. Santa Fe has submitted to
     counter-defendant bills totally the amount listed
     above, but counter-defendant has failed and
     refused to pay to Santa Fe the sums of money owed
     [as allegedly determined by the court in Pacific
     Fruit Express Company v. Akron, Canton &
     Youngstown Railroad Company, et al., 355 F. Supp. 700

(N.D.Cal. 1973), suit to which both Santa Fe and North Western were parties].

The plaintiff, in support of its motion to dismiss the counterclaim contends that:

  1. This Court has neither federal question nor
     diversity of citizenship jurisdiction over the
     counterclaim.

  2. This Court is without jurisdiction to enforce the
     orders of the Interstate Commerce Commission
     referred to in paragraph 8 of the counterclaim.

  3. The Interstate Commerce Commission has exclusive
     jurisdiction over the subject matter of the
     counterclaim which is a readjustment in the
     division of revenues among joint rail carriers.

The Santa Fe, defendant and counter-plaintiff, in opposition to the instant motion, contends that:

  1. This Court has jurisdiction to hear the
     counterclaim as a federal question or as a
     counterclaim which is ancillary to the complaint.

  2. This Court has jurisdiction to consider the issue
     of North Western's liability to Santa Fe for its
     costs of providing protective service to North
     Western.

It is the opinion of this Court that the motion of the plaintiff, counter-defendant to dismiss the counterclaim has merit.

  I. THE COUNTER-PLAINTIFF HAS FAILED TO PROPERLY ALLEGE FEDERAL
     JURISDICTION.

It is well established that a compulsory counterclaim under Rule 13(a) of the Federal Rules of Civil Procedure is within the ancillary jurisdiction of a federal court since it necessarily arises out of the same transaction or occurrence as the original claim.
*fn1 A permissive counterclaim under Rule 13(b) requires an independent ground of federal jurisdiction since it does not arise out of the same transaction or occurrence as the original claim except where a set off is involved. Moore v. New York Cotton Exchange, 270 U.S. 593, 46 S.Ct. 367, 70 L.Ed. 750 (1926); Revere Copper & Brass Inc., v. Aetna Casualty and Surety Co., 426 F.2d 709 (1970); Camper & Nicholsons Ltd. v. Yacht "Fontainebleau II", 292 F. Supp. 734 (S.D.Fla. 1968); Fraser v. Astra Steamship Corp., 18 F.R.D. 240 (S.D.N.Y. 1955). For the application of ancillary jurisdiction, a counterclaim must appear to have a logical relationship to the original claim in that it arises out of the same aggregate of operative facts as the original claim in two senses: (1) that the same aggregate of operative facts serves as the basis of both claims; (2) that the aggregate core of facts upon which the original claim rests activates additional legal rights in a party defendant that would otherwise remain dormant. Revere Copper & Brass Inc. v. Aetna Casualty and Surety Co., supra.

The counterclaim seeking money damages on the basis of alleged violations of Interstate Commerce Commission regulations and quantum meruit does not bear a "logical relationship" to the complaint which is for enforcement for an executory agreement between the parties. The counterclaim involves the alleged provision by Santa Fe of mechanical refrigeration services to mechanical refrigerator cars moving in line-haul service on the lines of North Western during the years 1970, 1971 and 1972. The complaint involves the provision by North Western (pursuant to contractual terms not in issue in the counterclaim) of icing services to ice refrigerator cars moving in switching service within one terminal during the years 1965 through 1969. Thus, the claims are of an entirely different nature and involve different shipments moving in different service in different types of equipment at different times.

The counterclaim is therefore permissive rather than compulsory under Federal Rule of Civil Procedure 13(a). Since the counterclaim is not a compulsory one, jurisdiction over it does not attach from the jurisdictional allegations of the complaint under Federal Rule of Civil Procedure 8(a).

The counterclaim contains no specific jurisdictional allegation as required by Rule 8(a) of the Federal Rules of Civil Procedure, but merely realleges paragraphs 2 and 3 of the complaint and answer. These paragraphs allege that both North Western and Santa Fe are Delaware corporations with their principal places of business at Chicago, Illinois, and thus show on their face that the Court is without diversity of citizenship jurisdiction under 28 U.S.C. § 1332. The counterclaim therefore is defective and should be dismissed for want of subject matter jurisdiction.

  II. IT IS DOUBTFUL THAT THIS COURT HAS PRIMARY AND EXCLUSIVE
      JURISDICTION OVER THE SUBJECT MATTER OF THE COUNTERCLAIM.

Notwithstanding the fact that the defendant and counter-plaintiff has fatally failed to properly allege federal jurisdiction over the counterclaim, it is doubtful that this Court has jurisdiction at this time over the subject matter of the counterclaim.

The counterclaim is an action to enforce two orders of the Interstate Commerce Commission, one entered on August 27, 1962, in its docket Ex Parte No. 137, published at 49 C.F.R. § 1032.1 and 1032.2, and the other entered on February 28, 1972, in its docket 35515, published at 340 ICC 754.

The 1962 ICC order in Ex Parte No. 137 prescribed certain terms to be included in mechanical protective service contracts between railroads and refrigerator car-line companies and required such contract to be filed with and approved by the ICC. The 1972 ICC report and order in Docket 35515, Contracts-Pacific Fruit Express Co. and Akron, C & Y R. Co., 340 ICC 754 (1972), was rendered pursuant to a referral of several questions to the ICC by the United States District Court for the Northern District of California (see Pacific Fruit Express Co. v. Akron, Canton & Youngstown R. Co., 355 F. Supp. 700 (N.D.Cal. 1973). The opinion in Docket 35515 was merely an advisory one, conferring, per se, no substantive rights in the instant action.*fn2 The ICC therein specifically ruled that its 1962 order in Ex Parte No. 137 itself does not constitute a contract and "does not confer substantive rights upon the protective service companies [or rail carriers] to recover losses."

In its counterclaim Santa Fe alleges that it supplies protective services for mechanical refrigerator cars while moving in line-haul service over the North Western, that Santa Fe incurs deficits in supplying such services, and that North Western's payments to Santa Fe should be increased retroactively to make up the deficits. Thus, what Santa Fe is seeking in essence is an increase in its division of the total line-haul revenue applicable to through shipments in mechanical refrigerator cars moving jointly over the Santa Fe and the North Western.

This Court is without jurisdiction to entertain an action seeking a readjustment in the division of revenues among joint carriers because Congress in Section 15(6) of the Interstate Commerce Act, 49 U.S.C. § 15(6), has vested the Interstate Commerce Commission with primary and exclusive jurisdiction over such readjustments. Section 15(6) provides in pertinent part:

    Whenever, after full hearing upon complaint or upon
  its own initiative, the Commission is of the opinion
  that the divisions of joint rates, fares, or charges,
  applicable to the transportation of passengers or
  property, are or will be unjust, unreasonable,
  inequitable, or unduly preferential or prejudicial as
  between the carriers parties thereto (whether agreed
  upon by such carriers, or any of them, or otherwise
  established), the Commission shall by order prescribe
  the just, reasonable and equitable divisions thereof
  to be received by the several carriers, and in cases
  where the joint rate, fare, or charge was established
  pursuant to a finding or order of the Commission and
  the divisions thereof are found by it to have been
  unjust, unreasonable or inequitable, or unduly
  preferential or prejudicial, the Commission may also
  by order determine what (for the period subsequent to
  the filing of the complaint or petition or the making
  of the order of investigation) would have been the
  just, reasonable, and equitable adjustment to be made
  in accordance therewith.

Courts on numerous occasions have interpreted Section 15(6) to mean that the Interstate Commerce Commission has exclusive jurisdiction to determine what is a proper division of joint rates between joint carriers. See, e.g., Bachus-Brooks Co. v. Northern Pacific Railroad Co., 21 F.2d 4 (8th Cir. 1927), cert. denied 275 U.S. 562, 48 S.Ct. 120, 72 L.Ed. 427; Beaumont, S.L. & W. Railway Co. v. United States, 36 F.2d 789 (8th Cir. 1929), aff'd, 282 U.S. 74, 51 S.Ct. 1, 75 L.Ed. 221; Atlantic Coast Line R. Co. v. Delaware & H.R. Corp., 86 F.2d 721 (2nd Cir. 1936). Under these decisions the subject matter of Santa Fe's counterclaim must first be brought before the ICC before court review is obtainable.

Liability under Sections 8 and 9 of the Interstate Commerce Act can only arise if North Western has violated Section 1(14)(b) of the Act, 49 U.S.C. § 1(14)(b), which provides, in pertinent part, that:

    (b) It shall be unlawful for any common carrier by
  railroad or express company, subject to this chapter,
  to make or enter into any contract, agreement, or
  arrangement with any person for the furnishing to or
  on behalf of such carrier or express company of
  protective service against heat or cold to property
  transported or to be transported in interstate or
  foreign commerce, or for any such carrier or express
  company to continue after April 1, 1941, as a party
  to any contract, agreement, or arrangement unless and
  until such contract, agreement, or arrangement has
  been submitted to and approved by the Commission as
  just, reasonable, and consistent with the public
  interest. (Emphasis added).

The word "person" in Section 1(14)(b) does not include common carriers;*fn3 this means that ICC approval need not be obtained of protective service arrangements between common carriers and a shipper or car line company. Therefore, failure to obtain approval of the basic agreement involved in the counterclaim (Division Sheet 7 which is an agreement strictly among common carriers) has not resulted in any violation of Section 1(14)(b).

The ICC alone has primary and exclusive jurisdiction over readjustments in the division of joint revenues and expenses from joint through movements. The counterclaim must be dismissed.

Accordingly, it is hereby ordered that the plaintiff's motion to dismiss the counterclaim is granted and the counterclaim is dismissed without prejudice.


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