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IN RE WHEAT RAIL FREIGHT RATE ANTITRUST LITIGATION

December 8, 1983

IN RE WHEAT RAIL FREIGHT RATE ANTITRUST LITIGATION. THIS DOCUMENT RELATES TO: PILLSBURY CO., NO. 82 C 6054; GENERAL MILLS, INC., NO. 83 C 834; DCA FOOD INDUSTRIES, INC., NO. 83 C 835; PILLSBURY CO., NO. 83 C 1450.


The opinion of the court was delivered by: Prentice H. Marshall, District Judge.

MEMORANDUM OPINION

The shippers have sought to increase their ill-gotten profits further, it is alleged, by conspiring to collectively hold down their freight costs on wheat and wheat products. To explain this we must first briefly discuss the system by which shipping charges for wheat products are determined. The system in effect during the relevant time period was known as the "transit" system. Under this system, a single through rate was applied for shipments of wheat to the miller (the shippers here) and then to the buyer after processing. This was done despite the fact that a given shipment actually staved at the mill for a period of time while being milled. As best we can tell, a "transit privilege" with respect to a quantity of wheat shipped to the mill was reflected in a "transit bill." Without a transit bill, the shipper could ship its products to a buyer only at a higher, non-transit rate. The railroads alleged that the shippers entered into an arrangement by which they would exchange transit bills. To illustrate, we use an example supplied by the railroads:

  Assume Pillsbury shipped by truck a load of grain into Chicago
  from a [w]estern elevator. There, Pillsbury had the grain held
  at an elevator and milled into flour. The outbound "reshipping"
  rate did not apply on grain trucked into Chicago. Therefore,
  Pillsbury was entitled to move the flour from Chicago only at
  the higher "flat" rail rate. Assume General Mills also shipped
  a load of grain into Chicago, but did so by rail. General Mills
  also had its flour milled in Chicago. Since the General Mills
  grain moved into Chicago by rail, General Mills was entitled to
  the benefit of the lower "reshipping" rate, having exercised
  its right to stop the grain and have it milled, "in transit."
  Suppose next that General Mills decided to ship its flour from
  Chicago by water. General Mills would have no need to use its
  inbound rail transit billing papers to justify its right to
  obtain the lower "reshipping" rate. So, General Mills would
  turn those papers over to Pillsbury who would then use them to
  "back up" the outbound rail movement.
    Thus, Pillsbury would have paid the lower "reshipping" (or
  proportional) rate instead of the higher "flat" rate it would
  otherwise have paid absent its agreement with General Mills.
  In exchange, the counterclaim alleges, Pillsbury agreed to
  reciprocate on other occasions. . . . [I]t was a continuing
  agreement among [the shippers], [the object of which] was to
  enhance the profitability of the conspirators' overall scheme
  to maintain supra-competitive profits on bakery flour.

B & O-C & O Memorandum in Response to DCA, General Mills, and Pillsbury Motions to Dismiss Counterclaims at 4-6. Given the concurrent use by the shippers of the base point pricing system, any time a shipper could keep its transit costs down it increased its profits.*fn2

The shippers' alleged conspiracy to hold down freight costs also took other forms. The railroads allege that the shippers directed the railroads to engage in circuitous routings, which, under the ICC-approved freight rate system apparently lowered the shippers' freight costs in some cases. The railroads also assert that the shippers filed documents with the ICC that omitted material information in an attempt to encourage the ICC to maintain the existing rate and transit system. The railroads further claim that the shippers exchanged information concerning delivered prices and the availability of transit bills in furtherance of their scheme. Finally, the railroads aver that the shippers conspired to sell products which would have had higher rail freight charges locally (apparently not using the rails) while using the rails to ship shipments with lower freight charges.

The shippers have moved to dismiss the counterclaims, alleging that they fail to state a claim on which relief may be granted and that the railroads do not have "antitrust standing" to bring the claims.

When the present motions to dismiss were filed, nothing suggested that the railroads were purchasers of wheat products subject to the base point pricing system. Thus, the shippers pointed out that to the extent that the railroads' counterclaims were aimed at that system alone, the railroads were harmed only indirectly and that the only proper plaintiffs to raise such a claim would be the buyers themselves. We agree. See Associated General Contractors v. California State Council of Carpenters, ___ U.S. ___, 103 S.Ct. 897, 908-13, 74 L.Ed.2d 723 (1983) (person not a consumer or competitor in the market in which trade was restrained cannot bring antitrust claim). In their responses to the motions the railroads disavowed any intention to attack the base point pricing system. They pointed out, however, that they were buyers of wheat products, and some of the railroads have amended their counterclaims to add a second count based on that state of affairs. In the present motions, however, since the railroads in their original counterclaims did not allege that they were buyers of wheat products, the sufficiency of any claim arising from the purchase of such products is not before us, and we assume that the claims subject to the motion to dismiss are based solely upon alleged injury to the railroads as carriers of wheat products.

Under section 4 of the Clayton Act, 15 U.S.C.A. § 15 (West Supp. 1983), any person injured in his business or property by reason of anything forbidden by the antitrust laws may bring an action under those laws to recover his damages. The courts have, however, limited the broad scope of § 4 in an effort to confine the class of proper antitrust plaintiffs to those whom Congress intended to permit to sue. The parties agree that the standard for "antitrust standing" is stated in Associated General Contractors v. California State Council of Carpenters, ___ U.S. ___, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983). In that case, the Court noted that the threshold inquiry is whether the plaintiff alleges a causal connection between an antitrust violation and harm to the plaintiff. Id. at 908. An affirmative answer to that question, however, does not end the inquiry. The Court has identified factors that "circumscribe and guide the exercise of judgment in deciding whether the law affords a remedy in specific circumstances." Id. Among those factors are: whether the defendant intended to cause harm to the plaintiffs; whether the plaintiff is a consumer or competitor in the market in which trade is alleged to have been restrained; whether the plaintiff's alleged injury was a direct result of the antitrust violation;*fn3 whether the alleged injury is speculative; and whether there is a risk of duplicative recoveries or a need for complex apportionment of damages if this plaintiff is permitted to sue. Id. at 908-12.

Putting aside the railroads' allegation of a conspiracy by the shippers to establish a base point pricing system for buyers of milled wheat products, the railroads have met the standard set forth in Associated General Contractors. Their claim involves a conspiracy alleged to be directed purposefully at them that deprives them of freight revenues that they would receive absent the conspiracy; they are competitors in the market in which trade was restrained, that is, the market for the purchase of rail freight services; though proof of the exact measure of damages may involve difficult concepts, the fact of damage is not speculative if the railroads' allegations are true;*fn4 and apart from certain considerations that we will discuss below, there is no risk of complex apportionment or duplicative recovery.

The only serious "standing" problem we perceive is caused by the railroads' "background" allegation of a conspiracy to establish a base point pricing system. The shippers suggest that the conspiracy to hold down freight charges, even if it exists, is entirely subordinate to the alleged base point pricing conspiracy. If the shippers were charging their buyers the actual freight charges paid to the railroads, the argument goes, there would be no incentive to maintain a "spread" and thus no incentive to hold down freight charges. Though an individual shipper would have an incentive to hold its freight charges down so as to increase its sales, the shippers as a group would have no incentive to hold freight costs down collectively.

We do not agree with the shippers' argument. There are several reasons why the shippers might want to hold down freight costs even absent a base point pricing system. For example, the shippers might wish to gain a competitive advantage over other shippers using means of transit other than the rails by keeping down the freight costs passed on to buyers. Likewise, the shippers in the conspiracy might wish to gain a similar advantage over other shippers using the railroads but which were not part of the "favored" group. The shippers might also want to keep freight costs down to avoid having buyers switch to substitutes and to combat foreign competition. Thus, at least on the present record we cannot say that the alleged conspiracy to hold down the charges paid to railroads is entirely dependent on the allegation that the shippers conspired to establish a base point pricing system.

Even were we to accept the shippers' argument, the fact that an unlawful conspiracy may be part of a broader scheme does not in itself bar a suit by one injured by the subordinate conspiracy. Blue Shield of Virginia v. McCready, 457 U.S. 465, 102 S.Ct. 2540, 73 L.Ed.2d 149 (1982), was a similar case. In Blue Shield, the plaintiff, a patient of a clinical psychologist, alleged that defendant, a health insurer, had conspired with psychiatrists to bar reimbursement of patients for services performed by clinical psychologists. The plaintiff was injured to the extent of her out of pocket payments to her psychologist, which she could not recover through her insurance with Blue Shield. Blue Shield argued that since the conspiracy was directed at psychologists, a consumer of psychologists' services did not have antitrust standing to sue. The Court rejected this allegation, holding that since plaintiff's injuries flowed directly from "that which [made] defendants' acts unlawful," id. at 484, 102 S.Ct. at 2551, the fact that the overall conspiracy was directed at someone other than her did not bar her claim. Similarly, in the ...


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