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LOUIS DREYFUS CORP. v. UNITED STATES

March 6, 1975

LOUIS DREYFUS CORPORATION, Plaintiff,
v.
UNITED STATES of America and Interstate Commerce Commission, Defendants



The opinion of the court was delivered by: LUMBARD

LUMBARD, Circuit Judge

This is an action to enjoin and set aside an order of the Interstate Commerce Commission ("Commission") upholding a rate reduction by intervenor-defendant Missouri Pacific Railroad Company (MoPac) applicable to the movement of wheat and soybeans from some fifty stations, located primarily on one MoPac line along the Arkansas River, to five Louisiana ports at Ama, Baton Rouge, Myrtle Grove, New Orleans and Port Allen. Plaintiff Louis Dreyfus Corporation (Dreyfus) operates a three-million-bushel, export-grain elevator at Pascagoula, Mississippi, which under prior rate schedules had enjoyed substantial rate equality with the above Louisiana ports on shipments from many MoPac origin points on the Arkansas River. Dreyfus challenges the Commission's finding that the rates were compensatory, and therefore not unjust or unreasonable, see 49 U.S.C. § 1(5), and the Commission's determination that a change in the rate relationship between ports was not unduly prejudicial to Dreyfus because of increased barge competition, differing transportation conditions to Pascagoula, and Dreyfus's failure to show how its business had been affected by the rate reduction, see 49 U.S.C. § 3(1).

 I. Background

 In February 1970 MoPac filed proposed rate reductions for three classes of carload shipments of wheat and soybeans *fn1" from stations along the Arkansas River to five ports it served in the New Orleans area. *fn2" The rates were to become effective October 3, 1970. The proposed reductions were very substantial -- sometimes as much as one-third. For example, the rate from Dardenelle, Arkansas, to the five ports was cut from thirty to twenty cents per hundred pounds.

 MoPac attributed the need for substantial rate reductions to increased barge competition from affected origin stations. In 1969 and 1970, as a result of a federally funded project, the Arkansas River had been opened to barge traffic for the first time. One hundred seventeen miles, from Little Rock, Arkansas, to the Mississippi River, had been opened in January 1969. This navigable portion had been extended eighty-two miles upriver to Dardenelle, Arkansas, in January 1970, and then an additional one hundred one miles to Fort Smith, Arkansas, in June of that year. As a result, the cost of nonrail transportation to the New Orleans area had been substantially reduced.

 Dreyfus protested the proposed rate reductions because they did not apply to Pascagoula, Mississippi. Pascagoula is not served directly by MoPac; shipments from MoPac origin stations along the Arkansas River must come through Memphis, Tennessee, or New Orleans, where they are switched to lines of connecting carriers serving Pascagoula. Rates for such joint hauls are set by agreement between the carriers. Dreyfus claimed that MoPac's failure to seek a corresponding rate reduction from connecting carriers for joint hauls to Pascagoula would effectively shut Dreyfus out of the export market for wheat and soybeans grown along the Arkansas River, and that instead of trying to meet increased barge competition, MoPac was really trying to promote shipments to destinations served directly by MoPac as opposed to those served by joint hauls. *fn3"

 On October 2, 1970, the Commission stayed the effective date of the proposed rates in order to conduct an investigation of their lawfulness. However, the stay expired prior to any decision, and the rates went into effect on July 2, 1971. *fn4"

 The Commission's employee Review Board Number 4 issued its order on May 3, 1972 upholding reduced rates on two of the three types of carload shipments. Soybeans and Wheat, Arkansas and Louisiana to Louisiana Ports. 341 I.C.C. 898. *fn5" The Board found that the only way MoPac could retain any business in this area in the face of unregulated barge competition was to reduce rail rates to induce shippers to continue using rail service in preference to making heavy investments in barge-loading facilities. The verified statement of MoPac's Assistant General Freight Agent Joseph R. Duepner indicated that while in 1969 MoPac handled 226 carloads of soybeans from North Dardenelle, Little Rock and Pine Bluff, it handled only twelve carloads in the first six months of 1970. This difference was not due to any seasonal fluctuation in shipments, as evidenced by the fact that in 1969 MoPac handled sixty-nine of its ninety carloads from North Dardenelle in the first half of the year.

 The Board noted that in 1969, when the river had been partially opened to barges, barges carried around 35,000 tons of wheat and soybeans. In the first eleven months of 1970, when the river was opened first to Dardenelle and then to Fort Smith, barge traffic increased to almost 100,500 tons. This amount was expected to increase, absent a rail rate reduction, because more shippers would construct barge-loading facilities. *fn6" The Board indicated that even with the rate reduction, rail rates to the allegedly preferred ports were still higher than published, regulated barge rates to New Orleans, or even Pascagoula. However, wheat and soybeans often move by barge shipments which are exempt from the published tariffs.

 Because of the severe barge competition, the Board did not require that the reduced rail rates make a substantial contribution to fixed overhead costs in order to be found compensatory. Instead it held that two of the three groups of rate reductions were compensatory because the rates exceeded average variable costs. *fn7" Although the Board noted that MoPac's cost estimates erroneously excluded a damage or loss allowance and used too low an empty return ratio, it restated the cost estimates based on the evidence before it. Finally, even though the 1969 costs used by MoPac were understated for current 1972 levels, it found that the reduced rates exceeded the 1969 variable costs by "substantial margins sufficient to indicate that they would be compensatory at current cost levels." 381 I.C.C. at 902. *fn8"

 With regard to the question of undue prejudice under section 3(1), the Board found that the transportation conditions justified the rate differential between the New Orleans area and Pascagoula and that there had been no evidence of injury presented by Dreyfus other than general allegations that this would shut it out of the market for export-wheat and soybeans from along the Arkansas River. The Board noted that no other port interest in Pascagoula had joined Dreyfus's protest. (Neither had any connecting carrier.) None had even submitted a statement on Dreyfus's behalf. The Board then noted that transportation conditions to Pascagoula and to New Orleans differ in several important respects. First, there is the increased barge competition from along the Arkansas River to points covered by the reduced rates. Barges also carry grain to Pascagoula, however barge rates to Pascagoula from along the Arkansas River are significantly higher than those to the five MoPac destination points in the New Orleans area, because the trip by barge is over eighty miles longer. *fn9" Moreover, rail shipments to Pascagoula from Arkansas River stations would be joint hauls, which generally result in additional expenses such as interchange charges not incurred in single-line service. The Board found that such expenses would be significant here because rail rates were already depressed by severe barge competition. Reducing joint-haul rates on shipments routed through Memphis, the shortest route to Pascagoula, would also probably mean that rates from intermediate MoPac stations not on the Arkansas River, and thus not affected by the increased barge competition, would also have to be reduced because generally an intermediate point cannot have a higher rate for similar shipments than a more distant point on the same line. Dreyfus's own figures also indicate that even the joint hauls through Memphis to Pascagoula were often more than one hundred miles longer than single-line hauls to New Orleans from the same origin. (R. 121-22.).

 In January 1973 Dreyfus brought this action challenging the Commission's order. *fn10" One of Dreyfus's claims was that it should have been permitted to cross-examine each of the witnesses testifying on behalf of MoPac, instead of just the cost witness. *fn11" On April 18, 1973, the Commission decided to reopen its investigation and to permit such cross-examination. At a further hearing the parties could also present "such other evidence which the Administrative Law Judge [deemed] necessary to complete the record." The present action was temporarily stayed.

 The further hearing was held on August 9, 1973. The transcript indicates that at the conclusion of the cross-examination, Dreyfus sought to introduce more recent cost evidence over the strenuous objection of MoPac. Dreyfus stated that if the Administrative Law Judge would rule that MoPac had failed to carry its burden of proof, then there would be no need to introduce the further cost study. The judge declined to make such a ruling, but permitted Dreyfus to introduce its more recent study. Thereupon MoPac introduced more recent cost evidence as well.

 On January 25, 1974, in a report and order based upon the further hearing, Appellate Division 2 of the Commission held that the rates applicable to soybeans or wheat in covered hopper cars (subject to a minimum weight of 180,000 pounds) were compensatory. (MoPac had earlier withdrawn the reduced rate applicable to boxcar shipments of soybeans or wheat which the Board had found compensatory in the earlier report.) Focusing on the more recent cost data, the Commission found MoPac's new cost study to be unreliable and did not attempt to restate the estimated costs as ...


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