Opinion ID: 292748
Heading Depth: 1
Heading Rank: 4

Heading: restitution as a remedy for losses suffered by virtue of

Text: AN INJUNCTION 56 The issuance of an injunction will in many cases cause financial losses to interested parties as well as prevent irreparable injury to the procurers. More importantly in cases such as this, where the restraint is directed against an order of an administrative agency charged with regulating rates to be charged to the public at large, the injunction may cause substantial losses to the general public which can never be adequately compensated. In such cases, it is the duty of the court issuing the injunction to take necessary measures to protect the interests of parties before it, as well as the public interest. (This was done in this case by the issuing judge prudently requiring a substantial bond before issuing the temporary restraining order. The temporary restraining order is customarily issued, and usually ex parte, to maintain the status quo pending a detailed review on the merits.) 57 For some time, it was thought to be the law in the federal courts that the only remedies available to parties injured by the issuance of an injunction were an action for damages on the injunction bond, if one had been required, in which case the amount recoverable was limited to the amount of the bond, or, in the absence of a bond, an action for malicious prosecution where applicable. Russell v. Farley, 105 U.S. 433, 26 L.Ed. 1060 (1881). The substantial limitations inherent in these remedies are readily apparent. 58 But in 1919, the Supreme Court significantly expanded the protection to be accorded injured parties by allowing recovery in the nature of restitution in cases where that remedy might be appropriate. Arkadelphia Milling Company v. St. Louis S.W. Ry. Co., 249 U.S. 134, 39 S.Ct. 237, 63 L.Ed. 517 (1919). The principles enunciated in Arkadelphia are central to the resolution of this case, and hence it will be examined in detail. The state of Arkansas, through an administrative agency, established rates to be charged by railroads for intrastate transportation of freight and passengers. The railroads brought suit in federal court, attacking the rates on the grounds that they were confiscatory. The district court issued an injunction, conditioned on a bond, restraining enforcement of the rates and ultimately issued a permanent injunction on the grounds that the rates were confiscatory. Upon entering the final decree, the bonds were dissolved. This decision was appealed, and the Supreme Court reversed the decree, holding that while the complaining railroads were justified in criticizing many of the tests applied by the State in determining the rates, they had failed to sustain their burden of proof that the rates were confiscatory. The complaint was ordered dismissed without prejudice, Allen v. St. Louis, I.M. & S. Ry. Co., 230 U.S. 553, 33 S.Ct. 1030, 57 L.Ed. 1625 (1912). On remand, the district court entered a decree in conformity with the mandate and referred the case to a master to determine the award of damages. The master awarded damages, measured by the excess rates charged by the railroads over those prescribed by the state commission, against the railroads and the sureties on the bonds for the period from the issuance of the injunction to the entry of the original decree and also for the period between the entry of the original decree and the entry of the final decree conforming with the mandate. The district court affirmed the master's report and awarded judgment accordingly. On appeal to the Supreme Court, this judgment was affirmed with the modification that the sureties were not liable for the period following the final decrees since the bonds had been dissolved at that time. 59 The railroads in Arkadelphia made three arguments which are pertinent to the instant case. First, they argued that the higher charges in force prior to the issuance of the permanent injunction were lawful charges by virtue of the temporary injunction; that the decision reversing the issuance of the permanent injunction operated prospectively only and did not determine that the temporary injunction was wrongfully issued; and that the condition of the bonds required a final decision on this issue in order to establish liability to the shippers. The Supreme Court disposed of this contention as follows: 60 'But this is to construe the bonds according to the letter and not according to the substance. The state statute and the orders of the Railroad Commission entitled shippers to the benefit of the rates thereby established; and they were thus entitled at all times except as it became necessary to stay the operation of the rates by equitable process in order to permit of a judicial investigation into the question of their adequacy. The burden of proof to show them inadequate was upon the railway companies; and when they failed to sustain this burden they at the same time showed that the injunctions ought not to have been allowed.' Arkadelphia Milling Co. v. St. Louis S.W. Ry. Co., 249 U.S. 134 at 144, 39 S.Ct. 237 at 2411 (1919). 61 Secondly, the railroads argued that as to damages occurring after the issuance of the permanent injunction, the reference to the master was only for the purpose of determining damages on the bonds, which liability was discharged with the issuance of the permanent injunction, and that the permanent injunction itself created no liability on the part of the railroads to the shippers. This argument led to the Court's significant holding that these damages were recoverable on the theory of restitution. This holding was based on the 'principle, long established and of general application, that a party against whom an erroneous judgment or decree has been carried into effect is entitled, in the event of a reversal, to be restored by his adversary to that which he has lost thereby.' Id. at 145, 39 S.Ct. at 242. (See American Law Institute, Restatement of Restitution, 74 (1937)). 62 Finally, the railroads argued that since the reversal of the district court's decree was 'without prejudice,' the rights of the parties were left in doubt and thus there was no basis for the award of damages. The Court held that: 63 '   The rights of the present shippers were so clear as to make an allowance of damages upon the injunction bonds and restitution upon the reversal of the decrees manifestly their due. That the reversal was 'without prejudice' did not deprive the decrees of conclusiveness as to past transactions, but only prevented them from being a bar to future suits for injunction upon a showing of changed conditions.' Id. at 147, 39 S.Ct. at 242. 64 The carriers in the instant case seek to distinguish Arkadelphia on the following grounds. First, they argue that the jurisdictional bases for judicial review and restraint of the orders are different; in Arkadelphia, the jurisdiction of the court was founded on the denial of a constitutional right (confiscation of property in violation of due process), whereas here the right of review is accorded by statute (28 U.S.C.A. 2284, 2324, 2325). We fail to perceive how this distinction makes a difference. In either case, the jurisdiction to issue the injunction is founded on traditional equity powers, and concomitant with the power to issue the injunction is the power to restore the parties to their rightful positions if the injunction is wrongfully issued. Surely it could not be contended that because Congress required that injunctions restraining orders of the Interstate Commerce Commission be issued by a three-judge court, instead of a single judge, it thereby expanded or contracted rights of the parties affected by that injunction. Secondly, the carriers argue that the lower rate was legislatively prescribed in Arkadelphia, whereas in this case there was no lower rate prescribed. We have disposed of this contention above. Finally, they contend that restitution was proper in Arkadelphia because there was no other remedy available in that case, while here 304a of the Interstate Commerce Act provides another remedy. We will deal with this contention below in connection with other defenses suggested by the carriers. 65 Following the decision in Arkadelphia, the Supreme Court applied its principles in numerous cases. In a case involving municipal regulation of gas utility rates, where a district court's temporary injunction enjoining enforcement of the rates followed by a denial of a permanent injunction was affirmed as modified by the Supreme Court, it was held in a subsequent decision that the district court had jurisdiction to order refunds, through a special master, of the excess rates collected by the gas company by virtue of the temporary injunction, and indeed that retention of such jurisdiction was required by the principle of Arkadelphia. Ex parte Lincoln Gas & Electric Light Co., 256 U.S. 512, 41 S.Ct. 558, 65 L.Ed. 1066 (1921). 66 Of particular interest with respect to the instant case is a contention made by the gas company regarding the extent of the period for which restitution should be required. The district court entered its first decree upholding the validity of the rate ordinance on September 23, 1915, and dismissed the bill finally. The temporary injunction was continued, however, on a supersedeas bond to permit appeal by the gas company. On that appeal, the Supreme Court affirmed the district court's dismissal of the bill on the grounds that the rates were not proved to have been confiscatory during the period then involved, approximately 1908 to 1915. However, the Court took judicial notice that labor costs and returns on capital had increased substantially since the end of World War I and modified the dismissal to provide that it would be without prejudice to the institution of a new suit proving confiscation subsequent to the date of the final decree, September 23, 1915. Lincoln Gas & Electric Light Co. v. Lincoln, 250 U.S. 256, 39 S.Ct. 454, 63 L.Ed. 968 (1919). 67 On remand, the district court ordered restitution for the period of the temporary injunction up to the date of the final decree, and also for the period following the final decree while the injunction was in effect pending the appeal. Appealing this order, the company contended that there was no liability for excess charges after the date of the final decree, because by virtue of the Supreme Court's prior modification order, the validity of the ordinance was finally determined only up to the date of the final decree; since the bill was dismissed without prejudice to a new suit subsequent to that date there was no final adjudication of the validity of the ordinance rates subsequent to that date. But the Supreme Court held that restitution was proper for this period also, because the ordinance rate was presumptively valid and binding until the company successfully concluded a suit showing that it was noncompensatory. Ex parte Lincoln Gas & Electric Light Co., 256 U.S. at 518, 41 S.Ct. 558. 68 Remedies available to parties who might be injured by the issuance of an injunction restraining an agency order were further expanded by the decision of the Supreme Court in Inland Steel Co. v. United States, 306 U.S. 153, 59 S.Ct. 415, 83 L.Ed. 557 (1939). In that case, the Interstate Commerce Commission found that certain allowances granted shippers by railroads were discriminatory and unlawful and ordered them canceled. The shippers sought an injunction restraining this order. The district court granted the injunction, but conditioned it on the payment of the contested allowances into a special account, subject to the order of the court, although neither the ICC nor the railroads requested such a condition. The Supreme Court held that the imposition of the condition was within the equity powers of the court in order to protect restitutional rights, relying on Arkadelphia and Ex parte Lincoln Gas. Upon affirmance of the commission's order, the special account was ordered restored to the railroad. 69 Finally, in reviewing Supreme Court cases on this issue of restitution, we may note that the Court has emphasized the importance of protecting the interests of parties adversely affected by the issuance of injunctions against administrative orders by reversing decisions which failed to award restitution or damages where it was clearly due. See Baltimore & Ohio R.R. Co. v. United States, 279 U.S. 781, 49 S.Ct. 492, 73 L.Ed. 954 (1929); Public Service Commission of Missouri v. Brashear Freight Lines, Inc., 312 U.S. 621, 61 S.Ct. 784, 85 L.Ed. 1083 (1941). 70 The principles enunciated in these Supreme Court decisions have been applied in numerous cases before the Courts of Appeals. Among those cases, we take specific note of two decided by our own Circuit. Berthold-Jennings Lumber Co. v. St. Louis, I.M. & S. Ry. Co., 80 F.2d 32 (8th Cir.), cert. denied, 297 U.S. 715, 56 S.Ct. 591, 80 L.Ed. 1001 (1935), involved a receivership proceeding in which the railroad was placed in receivership and a special master was appointed to determine claims against it. Certain shippers appeared in the proceeding before the special master and filed claims for rate overcharges against the railroad and also sought a preference for those claims. The alleged overcharges occurred under the following circumstances. The state of Missouri established by legislative action a schedule of maximum freight rates. The railroads obtained an injunction against those rates and during the period of injunction charged higher rates than permitted by the statute. The Supreme Court of Missouri ultimately sustained the validity of the legislation and dissolved the injunction. Applying the principles discussed above, this Court allowed the claims for overcharges against the railroads in the receivership proceeding, although for reasons not here material the demand for a preference was not allowed. Berthold-Jennings Lumber Co., supra at 40. 71 A somewhat different problem confronted this Court in the case of Panhandle Eastern Pipe Line Co. v. Federal Power Commission, 154 F.2d 909 (8th Cir.), cert. denied, 329 U.S. 761, 67 S.Ct. 110, 91 L.Ed. 656 (1946). There the pipe line company had challenged an order of the FPC ordering reduced rates on the transportation and sale of natural gas. A stay order against the Commission was granted by the Court of Appeals in order to permit the company to obtain review, but the stay was conditioned on the payment into court of the excess charges pending final determination. The Commission order was ultimately upheld and the Court was then faced with the problem of distributing the impounded funds. The specific question involved in Panhandle was whether the expense of distribution should be borne by the pipe line company or whether it should come out of the impounded funds, in effect making the expense of distribution fall on the consumers entitled to restitution. This Court held, relying in part on Inland Steel, supra, that the expense of distribution should fall on the company. This decision is consistent with the general principle that a party who obtains a benefit from an improperly issued injunction has the duty to restore that benefit to those who have been injured by the injunction. 72 Finally, attention may be given to the case of Accelerated Transport-Pony Express, Inc. v. United States, 227 F.Supp. 815 (D.Vt.), aff'd, 379 U.S. 4, 85 S.Ct. 43, 13 L.Ed.2d 21 (1964). In that case, carriers challenged an order of the ICC finding that the carriers' rates were not shown to be just and reasonable because certain charges for short hauls were higher than those for long hauls and ordering the tariffs canceled to the extent of this discrepancy. A temporary restraining order was obtained by the carriers, but on the final decision on the merits, a three-judge district court sustained the ICC's order and dismissed the complaint. The proceedings following this dismissal are not reported, but counsel has made available to this court the pertinent documents which indicate substantial relevance to this case. Following the dismissal, a single judge of that court ordered a reference to a master pursuant to the bond required on the temporary restraining order in order to determine damages sustained by shippers and receivers of freight because of the temporary restraining order. In conjunction with the reference, the court ordered the shippers to file an accounting of all monies collected by them in excess of rates or charges which would have been applicable had the ICC's order not been restrained. 73 In the course of the proceedings before the master, it became apparent that the shippers and the carriers were in substantial disagreement over the rate basis of the accounting, and also that the accounting itself would amount to a considerable expense on the part of the carriers. Consequently, a settlement agreement was entered into by which the carriers agreed to pay approximately $469,000 into a fund to be administered by a trustee; out of the fund the trustee was to pay litigation expenses of the prior suit and also to pay claims for overcharges proved by injured parties. The government assented to this settlement, and the district court approved the stipulated agreement and discharged the bonds accordingly. 74 The carriers in the instant case attack the relevance of Accelerated Transport as precedent. They contend that there was never any hearing on the primary issue of liability to make refunds, that there was never any decision that there was such liability, and that the stipulation itself does not confess such liability. 75 Underlying this argument is the suggestion that the only reason the settlement was entered into was that the carriers were under coercion because of the even more expensive task of making an accounting to the master. However, the conclusion is inescapable that the reference to the master and the stipulation that was accepted in satisfaction of the liabilities and rights entailed reflects that court's decision that the carriers had a duty to answer for the damages caused by the improvident issuance of the temporary restraining order. We reject the position that the stipulation was a product of coercion; if the carriers believed that the reference to the master was improper, that order was appealable by means of a writ of mandamus. See 5 Moore's Federal Practice P53.05(3) (1969). Accelerated Transport is clearly entitled to precedential value on this issue.