Opinion ID: 501682
Heading Depth: 1
Heading Rank: 3

Heading: keogh

Text: 29 Defendants argue that Keogh v. Chicago & N.W. Railway Co., 260 U.S. 156, 43 S.Ct. 47, 65 L.Ed. 183 (1922), bars the claims that unreasonable freight and handling charges caused plaintiffs to lose business. 30 The plaintiff in Keogh, a shipper of commodities, sued for antitrust damages on the ground that the defendant railroads restrained competition by conspiring to fix rates for shipment by rail. The ICC had approved the rates as reasonable and nondiscriminatory. The plaintiff claimed damages for the difference between these rates and earlier, lower rates that he alleged would have remained in effect if not for the conspiracy. The Supreme Court held that the plaintiff did not have a cause of action. 31 The Court listed four reasons for its holding. First, the Court observed that when the ICC finds a rate to be illegal because it is unreasonably high or discriminatory, the shipper can recover damages under the Interstate Commerce Act. The Court asked rhetorically whether Congress intended for the antitrust laws to provide an additional remedy, suggesting that the Court would not easily infer one. Second, the Court explained that the paramount purpose of the Interstate Commerce Act is prevention of unjust discrimination. Id. at 163, 43 S.Ct. at 50. This required that ICC-approved rates be the sole source of a shippers' rights against a carrier. If a shipper could recover under the antitrust laws for ICC-approved rates, Congress' purpose might be defeated, because the amount recovered would give that shipper an advantage over his competitors. Third, the Court reasoned that an antitrust plaintiff would have to show that the rate that would have prevailed but for the conspiracy would have been approved by the ICC. There was no proceeding in which the ICC could issue an opinion on a hypothetical rate. Finally, the Court said that the plaintiffs' damages were speculative because all shippers paid the same rate and the benefit of a lower rate might have gone to the plaintiffs' customers or to the ultimate consumer. Id. at 162-65, 43 S.Ct. at 49-50. 32 Plaintiffs argue, and the district court held, that Keogh does not apply because they are defendants' competitors, not customers seeking damages that would give them an advantage over defendants' other customers. Also, the plaintiffs distinguish Keogh on the basis that there the plaintiff asked for a rebate from the rates he had paid, whereas here plaintiffs claim damages for loss of business. 33 The Second and Third Circuits have held that Keogh does not apply when the plaintiff is in competition with the defendant. In City of Groton v. Connecticut Light & Power Co., 662 F.2d 921 (2d Cir.1981), the plaintiffs were municipal power companies who bought electricity at wholesale rates from a larger power company, the defendant. The plaintiffs competed with the defendant in selling power to industrial companies in the different municipalities, and the plaintiffs alleged that the defendant tried to squeeze them out of this competition by selling them power at a wholesale price that was higher than the retail price that the defendant charged its industrial customers. The plaintiffs claimed damages resulting from the industrial enterprises' decision to operate outside of the plaintiffs' territories. Id. at 927, 934-35. The court held that the discrimination problem of Keogh was absent because in Keogh the plaintiff's competitors were not represented in the lawsuit, whereas in City of Groton the plaintiffs had no competitors other than the defendant. See id. at 929-31. 34 In Essential Communications Systems, Inc. v. American Telephone & Telegraph Co., 610 F.2d 1114 (3d Cir.1979), plaintiff Essential was in the business of distributing a telephone answering device called Code-a-Phone. The defendants provided telephone service and also competed with Essential in the distribution of Code-a-Phone. Defendants filed a tariff that required customers who installed an Essential Code-a-Phone to install an additional device as well, which Essential alleged was unnecessary. The tariff did not require customers who bought a Code-a-Phone from defendants to install the additional device. Essential alleged it was the victim of an antitrust conspiracy and claimed damages for loss of business. 35 The court allowed the claim. The court reasoned that in both Keogh and Essential the intended beneficiaries of regulation were customers, not competitors of the regulated utility. Thus, the court stated that the Keogh rule has little or nothing to do with [the utility's] duties under the antitrust laws toward its competitors. Id. at 1121. Also, the court noted that the plaintiffs did not ask for a rebate from rates paid, as the plaintiff had in Keogh. Id. at 1122. 36 Plaintiffs' argument against extending Keogh to competitor suits finds some support in Square D Co. v. Niagara Frontier Tariff Bureau Inc., 760 F.2d 1347 (2d Cir.1985) (Friendly, J.), aff'd, 476 U.S. 409, 106 S.Ct. 1922, 90 L.Ed.2d 413 (1986), where the Keogh situation was repeated in a suit by the purchasers of truck transportation services. The Second Circuit argued that post-Keogh developments undercut all four reasons for the Keogh rule. First, the Supreme Court has allowed an antitrust remedy even when a regulatory remedy is available. Second, the existence of class actions can alleviate the danger of a rebate to a single plaintiff. Third, judicial proceedings can be stayed pending a regulatory proceeding to determine whether a hypothetical rate would have been reasonable. Fourth, the Supreme Court has held that a direct purchaser can recover antitrust damages for the full amount of an overcharge, regardless whether he passed part or all of it on to customers. Id. at 1352-53. See Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968). 37 The Second Circuit followed Keogh but urged the Supreme Court to overrule it. The Supreme Court praised Judge Friendly's opinion as characteristically thoughtful and incisive and did not take issue with his description of the developments since Keogh, but reaffirmed the Keogh rule for the sake of stability in the law. 38 [T]he developments in the six decades since Keogh was decided are insufficient to overcome the strong presumption of continued validity that adheres in the judicial interpretation of a statute.... We are especially reluctant to reject this presumption in an area that has seen careful, intense, and sustained congressional attention. If there is to be an overruling of the Keogh rule, it must come from Congress, rather than from this Court. 39 Square D, 106 S.Ct. 1930-31. 40 We do not read this deferential language as an adoption of Judge Friendly's rationale, for on its face it is a polite refusal of an invitation. Since the Supreme Court did in fact uphold the ruling in Keogh we construe its cited language to be that the Keogh rationale, whatever else might be said of it, still commands, in the Supreme Court's view, the support of Congress. Justice Stevens emphasized Keogh 's role as an essential element of the settled legal context in which Congress has repeatedly acted in this area. Square D, 106 S.Ct. at 1930. 41 Furthermore, we do not believe that either Keogh or Square D was intended to be limited solely to antitrust damage claims brought by shippers. It is true that in both Keogh and Square D the plaintiffs were shippers, i.e., customers of the defendants, rather than direct competitors. 12 We may also assume that plaintiffs will not gain a preference over their trade competitors if permitted to recover antitrust damages resulting from the defendants' alleged conspiracy. In our view, however, it does not follow that plaintiffs' action for damages is therefore outside the scope of Keogh. 42 When the ICC approves a rate, including a rate purportedly arrived at under the type of joint rate agreement permitted under Reed-Bulwinkle, it necessarily takes an anticompetitive action. This action is justified by the ICA because the statute assumes that the pro-competition policies of the antitrust laws have been taken into account but also assumes that the ICC possesses and ought to have the power to override those policies in order to further national transportation policy as expressed in the Act. Rates must not only protect against overcharging captive customers but must also keep in mind the economic costs of delivery of the service. Regulation of one aspect inevitably begets regulation of the other. Thus, the ICC is the sole source of the rights not only of shippers, but of the entire public, including competitors. Plaintiffs here had a right under the ICC to complain to the Commission. We should not easily infer that the Reed-Bulwinkle amendments were not intended to extend to competitor's suits. While such actions may be aimed at achieving some of the objectives of the antitrust laws, they nonetheless can be inconsistent with the statutory delegation of power to the Interstate Commerce Commission and with the allowance of joint ratemaking activities as expressly authorized by Reed-Bulwinkle. 43 We recognize that the anti-discrimination arguments behind the Keogh doctrine lose their force in competitor lawsuits such as this. For those who believe that the original reasons expressed in Keogh still have some substantive persuasive force, in the face of Square D 's expressed reservations, the other reasons in Keogh, we observe, still have considerable applicability here. 44 In sum, we conclude that the Keogh doctrine bars the plaintiffs' antitrust damage claims insofar as these claims are based either on the defendants' own handling charges or on the line-haul rate that was applied from Pinney Dock. To the extent that these rates and charges are otherwise unlawful, we believe that plaintiffs must seek whatever remedies are available under the provisions of the Interstate Commerce Act. At the same time, however, at least some of the plaintiffs' claims for antitrust damages appear to be outside the scope of the Keogh doctrine. Litton contends that the defendants refused to permit Litton to purchase, lease or use dock facilities which could have accommodated the technologically advanced self-unloading vessels being designed and constructed by Litton. These allegations are plainly not related to the defendants' handling charges or to the commodity line-haul rate applied from Pinney Dock and, to that extent, Keogh would not bar antitrust damage claims based on such allegations. Plaintiffs allege that defendants used harassing tactics and spurious challenges to try to forestall legitimate business activities of competitors. To the extent that these alleged acts are unrelated to defendants' rates, any damages suffered therefrom would not be barred by Keogh. 45 Plaintiffs have raised other claims as well, but it is less clear from the face of these claims that they are not rate-related and therefore within the scope of Keogh. Plaintiffs contend that defendants refused to handle self-unloading vessels at docks owned or operated by defendants and that defendants boycotted Pinney Dock. However, if this boycott or refusal to deal took the form of assessing higher rates and charges, it would again appear that these claims are within the scope of Keogh. Plaintiffs also allege that defendants divided markets, but if the effect of such division is the lack of rate competition, Keogh again would bar recovery. Rather than requiring outright dismissal of these claims, however, we believe that plaintiffs should be afforded an opportunity on remand to amend their complaint in order to clarify these allegations to state a claim for damages consistent with Keogh. We note that this is the approach taken by Judge Friendly in Square D, 760 F.2d at 1365, and this ruling was specifically mentioned by the Supreme Court and left undisturbed when it affirmed the Second Circuit decision in Square D. 106 S.Ct. at 1930 n. 28. 13