Western Pacific Railroad being so listed) and short-line connections of contract lines. None of the defendants nor any other western, midwestern, eastern or southern railroad is listed in this catalog of railroads under contract for mechanical protective services with PFE.

(Plaintiff contends that the railroads listed as being under contract with PFE are the railroads with which PFE had succeeded in negotiating bilateral contracts, and that its position is that Division Sheet 7 itself constitutes a unilateral contract under which the defendants collectively agree to pay PFE an inadequate and illegal amount for supplying mechanical protective service to them or in their behalf.)

(b) It is the contention of defendants that they were not listed in the PFE catalog of appendix A because, as intermediate and terminating carriers, they had no relationship with PFE which required them to have a contract, agreement or arrangement with it under Section 1(14)(b) of the Act or under the 1962 report.

(Plaintiff objects, in addition to the ground for objection to paragraph 3 (a) and (b) stated above, i.e., that the foregoing statement is argumentative, on the further ground that it is a statement of a legal conclusion, and, moreover, such conclusion has no support in the record, for the reason that numerous legal relationships exist between PFE and the defendants, as set forth in the Court's Order of November 16, 1971 ***.)

19. In the first paragraph under the heading of “Findings" of the 1962 report in Ex Parte No. 137 the Commission found that the unapproved protective service contracts set forth in appendix F of the report were just and reasonable, provided that within 120 days new or superseding contracts were filed. The paragraph then went on to provide: "In the event new or superseding contracts are not filed, further consideration will be given to the issuance of an order finding the presently unapproved contracts not within the requirements of section 1(14)(b)." (318 I.C.C. at p. 127) Defendants assert that PFE, as distinguished from its parents, has never invoked the Commission's jurisdiction by requesting it to enter an order against defendants, or any of them, requiring that they, or any of them, enter into a contract, agreement or arrangement with PFE, and that the Commission has never made any such order.

(Plaintiff objects to the foregoing paragraph 4, on the grounds that (1) it is irrelevant and immaterial whether or not the Commission ever issued an order finding that certain contracts violated Section 1(14)(b), and (2) that the last sentence thereof is specious and misleading. Defendants have chosen to ignore the basis of the Commission's jurisdiction in making the investigation of mechanical protective service which culminated in its 1962 Report and Order in Ex Parte No. 137. The Commission's jurisdiction in Part I of the Interstate Commerce Act, which includes Sec. 1(14)(b) extends to "common carriers" and only to "common carriers". In Ex Parte No. 137 both the Commission's order initiating the proceeding and its 1962 Report and Order were directed to the railroads, as respondents, and not to PFE. Not being a respondent in the proceeding PFE did not contest the Commission's Order, whereas PFE's parents, Southern Pacific and Union Pacific, were respondents and filed a Petition for a Cease and Desist Order with the Commission, directed against the defendants herein. As pointed out in the Court's Order of November 16, 1971, *** this Petition was denied by the Commission by its Order of May 17, 1966, without prejudice. Paragraph 4 also ignores PFE's position that the Commission's 1962 Order is selfexecuting; that the Commission stated at 318 I.C.C. 125 that the railroads "shall submit" new contracts, “which shall replace all prior contracts"; and that “present charges should be revised immediately.”)

20. Since PFE is not a common carrier, it is not compelled to furnish mechanical refrigerator cars to any railroad. With knowledge that its parent companies, as originating carriers, tender such cars to defendants at interchange points for movement over their lines, PFE has voluntarily continued to furnish such cars (including mechanical refrigeration units) to its parent companies for such use and has thereby gained monetarily by receiving the profitable car mileage revenue resulting from such use.

(Plaintiff objects on the ground that the foregoing is irrelevant and immaterial and, moreover, that it fails to recognize the right of a shipper under the Interstate Commerce Act to route shipments over such lines of railroads as he desires, and the corresponding duty on the part of the railroads to observe such routing. PFE is entitled to enter into the business of owning mechanical refrigerator cars and supplying mechanical protective service (including the furnishing of PFE mechanical refrigeration units) to or in behalf of the railroads. Since the railroads indisputably use PFE's equipment and service it is PFE's contention that they must pay PFE's reasonable cost of rendering such service, in accordance with the Commission's 1962 Order and, in any event, on the basis of quantum meruit, just as the railroads pay for their use of other railroads' equipment generally, as prescribed by the Interstate Commerce Commission in the Per Diem cases (Baltimore & O.R. Co. v. New York, N.H. & H.R. Co. (D. Ct., N.Y., 1961) 196 F. Supp. 724; Chicago, B.&Q. R. Co. v. New York S. & Western R. Co., 332 I.C.C. 176 (1968); aff'd. Boston & Maine R. v. United States, 297 F. Supp. 218 (1969); and Union Pacific Railroad Co. v. United States, 300 F. Supp. 318 (1969); aff'd. 396 U.S. 27, 24 L.Ed.2d 142).)

21. With respect to the fleet of mechanical refrigerator cars which PFE operates through ownership or lease, defendants point out that in the last quarter of 1969 the total mechanical car fleet of PFE consisted of 10,660 cars. According to the 1969 report of PFE to the Commission, as disclosed by Account No. 418, it leased 7,389 cars from its parent lines. 3,697 cars were leased from Southern Pacific for total 1969 rentals of $7,221,116 while 3,692 cars were leased from Union Pacific for total 1969 rentals of $6,969,559, resulting in total 1969 rental payments to its parents of $14,217,675.

(Plaintiff objects to the foregoing paragraph 6 on the ground that the amounts of such lease rentals are irrelevant, immaterial and misleading because they are rentals for the entire car. Only a small portion of such rentals is for the mechanical refrigeration unit. Moreover, the use of the allocated portion of such rentals as rental of the unit results in a substantially lower PFE deficit from the supplying of mechanical protective service to or in behalf of the defendants than if the PFE deficit were computed as if PFE had owned the units. This PFE deficit was over $8 million between 1964 and 1969; as of December 31, 1971, it is estimated as $13 million.)

Based on the foregoing facts and contentions related by the court, our responses to the specific questions, which are quoted, follow:3

Questions designated L-V hereinafter set forth are reproduced from the court's order of January 20, 1972, but have been redesignated for purposes of continuity in this report.

A. In its Report and Order of August 27, 1962, did the Commission find that the activities of PFE in preparing, furnishing and servicing mechanical refrigeration units in PFE mechanical refrigerator cars to the defendants constituted "protective service," within the purview of § 1(14)(b) of the Interstate Commerce Act?

Answer: Yes. Although no such specific finding is made in the report and order, it is clear from the terms of the orders and the discussion at pages 111 and 112 of the report that the specified service performed by PFE is included in "protective service." These orders instituted (and subsequently broadened) an investigation to determine, among other things, whether the charges for the use of mechanical refrigeration units for the protection of property, contained in numerous contracts between various rail carriers and the specified protective service companies, and filed with the Commission under the provisions of § 1(14)(b) of the act are just, reasonable, and consistent with the public interest. The fact that the Commission considered the preparing, furnishing, and servicing of mechanical refrigeration units in mechanical refrigerator cars as constituting "protective service" within the meaning of that term as it is used in § 1(14)(b) is further indicated by the discussion at pages 125-126 where it is stated: "In order to avoid the placing upon one protective service the burden of helping to support another protective service, it is desirable that the charge for each protective service be sufficient to cover the costs of rendering that service. This also applies to services performed under division sheet 7." Division sheet 7 apparently applies to the preparing, furnishing and servicing of mechanical refrigeration units by, among other parties, PFE.

B. If the Commission so found, is the supplying of such mechanical protective service to the defendants by PFE required to be covered by contractual arrangements which must be submitted to the Commission for approval?

Answer: Yes, the Commission's rules and regulations, 49 CFR §1032.1, require that any protective service furnished to or on behalf of a railroad shall be covered by a written contract. The Commission's order in the Twentieth Supplemental Report in Ex Parte No. 137, Contracts for Protective Services, 318 I.C.C. 111, enlarges this rule by requiring that all contracts, agreements, or arrangements previously filed with and approved by the Commission be superseded by the filing of new ones for its approval in conformity with the criteria set forth in the order. Although division sheet 7, the agreement which the court states applied to the mechanical protective service furnished to the defendants, had not previously

been filed with and approved by the Commission, it also was specifically embraced in the terms of that order.

C. In its 1962 Order (39 CFR § 105.2(e)), did the Commission contemplate that in supplying mechanical protective service through the furnishing of a mechanical refrigeration unit, PFE rendered "protective service" as that term is used in the Report and Order?

Answer: Yes. At page 120 of the report, the finding is made that PFE furnishes protective services, and it is observed that PFE's testimony was restricted to, as here pertinent, mechanical services. Consequently, it was clearly contemplated that the supplying of mechanical protective service by the furnishing of refrigeration units constitutes "protective service."

D. Did the Commission direct PFE to bill the railroads and express companies, on whose lines the mechanical protective service was rendered on a proportionate basis, for the amount of PFE's loss incurred in this service?

Answer: No. The Commission merely required that contracts for protective service include a provision to account for that eventuality. At pages 125-126 of the report, it is stated that:

All rail carriers and express companies receiving protective services under any contracts, agreements, or arrangements requiring approval under section 1(14)(b) of the Interstate Commerce Act shall submit for approval new or superseding

contracts covering protective services which shall replace all prior contracts, including division sheet 7. *** The provisions of the new or superseding contracts shall be in accord with the requirements hereinafter set forth.

The contracts to be filed shall be drawn so as to comply with the following:

4. In the event the person rendering the services shall not recover costs for any service rendered, such person shall bill the railroads and express companies receiving those services, on a proportionate basis, for the amount of the loss.

See also 49 CFR § 1032.2(a) and (e) which codified the Commission's order.

E. Did the Commission contemplate that each carrier participating in a movement of a loaded mechanical refrigerator car during which mechanical protective service is rendered is legally obligated to share, on a proportionate basis, in the amount of the loss of the person servicing and supplying the mechanical refrigeration unit?

539-805 O-74 - 50

Answer: No. As indicated in the quotation immediately above, it was required that such a provision be included in any contract, agreement, or arrangement filed for approval of the Commission. However, in the absence of such a contract, agreement, or arrangement, the Commission's report and order confers no substantive rights.

F. If the answer to the preceding question is "no", then who did the Commission contemplate would be billed by the person rendering mechanical protective service for the amount of such person's loss?

Answer: As stated above, each participating railroad, on a proportionate basis, as provided in the contracts to be filed for approval of the Commission.

G. If the Commission did not contemplate that the service rendered in furnishing mechanical refrigeration units by PFE constitutes "protective service" to all carriers participating in a particular movement, did the Commission contemplate that the car owner would recover its costs of ownership and operation of the unit through the mileage or other rate paid by car users for the use of the mechanical refrigerator car?

Answer: The Commission did, as previously stated, contemplate that the service of furnishing mechanical refrigeration units constitutes "protective service" to all carriers participating in the

movement.

Moreover, as stated in the original report in the proceeding, 246 I.C.C. 145, 146 (1941):

It is clear that section 1(14) makes a distinction between protective service and the use of the cars which are associated with and necessary to such service. This proceeding is for the purpose of passing upon contracts insofar as they provide for the furnishing of protective service. We shall not here pass upon any contract insofar as it determines the compensation and other terms for the use of refrigerator cars. That matter will be reserved for another proceeding.

And at page 156 of that report, the carriers were admonished:

4. In view of the distinction made in section 1 (14) of part I of the Act between "car service" payments and "protective service" payments, it would be well for the railroads to make separate contracts for these two forms of service or, in any event, to deal separately with them in a single contract, so that the charges for protective service may be clearly segregated from other charges.

Therefore, the compensation for the furnishing of protective service-in this instance, the mechanical protective units-is not to be derived from the amounts paid for the use of the car itself. The