Chicago and North Western Transp. Co. v. U.S., 81-2195

• Decision Date: 26 April 1982
• Docket Number: No. 81-2195,81-2195
• Citation: 678 F.2d 665
• Parties: CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY, Petitioner, v. UNITED STATES of America and Interstate Commerce Commission, Respondents.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 665

678 F.2d 665

CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY, Petitioner, v. UNITED STATES of America and Interstate Commerce Commission Respondents.

No. 81-2195.

United States Court of Appeals Seventh Circuit.

Argued Feb. 26, 1982.

Decided April 26, 1982.

Christopher A. Mills, Chicago, Ill., for petitioner.

John J. McCarthy, Jr., I. C. C., Washington, D. C., for respondents.

Before BAUER and POSNER, Circuit Judges, and BARTELS, Senior District Judge. ^*

POSNER, Circuit Judge.

This case of first impression under the 1980 Staggers Rail Act amendments to 49 U.S.C. § 10905 requires us to decide both statutory and constitutional questions relating to the meaning of the term "fair market value" applied to an abandoned railroad line.

Within ten days after the Interstate Commerce Commission announces its decision to allow a railroad to abandon a line, any person may offer to purchase the line, 49 U.S.C. § 10905(c); and if within another five days the Commission finds that the offeror and the offer are financially responsible, it must suspend its permission to abandon in order to allow time to negotiate the purchase, § 10905(d). If the parties cannot agree on terms, then the Commission must, within 60 days of being requested by either party to do so (§§ 10905(e), 10905(f)(1)(A)), "determine the price and other terms of sale. In no case shall the Commission set a price which is below the fair market value of the line (including, unless otherwise mutually agreed, all facilities on the line or portion necessary to provide effective transportation services)." § 10905(f)(1)(C). Unless the offeror withdraws his offer within ten days of the Commission's determination of the terms of sale, he is bound by that determination, § 10905(f)(2); and once he has acquired the line he may not discontinue service on it for two years, § 10905(f)(4).

The provision whereby the Commission can (and if requested must) force the sale of an abandoned line, and at a price at or above "fair market value," was added in 1980, has not been construed by any court, and is the focus of controversy in this case.

Chicago and North Western Transportation Company applied to the Commission, pursuant to 49 U.S.C. §§ 10903-04, for permission to abandon its 17-mile Lake Geneva line, which runs between the towns of Ringwood in Illinois and Lake Geneva in Wisconsin. It submitted evidence showing that the line was moribund: freight service was down to less than once a week and fewer than 15 passengers were being carried per day. The Commission authorized abandonment. The Geneva Lake Area Joint Transit Commission (GLA), a consortium of towns that is dedicated to preserving commuter rail service, promptly offered $985,000 for the line, which the Commission deemed a responsible offer. C&NW made a counteroffer of $1.9 million. The parties were unable to agree on terms, so the Commission proceeded, on the basis of written submissions, to fix the terms itself within the 60 days given it by the statute. The price the Commission fixed was $1 million. The reason it was so much lower than the price demanded by C&NW was that C&NW valued the property as a rail line, as of course GLA intended to use it, while GLA maintained and the Commission agreed that the relevant value was the value of the property for nonrail use-the use to which it would have been put had it been abandoned. The difference in these valuation theories is the only substantive issue raised by C&NW's petition to set aside the Commission's order fixing the terms of sale.

The term "fair market value" in section 10905(f)(1)(C) is not defined in the statute or discussed in the legislative history. If the draftsmen can be assumed to have been careful readers of Judge Friendly's magisterial opinions in the Penn Central reorganization proceeding, which define "market value" as what a liquidating railroad could obtain in the marketplace, see In re Valuation Proceedings, Etc., Regional Rail Reorganization, 445 F.Supp. 994, 1016, 1031 (Sp.Ct.R.R.R.A.1977), we might be justified in inferring that "fair market value" means market value in that sense, fairly measured. Perhaps it is also significant that a bill which would have required the Commission to set a price for an abandoned line equal to "at least its fair market value when used to provide rail services," S. 796, § 121(f), 96th Cong., 1st Sess. (1979), failed of passage after hearings in which a witness testified that such a standard would add "an unknown burden to local efforts to acquire rail facilities that I can't assess other than to say I think it is going to make it even more difficult." Railroad Deregulation Act of 1979: Hearings on S. 796 before the Subcomm. on Surface Transportation of the S. Comm. on Commerce, Science, and Transportation, pt. 3, 96th Cong., 1st Sess. 1022 (1979). But on the other hand proposals to make the standard "net liquidation value," see id., pt. 4, at 1350, 1354, 1361, were also rejected; and another section of the Staggers Act, allowing the Commission to force the sale of a line where a railroad is refusing to provide adequate service, directs the Commission to set the price of the line at no lower than "net liquidation value," 49 U.S.C. § 10910(b)(2), in contrast to "fair market value" in section 10905(f)(1)(C).

These obscure and conflicting clues do not help us to decide whether Congress would have wanted the Commission to consider the value of the Lake Geneva line to GLA in setting the terms of sale. But history in a broader sense does. In the Railroad Revitalization and Regulatory Reform Act of 1976, Pub.L.No. 94-210, 90 Stat. 127, Congress responded to complaints that the growing financial distress of the nation's railroads, coupled with the Commission's recent adoption of streamlined abandonment procedures, was accelerating the abandonment of railroad branch lines, to the detriment of many shippers and commuters. Responding to these complaints Congress created in the Act a program for subsidizing public transit authorities and other entities willing either to support or to acquire and operate branch lines after they were abandoned. See 49 U.S.C. §§ 1654(f)-(p). And to facilitate the transition from commercial to subsidized operation Congress provided that if an offer was made to acquire or subsidize a line for continued rail service, permission to abandon the line would be suspended for up to six months to allow time for a deal to be worked out. See 49 U.S.C. § 1a(6)(a) (1976), recodified as 49 U.S.C. § 10905(b) (1978); S.Rep.No.595, 94th Cong., 2d Sess. 142-43 (1976), U.S.Code Cong. & Admin.News 1976, p. 14; Chicago & N.W. Transp. Co. v. United States, 582 F.2d 1043, 1049 (7th Cir. 1978).

But the six-month deadline turned out to impede the statutory objective. It enabled a railroad to hold out for a price that would reflect at least some of the value of continued rail service to the offeror, since if the offeror refused to pay such a price the railroad could threaten to abandon the line in six months. The railroad's hold-up power may not have been very great. Most of the potential offerors were public entities with eminent-domain powers, who could (though not without some inconvenience) wait till the line was abandoned and then reacquire it at its nonrail value-or even condemn it before abandonment and still have to pay, as we shall see, only the value of the line to the railroad rather than the greater value to the condemnor. And the offeror could make his own threat to walk away from the negotiations and thereby consign the railroad to an alternative-abandonment-that would give the railroad less money than if it had come to terms with the offeror. Still, the bargaining situation we have described-what economists call bilateral monopoly-would tend to yield a price for an abandoned line that was higher than if the railroad were forced to sell at a price based on the most valuable nonrail use of the line, though lower than if the railroad could extract the last penny of surplus value from the offeror.

Congress did not want the railroads to have any hold-out power in negotiating with entities planning to continue passenger rail service on a subsidized basis. That is why it amended section 10905 in 1980 to allow-indeed require-the Commission to fix the price of the sale if the parties could not agree. See S.Rep.No.470, 96th Cong., 1st Sess. 40 (1979). The purpose of the amendment would be frustrated if the Commission were required to consider the value of the line to the offeror, for that would give the railroad an approximation to what it was able to get when, under the previous statute, it could threaten to abandon the line after six months. When we consider how the Staggers Act amendments to 49 U.S.C. § 10904 expedite abandonment proceedings (see S.Rep.No.470, supra, at 39), to the great benefit of the railroads, and when we recall that the subsidies used to continue rail service over abandoned lines are (in part at least) federal as a result of 49 U.S.C. §§ 1654(f)-(p), we are even more convinced that Congress did not intend, by using the term "fair market value," to allow the railroads to extract from potential offerors a share of the subsidies that the offerors have earmarked for continuing service on lines that the railroads can now-by virtue of the very Act-abandon with such ease.

We would be deflected from this view only if we thought that not letting the railroad share in the line's value for continued rail service after abandonment would violate the taking clause of the Fifth Amendment. The government may not force a railroad to operate a line at a loss for an indefinite period of time, see, e.g., Brooks-Scanlon Co. v. Railroad Comm'n, 251 U.S. 396, 399, 40 S.Ct. 183, 184, 64 L.Ed. 323 (1920); In re Chicago, Milwaukee, St. Paul & Pac. R.R., 611 F.2d 662, 666-67 (7th Cir. 1979), and it would seem to follow that if, as here, the right to abandon is conditioned on the railroad's...