784 F.2d 959 (9th Cir. 1986), 85-7115, Railway Labor Executives' Ass'n v. I.C.C.

Docket Nº:85-7115.
Citation:784 F.2d 959
Party Name:RAILWAY LABOR EXECUTIVES' ASSOCIATION, Petitioner, v. INTERSTATE COMMERCE COMMISSION, Respondent, Northwestern Pacific Railroad Co., Intervenor-Respondent.
Case Date:March 11, 1986
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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784 F.2d 959 (9th Cir. 1986)




Northwestern Pacific Railroad Co., Intervenor-Respondent.

No. 85-7115.

United States Court of Appeals, Ninth Circuit

March 11, 1986

Argued and Submitted Nov. 13, 1985.

As Amended May 8, 1986.

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John O'B. Clarke, Jr., Kimberly A. Madigan, Highsaw & Mahoney, P.C., Washington, D.C., for petitioner.

Robert S. Burk, Gen. Counsel, Henri F. Rush, Dep. Gen. Counsel, Richard J. Osterman, Jr., Atty., I.C.C., Charles F. Rule, Acting Asst. Atty. Gen., Catherine G. O'Sullivan, Frederic Freilicher, Atty., Dept. of Justice, Washington, D.C., for respondent.

Paul A. Cunningham, John F. DePodesta, Pepper, Hamilton & Scheetz, Washington,

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D.C., Thormund A. Miller, Robert A. Bogason, Gary A. Laakso, San Francisco, Cal., for intervenor Northwestern Pacific R. Co.

Bruce A. Cohen, Sander M. Bieber, Dechert, Price & Rhoads, Washington, D.C., for amici curiae Eureka Southern R. Co., Inc. and Northwest Pacific Acquiring Corp.

A Petition for Review of a Decision of the Interstate Commerce Commission.

Before DUNIWAY, ANDERSON and PREGERSON, Circuit Judges.

PREGERSON, Circuit Judge.

After unsuccessfully attempting to abandon the Eel River railroad line ("line"), Northwestern Pacific Railroad Company sold its interests in the line to Eureka Southern Railroad Company and Northwestern Pacific Acquiring Corporation. The Railway Labor Executives' Association ("RLEA") appeals the refusal of the Interstate Commerce Commission ("ICC") to condition its approval of the sale on either the vendor or the acquirers paying financial protections for those presently employed on the line ("labor protections").

When a railroad is abandoned, the relevant statute mandates that the ICC impose labor protections on the abandoning railroad company. However, when, as here, a non-carrier acquires a line, whether labor protections are imposed is a matter for the ICC's discretion. RLEA argues that the ICC must treat a line acquisition by a non-carrier as a two-step transaction of abandonment--thus mandating labor protections--followed by acquisition. RLEA further argues that the structure of the acquisition transaction transforms the acquirer into an existing carrier and thus subject to mandatory labor protections under another section of the statute. In the alternative, RLEA claims that the ICC should use its discretion to impose labor protections on the acquisition of the line. The would-be abandoning vendor railroad, an intervenor to the appeal, disputes whether the ICC has discretionary powers to impose labor protections. In its orders under review, the ICC treated the acquisition as a single step transaction and refused to use its discretionary powers to impose labor protections on either the vendor or the acquirer.

We uphold the ICC's statutory interpretation and its discretionary refusal to impose labor protections on the acquirers of the line. In the light of the decision of the ICC in Ex Parte 392, we remand the case to the ICC to permit the RLEA to petition the Commission under section 10505(d) to revoke its denial of labor protection and to permit the Commission to consider such a petition if it is filed.


The Eel River railroad line runs for approximately 165 miles from Outlet to Eureka in Northern California. In September, 1983, the line's owner, Northwestern Pacific Railroad Company ("NWP"), intervenor in this appeal, applied to the ICC for authority to abandon the line under 49 U.S.C. Sec. 10903. 1 The Administrative Law Judge

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("ALJ") refused to authorize line abandonment because NWP had made an insufficient showing that the environmental damage consequent to the abandonment would be adequately mitigated. Northwestern Pacific Railroad Company--Abanondment--in Mendocino, Trinity and Humboldt Counties, Ca., ICC Docket No. AB-14 (Sub-No. 4), slip op. at 45 (Feb. 3, 1984). 2

While its appeal of the ALJ decision was pending, NWP contracted to sell the line to Northwestern Pacific Acquiring Corporation ("Acquiring") for cash and promissory notes. The sale was financed through a sale and leaseback transaction. GATX Leasing Corporation ("GATX") purchased the line's rails and ties from Acquiring, which GATX, in turn, leased for ten years to Eureka Southern Railroad Company, Inc. ("Eureka"). Acquiring then leased the real property of the line to Eureka for a similar period. Eureka will maintain and operate the line. Acquiring and Eureka were both formed expressly to purchase the Eel River Line, and both corporations are wholly owned by Mr. Bryan Whipple.

The sale contract called for Acquiring to pay NWP $3,323,500 in cash, plus a promissory note of $1,622,550. In addition, Acquiring would execute a conditional note in favor of NWP for between zero and $4,450,000 to be determined by an arbitrator's valuation of certain non-real assets purchased by Acquiring. Interest payments to NWP on the promissory note would be deferred until Eureka earned net revenue from the line of more than one million dollars in any one year. GATX paid Acquiring $3,323,500 cash for the rail and ties. Southern Pacific Transportation Company ("SPT"), of which NWP is a wholly-owned subsidiary, guaranteed GATX's investment under certain conditions.

The line sale contract between NWP and Acquiring provided that either party could terminate the transaction if the ICC conditioned approval on either labor protections or environmental obligations. The sale contract also included a general provision that the cost of any ICC-imposed conditions would be borne by Acquiring. Another provision committed Acquiring/Eureka to hire former NWP employees "[t]o the maximum extent practical," subject to certain limitations.

Acquiring and Eureka petitioned the ICC for expedited approval of the acquisition through an exemption from regulation under 49 U.S.C. Sec. 10505. 3 On October 25,

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1984, the ICC granted the petition. Northwestern Pacific Acquiring Corp. and Eureka Southern Railroad--Exemption, Finance Docket No. 30555 (Oct. 18, 1984) ("October order"). 4 In January 1985, the ICC denied several petitions to reopen the exemption proceedings ("January order"). 5 In its orders, the ICC held that, absent the exemption, 49 U.S.C. Sec. 10901 alone would have governed the acquisition and thus no mandatory labor protections would be imposed. Relying on Acquiring/Eureka's new entrant status, the ICC refused to use its discretionary powers to impose labor protections on either NWP or Acquiring/Eureka under 49 U.S.C. Sec. 10901(c)(1)(A)(ii). RLEA timely petitioned for review of the orders.


In reviewing an agency's construction of a statutory scheme, a court follows a two-step process. Chevron, U.S.A., Inc. v. Natural Resources Defense Council Inc., 467 U.S. 837, 104 S.Ct. 2778, 2781-82, 81 L.Ed.2d 694 (1984). First, we must determine whether Congress "has directly spoken to the precise question at issue" either in the statute itself or in the legislative history. Id., 104 S.Ct. at 2781. "The judiciary is the final authority on issues of statutory construction and must reject administrative constructions which are contrary to clear congressional intent." Id. at n. 9; See also Chemical Manufacturers v. Natural Resources Defense Council Inc., --- U.S. ----, 105 S.Ct. 1102, 1108, 84 L.Ed.2d 90 (1985); FEC v. Democratic Senatorial Campaign Committee, 454 U.S. 27, 31-32, 102 S.Ct. 38, 41-42, 70 L.Ed.2d 23 (1981); Southern California Edison Co. v. FERC, 770 F.2d 779, 782 (9th Cir.1985).

Second, if Congress has explicitly or implicitly delegated interpretative authority to the agency, "a court may not substitute its own construction of a statutory provision for a reasonable interpretation" by the agency. Chevron, 104 S.Ct. at 2782; See Chemical Manufacturers, 105 S.Ct. at

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1108. We will uphold an agency's decision unless it is "arbitrary, capricious or manifestly contrary to the statute." Chevron, 104 S.Ct. at 2782; See also Widing Transportation, Inc. v. ICC, 545 F.2d 652, 658-59 (9th Cir.1976). An agency's determination is arbitrary and capricious when the agency fails to consider all relevant and important factors or does not articulate a satisfactory explanation for its decision. Motor Vehicle Manufacturers Association of the United States, Inc. v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2866, 77 L.Ed.2d 443 (1983).



RLEA argues that every line acquisition by a non-carrier involves a two-step process of, first, abandonment by the existing carrier and, second, acquisition by the non-carrier, thus implicating both 49 U.S.C. Sec. 10901 and Sec. 10903, including the mandatory labor protections of Sec. 10903(b)(2). The ICC rejected this argument, finding that Acquiring/Eureka's purchase from NWP was covered only by 49 U.S.C. Sec. 10901, including the discretionary labor protections of Sec. 10901(c)(1)(A)(ii).


Before we reach the substantive issue, we must first resolve one procedural matter. NWP asserts that collateral estoppel precludes this court from reviewing RLEA's argument that a sale of a railroad line to a non-carrier is both an abandonment under 49 U.S.C. Sec. 10903 and an acquisition under 49 U.S.C. Sec. 10901. According to NWP, the Tenth Circuit's decision in Railway Labor Executives' Association v. United States, 697 F.2d 285 (10th Cir.1983) (per curiam) decided this very legal issue adversely to RLEA. Even assuming the strict similarity of the Tenth Circuit case to this case, NWP's argument is incorrect.

The employees whose interests RLEA seeks to protect here are not the same people whose interests it...

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