Atchison, Topeka and Santa Fe Ry. Co. v. I. C. C.

• Decision Date: 16 August 1982
• Docket Number: No. 81-2429,81-2429
• Citation: 687 F.2d 912
• Parties: The ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY; William M. Gibbons, Trustee of the Property of Chicago, Rock Island & Pacific Railroad Company, Debtor; Fort Worth and Denver Railway Company; Missouri-Kansas-Texas Railroad Company; and Missouri Pacific Railroad Company, Petitioners, v. INTERSTATE COMMERCE COMMISSION and United States of America, Respondents, and Farmers Export Company, Intervenor.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 912

687 F.2d 912

The ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY; William

M. Gibbons, Trustee of the Property of Chicago, Rock Island

& Pacific Railroad Company, Debtor; Fort Worth and Denver

Railway Company; Missouri-Kansas-Texas Railroad Company; and Missouri Pacific Railroad Company, Petitioners, v. INTERSTATE COMMERCE COMMISSION and United States of America,

Respondents,

and

Farmers Export Company, Intervenor.

No. 81-2429.

United States Court of Appeals, Seventh Circuit.

Argued May 14, 1982.

Decided Aug. 16, 1982.

Richard E. Weicher, Santa Fe Industries, Law Dept., Chicago, Ill., for petitioners.

Charles A. Stark, Gen. Counsel, I. C. C., Washington, D. C., for respondents.

Richard S. M. Emrich, Chicago, Ill., for intervenor.

Before BAUER, Circuit Judge, DAVIS, Judge, ^* and COFFEY, Circuit Judge.

DAVIS, Judge.

This is a proceeding to review two decisions of the Interstate Commerce Commission ("ICC") in which the Commission ordered the petitioners, five railroad carriers, to refund the penalty portion of certain demurrage charges to Farmers Export Company ("Farmers Export"), the intervenor. Jurisdiction rests in this court under 28 U.S.C. § 2321(a) and § 2342(5) (1976 & Supp. IV 1980). We affirm.

I.

Railroads assess demurrage charges ¹ against shippers and receivers for detaining freight cars beyond certain periods known as "free time." The demurrage concept embraces both compensatory and penalty elements. We are concerned only with the penalty portion of demurrage charges assessed against Farmers Export Company, a grain exporter that operated a grain elevator in Galveston, Texas. The compensatory element of demurrage charges is designed to cover the railroads' "per diem" cost for the use of the rail car. In contrast, the penalty element promotes the prompt return of cars by shippers and receivers. While penalty charges increase over the period of time that a rail car is detained, compensatory charges are paid at a level rate for all time that a car is held by a shipper or receiver. ICC rules provide that a shipper or receiver is allowed a certain period of "free time" to load or unload railroad cars, after which demurrage charges begin to accrue. Demurrage is then imposed on a scale that reflects increasing penalty charges, for example, $10 for each of the first four chargeable days, $20 per day for the next two days, and $30 per day thereafter. See Central Ill. Pub Serv. Co. v. ICC, 659 F.2d 820, 821 (7th Cir. 1981) (citing Freight Tariff 4-K, ICC H-74, General Car Demurrage Rules and Charges, effective July 1, 1977).

The ICC regulates demurrage charges pursuant to its statutory authority to initiate and implement rules and regulations contributing to sound car service. See, e.g., ICC v. Oregon Pacific Industries, Inc., 420 U.S. 184, 189-91, 95 S.Ct. 909, 913-14, 43 L.Ed.2d 121 (1975). This ICC regulatory power over demurrage charges was reinforced by the enactment of the Rail Revitalization and Reform Act of 1976 ("4R Act"), Pub.L.No.94-210, 90 Stat. 31 (codified in scattered sections of 49 U.S.C.), which added the following provision to the Interstate Commerce Act:

Demurrage charges shall be computed, and rules and regulations relating to such charges shall be established, in such a manner as to fulfill the national needs with respect to (a) freight car utilization and distribution, and (b) maintenance of an adequate freight car supply available for transportation of property. ²

Petitioners do not contest the ICC's authority to regulate demurrage charges, but assert that the ICC's decisions before us were arbitrary, capricious, an abuse of discretion, and unsupported by substantial evidence, and should therefore be overturned pursuant to the Administrative Procedure Act, 5 U.S.C. § 706 (1976).

II.

The case arises out of events following the catastrophic explosion which occurred at the Farmers Export grain elevator in Galveston on the evening of December 27, 1977. It is agreed that the explosion was beyond Farmers Export's control. At the time, there were 519 rail cars awaiting unloading at the Farmers Export facility, and another 1,174 cars carrying grain were en route. ³ One ship was docked at the elevator loading grain for export, and several ships were offshore awaiting their turn to pick up grain. The grain elevator facility, then one of the busiest in the South, was rendered inoperable by the sudden explosion which killed 18 people and injured 22 others.

The day after the explosion, Farmers Export applied to the ICC for a service order permitting diversion and reconsignment of the rail cars either en route to the grain elevator or already at the facility. The result was ICC Service Order No. 1293, issued on December 30, 1977, which allowed diversion or reconsignment of cars without payment of additional charges that would normally be due for these services. The petitioners did not oppose this emergency service order. In addition to allowing free transfers to other Gulf coast ports, the service order provided a day free from demurrage at Galveston, removed the cars from demurrage during the time necessary to divert them to another port, and granted two additional free days to allow for unloading at the new port.

Within the time allotted in the service order (31 days), Farmers Export diverted or reconsigned all of the rail cars which were either already at the grain facility or en route. Farmers Export did permit all cars en route to Galveston to continue to Galveston, where they were then reconsigned. Despite the issuance of the service order and Farmers Export's ultimate success in diverting or reconsigning all the rail cars from the Galveston facility within the time specified in the order, substantial demurrage charges accrued on the grain cars located at the facility at the time of the explosion or arriving shortly thereafter. Total demurrage charges of $481,790 were assessed, of which approximately $308,000 constituted penalty demurrage. Farmers Export paid the total amount due, but in the fall of 1978 filed a complaint with the ICC to recover the penalty portion of the demurrage paid for delay after the explosion. The Administrative Law Judge found that the demurrage charges were reasonable, and dismissed Farmers Export's complaint. Farmers Export's subsequent appeal to the review board (Review Board No. 4) was also unsuccessful. Farmers Export then sought administrative review before the ICC, which was summarily denied.

In May 1980, Farmers Export sought review of the adverse ICC decision in the United States Court of Appeals for the Tenth Circuit, which subsequently transferred the case to the Eighth Circuit. On October 2, 1980, the entire ICC voted to reopen the Farmers Export case for further administrative consideration. The Eighth Circuit accordingly remanded the proceeding to the ICC on October 6, 1980.

On remand, the full ICC reversed the prior determinations of the Administrative Law Judge and Review Board No. 4 and concluded that Farmers Export was entitled to a refund of the penalty demurrage (decision of April 13, 1981). Shortly thereafter, the ICC issued a supplemental decision defining the penalty portion of the demurrage charges to be refunded (decision of May 7, 1981). In July 1981 the Commission denied the railroads' petition to reopen the April 13 decision and their request for stay. The railroads then brought this proceeding seeking judicial review of the final, adverse ICC decisions of April 13 and May 7, 1981.

III.

As outlined in the ICC's decision in Prince Mfg. Co. v. Norfolk & W. Ry., 356 I.C.C. 702 (1978), there are two separate questions which must be considered in determining whether a shipper is entitled to a refund of penalty demurrage charges: (1) Did the shipper proximately cause the detention of rail cars which led to the assessment of demurrage charges?, and (2) Did the shipper exercise due diligence to avoid or abate the demurrage charges? See also Ormet Corp. v. Illinois Cent. R. R., 341 I.C.C. 647 (1972). In considering the second prong of the test, the ICC has held that "the focus should be on what is reasonable under the circumstances rather than the requirement that the shipper do everything in its power to avoid or abate detention." Prince Mfg. Co. v. Norfolk & W. Ry., 356 I.C.C. at 706.

The railroads do not challenge this formulation but say, rather, that the refund of the full penalty portion of demurrage charges is in essence an equitable remedy not warranted by the particular facts of this case. They contend that substantial demurrage would have accrued regardless of the explosion, a position supported (they say) by the fact of existing rail car congestion at the time of the explosion at the facility. The railroads also point out that they incurred substantial expenses in providing the special handling required by Service Order No. 1293, and their position is that these expenses actually exceed the penalty portion of the demurrage charges to be refunded to Farmers Export. Petitioners likewise complain of lost revenues due to the railroads' inability to use the rail cars during the diversion and reconsignment process. They assert that, on the other hand, Farmers Export gained from the special provisions of the Service Order, and that this benefit must be taken into account. In view of this combination of circumstances, petitioners urge that the ICC's decisions to refund the penalty portion of the post-explosion demurrage were arbitrary, capricious, and contrary to the substantial evidence in the record.

The Commission first found that Farmers Export was not the proximate cause of the post-explosion detention but that the explosion, which was in no way due to that company, was a superseding cause which acted to break the chain of proximate causation. Petitioners do not deny that this was an intervening cause, but answer that the congestion which existed at the facility prior to the explosion indicates that some rail...