City of Cherokee v. I.C.C.

• Decision Date: 12 March 1984
• Docket Number: CO-OP,No. 83-1374,83-1374
• Citation: 727 F.2d 748
• Parties: CITY OF CHEROKEE, Farmers(Larrabee, Iowa), Farmer's George Iowa, Calumet Feed Service, Rowena Elevator & Mill, Metz Baking Company, Ray Halder AGG Lime Service, C.S. Agro Corp., and Lawrence J. Crist, Petitioners, v. INTERSTATE COMMERCE COMMISSION and United States of America, Respondents. Illinois Central Gulf Railroad Co., Intervenor/Respondent.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 748

727 F.2d 748

77 A.L.R.Fed. 221

CITY OF CHEROKEE, Farmers CO-OP (Larrabee, Iowa), Farmer's

CO-OP George Iowa, Calumet Feed Service, Rowena Elevator &

Mill, Metz Baking Company, Ray Halder AGG Lime Service, C.S.

Agro Corp., and Lawrence J. Crist, Petitioners, v. INTERSTATE COMMERCE COMMISSION and United States of America,

Respondents.

Illinois Central Gulf Railroad Co., Intervenor/Respondent.

No. 83-1374.

United States Court of Appeals,

Eighth Circuit.

Submitted Nov. 14, 1983.

Decided Feb. 10, 1984.

Rehearing Denied March 12, 1984.

Marvin Wallace Miller and Gordon P. MacDougall, Washington, D.C., for petitioners.

Edward J. O'Meara, Washington, D.C., for respondents.

John H. Doeringer, Chicago, Ill., for intervenor/respondent.

Before HEANEY and McMILLIAN, Circuit Judges, and HENLEY, Senior Circuit Judge.

HEANEY, Circuit Judge.

On August 1, 1983, the Interstate Commerce Commission (Commission) issued an opinion affirming its January 18, 1983, decision granting the application of the Illinois Central Gulf Railroad (ICG) to abandon a 96-mile branch of rail line between Cherokee, Iowa, and Sioux Falls, South Dakota, called the Sioux Falls District line. This action by the Commission followed our remand of its February 15, 1980, decision to the same effect, Illinois Central Gulf Railroad Abandonment, 363 I.C.C. 93 (1980). City of Cherokee v. ICC, 641 F.2d 1220 (8th Cir.), cert. denied, 454 U.S. 892, 102 S.Ct. 387, 70 L.Ed.2d 206 (1981). Petitioners--the City of Cherokee, several shippers along the Sioux Falls District line, and a representative of the United Transportation Union--protested the abandonment and now petition this Court to review the Commission's January 18 and August 1, 1983, decisions. Because the Commission gave proper consideration to the factors relevant to the abandonment application in this case and applied correct legal standards, we deny the petition for review.

We detailed the facts and administrative proceedings underlying ICG's abandonment application as of the Commission's February 15, 1980, decision in our earlier opinion. City of Cherokee v. ICC, supra, 641 F.2d at 1222-1226. We remanded the case to the Commission at that time because it had failed "to properly balance the competing benefits and burdens of all interested parties, as it was required to do by statute" and "to treat certain train crew wages as 'unavoidable costs' when it made its economic computations." Id. at 1222. The Commission reopened the proceeding on November 6, 1981, directing ICG to submit updated and revised evidence and allowing petitioners to submit replies. ¹ During hearings in Chicago, Illinois, in January of 1982 and in Cherokee, Iowa, in March of 1982, the Commission accepted new evidence from both ICG and petitioners.

The evidence presented on remand painted a much clearer picture of the declining usage of the Sioux Falls District line. ICG adduced evidence showing that the total carloads of freight carried over the line dropped steadily from approximately 7400 in 1974 to under 1000 in 1981. On March 30, 1981, ICG reduced round-trip service over the line from six days per week to thrice weekly. On June 30, 1981, service was further reduced on an "as needed" basis, meaning that runs would only be made when requested by shippers. In April of 1981, ICG published a proposed surcharge of $1004 per car on shipments to or from the Sioux Falls District line. In order to protect our jurisdiction in the abandonment case then on remand, we prevented implementation of the surcharge. City of Cherokee v. ICC, 671 F.2d 1080, 1083-1085 (8th Cir.), cert. denied, --- U.S. ----, 103 S.Ct. 140, 74 L.Ed.2d 119 (1982). ICG later cancelled the proposed surcharge altogether, before it was ever billed to any shipper.

ICG also submitted exhibits showing that net revenues over the line declined, and then disappeared, during this same period. After recording a net gain of $124,229 in 1975, ICG documented net losses on the operation of the line of $641,622 in 1979, $593,164 in 1980, and $274,918 for the first nine months of 1981 (which included the cut-back in weekly runs after March 30, 1981). The Commission adopted ICG's evidence regarding reduced traffic and increased operating deficits in its January 18 and August 1, 1983, decisions.

The Commission also found that ICG incurred an annual opportunity cost of $538,912 as a result of operating the line. "Opportunity costs" are those benefits lost by the railroad because its resources devoted to particular operations are not free to be put to more profitable uses. See Cartersville Elevator, Inc. v. ICC, 724 F.2d 668 at 671, (8th Cir.1984). The opportunity cost of the Sioux Falls District line was computed by multiplying the net liquidation value of the line--$3,227,019--by a 16.7 percent "adequate rate of return" set by the Commission. ² The Commission adopted the liquidation values for various assets submitted by both ICG and petitioners in arriving at the net liquidation value of the entire line.

Besides recent operating losses and the substantial annual opportunity cost of operating the line, the Commission determined that ICG would have to invest $729,778 to rehabilitate the track and two bridges on the run. The need for such rehabilitation was established by comparing the condition of the line with Federal Railroad Administration safety standards.

Against these burdens borne by ICG in continuing the operation of the Sioux Falls District line, the Commission balanced the interests of shippers who had used the line and the communities involved. It found that most shippers along the line had significantly reduced their use of ICG's services since the hearing prior to the 1980 abandonment decision. Several shippers had increased their reliance on truck transport in the interim because it was less expensive than rail. The Commission found little or no prospect for increased traffic on the line in the future. It also found that alternative transportation, both by truck and by rail, was available near all points along the line. It further discounted the testimony of the City Administrator for Cherokee regarding the City's need for the line because ICG had agreed to lease its first two miles to local interests in order to encourage development of an industrial park in the City and to provide spur access to ICG's main line operation serving Cherokee. The Commission concluded that the burdens placed on ICG by continued operation of the line far outweighed the benefits accruing to petitioners; stated conversely, the benefits of abandonment on ICG as an interstate rail service provider overshadowed the burdens which petitioners would have to bear in the absence of the Sioux Falls District line. The Commission therefore granted ICG permission to abandon the line.

Petitioners contest the Commission's action on several grounds. They argue that the Commission erred in discounting the financial condition of ICG and its corporate parent, IC Industries, in measuring the burden of continued operation of the Sioux Falls District line. They assert that the Commission erroneously considered the opportunity cost associated with continued operation of the line without evidence that line resources would be reinvested in other rail uses. They allege that the Commission erroneously weighed evidence regarding the adequacy of alternative transportation, improperly ignored ICG's freight rate actions following our prior remand in the abandonment case, and wrongly disregarded the needs of the City of Cherokee. Finally, they contend that the Commission's factual findings with regard to avoidable costs and rehabilitation expenses are arbitrary and capricious.

The substantive legal standard applicable to abandonment applications is that "present or future public convenience and necessity require or permit the abandonment." 49 U.S.C. Sec. 10903(a) (Supp. V 1981). This standard requires the Commission to balance the respective interests of the carrier, protesting communities and shippers, and interstate commerce generally. See Colorado v. United States, 271 U.S. 153, 168, 46 S.Ct. 452, 455-56, 70 L.Ed. 878 (1926); Georgia Public Service Commission v. United States, 704 F.2d 538, 541 (11th Cir.1983); City of Cherokee v. ICC, supra, 641 F.2d at 1227-1228. The parties to this appeal agree that we review the Commission's findings and conclusions to determine if they comply with the statutory mandate and if they are arbitrary, capricious, or an abuse of discretion. ³ See 5 U.S.C Sec. 706(2)(A) (1982). We now hold that the Commission on remand properly considered all evidence necessary to ICG's abandonment application in this case and, on balancing the relevant factors, arrived at a reasonable decision to grant that application.

First, the Commission did not err in disregarding evidence of ICG's and IC Industries' financial prosperity on the facts before it. The Commission could properly conclude that the prosperity of the carrier may not be important where the public need for an unprofitable line is so minimal that requiring a carrier in a strong overall financial position to continue its operation does not further the general public interest. See Illinois v. ICC, 722 F.2d 1341...