City of Cherokee v. I. C. C.
| Decision Date | 09 April 1981 |
| Docket Number | K-F,No. 80-1185,80-1185 |
| Citation | 641 F.2d 1220 |
| Parties | CITY OF CHEROKEE, Rock Rapids Community Affairs Corporation, Farmer's Co-Op, Archer Co-Op, Calumet Feed Service,Motors, Metz Baking Company, Ray Halder AGG Lime Service, Rowena Elevator & Mill, L. C. Burkhalter and M. S. Stuckey, Petitioners, v. INTERSTATE COMMERCE COMMISSION and United States of America, Respondents, and Illinois Central Gulf Railroad Company, Intervenor-Respondent. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Marvin Wallace Miller, City Sol., Cherokee, Iowa, Gordon P. MacDougall, Washington, D. C., for petitioners.
Charles E. Dapron, John P. Emde, Armstrong, Teasdale, Kramer & Vaughan, St. Louis, Mo., John H. Doeringer, Chicago, Ill., for intervenor-respondent Illinois Central Gulf Railroad Co.
Sanford M. Litvack, Asst. Atty. Gen., John J. Powers, III, Chief, Appellate Section, Susan J. Atkinson, Atty., Appellate Section, Antitrust Div., Dept. of Justice, Washington, D. C., Richard A. Allen, Gen. Counsel, Henri F. Rush, Associate Gen. Counsel, Joseph H. Dettmar, Atty., I.C.C., Washington, D. C., for respondents.
Before HEANEY, ADAMS * and STEPHENSON, Circuit Judges.
On February 2, 1980, the Interstate Commerce Commission (Commission) rejected the recommendation of its Administrative Law Judge and authorized the Illinois Central Gulf Railroad Company (ICG) to abandon over 96 miles of track between Cherokee, Iowa, and Sioux Falls, South Dakota the Sioux Falls District line. After a thorough review of the record, we find that the Commission failed to evaluate ICG's application for abandonment pursuant to the proper statutory standards. Specifically, we hold that the Commission erred by failing to properly balance the competing benefits and burdens of all interested parties, as it was required to do by statute. We also determine that the Commission erred in failing to treat certain train crew wages as "unavoidable costs" when it made its economic computations. We reverse the order of the ICC and remand the case to the Commission to reconsider its earlier order.
ICG is a land grant railroad with main lines between Chicago and the Gulf of Mexico. ICG was founded 130 years ago; in 1888, it purchased the Sioux Falls District line from another railroad. In 1962, ICG formed I. C. Industries to acquire, develop and control non-rail business. In 1968, I. C. Industries embarked on a course of substantial diversification which resulted in the formation of five discrete groups: commercial products, consumer products, real estate, financial and transportation. Today, ICG is the wholly owned subsidiary of I. C. Industries.
By 1977, I. C. Industries reported record sales and earnings with a net income of nearly $79 million. Although the transportation group produced thirty-six percent of the revenues of I. C. Industries, only four percent of its pretax income was attributable to this group. On the other hand, the commercial and consumer groups contributed seventy-seven percent of I. C. Industries' pretax income, marketing such products as Pepsi-Cola, Bubble Up, Dad's Root Beer and Midas Mufflers. I. C. Industries has indicated that these consumer products are becoming the foundation of the long range structure of the conglomerate. Recently, I. C. Industries revealed to its stockholders that, in all likelihood, ICG will be merged or sold at some future date.
The Sioux Falls District line has been used in the past to transport light loading traffic, primarily merchandise shipped in trailers on flat cars ("piggyback traffic") and fresh meat. However, no fresh meat has been transported over the line since December 10, 1977. On that date, ICG received an effective cancellation of its tariff on fresh meat moved in its refrigerated trailers. Less than three weeks later, it filed an application for abandonment.
In 1977, prior to cancelling its fresh meat tariff, ICG moved approximately 30,000 tons of meat traffic. The record indicates that in that year, ICG's largest fresh meat shipper was slowed by a labor strike. The record also indicates that ICG's refrigerated meat cars needed repair or replacement at the time the tariff was cancelled. Grain has been moved on the line in recent years but not in substantial amounts. Some small grain shippers have indicated that they foresee an increasing need for ICG's smaller grain cars.
The Sioux Falls District line has historically been a high speed line, with a maximum freight train speed of 40 m. p. h. for most of its distance, with the exception of a stretch slowed to 30 m. p. h. There is no present need to rehabilitate the track of the Sioux Falls District line. It appears, however, that two bridges along the line will need repair and that the cost of such repair will be approximately $121,540.
ICG filed its application for abandonment on December 27, 1977, and the case was assigned to Administrative Law Judge Isabelle R. Cappello for hearing. The ALJ conducted hearings in May and October, 1978. After a careful review of the entire record, she issued her well reasoned opinion denying ICG's application. Recognizing that under the current law the railroad had the burden of establishing that the "present or future public convenience and necessity" required the abandonment of the line, the ALJ ruled that the applicant-railroad had failed to meet this burden. See 49 U.S.C. § 10904(b) (Supp. II 1978).
In reaching this conclusion, the ALJ weighed the competing benefits and burdens that would ultimately result from abandonment. In essence, she compared the burden that continued operation would impose on the carrier with the adverse effects that abandonment would level upon the shippers and local communities who depend upon the continued operation of the line. See Chicago & Eastern Illinois R. Co. Abandonment, 354 I.C.C. 789, 795 (1978). She rested her opinion on four major points: (1) the line was making a positive contribution to ICG; (2) the carrier's benefit in reinvesting its capital in a more lucrative market was outweighed by the devastating effect abandonment would have on the community; (3) denying abandonment would secure environmental benefits to the affected communities; and (4) ICG made no commitment to funnel the monies it would realize upon abandonment back into ICG's other rail lines.
In assessing ICG's burden of continued operation, the ALJ properly followed the direction of the statute and the Commission's regulations, and compared the revenues attributable to the Sioux Falls District line with the "avoidable cost" of continued operation of the line. She determined that the revenues attributable to the line and the avoidable cost of operating the line for the years 1975-1977 were:
1975 1976 1977 (9 Mos.)
---------- ---------- ----------
Revenues $2,153,584 $1,734,875 $1,298,584
Costs $1,766,393 $1,490,341 $1,180,385
---------- ---------- ----------
Contribution $ 387,191 $ 244,534 $ 118,199
The ALJ arrived at these cost figures by deducting from ICG's overall cost of operation those sums attributable to the wages (including health & welfare and payroll tax additives) of the trainmen and train enginemen who run the Sioux Falls District line. The ALJ reasoned that since an enforceable collective bargaining agreement obligated ICG to continue to pay the wages of the Sioux Falls District's two crews indefinitely, regardless of whether the trains moved, this expense was not avoidable upon abandonment. She also deducted those sums attributable to property taxes, reasoning that unless and until the railroad received firm offers for its real estate holdings, it would continue to have to pay property taxes and, therefore, this cost would not be avoided upon abandonment. 1
The ALJ stated that ICG's cancellation of its fresh meat tariff directly resulted in greatly diminishing traffic over the Sioux Falls District line; this suggested that ICG was artificially building a case for abandonment. Accordingly, she decided that any economic loss suffered by ICG, as a result of the cancellation of its fresh meat tariff, should not be included in the weighing formula.
Administrative Law Judge Cappello noted that the total liquidation value of the Sioux Falls District line was $6.1 million, and that even at a modest nine percent rate of return, ICG could recognize nearly $560,000 yearly on its investment base in the line. She determined that the real reason that ICG sought to abandon the Sioux Falls District line was so that it could divest itself of its holdings in the line and reinvest the realized sum in a more profitable enterprise. Because the carrier made no commitment to reinvest the monies in its other rail lines, she concluded that the benefit of the sale would never be shared by ICG's other rail lines or interstate commerce.
The ALJ considered rate of return on the investment base of the line as one side of the balancing process. She, however, weighed this cost to the carrier against the cost of abandoning an "irretrievable transportation corridor" to the communities and shippers that depend upon ICG's Sioux Falls District line. The ALJ noted that the burden to the affected communities would be significant and would, in fact, be shared with commerce generally. The ALJ's findings in this regard, supported by substantial evidence in the record, may be summarized as follows:
(1) Metz Bakery, South Dakota's largest commercial bakery, has a spur track that connects to the Sioux Falls District line. If the line were abandoned, Metz Bakery would need to convert its plant in order to receive flour by truck at a much inflated cost. This cost would, of course, be passed on to the consumer at the retail level.
(2) Jones Mill and...
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