Evans Products Co. v. I.C.C.

• Decision Date: 12 March 1984
• Docket Number: 83-1240,Nos. 82-3017,s. 82-3017
• Citation: 729 F.2d 1107
• Parties: EVANS PRODUCTS CO., General American Transportation Corp., and Interstate Railcar Services, Inc., Petitioners, v. INTERSTATE COMMERCE COMMISSION and United States of America, Respondents, Chicago Heights Terminal Transfer Railroad Company, Intervening Respondent. TANK LINING CORP., Petitioner, v. INTERSTATE COMMERCE COMMISSION and United States of America, Respondents.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1107

729 F.2d 1107

EVANS PRODUCTS CO., General American Transportation Corp., and Interstate Railcar Services, Inc., Petitioners, v. INTERSTATE COMMERCE COMMISSION and United States of America,

Respondents,

Chicago Heights Terminal Transfer Railroad Company,

Intervening Respondent.

TANK LINING CORP., Petitioner, v. INTERSTATE COMMERCE COMMISSION and United States of America,

Respondents.

Nos. 82-3017, 83-1240.

United States Court of Appeals Seventh Circuit.

Argued Nov. 1, 1983.

Decided March 12, 1984.

Thomas F. McFarland, Jr., Belnap, Spencer & McFarland, Chicago, Ill., Robert P. VomEigen, Hamel, Park, McCabe & Saunders, Charles W. Chapman, Barnett & Alagia, Washington, D.C., for petitioners.

Dennis J. Starks, Interstate Commerce Commission, Washington, D.C., J.H. Durkin, Missouri Pacific R.R. Co., Chicago, Ill., for respondents.

Before WOOD and CUDAHY, Circuit Judges, and KELLEHER, Senior District Judge. ^*

HARLINGTON WOOD, Jr., Circuit Judge.

Petitioners, railroad car owners and operators of repair facilities, seek to have this court set aside the decision of the Interstate Commerce Commission in Switching Charges for Privately-Owned Cars Billed to Repair Facilities, No. 38792 (Oct. 12, 1982). The Commission declined to find unreasonable and violative of the Interstate Commerce Act, 49 U.S.C. Sec. 10701 (Supp. V 1981), a supplemental item in the tariff of a terminal switching rail carrier, Chicago Heights Terminal Transfer Railroad Company (CHTT). The tariff item charges rail car repair facilities for switching empty cars on their way to and from repair shops. We enforce the Commission's decision to terminate proceedings challenging the tariff, thus allowing this carrier to charge for empty repair switches; however, we set aside that much of the Commission's decision that allows assessment of repair switching charges against repair facilities.

I.

A brief review of the railroad transportation system is helpful to an understanding of the present dispute. Railroad common carriers are required to offer shippers complete transportation services; as part of these services, carriers must provide shippers with the cars in which freight is moved. See Pennsylvania Railroad Co. v. Puritan Coal Mining Co., 237 U.S. 121, 35 S.Ct. 484, 59 L.Ed. 867 (1915); In the Matter of Private Cars, 50 I.C.C. 652 (1918); 49 U.S.C. Sec. 11121 (Supp. V 1981). Because the cars in the railroads' fleet often were not promptly available to shippers or were not adapted to the special needs of certain goods, a privately-owned car industry grew to provide cars as necessary for use as instrumentalities of transportation. ¹ Private Cars, 50 I.C.C. at 657-58. While the Commission does not regulate private car owners, which are not common carriers, the Commission has regulatory authority over the operation of private cars through control over the railroads. Ellis v. ICC, 237 U.S. 434, 443-44, 35 S.Ct. 645, 646-47, 59 L.Ed. 1036 (1915); Private Cars, 50 I.C.C. at 677.

The Interstate Commerce Act gives the Commission jurisdiction to determine the compensation paid for the use of freight cars, which is to include the costs of repairs. 49 U.S.C. Sec. 11122 (Supp. V 1981). Since 1918, the Commission has administered a nationwide system of compensating private car owners for owning and maintaining the cars that railroads otherwise would have to supply. See Private Cars, 50 I.C.C. 652 (1918). The Commission promulgates a mileage allowance tariff that is assessed against the railroads and distributed among the private car owners. ² Railroads factor in the amount they must pay under the mileage allowance tariff when setting their own freight tariff rates.

When newly manufactured cars are transported on their own wheels, not yet carrying goods, or when old cars are on their way to permanent retirement, these cars are not instrumentalities of transportation but are property for which freight charges must be levied. See Indiana Harbor Belt Railroad Co. v. General American Transportation Corp., 577 F.2d 394, 401 (7th Cir.1978) (IHB II ); Mileage Allowance, Tank Cars Between Points in the United States, 337 I.C.C. 23 (1970); 49 U.S.C. Sec. 10761 (Supp. V 1981). Rail cars that have entered the national fleet and are in use shipping goods generally are considered instrumentalities of transportation for which no freight charges for their movement may be imposed. See IHB II, 577 F.2d at 401. Because ordinary repairs enable cars to continue transporting goods, the movement of empty cars to and from repair facilities (repair switches) does not alter the cars' status as instrumentalities of transportation. Id. at 400; cf. Atchison, Topeka and Santa Fe Railway Co. v. Union Tank Car Co., 611 F.2d 1184 (7th Cir.1979) (lessee's use of cars in Mexico interrupted commitment of cars to national fleet; transportation charges may be levied for movement of cars for repairs). Repair switches are not distinct rail services for which a direct charge may be made. IHB II, 577 F.2d at 400-01 (citing Union Tank Car Co., 268 I.C.C. 338, 341 (1947)).

CHTT is a terminal switching carrier with six and one-half miles of mainline track. It provides switching services to six connecting line-haul carriers, including its parent, the Missouri Pacific Railroad Company (MoPac), and to forty-six industries and three repair facilities located on its line. A car manufacturing and repair facility, Thrall Manufacturing Company, was located on CHTT track prior to 1978; in 1978 two other repair facilities, Interstate Railcar Service, Inc., and Tank Lining Corporation, established operations on CHTT tracks.

CHTT never has participated in the mileage allowance tariff. It appears that CHTT had collected direct charges for switching empty cars to and from repair facilities on its line for some time prior to 1982, when it filed the tariff item at issue here. Until 1978, in-bound line-haul carriers that delivered empty cars to CHTT collected the charges for repair switches, apparently from private car owners, and remitted the payments to CHTT.

In 1978, two of the line-haul carriers that handled most of CHTT's in-bound traffic discontinued the practice of paying CHTT for empty repair switches. CHTT claims to have had difficulty collecting the charges itself from the private car owners. In 1982, CHTT filed a supplement to its General Revenue Tariff, stating:

Switching charges as provided herein for movement of empty privately-owned or railroad-owned cars, moving on own wheels, to or from repair facilities will be collected from the repair facility ordering cars from or to said repair facility.

Private car owners and operators of repair facilities opposed the tariff, prompting a Commission investigation. On October 12, 1982, Division 2 of the Commission decided to discontinue the investigation and let the tariff stand.

In this consolidated appeal, petitioning private car owners and operators of repair facilities maintain that: (1) the Commission erred by respecting the separate corporate structure of CHTT and MoPac in assessing the benefit derived from the use of private cars; (2) the Commission changed its policy arbitrarily and contrary to the substantial evidence by allowing the collection of charges for empty repair switches; and (3) the Commission approved an unlawful assessment of such charges against repair facilities.

II.

The crucial test for whether a rail carrier may charge for empty repair switches turns on whether the carrier derives some economic benefit from the private ownership of rail cars. See IHB II, 577 F.2d at 400-01; infra section III. When a carrier attempts to charge for repair switches, a preliminary finding of who is the charging party must be resolved before we turn to the question of whether that carrier benefits from the private car system. The Commission claims that benefit only to CHTT need be considered; petitioners desire to pierce the corporate veil to consider the economic benefit to CHTT's parent, MoPac. ³ In the proceedings below, the Commission refused to look beyond CHTT because it found no strong evidence that the corporate form was ignored or abused, relying on language in its decision that this court affirmed on other grounds in IHB II. See General American Transportation Corp. v. Indiana Harbor Belt Railroad Co., 357 I.C.C. 102, 127 (1977).

On appeal, petitioners provide a list of functions that CHTT and MoPac perform jointly, such as sharing officers and directors, employees, cars, and a logo. Yet no evidence is presented to show that the separate corporate structure is maintained to avoid a clear legislative purpose, see Schenley Distillers Corp. v. United States, 326 U.S. 432, 437, 66 S.Ct. 247, 249, 90 L.Ed. 181 (1946), or to defeat an overriding public policy, see Bangor Punta Operations, Inc. v. Bangor & Aroostook Railroad Co., 417 U.S. 703, 713, 94 S.Ct. 2578, 2584, 41 L.Ed.2d 418 (1974). CHTT and MoPac have been incorporated separately since they were formed as independent companies years ago; their corporate forms were retained after the Commission denied the application for merger of CHTT into its then-parent C & EI in 1961. That CHTT's new parent, MoPac, has not sought to merge CHTT into it after the liberalization of Commission merger rules cannot be seen as a deliberate attempt to flout legislative policy.

Viewing the totality of the circumstances, the corporate form was adopted consistently with the national transportation policy, and need not be disregarded simply because in this case the form enables CHTT to acquire an advantage that presumably would not be available to its parent. The Commission's decision to respect the existing corporate structure was not arbitrary and capricious.

III.

Petitioners assert that the Commission arbitrarily altered its policy as set forth in IHB II by allowing CHTT to charge for repair switches outside the mileage allowance tariff. The Commission responds that its decision not only is...