International Minerals & Chemical Corp. v. I.C.C., s. 80-2096

• Decision Date: 05 October 1981
• Docket Number: Nos. 80-2096,80-2097,s. 80-2096
• Citation: 656 F.2d 251
• Parties: INTERNATIONAL MINERALS & CHEMICAL CORPORATION, United Transportation Union, Proko Industries, Inc., and Luellin Brothers, Inc., Petitioners, v. INTERSTATE COMMERCE COMMISSION and United States of America, Respondents. Norfolk and Western Railway Company, Intervening-Respondent.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 251

656 F.2d 251

INTERNATIONAL MINERALS & CHEMICAL CORPORATION, United

Transportation Union, Proko Industries, Inc., and Luellin Brothers, Inc., Petitioners, v. INTERSTATE COMMERCE COMMISSION and United States of America,

Respondents.

Norfolk and Western Railway Company, Intervening-Respondent.

Nos. 80-2096, 80-2097.

United States Court of Appeals, Seventh Circuit.

Argued April 15, 1981.

Decided Aug. 3, 1981.

Rehearing Denied Oct. 5, 1981.

Thomas F. McFarland, Jr., Belnap, McCarthy, Spencer, Sweeny & Harkaway, Chicago, Ill., Gordon P. MacDougall, Washington, D.C., for petitioners.

Kathleen V. Gunning, Interstate Commerce Commission, Kenneth P. Kolson, Dept. of Justice, Antitrust Div., Washington, D.C., for respondents.

Angelica D. Lloyd, Roanoke, Va., for intervening-respondent.

Before CUMMINGS and WOOD, Circuit Judges, and JAMESON, Senior District Judge. ^*

HARLINGTON WOOD, Jr., Circuit Judge.

This case is another in the process accompanying the contraction of this country's rail service. Through a petition for review in these consolidated cases, local shippers and a labor union challenge the Interstate Commerce Commission's ("ICC's") decisions to approve the abandonment by Norfolk and Western Railway Company ("N&W") of two separate rail branches in Indiana. We grant the petitions for review, and remand to the ICC for further consideration of portions of its order.

I. Proceedings Before the ICC

In December 1977, N&W filed with the ICC applications to abandon two branches of its rail network. One application sought approval to abandon a 22.21 mile stretch of track referred to as the Rushville branch. The other application sought approval to abandon a 23.5 mile rail line on the nearby Connersville branch. The cases were consolidated for ICC consideration.

A hearing on the proposed abandonments was held before an ICC administrative law judge. Only one shipper who used the Rushville branch, International Minerals & Chemical Corporation ("INC"), appeared at the hearing to protest the proposed abandonment of that branch. ¹ Several shippers who used the Connersville branch appeared at the hearing, although one, Ford Aerospace & Communications, indicated that its concern over the proceeding extended only so far as necessary to assure continued service to it by ConRail, which used a segment of N&W's Connersville branch pursuant to a trackage agreement. ² Ford is not a party to this appeal. The United Transportation Union ("UTU") and the Brotherhood of Locomotive Engineers opposed both applications. UTU is the only union that is a party before this court.

N&W produced evidence to show that the branches were presently unprofitable and in need of such extensive repair and future maintenance in order to continue safe operation that the branches would never become profitable. The administrative law judge concluded that the Rushville branch was profitable and would continue to be so with normal maintenance; that the shippers on the lines would be placed at a competitive disadvantage if N&W abandoned the branches; and that N&W deliberately had downgraded its track in order to make the case for abandonment. The Connersville branch, the administrative law judge held, was profitable and would be so with normal maintenance; served the public need; and would experience increased traffic. Hence, the administrative law judge denied N&W's requests for abandonments. The full ICC reversed the administrative law judge's decision. Norfolk and Western Railway Company Abandonment, 363 I.C.C. 115 (1980).

Since N&W wants to abandon these branches because of their unprofitability, in order to prove the economic necessity for abandonment the railroad had to show that it would actually save its costs of running the lines if they were shut down. The administrative law judge refused to consider certain labor costs in determining the lines' profitability since in his view those expenses would exist regardless of the lines' operation. By excluding from his calculations the cost to N&W of labor expenses, the administrative law judge found that both branches generated enough profit to maintain the line at minimum operating standards. The ICC disagreed, and on review acknowledged employee wages as an expense that could be saved upon abandonment, making the wages an "avoidable cost" in public transportation jargon. The ICC's calculation reduced the branches' profit margins to a level that failed to produce a reasonable rate of return to N&W.

At the initial hearing, the branches' profitability figures were enhanced by the administrative law judge's conclusion that normalized maintenance on the line could be less than that stated by N&W. The ICC agreed, but held that when coupled with even a reduced figure for normalized maintenance, its inclusion of labor expenses as avoidable costs resulted in a narrow profit for the Rushville branch, and a loss for the Connersville branch.

The ICC disagreed with the administrative law judge's conclusion that the track and other physical plant on the Rushville branch required no rehabilitation because it presently met minimum safety standards. The ICC went on to state that the decline in traffic on the branch undercut any justification for substantial rehabilitation expenditures. And assuming that inflation would raise the true cost of future normalized maintenance, the ICC found that the line would become unprofitable.

The ICC agreed with the administrative law judge's finding that the Connersville branch required substantial rehabilitation. Applying the lower normalized maintenance figure to the year 1977, when N&W deferred most maintenance on that branch, the ICC found that the line would operate at a substantial loss. The ICC concluded that while the line's traffic had increased due to rising activity at the Ford plant, since ConRail could handle the Ford business even after N&W's abandonment, there was no justification for continuing N&W's operation. To take into account Ford's interests, the ICC conditioned abandonment upon N&W's good faith offer to sell ConRail the portion of its line that the latter carrier currently operated under trackage rights.

The ICC found that alternative motor and rail carrier service was available to shippers on both lines. This fortified the ICC's conclusion that the shippers would not be unduly harmed by the abandonments.

The administrative law judge had concluded that the branches' financial picture did not justify N&W's downgrading the lines by deferring maintenance. He went on the find that N&W had intentionally and improperly downgraded the branches in order to perfect a case for abandonment. The ICC's contrary view on the lines' profitability led it to accept N&W's decision to defer maintenance and thus avoid "throw(ing) good money after bad without any prospect of obtaining a profit in return." The ICC did not, however, discuss an incident described by the administrative law judge in which N&W, prior to filing its abandonment application, told the Rush Grain Company that it planned to abandon the Rushville branch. This comment induced Rush Grain to shelve its plans to construct at its own expense a rail spur from the Rushville branch to its facilities. The spur would have added as many as 500 carloads per year to the branch's traffic.

Thus the ICC permitted the abandonments requested by N&W, and this appeal followed.

In considering these challenges to the ICC's action, we bear in mind that the agency's decision must be upheld if it is not arbitrary, capricious or an abuse of discretion. See Bowman Transportation, Inc. v. Arkansas Best Freight System, Inc., 419 U.S. 281, 95 S.Ct. 438, 42 L.Ed.2d 447 (1974). ³ The ICC's conclusions must exhibit a rational connection between the facts it finds and the decision it makes. Id. at 285, 95 S.Ct. at 441. Our review of those conclusions must be "searching and careful," id., particularly here, where the ICC has rejected the administrative law judge's exhaustive and careful findings. Illinois v. United States, supra, note 3, slip op. at; NLRB v. Interboro Contractors, Inc., 388 F.2d 495 (2d Cir. 1967).

II. Avoidability of Labor Costs

The first issue in this case centers on the question of whether or not the wages paid to railroad employees who presently work on the Rushville and Connersville branches could be saved by N&W if the lines were abandoned. The ICC overturned the administrative law judge's findings and held that the wages are avoidable costs. Because the labor expenses are so large, this materially shifted the balance away from a finding of profitability on the two lines.

The repair and maintenance crews on the two branches spend a portion of their time working on other lines. Since the employees' wages are paid for both work done on these branches and on other lines, the petitioners say, the employees still will have to be retained, and there will be no saving to N&W. Thus, petitioners claim, the wages that presently are paid to these employees on the branch are jointly shared with other of N&W's operations, and will not be reduced if the branches are abandoned. They contend that this case represents a "true joint cost" situation.

The ICC rested its conclusion about the avoidability of labor costs on one of its own cases, Illinois Central Gulf Company Railroad Abandonment, 363 I.C.C. 93 (1980), rev'd and remanded on review sub nom., City of Cherokee v. I.C.C., 641 F.2d 1220 (8th Cir.), cert. filed, 49 U.S.L.W. 3969, No. 80-2122 (June 15, 1981). Petitioners contend that the case does not support the ICC's conclusions since it concerns circumstances that do not implicate joint costs. As framed by the petitioners, then, our consideration of this issue turns on the existence vel non of a joint cost situation in the branches at issue.

We first note that while a true joint cost may almost always be unavoidable, not all unavoidable costs are joint ones. The ICC defines joint cost to cover a...