Lehigh & New England Ry. Co. v. I. C. C.
| Decision Date | 09 June 1976 |
| Docket Number | No. 75-1518,75-1518 |
| Citation | 540 F.2d 71 |
| Parties | LEHIGH AND NEW ENGLAND RAILWAY COMPANY, Petitioner, v. INTERSTATE COMMERCE COMMISSION and United States, Respondents, Commonwealth of Pennsylvania, Intervenor. |
| Court | U.S. Court of Appeals — Third Circuit |
Robert E. Turtz, Carpenter, Bennett & Morrissey, Richard B. Wachenfeld, Newark, N. J., for petitioner.
John H. Broadley, Thomas E. Kauper, Henri F. Rush, Fritz R. Kahn, I.C.C., Washington, D. C., for respondents.
Robert P. Kane, Michael von Moschzisker, Lawrence Barth, Asst. Atty. Gen., Philadelphia, Pa., Gordon P. MacDougall, Washington, D. C., for intervenor.
Before ADAMS, HUNTER and GARTH, Circuit Judges.
The Lehigh and New England Railway Company ("L&NE") petitions this court to review and set aside an order of the Interstate Commerce Commission ("ICC") entered in Ex Parte No. 293 (Sub-No. 3), entitled "Submission of Cost Data to Justify Reimbursement," and cost form regulations, 49 C.F.R. § 1126, promulgated by that order. 1 The regulations sought to implement section 1(16)(b) of the Interstate Commerce Act, 49 U.S.C. § 1(16)(b) (Supp. IV, 1974), which permits the Commission, in certain specified instances, to direct a railroad carrier to operate temporarily over the lines of another carrier unable or unwilling to provide essential rail service. L&NE challenges the regulations insofar as they fail to provide for the payment of rent, except in certain limited circumstances, to the railroad unable or unwilling to continue service for the use of its properties by the carrier directed by the ICC to operate temporarily on those properties. The Commonwealth of Pennsylvania has intervened in general support of the regulations. For the reasons set forth below, we deny L&NE's petition to review and set aside the regulations.
Section 1(16)(b) of the Interstate Commerce Act, 49 U.S.C. § 1(16)(b), 2 grants the ICC emergency authority to make just and reasonable directions with respect to the handling, routing and movement of traffic available to a railroad carrier that is unable to transport the traffic offered it because (1) its cash position makes continued operation impossible, (2) it has been ordered by a court to discontinue service or (3) it has abandoned service without prior Commission approval. Specifically, the ICC may direct a carrier (hereinafter the "directed carrier") to operate over the lines of the carrier unable to transport its own traffic (hereinafter the "other carrier"). The duration of this directed service is specifically limited to 60 days, unless extended by the ICC for cause shown for an additional period not to exceed 180 days. 49 U.S.C. § 1(16)(b)(A).
Subsection (b) was added to section 1(16) of the Interstate Commerce Act by section 601(e) of the Regional Rail Reorganization Act of 1973 ("Rail Act"). 3 The legislative history of the Rail Act has been extensively documented by other courts and will not be reviewed here. 4 It is sufficient to state that the Act was a congressional attempt to provide imaginative and innovative solutions to avoid a national disaster threatened by the bankruptcy of railroads in Northeastern United States. Subsection (b) was considered necessary to ensure that essential rail service provided by the bankrupt carriers in the Northeast would be continued pending development and implementation of a longer term reorganization of the bankrupt lines. 5
Section 1(16)(b)(E) permits the directed carrier to recover from the government, upon request, a sum equal to the amount by which the cost of directed operations exceeds the revenues derived from that operation. "Cost" is defined by subsection (E) as "those expenditures made or incurred in or attributable to the operations as directed, including the rental or lease of necessary equipment, plus an appropriate allocation of common expenses, overheads, and a reasonable profit." The subsection requires the ICC to prescribe a form on which the directed carrier can record costs and revenues of the directed operation and which must then be submitted by the directed carrier to the Commission for audit. The ICC then is authorized to certify to the Secretary of Treasury the amount of payment to be made to the directed carrier.
In an effort to implement section 1(16)(b), the ICC issued on April 9, 1975, effective March 21, 1975 6 a form for the recordation of costs and revenues by the directed carrier, rules governing the procedure for submission of cost data, and a report setting forth the Commission's policy on what costs and revenues, incurred in or attributable to the conduct of directed operations, are allowable for purposes of inclusion in the cost form. 7 ICC viewed its role under section 1(16)(b) as follows:
The Commission views its role as that of mediator between the directed carrier and the other carrier in terms of charges to which they must mutually agree and as that of overseer of the general reasonableness of expenses incurred in performance of a directed operation, and hopes that, with the cooperation of all parties, it can maintain that limited role. The standards established in the final cost form are intended to simplify and standardize the admittedly complex accounting procedures imposed upon a directed carrier and to limit those expenditures which may be reimbursable by the Federal government to those essential to performance of a directed service within the guidelines established by section 1(16)(b) itself and within the clear intent of Congress to keep Federal expenditures to a minimum. 8
As is pertinent to the instant controversy, in its Report the ICC considered the question whether it should recognize rent paid by the directed carrier to the other carrier for use of its facilities as a reimbursable cost under section 1(16)(b). The Commission concluded that in the usual case, where the directed carrier's costs of directed operations exceeded revenues, no compensation or rent for the use of the other carrier's lines and facilities would be required and thus a directed carrier would not be reimbursed by the government for any rent paid to the other carrier. 9 The practical effect of this rule is to deny the other carrier rent for the use of its lines and facilities during the period of an unprofitable directed operation. Where the costs of directed operations do not exceed revenues, i. e., a profitable operation, the Report provides that rent should be paid to the other carrier by the directed carrier. In this event, the amount of rent would be measured by the lessening of the other carrier's economic value due to the directed operations (i. e., normalized depreciation), reduced by amounts expended during the period of directed service that benefited the other carrier or its estate. 10
The Commission stated two reasons for its denial of rent to the other carrier in the usual case. First, it believed that by ordering directed service it was fulfilling the other carrier's legal obligation to continue service until obtaining a certificate of abandonment from the ICC and that to permit reimbursement for rent would provide a monetary incentive for the "unlawful abandonment of service." Second, the Commission was of the view that its ordering of directed service would confer substantial benefits on the other carrier which in most instances would be sufficient to discharge any obligation to pay rent. 11
L&NE instituted these proceedings on May 20, 1975 to set aside that portion of the ICC's cost reimbursement regulations which denies rent to the other carrier when directed operations are not profitable.
L&NE's interest in the Commission's refusal to reimburse a directed carrier, in the usual case, for rent paid the other carrier during the period of directed service can be traced to two orders issued by the ICC, Service Orders 1207 and 1208. A review of events leading up to and surrounding the issuance of these orders, which directed the Reading Company and the Lehigh Valley Railroad Company ("LVRR") to operate for a limited period of time over the lines of L&NE, is necessary to an understanding of the instant controversy. 12
L&NE is a carrier by railroad whose lines are located solely within the Commonwealth of Pennsylvania. 13 In 1972, L&NE, because of a decrease in coal and cement traffic, experienced a substantial decline in net income and by 1973 it was operating at an annual deficit of over $100,000. 14 Because of these losses, representatives of L&NE and CNJ allegedly approached the ICC in the latter part of December 1974 to determine whether the Commission would be willing to enter an order directing another railroad to provide service over L& NE's lines. 15 L&NE indicated that according to its projections for 1975 operating losses ranging up to as much as $400,000 might be expected for the first six to nine months of 1975. L&NE further indicated its intention to embargo all traffic to, from and over its lines, effective January 24, 1975. Brief for Respondent at 21.
During meetings in December and in the early part of January various alternatives to directed service were discussed by the ICC, L&NE and shippers in L&NE's area, but no solution was reached. On January 7, 1975, L&NE issued an embargo covering all traffic moving from, to and over its lines, effective January 24, 1975. To avoid the disruption that would result from implementation of the embargo, the ICC entered Service Orders 1207 and 1208 on January 17, 1975, which directed LVRR and Reading to provide service over L& NE's lines for 60 days (from January 24 to March 24, 1975). The service orders were subsequently extended for an additional 180 days (from March 24 to September 21, 1975) by the Commission after being notified on March 3, 1975 that L&NE would not be able to resume operations upon...
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