Missouri Pac. R. Co. v. U.S., 79-1256

• Decision Date: 17 June 1980
• Docket Number: No. 79-1256,79-1256
• Citation: 625 F.2d 178
• Parties: MISSOURI PACIFIC RAILROAD COMPANY, Petitioner, v. The UNITED STATES of America and Interstate Commerce Commission, Respondents, Elcor Corporation, Intervenor-Respondent.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 178

625 F.2d 178

MISSOURI PACIFIC RAILROAD COMPANY, Petitioner, v. The UNITED STATES of America and Interstate Commerce Commission, Respondents Elcor Corporation, Intervenor-Respondent.

No. 79-1256.

United States Court of Appeals Eighth Circuit.

Submitted Jan. 14, 1980.

Decided March 17, 1980.

Rehearing and Rehearing En Banc Denied June 17, 1980.

John P. Legendre, Dallas, Tex., and Robert Lewis Thompson, App. Section, Antitrust Div., Dept. of Justice, Washington, D. C., for petitioner; Mark M. Hennelly, St. Louis, Mo., William R. McDowell, Dallas, Tex., Robert H. Stahlheber, Joseph J. Gazzoli, St. Louis, Mo., John P. Legendre, Dallas, Tex., on brief.

Richard A. Allen, Gen. Counsel, Henri F. Rush, (argued) Associate Gen. Counsel, I.C.C., Ellen K. Schall, Attys., Washington, D. C., on brief for respondent.

John R. Feather, (argued) Johnston & Feather, Dallas, Tex., Bruce E. Turner and Lawrence G. Boyd, Dallas, Tex., on brief for intervenor.

John H. Shenefield, Asst. Atty. Gen., John J. Powers, III and Robert Lewis Thompson, Antitrust Div., Dept. of Justice, Washington, D. C., on brief for respondent, United States.

Before ROSS and HENLEY, Circuit Judges, and PORTER, District Judge. ^*

ROSS, Circuit Judge.

Missouri Pacific Railroad Company (MoPac) appeals a ruling of the Interstate Commerce Commission denying MoPac's request to abandon a 27.2 mile spur line in a remote area of western Texas.

The spur line in question was built in 1968 at a cost of over 3.5 million dollars. The line was constructed for the sole purpose of providing service to the Elcor Corporation's "Rock House" plant, which was designed to recover sulphur from gypsum. Elcor shared in the expense of the construction of the line. The Rock House plant closed shortly after opening, however, and only 48 carloads of sulphur were ever shipped on the line, although Elcor also shipped some gypsum rock from the plant. In 1975, 94 carloads were shipped on the line and only 106 carloads were shipped in 1976, consisting in part of dismantled plant machinery. No shipments were made in the first five months of 1977.

On July 12, 1975, MoPac applied to the ICC for authority to abandon the spur line. On November 4, 1977, a staff Review Board of the Commission denied the application. The Board found that a small profit of $6,697 in 1976 and the generally good financial condition of MoPac outweighed the fact that traffic on the line was light and that MoPac could have achieved a greater return on its investment if the line were abandoned.

MoPac appealed the Board's order, challenging both the Board's reliance on "book value" in computing the profitability of the line, and the Board's failure to consider the "opportunity costs" involved in continuing service on the line. On April 13, 1978, the Commission's Division I reversed the Board's decision, and found that even though the line had shown "marginal profitability," abandonment "would cause little inconvenience to the sole shipper." Division I also noted that MoPac "incurs a substantial opportunity cost by keeping valuable 112-pound rail tied up in a marginal operation." In conclusion, Division I indicated "that applicant's inability to use this rail on other of its lines constitutes a substantial burden on interstate commerce because more efficient movement of other traffic is being sacrificed to accommodate the slight needs of one shipper."

Elcor Corporation sought administrative review of Division I's decision by the Commission and on February 16, 1979, the decision was reversed, 3-2. The Commission found that although "there is nothing to foreclose us from using opportunity costs as one of the factors in making the determination that the public convenience and necessity permits abandonment," there "is an absence of case law indicating how and when this criterion should be used." The Commission found that opportunity costs could be considered in further proceedings but stated that "it would not be proper to consider opportunity costs" in the current proceedings because the parties had not been given sufficient notice. The Commission then indicated that formal notice of a proposed policy statement on "opportunity costs" would be published, but until adoption of such a statement, factors which the Commission identified as "traditional" would be relied upon in abandonment decisions.

The Commission identified the "traditional" factors as "unprofitability, quality of track condition and needed rehabilitation." It was noted by the Commission, however, that abandonment of profitable lines had been allowed based on findings "that future operations would evidently be an undue financial burden on the railroad." But since the majority determined that "substantial future expenditures" for maintenance and rehabilitation were unlikely in the current situation, the abandonment was denied.

The Commission's policy statement on opportunity costs was served on January 10, 1980. See Abandonment of Railroad Lines Use of Opportunity Costs, Ex Parte No. 274 (Sub-No. 3), 360 I.C.C. 571, 577 (1980). The Commission there concluded that opportunity costs must be considered by the ICC in its balancing of factors in abandonment proceedings:

After examining the public comments we find that opportunity costs must be a factor used in determining whether the public convenience and necessity permits abandonment. This finding reflects our belief that opportunity costs are a real, and, in some cases, very significant factor in determining whether the line at issue is imposing a burden on interstate commerce. We, therefore, advise carriers that in all future abandonment cases they are welcome to offer evidence of their opportunity costs. Such evidence may include the costs incurred in keeping assets tied up in less profitable operations as opposed to more profitable uses elsewhere, including nonrail uses.

Although it is clear from this quotation that opportunity costs are to be considered by the Commission in abandonment proceedings, the new policy is clearly limited to future abandonment cases.

In this appeal, MoPac challenges the Commission's failure to consider the opportunity costs involved in continuing the operation of the spur line, and argues that the case law which preceded the Commission's policy statement provided ample guidance for the proper use of such information. MoPac also challenges the Commission's finding that the line was profitable a finding which involved computations based on the book value of the railroad's equipment, rather than its replacement value. In addition, several procedural errors in the Commission's decision are alleged by MoPac.

OPPORTUNITY COSTS

We turn our attention first to the issue of whether the Commission erred in refusing to consider opportunity costs in denying MoPac's application for abandonment. The evidence before us on appeal establishes that the 27.2 mile spur line was constructed with expensive welded rail, is still in good condition, and will require little maintenance in the immediate future. Given the benefit of computations based on the book value of the equipment tied up in operating the line, the Commission determined that the line was operated at a marginal profit. However, MoPac and the United States, a respondent in this action, argue that the Commission was obligated to look beyond the traditional factors of profitability, maintenance and rehabilitation. And they argue persuasively that the impact of opportunity costs on interstate commerce should have been taken into consideration in this abandonment proceeding. We agree.

The test which must be applied in abandonment cases was set forth by the Supreme Court in Colorado v. United States, 271 U.S. 153, 168-69, 46 S.Ct. 452, 456, 70 L.Ed. 878 (1966), and it focuses on whether the abandonment is "consistent with public necessity and convenience." Several factors must be balanced in making such a determination, however, and adequate earnings for a railroad is one which is specifically mentioned by the Supreme Court:

The sole test prescribed is that abandonment be consistent with public necessity and convenience. * * * The benefit to one of the abandonment must be weighed against the inconvenience and loss to which the other will thereby be subjected. Conversely, the benefits to particular communities and commerce of continued operation must be weighed against the burden thereby imposed upon other commerce.

Whatever the precise nature of these conflicting needs, the determination is made upon a balancing of the respective interests the effort being to decide what fairness to all concerned demands. In that balancing, the fact of demonstrated prejudice to interstate commerce and the absence of earnings adequate to afford reasonable compensation are, of course, relevant and may often be controlling. But the Act does not make issuance of the certificate dependent upon a specific finding to that effect.

(Emphasis supplied.)

In other cases courts have focused on the adequacy of the earnings of a railroad seeking abandonment of a particular line in light of the railroad's overall financial condition and in light of the impact of abandonment on interstate commerce. These cases indicate that the opportunity cost involved in tying up expensive rail and other equipment is a factor which properly falls within the Commission's weighing of "prejudice to interstate commerce and the absence of earnings adequate to afford reasonable compensation * * * ." Colorado v. United States, supra, 271 U.S. at 169, 46 S.Ct. at 456.

In Commonwealth of Pennsylvania v. United States, 361 F.Supp. 208, 219 (M.D.Pa.), aff'd, 414 U.S. 1017, 94 S.Ct. 440, 38 L.Ed.2d 310 (1973), a three judge panel reviewed the authority of the ICC to promulgate regulations designed to expedite abandonment...