New York Cross Harbor R.R. v. Surface Transp. Bd.

• Citation: 374 F.3d 1177
• Decision Date: 13 July 2004
• Docket Number: No. 03-1269.,03-1269.
• Parties: NEW YORK CROSS HARBOR RAILROAD, Petitioner, v. SURFACE TRANSPORTATION BOARD and United States of America, Respondents. New York City Economic Development Corporation American Warehouse, Inc., <I>et al.,</I> Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

374 F.3d 1177

NEW YORK CROSS HARBOR RAILROAD, Petitioner, v. SURFACE TRANSPORTATION BOARD and United States of America, Respondents.

New York City Economic Development Corporation American Warehouse, Inc., et al., Intervenors.

No. 03-1269.

United States Court of Appeals, District of Columbia Circuit.

Argued May 21, 2004.

Decided July 13, 2004.

On Petition for Review of an Order of the Surface Transportation Board.

John D. Heffner argued the cause for the petitioner and intervenors, American Warehouse, Inc. et al. Fritz R. Kahn and Thomas F. McFarland, Jr. were on joint brief.

Alice C. Saylor, Attorney, Surface Transportation Board, argued the cause for the respondents. Robert Hewitt Pate, III, Assistant Attorney General, Robert B. Nicholson and John P. Fonte, Attorneys, United State Department of Justice, Ellen D. Hanson, General Counsel, and Craig M. Keats, Deputy General Counsel, Surface Transportation Board, were on brief.

Charles A. Spitulnik was on the brief for intervenor New York City Economic Development Corporation.

Before: GINSBURG, Chief Judge, and HENDERSON and ROGERS, Circuit Judges.

Opinion for the court filed by Circuit Judge HENDERSON.

KAREN LeCRAFT HENDERSON, Circuit Judge:

The New York Cross Harbor Railroad (Cross Harbor) and seven of its shipping customers (the intervening shippers)¹ petition for review of the Surface Transportation Board (STB or Board)'s decision to grant the application of the New York City Economic Development Corporation (N.Y.CEDC) for the adverse abandonment of Cross Harbor's rail operations in Brooklyn, New York. See 49 U.S.C. § 10903. Cross Harbor claims that the Board acted arbitrarily and capriciously when it failed to explain its departure from precedent denying adverse abandonment applications — applications opposed, rather than sought, by the current rail carrier — and failed to weigh the interests of the shippers against the asserted demands of New York City. We agree and grant the petition.

I.

Cross Harbor is currently the only rail freight carrier that floats rail cars on barges across New York Harbor. In the Red Hook section of Brooklyn, at a facility known as the Bush Terminal Yards, Cross Harbor operates the 51st Street floatbridge (a dock whence its locomotives move rail cars on and off the barges) and a series of related railroad tracks, some of which run down the middle of First Avenue. The tracks connect directly to a few local warehouses and with the tracks of other rail carriers, which in turn move the cars either up the east side of the Hudson River or out Long Island. In Jersey City, on the other side of the harbor, Cross Harbor operates another floatbridge and set of tracks that serve other shippers and connect to other rail carriers, which in turn move the cars across the United States.

In 2000, Cross Harbor transported roughly 1600 carloads of "overhead" traffic — cars that do not begin or end their rail service on its Brooklyn tracks — across New York Harbor through the Bush Terminal Yards. It also transported slightly more than 1100 carloads of "local" traffic — cars that either begin or complete their rail service on Cross Harbor's Brooklyn tracks — for the seven intervening shippers. In 2001, however, Warehouse — Cross Harbor's largest local customer — switched facilities in Brooklyn and began receiving service from Cross Harbor not by rail but directly by barge for just shy of 1000 carloads annually. Thus, for the remaining local traffic in Brooklyn, Cross Harbor currently provides rail service directly to the warehouses of four shippers for roughly 100 carloads per year of miscellaneous goods, including plastic pellets, pipes, refrigerant and lumber. It also transports approximately 60 carloads annually for two customers who are not served directly by Cross Harbor's tracks but instead must truck their shipments a few miles to its facilities. Although existing local traffic may be comparatively light, the record indicates that Cross Harbor is successfully pursuing additional local customers, including East Peak Trading Company, and that local traffic is increasing. See Joint Appendix (JA) 205, 305.

Cross Harbor operates at the Bush Terminal Yards pursuant to authority from the Interstate Commerce Commission (ICC) in Finance Docket No. 30183, New York Cross Harbor R.R. Terminal Corp. — Exemption for Operation and Issuance of Securities (July 15, 1983), now the STB.² It does not own the facilities but instead leases them from New York City. Landlord and tenant have had a difficult relationship, however, and in 1998 New York City filed suit against Cross Harbor claiming that the company illegally buried environmentally hazardous materials at the Bush Terminal Yards. In 2000, the City also completed work on its own modern floatbridge facility at 65th Street, a short distance from Cross Harbor's. Cross Harbor has not been able to gain access to the City's floatbridge and continues to operate its own at 51st Street.

In 2001, the City filed suit in state court to evict Cross Harbor from the Bush Terminal Yards. To support this effort, see 49 U.S.C. § 10501(b),³ the NYCEDC also applied to the Board to authorize the adverse abandonment of Cross Harbor's floatbridge and related tracks in Brooklyn pursuant to 49 U.S.C. § 10903. See Consol. Rail Corp.v. ICC, 29 F.3d 706, 709-10 (D.C.Cir.1994) (Conrail).⁴ NYCEDC asserted three grounds in support of its adverse abandonment application: (1) Cross Harbor's alleged environmental pollution; (2) Cross Harbor's alleged building code violations, including its failure to repair a faulty sprinkler system; and (3) Cross Harbor's history of financial instability. This conduct, NYCEDC claimed, showed that "the public interest is no longer served by [Cross Harbor]'s use of the [t]racks and [f]acilities" at the Bush Terminal Yards. JA 65.

Both Cross Harbor and the intervening shippers opposed NYCEDC's application. Cross Harbor disputed each of NYCEDC's allegations and asserted that new management was improving its performance. It also claimed that NYCEDC sought the adverse abandonment of Cross Harbor's tracks and facilities in order to pursue the City's own undeveloped plan to improve the Brooklyn waterfront. The intervening shippers opposed NYCEDC's application on the ground that abandonment would hurt their businesses.

In reply, NYCEDC acknowledged that it was "conducting planning and design studies for installing or upgrading rail facilities at the City's marine terminals and along First Avenue" and that "[a]pproximately $17 million have been made available for this construction" but asserted that "those plans ... do not drive [its] actions here." NYCEDC Reply to Protest of Cross Harbor and Intervening Shippers, at JA 135, 138. Instead, the NYCEDC maintained that the City should be able to "evict a tenant whose actions are not in compliance with the obligations that tenant has undertaken" and that abandonment would "not burden interstate commerce." JA 135.

In May 2003, the STB granted NYCEDC's petition. New York City Econ. Dev. Corp. — Adverse Abandonment — New York Cross Harbor R.R. in Brooklyn, NY, 2003 WL 21055723 (I.C.C.), at *4 (May 9, 2003) (May Order). After outlining the positions of the parties, the Board noted that the appropriate standard for evaluating any abandonment — whether one initiated by the carrier itself or an adverse abandonment opposed by the carrier — is "whether the present or future [public convenience and necessity] require or permit the proposed abandonment." Id. (citing 49 U.S.C. § 10903(d)). The Board was accordingly required "to balance the competing benefits and burdens of abandonment on all interested parties, including the railroad, the shippers who have used the line, the community involved, and interstate commerce generally." May Order at *4 (citing City of Cherokee v. ICC, 727 F.2d 748 (8th Cir.1984)). The Board then observed that because New York City, "which as a government entity represents all of its citizens, not just the businesses that use [Cross Harbor]'s services[,] has concluded that this property should be put to other public uses," the Board would "not block the City from using its property as it wishes absent an overriding need for the rail service." May Order at *4 (citing Norfolk & W. Ry. Co. — Aban. Exem. — Cinn., Hamilton County, OH, 3 S.T.B. 110 (1998)). The Board then found "no overriding public need for the rail service" because "relatively little traffic [uses] this line" and Cross Harbor's customers "will continue to have transportation options," including rail service via tracks that follow the Hudson River to Albany, New York, and thence to all final destinations, and, potentially, the City's own floatbridge. May Order at *4.

Cross Harbor sought to stay the Board's decision and moved for reconsideration. It argued that the Board's decision was contrary to — and failed to adequately explain its departure from — the Board's precedent that adverse abandonment is inappropriate if the carrier is actively operating on the subject tracks. It also claimed the Board had impermissibly shifted the burden of proof to Cross Harbor and failed to articulate the grounds in support of abandonment. In August 2003, the Board granted the stay but denied the motion for reconsideration, iterating that "the public interest does not require that rail service continue over the tracks and facilities at issue" because they are "not heavily used by local traffic" and "the affected shippers will continue to have transportation options." New York City Econ. Dev. Corp. — Adverse Abandonment — New York Cross Harbor R.R. in Brooklyn, NY, 2003 WL 22022749 (I.C.C.), at *2 (Aug. 27, 2003) (August Order).

In September 2003, Cross Harbor and the intervening shippers petitioned for review of the Board's August decision. They assert that the STB arbitrarily and capriciously: (1) failed either to follow or distinguish Board precedent like Salt Lake City Corp. — ...