People of State of Ill. v. U.S., Nos. 78-1762

CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)
Writing for the CourtBefore FAIRCHILD, Chief Judge, and SWYGERT and SPRECHER; SPRECHER; FAIRCHILD; SWYGERT
Citation666 F.2d 1066
PartiesPEOPLE of the STATE of ILLINOIS, Illinois Commerce Commission, John W. McGinnes and George B. Lee, Illinois Department of Transportation, and B & O Concerned Citizens Committee, Petitioners, v. UNITED STATES of America and Interstate Commerce Commission, Respondents. The Baltimore and Ohio Railroad Company, Intervenor.
Docket NumberNos. 78-1762,78-2020 and 78-2043
Decision Date20 January 1981

Thomas F. McFarland, Jr., Chicago, Ill., James E. Weging, Asst. Atty. Gen. of Illinois, Chicago, Ill., for petitioners.

Sidney L. Strickland, Jr., I. C. C., Washington, D. C., for respondents.

Before FAIRCHILD, Chief Judge, and SWYGERT and SPRECHER, Circuit Judges.

SPRECHER, Circuit Judge.

In this case, we review the decision of the Interstate Commerce Commission ("ICC") to allow the Baltimore and Ohio Railroad ("B&O") to abandon a railroad line. We find that the ICC's decision was arbitrary and capricious. Further, we find that, under the circumstances of this case, the parties should have been allowed the opportunity for cross-examination regarding supplementary evidence received by the ICC.


This is an action to review decisions the ICC issued in Docket No. AB-19 (Sub-No. 27), Baltimore and Ohio Railroad Company Abandonment Between Flora and Sangamon Junction In Clay, Effingham, Fayette Shelby, Christian and Sangamon Counties, IL. The administrative process we review has followed a tortuous course.

By application filed March 17, 1975, the B&O sought a certificate of public convenience and necessity permitting abandonment of a 103.29 mile line of railroad between Flora, Illinois and Sangamon Junction, Illinois ("Flora line"), pursuant to § 1(18) of the Interstate Commerce Act ("IC Act"), 49 U.S.C. § 1(18)-(22), now codified at 49 U.S.C. § 10903-07. 1 This line of track constitutes the middle segment of a 228-mile line of B&O track between Beardstown and Shawneetown, Illinois.

The B&O gave notice of its application to abandon the Flora line as required under the IC Act and the ICC's regulations. The abandonment was opposed by various shippers, public officials, and other interested persons, including the petitioners here: the Illinois Department of Transportation, the State of Illinois and the Illinois Commerce Commission, United Transportation Union, and B&O Concerned Citizens Committee (a group composed of 34 shippers, farm interests, and local community organizations). In October, 1976, the ICC referred the abandonment application to an administrative law judge for hearing and an initial decision. Hearings, in which the parties had the right of cross-examination, were held during 1977. 2

In an initial decision, served in November, 1977, and made after eleven days of hearings, the law judge 3 denied the abandonment application, finding that the B&O had failed to meet its burden of proving that the present or future public convenience permitted the abandonment. The law judge made a detailed study of the 1974 and 1975 operating and financial data submitted by the B&O and concluded that the B&O had failed to substantiate several of the costs it had attributed to movement of traffic on the line. Excluding only those unsubstantiated expenses which could be ascertained from the record, the law judge arrived at the following restated historical financial results of B& O's operations on the line. For 1974, the B&O had claimed a net loss of $1,135,691, but the law judge found a net gain of $2,454. For 1975, the B&O had claimed a net loss of $1,108,856, but the law judge found a possible net loss of $18,437. The law judge qualified this figure, however, by finding that, due to the fact that restatement of unsubstantiated expenses claimed could not be determined from the evidence of record, it was questionable whether the B&O sustained any loss at all in 1975. The law judge's decision was 16 pages and was supplemented by six appendices totalling 57 pages, including a detailed financial analysis.

On appeal by the B&O, the ICC's Division I reversed. In a seven page decision, Division I accepted the law judge's restated figures but rejected without explanation the law judge's conclusion that those restated figures were insufficient to support the B&O's argument that operating the line caused a financial burden which was more substantial than the impairment of public convenience caused by the abandonment.

Petitioners sought administrative review of the Division I decision. The ICC denied all parties' petitions for administrative review. Petitioners then filed for judicial review of the ICC's decision in this court.

Just prior to the due date for its reply brief, however, the ICC requested a remand of this matter on the grounds that the Division I decision may have contained material error. On January 31, 1979, this court granted the ICC's motion to remand. On remand, the full Commission found that it was unable to decide the matter because the record lacked adequate cost and financial data. The data in the record reflected the financial results of the operation of the line in calendar years 1974, 1975, and the first six months of 1976. The ICC directed the B&O to supplement the information by providing revenue and avoidable cost information for the years 1976, 1977, and 1978. The B&O filed such a supplementary statement. The petitioners appealed the decision to consider this supplemental evidence. The ICC denied those appeals. The petitioners were not afforded the right of cross-examination regarding the supplementary evidence.

On March 3, 1980, the ICC issued its final decision, affirming the June, 1978, decision of Division I granting the abandonment. That ICC decision is the subject of this appeal. The petitioners launch three general arguments against the ICC's final decision. First, petitioners argue that the ICC should not have accepted supplementary evidence for the years 1976-78. Second, petitioners argue that the ICC decision is not supported by substantial evidence in the record and is arbitrary and capricious. Third, petitioners argue that the ICC should have afforded the parties the opportunity for cross-examination regarding the supplementary evidence received. We find that: the ICC properly received the supplementary evidence; the final decision was arbitrary and capricious; and the parties should have been afforded the opportunity for cross-examination.


We begin with the use of supplementary evidence. In an abandonment application, the applicant has the burden of proof to show that abandonment of the rail line is consistent with the present and future public convenience and necessity. 49 U.S.C. § 10904(b) (1978). The petitioners argue that the fact that the ICC was unable to decide the abandonment case on the basis of the 1974-76 data proves, as a matter of law, that the B&O failed to carry its burden of proof.

Petitioners base their argument on two grounds. First, they point out that the ICC's abandonment regulations require the filing of financial results and other evidence for two calendar years prior to the filing of the abandonment application. Second, they argue that financial results of operations after the filing of an abandonment application are inherently nonrepresentative. This second argument is relevant to the weight to be given to the evidence, and is discussed in Part IV of this decision. But even if the evidence is nonrepresentative, we are not persuaded that the ICC cannot, as a matter of law, take additional evidence.

ICC regulations require an applicant for abandonment to submit operating data with regard to the two years prior to the filing of the abandonment application. 49 C.F.R. § 1121.32(c), (d)(2), (4), (5). But nothing in the statute, regulations, or case law prohibits the ICC from requesting and accepting new evidence when, because of the administrative process described above, the evidence before it was three years out of date. Although no case has been cited by the parties which interprets whether the two-year evidence regulation is meant to preclude additional evidence in circumstances similar to the case at bar, 4 it is clear that the IC Act specifically allows the ICC to reopen a rail carrier proceeding or to grant a rehearing "at any time on its own initiative" because of new evidence or substantially changed circumstances. 49 U.S.C. § 10327(g)(1)(1978). Here, since the information regarding the line was three years old, the updated information satisfies either of the requirements of new evidence or substantially changed circumstances.

Furthermore, the Supreme Court has held that reopening of a case for further evidentiary hearing is a matter entrusted to an agency's broad discretion and has declined to interfere with an agency's judgment. See Bowman Transp. v. Arkansas-Best Freight System, 419 U.S. 281, 294-95, 95 S.Ct. 438, 446, 42 L.Ed.2d 447 (1974); American Farm Lines v. Black Ball Freight, 397 U.S. 532, 540-41, 90 S.Ct. 1288, 1293, 25 L.Ed.2d 547 (1970); I.C.C. v. Jersey City, 322 U.S. 503, 516-17, 64 S.Ct. 1129, 1135, 88 L.Ed. 1420 (1944). For the above reasons, we are unable to find the ICC's action in requesting and receiving supplementary evidence was improper.


The petitioners' second argument is actually two arguments: that the ICC's final decision was unsupported by substantial evidence in the record and was arbitrary and capricious. To consider whether we can reach these arguments, we must first determine the appropriate standard of review. See Citizens To Preserve Overton Park v. Volpe, 401 U.S. 402, 413-14, 91 S.Ct. 814, 822, 28 L.Ed.2d 136 (1971). The standards of judicial review are set forth in § 706 of the Administrative Procedure Act ("APA"), 5 U.S.C. § 706, which states that a "reviewing court ... shall hold unlawful and set aside agency action, findings, and conclusions found" not to meet six separate standards. Of these six standards, four apply to...

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