People of the State of Ill. v. I.C.C.

• Decision Date: 12 January 1984
• Docket Number: No. 82-2235,82-2235
• Citation: 722 F.2d 1341
• Parties: PEOPLE OF THE STATE OF ILLINOIS, et al., Petitioners, Mt. Pulaski Products, Inc., Intervening Petitioner, v. INTERSTATE COMMERCE COMMISSION and United States of America, Respondents, Illinois Central Gulf Railroad Company, Intervening Respondent.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1341

722 F.2d 1341

PEOPLE OF THE STATE OF ILLINOIS, et al., Petitioners Mt. Pulaski Products, Inc., Intervening Petitioner, v. INTERSTATE COMMERCE COMMISSION and United States of America Respondents Illinois Central Gulf Railroad Company, Intervening Respondent.

No. 82-2235.

United States Court of Appeals Seventh Circuit.

Argued Sept. 23, 1983.

Decided Dec. 5, 1983.

Rehearing Denied Jan. 12, 1984.

Gordon P. MacDougall, Washington, D.C., David Nixon, Asst. Atty. Gen., Chicago, Ill., for petitioners.

Colleen J. Bombardier, I.C.C., Washington, D.C., Richard M. Kamowski, ICG RR Co., Chicago, Ill., for respondents.

Before CUMMINGS, Chief Judge, POSNER, Circuit Judge, and SWYGERT, Senior Circuit Judge.

POSNER, Circuit Judge.

The Staggers Rail Act of 1980 has placed tight time limits on proceedings before the Interstate Commerce Commission to abandon railroad lines; and the most important issue raised by this petition to review an order of the ICC authorizing the Illinois Central Gulf Railroad to abandon a 31-mile line between Clinton and New Holland, Illinois is whether the Commission, in its zeal to expedite the proceeding, denied the opponents of the abandonment (principally shippers) due process of law.

The Act creates three categories of abandonment: the unprotested application, which the Commission must grant within 45 days; the protested application that the Commission decides not to investigate, in which the Commission has 75 days from the filing of the application to decide whether to authorize abandonment; and the protested application that is investigated, in which an initial decision--one subject to review by the full Commission--is due within 165 days. 49 U.S.C. Secs. 10904(b), (c)(1), (2), (3). As the Act allows only 30 days from the date of the application for protests to be filed, and only 15 days after that for the Commission to decide whether to investigate, 49 U.S.C. Sec. 10904(c)(1), there are only 120 days between the deadline for the Commission to order an investigation and the deadline for the initial decision.

As we explained in Illinois v. ICC, 709 F.2d 1186, 1191 (7th Cir.1983), "investigation" is a misnomer in the abandonment context. It just means a somewhat more elaborate evidentiary process. Instead of the Commission's basing its decision on just the application and the protests, as it does when there is no investigation, when it "investigates" it receives affidavits ("verified statements" in ICC parlance) from the applicant and the protestants and bases its decision on those. In this case the Commission used its "modified" investigative procedure, which means it did not hold an oral hearing. See 49 C.F.R. Secs. 1100.43 et seq.; Anderson, ICC: Practice and Procedure 110-11 (1966). Under this procedure the applicant must put in his opening case (i.e., his affidavits) within 15 days after the Commission has ordered an investigation; the protestants must put in their case within 40 days after the Commission's order; the applicant must put in his reply case within 55 days after the order; and the "parties shall not be permitted to file motions to strike all or part of any evidence submitted." 49 C.F.R. Sec. 1152.25(d)(6).

Within the 120-day statutory limit a review board (the initial decision-maker within the Commission) authorized abandonment, and the protestants then appealed to the full Commission, which upheld (formally, denied the appeal from) the review board in a brief order. The review board had found that the railroad's revenues from the line were dropping steadily, with no prospect for a turnaround; by 1981 they were only $25,000, resulting in operating losses that year of almost $250,000. To these losses the board added another $175,000 representing the income that the railroad would obtain by liquidating the line and reinvesting the assets salvaged from the liquidation. The board also noted that if the line were kept in service the railroad would have to spend hundreds of thousands of dollars rehabilitating it. Although acknowledging that the protesting shippers would be hurt by the abandonment, the board noted that they were all located within a few miles of other rail lines and also could use (and on occasion had used) trucks in lieu of rail to move their shipments. The board concluded that abandonment would be consistent with the public convenience and necessity, the statutory criterion. 49 U.S.C. Sec. 10903(a).

Although the facts found by the board may seem to make a compelling case for abandonment, cf. Chicago & N.W. Transport. Co. Abandonment, 366 I.C.C. 373, 380 (1982), the protestants argue that the factual picture painted by the board is incomplete in important respects. The first relates to operations performed at Lincoln, Illinois. Lincoln is not on the Clinton-New Holland line, but the train that services the line (or rather serviced it, the Commission having refused to stay its order authorizing abandonment pending this review proceeding, although the line remains in place in case we decide to reverse the Commission)--the "Lincoln switcher" as it is called--performs services at Lincoln that generate substantial revenues that the railroad refused to attribute to the Clinton-New Holland line. This was a reasonable decision. The Lincoln switcher will continue to perform those services; it just will not run back and forth between Clinton and New Holland. Revenues unaffected by abandonment are not revenues of the abandoned line.

The second factual issue relates to the alleged labor cost savings from the abandonment. The protestants argue that the railroad's labor contracts will prevent it from laying off the crews who serve the line and that therefore the wages of those crews should not be counted as a cost that will be saved if the line is abandoned. Regarding the only workers as to whom the protestants are still making this contention, the firemen, the board found that the railroad would be able to redeploy them elsewhere on its system, bumping less senior employees if necessary. The board seems to have thought that such a finding was all that was necessary to establish that the crews' wages were a prospective savings from abandonment. It is not. Whether when the dust settles the result of all the bumping will be an actual reduction in the railroad's payroll, and if so by the full amount of the wages of the firemen on the abandoned line, are separate questions from whether bumping will occur--questions not discussed by the board. But the amount of alleged savings that are in dispute is slight--less than $40,000 a year, including fringe benefits and payroll taxes--relative to the railroad's annual losses on the Clinton-New Holland line, which are at least $500,000 when the cost of rehabilitating the line, a cost that would have to be incurred if the line were kept in service, is figured in. Thus, even if the review board exaggerated the savings in firemen's wages, the error was not big enough to affect the board's decision; it was harmless. Cf. Illinois v. ICC, 698 F.2d 868, 876 (7th Cir.1983). (More below on harmless error in administrative proceedings.)

The protestants next complain about the refusal of the board (and of the Commission in reviewing the board) to pay any attention to the railroad's overall financial condition. They submitted as part of their case a magazine article quoting the chairman of the board of directors of IC Industries, the parent of the Illinois Central Gulf Railroad, as having criticized securities analysts' portrayals of the railroad as "financially troubled," and an excerpt from IC Industries' latest annual report, showing that the profits of IC Industries have been rising. The review board, however, held that "The financial condition of IC Industries [the parent] is not in issue in this proceeding. [And] ICG's [the railroad's] overall earnings have no relevance to the issues in this proceeding where the uncontroverted evidence shows that ICG is losing revenues on the line proposed for abandonment."

The protestants argue that the statutory standard of public convenience and necessity requires the Commission to give at least some weight to the overall profitability of a railroad that is asking to be allowed to abandon a line. This is not a frivolous argument. The Supreme Court stated in Colorado v. United States, 271 U.S. 153, 168-69, 46 S.Ct. 452, 456, 70 L.Ed. 878 (1926) (footnote omitted): "In some cases, although the volume of the whole traffic is small, the question is whether abandonment may justly be permitted, in view of the fact that it would subject the communities directly affected to serious injury while continued operation would impose a relatively light burden upon a prosperous carrier." The Court in Southern Ry. v. North Carolina, 376 U.S. 93, 105, 84 S.Ct. 564, 571, 11 L.Ed.2d 541 (1964), quoted this language and added: "In cases falling within the latter category, [i.e., serious injury to communities], such as those involving vital commuter services in large metropolitan areas where the demands of public convenience and necessity are large, it is of course obvious that the Commission would err if it did not give great weight to the ability of the carrier to absorb even large deficits resulting from such services."

These are not isolated statements. They reflect a long and well-documented history of forcing public utilities and common carriers to finance losing operations out of profitable ones--the practice known as "internal subsidization" or "cross-subsidization." See, e.g., Bonbright, Principles of Public Utility Rates 111-12 (1961); Conant, Railroad Mergers and Abandonments 132 (1964); Friedlaender, The Dilemma of Freight Transport Regulation 66-68 (1969); Friedlaender & Spady, Freight Transport Regulation 9-10 (1981); Hilton, The Transportation Act of 1958: A Decade of Experience 136 (1969); Meyer, Peck, Stenason & Zwick, The Economics of Competition in the Transportation Industries...