City of South Bend v. Surface Transportation Board

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 19, 2009 Decided May 29, 2009

No. 08-1150

CITY OF SOUTH BEND, IN AND BROTHERS OF HOLY CROSS,

INC.,

PETITIONERS

v.

SURFACE TRANSPORTATION BOARD AND UNITED STATES OF

AMERICA,

RESPONDENTS

CHICAGO, LAKE SHORE & SOUTH BEND RAILWAY,

INTERVENOR

Consolidated with 08-1301

On Petitions for Review of an Order

of the Surface Transportation Board

Richard H. Streeter argued the cause for petitioners.

With him on the briefs were Jeffrey M. Jankowski and

Adrienne U. Wisenberg.

Virginia Strasser, Attorney, Surface Transportation

Board, argued the cause for respondent. With her on the brief

2

were Deborah A. Garza, Acting Assistant Attorney General,

U.S. Department of Justice, Robert B. Nicholson and John P.

Fonte, Attorneys, Ellen D. Hanson, General Counsel, Surface

Transportation Board, and Craig M. Keats, Deputy General

Counsel.

John D. Heffner argued the cause and filed the brief for

intervenor.

Before: SENTELLE, Chief Judge, and GINSBURG and

KAVANAUGH, Circuit Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

Concurring opinion filed by Circuit Judge KAVANAUGH,

in which Chief Judge SENTELLE concurs as to Part I.

GINSBURG, Circuit Judge: The City of South Bend and

the Brothers of the Holy Cross petition for review of orders of

the Surface Transportation Board (1) denying their

application for adverse abandonment of two railroad lines in

South Bend, Indiana, and (2) refusing to reopen the

proceeding. The petitioners argue the Board’s orders were

arbitrary and capricious under the Administrative Procedure

Act. We deny the petitions for review because in both

instances the Board acted reasonably.

I. Background

The Congress has delegated to the Board exclusive

jurisdiction to regulate “transportation by rail carriers” and

“the construction, acquisition, operation, abandonment, or

discontinuance” of rail facilities, see 49 U.S.C. § 10501(b),

with the instruction that the agency “ensure the development

and continuation of a sound rail transportation system,” id. §

3

10101(4). A rail carrier may abandon a line upon its own

petition or that of a third party with a “proper interest,”

Modern Handcraft, Inc., 363 I.C.C. 969, 971 (1981) (adjacent

landowner and transportation authority have standing), “only

if the Board finds that the present or future public

convenience and necessity require or permit the

abandonment,” 49 U.S.C. § 10903(d). Abandonment frees

subservient landowners to exercise reversionary rights in, and

local governments to condemn, the railroad’s right-of-way.

See Hayfield N. R.R. Co. v. Chicago & N.W. Transp. Co., 467

U.S. 622, 633–34 (1984). Because reassembling a right-of-

way may be difficult if not impractical, the Board must,

before authorizing an abandonment, give weight to its

“statutory duty to preserve and promote continued rail

service.” N.Y. Cross Harbor R.R. v. STB, 374 F.3d 1177,

1187 (D.C. Cir. 2004).

In 2006 the petitioners applied for adverse abandonment

of two interconnected short branch rail lines that together run

for 3.7 miles through South Bend. The current owner,

Norfolk Southern Railway Company (NS), has neither

maintained nor used either line. One line serves a coal-fired

power plant on the campus of the University of Notre Dame,

but the University stopped receiving coal by rail in the mid-

1990s. Notre Dame now receives 3,500 truck loads of coal

per year from a transloading facility six miles from campus.

According to the petitioners, there is no evidence Notre Dame

or anyone else is or will be interested in renewed rail service.

Thus, they argued before the Board, the public interest favors

abandonment so the City can construct a sewer system and a

recreational trail through the right-of-way and the Brothers

and the Sisters of the Holy Cross can exercise their

reversionary interests in order to expand their campuses.

4

The Chicago, Lake Shore and South Bend Railway

Company (CLS), a start-up short branch railroad, opposed the

application. CLS hopes to buy the lines from NS and

persuade Notre Dame to resume accepting coal by rail. NS

took no position on the application but explained that, if the

lines are not abandoned, rehabilitating them would be

feasible.

The Board denied the petitioners’ application on the

ground that there is “a reasonable potential for future” use of

the lines. Norfolk S. Ry. Co., No. AB-290 (Sub-No. 286),

2008 WL 391303, slip op. at 3–4, 6–7 (Feb. 13, 2008) (NS I).

The Board acknowledged that, according to an article in the

South Bend Tribune put into the record by the petitioners, the

Executive Vice-President of Notre Dame, John Affleck-

Graves, said that opposition from the city government and

neighborhood residents stood in the way of the University’s

“consider[ing] using rail service again for coal deliveries.”

Id. at 5 n.14. The Board, however, explained that the practice

of transloading coal for daily shipments by truck would not

make economic sense if CLS were to rehabilitate the lines to

restore rail service to the plant. Id. at 4. The Board deemed

the City’s development projects, which could go forward

without the lines being abandoned, and the Brothers’ concern

about the construction cost of rerouting a road in order to

expand the campus, insufficient to outweigh the public

interest in preserving the lines. Id. at 6–7. In sum, because

(a) Notre Dame might in the future, “under appropriate

circumstances,” accept coal by rail, and (b) there was no

substantial countervailing interest in immediate abandonment,

the Board declined to “short-circuit” CLS’s plan to restore rail

service. Id. at 7. At the same time, the Board invited the

5

petitioners to renew their challenge if, after a “reasonable

period of time,” CLS was unable to restore operations. Id.*

Some weeks later the petitioners asked the Board to

reopen the proceeding in light of a letter the Board had

received from Affleck-Graves. The Board, with one member

in dissent, denied the petition, concluding the letter presented

no new information and the petitioners could have solicited a

similar letter earlier. See Norfolk S. Ry. Co., No. AB-290

(Sub-No. 286), 2008 WL 3971092, slip op. at 2–4 (Aug. 26,

2008) (NS II).

II. Analysis

We review the Board’s denial of the petitioners’

application under the highly deferential arbitrary-and-

capricious standard of the APA. See 5 U.S.C. § 706(2)(A);

Cross Harbor, 374 F.3d at 1181; Burlington N. R.R. Co. v.

STB, 114 F.3d 206, 210 (D.C. Cir. 1997); see also Chicago &

N.W. Transp. Co. v. Kalo Brick & Tile Co., 450 U.S. 311, 321

(1981) (Board’s assessment of public convenience and

necessity “entitled to considerable deference”). Here the

Board correctly allocated the burden to the petitioners, see

Cross Harbor, 374 F.3d at 1186, duly balanced the relevant

interests, see id. at 1183, and reasonably determined that

preserving the right-of-way for a time in order to serve

potential future demand outweighed the petitioners’ interest in

immediate abandonment, see Seminole Gulf Ry., No. AB-400

(Sub-No. 4), 2004 WL 2618630, at *4 (STB Nov. 17, 2004);

*

In a simultaneously issued order not here under review, the Board

lifted a stay of CLS’s notice of acquisition exemption, thereby

freeing CLS to acquire the lines if NS decides to sell them. See 49

C.F.R. § 1150.31.

6

Salt Lake City Corp., No. AB-33 (Sub-No. 183), 2002 WL

368014, at *6 (STB Mar. 6, 2002).*

The gravamen of the petition for review is that the record

does not support the Board’s finding “that there is a potential

for renewed rail operations,” NS I, slip op. at 4, because both

Notre Dame’s public statement and NS’s submission indicate

the University has no present interest in receiving coal by rail.

The petitioners point to the statement of Affleck-Graves, as

quoted in the South Bend Tribune, that “[n]ow and in the

foreseeable future, we’ll have our coal delivered by truck.” It

is the Board’s undisputed judgment, however, that “[c]oal can

generally be moved more efficiently by rail than by truck.”

Id. at 4 n.13. Notre Dame’s historical practice of receiving

coal by rail made economic sense, therefore. By implication,

the University’s current practice — receiving, on average,

about 14 truck loads of coal every weekday — is not

economically rational and will be even more inefficient when

the University’s annual demand goes from its current level of

80,000 tons to the 100,000 tons CLS projects, without

contradiction, will be needed “in the near future.” See id. at 4.

CLS asserted, again without contradiction, that rail service

would be cost-effective for Notre Dame’s supplier.** Id.

*

In supplemental briefing requested by the Court, CLS argued the

Congress abrogated the Board’s authority to require adverse

abandonment when it revised the statute in 1995, but we can and do

deny the petition for review without reaching that question. See

Mitchell v. Christopher, 996 F.2d 375, 378 (D.C. Cir. 1993) (“A

defect in an agency’s jurisdiction, after all, does not affect the

subject matter jurisdiction of the ... court”).

**

The petitioners argue the affidavit of CLS’s president, in which

this evidence appeared, is unworthy of consideration because the

information was not confirmed by Notre Dame’s supplier. The

sworn statement was sufficiently reliable, however — especially in

the absence of contradictory evidence — for the Board to take it

7

In the light of this evidence, the Board reasonably found

Notre Dame “might be interested in again receiving coal

shipments by rail directly to its power plant” if, as implied by

the statement of Affleck-Graves recounted in the South Bend

Tribune, political and social pressures diminish in the future.*

Id. at 5 & n.14. The same article thus presented a plausible

explanation — unchallenged by the petitioners — why the

University has yet to resume an economically rational

practice. In sum, the finding of the Board rests upon “such

relevant evidence as a reasonable mind might accept as

adequate to support a conclusion.” Consolo v. FMC, 383 U.S.

607, 620 (1966); cf. EchoStar, 292 F.3d at 753 (agency may

consider reliable hearsay).

The petitioners also argue the Board’s assessment of the

evidence contravenes its precedent, which they imply

forecloses finding substantial evidence of demand if no

shipper has opposed the abandonment. Upon inspection,

however, we see the Board’s precedent requires it to treat

shipper opposition vel non as but one factor in its decision.

Cf. Cross Harbor, 374 F.3d at 1186 (Board generally denies

application if there is evidence of “potential future shippers”);

CSX Corp. & CSX Transp., No. AB-31 (Sub-No. 38), 2002

WL 127074, at *5 (Jan. 28, 2002) (considering before

approving adverse abandonment both whether any shipper

into account in determining whether there was substantial evidence

of “a potential for renewed rail operations.” See EchoStar

Commc’ns Corp. v. FCC, 292 F.3d 749, 753 (D.C. Cir. 2002).

*

The petitioners suggest the paraphrased statement cited by the

agency was unreliable hearsay, but it was they who put the article

into the record as evidence of Notre Dame’s current position. Their

change of position, which smacks of an attempt to “sandbag” the

agency, will not be countenanced by the court. Cf. USAir, Inc. v.

DOT, 969 F.2d 1256, 1260 (D.C. Cir. 1992).

8

had protested and whether shippers would “lose routing

options”).

Lastly in this regard, the petitioners argue the Board

should have deferred to NS’s “business judgment,” see Salt

Lake City Corp., 2002 WL 368014, at *6 (“it would be

inappropriate to substitute our judgment for [the carrier’s]

business judgment”), which they interpret to be that CLS’s

plan is infeasible and not based upon a realistic potential

demand. As the Board read NS’s submission, however, NS

“state[d] that it would not be economically prohibitive to

rehabilitate the [lines].” NS I, slip op. at 5. To be sure, NS

had also stated that “it currently has no ... reason to sell” the

lines to CLS because Notre Dame did not then support CLS’s

plan, Reply of NS at 8 n.6, NS I, but the Board reasonably

inferred that NS would consider selling if Notre Dame

changed its position, see NS I, slip op. at 5 (finding “record

indicates” NS “withdrew from the sale initially” because

Notre Dame “publicly withdrew its support”); NS II, slip op.

at 2 (explaining that in NS I, Board “noted that [NS] remain[s]

willing to sell the [lines] to [CLS]”).

On the other side of the balance, the petitioners argue the

Board underestimated the public interest in abandonment. In

light of the Board’s well-reasoned assessment of the potential

for renewed service, however, we have no cause to disturb the

Board’s equally reasonable determination that the petitioners’

interest in immediate abandonment did not outweigh the

public interest in preserving the lines. See NS I, slip op. at 6–

7; see also Cross Harbor, 374 F.3d at 1182 (Board generally

denies application to abandon line with potential for future

service); W. Stock Show Ass’n, 1 S.T.B. 113, 1996 WL

366394, at *12 (June 12, 1996) (same); Chelsea Prop.

Owners, 8 I.C.C.2d 773, 778 (1992) (same).

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In sum, by denying the petitioners’ application and giving

CLS a “reasonable period of time” to acquire the lines, invest

in rehabilitating them, address local concerns, and pursue

shippers such as Notre Dame or its supplier of coal, NS I, slip

op. at 7, the Board acted reasonably in furtherance of its

“statutory duty to preserve and promote continued rail

service,” Cross Harbor, 374 F.3d at 1187; see Waterloo Ry.

Co., No. AB-124 (Sub-No.2), 2004 WL 941227, at *3 (STB

Apr. 30, 2004) (Board must protect public “against the

unnecessary discontinuance, cessation, interruption, or

obstruction of available rail service”). How long “a

reasonable period of time” may be in this context we leave to

the Board to decide in the first instance.

* * *

The petitioners also challenge as arbitrary and capricious

the Board’s order denying their petition, based upon new

evidence, to reopen the proceeding pursuant to 49 C.F.R. §

1115.4. See ICC v. Bhd. of Locomotive Eng’rs, 482 U.S. 270,

278 (1987) (denial of petition to reopen based upon new

evidence reviewed under arbitrary-and-capricious standard);

Jost v. STB, 194 F.3d 79, 85 (D.C. Cir. 1999) (same). The

petitioners point to the letter the Board received from Affleck-

Graves after issuing its opinion in this case.

The petitioners argue the Board should have reversed its

position in light of the letter, which they claim shows Notre

Dame has a firm intention not to resume receiving coal by

rail. As the Board explained, however, the letter merely

stated more emphatically what the article in the South Bend

Tribune had quoted Affleck-Graves as saying: Notre Dame

has no present plan to use the lines. See NS II, slip op. at 3–4.

The Board reasonably concluded, therefore, the letter did not

10

require it to reverse its determination that there is a reasonable

likelihood Notre Dame’s plans will change. Id. at 4.*

III. Conclusion

Based upon the foregoing, the petitions for review are

Denied.

*

We have considered and found unavailing the petitioners’

remaining arguments, which are sufficiently lacking in merit as not

to warrant consideration in a published opinion.

KAVANAUGH, Circuit Judge, concurring:1 I join the

opinion of the Court and write separately to add two points.

I

First, the premise of the Court’s opinion is that the

relevant statute permits third parties such as the City of South

Bend to file adverse abandonment petitions. But as the owner

of this railroad line has suggested, that premise may be

inaccurate. To be sure, the Surface Transportation Board or

its predecessor, the Interstate Commerce Commission, has

exercised adverse abandonment authority since 1981. It

appears, however, that the statute as amended by the ICC

Termination Act of 1995 may allow only a railroad that owns

the tracks – not a third party – to seek abandonment of a rail

line.2 We need not address that important and difficult

statutory issue in this case because South Bend loses

regardless whether the statute still allows adverse

abandonment. But Congress and the Executive Branch would

be well-advised to promptly clear up the statutory uncertainty

created, perhaps inadvertently, by the 1995 Act.

1

Chief Judge Sentelle joins Part I of this opinion.

2

The language of section 10903(a)(1) of Title 49 seems to

indicate that abandonment can occur only when the railroad files

for it. The provision reads:

A rail carrier providing transportation subject to the

jurisdiction of the Board under this part who intends to—

(A) abandon any part of its railroad lines; or

(B) discontinue the operation of all rail transportation

over any part of its railroad lines,

must file an application relating thereto with the Board. An

abandonment or discontinuance may be carried out only as

authorized under this chapter.

2

II

Second, assuming that third parties may file adverse

abandonment petitions, the Board’s decision to deny the City

of South Bend’s petition in this case barely passes muster –

and does so only because of the significant deference we owe

the Board under the arbitrary and capricious test. Our

deference in applying the arbitrary and capricious standard

has limits, however, and the Board’s action in this case is

bumping up against them. This dormant railroad track has

been a useless eyesore in South Bend for well over a decade.

Measured against the relevant adverse abandonment

precedents, the Board’s authority to continue denying South

Bend’s plea is nearly at an end. In my judgment, if sale of

this inactive line does not occur by the end of 2010, the

“reasonable period of time” allotted by the Board likely will

have expired. Norfolk S. Ry. Co., STB No. AB-290 (Sub-No.

286), slip op. at 7, 2008 WL 391303 (Feb. 13, 2008); see

Modern Handcraft, Inc., 363 I.C.C. 969, 972 (1981) (adverse

abandonment when line unused for 12 years); see also

Consol. Rail Corp. v. ICC, 29 F.3d 706, 709-10 (D.C. Cir.

1994) (adverse abandonment when line unused for about 20

years); Denver & Rio Grande Ry. Historical Found., STB No.

AB-1014, slip op. at 1, 2008 WL 2154898 (May 21, 2008)

(same).