Appendix — United States v. Chesapeake & Ohio R. Co.

Supreme Court brief1976

Ask Donna

What actually matters in this document.

Text

———

Supreme Court, U. &

- FILED

APPENDIX , JAN g 1976

IN THE

Supreme Court of the United States

OCTOBER TERM, 1975

No. 75-420

UNITED STATES OF AMERICA and

INTERSTATE COMMERCE COMMISSION,

Appellants

_—

THE CHESAPEAKE AND OHIO RAILWAY COMPANY, ET AL.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

DOCKETED SEPTEMBER 16, 1975

PROBABLE JURISDICTION NOTED NOVEMBER 3, 1975

IN THE

Supreme Court of the United States

OCTOBER TERM, 1975

No. 75-420

UNITED STATES OF AMERICA and

INTERSTATE COMMERCE COMMISSION,

Appellants

—_vV—

THE CHESAPEAKE AND OHIO RAILWAY COMPANY, ET AL.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

INDEX!

Page

BRGROURRS GOGTIES GUIBTEID occ cccrcccccccccccsccsscsccccsscssesssccussenssocseossesesecseces 1

= ka ee 4

Motion for temporary restraining order ..........0........00000..000000... 15

Affidavit of J. T. Ford, dated August 16, 1974 0... 17

The opinion of the district court is reprinted as Appendix A

to the Jurisdictional Statement. The judgment of the district court

is reprinted as Appendix B to the Jurisdictional Statement, and

the notice of appeal is reprinted as Appendix C. The relevant or-

ders of the Interstate Commerce Commission are reprinted as Ap-

pendices D through M to the Jurisdictional Statement.

ii INDEX—Continued

Affidavit of James T. Lyon, dated August 16, 1974 _.

Affidavit of C.J. Henry, Jr, dated August 16,1974

Temporary restraining order entered August 18, 1974

Amended complaint

Answer of the United States and the Interstate Commerce

Commission

Motion to dissolve temporary restraining order ............

Memorandum in support of motion to dissolve oe re-

straining order

Affidavit of Edward P. dies dated November 1974

Memorandum in opposition to motion to dissolve the restrain-

ce aa

Affidavit of J. T. Ford, dated euniion 6, ‘1974

Affidavit of J. W. Brent, dated December 1974 .

Affidavit of James T. Lyon, dated December 1974 .

Supplemental affidavit of J. T. Ford, dated December 11,

1974

Affidavit of C. C. Hawk, dated catia 12, 1974 .

Petition of United States Railroads for permission to — a

10 percent increase in freight rates and charges to be ef-

en a SE deeinbandniueiainabibendelechasbanedonnons

Excerpts from Verified Statement No. 1 of W. F. Betts _....

Excerpts from Exhibit B to verified statement No. 1 of W. F.

NII hse sans: ciedenashdentasiens pedamennnemmeamanadmeatimden:

Exhibit G to verified statement No. 1 of W. F. Betts (“AS-

TRO II”)

Verified statement No. 3 of Burton N. | Behling (including ex-

hibit and appendices) . |

Excerpts from verified statement No. 4 of R. R. Manion

Excerpts from statement of position of the Nationa! Indus-

trial Traffic League Fisdadgnadeennesicedaieuadaianisetaditataatod

Excerpts from protest and ewer ° for ; of Pills-

bury Co.

Excerpts from verified statement of Wm. K. Smith on behalf

of General Mills, Inc.

Petition for reconsideration of the Commission's order of

July 22, 1974 ..

131

139

155

165

206

210

214

217

INDEX—Continued

Railroads’ supplemental petition of August 16, 1974, for clari-

fication and modification of the Orders of July 22 and Au-

ee nr

Chessie’s reply dated August 20, 1974, to Railroads’ supple-

RID TIT ncn aceccscscrcencnsececncesentncnccsncectntcssnnmenernnantnnmnreiceninns

Chessie’s Objection, dated August 26, 1974, to the jurisdic-

tion of the Commission to require its appearance at oral

BIUMIGIE, qq... occcenvensnes -ccvsnsesecorcmesccnncnssncneunacsersevesensvensnassecnsassossoess

Quarterly reports filed by Chessie pursuant to the Commis-

Miscellaneous orders of the Interstate Commerce Commission

i i ee 8 ibsnervsconestessisonenencemabiaageaiins

oe BS | ee eee ee

Order of November 4, 1974 ........... AER MEINE rt ein Ea Trek ee

ny a I I, oscar ieiiennieenninmes

ee ee ee SO, imieiedndecaissemabaiiies

Se f”.ldlUDDLll

eee erent

Order of February 28, 1975 ..................--...-cc-sssccsssssseseeseesses

ES EMRE ER ENR santo A PORORA Noe

OE AT ER NOR ee nase

ee ee ek sescesnasoeeieennerenisbananenaaiinn

ONE BEETS Ae Bee nano

OE RESETS RRS Saco ce ane Eamets

Order of March 19, 1976 ............................... Ss a

I I Ts nat seating dnasnabareigenesanieonil

SII scsi asesitesinctsninneioneninniadsnioanséa

Ol I I a. ssaniatahivedubnsindennsannntunnnaneiie

Order of April 29, 19756 ......................... PEAT TNR A Re ie

Order of April 29, 1975 ............. SSA TEI aPtao ett Pee SNe a ae

ES REIT eemenee sence eee tare

Order of June 2, 1975 ..... STAY eae AER ORL RELATES

Order of June 4, 19765 ......................... a a a ae

FE pe RTT re anaes EO add

I el

EES RE RE rales eee a NN remeron

Order of August 4, 1975 ............... i aa ie aS ee

I ee ID Bh I inion aestcetecesessceemesoneneniens

Sn ir i stsvasemivenieds

ey eS -ccesiniademietintiniusaidighidaniin

Order noting probable jurisdiction ........................ eee

233

DOCKET ENTRIES

CA 74-0370-R

DATE PROCEEDINGS

1974

Aug. 15 Complaint, no jury, with request for three-

judge panel, filed.

Aug. 15 Motion for Temporary Restraining Order filed

by pltfs.

Aug. 16 Summonses issued to defts.

Aug. 16 Affidavits of James T. Lyon; C. J. Henry, Jr.;

& J. T. Ford filed by pltfs.

Aug. 16 Pltfs’ List of Authorities, filed.

Aug. 16 IN OPEN COURT: Merhige, J. No OCR Ap-

pearances: Parties by counsel. Matter came on for

hearing on pltf’s motion for a TRO. Arguments of

counsel heard. Motion taken under advisement by

the Court. (36 Mins.)

Aug. 18 TEMPORARY RESTRAINING ORDER to re-

main in force only until three-judge hearing or a

preliminary injunction granted; no bond required

of plitfs’ railroads ent 8-18-74, 7:57 AM, RRM,JR.,

filed. Copies to counsel.

Aug. 19 Notification and Request for Designation of

Three-Judge Court filed.

Aug. 21 Marshal’s Returns on Summons as to each deft.

exec. 8-19-74, filed.

Aug. 23 Designation of Three-Judge Court designating

Judge Butzner; Judge Merhige and Judge Warriner

ent 8-21-74, Chief Judge, Fourth Judicial Circuit,

Hon. Clement F. Haynsworth, Jr., and filed. Copies

mailed counsel and files delivered to Judges.

(1)

DATE | PROCEEDING

1974

Aug. 26 PRE-TRIAL ORDER; pltfs’ opening brief due

within 60 days; reply 30 days after pltfs’ filing;

pitfs’ reply 15 days thereafter; matter set for hear-

ing December 20, 1974, 10 am; ent 8-26-74, RRM,

JR., filed. Copies mailed.

Oct. 9 Amended Complaint filed and summonses issued.

Oct. 11 Marshals return on summons as to all defend-

ants listed executed and filed

Oct. 25 Brief of the Chesapeake and Ohio Railway

Company, The Baltimore and Ohio Railroad Com-

pany and Western Maryland Railway Company filed.

Copies to Judges.

Oct. 29 Joint Answer of U. S. & ICC filed. Copies dis-

tributed to Judges.

Nov. 27 Notice of motion filed by defts.

Motion to dissolve temporary restraining order filed

by defts.

Memorandum in support of motion to dissolve tem-

porary restraining order, filed.

Affidavit of Edward P. Johnson, filed. (Exhibit A

& B)

Joint brief of the U.S. and the Interstate Commerce

Commission, filed.

Dec. 10 Reply Brief of the C&O, B&O and Western

Maryland Railway Company, filed.

Memorandum in opposition to motion to dissolve re-

straining order, with Exhibit A, B & C.., filed. Copies

to Judges Butzner, Merhige and Warriner.

Dec. 16 Suppl. Affidavit of J. T. Ford filed on behalf

of pltfs.

Dec. 13 Affidavit of James T. Lyon filed on behalf of

pitfs.

—————— _ —

—— =

DATE PROCEEDINGS

1974

Dec. 16 Affidavit of J. W. Brent filed on behalf of pltfs.

Dec. 19 Affidavit of C. C. Hawk, filed

Dec. 20 IN OPEN COURT: Butzner, Merhige, Warri-

ner, Judges McCoy, OCR Matter came on for hear-

ing of oral arguments on merits of case. Arguments

of counsel heard. Case taken under advisement by

the Court. Deft’s motion to dissolve TRO heard;

motion taken under advisement by the Court. (1

Hour 38 Mins.)

1975

Apr. 22 Opinion of the Court filed. [23 pgs]

Apr. 22 ORDER enjoing The Commission frm enforc-

ing order of 6-3-74 & 10-3-741 petition for injunc-

tion to restrain Commission frm requiring reports

prescribed by those orders is Denied; action remand-

ed to Commission; ent. Judges of the Panel, 4/22/75,

filed. Copies to counsel. [2 pgs]

June 20 Deft’s Notice of Appeal to USSC filed.

June 30 Order directing Clerk to transmit entire, re-

questing Supreme Court return records on finality

of action, ent’d, filed.

June 30 Entire Case record mailed to Clerk, U.S. Su-

preme Court. (1 Volume)

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Richmond Division

CA 74-0370-R

[Filed Aug. 15, 1974, Clerk, U.S. Dist. Court,

Richmond, Va. ]}

THE CHESAPEAKE AND OHIO RAILWAY COMPANY,

THE BALTIMORE AND OHIO RAILROAD COMPANY

and

WESTERN MARYLAND RAILWAY, PLAINTIFFS,

UNITED STATES OF AMERICA

and

INTERSTATE COMMERCE COMMISSION, DEFENDANTS.

COMPLAINT

(1) Plaintiff, The Chesapeake and Ohio Railway Com-

pany (C&O), is a Virginia corporation and is a carrier

by railroad subject to the provisions of the Interstate

Commerce Act. Plaintiff, The Baltimore and Ohio Rail-

road Company (B&O), is a Maryland corporation and is

a carrier by railroad subject to the provisions of the In-

terstate Commerce Act. Plaintiff, Western Maryland

Railway (Western Maryland), is a Maryland corporation

and is a carrier by railroad subject to the provisions of

the Interstate Commerce Act. Collectively, these three

— are referred to herein as the “Chessie System

ines.”

(2) This is an action to enjoin the enforcement of,

annul and set aside those parts of the orders, served

June 4, July 22 and August 12, 1974, of the Interstate

Commerce Commission in a proceeding known as Ex

Parte No. 305, Nationwide Increase of Ten Percent in

Freight Rates and Charges, 1974, which purport to im-

pose conditions limiting the use of the revenues derived

from such increased rates and charges and requiring cer-

tain reports with respect thereto, insofar as said condi-

tions apply to the Chessie System lines. This action is

brought pursuant to Section 2321 of Title 28 of the

United States Code. Defendant, the Interstate Commerce

Commission (the “Commission”), is an administrative

agency of the United States Government located in Wash-

ington, D. C. The United States of America is named as

a party defendant pursuant to 28 U.S.C. 2322.

(3) The jurisdiction of the Court is conferred under

the provisions of 28 U.S.C. Sections 1336(a), 2284 and

2321-2325, inclusive. Venue is laid in this Court pursuant

to 28 U.S.C. Section 1398(a), inasmuch as the Plaintiff,

C&O, is a corporation organized and existing under laws

of the Commonwealth of Virginia. A three-judge district

court is requested pursuant to 28 U.S.C. 2325 and 2284.

(4) In its order served June 4, 1974, a true copy of

which is attached hereto as Exhibit A, the Commission

expressed its recognition that the nation’s railroads are

in need of additional freight revenues to offset recently

ineurred costs of materials and to provide an improved

level of earnings; and further expressed its recognition

that without the additional revenues to be derived from

increased freight rates and charges, the earnings of the

nation’s railroads would be insufficient to enable them

under honest, economical and efficient management to pro-

vide adequate and efficient railroad transportation serv-

ices consistent with the public interest and the national

transportation policy. The Commission then authorized

such railroads to file schedules containing increased rates

and charges, but subject to the conditions among others

that:

3. Revenues generated by the increase should be

expended for capital improvements and deferred

maintenance of plant and equipment and the amount

needed for increased material and supply cost, other

than fuel. A record of such expenditures shall be

maintained on a monthly basis.

4. At the end of the 3rd, 6th, and 9th months

following the effective date of the increases, each

carrier shall provide this Commission with an esti-

mate of the freight revenues generated by the in-

creases. Additionally, each carrier shall report the

amount of expenditures made for deferred mainte-

nance of plant and equipment, e.g., by type of car,

track, cross ties, ete., as well as amounts expended

for capital improvements by type of project. Fur-

thermore, each carrier shall report the amount of

unexpended funds derived from the authorized in-

creases and how those funds are to be expended.

The June 4, 1974 order imposed no condition requiring

the segregation of such increased revenues, nor did it pro-

vide any definition of the terms “deferred maintenance”

or “capital improvements” as used in condition No. 3

above.

(5) Thereafter, on June 5, 1974, the nation’s railroads

proceeded in good faith to publish the increased sched-

ules, effective June 20, 1974.

(6) Subsequently, by its order served July 22, 1974, a

true copy of which is attached hereto as Exhibit B, the

Commission imposed further conditions to its prior au-

thorization of June 4 which, for the first time, purport to

require segregation of the increased revenues; purport

strictly to limit the use of at least 7 percentage points of

the 10°. authorization to “deferred maintenance” and to

“delayed capital improvements” as defined in the July 22

order (up to 3 percentage points may be applied to in-

creased expense of materials and supplies, except fuel);

and purport to impose certain detailed accounting and

reporting requirements, far broader in scope than those

suggested by condition 4 of the June 4 order, which are

designed to implement the foregoing conditions with re-

spect to the segregation and use of such revenues. Al! of

the purported conditions in the July 22 order, as modified

by the order of August 12 described below, which relate

to such segregation and restricted use of the increased

revenues are hereinafter referred to as the “limiting

conditions,” and all conditions which purport to impose

accounting and reporting requirements with respect

thereto are hereinafter referred to as the “accounting

and reporting conditions.”

(7) The order of July 22 defines deferred maintenance

to be “accrued deterioration” in a railroad’s plant or

equipment which has rendered its services to shippers

“partially or wholly inadequate and/or has resulted in

diminishing the railroads’ competitive ability.” The Ches-

sie System lines’ expenditures for maintenance of plant

and equipment do not in any sense qualify under the

Commission’s definition. Chessie System lines have no

deferred maintenance within the meaning of the term as

used by the Commission. Chessie System lines’ plant and

equipment are kept in regular repair and their mainte-

nance program is adequate to meet the needs of their

shippers considering the volume and frequency of their

shipments. Chessie System lines’ expenditures for capital

improvements likewise also do not qualify under the

Commission’s definition which specifies “delayed” capital

improvements which were “actually planned” but not un-

dertaken because “funding or financing was not available

or projected to be available through June 30, 1975.”

(8) Chessie System lines petitioned the Commission for

reconsideration and amendment of the order of July 22.

Their petition was denied by the Commission’s order

served August 12, 1974, a true copy of which is attached

hereto as Exhibit C; and the Chessie System lines have

exhausted their administrative remedies with respect to

the limiting conditions and to the accounting and report-

ing conditions referred to above. All those provisions of

the Commission’s attached orders in Exhibits A, B and

C which purport to impose such limiting conditions and

parts of such orders which the Chessie System lines in

this action seek to annul, as applied to such lines, and

to enjoin the enforcement of, as applied to such lines. All

such limiting conditions and accounting and reporting

conditions, as applied to Chessie System lines, should be

nullified and declared void by this Honorable Court, and

the enforcement thereof against such lines be temporarily

restrained and thereafter temporarily and permanently

enjoined, for the reasons and upon the grounds which

follow.

(9) The net result of the limiting conditions is that

under the Commission’s definitions of deferred mainte-

nance and delayed capital improvements, the Chessie Sys-

tem lines will be unable to apply any of the increased

revenues derived from the Ex Parte No. 305 proceeding

(other than those earmarked for increased material and

supply costs) to any projects now scheduled or which

may be scheduled in the foreseeable future. No worth-

while project on Chessie System lines designed to im-

prove its transportation service to the shipping public

has ever been deferred because financing or funding was

not available. None will be as long as the Chessie Sys-

tem lines’ earnings are at levels adequate enough to

attract capital. Chessie System lines have never stinted

in their expenditures to provide adequate and efficient

transportation service to their customers.

(10) On May 13, 1974, the respective Boards of Direc-

tors of The Baltimore and Ohio Railroad Company and

The Chesapeake and Ohio Railway Company authorized

massive capital expenditure programs totaling $78,874,143

for the B&O and $45,014,426 for C&O, a grand total of

. $123,888,569. The programs include, among other things,

the acquisition by B&O of 3,000 100-ton hopper cars and

62 3,000-horsepower 4-axle general purpose diesel locomo-

tives. C&O is to acquire an additional 2,000 100-ton hop-

per cars and 10 3,000-horsepower diesel locomotives.

Chessie System lines have an adequate car supply and

other facilities for hitherto normal levels of traffic—i.e..

levels in existence prior to the onset of the energy crisis.

The acquisition of the additional equipment mentioned

above is necessary to meet very substantial increases in

coal production at C&O B&O origin mines which have

just opened or which will open in the future. Starting in

June, 1974, a total of 55 new mines began to come on

line at C&O/B&O origin points. This is new traffic for

which, until now, there have been no equipment needs.

The total production of these new mines will exceed 28

million tons annually. Twenty of the total group of 55

new mines have already begun production.

(11) The commitment to acquire the new equipment

was made, of course, in anticipation that Chessie System

lines’ earnings would be at levels sufficient to support the

programs. The Boards acted with full assurance from

management that the necessary financing would be forth-

coming. They would not have approved the program

without such assurances, for Boards do not act on pro-

grams of this magnitude on the basis of contingencies. It

should be noted further that the commitments by the

Boards were made after the filing of the railroads’ peti-

tion of April 22, 1974 which initiated Ex Parte No. 305.

However, under the Commission’s definition, these signifi-

cant expenditures do not qualify because the program had

not been deferred because funding or financing was not

available.

(12) On June 17, 1974, the respective Boards of

Directors of the B&O and C&O authorized additional

capital expenditures totaling $25,427,995 for B&O and

$19,547,995 for C&O covering the acquisition of addi-

tional new equipment. These, too, would not qualify un-

der the Commission’s definition because the projects can-

not be said to have been deferred for the reason that

funding or financing was not available. These are new

projects designed to handle new traffic.

(13) As previously stated, Chessie System lines have

never lacked financing for those capital expenditures

which they deemed necessary to provide adequate and

efficient transportation service for their customers. Their

customers have not suffered because the System had to

defer needed capital improvements and this fortunate cir-

cumstance will continue as long as Chessie System lines’

earnings are adequate enough to attract capital.

(14) The May and June Board actions described above

tell only part of the story. Chessie System lines’ total

planned capital expenditures are $300 million. This sum

will be used to purchase 72 diese! locomotives, 10,000

coal cars and 2,714 merchandise cars, Considering the

rapidly rising prices of steel and other materials, the

final sum expended will be well in excess of $300 million.

Further, since coal tonnage on the Chessie System lines is

growing at a pace faster than that of other major coal

hauling railroads, significant additional equipment au-

thorizations can be expected. Chessie System knows of

no project now in planning on its system included in the

$300 million program which it would have to defer be-

cause financing or funding is not available. With Chessie

System’s credit rating and assuming earnings are ade-

quate, funds will be forihcoming for capital improve-

ments albeit at extremely high interest rates.

(15) Chessie System lines committed in May and June,

1974, a total of $168,864,559 in expenditures for capital

improvements—a sum far in excess of the revenues it

expected to receive from Ex Parte No. 305. Unless they

are permitted to apply these additional revenues to their

May and June commitments and to the other commit-

ments they have made in the total $300 million program,

they will be unable to make use of these revenues. Such

revenues will simply lie dormant in a sterile, segregated

account which will result in several serious consequences

both to Chessie System lines and the shipping public.

(16) First, it places Chessie System at a distinct com-

petitive disadvantage vis-a-vis other railroads. which for

one reason or another have deferred maintenance or de-

layed capital improvements within the meaning of the

Commission's order. These lines will be able to use the

additional revenues to buy cars and other equipment while

Chessie System's money will lie fallow. In effect, the

order penalizes Chessie System and other efficient carriers

and rewards only those railroads which are inefficient, in

direct contravention of the national transportation policy

(49 U.S.C., preceding s.1) which Congress has provided

for the Commission's explicit direction in administering

the Interstate Commerce Act, and in direct contravention

of Section 15a(2) of the Act itself (49 U.S.C. 15a(2)).

For this reason alone the Chessie System lines will suffer

irreparable damage unless the temporary restraining

order and other injunctive relief prayed for herein are

granted by this Honorable Court. Absent such relief, the

Chessie System lines will suffer further irreparable dam-

age by reason of the fact that they will be required to

pay Federal income taxes, at a rate of 48%, on the

sterile “income” in the segregated account prescribed by

the limiting conditions and by the accounting and report-

ing conditions.

(17) The limiting conditions also penalized Chessie

System lines’ customers. They must pay increased freight

rates which Chessie System lines may not use, in turn, to

make improvements in plant and equipment for their

benefit. They are, in effect, paying something for noth-

ing. This is inflation at its worst, and is squarely at cross

purposes with the national transportation policy and the

laudable objectives of the Interstate Commerce Act, and

in fact, inconsistent with the clear intention expressed by

the Commission itself in its original order of June 4,

1974.

(18) Moreover, the order of June 4, 1974 authorizing

the 10° increase is silent as to the fate of unusable

funds. As a result, the order as it now stands requires

that the segregated funds remain forever frozen and

unusable. This result is in no one’s interest, neither that

of Chessie System lines, nor more importantly, that of

the shippers who are paying the higher charges.

(19) Insofar as the Chessie System lines are concerned,

the Commission clearly exceeded its Statutory authority

by conditioning the use to which the revenues derived

from Ex Parte No. 305 might be applied. There is no

evidence of record in the proceeding before the Commis-

sion that could support a finding that, as applied to the

Chessie System lines, the increases in rates and charges

would be unjust and unreasonable without the imposition

of the limiting conditions. Thus such purported limiting

conditions, as applied to the Chessie System lines, are

void and of no force and effect.

(20) In view of the foregoing, the limiting conditions

are unlawful as applied to the Chessie System lines and

should be set aside for the reasons and upon the grounds

that—

(a) there is no warrant in law and fact for such

conditions;

(b) there is no rational basis for, or statutory

authority for, the Commission’s action in imposing

such conditions;

denial of due process of law;

(d) the imposition of such conditions violates the

public policy of the United States as prescribed by

Congress in the national transportation policy, and

is in violation of the Interstate Commerce Act;

(e) the imposition of such conditions is arbitrary,

capricious, discriminatory and an abuse of the Com-

mission’s discretion; and

(f) the imposition of such conditions is unsup-

ported by any evidence of record, substantial or

otherwise.

(21) The accounting and reporting conditions, which

have no purpose except to implement the unlawful limit-

ing conditions, also are subject to each of the legal in-

firmities enumerated in paragraph 2v, and are therefore

unlawful as applied to the Chessie System lines.

(22) If the relief prayed for in this action is granted,

the Chessie System lines will then be able to apply the

increased revenues to their capital improvement program

described and cash from such revenues could then be

included in working capital, thus increasing the bond

ratings of the Chessie System lines and enabling them

to borrow money for improvements at lower rates of

interest.

WHEREFORE, Plaintiffs respectfully pray:

(1) That a court of three judges be constituted and

> ng pursuant to 28 U.S.C. 2284 and 2321-2325, in-

clusive.

(2) That in accordance with 28 U.S.C. 2284(3) the

operation and effect of the limiting conditions and the

accounting and reporting conditions, as applied to Plain-

tiffs, be temporarily restrained until a hearing and deter-

mination by the full three-judge court.

(3) That the court of three judges issue an interlocu-

tory injunction staying and suspending the operation and

effect of said limiting conditions and accounting and re-

porting conditions, as applied to Plaintiffs, pending final

hearing and determination of this suit.

(4) That the court of three judges, upon final hearing

of this suit, enter a decree permanently enjoining, setting

aside and annulling the said limiting conditions and ac-

counting and reporting conditions, as applied to Plaintiffs.

(5) That the court grant such other and further relief

as it may deem fit and proper and as equity may require.

THE CHESAPEAKE AND OHIO

RAILWAY COMPANY

THE BALTIMORE AND OHIO

RAILROAD COMPANY

WESTERN MARYLAND RAILWAY

Counsel

Doyle S. Morris

Charles C. Rettberg, Jr.

3100 Terminal Tower

Cleveland, Ohio 44101

George D. Gibson

E. Milton Farley, III

T. S. Ellis, III

Hunton, Williams, Gay & Gibson

Post Office Box 1535

Richmond, Virginia 23212

Of Counsel

COMMONWEALTH OF VIRGINIA _ )

) Towit:

CITY OF RICHMOND )

I, J. T. Ford, being duly sworn say that I am Senior

Vice President of The Chesapeake and Ohio Railway

Company, The Baltimore and Ohio Railroad C ompany

and Western Maryland Railway, and that the allegations

of the foregoing Complaint are true to the best of my

knowledge, information and belief.

s’ J. T. Ford

J. T. Forp

Taken, sworn to and subscribed before me, a Notary

Public in and for the jurisdiction aforesaid, in my juris-

diction aforesaid this 15th day of August, 1974.

Mv commission expires: 4/22/78.

/s’ Deborah P. Ussery

Notary Public

[ Appendices omitted. }

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Richmond Division

THE CHESAPEAKE AND OHIO RAILWAY COMPANY,

THE BALTIMORE AND OHIO RAILROAD COMPANY,

and

WESTERN MARYLAND RAILWAY, PLAINTIFFS

UNITED STATES OF AMERICA,

and

INTERSTATE COMMERCE COMMISSION, DEFENDANTS

MOTION FOR TEMPORARY

RESTRAINING ORDER

Plaintiffs, the Chesapeake and Ohio Railroad Company,

The Baltimore and Ohio Railroad Company and the

Western Maryland Railway, by counsel, move the Court

pursuant to Section 2284(3), United States Code and

Rule 65(b), Fed. R. Civ. P., for the entry of a tempor-

ary Restraining Order restraining the enforcement, op-

eration or execution of certain limiting conditions on the

use of plaintiffs’ revenues and of certain reporting condi-

tions included in Orders issued by the Interstate Com-

merce Commission served June 4, July 22 and August

12, 1974 in a proceeding known as Ex Parte No. 205,

Nationwide Increase of Ten Percent in Freight Rates

and Charges, 1974, pending hearing and determination

of plaintiffs’ Complaint on the ground that immediate

and irreparable injury, loss and damage will result to

plaintiffs as more fully appears from a copy of the veri-

fied Complaint attached hereto, which Complaint is being

filed simultaneously with this Motion.

This Motion is also supported by the attached Memor-

andum in Support of Plaintiffs’ Motion for a Temporary

Restraining Order and by the Certificate of the under-

signed showing that a reasonable effort has been made

to give notice of this Motion to the United States De-

partment of Justice, to the General Counsel of the Inter-

state Commerce Commission and to the United States

Attorney for the Eastern District of Virginia, Richmond

Division.

THE CHESAPEAKE AND OHIO

RAILWAY COMPANY

THE BALTIMORE AND OHIO

RAILROAD COMPANY

WESTERN MARYLAND RAILWAY

Counsel

Doyle S. Morris

Charles C. Rettberg, Jr.

3100 Terminal Tower

Cleveland, Ohio 44101

George D. Gibson

FE. Milton Farley, III

T. S. Ellis, II

Hunton, Williams, Gay & Gibson

Post Office Box 1535

Richmond, Virginia 23212

Of Counsel

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Richmond Division

Civil Action No. 74-0370-R

THE CHESAPEAKE AND OHIO RAILWAY COMPANY,

THE BALTIMORE AND OHIO RAILROAD COMPANY,

and

WESTERN MARYLAND RAILWAY, PLAINTIFFS

Vv.

UNITED STATES OF AMERICA,

and

INTERSTATE COMMERCE COMMISSION, DEFENDANTS

AFFIDAVIT OF J. T. FORD

COMMONWEALTH OF VIRGINIA )

) To-wit:

City OF RICHMOND )

J. T. Ford, being first duly sworn, hereby deposes and

says that:

(1) I am Senior Vice President for each of the plain-

tiff railroad companies. I have held positions of responsi-

bility since 1963 in the financial departments of one or

more of the plaintiff railroads, hereinafter referred to

collectively as the “Chessie System lines.” More recently,

in July, 1974, I was made Senior Vice President of each

of the plaintiff companies, retaining, however, overall re-

sponsibility for the administration of the financial de-

partments.

(2) I am familiar with all of the steps taken by plain-

tiff railroads, and the railroad industry in general, in con-

nection with the proceeding known as Ex Parte No. 305,

Nationwide Increase of Ten Percent in Freight Rates and

Charges, 1974, and the controversy which has evolved as

the Interstate Commerce Commission attempts in that

proceeding to attach conditions to its authorization for in-

creased revenue, which conditions would, as applied to

plaintiffs, prohibit the use of such increased revenues and

which would also impose unreasonably burdensome ac-

counting and reporting requirements.

(3' The purposes of this Affidavit are twofold. First,

to demonstrate that, unless this Honorable Court grants

the pending motion of the plaintiff railroad companies for

an order which would temporarily restrain the operation

and effect of the limiting conditions and accounting and

reporting cenditions described in the Complaint, plaintiff

railroad companies and the shipping publie which utilizes

their services will suffer irreparable damage. Second, to

demonstrate that there is a likelihood that plaintiff rail-

roads will prevail on the merits in this suit.

_ (4) The net effect of the Commission-imposed condi-

tions which are attacked in the plaintiffs’ Complaint

which Complaint I have verified on the basis of my own

personal knowledge, is to freeze and isolate the increased

freight revenues derived from Ex Parte No. 305, in a

special segregated account with the result that the plain-

tiff railroads are unable to use such revenues for the

very purpose intended by the Commission in its order of

June 4, 1974, namely, that such newly generated revenues

should be committed for improvements in the railroads’

plant, equipment and service. As a consequence, the tens

of thousands of shippers who utilize the services of the

Chessie System lines, and who are in fact paying to

those lines these increased charges are deprived of any of

the benefits which would flow from the use of these reve-

nues,

(5! While the Chessie System lines have no “deferred

maintenance” nor “delayed capital improvements” for

which the increased revenues may be used, they nonethe-

less have a compelling need for increased earnings to

provide financing, for capital improvements and equi -

ment, in order to handle the significant increases in traf.

fie levels which they have recently experienced.

(6) The magnitude of the Chessie System lines’ pro-

gram for capital improvements is described in the Com-

plaint and will not be presented in further detail in this

Affidavit. Suffice it to say that such program extends

already in total to roundly $300,000,000, and all of the

indicators we use every day tell us that this amount

must be substantially increased in the near future.

(7) The planning of the necessary financing to imple-

ment this huge capital program is my responsibility and

my abiding daily concern. Our plans, until we learned

of the unexpected limiting conditions first advanced in

the Commission’s order of July 22, 1974, were to use the

newly generated revenues derived from the Ex Parte

No. 305 authorization as a basic foundation for such

financing. But, the limiting conditions described in the

Complaint and under attack in this proceeding will com-

pletely frustrate plaintiffs’ plans to finance their capital

improvement program through the use of the Ex Parte

No. 305 revenues. Thus, the continued enforcement of

these limiting conditions will result in increased financing

costs to the immediate, irreparable damage of plaintiff

railroads.

(8) By way of illustrating the kind of increased fi-

nancing costs which stem directly from the limiting con-

ditions imposed in Ex Parte No. 305, I should like to

cite the fact that the plaintiff railroads now have a need

for $15,000,000 to be used for the purpose of acquiring

the steel necessary for the first 2,000 car lot of the car

building program in our shops. If the Ex Parte No. 305

revenues are not available to pay for this steel, then the

plaintiff railroads will be required to borrow funds for

this purpose at today’s high interest rates, thus irrep-

arably damaging plaintiff railroads and the public they

serve.

By contrast, if the Ex Parte No. 305 revenues were

available, plaintiff railroads could finance the acquisi-

tion of the materials by using internal funds without hav-

ing the cash position of the plaintiff railroads impaired or

paying exorbitant interest rates. However, under the

limiting conditions of this order the funds generated by

Ex Parte No. 305 cannot be used to finance the acqui-

sition of these car construction materials. When this

dilemma is viewed in the context of our overall improve-

ment program, the unmistakable result will be a very

substantial increase in the cost of that program, $25,000

a month for each lot of 2,000 hopper cars. Our present

program contemplates construction of 10,000 hopper

cars. The continued imposition of the limiting condi-

tions during the pendency of the entire program will re-

sult in irreparable damage at the rate of $125,000 a

month.

(9) As yet another illustration of the irreparable dam-

ages flowing from the order, the limiting conditions ab-

solutely prohibit any railroad from using investment

credit leasing as a financing method even for those proj-

ects which meet the criteria outlined in the order. This

is so because of the language in the order dated July

22, 1974 which states that only those improvements which

are capitalizable under the Commission’s accounting regu-

lations can be acquired with Ex Parte No. 305 funds.

Thus, each day these limiting conditions remain in ef-

fect, plaintiff railroads are denied use of certain finane-

ing methods, all of which is to the immediate irreparable

detriment of plaintiff railroads, their customers and the

public.

(10) Yet another element of the irreparable damage

flowing from the imposition of the limiting conditions is

found in the difficulties of financing roundly $21,000,000

for 72 diesel locomotives, delivery of which is expected

to start in December of 1974. Arrangements for this

financing must be made within weeks. Without the use

of the Ex Parte No. 305 revenues, the increased cost to

our system lines in financing the acquisition of these loco-

motives will range from $26,000 to $52,000 per year

for each of the fifteen years of the financing agreement.

If the limiting conditions are not promptly lifted, plain-

tiff railroads will be forced to incur these additional

costs, which costs can never be recovered.

(11) The overall adverse impact upon the plaintiff

railroads and the public caused by the inability to use

the newly generated Ex Parte No. 305 revenues can

be most readily illustrated when it is considered that

these frozen revenues total $500,000 for each and every

; ; (250 days) per year. These are revenues paid

pecs A daily a customers, but for which the

customers receive nothing in return. This is clearly ir-

reparable damage to the public, for the inescapable rea-

son that the public is receiving nothing for the addi-

tional money which it is paying to the plaintiff railroads.

If the proceeding now before this Honorable Court should

extend over six months, then, at the rate of $500,000

for each and every working day the total irreparable

damage to the Chessie System lines and their customers

will be $60,000,000. i

(12) In the course of my duties as the chief financial

officer of the plaintiff companies, I am in close touch

with leading financial analysts, investment bankers, and

ethers in the financial community who maintain continu-

ing surveillance of our affairs in order that they may

advise their clients and customers as to the standing,

worth and value of the credit of the plaintiff railroads.

I know, based upon my experience, that unless this Hon-

orable Court grants the temporary restraining order re-

quested of it. thus permitting the plaintiff railroads to

use the newly generated Ex Parte No. 305 revenues, the

investment community will reassess the financial situation

of the plaintiff companies. Such reassessment can have

only one result, namely to place the credit standing of

the plaintiffs under adverse pressure. And the irony of

all this is that, while the limiting conditions provide no

benefit to anyone, the adverse effect of these limiting

conditions could not come at a worse time for the plain-

tiff railroads in view of their need to finance the huge

investment program described in the Complaint. This

situation is manifestly injurious to the public interest,

and constitutes irreparable damage in every sense.

J. T. Ford

J. T. Forp

Taken, sworn to and subscribed before

ken, : me, a Notary

Public in and for the jurisdiction aforesaid, in ni ponarse

diction aforesaid this 16th day of August, 1974.

My commission expires April 22, 1978.

s, Deborah P. Ussery

Notary Public

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Richmond Division

Civil Action No. 74-0370-R

THE CHESAPEAKE AND OHIO RAILWAY COMPANY,

THE BALTIMORE AND OHIO RAILROAD COMPANY,

and

WESTERN MARYLAND RAILWAY, PLAINTIFFS

Vv.

UNITED STATES OF AMERICA,

and

INTERSTATE COMMERCE COMMISSION, DEFENDANTS

AFFIDAVIT OF JAMES T. LYON

COMMONWEALTH OF VIRGINIA )

) Towit:

CiITy OF RICHMOND )

James T. Lyon, being first duly sworn, hereby deposes

and says that:

(1) I am Assistant Vice President—Taxes for each of

the plaintiff railroad companies, hereinafter referred to

collectively as the “Chessie System lines.” I have held po-

sitions of responsibility with respect to tax matters since

1962 with one or more of the plaintiff railroads.

(2) Iam a graduate of the University of Chicago Law

School and I have been a member of the Bars of the Dis-

trict of Columbia and Montana since 1948. I have also

been a member of the Bar of the Supreme Court of the

United States since 1955.

(3) The limiting conditions imposed by the Commis-

sion’s orders of June 4, July 22 and August 12, 1974

prohibit Chessie System lines from using any revenues

collected as a result of the 10% rate increase while, at

the same time, causing their state tax burden to increase

substantially.

(4) Chessie System lines are required to charge their

customers the new higher rates authorized in Ex Parte

305. In charging these higher rates, Chessie System

lines incur very substantial additional federal and state

tax liabilities. Paragraph 1b.1 of Appendix 1 to the

Commission’s order dated July 22, 1974 permits Chessie

System lines to use Ex Parte 305 funds in connection

with the federal and state tax liabilities attributable to

the higher revenues only with respect to state and federal

income taxes. Thus, while Chessie System lines can use

Ex Parte 305 funds to pay the increased income tax

liabilities attributable to those funds, they are denied

access to these funds to pay the substantially increased

State gross receipts taxes, franchise taxes and property

taxes attributable to these funds. Since Chessie System

lines are daily incurring these substantial tax liabilities.

the result of the limiting conditions is serious, immediate

irreparable damage to Chessie System lines, its customers

and the public.

(5) State gross receipts taxes and franchise taxes

clearly are not income taxes payable out of the segre-

gated fund, but their amount will increase as revenue

increases. Gross recepits and franchise taxes on $120,-

000,000 a year of increased revenues would amount to

$230,000 a year, or $19,000 a month.

(6) State property taxes on railway property—the

so-called “ad valorem” taxes clearly are not payable out

of the segregated fund. In nearly all states in which

the Chessie System lines operate, property taxes are

based on a single statewide assessed value. The assessed

value is derived from an average of the values computed

by one, two, or three methods of valuation. Of these

methods, the one given the greatest weight by the Chessie

System states is a capitalization of the five-year average

of gross income or net railway operating income or both.

The income figures are taken from the annual reports

filed by each railroad with the Interstate Commerce Com-

mission. The result is that the increase in revenues at-

tributable to Ex Parte 305 will increase state property

taxes in each of the five succeeding years. | Despite this,

Chessie System lines are prohibited from using the frozen

funds to defray the increased tax liability attribucable

to such funds. This increased tax liability is being in-

‘eurred daily by the Chessie System lines and is irrever-

sible because the increased revenues must be recorded in

the railroads’ accounts in accordance with the Commis-

sion’s rules and cannot thereafter be changed or modified

in any way.

7 7 . While the amount of increase in property taxes

cannot be calculated precisely (because of rate varia-

tions over the five-year future period involved, differences

in the various state assessment formulas, and the like),

its magnitude can be estimated from the fact that the

Chessie System railroads paid $17.6 million of property

taxes for the year 1973. As a matter of informed judg-

ment, a ten percent increase in revenues should produce a

two to three percent increase in property taxes. This

means that the increased revenues should result in an

increase of $350,000 to $520,000 a year in property

taxcs, or $30,000 to $45,000 a month.

/s/ James T. Lyon

JAMES T. LYON

Taken, sworn to and subscribed before me, a Notary

Public in and for the jurisdiction aforesaid, in my juris-

diction aforesaid this 16th day of August, 1974.

My commission expires April 22, 1978.

/s/ Deborah P. Ussery

Notary Public

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Richmond Division

Civil Action No. 74-0370-R

THE CHESAPEAKE AND OHIO RAILWAY COMPANY,

THE BALTIMORE AND OHIO RAILROAD COMPANY,

and

WESTERN MARYLAND RAILWAY, PLAINTIFFS

UNITED STATES OF AMERICA,

and

INTERSTATE COMMERCE COMMISSION, DEFENDANTS

AFFIDAVIT OF C. J. HENRY, JR.

COMMONWEALTH OF VIRGINIA)

) To-wit:

City OF RICHMOND )

C. J. Henry, Jr., being first duly sworn, hereby deposes

and says that:

(1) I am Vice President, Pricing, for each of the

plaintiff railroad companies. Since 1961, I have held

positions of responsibility in the marketing and pricing

area of one or more of the plaintiff railroads, herein-

after referred to collectively as the “Chessie System

lines.” As Vice President, Pricing, my duties include

determination of the rate levels which the companies

shall publish with respect to their merchandise traffic.

(2) The Commission granted the 10° increase in Ex

Parte No. 305, but imposed limiting conditions which

make it impossible for the Chessie System lines to use

any of the revenues whatsoever in the conduct of their

business. We are left with a sterile, useless fund, while

our competitors, who do have deferred maintenance and

delayed capital improvements under the definition of the

Commission’s order, are able to use the proceeds of the

increase accruing to them to improve their roadway and

augment their equipment fleets. Instead of obtaining

the means to strengthen our own railroad to give better

service, we have had a severe disadvantage imposed upon

us compared with other railroads with which we compete.

(3) We are in the position of collecting increased rates

from our customers, but are prevented from using the

proceeds to make improvements in plant and equipment

for their benefit. The conditions attached to the increase

effectively prevent the Chessie System from using the

funds for the basic purpose for which they were au-

thorized.

(4) We are in the position, in effect, of reporting

phantom earnings. These are amounts which are shown

as net earnings and taxable as such, but which cannot

be used as working capital, and indeed cannot be utilized

for any corporate purpose. This situation will signifi-

cantly disadvantage us in negotiations with labor orga-

nizations, in our ordinary pricing negotiations with cus-

tomers and in negotiations with our suppliers. Any

enforced continuation of these limiting conditions will

cause immediate irreparable damage.

(5) Plaintiff railroads suffer irreparable damage every

day this situation continues in that they are subject, as

in the case of all general rate increases, to losses of

traffic, but which in this instance are not offset by the

benefits of the rate increase. In weighing the advantages

of seeking a general freight rate increase in this case

as well as in past proceedings we must always con-

sider the possibility that the increased rate levels will

drive some of our shippers to other modes of common

carrier transportation such as trucks or barges or to

private carriage in their own equipment. In many cases

such losses in traffic represent business gone forever

particularly where a shipper turns to private carriage

and commits himself to the capital outlays necessary to

acquire the necessary equipment. In these instances it is

impossible to recoup such traffic for the railroad by any

subsequent rate adjustment, as the shipper, having made

a large capital outlay, is compelled by the economics of

the situation to continue his private operation.

(6) However, now faced with being unable to use the

funds derived from the Ex Parte No. 305 increase, the

lost traffic takes on a different complexion. Chessie will

lose traffic and revenue without the offsetting benefit of

the increased revenues from the traffic which will be re-

tained. Ali such traffic losses will have an adverse effect

upon Chessie Systems’ real earnings.

(7) It is impossible to determine at this time the

quantity of traffic diversion that will occur or the dollar

loss to Chessie System by reason of the increase, but I

do know that losses of specific traffic have resulted from

every previous general rate increase. In past proceed-

ings, however, this traffic loss was far more than offset

by the resulting increase in our overall earnings. Such

is not the case here. Chessie System lines suffer and will

continue to suffer daily losses in terms of real earnings

because of the limiting conditions.

(8) In summary, rate increases invariably result in

some degree of permanent diversion as shippers resort

to private carriage. Ordinarily the permanent diversions

caused by rate increases are more than offset by the

increased revenues available to the railroads. In this in-

stance, however, no such offset is available as the con-

ditions discriminatorily prohibit plaintiff railroads from

making any use of the funds which are earmarked only

for delayed capital expenditures or deferred maintenance.

Unlike other railroads, the plaintiffs receive no benefit

from the increase and indeed, are prejudiced thereby.

They will not enjoy the use of the money because of their

forethought in keeping their plant and equipment up to

adequate levels. Unless this Honorable Court. grants

immediate relief, plaintiff railroads will not be able to

use the segregated funds but will suffer from diversion

of a portion of their traffic to their irreparable damage.

/s/ C. J. Henry, Jr.

C. J. HENRY, JR.

Piticiases es

Taken, sworn to and subscribed before me, a Notary

Public in and for the jurisdiction aforesaid, in my juris-

diction aforesaid this 16th day of August, 1974.

My commission expires April 22, 1978.

/s/ [{Ilegible]

Notary Public

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Richmond Division

C. A. 74-0370-R

| Filed Aug. 18, 1974, Clerk, U. S. Dist. Court,

Richmond, Va. |

THE CHESAPEAKE AND OHIO RAILWAY COMPANY,

THE BALTIMORE AND OHIO RAILROAD COMPANY,

and

WESTERN MARYLAND RAILWAY, PLAINTIFFS

UNITED STATES OF AMERICA,

and

INTERSTATE COMMERCE COMMISSION, DEFENDANTS

TEMPORARY RESTRAINING ORDER

This day came the parties, plaintiff railroads, The

Chesapeake and Ohio Railway Company, the Baltimore

and Ohio Railroad Company and Western Maryland

Railway, by counsel, the Interstate Commerce Commis-

sion, by counsel, and the United States, by counsel, pur-

suant to plaintiff railroads’ Motion for a Temporary

Restraining Order and verified Complaint filed on August

15, 1974, seeking to restrain the enforcement of certain

limiting conditions on the use of plaintiffs’ revenues and

of certain reporting conditions included in Orders issued

by the Interstate Commerce Commission served June 4,

July 22 and August 12, 1974, in a proceeding known as

Ex Parte No. 305, Nationwide Increase of Ten Percent

in Freight Rates and Charges, 1974. A hearing was held

before this Court on August 16, 1974, on oral notice to

defendants and on the basis of oral argument by counsel,

the verified Complaint and the affidavits of Messrs. Ford,

Henry and Lyon the Court finds that irreparable damage

will result to plaintiff railroads in the following respects

unless the defendants are restrained from enforcing the

limiting conditions referred to above. The Court also

finds that:

(1) By Orders dated June 4, July 22 and August 12,

1974, in a proceeding entitled Ex Parte No. 305, Nation-

wide Increase of Ten Percent in Freight Rates and

Charges, 1974, the Interstate Commerce Commission au-

thorized the nation’s railroads to publish a general in-

crease in freight rates of 10% subject to certain terms

and conditions and accounting and reporting require-

ments delineated in those Orders. The plaintiff railroads,

hereinafter sometimes referred to as Chessie System

lines, participated in the request for a 10% rate increase

and upon receiving the Commission’s Order of July 22,

1974, which for the first time specifically defined the

uses to which the increased revenues generated by the

Ex Parte No. 305 authorization could be put petitioned

the Commission for reconsideration requesting that they

be allowed to use the increased revenues for any valid

corporate purposes. The petition for reconsideration was

denied by the Commission’s order of August 12, 1974,

and the plaintiffs thereby exhausted their administrative

remedies and brought this suit.

(2) The limitations placed upon the use of the Ex

Parte No. 305 revenues in the Commission’s Orders,

hereinafter referred to as the limiting conditions, pro-

hibit Chessie System lines from utilizing the funds de-

rived from the Ex Parte No. 305 rate increase for any

purpose other thar delayed capital improvements or de-

ferred maintenance programs. Chessie System lines have

no deferred maintenance or delayed capital improve-

ments within the meaning of the limiting conditions. As

a consequence, they are deprived of the use of these

funds.

(3) Chessie Systems’ inability to use these segregated

funds has resulted in the following immediate and ir-

reparable elements of damage to the plaintiff railroads.

(a) Increases in State gross receipts taxes, franchise

taxes and property taxes occasioned by the additional

revenues derived from Ex Parte No. 305 must be paid

out of plaintiffs’ general funds rather than from the

Ex Parte No. 305 funds segregated by the Commission’s

Orders | Affidavit of J. T. Lyon).

(b) Chessie System is barred by the limiting condi-

tions from using the segregated funds to finance a

$300,000,000 capital improvements program designed to

handle increased traffic levels (Affidavit of J. T. Ford).

(ic) As a result this financing must be undertaken out

of the plaintiffs’ internal funds, imparing their cash

position or by borrowing at higher interest rates (Affi-

davit of J. T. Ford).

(d) The limiting conditions further prohibit plain-

tiffs from utilizing investment credit leasing as a financ-

ing method (Affidavit of J. T. Ford).

(e) The limiting conditions, by preventing Chessie

System lines from utilizing the Ex Parte No. 305 rev-

enues, will cause reassessment of the financial situation

of plaintiff companies, placing their credit standing under

adverse pressure (Affidavit of J. T. Ford).

‘f) The limiting conditions place Chessie System lines

at a competitive disadvantage vis a vis other railroads

who are able to use their Ex Parte No. 305 revenues to

improve their roadway and augment their equipment

(Affidavit of C. J. Henry, Jr.).

(g) The limiting conditions which freeze the addi-

tional Ex Parte No. 305 revenue actually cause an earn-

ings loss rather than a gain. Plaintiffs have lost revenue

to the extent their freight traffic has been diverted be-

cause of the Ex Parte No. 305 increase in rates, but they

cannot use their revenue increases as an offset because of

these limiting conditions (Affidavit of C. J. Henry, Jr.).

(4) Chessie System’s inability to utilize the funds gen-

erated by the Ex Parte No. 305 increase has irreparably

damaged the shipping public which is paying Chessie

System increased freight charges at the rate of $500,000

per working day without receiving any benefit for their

additional expenditures (Affidavit of J. T. Ford).

And it further appearing that plaintiff railroads have

a probable right and that there is a probable danger that

this right may be defeated unless this Order issues.

Bitiiin

And it further appearing that the public interest re-

quires the issuance of this Order and that the issuance

of this Order causes no damage to defendants, it is

ORDERED, ADJUDGED and DECREED that the de-

fendants be, and the same hereby are, restrained from

enforcing the limiting conditions on the use of plaintiffs’

revenues and of certain reporting conditions included in

Orders issued by the Interstate Commerce Commission

served June 4, July 22 and August 12, 1974, in a pro-

ceeding known as Ex Parte No. 305, Nationwide In-

crease of Ten Percent in Freight Rates and Charges,

1974.

This Temporary Restraining Order shall remain in

force only until the hearing and determination by the

full three Judge Court pursuant to 28 U.S.C. §§ 2281,

et seq., and 2321, et seqg., at which time it shall expire

unless prior thereto or at that time it be extended or a

preliminary or permanent injunction granted.

The Court further ORDERS, ADJUDGES and DE-

CREES that no bond be required of plaintiff railroads.

A true copy—Teste:

Clerk, U. S. District

Court

by: /s/ Deborah P. Ussery

Deputy Clerk

| SEAL |

Dated:

/s/ Robert R. Merhige, Jr.

Unite¢e States District Judge

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Richmond Division

C. A. 74-0370-R

| Filed Oct. 9, 1974, Clerk, U. S. Dist. Court,

Richmond, Va. |

THE CHESAPEAKE AND OHIO RAILWAY COMPANY,

THE BALTIMORE AND OHIO RAILROAD COMPANY,

and

WESTERN MARYLAND RAILWAY, PLAINTIFFS

UNITED STATES OF AMERICA,

and

INTERSTATE COMMERCE COMMISSION, DEFENDANTS

AMENDED COMPLAINT

(1) Plaintiff, The Chesapeake and Ohio Railway Com-

pany !C&O), is a Virginia corporation and is a carrier

by railroad subject to the provisions of the Interstate

Commerce Act. Plaintiff, The Baltimore and Ohio Rail-

road Company (B&O), is a Maryland corporation and is

a carrier by railroad subject to the provisions of the

Interstate Commerce Act. Plaintiff, Western Maryland

Railway (Western Maryland), is a Maryland corpora-

tion and is a carrier by railroad subject to the provisions

of the Interstate Commerce Act. Collectively, these three

a are referred to herein as the “Chessie System

ines.

(2) This is an action to enjoin the enforcement of.

annul and set aside those parts of the orders, served

June 4, July 22, August 12 and October 7, 1974, of the

Interstate Commerce Commission in a proceeding known

as Ex Parte No. 305, Nationwide Increase of Ten Per-

cent in Freight Rates and Charges, 1974, which purport

to impose conditions limiting the use of the revenues

derived from such increased rates and charges and re-

quiring certain reports with respect thereto, insofar as

said conditions apply to the Chessie System lines. This

action is brought pursuant to Section 2321 of Title 28

of the United States Code. Defendant, the Interstate

Commerce Commission (the “Commission’’), is an admin-

istrative agency of the United States Government located

in Washington, D. C. The United States of America is

named as a party defendant pursuant to 28 U.S.C. 2322.

(3) The jurisdiction of the Court is conferred under

the provisions of 28 U.S.C. Sections 1336(a), 2284 and

2321-2325, inclusive. Venue is laid in this Court pur-

suant to 28 U.S.C. Section 1398(a), inasmuch as the

Plaintiff, C&O, is a corporation organized and existing

under laws of the Commonwealth of Virginia. A three-

judge district court is requested pursuant to 28 U.S.C.

2325 and 2284.

(4) In its order served June 4, 1974, a true copy of

which is attached hereto as Exhibit A, the Commission

expressed its recognition that the nation’s railroads are

in need of additional freight revenues to offset recently

incurred costs of materials and to provide an improved

level of earnings; and further expressed its recognition

that without the additional revenues. to be derived from

increased freight rates and charges, the earnings of the

nation’s railroads would be insufficient to enable them

under honest, economical and efficient management to

provide adequate and efficient railroad transportation

services consistent with the public interest and the na-

tional transportation policy. The Commission then au-

thorized such railroads to file schedules containing in-

creased rates and charges, but subject to the conditions

among others that:

3. Revenues generated by the increase should be

expended for capital improvements and deferred

maintenance of plant and equipment and the amount

needed for increased material and supply cost, other

than fuel. A record of such expenditures shall be

maintained on a monthly basis.

4. At the end of the 3rd, 6th, and 9th months

following the effective date of the increases, each

carrier shall provide this Commission with an esti-

mate of the freight revenues generated by the in-

creases. Additionally, each carrier shall report the

amount of expenditures made for deferred main-

tenance of plant and equipment, e.g., by type of car,

track, cross ties, ete., as well as amounts expended

for capital improvements by type of project. Fur-

thermore, each carrier shall report the amount of

unexpended funds derived from the authorized in-

creases and how those funds are to be expended.

The June 4, 1974 order imposed no conditions requiring

‘he segregation of such increased revenues, nor did it

provide any definition of the terms “deferred mainte-

nance” or “capital improvements” as used in condition

No. 3 above.

(5) Thereafter, on June 5, 1974, the nation's rail-

roads proceeded in good faith to publish the increased

schedules, effective June 20, 1974.

(6) Subsequently, by its order served July 22, 1974,

a true copy of which is attached hereto as Exhibit B,

the Commission imposed further conditions to its prior

authorization of June 4 which, for the first time, purport

to require segregation of the increased revenues; purport

strictly to limit the use of at least 7 percentage points

of the 10°% authorization to “deferred maintenance” and

to “delayed capital improvements” as defined in the July

22 order (up to 3 percentage points may be applied to

increased expense of materials and supplies, except fuel) ;

and purport to impose certain detailed accounting and

reporting requirements, far broader in scope than those

suggested by condition 4 of the June 4 order, which are

designed to implement the foregoing conditions with re-

spect to the segregation and use of such revenues.

(7) The order of July 22 defines deferred maintenance

to be “accrued deterioration” in a railroad’s plant or

equipment which has rendered its services to shippers

“partially or wholly inadequate and or has resulted in

diminishing the railroads’ competitive ability.” The

Bias.

Chessie System lines’ expenditures for maintenance of

plant and equipment do not in any sense qualify under

the Commission’s definition. Chessie System lines have

no deferred maintenance within the meaning of the term

as used by the Commission. Chessie System lines plant

and equipment are kept in regular repair and their main-

tenance program is adequate to meet the needs of their

shippers considering the volume and frequency of their

shipments. Chessie System lines’ expenditures for capi-

tal improvements likewise also do not qualify under the

Commission’s definition which specifies ‘‘delayed’’ capital

improvements which were “actually planned” but not

undertaken because “funding or financing was not avail-

able or projected to be available through June 30, 1975.

(8) Chessie System lines petitioned the Commission

for reconsideration and amendment of the order of July

22. In this petition for reconsideration, Chessie System

lines claimed the unfettered right to use revenues at-

tributable to the Ex Parte No. 305 rate increase for

“any valid corporate purpose.” Chessie System lines

petition for reconsideration was denied by the Commis-

sion’s order served August 12, 1974, a true copy of

which is attached hereto as Exhibit C.

(9) On October 7, 1974, the Commission, acting on

pleadings filed by parties other than plaintiffs issued

another order in Ex Parte No. 305, a true copy of which

is attached hereto as Exhibit D. The order provides,

inter alia, that any respondent “unable to use the full

amount of the funds generated by the increase for de-

ferred maintenance or delayed capital improvements, may

expend such funds for new and additional capital im-

provements, providing advance approval is obtained from

the Commission, Division 2.” The order requires service

of any petitions for relief upon all parties of record in

Ex Parte No. 305, and such parties are granted ten days

in which to respond to such petitions. Significantly, even

if approval is obtained, the order served October 7, 1974,

restricts the uses to which the Ex Parte No. 305 rev-

enues may be applied, for it defines new and additional

capital improvement as being projects “over and above

those presently undertaken, scheduled or otherwise com-

mitted .. .” Thus, even if Chessie were to apply for

and obtain the approval of the Commission as provided

for in the order served October 7, 1974, Chessie System

lines would never be able to use those funds for capital

improvements undertaken, scheduled or otherwise com-

mitted prior to October 7, 1974.

(10) Under the terms of the new order of October 7,

1974, plaintiffs are not relieved from any of the terms

and conditions of the Commission’s orders of June 4,

1974, July 22, 1974, or August 12, 1974. The revenues

generated from the Ex Parte No. 305 increase would

still remain dormant in a segregated account unless prior

approval is obtained from the Commission for their ex-

penditure on an as yet undetermined future capital im-

provement program. Moreover, each and every time

plaintiffs desire to implement new capital programs they

are required to apply to the Commission for its approval

of said projects and its consequent authorization to use

Ex Parte No. 305 funds for such limited and restricted

purposes.

(11) All of the purported conditions in the June 4,

July 22, August 12 and October 7 orders which relate to

segregation and restricted use of the increased revenues

attributable to the Ex Parte No. 305 rate increase are

hereafter referred to as the “limiting conditions,” and all

conditions in such orders which purport to impose ac-

counting and reporting requirements are hereafter re-

ferred to as the “accounting and reporting conditions.”

The Chessie System lines have exhausted their adminis-

trative remedies with respect to the accounting and re-

porting conditions referred to above. All those provisions

of the Commission’s attached orders in Exhibits A, B, C

and D which purport to impose such limiting conditions

and accounting and reporting conditions constitute those

parts of such orders which the Chessie System lines seek

in this action to annul, as applied to such lines. to to

enjoin the enforcement of, as applied to such lines. All

such limiting conditions and accounting and reporting

conditions, as applied to Chessie System lines, should be

nullified and declared void by this Honorable Court and

the enforcement thereof against such lines should be

ays

permanently enjoined, for the reasons and upon the

grounds which follow.

(12) The net result of the limiting conditions con-

tained in the orders served June 4, July 22 and August

12, 1974 is that under the Commission’s definitions of

deferred maintenance and delayed capital improvements,

the Chessie System lines will be unable to apply any of

the increased revenues derived from the Ex Parte No.

305 proceeding (other than those earmarked for in-

creased material and supply costs) to any projects now

scheduled or which may be scheduled in the foreseeable

future. No worthwhile project on Chessie System lines

designed to improve its transportation service to the

shipping public has ever been deferred because financing

or funding was not available. None will be as long as

the Chessie System lines’ earnings are at levels adequate

enough to attract capital. Chessie System lines have

never stinted in their expenditures to provide adequate

and efficient transportation service to their customers.

Moreover, even if Chessie System lines were to apply for

and obtain the approval referred to in the order served

October 7, 1974, Chessie System lines would still be

unable to apply any of the increased revenues derived

from the Ex Parte No. 305 proceeding to any of the

projects now undertaken, committed or otherwise sched-

uled as described below.

(13) On May 13, 1974, the respective Boards of Di-

rectors of The Baltimore and Ohio Railroad Company

and The Chesapeake and Ohio Railway Company au-

thorized massive capital expenditure programs totaling

$78,874,143 for the B&O and $45,014,426 for C&O, a

grand total of $123,888,569. The programs include,

among other things, the acquisition by B&O of 3,000

100-ton hopper cars and 62 3,000-horsepower 4-axle gen-

eral purpose diesel locomotives. C&O is to acquire an

additional 2,000 100-ton hopper cars and 10 3,000-horse-

power diesel locomotives. Chessie System lines have an

adequate car supply and other facilities for hitherto

normal levels of traffic—i.e., levels in existence prior to

the onset of the energy crisis. The acquisition of the

additional equipment mentioned above is necessary to

meet very substantial increases in coal production at

C&0,/B&O origin mines which have just opened or which

will open in the future. Starting in June, 1974, a total

of 55 new mines began to come on line at C&O/B&O

origin points. This is new traffic for which, until now,

there have been no equipment needs. The total produc-

tion of these new mines will exceed 28 million tons an-

nually. Twenty of the total group of 55 new mines have

already begun production.

(14) The commitment to acquire the new equipment

was made, of course, in anticipation that Chessie Sys-

tem lines’ earnings would be at levels sufficient to sup-

port the programs. The Boards acted with full assurance

from management that the necessary financing would be

forthcoming. They would not have approved the program

without such assurances, for Boards do not act on pro-

grams of this magnitude on the basis of contingencies.

It should be noted further that the commitments by the

Boards were made after the filing of the railroads’ peti-

tion of April 22, 1974 which initiated Ex Parte No. 305.

However, under the Commission’s definition, these sig-

nificant expenditures do not qualify because the program

had not been deferred because funding or financing was

not available.

(15) On June 17, 1974, the respective Boards of Di-

rectors of the B&O and C&O authorized additional

capital expenditures totaling $25,427,995 for B&O and

$19,547,995 for C&O covering the acquisition of addi-

tional new equipment. These, too, would not qualify

under the Commission’s definition because the projects

cannot be said to have been deferred for the reason

that funding or financing was not available. These are

new projects designed to handle new traffic.

(16) As previously stated, Chessie System lines have

never lacked financing for those capital expenditures

which they deemed necessary to provide adequate and

efficient transportation service for their customers. Their

customers have net suffered because the System had to

defer needed capital improvements and this fortunate

circumstance will continue as long as Chessie System

lines’ earnings are adequate enough to attract capital.

”

(17) The May and June Board actions described above

tell only part of the story. Chessie System lines’ total

planned capital expenditures are $300 million. This sum

will be used to purchase 72 diesel locomotives, 10,000

coal cars and 2,714 merchandise cars. Considering the

rapidly rising prices of steel and other materials, the

final sum expended will be well in excess of $300 million.

Further, since coal tonnage on the Chessie System lines

is growing at a pace faster than that of other major

coal hauling railroads, significant additional equipment

authorizations can be expected. Chessie System knows

of no project now in planning on its system included in

the $300 million program which it would have to defer

because financing or funding is not available. With

Chessie System’s credit rating and assuming earnings

are adequate, funds will be forthcoming for capital im-

provements albeit at extremely high interest rates.

(18) Chessie System lines committed in May and June,

1974, a total of $168,864,559 in expenditures for capital

improvements. None of these capital improvements is

“delayed” or “new and additional’ as those terms are

defined in the orders here in issue. Accordingly, the

limiting conditions operate to prohibit Chessie System

lines from applying the approximately $500,000 per day

in Ex Parte No. 305 revenues to this very substantial,

long-range capital improvement program. Unless they

are permitted to apply these additional revenues to their

May and June commitments and to the other commit-

ments they have made in the total $300 million program,

they will be unable to make use of these revenues. Such

revenues will simply lie dormant in a sterile, segregated

account which will result in several serious consequences

both to Chessie System lines and the shipping public.

(19) First, the limiting conditions place Chessie Sys-

tem at a distinct competitive disadvantage vis-a-vis other

railroads, which for one reason or another have deferred

maintenance or delayed capital improvements within the

meaning of the Commission’s order. These lines will be

able to use the additional revenues to buy cars and other

equipment while Chessie System’s money will lie fallow,

unusable with respect to the very substantial, long range

capital improvement program described in paragraphs

13 through 18 above. In effect, the limiting conditions

penalize Chessie System and other efficient carriers and

reward only those railroads which are inefficient, in di-

rect contravention of the national transportation policy

(49 U.S.C., preceding s.1) which Congress has provided

for the Commission’s explicit direction in administering

the Interstate Commerce Act, and in direct contravention

of Section 15a(2) of the Act itself (49 U.S.C. 15a(2).

For this reason alone the Chessie System lines will suffer

irreparable damage unless the injunctive relief prayed

for herein is granted by this Honorable Court. Absent

such relief, the Chessie System lines will suffer further

irreparable damage by reason of the fact that they will

be required to pay Federal income taxes, at a rate of

48%, on the sterile “income” in the segregated account

prescribed by the limiting conditions and by the account-

ing and reporting conditions.

(20) The limiting conditions also penalize Chessie

System lines’ customers. They must pay increased

freight rates which Chessie System lines may not use,

in turn, to make the improvements in plant and equip-

ment already planned for their benefit. They are, in

effect, paying something for nothing. This is inflation

at its worst, and is squarely at cross purposes with the

national transportation policy and the laudable objec-

tives of the Interstate Commerce Act, and in fact, in-

consistent with the clear intention expressed by the Com-

mission itself in its original order of June 4, 1974.

(21) Insofar as the Chessie System lines are con-

cerned, the Commission clearly exceeded its statutory

authority by conditioning the use to which the revenues

derived from Ex Parte No. 305 might be applied. There

is no evidence of record in the proceeding before the

Commission that could support a finding that, as applied

to the Chessie System lines, the increases in rates and

charges would be unjust and unreasonable without the

imposition of the limiting conditions. Thus such pur-

ported limiting conditions, as applied to the Chessie Sys-

tem lines, are void and of no force and effect.

(22) In view of the foregoing, the limiting condi-

tions are unlawful as applied to the Chessie System lines

and should be set aside for the reasons and upon the

grounds that—

(a) there is no warrant in law and fact for such

conditions;

(b) there is no rational basis for, or statutory

authority for, the Commission’s action in imposing

such conditions;

a denial of due process of law;

(d) the imposition of such conditions violates the

public policy of the United States as prescribed by

Congress in the national transportation policy, and

is in violation of the Interstate Commerce Act;

(e) the imposition of such conditions is arbitrary,

capricious, discriminatory and an abuse of the Com-

mission’s discretion; and

(f) the imposition of such conditions is unsup-

ported by any evidence of record, substantial or

otherwise.

(23) The accounting and reporting conditions, which

have no purpose except to implement the unlawful limit-

ing conditions, also are subject to each of the legal in-

firmities enumerated in paragraph 22, and are therefore

unlawful as applied to the Chessie System lines.

(24) If the relief prayed for in this action is granted,

the Chessie System lines will then be able to apply the

increased revenues to their capital improvement program

described and cash from such revenues could then be in-

cluded in working capital, thus increasing the bond

ratings of the Chessie System lines and enabling them

to borrow money for improvements at lower rates of

interest.

WHEREFORE, Plaintiffs respectfully pray:

(1) That a court of three judges be constituted and

convened pursuant to 28 U.S.C. 2284 and 2321-2325,

inclusive.

(2) That in accordance with 28 U.S.C. 2284(3) the

- operation and effect of the limiting conditions and the

accounting and reporting conditions, as applied to Plain-

tiffs, be temporarily restrained until a hearing and de-

termination by the full three-judge court.

(3) That the court of three judges issue an inter-

locutory injunction staying and suspending the opera-

tion and effect of said limiting conditions and accounting

and reporti:.g conditions, as applied to Plaintiffs, pending

final hearing and determination of this suit.

(4) That the court of three judges, upon final hearing

of this suit, enter a decree permanently enjoining, setting

aside and annulling the said limiting conditions and

accounting and reporting conditions, as applied to Plain-

tiffs.

(5) That the court grant such other and further re-

lief as it may Geem fit and proper and as equity may

require.

THE CHESAPEAKE AND OHIO

RAILWAY. COMPANY

THE BALTIMORE AND OHIO

RAILROAD COMPANY

WESTERN MARYLAND RAILWAY

By /s/ [Illegible]

Counsel

Doyle S. Morris

Charles C. Rettberg, Jr.

3100 Terminal Tower

Cleveland, Ohio 44101

George D. Gibson

E. Miiton Farley, III

T. S. Ellis, II

Hunton, Williams, Gay & Gibson

Post Office Box 1535

Richmond, Virginia 23212

Of Counsel

| Appendices omitted |

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Richmond Division

C. A. No. 74-0370-R

THE CHESAPEAKE AND OHIO RAILWAY COMPANY,

THE BALTIMORE AND OHIO RAILROAD COMPANY,

and

WESTERN MARYLAND RAILWAY, PLAINTIFFS

Vv.

UNITED STATES OF AMERICA,

and

INTERSTATE COMMERCE COMMISSION, DEFENDANTS

JOINT ANSWER OF THE

UNITED STATES OF AMERICA AND THE

INTERSTATE COMMERCE COMMISSION

Defendants, the United States of America and the

Interstate Commerce Commission, answer the amended

complaint as follows:

As a first separate, complete and independent defense

to the allegations of the amended complaint, defendants

aver that the amended complaint fails to state a claim

upon which relief can be granted, and that this Court is

without jurisdiction over the subject matter of this suit,

since the orders of the Interstate Commerce Commission

complained of are orders involving the suspension of

rates and charges under the Interstate Commerce Act,

which are not subject to judicial review.

Il.

As a second separate, complete and independent de-

fense to the allegations of the amended complaint, de-

fendants aver that the amended complaint fails to state

a claim upon which relief can be granted, and that this

Court is without jurisdiction over the subject matter of

this suit, since plaintiffs have failed to exhaust their: ad-

ministrative remedies in Ex Parte No. 305.

Ill.

As a third separate, complete, and independent de-

fense to the allegations of the amended complaint, de-

fendants aver that plaintiffs should be equitably estopped

from raising any argument that the conditions imposed

on the use of funds derived by the nation’s railroads as

a result of increases authorized in Ex Parte No. 305

are in any way unlawful or improper, or that the Inter-

state Commerce Commission is without power to impose

such conditions, since plaintiffs have collected and con-

tinue to collect revenues from increases which were filed

pursuant to the authorization and subject to the terms

and conditions of the Commission’s orders entered in Ex

Parte No. 305.

IV.

As a fourth separate, complete and independent an-

swer to the allegations of the amended complaint, de-

fendants:

1. Admit the allegations of paragraph (1).

2. Admit the allegations of paragraph (2) except deny

that the Interstate Commerce Commission orders referred

to merely purport to impose conditions as stated, and

aver that such orders lawfully and properly impose such

conditions on the nation’s railroads, except only as the

temporary restraining order currently in effect in this

action presently relieves plaintiffs from a duty ts comply.

3. Deny the allegations of the first sentence of para-

graph (3). Admit the remaining allegations of para-

graph (3).

4. In answer to the allegations of paragraph (4),

respectfully refer the Court to the (ext of the Commis-

sion’s order served June 4, 1974 ‘Exhibit A to amended

complaint) for a complete and true statement of its

contents.

5. Admit the allegations of paragraph (5).

6. In answer to the allegations of paragraph (6),

respectfully refer the Court to the text of the Commis-

sion’s order served July 22, 1974 (Exhibit B to amended

complaint) for a complete and true statement of its

contents.

7. In answer to the allegations of the first sentence

of paragraph (7), respectfully refer the Court to the

text of the Commission’s order served July 22, 1974

(Exhibit B to amended complaint) for a complete and

true statement of its contents. Deny the remaining alle-

gations of paragraph (7).

8. In answer to the allegations of paragraph (8):

Admit the allegations of the first sentence. In answer to

the allegations of the second sentence, respectfully refer

the Court to the’petition referred to for a complete and

true statement of its contents. In answer to the allega-

tions of the third sentence, admit that the Chessie Sys-

tem lines’ petition was denied, but respectfully refer the

Court to the text of the order referred to for a complete

and accurate statement of its contents.

9. In answer to the allegations of paragraph (9),

admit that the order of October 7, 1974 (Exhibit D to

Amended Complaint) referred to was issued, but respect-

fully refer the Court to the text of that order for a

complete and true statement of its contents. Further,

deny that plaintiffs are unable to use all Ex Parte No.

305 revenues either with or without approval as set

forth in the October 7 order, for purposes consistent with

the commission’s orders in Ex Parte No. 305.

10. In answer to the allegations of the first sentence

of paragraph (10), respectfully refer the Court to the

text of the October 7 order for a complete and true state-

ment as to the matters alleged. Deny the allegations of

the second sentence. In answer to the allegations of the

third sentence, respectfully refer the Court to the text

of the October 7 order for a complete and true state-

ment as to the matters alleged.

11. The allegations of the first sentence of paragraph

(11) require no answer. Deny the allegations of the

second sentence. The allegations of the third sentence

require no answer. Deny the allegations of the fourth

sentence.

12. State that the allegations of paragraph (12) are

argumentative and require no answer; to the extent facts

may be deemed alleged thereby, the allegations are

denied.

13. State that they are without knowledge or infor-

mation sufficient upon which to form a belief as to the

truth of the allegations of paragraph (13).

14. State that the allegations of paragraphs (14),

(15), (16), and (17) are argumentative and require

no answer; to the extent facts may be deemed alleged

thereby, state that they are without knowledge or infor-

mation sufficient to form a belief as to the truth of such

allegations.

15. State that they are without knowledge or infor-

mation sufficient upon which to form a belief as to the

truth of the allegations of the first sentence of para-

graph (18). The remaining allegations of paragraph

(18) are argumentative and require no answer; to the

extent facts may be deemed alleged thereby, the allega-

tions are denied.

16. State that the allegations of paragraph (19) and

(20) are argumentative and require no answer; to the

extent facts may be deemed alleged thereby the allega-

tions are denied.

17. Deny each and every allegation of paragraphs

(21), (22) and (23).

18. State that the allegations of paragraph (24) are

argumentative and require no answer; to the extent facts

may be deemed alleged thereby the allegations are denied.

16. Except as expressly admitted herein, deny each

and ever: allegation of the complaint.

In further answer to the allegations o fthe complaint,

defendants aver as follows:

1. The petition of the nation’s railroads (including

plaintiffs) filed with the Commission on April 22, 1974,

seeking, interalia, an increase in rates and charges in

all territories of ten percent over then-current levels to

become effective May 2, 1974, or as soon thereafter as

possible, principally emphasized the reed of the railroads

to apply revenues derived from the requested increase

to deferred maintenance of plant and equipment and

capital improvement projects.

2. By order served April 30, 1974, the Commission,

inter alia, denied the railroads’ petition of April 22, 1974,

insofar as it sought to make effective the ten percent

increase on ten days’ notice (see Exhibit 1 hereto).

3. By order served May 3, 1974 (Exhibit 2 hereto),

the Commission, inter alia, authorized the railroads to

file tariffs and supplements implementing their proposed

increase on thirty days’ notice, and directed that state-

ments opposing such action be filed on or before May 24,

1974, and that replies to such statements be filed on or

before May 29, 1974.

4. The nation’s railroads (including plaintiffs) duly

filed their reply on May 29, 1974, in which, inter alia,

they reaffirmed earlier statements in the proceeding that

a principal justification for the increase was to apply

additional revenues to deferred maintenance of plant and

equipment and capital improvements.

5. By its order served June 4, 1974 (Exhibit A to

amended complaint), the Commission, inter alia, ac-

knowledged the need of the nation’s railroads for an in-

crease, but found that the increase as filed would be

unjust and unreasonable without conditions designed to

promote service improvements. Accordingly, the Com-

mission ordered the railroads’ increase suspended, with-

out prejudice to the refiling of a new increase incor-

porating such conditions, should the railroads elect to

cancel the prior increase. Among the conditions set forth

in the June 4 order was that the increase should be

expended for capital improvements and deferred main-

tenance and equipment and the amount needed for in-

creased material and supply cost, other than fuel. The

Commission stated in that order, inter alia: “Accord-

ingly, as previously indicated, the Commission intends

that revenues generated by increases authorized herein,

over and above the amount needed for increased material

and supply costs, other than fuel, will be used by the

respondents exclusively for reducing deferred mainte-

nance of plant and equipment and delayed capital im-

provements in order that rail services to the shippers will

be improved.”

6. Following the issuance of the Commission’s June

4, 1974, order, the nation’s railroads (including plain-

tiffs) cancelled the prior increase, and on June 5, 1974,

filed a new increase pursuant to the terms and condi-

tions of the June 4 order. By so acting, the railroads

(including plaintiffs) accepted the terms and conditions

of that order.

7. Following the issuance of the Commission’ order

served July 22, 1974 (Exhibit B to amended complaint),

which refined and interpreted the conditions imposed in

the June 4 order, plaintiffs on July 30, 1974, filed a peti-

tion for reconsideration which, inter alia, sought amend-

ment of the conditions imposed by the Commission by

including a phrase to the effect that a railroad, if it has

no deferred maintenance or delayed capital improve-

ments as defined by the Commission, may expend funds

generated by the increase for any valid corporate pur-

pose. Plaintiffs’ petition also raised for the first time

the argument that the Commission is without power to

impose conditions, notwithstanding that plaintiffs were

then and are now participating in the increase au-

thorized by the June 4 order.

8. Following issuance of its order served August 12,

1974 (Exhibit C to amended complaint), which, inter

alia, denied plaintiffs’ June 30, 1974 petition; and fol-

lowing the filing of the instant suit on August 15, 1974;

the nation’s railroads (not including plaintiffs) on

August 16, 1974, filed a petitién for leave to file a

supplemental petition, and a supplemental petition for

clarification and modification of the Commission’s orders

served July 22 and August 12, 1974. Plaintiffs, on

August 20, 1974, filed a reply to the railroads’ supple-

mental petition which, inter alia, stated that such peti-

tion was not filed on plaintiffs’ behalf. In response to

these petitions and others, the Commission, by order

served August 22, 1974 (Exhibit 3 hereto), reopened the

matter and set oral argument, to be held on August 27,

1974, for the purpose of affording the parties an oppor-

tunity to show cause why the orders entered thus far

should not be observed in all respects and compliance

had forthwith. Counsel for the railroad petitioners and

for the plaintiffs herein were directed to appear and be

prepared to orally show cause why any change should

be made in the conditions and requirements thus far

imposed. nae

9. Plaintiffs, on August 26, 1974, filed an Objection

to the order served August 22, 1974, which argued,

inter alia, that the Commission was without jurisdiction

to order them to appear at oral argument on August 27,

1974, and that such appearance might constitute a waiver

of their right to judicial review in this suit. By order

served August 26, 1974 (Exhibit 4 hereto), the Com-

mission overruled plaintiffs’ Objection and stated, inter

alia, that the Commission is empowered to reopen its

proceedings at any time notwithstanding that a judicial

review action has been filed, and that the order served

August 22, 1974, does not interfere with any exercise of

jurisdiction by this Court.

10. The oral argument was duly held before the Com-

mission on August 27, 1974. Notwithstanding the Com-

mission’s order served August 26, 1974, plaintiffs de-

liberately sent a representative to the argument who was

uninformed about the matters in issue and specifically

directed not to participate or answer questions from the

Commission. Upon questions being asked of him, this

representative replied either that he did not know the

answer, or that he was instructed not to answer. He

reiterated the arguments made in plaintiffs’ Objection,

by reading to the Commission a portion of that Objec-

tion. The other railroads, and a number of other parties,

presented arguments on the merits of the proceeding.

11. On October 7, 1974, the Commission, as a result

of the reopened proceedings in which plaintiffs refused

to participate, served an order (Exhibit D to amended

complaint; Exhibit 5 hereto) which substantially medi-

fies the terms and conditions set forth in prior orders.

The October 7 order provides, inter alia:

It is further ordered, That railroad respondents,

if any, which are unable to use the full amount of

the funds generated by the increase for deferred

maintenance or delayed capital improvements, as de-

fined in this proceeding, may expend such finds for

new and additional capital improvements providing

advance approval is obtained from the Commission,

Division 2, as above set forth:

12. The procedure set forth in the October 7 order

affords plaintiffs an opportunity to utilize funds gen-

erated by the increase for new and additional capital

improvements, if they can show that they cannot use the

funds for deferred maintenance and delayed capital im-

provements, as those terms have been defined by the

Commission. Thus far, plaintiffs have merely asserted

that they cannot so use the funds, and have never at-

tempted to support such assertions before the Commis-

sion with valid, probative evidence. Upon its best infor-

mation without reports having been filed by plaintiffs

pursuant to orders entered in Ex Parte No. 305, the

Commission believes that plaintiffs in fact do have de-

ferred maintenance of plant and equipment and delayed

capital improvements, as those terms have been defined

in Ex Parte No. 305.

13. Since plaintiffs failed to participate in the ad-

ministrative proceedings immediately preceding the is-

suance of the October 7 order, and have further failed to

avail themselves of the procedures set forth in that order,

they are precluded from attacking the provisions of that

order before this Court.

14. The orders entered in Ex Parte No. 305 are law-

ful and proper in all respects.

WHEREFORE, defendants pray that the amended

complaint be dismissed, the temporary restraining order

currently in effect be dissolved, and all relief be denied.

CaRL D. LAWSON

Attorney

Department of Justice

Washington, D.C. 20530

Davip G. LOWE

Assistant United States poo

Richmond, VA 23210

THOMAS E. KAUPER

Assistant Attorney General

DAVID HOPKINS

United States Attorney

Attorneys for the United States

of America

FRITZ R. KAHN

General Counsel

HANFORD O’HARA

Attorney

Interstate Comerce Commission

Washington, D.C. 20423

Attorneys for the Interstate

Commerce Commission

CERTIFICATE OF SERVICE

I hereby certify that on this, the 18th day of October,

1974, I served copies of the foregoing Joint Answer on

counsel for all parties of record by first-class, mail

postage prepaid.

/s/ Hanford O’Hara

_ Attorney

[Exhibits omitted]

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Richmond Division

C. A. No. 74-0370-R

THE CHESAPEAKE AND OHIO RAILWAY COMPANY,

THE BALTIMORE AND OHIO RAILROAD COMPANY,

and

WESTERN MARYLAND RAILWAY, PLAINTIFFS

Vv.

UNITED STATES OF AMERICA,

and

INTERSTATE COMMERCE COMMISSION, DEFENDANTS

MOTION TO DISSOLVE

TEMPORARY RESTRAINING ORDER

Defendants, the United States of America and the

Interstate Commerce Commission, hereby move to dissolve

the temporary restraining order entered herein on August

18, 1974, and currently in effect. As grounds therefor,

defendants state that material changes in the circum-

stances of the case have taken place since the temporary

restraining order was originally entered, and that under

applicable law, its continuation cannot be justified. In

further support of this motion, defendants rely on mat-

ters stated in the attached Memorandum in Support of

Mction to Dissolve Temporary Restraining Order.

THOMAS E. KAUPER

Assistant Attorney General

DAVID HOPKINS

United States Attorney

JOHN H. D. WIGGER

Attorney

Department of Justice

Washington, D.C. 2053)

Davip G. LOWE

Assistant U. S. Attorney

Richmond, VA 23210

Attorneys for the United States

of America

FRITZ R. KAHN

General Counsel

HANFORD O’HARA

Attorney

Interstate Commerce Commission

Washington, D.C. 20423

Attorneys for the Interstate

Commerce Commission

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Richmond Division

C. A. No. 74-0370-R

THE CHESAPEAKE AND OHIO RAILWAY COMPANY,

THE BALTIMORE AND OHIO RAILROAD COMPANY,

and

WESTERN MARYLAND RAILWAY, PLAINTIFFS

UNITED STATES OF AMERICA,

and

INTERSTATE COMMERCE COMMISSION, DEFENDANTS

MEMORANDUM IN SUPPORT OF MOTION TO

DISSOLVE TEMPORARY RESTRAINING ORDER

STATEMENT

By its temporary restraining order entered on August

18, 1974, this Court has restrained the defendants from

enforcing against plaintiffs certain conditions relating

to the use of revenues derived from a recent 16:7 rate

increase authorized in Ex Parte No. 305, Nationwide

Increase of Ten Percent in Freight Rates and Charges,

1974. These conditions were specified in orders dated

June 3, July 18, and August 9, 1974, and provide gen-

erally that amount over 3° collected under authority

of Ex Parte 305 must be spent on deferred maintenance

and delayed capital improvements, that such amounts

must be reflected in a separate account (Account 716)

and that the carriers must furnish certain reports to

the Commission. A complete discussion of the condi-

tions ‘appears in the Joint Brief of the United States of

America and the Interstate Commerce Commission filed

concurrently herewith (see pp. 1-11), which Brief is

incorporated herein by reference.

The temporary restraining order provides that it shall

remain in force until hearing and determination of this

action by the three-judge court, “at which time it shall

expire unless prior thereto or at that time it be extended

or a preliminary or permanent injunction granted.” It

is defendants’ contention that the continuation of the

temporary restraining order cannot be justified any

longer because of significant changes in circumstances.

Accordingly, the temporary restraining order should,

after appropriate hearing, be dissolved forthwith. This

argument is supported by changes in the circumstances

of the case.

AUTHORITIES RELIED UPON

As the basis for their motion to dissolve the tem-

porary restraining order, defendants rely upon decisions

of the Fourth Circuit which set the standards for pre-

liminary injunctive relief. As the Court stated in West

Virginia Highlands Conservancy v. Island Creek Coal

Co., 441 F.2d 232, 235 (4th Cir. 1971):

The factors to be considered by the district judge

have long been settled in this circuit:

[I]t is sufficient if the court is satisfied that

there is a probable right and a probable danger

and that the right may be defeated, unless the

injunction is issued, and considerable weight is

given to the need of protection to the plaintiff

as contrasted with the probable injury to the

defendant * * *

Further (at 236):

The public interest is also a relevant considera-

tion. Yakus v. United States, 321 U.S. 414, 64 S.Ct.

660, 88 L.Ed. 834 (1944); Huard-Steinheiser, Inc.

v. Henry, 280 F.2d 79 (6 Cir. 1960). Usually the

public interest comes into play when an injunction

is sought to restrain enforcement of a statute or a

regulation designed to further the public interest,

and then it is sometimes concluded that a private

party must suffer the risk of irreparable injury

rather than to restrain the enforcement of that

which, although it may be later determined to be

invalid, is designed to further the public good.

ARGUMENT

Under the standards for preliminary injunctive relief

which apply in this Circuit, the continuation of the tem-

porary restraining order presently in effect cannot be

justified. First, plaintiffs cannot show any injury justi-

fying protection. Not only is it established that in all

probability they have sufficient deferred maintenance and

delayed capital improvements to fully expend Ex Parte

305 revenues, but also they have an administrative

remedy available in the event they do not. Second, plain-

tiffs do not have a probable right to relief in this suit,

and defendants have a far greater chance of ultimate

success. Third, the public interest requires that the tem-

porary restraining order be dissolved, and that plaintiffs

forthwith be brought into compliance with the Commis-

sion’s orders.

a. Injury to Plaintiffs

The temporary restraining order finds that enforce-

ment of the Ex Parte No. 305 conditions against plain-

tiffs would irreparably harm them. Such is clearly no

longer the case, even if initially it was.

The Chessie System Lines have more than sufficient

deferred maintenance and delayed capita’ improvements

on which to spend their Ex Parte 305 revenues. This is

established by the Affidavit of Edward P. Johnson (Ex-

SS ae rere

hibit A hereto), which analyzes in detail Chessie’s own

reports to the Commission and finds substantial short-

falls in deferred maintenance alone. As to replacement

of rail cross ties, Mr. Johnson finds that Chessie’s aver-

age annual replacement rate between the years 1954-

1973 is 1.69% of the total ties in place. This works out

to an average tie life of 59 years, which is considerably

in excess of norms accepted in the industry. The rail-

roads’ own view, as reflected in the “ASTRO Report”,'

is that cross ties have a life of 35 years. The inability

of the Chessie Lines to meet this standard represents

deferred maintenance of $92.8 million. Even using a

more conservative tie life of 40 years, deferred mainte-

nance amounts to $60.8 million. (Johnson Affidavit, at

pp. 2-3).

By way of comparison, Mr. Johnson analyzed the situ-

ation of the two other railroads, Southern Railway

(chosen because it is one of the more profitable rail-

roads in the country), and Norfolk & Western Railway

(chosen because it has operating characteristics some-

what similar to the Chessie Lines). Both these railroads

have considerable deferred maintenance of ties, and have

admitted as much in reports to the Commission (see

Johnson Affidavit, p. 4).

A similar analysis is made of deferred maintenance of

rail. This shows that the Chesapeake & Ohio has de-

ferred maintenance of rail of $44.4 million, and that

Baltimore & Ohio has deferred maintenance of rail of

$36 million. The comparison roads, Southern and Nor-

folk and Western, both showed substantial deferred

maintenance of rail. (Affidavit, at pp. 4-7). In addition,

the affidavit shows an increased incidence of derailments

due to defects in track and roadbed on the Chessie Lines,

from 87 in 1964, to 240 in 1973—an increase of 176%.

The Class I railroads nationwide (except plaintiffs)

reported $2.56 billion in deferred maintenance of road-

way, $337 million in deferred maintenance of equipment,

*“The American Railroad Industry: Prospectus”, a report of

America’s Sound Transportation Review Organization, June 30,

1970, compiled for the Association of American Railroads.

$2.17 billion in delayed capital improvements of road-

way, and $2.1 billion in delayed capital improvements of

equipment—totaling $7.16 billion (see Exhibit B, sum-

mary of Ex Parte 305 reports of deferred maintenance

and delayed capital improvements.)* By contrast, ex-

pected revenues are only $1.2 billion.’ In the face of this

evidence, which both analyzes Chessie’s own performance

and compares it to other carriers which have reported,

Chessie’s assertion that it has no deferred maintenance

or delayed capital improvements—and is thus required

to keep unusable funds in Account 716—is impossible to

believe.

However, even if the Chessie Lines are correct in their

assertion that they have no deferred maintenance or de-

layed capital improvements, they still can show no in-

jury justifying a temporary restraining order. By its

order of October 3, 1974, the Commission authorized any

carrier believing itself unable to expend Account 716

funds as directed to apply to the Commission for per-

mission to use the funds for “new and additional capital

improvements’. In their brief on the merits plaintiffs

argue at length that this modification of the requirements

does not help them, but the fact remains that they have

steadfastly refused to file such an application. Since the

gravamen of their original complaint was that the orders

prior to that of October 3 precluded them from applying

the funds to a whole range of new capital projects, the

October 3 order affirmatively establishes that there is

no longer, if there ever was, any irrep*rable injury to

plaintiffs.

These facts show that plaintiffs are completely without

any irreparable injury, or in fact any injury at all.

Rather than showing harm of any kind, plaintiffs’ sub-

? The comparison railroads showed as follows: deferred mainten-

ance roadway, Southern 41,800,000, N&W 61,467,000; deferred

maintenance equipment, Southern, O, N&W, $8,032,000; delayed

capital improvements roadway, Southern $119,964,000, N&W, $78,-

491,000; delayed capital improvements equipment, Southern, $40,-

600,000, N&W, $87,992,000.

* Southern reported estimated increased revenues of $63,892,000,

and N&W increased revenues of $88,765,000.

missions to this Court thus far show only a desire to

spend the funds as they see fit. But as we next show,

plaintiffs have no probable right to relief in this case and

are unable to show any probability of ultimate success

in this suit.

b. Probable Right to Relief

As fully discussed in our Joint Brief to this Court,

plaintiffs have no probable right to relief in this suit,

and defendants have shown a substantial probability that

they, and not plaintiffs, will ultimately succeed on the

merits. As we demonstrate in that Brief:

1. The Commission’s orders are not judicially review-

able because they are part of the suspension process,

which is agency action committed to agency discretion

(pp. 14-17). Further, the orders are unreviewable be-

cause plaintiffs have failed to exhaust administrative

remedies (pp. 17-19).

2. Plaintiffs should be equitably estopped from main-

taining this suit, since they have attacked the condi-

tions of the rate increase while at the same time enjoy-

ing the benefits of the increase (pp. 19-21).

3. The Commission has the power to suspend and in-

vestigate a rate increase, while at the same time allow-

ing the increase to go into effect without suspension and

investigation but subject to conditions reasonably de-

signed to promote service improvements (pp. 22-28).

4. The particular conditions adopted in Ex Parte 305

are reasonable and lawful, and the Commission’s orders

are not substantially or procedurally defective in any

way (pp. 29-42).

c. The Public Interest

As the Court pointed out in West Virginia Highlands

Conservancy V. Island Creek Coal Co., 441 F.2d 232, 236

(4th Cir. 1971), there are occasions where the public

interest requires that preliminary injunctive relief be

denied even if a private party runs the risk of irrep-

arable injury. Where, as here, there is no showing of

irreparable injury, the public interest compels all the

more that the temporary restraining order be dissolved.

The Commission in Ex Parte No. 305 has identified

deferred maintenance and delayed capital improvements

as the major areas of concern in railroad operations. It

has noted that the overall quality of service has tended

to deteriorate despite periodic general increases of the

type here involved. And it has found that, except for the

first 3°° of the increase which may be devoted to in-

creased material and supply costs, revenues must be de-

voted to deferred maintenance and delayed capital im-

provements. This is a rational judgment, acquiesced in

by virtually every railroad in the country ether than

plaintiffs.

The Ex Parte 305 record also identifies the problems

of the shipping public. As is more fully discussed in our

Joint Brief, many shippers are concerned not only over

the increase itself, but also over the question of uses to

which the revenues will be put. The Commission’s deci-

sion to authorize the immediate implementation of the

increase subject to conditions is an accommodation of the

railroads’ interest in revenues and the shippers’ interest

in improved service. The exemption of the Chessie Lines

from these requirements cannot be justified any longer.

Moreover, the reports filed by the nation’s railroads

show that the revenues to be derived from this increase

are nowhere near the amount of deferred maintenance

and delayed capital improvements. Revenues tota! about

$1.2 billion for all railroads, while maintenance and im-

provements amount to over $7 billion. Revenues avail-

able to meet these needs are only $453 million of the

$1.2 billion (39° of total Ex Parte 305 increase), since

the remainder goes toward materials and supplies and in-

creases in income taxes, and since not all railroads have

taken the full 10° increase. Yet this amount is a

step in the right direction, and plaintiffs should be

obligated to do as the other railroads have already done.

At this point the Chessie Lines are free of the obliga-

tion to report or use revenues in the specified manner,

and the Commission cannot be sure to what uses their

Ex Parte 305 revenues are being put. If, on the one

Th PST RS

ee RR Se ay

hand, they are in substantial de facto compliance with

the Commission’s orders by expending their revenues in

the specified manner, the temporary restraining order is

unnecessary. If, on the other hand, they are not applying

their funds to deferred maintenance and delayed capital

improvements, there is no justification for their further

failure to do so. In either case the Chessie Lines should

be forthwith required to report as every other railroad

has done, and to expend their revenues as every other

railroad has done. If they still insist that they are with-

out deferred maintenance and delayed capital improve-

ments, they should be obligated by the removal of this

temporary restraining order to apply to the Commission

at once for authority to apply these funds to new and

additional capital improvements.

One other recent development merits attention. On

November 15, 1974, the nation’s railroads (except plain-

tiffs) applied for still another general increase of 7%,

to become effective at the beginning of 1975. The Com-

mission has not yet taken any action with respect to

this new request, either as to the level requested or the

matter of conditions. The Chessie Lines have so far

declined to participate in this request. This may be

due either to disagreement over the level sought or the

possibility of conditions being attached to the new in-

crease—defendants cannot be sure at this point. But

to the extent that Chessie’s continued avoidance of con-

ditions may cloud the more germane issues of the level

of and need for the new increase sought, the dissolution

of the temporary restraining order would have the

salutary effect of forcing plaintiffs to decide whether or

not they wish to participate in the proposed new in-

crease solely on the basis of the amount of the increase

sought. As matters presently stand, plaintiffs’ obvious

hope to avoid conditions confuses the real issue in the

pending increase.

CONCLUSION

For all the above reasons, the temporary restraining

order issued on August 18, 1974, should be dissolved

forthwith.

Respectfully submitted,

THOMAS E. KAUPER

Assistant Attorney General

DAVID HOPKINS

United States Attorney

JOHN H. D. WIGGER

Attorney

Department of Justice

Washington, D.C. 20530

Davip G. LOWE

Assistant U.S. Attorney

Richmond, VA 23210

Attorneys for the United States

of America

Fritz R. KAHN

General! Counsel

HANFORD O’HARA

Attorney

Interstate Commerce Commission

Washington, D.C. 20423

Attorneys for the Interstate

Commerce Commission

| Exhibits omitted!

ct earn

- oe

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Richmond Division

C. A. No. 74-0370-R

THE CHESAPEAKE AND OHIO RAILWAY COMPANY,

THE BALTIMORE AND OHIO RAILROAD COMPANY,

and

WESTERN MARYLAND RAILWAY, PLAINTIFFS

Vv.

UNITED STATES OF AMERICA,

and

INTERSTATE COMMERCE COMMISSION, DEFENDANTS

AFFIDAVIT OF EDWARD P. JOHNSON

DISTRICT OF COLUMBIA

S.S.

Edward P. Johnson, being duly sworn according to

law, deposes and says:

I am employed by the Federal Government, Interstate

Commerce Commission, Bureau of Accounts, as an audi-

tor in the Section of Audit. I received a Bachelor of

Commercial Science degree from Benjamin Franklin Uni-

versity, Washington, D. C. My background has been

principally in accounting and depreciation. I was em-

ployed in the accounting department of the Southern

Railway Company for twenty-two years, between 1942

and 1964, with the exception of military service, January

1943 to April 1946. The majority of my time was spent

in the area of property investment accounting concerning

the assets which comprise the physical plant and equip-

ment of the railroad. I held various accounting positions

between 1946 and 1959, including valuation accountant,

special traveling accountant, and Assistant to the Auditor

of Capital Expenditures. I was Assistant Manager, Capi-

tal Expenditures, from January 1960 to June 1964. In

June 1964 I entered the employ of the Interstate Com-

merce Commission, Bureau of Accounts, as a Staff Ac-

countant. From July 1965 to August 1968, I was Chief,

Depreciation Branch. From August 1968 to October

1970 I was Chief of Field Reports Review Branch.

From October 1970 to March 3, 1973 I was Chief, Sec-

tion of Valuation and Depreciation. From March 4,

1973 to the present time my position has been Auditor,

Section of Audit.

The railroads comprising the Chessie System, The

Chesapeake and Ohio Railway Company (C&O), The

Baltimore and Ohio Railroad Company ‘B&O), and

Western Maryland Railway Company (WM) contend

that there is no deferred maintenance (as that term is

defined in Ex Parte No. 305) existing on their lines.

This contention is not supported by historical data re-

ported to the Commission by these carriers.

The data used in this affidavit were taken from the

Annual Report Form A’s filed with the Interstate Com-

merce Commission by the railroads making up the

Chessie System, unless otherwise noted.

An analysis of this data was made and the results

compared with an established norm for the railroad

industry as a whole. It consists primarily of a study

of Chessie System’s maintenance practices concerning

the track structure, and in particular, tie and rail re-

newal programs. On-site inspection of the Chessie Sys-

tem facilities to determine a more precise measurement

of deterioration was not made.

It is an accepted fact that all physical plant assets

are subject to deterioration through normal wear and

tear over their life expectancy until they are ultimately

retired. However, some assets are retired early due to

obsolescence vor casualty, or a change in operations

renders them less useful.

In the railroad industry one of the major reasons for

tie and rail replacement is wear and tear. Service life of

cross ties is dependent on such factors as type of wood,

treating process, preservative used, climatic conditions,

tonnage and incidence of traffic over the rails supported

by the ties.

Numerous studies have been prepared over the years

by engineering and consulting firms establishing certain

norms for service life of railroad properties. The service

life used in this analysis for cross ties is 35 years. This

life was taken from the ASTRO Report' which was

prepared in 1970 for the Association of American Rail-

roads to show the then current condition of the industry.

It was an in-depth study of many aspects of the rail-

roads and developed, among other things, an estimate

of deferred maintenance which was substantial. Con-

cerning the life of cross ties the following statement was

reported (page 65): “With minor variations due to

climatic conditions and terrain, the responses of the

survey of railroad officials suggested a 35-year life for

new cross ties.”

Naturally, it is recognized that the maximum and

minimum life of a cross tie can vary depending on the

track maintenance programs and practices of the par-

ticular railroad involved.

It is interesting to note, however, that in its Ex Parte

305 report to the Commission one eastern railroad used

this 35-year life in developing the amount of deferred

maintenance.

A. DEFERRED MAINTENANCE—CROSS TIES

The cost of a cross tie varies in different sections of

the country and today some railroads are paying from

'“The American Railroad Industry: Prospectus,” a report of

America’s Sound Transportation Review Organization, June 30,

1970, compiled for the Association of American Railroads.

$10 to $17 per tie. Installation costs also vary depend-

ing on the method used to install. Some railroads use

automated track machinery and others less advanced

methods. The cost used here for an installed tie is a

conservative one of $16, consisting of $12 for the tie and

$4 for labor.

Using a 35-year life for creosoted cross ties and re-

lating this to the renewal practices of the Chessie Sys-

tem, a substantial amount of deferred maintenance is

determined. This life represents an annual renewal

rate of 2.86°° which is arrived at by dividing the 35-

year service life of the tie into 100°.

The Chessie System’s average tie replacement rate for

the past ten years, 1964-1973, is 1.70%, indicating a

service life of 59 years. This figure was determined by

averaging figures reported in the C)essie System Lines’

Railroad Annual Report Form A’s for the period in-

volved. This life is not realistic and to my knowledge

has never been achieved by any class I railroad.

One might surmise that the rate of 1.70% attained

by Chessie System in recent years is low because Chessie

had been replacing its ties at a more rapid rate in

prior years. This is not true. As a matter of fact, the

Chessie System’s composite renewal rate for the past

twenty years, 1954-1973, determined in the same manner,

is 1.69°~, slightly less than it was for the past ten years,

1.70%.

The Chessie System on December 31, 1973, had 53.9

million cross ties in place, which is slightly less than the

average number of ties in place over the past ten years.

Applying the rate of 2.86°°, based on a 35-year life

for cross ties, to the existing ties in place, produces 1.5

million ties to be replaced on an annual basis, or 15

million ties for the limited period of the past ten years.

The actual replacements made by the Chessie System

during this period totalled 9.2 million, leaving a de-

ficiency of 5.8 million ties and deferred maintenance

amounting to $92.8 million.

If we ignore the standard of the 35-year life, devel-

oped by the ASTRO Report, and use a more conserva-

tive one of 40 years, then the annual rate would he

2.509%. Applying this rate, as previously done for the

35-year life, would produce a deficiency of 3.8 million

ties and deferred maintenance amounting to $60.8

million.

As a comparison to the Chessie System, I have made

a similar study of cross tie replacements for the Southern

Railway System and the Norfolk and Western Railway

Company, both highly profitable roads which reported

deferred maintenance on their Ex Parte 305 reports

filed with the Commission, The Southern was chosen

because it is considered one of the best maintained roads

in the country among railroad managements, engineers

and financial analysts. The Norfolk and Western was

chosen because its operating territory is similar to

Chessie’s and is similarly heavily dependent on coal

traffic.

In its form 305-A-6 filed with the Commission, South-

ern Railway Systems shows deferred maintenance of

about 1.7 million cross ties despite the fact that its tie

renewal program over the past ten years has been ex-

tremely heavy. Southern System has 40.2 million ties

in place of which 14.1 million have been replaced in the

past ten years. The average of 1.4 million ties replaced

each year represents a period replacement rate of nearly

3.6%, suggesting a 29-year life. Admittedly Southern’s

heavy tie replacement program in recent years resulted

from the need to catch up for the prior ten year period,

1954-1963, when the tie renewal rate was 2.09. Never-

theless, Southern’s replacement rate of 2.09 during the

1954-1963 period was higher than the Chessie’s tie re-

placement rate of 1.69% during that same period.

Norfolk and Western shows deferred maintenance of

nearly 1.9 million cross ties in its form 305-A-6 filed

with the Commission. N&W’s replacement rate over the

1964-1973 period averages about 1.64% a year, slightly

lower than the Chessie System’s 1.70%. This is a wholly

inadequate replacement rate also but, the important thing

is that the Norfolk and Western concedes the fact it has

deferred maintenance.

B. DEFERRED MAINTENANCE—-RAIL

Adequacy of rail replacement is very difficult to de-

termine without a breakdown of a railroad’s traffic

density for each segment of its roadway, as the life of

rail is largely determined by the gross tonnage moved

over it. The Norfolk and Western, in calculating de-

ferred maintenance in connection with Ex Parte 305,

estimated that the life of rail is 550 million gross ton

miles per mile of track. While the average number of

miles operated and the average number of tons carried

one mile per mile of track is known for each railroad

we do not know how that tonnage is distributed. Never-

theless, we do have some idea, based on historical data,

what the average life for rail measured in years is, for

the railroad industry.

~The ASTRO Report contained a section dealing with

the life of rail. It stated (p. 14): ‘According to current

estimates, new rail can reasonably be expected to last an

average of 60 years, including subsequent reuse in sec-

ondary lines.” The basis for this life is also quoted

(p. 65): “The Standard of 60 years for the total life

of new rail ‘132-140 pounds per yard) was developed

from a survey of members of the General Committee,

Operating-Transportation Division, AAR, taken in Feb-

ruary 1970.”

Interestingly the Reading Company in reporting de-

ferred maintenance to the Commission, on form 305-A-6,

used a 50-year life for rail.

In order to give the railroads which comprise the

Chessie System the benefit of the doubt, I used a 60-year

life in calculating deferred maintenance on rail.

It is recognized that the 60-year life is an average for

the railroads and includes tracks which will have less

tonnage hauled over them than others thereby extending

the service life beyond 60 years for those tracks. On

the other hand, the density on the main lines and major

branch lines may be so great as to cause segments of

these lines to be replaced after a relatively short period

of time. It is not unusual for large Class I railroads to

replace extensive trackage of the main line in twenty

e+ ww ree

years or less. One railroad reported a 20 year life for

its main line tracks.

The Chesapeake & Ohio operates its trains over 10,000

miles of track. Included in this mileage is 1,380 miles

of track used by C&O under trackage rights. These

tracks are maintained by others. For replacement pur-

poses the 1,380 miles of track have been excluded from

C&O’s mileage leaving a total of 8,620 miles.

Using a 60-year life this would mean that nearly 144

miles of new rail would have to be replaced each year.

C&O has averaged about 70 miles of new rail replace-

ment per year over the last ten years, for a total de-

ficiency of 740 miles during this period. It costs about

$60,000 a mile to put new rail in place. A 740-mile de-

ficiency represents $44.4 million in deferred maintenance.

The B&O operates its trains over 10,200 miles of

track. Included in this mileage is slightly over 500 miles

of track used by B&O under trackage rights. These

tracks are maintained by others. For replacement pur-

poses the 500 miles of track have been excluded from

B&O’s mileage leaving a total of 9,700 miles.

Again, using the 60-year life indicates the need to re-

place about 162 miles of new rail per year. The average

replacement rate over the past ten years was 102 miles,

creating a deficiency of 600 miles. At a cost of $60,000

per mile in place this amounts to over $36 million in

deferred maintenance.

It should also be pointed out that over the past ten

years the Chessie System has had one of the highest

traffic densities in the industry. The higher the traffic

density the lower the anticipated rail life should be.

An analysis of the annual report, Form R-1, data

furnished by the railroads for year 1973 and compiled

by the Commission reveals that the Chessie System ac-

counted for 23% of the gross ton-miles of freight moved

over the tracks by all the Class I railroads in the Eastern

District of the United States. It was exceeded only by

Penn Central, the giant of the industry.

The Chessie System’s percentage of total freight gross

ton-miles moving over the tracks for all Class I rail-

roads in the United States was 6.41.

By comparison Southern Railway System operates its

trains over about 15,800 miles of track. For replace-

ment purposes I have excluded 1,600 miles covered by

trackage rights leaving a total of 14,200 miles. Based

on a 60-year life the annual replacement mileage would

be 237 miles. Over the past ten years the actual re-

placement rate has averaged 196 miles a year for a total

deficiency of 410 miles. However, Southern does not

claim that it does not have deferred maintenance. In-

terestingly enough, Southern in its form 305-A-6 claims

it has deferred maintenance of 106,142 rail tons. Using

130 pound rail this works out to 464 miles of deferred

maintenance. The average weight of Southern’s replace-

ment rail has been about 130 pounds over the past ten

years.

In addition, Southern’s rail renewal program has been

substantial over the past five years, averaging close to

300 miles per year, indicating a program to overcome

past deficiencies. It should also be noted that Southern’s

traffic density has averaged much lower than Chessie’s

over the past ten years, an important factor in de-

termining rail life.

The Norfolk and Western operates its trains over

nearly 15,000 miles of track. Included in this figure are

1,700 miles of track operated under trackage rights. For

replacement purposes this mileage has been excluded

leaving a total of 13,300 miles. Based on a 60-year life

222 miles of track should have been replaced annually,

or for the past ten years 2,220 miles. In actuality, only

987 miles of track were replaced with new rail for a

deficiency of over 1,233 miles. However, N&W admits to

having deferred maintenance.

In its Form 305-A-6 the Norfolk and Western shows

deferred maintenance of 152,301 tons of rail. At an

average of 130 pound rail it represents deferred main-

tenance of 666 miles of track. Based on these determina-

tions N&W’s deferred maintenance is understated.

C. DERAILMENTS ATTRIBUTABLE TO DEFECTS

IN OR IMPROPER MAINTENANCE OF TRACK

AND ROADBED

The Accident Reports Act (45 U.S.C. Sections 38, et

seq.) requires railroads to report monthly accidents and

the causes to the Department of Transportation, Fed-

eral Railroad Administration. Included in these reports

are train derailments.

One of the best indicators as to whether a railroad is

maintaining its facilities to meet acceptable maintenance

standards is the incidence of accidents attributable to

faulty conditions of the track structure. If the number

of accidents is increasing consistently and the number

of cars moving over the line remains fairly constant it

is logical to conclude there is a breakdown in main-

tenance.

In support of this view, Penn Central has the largest

number of derailments in the industry by far, and has

reported to the Commission that deferred maintenance

attributable to the track structure amounts to $617.6

million, an alarming figure.

The Accident Bulletin of the Department of Transpor-

tation * reveals that since 1964, when there were 87 de-

railments on the Chessie System Line due to defects or

failures in the roadway facilities, through 1973, when

there were 240, derailments on the Chessie System have

risen 176 percent.

Derailments can have an adverse effect on railroad

operations by causing traffic to be tied up until the tracks

are cleared and again made operable. In some cases the

derailments may result in the complete loss of the prod-

uct being transported due to irreparable damage. The

existence of these conditions certainly would have an

adverse effect on rendering proper service to the shipper.

? Accident Bulletin, Summary and Analysis of Accidents on Rail-

roads in the United States, U.S. Department of Transportation,

Federal Railroad Administration, Office of Safety.

74 75

It is my opinion that these types of situations are cov- If called upon to do so, I would testify to the fore-

ered by the Commission’s definition of deferred main- going substantially as set forth in this affidavit.

tenance wherein the service to the shipper is rendered

partially or wholly inadequate.

EDWARD P. JOHNSON

D. DEFERRED MAINTENANCE—EQUIPMENT

,; oe: ; Sworn to and subscribed

One of the most widely used indicators in measuring before me this day

deferred maintenance of freight train cars is the bad of November, 1974.

order ratio. This ratio is developed by relating the un-

serviceable cars in need of repairs to the total number

of freight carrying cars on line. For the past decade an Notary Public

average of about 5° was attained by the railroad in-

dustry as a whole according to reports published by

the Commission.”

A comparison was made of the Chessie System bad

order ratio to that of the United States as a whole for

the twelve months ended December 31, 1973. It reveals

that Chessie’s ratio is 5.45% and the United States is

5.60°;. Using these data as the sole criterion Chessie

System's performance is satisfactory. It should be noted

however, that the majority of Class I railroads reported

to the Commission under Form 305-A-6, that they had

deferred maintenance of equipment. The estimated

amount of these deferrals aggregated $300 million.

My analysis shows that based on established norms for

rail and tie renewal replacement cycles the Chessie Sys- |

tem has deferred maintenance. It also shows that de-

railments attributable to track defects in or improper

maintenance of track and roadbed have increased ap-

preciably.

‘Financial and Operating Statistics, Statement No. 100. From

1964 through 1970, Statement No. Q-240 (OS-C ).

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Richmond Division

C. A. No. 74-0370-R

THE CHESAPEAKE AND OHIO RAILWAY COMPANY, ET AL,

PLAINTIFFS

Vv.

THE UNITED STATES OF AMERICA, ET AL, DEFENDANTS

MEMORANDUM IN OPPOSITION TO MOTION

TO DISSOLVE THE RESTRAINING ORDER

PRELIMINARY STATEMENT *

The Motion to Dissolve the restraining order and the

accompanying memorandum and affidavit manifest yet

another vain effert by the Commission to divert atten-

tion from its untenable position with respect to the il-

legal conditions. The effort plainly fails as it is wholly

without basis in law or fact. Indeed, the Commission’s

factual contentions are irrelevant and inaccurate as to

Chessie System lines and its legal position is contra-

dicted by the sole decision on which it relies. Injunctive

relief against the illegal conditions was and is proper.

But before demonstrating this, one important point

must be made. Whether or not Chessie System lines

have any “deferred maintenance” or “delayed capital

improvements” is irrelevant to, and has no effect upon,

the central issue before this Court, namely the Commis-

sion’s lack of statutory power to promulgate and enforce

the challenged conditions. Thus, the unprecedented, il-

legal conditions would not be saved even if, as is not the

case, Chessie System lines had “deferred maintenance”

or “delayed capital improvements.” Not surprisingly, the

Commission’s argument obscures this point, as it is de-

voted chiefly to ill-founded efforts to avoid judicial re-

view.

* The plaintiffs will be referred to as the Chessie System lines.

The defendants will be referred to collectively as the Commission.

ARGUMENT

THE DISTRICT COURT’S RESTRAINING ORDER

WAS PROPERLY GRANTED AND SHOULD

REMAIN IN EFFECT UNTIL THIS COURT

GRANTS PERMANENT RELIEF

1. I/njunctive Relief is Appropriate Here

Wide of the mark are the Commission’s contentions

that (a) Chessie has raised no substantial issues in this

case and has no “probable right’; (b) there is no injury

to Chessie; and (c) the public interest requires dissolu-

tion of the restraining order.

(a) Chessie System Lines Have a “Probable Right”

West Virginia Highlands Conservancy v. Island Creek

Coal Co., 441 F.2d 232 (4th Cir. 1971) is the sole deci-

sion cited by the Commission on this point. There, in

portions of the opinion not quoted by the Commission,

the Fourth Circuit made clear that an applicant for

preliminary injunctive relief need not “demonstrate an

absolute right to the relief it seeks.” Instead, a “prob-

able right” is established if the court is satisfied that

“substantial isues” are raised, the resolution of which

is “not immediately apparent” and that the applicant

has not embarked on frivolous litigation.

Chessie System lines more than meets this standard.

Indeed, they have demonstrated above and in their open-

ing brief that they have a far greater chance of ulti-

mate success than the Commission. Thus, as Chessie

System lines have demonstrated, the Commission’s efforts

to control the manner in which railroads spend their

revenues is without precedent, without statutory basis,

without judicial authority, and fraught with serious

consequences. The only leigslation by which the Com-

mission was ever given authority over revenues was the

ill-fated Recapture Clause, a power decisively repealed in

1933. Since that time, the courts, and the Commission

itself, have consistently recognized that the Commission

has no authority to require or limit in any way the

disposition of railroad revenues. This point is under-

scored by the Commission's pending request to Congress

for the very power it seeks to assert here without Con-

gressional or statutory approval. By any standard, there-

fore, it is Chessie System lines, not the Commission,

which have demonstrated a high probability of ulti-

mate success. To argue that Chessie System lines have

not established a “probable right” is to ignore that the

illegal conditions are an attempt to exercise a revolu-

tionary power not granted by Congress, denied by the

courts and repeatedly disclaimed by the Commission.

ib) Enforcement of the Illegal Conditions Would

Result in Serious Irreparable Injury to Chessie

System Lines

The affidavit of Mr. J. T. Ford, Senior Vice President

of Chessie System lines, a copy of which is attached

hereto as Exhibit A, establishes that despite the October

3 order, the illegal conditions prevent Chessie System

lines from using the Er Parte No. 305 revenues. Chessie

System lines have no “deferred maintenance” or “de-

layed capital improvements” as defined by the challenged

orders. Their three hundred million dollar capital ex-

pansion program is not a “new and additional capital

improvement” as defined in the October 3, 1974 order.

Thus, enforcement of the illegal conditions would re-

quire Chessie System lines to collect from shippers rev-

enues they cannot spend. The result is that Chessie Sys-

tem lines will be seriously disadvantaged vis-a-vis its

competitors and shippers will not get their money’s

worth.

Significantly. in an apparent invitation to flaunt the

challenged conditions, the Commission on page 8 of its

Brief on the merits states unequivocally that the defini-

tions of “deferred maintenance” and “delayed capital

improvements” leaves to carrier management the de-

termination of the extent to which those conditions exist

with respect to their own properties.” Then, in direct

contradiction of this statement, the Commission devotes

the major portions of its argument to an attempt to cast

doubt on statements by Chessie System lines that it has

no “deferred maintenance” or “delayed capital expendi-

tures,” nor, indeed, any “new and additional capital im-

provements.” This contradiction underscores the lengths

to which the Commission will go to secure acquiescence

to its unlawful plan. The fact is the Commission’s posi-

tion in this case makes unmistakably clear that its real

intention is to contro] the ways in which railroads spend

their revenues.

Apart from contradicting itself, the Commission has

wholly failed to counter the sworn statements of the

management of the Chessie System lines. Thus, the sole

basis for the Commission position is the affidavit of its

own auditor, Edward P. Johnson. The affidavit is in-

accurate and incomplete in several respects. Mr. John-

son failed to consider the appropriate statistical period.

His conclusions were based on statistical standards of

his own making. Though admitting that the average

life of a railroad tie is 35 years, he erroneously took

into account only 20 years of Chessie System lines tie

replacement program. Had Mr. Johnson reviewed the tie

replacement program for the appropriate statistical

period (from 1939 to the present), he would have found

that Chessie System lines have no deferred maintenance.

In 1939, Chessie System lines had in place approximately

50 million ties. In the 35-year period since then, Chessie

System lines have installed at least 52 million ties, a

number more than sufficient to meet any maintenance

program.

Mr. Johnson’s conclusions with respect to rails are

equally erroneous. For example, Johnson wholly failed

to take into account Chessie System lines’ substantial

installation of modern welded rail, a fact which invali-

dates his analysis. Importantly, all of the facts above

are supported by the affidavit of J. W. Brent, Chief

Engineer for Chessie System lines, a copy of which is

attached hereto as Exhibit B. That affidavit establishes

that Chessie System lines have not neglected their rail

or tie replacement program. Unlike Mr. Johnson, Mr.

Brent is a qualified engineer with first-hand knowledge

of the actual facts pertaining to Chessie System lines.

In sum, if the illegal conditions are enforced, Chessie’s

irreparable economic injury will mount daily. Under

these circumstances, interlocutory injunctive relief is un-

questionably appropriate. This conclusion is confirmed

by the marked absence of any demonstrable injury to

the Commission, if the illegal conditions are enjoined.

The significance of this factor was recognized by the

Fourth Cireuit in the West Virginia Highlands Con-

servancy case Where it noted that:

“Interlocutory relief is not improper if... [Peti-

tioner| can also show a need for protection which

outweighs any probable injury to... | Respondent}.

441 F.2d at 235.

Interlocutory injunctive relief is all the more appro-

priate where, as here, there is a threat of actual and

substantial injury to Chessie System lines and no cor-

responding injury to the Commission.

(ec) Interlocutory Injunctive Relief Is in the Public

Interest

Without the protection granted by the District Court,

as the J. T. Ford affidavit points out, the illegal condi-

tions would have prevented Chessie System lines from

using the approximately $53 million in additional rev-

enues derived from Ex Parte No. 305, The illegal con-

ditions would have restricted Chessie System lines’ ex-

penditures for increased costs of materials and supplies

to a maximum of 3 percentage points of the total ten

percent rate authorization. However these costs actually

amounted to $25 million—a figure well in excess of the

allowable percentage. The remainder of the $53 million,

after taxes, was expended on normal maintenance. Af-

fidavit of J. T. Ford, Exhibit A, p. 2.

If *t had not been for the District Court’s restraining

order, the funds from Ex Parte No. 205 would have been

frozen and unavailable for application to Chessie Sys-

tem lines’ increased costs and maintenance expenses. Nor

would it have been available to defray the increased taxes

described in the supplemental affidavit of James T. Lyon,

a copy of which is attached hereto as Exhibit C.

Therefore the public interest is aligned with the posi-

tion taken here by Chessie System lines. The rate payers

are the public and would have received nothing for their

increased bills had the Commission’s conditions remained

in effect. Nor would they have received service improve-

ments commensurate with the higher rates.

2. The Material Circumstances Have Not Changed

The Commission contends that dissolution of the re-

straining order is required by “material changes in the

circumstances of the case [that] have taken place since

the temporary restraining order was originally en-

tered....” Despite repeated references to such “changes

in circumstances,” the Commission never identifies any

relevant changed circumstances. This is no accident;

there are none. The facts pertinent to the propriety of

injunctice relief are the same today as they were the

day the District Court entered the restraining order.

The only two post-August events referred to anywhere

by the Commission are the October 3 order and Chessie’s

present absence from the new general revenue increase.

Both are entirely irrelevant to the merits of continuing

the injunctive relief. As noted above and in Chessie’s

opening brief, the October 3 order aggravates rather

than remedies the situation. Under this order carriers

unable to use the increased revenues for “deferred main-

tenance” or “delayed capital improvements” may apply

to the Commission for permission to use the revenues for

“new and additional” capital improvements, defined nar-

rowly by the Commission to exclude projects “presently

undertaken, scheduled or otherwise committed.” This

is of no benefit to Chessie, since their $300 million capi-

tal program was already “scheduled or committed.” The

October 3 order, in short, changes nothing; it is simply

another condition or device by which the Commission

seeks unlawfully to displace railroad management and

control railroad revenue expenditures.

The irrelevance of Chessie’s refusal to participate in

the new rate increase request is underscored by the

Commission’s apparent purpose in mentioning it. The

Commission suggests that this Court should dissolve the

restraining order for the purpose of coercing Chessie

System lines to join in the new rate increase request and

to accept whatever other illegal conditions on revenue

expenditures the Commission may choose to impose.

'T\|o the extent that Chessie’s continued avoidance

of conditions may cloud the more germane issue of

the level of and need for the new increase sought,

~~ the dissolution of the temporary restraining order

would have the salutary effect of forcing plaintiffs

to decide whe: ier or not thy wish to participate in

the proposed new increase solely on the basis of the

amount of the increase sought. Memorandum In

Support of Motion to Dissolve, p. 9 ‘emphasis

added}.

In other words, the Commission simply wants Chessie

System lines to knuckle under. This is hardly a valid

reason for dissolving the restraining order.

CONCLUSION

The truth of the matter is circumstances have not

changed; the facts and circumstances now before this

Court on the question whether injunctive relief should

be continued are the same which led the District Court

to grant the restraining order. Injunctive relief was

proper then; it is proper now.

Respectfully submitted,

THE CHESAPEAKE AND OHIO

RAILWAY COMPANY

THE BALTIMORE AND OHIO

RAILROAD COMPANY

WESTERN MARYLAND RAILWAY

COMPANY

Of Counsel

acne Gowems oo

en ee ot ss

Owen Clarke

Ilene Chase Gregg

Doyle S. Morris

Charles C. Rettberg, Jr.

3100 Terminal Tower

Cleveland, Ohio 44101

George D. Gibson

E. Milton Farley, III

T. S. Ellis, Il

Richard D. Gary

Hunton, Williams, Gay & Gibson

Post Office Box 1535

Richmond, Virginia 23212

Counsel

CERTIFICATE

I certify that on the 10th day of December, 1974, I

mailed a copy of the foregoing Memorandum In Opposi-

tion To Motion To Dissolve The Restraining Order to

Thomas E. Kauper, Esq., Assistant Attorney General,

Department of Justice, Washington, D. C. 20530, John

H. D. Wigger, Esq., Department of Justice, Washington,

D. C. 20530, David Hopkins, Esq., United States At-

torney, Richmond, Virginia 23210 and David G_ Lowe,

Esq., Assistant United States Attorney, Richmond, Vir-

ginia 23210, counsel for United States of America; and

Fritz R. Kahn, Esq., General Counsel, Interstate Com-

merce Commission, Washington, D. C. 20423 and Han-

ford O’Hara, Esq., Interstate Commerce Commission,

Washington, D. C. 20423, counsel for Interstate Com-

merce Commission.

UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Richmond Division

C. A. No. 74-0370-R

THE CHESAPEAKE AND OHIO RAILWAY COMPANY, ET AL,

PLAINTIFFS

THE UNITED STATES OF AMERICA, ET AL, DEFENDANTS

AFFIDAVIT OF J. T. FORD

STATE OF OHIO )

’ To-wit:

COUNTY OF CUYAHOGA )

J. T. Ford, being first duly sworn, hereby deposes and

says that:

(1) I am Senior Vice President for each of the plain-

tiff railroad companies. I have submitted previously an

affidavit in this proceeding on August 17, 1974. I have

the following additional facts to bring forward:

‘a) By the end of November 1, 1974, and since the

effective date of the Ex Parte No. 305 increase (June 20,

1974), the plaintiffs have derived approximately $55

million in increased revenues from that increase.

(b) During that same period of time, the plaintiffs’

increased costs of materials and supplies have amounted

to $25 million. This figure is well in excess of the three

percentage points allowed. This leaves $28 million re-

maining, before taxes.

‘c) On an annualized basis, increased income and

other taxes attributable to the Ex Parte No. 305 in-

crease have been $18 million during said period. This

leaves $10 million remaining after all such taxes.

id) Since the effective date of the increase, the ex-

penditures have not only exceeded the above $10 million,

but they have increased by more than $11 million over

the corresponding period in 1973.

(e) Had it not been for the temporary restraining

order entered by this court (August 18, 1974), the Ex

Parte No. 305 conditions would have prevented plain-

tiffs’ use of the increased revenues for the purposes

described in (c) and (d) above, also for that portion of

(b) above which was in excess of the three percentage

points. The money was not spent for “deferred main-

tenance’ and “delayed capital improvements” as defined

by the Commission’s order.

(f) Plaintiffs have initiated a capital improvement

program of the magnitude of $300 million, all of which

was “undertaken, scheduled or otherwise committed”

prior to October 3, 1974. Were it not for this court’s

temporary restraining order, none of the Ex Parte No.

305 revenues could be applied toward this program, in

that none of the improvements were “delayed” according

to the Commission’s definition.

(g) Further, plaintiffs do not now have scheduled any

additional significant capital improvements as defined in

the October 3, 1974 order for which the Ex Parte No.

305 revenues may be applied.

(2) Therefore, all of the restrictions described in my

August 16, 1974 affidavit remain in effect today.

/s/ J. T. Ford

J. T. FORD

Taken, sworn to and subscribed before me, a Notary

Public in and for the jurisdiction aforesaid, in my juris-

diction aforesaid this 6th day of December, 1974.

My commission expires 9-22-77.

Notary Public

UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Richmond Division

C. A. No. 74-0370-R

THE CHESAPEAKE AND OHIO RAILWAY COMPANY, ET AL,

PLAINTIFFS

THE UNITED STATES OF AMERICA, ET AL, DEFENDANTS

AFFIDAVIT OF J. W. BRENT

STATE OF WEST VIRGINIA

COUNTY OF CABELL

)

) To-wit:

)

City OF HUNTINGTON )

J. W. Brent, being first duly sworn, hereby deposes

and says that:

(1) I am Chief Engineer (Operations and Mainte-

nance! for each of the plaintiff railroad companies. I

have held other positions in the engineering department

of one or more of plaintiff lines since 1949. In my

present capacity, I am responsible for the maintenance

of the plaintiffs’ lines of railroad.

(2) I have reviewed the affidavit submitted by Edward

P. Johnson, an auditor from the Interstate Commerce

Commission’s Bureau of Accounts, respecting plaintiffs’

maintenance program and I have the following comments

thereon:

(a) The Johnson study of rail and tie applications

does not contain enough history for use as a statistical

basis in establishing deferred maintenance. Since he in-

dicates that ties have a life average of 35 years, he

should have studied installation of ties on plaintiffs’

lines for a 35-year period rather than just 20 years.

During and after World War II, both C&O and B&O

installed much more material each year than would be

needed on an average life basis. This was necessary

after the depression to place the railroads in condition

to handle the increased traffic. One cannot exclude this

material, that is still performing first life service, from

any statistical study of adequacy of rail and tie applica-

tions. Also, Mr. Johnson tied his study to the mileage

of rail and population of cross ties on December 31,

1973, but completely disregarded the quantities of rail

and cross ties applied to construction projects that are

part of the plant.

(b) I am in agreement with Mr. Johnson’s estimate

of an average of from 35 to 40 years for the life of cross

ties. During the 35-year period from 1939 through 1973

the C&O and B&O installed 52,342,109 cross ties in

maintenance and construction, whereas the estimated

number of cross ties in all maintained tracks is just

50,661,540. Therefore, demonstrably, C&O/B&O have

more than fulfilled their maintenance responsibility.

ages for rail life. Mr. Johnson estimates an average

rail requirement for C&O/B&O of 306 miles based on

the 60 year life industry average. According to my

research, the average annual requirement has been 287

miles of new rail. After the current abandonment pro-

gram, the average requirement will be about 266 miles

per year. C&O and B&O installed 10,014 miles of new

rail in maintenance during the 35-year period from

1939 through 1973 for an average of 286 miles per year.

Additional rail was installed in construction. On De-

cember 31, 1973, 70° of the key service route mileage

had rail not exceeding 20 years old. Of the secondary

service routes and profitable branch lines, the percent-

ages were 50 and 41, respectively. After the retirement

of unneeded second main tracks, the percentages will

increase as the track with the older rail is being removed.

(d) To date, 4,766 miles of rail has been welded on

C&O and B&O, a figure second in the industry. Al-

though welded rail has been installed for less than fif-

teen years, over half of our service route mileage is in

welded rail and over a third of our profitable branch

lines. In 1974, 432 miles of welded rail is being laid

out of face, of which 248 is in key and secondary serv-

ice routes. An additional 30 miles of welded rail is being

laid in small patch lots.

3. I can attest that plaintiffs have no deferred main-

tenance nor delayed capital improvements within the

meaning of the Commission’s Ex Parte No. 305 defini-

tion. Our system has not suffered competitively nor has

service to our shippers been impaired because of any

defect in our maintenance and expenditures.

J. W. BRENT

Taken, sworn to and subscribed before me, a Notary

Public in and for the jurisdiction aforesaid, in my

jurisdiction aforesaid, this ——— day of December, 1974.

My Commission expires

Notary Public

UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Richmond Division

C. A. No. 74-0370-R

THE CHESAPEAKE AND OHIO RAILWAY COMPANY, ET AL,

PLAINTIFFS

Uv.

THE UNITED STATES OF AMERICA, ET AL, DEFENDANTS

AFFIDAVIT OF JAMES T. LYON

STATE OF OHIO )

) To-wit:

COUNTY OF CUYAHOGA )

James T. Lyon, being first duly sworn, hereby deposes

and says that:

I am Assistant Vice President—Taxes for each of the

plaintiff railroad companies, hereinafter referred to col-

lectively as the “Chessie System lines.” I have previously

submitted an affidavit in this proceeding. I wish to cor-

rect paragraph 7 of my original /"idavit in the light

of further study to read as follows:

“While the amount of increase in property taxes can-

not be calculated precisely (because of rate variations

over the five-year future period involved, differences in

the various state assessment formulas, and the like),

its magnitude can be closely estimated on the basis of

informed judgment. A ten percent increase in revenues

should result in an increase of $3,500,000 to $4,000,000

a year in property taxes at the end of five years, or at

least $300,000 a month. Of this, 20 percent (or $60,000

a month and $700,000 to $800,000 a year) will be pay-

able for the first year in which the increased revenues

are obtained, and an additional 20 percent will be added

for each of the next five years.”

JAMES T. LYON

Taken, sworn to and subscribed before me, a Notary

Public in and for the jurisdiction aforesaid, in my juris-

diction aforesaid this day of December, 1974.

My Commission expires

Notary Public

UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Richmond Division

C. A. No. 74-0370-R

THE CHESAPEAKE AND OHIO RAILWAY COMPANY, ET AL

PLAINTIFFS

’

Vv.

THE UNITED STATES OF AMERICA, ET AL, DEFENDANTS

SUPPLEMENTAL AFFIDAVIT OF J. T. FORD

STATE OF OHIO )

) To-wit:

COUNTY OF CUYAHOGA )

J. T. Ford, being first duly sworn, hereby deposes and

says that:

(1) I am Senior Vice President for each of the plain-

tiff railroad companies. I have submitted affidavits in

this proceeding on August 17, 1974 and December 10,

1974.

(2) In my December 10, 1974 affidavit, there is an

ambiguity. In paragraph (c), I stated that “increased

income and other taxes attributable to the Ex Parte

No. 305 increase have been $18 million.”

(3) In paragraph ‘e), I stated that had it not been

for the temporary restraining order entered by this

Court, the Ex Parte No. 305 conditions would have pre-

vented plaintiffs’ use of the increased revenues to de-

fray these taxes. Actually, the conditions permit use

of the revenues to defray income taxes. However, as

attested in the Lyon affidavit, there are taxes other than

income taxes of approximately $3.5 million to $4 million

a year included in the total of $18 million, which, under

the terms of the Commission’s conditions, may not be

defrayed by the Ex Parte No. 305 revenues. It is to

these taxes and not the entire $18 million tax figure to

which I referred when I stated in paragraph (e) that

the Ex Parte No. 305 revenues were unavailable for use

to pay them.

/8/ J. T. Ford

J. T. Forp

Taken, sworn to and subscribed before me, a Notary

Public in and for the jurisdiction aforesaid, in my juris-

diction aforesaid this 11th day of December, 1974.

My commission expires

/s/ Garth E. Griffin

Notary Public

GARTH E. GRIFFIN

Attorney

State of Ohio

My Commission has no expiration date.

Section 147.03 R.C.

ears by | A ee eh a A Od re oe

Oe eee ere ee

UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Richmond Division

C. A. No. 74-0370-R

THE CHESAPEAKE AND OHIO RAILWAY COMPANY, ET AL,

PLAINTIFFS

Vv.

THE UNI!ITED STATES OF AMERICA, ET AL, DEFENDANTS

AFFIDAVIT OF C. C. HAWK

STATE OF OHIO )

) To-wit:

COUNTY OF CUYAHOGA )

C. C. Hawk, being first duly sworn, hereby deposes

and says that:

(1) I am Assistant Vice President (Finance) of the

plaintiff railroad companies. I am in charge of the

budget for said companies. I have held various positions

in one or more of the plaintiff lines in the Accounting

and Financial Departments since 1960. My present

duties, as I have stated, include the obligation of pre-

paring the budget as well as reviewing and reporting

the capital expenditures of plaintiff Chessie System lines.

(2) For the first eleven months of 1974, plaintiff

Chessie System lines expended a total of $33.7 million

on capital improvements.

(3) From July 1, 1974 to November 30, 1974, plain-

tiff Chessie System lines expended $11.4 million on

capital improvements.

(4) I know personally in the discharge of my duties

from daily contact with Chessie System lines’ purchas-

ing, engineering, mechanical, and all other interested

personnel, that had there not been critical shortages of

steel

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.