# Appendix — United States v. Chesapeake & Ohio R. Co. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385003_1054%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1976 - **Citation:** 426 U.S. 500 ## 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- OG 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) 2 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) 4 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, v. 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 5 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. 6 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 7 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 10 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 11 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 12 authority for, the Commission’s action in imposing such conditions; (c) the imposition of such conditions constitutes 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. (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- 13 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 By 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 14 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. } 15 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 v. 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- 16 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 By 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 17 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 18 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. 19 (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 21 ; ; (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 n 22 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 23 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 24 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- 25 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 26 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 v. 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 27 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 28 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 29 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 30 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 v. 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, 31 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 32 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 33 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 34 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 v. 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- Se 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. 37 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- 38 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 39 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 40 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. ” 41 (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 42 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. 43 (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; (c) the imposition of such conditions constitutes 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. 44 (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 | 45 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: I. 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- 46 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. 3 47 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 48 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. Ve 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 49 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 50 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 51 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: 52 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. 53 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] 54 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. 55 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 56 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 v. 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 57 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): 58 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 59 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. 60 $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. 61 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 62 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 ae ee RR Se ay ae 63 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. 64 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 65 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- 66 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. 67 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. 68 $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 69 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 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385003_1054%3A2. Public record. Not legal advice.