# Petition — Lehigh & New England Railway Co. v. Interstate Commerce Commission > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_0715%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1977 - **Citation:** 429 U.S. 1061 ## Text el oct 6 wt R., CLERK Supreme Court of the Uniter' sas ——-— Ocroser Term, 1976 No. LEHIGH AND NEW ENGLAND RAILWAY COMPANY, Petitioner, Vv. INTERSTATE COMMERCE COMMISSION, UNITED STATES OF AMERICA and COMMONWEALTH OF PENNSYLVANIA (Intervenor Below), Respondents. — ——-—_—— _—_—_ — PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT — _ —_ Srantey WEIss, 744 Broad Street, Newark, New Jersey 07102 Counsel for Petitioner, Lehigh and New England Railway Com- pany. CarPENTER, Bennett & Morrissey, Attorneys for Petitioner. Rosert E. On the Brief. October, 1976 : ‘Adame Prese Corp.. 11 Commune Serest, Newark, N. 7. 07102—-(201) 623-8611 ain —— TABLE OF CONTENTS PAGE Oprrnions BELow ......... J URISDICTION 2 Questions PRESENTED - a ConstiTuTIONAL Provisions, StaTuTe, AND ReEGuLA- TIONS INVOLVED * 4 STATEMENT OF THE CASE 4 ReasoNs ror GRANTING THE WRIT: I—This case involves the first judicial con- struction and the first administrative ap- plication of the recently enacted 49 U.S.C. §1(16)(b), a statute of potentially great significance in the present environment of railroad failures, and Supreme Court re- view at this time will provide necessary guidance for the statute’s further applica- tion . 10 Ii—The Court of Appeals’ conclusion that the Commission may require a railroad to con- tinue to provide rail service, despite a lack of cash, unrecoverable operating losses, or a contrary court order, which conclusion was central to the Court’s holding that no Fifth Amendment taking is involved in a directed service operation, conflicts with applicable decisions of this Court, other Courts of Appeals and with other decisions of the Court of Appeals for the Third Cir- cuit 12 ii TABLE OF CONTENTS TABLE OF CONTENTS ‘iii’ UI—The Court of Appeals’ holding that the taking of possession of the other carrier’s property during a directed service opera- tion does not constitute a taRing within the meaning of the final clause of the Fifth Amendment involves an important, unre- solved issue of federal law which should be settled by this Court es to whether, and in what circumstances, the government may take actual physical possession of an own- er’s property for a public use without such actual taking constituting a taking within the meaning of the Fifth Amendment ....... = CoNncLUSION APPENDIX: A—Opinion of United States Court of Appeals for the Third Circuit filed June 9, 1976 ...... B—Regulations, 49 C.F.R. Part 1126, 40 Fed. Reg. 16066-16069 C—Order of Interstate Commerce Commission and Accompanying Report, March 14, 1975 D—Corrected Order of Interstate Commerce Commission and Corrected Page of Report, March 24, 1975 E—Judgment of United States Court of Ap- peals, June 9, 1976 F—Order of United States Court of Appeals denying Petition for Rehearing, July 8, 1976 PAGZ & 97a PAGE G—49 U.S.C. §1(16)(b), §601(e) of the Re gional Rail Reorganization Act of 1973, as Amended 10la H—Corrected Revised Service Order Nos. 1207 and 1208 . : 104a Cases Cited American-Hawaiian §.S. Co. v. U.S., 124 F.Supp. 378 (Ct. of Cl. 1954), cert. den. 350 U.S. 863 (1955) 23 Asbury v. Chesapeake & Ohio Ry. Co., 264 F.Supp. 437 (D.C.D.C. 1967) 14 Baca v. C.LR., 326 F.2d 189 (5th Cir. 1964)... a Brooks-Seanlon Co. v. R.R. Commissioner, La., 251 U.S. 396 (1920) 14,17 Bullock v. R.R. Commissioner of Fla., 254 U.S. 513 (1921) 14 Central Railroad Company of New Jersey v. Manu- facturers Hanover Trust Co., 421 F.2d 604 (3d Cir. 1970) 17 City of Alexandria, La. v. Chicago, R.I. & Pac. R. Co., 311 F.2d 7 (5th Cir. 1963) 14 Crawford v. Duluth Street Ry. Co., 50 F.2d 213 (7th Cir. 1932) 14, 15 Erie R.R. Co. v. Pub. Util. Commission, 254 U.S. 394 (1921) 14 Eyherabide v. U.S., 345 F.2d 565 (Ct. of Cl. 1965)... 23 Garner v. Louisiana, 368 U.S. 157 (1961) 9 iv TABLE OF CONTENTS PAGE In re Central Railroad Company of New Jersey, 485 F.2d 208 (3d Cir. 1973) 15 In re N.Y., N.H. & H.R. Co., 304 F.Supp. 793 (D. Conn. 1969) 15 In re Penn Central Transportation Co., 384 F.Supp. 895 (Special Court, RRRA, 1974) 15. In re Penn Central Transportation Co. (Appeal of Smith), 508 F.2d 270 (3d Cir. 1975) 18 In re Penn Central Transportation Company (Colum- bus Options), 494 F.2d 270 (3d Cir.) cert. den. 419 U.S. 883 (1974) 17,19 In re Third Avenue Transit Corp., 198 F.2d 703 (2d Cir. 1953) 17-19 International Paper Co. v. United States, 282 U.S. 399 (1931) 23 Kimball Laundry Co. v. United States, 338 U.S. 1 (1949) 23 King v. United States, 364 F.2d 235 (5th Cir. 1966) 24 Marbury v. Madison, 1 Cranch 137 (1803)... 16 Matter of Boston Terminal Co., 71 F.Supp. 472 (D. Mass. 1947) : 14 McGrody v. Baltimore & Ohio R.R., 217 F.Supp. 252 (E.D. Pa. 1963) 14 Meyers v. Arkansas & Ozark Ry., 185 F.Supp. 36 (D. Ark. 1960) 14 Meyers v. Jay Street Connecting R.R., 259 F.2d 532 (2d Cir. 1958) 14 Monongahela Navigation Co. v. United States, 148 U.S. 312 (1893) . 7 TABLE OF CONTENTS Vv PAGE National Board of YMCA v. United States, 395 U.S. 85 (1969) wes, 28 New Haven Inclusion Cases, 399 U.S. 392 (1970)....13, 17-20 New York, N.H. & H.R. Co. Bondholders Comm. v. United States, 289 F.Supp. 418 (S.D. N.Y. 1968)... 15 Niagra Falls Bridge Comm. v. United States, 76 F. Supp. 1018 (Ct. of Cl. 1948), 23 North Car. R.R. v. Lee, 260 U.S. 16 (1922).............. 23 Northern Pac. R.R. v. North Dakota, 250 U.S. 135 (1919) 23 Ohio Bell Tel. Co. v. Public U. Comm. of Ohio, 301 U.S. 292 (1937) - 9 Powell v. United States, 300 U.S. 276 (1937)...-.......-. 13 R. D. Widen Co. v. United States, 357 F.2d 988 (Ct. of Cl. 1966) 23 R.R. Comm’r v. Eastern Texas Ry., 264 U.S. 79 (1924) * 14 Regional Rail Reorganization Act Cases, 419 U.S. 102 (1974) " 17, 18, 21 Stapelton v. $2,438,110, 454 F.2d 1210 (3d Cir. 1972) cert. den. 409 U.S. 894 24 State of Iowa v. Old Colony Trust, 215 Fed. 307 (8th Cir. 1914) — 15 United States v. Peewee Coal Co., 341 U.S. 114 (1951) 23 Warner v. United States, 201 F.2d 327 (Ct. of Cl. 1962) 24 vi TABLE OF CONTENTS PAGE Wheeling & Lake Erie Ry. v. Pittsburgh, 33 F.2d 390 (6th Cir. 1929) 14 Wheelock Bros. v. United States, 88 F.Supp. 278 (Ct. of Cl. 1950) vacated on other grounds, 341 U.S. 319 (1951) 23, 24 Zirn v. Hanover Bank, 215 F.2d 63 (2d Cir. 1954)....13, 14 United States Constitution Cited Fifth Amendment 3-5, 7-9, 11, 12, 18-24 Statutes Cited Federal Bankruptcy Act, Sec. 77 11,14 Federal Control Act, March 21, 1918, ¢. 25, 40 Stat. 451 23 Tucker Act 17,18 28 U.S.C.: See. 1254(1) y Sec. 2101(c) 2 See. 2321(a) 7 See. 2342(5) 7 wane: Gh ly GO iceman 10 49 US.C.: Ns. SUID ssllipiecicscistiiacen ieicnaihdaiathcla ata i Ti ete 10 ENE SS RENE EM IE SEE 10 TABLE OF CONTENTS Vii ee - PAGE 49 U.S.C.: Section 601(e), Regional Rail Reorganization Act of 1973, as Amended, 49 U.S.C. Sec. 1(16) a 2-12, 16, 20, 24 See. 1(16)(b)(E) 5,8 Sec. 1(18) 8,13 See. 3(5) 10 Rules Cited Cost Form Regulations, 49 C.F.R. Part 1126, 40 Fed. Reg. 16066-16069 2, 5-9, 11 Report of Interstate Commerce Commission issued in Ex Parte No. 293 (Sub-No. 3), March 14, 1975 2, 6,7 Other Authorities Cited ICC Proceeding, Ex Parte No. 293 (Sub-No. 3) -......... 2,5 ICC Corrected Revised Service Order Nos. 1207 and 1208 6,7 A. ee oA a) ae ee IN THE Supreme Court of the United States Octoper Term, 1976 No. —»> LEHIGH AND NEW ENGLAND RAILWAY COMPANY, Peittioner, v. INTERSTATE COMMERCE COMMISSION, UNITED STATES OF AMERICA and COMMONWEALTH OF PENNSYLVANIA (Intervenor Below), Respondents. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT Petitioner, Lehigh & New England Railway Company (referred to herein as “L&NE’’), respectfully prays that a writ of certiorari issue to review the judgments and opinion of the United States Court of Appeals for the Third Circuit entered in this proceeding on June 9, 1976, July 8, 1976 and July 16, 1976. 2 Opinions Below The Opinion of the United States Court of Appeals, filed June 9, 1976, is not yet reported and is reproduced in the Appendix hereto (App. la-25a). The regulations of the Interstate Commerce Commis- sion, which are the subject of this proceeding, were prom- ulgated in the Commission’s proceeding, Ex Parte No. 293 (Sub-No. 3), Implementation of Public Law 93-236, Section 601( €), Regional Rail Reorganization Act of 1973 —Submission of Cost Data To Justify Reimbursement, and were published in the Federal Register on April 9, 1975, 40 Fed.Reg. 16066—16069 as 49 C.F.R. Part 1126 (App. 26a-36a). The Order promulgating the regulations and the accompanying Report of the Interstate Commerce Commission, which Report is incorporated by reference into the regulations, were issued on March 14, 1975 (App. 37a-93a). A corrected Order and corrected page of the Report were issued by the Commission on March 24, 1975 (App. 94a-96a). Jurisdiction L&NE seeks review of the judgment of the United States Court of Appeals which was entered on June 9, 1976 (App. 97a) and of the order of July 8, 1976 denying L&NE’s petition for rehearing in bane (App. 99a). A cer- tified copy of the judgment of June 9, 1976 was issued on July 16, 1976 in lieu of a formal mandate (App. 97a). This Court’s jurisdiction is invoked under 28 U.S.C. $1254(1) and §2101(c). ana Questions Presented 1. Whether a directed service operation pursuant to 49 U.S.C. §1(16)(b) which, as a matter of fact, involves a temporary, possessory taking by the government of the property of the railroad over whose lines the operation is conducted, effects a taking of that property within the meaning of the final clause of the Fifth Amendment to the United States Constitution ; 2. Whether the Interstate Commerce Commission has the power to compel, and whether a railroad has a con- comitant duty to provide continued service, where (a) the railroad lacks the cash to operate; or (b) its con- tinued operations (prospectively viewed) will result in losses which will not foreseeably be recaptured or com- pensated for; or (c) there is a final Court order in effect prohibiting continued operations ; 3. Assuming that a railroad is under a duty to con- tinue its operations under the circumstances set forth in Question 2, supra; whether the failure or inability of the railroad to continue operations removes the carrier and its property from the protection otherwise afforded by the final clause of the Fifth Amendment to the United States - Constitution ; 4. Whether the opinion and judgment of the United States Court of Appeals for the Third Circuit create a judicially declared forfeiture of property rights, unau- thorized by Congress; 5. Whether the Commission exceeded its statutory rule- making authority when it determined when, and by what standards, compensation may be paid for the use of the property over which a directed service operation is con- ducted ; 4 6. In the event that Question 1, supra, should be an- swered in the affirmative; whether the Commission wrong- fully usurped the function of the Judiciary when it de- termined when, and by what standards, compensation may be paid for the use of the property over which a directed service operation is conducted and whether the standards so established by the Commission fail to provide for just compensation. . Constitutional Provisions, Statute, and Regulations Involved The Constitutional provision involved is the final clause of the Fifth Amendment which provides: Nor shall private property be taken for public use, without just compensation. The statutory provision involved is Section 601(e) of the Regional Rail Reorganization Act of 1973, as amended, which has been codified as 49 U.S.C. §1(16)(b), set forth in the Appendix at App. 10la through 103a. As stated, supra, the regulations invelved are the Regulations of the Interstate Commerce Commission, 49 C.F.R. Part 1126, and the accompanying Report which is incorporated by reference into the regulations. The Regulations and Re- port are set forth in the Appendix at App. 26a through 36a and 37a through 96a. Statement of the Case This Petition seeks review of a decision of the United States Court of Appeals for the Third Cireuit which decision (a) held that a directed service operation pur- suant to Section 601(e) of the Regional Rail Reorganiza- RL eR hw ae BNE lh ee ee ee ee ed 5 tion Act of 1973, as amended, codified as 49 U.S.C. $1(16) (b), does not constitute a taking of the property of the carrier over whose lines the operation is conducted with- in the meaning of the final clause of the Fifth Amend- ment to the United States Constitution and (b) upheld the validity of certain “cost form” regulations promul- gated by the Interstate Commerce Commission (“Com- mission”) under rulemaking authority conferred by 49 U.S.C. §1(16) (b) (EB). The enactment of 49 U.S.C. §1(16)(b) in January, 1974 filled a perceived deficiency in the Commission’s statu- tory power to deal with the emergent situation of a car- rier’s inability to provide rail services. 49 U.S.C. $1(16) (b) specifically authorizes the Commission, in such cases, to direct a carrier (the “directed carrier”) to provide rail service over the lines of the carrier unable to pro- vide such service (the “other carrier”) for a period of up to 240 days. That provision also permits the directed carrier to recover from the Government, a sum equal to the excess of costs over revenues associated with the di- rected service operation; defines “costs” as “. . . those expenditures made or incurred in or attributable to the operations as directed, including the rental or lease of necessary equipment, plus an appropriate allocation of common expenses, overheads, and reasonable profit;” and directs the Commission, by general order, to establish a cost form to be used by a directed carrier for the record- ing of costs and for submission to the Commission in connection with its request for Government reimburse- ment of excess costs over profit. The Commission’s rulemaking proceeding, Ex Parte No. 293 (Sub-No. 3), resulted in a general order, dated March 14, 1976 (App. 80a); in the challenged “cost form” regu- lations, 49 C.F.R. Part 1126 (App. 26a), which became 6 effective on March 31, 1975; and in an accompanying Report (App. 37a), which is incorporated by reference into the challenged regulations. L&NE’s primary objec- tion to the cost form regulations and Report is that they prohibit, almost without exception, the inclusion on the cost form, and the recovery by the directed carrier, of payments of rent for the use and occupancy of the prop- erty of the other carrier, with the practical result that the other carrier will receive no compensation whatever for the use of its property in a directed service opera- tion* (App. 57a-59a). L&NE’s Interest — Petitioner, L&NE, was a carrier by railroad, which, in January, 1975, notified the Commis- sion that its cash position made continued rail operations impossible. Thereafter, the Commission entered two serv- ice orders, subsequently revised, pursuant to 49 U.S.C. §1(16)(b) directing the Lehigh Valley Railroad Company (“LVRR”) and the Reading Company (“Rdg”) to pro- vide directed service over the rail lines of L&NE. Copies of the Commission’s corrected Revised Service Order Nos. 1207 and 1208, establishing these directed service opera- tions are set forth in the Appendix at App. 104a through 123a. The Commission’s promulgation of the cost form regu- lations, after the commencement of the directed service operations over L&NE’s lines, was therefore an adminis- trative determination that L&NE was not entitled to any compensation for the use at the Commission’s direction, * A small amount of rent may be allowable if the directed service operation is profitable to the directed carrier. (App. 59a through 60a). 7 of its property by LVRR and Rdg.* L&NE, concerned that it might be barred by the collateral attack doctrine from challenging the cost form regulations in a Court of Claims proceeding for compensation, thereupon promptly brought its petition for direct review of the regulations in the United Sti.es Court of Appeals.** L&NE’s Contentions —L&NE did not contend in the Court of Appeals (nor does it now contend) that 49 U.S.C. $1(16)(b) is unconstitutional or that Service Order Nos. 1207 and 1208, establishing directed service operations on L&NE’s lines, are in any way improper or invalid. L&NE’s sole challenge is to the validity of Commission Regula- tions, 49 C.F.R: Part 1126, promulgated by the Commis- sion’s March 14, 1975 Order and to the validity of the Report accompanying that Order and incorporated into the regulations by reference. In the Court of Appeals L&NE argued that (a) di- rected service operations under 49 U.S.C. $1(16) (b) con- stitute a taking of the property of the other carrier within the meaning of the final clause of the Fifth Amendment and that, as a result, the United States must pay just compensation for the use of that property; (b) the Com- mission in violation of the principles of Monongahela Navigation Co. v. U.S., 148 U.S. 312 (1893), usurped the function of the Judiciary by promulgating regulations which establish standards for determining when compen- sation is to be paid for a directed service operation taking * As noted above, the regulations would permit a small amount of compensation to L&NE if the directed service operations proved profitable to LVRR and Rdg. ** Jurisdiction in the Court of Appeals was predicated upon the provisions of 28 U.S.C. §2342(5) and §2321(a). and for determining the measure of such compensation; (c) those standards, actually established by the regula- tions, do not provide for just compensation for a directed service operation taking; and (d) the regulations are otherwise arbitrary, capricious and incapable of reasoned and uniform application.* The Court of Appeals, in denying L&NE’s petition for review, held that a directed service operation under 49 U.S.C. §1(16)(b) does not constitute a taking within the meaning of the Fifth Amendment. (Slip Opinion, pp. 19- 24, App. 19a-24a). That holding was premised upon the Court’s conclusions that the Commission has the power to require continued operations by a railroad which has not received Commission abandonment authority under 49 U.S.C. §1(18) despite a cash deficiency, unrecoverable operating losses or a Court order requiring cessation of operations and that the exercise of such power by the Commission would merely constitute a postponement of the right to abandon and not a taking within the meaning of the Fifth Amendment. From this the Court reached its ultimate conclusion, to-wit: “. . . we think it follows directly that [the Commission] could place another car- rier on the lines of the carrier unable or unwilling to con- tinue service for a limited period without effecting a taking within the meaning of the fifth amendment.” (Slip opinion, p. 20, App. 20a). Accordingly, the Court declined to rule on the ques- tions of whether the Commission, in promulgating its cost * L&NE also argued that the Commission exceeded the statu.ory rulemaking authority conferred on it by 49 U.S.C. §1(16)(b)(E) when it determined when, and by what standards, compensation may be paid for the use of the other carrier’s property. The Court of aan rejected this argument (Slip opinion, pp. 13-16, App. 13a- form regulations, usurped the function of the Judiciary to determine what constitutes just compensation and of whether the “benefits” conferred on the other carrier in a directed service operation obviate the need to provide rental to it as a matter of law. (Slip opinion, pp. 19-20, fn. 32, App. 19a, 20a).* The Court of Appeals went on to conclude that the Commission’s regulations comport with Congress’ intent in enacting 49 U.S.C. §1(16)(b) (Slip opinion, pp. 16-19, App. 16a-19a), and it rejected L&NE’s argument that the regulations are arbitrary and capri- cious (Slip opinion, pp. 24, 25; App. 24a, 25a). According- ly, the Court of Appeals denied L&NE’s petition to review and to set aside the regulations (App. 25a). L&NE thereupon filed a petition for rehearing with suggestion for in banc consideration. By Order of July 8, 1976, the Court of Appeals denied L&NE’s petition for rehearing (App. 99a). * The Court of Appeals did, however, consider what it deemed to be “benefits” to L&NE as a result of the directed service opera- tions over its lines in reaching the conclusion that no taking of property within the meaning of the Fifth Amendment results from a directed service operation under 49 U.S.C. §1(16)(b). See Slip opinion, pp. 19, 23, 10 (App. 19a, 23a, 10a). We contend that while such “benefits” may bear on the issue of just compensation, they are immaterial to the question of whether a taking has occurred within the intention of the Fifth Amendment. In any event evidence of the so-called benefits received by L&NE as a result of the directed service operations over its lines is completely lacking in the record of this proceeding for the review of Commission rulemaking. To the extent that the Court of Appeals relied on these “benefits”, it denied L&NE a full hearing and, consequently, due process of law. See Garner v. Louisiana, 368 U.S. 157, 173 (1961); Ohio Bell Tel. Co. v. Public U. Com. of Ohio, 301 U.S. 292, 300-306 (1937). 10 REASONS FOR GRANTING THE WRIT POINT I This case involves the first judicial construction and the first administrative application of the recently enacted 49 U.S.C. §1(16) (b), a statute of potentially great significance in the present environment of rail- road failures, and Supreme Court review at this time will provide necessary guidance for the statute’s further application. For many years Congress recognized that circumstances might require one carrier to perform the duties or obli- gations of another carrier or make desirable the use by one carrier of the assets of another. Thus, §3(5) of the Interstate Commerce Act empowers the Commission to direct a carrier to use the terminal facilities of another carrier; §1(15) empowers the Commission to direct a car- _ Tier to use the rolling stock of another carrier; and §1(16) (a) (formerly §1(16) before the enactment of §1(16)(b)) empowers the Commission to direct a carrier to move over its own lines the traffic of another carrier. The enactment of §1(16)(b) in January 1974 as §601(e) of the Regional Rail Reorganization Act of 1973, as amended, filled what was considered to be a substantial gap in the Commis- sion’s regulatory authority by authorizing the Commission to direct one carrier to move the traffic of another carrier over the other carrier’s lines. The codification of §601(e) of the Regional Rail Reorganization Act as a part of the Interstate Commerce Act—rather than as part of Title 45—constitutes a significant Congressional understanding of the depth and significance of railroad problems in the United States today and the likelihood that that statutory provision will have frequent applicability to distressed pet railroads, regardless of whether such railroads are under- going reorganization under §77 of the Federal Bankruptcy Act. The Commission regulations which have been challenged by L&NE in this proceeding are the first comprehensive regulations issued by the Commission in implementation of 49 U.S.C. §1(16)(b); the opinion and judgment of the Court of Appeals in this proceeding constitute the first judicial interpretation and construction of the statute and the regulations, involving, as well, substantial issues of constitutional magnitude. We respectfully urge the Su- preme Court to grant certiorari to review the decision of the Court of Appeals in order to provide definitive guid- ance as to the meaning and future applicability of the statute and the proper scope of regulations thereunder. Unless certiorari is granted, the opinion of the Court of Appeals for the Third Circuit—which we respectfully con- tend is erroneous, see Points II and III, infra—will pro- vide a far reaching precedent, both with respect to the application of 49 U.S.C. §1(16)(b) and, equally impor- tantly, with respect to the more general question of what governmental interferences with private property consti- tue takings within the meaning of the Fifth Amendment. 12 ” POINT II The Court of Appeals’ conclusion that the Com- mission may require a railroad to continue to provide rail service, despite a lack of cash, unrecoverable operating losses, or a contrary court order, which conclusion was central to the Court’s holding that no Fifth Amendment taking is involved in a directed service operation, conflicts with applicable decisions of this Court, other Courts of Appeals and with other decisions of the Court of Appeals for the Third Circuit. The Court of Appeals’ conclusion that the Commission has the power to compel operations for as much as 240 days, despite a cash deficiency, unrecoverable operating losses, or a contrary Court order, conflicts with established law; denigrates from judicial supremacy; and overlooks the distinction between an abandonment of a line or op- erations and a mere suspension of operations. Indeed, both Congress and the Commission long recognized the ab- sence of any power on the Commission’s part to compel such operations and the absence of any duty on the part of a railroad to operate under such circumstances. 49 U.S.C. §1(16)(b) was enacted to deal with this recognized absence of Commission power and to greatly enlarge the Commission’s authority to handle emergencies involving a carrier’s inability or failure to operate—but, signifi- cantly, Congress did not authorize the Commission to di- rect continuing operations; rather Congress empowered the Commission to place another carrier on the property of the first upon the Commission’s finding of any of three conditions set forth in 49 U.S.C. §1(16)(b); ie., a lack of cash; a Court order not to operate; or operating losses. The first two of these conditions—a cash deficiency and a final Court order not to operate—present clear circum- DPSS ol ms hana ee Fa ee 13 stances of impossibility on the part of a carrier to provide continued service. Such circumstances of impossibility have repeatedly been held to justify a carrier’s failure to operate—without the need for prior Commission approval. The conclusion of the Court of Appeals that a duty exists to do the impossible was clear error. Furthermore, we respectfully submit that the Court of Appeals, in reach- ing its additional erroneous conclusion that the Commis- sion may, without effecting a taking, require continued operations at a loss without examining the foreseeability of the prospects of recapture or compensation therefor, misconstrued the New Haven Inclusion Cases, 299 U.S. 392 (1970) and wholly ignored numerous relevant deci- sions of this and other Courts. Clearly, not every cessation of operations constitutes an abandonment within the meaning of 41(18) of the Interstate Commerce Act; and it is a question for the courts and not for the Commission, to determine whether particular conduct constitutes an abandonment. Powell v. U.S., 300 U.S. 276 287 (1937). As was stated in Zirn v. Hanover Bank, 215 F.2d 63, 69 (2d Cir. 1954): To ‘abandon’ in this context means, we think to give up permanently, not merely to suspend operations for lack of physical equipment. No Commission approval is necessary where the cessation of opera- tions results, not from the volition of the railroad or its bankruptcy-trustee, but from the exercise of the supervening rights, here recognized by the Bank- ruptey Act, of third persons. There have been numerous additional instances in which it has been held that mere suspensions of service, com- pelled by events beyond the carrier’s reasonable control, are not abandonments or discontinuances requiring Com- 14 mission approval. Thus, it has been held that the follow- ing were not abandonments requiring Commission ap- proval: (a) enforcement of a city’s lien against a railroad roadbed by execution sale, City of Alexandria, La. v. Chi- cago, R.I. d& Pac. R. Co., 311 F.2d 7 (5th Cir. 1963), contra, Matter of Boston Terminal Co., 71 F.Supp. 472 (D. Mass. 1947); (b) cessation of operations caused by washouts of the line which the railroad was unable to repair on a financially feasible basis, Meyers v. Arkansas & Ozark Ry. Corp., 185 F.Supp. 36 (D.C. Ark. 1960) and see also Asbury v. Chesapeake & Ohio Ry. Co., 264 F.Supp. 437 (D.C.D.C. 1967); (ce) cessation of operations when there is no service demand, McGrody v. Baltimore & Ohio R.R., 217 F.Supp. 252 (E.D. Pa. 1963); (d) cessation of rail services in a terminal in order to facilitate the construc- tion of a new and different terminal which would provide alternative service, Wheeling & Lake Eric Ry. Co. v. Pittsburgh, 33 F.2d 390 (6th Cir. 1929); and (e) cessa- tion of operations due to a lack of physical equipment arising from a proper repossession by a third party, Zirn v. Hanover Bank, supra.* | The propriety of ceasing operations without adminis- trative approval has been frequently upheld where neces- sary to the protection of constitutional rights. Brooks- Scanlon Co. v. R.R. Commissioner La., 251 U.S. 396 (1920) ; Bullock v. R.R. Commissioner of Fla., 254 U.S. 513 (1921); R.R. Commissioner v. Eastern Texas Ry., 264 U.S. 79 (1924); Erie R.R. Co. v. Pub. Util. Commission, 254 U.S. 394 (1921); Crawford v. Duluth Street Ry. Co., 50 * But see Meyers v. Jay Street Connecting R.R., 259 F.2d 532 (2d Cir. 1958) where the Court sustained a preliminary injunction enjoining a financially impoverished railroad from ceasing opera- tions without Commission approval, suggesting that the railroad could seek protection by petitioning for a reorganization under §77. 15 F.2d 213 (7th Cir. 1932); State of Iowa v. Old Colony Trust, 215 Fed. 307 (8th Cir. 1914); In re Central Rail- road Company of New Jersey, 485 F.2d 208 at 215 and n. 42 (3d Cir. 1973). Also see N.Y., N.H. & H.R. Co. Bondholders Committee v. United States, 289 F.Supp. 418 at 441 (S.D.N.Y. 1968); In re N.Y., N.H. & H.R. Co., 304 F.Supp. 793 at 804 (D.C. Conn. 1969). While the Special Court in Jn re Penn Central Transportation Co., 384 F. Supp. 895, 918-920 (Special Court, RRRA, 1974), has sug- gested that the constitutional right to abandon loss opera- tions is procedurally qualified by an obligation to seek approval from the pertinent administrative authority, it has also recognized that such qualification is inapplicable where the railroad has inadequate cash resources avail- able both to pay the cost of operations and to permit an orderly liquidation. Thus, the Special Court stated at p. 919 fn. 31: We assume neither of the qualifications mentioned below could apply if, after all reasonable efforts, a reorganization trustee was faced with an imminent depletion of cash that would make it impossible for him to pay current bills for wages, supplies, inter- line balances, and similar expenses, and still leave an amount sufficient to permit an orderly liquida- tion. Another instance of impossibility involves conflicting oaders of Court and Commission.* If a court should di- * While the present proceeding involves a general challenge to the Commission’s regulations and does not specifically involve an instance of a court order in conflict with a Commission order, the reference here to a conflicting court order illustrates a particular type of instance in which intervening circumstances, beyond the control of the carrier involved, compel the cessation of operations— rendering nugatory Commission power and altering the nature of the carrier’s duty. 16 rect a carrier not to operate; the present holding of the Court of Appeals would, nevertheless, recognize Commis- sion power to direct operations to continue. Such a no- tion, t.e., that the Commission may require a railroad to continue operations in the face of a final court order to the contrary, creates a power in our administrative agen- cies unanticipated by and intoierable to our rule of law, ‘Marbury v. Madison, 1 Cranch 137 (1803), and plaees such railroad in a position of having to comply with conflicting decrees. Congress, however, avoided the problem of pos- sible conflicting decrees when it enacted 49 U.S.C. §1(16) (b) for it did not authorize the Commission to override a court order and direct continuing operations; rather it specifically empowered the Commission to place another carrier on the property. The holding of the Court of Appeals in this case sows the seeds of future mischief because it creates, by judicial decision, the very problem which Congress avoided when it enacted 49 U.S.C. §1 (16) (b). We contend that the foregoing establishes beyond ques- tion that where a railroad ceases operations pursuant to a court order; or because it has run out of the cash neces- sary to meet payroll and other expenses of operations; or where it is necessary to protect the constitutional rights of the parties involved; or where other factors make con- tinued operations impossible; such railroad has no con- tinuing duty to do the impossible, and the Commission has no errant power te compel the impossible. The Court of Appeals’ holding to the contrary is clear error and the regulation posited upon the existence of such continuing duty and power should be set aside. The third condition enumerated in 49 U.S.C. §1(16) (b) to justify a directed service operation, i.e., operating losses (which term, when read in the context of the con- 17 stitutional decisions of this Court, e.g., Brooks-Scanion Co. v. R.R. Commissioner of La., swpra, must mean op- erating losses for which there is no foreseeable likelihood of recapture or of being compensated), does not neces- sarily involve the impossibility of a carrier’s being able to provide service. ‘The Court of Appeals’ analysis of the Commission’s power to require continued service with- out effecting a taking focused only on this uncompensated operating loss factor—in effect, an “erosion of assets” analysis. We respectfully submit that the Court’s analysis and conclusion are wholly unsupportable and are based upon an erroneous reading of the New Haven Inclusion Cases, 399 U.S. 392 (1970) and its failure to take into account the Regional Rail Reorganization Act Cases, 419 U.S. 102 (1974); In re Third Avenue Transit Corp., 198 F.2d 703 (2d Cir. 1953); and the line of cases following Third Avenue Tramsit*. We respectfully submit that the Court of Appeals er- roneously construed the New Haven Inclusion Cases as establishing the unjustifiable proposition that a railroad may be made to suffer interim losses—even though pros- pectively perceived as unrecoverable—for a reasonable time without effecting a taking of its property (Slip opin- ion, p. 21, 22; App. 21a, 22a). In doing so, the Court totally ignored the need for the presence of at least one of two alternative “safety valves” to justify the requirement of continued interim loss operations in a given case; i.e., the availability of a Tucker Act remedy to compensate for such loss, Regional Rail Reorganization Act Cases, supra, or the ability to make “Third Avenue” type findings at *See The Central Railroad Company of New Jersey v. Manu- facturers Hanover Trust Company, 421 F.2d 604 (3d Cir. 1970); In re Penn Central Transportation Company (Columbus Options), 494 F.2d 270 (3rd Cir.) cert. den. 419 U.S. 883 (1974). 18 the time the continued operations are ordered, which pro- vide at least reasonable assurance that future events will allow for the recapture of the losses. The Third Avenue case stands for the proposition that before erosion will be permitted to continue in the future, certain findings must be made which provide reasonable assurances to the parties involved that the benefits of a future reorganiza- tion or other disposition will compensate for the interim loss. A creditor’s hand may be stayed to permit the re- organization process to unfold, since such unfolding will likely protect the creditor involved, as well as junior in- terests. The Regional Rail Reorganization Act Cases stand for the proposition that the Tucker Act remedy provides a full and sufficient substitute for such findings—in a sense giving to the stayed creditor greater assurances than do the findings. See Jn re Penn Central Transportation Co. (Appeal of Smith), 508 F.2d 270 (3d Cir. 1975). Under Third Avenue, the creditor must pray that the “findings” prove out; if not, so be it. Under the Regional Rail Reorganization Act Cases, further prayer is unneces- sary. Accordingly, we contend that the Third Avenue line of cases establish that a railroad may be required to continue to operate at a loss without effecting a taking of its property only if the necessary “findings” can be made providing adequate assurance of recapture. Other- wise, such continued loss operations constitute a taking within the meaning of the Fifth Amendment, but, under the Regional Rail Reorganization Act Cases, such loss operations will be permitted if a Tucker Act remedy is available to compensate the owner for that taking. The holding in the New Haven Inclusion Cases is not to the contrary. The New Haven Inclusion Cases in- volved the balancing of issues of fairness and equity be- tween two private parties in determining the amount that the Penn Central would be required to pay for the assets 19 of the New Haven. The New Haven bondholders claimed that the Penn Central should compensate it for the losses incurred from the inception of the reorganization to the time of inclusion. This Court underscored the facts that the bondholders had not shown what the losses attribu- table to the prevaluation period were and that no bond- holder had petitioned for dismissal of the proceeding until after the valuation date.* This Court further noted that from the inception of the New Haven proceeding, it had been recognized that a merger with a large trunk line was the proper solution for the New Haven estate—a deter- mination which, in effect, filled the requirement of the Third Avenue findings. The fact that it was there retro- spectively considered not fair and equitable to saddle the Penn Central with the amount of the ensuing erosion for purposes of valuation of assets does not constitute a holding that some or any erosion—prospectively foreseen as not subject to recapture—is permissible and does not constitute a Fifth Amendment taking. The case does not speak to, or foreclose, the question of whether the public must compensate for erosion knowingly imposed upon a railroad through continued operations for a public pur- pose. Therefore, the New Haven Inclusion Cases opinion *In this regard see In re Penn Central Transportation Company (Columbus Options), supra, 279-282. There, Judge Gibbons, speak- ing for the Court of Appeals for the Third Circuit, noted this Court’s statement in the New Haven Inclusion Cases that the bondholders had acquiesced in continuing the proceedings rather than moving for liquidation and also stated the issue of the “. . . constitu- tionality of the erosion which had taken place prior to the valuation date was never presented to the court in any proceeding in which it could have passed upon that issue.” Judge Gibbons then concluded that “The New Haven Inclusion Cases decided no more than that Penn Central does not have to pay for erosion which took place prior to its purchase of the assets. 20 does not conclude the issues raised here, and the Court of Appeals erred in concluding that that opinion dictates the holding that directed service under 49 U.S.C. §1(16) (b) does not constitute a taking within the meaning of the Fifth Amendment. (Slip opinion, p. 23; App. 23a). We, therefore, ask this Court to grant certiorari to deter- mine whether directed service operations under 49 U.S.C. §1(16)(b) constitute a taking of the other carrier’s prop- erty within the meaning of the Fifth Amendment. POINT III The Court of Appeals’ holding that the taking of possession of the other carrier's property during a directed service operation does not constitute a taking within the meaning of the final clause of the Fifth Amendment involves an important, unresolved issue of federal law which should be settled by this Court as to whether, and in what circumstances, the govern- ment may take actual physical possession of an owner’s property for a public use without such actual taking constituting a taking within the meaning of the Fifth Amendment. The Court of Appeals, having first concluded that a railroad may be required to continue loss operations with- out effecting a taking of its property, then concluded that the distinction between requring such continued opera- tions, on the one hand, and ordering directed service op- erations by another carrier, on the other, is formalistic and does not require a “. . . holding here that the latter constitutes a taking but the former does not.” (Slip opin- ion, p. 24; App. 24a). The Court went on to state: 21 It might be anomalous indeed if the ICC could order forced deficit operations by a railroad and not effect a taking, but could not order another carrier to discharge those same duties, thereby in _. the usual case saving that railroad operating costs, without such action constituting a taking. (id). In Point II, supra, we have shown that the Court of Appeals’ underlying premise, i.e—that continued loss op- erations may, without exception, be required without ef- fecting a taking of property, is erroneous. Thus, the Court’s further conclusion that the substitution of pos- session of one carrier for the owning carrier is likewise not a taking, must also be wrong. However, even assum- ing arguendo that the Court of Appeals was correct in its underlying premise, we, nevertheless, contend that the substitution of possession of one carrier for the own- ing carrier is not a formalistic distinction but constitutes a taking within the meaning of the Fifth Amendment.* The concept of possession and control is at the heart of the Anglo-American property law jurisprudence, and the plain meaning of the word “taken” in the Fifth Amendment must be read as having reference to such jurisprudence. Indeed, the tension in our constitutional doctrine between a taking, on the one hand, and merely a harsh regulation on the other, has traditionally centered on the issue of what governmental conduct, short of an actual interference with possession and control, should be regarded as a taking rather than a regulation because of * We believe the Court of Appeals, while recognizing the distinc- tion between an “erosion taking” and a “conveyance taking”, Regional Rail Reorganization Act Cases, supra, (See Slip opinion, pp. 23, 24; App. 23a, 24a), gave insufficient weight to that distinction in reaching its conclusion. 22 the substantial deprivation of the use and benefit of the property involved. The essence of regulation is the con- trol over the manner in which an owner uses his prop- erty, while the essence of a taking is the deprivation of such use. The Court of Appeals has moved the center of tension to a new and unexplored frontier—far beyond the point that divided this Court in National Board of YMCA v. United States, 395 U.S. 85 (1969)—with the relevant question now becoming which planned physical takings for the benefit of the public are not legal takings.* In National Board of YMCA, a case denying compensa- tion for damages to private buildings while occupied by the Army during a riot in the Canal Zone, the Court di- vided over a fact question, ie—whether the occupation was spontaneous and primerily in defense of the build- ings, or whether it was specifically for shelter and use as a fortress from which to seal off the Canal Zone border. From the opinions it appears that all of the Justices were in agreement that had the occupation been part of a planned use of the building as a fortress in a riot situa- tion, a taking would have been effected within the meaning of the Fifth Amendment. A fortiori, the planned taking of possession of the other carrier’s property for a public use during a directed service operation must be a taking within the intention of the Fifth Amendment. Upon analysis, all of the elements of a taking within the meaning of the Fifth Amendment are present. Di- rected service necessarily transfers the right of posses- sion and control from the owning carrier to the directed carrier. This transfer is admittedly for an important * We respectfully submit that in so doing the Court of Appeals was significantly influenced by the judgment that the L&NE had not been injured—a matter which we have never litigated, nor in fairness, have had the opportunity to litigate 23 public use, t.e.—the continued provision of rail service over the owning carrier’s lines. That such use is tempo- rary, and conducted by a private carrier at the Commis- sion’s order rather than by the government itself, is of no constitutional significance, see United States v. Peewee Coal Co., 341 U.S. 114 (1951); Kimball Laundry Co. v. U.S., 338 U.S. 1 (1949) ; International Paper Co. v. United States, 282 U.S. 399 (1931); R. D. Widen Co. v. U.S., 357 F.2d 988 (Ct. of Cl. 1966); Eyherabide v. U.S., 345 F.2d 565 (Ct. of Cl. 1965); Wheelock Bros. v. U.S., 88 F.Supp. 278 (Ct. of Cl. 1950), vacated on other grounds, 341 U.S. 319 (1951); Niagara Falls Bridge Commission v. U.S., 76 F.Supp. 1018 (Ct. of Cl. 1948); American-Hawauan 8.8. Co. v. U.S., 124 F.Supp. 378 (Ct. of Cl. 1954), cert. den., 350 U.S. 863 (1955). In view of the foregoing, the decision of the Court of Appeals must be read to mean that action which would otherwise constitute a taking of property within the mean- ing of the Fifth Amendment, does not constitute such a taking where the property belongs to a carrier which, because of regulation, is required to provide service and fails to do so. We submit, however, that neither the fact that the carrier is under a duty to provide service, nor its failure or inability to provide such service, removes the carrier or its property from the protection afforded by the Fifth Amendment when that property is seized by the government and used in the public interest. See North Carolina Railroad Company v. Lee, 260 U.S. 16 (1922) where Justice Brandeis stated that the govern- ment’s operation of the railroads during World War I under the Federal Control Act, March 21, 1918, e. 25, 40 Stat. 451. was. “. . . under a right in the nature of eminent domain”; and Northern Pacific Railroad Company v. North Dakota, 250 U.S. 135 (1919) in which decision it was im- plicit that the government seizure of the railroads during 24 World War I constituted a compensable taking of prop- erty. See also, Wheelock Bros. v. United States, supra, where the business of plaintiff, an ICC regulated motor carrier, was seized by the government and temporarily operated by plaintiff’s management under government con- trol. The Court of Claims held this action to constitute a compensable taking of property within the meaning of the Fifth Amendment. The consequence of the decision below is to declare a judicial forfeiture of property rights—unauthorized by Congress. Valid forfeitures are created by statute, which, being penal in nature, must be strictly construed. Staple- ton v. $2,438,110, 454 F.2d 1210, 1216 (3d Cir. 1972) cert. denied, 409 U.S. 894. Courts look with disfavor on for- feitures, and absent a clear statutory basis, will not lightly ascribe to Congress the intention to create a forfeiture, King v. United States, 364 F.2d 235 (5th Cir. 1966); Baca v. C.I.R., 326 F.2d 189 (5th Cir. 1964); Warner v. United States, 201 F.2d 327 (Ct. Cl. 1962). Nothing in 49 U.S.C. §1(16)(b) indicates that Congress intends a forfeiture to result from a directed service operation; such forfeiture should not be created by judicial decision. We therefore ask the Court to grant certiorari to decide the issue of whether, and in what circumstances, an actual Govern- mental taking for a public use is not a taking within the intention of the Fifth Amendment. 25 CONCLUSION For these reasons, the Court should issue a writ of certiorari to review the judgments and opinion of the United States Court of Appeals for the Third Circuit in this case. Respectfully submitted, Sran.ey WEIss, 744 Broad Street, Newark, New Jersey 07102 Counsel for Petitioner, Lehigh and New England Railway Com- pany. CarPENTER, Bennett & Morrissey, Attorneys for Petitioner, Rosert E. Turrz, On the Brief. October, 1976 [Apprennices FoLLow] - APPENDIX A Opinion of the United States Court of Appeals for the Third Circuit UNITED STATES COURT OF APPEALS For tHe Tump Crmcuvit No. 75-1518 LEHIGH AND NEW ENGLAND RAILWAY COMPANY, Petitioner, v. INTERSTATE COMMERCE COMMISSION and | UNITED STATES, Respondents, COMMONWEALTH OF PENNSYLVANIA, Intervenor Ow Petition ror Review or Orper or INTERSTATE Commerce COMMISSION Argued February 24, 1976 Before Apams, Hunter and Gartu, Circuit Judges Carpenter, Bennett & Morrissey Richard B. Wachenfeld Attorneys for Petitioner John H. Broadley Thomas E. Kauper Henri F. Rush Fritz BR. Kahn Attorneys for Respondents Robert P. Kane Michael von Moschzisker Lawrence Barth Gordon P. MacDougall Attorneys for Intervenor [la] 2a Appendix A OPINION OF THE COURT (Filed June 9, 1976) Hunter, Circuit Judge: The Lehigh and New England Railway Company (‘‘L&NE’’) petitions this court to review and set aside an order of the Interstate Commerce Commission (‘‘ICC’’) entered in Ex Parte No. 293 (Sub-No. 3), entitled ‘‘Sub- mission of Cost Data to Justify Reimbursement,’’ and cost form regulations, 49 C.F.R. § 1126, promulgated by that order.' The regulations sought to implement section 1(16)(b) of the Interstate Commerce Act, 49 U.S.C. §1 (16)(b) (Supp. IV, 1974), which permits the Commission, in certain specified instances, to direct a railroad carrier to operate temporarily over the lines of another carrier unable or unwilling to provide essential rail service. L&NE challenges the regulations insofar as they fail to provide for the payment of rent, except in certain limited circumstances, to the railroad unable or unwilling to con- tinue service for the use of its properties by the carrier directed by the ICC to operate temporarily on those prop- erties: The Commonwealth of Pennsylvania has inter- vened in general support of the regulations. For the rea- sons set forth below, we deny L&NE’s petition to review and set aside the regulations. I. A. Section 1(16)(b) and the Cost Reimbursement Regulations Section 1(16)(b) of the Interstate Commerce Act, 49 U.S.C. § 1(16)(b),? grants the ICC emergency authority 1. We have jurisdiction to review the Commission’s regulations by virtue of 28 U.S.C. §§ 2321(a), 2342(5) (Supp. IV, 1974). 2. Section 1(16) (b) provides: (b) Whenever any carrier by railroad is unable to transport the traffic offered it because— 3a Appendi« A to make just and reasonable directions with respect to the handling, routing and movement of traffic available to a railroad carrier that is unable to transport the traffic of- 2. (Cont’d.) (1) its cash position makes its continuing operation impossible ; (2) it has been ordered to discontinue any service by a court; or (3) it has abandoned service without obtaining a certificate from the Commission pursuant to this section; the Commission may, u the same procedure as provided in paragraph 135) of Gils cettion, waaite cath fast and sunsensiie Gectione etth saneamt to the handling, routing, and movement of the traffic available to such carrier and its distribution over such carrier’s lines, as in the opinion of the Commission will best promote the service in the interest of the public and the commerce of the people subject to the following conditions: (A) Such direction shall be effective for no oy than 60 days unless extended by the Commission for cause shown an additional designated period not to exceed 180 days. (B) No such directions shall be issued that would cause a carrier to operate in violation of the Federal Railroad Safety Act of 1970 or that would substantially impair the ability of the carrier so directed to serve adequately its own patrons or to meet its outstanding common carrier obligations. _ (C) The directed carrier shall not, by reason of such Commission direction, be deemed to have assumed or to become responsible for the debts of the other carrier. (D) The directed carrier shall hire employees of the other carrier to the extent such employees had previously performed the directed service for the other carrier, and, as to such employees as shall be so hired, the directed carrier shall be deemed to have assumed all existing employment obligations and practices of the other carrier relatin thereto, including, but not limited to, eements governing rate pay, rules and working conditions, and all employee protective condi- tions commencing with and for the duration of the direction. (E) Any order of the Commission entered pursuant to this para- graph shall provide that if, for the period of its effectiveness, the cost, as hereinafter defined, of handling, routing, and moving the traffic of another carrier over the other carrier’s lines of road shall exceed the direct revenues therefor, then upon request, payment shall be made to the directed carrier, in the manner hereinafter provided and within 90 days after expiration of such order, of a sum equal to the amount by which such cost has exceeded said revenues. The term “cost” shall mean those expenditures made or incurred in or attributable to the operations as directed, including the rental or lease of necessary equi by general order may be prescribed the Commission and shall mitted to and subject to audit iA Commiesion, The Comniseina 3 g z s 3 3 i 4a Appendix A fered it because (1) its cash position makes continued oper- ation impossible, (2) it has been ordered by a court to discontinue service or (3) it has abandoned service without prior Commission approval. Specifically, the ICC may direct a carrier (hereinafter the ‘‘directed carrier’’) to operate over the lines of the carrier unable to transport its own traffic (hereinafter the ‘‘other carrier’’). The duration of this directed service is specifically limited to 60 days, unless extended by the ICC for cause shown for an additional period not to exceed 180 days. 49 U.S.C. §1(16)(b) (A). Subsection (b) was added to section 1(16) of the Interstate Commerce Act by section 601(e) of the Regional Rail Reorganization Act of 1973 (‘‘Rail Act’’).2 The legislative history of the Rail Act has been extensively documented by other courts and will not be reviewed here.* It is sufficient to state that the Act was a congressional attempt to provide imaginative and innovative solutions to avoid a national disaster threatened by the bankruptcy of railroads in Northeastern United States. Subsection (b) was considered necessary to ensure that essential rail service provided by the bankrupt carriers in the Northeast would be continued pending development and implementa- tion of a longer term reorganization of the bankrupt lines.® 3. 87 Stat. 986, 1921. Prior to the addition of subsection (b), section 1(16) did not specifically authorize the ICC to direct a carrier to operate over the lines of another carrier that was unable to transport the traffic offered it. 4. See, c.g., Regional Rail Reorganization Act Cases, 419 U.S. 102 (1974), Connecticut General Ins. Corp. v. United States Railway Ass'n, 383 F. Supp. 510 (E.D. Pa.) (three-judge court), rez’d, 419 U.S. 102 (1974) : In re Penn Central Transportation Co., 384 F. ‘Supp. 895 (Regional Rail Reorganization Act Special Court 1974). 5. The Senate Report accompanying the Rail Act stated: The purpose of subsection (e) is to assure the continuance of essential rail service in the Northeast and Midwest region in case one or more of the seven railroads presently in reorganization under section 77 of the Bankruptcy Act ceases operations prior to the adoption, approval, and implementation of the final system plan. By authorizing the Commission to direct a carrier to operate over the lines of a non-operating carrier for an interim period, transportation chaos and economic disaster can be avoided while the planning and implementation process provided for in the bill moves forward in a careful and orderly manner. S. Rep. No. 93-601, 93d Cong., Ist Sess. 52-53 (1973 ted Cove Conc. & Apmin. News 3242 (1974). ( ), reprinted in 2 U.S. 5a Appendiz A Section 1(16)(b)(E) permits the directed carrier to recover from the government, upon request, a sum equal to the amount by which the cost of directed operations exceeds the revenues derived from that operation. ‘‘Cost’’ is defined by subsection (E) as ‘‘those expenditures made or incurred in or attributable to the operations as directed, including the rental or lease of necessary equipment, plus an appropriate allocation of common expenses, overheads, and a reasonable profit.’’ The subsection requires the ICC to prescribe a form on which the directed carrier can record costs.and revenues of the directed operation and which must then be submitted by the directed carrier to the Commission for audit. The ICC then is authorized to certify to the Secretary of Treasury the amount of pay- ment to be made to the directed carrier. In an effort to implement section 1(16)(b), the ICC issued on April 9, 1975, effective March 21, 1975,° a form ._ for the recordation of costs and revenues by the directed carrier, rules governing the procedure for submission of cost data, and a report setting forth the Commission’s policy on what costs and revenues, incurred in or attribut- able to the conduct of directed operations, are allowable for purposes of inclusion in the cost form.’ ICC viewed its role under section 1(16)(b) as follows: 6. The ICC had commenced a rulemaking proceeding known as Ex Parte No. 293 (Sub-No. 3) on July 11, 1974 for the purpose of promulgating the cost form and regulations. Representatives of the railroad industry, inc the Central Railroad Company of New Jersey (“CNJ”) but not LENE. ship- pers and labor participated in the proceedings. 7. The cost form and rules, but not the report, are found in 49 C.F.R. §1126. The ICC report, “Implementation of Public Law 93-236, Section 601(e), Regional Rail Reorganization Act of 1973—Submission of Cost Data to Justify Reimbursement,” ny age? ) appears at 348 1.C.C. 251 & 320 (1975). pe ea of the Report to the cost form was stated by the ICC as Ss: The comments and discussions in the report and order of the Commis- frm isl shall be used by difectedcarier applying of the cost form itself. shall be used by 2 directed carrier applying the cost form a8 recording revenues and expenses and as a general statement of fesion policy, subject to revision, regarding ‘emergency directed epg Bape yh Do ky ke LT amended by section 601(e) of the Regional Rai Reorganization Act of 1973. ICC Report, Joint App. at A-199. 6a Appendix A The Commission views its role as that of mediator between the directed carrier and the other carrier in terms of charges to which they must mutually agree and as that of overseer of the general reasonableness of expenses incurred in performance of a directed operation, and hopes that, with the cooperation of al! parties, it can maintain that limited role. The stand- ards established in the final cost form are intended to simplify and standardize the admittedly complex ac- counting procedures imposed upon a directed carrier and to limit those expenditures which may be reim- bursable by the Federal government to those essential to performance of a directed service within the guide- lines established by section 1(16)(b) itself and within the clear intent of Congress to keep Federal expendi- tures to a minimum.* As is pertinent to the instant controversy, in its Report the ICC considered the question whether it should recognize rent paid by the directed carrier to the other carrier for use of its facilities as a reimbursable cost under section 1(16)(b). The Commission concluded that in the usual case, where the directed carrier’s costs of directed opera- tions exceeded revenues, no compensation or rent for the use of the other carrier’s lines and facilities would be required and thus a directed carrier would not be reim- bursed by the government for any rent paid to the other carrier.” The practical effect of this rule is to deny the other carrier rent for the use of its lines and facilities All Pree sy references in this opinion to “cost reimbursement regulations” i on tole A hey J dh ~¥ Report. All citations to the ty 4 8. ICC Report, Joint App. at A-165 to -166. 9. Id. at A-173 to -174. The Commission further Stated, however say “rental agreements already exist under which the other carrier 4. ines or properties, . . . for its operations, the directed carrier shall the a ae ae bh and other properties which 4° ormance of a directed operation, and h payments shall recognized as a reimbursable cost... .” Jd. at A170. ss - 7a Appendiz A during the period of an unprofitable directed operation. Where the costs of directed operations do not exceed revenues, i.e., a profitable operation, the Report provides that rent should be paid to the other carrier by the directed carrier. In this event, the amount of rent would be meas- ured by the lessening of the other carrier’s economic value due to the directed operations (i.e., normalized deprecia- tion), reduced by amounts expended during the period of directed service that benefited the other carrier or its estate.’° The Commission stated two reasons for its denial of rent to the other carrier in the usual case. First, it be- lieved that by ordering directed service it was fulfilling the other carrier’s legal obligation to continue service until obtaining a certificate of abandonment from the ICC and that to permit reimbursement for rent would provide a monetary incentive for the ‘‘unlawful abandonment of service.’’ Second, the Commission was of the view that its ordering of directed service would confer substantial benefits on the other carrier which in most instances would be sufficient to discharge any obligation to pay rent.” L&NE instituted these proceedings on May 20, 1975 to set aside that portion of the ICC’s cost reimbursement regulations which denies rent to the other carrier when directed operations are not profitable. B. Service Orders 1207 & 1208 L&NE’s interest in the Commission’s refusal to reim- burse a directed carrier, in the usual case, for rent paid the other carrier during the period of directed service can be traced to two orders issued by the ICC, Service Orders 1207 and 1208. A review of events leading up to and sur- rounding the issuance of these orders, which directed the Reading Company and the Lehigh Valley Railroad Com- pany (‘‘LVRR’’) to operate for a limited period of time 10. Id. at A-174 to -175. 11. Id. at A-171 to -174, see notes 28 & 29, infra. 8a Appendia A over the lines of L&NE, is necessary tu an understanding of the instant controversy.” L&NE is a carrier by railroad whose lines are located solely within the Commonwealth of Pennsylvania."* In 1972, L&NE, because of a decrease in coal and cement traffic, experienced a substantial decline in net income and by 1973 it was operating at an annual deficit of over $100,000." Because of these losses, representatives of L&NE and CNJ allegedly approached the ICC in the latter part of December 1974 to determine whether the Commis- sion would be willing to enter an order directing another railroad to provide service over L&NE’s lines.* L&NE indicated that according to its projections for 1975 oper- ating losses ranging up to as much as $400,000 might be expected for the first six to nine months of 1975. L&NE further indicated its intention to embargo all traffic to, 12. This action was instituted by L&NE, as it candidly admits, primarily to clear the way for a suit against the United States in the Court of Claims based on L&NE’s contention that Service Orders 1207 and 1208 constituted a taking of L&NE’s property for which just compensation is required. L&NE brought the instant proceeding first because it feared that the Court of Claims might view L&NE’s suit for just compensation as a collateral attack on the ICC regulation. Brief for Petitioner at 15 n.*. We, of course, express no opinion as to the effect of our decision on any action that might be instituted in the Court of Claims. 13. L&NE was formed in 1961 as a wholly owned subsidiary of the Central Railroad Company of New Jersey ( ee iy Following a default by CNJ of certain loans guaranteed by the ICC, all L&NE stock, bonds and i Never. were transferred to, and registered in the name of, the United States. theless, the CN) Trustee continues to vote the L@NE stock and manage t L&NE on a day-to-day basis without supervision by the United States Depart- ment of Justice. The recent conveyance of certain railroads in the Northeast and Midwest on April 1, 1976 to Rail under the “Final System Plan” adopted pursuant to the Rail Act has had no effect on the instant litigation. While the imple- mentation of the Final System Plan resulted in a transfer of certain assets of LENE to ConRail, L&NE’s corporate status remains unmodified. In addition, ConRail did not acquire the stock of L&NE and L&aNE’s corporate relationship both to CNJ and to the United States has remained unaffected. 14. In re Application of Lehigh and New England Railway Com , Under a > ae (18) to (20), Inclusive, of the Interstate oo merce Act, as For a Certificate of Public Convenience and N i Authorizing Abandonment of Operations, at 10 & Exhibit 2b, (filed Sept. 1975), reprinted in Exhibit | to Brief of Respondent. 15. L&NE disputes the government's assertion that it solicited or requested & Commission to ay directed —. A, - — Carpenter, Bennett & orri to Thomas F. Clerk nited States Court ppeals for the Third Circuit, at § Apr. 8, 1976. wn 9a Appendia A from and over its lines, effective January 24, 1975. Brief for Respondent at 21. During meetings in December and in the early part of January various alternatives to directed service were dis- cussed by the ICC, L&NE and shippers in L&NE’s area, but no solution was reached. On January 7, 1975, L&NE issued an embargo covering all traffic moving from, to and over its lines, effective January 24, 1975. To avoid the disruption that would result from implementation of the embargo, the ICC entered Service Orders 1207 and 1208 on January 17, 1975, which directed LVRR and Reading to provide service over L&NE’s lines for 60 days (from January 24 to March 24, 1975). The service orders were subsequently extended for an additional 180 days ( from March 24 to September 21, 1975) by the Commission after being notified on March 3, 1975 that L&NE would not be able to resume operations upon the expiration of the original service orders.”* The Service Orders required the directed carriers, LVRR and Reading, and L&NE ‘‘to negotiate . . . agree- ment[s] ... on all aspects of the directed operation sub- ject to their determination,’’ and subject to Commission approval.'* During these negotiations, L&NE sought to be paid rent for the use of its facilities during the period of directed service. Negotiations broke down after the ICC advised the parties that no basis had been shown for allowing rent to L&NE. Shortly thereafter, the instant proceeding was commenced by L&NE. On September 9, 1975, immediately prior to the ex- piration of Service Orders 1207 and 1208 as extended, ot ae wees th te mappestion aut “Lilt Ge cominuntion of Gass services is essential to your company, I would suggest that you get in touch with Mr. Brooks [at the ICC] . . and that the Interstate Commerce parently, these shippers ‘ demonstrate their need for continued rail services. Id. 17. Corrected Revised Service Orders 1207 & 1208, reprinted in Brief of Petitioner, Exhibits I & II, at 5. 10a Appendiz A L&NE filed for the first time an ‘‘Application for Au- thority to Abandon Operations.’’ Thereafter, an agree- ment was reached between L&NE and LVRR and Reading whereby the two carriers would continue to provide service over L&NE’s lines ‘‘on a ‘no-loss guaranty basix.’’’ The agreement was underwritten by funds provided by the United States Department of Transportation under sec- tion 213 of the Regional Rail Reorganization Act of 1973, 45 U.S.C. § 723 (Supp. IV, 1974). In November of 1975, LVRR and Reading submitted claims for reimbursement of costs in excess of revenues that resulted from the directed operations under Service Orders 1207 and 1208. The amounts claimed reflected total operating losses of $325,891.15, of which $120,372.88 con- sisted of maintenance of way expenses required to permit safe operations over L&NE’s preperties."* Brief for Re- spondent at 26. I. L&NE makes several arguments in support of its peti- tion to set aside the Commission’s regulations regarding reimbursement for rent charged by the other carrier. First, it contends that the ICC exceeded its rulemaking authority under section 1(16)(b) by determining what costs are reimbursable because that section authorizes the Commission only to prescribe a form for recordation of costs as defined in section 1(16)(b) and does not grant it authority to make substantive rules. Second, L&NE as- serts that directed service constitutes a taking of property for a public use within the meaning of the fifth amend- ment and that the Commission’s rules concerning reim- bursement for rent deprive the other carrier of the just compensation to which it is entitled under the fifth amend- 18. In addition $51,232.51 was expended by LVRR, with prior ICC ap- po = rehabilitate L&NE’s tracks to conform them to safe operating standards. A — lla Appendiz A ment."* As a subsidiary argument, L&NE claims that by adopting a rule that rent is payable only where the directed service is profitable, the ICC has usurped the judicial func- tion of determining what constitutes just compensation. Finally, L&NE attacks as arbitrary and capricious the regulations’ distinction between profitable and unprofitable operations for payment of rent and the method of cal- culating the amount of rent to be paid in the event of a profitable operation. The Commission contends first that L&NE is equitably estopped from attacking Service Orders 1207 and 1208 as constituting a taking and the cost reimbursement regula- tions as providing inadequate compensation because L&NE sought and obtained substantial benefits from the directed operations. The authority to adopt regulations determin- ing what expenditures constitute reimbursable costs under section 1(16)(b) is found, the Commission asserts, both in its inherent power to supervise the flow of federal funds to railroads and in the preamble to the Rail Act, in which Congress expressed its desire to provide federal assistance to railroads at the lowest possible cost to the general tax- payer. 45 U.S.C. §701(b)(6) (Supp. IV, 1974). The ICC disputes L&NE’s assertion that directed service effects a taking under the fifth amendment; it contends that by ordering directed service the Commission is merely ful- filling the other carrier’s obligation to continue rail service until receiving a certificate of abandonment and that in the usual case the other carrier receives substantial bene- fits as a result of directed service,” which benefits consti- on : constitutes a taking within the meaning of the fifth amendment; L&N i will bring. suit 1 _— See note 12 supra. 12a Appendiz A tute just compensation as a matter of law. Finally, the ICC asserts that L&NE lacks standing to challenge those portions of the regulations concerning the payment of rent in the event of a profitable operation because such a situa- tion is only a hypothetical one and because there is cur- rently pending before the Commission a challenge to those portions of the regulations. IIL A. Equitable Estoppel The Commission argues that L&NE cannot now be permitted to attack the cost reimbursement regulations because it actively sought directed service and still retains substantial benefits resulting from the directed operations. In support of its argument, the ICC quotes a statement by the Supreme Court in FPC v. Colorado Interstate Gas Co., 348 U.S. 492, 502 (1955) that a plaintiff ‘‘cannot now be allowed to attack an officially approved condition of the merger while retaining at the same time all of its benefits.’’ ** On the record before us, we cannot rely on the estop- pel doctrine to avoid reaching the difficult issues raised in L&NE’s petition. FPC is inapposite. In that case the party which sought the merger was aware prior to accept- ing the merger’s benefits of the conditions imposed on the merger by the government.” There is no evidence in the record that prior to accepting directed service, LENE was aware that it would not receive compensation for the 20. (Cont’d.) directed service led directly to agreements between LANE and LVRR and Reading to continue service over L&NE’s lines; and (5) directed service facilitated inclusion of L&NE’s properties in the Fina! System Plan. Brief Civil oe at 40-41. See also irr Route Carriers Ass'n v. United States, 7204 (E.D. Mich. 5, 1974) (three-judge court) fon Opinion ), II of Brief of Respondent; Admiral-Merchants Motor Inc. v. yyy — (D. Colo. 1971) Tinceiaies aa aff'd per >. ( 22. 348 U.S. at 302. 13a Appendix A directed carrier’s use of its properties. The service orders were issued on January 17, 1975 and extended on March 21, 1975, but the ICC did not issue its cost form regulations and report until April 9, 1975, effective March 21, 1975. In addition, paragraph (i) of each service order provided that the directed carrier and L&NE were to negotiate an agreement ‘‘on all aspects of the directed pperation sub- ject to their determination, including, but not limited to . . . rental for the use of rights-of-way and other rail facilities.’’** Finally, L&NE disputes the ICC’s asser- tion that it sought or requested directed service.™ B. ICC Authority to Determine Reimbursable Costs The ICC, like other administrative agencies, is of course a creature of statute and cannot exceed the specific statutory authority granted it by Congress.” While the precise wording of section 1(16)(b)(E) could be construed, as L&NE asserts, to grant the Commission only the minis- terial duty to prescribe a mere form for the recordation of cost and revenue figures, we reject such a narrow view of ICC authority here. In our view, the Commission’s au- thority to determine what are reimbursable costs, while not explicitly set forth in the Rail Act or section 1(16)(b), is fairly implied, assuming a reasonable exercise of that authority. See American Iron ¢ Steel Institute v. EPA, 526 F.2d 1027, 1037 (3d Cir. 1975) ; Niagara Mohawk Power Corp. v. FPC, 379 F.2d 153, 158 (D.C. Cir. 1967); Akron, Canton & Youngstown R.R. v. United States, 370 F. Supp. 1231, 1235-36 (D. Md. 1974) (three-judge court). We con- sider a reading of section 1(16)(b) to limit Commission power in determining reimbursable costs to be unwar- ranted absent compelling evidence that such was Congress’s 23. Corrected Revised Service Orders 1207 & 1208, Brief for Petitioner, Exhibits I & II, at 5. . 24. See note 15 ayve. 25. American Trucking Ass’ns, Inc. v. United States, 242 F. 597, ae Tb D.C. a Pe ir yh aff'd 382 U.S. 373 (1966). See 'y Zuber v 68 (1969) ; CAB v. Delta Air Lines, Inc. US. 316 C1961) Reardon v. United States, 491 F.2d 822 (10th Cir. i974)” 14a Appendix A intent. See United States v. Southwestern Cable Co., 392 U.S. 157, 177 (1968); Permian Basin Area Rate Cases, 390 U.S. 747, 780 (1968) ; American Trucking Associations, Inc., v. Atchison, Topeka &@ Santa Fe Ry., 387 U.S. 397, 409-12 (1967). In support of our conclusion, we note that the Com- mission is given the authority in section 1(16)(b)(E) to ‘‘audit’’ the costs incurred and revenues obtained by the directed carrier and to certify to the Secretary of the Treasury the amount of payment due the carrier. We interpret these grants of authority to require the ICC to do more than merely check to see that the particular amounts recorded actually were expended or received by the carrier. Rather, in our view, it has a duty to deter- mine that the amounts expended by the directed carrier were the type of expenditures for which Congress in- tended the carrier to receive reimbursement. Even more importantly, we note that the preamble to the Rail Act declares Congress’ intention to provide for ‘‘necessary Federal financial assistance [for essential rail service] at the lowest possible cost to the general tax- payer.’’ 45 U.S.C. §701(b)(6) (Supp. IV, 1974). This court has recently stated that ‘‘[wlje read this lan- guage as an earnest entreaty to economize, addressed to those who are authorized to spend many millions, ulti- mately billions, of dollars in preserving. and subsidizing essential rail service.’’ In re Penn Central Transporta- tion Co., No. 75-1902, at 11 (3d Cir. Mar. 3, 1976).%* This express Congressional policy would be undermined if the ICC was required to reimburse a directed carrier for every 26. We recognize that the directed service provision of the Rail Act was enacted as an amendment to the Interstate Commerce Act and that it has force and effect outside the context of the regional rail reorganization contem- plated by the Rail Act. See note 3 supra and accompanying text. Neverthe- less, we do not feel that the scope of administrative authority granted the Commission under section 1(16)(b) can be measured without consideration of the purposes for which this section was originally enacted—namely, to preserve essential rail service in the short-run, pending longer term regional rail reor- ganization. J/d.; see Permian Basin Area Rate Cases, 390 U.S. 747, 776 (1968) ; United States v. Pennsylvania R.R., 323 U.S. 612, 618-19 (1945). lda Appendiz A expenditure made in connection with directed service, re-- gardless of its reasonableness. We agree with the Com- mission that ‘‘[i]t would be en‘irely unacceptable for all claimed costs, subject only to technical audit, to be paid without evaluation of their propriety.’’ L&NE argues that a preamble cannot confer powers on the Commission that are not conferred by the operative language of the statute.2”7 But we have not concluded that the preamble to the Rail Act confers powers on the ICC not granted it in the operative language of the statute. Rather, we have merely used the preamble as a guide to aid us in determining the legitimate scope of the admin- istrative authority that is clearly reposed in the Commis- sion by the operative language of section 1(16)(b). In analogous situations, the Supreme Court has relied on the National Transportation Policy set forth in the preamble to the Interstate Commerce Act to determine the extent of authority granted the Commission in specifie sections of that Act. See, e.g., American Trucking Associations, Inc. v. Atchison, Topeka & Sante Fe Ry., 387 U.S. 397, 409-10 (1967); United States v. Pennsylvama R.R., 323 U.S. 612, 618-19 (1945). Finally, the Interstate Commerce Act and the Rail Act entrust a broad subject matter to administration by the ICC. Surely, the scope of the Commission’s responsi- bilities under the Act requires a generous construction of its statutory authority. In deciding a question concern- ing the scope of Commission authority in a different con- text, a three-judge court in Florida East Coast Ry. v. United States, 259 F. Supp. 993, 997 (M.D. Fla. 1966), aff’d 386 U.S. 544 (1967) stated: No one who reviews the history and language of the In- terstate Commerce Acts can doubt that Congress has entrusted the ICC with plenary power to regulate al- 27. See, e.g., Carter v. Carter Coal Co., 298 U.S. 238, 289-90 (1936); Varco’ & ‘Missusippi ‘Valley RR. v. ‘Thomas. 132 US. 174, 188 (18899: Hughes Tool Co. v. Meier, 486 F.2d 593, 596 (10th Cir. 1973). l6a Appendiz A most every aspect of the rail industry.... The ICC is in many ways a super-management often making man- agerial-type . decisions affecting the transportation industry, with but one overriding duty—to protect the public interest. We think these observations particularly applicable to the ICC’s broad emergency power to order and regulate di- rected service under section 1(16)(b). See also 49 U.S.C. §§ 1(14)-(15). Having concluded that the Commission has authority to determine what costs are reimbursable consistent with section 1(16)(b), does not, of course, mean that the exer- cise of that power here was proper. In section 1(16)(b) (E), Congress intended that the directed carrier be reim- bursed for all reasonable expenses necessary to providing directed service. Thus, the Commission’s rules denying reimbursement to the directed carrier for rent paid to the other carrier in the event of an unprofitable operation can only be upheld as a reasonable exercise of its authority if, as both a statutory and a constitutiona] matter, the directed carrier is not required to pay rent to the other carrier in that instance. C. ICC’s Construction of Section 1(16)(b) While not specifically argued by L&NE, we must first determine whether the ICC’s cost reimbursement regula- tions denying rent to the other carrier where the cost of directed operations exceeds revenue comport with Con- gress’ intent in enacting section 1(16)(b). See Hagans v. Lavine, 415 U.S. 528, 543 (1974); Allen v. Aytch, No. 75- 1924, at 6 (3d Cir. Apr. 29, 1976). Im deciding this ques- tion we are mindful of the Supreme Court’s statement in Udall v. Tallman, 380 U.S. 1, 16 (1965) : When faced with a problem of statutory construc- tion, this Court shows great deference to the interpre- pe a ea le la RE et 17a Appendix A tation given the statute by the officers or agency charged with its administration. ‘‘To sustain the Com- mission’s application of this statutory term, we need not find that its construction is the only reasonable one, or even that it is the result we would have reached had the question arisen in the first instance in judicial proceedings.’’ Unemployment Comm’n v. Aragon, 329 U.S. 143, 153. See also, e.g., Gray v. Powell, 314 U.S. 402; Universal Battery Co. v. United States, 281 U.S. 580, 583. ‘‘Particularly is this respect due when the administrative practice at stake ‘involves a con- temporaneous construction of a statute by the men charged with the responsibility of setting its machinery in motion, of making the parts work efficiently and smoothly while they are yet untried and new.’ ’’ Power Reactor Co. v. Electricians, 367 U.S. 396, 408. See also Lucas Coal Co. v. Interior Board of Mine Opera tions Appeals, 522 F.2d 581, 584 (3d Cir. 1975). The statutory language of section 1(16)(b)(E) does not specifically provide for the payment of any monies to the other carrier; rather, it requires a payment solely to the directed carrier of the costs incurred in performing the directed service. ‘‘Cost’’ is defined as follows: The term ‘‘cost’’ shall mean those expenditures made or incurred in or attributable to the operations as di- rected, including the rental or lease of necessary equipment, plus an appropriate allocation of common expenses, overheads, and a reasonable profit. Thus, the ICC concluded that if rent for use of the other carrier’s properties were to qualify as a ‘‘cost,’’ it must result from the inference that such rent is an expenditure to be ‘‘incurred’’ by the directed carrier. The Commis- sion rejected such an inference based on its views that it was highly unlikely that Congress intended to provide a 18a Appendiz A monetary incentive to the other carrier to abandon rail service without prior ICC approval,”* and that the other carrier would derive substantial benefits from directed service so as to render compensation in the form of rent unnecessary as a matter of law in the case where costs exceeded revenues.” The ICC has given careful consideration to this ques- tion. We cannot say that its interpretation of section 1(16)(b) is unreasonable so long as the interpretation does not contravene the fifth amendment—the L&NE conten- 28. The Commission's reasoning was stated in its Report as follows: Under the Interstate Commerce Act, all common carriers by railroad must fulfill their common carrier obligation to continue service to the public (Section 1(4)), unless and until a certificate of abandonment is authorized by the Commission pursuant to the provisions of section 1(18) of the Act. Under the requirements of section 1(16)(b), in order for the Commission to issue a directed service order, the operated carrier, havi ceased operations without obtaining a certificate of abandonment from Com- mission, must be in dereliction of its statutory duty to continue to provide such service. Smith v. Hoboken R. Co., 328 U.S. 123, 130 (1946). It is highly unlikely that Congress in its consideration of section 1(16)(b) desired to provide a monetary incentive for the unlawful abandonment of rail service. Rewarding a railroad for avoiding such a legal obligation would be contrary to public policy. ICC Report, supra note 7, Joint App. at A-172. 29. The Report continued : Whatever consideration is given to the economic loss of the operated carrier because of the ordering of directed service over its properties m must be balanced by a consideration of the benefits conferred by such an order. First, the carrier avoids incurring any additional operati com which might impair the jy of its creditors or further its invested capital. Further, the period of the directed service, the ty will be maintained iy to continue service and all employee obligations for those employees hired by the directed carrier will be satisfid. Conse- quently, in ordering directed service, the Commission both fulfills the carrier’s legal obligation to continue to provide service and preserves the value that the operated properties might have for continued use in their dedicated purpose. Id. at A-173. Additionally, since the authority to abandon ibe rail properties has not yet been approved, the carrier cannot legaily convert the capital it has invested in the property to a non-rail use. Until such an abandonment is Id. at A-172 to -173. 19a Appentia A tion—for a statute should be construed to be constitutional where possible.” D. Directed Service and the Fifth Amendment Essential to L&NE’s argument that the ICC’s denial of rent, in the usual case, to the other carrier deprives the other carrier of just compensation as required by the fifth amendment, is the assumption that directed service con- stitutes a taking within the meaning of that constitutional provision. We decline to accept that assumption. The line between a taking of property for which just compensa- tion must be provided and a legitimate exercise of regula- tory authority by the government, which may result in a loss but which does not require compensation, is a thin one, indeed.“ And we recognize that on which side of this line directed service falls may be a close and difficult question. Nevertheless, we are satisfied from a review of the obligations imposed on a railroad to continue service until receiving Commission approval to abandon, even when continuation results in not unreasonable losses, and from an examination of the effects on the other carrier of directed operations that directed service, when unprofita- ble and as currently implemented by the ICC, does not constitute a taking for which compensation in the form of rental to the other carrier for the use of its lines must be provided.” 30. See, e.g.. Regional Rail Reorganization Act Cases, 419 U.S. 102, 134 (1974) ; United States Civil Serv. Comm'n v. National Ass’n of Letter Carriers, 413 U.S. 548, 571 (1973). 31. We note that both courts and leading commentators have encountered difficult conceptua! problems in attempting to develop a comprehensive approach to defining the legitimate scope of the takings clause and, in particular, in differentiating between “takings” and “mere r geo See, ¢.9., Sax, Takings, Private Property and Public Rights, Yate L.J. i49 ( 1971) ; Michelman, Property, Utility, and Fairness: ee on the Ethical Founda- tions of “Just “Pohice Poxer Law, 80 Harv. L. Rev. 1165 (1967); Sax, Takings and the Police Power, 74 Yaue L.J. 36 (1964); Dunham, Griggs v. Allegheny County in Perspective: Thirty Years of Supreme Court Expropria- tion Law, 1962 Sup. Cr. Rev. 63. 32. Because of our conclusion we need not and do not reach the questions whether the benefits conferred on the other carrier as a result of directed 20a Appendix A Fundamental to our holding are two conclusions: (1) that the ICC has the power to order a carrier that has not obtained a certificate of abandonment under 49 U.S.C. §1(18) * to continue to provide service for as much as 240 days, the maximum period of directed service, despite a cash deficiency or operating losses “* or, indeed, a court order to the contrary;* and (2) that such action by the Commission would not constitute a taking for which com- pensation must be provided, but rather would be merely a postponement of the carrier’s right to abandon.” If the ICC could take the above recited action without such action constituting a taking, we think it follows directly that it could place another carrier on the lines of the carrier un- able or unwilling to continue service for a limited period without effecting a taking within the meaning of the fifth amendment. In a line of cases in the 1920’s, the Supreme Court did hold that if a railroad ‘‘be taken to have granted to the public an interest in the use of the railroad it may with- draw its grant by discontinuing the use when that use can be kept up only at a loss.’’ Brooks-Scanlon Co. v. Rail- 32. (Cont’d.) service as a matter of law obviate the necessity to provide rent to the other carrier and whether the ICC in promulgating its cost reimbursement regulations has usurped the judicial function of determining what constitutes just com- pensation. 33. Section 1(18) provides, in pertinent part: [No carrier by railroad subject to this chapter shall abandon all or any portion of a line of railroad, or the operation thereof, unti there shall first have been obtained from the Commission a certificate the present or future public convenience and necessity permit abandonment. 49 U.S.C. §1(18) (1970). 34. See New Haven Inclusion Cases, 399 U.S. 392, 461, 491-92 (1970) ; In re Penn Central Transportation Co., 384 F. Supp. 895, 919 (Regional Rail Reorganization Act Special Court 1974). 35. See In re Erie Lackawanna Ry., 517 F.2d 893, 896-98 ( In re Central RR. of New Jersey. F.2d 208, 211-12 (3d banc), cert. denied, 414 U.S. 1131 (1974). 36. See New Haven Inclusion Cases, 399 U.S. 392, 490-93 (1970); Con- tinental Illinois Nat'l Bank & Trust Co. v. Chicago, Rock Island & Pacific Ry., 294 U.S. 648, 680-81 (1935). } of B bE 21a Appendix A road Comm’n, 251 U.S. 396, 399 (1920); see Railroad Comm’n v. Eastern Texas R.R., 264 U.S. 79, 85 (1924); Bullock v. Florida ex rel. Railroad Comm’n, 254 U.S. 513, 520-21 (1921). While these decisions have never been repudiated by the Supreme Court, and this court does not dispute their fundamental principles, the rights of the owners of railroads have never been considered absolute; they are qualified by consideration of the public’s interest in continued essential rail service.** Thus, a railroad may not abandon service without prior Commission approval, New Haven Inclusion Cases, 399 U.S. 392, 461 (1970); In re Central R.R. of New Jersey, 485 F.2d 208, 214 (3d Cir. 1973) (en bane), cert. denied, 414 U.S. 1131 (1974), be- cause prior ‘‘administrative review assures than an agency with substantial expertise . . . will provide that the ap- propriate amalgam of public concerns for rail transport and private rights of property is achieved.’’ Jd. at 215. Second, a railroad or its estate may be made to suffer in- terim reasonable losses, without compensation, for a rea- sonable period of time during which solutions accommo- a 4 z | : ik i oF Brooks-Scanlon line of cases. See The New England Divisions U.S. 184, 190-92 (1923) ; Dayton-Goose Creek Ry. v. United States, 456, 479-83 (1924). A more recent and forceful statement by the Gass is found to Gus Pra trnmné Bistorr ond Hane Seen 1s in enn-Cen erger Norfolk & Western Cases, 389 U.S. 486, 510-11 (1968) : ~ While the rights of the bondholders are entitled to respect, command Procrustean measures. They certainly do i operations vital to the Nation be jettisoned despite the avai feasible alternative. _ The public interest is not merely a ficed for the strategic purposes or protection of a class of security eRe ad ED tf fF cet 28 H 22a Appendiz A able length of tim: without effecting a taking.” New Haven Inclusion Cases, supra at 493; In re Penn Central Transportation Co., 384 F. Supp. 895, 919 (Regional Rail Reorganization Special Court 1974); see RFC v. Denver é Rio Grande Western R.R., 328 U.S. 495, 535-36 (1946) ; Continental Illinois Nat’l Bank & Trust Co. v. Chicago, Rock Island & Pacific Ry., 294 U.S. 648, 677 (1935). The Supreme Court’s decision in the New Haven In- clusion Cases is instructive in this respect.” While await- ing implementation of a plan of reorganization and inclusion in the Penn Central system, the New York, New Haven & Hartford Railroad had been required to continue to provide rail service and as a result to incur ‘‘substan- tial losses.’’** In holding that the forced deficit operation did not constitute a taking for which compensation was required, the Court stated, 399 U.S. at 491-92: The rights of the bondholders are not absolute. As we have had occasion to say before, security holders ‘‘ecannot be called upon to sacrifice their property so that a depression-proof railroad system might be created. But they invested their capital in a public utility that does owe an obligation to the public. ... [B]y their entry into a railroad enter- prise, [they] assumed the risk that in any depres- sion or any reorganization the interests of the 38. We emphasize that we are only speaking to the situation where the carrier is forced to incur losses for a reasonable limited period of time such as is involved with directed service, the maximum period of which is limited to 240 days. We do not address the question whether a carrier or its estate may be forced to bear large losses, without compensation, for an unlimited period of time where solutions are not likely to be forthcoming. See Jn re Penn-Central Transportation Co., 384 F. Supp. 895, 919 (Regional Rail Reor- ganization Special Court (1974) ). 39. See generally Note, Conrail and Liquidation Value: Creditors’ and Stockholders’ Entitlement wm the y- 4 Rail Reorganisation, 85 Yate L.J. 371 (1976) ; Note, Takings and the Public Interest in Railroad Reorganisation, 82 Yate L.J. 1004 (1973). 40. The reorganization court had stated “ ‘the losses reasonably incident to working out the solution most consistent with the public interest’ [have] eroded the debtor’s estate in excess of million.” In re New York, New Haven & _—" R.R., 304 F. Supp. 793, 800 (D. Conn. 1969), modified, 399 U.S. 392 =e Ge —- 23a Appendiz A public would be considered as well as theirs.’’ Recovetruction Finance Corp. v. Denver @ R.G.W.R. Co., 328 U.S. 495, 535-536. In our view, the New Haven Inclusion Cases dictate a holding that directed service does not constitute a taking, at least in the factual circumstances presented here. Un- like New Haven, where the railroad was required to con- tinue to operate for a period of six years, directed service can last only 240 days. More importantly, whereas in New Haven the carrier was forced to incur ‘‘substantial’’ operating losses, the other carrier during a directed opera- tion sustains no operating losses because the directed car- rier transports the other carrier’s traffic for it. Such was the case with L&NE which, as a result of the directed service, was spared losses it might otherwise have been legally required to incur. Finally, the other carrier’s properties are maintained and in some cases upgraded during the directed operation." These factors convince us that rather than suffering a diminution of their col- lateral, the most that the owners of a carrier suffer as a result of directed service is a postponement of their remedy of abandonment, for which no compensation is necessary. See Continental Illinois Bank 4 Trust Co. v. Chicago, Rock Island & Pacific Ry., supra at 677. L&NE counters that all of the above cases are dis- tinguished because they dealt with ‘‘erosion takings’’— where the railroad’s estate is eroded by deficit operations —and not with ‘‘conveyance takings’’—where the physical properties of the carrier are taken. Directed service, it contends, involves a conveyance taking. The Supreme Court did recognize the distinction between an erosion taking and a conveyance taking in the Regional Rail Re- A. She Commiaien te te cost selnburcement teguiations ssovites fer maintenance of way expenses expenses to bring the lines into compliance with the Federal Rail Selety Act of tone et note 7 supra, Joint App. at A-175, -188; 49 CF.R §1126. For the specific expenditures made on E’s behalf see note 18 supra and accompanying text. 24a Appendia A organization Act Case, 419 U.S. 102 (1974).® Also, in deciding the question whether a fifth amendment taking has occurred, many courts seem to have considered as de- terminative the physical occupation by the government of property belonging to the claimant.” While we do not discount the importance of this fac- tor, we eschew such a formalistic approach to the takings question. Although as a conceptual matter, ordering a carrier to continue operations for 240 days may differ from placing another carrier on those lines for 240 days, we do not think this possible difference dictates a holding here that the latter constitutes a taking but the former does not. It might be anomalous indeed if the ICC could order forced deficit operations by a railroad and not effect a taking, but could not order another carrier to discharge those same duties, thereby in the usual case saving that railroad operating costs, without such action constituting a taking. The ICC does not take title to the other car- rier’s property during directed service. The other carrier’s rights to sell or dispose of its property for non-railroad use are no more qualified during directed service than they are normally since prior ICC approval is required in either case.“ E. Reimbursement for Rent During a Profitable Operation L&NE’s final contentions regarding the Commission’s cost reimbursement regulations are that the distinction between profitable and unprofitable directed operations for the purpose of determining whether rent should be paid the other carrier is arbitrary and capricious and that the Central T 384 F. 895 rae tae poerpuattotion het Special Comt 504). Seve. generally Michelman, Property, Utility, and Fairness: Comments on the Ethical Foundations of "Yuet Compensation” Tow, 80 Haxv L. Rev. 1165, 1184-90 (1 . 44. It should be noted here that L&@NE did not even seek ICC approval to abandon until nearly 9 months after it had issued its embargo. Cel te ea = 25a Appendix A method of calculating the rent in the event of a profitable operation is also arbitrary and capricious. Neither con- tention convinces us to set aside the [CC’s regulations. We decline to resolve L&NE’s challenge to the method of determining rent in the event of profitable directed operations at this time because directed service under Service Orders 1207 and 1208 was not profitable, LENE did not raise this contention before the ICC and the ICC is currently considering this issue as a result of a petition by the Rock Island Railroad. As to L&NE’s argument con- cerning the distinction between profitable and unprofitable operations,” the ICC made this distinction because it was concerned that the benefits normally received by the other carrier as a result of directed service might not be suf- ficient where the operation was profitable. We do not consider that decision to be arbitrary or capricious or with- out rational basis. IV. Accordingly, the petition of L&NE to review and set aside the Commission’s cost reimbursement regulations insofar as they do not provide, except for profitable oper- ations, for the payment of rent to the other carrier will be denied. 45. The Commission asserted that L&NE had no standing to challenge the differential treatment accorded profitable and unprofitable operations because operations under Service Orders 1207 and 1208 did not result in a profit. Brief for Respondent at 46. However, L&NE is clearly aggrieved by the application r this —_ ->~ 3 t and thus in s view has standing to chal this istinction. See generally Association o ta Processing Serv. Organizations, Inc. v. Camp, 397 U.S. 150 (1970). 46. ICC Report, supra note 7, at A-174. A True Copy: Teste: >» Clerk of the United States Court of Appeals for the Third Circwit. 40 Fed. Reg. 16066 Title 49—Transportation Cuaprer X—InrterstaTe Commerce ComMMISSION SUBCHAPTER B—PRACTICE AND PROCEDURE (Ex Parte No. 293 (Sub-No. 3)] Part 1126—Svusmission or Cost Data to Justiry Rem- BURSEMENT FOR DrrecTeD SERVICE Implementation of Pub. L. 93-236, section 601(e), Re- gional Rail Reorganization Act of 1973: submission of cost data to justify reimbursement. On July 17, 1974, the Commission served a notice of proposed rulemaking (39 FR 26172) under the subject docket in order to promulgate a form and procedures as required of the Commission in section 601(e) of the Re- gional Rail Reorganization Act of 1973 (RRRA), which section constitutes an amendment of the Interstate Com- merce Act by the addition of subparagraph (b) to the pres- ent section 1(16). This new provision, hereafter referred to as section 1(16)(b), authorized the Commission to re- spond to those cessations of service by a carrier by rail- road which it finds to constitute an emergency situation by directing another railroad (the directed carrier) to tem- porarily provide for the handling, routing, and movement of traffic over the lines of the carrier no longer able to perform that service (the other carrier). The Commission may invoke this emergency authority only when a cessation of service occurs under one or more of three specified circumstances (the cash position of the 27a Appendiz B carrier makes continued operations impossible, a court has ordered that service be discontinued, or service has been abandoned without a certificate from the Commission) and only after making certain findings as to the effect of such a direction on public commerce and on the directed car- rier. Section 1(16)(b) also provides for the reimbursement of the directed carrier or carriers by the Federal Govern- ment in the amount by which the cost, as referred to in subparagraph (e), of handling, routing and moving the traffic of the other carrier over that carrier’s lines exceeds the direct revenues therefrom. To provide an expedited and uniform method for obtaining reimbursement, Con- gress required the Commission to promulgate a form on which the directed carrier would concurrently record the cost and revenues of the directed operation and which would then be submitted by the directed carrier to the Commission for audit. The Commission is then authorized to certify to the Secretary of the Treasury the amount of the payment to be made to the directed carrier which payment shall be made from funds authorized to be ap- propriated under section 1(16)(b). The form proposed in the notice of proposed rulemak- ing served July 17, 1974, as modified, and accompanying procedures have been promulgated and are adopted in furtherance of this Congressional directive. All comments submitted with respect to the proposal were given due con- sideration. As a result of comments received various changes were made, several of which follow: 1. Subsidies provided by state, regional, or local an- thorities to the directed carriers are to be treated and 28a Appendix B recorded as revenues, but such revenues are to be excluded from the base upon which profit is determined. 2. Expenditures for deferred maintenance and/or re- habilitation of track, facilities and equipment of the other carrier, only insofar as essential to safety or to maintain such property at its level of repair at commencement of the directed service can be made without prior Commis- sion approval. All other maintenance and capital expen- ditures require the prior approval of the Commission. 3. Monies initially borrowed for the conduct of directed operations are limited to the amount of loss suffered by the other carrier in the 60 day period in the year prior to directed service comparable to the period of directed operation. Commission approval is required for any other borrowings if reimbursement is to be sought for the in- terest on such additional borrowings. These rules are issued under the authority of Part I of the Interstate Commerce Act (49 U.S.C. 1, et seq.) and the Administrative Procedure Act (5 U.S.C. 553 and 559). Effective date. This part becomes effective on March 21, 1975. Issued in Washington, D.C., on the 14th day of March, 1975. [seaL] Rosert L. Oswatp, Secretary. Accordingly, Title 49 of the Code of Federal Regula- tions is amended by adding a new Part 1126, reading as follows: 29a Appendix B Part 1126—Svupmission or Cost Data to Justiry ReE- IMBURSEMENT FOR DirEcTED SERVICE Sec. 1126.1 Seope of rules in this part. 1126.2 Cost form and certification. Avutuority: See. 601(e), Pub. L. 93-236, 87 Stat. 1021 (49 U.S.C. 1(16)). § 1126.1 Scope or ruLEs IN THIS PART. The rules in this part govern the procedures for the submission of costs and revenues to be followed by ear- riers subject to Part I of the Interstate Commerce Act which are directed to perform service over the lines of other carriers in accordance with orders of the Commis- sion under and pursuant to the provisions of section 1(16) (b) of said act. The report and order of the Commis- sion in Ex Parte No. 293 (Sub-No. 3), Implementation of Public Law 93-236, Regional Rail Reorganization Act of 1973—Submission of Cost Data to Justify Reimburse- ment, served on March 21, 1975, appearing at —— I.C.C. ——, should be used by directed carriers for guidance in the preparation of the cost form. This report and its appendix set forth the Commission’s policy as to just what costs and revenues, incurred in or attributable to the eon- duct or directed operations, are allowable for purposes of inclusion in the cost form. Only such allowable costs and revenues will be considered by the Commission in its computation of payments due to the directed carrier under the provisions of section 1(16)(b) of the Interstate Commerce Act. 30a Appendix B § 1126.2 Cost FoRM AND CERTIFICATION. The expenses and revenues incurred in the conduct of directed service shall be recorded in accordance with the cost form and its instructions as they appear below: Instructions to Cost Form 1. Enter in column (2) the expenses directly assign- able to the directed traffic moved. This includes wages, rentals and other expenses paid or ineurred by the ap- plicant and chargeable only to the directed traffic. 2. Enter in column (3) the portion of common expenses allocable to the directed traffic. Common expenses means those expenses paid or incurred for the movement of the directed traffic which are common or jointly incurred for the movement of other traffic. All expenses should be assigned direct wherever possible. Expenses not directly assignable should be apportioned on the basis of the factor suggested in column (5) or if necessary, on the basis of a more readily available and equitable factor, if such use is justified to the Commission. The relationship of the carriers’ own revenues and the directed traffie rev- enues is an acceptable apportionment factor in cases where there are no other available apportionment factors. 3. Enter in column (4) the total of columns (2) and (3). 4. The cost of rehabilitation of the line necessary to permit operation should be shown in the maintenance of way accounts. Expenditures for substantial improvements shall require authorization by the Commission. 5. Expenses included in lines 13, 23, 38, 42, 47, and 53 should be identified on a separate sheet. a *& & W 202, 212, 214, 216, 218, and 220 227 and 249 231, 233, and 247 235 229, 237, 239, 241, 243, and 265 244 206, 208, 210, and 221 8 274 15 16 17 201, 275-277, and 282 266, 267, 269-273, and 281 253 and 257 278 and 279 All other expenses Total of maintenance of way and struc- tures. Maintenance of equipment. 311 (yard) 311 (other) 314 3la Appendix B COST FORM Suggested apportionment factors (5) Equated track miles. Carloads handled. Revenue tons. Total repairs—expenses. Miles of road. Trailers handled loaded and empty. Equated track miles. Direct. Accounts 202-265. Miles of road. Accounts 311 and 314—expenses.! Miles of track. Direct. Locomotive unit-miles. Gross ton-miles. Freight train car-miles cars-loaded and empty. 1 Railroads having electrified systems should use electric locomotive unit-miles. Directed traffic Directed traffic : Account No. Direct Suggested apportionment factors . apportionment Account No Direct ons Suggested factors Line Common Total - per saan j (1) 2? «@ (4) (5) (1) @ ® (4) (5) 19 318 Vehicle miles loaded and empty. 38 All otf Direct 21 301, 326, 328, 332-335 Total repairs-—expenses. and 3 Miscellaneous operations ay 56 and 337 37 o oe 4 449 xxx Direct. 23 All other expenses xxx Direct. a 46 —*. =e. 2 we 24 be of maintenance xxXxX XXX 42 All off ane Direct. 43 Total miscellaneous xxx Xxx Transportation — General and traffic 25 372 Train-miles. 27 +389 Yard switching locomotive unit- 45 451-455, 457-462 a Apportion on the basis of total. 28 371, 409-411, 444 and 420 Accounts 372, 373, 376 and 389— 24, 39 29 404-407 and 415-419 Train-miles. 46 351-360 Accounts 451-462 expenses. 30 376 Revenue tons. 47 All other expenses Direct. 31 374, 375, 408 xxx Direct. 48 Total general and 32 377-380, 382-384, 388, Yard switching locomotive unit- 390 and 391. miles. 49 Total —— limes XXX XXX 14, 24, 39 43 and 48. 33 392 and 404 Accounts 392 and 401 direct as- = 532 Railway tax accruals 34 394-396, 400, 412 and 413 -—-~" epee including 30 P r — Direct 35 402 Freight train car-miles loaded and 51 Property taxes Miles of road. empty including caboose. 52 State income taxes xxx Direct. 3% 403 Passenger train car-miles. 53 Other taxes excluding Miles of road. income taxes. 2 Assign train enginemen and traimmen expenses direct to carrier’s own traffic and directed 54 Total taxes, lines 50- xxx xxx oe Apportion common expenses on the basis of direct assignments of accounts 392 and (5) (1) 76 Local/State subsidies Total income line 75 xxx xxx 77 78 ae 7 : Hu j EE HL y Sy #8 wip is eal Le pon Ged oppo: Mya : a uy in te it iT : . ose oe Pun “) 10 : 55 * & fi tie Homey SRERSTRR° Z i SSStEsssSss Near 77 is larger than line 84, enter 0. 36a Appendiz B Attention Knowing and willful misstatements or omissions of ma- terial facts constitute federal criminal violations punish- able by up to five years imprisonment and fines of up to $10,000 for each offense. (See 18 U.S.C. 1001, 1003, 287.) Each person by whom this document is signed certifies that the representations appearing herein and in the ap- pendices attached hereto (including any accompanying schedules and statements) are, to the best of his knowl- edge and belief, true, correct, and complete, based upon all the information required to be included therein, of which he has any knowledge. Dated this day of , 19-——. (Signature of Accounting Officer) By (Title) [FR Doe. 75-9151 Filed 4-8-75; 8:45 am] 37a APPENDIX C Report of the Interstate Commerce Commission INTERSTATE COMMERCE COMMISSION Ex Parte No. 293 (Sub-No. 3) IMPLEMENTATION oF Pusiic Law 93-236, Secrion 601(e), RearonaL Ram Orcanization Act or 1973—SusMission or Cost Data to Justiry Re™sBuRsEMENT Service Date March 21, 1975 Dated March 14, 1975. Upon investigation and consideration of views, at guments, and representations of the parties following the issuance of a Notice of Proposed Rulemaking and Order (not printed), the adoption of a general form and accom- panying procedures for submission of costs, revenues, and other pertinent information to justify reimburse- ment by the Secretary of the Treasury found to be in the public, interest. Appropriate order entered. Paul R. Duke, C. E. Futcher, A. W. Hesse, Jr., William P. Higgins, Charles E. Mechem, F. C. Nash, Bernard O. Phillips, D. Scott Railsback, and Thomas E. Tisza, for the railroad respondents. Robert L. Calhown and David M. Schwartz for the Lehigh Coal and Navigation Company. 38a Appendix C William L. Bush, C. P. Ellenwood, Jr., and John H. King for shippers. James I. Collier, Jr. and William M. Maloney for the Association of American Railroads. John M. Cleary and John F. Donelan for the National Industrial Traffic League. Edward J. Hickey, Jr., William J. Hickey, and Geoffrey N. Zeh for the Railway Labor Executives’ Association. Constance L. Abrams, Rodney E. Eyster, and James C. Schultz for the Department of Transportation. Report oF THE ComMMISSION By the Commission: On July 11, 1974, a Notice of Proposed Rulemaking and Order (Implementation of Public Law 93-236, Section 601 (e), Regional Rail Reorganization Act of 1973—Submis- sion of Cost Data to Justify Reimbursement, dated June 28, 1974 (not printed)), was served initiating this rule- making proceeding to promulgate a form and procedures as required of the Commission in section 601(e) of the Regional Rail Reorganization Act of 1973 (RRRA). In brief, that section constitutes an amendment of the In- terstate Commerce Act by adding a subparagraph (b) to the present section 1(16). This new provision, hereafter referred to as section 1(16)(b), authorizes the Commis- sion to respond to those cessations of service by a car- rier by railroad which it finds to constitute an emergency 39a Appendiz C situation by directing another railroad (the directed car- rier) to temporarily provide for the handling, routing, and movement of traffic over the lines of the carrier no longer able to perform that service (the other carrier). The Commission may invoke this emergency authority only when a cessation of service occurs under one or more of three specified circumstances (the cash position of the carrier makes continued operations impossible, a court has ordered that service be discontinued, or service has been abandoned without a certificate from the Commission) and only after making certain findings as to the effect of such a direction on public commerce and on the directed carrier. Section 1(16)(b) also provides for the reimbursement of the directed carrier or carriers by the Federal Govern- ment in the amount by which the cost, as referred to in subparagraph (e), of handling, routing and moving the traffic of the other carrier over that carrier’s lines exceeds the direct revenues therefrom. To provide an expedited and uniform method for obtaining reimbursement, Con- gress required the Commission to promulgate a form on which the directed carrier would concurrently record the cost and revenues of the directed operation and which would then be submitted by the directed carrier to the Commission for audit. The Commission is then authorized to certify to the Secretary of the Treasury the amount of the payment to be made to the directed carrier, which payment shall be made from funds authorized to be ap- propriated under section 1(16)(b). The form proposed in the Notice of Proposed Rule- making dated June 28, 1974, as modified herein, and the accompanying procedures have been promulgated and are adopted in furtherance of this Congressional directive. 40a Appendiz C STATEMENTS OF PARTICIPANTS Statements recommending revision of the proposed cost form were filed by 7 carriers by railroad, 3 shippers, the Lehigh Coal and Navigation Company, the Association of American Railroads, the National Industrial Traffic League, the Railway Labor Executives’ Association, and Department of Transportation. None of the respondents questioned the propriety of issuing the proposed cost form. In general, the comments were addressed to spe- cific errors and deletions in the cost form as it was pro- posed, to the need for further and more detailed ex- planatory materials or regulations governing application of the cost form, and to the nature of and procedures to be followed under an actual Commission order direct- ing emergency operations. The statement of the Central Railroad of New Jersey, R. D. Timpany, Trustee, objects to the lack of a provi- sion recognizing rent paid by the directed carrier to the carrier no longer able to perform the service as a cost item. CNJ recommends that guidelines as to the value of the property be included in the final cost form regu- lations. These guidelines would, in turn, form a frame- work for negotiations between the directed carrier and the other carrier in establishing acceptable rental. To protect the interests of the U.S. Treasury, CNJ further suggests that the rental negotiations be conducted between the carriers involved and the ICC. CNJ also raises ques- tions as to the definition of “deferred maintenance” as that term is used in the proposed cost form, the extent of the obligations incurred by the directed carrier with reference to employees of the other carrier hired to per- form the directed service, and the ultimate effect of recog- 4la Appendiz C nition by the Commission of certain capital expenditures as a cost of the directed operation. The Delaware and Hudson Railway Company requests, in its statement, that the final cost form include more specific guidelines as to the extent and duration of em- ployment obligations and practices which will be assumed by the directed carrier in relation to the employees of the other carrier, the nature of these common expenses which the Commission will recognize as a cost of the di- rected operation, the division of revenues when subdivi- sion of established divisions is required or when no ap- propriate division has been published, and the extent to which expenses related to certain contingent liabilities will be recognized as a compensable cost. D&H also seeks clarification with regard to its assumption that the prin- cipal amount borrowed for necessary operating funds as well as the interest thereon will be treated as a recogniz- able cost. The submission by the trustees of the Penn Central Transportation Company seeks inclusion in the final cost form of regulations on (1) acceptable division of revenues, (2) recognition of expense and revenue items resulting from new operations on the lines of the directed carrier necessary to performance of the directed operation, and (3) the methods of record-keeping necessary to meet the requirement that detailed separations in accounting rec- ords be kept. Penn Central also questions the propriety of the proposed apportionment factors for certain ex- pense accounts, suggests preferable factors, and concludes that a flat 6 percent of revenue allowance for profit may, wher [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_IA40385004_0715%3A1. Public record. Not legal advice.