Opposition — Lehigh & New England Railway Co. v. Interstate Commerce Commission

OSA Of

Roe | 3 | MICHAEL RODAK, JR, CLERK

gu te Beaias Court of the United States

‘Mark L. EVANS, -

| Sarees JAN 12 977

: No. 76-490-

OcTOBER TERM, 1976

LEHIGH AND New ENGLAND RaILWay COMPANY,

PETITIONER

Vv. oY

INTERSTATE COMMERCE COMMISSION, ET AL.

~ ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR

THE THIRD CIRCUIT

BRIEF FOR THE FEDERAL RESPONDENTS

IN OPPOSITION :

Rosert H. Bork,

Solicitor General,

DONALD I. BAKER,

Assistant Attorney General,

Department of Justice, °

Washington, D.C. 20530.

General. Counsel,

Cwar.es H. Wurrte, Jr.,

‘Associate General Counsel,

HENRI F. Rusu,

Attorney,

Interstate Commerce Commission,

Washington, D.C. 20423.

In the Supreme Court of the United States

OCTOBER TERM, 1976

No. 76-490

LEHIGH AND NEW ENGLAND RAILWAY COMPARKY,

PETITIONER

Vv.

INTERST .TE COMMERCE COMMISSION, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR

THE THIRD CIRCUIT

BRIEF FOR THE FEDERAL RESPONDENTS

IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. la-

25a) is reported at 540 F. 2d 71. The regulations of the Inter-

state Commerce Commission (Pet. App. 26a-36a) are codi-

fied as 49 C.F.R. Part 1126. The order promulgating the

regulations and the supporting report (Pet. App. 37a-

93a) are not officially reported.

JURISDICTION

The judgment of the court of appeals (Pet. App. 97a-

98a) was entered on June 9, 1976. A timely petition for

rehearing was denied on July 8, 1976 (Pet. App. 99a-

100a). The petition for a writ of certiorari was filed on

October 6, 1976. The jurisdiction of this Court is invoked

under 28 U.S.C. 1254(1).

(1)

2

QUESTION PRESENTED

Whether regulations of the Interstate Commerce Com-

mission, which provide that a rail carrier directed to

provide service over the lines of a defaulting carrier

will ordinarily not be reimbursed for rental payments for

use of the defaulting carrier’s property, sanction a taking

of the defaulting carrier’s private property for public use

without just compensation in violation of the Fifth Amend-

ment.

STATEMENT

|. Section 1(16)(b) of the Interstate Commerce Act,

49 U.S.C. (Supp. V) 1(16)(b),' gives the Commission

emergency authority, in certain specified circumstances,

to direct a rail carrier temporarily to provide for the

handling, routing, and movement of traffic over the lines

of another carrier when the other carrier is unwilling

or unable to transport the traffic offered to it in

default of that carrier’s public service obligations.

Section 1(16)(b)(E) permits the directed carrier to re-

cover from the government a sum equal to the amount by

which the cost of its directed operations exceeds the

revenues derived from those operations.

Subsection (E) defines cost as “those expenditures

made or incurred in or attributable to the operations as

directed, including the rental or lease of necessary equip-

ment, plus an appropriate allocation of common expenses,

overheads, and a reasonable profit.” That subsection

also directs the Commission to prescribe a form on which

a directed carrier may record its reimbursable costs; the

'Section 1(16)(b) was added to the Act by Section 60l(e) of

the Regional Rail Reorganization Act of 1973, 87 Stat. 1021.

Its full text is set forth at Pet. App. 10la-103a.

3

Commission is responsible for certifying to the Secre-

tary of the Treasury the amount of reimbursement to be

paid under the Act to any directed carrier.

In March 1975, the Commission promulgated regula-

tions (Pet. App. 26a-36a) prescribing a general cost

form and procedures for the submission of information to

justify reimbursement under Section 1(16)(b). The Com-

mission’s accompanying report (Pet. App. 37a-93a) ad-

dressed the question whether rental payments made by a

directed carrier to a carrier unwilling or unable to

transport traffic for the use of that carrier’s lines and

facilities are reimbursable costs within the meaning of

the Act.

The Commission determined that, “in the usual situa-

tion, where costs exceed revenues, no compensation or rent

for the use of the defaulting carrier’s lines and facil-

ities is required,” because “there is no economic loss

to the defaulting carrier resulting from the Commission's

ordering of directed service,” and because “the Com-

mission’s ordering of such service confers certain substan-

tial benefits * * * which in most cases are sufficient to

discharge any obligation to pay such compensation or

rent” (Pet. App. 59a). Since no rent is required to be

paid in those circumstances, the Commission concluded

that such rental payments would not qualify as costs

within the statutory definition—that is “expenditures made

or incurred in or attributable to the operations as di-

rected.” Section 1(16)(b)(E), 49 U.S.C. (Supp. V) 1(16)

(b)(E).

2. In January 1975, prior to the promulgation of the

Commission's cost reimbursement regulations, petitioner,

a Pennsylvania rail carrier, acting in response to financial

losses in connection with its own rail operations, issued

an embargo with respect to all traffic over its lines. To

avoid a disruption of essential service, the Commission,

4

pursuant to Section 1(16)(b) of the Act, issued emergency

service orders (Pet. App. 104a-123a) directing two other

rail carriers—Lehigh Valley Railroad Company and the

Reading Company—to provide service over petitioner's

lines for 60 days. The orders were subsequently extended

for an additional period of 180 days. Petitioner un-

successfully sought to obtain rent from Lehigh Valley

and Reading for the use of its lines and facilities during

the life of the service orders (see Pet. App. 9a).

Petitioner did not seek review of the service orders

themselves, and it here concedes their validity (Pet. 7).

Instead, petitioner filed in the court of appeals a petition

to review the Commission’s cost reimbursement regula-

tions, contending, inter alia, that the Commission's re-

fusal to provide for the reimbursement of a directed

carrier's rental payments to a defaulting carrier for

use of its lines and facilities amounts to authorizing an

unlawful taking of the defaulting carrier's private prop-

erty without just compensation.?

The court of appeals upheld the validity of the Com-

mission’s regulations (Pet. App. la-25a). It was “satis-

fied from a review of the obligations imposed on a rail-

road to continue service until receiving Commission ap-

proval 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 unprofitable and as currently im-

plemented by the ICC, does not constitute a taking for

*Petitioner states that it filed a petition to review the Com-

mission's cost reimbursement regulations, rather than a complaint

seeking an award of just compensation for the alleged taking in-

volved in Lehigh Valley's and Reading's use of its lines, because

it was “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” (Pet. 7).

5

which compensation in the form of rental to the other

carrier for the use of its lines must be provided” (Pet.

App. 19a).

ARGUMENT

The decision of the court of appeals is correct, and

further review is not warranted.

Petitioner's arguments reduce to one—that the Commis-

sion’s regulations, ‘nsofar as they deny reimbursement to

a directed carrie: 7>r rental payments made for the use

of another carrier’s lines and facilities, invalidly sanc-

tion a taking of the other carrier's private property for

a public use without just compensation, in violation of

the Fifth Amendment. Petitioner accordingly insists on a

right to continued income from its rail properties even

though (a) it ceased its own rail operation on those prop-

erties contrary to its public service obligations, and (b)

by its cessation of service petitioner has avoided continued

loss operations. The court of appeals, in an opinion on

which we rely, correctly rejected petitioner’s contentions.

1. The court of appeals correctly held that directing one

carrier temporarily to operate on the lines of another

carrier unwilling or unable to continue service does not

constitute a taking of private property for public use.

That holding was based on the well-established principles

that the Commission “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”

- (Pet. App. 20a) and that

a railroad or its estate may be made to suffer

interim reasonable losses, without compensation,

for a reasonable period of time during which solutions

accommodating the public and private interests can

6

be devised—that is the exercise of the rights and

remedies of the owners of the carrier or its estate

may be postponed for a reasonable length of time

without effecting a taking [Pet. App. 2la-22a].

See New Haven Inclusion Cases, 399 U.S. 392, 493:

In re Penn Central Transportation Co., 384 F. Supp. 895,

919 (Regional Rail Reorganization Act Special Court).

Since a carrier may itself be required to continue opera-

tions for a reasonable time, even at a loss to itself,

without effecting a taking, it follows, as the court of

appeals held, that there is no taking within the meaning

of the Fifth Amendment when the Commission directs

another carrier to provide the service and thereby

saves the defaulting carrier the losses which it could be

constitutionally required to incur in maintaining service.

As the court of appeals stated (Pet. App. 24a):

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

‘Thus in the New Haven Inclusion Cases, this Court held that

the New Haven’s statutory obligation to continue operations during

the seven years required for the reorganization proceeding, at a

loss of millions of dollars, did not constitute a taking for which

compensation was constitutionally required. 399 U.S. 392, 490-493.

As the Court explained, the obligation of the owners of a railroad

to continue service, even at a loss, for a reasonable period of

time is justified by the fact that “by their entry into a rail-

road enterprise, [they] assumed the risk that in any depression or

any reorganization the interests of the public would be considered

as well as theirs.” /d. at 492 (quoting from Reconstruction Finance

Corp. v. Denver & R.G.W.R. Co., 328 U.S. 495, 536).

;

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 carrier’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.*

‘The doctrine of Brooks-Scanlon Co. v. Railroad Commission, 251

U.S. 396, and other cases on which petitioner relies (Pet. 14-15) does

not apply to petitioner's circumstances and does not invalidate the

cost reimbursement regulations which it challenges. While a rail-

road may not constitutionally be required permanently to maintain

loss operations which have no foreseeable prospect of anything but

loss, petitioner has made no showing that its operations had no

foreseeable prospect of profit. Petitioner has not filed for reorgan-

ization or liquidation; its threatened cessation of operations was based

on what it claimed to be a recent downturn in traffic rather than

a chronic condition (Pet. App. 8a); and it did not even apply for

authority to abandon operations until one week before the expir-

ation of directed service (Pet. App. 9a-10a). There is therefore no

basis for a contention (Pet. 15) that it had a constitutional

right under the Brooks-Scanlon doctrine to abandon operations.

That doctrine is also inapplicable because the directed operations

did not require petitioner to suffer any loss in maintaining the

service over its lines.

In any event, as this Court recognized in the New Haven

Inclusion Cases, supra, the Brooks-Scanlon doctrine is subject to

the qualification that a carrier can be required to maintain loss

operations for a period reasonably necessary to complete reorgan-

ization or liquidation proceedings, or to i t other solutions

designed to protect the public interest in rail service. The rule is

also subject to the qualification that before it may abandon service

the carrier must eXhaust “all reasonable efforts” to maintain serv-

ice short of impairing its ability to conduct an orderly liquidation.

In re Penn Central Transportation Co., supra, 384 F. Supp. at

919, n. 31; Myers v. Jay Street Connecting Railroad, 259 F. 24 532.

536 (C.A. 2). Petitioner has made no showing that the limited

¢

8

2. Even if directed service were deemed to constitute

a taking, petitioner has suffered no resulting loss for

which compensation is required. In fact, petitioner bene-

fited substantially from the directed service. As the court of

appeals stated, “the other carrier during a directed

operation sustains no operating losses because the directed

carrier transports the other carrier’s traffic for it”

(Pet. App. 23a). On the contrary, the more likely result of

directed service—and the result that the court found to be

true in petitioner’s case—is that the other carrier will be

“spared losses it might otherwise have been legally re-

quired to incur” (Pet. App. 23a). Furthermore, “the other

carrier’s properties are maintained and in some cases up-

graded during the directed operation” (ibid.). Directed

service also maintains existing relationships with shippers

to the obvious benefit of a defaulting carrier. Consequent-

ly, “rather than suffering a diminution of their collater-

al, 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”

(ibid.).

Finally, as the Commission observed in its report, since

the carrier itself can foreclose directed service by choosing

“to continue operating or, * * * with appropriate authori-

zation, * * * [to] convert its properties to another use”

(Pet. App. 59a), it is fair to conclude that any economic .

loss to the carrier results not from the Commission's

ordering of directed service but from the carrier's own de-

fault on its obligation to provide service (ibid.).

period of directed service exceeded that which was reasonably

necessary to protect the public interest or that it took all rea-

sonable steps to maintain service. Petitioner has not even taken the

first step usually incumbent on a financially distressed carrier.

which is filing for reorganization.

9

CONCLUSION

The petition for a writ of certiorari should be

denied. .

Respectfully submitted.

Rospert H. Bork,

Solicitor General.

DONALD I. BAKER,

Assistant Attorney General.

MARK L. EVANs,

General Counsel,

CHARLES H. Wuire, JR.,

Associate General Counsel,

Henri F. Rusu,

Attorney,

Interstate Commerce Commission.

JANUARY 1977.

DOJ-1977-01