Petition — Consolidated Rail Corp. v. United States

Supreme Court of the Unit

October Term, 1977

No. q7y7-104 (

CONSOLIDATED RAIL CORPORATION, CHICAGO AND

NORTH WESTERN TRANSPORTATION COMPANY, WIL-

LIAM M. GIBBONS, Trustee of the CHICAGO, ROCK

ISLAND AND PACIFIC RAILROAD COMPANY, DELA-

WARE AND HUDSON RAILWAY COMPANY and

ILLINOIS CENTRAL GULF RAILROAD COMPANY,

Petitioners,

0.

UNITED STATES OF AMERICA and

INTERSTATE COMMERCE COMMISSION,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Martin L. CassELi Joun A. Datty

332 S. Michigan Avenue CHRISTOPHER C. DEMuTH

Chicago, IL 60604 1138 Six Penn Center Plaza

Sruart F. GassNER Philadelphia, PA 19104

400 W. Madison Street Attorneys for Petitioners

Chicago, IL 60606

Greorce H. KLeEInsERGER

Delaware & Hudson Building

Albany, NY 12207

Howarp D. Koontz

233 N. Michigan Avenue

Chicago, IL 60601

Of Counsel

July 21, 1977

international Printing Co., 711 So. SOth St., Phila., Pa. 19143 — Tel. (215) 727-8711

—_—_—

TABLE OF CONTENTS.

REASONS FOR GRANTING THE WRIT .................-.e05--

I. The Scope of the ICC’s Power to Dictate Inter-Rail-

road Car Payments for the Benefit of Special Interests

Needs to Be Determined by This Court ........... y

II. The Lower Court’s Departure From the Accepted and

Usual Course of Judicial Review Demands the At-

at ITS ae ll

a se wubbeeeedcees 15

APPENDIX A

EE IR RR Oe a Al

APPENDIX B:

ICC Report Dated June 13, 1975 ..................... A5

ICC Order Dated July 16, 1975 ...................... A26

ICC Notice Re Errors in Report ...................... A27

ICC Order Dated July 22, 1975 ................00000. A28

Icc Order Dated September 23, 1975 .................. A30

Court of Appeals (D.C. Cir.) Opinion Dated April 1,

REE FERED BEPC ae A32

Court of Appeals (D.C. Cir.) Order Dated April 22, 1977 A72

TABLE OF AUTHORITIES

Cases: Page

Atchison, T. & S.F. R. Co. v. Wichita Bd. of Trade, 412 US.

OS rrr tr rot | rt rr retry rie 14

Incentive Per Diem Charges—1968, 337 I.C.C. 217 (1970) ... 6

Incentive Per Diem Charges—1968, 349 I.C.C. 303 (1975) ... 12

Incentive Per Diem Charges—1968 (XF Cars), 350 LC.C. 11

CRT ao cache nsuves cesckdstnetdsecdectanseebiedess 1

Incentive Per Diem Charges—Gondolas, 353 I.C.C. 612 (1977)

12,14

Labor Board v. Metropolitan Ins. Co., 380 U.S. 438 (1965) .. 14

Sec’y. of Agriculture v. United States, 347 U.S. 645 (1954)... 14

United States v. Allegheny-Ludlum Steel Corp., 406 U.S. 742

CTT vivcicdcdenvcndsdacopevanecdceeacpyéucenes 4,5, 6,14

United States v. Florida East Coast R. Co., 410 U.S. 224

COED sc veccccinvavecseesenccsetecsssinesscesenecs 4,5

Statutes:

Administrative Procedure Act

ee SD 9 on wc bbe kenvecese sesepednws 4,11

Interstate Commerce Act

Section 1(14)(a), 49 U.S.C. §1(14)(a) ...... 2, 4, 5, 8, 10, 12

Judicial Code:

Section 1254(1), 28 U.S.C. § 1254(1) .............0.8. 2

Section 2350(a), 28 U.S.C. §2350(a) .............005. 2

IN THE

Supreme Court of the United States

OcroserR TERM, 1977

No.

Consolidated Rail Corporation,

Chicago And North Western Transportation Company,

William M. Gibbons, Trustee Of The

Chicago, Rock Island And Pacific Railroad Company,

Delaware And Hudson Railway Company

And Illinois Central Gulf Railroad Company,

Petitioners,

v.

United States Of America And

Interstate Commerce Commission,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

DISTRICT OF COLUMBIA CIRCUIT

Petitioners’ pray that a writ of certiorari issue to

review a judgment of the United States Court of Appeals

for the District of Columbia Circuit.

THE OPINIONS BELOW

The report and order of the Interstate Commerce

Commission is reported at 350 I.C.C. 11 and is printed in

Appendix B, infra, p. A5. The opinion of the Court of

Appeals is reported at — F.2d. — and is printed in Appen-

dix B, infra, p. A26. The order of the Court denying re-

hearing is printed in Appendix B, infra, p. A71.

1. Petitioners are common carriers by railroad. Grocery Manu-

facturers Of America, Inc. intervened in support of respondents.

2 Petition for a Writ of Certiorari

JURISDICTION

The judgment of the Court of Appeals was entered

on April 1, 1977. A timely petition for rehearing was

denied on April 22, 1977. The jurisdiction of this Court

is invoked under 28 U.S.C. 1254(1) and 2350(a).

QUESTIONS PRESENTED

Section 1(14)(a) of the Interstate Commerce Act

(49 U.S.C. 1(14)(a)) authorizes the Commission to pre-

scribe the daily rate of freight car hire (per diem) paid

by a user railroad to the owner railroad. The section also

authorizes the Commission, in order to improve car utiliza-

tion and supply, to increase the rate of car hire by adding

incentive elements, resulting in what is generally referred

to as “incentive per diem” or “IPD.” The Commission is

forbidden to impose IPD unless it first determines that the

supply of such type of car is “short” or “inadequate,” and

that the higher rate of car hire is necessary to promote a

number of statutory purposes.

In 1970, the Commission prescribed IPD on plain

(XM) boxcars, based upon lengthy and recurring short-

ages of such equipment. Here, acting upon the request

of a major shipper, IPD was imposed upon a newly-

developed, specialized (XF) boxcar. The shipper’s re-

quest was not premised upon any shortage or inadequacy,

but on its apprehension that a car owner might reclassify

a car from.XF to XM simply to earn the inflated incentive

per diem rate while the car was in the possession of a user

railroad. Because XF cars are normally assigned to the

exclusive use of a particular shipper, while XM cars are

“free-running,” the hypothetical reclassification would

eliminate the shipper’s ability to control the car in its own

Petition for a Writ of Certiorari 3

assigned service, and thereafter it would stand in no better

position than any other shipper in ordering a boxcar.

In a clear departure from prior norms, the Commis-

sion extended IPD to the specially-equipped (XF) car,

thereby equalizing the financial reward to the car owner

and removing any incentive to reclassify cars from the

XF (equipped) to the XM (plain) category. The bene-

ficiary of the Commission’s action was the major shipper

who retained a preferred status in terms of car supply.

The loser was the user railroad which had no control over

whether the car was reclassified or not, but which had to

accept the car in interchange and pay the higher rental.

The questions presented are:

1. May the interstate Commerce Commission

employ its authority to prescribe “incentive per diem”

—railroad freight car rentals exceeding levels which

compensate owners for their full costs—not for the

statutory purpose of improving car supply and utili-

zation, but rather to assure the continued availability

of a fleet of special-purpose cars for the benefit of a

single shipper or group of shippers at the dispro-

portionate expense of terminating railroads?

2. May the Interstate Commerce Commission,

without explanation, discard in a single case its own

standards of proof established and reaffirmed in cases

prior to and after the case in issue?

3. May a Court of Appeals, on petition for re-

view of an order of the Interstate Commerce Com-

mission, affirm that order based upon findings which

the Commission itself did not make?

4 Petition for a Writ of Certiorari

STATUTES INVOLVED

The statutes involved are Section 1(14)(a) of the

Interstate Commerce Act, 49 U.S.C. 1(14)(a) and Section

10 of the Administrative Procedure Act, 5 U.S.C. 706.

They are printed in Appendix A, infra.

STATEMENT

This case presents a clear example of the careless

regulatory decision-making which has brought the federal

regulatory process into its current low repute and provoked

cries for regulatory reform or outright deregulation. Peti-

tioners seek certiorari in order to clarify a critical aspect of

the Interstate Commerce Commission’s authority over

financial and operating relationships within the railroad

industry, which it has exercised in this case without heed

to legislative language, its own contemporaneous prec-

edent, or the economic consequences for a number of the

nation’s most financially troubled railroads. Legal grounds

for certiorari and reversal are set forth exhaustively in

Circuit Judge Wright's 39-page dissent to the Court of

Appeals’ 34-page decision below. Judge Wright's analysis

relies heavily on the history of Congressional and Com-

mission actions in the freight-car-utilization field set forth

in this Court’s opinions in United States v. Florida East

Coast R. Co., 410 U.S. 224 (1973) and United States v.

Allegheny-Ludlum Steel Corp., 406 U.S. 743 (1972).

_The Interstate Commerce Commission exercises au-

thority under Section 1(14)(a) of the Interstate Com-

merce Act to prescribe the freight car rental a railroad pays

when a car owned by another railroad is on its lines. Ordi-

narily, these inter-railroad rentals, which are called “per

diem” payments, are computed:

Petition for a Writ of Certiorari 5

. solely on the basis of elements of ownership

expense involved in owning and maintaining such

type of freight car, including a fair return on value

-. .” (49 USC. §1(14)(a)).

However, the Commission also has authority to increase

such per diem rentals on particular types of cars by “in-

centive elements” which:

. . provide just and reasonable compensation to

freight car owners, contribute to sound car service

practices (including efficient utilization and distribu-

tion of cars ), and encourage the acquisition and main-

tenance of a car supply adequate to meet the needs

of commerce and the national defense. The Com-

mission shall not make any incentive element appli-

cable to any type of freight car the supply of which

the Commission finds to be adequate” (id.).

The power to impose “incentive per diem” was estab-

lished in 1966 in an attempt to remedy deficiencies in the

operation of the national freight car pool, in which cars

are interchanged freely among the railroads, and, subject

to contrary car service rules, railroads may use cars owned

by other roads in substitution for their own. United States

v. Florida East Coast R. Co., supra, at 232-3; United States

v. Allegheny-Ludlum Steel Corp., supra, at 745. Briefly,

the theory is that while regular “per diem” (compensating

all costs of ownership, maintenance and return on invest-

ment) might be adequate in normal circumstances, during

periods of car shortages caused by pool-induced ineffi-

ciencies in car handling, a higher “incentive per diem”

might be necessary to correct those inefficiencies—both by

providing additional incentive for prompt return of cars to

the owner and by paying owners a higher “just and reason-

6 Petition for a Writ of Certiorari

sonable compensation” when their cars are in short supply

and therefore more valuable. Slip Opinion, pp. 21-22

(Wright, dissenting ).

The Interstate Commerce Commission first made use

of the 1966 amendment in 1970, when it imposed incentive

per diem on all free-running plain boxcars, called XM cars.

Incentive Per Diem Charges—1968, 337 1.C.C. 217 (1970).

By 1973, however, it was clear that in spite of the IPD

order the national pool of XM boxcars was continuing its

pre-1970 decline, and the Commission reopened the pro-

ceeding to consider possible modifications. In the course

thereof, a major shipper, General Mills, Inc., requested

that incentive per diem be extended to cover its assigned

XF cars—boxcars equipped with an interior epoxy coating

which makes them easy to keep clean and therefore de-

sirable for moving finished food products. The Commis-

sion established a separated sub-proceeding in which it

granted General Mills’ request, and it is this Commission

order and the Court of Appeals’ affirmance that have led

to the present petition for certiorari.

Epoxy-lined XF cars were first developed and placed

in service only four years ago, in 1973, and there are ap-

proximately 3,000 of them in use today. XF cars are not—

and never were—part of the national pool of free-running

boxcars, but rather are assigned to particular shippers

such as General Mills for their exclusive use. This means

that after unloading they must be returned empty to the

shipper (Slip Opinion, pp. 23-26) and may not be ap-

propriated by non-owning railroads which “by hook or by

crook, arrange to utilize cars owned by other roads”

(United States v. Allegheny-Ludlum Steel, supra, at 745).

Although XF cars are therefore free from the kind of un-

controlled utilization which incentive per diem was in-

tended to correct, General Mills argued that IPD on such

Petition for a Writ of Certiorari 7

cars was imperative if the cars were to be kept in its own

assigned service. Otherwise, railroads owning XF cars

might redesignate them XM, thereby removing them from

assigned to free-running service and gaining the higher

“incentive” rentals from non-owning railroads. No evi-

dence of any kind was introduced by General Mills or any

other party supporting this fear, and the only factual in-

formation of record showed that the XF car fleet improved

both as to supply and utilization throughout the period

after 1973 when XM cars alone were subject to incentive

per diem. Slip Opinion, p. 12, n. 25.

Nevertheless, the Commission made the statutory find-

ing that the supply of XF cars was inadequate and ordered

incentive per diem imposed. The required finding of in-

adequacy was based on evidence that approximately

750,000 carloads of processed food are shipped annually

as compared with the approximately 3,000 XF cars which

have been built and placed in service to date. The

assumed demand/supply “gap” in these statistics was

based on the premise that only XF cars are satisfactory for

carrying processed food. But no evidence of record sup-

ported this premise or possibly could have: While unlined

XM cars, as well as other types of equipment, will become

dirty or infested when used to haul unprocessed grains or

other products,? they can be and commonly are used in

transporting processed foods. Indeed, the only testimony

presented by General Mills on this point demolishes the

Commission’s premise altogether: General Mills testified

that, apart from its assigned XF cars, it also successfully

uses XM and other types of cars assigned to its exclusive

use. Slip Opinion, Wright, p. 17.

A divided court below affirmed the Commission’s

order, finding that the imposition of incentive per diem on

2. An assigned XF car, if misused for loading of contaminating

cargoes, would suffer the same fate.

8 Petition for a Writ of Certiorari

assigned XF cars was within the grant of statutory author-

ity under Section 1(14)(a) and supported by substantial

evidence. The court acknowledged that the Commission

had departed from the standards of proof established in

contemporary proceedings, but said this was justified due

to “the recent development of the XF classification” Slip

Opinion, p. 4.

XF car-utilization procedures have not changed since

the date of the Commission’s order, since, under the order,

they remain in assigned service just as before. Mowever,

the annual cost of the order to Conrail and the other

petitioning railroads—all of which are primarily terminating

railroads on movements of processed food—runs into the

millions of dollars.

Petition for a Writ of Certiorari 9

REASONS FOR GRANTING THE WRIT

I. The Scope of the ICC’s Power to Dictate Intex-Railroad

Car Payments for the Benefit of Special Interests

Needs to Be Determined by This Court.

In this case, the Interstate Commerce Commission has

used a statute of narrow and specific purpose in order to,

in the words of Judge Wright below, “create a broad taxing

power to transfer revenues among railroads for the benefit

of particular shippers. It is one of a number of recent

cases where the Commission has begun to use specific

amendments to the Interstate Commerce Act to increase,

rather than ease, its control over railroad management in

ways clearly unintended and unforeseen by Congress. The

passive reaction to this jurisdiction overreaching by the

majority of the Court of Appeals below indicates that it is

appropriate for this Court now to undertake a more critical

review.

Section 1(14)(a), quoted in relevant part in the

section above, provides that Commission-prescribed per

diem rentals are to be based solely on elements of car

ownership expense unless the Commission finds that, due

to .conditions of fleet inadequacy, additional elements

should be added to provide reasonable compensation, im-

prove the efficiency of car utilization and encourage car

acquisition and maintenance. The Commission’s order

establishing incentive per diem for XF boxcars was based

on considerations having nothing to do with any of these

purposes. Rather, the order is based solely on the specula-

tion that it was needed to prevent reclassifice**on of cars

from assigned XF to free-running XM to secure *igher per

diem payments—a speculation which had no support at all

on the record and which is, in any event, irrelevant. In-

centive per diem, as this Court and the Commission itself

10 Petition for a Writ of Certiorari

have recognized, is intended to provide railroads with the

necessary incentive to get cars back to their owners rather

than letting them stand idle or using them for their own

purposes, and also to provide car owners with the appro-

priately increased returns to ownership in times of car

scarcity. But neither of these purposes could possibly have

been at issue here, as virtually all XF cars are in assigned

service and are directly returned empty to assigned ship-

pers such as General Mills. While the Commission made

the requisite formal finding of an inadequacy of XF cars,

this finding makes sense only if one assumes that no other

type of car can be used for transporting processed food,

an assumption which is factually incorrect and was ex-

plicitly contradicted by General Mills itself.

It seems too obvious for argument that if the Com-

mission could impose incentive per diem simply to en-

courage acquisition of a certain type of car for a certain

commodity and a certain shipper, the Commission could

then proceed to expand incentive per diem, car type by

car type, to every railroad car in existence. (And even to

car types not yet in existence, the supplies of which are

ipso facto inadequate according to the Commission’s rea-

soning.) But this, precisely, is what the Commission has

done here, and it scuttles altogether the purpose and ex-

plicit language of Section 1(14) (a).

Similarly, when the Commission uses its incentive per

diem authority expressly to discourage an owner from re-

classifying the same car from an assigned to a free-running

category, it only manipulates the fleet makeup for the

special-interest shipper with no reference whatsoever to

increased car supply, improved utilization, or the facilities

available to the shipping public generally. The Commis-

sion has adequate authority to deal with the reclassification

or assignment problem under its car service powers in ways

that do not cause arbitrary revenue shifts between user

Petition for a Writ of Certiorari 11

and owner railroads. But without the predicate of actual

“inadequacy,” it is without authority to impose a tax on

blameless railroad users. The latter are under common-

carrier obligation to accept loaded XF cars when tendered

in interchange, and they are entitled to protection from

this Court under 5 U.S.C. 706 when, as here, the Com-

mission abuses its authority.

IJ. The Lower Court’s Departure From the Accepted and

Usual Course of Judicial Review Demands the Atten-

tion of This Court.

The lower court’s departure from the norm and its

exercise of judicial in lieu of administrative expertise occurs

in two instances. In each, the majority undertook to supply

its own findings in justification of the Commission’s order

where the agency made no findings at all.

First, the majority opinion states that:

“The Commission’s finding of a shortage was based

on evidence that 750,000 carloads of processed food

are shipped annually, requiring a nation-wide fleet of

40-50,000 suitable cars. Since it has been determined

that only about 3,000 such cars exist, the Commission

found a clear national shortage. IPD was thus im-

posed with the expectation that this would encourage

the acquisition of XF boxcars.” Slip Opinion, p. 3.

When no railroad indicated any anticipated increase

in XF acquisitions because of IPD, the Commission’s “ex-

pectation” is at best wishful thinking rather than admin-

istrative expertise, and there is no mention whatsoever of

the “40-50,000” figure in the evidence of record. It should

suffice here to point out that the Commission’s opinion

simply does not contain the language, the reasoning or

the finding referred to by the court. The statement is

that of the court alone.

12 Petition for a Writ of Certiorari

Secondly, it was the court and not the Commission

which undertook to explain the agency’s departure from

prior norms. Slip Opinion, p. 4. The Commission’s own

requirements for extending IPD to other types of cars were

set forth with precision in a decision rendered only months

before the one challenged here:

“... we are amenable to an expansion of the incen-

tive per diem program to cars other than general serv-

ice boxcars if: (1) a record is made showing the car

to be in short supply, (2) a record is made showing

a reluctance to expeditiously release the car by the

terminating or delivering railroad, (3) a record is

made demonstrating that additional incentive to pur-

chase the car is needed, and (4) a record is made

showing such an extension of the incentive per diem

program to be of general benefit.” Incentive Per

Diem Charges—1968, 349 1.C.C. 303, 311 (1975).

These requirements were reiterated in another IPD de-

cision rendered two years after the one challenged here.

Incentive Per Diem Charges—Gondolas, 353 I1.C.C. 612,

616 (1977).

These are reasonable requirements and comport fully

with the Congress’ careful tailoring of the statutory au-

thority in Section 1(14)(a). But in this case the Com-

mission both ignored these requirements—the record

contains no evidence whatever, for example, regarding re-

quirements (2) and (3)—and offered no explanation of

why it had ignored them. The lower court undertook to

fill the gap:

“, .. it would not have been possible for the Commis-

sion to generate such a record due to the recent de-

velopment of the XF classification. The need to de-

Petition for a Writ of Certiorari 13

part is adequately explained by this situation.” Slip

Opinion, p. 4

In substituting judicial for administrative expertise,

the court was plainly wrong, both on the merits and as

to its proper function. The Commission’s “departure,”

both from the statutory requirements and its own con-

temporary interpretation of those requirements, had

nothing at all to do with the limited time period during

which XF cars were in existence; rather, it resulted from

the Commission’s failure to tie the prescription of incentive

per diem to the need for improved utilization and supply

of the car type at issue. XF cars were developed and

placed in service without incentive per diem, and there

was no evidence whatever that terminating car users had

failed to release cars expeditiously. The lack of evidence

of car mishandling was not the result of the XF car's recent

vintage, but was the inevitable consequence of their use

in assigned service rather than as part of the national pool

of free-running cars—so that regardless of car hire levels,

terminating users must return empty XF cars to assigned

shippers. Slip Opinion, Wright (pp. 23-27). This is the

essential consideration overlooked by both the Commis-

sion and the majority below.

The lower court’s error in attempting to rationalize the

Commission’s aberration has recently been given emphasis

by the Commission itself, which has declared that its action

in this case was not a “departure” at all! In subsequently

declining to extend IPD to equipped gondolas, the Com-

mission observed:

“ . . we disagree that equipped gondolas are like

XF boxcars and thus should be accorded the benefit

of the IPD charges. The inclusion of the XF boxcars

into the IPD program . . . was not intended as a

14 Petition for a Writ of Certiorari

departure from or exception to the rule prohibiting

IPD benefitting only a small segment of the shipping

public.” Incentive Per Diem Charges—Gondolas,

supra, p. 630.

As matters stand, the lower court has first found and then

explained away that which the Commission now says

never existed.

The critical point, of course, is that it was the duty of

the Commission, not the lower court, to explain any “de-

parture.” No rules have been more firmly established by

this Court than those forbidding a reviewing court from

substituting its judgment for that of the administrative

agency, United States v. Allegheny-Ludlum Steel Corp.,

supra, at 749, and requiring that the basis for any de-

parture from prior norms be explained by the agency itself.

Sec’y of Agriculture v. United States, 347 U.S. 645, 653

(1954); Atchison, T. & S.F. R. Co. v. Wichita Bd. of Trade,

412 U.S. 800 (1973). The reason for these restrictions was

stated concisely in Labor Board v. Metropolitan Ins. Co.,

380 U.S. 438, 444 (1965):

“For reviewing courts to substitute counsel’s rationale

or their discretion for that of the Board is incompati-

ble with the orderly function of the process of judicial

review. Such action would not vindicate, but would

deprecate the administrative process, for it would

propel the court into the domain which Congress has

set aside exclusively for the administrative agency.”

In this case, the lower court has ‘propelled’ itself into

sanctioning an order of the Commission by supplying the

essential findings and explanations which were em-

phatically matters of agency responsibility. This entry of

the judiciary into the province of administrative expertise

warrants reversal.

Petition for a Writ of Certiorari 15

CONCLUSION

The Court should grant the petition.

Respectfully submitted,

Joun A. DatLy

CHRISTOPHER C. DEMUTH

1138 Six Penn Center Plaza

Philadelphia, PA 19104

Attorneys for Petitioners

Martin L. CAssELL

332 South Michigan Avenue

Chicago, IL 60604

Stuart F. GASSNER

400 West Madison Street

Chicago, IL 60606

Grorce H. KLEINBERGER

Delaware & Hudson Building

Albany, NY 12207

Howarp D. Koontz

233 North Michigan Avenue

Chicago, IL 60601

Of Counsel

Dated: July 22, 1977

Interstate Commerce Act

Section 1(14)(a) [49 U.S.C. 1(14)(a)] eer.

“The Commission may, after hearing, on a complaint

or upon its own initiative without complaint, establish

reasonable rules, regulations, and practices with respect to

car service by common carriers by railroad subject to this

part, including the compensation to be paid and other

terms of any contract, agreement, or arrangement for the

use of any locomotive, car, or other vehicle not owned by

the carrier using it (and whether or not owned by another

carrier), and the penalties or other sanctions for nonob-

servance of such rules, regulations, or practices. In fixing

such compensation to be paid for the use of any type of

freight car, the Commission shall give consideration to the

national level of ownership of such type of freight car and

to other factors affecting the adequacy of the national

freight car supply, and shall, on the basis of such consid-

eration, determine whether compensation should be com-

puted solely on the basis of elements of ownership expense

involved in owning and maintaining such type of freight

car, including a fair return on value, or whether such com-

pensation should be increased by such incentive element

(Al)

A2 Appendix A

or elements of compensation as in the Commission’s judg-

ment will provide just and reasonable compensation to

freight car owners, contribute to sound car service prac-

tices (including efficient utilization and distribution of

cars ), and encourage the acquisition and maintenance of a

car supply adequate to meet the needs of commerce and

the national defense. The Commission shall not make

any incentive element applicable to any type of freight

car the supply of which the Commission finds to be ade-

quate and may exempt from the compensation to be paid

by any group of carriers such incentive element or ele-

ments if the Commission finds it to be in the national in-

terest.”

1(14)(a), P. L. 94-210, February 5, 1976

“It is the intent of Congress to encourage the pur-

chase, acquisition, and efficient utilization of freight cars.

In order to carry out such intent, the Commission may,

upon complaint of an interested party or upon its own

initiative without complaint, and after notice and an op-

portunity for a hearing establish reasonable rules, regula-

tions and practices with respect to car service by common

carriers by railroad subject to this part, including (i) the

compensation to be paid for the use of any locomotive,

freight car, or other vehicle, (ii) the other terms of any

contract, agreement or arrangement for the use of any

locomotive or other vehicle not owned by the carrier by

which it used (and whether or not owned by another car-

rier, shipper, or third party) and (iii) the penalties or

other sanctions for nonobservance of such rules, regula-

tions or practices. In determining the rates of compen-

sation to be paid for each type of freight car, the Com-

mission shall give consideration to the transportation use

of each type of freight car, to the national level of owner-

ship of each such type of freight car, and to other factors

Appendix A A3

affecting the adequacy of the national freight car supply.

Such compensation shall be fixed on the basis of the ele-

ments of ownership expense involved in owning and main-

taining each such type of freight car, including a fair

return on the cost of such type of freight car (giving due

consideration to current costs of capital, repairs, materials,

parts, and labor). Such compensation may be increased

by any incentive element which will, in the judgment of

the Commission, provide just and reasonable compensation

to freight car owners, contribute to sound car service

practices (including efficient utilization and distribution

of cars), and encourage the acquisition and maintenance

of a car supply adequate to meet the needs of commerce

and the national defense. The Commission shall not make

any incentive element applicable to any type of freight

car if the Commission finds that the supply of such type

of freight car is adequate. The Commission may exempt

such incentive element from the compensation to be paid

by any carrier or group of carriers if the Commission finds

that such an exemption is in the national interest.

1(14)(b)

“The Commission shall, within 18 months after the

date of enactment of this Act, revise its rules, regulations,

and practices with respect to car service, in accordance

with the amendment made by subsection (a) of this

section.”

A4 Appendix A

Administrative Procedure Act

Section 10(e) [5 U.S.C. 706]

“To the extent necessary to decision and when pre-

sented, the reviewing court shall decide all relevant ques-

tions of law, interpret constitutional and statutory provi-

sions, and determine the meaning or applicability of the

terms of an agency action. The reviewing court shall—

(1) compel agency action unlawfully withheld

or unreasonably delayed; and

(2) hold unlawful and set aside agency action,

findings, and conclusions found to be—

(A) arbitrary, capricious, an abuse of dis-

cretion, or otherwise not in accordance with law;

(B) contrary to constitutional right, power,

privilege, or immunity;

(C) in excess of statutory jurisdiction, au-

thority, or limitations, or short of statutory right;

(D) without observance of procedure re-

quired by law;

(E) unsupported by substantial evidence

in a case subject to sections 556 and 557 of this

title or otherwise reviewed on the record of an

agency hearing provided by statute; or

(F) unwarranted by the facts to the extent

that the facts are subject to trial de novo by the

reviewing court.

In making the foregoing determinations, the court shall

review the whole record or those parts of it cited by a party

and due account shall be taken of the rule of prejudicial

errer.

Appendix B A5

APPENDIX B

Served June 23, 1975

30788

INTERSTATE COMMERCE COMMISSION

Ex Parte No. 252 (Sus No. 1)

INCENTIVE PER DIEM CHARGES—1968 (XF CARS)

Decided June 13, 1975

Upon notice of proposed rulemaking and order, regulations

governing incentive per diem charges, applied pur-

suant to section 1(14)(a) of the Interstate Commerce

Act, as prescribed in 337 I.C.C. 183, 337 LC.C. 217,

339 L.C.C. 627, 343 LC.C. 49, and 349 LC.C. 303,

amended to apply on XF boxcars.

W. Donald Boe, Jr., Robert D. Brooks, Emried D.

Cole, Jr., John A. Daily, John F. Donelan, R. L. Downing,

Alan G. Dustin, Earl E. Eisenhart, Jr., Charles B. Evans,

Richard M. Gleason, Richard A. Hollander, Howard W.

Jones, H. D. Koontz, A. Alvis Layne, John K. Maser III,

John A. Miltenis, C. Harold Peterson, Thomas H. Ploss,

Frank G. Procter, James P. Reedy, John S. Walker, and

Frederic L. Wood for respondents and interested shippers.

Report of the Commission

O’NEAL, Vice Chairman:

The current phase of this continuing proceeding was

instituted by Notice of Proposed Rulemaking and Order

served August 23, 1974, to determine whether the regula-

A6 Appendix B

tions governing incentive per diem (IPD) charges, applied

pursuant to section 1(14)(a) of the Interstate Commerce

Act,’ should be amended to include XF boxcars. Specifi-

cally, the Notice of Proposed Rulemaking and Order,

which was published on August 28, 1974, in Volume 39 of

the Federal Register at page 31331, set forth the following

proposed amendment to Section 1036.1, Title 49 of the

Code of Federal Regulations (CFR), containing a listing

of the kinds of boxcars to which the IPD regulations apply:

“Section 1036.1 is hereby proposed to be amended by in-

serting under the headings “Mechanical designation’ and

‘Code number,’ and at the end of the enumerated cate-

gories of boxcars, the listing “XF—A120, A220, A320,

A420.’” All interested parties were given opportunity to

file written responses by September 23, 1974.

BACKGROUND

In the prior reports in this proceeding found at 337

I.C.C. 183, 337 L.C.C. 217, 339 L.C.C. 627, 343 1.C.C. 49,

1. Section 1(14)(a), as pertinent, states as follows:

or See ee omen te aid for the use of

any type of freight car, Commission shall give considera-

tion to the national level of ownership of such type of freight

car and to other factors affecting the adequacy of the national

freight car supply, and shall, on the basis of such consideration,

determine whiter compensation should be computed solely

on the basis of elements of a involved in

owning and maintaining such type of freight car, including a

fair return on value, or whether such compensation should be

increased by such incentive element or elements of compensa-

tion as in the Commission’s judgment will provide just and

reasonable compensation to freight car owners, contribute to

sound car service practices (including efficient utilization and

distribution of cars), and encourage acquisition and main-

tenance of a car supply adequate to meet the needs of com-

merce and the national defense. The Commission shall not

make any incentive element applicable to any 4 freight

car the supply of which the Commission finds to be adequate

and may exempt from the compensation to be paid by any

group of carriers such incentive element or elements if the

ommission finds it to be in the national interest.

Appendix B A7

and most recently 349 I.C.C. 303, we recognized the eff-

cacy of an incentive element increase in the compensation

paid by railroads for the use of freight cars owned by other

carriers, and we prescribed rules governing the application

of IPD to ordinary boxcars. We found essentially that a

shortage in boxcars existed and that the application of an

incentive element, i.e., a rate of return beyond mere com-

pensation for risk taken, to the regular per diem owned by

railroads holding foreign boxcars, would promote efficient

utilization and distribution of cars by encouraging the

prompt return of such boxcars. By requiring all IPD credit

balances to be “earmarked” for the purchase, building, or

rebuilding of general service, unequipped boxcars, we felt

that we could further alleviate the boxcar shortage by in-

creasing car supply. In our report in this proceeding in

337 I.C.C. 183, 187, we initially determined that this pro-

ceeding would be an “open-ended” proceeding which, in

light of experience gained under the regulations, would

permit the presentation before the Commission of any situ-

ation which might require clarification or warrant modi-

fication of the incentive rules and charges.

Consequently, during the course of the most recent

reopening of this proceeding, the sole purpose of which

was to consider six specific issues * which were raised on

2. These issues are as follows: (a) whether the funds ear-

marked for boxcars should be permitted to be drawn down for the

acquisition of other of cars in demand, such as covered hop-

rs, and whether such modification would increase the number of

xcars available for general use; (b) whether the then-existing

test period average (i.e., the number of cars which must be pur-

chased out of a carrier’s general funds before the net credit bal-

ances Kangen from sh een ma ae drawn down for the

purchase 0 xcars) shou modi in any respect; (c

whether a specified iod should be seecmthedl within 5 ace

incentive funds must be expended or committed to the acquisition

of general service boxcars; (d) whether carriers which fail to

acquire their — complement of such cars, and, consequently,

are unable to draw down the incentive funds within a ified

eee. should be compelled to return the funds collected to the

ebtor carriers; (e) whether other methods exist which would

A8 Appendix B

petition for modification, suspension, or rescission of our

outstanding orders, the Grocery Manufactures of America,

Inc. (GMA), and General Mills, Inc. (General Mills),

sought to expand the scope of IPD to include application

on XF boxcars, used exclusively to transport food products.

While General Mills assumed a noncommittal position with

respect to the application of IPD per se, i.e., the propriety

or wisdom of the iPD program in general, both parties

agreed that, if the IPD program were continued, failure to

include boxcars suitable for food-quality usage would pose

serious problems in the provision of clean, uncontaminated

equipment for the movement of foodstuffs and could mate-

rially endanger the whoelsomeness of our Nation’s food

supply.

The XF designation was implemented by the railroad

industry in 1973 to designate unequipped cars for the trans-

portation of food products in assigned service. The interior

of such cars is coated with a white epoxy surface designed

to prevent contamination of processed food by sealing the

surface of the boxcar’s interior walls against dirt, insects,

and odor. Prior to the establishment of the XF designa-

tion, food shippers sometimes used XP boxcars in the trans-

portation of food and related products. XP cars are used

predominantly in the automobile industry. They are

equipped, uncoated, high quality boxcars which have at

times been coated by food shippers and used in assigned

service for the transportation of food and related products.

General Mills alleged that, due to the implementation

of the IPD program with respect to general service, un-

equipped boxcars only, the railroads have withdrawn an

increasing number of cars from the XP category and re-

designated them XM in order to obtain added IPD reve-

2. (Cont'd. )

facilitate the use of the accrued IPD funds for the purchase, build-

ing, or rebuilding of general service, unequipped boxcars; and

(f) whether any group of carriers should be exempt from the

payment of IPD.

Appendix B AQ

nues. As a result, General Mills contended that it was

required to use additional XM boxcars in the transportation

of food and food products; that, because these free-running

boxcars in general service are used to load bulk feeds,

grains, and similar products, which introduce infestation,

contamination, and rodent inhabitation into food-quality

boxcars, such cars cannot be controlled effectively to pre-

serve the highest possible food quality standards; and that,

to counteract the contamination and infestation found in

these cars, an increasing amount of chemical pesticides is

being introduced into the environment. All these factors,

General Mills contended, are contrary to the congressional

policy expressed in the National Environmental Policy Act

of 1969, 42 U.S.C. §§ 4231, et seq.

In an initial decision on further reconsideration, dated

July 2, 1974, an Administrative Law Judge denied the re-

quests of GMA and General Mills as beyond the scope of

that proceeding, advising the food shippers to look to the

carriers for relief rather than to the Commission in the

subject proceeding. Out of an awareness of the impor-

tance of the issues raised by General Mills and GMA, we

instituted the rulemaking proceeding which is the basis of

this report.

RESPONSES TO THE NOTICE AND ORDER

The majority of the railroad respondents commenting

upon the notice and order * are opposed to the proposed

3. Those railroad respondents commenting upon the proposal

included: Robert W. Meserve, and Benjamin iL Lacy, trustees of

the property of the Boston and Maine Corporation; Burlington

N ion Inc.; Chicago, Milwaukee, St. Paul and Pacific Railroad

Company; The Denver and Rio Grande Western Railroad Com-

pany; Thomas F. Patton and Ralph S. Tyler, Jr., trustees of the

property of the Erie Lackawanna Railway Company, Debtor;

Florida East Coast Railway wer, Grand Trunk Western

Railroad Company; [linois Central Gulf Railroad Company; Louis-

ville and Nashville Railroad Company; Robert W. Blanchette,

Richard C. Bond, and John H. McArthur, trustees of the p

of the Penn Central Transportation Company, Debtor; Seaboard

Al0 Appendix B

modification of section 1036.1. Most of them feel that no

shortage has been shown to exist and that the proposed

order fails to consider other elements as required under

section 1(14)(a). In this connection, several respondents

assert that they have not in fact reclassified XP cars and

that, in the absence of any demonstrated shortage of either

ordinary boxcars or XF cars, the IPD program in general

should be eliminated as counterproductive. Other rail-

roads are concerned with the costs of implementing the

program, and some, such as the Florida East Coast Rail-

way Company, an inherent IPD debtor, are concerned that

the proposal will only aggravate their already substantial

IPD debt balance.

The other arguments against the present proposal re-

volve around two issues, one environmental, the other re-

lated to car service. The environmental arguments ques-

tion our concern over the dangers to the public health and

safety allegedly occasioned by the increased use of pesti-

cides in food shipments. It is initially noted that nothing

has been introduced in this proceeding to indicate the ex-

tent to which pesticides are being used today or the man-

ner in which they can permeate shipments of edible food.

Next, it is submitted that the problems with food shipments

lie in the cleaning, rather than the supply, of cars and that

if boxcars were properly cleaned after use, increased appli-

cation of pesticides would not be required. Finally, and

most importantly, a number of parties contend that the

notice and order instituting this proceeding was based

upon the National Environmental Policy Act of 1969

(NEPA), whereas invocation of section 1(14)(a) is re-

quired in order to institute properly a proceeding involving

the IPD program.

3. (Cont'd.)

Coast Line Railroad Company; Soo Line Railroad Company;

Southern Railway Company; and Union Pacific Railroad Company.

Shipper comments in addition to those received from General

Mills and GMA were submitted by General Foods Corporation.

Appendix B All

The arguments regarding car service stem from the

language in the notice and order that “XF boxcars must be

utilized in general service and not limited to the exclusive

use of any particular shipper.” Comments concerning this

statement were submitted both by shippers of food and

railroads in favor of the proposal, as well as those railroads

in opposition. Essentially what is requested by most

parties is a clarification of the meanings of the terms “gen-

eral service” and “exclusive use of any particular shipper.”

Taken most literally, most of the parties agree, the cited

language would encourage the utilization of XF cars in

general service in the transportation of unsanitary, contam-

inating commodities, as well as in the movement of pack-

aged food and other noncontaminating commodities. It is

alleged that the incidence of contamination will be much

higher, and the need for fumigation and other forms of

decontamination much greater, if XF cars are placed in

unlimited general service, than if they were permitted to

remain in some form of assigned service. Furthermore,

several parties add, the prohibition against assignment to

the exclusive use of any particular shipper would contra-

dict the provisions of Car Service Directive No. 155 of the

Association of American Railroads (AAR), which requires

empty cars to be returned to their owners empty, thus

giving the car owner control of the car while off line.

Alluding to the Commission’s “obvious purpose” of

increasing the supply of cars suitable for food-quality ship-

ments, several parties, primarily shippers of food and car-

riers generally in favor of the proposal, have sought various

amendments of the rule which, it is argued, would increase

the supply of food-quality boxcars available for use by

shippers of food. For example, it has been requested that

our order specify that cars be used in general service but

limited to food-quality usage (although not limited to the

use of any particular shipper ); that they be used in general

service unless specific assignment will be beneficial to the

railroads and to the public; and that they be restricted to

Al2 Appendix B

use in general service; but assignable to railroad agents at

specific locations to be utilized as part of a dedicated box-

car pool for the transportation of food and other noncon-

taminated products contained in clean packaging. Addi-

tionally, the Grand Trunk Western Railroad Company

(Grand Trunk Western), a small line which owns a rela-

tively large proportion of the national supply of XF and

XP cars for the use of three local cereal companies, believes

that the prohibition against specialized assigned service

would totally deplete its fleet. Accordingly, it asks for

permission to assign cars, subject to abrogation of this right

when the supply increases.

Shippers of food and railroads in support of the pro-

posal believe generally that, as long as some form of assign-

ment in food-quality service is permitted, the supply of

food-quality boxcars will be augmented through improved

utilization. For the most part they agree that there is a

need to increase the fleet of uncontaminated cars for the

shipment of foods, and that application of IPD to XF cars,

with the aforementioned modifications concerning assign-

ment, would be beneficial to the industry and, more im-

portantly, the general public. General Mills submitted a

detailed statement, including much of the same material

which was earlier presented in the course of this proceed-

ing. This evidence concerned the supply of XF, XP, and

XM boxcars, the increasing use of pesticides, and the need

for application of IPD to XF cars to insure the integrity of

shipments of food.

DIsCussION AND CONCLUSIONS

While the institution of IPD has in general had a

beneficial effect on the supply of general purpose boxcars,

unquestionably it tends to exacerbate the shortage of the

high quality boxcars required to transport efficiently and

sanitarily food products for human consumption. By re-

quiring IPD surpluses to be earmarked for the acquisition

of unequipped, general purpose boxcars, the Commission

Appendix B Al3

may be fostering the expansion of the general purpose box-

car fleet. At the same time, however, the economic incen-

tive to purchase cars which are subject to IPD may tend to

result in reduced acquisitions of other types of cars neces-

sary to meet the needs of commerce. This economic in-

centive is magnified by the requirement that, with limited

exceptions, unspent IPD credit balances cannot be drawn

down until a carrier has first purchased, built, or rebuilt,

out of general operating funds, the number of cars required

under the test period average, plus any arrearages in fail-

ing to meet the average in prior years.

The effect of IPD on XF cars is difficult to measure

with precision, because our experience with XF cars is

limited by the recent 1973 origin of the XF designation.

Most up-to-date statistics indicate that there are currently

in the neighborhood of 2,495 cars in the XF fleet, all re-

stricted to loading processed packaged food and, under

some circumstances, other noncontaminating products, and

that there are 29,075 XP cars. (See Universal Machine

Listing Equipment Register, published by the AAR.) If

we are to encourage the acquisition of new XF cars,

whether it be through refurbishing of XM cars or purchase

of new cars, it is apparent that we will have to place XF

cars on the same footing as XM cars with respect to IFv.

In our report in this proceeding in 337 I.C.C. 183, at

186, we determined that shipper need for the standard

boxcar far exceeded the need for any other type of car,

and that demand for these cars could not be satisfied from

existing sources of equipment for at least half the calendar

year. We projected that application of IPD on boxecars

during the fall and winter, the periods experiencing the

heaviest shortages, would help to alleviate the boxcar

shortage by encouraging debtor roads to purchase more

cars, return foreign cars more promptly or to pay an in-

centive charge that would permit the creditor roads to

purchase more cars. Subsequently, by order dated March

30, 1973, we decided that the mandate of section 1( 14) (a)

Al4 Appendix B

would be more adequately fulfilled by extending the ap-

plication of IPD to a year-round basis. Our action was

upheld by a three-judge court for the Eastern District of

Pennsylvania in Ann Arbor Railroad Company v. United

States, 368 F. Supp. 101 (1973), affirmed per curiam by

the Supreme Court in Ann Arbor R. Co. v. United States,

419 U.S. 807 (1974).

Our administration of the IPD program over the past

several years has, we believe been an effective tool in

improving utilization, in reducing the boxcar shortage, and

the shortage today is significantly less severe than it was

in 1969, when the IPD regulations, were first implemented.

However, while encouraging the growth and improved

utilization of the general purpose boxcar fleet, the regula-

tions may have concomitantly stifled increased acquisitions

of other types of cars vital to meet the needs of commerce.

The current shortage of XF cars is amply demon-

strated by the prevalent use of the so-called class “A” box-

cars in transporting shipments of food products.‘ These

ordinary boxcars are classified “food quality” by the rail-

roads because they are supposedly sufficiently sanitary for

the transportation of edible food products. Unfortunately,

certain shortcomings are inherent in the railroad boxcar

classification procedures. First, classification often con-

sists of a car inspector's visual inspection of the boxcar.

Thus, a car which has transported, for example, grain,

must be swept clean and classified as class “A” by an in-

spector after a visual inspection. However, the car may

contain residues of grain, as well as insects, rodents, and

other contaminants behind the car lining. These con-

taminants are not apparent from a mere visual inspection,

but they nonetheless pose a serious health hazard to sub-

sequent food shipments if not treated with proper pesti-

4. The railroads in their boxcar classification normally dis-

tinguish between class “A” boxcars, suitable for transportation of

edible food products, and class “B”, “C”, and “D” boxcars, used for

the transportation of progressively lower grade commodities.

Appendix B Al5

cides or other decontaminants. Second, class “A” is not a

controllable car usage category. Therefore, a class “A” car

may be used for general purposes to transport contaminat-

ing products and may require thorough cleaning and de-

contamination before it can be adequately sanitary for the

transportation of edible food products. As described in

the Environmental Threshold Assessment Survey (ETAS) °

prepared in this proceeding, served May 7, 1975, the de-

contaminants employed may pose potential safety hazards

if improperly applied and may permeate packaged food

shipments or contaminate subsequent shipments of un-

packaged food. Finally, the designation of class “A” is

subjective, and, as such, will vary from railroad to railroad,

and even from inspector to inspector. Without any posi-

tive, uniform standards, boxcars of inferior quality may be

loaded with food shipments, substantially increasing the

risk of present and future contamination.

If the supply of XF cars were increased sufficiently to

accommodate the majority of the food shipments trans-

ported by the railroads, most of the associated health

hazards would be significantly alleviated. The epoxy lin-

ing in the interior of the XF car minimizes the likelihood of

residual contamination after the initial cleaning, counter-

acting the major incidence of railcar contamination of food

products. Furthermore, XF cars are presently restricted

to loading processed packaged food and other noncon-

taminating products enclosed in clean packaging. Thus,

the primary source of contamination, i.e., grain and related

products and other unsanitary bulk commodities, would be

banned from cars used for shipments ultimately destined

for human consumption.

5. Comments on the ETAS were invited from any party to this

proceeding or any other interested person. No responses were

received.

The ETAS concluded that this action would not have a sig-

nificant effect on the quality of the human environment within the

ing of the National Environmental Policy Act of 1969, 42

U.S.C. Rs 4321, et seq.

Al6 Appendix B

The increased incidence of contamination and the

concomitant expanded application of pesticides which are

inevitable with the continued use of XM cars in the trans-

portation of food do, we believe, establish the existence of

a shortage of XF cars, as contemplated by section 1(14) (a)

of the act. It is evident that the function of XF cars can-

not, under present car service rules, be adequately per-

formed by other cars available for the transportation of

food shipments. As previously described herein and as

discussed in greater detail in the ETAS, the health prob-

lems attending the use of free-running, general service box-

cars in shipments of food and related products are suffi-

ciently severe that the need to promote other more suitable

means of transportation cannot be overemphasized. While

XP cars have in the past been assigned to food-quality

service, they are not furnished with the white epoxy lining

so effective in minimizing infestation. In the face of these

critical environmental and hygienic hazards, then, and in

the absence of any adequate alternative means of trans-

porting shipments of food, the national interest could be

irreparably damaged by refusing to extend IPD to XF cars.

Cf. Incentive Per Diem Charges, 332 I.C.C. 11, 15. In

view of this pressing need, we find that IPD should be

extended to apply on XF cars.

Our order expanding the application of IPD to XF

cars will specify that XF boxcars must be utilized for trans-

porting food, food products, and other noncontaminating

commodities in general service. While we would be re-

luctant to permit assignment to any particular shipper, we

will allow assignment of XF cars to specific locations to be

utilized as part of a dedicated boxcar pool for the trans-

portation of food and other noncontaminating products

enclosed in clean packaging. We believe that these two

steps will insure to the greatest degree possible the in-

tegrity of food shipments while promoting the availability

of XF boxcars where they are needed most. They will also

preserve to the railroads full control of their cars and will

Appendix B Al7

promote compliance with AAR Car Service Directive No.

155.

Car Service Directive No. 155 provides regulations

governing loading, unloading, and return of XF cars, with

the objective of maximizing utilization of these cars in the

transportation of food-quality shipments. It prohibits

loading of bulk commodities and limits XF cars to use in

loading packaged food and other noncontaminating

products. It presently requires cars assigned to shippers °

or pool points to be returned empty to assigned loading

points after unloading, and requires unassigned cars to be

handled either per owner's instructions or returned empty

to the owner or loaded to or via the owner, the holding

road to exercise the option (emphasis added). Violation

subjects an offender to a fine of $100.

We see no need to require the recision of Car Service

Directive No. 155, as requested by some of the parties to

this proceeding. Contrary to their assertions, with the

modification previously specified, an XF car owner will

have control of the car while off line. After unloading,

cars must be returned empty to assigned loading points, if

so assigned, or, if unassigned, handled in accordance with

ordinary car service rules. In no instances will an owning

road be able to delay return of its cars intentionally in

order to generate increased IPD revenues.

We believe that application of our regulations in the

manner specified will make the maximum contribution to

sound car service practices by improving the utilization,

acquisition, and maintenance of the supply of XF cars. By

limiting XF cars to food-quality service, we will insure the

minimum introduction of infestation into food-quality cars,

while, by permitting assignment of cars on a flexible basis,

we will, to the maximum extent possible, guarantee the

6. Car Service Directive No. 155 currently embodies a section

applying to cars assigned to shippers or pool points. To avoid the

incongruity of permitting of IPD on a car assigned to

a particular shipper, we will amend the Directive by the deletion

of the word “Shippers” from Section A.

A18 Appendix B

provision of cars where demand is greatest. Increased

supply and improved utilization of XF cars will have an

immediate beneficial effect on the national freight car

supply generally. By minimizing, if not eliminating, the

need for XM boxcars in food-quality service, we will free

these general service cars for use wherever they are re-

quired. Concurrently, general service cars will be held

for shorter periods, as the need for the time-consuming

process of decontamination will be substantially reduced.

As there are no apparent seasonal variations inherent

in the volume of food products shipments, we will require

year-round application of IPD to XF cars. The amounts

of the incentive charges will be derived in the same manner

as those applied to other boxcars subject to IPD. In our

report in 337 I.C.C. 183, 187-189, we recognized the need

to provide an incentive for the railroads to invest in the

national boxcar fleet rather than in nontransportation enter-

prises. We felt this need could be met by applying the

overall rate of return on investment earned by nonregu-

lated, higher risk corporations’ to the per diem charges

assessed under the program. Subsequently, after IPD was

extended to apply on a year-round basis, we effectively in-

creased the amount of incentive charges to reflect an

18-percent annual rate of return on investment, in lieu of

the overall 12-percent rate of return which had been the

original basis of the charges. Charges computed on this

basis were found just and reasonable in the Ann Arbor

case, 368 F. Supp., supra, at 113. Of course, the maximum

daily charge remains $12.98.

We believe that charges computed in this manner will

provide car owners with just and reasonable compensation.

7. We determined that an overall rate of 12 percent per year

would be a just and reasonable — This overall percentage

was achieved by fixing charges which would produce an 18- t

rate of return during the half-year period in which IPD was

originally designed to be applicable. By averaging this rate of

return with the 6-percent rate earned on ordinary boxcars during

the remainder of the year, an overall figure of 12 percent was

developed.

Appendix B A19

The 18-percent rate of return will not actually be realized,

since a substantial portion of the existing XF car fleet is

used by the owning railroads the majority of the time.

Bearing this fact in mind, prescription of charges based on

a 12-percent rate may be inadequate to stimulate prompt

return and increased acquisition of XF cars. Moreover, as

previously stated, it is obvious that XF cars must be placed

on the same footing as XM cars with respect to IPD if their

inclusion is to be successful. We hope and believe that

the application of these higher rates of return will make

the purchase of XF cars sufficiently attractive to channel

more railroad investment into the national boxcar fleet.

The present regulations governing the test period

average which must be met before IPD balances can be

drawn down to acquire additional cars require, with the

modifications specified in our report in 349 I.C.C. 303, 311-

315, that the carrier has built or purchased its 1964-1968

average number of such boxcars and made up any arrear-

ages in having failed to maintain such average for any

given year. See Title 49 of the CFR, section 1036.4. Ob-

viously, this requirement is impracticable in the instant

situation, as the designation “XF” never existed prior to

1973. Consequently, in the absence of any feasible test

period average the only requirement we will impose upon

carriers wishing to draw down IPD balances is that they

match IPD expenditures throngh general corporate fund

expenditures. This requirement demands only that which

is required of any other carrier which is exempted from

meeting the test period average, and will encourage at

least minimal corporate expenditures in addition to IPD

expenditures. Funds now in escrow may be used for

acquisition of new XF cars or conversion of XM cars, pro-

vided the carriers comply with the specifications currently

governing rebuilding, embodied in our report in 343 I.C.C.

49, 58, and further clarified in our report in 349 I.C.C. 303,

325-326. Carriers intending to utilize such funds in escrow

for these purposes should notify the Commission’s Bureau

of Accounts.

A20 Appendix B

GENERAL OBSERVATIONS

Contrary to the assertions of certain respondents op-

posed to our proposed action, the extension of IPD in the

manner heretofore specified is based, not on NEPA, but on

section 1(14)(a) of the act. However, as noted above, we

have complied with NEPA requirements. When we in-

stituted this proceeding we believed, and this record con-

firms, that there exists a shortage in food-quality boxcars,

and that, as a result of this shortage, the quality of our

environment was seriously threatened. Section 1(14) (a)

of the act requires the Commission, in determining whether

an incentive element should be included in the compensa-

tion to be paid for the use of any type of freight car, to

give consideration to the acquisition and maintenance of

a car supply adequate to meet the needs of commerce and

the national defense. Under the circumstances here

present, the needs of commerce are inextricably inter-

woven with our concern over the environment, and any

attempt to consider one without addressing the other

would be futile.

Furthermore, the extension of IPD to XF cars will

have the salutary effect of encouraging the railroads to

expend IPD funds even before the test period average with

respect to ordinary boxcars has been met. The problems

involved in meeting the test period average were elicited

in the Ann Arbor case, 368 F. Supp., supra, at 113, and

we took steps to assist the railroads in handling their indi-

vidual problems. By requiring only a matching of cor-

porate expenditures, the acquisition of an adequate car

supply will be further facilitated.

ULTIMATE FINDINGS

We find and conclude that the revision of the rules

respecting incentive per diem charges on boxcars, as set

forth in the appendix hereto, will provide just and reason-

able compensation to owners of XF boxcars, contribute to

Appendix B A2l

sound car service practices, including efficient utilization

and distribution of cars, and encourage the acquisition and

maintenance of a car supply adequate to meet the needs

of commerce and the national defense.

An appropriate order will be entered.

CoMMISSIONERS TUGGLE AND Capp did not partici-

pate.

APPENDIX

Revised rules and regulations

PART 1036—INCENTIVE PER DIEM CHARGES ON BOXCARS

§ 1036.1 Application.—Each common carrier by rail-

road subject to the Interstate Commerce Act shall pay to

the owning railroads, including the owning railroads of

Canada, the additional per diem charges set forth in

§ 1036.2 on all boxcars shown below,

Mechanical designation Code number

DR Uscuadeskebovadipan 61 .... BLO0-109, B200-209, B300-309

ME GUirceieenednbcwcasssees B110-119, B210-219, B310-319

PT divetentapees Weae kenen . B120-129, B220-229, B320-329

ME WeG6cCEs a paskentpensinnss A120, A220, A320, A420

while in the possession of nonowning railroads and subject

to per diem rules. These charges are in addition to all

other per diem charges currently in effect or prescribed.

Mexican-owned cars are exempt from the operation of

these rules. The rules of this part shall apply regardless of

whether the foregoing boxcars are in intrastate, interstate,

or foreign commerce.

§ 1036.4 Use of funds.—The net credit balances result-

ing from incentive per diem settlements, which are ear-

marked in accordance with § 1036.3, may be drawn down

in whole or in part at any time by the carrier to build, lease

equivalent of purchase, or purchase, in whole or in part,

A22 Appendix B

new unequipped boxcars for general service described in

§ 1036.1, provided, the carrier has in the same calendar

year built, leased, or purchased its 1964-68 average acqui-

sitions of such boxcars and made up an arrearage in having

failed to maintain such average each year this order is in

effect. Earmarked funds may also be used in whole or in

part to lease any number of new unequipped boxcars for

general service described in § 1036.1, in which the carrier

is not acquiring an equity interest, provided, the carrier

has in the same calendar year leased its 1964-68 average

number of such boxcars and made up any arrearage in

having failed to maintain such average each year the order

is in effect. Net balances on Canadian-owned cars may

be drawn down without regard to prior acquisitions, but

where the designee is a class I United States carrier such

drawdowns shall not affect that carrier's accumulation of

arrearages. However, upon application, including a show-

ing that all parties to the preceeding herein have been

notified by the carrier of such application and a showing

of good cause why any carrier is unable to draw down in

whole or in part the net credit balance resulting from in-

centive per diem settlements because it cannot comply

with the above test period average requirement of having

in the same calendar year built, rebuilt, leased, or pur-

chased its 1964-68 average number of such boxcars and

made up any arrearage in having failed to maintain such

average each year this order is in effect, the Commission

may, in its discretion, after consideration of all views re-

garding the application, modify the test period average to

the extent consistent with the public interest and the

national transportation policy. Such modification, as a

minimum, shall require that a carrier match the earmarked

funds it will use with an equal amount of its own funds.

Similarly, a carrier using earmarked funds, in whole or in

part, to build, rebuild, lease, or purchase general service,

unequipped boxcars of the XF designation, shall only be

required, as a minimum, to match the earmarked funds it

will use to purchase XF boxcars with an equal amount of

ee

Appendix B A23

its own funds. Earmarked funds must be put to use within

18 months after the end of the calendar year in which the

funds are collected and result in a net credit balance for

the building, rebuilding, leasing, or purchasing of general

service, unequipped boxcars described in § 1036.1 for addi-

tion to such carrier’s or designee’s fleet in accordance with

this part. Upon a showing of good cause an application,

including a showing that the parties to the proceeding

herein have been notified by the carrier of such applica-

tion, may be made to the Commission for waiver of the

said 18-month period, which may, in the Commission's

discretion, be granted after consideration of all views re-

garding the application. If the earmarked funds are not

used within the 18-month period, they may be voluntarily

surrendered to Rail Box whose establishment and operation

was approved in Finance Docket No. 27589, American Rail

Box Car Company and Trailer Train Company, et al.—For

Approval of the Pooling of Car Service with Respect to Box

Cars. If the carrier fails within the stated period to put to

use collected earmarked funds which result in a net credit

balance, has not obtained relief from that requirement, and

has not surrendered such funds to Rail Box, the Commis-

sion will investigate the matter to determine what, if any,

corrective action is warranted. Appropriate corrective

action would include section 16(12) remedies among

others: Carriers may make temporary investments of un-

expended funds in Government bonds or other liquid secu-

rities. Such securities must be readily convertibie to cash

so that funds remain available for boxcar purchases. In-

terest earned must become part of the earmarked fund.

As used in this section, “build,” “rebuild,” “lease,” or “pur-

chase” refer to a commitment to build, rebuild, lease, or

purchase which results in the acquisition of a car on line

ready for use within 10 months from the date of commit-

ment, except that in extraordinary cases beyond the con-

trol of the carrier or the car supplier, a car that is delivered

after 10 months from the date of commitment may qualify

if approved by the Bureau of Accounts of this Commission.

A24 Appendix B

TITLE 49 - TRANSPORTATION

CHAPTER X - INTERSTATE COMMERCE COMMISSION

SUBCHAPTER A - GENERAL RULES AND REGULATIONS

PART 1036 - INCENTIVE PER DIEM CHARGES ON BOXCARS

Order

At a General Session of the INTERSTATE COMMERCE COM-

MissION, held at its office in Washington, D.C., on the

13th day of June 1975.

Ex Parte No. 252 (Sus-No. 1)

INCENTIVE PER DIEM CHARGES—1968 (XF CARS)

Upon consideration of the record in the above-

captioned proceeding including the Notice of Proposed

Rulemaking and Order, served August 23, 1974, and the

comments received from several railroad respondents and

interested shippers; and

It appearing, That the revision of the rules respecting

incentive per diem charges on boxcars, as set forth in the

. appendix of our report herein, will provide just and reason-

able compensation to owners of XF boxcars, contribute to

sound car service practices, including efficient utilization

and distribution of cars, and encourage the acquisition and

maintenance of a car supply adequate to meet the needs

of commerce and the national defense;

Wherefore, and good cause appearing therefor:

It is ordered, That sections 1036.1 and 1036.4 of Sub-

chapter A, Chapter X, Title 49 of the Code of Federal

Regulations be, and they are hereby, amended to read as

set forth in the appendix of our report herein.

It is further ordered, That XF boxcars must be utilized

in the transportation of food, food products, and other non-

contaminating commodities in general service. However,

to improve utilization, XF boxcars may be assigned to spe-

Appendix B AQ5

cific locations to be utilized as part of a dedicated boxcar

pool for the transportation of food and other noncontami-

nating products enclosed in clean packaging.

It is further ordered, That a copy of this order shall be

delivered to the Director, Office of the Federal Register,

for publication therein.

And it is further ordered, That this order shall become

effective 35 days from the date of service and continue in

full force and effect until the further order of the Com-

mission.

This decision is not a major Federal action signifi-

cantly affecting the quality of the human environment

within the meaning of the National Environmental Policy

Act of 1969.

By the Commission.

JosepH M. Harrincton,

Acting Secretary.

A26 Appendix B

SERVICE DATE

July 18, 1975

INTERSTATE COMMERCE COMMISSION

EX PARTE NO. 252 (Sub-No. 1)

INCENTIVE PER DIEM CHARGES—1968 (XF CARS)

IN THE MATTER OF MODIFICATION OF COMPLIANCE DATE

PrEsENT: George M. Stafford, Chairman, to whom this

matter has been assigned for action thereon.

It appearing, That by order served June 23, 1975, the

Commission prescribed certain incentive per diem charges

on XF boxcars to become effective 35 days from the date

of service, or July 28, 1975;

And it further appearing, That because per diem ac-

counts are kept and settlements made on a monthly basis,

any changes in the method of computing per diem charges

effected during the course of a month cause unwarranted

complications and burdensome accounting expenses;

wherefore,

It is ordered, That the date for compliance with said

order served June 23, 1975, be, and it is hereby, changed

to August 1, 1975, with no other changes in the terms of

said order.

Dated at Washington, D.C. on the 16th day of July

1975.

By the Commission, Chairman Stafford.

Rosert L. OswaALp

(SEAL ) Secretary

Appendix B A27

SERVICE DATE

July 22, 1975

INTERSTATE COMMERCE COMMISSION

Washington, D.C. 20423

EX PARTE NO. 252 (SUB. NO. 1)

INCENTIVE PER DIEM CHARGES—1968 (XF CARS)

July 22,1975

NOTICE TO THE PARTIES:

The report of the Commission served in this matter on

June 23, 1975, printed at 350 I.C.C. 11, contained certain

inadvertent errors. Please make the following changes in

your copies:

(1) Page 20, third line of footnote 6, change “we will

amend the Directive” to “we will require amend-

ment of the Directive.”

(2) Page 23, fourth line from the bottom, change “an

arrearage’ to “any arrearage.”

(3) Page 24, line six, insert atter the word “arrear-

ages” the phrase “resulting from prior failure to

build, rebuild, lease, or purchase its 1964-1968

arrearages.”

(4) Page 24, line 10, change “requirement” to “re-

quirements.”

These changes will be made in the bound volume.

Rosert L. Oswa.p.

Secretary

A28 Appendix B

SERVICE DATE

July 22, 1975

INTERSTATE COMMERCE COMMISSION

“EX” PARTE NO. 252 (Sub-No. 1)

INCENTIVE PER DIEM CHARGES—1968 (XF CARS)

IN THE MATTER OF A REQUEST FOR EXTENSION OF THE TIME

FOR FILING PETITIONS FOR RECONSIDERATION AND FOR

A STAY OF THE EFFECTIVE DATE OF THE ORDER IN THIS

PROCEEDING

PrEsENT: George M. Stafford, Chairman, to whom this

matter has been assigned for action thereon.

Upon consideration of the record in the above-entitled

proceeding, including the order of the Commission entered

June 13, 1975; the letter of Penn Central Transportation

Company, filed July 14, 1975, requesting an extension of

ihe time for filing petitions for reconsideration and a stay

of the effective date of the said order; and the reply of

Chicago, Milwaukee, St. Paul and Pacific Railroad Com-

pany, filed July 18, 1975; and

It appearing, That all parties to this proceeding have

had ample opportunity to review all comments submitted;

It further appearing, That, in view of our order en-

tered May 12, 1975, staying the effectiveness of the order

entered March 31, 1975, in Incentive Per Diem Charges—

1968, 349 I.C.C. 303, 333-334, a stay in the effectiveness

of the order entered in this proceeding on June 13, 1975,

appears warranted;

Appendix B A29

Wherefore, and good cause appearing therefor:

't is ordered, That the request for an extension of the

time ivr filing petitions for reconsideration be, and it is

hereby, denied.

It is further ordered, That the effective date of the

order entered in this proceeding on June 13, 1975, be, and

it is hereby, stayed pending further order of the Com-

mission. .

By the Commission, Chairman Stafford.

Dated at Washington, D.C., on the 22nd day of July,

1975.

RoBert L. OswaLp

Secretary

A30 Appendix B

SERVICE DATE

September 23, 1975

Order

At a Session of the INTERSTATE COMMERCE COM-

MISSION, held at its office in Washington, D.C., on the

18th day of September, 1975.

Ex Parte No. 252 (Sub-No. 1)

INCENTIVE PER DIEM CHARGES—1968 (XF CARS)

Upon consideration of the record in the above-entitled

proceeding, including the separate petitions, filed July 24,

1975, by Robert W. Blanchette, Richard C. Bond, and

John H. McArthur, Trustees of the Property of Penn

Central Transportation Company, Debtor, and by William

M. Gibbons, Trustee of the Property of Chicago, Rock

Island and Pacific Railroad Company, Debtor, for recon-

sideration of the order entered in this proceeding on June

13, 1975; and the replies of Chicago, Milwaukee, St. Paul

and Pacific Railroad Company, filed August 8, 1975,

Chicago and North Western Transportation Company,

filed August 11, 1975, and General Mills, Inc., and Grocery

Manufacturers of America Inc., filed August 12, 1975; and

It appearing, That there is presently a shortage of XF

boxcars, and that this shortage will be significantly al-

leviated if the incentive per diem program is extended, as

previously ordered, to include XF boxcars;

It further appearing, That the 18 percent rate of re-

turn reflected in the level of incentive per diem charges

applied on an annual basis will provide just and reasonable

Cc ~~

Appendix B A31

compensation to freight car owners, contribute to sound

car service practices (including efficient utilization and

distribution of cars), and encourage the acquisition and

maintenance of a car supply adequate to meet the needs

of commerce and the national defense, see Ann Arbor

Railroad Company v. United States, 368 F. Supp. 101

(1973), affirmed per curiam, Ann Arbor R. Co. v. United

States, 419 U.S. 807 (1974).

Wherefore, and good cause appearing therefor:

It is ordered, That the petitions for reconsideration be,

and they are hereby, denied.

It is further ordered, That the stay of our order en-

tered in this proceeding on June 13, 1975, effected by

order entered July 22, 1975, be, and it is hereby, vacated.

By the Commission.

Rosert L. Oswap

Secretary

(SEAL )

A32 Appendix B

Notice: This opinion is subject to formal revisi

lication in the Federal Reporter or U.S. App. D.C. che ogg a

are requested to notify the Clerk of any formal errors in order that

corrections may be made before the bound volumes go to press.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 75-2089

ConsoLIpATED Rai. CORPORATION, PETITIONER

v.

UNITED STATES OF AMERICA AND

INTERSTATE COMMERCE COMMISSION, RESPONDENTS

GROCERY MANUFACTURERS OF AMERICA, INC.

Iuuinois Centrat Gur RAILROAD CoMPANY

Cuicaco, Rock IsLaNnp AND PACIFIC RaiLroap Co

FLorwa East Coast RAmway CoMPANY

CuHIcaGo AND NortH WESTERN TRANSPORTATION Co

ET AL., INTERVENORS .

Petition for Review of an order of the

Interstate Commerce Commission

Argued December 10, 1976

Decided April 1, 1977

(Judgment entered this date )

John A. Daily, with whom Leo C the

. . > “ : Fr

brief, for petitioners and intervening na? tng ions

Lloyd John Osborn, Attorne

. ’ y, Department of i

with whom Barry Grossman, Attorney, ated meg ‘of

Appendix B A33

Justice was on the brief, for respondent United States of

America.

Frederic L. Wood, with whom John F. Donelan and

John M. Cleary were on the brief, for intervenor.

Arthur J. Cerra, General Counsel Interstate Commerce

Commission and Charles H. White, Jr., Associate General

Counsel Interstate Commerce Commission were on the

brief for respondent Interstate Commerce Commission.

Leo C. Franey and John A. Daily entered appearances

for the following intervenors, Illinois Central Gulf Rail-

road Company, Chicago Rock Island, et al and the Florida

East Coast Railway Company, Chicago and North West-

ern Transportation Company and Consolidated Rail Cor-

poration.

Before: Wricut and Ross, Circuit Judges, and

GrEsELL,® United States District Judge,

United States District Court for the District

of Columbia.

Opinion for the Court filed by District Judge GrsELu.

Dissenting Opinion filed by Circuit Judge Wricut.

GrEsELL, District Judge: In a special rulemaking pro-

ceeding, the Interstate Commerce Commission has de-

termined that there exists a national shortage of epoxy-

lined (“XF”) boxcars and has required railroads using

another line’s XF cars to make incentive per diem (“IPD” )

payments to their owners.’ Petitioner, Consolidated Rail

Corp (“Conrail”), asserts that there is not sufficient evi-

dence in the record to support the shortage finding, which

is a prerequisite to the imposition of the additional, incen-

* Sitting by designation pursuant to 28 U.S.C. § 292(a).

1. Incentive Per Diem Charges-1968 (XF Cars), 350 ICC 11

(1975).

ASA Appendix B

tive, payments. 49 U.S.C. §1(14)(a). We affirm the

Commission.”

According to the Commission, the transportation of

processed foods in ordinary boxcars presents serious risks

of contamination. Ordinary boxcars (“XM”) are often

infested with insects and rodents from the cargoes they

carry. Processed food at the present time is carried pre-

dominantly in “class A” XM boxcars, which are ordinary

cars that have been cleaned and inspected. The Com-

mission has determined that these sanitizing procedures

are insufficient. The visual inspection carried out for

class A designation cannot detect any infestations between

car walls, and the quality of such inspections varies. Fur-

ther, it is possible for non-visible contaminants to later

be introduced into the car. Thus, the Commission found

that only the XF boxcars are sufficiently sanitary for the

transportation of processed food, since the white epoxy

lining prevents contaminants between the car walls from

reaching the food.

The Commission’s finding of a shortage was based on

evidence that 750,000 carloads of processed food are

shipped annually, requiring a nation-wide fleet of 40,000-

50,000 suitable cars. Since it has determined that only

about 3,000 such cars exist, the Commission found a clear

national shortage. IPD was thus imposed with the ex-

pectation that this would encourage the acquisition of

XF boxcars.

Petitioner contends that there is no evidence of an

XF boxcar shortage because there was no evidence that

any processed food shipper had requested an XF car and

not received one. It also claims that the Commission did

not meet its own previously established criteria for the

imposition of IPD.

2. We find on the record substantial evidence to support the

Commission’s findings and do not reach the issue whether a lesser

evidentiary showing would suffice. See Judge Wright's opinion at

p. A38, n.3 infra.

Appendix B A35

Conrail assumes that there can be no finding of box-

car shortage under the statute unless there is a record of

shipper complaints. However, in determining the ex-

istence of a shortage the Commission may certainly con-

sider the public interest as well as the interests of ship-

pers. IPD may be imposed to “encourage the acquisition

and maintenance of a car supply adequate to meet the

needs of commerce... .” 49 U.S.C. §1(14)(a). We

cannot define the needs of commerce so narrowly as to

exclude the need of consumers for uncontaminated, in-

festation-free food.* There certainly is sufficient evidence

on the record to support the Commission’s determination

that the public’s needs are best served by the use of XF

cars.*

It is clear that, as petitioner asserts, the Commission

did not compile as elaborate a statistical record in the

XF boxcar proceeding as it did in prior proceedings.’

But as Judge Wright notes,° it would not have been pos-

sible for the Commission to generate such a record due to

the recent development of the XF classification. The

need to depart from previous procedures is adequately ex-

plained by this situation. See, e.g., Greyhound Corp. v.

ICC, (D.C. Cir. No. 75-2062, Jan. 21, 1977) (slip op.

3-4).

The dissent, however, after an exhaustive examina-

tion of the legislative history of this statute, concludes

3. We also note that the Commission may establish car service

rules, after hearings, on its own initiative as well as after a com-

plaint. 49 U.S.C. §1(14)(a).

4. That the result may also be achieved, as the dissent sug-

gests, by alterations in other car service rules is beside the point.

Those determinations are left to the Commission.

5. See Incentive Per Diem Charges-Gondolas 40 Fed. Reg.

(1975 * eae Incentive Per Diem Charges-1968, 349 ICC 303

1975).

6. Pp. A49-A50 n.26 2 infra.

A36 Appendix B

that IPD can be imposed only where boxcar shortages

are caused by the tendency of some railroads to hold cars

owned by other lines. It says, in essence, that this section

of the statute was aimed only at inefficient car utilization

practices. However, the statutory delegation of power

goes far beyond this limited field:

It is the intent of Congress to encourage the pur-

chase, acquisition and efficient utilization of freight

cars. * * *° In determining the rates of compensa-

tion to be paid for each type of freight car, the Com-

mission shall give consideration to the transportation

use of each type of freight car, to the national level

of ownership of each such type of freight car, and to

other factors affecting the adequacy of the national

freight car supply. * ° ° Such compensation may be

increased by any incentive element which will . . .

provide just and reasonable compensation to freight

car owners, contribute to sound car service practices

(including efficient utilization and distribution of

cars ), and encourage the acquisition and maintenance

of a car supply adequate to meet the needs of com-

merce... . 49 U.S.C. § 1(14)(a).’

We do not think the Court should rewrite this broad dele-

gation by reference to the legislative history. It is too

clear from the statute on its face that inefficient car utiliza-

tion and distribution is but one of the permissible grounds

for the imposition of incentive payments.

The Commission here has acted within its grant of

statutory authority, and with substantial evidence to sup-

port its actions. The Commission is affirmed.

7. The statute currently reads as quoted, having been amended

by § 212(a) of the Railroad Revitalization and Regulatory Reform

Act of 1976 (P.L. 94-21, Feb. 5, 1976). See Judge Wright's opinion

p. — n.6 for the text at the time the ICC decision in this case was

made.

Appendix B - A37

Waricut, Circuit Judge, disseniing: This case has been

argued by the Interstate Commerce Commission and the

Justice Department as though the health of the American

public would be gravely affected by its outcome. Were

this true, I would find it difficult to lodge a dissent. But

in fact the health of the nation is not at stake here because

no matter how this case is decided the Commission will

have ample power to create a fleet of sanitary freight cars,

if indeed such a fleet is needed." What is at issue here

is the proper interpretation of a sliver of the Commission’s

overall regulatory authority,’ Specifically, what must be

decided today is whether there is a need for a fleet of

white, epoxy-lined boxcars and, if so, whether the cost

1. Imposition of incentive per diem is by no means the onl

regulatory sepeeee® apes to the Commission. It can order rail-

roads which serve food shippers to provide the necessary XF cars.

See Illinois Terminal R. Co. v. United States, 541 F.2d 201, 206 &

n.7 (8th Cir. 1976). In some circumstances, it can condition tariff

increases on earmarking of additional revenues for purchase of

sanitary equipment. See United States v. Chesapeake & Ohio R.

Co., 426 U.S. 500 (1976). Finally, it can change car service rules

to prevent loading of contaminants into cars otherwise suitable for

food transportation. See 49 U.S.C. § 1(14)(a) (1970), as amended

by Pub.L.No. 94-210, § 212(a), 90 Stat. 46-47 (1976). The only

course which it may not adopt is to act without authority and

without a proper record, no matter how indisputably beneficial its

978 may be. See Hampton v. Mow Sun Wong, 426 U.S. 88

2. The majority's characterization of the incentive per diem

statute as a “broad delegation,” majority oP. at A36, is misplaced.

While the language of the incentive per diem provisions may be

broad, its sweep must surely be tempered by the rather narrow

office of the car service provisions in the overall scheme of the

Interstate Commerce Act. Moreover, there is no evidence in the

legislative history of the incentive per diem provisions which would

indicate that Congress intended to grant a sweeping authority.

Indeed, the House Report accompanying the bill which became

the amending legislation specifically states that there was no evi-

dence that the incentive ~ diem scheme would even work. See

H.R. Rep. No. 1183, 89th Cong., Ist Sess. 2-3 (1965). See also

H.R. Rep. No. 1384, 92d Cong., 2d Sess. 20 (1972) (“incentive per

diem as presently structured is not working. It is neither an eftec-

tive incentive to return cars nor to buy new ones.” ).

A38 Appendix B

of creating this fleet should be borne in part by railroads

which terminate food shipments. By its imposition of in-

centive per diem (“IPD”) on XF boxcars, the Commis-

sion has decided both these issues and has opted for an

increased car fleet and for putting much of the burden

of paying for this fleet on terminating railroads, even

though this group is predominantly made up of bankrupt

eastern railroads which now comprise the Government-

supported Conrail system.

While the Commission’s action might be affirmed on a

proper record, I do not agree with the majority that the

record we have been presented in this case is satisfac-

tory. My objections are twofold. First, unlike the ma-

jority, I cannot conclude that the XF car is the only type

of car suitable for the sanitary transportation of food.

Therefore, although the record clearly supports the need

for some 40,000 to 50,000 sanitary vehicles, I conclude

that it does not support the need for equal numbers of

3. The proper standard of review of the record in a proceed-

oe as this is a matter of some dispute. In United States v.

Allegheny-Ludlum Steel Corp., 406 U.S. 742 (1972), the Supreme

Court appeared to require substantial evidence on the record as a

whole. See 406 U.S. at 753. One year later, however, the Court

ruled in United States v. Florida East Coast R. Co., 410 U.S. 224

(1973), that the “hearing” requirement was not the full hearing

envisioned for adjudications under the Administrative Procedure

Act, but could generally be satisfied by procedures required for

rulemaking. Since the substantial evidence test does not, under

the Administrative Procedure Act, apply to the latter procedures,

see 5 U.S.C. § 706(2)(E) (1970), it is unclear where the matter

stands today. On remand in Florida East Coast, the three-judge

District Court concluded that substantial evidence was still re-

a See Florida East Coast R. Co. v. United States, 368

Supp. 1009, 1014-1015 (M.D. Fla. 1973) (three-judge court),

aff d, 417 U.S. 901 (1974). A contrary view was apparently taken

by another three-judge District Court in Ann Arbor R. Co. v.

nited States, 368 feos 101, 112 (E.D. Pa. 1973), affd per

curiam, 419 U.S. 807 (1974). Both District Court cases have been

affirmed by the Supreme Court. Because I find either that the

record is devoid of any evidence to support the Commission or

that the evidence adduced indicates t the Commission has

abused its discretion, I do not reach the scope of review issue.

Appendix B A39

XF cars. My principal disagreement with the majority,

however, is over the definition of the shortage finding

which the Commission must make before it can impose

incentive per diem.‘ With all due respect, I do not think

the meaning of the statutory language is “plain,” but even

if it is, the Supreme Court has recently reminded us:

““When an aid to construction of the meaning of words,

2 used in a statute, is available, there certainly can be

no “rule of law” which forbids its use, however clear the

words may appear ° * °.”” Train v. Colorado Public In-

terest Research Corp, Inc., 426 U.S. 1, 10 (1976), quot-

ing United States v. American Trucking Ass'ns, 310 U:S.

534, 543-544 (1940).° Once the history of the incentive

per diem provisions is examined, the meaning of the

statute becomes relatively clear, but in my judgment that

meaning is rather different from that accepted by the ma-

jority. For this reason, I respectfully dissent.

I. BACKGROUND

In order to understand the incentive per diem scheme

authorized by Section 1(14)(a) of the Interstate Com-

4. “The Commission shall not make any incentive element

applicable to any type of freight car the supply of which the

i ie finds to adequate ° * °.” 49 U.S.C. §1(14)(a)

1 ;

5. If anything is plain, it is the error of the Commission's

interpretation of its authority under §1(14)(a) of the Interstate

Commerce Act, 49 U.S.C. ¢ 1(14)(a). Even the Commission’s

counsel in brief in this very case appears to agree that § 1(14)(a)

is intended to deal with the ills of the national car-pool system.

See br. of ICC at 1-6. To be sure, Commission counsel has not

carried the logic of this pote through to its end: that this pur-

pose requires a record which shows the ills of the national car-pool

system to be an om factor in shortages of cars upon which

D is imposed. However, in other proceedings, which bracket

the rulemaking reviewed here, the Commission has itself recog-

nized that evidence of such aggravating factors is required before

IPD can properly be impos See text at notes 62 to 63 infra.

I argue for no more.

A40 Anpendix B

merce Act,’ it is necessary to consider in some detail rail-

road practices governing interline shipments of freight.

In the early days of railroading, freight was physically

transferred between the cars of connecting railroads when-

ever delivery was required at a destination not served by

the originating road. By agreement among the railroads,

this custom was superseded by the practice of interchang-

6. At the time of the Commission’s decision in this case, this

section read as follows:

(a) The Commission a, hearing, on a complaint

or upon its own initiative without complaint, establish reason-

able rules, regulations, and practices with respect to car service

by common carriers by railroad subject to this chapter, in-

leding the compensation to be paid and other terms of any

contract, agreement, or arrangement for the use of any loco-

motive, car, or other vehicle not owned by the carrier using

it (and whether or not owned by another carrier), and the

penalties or other sanctions for nonobservance of such rules,

regulations, or practices. In ~—s compensation to be

paid for the use of any type of freight car, the Commission

shall give consideration to the national level of ownership of

such type of freight car and to other factors affecting the

adequacy of the national freight car supply, and shall, on the

basis of such consideration, determine whether compensation

should be computed solely on the basis of elements of owner-

ship e e involved in owning and maintaining such

of freight car, including a fair return on value, or whether

such compensation should be increased by such incentive

element or elements of compensation as in the Commission’s

judgment will provide just and reasonable compensation to

freight car owners, contribute to sound car service practices

(including efficient utilization and distribution of cars), and

encourage the acquisition and maintenance of a car supply

adequate to meet the needs of commerce and the national

defense. The Commission shall not make any incentive ele-

ment applicable to any + freight car the supply of which

the Commission finds to be adequate and may exempt from

the compensation to be paid by any group of carriers such

incentive element or elements if the Commission finds it to be

in the national interest.

49 U.S.C. §1(14)(a) (1970). This section was amended in 1976,

Rail Reorganization Act Amendments of 1976, Pub. L. No. 94-210,

§ 212(a), 90 Star. 46-47 (1976). The present text of this section

is set out in the majority opinion at page 5. Except as noted in

Part IV infra, the 1976 amendment has no bearing on this case.

Appendix B A4l

ing loaded cars from the originating line to the lines of

various connecting carriers without disturbing the car’s

lading. With the passage of the Interstate Commerce Act,

connecting roads became obliged to accept cars from other

roads whenever a through route had been established.’

The tariff paid by a shipper for a multi-line haul is

divided among the carriers who participate in a car's move-

ment. The expense associated with use of the freight car

is similarly allocated among the participants through the

mechanism of “per diem” payments made by each non-

owning participant to the owning line.“ The amount of

the per diem payment is intended to approximate the cost

a non-owning participant would have incurred if the

freight had been shipped over its lines in one of its own

cars.” As a result of these transfer payments among the

participating roads, the net revenue each participant re-

ceives approaches what it would have been had freight

been physically transferred from car to car at junction

points.

Once unloaded, further movement of a car in inter-

change service is controlled by a series of car service rules,

which have traditionally been promulgated by the Asso-

ciation of American Railroads but some of which are now

established by the Commission.”” In general, a connecting

road is under an obligation to load an unowned (“foreign”)

car before one of its own if a shipment is available which

7. See Dwg Chicago, B. & Q. R. Co. v. New York, S. &

W. R.R., 332 ICC 176, 183-185 (1968) (hereinafter Per Diem

~ ls affd, sub nom. Union Pacific R. Co. v. United States,

F.Supp. 318 (D. Neb.) (three-judge court), affd, sub nom.

Boston & Maine R.R. v. United States, 396 U.S. 27 (1969).

8. Per diem payments are made to the owning line even if it

does not participate in a car's interline movement.

9. See Per Diem Report, supra note 7, 332 ICC at 186.

10. Section 1(14)(a) gives the Commission authority to estab-

lish reasonable rules affecting car service. See note 6 supra. This

authority has recently been exercised to promulgate rules govern-

ing the return of cars. See 49 C.F.R. $§ 1033.0-1033.19 (1976);

United States v. Allegheny-Ludlum Steel Corp., supra note 3.

A42 Appendix B

would take the car in the direction of its owner.” If no

shipment is available, the car can be returned empty. Per

diem is assessed, apparently with limited exceptions, on

each day that a car is off its owner’s lines, regardless of

whether a non-owning line is carrying out its statutory

obligation to terminate a through shipment, is using the

car to meet the needs of its shippers, or is simply allowing

the car to stand idle.”

As a result of the interchange, per diem, and car serv-

ice rules, freight cars have in effect been put into a national

pool upon which any road is free to draw (and, indeed, may

be obligated to draw) ** to meet the needs of its shippers.

The car-pool system, by removing any need to shift freight

from car to car at junction points and by minimizing the

number of unloaded car movements, has led at least in

theory to a very efficient use of rolling stock. In practice,

however, the system has been flawed and, in the Commis-

sion’s longstanding view, has contributed to nationwide

shortages of freight cars. In the words of the Supreme

Court:

The Commission concluded that one of the principal

factors causing [the] inadequate supply of freight cars

was the operation of the national car-pool system.

In practice this system resulted in freight cars being

on lines other than those of the owning road for long

periods of time, since the rules providing for the re-

turn of unloaded ‘freight cars in the direction of the

lines of the owning road were observed more often

than not in the breach. Since the owning road was

deprived of the use of its own freight cars for extended

11. See Hearings on S. 179 and S. 1098 Before the Freight Car

Storage Subcommittee, Committee on Commerce, 89th Cong., Ist

Sess. 12 (1965) (statement of Charles A. Webb, ICC Chairman).

12. See note 17 infra.

13. See text at note 11 supra.

14. See Hearings, supra note 11, at 33 (statement of ICC

Chairman Webb).

Appendix B A43

periods of time, the Commission found, there was very

little incentive for it to acquire new freight cars. In

addition, since a road which owned a supply of freight

cars inadequate to serve its own on-line shippers could

generally, by hook or by crook, arrange to utilize cars

owned by other roads, the national car-pool system

significantly reduced the normal incentive for a rail-

road to acquire sufficient equipment to serve its cus-

tomers.

United States v. Allezheny-Ludlum Steel Corp., 406 U.S.

742, 745 (1972); see Increased Per Diem Charge on Freight

Cars, 268 ICC 659, 670 (1947).

The Commission first attempted to use an increased

per diem charge as a regulatory tool to correct the car

shortage problem in 1947. See generally Increased Per

Diem Charge on Freight Cars, supra. At that time, the

Commission found that connecting lines were holding

cars unloaded after interchange service for what were in —

its view unjustifiably long periods of time." By penaliz-

ing the holding of cars through an increase in the per diem

charge from $1.25 to $2.00, the Commission hoped to spur

prompt car movement in an effort to decrease shortages by

increasing the number of revenue trips a single car could

make in any given time period.” The $2.00 penalty per

diem was short-lived, however. In Palmer v. United States,

75 F. Supp. 63 (D. D.C. 1947) (three-judge court), the

order establishing the new rate was set aside on three

grounds. First, it exceeded the Commission's authority

under Section 1(14)(a) as it was then written. Id. at 67.

Second, there was no factual evidence that the increase

in per diem would increase car utilization during periods

of shortage. Id. at 70-71. Finally, increased per diem,

15. Increased Per Diem Charge on Freight Cars, 268 ICC 659,

662-663 Coat} vacated, Palmer v. United States, 75 F.Supp 63

(D. D.C. 1947) (three-judge court).

16. See id. at 661, 674.

A44 Appendix B

because it applied without regard to the use being made of

a foreign car, was a tool so unrelated to the specific prob-

lems to be rectified that its use as a regulatory device

raised serious questions of irrationality. Id. at 68."

17. The legislative history of the 1966 amendment to § 1 pad

(a) reveals that the difficulties with the use of incentive iem

as a tool to enhance car utilization and ownership still remain.

For this reason, it is useful to consider Palmer's succinct statement

of the problem:

[T]he per diem charge applies every day a foreign car is on

a Lr Aa It applies whadies the car is moving as expedi-

tiously as cenit or is standing still; whether it is in the

hands of a consignee for unloading, of a shipper for loading,

or is under control of the railroad; whether it is awaitin

bottoms for export or is being held by the railroad for expect

freight. ° ° ° 3 . A

* © © [Per diem * * * has no relation to avoidable delay

or to inefficiency. It is payable for every day a foreign car is

on the line. *° * *° The per diem charge, in so far as it penal-

izes use and non-use, efficient and inefficient use, unavoidable

and avoidable delays, alike. It would be deemed arbitrary as

a regulatory measure under the established rules of law.

But the decisive consideration is the essential nature of

the thing which is proposed to be done here. The car situa-

tion involves conflicting economic interests of considerable

moment. There is the conflict between the great trunk lines,

which are organized and able to own large numbers of cars,

and the smaller and shortline roads, unable or unequipped to

own many cars. * * * There is also the conflict een a

car owner's interests in restricting its cars to its own lines for

its own pu es, and the general interest of the nation in

through traffic, with its necessary free interchange of cars.

There is the conflict between the economic waste of moving

large numbers of empty cars from the unloading areas back

to the proprietary lines at certain periods of the year, and

the economic efficiency of using unloaded foreign cars for the

immediate movement of freight awaiting shipment at the

points of unloading. The Commission has insisted that the

extensive movement of empty cars is an economic waste to be

avoided.

The Commission does not propose by the pending order

to solve these problems by regulations directly addressed to

them, but actually the order cuts across all these complex

difficulties. If the order results in the prompt return of

emptied foreign cars to the owners, regardless of available

Appendix B A45

Shortly after Palmer the Commission sought enact-

ment of amending legislation that would give it authority

to impose per diem above levels needed for fair compensa-

tion as a regulatory measure intended to enhance car

utilization in times of shortage.'"* Rather than proposing

to amend Section 1(14)(a), however, the Commission

sought legislation to amend Section 1(15) ™ of the Act, a

section allowing the Commission to correct short-term

emergency conditions on the nation’s railroads. Begin-

ning with its Annual Report for 1957, the Commission pro-

posed to amend Section 1(14)(a) as an alternative to

Section 1(15). Either measure would apparently have

met the Commission’s primary requirement of an incentive

for rapid release of foreign cars. See ICC, Seventy-Fimst

ANNUAL Report 137 (1957). In addition, the amendment

to Section 1(14)(a) was thought to have a beneficial effect

on car ownership since it would include as an element of

per diem “the earning power or the value of the use of the

vehicle which is lost by the owner when used or appro-

priated by other carriers [thereby eliminating] the owner's

loss [and] the user’s gain °° *.” Id. Although legislation

had been introduced in Congress in many of the years

since the Palmer decision, it was not until 1959 that a bill

was favorably reported out of committee. That bill *° was

17. (Cont’d.) .

freight in that direction, it will decide the economic balance

between movement of empties and the movement of freight

in favor of the former. ff the order does not cause hiring

roads to release the cars, it will merely transfer tremendous

sums of money from non-owners to owners, making the eco-

nomic status of many non-owners difficult, if not unbearable.

ese e¢

Palmer v. United States, supra note 15, 75 F.Supp. at 67, 68-69.

18. See ICC, Sixry-FourtH ANNUAL Report 128 (1950). The

Commission's legislative recommendation was repeated in every

Annual Report gh 1966.

19. 49 U.S.C. §1(15) (1970).

20. S. 1789, 86th Cong., Ist Sess., printed in S. Rep. No. 452,

86th Cong., Ist Sess. 11 (1959).

A46 Appendix B

not enacted, although the Senate Commerce Committee's

rejection of alternative bills which would have modified

Section 1(15) apparently caused the Commission to drop

its advocacy of an amendment to that section.” Con-

tinued and heightened freight car shortages and dogged

persistence by the Commission finally brought amending

legislation in 1966.”

Having struggled for almost 20 years to gain au-

thority to impose IPD, the Commission in 1967 reversed

course and refused to promulgate IPD regulations because

it found no evidence that any freight cars were in short

supply. Incentive Per Diem Charges, 332 ICC 11 (1967).

After a dressing down by the Senate Subcommittee on

Surface Transportation,” the Commission reversed itself

again and imposed IPD on general-purpose, unequipped

boxcars (“XM boxcars”). Under the scheme adopted,

IPD rates vary according to the original cost and the age

of cars used by a non-owner. 49 C.F.R. § 1036.1 (1976).

IPD credit balances net of taxes and payments to other

roads must be segregated by each carrier in separate finan-

cial and bank accounts. Id. § 1036.3. These funds are

then earmarked for purchase of freight car equipment of

the types to which IPD applies. Id. § 1063.4. If the

funds are not expended within 18 months, they may be

“voluntarily surrendered” to the cooperative American

Rail Boxcar Company for use in equipment acquisition.

Id. It is not clear what happens to funds which are neither

21. The Senate took the position that the measures p ed

under §1(15) were too punitive, and it therefore rejected that

approach in favor of the incentive approach. See S. Rep. No. 452,

supra note 20, at 6-7. In the first ICC Annual Report followin

this Senate action, the legislative recommendation to amend § 1(1

was ped without comment. See ICC, Sevenry-Fourtu

ANNUAL 183-184 (1960).

22. Pub. L. No. 89-430, 89th Cong., 2d Sess. § 1, 80 Star. 168

(1966).

23. See United States v. Florida East Coast R. Co., supra

note 3, 410 U.S. at 232-233.

Appendix B A47

spent nor “voluntarily surrendered” for investment in the

car fleet. At the present time, IPD is imposed on XM

boxcars only during six fall and winter months when boxcar

shortages are the most acute.”

II. THe Decision To Imposr IPD on XF Boxcars

The Commission decision reviewed here originated in

response to a petition filed by General Mills, Inc. (GMI)

in one phase of the continuing XM boxcar proceeding.

GMI alleged that owners of boxcars designated XP and

XF were reclassifying these cars as XM boxcars in order

to take advantage of the increased returns made possible

by IPD on the XM cars.” See generally Incentive Per

Diem Charges—1968, 349 ICC 303, 306 (1975); comments

of GMI, JA 29. As a result, GMI, which uses XP and XF

boxcars to transport its considerable shipments of processed

foodstuffs, feared that this rolling stock would become

contaminated with insects or rodents or that it would be

supplied XM cars, many of which were already infested

with insects or rodents. In either case GMI would be

forced to undertake extensive cleaning operations before

infested cars could be used to transport foodstuffs and

might have to use pesticides to control contamination. Be-

cause pesticide use would have adverse environmental con-

sequences, GMI alleged, the Commission had no choice

other than to include XP and XF cars in the IPD system or

to file an environmental impact statement. Rather than

deciding this issue in the context of the XM proceeding,

24. See Incentive Per Diem Charges—1968, 350 ICC 464 (1975).

25. The record does not support GMI’s allegation, however.

Although other participants before the Commission made allega-

tions similar to that of GMI, no proponent of this view supplied

any data to support its position. e only data in the record

shows that XF car stocks increased throughout the period when

IPD was applied to XM cars. See comments of Erie Lackawanna

Railroad, JA 20-21 (317 cars upgraded to XF status during this

period); comments of Union Pacific Railroad, JA 104 (96 cars

upgraded to XF status during this period).

A48 Appendix B

the Commission instituted an additional rulemaking pro-

ceeding which culminated in a report, Incentive Per Diem

Charges—1968 (XF Cars), 350 ICC 11 (1975) (hereinafter

XF Report), which concluded that XF cars were in short

supply and that they should be included within the existing

IPD scheme.

The XF car designation was introduced in 1973. It

indicates that a boxcar is equipped with a white epoxy

inner coating and that it can only be used by shippers

of non-contaminating food products. See XF Report,

supra, 350 ICC at 13. The XF designation was intended

to replace the XP designation, which had been applied

to plain, unequipped boxcars used by both the food and

automobile industries and generally not equipped with

the epoxy lining. Id. In either case the designation in-

dicates a high quality boxcar which, under applicable

car service rules, cannot be used for carriage of con-

taminating cargoes. Id. At oral argument we were ad-

vised that conversion of an XP or XF car to the XM

designation requires no physical modification of the car

at all, but involves only repainting the identifying num-

bers on the side of the car and some associated paperwork.

According to the Commission, only the XF car can

adequately protect the sanitation of processed package

foods. XF Report, supra, 350 ICC at 18-19. It appears

that the epoxy inner lining of the XF car prevents any

rodents or insects which might be nesting between the

outer and inner walls of the boxcar from gaining access

to the food inside the car. As a result in-transit con-

tamination of food shipped in containers which rodents

or insects might otherwise penetrate is reduced or elimi-

nated altogether. By contrast, the “class A” XM car

traditionally used for carriage of processed packaged foods

has clear disadvantages. See id., at 18. This car is no

more than a regular XM boxcar to which the “class A”

designation is attached once it has been cleaned and in-

spected to eliminate unsanitary conditions. In practice,

Appendix B A49

the visual inspection upon which class A status ts based

is said to be inadequate because such an inspection will

not detect infestation between the walls of an XM car

and because the quality of visual inspections varies widely

from inspector to inspector. In addition, because XM

cars are free-running, i.e., they may be used by any ship-

per regardless of the type of freight it proposes to load,

it is possible that contaminants will be introduced which

are not detectable by visual inspection but which can

nonetheless taint subsequent loads of processed foods.

Given its conclusion that only XF boxcars are suitable

for transportation of processed food products, the Com-

mission takes the further position that the existence of

a shortage of XF cars “is amply demonstrated by the

prevalent use of the so-called class ‘A’ boxcars in trans-

porting shipments of food products.” Id.

It is this further conclusion that is challenged by Con-

rail, primarily because the Commission has not cited even

one instance where a food shipper has asked for, but has

not received, an XF car, and because there is no such

instance reported in the comments in this proceeding.

Conrail also challenges what it perceives to be an incon-

sistency between the standard of proof of shortages re-

quired by the Commission in other incentive per diem

cases and the sparse record in this proceeding. The ma-

jority has rejected both of these contentions, as do I.”

26. I agree with the majority that, were we to hold today that

IPD could not be imposed except on a record of shipper com-

plaints, important interests such as that in sanitary food would be

put at risk since there is no reason to suppose that the interests of

shippers and of the public will necessarily coincide. However,

I find it at least troubling, as the majority apparently does not,

that the record here is completely devoid of evidence of shipper

complaints since the moving parties in this proceeding have been

CML and the Grocery Manufacturers’ Association, both groups

which would be in a position to know of shipper complaints.

I agree with Conrail that the Commission has departed from

contemporaneously announced standards of proof with respect to

statistical evidence of car shortages. See, e.g., Incentive Per Diem

Charges—1968, 349 ICC 303, 311 (1975); Incentive Per Diem

A50 Appendix B

However, I agree with Conrail that at most the record

evidence supports the need for Commission regulations

dealing with car cleaning and loading of contaminating

products. I turn to this first before setting out my broader

objections to the Commission’s overall statutory authority

to proceed as it has here.

Il]. Tae ADEQUACY OF THE COMMISSION'S

SHORTAGE FINDING

The Commission’s position can be summarized as fol-

lows: (1) there are approximately 760,000 carloads of

processed food shipped yearly;*” (2) a single car can

make about 15 to 18 trips per year; * (3) consequently

there is a need for some 40,000 to 50,00 cars suitable for

food shipment; (4) only the XF car is suitable for food

transportation; (5) therefore, there is a need for some

40,000 to 50,000 XF cars versus a supply of under 3,000

(or of under 35,000 if XP cars are included); * hence,

26. (Cont’d.)

harges—Gondolas, 40 Fed. Reg. 44851, 44851-44852 (1975). This

ys is not une ates however. The Commission has

stated that creation the XF car classification only one

before its inquiry into imposition of IPD prevented creation of an

elaborate statistical record of shortages. Incentive Per Diem

Charges—1968 (XF Cars), 350 ICC 11, 17 (1975) ( hereinafter XF

Report). Conrail does not appear to challenge this statement and

has cited no authority which would require the Commission to

defer action on IPD until adequate statistics can be generated.

Therefore, it appears that the sion was acting within its

permitted discretion when it chose to examine the shortage ques-

tion on the basis of whatever record could be generated given the

relative newness of the XF classification.

27. Comments of GMI, Exhibit 17, at 9, JA 68 (verified state-

ment of Daniel G. McPherson, GMI vice-president).

98. Id., Exhibit 16, at 9, JA 53 (verified statement of William

K. Smith, GMI vice-president for transportation).

29. XP cars were used for food transportation prior to creation

of the XF designation. See p. A48 a. At the time of the

Commission’s report there were 2,495 cars and 29,075 XP cars.

XF Report, supra note 26, 350 ICC at 17. |

Appendix B AD51

(6) the statutory shortage requirement is met.*® In my

judgment, the fourth step of the Commission’s analysis

cannot be sustained on the record it has made in this

proceeding.

Initially, it is interesting to note that William K.

Smith, GMI’s vice-president for transportation and the

moving party in these proceedings, stated, contrary to the

Commission's conclusion, that GMI uses successfully DF,

DFB, and XM cars." To be sure, all of GMI’s cars are

in assigned service * and this may account for its ability

to use cars other than those of XF design. This conces-

30. Conrail has not challenged the figures in text; however, it

has challenged the inference which should be drawn from them,

noting particularly that William K. Smith, GMI’s vice-president

for transportation and apparently the person whose testimony

launched the ph oo ge did not conclude from these figures

that IPD was needed on cars except to prevent reclassification

of XF cars to XM. Were such reclassifications prevented, GMI

would apparently have been satisfied and would not have pressed

for IPD a to increase the size of the XF car fleet. See

Comments of GMI, JA 35. As has already been noted, see note 25

supra, there is no evidence that GMI's fears of losing its XF fleet

were well founded. To the contrary, the record so far as it shows

———s indicates that railroads serving food shippers were ready

and able to supply the needed cars. See Comments of Grand

Trunk Western, JA 6 (“The Grand Trunk Western Railroad Com-

pany plans to expand the use of “XF’ box cars for use by the cereal

industries over our lines.”); Comments of Erie Lackawanna, JA

20-21 (“This company knows of no facts which would lead us to

the conclusion that there is a national shortage of XF cars. * * °

Erie Lackawanna has upgraded some 317 box cars between De-

cember 1973 and August 1974 at great expense to create the status

of an XF car * * °.”); Comments of Union Pacific, JA 104 (“Union

Pacific, when approached by food processing companies, has satis-

fied all —_ requests for the provision of [XF] cars.”); Com-

ments of Florida East Coast, JA 127 (“[A] mare ane the month

of July 1974 shows that FEC had a surplus of XF cars on line.”).

31. Comments of GMI, Exhibit 16, at 7, 'A 51. The Commis-

sion rted that GMI also used XL cars. Environmental

Threshold Assessment Survey, JA 155.

32. In assigned service, cars are restricted as to the use termi-

nating roads may make of them. Assigned service is discussed at

length below. See text at notes 41-52 infra.

A52 Appendix B

sion only highlights a further difficulty with the Commis-

sion’s argument, however. Stated precisely, the Com-

mission’s proposition four is that “the function of XF cars

cannot, under present car service rules, be adequately per-

formed by other cars available for the transportation of

food shipments.” XF Report, supra, 350 ICC at 10 (em-

phasis added). The italicized phrase in this proposition

is critical. As the Commission clearly recognized, exist-

ing car service rules allow continual reintroduction of

contaminants into class A XM boxcars. Thus it is scarcely

surprising that XM cars, regardless of car design, are

given to food shippers in less than desirable condition.

Indeed, unless XF cars can be assigned to non-contam-

inating uses, the Commission found that they too would

have to be fumigated and decontaminated notwithstanding

their white epoxy coating. Id. at 15. This illustrates a

key fact about XF cars. They are desirable because they

can be assigned to a restricted service in which the “pri-

mary source of contamination, ie., grain and related

products and other unsanitary bulk commodities, [is]

banned * * *.” Id. at 19.

The record further suggests that there is nothing in-

herently unsanitary about the XM car. The problem with

these cars arises only after rodents and insects infest their

inner walls. All parties agree that such infestation is not

present in the car at the beginning of its life, but is caused

by introduction of bulk feeds, grains, and similar loose,

life-supporting products into the XM car. See XF Report,

supra, 350 ICC at 13; ICC Environmental Threshold As-

sessment Survey, JA 156, 162; comments of GMI, Exhibit

16, at 10, JA 54 (testimony of Mr. Smith). See also br. for

the United States at 8. Indeed, it appears that the XP

boxcar, which unlike the XF did not initially have an epoxy

coating and was therefore substantially identical to an XM

car, was successfully used by processed food shippers in

assigned service for a number of years prior to creation of

the XF designation. See XF Report, supra, 350 ICC at 13;

Appendix B A53

comments of GMI, Exhibit 17, at 4, JA 63; comments of

General Foods Corp., JA 146. The success of the XP car

as a sanitary vehicle is apparently due not to its intrinsic

design, therefore, but only to the fact that its restriction to

assigned service prevents introduction, or repeated reintro-

duction, of contaminating cargoes into the car.

The record in this proceeding thus strongly indicates

that the scarcity of sanitary cars is due to the absence of a

classification for food-quality boxcars of whatever design

which would allow their assignment and control in a man-

ner like that established for XF cars by Association of

American Railroads Car Service Directive 155. The

presence or absence of a white epoxy lining, on the record

here, is beside the point. Accordingly, the actual regula-

tory problem faced by the Commission is a false scarcity

of food-quality cars created by car service rules which

allow continual reintroduction of contaminants into cars

cleaned for food service.

There can be no doubt that the Commission recog-

nized the crucial interplay between sanitation and car

service rules, for it reversed its initial proposal to put XF

cars in general service * once it became aware that such

use would defeat the whole XF car program. Apparently

the Commission, determined to go forward with IPD,

never did become aware that the record before it indicated

that XM cars could similarly be made suitable for food

transportation through reclassification to a restricted serv-

ice. If it had become aware of this, it might have exercised

its undoubted authority * to create an assigned service for

high quality XM cars. Had it done so, there would likely

no scarcity of sanitary vehicles requiring the corrective

powers of IPD.

33. See note 41 infra.

34. See Notice of Proposed Rulemaking and Order, JA 2.

35. See, e.g., United States v. Allegheny-Ludlum Steel Corp.,

supra note 3.

A54 Appendix B

Given this state of facts, I think the Commission has

failed to give adequate consideration to all relevant factors

and has further stopped short of giving the record the hard

look essential to an exercise of informed discretion. Ac-

cordingly, I would vacate the rules imposing IPD on XF

cars. By this, I do not mean to imply that the Commission

must modify car service rules before it can apply IPD.

The Commission plainly enjoys discretion to proceed by

promulgation of rules, imposition of IPD, or a combination

of approaches. It may not, however, impose IPD because

a scarcity of a particular type of car has been generated

primarily by the very car service rules which the Commis-

sion is empowered to change until it has at least considered

whether a seemingly simple car service rule modification

would alleviate the shortage.

IV. Statutory AuTHoRITY TO ImposE IPD

As indicated above, the Commission has in my judg-

ment failed to make out a case for imposition of IPD on

XF cars even assuming its proffered syllogism adequately

implements the statutory scarcity requirement. My pri-

mary objection to what the Commission has done here goes

beyond this, however, for it seems to me that the Commis-

sion has stepped beyond the bounds of its authority under

Section 1(14)(a) of the Act.

Section 1(14)(a) as amended in 1966 allows IPD to

be imposed only if the Commission finds both that a short-

age of a particular type of car exists and that incentive

elements are necessary to “provide just and reasonable

compensation to freight car owners, contribute to sound

ear service practices * ° °, and encourage the acquisition

and maintenance of a car supply adequate to meet the

needs of commerce * * *.”* It is easy to understand how

all of the latter objectives would be met if the national

36. See note 6 supra. The oted in text was not

e

changed by the 1976 amendments to §1(14)(a). See Pub. L. No.

94-210, § 212(a), 90 Stat. 47 (1976).

Appendix B A55

car-pool system were malfunctioning as described in Part I

supra. Any increase in per diem would presumably pro-

vide an incentive to railroads to return foreign cars which

they were not using and would thereby “contribute to

sound car service practices.” *" Such an effect is inherent

in any time charge, whether for railroad cars, library books,

or bulldozers. In addition, because incentive per diem is

by definition an increment above basic per diem—the “ex-

pense involved in awning and maintaining [any given]

type of freight car, including a fair return on value,” 49

U.S.C. § 1(14) (a) (emphasis added )—over the long run it

would be advantageous to users of foreign cars to build

cars of their own so that, by incurring ownership costs

roughly equal to basic per diem,** they might avoid the

higher sum of basic per diem and incentive per diem.

Given the definition of basic per diem in Section 1

(14)(a) to include a fair return on value, it also becomes

clear that the “just and reasonable compensation to freight

car owners’ for which IPD can be instituted must be some-

thing other than “fair return” on money invested. That

something else, according to the Commission, is a return to

compensate “for the earning power or the value of the use

of the vehicle which is lost by the owner when [a car is]

used or appropriated by other carriers.” ICC, Seventy-

37. At some point, however, more rapid return of cars could

be achieved only by returning an excessive number of empty cars,

which would be extremely inefficient. See Hearings, supra note 11,

at 33 (statement of ICC Chairman Webb); note 17 supra.

38. See Per Diem , supra note 7, 332 ICC at 186. The

1976 amendment to §1(14)(a) states the standard for settin

basic per diem slightly differently, viz. “fair return on the cost o

such type of freight car (giving due consideration to current costs

of wy irs, materials, parts, and labor).” Pub. L. No.

94-210, §212(), 90 Stat. 47 (1976). This standard does not

appear to differ in practical effect from the earlier standard as

applied in the Per Diem Report, supra. In any case, at the present

time, basic per diem rates continue at levels established with

reference to the language of § 1(14)(a) adopted in 1966.

A56 Appendix B

First ANNUAL REPORT, supra, at 137." Because the aver-

age daily revenue which accrues to a car in use is well

above basic per diem,*° the owner who cannot use his car

and who, because of nationwide shortages, has no other

cars on-line to put into revenue service loses more net

revenue than he gains by receiving basic per diem. Thus

when a non-owning road, “by hook or by crook, arrange[s]

to utilize cars owned by other roads,” United States v.

Allegheny-Ludlum Steel Corp., supra, 406 U.S. at 745, it

appropriates to itself incremental revenue which in fairness

belongs to the car’s owner.

The legislative history of the 1966 amendment to Sec-

tion 1(14)(a) confirms that the “fit” of the amendment

to the regulatory problem described in Part I is no coin-

cidence and that the statutory inadequacy of supply re-

quirement can best be understood as shorthand for

congressional concern that IPD not be imposed except

where the Commission has found that the disincentives as-

sociated with the national car-pool system have con-

tributed to creation of an inadequate supply of a particular

type of car. Indeed, the legislative history of the 1966

amendment shows rather clearly that in Congress’ view

the primary reason for the shortage which IPD was to

correct was the widespread use of foreign cars, especially

by eastern railroads. Thus to Senator Magnuson, sponsor

in the Senate of the bill which became the 1966 amend-

ment,

[t]he shortage [which the amendment was intended

to correct] results from the fact that many western

roads build sufficient cars, but the trouble is that

when the cars are on eastern roads, in the course of

delivering goods to eastern markets, there is a re-

39. See note 56 infra.

40. Hearings on H.R. 2230, H.R. 7165, and S. 1098 Before the

House Committee on Interstate and Foreign Commerce, 89th

., lst Sess. 91 (1965) (testimony of general counsel for

Burlington Lines).

Appendix B A57

luctance on the part of some railroads in the East to

return the cars *° °°. ° * °

Some railroads find it more desirable to keep the

boxcars and pay the $3 or $4 rental—at one time it

was less than $2—than to buy boxcars. It is less

costly to rent cars than to build them.

111 Conc. Rec. 15375 (1965). See also S. Rep. No. 386,

89th Cong., Ist Sess. 3 (1965); S. Rep. No. 452, 86th

Cong., Ist Sess. 4-5 (1959). As similar understanding of

the problem was echoed in the House. See, e.g., 112

Conc. Rec. 10437 (1966) (remarks of Rep. Mize)

(“when the per diem charge is low, as it is now, it is

cheaper to rent a car than it is to buy or build one”);

id. at 10438-10439 (remarks of Rep. Adams) (“[o]b-

viously it has been cheaper for many railroads to simply

take the new cars produced by other railroads and hold

them on their lines and pay a minimal rental rather

than produce new cars”). See also Hearings on H.R.

2230, H.R. 7165, and S. 1098 Before the House Com-

mittee on Interstate and Foreign Commerce, 89th Cong.,

Ist Sess. 20, 30, 32-33, 39 (1965) (remarks of sponsors

of legislation to amend § 1(14)(a) ).

Notwithstanding the focus of the 1966 amendment,

the Commission has chosen here to apply IPD to a type of

freight car which has never been part of the national pool

of free-running boxcars. Instead, use and return of XF

cars had been governed until the order in this proceeding

by Association of American Railroads Car Service Directive

155 ** under which XF cars could be, and apparently often

41. Car Service Directive 155 provides in relevant part:

NOTICE:

This Directive is issued under provisions of paragraph

(g), Car Hire Rule 19. Each violation of Section A.2.,

or Section B.2. of this Directive is subject to an assessment

of one hundred dollars ($100.00).

A58 Appendix B

were,” assigned to a single shipper for its individual and

41. (Cont’d.)

APPLICATION:

To box cars AAR mechanical designation XF, carrying

railroad reporting marks.

ORDER:

Section A. Cars Assigned to Shipper or Pool Points.

1. Waybills accompanying assigned cars under load

must be endorsed “Assi Car For Processed

Packaged Food Loading CSD No. 155.”

: 2. After unloading, such cars must be returned em

; to assigned loading point via reverse of loaded

| movement.

al Claes dee vba tal bn eobeoel

waybills wi t es whic endo:

“Assi Car Fy thee Packaged Food

Loading CSD No. 155.”

Section B. Unassigned Cars.

1. Waybills accompanying unassigned cars under

eal must be en “Unassigned Car For

Processed Packaged Food Loading CSD No. 155.”

2. After unloading, cars subject to this Directive must

be handled either per owner's instructions or re-

turned empty to the owner or loaded to or via the

owner, the holding road to exercise the option.

Secrion C.

XF cars are restricted to processed packaged food

loading only except, with the 7 of owner, such

cars may be used for loading non-contaminating

——_ enclosed in clean packaging. Cars must not

used for the loading of commodities. If cars

are used for loading which results in contamination

or damage to linings or floors, and it becomes neces-

sary to renew floors, lining or — (including

any associated parts), or portions , in order to

restore cars to previous loa classification, the

cost of repairs shall be assumed by the road (either

switching or road haul) placing cars for loading.

NOTE: Carriers may exempt their cars from the of

Section A. 2. or B. 2. to allow use by specified

lines for loading as prescribed in Section C. Such

exemptions must be confirmed in writing to the Car

Service Division in advance.

42. The record does not indicate how many XF cars have been

placed in assigned service and how many in unassigned service.

Appendix B A59

exclusive use.** Once assigned, XF cars could not be used

by connecting lines for any purpose other than completion

of a through haul unless the shipper-assignee directed the

car to be loaded on the connecting line.“ In all other

cases, Directive 155 plainly required that “[a]fter unload-

ing, such cars must be returned empty to [the] assigned

loading point via reverse of loaded movement.” ** There

is no evidence in the record that this particular car service

directive has been ahused.** To the contrary, GMI com-

42. (Cont'd. )

The comments of many parties indicating that assignment was

critical to the effectiveness of the XF car as a food carrier would

indicate that few if any XF cars ever operated in unassigned serv-

ice. See XF Report, supra note 26, 350 ICC at 15. The Commis-

sion also states that XF cars are operated in assigned service and

does not even mention the possibility that they might be free-

running. Id. at 13.

43. Even if XF cars have been operated in unassigned service,

Directive 155, § B(2), allows the owner of an XF car to specify

how it will be moved after unloading. See note 41 supra. The

only evidence in the record suggests that an owner's directions for

a a have generally been followed and that carriers

and shippers have been cooperating to ensure proper car use. See

comments of GMI, Exhibit 16, at 8, JA 83. .

44. See Directive 155, § A(2), supra note 41. The “NOTE

to Directive 155 allows carriers to direct that their cars be loaded

on foreign lines. See note 41 supra. Some roads have apparently

made use of this provision to allow shipper-assignees to make

loaded return movements. See comments of General Foods Corp.,

JA 146-147.

45. See note 41 supra.

46. Although Congress required the Commission to find that

cars were in inadequate supply before IPD could be imposed, the

finding of a car shortage does not itself indicate — about

the reasons for the shortage. And, while it is clear that Congress

was legislating against an assumed state of facts in which car

shortages d in some cases be ascribed to disincentives to car

ownership caused by abuse of car service rules, the legislative

history is = plain that no one thought that car shortages neces-

sarily implied an abuse of car service rules or that such an abuse

was the sole cause of car shortages. The House report summarized

the situation as follows:

There have been all sorts of conflicting statements made

as to the reasons for the shortages as to whether they arise

oe eee ree

A60 Appendix B

mented that its assigned car program had been a success

in part because of its ability in practice to direct the move-

ments of each car assigned to it.** Moreover, the crux of

the Commission’s scarcity analysis is that roads without

XF cars are supplying XM cars, not foreign XF cars, to

food shippers.** Thus any shortages of XF cars cannot, on

the record here, be attributed to roads using foreign XF

cars to meet the needs of their shippers.’ In addition,

there is no evidence in the record to indicate that XF cars

are not returned promptly to their assigned points of

origination. Again, the comments suggest that the reverse

46. (Cont'd. )

from lack of adequate ownership, or from improper distribu-

tion of the existing car fleet, or from overdetention by the

shippers in unloading, or from the prevailing 5-day as against

the 6-day week ° ° °.

The record of the hearings which have been had on this

bill is similar to the records which have been had on previous

bills and is not conclusive as to whether “incentive” per diem

will be successful in achieving the goal which we are seeking,

namely, the alleviation of these chronic shortages.

he tron inasmuch as some railroads feel that this might

be of great help to the situation and inasmuch as the Inter-

state Commerce Commission is of the belief that with this

authorization it can do something in the matter and inasmuch

as no alternative has been brought to the attention of the

~ committee, the committee is recommending that this bill be

enacted.

H.R. Rep. No. 1183, 89th Cong., Ist Sess. 2-3 (1965). The Com-

mission has also required proof of the existence of disincentives to

car ownership arising from car service practices. See text at notes

59-60 infra.

47. See comments of GMI, Exhibit 16, at 9, JA 53.

48. XF Report, supra note 26, 350 ICC at 18.

49. Inadequacies in XF car supply may be attributable to low

tariffs on processed food products. See comments on behalf of the

Trustees of Penn Central Transportation Co., JA 92:

Penn Central * * * has no present intention of ogg

assigning any additional cars to the XF classification. e

primary reason is that the present rate structure * ° ° is

wholly unsatisfactory from a net revenue standpoint. * * °

Appendix B A61

is true since the two shipper-assignees who made state-

ments both indicated that their XF cars made more rev-

enue trips per year than the national average for freight

cars and neither mentioned any dissatisfaction with the

achieved rate of XF utilization.’

The modification of Directive 155 required by the

order here under review, see XF Report, supra, 350 ICC

at 19, does not change the foregoing conclusions materially.

The XF Report prohibits assignment of cars to a single

shipper, but continues to allow assignment to a single loca-

tion—which can presumably be a location on the owning

railroad’s line—for use in originating shipments on the

owner's line. See id. Thus, for example, Grand Trunk

Western Railroad now assigns all its cars to Battle Creek,

Michigan, a location convenient to a number of its major

food shippers,” and is apparently allowed io continue this

practice under Directive 155 as modified.”

The record before us does not, therefore, support the

conclusion that the disincentives to car ownership asso-

ciated with the national boxcar pool have affected the

supply of XF cars. This raises the question whether the

broad language of the 1966 amendment nonetheless al-

lows imposition of IPD on XF cars even though the ex-

istence of the core problem to which Congress addressed

the 1966 amendment has not been established. I think

it does not, although the conclusion is not free from dif-

ficulty given the blunderbuss nature of IPD™ and the

fact that imposition of IPD under the present regulations

might result in more XF cars being built.™

50. See comments of GMI, Exhibit 16, at 9, JA 53; comments

of General Foods Corp., JA 146.

51. Comments of Grand Trunk Western Railroad, JA 6.

52. “[The amendments of Directive 155] will preserve to the

railroads full control of their cars.” XF Report, supra note 26,

350 ICC at 19.

53. See note 17 supra.

54. This could occur in either of two ways. First, the ear-

marking requirements set out in 49 C.i’R. § 1036.3 (1976) will

|

A62 Appendix B

Initially, it is important to note that there is no evi-

dence that XF cars are being “appropriated” by non-

owning lines for their own use or are being allowed to

stand idle and consequently IPD on XF cars is in essence

a tax on the function of terminating through hauls. Al-

though Congress clearly appreciated that IPD would ac-

crue while this function was performed, the legislative

history of the 1966 amendment to Section 1(14)(a) in-

dicates that no assessment of IPD was to be made on the

termination function except where this was incidental to

the mechanics of imposing IPD on improper uses of for-

eign Cars.

The Commission chairman testified before Congress

that it was not the Commission’s position that net per

diem debtors should be taxed as such because at least

some debtors would be short lines, or terminating or

bridge roads, which ought properly to be using foreign

cars to minimize inefficient unloaded car movements.”

relay XF be used f car

require net IPD balances on cars to ed for new

pn a although not necessarily for construction of XF cars,

see id. § 1036.4. Second, under § 1036.4, funds which are ear-

marked can be used to construct an of the types of cars to which

IPD applies. Thus : o a e that on eas ge eo

car use could be applied to car construction (and vice vers2 }.

This use of funds ake problems, however. In Incentive Per Diem

Charges—1968, supra note 26, the Commission stated: ;

[T]he main benefit from investing incentive per diem funds in

an expanded covered hopper fleet would accrue to the grain

shippers. This is contrary to the broader basis specified in

section 1(14)(a) of the act for imposition of incentive per

diem, namely consideration of “factors affecting the adequacy

of the national freight car supply”. Therefore, we believe that

incentive funds should only be used for purchase of plain

boxcars, in order to be shippers ge y and not a par-

ticular segment of the s ng public.

349 ICC at 3l1l henge added). How XF cars—which are

restricted to food shippers, a class undoubtedly no larger than grain

shippers—would “benefit shippers generally” if covered hoppers do

not is by no means apparent.

55. See Hearings, supra note 11, at 12, 14, 35.

Appendix B A63

Not willing to take the chairman’s word that the Com-

mission would examine the effect of IPD on such lines

and make exemptions where appropriate, the Senate Com-

merce Committee amended the Commission’s proposed

bill to require the Commission to consider the need to ex-

empt “carriers ° * ° owning an adequate number of

freight cars to meet their responsibilities [and] carriers

terminating a substantially higher percentage of inter-

line traffic than they originate * ° °*,” S. Rep. No. 386,

supra, at 2, 5, from IPD requirements. Although this

language was removed by the House, see H.R. Rep. No.

1183, 89th Cong., Ist Sess. 1 (1965), this deletion was

not intended to work any substantive change in the factors

the Commission was to consider. As explained by Sena-

tor Cotton during debate on the motion to concur in the

House amendment:

Under the Senate version of the bill, the ICC was

specifically empowered to exempt from the incentive,

or penalty, element of the freight car charges any

or all of the groups [expressly enumerated in the

Senate bill].

The aim of these provisions of the Senate bill,

which I had a part in suggesting, was to assure rea-

sonable and fair consideration of the special problems

arising in the industry, including the problem of the

terminating railroads, whose per diem charges are not

related to the number of boxcars they may own.

In the bill before us today, as it has come back

from the House of Representatives, the four types of

circumstances spelled out in the Senate bill are not

directly listed. It is clear, however, that all the factors

listed in the Senate bill still have to be considered by

the ° * * Commission, and the Commission would

have the power, and the duty, not to apply the incen-

tive element to any group of carriers, and even a sin-

gle carrier, where those four circumstances, or any

other circumstances, made it in the national interest

to do so.

A64 Appendix B

112 Conc. Rec. 10756 (1966) (emphasis added). Sena-

tor Cotton’s understanding of the effect of the House

amendment seems clearly correct since the same view was

taken by Representative Staggers, House floor manager

for the bill:

[T]he committee amendment provides that the Com-

mission would be empowered in its discretion to ex-

empt from the incentive element provisions any group

of carriers where the Commission finds such exemp-

tion to be in the national interest. This provision

enables the Commission to make exemptions from

paying an incentive element by class of carrier, and

permits the Commission to consider the several fac-

tors specifically authorized in the Senate bill.

112 Conc. Rec. 10435 (1966).

The conclusion that IPD was not to be applied except

where there was some evidence that the breakdown of the

national car-pool system had contributed to car shortages

is further buttressed by a consideration of the meaning

— -

of the phrase “just and reasonable compensation” used

in the 1966 amendment to describe IPD payments, The

reason the Commission adopted IPD rather than a simple

penalty to be paid to the United States appears to be

that car owners were losing revenue in times of shortage

because their cars were being “appropriated” by non-

owners and because no foreign cars were available on the

owners’ lines to take the place of cars lost to non-owners.”

56. The Commission’s theory is nowhere spelled out with de-

tail or clarity. In its Seventy-First Annual Report, in which

romulgation of a rule under § 1(14)(a) was first endorsed, the

ission stated:

The two principal causes of shortages are inadequate car

ownership the failure of some carriers to utilize existing

equipment efficiently. One way of correcting this unsatis-

factory situation is the imposition of a ty per diem charge

funder §1(15)] which would a pecuniary spur to

deficit railroads to acquire enough cars to meet their own

loading obligations. Another approach to the problem * ° °

is the requirement that the earning power or value of the

Appendix B A65

The Senate too took the position that the reason for giving

compensation above basic per diem was “to provide just

compensation to freight car owners by recognizing the

value of the use of such equipment * ° *.” §S. Rep. No.

386, supra, at 4.

Inexplicably, Representative Staggers stated that the

House amendment to the Senate bill rejected this concept

of use value since it was “essentially ° ° ° an approach to

the problem through penalties rather than through incen-

56. (Cont'd. )

use of the vehicle which is lost by the.owner when used or

appropriated by other carriers, be included as a factor by the

Commission in determining the per diem charge. This would

eliminate the owner's loss, the user’s gain, and provide an

incentive for increased car ownership.

ICC, Seventy-Fimst ANNuAL Report 137 (1957). The language

of the bill pr by the Commission closely parallels this ex-

Sore see S. Rep. No. 386, 89th Cong., Ist As 2 (1965), and

CC Chairman Webb appeared to endorse this explanation of the

phrase “just and reasonable compensation” when he testified:

[T]he bill [would] raise the per diem charge so as to return

some profit to the owner of the car and thereby encourage an

increase in car supply.

Hearings, supra note 11, at 35 (emphasis ae) The “use value”

or the profit to be “returned” would apparently be a value pro-

portional to the net revenue which the non-owning user had gained

through “appropriation” of a foreign car. An extended explanation

of the function of per diem given by the general counsel of Bur-

lington Lines, the major proponeut of IPD, corroborates this view.

See generally Hearings, supra note 11, at 140-142; Hearings, supra

note 40, at 91. Presumably any level of per diem above basic per

diem would provide incentives to chronic borrower roads to buy

cars since, with ownership costs approximately equal to basic per

diem, more net revenue would be returned if an owned car was

used wherever possible. The — side of this proposition is

that creditor roads would have financial incentives to invest more

heavily in cars if the debtors did not increase their fleets since the

total return to car ownership would be increased. In the XF

proceeding, however, while owners of XF cars would undoubtedly

enjoy increased returns, there is no evidence that XF debtors are

making any revenue through appropriation of XF cars unless the

word “appropriation” is tortured to apply to the period in which

XF debtors are fulfilling their statu obligation to terminate XF

shipments. Thus the “use value” of which XF owners are deprived

is zero, and the incentive per diem should similarly be zero.

ae os

A66 Appendix B

tives.” 112 Conc. Rec. 10435 (1966). This statement

notwithstanding, there is nothing in the legislative history

of the House amendment which gives any other credible

reason for compensating freight car owners for the use of

their cars in time of shortage. This is especially so today

when the Commission has set basic per diem rates in ac-

cord with the standards set out in Section 1(14)(a) so

that the criticism often voiced in the House debate—that

the basic per diem did noi give a sufficient return on value

to the owners of freight cars—can no longer be validly

made.’ Thus, while it is possible that the House meant

to confer power on the Commission to increase the finan-

57. House members were fond of repeating variants of the

phrase “under present per diem rules, it is cheaper to rent a car

than to own one.” See, eé.g., pe. 22-23 supra. This apparently

referred to a belief that per diem rates were “barebones” rates

which did not really cover the costs associated with freight car

ownership. While this may or may not have been the case, it

seems clear that no amendment to §1(14)(a) was needed to

authorize the Commission to establish reasonable, compensatory

per diem rates. Palmer v. United States, supra note 15, is not to

the contrary since that case treated the issue as whether the

Commission had

power to fix compensation for the use of cars as a regulatory

measure, solely for the purpose of increasing effici in the

oS a a nae a ae —

- of car ownership, expenses of maintenance and operation, a

a reasonable profit.

75 F.Supp. at 66 (emphasis added). The issue of whether the

increase was justifiable as com tion was not before the court.

Id. at 76. Moreover, ma 5 taggers, in explaining the House

amendment, which expressly defined basic per diem to include “a

fair return on value, stated that this language was merely a

restatement “in clear language of what the courts have held to be

the limitations of the law as it is now written.” 112 Conc. Rec.

10435 (1966). See also Hearings, supra note 40, at 52 (testimony

of ICC Chairman Webb) (“Oh, we have that ong | [to fix a

compensatory per diem rate] at the present time, and we have

always had it.”). If the only purpose of the amendment was to

force the Commission to set diems to include a fair return on

value, then the Commission already done this, see Per Diem

Report, supra note 7, at 211-214, and any additional increment of

—— for XF car owners would appear a fortiori to be

excessive.

Appendix B A67

cial return to car owners without regard to whether non-

owners were using foreign cars improperly, such a con-

struction is unlikely since there is no express statement to

this effect in either the House report or the debates on the

House bill and since this construction would be inconsist-

ent with the House’s retention of the Senate’s exemptions

for roads which were net per diem debtors and yet which

had the correct number of cars."

Finally, the history of the 1976 amendment to Section

1(14)(a) also supports the view that IPD is proper only

where railroads are using foreign boxcars in times of short-

age. That amendment added a preamble to Section 1

(14)(a) which reads: “It is the intent of Congress to en-

courage the purchase, acquisition, and efficient utilization

of freight cars.” Pub. L. No. 94-210, 94th Cong., 2d Sess.

§ 212, 90 Stat. 46-47 (1976). While this language would

support a very broad reading of the Commission’s author-

ity to impose IPD, the legislative history of this preamble

discloses that the concern of Congress was to authorize

and encourage a remedy for improper use of foreign freight

cars: “The first change [the preamble] provides that the

intent of Congress is to encourage ownership of cars and

discourage the use of cars not owned.” H.R. Rep. No. 725,

94th Con., Ist Sess. 73 (1975) (emphasis added).

Further evidence that IPD cannot be imposed except

as a corrective for disincentives to freight car ownership

associated with the national car-pool system can be found

in the Commission’s interpretation of the shortage require-

ment in all other IPD proceedings.” The Commission’s

58. I.e., such roads, by virtue of being net diem debtors

would oe be using other roads’ cars, tnescher desstvinn them

of revenue. the purpose of IPD was simply to increase the

return on car owners investment, then no such exemption would

be required and, indeed, such an exemption would counter-

productive.

59. “The construction of a statute by those charged with its

execution” is an important factor to be considered in divining the

meaning of a statute. Red Lion Broadcasting Co. v. FCC, 395

U.S. 367, 381 (1969). This is especially so here, where the legis-

lation was proposed by the agency charged with its execution and

os mnaetenaademiicantina = — Anew

A68 Appendix B

attempt to impose a system like IPD in 1947 was predi-

cated on evidence that cars were not being properly re-

turned to the lines of their owners. Car shortages, while

providing the need to take corrective action, were inci-

dental to the form of regulatory action proposed.” The

first three Commission IPD reports after the 1966 amend-

ment * focused almost exclusively on the question whether

there was a nationwide shortage of XM boxcars. How-

ever, a contemporaneous Commission Report, [nvestiga-

tion of Adequacy of Railroad Freight Car Ownership, Car

Utilization, Distribution, Rules and Practices, 335 ICC 264

(1969), demonstrated conclusively that the factors of poor

utilization and non-owner use of XM cars existed, see id.

at 294-295, and accounts for the absence of any Commis-

sion discussion of this problem in the IPD reports.

In the first IPD report to discuss in detail the evi-

dence needed to justify imposition of IPD, Incentive

Per Diem Charges—1968, 349 ICC 303 (1975), issued

only months before the XF car rules, the Commission

declined to extend IPD to covered hopper cars, stating

that the record did not meet the evidentiary standards

for imposing IPD which it defined as follows:

* © © [Wle are amenable to an expansion of the

- incentive per diem program to cars other than

general service boxcars if (1) a record is made show-

59. (Contd. )

where the legislative history indicates that yy had no ~—

views on the effi of the approach suggested, but merely want

to ensure that the Palmer case presented no

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