Opinion ID: 395213
Heading Depth: 2
Heading Rank: 2

Heading: The Directed Service Orders

Text: 8 In order to protect the public interest in adequate uninterrupted rail service, the ICC has authority to direct a rail carrier (the directed carrier) to transport traffic over the lines of another carrier (the defaulting carrier) for a limited period (not to exceed 240 days) when the ICC determines that the defaulting carrier cannot transport the traffic offered to it because, inter alia, its cash position makes continuing operations impossible. 49 U.S.C. § 11125(a) (1979). 4 The ICC then issues instructions to the directed carrier covering the handling, routing and movement of rail traffic on the lines of the defaulting carrier. The Commission is prohibited, however, from ordering service which would violate federal railroad safety standards or would substantially disrupt the directed carrier's own rail operations. 49 U.S.C. § 11125(b)(2)(A) and (B) (1979). The directed carrier is responsible for accounting to the ICC for the cost of direct service 5 but is entitled to government reimbursement for all expenses which exceed directed service revenue. 49 U.S.C. § 11125(b)(5) (1979). 9 On September 26, 1979, the ICC issued Directed Service Order No. 1398 which authorized KCT to provide rail service over the Rock Island lines for a 60-day period. The Commission based its order upon the finding that the Rock Island's cash position, independent of the strike situation, made continuing operations impossible. An estimated $30 million was needed to restore full service to the Rock Island following the strike, and this figure did not include approximately $4 million in wages owed to employees for services performed prior to ... (the) strike, ... $22.4 million in invoices payable, $11 million of which (were more than) 60 days (overdue) and an anticipated $35 million in costs of track rehabilitation necessary to comply with minimum federal safety standards. The Department of Transportation refused to provide additional federal assistance under the Emergency Rail Services Act and, without such aid, the Rock Island Trustee lacked sufficient cash to resume full operations in time to meet the immediate needs of Rock Island shippers. Therefore, the ICC ordered KCT to service virtually all Rock Island traffic during the initial 60-day period with priority being given to commuter lines and grain shipments. 10 Instructions for implementing and administering directed service operations were also included in the Commission's order. KCT was required to compensate the Trustee for the use of available Rock Island locomotives, freight cars, fuel and maintenance equipment. 6 The order relieved KCT of any rent obligation for the use of Rock Island track and facilities unless the directed service operation proved profitable. The ICC had determined as a matter of policy that directed service confers substantial benefits on the defaulting carrier sufficient to discharge any rent obligation in the usual situation where a directed carrier's costs exceed the revenues generated by the service. 7 In the instant case, the ICC concluded that directed service would provide at least three major benefits to the Rock Island: 11 1) The Rock Island would avoid incurring any additional operating losses which would further impair the interests of the creditors and shareholders; 12 2) KCT would maintain and possibly upgrade Rock Island lines and facilities during the directed service period; and 13 3) KCT would assume employee obligations for those Rock Island employees hired to perform directed service. 14 In the highly unlikely event that KCT's directed service operations showed a profit, the ICC ordered KCT to reimburse the Trustee for the use of Rock Island lines and facilities. 8 15 Directed Service Order No. 1398 additionally allocated responsibility for the maintenance and rehabilitation of Rock Island lines and equipment. For the period of directed service, KCT was accountable for routine maintenance of Rock Island freight cars and locomotives 9 and for minor rehabilitation of Rock Island lines, rights of way, roadway structures and related facilities. 10 No substantial repairs could be undertaken without prior ICC authorization although the order outlined procedures to obtain such approval. 16 KCT commenced directed service operations over the Rock Island lines on October 6, 1979. During the 60-day period which followed, the ICC conducted extensive hearings to determine which Rock Island lines provided essential service and whether directed service should be continued along those designated routes. On November 30, 1979, the ICC issued a second directed service order extending KCT operations on Rock Island lines for an additional 90 days to avoid a wide array of economic and transportation dislocations. Although the ICC concurred with the assessment of the Department of Transportation and the reorganization court that additional time was needed to develop long range solutions to the Rock Island's financial crisis, the Commission chose not to extend directed service for the maximum 180 days allowed by law. Noting Congressional directives to economize on directed service whenever possible, 11 the ICC considered the 90-day period adequate to permit the development of reorganization plans. 12 17 By February 22, 1980, however, it was apparent that more time was needed to arrange a permanent solution to the Rock Island's situation. The Trustee's plan for reorganization had been rejected by the district court, which instead directed the Trustee to commence preparation of a preliminary plan of liquidation. The absence of such a plan temporarily impeded progress in the sale and disposition of Rock Island lines and required another extension of directed service operations. In addition, Congress had requested time to develop labor protection legislation which was expected to facilitate the purchase of Rock Island lines by other carriers, and the Department of Transportation needed extra time to plan for interim and post-liquidation operation of essential Rock Island lines. The ICC, therefore, ordered the continuation of directed service operations for 21 days but warned that the extension would totally exhaust its directed service appropriation of $80 million. Thus, the ICC would be financially unable to extend directed service after March 23, 1980. 18 At the end of directed service operations, the Rock Island's cash position had not materially improved, and the railroad's fiscal emergency remained acute. While directed service did alleviate the drain on Rock Island financial resources, it was not designed to infuse new capital into the system or resolve the railroad's underlying financial problems. On April 24, 1980, in response to an order of the reorganization court, the Trustee filed an application with the ICC to abandon the entire system. In late May, the ICC approved the request, and on June 2, 1980, the reorganization court authorized the abandonment of the Rock Island. 19 The Trustee, creditors and shareholders of the Rock Island argue on this appeal that the ICC directed service orders constitute a taking of private property for public use which requires just compensation under the fifth amendment. This argument is based on the premise that the Rock Island's common carrier obligation was terminated when the railroad's financial condition made it impossible to continue operations. Cashlessness, under this theory, represents a necessary exception to the statutory requirement of administrative approval for the abandonment of rail operations and constitutionally entitles the railroad to withdraw its property from rail operations. Petitioners therefore contend that in the absence of any obligation to maintain service, the government cannot take control of the line and order service through another carrier without providing just compensation for the use of its lines and facilities to the cashless railroad. We conclude, however, that cashlessness did not absolve the Rock Island of its carrier obligations, and that the direction of service, under the circumstances of this case, was not a taking requiring compensation under the fifth amendment. Further, we believe, although we do not decide, that to the extent a taking may have occurred here, benefits were conferred on the Rock Island providing it with adequate compensation.