Opinion ID: 338424
Heading Depth: 2
Heading Rank: 4

Heading: Directed Service and the Fifth Amendment

Text: 37 Essential to L&NE's argument that the ICC's denial of rent, in the usual case, to the other carrier deprives the other carrier of just compensation as required by the fifth amendment, is the assumption that directed service constitutes a taking within the meaning of that constitutional provision. We decline to accept that assumption. The line between a taking of property for which just compensation must be provided and a legitimate exercise of regulatory authority by the government, which may result in a loss but which does not require compensation, is a thin one, indeed. 31 And we recognize that on which side of this line directed service falls may be a close and difficult question. Nevertheless, we are satisfied from a review of the obligations imposed on a railroad to continue service until receiving Commission approval to abandon, even when continuation results in not unreasonable losses, and from an examination of the effects on the other carrier of directed operations that directed service, when unprofitable and as currently implemented by the ICC, does not constitute a taking for which compensation in the form of rental to the other carrier for the use of its lines must be provided. 32 38 Fundamental to our holding are two conclusions: (1) that the ICC has the power to order a carrier that has not obtained a certificate of abandonment under 49 U.S.C. § 1(18) 33 to continue to provide service for as much as 240 days, the maximum period of directed service, despite a cash deficiency or operating losses 34 or, indeed, a court order to the contrary; 35 and (2) that such action by the Commission would not constitute a taking for which compensation must be provided, but rather would be merely a postponement of the carrier's right to abandon. 36 If the ICC could take the above recited action without such action constituting a taking, we think it follows directly that it could place another carrier on the lines of the carrier unable or unwilling to continue service for a limited period without effecting a taking within the meaning of the fifth amendment. 39 In a line of cases in the 1920's, the Supreme Court did hold that if a railroad be taken to have granted to the public an interest in the use of the railroad it may withdraw its grant by discontinuing the use when that use can be kept up only at a loss. Brooks-Scanlon Co. v. Railroad Comm'n, 251 U.S. 396, 399, 40 S.Ct. 183, 184, 64 L.Ed. 323 (1920); see Railroad Comm'n v. Eastern Texas R. R., 264 U.S. 79, 85, 44 S.Ct. 247, 68 L.Ed. 569 (1924); Bullock v. Florida ex rel. Railroad Comm'n, 254 U.S. 513, 520-21, 41 S.Ct. 193, 65 L.Ed. 380 (1921). While these decisions have never been repudiated by the Supreme Court, and this court does not dispute their fundamental principles, the rights of the owners of railroads have never been considered absolute; they are qualified by consideration of the public's interest in continued essential rail service. 37 Thus, a railroad may not abandon service without prior Commission approval, New Haven Inclusion Cases, 399 U.S. 392, 461, 90 S.Ct. 2054, 26 L.Ed.2d 691 (1970); In re Central R. R. of New Jersey, 485 F.2d 208, 214 (3d Cir. 1973) (en banc), cert. denied, 414 U.S. 1131, 94 S.Ct. 870, 38 L.Ed.2d 755 (1974), because prior administrative review assures that an agency with substantial expertise . . . will provide that the appropriate amalgam of public concerns for rail transport and private rights of property is achieved. Id. at 215. Second, a railroad or its estate may be made to suffer interim reasonable losses, without compensation, for a reasonable period of time during which solutions accommodating the public and private interests can be devised that is, the exercise of the rights and remedies of the owners of the carrier or its estate may be postponed for a reasonable length of time without effecting a taking. 38 New Haven Inclusion Cases, supra at 493, 90 S.Ct. 2054; In re Penn Central Transportation Co., 384 F.Supp. 895, 919 (Regional Rail Reorganization Special Court 1974); see RFC v. Denver & Rio Grande Western R. R., 328 U.S. 495, 535-36, 66 S.Ct. 1282, 90 L.Ed. 1400 (1946); Continental Illinois Nat'l Bank & Trust Co. v. Chicago, Rock Island & Pacific Ry., 294 U.S. 648, 677, 55 S.Ct. 595, 79 L.Ed. 1110 (1935). 40 The Supreme Court's decision in the New Haven Inclusion Cases is instructive in this respect. 39 While awaiting implementation of a plan of reorganization and inclusion in the Penn Central system, the New York, New Haven & Hartford Railroad had been required to continue to provide rail service and as a result to incur substantial losses. 40 In holding that the forced deficit operation did not constitute a taking for which compensation was required, the Court stated, 399 U.S. at 491-92, 90 S.Ct. at 2109:The rights of the bondholders are not absolute. As we have had occasion to say before, security holders 41 cannot be called upon to sacrifice their property so that a depression-proof railroad system might be created. But they invested their capital in a public utility that does owe an obligation to the public. . . . (B)y their entry into a railroad enterprise, (they) assumed the risk that in any depression or any reorganization the interests of the public would be considered as well as theirs. Reconstruction Finance Corp. v. Denver & R. G. W. R. Co., 328 U S. 495, 535-536, 66 S.Ct. 1282, 90 L.Ed. 1400. 42 In our view, the New Haven Inclusion Cases dictate a holding that directed service does not constitute a taking, at least in the factual circumstances presented here. Unlike New Haven, where the railroad was required to continue to operate for a period of six years, directed service can last only 240 days. More importantly, whereas in New Haven the carrier was forced to incur substantial operating losses, the other carrier during a directed operation sustains no operating losses because the directed carrier transports the other carrier's traffic for it. Such was the case with L&NE which, as a result of the directed service, was spared losses it might otherwise have been legally required to incur. Finally, the other carrier's properties are maintained and in some cases upgraded during the directed operation. 41 These factors convince us that rather than suffering a diminution of their collateral, the most that the owners of a carrier suffer as a result of directed service is a postponement of their remedy of abandonment, for which no compensation is necessary. See Continental Illinois Bank & Trust Co. v. Chicago, Rock Island & Pacific Ry., supra, 294 U.S. at 677, 55 S.Ct. 595. 43 L&NE counters that all of the above cases are distinguished because they dealt with erosion takings where the railroad's estate is eroded by deficit operations and not with conveyance takings where the physical properties of the carrier are taken. Directed service, it contends, involves a conveyance taking. The Supreme Court did recognize the distinction between an erosion taking and a conveyance taking in the Regional Rail Reorganization Act Case, 419 U.S. 102, 95 S.Ct. 335, 42 L.Ed.2d 320 (1974). 42 Also, in deciding the question whether a fifth amendment taking has occurred, many courts seem to have considered as determinative the physical occupation by the government of property belonging to the claimant. 43 44 While we do not discount the importance of this factor, we eschew such a formalistic approach to the takings question. Although as a conceptual matter, ordering a carrier to continue operations for 240 days may differ from placing another carrier on those lines for 240 days, we do not think this possible difference dictates a holding here that the latter constitutes a taking but the former does not. It might be anomalous indeed if the ICC could order forced deficit operations by a railroad and not effect a taking, but could not order another carrier to discharge those same duties, thereby in the usual case saving that railroad operating costs, without such action constituting a taking. The ICC does not take title to the other carrier's property during directed service. The other carrier's rights to sell or dispose of its property for non-railroad use are no more qualified during directed service than they are normally since prior ICC approval is required in either case. 44 45