Opinion ID: 421082
Heading Depth: 1
Heading Rank: 3

Heading: lamoille valley's request for protective conditions

Text: 60 The standard of review for the ICC's decision is well established. The Commission's interpretation of its governing statute, like that of any regulatory agency, is entitled to deference. Federal Election Commission v. Democratic Senatorial Campaign Committee, 454 U.S. 27, 32, 102 S.Ct. 38, 42, 70 L.Ed.2d 23 (1981). We must accept the Commission's interpretation if it is sufficiently reasonable, even if it is not the only reasonable one or even the reading the court would have reached on its own. Id. at 39, 102 S.Ct. at 46; see National Wildlife Federation v. Gorsuch, 693 F.2d 156, 166-71 (D.C.Cir.1982). 61 The ICC's substantive conclusions are subject to review under the substantial evidence test of the Administrative Procedure Act, 5 U.S.C. § 706(2)(E). See Illinois Central Railroad v. Norfolk & Western Railway, 385 U.S. 57, 66, 87 S.Ct. 255, 260, 17 L.Ed.2d 162 (1966). Under that test, the Commission's factual findings must be supported by enough evidence to justify ... a refusal to direct a verdict the other way in a case tried to a jury. Id. We also expect that when the facts are uncertain, the agency will so state and go on to identify the considerations [it] found persuasive. Industrial Union Department, AFL-CIO v. Hodgson, 499 F.2d 467, 476 (D.C.Cir.1974). Moreover, the Commission must consider[ ] the relevant factors and articulate[ ] a rational connection between the facts found and the choice made. Baltimore Gas & Electric Co. v. Natural Resources Defense Council, Inc., --- U.S. ----, ----, 103 S.Ct. 2246, 2257, 76 L.Ed.2d 437 (1983); see Sierra Club v. Costle, 657 F.2d 298, 323 (D.C.Cir.1981). 62 Having assured ourselves that the agency has fully considered an issue and given reasons for its conclusions, we have only limited power to second-guess those reasons. We can and do insist that the agency's reasons and policy choices do 'not deviate from or ignore the ascertainable legislative intent.'  Small Refiner Lead Phase-Down Task Force v. United States Environmental Protection Agency, 705 F.2d 506, 520 (D.C.Cir.1983) (quoting Greater Boston Television Corp. v. FCC, 444 F.2d 841, 850 (D.C.Cir.1970), cert. denied, 403 U.S. 923, 91 S.Ct. 2233, 29 L.Ed.2d 701 (1971)). Beyond that, however, [i]t is not for the court to strike down conclusions that are reasonably drawn from the evidence and findings in the case. Illinois Central, 385 U.S. at 69, 87 S.Ct. at 262; see [229 U.S.App.D.C. 30] Seaboard Coast Line Railroad v. United States, 599 F.2d 650, 652 (5th Cir.1979).
63 The Lamoille Valley operates a single 98-mile-long east-west line between St. Johnsbury, Vt. in the east (where it connects with the Maine Central) and Swanton, Vt. in the west (where it connects with the Canadian National). It depends for financial viability on overhead traffic which it carries from the Maine Central to the Canadian National or vice-versa. The merger of the Maine Central with the Boston & Maine gives Guilford an incentive to divert traffic from the Maine Central/Lamoille Valley/Canadian National line to the competing Maine Central/Boston & Maine line. 16 64 Guilford estimated that its diversion efforts would reduce Lamoille Valley's gross revenues by about $180,000, based on 1980 traffic data. See Boston & Maine Merger app. C, 366 I.C.C. at 370. Lamoille Valley challenged Guilford's assumptions and counterestimated traffic diversion of as much as $300,000. 17 The ICC found flaws in Guilford's analysis and concluded that Guilford's diversion estimates--both for the Lamoille Valley and for other carriers--are understated and can be considered as bare minimum estimates of traffic and revenue diversions. Id. at 372. 65 For the Lamoille Valley, the ICC found it unnecessary to make its own estimate of traffic diversion. It concluded that [e]ven using [Guilford's] figures, which we have found to be minimum estimates, [Lamoille Valley] stands to lose ... over 15 percent of its 1980 gross revenue. Such a financial blow would be devastating to [Lamoille Valley]. Id. at 353. 66 Despite this bleak outlook, the ICC denied Lamoille Valley's request for protective conditions because Lamoille Valley's services were not essential. Lamoille Valley's overhead service was not essential since a number of other connections to the Canadian routes exist. Id. at 354. Moreover, trucks could substitute for Lamoille Valley's local service. While truck service would undeniably cost more, shippers sometimes used trucks even now and no shippers would be forced out of business if they had to rely exclusively on trucks: 67 Even assuming that ... there would be a cessation of operations, we cannot conclude that essential services would be affected. It appears from the evidence presented by shippers ... that they can be served by motor carriers. All three supporting shippers ... are either presently being served in part, or have been served previously, by truck.... While motor carrier service is more costly, it is a reasonably adequate substitute for [rail] service. None of the supporting shippers has indicated that it would be forced out of business if [Lamoille Valley] discontinued service. 43 68 Id. at 353. 69 Relying on this passage, Lamoille Valley asserts that the Commission used a business termination test to determine if Lamoille Valley's local service was essential, and that this test does not comply with the statutory directive that the ICC consider adequacy of transportation. 49 U.S.C. § 11,344(b)(1)(A). 18 Lamoille Valley also claims that the ICC failed to analyze the reduction in competition for east-west traffic from the Lamoille Valley going out of business. ICC counsel replies that the Commission, in finding that Lamoille Valley's [229 U.S.App.D.C. 31] services were not essential, relied solely on the fact that the shippers were now or recently had been served by truck. Counsel asserts that the Commission has never adopted or recommended a business termination test and that the Commission's reference to shippers being forced out of business was mere dictum. 19 As for possible reduction in competition from the Lamoille Valley going out of business, the Commission evaluated it and found it to be negligible.
70 The ICC's policy statement on railroad mergers explains that there are two potential results from consolidations which would ill serve the public--reduction of competition and harm to essential services. 49 C.F.R. § 1180.1(c)(2) (1982). The Commission defines essential services as: 71 A service is essential if there is a sufficient public need for the service and adequate alternative transportation is not available. 72 Id. § 1180.1(c)(2)(ii). The ICC treats the existence of harm to competition or to essential services as a threshold test for when conditions may be needed to reduce the adverse effects of a merger. It will never impose protective conditions unless a merger will cause significant reduction in competition or harm to essential services. If a merger will reduce competition or harm essential services, the Commission will decide whether conditions are desirable by balancing the costs and benefits of imposing conditions. This subsection considers the ICC's use of conditions to protect essential services; subsection D considers the ICC's use of conditions to preserve competition. 73 In general, the ICC's use of the essential services test as a threshold test for when protective conditions deserve further consideration is unobjectionable. Leaving aside the requirement--not at issue in this case 20 --of a sufficient public need, the ICC defines an essential service as one for which an adequate alternative ... is not available. This definition simply restates the statutory requirement that the ICC consider adequacy of transportation to the public. 49 U.S.C. § 11,344(b)(1)(A). 21 Accord Brotherhood of Maintenance of Way [229 U.S.App.D.C. 32] Employees v. ICC, 698 F.2d 315, 319 n. 14 (7th Cir.1983) (Essential services are basically those the deprivation of which would result in inadequate service to the public.); cf. Missouri-Kansas-Texas Railroad v. United States, 632 F.2d 392, 400-04 (5th Cir.1980) (approving the ICC's use of an earlier definition of essential services), cert. denied, 451 U.S. 1017, 101 S.Ct. 3004, 69 L.Ed.2d 388 (1981). 74 It remains to consider whether the ICC properly applied the essential services test to Lamoille Valley. The ICC gave three reasons for concluding that there were adequate alternatives to Lamoille Valley's rail service. First, all three shippers who testified in favor of Lamoille Valley's request for protective conditions are either presently being served in part, or have been served previously, by truck. Furthermore, one shipper, E.T. & H.K. Ide Co., has access to [Canadian Pacific] rail in St. Johnsbury, [Vt.] Finally, no shipper claimed that it would be forced out of business if [Lamoille Valley] discontinued service. Boston & Maine Merger, 366 I.C.C. at 353.
75 The Commission's first reason for believing that Lamoille Valley's service is not essential has some probative force. It is plausible that a shipper formerly served by truck can again use trucks and that a shipper now served partially by truck can adequately be served entirely by truck. We must still determine, however, whether the record supports the Commission's belief that the individual shippers now served by the Lamoille Valley can be adequately served by truck. 76 We pass quickly over the one shipper, E.T. & H.K. Ide Co., which has access to Canadian Pacific's rail service, for that service is surely an adequate substitute for Lamoille Valley's service. For a second shipper, Lamoille Grain, the record shows that the price difference between rail and truck service is small. Indeed, as recently as 1980, Lamoille Grain switched from rail to truck because truck rates were slightly lower. It switched back only after Lamoille Valley reduced its rates to make them competitive with truck rates. 22 Thus, Lamoille Grain can be served adequately by truck. 77 The third shipper, Eastern Magnesia Talc Co., presents a much harder case. It operates a talc mine from which it ships talc by truck to some nearby locations and by rail (usually 100-ton hopper cars) to more distant locations. Eastern Magnesia Talc explained to the ICC that the cost of loading to truck, hauling to a [railhead], unloading, ... and loading to railroad cars would be prohibitively expensive and would effectively prevent it from serving distant locations. 23 78 In light of Eastern Magnesia Talc's uncontradicted statement about the need for rail service for a substantial part of its business, the Commission could not reasonably conclude that because Eastern Magnesia Talc uses trucks for part of its business, trucks are an adequate substitute for rail for the remainder of its business. We turn therefore to the Commission's alternate reason for concluding that Eastern Magnesia Talc could switch to truck service--that Eastern Magnesia Talc had not asserted that it would be forced out of business if it loses rail service.
79 As an initial matter, and despite Commission counsel's denial, it seems clear to us that the ICC is indeed using a business termination test to determine whether a substitute for rail service is adequate. The ICC's explanation, though terse, is unambiguous:[229 U.S.App.D.C. 33] While motor carrier service is more costly, it is a reasonably adequate substitute for [rail] service. None of the supporting shippers has indicated that it would be forced out of business if [Lamoille Valley] discontinued service. 80 Boston & Maine Merger, 366 I.C.C. at 353 (footnote omitted). Similarly, in approving Guilford's acquisition of the Delaware & Hudson, the ICC explained that the north-south service provided by Canadian National was not essential because, in part: 81 Nowhere in the record has it been shown that any of [its] customers would go out of business if [Canadian National's] rail service would be terminated. 82 Delaware & Hudson Merger, supra note 1, 366 I.C.C. at 420. The ICC has used similar phraseology in several recent cases approving abandonment of rail service. See, e.g., Missouri Pacific Railroad--Abandonment--Between Port Barre & Jefferson Island, Docket No. AB-3 (Sub-No. 27), slip op. at 5 (July 21, 1982) (not printed) (protesting shipper did not contend that the loss of rail service would put it out of business). 24 83 We can find no justification in the statute for use of a business termination test to determine whether alternative service is adequate, and indeed neither the ICC nor Guilford offers any. 25 The legislative history does not explain what Congress meant when it instructed the ICC to consider adequacy of transportation to the public. 26 Thus, we must give the word adequate its ordinary meaning. 84 A refusal to consider protective conditions unless alternative service is so expensive that shippers will be forced out of business does not comport with the statutory directive to take into account adequacy of transportation. The term adequate, as the Supreme Court noted long ago in a similar context, is a relative expression. Atlantic Coast Line Railroad v. Wharton, 207 U.S. 328, 335 (1907). For a shipper, loss of a service that it currently uses generally portends some decrease in profit, which can be anywhere from minor to devastating. If the additional cost involved in using an alternative service is small, the ICC need not be concerned. At the other extreme, if the added cost is so grave as to force bankruptcy, the alternate service is clearly inadequate, at least for that shipper. Somewhere between these two extremes, we pass from adequate to inadequate service. Within reason, the Commission has discretion to draw the dividing line as it sees fit. The business termination test, however, is too far to one extreme to be a reasonable definition of adequacy. 85 In seeking on remand to draw a better line, the Commission should inquire into how much more costly a proposed alternative is and whether loss of existing service will cause substantial harm to the local economy or to shippers who now use that service. With regard to individual shippers, if a shipper can use alternate service and still earn a fair return on capital, sufficient to generally maintain current operations and justify reinvestment of earnings, the [229 U.S.App.D.C. 34] alternate service would seem adequate. The same is true if the shipper can switch production to another plant without serious harm to the local economy. On the other hand, if a shipper cannot earn a fair return, or can do so only by sharply curtailing operations, the Commission probably ought to inquire further into the desirability of protective conditions. It is worth stressing that the essential services test is not a test for imposing conditions, but a test for when it is worthwhile to consider doing so. The ICC may do well, in close cases, to err on the side of reaching the merits of the underlying question whether protective conditions are in the public interest. 86 Sometimes, the profitability of individual shippers may be hard to assess, or a railroad may serve a large number of small shippers, insignificant individually but important in aggregate. The Commission may then want to consider whether most shippers in a particular industry rely on rail service. If not, that suggests that alternate transportation is probably an adequate substitute for shippers in that industry. If most shippers do rely on rail service, then alternate service is probably not an adequate substitute. 87 The Commission will also need to assess the importance of individual shippers. If the major shipper or shippers on a rail line can switch to truck, the Commission can reasonably find that truck service is adequate even if a few minor shippers cannot switch. Conversely, alternate service may be inadequate if a major shipper whose facility is important to the local economy cannot switch, even if most shippers can use the alternate service. Again, we urge the Commission, in cases of doubt, to proceed beyond the threshold essential services stage of its inquiry. 88 We note that our interpretation of adequacy of alternative transportation as meaning more than just not going out of business is consistent with past ICC interpretations. While there is no useful case law involving protective conditions for mergers (until recently, the ICC imposed a set of standard conditions on virtually every rail merger 27 ), abandonment cases provide a close analogy. 28 The abandonment cases do not define adequacy, but they do show that the ICC, in determining the public need for rail service, has inquired into the relative costs of rail and truck service. For example, in Northwestern Pacific Railroad Abandonment (Portion) Sausalito Branch, 312 I.C.C. 783, 789 (1962), the Commission found that abandonment was not warranted even though most of the shippers objecting to the abandonment use motortrucks for part of their shipments. The Commission noted that a distiller would be handicapped by the narrowing of the area in which it could purchase raw materials; a dealer in heavy diesel engines would incur added expense in shipping disassembled [229 U.S.App.D.C. 35] engines by truck and assembling them at destination; and a sailboat manufacturer would incur 40 to 50 percent higher [costs] in shipping sailboats by truck. Id. The Commission did not insist that the affected shippers claim they would be forced out of business by loss of rail service. 29 89 Recent court decisions are in accord. See Georgia Public Service Commission v. United States, 704 F.2d 538, 545 (11th Cir.1983) (reversing ICC approval of a rail abandonment): 90 The uncontroverted testimony ... is that ... the additional transportation costs [of truck service] would be prohibitive .... If the phrase alternative [transportation] is to have any meaning it must be interpreted to include transportation both logistically and economically feasible. 91 See also Indiana Sugars, Inc. v. ICC, 694 F.2d 1098, 1101 (7th Cir.1982) (abandonment would inflict serious hardships on sugar company that depended on rail for much of its inbound traffic).
92 We conclude that the ICC misconstrued its governing statute and failed to justify its belief that Eastern Magnesia Talc can be served adequately by trucks. Therefore, we remand to the ICC to reconsider Eastern Magnesia Talc's ability to switch to trucks. If Eastern Magnesia Talc cannot switch, the Commission will also need to consider two questions this opinion does not address--whether the needs of a single shipper make Lamoille Valley's service essential and, if so, whether the protective conditions sought by Lamoille Valley are in the public interest. 30 We order as follows: As discussed in part II supra, the merger as a whole is approved, but the ICC shall expeditiously consider whether it is in the public interest to impose protective conditions in order to preserve the Lamoille Valley's service. 31
93 In reviewing a merger, the ICC must consider not only adequacy of transportation but also whether the proposed [229 U.S.App.D.C. 36] transaction would have an adverse effect on competition among rail carriers in the affected region. 49 U.S.C. § 11,344(b)(1)(E). The ICC found that the Maine Central and the Boston & Maine do not operate any parallel lines, but meet end-to-end. Boston & Maine Merger, 366 I.C.C. at 341. Therefore, the merger would not directly reduce competition, except for a minor impact on shippers in Portland, Maine (where the two rail systems meet). Id. The Commission found that, on the contrary, by strengthening the Boston & Maine, the merger would enhance competition for east-west traffic between the Boston & Maine route and the currently dominant Canadian National and Canadian Pacific routes. Id. at 340-41. 94 The Commission recognized that [a]n end-to-end consolidation may allow the [combined] system to divert traffic from remaining competitors and thereby foreclose their opportunity to compete in the marketplace. Id. at 341 n. 35. It concluded, however, that the possible demise of the Lamoille Valley would have negligible competitive impact because a number of other connections to the Canadian routes exist. Id. at 354. 95 Lamoille Valley asserts that the Maine Central does in fact compete with the Boston & Maine for east-west traffic. 32 We agree. Traffic from Maine can travel west over four routes: (1) over the Canadian National (which connects with the Maine Central at Danville and Yarmouth Junctions, Maine) to Montreal and points west; (2) over the Maine Central's Mountain Division line to St. Johnsbury, Vt., and from there over the Lamoille Valley to the Canadian National to Montreal and points west; (3) over the Maine Central's Mountain Division line to St. Johnsbury and from there over the Canadian Pacific to Montreal and points west; and (4) over the Boston & Maine to Albany and points west. Thus, the Maine Central's Mountain Division line competes with the Boston & Maine's east-west line. 96 At present, the Maine Central has an incentive to route traffic over its own long haul (routes 2 and 3), in preference to the Canadian National route or the Boston & Maine route. After the merger, Guilford will prefer to route traffic to its new long haul--the Boston & Maine route--in preference to the other three routes. This traffic shift will lead to the Boston & Maine gaining revenue ($3.2 million annually according to Guilford's traffic study) while the Maine Central loses revenue ($1.9 million annually according to Guilford's study) due to decreased traffic over its Mountain Division line. See Boston & Maine Merger app. C, 366 I.C.C. at 370. We must therefore reject the ICC's statement that the Maine Central and the Boston & Maine do not compete with each other. 33 97 Nevertheless, we believe that the record supports the ICC's belief that the primary competitive impacts of the [merger] are favorable. Id. at 340. The east-west route from Maine to the Midwest is over 1000 miles long. Currently, the Canadian National and the Canadian Pacific are the dominant carriers. The Boston & Maine's more circuitous route provides minimal competition, especially given the Boston & Maine's sorry finances and the Maine Central's incentive to route traffic away from the Boston & Maine and onto its own Mountain Division line and thence to the Canadian carriers. The merger, the ICC found, will permit the Boston & Maine to compete effectively over a large portion of this route. For that benefit, decreased competition over the short distance traversed by [229 U.S.App.D.C. 37] the Maine Central's Mountain Division line is a small price to pay. 34 98 As for reduction in competition due to the demise of the Lamoille Valley, we note that a large number of competing carriers on a particular route is not an end in and of itself. Rather, competition is valuable because it promotes efficient service. We find reasonable the ICC's belief that the remaining competition among the Canadian National, the Canadian Pacific, and the Boston & Maine will provide sufficient stimulus for efficient operation of rail lines. 99