Court Opinion

ID: 8918507
Source: CourtListenerOpinion
Date Created: 2022-11-27 06:00:39.763267+00
Date Added: 2024-06-11T17:09:12.545461
License: Public Domain

FAGG, Circuit Judge,
dissenting.
In the present case I believe the ICC, because of its approach to the use of opportunity costs, skewed the balancing process in such a way that a clear error of judgment was made and a result reached that is inconsistent with national rail policy as articulated by Congress. I would remand to the ICC for further development of the record concerning the burdens on interstate commerce caused by continued operation of the Mason City line.
Clearly, the problem of adequacy of railroad revenues is of concern to Congress. It is the policy of the United States government to “allow[] rail carriers to earn adequate revenues.” 49 U.S.C. § 10101a(3). Congress has also recognized as a goal, however, the “development and continuation of a sound rail transportation system * * * to meet the needs of the public and the national defense.” 49 U.S.C. § 10101a(4). By the same token, a rail carrier is permitted to abandon part of its railroad lines “only if the Commission finds that the present or future public convenience and necessity require or permit the abandonment or discontinuance.” 49 U.S.C. § 10903(a). Competing goals of revenue adequacy for carriers and provision of needed rail service for the public have thus been recognized. Congress has not indicated, though, that the answer to the problem of railroad revenue inadequacy is wholesale abandonment of branch lines that fail to earn a profit equal to the rail industry’s cost of capital.
In an industry in which profits historically have been below the cost of capital, too heavy reliance on a cost of capital criterion to determine whether a given line is adequately profitable may well lead to abandonment of many rail lines which, while profitable, do not earn as much as the industry’s cost of capital. The present case is a good illustration. In the base year the Mason City line generated profits of $235,-874. After the ICC adjusted this figure for normalized maintenance, profits were found to be $59,196. The line thus returned a 3.0% profit on the net liquidation value of the line. This figure is not far below CNW’s overall return on assets of only 3.6% in the base year. The ICC, however, used a figure of 10.2% as the railroad’s cost of capital, multiplied this figure times the net liquidation value of the line, and determined that the product, $202,743, was the railroad’s opportunity cost of operating the line. Hence, the ICC determined that the railroad suffered an economic loss of $143,-547 from operation of the line. Consequently, when the cost of capital is included, the ICC calculations show an economic loss on a line that during the base year generated for the company revenues substantially higher than expenditures.
In my view, the ICC did not properly conduct the required balancing process in the present case because it put too much emphasis on the line’s failure to realize a rate of return comparable to the cost of capital. If in future cases the ICC gives to opportunity cost analysis the weight it was given in this case, there is little doubt that few branch lines will survive abandonment proceedings. From CNW’s low overall rate of return it may be inferred that not many branch lines will measure up to a standard reflecting a 10.2% rate of return. My concerns are well-expressed in the appellant’s brief:
Under the ICC’s rationale in this case, therefore, continued operation of most, if not all, of C & NW’s lines of railroad *677involves an opportunity cost which burdens interstate commerce. If the rail line involved in this case can be permitted to be abandoned on that basis, then most or all of C & NW’s other lines of railroad can also be permitted to be abandoned on that basis. And the same is true with respect to thousands of miles of railroad lines of other rail carriers the operation of which does not produce a return on value equal to the rail industry cost of capital.
Brief for Appellants at 20 (footnote omitted).
I have no quarrel with the examination of revenue adequacy in abandonment proceedings, nor is the industry’s cost of capital an impermissible consideration. In this case, however, where a railroad of modest profitability (3.6%) desires to abandon a branch line of commensurate profitability (3.0%), I believe the ICC used a standard for measuring profitability which bears no reasonable relationship to the profitability of the railroad under consideration. Application of this standard decisively to determine that operation of the branch line would be a burden to CNW constitutes a clear error of judgment that is contrary to expressed national rail policy. Courts should not “rubber-stamp * * * administrative decisions that they deem inconsistent with a statutory mandate or that frustrate the congressional policy underlying a statute.” NLRB v. Brown, 380 U.S. 278, 291, 85 S.Ct. 980, 988, 13 L.Ed.2d 839 (1965), quoted in Bureau of Alcohol, Tobacco and Firearms v. Federal Labor Relations Authority, - U.S. -, -, 104 S.Ct. 439, 442, 78 L.Ed.2d 195 (1983).
Accordingly, I would reverse and remand to the ICC so that it can reconsider its determination of the burden that continued operation of the Mason City line would impose on interstate commerce. Once a proper assessment of the cost to CNW of continued operation of the line is made, a balancing process between railroad and public interests may be undertaken in a way consistent with congressional expressions of national rail policy.