Court Opinion

ID: 8922151
Source: CourtListenerOpinion
Date Created: 2022-11-27 06:20:50.521347+00
Date Added: 2024-06-11T17:09:18.961718
License: Public Domain

FAGG, Circuit Judge,
dissenting, joined by HEANEY, Circuit Judge.
I dissent for the reasons given in my dissent from the panel opinion. Cartersville Elevator, Inc. v. Interstate Commerce Commission, 724 F.2d 668, 676 (8th Cir.1984) (Fagg, J., dissenting).
As I have previously observed, in the vast majority of abandonment cases use of opportunity cost analysis will pitch a branch line that is otherwise profitable into the red. Thus for a branch line that is indeed earning a profit based on its income and expenses, use of a rate of return figure representing the rail industry’s cost of capital, a figure which is hypothetical at best because it bears no reasonable relationship to the rate of profitability of the railroad under consideration, distorts the burden on the railroad of continued operation of the branch line. Consequently, when, as in this case, the rate of return earned by a branch line closely approximates a railroad’s overall rate of return, it is inappropriate to determine opportunity costs based on the rail industry's cost of capital, since in such a case the branch line is by comparison not a significant burden on the railroad. I do not quarrel with the use of opportunity cost analysis, however, if it is shown that the rate of return used to calculate opportunity costs could be earned on the assets devoted to the branch line were they put to another rail use, either by transfer or by liquidation and reinvestment. A significant disparity between the present return on the branch line’s assets and the return which could be achieved by their investment in another rail use would provide a sound basis for finding that the branch line constitutes a burden on the railroad.
In reliance on representations by counsel for CNW that the company does not engage in business apart from operation of the railroad, the court has in this case proceeded on the assumption that the abandonment will improve the economic status of CNW’s rail transportation enterprise. Hence the court has essentially reached its own conclusion concerning the use to be made of the assets freed by abandonment, and accordingly it need not and does not take a position on the propriety of using opportunity cost analysis without a requirement of reinvestment in alternative rail uses when the railroad in question is also involved in nonrail enterprises.
In my view, reliance in abandonment proceedings on opportunity cost calculations made without regard to the use of the assets following abandonment bears no reasonable relationship to the goal of strengthening the financial condition of railroads, not as an end in itself, but rather as a means to the ultimate purpose of providing needed rail service. I believe it is imperative that the ICC determine the use to which assets from a branch line will be put before its abandonment is permitted on the basis of opportunity cost analysis. Without this constraint on its application, opportunity cost analysis merely allows the reduction of assets devoted to railroading without any assurance that improvement of rail service will result. Opportunity cost analysis is inappropriate when a nonrail use of assets is contemplated following abandonment, for in such a case neither the abandonment nor the process by which it *1064was approved does anything to strengthen the railroad operation. ICC willingness to allow railroads to realize adequate rates of return by reinvestment of branch line assets in other lines of business would be foreign to its duty to preserve viable arteries of branch line service incidental to maintenance of a strong national railroad system.
■ Even in this instance, where vague remarks of counsel imply the CNW assets freed by abandonment are apparently destined for rail use, I cannot concur in the ICC’s disposition of this case or in the court’s holding. Because of the potential for serious distortion of the burden imposed by a branch line, consideration of opportunity costs based on the rail industry’s cost of capital must be accompanied by a careful application of the balancing process required by Colorado v. United States, 271 U.S. 153, 168, 46 S.Ct. 452, 455, 70 L.Ed. 878 (1926). I believe that by comparing the branch line’s 3.0% rate of return to the 10.2% figure for the rail industry’s cost of capital, despite CNW’s overall 3.6% rate of return, the ICC used a method for determining the burden imposed by operation of the branch line which is divorced from the actual circumstances of this railroad. I am unconvinced that the ICC did not treat the extreme result of its opportunity costs analysis as dispositive in this case. Hence I would remand to the ICC for reconsideration, based on appropriate standards, of the burden that continued operation of the line would impose on CNW and on interstate commerce. Only after thé burden is properly determined will it be possible to conduct a balancing process between the local benefit of continued operation of the branch line and the burden its operation imposes on interstate commerce.