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August 7, 1969

The UNITED STATES of America, Defendant, and Interstate Commerce Commission, R. & F. Trucking Co., Inc., M. J. Kelly Company, Inc. and North 4th Street Realty Corp., Intervening Defendants

The opinion of the court was delivered by: DOOLING


Plaintiff's action is brought to enjoin and annul 1967 Orders of the Interstate Commerce Commission (28 U.S.C. § 1336(a), (c)) which denied plaintiff the right to abandon certain track which it operated in Block 2349 of its Kent Avenue terminal on the East River waterfront in the Williamsburgh section of Brooklyn (28 U.S.C. §§ 2284, 2321-2325; 49 U.S.C. § 17(9)). It is concluded that the relief sought must be denied.

Plaintiff has operated since 1940 as a common carrier subject to the Interstate Commerce Act. Plaintiff picks up freight cars on car floats in Jersey City and Weehawken from trunk line railroads (including the Pennsylvania, *fn1" New York Central, 1 Baltimore & Ohio, etc.), and tows the cars to three float bridges and connecting track at plaintiff's Kent Avenue station on the waterfront in Williamsburgh. There plaintiff classifies the cars and distributes them to a complex of team tracks and industrial sidings located on a grid of regular-sized city blocks cut out and bounded by the regular city streets. Plaintiff has about 8.01 miles of track in its Kent Avenue station; the station extends from south of North 4th Street to North 11th Street, and from the river across Kent and Wythe Avenues to Berry Street; some of plaintiff's track traverses the city streets under city-granted franchises.

 In March 1966 plaintiff applied to the Interstate Commerce Commission under Section 1(18) and (20) of the Interstate Commerce Act (49 U.S.C. § 1(18), (20)) for a certificate of public convenience and necessity permitting it to abandon the portion of its line of railroad consisting of 0.28 miles of its track in Blocks 2349 and 2350. Plaintiff was then still serving three shippers in Block 2349, R. & F. Trucking Co., Inc., M. J. Kelly Co., Inc., and Bridge Lumber Co.; it had served, but it was no longer serving Greenberg Brothers in Block 2350. The R. & F. freight was furniture, the Kelly freight, firebrick and cements, and the Bridge Lumber Company freight, lumber. Plaintiff averred that to continue to operate the track was uneconomical and would burden Interstate Commerce since total revenue from the shippers in the two blocks was far less than the cost of operating and maintaining the tracks therein, and, upon abandonment, the land could be sold and the money used either to reduce the mortgage on the property, saving interest, or to improve the balance of railroad operation, leaving the users of the track in Block 2349 to get their deliveries at the team tracks located in the nearby Blocks 2332, 2333 and 2334. The abandonment, plaintiff argued, would avert increasing economic hardship and financial loss that would otherwise jeopardize future service to the shipping public served by the applicant.

 The Commission denied leave to abandon track in Block 2349, but, there being no opposition, granted leave to abandon the the track in Block 2350.

 The gist of plaintiff's contention has been that it has lost money over the years on its entire operation, that, specifically, it loses money in Block 2349, and, still benefits payable under the Social Security & F. furniture traffic in Block 2349 at a heavy loss. In addition plaintiff argues that over and above the improvement in its Net Revenue from Railway Operations that would flow from eliminating the Block 2349 revenue derived from R. & F. and Kelly and the related excess of railway operating expenses over the revenues eliminated, there would be secondary savings achieved in this way: If the abandonment is approved, plaintiff will sell to Bridge Lumber Company the balance of the real estate, including that underlying the abandoned track, owned by plaintiff in Block 2349, and will use other counties where decedent worked and might have obtained a divorce mortgage on the property, thus eliminating substantial interest and tax expense.

 The hearing examiner, rendering his report and order on a record made before another examiner who had meanwhile retired (5 U.S.C. § 554(d)), found that plaintiff had sustained overall losses for some years, but that it was not clear either that the abandonment would rectify the situation, or -- in view of an apparent year by year increase in net current assets -- that plaintiff was in financial jeopardy. Noting plaintiff's use of working capital to build a new flour terminal, and its use of the proceeds of realty sales to improve its working capital and retire $ 250,000 of bonds, thus diminishing its fixed charges, the Examiner asserted that railway operating revenues substantially exceeded operating expenses in the most recent five year period, and that the plaintiff as a carrier 'had a favorable operating ratio.' On plaintiff's contention that abandoning a part of its line in Block 2349 would help it improve its railway economics (even though it could not lay off any railroad men), the Examiner observed that although the abandonment would clear the way to sell property to Bridge Lumber Company, it would also eliminate the R. & F. and Kelly revenue without demonstrably eliminating railway operating expenses in excess of the lost revenues, and would only in a conjectural and unsubstantiated degree gain increased traffic with Bridge Lumber Company. Noting further that the only assured savings would be mortgage interest of $ 3,456, taxes of $ 1,985.22 and city franchise charges of $ 108. per year resulting from the land sale to Bridge, the Examiner commented that R. & F. and Kelly had testified that to lose the siding service would reduce the value of the property they occupied by an amount per square foot exceeding the square foot price at which plaintiff was to sell its 20,000 square feet of land to Bridge. The Examiner concluded, on the general issues, that plaintiff had not borne the burden of proving with acceptable evidence that the present and future public convenience and necessity permitted the abandonment proposed. With particular reference to plaintiff's emphasis on is losses on the R. & F. traffic, and the contention that it was transported for an inadequate compensation, the Examiner pointed out that since 1922 plaintiff had made no effort to renegotiate with the interchange carrier the division it received on furniture.

 Review Board No. 5 concluded that the case did not require the issuance of a report by the Review Board discussing the evidence in the light of the pleadings since it appeared that the Findings and Conclusions of the Examiner on the matters of fact and law were in material respects proper and correct and that the exceptions of plaintiff raised no new or material matters of fact and law not adequately considered and properly disposed of by the Examiner in his report (cf. 5 U.S.C. § 557(c)). Review Board No. 5 accordingly made a completely general finding that the evidence, in the light of the exceptions and replies thereto, did not warrant a result differing from that reached by the Examiner, and that the statements of facts and the conclusions and findings of the Hearing Examiner, being proper and correct in all material respects, were affirmed and adopted. The Examiner's order denying the abandonment was adopted as the order of Review Board No. 5 without further hearing and argument. (Later Division 3 of the Commission, acting as an Appellate Division, modified the earlier decision to the extent of permitting abandonment of the Track in Block 2350 on the ground, essentially, that there had been no objection to it.)

 In this Court plaintiff repeats its basic substantive contention that denial of the application to abandon was confiscatory in light of plaintiff's long continued overall losses and the specific loss incurred on the Block 2349 traffic with R. & F. particularly. Plaintiff challenges the validity of the Examiner's conclusion that the generality and conclusory nature of plaintiff's evidence resulted in a failure of proof, and it argues that the Commission should have granted its application to re-open the proceeding to present more specific evidence if it was indeed required. Plaintiff argues that the Commission should not have permitted a substitute Examiner to make findings on a record made before another Examiner (5 U.S.C. § 554(d)) and, that the Commission itself failed to act correctly in passing on the exceptions presented to the Examiner's decision in giving a single generalized ruling rather than 'the ruling on each * * * exception' required by 5 U.S.C. § 557(c). Finally, and for the first time in the present proceeding, plaintiff contends that the track which it sought to abandon was 'spur, industrial, * * * or side tracks, located * * * wholly within one State,' and, hence, that the Commission had no jurisdiction to entertain the proceeding at all (49 U.S.C. § 1(22)).

 1. Plaintiff's confiscation argument fails because the data of record are insufficient to support the claim. The confiscation contention breaks naturally into an argument first about the overall figures for the plaintiff as a company. The evidence on this consists essentially of Exhibits 1 and 2 before the Commission (a testimonial narrative of plaintiff's basic factual showing, and supporting financial and statistical material, Tr. 5-6), and of the tabular material in plaintiff's 'Return To Questionnaire' of April 6, 1966. Exhibit 2 annexed to the Return To Questionaire shows that in the years 1961 through 1965 plaintiff's 'operating ratio' was, as the Examiner said, 'favorable' in the limited sense that plaintiff's Net Revenue from Railway Operations varied from a high of 17.6% Of revenues to a low of 12.2%, and it was 14.2% In 1965. Railway Net Operating Income, before allocation of fixed charges, was a black figure for all years except 1961 for which a loss of $ 28,281, was shown. The Net Railway Operating Income is small viewed as a return on net transportation property shown in North Carolina in 1936 and 1950. Mr. account of working capital over and above transportation property. The figures are: NET RAILWAY OPERATING YEAR INCOME 1961 ($ 28,281) 1962 $ 74,830 1963 $ 28,538 1964 $ 93,979 1965 $ 92,742

 If the figures are solid (contrast those given in the Exceptions, pp. 8-9), denial of leave to abandon the entire railroad would very likely be confiscatory. Brooks-Scanlon Co. v. Railroad Commission of Louisiana, 1920, 251 U.S. 396, 40 S. Ct. 183, 64 L. Ed. 323. Plaintiff, however, has elected to continue to operate as a railroad, not with a Net Railway Operating Loss, but with a low Net Railway Operating Income.

 The corporate loss overall for the years 1954 through June 30, 1966, of approximately $ 934,000 (page 5 of hearing Exhibit 1) is not demonstrably a Railway Operating Loss. Leaving to one side the effect of the 'other income' and 'other expense' accounts, which in some years increased income available for fixed charges and in others (e.g., 1963 and 1965) reduced it, the first mortgage bond interest of over $ 120,000 a year through the end of 1965 alone accounts for more than the accumulated loss of $ 934,000. But it does not appear what, if any, part of the bond interest expense properly belonged in the railway accounts. The bonds are spoken of as secured by a real estate mortgage, and plaintiff's real estate is evidently carried at now meaningless valuations determined in the 1920s (Tr. 30). That proceeds of real estate sales were used to reduce the mortgage debt indicates that the debt in some part certainly is related to the 'Miscellaneous Physical Property its invalidity and must meet this accounts (see Tr. 24-30), and so does the fact that the debt itself was evidently not contracted until the end of 1959 (Tr. 30). The record does not reflect the extent to which the plaintiff was in effect a real estate holding company, nor does it afford any means of 871 (1945). However, North Carolina does not require conclusive proof to account titles shown in the financial exhibits.

 While the corporation had long-continued, overall corporate book-losses, the evidence does not indicate that the total railway operation was conducted at a loss; as noted, it may well not have been conducted at a fair rate of return. But, assuming that to be the case, the abandonment rights which the absence the following evidence to prove railroad are not easily defined. In Brooks-Scanlon Co. v. Railroad Commission of Louisiana, 1920, 251 U.S. 396, 40 S. Ct. 183, 64 L. Ed. 323, the Court held that a company could not be required to continue a losing railroad operation subsidized by the non-railroad business of the company; in the course of decision Mr. Justice Holmes remarked almost casually (251 U.S. at 399, 40 S. Ct., at 184) that, 'A carrier cannot be compelled to carry on even a branch of business at a loss, much less the whole business of carriage.' But, as Mr. Justice Holmes was quick to intimate, and as it was later held, the right to abandon the whole railroad operation because it does not yield a fair return does not imply a right to abandon a losing branch if the carrier elects to continue the balance of its operations. Fort Smith Light & Traction Co. v. Bourland, 1925, 267 U.S. 330, 45 S. Ct. 249, 69 L. Ed. 631; cf. Western & Atlantic R.R. v. Georgia Public Service Commission, 1925, 267 U.S. 493, 496-497, 45 S. Ct. 409, 69 L. Ed. 753. Compulsion to continue a service rendered at a loss is not necessarily an unconstitutional taking of property, since there is no general principle that every component of an integral whole of utility service must show a profit. As it was put in Atlantic Coastline R.R. v. North Carolina Corporation Commission, 1907, 206 U.S. 1, 26-27, 27 S. Ct. 585, 51 L. Ed. 933, it is not unreasonable, in the due process perspective, to require a carrier to continue to furnish a facility which is a part of what it is its general duty to furnish for the public convenience simply because a loss is incurred in the performance of that duty, although the fact of loss is one -- and an important -- criterion to take into account in determining the reasonableness of an order requiring the continued extension of the facility. Chesapeake & Ohio Ry. v. Public Service Commission of State of West Virginia, 1917, 242 U.S. 603, 607-608, 37 S. Ct. 234, 61 L. Ed. 520; Puget Sound Traction, Light & Power Co. v. Reynolds, 1917, 244 U.S. 574, 581, 37 S. Ct. 705, 61 L. Ed. 1325; see Alabama Public Service Commission v. Southern Railway Co., 1951, 341 U.S. 341, 347, 71 S. Ct. 762, 95 L. Ed. 1002. Compelled continuance of a particular service can amount to a forbidden taking of property without due process of law. But whether a facility or service maintained at a loss can be abandoned involves a broader analysis than a simple demonstration of segmental loss. The decision of whether an order to continue a service or facility is unreasonable requires consideration of the loss as one factor, but also requires taking account of the relation of the particular service or facility to the whole service that the carrier has undertaken or is bound to render, the public service value of continuance of the service or facility, and any other factors that contribute to a determination of whether the service or facility and its losses can be considered in isolation from the rest of the public service involved. As so often, a complex balancing of interests is involved. Cf. State of Colorado v. United States, 1926, 271 U.S. 153, 168-169, 46 S. Ct. 452, 70 L. Ed. 878; Southern Railway Co. v. North Carolina, 1964, 376 U.S. 93, 104-105, 84 S. Ct. 564, 11 L. Ed. 2d 541; State of Nebraska ex rel. Nebraska State Ry. Commission v. United States, D.Neb.1966, 255 F.Supp. 718, 722.

 Plaintiff, therefore, argues in a second phase of its confiscation contention that its overall inadequacy of railway operating net income supports the right to abandon the particular track here allegedly involved because of the two-fold circumstance that the traffic in Block 2349 is loss traffic, and the abandonment will make possible the land sale and the interest, tax and franchise savings already discussed. The land-sale saving is hardly large enough to be critical in the overall loss record of the company, but such as the saving is, it is real. The saving, however, does not relate to the railway operating problem. While the sale to Bridge is contingent on the abandonment of the track, that is a factitious relation, created by the agreement between the plaintiff and Bridge. There is no showing that the real estate could not be sold subject to siding easements for substantially the same consideration, if not to Bridge, then to ...

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