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CITY OF NEW YORK v. UNITED STATES

June 7, 1972

CITY OF NEW YORK, Plaintiff, and State of New York, Intervening Plaintiff,
v.
The UNITED STATES of America et al., Defendants


Friendly, Chief Circuit Judge, Mishler, Chief District Judge, and Weinstein, District Judge. Weinstein, District Judge (concurring).


The opinion of the court was delivered by: FRIENDLY

FRIENDLY, Chief Circuit Judge:

This is a further step in extended administrative and judicial consideration whether Bush Terminal Railroad Company (the Railroad) should be allowed to abandon its entire operation in Kings County, New York, and Hudson County, New Jersey. The facts surrounding the Railroad's operations, its history, its physical and financial condition through 1969, and its relationship to Bush Universal, Inc., of which it is a wholly-owned subsidiary, and to Bush Terminal Company, Inc., a sister subsidiary, are detailed in our previous opinion in this action, 337 F. Supp. 150 (1972), familiarity with which is here assumed. We there withheld decision on the motion of the City of New York (the City) for a preliminary injunction and remanded the case to the Commission for further administrative action which we found necessary. Specifically, we determined that the record failed to evidence agency "compliance with, in particular, § 102(2)(B) & (D), much less with the detailed requirements of § 102(2)(C)," of the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. §§ 4321-47, in granting the application for abandonment and that remand to the Commission was necessary in order "for it to bring itself into compliance with the law." 337 F. Supp. at 158-160. Additionally, because of the necessity of remand on the environmental issue and the "substantial element of public interest contained in this case," we directed the Commission also to consider whether a belated $25 per car surcharge offer made by the Bush Terminal Users Association might sufficiently brighten the Railroad's otherwise bleak financial prospects to undermine the case for abandonment. 337 F. Supp. at 160-163. In remanding, we did not vacate Division 3's order and matters have thus proceeded with the Railroad nominally shut down but with its operations temporarily conducted, for most of the period, by New York Dock Railway as developed below.

 Consistent with our instructions on remand, the Commission chose to hold further hearings concerning the proposed abandonment and its possible environmental consequences. These were conducted by Hearing Examiner Joseph M. May in New York City on February 28 and 29 and March 1, 2 and 3, 1972. The City and the Department of Transportation of the State of New York (the State) appeared in opposition to abandonment and filed posthearing briefs. For reasons to be discussed subsequently, the Users Association appeared solely for the purpose of withdrawing conditionally its surcharge offer and its protest to abandonment by the Railroad. At the commencement of the hearing, the American Trucking Association, Inc., (ATA) sought and was granted leave to intervene in order to participate fully in consideration of the environmental questions raised by this case. *fn1" It, too, filed a posthearing brief. Due to the need for expedited action in light of our mandate that the agency act within ninety days, the Commission dispensed with a hearing examiner's report, see 5 U.S.C. § 557 (b)(2), and on April 18, 1972, a supplemental report, dated April 14, 1972, by Vice Chairman Gresham on behalf of the Commission was served on the parties. The report ultimately concluded that abandonment of the Railroad's operations was consonant with present and future public convenience and necessity and hence that Division 3's order of December 13, 1971, "should be continued in full force and effect." An appropriate order was entered.

 On May 18, 1972, we heard argument concerning the correctness of the Commission's actions and conclusions on remand. At that time, only the plaintiff City and intervenor State appeared in opposition to the abandonment. As indicated in our previous opinion, 337 F. Supp. at 165, we shall now treat the matter as before us on final hearing, F.R. Civ. P. 65(a)(2).

 I.

 The Surcharge Offer

 Subject to one condition, the Users Association withdrew its $25 per car surcharge offer and its protest because it now appears that New York Dock Railway may permanently take over the Railroad's operations and it was of the opinion that operation of the Bush Terminal area by New York Dock rather than by the Railroad is in the best interest of its members. *fn2" The condition it imposed was that New York Dock should in fact assume permanent operation of the Railroad's facilities. Indeed, it is plain from the record that the User Association's real position is that it wants some railroad and it fears that by opposing the Railroad's abondonment it will diminish the chances of New York Dock providing rail service, as that company, which conducts terminal and switching operations in an industrial area some distance to the north of that served by the Railroad, apparently desires. The City's Department of Ports and Terminals has been engaged in negotiations aimed at permanent operation of the Railroad's facilities by New York Dock. These negotiations have resulted in a Memorandum of Intention, dated January 17, 1972, between the Department and New York Dock. As an apparent outgrowth of this plus a letter, dated January 24, 1972, embodying an interim agreement between New York Dock and the Railroad, New York Dock commenced temporary operation of the Bush Terminal area on February 4, 1972, pursuant to Service Order No. 1089, which we have been told is valid until August 1, 1972, and under F.D. No. 27009, it has filed an application for permanent authority to operate the facilities. We gather from the Memorandum of Intention, the Interim Agreement and statements at argument that such operation is dependent on the terms that can be worked out among New York Dock, the Railroad and the City.

 Despite the withdrawal by the Users Association, the surcharge question remains an issue both because of the doubt concerning fulfillment of the condition and for other reasons. The Users Association comprises only some 30 users. *fn3" At the February hearing the City called witnesses representing 28 Bush Terminal industries -- 12 of which in fact are members of the Users Association -- and all testified to their willingness to pay a $25 per car surcharge if necessary to secure continued rail service. Also, the affidavits initially submitted to this court in order to establish the willingness of more than 90 users, representing approximately 7,000 carloads annually, to pay the $25 surcharge were introduced by stipulation of the parties.

 In directing further consideration of the economic viability of the Railroad's operations in light of the $25 per car surcharge offer, we emphasized the necessity of evaluating this in the context of the most recent financial and traffic data, 1969 having been the last year for which figures were available at the time of the initial June 1970 abandonment hearings. The Commission determined in its supplemental report that in 1970 the Railroad handled 10,500 carloads, yielding revenues of $1,500,000 and a net loss of $226,000, and that in 1971 it handled 7,500 carloads, yielding revenues of $1,250,000 and a net loss of $405,000. *fn4" Adjusting for a $25 per car surcharge, it concluded that the 1970 net loss of $226,000 would have been reduced to only $25,000. For 1971, the Commission adjusted not only for a $25 surcharge but also for a potential cost saving, estimated at $60,000, due to a union offer to eliminate one train crew, see 337 F. Supp. at 156 n. 6, and for a cost increase, estimated at $50,000, due to retroactive wage increases awarded to the Railroad's employees by the National Mediation Board. The result was that the net loss of $405,000 would be reduced to about $220,000. Given the Railroad's poor financial performance in the eleven years prior to 1970, the Commission's conclusion that the Railroad's "financial condition does not permit it to withstand losses of [the] magnitude" of $200,000 annually comes as no surprise. Moreover, pessimism for the Railroad's future -- even with a $25 surcharge -- is accentuated by the Commission's conclusion, upon reviewing the condition of the Railroad's market, that "the Bush Terminal area does not have the potential in the foreseeable future to generate the amount of rail traffic which could support applicant's operations." While we do not find the case for abandonment of the Railroad's operations quite so overwhelming as the Commission's supplemental report suggests, a review of the record reveals that the order is supported by substantial evidence.

 In certain respects, the Commission's supplemental report appears to be at least misleading -- if not simply wrong. According to our mathematics, application of a $25 per car surcharge to the 1970 traffic figure of 10,500 carloads would produce $262,500 in additional revenues and thus would not merely reduce the net loss of $226,000 to a net loss of $25,000 but actually would produce a profit of $36,500. Similarly, the $220,000 net loss for 1971 arrived at by the Commission after application of the surcharge is evidently based upon a 7,000 carload traffic figure when in fact the record is clear that in 1971 the Railroad handled some 7,500 carloads. Furthermore, no attempt was made to adjust for the fact that on December 1, 1971, the Railroad announced an embargo which was effective immediately as to traffic not already en route, and effective December 15, 1971, as to all traffic. This action obviously had an adverse effect on the 1971 traffic figure. A relatively conservative adjustment would raise the 1971 traffic figure to 8,000 carloads which would yield $200,000 in surcharge revenue; after application of the other adjustments, this would reduce the 1971 loss to some $195,000. The Commission's supplemental report also ignores the revelation at the hearing on remand that the 1971 income statement overstated the item "Rent for leased road and equipment" by about $11,000, thus further reducing the adjusted 1971 loss to about $185,000.

 The evident uncertainty of these figures would cause us to view the Railroad's case -- that the surcharge is not a sufficient remedy for its plight -- with some scepticism if it hinged simply on this most recent operating experience. But it does not. Aside from traffic and revenue figures, the Railroad's December 31, 1971 balance sheet shows current assets of $344,022 and current liabilities of $2,705,494. Thus, since 1969, current assets have decreased by more than $100,000 and current liabilities have increased by more than $700,000. *fn5" The City contends, on the other side, there was substantial testimony on remand that while the Railroad's tug is now in drydock, it is seaworthy and requires nothing more than normal maintenance; that a sunken float bridge has been raised and its defective pontoon apparently repaired; and that the Railroad's trackage, its locomotives, its maintenance facilities, its floatbridges, and three of its seven carfloats -- the other four having been sold for scrap -- are actually being used at present by New York Dock. Hence, the City argues, it seems likely that the Railroad could commence operations without much immediate difficulty or expense. *fn6" But this is strictly a shortterm view of the Railroad's equipment situation; in our previous opinion we determined that the Railroad would need $650,000 in the immediate future to rehabilitate its badly deteriorated roadbed and to repair and replace not only marine equipment but also its ancient locomotives. 337 F. Supp. at 154 n. 2. Nothing developed on remand has dispelled the seriousness of the Railroad's maintenance and replacement problems insofar as continued permanent operation is concerned; even assuming that the surcharge might move the Railroad's current operations near the break-even point, no source for the substantial funds needed for rehabilitation and replacement of equipment -- much less for repayment of the Railroad's enormous liabilities -- has been identified or suggested.

 The main argument pressed by the City and State is that in evaluating the effect of the surcharge, the Railroad's traffic figures must be "normalized." They contend that 1970 and 1971 traffic figures cannot be considered typical because the Railroad's customers have been aware of its intent to abandon operations since mid-1969, and hence, from that time, the users were looking for and turning to alternative modes of transportation. In addition, they point to certain limited evidence elicited on remand which arguably suggests intentional downgrading of service by the Railroad *fn7" -- although the hearing examiner ruled that issue to be foreclosed by the previous proceedings in this case. For these reasons, the City and State would use the average of the traffic figures for 1969, 1968, and 1967 -- 12,818, 12,068, and 12,414 carloads respectively -- to derive a normalized traffic figure of 12,433 carloads. Simply applying a $25 surcharge to this figure would reduce the 1971 loss to slightly more than $70,000, and this would be reduced even more if the underlying revenue figures for 1971 were also "normalized." The Commission summarily dismissed this argument with a footnote stating that the "so-called 'normal year' . . . is a thing of the past."

 While the normalization argument has some initial appeal, it is evident that even the results obtained by that process would not afford a basis for raising the substantial capital needed in the immediate future to rehabilitate the Railroad's facilities or to reduce the Railroad's liabilities. More fundamentally, normalization fails to meet the harsh reality of the Railroad's market situation, so bluntly expressed in the Commission's footnote. The prospect of the Railroad's abandonment caused some users to look for alternative modes of transportation, while others moved away completely. *fn8" However, this is an inevitable consequence of an abandonment application and does not justify normalization unless it appears that denial of the application will bring the traffic back. Here the traffic of these departed users is not readily recoverable. Similarly, neither the City nor the State offered any definitive evidence as to how many users remaining in the Bush Terminal area switched to trucks after learning of the proposed abandonment, but would switch back to rail carriage if such service were permanently assured. There is, in short, no evidence that an upswing in traffic from the 1971 level could be expected by continued operations in the Bush Terminal area; *fn9" rather, consistent with Hearing Examiner Essrick's original report, all indications are that the area continues to decline, with no sign that the market for rail service will improve in the immediate future. *fn10"

 In this respect, this case differs materially from those relied upon by the State as authority for normalizing traffic figures. In Missouri Pacific R.R. Co. Abandonment Crete Branch, 307 I.C.C. 189 (1959), the level of traffic on a freight branch in an agricultural area had been abnormally distorted for a number of years as a result of a severe drought and the temporary, local storage of large amounts of grain, but more recent experience indicated that traffic was on the rise. Consequently, the Commission rejected the assumption that the branch could not be operated profitably. In Southern Pacific Company Discontinuance, 333 I.C.C. 525, 556-58 (1968), the Commission refused to consider "recent patronage decline as evidence of a hopeless long-run outlook" for a passenger operation, where service had been allowed to deteriorate. ...


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