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United States District Court, Northern District of Illinois, E.D

December 10, 1962


Before Swygert, Circuit Judge, and Miner and Parsons, District Judges.

The opinion of the court was delivered by: Per Curiam.

The Interstate Commerce Commission has granted the Chicago, North Shore & Milwaukee Railway a certificate of public convenience and necessity permitting abandonment of its entire line of railroad extending between Milwaukee, Wisconsin, and Chicago, Illinois.*fn1

The State of Illinois, Illinois Commerce Commission, and North Shore Commuters Association, plaintiffs in this proceeding, have instituted this action to set aside and enjoin the Interstate Commerce Commission's order permitting abandonment.

On June 25, 1958, the North Shore applied to the Interstate Commerce Commission under Section 1(18-20) of the Interstate Commerce Act, 49 U.S.C. § 1 (18-20), for a certificate of public convenience and necessity permitting abandonment. Motions to dismiss were filed challenging the jurisdiction of the Commission on the ground that the North Shore is exempt from Commission regulation under Section 1(22), 49 U.S.C. § 1(22), as an electric interurban railroad.

On May 4, 1960, the Interim Report of the Commission, 312 I.C.C. 99, was issued. The Commission determined that the motions to dismiss should be overruled because the North Shore is not a street, suburban, or interurban electric railway within the meaning of Section 1(22). The Commission, however, deferred action on the application for a period of one year to afford the North Shore, in cooperation with the regulatory commissions, the state and local authorities, and the public, an opportunity to explore all possibilities for profitable operation, including an immediate request by the North Shore for a necessary fare increase.

On May 10, 1962, the Report of the Commission After Further Hearing, 317 I.C.C. 191, was issued. The Commission concluded and found as follows:

    "We conclude and find that the present revenues
  have not been, and future revenues will not be,
  sufficient to cover the cost of applicant's continued
  operation with sufficient maintenance of facilities
  necessary to safety of operation; that abandonment of
  all operations is warranted, subject to the condition
  that applicant shall sell the entire line, or any
  portion thereof, to any responsible person, firm or
  corporation offering, prior to the effective date of
  the certificate and order permitting abandonment, to
  purchase the same for continued operation (upon
  approval of this Commission) at a price not less than
  the net salvage value of the property sought to be
  acquired; that the imposition of conditions for the
  protection of employees adversely affected by the
  abandonment is not justified in the circumstances of
  this case; and that the inconvenience to users of
  applicant's service which will result from the
  abandonment will be mitigated by the availability of
  rail service provided by the Chicago & North Western
  Railway and the Chicago, Milwaukee, St. Paul and
  Pacific Railroad."

Subject to the condition mentioned, the Commission found that the present and future public convenience and necessity permit abandonment by the North Shore of its entire line of railroad, and issued an appropriate certificate and order to be effective 35 days from date of service. This effective date was subsequently extended pending disposition of various petitions for reconsideration.

On October 15, 1962, the Report of the Commission on Reconsideration, was issued. In that report, the Commission again considered and rejected the argument that the North Shore was an exempt interurban electric railway within the meaning of Section 1(22). The Commission also considered and rejected plaintiffs' argument that, even if the North Shore is subject to Commission jurisdiction, the Commission can only authorize abandonment as to interstate commerce.

In this proceeding plaintiffs challenge the action of the Interstate Commerce Commission in exercising federal authority by granting this abandonment certificate. They assert that the Commission has exceeded its jurisdiction. Primacy of state control is urged on the ground that the North Shore is an interurban electric railroad exempted by Congress from national regulation. As an alternative, if the North Shore is found not to fall within this exemption, plaintiffs urge that federal authority is limited to abandonment of the North Shore's interstate operations.

It is apparent from the briefs and oral arguments of the opposing parties that this Court must resolve two jurisdictional questions. First, does the North Shore fall within the exemption of Section 1(22) of the Interstate Commerce Act, as being a "street, suburban, or interurban electric railway(s), * * not operated as a part or parts of a general steam railroad system of transportation?" Second, assuming a negative answer to the first question, has Congress granted, and does the Interstate Commerce Commission have, authority to grant a certificate to the North Shore to abandon its entire operations in both intrastate and interstate commerce? We must dispose of these jurisdictional questions before considering the sufficiency of the evidence upon which the Commission granted a certificate of public convenience and necessity permitting abandonment.

For the reasons hereinafter set forth we hold that the North Shore is not within the exemption of Section 1(22) and that the authority of the Commission extends to all phases of operation — both intrastate and interstate — of the North Shore.

Plaintiffs claim that the character of the North Shore as being within the exception of Section 1(22) has been conclusively determined by the United States Supreme Court and therefore the Commission lacked authority to confer on it a status inconsistent with the Supreme Court's ruling.

The Supreme Court in United States v. Chicago, North Shore and Milwaukee Railroad, 288 U.S. 1, 53 S.Ct. 245, 77 L.Ed. 583 (1933), held that the North Shore fell within the exemption of Section 20a of the Interstate Commerce Act. Section 20a contains wording which is identical to that of Section 1(22). In examining the activities of the North Shore, the Court concluded:

    "We thus have a typical example of an interurban
  electric line for passenger service, which has
  developed, in addition, such freight traffic as could
  advantageously be undertaken without interfering with
  performance of the main purpose of the carrier. The
  facts differentiate the present case from Piedmont &
  Northern Ry. Co. v. Interstate Commerce Commn.,
  286 U.S. 299, 52 S.Ct. 541, 76 L.Ed. 1115 * * *. There
  the railway was predominantly a carrier of
  interchange carload freight * * *. The purely local
  traffic in freight, passengers, baggage and express
  was there relatively inconsequential; but here
  greatly preponderates."

The Supreme Court was asked to conclude that the North Shore railroad had issued securities over a period of ten years in violation of Section 20, whereas such a conclusion might have rendered these securities of no value. Throughout the period in which they were issued the Commission had never challenged the right or authority of the North Shore to issue these securities. That the Court's decision was influenced by an estoppel rationale based on the Railroad's reliance on past administrative rulings is evident:

    "With this knowledge of the situation the
  Commission never, until it requested the Attorney
  General to institute the present suit, by word or act
  intimated that the procedure followed by the railroad
  was illegal or the state regulatory bodies without
  jurisdiction. It would be difficult indeed to
  conceive a clearer case of uniform administrative
  construction of § 20a as applied to this company

  Conceding that the proper classification of the
  railway is not free from difficulty, all doubt is
  removed by the application of the rule that settled
  administrative construction is entitled to great
  weight and should not be overturned except for cogent
  reasons. * * *

    "The primary responsibility rested upon the
  Commission to determine whether under the
  circumstances the railroad was required to procure
  leave under § 20a for the issuance of securities.
  Evidently entertaining serious doubts on this
  question it has for more than a decade resolved them
  in favor of the carrier, and the company and its
  officers have acted in reliance on the administrative
  tribunal's construction of the statute. At this late
  day the courts ought not to uphold an application of
  the law contradictory of this settled administrative
  interpretation." (Emphasis supplied.)

In 1941, the Court of Appeals for the Seventh Circuit in Sprague v. Woll, 122 F.2d 128, cert. denied, 314 U.S. 669, 62 S.Ct. 131, 86 L.Ed. 535, interpreted a provision of the Railway Labor Act so as to conclude that the North Shore did not fall within the exemption of 45 U.S.C. § 151. The wording of that particular statute, although similar to the exception of Section 1(22) of the Interstate Commerce Act, specifically excludes from the exception "any part of the general steam-railroad system of transportation now or hereafter operated by any other motive power." The Court, however, agreed with the Commission that the North Shore was both "not a street, interurban or suburban electric railway within the meaning of the exemption provisos" (in the three statutes being considered by the Commission) "and that it was a part of the general steam-railroad system of transportation." (at 130.)

In discussing the effect of the North Shore case, supra, the Court of Appeals distinguished the facts and concluded that the motivating reason for that decision was the reliance or estoppel considerations. It further stated at page 131:

    "Under all the circumstances we are of the opinion
  that the holding of the Court did not bind the
  Commission as to subsequent determinations, and that
  the duty imposed upon the Commission by the Acts here
  involved was to be discharged in a proceeding de
  novo, and in accordance with all the evidence to be
  adduced in such proceeding."

In 1942, the Court of Appeals for the Seventh Circuit in In re Chicago, North Shore and Milwaukee Railroad Company, 131 F.2d 458, was asked to interpret a section of the Bankruptcy Act in its application to the North Shore railroad. Section 77 of that Act applies to "[A]ny common carrier * * * except a street, a suburban, or interurban electric railway which is not operated as a part of a general railroad system of transportation or which does not derive more than 50 per centum of its operating revenues from the transportation of freight in standard steam railroad freight equipment." (Emphasis supplied.) The court concluded that the North Shore fell within the exception of Section 77, and even went so far as to say, "We think there can be no question but that this Road is not `operating as a part of a general steam-railroad system of transportation.'" The 50 per centum freight revenue requirement was accorded great weight in the court's final determination, as was the district court's right, under the Bankruptcy Act, to make an independent determination of the Railroad's status. This decision interpreted a statute which differs materially from the Interstate Commerce Act in both its underlying purpose and in its jurisdictional tests. For this reason the 1942 Court of Appeals' decision was not binding on the Commission in the proceeding which is now being reviewed.

It is apparent from the decisions following the Supreme Court North Shore case that exemptions similar to Section 1(22), but which are found in other provisions of the Interstate Commerce Act, or in other Acts, allow different interpretations, depending on the purpose of the Act, the underlying issues, and the particular facts of the case.

Upon holding that the Commission is not bound by the Supreme Court's determination in its classification of the North Shore, we must now decide the extent to which this court may review the jurisdictional classification made by the Interstate Commerce Commission in the present application for abandonment.

In United States v. Idaho, 298 U.S. 105, 56 S.Ct. 690, 80 L.Ed. 1070 (1936), the Supreme Court, in reviewing the findings of the district court which concluded that a branch of the Oregon Railroad was a "spur" under Section 1(22), held at page 109, 56 S.Ct. at page 692:

    "The decree should be affirmed, because on findings
  amply supported by the evidence the trackage is a
  spur. Appellants object that, since the findings and
  order of the Interstate Commerce Commission were made
  on substantial evidence, they are conclusive, and
  that it was error to admit the testimony first
  offered in the District Court. * * * Although it
  would have been better practice to have introduced
  all relevant evidence before the Commission, as
  appellee's counsel concede, the court did not err in
  admitting the additional testimony. For whether
  certain trackage is a `spur' is a mixed question of
  fact and law left by Congress to the decision of a
  court — not to the final determination of either the
  federal or a state commission."

The opinion by Justice Brandeis, while acknowledging that the district court had jurisdiction to determine the classification of the Oregon railroad, did not deny that the determination of the Commission should be given great weight. It merely concluded that the ultimate decision was left to the courts and not to the Commission.

In City of Yonkers v. United States, 320 U.S. 685, 64 S.Ct. 327, 88 L.Ed. 400 (1943), the Supreme Court was again called upon to review the findings of a district court in determining whether certain operations of the New York Central fell under the exception of Section 1(22). Although agreeing with Justice Brandeis that the determination of what is included within the exemption of Section 1(22) involves a "mixed question of fact and law," the Court nevertheless concluded that the Commission should first determine whether the railroad falls within its jurisdiction. In recognizing the importance of the Commission's findings, the Court said at pages 691-692, 64 S.Ct. at pages 330-331:

    "It is hardly enough to say that the Commission's
  orders may be set aside by the courts where the
  Commission exceeds its authority. The Commission has
  a special competence to deal with the transportation
  problems which are reflected in these questions. The
  Congress has entrusted to the Commission the initial
  responsibility for determining through application of
  the statutory standards the appropriate line between
  the federal and state domain. * * * The insistence
  that the Commission make these jurisdictional
  findings before it undertakes to act not only gives
  added assurance that the local interests for which
  Congress expressed its solicitude will be
  safeguarded. It also gives to the reviewing courts
  the assistance of an expert judgment on a knotty
  phase of a technical subject.

    "This is not to insist on formalities and to burden
  the administrative process with ritualistic
  requirements. It entails a matter of great substance.
  It requires the Commission to heed the mandates of
  the Act and to make the expert determinations which
  are conditions precedent to its authority to act."
  (Emphasis supplied.)

The case was remanded and the Commission held that it had jurisdiction after it had made detailed subordinate findings of fact. The district court affirmed, Public Service Commission of New York v. United States, D.C., 56 F. Supp. 351, and on review the Supreme Court sustained, 323 U.S. 675, 65 S.Ct. 130, 89 L.Ed. 548 (1944). The Court stated at page 675, 65 S.Ct. at page 130:

    "On remand of the case * * * to the Interstate
  Commerce Commission for further findings, the
  Commission reopened the case, took further evidence,
  and made additional findings. Upon examination of the
  case now here on appeal we conclude that those
  findings are sufficient to support the order, and the
  evidence is sufficient to support the findings. The
  judgment is affirmed."

We think these two Supreme Court opinions settle the question of the scope of judicial review so that we may conclude that although this court is not bound by the determinations of the Commission and that the doctrine of "substantial evidence" is not specifically applicable, nevertheless great weight must be given to the determination of the Commission in an order such as this in which its special competence is clearly recognized.

In the instant abandonment proceeding, the Commission, in its Report On Reconsideration dated October 15, 1962, referred to its Interim Report of May 4, 1960, 312 I.C.C. 99, which in turn referred to the Commission's earlier decision in Chicago, N.S. and M. Ry. Abandonment, 290 I.C.C. 765 (1955), which authorized the abandonment of portions of the North Shore line. As stated by the Commission in its Report On Reconsideration, this 1955 decision contains a complete and comprehensive discussion of the jurisdictional facts relating to the North Shore. The Commission points out that these facts are at present essentially the same*fn2 and concludes that the North Shore does not fall within the exception contained in Section 1(22).

Plaintiffs neither dispute the underlying facts set out in 290 I.C.C. 765, nor that those facts remain essentially unchanged. The only question before us then is whether these facts have been properly interpreted and whether they support the Commission's conclusion that the North Shore does not fall within the exception contained in Section 1(22). We think that the Commission has upon an abundance of evidence correctly determined that the North Shore does not fall within the exception and is therefore subject to Section 1(18) of the Act.

We now turn to plaintiffs' contention that even if the North Shore is an interstate carrier over which the Commission has jurisdiction, and even if the evidence justifies a certificate of public convenience and necessity permitting abandonment, it must be limited to the interstate operations of the carrier.

The Commission, in authorizing abandonment of the entire system of the railroad, based its decision upon two grounds: (1) the North Shore crosses a state line; and (2) even if the North Shore's operations were confined to intrastate commerce, such restricted operations would constitute an undue burden upon interstate commerce.

The Commission has consistently asserted exclusive jurisdiction to authorize complete abandonment of a railroad line where the railroad operates such line in more than one state, Tonopah & T.R. Co. Abandonment, 236 I.C.C. 265; Missouri & Ark. Ry. Co. Receivers Abandonment, 271 I.C.C. 171.

Where a railroad physically crosses a state line and carries on both interstate and intrastate business over the same tracks in an integrated system of operation and where "the two services are inextricably intertwined" (Colorado v. United States, 271 U.S. 153, 164, 46 S.Ct. 452, 454, 70 L.Ed. 878), the Commission's exclusive jurisdiction over the railroad's interstate operations includes its intrastate operations as well. This conclusion is supported by the legislative history of the Interstate Commerce Act.

We agree with the Commission's well supported findings that the systemwide operations of the North Shore are not capable of a practical disjunction and hence the railroad fits squarely within the above rule.*fn3

The Commission in its Report on Reconsideration also found a burden on interstate commerce even if the North Shore were permitted to operate solely as to intrastate commerce.*fn4 We think these findings are supported by the evidence.

It is no longer open to doubt that where the operation of a railroad line, or a part of a line, vitally affects the revenues of an interstate carrier, the Commission may authorize abandonments not only of the interstate operations but also of the intrastate operations as well. Colorado v. United States, supra; Transit Commission v. United States, 284 U.S. 360, 52 S.Ct. 157, 76 L.Ed. 342 (1932). While not dealing with railroads, Wickard v. Filburn, 317 U.S. 111, 63 S.Ct. 82, 87 L.Ed. 122 (1942), a landmark case, makes this abundantly clear. There the Supreme Court quoted with approval the following language from United States v. Wrightwood Dairy Co., 315 U.S. 110, 119, 62 S.Ct. 523, 86 L.Ed. 726:

    "The commerce power is not confined in its exercise
  to the regulation of commerce among the states. It
  extends to those activities intrastate which so
  affect interstate commerce, or the exertion of the
  power of Congress over it, as to make regulation of
  them appropriate means to the attainment of a
  legitimate end, the effective execution of the
  granted power to regulate interstate
  commerce. * * * The power of Congress over interstate
  commerce is plenary and complete in itself, may be
  exercised to its utmost extent, and acknowledges no
  limitations other than are prescribed in the
  Constitution. * * * It follows that no form of state
  activity can constitutionally thwart the regulatory
  power granted by the commerce clause to Congress.
  Hence the reach of that power extends to those
  intrastate activities which in a substantial way
  interfere with or obstruct the exercise of the
  granted power."

Plaintiffs cite Texas v. Eastern Texas Ry. Co., 258 U.S. 204, 42 S.Ct. 281, 66 L.Ed. 566 (1922), in support of the proposition that the Commission has no authority to affect the intrastate operations of the North Shore. This case is readily distinguishable. In Eastern Texas the court concluded that the railroad was entirely within a single state, was owned and operated by a corporation of that state, and was not a part of another line. It further concluded that interstate commerce would not be burdened or affected by its continued operation. In the case at bar, the North Shore operates in both Wisconsin and Illinois, and its intrastate and interstate operations cannot be separated realistically. Furthermore, the Commission found that the continued operation of any portion of the North Shore line would unreasonably burden interstate commerce.

There seems to be no contention by plaintiffs that the evidence is insufficient to justify the issuance of a certificate of public convenience and necessity authorizing abandonment if it is limited solely to interstate operations, provided their position with respect to Section 1 (22) is held to be unsound. Indeed, we do not see how such a contention could very well be made in the face of the findings of fact upon which the certificate is based.

In its Report dated May 10, 1962, the Commission found that "the present revenues have not been, and future revenues will not be, sufficient to cover the cost of applicant's continued operation with sufficient maintenance of facilities necessary to safety of operation * *." This conclusion is justified by the evidence. The outstanding single fact supporting this conclusion is that the North Shore for a thirty-year period covering the years 1932 through 1961 (except during the World War II years 1941-1946) has sustained large operating losses. The Commission found that if normal maintenance were included in the North Shore costs, it would result in deficits of $624,000 in 1959; $693,000 in 1960; and $762,000 for the year ending May 31, 1961. The actual operating deficits for the years 1955 to 1961 are set out below.*fn5

Since we have determined that the Commission had jurisdiction to authorize abandonment of the intrastate as well as the interstate operation of the railroad, we now conclude that the evidence justified the issuance of the certificate.

Accordingly, the complaint herein is dismissed and the counterclaim requesting that the plaintiffs and each of them, their agents, employees and attorneys be enjoined by the decree of this court from in any manner interfering with the defendant's right to terminate its entire operations and dispose of its property all in accordance with and pursuant to the authority conferred by the certificate of the Interstate Commerce Commission in its order and certificate issued May 10, 1962, is granted. A decree consistent herewith will be entered.

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