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Gibbons v. United States and Interstate Commerce Commission

decided: August 26, 1981.


On Petition for Review of Orders of the Interstate Commerce Commission

Before Bauer and Wood, Circuit Judges, and Grant,*fn* Senior District Judge.

Author: Bauer

We consider two issues in these consolidated appeals: first, the power of the Interstate Commerce Commission to set compensation for the temporary, "permissive" use of lines of the Chicago, Rock Island and Pacific Railroad Company ("Rock Island"); second, the propriety of the compensation granted to the Rock Island in three service orders. We affirm the orders of the Interstate Commerce Commission.


The Interstate Commerce Commission ("ICC") authorized three carriers the St. Louis-San Francisco Railway Company ("Frisco"), the Regional Transportation Authority ("RTA"), and the St. Louis Southwestern Railway Company ("SSW") to conduct rail operations temporarily over certain Rock Island lines.*fn1

Service Order No. 1451, issued by the ICC on March 19, 1980, and revised on April 15, 1980, authorized Frisco to operate at eight former Rock Island locations over short segments of track with high traffic density. The ICC asserted authority to issue Service Order No. 1451 under 49 U.S.C. § 11123(a) (3).*fn2

Directed Service Order 1437 was issued by the ICC on March 20, 1980, pursuant to the directed service statute, 49 U.S.C. § 11125. It granted the RTA or its agent authority to provide service as a directed rail carrier over the Rock Island's Chicago-Joliet, Illinois commuter line, a distance of 40.6 miles.*fn3

Directed Service Order No. 1453*fn4 was issued by the ICC on March 21, 1980, also pursuant to 49 U.S.C. § 11125. This Order granted SSW temporary authority to operate the Rock Island's Tucumcari line between Santa Rosa, New Mexico, and St. Louis, Missouri, a distance of 965.2 miles.

Directed Service Order No. 1456,*fn5 issued by the ICC on March 25, 1980, pursuant to 49 U.S.C. § 11125, granted the SSW temporary authority to operate over the Rock Island line between Memphis, Tennessee and Fordyce, Louisiana, and certain branch lines.

Each of the orders were termed "permissive", that is, the ICC gave each carrier permission to use the lines, but did not require them to do so. Each of the orders provided for directed service from late March to May 31, 1980, the maximum allowable time for directed service under 49 U.S.C. § 11125. Each of the orders expressly conditioned permission to use the lines on a waiver of federal subsidization under 49 U.S.C. § 11125(b)(5), since the Congressional appropriations under that subsection had run out.

Each service order was conditioned also on the payment of compensation by the carriers to the Rock Island. The directed service orders contained the following provision:

(SSW or RTA) and the RI Trustee shall negotiate regarding terms of compensation regarding use of the line and related facilities. In the event of a failure to reach agreement, we (the ICC) reserve the right to set reasonable compensation terms.

Directed Service Order Nos. 1453 at 8; 1456 at 7. Supp. Order No. 1, Directed Service Order No. 1437 (March 25, 1980) at 1. Similar language was contained in Service Order No. 1451 (Frisco).

The several rail carriers and the Trustee entered into negotiations as anticipated by the compensation condition in each order. Negotiations immediately broke down. On April 3, 1980, SSW filed a "Petition for Determining and Fixing, or Denying Compensation" seeking the exercise of the Commission's reserved "right to set terms of reasonable compensation." When negotiations with Frisco broke down, Frisco filed a petition seeking Commission arbitration. The negotiations with the RTA also reached an impasse. In that case, the Trustee himself requested the Commission to set the terms of compensation.

The ICC issued three Compensation decisions in response to the various petitions. In its decision setting compensation for Frisco's use of Rock Island property, the Commission established a compensation formula which was applied to all the other lines involved here, except the Tucumcari. Finance Docket No. 29305, 363 I.C.C. 248 (1980) ("Frisco Compensation Order"). See Supp. Order No. 2, Directed Service Order No. 1437 (May 9, 1980) (RTA); Supp. Order No. 2, Directed Service Order Nos. 1453 and 1456 (April 28, 1980) (Memphis-Fordyce line). The Frisco order provided for a base rental of $1250 per route mile per year, plus 14.4 per cent of any profits generated by the line. The Commission ordered rent for the Tucumcari line based on a percentage rate of return on the agreed sale price of the line between the Rock Island and SSW, less expenditures which preserved the value of the property (up to fifty percent of rent payment).

The Commission affirmed its decision in September 1980, concluding that the formulas made a reasonable accommodation of the opposing interests of the parties. Frisco Compensation Decision on Reconsideration, Finance Docket No. 29305, 363 I.C.C. 264, 269 (1980) and Decision on Reconsideration, Supp. Order No. 2 to Directed Service Orders Nos. 1453 and 1456, 363 I.C.C. 252, 263 (1980).

In No. 80-1858, SSW petitions for review of the Tucumcari and Memphis-Fordyce compensation order and the ICC's decision on reconsideration. In No. 80-1786, the Trustee of the Rock Island and other parties*fn6 petition for review of all three compensation orders. RTA and Frisco intervene on behalf of the Commission in No. 80-1786.


The scope of the issues before us should be clarified at the outset. None of the parties contest the Commission's authority to order temporary directed service under section 11123(a)(3) or section 11125*fn7 of the Interstate Commerce Act. Further, none of the parties contest the Commission's authority to condition the grant of a temporary directed service order (DSO) on a waiver of the federal subsidy provided by section 11125(b)(5)*fn8 although the power to require waiver of the subsidy is not expressly given by the Act. Rather, the two petitioners contest the Commission's authority to also condition the grant of a DSO on the payment of rent to the Rock Island.

Although congruent in their goals, the two petitioners differ in their motives. The Trustee wants compensation to be determined in the Reorganization Court, where he hopes to get more money. Thus he argues that the use of its lines here constitutes a "taking" requiring a judicial determination of "just compensation." SSW, on the other hand, wants to pay the Rock Island nothing. So it argues, disingenuously, that the ICC has the power to authorize one type of condition, but not the other.

We tire of arguments of expediency addressed to us under the guise of principle. Nevertheless, we have considered these contentions seriously. Both are without merit.

The ordering of directed service pursuant to section 11125 does not constitute a fifth amendment taking. Lehigh & New England Rwy. Co. v. I.C.C., 540 F.2d 71, 82 (3d Cir. 1976), cert. denied, 429 U.S. 1061, 97 S. Ct. 784, 50 L. Ed. 2d 776 (1977). Since a railroad's property is charged with the public interest, New England Divisions Case, 261 U.S. 184, 190, 43 S. Ct. 270, 273, 67 L. Ed. 605 (1923), no taking of private property for public use occurs when a directed carrier performs the public service obligations of the defaulting carrier. 540 F.2d at 82.

Rock Island contends that Lehigh does not apply to it because it has been declared "cashless." Our decision in In re Chicago, Milwaukee, St. Paul & Pacific R.R. Co., 611 F.2d 662, 669 (7th Cir. 1979), held that a cashless railroad "cannot be required to continue operating to serve the public interest." The Rock Island argues that Milwaukee means that its public service obligations have ended and that therefore any use of its property for a public purpose constitutes a taking. We disagree.

Our decision in Milwaukee held only that the ICC could not force the Rock Island itself to continue operating. But even if the Rock Island cannot operate, it must still fulfill its obligations under the Interstate Commerce Act. 49 U.S.C. § 11101; see Akron, Canton & Youngstown R.R. Co. v. I.C.C., 611 F.2d 1162, 1168 (6th Cir. 1979), cert. denied, 449 U.S. 830, 101 S. Ct. 97, 66 L. Ed. 2d 34 (1980). Those obligations end only with the grant of a certificate of abandonment. 49 U.S.C. § 10903; New Haven Inclusion Cases, 399 U.S. 392, 461, 90 S. Ct. 2054, 2093, 26 L. Ed. 2d 691 (1970); Lehigh, 540 F.2d at 83. Would a finding of "cashlessness" suffice, the need for a certificate of abandonment would be eliminated in many cases. Such a result would contravene the express Congressional directive that only the Interstate Commerce Commission determine whether "the present or future public convenience and necessity require or (should) permit the abandonment or discontinuance" of rail service. 49 U.S.C. § 10903. Therefore, until a certificate of abandonment is issued, a rail carrier who is authorized to operate over the Rock Island's lines is fulfilling the Rock Island's obligations.

We agree with the Lehigh court that no taking has occurred. Lehigh, 540 F.2d at 84. Accordingly, compensation for the use of its lines need not be set in a judicial proceeding or be equal to "just compensation" under the Constitution.


Until March 23, 1980, when federal subsidies ran out, the ICC directed federally subsidized service on the Rock Island system under section 11125. Directed Service Order No. 1398 (Sept. 26, 1979, I.C.C.) and Supp. Orders Nos. 1 and 2. Effective May 30, 1980, the Commission was granted express authority to direct unsubsidized service with compensation over the Rock Island system. ROCK ISLAND TRANSITION AND EMPLOYEE ASSISTANCE ACT ("RITA"), 45 U.S.C. §§ 1015, 1017. Indeed, the ICC has directed service under these sections with compensation over the lines involved here by the same carriers. Supp. Order No. 3, Directed Service Order No. 1437 (May 30, 1980) (RTA), Service Order No. 1473 (May 30, 1980) (SSW-Tucumcari line). The ...

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