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Illinois Central Gulf Railroad Co. v. United States

decided.: September 15, 1983.


Petition for Review of an Order of the Interstate Commerce Commission.

Cummings, Chief Judge, Bauer, Circuit Judge, and Fairchild, Senior Circuit Judge.

Author: Cummings

CUMMINGS, Chief Judge.

This is an action to set aside several decisions of the Interstate Commerce Commission ("ICC") in Docket No. AB-43 (Sub-No. 85F), Illinois Central Gulf Railroad Company -- Abandonment between Cisco and Green's Switch, Illinois. In January 1982, Illinois Central Gulf Railroad Company ("ICG") filed a notice of intent to abandon 13.41 miles of railroad line from Cisco to Green's Switch, Illinois, and a complete abandonment application was filed in February 1982. On May 11, 1982 the ICC served its decision granting ICG's abandonment application. Under 49 U.S.C. § 10905, when the Commission approves the abandonment of a rail line, any financially responsible person willing to provide continued rail service over the line may file an offer to purchase the line within 10 days. Cisco Cooperative Grain Company ("Cisco") did so on May 21; Illinois Power Company ("IP") also filed an offer of financial assistance to acquire a 2.3 mile segment of the line, but conditioned its offer on rejection on Cisco's offer for the entire segment.

On May 24, the ICC found Cisco to be financially responsible and its offer to be bona fide, and accordingly postponed the issuance of the certificate of abandonment to give the parties a chance to negotiate price, or to request the Commission to set the terms and conditions for the purchase. See 49 U.S.C. § 10905(d). The ICC's decision was served May 26. On May 25, between the issuance and service of the ICC decision, ICG filed a motion to dismiss Cisco's offer to purchase the line. Because the ICC decision had already issued, the Commission treated ICG's motion as an appeal, 49 C.F.R. § 1011.7(b)(1), which was denied on July 15. Negotiations between Cisco and ICG were unsuccessful and on June 25, Cisco asked the ICC to set the terms for the sale. Cisco estimated the value of the line to be $269,939 on the basis of an independent appraisal by Mr. Craig Burroughs, President of the Prairie Central Railway Company, of the net salvage value of the track materials, and an independent appraisal by Mr. Verne Roby of Roby & Associates, real estate appraisers, of the value of the land for its highest and best nonrail use.

On August 12, ICG disputed Cisco's appraisal and requested a sale price of $663,286 based on the verified statements of two of its employees, Jeffrey Wells, Consolidation Engineer, and John Wyatt, Area Manager of Special Projects. On August 24, the ICC served a decision ordering ICG to sell the line to Cisco for $279,122.40. The Commission gave Cisco 10 days to accept the terms and set the closing date for November 22, 1982.

Accordingly, Cisco on September 3 accepted the offer, but also petitioned the ICC to modify the closing date. ICG objected that Cisco's acceptance was "conditional" and therefore invalid. Cisco's petition was based on the fact that it had appealed an adverse ICC decision in a related case, see Cisco Cooperative Grain Co. v. ICC, 717 F.2d 401 (7th Cir. 1983), also decided today, and did not want to prejudice that action by closing before the other case was decided on appeal. The Commission on November 15, however, extended the closing date because of ICG's appeal of the August 24 order setting the terms and conditions of sale, holding that it would be unfair to require the parties to consummate the sale before this Court had the opportunity to review the Commission's actions in setting the price.

First, ICG challenges as arbitrary and capricious the May 26 decision finding Cisco to be financially responsible and its offer bona fide. Second, ICG challenges as violative of its due process right to be heard the July 15 decision treating its motion to dismiss Cisco's offer as an appeal. Third, ICG challenges as being outside the scope of the ICC's authority the November 15 decision extending the closing date. Finally, and most importantly, the ICG challenges as arbitrary and capricious the August 24 decision setting the purchase price.

A. The May 26 decision

ICG objects to the ICC decision on two grounds: first, that Cisco did not present enough evidence to show it was financially responsible, and second, that its petition did not present enough detail to constitute a bona fide offer. We reject both arguments. Section 10905(d) allows the ICC to postpone issuance of a certificate of abandonment when a financially responsible person makes a bona fide offer of assistance to enable rail transportation to be continued over the rail line in question. Both the finding of financial responsibility and the finding that the initial offer was bona fide are preliminary in nature, and simply constitute grounds for encouraging further negotiation. The purpose of the showing required by Section 10905(d) and 49 C.F.R. § 1121.38 is to prevent unjustified delays of railroad abandonments by screening out frivolous offers made by persons who are unable to fully compensate the railroad for its property. In this case, Cisco submitted annual financial statements for the past three and one-half years in accordance with 49 C.F.R. § 1121.38(c)(2)(iii) which requires "information" demonstrating financial resources; contrary to ICG's argument, the regulation does not require an "explanation" of financial resources. The ICC itself was perfectly capable of concluding from the information provided that Cisco was financially responsible. In addition, in accordance with Section 1121.38(c)(2)(v), Cisco explained why its estimate of net liquidation value differed from ICG's by relying on a professional appraisal it had conducted for this purpose. Although Section 1121.38(e)(4) requires a statement of the manner in which operations will be continued over the line, including a proposed operating agreement, Cisco had not yet executed such an agreement, and thus could only indicate its intention to contract with Prairie Central Railway Company. In light of the preliminary nature of the required showing, the May 26 decision based on the above information was neither arbitrary nor capricious.

B. The July 15 decision

Section 10905(c) gives any person 10 days from the date of service of a decision approving abandonment to offer to purchase the line. Section 10905(d) gives the ICC 15 days after publication of the decision -- which occurs when the decision is served*fn1 -- to find that the offer is bona fide and the offeror financially responsible. Cisco filed its offer on May 21, 10 days after the abandonment decision was served on May 11. The ICC thus had 5 days to rule on the offer. It issued its ruling on May 24, but served it on May 26. ICG argues that the ICC's failure to consider ICG's May 25 motion to dismiss the Cisco offer before it issued its May 26 decision violated ICG's due process right to be heard.

It is obvious that the reason ICG's pleading was not considered was because the ICC decision had been issued on May 24, a day before the ICG pleading was received. Given the fact that by statute the ICC had only 5 days in which to rule, it is untenable to claim that it purposefully intended to exclude comment by ICG on the matter before it. Indeed, the ICC did consider ICG's objections to Cisco when it treated the motion by ICG as an appeal. ICG argues that 49 C.F.R. § 1011.7(b)(1) subjects appeals to a very strict standard; they will only be granted in "exceptional circumstances to correct a clear error of judgment or to prevent manifest injustice." But ICG does not specify exactly how consideration of its pleading before the May 26 decision would have changed the result. As described in part A supra, the ICG objections essentially challenged the sufficiency of Cisco's evidence. Despite the "stricter" standard on appeal, the ICC Chairman makes clear in his July 15 opinion that he ...

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