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Busboom Grain Co. v. United States

decided: August 4, 1988.


Appeal from an Order of the Interstate Commerce Commission.

Wood, Jr., Posner, and Easterbrook, Circuit Judges.

Author: Posner

POSNER, Circuit Judge.

Two shippers, Busboom and Fisher, joined by a representative of railroad workers, have challenged the Interstate Commerce Commission's decision to allow the Chessie system to abandon 17 miles of track in Southern Illinois pursuant to 49 U.S.C. § 10903(a). We refused to stay the Commission's order, see 830 F.2d 74 (7th Cir. 1987); the petitioners, in filing what amounted to a pro forma application for a stay, common in these abandonment cases, had inexplicably withheld their strongest grounds.

The track in question is the last three-quarters of the Brothers Branch line, which runs from the railroad's Evansville-Chicago trunk at Rossville four miles southwest to Henning, from Henning seven miles south to the well-named town of Collision, where Busboom has a grain elevator, and from Collision another seven miles south to Brothers, where Fisher, the other protesting shipper, has an elevator. Midway between Collision and Brothers a spur runs east three miles to an electrical generating plant owned by the Illinois Power Company. Once used to carry coal to the plant, the spur has not been in service for the last fifteen years and some of the track has been paved over. The track that the ICC authorized the railroad to abandon is the stretch of the Brothers Branch line running from Henning to Brothers, including the IPC spur.

The railroad made elaborate submissions to the Commission in an effort to show that continuing to serve Busboom and Fisher would impose costs vastly greater than its revenues from hauling corn and soybeans for these two shippers -- the only business of the Brothers Branch line. In the "base year" used by the Commission to determine the profitability of the Brothers Branch line the railroad had hauled fewer than 300 carloads, earning revenues of roughly $200,000 and losing -- when all relevant costs are taken into account -- more than $50,000. Much of the protesting shippers' challenge consists of efforts to show that the railroad has exaggerated the costs properly allocable to the Brothers Branch, and we begin with these efforts.

Some of them are futile, for example the complaint that the Commission improperly allowed the railroad to use "normalized" price data in estimating the value of freight cars used on the Brothers Branch line. (The estimate was used to compute the amount of depreciation that the railroad could figure into the costs of operating the line.) "Normalization" meant that the railroad, instead of using actual transaction prices for freight cars, used the manufacturer's cost of building the cars and added a mark-up for "normal" profit. It did all this because actual transaction prices might be depressed by a poor market in the year when the car was sold; yet the procedure seems not only roundabout but also misconceived. The relevant question in an abandonment case is what the railroad would save by abandoning the line, and the simplest way of estimating the freight-car component of this cost is to ask what the market value of the cars used on the line is, not what the cars cost to build. True, the cars' value to the Chessie system might be greater or less than their market value, for market value is value to the marginal purchaser, not to every purchaser; but market value is the place to start.

However, the pertinent regulation, whose validity these shippers do not question, allows the railroad to estimate the cost of freight cars "by first arriving at the current cost per car using . . . a price quote from the manufacturer," 49 C.F.R. § 1152.32(g)(3)(i) (1987), and it was within the Commission's discretion in interpreting its own regulation to allow the "normalized" method to be used in order to correct the distortions that would result from using the purchase prices of cars bought when the market was depressed. See International Minerals & Chemical Corp. v. ICC, 656 F.2d 251, 256-57 (7th Cir. 1981); cf. Black v. ICC, 737 F.2d 643, 656 (7th Cir. 1984). The shippers were free to show if they could that the Commission's method yielded absurd results, as would be a reasonable inference if the normalized price turned out to be remote from both the market value of the cars and some reasonable estimate of their actual value to the Chessie system. But as they put in no evidence the Commission's estimate must stand. Illinois v. ICC, 722 F.2d 1341, 1349 (7th Cir. 1983).

We were, nevertheless, pleased to learn at argument that the Commission was proposing to change its regulation so that henceforth a railroad will simply be asked what it would save in freight-car costs (by selling cars, or redeploying them elsewhere in its system) by abandoning a line. See Abandonment Regulations, Costing: Implementation of the Railroad Accounting Principles Board Findings, 53 Fed. Reg. 17,234 (1988). That is at once a simpler and an economically more sensible approach than normalization, but the approach followed in this case was within the Commission's discretion.

The shippers next, and seemingly inconsistently, complain that in computing fuel costs the Commission improperly confined its attention to the base year, which, as the shippers correctly point out, may not be representative of fuel costs over the entire period during which the Brothers Branch would remain in service if the railroad's request for abandonment were denied. The shippers want to make the same sort of adjustment that the railroad made in freight-car costs by using normalized rather than actual prices, but of course the inconsistency is equally the railroad's and the Commission's in refusing to normalize fuel costs. The Commission makes the curious argument that the well-known volatility of fuel prices supports the use of a single year; it supports the opposite. But again the shippers failed to carry their burden of producing evidence after the railroad has produced at least some evidence in its own favor.

We have affirmed the Commission's authority to allocate burdens of producing evidence between the proponents and the opponents of abandonment, see, e.g., Simmons v. ICC, 784 F.2d 242, 246 (7th Cir. 1985), while noting that the Commission's discretion in this regard is not plenary, see Indiana Sugars, Inc. v. ICC, 694 F.2d 1098, 1101-02 (7th Cir. 1982); Chesapeake & Ohio Ry. v. United States, 704 F.2d 373, 379 (7th Cir. 1983). There is on the one hand the strong interest in streamlining the abandonment process, an interest served by requiring protesting shippers to put up or shut up, rather than allowing them to spin out abandonment proceedings at no cost to themselves but great cost to the railroad by insisting that the railroad produce enough evidence to dispel any possible doubt that abandonment would be in the public interest. On the other hand, proceedings before the Interstate Commerce Commission are not supposed to be "purely adversary contests. . . . The Commission is supposed to protect the public interest, not just umpire disputes. Shippers adversely affected only in the long run [by certain joint-rate cancellations proposed by Conrail] might not have the resources or the incentives to challenge Conrail's massive computer study, especially when that study was submitted in so summary a form as to discourage challenge." Id.

Here the Commission acted properly in concluding that the railroad had put in enough evidence on fuel costs to shift the burden of production to the shippers. This case is not like Chesapeake & Ohio, where the railroad was proposing massive operating changes bound to have extensive repercussions on the shipper community, and was complicating the task of opposition to its proposal by submitting an opaque summary of its undigestible statistical evidence. This case involves the proposed abandonment of a single, small, marginal line. In support of its proposal the railroad submitted 1,400 pages of reasonably lucid documentation. The protesting shippers were not entitled just to snipe. They could have submitted futures prices for fuel; those would have been a better estimate of the relevant fuel costs over the predicted life of the Brothers Branch line (if not abandoned). They submitted nothing. Carping at the carrier's submission was not enough. See Illinois Commerce Comm'n v. ICC, 848 F.2d 1246, slip op. at 8 (D.C. Cir. 1988) (per curiam).

The shippers mount perfunctory attacks on two other aspects of the Commission's costing of the Brothers Branch line; we shall ignore these and move to the two most substantial such attacks. The first concerns the Commission's finding that the railroad would incur a $35,000 maintenance cost to keep the Brothers Branch line in service for one more year and $12,000 for each subsequent year. These expenses appear to be due to four recent bridge washouts. The cost of replacing the bridges the Commission quite properly treated as a capital expenditure to be depreciated, but it allowed other expenditures incidental to the washouts -- in particular, expenditures on resurfacing the approaches to the bridges -- to be treated as expenses in the year incurred: hence the $23,000 difference between the cost assigned to the first year and the cost assigned to the subsequent years. The rationale for this procedure is neither obvious nor explained. The resurfacing of the bridge approaches, like the building or buying of a new bridge, will yield benefits over more than one year unless (as we greatly doubt, and the record does not show) the approaches must be resurfaced yearly. The Commission offered no explanation for the discrepant treatment of these two items of cost. Its brief observes that the expenditures in question "were not normalized maintenance costs over the long run, but rather costs that would have to be incurred in the next year following the denial of the abandonment." But the same is true of the cost of replacing the bridges, and the Commission treated that cost differently. The Commission will have to make new findings on the matter.

And so with lumping in the IPC spur with the rest of the Brothers Branch line in determining the railroad's opportunity costs of continuing to operate the line. The shippers argue with great force that the spur is not an opportunity cost of operating the line. The spur could be abandoned -- and summarily too, since it has had no business for the last fifteen years, see 49 C.F.R. § 1152.50(b); Illinois Commerce Comm'n v. ICC, supra -- regardless of the fate of the rest of the line. Indeed, because the railroad had already removed much of the trackage on the spur, the Commission confined its estimate of net salvage value to the value of the land ($37,090). An opportunity cost is the revenue or other benefit forgone from using a resource in one way rather than another. By using freight cars to haul corn and soybeans from the Busboom or Fisher elevators, the Chessie system loses the income it would obtain from some other use of those cars, such as selling them, or leasing them to other railroads, or using them elsewhere in its system, where they might replace older cars or cars more costly to operate. That lost income is a true opportunity cost. The shippers argue, however, that without discontinuing its service to them, the railroad could readily, virtually costlessly, have abandoned the IPC spur -- and perhaps even have found a buyer for the (remaining) track and land, thereby making the net cost of abandonment negative. (But how likely is that? If the railroad could make a net profit from abandoning the spur, why didn't it abandon it -- which could have been done summarily -- before this proceeding?) If they are right, the abandonment of the spur and the abandonment of the parts of the line serving the protesting shippers should be decoupled; the benefits that the railroad would obtain from abandoning the spur cannot be a cost of hauling corn and soybeans from Brothers and Collision if those benefits ...

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