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Southeastern Pennsylvania Transportation Authority v. Interstate Commerce Commission

as amended may 14 1981: March 12, 1981.

SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY, PETITIONER
v.
INTERSTATE COMMERCE COMMISSION, RAIL SERVICES PLANNING OFFICE, RESPONDENT; CONSOLIDATED RAIL CORPORATION, INTERVENOR



PETITION FOR REVIEW FROM AN ORDER OF THE INTERSTATE COMMERCE COMMISSION, RAIL SERVICES PLANNING OFFICE

Before Gibbons, Weis and Sloviter, Circuit Judges.

Author: Sloviter

Opinion OF THE COURT

I.

This petition for review concerns an issue arising under the cost allocation Standards promulgated by the Rail Services Planning Office (RSPO) of the Interstate Commerce Commission (ICC).*fn1 The relevant statutes and regulations are the Regional Rail Reorganization Act of 1973, Pub.L.No.93-236, 87 Stat. 985, (3R Act) as amended by the Railroad Revitalization and Regulatory Reform Act of 1976, Pub.L.No.94-210, 90 Stat. 31, (4R Act) (sometimes jointly referred to as the "Rail Act"),*fn2 and the Standards for Determining Commuter Rail Service Continuation Subsidies, 49 C.F.R. § 1127 (1979), as amended by, 45 Fed.Reg. 45 (1980) (the Standards).

The within petition for review has been filed by the Southeastern Pennsylvania Transportation Authority (SEPTA), a public authority organized in corporate form pursuant to a Pennsylvania statute, the Metropolitan Transportation Authorities Act of 1963, Pa.Stat.Ann. tit. 66, §§ 2001-2043 (Purdon Supp.1980). SEPTA is responsible for the development and operation of a transportation system in the Philadelphia metropolitan area, including the provision of commuter rail service. Prior to the creation of Conrail from the properties of the insolvent Northeastern railroads, SEPTA had provided commuter rail services by contracting for them with the Pennsylvania (later the Penn Central) and Reading Railroads or, in the period immediately before Conrail's establishment, the railroads' trustees in bankruptcy. Following the enactment of the Rail Act, SEPTA opted to continue to fund the commuter rail services; accordingly it offered and currently pays rail service continuation payments to Conrail. Conrail, in turn, has continued to operate commuter rail service in the area.

The issue raised by SEPTA's petition relates to the appropriate allocation of certain costs between SEPTA and Conrail. Conrail has intervened in this appeal.*fn3

II.

GENERAL BACKGROUND OF RAIL REORGANIZATION

It may be useful to begin with a brief review of the background of Congress' recent rail legislation. By the early 1970's eight major railroads in the Midwest and Northeast region of the United States were insolvent and threatened with cessation. Congress recognized that rail transportation problems were "approaching crisis proportions" and could result in "drastic consequences throughout the United States," S.Rep.No.601, 93d Cong., 1st Sess. 7-8, reprinted in (1973) U.S.Code Cong. & Ad.News 3242, 3248. Congress embarked on a series of steps to help restore the railroad system of the United States.

In 1970, Congress enacted the Rail Passenger Service Act, 45 U.S.C. §§ 501-645 (1976), which created the National Railroad Passenger Corporation, a "for profit corporation" known as Amtrak. This statute was directed to the problems of intercity passenger service. Railroads which entered into contracts with Amtrak were relieved of their obligations to provide intercity passenger service as of May 1, 1971, and Amtrak was required to operate passenger trains within the "basic system." See H.R.Rep.No.1580, 91st Cong., 2d Sess., reprinted in (1970) U.S.Code Cong. & Ad.News 4735.

In 1973, Congress enacted the Regional Rail Reorganization Act (the 3R Act) in an effort to reorganize the bankrupt railroads.*fn4 The statute created three new entities. First, the United States Railway Association, a new government corporation, was formed to "engage in the preparation and implementation of the final system plan." 3R Act, §§ 201, 202(a)(1), currently codified at 45 U.S.C. §§ 711, 712(a)(1) (1976).*fn5 The Final System Plan was envisioned as a "basic document which will identify the necessary rail services in the Midwest and Northeast region and propose needed restructuring, rehabilitation, and modernization." S.Rep.No.601, 93d Cong., 1st Sess. 25, reprinted in (1973) U.S.Code Cong. & Ad.News 3242, 3265. Although the 3R Act established eight goals which the Final System Plan was to effectuate, Congress identified the "two basic goals," id., as "(1) the creation, through a process of reorganization, of a financially self-sustaining rail service system in the region; (and) (2) the establishment and maintenance of a rail service system adequate to meet the rail transportation needs and service requirements of the region." 3R Act, § 206(a)(1), (2), currently codified at 45 U.S.C. § 716(a) (1), (2). The Final System Plan was also required to designate, inter alia, which rail properties of the bankrupt railroads were to be transferred to the Consolidated Rail Corporation (Conrail); which properties were to be offered for sale to profitable railroads in the Midwest and Northeast region; and which properties were to be available for purchase or lease from Conrail by a state or a local or regional transportation authority to meet the needs of commuter rail passenger service. 3R Act, § 206(c)(1)(A), (B), (D), currently codified at 45 U.S.C. § 716(c)(1)(A), (B),(D) (1976). The Railway Association was obliged to submit the Final System Plan to Congress. 3R Act § 208(a), currently codified at 45 U.S.C. § 718(a) (1976). When the Final System Plan was submitted to Congress on July 26, 1975, neither house exercised its statutory opportunity to disapprove it, and it was therefore deemed approved. Id.

The 3R Act also established the Rail Services Planning Office (RSPO), a party to the instant litigation. The duties of the RSPO set forth in the 3R Act included the evaluation of reports by the Secretary of Transportation concerning rail services in the region; representation of communities and rail service users who would otherwise be inadequately represented in the service evaluation process necessitated by the Act; publication of standards for the definition of accounting terms used in section 304 of the 3R Act; and assistance to states or transportation authorities in determining whether to provide rail service continuation subsidies to continue the operation of certain rail services. 3R Act, § 205, currently codified at 49 U.S.C. § 10362 (Supp. III 1979).

Finally, the 3R Act created the Consolidated Rail Corporation (Conrail), a for-profit corporation, which was intended to provide continued freight service and which was authorized to acquire rail properties designated by the Final System Plan to be transferred to it; operate and maintain adequate and efficient rail service as required by the 3R Act; and rehabilitate and modernize its rail properties. 3R Act, §§ 301, 302, currently codified at 45 U.S.C. §§ 741, 742 (1976).

The 3R Act attempted to resolve one of the problems that had plagued the now bankrupt railroads by enabling Conrail to discontinue obsolete or unprofitable rail services without first securing the permission of the ICC. The statute provided a more expeditious procedure by which large portions of rail lines in the Northeast and Midwest designated as unnecessary in the Final System Plan could be abandoned or discontinued, 3R Act § 304(a), currently codified at 45 U.S.C. § 744(a) (1976 & Supp. III 1979). See Illinois v. Consolidated Rail Corp., 589 F.2d 1327 (7th Cir. 1978), cert. denied, 442 U.S. 942, 99 S. Ct. 2884, 61 L. Ed. 2d 312 (1979). See also discussion in Johnson, The Railroad Revitalization and Regulatory Reform Act of 1976, 45 ICC Prac.J. 27 (1977). Although the rail service continuation program primarily affected freight lines, Conrail's predominant business, some of the insolvent railroads which conveyed rail lines to Conrail under the Final System Plan had also previously provided commuter services under contracts with state and local transportation authorities. Congress was aware that discontinuation of these services would cause employment and environmental disruption in many communities. S.Rep.No.601, 93d Cong., 1st Sess. 37, reprinted in (1973) U.S.Code Cong. & Ad.News 3242, 3277. To alleviate these problems the 3R Act obliged Conrail to provide commuter rail services if states or local transportation authorities made rail service continuation payments to subsidize these desired, but unprofitable, rail services. 3R Act, § 304, currently codified at 45 U.S.C. § 744 (1976 & Supp. III 1979).

While the restructuring mandated by the 3R Act was in progress, it became evident that the financial problems of the bankrupt railroads were not confined to the Northeast and Midwest region. Accordingly, in 1976, Congress enacted the Railroad Revitalization and Regulatory Reform Act of 1976, Pub.L.No.94-210, 90 Stat. 31, which amended the 3R Act so as to accomplish on a national scale much of what the 3R Act provided for the Northeast and Midwest region and which also made certain substantive changes to the underlying legislation. See generally Adams, Railroad Revitalization and Regulatory Reform Act of 1976 An Interim Review, 32 Bus.Law 975 (1977). The RSPO, which had been conceived as a temporary office by the 3R Act, was established as a permanent office and given additional designated responsibilities. 4R Act, § 309, currently codified at 49 U.S.C. § 10361 (Supp. III 1979).

Pursuant to this national scheme, properties of the bankrupt railroads were conveyed to Conrail on April 1, 1976. On the same day, it transferred to Amtrak main line and certain contiguous rail properties in the Northeast Corridor but retained operating easements for its freight service and for its operation of subsidized commuter passenger service. Under a management agreement between Conrail and Amtrak, Amtrak undertook maintenance of way and accounting and record keeping responsibilities pertaining to the Northeast Corridor properties. Issues between Conrail and Amtrak do not enter into the litigation before us.

III.

COMMUTER RAIL SERVICE

The Final System Plan earmarked thirteen commuter rail services in the Northeast and Midwest Region for discontinuance. Under the requirement set forth in the Rail Act, Conrail was required to operate these commuter services for 180 days after April 1, 1976.*fn6 Thereafter, Conrail was required to continue those services if the local governments or authorities offered to pay the required subsidy. Under provisions of both the Rail Act and the Urban Mass Transportation Act of 1964, the Urban Mass Transportation Authority was required to reimburse Conrail and the local bodies or agencies for their entire losses incurred during the 180 day mandatory operation period, which ran from April 1 to September 27, 1976. Congress also authorized federal emergency operating assistance to sustain the continuing operations over a two and a half year period until September 27, 1978. The RSPO was instructed to develop Standards for computing subsidies to be paid by the local authority and to determine the emergency operating payments.

It formulated the Standards for computation of subsidies through the rulemaking process during which the RSPO revised its proposals in response to comments received from interested parties.*fn7 The current version of the Standards appear at 49 C.F.R. Part 1127.*fn8 In essence the Standards implement section 304(c)(2)(A) of the 3R Act, as amended, central for purposes of this case, which provides that Conrail may not discontinue service

if a financially responsible person (including a government entity) offers

(A) to provide a rail service continuation payment which is designed to cover the difference between the revenue attributable to such rail properties and the avoidable costs of providing rail service on such properties, together with a reasonable return on the value of such properties.

45 U.S.C. § 744(c)(2)(A) (1976). The statute expressly gives the RSPO responsibility for defining the key phrases, "revenue attributable to the rail properties", the "avoidable cost of providing service", and a "reasonable return on value", as those phrases are used in Section 304 of the Act. 3R Act, § 205(d), currently codified at 49 U.S.C. § 10362(b)(6) (Supp. III 1979).

In designating the RSPO's responsibilities, the 4R Act added another significant factor to be considered by the RSPO in promulgating the Standards. Section 205(d) of the 3R Act, as amended, provides, in pertinent ...


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