Decatur County Comm v. STB ( 2002 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 00-4082
DECATUR COUNTY COMMISSIONERS, et al.,
Petitioners,
v.
SURFACE TRANSPORTATION BOARD, et al.,
Respondents.
____________
On Petition for Review of an Order of
the Surface Transportation Board
____________
ARGUED APRIL 16, 2002—DECIDED OCTOBER 15, 2002
____________
Before CUDAHY, COFFEY and WILLIAMS, Circuit Judges.
CUDAHY, Circuit Judge. The Decatur County Commis-
sioners, the Shelby County Commissioners and the City
of Shelbyville, all Indiana entities, as well as five rail
shippers, Lowe’s Pellets & Grains, Inc., Premier Ag Co-op,
Inc., Kolkmeier Brothers Feed, Inc., Greensburg Milling,
Inc., and Kova Fertilizer, Inc. (the petitioners) seek to
review an Order of the Surface Transportation Board
(Board or STB), declining to penalize the Central Railroad
Company of Indiana (CIND) for its twenty-month embargo
of a portion of the Shelbyville Line. We affirm the decision
of the Board.
2 No. 00-4082
I.
The Shelbyville Line is the last 58 miles of the Shelby-
ville Secondary Track. The Shelbyville Secondary Track
runs from Cincinnati, Ohio, (milepost 0.0) to Shelbyville,
Indiana (milepost 81.0). The Secondary Track had been
approved for abandonment in 1982, but was subsequently
returned to service when Consolidated Rail Corporation
(Conrail), its owner, entered into an agreement with the
State of Indiana and local interests to provide local and
“overhead” (i.e., traffic that neither originated nor termi-
nated on the line) non-common carrier rail service on the
line. When that agreement expired, Conrail and the States
of Indiana and Ohio negotiated to return the line to com-
mon carrier service. As a result of the negotiations, CIND
acquired the Shelbyville Secondary Track from Conrail in
1991 and assumed common carrier obligations.
Although, when CIND acquired the line, almost all of
it met Federal Railroad Administration (FRA) Class 2
standards, which permitted trains to be operated at 25
miles per hour on the line, CIND spent approximately
$271,000 to restore the line to an appropriate condition
for common carrier service. Over the next two years, CIND
continued to maintain the segment between milepost 0.0
and milepost 22, but maintenance otherwise was deferred,
and approximately 30 miles of track deteriorated to FRA
Class 1 standards. FRA Class 1 standards are the mini-
mum standards for an operating rail line and permit trains
to run at 10 miles per hour. See 49 C.F.R. § 213.9. In Oc-
tober 1994, CIND applied for Federal Local Rail Freight
Assistance (LRFA) funds to rehabilitate the track be-
tween milepost 22 and milepost 40 (essentially the subse-
quently embargoed segment) to FRA Class 2 standards. The
LRFA funds were to be used to replace crossties and to
perform ditching and surfacing. The grant application did
not mention that any grant money would be used to rem-
edy erosion and slippage.
No. 00-4082 3
CIND underwent a management change in November
1994. The new management embarked on a program to
rehabilitate the entire Shelbyville Line to FRA Class 2
standards. The segment between Sunman, Indiana, at
milepost 39.0, and Greensburg, Indiana, at milepost 63.0,
was rehabilitated to FRA Class 2 standards in 1995. CIND’s
application for LRFA funds was also granted in part. As
a condition of the grant, however, CIND was required
to spend $30 of its own funds for each $70 of LRFA funds
that it spent. CIND never used the LRFA grant funds.
CIND became aware, during an inspection trip, of
slippage, erosion, slides and other problems between
milepost 23.0 and milepost 39.0 after heavy spring rains
in 1996. The railroad made temporary repairs to permit
continued operations but held off on a permanent resolu-
tion, claiming uncertainty about the Shelbyville Line’s
viability. CIND ceased operating over the 16-mile segment
between milepost 23.0 and milepost 39.0 on February 24,
1997, after its personnel and a consultant inspected the
line and found that significant slippage had occurred at
milepost 32.8.
On the same day, CIND’s President, Christopher Burger,
telephoned to inform the five shippers who are petition-
ers in this case, and later notified them by letter, that rail
operations were being discontinued over the affected
segment but that CIND would continue to serve them
from the west. None of the shippers are located along the
16-mile segment itself. Burger advised the shippers that
they would soon be notified of rate changes in connection
with the new routing. He also warned them that the
affected segment might not be repaired, stating, “Based
upon our knowledge of existing and potential traffic, we
do not believe at this time that the expense of repairing,
rehabilitating and continuing to operate the line can be
justified.”
4 No. 00-4082
At the time CIND stopped operations over the affected
segment, the Shelbyville Line handled primarily over-
head traffic, which could be rerouted over other lines. Most
of the Shelbyville Line’s overhead traffic had come from
Conrail. But, in 1996, the completion of a major rail
infrastructure project in Cincinnati had relieved some of
the congestion that had prompted Conrail to route some
of its traffic over CIND. The bulk of the traffic over the
Shelbyville Line, however, still consisted of this Conrail
interchange traffic.
A week after CIND ceased operations on the 16-mile
segment, CIND rerouted its Conrail interchange traffic
from Indianapolis to Sharonville, Indiana. CIND also
rerouted traffic originating or terminating on the Shelby-
ville Line as necessary so that all shippers could re-
ceive uninterrupted rail service using routes that did not
involve the 16-mile segment. Two weeks later, on March
13, 1997, CIND announced surcharges of $700 to $1,000,
effective on April 2, 1997, on all carloads moving be-
tween the Shelbyville Line and interchange points at
Shelbyville, Indianapolis or Frankfort, Indiana.
In response, on April 2, 1997, the petitioners filed a
complaint with the Board pursuant to 49 U.S.C. § 11701(b)1
and asserted that CIND had unlawfully discontinued
operations on a rail line in violation of 49 U.S.C. § 109032
1
Section 11701(b) provides:
A person, including a governmental authority, may file with
the Board a complaint about a violation of this [statute] by a
rail carrier providing transportation or subject to the jurisdic-
tion of the Board.
2
Section 10903 provides in relevant part that:
(a)(1) A rail carrier providing transportation subject to the
jurisdiction of the Board under this [statute] who intends to—
(continued...)
No. 00-4082 5
and had imposed unlawful surcharges on freight in viola-
tion of 49 U.S.C. §§ 10701-04.3 The petitioners sought
restoration of service (by asking the Board to order immedi-
ate repairs of the soon-to-be embargoed segment) and
requested an award of damages (for the costs associated
with their shift to transportation by trucks instead of by
rail).
On April 10, 1997, CIND officially placed an embargo on
the 16-mile segment of the line between milepost 23.0 and
milepost 39.0. On April 22, 1997, CIND filed an answer
to the petitioners’ complaint, denying the allegations in
the complaint. Thereafter, CIND filed a Motion to Stay
Proceedings, indicating its intent to submit an abandon-
ment petition with the Board sometime in the future. By
an order dated September 24, 1997, the Board decided
to initiate an investigative proceeding and denied CIND’s
motion to stay.
In the interim, CIND had been trying to increase the
traffic over the Shelbyville Line. In late 1996, a decision
was made to sell Conrail’s lines in part to CSX Transporta-
tion, Inc. (CSXT), and in part to Norfolk Southern Rail-
way Company (NS). CSXT was to acquire the Conrail line
from which CIND received most of its overhead traffic, but
CSXT would be able to reroute that traffic over its own
lines without using CIND’s lines. Between October 1996
2
(...continued)
(A) abandon any part of its railroad lines; or
(B) discontinue the operation of all rail transportation
over any part of its railroad lines,
must file an application relating thereto with the Board. An
abandonment or discontinuance may be carried out only as
authorized under this chapter.
3
Sections 10701 to 10704 provide the framework for rate
changes.
6 No. 00-4082
and October 1997, CIND engaged in negotiations with
CSXT and NS, seeking favorable restructured traffic flows
and other concessions in connection with the planned
acquisition of Conrail by the other railroads. Although these
negotiations led to certain agreements by CSXT and NS to
mitigate some of the harm of lost traffic to CIND, there
was no agreement benefiting the Shelbyville Line. Thus, on
January 14, 1998, CIND filed a petition for an exemp-
tion from STB regulation, pursuant to 49 U.S.C. § 10502,4
so that CIND could abandon the entire 81-mile Shelby-
ville Line. The petition for exemption was denied. The
Board found the record inadequate and advised that a
formal application for abandonment should be filed under
49 U.S.C. § 10903 if CIND wished to pursue abandon-
ment. CIND filed a petition to reopen the exemption
proceedings on May 22, 1998, and replies in opposition
were filed on June 11, 1998.
RailTex, Inc., then sought authority to acquire CIND,
which was granted. In a letter filed on November 3, 1998,
CIND, now a RailTex subsidiary, notified the Board that
it had decided to resume operations over the entire
Shelbyville Line, and it withdrew its petition to reopen
the exemption proceeding. On September 28, 2000, the
Board issued an order denying the petitioners’ complaint.
The Board found that: (1) CIND’s failure to operate over
the embargoed segment of the Shelbyville Line during a
twenty month period was not unlawful, (2) CIND did not
violate its common carrier obligations and (3) the estab-
lishment of the surcharges of $700 to $1000 did not vio-
late 49 U.S.C. §§ 10701-04. Decatur County Comm’rs v.
Cent. R.R. Co. of Ind., No. 33386, at 2 (Surface Transp. Bd.
Sept. 29, 2000) (STB Decision). Because operations on the
entire Shelbyville Line had been restored in November
4
Section 10502 establishes the statutory scheme for grants of
exemptions.
No. 00-4082 7
1998, the Board did not consider, in its order denying the
complaint, the petitioners’ request for an order restoring
service on the line. Petitioners now appeal from the Board’s
determination that the embargo remained reasonable dur-
ing the twenty-month period.
II.
This court has jurisdiction to review final orders of the
STB pursuant to 28 U.S.C. §§ 2321(a) & 2342(5). Our
review of a decision by the Board is narrow. We will affirm
an order that is supported by substantial evidence. See
RLTD Ry. Corp. v. Surface Transp. Bd., 166 F.3d 808, 812
(6th Cir. 1999) (citing ICC v. Louisville & Nashville R.R.,
227 U.S. 88, 94 (1913)). We review a determination of the
Board regarding an embargo under “the high level of
deference accorded to an agency’s reasonable interpretation
of the statutes which the agency administers.” United
Transp. Union-Ill. Legislative Bd. v. Surface Transp. Bd.,
169 F.3d 474, 476 (7th Cir. 1999) (citing Chevron, U.S.A.,
Inc. v. Natural Res. Defs. Council, Inc., 467 U.S. 837
(1984)).
III.
The statutory common carrier obligation imposes a duty
upon railroads to “provide transportation or services on
reasonable request.” 49 U.S.C. § 11101(a). A railroad may
not refuse to provide services merely because to do so would
be inconvenient or unprofitable. G.S. Roofing Prods. Co. v.
Surface Transp. Bd., 143 F.3d 387, 391 (8th Cir. 1998). The
common carrier obligation, however, is not absolute. Id. A
valid embargo will relieve a carrier of its obligation to
provide service. Id. at 392. An embargo can be imposed
by a carrier to temporarily cease or limit service when it
is physically unable to serve specific shipper locations.
8 No. 00-4082
Under its common carrier obligation, the embargoing
railroad must restore service within a reasonable period
of time. Id.
To be valid, an embargo must be reasonable at all
times. G.S. Roofing, 143 F.3d at 392. The Board employs
a balancing test to determine the reasonableness of an
embargo. Under this test, the Board considers: (1) the cost
to repair the railroad; (2) the intent of the railroad; (3) the
length of the embargo; (4) the amount of traffic on the
line and (5) the financial condition of the carrier. Id. “The
reasonableness of an embargo involves a fact-specific in-
quiry and is to be determined on a case-by-case basis.” Id.
Here, the Board applied the balancing test and concluded
that the embargo remained reasonable at all times. The
petitioners contend that the Board erroneously applied
the balancing test. They argue that: (1) the Board erred
in considering the cost to rehabilitate the entire Shelby-
ville Line; (2) the Board’s determination of CIND’s intent
was not supported by substantial evidence; (3) the Board
erred in determining that CIND acted reasonably in im-
posing an embargo for twenty months and (4) the Board
erred in relying on the projected long-term profitability
of the Shelbyville Line. We address these arguments in
turn, in the context of the Board’s balancing test.
A.
As the first step in applying its balancing test, the Board
examines the cost to repair the railroad to return it to
safe operating condition. In the present case, the Board
found that the cost to repair the embargoed portion of
the line to FRA Class 1 standards (the minimum operat-
ing standard for a rail line) was $369,230. The Board also
found that the cost to repair the non-embargoed portion
of the Shelbyville Line to FRA Class 1 standards was
$187,250. Thus, the Board determined that the cost to
repair the entire line was $556,480.
No. 00-4082 9
The petitioners argue that, since the Board calculated
this latter number (the $556,480 figure), the Board con-
sidered that figure, which was the cost to repair the entire
line, instead of the cost to repair only the embargoed
portion of the line. Using the cost to repair the entire line
was erroneous, the petitioners allege, because the “proper
standard for assessing the cost of repair should focus on
the cost of resuming services at pre-embargo levels.” G.S.
Roofing, 143 F.3d at 393. But we believe that the Board
properly examined the cost of resuming services as pre-
scribed in G.S. Roofing.
In the present case, to determine the “cost of resuming
services at pre-embargo level,” the Board had to decide
how much of the line needed repairs and how extensive
those repairs needed to be. To operate at all, the line had
to be restored to FRA Class 1 standards. Before the em-
bargo, the entire Shelbyville Line operated at FRA Class 1
standards or better. And, unlike the railroad in G.S.
Roofing, CIND had never received an exception to run its
lines at standards below FRA Class 1 standards. Thus,
since the embargoed segment could not be used unless
the rest of the line was at least up to the lowest operat-
ing standards, the Board correctly focused on the “cost of
resuming services at pre-embargo levels” when it ex-
amined the cost to repair the Shelbyville Line to FRA Class
1 standards.
The Board, however, contends that it examined the cost
to repair the entire Shelbyville Line, not with respect to
factor 1 of the balancing test, but in connection with its
study of the financial condition of CIND (factor 5 of the
balancing test). As we have indicated, however, even if
the Board had considered the cost to repair the whole rail
line under factor 1 of that test, the Board did not err. The
reasonableness of an embargo is determined on a case-by-
case basis. G.S. Roofing, 143 F.3d at 392. In this case,
there are no shippers located within the embargoed por-
10 No. 00-4082
tion of the line. Hence, it was proper to take into account
the cost of repairing the non-embargoed portions of the
line since those parts of the line had to be used to serve
the shippers. Thus, the Board did examine the cost of
resuming services at pre-embargo levels because, in order
to service the shippers, the whole Shelbyville Line would
have to be repaired to FRA Class 1 standards. And of
course, the cost to rehabilitate the entire line would also
play a part in assessing the financial condition of the
railroad (another factor in the balancing test).
B.
As the second step in its balancing test, the Board
examined the intent of the carrier with respect to the
abandonment. As applied here, did the railroad allow the
line segment to deteriorate and remain in non-operat-
ing condition in order to hasten abandonment of the
service? In the proceedings below, the petitioners argued
that CIND intended to abandon the Shelbyville Line
and furthered this intent by delaying needed maintenance
and depressing traffic. The Board, however, found other-
wise.
We . . . find that CIND acted reasonably in not mak-
ing $68,943 in erosion repairs in 1996. Prior to the
slippage at milepost 32.8, CIND had adopted a policy of
applying its limited resources to the profitable south-
east end of its system (between milepost 23.0 and
milepost 0.0) to hold down expenses. . . . CIND was in
a difficult financial condition and faced dim prospects
for increased traffic and revenues. We find no credible
evidence that CIND was deliberately downgrading, or
actively discouraging traffic on, a viable line simply
to facilitate its abandonment. Similarly, the evidence
fails to show that CIND should have known that the
No. 00-4082 11
slippage at milepost 32.8 would worsen, that the cost
of repair would escalate, and that the failure to make
the repair in 1996 would eventually lead to a discon-
tinuance of CIND’s operations over the affected seg-
ment.
STB Decision at 10-11. The Board also found that CIND
did not intentionally downgrade the service and dis-
courage traffic in the years preceding the embargo. Id. at
15. Finally, the Board found that CIND made diligent
efforts to satisfy its common carrier obligations by mak-
ing, or being prepared to make, alternative shipping ar-
rangements. Id. at 20. On appeal, the petitioners argue that
“the evidence in the record does not support the Board’s
conclusion that CIND was applying its resources to the
southeast end of the system.” They cite evidence indicat-
ing that CIND had taken steps to repair and maintain
various other segments of the line. This evidence, however,
does not contradict the Board’s conclusion that CIND was
focusing on the southeast portion of the Shelbyville Line.
CIND did make efforts to maintain some other portions
of the Shelbyville Line. CIND made these efforts to main-
tain some other portions of the line because it was re-
quired to keep the entire line at FRA Class 1 standards
or better (because FRA Class 1 standards are the mini-
mum operating standards for a railroad). The Board’s
finding on this issue is supported by the evidence that
CIND deferred maintenance on about 30 miles of the
Shelbyville Line and allowed those portions, some of which
were at FRA Class 2 standards, to deteriorate to FRA
Class 1 standards. STB Decision at 4. Thus, the Board’s
findings on CIND’s intent, namely that CIND did not
deliberately downgrade the line or discourage traffic on
it in order to facilitate its abandonment, were amply sup-
ported by substantial evidence.
12 No. 00-4082
C.
The third factor to be considered under the balancing
test is the length of the embargo. The petitioners contend
that the Board’s conclusion that the embargo remained
reasonable throughout its twenty-month life is an unrea-
sonable interpretation of CIND’s common carrier obliga-
tion. But the Board concluded that the embargo re-
mained reasonable throughout the twenty months because,
among other things, less than three months elapsed
between the date the embargo became effective and the
date CIND gave notice of its intent to abandon the line. If
abandonment was to be the ultimate fate of the line, the
twenty-month embargo was not unjustified.
According to the petitioners, the Board’s application of
the rule that an “embargoing railroad must restore safe
and adequate service within a reasonable period of time
to any line as to which it has not applied for abandon-
ment authority,” STB Decision at 6 (emphasis added), is
erroneous because the Board’s conclusion would permit
common carriers to embargo rail operations and then
attempt to justify the embargo by filing an abandonment
petition. In fact, the petitioners strongly contend that “a
railroad is required to maintain operations during the
pendency of an abandonment petition, including mak-
ing repairs that it can afford, until the Board deter-
mines that the present or future public convenience and
necessity require or permit the abandonment.” Pet. Br.
at 20 (emphasis in original).
As a general matter, this argument certainly has merit.
A common carrier must continue to carry out its obliga-
tion during the pendency of an abandonment proceeding.
The reasonableness of an embargo, however, must be
analyzed on a case-by-case basis. And a common carrier
may, in some instances, satisfy its common carrier obliga-
tion without making repairs to the rail line. Here, CIND
No. 00-4082 13
attempted to comply with its common carrier obligation
during the twenty-month period.
The Board found that “CIND did not sit idle until it
filed the abandonment exemption petition in January
1998, and that CIND did not plan to leave the Line seg-
ment in an embargoed status indefinitely.” STB Decision
at 20.
Furthermore, it is clear from the record here that
CIND took actions to protect shippers while the em-
bargo was in effect. CIND rerouted all overhead traffic
without apparent complaint from the affected overhead
shippers. CIND also continued to operate the unem-
bargoed portion of the Line. Most importantly, CIND
made, or was prepared to make, alternative arrange-
ments to assure uninterrupted rail service for origi-
nating/terminating traffic, albeit at a higher rate. At
no time was rail service unavailable to the affected
shippers.
Id. at 20-21. On this record, the Board did not permit
CIND to use the embargo as a tactic to avoid CIND’s
common carrier obligation. Rather, CIND was complying
with its common carrier duties by making, or being pre-
pared to make, alternative transportation arrangements
for its customers.5 Thus, although CIND did not resume
5
The petitioners do not appeal from the Board’s determination
that the shipping surcharges imposed by CIND were not unrea-
sonable. In response to the Board’s argument that the shippers
had alternate routings available, the petitioners argue that the
Board failed to consider the additional costs incurred by the
shippers in using the alternate shipping routes. But by not
appealing the determination that the surcharges were reasonable,
petitioners have waived any argument that the higher costs
of alternate shipping routes made the embargo unreasonable. It
may well have been the case that, if CIND had repaired the
(continued...)
14 No. 00-4082
operations by making repairs on the embargoed portion of
the line during this twenty-month period, CIND did
make arrangements that would mitigate any harm aris-
ing from its failure to resume rail operations. Therefore,
the Board did not err in concluding that the embargo
remained reasonable during the twenty-month period.
We do not endorse any general rule that a common car-
rier may always discharge its obligation by making alter-
native arrangements, but here the financial condition of
the railroad and its prospects made the substitution rea-
sonable.
D.
Finally, the petitioners argue that the Board further
erred when it did not consider whether CIND presently
had the financial ability to repair the non-embargoed por-
tion of the line, but instead considered the long-term
profitability of CIND under factors 4 and 5 of its balanc-
ing test. The petitioners argue that the Board should
have made a specific finding on CIND’s present ability
to make the repairs. See G.S. Roofing, 143 F.3d at 392
(“The cost of repairing a line to safe operating condition,
and the carrier’s ability to physically and financially
carry out such repairs, are keys to the continuing reason-
ableness of an embargo.”). The petitioners also contend
that the record indicates that CIND was financially cap-
able of paying for repairs. Finally, the petitioners allege
that considering the long-term profitability of CIND was
erroneous because “notions of long-term feasibility have
5
(...continued)
embargoed portion of the line and resumed operations, CIND may
have been able to impose shipping rates comparable to the
increased surcharges (of course, after following appropriate rate
changing procedures).
No. 00-4082 15
no place in a proceeding to determine the reasonableness
of an embargo.” Id. at 393-94. We reject all of these con-
tentions.
First, the Board was not required to make a specific
finding that CIND had funds on hand to carry out repairs
on the line and, in fact, the requirement for such a find-
ing is not included among the stated factors of the balanc-
ing test. Second, the Eighth Circuit’s statement that “the
carrier’s ability to physically and financially carry out
such repairs, are keys to the reasonableness of an em-
bargo,” G.S. Roofing, 143 F.3d at 392, does not necessarily
dictate a specific finding on the carrier’s present ability to
physically and financially carry out repairs. The Eighth
Circuit’s statement does not even require the Board
to make such a specific finding. Still, while the financial
ability to carry out repairs is not a formal factor in the
test, it obviously plays a part in the analysis. For example,
if a carrier could financially undertake repairs but in-
stead maintains the embargo for a long period of time, it
may be reasonable to conclude that the carrier is not act-
ing in good faith—which goes to the question of a carrier’s
intent, the second factor in the balancing test. Thus, the
Board is not required to make a specific finding on whether
CIND presently could financially carry out the needed
repairs on the line.
Here, the Board considered a somewhat different ques-
tion—whether it made business sense for CIND to invest
in the necessary repairs under the conditions that pre-
vailed. The Board considered this question under the
fourth and fifth steps of its balancing test, the volume
and type of traffic over the embargoed line and CIND’s
financial condition. In connection with factor 4, the Board
found that “[p]rojected revenues from [foreseeable] traf-
fic would be significantly less than what would be needed
to cover operating expenses and provide a return on in-
vestment (ROI), let alone to cover the needed repairs and
16 No. 00-4082
rehabilitation.” STB Decision at 15 (emphasis added).
Similarly, in connection with its analysis of factor 5, the
Board concluded that “CIND’s decision not to [repair the
embargoed line in 1996], however, was a reasonable
business decision given the fact that the Line’s projected
revenues under any realistic scenario were not sufficient
to cover operating expenses and provide a return on in-
vestment.” Id. at 18 (emphasis added).
The petitioners disagree with the Board’s interpreta-
tion of the evidence. They argue that the record indicates
that CIND was profitable in 1996 and, in the beginning
of 1997, had received an LRFA grant of $172,521 for repair
of the Shelbyville Line and had cash on hand of approxi-
mately $1.1 million. Thus, petitioners argue that CIND
could afford to spend the $369,230 required to repair the
embargoed portion of the Shelbyville Line (and this argu-
ment could be extended to accommodate the $556,480
figure to repair the entire line).6 But the Board found
that CIND’s positive financial result in 1996 depended
on the proceeds of a non-recurring sale of real estate, most
of which were used to pay off CIND’s outstanding debt.
STB Decision at 17. Were it not for the sale of the real
estate, CIND would have had the second worst pre-tax
net loss in its history of operating the Shelbyville Line.
Id. Further, CIND’s positive working capital position
realized in 1997 was the direct result of a decrease in
operating expenses attributable to paying off CIND’s debt
with the proceeds from the real estate sale. Id. Thus,
6
The petitioners also argue that the Board did not include rev-
enue from Conrail interchange traffic in its projection of future
revenues. However, the Board did in fact consider the revenue
from Conrail interchange traffic. It found that “Conrail traffic,
which averaged 77% of CIND’s overhead traffic in 1994, 1995,
and 1996, has been lost and will not be rerouted back.” STB
Decision at 15.
No. 00-4082 17
although the Board “recognize[d] that CIND could have
repaired the Line and rehabilitated it up to FRA Class 1 or
FRA Class 2 standards in 1996 with the use of bor-
rowed funds, LRFA grant funds, or some of the proceeds
from the real estate sale,” the Board concluded that
CIND’s decision not to do so was reasonable in light of
its past operating history, its present inability to build
traffic over the Shelbyville Line and its poor future pros-
pects. Id. at 18. The Board’s analysis is eminently rea-
sonable and thus, under our deferential standard of re-
view, may be approved.
The petitioners, however, argue that the Board’s consid-
eration of past financial difficulties and projected future
profitability are legally erroneous. They argue that the
Board could only consider CIND’s present financial capabil-
ity to make repairs. They emphasize that an embargo is
a temporary, emergency condition. Finally, the petition-
ers cite to the quoted language of G.S. Roofing that a
carrier’s ability to physically and financially carry out
such repairs is the key to the continuing reasonableness of
an embargo and that “notions of long-term feasibility have
no place in a proceeding to determine the reasonableness
of an embargo.” G.S. Roofing, 143 F.3d at 393-94. Limiting
the Board only to considerations of present financial
capability, however, would not be a sensible policy. In
calculating the appropriate demands to place on shortline
carriers like CIND, the Board must consider many things,
including the attractiveness to operators of the opportunity
to take over lines like the Shelbyville Line. This case is
a perfect example of the need to allow the Board the
flexibility to examine both past and projected financial
circumstances to arrive at fiscally reasonable solutions.
First, the factual circumstances of this case sharply
distinguish it from G.S. Roofing. As G.S. Roofing acknowl-
edges, an embargo may remain valid if service cannot
be resumed at a safe level without substantial expendi-
18 No. 00-4082
tures. G.S. Roofing, 143 F.3d at 394 (“If service can be
resumed at safe levels without substantial expenditures
of time or money, a railroad should not be permitted to
refuse to resume service merely because extensive im-
provements might be necessary for the long-term success
of the line.”). In G.S. Roofing, the railroad “could have
made minor interim repairs that would have allowed
the line to operate as it had.” Id. The actual cost to repair
the line in G.S. Roofing was $10,000 and the time required
was four hours. Id. at 393. Here, the Board found that
CIND could not resume service at FRA Class 1 standards
without a substantial expenditure of money. And the
Board is clearly correct that $369,230 (or $556,480) is a
substantial expenditure of money. G.S. Roofing is a differ-
ent case.
Further, CIND’s financial capability to make repairs
was viewed reasonably (at the moment CIND imposed the
embargo and during the embargo period) as a temporary
situation in light of CIND’s past financial difficulties
and future prospects. Not allowing the Board to consider
the context of the railroad’s present financial condition
in light of past and projected future financial conditions
would hamper the Board in deciding whether an embargo
was reasonable. It makes no economic sense always to
compel a common carrier to make repairs based upon its
realizing a financial windfall. This is particularly true
where the common carrier had made, or was prepared to
make, alternative arrangements to satisfy its common
carrier obligations.
In G.S. Roofing, past financial condition was not an
issue and therefore the case certainly does not prohibit
an examination of that circumstance. We also do not read
G.S. Roofing to prohibit the Board’s consideration of fu-
ture projected revenues in order to put CIND’s present
financial capability into context, as was done here. Be-
sides not specifying whether it is a carrier’s present “abil-
No. 00-4082 19
ity to physically and financially carry out such repairs
[that is key] to the reasonableness of an embargo,” G.S.
Roofing, 143 F.3d at 392, the Eighth Circuit did not limit
the factors the Board could consider in determining the
common carrier’s ability to carry out repairs. We believe
that future projected revenues may be considered in
determining a common carrier’s capability to carry out
repairs. Further, while we agree with the Eighth Circuit
that an embargo may not be justified “solely on the grounds
that to continue to provide service would be inconvenient
or less profitable,” id. at 394 (quoting Ethan Allen, Inc. v.
Me. Cent. R.R., 431 F. Supp. 740, 743 (D. Vt. 1977) (inter-
nal quotations omitted)), the embargo in the present case
was justified based upon other considerations as well—such
as CIND’s good faith in making alternative shipping ar-
rangements. Thus, the Board did not err in applying its
balancing test to determine that the embargo was rea-
sonable.
IV.
For the foregoing reasons, the petition for review of the
determination of the Board is DENIED.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—10-15-02