Unpublished Disposition, 921 F.2d 280 (9th Cir. 1989)

MEMORANDUM^* 

The Railway Labor Executives' Association (RLEA) is seeking a review of the Interstate Commerce Commission's (ICC) decision and order, following remand from this court, denying RLEA's petition to overturn the ICC's previous decision declining to impose labor protective conditions on a vendor railroad, Butte Anaconda & Pacific Railway Company (BAP), and its corporate parent, Atlantic Richfield Company (ARCO).

In 1894 BAP built a 26-mile line of railroad between copper mines in Butte, Montana, and a smelter in Anaconda, Montana. Carrying copper accounted for 97% of the traffic on the line. In 1978 ARCO acquired control of BAP. However, in 1980 the smelter was closed and in 1983 the mines were closed. By late 1983 the line carried almost no traffic. In 1985 BAP donated and sold its entire rail line to the State of Montana, which leased it to Rarus Railroad Corporation (Rarus), a new non-carrier created for the purpose of operating the line. The ICC exempted the entire transaction from regulation under 49 U.S.C. § 10901 and found that labor protection conditions were not warranted. Rarus Railway Corporation--Exemption From 49 U.S.C. §§ 10901 and 11301, ICC Finance Docket No. 30640 (April 24, 1986) ("Rarus Exemption I").

RLEA appealed that decision to this court, which held that the ICC's determination to treat the transaction as an acquisition under Sec. 10901, and, therefore, to follow the ICC's policy of not imposing labor protective conditions on such transactions, was within the agency's discretion. However, this court remanded the case, holding the ICC's decision did not contain a " 'carefully articulated, reasoned balancing of factors pertinent to the particular acquisition.' " Railway Labor Executives' Ass'n v. I.C.C., 825 F.2d 238, 241 (9th Cir. 1987) (quoting Railway Labor Executives' Ass'n v. ICC, 784 F.2d 959, 972 (9th Cir. 1986)).

After the case was remanded, the ICC allowed the parties to supplement the record with written submissions relevant to the question of whether labor protective conditions should be imposed on BAP and its parent company ARCO.

On May 9, 1989, the ICC denied RLEA's request that labor protective conditions be imposed. Rarus Railway Corporation--Exemption from 49 U.S.C. §§ 10901 and 11301, ICC Finance Docket No. 30640 (May 9, 1989) ("Rarus Exemption II"). This petition followed.

Standard of Review

We will uphold an ICC decision not to impose labor protective conditions on a railway acquisition unless it is " 'arbitrary, capricious or manifestly contrary to the statute.' " RLEA v. ICC, 825 F.2d at 239 (quoting RLEA v. ICC, 784 F.2d at 964).

Discussion

Under Sec. 10901, the ICC has traditionally exercised its discretion and not imposed labor protection costs on the sale of rail lines to new operators in order to encourage the purchase and continued operation of marginal lines and to avoid a chilling effect on future sales of unprofitable lines.

However, the ICC will impose labor protection costs on purchasers if "exceptional circumstances" exist. "Exceptional circumstances" exist (1) if there was a misuse of ICC rules or precedent; (2) if the existing labor contracts specified that line sales were subject to procedural or substantive protection; or (3) if the injury to affected employees is unique, disproportionate to the gains achieved for the local transport system and can be compensated without causing termination of the transaction or substantially undoing the prospective benefits of the ICC's existing policy for other communities and locales. FRVR Corporation--Exemption, Acquisition and Operation--Certain Lines of the Chicago and North Western Transportation Company--Petition for Clarification, ICC Finance Docket No. 31205, at 3, (January 29, 1988) (FRVR).

In its decision after the remand, the ICC considered each of the three prongs of the FRVR test. As to the first, it found that there was not misuse of the agency rules or precedent. As to the second, after examining the record, the ICC found that BAP had not contracted to offer severance pay to protect its employees. Neither of these judgments is arbitrary or capricious.

The third prong requires more detailed analysis. We must assess whether the injury to the affected BAP employees was unique and disproportional to the gains achieved for the local transportation system. Both sides presented conflicting evidence. Of the 54 employees affected by the transaction, 31 had already been furloughed before the sale. This left 23 employees. BAP said it would cost $13,000,000 to protect them. RLEA said it would cost $3,500,000. The ICC adopted a figure in the $3,000,000 range. Rarus Exemption II, at p. 7.

The ICC went on to construe RLEA's earlier contention that if the initial plan (which was for abandonment, as opposed to sale) was granted, then the ICC would have imposed labor protection conditions, as an additional "exceptional circumstances" claim. Usually the ICC will impose labor protection conditions on abandonments only if (1) a corporate affiliate will continue substantially similar rail operations; or (2) a corporate parent will realize substantial financial benefits over and above relief from the burden of deficit operations by its subsidiary railroad. See Northampton and Bath R. Co.--Abandonment, 354 I.C.C. 784, 786 (1978). Accord, RLEA v. ICC, 735 F.2d 691, 697 (2d Cir. 1984).

Although the first condition does not apply in this case, RLEA claims that BAP benefited under the second condition. However, BAP donated the track and equipment to the State of Montana and received only $500,000 cash from the sale. Had the line been liquidated in abandonment it would have had a value of $2,175,000. Rarus Exemption II, at p. 7. In 1976 the net profit on the line was $1,335,377 derived from realized revenues of $4,503,741 with operating expenses of $3,168,364. Id., at p. 5. By 1983 the line was operating at a loss of $1,907,663. Id., at p. 5. Thus neither ARCO nor BAP derived substantial profit from the transaction; their main benefit was the shedding of an unprofitable line. ARCO did not recover its investment or its continuing losses (stated to be $4.5 million from 1982 to the date of the sale.) Id., at p. 8. Also, there was little benefit and an insignificant impact on ARCO's tax situations. Thus, the ICC found that the benefits to ARCO were not extraordinary nor disproportionate when measured against the harm to the employees.

Further, although RLEA did not address the specific question of uniqueness, the ICC found that there was "no evidence in the record to distinguish this sale from others." Id., at p. 7. The benefit to the public of keeping the line running as part of Rarus was not outweighed by the harm to the 23 employees.

Because RLEA did not establish that the injury suffered by the job losses warranted the imposition of expensive labor protective conditions, we find that the ICC's ruling on this third prong, in addition to the first two, passes the arbitrary and capricious standard.

The ICC also elaborated on other factors that it weighed in reaching the decision not to impose labor protective conditions. By exempting this transaction, the ICC minimized the need for Federal action and reduced regulatory barriers to Rarus' entry into the industry. 49 U.S.C. §§ 10101a(2) and (7). Also, Rarus is ensuring the development and continuation of a sound rail transportation system meeting the needs of the public. 49 U.S.C. § 10101a(4).

Further, the ICC found that the balancing test applied here reflects that "the national interest in a stable and efficient work force requires that carriers not reap economic benefits at the expense of employees," citing ICC v. Railway Labor Executives' Ass'n, 315 U.S. 373 (1942); United States v. Lowden, 308 U.S. 225 (1939). Rarus Exemption II, at p. 8.

Finally, the ICC was within its discretion when it denied the request to have oral argument both because an extensive record already existed and because the ICC did allow each side to supplement the record with written submissions.

Because the ICC was not arbitrary and capricious in applying the three prongs of the FRVR test, and because the ICC balanced factors specific to this railroad transaction, on review, we uphold the agency's decision.

AFFIRMED.