HAYFIELD NORTHERN R. CO. v. CHICAGO & N. W. TR. CO.

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ORAL ARGUMENT OF ROBERT S. ABDALIAN, ESQ., ON BEHALF OF APPELLANTS

Chief Justice Warren E. Burger: We will hear arguments first this morning in Hayfield Northern Railroad Company against the Chicago and North Western Transportation Company.

Mr. Abdalian.

Robert S. Abdalian: Mr. Chief Justice, may it please the Court:

This is an appeal from a decision holding that Section 10905 of the Interstate Commerce Act preempts Minnesota condemnation law when that law is applied to property which has been abandoned with ICC approval after the ICC has relinquished all jurisdiction and interest in that line and where a statutorily authorized Minnesota public service corporation seeks to take that line by eminent domain in order to restore rail service to a rural Minnesota community.

Unidentified Justice: Counsel, just what it now at issue in the case?

The rails are gone, aren't they?

Robert S. Abdalian: That's correct.

There's still land and right of way to take, Justice Blackmun, and there's also a bond at issue.

Unidentified Justice: Do your people propose to put down new rails?

Robert S. Abdalian: That's correct.

That is correct.

The legal issue before this Court has been well defined by the Court of Appeals.

The factual context in which this case comes to this Court is uncomplicated.

CNW, the Appellee, applied to abandon a line of rail that ran from Iowa to Minnesota.

Part of that line is the 19.2 mile segment that lies totally within Minnesota, which has been referred to in all briefs as the Hayfield segment.

The abandonment was contested by a shippers group.

The challenge to the abandonment was unsuccessful.

The abandonment also was challenged by a shippers group in way that the line could avoid abandonment through a procedure within the Commerce Act itself to subsidize the line and keep that line in interstate commerce.

The shippers group made an offer of subsidy to continue the line in rail service, and that subsidy offer was not accepted and the Interstate Commerce Commission set a subsidy amount.

The shippers group withdrew their offer of subsidy and the shippers group disbanded.

Several months later... the abandonment became final in December of 1981.

Several months later the Hayfield Northern was formed, a Minnesota public service corporation with the delegated power of eminent domain to condemn right of way and track for rail use.

Upon the founding of the Hayfield Northern, the Hayfield Northern immediately sought a temporary restraining order in state court in order to keep the line intact, as the Appellee had already commenced procedures to dismantle the track.

The TRO was granted by the state court after a hearing.

The CNW then removed this case to federal district court.

The federal district court dismissed the action with prejudice and dissolved the injunction.

An appeal was immediately taken to the Eighth Circuit Court of Appeals and the Court of Appeals stayed the order of the district court upon the posting of a bond.

The Court of Appeals affirmed the district court.

There are two issues that I wish to emphasize this morning: that is, the difference between pre-abandonment and post-abandonment matters; and that Section 10905 is not the exclusive method in which to transfer property.

It is common ground in this case and all parties agree that if the State of Minnesota or the Hayfield Northern or any other entity would take any action that would affect a common carrier's status as a common carrier that that would be in conflict with the Commerce Act.

However, by the act of abandonment, the railroad being certified abandoned, the CNW, that points to the end of Interstate Commerce Commission jurisdiction and federal interest.

At the point of consummation no longer do we have anything of federal interest, it is a matter of federal indifference, and state power can be exercised on that line, including the power of eminent domain.

The decision of the Eighth Circuit, if allowed to stand, allows a gap in sovereignty to occur.

This line of rail is not subject to state power or to federal power or federal interests, and it just exists out there.

There is a gap.

It is a no man's land creating a void.

The Commerce Commission itself has held repeatedly in public rulings that once the certificate of abandonment has issued that is the end of federal interest, and that questions of title to and and disposition of rail property are a matter of state power, a matter of the reserved powers of the states.

The decision of the Court of Appeals has thus changed what was considered to be the law by the Interstate Commerce Commission itself, the agency that is in charge of enforcing the Interstate Commerce Act.

The Court of Appeals found that Section 10905, because there is a provision in which rail property can be transferred, whether that be by subsidy or acquisition and that the Commerce Commission could set a price, that somehow this became the exclusive and only method.

But the Act itself speaks, Section 10905 speaks, to matters that all happened before abandonment, before the abandonment has been consummated.

And the title of the Act is particularly instructive.

It speaks of methods of avoiding abandonment, in avoidance of abandonment.

The Court of Appeals looked at it as the exclusive method to transfer property for continued rail service in connection with abandonment.

While, that's true, it would be more accurate to say in avoidance of abandonment, and that once the abandonment is final then there is no longer any federal interest that exists, that the states are free to... a state is free to exercise its power.

There is no reason to subordinate a state interest at that time to that of a private carrier, as there is no federal interest, and the Solicitor General has filed a brief that there is no programmatic interest of the United States that would be adversely affected by the exercise of eminent domain on this line of rail.

It's consistent--

Unidentified Justice: Are you saying, counsel, that after the commission has acted as it has here, that there is nothing in the case except some real estate with some iron rails resting on it?

Is that it?

Robert S. Abdalian: --That's correct.

Unidentified Justice: It isn't a carrier any more.

Robert S. Abdalian: Excuse me?

Unidentified Justice: It's not a carrier any more.

Robert S. Abdalian: That's correct.

By the act of abandonment it loses its character as interstate rail property.

It's no longer in interstate commerce.

It becomes ordinary mere property, subject to the laws of Minnesota, just like any other property or any other property owner.

To use the fact that it once was rail property in interstate commerce to shield itself from condemnation is unprincipled.

The Court of Appeals found that the very tight time constraints in this transfer to subsidy pursuant to Section 10905 would somehow be lost by a state condemnation because you would have protracted condemnation proceedings.

But the 110-day period in which the Commission will set a price and the transfer of the property would take place is not at all affected by the state condemnation.

That 110-day period will come to end and that is the end of the federal jurisdiction.

It has come to an end and the railroad is able to abandon that property, and that's all that the Commission can... that's the extent of the Commission's authority.

It has the permissive power to permit the abandonment if the public convenience and necessity permits.

There is no other power.

The Commission has not stated by giving the certificate of abandonment that the railroad is entitled to those assets after the certificate issues in any set of circumstances, or that the state power of eminent domain is going to be subordinated to that of the private carrier.

Once the certificate issues it is at an end.

And that is consistent with federal policy also, to bring the states to the forefront of restoring rail service.

We are not, the Hayfield Northern is not, attempting to continue rail service on this line.

Fail service cannot be continued, which it would be under 10905.

10905 is a method in which the rail line can continue in service.

Here service has been discontinued, the community has lost its service, and now a state condemnation wishes not to continue it but to recommended and restore rail service on that line.

Unidentified Justice: Will the new company, will your client, in starting rail service if you win this case have to get another certificate from the ICC?

Robert S. Abdalian: That's correct, a certificate of public convenience and necessity, and we would have to--

Unidentified Justice: Even though just a short while ago the Commission authorized the abandonment of the line?

Robert S. Abdalian: --That's correct, that's correct.

You'd have to apply anew under Section 10901 of the Commerce Act and show that the public convenience and necessity permits the line to be--

Unidentified Justice: Would that mean that... would you be litigating the same issue that were litigated in the abandonment proceeding?

Robert S. Abdalian: --No, not at all.

Because the abandonment is only permissive, the Commission has not made an affirmative finding.

The abandonment proceeding--

Unidentified Justice: Well, did it find that the public interest and necessity did not require the use of the railroad?

Robert S. Abdalian: --That's correct.

That's right.

It's required to prevent the abandonment and to--

Unidentified Justice: But now it'll have to find that the public interest and necessity requires that it be started again?

Robert S. Abdalian: --Not required, but permits, which is an easier standard under the Act.

The local interest in this line... the abandonment itself, the Interstate Commerce Commission goes through a balance, balancing the interests of the private carrier in interstate commerce generally on the one hand and that of the public, the local community on the other hand.

Unidentified Justice: After the abandonment, can the carrier sell the property to you?

Robert S. Abdalian: The carrier can sell the property if a state interest doesn't surface.

Unidentified Justice: Does it need ICC approval?

Robert S. Abdalian: It does not need ICC approval.

Once the certificate issues, it's a matter of ICC indifference.

The rail line is taken off the carrier's book for interstate commerce matters.

It's the end of federal jurisdiction, and to find a conflict between state and federal law where there is no federal interest--

Unidentified Justice: Did your client make any effect to buy the property from the carrier?

Robert S. Abdalian: --No, not at all.

There was a shippers group, a shippers group that opposed the abandonment for substantive reasons, and then there was a shippers group that sought to have the line avoid abandonment through the vehicles of running the railroad on a subsidized basis.

Unidentified Justice: Suppose as part of the balance that you spoke of that the Commission arrives at it was determined or it was proposed by the railroad and approved by the ICC that rails were going to be taken up and used in another segment by the carrier and that was in contemplation.

What about that, just about the rails?

Would they then be subject to condemnation?

Robert S. Abdalian: If the Interstate Commerce Commission conditioned the abandonment on the CNW's taking its rail lines and taking it from Hayfield someplace else because interstate commerce interests required that, that would be a different case.

Unidentified Justice: That's not this one.

Robert S. Abdalian: That's not this case--

Unidentified Justice: Okay.

Robert S. Abdalian: --And that would be an interference with the Commission's order.

Where this does not interfere with any order of the Commission at all.

Unidentified Justice: Is Hayfield in any different position from a brand new carrier that wants to, or corporation, that wants to start a railroad?

Robert S. Abdalian: No, it is not.

No, it is not.

Unidentified Justice: Mr. Abdalian, did the same shippers group which had applied under the Staggers Act proceeding to acquire the proposed abandoned line from the Hayfield Northern Railroad Company?

Is that the same group essentially?

Robert S. Abdalian: No, it's not.

There were two shippers group.

One was made up of 12, I believe, shippers that protested the abandonment on substantive grounds; the second, a group of seven that decided to subsidize it.

And this is a separate legal entity, a Minnesota public service corporation that seeks to restore rail service, which is quite different than what both of the other two groups sought to accomplish.

Unidentified Justice: Is there any reason to think that the value placed on the property will be different under the state condemnation proceeding than it was under the proceeding under this... before the ICC?

Robert S. Abdalian: The state condemnation proceeding is constrained by fair market value, and we have, since the ICC valuation, we've had intervening events.

But the carrier is entitled to fair market value and just compensation under Minnesota condemnation law, and of course must be because of the Constitution.

Unidentified Justice: Well, is that likely to differ substantially from the value placed in the ICC proceeding?

Robert S. Abdalian: It could differ.

But the state court would apply state condemnation principles, and whether that would be different or not I don't know.

I mean, that would depend on record evidence at the time of the state condemnation.

I would like to reserve the rest for rebuttal.

Chief Justice Warren E. Burger: Very well.

Mr. Levy.

ORAL ARGUMENT OF MARK I. LEVY, ESQ., ON BEHALF OF THE UNITED STATES AS AMICUS CURIAE

Mark I. Levy: Mr. Chief Justice and may it please the court:

Let me briefly summarize the position of the United States in this case and then turn to the issue of opportunity costs that the Appellee has raised in this brief.

Our submission is that Section 10905 does not preempt a state's condemnation of a rail line that has been abandoned with the approval of the Interstate Commerce Commission.

ICC authority over abandonments extends up to but not beyond the point that the abandonment becomes effective and the line is no longer a common carrier in the interstate rail system.

Section 10905 is part of the federal regulation of carriers in interstate commerce.

It pertains to pre-abandonment offers of financial assistance and provides an alternative to abandonment in order to furnish continued and uninterrupted service on the line.

Moreover, the time limits in Section 10905 were intended to expedite the abandonment process of the ICC in order to alleviate the burden on the carrier of providing service until the effective date of the abandonment, which is postponed during the pendency of the Section 10905 offer.

Once ICC abandonment approval takes effect, the carrier is free of its federal obligation to maintain service and it can then abandon the line.

At that point the railroad has obtained what the ICC authorized, its federal service obligation is eliminated and it is relieved of its federal common carrier duties.

A subsequent state condemnation proceeding to initiate new service pursuant to a fresh ICC certificate of public convenience and necessity would not interfere with the authorized abandonment or be contrary to the federal policy of expediting abandonments in order to reduce the burden that federal service requirements impose on carriers seeking to abandon a line.

And Section 10905 affords no basis whatever to distinguish between former rail property and all other private property in the state that is subject to the traditional power of condemnation.

Now, the railroad makes an argument in its brief based on so-called opportunity costs.

In an abandonment proceeding, one of the factors considered by the ICC is that federal service requirements keep a railroad from using its resources in other more profitable ways.

This relative economic disadvantage or loss is the opportunity cost that the railroad incurs in connection with the line it seeks to abandon.

Appellee contends that a state's post-abandonment condemnation, and especially preliminary injunctive relief incident to that condemnation, restricts the railroad's cause if its track and equipment and thus imposes on the railroad the same opportunity cost that the ICC considered granting the abandonment in the first place.

However, the ICC's abandonment approval only determined that, in balancing the competing considerations for and against abandonment under the public convenience and necessity, the need for this service did not justify the costs, including the opportunity costs that such service would impose on the carrier.

Unidentified Justice: How long do those opportunity costs run, forever?

Mark I. Levy: I believe that the Commission's determination is essentially retrospective or contemporaneous.

It determines that the current requirements are presently keeping the railroad from using its assets in more productive ways.

Unidentified Justice: Would that still be true ten years from now?

Mark I. Levy: If there were a federal service requirement that required the service, the railroad to maintain the service and therefore prohibited other use--

Unidentified Justice: I mean as to this particular property, if there is an opportunity, how long will that exist?

Mark I. Levy: --It would exist up to the time that the ICC's abandonment certificate takes effect.

Unidentified Justice: Well, that's over.

Mark I. Levy: And that's over, that's correct.

Unidentified Justice: So it doesn't exist.

Mark I. Levy: That's correct.

The opportunity cost is only a consideration in conjunction with state law... excuse me, federal law.

The ICC determined, and all that it determined, and all that it determined, is that federal law does not require the imposition of these costs on the carrier.

This determination that local service needs do not outweigh the burdens on the carrier and thus that abandonment may occur simply does not address the question whether the carrier can be required to leave its track and equipment in place for independent reasons of state law.

The ICC has authority over entry into, exit from and operations in the interstate rail system.

It does not have authority, let alone exclusive authority, over post-abandonment transfer of property that were at one time used in rail service.

The ICC's abandonment approval does not establish an affirmative federal right in a railroad to avoid state law that would restrict its cause of its assets, of what formerly were rail property, and such state law does not interfere with the abandonment authorized by the Commission.

Unidentified Justice: Are you saying, Mr. Levy, that at the present time, once the ICC has acted and there is no longer a railroad, that the Minnesota Railroad and Warehouse Commission would have no authority to tell them they must run an intrastate line?

Mark I. Levy: Well, intrastate lines are subject to the jurisdiction of the ICC.

Unidentified Justice: They're subject to, but could the Minnesota Railroad and Warehouse Commission have any authority at all with respect to ordering the continuance of this line?

Mark I. Levy: No, it couldn't.

That is the exclusive authority of the ICC.

Now, it may be said.

Unidentified Justice: Let me ask one question.

Would the ICC have the authority to condition the abandonment on the transfer of the rails to another location?

Mark I. Levy: I think there's no question it would have the authority if it found such a condition to be necessary or appropriate to the interests of the interstate rail system.

Unidentified Justice: Part of its balance of why it was willing to allow the abandonment.

Mark I. Levy: That's exactly right.

Unidentified Justice: Does it over do that?

Mark I. Levy: I'm not aware of any incident where it can be definitively said that the Commission did it.

It may have done it in the Boston & Maine case that is cited in our brief.

That involved an insolvent carrier, and the Court of Appeals' description of the ICC order suggests that the Commission did condition the abandonment on the--

Unidentified Justice: And that case is still pending in the Second Circuit.

Mark I. Levy: --I wasn't aware of that.

This decision that I'm referring to--

Unidentified Justice: It's been pending there for 20 years.

Mark I. Levy: --I think this was a first Circuit decision that is long since over.

If the case is still pending, I don't think that bears on this point.

But the Boston & Maine was the closest case, if there's one at all.

But that would be a much different case.

That would be an exercise of the Commission's authority prior to abandonment, and the statute expressly authorities in Section 10905(b)(1) the Commission to impose conditions on abandonment.

And in such a case there would be an actual conflict between the state's condemnation proceeding and the order of the Commerce Commission and the federal interest that underlies it.

Unidentified Justice: Mr. Levy, you've mentioned equipment several times.

Is equipment at issue in this case?

Mark I. Levy: I mean that only in the generic sense.

Unidentified Justice: Only the rail and real estate--

Mark I. Levy: I'm sorry?

Unidentified Justice: --Only the land and the rail, which I suppose must be viewed as a fixture, are at issue?

Mark I. Levy: I think that's right, although I can't say authoritatively that there may not be some incidental pieces of property used in connection with the track at issue.

We would not distinguish between them.

Thank you.

Chief Justice Warren E. Burger: Ms. Keating.

ORAL ARGUMENT OF ANNE E. KEATING, ESQ., ON BEHALF OF APPELLEE

Unidentified Justice: Ms. Keating, at the outset will you explain to me why the railroad is opposing this.

The railroad wanted to abandon this line.

Anne E. Keating: Mr. Chief Justice, may it please the Court:

Your Honor, we feel that Congress, in enacting Section 10905 of the Staggers Rail Act, balanced several interests.

It balanced the condition, the financial condition, of the railroad industry.

Congress had found that the railroad industry by 1985 would have a $16 to $20 billion capital shortfall.

It found that the railroad industry had the lowest earnings of any of the transportation modes in the United States.

So there was a balancing of interests of the railroad versus an ability on the part of the local communities via Section 10905 to acquire via forced sale or condemnation--

Unidentified Justice: I quite understand why the railroad would wish to abandon a line on which it was losing a lot of money.

But now that the line has been abandoned at the request of the railroad, why do you object to it being sold to somebody else?

Anne E. Keating: --Well, Your Honor, we believe... first of all, I should preface that there has been previous indications in the record that the principals and incorporators of the Hayfield Northern Railroad, the Appellant, were members of this Minnesota shippers group that invoked Section 10905 before the Commission.

Unidentified Justice: But wouldn't you like to keep the shippers feeding on a feeder line?

Wouldn't that help your railroad?

Anne E. Keating: Your Honor, in the meantime... when we received abandonment authority, at that point the finding is put into the Federal Register.

Simultaneously there's a notice that says, anyone interested in offering to subsidize or purchase the line should do so within ten days.

These are the Section 10905 proceedings.

The principals and incorporators of the Hayfield Northern invoked Section 10905, had the Commission set the price, and they chose to not appeal that valuation.

Then they chose to wait 'til the certificate of abandonment issued and then come back into state court, basically subverting the federal agency final decision, rather than taking it to an appellate court.

Unidentified Justice: Are you saying you're afraid you'll get a lower price under state condemnation?

Anne E. Keating: Your Honor, that is a possibility.

But in the meantime, we believe this entire proceeding is a good indication of the Congressional intent in enacting Section 10905.

The legislative history suggests it was a balancing between allowing the sincere efforts of shippers to acquire property, but at the same time--

Unidentified Justice: What has your client got to lose, specifically, if he loses?

Anne E. Keating: --Your Honor, in the meantime from receiving our final abandonment certificate, which was in November--

Unidentified Justice: You've received that?

Anne E. Keating: --Yes, sir.

We in March of that year, which is the earliest you can get out to do some construction work in Minnesota, we were up to salvage the line.

In the meantime we had, in reliance on our final abandonment certificate, had entered into contracts with the State of Iowa and other shippers to upgrade major grain-hauling lines with that rail.

The particular rail that was in the segment, the Hayfield segment, was particularly heavy-duty rail which was susceptible to being used elsewhere.

So we had committed that to upgrade our tracks elsewhere.

The 115-pound rail which was in this segment, if put into the state projects in Iowa, where there were slow orders of 10 to 15 miles an hour, we would be able to get the speed up on these major grain-hauling lines.

And this kind of commitment to reuse our assets is very important to the railroad.

At the time of this proceeding, we had a $21 million capital deficit, deficit as to working capital deficit, and as a result this kind of reuse of our materials to better use it elsewhere for the general shipping public we feel is very important.

Unidentified Justice: As of now, you could use it elsewhere.

Anne E. Keating: Yes, sir.

Unidentified Justice: In this case.

Anne E. Keating: Yes, sir.

Yes, Your Honor.

We have... but we had a considerable delay as a result of these proceedings, and the legislative history of Section 10905 suggests that this is exactly the type of protracted legal proceedings that we can get involved in and as a result not be able to reuse our materials.

The federal courts as well as the Commission have indicated that there is an opportunity cost associated with not being able to use your assets to the best of your ability.

Unidentified Justice: You're talking only about the rail, aren't you?

Anne E. Keating: In this particular situation, Your Honor, it was 115-pound rail, which was very reusable.

In the specific finding of the Commission they determined 95 percent of all the rail on the whole line was reusable, and there were over 200,000 ties that were reusable.

But given the financial condition of the rail industry, this ability to reuse the materials on lines that have not been used or are underutilized is very important in terms of being able to provide better service elsewhere on our system.

Unidentified Justice: Well, why wasn't that all taken up in the ICC in the abandonment?

Anne E. Keating: Your Honor, we submit that Section--

Unidentified Justice: I get the impression that somebody made a mistake in the abandonment, namely the railroad.

Anne E. Keating: --Well, Your Honor, we believe--

Unidentified Justice: Did you make a mistake?

Anne E. Keating: --No, I don't believe, Your Honor--

We felt we could rely on the final Commission decision authorizing the abandonment.

The Administrative Law Judge stated in his Commission that the railroad had shown a need for reusable materials elsewhere on the system, and except for someone acquiring it under the provisions provided by Congress under 10905, we thought we could rely on those... that final decision and then be free to reuse our materials elsewhere.

Unidentified Justice: But if you get in the condemnation the fair value of the rails, why don't you come out ever?

Anne E. Keating: Well, Your Honor, I believe the Eighth Circuit has indicated that there's a delay that could be caused, because we have to remember that in this situation, though the Hayfield Northern obtained its temporary restraining order in April of 1982, it has yet to file a condemnation action.

This kind of delay in terms of having our assets remain unproductive could cause the railroad considerable--

Unidentified Justice: Isn't that covered by the bond?

Anne E. Keating: --Your Honor, we had in the state court--

Unidentified Justice: You have a lawsuit on the bond if you win, don't you?

Anne E. Keating: --We had in the state court a $2,000 bond, and a $100,000 bond was issued in the Eighth Circuit for property that was valued at the Commission at $1.7 million.

Unidentified Justice: Yes, but if you ultimately win you would get the property.

You just get the damage for delay.

Anne E. Keating: In this particular instance, there was the temporary restraining order.

But in condemnation actions per se, there is not necessarily an indication that we would get anything more than our cost for defending ourselves in these perhaps numerous condemnation actions in the various counties that the line might go through.

Unidentified Justice: Well, the rail's gone, isn't it?

Anne E. Keating: Yes, Your Honor, it is.

Unidentified Justice: So the condemnation action isn't going to condemn the rail, isn't it?

Anne E. Keating: At this point, Your Honor, the major controversy I expect would be whether the injunction was proper to begin with and whether or not there are damages that should be available to the railroad as a result of the delay.

Unidentified Justice: But you're going to keep the rail anyway, in any event.

Anne E. Keating: The rail has been reused, Your Honor.

Unidentified Justice: But the state still wants to condemn whatever is there, I take it, is that right?

Anne E. Keating: This is what counsel for Appellant has indicated, Your Honor.

Unidentified Justice: Is there any reason why the North Western after the line has been abandoned should be immune from the vicissitudes of state condemnation action like delay that every other property owner in Minnesota is subjected to?

Anne E. Keating: Well, we believe that the federal system that was created under 10905 is a separate and unique system and that is the exclusive method for continued rail service.

And they have indicated in the memorandum of law that was submitted to the state court in obtaining its temporary restraining order that it was for continued rail purposes that they wanted it, and they wanted to prevent us from removing our track.

So we're saying that this is a subterfuge or circumvention of the federal orders, which they had an opportunity or day in court, so to speak--

Unidentified Justice: What if Hayfield had made its move three years after the abandonment certificate, and the North Western was just doing nothing with its rails.

Would the case be any different in your view?

Anne E. Keating: --Well, Your Honor, in the history of our abandonments... and we've, in the last 15 years, had several thousand miles of abandonments... we have always attempted to remove our materials as quickly as possible.

So I don't think we'd get into that situation where it would be three years down the line.

I think that that hypothetical would indicate that we would act contrary to our best economic interests.

The opportunity costs associated with keeping the rail assets idle, as determined by the Commission, in this particular segment was around $180,000 a year, and as the facts before the Eighth Circuit indicated, we as soon as possible were there to try to remove our tracks and reuse them.

Unidentified Justice: Is part of your case right now that the right of way... you still own some real estate, don't you?

Anne E. Keating: Yes, Your Honor.

Yes, Mr. Justice.

Unidentified Justice: Is part of your case that Minnesota may not condemn or that Hayfield may not condemn the right of way?

Anne E. Keating: Well, I think--

Unidentified Justice: Isn't that a yes or no case, answer?

Are you claiming that your right of way, your real estate, after the track's all off, is not subject to condemnation?

Anne E. Keating: --We're talking about an intact rail line, that is the procedure of 10905.

So I would say--

Unidentified Justice: Well, the railroad, that rail line, is not intact now.

Anne E. Keating: --I agree with you.

Unidentified Justice: The rail is off and the ties are gone.

So is that piece of real estate subject to condemnation or not?

Anne E. Keating: It would be subject to condemnation.

It would be a different issue in terms of, not being preemption, but those same parties were before the Commission and, rather than taking their final appeal as to the valuation--

Unidentified Justice: I know.

But again, would you say... suppose as this case developed no move was made until your rails were all gone, your ties were all gone, and all that was there was a piece of real estate, and then Hayfield was organized and sought to condemn that right of way.

Would you have come in in defense and said preemption or not?

Anne E. Keating: --No, Your Honor, because Section 10905--

Unidentified Justice: So the answer is no?

Anne E. Keating: --Yes, Your Honor.

Unidentified Justice: How is this land on which the rails formerly rested any different from the farms on either side of the right of way?

I assume there are a lot of farms in that part of the state.

How is it any different now?

Anne E. Keating: At this point in time, Your Honor, except for the fact that it had been a prior abandonment... had been a prior railroad right of way, there wouldn't be any difference.

But when the proceeding was instituted and was before the Eighth Circuit, it was an intact rail line and that is where the preemption issue which we are concerned with here today was focused.

It was at that point an intact rail line and at that point there was a similar... there was an exclusive method in the federal law to provide for local communities to be able to acquire via forced sale or subsidy an intact rail line.

This state method acts as a direct conflict to that federal method.

Unidentified Justice: Well, if we rule against your position will it go back and be litigated on the question of whether your client has violated the injunction or something?

What will it go back on, if you don't dispute that they can acquire the roadbed for the railroad?

Anne E. Keating: The injunction was as a result of the Eighth Circuit deciding there was a delay caused by the Hayfield Northern, and it was basically on the preemption issue which was before the court.

At that time it was an intact rail line.

Unidentified Justice: And the track was removed after the injunction issued?

Anne E. Keating: Yes, Your Honor.

When the mandate issued from the Circuit Court of Appeals the Hayfield requested that there be a rehearing en banc and also a rehearing, and they were denied.

And it was... I believe it was Justice Blackmun and other members of the Court, where they also requested a stay, and that was denied.

Unidentified Justice: So what would be litigated, whether Chicago & North Western Transportation Company violated the injunction?

Anne E. Keating: No.

At that point there was not an injunction on us, Your Honor.

At that point the injunction via the Eighth Circuit's order had been--

Unidentified Justice: You violated no rule by moving tracks.

Anne E. Keating: --No.

Unidentified Justice: And the real question is whether the other side has to pay you.

If the other side wins and you lose, then you're not going to get any damages under the injunction--

Anne E. Keating: Yes, Mr. Justice.

Unidentified Justice: --on the bond.

Anne E. Keating: Yes, Mr. Justice.

Unidentified Justice: And the case will just be over.

Anne E. Keating: I guess that's correct, Your Honor.

Unidentified Justice: May I ask, as I'm a little fuzzy on the facts, the abandonment order as I understand it was entered in late 1981.

When actually were the rails removed?

Anne E. Keating: Your Honor, the railroad instituted its salvaging process of the line in March of 1982, as it was attempting to remove the rail and the assets to attempt to use it elsewhere.

Unidentified Justice: And did it go forward from March of '82 just as promptly as it normally would?

Anne E. Keating: We were stopped the day that we were up at Hayfield to attempt to remove that property, because the Hayfield Northern, the principals and incorporators who had been this Minnesota shippers group, incorporated themselves as the Hayfield Northern, went into state court, got a temporary restraining order, and from that point on we were not able to remove our property and it sat idle until the mandate of the Eighth Circuit issued, February of '83.

Unidentified Justice: So you were really held up for about a year, is what it amounts to.

Anne E. Keating: Yes.

Unidentified Justice: And then after February '83 you did go ahead and remove the rail.

Was the injunction... did you say that the injunction issued by the district court... and that was against you and in favor of Hayfield, the injunction, I take it?

Anne E. Keating: Yes.

Unidentified Justice: Was that stayed by the Court of Appeals before the disposition of the merits in the case in the Court of Appeals?

Anne E. Keating: There was a hearing as to whether or not the... the district court dismissed the case.

We had removed it to the district court.

It dismissed it based on the preemption of Section 10905.

Unidentified Justice: And dissolved the injunction.

Anne E. Keating: And dissolved the injunction.

However, in the meantime the Hayfield Northern had gone to the Eighth Circuit and there was a hearing on whether or not a bond should be set, and at that point they set a bond and the injunction came back into force.

So it basically was, there was continuity there in terms of an injunction basically the entire time.

Unidentified Justice: And the injunction enjoined you from removing your property?

Anne E. Keating: From disposing, selling--

Unidentified Justice: Disposing.

Anne E. Keating: --reusing any of the assets.

And that remained in force until the mandate of the Eight Circuit issued.

Unidentified Justice: So since the bond issue is still in the case, we're really judging it just as though the track had never been removed up 'til this day, and whether or not the--

Anne E. Keating: Because if the injunction--

Unidentified Justice: --We judge it just as though the track was still there, and the question is whether the track is subject to condemnation.

Anne E. Keating: --Yes, Your Honor.

If the injunction was properly issued, then the bond... we would not be able to have damages on the bond, and that would be basically the question of preemption and collateral attack that we had submitted to the district court and the Eight Circuit below.

Unidentified Justice: As a practical matter your position is, I gather that the abandonment order requires everybody to allow you a reasonable time to remove the rails.

If you had that time, you wouldn't care what happened after that.

Anne E. Keating: Yes, Your Honor.

We believe that there is an exclusive method that has been added to the abandonment process, and that's Section 10905--

Unidentified Justice: And that normally would take--

Anne E. Keating: --which gave the--

Unidentified Justice: --five or six months, is that what would normally be... what is the normal length of time it would take to remove rail?

Of course, I suppose that depends on how long the railroad is, doesn't it?

Anne E. Keating: --Depending on where you're at.

In our particular section, we are in the Midwest, and if you're allowed to--

Unidentified Justice: It's winter, I see.

Anne E. Keating: --you will be in your regular construction season.

Unidentified Justice: Ms. Keating, I'm a little puzzled.

Are you suggesting that the Minnesota shippers who went before the ICC are simply the same people in another guise as Hayfield, is that right?

Anne E. Keating: Counsel for Appellants have indicated that they are separate legal entities.

However, the principals... some of the principals and incorporators--

Unidentified Justice: I'm trying to get your position.

As I understand, you say they're the same, really the same people.

Anne E. Keating: --Yes.

Unidentified Justice: And you're saying they have an option under the abandonment procedure under the Staggers Act, and once having availed themselves of that, which they did, and getting a valuation with which they were dissatisfied, they were, what, estopped, somehow barred by preemption doctrine from going into the state courts?

Anne E. Keating: They had the ability to have that valuation appealed--

Unidentified Justice: What I'm trying to get is your position, is that, having gone into the ICC and gotten an evaluation under the ICC procedures under the Staggers Act, an evaluation with which they were not satisfied, they didn't appeal it, is that right?

Anne E. Keating: --Yes, Your Honor.

Unidentified Justice: And are you saying, in consequence, having taken advantage of the federal procedure, they are somehow estopped, barred somehow, from going into state court?

Anne E. Keating: We believe it would be a collateral attack against that final order of the Commission that set the valuation of the line at $1.7 million.

Unidentified Justice: And that's why you say this is an interference with the preemption doctrine?

Anne E. Keating: That, and in addition, under Section 10905, which was invoked in the Staggers Rail Act of 1980, there was another provision.

It not only set the time periods in which these offers were to be made as far as a forced sale or subsidy.

It also provided that anyone that purchased the line should continue service for a minimum of two years.

That was an extra stiff requirement to continue the service, and we believe that it evinces the Congressional intent for there to be stability in the rail system and for there to be continuity.

So Section 10905 regulated that entire area, and there is no indication--

Unidentified Justice: Well, if they had never taken advantage of 10905, if that had not happened, all they had done was what they have since done, organize to start a new railroad, would you be making the same preemption argument?

Anne E. Keating: --Yes, I would, Your Honor.

We believe that there is a notice that's put in the Federal Register, a notice stating, anyone who is interested in subsidizing--

Unidentified Justice: Has to go that route.

Anne E. Keating: --Yes.

Unidentified Justice: Of course, the problem is the ICC does not agree with you on that.

Anne E. Keating: Well, Your Honor, there is--

Unidentified Justice: That is true?

Anne E. Keating: --a difference of opinion, as I understand it, among the Commission members and they did not join the Solicitor General in his brief and have not entered the case as a party of record.

But I think that we should note that the Commission--

Unidentified Justice: Well, with the papers that are before us the ICC does not agree with you.

Anne E. Keating: --There is some difference of opinion among their decisions.

They have indicated that they understand what opportunity costs are and that there is a real cost to the railroads in terms of not being able to use their assets productively.

Unidentified Justice: May I decide what I think it says?

Anne E. Keating: Yes, Your Honor.

Unidentified Justice: Thank you.

Well, I take it your colleague on the other side agrees; that if it were clear enough in the ICC's disposition of the abandonment proceeding that the abandonment was conditioned upon or rested upon the use of the rail elsewhere on the line, that this would be a different case.

Anne E. Keating: Well, one of the findings that's made in every abandonment case now is the opportunity costs associated with not being able to productively use one's assets.

So there was a specific finding in the Commission proceedings.

And while the certificate issue--

Unidentified Justice: Well, your colleague on the other side says, whatever kind of a finding there was, it isn't sufficient to foreclose the use, the condemnation of the rail.

Anne E. Keating: --We would submit that there are sufficient statement in the Administrative Law Judge's decision.

Unidentified Justice: And the ICC comes along and says, well, whatever we found, we certainly didn't intend to foreclose condemnation of the rail immediately after the certificate issues, and it says, we certainly didn't contemplate insulating this rail for any period of time from condemnation.

You disagree with the ICC as to the meaning of its order?

Anne E. Keating: I believe that the order was one... and that Congress is the one that has established that any forced sale or acquisition of a rail line, an intact rail line for continued rail purposes, should be done under Section 10905.

Unidentified Justice: An intact rail line.

Anne E. Keating: Yes, which it was when the Hayfield Northern obtained the temporary restraining order in state court.

The ICC, we believe, cannot abdicate its role as guardianship over the railroads' financial condition, and I think it's important to note the primary purposes behind the Staggers Rail Act, which provided for Section 10905, and that was to deregulate the railroad industry and to provide lesser regulatory restraints, but also to give the railroad an opportunity to have the earnings so that it could restore and maintain its rail system and thus provide better rail service for the nation; and then finally, to provide for stability in the rail system of the nation.

And Section 10905 as a result was a balancing test to provide this means by which within a certain time period local communities could have the opportunity of acquiring lines and being able to continue service, but at the same time there could not be this protracted delay from letting the railroads reuse their assets productively elsewhere.

Chief Justice Warren E. Burger: Mr. Abdalian.

REBUTTAL ARGUMENT OF ROBERT S. ABDALIAN, ESQ., ON BEHALF OF APPELLANTS

Robert S. Abdalian: If there is a reasonable time in which the rail ties and track should be left intact... or not intact; in which the CNW could remove the rail ties, that should have been asked.

The Commission should have been asked to put a condition on the abandonment, and that's where that should have been fought out.

The railroad did not have a condition of the abandonment that they needed the lines and they had to put it elsewhere.

The reason that there was no condemnation action or petition for condemnation action brought was because immediately upon seeking the TRO in state court the issue was removed to federal court on a preemption issue, which was perceived as a threshold issue.

And to bring a condemnation action in state court while this threshold issue had to be decided would be premature and it was likely not to be entertained by the state court in any event pending a resolution of this jurisdictional issue.

As for the estoppel argument of the CNW, estoppel would not prevent the condemnation.

At most it goes to the price that was placed on the line.

It's an issue preclusion consideration and not one of preemption.

Thank you.

Chief Justice Warren E. Burger: Thank you, counsel.

The case is submitted.