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December 18, 1973

UNITED STATES of America and Interstate Commerce Commission, Defendants

The opinion of the court was delivered by: HUYETT


Plaintiff railroads seek a permanent injunction (1) restraining the Interstate Commerce Commission from implementing its Order of March 30, 1973 in Ex Parte No. 252 (Sub. No. 1) Incentive Per Diem Charges-1968, ICC (1973) made under § 1(14)(a) of the Interstate Commerce Act, and (2) ordering the Commission to reconsider its Order of April 28, 1970 also entered in Ex Parte No. 252 (Sub. No. 1) Incentive Per Diem Charges-1968, 337 ICC 246 (1970). Pending final resolution by a three-Judge court of the relief sought by plaintiffs' complaint, a single judge upon a finding of irreparable damage pursuant to 28 U.S.C. § 2284(3) restrained implementation by the Commission of the March 30, 1973 Order. *fn1" Jurisdiction to consider the issues raised by plaintiffs' complaint is conferred by 28 U.S.C. § 1336(a) (1970). The mode of procedure required in an action seeking to restrain the operation or execution of a Commission Order is established by 28 U.S.C. §§ 2321-2325. Relief is also sought pursuant to the judicial review provisions of the Administrative Procedure Act, 5 U.S.C. §§ 701-706 (1970).

 Various railroads have intervened either in support of or in opposition to the relief requested by plaintiffs. An association of shippers, the American Plywood Association, has intervened as a defendant. The United States, although by statute a defendant in these proceedings, 28 U.S.C. § 2322, supports the relief sought by plaintiffs. *fn2" The Secretary of Agriculture has also intervened as a defendant.

 I. Incentive Per Diem (IPD) Program

 By its April 28, 1970 Order the Commission embarked on a new effort to solve an old and continuous problem. The chronic shortage of freight cars has inflicted this nation's economy since the inception of the Commission. *fn3" One cause of freight car shortages is the inefficient handling by railroads which use other railroads' freight cars. A user railroad has little incentive to return quickly the cars to the owner railroad whose need for the cars may have arisen after the cars were transferred off the owner railroads' tracks. Furthermore, a user railroad may find it less expensive to use other railroads' cars rather than purchase an adequate supply for its own use. The Commission's April 1970 Order provides for the payment of incentive per diem (IPD) charges by railroads which use unequipped boxcars owned by other railroads. The incentive charges are amounts in excess of compensation reflecting the ordinary costs an owner railroad is allowed to charge for use of its boxcars (the basic per diem charge). *fn4" The Commission's authority to provide for such incentive payments under the Interstate Commerce Act as amended by the Esch Car Service Act of 1917, 40 Stat. 101, had been found lacking by the court in Palmer v. United States, 75 F.Supp. 63 (D.D.C.1947). But by further amendment to the Interstate Commerce Act in 1966, 49 U.S.C. § 1(14)(a), *fn5" the Commission was given explicit authority to provide for incentive charges.

 After an initial period studying the car supply problem, the Commission issued a report proposing the adoption of IPD on a six-month basis beginning September 1 of each year and running through February of the following year. 337 ICC 183 (1969). *fn6" With certain minor modifications IPD was adopted by the Commission in its Order of April 28, 1970. 337 ICC 217, 246 (1970).

 The IPD program adopted by the Commission contained the following features: (1) IPD would be charged only for the use of unequipped boxcars, (2) the amount of IPD chargeable was designed to increase the rate of return on investment allowed car owners to an overall 12 percent per year, (3) the incentive charge was to apply for the six-month period of September through February, (4) the excess of incentive charges received by a railroad over the amount paid by it was to be set aside as earmarked funds for the purchase, building or rebuilding of general service, unequipped boxcars, and (5) railroads having net credit balances of IPD funds could not use the IPD funds to build, rebuild or purchase additional unequipped boxcars until after the carrier had, in the same calendar year, built or purchased new general service unequipped boxcars beyond the annual average number of cars purchased, built or rebuilt in the five-year period of 1964 to 1968 and make up any arrearage in having failed to maintain such average during the period the Commission's Order was in effect.

 The Commission rejected carriers' proposals that IPD also apply to cars other than unequipped boxcars-such as covered hopper cars. It was noted that the boxcar remained the "workhorse" of the freight car fleet and that the Commission had not been shown evidence the boxcar "can or will be replaced in that role." To achieve an overall 12% return on investment the Commission imposed a 18% rate during the September to February IPD months. The 18% IPD rate when combined with a 6% basic per diem during the year would result in an annual 12% rate. In adopting a 12% average annual rate the Commission stated:

The data that we have seen convince us that no higher rate of return than 12 percent is needed to serve as a reasonable incentive, and that a higher figure would, therefore, provide unjust and unreasonable compensation to freight car owners.

 337 ICC 217, 225 (1970). *fn7"

 Limitation of IPD to a six-month period was premised on the Commission's finding that this period was a heavy loading period both nationally and regionally. Proposals that IPD apply during the full year were rejected by the Commission. The Commission further considered that six-month application of IPD would have benefits in car utilization practices which would "spill over" into the months when IPD was not in effect. The earmarking of funds for IPD was designed to insure funds for the purchase and rebuilding of boxcars and to prevent the use of the funds for general railroad purposes.

 The test period requirement was aimed at stemming the "present down trend in the national supply of plain box cars." The Commission stated its rationale for the five-year test period as follows:

In the absence of the 5-year average, the creditor railroads could simply use the incentive funds to purchase their ordinary car replacements and maintain the present declining rate of replacements. This would not be a satisfactory response to the shipper requirements for additional boxcars shown of record.

 337 ICC 217, 229 (1970).

 Other proposals for a moving average test period and for lessening the cumulative yearly requirement of purchasing boxcars before IPD funds could be used were rejected by the Commission.

 The IPD program as established by the Commission's April 1970 Order was effective for two periods-September 1970 to February 1971 and September 1971 to February 1972-when petitions were filed by a number of carriers requesting reconsideration of the IPD program. Most of the petitions for reconsideration by the Commission of its April 1970 Order sought modifications in the IPD program reflecting each carrier's experience. Many carriers requested that IPD funds be available to acquire cars other than boxcars and that the test period restriction be eliminated in order that IPD funds could be expended without having to first draw upon the carrier's own funds. A number of carriers called for terminating the IPD program entirely and others, primarily the carriers in reorganization, requested exemptions for groups of carriers.

 Without addressing itself to the petitions for reconsideration of the April 1970 Order, the Commission on March 6, 1973, proposed that IPD be extended to apply throughout the year under the same conditions existing during the September to February period. The March 6th Order cited statistics supplied by the Association of American Railroads reflecting a decline in the number of boxcars installed and an increase in the number of boxcars retired. The Commission further stated:

[These] statistics demonstrate that the nation is facing an increasing critical plain boxcar shortage, which shortage has escalated drastically during the last eight months to the point where it is now greater than at any other time in the history of the Commission, that the car supply crisis has been occasioned primarily by the unprecedented demand for movement of grain brought about by the Russian wheat sale agreement, that despite the existence of funds earmarked for the purchase, building or rebuilding of unequipped boxcars, the railroads, during the last four years, have retired more than three times as many plain boxcars as they have installed or rebuilt, and that the seasonable ...

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