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November 26, 1974

UNION MECHLING et al., Plaintiffs,
The UNITED STATES of America and the Interstate Commerce Commission, Defendants, and Hennepin Towing Company, Intervening Defendant

The opinion of the court was delivered by: SCALERA

This is an action to enjoin the order of the Interstate Commerce Commission (I.C.C.) *fn1" granting a certificate of public convenience and necessity to Hennepin Towing Company (Hennepin), the intervening defendant, to operate as a common carrier by water on certain inland waterways -- on the Mississippi River from St. Paul-Minneapolis to New Orleans; on the Illinois River from Chicago to its confluence with the Mississippi; and on the Ohio River, including the Allegheny and Monongahela Rivers. *fn2" The authority of Hennepin prior to the issuance of the certificate included authority on the Arkansas-Verdigris Waterway, and restricted authority to operate from or to points on the Arkansas-Verdigris Waterway, on the one hand, and the Mississippi River, from Minneapolis to New Orleans, and the Illinois Waterway, on the other hand. *fn3" *fn4"


 History of the Case

 On February 1, 1971, Hennepin filed an application for a certificate of public convenience and necessity authorizing it to extend its water carrier operations. Seven barge lines (including the plaintiffs) *fn5" and nine railroads *fn6" protested Hennepin's application. The application was supported by over a dozen shippers, various port authorities (St. Paul and New Orleans), and an expert witness who testified that it was in the public interest for the I.C.C. to grant the application.

 Following the filing of Hennepin's application, public hearings were held in Chicago, Illinois and Washington, D.C., for a period of over ten days during the summer of 1971.

 On June 8, 1972, the Hearing Examiner (now Administrative Law Judge) in his report recommended that the application be denied for two reasons: (1) that Hennepin had failed to establish that it was fit and able to provide the proposed service; and (2) Hennepin had not shown that it was a matter of public convenience and necessity to grant the proposed authority because Hennepin, although it had convincingly showed that substantial increases in future growth of regulated as well as unregulated traffic on the inland waterways would occur, had not demonstrated that the existing carriers will not meet the challenge of these increases or that additional carrier(s) will be needed to satisfy this projected growth.

 Hennepin filed exceptions to the Administrative Law Judge's report and recommendation, and plaintiffs filed responses to the exceptions supporting the decision reached by the Administrative Law Judge.

 Division One of the I.C.C. reversed the Administrative Law Judge's decision in its report decided April 27, 1973 and served May 8, 1973. The Commission concluded:

 '. . . a public need has been demonstrated for the proposed service, and that the application should be granted . . .' 343 I.C.C. at 428.

 and further that the applicant has

 '. . . shown itself to be fit and able to provide the proposed service.' (Ed. at 430.)

 Although the Commission's decision reversed that of the Administrative Law Judge, 343 I.C.C. at 423, the I.C.C. found 'the Administrative Law Judge's statement of the facts to be substantially correct in all material respects,' and adopted that statement. The Commission adopted the summary by the Administrative Law Judge of the evidence of the supporting witnesses and protesting carriers by including it as an appendix to its decision. (343 I.C.C. at 432-452.)

 The decision of the Commission is based on the following factors:

 (1) 'The likelihood that traffic on the upper Mississippi River and its tributaries will increase substantially in the foreseeable future . . . and there will be a corresponding requirement for substantial expansion of water carrier facilities in order to meet these increased demands for water carrier service' and 'to meet these increased demands . . . applicant should be authorized to operate at maximum efficiency.' 343 I.C.C. at 428-429.

 (2) 'Contrary to the determination of the Administrative Law Judge, the evidence presented by shippers of bulk commodities . . . is entitled to consideration,' because (1) when more than three distinct bulk commodities are hauled in a single tow the strictures of section 303(b) (the then-applicable Three-Commodity Rule) would transform unregulated traffic to regulated traffic and (2) such evidence relating to the shipment of bulk commodities, although not regulated by the Commission generally, is an important factor for the Commission to consider 'in obtaining a more complete picture of the actual transportation scene, which must necessarily include some consideration of the impact on equipment, storage, and the present and future operation of regulated carriers due to the significant tonnages now moving in exempt carriage.' 343 I.C.C. at 429.

 (3) That contrary to the Administrative Law Judge's determination, Hennepin, a wholly-owned subsidiary of the Upper Mississippi Towing Company, has shown itself to be fit and able to perform the proposed service through the pooling of equipment and joint efforts with its parent company. ( Id. at 430.)

 The Commission summarily decided that its grant to Hennepin was not a 'major Federal action(s) significantly affecting the quality of the human environment' within the meaning of § 102(2)(C) of the National Environmental Policy Act (NEPA), 42 U.S.C. § 4332(2)(C).

 In June and July 1973, petitions for reconsideration were filed by the plaintiffs, and these petitions were responded to by the applicant, Hennepin. On November 4, 1973, Division One served its order denying the protesting carriers' petitions for reconsideration and outlining in greater detail the Commission's reasoning in reaching its decision that the grant to Hennepin did not require a NEPA statement. Thereafter the entire Commission denied plaintiffs' petition for a finding that this proceeding involves issues of general transportation importance. The Commission therefore held that review before the entire Commission was not warranted.

 The plaintiffs filed their complaint with this court on December 11, 1973.

 On December 18, 1973, Hennepin's motion to intervene as a defendant was granted, and then, on December 27, 1973, plaintiffs jointly filed a motion to consolidate this action, Civil Action No. 73-1063, with the SCNO proceeding, Civil Action No. 73-956. While intervening defendant Sioux City in Civil Action No. 73-956 opposed consolidation, Hennepin filed a brief on January 22, 1974, supporting the motion to consolidate.

 This court denied the motion to consolidate on February 14, 1973, and established a briefing schedule. Oral argument before the three-judge statutory court was held.


 Scope of Review

 Judge Aldisert in Leonard Express, Inc. v. United States, 298 F.Supp. 556, 559 (W.D.Pa.1969) stated:

 'There have been various judicial expressions of the precise scope of this review. We are impressed by the standard set forth in Illinois Central R. Co. v. United States, 263 F.Supp. 421, 430 (D.C.Ill.1966), aff'd 385 U.S. 457, 87 S. Ct. 612, 17 L. Ed. 2d 509:

 'The function of this court in reviewing this determination of the Commission is sharply restricted. 'It is limited to ascertaining whether there is warrant in the law and the facts for what the Commission has done.' United States v. Pierce Auto Freight Lines, Inc., 327 U.S. 515, 536, 66 S. Ct. 687, 698, 90 L. Ed. 821 (1946); 5 U.S.C. § 1009(e). 'The judicial function is exhausted when there is found to be a rational basis for the conclusions approved by the administrative body.' Mississippi Valley Barge Line Co. v. United States, 292 U.S. 282, 286-287, 54 S. Ct. 692, 694, 78 L. Ed. 1260 (1934). Once this court finds substantial evidence in support of the Commission's findings, it cannot go further and inquire into the soundness of the Commission's reasoning or the wisdom of the result. Virginian Ry. v. United States, 272 U.S. 658, 663, 47 S. Ct. 222, 71 L. Ed. 463 (1926); United States v. New River Co., 265 U.S. 533, 542, 44 S. Ct. 610, 68 L. Ed. 1165 (1924)."

 'Substantial evidence' in the sense it is used in the Administrative Procedure Act, 5 U.S.C. § 706(2)(E), has been defined as 'such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.' Consolidated Edison Co. v. National Labor Relations Board, 305 U.S. 197, 229, 59 S. Ct. 206, 217, 83 L. Ed. 126. 'It must be enough to justify, if the trial went to a jury, a refusal to direct a verdict when the conclusion sought to be drawn from it is one of fact for the jury.' National Labor Relations Board v. Columbian Enameling & Stamping Co., 306 U.S. 292, 300, 59 S. Ct. 501, 505, 8o L. Ed. 660. This is something less than the weight of the evidence, and the possibility of drawing two inconsistent conclusions from the evidence does not prevent an administrative agency's finding from being supported by substantial evidence. Consolo v. Federal Maritime Commission, 383 U.S. 607, 619-620, 86 S. Ct. 1018, 16 L. Ed. 2d 131 (1966). Although the Commission in Hennepin essentially adopted the Administrative Law Judge's statement of facts, the Commission is not bound by the Law Judge's decision; on the contrary, the Commission is required to reach its own conclusions based upon the evidence. Section 8 of the Administrative Procedure Act (APA), 5 U.S.C. § 557, and Morgan Drive-Away, Inc. v. United States, 268 F.Supp. 886 (N.D.Ind.1967). To put it another way, the mere fact that the Commission adopts the Administrative Law Judge's findings of fact does not impose upon the Commission the added burden of explaining how it arrived at contrary conclusions because the APA does not relegate the Commission to the role of a reviewing court; rather, the APA confers on the Commission the right to make its own conclusions from the evidence.


 Substantial Evidence to Support the Commission's Conclusion that Hennepin is 'Fit, Willing and Able' to Provide the Proposed Service?

 The Commission found that the 'applicant will be able to carry on the proposed service.' 343 I.C.C. at 430. The Administrative Law Judge's report concluded that Hennepin was not fit and able to perform the proposed service because Hennepin relies on its parent company, UMTC, for the vast majority of its barges and power equipment, and because UMTC is not bound to continue to supply Hennepin. The Administrative Law Judge reasoned that because the applicant could not assure that at some future date UMTC's cooperation would not be withdrawn, the applicant could not guarantee performance.

 Division One reached a contrary conclusion by noting that Hennepin itself owned enough equipment outright to perform the proposed service. The Division pointed out that much of the equipment which Hennepin charters from UMTC is under an irrevocable agreement and that the dissolution of the UMTC -- Hennepin arrangement was an extremely remote possibility.

 Protestants' contention on the fitness of Hennepin is not directed to the possibility that UMTC would withdraw its support to Hennepin. The plaintiffs contend instead that because Hennepin individually owns a limited number of barges and equipment, the applicant will enjoy a competitive advantage in regulated traffic over the protesting carriers which would enable Hennepin 'to skim the most lucrative traffic from carriers such as plaintiffs.' (Tr. at p. 56.) The contention is based on the following reasoning; as a regulated carrier, Hennepin would be obligated to provide regulated service only to the extent of its limited individual ownership of barges and equipment. Hennepin could use its limited individual ownership of equipment to a profit advantage over the protesting carriers who own their equipment because Hennepin could refuse to provide service when tendered less profitable regulated traffic by explaining that all of its very limited equipment was tied up on the movement of (more profitable) exempt traffic. On the other hand, when Hennepin was tendered more lucrative regulated traffic, it would book the commodity despite the fact its own individual equipment was involved in exempt traffic by using the equipment pool of its parent, UMTC. In this manner, plaintiffs assert, Hennepin could skim the most lucrative regulated traffic while it rejects less profitable regulated traffic, and thereby frustrate its obligations as a certificated carrier.

 The plaintiffs' position cannot be understood as an indictment of all parent-subsidiary equipment pooling and chartering arrangements in the field of certificated water carriers, because such a proposition would militate against protestant American Commercial Barge Lines (ACBL). ACBL does not own a single barge or towboat; it relies completely on its parent company, American Commercial Lines, for its barges and power equipment. (Ex. 44, p. 2, App. D and E.) Without pursuing an extensive factual analysis, it would appear that ACBL's arrangement with American Commercial subjects them to the precise argument which protestants have raised against Hennepin.

 The court's inquiry upon this review is not to substitute what we or protestants believe is the proper manner in which to assess the relative merits of the corporate parent-subsidiary arrangement as it relates to fitness and ability to serve as a certificated carrier pursuant to 49 U.S.C. § 909(c). The court is empowered to search the record to determine whether the conclusion of the Commission is arbitrary, capricious, or based upon substantial evidence. Exercising this limited review, we believe that the Commission's detailed explanation of the number and type of barges owned or chartered by Hennepin (343 I.C.C. 424-425) provides a reasoned and substantial basis ...

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