Berkshire Scenic v. ICC

• Court: Court of Appeals for the First Circuit
• Decided: March 27, 1995
• Docket: 94-1701
• Status: Published

Opinion

USCA1 Opinion

United States Court of Appeals
                            United States Court of Appeals
                                For the First Circuit
                                For the First Circuit
                                 ____________________

        No. 94-1701

                        BERKSHIRE SCENIC RAILWAY MUSEUM, INC.,

                                     Petitioner,

                                          v.

                           INTERSTATE COMMERCE COMMISSION,

                                     Respondent.

                                 ____________________

                        ON PETITION FOR REVIEW OF AN ORDER OF
                          THE INTERSTATE COMMERCE COMMISSION

                                 ____________________

                                        Before

                                Torruella, Chief Judge,
                                           ___________
                            Aldrich, Senior Circuit Judge,
                                     ____________________
                              and Stahl, Circuit Judge.
                                         _____________

                                 ____________________

            James E. Howard with whom M.  Katherine Willard and Kirkpatrick  &
            _______________           _____________________     ______________
        Lockhart were on brief for appellant.
        ________
            Evelyn G.  Kitay, Attorney, Office of  General Counsel, with  whom
            ________________
        Laurence H. Schecker,  Attorney, Henri F.  Rush, General Counsel,  and
        ____________________             ______________
        John J. McCarthy, Jr.,  Associate General Counsel, Interstate Commerce
        _____________________
        Commission,  and Jeffrey  P.  Kehne, Attorney,  Environment &  Natural
                         __________________
        Resources  Division,   Department  of  Justice,  were   on  brief  for
        Interstate Commerce Commission.
            Edward  J. Rodriguez  for  intervenors Housatonic  Track  Company,
            ____________________
        Inc., and Housatonic Railroad, Inc.

                                 ____________________

                                    March 27, 1995
                                 ____________________



STAHL,  Circuit  Judge.     The  Housatonic   Track
                      STAHL,  Circuit  Judge
                              ______________

            Company,  Inc.,  and  Housatonic  Railroad,   Inc.  (jointly,

            "Housatonic"),  sought  an   exemption  from  the  Interstate

            Commerce  Act  ("ICA")   to  permit  their   acquisition  and

            operation of  a rail  line in Massachusetts  and Connecticut,

            known  as the  Canaan  Secondary Branch,  then  owned by  the

            Boston  and  Maine  Corporation   ("B&M").    The  Interstate

            Commerce Commission ("ICC") granted the exemption.  Berkshire

            Scenic Railway  Museum,  Inc. ("Berkshire"),  which owns  and

            operates  a  museum in  a  historic railroad  station  on the

            Canaan  Secondary  Branch  in  Lenox,  Massachusetts  ("Lenox

            station"), petitioned  the ICC to declare  the exemption void

            ab  initio,  contending  that  it  was  based  on  false  and
            __  ______

            misleading information.  The  ICC denied Berkshire's petition

            and Berkshire now seeks our review of the ICC's decision.  We

            affirm.

                                          I.
                                          I.
                                          __

                      The background to this dispute involves the history

            of Berkshire,  details of the Housatonic-B&M transaction, and

            intricacies of ICC acquisition-approval regulations.  A brief

            discussion follows.  

                      Pursuant to a series of annual agreements with B&M,

            Berkshire operated a scenic railway line on a portion of B&M-

            owned track between  the Massachusetts-Connecticut border and

            Pittsfield,   Massachusetts.      Berkshire,   a   non-profit

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                                          2



organization,  used the  revenue from  the scenic  railway to

            fund  the  renovation of  the  Lenox  station.1   The  scenic

            railway  operated for  six  years, from  1984 through  1989.2

            From  1984-1988,  Berkshire's   trains  operated  from   Lee,

            Massachusetts to Great Barrington,  Massachusetts.  In  1989,

            Berkshire  used the Lenox station as the locus for the scenic

            railway.  

                      Meanwhile,  B&M allowed  the track  to deteriorate.

            Sensing  opportunity,  Housatonic   sought  to  extend  their

            already  existing freight-line operations along the B&M-owned

            track   in  Massachusetts.    Negotiations  between  B&M  and

            Housatonic led  to agreement and, in  November 1990, pursuant

            to  49 U.S.C.   10505, Housatonic filed a petition seeking an

            exemption from  the ICC's certification requirements  for the

            acquisition and operation of the rail line.3

                                
            ____________________

            1.  Constructed  in 1902, the Lenox  station was added to the
            National Register of Historic Places ("National Register") in
            1989.

            2.  The  record  suggests  that by  1989,  the  B&M-Berkshire
            relationship had deteriorated  significantly.  B&M  chose not
            to renew its agreement with Berkshire.

            3.  Noncarriers seeking  to acquire  a rail line  must secure
            regulatory approval from the  ICC.  Housatonic Track Company,
            Inc.,  was  a noncarrier  for  purposes  of the  regulations.
            Pursuant   to  49  U.S.C.     10901,  the  ICC  may  issue  a
            certificate    of    public   convenience    and   necessity.
            Alternatively, 49 U.S.C.   10505 authorizes exemptions from  
            10901's  formal  certification  process if  the  exemption is
            needed to  advance "rail transportation policy."   Under this
            authority, the  ICC has  exempted so-called  "acquisition and
            operation" applications, such as Housatonic's, from the full-
            blown certification process.  See generally Pittsburgh & Lake
                                          ___ _________ _________________

                                         -3-
                                          3



As   part   of   the  exemption-approval   process,

            Housatonic   advised   the   Massachusetts   State   Historic

            Preservation Officer  ("SHPO") that they  intended to acquire

            and operate  the line  as  a freight  operation.   Housatonic

            requested the SHPO to advise the ICC of any objections to the

            transaction.  In their letter to the SHPO,  Housatonic stated

            that "the property  to be  acquired is now  used for  freight

            railroad  service and will  continue to  be used  for freight

            railroad  service.   No change  of use  is contemplated.   No

            buildings  whatsoever  are  located  on the  property  to  be

            acquired."  In  fact, a  small portion of  the Lenox  station

            encroaches  on the  railroad right-of-way.   At  the time  of

            their letter to the SHPO, however, Housatonic did not know of

            the encroachment.  

                      On December 17, 1990, the SHPO wrote a no-objection

            letter to the ICC.  The  SHPO noted that there were  historic

            structures  or  multiple  historic  districts  and properties

            either  listed  or  eligible  for  listing  on  the  National

            Register  adjacent  to or  within  the proposed  route.   She

            nonetheless concluded that "this  project will have no effect

            on    the    significant    architectural   and    historical

            characteristics   of   these    [historic   properties    and

            districts]."  The SHPO did not specifically mention the Lenox

____________________

            Erie R.R. v.  Railway Labor Executives' Ass'n, 491  U.S. 490,
            _________     _______________________________
            499-501 (1989) (describing regulatory regime).  

                                         -4-
                                          4



station.    Berkshire   did  not  comment   to  the  ICC   on

            Housatonic's exemption petition.

                      In  an  order  dated  December 21,  1990,  the  ICC

            dismissed    Housatonic's    exemption   petition,    instead

            determining  that   they  qualified  for  a  so-called  class

            exemption.4     Thus,  the  ICC  authorized   the  Housatonic

            acquisition.5   The ICC  decision did not  explicitly address

            historic preservation.  

                      Prior  to the  acquisition, Housatonic  had assured

            Berkshire that Berkshire could  operate the scenic railway on

            the  tracks.   Subsequent  to the  acquisition, however,  the

            parties were unable to reach  an agreement.  Berkshire claims

            that  without  revenue from  the  scenic  railway, it  cannot

            continue to renovate the Lenox  station or educate the public

            about railroading, thus frustrating its mission.  Following

            the failure in negotiations,  Berkshire petitioned the ICC to

            revoke Housatonic's exemption, arguing that the ICC had acted

                                
            ____________________

            4.  Under      10505,   the   ICC   has  exempted   so-called
            "acquisition  and operation"  applications, as a  class, from
            the full-blown certification process.   See Pittsburgh & Lake
                                                    ___ _________________
            Erie R.R., 491 U.S. at 499-500.
            _________

            5.  Regulations appearing  at 49  C.F.R.   1150.32  set forth
            the procedure by which the ICC grants   10505 acquisition and
            operation exemptions.   First, an applicant  files a verified
            notice of  exemption.   The exemption then  becomes effective
            seven  days after filing and will be published in the Federal
            Register within 30 days  after filing.  An exemption  will be
            void ab initio  if the applicant's  notice contains false  or
                 __ ______
            misleading information.   49 C.F.R.    1150.32 (a)-(c).   Any
            person  opposing  the transaction  must  file  a petition  to
            revoke.  49 U.S.C.   10505(d).

                                         -5-
                                          5



on   the   basis  of   false  and   misleading  information.6

            Berkshire  also asserted that  the ICC had  failed to perform

            adequate historic preservation  and environmental  assessment

            analyses.   Finally,  it  argued  that  the ICC  should  have

            conditioned any  exemption on the requirement that Housatonic

            allow  Berkshire to  operate  the scenic  railway.   After an

            extended  review,  the   ICC  denied  Berkshire's   petition.

            Berkshire then sought review by this court.

                                         II.
                                         II.
                                         ___

                      In this proceeding,  Berkshire makes two  principal

            arguments:  (1)  Housatonic's allegedly false  and misleading

            statements to the SHPO should  render their exemption void ab
                                                                       __

            initio;  and  (2)  the  ICC's  failure  to  conduct  adequate
            ______

            historic  preservation and environmental  reviews requires it

            to  conduct  new  reviews.    We  find  no  merit  in  either

            contention.    After  reciting  the standard  of  review,  we

            discuss each argument in turn.

            A.  Standard of Review
            ______________________

                      We  accord broad  deference  to  ICC  decisions  to

            exempt transactions from  the ICA.   We will  uphold the  ICC

            decision unless  it was  "arbitrary, capricious, an  abuse of

            discretion, or  otherwise not  in  accordance with  law."   5

            U.S.C.    706(2)(A); see also  CMC Real Estate  Corp. v. ICC,
                                 ___ ____  ______________________    ___

            807 F.2d 1025,  1030 (D.C.  Cir. 1986); Simmons  v. ICC,  697
                                                    _______     ___

                                
            ____________________

            6.  See supra note 5.
                ___ _____

                                         -6-
                                          6



F.2d 326, 342  (D.C. Cir.  1982).  Under  this standard,  our

            review  of  the  ICC's  action  is  to  determine  whether  a

            "rational basis" for the agency's  decision lies in the facts

            on the record.  See, e.g., Simmons, 697 F.2d at 342; National
                            ___  ____  _______                   ________

            Tour Brokers Ass'nv. ICC, 671 F.2d 528, 532 (D.C. Cir. 1982).
            __________________   ___

            B.  The ICC's Refusal to Revoke the Exemption
            _____________________________________________

                      Berkshire argues that the ICC acted arbitrarily and

            capriciously by  failing to follow its  regulations which, it

            says,  should have rendered the exemption void ab initio.  We
                                                           __ ______

            do not agree.  

                      As noted above, see  supra note 5, under applicable
                                      ___  _____

            ICC regulations, an exemption is void ab initio if the notice
                                                  __ ______

            of exemption  contains false or misleading  information.  The

            ICC  has  interpreted the  regulation  to  require that  such

            information  concern  a "material"  part of  the transaction.

            Mendocino Coast Ry., Inc., 1988 WL 224486, at *3 (I.C.C. July
            _________________________

            14,  1988).   A statement  is material  if, for  example, the

            transaction   would  not  have  otherwise  qualified  for  an

            exemption.    Sagamore Nat'l  Corp.,  1994 WL  487580,  at *2
                          _____________________

            (I.C.C. Sept. 9, 1994).    

                      Berkshire      contends      that      Housatonic's

            representations  to  the   SHPO  contained  three  false   or

            misleading  statements.7    The  substance  of   the  alleged

                                
            ____________________

            7.  For purposes of this appeal, we assume but do not decide,
            that "false  or misleading information" provided  to the SHPO
            rather than contained  in the notice  of exemption itself  is

                                         -7-
                                          7



misrepresentations, derived from  Housatonic's letter  quoted

            above, are:   (1) no buildings are located on the property to

            be   acquired;  (2)  no  change   in  use  of   the  line  is

            contemplated; and  (3) the property is now  and will continue

            to  be used for freight service.  Berkshire argues that these

            statements misrepresented the facts because:  (1) in light of

            its  encroachment onto  the railway  right-of-way, the  Lenox

            station  is, in fact,  located on the  acquired property; and

            (2) Housatonic did not  disclose that they would subsequently

            refuse to allow Berkshire to operate the scenic railway.    

                        In lieu  of  the ICC's  materiality  requirement,

            Berkshire advocates a literal reading of the regulation:  any
                                                                      ___

            false or  misleading information should lead  to an exemption

            being  void  ab  initio.    However,  we  accord  substantial
                         __  ______

            deference   to   an  agency's   interpretation  of   its  own

            regulations, see,  e.g., Reich v. Simpson,  Gumpertz & Heger,
                         ___   ____  _____    ___________________________

            Inc., 3 F.3d  1, 2  (1st Cir.  1993), and  Berkshire has  not
            ____

            persuaded us that, on  these facts, that deference should  be

            displaced.   Accordingly, we see no reason to depart from the

            ICC's materiality  requirement.  Moreover, the  ICC had ample

            basis to conclude that Housatonic's statements fall far short

            of the materiality requirement.  With specific regard to  the

            station-encroachment  issue, the ICC  found that Housatonic's

            representations   were   "immaterial  misstatements."     Had

                                
            ____________________

            sufficient to render the exemption void ab initio.  
                                                    __ ______

                                         -8-
                                          8



Housatonic represented  the facts as they  actually were, the

            transaction would have still  qualified for a class exemption

            because  historic  preservation  is  simply  not  a  material

            element of  an "acquisition  and operation" transaction.   We

            also note that, as a practical matter, there is nothing about

            the acquisition itself that could have adversely affected the

            portion of the  station on the right-of-way.  Housatonic only

            proposed to operate  railroad freight  service, presumably  a

            familiar  activity on  the tracks  for most of  the station's

            nearly ninety-year existence. 

                      Berkshire's  second  contention --  that Housatonic

            did not disclose that they would subsequently refuse to allow

            Berkshire to operate the  scenic railway -- rests on  an even

            shakier footing.   Not  only is  an agreement  with Berkshire

            immaterial  to a class exemption, but there is nothing in the

            ICA  requiring  Housatonic  to  allow Berkshire  to  use  the

            tracks. 

                      In short,  because we find that  Housatonic did not

            proffer "false  or misleading information" within the meaning

            of  that  phrase  as  interpreted by  the  ICC,  Housatonic's

            exemption is not  void ab  initio under 49  C.F.R.    1150.32
                                   __  ______

            (c).

            C.  The ICC's Historic Preservation and Environmental Reviews
            _____________________________________________________________

                      Berkshire  next  argues  that  the  ICC  failed  to

            conduct  necessary  historic  preservation and  environmental

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                                          9



reviews.   On review, we think the record provides a rational

            basis for the ICC's disposition.

                      Section 106  of the National  Historic Preservation

            Act requires that a federal licensing agency shall, prior  to

            the issuance of a  license, "take into account the  effect of

            the undertaking  on any district, site,  building, structure,

            or  object that is included  in or eligible  for inclusion in

            the  National  Register."    11 U.S.C.     470f.   Applicable

            regulations,  appearing  at  36  C.F.R.    800.9,  set  forth

            various  "adverse effect"  criteria to  be considered  by the

            federal   entity.8     Berkshire  argues   that  Housatonic's

            acquisition  is inconsistent  with  two such  criteria:   (1)

            "[i]solation  of  the  property  from or  alteration  of  the

            character  of  the  property's setting  when  that  character

            contributes to the property's qualification  for the National

            Register"; and (2)  "[n]eglect of a property resulting in its

            deterioration or destruction."  36  C.F.R.   800.9(b)(2) &   

            800.9(b)(4).    Berkshire reasons  that,  because  it may  no

            longer operate the scenic railway, the  Lenox station is both

            "functionally isolated" (Berkshire's phrase) from its setting

            as well as deprived of revenues for the station's renovation,

            thus leading to its "deterioration."   Accordingly, Berkshire

____________________

            8.  If an adverse effect exists, then  the federal agency, in
            consultation with  state officials, must "seek  ways to avoid
            or reduce the effects"  on historic properties.  36  C.F.R.  
            800.5(e).  

                                         -10-
                                          10



argues, the petition  should be  remanded for  a full  review

            under  Section 106.  Berkshire also argues that any exemption

            should  be conditioned  on  Housatonic's agreement  to  allow

            Berkshire to use the line.

                      Even  in a charitable  light, Berkshire's arguments

            strain credulity.  As  to Berkshire's first contention, there

            is  no  basis   for  a  claim  of  isolation,  functional  or

            otherwise.   At least three factors  support this conclusion.

            First,  as  noted  above,  largely  because  of  an  apparent

            breakdown  in  the  B&M-Berkshire  relationship,  the  scenic

            railway had  not operated for more  than a year prior  to the

            Housatonic acquisition.   At  most, therefore, the  effect of

            the Housatonic transaction on the then-non-functioning scenic

            railway was to perpetuate the status quo.  In other words, we

            find  no basis to conclude that  the Housatonic exemption led

            to the "isolation" Berkshire claims has resulted.  Second, as

            the ICC notes, the  SHPO issued a no-effect letter,  in which

            neither Lenox station nor  the scenic railway were discussed.

            Third,  we think that Berkshire's  claim of "isolation  . . .

            from the property's setting"  is facially implausible in view

            of  the  fact that  the historic  property  in question  -- a

            railway  station  -- abuts  and, indeed,  actually encroaches

            upon an active railroad right-of-way.

                      Berkshire's  "deterioration" argument  is similarly

            unavailing.   Whatever "deterioration" might have flowed from

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                                          11



the  cessation of the scenic railway was not an effect caused

            by  Housatonic's  exemption.    As noted  above,  the  scenic

            railway  had  ceased  operating  well  before  the Housatonic

            acquisition.    Moreover, as  the  ICC  notes, a  substantial

            question exists  as to whether  it has jurisdiction  to grant

            the  relief  Berkshire seeks  --  that  is, conditioning  any

            exemption  on Berkshire's right to use the track.  Because we

            find  that the exemption gives rise to no adverse effects, we

            need not reach the jurisdictional issue.

                      Finally, Berkshire argues that the ICC should  have

            required an  environmental assessment  of the effects  of the

            acquisition.   Again, we do  not agree.   Under then-existing

            regulations,   the  ICC   did   not   require   environmental

            assessments when  there was  "only a  change in  ownership or

            similar   changes;   such  as   issuance  of   securities  or

            reorganization,  but  not  involving  a  change   in  carrier

            operations."  49  C.F.R.     1105.6(c)(2) (1990).    The  ICC

            reasoned that because no operational changes were involved in

            the Housatonic transaction, an  assessment was not  required.

            Berkshire,   however,   points   to   another   then-existing

            regulation under which an assessment would normally have been

            required   when  the   proposed   transaction   involved   an

            "abandonment,   acquisition,  or  operation   of  a  line  of

            railroad."    49 C.F.R.     1105.6(b)(1)  (1990).   Berkshire

            argues that, by its terms, the former   1105.6(c)(2) does not

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                                          12



apply  to an  acquisition  and  operation  of  a  line  by  a

            different entity and, in any event, the former   1105.6(b)(1)

            directly applies.  In its denial of Berkshire's petition, the

            ICC  indicated that  the former  regulation applied.   Before

            this  court, the  ICC concedes  that either  regulation could

            apply to  the transaction.   Inasmuch as the  transaction did

            not involve a  significant change in operations on the track,

            we  conclude  the  ICC did  have  a  rational  basis for  not

            requiring an environmental assessment.

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                                          13



III.
                                         III.
                                         ____

                      For the  foregoing  reasons, the  decision  of  the

            Interstate Commerce Commission is

                      Affirmed.
                      Affirmed.
                      ________

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