Berkshire Scenic Railway Museum, Inc. v. Interstate Commerce Commission

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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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

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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).

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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).

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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.

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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

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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.

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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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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).

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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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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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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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III.
III.

For the foregoing reasons, the decision of the

Interstate Commerce Commission is

Affirmed.
Affirmed.

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