
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                                         -2-                                          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                                         -9-                                          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                                         -11-                                          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                                         -12-                                          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.                                         -13-                                          13                                         III.                                         III.                                         ____                      For the  foregoing  reasons, the  decision  of  the            Interstate Commerce Commission is                      Affirmed.                      Affirmed.                      ________                                         -14-                                          14
