NATIONAL RAILROAD PASSENGER CORPORATION, APPELLANT V. ATCHISON, TOPEKA AND SANTE FE RAILWAY COMPANY, ET AL. ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY, ET AL., CROSS-APPELLANTS V. NATIONAL RAILROAD PASSENGER CORPORATION No. 83-1492, No. 83-1633 In the Supreme Court of the United States October Term, 1984 On Appeal and Cross-Appeal From the United States Court of Appeals for the Seventh Circuit Reply Brief for the United States as Appellee Supporting the National Railroad Passenger Corporation I. As the railroads correctly observe (Br. 16), the "threshold inquiry" in this case is whether the United States released the railroads from their passenger service obligations as a matter of regulatory relief or contractual right. The railroads contend (Br. 16) that "the realities underlying the enactment of the (Rail Passenger Service Act, 45 U.S.C. 501 et seq. (RPSA)) clearly establish" that their release "is a contractual obligation of the United States." Nothing could be more wrong. The realities are these. Interstate railroads have been extensively regulated by the federal government for more than a century. In exchange for monopoly status, which in past years was enormously profitable, the railroads incurred special public service obligations. As common carriers, they could be required to provide passenger, as well as freight, service. They also lacked the authority unilaterally to discontinue all or any portion of their service but were instead obligated to petition and secure permission for discontinuance from the Interstate Commerce Commission. See Gov't Br. 24-25. By the late 1960's rail passenger service had become extremely unprofitable. The railroads were incurring enormous annual losses and were clamoring for permission to terminate passenger service. If the RPSA had not been enacted, the railroads would have continued to suffer these losses at least until the conclusion of discontinuance proceedings, which were often lengthy, costly, and hotly contested. And at the end of these proceedings, discontinuance was sometimes denied despite extreme financial hardship on the part of the petitioning railroad. See Gov't Br. 24-25. It was against this background that the RPSA was enacted. The RPSA, which the railroads now wield as a weapon against the government, was in reality a life preserver thrown to a floundering industry. The RPSA provided a quicker, surer, and cheaper alternative to discontinuance proceedings. Before enactment of the RPSA, a railroad could shed passenger lines by selling or leasing them to another carrier with ICC approval. 49 U.S.C. (1970 ed.) 5(2)(a); see 49 U.S.C. 11343. Of course, in the late 1960's, no carrier was willing to assume the burden of operating unprofitable passenger trains, so the RPSA created a new passenger railroad, Amtrak, to undertake that task (45 U.S.C. 541). Amtrak was chartered as a for-profit corporation under the laws of the District of Columbia and is not "an agency or establishment of the United States Government" (45 U.S.C. 541). The RPSA created a two-step procedure under which a railroad could gain release from its passenger service obligations. There was nothing novel about this procedure. It was essentially the same as the procedure that takes place whenever one carrier acquires or leases another's lines. See, e.g., Penn-Central Merger Cases, 389 U.S. 486, 494 (1968). The first step involved an agreement between the carriers -- in this case Amtrak and the railroads. Amtrak was "authorized to contract * * * to relieve (a requesting railroad) of its entire responsibility for the provision of intercity rail passenger service" (45 U.S.C. 561(a)(1)). This does not mean, as the railroads suggest (Br. 18-19), that Amtrak was delegated the power to contract away a portion of the federal government's regulatory authority under the Commerce Clause. Rather, it means that Amtrak was authorized to enter into an agreement to acquire a railroad's passenger lines, just as any other carrier might acquire another's lines. The United States was not a party to such agreements and was not bound by them. And the agreements themselves did not alter the railroad's common carrier duties. Instead, performance of the agreements was conditioned upon government regulatory action shifting those responsibilities from one carrier to another. The second step under the RPSA involved government regulatory action needed to effectuate the agreements between Amtrak and the railroads. It was analogous to ICC approval of a proposed acquisition. See 49 U.S.C. 11343. Under the RPSA, "(u)pon its entering into a valid contract" with Amtrak, a railroad was granted regulatory relief "of all its responsibilities as a common carrier of passengers by rail in intercity rail passenger service" (45 U.S.C. 561(a)). This means that as a matter of regulatory discretion the United States relieved the railroad from its passenger service obligations, which had been assumed by another carrier. But as long as the railroad continued to operate freight lines in interstate commerce, it remained potentially subject to the full panoply of common carrier duties, including passenger service obligations. See Chesapeake & O. Ry. v. Public Service Comm'n, 242 U.S. 603 (1917). The railroads' argument that they acquired contractual rights against the United States confuses these two discrete steps. The railroads rely (Br. 17) upon language in the RPSA referring to contracts. But all of this language refers to the contracts between Amtrak and the railroads, not to the relationship between the United States and the railroads, which is now and always has been that of sovereign and regulatees. The railroads debunk (Br. 19-20) the well-established rule that the United States should be presumed not to have contracted away vital governmental authority, such as the power to regulate commerce. The railroads seem to suggest that the government is just as likely to contract away essential attributes of sovereignty as it is to incur routine financial obligations. In support of that proposition, the railroads quote (Br. 19) United States Trust Co. v. New Jersey, 431 U.S. 1, 24 (1977), where the Court observed that "(s)uch formalistic distinctions perhaps cannot be dispositive." But the railroads omit the rest of the sentence (ibid.; emphasis added): "but they contain an important element of truth." /1/ The railroads also find it necessary baldly to rewrite an important provision of the RPSA in order to make way for their argument. Section 301 of the RPSA, 45 U.S.C. 541 (emphasis added), "expressly reserve(s)" Congress's authority to "repeal, alter, or amend this chapter (i.e., the RPSA) at any time." Apparently recognizing that such a reservation is incompatible with their theory that the RPSA conferred contractual rights, the railroads insist that this provision merely "means that the 'corporate charter may be repealed or amended'" (Br. 22; citation omitted). However, there is no support for the notion that Congress really meant "corporate charter" when it used the term "this chapter" in Section 301. /2/ Most tellingly, the railroads offer no plausible explanation why Congress would have granted them the far-reaching and unprecedented contractual rights that they now claim. After decades of dealing with railroad discontinuance matters by regulation, why would the United States suddenly choose to deal with this subject by contract? Why would Congress contract away a portion of its vital Commerce Clause authority? And why would Congress grant the railroads the contractual right to be free in perpetuity from any passenger service obligations while continuing to operate potentially profitable freight lines in interstate commerce? Was it necessary for Congress to make such a bargain because otherwise the railroads might not have surrendered their passenger lines (see R.R. Br. 16-17), which were leading them to financial ruin? Was it because of the "consideration" paid by the railroads (see R.R. Br. 19) -- an amount approximately equal to what Amtrak could have been expected to lose during just its first six months, an amount less than what a railroad would have lost during the pendency of discontinuance proceedings? If this consideration was the lure, why was no carrier other than Amtrak willing to take over these passenger lines at any price? The "realities underlying the enactment of the RPSA" (R.R. Br. 16) emphatically refute the railroads' argument. II. The railroads' remaining arguments require little response. Even if the railroads acquired contractual rights against the United States, those rights were not violated by Section 405(f), 45 U.S.C. 565(f), which merely requires them to provide reimbursement for pass rider privileges. The railroads contend (Br. 23-28) that they were contractually released from their "entire responsibility for the provision of intercity rail passenger service" (45 U.S.C. 561(a)(1)) and that providing reimbursement for pass rider privileges falls within this release. Their argument is far-fetched. Under the RPSA, a railroad was relieved of "its responsibilities as a common carrier of passengers by rail in intercity rail passenger service" (45 U.S.C. 561(a)(1)). That is what was meant by the "entire responsibility for the provision of intercity rail passenger service" (45 U.S.C. 561(a)(1)) -- operating passenger trains, not paying for free train rides taken by the railroads' employees, retirees, and their families. If the railroads had been required to provide bus fare for employees who commute to work, would they say that they were being required to provide bus passenger service? The railroads concede (Br. 20) that under the RPSA they must "continue to provide facilities and services to Amtrak for the transportation of passengers." See Gov't Br. 30-31. The continuation of such obligations refutes the railroads' claim that they were released from anything more than the operation of passenger trains. "(P)rovid(ing) facilities and services * * * for the transportation of passengers" (R.R. Br. 20) is much more closely related to the provision of "intercity rail passenger service" than is a requirement to pay for pass rider privileges. /4/ III. Even if the railroads were contractually released from any responsibility for subsidizing Amtrak, that release was not violated by the reimbursement formula in Section 405(f), which requires the railroads to pay approximately one-fourth of the face value of the transportation furnished to their employees. In our opening brief (at 31-35), we explained why this formula is a reasonable approximation of the value of this transportation and thus does not require the railroads to subsidize Amtrak. /5/ The railroads provide only a sketchy response. First, the railroads suggest (Br. 33-34) that reimbursement for anything beyond the "incremental costs" of allowing pass riders on board constitutes a subsidy. However, the railroads offer no legal or economic support for that contention. Second, the railroads repeatedly note that pass riders travel on a "space available" basis (Br. 29, 31, 32), but the term "space available" is misleading. For one thing, as the ICC has recognized, reservations made by pass riders may "'block' potential full revenue passengers." Determination of Cost Reimbursement Under Section 405(f) of the Rail Passenger Service Act, As Amended, 347 I.C.C. 325, 332 (1972); J.A. 34. A disproportionate number of pass riders travel on long-distance trains with reserved seats. See GAO, Comptroller General, Nos. B-196907, CED-80-83, Report to Congress, "How Much Should Amtrak Be Reimbursed For Railroad Employees Using Passes To Ride Its Trains?" 24 (Mar. 28, 1980). On these trains, pass riders may make reservations within 24 hours of departure, and once such a reservation is made, Amtrak may not sell the seat to a passenger wishing to pay full fare. Id. at 22. On unreserved trains, pass riders are supposed to surrender their seats if paying passengers are standing, but whether conductors do, or practicably could, enforce these restrictions on crowded trains is dubious. See Id. at 23; J.A. 34. Finally, the railroads rely (Br. 31) on the ICC's 1972 decision requiring the railroads to reimburse Amtrak for the administrative costs of the pass rider program. Determination of Cost Reimbursement Under Section 405(f) of the Rail Passenger Service Act, As Amended, supra; J.A. 23-37. But as noted in our opening brief (at 8), the ICC's decision was merely an "interim" determination subject to "possible adjustment in the future, perhaps with an effect retroactive to the date of (that) decision" (347 I.C.C. at 333-335; J.A. 36). /6/ CONCLUSION For these reasons and the reasons set forth in our opening brief, the judgment of the court of appeals should be reversed. Respectfully submitted. REX E. LEE Solicitor General JANUARY 1985 /1/ The railroads argue (Br. 19-20) that their position would not restrict Congress's authority to regulate commerce because Congress could still regulate Amtrak. However, Congress would be barred from exercising the full measure of its Commerce Clause authority with respect to the railroads, which continue to operate in interstate commerce and thus remain subject to the full range of common carrier duties. /2/ Coombes v. Getz, 285 U.S. 434 (1932), upon which the railroads rely (Br. 22), is inapposite. The issue there was not whether a statute imposed contractual obligations on the government. Instead the issue was whether a contractual obligation between private parties could be retroactively extinguished by the repeal of the provision of law upon which the obligation was based. /4/ There is no merit to the railroads' contention (Br. 25) that Section 7.5 of the Basic Agreement shows that Amtrak was supposed to pay for the pass rider privileges of railroad personnel. Section 7.5 gave Amtrak the right to decide whether those privileges would be honored, a right that Congress subsequently repealed at the railroads' urging. Section 7.5 does not in any way suggest that Amtrak would pay for those privileges, which had been created by the railroads and were enjoyed by their employees and their families. /5/ The fact that Congress was concerned about Amtrak's deficits when it adopted the new reimbursement formula in 1979 does not call into question the fairness of that formula, as the railroads suggest (Br. 30). Congress was legitimately concerned about allowing the railroads' employees to travel on Amtrak virtually for free, while even full-fare Amtrak passengers were being heavily subsidized at the taxpayers' expense. See Gov't Br. 8-9. In other words, Congress's objective was not to require the railroads to subsidize Amtrak but to reduce the taxpayers' subsidy of the railroads' employees. /6/ The railroads dispute the fact that significant numbers of pass riders might purchase full fare tickets if free transportation were not provided (Br. 29 n.14). The railroads suggest that pass riders would be no more likely to choose train transportation, instead of air, bus, or car travel, than any other member of the public. This suggestion seems clearly false. Pass riders are persons closely associated with railroads. As a result, they are probably more familiar than most people with the location of train stations, train routes, and train schedules. From experience, they are probably more accustomed to train travel. For these reasons, they are probably much more likely to select train travel than are other members of the public.