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Meyers v. Famous Realty Inc.

decided: October 27, 1959.


Author: Hincks

Before CLARK, Chief Judge, and HINCKS and LUMBARD, Circuit Judges.

HINCKS, Circuit Judge.

The plaintiffs sought to charge the defendants, lessors of certain realty and tracks used by the Jay Street Connecting Railroad in its operations, with the duty of operating that railroad's line (which the I. C. C. has authorized the Railroad, as lessee, to abandon on condition)*fn1 until the defendants are also authorized to abandon or until they lease the property to the plaintiffs. The action was brought under 49 U.S.C.A. § 1(18) and (20).*fn2 The court below granted the defendants' motion to dismiss, a ruling which, for the reasons hereinafter stated, we think correct.

It is not necessary for purposes of this decision to review at length the detailed historical facts surrounding the ownership and operations of the Jay Street Connecting Railroad (hereinafter referred to as "Jay Street"). See Jay Street Connecting Railroad Acquisition, 244 I.C.C. 43; Meyers v. Jay Street Connecting Railroad, 2 Cir., 259 F.2d 532; 2 Cir., 262 F.2d 676; Jay Street Connecting Railroad Abandonment, Finance Docket No. 20240, decided April 13, 1959, 307 I.C.C. 137; Jay Street Connecting Railroad v. United States, D.C.E.D.N.Y., 174 F.Supp. 609; Meyers v. Famous Realty, Inc., D.C.E.D.N.Y., July 10, 1959, 178 F.Supp. 472. Instead we reiterate merely those facts alleged by the plaintiffs which show the relationship of these defendants and their predecessors in title to the Jay Street Connecting Railroad and those findings contained in the above opinions with respect to the current ownership of the Jay Street's properties.

Jay Street performed an interstate harbor-terminal traffic interchange service from 1941 until April 1959, at which time the Interstate Commerce Commission ("Commission") approved the abandonment of its entire line of railroad and all of its carfloat and lighterage routes. For twenty-five years prior to 1941 Jay Street had merely performed a switching service involved in the harbor-terminal operations. In performing this service Jay Street had used its own equipment but had leased tracks from two lessors; the greater amount of main line and some other trackage was leased from the City of New York while a considerable amount of spur and some other trackage was leased from two partnerships, Jay Street Terminal and Arbuckle Brothers. These two partnerships had, prior to 1941, owned and operated a freight yard and the station thereon which it used in carrying on the marine activities constituting part of the harbor-terminal services involved herein. In Jay Street Connecting Railroad Acquisition, supra, the Commission approved Jay Street's purchase of all the partnerships' marine equipment, which included two towboats, a few carfloats, and several wooden barges. The Commission also approved a ten year lease to Jay Street of all the partnerships' real property, tracks, and freight house and yard facilities then used in the harbor-terminal operations, with a right reserved in the lessors to repurchase all of the leased equipment on default in the lease. The Commission reasoned that "the lines operated by the applicant and the freight house are natural component parts of one system of transportation," and concluded that the public interest would be served by allowing the two enterprises "to combine their transportation activities in a duly organized railroad corporation." 244 I.C.C. 43. The effect of this order on the carrier status of the partnerships will be discussed later.

In 1945, Famous Realty, Inc., not only acquired all the stock of Jay Street but it also purchased the fee to the land, buildings and tracks theretofore leased to Jay Street by the two partnerships. The defendants herein, Spatt and Wohl, are the sole distributees of the properties of Famous Realty, Inc., and thus stand in the shoes of the lessors of part of the properties heretofore used by Jay Street in its operations.

The plaintiffs argue that their right to relief is clear, citing Smith v. Hoboken R. R. Warehouse & S. S. Connecting Co., 328 U.S. 123, 66 S. Ct. 947, 90 L. Ed. 1123; Thompson v. Texas Mexican R. Co., 328 U.S. 134, 66 S. Ct. 937, 90 L. Ed. 1132; Livestock Service Terminal Company, 257 I.C.C. 1; Hoboken Railroad, 257 I.C.C. 739. It is clear to us, however, that those cases hold, at most, that once a party acquires, through the continuous performance of carrier services for the public, the status of a "carrier by railroad," thus subjecting itself to the provisions of the Act and more particularly to § 1(18) and (20), it cannot absolutely terminate such status and the duties thereof by leasing its railroad facilities to another; once the lease is terminated or the lessee obtains permission to abandon its operations, the lessor is under a revived obligation to operate its railroad properties until it too receives an abandonment order from the Commission.

To be subject to the provisions of § 1(18) and (20) a party must have acquired the status of a carrier by railroad and it must be attempting to abandon all or some portion of a line of railroad owned or operated by it or, as we will assume for purposes of this case, by its predecessor in title. None of the decisions cited hold or imply that a noncarrier, by merely leasing its properties to a carrier, becomes a "carrier by railroad," thus subjecting itself to an obligation to carry on the operations of its lessee's railroad when said lessee has been granted an abandonment order. We hold that a carrier which leases mere trackage rights to another carrier is under no obligation to carry on that other carrier's operations when its lease expires or that other carrier's operations are legally abandoned. See Thompson v. Texas Mexican R. Co., supra; Central New England R. Co. v. B. & A. R. Co., 279 U.S. 415, 49 S. Ct. 358, 73 L. Ed. 770. For in such a case the lessor-car-rier is not a carrier by railroad with respect to the services performed by its lessee . See Escanaba & L. S. R. Co. v. United States, 303 U.S. 315, 321, 58 S. Ct. 556, 82 L. Ed. 867. Thus we overrule without further comment the plaintiffs' contention that the defendants are under a duty to operate Jay Street's railroad line by virtue of the fact that their predecessors in title leased to Jay Street a part of the real property, tracks, and buildings used by it in its operations. As the defendants point out, a contrary holding would lead to the absurd conclusion that one renting a patch of cornfield to a railroad would come under an obligation to operate that railroad if it obtained permission to abandon the operation of its line.

A more reasonable proposition of law advanced by the plaintiffs, and one which would merit serious consideration if properly raised by the circumstances of this case, is that a carrier-lessor's grantees with notice are under an obligation to operate its carrier-properties when they revert to it under the terms of the lease or on the legal abandonment of operations by the lessee. It would not at all be unreasonable to hold, especially in these days when railroad operations are so often in the red, that a carrier-lessor cannot escape the burden of a potential obligation to operate, by the simple device of deeding its reversion in railroad properties to another; that the status of "carrier by railroad" and the duties therein involved attach to the grantees of a carrier's railroad properties.

But our decision must rest on the facts of this case. And the fact is that before as well as after the Jay Street Acquisition proceedings all transportation of freight by rail had been carried on by Jay Street with its wholly owned motive equipment and that neither at the time of the acquisition nor long prior thereto had the two partnerships, which were the defendants' predecessors in title to the real estate, owned or operated an integrated railroad property independent of Jay Street. Indeed, the partnerships had done no more than to contribute to an integrated transportation service the operation of their marine facilities and the use of their real estate in connection with the switching service and rail transportation conducted by Jay Street. And in the Jay Street Acquisition proceedings the Commission approved the outright sale of the marine facilities of the two partnerships and the transfer of all their transportation activities to Jay Street, finding it to be in the public interest that they should thereby be combined "in a duly organized railroad corporation." We hold that upon the Jay Street Acquisition, which with respect to their transportation activities left the partnerships with nothing but a reversion in the leasehold interest in the freight yard and some tracks, the partnerships lost all status as carriers by railroad. Glens Falls Portland Cement Co. v. Delaware & Hudson Co., 2 Cir., 66 F.2d 490, certiorari denied 290 U.S. 697, 54 S. Ct. 132, 78 L. Ed. 599. Thereafter, the sole duty to operate the transferred facilities and services rested with Jay Street, which has now been authorized not only to abandon the operation of its line but unconditionally to sell its facilities after thirty days.*fn3

As noted below, perhaps it could reasonably be argued that, regardless of the terms of any lease, or the total absence thereof, under the terms of the Jay Street Acquisition order the defendants' predecessors, and indeed the defendants themselves, held the lands and tracks leased to Jay Street under the ten year lease subject to a power in the Commission to impose a continuing obligation to lease these properties on reasonable terms to Jay Street or to any other responsible carrier who would undertake to perform the harbor-terminal services including the marine activities connected therewith. We think it quite contrary to both the terms of the Act and reason itself to hold that these defendants are under a duty to operate this entire line because they or their predecessors have leased realty and tracks to a carrier whose line has been legally abandoned. Especially is this so when the line is composed of facilities which these defendants and their predecessors either have never owned or operated and facilities which they have, with Commission approval, sold outright to a carrier who undertook the sole responsibility for their operations.

The plaintiffs, perhaps recognizing the futility of an attempt to prevent authorization of abandonment in any Commission proceedings brought by the defendants for that purpose,*fn4 assert that their real motive in seeking to compel such proceedings is to provide an opportunity for the Commission, if it will not require the defendants to operate the line, at least to impose a condition of lease or sale in its abandonment order. But obviously, regardless of the plaintiffs' motive, § 1(20) applies only to those having carrier status who are under a duty to operate. If the Commission should find that the defendants for lack of carrier status are under no duty to operate the line, it would have no jurisdiction under § 1(20) for any purpose. In that situation, surely it could not attach substantive conditions to its order dismissing for lack of jurisdiction.

The plaintiffs in the Jay Street Abandonment proceedings argued that the Commission, though lacking jurisdiction over the persons of the defendants, had sufficient jurisdiction over their real estate to impose upon it conditions of lease or sale. And they argue now before us that the condition in the abandonment order in those proceedings attached to the real estate and so was applicable to these defendants. Accordingly, they pray in the alternative that we enjoin the defendants ...

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