NATIONAL RAILROAD PASSENGER CORPORATION, APPELANT V. ATICHISON, TOPEKA, AND SANTA FE RAILWAY COMPANY, ET AL. No. 83-1492 In the Supreme Court of the United States October Term, 1983 On Appeal from the United States Court of Appeals for the Seventh Circuit Memorandum for the United States as Appellee in Support of the Appellant This case began in 1980 when five railroads (appellees here) sued the National Railroad Passenger Corporation (Amtrak), challenging the constitutionality of a reimbursement formula contained in a 1979 amendment to the Rail Passenger Service Act (RPSA), 45 U.S.C. (& Supp. V) 501 et seq. The reimbursement formula, 45 U.S.C. (Supp. V) 565(f), provides that the appellees are to reimburse Amtrak at a specified rate for free or reduced-rate travel on Amtrak trains by certain current and retired railroad employees and their dependents ("pass riders"). The appellees' principal contention was that the statutory reimbursement formula impaired their contractual right to be relieved of their responsibility for the provision of intercity rail passenger service. Because the constitutionality of an Act of Congress was drawn in question, the United States intervened as a defendant. See 28 U.S.C. 2403(a). On November 22, 1982, the district court issued an opinion upholding the statute and dismissing the case (J.S. App. 11a-27a). The court first held that providing pass privileges had not been a legal responsibility of the railroads prior to the passage of RPSA, but was instead a wholly gratuitous practice on the part of the railroads. Accordingly, the court held that providing pass privileges was not among the "responsibilities" that Amtrak assumed after it took over the railroads' former common carrier obligations. The court further held that even under the "harshest possible scrutiny" (J.S. App. 25a) to which congressional regulation of commerce could be subjected, the pass rider reimbursement legislation did not violate due process. Finally, the district court held that Congress had acted rationally in setting the statutory reimbursement formula. The court of appeals affirmed in part and reversed in part (J.S. App. 1a-10a). The court agreed with the district court's conclusion that the railroads had no contractual right to be free of all responsibility for reimbursing Amtrak for pass privileges. But the court invalidated the 1979 amendment on the theory that the reimbursement formula contained therein resulted in the railroads' being required to pay Amtrak amounts in excess of the incremental cost of employee pass privileges. The court reasoned that these additional amounts presumably went to support Amtrak's general operations and that the statute therefore impaired the railroads' contractual right to be relieved of all responsibility for the provision of intercity rail passenger service. Throughout this litigation, the United States has defended the constitutionality of the statute, and it continues to do so in this Court. However, because Amtrak has already docketed its own appeal from the decision below, we have concluded that there is no need for the United States to docket a separate appeal. Instead, we are filing this memorandum as an appellee in support of the appellant (see Rule 10.4 of the Rules of this Court) in order that the Court may give prompt consideration to Amtrak's appeal. We fully endorse Amtrak's arguments in support of the constitutionality of the statute (J.S. 8-15), and we join Amtrak in urging the Court to note probable jurisdiction in this case. We add only a few brief points in support of Amtrak's appeal. 1. At considerable cost to Amtrak, the court of appeals invalidated a statute that Congress has twice approved (see J.S. 6-7). The decision below is predicated on the erroneous assumption that the railroads' release from their former common carrier obligations constituted a contractual right to be free of all future obligations to provide funds that might be used for Amtrak's general operations. /1/ The court of appeals failed to address the contention of Amtrak and the United States that, in releasing the railroads from their former common carrier obligations, Congress did no more than exercise its sovereign prerogative to provide regulatory relief to the railroads; it did not provide them with a contractual assurance of permanent immunity from reimposition of some portion of those obligations. The court's misunderstanding of Congress's action in turn led it to misconstrue the Basic Agreement between Amtrak and the railroads. a. The court of appeals found the railroads' contractual right in Section 2.1 of the Basic Agreement, which provides that "(f)rom and after May 1, 1971, Railroad shall be relieved of its entire responsibility for the provision of Intercity Rail Passenger Service" (J.S. App. 2a). But this section of the Basic Agreement does no more than reiterate the terms of the release from common carrier responsibility authorized by the statute itself. See 45 U.S.C. 561(a). Moreover, only the United States, and not Amtrak, was empowered to release the railroads from their former common carrier responsibilities. Thus, Section 2.1 of the Basic Agreement has no force independent of Section 401 of the RPSA, 45 U.S.C. 561, and the railroads' alleged contractual rights must be analyzed in light of their statutory underpinnings. b. Neither a state nor the federal government may barter away essential attributes of sovereignty. Norman v. Baltimore & O.R.R., 294 U.S. 240, 309-310 (1935; Home Building & Loan Ass'n v. Blaisdell, 290 U.S. 398, 436-437 (1934); Contributors to the Pennsylvania Hospital v. City of Philadelphia, 245 U.S. 20, 23 (1917). For this reason, statutory enactments are presumed to be declarations of public policy that do not create contractual obligations binding upon the government. Dodge v. Board of Education, 302 U.S. 74, 79 (1937). A statute is itself treated as a contract only "when the language and circumstances evince a legislative intent to create private rights of a contractual nature enforceable against the State." United States Trust Co. v. New Jersey, 431 U.S. 1, 17 n.14 (1977). No such intent may be discerned in the RPSA. On the contrary, Congress "expressly reserved" its right to "repeal, alter, or amend (the RPSA) at any time" (45 U.S.C. 541). It is thus clear that when Congress authorized the railroads' release from their former common carrier obligations, it was not bargaining away its power to regulate interstate commerce, Section 401 of the RPSA, 45 U.S.C. 561, the terms of which are repeated in Section 2.1 of the Basic Agreement, is part of a statutory scheme in which the sovereign granted regulatory relief to promote the Amtrak experiment. It is not a statute by which the sovereign conferred any sort of contractual immunities upon the railroads. /2/ And Section 2.1 of the Basic Agreement confers no greater rights upon the railroads than the authorizing statute. The court of appeals erred in reading more into the Basic Agreement than the statute authorized Amtrak to provide. Had the court properly construed the statute as an exercise of Congress's regulatory powers, any doubt as to its constitutionality would have been avoided. Cf. Califano v. Yamasaki, 442 U.S. 682, 693 (1979). The only question in the case then would have been whether the statutory reimbursement formula is a reasonable regulation of commerce. As to that issue, the court of appeals itself had "no doubt that the 1979 amendment may be sustained as a legitimate exercise of the commerce power" (J.S. App. 9a). This conclusion should have ended the court's inquiry. 2. The court of appeals also erred in refusing to give deference to Congress's policy choice in calculating and allocating the cost of pass rider privileges. As the district court recoginized in rejecting the railroads' due process challenge to the statutory reimbursement formula (J.S. App. 19a-26a), this is an area in which judicial deference to legislative judgment is especially mandated. See Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 15 (1976). In Turner Elkhorn, this Court rejected a constitutional challenge by coal mine operators to Congress's method of calculating and apportioning the costs of employee death or disability compensation resulting from black lung disease. The Court held that Congress's method represented a "rational measure to spread the costs of the employees' disabilities to those who have profited from the fruits of their labor -- the operators and the coal consumers" (428 U.S. at 18). Refusing to "assess the wisdom of Congress' chosen scheme" for allocation of financial responsibility, the Court concluded (id. at 18-19): It is enough to say that the Act approaches the problem of cost spreading rationally; whether a broader cost-spreading scheme would have been wiser or more practical under the circumstances is not a question of constitutional dimension. The 25% service-value formula chosen by Congress here also approaches the problem of cost allocation and calculation in a rational manner and should have been upheld by the court of appeals. Congress did not act whimsically when it adopted this formula. In deciding that the railroads should compensate Amtrak for pass rider privileges, Congress knew that the persons receiving such privileges were employees of the railroads who had expectations created by the railroads. Like the coal operators in Turner Elkhorn, the railroads here have "profited from the fruits of their (employees') labor" (Turner Elkhorn, 428 U.S. at 18). Moreover, as the Comptroller General concluded in a report requested by Congress (see J.S. 2, 6-7), pass rider privileges provide benefits to the employer-employee relationship in the railroad industry. The railroads benefit, the Comptroller General stated, "when their employees have a higher morale and better relationship with their employers because of their passes." GAO, Comptroller General, Nos. B-196907, CED-80-83, Report To The Congress, "How Much Should Amtrak Be Reimbursed For Railroad Employees Using Passes To Ride Its Trains?," at 19 (Mar. 28, 1980) (hereinafter cited as GAO Report). /3/ Before finally settling on the reimbursement formula at issue in this case, Congress fully considered a range of alternatives. See J.S. 6-7; J.S. App. 15a. But as the GAO Report noted, the "intangible benefits (of pass privileges) are difficult, if not impossible, to quantify" (GAO Report 18). In these circumstances, whether a formula based on administrative cost, or based on some percentage of the system-wide average yield other than 25%, "would have been wiser or more practical" is not here, any more than in Turner Elkhorn, a "question of constitutional dimension" (428 U.S. at 19). Since the formula chosen by Congress was eminently reasonable, the court of appeals' judgment invalidating the statute must fall even on the assumption that Section 2.1 of the Basic Agreement created contractual rights in the railroads independent from the authorizing statute. As a matter of construction, Section 2.1 should not have been interpreted to prevent Congress from making reasonable adjustments to the allocation of costs attributable to activities that provide the railroads with continuing benefits. Further, even if the statutory formula is deemed inconsistent with the contract, it is not an "impairment": Contracts Clause principles do not preclude Congress from enacting regulatory legislation that serves a substantial public interest, even if the regulation has the effect of adjusting rights and liabilities under a contract. See Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 240-244 (1978). It is therefore respectfully submitted that probable jurisdiction should be noted. REX E. LEE Solicitor General MARCH 1984 /1/ Although the Contracts Clause of the Constitution (Art. I, Section 10) applies only to the states, this Court has construed the Due Process Clause of the Fifth Amendment to impose analogous restrictions on the federal government. See, e.g., Continental Illinois National Bank & Trust Co. v. Chicago, R.I. & P. Ry., 294 U.S. 648, 680 (1935); The Sinking-Fund Cases, 99 U.S. 700, 718-719 (1878). But when Congress acts pursuant to its plenary commerce power or some other paramount power, courts have applied a more deferential standard of review than is generally accorded to state legislation arguably impairing contractual relations. See, e.g., Lynch v. United States, 292 U.S. 571, 579 (1934); United States v. Porhownik, 182 F.2d 829, 832 (2d Cir.) (L. Hand, J.), cert. denied, 340 U.S. 825 (1950); Amalgamated Meat Cutters & Butcher Workmen v. Connally, 337 F. Supp. 737, 763 (D.D.C. 1971) (three-judge court) (Leventhal, J.) /2/ In the district court, the appellees argued that if the release accorded to the railroads in Section 401 of the RPSA were found to be a declaration of public policy, subject to Congress's power to revise or repeal, the government would have the "power to come in the next day and totally cancel that release." Plaintiffs' Reply Memorandum in Support of Motion for Summary Judgment 20. The railroads are clearly correct -- Congress does have the authority under the Commerce Clause (Art. I, Section 8, Cl. 3) to cancel the entire RPSA experiment and revert back to the pre-1971 situation. The exercise of such power would of course be subject to general due process considerations. See, e.g., Nachman Corp. v. Pension Benefit Guaranty Corp., 592 F.2d 947, 960 (7th Cir. 1979), aff'd, 446 U.S. 359 (1980). Moreover, an affected railroad might be able to show that cancellation amounted to a taking for which just compensation would be due. See Penn Central Transportation Co. v. New York City, 438 U.S. 104, 123-124 (1978). What is clear, however, is that such a statutory cancellation would not violate the principles of the Contracts Clause made applicable to the federal government through the Due Process Clause. /3/ When Amtrak instituted a restrictive pass rider policy in 1971, employees of the Penn Central threatened to strike over the issue of pass privileges. The threat was sufficiently serious for a federal court to issue a temporary restraining order against the strike. See Baker v. System Federation No. 1, 331 F.Supp. 1363, 1365 (E.D. Pa. 1971).