Grainbelt Corp. v. Surface Transp. Bd., 96-1006

Decision Date04 April 1997
Docket NumberNo. 96-1006,96-1006
Citation109 F.3d 794
PartiesGRAINBELT CORPORATION and Farmrail Corporation, Petitioners v. SURFACE TRANSPORTATION BOARD and United States of America, Respondents Burlington Northern Santa Fe Corporation, et al., Intervenors.
CourtU.S. Court of Appeals — District of Columbia Circuit

On Petition for Review of Orders of the Surface Transportation Board.

Eric M. Hocky, argued the cause for petitioners, with whom William P. Quinn and Mary Anne Taufen, Westchester, PA, were on the briefs.

Louis Mackall, V, Attorney, Surface Transportation Board, argued the cause for respondents, with whom Henri F. Rush, General Counsel, Joel I. Klein, Acting Assistant Attorney General, U.S. Department of Justice, Robert B. Nicholson and John P. Fonte, Attorneys, Washington, DC, were on the brief.

Richard E. Weicher, Schaumburg, IL, Michael E. Roper, Fort Worth, TX, Betty Jo Christian, Samuel M. Sipe, Jr., David H. Coburn, Erika Z. Jones, Roy T. Englert, Jr. and Adrian L. Steel, Jr., Washington, DC, were on the joint brief for intervenors Burlington Northern, Inc., et al. Timothy M. Walsh and Kathryn A. Kusske, Washington, DC, entered appearances.

Before: WILLIAMS, GINSBURG and ROGERS, Circuit Judges.

Opinion of the Court by Circuit Judge ROGERS.

ROGERS, Circuit Judge:

In this petition for review of an order of the Interstate Commerce Commission approving the control and merger application of Burlington Northern Railroad ("BN") and Atchison, Topeka and Santa Fe Railway ("Santa Fe"), and their respective affiliated companies, petitioners Grainbelt Corporation and Farmrail Corporation challenge the Commission's denial of their request that, as a condition of the merger, Farmrail be granted a specific access right to a rail carrier that would enable it to compete with the merged lines. Petitioners contend that the Commission's finding that the merger will not significantly reduce rail competition in the region is unsupported by the evidence, and that, in light of the potential adverse effect of the merger on competition, the Commission was obliged to grant the requested protective condition because it would not detract from the overall benefits of the merger. Concluding that the Commission's factual findings are supported by substantial evidence in the record, and that it was reasonable for the Commission to deny petitioners' request for imposition of the protective condition and to decline to adjust the pre-existing contractual arrangement of the parties, we deny the petition.

I.

Under the Interstate Commerce Act, 49 U.S.C. § 11343 et seq., the Interstate Commerce Commission is to "approve and authorize" a rail carrier transaction when it finds the transaction "consistent with the public interest." 1 49 U.S.C. § 11344(c). In assessing the impact of a railroad merger on the public interest, the Commission's well-established practice is to weigh the prospective gains in operating efficiency and marketing capability realized through consolidation against any consequent reduction in competition or in the provision of essential services. 49 C.F.R. § 1180.1(c); Southern Pacific Transp. Co. v. ICC, 736 F.2d 708, 717 (D.C.Cir.1984).

The Commission also has broad authority to impose protective conditions to govern mergers. 49 U.S.C. § 11344(c); see Lamoille Valley R.R. v. ICC, 711 F.2d 295, 302 & n. 8 (D.C.Cir.1983). Yet, the Commission has long maintained a policy of refraining from burdening mergers with conditions unless they are necessary either to ameliorate the anti-competitive impact of a merger or to protect essential services. See Lamoille Valley R.R., 711 F.2d at 302 n. 8; see also Railroad Consolidation Procedures, 363 I.C.C. 784, 788-89 (1981) (codified at 49 C.F.R. § 1180.1(d)). Consequently, the Commission will impose conditions only when a transaction threatens harm to the public interest, the conditions are operationally feasible, they would ameliorate or eliminate the harm, and they would result in greater benefit to the public than detriment to the transaction. Union Pacific--Control--Missouri Pacific; Western Pacific, 366 I.C.C. 462, 562-65 (1982).

On October 13, 1994, BN and Santa Fe filed a merger application proposing to create an integrated rail system of approximately 35,000 miles in the Western United States. The Commission granted the application with certain conditions, including two designed to address petitioners' interests. 2 On reconsideration, the Commission declined to impose additional conditions requested by petitioners. 3

Grainbelt and Farmrail are short line rail carriers that transport wheat. Both carriers are wholly owned subsidiaries of Farmrail System, Inc., which operates a network of rail lines in western Oklahoma. 4 Under a lease from BN, Grainbelt operates 178 miles of rail lines extending in a generally north-south direction between Enid and Frederick, Oklahoma, and has incidental overhead trackage rights over 59 miles of a BN line between Quanah, Texas, and Snyder, Oklahoma. Under a lease from the Oklahoma Department of Transportation, Farmrail operates 187 miles of rail line formerly owned by Santa Fe; Farmrail's lines run east and west from Hydro to Erick, and north and south from Thomas to Elmer, all in Oklahoma. Grainbelt and Farmrail connect only at Clinton, which is approximately the mid-point of their lines.

Through their connections with Class I railroads, 5 Grainbelt and Farmrail provide wheat shippers in western Oklahoma with rail access to the Texas Gulf ports. Prior to the merger, both Grainbelt and Farmrail had, directly or indirectly, three Class I rail connections: BN, Santa Fe, and Union Pacific Railroad Company and Missouri Pacific Railroad Company (collectively "Union Pacific"). Grainbelt's connections were at Enid, Snyder, Quanah, and Frederick. At Enid, Grainbelt connected directly with BN and indirectly with Santa Fe and Union Pacific (by virtue of an agreement under which BN transferred freight between Grainbelt and the two railways). At Snyder and Quanah, Grainbelt connected directly with BN. At Frederick, Grainbelt connected with the Wichita, Tillman & Jackson Railway Company ("WT&J"), a Union Pacific spinoff which itself connected with Union Pacific at Wichita Falls, Texas. Farmrail's connections were at Clinton and Altus. At Clinton, Farmrail connected with Grainbelt, which, as stated, connected directly with BN and indirectly with Santa Fe and Union Pacific at Enid. At Altus, Farmrail connected with BN and WT&J, the latter of which connected to Union Pacific at Wichita Falls.

Unlike Farmrail, Grainbelt is subject to a "competitive block" with BN. Under the terms of the lease agreement between Grainbelt and BN, Grainbelt must pay a substantial additional rental payment, beyond the base rent, whenever Grainbelt handles shipments in conjunction with a carrier other than BN if the shipment is to or from points served by BN. This arrangement is referred to as a "competitive block" because it generally makes routes between Grainbelt and points on the lines of other carriers uneconomical when served by BN as well.

In the Commission's initial proceeding reviewing the proposed merger, Grainbelt filed a request for protective conditions to reduce the anti-competitive effects of the merger and to offset Farmrail System's anticipated loss of revenue as a result of the merger. First, concerned that BN, despite having made representations to the contrary, might attempt to extend the reach of its blocking provision to points served by Santa Fe, Grainbelt asked the Commission to remove or modify the blocking provision from the lease agreement with BN. Second, Grainbelt requested the Commission to amend its trackage rights agreement with BN to permit Grainbelt to interchange with the Southern Pacific Transportation Company ("Southern Pacific") at Quanah, Texas, and to serve local traffic and to interchange with Farmrail at Altus. The imposition of these latter conditions, Grainbelt contended, would enable Farmrail and Grainbelt to offer the western Oklahoma shipping public competitive and more efficient rail service, thus mitigating the anti-competitive effects of the proposed merger.

In approving the merger, the Commission imposed a condition requiring the applicants to adhere to their representations not to attempt to increase the scope of the Grainbelt-BN blocking provision to points served by Santa Fe. It declined, however, to remove the blocking provision altogether, explaining that the provision stemmed from a pre-existing agreement and the Commission does not "impose conditions merely to rectify pre-existing problems." The Commission also imposed Grainbelt's requested condition that it be permitted to interchange with Southern Pacific at Quanah, Texas. This condition, the Commission explained, would provide Grainbelt with a competitive alternative to the independent Santa Fe connection that Grainbelt lost as a result of the merger. The Commission declined, however, to grant Grainbelt's request that its trackage rights agreement with BN be modified to permit it to interchange with local traffic and Farmrail at Altus. The Commission explained that, although the interchange might lead to greater efficiency and an expanded traffic base for Grainbelt, Grainbelt could not interchange traffic at Altus before the merger, and thus the relief sought was not necessary to ameliorate any harm caused by the merger.

Farmrail, in seeking on reconsideration essentially the same forms of relief that were denied to Grainbelt, requested access to Southern Pacific at Quanah through a connection with Grainbelt at Altus. Farmrail contended that the Commission could not properly deny Farmrail this access because, similar to its impact on Grainbelt, the merger would eliminate the only effective competition in the region served by Farmrail. Farmrail maintained that, although it could theoretically...

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