Illinois Commerce Com'n v. I.C.C.

• Decision Date: 19 May 1987
• Docket Number: No. 86-1386,86-1386
• Citation: 819 F.2d 311
• Parties: , 55 USLW 2647 ILLINOIS COMMERCE COMMISSION, et al., Petitioners, v. INTERSTATE COMMERCE COMMISSION and United States of America, Respondents, Illinois Central Gulf Railroad Company, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 311

819 F.2d 311

260 U.S.App.D.C. 351, 55 USLW 2647

ILLINOIS COMMERCE COMMISSION, et al., Petitioners, v. INTERSTATE COMMERCE COMMISSION and United States of America,

Respondents,

Illinois Central Gulf Railroad Company, Intervenor.

No. 86-1386.

United States Court of Appeals, District of Columbia Circuit.

Argued March 12, 1987.

Decided May 19, 1987.

Petition for Review of an Order of the Interstate Commerce commission.

Gordon P. MacDougall, Washington, D.C., with whom James E. Weging was on the brief, for petitioners.

Charles Alan Stark, Attorney, I.C.C., with whom Robert S. Burk, Gen. Counsel, Ellen D. Hanson, Associate Gen. Counsel, I.C.C., John J. Powers, III and Robert J. Wiggers, Attys., Dept. of Justice were on the brief, for respondents.

J. Thomas Tidd, Hollis G. Duensing, John T. Sullivan, were on the brief for amicus curiae, Association of American Railroads, urging the affirmance of the I.C.C. decision.

Howard Koontz, Chicago, Ill., entered an appearance for intervenor.

Before WALD, Chief Judge, SILBERMAN, Circuit Judge, and REVERCOMB, ^* District Judge.

Opinion for the Court filed by Chief Judge WALD.

WALD, Chief Judge.

Petitioners challenge the Interstate Commerce Commission's (ICC) decision to exempt from regulation all written trackage rights agreements not made in the context of rail consolidation proceedings. See 1 I.C.C.2d 270 (1985). Because we conclude that the ICC did not act improperly by granting this broadscale exemption, we deny the petition for review.

I. BACKGROUND

Trackage rights agreements are arrangements by which one railroad company allows another to use its railroad tracks. These agreements can take one of two different forms. The owner railroad may allow the tenant railroad to serve freight customers along the leased track or may limit the tenant railroad to use of the track from one point to another, withholding permission to serve customers along the route. The ICC refers to the first kind of agreement as "extension trackage rights transactions" and the latter kind as "bridge trackage rights transactions." See, e.g., 1 I.C.C.2d at 278.

Despite the restriction against serving local shippers along the track, "bridge agreements" are often attractive to railroads because they allow a carrier to create new routes for long-distance customers. For example, if a railroad already has trackage rights from New Orleans to Memphis and from St. Louis to Chicago, the railroad might seek an agreement with a railroad owning tracks from Memphis to St. Louis. Even if the tenant railroad acquired only bridge rights, it now could offer its New Orleans customers carriage to Chicago. The ICC refers to such long-distance freight that passes over the tracks from Memphis to St. Louis as "overhead traffic." Trackage rights agreements can also provide railroads with more efficient routes. If, for example, the railroad has The Interstate Commerce Act provides for ICC regulation of all trackage rights agreements. See 49 U.S.C. Sec. 11343(a)(6). Under the Staggers Act of 1980, however, the ICC "shall exempt a person, class of persons, or a transaction or service" from regulation when the ICC finds that regulation "(1) is not necessary to carry out the transportation policy of [49 U.S.C. Sec. 10101a]; ¹ and (2) either (A) the transaction or service is of limited scope, or (B) [the regulation] is not needed to protect shippers from abuse of market power." Id. Sec. 10505(a) (emphasis added). The ICC may revoke an exemption either in whole or in part if it subsequently determines regulation is again necessary under the same criteria. Id. Sec. 10505(d).

been traveling from New Orleans to Memphis by way of Birmingham, Alabama, trackage rights agreements that allow the railroad to go from New Orleans to Jackson, Mississippi, and from Jackson to Memphis provide the railroad with a more direct route from New Orleans to Memphis.

The ICC granted the exemption for trackage rights agreement pursuant to Sec. 10505. It concluded that neither extension nor bridge agreements needed regulation to carry out the rail transportation policy enumerated in 49 U.S. Sec. 10101a or to protect shippers from abuse of market power, and that bridge agreements were limited in scope. The main thrust of the Commission's reasoning in support of these conclusions was that trackage rights agreements did not cause anticompetitive effects but indeed tended to enhance competition, when they affected it at all. See 1 I.C.C.2d at 276 (discussing rail transportation policy); id. at 278 (discussing the limited-scope and abuse-of-market power criteria). The Commission further reasoned that in the unlikely event that particular trackage rights agreements might cause some anticompetitive effects, they could be handled through exemption revocation proceedings under Sec. 10505(d). See 1 I.C.C.2d at 281.

Various parties petitioned the ICC to reconsider its decision. The Commission denied their petitions, relying on the reasoning contained in its original decision. See Joint Appendix (J.A.) at 166. The petitioners

argue before this court that the decision to exempt trackage rights agreements from regulation was improper under the standards of Sec. 10505(a) and that the ICC exceeded its statutory authority by relying on the availability of subsequent revocation proceedings under Sec. 10505(d), when making its initial exemption decision under Sec. 10505(a).

II. ANALYSIS

The petitioners attack the ICC's determination that bridge agreements are "of limited scope" and that neither extension nor bridge agreements need regulation to protect shippers from abuse of market power. The petitioners do not bring an independent challenge under the rail transportation policy clause of Sec. 10505(a). Rather, the petitioners contend only that "[i]f the Court should set aside the I.C.C.'s findings concerning 'market abuse,' the I.C.C.'s findings under the rail transportation policy should be set aside as well." See Brief of Petitioners at 30. Since we conclude that the ICC acted properly under the "abuse of market power" clause of the statute, by the terms of petitioners' own argument we have no occasion to question further the validity of the exemption under the rail transportation policy of clause Sec. 10505(a).

Because we conclude that the ICC acted properly under the "abuse of market power" clause, we also need not address petitioners' "limited scope" challenge. The "limited scope" and "abuse of market power" requirements for an exemption are disjunctive: as long as the ICC properly concludes that regulation is unnecessary to protect shippers from abuse of market power, it need not find that the exempt transaction or service is "of limited scope." In this case, the Commission made clear that it would have granted the exemption even if it had not made its "limited scope" finding. 1 I.C.C.2d at 276-79. Thus, we proceed to address directly the petitioners' "abuse of market power" argument.

A. The Threat of Abandonment

The petitioners contend that in exempting trackage rights agreements from regulation, the ICC did not give adequate consideration to the effect of a trackage rights agreement upon affected shippers who are located along lines that are not the subject of the specific agreement. A railroad that newly acquires the right to travel along a certain route may seek or threaten abandonment of its service along other routes that it has previously used. To return to our example from Part I, the railroad that acquires trackage rights from New Orleans to Memphis through Jackson may reconsider its service to shippers along the routes from New Orleans to Birmingham and Birmingham to Memphis. Or the railroad may have to raise its rates to shippers along these old routes, to make service to them economically viable. The petitioners characterize the potential of such railroad threats to abandon old routes unless the shippers along those routes pay higher rates as an "abuse of market power" and argue that regulation of trackage rights agreements is "needed to protect shippers from [that] abuse of market power."

But contrary to petitioners' characterization, the railroad behavior about which they complain is not "an abuse of market power." If a railroad acquires a more efficient route for its overhead traffic through a trackage rights agreement, the railroad's decision to divert its overhead traffic to the new route is a legitimate business decision to engage in the most profitable course of trade available. In making its exemption decision, the ICC referred to its "established principle that the routing of overhead traffic and the selection of alternative routes is a matter of railroad managerial discretion." 1 I.C.C.2d at 277. Even if the railroad then decided to stop serving customers along the old route unless they paid higher rates, that decision also would not be an abuse of market power. As the ICC stated, "local shippers who are unable to support a carrier cannot demand continued rail service simply because the line is used for movement of overhead traffic that could be handled over other routes." Id. Local shippers are understandably upset when their rail carrier finds that it is no longer worth continuing service to them at Thus, only if a railroad could somehow use a trackage rights agreement for one route to extort monopoly rates from the local shippers along a different route would trackage rights agreements pose a danger of market power abuse. ² The ICC, however, determined that "the likelihood of market power abuses resulting from exempt agreements is remote." Id. at 281. Moreover, in the unlikely event that a railroad uses a trackage rights agreement to extract monopoly rates from local shippers on different routes, injured parties can seek relief from this abuse of market power in other ICC proceedings, according to the Commission. First, "shippers may properly raise the issue of improper diversion of overhead traffic at the time...