Petition — Water Transport Ass'n v. Interstate Commerce Commission
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Office - Supreme Court, U.S.
R3-"59n FILED
Nov 2 1983
No. 83-
STEVAS,
CLERK
IN THE
Supreme Court of the United States
OCTOBER TERM, 1983
WATER TRANSPORT ASSOCIATION,
Petitioner,
Vv.
INTERSTATE COMMERCE COMMISSION,
UNITED STATES OF AMERICA, CSX CORPORATION,
TEXAS GAS RESOURCES CORPORATION, and
EASTERN COAL TRANSPORTATION CONFERENCE,
Respondents.
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
RICHARD A. ZELLNER A. DUNCAN WHITAKER, P.C.
NEIL K. EVANS ALAN M. WISEMAN
MARK E. STAIB (Counsel of Record)
GREGORY M. GORDON Scott E. FLIcK
HAHN, LOESER, Howrey & SIMON
FREEDHEIM, DEAN 1730 Pennsylvania Ave., N.W.
& WELLMAN Washington, D.C. 20006
800 National City (202) 783-0800
E. 6th Building Counsel for Petitioner
Cleveland, Ohio 44114 Water Transport Association
(216) 621-0150
as
WILSON - EPES PRINTING Co.. INC. - 789-0096 - WASHINGTON, D.C. 20001
QUESTION PRESENTED
Whether the provisions of the Panama Canal Act pro-
hibiting a railroad from acquiring any interest in a water
carrier prior to a full hearing and determination by the
Interstate Commerce Commission that competition will
not be reduced and that the transaction is in the public
interest prohibit the second largest railroad in the United
States from acquiring a 100% ownership interest in the
nation’s largest inland water carrier through a voting
trust prior to such a hearing and determination.
PARTIES
All parties are named in the caption.*
*In accordance with Rule 21.1(b) of the Rules of the Supreme
Court, the members of the Water Transport Association and their
parent companies, subsidiaries (except wholly-owned subsidiaries)
and affiliates are set forth beginning at page 113a of the Appendix.
(i)
TABLE OF CONTENTS
Page
ng tg 2-4 y 3 | CEE i
REET PS oe oe RE A ei i
I OU EE OD... nsnccnecocesvsosstuasnsebnctedecunaminesnante iii
Ee Me I on oscieececccseceocecthchonncntsntenctoges iv
ET TAR RRM a TCR Da 1
EE AEE ae ee eee Sed 2
STATUTES AND REGULATIONS INVOLVED ......... 2
i so sceseceulgibdibehiicinseadiaiab amen 3
Se i Oe 4
B. The Proceedings Before the ICC ..........0.00000...... 5
C. Proceedings in the Court of Appeals ................... 7
REASONS FOR GRANTING THE WRIT ........0........... 11
A. A Railroad’s Acquisition of a 100% Ownership
Interest in a Competing Water Carrier Through
a Voting Trust, Prior to a Full Hearing and
Specific Findings by the Interstate Commerce
Commission, is Prohibited by the Panama
SIR IEES Ae CEI et ce EE Rae PRE Be 11
B. The Court of Appeals’ Decision Will Substan-
tially Impair the National Transportation
Policy and Nullify the Congressional Prohibi-
tion of Railroad Acquisition of Water Carriers.. 18
SEES APRS eRe BE TTS ONO SAE 23
(iii)
iv
TABLE OF AUTHORITIES
CASES Page
American Waterways Operators, Inc. v. United
States, 386 F. Supp. 799 (D.D.C. 1974), aff'd
SS Ge SIs O CIPIIED: scspencetesnbicssicapbinestncnes 11
Chicago, Milwaukee, St. Paul & Pacific Railroac
Control, Bremerton Freight Car Ferry, Inc., 312
ee sc aabdipcemationes 16
F. & M. Schaefer Corp. v. C. Schmidt & Sons, Inc.,
607 F.2d 814 (2d Cir. 1979)..................00..cccccocceres 22
FTC v. Lancaster Colony Corp., 434 F. Supp. 1088
I SPEND ca tesecacuniedis souhsdis tomaimanoncuiasiaaones 22
FTC Weyerhaeuser Co., 665 F.2d 1072 (D.C. Cir.
Sanda gE ROE ID Seen 9 aaa CP rea 22
Illinois Central Railroad—Control—John I. Hay
SSE ay SEED MRININIED wiccqncoasnancbtumietbsacnonseecsmesne 16, 17
Investigation of Seatrain Lines, Inc., 206 I.C.C.
Billed RE a 2 ESAS Selo OS: bee NE 18, 17
Lake Line Applications Under Panama Canal Act,
en I IE casedien disease scckasbcenedctendessecin 11, 20
Motor Vehicle Manufacturers’ Association v. State
Farm Mutual Automobile Insurance Co., 108 8S.
I er 16
Nicholson Universal Steamship Co. Ownership, 248
tT nn 12-18
Water Transport Association v. CSX Corp., No.
88-1874 (D.D.C. June 29, 198%) .......................... 7
Water Transport Association v. CSX Corp., Nos.
88-1715, 88-1716 (D.C. Cir. June 30, 1983) ........ 7
STATUTES AND REGULATIONS
ey NE COIN vice rstddgsetserecedeoringponsiion 2
Rs AE CIND CUED cincdtdvncsinccctensccnccenserceconcbed 8, 8, 12
Rae DUE aitiekenceseetiadisanpescuncdictsinnsbasos 8,14
49 U.S.C. § 10101 (Supp. V 1981) ................ 8, 18, 14, 18
49 U.S.C. §1010la (Supp. V 1981) ...........00000002... 18
49 U.S.C. § 11821 (Supp. V 1981) .......................... passim
49 U.S.C. §11821(b) (Supp. V 1981) 2.000000... 13
49 U.S.C. §11821(c) (Supp. V 1981) .........00000...... 13
49 U.S.C. § 11343 (Supp. V 1981) ......0......... 8, 5, 15, 21
v
TABLE OF AUTHORITIES—Continued
Page
49 U.S.C. § 11844 (Supp. V 1981) ................0...... 3
ee tA se cee aR 3,6
uit We MOR CRIED ccccdcesecesercecicesleccinvconkcnts 5
BR eo. ) Lenn aE 8,15
LEGISLATIVE MATERIALS
Act of Aug. 24, 1912, ch. 390, § 11, 37 Stat. 566.. 2
Act of Oct. 17, 1978, Pub. L. No. 95-478, §§ 1, 2,
eS i a 3,138
48 Cong. Rec. 6928, 9232, 10458, 11055 (1912)....... 12
ke MR | eee 14
H.R. Conf. Rep. No. 1430, 96th Cong., 2d Sess. 1438,
reprinted in 1980 U.S. Code Cong. & Ad. News
PES III anv hnsNecUitscardhesesazehasael tevmbacabaileh: stseasmenates 19
H.R. Rep. No. 423, 62d Cong., 2d Sess. 12 (1912).. 11-12
Message of the President to Congress, February
26, 1908, S. Doc. Vol. 17, 60th Cong., 1st Sess.
Fit ireh ARES ea BOE ie OC ERE a WLS 19
National Transportation Policy, Pub. L. No. 76-
785, 54 Stat. 898, 899 (1940) 0000 ee. 14, 18
Railroad Revitalization and Regulatory Reform
Act of 1976, Pub. L. No. 94-210, 90 Stat. 31........ 20
S. 1855, 86th Cong., Ist Sess. (1959) 000000. 19
S. 48, 97th Cong., 2d Sess. (1982) 00.0.0... cee 19
Staggers Rail Act of 1980, Pub. L. No. 96-448,
§§ 101(a), 707, 94 Stat. 1895, 1897, 1965-66.... 18, 20
IN THE
Supreme Court of the United States
OCTOBER TERM, 1983
No. 83-
WATER TRANSPORT ASSOCIATION,
Petitioner,
V.
INTERSTATE COMMERCE COMMISSION,
UNITED STATES OF AMERICA, CSX CORPORATION,
TEXAS GAS RESOURCES CORPORATION, and
EASTERN COAL TRANSPORTATION CONFERENCE,
Respondents.
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Petitioner, the Water Transport Association (“WTA”),
respectfully requests that a writ of certiorari issue to re-
view the judgment of the United States Court of Ap-
peals for the District of Columbia Circuit entered in this
case on August 4, 1983.
OPINIONS BELOW
The opinion of the Court of Appeals majority (Wald
and Scalia, JJ.) and the dissenting opinion of Judge
Harold H. Greene, sitting by designation, are not officially
reported, but are reproduced at pp. la and 33a of the
Appendix to this petition, respectively. The unreported
2
decision of the Interstate Commerce Commission denying
the WTA’s petition for a declaratory order is reproduced
at p. 51a of the Appendix.
JURISDICTION
The judgment of the Court of Appeals was entered on
August 4, 1983. Appendix, p. 68a. A petition for rehear-
ing with suggestion for rehearing en banc was filed on
Saturday, August 6, 1983 and was denied the same day,
although five of the ten judges of the court did not par-
ticipate in considering the suggestion for rehearing en
banc, and a sixth judge voted to defer consideration of
the rehearing en banc. Appendix, pp. 7la, 72a. A peti-
tion for reconsideration of the order denying rehearing
en banc was filed on August 13, 1983, and was denied on
October 28, 1983. Appendix, p. 74a. The jurisdiction of
this Court is invoked pursuant to 28 U.S.C. § 1254(1)
(1976).
STATUTES AND REGULATIONS INVOLVED
The principal statutory provision involved is Section 11
of the Panama Canal Act of 1912' (codified as amended
at 49 U.S.C. § 11321 (Supp. V 1981)). It provides in
relevant part that a rail carrier, or a person controlling a
rail carrier, ‘may not own, operate, control or have an in-
terest in a water common carrier or vessel carrying prop-
erty or passengers on a water route with which it does or
may compete for traffic” unless the Interstate Commerce
Commission has determined after a “full hearing” that
such “ownership, operation, control or interest will still
allow that water common carrier or vessel to be operated —
in the public interest advantageously to interstate com-
merce and that it will still allow competition, without
reduction, on the water route in question.” The full text
of the statute as presently codified is reproduced at p.
75a of the Appendix.
1 Act of Aug. 24, 1912, ch. 390, § 11, 37 Stat. 566.
3
Section 11 of the Panama Canal Act as enacted is re-
produced at p. 77a of the Appendix. Sections 5(15)-(17)
of the Interstate Commerce Act, 49 U.S.C. §§ 5(15)-(17)
(1976), which contained the relevant provisions of the
Panama Canal Act, as amended, prior to their 1978 re-
codification without substantive change in Section 11321,
is reproduced at p. 79a of the Appendix.?
Sections 11343 and 11344 of the Interstate Commerce
Act, 49 U.S.C. §§ 11343-44 (Supp. V 1981), which pro-
hibit an ICC-regulated carrier from acquiring “control”
of another such carrier without Commission approval are
reproduced at p. 8la of the Appendix. The Voting Trust
Rules, 49 C.F.R. § 1013 (1982), promulgated by the Com-
mission to permit persons “to acquire interests in regu-
lated carriers” * while “avoid{ing] an unlawful control
violation” * under Sections 11343-44 are reproduced at p.
86a of the Appendix.
STATEMENT
Under the Panama Canal Act provisions ofthe Inter-
state Commerce Act, 49 U.S.C. § 11321 (Supp. V 1981),
a railroad or a person controlling a railroad is forbidden
to “own, operate, control, or have an interest in’ a com-
peting water carrier or vessel without first obtaining In-
terstate Commerce Commission approval after a full hear-
ing. This case involves the application of the Panama
Canal Act prohibition to the acquisition by CSX Corpora-
tion (“CSX”), a holding company whose subsidiaries now
comprise the nation’s second largest railroad system, of
2The entire Interstate Commerce Act, including the Panama
Canal Act, was recodified in 1978, but such recodification was not
intended to make any substantive change in the law. Act of Oct. 17,
1978, Pub. L. No. 95-478, §$ 1, 2, 92 Stat. 1887 (codified as amended
at 49 U.S.C. § 10101 (Supp. V 1981)). For this reason, reference
to the precodification text of the Panama Canal Act is appropriate
to ascertain its meaning.
8 44 Fed. Reg. 59909 (1979).
449 C.F.R. § 1018.1(a) (1982).
4
the nation’s largest inland water carrier, the affiliates of
Texas Gas Resources Corporation (“Texas Gas”) known
as American Commercial! Lines, Inc. (“ACL”). As shown
on the maps appended to this petition (pp. 89a, 90a), the
routes and geographic regions served by ACL in many
instances overlap and parallel those served by CSX’s rail-
road subsidiaries.
CSX and ACL are giants in their respective industries.
In 1982, CSX had revenues from rail freight operations
in excess of $4.3 billion. CSX blankets a 22-state area
east of the Mississippi, operating from the Great Lakes
to the Gulf of Mexico and from the Atlantic Coast to the
Mississippi River. CSX is the nation’s largest coal car-
rier, transporting more than 224,000,000 tons of coal in
1982. ACL’s barging operations constitute one of the
principal integrated water transportation businesses on
the Mississippi River and its tributaries, covering the in-
land waterway system, extending from Pittsburgh in the
east to Tulsa in the west, from Minneapolis in the north
to New Orleans in the south and across the Gulf of
Mexico. Like CSX, ACL transports a huge volume of
traffic, comprised of many of the identical commodities
transported by CSX, including coal, grain and chemicals.
In 1982, ACL’s traffic amounted to 18.4 billion ton miles.
In the barge transport industry, which includes many
family-owned and run operations, ACL is a dominant
force. There is strong competition for transportation of
bulk commodities between CSX and water carriers, in-
cluding ACL.
A. The Tender Offer
On June 6, 1983, Coastal Corporation (‘Coastal’) com-
menced a tender offer for the common stock of Texas Gas.
To thwart the Coastal offer, Texas Gas entered into an
agreement with CSX which resulted in CSX’s making a
competing tender offer for all of the shares of Texas Gas.
On June 23, 1983, Texas Gas agreed to pay Coastal $18
5
million in exchange for Coastal’s withdrawal of its tender
offer.
The agreement between CSX and Texas Gas provided
that the shares of ACL would be placed in a voting trust
pending proceedings before the ICC. CSX and Texas Gas
acknowledged in the agreement that the use of a voting
trust might not be “legally possible.” Although ICC reg-
ulations permit the use of a voting trust “to avoid an
unlawful control violation” under 49 U.S.C. § 11843," the
Commission had never determined that a voting trust per-
mitted a rail carrier to acquire a water carrier without
violating the more encompassing prohibition of the Pan-
ama Canal Act provisions contained in Section 11321.
Appendix, p. 57a. Texas Gas nevertheless filed a voting
trust agreement with the ICC on June 10, 1988, which
was superseded by a revised agreement filed on June 14,
1983. Appendix, p. 91a. On June 20, 1983, at the re-
quest of CSX and Texas Gas, the ICC staff issued an “in-
formal nonbinding” opinion letter that the revised voting
trust agreement would “insulate” CSX and Texas Gas
“from violation of the Commission’s policy against an un-
authorized acquisition of control of a regulated carrier.”
Appendix, pp. 106a-107a. The staff did not determine
that the voting trust arrangement would allow CSX to
avoid acquiring an “interest” prohibited by the Panama
Canal Act.
B. The Proceedings Before the ICC
On June 23, 1983, the WTA on behalf of itself and its
members * filed with the ICC a petition seeking a de-
claratory order that the CSX-Texas Gas voting trust
5 49 C.F.R. § 1013.1(a) (1982) (emphasis eupplied).
* The membership of the WTA consists of certificated water car-
riers that are actively engaged in serving the public on the coastal
and inland waterways of the United States. They compete with both
the railroads owned by CSX and the bargeline subsidiaries of Texas
Gas, in general and on specific routes.
6
agreement would not insulate CSX from a violation of the
Panama Canal Act if it proceeded to acquire an “inter-
est” in the Texas Gas water carrier affiliates. The WTA’s
petition pointed out that Section 11321 prohibits a rail-
road not only from acquiring “control” of a competing
water carrier, but also from acquiring an “interest” in
such a water carrier. For this reason, the WTA con-
tended that a voting trust arrangement could not prevent
a violation of Section 11321 because the Commission’s
voting trust rules, 49 C.F.R. § 1013 (1982), relate only
to unauthorized acquisitions of “control.” The WTA’s
petition also asserted that the use of a voting trust ar-
rangement would defeat the plain intent of the Panama
Canal Act by denying the WTA and other interested
parties their statutory right to a “full hearing” before
CSX’s acquisition of a 100% interest in the Texas Gas
water carrier subsidiaries. Finally, the WTA contended
that the voting trust agreement was inadequate, in any
event, because of uncertainties regarding its scope, inter-
locking corporate directors, the presence of continuing fi-
nancial interests, and the absence of restrictions on anti-
competitive communication and cooperation between CSX
and ACL.
Six days later, on June 29, 1983, to accommodate the
expediency of the tender offer, the ICC denied WTA’s
petition and its June 27, 1983 motion to enjoin CSX from
acquiring Texas Gas shares in violation of the Panama
Canal Act.’ The Commission admitted that its “prior
* When the WTA filed its declaratory order petition on June 28,
1983, CSX was not scheduled to begin purchasing any Texas Gas
shares until midnight on July 7, 1988. Late on Friday afternoon,
June 24, 1988, counsel for the WTA (as well as the ICC staff)
learned that CSX had announced that it was acceierating its time-
in the United States District Court for the District of Columbia,
7
decisions applying [the Panama Canal] statute have held
that its limitation extends to any interest in a competing
water carrier, not merely to an interest enabling a rail-
road to exercise control of a water carrier or to influence
directly a water carrier’s operations.” Appendix, p. 57a
(emphasis supplied). Nevertheless, in order to avoid “in-
terfer[ing] in the ... marketplace” (Appendix, p. 51a),
the Commission permitted the voting trust arrangement
because other provisions of the statute permit a railroad
to maintain an interest in a water carrier where the two
do not compete (see Appendix, p. 66a) or where mainte-
nance of the interest will not reduce competition. (See
Appendix, p. 63a) The Commission concluded that “an
interest is [not] prohibited by section 11321... [unless]
the relationship enables the railroad to adversely affect
competition from water carriers... .” Appendix, p. 63a.
The Commission, however, reached this conclusion even
though the statute provides that a determination that a
railroad and a water carrier do not compete or that a
railroad’s interest in a water carrier will not reduce com-
petition can be made only after a “full hearing,” and no
hearing of any kind was held regarding the present
transaction.
C. Proceedings in the Court of Appeals
On the WTA’s appeal from the ICC’s decision, a sharply
divided panel of the Court of Appeals affirmed.’ The
seeking injunctive relief against CSX's purchase of any Texas Gas
shares until the WTA had been accorded its right to a hearing by
the ICC. Following the ICC decision on the afternoon of June 29,
the District Court (Gasch, J.) entered a temporary restraining
order barring the acquisition of Texas Gas shares by CSX in order
to enable the WTA to appeal the ICC’s decision. Water Transport
Ass'n v. CSX Corporation, No. 83-1874 (D.D.C. June 29, 1988). The
Court of Appeals denied CSX’s motion for summary reversal of
Judge Gasch's order and denied its petition for a writ of mandamus.
Water Transport Ass'n v. CSX Corporation, Nos. 83-1715, 88-1716
(D.C. Cir. June 30, 1983).
*On July 8, 1983, the Court of Appeals had enjoined CSX from
purchasing any Texas Gas shares pending a determination on the
8
panel majority (Wald and Scalia, JJ.) expressly refused
to approve “all of the Commission’s broad language.” Ap-
pendix, p. 8a; see Appendix, p. 10a n.10. The majority
considered it significant, however, that in two prior ICC
cases under the Panama Canal Act, the parties had en-
tered into purchase agreements prior to seeking ICC ap-
proval. Although in each of those cases the agreement
remained entirely executory, and no party to the ICC
proceedings had contended that the existence of the pur-
chase agreement itself created a prohibited “interest,” °
the majority characterized the difference between a pur-
chase contract contingent on ICC approval and a voting
trust arrangement as only a “short step” (Appendix, p.
27a), and concluded on that basis that “the statutory
phrase ‘any interest whatsoever’ cannot be taken liter-
ally.” *° Appendix, p. 25a.
Based on the twin premises that the statute does not
mean what it says and that the same treatment neces-
sarily must be given to both a wholly-executory purchase
agreement contingent on ICC approval and 100 percent
ownership subject to a voting trust arrangement, the ma-
jority conclnded that the latter must be allowed or else
“(t]he Canal Act purpose to permit the ICC to approve
rail-water mergers that are in the public interest would
be frustrated. ..” Appendix, p. 29a.
merits, and ordered that the appeal be heard on an expedited basis.
On July 11, 1988, the Chief Justice denied CSX’s application for
relief from the interlocutory injunction. In the Court of Appeals,
the Eastern Coal Transportation Conference, an association of ship-
pers, intervened in support of the WTA. CSX and Texas Gas inter-
vened as respondents.
® See Appendix, pp. 22a-28a; see also Appendix, p. 41a.
10 The quoted language, “any interest whatsoever,” is from the
text of Section 5(15) of the Interstate Commerce Act prior to its
recodification in Section 11821 in 1978. See Appendix, p. 79a. As
indicated at note 2, supra, the recodification did not change the sub-
stantive meaning of the statute.
9
District Judge Harold H. Greene, sitting by designa-
tion, dissented. Judge Greene emphasized that Section
11321 provides that “a [rail] carrier ... may not own,
operate, control, or have an interest in a water com-
mon carrier . . . with which it does or may compete for
traffic,” and that “(t]he Commission regard[ed] the ad-
dition of the term ‘intrest’ as having so little significance
that it treat[ed] ‘interest’ and ‘control’ as essentially in-
terchangeable, and the term ‘interest’ for practical pur-
poses as mere surplusage.” Appendix, p. 38a (emphasis
in original).
Judge Greene also reasoned that both the Congressional
purpose and the structure of the statute required rejec-
tion of the ICC’s interpretation. He recognized that
“ft}here is a long history in this country of attempts by
railroads to acquire surface freight transport domina-
tion by attempting to drive water carriers out of busi-
ness,” that “[t]he Panama Canal Act is aimed directly
at these aggressive actions,” and that “[{t]he flat prohibi-
tion of railroad takeovers in section 11321 is an expres-
sion of this congressional concern.” Appendix, p. 34a.
Although he agreed with the majority that Congress had
intended to permit railroad-water carrier mergers “where
it could be demonstrated that competition would not be
harmed and that the joint rail-water operation would be
in the public interest,” he emphasized that “Congress also
specified that such a determination was to be made only
after a hearing.” Appendix, p. 35a. In view of this hear-
ing requirement, Judge Greene rejected the ICC’s con-
struction of the term “interest,” stating:
The Commission’s construction of the statute in this
case stands this fairly straightforward statutory
scheme on its head. Instead of making its determi-
nation regarding the appropriateness of the acqui-
sition within the framework of the prior hearing
required by subsection (c), the ICC transfers the de-
cision-making process to subsection (a) by the simple
device of determining at the very outset of its con-
sideration that a voting trust is not an “interest”
within the meaning of the Act.
10
Appendix, p. 35a. Judge Greene also recognized that
“(this ... is by any measure a massive takeover of a
water carrier by a railroad” (Appendix, p. 33a), and
that
if, by means of the establishment of a voting trust,
this very large merger is allowed to take place with-
out a prior hearing, the same procedure will success-
fully be used in every future corporate takeover of a
water carrier by a railroad... . [T]he statutory
requirement for a hearing in advance of Commission
action will become a dead letter.
Appendix, p. 45a.
Finally, Judge Greene rejected the majority’s concern
that enforcing the terms of the statute might require rail-
roads to acquire water carriers by means “less efficient”
than tender offers. Appendix, p. 46a. He noted that
“fmJechanisms for acquisition other than tender offers do
exist” (Appendix, p. 45a), but stated that even if they
did not, the result could not be different:
In the end, a choice may have to be made among the
various objectives that may be imputed to the Con-
gress. The majority is concerned about the practical
difficulties railroads may encounter in acquiring wa-
ter carriers if “interest” is given its natural mean-
ing and if a hearing is required in advance, and it
suggests that this might complicate achievement of
the legislative objective of allowing some takeovers
. . But plainly the dominant congressional pur-
pose is embodied in the prohibition against the ac-
quisition of a water carrier by a competing rail car-
rier. It seems to me that, if in the process of statu-
tory construction one purpose or the other must be
given preference, the general prohibition should be
preferred over the limited escape clause.
Appendix, pp. 47a-48a."
11In its August 4, 1983 judgment (Appendix, p. 68a), the Court
of Appeals extended its injunction until August 5, 1983, and it later
11
REASONS FOR GRANTING THE WRIT
A. A Railroad’s Acquisition of a 100% Ownership Inter-
est in a Competing Water Carrier Through a Voting
Trust, Prior to a Full Hearing and Specific Findings
by the Interstate Commerce Commission, is Prohibited
by the Panama Canal Act
The Panama Canal Act prohibitions involved in this
case were Congress’ response to a long history of railroad
abuse of the ownership and control of water carriers.
“(Railroads [had] bought up water competition and by
applying their economic leverage, reduced water tariffs
to the point of forcing independent water carriers off the
rivers and lakes. The plain tendency of this acquisition
scheme was to create a rail monopoly over water traffic.”
American Waterways Operators, Inc. v. United States,
386 F. Supp. 799, 803 (D.D.C. 1974), affd mem., 421
U.S. 1006 (1975); see also Lake Line Applications Under
Panama Canal Act, 33 I.C.C. 699, 712 (1915). The House
Report to the Panama Canal bill referred to this history
of abuse:
The apprehension of railroad-owned vessels driving
competition from the canal may or may not be ex-
aggerated, but it is certain that the evil, which is
only anticipated there, already exists in the coast-
wise trade on both coasts, as well as on our lakes and
rivers. The evil is prevalent, recognized, and com-
plained of. The proper function of a railroad corpo-
ration is to operate trains on its tracks, not to oc-
cupy the waters with ships in mock competition with
itself, which in reality operate to the extinction of
all genuine competition. In answering demands for
extended the injunction again to August 6, Appendix, pp. 108a-109a.
On August 6, the Court of Appeals denied WTA’s motion to further
extend the injunction (Appendix, p. 110a), as did Justices Brennan
and Powell. See Appendix, p. 1lla-112a. On August 7, CSX acquired
Texas Gas and placed the shares of ACL in the voting trust. On
September 29, 1983, the merger was consummated.
12
the exclusion of railroad-owned ships from the canal
.. . the committee thinks it wise, just, and opportune
to broaden the amendment so as to serve the higher,
wider, more pressing, and more necessary purposes
of excluding the railroads from operating vessels in
competition with their tracks anywhere in the coast-
wise trade generally or in the lake [sic] and rivers.
H.R. Rep. No. 423, 62d Cong., 2d Sess. 12 (1912).
Judge Greene correctly recognized that two features of
the legislation Congress enacted in response to the rail-
roads’ destruction of genuine competition on the water-
ways are key to its proper interpretation. First, Congress
could have enacted legislation simply prohibiting or limit-
ing railroad “ownership” or “control” of water carriers.
It did not do so. Congress instead made it unlawful for
any railroad to “own, lease, operate, control, or have any
interest whatsoever (by stock ownership or otherwise,
either directly, indirectly, through any holding company,
or by stockholders or directors in common, or in any other
manner)” in a competing water carrier. 49 U.S.C.
§ 5(15) (1976) (emphasis supplied). The statutory pro-
hibition is as broad and inclusive as any can be, and
Congress fully understood its scope. The “slightest in-
terest,” even “[r]ailroad ownership of 1 share” of a wa-
ter carrier’s stock, is enough to activate the statutory
prohibition."* In Nicholson Universal Steamship Co.
Ownership, 248 I.C.C. 43, 67 (1941), Chairman Eastman
stated in his concurring opinion:
[T]hat the authors of this prohibition intended to,
and did, use language so broad and comprehensive
that all such obstacles [concerning proof of control
or influence] to the [complete] enforcement of the
complete separation [between railroads and compet-
ing water carriers] which they desired would be
overcome.
12 48 Cong. Rec. 9232, 11055 (1912) (remarks of Sen. Brandegee) ;
see also id. at 6928 (remarks of Rep. Malby) ; id. at 10458 (remarks
of Sen. Smith).
13
As the ICC earlier stated, ‘‘[t]here is nothing in the lan-
guage of the statute that would warrant” restricting the
statutory prohibition to “such an interest as enables a
railroad to control or exercise a direct influence over the
activities and policies of the water carrier.” Investiga-
tion of Seatrain Lines, Inc., 206 I.C.C. 328, 333 (1935).
“The interest which a rail carrier is forbidden to have in
a water carrier with which it does or may compete is any
interest and the prohibition is absolute... .”"™* Id. at
333 (emphasis in original).
Second, Congress recognized that in some limited cir-
cumstances, the public interest might be served by joint
rail-water operations, but it conditioned the ICC’s au-
thority to permit railroads to acquire or maintain inter-
ests in water carriers on exacting substantive and proce-
dural standards. ICC approval may be granted only if
“the Commission finds that [such] ownership, operation,
control, or interest will still allow that water common car-
rier or vessel to be operated in the public interest ad-
vantageously to interstate commerce and that it will still
allow competition, without reduction, on the water route
in question.” 49 U.S.C. §11321(b) (Supp. V 1981).
Moreover, such approval may be granted “only after a
full hearing.” * 49 U.S.C. § 11321(c) (Supp. V 1981).
13The statutory language remained unchanged until the 1978
recodification of the Interstate Commerce Act, at which time the
words “have an interest in” were substituted for “have any inter-
est whatsoever” and the following parenthetical. The revision note
makes clear that the substitution was made because the new lan-
guage was “more inclusive.” 49 U.S.C. § 11821 note (Supp. V 1981).
In addition, as noted above, the recodification was not intended to
change the substance of the statute. Act of Oct. 17, 1978, Pub. L.
No. 95-4738, §§ 1, 2, 92 Stat. 1887 (codified as amended at 49 U.S.C.
§ 10101 (Supp. V 1981)). The original language and congressional
understanding are therefore authoritative with respect to congres-
sional intent as to the scope of the statutory prohibition.
14 As originally enacted, the statute further limited the ICC’s
authority to approve joint rail-water operations existing as of
July 1, 1914. In 1940, Congress amended the statute to permit
14
As these provisions and the statute’s structure demon-
strate, Congress’ plain intention was to create a prohibi-
tion of the broadest possible scope and then permit the
Commission in narrow circumstances, and subject to
stringent procedural requirements, to grant exceptions to
the general prohibition. The Commission cannot make
any exceptions prior to conducting a full hearing and
making the specific findings respecting competition and
public interest set forth in the Panama Canal Act." No
“incidental authority”, for an “interim” period or other-
wise, as found by the majority (Appendix, p. 3a), can be
derived from the Commission’s power to create excep-
tions to the statutory prohibition, since that power is con-
ditional upon a prior hearing. Under the precedent es-
tablished by the Court of Appeals, there is nothing to
stop any railroad in the future from by-passing the clear
Congressional prohibition of a railroad’s acquiring an in-
terest in a water carrier through the voting trust device.
In Judge Greene’s words, “[{t]he Commission’s con-
struction of the statute in this case stands this fairly
Commission approval of new rail-water relationships, but only sub-
ject to the same substantive and procedural! limitations as were con-
tained in the original Act. National Transportation Policy, Pub. L.
No. 76-785, 54 Stat. 898 (1940) (codified as amended at 49 U.S.C.
§ 10101 (Supp. V 1981)). As then-Senator Truman stated, “[t]he
Panama Canal Act is still the law; it is in the law as the Senate
committee wanted it to be there, and is still the Panama Canal Act,
just as it always has been.” 86 Cong. Rec. 11541 (1940).
15 In the Act as it existed in 1940, Congress provided:
Notwithstanding the provisions of paragraph (15) of this sec-
tion [the prohibition], the Commision shall have authority,
upon application of any carrier... and after hearing, by order
to authorize such carrier to acquire ownership of . . . an inter-
est ... if the Commission shall find that the . . . acquisition of
such . . . interest will not prevent such common carrier by
water ... from being operated in the interest of the public
and with the advantage to the convenience and commerce of
the people and that it will not exclude, prevent, or reduce com-
petition on the route by water under consideration.
49 U.S.C. §5(17) (1976). (Emphasis supplied.)
15
straightforward statutory scheme on its head.” Appendix,
p. 35a. The Commission admitted that “[o]ur prior de-
cisions applying . . . [the Panama Canal] statute have
held that its limitation extends to any interest in a com-
peting water carrier, not merely to an interest enabling
a railroad to exercise control of a water carrier or to in-
fluence directly a water carrier’s operations.” Appendix,
p. 57a (emphasis supplied). Moreover, in promulgating
the Voting Trust Rules under which the present trans-
action was allowed to proceed, the Commission made
clear that the rules were designed to permit persons “to
acquire interests in regulated carriers’ without violating
Section 11343’s separate and more general prohibition on
transfers of “control” of regulated carriers without ICC
approval. 44 Ted. Reg. 59909 (1979). Nevertheless,
without holding any hearing, the Commission determined
that a voting trust arrangement “prevents the railroad
from influencing water carrier competition” (Appendix,
p. 63a), and thus that CSX would acquire “no prohibited
interest in a water carrier’ under the Panama Canal
Act. Appendix, p. 52a.
The Commission thus fashioned its own policy for this
case, ignoring the policy determination made by Congress
and embodied in the Panama Canal Act that railroads
and water carriers be completely divorced unless and un-
til the ICC has made the required statutory determina-
tions after a full hearing. The ICC did not stand neutral
and conduct a hearing as the statute required. Rather,
the Commission admitted that it was making its own
policy: “{I]t is Commission policy to avoid interference
in the workings of the marketplace where the law we are
to enforce does not require our intervention.” Appendix,
pp. 5la-52a. As Judge Greene correctly observed, the
Commission’s newly adopted policy for this case
is a euphemism for a refusal to enforce the prohibi-
tion of the law unless there is no construction, no
matter how remote from the congressional purpose,
16
which would permit an escape. If the Commission
were committed to a neutral policy of enforcing the
statute as written and as it was intended to be ap-
plied, it would not have felt a need to state the
agency pol!vy in these terms. Whatever may be true
in other circumstances, the policy underlying this
statute is not to defer to the marketplace where rail
and water carriers are involved. The statute directs
that railroads shall not—obviously regardless of the
marketplace—acquire such carriers unless it has first
been determined that such takeovers could not harm
competition.
Appendix, p. 47a n.31 (con’t). Where Congress has es-
tablished a presumption or a policy, then an agency must
adhere to and enforce that presumption and carry out that
policy, and not make one of its own choosing. Motor Vehi-
cle Manufacturers’ Association v. State Farm Mutual Au-
tomobile Insurance Co., 103 S. Ct. 2856, 2866-67 (1983).
And, “a new administration may not choose not to en-
force laws of which it does not approve, or to ignore stat-
utory standards in carrying out its regulatory functions.”
Id. at 2875 n.* (Rehnquist, J., dissenting).
Significantly, even the Court of Appeals majority did
not attempt to defend the Commission’s analysis. It dis-
claimed the Commission’s “broad language” (Appendix,
p. 3a), describing it as “inconsistent with our rationale
for affirming the ICC’s decision.” Appendix, p. 10a n.10.
The majority instead relied on two prior ICC decisions *
as “implicitly hold[ing] that a purchase contract con-
tingent on ICC approval is not an ‘interest’” prohibited
by the Panama Canal Act (Appendix, p. 25a), and on
that basis discerned an ambiguity in the statute that
simply does not exist. As the majority admitted (Ap-
pendix, pp. 22a-23a), the meaning of the statutory term
16 Tilinois Central Railroad—Control—John I. Hay Co., 317 I.C.C.
89 (1962) ; Chicago, Milwaukee, St. Paul & Pacific Railroad Control,
Bremerton Freight Car Ferry, Inc., 312 I.C.C. 558 (1961).
17
“interest” simply was not in issue in either of those cases,
and the ICC did not even comment on the matter.’’ Noth-
ing in the majority’s opinion can support the ICC’s im-
permissible determination to allow CSX’s acquisition of
the Texas Gas water carriers prior to holding the “full
hearing” plainly required by the Panama Canal Act."*
17 The majority also plainly misinterpreted the effect of the pur-
chase agreement in the John Hay case, and thereby concluded that
the WTA had made some concession it never in fact made. See
Appendix, p. 27a. The majority stated that a purchase price ad-
justment provision of the agreement provided in John Hay “ob-
viously gave [the railroad! a substantial stake in John Hay’s
future profitability and concomitant incentive to steer traffic to
John Hay from other water carriers.” Appendix, p. 22a. In fact,
exactly the opposite was true. The effect of the adjustment clause
was to increase the purchase price by the amount of any increase:
in John Hay’s earned surplus between the date of the purchase
agreement and the closing date. See 317 I.C.C. at 62. Thus, all
interim profits accrued to the benefit of the John Hay shareholders,
with the result that the railroad had neither an economic interest
in John Hay nor an economic incentive to prefer John Hay over
other water carriers.
18 The majority seemed to be influenced by a concern, mentioned
repeatedly in its opinion, that there was no clear precedent deter-
mining whether ICC approval of a railroad’s acquisition of an
interest in a water carrier must precede the acquisition. See Ap-
pendix, pp. 14a-l6a, 17a-18a, 20a, 22a-23a. Ultimately, however,
the majority “reject{ed] ... [the] alternative’ argument of CSX
of overturning the Commission's interpretation that the statute
requires “prior approval ... [of] ... acquisition[s]....” Appendix,
p. 25a n.27. In fact, the ICC previously made clear in Jnvestigation
of Seatrain Lines, Inc., supra, that the statute requires a preacquisi-
tion determination whether the rail carrier “do[es] or may com-
pete” with the water carrier in question. 206.1.C.C. at 336-37.
The majority also stated (Appendix, p. 29a), that even if it had
agreed with the WTA’s interpretation of the Panama Cana! Act, it
could not have ordered the ICC to seek an injunction barring the
CSX tender offer. Whatever the merits of this contention, the fact
is that the ICC expressly based its refusal to seek an injunction on
its belief that, in view of the voting trust arrangement, CSX would
not acquire any prohibited “interest.” See Appendix, p. 52a. More-
over, had either the Court of Appeals or the ICC declared that
18
B. The Court of Appeals’ Decision Will Substantially
Impair the National Transportation Policy and Nullify
the Congressional Prohibition of Railroad Acquisitions
of Water Carriers
In enacting the Panama Canal Act, Congress recognized
the special need for water transport competition as a
check on the abuses of railroad power and acted to pre-
serve and protect independent water carriers from rail-
road intrusion. Congress has never retreated from that
determination. In the National Transportation Policy,
Congress “declared [it to be part of] ... the national
transportation policy ... to preserve the inherent advan-
tages of each mode [of transportation].” Pub. L. No. 76-
785, $1, 54 Stat. 899 (1940) (codified as amended at 49
U.S.C. § 10101 (Supp. V 1981)). In the 1980 Staggers
Rail Act of 1980, Congress reaffirmed the policy of the
United States Government “to ensure effective competi-
tion and coordination between rail carriers and other
modes [of transportation]” and “to prohibit predatory
pricing and practices, [and] to avoid undue concentra-
tions of market power... .” Pub. L. No. 96-448,
§101(a), 94 Stat. 1897 (current version at 49 U.S.C.
§§ 10101a(5), (13) (Supp. V 1981)). In the same legis-
lation, Congress provided:
With respect to the relationship between water
carriers and rail carriers, none of the amendments
made by this Act shall be construed to make lawful
(1) any competitive practice that is unfair, destruc-
tive, predatory, or otherwise undermines competition
and that was unlawful on the effective date of this
Act, or (2) any other competitive practice that is
unfair, predatory, or otherwise undermines competi-
tion.
Pub. L. No. 96-448, § 707, 94 Stat. 1965-66 (1980) (em-
phasis supplied). As stated in the Conference Report,
completion of CSX’s tender offer would have entailed a Panama
Canal Act violation, it is highly unlikely that any injunctive action
would have been necessary.
19
“(t)he intent [of this provision] is that none of the
amendments made by this Act is to be used to legitimize
the undermining of rail-water competition.” H.R. Conf.
Rep. No. 1430, 96th Cong., 2d Sess. 143, reprinted in
1980 U.S. Code Cong. & Ad. News 4110, 4175. In this
context, it is highly significant that Congress has never
repealed the key statute—the Panama Canal Act—which
regulates rail-water carrier relationships.’®
For more than 70 years, the Panama Canal Act has
served as the keystone of a consistent policy of preserving
an independent water transportation industry, free of
railroad intrusion. In 1908, President Theodore Roosevelt
submitted the Preliminary Report of the Inland Water-
ways Commission to Congress, stating:
The report shows that commerce was driven from
the Mississippi by the railroads. While production
was limited, the railways, with their convenient ter-
minals, gave quicker and more satisfactory service
than the waterways. Later they prevented the res-
toration of river traffic by keeping down their rates
along the river, recouping themselves by higher
charges elsewhere. They also acquired water fronts
and terminals to an extent which made water com-
petition impossible. Throughout the country railways
have secured control of canals and steamboat lines
that today inland waterway transportation is largely
in their hands.
Message of the President to Congress, February 26, 1908
(transmitting the Preliminary Report of the Inland Wa-
terways Commission), reproduced in S. Doc. Vol. 17, 60th
Cong., 1st Sess. iii-vii (1908).
The Panama Canal Act was passed against the history
of fierce competition between railroads and water car-
riers, in which railroads used every device and means to
19In two instances, bills were introduced to repeal the Panama
Canal Act, but each bill failed to elicit Congressional support and
died in committee. See S. 48, 97th Cong., 2d Sess. (1982); S. 1355,
86th Cong., Ist Sess. (1959).
20
drive water carrier competitors out of business. The ac-
quisition of bargelines by railroads became an extremely
effective way of eliminating competition. The acquired
carrier was itself immediately eliminated as a competitor,
and it could then be used as a weapon, to drive independ-
ents out of the market, and to keep them out. As the
ICC found in Lake Line Applications Under Panama
Canal Act, 33 I.C.C. 699, 716 (1915):
These boat lines under the control of the .. . rail-
roads have been first a sword and then a shield. When
these railroads succeeded in gaining control of the
boat lines which had been in competition with paral-
leling rails in which they were interested, and later
effected their combination through the Lake Line As-
sociation, by which they were able to and did drive
all independent boats from the through lake-and-rail
transportation, they thereby destroyed the possibility
of competition with their railroads other than such
competition as they were of a mind to permit. Hav-
ing disposed of real competition via the lakes, these
boats are now held as a shield against possible com-
petition of new independents. Since it appears from
the records that the railroads are able to operate
their boat lines at a loss where there is now no com-
petition from independent lines, it is manifest that
they could and would operate at a further loss in a
rate war against independents. The large financial
resources of the owning railroads make it impossible
for an independent to engage in a rate war with a
boat line so financed.
With railroad rates and practices now largely deregu-
lated ® and in view of the numerous recent railroad con-
solidations, the preservation of water carrier competition
2° Deregulation of the railroads commenced with the Railroad
Revitalization and Regulatory Reform Act of 1976 (the “4-R Act”),
Pub. L. No. 94-210, 90 Stat. 31 (codified as amended in scattered
sections of 15, 45 and 49 U.S.C.), and continued with the Staggers
Rail Act of 1980, Pub. L. No. 96-448, 94 Stat. 1895 (current version
in scattered sections of 49 U.S.C.).
21
is all the more important today.*' The Commission’s de-
cision in this case nevertheless permitted one of the na-
tion’s largest railroads to acquire the nation’s largest in-
land water carrier. As Judge Greene correctly recog-
nized, if this transaction can be permitted to go forward
through use of a voting trust mechanism, then every rail-
road acquisition of a water carrier will be permitted to
do so, and the prior hearing requirement of the Panama
Canal Act will have been nullified.
In permitting the CSX-Texas Gas stock transaction to
proceed, the Commission not only ignored the mandate of
the Panama Canal Act, it refused to consider the obvious
anti-competitive impact of the transaction, even during
the interim of several years which will elapse before com-
pletion of Commission and appellate proceedings on CSX’s
application to dissolve the voting trust and the two years
permitted under the voting trust for divestiture. Indeed,
the voting trust itself has a ten-year duration. The Com-
mission “expressly refused to consider” whether “the spe-
cific independent voting trust agreement at issue [here]
was adequate” to preserve competition.” At the same
time, the Commission admitted that nothing in the voting
trust agreement prevents either concerted action by CSX
and ACL or unilateral action by either of them detri-
21 Since 1980, four giant rail systems have been created by merger.
In 1980, Burlington Northern acquired the St. Louis-San Francisco
Railroad. That same year, CSX was created by the merger of the
Chessie System and the Seaboard Coast Line. In 1982, the Southern
and the Norfolk & Western Railroads combined. In 1983, Western
Pacific merged into Union Pacific. In October, 1983, the Southern
Pacific and Santa Fe announced their contemplated merger. As a
result, there are now only three big eastern railroads: the Norfolk
Southern, CSX, and Conrail. There soon will only be three big
western railroads: the Burlington Northern, Pac. Reil, and the
Southern Pacific-Santa Fe.
22 Brief for Respondent Interstate Commerce Commission, Water
Transport Ass’n v. Interstate Commerce Commission, No. 83-1737
(D.C. Cir.), dated August 19, 1983, at 29.
22
mental to competing carriers and shippers alike. Appen-
dix, p. 63a-64a.™
The ICC’s treatment of this merger of two giants in
the surface transportation industry stands in stark con-
trast to judicial responses to mergers of other horizontal
competitors. In the latter context, the courts have made
clear that the danger of interim harm to competition
should the transaction be allowed to proceed frequently is
so great that only a “full stop” preliminary injunction
will adequately preserve competition pending a determi-
nation on the merits. See, e.g., F. & M. Schaefer Corp.
v. C. Schmidt & Sons, Inc., 597 F.2d 814, 818 (2d Cir.
1979); FTC v. Lancaster Colony Corp., 434 F. Supp.
1088, 1097 (S.D.N.Y. 1977); see also FTC v. Weyer-
haeuser Co., 665 F.2d 1072, 1085-86 (D.C. Cir. 1981).
Here, the transaction has been permitted to proceed with-
out regard to the statutory hearing requirements, with-
out regard to the competitive harm that may result, and
without regard to the National Transportation Policy.
This decision, permitting the second largest railroad to
acquire the largest inland water carrier, if not reviewed
now by this Court, will necessarily be viewed as judicial
authorization of the voting trust device for acquisitions
by other railroads of water carriers, all contrary to the
Congressional mandate of the Panama Canal Act.* Un-
23 The majority opinion conceded that the ICC had never before
this case considered “whether, as under § 11,343, a railroad can use
an independent voting trust to acquire a water carrier before the
ICC has had time to conduct a hearing and give or withhold its
approval.” Appendix, p. 6a. Yet the ICC ruled contrary to the
Congressional mandate without even holding a hearing.
24 With respect to future railroad acquisitions of water carriers,
the ICC stated that:
Depending on the structure of their transaction, the parties
might wish to create a temporary voting trust under the Com-
mission’s voting trust guidelines to hold the stock of the water
carrier pending formal hearings on the acquisition. The Com-
mission has already announced its own view that such trusts
23
less this Court acts now, the Court of Appeals’ decision
will establish a precedent that effectively nullifies the
Congressional mandate that a railroad cannot acquire an
interest in a water carrier prior to the hearing require-
ments and determinations of the Panama Cana! Act. The
decision will substantially impair the National Transpor-
tation Policy in favor of a strong independent water car-
rier industry which the Panama Canal Act was designed
to protect and maintain.
CONCLUSION
The petition for a writ of certiorar should be granted.
Respectfully submitted,
RICHARD A. ZELLNER A. DUNCAN WHITAKER, P.C.
NEIL K. EVANS ALAN M. WISEMAN
Mark E. STAIB (Counsel of Record)
GREGORY M. GORDON Scott E. FLIck
HAHN, LOESER, HowReY & SIMON
FREEDHEIM, DEAN 1730 Pennsylvania Ave., N.W.
& WELLMAN Washington, D.C. 20006
800 National City (202) 783-0800
E. 6th Building Counsel for Petitioner
Cleveland, Ohio 44114 Water Transport Association
(216) 621-0150
November 2, 1983
are permissible, under the Panama Canal Act, 49 U.S.C. § 11321.
Its interpretation has been endorsed in this Court’s decision.
Response of Interstate Commerce Commission to (1) Petition for
Reconsideration of Order Denying Petitioners’ Suggestion for Re-
hearing En Banc and (2) Motion to Stay Issuance of Mandate.
Brief for Respondent Interstate Commerce Commission. Water
Transport Ass’n v. Interstate Commerce Commission, No. 83-1737
(D.C. Cir.), dated August 19, 1983, at 4.
APPENDIX
APPENDIX TABLE OF CONTENTS
Page
Majority Opinion, United States Court of Appeals
for the District of Columbia Circuit, filed August
fA RA Si ain en Ee ae A Rim ep aS la
Dissenting Opinion, United States Court of Ap-
peals for the District of Columbia Circuit, filed
August 4, 1983 .............. teed gid aaicitie beacuse Miaieaeipciaes 38a
Decision of the Interstate Commerce Commission,
LNG ROSS SNe ate. ae 5la
Judgment, United States Court of Appeals for the
District of Columbia Circuit, filed August 4, 1983.. 68a
5. Order, United States Court of Appeals for the Dis-
trict of Columbia Circuit, filed August 6, 1983........ Tla
6. Order, United States Court of Appeals for the Dis-
trict of Columbia Circuit, filed August 6, 1983...... 72a
7. Order, United States Court of Appeals for the Dis-
trict of Columbia Circuit, filed October 28, 1983...... 74a
8. 49 U.S.C. § 11821 (Supp. V 1981) .......................0006 75a
9. Act of August 24, 1912, Ch, 390, § 11, 37 Stat. 566.. 77a
BB Ee Te BCR KC EG) (ROTO vaeciracnecicccvtbcsccvetoenes 79a
11. 49 U.S.C. §§ 11348-11344 (Supp. V 1981) ............... 8la
et OM em R em amoee 86a
ce Se Ge SIE, NII cocci cossniniss sensnsnoriencnantitebenadonpeoniicn 89a
14. Map of American Commercial Barge Lines ............ 90a
15. June 13, 1983 Voting Trust Agreement .................. 9la
16. Letter of Louis E. Gitomer, Deputy Director,
Rail Section, Interstate Commerce Commission to
Eugene D. Gulland, dated June 20, 1983 .00.00000000000... 106a
17. Order, United States Court of Appeals for the Dis-
trict of Columbia Circuit, filed August 5, 1983........ 108a
18.
19,
20.
ii
APPENDIX TABLE OF CONTENTS—Continued
Page
Order, United States Court of Appeals for the Dis-
trict of Columbia Circuit, filed August 6, 1983........ 110a
Letter of Christopher W. Vasil, Deputy Clerk,
Office of the Clerk, Supreme Court of the United
States to Alan M. Wiseman, Howrey & Simon........ llla
List of Parents, Subsidiaries (Except Wholly-
Owned Subsidiaries) and Affiliates of Water
Transport Association Members ....0........0.0...ccccccc000 118a
la
MAJORITY OPINION—Filed August 4, 1983
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 83-1737
WATER TRANSPORT ASSOCIATION,
y Petitioner
INTERSTATE COMMERCE COMMISSION and
UNITED STATES OF AMERICA,
Respondents
CSX CORPORATION and
TEXAS GAS RESOURCES CORPORATION,
EASTERN COAL TRANSPORTATION CONFERENCE,
Intervenors
Petition for Review of an Order of the
Interstate Commerce Commission
Argued July 20, 1983
Decided August 4, 1983
Richard A. Zeller, with whom Neil K. Evans, Alan
M. Wiseman, James R. Fox, and Robert F. Ruyak were
on the brief, for petitioners.
Ernest Abbott, Attorney, Interstate Commerce Com-
mission, with whom John Broadley, General Counsel, and
Ellen D. Hanson, Associate General Counsel, Interstate
Commerce Commission, were on the brief, for respondent,
2a
Interstate Commerce Commission. Henri F. Rush and
Edward J. O’Meara, Attorneys, Interstate Commerce
Commission, also entered appearances for respondent,
Interstate Commerce Commission.
John J. Powers, III, Attorney, Department of Justice,
entered an appearance for respondent, United Stutes of
America.
Peter J. Nickles, with whom Eugene D. Gulland and
Ellen Bass were on the brief, for intervenors, CSX Cor-
poration, et al.
William L. Slover, C. Michael Loftus, and Donald G.
Avery were on the brief for intervenor, Eastern Coal
Transportation Conference.
Before: WALD and SCALIA, Circuit Judges, and HAROLD
H. GREENE,* District Judge for the District of Columbia.
Opinion for the Court filed by Cireuit Judge WALD.
Dissenting opinion filed by District Judge GREENE.
WALD, Circuit Judge: CSX Corp. (which operates a
railroad) agreed to acquire by tender offer Texas Gas
Resources Corp. (Texas Gas), which in turn owns Ameri-
can Commercial Barge Lines, Inc. (which operates a
barge line). Water Transport Association (WTA), an
organization of barge operators, asked the Interstate
Commerce Commission (ICC or Commission) to declare
that the tender offer violates the Panama Canal Act,
49 U.S.C. $11,821. WTA argued that § 11,321(a) (1)
makes it unlawful for a railroad to “own, operate, con-
trol, or have an interest in” a competing water carrier
unless the Commission has approved the transaction after
a full hearing, and that no hearing had been held. The
ICC held that the tender offer did not violate the Canal
Act because CSX and Texas Gas had agreed to put the
barge line stock into an independent voting trust until
* Sitting by designation pursuant to 28 U.S.C. § 292(a).
3a
the ICC held a hearing and approved or disapproved the
transaction. WTA appeals the ICC’s decision.
We affirm the ICC’s decision, though not all of the
Commission’s broad language. We hold that the ICC,
as an incident to its authority under § 11,321 to approve
the acquisition after hearing, may authorize CSX to pro-
ceed with the tender offer if CSX agrees to hold the barge
line in a temporary ICC-approved independent voting
trust until a hearing can be held.
I. BACKGROUND
A. Statutory Scheme
Two sections of the Interstate Commerce Act restrict
a railroad’s power to acquire a water carrier. One, 49
U.S.C. § 11,343, deals generally with one carrier acquir-
ing another carrier; the other, id. § 11,321, is specifically
concerned with a rail carrier acquiring a water carrier.
1. Provisions Governing Merger of Two Carriers
49 U.S.C. § 11,343(a) requires advance ICC approval
before one carrier can merge with or otherwise acquire
control of another carrier:
The following transactions . . . may be carried out
only with the approval and authorization of the
Commission :
(1) consolidation or merger .. . of at least 2 car-
riers into one corporation ....
(3) acquisition of control of a carrier by any num-
ber of carriers.
(4) acquisition of control of at least 2 carriers by
a person that is not a carrier.
(5) acquisition of control of a carrier by a person
that is not a carrier but that controls any number
of carriers.
4a
The ICC “shall approve” the transaction if it finds the
transaction is “consistent with the public interest.” Jd.
$ 11,344(c). Before giving its approval, the ICC must
conduct a full evidentiary hearing, which can take sev-
eral years for a merger of two large railroads, see id.
$11,345(b), and 10 months for other transactions of
“regional or national transportation significance,”’ see id.
§ 11,345 (c).
Because of this long delay, merging carriers often have
an economic incentive to complete the transaction first
and seek ICC approval later. The ICC has long per-
mitted carriers to do this by use of an independent voting
trust. If the acquiring carriers puts the stock of the
acquired carriers in an independent voting trust, the
ICC holds that the transaction does not violate § 11,343
because the acquiring carrier does not “control” the ac-
quired carrier. See Voting Trust Rules, 49 C.F.R. * 1013
(1982). This construction of $ 11,343 has been upheld by
the courts ' and is not disputed here.
2. The Panama Canal Act
The second relevant provision of the Interstate Com-
merce Act, and the principal focus of this case, is 49
U.S.C. § 11,321, which derives from § 11 of the Panama
Canal Act of 1912.2 Congress specifically designed the
Canal Act to protect independent water carriers from
unfair competition by rail-owned water carriers. As pres-
ently codified, it forbids a rail carrier to “own, operate,
control, or have an interest in” a competing water car-
rier unless the ICC finds that the ownership, control, or
1 See B.F. Goodrich Co. v. Northwest Indus., 303 F. Supp. 53, 58-
61 (D. Del. 1969), aff'd without reaching this issue, 424 F.2d 1349,
1357 (3d Cir.), cert. denied, 400 U.S. 822 (1970) ; Illinois Cent. R.R.
v. United States, 263 F. Supp. 421, 424 (N.D. Ill. 1966) (3-judge
court), aff'd mem., 385 U.S. 457 (1967).
2 Ch. 390, 37 Stat. 560, 566-67 (1912).
5a
interest will not be contrary to the “public interest” and
will not reduce water competition:
(a) (1) Notwithstanding [§ 11,343], a [rail] carrier
. May not own, operate, control, or have an in-
terest in a water carrier . . . with which it does or
may compete for traffic.
(b) Notwithstanding subsection (a) of this section,
the Commission may authorize a [rail] carrier...
to own, operate, control, or have an interest in a
water common carrier ... when the Commission
finds that ownership, operation, control, or interest
will still allow that water common carrier . . . to be
operated in the public interest . . . and that it will
still allow competition, without reduction, on the
water route in question.
Section 11,321(a)(2) gives the Commission authority to
determine whether a rail carrier “does or may compete”
with a water carrier:
The Commission may decide . . . questions of fact
related to competition or the possibility of competi-
tion under this subsection on an application of a car-
rier. . . . The Commission may begin a proceeding
under this subsection on its own initiative or on
application of a shipper .. . if the carrier has not
applied to the Commission and had the question of
competition or the possibility of competition deter-
mined....
Any Commission action, whether a finding of fact on
competition under subsection (a) (2), or approval of
ownership, control, or interest despite the existence of
competition under subsection (b), may be taken “only
after a full hearing.” Jd. § 11,321(c¢).
Cases where a rail carrier has sought to acquire a
competing water carrier have been few and far between.
6a
As a result, the ICC had no occasion before this case to
consider whether, as under § 11,343, a railroad can use
an independent voting trust to acquire a water carrier
before the ICC has had time to conduct a hearing and
give or withhold its approval.®
B. The CSX Tender Offer
Texas Gas is a public corporation whose primary busi-
ness is running a natural gas pipeline system. American
Commercial Barge Lines, a wholly-owned subsidiary of
Texas Gas, is an ICC-regulated water carrier that oper-
ates a barge line east of the Mississippi. Its operations
represent about 10% of Texas Gas revenues.
On June 6, 1983, Coastal Corp. made a hostile tender
offer for 51% of Texas Gas’ stock at $45 per share.
Texas Gas looked for a “white knight” to make a friendly
tender offer at a higher price and on June 9 found CSX
Corp., which agreed to purchase 100% of Texas Gas’
stock at $52 per share. CSX’s primary business is oper-
ating a large railroad east of the Mississippi. The rail-
road is, of course, regulated by the ICC.
3 The only cases we are aware of where a rail carrier has sought
ICC approval for its plan to acquire a water carrier are Illinois
Cent. R.R.—Control—John I. Hay Co., 317 I.C.C. 89 (1962) (par-
ties executed purchase contract contingent on ICC approval under
§§ 11,343 and 11,321) and Chicago, Milwaukee, St. Paul & Pac. R.R.
Control, Bremerton Freight Car Ferry, Inc., 312 1.C.C. 553 (1961)
(same). Cf. Investigation of Seatrain Lines, 206 I.C.C. 328 (1935)
(railroad acquired minority interest in a newly formed water car-
rier and requested ICC approval for continued ownership) .
See also Ohio Barge Line Control, 250 I.C.C. 56, 61 (1941) (steel
company that owned railroad acquired barge line and claimed it did
not need to apply for ICC approval under the Canal Act because
barge line did not compete with railroad; issue of competition not
decided) ; Warrier & Gulf Navigation Co. Control, 250 I.C.C. 26, 31
(1941) (same); Nicholson Universal S.S. Co. (Interest of N.Y.
Cent. R.R.), 248 1.C.C. 43 (1941) (railroad covertly controlled water
carrier without seeking ICC approval).
7a
Texas Gas and CSX recognized that the merger of CSX
with Texas Gas’ barge line subsidiary required ICC ap-
proval under 49 U.S.C. § 11,343 (requiring ICC approval
before one carrier can acquire another) and might require
approval under id. § 11,321 (requiring ICC approval for
a rail carrier to own a competing water carrier). They
therefore agreed to place the barge line stock in an in-
dependent voting trust pursuant to ICC voting trust
guidelines established under £11,343. See 49 C.F.R.
$1013 (1982).
The voting trust was irrevocable and instructed the
trustee, Midlantic National Bank, not to “create any de-
pendence or intercorporate relationship” between CSX
and American Commercial Barge Lines, nor to vote the
trust stock “to elect any ... representative of Texas
Gas, CSX or their affiliates as an officer or director of
the [barge line].”* CSX committed to apply to the ICC
for authority to control American Commercial Barge
Lines “‘as soon as practicable.” ° CSX hoped that the vot-
ing trust would allow the overall CSX-Texas Gas merger
to go forward while the ICC was considering whether to
approve CSX’s application to acquire the barge line
subsidiary.
‘ Voting Trust Agreement between Texas Gas Transmission Corp.
and Midlantic Nat’] Bank "4 (June 13, 1983), reprinted in Peti-
tioner’s Appendix (“App.”) item C, at 3.
Technically, the entity placed in trust was a Texas Gas subsidiary
called American Commercia] Lines, Inc., which in turn wholly owns
American Commercial Barge Lines, Inc. We use the latter name to
refer to both subsidiaries.
5 Letter from Texas Gas and CSX to ICC, June 10, 1983, at 1,
App. item B, at 1. At oral argument, counsel for CSX reiterated
CSX’s commitment to apply promptly for ICC approval of the trans-
action, and stated that 60 to 90 days would be a reasonable time
within which to prepare an application. We expect CSX to apply for
ICC approval of its takeover of American Commercial Barge Lines,
under both 49 U.S.C. § 11,348 and id. § 11,321, within 90 days after
CSX acquires Texas Gas’ stock.
8a
The ICC staff reviewed the voting trust agreement and
requested various changes, including an instruction to
the trustee to sell the barge line if the ICC disapproves
the merger.” After CSX and Texas Gas made the
changes, the ICC staff issued its “informal nonbinding
Commission opinion” that the trust “does effectively in-
sulate . . . CSX from violation of the Commission’s pol-
icy against an unauthorized acquisition of control of a
regulated carrier.” ’ The ICC staff opinion did not dis-
cuss whether the voting trust also insulated CSX from
having an unlawful “interest” in American Commercial
Barge Lines under § 11,321.
C. Proceedings Before the ICC
On June 23, 1983, WTA petitioned the ICC for a
declaration that the voting trust, even if it satisfied
§$ 11,343’s command that one carrier not control another
without prior ICC approval, did not satisfy § 11,321’s
requirement that a rail carrier not hold any “interest”
in a water carrier without prior ICC approval.* The
Association also asked the ICC to take appropriate steps
to prevent the merger from going forward.°
* Voting Trust Agreement, supra note 4, "7(c), App. item C, at
7-8; see Letter from Texas Gas to ICC, June 14, 1983, App. item D
(describing changes in the trust agreement). Thus, the dissent is
mistaken in its assumption that the Commission “made its deter-
mination ... on the basis of an abstract examination of voting
trusts in general.” The record shows that the Commission staff
reviewed and required modifications to this voting trust in partic-
ular.
* Letter from Louis Gitomer, Deputy Director, ICC Rail Section,
to Eugene Gulland, Attorney for Texas Gas, June 20, 1983, App.
item E (emphasis added).
* Petition of Water Transp. Ass’n for a Declaratory Order Per-
taining to Voting Trust Agreement Filed by Texas Gas Resources
and CSX Corp., App. item F.
* WTA asked the ICC to enjoin the merger of CSX and Texas
Gas. Motion of Water Transp. Ass’n for an Order Enjoining CSX
9a
On June 29, the ICC denied WTA’s request. The Com-
mission did not address the factual question whether
CSX “does or may compete” with American Commercial
Barge Lines. Nor did the Commission discuss whether
§ 11,321 requires a rail carrier to obtain Commission ap-
proval before acquiring a non-controlling “interest” in a
water carrier, as opposed to first acquiring the interest
and then seeking Commission approval (§ 11,343 would
in any event require advance ICC approval before the
rail carrier could control the water carrier). Rather, it
held that a temporary independent voting trust, designed
to insulate a water carrier from contro? ty a rail carrier
pending an ICC decision whether the merger may proceed,
is not prohibited by § 11,321. Water Transport Associa-
tion—Petition for Declaratory Order—American Com-
mercial Lines Voting Trust, Finance Docket No. 30,215,
at 9 (July 1, 1983) [hereinafter cited as ICC Decision).
After reviewing the legislative history, the ICC found
that the Panama Canal Act was intended “to prohibit
(rail-water] relationships with possible adverse impacts
on competition.” Jd. at 7. The temporary voting trust
was consistent with this purpose because it reasonably
insulated the barge line from CSX control, and thus pre-
vented significant harm to water competition during the
Corp. from Violating the Interstate Commerce Act and Staying its
Acquisition of Shares of Stock of Texas Gas Resources Corp., App.
item I. The ICC, however, has no power to enjoin anything, and
must go to district court to seek an injunction if it decides that in-
junctive relief is appropriate. See 49 U.S.C. § 11,702(a) (3) (“The
Interstate Commerce Commission may bring a civil action .. . to
enforce an order of the Commission . . . when it is violated by a
[rail] carrier ....”). We think WTA’s technical misstep in asking
more than the ICC could give is not significant for purposes of the
present case. If the ICC had reached the question of appropriate
remedy, it presumably would have understood WTA to petition for
appropriate steps to prevent the merger—i.e., an ICC order statir +
that the merger was unlawful and an attempt to enforce that order
in district court.
10a
limited period the trust remained in effect. The Com-
mission explained:
{A]n independent voting trust of the type entered
into here is merely a temporary device designed to
avoid a technical violation of the law in the context
of a corporate acquisition. It is not, and cannot, be
a device for holding stock on a permanent basis.
This fact alone largely prevents the voting trust de-
vice from becoming a tool for altering rail-water
competitive relationships.
Id. at 9.
Moreover, if CSX were to attempt to influence barge
operations notwithstanding the trust, the ICC could act at
that time; an injunction was not needed to prevent
“speculative future violations.” Jd. at 8. Finally, to the
extent the statute was ambiguous, policy considerations
favored an interpretation that would “avoid interference
in the workings of the marketplace.” Jd. at 1.’°
10 We have discussed in text those aspects of the ICC’s decision
which we find persuasive. Some of the reasoning in the opinion
suggests that an independent voting trust is valid under § 11,321
even if not limited to the time period needed to obtain an ICC deci-
sion under § 11,321. See, e.g., ICC Decision at 5 (“the holding of
an independent voting trust certificate, standing alone, is not the
type of interest prohibited by section 11321”); id. at 7 (“the test
of whether an interest is prohibited by section 11321 is whether the
relationship enables the railroad to adversely affect competition
from water carriers”).
This language is dicta, since CSX had committed to apply
promptly for ICC approval. See note 5 supra and accompanying text.
It is also inconsistent with our rationale for affirming the ICC’s
decision. See notes 28-30 infra and accompanying text. We uphold
the voting trust only as an interim device to permit the ICC to hold
a hearing and decide whether the two carriers compete and, if so,
whether a permanent relationship between the two carriers is in
the public interest and will not reduce competition.
lla
D. Proceedings Before this Court
Under the securities laws governing tender offers, CSX
could begin to purchase tendered Texas Gas shares at
midnight, June 29, 1983, the same day that the ICC is-
sued its decision. WTA sought and obtained a temporary
restraining order from the district court forbidding CSX
to purchase any Texas Gas shares for ten days, to give
WTA time to appeal the ICC’s decision to this court.
A motions panel of this court continued the stay pending
our review of the merits.'' In view of the stay, and the
power of Texas Gas shareholders to withdraw their
tendered shares from the CSX offer after August 7, we
ordered expedited briefing and argument.
E. Issue Presented
WTA, supported by intervenor Eastern Coal Trans-
portation Conference (an association of coal producers),
raises again the question of statutory construction it
raised before the ICC: Can a rail carrier acquire a
water carrier prior to the full hearing required by
§ 11,321 if it places the water carrier stock in a tem-
porary ICC-approved independent voting trust pending
the § 11,321 hearing? WTA concedes that the voting
trust prevents CSX from controlling American Commer-
cial Barge Lines. It argues, however, that CSX still has
a financial interest in the barge line that, absent ICC
approval after full hearing, is within § 11,321/a) (1)’s
ban on a railroad’s owning, operating, controlling, or
having an “interest” in a competing water carrier.”
"Order, Water Transp. Ass’n v. CSX Corp. (July 8, 1983)
(Judges Wright and MacKinnon; Judge Scalia dissenting).
12 The Association also argues that even if voting trust owner-
ship is not per se a violation, the ICC’s voting trust guidelines do
not adequately insulate the barge line from control by CSX. This
challenge can be quickly dismissed. In developing the voting trust
guidelines, the ICC proposed complex and rigorous rules to elimi-
12a
The ICC, supported by intervenors CSX and Texas Gas,
argues that it reasonably interpreted an ambiguous stat-
ute to comport with modern business conditions. The
Commission emphasizes that CSX agreed to acquire Texas
Gas under the threat of a hostile tender offer by Coastal
Corp., and the acquisition must be completed quickly if
at all. For the Commission to hold a full hearing before
approving the voting trust would, as a practical matter,
kill the deal, thus depriving CSX of its right to a hear-
ing under § 11,321(a)(2) and § 11,321(b) on whether
it competes with American Commercial Barge Lines and
if so, whether the purchase nevertheless is in the public
interest.
The United States Department of Justice, named as a
respondent, neither supports nor opposes the ICC’s posi-
tion nor explains its own view of § 11,321.
nate any possibility of abuse of the trust. It decided instead to
adopt weaker guidelines (plus a procedure for informal agency
review of trust agreements) so as not to “burden the transportation
industry with complex voting trust regulations to combat abuses by
a small number of individuals in very limited circumstances.” 44
Fed. Reg. 59,909 (1979). The Commission also announced its intent
“to monitor closely the continued use of these devices and to take
whatever action is necessary, including forced divestiture of stock,
in those instances where a voting trust agreement has been improp-
erly used. /d. In short, the ICC considered and found acceptable
the risk of abuse of a voting trust.
It is not enough, then, for WTA to show that a voting trust that
meets the guidelines—as the CSX trust does—would permit an
overreaching rail carrier to influence the trust-held water carrier.
Rather, WTA must show that the ICC’s decision to accept some risk
of abuse in return for the benefit of less burdensome regulation was
arbitrary and capricious. We do not think it is. The ICC consid-
ered the relevant factors, and WTA does not seriously attack the
Commission’s balancing of the costs of additional regulation against
the costs of minimal guidelines.
l3a
Il. THE VALIDITY OF A TEMPORARY INDEPENDENT
VOTING TRUST
A. History and Purpose of § 11,321
To determine whether the ICC’s construction is con-
sistent with congressional intent, we must review the
Panama Canal Act’s adoption and its subsequent inter-
pretation by the ICC and amendment by Congress.
1. The Original Panama Canal Act
Prior to 1912, the Interstate Commerce Act did not
restrict the merger of two carriers, nor did the ICC
regulate water carriers. The railroads used this freedom
to engage in a variety of schemes to drive competing
water carriers out of business. One popular tactic was to
buy a water carrier, price its service so low that other
water carriers were forced to close down, and then raise
prices again.’*
In 1912, in $11 of the Panama Canal Act, Congress
acted to preserve rail-water competition by barring rail-
roads from owning or controlling competing water
carriers:
[After July 1, 1914], it shall be unlawful for any
railroad company ... to own, lease, operate, con-
trol, or have any interest whatsoever (by stock
ownership or otherwise, either directly, indirectly,
through any holding company, or by stockholders or
directors in common, or in any other manner) in any
common carrier by water . . . with which said rail-
road . . . does or may compete... .
Congress gave the ICC jurisdiction to decide the factual
question whether actual or potential competition existed:
1% See H.R. Rep. No. 423, 62d Cong., 2d Sess. 12 (1912); Lake
Line Applications Under Panama Canal Act, 33 I.C.C. 699, 716
(1915).
l4a
Jurisdiction is hereby conferred on the Interstate
Commerce Commission to determine questions of fact
as to the competition or possibility of competition,
after full hearing, on the application of any rail-
road company or other carrier. Such application
may be filed for the purpose of determining whether
any existing service is in violation of this section
. or for the purpose of asking an order to install
new service not in conflict with the provisions of this
paragraph. The commission may on its own motion
. inquire into the operation of any vessel in use
by any railroad ... which has not applied to the
commission and had the question of competition. . .
determined as herein provided.
Finally, Congress included a grandfather provision per-
mitting railroads that already owned barge lines to con-
tinue to do so if continued ownership was in the public
interest and water competition would not be reduced
thereby:
If the Interstate Commerce Commission shall be
of the opinion that any such existing specified service
by water . . . is being operated in the interest of the
public and . . . that such extension will neither ex-
clude, prevent, nor reduce competition on the route
by water under consideration, the Interstate Com-
merce Commission may, by order, extend the time
during which such service by water may continue to
be operated beyond July [1, 1914].
There is no firm evidence, either in the statutory text
or the legislative history, that Congress focused on the
question of when—before or after the acquisition—the
ICC would determine the existence or absence of com-
petition in the event a rail carrier proposed to buy a
water carrier. The second paragraph of the statute
(quoted above) contemplates an application with regard
to “existing service,’ which suggests the possibility of ac-
quiring first and applying for ICC approval later. On
l5a
the other hand, this language may refer only to service
existing at the time the Act was passed. It is likely that
Congress gave little thought to new acquisition (though
it clearly contemplated new service by existing carriers) ;
its primary focus was on providing for divestiture where
past mergers had reduced competition."*
There was also no significant discussion of what the
term “interest” might mean. The debate proceeded al-
most entirely in terms of the pros and cons of railroad
“ownership” or “control” of water carriers.’ It seemed
to be agreed that a railroad could own neither all nor
part of the stock of a competing water carrier.’* But
14 See, e.g., 48 Cong. Rec. 11,058 (1912) (statement of Sen. Sim-
mons) (“some inconvenience to the rail carriers in divesting them-
selves of their property in water transportation is to be expected”’) ;
id. at 11,056 (statement of Sen. Brandegee) (Congress wants rail
carriers ‘to divest themselves of attempting to do any transporta-
tion by water’); id. at 10,458 (statement of Sen. Smith) (there
should be “careful provision made as to the time and manner of
enforcing such a provision against companies with established busi-
ness”); id. at 6928 (statement of Rep. Malby) (railroads will be
“obliged ... to dispose of their . . . steamboat lines’).
15 See, e.g., id. at 11,217 (statement of Rep. Covington) (Act for-
bids a railroad “to own, operate, or control in any manner any
water carrier with which it may compete’); id. at 11,205 (state
ment of Rep. Sims) (bill “prevents railroad owership of water
carriers operated .. . in competition with their rail lines”); id. at
11,063 (statement of Sen. Bristow) (bill “forbid[{s] railroads from
owning such competing steamship lines”) ; id. at 11,058 (statement
of Sen. Simmons) (“railroads shall not be permitted to own water
carriers in competition with them”’) ; id. at 6595 (statement of Rep.
Knowland) (bill “prevent[s] any control, directly or indirectly”).
See also Letter from C.A. Prouty, ICC Chairman, to President Taft
(Mar. 12, 1912), reprinted in 48 Cong. Rec. 10,463 (1912) (“it is
absolutely essential that rail carriers be prohibited from owning or
controlling, directly or indirectly, competing water carriers”).
16 See, e.g., 48 Cong. Rec. 6568 (1912) (statement of Rep. Brous-
sard) (Act addresses “whether steamships owned in whole or in
part by railroad companies shall be permitted to use the canal”) ;
id. at 6595 (interchange between Rep. Hardy and Rep. Knowland)
(quoted in note 17 infra).
16a
the one attempt in the debate to delineate what other
relationships might be permitted ended inconclusively
with the sponsor of the railroad provision urging the
representative who had pointed out an ambiguity (con-
cerning the same stockholders owning shares in both a
railroad and a water carrier) to “give that careful study
and correct it if he can.” **
2. The Transportation Act of 1920
In 1920, Congress gave the ICC authority to regulate
carrier mergers generally. The Transportation Act of
1920, ch. 91, sec. 407, § 5(2), 41 Stat. 456, 481 (current
version at 49 U.S.C. § 11,843), provided that the ICC
could approve mergers that “will be in the public interest”:
Whenever the Commission is of opinion, after hear-
ing, upon application of any carrier ... that the
acquisition . . . of the control of any other such car-
rier or carriers either under a lease or by the pur-
chase of stock or in any other manner... will be
in the public interest, the Commission shall have
authority by order to approve and authorize such
acquisition ....
Congress did not change the Panama Canal Act, merely
renumbering its three paragraphs as $§ 5(9)-(11) of the
revised §5 of the Interstate Commerce Act.
17 See id. at 6594-95:
Mr. HARDY. ... You prevent a railroad company from own-
ing stock in a water line, but you do not prevent the same stock-
holders that own stock in a railway company from owning
stock in a water line.
Mr. KNOWLAND. We prevent any control, directly or in-
directly ; and I think that would cover it....
Mr. HARDY. Just one moment. I do not think that a railroad
company would be owning an interest in a ship line because one
of its stockholders owned an interest in a ship line. . . because
the railroad does not own what its stockholders own.
Mr. KNOWLAND. I hope the gentleman will give that care-
ful study and correct it if he can.
17a
3. Early ICC Interpretation of the Panama Canal
Act
The Interstate Commerce Commission, during the 1920s
and 1930s, gave the Panama Canal Act a liberal inter-
pretation that the 1912 Congress may not have contem-
plated. The ICC’s interpretation is important because it
was endorsed by a later Congress.
In Southern Pacific Company’s Ownership of Atlantic
Steamship Lines, 77 I.C.C. 124 (1923), the ICC found
that Southern Pacific’s proposed new water service would
compete with Southern Pacific’s rail lines, id. at 137, but
nevertheless approved the new service. The Commission
construed the Canal Act to permit new service under the
same standard that governed continuance of existing serv-
ice—whether the new service would be in the public inter-
est and would not reduce water competition. /d. at 128-
29. The Commission explained:
The purpose of the Panama Canal amendment...
was not to forbid railroad ownership, operation, or
control of steamship lines, but to forbid the use of
such ownership or control in such a manner as to
restrict movement of interstate commerce... .
Id, at 187.
Investigation of Seatrain Lines, Inc., 206 LC.C. 328
(1935), extended the Southern Pacific holding to railroad
investment in new water carriers as well as new service
by existing rail-owned water carriers. Seatrain, 15%
owned by two railroads, was formed in 1932 to carry rail-
cars by boat up and down the Eastern seaboard. At
roughly the same time, the railroads applied to the Com-
mission to determine whether their stock holding violated
the Panama Canal Act. The Commission found that the
railroads’ minority ownership of Seatrain fell within the
Canal Act’s prohibition of “any interest whatsoever” and
that the new company competed with the two railroads.
Id. at 333, 335. Nevertheless, the Commission approved
18a
continued stock ownership by the railroads because Sea-
train’s service was in the public interest and would not
reduce water competition. Jd. at 335-36. Significantly,
the Commission did not suggest that it was improper for
the railroads to acquire an interest in a competing water
carrier first and ask the Commission’s approval later.
4. The Transportation Act of 1940
Against this background, Congress in 1940 enacted
major amendments to the Interstate Commerce Act.’*
Economic times had changed and the railroads were in
poor financial shape and were beset by strong competition
from unregulated water carriers. At the railroads’ urg-
ing, Congress brought water carriers under ICC control
with the purpose, among other things, of protecting rail-
roads against unrestrained water carrier competition.’
Congress also amended the Panama Canal Act with the
specific purpose of endorsing the ICC’s interpretation of
the Canal Act, in the Southern Pacific and Seatrain Lines
cases, to permit railroad acquisitions of water carriers
that were in the public interest and would not reduce
competition.” The Canal Act (codified at 49 U.S.C. §5
(14)-(16)) now provided (significant changes italicized) :
18 Transportation Act of 1940, ch. 722, 54 Stat. 898.
19 See S. Rep. No. 433, 76th Cong., Ist Sess. 1 (1939) (‘With
one-third of the railroad mileage already in bankruptcy .. . and
with another third tottering on the verge of bankruptcy, action must
be taken to preserve not only the railroads but an adequate trans-
portation system for this country.”) ; id. Part II (Minority Views),
at 2 (“Where has the demand for regulation [of water carriers]
come from? It comes from the railroads.”).
2° Transportation Act of 1940, supra note 18, sec. 7, § 5(14)-(16),
54 Stat. at 909-10; see H.R. Rep. No. 2832 (Conf. Rep.), 76th Cong.,
3d Sess. 69 (1940):
The so-calied Panama Canal Act provisions . . . have been
modified for the purpose of .. . making more certain the au-
thority of the Commission, in connection with which there has
19a
(14) Notwithstanding [the predecessor to § 11,343],
from and after [July 1, 1914], it shall be unlawful
for any [rail] carrier . .. to own, lease, operate,
control, or have any interest whatsoever (by stock
ownership or otherwise, either directly, indirectly,
through any holding company, or by stockholders or
directors in common, or in any other manner) in any
common carrier by water . . . with which such car-
rier aforesaid does or may compete... .
(15) Jurisdiction is hereby conferred on the Com-
mission to determine questions of fact . . . as to the
competition or possibility of competition, after full
hearing, on the application of any railroad company
or other carrier. Such application may be filed for
the purpose of determining whether any existing
service is in violation of [$5/14)] ... or may pray
for an order under the provisions of [§ 5(16)]. The
Commission may on its own motion . . . inquire into
the operation of any vessel in use by any railroad
. which has not applied to the Commission and
had the question of competition . . . determined as
herein provided ....
(16) Notwithstanding the provisions of [§ 5(14)],
the Commission shall have authority . . . to author-
ize [a rail] carrier to own or acquire ownership of,
to lease or operate, to have or acquire control of, or
to have or acquire an interest in, 4 common carrier
by water . .. if the Commission shall find that the
apparently been doubt, with respect to installation of new
service.
See also 86 Cong. Rec. 10,175 (1940) (statement of Rep. Lea, House
floor manager for the Act) (approving the ICC’s reasoning in South-
ern Pacific) ; id. at 11,271 (statement of Sen. Clark) (complaining
that Congress was endorsing the ICC’s Seatrain Lines opinion) ; id.
at 11,285 (statement of Sen. Wheeler) (“the decisions of the Inter-
state Commerce Commission were in exact accord with the intent
of Congress”’).
20a
continuance or acquisition . . . will not prevent such
common carrier by water . . . from being operated
in the interest of the public . . . and that it will not
exclude, prevent, or reduce competition on the route
by water under consideration ... .
Congress clearly expected rail carriers to be able, with
ICC approval, to acquire competing water carriers. How-
ever, the congressional debate again failed to focus on
when—before or after the acquisition took place—the
ICC would determine whether competition existed under
$5(15) or if the acquisition was in the public interest
under § 5/16). The language of £ 5/16) does, however,
seem to contemplate both advance inquiry by a railroad
that wants to acquire a Commission review of an existing
arrangement if the railroad buys first and asks permis-
sion later.”
If Congress did not consider the timing of the ICC’s
inquiry, far less did it consider the subtler question
whether an advance approval requirement, coupled with
§ 5(14)’s ban on “any interest whatsoever,” would inter-
dict financial arrangements that a rail carrier and a
water carrier might want to or need to make pending
ICC review of a merger.
21 The only indication in the extensive debate over the amend-
ments that a railroad must obtain prior approval is a few scattered
comments that suggest that the congressmen who made them may
have assumed that a railroad would obtain approval first and ac-
quire a water carrier afterwards. See 85 Cong. Rec. 11,612 (1940)
(question by Sen. Clark) (inquiring whether the bill “empowers
the Interstate Commerce Commission to authorize railroads to ac-
quire [competing water] lines”); id. at 11,613 (response by Sen.
Reed) (a railroad with a terminal at Duluth could “operate boat
lines to Buffalo, if [it] could secure permission for the Interstate
Commerce Commission to do so”); id. (statement of Sen. Taft)
(“under the proposed legislation the Interstate Commerce Commis-
sion is given power to authorize a railroad to acquire a competing
water service”).
2la
Congress has not amended the Panama Canal Act since
1940. The differences between the current version in
§ 11,321 (quoted in part I.A supra) and the 1940 version
arise from a 1978 recodification of the Interstate Com-
merce Act that was intended to be “without substantive
change.” 49 U.S.C. note preceding § 10,101. Congress
has, however, substantially deregulated the railroad in-
dustry (notably rate-setting practices) in the Railroad
Revitalization Regulatory Reform Act of 1976** and
the Staggers Rail Act of 1980.** The Staggers Act, more-
over, establishes “the policy of the United States... to
minimize the need for Federal regulatory control over
the rail transportation system.” 49 U.S.C. § 10,101la‘2).**
B. ICC Cases [nolving Water Carrier Acquisitions
Only five reported ICC decisions in the 43 years since
the 1940 revision of the Panama Canal Act involve rail-
road acquisition of a water carrier. Of these, only two
are directly relevant. Both involved purchase contracts
22 Pub. L. No. 94-210, 90 Stat. 31 (1976) (current version in
scattered sections of 45, 49 U.S.C.).
23 Pub. L. No. 96-448, 94 Stat. 1895 (1980) (amending 49 U.S.C.
§§ 10,101-11,917).
*4Congress also provided in the Staggers Act, somewhat
obliquely :
With respect to the relationship between water carriers and
rail carriers, none of the amendments made by this Act shall
be construed to make lawful... any competitive practice that
is unfair, destructive, predatory, or otherwise undermines
competition ....
Id. § 707, 94 Stat. at 1965-66 (codified at 49 U.S.C. § 10,706 note).
This provision was apparently designed to alleviate concern that
the railroads might use their new rate-setting freedom to set
predatory rates that would drive water carriers out of business.
See H.R. Rep. No. 1430 (Conf. Rep.), 96th Cong., 2d Sess. 143
(1980), reprinted in 1980 U.S. Code Cong. & Ad. News 4110, 4175:
The intent is that none of the amendments made by this Act
is to be used to legitimize the undermining of rail-water
22a
contingent on ICC approval. In /llinois Central Railroad
—Control—John I. Hay Co., 317 LC.C. 39 (1962), II-
linois Central agreed to purchase John Hay for $9,000,000
plus earnings from date of agreement to date of closing,
less any dividends paid. Jd. at 62 (hearing examiner’s
report). John Hay promised to continue its business
without substantial change until closing, agreed not to
enter into contracts with other carriers unless required
to do so by law, and agreed to various other conditions.
Id. at 68. This binding purchase contract obviously gave
Illinois Central a substantial stake in John Hay’s future
profitability and concomitant incentive to steer traffic to
John Hay from competing water carriers. It aiso gave
Illinois Central the power, through enforcing the pro-
visions of the contract, to restrict John Hay’s freedom to
engage in the full range of corporate activities. Never-
theless, no one suggested that Illinois Central, by signing
the purchase contract, had illegally acquired an “‘interest”’
in the barge line within the meaning of § 5(14)’s prohibi-
tion on “any interest whatsoever.” The Commission con-
sidered on the merits and disapproved the proposed take-
over. /d. at 53-54,
Similarly, in Chicago, Milwaukee, St. Paul & Pacific
Railroad Control, Bremerton Freight Car Ferry, Inc.,
312 IL.C.C. 553 (1961), Bremerton Ferry agreed to sell its
business for $105,000, to incur no obligations except in
the usual course of business until closing, and to main-
tain its physical properties in substantially as good con-
dition as they were in at time of agreement. Z/d. at 556.
Once again, no one questioned whether the railroad had
competition. Railroad rates and practices that... are unfair,
destructive, predatory, or otherwise undermine competition .. .
shall continue to be prohibited.
The conferees rejected a broader House provision that “none of
the amendments made by this Act shall be construed to modify...
existing law with respect to competition and coordination [between
rail carriers and water carriers}. H.R. 7235, § 808, reprinted in
H.R. Rep. No. 1085, 96th Cong., 2d Sess. 33 (1980).
23a
acquired a forbidden “interest” in the water carrier.
This time, the ICC approved the transaction on the
grounds that the two carriers did not compete. I/d. at
557."
C. Is This Voting Trust an “Interest”?
1. Standard of Review
We preface our analysis by noting the limited scope
of our review. Asa general rule, courts must give “great
25 In two of the other three cases, Ohio Barge Line Control, 250
LC.C,. 57 (1941), and Warrior & Gulf Navigation Co. Control, 250
I.C.C, 26 (1941), a steel company that already owned a railroad
acquired a barge line and applied for ICC approval under the prede-
cessor to § 11,343 (governing carrier mergers generally). In both
cases the steel company claimed that the railroad and the barge
line did not compete and did not apply either for ICC approval of
the acquisition under §5(16) or even for an ICC determination
under §$5(15) whether the railroad and barge line competed. The
ICC, without suggesting that the failure to apply was improper,
declined to pass on whether the railroad and the barge line com-
peted. See 250 I.C.C. at 61; 250 I.C.C. at 31.
In the fifth case, Nicholson Universal S.S. Co. Ownership (Inter-
est of N.Y. Cent. R.R.), 248 I.C.C. 43 (1941), the Commission,
after investigation on its own motion, found that the New York
Central Railroad for some time had covertly controlled Nicholson
Steamship Co. through a web of director interlocks and a non-
independent voting trust. The Commission ordered divestiture. /d.
at 66.
With regard to the import of the language from ICC opinions
quoted by the dissent, we would point out that in the only case
involving a voting trust, Nicholson Universal S.S. Co. Ownership
(Interest of N.Y. Cent. R.R.), 248 I.C.C. 43 (1941), the majority
did not hold that a permanent voting trust was per se a forbidden
“interest.” Instead, it found that the New York Central’s verma-
nent trust conferred an “interest” only after concluding that the
trust conferred the power to control. See id. at 63-64. This narrow
analysis was no accident, for Chairman Eastman expressed his
separate view that the existence of control was “not of prime
importance” because the voting trust necessarily conferred an
“interest” in the water carrier. /d. at 68 (Eastman, Chmn., con-
curring).
24a
deference to the interpretation given the statute by the
officers or agency charged with its administration.” EPA
v. National Crushed Stone Association, 449 U.S. 64, 83
(1980) (citation and footnote omitted); see National
Wildlife Federation v. Gorsuch, 698 F.2d 156, 166-67
(D.C. Cir. 1982).°° Of course, if the ICC’s interpreta-
tion is “inconsistent with the language of the [Canal
Act], as interpreted in light of the legislative history, or
if it ‘frustrate[s] the policy that Congress sought to
implement,’ no amount of deference can save it.” Na-
tional Wildlife Federation, 693 F.2d at 171 (quoting
Federai Election Commission v. Democratic Senatorial
Campaign Committee, 454 U.S. 27, 32 (1981)). How-
ever, we should not lightly assume that the plain lan-
guage of the statute forecloses the Commission’s interpre-
tation, for, in Learned Hand’s words, “it is one of the
surest indexes of a mature and developed jurisprudence
not to make a fortress out of the dictionary, but to re-
member that statutes always have some purpose or object
to accomplish, whose sympathetic and imaginative dis-
covery is the surest guide to their meaning.” Cabell v.
Markham, 148 F.2d 737, 739 (2d Cir.), aff'd, 326 U.S.
404 (1945) (quoted in Watt v. Alaska, 451 U.S. 259,
266 n.9 (1981) ).
If the statutory language and legislative purpose per-
mit the agency’s construction, that construction “must
26 The ICC decision in this case bears appropriate indicia war-
ranting judicial deference. The ICC, which Congress has given
exclusive jurisdiction to approve or disapprove carrier mergers,
see 49 U.S.C. § 11,841(a), is “precisely the type of agency to which
deference should presumptively be afforded.” Federal Election
Comm'n v. Democratic Senatorial Campaign Comm., 454 U.S. 27, 37
(1981). Moreover, the ICC has fully explained its reasons, has
reached a result consistent with its past decisions, see ICC Decision
at 4-5 (distinguishing prior cases as involving either control or a
permanent interest) and has relied on policy considerations rather
than “narrow dissection of the language of the Act.” National
Wildlife Fed’n v. Gorsuch, 693 F.2d 156, 169 (D.C. Cir. 1982).
25a
be upheld if it is ‘sufficiently reasonable,’ even if it is not
‘the only reasonable one or even the reading the court
would have reached’ on its own.” National Wildlife Fed-
eration, 693 F.2d at 171 (quoting FEC v. Democratic
Senatorial Campaign Committee, 454 U.S. at 39).
2. The Short Step From Purchase Contract to Vot-
ing Trust
The John Hay and Bremerton Ferry cases can be taken
to implicitly hold that a purchase contract contingent on
ICC approval is not an “interest” in a water carrier
within the meaning of the Canal Act. Moreover, the ICC
could not reasonably have held otherwise. A railroad and
a water carrier are unlikely to embark on the long and
costly process of seeking ICC approval without a defini-
tive merger agreement. Such an agreement, however,
necessarily gives the acquiring railroad a stake in the
future earning power of its prospective partner. One
could reasonably call this stake, even though it is con-
tingent on ICC approval, an “interest” in the water car-
rier. See Black’s Law Dictionary 729 (5th ed. 1979)
(“Interest. The most general term that can be employed
to denote a right, claim, title, or lega! share in some-
thing.”). Nevertheless, such a right or claim must be
permissible because Congress contemplated that railroads
could acquire water carriers.
Thus, unless, contrary to the Commission’s interpreta-
tion, the statute does not require advance approval of
acquisitions,” we are forced to conclude that the statu-
tory phrase “any interest whatsoever” cannot be taken
literally.** Moreover, the legislative history is of scant
27 We reject this alternative. The ICC’s actions in the present
case reflect its view that prior approval is needed for this acqui-
sition, and we find that interpretation a reascnable one in light of
the statutory language and history.
28 John Hay and Bremerton Ferry can also be taken to implicitly
hold that a purchase contract, even if it is an “interest” within the
26a
help in deciding which interests are permitted and which
forbidden. Congress expressly considered neither the
scope of the term “interest”? nor the tension between a
literal reading of the term and the express authorization
in § 11,3821(b) for rail-water mergers.
To decide which interests are permitted, we must refer
to the basic Canal Act policy to preserve rail-water com-
petition and thus consider the ability and incentive of the
meaning of the Canal Act, is one that can be acquired pending
ICC approval of a more substantial interest. The argument that a
railroad can acquire a minimal interest without prior ICC approval
is in some ways more attractive than the argument that the phrase
“any interest whatsoever’—which sounds absolute—cannot be read
that way. It is consistent with Commission precedent, for the
Commission has never objected to a party’s failure to seek advance
approval despite several opportunities to do so. See Ohio Barge
Line Control, 250 I.C.C. 57 (1941); Warrior & Gulf Navigation
Co. Control, 250 I.C.C. 26 (1941) (both discussed in note 25 supra) ;
Investigation of Seatrain Lines, 206 I.C.C. 328 (1935) (discussed
in subsection A.3 supra). Moreover, it would do little violence to the
statutory scheme. Advance approval would still be required for a
controlling interest, under § 11,343 as well as § 11,321, and there
seems scant anticompetitive danger from a noncontrolling interest
held only for the interim period needed to seek ICC approval.
ICC counsel and CSX both argue that this interpretation of the
Canal Act provides an alternate ground for sustaining the Com-
mission’s decision. ICC Brief at 10 n.1; CSX Brief at 25-29. We
need not decide that question here, for the ICC chose to rely on
a nonliteral interpretation of the term “interest,” and we are able
to uphold that interpretation. We are, however, surprised that the
dissent, while rejecting the Commission’s construction that some
“interests” may exist while approval is sought, nonetheless readily
accepts the proposition that prior approval is required in all cases.
See dissenting op. at 13. For, were we to accept the dissent’s literal
27a
railroad to influence the water carrier or water competi-
tion and the ability and incentive of the water carrier to
compete with the rail carrier.
If it be conceded—and WTA concedes it—that a pur-
chase contract contingent upon ICC approval of the un-
derlying transaction is not an “interest” within the
meaning of § 11,321(a) (1), it is but a short step to
hold that the temporary ICC-approved independent voting
trust used by CSX is not an “interest” either.*® The pur-
chase contracts in John Hay and Bremerton Ferry and
the voting trust in the present case share two critical
features. Both are strictly limited in time duration and
both insulate the water carrier from railroad control
pending a full ICC hearing.
Either way the rail carrier has some incentive to in-
fluence the water carrier’s operations because the rail
carrier may reap the benefit of the water carrier’s future
profitability. But in both cases, the incentive is diluted
because the ICC may disapprove the transaction, thus
29 See WTA Brief at 47 (John Hay case “demonstrates how the
statute should work’’).
30 WTA concentrates its statutory argument exclusively on the
term “interest” in the statutory phrase “own, operate, control, or
have an interest in.” Intervenor Fastern Coal] Traffic Conference
raises the alternate possibility that the voting trust is proscribed
because CSX will continue to “own” (in an equitable sense) Ameri-
can Commercial Barge Lines. Eastern Coal Traffic Conference
Brief at 5.
We think the term “own,” like the term “interest,” cannot be
an absolute. One who holds a contract to purchase (as in John
Hay and Bremerton Ferry) is often called an “equitable” owner,
yet, to make the statute work, purchase contracts must be per-
missible. Ultimately, the precise content of both terms must be
assessed on the basis of the purpose they are meant to serve. The
critical analytical point is that there must be some minimal leeway
in § 11,821(a)(1)’s proscription of ownership or interest, or else
the merger authority in § 11,321(b) becomes a dead letter.
28a
eliminating any anticipated future profits.*' In addition,
the potential for influence is limited by the short dura-
tion of the purchase contract or voting trust. Moreover,
the rail carrier lacks the control over the water carrier
needed to embark on major anticompetitive actions such
as predatory pricing.®
As for the water carrier, it may lack an incentive to
compete vigorously with its potential future master. But
again, this possible lack of incentive would exist no mat-
ter how the deal is structured. Moreover, the water car-
rier has greater ability to compete with full managerial
authority vested in an independent trustee tha» with
management’s hands tied by a restrictive purchase con-
tract. Cf. Lamoille Valley Railroad v. ICC, No. 82-1498,
31 It is necessary to this argument that the voting trust continue
for only a short period of time. This condition is satisfied in this
case because CSX committed to apply promptly for ICC review of
its contemplated merger with American Commercial Barge Lines
and the voting trust—at ICC insistence—provides for divestiture
should the ICC disapprove the merger. Thus, CSX has only a short-
term stake in the barge line’s future profits.
WTA and the dissent attempt to distinguish a voting trust
from a purchase contract on the basis that in the latter, the water
carrier retains the benefit of earnings in the interim period while
the ICC is deciding whether to approve the merger. WTA Reply
Brief at 22-23; dissenting op. at 9-10. This is only partly correct;
if the purchase price is fixed at date of agreement, with no adjust-
ment for earnings between date of agreement and date of closing
(Bremerton Ferry involved such an agreement), the rail carrier
receives the benefit of interim earnings unless the ICC disapproves
the transaction. Moreover, so long as the interim period is short,
the railroad’s extra stake in interim earnings should not substan-
tially increase its financi«] stake in or incentive to influence the
water carrier’s operations.
32 In the case of a voting trust, the railroad actually owns the
supra, we think the ICC’s voting trust guidelines (including ad-
vance ICC review of the trust agreement), the temporary nature
of the voting trust, and ICC authority to remedy any attempted
abuse of the trust, suffice in this regard.
29a
slip op. at 71 (D.C. Cir. June 28, 1983) (finding it a close
question whether a purchase contract gave one railroad
premature control over another railroad).
Moreover, the ICC’s interpretation is consistent with
the dual purpose of the Canal Act to permit some rail-
water mergers while preserving vigorous water competi-
tion and with the congressional policy, stated in the
Staggers Act, “to minimize the need for Federal regula-
tory control over the rail transportation system.” 49
U.S.C. §10,101(a) (2). An ICC ruling that a voting
trust violates the Canal Act would foreclose the common
acquisition device of the tender offer. This would force
railroads to use less desirable alternative means if they
could, and foreclose acquisition entirely if it could not
be made by purchase contract (a likely consequence in
this case because of the competing tender offer from
Coastal Corp.). In addition, such a ruling might, as in
this case, disrupt a much larger merger of which the
water carrier acquisition is only a small part. The Canal
Act purpose to permit the ICC to approve rail-water
mergers that are in the public interest would be frus-
trated, at minimal gain in preventing anticompetitive
railroad practices.
D. The ICC’s Enforcement Discretion
Even if the present voting trust violated the Panama
Canal Act, we would be unable to award WTA the re-
lief which it seeks. The dissent is doubtless correct when
it states, see dissenting op. at 17 n.33, that the Commis-
sion has no discretion not to enforce the Panama Canal
Act prohibition—and cases such as Adams v. Richardson,
480 F.2d 1159 (D.C. Cir. 1973), adequately support that
proposition. The present case, however, is two steps short
of that situation. First, the Commission is not saying
that it will not enforce the prohibition against all viola-
tions, or even against all violations involving a voting
trust, but only against this particular voting trust. No
30a
case we are aware of supports the unlikely proposition
that an agency must proceed against every single violator
—and indeed Moog Industries v. FTC, 355 U.S. 411
(1958), holds precisely the contrary.
Second, in denying WTA’s petition (and still assuming
that the present voting trust is a violation) the Commis-
sion would not even be saying that it declines to enforce
the Act’s prohibition against this particular violation—
but only that it declines to enforce it through the par-
ticular means that WTA seeks, namely, the extreme
remedy of an injunction. The Commission could have
explored other remedies, such as a daily fine for viola-
tion or an order to sell the barge line or spin it off to
shareholders either promptly after completing the tender
offer or after a full hearing. The Commission’s choice
among these options would presumably depend largely on
its assessment of the likelihood that it would permit the
merger after full hearing (either because the two carriers
do not compete or because the merger is in the public
interest) and of the injury to competition in the interim.
The Commission’s weighing of these factors and its con-
sequent exercise of its enforcement discretion, if review-
able at all,** would be reviewable only under the arbi-
trary and capricious standard of the Administrative Pro-
cedure Act, 5 U.S.C. § 706(2) (A). We do not see how,
in the application of such a test, the dissent can conclude
that the Commission had no choice except to select the
remedy of injunction. That is especially so since one of
the central considerations governing that choice, “the
adverse effect on competition that might result from [a
particular enforcement strategy]” is “clearly within the
33 See Southern Ry. v. Seaboard Allied Milling Corp. 442 U.S.
444, 452-63 (1979) (ICC decision not to investigate lawfulness
of seasonal rate increase is not reviewable); City of Chicago v.
United States, 396 U.S. 162, 165-66 (1969) (although ICC decision
not to investigate railroad’s abandonment of passenger service
would have been unreviewable, its written decision after investiga-
tion was subject to APA review).
3la i
special competence of” and “call{s] for the discretionary
determination by” the agency. Moog Industries v. FTC,
supra, 355 U.S. at 413.
Even assuming, then, the correctness of the dissent’s
position on the meaning of the statute, the outcome would
not be what the dissent proposes, an order reaguiring the
Commission to seek injunctive relief; but at most a re-
mand for the somewhat quixotic purpose of enabling the
Commission to decide whether it wishes to seek that
extreme remedy against an arrangement which it has
found to be essentially harmless.
III. CONCLUSION
In sum, we think, in the circumstances of this case,
that the ICC has given its governing statute a reasonable
interpretation. We affirm the ICC’s decision that the
Panama Canal Act, 49 U.S.C. § 11,321, permits a rail
carrier to acquire water carrier stock without prior hear-
ing if it puts the stock into an ICC-approved independent
voting trust for the minimum period needed to secure
a full hearing on whether the Canal Act permits the stock
ownership.*
% WTA charges that CSX will acquire, in addition to the voting
trust, two other “interests” in American Commercial Barge Lines:
interlocking directors and a $20 million debt now owed by the barge
line to Texas Gas.
Texas Gas promised to eliminate the director interlocks before
CSX acquires any Texas Gas stock and the Commission apparently
accepted the promise, for it did not discuss the interlocks in its
opinion. We have no basis for doubting this promise; moreover,
the voting trust agreement would seem to instruct the trustee to
eliminate any interlocks. See text accompanying note 4 supra.
Finally, the Commission has ample power to remedy any abuse of the
trust, including possibly disapproving the prospective merger.
As for the $20 million loan, CSX states in its brief that it has
been repaid. CSX Brief at 38 n.1. In view of WTA’s failure to
bring the loan agreement to the ICC’s attention at the time called
34
82a
We lift the stay effective 24 hours from the date of
this decision; the mandate will issue at the usual time.
for under ICC practice, see ICC Decision at 8, and of the substantial
probability of mootness, we decline to decide whether, as the ICC
stated, a bona fide debtor-creditor relationship is permitted by the
Canal Act.
33a
DISSENTING OPINION—Filed August 4, 1983
GREENE, District Judge, dissenting: The Panama Canal
Act provides that a rail carrier “may not... have an
interest in a water common carrier . . . with which it
does or may compete for traffic.” 49 U.S.C. § 11321(a)
(1). A railroad may escape that prohibition only if the
Interstate Commerce Commission finds that such interest
as the carrier intends to acquire “will still allow competi-
tion, without reduction, on the water route in question.” '
49 U.S.C. § 11321(b). However, even so, “[t]he Com-
mission may take action under this section only after a
full hearing.” 49 U.S.C. § 11321(c¢).
CSX Corporation, the third largest railroad in the
United States, seeks to acquire Texas Gas Resources
Corporation, one of whose fully-owned subsidiaries is
American Commercial Lines, Inc. (ACL) which operates
American Commercial Barge Lines, Inc. (ACBL), the
largest water carrier engaged in operations on the inland
waterway system of the United States. This, then, is by
any measure a massive takeover of a water carrier by a
railroad. Since the merger required ICC approval, CSX
and Texas Gas established a voting trust arrangement
whereby CSX would own the acquired shares of ACL but
a bank trustee would exercise voting power. The ICC
ruled that, in view of the establishment of the voting
trust, CSX was not acquiring an “interest” within the
149 U.S.C. §11321(b). The ICC must also find that, notwith-
standing the interest, the water common carrier will be operated
in the public interest.
2CSX is the parent company of several railroads, including the
Chessie System Railroads and the Seaboard System Railroads. CSX
is also the nation’s largest rail carrier of coa! It operates from the
Great Lakes to the Gulf of Mexico, and from the Mississippi River
to the Atlantic Ocean.
34a
meaning of the statutory prohibition, and it permitted
the acquisition to go forward. The Court affirms the
Commission decision, albeit on a different rationale.
I dissent.
L
There is a long history in this country of attempts by
railroads to acquire surface freight transport domination
by attempting to drive water carriers out of business.
Water transportation being the cheaper mode, rail car-
riers typically sought to overcome their economic dis-
advantage by buying water carriers, lowering prices to
levels at which competing water carriers were forced out
of business, and then raising the prices charged by the
remaining water carriers, so as to eliminate any differen-
tial between water and rail rates.‘ The Panama Canal Act
is aimed directly at these aggressive actions.‘
The flat prohibition’ on railroad takeovers in section
11321 is an expression of this congressional concern. The
% See American Waterways Operators, Inc. v. United States, 386
F. Supp. 799, 803 (D.D.C. 1974); Lake Line Applications Under
Panama Canal Act, 33 I.C.C. 699, 712-14 (1915). The House report
on the Panama Canal Act states:
The evil is prevalent, recognized, and complained of. The proper
function of a railroad corporation is to operate trains on its
tracks, not to occupy the waters with ships in mock competition
with itself, which in reality operate to the extinction of all
genuine competition.
H.R. Rep. No. 423, 62nd Cong., 2d Sess. 12 (1912).
‘This is not an ancient law, ill suited to modern conditions.
Congress reaffirmed its purpose a number of times, the last time
as late as 1980. See section 7 of Public Law No. 96-448, 94 Stat.
1895, 1965-66 (1980); 11.R. Conf. Rep. No. 1430, 96th Cong., 2d
Sess. 142-43 (1980), reprinted in 1980 U.S. Code Cong. & Adm.
News 4110, 4175.
5 Prior to the 1978 codification of the Act (Pub. L. No. 95-473,
92 Stat. 1342 (1978)), the statute prohibited a railroad from
having “any interest whatsoever” in a water carrier. The codifica-
tion substituted the present wording which, according to the his-
torical and revision note to section 11321, is even more inclusive
than the prior language.
35a
escape provision codified in subsection (b) was added in
1940 to provide relief where it could be demonstrated that
competition would not be harmed and that the joint rail-
water operation would be in the public interest. Trans-
portation Act of 1940, Pub. L. No. 76-785, 54 Stat. 898,
909-10. However, as noted, Congress also specified that
such a determination was to be made only after a hearing.
The Commission’s construction of the statute in this
case stands this fairly straightforward statutory scheme
on its head. Instead of making its determination regard-
ing the appropriateness of the acquisition within the
framework of the prior hearing required by subsection
(c),® the ICC transfers the decision-making process to
subsection (a) by the simple device of determining at the
very outset of its consideration that a voting trust is not
an “interest” within the meaning of the Act. The hear-
ing required by the statute is thus postponed until the
time the railroad moves for approval of the acquisition
itself and for dissolution of the voting trust. As for the
issue of competition, the procedure adopted by the Com-
mission drains the Act’s prohibition of whatever meaning
may be left in the wake of its method of dealing with the
term “interest.” *
®I do not understand the Court to hold that the statute does
not require a prior hearing. Although that issue is discussed, the
majority does not appear to reach a definitive conclusion. Maj. Op.
at 13, 16-19. In any event, I see no substantial basis, either in the
history of the statute or its purpose, for concluding that, contrary
to the plain words of the Act, a prior hearing is not required. See
also Maj. Op. at 19 note 21.
™The Commission believes that the Panama Canal Act would
not have been violated even if CSX did acquire a prohibited
interest in ACBL, on the theory (1) that a finding of actual or
possible competition between the two carriers is a prerequisite
to a finding of a violation, but (2) that no such finding can be made
until a hearing is held. Notwithstanding this reasoning, the Com-
mission refused to hold a hearing. ICC Brief at 10 note 1.
36a
The Commission’s error here was particularly egregious
because it made its determination that “CSX has no pro-
hibited interest in a water carrier” * on the basis of an
abstract examination of voting trusts in general. Al-
though implicity recognizing that, depending upon the
facts, a voting trust could be so structured that it would
be a prohibited “interest” within the meaning of the stat-
ute, the Commission expressly refused to examine”
whether the requisite facts existed here.'” The Commis-
sion also recognized that, in addition to ownership by
CSX of the voting trust certificate, relationships might
exist between CSX and ACBL which could constitute a
prohibited “interest,” but, again, it declined either to ex-
amine into the nature of any such relationships or to
make findings with respect thereto. ICC Decision at 8-9."
8 See Water Transport Association—Petition for Declaratory
Order—American Commercial Lines Voting Trust, Finance Docket
No. 30,215 at 9 (July 1, 1983) [hereinafter ICC Decision].
*In its brief in this Court, the Commission states:
WTA challenges the Commission’s alleged ‘finding’ that the
specific independent voting trust agreement at issue was
adequate. The Commission expressly refused, however, to rule
on the adequacy of that agreement.
Brief of Respondent Interstate Commerce Commission at 29. See
also ICC Decision at 9.
10 Had it done so, it might have found, inter alia, that the voting
trust agreement includes only the ICC-regulated subsidiaries of
Texas Gas, excluding unregulated water carriers owned by that
corporation; that it does not restrict personal contact and other
interaction between CSX and the water carrier affiliates of Texas
Gas; and that it does not prohibit unilateral anticompetitive con-
duct stemming from the awareness of CSX and Texas Gas em-
ployees of their relationship. See Petitioner’s Brief at 42-46. Since
the Commission declined to hold a hearing, and since only five days
elapsed between the filing of the WTA petition and the agency
decision, neither the accuracy of these charges nor their exhaustive-
ness is known.
11 The ICC also declined to place in the record WTA’s allegation
that CSX and ACL would be able to file consolidated tax returns
37a
In short, when the Commission refused to interfere
with the merger on the ground that CSX “has no pro-
hibited interest” in ACBL (ICC Decision at 1), it did not
know—and it does not now know—whether CSX has, in
fact, acquired such an interest. All it relied on was its
assumption that a typical or average voting trust is not
the kind of interest prohibited by section 11321. As indi-
cated in Part II infra, that conclusion, too, was incorrect.
But even if the ICC was right regarding voting trusts in
the abstract, it could not justifiably hold that the acquisi-
tion by CSX of this particular voting trust certificate—
the one that the petitioner complains about and the one
that is before this Court—does not violate the statute.
Whatever deference is ordinarily due to decisions of regu-
latory agencies (Maj. Op. at 22), it does not, it seems to
me, extend to so irrational a determination.”
II
This basic procedural irregularity is sufficient, in my
judgment, to require a reversal of the Commission’s deci-
sion. However, the Commission also erred substantively
in finding that the voting trust would not give CSX an
“interest” in ACBL."
Unlike 49 U.S.C. § 11343, the general provision appli-
cable to carrier acquisitions which prohibits only the un-
authorized acquisition of control or management powers “
on the ground that this allegation was raised in a pleading which
the Commission regarded as an improper “reply to a reply.” ICC
Decision at 3-4.
12 See National Association of Recycling Industries v. ICC, 704
F.2d 638, 689 (D.C. Cir. 1983).
18 As I read the opinion of the majority of this Court, it refrains
from endorsing the Commission’s position in this regard. See
p. 12 infra. The Department of Justice, named as a respondent,
neither supports nor opposes the ICC position.
4 “Control” is defined as “actual control, legal control, and the
power to exercise control, through or by (A) common directors,
officers, stockholders, a voting trust, or a holding or investment”
company, or (B) any other means. 49 U.S.C. § 10102(7).
88a
over other common carriers, the Panama Canal Act pro-
vides that
[njotwithstanding section 11343... a [rail] car-
rier . . . may not own, operate, control, or have an
interest in a water common carrier . . . with which
it does or may compete for traffic.
The Commission regards the addition of the term “inter-
est” as having so little significance that it treats “inter-
est” and “control” as essentially interchangeable, and the
term “interest” for practical purposes as mere surplus-
age. Thus, in its decision, the Commission stated that
the provisions of section 11321 are [not] sufficiently
different from those of section 11343, so that voting
trusts, and the body of law developed around voting
trusts, cannot operate in the same manner under the
two provisions.
ICC Decision at 8-9. In its brief, the agency similarly
dismisses the fact of the inclusion by the Congress of the
term “interest” in the Panama Canal Act as being noth-
ing more than “slightly different words.” Brief of ICC
at 19 note 4.
The Commission did not. take so cavalier a view of the
statutory pattern in the past. In Investigation of Sea-
train Lines, Inc., 206 I1.C.C. 328, 3383 (1985), it flatly
stated that a rail carrier is forbidden to have “any inter-
est [in a water carrier] and the prohibition is absolute”
(emphasis in original), and it rejected as too narrow a
construction of “interest” “as meaning [only] such an
interest as enables a railroad to control or exercise direct
influence over the activities and policies of the water
carrier.” 206 I.C.C. at 333. The Commission’s present
construction is directly to the contrary. ICC Decision at
4. Likewise, in the Nicholson Universal Steamship Com-
pany Ownership, 248 I.C.C. 43, 64 (1941), the Commis-
sion observed that a railroad need not obtain control of
a water carrier to acquire a prohibited interest. With re-
39a
spect more specifically to a voting trust, the Commission
implicitly held that such an arrangement was “not suf-
ficient to avoid a violation” of the “interest” clause (28
1.C.C. at 63-66), and it further emphasized that the
Panama Canal Act “was meant to bring about a com-
plete divercement of any railroad interest in [water
carriers]}.” **
Joseph Eastman, the then chairman of the Commission,
placed the issue in its proper perspective, when he stated
in a concurrence in Nicholson, 248 I.C.C. at 67-68:
[T]his provision [section 11321l(a)] prohibits, not
only ‘control,’ but also ‘any interest whatsoever,’ and
. . . both are clarified by the parenthetical clause
containing such broad words as ‘or otherwise,’ in-
directly, and ‘in any other manner.’ [See note 5
supra]. ... I well remember the passage of the
Panama Canal Act, and entertain no doubt that the
prohibition . . . was motivated by a desire to en-
force a complete separation between railroads and
competing water carriers. Practical experience .
had shown the legal difficulties attendant upon proof
of ‘control’ of one company by another. .. . Because
of these difficulties, I think it is plain that the au-
thors of this prohibition intended to, and did, use
language so broad and comprehensive that all such
obstacles to the enforcement of the complete separa-
tion which they desired would be overcome. The
15 248 I.C.C. at 64-65. The Commission attempts to distinguish
these precedents on the basis that “they did not present the issue
of whether a valid independent voting trust, standing alone, would
constitute a prohibited interest under those Acts” (emphasis added).
ICC Brief at 21. One of the principal problems with the Commis-
sion’s decision in this case, of course, is that it has refused to
consider whether or not the CSX voting trust stands alone. See
pp. 4-6 supra. Beyond that, the Commission explains away the
adverse language in prior decisions on the basis that all of it con-
stitutes mere dicta.
40a
words ‘any interest whatsoever’ are far from being
. mere surplusage. ... They embrace interests
which do not necessarily carry with them ‘control.’ **
The Commission, and the majority here, rely to the con-
trary on Illinois Central Railroad Co.-Control-John I. Hay
Co., 317 LC.C. 39 (1962) and on Chicago, Milwaukee,
St. Paul & Pacific Railroad Co. Control, Bremerton
Freight Car Ferry, Inc., 312 1.C.C. 553 (1961).
In both of these cases the Commission held hearings on
proposed acquisitions, ultimately disapproving the rail-
water acquisition in Jllinois Central and approving it in
Chicago, Milwaukee. The proposed transactions had been
placed before the I.C.C. through purchase contracts the
execution of which had been made subject to I.C.C. ap-
proval. In neither case was the purchase contract itself
challenged as an interest, and the I.C.C. did not address
this question. Beyond that, the important point with re-
spect to these cases is that a hearing occurred in both
eases before the rail carrier acquired the stock of the
water carrier. There is no language in either decision,
moreover, comparable to that employed by the ICC here,
to overrule the Nicholson-Seatrain principle that the “in-
terest” language in section 11321 is broader than the
“control” language in section 11343.
In short, the Commission’s evident view—that “inter-
est” means little more than “control” "—is simply
wrong.”*
16 See also, 48 Cong. Rec. 6928, 9232, 10458, 11055 (1912).
17 That view is evidenced not only by the above-quoted language
from the ICC’s decision and its brief, and by its failure to identify
a single matter with respect to which application of the “interest”
statute would lead to a different result, but also by its reflexive
application to this case of voting trust guidelines adopted for
“control” situations.
18 Words employed in a statute cannot be presumed to be sur-
plusage. See e.g., Zeigler Coal Co. v. Kleppe, 536 F.2d 398, 406
(D.C. Cir. 1976). That principle is especially valid where, as here,
>. Ja'd;
4la
The Court considers that a purchase contract is not an
“interest” within the meaning of the statute, and that for
that reason it is likely that a voting trust is in the same
category. Maj. Op. at 23-27." The majority’s premise
does not seem to me to be as firmly established as it evi-
dently assumes. As indicated above, in the two prior
cases in which purchase contracts have been used, the
issue was not contested, briefed, or decided. Additionally,
under the language of the Nicholson or Seatrain decisions
supra, purchase contracts are prohibited interests.”
But even if it be assumed, arguendo, that a purchase
contract between a rail and a water carrier is a permis-
sible device, the result would be no different. A voting
trust is not like a purchase contract. In addition to the
many formalistie differences, there is the basic fact that
under a purchase contract profits flow to the seller, while
in a voting trust situation they inure to the benefit of the
purchaser. Substantial consequences follow from this fac-
tor.** Additionally, executory contracts are far less stable
and more easily voided or breached than voting trusts,
and significant consequences may be expected to flow from
a statute operating with another law in the area of similar, but
not identical subject matter uses additional, different, and stronger
terminology.
19 Both the Commission and the Court acknowledge that there is
no precedent upholding a voting trust in the section 11321 situation.
20In an effort at persuasion, petitioner WTA concedes in its
brief that a purchase contract “made sense [in the John I. Hay
case] and it could make sense here.” Brief at 24. We are, of course,
not bound by that observation.
21 The incentive to manipulate is certainly greater in the latter
situation than in the former. It is also noteworthy that the Securi-
ties Laws include a voting trust certificate within the meaning of
“security,” but they say nothing about purchase contracts. 15 U.S.C.
§ 78c(2) (10). See also, Reserve Life Ins. Co. v. Provident Life Ins.
Co., 499 F.2d 715, 724-25 (8th Cir. 1974).
42a
that difference, too, including an increase in the likelihood
that the injuries listed in note 24 infra will occur.”
Finally, even if the majority is correct in its twin con-
clusions that a purchase contract is not an impermissible
interest under the statute and that the step between such
a contract and a voting trust is not large, the question at
issue in this case remains unanswered. The majority com-
pares a purchase contract with a voting trust; it does not
compare a purchase contract with this voting trust; nor
does it compare a purchase contract with this voting trust
plus whatever other relationships may exist between CSX
and Texas Gas or ACBL. It does not make these com-
parisons because it cannot, the ICC having explicitly re-
fused to consider anything other than the concept of a
voting trust in the abstract.
For these reasons, I would conclude that the Commis-
sion erred in endorsing the voting trust arrangement be-
tween CSX and ACL as satisfying the Panama Canal Act.
Ill
The Court does not affirm the Commission’s decision
that the voting trust is not a prohibited interest but up-
holds the voting trust arrangement on the basis that it is
only an “interim device.” Maj. Op. at 9 note 10. In so
doing, the Court appears to be holding that the present
arrangement between CSX and Texas Gas is acceptable
only, or primarily, because (1) at some time in the fu-
ture there will be an opportunity for the ICC to examine
the transaction (Maj. Op. at 28), and (2) to do other-
wise would make it difficult, if not impossible, as a matter
of the market realities, for railroads to acquire water
carriers. Maj. Op. at 27.
22 For example, improper collaboration between the employees of
the two companies is much more likely if they know that, to all
intents and purposes, the transaction is unbreakable. It is also
quite improbable that CSX and ACBL will vigorously compete with
each other while they are tied together by a voting trust.
43a
There are several problems with the interim arrange-
ment-future hearing rationale.
First. Although CSX committed itself at oral argu-
ment to apply for dissolution of the voting trust and ap-
proval of the transaction within 90 days, ICC proceedings
typically take a long time to bring to a conclusion. See
Maj. Op. at 2. Thus, for months, if not years,** ACBL
will be operated under an “interim” voting trust arrange-
ment even though, by the Court’s own reasoning, a voting
trust not limited in time would constitute a prohibited
interest.
Second. The Panama Canal Act directs that the Com-
mission’s hearing and its action on the transaction occur
before consummation of the transaction, not many months
later. Again, if a voting trust is or may be an “interest”
within the meaning of the Act, then under the statute it
could not be created as a tool for the acquisition of a
water carrier by a railroad in advance of ICC considera-
tion. This is not a mere technical defect. A railroad
acquiring an interest in a water carrier has the incentive
and ability to inflict significant injury during the interim
period.
23 By its terms, the voting trust here involved can last for as
long as ten years.
4 Among the possible injuries to competition and competitors are
improper collaboration between CSX and barge line employees to
the detriment of other water carriers, preferential treatment in
rates and service to the rail-owned water carrier at points where
water carriers connect with CSX rail lines, and juggling of the
barge line’s rates to the disadvantage of its competitors. One
would have to close one’s eyes to the realities to suppose that the
water carrier, operating under a voting trust established by CSX,
will vigorously compete with CSX. Further, whatever the theo-
retical retention by the ICC of the power of eventual disapproval, it
is unlikely that an acquisition, once having taken place under these
circumstances, or having been in operation for many months or
many years, will ever be undone. Counsel for the Commission was
unable at oral argument to cite an instance where this had occurred.
44a
Third. Ownership of the voting trust will never be the
subject of the “full hearing” the Congress intended. The
Commission has declined to hold a hearing on this sub-
ject now, and the hearing it will presumably hold even-
tually will concern only the Cissolution of the voting trust
and its replacement by CSX’s permanent acquisition of
ACL—not the validity of the voting trust.
Fourth. On the Court’s rationale, one could conceiv-
ably justify an interim departure from the strict statu-
tory standard if the danger to competition were extremely
remote. That is hardly the case here. Interim approval
of the CSX takeover in this regard may be analogized to
the kind of relief that courts sometimes grant in the
preliminary injunction context. One of the factors to be
considered in that connectici: is the likelihood of success
on the merits.
The Panama Canal Act forbids an acquisition where
the railroad “does or may compete.” Petitioner WTA
supplied the Court with maps which indicate that on a
large number of routes in the Midwest CSX and ACBL
provide directly parallel service (e.g., St. Louis to Cairo,
New Orleans to Tallahassee, Memphis to Louisville). It
also appears that coal is the most important commodity
carried by CSX and ACBL alike. These facts, to be sure,
do not conclusively prove that the merger of the com-
panies will damage competition—no such determination
can be made in view of the ICC’s refusal to consider the
competition issue at this juncture (see note 7 supra)—
but they do suggest that the likelihood of a finding of no
injury to competition is exceedingly small. See Union
Mechling Corp. v. United States, 566 F.2d 722, 729 (D.C.
Cir. 1977) (Opinion of Robinson, J.) (rail and water car-
riers compete if they service two or more points in com-
mon unless the prospect of competition is “clearly chi-
merical”). It makes little sense to allow CSX to acquire
this water carrier on an interim basis if there is a sub-
stantial likelihood that this acquisition must subsequently
45a
be undone. See Gulf & Western Industries, Inc. v. Great
A&P Tea Co., 476 F.2d 687, 692-93 (2d Cir. 1973).*°
Fifth. It may confidently be expected that if, by means
of the establishment of a voting trust, this very large
merger is allowed to take place without a prior hearing,
the same procedure will successfully be used in every fu-
ture corporate takeover of a water carrier by a railroad.
Thus, under the procedure sanctioned by the Court, all
hearings (if any) will be future hearings, and the statu-
tory requirement for a hearing in advance of Commission
action will become a dead letter.**
For these reasons, I cannot agree with the Court’s con-
clusion that the requirement of a prior hearing estab-
lished by section 11321(c) may safely be disregarded on
the theory that a hearing will be held eventually.
The majority’s second, and more basic rationale is that
in the world of corporate takeovers tender offers must be
consummated within a matter of days or they will lapse
and that the prior hearing requirement should be dis-
pensed with in light of that reality.
Mechanisms for acquisition other than tender offers do
exist. For example, it appears that CSX negotiated with
Texas Gas for almost an entire year before the tender
offer was made, and it should have been possible for the
parties during that period to arrive at a mechanism, such
as an ICC approval in principle,” for the acquisition of
°° This will surely happen unless the ICC should at that time
again apply its own policy rather than the congressional view of
the proper relationships in the rail-water market. See note 31
infra.
26 Indeed, it may be expected that the decision in this case, since
it removes obstacles which some might have thought to exist, will
substantially increase railroad interest in water carrier takeovers.
27 It is suggested that it is the Commission’s practice not to
grant such approvals. However, not only is it not clear that this
is the Commission’s practice, but it would seem that, if there is to
46a
control of the water carrier which does not violate the
statute.** Even if no such mechanism could have been
found, the alternative of an acquisition of Texas Gas by
CSX without the ten percent interest represefited by the
ACBL affiliate would have been available.
To be sure, these alternatives may be less efficient than
acquisitions by means of tender offers. It does not follow,
however, that the transaction should be allowed to pro-
ceed. Under the statute, the Commission has little dis-
cretion. It is not under an obligation merely to “con-
sider” the public interest, as in the Tunney Act,” before
acquiescing in a water carrier acquisition by a railroad,
nor is it charged merely with the duty of evaluating the
transaction under the broad Clayton Act standard
whether the merger would have the effect of “substan-
tially lessen{ing] competition.” * Unlike these more gen-
eral, flexible laws, the Panama Canal Act flatly prohibits
acquisitions of water carriers by railroads, and it allows ©
an exception only in carefully limited circumstances.
The majority speculates that, unless the .CC decision is
upheld,” it “would force railroads to use less desirable
be any accommodation to what are called the practical realities, it is
more appropriate that the Commission’s procedures be adjusted
rather than the requirements of the statute.
28 Mergers and acquisitions were not unknown before the tender
offer mechanism gained currency in recent years.
2915 U.S.C. § 16(e).
8915 U.S.C. § 18.
51 The majority relies heavily on the ICC’s interpretation of the
statute. That interpretation is entitled to deference, of course,
although less so where clear statutory language is involved and
where the agency, by its own admission, has never before con-
sidered whether a voting trust is an “interest” within the meaning
of § 11321.
Furthermore, the agency has informed the Court that ite nolicy
is not to interfere with “the workings of the marketplace” where
the law does not “require” its intervention nor “compel[] [it] to
47a
alternative means if they could, and foreclose acquisition
entirely if it could not be made by purchase con-
tract... .” Maj. Op. at 19. That is by no means cer-
tain (see pp. 15-16 supra). What seems to me to be far
more certain is that if the third largest railroad is per-
mitted to acquire the largest inland water carrier without
a prior hearing, there will never be an acquisition pre-
ceded by a hearing; the escape clause will have swallowed
up the basic prohibition; and the Panama Canal Act’s
careful structure will have been eviscerated.
In the end, a choice may have to be made among the
various objectives that may be imputed to the Congress.
The majority is concerned about the practical difficulties
railroads may encounter in acquiring water carriers if
“interest” is given its natural meaning and if a hearing
is required in advance, and it suggests that this might
complicate achievement of the legislative objective of al-
lowing some takeovers. Maj. Op. at 24, 27. But plainly
the dominant congressional purpose is embodied in the
prohibition against the acquisition of a water carrier by
a competing rail carrier. It seems to me that, if in the
process of statutory construction one purpose or the other
step in.” ICC Decision at 1. It is not inappropriate, I think, to
observe that this language is a euphemism for a refusal to enforce
the prohibition of the law unless there is no construction, no
matter how remote from the congressional purpose, which would
permit an escape. If the Commission were committed to a neutral
policy of enforcing the statute as written and as it was intended
to be applied, it would not have felt a need to state the agency policy
in these terms. Whatever may be true in other circumstances, the
policy underlying this statute is not to defer to the marketplace
where rail and water carriers are involved. The statute directs that
railroads shall not—obviously regardless of the workings of the
marketplace—acquire such carriers, unless it has first been deter-
mined that such take-overs could not harm competition.
Given that the ICC’s interpretation and its policy are at variance
with the statutory language and purpose, I would not give it the
deference accorded by the majority.
48a
must be given preference, the general prohibition should
be preferred over the limited escape clause.
The public interest will not be injured if railroads are
encouraged to attempt to devise alternative mechanisms
to acquire water carriers, even if these mechanisms may
be more cumbersome or time-consuming than the tender
offers which have found so much favor in recent years.
When Congress enacted the Panama Canal Act it seems
to have faced with equanimity the possibility that some,
or many, attempted rail-water acquisitions would not be
consummated. It has not been demonstrated that the
take-over of water carriers by railroads is so vital an
objective that exceptional efforts should be made so to
interpret the governing statute as to allow the take-overs
to occur without the prior inquiry and the prior findings
which the statute mandates.”
82 The general prohibition should certainly prevail over the ob-
jective of accommodating the desire of this railroad to acquire this
water carrier by the most efficient means available.
38 The majority suggests that the Commission might have prose-
cutorial discretion not to enforce the Panama Canal Act prohibition
as requested by petitioner. Maj. Op. at 29 note 33. It is difficult to
believe that, in view of the unequivocal statutory prohibition, and
the exclusive jurisdiction of the ICC with respect to rail and water
carriers (49 U.S.C. §5(11)), see B. F. Goodrich Co. v. Northwest
Industries, Inc., 424 F.2d 1349, 1355 (83rd Cir. 1970), such discre-
tion exists. See Adams v. Richardson, 480 F.2d 1159, 1151-58 (D.C.
Cir. 1973). However, even if the Act were interpreted as less than
a mandatory enforcement statute, this Court could still find, and in
my judgment should find, that the ICC’s decision to avoid the man-
date of the law in this instance constituted a “patent abuse of
discretion.” Moog Industries v. FTC, 355 U.S. 411, 414 (1958);
2 K. Davis, Administrative Law 229-39 (2d ed. 1979). See also
Dunlop v. Bachowski, 421 U.S. 560 (1975) ; Medical Committee for
Human Rights v. SEC, 432 F.2d 659, 673 (D.C. Cir. 1972) (“the
decisions of this court have never allowed the phrase ‘prosecutorial
discretion’ to be treated as a magical incantation which auto-
matically provides a shield for arbitrariness”). For these reasons,
I would remand the case to the Commission with instructions to
issue an order stating that the merger is unlawful and, if CSX
49a
The statute prohibits a railroad from acquiring an in-
terest in a water carrier; by any ordinary understanding
of that term, a voting trust is an “interest’’; yet the Com-
mission has determined that it is not; ** and the majority
of this Court has held that, even if it is, the relationship
may be consummated on an interim basis. The statute,
by any ordinary understanding of its language, prescribes
that before the Commission may allow a railroad to
acquire an interest in a water carrier it must hold a
hearing; it is clear that Congress meant the hearing to
precede the decision; yet the Commission has not held a
hearing; and the majority of the Court has decided that
a prior hearing is not necessary. The statute explicitly
prescribes that a railroad may not acquire a water carrier
with which it “does or may” compete for traffic; coal is
the most important commodity carried by both companies
and they serve the same areas of the country; yet the
Commission has permitted the current transaction to pro-
refused to comply, to seek enforcement of the order in the district
court.
In any event, the Commission refused to file an enforcement ac-
tion, not on discretionary grounds but on its reading of the
statute. ICC Decision at 3. If that reading is in error, as I think
it is, the appropriate remedy would not be to assume that the agency
might have refused enforcement as a matter of discretion or that
it would have chosen a remedy, such as a fine, inadequate to this
$1 billion transaction, but to remand the case to the Commission
for its own decision in that regard.
%4 See Chairman Eastman’s concurrence in Nicholson, supra, 248
1.C.C. at 68, where he stated in regard to an independent voting
trust:
If, in these circumstances, the New York Central does not have
‘any interest whatsoever’ in Nicholson Universal, then the law
has greater power to deprive language of its plain meaning toa
layman than I believe it has, even if there be left out of con-
sideration the parenthetical clause . . . by which the authors
of the prohibition obviously intended to forestall all legal
quibbles.
See note 5 supra.
50a
ceed without even making inquiry into the competition
question, evidently on the assumption that, notwithstand-
ing a strong likelihood of an adverse effect on competi-
tion, it will ultimately allow the merger; and the majority
of the Court permits the Commission to proceed in its
course.” I believe that the explanations provided for
these deviations from what appear to be perfectly sensible
and straightforward congressional directions are not per-
suasive, and accordingly, I respectfully dissent.
*%° The Court quotes Judge Learned Hand’s warning against
undue reliance on dictionary definitions. Maj. Op. at 23. In this
case, the plain words of the statute are, as I have stated, fully
supported by the purpose of the Act and its history. Moreover,
when, as here, the statutory language is being construed by the
agency in so many respects to mean something other than what the
words appear plainly to convey, one must wonder both as to the
correctness of the interpretation and the basis for the error. The
Commission appears to have been led by its zeal for avoiding an
interference with “the workings of the marketplace” (ICC Decision
at 1) to wrench the language of the law out of its natural shape.
See note 31 supra. I do not believe that the principle of deference
to administrative construction compels us to acquiesce in the Com-
mission’s interpretations.
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ICC DECISION—Filed June 29, 1983
EC Service Date July 1, 1983
INTERSTATE COMMERCE COMMISSION
Finance Docket No. 30215
WATER TRANSPORT ASSOCIATION—PETITION FOR
DECLARATORY ORDER—AMERICAN COMMERCIAL LINES
VOTING TRUST
Decided: June 29, 1983
Beneficial ownership by a railroad of a water carrier’s
stock, held in a valid independent voting trust, does
not constitute an interest in a water carrier pro-
hibited by 49 U.S.C. 11321. Petition for declaratory
order denied.
Richard A. Zellner and Mark E. Staib for petitioner.
Peter J. Nickle’ Eugene Gulland, John W. Snow, and
Mark G. Aron for plicants.
DECISION
BY THE COMMISSION:
By petition filed June 23, 1983, Water Transport Asso-
ciation (WTA) seeks a declaratory order regarding the
proposed acquisition of Texas Gas Resources Corporation
(Texas Gas) by CSX Corporation (CSX). CSX and
Texas Gas have filed a joint reply.
WTA’s petition raises two major issues, one of policy
and the other of law. Generally, it is Commission policy
to avoid interference in the workings of the marketplace
where the law we are to enforce does not require our
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intervention. See Ex Parte No. 332, Voting Trust Rules
(not printed), served October 16, 1979 and Reliance
Group Holdings—Petition—Declaratory Order, 366 I.C.C.
446 (1982).
The legal question we must address is whether 49
U.S.C. 11321 compels us to step in and interfere with the
marketplace. Based upon our analysis of the facts, we
answer no. As the term “interest” is used in 49 U.S.C.
11321, CSX has no prohibited interest in a water carrier.
According!y, WTA’s petition will be denied.
BACKGROUND
CSX, a non-carrier holding company, was organized to
be the surviving corporation in the merger of Chessie
System, Inc., and Seaboard Coastline Industries, Inc.,
CSX—Control—Chessie and Seaboard C.L.I., 363 I.C.C.
518, 528 (1980). It owns and operates one of the na-
tion’s largest railroad systems and has various non-
carrier subsidiaries.
Texas Gas, a natural resources company, conducts regu-
lated water carrier operations through certain wholly-
owned subsidiaries. Texas Gas owns all outstanding stock
in Texas Gas Transmission Company (TGT). TGT solely
owns American Commercial Lines, Inc. (ACL), which in
turn wholly owns American Commercial Barge Lines,
Inc. (ACBL), a certificated water common and contract
carrier.
On June 9, 1983, CSX commenced a tender offer for
Texas Gas stock as part of an overall Agreement and
Plan of Merger between CSX and Texas Gas.'
Because of statutorily-mandated restrictions on a rail-
road’s acquisition of control of, or an interest in, a regu-
1 Previously, on June 6, 1983, Coastal Corporation had com-
menced a tender offer for Texas Gas Stock which it subsequently
withdrew.
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lated water carrier, except by authorization of this Com-
mission (49 U.S.C. 11343 and 11321), TGT, CSX, and
Midlantic National Bank of Newark, NJ, as voting trus-
tee, entered into an independent voting trust agreement
with respect to ACL’s stock. The agreement was submit-
ted to this Commission on June 10, 1983. After con-
sultation with the Commission’s staff pursuant to the
informal procedures established by our Voting Trust
Guidelines, 49 C.F.R. Part 1013, the agreement was modi-
fied slightly and resubmitted on June 14, 1983.
POS: .fONS OF THE PARTIES
WTA. In its petition, WTA argues that CSX’s pro-
posed acquisition of Texas Gas and its water carrier sub-
sidiaries would violate 49 U.S.C. 11321(a) (1)* and that
the voting trust for ACL stock is insufficient to cure the
illegality. It asserts that an independent voting trust
entered into in compliance with our Voting Trust Guide-
lines merely prevents a carrier from acquiring unau-
thorized control of another carrier in violation of 49
U.S.C. 11343. WTA contends that CSX’s position with
respect to the voting trust certificate, however, is an
“interest” in a water carrier prohibited by 49 U.S.C.
11321. It states that this Commission has never held
that use of a voting trust is sufficient to avoid a viola-
tion of section 11321. Further, it argues that our only
reported decision involving use of a voting trust found
2 This section provides that: “Notwithstanding sections 11348
and 11344 of this title, 4 carrier or a person controlling, controlled
by, or under common control with a rail, express, sleeping car, or
pipeline carrier providing transportation subject to the jurisdiction
of the Interstate Commerce Commission under subchapter I of
chapter 106 of this title may not own, operate, control, or have an
interest in a water common carrier or vessel carrying property or
passengers on a water route with which it does or may compete
for traffic.” The Commission may, however, authorize interests
prohibited by subsection (a) (1) in certain circumstances, as speci-
fied in 49 U.S.C. 11821(b).
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the use of the trust to be insufficient to avoid violation
of section 11321, citing Nicholson Universal S.S. Co.
Ownership, 248 I.C.C. 43 (1941). Therefore, WTA re-
quests that we issue a declaratory order finding that the
voting trust is insufficient to avoid unlawful acquisition
of an interest in a water carrier by CSX in the event
CSX acquires an interest in Texas Gas.
WTA contends also that the financial interest in ACL
proposed to be acquired by CSX would enable CSX to
influence water carrier competition and CSX will have
a financial incentive to quote more favorable rail rates
for connections with ACBL than with other barge lines.
Further, WTA asserts that section 11321 applies to un-
regulated as well as to regulated water carriers, but that
the voting trust agreement does not extend to unregulated
water carrier operations by Texas Gas or its subsidiaries.
CSX and Texas Gas. CSX and Texas Gas assert that
this Commission can only make a finding regarding a vio-
lation of section 11321 after a full hearing to determine
the facts. They argue that WTA’s petition is an attempt
to secure a determination regarding an alleged violation
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