Opposition Brief — Crounse Corp. v. Interstate Commerce Commission

: hee ae.

) af SEP 16 19F

Nos. 85-2133 and 86-134

IN THE

Supreme Court of the United States

OCTOBER TERM, 1986

CROUNSE CORPORATION, et al.,

Petitioners,

Vv.

INTERSTATE COMMERCE COMMISSION, et al.,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals for the Sixth Circuit

BRIEF FOR RESPONDENTS CSX CORPORATION

AND AMERICAN COMMERCIAL LINES, INC.

IN OPPOSITION

MARK G. ARON R. EDEN MARTIN

ALAN A. RUDNICK (Counsel of Record)

CSX Corporation G. PAUL MOATES

_ One James Center CARTER G. PHILLIPS

Richmond, Virginia 23219 VINCENT F. PRADA

MICHAEL L. HARRIS SIDLEY & AUSTIN

MICHAEL A. KHOURI 1722 Eye Street, N.W.

American Commercial Washington, D.C. 20006

Lines, Inc. (202) 429-4000

1701 East Market Street

Jeffersonville, Indiana 47130

Counsel for Respondents

CSX Corporation and American Commercial Lines, Inc.

September 16, 1986

WILSON - Eres Printinc Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001

QUESTIONS PRESENTED

1. Whether the Court of Appeals correctly held that

the Panama Canal Act authorizes the Interstate Com-

merce Commission (“ICC”) to approve a railroad’s ac-

quisition of a competing barge carrier when it concludes,

after a full hearing and on the basis of extensive evi-

dence, that the transaction will not reduce competition

on affected water routes or enable the merged carrier

to increase rates or exclude competitors.

2. Whether the Court of Appeals correctly held that

the ICC’s factual findings and legal conclusions relating

to the competitive effects of a proposed rail-barge con-

solidation were consistent with the Panama Canal Act

and supported by substantial evidence.

(i)

TABLE OF CONTENTS

Page

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I cas sncncnenenenonsente 2

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D. The Court of Appeals Decision ......0000.......020002.... i)

E. The Annual Oversight Proceeding ..................... 11

lp SS 11

SEC 22

APPENDIX A: STATEMENT REQUIRED BY

gE la

APPENDIX B: DECISIONS OF THE INTER-

STATE COMMERCE COMMIS-

SION APPROVING RAILROAD

INTERESTS IN WATER CAR-

RIERS PURSUANT TO 49 U.S.C.

I ic sectiintonnisenciochinetisncesneniosinin' 2a

(iii)

iv

TABLE OF AUTHORITIES |

Cases: Page

American Waterways Operators, Inc. v. United

States, 386 F. Supp. 799 (D.D.C. 1974) (three-

judge court), aff'd sub nom. Water Transport

Association Vv. United States, 421 U.S. 1006

eo | RR ee ey, | eer ere 12,14

Application of Missouri Pacific Railroad Co., 245

Bn RC os 14

Application of Southern Pacific Co., 32 I1.C.C. 690

reseed Bike 14

Crounse Corp. v. ICC, No. 84-3743, et al. (6th Cir.

Na sited mdaianioks 9

Finance Docket No. 30300, CSX pn

Control—American Commercial Lines, Ine.

Co Be een ere 11

Illinois Central Railroad Co.—Control—John I.

Hay Co., ST LOG. SB (i508) ........x.................... 5,18

ICC v. Railway Labor Association, 315 U.S. 373

(NRRL Seti? Rivas. utente omen 22

Investigation of Seatrain Lines, Inc., 206 I.C.C. 328

RN It ee 2 a oS DS 14

Lake Line Applications, 33 I.C.C. 699 (1915), ap-

peal dismissed sub nom. Lehigh Valley Ratiroad

Co. v. United States, 234 Fed. 682 (E.D. Pa.

1916), aff'd, 243 U.S. 412 (1917) -....02 14

United States v. Lowden, 308 U.S. 225 (1939)........ 22

Water Transport Association—FPetition for a

Declaratory Order, 367 I.C.C. 559, aff’d sub nom.

Water Transport Association v. ICC, 715 F.2d

581 (D.C. Cir. 1983), cert. denied, 465 U.S. 1006

I a ads 3

Water Transport Association. v. ICC, 715 F.2d 581

(D.C. Cir. 1983), cert. denied, 465 U.S. 1006

(ERR RR AR EL, A Os OTE ee RE: 3, 9, 12, 13, 14

Statutes and Regulations:

Panama Canal Act of 1912, Ch. 390, 37 Stat.

560 (1912) (presently codified at 49 U.S.C.

MINI scaccciibsalsicactonidgussliicclol't, talbdlacaeticieiaesesclgcbiaainiacapibakaineel passim

Vv

TABLE OF AUTHORITIES—Continued

Page

Transportation Act of 1940, Pub. L. No. 785, 54

kaa ae Renee ene nro ECE 13

8) TIRES RONEN eae ae DRE 21

I ie caeiee 22

Oe Te IN cece acs cconchenententncen 2, 4, 8, 10, 21, 22

SE dE Re NON TE ETS Ee eR 9

ee RES Rect ere IT Le eae 3

Legislative Materials:

H.R. Rep. No. 423, 62d Cong., 2d Sess. (1912) -......... 13

BE le es I FEI cpiccccodcccnsanstctccsicennisieconssoicneasaane 13

cscs cachenccdegdeeceneinen 14

Fe” SF: |) ene nee eee 14

GD Ce, TE, Be CPD ance trekeneneeceenes 14

Be STs I OD iciiciiccnneckdecenccicinscatcncenosoces 14

Ge GE, TR, TIE CID ences eciisenenisinceceeencccasccenvesacs 14

a i ls Ie I i oaieic nce chcnsdicecsncesnncecoemnn 14

ee Ss is UN RID eckcekccecssmstitessssvinocniinnoniantnne 14

IN THE

Suprenve Court of the United States

OCTOBER TERM, 1986

Nos. 85-2133 and 86-134

CROUNSE CORPORATION, et al.,

Petitioners,

We

INTERSTATE COMMERCE COMMISSION, et al.,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals for the Sixth Circuit

BRIEF FOR RESPONDENTS CSX CORPORATION

AND AMERICAN COMMERCIAL LINES, INC.

IN OPPOSITION

CSX Corporation (“CSX”) and American Commercial

Lines, Inc. (“ACL”) oppose the petition of Crounse Cor-

poration, et al. (in No. 85-2133) and the cross-petition

of Patrick W. Simmons (in No. 86-134) for a writ of

certiorari to review the judgment of the United States

Court of Appeals for the Sixth Circuit in this case.?

1In accordance with Rule 28.1 of the Rules of this Court, the

subsidiaries and affiliates of CSX and ACL are set forth at page

la of the Appendix hereto.

9

_

STATEMENT

A. The Panama Canal Act

The Panama Canal Act of 1912, Ch. 390, 37 Stat. 560,

566 (1912) (presently codified at 49 U.S.C. § 11321 and

referred to hereinafter as the “Act”) imposes certain

restrictions on railroad ownership of water carriers. Sec-

tion 11321(a) provides generally that a railroad may not

own an interest in or control a “water common carrier”

with which the railroad “does or may compete for traf-

fic.” Section 11321(b), however, expressly authorizes the

ICC to approve such a rail interest in a competing water

carrier when it finds, after a full hearing, that the com-

mon ownership (1) “will still allow competition, without

reduction, on the water route in question,” and (2) will

still allow the water carrier “to be operated in the public

interest advantageously to interstate commerce.” * The

Act delegates to the ICC exclusive authority to decide

“questions of fact related to competition.”

B. Initial Proceedings

This case involves CSX’s acquisition of ACL as part

of CSX’s acquisition in 1983 of Texas Gas Resources

Corporation (“Texas Gas’), ACL’s parent company.

CSX is a holding company that operates a railroad sys-

tem, while ACL controls American Commercial Barge

Line Company (“ACBL”), a certificated barge carrier.

Because the transaction would bring under common con-

trol a railroad and a water carrier, it required an ICC

determination under the Panama Canal Act.®

2The ICC does not have authority under Section 11321(b) to

approve a railroad’s interest in a competing water carrier if it

provides service through the Panama Canal. This absolute prohibi-

tion is not involved in the instant case.

% Because ACBL is an ICC-regulated water carrier, CSX’s acquisi-

tion of ACL also required ICC approval under 49 U.S.C. § 11344(d).

Under this provision the ICC is required to approve a transaction

involving the merger, consolidation or control of at least two regu-

3

In order to prevent CSX from exercising control of

ACL prior to ICC review of the consolidation, CSX and

Texas Gas agreed to deposit the stock of ACL in an in-

dependent voting trust pursuant to ICC regulations. 49

C.F.R. § 1013. The ICC rejected a challenge brought by

the Water Transport Association (a petitioner herein)

to the voting trust arrangement.* In sustaining the ICC’s

voting trust decision, the D.C. Circuit examined at

length the legislative history and purposes of the Act.

The court rejected the claim that the Act embodies a

strict prohibition of rail-barge combinations, and specif-

ically held that “Congress clearly expected rail carriers

to be able, with ICC approval, to acquire competing water

carriers.” 715 F.2d at 590.

On November 4, 1983, CSX and ACL filed a joint

application seeking ICC approval of the transaction. The

ten-volume application presented detailed evidence Je n-

onstrating that the proposed CSX/ACL consolidation

would offer many significant operating and marketing

benefits and would have no adverse effects on competition.

The case was assigned to an administrative law judge,

who held lengthy evidentiary hearings on the application.

In all, the proceeding generated an extensive 15,000-page

record, including over 200 verified statements of wit-

nesses, 5,800 transcript pages and hundreds of written

comments and letters by interested parties. In the course

of these proceedings, the CSX/ACL application attracted

lated carriers (other than two class I railroads) unless the ICC

finds that (1) “as a result of the transaction, there is likely to be a

substantial lessening of competition, creation of a monopoly, or

restraint of trade in freight surface transportation in any region

of the United States,” and (2) “the anticompetitive effects of the

transaction outweigh the public interest in meeting significant

transportation needs.”

4 Water Transport Association—Petition for a Declaratory Or-

der, 367 I.C.C. 559, aff'd sub nom. Water Transport Association

v. ICC, 715 F.2d 581 (D.C. Cir. 1983), cert. denied, 465 U.S. 1006

(1984).

4

the support of over 260 private and public organizations

(Pet. App. 63a-66a, 160a-162a). In addition, the pro-

posed transaction was actively supported by the U.S.

Department of Transportation.°

C. The ICC’s Final Decision

The ICC unanimously approved the CSX/ACL consoli-

dation in a decision served September 7, 1984 (Pet. App.

47a-210a). In a lengthy opinion, the ICC concluded that

the transaction satisfied the requirements of the Act and

of Section 11344(d) because it would result in no harm

to, or reduction in, competition and would yield signifi-

cant benefits to the shipping public.

1. Section 11321(b): Competition. The ICC first ad-

dressed the competition standard of the Panama Canal

Act. The ICC found that, although CSX and ACL com-

peted with one another sufficiently to bring the transac-

tion within the provisions of Section 11321(a) (Pet.

App. 91a-93a),° the consolidation of the two carriers

would not violate the Act because, under Section 11321(b),

the transaction would result in no reduction in competi-

tion “on the water route in question” (Pet. App. 93a-

121la).

The ICC determined that the appropriate inquiry un-

der the “competition, without reduction” standard in Sec-

* The U.S. Department of Justice, which also participated in the

ICC proceedings, took no position with respect to the merits of

the specific CSX/ACL transaction but proposed in its written com-

ments the framework ultimately adopted by the ICC for analyzing

the competition issues under the Act (Pet. App. 70a).

* The ICC based its finding that CSX and ACL competed on the

fact that the two carriers could physically serve a number of com-

mon points, and on evidence that the two carriers had competed

head-to-head for several specific movements. The ICC found, how-

ever, that this competition between CSX ind ACL was “modest,”

due to the significant cost advantage that bargelines (including

ACL) enjoy over railroads for traffic originating or terminating

within an area stretching from 25 to 200 miles inland from the

navigable rivers (Pet. App. 102a).

5

tion 11321(b) was whether the CSX/ACL consolidation

would impair competition by creating or enhancing op-

portunities for the merged entity to exercise market

power, defined as the ability to raise rates above com-

petitive levels or to exclude competitors (Pet. App. 86a-

87a). The ICC concluded that this analytical approach,

which was endorsed by the Department of Justice (Pet.

App. 175a-177a), fully vindicated the policy of the Act,

which was designed “to protect shippers from actions

that result in non-competitive prices for transportation

services, not to protect individual barge competitors”

(Pet. App. 94a).?

Applying this analytical framework, the ICC decided

to “focus” on barge transportation in assessing the poten-

tial competitive effects of the CSX/ACL consolidation

(Pet. App. 89a). The ICC found that this focus was

required by the Act, which instructs the ICC to examine

the competitive effects of rail-barge combinations “on the

water route in question,” and was also supported by the

evidence, which revealed that competition between rail-

roads and barges was generally limited due to the higher

cost structure of the railroads (Pet. App. 87a-88a).

Turning to an examination of the competitive struc-

ture of the inland waterways market served by ACL, the

ICC concluded that “the record amply demonstrates that

the barge industry today is highly competitive” (Pet.

App. 94a). The ICC noted that “literally hundreds” of

independent firms operate on the inland waterways

served by ACL, and no single firm accounted for more

than seven percent of the barge traffic (Pet. App. 94a,

97a). ACL accounted for a mere 6.54 percent of the

tonnage carried by inland barge carriers in 1981 (Pet.

7 The ICC disavowed language in one of its earlier decisions which

suggested that the pre. 2rvation of competition in a particular mar-

ket was synonymous with the preservation of the position of in-

dividual competitors within such markets (Pet. App. 80a-8la). See

Illinois Central Railroad Co.—Control—John I. Hay Co., 317 1.C.C.

39, 52 (1962).

6

App. 97a-98a). Based on these data and other measures

of market concentration,* the ICC found that the barge

industry was unconcentrated and “highly competitive”

(Pet. App. 97a, 101a). In addition, the ICC found that

the barge industry was characterized by ease of entry

and exit, making potential competition an effective ad-

ditional constraint on carrier action (Pet. App. 107a-

115a). No carrier, including ACL, could exercise market

power given the intensity of existing and potential

competition.

The ICC concluded, moreover, that the CSX/ACL con-

solidation would not reduce this intense competition or

enable the combined CSX/ACL to exercise market power

by raising rates or excluding competitors. In its analysis,

the ICC addressed the two ways in which opponents of

the CSX/ACL consolidation claimed that the transaction

could harm competition (Pet. App. 10la). First, oppo-

nents argued that, by eliminating ACL as an independent

competitor of CSX, the merger could increase market

concentration where the two carriers had previously com-

peted. Second, opponents claimed that the consolidation

might enable CSX/ACL to engage in predatory practices

having the effect of eliminating other independent barge

competitors, thereby permitting CSX/ACL to charge

higher-than-competitive rates. The ICC fully examined

each of these potent’ 1] adverse effects and found that nei-

ther would occur.

First, the ICC found that the elimination of ACL as

an independent competitor of CSX (the reduction by one

in the large number of competitors) would not reduce

competition (Pet. App. 102a-103a). Although CSX and

8 The ICC employed the Herfindahl-Hirschman Index, a measure

of market concentration used by the Department of Justice to

evaluate the potential competitive effects of corporate mergers.

The ICC found that the Index for the barge industry was 172,

far below the Justice Department’s threshold of 1000 for mergers

that pose even the possibility of anticompetitive effects (Pet. App.

99a).

7

ACL competed with one another to a limited extent, the

ICC determined that the small increase in concentration

resulting from their consolidation would not affect the

vitality of competition because the transaction would

“still leave hundreds of firms as active competitors,” well

above the number needed to preserve effective competition

and preclude the exercise of market power (Pet. App.

103a).

Second, the ICC found that a combined CSX/ACL

would not be able successfully to undertake predatory

practices to eliminate independent barge competitors

(Pet. App. 103a-120a). The ICC concluded that CSX/

ACL would have neither the ability nor the incentive to

divert CSX-originated rail traffic from independent barge

carriers to ACL unless CSX/ACL could offer shippers

better service and lower rates (Pet. App. 104a-105a,

116a-119a). The ICC noted that the transaction could

result in some efficiency-related traffic diversions, but

such diversions would be small and in any event would

not impair the ability of independent bargelines to op-

erate effectively (Pet. App. 117a-119a).° The ICC also

found that the competitive nature of the barge industry

would prevent CSX and ACL from successfully undertak-

ing a strategy of predatory pricing (Pet. App. 106a-

115a). The ICC explained that even if a combined CSX/

ACL were to reduce its rates below competitive levels in an

attempt to drive competitors out of business, it could never

successfully raise its rates to monopoly levels and recoup

its losses because independent bargelines would always be

ready and able to enter the market and prevent rates

from rising above competitive levels..° The ICC also

* Thus, petitioners’ statement that the ICC found that CSX/ACL

would divert traffic from independent barge carriers is seriously

misleading (Pet. 6). As the ICC made clear, such diversions could

occur only if CSX/ACL were able to offer shippers better service

and cheaper rates than its competitors—a result that is entirely

pro-competitive and in the public interest (Pet. App. 119a).

10 In this connection the ICC found that the inland barge industry

was characterized by relative ease of entry and exit, low economies

8

examined and rejected claims that a merged CSX/ACL

could successfully pursue various types of rate manipula-

tion designed to eliminate barge competitors (Pet. App.

115a-119a, 190a).

In sum, the ICC made reasoned findings that the CSX/

ACL consolidation would not result in any reduction in

competition “on the water route in question,” would not

enable the merged system to exercise market power by

raising rates above competitive levels and would not im-

pair the ability of independent bargelines to compete.

2. Section 11321(b): Public Advantage. The ICC also

concluded that the proposed CSX/ACL consolidation satis-

fied the “public advantage” standard of Section 11321(b)

(Pet. App. 120a-121a). The ICC observed that this test

was “closely related” to the competition standard because

the preservation of effective barge competition, and the

rate and service advantages that such competition fosters,

further the public interest and promote interstate com-

merce. In any event, the ICC also found that the trans-

action would affirmatively benefit the shipping public by

enabling the merged carrier to provide expanded single-

system service to shippers, achieve cost savings and effi-

ciencies and initiate innovative marketing strategies, all

of which would be pro-competitive (Pet. App. 121a, 143a-

145a) .™

3. Oversight and Reporting Conditions. Even though

the ICC expressed confidence that its “economic analyses

... are accurate” (Pet. App. 120a), and that the trans-

of scale and high mobility and substitutability of equipment—con-

ditions which would render attempted predatory pricing and other

anticompetitive practices futile (Pet. App. 107a-115a).

11 The ICC also approved the proposed CSX/ACL consolidation

under Section 11344(d). Citing the intense competition facing

CSX and ACL both before and after their combination, the ICC

concluded that the transaction would not substantially lessen com-

petition, create a monopoly or restrain trade in freight surface

transportation in any region of the United States (Pet. App.

122a-127a).

9

action would have no anticompetitive consequences, it took

the extra precaution of imposing certain carefully tailored

conditions, including reporting requirements and annual

oversight hearings for five years, to permit the ICC to

monitor the effects of the consolidation and to ailow in-

terested parties to present any evidence of possible anti-

competitive effects (Pet. App. 120a, 145a-147a, 208a-

210a). The ICC expressly retained jurisdiction “to take

corrective action if adverse effects should materialize”

(Pet. App. 120a) .¥*

D. The Court of Appeals Decision

A divided court of appeals affirmed the ICC’s decision

(Pet. App. la-4la).%* The court found that the ICC’s

approval of the CSX/ACL consolidation was based on a

correct construction of the applicable statutes and fully

supported by the record evidence.

Consistent with the decision of the D.C. Circuit in

Water Transport Association, 715 F.2d 581, the court be-

low rejected petitioners’ claim that the Panama Canal

Act embodies a “strict” prohibition of railroad owner-

ship of barge carriers subject only to the “narrowest” of

exceptions (Pet. App. 5a). Rather, the court held that

the Act was intended to authorize the ICC to approve rail-

barge common ownership when it finds that such owner-

ship would not reduce competition (Pet. App. 6a-1la).

12 The ICC also imposed standard labor protection conditions in

favor of CSX rail employees who might be adversely affected by

the consolidation (Pet. App. 149a-15la). See 49 U.S.C. § 11347.

Consistent with longstanding precedent, however, the ICC declined

to extend such protection to employees of rail carriers not involved

in the transaction (Pet. App. 149a-150a).

13 The CSX/ACL consolidation was consummated on October 11,

1984, when another panel of the court of appeals, following briefing

and oral argument, declined to issue a stay of the ICC’s decision

pending judicial review. Crounse Corp. Vv. ICC, No. 84-3743, et al.

(6th Cir. October 11, 1984). Since that time ACL has been op-

erated by CSX as a separate constituent unit of the CSX trans-

portation network as authorized by the ICC’s order.

10

The court of appeals also rejected petitioners’ specific

claims concerning the ICC’s interpretation and applica-

tion of the Act in the circumstances of this case. The

court held that it was permissible for the ICC to analyze

the effects of the CSX/ACL consolidation on competition

on “the water route in question” by focusing on barge

competition, and it found no merit to petitioners’ conten-

tion that the elimination of competition between CSX and

ACL—“rail-barge competition”—itself required disap-

proval of the application (Pet. App. 1la-13a). The court

also rejected petitioners’ argument that the ICC improp-

erly construed the Act to require a showing that a pro-

posed rail-barge consolidation would actually eliminate

barge competitors before it would be found to run afoul

of the Act; the court held instead that the Act requires

a showing that a particular consolidation would result in

an actual reduction in competition through the elimina-

tion of independent barge carriers, and not “simply harm

to particular bargelines due to intensified competition”

(Pet. App. 14a).

Finally, the court of appeals denied petitioners’ various

challenges to the ICC’s determinations of fact relating

to the competitive effects of the CSX/ACL consolidation

(Pet. App. 15a-21la). Exercising appropriate deference

to the expert agency’s resolution of conflicting evidence,

the court held that the ICC’s findings were “based on a

reasoned and justifiable view of the evidence of record”

(Pet. App. 21a).

14 The court of appeals similarly upheld the ICC’s approval of

the transaction under Section 11344(d), and addressed several

procedural issues (Pet. App. 22a-3la). In particular, the court

sustained the ICC’s decision not to impose labor protection condi-

tions for the benefit of non-CSX rail employees, and held that Sec-

tion 11344(d) does not require the ICC to consider the interests

of such employees in approving the transaction (Pet. App. 24a-

26a).

15 Judge Timbers dissented from the court of appeals’ decision.

Although agreeing with the majority that the Act does not estab-

11

E. The Annual Oversight Proceeding

Pursuant to the oversight and reporting conditions im-

posed as part of its decision approving the CSX/ACL

consolidation, the ICC recently completed its first formal

proceeding to examine the competitive effects of the trans-

action and CSX/ACL’s compliance with the Act. The

ICC had invited interested members of the public to sub-

mit comments on these issues. On the basis of these sub-

missions, which included dozens of comments by shippers

supporting the services offered by CSX/ACL (and not a

single shipper comment in opposition), the ICC recently

issued a report unanimously finding that the CSX/ACL

consolidation has not diminished competition but in fact

“has increased beneficial competition by allowing CSX

and ACL to introduce new intermodal price and service

options.” ** The ICC therefore concluded that there was

no need to reopen the CSX/ACL consolidation proceeding.

ARGUMENT

The decision of the court of appeals is correct, does

not conflict with any other decision by this Court or any

other court, and raises no substantial question of federal

law. Accordingly, review by this Court is not warranted.

1. At issue in this case is the proper interpretation

and application of the Panama Canal Act of 1912, which

lish an absolute prohibition of railroad ownership of bargelines,

Judge Timbers believed that the ICC had misapplied the Act in

the particular context of the CSX/ACL transaction (Pet. App.

33a). In particular, Judge Timbers disagreed with the ICC’s de-

cision to focus its competitive analysis of the transaction on barge

competition and, based on his own reweighing of the evidence and

assessment of the record before the ICC, disagreed with the ICC’s

finding that the CSX/ACL consolidation would not reduce competi-

tion or result in the elimination of independent barge carriers.

16 Finance Docket No. 30300, CSX Corporation—Control—Ameri-

can Commercial Lines, Inc., at 2 (served August 29, 1986). A copy

of the oversight decision has been lodged with the clerk of this

Court.

12

imposes certain restrictions on rail-barge common owner-

ship. Since its enactment, the Act has seldom been inter-

preted by any court. Indeed, during the past 60 years

only one other court of appeals has construed this rela-

tively obscure statute, and its decision arose out of an

interlocutory proceeding involving the same transaction

at issue in the instant case. Water Transport Associa-

tion, 715 F.2d 581 (sustaining CSX/ACL voting trust

against challenge based on Act). The decision below is

fully consistent with this earlier decision, as the court of

appeals noted (Pet. App. 10a).**

2. Review is also unwarranted because the decision

below raises no substantial federal question warranting

plenary review by this Court. Running throughout all of

petitioners’ arguments before this Court is the claim that

the Panama Canal Act embodies a “strict” prohibition of

railroad ownership of barge carriers, subject only to the

narrowest of exceptions (Pet. 7, 13, 17). The court of

appeals’ rejection of this construction of the Act is demon-

strably correct (Pet. App. 6a-lla). Congress in Section

11321(b) specifically authorized the ICC to allow rail-

roads to own interests in water carriers with which they

compete, if the ICC found that such interests pose no

risks of the anticompetitive harms at which the Act was

aimed. Thus, the plain language of the Act refutes peti-

tioners’ suggestion that the Act embodies a “strict” pro-

hibition of rail-barge interests."* In Water Transport As-

17 The only other judicial decision that has interpreted the sub-

stantive provisions of the Act in the past six decades upheld an

ICC decision authorizing railroad ownership of a barge carrier.

American Waterways Operators, Inc. v. United States, 386 F.

Supp. 799 (D.D.C. 1974) (three-judge court), aff'd sub nom.

Water Transport Association v. United States, 421 U.S. 1006

(1975) (per curiam).

18 Moreover, the plain language of the Act also demonstrates

that Congress knew how to impose a “strict” prohibition of rail-

barge common ownership when it wanted to do so. As previously

noted (note 2, supra), the Act establishes an absolute prohibition

13

sociation, 715 F.2d at 590, the D.C. Circuit, on the basis

of a thorough review of the Act’s history, held that “Con-

gress clearly expected rail carriers to be able, with ICC

approval, to acquire competing water carriers.” *°

The court of appeals’ holding that the Act authorizes

the ICC to approve rail-barge acquisitions that will not

harm or reduce competition is also supported by the pur-

poses and history of the statute. As the court of appeals

explained, the Act was passed in 1912 in response to

concerns that some railroads were using their control of

water carriers to drive out independent water carriers

and divert traffic to their parallel rail lines, thereby de-

priving the public of the rate and service advantages of

water transportation (Pet. App. 7a). Congress was par-

ticularly concerned with predatory pricing— the practice

by which some railroads sought to eliminate competition

from the then-embryonic and struggling barge industry

by acquiring a competing water carrier, reducing its

rates below cost in order to drive out independent water

carriers, and then raising the rates of the railroad-owned

water carrier to supracompetitive levels in order to pro-

tect traffic on the railroad’s higher rated rail lines.”

of railroad ownership of competing water carriers if (and only if)

they provide service through the Panama Canal. For water carriers

(such as ACL) that do not provide service through the Canal,

Congress intended no such absolute ban on railroad ownership but

instead expressly authorized the ICC to approve such joint rail-

barge interests.

19 Contrary to petitioners’ suggestion (Pet. 21), the Transporta-

tion Act of 1940, Pub. L. No. 785, 54 Stat. 898 (1940), reaffirmed

the limited scope of the Act’s prohibition of rail-barge interests by

amending the Act to make clear that the ICC has authority under

Section 11321(b) to approve railroad acquisitions of competing

water carriers and not simply authority to continue rail-barge

interests that preceded the Act. See Pet. App. 10a; Water Trans-

port Association, 715 F.2d at 589-90.

20 As the court below noted, the history of the Act is “replete”

with references to this practice (Pet. App. 7a). See, e.g., H.R.

Rep. No. 423, 62d Cong., 2d Sess. 12 (1912); 48 Cong. Rec. 6,591,

14

Petitioners suggest that the court of appeals erred in

focusing on predatory pricing because some legislators in

1942 cited other types of predatory practices by rail-

roads (Pet. 14). The relevant materials clearly show,

however, that predatory pricing was Congress’ dominant

concern. In any event, petitioners’ assertion misses the

mark because the court of appeals’ point was simply that

the Act was aimed at specific anticompetitive practices

and was not intended as a strict prohibition of all rail-

barge interests.

The court of appeals’ interpretation of the Act is fur-

ther supported by the ICC’s decisions applying the 1912

statute. Those decisions, as the court below observed

(Pet. App. 9a-10a), have consistently given effect to Sec-

tion 11321(b) and contradict the notion that the Act

mandates strict separation of railroads and bargelines.”

Thus, the court of appeals in this case correctly held

that the Panama Canal Act does not embody a strict pro-

hibition of rail-barge common ownership, but instead au-

thorizes the ICC to approve such common ownership

6,715, 9,238, 10,283, 10,873, 10,461, 10,562, 10,575. See also Water

Transport Association, 715 F.2d at 587, 596; American Waterways

Operators, 386 F. Supp. at 803; Lake Line Applications, 33 I.C.C.

699, 7*S (1915), appeal dismissed sub nom. Lehigh Valley Railroad

Co. v. United States, 234 Fed. 682 (E.D. Pa. 1916), aff’d, 242 U.S.

412 (1917).

21 Indeed, the ICC has exercised its authority under Section

11321(b) to approve rail interests in competing water carriers in

at least 34 separate cases since 1912. These decisions are listed at

pages 2a-4a of the appendix hereto. Many of these decisions

involved railroad interests in substantial water carrier operations.

See, e.g., Application of Missouri Pacific Railroad Co., 245 I.C.C.

143 (1941) (water service between New Jersey and Texas); /n-

vestigation of Seatrain Lines, Inc., 206 I.C.C. 328 (1935) (water

service between New Jersey and New Orleans); Application of

Southern Pacific Co., 32 1.C.C. 690 (1915) (water service between

San Francisco and Panama). Although most of the cases involved

railroad applications to continue their ownership of water carriers

which pre-dated the Act, the standard applied by the ICC was the

same as that applied to the CSX/ACL transaction (Pet. App. 79a).

15

when, on the facts before it, it concludes that no reduc-

tion in competition on affected water routes will result.”

This holding, which is supported by the language, his-

tory and judicial interpretation of the Act, plainly does

not warrant reexamination by this Court.

3. In addition to their broad but erroneous contention

that the Panama Canal Act imposes a strict prohibition

of railroad ownership of bargelines, petitioners allege

that the ICC made inadequate findings in the specific fac-

tual context of the CSX/ACL consolidation and that the

court of appeals erroneously sanctioned those findings.

Petitioners’ claims—which are wholly dependent upon the

particular factual record in this case—raise no important

or recurring question of federal law and, in any event,

are without merit.

a. Contrary to petitioners’ sweeping assertions that

the ICC and court of appeals decisions approving the

CSX/ACL consolidation will radically transform the

structure of surface transportation competition (Pet.

9-11), the actual effects of the transaction and the deci-

sions approving it have been and will be quite modest.

The transaction involves a single railroad and a barge

carrier which accounts for less than seven percent of

the traffic carried on the affected water routes (Pet. App.

97a-98a).**> The ICC found, and petitioners do not dis-

pute, that the CSX/ACL consolidation will still leave

“literally hundreds” of independent barge carriers pro-

viding competitive water transportation services on the

inland waterways served by ACL (Pet. App. 94a). In

22 This interpretation does not, as petitioners suggest (Pet. 23),

render the Act meaningless. The Act itself requires the ICC to

consider rail-barge interests on a case-by-case basis, a flexibility

which the court of appeals correctly noted was deliberate (Pet.

App. 10a-1la).

23 ACL’s operating revenues in 1982 (the most recent year for

which the ICC had financial data) were only $193.1 million (Pet.

App. 206a), a relatively modest amount by United States industria!

standards.

16

addition, the ICC found that potential competition from

new entrants would further constrain the actions of

CSX/ACL. Moreover, the ICC determined, after a

thorough review of the evidence, that the CSX/ACL con-

solidation would not harm or reduce competition in any

way and would not result in the elimination of competing

barge carriers (Pet. App. 94a-120a). These factual find-

ings are fully supported by the record, and the court of

appeals therefore properly sustained them.”

b. Petitioners contend that the court of appeals erred

by upholding the ICC’s decision to “focus” (Pet. App.

89a) its competitive analysis of the CSX/ACL consolida-

tion on the barge industry and on barge competition

(Pet. 12-23). As the-court of appeals explained in reject-

ing this claim, however, the plain language of the Act

directs the ICC to consider whether the transaction will

reduce competition “on the water route in question”

(emphasis supplied), and “[b]arges, not trains, operate

on water routes” (Pet. App. lla-13a). The ICC’s focus

on barge competition in its evaluation of the competitive

effects of the CSX/ACL consolidation also furthers the

purposes of the Act. As explained above, Congress in

1912 was concerned with possible railroad domination

of barge carriers and with the exploitation of railroad-

owned vessels to drive independent water carriers out

of business. See pages 13-14, supra; Pet. App. 18a; Pet.

15. Because the Act was thus clearly aimed at preserv-

ing barge competition, it was reasonable for the ICC to

focus its competitive analysis of the CSX/ACL consoli-

dation on the barge industry.

Moreover, the evidence and arguments presented to

the ICC in this case also support the Commission’s deci-

24 Stripped to its essentials, the opinion of the dissenting judge

in this case represents a simple disagreement with the ICC’s

findings. The Act entrusts the determination of “facts relating

to competition” to the ICC, however, not to reviewing courts.

17

sion to concentrate its competitive analysis under Sec-

tion 11321(b) on barge competition.» No party, least

of all petitioners, argued before the ICC that the CSX/

ACL consolidation would have an adverse impact on

railroads or impair the ability of independent rail car-

riers to compete. Instead, opponents of the transaction

(including petitioners) alleged that the consolidation

would reduce competition “on the water route in ques-

tion” as a result of either (1) the elimination of ACL

as an independent competitor of CSX or (2) the alleged

ability of the combined CSX/ACL system to eliminate

its independent barge competitors (see Pet. App. 187a-

191a). The ICC carefully examined both of these claims

and found that neither one had merit, given the inten-

sity of existing and potential competition on the inland

waterways (Pet. App. 101a-120a). The court of appeals

therefore properly sustained the ICC’s decision to “focus”

on the barge industry, and petitioners’ continued asser-

tions that the ICC’s findings are inadequate are entirely

without merit.

c. With respect to the first theory raised by opponents

of the CSX/ACL consolidation—that the transaction

would reduce competition on “the water route in ques-

tion” by eliminating competition between CSX and ACL

(whick petitioners characterize as “rail-barge competi-

tion”)—petitioners claim that the ICC “ignored” the

impact of the elimination of ACL as an independent com-

petitor of CSX and that, had this impact been considered,

the Act would have required disapproval of the CSX/

ACL consolidation (Pet. 20). Petitioners’ claim mis-

states the ICC and court of appeals decisions and rests on

a misguided reading of the Act.

*> For example, the ICC determined that the relevant product

market for purposes of competitive analysis was barge competition

(Pet. App. 87a-90a). The court of appeals, noting that market defi-

nition is a factual question to which courts owe the agency “the

greatest deference,” sustained this finding (Pet. App. 16a-17a).

Tr

18

The ICC did consider the loss of competition between

CSX and ACL as part of its examination of the impact

of the CSX/ACL consolidation on barge competition. The

ICC explained that because CSX and ACL competed with .

one another for some traffic, the transaction would neces- |

sarily eliminate this competition and reduce by one the

number of competitors in the areas where CSX and ACL

competed. The ICC concluded, however, that “the mere

consolidation of ACL and CSX will not reduce the num-

ber of competitors sufficiently to create a reduction in |

competition on the water route in question” because hun- .

dreds of independent competitors would remain and pre-

vent any exercise of market power by the merged CSX/

ACL system (Pet. App. 102a-103a) .”

Petitioners’ claim that the ICC ignored rail-barge com-

petition appears to rest on the proposition that the elimi-

nation of the direct competition between the two con-

solidating carriers itself required, as a matter of law, the

disapproval of the merger under Section 11321(b) (Pet.

20). The ICC, however, correctly rejected this view of

the statute, which it logically concluded would render

Section 11321(b) “a nullity” (Pet. App. 188a).*7 If the

elimination of competition between two consolidating car-

riers were sufficient to require a finding of a reduction

of competition under Section 11321(b), then no rail-

——

26 Petitioners thus fundamentally misstate the ICC’s decision

when they assert that the ICC “does not at any point analyze the

impact of the acquisition on competition between CSX and ACL”

(Pet. 20).

27 Petitioners’ argument is based entirely on language from the

ICC’s 1962 decision in John I. Hay Co., 317 1.C.C. 39 (Pet. 19-21).

In rejecting petitioners’ interpretation of the Act, however, the

ICC expressly overruled its earlier decision to the extent that it

suggested that a reduction in competition between the merging

railroad and water carrier itself required disapproval of the trans-

action (Pet. App. 80a-81a). Apart from the language in the John

1. Hay Co. decision cited by petitioners, no other ICC decision sup-

ports petitioners’ radical interpretation of the Act.

19

barge consolidation could ever be approved under that

section because all such transactions by definition in-

volve two carriers that the ICC has found under Section

11321(a) to be direct competitors for traffic. Because all

rail-barge mergers necessarily eliminate the direct com-

petition formerly existing between those two carriers,

petitioners’ view of the Act would effectively nullify Sec-

tion 11321(b), a result clearly contrary to Congress’

express intent to authorize some rail-barge mergers.

The court of appeals, like the ICC, ruled that neither

the degree of competition between CSX and ACL, nor the

mere fact that the proposed transaction would eliminate

this competition, was dispositive with respect to the ap-

proval of the consolidation under the provisions of Sec-

tion 11821(b). The court observed that “[a] reduction

in competition, even a significant one, between a railroad

and a bargeline does not automatically portend a reduc-

tion in competition among the various bargelines” (Pet.

App. 13a). Thus, consistent with the focus of the Act

on preserving barge competition and not individual com-

petitors (Pet. App. 80a-81a, 94a), the court of appeals

reasonably held that what matters is not the reduction

by one in the number of competitors but the effect of

that reduction on barye competition. In this case, more-

over, the ICC found that the elimination of ACL as an

independent competitor of CSX would not reduce com-

petition on the water route in question.

Petitioners nonetheless place heavy reliance on a foot-

note in the court of appeals’ decision, which they read as

a concession by the court that an examination of rail-

barge competition between CSX and ACL would have

required disapproval of the CSX/ACL consolidation (Pet.

20; Pet. App. 5a n.2). That reliance is misplaced. The

court of appeals simply noted that the ICC could not

plausibly have based its Section 1132i(b) determination

of no reduction in competition solely on a finding of

“minimal” competition between CSX and ACL. As the

20

court recognized, however, the ICC did no such thing,

but instead went on to examine in greater detail the

effect of the transaction (and the elimination of compe-

tition between CSX and ACL) on barge competition.

Thus, there is no merit to petitioners’ claim that the

elimination of competition between CSX and ACL re-

quired disapproval of the consolidation under the Act.

To the extent that petitioners’ argument rests on the

proposition that the loss of competition between any two

merging carriers requires an adverse finding regardless

of the effect on barge competition generally, petitioners’

claim is based on a tortured reading of the Act properly

rejected by the ICC and court of appeals. To the extent

that petitioners are instead contesting the ICC’s findings

with respect to the effects on barge competition of the

loss of competition between these carriers, CSX and

ACL, their claim represents nothing more than a dis-

agreement with the ICC’s factual findings, which were

upheld by the court of appeals. In either case, petition-

ers’ claims do not warrant this Court’s attention,

d. Petitioners also object to the ICC and court of

appeals decisions with respect to the second theory ad-

vanced by opponents of the CSX/ACL consolidation—

that the transaction would enable a merged CSX/ACL to

engage in predatory and other anticompetitive practices

designed to eliminate its independent barge competitors.

Specifically, petitioners argue that the court of appeals

erroneously interpreted the Panama Canal Act to allow

the ICC to approve the CSX/ACL consolidation so long

as it would not drive independent barge carriers out of

the market (Pet. 24).

What petitioners ignore is that the Act was intended

to preserve barge competition and not to insulate indi-

vidual water carriers from the burden of competing with

railroad-owned barges. The ICC and court 0° appeals

therefore reasonably construed the Act to require dis-

21

approval of the rail-barge consolidation only when the

transaction would result in actual harm to competition,

and not when the transaction simply causes particular

competitors to experience the routine discomforts associ-

ated with intensified competition (Pet. App. 14a). The

ICC found in this case that the CSX/ACL consolidation

would not injure competition and, in fact, would result

in more efficient and competitive transportation services

(Pet. App. 148a-145a). Petitioners’ protectionist argu-

ments, which merely seek to avoid such enhanced com-

petition, are contrary to the fundamental purposes of the

Act.

e. The ICC’s decision to retain jurisdiction over the

CSX/ACL consolidation and to conduct an annual review

of the competitive effects of the transaction further demon-

strates that review by this Court is not appropriate. The

ICC recently completed its first annual oversight pro-

ceeding, and found no basis for doubting the validity of

its original conclusions concerning the competitive effects

of the consolidation. The ICC’s continued monitoring of

the instant transaction, as well as its review of any fu-

ture rail-barge consolidations on a case-by-case basis as

contemplated by the Act, eliminate any need for inter-

vention by this Court.”

% Denial of review also would not result in a “gap” in antitrust

enforcement as petitioners contend ‘Pet. 17). The Department of

Justice, which is responsible for eiiorcement of federal antitrust

laws, participated in the ICC proceedings and proposed a method-

ology, adopted by the ICC, for assessing the competitive effects

of the CSX/ACL consolidation (Pet. App. 70a). Moreover, the

CSX/ACL consolidation is exempt from the antitrust laws because

of the ICC’s findings under Section 11344(d)—the interpretation

and application of which petitioners have not challenged in this

Court. See 49 U.S.C. § 11341(a).

22

CONCLUSION

The petition for a writ of certiorari in No. 85-2133

and the cross-petition for a writ of certiorari in No. 86-

134 should be denied.”

Respectfully submitted,

MARK G. ARON R. EDEN MARTIN

ALAN A. RUDNICK (Counsel of Record)

CSX Corporation G. PAUL MOATES

One James Center CARTER G. PHILLIPS

Richmond, Virginia 23219 VINCENT F’. PRADA

SIDLEY & AUSTIN

MICHAEL L. HARRIS

American Commercial Washington, D.C. 20006

Lines, Inc. (202) 429-4000

1701 East Market Street

Jeffersonville, Indiana 47130

Counsel for Respondents

CsX Corporation and American Commercial Lines, Inc.

September 16, 1986

29In No. 86-134, “Cross-Petitioner’ Simmons seeks review of

the court of appeals’ decision upholding the ICC’s failure to con-

sider the impact of the CSX/ACL transaction on employees of non-

CSX railroads. The short answer to Simmons’ argument is that

Section 11344(d), on which he bases his claim, contains no require-

ment that the ICC consider the impact of a carrier merger transac-

tion on rail employees, much less employees of railroads not even

involved in the transaction. Cf. 49 U.S.C. §11344(b) (considera-

tion of labor impact required in transactions involving merger of

two or more class I railruads). Simmons relies on ICC v. Railway

Labor Association, 315 U.S. 373 (1942), and United States v.

Lowden, 308 U.S. 225 (1939), but neither case involved Section

11344(d) and neither involved consideration of the interests of

employees not directly affected by the transaction. Accordingly,

the issue raised in the cross-petition is utterly without merit.

APPENDICES

la

APPENDIX A

STATEMENT REQUIRED BY RULE 238.1

Listed below are all parent companies, subsidiaries (ex-

cept wholly-owned subsidiaries) and affiliates of CSX Cor-

poration and American Commercial Lines, Inc.:

Allegheny and Western Railway Company

The Baltimore and Cumberland Valley Rail Road

Extension Co.

The Baltimore and Ohio Railroad Company

The Baltimore and Philadelphia Railroad Company

The Cincinnati Inter-Terminal Railroad Company

Clearfield and Mahoning Railway Company

The Cleveland Terminal and Valley Railroad

Company

Dayton and Michigan Railroad Company

Dayton and Union Railroad Company

The Home Avenue Railroad Company

Mid-Allegheny Corporation

New Gauley Coal Corporation

Richmond, Fredericksburg & Potomac Railroad

Company

Richmond-Washington Company

Sea-Land Corporation *

The Winchester and Potomac Railroad Company

*CSX’s stock interest in Sea-Land Corporation is presently

held in an independent voting trust administered by Midlantic

National Bank as trustee.

10.

Za

APPENDIX B

DECISIONS OF THE

INTERSTATE COMMERCE COMMISSION

APPROVING RAILROAD INTERESTS

IN WATER CARRIERS PURSUANT TO

49 U.S.C. § 11321(b)

Finance Docket No. 30300, CSX Corporation—Con-

trol—_ American Commercial Lines, Inc. (served Sep-

tember 7, 1984), aff'd sub nom. Crounse Corp. V.

ICC, 781 F.2d 1176 (6th Cir. 1986)

Southern Railway Section 5(15) Application, 342

1.C.C. 416 (1972), aff'd sub nom. American Water-

ways Operators, Inc. v. United States, 386 F. Supp.

799 (D.D.C. 1974) (three-judge court), aff'd sub

nom. Water Transport Association v. United States,

421 U.S. 1006 (1975) (per curiam)

Application of Missouri Pacific Railroad Co. and

Texas & Pacific Railway Co., 245 I.C.C. 143 (1941)

Application of Canadian Pacific Railway Co., 225

1.C.C. 81 (1937)

Southern Pacific Company’s Ownership of Atlantic

Steamship Lines, 206 I.C.C. 427 (1935)

Investigation of Seatrain Lines, Inc., 206 1.C.C. 328

(1935)

Peninsular & Occidental Steamship Co., 204 I.C.C.

142 (1934)

Application of Union Lumber Co., National Steam-

ship Co., and California Western Railroad & Naviga-

tion Co., 157 1.C.C. 376 (1929)

New York Harbor Water Facilities Applications, 100

I.C.C. 383 (1925)

Southern Pacific Company’s Ownership of Atlantic

Steamship Lines, 77 I.C.C. 124 (1923)

ta.

12.

13.

14,

15.

16.

17.

18.

19.

20.

21.

22.

23.

24.

25.

26.

27.

3a

Steamer Lines on Long Island Sound, 50 I.C.C. 634

(1918)

Direct Navigation Co., 46 I.C.C. 378 (1917)

Southern Pacific Company’s Ownership of Atlantic

Steamship Lines, 43 I.C.C. 168 (1917)

Steamer Lines from Norfolk to Baltimore, New York,

and Richmond, 41 I.C.C. 285 (1916)

Central Vermont Boat Lines, 40 I.C.C. 589 (1916)

Boston & Maine Boat Lines, 40 I.C.C. 565 (1916)

Maine Central Boat Lines, 40 I.C.C. 272 (1916)

Ashtabula-Port Maitland Car-Ferry Service, 40

I.C.C. 143 (1916)

The Boat “H. B. Plant’, 37 1.C.C. 453 (1915)

Peninsular & Occidental Steamship Co., 37 1.C.C. 482

(1915)

Ocean Steamship Co., 37 1.C.C. 422 (1915)

Southern Pacific Company’s Ownership of Stock in

Sacramento Transportation Co., 34 I.C.C. 648 (1915)

Application of the Duluth, South Shore & Atlantic

Railway Co., Grand Rapids & Indiana Railway Co.,

and the Michigan Central Railroad Co., 34 I.C.C. 229

(1915)

Application of the Chicago & Erie Railroad Co., 34

I.C.C. 218 (1915)

Southern Pacific Company’s Steamboats on the Sac-

ramento River, 34 I.C.C. 174 (1915)

Oregon-Washington Railroad & Navigation Com-

pany’s Ownership of the San Francisco & Portland

Steamship Co., 34 1.C.C. 165 (1915)

Application of the Pere Marquette and Bessemer &

Lake Erie Railroad Companies, 34 I.C.C. 86 (1915)

28.

29.

33.

34.

4a

Application of the Ann Arbor Railroad Co., 34 I.C.C.

83 (1915)

Application of Grand Trunk Western Railway Co.,

34 I.C.C. 54 (1915)

. Application of the Buffalo, Rochester & Pittsburgh

Ratiway Co., 34 1.C.C. 62 (1915)

. Application of the Grand Trunk Railway Co. of

Canada, 34 I.C.C. 49 (1915)

. Oregon-Washington Railway & Navigation Compa-

ny’s Ownership of Steamboats, 33 1.C.C. 658 (1915)

Lake Tahoe Railway & Transportation Company’s

Ownership of a Boat Line on Lake Tahoe, 33 I.C.C.

426 (1915)

Avplication of Southern Pacific Co. in Connection

with Operation of the Pacific Mail Steamship Co., 32

I.C.C. 690 (1915)