Opposition Brief — Southern Pacific Transportation Co. v. Interstate Commerce Commission

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No. 92-1612

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iptak pe - © CLERK

Jn the Supreme Court of the Cited States-——

OCTOBER TERM, 1992

SOUTHERN PACTEIC TRANSPORTATION COMPANY

WD St. LovIS SOUTHWESTERN RAILWAY COMPANY,

PETITIONERS

FY .

INTERSTATE COMMERCE COMMISSION, ET Al

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUTI

BRIEF FOR THE FEDERAL RESPONDENTS

IN OPPOSITION

WILLIAM C. BRYSON

\ching Nolicitor Cre

Department of Justices

Wes hington 1) W530

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ROBERTS. Burt

Greneral Counse

JOHN J. MCCARTHY, IR

Associate General C

LAURENCE H. SCHECKES

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QUESTION PRESENTED

Whether the Interstate Commerce Commission abused

its discretion in adopting a method for calculating how

much a railroad granted trackage rights in an earlier

consolidation proceeding should pay to the railroad that

owned the track.

TABLE OF CONTENTS

Page

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TABLE OF AUTHORITIES

Cases:

Chesapeake & O. Ry. v. United States, 571 F.2d 1190

TN ees cstasenecsatsvasusssndsesercsunecsnanausceeneeseee. 7

Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto.

EG | 7

Nader v. Federal Communications Commission, 520

SE 6-7

National R.R. Passenger Corp. v. Boston & M. Corp.,

BES &. Cl. TGOE (IGOR) ..............0cectessesssecscccseccccceccsssscscese 7-8

Seaboard Coast Line R.R. vy. United States, 599 F.2d

esos css dsducsssusensesennecevsiousesscessecuacasees 7

Southern Pac. Transportation Co. v. ICC, 736 F.2d 708

(D.C. Cir. 1984), cert. denied, 469 U.S. 1208 (1985) ..... 2, 3, 7,8

Thompson v. Texas M. Ry., 328 U.S. 134 (1946)............... 7

Union Pac. Corp -Control- Missouri Pac.; Western

Pac., 366 1.C.C. 482 (1982), aff’d sub nom. Southern

Pac. Transp. Co. vy. ICC, 736 F.2d 708 (D.C. Cir. 1984,

cert. denied, 469 U.S. 1208 (1985) .........0...000--00-eee eee ee. 23.4.9

Statute:

Staggers Rail Act of 1980, 49 U.S.C. 11244(b)(1)(B) ........ 8

(111)

In the Supreme Court of the Cuted States

OcTOBER TERM, 1992

No. 92-1612

SOUTHERN PACIFIC TRANSPORTATION COMPANY

AND St. LOUIS SOUTHWESTERN RAILWAY COMPANY,

PETITIONERS

Us

INTERSTATE COMMERCE COMMISSION, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

BRIEF FOR THE FEDERAL RESPONDENTS

IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. la-3a)

is unpublished, but the decision is noted at 978 F.2d

745 (Table). The decisions of the Interstate Com-

merce Commission (Pet. App. 7a-199a) are reported at

1 1.C.C.2d 776, 4 1.C.C.2d 668, 5 [.C.C.2d 525, 8 1.C.C.2d

80, and 8 1.C.C.2d 213.

JURISDICTION

The judgment of the court of appeals (Pet. App. 1a)

was entered on October 30, 1992. A petition for

rehearing was denied on January 6, 1993. Pet. App. 4a.

(1)

2

The petition for a writ of certiorari was filed on April

6, 1993. The jurisdiction of this Court is invoked

under 28 U.S.C. 1254(1),

STATEMENT

1. More than ten years ago, the ICC approved, and

the United States Court of Appeals for the District of

Columbia Circuit affirmed, the consolidation of the

Union Pacific Railroad Company, the Missouri

Pacific Railroad Company (MP), and the Western

Pacific Railroad Company (collectively, UP) in light

of the substantial public benefits that would accrue

from the transaction. Union Pac. Corp. - Control -

Missouri Pac.; Western Pac., 366 I.C.C. 462 (1982)

(UP Control), aff’d sub nom. Southern Pac. Transp.

Co. v. ICC, 736 F.2d 708 (D.C. Cir. 1984) (Southern

Pacific), cert. denied, 469 U.S. 1208 (1985). The

Commission determined that the potential anti-

competitive effects of the consolidation could be

allayed by granting the applications of several

competing railroads for trackage rights to operate

their trains over portions of the new consolidated

system. E.g., UP Control, 366 1.C.C. at 567, 578, 586.

Of relevance here, petitioners were awarded trackage

rights over MP’s lines between Kansas City and St.

Louis, Missouri. The object of the award was to

permit the establishment of a new competitive route

in the central transportation corridor between the

West Coast and St. Louis.

The parties to the consolidation proceeding were

unable to agree on compensation for the trackage

rights during the pendency of the merger proceeding.

Nonetheless, the Commission required that the

grantees of trackage rights be permitted to com-

mence operations upon consummation of the consoli-

dation. UP Control, 866 LC.C. at 590. The Commis-

sion directed the parties to attempt to resolve the

compensation disputes on their own (subject to the

[CC’s approval), or return to the agency if they were

unable to do so. Jd. at 589. As guidance to the parties,

the Commission stated that “terms so onerous to the

[grantees] as to defeat the purpose of the trackage

rights cannot be considered just and reasonable.” /d.

at 590. On appeal, the District of Columbia Circuit

rejected petitioners’ claim that the ICC’s refusal to

set compensation terms for the trackage rights

before such operations began undermined the Com-

mission’s decision. Southern Pacific, 736 F.2d at 721.

The court observed that “{t]he ICC has in fact

guaranteed that it will see to the proper functioning

of the trackage rights.” /bid.

2. Of all the carriers awarded trackage rights over

UP as a condition of approval of the consolidation,

petitioners alone were unable to reach agreement

with UP on the compensation to be paid and asked the

Commission to fix the terms. In the proceedings

below, the Commission devised a formula for calculat-

ing the monthly compensation to be paid by peti-

tioners for the Kansas City-to-St. Louis trackage

rights. Under that formula, petitioners were re-

quired to pay UP an amount reflecting (1) the costs

caused by petitioners’ operations over the line; (2) a

usage-based proportional share of the overhead main-

tenance and operating costs and taxes; and (3) a

usage-based proportional share of a “rental” based on

the value of the line. See generally Pet. App. 155a-

165a (describing methodology).

The major disputes in the compensation proceed-

ings concerned the choice of an investment base, the

measure of the rate of return, and petitioners’ ability

to provide the sort of competitive service envisioned

by the Commission in imposing the trackage rights

condition. Throughout the proceedings, the Commis-

sion remained cognizant of the underlying principle,

stated in UP Control, 366 1.C.C. at 590, that it would

assure that the terms of the trackage rights agree-

ment would not be so onerous as to defeat its purpose.

Pet. App. 12a, 93a, 136a-140a, 149a-151a, 164a, 194a-

196a. As the Commission observed (Pet. App. 98a):

We have approached this [methodology] trying to

balance two interests: needed competition in the

central corridor promoted by just and reasonable

compensation terms; and rational compensation to

the owning road.

We believe our revisions to the formula recon-

cile these goals, and we find the compensation

terms just and reasonable. * * * By placing the

renter in the same position as the owner, we be-

lieve we have achieved our goal of assuring a com-

petitive relationship between the two systems on

the line.

In addition, the ICC specifically explained (Pet. App.

15la) (citations omitted) why its methodology was

consistent with its guidance to the parties in the

original UP Control proceeding:

In permitting the transaction to go forward with-

out the compensation issue resolved, we guaran-

teed that if we were required to set compensation

because of the. inability of the parties to agree, the

terms of the trackage rights would not be “so

onerous to the tenant as to defeat the purpose of

the trackage rights.” We did not represent that

we would establish terms so favorable to |peti-

tioners| as to ensure their willingness to operate

the rights we provided. The methodology we have

developed in the Compensation decisions, as

clarified here, establishes reasonable terms for

|petitioners’| use of the involved trackage rights.

[Petitioners] halve] no right to expect us to

establish compensation on a basis that is less than

reasonable. Our refusal to do so can hardly be

deemed “to defeat the purpose of the trackage

rights.” The competitive opportunity created by

the trackage rights grant was intended to miti-

gate the competitive harms that might otherwise

have been occasioned by the UP/MP/WP consoli-

dation.

In a footnote, the Commission explained (Pet. App.

lola n.13):

“We have said on numerous occasions that we

protect competition, not competitors.” Union

Pacific Corp., et al. - Cont. -MO-KS-TX Co., ef

al., 4 1.C0.C.2d 409, 460 (1988). “Our primary con-

cern is protecting competition. Transfers of

traffic among competing carriers are not grounds

for rejection of a proposal or imposition of

conditions unless a carrier’s ability to provide

essential services is threatened.” Rio Grande

Industries, et al. - Pur. & Track. -CMW Ry. Co.,

5 1LC.C.2d 952, 968 (1989). “{A] showing of

expected substantial harm to a particular com-

6

petitor as a result of a transaction is not equiva-

lent to a showing of harm to competition. For

example, a rail or truck competitor might lose

traffic precisely because a transaction promises

the significant public benefit of a new, more

improved transport alternative. Harm to the

competitor would not be grounds for rejection of a

proposal or imposition of conditions unless a

carrier’s ability to provide essential services is

threatened.” Rio Grande Ind., Inc.- Pur. &

Track. - Soo Line R. Co., 6 1.C.C.2d 854, 875 (1990)

(emphasis in original). See also Canadian

Pacifie Ltd. - Pur. & Trackage - D&H Ry. Co., 7

1.C.C.2d 95, 112 (1990).

»

3. In this action, petitioners sought review of the

ICC’s compensation decisions in the D.C. Circuit.

They claimed that the ICC’s compensation methodol-

ogy would not allow them to compete with UP and

therefore would not serve the purpose for which

trackage rights had been awarded in the consolidation

proceeding. UP also petitioned for review, challeng-

ing several technical aspects of the [CC’s methodol-

ogy. The court of appeals denied the petitions for

review in an unpublished per curiam opinion. Pet.

App. ja-38a. It observed that the ICC based its

decisions on “vast amounts of technical evidence” and

“reevaluati[ed| and reformulatied] its decisions in

light of the objections of the petitioners and the

production of new evidence.” Pet. App. 3a. The court

concluded that petitioners were required “nof merely

to put forth an-acceptable alternative but rather to

demonstrate clearly and convincingly a fatal flaw in

the action taken,” ‘bid. (quoting Nader v. Federal

7

Communications Commission, 520 F.2d 182, 195

(1).C. Cir. 1975)), and had failed to meet that burden.

ARGUMENT

The court of appeals’ decision is correct and does

not conflict with any decision of this Court or any

other court of appeals. Further review is therefore

not warranted.

1. Petitioners seek to overturn the ICC’s exercise

of its expert judgment in fashioning a methodology

for computing the compensation to be paid by the

tenant (petitioners) to the landlord (UP) for trackage

rights awarded as a condition of the approval of a

railroad consolidation. As the court of appeals cor-

rectly recognized (Pet. App. 3a), petitioners bear a

heavy burden. The methodology implements a condi-

tion imposed by the ICC when it approved UP Con-

trol. The ICC is afforded great leeway in ensuring

the proper operation of its orders and the conditions it

imposes, as the court of appeals recognized in the

decision approving the consolidation at issue heré>

Southern Pacific, 736 F.2d at 721; see also Seaboard

Coast Line R.R. v. United States, 599 F.2d 650, 652

(Sth Cir. 1979) (citing Chesapeake & O. Ry. v. United

States, 571 F.2d 1190, 1194 (D.C. Cir. 1977)). Def-

erence is especially appropriate in this case, where

the ICC has developed a methodelogy for determining

the rental to be charged for trackage rights

operations. Thompson v. Teras M. R.Ry., 828 US.

154, 148 (1946). The court of appeals was therefore

correct in according substantial deference to the

ICC's decisions. Pet. App. 2a-8a; see, e.g., Motor

Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins.

(‘o., 468 U.S. 29, 41-42 (1983); see also National RR.

8

Passenger Corp. v. Boston & M. Corp., 112 S. Ct.

1394, 1403 (1992).

2. The court of appeals was also correct in conclud-

ing that the ICC acted within its discretion in

formulating the compensation method for petitioners’

exercise of trackage rights and adequately explained

its reasons for choosing that method. Petitioners’

argument to the contrary is based on two erroneous

premises.

First, petitioners err in suggesting (Pet. 3-4) that

the ICC was required to give overriding considera-

tion to the competitive impacts of the proposed

consolidation under 49 U.S.C. 11344(b)(1)(E) when it

developed the compensation method. As the court of

appeals recognized in affirming UP Control, “the

Staggers [Rail] Act [of 1980] [49 U.S.C. 11344(b)

(1)(E)] is not formally applicable to this proceeding”;

nonetheless, “the Commission elected to adhere to its

policies.” Southern Pacific, 736°F.2d at 715-716. The

court also recognized in affirming UP Control that,

contrary to petitioners’ present assertion (Pet. 21),

nothing in the Interstate Commerce Act or in the

ICC’s merger policy requires that a consolidation be

pro-competitive or prohibits the approval of a con-

solidation that results in a substantial lessening of

competition. See Southern Pacific, 736 F.2d at 716-

717.

Petitioners also err in asserting that the compen-

sation method adopted in this case reflects a

departure from the policy enunciated by the ICC in

imposing the trackage rights condition. Petitioners

mischaracterize the agency’s reason for imposing the

condition. As the ICC explained, the Kansas City-to-

|

9

St. Louis trackage rights were granted not to benefit

petitioners but to allay the anticompetitive impact of

the consolidation of three railroads into the UP

system. Pet. App. 149a-151a (citing UP Control, 566

I.C.C. at 586-589). In particular, the ICC never

undertook to prescribe less than reasonable compen-

sation in order to force UP to underwrite petitioners’

ability to compete. #.g., Pet. App. 154a.

” By formulating a compensation methodology in

these decisions that enables petitioners to compete

with UP, the ICC fulfilled its mandate under the

statute and the court’s decision, and acted consis-

tently with the policies that led to the imposition of

the conditions in UP Control. In addition, as the

court of appeals concluded, the ICC adequately

explained its reasons for adopting the methodology.

Pet. App. 8a.

CONCLUSION

The petition for a writ of certiorari should be

denied.

Respectfully submitted.

WILLIAM C. BRYSON

Acting Solicitor General

. ROBERT S. BURK

General Counsel

JOHN J. MCCARTHY, JR.

Associate General Counsel

LAURENCE H. SCHECKER

Attorney

Interstate Commerce Commission

MAY 1993