Memorandum — Port of Portland v. United States

ow y APPHAL PROM THR ‘UNITED ‘sTATES buseeso# vaurr ‘FoR.

eo ee DISTRIOT OF Omnaoy. Meee

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De - EKORANDUN 3 FOR 7a vate STATES os Se =

: : INDEX

* Statement -- ___- es Eat eo hecpeoeeenenn |

Discussion _ -_-2------- a ee eee

NCOs eo ae tei

CITATIONS

Cases:

_ States, 386 U.S. 372--.-_----------------

2 Chesapeake & Ohio Railway Company Con- ‘

struction, 267 I.C.C. 665_2______________-

Control of Central California Traction Com-

pany, 13! LC, 125.....2.2205022.-2..4 .

- Denver & Rio Grande Western Railroad Co. v.

a “nited States, 387 U.S. 485____-.--_--.__--

Great Northern Pac. & B. Lines, Inc. , Merger—-

_ Great Northern, 328 1.C.C. 460, 331 LC. C.

2), a ee rn a a,”

~ [llinois Central Railroad Company, et al. Con-

Baltimore & Ohio Reilroad Co. Vv. United

5,6, 8, 12

struction and Trackage Rights, Lake Calumet —

Harbor, Cook County, Fll., 307 I.C.C. 498,

affirmed sub. nom. Illinois Central Railroad

Co.’v. Norfolk and Western Railway Co.,

ae "385 U.S. 672-2! esi ee Na i ee Aas i

E: McLean Trucking’ Company y Vv. . United States,

- tion 295 I.C.C. 787__.-.------2----------

a N orfolk and Western Railway one Oe

_ . trol. FP &E Company—Purchase—F airport,

Painesville and Eastern Railroad soe cad

830 T. CC. 872. |

410-6270 1

fee Se? US, 67 _,.-.....---- 5-124. ee |

. Minneapolis, St. P. & SS: M.R. Co: Acguisi:

II .

, Cases—Continued.

Northern: ‘Natural Gas Co. v. Federal Power

_- .. Commission, 399 F. 24°953_.__-.________-

Penn Central Merger and N&W I nelusion

Cases, 389 U.S. 486____._______________ 3s ae a

_ St. Louis Southwestern Railway Co., et, al.—

Purthase—Alton. & Southern Railroad, 331.

CC Bigs. . 6

* Seaboard Air Line Railroad Company \ v. United.

- States, 382 U.S. 154___- 2s 2 - 10

: Northern Lines at ad — 396.U: S 491___ 34.

5, 6, 9, 10,12

. Statutes:

Interstate Commerce Act, 49 U. 8. C.: 5

~ Section 3(5)----- ee eee ae |

Section 5(2)°--_1-------- 22 e eee passim

. Section 5(11).------------ ae en 10

” National Transportation Poliey, 49 Uz S: C.

- . preceding Section 1_~~-------.----222 22 9

28 USC. 2322... -1-2-2----+ ne a |

Page

1.

on he Sayre Gouri af the ited States |

Ocrosex TERM, 1970

aes

No. 903

Port OF PORTLAND, ET AL., APPELLANTS

v. .

UNITED | STATES OF America, INTERSTATE COMMERCE

_ COMMISSION, ET AL.

OV. APPEAL FROM THE UNITED STATES DISTRICT COURT FOR

THE DISTRICT OF OREGON ;

. MEMORANDUM FOR THE UNITED STATES ~

. This is a direct appeal from a final judgment of a

three-judge district court (J.S. App. A), affirming

‘without opinion the report and orders of the Inter-

_ state Commerce Commission (J.S. App. B, C, and D)

granting the application of the appellee railroads.

. Although statutory defendant below,’ the United States

_ agreed. with the plaintiffs (appellants here) that

the Commission erred in its challenged decision. For

reasons hereinafter detailed, the United ‘States agrees

_ with the appellants that substantial questions affect- :

ing the: continued viability of rail ‘competition in “the

Pacific Northwest and the proper administration of —

thé Interstate Commerce Act warrant this Court Ss

plenary review of this case. |

198 U.S.C. 2392.

-(@)

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oa

STATEMENT

| At issue in . this proceeding is the joint acquisition

and control of Peninsula Terminal ‘Company, an

independent switching railroad, by two of the four

.line-haul railroads now authorized to serve Portland, .

Oregon, directly. Current interest in Peninsula stems

from its proximity to the eastern horder of the River-’

‘gate Industrial District, a 2, 942 acre port and indus- -

‘trial complex owned and under development by the

Port of Portan The Rivergate complex is stra-

tegically situated“at the confluence of the Columbia —

‘and Willamette Rivers (J.S.. App. B-4, B-5), and it

; is estimated without challenge that the ultimate publi¢

-and priv ate investment there will exceqd 500 milion,

dollars. Rail traffic generated by” River gate industries

is expected to reach, at full development, between. 500 /

| and 600 ears per day,.w ith an annual volume of five mil-

lion tons of freight (J.S. App. B47).

Peninsula’s tracks provide one, of two rail access |

routes to Rivergate. Barnes ¥ard, the other point of.

~aecess, is owned by the Union Pae sifie Railway. Com- )

_ ‘pany. These two access terminals. are connectéd by

tracks owned jointly by the Union Pacific and the

Spokane, Portland & Seattle Railway ‘Company -

(“SP&S”) (J.S. App., B-38), which are :also the:

only rail carriers whose tracks now connect with those

of Peninsula.’ The present litigation arises out of

-. #A map is set forth following J.S App. E-65. The SP&s |

_ is now.a subsidiary of Great Northern Pacific & Burlingtoa

- Lines, Ine. (“Burlington Northern”), the new company formed

by the merger of the Great Northern Railway Company. and

the Northern Pacific Railway bs ompang, — ed by this Court

3.

* the joint applicatos of ie SP&S anid Cnion Pacific,

filed on July 25, 1967, seeking Commission approval.

‘under Section. 5 (2) ‘of the Interstate’ Commerce -Act,

49 US. C. 5(2),- of a joint heiaaton of control =

~ Peninsula.

‘In response to higapplication, the ima aie trunk-

line railroads serving Portland, the Chicago, Miltvau- |

kee, St. Paul and Pacific Railroad Company Mil.

| waukee”’) | and’ the Southern Pacific Transportation |

. Company—filed petitions seeking inclusion as joint

and equal owners of Peninsula (under Section 5(2) _

(b), (c). and (d), 49 US.C. 5(2)(b), (e) and (d)) |

and the right to. use tracks nhecessar y to,connect their

own lines with Peninsula’s tracks (under Section 3(5),

| 49 U.S.C. 8(5)). After a full administrative hearing,

‘| the Commission’ s hearing examiner: approved the pro- |

posed acquisition, conditioned upon the inclusion of

_ the Milwaukee and Southern, Pacific as equal dwners,

~ and grantgd the related trackage rights sought by those :

carriers (J.S. App.. E). However, upon exceptions by |

-the SP&S -and Union Pacific, the Commission. (Divi- |

‘sion 3) authorized. the acquisition without these con-

ditions, ‘thus giving SP&S. and Union Pacific the sole

right to use the’ Peninsula ACCESS to ae (J. S.

- App. B). ets |

The decision was 5 danas in the court alow: by

the Port of ‘Portland and the Public Utility Commis-

last Term in the Northern Lines Merger Cases, 396 U.S. 491.

@As an aspect of that merger, the SP&S was permitted to lease .

- its properties to Burlington Northern, so that it operates as an ©

integral part of Burlington Northern. Prior to the merger, the -

SP&S. -was jointly owned by the Northern Lines.. he.

_- Northern by reason of. this Court’s decision a year’

Dp, 2, n. 2). The competitive position of the Milwau-

. the four involved railroads.

4

- sioner of. Oregon, later joined by appellants the Mil

' waukee and Southern Pacific. Fhe United States filed -

an answer supporting the plaintiffs. The district court

. dismissed’ the complaints, without opinion, in an Or-

_ der and J udgment dated July 9; 1970. fo S. App. A).

This appeal followed.* eee TaN

DISCUSSION

é

_ -L As we ‘have potted: out, the SP&S is an ‘iteoral

part of. the rail system of the powerful Northern |

Lines, now merged to constitute the Burlington =

\ ago in the*N orthern Lines Merger Cases (see supra,

kee (one of the petitioners here for rights in the ‘Pe

ninstda trackage) was—as ‘the Court’s opinion \in ~

N orthern Lines reflects, 396 U.S. at 496-497, 500, 51

516—a central element in the administrative and j

dicial proveedings which ultimately: resulted in that\ -

merger. Ini jally, the Commission disapproved the \

‘merger, in substantial measure because of the adverse ©

impact | it would’ ‘have upon the relatively’ weak Mil- :

-waukee, the only ‘sourée of competition for the domi-

nant Northern - ~s- across the Northern ‘tier of

7 tes, Great “Norther Pacific &- Burlin; ton Lines

sta fi 9 a

Nes ;

* The ‘Port of Portland. and the the Public Utility Commissioner

of Oregon, among others, had intervened in the Commission

; proceedings i im support of the ~~ oe of Peninsula by

* Following commencement of the district: cdjurt "proceeding

the Commission entered’an order on December §, 1969, postpon-

ing the effective date of its earlier order ‘unt “further order of

the Commission. :

eee

| eer

: ise, M orger—Gireat Northert, $28 I.C.C. 460 ) (1966):

| prove the’ éreation of Burlington Northern 6n recon: *

sideration, a fundamental justification for its change |

of position was the merger parties’ agreement to pro- - |

_tective conditions, by which the Commission foyind -

that the Milwaukee’ “will be substantially strength-

ened as a ‘meaningful transcontinental competitor” of. —

the merged Great Northern and Northern Pacific. 331

* 1.0.0) 228, 271-273 (1967) ; see 396 U:S. at oe ee

+, The principal condition ‘to the Northern ‘Lines

; merger’ intended to strengthen the Milwaukee is Con-

dition 24(a), which for ‘the first time grantéd the

| Milwaukee direct access into the:Portland area. This” °

Condition, whose adoption was anticipated — ‘in ‘the

Milwaukee’s petition for inclusion in the Peninsula.

acquisition provides in ‘part: }

Permitting that railroad to extend its oper-

. ations to Portland, Oreg., and, to acquire track-

‘age rights over the line. of [Burlington North-

ern] between Longview: Junction, Wash., and >

+, Portland, Oreg., [Burlington Northern] shall - -

_grant.to the Milwaukee * * yjrackage rights to —

operate freight trains over [Burlington North-

ern] lines between Longview Junction and Port-

Igad, including the ae serve on an equal basis

all present and future industries at Portland and

intermediate. points and the use of [Burlington~ --

‘ Northern] facilities at Portland necesary for

. the switching of traffic.to other railro nd in- -

-dustries. [331 1.C.C. 228, 357 appendix L; em-

Apr: added]. '

'The condition. is set forth in full at J. S. App. B18, ne Be

J

me

When ‘the Commission subsequently decided to ap- |. |

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Uy a Ww ankee 4 to: solicitvadditional, . and to: enter ihto

wg

Was* of smajor: -importarice hee ‘use,

“as this Court note , the Milwahikee’ Ss “past failuie to

~ hecome a. meaning al competitor’ came in large’ part ‘

Baas: ‘its- ‘lines | did: nét Yeach, into Portland,

\ Oregon" ee FEY 396 U.S. at: 515. .The Commission

“. émphasized that thi is ‘condition, Ww ould permit the Mil-

this. condition.

“here etofore. I accessible: "marke

‘LO. at 276... a:

‘Tt is. axiomatic: vat" the promise of the Northen.

Lines merger to: ria ‘. the Milwaiikee x “meaningful .

competitor” for’ the vital. _long- haul traffic between:

‘Portland. Sal

. a“ . - = ine

.sPortland and--the Northeih. tier cannot’ he fulfilled wn

Jess ‘the _Milwaitkee is given. divect and wnconditional

access to - terminal facilities at Portland ; a terminal

carrier, has long been rec ognized as possessing an in-

~ herent advantage ° in obtaining the Jineshaul trafic, of

: area industries. St: Duis South western Rail ay. C o.,et

dP urchase—: Alton. & Sodfern Railroag 33] LC.

~ BAS, 534: Norfolk and ° Western Railway Com-

pany ‘ontrol- PP&E Compan y—Purchase—F airs

__port, Painesv ile and Eastern Railr odd Compan y, 330

“TGC. 672, 680; Control of Central California Trac-

“tion: ‘Company,. 131 I.C.C.. 12: 36.° Nonétheless

the Commission” has: here” difectiv ely. denied: the Mil-

wauikee equak aceess to the one neutral: termiital facil-

.

13: 5-1

& Indeed / in the instant case, the Canpininitin examiner: ‘found.

} et cy * * a representative of SP&S-doubts that carriers with .~

no-direct. Rivergate access rights. would: have as much incentive

. to do’ business there as: a direct access carrier. Normally the

switching carrier has, the solicitation pavesings." J. S. Apps -

» EASE pe ene J

~ ity rematining in Portland. and, what is 6f: greater

long/ rut) significance, the opportunity to méaningfully .

compete | \for the substantial line-haul rail traffic which -

is projected to dey elop’ in’ the: strategic River gate

“district, et

The Commission’ S refusal to give Effect to the Port:

es ahd condition’ in Milwaukee's favor-ai the present

_ case Was explained as follow St. | |

- Condition No. 24 of.the- Northern oo case

a

grants Milwaukee the*right. of access to Port- -

-layd and the right to serve ‘jndustries therein ;

“however, this eoridition is applicable only to-

Northern Lines trackage. and territory. The:

_condition is. silerit with respect to trackage and

territory in which other carriers, such as UP,

have a jgint interest and the- effect of the con-

_ dition upon such ‘joint trackage: and territory

was not presented to, nor considered by the

Commission. [J.5. App. B-19.] -

Prestimably, then; the Commission would have effec-

“ tuated. the. Condition here ‘but. for the fact that Bur-

Lington Northern joined U nion Pacific with it. in its

takeover of ‘Peninsula. Allowing the Burlington:

Northern thus fo. ‘evade this’ obligation is, we e submit?

arbitrarily to abrogate a fundamental ‘element of the

Commission's. order. approving, that, merger. We fail -

to undexstand: why Burlington Northern must’ be

fo euares to do jointly what it could: not do alone. “3

’ The. Commission | was in any: event incorrect’ in sug-

gesting that: Union’ Pacific’s interests ‘could not apy

propriately b e affected by a condition. imposed in the

°

BATT YW

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SPER TU PATE LEE

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LEK:

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ROSIN A,

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Qe” PERLE eS PTS

8

‘Northern Lines merger proceedings.’ In fact, although -

not a party there, the Union-Pacifie presented in ereat

detail its position. regarding a Pipe of the Milwan-

_kee into Portland. 331 I.C.C. 282-283. Having consid-

ered the Union Pacifie’s. pera the Commission

concluded that the public interest in having the Mil-

_waukee entey : all Northern Lines markets on.an ‘equal

competitive basts* outweighed the Union Pacific’s as-

serted injury, particularly since ‘‘the'addition of the:

Milwaukee as a competitor at Portland would he

somewhat offset by the elimination of Northern Pa-

cific and’ Great Northern ag ‘separate competitors.”

To be sure, the Commission could. not divine’ in the

Northern Lines proceedings every situation to w hich

Condition 24(a) might be applied. Yet the Commission

there. recognized ‘its broad and flexible power’ > when -

considering Section 5(2) applications to determine the |

modifications and conditions necessary’ to protect the

public interest. 331 | I.C.C. at 286. See Penn-Central§.

Merger and NeW, Tneluston Cgses, 389 U.S. 486, 496.

If, when now presented wifh a Section 5(2) applica-. -

tion, the Commission “can successfully ¢laim that its

7 The Union Pacitie shares with Paninwils and SP&S joint own:

ership of a minority interest in the interchange tracks ¢énneéctiag -

the SP&S main line with Peninsula, J.S. App. B- 31—B-33. But

there was no-evidence regarding the nature of the Union Pacific . °

interest, or that its interest in ny way precluded the Northern

Lines and Peninsula, the: other owners, from granting the

Milwaukee usage rights over the interchange trackagey Further,

@ by acquiring joint ownership of Peninsula, the Milwaukee would

succeed’ to the ownership interests possessed by Peninsula in the

interchange tracks, which. would place it on an equal basis with

the Union Pacific with respect to use 6f the- involved track cage,

9

power is not sufficiently ‘broad and flexible” to pre-

vent the Burlington Northern from flouting the con-

ditions by which its very existence as a merged carrier

purported to-be juistified, the premises upon which this

Court decided the NV orthern Lines case will be largely .

nullified. Accordingly, we submit that the Commis- _ «

sion’s-refusal to implement the condition as to the Mil-.

waukee was arbitrary and not rationally supportable |

by one reasons it has given... - . -

- More generally, the Conmuiscion inadequately. 2

uly zed the competitive factors it was required to F

consider in determining Ww hether unconditioned ae-

qiiisition of Peninsula ~ by Burlington. ‘Northern and

Union Pacific-comports w ith the public interest, even

without regard to Milwaukee’s. special rights under:

the Northern Lines condition. And it went on to base.

its decision on.erroneous legal standards. “Os *

“As relev: ant: to Section o(2) ‘transactions, the test

of whether a planned merger or acquistion of control

is “consistent with the public interest”’ is whether ‘the =.

proposal will pea ‘adequate, economical, . and ef-

ficient: service?’ and “sound ecqnomie conditions: in

transportation.” National Transportation Policy, 49

USC. preceding Section 1. It is well settled that’ the -

Commission is required to weigh anticompetitive

effects in determining whether Section 5(2) applica- 3

tions satisfy the public interest standard. See Denver q

& Rio Grande Western Railroad Co, v. United States, » |

387 US. 485, 492-494; Baltimore & Ohio Railroud

Co. v. United States;.386 U.S. 372, 401404 (Mr. | :

J ustice Brennan concurring). As recently restated in

_ Northern Lines, ‘** * * the Commission must also

-

10 -

consider the anticompetitive effects of any merger or

consolidation, because under § 5(11) of the Interstate.

Commerce Act any transaction approved by the Com-

mission is relieved .of the operation of. the antitrust

laws. MeLean-Trucking Company v. “nited States,

321 "U.S. 67, 83-87 (1944).”’ 396 U.S. at 504. “And:

while the Commission need not follow the ide ntical

analysis, or make the same ‘findings,:-as would be re-.

quired in an antitrust suit, Seaboard Air Line Rail-

rod Compdny x. I Tnited States, 382° US, 154, 156-.

157, the Commission’s failure adequately to consider

the anticompetitive effects of an acquisition on com-*

- peting lines constitutes reversible error. See Northern

Natural “Gas Co. . Federal Power Commission, 399

-F. 2d 953, 961. (CAD) a oe

In the instant case, the Commission looked | no » fur. |

ther than the:competitive impact of the inclusion of the

Milwaukee and Southern. Pacific on the joint appl

eants’ already substantial dominance of the Riv ergate

-market.area. It did not consider the impact the exclu- ”

sive control it was assuring the applicants: over both |

. . , é

rail gateways. to that'*market would have on the Mil-:

waukee and the Southern Pacific, and on the shippixg

‘publie’s present and future interest in multi-line serv-

ice there. No mention was. made hy the Comunission of ..

the existing marginal competitive significance. of the

" Milwaukee recognized Ay this Court. in Northern -

Lines, 396 U.S. at, BP Noi was’ attention: given to the

effect on the Southern Pacifie’s ability to serve ade-

quately and effie ‘iently its markets in the Southw estern

States. There was ‘Tittle discussion ‘of. the comparative.

henefits to shippers of: multi-line service. Thus,. the

se ,

Commission did not balance the adverse competitive

_effects that its unconditioned grant of the application

would have, and so did not fulfill, the obligation im- - *

posed: on it by the foregoing decisions. _ °- . |

Further, the Commnission erred in its determination

that participation in Peninsula’s s control by the Mil-_

waukee and Souther n- Pacific, ‘would constitute a new

operation and an invasion of the joint applicant’s

tervitoiy.” (J.S. App. B-20). There is no authority:

for the proposition that railroads which connect with

an independent switehing carrier (Peninsula) thereby

acquire the exclusive right to serve the independent :

carrier's industrics. To the extent that such territorial- |

ization has any validity, those industries are within .

the Port of Portland’s territory, for it is the Port

which is developing the interior lines with. which Pe-

ninsula will connect. Thus, the inclusion | of the Mil-

waukee and Southern Pacific does not constitute “an i

invasion’ of SP&S (Burlington, Northern). and U ion

- Pacific territory. On the contrary, the exclusive con-

)

trol of Peninsula newly granted the two giants will.

_ enable them to block the other carriers from, direct |

- ACCESS. _ , 7 : . (74

«As authority for. this concept of ‘territorial ex-_

cusivity,”’ the Commission relies upon Minneapolis,

St.°P. & S.SIER.. Cot “Acquisition, 295 I.C.C. 787, °_-

802° (J. a App.; B-21). But, if anything, that deci- |

sion underscores the fallacy of the Commission’s rea-

soning « here. There, the Commission denied applica-

tions of other lines to extend their operations into |

z territory tre ditionally served on a direct basis by the :

North W estern because the Nor th Ww estern Sec onomic

_——

4

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td

+ Re eeeeereeenemeeneetieneeme rere: comeguntmwaneremuneeane amon

12

vulnerability made preservation of its exclusive tern-

tory important to the public interest. 295. I.C.C, at

798.. In the instant case the positions of the parties

- are precisely reversed. The joint. appliants were fi-

. nancially secure rail €arriers, as found in the North-

crn Lines case (328 I.C.C. at 471; : 331 1.C.C. at 282- ~283)

white the Milwaukee was & weak line whose service :

‘to the Pacifie Nerthwest required protection ,(331¢

~T:C.Cvat 271; 396 US. at 515). By a parity of reasoning,

the Minneapolis case supports the conélusion that -

the acquisition of exclusive control of the Rivergate

market by. the tivo strongest. rail ‘carriers, to. the

detriment, of a financially weak competitor, would not.

be in the public interest; Moreov er, given the strength

of Burlington Northern and the Union Pacific, the

counterhalancing strength of the ‘Southern Pacific.

would spur them to better service.

It is notew orthy that the Commission did thot find

that the Rivergate market was not sufficiently ‘large

to support the operations of the four rail carriers. ‘Tt

merely stated that inchision of the Milwaukee and

- Southern Pacifie weuld.have an. “atlverse effect”’ on’

the joint applicants who already directly serve River- |

gate | industries. That amounts to a conclusion that_

Burlington. Northern and Union Pacifie have a legal

right to exclusive occupancy of the market. Not onlt

‘ is this not the law, Chesapeake & Ohio Railway Com-

pany Construction, 267 I.C.C. 665, 679, but its appli:

cation here would be particularly: detrimental to the_

development of public-industrial facilities served by

one of sevéral competing rail carriers. Flignots Cen-

tral Railroad yee | et al; Construction aud Track-

. DECEMBER 1970. |

~ 8a

eat

age Rights, Lake Calumet Savior | Cook oats. Ill,

307: 1.C.C.. 493, 528, aff’d sub nom., Illinots Central

~ Railroad Co. v. Norfolk and Western Railway Co.,

385 U.S. 5T. .

CONCLUSION

For the -foregoing reasons probable jurisdiction

should be-noted., = @ |

* 4, ERwin N. GRISWOLD,

| Solicitor General. |

‘Ricwarp F. McLakEN, | |

Assistant Attorney General.

- Howarp E. Su APIRO, .

STEPHEN RUBIN,

" Attorneys.

a U.S GOVERUMERT PRINTING OFFICE: 1870