FINANCE DOCKET NO. 28905 (SUB-NO. 1)

CSX CORPORATION-CONTROL-CHESSIE SYSTEM, INC., AND SEABOARD COAST LINE INDUSTRIES, INC.

Decided October 12, 1979

In denying interlocutory appeals, the Commission announced that it would not resolve divisions of revenues issues in consolidation proceedings.

Charles N. Marshall, Charles E. Mechem, Bruce B. Wilson, and Richard R. Wilson for appellant Consolidated Rail Corporation. William P. Quinn for appellant Delaware and Hudson Railway Company.

Roland W. Donnem and Richard A. Hollander for respondents Chessie System, Inc., Seaboard Coast Line Industries, Inc., and CSX Corporation.

John E. Haley, Kirk B. Johnson, Martin M. Lucente, G. Paul Moates, John S. Shannon, Donald L. Tolmie, Peter J. Vaghi and William C. Wooldridge for respondent Norfolk and Western Railway Company.

Brice M. Clagett, Peter S. Craig, Nancy S. Fleischman, Charles A. Horsky, Donna L. Kohansky, James L. Tapley and R. Allan Wimbish for respondent Southern Railway Company.

Milton J. Grossman for the Office of Rail Public Counsel.

DECISION

On October 3, 1979, Administrative Law Judge David H. Allard granted the motion of applicants, Chessie System, Inc., and Seaboard Coast Line Industries, Inc., to exclude from this proceeding the issue raised by Consolidated Rail Corporation (Conrail) regarding the problems in north-south divisions.

Administrative Law Judge Allard made the requisite findings under rule 85, 49 CFR 1100.85, so that an appeal would be handled on an expedited basis. (Tr. 3062.) On October 4, 1979, Conrail and the Delaware and Hudson Railway Company filed appeals to the ruling. Also on October 4, 1979, the Office of Rail Public Counsel

filed a memorandum in support of Conrail's appeal. Replies were filed by applicants, Norfolk and Western Railway Company (N&W), and Southern Railway Company (Southern) on October 5, 1979. N&W and Southern are inconsistent applicants in this proceeding. This dispute arose when Conrail, which is a protestant in this case, sought, as protective conditions if the application were approved, an increase in its divisions on north-south traffic by 14.9 percent. In his verified statement Edward G. Jordan, chairman and chief executive officer of Conrail, made clear that Conrail's opposition to the proposed merger would be withdrawn entirely if the divisions relief is granted.

Conrail alleges that its requested relief is necessary because approval of this transaction would allow applicants to subsidize the noncompensatory northern portions of interterritorial north-south hauls with revenues earned in southern territory. Conrail believes that a divisions adjustment would allow it to continue to compete with applicants for this traffic.

Administrative Law Judge Allard in his ruling specifically stated:

It is my judgment that the divisions resolution ConRail seeks voluntarily from the applicants as well as from Southern and N&W is one that is susceptible of voluntary agreement by the respective parties. However, it seems clear to me that in light of the Four R Act' and the Commission's rules prescribed thereunder, a resolution in the form of a condition sought by ConRail has no basis in law for being imposed or sanctioned by the Commission in this proceeding. [Tr. 43058.]

For the reasons stated below we affirm the Administrative Law Judge's ruling.

We believe that to grant Conrail's request would run counter to both the letter and the spirit of the 4R Act. One of the principal reasons for the passage of the 4R Act was the belief of Congress and the rail industry that many Commission proceedings needed to be expedited. Towards that end Congress amended the Interstate Commerce Act to accelerate various proceedings, including consolidation and divisions cases.

In the consolidation area, Congress in the 4R Act added a new subdivision (g) to former section 5(2). This section is now incorporated in 49 U.S.C. 11345. The purpose of this section was to, "provide new procedures and strict time limits for Commission action on consolidation applications." Ex Parte No. 282 (Sub-No. 1), Railroad Consolidation Procedures, 348 I.C.C. 771, 772 (1977).

'Railroad Revitalization and Regulatory Reform Act of 1976, Public Law 94-210 (4R Act).

In adopting new regulations in Ex Parte 282 (Sub-No. 1), supra, the Commission stressed that they would "ensure our timely consideration of proposed transactions". Id.

Congress was similarly active in the divisions area, amending former section 15(6) to include provisions designed to expedite the handling of divisions of revenue cases. This section is now incorporated in 49 U.S.C. 10705. The Commission pursuant to section 201 of the 4R Act instituted a rulemaking to develop rules pertaining to the expeditious handling of divisions of revenue cases. The result of that rulemaking was Ex Parte No. 322, Expeditious Handling of Divisions of Revenue Cases, 353 I.C.C. 349 (1976).

In that report the Commission noted that divisions cases "are among the most complex cases the Commission is called upon to decide." Id. at 350. Furthermore, the Commission noted that, "historically, it has often required from 3 to 10 years to finally dispose of a division case." Id. at 351.

Despite the fact that both divisions and consolidation cases are notoriously complex and lengthy proceedings, Conrail has sought to incorporate a divisions dispute in this merger proceeding. We believe that this is clearly contrary to; (1) Congress' intent that these cases be expeditiously handled and, (2) the Commission's carefully designed procedures for considering these matters.

In its appeal Conrail relies upon Georgia & F. Ry. Co.Acquisition-Georgia & F. R., 317 I.C.C. 745 (1963), for the proposition that the Commission has the power to impose divisions conditions in merger cases. We believe that a close reading of that decision supports our belief that divisions disputes should not be entertained in merger proceedings.

In that decision the Commission noted that it had accepted traffic conditions respecting divisions which were stipulated to by the parties. Continuing, the Commission noted:

this acceptance does not constitute a precedent for the imposition of such conditions in the absence of an agreement between the parties. We agree that we have authority under section 5(2)(b) [presently section 11343] of the act to prescribe conditions like that requested, when justified by the circumstances. However, in view of the powers vested in us by section 15 presently section 10705] of the act to prescribe just. reasonable, and equitable divisions, and the proportion of the Piedmont's traffic involved (about 6 percent), we deem it unnecessary and undesirable to prescribe herein the basis for divisions of rates which may be established in the future. [Id. at 749.]

A review of our cases indicates that we have never found such a condition justified by the circumstances. It should also be noted that

this decision was prior to the 4R Act and the Commission's promulgation of regulations expediting both consolidation and divisions proceedings.

It is our belief that this policy of not allowing divisions disputes to be heard in consolidation proceedings should be followed in all other consolidation proceedings. Therefore, we are putting on notice all carriers that we shall entertain division controversies only through the methods set forth in Ex Parte No. 322, supra.

In addition to this basic policy there are additional reasons why Conrail's request must be denied. As Mr. Jordan makes clear in his statement it is Conrail's contention that the north-south divisions arrangement has been inequitable for years. Verified statement of Edward G. Jordan at p. 9.

If there is and has been, as alleged by Conrail, an inequitable north-south divisions arrangement, Conrail could have sought relief through the procedures set forth in Ex Parte No. 322, supra. The existing divisions situation is not before the Commission in this proceeding. If Conrail is dissatisfied with its current divisions and it is unable to reach a voluntary agreement with other carriers it can look to section 10705 for its remedy. See Great Lakes Carbon Corp. v. Carolina C. & O. Ry., 310 I.C.C. 488, 489 (1960). It cannot, however, come before this Commission in this proceeding to seek redress of an existing divisions grievance.

Conrail, however, has couched its request for relief not in terms of the existing inequities but by alleging that the proposed merger would exacerbate those inequities. Thus Conrail is arguing that if this merger is approved and consummated the result will be that "competition will be eliminated through the use of predatory pricing devices based on the divisions imbalance." Conrail's appeal at p. 6. We believe that a protestant in à consolidation proceeding must be allowed to offer evidence of anticompetitive impact as part of its opposition case. Conrail is entitled to show how the alleged divisions imbalance will affect it if this merger is approved.

However, such evidence is a far cry from evidence in support of a condition which establishes a new divisions split. Not only are there the problems of notice and participation of interested persons not parties to this proceeding, there is also the question of timeliness. Conrail's position that this merger, if approved, will necessitate a divisions adjustment is not ripe for argument. It is possible that after the merger was consummated, if approved, Conrail would be able to negotiate successfully new divisions arrangements with other affected parties. If such negotiations proved unsuccessful and

Conrail remained dissatisfied it could file a complaint and follow the expedited procedures set forth in Ex Parte No. 322, supra. However, to examine the possible effects of a merger before it is even approved or consummated would result in a great burden on the parties and the Commission.

We stress that this decision in no way prevents Conrail from going forth with its case. Conrail is welcome to introduce evidence as to possible anticompetitive impacts of the proposed transaction. Such evidence will of course be considered in our determination of whether the transaction is consistent with the public interest.

Furthermore, we agree with Conrail that we do have broad powers to condition approval of consolidation proposals. It is our opinion, however, that conditions seeking adjustment of divisions arrangements are best left to the procedures outlined in Ex Parte No. 322, supra. We are concerned that the regulations and the requirements of section 10705 be followed. We are also concerned that in a dispute of this magnitude all interested persons be given an opportunity to comment, not just the parties in this proceeding.

For the reasons stated above, we believe that it is necessary that we follow the procedures we have set forth to deal with divisions disputes and that we not burden already complex and lengthy merger proceedings with evidence of requested divisions.

This decision does not significantly affect the quality of the human environment.

It is ordered:

The interlocutory appeals of Consolidated Rail Corporation and Delaware and Hudson Railway Company are denied.

By the Commission, Chairman O'Neal, Vice Chairman Stafford, Commissioners Gresham, Clapp, Christian, Trantum, Gaskins and Alexis. Commissioner Christian did not participate in the disposition of this proceeding.

360 I.C.C.