Railroad Legal Issues and Resources (2015)

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32 X. COMPETITION AND RAILROADS 287 A. Introduction 287 Railroad competition and mergers are regulated by STB. Section B discusses legislation applicable to railroad consolidations and mergers, laws that exempt railroads from antitrust liability, and related issues. Section C discusses the railroads’ express or implied immunity from antitrust liability and the preemption of state antitrust laws by the ICCTA. Section D discusses competitive access for railroads and the use of terminal facilities and reciprocal switching arrangements. Statutes 288 B. Regulatory Reform, Deregulation, and Mergers and Acquisitions 288 1. Regional Rail Reorganization Act of 1973 288 Because many railroad companies were facing bankruptcy in the early 1970s, Congress enacted the Regional Rail Reorganization Act (3R Act) of 1973 to reorganize regional rail lines and provide them with governmental assistance.119 Articles 289 2. The Railroad Revitalization and Regulatory Reform Act 289 of 1976 A study of the effect of the Railroad Revitalization and Regulatory Reform Act of 1976 (4R Act)120, published in the University of Chicago Journal of Law & Economics in 2007, argues that the 4R Act, along with the Staggers Act of 1980, “brought sweeping changes for both rail rates and abandonments of freight service” based on their measure of “average densities on U.S. railroads.” 121 119 45 U.S.C. § 701(a) (2014) (as amended in 1975, 1976, 1978). 120 See 45 U.S.C. § 801, et seq. (2014). 121 John. D. Bitzan & Theodore E. Keeler, Economies of Density and Regulatory Change in the U.S. Railroad Freight Industry, 50 J. LAW & ECON. 157, 159 (2007) (footnote omitted).

33 3. The Staggers Act of 1980 289 In an article entitled “The Success of the Staggers Rail Act of 1980,” the author contends that the Staggers Act122 resulted in “beneficial effects on shippers and railroads” alike as discussed in the article.123 Statutes 290 4. Factors Applicable to Consolidations, Mergers, and Acquisitions 290 of Railroads Under 49 U.S.C. § 11323, railroads may not merge, acquire control of another rail carrier, or acquire trackage rights over another’s railroad tracks without STB’s approval.124 Section 11324 sets forth the factors that STB considers when approving a railroad merger.125 5. Interstate Commerce Commission Termination Act of 1995 291 As a result of the ICCTA, among other responsibilities, STB has authority to “inquire into and report on the management of the business of carriers providing transportation and services.”126 Cases 292 6. Authority of the STB to Impose Environmental Conditions on 292 Minor Mergers In Village of Barrington v. Surface Transportation Board,127 the District of Columbia Circuit held that STB has the authority to impose environmental conditions when approving minor mergers. 7. Challenging a Railroad’s Rate Caused by a Bottleneck 294 122 See 49 U.S.C. § 10101, et seq. (2014). 123 Clifford Winston, The Success of the Staggers Rail Act of 1980, AEI-Brookings Joint Center for Regulatory Studies 1, 5 (Oct. 2005), available at http://www.brookings.edu/research/papers/2005/10/railact-winston (last accessed Mar. 31, 2015). 124 49 U.S.C. § 11323(1) (2014). 125 49 U.S.C. § 11324 (2014). 126 49 U.S.C. § 721(b) (2014). 127 636 F.3d 650, 651 (D.C. Cir. 2011).

34 As stated in Burlington N. R. Co. v. Surface Transportation Board,128 a “bottlenecking carrier” is one that “‘can usually control the overall rate sufficiently to preclude effective competition.’”129 The court held that STB was correct in finding that the railroad’s rate was unreasonable and in lowering the rate that a shipper was required to pay.130 Articles 295 8. History of the Regulation and Deregulation of Railroads 295 A recent law review article, which examines the regulation and deregulation of the transportation industry, noting the impact of the deregulation of the financial, electric power, and airline industries, argues that the deregulation of the railroad industry could have similar adverse effects on the economy and the public.131 9. Anticompetitive Behavior 296 An article in the Transportation Law Journal that considers the anticompetitive effects of bottlenecking observes that the railroad industry is regulated by STB, not by the antitrust laws; argues that STB’s policy is to approve a merger even if it will result in a bottleneck; and offers four proposals to alleviate bottlenecking.132 C. Antitrust Exemptions for Railroads 298 Statutes 298 1. Sherman Antitrust Act 298 The Sherman Antitrust Act declares illegal “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations”133 and provides for the imposition of fines and punishments.134 128 114 F.3d 206, 209 (D.C. Cir. 1997). 129 Id. at 210 (quoting Consolidated Papers, Inc. v. CNW Transportation Co., 7 ICC 2d 330, 339 (1991) (holding that railroad market dominance existed over eight traffic movements beginning Feb. 27, 1979, and ending on certain dates due to market conditions)). 130 Id. at 212, 214. 131 Paul Stephen Dempsey, The Rise and Fall of the Interstate Commerce Commission: the Tortuous Path from Regulation to Deregulation of America’s Infrastructure, 95 MARQ. L. REV. 1151, 1187–88 (2012). 132 Salvatore Massa, Injecting Competition in the Railroad Industry Through Access, 27 TRANSP. L. J. 1, 2, 13 (2000). 133 15 U.S.C. § 1 (2014). 134 15 U.S.C. §§ 1 and 2 (2014).

35 2. Railroads’ Exemption from the Antitrust Laws 299 Federal law, however, provides that “[a] rail carrier, corporation, or person participating in” a transaction approved or exempted by STB “is exempted from the antitrust laws...as necessary to let that rail carrier, corporation, or person carry out the transaction.”135 3. Exemption of Rate Agreements from Antitrust Laws 299 If STB approves an agreement of at least two rail carriers that concerns rates, the agreement is exempt from the Sherman Act, the Clayton Act, the Federal Trade Commission Act, sections 73 and 74 of the Wilson Tariff Act, and the Act of June 19, 1936.136 4. Exemption of Conferences on Unification and Coordination of 300 Railroads from Antitrust Laws If the Secretary of Transportation holds conferences on the unification or coordination of railroads, the attendees are not liable under the antitrust laws for their participation or with respect to any agreements that are concluded with the approval of the Secretary of Transportation.137 5. Exemption of Acquisitions Approved by DOT from the 300 Clayton Act Transactions approved by the Secretary of Transportation and STB are exempt from Section 7 of the Clayton Act.138 Cases 301 6. Implied Immunity from Antitrust Litigation 301 In In re Wheat Rail Freight Rate Antitrust Litigation,139 the Seventh Circuit held that although a railroad is not expressly exempt from the antitrust laws when it does not adhere to a rate agreement approved by ICC, STB’s predecessor, a railroad is impliedly immune from antitrust liability when it fails to adhere to the procedural requirements of an agreement. 135 49 U.S.C. § 11321(a) (2014). 136 49 U.S.C. § 10706(a)(2)(A) (2014). 137 49 U.S.C. § 333(d) (2014). 138 15 U.S.C. § 18 (2014). 139 759 F.2d 1305, 1309, 1316 (7th Cir. 1985).

36 7. ICCTA’s Preemption of Antitrust Claims Under State Law 302 In Fayus Enterprises v. BNSF Railway Co.,140 the District of Columbia Circuit held that antitrust claims invite “judicial supervision of the reasonableness and fairness of rates charged to shippers” and allow “state law antitrust claims of this nature [to] undermine the deregulatory and anti-balkanization policies underlying the ICCTA.”141 Articles 302 8. Elimination of Transportation Exemptions in Favor of Periodic 302 Review of Transactions that Have Anticompetitive Risks An article in the Oregon Law Review argues that the exemption of railroads from the antitrust laws shields anticompetitive agreements that are contrary to the public interest and makes a number of recommendations.142 9. Proposal that the Approval of Mergers be Transferred from 304 the STB to the Courts An article in the Transportation Law Journal examines the public interest standard used by STB in determining whether to approve a railroad merger, argues that STB has approved almost every proposed merger, and suggests that the courts are more “politically neutral” and thus are “best suited” to review proposed mergers.143 10. Proposed Legislation that Would Affect the Antitrust Exemptions 305 of Railroads An article in the Administrative Law Review examines the economic consequences of an antitrust act applicable to railroads and argues that Congress should have enacted the Railroad Antitrust Enforcement Act of 2009 because it would have increased the scrutiny of “paper barriers” and “refusals to deal,” protected “captive shippers,” and increased competition. 144 140 602 F.3d 444 (D.C. Cir. 2010). 141 Id. at 454. 142 Peter C. Carstensen, Replacing Antitrust Exemptions for Transportation Industries: The Potential for a “Robust Business Review Clearance,” 89 OR. L. REV. 1059, 1061–62 (2011). 143 Salvatore Massa, Are All Railroad Mergers in the Public Interest? An Analysis of the Union Pacific Merger with Southern Pacific, 24 TRANSP. L. J. 413, 415–16 (1996). 144 Russell Pittman, Recent Development: The Economics of Railroad “Captive Shipper,” 62 ADMIN L. REV. 919, 934–935 (2010). The Railroad Enforcement Act of 2009 was never enacted but the Railroad Enforcement Act that was introduced in Congress in 2013 proposed the elimination of antitrust exemptions for railroads.