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People v. United States

decided: September 16, 1982.


Petition for Review of an Order of the Interstate Commerce Commission.

Pell, Wood and Cudahy, Circuit Judges.

Author: Cudahy

CUDAHY, Circuit Judge.

This is an action to review a decision of the Interstate Commerce Commission (the "Commission") in which the Commission authorized the Norfolk and Western Railway Company (the "NW") to acquire the principal assets of the Illinois Terminal Railroad Company (the "IT"), and authorized or exempted from regulation certain related transactions. The Commission decision was entered under the provisions of the Interstate Commerce Act of 1978, Pub. L. No. 95-473, § 11344, 92 Stat. 1436 (codified at 49 U.S.C. § 11344 (Supp. III 1979)), as modified by section 228 of the Staggers Rail Act of 1980, Pub. L. No. 96-448, 94 Stat. 1931 (currently codified at 49 U.S.C.A. § 11344 (1982 Supp.)) (the "Staggers Act"), governing the consolidation of railroads. Certain parties intervened in the administrative proceedings objecting to the consolidation and subsequently joined in this petition for review. Petitioners here are the People of the State of Illinois; the Illinois Commerce Commission; and Patrick W. Simmons, the Illinois Legislative Director of the United Transportation Union. This petition apparently involves a matter of first impression under the relevant provisions of the Staggers Act. We affirm the decision of the Commission and dismiss the petition for review.


The IT operated a relatively small system of rail lines extending through central Illinois and across the Mississippi River to St. Louis, Missouri. In recent years, the IT operated unprofitably and its financial condition weakened. Hence, its major railroad owners*fn1 sought to sell and liquidate it in accordance with an agreement among themselves. On June 1, 1980, the IT, the NW and certain other railroads owning stock in the IT entered into a "Coordination Agreement and Plan for Liquidation of Assets" under which the "principal assets" of the IT would be bought by the NW, the remaining "peripheral assets" of the IT would be transferred to other carriers or abandoned and the IT would be liquidated.*fn2

On December 23, 1980, the NW and the IT filed a joint application with the Commission seeking authority under 49 U.S.C. § 11343 (Supp. III 1979) for the NW to buy the equipment and principal assets of the IT (with certain exclusions). This and related applications were accepted for consideration and consolidated by the Commission in its decision and notice of January 21, 1981. Norfolk and Western Railway Co. -- Purchase -- Illinois Terminal Railroad Co., Finance Docket No. 29455, 46 Fed. Reg. 6086.

The Commission's decision and notice described the NW as a Class I rail carrier and the IT as a Class II rail carrier.*fn3 The Commission also noted, by quoting the statute (49 U.S.C.A. § 11344(d) (1982 Supp.)), that under the Staggers Act, if a proceeding does not involve the merger or control of at least two Class I railroads, the application must be approved unless the Commission finds that the transaction will produce a substantial anticompetitive effect and that the anticompetitive effect of the transaction will outweigh the public interest in meeting significant transportation needs. The Commission urged interested parties to file comments addressing these statutory criteria; the Commission also noted that a formal hearing was not contemplated but that such hearings would be held if necessary. Further, the Commission stated that the competitive insignificance of the transaction was reflected by the vote of the IT's shareholders approving the proposal since the six shareholders which also assented to the sale and liquidation of the IT were the NW's principal railroad competitors in the Midwest. Finally, the Commission noted that the proposed transaction was not of regional or national transportation significance.

Many parties filed comments pursuant to the Commission's notice. The principal opponents of the transaction were employees and employee organizations, concerned about adverse effects of the merger on employment. A number of shippers, the State of Illinois and other persons also expressed concern about the merger application. In a comment filed with the Commission, the State of Illinois argued that the merger would significantly affect competition among the railroad companies which owned the IT and that an oral hearing with cross-examination of the railroad witnesses was necessary to reveal the underlying motives for the merger. The State of Illinois also disputed the Commission's finding that the proposed merger was not of national or regional significance and the conclusion that the IT was a failing railroad.

In an order dated March 17, 1981, former Chairman Alexis, acting on behalf of the Commission, indicated that three general issues had been raised by the comments: adverse effects on employment, possible anticompetitive effects and the appropriateness of the purchase price.*fn4 The Chairman determined that issues concerning the merger's anticompetitive effects and the adequacy of the purchase price could be developed using the Commission's modified procedure. Under this modified procedure, oral hearings would not be held and the objectors would instead file sworn statements containing all the facts and arguments on which they intended to rely. See 49 C.F.R. §§ 1100.43(b), 1100.44(b) & 1100.45-54 (1981). Chairman Alexis determined, however, that the issue of adverse effects on railroad employees could best be developed at an oral hearing, which was held on April 7, 1981.*fn5 With respect to the anticompetitive issue, the parties were again cautioned by the Chairman that under the Staggers Act amendments, the Commission believed that it "must approve [the] NW's proposed acquisition of [the] IT unless the acquisition will substantially reduce competition in freight surface transportation in a region of the United States." Norfolk and Western Railway Co. -- Purchase -- Illinois Terminal Railroad Co., Finance Docket No. 29455, at 3 (Chrmn. Alexis, Mar. 17, 1981) (footnote omitted). If the acquisition would substantially reduce competition, the Chairman noted that it could still approve the acquisition "if the public interest benefits exceed the anti-competitive effects." Id. at 3 n.2. The Chairman's order thus indicated that the verified statements of the parties should be addressed to the anticompetitive issue as so formulated notwithstanding that other evidence related to the three principal issues might also be presented.

The petitioners in the instant action appealed the Chairman's procedural order of March 17, 1981, to a division of the Commission on grounds that the public was unfamiliar with the "modified procedure" and the submission of "verified statements." The petitioners requested the Commission to hold an oral hearing on all issues in place of the modified procedure. This appeal was denied by the division, which noted, inter alia, that verified statements had consistently been used successfully in similar proceedings, that the State of Illinois had repeatedly participated in other proceedings through the modified procedure, and that the Staggers Act had provided only limited time in which the Commission must act on the application and thus the Commission did "not have the luxury of extended oral hearings." Norfolk and Western Railway Co. -- Purchase -- Illinois Terminal Railroad Co., Finance Docket No. 29455 (Sub-Nos. 1-5) at 2 (Comm'n Div. 2, April 6, 1981).*fn6

Shortly after this decision, the State of Illinois and the Illinois Commerce Commission advised the Commission that they were unwilling to proceed under the modified procedure format and they thus adduced no additional evidence on the appropriateness of the transaction. Patrick W. Simmons submitted the only evidence opposing the transaction on the ground of potential anticompetitive effect. The lone shipper who participated in the evidentiary phase of the "modified procedure" supported the transaction principally on grounds that the IT was in precarious financial condition and that the shipper's transportation needs would be best satisfied by a larger railroad with greater financial resources. Certain expert consultants addressed at length the issues of competition and the public interest and concluded that the transaction would not reduce competition but would instead benefit the public interest.

On June 19, 1981, the full Commission granted each of the petitions requested by the NW and IT. Norfolk and Western Railway Co. -- Purchase -- Illinois Terminal Railroad Co., 363 I.C.C. 882 (1981). The Commission adhered to its earlier position that unless the rail consolidation transaction involved more than one Class I rail carrier it must find that the consolidation will produce significant anticompetitive effects before it is required to review the traditional public interest factors. Based on the ample evidence before it, the Commission concluded that the transaction in question would involve neither a substantial lessening in competition, nor the creation of a monopoly nor a restraint of trade in freight surface transportation. Id. at 886-88. Since the transaction met the tests of 49 U.S.C.A. § 11344(d) (1982 Supp.), as amended by the Staggers Act, the Commission approved it.

The petitioners and various labor organizations then filed with the Commission both requests to stay the effective date of the agency's decision and requests to reopen the proceedings for oral hearing and reconsideration. Chairman Taylor, who had been recently appointed to the Commission, denied the requests for stay of the Commission's decision. Norfolk and Western Railway Co. -- Purchase -- Illinois Terminal Railroad Co., Finance Docket No. 29455 (Sub-Nos. 1-7) (July 17, 1981). The Commission also denied the requests to reopen and reconsider on November 2, 1981. Norfolk and Western Railway Co. -- Purchase -- Illinois Terminal Railroad Co., Finance Docket No. 29455 (Sub-No. 1) (Nov. 2, 1981). In denying these requests, the Commission rejected arguments that it should hold oral hearings under the public interest standard of 49 U.S.C.A. §§ 11344(b) and (c) (1982 Supp.), and reiterated that the more limited competitive analysis of section 11344(d) was applicable. ...

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