On March 23, 2021, Canadian Pacific Railway Limited (Canadian Pacific), Canadian Pacific Railway Company, and their U.S. rail carrier subsidiaries, Soo Line Railroad Company, Central Maine & Quebec Railway US Inc., Dakota, Minnesota & Eastern Railroad Corporation, and Delaware & Hudson Railway Company, Inc. (collectively, CP), and Kansas City Southern and its U.S. rail carrier subsidiaries, The Kansas City Southern Railway Company (KCSR), Gateway Eastern Railway Company, and The Texas Mexican Railway Company (collectively, KCS), notified the Surface Transportation Board (Board) of CP and KCS’s (collectively, Applicants) intent to file an application seeking authority under 49 U.S.C. §§ 11323-25 for the acquisition of control by Canadian Pacific, through its indirect, wholly owned subsidiary, Cygnus Merger Sub 2 Corporation (Cygnus Merger Sub 2), of Kansas City Southern.  Canadian Pac. Ry. Ltd.—Control—Kansas City S., FD No. 36500 (filed Mar. 23, 2021).  Applicants are also seeking authority for the acquisition of control by Canadian Pacific, through Kansas City Southern, of KCSR and its railroad affiliates, and for the resulting common control by Canadian Pacific of both its U.S. railroad subsidiaries and KCSR and its railroad affiliates.  Id. at 1.  Applicants intend to file the application on or after June 28, 2021.  Id.

On February 25, 2021, CSX Corporation (CSXC), CSX Transportation, Inc. (CSXT), 747 Merger Sub 2, Inc. (747 Merger Sub 2), Pan Am Systems, Inc. (Systems), Pan Am Railways, Inc. (PAR), Boston and Maine Corporation (Boston & Maine), Maine Central Railroad Company, Northern Railroad, Portland Terminal Company, Springfield Terminal Railway Company (Springfield Terminal), Stony Brook Railroad Company, and Vermont & Massachusetts Railroad Company (collectively, Applicants), filed an application pursuant to 49 U.S.C. §§ 11323(a)(1), (3), (4), and (5) and 49 C.F.R. Part 1180, seeking approval from the Surface Transportation Board (Board) for: (1) CSXC, CSXT, and 747 Merger Sub 2 to control the railroads controlled by Systems and PAR; and (2) CSXT to merge certain PAR subsidiaries into CSXT.  CSX Corp.—Control and Merger—Pan Am Systems, Inc., FD 36472 (filed Feb. 25, 2021). 

The Biden Administration has issued a number of directives to public transportation providers, including operators of passenger rail service, directing operating entities to require that all persons working in their systems or using their services wear masks to prevent the spread of COVID-19.  While these directives provide that any individual who fails to comply with the mask mandate will violate federal law, the directives make public transportation providers responsible for requiring masks, but do not specify a mechanism for enforcing those requirements.  As the directives stand as of the date of this blog entry, the policy goal is clear and the directives identify various means for penalizing public transportation providers who fail to adhere to the requirements – but they do not specify an enforcement regime. We expect TSA and FTA will issue further guidance, so watch this space.

On December 30, 2020, the Surface Transportation Board (the Board or STB) issued a decision initiating a rulemaking proceeding to consider a joint petition by several Class I railroads, Union Pacific Railroad Company (UP), Norfolk Southern Railway Company (NS), and the U.S. rail operating affiliates of Canadian National Railway Company (collectively, CN), to change the Board’s procedures for annually determining whether Class I rail carriers are revenue adequate under 49 U.S.C. § 10704(a)(3).  Joint Petition for Rulemaking—Annual Revenue Adequacy Determinations, Ex Parte 766 (STB served Dec. 30, 2020). 

The Surface Transportation Board (the Board or STB) issued a decision on December 30, 2020, denying a request by the Association of American Railroads (AAR) for a declaratory order regarding preemption of the Clean Water Act’s (CWA) National Pollutant Discharge Elimination System (NPDES) permitting program and discharge prohibition.  Ass’n of Am. R.R.—Pet. for Declaratory Order, FD 36369 (STB served Dec. 30, 2020).

On January 5, 2021, the Surface Transportation Board (STB or Board) issued a decision addressing the transportation merits of the proposed construction and operation of an approximately 85-mile rail line in Utah.  Seven County Infrastructure Coalition—Construction and Operation—in Utah, Carbon, Duchesne, and Uintah Counties, UT,FD 36284 (STB served Jan. 5, 2021) (with Board Member Oberman dissenting).  The Board preliminarily concluded, subject to completion of the ongoing environmental review, that the transportation aspects of the proposed project meet the statutory exemption standard under 49 U.S.C. § 10502.  Id., slip op. at 1.

Last summer, the long-running In re: Rail Freight Fuel Surcharge Antitrust Litigation ¹ case took a detour through a rarely cited section of the Staggers Rail Act of 1980 (“Staggers”)² that excludes certain communications and agreements between competing rail lines from evidence in antitrust cases. In response to the parties’ briefing on the scope of the statute, the Court requested the Department of Justice’s views on the statute. Though the DOJ’s guidance was specifically focused on the statute at issue, the advice it contained is relevant for competitors in any industry that have legitimate reasons in certain contexts to communicate with competitors or agree on prices with competitors, even as they otherwise compete on prices with them in the market. In the Rail Freight Fuel Surcharge litigation, the legitimate communications involve interline pricing between rail carriers shipping freight across multiple rail networks. In other industries, for example, it can involve a vertically-integrated company providing logistical or back-office services to a customer-facing competitor with which they compete for retail customers, or other dual distribution circumstances.

The Federal Motor Carrier Safety Administration (“FMCSA”) requested public comments on petitions for rulemaking backed by owner-operator/small-fleet groups to address the transparency of broker rates. The notice is in response to petitions filed by the Owner-Operator Independent Drivers Association (“OOIDA”) and the Small Business in Transportation Coalition (“SBTC,” and, together with OOIDA, the “Petitioners”).   

On September 1, 2020, Petitioners Union Pacific Railroad Company (UP), Norfolk Southern Railway Company (NS), and the U.S. rail operating affiliates of Canadian National Railway Company (collectively, CN) filed a joint petition urging the Surface Transportation Board (STB or Board) to initiate a rulemaking proceeding to adopt rules that would revise and modernize annual revenue adequacy determinations under 49 U.S.C. § 10704(a).  Joint Petition for Rulemaking to Modernize Annual Revenue Adequacy Determinations, Ex Parte 766 (filed Sept. 1, 2020).

Petitioners stated that Congress charged the Board with annually measuring the financial health of the rail industry and assisting each railroad in achieving revenue adequacy, and the Board has committed itself to “evidence-based decision-making,” using tools that were designed three decades ago.  Id., slip op. at 1.  According to Petitioners, the Board currently relies on accounting measures of return on investment (ROI), rather than the current economic value of those investment assets, then removes billions of dollars of accumulated deferred taxes from that investment base, which adds yet another distortion, and analyzes these findings without considering evidence about typical rates of return for the companies with which railroads compete for capital.  Id., slip op. at 1-2.

On July 31, 2020, five Class I railroads, Canadian National Railway Company (CN), CSX Transportation, Inc. (CSX), Norfolk Southern Corporation (NS), Union Pacific Railroad Company (UP), and the Kansas City Southern Railway Company (KCS) (collectively, Petitioners), submitted a joint petition requesting that the Surface Transportation Board (STB or Board) initiate a rulemaking proceeding to establish a new voluntary arbitration program for small rate disputes.  Joint Petition for Rulemaking to Establish an Alternative Voluntary Arbitration Program for Small Rate Disputes, Ex Parte 765 (filed July 31, 2020).

Petitioners stated that Congress had instructed the Board to develop “simplified and expedited methods for determining the reasonableness of challenged rates in those cases in which a full stand-alone cost presentation is too costly, given the value of the case.”  Id., slip op. at 1.  Over the last thirty years, “the Board has responded by creating multiple new simplified, and increasingly less precise, rate review methodologies.”  Id.  However, some stakeholders in the shipping community have continued to complain that the Board’s implied methodologies are insufficient in regard to flexibility, cost, and speed.  Id.

Introduction

Recent news in the passenger rail transportation regulatory field includes the following:

♦   FRA Awards $47.5M to CRISI Grant to NCDOT
♦   FRA Plans Releases Final Rule of Particular Applicability and Record of Decision for Texas Central Railroad
♦   Massachusetts’ Lawmakers Push for State Acquisition of Pan Am Railways
♦   Colorado Receives Funding for Passenger Rail Study
♦   Montana Hosts Virtual Rail Passenger Summit

Read on for details.

A proposed high-speed passenger railroad between Dallas and Houston has successfully convinced the federal Surface Transportation Board (STB) that it has jurisdiction over the proposed Texas rail line. While STB jurisdiction will greatly aid the rail line by generally preempting state and local regulation, the STB's order has added federal requirements that will have to be addressed. FD 36025 (STB Served July 16, 2020)

Texas Central Railroad and Infrastructure Inc. and its subsidiary, Texas Central Railroad LLC (Texas Central), had lost an initial effort to secure federal jurisdiction over its planned line of railroad in 2016. That's when the STB found that Texas Central's operation, as then presented, would be purely in intrastate commerce. With this most recent decision, the STB rules that Texas Central's new plans will make it part of the "interstate rail network" and place it squarely in the realm of interstate commerce and the STB's exclusive jurisdiction.

On July 8, the United States Court of Appeals for the Ninth Circuit issued a decision affirming a district court ruling in favor of BNSF Railway Company (BNSF) regarding the railroad’s challenge to Oregon’s tax on intangible personal property as a discriminatory tax on railroads in violation of the Railroad Revitalization and Regulatory Reform Act (4-R Act).  BNSF Ry. Co. v. Or. Dep’t of Revenue, 965 F.3d 681 (9th Cir. 2020).

The Board adopted a final rule establishing a streamlined approach for pleading market dominance in rate reasonableness proceedings.  Market Dominance Streamlined Approach, Ex Parte 756 (STB served Aug. 3, 2020).  This decision finalized a notice of proposed rulemaking (NPRM) served in this proceeding on September 12, 2019.  The Board received comments from over 20 entities on the NPRM.  As explained below, the Board in the final rule adopted the NPRM proposals with minor modifications.

On June 23, the Board withdrew its proposal to revise its methodology for calculating the cost-of-equity component of the railroad industry’s cost of capital by incorporating a third model, based on comments and replies the Board received in response to the notice of proposed rulemaking (NPRM).  Revisions to the Board’s Methodology for Determining the R.R. Indus.’s Cost of Capital, Ex Parte 664 (Sub-No. 4) (STB served June 23, 2020). 

Introduction
 
            The passenger rail sphere has seen a number of developments in the spring of 2020 on the regulatory and funding fronts, including:

This week’s ATLP Highlights Blog features an interview that I recently conducted with Jay Fox, Deputy General Counsel for the Southeastern Pennsylvania Transportation Authority (“SEPTA”).

SEPTA serves the Philadelphia metropolitan area operating: bus, rapid transit, commuter rail, light rail, and electric trolleybus service.  The transit agency employs over 9,000 people and logs nearly 1.5 trillion passenger miles per year across all modes.

Jay began his career in private practice as a litigator and then as general counsel to an export management firm before joining the Federal Aviation Administration (“FAA”) only a month after the September 11 terrorist attacks.  He then went on to the Federal Transit Administration and Amtrak prior to joining SEPTA. Jay is a graduate of Rutgers Law School.

Jay and I spoke via zoom as both Philadelphia, where Jay lives, and metro Washington D.C., my home, are currently under “stay-at-home” orders in response to the Covid-19 Pandemic.