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Non-Railroad Entities File Petition Requesting the Surface Transportation Board Adopt Rules Governing Use of Private Railcars by Railroads

On July 26, 2021, the North America Freight Car Association, The National Grain and Feed Association, The Chlorine Institute, and The National Oilseed Processors Association (collectively, Petitioners) filed a petition for rulemaking requesting that the Surface Transportation Board (Board) exercise its authority under 49 U.S.C. §§ 1312 and 11122(a)(2) “to promulgate regulations governing the use by the Nation’s Class I railroads of freight railcars supplied to them by rail car owners, shippers, and other non-railroad entities (‘Private Railcars’).”  Petition for Rulemaking to Adopt Rules Governing Private Railcar Use by Railroads, EP 768 at 1 (filed July 26, 2021).

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The Surface Transportation Board Accepts for Consideration the Revised Application Filed by CSXT & Pan Am in Control and Merger Proceeding

On July 30, 2021, the Surface Transportation Board (Board) issued a decision accepting for consideration the revised application seeking approval for: (1) CSX Corporation (CSXC), CSX Transportation, Inc. (CSXT), and 747 Merger Sub 2, Inc. (747 Merger Sub 2) to control the railroads controlled by Pan Am Systems, Inc. (Systems) and Pan Am Railways, Inc. (PAR); and (2) CSXT to merge certain PAR subsidiaries into CSXT (the Proposed Transaction).  CSX Corp.—Control and Merger—Pan Am Systems, Inc., FD 36472 (STB served July 30, 2021).  The Board had previously rejected as incomplete a prior version of the application.  CSX Corp.—Control and Merger—Pan Am Systems, Inc., FD 36472 (STB served May 26, 2021). 

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The Surface Transportation Board Institutes a Proceeding on Amtrak’s Application for an Order Allowing Additional Train Operations Over CSXT and NSR Lines Along the Gulf Coast

On August 6, 2021, the Surface Transportation Board (Board) issued a decision instituting a proceeding on an application filed by the National Passenger Railroad Corporation (Amtrak) regarding Amtrak’s operation of additional passenger trains over CSX Transportation, Inc. (CSXT) and Norfolk Southern Railway Company (NSR) lines between New Orleans, LA, and Mobile, AL.  Application of the Nat’l Passenger R.R. Corp. Under 49 U.S.C. § 24308(E)—CSX Transp., Inc. & Norfolk S. Ry. Co., FD 36496 (STB served Aug. 6, 2021).  In the decision, the Board also denied CSXT and NSR’s motion to dismiss the application.

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The Board Grants in Part & Denies in Part CP’s Request for Declaratory Relief in CP/KCS Merger Proceeding; The Board Rejects Use of Voting Trust in CN/KCS Merger Proceeding

Pending before the Surface Transportation Board (Board) are two potential merger proceedings involving Kansas City Southern – Docket No. FD 36500, regarding a potential merger with Canadian Pacific, and Docket No. FD 36514, regarding a potential merger with Canadian National.  On August 2, 2021, the Board issued a decision in Docket No. FD 36500, granting in part and denying in part Canadian Pacific’s petition for declaratory relief, addressing whether Kansas City Southern has a continuing obligation to provide Canadian Pacific with information Canadian Pacific needs to prepare its application, and whether Canadian Pacific has a continuing right to access the information that Kansas City Southern has already provided.  Canadian Pac. Ry. Ltd.—Control—Kansas City S., FD 36500 (STB served Aug. 2, 2021).  On August 31, 2021, the Board issued a decision in Docket No. FD 36514, rejecting Canadian National and Kansas City Southern’s joint motion for approval of a voting trust agreement.   Canadian Nat’l Ry. Co.—Control—Kansas City S., FD 36514 (STB served Aug. 31, 2021).

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PASSENGER RAIL UPDATE: Policy Play: State and Local Governments Voice Growing Support for Passenger Rail

In recent weeks, several states and cities have launched efforts aimed at growing passenger rail nationwide and encouraging funding for various rail projects at the state and federal level.  Colorado Governor Jared Polis signed Senate Bill 238 creating a new taxing district to support passenger service from Fort Collins to Pueblo with connections to Wyoming in the North and New Mexico in the South.  The bill provides funding for start-up costs for the line. 

In Northern California, the Link21 program aims to “transform Northern California’s passenger rail network into a faster, more integrated system.”  The Capitol Corridor Joint Powers Authority and the San Francisco Bay Area Rapid Transit District (BART) hosted a virtual workshop on July 15 to get public input on the project. 

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The Board Adopts a Final Rule Amending the Thresholds for Classifying Rail Carriers

In a decision served on April 5, 2021, the Surface Transportation Board (Board) adopted a final rule amending the thresholds for classifying rail carriers.  Mont. Rail Link, Inc.—Pet. for Rulemaking—Classification of Carriers, EP 763 (STB served April 5, 2021).  Under 49 C.F.R. Part 1201, rail carriers are grouped into one of three classes for purposes of accounting and reporting.  Id., slip op. at 1.  This classification affects the degree to which rail carriers must file annual, quarterly, and other operational reports, and it is used in various other contexts, including differentiating the legal standards and procedures that apply to certain transactions subject to Board licensing, and prescribing labor protection conditions.  Id. 

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The Board Adopts a Final Rule Regarding Demurrage Billing Requirements

In a decision served on April 6, 2021, the Surface Transportation Board (Board) adopted a final rule “requiring Class I carriers to include certain minimum information on or with their demurrage invoices and provide, in the format of their choosing, machine-readable access to the required minimum information.”  Demurrage Billing Requirements, EP 759, slip op. at 3 (STB served April 6, 2021).  According to the Board, “[d]emurrage is a charge that serves principally as an incentive to prevent undue car detention and thereby encourage the efficient use of rail cars in the rail network, while also providing compensation to rail carriers for the expense incurred when rail cars are unduly detained beyond a specified period of time (i.e., ‘free time”) for loading and unloading.”  Id., slip op. at 1-2.

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The Board Issues a Notice of Proposed Rulemaking to Establish a New Class Exemption for Emergency Temporary Trackage Rights

On May 28, 2021, the Surface Transportation Board (Board) issued a decision granting the Association of American Railroads’ (AAR) petition to initiate a rulemaking proceeding to establish a new class exemption for emergency temporary trackage rights, with certain modifications made by the Board.  Pet. for Rulemaking—Railroad Consolidation Procedures—Exemption for Emergency Temporary Trackage Rights, EP 282 (Sub-No. 21) (STB served May 28, 2021).  The Board also proposed related changes to the class exemptions for trackage rights and temporary trackage rights.  Id., slip op. at 1. 

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CP & KCS Notify the Surface Transportation Board of Intent to File Application for Approval of Control Transaction

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.

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The Surface Transportation Board Finds that CSXT & Pan Am’s Proposed Control and Merger Transaction is “Significant”

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). 

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TSA Issues Security Directive Ordering Masks to be Worn on Public Transportation Systems

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.

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The Board Finds that CN Cannot Unilaterally Designate the Belt Railway of Chicago’s Clearing Yard as the Interchange Point for Inbound CP Traffic

On October 30, 2020, the Surface Transportation Board (the Board or STB) issued a declaratory order finding that Wisconsin Central, Ltd. d/b/a Canadian National (CN) cannot unilaterally designate the Belt Railway of Chicago’s (“BRC”) Clearing Yard as the interchange point for inbound Soo Line Railroad Company d/b/a Canadian Pacific (CP) traffic.  Wisconsin Central, Ltd.—Pet. for Declaratory Order—Interchange with Soo Line R.R. Co., FD 36397 (STB served Oct. 30, 2020). 

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The Board Institutes a Rulemaking Proceeding to Consider a Proposal by Class I Railroads to Establish an Alternative Voluntary Arbitration Program for Small Rate Disputes

On November 25, 2020, the Surface Transportation Board (the Board or STB) issued a decision instituting a rulemaking proceeding to consider a proposal by 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), 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 (STB served November 25, 2020). 

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The Board Opens a Rulemaking Proceeding to Consider a Petition by Three Class I Railroads to Modernize Annual Revenue Adequacy Determinations

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). 

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The Board Declines to Issue a Declaratory Order, But Offers Guidance, Regarding Preemption of Certain Provisions of the Clean Water Act

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).

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The Board Preliminarily Concludes that the Transportation Aspects of the Proposed Construction and Operation of a Rail Line in Utah Meet the Statutory Exemption Standard

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.

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Grappling with Deregulation and Shared Facilities

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.

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The Board Seeks Public Comment on New Approach for Considering Class Exemption and Revocation Issues

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”).   

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UP, NS & CN File Joint Petition for Rulemaking to Modernize Annual Revenue Adequacy Determinations

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.

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Five Class I Railroads File Joint Petition for Rulemaking to Establish an Alternative Voluntary Arbitration Program for Small Rate Disputes

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.

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